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TMI Blog2013 (11) TMI 1363X X X X Extracts X X X X X X X X Extracts X X X X ..... /- claiming deduction in respect of provisions for bad debts of Rs. 10,96,50,000/- u/s 36(1)(vii) of the Income Tax Act, 1961 (the Act). However, the assessment was completed after making certain disallowances/additions at an income of Rs. 19,77,10,250/- under normal provisions of the Act and u/s 115JA of the Act at Rs. 7,23,18,830/- vide assessment order dtd. 28-1-2002 passed u/s 143(3) of the Act. On appeal, the ld. CIT(A) partly allowed the appeal. 3. Being aggrieved by the order of the ld. CIT(A), the assessee and the Revenue both are in appeal before us. ITA 2962/Mum/2004 (By assessee for A.Y. 1999-00) 4. Ground No. 1 reads as under:- "The CIT(A) erred in holding that interest accrued but not due as at 31 March 1999 of Rs. 31,836,688 as the 'income' of your Appellant." 5. Briefly stated facts of the above issue are that the A.O. noted that in the books of accounts the assessee bank recognised income from interest on securities on day to day accrual basis. However, in the return filed it is claimed that interest which has not become due for payment during the previous year should not be treated as income. The assessee bank accordingly had claimed d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .) wherein the on the issue as to whether interest can be said to have accrued to the respondent/assesseeon 31-3-2001 (i.e. the last date of the financial year) in respect of securities held by it on that day although the interest was not due or payable on that date, their Lordships while observing that it was undisputed that in respect of securities, interest was not due on last date of the relevant financial year, upheld the deletion of addition made by the A.O. He, therefore, submits that following the said decision, the addition made by the A.O. and sustained by the ld. CIT(A) be deleted. 7. On the other hand, the ld. D.R. while relying on the order of the A.O. and the ld. CIT(A) submits that in the earlier years, such interest has been taxed on accrual basis which has been accepted by the assessee and has not filed any appeal, therefore, following the principle of consistency, the addition made by the A.O. be sustained. He further submits that since the assessee has claimed payment of interest on accrual basis, following the same principle, the interest accrued but not due on the securities should be taxed in the year under consideration and for this proposition, the reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t March, 2001 and sold the same thereafter, but before the date on which interest was payable as stipulated in the security, interest cannot be said to have accrued to the respondent. It is not disputed that in respect of the securities held by the respondent on 31st March, 2001, the due date for payment of interest thereon had not arrived on 31st March, 2001 and that the respondent sold some of such securities prior to the next due date for payment of interest. It is only the holder of the security on such date to whom interest can be said to have accrued. In any event interest did not accrue to the respondent on 31st March, 2001, as admittedly interest was not payable on that date as per the terms of the said securities. 20. The appellate authorities, therefore, rightly deleted the addition of Rs.1,21,57,517/- by the Assessing Officer as interest income". Respectfully following the above decision which is binding on us, we delete the addition of interest accrued but not due Rs. 3,18,36,688/- and accordingly we while reversing the order passed by the ld. CIT(A) on this account allow the ground taken by the assessee. 9. Ground N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . On appeal, the ld. CIT(A) while giving direction to the A.O. to verify the amount of interest as contended by the appellant, upheld the addition made by the A.O. 11. At the time of hearing the ld. Counsel for the assesee submits that this issue stands covered in favour of the assessee by the following decisions of the Tribunal: 1. Sumitomo Mitsui Banking Corpn. v. Dy. Director of Income-tax (IT) (2012) 136 ITD 66 (Mumbai)[SB]; 2. The Asstt. DIT v. Credit Agricole Indosuez and vice versa in ITA No. 6615/Mum/2003, CO No. 283/Mum/2003 & ITA No. 6400/Mum/2003 dtd. 12-9-2012; and 3. Oman International Bank S.A.O.G. v. Asstt. CIT and vice versa in ITA No. 1981/Mum/2001 for A.Y. 1996-97, ITA No. 1982/Mum/2001 for A.Y. 1997-98, ITA No. 1449/Mum/2005 for & ITA No. 1450/Mum/2005 dtd. 29-6-2012. 12. On the other hand, the ld. D.R. while relying on the order of the A.O. and the ld. CIT(A) submits that if following the decision cited by the ld. Counsel for the assessee, the interest received from H.O. is not taxable, then provisions of section 14A of the Act would be applicable to disallow the interest and for tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal order for assessment year 1997-1998 against direction of non-chargeability of interest on NOSTRO account amounting to Rs. 5.74 crore in the preceding year and the substantial question of law has been admitted. The learned Departmental Representative submitted that once the assessee is taking the stand in the year relevant to the assessment year 1997-98 under consideration that the interest be held as chargeable to tax then it should strick to its position before the Hon'ble Bombay High Court as well and agree for chargeability of interest of Rs. 5.74 crore for the immediately preceding year. The learned AR requested for sometime to seek instruction from the assessee. After few minutes the learned AR stated that his instructions from the assessee are that it undertakes to accept the chargeability of interest of Rs. 5.74 crore for assessment year 1996-1997 before the Hon'ble Bombay High Court and will not oppose the taxability of such amount provided the Departmental ground for this year is accepted and the consequently the assessee's grounds for disallowance u/s 14A are also allowed. 