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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 ..... interest received by the appellants from Head Office cannot be treated as income since it is an amount received from self. The CIT(A) erred in relying on the decision in ITA No. 2089- 2091/Bom/91 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 CIT(A) erred in upholding the action of the ACIT of adjusting the dosing provision determined under Section 36(l)(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 matter. (3) The CIT(A) erred disallowing the claim of deduction for Rs.21.75 lacs being bad debts written off in the previous year relevant to the assessment year 1995-96 in respect of Biogenics (I) Ltd. which was disallowed in the said assessment year. The appellants submit that they are entitled to a deduction for the amount as they have not recovered any amount from Biogenics (I) Ltd. till date. The appellants pray that the AC1T be suitably directed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing the appellants ground against the addition of Rs..24,79,869 which has resulted in a double disallowance. The appellants pray that the ACIT be suitably directed in the matter. (5) The CIT(A) erred in disallowing the claim for deduction of Rs.21.75 lacs being bad debts written off in the previous year relevant to the assessment year 1995- 96 in respect of Biogenics (I) Ltd. which was disallowed in the said assessment year. The appellants submit that they are entitled to a deduction for the above as they 1 have not recovered any amount from Biogenics (I) Ltd, till date. The appellants pray that the ACIT be suitably directed in the matter. The appellants crave leave to add to, amend, alter, vary, omit or substitute the aforesaid grounds & appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised. REVENUES GROUNDS IN A.Y. 1996-97: 1."On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AC to considered the claim of deduction of additional interest payable on deposits of Rs. 22,220/- for A.Y. 1996-97 ignoring the fact that these claims were made on the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed for both the assessment years. The appeal in original was filed within the time limit. The Department has filed an application dated 18/02/2005 for condonation of delay on the ground that one appeal was filed in respect of both the years was within the time limit and as per the directions of the Tribunal two separate appeals are being filed . In these circumstances, after hearing both the parties, as original appeal has been filed in time which had covered both the years, we condone the delay and proceed to decide all these appeals. APPEALS OF THE ASSESSEE:- 3. Ground No.1 of both the years raises a common issue. The facts for assessment year 1996-97 are being discussed as facts for another year are similar. The assessee is a non resident company carries on the business of banking . The assessee had earned interest from Head Office amounting to Rs.47,09,970/- which was credited to the P&L Account, however was claimed as deduction in computation of total income. The assessee claimed deduction of such amount on the ground that interest received from Head Office is not taxable as one cannot earn income from its own self. However, AO did not accept such submission of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said PE is part are not independent persons under the domestic law i.e. Indian Income-tax Act and they are not assessed to tax separately in India. The taxable entity is only one i.e. the overseas GE which is the assessee bank in the present case who is a non resident in India and the PE in India is part of that entity which is a taxable entity in India even in respect of income attributable to the PE in India. There is thus only one person assessable to tax i.e. GE and PE is not an independent person who is assessed to tax separately in India. It is a part of the GE and its income is chargeable to tax in the hands of GE which alone is the person assessable to tax in India. ...................................................................................................... 59. The position under the domestic law as emanating from the above judicial pronouncements thus is clear that one cannot make profit out of himself and if the payment of interest made by the Indian PE to the foreign GE of which it is a part is payment to self, it cannot give rise to any income which is chargeable to tax in India as per the domestic law. Shri. Dave, however, has relied on the decision of Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the bad debt account was added back, whereas an amount of Rs.4,72,000/- was wrongly debited to other expenditure account was omitted. The AO did not accept such submission and disallowed an amount of Rs.8,76,500. The finding of Ld. CIT(A) with regard to this issue are as under:- "I think the same is the position under accounting principles. However, since consistently view has been taken in the case of the appellant bank that the claim of the bad debts would be allowable only in excess of closing provision as at the end of the year for bad and doubtful debts, the same need not be entered with. In A.Y 1996-97 the total claim of bad debts was Rs. 197.11 lakhs against which the A.O adjusted the closing balance in the provision account i.e. opening balance as increased by the provision made during the year and allowed only the balance. The contention of the A.R in this regard has to be accepted that the opening balance at the beginning of the year as already adjusted against the bad debts in A.Y 1995-06, only the provision made for bad and doubtful debts during the previous year should have been reduced from the bad debts claimed. The AO has himself done so in A.Y 1997-98 by adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year relevant to the AY 90-91, the assessee wrote off bad debts of Rs. 72,74,000/- on 7.2.90. Deduction for this amount was claimed. The assessee, further, claimed deduction of Rs. 12 lakh u/s. 36(l)(viia) in respect of the provision for bad and doubtful debts. The AO reduced the provision of Rs. 12 lath from the bad debts written off and amounting to Rs. 72,74,000/- and thus restricted the deduction to Rs. 60,74,000/-. When the matter came up before the id. CIT(A), he found that the provision for bad and doubtful debts at the end of the year as on 31.3.90 amounted to Rs. 33,59,298/- and therefore the