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2024 (3) TMI 1222 - AT - Income TaxAddition u/s 14A - Disallowance of expenditure towards earning interest income exempt u/s 10(15) - After referring the tax free funds the assessee submitted that no disallowance u/s 14A should have been made - HELD THAT - Since it is undisputed fact that during the year under consideration also the available tax free funds were more than the investment made on which exempt income was earned therefore following the decision of ITAT on the similar fact and identical issue as discussed supra we direct the assessing officer to delete the disallowance made u/s 14A r.w.Rule 8D in the case of the assessee. Accordingly this ground of appeal of the assessee is allowed. Expatriate Salary - AO was of the view that the aforesaid expenses had been incurred as overseas salaries of the expatriate was in the nature of head office expenditure therefore same was disallowed u/s 44C of the Act - HELD THAT - We find that the lower authorities has not contrary disproved the material fact that both these employees have continually worked for the Indian branches of the assessee bank and both have offered their global income in India for tax. The assessee has also provided copy of document showing that necessary approval as per Sec. 35B of the Banking Regulation Act 1949 for appointment of Mr. Danis Vaz as Chief Executive Officer of the India branches was obtained. The assessee has demonstrated from the return of income filed in the case of both these employees that their global income has been offered to tax in India for the assessment year 2005-06 to the amount of Rs.60, 43, 321/- in respect of Mr. Denis Vaz and amount of Rs.45, 65, 652/- in the case of Mr. Terry Watkins. The assessee has brought on record the relevant return of income of both the employees showing that global income was offered to tax in India in accordance with provision of Sec. 5 and Sec. 6 of the Income Tax Act for remaining present in India on secondment with Indian Branch of BNS. The revenue has not brought on record any relevant materials to disprove these material facts and evidences - Decided in favour of assessee. Applicability of Sec. 115A to interest income from Foreign Currency Loan - CIT(A) holding that the interest u/s 115A has to be computed on the gross interest income and not on the net interest income - HELD THAT - As per decision of ITAT for assessment year 2004-05 2024 (1) TMI 414 - ITAT MUMBAI as held the legislature has intended to tax the interest only on gross basis. Further in support of his arguments ld. A.R has also cited Article 10 11 of DTAA with Canada. Notification No.10503(F No.505/2/87-FTD) - Further it has also been mentioned that section 90(2) of IT Act also provides that the provisions of this Act shall apply to the extent they are more beneficial to that assessee.- Decided in favour of assessee. Deduction of interest paid by Indian branch to Head Office - Indian branches of the assessee bank has paid interest to the head office/overseas branches - AO had not allowed the deduction in respect of payment of interest to the HO - HELD THAT - We have gone through the decision of ITAT for A.Y. 2004-05 2024 (1) TMI 414 - ITAT MUMBAI Tribunal decided the issue in favour of assessee and dismissed the ground raised in appeal by the Revenue. Restriction of Claim of bad debts in terms of the proviso to Sec. 36(1)(vii) - HELD THAT - As per decision of ITAT for assessment year 2004-05 2024 (1) TMI 414 - ITAT MUMBAI wherein Tribunal placing reliance on the decision in the case of CIT vs.UTI Bank Ltd 2013 (1) TMI 209 - GUJARAT HIGH COURT and CBDT Instruction No.17/2008 dated 26/11/2008 dismissed the ground raised in appeal by the Department. TP adjustment - administrative support services in relation to inter bank indemnities - assessee s overseas branches have executed interbank indemnities against which assessee has issued guarantees on behalf of the clients of overseas branches and vice versa - MAM selection - TNMM OR CUP - HELD THAT - Assessee has given the analysis of the aforesaid transactions that Inter-Bank indemnity is a financial arrangement wherein a bank branch will be compensated for any financial liability that it incur on behalf of its co-branch. The issuance of these arrangement is standard practice in international banking service. The assessee explained that by issuing a guarantee on behalf of the clients of BNS overseas branches the assessee did not fall under any default/credit risk as it is secured by a back to back inter-bank indemnity issued by overseas BNS branches to the assessee. In a reverse scenario where the associated enterprises of the assessee issues guarantees on behalf of the assessee the remuneration charges by them to the assessee was only the administrative services provided by them and not based on the rates that