TMI Blog2024 (2) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... count of evaluation of the contract on the last date of the accounting period i.e. before the date of maturity of the forward contract Loss claimed by the assessee is to be allowed as a deduction. During the course of hearing, the Ld.AR fairly conceded that the gain on MTM which has been held to be treated as income of the assessee in the order passed under section 154 can be reversed in case the MTM loss is held to be allowed as a deduction. Accordingly, we direct the Assessing Officer to reconsider the order passed under section 154 reversing the MTM gain and bring the same to tax accordingly. Disallowance u/s 14A - assessee has not discharged the onus of evidencing the source of investment is from own funds - assessee has made a suo motu disallowance - HELD THAT:- Though AO admits that Rule 8D is prospective he proceeded to make the disallowance, stating that the assessee in its without prejudice submission has furnished the working of disallowance under section 14A as per Rule 8D. This, in our view, is not a correct approach, since for the year under consideration, Rule 8D is not applicable. It is an undisputed fact acknowledged by the assessing officer that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the amount of loan given, amount realized from the borrower, un-recovered amount, the amount realized on sale, how the net loss is computed etc., and these need to be factually verified. From the details submitted, it is not clear as to how the loss finally claimed is computed i.e. the loss is arising out of the difference between the unrecovered portion of the loan after setting off the amount realized from sale of the re-possessed assets. We, therefore, remit the issue back to the Assessing Officer for fresh examination and direct the assessee to furnish the complete details of loans given, the nature of assets re-possessed, sale value of the re-possessed assets and how loss is computed. It is ordered accordingly. Disallowance towards proportionate claim of issue and discount expenses on bonds while completing assessment under section 143(3) - CIT(A) dismissed the ground stating that the same is not arising out of the assessment order and there is no finding given by the Assessing Officer in this regard in the assessment order - HELD THAT:- We notice that the co-ordinate bench in assessee s own case for A.Y. 2002-03 [ 2015 (2) TMI 1267 - ITAT MUMBAI] had considered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005-06 [ 2017 (11) TMI 1839 - ITAT MUMBAI] has considered there is no new lease transaction. The assessee has claimed depreciation on its own fixed assets and depreciation claimed on leased assets were continuing from past lease transactions. Decided against revenue. Addition of non-cash write back made u/s 41(4) - assessee in the financial statements has shown as write back of bad-debts in respect of interest and principle of loan credit card right off in earlier year - AO held that since the assessee is following mercantile system of accounting even though no cash recovery is made, the non-cash write backs also should be brought to tax - HELD THAT:- The Co- ordinate Bench in assessee s own case [ 2017 (11) TMI 1839 - ITAT MUMBAI] for AY 2004-05 and 2005-06 restored the matter back to the file of the Assessing Officer for considering afresh. Respectfully following the above decision of the Tribunal, the issue is restored to the file of the AO with similar directions. This ground of the Revenue is allowed for statistical purposes. Nature of expenses - expenses towards club entrance fees and subscription - revenue or capital expenditure - HELD THAT:- The facts for the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. Item of disallowance / addition Amount Rs. 1 2 Depreciation on leased assets 43,43,25,891 2 Addition of non cash write back made under section 41(4) 56,19,378 3 Club Membership Fees 1,13,85,062 4 5 General 3. The assessee is engaged in the business of banking and related activities. The assessee filed the return of income for AY 2007-08 on 31.10.2007 declaring the total income of Rs. 30,91,68,39,720/-. The assessee later filed a revised return of income on 14.11.2007 declaring the total income of Rs. 30,91,68,39,714 which was once again revised on 28.03.2009 declaring the total income of Rs. 31,23,71,65,697. The assessee vide letter dated 04.03.2010 filed during the course of assessment proceedings filed the revised computation declaring the total income at Rs. 33,89,66,57,390/- under normal provisions of the Act and the total income under section 115JB of the Income Tax Act (the Act) of Rs. 27,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee filed a petition under section 154 to reverse the MTM gains offered to tax and the Assessing Officer reversed the gain offered to tax. The ld AR fairly submitted that if the MTM loss is allowed as a deduction, then directions may be given to the assessing officer to bring the MTM gain reverse back to tax. 6. The Ld. DR, on the other hand, vehemently argued that the MTM loss is not the real loss incurred by the assessee, but arise out of the re-instatement of the derivatives which is notional in nature. Accordingly, the Ld. DR submitted that the lower authorities have correctly disallowed the said loss. The Ld. DR made a without prejudice submission that if the loss is to be allowed as a deduction, then the gain