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2018 (4) TMI 1723 - AT - Income TaxIncome accrued in India - Taxability in India - Exclusion of income of Foreign branches - AO while relying upon the Notification No. S 2123(e) dated 28.08.2008 treated the income of foreign branches as taxable in India. - assessee submits that the assessee excluded the income from foreign branches on the basis of Double Taxation Avoidance Agreement (DTAA) with respective countries and the income arising from those branches situated in contracting state cannot be taxed in India - HELD THAT - As decided in own case 2017 (2) TMI 1422 - ITAT MUMBAI income of the foreign branches of the assessee shall also be taxable in India, that is, it would be included in the return income filed by the assessee in India and whatever taxes have been paid by the branches in the other countries credit of such taxes shall be given. We find that the Tribunal as above has not held that it is only that income of the foreign branches which was taxed in that foreign country which is to be included in the return of income filed by the assessee. Hence, we are in agreement with the revenue plea that Ld. CIT-A has not properly followed the Tribunal decision as referred by him . A reading of the notification canvassed by the assessee also does not help the case of assessee. The notification also does not support the direction of CIT-A. The doctrine of stare decisis mandates that we follow the coordinate bench decision as above and hold that the income of the branches of assessee situated abroad shall also be taxable in India and whatever tax have been paid by the branches in the foreign country, credit of such taxed shall be given. Accordingly, we allow the ground raised by the revenue. Disallowance of broken period interest expenses - HELD THAT - As decided in own case 2018 (3) TMI 1777 - ITAT MUMBAI Hon ble Bombay High Court in CIT Vs. HDFC Bank Ltd 2014 (8) TMI 119 - BOMBAY HIGH COURT while relying on the ratio laid down in its earlier decision in American Express International Banking Corporation Vs. CIT 2002 (9) TMI 96 - BOMBAY HIGH COURT which in turn, had distinguished the ratio laid down by the Hon ble Supreme Court in Vijaya Bank Vs. CIT 1990 (9) TMI 5 - SUPREME COURT and CIT Vs. Bank of Rajasthan Ltd 2008 (3) TMI 325 - RAJASTHAN HIGH COURT and had held that broken period interest is allowable as deduction. Following the same parity of reasoning, we hold that the assessee is entitled to the claim of broken period interest. Disallowance u/s 14A computed as per rule 8D - HELD THAT - As decided in own case 2017 (2) TMI 1422 - ITAT MUMBAI assessee has submitted that several more decisions have come which have upheld the view that disallowance under section 14A is not required when the investment is held as stock in trade. In our considered opinion we should follow the doctrine of stare decisis. Accordingly following the same directions as above we remit this issue to the file of the assessing officer. Recently in Maxopp Investment Ltd. Vs Commissioner of Income-tax 2018 (3) TMI 805 - SUPREME COURT has held that in cases, where shares are held as stock-in-trade, main purpose is to trade in those shares and earn profits therefrom, in the process, certain dividend is also earned, though incidentally, which is also an income. This triggers applicability of section 14A which is based on theory of apportionment of expenditure between taxable and non-taxable income. Therefore, to that extent, expenditure incurred in acquiring those shares will have to be apportioned - this ground of appeal is restored to the file of Assessing Officer for deciding the issue afresh Methods of accounting for Provision for bad and doubtful debts - Provision for bad and doubtful debts u/s 36(1) (viia) to the extent of provision made in books during the previous year instead of the eligible amount as per the said section - Assessee relied upon the decision of Prathma Bank 2017 (9) TMI 106 - ITAT DELHI and submitted that the Provision for bad and doubtful held by the assessee as at the year end should be considered for allowing deduction u/s36(1)(viia) - HELD THAT - There are two methods of accounting for Provision for bad and doubtful debts. The first method is to reverse the Opening balance standing under the head Provision for bad and doubtful debts by crediting to the Profit and Loss account and then create fresh Provision for Bad and Doubtful debts by debiting the Profit and loss account. If this method had been followed, then the revenue might not have objected to allow the amount debited to Profit and loss account u/s 36(1)(viia) of the Act. The second method is to retain the Opening balance of Provision for bad and doubtful debts in the Balance sheet and create provision for incremental amount alone by debiting Profit and Loss account. The incremental amount is added to the opening balance of Provision for bad and doubtful debts . If second method is followed, then the closing balance of Provision for bad and doubtful debts has to be considered for the purposes of sec. 36(1)(viia) of the Act. Hence, if the assessee has followed the second method, then there is merit in the claim of the assessee. Accordingly we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine the method followed by the assessee MAT applicability of section 115JB - HELD THAT - AO applied the provision of section 115JB on his observation that every assessee which is company, has to prepare its account as per part II and III of schedule VI of Companies Act. However, the ld CIT(A) allowed the relief to the assessee on the basis of decision of Mumbai Tribunal in