TMI Blog2018 (5) TMI 2167X X X X Extracts X X X X X X X X Extracts X X X X ..... as stock in trade and it constitutes a business activity, hence, no disallowance under section 14A of the Act should be made - HELD THAT:- Notably, in assessment year 2009 10 [ 2017 (11) TMI 1812 - ITAT MUMBAI] while considering similar dispute relating to disallowance under section 14A, the Tribunal in order has restored the issue to the Assessing Officer. It is also relevant to mention, in the meanwhile, the judgment of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. [ 2018 (3) TMI 805 - SUPREME COURT] has been delivered. It is to be noted that in the said decision the Hon'ble Supreme Court has specifically dealt with the decision of the Hon'ble Punjab Haryana High Court in case of State Bank of Patiala [ 2017 (2) TMI 125 - PUNJAB AND HARYANA HIGH COURT] on identical issue. Undisputedly, the aforesaid decision of the Hon'ble Supreme Court having been delivered recently, the Departmental Authorities while deciding the issue did not have the benefit of it. In view of the aforesaid, we restore the issue to the file of the Assessing Officer for deciding afresh after considering the submissions made by the assessee and applying the ratio laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. Notably, while deciding identical issue arising in assessee s own case in assessment year 2009 10, [ 2017 (11) TMI 1812 - ITAT MUMBAI] followed its order passed in assessee s own case for assessment year 2004 05 and held if the Assessee has permanent establishment abroad, then, the Assessee would have to produce evidence regarding payment of taxes pertaining to the income of these establishments abroad. On production of such evidence, the Assessee would be entitled to the benefit. That evidence was always available and as noted by the Commissioner of Income Tax (Appeals) and the Tribunal. In the circumstances, the authorities did nothing but follow their earlier orders based on identical facts and circumstances. The finding of fact, therefore, cannot be termed as perverse or vitiated by any error of law apparent on the face of the record. The Appeal does not raise any substantial question of law. It is devoid of merits and is, accordingly, dismissed. Disallowance of broken period interest paid - AO noticing that the assessee has claimed deduction towards payment of broken period interest on purchase of securities by treating it as revenue expenditure called upon the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction. Explanation 1 to the proviso to section 43(5) of the Act excludes the transactions relating to trading in derivatives carried on by the Banks from the ambit of speculative transactions. AR has demonstrated before us that whenever there is profit from forward contracts assessee has offered it as business income and the Department has accepted it. If that is the case, the loss from forward contract cannot be treated as speculation loss. In any case of the matter, there is no dispute to the fact that the payment by the assessee to LBSFI is in pursuance to an award passed by a International Court of Arbitration, therefore, it is allowable as business expenditure. Thus, looked at from any angle assessee s claim is allowable. Allowing credit for TDS of foreign branches - HELD THAT:- As observed that as per section 91 of the Act if any person residing in India proves that in respect of his income which accrued or arose in the relevant previous year outside India and in respect of which he has paid tax in any country with which there is no double taxation avoidance agreement, then, such person shall be entitled to deduction from the income tax payable by him a sum calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of and examining them the Assessing Officer found that as per the working submitted by the assessee the eligible income is ₹ 200 crore. Further, on examining the working of the assessee, he found that basis for arriving at the allocable operational expenses is incorrect, since, the assessee has made such allocation on the basis of proportionate expenses on the funds deployed for earning the eligible income. Whereas, while considering the total deployed fund, the assessee has wrongly considered some of the assets as well as the liability instead of either of them. Thus, the Assessing Officer proceeded to re compute the deduction under section 36(1)(viii) of the Act by restricting it to ₹ 157.33 crore as against ₹ 200 crore claimed by the assessee. Resultantly, the difference of ₹ 42,67,00,000 was disallowed and added back to the income of the assessee. 4. Being aggrieved of such addition, assessee preferred appeal before the first appellate authority. However, the learned Commissioner (Appeals) sustained the addition stating that similar disallowance made in assessment year 2010 11 was upheld by him. 5. Learned Counsels appearing for the rival parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, called upon the assessee to furnish necessary details and also to explain why disallowance should not be made under section 14A of the Act by applying the provisions of rule 8D. Though, the assessee objected to the proposed disallowance by stating that all the securities are held as stock in trade and were made out of own funds, however, the Assessing Officer rejecting the claim of the assessee proceeded to compute disallowance under section 14A of the Act by applying rule 8D which was quantified at ₹ 59,76,26,012. 9. Assessee challenged the disallowance before the first appellate authority. However, learned Commissioner (Appeals) taking note of the fact that similar disallowance was upheld by the first appellate authority in assessment year 2009 10 and he himself has upheld such disallowance in assessment year 2010 11, sustained the disallowance made by the Assessing Officer. 