9911796707
TMI Blog2013 (5) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... 1996-97, for which there are three appeals, two are cross appeals and one appeal, filed by the assessee, which emanate from the order passed by the AO in the set aside proceedings under section 143(3) read with section 251 on certain issues. 3. Being lead year, we taken up the said appeals for assessment year 1996-97, first. 4. The cross appeals filed for assessment year 1996-97 are directed against the order of CIT(A) IV, Mumbai, dated 12.03.2001, wherein several ground along with several sub grounds were originally raised by the assessee. At the time of hearing, the AR however has, submitted concise grounds of appeal, which have been perused and accepted in substitution of the original grounds of appeal. Assessment year 1996-97: ITA no. 3006/Mum/2001 : Assessee's appeal ITA no. 3620/Mum/2001 : Department's appeal 5. Ground no. 1 raised in assessee's appeal and both the grounds, i.e. grounds no. 1 & 2 raised in the department's appeal involve common issue relating to assessee's claim for depreciation on various assets given on lease. 6. The brief facts of the case are that, the assessee is a private bank, which came into existence on 31.05.1995 by taking over the business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the AO observed that the transactions were an eyewash and the assessee had used them as colorable device to lower its taxable income. Even in the proceedings before the CIT(A), a circular was confronted, bearing no. F.No. 225/186/2000-ITA-II, dated 9.2.2001, which referred to the impugned issue, "in case of sale and lease back of assets without any alteration in the situation of assets and its working the denial of depreciation claimed has to be considered, keeping in view the principle laid down by the Supreme Court in the case of McDowell & Co. Ltd.". The basic reply of the assessee was : a) technically it is sale and lease back but actually it is regular lease of new equipment, acquired within the financial year, wherein the lessee has already bought the equipment before the lease arrangement. In which case, the equipment is sold by the lessee to lessor and takes its back on lease; b) Circular dated 09.02.2001 is bereft of the fact that all lease arrangements are not colorable devises. The decision of McDowell & Co. Ltd. is on colorable devices and will not be applicable on genuine transactions; c) that there are several judgments of U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e depreciation claimed by the assessee in transactions at serial nos. xv and xvi. 18. The CIT(A), therefore concluded that a) transactions at serial nos. i to vii in SLB transactions, on which depreciation was claimed, the disallowance was sustained b) transactions at serial no. viii to xiv on which depreciation was claimed was allowed (the department is appeal in ITA No. 3620/Mum/2001) c) transactions at serial no. xv & xvi, depreciation could not be allowed on the ground that the assets put on lease by the assessee bank had not been put to use by the lessees, depreciation as disallowed was sustained. 19. Against these observations by the CIT(A) in (a) and (c), as above, the assessee is in appeal. 20. The AR pointed out that the issue of sale and lease back had been an issue of dispute and the Special Bench of the ITAT in the case of IndusInd Bank, ITA no. 6566/Mum/2002 that only in the case of genuine cases, the depreciation could be allowable. This decision, by the Special Bench has now been reversed in the case of Cosmo Films Ltd. ITA no. 1404 of 2008, wherein Hon'ble Delhi High Court had allowed the claim. The AR also pointed out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the assessee, the DR pointed out that the report of the Court Receiver was not available to the AO, which in itself was violation of natural justice and a good ground for the issue to be restored to the AO for fresh adjudication. 25. On the issue of assets not put to use by the lessees, the DR relied on the observations of the AO. 26. In the rejoinder, the AR submitted that the ratio laid down by the Tribunal in the cases relied upon by the revenue authorities and the DR, i.e. IndusInd and MidEast, has now been impliedly overruled by Hon'ble Delhi High Court in the case of Cosmo Films Ltd. (supra) and the same therefore cannot be relied upon in view of the decision of Hon'ble Delhi High Court. 27. With regard to CIT(A) not allowing the AO to have access to the Court Receiver's report, the AR pointed out that during the course of hearing, the CIT(A) had not only discussed the issues with the AO but the present AO and the AO who had passed the orders were made to be present in the course of hearing. The AR, therefore, submitted that this cannot be the case of violation of natural justice. 