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2016 (11) TMI 248 - ITAT MUMBAI

2016 (11) TMI 248 - ITAT MUMBAI - TMI - Disallowance of loss on account of sale of units to bank and non-bank clients - Held that:- 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 .....

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s. Under these circumstances, in our view, the points raised by the Assessing Officer regarding the illegality 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 .....

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darnath 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, the requisite details were duly furnished by the assessee. Keeping all these factors in mind, as also entirety of the case, we deem it fit and proper to delete the impugned disallowance. .....

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of the CIT(A) on this aspect is affirmed and Revenue fails. - Disallowance on account of salary paid to expatriate employees who were employed in India for the services rendered in India - Held that:- There is no material led by the Revenue to say that employees in question are not rendering services in relation to the India operations of the assessee bank. As a consequence, following the parity of reasoning upheld by the Tribunal in assessment year 1992-93(supra), herein also we affirm the .....

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rtaining to A.Y. 1991-92 are directed against the order of CIT(A)-XLVI, Mumbai which in turn arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 08/03/1994. 2. The facts in brief are that the respondent assessee is a non-resident carrying on banking business in India as per the guidelines of the Reserve Bank of India. The assessee bank is having only one branch in India and for assessment year under consideration, it f .....

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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 int .....

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he JCIT that in the event of any authority reversing the decision of the Commissioner of Income-tax (Appeals)/ Tribunal in the earlier years that the broken period interest paid to sellers at the time of purchase of securities is allowable as a revenue expenditure in the respective years, then a deduction should be allowed for the broken period interest disallowed in those years in respect of securities sold during the previous year relevant to the year under appeal. (c) The CIT(A) ought to have .....

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ot directing the JCIT to grant a deduction for interest accrued but not due on securities credited in the books. The appellants submit that interest on securities does not accrue from day to day but on certain fixed days. Though in the books they account for the interest on a day to day basis, such interest does not so accrue but accrues on certain fixed days. The mere fact that an amount has been entered in an assessee's books is not conclusive proof that income has accrued. The appellants .....

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ed the guidelines issued by the Reserve Bank of India. The appellants submit that the amounts received under the PMS are not deposits, and therefore the amount paid cannot be disallowed. Without prejudice the appellants submit that the alleged 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 .....

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ive 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 )(a) of the SCRA provides that the provision of that Act will not apply inter ali .....

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wing ₹ 39,07,409 being the expenditure incurred on mobilisation of deposits abroad. The appellants submit as under: i) The expenditure of ₹ 39,07,409 has been incurred in respect of mobilisation of NRI deposits through the NRI cells. ii) Mobilisation of NRI deposits is exclusively for the Indian Operations of the bank's business. iii) The money so received is utilised in the business operations carried out in India, as such the expenditure incurred wholly and exclusively for earn .....

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s, Grounds of appeal No.1 & 2 are concerned, the same have not been pressed at the time of hearing and accordingly, the same are dismissed. In so far as, the issue in Ground of appeal No.3 is concerned, the same relates to a disallowance of ₹ 2,83,671/- representing interest on amounts received by the assessee under the portfolio management scheme. The Assessing Officer noticed that assessee had paid interest in excess of the rate of 9% per annum, which was not in compliance with the g .....

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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 .....

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31/5/90 9,67,39,500 20/07/90 6,61,76,250 5 UCO Bank 21/5/90 7,38,00,000 76,23,750 23/11/90 4,17,00,000 3 HSBC Ltd. 1/11/90 4,19,10,000 2,10,000 3,20,79,500 5.1 The aforesaid loss has been disallowed by the Assessing Officer primarily on the ground that the transactions are Buy-back transactions, which are violative of the guidelines of the Reserve Bank of India as well as the provisions of Securities Contract (Regulation ) Act, 1956. Notably, the assessee had undertaken such transactions, both w .....

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lus funds to optimum use; that the instant transactions in units were effected through physical/bank receipts transfers and that deliveries were effected; that the transactions were conducted on the proximate market values and, therefore, the position shown in the books represents the correct picture about the profit or loss incurred on the transactions; that such transactions have been carried out in the normal course of business and at arms length, therefore, such loss is allowable as a normal .....

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l/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 th .....