aforesaid provision should have been deducted from the bad debts of Rs. 72,74,000/-. On that basis, the Id. CIT(A) was Of the view that the assessee was entitled to a deduction of Rs. 39,14,702/- only (72,74,000/- minus 33,59,298/-). Accordingly, after allowing opportunity to the assessee to explain as to why enhancement should not be made, the Ld. CIT(A) directed the AO to allow deduction for a sum of Rs. 39,14,702/- instead of Rs.60,74,000/- allowed by the AO. This resulted into enhancement of Rs. 21,59,298/- 8. The ld. counsel for the assessee argued before us that the Revenue a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(viia) of the IT Act. On this basis, the deduction was claimed at Rs. 3,37,19,000/- calculated as under: Bad debts written off Rs.4,98,19,000/- Less: Credit balance in provision account computed as per Sec. 36(i)(viia) Rs: 1,61,00,000/- Bad debts claimed as deduction ---------------------- Rs. 3,37,19,000/- ============== The AO was of the view that the bad debts written off should be adjusted against the closing balance of the provision and not opening balance. The AO, therefore, allowed deduction of Rs. 1,84,62,298)- only." "10. The ld. DR submitted that as per the relevant provisions of law, the requirement is that bad debts written off can be allowed to the extent as exceeding the credit balance in the provision for bad and doubtful debts account. It is argued that the correct interpretation would be the closing credit balance in the provision account and not the opening balance. It is, therefore, argued that the ld. CIT(A) was not justified in deleting the disallowance made by the AO." "11. The ld. counsel for the assessee invited our attention to the relevant clause (vii) and (viia) of sub-section (1) of Sec. 36 of the IT Act, the relevant portions of which are repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of law. In the case of the assessee, a provision not exceeding 5% of the total income is permissible. The total income can be computed only at the end of the previous year. Further, while computing such income, deduction u/s. 36(1)(vii) will have to be allowed. If bad debts are written off off in the books of account during the course of the previous year, such bad debts be deducted as admissible u/s 36(1)(vii) before quantifying the assessee's total income for the purpose of clause (viia). Apparently, the deduction allowable, under clause (vii) in respect of bad debts written off will have to be adjusted against the opening credit balance in the provision account to arrive at the quantum of deduction allowable while computing the total income. In our view, the interpretation of the Ld. CIT(A) is correct and does not call for any interference. Accordingly, his order on this issue is confirmed." From the above, it is seen that similar question was decided in assessee's favour and in accordance with the interpretation of the relevant section now advocated before us by the ld. counsel for the assessee and consistent with the view adopted by us, we hold that the deduction of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is as under: Expenses specifically incurred on behalf of the Indian branches for the year ended 31 March 1997. RO Travelling expenses 26,271 Certification fee 400 26,671 ======== 5.2 After narrating the facts, it was submitted by Ld. Sr. Counsel for the assessee that these direct expenses are incurred by the parent branch in connection with Indian entity. 5.3 Ld. A.R referred to the decision of Hon'ble Bombay High Court in the case of CIT vs. Emirates Commercial Bank Ltd., 262 ITR 55 (Bom) and reference was made to the following observation to content that section 44C is not applicable to the direct expenses. "Section 44C is applicable only in the cases of those non-residents, who carry on business in India through their branches. The said section was introduced to get over difficulties scrutinizing claims in respect of general administrative expenses incurred by the foreign head office in so far as such expenses stand related to their business or profession in India having regard to the fact that foreign companies operating through branches in India sometimes try to reduce incidence of tax in India by inflating their claims in respect of the head office expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon the order of AO and Ld. CIT(A). 5.5 After hearing both the parties 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, respectfully following aforementioned judicial pronouncements, we hold that section 44C is not applicable and these are allowable under section 37(1) of the Act. This ground of the assessee is allowed. 6. It was submitted by Ld. A.R that Ground No.4 of A.Y 1997-98 is consequential and if Ground No.3 is allowed then Ground No.4 is not required to be adjudicated. As we have already allowed ground No.3, Ground No.4 does not survive for adjudication, therefore, dismissed. 7. With respect to Ground No.5 for A.Y 1997-98 it was submitted by Ld. A.R that deduction has already been allowed in A.Y 1995-96, therefore, this ground also does not survive for adjudication. Accordingly this ground is also dismissed. APPEALS OF THE REVENUE: 8. Ground No.1 of both the appeals filed by the revenue is common. This issue is not discussed in the assessment order for assessment year 1996-97. However, it is discussed in assessment year 1997-98, where vide letter dated 11/1/2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 Ld. CIT(A) has rightly granted relief to the assessee. The aforementioned decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT (supra) is not applicable to the facts of this case. Therefore, we decline to interfere in the relief granted by the Ld. CIT(A). This ground of the revenue for both the years is dismissed. 9. With regard to Ground No.2 of the revenue for assessment year 1997- 98, it was fairly agreed by the Ld. Sr. Counsel that the bad debt has already been allowed by the ITAT in assessment year 1995-96. In this view of the situation, after hearing both the parties we allow Ground No.2 of the revenue for assessment year 1997-98. 10. In the result, appeals filed by the assessee for both the assessment years are partly allowed in the manner aforesaid. Appeal filed by the revenue for assessment year 1996-97 is dismissed and appeal of the revenue for assessment year 1997-98 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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