10. The learned Authorised Representative reiterating the stand taken before the Departmental Authorities submitted that no disallowance under section 14A r/w rule 8D is warranted since the assessee being a banking company holds all its securities as stock in trade. In support of such content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Punjab Haryana High Court in case of State Bank of Patiala (supra) on identical issue. Undisputedly, the aforesaid decision of the Hon'ble Supreme Court having been delivered recently, the Departmental Authorities while deciding the issue did not have the benefit of it. In view of the aforesaid, we restore the issue to the file of the Assessing Officer for deciding afresh after considering the submissions made by the assessee and applying the ratio laid down by the Hon'ble Supreme Court in case of Maxopp Investment Ltd. (supra) and specifically keeping in view the observations made in Para 39 and 40 of the said judgment. This ground is allowed for statistical purposes. 15. In ground No. 3, the assessee has challenged disallowance of deduction claimed under section 36(1)(viia) of the Act in respect of provisions of bad and doubtful debts. 16. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction of ₹ 1376,51,30,099 under section 36(1)(viia) of the Act called for the necessary details to verify assessee s claim. On verifying the details he found that the assessee has made provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain amount as provided under sub clause (a) of the said provision. That being the case, assessee s claim that 10% of the aggregate average advances made by the Rural Branches and 7.5% of the total income has to be allowed as deduction irrespective of the provisions made in the books of account is not acceptable in view of the ratio laid down by the Hon'ble Punjab Haryana High Court in State Bank of Patiala (supra). However, accepting the without prejudice submissions made by the learned Counsel for the assessee we hold that the deduction under section 36(1)(viia) of the Act to the extent of provision made and available in the books of account, whether made in the current previous year or in the preceding previous years, is allowable as held by the Tribunal, Ahmedabad Bench, in Sarvodaya Sahakar Bank Ltd. (supra). The Assessing Officer is directed to examine the facts and compute the deduction under section 36(1)(viia) of the Act accordingly. This ground is partly allowed for statistical purposes. 21. In ground No. 4, the assessee has challenged the disallowance of amortization of lease premium amounting to ₹ 2,61,38,514, paid in respect of various lease hold proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputing the income the assessee has excluded the profits of the foreign branches amounting to ₹ 551,23,42,097 resorting to section 90 of the Act, called upon the assessee to explain why such income should not be included after considering the expenses against the income of the foreign branches. In reply, it was submitted by the assessee, the foreign branches from which the assessee has received such income are situated in countries with whom the Government of India has entered into double taxation avoidance agreements (DTAA). It was submitted, since the branches of the assessee in those countries constitute permanent establishment under the relevant tax treaties, the business income of the branches are taxable in the respective countries. That being the case, such profit is not taxable in India in terms of section 90 of the Act. In this context, the assessee also relied upon certain case laws. The Assessing Officer, however, did not accept the claim of the assessee and held that the income of foreign branches have to be assessed at the hands of the assessee. Accordingly, he added back the amount of ₹ 551,23,42,097 to the income of the assessee. 29. Though, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r considering the submissions, allowed the assessee s appeal. The AR, thus pointed out the relevant portion of the written submissions also placed before us. The respondent had excluded the income from foreign branches based on Double Tax Avoidance Agreement entered into between the Govt. of India and the Govt. of the respective countries. The AO had granted relief only in respect of branches at Singapore and Japan and in respect of the other branches denied the benefit to the appellant. The CIT (A) allowed the claim of the respondent based on the decision of Hon ble ITAT in appellant s own case. The respondent submits that this issue has been decided in favour of the assessee by Supreme Court of India in CIT Vs PV.AL.Kulandagan Chettiar, reported in 267 ITR 654 which upheld the decision of ITAT Chennai in the case of PV.AL.Kulandagan Chettiar Vs ITO (3 ITD 426). The ITAT had held that So the argument that the agreement must be so interpreted as to retain the taxation powers with the Government of India in order to prevent fiscal evasion has only to be rejected. The agreement is mainly for avoidance of double taxation. That means the income shall not be taxed at the same time in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue already decided by the Tribunal in assessee s own case for the earlier years have to be followed. We do not find any infirmity in the above finding of the CIT(A). Therefore consistent with the earlier finding of the Tribunal in assessee s own case for the earlier years case, we do not see any merit in the ground taken by the Revenue . The AR submitted that in the instant case also, the view should be taken in the assessee s