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22/6/90 63,95,000 6.50 Punjab National Bank 21/5/90 9,56,15,000 7,80,000 7,80,000 TOTAL 29.50 (3,12,99,500) 3,60,00,000 47,00,500 The CIT(A) however, has disallowed the loss for the reasons assigned by the Assessing Officer. 5.2 Against the aforesaid decision of the lower authorities, the Ld. Representative for the assessee has made varied submissions. At the threshold, the plea of the assessee is that both the lower authorities have not appreciated the instant transactions in proper perspectiv .....

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ansactions 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 illegal .....

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y, and therefore, it was specially put to the Ld. Departmental Representative. The Ld. Departmental Representative merely reiterated the discussion made by the Assessing Officer in the assessment order, and did not controvert the fact-situation. 5.4 With respect to the aforesaid preliminary point raised by the assessee, we find that before the Assessing Officer assessee furnished a reply dated 15/02/1994, which has been reproduced in the assessment order, and the relevant contents read as under: .....

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t and administrative hassels. As the transactions have been conducted at the proximate market values, the position shown in the books represents the correct picture about the profit or loss incurred on the transactions. The transactions having been carried out in the normal course of business and at arms length the loss incurred is properly allowable as normal business loss. As regards your query pertaining to the guidelines issued by the Reserve Bank of India on buy-back transactions in securit .....

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ssessee had asserted before the Assessing Officer that the instant transactions are not buy-back transactions for the bank, as such there is no violation of the guidelines issued by the Reserve Bank of India on the buy-back transactions in securities. The assessee bank had also contended that the trading in units, Government securities and bonds has been undertaken as a normal business activity and, therefore, the loss incurred has to be considered as a normal business loss. In the context of th .....

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ther 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 Asse .....

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sessee, consistently before the lower authorities. Under these circumstances, in our view, the points raised by the Assessing Officer regarding the illegality 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 .....

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he Tribunal vide its order in ITA No.2297/Mum/99 & others dated 28/06/2005 has decided the issue in favour of the assessee . In this context, the relevant discussion in the order of the Tribunal is as under:- 5. Having heard the rival contentions and having perused the material on record, we find that the objections taken to the deduction of the said expenditure are devoid of legally sustainable reasons. As far as the question of the expenses incurred abroad being hit by the provisions of se .....

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hus follow that the provisions of section 44C will hit only such expenditure are not being capable of being allocable 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 countri .....

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sions 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 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 d .....

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elete the impugned disallowance of ₹ 86,75,197…… The assessee gets relief accordingly. Following the aforesaid precedent, the claim of the assessee is allowed and accordingly assessee succeeds in Ground No.5 7. In the result, appeal of the assessee is partly allowed as above. 8. Now, we may take up the Revenue s appeal in ITA No.4077/Mum/99. In this appeal, Revenue has raised the following Grounds of appeal:- 1) On the facts and circumstances of the case and in law the C.I.T( .....

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issue given in para No.3, of the said order. Therefore, the appellant prays that the decision of the CIT(A) given in para No.4 should be set aside. 3. On the facts and circumstances of the case and in law the CIT(A) has erred in deleting the disallowance of ₹ 61,460/- made by the Assessing Officer under section. 37(2A). 4. On the facts and circumstances of the case and in law the CIT(A) has erred in deleting the addition of ₹ 250,407/- being the interest received from the overseas B .....

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riate 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 asse .....

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n of the Assessing Officer. An alternate issue was raised arising out of the action of the Assessing Officer in not allowing deduction of ₹ 15,26,376/-, being the interest paid for the broken period in respect of securities purchased in the previous year relevant to the assessment year 1990-91, which were sold during the previous year relevant to the assessment year under consideration. On this aspect, assessee pointed to the CIT(A) that in assessment year 1990-91 the CIT(A) allowed relief .....

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the time of hearing, it was a common point between the parties that the order of the CIT(A) for assessment year 1990-91 has not been reversed by the Tribunal and, therefore, under these circumstances we find no error in the aforesaid direction of the CIT(A), which is hereby affirmed. Thus, Grounds of appeal No.1 & 2 of the Revenue fails. 11. In Ground of appeal No.3, the issue relates to the disallowance of ₹ 61,460/- made by the Assessing Officer under section 37(2A) of the Act, whic .....

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ed and Revenue fails. 12. In Ground of appeal No.4, the issue relates to ₹ 2,50,407/- being interest received by the assessee bank from its overseas branches. The Assessing Officer taxed the same, whereas the CIT(A) deleted the addition on the ground that the same cannot 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 th .....

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