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TMI Blog2012 (11) TMI 840X X X X Extracts X X X X X X X X Extracts X X X X ..... e made by AO in respect of entertainment expenses to the extent of Rs. 1,00,000/-. It is relevant to state that department has also in its appeal in ground Nos. 1 & 2 dispute order of Ld. CIT(A) to restrict disallowance of Rs. 1,00,000/- against Rs. 3,69,33,529/- made by AO. 5. Assessee is a branch of foreign bank having its head office at New York and is engaged in the business of banking and related activities. It is also having branch operating in India. The assessee claimed entertainment expenses at Rs.3,69,33,529/-. AO stated that said expenses being ostentatious in nature and have not been incurred wholly and exclusively for the purpose of business. Therefore, AO disallowed the same considering it as non-business expenditure u/s. 37(1) of the Act. 6. In the first appeal, Ld. CIT(A) considered the submission of assessee that AO has given no reason for coming to such conclusion that expenses are ostentatious in nature. However, Ld. CIT(A) after considering submission of assessee and after laying down some positive and negative tests at pages 7 & 8 of impugned order for considering as to whether claim of deduction of an expenditure is business expenditure or not and after obvs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has not supported the claim with documentary evidence. We agree with Ld. CIT(A) that mere claim of deduction is not sufficient and it should be supported by some material. Be that as it may, we are of the considered view that on the facts and in circumstances of the case, disallowance made by Ld. CIT(A) is reasonable and does not require any interference at our ends. Hence, we uphold the order of Ld. CIT(A) on this issue and reject grounds raised by assessee and Revenue in their respective appeals. 10. Ground No. 2 of appeal filed by assessee reads as under: "The CIT(A) erred in confirming the action of the AO of disallowing the expenses aggregating Rs. 22,53,31,656/- incurred on soliciting NRI deposits and on training courses attended by the officers employed in the Indian branches on the ground that these expenses are covered by the provisions of section 44C of the Act." 11. The assessee claimed expenses of Rs.22,53,31,656/- on account of soliciting NRI deposits and these expenses were incurred outside India. The AO stated that assessee was asked to explain as to how those expenses were incurred outside India and also to explain the method of accounting in regard the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Taxation) Vs Bank of Bahrain & Kuwait 44 SOT 693 and submitted that in respect of common expenditure incurred by head office the cap as provided u/s. 44C becomes operative and the said expenses should be considered u/s.44C of the I.T. Act and deduction should be allowed accordingly. 14. We have carefully considered the submission of Ld. Representatives of parties and orders of authorities below. We have also considered the cases cited before us. There is no dispute to the fact that Sec. 44C is applicable only to overcome difficulties which are faced to scrutinize claims in respect of general administrative expenses incurred for head office in so far as such expenditure relates to their business in India. Having regard to the fact that foreign companies operate through branches in India and sometimes try to reduce incidence of tax in India by inflating their claims in respect of the head office expenses. Therefore Sec. 44C imposed a ceiling/restriction on head office expenses. However, where expenditure is incurred exclusively for the branch, Sec. 44C has no application. The said issue has been considered by Hon'ble Jurisdictional High Court in the case of Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad and doubtful debt u/s. 36(1)(viia) will be opening credit balance i.e. balance brought forward as on 1st April to the relevant account year. In view of above, we reverse orders of authorities below and allow ground No. 3 taken by assessee. 17. In ground No. 4 of appeal filed by assessee reads as under: "The CIT(A) erred in confirming the AO's action of not allowing the appellants claim for bad debts which were claimed in the earlier assessment years and were disallowed by him in those years, the details of which are as under: Assessment year Name of party Amount (Rs.) 1990-91 Bowreah Cotton Mills, 1,29,98,835/- 1991-92 Bowreah Cotton Mills 78,47,000/- 1991-92 Shaw Wallace Ltd. 1,75,71,000/- 1991-92 Birla Yamaha Ltd. 56,00,000/- 4,40,16,835/- 18. At the time of hearing Ld. AR submitted that above ground is not pressed. Hence, ground No. 4 of appeal is rejected. 19. In ground No. 5 of appeal filed by assessee reads as under: "The CIT(A) erred in confirming the action of the AO of disallowing net loss of Rs. 13,18,565/- on unmatured forward exchange contracts." 20. We have heard Ld. Representatives of parties. During the course of hearing, Ld. AR submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present obligation can be anticipated with reasonable accuracy then it is to be recognized as crystallized liability. The Tribunal did not agree with Revenue's contention that liability can arise only when the contract matured as it is divorced of the principles of commercial accounting. It was held that both legal obligation and commercial principles have to be taken into consideration for deciding such issues. Therefore anticipated losses on account of existing obligation as on 31st March, determinable with reasonable currency, being in the nature of expenditure/accrued liability, have to be taken into account while preparing financial statement. In view of above decision of Special Bench (supra), we are of the considered view that matter should be restored to AO to consider liability which has accrued as per Accounting Policy consistently followed by assessee as on 31.3.1998 and accordingly to allow said claim to that extent. Hence ground No. 5 of appeal taken by assessee is allowed for statistical purposes by restoring the issue to the file of AO to decide the same afresh in the light of above decision of Special Bench (supra). 