The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) held that the payments made to gateway providers are not brokerage and TDS under Section 194H of the Income Tax Act,1961 is not liable to be deducted.
The assessee M/s. Knowledge Hut Solutions Pvt. Ltd filed its return of income for Assessment Year (A.Y) 2018-19 declaring total income at Rs.3,67,36,490/-. The case was selected for limited scrutiny under CASS to verify the issue “verification of the genuineness of the expenses”.
The assessee was further served with the notice under Section 142(1) of the Income Tax Act and the assessment ultimately was finalized upon making addition of Rs.15,34,844/- under Section 194H of the Income Tax Act.
Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)] which upheld the decision of AO.
Further aggrieved the assessee filed an appeal before the Tribunal.
The Authorised Representative of the assessee (AR) submitted that in this case M/s. Avenue India Pvt. Ltd. and M/s. Razor Pay are gateway providers who collect fees from participants on the part of the appellant and charging commission. After returning the commission, they transfer the balance amount to the appellant. Tax Deducted at Source (TDS) is deducted under Section 194H of the Income tax Act on commission part and not on the whole receipt and the amount of Rs.1,32,629/- was deducted as credit of TDS.
The AR further submitted that company paid Rs.16,76,041/- and Rs.9,76,530/- towards gateway payment charges (commission) to M/s. Razor Pay and M/s. Avenue India Pvt. Ltd. respectively. As per tax audit report, the appellant has shown commission paid of Rs.26,52,620/on which TDS under Section 194H of the Income tax Act of Rs.1,32,631/- was deducted at 5%.
The Departmental Representative submitted that the appellant has paid commission of Rs.15,34,844/- as reflecting in the books of accounts and thus addition on the same amount was made by the AO under Section 194H of the Income tax Act.
The AR contended that the case was selected for limited scrutiny under CASS to verify the issue “verification of the genuineness of the expenses” and therefore the scope of making addition in the instant case is beyond the scope of limited scrutiny and thus the addition is not in accordance with law and thus liable to be deleted.
The Bench comprising of Chandra Poojari, Accountant Member and Ms. Madhumita Roy, Judicial Member observed that the appellant paid Rs. 16,76,041/- and Rs.9,76,530/- towards the gateway payment charges to the said M/s. Razor Pay and M/s. Avenue India Pvt. Ltd. and also filed reconciliation statement of commission expenses with books of accounts and the TDS returns filed by the appellant.
The Tribunal noted that the scope of limited scrutiny is only within the periphery of the verification of the genuineness of the expenses which does not include the payment of TDS as has been considered in this particular case by the AO and addition made thereof. Hence the same is not found to be justified and thus deleted.
The Bench relied on the decision of High Court of Karnataka High Court in the case of CIT vs Corporation Bank, where it was held that the service charges paid by the bank to National Financial Switch and Cash Tree for routing transactions of payments made by customers to the assessee bank to acquiring bank would not be liable to TDS deduction under Section 194H of the Income Tax Act.
It was observed that the parties are service providers who collect fees from participants and they collect gateway payment commission from the appellant after returning the gateway charges they transfer the balance amount collected from the participants to the appellant.
The Tribunal held that the payments made to gateway providers are not brokerage and TDS under Section 194H of the Income Tax Act is not liable to be deducted.
Hence, the appeal filed by the assessee was allowed.
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