28. We have heard the arguments of both the sides and we are of the view that cross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself goes to prove the genuiness of the transaction. 31. In any case, the issue of SLB transaction and in particular the issue of ownership of asset, also has been laid to rest by the Hon'ble Apex Court in the case of ICDS Ltd. Vs CIT, in CA No. 3286 to 3290 of 2008, wherein the question that was sought to be answered was "Whether the appellant (assessee) is the owner of the vehicles which are leased out by it to its customers". The Hon'ble Supreme Court of India, concluded, extracted from para 28, "From a perusal of the lease agreement and other related factors, as discussed above, we are satisfied of the assessee's ownership of the trucks in question" (para 28, page 28). 32. Coming to the issue of finance lease, wherein the CIT(A) sustained the disallowance because the usage of the equipment lease out could not be substantiated. On going through the decision of the jurisdictional High court of Bombay, we find that the issue now is at rest, in so far as the lessor is concerned, because, while dealing the case of the lessor, i.e. the assessee in the instant case, the asset has left its corridors for being utilized, and in return, rent had been received by the assessee. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al amount included in lease rental income) should be allowed". 33. We also find that the last two transactions are also covered by the decision of the coordinate Bench in the case of Indian Management Advisors & Leasings Pvt. Ltd. vs DCIT, reported in 51 ITD 566 (Del), as mentioned earlier. 34. After having examined all the transactions which have been impugned before us, we are of the opinion that the assessee is entitled for the claim of depreciation under all the three circumstance, i.e. Sale lease back, genuineness of transaction and asset having being put to use. We, therefore, allow ground no. 1 the assessee's appeal and dismiss both the grounds of the department's appeal. 35. Ground no. 2, raised in the grounds of appeal of the assessee is not pressed at the time of hearing before us. The same is therefore, dismissed. 36. Ground no. 3 is on account of disallowance of Rs. 7,03,390/-incurred by the assessee for ATM link up. The revenue authorities held the expense to be of capital in nature but did not result in the creation of new asset. 37. From the impugned order, we find that the asaessee made the payment of Rs 9,20,000/- to Indian Bank Association for participating i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s resulted in double disallowance. 45. The DR relied upon the observations of the revenue authorities. 46. We have gone through the computation and we find that the assessee had added back the expense in its computation. Since the amount has already been added back, the revenue authorities erred in making a further disallowance, which has resulted in the double disallowance. 47. We, therefore, set aside the order of the CIT(A) confirming the disallowance of Rs. 2,89,745/- and direct the AO to delete the same. 48. The ground no. 4 is, therefore, allowed. 49. Ground no. 5 is not pressed, hence it is dismissed. 50. Ground no. 6 pertains to disallowance of Rs. 12,00,000/- paid to CCI for membership. 51. The revenue authorities have held the expense to be of capital in nature and have disallowed the same. 52. Before us, the AR submitted that the expense is only with regard to subscription on corporate membership, pertaining to the company and does not pertain to an individual and it does not involve any element of entertainment and, therefore, the expenditure incurred for the purpose of enhancing the business, and therefore cannot be taken to be capital or otherwise disallowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these observations, we, set aside the order of the CIT(A) on this issue and direct the AO to allow depreciation as per law after verification of the dates of payment for repossession, because, the date of repossession itself would indicate the asset having put to use by the assessee, because till such time, the tenanted property cannot be held to be used by the assessee for the purposes of its business. 64. Grounds no. 9 & 10 are not pressed, hence, the same are dismissed. 