TMI Blog2020 (9) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Nowhere it says it is confine to exempt income which is not form part of total income. Therefore, we are also incline to remit this issue back to AO to quantify the disallowance u/s 14A by eliminating the expenditure relevant for earning the above said income, it may not the interest expenditure alone, it will include the administrative and other expenditure. We urge the AO that the disallowance cannot be more than the income earned by the assessee as it is judicial precedent that the disallowance cannot be more than the income earned by the assessee. Accordingly the ground raised by the assessee is remitted back to AO to quantify the disallowance u/s 14A based on the above direction. - I.T.A. No. 4174/Mum/2014, I.T.A. No. 4330/Mum/2014 And Cross Objection No. 204/Mum/2015 - - - Dated:- 15-9-2020 - Shri Vikas Awasthy, JM And Shri S. Rifaur Rahman, AM For the Appellant : Shri Niraj Seth, AR For the Respondent : Shri Anand Mohan, DR ORDER PER S. RIFAUR RAHMAN (ACCOUNTANTMEMBER): The above two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee was asked to give the details of the amount of TDS u/s 195 of the Act on these expenses as it is paid outside India. In response, assessee submitted that such charges are in the nature of bank charges and are recovered directly by way of debit to the account with the banks. The transaction charges represent the business income of this bank which accrue/arise outside India. It is submitted that the transaction charges are for services rendered by the bank in the course of carrying on banking activities outside India and is therefore earned outside India and would not be chargeable to tax in India. Therefore, no tax is required to be deducted at source on the remittance made for transaction charges. The AO rejected the contention of the assessee and he observed that as per the Provisions of Section 195 of the Act, tax is to be deducted on any sum payable outside India, which is the income of a non-resident. In this case, the amount charged even income of the overseas branch and an expenditure of the assessee branch. Further he observed that section 40(a)(i) of the Act restricts such expenditure if no tax is deducted on the amount paid to non-resident. Therefore, he ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on assessee s own case of assessment year 2006 07 in ITA No. 6800/Mumbai/2010: a. Ld CIT(A) deleted the interest income received from head office of ₹ 14,35,542/ being income to self and holding the principle of mutuality as provided under the Act is applicable in respect of interest income earned from Head Office. For the sake of clarity, the decision of the coordinate bench is reproduced below:- 8. We have considered the submissions of the Id. Representative of the patties and have also considered the Tribunal order doled 13.11.2013 (supra) as also the order of Special Bench order of Tribunal in the case of Sumitomo Mitsui Banking Corporation 'supra). We observed that the Special Bench has held that Indian Branch of Foreign Bank being part of Foreign Bank was not separate and distinct taxable entity in India as per the domestic law. It was foreign Bank i.e. Head Office which was taxable entity in India. That the interest received by Indian Branch of foreign Bank from its head office, therefore, does not give rise to any income which is taxable in India because one could not make profit out of itself in view of above and allowing the decision of Special Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the provisions of section 14A of the Act were applicable on the exempt interest income earned from the Head Office/overseas. branches. For the limited purpose of determining the quantum of disallowance to be made u/s. I4A, the issue was finally set aside by the Tribunal w the file of the A. O. with a direction to decide the same after giving a reasonable opportunity of being heard to the assessee. Respect/idly following the order of the Tribunal dated 22.03.2013, we admit the additional ground filed by the Revenue and deciding the issue raised therein relating to the applicability of section 14A of the Act in favour of the Revenue in principle, we restore the matter to the file of the A.O. for the limited purpose of determining the quantum of disallowance to be made u/s. 14A after giving the assessee an opportunity of being heard. c. Ld CIT(A) deleted the disallowance u/s 40(a)(i) by relying in assessee s own case in ITA No. 3146/Mumbai/2009 for assessment year 2005 06. For the sake of clarity it is reproduced below: An identical issue has been decided by Hon'ble ITAT in appellant's own case in ITA No.3146/Mum/2009 for A. Y. 2005-06 wherein vide order dated 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act and no extra/additional deduction was allowable for the said expenses under any other provisions of the Act. On appeal, the Ld. CIT A) deleted the said disallowance made by the A. 0. following his appellate orders in assessee 's own case of the earlier years. 