2012 (11) TMI 1109 - AT - Income Tax

Summary

Issues Involved:
1. Dismissal of appeal ad-limine by CIT(A).
2. Jurisdiction of CIT(A) to entertain the appeal.
3. Withdrawal of objections before DRP.
4. Validity of the order dated 13.02.2010.
5. Adjustments to arm's length price by TPO.
6. Applicability of Article 7 of the Double Taxation Avoidance Agreement.
7. Scope of section 44C of the Act regarding Head Office Expenses.
8. Compliance with provisions of section 40(a)(i).
9. Deduction of interest payments.
10. Taxability of interest payments.
11. Taxability of salary paid overseas.
12. Taxability of income earned by overseas branches.

Summary:

1. Dismissal of Appeal Ad-Limine by CIT(A):
The CIT(A) erred in law and on facts in dismissing the appeal ad-limine (at the admission stage) as being null and void. The CIT(A) should have considered the various grounds raised in the appeal before him and adjudicated the same on merits.

2. Jurisdiction of CIT(A) to Entertain the Appeal:
The CIT(A) was of the opinion that following the CBDT Circular No.5, the assessee has only the option to either prefer the appeal before the CIT(A) or before the DRP. Since the assessee chose to file objections before the DRP, it cannot prefer the appeal before the CIT(A). However, the ITAT held that the CIT(A) committed an error in not admitting the appeal. Therefore, the order of the CIT(A) was set aside with a direction to admit the appeal and adjudicate the matter on merits.

3. Withdrawal of Objections Before DRP:
The assessee filed a letter dated 29/01/2010 to the DRP withdrawing its objections filed on 25/01/2010. The DRP, after taking note of the fact that the assessee desires to exercise the option to file the appeal before the CIT(A) against the assessment order, accepted the request of the assessee for withdrawal of the objection while passing the order dated 13.07.2010.

4. Validity of the Order Dated 13.02.2010:
The CIT(A) erred in holding that the order dated 13.02.2010 was void. The ITAT held that the subsequent order passed by AO was cancelled, and the order dated 10.02.2010 originally after withdrawal of objections is the valid order.

5. Adjustments to Arm's Length Price by TPO:
The CIT(A) ought to have held that the adjustments to the arm's length price of the correspondent banking related support services and portfolio analytics services determined by the TPO should be deleted.

6. Applicability of Article 7 of the Double Taxation Avoidance Agreement:
The CIT(A) ought to have held that, having regard to the provisions as contained in Article 7 of the Double Taxation Avoidance Agreement between India and the United States of America, the mark-up arrived at by the AO/TPO needs to be deleted.

7. Scope of Section 44C of the Act Regarding Head Office Expenses:
The CIT(A) ought to have held that the expenses of Rs. 16,79,60,835 incurred by appellant's overseas branches for its Indian operations did not fall within the scope of section 44C of the Act, pertaining to Head Office Expenses.

8. Compliance with Provisions of Section 40(a)(i):
The CIT(A) failed to appreciate that there has been no failure on the part of the appellant in complying with the provisions of section 40(a)(i) and that the provisions of section 40(a)(i) can have no application to the aforesaid expenditure of Rs. 16,79,60,835 incurred by the appellant.

9. Deduction of Interest Payments:
The CIT(A) ought to have deleted the disallowance of the interest payment of INR 59,30,47,220 made by appellant's Indian Branches to the appellant's Singapore Branch in computing the total income of the appellant in India.

10. Taxability of Interest Payments:
The CIT(A) ought to have held that interest payment of INR 59,30,47,220 made by appellant's Indian Branches to appellant's Singapore Branch is not the income of the appellant and is not liable to be taxed.

11. Taxability of Salary Paid Overseas:
The CIT(A) ought to have held that the salary of Rs. 1,64,67,795 paid overseas to expatriates did not fall within the scope of section 44C of the Act, pertaining to Head Office Expenses.

12. Taxability of Income Earned by Overseas Branches:
The