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TMI Blog2012 (12) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal in the case of M/s. Credit Agricole Indosuez. The Tribunal vide its order dated 12.09.2012 in ITA No.6615/Mum/2003 & Ors. also decided the issue against the assessee. In view of these facts we uphold the impugned order on this issue. This ground is not allowed. 3. Second ground of the assessee's appeal and first ground of the Revenue's appeal are against the direction of the learned CIT(A) to tax interest income of Rs. 4,88,47,308 on NOSTRO and overseas placements maintained with branches outside India and also grant deduction towards interest expenditure on such accounts. Briefly stated the facts of this ground are that the assessee reduced Rs. 4.88 crore as interest received from NOSTRO account. On being called upon to furnish the explanation for seeking exclusion of such interest, the assessee stated that it was carrying on banking business and for that purpose it needed to maintain NOSTRO accounts for receipt/payment of money in foreign currency. It was also claimed that the NOSTRO accounts maintained by the assessee were with its head office and own branches outside India. The Assessing Officer observed that the NOSTRO account was nothing but the bank account of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of interest earned from its overseas branches, nor there can be deduction for interest expenditure paid by the Indian branch to Head office or the other overseas branches. We want to make it clear that we have adopted the ratio of special bench decision in so far it concerns the examination under the provisions of the Act and not the DTAA. It is different matter that the decision of the special bench rendered in this case in the context of the DTAA has been reconsidered by a larger bench, with which we are not presently concerned. Respectfully following the ratio of this decision in the context of the Income-tax Act, 1961, we hold that the interest income of Rs. 4.88 crore which has resulted only from the assessee's dealings with its Head office or overseas branches cannot be charged to tax on the principle of mutuality will apply. Accordingly no tax can be levied on the interest earned by the assessee from its Head office or overseas branches. 6. At this stage we will like to mention that the learned Departmental Representative has relied on the order passed by the Tribunal in the case of Asstt. DIT v. Credit Agricole Indosuez (ITA No. 6615/Mum/2003) dated 12.09.2012 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed that no disallowance on this score was made by the assessee suo moto in its computation of income. On being called upon to explain the reasons for not offering any disallowance, the assessee stated that the disallowances used to be made by the assessee voluntarily in the past due to operation of section 37(3) read with Rule 6D and Rule 6B which provisions came to be deleted with effect from 01.04.1998 relevant to the assessment year 1998-99. The Assessing Officer observed that the omission of provisions of section 37(2) should not mean that no disallowance should be made on the expenses otherwise covered under such sections. In his opinion such disallowances hitherto included in section 37(2) would henceforth be covered u/s 37(1). He, therefore, made the entire addition of Rs. 8,26,620. The learned CIT(A) restricted this addition to Rs. 50,000 on account of the benefit of entertainment expenses availed by the employees of the assessee. Both the sides are in appeal against their respective stands. 9. After considering the rival submissions and perusing the relevant material on record it is observed that section 37(2) inter alia provided for disallowance of entertainment exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r view having been taken in earlier assessment years. He, therefore, deleted the disallowance to the tune of Rs. 2.41 crore, representing excess of Rs. 5.40 crores over Rs. 2.99 crore being the loss on valuation of securities held in Patheja Brothers. The learned CIT(A) observed that no relief can be allowed for Rs. 2.99 crore because the assessee offered this amount for taxation voluntarily. Both the sides are in appeal in so far as the ld. CIT(A) has decided this issue to their prejudice. 12. We have heard the rival submissions and perused the relevant material on record. It is clear that the Assessing Officer made disallowance of Rs. 5.40 crore which amount also included a sum of Rs. 2.99 crore towards loss on revaluation of shares held in Patheja Brothers. It is further not in dispute that all these shares/securities in respect of which loss has been recorded by the assessee on valuation as at the year end represented its stock-in-trade. The Tribunal in assessee's own case for assessment year 1996-97 in ITA No.5055/ Mum/2000 has held, vide its order dated 19.08.2005, that there can be no addition in respect of loss on valuation of securities. In this view of the matter it beco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contracts credited to the Profit and loss account. It was fairly admitted by the learned AR that the principle of consistency will apply and when deduction on account of loss towards unmatured forward exchange contract is allowed, then the profit from such unmatured forward exchange contract should also be taxed. It is noticed that similar view has been taken by the Tribunal in the case of Credit Agricole Indosuez (supra) also. As we are consistently allowing deduction on account of loss on unmatured forward exchange contract, the profit on such unmatured forward exchange contract is also consequently liable to tax. We, therefore, uphold the impugned order in taxing Rs. 10.45 crore on unmatured forward exchange contract. This ground is not allowed. 14. The only other ground taken by the Revenue in its appeal is against the deletion of addition of Rs. 10 lakh made by the A.O. in respect of expenses incurred on earning tax free income. The assessee claimed exemption in respect of dividend of Rs. 14.01 lakh and interest on tax free bonds at Rs. 8.45 lakh. The Assessing Officer opined that since the assessee has claimed exemption in respect of such incomes, there is no warrant for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome is concerned, we find that the Tribunal in Dy. DIT (IT) v. State Bank of Mauritius Ltd. in ITA No.2456/Mum/2006 & Ors. vide its order dated 03rd October, 2012 has upheld the sustenance of disallowance on account of administrative and management expenses in relation to exempt income at 2% of such exempt income. We, therefore, direct the Assessing Officer to sustain disallowance at 2% of total exempt income u/s 10(33) and also u/s 10(15). 18. The Cross objection of the assessee has become consequential to our decision rendered on the grounds raised by the assessee as well as the Revenue is their appeals. 19. In the result, both the appeals are partly allowed and cross objection filed by the assessee has become consequential to our decision on the appeals by both the sides above. Assessment Year 1999-2000 20. First ground of the Revenue's appeal is against the deletion of disallowance of expenses in relation to income u/s 10(33) and 10(15)(iv)(h). It is observed that the Assessing Officer made disallowance of interest in this year unlike the disallowance of other expenses also in the preceding year. The learned CIT(A) on appreciation of the factual position, indicated by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India. Here again both the sides are in agreement that the facts and circumstances of this year are similar to assessment year 1998-99. Following the view taken hereinabove we allow this ground of appeal. 27. Ground no.3 is against not allowing of deduction of Rs. 12,12,993 being interest paid to Head office/overseas branch. Following the principle of mutuality as discussed for assessment year 1998-99, this deduction of Rs. 12.12 lakh, being the interest paid to Head office/other overseas branches of the assessee, is not allowed. This ground fails. 28. Ground no.4 is against the confirmation of the action of the A.O. for not charging interest of Rs 9,83,865 u/s 234C of the Act. This ground is the outcome of ground no.1 of assessee's appeal as has been mentioned in the appeal memo itself. Since we have dismissed ground no.1, this consequential ground is also liable to be dismissed. We order accordingly. 29. Ground no.1 of the Revenue's appeal is against deletion of addition towards the expenses disallowed by the A.O. in relation to exempt income. It is seen that for this year also the Assessing Officer disallowed interest in respect of exempt income. There is no separate dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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