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TMI Blog2020 (11) TMI 371X X X X Extracts X X X X X X X X Extracts X X X X ..... that provisions of section 14A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") are applicable with respect to interest received by the branch of the appellants from its HO raving failed to appreciate that interest received from HO is not exempt income. 2. Without prejudice to (1) above, the CIT(A) erred in not appreciating that since the bank had not incurred any expenditure for the purpose of earning the interest amount, provisions of section 14A are not applicable. 3. Without prejudice to ground nos. 1 and 2, the CIT(A) erred in upholding the action of AO of applying the provisions of section 14A r.w. Rule 8D of the Act not appreciating that the said provisions can be invoked only if the AO is not satisfied with the correctness of the claim of the appellants in respect of such expenditure in relation to such income. Re. Relief No. 2 4. The CIT(A) erred in upholding the action of the AO of denying the appellant's claim for deduction under 44C of the Act. Re. Relief No.3 5. The CIT(A) erred in upholding the action of the AO that transfer pricing provisions are applicable for transactions between the branch and its HO/overseas branches having fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the amount of interest received from its H.O on the ground that the same was an income received from self. After deliberating on the aforesaid facts, the A.O called upon the assessee to explain that now when the H.O and the branch office were separate entities, then why the aforesaid interest income of Rs. 3,49,939/- received by it from the H.O may not be considered as part of its taxable income. In reply, it was submitted by the assessee that the ITAT vide its order dated 29.06.2012 in its own case for A.Y 1996-97 and A.Y 1997-98, had held, that the interest received by the Indian branch from its H.O could not be treated as the income of the Indian branch since it was received from self. Although, the ITAT, Mumbai as well as the Hon‟ble High Court in the assessee‟s own case for the earlier years, had held, that interest received by the assessee i.e the India branch from its H.O would not be taxable in the hands of the assessee, the A.O however taking note of the fact that the department had not accepted the aforesaid decisions and had carried the same further in appeal, declined to accept the assessee‟s claim that the interest of Rs. 3,61,762/- (as per the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for 5% of ALP. Accordingly, the A.O worked out the disallowance under Sec. 44C at an amount of Rs. 42,33,512/-. In the backdrop of his aforesaid deliberations the A.O assessed the income of the assessee at Rs. 49,77,142/-, vide his order passed under Sec. 143(3) r.w.s 92CA of the Act, dated 17.05.2013. 5. Aggrieved, the assessee assailed the assessment framed by the A.O before the CIT(A). However, the CIT(A) not finding favour with the claim of the assessee insofar the aforesaid issues were concerned, viz. (i) disallowance under Sec. 14A; and (ii) declining of the assessee‟s claim for deduction under Sec. 44C, therein upheld the same. 6. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. At the very outset of the hearing of the appeal the ld. A.R took us through the facts relevant for disposal of the same. It was submitted by the ld. A.R that the Hon‟ble High Court of Bombay in the assessee‟s own case for A.Ys 1996-97 to 1999-2000 had upheld the order of the Tribunal and had approved the assessee‟s claim for deduction of interest received by its Indian branch from its H.O. It was submitted by the ld. A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... took us through the aforesaid statutory provision. It was further submitted by the ld. A.R that in the subsequent years i.e A.Y 2010-11 and A.Y 2011-12 the assessee‟s claim for deduction under Sec. 44C had been accepted by the department. 7. Per contra, the ld. Departmental Representative (for short "D.R‟) had relied on the orders of the lower authorities. Insofar the netting of the interest income and interest expenditure for the purpose of working out the disallowance under Sec. 14A r.w Rule 8D(2)(ii) was concerned, the ld. D.R fairly accepted the claim of the counsel for the assessee. As regards the disallowance made by the A.O under Sec. 44C of the Act, it was submitted by the ld. D.R that as there was no mention of any H.O expenses attributable to the business of the assessee in India, either in the notes to accounts or the audit report of the assessee‟s India branch, therefore, the lower authorities had by rightly drawing support from sub-section (c) of Sec. 44C, therein concluded, that in the absence of any such H.O expenditure attributable to the assessee‟s business in India, the claim of the assessee under Sec. 44C was liable to be rejected. 8. