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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 ..... nditure/accrued liability, have to be taken into account while preparing financial statement. - matter 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. TDS - payment to Master Card International - scope of Sec.9(1)(vi) and Article-12 of DTAA - held that:- after Mutual agreement entered into between India and USA, these two entities namely Visa International and Master Card International are deemed to be having Permanent Establishment in India; but in the relevant assessment year and at the time when assessee made payments to these two entities, said dispute was there - even if assessee bank failed to deduct TDS on the payments made to Visa International and Master Card International, same could not be disallowed as per provisions of Sec. 40A(i) of the I.T. Act - Decided in favor of assessee. - ITA Nos. 5275, 5276, 5300 & 5301/Mum/2001 And C.O. No. 134 & 135 /Mum/2001 - - - Dated:- 13-1-2012 - SHRI B.R. MITTAL AND SHRI P.M. JAGTAP, JJ. Assessee by: Shri Arvind Sonde Respondent by: Smt. Malathi Sridharan ORDER PER B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been claimed are for business purposes. The assessee referred to pages 1 2 of letter dt. 24th October, 2004 which is addressed to AO and submitted that assessee stated that it was prepared to produce necessary documentary evidences that expenses incurred were for business purposes. He submitted that AO did not ask to produce relevant documents. He further submitted that disallowance has been made on an adhoc basis which is not justifiable. Ld. AR referred to decision of ITAT Mumbai Bench dt. 23rd August, 2005 in the case of Deutsche Bank A.G. Vs ACIT in ITA No. 5327/M/01 5299/M/01, a copy of which is placed at pages 54 to 61 of Paper book and submitted that Tribunal has held that if AO did not call for any details and disallow expenses as claimed by assessee and when Ld. CIT(A) made an adhoc disallowance, the Tribunal confirmed order of Ld. CIT(A) by rejecting ground of appeal taken by assessee as well as department. He submitted that order of Ld. CIT(A) in restricting disallowance of Rs. 1,00,000/- is excessive and same should be deleted. 8. On the other hand Ld. Departmental Representative supported action of AO and submitted that assessee failed to furnish details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be given to assessee. He has followed the order of Ld. CIT(A) for assessment year 1997-98 dt. 14th July, 2000 and accordingly disallowed the same but stated that necessary deduction u/s. 44C of the Act will be allowed as per law. Being aggrieved, assessee filed appeal before Ld. CIT(A). 12. The Ld. CIT(A) following the reasonings given for assessment year 1997-98 confirmed the action of AO. Hence, assessee is in further appeal before Tribunal. 13. At the time of hearing, Ld. AR submitted that Tribunal in ITA No. 4256/M/2000 in assessee s own case for assessment year 1997-98 vide its order dt. 6th May, 2005 allowed appeal of assessee and referred to pages 6 to 10 of the Paper book which is a copy of said order of the Tribunal. He further submitted that similar issue also came up before Tribunal in assessee s own case for assessment year 1990-91 in ITA No. 5191/M/95 and Tribunal vide its order dt. 25th December, 2004 allowed expenses incurred for training and mobilization for NRI deposits for assessee bank. However, Ld. Departmental Representative submitted that Tribunal deleted the expenses incurred by assessee abroad by considering decision of Hon ble Bombay High Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,27 and 31 of Paper Book and submitted that said expenditure could not be considered, expenditure incurred exclusively for Indian business purposes. However, we observe that alongwith those statements, Ld. DR has also filed certificate of assessee bank from its Financial Controller as well as C.A. stating inter alia that expenses vouchers from bank s Hong Kong Branch are based on identification of the actual expenses incurred to the concerned units and which in turn are based on bills received from third parties which are retained at Bank s Hong Kong Branch. It is also certified that said bills/expenses received from third parties relating to Non-Resident Indian Business Unit. Considering above facts and also considering that similar issue has been considered by Tribunal in assessee s own case for assessment year 1990-91 as well as in succeeding assessment year, we hold that Ld. CIT(A) is not justified to make disallowance of the aggregate amount of Rs. 22,53,31,656/- on the ground that said expenses are covered by provisions of Sec. 44C of the Act. Moreover, we observe that authorities below have followed order for assessment year 1997-98 of Ld. CIT(A) but mentioned herein above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t amounting to Rs. 13,18,565/-. The AO stated that in view of decision of Hon ble Madras High Court in the case of CIT Vs. Indian Overseas Bank 183 ITR 200 that loss or profit on such transactions are to be allowed on actual settlement contracts. However, assessee bank stated that valuation is done in accordance with Reserve Bank of India guidelines based on the rates declared by Foreign Exchange Dealers Association of India (FEDAI). The forward contracts are entered into in the normal course of banking operations and are not on capital account. He further contended that assessee is regularly following particular method of accounting. However, AO stated that it was an estimated loss and accordingly disallowed the claim of assessee. 