which was deleted by the order under section 154 should be brought back to tax. 7. We heard the parties and perused the material on record. We notice that the Special Bench of the Tribunal in the case of DCIT vs Bank of Bahrain Kuwait (supra) has considered the issue of allowability of loss arising out of MTM re-investment of foreign exchange contracts and held that 58. In view of the above discussion, we allow the assessee s appeal for the following reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer invoked the provisions of section 14A stating that the assessee has not discharged the onus of evidencing the source of investment is from own funds. Accordingly the assessing officer made a disallowance of Rs. 458.866 crores towards interest paid and Rs. 17.37 crores towards administration expenses after adjusting the suo moto disallowance made by the assessee. Before the CIT(A) the assessee submitted that the assessing officer has made the disallowance under Rule 8D which is not applicable for the year under consideration. The CIT(A) held that even in the year in which Rule 8D was not available disallowance can be made on a reasonable basis and accordingly upheld the disallowance stating that the Assessing Officer has made the disallowance on reasonable basis. 10. Before us, the Ld.AR submitted that the provisions of Rule 8D are applicable only prospectively from A.Y. 2008-09 and, therefore, the Assessing Officer is not correct in applying rule 8D for the year under consideration. The Ld.AR drew our attention to page 21 of the assessment order in which the Assessing Officer himself admits the fact that the assessee is having interest free funds of Rs. 4603 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly, we hold that no disallowance is warranted and the addition made by the Assessing Officer is deleted. DISALLOWANCE OF BAD DEBTS WRITTEN OFF 14. The assessee, during the year under consideration has written off a sum of Rs. 437,82,57,646/- as bad and doubtful debts. This claim was made after adjusting the credit balance of Rs. 201,49,16,575/- in the provision for bad and doubtful debts. Accordingly, the assessee claimed the net amount of Rs. 236,33,41,071/- as bad debts under section 36(1)(vii). The Assessing Officer held that only writing off of the debts as bad debt in the accounts is not enough and that the assessee is required to furnish complete information to the Assessing Officer to prove with conclusive evidence that the debts have become bad. The Assessing Officer further held that the assessee should furnish the documents, correspondence, action taken, etc. before the assessing authority to demonstrate that the facts which compelled them to reach the conclusion that the debt is irrecoverable. The assessee contended that as per the amended provisions of section 36(1)(vii), the assessee is not required to show that the amount had become bad and that the writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(vii) from 1st April 1989, once the assessee writes-off the bad debt as irrecoverable in its accounts it will satisfy the condition of 'the said provisions and the assessee is no more required to establish that the debt has actually become irrecoverable. The Hon'ble Supreme Court in TRF Ltd. v/s CIT, [2010] 230 ITR 14 (SC), has expressed this view. Further, in case of Vijaya Bank Ltd. v/s CIT, [2010] 323 ITR 166 (SC), the Hon'ble Apex Court held that mere debit to the Profit Loss account is not sufficient to claim write-off as the assessee has to simultaneously reduce the amount from loans and advances or debtors on assets side of the Balance Sheet to claim right-off. The Hon'ble Supreme Court observed, closing down individual account of each debtor in the hooks of account is not-necessary. However, the Hon'ble Supreme Court taking note of Explanation-1 to section 36(1)(vii) of the Act observed that mere provisions for bad debt will not entitle for deduction under section 36(1)(vii) of the Act. On a careful perusal of the assessment order, we have noted that in case of some of the debtors the Assessing Officer has alleged that they are in the nature of mere p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, should be allowed as a deduction. The Ld.AR further drew our attention to the details furnished before the Assessing Officer (pages 436 to 667 of paper book). 22. The Ld. DR, on the other hand, submitted that the assessee has not discharged the onus that the loss incurred is in the regular course of business and also the computation of reported loss is arrived at. Accordingly, the Ld. DR prayed that the issue may go back to the Assessing Officer for verification, afresh. 