18. After considering the rival submissions and perusing the relevant material available on record, it is observed that a similar issue involved in assessee 's own case has been decided by the Tribunal consistently in favour of the assessee in the earlier years relying, inter alia, on the decision of Hon'ble Bombay High Court in the case of Commissioner of Income-tax Vs Emirates Commercial Bank Lid(2603) 262 ITR 55(Bom.) wherein it was held that the travelling expenses incurred by the Head Office on travelling of its own staff and directly in connection with India branch are allowable u/s. 37(l) of the Act and section 44C has no application to such expenses. The decision of the Tribunal A)' 1996-97 deciding similar issue in favour of the assesse has also been upheld by the Hon'ble Bombay High Court vide its order di 26.02.2013 passed in Income- lax Appeal (LOD) No. 1890 of 2012. Respectfully foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure for the purpose of earning the interest amount, provisions of section 14A are not applicable. 3. The CIT(A) erred in upholding the action of the AO that transfer pricing provisions are applicable for transactions between the branch and its Head Office/overseas branches having failed to appreciate that Indian branch and the head office are one and the same persons and not separate independent enterprises. 4. The CIT(A) erred in upholding the action of the AO in accepting the addition made by the TPO of ₹ 4,495 on interest received from the Head office having failed to appreciate the the fact that transaction entered into by the appellants with its HO are at arm's length. Your appellants crave leave to add to, alter, amend, vary, omit or substitute the aforesaid ground of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised. 9. The Assessee also filed Cross objection against the revenue appeal. 10. At the time of hearing, Ld AR submitted that the appeal filed by the revenue which has 3 grounds of appeal and fourth ground is general. He submitted that all the 3 gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various courts have considered 1% or 2% of exempt income as reasonable to disallow u/s 14A. He relied on the following cases: 1. CIT v. R.R. Sen Brothers (P) Ltd (GA No. 3019 of 2012) (Calcutta High Court order dated4 January 2013) 2. DCIT v. Growmore Leasing Investment Ltd [2017] 87 taxmann.com 294 (Mumbai - Trib.) 3. Reliance Industrial Infrastructure Limited v. Addl CIT (ITA No. 69 70/Mum/2009) 4. Godrej Agrovet Ltd v. ACIT (ITA No. 1629/Mum/2009) 5. Caylon Bank v. DDIT (4474 4649 of 2009) (Mumbai Tribunal) 6. DCIT v. Sarvodaya Sahakari Bank Limited (2014) 48 taxmann.com 82 (Ahmedabad Tribunal) 7. Godawari Power Ispat Ltd. v. DCIT (ITA No. 365 of 2014) (Raipur Bench) 14. With regard to ground No. 3 and 4, he submitted that considering the smallness of the amount involved in disallowance, he submitted that assessee prefers not to press these grounds. 15. On the other hand, Ld DR Mr. Anand Mohan relied on the order of AO. With regard to disallowance u/s 14A, he submitted that since hon ble ITAT relied on the assessee s own case of AY 1998-99, ITAT has remitted the matter to AO for quantification, in this case also, it should be remitted to AO fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem should be eliminated for taxation purpose, not just the income but also the expenditure. When the whole transaction is eliminated with the Head Office, it is important to note that it is the main business of the assessee i.e., Banking, all the relevant expenditure for carrying out these transaction also to be eliminated. Therefore, we do not agree with the assessee that only exempt income which is not part of total income alone should be considered to disallowance u/s 14A. As per the provision of section14A at that point of time, it clearly says that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Nowhere it says it is confine to exempt income which is not form part of total income. Therefore, we are also incline to remit this issue back to AO to quantify the disallowance u/s 14A by eliminating the expenditure relevant for earning the above said income, it may not the interest expenditure alone, it will include the administrative and other expenditure. We urge the AO that the disallowance cannot be more than the income earned by the assessee as it is judicial p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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