4. Having heard the rival submissions and perused the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found between overseas HO and branch in India there can be no interest income by the Indian branch from the overseas H.O. or branch under the provisions of the Act", following the same principle there is no interest income to the assessee and, therefore, provisions of section 14A of the Act will not be applicable. The reliance was also placed on the decision of the Tribunal in the case of Asstt. DIT v. Oman International Bank SAOG & vice versa in ITA No. 2518/Mum/2004 and others order dtd. 10-10-2012. 15. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the interest received by the assessee from its H.O. and overseas branches has been taxed in the hands of the assessee. This very issue has been considered by the Special Bench of the Tribunal In the case of Sumitomo Mitsui Banking Corpn. (supra) wherein it has been held (Headnote page 76):- "Keeping in view all the facts of the case and the legal position emanating from the interpretation of the relevant provisions of domestic law as well as that of the treaty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us neither there is such dispute nor the Revenue has taken any such additional grounds of appeal, therefore, in the absence thereof, both the decisions relied on by the ld. D.R. are not applicable to the facts of the present case. This view also finds support from the order of the Tribunal dtd. 10-10-12 in Oman International Bank SAOG (supra) wherein it has been held as under:- "4. The other contention raised by the learned Departmental Representative for making any disallowance u/s 14A in respect of interest income does not merit acceptance. We have perused the assessment order. It is observed that the Assessing Officer has proceeded with the presumption that the interest income is not exempt. He has not made any disallowance of expenses incurred in relation to such exempt income presumably u/s 14A of the Act. Neither it is the learned CIT(A) who considered and decided the question of disallowance u/s 14A. As this issue does not emerge out of the orders of the authorities below, we desist from examining it. This ground is allowed". 18. Respectfully following the consistent view of the Tribunal, we are of the view that the ld. CIT(A) was not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In alternative, he submits that after the insertion of Explanation 3 to section 115JB(2) of the Act by the Finance Act 2012, which is clarificatory in nature, therefore, the same is also applicable for the year under consideration and, hence, the ld. CIT(A) was justified in upholding the application of section 115JA of the Act. 25. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the facts are not in dispute inasmuch as it is also not in dispute that the ld. CIT(A) vide para 14.3 of his order has held as under:- "It is true that the appellant claims non-applicability of section 115JA in its case. However, I find that the total income determined under the normal provisions of the Income-tax Act by the A.O. is Rs. 19,77,10,250/- whereas the total income determined under section 115JA is at Rs. 2,16,95,649/-. Needless to say, when in a case the total income under the normal provisions of the Act is much more than the book profits as determined under MAT provisions, there is no question of applicability of section 115JA in such a situation. Therefore, the question of section 115JA in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view the decisions of the Hon'ble Supreme Court in the case of Vijaya Bank Ltd. 187 ITR 541 and the decision of the American Express Bank Ltd. v. Dy. CIT [1998] 65 ITD 67. In reply, the assessee while distinguishing the decisions relied on by the A.O. submits that broken period interest paid on purchase of securities is allowable. However, the A.O. following the above decisions disallowed the broken period interest paid on purchase of securities paid by the assessee holding it as a part of the capital cost of the asset. On appeal, the ld. CIT(A) following the decision of the Tribunal in American Express Bank Ltd. (supra) which has been affirmed by the Hon'ble jurisdictional High Court in American Express International Banking Corpn. case (supra), directed the A.O. to allow the broken period interest as expenses. 32. At the time of hearing the ld. D.R. while relying on the order of the A.O. submits that the decision of the Hon'ble jurisdictional High Court in the case of American Express International Banking Corpn. (supra) has been distinguished by the Hon'ble Rajasthan High Court in the case of CIT v. Bank of Rajasthan Ltd. (2009) 316 ITR 391 (Raj.) therefore, the broken period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and the circumstances of the case and in law, the ld. CIT(A) erred in holding that no portion of interest expenditure and operating expenditure would be attributed to the income claimed exempt u/s 10(15) and deleting the proportional disallowance made." 37. Brief facts of the above issue are that during the course of assessment proceeding it was, inter alia, observed by the A.O. that the assessee has claimed exempt interest on foreign currency deposits with schedule banks and the same is exempt u/s 10(15)(iv)(fa) of the Act. The assessee was asked to explain as to why net interest i.e. after excluding expenditure incurred be not allowed. In reply it was, inter alia, submitted by the assessee that in the case of expenditure incurred with respect to an indivisible business, where no distinction and identification is possible between the expenditure incurred for the whole business and that for any exempt part of income, it cannot be said that a part of the expenditure relates to exempt income only for the reason that a part of the income is exempt from tax, therefore, no disallowance is called for. However, the A.O. held that proportionate expenses of interest paid and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the Tribunal in Credit Agricole Indosuez (supra) relied on by the ld. Counsel for the assessee, we consider it fair and reasonable that the similar issue has been considered by the Tribunal in the case of the same assessee in the order dtd. 12-9-2012 (supra). The relevant paras read as under:- "9. After considering the rival submissions and perusing the relevant material on record, we find it as an undisputed proposition that exemption u/s 10(15) is on gross interest and not on the net interest. This position emerges from the order passed by the Mumbai Bench of the Tribunal in the case of Dresdner Bank AG, a copy of which order has also been placed on record and also another order of the Mumbai Bench of the Tribunal in JCIT v. American Express Bank Ltd. [(2012) 24 Taxmann.com 50 (Mumbai-Trib.)]