65. Ground no. 11 is against the levy of interest u/s 234A, therefore the return of income admittedly filed in time but was signed by the General Manager and Chief Manager and not by the Managing Director. The revenue authorities, thus held the return to be invalid and levied interest u/s 234A. 66. The AR submitted that the dispute is not whether the return was not filed late but was not verified by the Managing Director or Director as per section 140(c) read with 139(1). 67. The AR pleaded that the defect as noted by the revenue authorities was never called upon to be rectified. The defect, as such, was not of the nature to being fatal to the return. The AR pleaded that not once, the assessee was called up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return void. He the AO is not justified in levying the interest u/s 234A of the Act". 68. We have heard the rival contentions and are of the opinion that the return was merely defective not invalid and the defect was of such a nature that it could have been removed, but the revenue authorities harped themselves on technicalities. Placing reliance on the cited cases and the decision of Collector, Land Acquisition vs Mst. Katiji and others, reported in 167 ITR 471, wherein the Hon'ble Supreme Court observes, "When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred,........", the Hon'ble Court further observes, "There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of malafides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk". Taking note of the cited cases, as above, we are of the opinion, that the revenue authorities erred in charging interest under section 234A, where without a spec of doubt, the return was filed well within time. 69. We, therefore, set aside the order of the CIT(A) on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia Reporter Ltd vs CIT (49 ITR 196) - Bombay High Court". 74. The DR placed reliance on the decision of the revenue authorities and after we have heard the arguments of both the parties, we are of the considered opinion that the amounts so paid were in fact for the purposes of sooth running of the business and withdrawal of the cases by the litigants. On going through the cases cited before us, respectfully following them, we allow the expenses as claimed by the assessee. 75. We, therefore, set aside the case of the CIT(A) on this issue and direct the AO to allow the expenses as revenue. 76. In the result, appeal filed by the assessee in ITA no. 4892/Mum/2001 is allowed. ITA no. 5840/Mum/2003 : Assessee's appeal for AY 1997-98: ITA no. 6010/Mum/2003 : Revenue's appeal for AY 1997-98: 77. These Cross appeals filed for AY 1997-98 are directed against the order of Ld. CIT(A)-Central IV, Mumbai dated 26.06.2003. 78. The common issue involved in Ground no. 4 of the assessee's appeal and all the six grounds of the revenue's appeal relates to the assessee's claim for depreciation on the various assets given on lease. 79. A similar issue involved in Cross appeals filed for AY 1996- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; GROUND NO. 2 The learned CIT(A) erred in confirming disallowance of Rs.4,58,39,519/- out of the total depreciation of Rs. 12,70,02,180/-, being depreciation claimed on the year end stock of government and other approved securities. GROUND NO.3 The learned CIT(A) erred in confirming disallowance of law charges of Rs.1,97,500/- made by the DCIT, on the ground that they were in the nature of capital expenditure as they, in his opinion were incurred for the purpose of creating, procuring or completing appellant's title to the banking business. The expenditure pertained to legal expenses incurred by the Bank in defending cases in respect of certain shareholder disputes. GROUND NO. 4 The learned CIT(A) erred in confirming disallowance of depreciation of Rs.3, 15,900/- claimed as depreciation on premises on the ground that no new asset was acquired. The depreciation was claimed on the amount paid as part of expenses incurred towards acquisition of premises. GROUND NO. 5 The learned CIT(A) erred in not allowing deduction of provision made for bad & doubtful debts aggregating to Rs. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lved in Ground no. 3 of the assessee's appeal is not pressed, the ground is therefore, dismissed. 92. The issue involved in Ground no. 4 of the assessee's appeal pertains to disallowance of depreciation claimed at Rs. 3,15,900/- on premises acquired by the assessee. 93. A similar issue has already been decided by us in ground no. 8 of the assessee's appeal for AY 1996-97 in foregoing portion of this order. Since all the material facts relevant thereto as well as arguments raised by the Ld. Representatives of both the sides are similar, we follow our decision rendered in AY 1996-97 and allow ground no. 4 of the assessee's appeal for statistical purposes. 