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TMI Blog2012 (8) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... income for the purpose of clause (viia) - Decided in favor of assessee Head Office expenses viz traveling expenses claimed by assessee as deduction u/s 37 - Revenue contending application of Section 44C - Held that:- As the travelling expenses have been incurred by the head office on travel of its own staff and directly related to the business of the Indian Branch, hence we hold that section 44C is not applicable and these are allowable u/s 37(1) - Decided in favor of assessee Prior-period interest expenses - certain term deposit interest wrongly accrued on simple interest basis rather than on compound interest - additional interest claim during assessment proceedings - Revenue contending that deduction not made in the return cannot be entertained by AO otherwise than by filing a revised return - Held that:- Impugned amount claimed by the assessee is not a deduction but it is an expenditure. It is not the case of the revenue that these expenditures are not allowable in the regular course of business of the assessee. The claim is supported by the audit report. Therefore, we are of the opinion, that CIT(A) has rightly granted relief to the assessee - Decided in favor of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any time before or at the time of hearing of the appeal as they may be advised. ASSESSEE S GROUNDS IN A.Y. 1997-98 (1) The Commissioner of Income-tax (Appeals)-XXII, Mumbai [hereinafter refer to as the CIT(A)] erred in upholding the action of the Additional Commissioner of Income-tax, Special Range 27, Mumbai (ACIT) in considering interest of Rs.2,48,88,446 received from Head Office as forming part of the taxable income. The appellants submit that interest received by the appellants from Head Office cannot be treated as income since it is amount received from self. The CIT(A) erred in relying on the decision in 1TA No. 2089- 2091/Bom/9l which was a case where the assessee had claimed the benefit of the Double Taxation Avoidance Agreement which is not so in the case of the appellants. The appellants pray that the ACIT be suitably directed in the matter. (2) The C1T(A) erred in upholding the action of the ACIT of adjusting the dosing provision determined under Section 36(1)(viia) of the Act against the bad debts written off during the year. The appellants submit that such an adjustment is not called for and pray that the ACIT be given suitable directions in this mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified dates under section 139 of the I T Act. Further the Ld. CIT(A) failed to know the fact that his decision is not supported by the provisions of law. The Ld CIT(A) erred in appreciating the fact that there is no provision under section 143(3) to reduce the income or issue the refund . The appellant prays that the order of the tribunal on the above grounds set aside and that of the AC restored. The appellant craves leave to amend or later any ground or add a new ground which may be necessary. REVENUES GROUND IN A.Y. 1997-98: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the A0 to consider the claim of deduction of additional interest payable on deposits of Rs. 23,30,685/- for A.Y. 1997-98 ignoring the fact that these claims were made on the basis of tax audit report dated 11.01.2000 and not claimed by filing returns of income or revised statement of total income before the specified dates under section 139 of the I T Act. Further the Ld. CIT(A) failed to know the fact that his decision is not supported by the provisions of law. The Ld CIT(A) erred in appreciating the fact that there is no provision under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action of the AO. The assessee is aggrieved and hence, has filed aforementioned grounds for both the years. 3.1 During the course of hearing it was submitted that the issue is covered in favour of the assessee by the decision of Special Bench in the case of Sumitomo Mitsul Banking Corpn. Vs. DDIT(IT), Range 2(1), Mumbai (2012) 19 Taxamn.com 364 (Mum)(SB), order dated 30/03/2012 and it was submitted that following observations of the Special Bench will be relevant to hold that the addition made by the AO is not sustainable. 55. The first and foremost aspect which is relevant in the context of the issue involved in question No.2 is whether interest payable by the Indian PE is chargeable to tax in India in the hands of GE of which the PE is a part. In our opinion, this issue first of all has to be considered and examined from the point of view of relevant provisions contained in the Income-tax Act, 1961 so as to ascertain whether interest payable by the Indian branch of the assessee bank to its overseas HO is chargeable to tax in India as per the domestic law or not. Only when it is found that the said income is chargeable to tax in India as per the domestic law, one can refer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be treated as a separate entity and the interest payable by the said PE has to be brought to tax in India in the hands of GE as income. 3.2 Ld. D.R, however, relied upon the order of Ld. CIT(A) and contended that assessee has rightly been denied the relief by Ld. CIT(A) and this ground of the assessee for both the years should be dismissed. 3.3 After hearing both the parties and after considering facts of the present case and the legal proposition laid down in the aforementioned decision of Special Bench, we are of the opinion that the addition has been wrongly made and sustained in the case of the assessee. The issue is squarely covered by the aforementioned observation of Special Bench. Respectfully following the same we allow this ground of the assessee for both the years. 