TMI Blog2012 (12) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee from its Head office or overseas branches. There is a clear distinction between the NOSTRO interest earned/paid by the assessee from/to its own Head office/overseas branches and NOSTRO interest paid/earned to/from other than assessee's own Head office or branches. Whereas in the first situation, the principle of mutuality will apply and in the later case it will not. No deduction on account of interest expenditure can be allowed which has been incurred by the assessee in relation to its own Head office and overseas branches. Both the grounds of assessee and revenue allowed. - IT APPEAL NOs. 5318 and 5344 (MUM.) OF 2001 & 5018, 6401 & 6516 (MUM.) OF 2004, CO NOs. 133 (MUM.) OF 2002. 186 (MUM.) OF 2005 & 30 (MUM.) OF 2007 - - - Dated:- 10-10-2012 - R.S. SYAL AND VIJAY PAL RAO, JJ. Mahesh Kumar for the Appellant. Madhur Agarwal for the Respondent. ORDER Per Bench - These cross appeals and cross objections relate to assessment year 1998-1999 to 2000-2001. Since common issues are raised in these appeals and cross objections, we are therefore, proceeding to dispose them off by this consolidated order for the sake of convenience. Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the Bank Account of the Indian Branch in the Head Office". Similar fact has been recorded in para 4.5 of the assessment order by noting that : "The NOSTRO account is nothing but the bank account of the Indian Branch in the Head Office". In view of these recording by the Assessing Officer, it becomes apparent that the NOSTRO accounts were maintained by the assessee with its head office and its own overseas branches. In other words these NOSTRO accounts were not maintained with other banks. Now the question arises as to whether there can be any taxation of interest earned by the assessee from its Head office or overseas branches under the provisions of the Act. Before deciding this controversy, we will like to make it clear that the present dispute centers around the assessability/deductibility or otherwise of the interest income/expenditure from/to its own Head office/overseas branches only under the Income-tax Act, 1961. There is no reference to the provisions of the Double Taxation Avoidance Agreement (hereinafter called 'the DTAA'). The learned AR was fair enough to concede that this claim needs to be examined only under the provisions of the Act and not under the DTAA. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee from/to its Head office/overseas branches was also the subject matter before the Tribunal in the case of Credit Agricole Indosuez and it has been laid down that there can be no interest income or expenditure from transactions with assessee's own overseas branches or Head office on the principle of mutuality. Thus it is obvious that there is a clear distinction between the NOSTRO interest earned/paid by the assessee from/to its own Head office/overseas branches and NOSTRO interest paid/earned to/from other than assessee's own Head office or branches. Whereas in the first situation, the principle of mutuality will apply and in the later case it will not. 7. Insofar as the grievance of the Revenue on this issue is concerned, it is noticed that the ld. CIT(A) has directed the A.O. to allow deduction of interest on borrowings from its own Head Office/overseas branches. The principle of mutuality will apply not only qua the interest income but the interest expenditure as well. Resultantly no deduction on account of interest expenditure can be allowed which has been incurred by the assessee in relation to its own Head office and overseas branches. We, therefore, overturn the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was incurred by an employee . for his own benefit then such an expenditure if not covered by the contract between the appellant and its employees cannot be allowed as a business expenditure". We are not convinced with the view canvassed by the learned CIT(A). The obvious reason is that if an expenditure to employee has been sanctioned by the assessee, there can be no reason to disallow it on the ground that the employee is otherwise not entitled to such an expenditure. So long as an expenditure has been genuinely incurred for the business purposes, the same cannot be disallowed. Resultantly the ground raised by the assessee is allowed and that by the Revenue is dismissed. 