23. We heard the parties and perused the material on record. The breakup of the loss on sale of re-possessed assets claimed by the assessee is as given below:- Disallowance of Business Loss and other expenses 178,09,16,700 Loss on sale of repossessed assets Auto Loans 43,61,88474 Construction equipment 61,39,328 Construction durable 34,19,331 Commercial Vehicles 61,03,76,060 Farm Equipment 38,07,55,377 Two wheeler ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the Ld.AR submitted that the assessee should be allowed the proportionate claim pertaining to the year under consideration as per the directions of the Tribunal. The Ld.AR also submitted that the Assessing Officer for A.Y. 2014-15 had allowed the said expenditure based on the directions of the ITAT. 27. We heard the parties and perused he materials on record. We notice that the co-ordinate bench in assessee s own case for A.Y. 2002-03 had considered the similar issue and has issued a direction to spread the expenditure over the tenure of the bond. The relevant finding of the Tribunal in this regard is extracted below:- 22. We have heard the rival contentions of the parties and perused the material available on record. As far as the nature of expenditure it of bonds / debenture and issue expenses are concerned, dispute that such expenditure is revenue in nature. In fact, in case o Madras Industrial Corp. (supra), the Hon'ble Supreme Court expenditure incurred on issue and discount of bond / debenture are revenue in nature as the liability incurred by the assessee is wholly and exclusively for the purpose of business, However, at the same time, the Hon'ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made the claim through a letter towards deduction under section 88E. The CIT(A) rejected the ground raised by the assessee in this regard stating that the Assessing Officer has not made any discussion in the assessment order and, therefore, the impugned issue does not arise out of the findings of the Assessing Officer. Accordingly, the CIT(A) did not consider the claim of the assessee. 30. The Ld.AR submitted that the claim is submitted before the Assessing Officer vide letter dated 26/11/2010 in form 10BB and 10DC which have not been considered by the Assessing Officer. The Ld.AR also submitted that in the subsequent years, when the claim was made in the return of income, the Assessing Officer has allowed the said claim. 31. The Ld. DR, on the other hand, submitted that the claim which is not made by the assessee in the return of income cannot be entertained. 32. We heard the parties and perused the material on record. From the submissions of the Ld.AR it is noticed that the assessee has been allowed the rebate under section 88E in the subsequent assessment years, i.e. A.Ys 2006-07 and 2008-09 when the same is claimed in the return of income by the assessee. We, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied the book profit computed by it. The learned Commissioner (Appeals) after considering the submissions of the assessee directed the Assessing Officer to compute the book profit as worked out by the assessee subject to the modification to be made on account of relief granted to the assessee towards expenditure disallowable under section 14A of the Act. Admittedly, the assessee has not challenged the aforesaid decision of the learned Commissioner (Appeals). Learned Departmental Representative has also not . .advanced any substantive argument to defer from the view expressed by the learned Commissioner (Appeals). In any case of the matter, as per the decision of. the Co-ordinate Bench in Krung Thai Bank v/s JDIT, 45 DTR 218, and subsequent decisions of different Benches of the Tribunal, , provisions of section 115JB AND 115J Act are not applicable to banking companies, In view of the .aforesaid, we do not find any reason to interfere With, the order .of the learned Commissioner (Appeals) on this issue. Accordingly we uphold the order of the learned Commissioner (Appeals) by dismissing-the ground no.11 raised by the Revenue. 39. Respectfully following the above decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 H C L Comnet Systems Services Ltd (Seg) 33.72 14 ICRA Techno Analytics Ltd(Seg.) 12.24 15 Informed Technologies India Ltd 35.56 16 Infosys B P O Ltd 28.78 17 IServices India Pvt Ltd 49.46 18 Maple Esolutions Ltd 33.94 19 Mold-Tek Technologies Ltd 101.70 20 R Systems International Ltd(Seg.) 12.17 21 Spanco Ltd (Seg.) 25.20 22 Triton Corp Ltd 34.93 23 Vishal Information Technologies Ltd 51.18 24 Wipro Ltd (Seg.) 29.70 Average 29.38 41. Accordingly, the TPO worked the adjustment as below:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies who have diminishing revenues/persistent losses for the last three years up to and including FY2006-07 are excluded Para 8 page 3 of the TPO order 7 Companies having different financial year ending (i.e. not March 31, 2007) or data of the company does not fall within the relevant 12 month period i.e. 01-04- 2006 to 31-03-2007 are excluded Para 8 page 3 of the TPO order 8 Companies that are functionally different from the taxpayer are excluded Para 8 page 3 of the TPO order 9 Companies that are having peculiar economic circumstances are excluded Para 8 page 3 of the TPO order 44. Further, the ld. AR presented specific arguments regarding the inclusion of comparables which are tabulated below Sr. No. Company name Reason for exclusion 1 Accentia Technologies Ltd. Fails TPO filter no. 8 as company is functionally different as company is providing medical transcription, coding an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing services and sub license 8 Infosys BPO Ltd. In Bombay HC-Pentair Water India P. Ltd. company was excluded on the basis of high turnover (Rs. 649 crore against Rs 11 crore) 9 Maple Solutions Ltd. Fails TPO filter no. 8 as company is functionally different as company is in the business call centre services and sale of software. As held in various case laws, since the directors are involved in fraud, financials are unreliable 10 Mold-Tek Technologies Ltd. Fails TPO filter no. 8 as company is functionally different as company is business of plastic and IT. IT division of the company is providing