4. Ground No.2 of assessee s appeal in both the years is also common. The facts as mentioned in A.Y 1996-97 are discussed hereafter and the facts for 1997-98 are similar. It was found that the assessee had written off bad debt of Rs. 1,97,11,511/-. The opening balance of the provision for bad debt allowed for a sum of Rs.26,18,604/- was adjusted against the written off amount and remaining amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould have allowed full claim of bad debts if it exceeded the deduction allowable for provision for bad and doubtful debts made during the previous year and should not have in addition allowed any separate deduction u/s. 36(viia). Alternatively the AO should have allowed deduction u/s. 36(1)(vii) the excess of the bad debts written off during the year over the provision made for bad and doubtful debts during the previous year and accordingly also allowed separately deduction u/s. 36(1)(viia) for provision for bad and doubtful debts allowable during the year. In A.Y.1996-97 the total bad debts of Rs.197.11 lakhs exceeded the provision of Rs. 60.09 lakhs so what was ultimately allowable in totality was only bad debt claim of Rs. 197.11 lakhs and nothing else. The AO, as against this, has actually allowed deduction for bad debts written off after adjusting the opening balance in the provision account which should not have been done. The AO is directed to allow deduction for gross bad debt claimed of Rs. 197.11 lakhs in A.Y 1996-97. In A.Y 1997-98 the AO has allowed deduction only for excess of bad debts over the provision made for bad and doubtful debts during the previous year i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) also applies, the claim of bad debt under clause (vii) shall be allowed only to the extent it exceeds the credit balance in the provision for bad and doubtful debts account made under clause (viia). It is submitted that the credit balance has to be adopted as at the beginning of the accounting year, which in the present case would be 1.4.89. Any provision made to the extent it is allowable under clause (b) shall be separately allowable under clause (viia). It is pointed out that the opening credit balance in the provision account as on 1.4.89 was Rs. 21,58,798/- and therefore, the assessee is entitled to a deduction of Rs. 51,15,202/- (72,74,000/- minus 21,58,798/-). The assessee would be further entit1ed to a deduction of Rs. 12 lakh under clause (viia) in respect of provision made at the end of the accounting year. Thus, the total deduction allowable under clause (vii) and (viia) would be Rs. 63,15,202/-. The ld. DR supported the order of the ld. CIT(A). 9. W have considered the rival submissions vis- -vis the facts of the case. We find that similar issue was decided by us ( H Bench, Mumbai) vide order dated 21.7.2003 in ITA No. 5509/Mum/98 in the case of Banque Nationale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten off as irrecoverable in the accounts of the assessee for the previous year]: Provided that in the case of (an assessee) to which clause (viia) applies, the amount of deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. Explanation For the purposes of this clause, any bad debt or part thereof written o as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee; (viia) in respect of any provision for bad and doubtful debts made by (b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding 5% of the total income (computed before making any deduction under this clause and Chapter VIA). The Id. counsel laid emphasis on the phraseology of clause (b) which stipulates that the provision for bad and doubtful debts shall not exceed 5% of the total income computed before making any deduction under clause (viia) and Chapter VI A. It is argued that if the bad debts writte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO is accordingly directed to allow the deductions. 4.3 In this view of the situation, after hearing both the parties we allow these grounds of the assessee for both the years and direct the AO to allow appropriate relief to the assessee in accordance with aforementioned decision of the Tribunal. These grounds of the assessee for both the years are allowed. 5. With regard to Ground No.3 for assessment year 1996-97 it was submitted by the Ld. Sr. Counsel for the assessee that appropriate relief has already been allowed in A.Y 1995-96 by order of the Tribunal dated 12/6/2006 in ITA No.2757/M/00, copy of such order is placed at page 45 to 47 of the paper book. Therefore, it was submitted by Ld. Sr. Counsel for the assessee that nothing survive for adjudication in the year under consideration and this ground has become infructuous. Accordingly after considering both the parties we dismiss this ground on account of its having become infructuous. 5.1 Apropos, Ground No.3 for assessment year 1997-98 following details were submitted to AO with regard to Head Office Expenses. Direct expenses 24,79,869/- Allocable expenses 2,09,28,310/- Tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by inflating their claims in respect of the head office expenses. In other words, section 44C seeks to impose a ceiling/restriction on head office expenses. However, section 44C contemplates allocation of expenses amongst various entities. That, the expenditure which is covered by section 44C is of a common nature, which is incurred for the various branches or which is incurred for the head office and the branch. However, in this case, we are concerned with the expenditure inclusively incurred for the branch. In this case, there is a concurrent finding of fact recorded by the Commissioner (Appeals) as well as the Tribunal stating that the officers came from the head office at Abu Dhabi to Bombay to attend to the work of the Bombay Branch and, in connection with that work, the expense was incurred. That the expense was initially incurred by the head office which was recovered by the head office from the branch in India by raising a debit note. Therefore, the expense was incurred for the branch office in India. These are concurrent findings of fact. We do not wish to interfere with those findings. Hence, section 44C has no application. 5.4 Ld. A.R also submitted that this issue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is discussed in assessment year 1997-98, where vide letter dated 11/1/2000 it was submitted that certain term deposit interest was wrongly accrued on simple interest basis rather than on compound interest and thus an amount of Rs. 23,30,686/- was claimed which is not allowed by the AO. This issue for both the years has been discussed by Ld. CIT(A) in para 5 of his order. In assessment year 1998-99 the assessee disclosed a sum of Rs. 166.14 lacs as prior period interest expenses. The auditors in the course of audit had verified the computation of the above amount and also the financial years to which such prior period expenditure related. An amount of Rs.20,220/- and Rs.23,30,685/- were identified relating to assessment yearS 1996-97 and 1997-98 respectively. A certificate was issued by auditors which was dated 11/1/2000. On the said date assessment for assessment year 1996-97 was completed. Assessment proceedings for assessment year 1997-98 were going on and the claim was also made before the AO however, assessee in assessment year 1996-97 has raised the ground with regard to this interest. In assessment year 1997-98 also the claim was made. Ld. CIT(A) after considering all the f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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