TMI Blog2022 (10) TMI 1238X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court. Since the matter has not reached finality, therefore this expenditure on VRS is not allowable expenditure. We are not inclined to accept the arguments proposed by the Ld. DIT and at that point of time or even now there was no decision contrary to the decision of Bhor Industries Ltd., (supra) is submitted before us or any contrary decision brought to our notice by the revenue. Therefore, we are inclined to accept the submissions made by the assessee that this expenditure on early separation scheme is favorable to the assessee on merit. Therefore, Ground No. 2 raised by the assessee is accordingly, allowed. Addition u/s 40(a)(ia) - Payment made to visa and master card - We observe that Ld. DIT observed from the record that assessee has not made the payments to visa and Master card and failed to deduct TDS for the fourth quarter. Therefore, it is disallowable u/s. 40(a)(i) of the Act. At this point of time, we observe from the submissions made by the Ld. AR that no doubt assessee has deducted TDS and remitted to the exchequer but there is several amendments and judicial precedents as well as several amendments had been made in section 40(a)(i) and 40(a)(ia) of the Act as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of accounts. Therefore, provision already made clearly suggest that the provision has to be made in the earlier year i.e., opening balance of provision balance alone should be considered for determining the deduction u/s. 36(1)(vii) of the Act. Therefore, this issue is also covered in favour of the assessee on merit and also the Assessing Officer has considered and dealt with this deduction in detail which we infer from the submissions made by the assessee. Determining the book profits u/s.115JA - DIT observed that assessee has failed to adjust provisions of section u/s. 36(1)(vii) and u/s. 36(1)(viia) of the Act in determining the book profits u/s. 115JA of the Act, and according to him they are unascertained liability - We observe that the deduction claimed u/s. 36(1)(vii) and u/s. 36(1)(viia) are not unascertained liability rather the provisions are recommended by Reserve Bank of India which has to be considered as an ascertained liability, rather the reduction of the value of the assets and which has an impact on the carryforward value assets in the Balance Sheet. On merit this issue also covered in favour of the assessee. At the time of hearing, Ld. AR filed additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, it was submitted that power u/s 263 of the Act can be exercised by the Commissioner/DIT only, and the preconditions has not been satisfied in the present case and further relied on certain case law. It was further submitted that the Assessment Order is in consonance with the decision of the Hon'ble Jurisdictional High Court. Therefore, it cannot be said that the decision is erroneous and also submitted that the Hon'ble Calcutta High Court in the case of Jeevanial v. Addl.CIT [108 ITR 407] has held that notice u/s. 263 at the instance of Audit without exercising own discretion and judgement cannot be sustained. 4. Ld.DIT rejected the submissions made by the assessee and observed that on all the issues involved herein, the Assessing Officer has not even called for the relevant information/facts from the assessee and has not applied his mind to the issues involved. 5. Ld. DIT discussed the various issues in his order and has analysed of following issues in his order are: - 6. In respect of Cost of Early Separation Scheme, Ld. DIT observed that the assessee is a foreign bank operating in India. For the current Assessment Year i.e., A.Y. 1999-2000, the assessee had debi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular/Letter does not lay down the correct legal position which is laid down by the Supreme Court in the case of Empire Jute Co Ltd. [124 ITR 1] The CBDT Circular cannot be binding upon Assessing Officers where judicial decisions are available. Sec. 35DDA was inserted in the statute wef 01/04/2001 by the Finance Act, 2001 for amortisation of VRS Expenditure 9. After considering the submissions of the assessee, Ld. DIT by fully relying on the CBDT Circular and further observed that the decision of the Hon'ble Jurisdictional High Court was not available to the Assessing Officer at the time of passing the order, it is not the case where the Assessing Officer followed the order of the Jurisdictional High Court in preference to the circular issued by the CBDT. Moreover, he observed that the order of the Hon'ble High Court was not accepted by the revenue and an SLP has been filed. The matter has not reached a finality. Therefore, he observed that the expenditure on VRS incurred by the assessee is not an allowable expenditure. 10. Next issue is relating to provisions of bad debts u/s. 36(1)(viia) of the Act, Ld. DIT observed from the final accounts for the A.Y. 1999-2000 that asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actual bad debts written off is much higher than the 5% limit, then total deduction u/s 36(1)(vii) and 36(1)(viia) will be restricted to the actual bad debts written off. Finally, he observed that the Assessment Order passed by the Assessing Officer erroneous and prejudicial to the interest of revenue. 