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DDIT, Circle-1 (1) , Intl. Taxation, New Delhi Versus The Bank of Tokyo Mitsubishi UFJ Ltd.

2017 (8) TMI 479 - ITAT DELHI

Accrual of income - Addition on Deferred Bank Guarantee Commission - method of accounting - Held that:- As part of the banking activities, the assessee gives guarantee on behalf of its customers and in consideration thereof, the assessee charged commission from such customers. The commission income arising from the guarantee given on behalf of the customer has been recognized by the assessee over the life of the bank guarantee. - On perusal of the statement of facts filed before the Ld. CIT .....

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dispute - Decided in the favour of the assessee. - Disallowance on account of freight and forwarding & clearing charges - allowable business expenditure - Japanese food stuffs imported for the expat employees - assessee submitted that to develop a congenial business relations and create new business opportunities so as to expend the client base of the bank, it had to serve customary foodstuffs to entertain such Japanese customers visiting various branches of the bank - Held that:- In view o .....

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ortunity of hearing or issuing any show cause to the assessee for proposing the adjustment. The action of the TPO is definitely in violation of the principles of the natural Justice. We are also equally aware of the fact that the Ld. CIT-(A) was not empowered to restore the issue to the file of the TPO for deciding afresh. He should have called for a remand report from the TPO and should have decided the issue after providing opportunity of being heard to the assessee. However, due to mistake on .....

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arm’s length price in respect of the international transaction of marketing and support services for ECBs issued by Head Office and foreign branches, to the file of the Transfer Pricing Officer (TPO)/ AO for deciding afresh in accordance with law. - ITA No. 3754/Del/2014 - Dated:- 3-8-2017 - SH. VIJAY PAL RAO, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER For The Appellant : Mr. Percy Pardiwala, Sr. Adv. & Sh. Nishant, Adv. For The Respondent : Sh. H.S. Choudhary, CIT(DR) ORDER PER O .....

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ed in deleting the disallowance of ₹ 2,76,749/- on account of Japanese Food Stuff made by the AO, as he has ignored the fact that the expenses claimed was in the nature of freight and clearing & forwarded charges incurred by the branches only. 3. On the facts and in the circumstances of the case and law, Ld. CIT(A) was correct in restoring back o the TPO the transfer pricing adjustment made of ₹ 10652699/- on account of marketing and support services for deciding the issue afresh .....

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ring the year under consideration Bank of Tokyo Mitsubishi Ltd. Japan (BOTM- group) operated in India through its branches at New Delhi, Mumbai, Kolkata and Chennai, which constituted the permanent establishment (PE) of BOTM group in India as per article 5 of India- Japan Double Taxation Avoidance Agreement (DTAA). This permanent establishment is the assessee in the case. The assessee i.e. BOTM-India, was engaged in wholesale banking operation, catering mainly to Japan-based corporate and indivi .....

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Subsequently, the assessee revised its return on 19/02/2003 and claimed carry forward of losses of the earlier years against the income of the current year, which was not done in the original return of income. This was done in pursuance of the judgment of the Supreme Court in the case of Karnataka Small Scale Industries Ltd versus CIT, 258 ITR 770. The revised return filed was processed on 01/03/2004 and notice under section 143(2) of the Act was again issued and complied with. The Assessing Off .....

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t of income was completed on 30/03/2005 under section 143(3) of the Act after making various additions to the returned income as well as to the Book Profit under section 115JB of the Act. Aggrieved, the assessee filed appeal before the Ld. CIT-A, who allowed part relief to the assessee. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above. 3. The ground No. 1 of the appeal relates to addition of ₹ 1,75,34,052/- on account of deferred bank guarante .....

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ounting policy followed by the assessee Bank. According to the Assessing Officer, the Commission received was like a fee for issuing guarantee and was not a contingent receipt or advance and which accrued at the time of bank issues the guarantee. According to the Assessing Officer, the income gets accrued to the assessee; the moment right to receive has arisen. Accordingly, he added the sum of ₹ 1,75,34,052/- to the income of the assessee. 3.2 The Ld. CIT-(A), following the order of the Ho .....

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ar whether the assessee declared any income for guarantee commission in respect of the guarantees granted in earlier years, but continued during the year under consideration. 3.4 On the other hand, the Ld. counsel of the assessee submitted that issue in dispute was covered by the decision of the Hon ble Calcutta High Court in the case of the assessee for assessment year 81-82. He further submitted that decision of the Hon ble Calcutta High Court has been followed by the Hon ble Delhi High Court .....

