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TMI Blog2018 (6) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no question of any tax deducted at source. - Decided in favour of assessee Allowing loss claimed on valuation of unmatured forward exchange contract - Held that:- As decided in assessee's own case [2013 (10) TMI 1452 - ITAT MUMBAI] adjustment on account of foreign exchange fluctuation can be made on each balance-sheet date in respect of any forward foreign exchange contract pending actual payment and any loss arising there from has to be allowed as an item of expenditure u/s 37(1). We, therefore, see no infirmity in the order of CIT(A) in allowing the claim of loss of the assessee. Disallowance of expenditure u/s 37 - amount was paid to CCIL on account of short position on security deal, hence, in the nature of penalty - Held that:- As rightly observed by the learned Commissioner (Appeals), the Assessing Officer has not established on record that the payment was on account of an offence or was prohibited by law. On the contrary, the payment made by the assessee appears to be compensatory in nature. As in assessee' own case [2011 (4) TMI 791 - ITAT, MUMBAI] has deleted the disallowance. In the aforesaid view of the matter, we uphold the decision of the learned Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure under section 36(1)(iii) of the Income Tax Act, 1961 (for short the Act ), it cannot be disallowed. Further, it was submitted that the assessee has also deducted tax at source while making such payment. The assessing officer, however, did not find merit in the submissions of the assessee. Referring to Article 5 of India Singapore Tax Treaty, the Assessing Officer observed that assessee constitutes a Permanent Establishment (PE) of the Head Office in India. Further, referring to Article 7 of the Tax Treaty, the Assessing Officer held, for the purpose of taxation in India, the P.E. is an entity which is separate from the assessee. The Assessing Officer observed, though, the conditions of section 40(a)(i) of the Act are not violated, however, assessee s claim of expenditure towards interest payment cannot be allowed since such payment constitutes income of the Head Office chargeable in India by virtue of its PE and such expenditure relates to the PE. Thus, following the order of the learned Commissioner (Appeals), disallowing such expenditure in assessment year 2003 04, the Assessing Officer disallowed the interest expenditure of ₹ 1,63,73,490. Assessee challenged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed assessee s claim in assessment year 2005 06 and 2006 07 in ITA no. 8671/Mum./2010, dated 3rd March 2017 and ITA no.9067/Mum./2010, dated 12th February 2018, respectively. There being no difference in fact brought to our notice by the learned Departmental Representative, following the consistent view of the Tribunal on the disputed issue arising in assessee s own case in the preceding assessment years, we uphold the order of the learned Commissioner (Appeals). Ground raised is dismissed. 7. In ground no.2, the Department has challenged the decision of the learned Commissioner (Appeals) in allowing loss claimed on valuation of unmatured forward exchange contract. 8. Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction of an amount of ₹ 36,62,07,457, on revaluation of forward contracts called upon the assessee to explain why the claim should not be disallowed. In response, it was submitted by the assessee that the Bank is in the business of dealing in foreign exchange with customers on day to day basis and foreign exchange is an item of stock in trade of the Bank. Therefore, the loss arising out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while deciding the Department s appeals for assessment year 1998 99 and 2004 05, has upheld the view expressed by the Tribunal on the disputed issue which is evident from the copies of the orders passed by the Hon'ble High Court as placed in the case law compilation. In view of the aforesaid, we uphold the order of the learned Commissioner (Appeals) on this issue. Ground raised is dismissed. 12. In ground no.3, the Revenue has challenged deletion of disallowance made of ₹ 25,500, paid to Clearing Corp. of India Ltd. (CCIL). 13. Brief facts are, during the assessment proceedings, the Assessing Officer while verifying the expenditure claimed of ₹ 25,500, found that the amount was paid to CCIL on account of short position on security deal, hence, in the nature of penalty. Referring to Explanation to section 37 of the Act, the Assessing Officer disallowed the expenditure. 14. The learned Commissioner (Appeals) while deciding assessee s appeal on the issue held that the payment made not being in the nature of penalty is allowable. 15. We have considered rival submissions and perused materials on record. As could be seen from the facts on record, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Panel (DRP) in assessee s own case for assessment year 2006 07, the Assessing Officer, though, accepted assessee s claim that short term capital gain is exempt, however, he treated the interest income on FII operations as business income of the assessee and taxed @ 42.23%. Being aggrieved of the aforesaid decision of the Assessing Officer, assessee preferred appeal before the first appellate authority. 23. The learned Commissioner (Appeals) after considering the submissions of the assessee, however, upheld the decision of the Assessing Officer by referring to the directions of the DRP in assessment year 2006 07. 24. The learned Authorised Representative submitted that the Indian Branch is in no way involved with the FII operations as the Head Office directly carried out such activities. The learned Authorised Representative submitted that while deciding identical dispute in assessment year 2006 07 the Tribunal in ITA no.9067/Mum./2010 dated 12th February 2018, has accepted assessee s claim by directing the Assessing Officer to assess the interest income as per Article 11 of India Singapore Tax Treaty. 25. The learned Departmental Representative, though, agreed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the order passed by us on the disputes raised in these appeals. This ground is allowed for statistical purposes. 31. Grounds no.9 is not pressed, hence, dismissed. 32. In the result appeal is partly allowed. 6038/Mum./2014 Revenue s Appeal A.Y. 2008 09 33. The dispute in this appeal is confined to the decision of the learned Commissioner (Appeals) in deleting the disallowance of interest expenditure claimed by the assessee. 34. While deciding identical issue raised by the Department in ground no.1 of ITA no.6865/Mum./2012, we have upheld the decision of the learned Commissioner (Appeals) in deleting the disallowance. In consonance with our aforesaid decision, we uphold the order of the learned Commissioner (Appeals) on this issue. Ground raised is dismissed. 35. In the result, Revenue s appeal is dismissed. ITA no.4949/Mum./2014 Assessee s Appeal A.Y. 2009 10 36. The issue raised in ground no.1 to 4 of this appeal is identical to the issue raised in grounds no.1 to 4 of ITA no.4948/Mum./2014. Following our decision therein, we direct the Assessing Officer to assess the interest income from Government Bonds on gross basi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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