94. The issue involved in Ground no. 5 of the assessee's appeal is not pressed, the ground is therefore dismissed. 95. The issue involved in ground no. 6 of the assessee's appeal is with regards to disallowance of Rs. 3,55,09,806/- (85.63% of exempt income) out of total expenditure under the provisions of section 14A of the Income Tax Act. 96. We find that the disallowance was made by the CIT(A) on the basis of a letter written to him by the AO at the time of prosecution of the appeal before him. We find that issue was neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs vested in him, that of an assessing officer, informed the assessee, with the letter received by him from the AO. This is not the case, where the CIT(A) has made an addition without informing the assessee. We are, therefore, in agreement with the action of the CIT(A), seeking comments from the assessee and then making the statutory disallowance, as contemplated in the newly inserted section. However, we find that the disallowance, as made by the CIT(A) is excessive. In these circumstances, we accept the suggestion of the AR that disallowance at 10% of the exempt income would suffice. We, therefore, set aside the order of the CIT(A) and direct the AO to compute the disallowance at 10% of the income claimed as exempt. 101. The ground of appeal, is, therefore, partly allowed. 102. In the result: appeal of the assessee stands partly allowed & appeal of the revenue stands dismissed. ITA 51/Mum/2005 : Assessee's appeal for AY 1999-2000: ITA 9611/Mum/2004 : Revenue's appeal for AY 1999-2000: 103. These Cross appeals filed for AY 1999-00 are directed against the order of Ld. CIT(A)-Central IV, Mumbai dated 08.11.2004. The assessee has raised the following grounds: "GRO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the various assets given on lease. 106. A similar issue involved in Cross appeals filed for AY 1996-97 has already been decided by us in the foregoing portion of this order. Since all the material facts relevant thereto as well as arguments raised by the Ld. Representatives of both the sides are similar, we follow our decision rendered in AY 1996-97 and allow ground no. 1 of the assessee's and dismiss the ground involved in revenue's appeal. 107. An issue involved in Ground no. 2 of the assessee's appeal is not pressed, the ground is therefore, dismissed. An issue involved in Ground no. 3 of the assessee's appeal pertains to disallowance of depreciation claimed at Rs. 3,15,900/- on premises acquired by the assessee. 108. A similar issue has already been decided by us in ground no. 8 of the assessee's appeal for AY 1996-97 in foregoing portion of this order. Since all the material facts relevant thereto as well as arguments raised by the Ld. Representatives of both the sides are similar, we follow our decision rendered in AY 1996-97 and allow this ground for statistical purposes. 109. An issue in Ground no. 4 is with regards to deduction u/s 36(1)(viia), which is not presse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 120. The ground of appeal, is, therefore, allowed for statistical purposes. 121. In the result: appeal of the assessee stands partly allowed & appeal of the revenue stands dismissed. ITA No. : 52/Mum/2005 : Assessee's appeal for AY 2000-2001 : ITA No. : 9657/Mum/2004 : Revenue's appeal for AY 2000-2001 : 122. These Cross appeals filed for AY 2000-01 are directed against the order of Ld. CIT(A)-Central IV, Mumbai dated 23.11.2004. The assessee has raised the following grounds: "GROUND NO.1: The learned Commissioner of Income Tax(Appeals), (hereinafter referred to as CIT(A)) erred in confirming the disallowance of depreciation of Rs.4,42,02,889/- on leased assets made by the Deputy Commissioner of Income Tax, Central Circle- 22. GROUND NO.2 The learned CIT(A) erred in confirming disallowance of Rs.52,62,078/- out of the total depreciation of Rs.4,2 1,96,588/-, being depreciation claimed on the year end stock of government and other approved securities. GROUND NO. 3 The learned CIT(A) erred in confirming disallowance of depreciation of Rs.2,84,310/- claimed as deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. Since all the material facts relevant thereto as well as arguments raised by the Ld. Representatives of both the sides are similar, we follow our decision rendered in AY 1996-97 and allow this ground for statistical purposes. 