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erused the relevant material on record. As part of the banking activities, the assessee gives guarantee on behalf of its customers and in consideration thereof, the assessee charged commission from such customers. The commission income arising from the guarantee given on behalf of the customer has been recognized by the assessee over the life of the bank guarantee. The Ld. CIT-A adjudicated the issue in dispute as under: I have carefully considered the facts of the case along with the submission .....

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tely. Respectfully following the order of the Hon ble Calcutta High Court in the case of the appellant itself, this ground of appeal is allowed as indicated above. 4.6 We find that the Ld. CIT-(A) has followed the finding of the Hon ble Calcutta High Court (supra) in the case of the assessee itself for assessment year 1981-82. The decision of the Hon ble Calcutta High Court has further been followed by Hon ble Delhi High Court in the case of the assessee for assessment year 2007-08. The findings .....

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ing income over the period of life of the bank guarantee, following the decision of the Hon ble Calcutta High Court (supra) in its own case for assessment year 1981-82. The Ld. CIT-(A) has allowed relief to the assessee following the above decision of the Hon ble Calcutta High Court. In view of above, we do not find any error in the finding of the Ld. CIT-(A) on the issue in dispute, accordingly, we uphold the same and the ground No. 1 of the appeal is dismissed. 5. The ground No. 2 relates to d .....

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nk and thus the expenditure was wholly and exclusively for the purpose of the business and allowable as business expenditure. The Assessing Officer disallowed the expenses following his finding on the issue in dispute in earlier years. The Ld. CIT- (A) following the decision of Tribunal in the case of the assessee for assessment year 1994-95 to 1996-97, deleted the addition with finding as under: This issue has already been decided in favour of appellant by Hon ble Calcutta ITAT for A.Y. 1994-95 .....

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ng Officer and submitted that the Ld. CIT-(A) has not justified how the issue in dispute is pari materia with the issue in dispute for assessment year 1994-95 and 1996-97. 5.2 On the contrary, the Ld. counsel relied on the order of the Ld. CIT- (A) and submitted that the expenditure incurred was as a measure of staff welfare and thus constituted allowable business expenditure. 5.3 We have heard the rival submission and perused the relevant material on record. The Tribunal in assessee s own case, .....

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pearing on behalf of the assessee, that the assessee-company has to make arrangement for the officers who are coming fronm Japan and who could not afford to take any kind of food other than those which they are used to and which are available only in Japan which have got to be imported for maintaining the health of the officers of the company. As prudent business organization, the assessee found it expedient to pay for the freight and clearing charges on import of food stuff for employees. The A .....

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ing for the freight and clearing charges of the import of food exclusively for the officials of the company who, otherwise, could not have performed to the level it was desired of them. We consider this to be genuine business expenditure and in reversing the order of the authorities below, we allow this ground of the assessee. 5.4 In view of the identical issue adjudicated by the Tribunal in the case of the assessee itself, respectfully following the same, we consider the expenditure in dispute .....

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who raised External Commercial Borrowings (ECB) from head office or foreign branches of the bank. The assessee submitted that during the year no Indian customer had raised ECB, however after the dispersal of ECBs, the assessee undertook normal monitoring of the accounts and followed with the customers. The TPO observed that for the services rendered, the assessee did not receive any compensation from the foreign branches who advanced the ECBs to the customer s of Indian branches. In view of the .....

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n and preparation of watch list report etc. The TPO used CUP method with control transaction for computing the arm s length of the transaction as under: As discussed above, the bank has neither provided the details of net interest margin or the fee, with regard to the five continuing ECB transactions. During the F.Y.2001-02 and in earlier years, the ECBs were being provided by the foreign branches of the banks, at interest of LIBOR plus 100 to 300 basis points. In absence of details filed by the .....

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S$30 Million US$150000 48.80 7,320,000 2 Asahi India Glass JPY 163.7 Million JPY 818500 0.36807 301,265 3 Asahi India Glass JPY 328 Million JPY 1640000 0.36807 603,634 4 Air India Ltd US$7.5 Million US$37500 48.80 1,830,000 5 Chemtex Enqq Ltd US$2.45 Million US$12250 48.80 597,800 10,652,699 Therefore, the compensation at arm's length for the services rendered with regard to continued ECB transactions, works out to ₹ 10,652,699/. The spread (net interest margin) of 200 basis points is .....

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restore the issue to the TPO and therefore action of the Ld. CIT-(A) in restoring the matter was not justified. He also submitted that the assessee did not provide any data for computation of arm s length of the international transaction, and therefore action of the Assessing Officer was justified. 6.4 On the other hand, the Ld. counsel submitted that the TPO has not followed the method of computing arm s length price, prescribed under the provisions of the Act and thus, the learned CIT-(A) sho .....

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