22. The Ld. CIT(A) after considering the submission of assessee confirmed action of AO. 23. However we observe that similar issue has been considered by Special Bench of ITAT Mumbai in the case of Bank of Baharain Kuwait (supra) wherein assessee bank entered into forward contract with clients to buy or sell foreign exchange at an agreed price on a future date in order to hedge against possible future financial loss on account of fluctuation in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents to VISA International and Master Card International as under: VISA Rs. 49,83,823/- MASTER CARD Rs. 32,49,581/- 26. The said payments were made without deducting TDS. The AO stated that assessee made payments to Master Card International and Visa Card International, which fall within the scope of Sec.9(1)(vi) and Article-12 of DTAA. The assessee was required to deduct TDS @ 15% as per Article 12 of DTAA. Since assessee made payments without deducting TDS, AO disallowed deduction of remittance aggregating to Rs. 82,33,404/- made to Visa International and Master Card as per provisions of Sec. 40a(i) of I.T.Act. Being aggrieved, assessee preferred appeal before First Appellate authority. 27. The Ld. CIT(A) stated that Visa International and Master Card International are two USA entities. Ld. CIT(A) stated that both Visa International and Master Card International are having permanent establishments in India. Therefore income generated in India received from bank or other associates is taxable in the territorial jurisdiction of India. Ld. CIT(A) stated that fee paid by assessee bank to these two companies were for services rendered in India and the same is ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payments made to them are not in the nature of royalty or fee for technical services, but is a business receipts, the said payment is subject to TDS, and Article 26(3) of Indo-US DTAA will not apply. Ld. DR further submitted that in view of above decisions of ITAT Mumbai Bench in the case of Central Bank of India (supra) will not apply. Ld. DR further submitted that finding given by ITAT Mumbai Bench that provisions of Sec. 40(a)(i) will not be applicable in view of Article 26(3) on account of discrimination is not correct. Ld. DR further submitted that since it is a business receipts of two USA entities from assessee bank, said payment falls in Clause A of Sec. 40(a)(i) of the Act and it is not connected with resident/non-resident status and therefore the finding given by ITAT Mumbai Bench in above case (supra) that said section will not be applicable on account of discrimination, is also not correct. Ld. DR further submitted that Indo US treaty is not applicable to provisions of TDS as TDS is only a mechanism for collection of tax on behalf of payees from the payers out of the payment to be made to them. Ld. DR submitted that order of Ld. CIT(A) be confirmed by rejecting the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter Card International have been passed on similar lines. Therefore, we agree with Ld. AR that after Mutual agreement entered into between India and USA, these two entities namely Visa International and Master Card International are deemed to be having Permanent Establishment in India; but in the relevant assessment year and at the time when assessee made payments to these two entities, said dispute was there and Tribunal considered it in the case of Central Bank of India (supra) vide its order dt. 24th September, 2010. It was held that even if assessee bank failed to deduct TDS on the payments made to Visa International and Master Card International, same could not be disallowed as per provisions of Sec. 40A(i) of the I.T. Act in view of Article 26(3) of Indo US DTAA. Since said decision has not been overruled and no other decision has been brought to our notice contrary to it, we respectfully following the said decision of Co-ordinate Bench of ITAT, Mumbai (supra), delete the disallowance as sustained by Ld. CIT(A) by allowing ground No. 6 of appeal taken by assessee. 31. Now we take up the appeal filed by department being ITA No. 5300/Mum/01 for A.Y. 1998-99. 32. In ground N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has stated that assessee has claimed exemption on gross interest. Therefore AO apportioned the interest in respect of tax free bond for which income is exempted u/s. 10(15) of the Act and worked out the net interest income to be allowed for deduction u/s. 10(15) of the Act which comes to Rs. 2,02,54,534/- as against Rs. 8,57,54,534/- claimed by assessee. Being aggrieved, assessee filed appeal before Ld. CIT(A). 40. Ld. CIT(A) accepted the contention of assessee that no expenditure has been incurred for earning tax free income, therefore question of disallowance of any such expenditure did not arise. Ld. CIT(A) further stated that nexus between borrowings and investment has not been established, therefore provisions of Sec. 14A of I.T. Act could not be of no benefit to the Revenue. Ld. CIT(A) has stated that AO has erred in deducting any sum as the cost of the funds for earning the interest on tax free bonds. Hence department is in appeal before Tribunal. 41. During the course of hearing, Ld. AR submitted that similar issue has been considered by ITAT in assessee s own case in ITA No. 4498/M/00 for assessment year 1997-98 and the Tribunal by its order dt. 6th May, 2005 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of the business and pray that the AO be directed to delete the disallowance made. 2. The CIT(A) erred in confirming the action of the AO of disallowing the expenses aggregating Rs. 22,57,55,918/- 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. The appellants therefore pray that the AO be directed to allow this expenditure. 3 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/- The appellants submit that these debts have become bad and hence deduction ought to have been allowed for the same. 4. The CIT(A) erred in confirming the action of AO of bringi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eject ground No. 1 to 3 of appeal taken by department for assessment year 1999- 2000 and (b) allow ground No. 4 of the appeal for statistical purposes by restoring the issue to AO for his fresh consideration by following earlier order of Tribunal in assessee s own case for A.Y. 1997-98. 52. Now we take up Cross Objection No. 135/Mum/ 2002 of the assessee. The assessee has taken following grounds: 1. The respondents submit that in case the ACIT, Circle 1(2), Mumbai s action of disallowing the broken period interest amounting to Rs. 60,45,27,239/- 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. 22,57,55,918/- 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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