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TMI Blog2018 (8) TMI 1916X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance under Section 14A of the Act. The first grievance of Revenue is also relates to the action of the CIT(A) for reducing the disallowance made under Section 14A of the Act. We found that the issue is covered by the decision of the Tribunal in assessee's own case for A.Y. 2004-05 in ITA No. 5977/Mum/2011 dated 26.07.2017 as well the order of the Tribunal for A.Y. 2007-08 in ITA No. 2966/Mum/2014 dated 13.07.2016 wherein the Tribunal held as under: - "20. The next issue in this appeal of assessee is against the order of CIT(A) in confirming the disallowance of expenditure relatable to exempt income under section 14A of the Act. For this assessee has raised following ground No. 5.1 to 5.3: - 5.1 The CIT (A) erred in confirming the disallowance u/s 14A on an estimated basis at 0.5% of average investments yielding tax free income without appreciating the fact that the appellant had not incurred any expenditure to earn the said income. 5.2 The CIT (A) ought to have noted no disallowance on estimated basis could be done under section 14A .Reliance is placed on the decision of Hon'ble ITAT Delhi in the case of Minda Investments Ltd Vs DOT (ITA 4046/Del/2009). 5.3 Withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of DCIT Vs. HDFC Bank Ltd. (supra) in para 7.1 and 7.2 has considered an identical issue as under:- 7.1 In the case in hand, the CIT(A) considered the facts and pointed out that the assessee is maintaining the treasury department which looks after the day to day investment portfolio of the bank including tax free investments. Having regard to the said factual proposition, the administrative expenses relatable to the income not forming part of the total income can be attributable to the expenditure of special treasury department maintained by the assessee; but it seems the assessee has not filed the exact detail of the operating expenses and therefore, no option was left but to estimate the disallowance. 7.2 Even otherwise, the overall administration of the bank looks after all the department including the treasury department; therefore, in the absence of the exact expenditure incurred in relation to the activity relating to tax free investment and earning the income not forming part of the total income, in our considered opinion, the CIT(A) is justified in restricting the said disallowance to 1%. Accordingly, we do not find any reason to interfere with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) ought not to concluded that the appellant hank was a party to the fraud committed by BCCJ against its creditors and hence the payment of compensation did not arise in the course of carrying on its banking business over-looking the fact that the order of court is in connection with a civil proceeding against the appellant and the payment was only a compensation as by the court order itself. 2.4 Without prejudice to the above, the CIT(A) ought to have allowed in any case the interest paid amounting to Rs. 173.65 lacs and legal charges amounting to Rs. 17.19 Lacs being / expenses incurred for delayed payment of compensation and for defending the suit filed against the appellant." 7. Briefly stated facts are that the AO disallowed the payment made to liquidator's Bank of Credit and Commerce International SA and Bank of Credit and Consumers International (overseas Ltd.) amounting to Rs. 364,64,32,957/- and also legal charges paid for defending suit filed by the liquidators of BCCI amounting to Rs. 17,19,52,641/-. The assessee made certain advances at its London and Cayman Island Branch to certain customers of BCCI and subsequently, BCCI went into liquidation in 1991 and these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been held that it is relating to a fraud, the relevant year will not make any difference. But in any case if at any sage it is found as allowable business expenditure then it can be considered under the year under consideration in view of the decision of Saurashtra Cement and Chemical Industries Ltd. vs. CIT 213 ITR 523 (Gui) and Toyo Engg. India Ltd. vs. JCIT 100 TTJ 373, ITAT, Mumbai, both the judgments are relied upon by the assessee. To this limited extent the ground of appeal of the assessee is treated as allowed for statistical purposes. 17. Another ground on which disallowance has been made is that it relates to a foreign branch, the income of which is not includable in the income of the assessee in view of section 90 and the DTAA. Whereas the assessee has claimed that the more beneficial provisions between DTAA and I.T. Act will apply to the assessee. The ground is academic only because the claim has already been rejected as relating to a fraud but in any case treatment of loss of a foreign branch has to be given as per section 90 read with DTAA and notification No.91/2008 dated 28/812008. 18. The assessee has made an alternative claim vide Ground No. 3(c) that in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose and became payable only in the current year based on the orders of High Court of Justice, Chancery Division, Companies Court, UK dated 19/03/2004 and 26/03/2004 and therefore cannot be disallowed for the current assessment year. He placed reliance on the decisions in support of its contention of Hon'ble Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd Vs CIT 213 ITR 177 523 (Guj) and ITAT Mumbai Tribunal in the case of Toyo Engineering India Limited Vs JCIT 100 TTJ 373 (ITAT Mum). 8. He further argued that another reason given by the AO for disallowance of the above amount is that it is expenses incurred for fraud and not a normal business expenses. He explained that assessee is engaged in the business of the banking and as per the Banking Regulation Act, one of the main objects of a banking company is to accept deposits from various depositors and lend money to various borrowers. He cited Section 6(1)('a) of Banking Regulation Act, which states as under: "A Banking Company may engage in one or more of the following business namely :- The borrowing, raising or taking up of money, the lending or advancing of money either upon or without s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities and utilizing the bank funds for speculative purposes, as a result of which the banks are unable to realize their dues in full. In such circumstances the banks usually write off such debts either as bad debts or trading loss and no questions are raised about the misuse of the banks funds by the borrowers and the losses are allowed in full even though the borrowers had cheated or defrauded the banks in such cases resulting in criminal proceedings against the borrowers. 