11. Ground no.4 of the assessee's appeal is against the confirmation of disallowance of Rs. 2,99,61,465 being the loss on valuation of shares in Patheja Brothers. Ground no.4 of the Revenue's appeal is against the deletion of disallowance of loss on valuation of other securities of Rs. 2,41,06,535. Briefly stated the facts of these ground are that the assessee claimed deduction on account of loss on valuation of securities to the tune of Rs. 5,40,68,000. In support of its claim for deduction, the assessee relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate authorities an additional claim which was not made in the return filed by it. Even though the assessee initially voluntarily offered an income under some misconception, that cannot be a reason to put such amount to tax if it later on turns out to be not chargeable to tax. We have seen that the Tribunal has consistently decided that the loss on valuation of securities held as stock-in-trade is deductible. In that view of the matter the mere fact that the assessee voluntarily offered Rs. 2.99 crore to tax, cannot come in the way of allowing deduction for such loss on valuation of shares of Patheja Brothers. Since the facts of this issue are not properly emerging from the orders of the authorities below, we set aside the impugned order and direct the Assessing Officer to consider the correct position in this regard and allow the loss on valuation of shares of Patheja Brothers if, in fact, there is any reduction in its value as at the year end. It is made clear that the Assessing Officer, while accepting the assessee's claim in respect of loss on valuation of securities in total, will also accordingly reduce such value of securities, so that when such securities come up for sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee made elaborate submissions before the learned CIT(A) contending that it made total investment in tax free bonds/shares from which exempt income was earned at Rs. 8.75 crore from the interest free funds available with it. It was explained that the assessee's own capital and reserve and surplus amounted to Rs. 58.34 crore apart from additional interest free funds available at Rs. 62.28 crore. The ld. CIT(A) accepted the stand of the assessee. 16. The Hon'ble jurisdictional High Court in the case of CIT v. Reliance Utilities Power Ltd. [2009] 313 ITR 340 has held that if there are interest free funds available with the assessee sufficient to meet its investment and at the same time loan has been raised it can be presumed that the investments were from interest free funds and resultantly no disallowance of interest can be made. Since the investment in tax free bonds and shares of Godrej HI CARE from which exempt dividend income was earned, constitute a very small part of total interest free funds available with the assessee, in our considered opinion, no disallowance can be made in relation to interest expenditure. 17. As regards the other administrative and man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e when the A.O. himself has not made it. This ground is, therefore, not allowed. 21. Second ground of the Revenue's appeal is against the deletion of addition of Rs. 4,34,54,000 on account of valuation of securities. Both the sides are in agreement that the facts and circumstances of this ground are mutatis mutandis similar to those of the preceding year. In such earlier year i.e. assessment year 1998-99, we have held that the loss on account of securities is allowable deduction. Following the precedent we uphold the impugned order on this issue. This ground is not allowed. 22. Last effective ground of the Revenue's appeal is against the exclusion of income of Rs. 1,10,61,554 on unmatured foreign exchange contract. The facts and circumstances of this ground are also similar to those considered and decided by us for the preceding year. The impugned order on this issue is overturned and the view taken by the AO is restored. This ground is allowed. 23. The cross objection of the assessee is in support of the order passed by the learned CIT(A) which, in view of our decision, has become infructuous. 24. In the result, the appeal of the Revenue is partly allowed and the cross obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck a provision in respect of revaluation of securities to the extent of Rs. 4.02 crore. It was submitted that for assessment year 1999-2000 loss on valuation of investment amounting to Rs. 4,34,54,000 was disallowed. It was, therefore, prayed that the write back of Rs. 4.02 crore in this year should be allowed. The Assessing Officer rejected this contention. The learned CIT(A) upheld the assessment order. 31. After considering the rival submissions and perusing the relevant material on record it is observed that the assessee's contention for allowing of loss on revaluation of securities for assessment year 1999-2000 has been accepted by us. In that view of the matter, there cannot be any scope for claiming separate deduction of Rs. 4.02 crore in this year. It was stated on behalf of the assessee that no such deduction was claimed in the computation of income. The Assessing Officer is directed to verify the facts in this regard and add back this amount, if the assessee has claimed deduction for it in its computation of income. 32. Ground no.3 of the Revenue's appeal is against the direction of the learned CIT(A) to exclude profit of Rs. 2,11,65,231 on unmatured foreign exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X
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