structural engineering and healthcare billing services. Fails TPO filter no. 3 as ITES revenue is less than 75% of total revenue i.e. ITES revenue of Rs. 11.40 crore is 13% of total revenue of Rs. 88.11 crore 11 R Systems International Ltd. Fails TPO filter no. 8 as company is functionally different as business is of sale of software products and rendering software devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated transactions Ensuring accounting of deals after deal validation and manual entries are posted where system support is not available Validation of deals, confirmation and settlement of deals Verification of transactions entered with the documents, sending deal confirmations to counter parties, settlement of deals Settlement-related activities Preparation of reports and MIS, follow up with counter party in case of non payment, SWIFT inward and outward management Reconciliation of treasury accounts, bonds, inventory, etc Review of nostro accounts reconciliations, reconciliation of inventory of bonds/securities of subsidiary treasury between clearing house, internal ledger balances etc. Development of operational policies Ensuring that operational policies of the subsidiary are aligned to the Bank's policy Preparation of reports Preparation and sending MIS reports Cash and Fund management Transfer of funds as per directions of AE to corresponding central bank for liquidity management Note: Revenue from this service constitutes 24% of total activity Back office account processing and related activities Processing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ld. AR that the company is not functionally comparable with the assessee which is engaged in providing back office support services to its AE, therefore, we hold that Accentia Technologies Ltd. be excluded from the list of comparables. Bodhtree Consulting Ltd. From the perusal of the Director s report (page 769 of PB) of the company where it is stated that Bodhtree has only one segment namely software development and is engaged in providing open and end to end web solutions, software consultancy, design and development of solutions using latest technology. We also noticed that the income of the company (page 772 of PB) mainly consists of export sales from software development services, therefore, in our considered view the functions of the company is different from that of the assessee which is rendering captive back office support services to its AE. Accordingly, we direct the TPO to exclude Bodhtree Consulting Ltd. from the list of comparables. Cosmic Global Ltd. From the perusal of the financial statement of the company (page 830 of PB), the company is deriving income from medical transcription and consultancy services from translation charges and their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office service provider to its AE in various banking related activities. Accordingly, we hold that Genesys International Corporation Ltd. is not functionally comparable with the assessee and therefore to be excluded from the list of comparables. HCL Comnet Systems and Services Ltd. The exclusion of this company is contended on the ground that the company has prepared the financial statements for the year ended 30.06 whereas the assessee is financial year ended is 31.03. It is also contended that the company is having large scale operations as compared to the assessee and therefore, the same is to be excluded. In this regard, we noticed that from the perusal of the P L A/c of the company. The company is having revenue of Rs. 314 crores which is significantly higher than the turnover of the assessee from back office support services. Further, it is noted that the Jurisdictional High Court in the case of CIT Vs. Pentair Water India Pvt. Ltd. (ITA No.18/2015) had rejected the inclusion of the company for the reason that the company is having large turnover. On perusal of the annual accounts of the company (page 887 of PB) we noticed that in ITES Segment, the company is rende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover filter should also be applied in order to excluded companies having very high turnover. We noticed in this regard that Hon ble Bombay High Court in the case of Pentair Water India P. Ltd. (supra) has excluded the company on the basis of high turnover and also that on same basis the company is excluded in various decisions of the Jurisdictional High Court and also in the decisions of the Co- ordinate Bench. In view of this discussion, we are of the view that the company is not comparable with the assessee and therefore, we direct the TPO to exclude Infosys PBP Ltd. from the list of comparables. Maple Solutions Ltd. From the perusal of the P L A/c (page 959 of PB), we noticed that the operating revenue of the company is mainly deriving from call centre services and nominal income is derived from sale of software. It is also submitted by the ld. AR during the course of hearing that in various decisions including the decision of the Co- ordinate Bench in the case of Morgan Stanley Advantage Services Pvt. Ltd. (supra) it has been held that since the directors of the company are involved in fraud, the financials of the company are unreliable and therefore, cannot be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable with the assessee and accordingly we hold that R Systems International Ltd. be excluded from the list of comparables. Spanco Ltd. The exclusion of the