13. The next issue is disallowance u/s. 40(a)(ia) of the Act, Ld. DIT observed that as per clause 17(f), payments to visa / master card for the period January 1999 to March 1999 aggregating to ₹.75,24,627/- was required to be disallowed u/s 40(1)(i), for non-payment of TDS. Subsequently payment of TDS on this remittance had not been indicated and this was not added back in the returned assessment. In response assessee vide letter dated 22.12.2003 submitted as under: - Visa and Mastercard have no PE in India. Visa and Mastercard are not profit making bodies. These entities are acting the principles of mutuality. Surplus accruing to a mutual concern cannot be regarded as income. U/s 195(1), tax is required to be deducted only if the payment is chargeable to tax. Deduction of Rs. 1,30,83,741/- being payment made to Mastercard and Visa disallowed in the AY. 1997-98 to be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to the revenue and the decision of the ITAT and the interpretation was not accepted by the Department. Accordingly, he proceeded to make adjustment of book profit and accordingly, determined the liability u/s.115JAA of the Act. Hence, he directed the Assessing Officer to give effect as per the direction of his order. 18. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - 1. Revision bad in law On facts and circumstances of the case the learned Director of Income-tax (International Taxation) (DIT) erred in law in exercising the powers u/s 263 of the Income-tax Act, 1961 when the order of the assessing officer was neither erroneous nor prejudicial to the interest of the revenue. That on facts and circumstances of the case the learned DIT erred in not accepting theappellant's contentions that the proceedings be dropped. That on facts and circumstances the learned DIT erred in holding that the proceedings were validly initiated. 2. Early Separation Scheme Expenditure The learned DIT erred in holding that the expenditure of Rs. 165.38.21,000/- incurred bythe appellant bank on its early separation scheme was capital expenditure to be disallowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MasterCard came within the purview of section 40 (a) (i). That the learned erred in holding that the provisions of section 195(1) applied to thepayment when the section required tax to be deducted only if income was chargeable to taxin India. That the payment to Visa and MasterCard being not liable to tax in India the appellant had no legal obligation to withhold tax. 4. Adjustment to Book-Profit u/s 115JA- Provision for bad and doubtful debts That on the facts and in the circumstances of the case, the learned DIT erred in making adjustment of Rs. 53,78,40,000/- being provision made for bad and doubtful debts, to the Book Profit. That the learned DIT erred in law in holding that the above adjustment fell within the ambit of explanation c to section 115JA (2) which permits the book profit to be increased by the amount set aside to provisions made for meeting liabilities, other than ascertained liabilities. That the learned DIT erred in law as such a provision for bad and doubtful debts was a not liability. That the learned DIT should have held that the provision for doubtful debts was not a provision as defined by the Para 7(1)(a) of Part 111 to Schedule VI to the Companies Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also is in favour of the assessee on merit. 21. With regard to issue u/s. 40(a)(i) of the Act, Ld. AR submitted that during the assessment year under consideration, the Assessee had inter alia claimed deduction of ₹.75,24,627 with respect to payments made to MasterCard and VISA. The Ld. DIT vide its order dated 12 March 2004 passed u/s. 263 of the Act disallowed inter alia the aforesaid payment/ deduction u/s. 40(a)(i) of the Act, on account of non-deduction of tax at source allegedly deductible at source. Therefore, the Assessee has filed this appeal challenging inter alia the aforesaid disallowance. 22. The Assessee before us raised the following two propositions/arguments: 23. Proposition/Argument 1: Once the amount has been offered as income and tax has been paid by the recipient, in view of proviso to section 40(a)(i) of the Act, no disallowance can be made. 24. The issue, the Assessee submits, no longer remains res-integra. The Tribunal in the Assessee's own case (ITA No. 6100/Mum/02 and ITA No. 6101/Mum/92) for the captioned assessment year held the Assessee as not to be in default for the very same payments made to VISA and Mastercard. The decision of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stands satisfied. Further, the Assessee submitted that second proviso to section 40(a)(i) of the Act has been held to be retrospective by the co-ordinate Benches of the Tribunal in the case of Celltick Mobile Media (1) P. Ltd. v. DCIT (188 ITD 883) (Mum. Trib) (copy enclosed) and Tirummathi Kannammal Education Trust v. ITO, IT (140 taxmann.com 76) (Chen. Trib.) (copy enclosed). 26. The Assessee further submits that in the context of identical provision contained in second proviso to section 40(a)(ia) of the Act, the Hon'ble Jurisdictional High Court in the case of Pr. CIT vs. Perfect Circle India P. Ltd. (ITA NO. 707 of 2016 dated January 1, 2019) (copy enclosed) has held the same to be retrospective in nature. 