TMI Blog2016 (11) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature of transactions became irrelevant because the entire edifice of the Assessing Officer is based on a misconception that the instant transaction is buy-back in securities. Therefore, on this preliminary issue itself, we do not find any merit to uphold the orders of the authorities below. Consequently, the order of the CIT(A) is set aside and the Assessing Officer is directed to delete the addition. As a consequence, on this issue assessee succeeds. Allowance of expenditure incurred on mobilization of deposits abroad - Held that:- As decided in assessee's own case in previous AYs the objection of the revenue is devoid of legally sustainable merits. As far as the question of expenditure not being debited in the books of accounts of India operations is concerned, this is not really relevant in the light of law laid down by the Hon'ble Supreme Court in the case of Kedarnath Jute Mills Limited (1971 (8) TMI 10 - SUPREME Court ). As long as the expenditure is really incurred and is otherwise deductible, the deduction cannot be declined on the ground that it has not been debited in the books of accounts. We have also noted that as noted in the Assessing Officer’s order itself, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r making certain additions/disallowances by the Assessing Officer. The CIT(A) has allowed partial relief and accordingly assessee is in appeal on the issues on which the CIT(A) did not allow relief, whereas the Revenue is in appeal challenging some of the reliefs allowed by the CIT(A). In this background we may now proceed to adjudicate respective grounds of appeal in the captioned appeals. 3. We shall first take up the appeal of the assessee . The Grounds of appeal raised by the assessee read as under:- 1. (a) The Commissioner of Income-tax (Appeals) - XLVI, Mumbai [hereinafter referred to as the CIT(A)] erred in upholding the action of the Joint Commissioner of Income-tax, Special Range 27, Mumbai (hereinafter referred to as the JCIT) of not allowing ₹ 26,99,627 as a deduction in respect of interest paid for broken period at the time of purchase of the securities. The appellants submit that the securities were purchased by them as stock in trade and not as investments and hence the interest paid for the broken period at the time of purchase of securities should be allowed as a deduction in the year of purchase of securities. Therefore they pray that the J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leged excess amount paid is allowable under section 36(1 )(iii) or under section 37 or under section 28. The appellants pray that the JCIT be given suitable directions in the matter. 4. a) The CIT(A) ought to have granted relief in respect of loss on account of sale of units to bank and non-bank clients amounting to ₹ 3,20,79,500. The CIT(A) erred in directing the JCIT to rework the disallowance keeping in mind the Board's guidelines and the Supreme Court's decision in the case of BOI Finance Ltd. Vs. Custodian (12 SCL 99) and Davenport's case (100 ITR 715). The CIT(A) ought to have held that the losses arose in the ordinary course of the appellant's business, and that the transactions giving rise to the loss were neither speculative nor illegal transactions and therefore the loss should be set off against the appellant's business income. b) Without prejudice and in any event, in view of the CBDT guidelines dated 28th February, 1995 the CIT(A) ought to have directed the JCIT to reduce the loss by ₹ 7,80,000 being the profit in respect of another unit transaction. c) Without prejudice to the above, it is submitted that section 28(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee in view of the decision of the Tribunal in assessee s own case for assessment year 1990-91 vide ITA No.815/Mum/96 dated 30/11/2007. A copy of the said order has also been placed on record. The Tribunal notes that assessee had paid interest in excess of the guidelines of Reserve Bank of India and, therefore, such excess payment of interest was disallowable. Since facts and circumstances in the instant year are similar, following the decision of the Tribunal dated 30/11/2007(supra), the stand of the income tax authorities is hereby upheld and accordingly, assessee fails in Ground of appeal No.3. 5. The next issue raised by the assessee in Ground of appeal No.4 relates to a disallowance of ₹ 3,20,79,500/-, which represents loss on account of sale of units to bank and non-bank clients. The details of such loss has been duly noted in the orders of the Assessing Officer as well as the CIT(A) and the same is as under:- Date of sale Sale price Nos. face value in crores Name of the party to whom sold Date of purchase Cost (Rs.) Loss on the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also entered into a transaction in respect of units with Punjab National Bank, which has resulted in a gain of ₹ 7,80,000/- and, therefore, even if the impugned loss was to be disallowed, the same should be netted of against such gain. Further, it was canvassed that impugned transactions were not speculative in nature because the instant transactions involved taking and giving of delivery of securities and have been carried out with the help of physical/bank receipts, which are legal transfers. Another pertinent point which was raised by the assessee was that in any event no loss has been suffered by the assessee by entering into these transactions considering that assessee had also earned dividend income on such units. In this context, a working was made before the CIT(A) to show that there was a profit of ₹ 47,00,500/- on an overall basis, which is detailed as under:- Date of sale Sale price (Rs.) Face value in crores (Rs.) Name of the party to whom sold Date of purchase Cost (Rs.) Gain/(Loss) On the transaction (Rs.) Dividend (Rs.