case of Bank of India Vs ACIT 2014 (5) TMI 929 - ITAT MUMBAI and in case of Union Bank of India Vs ACIT 2013 (1) TMI 785 - ITAT MUMBAI wherein the Tribunal held that provisions of section 115JB are not applicable in case of assessee bank. No contrary decision is brought to our notice. Thus, we do not find any reason to interfere to the finding of the ld. CIT (A). Taxability of notional credit on account of unrecorded entries in NOSTRO account - assessee submits that NOSTRO account represents dealings with foreign banks. The long pending unreconciled entries (about more than 10 years) were advised to be closed by RBI by transferring the credit entries to Profit and Loss account - as submitted that those credits were not claimed as expenditure in the earlier years and hence the provisions of sec. 41(1) shall not apply and the impugned amount is not taxable - HELD THAT - CIT(A) concluded that such credit balance is not a capital receipt. He further held that the assessee being a financial institution, the transactions relating to money/instruments and unreconciled credit balances is having element of profit and hence the same is taxable in the hands of the assessee. Accordingly he confirmed the action of Assessing Officer. Before us, the ld. AR of the assessee reiterated the contentions raised before the tax authorities. He has not shown any favourable law or decision of Court about non-taxability of unreconciled credit entries lying in Nostro account. On the contrary, we find merits in the view expressed by Ld CIT(A). We also notice that the unreconciled credit entries in NOSTRO account has arisen during the course of carrying on of the business of banking and hence the same has to be construed as profit from banking business only. Thus, we do not find any reason to interfere with the finding of ld. CIT(A). - Decided against assessee.
Issues Involved:
1. Exclusion of income of foreign branches. 2. Disallowance of broken period interest expenses. 3. Disallowance under Section 14A. 4. Deduction under Section 36(1)(viia) for provision for bad and doubtful debts. 5. Taxability of un-reconciled entries in NOSTRO accounts. 6. Applicability of Section 115JB of the Income Tax Act. Detailed Analysis: 1. Exclusion of Income of Foreign Branches: The revenue contended that the CIT(A) erred in directing the Assessing Officer to exclude the income of foreign branches, arguing that the income should be included in the total income as per Central Government notification No. SO 2123(e) dated 28.08.2008. The Tribunal noted that in previous years, similar grounds were decided in favor of the revenue. The Tribunal held that the income of foreign branches should be taxable in India, and whatever taxes have been paid by the branches in the foreign country, credit of such taxes shall be given. Thus, the ground raised by the revenue was allowed. 2. Disallowance of Broken Period Interest Expenses: The revenue argued that the assessee should not be entitled to deduction on account of broken period interest expenses, relying on the decision of the Supreme Court in CIT vs. Vijaya Bank. The assessee cited the Supreme Court decision in CIT vs. Citi Bank, which allowed such expenses. The Tribunal noted that in earlier years, similar grounds were decided against the revenue, and the decision was based on the Bombay High Court ruling in CIT Vs. HDFC Bank Ltd, which allowed broken period interest as a deduction. Consequently, the Tribunal dismissed the revenue's ground. 3. Disallowance under Section 14A: The assessee argued that no disallowance under Section 14A was warranted as all its securities were held as stock-in-trade. The Tribunal referenced the Supreme Court's decision in Maxopp Investment Ltd. Vs Commissioner of Income-tax, which held that expenditure incurred in acquiring shares held as stock-in-trade should be apportioned. The Tribunal remitted the issue back to the Assessing Officer for fresh consideration, directing the AO to consider the Supreme Court decision and other relevant case laws. 4. Deduction under Section 36(1)(viia) for Provision for Bad and Doubtful Debts: The assessee contended that the provision held in books should be the basis for deduction, not the provision made during the previous year. The Tribunal found merit in this claim, noting that if the assessee debited its Profit and Loss account with the incremental amount of provision only, the closing balance of the provision should be considered. The Tribunal restored the issue to the AO for verification and appropriate action. 5. Taxability of Un-reconciled Entries in NOSTRO Accounts: The assessee argued that the un-reconciled entries in NOSTRO accounts, credited to the Profit and Loss account as per RBI's direction, should not be taxable. The Tribunal upheld the CIT(A)'s decision that such credit balances, arising during the course of banking business, should be construed as profit from banking business and are taxable. 6. Applicability of Section 115JB of the Income Tax Act: The revenue argued that the provisions of Section 115JB should apply to the assessee, a banking company. The Tribunal noted that the Mumbai Tribunal in Bank of India Vs ACIT and Union Bank of India Vs ACIT had held that Section 115JB does not apply to banking companies. Consequently, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's ground. Conclusion: The Tribunal partly allowed the appeals of both the revenue and the assessee, restoring some issues to the Assessing Officer for fresh consideration and dismissing others based on consistency with previous decisions and applicable legal precedents.
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