129. Ground no. 4 The issue pertains to the disallowance of Rs. 14,81,57,360/- under section 14A of the Income Tax Act. 130. Identical issue has been decided by us in ITA No. 51/Mum/2005, in the preceding year. Since the issue is the same, we do not intend to deviate from our own decision and we restore the issue to the file of the AO with similar directions, as given by us in assessment year 1998-99. 131. The ground of appeal, is, therefore, allowed for statistical purposes. 132. In the result, appeal of the assessee for AY 2000-01 is partly allowed. 133. In the result: appeal of the assessee is partly allowed & appeal of the revenue stands dismissed ITA No. 3303/Mum/2005 : Assessee's appeal for AY 2000 01: 134. This appeal of the assessee arise out of order u/s 263 of CIT, Mumbai, dated 22nd March, 2005. The assessee has raised the following ground of appeal, in its appeal: "In the only ground of appeal the learned Commissioner of Income Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax(Appeals), (hereinafter referred to as CIT(A)) erred confirming the disallowance of depreciation of Rs.3,34,50,815/- on leased assets made by the Deputy Commissioner of Income Tax, Central Circle-22. GROUND NO.2 The learned CIT(A) erred in confirming disallowance of Rs.32,68,902/-out of the total depreciation of Rs.7,25,60,537/-, being depreciation claimed on the year end stock of government and other approved securities. GROUND NO.3 The learned CIT(A) erred in confirming disallowance of depreciation of Rs.2,55,880/- claimed as depreciation on premises on the ground that no new asset was acquired. The depreciation was claimed on the amount paid as a part of expenses incurred for acquisition of premises. GROUND NO.4 The learned CIT (A) erred in confirming disallowance of Rs. 17,66,12,371/- (84.25 % of exempt income) out of total expenditure under the provisions of Section 14A of the Income Tax Act and in enhancing appellant's total income to that extent." 144. In its grounds of appeal, the revenue has raised following ground: "On the facts and circumstances of the case and in Law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of the assessee is partly allowed & appeal of the revenue stands dismissed ITA No. 3304/Mum/2005: Assessee's appeal for AY 2001-02: 153. This appeal of the assessee arise out of order u/s 263 of CIT, Mumbai, dated 30th March, 2005. The sole ground raised by the assessee reads as under: "In the only ground of appeal the learned Commissioner of Income Tax erred in coming to the conclusion that the proviso to clause (vii) of section 36(1) of the Income Tax Act was attracted in the instant case and further erred in directing the Assessing Officer to revise the assessment order for disallowing the claim of bad-debts of Rs. 2,37,09,343/-." 154. In the current assessment year, the AO passed the order, as per the direction of the CIT in consequential proceedings. We were seized with identical issue in the preceding year, in ITA No. 3303/Mum/2005, wherein we held that the proceedings under section 263 of the Income Tax Act, were bad in law in so far as the application of legal principles were concerned. Since the issue is the same, i.e. claim of the bad debts from the provisions, as directed to be made from the closing balances. We do not intend to dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of investment of Rs 10.36 crores ignoring the fact that any loss arising out of revaluation of capital assets is not allowable as revenue expenditure." 158. The issue involved in Ground no. 1 of the assessee's appeal is with regards to assessee's claim for depreciation of Rs. 2,57,86,961/-on the various assets given on lease. 159. A similar issue has already been decided by us in ground no. 1 of the assessee's appeal for AY 1996-97 in foregoing portion of this order. Since all the material facts relevant thereto as well as arguments raised by the Ld. Representatives of both the sides are similar, we follow our decision rendered in AY 1996-97 and allow ground no. 1 of the assessee's appeal. 160. The Issue in Ground no. 2 of the assessee's appeal is not pressed, the ground is therefore, dismissed. 161. Issue involved in Ground no. 3 of the assessee's appeal pertains to disallowance of depreciation claimed at Rs. 2,30,291/- on premises acquired by the assessee. 