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2011 (4) TMI 791 - ITAT, MUMBAIDisallowance - Head office expenses - The expenditure mainly consisted of salaries to expatriate employees working in India - The expenditure also included expenses on posts, telephone, telex, courier, internal audit, information technology, computer maintenance etc - The assessee submitted before Assessing Officer that these expenses had been incurred by the head office specifically for the operations of the Indian branches and were supported by the statutory audit report - Hence, the same issue had been considered by the Tribunal in assessee's own case in assessment year 1997-98 in ITA No. 122/M/2001 and the claim of the assessee had been allowed by the Tribunal Decided in favour of assessee. Profit - Revaluation of outstanding foreign exchange contracts - the issue raised in this ground is settled by the decision of the special bench of the Tribunal in case of Dy. CIT v. Bank of Bahrain & Kuwait - In the said case the Special Bench held that where forward contract is entered into to sell foreign currency at an agreed price on a future date falling beyond the last day of accounting period, the losses incurred on account of revaluation of contract on the last day of accounting period i.e., before the date of maturity of the contract has to be allowed as deduction - Therefore set aside the order of CIT(A) and confirm the addition made by the Assessing Officer. Exemption of the interest income from tax free bonds u/s 10(15)(iv) - The judgment of Hon'ble High Court of Karnataka in case of Sridev Enterprises (supra) in which the Hon'ble High Court held that nature and status of the investment on the first day of the accounting year was the same as on the last day of previous year and if in the previous year, the same was explained out of own fund, the revenue could not be permitted to take a different stand in the subsequent years. Therefore even if the provisions of section 14A applied, no disallowance could be made. We accordingly see no infirmity in the order of CIT(A) allowing the claim of the assessee and the same is therefore upheld. Loss arising on account of diminution in the value of investment - The same issue had been considered by the Hon'ble High Court of Mumbai in case of Bank of Baroda in which the assessee had been valuing the investment at cost or market whichever is lower and in that particular year the assessee had incurred loss which was claimed as deduction - The High Court allowed the claim - Therefore respectfully following the said judgment,no infirmity in the order of CIT(A) and confirmed the same. Compensatory interest - Provisions of section 43(3) of RBI Act itself provide for payment of interest in case of shortfall for not maintaining the minimum balances by not maintaining the CRR the assessee had derived some advantage for which it had to pay compensatory interest. Therefore in our view nature of interest even if it had been referred to as penal has to be considered as compensatory in nature - Judgment of Hon'ble Supreme Court in case of Mahalakshmi Sugar Mills Co. also supports the case of the assessee - Therefore no infirmity in the order of CIT(A) and the same is accordingly upheld.
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