favour. Even Hon ble Bombay High Court also confirmed the decision of Tribunal in Income Tax Appeal No. 1630/Mum/2012 vide order dated 07-01-2015, wherein Hon ble High Court has dismissed the Revenues contention by observing in Para 4 as under: - 4. With the assistance of Mr. Suresh Kumar and Sanjiv Shah, we have perused the memo of Appeal. The Assessing Officer was satisfied that the benefit of the Double Taxation Avoidance Agreement is admissible provided the proof is produced in relation to payment of taxes by the Assessee abroad. In other words, if the Assessee has permanent establishment abroad, then, the Assessee would have to produce evidence regarding payment of taxes pertaining to the income of these establishments abroad. On productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on claimed by the assessee on account of broken period interest paid and added back to the income of the assessee. Though, the assessee challenged the disallowance before the first appellate authority, however, the learned Commissioner (Appeals) sustained the disallowance made by the Assessing Officer. 36. The learned Authorised Representative submitted that the issue in dispute now stands settled in favour of the assessee by the decision of the Hon'ble Supreme Court in Citi Bank N.A. v/s CIT, Civil Appeal No. 1549 of 2006 and also the decision of the Hon'ble Jurisdictional High Court in case of CIT v/s State Bank of India, ITA No. 254 of 2014 and American Express International Banking Corporation v/s CIT, [2002] 125 taxman 488. The learned Authorised Representative submitted, as per the system of accounting followed by the assessee it offers broken period interest as income when it is received. Similarly, when the broken period interest is paid at the time of purchase of securities it is claimed as expenditure. He submitted that the distinction the Department is trying to make has already been answered by the Hon'ble Jurisdictional High Court in case of State Bank o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er referred to nor examined by the Departmental Authorities while deciding the issue. In view of the aforesaid, we restore the issue to the Assessing Officer for deciding afresh keeping in view the decisions of the Hon'ble Jurisdictional High Court referred to above and only after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes. 39. Ground No. 7 is not pressed, hence, dismissed. 40. In ground No. 8, the assessee has challenged the disallowance of ₹ 211,08,34,546, on account of loss arising out of payment made to Lehman Brothers Special Financing Inc. 41. Brief facts are, the assessee Bank is an authorized dealer in derivative, forward contract, interest rate swaps, currency swaps, etc. As per section 6 of Banking Regulation Act, the assessee is also authorized to deal in foreign exchange. As stated by the assessee, it is bound by International Swaps and Derivatives Association (ISDA) agreement as a member of dealer in derivatives. In course of such activities, assessee undertook forward contract with its customers and to safeguard its interest against fluctuation in the value of foreign exchange in respect of forwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in pursuance to such arbitration proceedings an award was passed against the assessee and the assessee had to pay compensation to LBSFI. He submitted, the loss arising to the assessee on payment of compensation is in course of its regular business activity, hence, cannot be treated as speculation loss. Therefore, the provisions of section 73 of the Act are not applicable. The learned Counsel for the assessee submitted that as per section 43(5) of the Act, transaction relating to trading in derivative by banks are not treated as speculative transaction. He submitted, whenever there is gain from forward contract the assessee has offered it as business income and the Assessing Officer has also accepted it. Thus, he submitted, if the profit from forward contract is treated as business income, the loss arising there from cannot be treated as speculation loss. The learned Counsel for the assessee submitted, in any case of the matter, loss arising to the assessee is on account of payment of liquidate damages, hence, allowable. 44. The learned Departmental Representative strongly relied upon the observations of the Assessing Officer and the learned Commissioner (Appeals). 45. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 115JB of the Act to the assessee. 51. We have considered rival submissions and perused materials on record. As could be seen, learned Commissioner (Appeals) relying upon certain judicial precedents held that as per the provisions of section 115JB of the Act applicable to the relevant assessment year, it cannot be extended to Banking companies. 52. The learned Counsels appearing for the parties have fairly agreed that the issue is covered by various judicial precedents as referred to in Para 19.2 of the order of the learned Commissioner (Appeals). In view of the aforesaid, we dismiss this ground. 53. In ground No. 5, the Revenue has challenged the directions of the learned Commissioner (Appeals) with regard to allowing credit for TDS of foreign branches. 54. We have considered rival submissions and perused materials on record. The Assessing Officer while completing the assessment did not allow credit for TDS on dividend from foreign associates amounting to 1,03,67,614. The learned Commissioner (Appeals) after considering the submissions of the assessee observed that as per the provisions of section 199 of the Act credit for TDS is to be given only when such tax is deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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