2022 (8) TMI 622 - AT - Income Tax

Allowable business expenses - NRI desk expense - as observed amount has not been debited in profit and loss account - assessee was also requested to recast its books of account of permanent establishment in India and explain as to why these expenses should not be considered in Head Office expenses as per section 44C - assessee submitted that NRI desk expenses have been certified by independent firm of Chartered Accountants as having been incurred by the Head Office for and on behalf of the assessee Bank s Indian branches - HELD THAT - We find that coordinate bench of the Tribunal in assessee s own case in ADIT v/s Bank of Bahrain and Kuwait 2011 (1) TMI 923 - ITAT, MUMBAI for the assessment year 2002 03, while restricting the applicability of section 44C of the Act only in respect of allocable expenses and at the same time fully allowing direct staff cost. Departmental Representative could not show us any reason to deviate from the aforesaid order and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the order passed by coordinate bench of the Tribunal in assessee s own case cited (supra), we find no infirmity in the impugned order passed by the learned CIT(A). Accordingly, the sole ground raised in Revenue s appeal is dismissed.

Summary

Issues Involved:
Interpretation of expenses incurred by the Head Office for Indian branches under the Income Tax Act, 1961.

Detailed Analysis:

1. Issue of Segregation of Expenses:
The main issue in this case was whether the expenses incurred by the Head Office (HO) for Indian branches should be segregated into different categories for tax purposes. The Revenue raised a ground questioning the correctness of segregating expenses related to HO/NRI/other expenses. The Revenue argued that these expenses should be treated as Head Office expenses under section 44C of the Income Tax Act, 1961. The assessee contended that the expenses were directly attributable to the business and should be fully allowable under section 37(1) of the Act.

2. Factual Background:
The assessee, a commercial bank with branches in India, filed its return of income for the assessment year 2012-13. The dispute arose when the Assessing Officer disallowed an amount of Rs. 6,16,57,387 on account of NRI desk expenses, treating them as Head Office expenses. The assessee argued that these expenses were certified by independent Chartered Accountants and were directly connected to the business activities, making them fully allowable under section 37(1) of the Act.

3. Decision of the CIT(A):
The CIT(A) referred to a previous decision by the Tribunal for the assessment year 2002-03, where it was held that direct staff costs were fully allowable expenses, while allocated staff expenses and general administration costs were to be considered under section 44C. The CIT(A) partly allowed the ground raised by the Revenue, directing the Assessing Officer to rework the deduction under section 44C.

4. Tribunal's Decision:
The Tribunal, after considering the arguments of both parties and the precedent set in the assessee's own case for the assessment year 2002-03, upheld the CIT(A)'s decision. The Tribunal emphasized the distinction between exclusive and shared expenses incurred by the Head Office for Indian branches. It reiterated that direct and exclusive expenses should be fully allowable, while shared or allocated expenses should be considered under section 44C.

5. Final Verdict:
The Tribunal dismissed the Revenue's appeal, stating that there was no reason to deviate from the previous order and no new facts or legal grounds were presented. Consequently, the appeal by the Revenue was dismissed, and the cross objection by the assessee was also dismissed as infructuous.

In conclusion, the Tribunal's decision reaffirmed the importance of distinguishing between direct and shared expenses incurred by the Head Office for Indian branches, providing clarity on the tax treatment of such expenses under the Income Tax Act, 1961.