162. A similar issue has already been decided by us in ground no. 8 of the assessee's appeal for AY 1996-97 in foregoing portion of this order. Since all the material facts relevant thereto as well as arguments raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; appeal of the assessee is partly allowed & appeal of the revenue stands dismissed. ITA 151/Mum/2007 : Assessee's appeal for AY 2003-04: ITA 549/Mum/2007 : Revenue's appeal for AY 2003-04: 176. These Cross appeals filed for AY 2003-04 are directed against the order of Ld. CIT(A)-Central IV, Mumbai dated 07.11.2006. The assessee has raised the following grounds: "GROUND NO. 1: The order of learned Deputy Commissioner of Income Tax (hereinafter, referred to as DCIT) must be annulled and quashed, since it is capricious in nature and has been made, ignoring the established and undisputed facts, with an intention to punish the appellant. GROUND NO. 2 The learned Commissioner of Income Tax (Appeals) (hereinafter, referred to as CIT (A) erred in confirming disallowance of depreciation of Rs. 1,43,24,789/- on leased assets made by the DCIT. GROUND NO. 3 The learned CIT(A) erred in confirming disallowance of Rs.22,84,83,313/-, being depreciation claimed on the year end stock of government and other approved securities. GROUND NO.4 The learned CIT (A) erred in confirming dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts raised by the Ld. Representatives of both the sides are similar, we follow our decision rendered in AY 1996-97 and allow this ground for statistical purposes. 184. Ground no. 5 is with regard to disallowance made under section 14A of the Income Tax Act, wherein on the aggregate income of Rs. 4,63,59,643/-, claimed by the assessee as exempt, the AO computed the disallowance of Rs. 3,97,64,250/-. 185. Identical issue has been decided by us in ITA No. 51/Mum/2005. Since the issue is the same, we do not intend to deviate from our own decision and we restore the issue to the file of the AO with similar directions, as given by us in assessment year 1998-99. 186. The ground of appeal, is, therefore, allowed for statistical purposes. Assessment year 2003-04: Department's appeal: 187. Ground no. 1 is with regards to bad debt written off of Rs. 108.33 crores. 188. The assessee in its accounts had claimed bad debts, which the AO disallowed. On appeal to the CIT(A), the assessee, reiterated its arguments and claimed that the write off of bad debts was rightly done by the assessee. 189. The CIT(A), taking into consideration the relevant facts that the assessee had written off the bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation on premises on the ground that no new asset was acquired. The depreciation was claimed on the amount paid as a part of expenses incurred for acquisition of premises. GROUND NO.4 The learned CIT (A) erred in confirming disallowance of Rs. 2,34,29,550/-, as proportionate interest expenditure attributable towards earning of tax free income aggregating to Rs. 4,38,12,058/-, under the provisions of Section 14A of the Income Tax Act." 198. In its grounds of appeal, the revenue has raised following ground: "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the claim of the assessee of bad debts amounting to Rs. 27.64 Crores merely on the basis of RBI directive and in contrary to the provisions of section 36(2)(iv) of the I.T. Act, as applicable to banking company. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee's claim of depreciation of Rs. 1,07,84,267/- in respect of assets leased to various parties ignoring the fact that the real nature of transaction with the parties are purely one of finance rath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intent to take a contrary view in the instant ground of appeal. 208. As a result, the ground raised by the department is dismissed. 209. Ground no.2 is with regards to assessee's claim for depreciation of Rs.1,07,84,267/- on the various assets given on lease. 210. A similar issue has already been decided by us in ground no.1 of the assessee's appeal for AY 1996-97 in foregoing portion of this order. Since all the material facts relevant thereto as well as arguments raised by the Ld. Representatives of both the sides are similar, we follow our decision rendered in AY 1996-97 and dismiss ground no.2 of the revenue's appeal. 211. Grounds no.3 & 4 are general in nature, hence, no adjudication is called for, therefore, both these grounds are accordingly dismissed. 212. In the result: appeal of the assessee stands partly allowed and appeal of the revenue stands dismissed. ITA 7171/Mum/2011 : Assessee's appeal for AY 2008-09: ITA 7001/Mum/2011 : Revenue's appeal for AY 2008-09: 213. These Cross appeals filed for AY 2008-09 are directed against the order of Ld. CIT(A)-Central IV, Mumbai dated 29.07.2011. The assessee has raised the following grounds: &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the revenue's appeal are not pressed, hence, same are dismissed as not pressed. 219. Issue involved in Ground b of the revenue's appeal is with regards to addition on account of notional loss of Rs. 2,54,00,885/- on the revaluation of foreign exchange. 