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view taken by the Tribunal that the disallowance made under Sec.14A r.w Rule 8D was to be carried out on the basis of netting of the interest expenditure had dismissed the appeal of the revenue. Also, a similar view had been taken by the Hon'ble High Court of Gujarat in the case of PCIT-3, Vs. Nirma Credit and Capital (P. Ltd.) (2018) 300 CTR 286 (Guj). It was observed by the Hon‟ble High Court that for the purpose of working out the disallowance under Rule 8D(2)(ii) the amount of expenditure by way of interest would be interest paid by the assessee on borrowings minus taxable interest earned during the year. In terms of our aforesaid observations, we find ourselves to be in agreement with the claim of the ld. A.R that the disallowance under Sec. 14A r.w Rule 8D(2)(ii) as regards the interest expenditure has to be carried out after netting of the interest paid by the assessee on borrowings and the taxable interest income earned during the year under consideration. Accordingly, we direct the A.O to recompute the disallowance under Sec. 14A r.w Rule 8D(2)(ii) in terms of our aforesaid observations. We shall now advert to the claim of the ld. A.R that as the assessee had not mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44C of the Act. On the basis of his aforesaid observations the A.O disallowed the aforesaid claim of expenditure by the assessee aggregating to an amount of Rs. 42,33,512/- [Rs. 17,07,878/- (+) Rs. 25,25,634/-]. On appeal, the CIT(A) finding no infirmity in the view taken by the A.O upheld the aforesaid disallowance made by him. 11. Before us, it is the claim of the ld. A.R that both the lower authorities had misconceived or in fact misinterpreted the scope of Sec.44C of the Act. On a perusal of the orders of the lower authorities, we find, that the A.O had primarily emphasised on sub-section (c) of Sec.44C, to conclude, that as no part of the H.O expenditure was attributable to the business of the assessee in India, therefore, the assessee‟s claim for deduction under Sec.44C worked out to an amount of Rs.nil. 12. We have given a thoughtful consideration to the aforesaid issue and find substantial force in the claim of the ld. A.R that the lower authorities had failed to appreciate the scope and gamut of Sec.44C in the right perspective. For a fair appreciation of the issue under consideration we shall briefly cull out Sec.44C of the Act, which reads as under (relevant ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nviction that from the details filed by the assessee it was not clear as to whether or not the expenses incurred by the assessee were in respect of its Indian branch. Accordingly, drawing support from sub-section (c) to Sec.44C, the A.O had concluded that no amount of expenditure was allowable as deduction to the assessee under the said statutory provision. On the contrary, it was the claim of the assessee that working of the Central Administrative expenditure attributable to the Indian branch on the basis of the revenue of the Indian branch in proportion to the revenue of the bank as a whole, therein revealed, that the claim of deduction raised by the assessee @ 5% of the "adjusted total income" was substantially lower than the actual amount of H.O expenditure incurred by the assessee as was attributable to its business in India. We have given a thoughtful consideration to the aforesaid issue before us, and are persuaded to subscribe to the claim of the ld. A.R that the existence or absence of entries in the books of accounts would not be decisive or conclusive to determine the assessee‟s claim for deduction insofar Sec.44C of the Act is concerned. In fact, we are of a stro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under Sec. 44C of the Act. In our considered view the assessee had rightly claimed deduction of 5% of the "adjusted total income", as the same is lower than the amount of the head office expenditure incurred by the assessee as is attributable to its business in India. We thus, in terms of our aforesaid observations not finding favour with the view taken by the lower authorities, therein "set aside‟ the order of the CIT(A) and direct the A.O to allow the assessee‟s claim for deduction under Sec. 44C of the Act. 13. The appeal of the assessee is partly allowed in terms of our aforesaid observations. ITA No.3685/Mum/2016 A.Y. 2010-11 14. We shall now take up the appeal of the assessee for A.Y. 2010-11. The assessee has assailed the impugned order on the following grounds of appeal before us: "Re. Relief No. 1 1. The Commissioner of Income-tax (Appeals)-56, Mumbai [hereinafter referred to as "the CIT(A)"] erred in holding that provisions of section 14A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") are applicable with respect to interest received by the branch of the appellants from its HO having failed to appreciate that interest received fro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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