9. On the other hand before us, the learned Sr. DR argued that on the issue of fraudulent transactions Hon'ble High Court justice Chancellery Division the Commence Court London has recorded this fact that how BCCI and these parties collided and the relevant portion of the judgments reads as under:- '"This application is concerned with six transactions involving the Bank of India (BOI and BCCI which took place between 1981 and 1986. In each of five successive years, BCCI approached BOI and requested them to enter into an arrangement under which BCCI would deposit monies with BOI for a fixed term, usually of three months. With the assistance of the finance provided by these deposits BOI would then gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to defraud the creditors of those companies or for a fraudulent purpose. If this allegation (which is denied) is made out, then I have jurisdiction u/s. 213 of the Insolvency Act 1986 to order BOI to pay compensation to the liquidators for the losses to creditors which have been sustained." 10. We have gone through the argument of both the sides and noted that the transactions of the London Branch of the assessee were perfectly legal and no losses were incurred on such transactions. However the assessee was called upon to pay compensation to the liquidators of BCCI for the losses sustained by creditors and bank in respect of the transactions of BCCI for which the assessee was not a party at all. However as the compensation regarding contribution to liquidator under UIC insolvency Act was made to fulfil its statutory liability consequent on the decision of judicial authorities, the said compensation takes the character of the normal business expenditure which is allowable in full both under section 28 of Act. We find from the case law relied by assessee of Hon'ble Supreme Court in the case of DR. TA Quresi Vs CIT 287 ITR 547 SC held that the explanation to Section 37 has really ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heroin forms part of the stock in trade of the assessee. In view of this finding, the Tribunal allowed the assessee's claim of deducting the loss of 5 kg. of heroin whose value was assessed by the Tribunal at Rs. 2 lacs as a business loss. We fully agree with the view taken by the Tribunal. The High Court, however, in paragraph 10 of its judgment observed: "The assessee in this case was engaged in profession of doctor. He had nothing to do with the contraband article Heroin for carrying on his profession. It is an admitted fact that possession of Heroin is an offence under NDPS Act. In this view, the rigour of explanation to Section 37 was fully satisfied and hence the question claiming any deduction for the value of seized article did not arise nor was an assessee entitled to claim any such deduction who was bound in indulging in such heinous and illegal business unconnected with his pious professional activity. Indeed, it was disgrace for a doctor community where one doctor was found indulging in doing such kind of activities against the humanity". In our opinion, the High Court has adopted an emotional and moral approach rather than a legal approach. We fully agree w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is allowed." 7. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal we do not find any justification for disallowing payment to liquidator of BCCI. The AO is directed to delete the same. 8. Next grievance of assessee relates to disallowance of lease premium paid. The learned counsel for the assessee fairly conceded that the issue is decided against the assessee by the Tribunal in assessee's own case for A.Y. 2004-05 in ITA No. 5977/Mum/2011 dated 26.07.2017 and also in A.Y. 2007-08 vide order dated 13.07.2016. Respectfully following the order of the Tribunal we do not find any infirmity in the order of the CIT(A) for disallowance of premium paid. 9. Similarly, disallowance of provision made towards leave encashment has also been decided against the assessee by the Tribunal in assessee's own case for A.Y. 2008-09 vide order dated 13.07.2016. Respectfully following the same we do not find any infirmity in the order of the lower authorities for disallowance of provision made towards leave encashment. 10. The grievance with regard to application of Section 115JB of the Act was not pressed by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the assessee but the payments have also been made on the directions of RBI and SEBI which are therefore in the course of the business of the assessee. The loss suffered by the assessee is not that of capital nature also. Hence, the claim of the assessee is allowed and the ground of appeal is allowed." 14. The learned A.R. placed on record order of the Hon'ble Karnataka High Court in the case of Canara Bank 2014-TIOL-110-HC-KAR-IT, wherein exactly similar issue was decided in favour of the assessee. 15. We have heard the rival contentions and carefully gone through the orders of the Authorities below as well as the order of the Hon'ble Karnataka High Court in the case of Canara Bank (supra). We find that as per the finding recorded by the CIT(A) the issue has been decided in A.Y. 1999-2000 as well as in A.Y. 2004-05 in favour of the assessee. However, the Department has not come in appeal before the Tribunal. Moreover the issue is covered by the decision in the case of Canara Bank (supra). Accordingly, we do not find any reason to interfere with the order of CIT(A) for allowing the write off on redemption of D-2 Plus funds. 