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DCIT - 2(1), Aayakar Bhavan,R.No. 561, 5th Floor, M.K. Road,Mumbai-400 020. Vs. M/s. BOB Cards Ltd.,Esperance, 1st Floor,Shahid Bhagat Singh Marg,Colaba,Mumbai-400 001
September, 21st 2012
                               , 
               IN THE INCOME TAX APPELLATE TRIBUNAL
                     MUMBAI BENCHES `B' MUMBAI

                              [^ . , 
             BEFORE SHRI D. MANMOHAN, VICE PRESIDENT

                                          /AND
                                   ^ ],  
                 SHRI RAJENDRA, ACCOUNTANT MEMBER

                             I.TA. No. 7678/Mum/2010
                               Assessment Year 2007-08

             DCIT - 2(1),                      M/s. BOB Cards Ltd.,
             Aayakar Bhavan,                   Esperance, 1st Floor,
             R.No. 561, 5th Floor,             Shahid Bhagat Singh Marg,
             M.K. Road,                 Vs.    Colaba,
             Mumbai-400 020.                   Mumbai-400 001

                                               PAN: AAACB 1989 L
               ( /Appellant)                      ( / Respondent)

               Revenue by                               :       Shri Mohit Jain
               Assessee by                              :       Shri D.H. Shah


              / Date of Hearing                         :        10-09-2012
            / Date of Pronouncement                     :        18-09-2012





                                    / O R D E R

PER RAJENDRA, A.M.

      The appellant has filed this appeal against the Order dt. 19-08-2010 of the
CIT(A)-4, Mumbai on the following Grounds:

       1.The order of the CIT(A) is opposed to law and facts of the case.

      2.(a). On the facts and in the circumstances of the case and in law the ld.CIT(A) erred
       in holding that the amount of Rs.21,61,004/- being the amount of TDS on the
       payments made to VISA and MASTER Card will be allowed as a deduction in the
       hands of the assessee without appreciating that the TDS was the taxability of the
       VISA and MASTER CARD and not of the assessee.

        2.(b). On the facts and in the circumstances of the case and in law the ld.CIT(A)
       erred in holding that the amount of Rs.21,61,004/- being the amount of TDS on the
                                             2                           I.TA. No. 7678/Mum/2010
                                                                               M/s. BOB Cards Ltd.


       payments made to VISA and MASTER Card will be allowed as a deduction in the
       hands of the assessee without appreciating that the TDS being part of the advance tax
       cannot be allowed as a deduction under the I.T. Act.

       3. For these and other grounds that may be urged at the time of hearing, the decision
       of the CIT(A) may be set aside and that the AO restored".

2.      Assessee-company engaged in the business of credit card operations and
financing payments filed its Return of Income on 26-10-2010 declaring loss of Rs.
12.49 Crores. Assessment was finalized on 06-11-2009 by the Assessing Officer
(AO) u/s. 143(3) of the Income Tax Act, 1961 (Act) at Rs. 12,27,77,507/-. During the
assessment proceedings, AO found that assessee-company had claimed expenses
towards non-reimbursement TDS for Master Card and VISA Card under the head
`operating expenses'. The break up given by the assessee-company was as under:

   i. TDS deposited for payment made to VISA                            Rs. 15,01,535/-
  ii. TDS deposited for payment made to MASTER CARD                     Rs. 6,59,469/-

          AO specifically asked the assessee-company to justify the claim of
expenditure incurred under the head `TDS paid', because as per the AO it was not a
liability of the assessee. After considering the submissions made by the assessee vide
its letter dtd.22-10-2009, he held that assessee had not furnished a copy of agreement,
that for the detailed reasons disclosed in assessment orders for Assessment Years
2003-04, 2004-05, 2005-06 and 2006-07 the Tax Deducted at Source of VISA and
Master International was not allowable deduction for assessee's business, that TDS
being part of advanced tax was not an allowable tax under the Income Tax Act. He
finally held that expenditure amounting to Rs. 21.6 Lakhs was not incurred by the
assessee wholly and exclusively for business purposes carried out by it. As a result,
addition amounting to Rs. 21,61,004/- was made to the income of the assessee-
company.

2.1.     Assessee-company preferred an appeal before the First Appellate Authority
(FAA). After considering the Assessment Order and the submissions made by the
assessee-company, he held that it was not correct to say that the agreement between
the VISA, Master Card International and the appellant was not produced before the
AO, that as per the said agreement, the assessee had to bear the expenses on account
of taxed in shape of TDS, service charges paid to VISA/Master Card were grossed up
with tax and paid to the VISA/Master Card that the payment made was not in nature
of TDS, same was contractual liability, that said expenditure was allowable deduction
from the business expenses of the assessee. He relied upon the decision of Standard
Polygraph Machines P. Ltd. (243 ITR 788) wherein it was held that the amount paid
by the assessee for discharging of a liability undertaken in terms of an agreement
entered into between assessee and the collaborator firms part of consideration for
agreement relating to know-how and hence allowable. FAA deleted the addition
made by the AO.