24. Ground No. 6 of appeal filed by assessee read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A Nos. 808 to 816/Bang/2000 for assessment years 1996-97 to 1999-2000 decided the issue in favour of assessee by its order dt. 9th September, 2005, copy placed at pages 139 to 140 of Paper Book. Ld. AR submitted that in the case of Central Bank of India Vs DCIT 42 SOT 450, ITAT Mumbai Bench decided the same issue on similar facts and held that even if no TDS was deducted on the payments made to Visa International and Master Card International, it could not be disallowed in view of Article 26(3) of Indo-US DTAA because no disallowance could be made in respect of payments made to residents on ground of non-deduction of tax at source for the assessment years 1997-98 to 1999-2000. Ld. AR furnished a copy of said order of ITAT to substantiate his submission and submitted that disallowance made by authorities below may be deleted. He further submitted that both the payees have already paid tax on the amount paid by assessee to them as per provisions of I.T. Act. However, Ld. DR submitted that said payments made by assessee to Visa International and Master Card International are not in the nature of royalty or fee for technical services and therefore Article 26(3) of Indo-US DTAA is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent to payments made by assessee, assessee will be put to loss and will not be able to recover the amount from payees if it pays because said payees had already made payments of tax to department on the amount received from assessee. He submitted that Tribunal has decided this issue by its order dt. 24.9.2010 on similar facts in the case of Central Bank of India (supra) and since facts in the case of assessee are identical, Tribunal should consider the said case of Co-ordinate Bench. 30. We have carefully considered the submissions of Ld. Representatives of the parties and orders cited before us as well as relevant Article of Indo US DTAA. We agree with Ld. DR that Visa International and Master Card International have accepted themselves that they are having Permanent Establishment in India. However, we observe that said assessments have been made pursuant to agreement between two countries entered into, to set the dispute at rest. We observe from para-3 of assessment order of Visa International for A.Y. 2007-08, it is stated that as per resolution u/s. 90 of I.T. Act r.w. Article 26 of Indo US DTAA Visa International has a Permanent Establishment in India and all amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) particularly when department has not disputed the fact that the said claim of assessee is not for business purposes. Hence, we uphold the order of Ld. CIT(A) and reject ground No. 2 of the appeal taken by the department. 36. In ground No. 3 of appeal, department has disputed to delete disallowance of Rs. 26,62,92,280/- being broken period interest in respect of securities purchased which remain unsold at the end of the year. 37. At the time of hearing, Ld. Representatives of both parties submitted that above issue is covered in favour of assessee by the decision of Apex Court in assessee's own case in C.A. No. 1539 of 2006 by order dt. 12th August, 2008. Ld. AR also furnished a copy of said order of Hon'ble Apex Court. Since issue is covered in favour of assessee by order of Hon'ble Apex Court, we uphold the order of Ld. CIT(A) and reject ground No. 3 taken by department. 38. In ground No. 4 department has disputed order of Ld. CIT(A) in directing to allow relief being the cost of funds for earning tax free income by holding that nexus between borrowings and investments was not established by AO whereas the burden of proving otherwise on assessee which was not discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s action of disallowing the broken period interest amounting to Rs. 26,62,92,280/- in respect of the securities purchased during the year but remaining unsold at the year end is upheld, then the JCIT be directed to allow the deduction on this account at the time when the securities are sold. 2. Without prejudice to the ground No. (2) of our appeal if it is held that expenses aggregating to Rs. 22,53,31,656 incurred on soliciting NRI deposits are in the nature of head office administration and supervision expenses, since they have been incurred entirely for the Indian operations and are not allocable to any other country in which the appellants have operations, the provisions of Sec. 44C are not applicable as the essential requirement of section 44C is that expenses are required to be allocated since they are for the supervision of all locations other than the head office." 45. In view of our decision hereinabove and to decide the issues in favour of assessee in the grounds of appeals herein above, the cross objections have become infructuous. Hence same are dismissed. 46. Now we take up appeal for assessment year 1999-2000 being ITA No. 5276/M/2001 filed by assessee. The grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99- 2000 being ITA No. 5301/Mum/2001. The grounds of appeal are as under: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in: 1. restricting the disallowance to Rs. 1,00,000/- instead of Rs. 3,87,80,199/- made by AO out of entertainment expenses even though the assessee has not furnished any details in respect of these expenses. 2. Deleting the disallowance of Rs. 1,17,18,614/- on account of guest house expenses 3. Deleting the disallowance of Rs. 60,45,27,239/- being the broken period interest in respect of securities purchased which remain unsold at the end of the year. 4. Directing to allow relief being the cost of funds for earning tax free income by holding that nexus between borrowings and investments was not established by the AO whereas the burden of proving otherwise on the assessee, which was not discharged by it." 50. It was submitted by Ld. Representatives of both parties the grounds of appeals for A.Y. 1999-2000 are identical to the ground of appeal taken for assessment year 1998-99 save and except variation of amount. It was submitted that whatever the decision is taken for assessment year 1998-99, the same may be followed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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