220. The facts are that the assessee booked a loss on revaluation of outstanding contracts on net basis (gross loss of Rs. 6,66,41,881 -gross gain of Rs. 4,12,40,996). The AO observed that such a loss on notional basis could not be allowed. 221. The assessee took the issue before the CIT(A), before whom the assessee reiterated its submissions made before the AO and placed reliance on the ITAT Special Bench decision in the case of DCIT vs Bank of Bahrain & Kuwait, reported in 132 TTJ 505 (Mum-SB) = (2010-TII-224-ITAT-MUM-SB-INTL), as extracted by the CIT(A) are, "......(v) As per AS-11, when the transaction is not settled in the same accounting period as that in which it occurred, the exchange difference arises over more then one accounting period. (vi) The forward foreign exchange contracts have all the trappings of stock in trade. (vii) In view of the decision of the Hon'ble Supreme Court in the case of Woodword Governor India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us the AR pointed out that the assessee had suo moto made a disallowance and a further disallowance would only add to the disallowance already made. 234. The DR supported the views of the revenue authorities. 235. We have heard the arguments and perused the material on record. In the present case, the assessee had made a disallowance, which the AO did not consider to be incorrect. The legislature has used the words, "........., if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such, expenditure .......". This only means that the AO cannot simply brush aside the claim made by the assessee, but, first the AO must give cogent reasons for his not being satisfied with the correctness of the claim of the assessee in respect of such expenditure. 236. In our considered opinion, the road leading to application of Rule 8D of the Income Tax Rules, goes through section 14A(2) of the Income Tax Act, 1961. This is so because, unless the AO gives a reasoned finding that the expenditure shown or even not shown in its/his books are incorrect, he cannot proceed to compute the disallowance, as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as interest income. b) That the leasing transaction pertaining to JBF Industries and mardia Chemicals amounting to Rs.1,78,44,015/- were found to be of financial transactions and not genuine lease transactions and therefore, the income earned from such transactions ought to be taxed as interest income. 2. The Ld. CIT(A) has erred in facts and in law in directing the Assessing Officer to reduce the amount of Rs.2,64,00,000/-, being the interest @ 3% charged by the assessee from the customers over and above the interest income, from gross interest chargeable to tax." 245. Since the issue of interest itself has been deleted, no question of levy of interest tax survives, as the assessee was held to be the owner. Accordingly, we dismiss ground a & b of the revenue's appeal. 246. Ground no.2 Interest tax should not be levied on the interest collected by the appellant i.e. there should not be grossing up. The issue stands covered by the decision of Madras High Court in case of Bank of Madura, reported in 215 ITR 928 (Mad). In fact in AY 2000-01, the AO relying on the RBI circular has himself not levied interest tax on the interest collected by the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in law the Ld. CIT(A) failed to appreciate that the lease transactions entered into by the assessee are nothing but financial transactions in view of the RBI's circular no. FSC.BC.18/24/-01-20001/ 93-94 dated 19.2.1994 and hereby erred in deleting the amount of Rs.1,06,08,238/- arising out of such transactions treated as chargeable interest by the AO." 253. Since the issue of interest itself has been deleted, no question of levy of interest tax arises, as the assessee was held to be the owner. Accordingly, we dismiss grounds 1 & 3 of the revenue's appeal. 254. In the result, revenue's appeal stands dismissed. Interest tax Appeal no.10/Mum/2005 : Revenue's appeal for AY 2000-01: 255. This appeal of the revenue arises out of order of the CIT(A) Central IV, Mumbai, dated 23.11.2004. In its appeal, the revenue have raised following grounds: "1. On the facts and circumstances of the case and in law the Ld. CIT(A) failed to appreciate that the entire leasing income shown by the assessee are nothing but income arising out of financial transactions and hence should be treated as interest income and thereby erred in deleting the amount of Rs.1,07,77,637/- attributable to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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