2019 (6) TMI 1209 - AT - Income Tax

Disallowance u/s 14A - disallowance on investment held stock in trade - AO made at the rate of 2.75% of exempt income as done in past - HELD THAT - As in assessee s own case for A.Y. 2010-11 2011-12 2013-14 2018 (4) TMI 1723 - ITAT MUMBAI several more decisions have come which have upheld the view that disallowance u/s 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 AO. 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 Income accrued in India - Taxability in India - Exclusion of income of foreign branches situated in countries where there is double tax avoidance agreement based on Article 7 of the respective agreements which provides that business profits is to be taxed in respective countries - HELD THAT - The issue has been decided against the assessee by the ITAT in assessee s own case for A.Y. 2011-12 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. Disallowance of broken period interest - HELD THAT - We find that identical issue has been decided in favour of the assessee by Hon ble Supreme Court in the case of Citibank 2008 (8) TMI 766 - SUPREME COURT and HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT following these decisions ITAT in assessee s own case for A.Y. 2011-12 allowed the claim of the assessee and dismissed the Departmental appeal . Disallowance of provisions of wages arrear - HELD THAT - As in assessee s own case for A.Y. 2010-11 deleted the similar disallowance. Claim of amortization of lease premium - CIT (A) wrongly decided on the issue of amortisation of Investment when there was no such issue in the assessment order - assessee pray for direction of CIT (A) should be directed to decide on allowability of amortization of lease premium paid - HELD THAT - The respondent presently seeks leave of the Hon ble ITAT to persue the grounds for amortization of lease premium paid which were a part of appeal before learned CIT(A) to support the claim of the Respondent as per Rule 27 of Income-Tax (Appellate Tribunal) Rules 1963. CIT(A) ought to have decided on the issue of allowabiltiy of amortisation of lease premium as prayed for in grounds of appeal before Id CIT (A) - remanded to CIT(A)

Summary

Issues Involved:
1. Disallowance under Section 14A.
2. Exclusion of income of foreign branches under Double Tax Avoidance Agreement (DTAA).
3. Broken period interest.
4. Taxation of foreign income in India.
5. Disallowance of provisions for wage arrears.
6. Amortization of investment.

Issue-Wise Detailed Analysis:

1. Disallowance under Section 14A:
The assessee contested the disallowance under Section 14A, arguing that exempt income was earned on stock in trade, to which Section 14A does not apply. The Assessing Officer (AO) made disallowances for A.Y. 2014-15 and 2015-16, asserting that the provisions of Section 14A were applicable. The learned CIT(A) upheld the AO's action. The ITAT noted that in the assessee’s own case for previous years, the issue was remitted back to the AO to consider various decisions, including the Hon'ble Apex Court's decision in Maxopp Investment Ltd., which held that expenditure incurred in acquiring shares held as stock-in-trade must be apportioned. The ITAT remitted the issue back to the AO with similar directions.

2. Exclusion of Income of Foreign Branches under DTAA:
The assessee argued that the income of foreign branches should be excluded based on Article 7 of the respective DTAA, which provides that business profits are to be taxed in respective countries. The learned CIT(A) and ITAT, following the precedent in the assessee’s own case for A.Y. 2011-12, upheld the inclusion of such income in the total income taxable in India, granting relief for taxes paid in foreign countries.

3. Broken Period Interest:
The AO disallowed the broken period interest, but the learned CIT(A) decided in favor of the assessee, referring to earlier appellate orders and decisions by the Hon'ble Supreme Court in Citibank and the Hon'ble Bombay High Court in HDFC Bank Ltd. The ITAT upheld the CIT(A)'s order, dismissing the Revenue's appeal.

4. Taxation of Foreign Income in India:
The AO included the income of foreign branches in the total income taxable in India, relying on Notification No. S 2123(e) dated 28.08.2008. The learned CIT(A) granted partial relief based on the decision of the Tribunal in the assessee’s own case for previous years. The ITAT, following the coordinate bench's decision, upheld the inclusion of foreign branch income in the total income taxable in India, with credit for taxes paid in foreign countries.

5. Disallowance of Provisions for Wage Arrears:
The assessee argued that the disallowance of provisions for wage arrears was covered in its favor by the Tribunal's decision for A.Y. 2009-10. The learned CIT(A) allowed the claim, following the consistent view taken by the Tribunal in previous years. The ITAT upheld the CIT(A)'s order, allowing the assessee's appeal on this ground.

6. Amortization of Investment:
The Revenue contended that the learned CIT(A) erred in admitting and allowing the issue regarding the claim of amortization of investment, which was not discussed in the assessment order. The ITAT found the Revenue's submission correct and noted that the assessee had filed a cross-objection regarding the allowability of lease premium paid for leasehold properties. The ITAT remitted the issue back to the learned CIT(A) for fresh consideration and to pass a speaking order.

Conclusion:
The appeals were partly allowed, with specific issues being remitted back to the respective authorities for fresh consideration and decision in accordance with the directions provided. The ITAT emphasized the need for adequate opportunity for the assessee to be heard and the consideration of relevant case laws and precedents. The order was pronounced on 22.5.2019.