. In view of the candid admission by the learned Departmental Representative, which is, in fact, borne out of the aforesaid judicial precedents, it becomes apparent that exemption u/s 10(15) is to be allowed on gross interest and not on the net interest. 10. Now we turn to evaluate the contention of the learned Departmental Represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Tribunal in the case of HDFC Bank Ltd. (supra), therefore, in the interest of justice we consider it fair and reasonable that the matter should go back to the file of the A.O. and accordingly to this extent we set aside the order passed by the Revenue authorities on this account and send back the matter to the file of the A.O. to compute the disallowance u/s 14A of the Act afresh and in accordance with law including the decision cited by the parties after providing reasonable opportunity of being heard to the assessee. The ground taken by the Revenue is, therefore, partly allowed for statistical purpose. ITA No. 3344/Mum/2004 (By Assessee, A.Y. 2000-01) 42. Brief facts of the case are that the return for the A.Y. 2000-01 was filed showing a loss of Rs. 3,454,380/-. However, the A.O. after making certain disallowances/additions determined the income at Rs. 132,533,420/- vide assessment order dtd. 28-3-2003 passed u/s 143(3) of the Act. On appeal, the ld. CIT(A) partly allowed the appeal. 43. Ground No. 1 reads as under:- "The CIT(A) erred in holding that interest accrued but not due as at 31 March 2000 of Rs. 27,979,639 as the 'income' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the assessee cannot be allowed any deduction on account of provision for loss made on account of revaluation, such outstanding contingent liability. The A.O. following the ratio of the decision of Hon'ble Madras High Court in Indian Overseas Bank v. CIT (1990) 183 ITR 200 (Mad.) and CIT v. Indian Overseas Bank [1985] 151 ITR 446 (Mad.) disallowed the assessee's claim for deduction of notional loss of Rs. 4,787,765/- arising on account of revaluation of outstanding foreign exchange contract and accordingly added the same to the total income of the assessee. On appeal, the ld. CIT(A) while agreeing with the views of the A.O. upheld the disallowance made by the A.O. 49. At the time of hearing the ld. Counsel for the assessee submits that the bank deals in foreign exchange contracts as part of the banking business and, hence, these foreign exchange contracts constitute stock in trade of the bank. He further submits that the RBI requires revaluation of such outstanding contracts at the end of the year to provide a true and fair view of the financial statements. Further, this method of year end valuation has been consistently followed by the bank, and in fact, profits on revaluatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same entity. It was further submitted that these interests have not been received in India and accordingly the income there from should not be taxable in India. However, the A.O. after considering the assessee's reply and the provisions of section 9(1)(i) of the Act, Article 7(1) & 7(2) of the DTAA while rejecting the plea of the assesee held that the said interest income of Rs. 3,244,213/- is liable to tax and accordingly disallowed the claim of the assessee. On appeal, the ld. CIT(A) following the appellate order for the A.Y. 1999-2000 upheld the disallowance made by the A.O. 54. At the time of hearing both the parties have agreed that the facts of the present issue are similar to the ground No. 2 of assessee's appeal for A.Y. 1999-2000, therefore, the plea taken by them in the said appeal be considered while deciding the above ground of appeal. 55. After hearing the rival parties and perusing the material available on record and in the absence of any contrary material placed on record by the Revenue, we keeping in view of our finding recorded in paras 15 to 18 of this order, delete the disallowance of deduction of interest of Rs. 3,244,213/- and accordingly the ground taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee that the securities purchased by it constitute its stock in trade as they are its current investments. It was further submitted that the deduction on account of this interest cannot be disallowed merely because it is separately reflected in the P&L account. It was further submitted that it is accounting for the accrued interest upto the year end in its P&L account and its closing stock is accounted for at cost exclusive of the broken period interest paid at the time of acquisition of these securities. The assessee while relying on the decision of the Hon'ble Bombay High Court in the case of American Express International Banking Corpn. (supra), claimed that broken period interest is allowable. The A.O., however, was of the view that broken period interest paid by the assessee is capital in nature in view of the decision of Hon'ble Supreme Court in Vijaya Bank Ltd., (supra) and accordingly the assessee is not entitled to deduction for the broken period interest paid by it during the year under consideration as the same is capital in nature. On appeal, the ld. CIT(A) following the appellate order for A.Y. 1999-2000, however, allowed the claim of the assessee. 64. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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