company is sought on the ground of functionality dissimilar and that the ITES revenue is only 8.2% of the total revenue of the company. On perusal of the annual accounts of the company, we noticed that the main revenue of the company is derived from sale of Network Integration and other traded goods and also from sale of developed software and service income from network integration and others (page 1027 of PB). On further perusal, we noticed that the income derived from BPO operations is Rs. 35 crores out of the total turnover of Rs. 426 crores which is around 8.2%. From the perusal of the filters applied by the TPO which is extracted in the earlier part of this order one of the filters applied is to exclude companies whose ITES revenue is less than 75% of the total revenue. Accordingly, the company whose income from ITES is 8.2% fails the filter applied by the TPO and should be excluded accordingly. It is also noted that even on functionality the company is not comparable to that of the assessee since the major b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73/60 taxmann.com 355 (Delhi) wherein, the High Court has held that this comparable could not be considered, as a comparable because of its business model was completely different. In view of the decision of the Delhi High Court as well as the decision of the co-ordinate bench in assessee's own case, the Assessing Officer/TPO was to be directed to exclude Vishal information technologies Ltd. from comparability analysis. The ratio laid down by the Tribunal in the above case is that the outsourcing model has its impact on the overall profitability of the company and therefore the business model of the comparable company is different than the assessee and hence it is required to be excluded. In assessee's case, the back office support services are rendered by the assessee through its own staff and therefore the business model of the assessee is different from that of the company. According we hold that Vishal information technologies Ltd. be excluded from the list of comparables. Wipro Ltd From the perusal of the financial statement of the company we notice that the revenue generated by the company from ITES services is 939.78 cores (page 1079 of paper book) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cyber Media events Limited 10.64 Educational Consultants (India) Limited 10.64 ICRA Management Consulting Services Ltd 15.23 IDC (India) Limited 15.33 NTPC Electric Supply Co.Ltd. 16.78 Arithmetic mean 11.59 51. Accordingly, the TPO made a TP adjustment as per below working:- Amount Rs. A Operating cost 1,51,79,844 B Mark up @11.59% 17,59,344 C ALP (A+B) 1,69,39,188 D Price actually charged 1,51,79,844 E Adjustment (C-D) 17,59,344 52. The ld. AR reiterated the submissions made before the TPO. The ld AR submitted that these cost are incurred towards common services rendered by the third parties which are used by the AEs and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the issue is covered in favour of the assessee by the decision of the Tribunal in assessee s own case for preceding assessment year as submitted in the paper book. As could be seen from the material on record, in the impugned assessment year, there is no new lease transaction. The assessee has claimed depreciation on its own fixed assets and depreciation claimed on leased assets were continuing from past lease transactions. Notably, in assessment year 1997 98, the Tribunal while deciding the issue in ITA no.5424/Mum./2001, dated 13 th July 2016, had allowed assessee s claim of depreciation. The same view was reiterated by the Tribunal while deciding the cross appeals for assessment year 2000 01 in ITA no.4657/Mum./2004 and ITA no.4826/Mum./2004 dated 31 st January 2017. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) on this issue. Ground no.3 is dismissed. 58. Considering the fact that no new lease transactions are entered into by the assessee during the year and that the Co-ordinate Bench has been consistently hold the issue in favour of the assessee, where for the year under consideration see no reason to interfere with the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer for considering afresh. In fact, in assessment year 2002 03 also in assessee s own case, the Tribunal while deciding identical issue in ITA no.836/Mum./2008 and ITA no.392/Mum./2008 dated 7th July 2017, has restored the issue to the Assessing Officer for considering afresh keeping in view the directions of the Tribunal in the preceding assessment year. Therefore, consistent with the view expressed by the Tribunal in the preceding assessment year as referred to above, we restore the issue to the file of the Assessing Officer for considering afresh with similar direction and only after reasonable opportunity of being heard to the assessee. Ground no.4, raised by the Revenue is allowed for statistical purposes. 63. Respectfully following the above decision of the Tribunal, the issue is restored to the file of the AO with similar directions. This ground of the Revenue is allowed for statistical purposes. CLUB MEMBERSHIP FEES 64. The AO noticed from the Tax Audit Report that the assessee has incurred expenses towards club entrance fees and subscription to the extent of Rs. 1,13,85,062/-. The assessee submitted that the Membership Fees paid to Club is allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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