would have been charged to third parties. We find in the case of BNS India no public information on third party to third party transaction of similar or identical services was found that reflects the characterstics of the services provided by BNS India. Further as per provision of Rule 10B of the I.T Rules comparables for provision of interbank indemnity services would have to be companies which provide same or similar services as BNS India and are comparable in terms of function performed risk assumed and asset utilized. As per the information provided by BNS India it had earned operating margin of 25.41% on operating cost which was higher than the arm s length margin of 15.28% on operating cost. The lower authority has not brought on record any relevant material to contrary to the material facts as discussed supra in this order. We have gone through the decision of ITAT in the case of Australia New Zealand Banking Group Ltd. Vs. 2022 (4) TMI 1438 - ITAT MUMBAI wherein it is held that where TPO observed that assessee had earned processing fees for issuing guarantees on behalf of its associated enterprises and rejected TNMM adopted by the assessee and proceeded to benchmark guarantee transaction using external CUP method since data under CUP method was not available and data margins under TNMM was readily available and held that it would be appropriate to apply TNMM as most appropriate method. In the aforesaid decision it is held that TNMM method would be the most appropriate method in the facts and circumstances of the case and CUP could not be applied because of non-availability of data. We have also perused the decision of Bank of Tokyo Mitsubishi UFJ Ltd. 2020 (5) TMI 665 - ITAT DELHI wherein identical issue on similar fact was decided in favour of the assessee.
Issues Involved:
1. Disallowance under section 14A of the Act. 2. Disallowance of expatriate salary. 3. Transfer pricing adjustments. 4. Applicability of section 115A to interest income from foreign currency loans. 5. Deduction of interest paid by Indian branch to Head Office. 6. Disallowance of expenditure towards earning interest income exempt under section 10(15). 7. Restriction of claim of bad debts in terms of the proviso to section 36(1)(vii). Summary of Judgment: 1. Disallowance under section 14A of the Act: The Tribunal found that the issue of disallowance under section 14A is covered in favor of the assessee by various decisions of the ITAT, Mumbai in the assessee's own case for earlier years. The Tribunal directed the assessing officer to delete the disallowance made under section 14A read with Rule 8D. 2. Disallowance of expatriate salary: The Tribunal held that the expatriate employees were working exclusively for the Indian branches and their global income was offered to tax in India. The disallowance of the salary paid to these employees was not justified. The Tribunal allowed this ground of appeal of the assessee. 3. Transfer pricing adjustments: - Correspondent Banking Services: The grounds related to transfer pricing adjustments for correspondent banking services were not pressed by the assessee and hence dismissed. - Administrative Support Services: The Tribunal held that the Transactional Net Margin Method (TNMM) is the most appropriate method for benchmarking the interbank indemnity services. The adjustment made by the TPO using the CUP method was not justified. The Tribunal allowed this ground of appeal of the assessee. 4. Applicability of section 115A to interest income from foreign currency loans: The Tribunal found that the issue is covered in favor of the assessee by the ITAT's decisions in the assessee's own case for earlier years. The Tribunal dismissed the revenue's ground of appeal on this issue. 5. Deduction of interest paid by Indian branch to Head Office: The Tribunal held that the deduction of interest paid by the Indian branches to the Head Office is allowable, following the ITAT's decisions in the assessee's own case for earlier years. The Tribunal dismissed the revenue's ground of appeal on this issue. 6. Disallowance of expenditure towards earning interest income exempt under section 10(15): The Tribunal found that the issue is covered in favor of the assessee by the ITAT's decisions in the assessee's own case for earlier years. The Tribunal dismissed the revenue's ground of appeal on this issue. 7. Restriction of claim of bad debts in terms of the proviso to section 36(1)(vii): The Tribunal held that the issue is covered in favor of the assessee by the ITAT's decisions in the assessee's own case for earlier years. The Tribunal dismissed the revenue's ground of appeal on this issue. Conclusion: The appeals of the assessee were partly allowed, and the appeals of the revenue were partly allowed. The order was pronounced in the open court on 29.01.2024.
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