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2012 (11) TMI 499 - AT - Income TaxDeduction for head office expenses towards Indian branch - Held that:- Once the amount is found to be exclusive expenditure incurred by the head office towards the Indian branch, the same is required to be allowed in terms of Sec 37(1), without clubbing it with shared head office expenses as per sec. 44C. Accordingly, we hold that no adverse inference can be drawn against the assessee on this issue and such exclusive expenses incurred by the assessee are required to be allowed as deduction u/s 37(1) without any reference to section 44C. In favour of assessee Disallowance of expenses towards earning exempt income – Whether Sec. 14A is applicable on securities on which exempt income was earned held as stock-in-trade - Assessee is an Indian branch of foreign bank - Interest was claimed as exempt u/s 10(15)(iv) earned on tax free bonds - Held that:- Following the decision in case of Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) that contention raised by the assessee for not applying the provisions of 14A is not accepted. Issue remits back with direction to decides on the basis of above mention judgment. Issue remand back to AO Disallowance of expenses towards earning interest & dividend income – Whether provision of Sec. 14A is applicable where income is chargeable to tax on gross basis at special rate u/s 115A - Held that:- Following the decision in case of Rajasthan State Warehousing Corporation (2000 (2) TMI 5 - SUPREME COURT) that if an assessee is carrying an indivisible business then the entire expenditure including that which was incurred for earning the tax free income would be a permissible deduction. Section 14A does not provide that if income is liable to tax at a lower rate then also the proportionate expenditure should not be allowed as deduction against the other business income. Section 14A is the deduction of expenses incurred by the assessee in relation to income not at all chargeable to tax and not the income chargeable to tax at lower rate of tax. In favour of assessee Assessee received from and paid interest to overseas branches – Whether the provision of interest by a PE of a foreign enterprise payable to HO and/or other branches outside India is allowable deduction - AO argued that assessee is covered by section 9(1)(v)(c) - Interest paid by the HO is taxable in India - Held that:- Following the decision in case of ABN AMRO BANK, N.V. (2005 (8) TMI 294 - ITAT CALCUTTA-E) neither any deduction is allowed for the interest paid to HO or foreign branches nor income is recognized in respect of the interest earned in transactions between the HO and PE. Therefore we hold that hold that no deduction be allowed for interest paid to HO at ₹ 19,09,987 and at the same time no income can be taxed on account of interest earned from HO. Issue of assessee partly allowed in favour of assessee Disallowance of deduction claimed u/s 43D - In respect of interest on bad or doubtful debts where assessee is a Scheduled Bank - AO argued that the claim of the assessee is not tenable because the assessee has credited such amount in the RFDI Account – Held that:- Assessee is entitled to claim of such interest u/s 43D and the claim of the assessee cannot be rejected simply on the ground that interest has been credited on such type of debts in the reserve account. However, for the verification of the figures, we direct the AO to see that what has actually received by the assessee during the year has been offered to tax. Issue decides in favour of assessee and remand back to AO Interest Tax Act. 1974 – Interest Tax on amount of interest received - Interest on non-performing assets as described in section 43D can be assessed only in a condition that either they are credited to P&L Account or it is actually received - Whatever interest is actually received on such assets is taxable – Held that:- AO has to recompute the assessable interest after giving the assessee a reasonable opportunity of hearing and if there is incorrectness in the interest computed as assessable the same may also be removed. Issue decides in favour of assessee & remand back to AO
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