TMI Blog2014 (12) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... the profit arising on revaluation of the unmatured forward forex contract is liable to be taxed as income – Decided against revenue. Disallowance u/s 14A on interest expenses – Expenses paid on FCNR(B) in relation to the exempt income on balance of Nostro Accounts – Held that:- As decided in assessee’s own case the assessment order needs to be approved in preference over the view taken by the learned CIT(A) - CIT(A) made enhancement of income to the tune of ₹ 32.79 crore by computing disallowance under section 14A in respect of such interest income on NOSTRO account, which was held by him to be not chargeable to tax as against the AO’s decision as to the chargeability of this amount - once the income itself is chargeable to tax, there can be no question of computing any disallowance u/s 14A, the mandate of which operates to disallow deduction for expenses incurred in relation to income which does not form part of the total income – no disallowance u/s 14A can be made – Decided in favour of assessee. Provisions for non-performing assets u/s 37(1) disallowed – Held that:- As decided in assessee’s own case, AO has disallowed the claim of the assessee because it was found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Head Office in support of this claim – thus, the order is set aside and the matter is remitted back to the AO for examination of claim of assessee – Decided in favour of revenue. Levy of penalty u/s 271(1)(c) – Held that:- The penalty has been levied against the disallowance of claim of netting of the interest received u/s 244A against the interest paid by the assessee u/s 220(2) of the Income Tax Act – as decided in quantum appeal the netting is permissible and thereby the claim of the assessee is allowed – thus, the penalty levied u/s 271(1)(c) against the said addition is not sustainable – Decided in favour of assessee. - ITA No. 724/Mum/2011, ITA No. 1135/Mum/2011, Cross Objection No. 220/Mum/2013 - - - Dated:- 10-12-2014 - Shri Vijay Pal Rao And Shri N. K. Billaiya,JJ. For the Petitioner : Shri Madhur Agarwal For the Respondent : Shri N. Padmanabhan ORDER Per Bench, These cross appeals and one cross objection by the revenue are directed against the order dated 26.11.2010 of CIT(A) arising from assessment passed u/s 143(3). The assessee has also filed the appeal against the order dated 28.1.2014 of CIT(A) arising from penalty order passed u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision under section 37(1) of the Act. 6. The CIT (A) erred in upholding that the expenditure incurred in relation to the Voluntary Separation Plan / Voluntary Retirement Scheme is deductible in accordance with the provisions of section 35DDA of the Act. The appellant prays that the AO be directed to allow a deduction for the said expenditure under section 37(1) of the Act. 7. The CIT(A) erred in confirming that the India Branch and the HO are 'associated enterprises' and the transactions between them are covered under section 92 of the Act. The appellant submits that the India Branch and the HO are not 'associated enterprises', either under the provisions of the Act or under the Double Taxation Avoidance Agreement (DTAA) and prays that the AO be directed accordingly. 8. The CIT(A) erred in confirming an addition of ₹ 1, 13,628 being the adjustment made by the AO in respect of the arm's length price of the interest paid on call borrowings. The appellant prays that the AO be directed to delete the addition ofRs.1,13,628. 9. Without Prejudice, the appellant prays that the AO be directed to recompute the adjustment on comparing the rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts HO/Overseas branches would become deductible. However, we find that the amount of interest disallowed has been wrongly taken in this ground. On the perusal of the assessment order, it was noticed that the amount actually disallowed by the AO is ₹ 21,51,539/- and not ₹ 33,55,026/-. The AO is therefore, directed to grant deduction for the correct amount of ₹ 21,51,539/-. 7. Following the decision of special in case of Sumitomo Mitsui Banking Corpn. (supra) as well as coordinate bench of this tribunal in assessee s own case for A.Y.2001-02, we decide this issue in favour of the assessee and against the revenue. 3.2 Following the earlier order of this Tribunal, this issue is decided in favour of the assessee. 4. Ground no. 3 is regarding taxing profit arising on revaluation of unmatured forward forex contracts. 4.1 We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. At the outset, we note that an identical issue has been considered by this Tribunal in assessee s own case for A.Y. 2003-04 in para no. 12 to 14 as under:- 13. We have heard learned AR as well as learned DR and considered the relevant material on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, on oral instructions conveyed the undertaking of the assessee not to oppose the Departmental appeal about the chargeability of interest on NOSTRO account before the Hon ble Bombay High Court for assessment year 1996-97, in respect of which substantial question of law has been admitted. In view of these rival but common submissions we are of the considered opinion that the assessment order on this count needs to be approved in preference over the view taken by the learned CIT(A). This ground taken by the Revenue about the chargeability of interest on NOSTRO account amounting to Rs. ₹ 13.66 crore is, therefore, allowed. 5. It is observed that the ld. CIT(A) made enhancement of income to the tune of ₹ 32.79 crore by computing disallowance under section 14A in respect of such interest income on NOSTRO account, which was held by him to be not chargeable to tax as against the AO s decision as to the chargeability of this amount. When the view of the ld. CIT(A) on this issue is overturned and that of the AO is restored, interest on NOSTRO account becomes taxable. Once the income itself is chargeable to tax, there can be nom question of computing any disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 8.1 At the time of hearing, the Ld. Authorized Representative of the assessee submitted that the assessee does not want to press this ground and the same may be dismissed as not pressed. 8.2 The Ld. DR raised no objection if the ground no. 7 of the assessee s appeal is dismissed as not pressed. 8.3 Accordingly, we dismiss the ground no. 7 of the assessee s appeal being not pressed. 9. Ground no. 8 is regarding adjustment made by Assessing Officer in respect of arm s length price (ALP) of interest paid on call borrowings. 