2012 (8) TMI 1031 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Head Office expenses allocated to the Indian branch.
2. Application of tax rate on the assessee's business income.
3. Attribution of interest towards tax-free bonds.
4. Validity of reopening of assessment u/s 147 r.w.s. 143(3).
5. Direction to allow interest u/s 244A.

Summary:

1. Disallowance of Head Office expenses allocated to the Indian branch:
The assessee, a commercial bank with branches in India, claimed Head Office expenses of Rs. 1,98,01,876/-. The A.O. disallowed this, stating that such expenses should be limited as per section 44-C of the Income Tax Act, 1961. The CIT(A) upheld this disallowance. However, the Tribunal, following its own earlier decisions, held that the income of the PE of the assessee should be computed as business income after allowing all expenses attributable to its business in India, including Head Office expenses. Thus, the disallowance was deleted.

2. Application of tax rate on the assessee's business income:
The assessee challenged the A.O.'s application of a 40% tax rate plus surcharge instead of 35% plus surcharge. The Tribunal, following its earlier decisions, upheld the A.O.'s application of the higher tax rate, rejecting the assessee's additional ground and C.O.

3. Attribution of interest towards tax-free bonds:
The A.O. attributed interest expenditure of Rs. 2,74,04,053/- to tax-free bonds, reducing the exempt income claimed u/s 10(33) and 10(15). The CIT(A) deleted this disallowance, citing the absence of any nexus. The Tribunal upheld the CIT(A)'s decision, noting that the A.O. did not invoke section 14A and that the consistent view of the Tribunal in the assessee's own case supported the deletion of the disallowance.

4. Validity of reopening of assessment u/s 147 r.w.s. 143(3):
The assessee contested the reopening of the assessment for A.Y. 2004-05. However, since the Tribunal decided the related appeal on merit in favor of the assessee, it did not find it necessary to adjudicate the issue of reopening, thus rejecting the grounds taken by the assessee.

5. Direction to allow interest u/s 244A:
The assessee claimed entitlement to interest u/s 244A from the date of regular assessment to the date of receipt of the refund voucher. The CIT(A) directed the A.O. to grant interest up to the date of issue of the refund voucher. The Tribunal, following its earlier decisions, set aside the issue to the A.O. for fresh consideration in light of the Tribunal's directions and according to law.

Conclusion:
The assessee's appeals for A.Y. 2003-04 and 2004-05 were partly allowed, while the Revenue's appeal and the assessee's C.O. for A.Y. 2003-04 were dismissed. The Tribunal pronounced the order in the open court on 03-08-2012.