16. Ground No. 4 relates to disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e countries and taxes are paid by them as per the laws of the respective countries. These countries are of two types, viz., one with which India has DTAA and the other with which India has no DTAA. In case of countries with which India has DTAA assessee has claimed exclusion of income of the concerned branch from the total income of the assessee claiming that taxes have already been paid on such income as per the provisions of the respective countries and as per DTAA such income is not allowed to be doubly taxed again in the hands of the assessee in India. The -said claim of the assessee has not been accepted by the A.O. with regard to the branches located in Hong Kong, Paris, USA and UK. Whereas the assessee has claimed that it has been allowed in earlier years by the CIT(A) and ITAT. The second objection, in Ground No.5(b), of the assessee is with, respect to the branch located at "Jersey", where no DTAA exists and, therefore, assessee has claimed relief under Section 91 regarding the taxes paid by Jersey branch which has also been rejected by the A.O. In Ground No. 5(c) the assessee has made an alternative claim if Ground No. 5(a) is not allowed. By the impugned order the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axed at the same time in both the countries in India and Malaysia. So, if we interpret the agreement to mean that the Indian Government and the Malaysian Government both still retain even after the execution of the agreement the power to tax at the same time the same income it will only frustrate the object with which the agreement is executed". The ITAT had therefore concluded, "As regards business profits paragraph I of Article 7 provides that the profits of an enterprise of a contracting state shall be taxable only in that contracting state. We will take it that the assessee being a resident of India, the enterprise is an Indian enterprise. So the Profits are taxable in India. But this power of India to tax, as further provided in the Article, exists only when the enterprise does not carry on business in Malaysia through a permanent establishment situated in Malaysia. This is an undisputed fact. So the right of the Indian Government to levy tax in respect of business profits of these types of Indian Enterprise as provided in opening paragraph of Article 7 is taken away because a permanent establishment is situated in Malaysia." In the appellant's case also in all the foreign cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s abroad. On production of such evidence, the Assessee would be entitled to the benefit. That evidence was always available and as noted by the Commissioner of Income Tax (Appeals) and the Tribunal. In the circumstances, the authorities did nothing but follow their earlier orders based on identical facts and circumstances. The finding of fact, therefore, cannot be termed as perverse or vitiated by any error of law apparent on the face of the record. The Appeal does not raise any substantial question of law. It is devoid of merits and is, accordingly, dismissed. No costs." 27. As the issue is squarely covered in favour of assessee in assessee's own case, respectfully following the Hon'ble Bombay High Court and co-ordinate Bench decision, we confirm the action of the CIT(A) and deleing the addition. This issue of Revenue's appeal is dismissed." 24. As the facts and circumstances are same, respectfully following decision of the Tribunal in assessee's own case as stated above, we do not find any reason to interfere with the order of the CIT(A) for excluding the income of foreign branches from assessee's income. 25. Ground No. 6 relates to disallowance of provision for wage arrears. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment has been rejected. Accordingly, I direct the A. O. to allow the claim of the appellant and delete the addition of Rs. 457,86,49,040/. This ground of appeal is allowed. " Therefore, respectfully following the decision of Hon'ble ITAT and that of my predecessor, the ground of appeal is allowed." 28. It is clear from the above order of the CIT(A) that he has followed the order of the Tribunal on this issue. We have also carefully gone through the order of the Tribunal in assessee's own case for A.Y. 2008-09 and A.Y. 2009-10 dated 08.11.2013 wherein the issue has been dealt with at pages 1 and 2. The learned D.R. fairly agreed that the issue is covered by the order of the Tribunal. Respectfully following the same, we do not find any reason to interfere in the order of the CIT(A) for deleting the disallowance made for provision for wage arrears. 29. Ground No. 7 relates to deletion of disallowance of interest accrued but not due on securities. 30. We found that this issue is also decided by the Hon'ble High Court in the case of DIT vs. Credit Suisse First Boston (Cyprus) Ltd. 351 ITR 323 and also in the case of CITG vs. Indus Bank 373 ITR 170. The SLP filed against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the above mentioned decisions of Hon'ble Supreme Court, High Court and that of Hon'ble ITAT the issue is squarely covered in favour of the assessee because the securities under consideration constitute the stock-in-trade in the year under consideration also and the same have been valued as per cost or market price whichever is lower and this method is consistently followed by the assessee. Hence the disallowance made by the A.O. is deleted and the ground of appeal of the assessee is allowed." 33. We have carefully gone through the orders of the Authorities below and find that the issue is covered by the decision of the ITAT in assessee's own case for A.Y. 2008-09 vide order dated 13.07.2016 and also by the Hon'ble Bombay High Court in the case of HDFC Bank 366 ITR 505. Respectfully following the same we do not find any reason to interfere in the order of the CIT(A) for deleting the addition made on account of diminution of value of investment. 34. Ground No. 10 relates to deleting disallowance of depreciation on leased assets. 35. We find that very same issue has been decided by the Tribunal in assessee's own case for A.Y. 2007-08 vide order dated 13.07.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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