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g right from the stage of assessment that the instant transactions in the units involve taking and giving of deliveries which were effected through physical/bank receipts. Similarly, it has also pointed out that even the gain of ₹ 7,80,000/- made on the transaction of units was a case of purchase and sale of units in the normal course of business. It was pointed out that if the aforesaid factual matrix is appreciated, which clearly emerges from the orders of the authorities below, the issue raised by the income tax authorities regarding illegality in the content of RBI guidelines or the provisions of Securities Contract (Regulation ) Act 1956 become redundant, because it is not a case of Buy-back transactions at-all. The Ld. Representative for the assessee pointed out that even before the Assessing Officer assessee had furnished a reply dated 15/2/1994, which has also been reproduced in the assessment order, wherein such assertions have been clearly brought out. 5.3 The aforesaid plea of the assessee goes to the root of the controversy, and therefore, it was specially put to the Ld. Departmental Representative. The Ld. Departmental Representative merely reiterated the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee on the nature of transactions, we find that the order of the Assessing Officer is completely silent on the same. In fact, the Assessing Officer, after noting the reply of the assessee, had formulated three issues namely(a) Whether RBI directives/guidelines are binding on the banks?,(b)Whether R B I guidelines/directives constitute law and consequently, their violation constitute infraction of law? and (c)If such guidelines/directives are treated as law, whether the illegal losses should be set off against the illegal gains; notably, all of them rest on the basis that the instant transactions are buy-back transaction in securities. The Assessing Officer has reproduced the details of such transactions in the assessment order itself which clearly show that assessee had purchased the units before effecting sales and in-fact the mode of delivery has also been tabulated. The salient features of the transactions have not been given cognizance by the Assessing Officer, though the same have been noted by him in the assessment order itself. Similar is the position at the stage of CIT(A) also. Considering the aforesaid factual matrix, which has not been rebutted at any stage, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to any particular profit centre and which are required to be allocated on some general basis. The expenses on mobilization of NRI deposits cannot be said to fall in this category because these expenses are for the purpose of India specific operations where non- resident Indian deposits are of relevance. These expenses, therefore, cannot be allocated to operations in other countries or to the head office. This kind of an expenditure, in our considered view, does not fall under the scope of head office expenditure under section 44C of the Act. In the case of American Express Bank Ltd. in which a different view was taken by the Tribunal has since been reversed by the Hon ble Bombay High Court vide judgment dated 17th July 2003 and a copy of the said judgment was placed before us at pages 16 to 18 of the paper book. Learned counsel has invited our attention to Tribunal decisions in favour of the assessee on the same issue in the cases of Abu Dhabi Commercial Bank and ABN Amro Bank as well. Copies of these decisions were also placed before us in the paper book. In the light of these discussions, we are of the considered view that the objection of the revenue is devoid of legally su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce from the Overseas Branches which are separately taxed as per the existing provisions of the respective countries. 5. On the facts and circumstances of the case and in law the CIT(A) has erred in deleting the disallowance of claim for deduction of ₹ 14,02,789/- on account of salary paid to expatriate employees who were employed in India for services rendered in India. 6. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the order of the CIT be restored. The appellant prays to amend or alter or add a new ground which may be necessary. 9. In so far as Grounds of appeal No.1 2 are concerned, the same relate to same issue and, therefore, they are being take up together. The basic point in the two Grounds relate to interest paid by the assessee to the sellers at the time of purchase of securities for the broken period. In the return of income assessee offered the broken period interest for taxation but by way of a Note it was claimed that such amount cannot be taxed as it was a revenue expenditure. Such claim amounting to ₹ 26,99,627/- was disallowed by the Assessing Officer; and such disallowance was not presse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed as income as it is received from self and there cannot be any income from self. Against such a decision, Revenue is in appeal before us. 13. At the time of hearing, Ld. Representative for the assessee submitted that assessee does not wish to contest the said point and accordingly he has conceded the ground in favour of the Revenue. Accordingly, Ground of appeal No.4 raised by the Revenue is allowed as conceded by the respondent assessee. 14. In Ground of appeal No.5, the Revenue is challenging the decision of the CIT(A) whereby he had set-aside a disallowance of ₹ 14,02,789/- made by the Assessing Officer on account of salary paid to expatriate employees who were employed in India for the services rendered in India. The CIT(A) has allowed the claim following her own decision in the case of the assessee for assessment year 1992-93. In assessment year 1992-93, the Tribunal vide its order dated 28/6/2005 has affirmed the action of the CIT(A) in deleting the disallowance made out of salaries paid to the expatriate employees, who were employed in India for services rendered in India. The Tribunal has noted that the expatriate employees in question were working exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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