2019 (9) TMI 42 - AT - Income Tax

Disallowance of deduction being the loss/ expenditure/outgo from coffers of bank incurred by the assessee as a consequence of the full and final settlement arrived at with National Housing Bank NHB - HELD THAT - Transactions were peculiar and were not transacted in the ordinary course of business. The bare fact is that for some reasons best know to NHB and the appellant bank, the assessee received ₹ 506.54 crores from NHB and for obvious reasons, it had to repay the said amount to NHB. For some reason best known to the appellant bank, proceeds were credited in the account of Shri Harshad Mehta and subsequently, the entire transaction was burnt in the fire of Security Scam. We once again failed to persuade ourselves to consider the entire transaction done in the ordinary course of business. In our considered opinion, the repayment of ₹ 506.54 cores even if it enured loss to the appellant bank, by any stretch of imagination, cannot be considered as deductible business loss. Addition being claim of expenses incurred outside India - HELD THAT - There is no dispute that no such claim was made in the return of income. There is also no dispute that all the claims of expense has already been allowed by the Assessing Officer u/s 44C of the Act. It is equally true that neither the Assessing Officer nor the first appellate authority have examined the claim in the light of certificates in this respect. In the interest of justice and fair play, we deem it fit to restore this issue to the file of the Assessing Officer. The assessee is directed to demonstrate its claim of expenditure with supporting evidences and the Assessing Officer is directed to examine the same and decide the issue afresh as per provisions of law after giving reasonable and sufficient opportunity of being heard to the assessee.

Summary

Issues:
1. Disallowance of deduction for loss/expenditure/outgo from bank coffers
2. Addition of claim of expenses incurred outside India

Issue 1 - Disallowance of deduction for loss/expenditure/outgo from bank coffers:
The appellant contested the disallowance of a deduction of &8377; 5,06,54,54,878, representing a loss incurred from a settlement with National Housing Bank (NHB) and the addition of &8377; 11,95,79,687 for expenses incurred outside India. The appellant received account payee cheques from NHB, which were later disputed due to the Securities Scam. Despite depositing the disputed amount with NHB, subsequent legal proceedings led to conflicting judgments. The Assessing Officer disallowed the loss claim, stating no business transactions with NHB existed, and the amount was credited to another party's account. The CIT(A) upheld the disallowance. The appellant argued the loss crystallized due to a settlement ratified by the Supreme Court. However, the Tribunal found the transaction unusual and not part of regular business, denying the deduction based on legal precedents and the Income Tax Act.

Issue 2 - Addition of claim of expenses incurred outside India:
The appellant's claim for &8377; 11.95 crores in expenses incurred outside India was denied by the Assessing Officer and confirmed by the CIT(A) due to the absence of the claim in the income tax return. The appellant argued the expenses were related to technology updates post-takeover by Standard Chartered Bank and should be allowed. The Tribunal noted that the claim was not examined with supporting certificates and directed the Assessing Officer to reevaluate the claim with proper evidence, emphasizing fair play and justice. The appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal dismissed the appeal regarding the disallowed loss deduction, emphasizing the irregular nature of the transaction. For the expenses incurred outside India, the Tribunal directed a reevaluation with proper documentation, prioritizing fairness in decision-making.