TMI Blog2013 (10) TMI 1452X X X X Extracts X X X X X X X X Extracts X X X X ..... s appeals which were heard together and relate to the same year are being disposed off by a single consolidated order for the sake of convenience. 2. We first take up the appeal of the assessee in ITA No 248/Mum/2007. The only dispute raised by the assessee in this appeal is regarding disallowance of interest paid by the assessee to the head office/overseas branches amounting to ₹ 14,07,999/-. The AO asked the assessee to explain as to why the claim of interest should not be disallowed 40(a)(i) as the assessee had not deducted tax at source. The assessee submitted that the bank which was incorporated in Singapore was carrying on the business of banking in India through branches situated in India. It was argued that the Indian branc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Tribunal in case of Sumitomo Mitsui Banking Corpn. Vs. DCIT (Supra) and special bench in that case held that under the domestic law the interest paid by the Indian branch to the head office was not allowable as deduction as this was payment to self. Further it was also held that the interest payment was allowable as deduction while determining the profit attributable to the PE being the Indian branch under the provisions of Article 7(2) and 7(3) of Indo Japanese treaty read with paragraph 8 of the protocol. The special bench also held that the said interest cannot be taxed in the hands of the assessee bank in India under the domestic law as it was payment to self. There was no express provisions in the relevant tax treaty which was contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and calculated the interest expenses at ₹ 88,87,977/- and other expenses at ₹ 41,08,799/- on proportionate basis relating to the exempt interest income and disallowed the same. 3.2 In appeal, the assessee submitted that investment in NHB bonds had been made on 6.3.1998 to the tune of ₹ 7 crore which has continued since then. It was pointed out that the assessee had interest free capital and statutory reserves of ₹ 58.86 crore on 31.3.1999 which had increased in subsequent years and, therefore, investment in NHB bonds had been made out of own funds and no disallowance of expenses was called for. As regards the interest from M/s PSC Sical Terminals Ltd, it was submitted that the assessee had earned gross interest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee s own case in assessment year 2001-02 in ITA 2269/Mum/2005 in which the Tribunal noted in para 4.2 that the same issue had already been considered by the CIT(A) in assessment year 1998-99 who gave a clear finding that there was nexus between the borrowed funds and the investments. CIT(A) thereafter deleted the addition and the decision of CIT(A) had been accepted by the revenue. Therefore, no disallowance of interest could be made in relation to NHB bonds. Accordingly decision of CIT(A) to delete the addition in respect of NHB bonds is upheld. As regards the disallowance of expenses in relation to interest income from PSC Sical Terminals Ltd, we find that the assessee allocated the interest expenditure of ₹ 3,94,74,917/- an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G Vs. DCIT in ITA 1726/Bom/1993 and subsequent judgment of Tribunal as reported in 86 ITD 431 in which it has been held that notional profit on revaluation of foreign exchange forward contract on the last day of previous year was required to be brought to tax as income. CIT(A), therefore, held that loss was allowable and accordingly directed the AO to delete the addition, aggrieved by which the revenue is in appeal before Tribunal. 4.2 We have heard both the parties, perused the records and considered matter carefully. The dispute is regarding allowability of loss on account of revaluation of foreign exchange contracts which had not matured during the year on the balance-sheet date. The AO had disallowed the loss as contingent in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X
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