9.1 We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. The Ld. Authorized Representative of the assessee has submitted that due to smallness of the amount involved in this issue, the same may be dismissed. 9.2 Accordingly, for want of any serious arguments against the impugned order, we dismiss this ground of assessee s appeal. 10. Ground no. 9 is an alternative plea regarding arm s length interest. 10.1 This ground is consequential to the ground no. 8 of assessee s appeal. Since the ground no. 8 of assessee s appeal is dimissed, accordingly, the assessee has not advanced any argument on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal are vitiated in law. All that the Tribunal has done earlier and now is that in the case of ths assessee simply because the exercise carried out by it does not result in loss of revenue and there could not be any prohibition for the same, allowed it. That is how the Assessing Officer s order is set aside. We do not see how any larger controversy or question arises for our consideration. Mr. Pinto would refer to section 57 of the Income Tax Act, 1961 in that regard and submit that this course would be adopted by other assessee as well and in that event the order passed by this court would come in the way of the revenue in investigating and probing such exercise by other assessee. 4. we do not see how this order can be cited as precedent inasmuch as the Assessee before the Tribunal and before us paid interest to the Income Tax Department amounting to ₹ 10,26,906/-. The Assessee claimed that this was business expenditure and this should have been allowed. The Assessee has received the interest of ₹ 1,07,57,930/-. It was submitted that the amount of interest paid by the Assessee should have been allowed to be set off against the interest deposited with the Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has submitted that the provisions of section 115JB as exist for the A.Y. under consideration are not applicable in the case of a banking company. 14.2 On the other hand, the Ld. DR has submitted that the law has been amended to bring the banking company under the ambit of provisions of section 115JB. 14.3 Having considered the rival submissions as well as relevant material on record, we note that this Tribunal has taken a view in a series of decisions (supra) that un-amended provisions of section 115JB are not applicable in the case of the banking company. Accordingly following the earlier orders of this Tribunal on the point, we decided this issue in favour of the assessee. 15. Additional ground no. 3 is regarding adhoc disallowance u/s 14A. 15.1 We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. We find that an identical issue has been considered and decided by this Tribunal in assessee s own case for A.Y. 2003-04 (supra) in para 59 as under:- 59. As regards, the additional ground no.1 for disallowance u/s.14A, we note that the CIT(A) has made disallowance of ₹ 2,00,000/- on ad-hoc basis. The learned AR of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of our finding on the additional ground no. 3 of the assessee s appeal in para 15 of this order, this ground of revenue s appeal is dismissed. 18. Ground no. 2 is regarding deduction u/s 37(1) of the direct expenses incurred by HO on credit risk assistance and EDP assistance cost. 18.1 We have heard the Ld. DR as well as Ld. AR and considered the relevant material on record. We note that an identical issue has been considered by this Tribunal in assessee s own case for A.Y. 2002-03 in para 31 and 32 as under:- 31. We have heard learned DR as well as learned AR and considered the relevant material on record. At the outset, we note that an identical issue has been considered and decided by this tribunal in assessee s own case for the A.Y.2001-02 in para 34 to 36 as under: 34. Ground no. 3 pertains to disallowance of ₹ 1,16,62,285/- incurred by the HO on credit risk assistance.35. The issue has been dealt with by the coordinate Bench, wherein they relied upon the decision of JCIT vs American Express Bank Ltd., reported in 24 taxman.com50. and held, 12. Last ground of the Revenue s appeal is against the direction given by the learned CIT(A) to allow deduction of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y conceded that this issue is covered against the assessee by the decision of the Special Bench of this Tribunal. Accordingly, we decide this issue against the assessee and in favour of the revenue. 19.3 We find that same amount of ₹ 41 lac was disallowed for A.Y. 2003-04 and the assessee has accepted the same, therefore, no double disallowance can be made in the year under consideration. Accordingly we do not find any error or illegality in the order of CIT(A) qua this issue. 20. Ground No. 4 is regarding taxability of interest on Nostro Account balances. 20.1 We find that this issue is common to the ground no. 4 of the assessee s appeal. Accordingly, when the assessee has admitted the taxability of this income, this ground of revenue s appeal is allowed. 21. Ground no. 5 is regarding TP adjustment on account of credit risk. 21.1 We have heard the Ld. DR as well as Ld. Authorized Representative and considered the relevant material on record. At the outset we note that an identical issue has been considered by this Tribunal in assessee s own case for A.Y. 2002-03 in para 69 to 71 as under:- 69. Ground no.4(b) regarding TP adjustment in respect of credit ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as claimed by the assessee separately is for the exclusive and dedicated work/service done by the HO to the assessee. Further there is no explanation by the assessee as on what basis this expenditure is charged by HO. Therefore, this issue cannot be decided in the absence of complete fact as whether the Head Office has charged this expenditure on the basis of man hour or dedicated desk was assigned for this purpose exclusively for the service of the assessee. The assessee has also not filed any certificate from the auditor of the Head Office in support of this claim. Accordingly, we set aside this issue to record of the AO/TPO to examine the facts properly and the evidence to be filed by the assessee in support of this claim. The assessee is directed to file relevant evidence and certificate from the auditor of the Head Office to show that the payment has been made towards the dedicated exclusive service rendered by the Head Office to the assessee. Accordingly this ground is allowed for statistical purpose. 21.2 Accordingly, this issue is set aside to the record of Assessing Officer/TPO in the same terms as in the assessment year 2003-04 for examination of facts and evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