27. Proposition/Argument 2: Without prejudice, the Assessee submits that it has been held in series of decisions that where an Indian resident has paid an amount to Master Card or Visa prior to insertion of section 40(a)(ia) with effect from April 1, 2005, in view of Article 26(3) of India USA Treaty disallowance under section 40(a)(i) could not be made. The Assessee submits that when payment is made by a Resident, disallowance under section 40(a)(i) is not attracted, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure, and therefore, the Assessee submitted that the order must not stand or fail on the basis of reasoning given in the order only. 31. With regard to 115JA he brought to our notice findings of Ld. DIT at Page No. 7 of the 263 order and submitted that the provision of section 115JA is not applicable to the banks. Ld. DIT has applied this provision but subsequently various courts have held that section 115JA is not applicable to the banks. In this regard he brought to our notice Page No. 21 of the Paper Book and relied on the decision of the Hon'ble Bombay High Court in the case of CIT LTU v. Union Bank of India [2019] 105 taxmann.com 253 (Bombay) and brought to our notice the findings of the Hon'ble High Court. Further, he submitted that this provision is not applicable to the banking company as held in assessee s own case and brought to our notice findings of the Assessing Officer in his order in which he has clearly agreed with the above said view. 32. Considering the above submissions, Ld. AR submitted that no doubt Ld.DIT initiated the proceedings u/s. 263 of the Act but by considering the above submissions it is clear that all the issues raised by the Ld. DIT, by r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed in his order that Hon'ble High Court decision was not accepted by the revenue and an SLP has been filed before Hon'ble Supreme Court. Since the matter has not reached finality, therefore this expenditure on VRS is not allowable expenditure. We are not inclined to accept the arguments proposed by the Ld. DIT and at that point of time or even now there was no decision contrary to the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Bhor Industries Ltd., (supra) is submitted before us or any contrary decision brought to our notice by the revenue. Therefore, we are inclined to accept the submissions made by the assessee that this expenditure on early separation scheme is favorable to the assessee on merit. Therefore, Ground No. 2 raised by the assessee is accordingly, allowed. 36. Coming to the Ground No. 3 which is relating to payment made to visa and master card. We observe that Ld. DIT observed from the record that assessee has not made the payments to visa and Master card and failed to deduct TDS for the fourth quarter. Therefore, it is disallowable u/s. 40(a)(i) of the Act. At this point of time, we observe from the submissions made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as already furnished certificate from a chartered accountant, return of income and computation of income under section 139. Further we also noticed that the income of the payee is not chargeable to tax in India as per the decision of the coordinate bench. Even though as submitted by learned DR that the matter of payee is pending before High Court. In our view, as far as the current position available on record that the income of the payee is not chargeable to tax in India. Considering the facts on record and additional ground raised by the assessee. The question raised before us that whether the amendments made in Section 40(a)(i) is applicable retrospective or not. It is clear that the 2nd proviso to section 40(a)(ia) and section 40(a)(i) are evenly worded and Pari materia to each other. Both the provisions were introduced by the legislature in order to remove the anomaly and curative in nature. In the case of section 40(a)(ia) the Hon ble Bombay High Court in the case of Perfect Circle India Pvt. Ltd. (supra) and Hon ble Delhi High Court in the case of Ansal Land Mark Township (P) Ltd. (supra) have already held that these provisions are applicable retrospectively with effect from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt which is required u/s. 36(1)(vii) of the Act. However, we observe that Ld. AR of the assessee submitted that the provisions made to determine the deductibility requirement u/s.36(1)(vii) has to be on the opening balance of the provision not on the closing balance of the provision as suggested by the Ld. DIT. We observe that the calculation submitted before us clearly indicates that assessee has calculated the bad debts allowable based on the provisions made by them in the earlier Assessment Years to the extent they have made the claim for actual bad debts after adjusting the relevant deduction u/s. 36(1)(viia) of the Act . In our considered view, this issue already settled by now that u/s.36(1)(vii) of the Act, assessee is allowed to claim the deduction only to the extent of the provisions already made in the books of accounts. Therefore, provision already made clearly suggest that the provision has to be made in the earlier year i.e., opening balance of provision balance alone should be considered for determining the deduction u/s. 36(1)(vii) of the Act. Therefore, this issue is also covered in favour of the assessee on merit and also the Assessing Officer has considered and de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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