3.       Before us, Departmental Representative (DR) submitted that amount of
Rs.21.61 lakhs being the amount of TDS on payment made to VISA and Master was
not allowable as a deduction in the hands of the assessee, TDS was the tax liability of
VISA/ Master Cards and not of the assessee. The TDS was part of the advance tax
                                             3                            I.TA. No. 7678/Mum/2010
                                                                                M/s. BOB Cards Ltd.


and hence was not allowable. Authorised Representative (AR) submitted that the
payment was the result of the agreement entered into between the assessee-company
and Master/VISA Card that same issue was decided in favour of the assessee-
company by `I' Bench of ITAT vide order dt. 20-06-2012 (A.Y. 2003-04, 2004-05 &
2005-06; ITA Nos. 4882, 2475, 6527/Mum/2010). He further relied upon the case of
Standard Polygraph Machines P. Ltd. (supra).




4.        We have heard the rival submissions and perused the material placed before
us in the case under consideration. AO has admitted that from the agreement entered
into between the assessee-company and the Master/VISA Card agencies, the assessee-
company had to bear the tax liability. Payment of TDS was made in pursuance of the
agreement entered in to between the assesee-company and the VISA/Master card
International. In our opinion payment made as a result of a contractual liability is an
allowable expenditure. FAA has rightly placed reliance on the case of Standard
Polygraph Machines P. Ltd (supra) in this regard. Secondly, we find that the same
issue as been decided in favour of the assessee by the orders of the Tribunal
delivered for earlier AYs. `I' Bench of the ITAT, Mumbai has decided the issue as
under :

       "13.The fourth ground relates to deletion of the disallowance of Rs.36,37,533/- being
       amount deducted as TDS on payments in respect of charges for services provided by
       Visa/Master card International.

        14.During the course of assessment proceedings the AO found that during the year
        under consideration assessee has made payments to Visa/Master Card International
        on account of their charges for the services provided by them to the assessee. The
        TDS was deducted by the assessee on such payments was to the tune of Rs.
        36,37,533/~ which was claimed by the assessee as deduction in the Profit & Loss
        Account .The AO sought explanation from the assessee and pointed out why this sum
        being TDS should not be disallowed as the same is not a liability of the assessee. The
        assessee pointed out that as per agreement with Visa & Master Card International,
        the assessee was required to bear the tax liability of these companies. However, this
        contention of the assessee did not find favour with AO who was of the opinion that
        this payment was not an expenditure of the assessee as the same is not incurred for
        the assessee's business.

        15.When the matter was agitated before the Ld. CIT(A), CIT(A) after considering the
        submissions and agreement held that this amount is allowable in view of the decision
        in the case of CIT Vs Standard Polygraph Machines Pvt. Ltd 243 1TR 788 and
        accordingly deleted the addition and allowed the appeal.

       16.Aggrieved by the order of Ld. CIT(A), Revenue is in appeal before us.

       17.Before us, the Ld. Departmental Representative reiterated the submissions made
       by AO. The Ld. Counsel for the assessee relied upon the decision of CIT Vs Standard
       Polygraph Machines Pvt. Ltd (supra) and the of S. Takenaka Vs CIT 237 1TR 212
       (Karnataka)

       18.We have heard the rival submissions and perused the orders of lower and also the
       orders relied upon by the Ld. Counsel. We find that identical facts, Hon'ble Madras
       High Court in the case of CIT Vs Standard Polygraph Machines Pvt. Ltd (supra) has
       allowed the claim holding that amount paid was only to the discharge of the liability
       which liability the assessee had taken to pay as part of the agreement entered into.
                                            4                             I.TA. No. 7678/Mum/2010
                                                                                M/s. BOB Cards Ltd.


       The amount so paid as tax has been held to be the amount payable between the
       collaborator and the assessee. The Tribunal decided that the amount so paid by the
       assessee was only in discharge of a liability which it had undertaken in terms of the
       agreement. Similar view has been taken by Hon'ble Karnataka High Court in the
       case of S.Takenaka Vs CIT 237 1TR 212 (supra). We find that the facts and issues are
       identical with those of the above cited cases therefore respectfully following the
       decisions of Hon'ble High Courts cited herein above, this ground raised by the
       Revenue is dismissed."

       Respectfully following the orders of the co-ordinate bench, we decide Ground
Nos. 1-2 against the AO.

       Appeal filed by the Assessing Officer stands dismissed.


       Order pronounced in the open court on 18th September, 2012.


               Sd/-                                               Sd/-

(.  / D. MANMOHAN)                                        (] / RAJENDRA)
  /VICE PRESIDENT                               / ACCOUNTANT MEMBER


 Mumbai,
 Date: 18th September, 2012



TNMM


    /Copy of                    the Order forwarded to :

       1. Appellant
       2. Respondent
       3. The concerned CIT (A)
       4. The concerned CIT
       5. DR "B" Bench, ITAT, Mumbai
       6. Guard File
           //True Copy//

                                                             / BY ORDER,



                                                 /  Dy./Asstt.              Registrar
                                                  ,                   /   ITAT, Mumbai
 
 
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