9911796707
Advanced Search 
TMI Blog2023 (4) TMI 1284X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer was not justified in allocating interest of Rs. 82,46,164/- as costs incurred towards earning the income and accordingly deleting the disallowance made. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in- deleting the addition of Rs. 77,78.945/- made as interest income of the Head Office by holding that no interest income accrues or arises when payment is made to the Head Office by relying on the judgment of ABN Amro Bank NV. 4. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of Rs. 9,32,48,681/- made on account of broken period interest in respect of securities purchased. 5. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the Assessing Officer had wrongly restricted the claim of set off of bad debt by an amount of Rs. 3,23,38,903/- by relying on the judgement in the case of Oman International Ltd. 6. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance made by the Assessing Officer of Rs. 1,35,35,218/- in respect of salary paid to expatriate employ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue is in appeal on the issues where the CIT(A) has granted relief to the assessee. Since, the grounds raised by the Revenue are substantial and ground No.1 in appeal of the assessee is corresponding to ground No.3 in appeal of the Revenue, appeal of the Revenue is take up first for adjudication. ITA NO. 651/MUM/2007(Departmental Appeal): 6. Disallowance of interest expenses u/s. 14A of the Act -Rs.91,46,886/-: During the period relevant to assessment year under appeal, the assessee has earned interest income of Rs. 1,22,25,000/- from NABARD Bonds. The interest income from said bonds is exempt u/s. 10(15)(iv)(h) of the Act. The Assessing Officer invoked the provisions of section 14A of the Act to disallow expenditure relatable to earning of exempt income and made a disallowance of Rs. 91,46,883/-. The CIT(A) following the order of his predecessor in assessment year 1999-2000 and 2000-01 and 2001-02 and further following the order of Tribunal in the case of Maruti Udyog Ltd., 92 ITD 119 (Del) deleted the addition. The ld. Authorized Representative for the assessee stated at Bar that the issue of disallowance u/s. 14A of the Act on interest income from NABARD Bonds has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under appeal, the assessee has earned interest income amounting to Rs. 2,13,66,918/- from foreign currency loans. The assessee claimed that interest income is liable to be taxed @20% on gross basis u/s. 115A of the Act. The Assessing Officer held that net interest income is taxable at concessional rate of 20% u/s. 115A of the Act. The Assessing Officer allocated Rs. 82,46,164/- interest cost for earning of interest income. The ld. Authorized Representative for the assessee pointed that identical addition on account of interest allocation was made in assessment year 1997-98 and 1998-99. The Tribunal deleted the addition. The CIT(A) after following the order of Tribunal for assessment year 1997-98 deleted the disallowance of Rs. 82,46,164/- made by the Assessing Officer. 7.1 We have heard the submissions made by rival sides. We find that in assessment year 1997-98 identical disallowance was made by Assessing Officer, the CIT(A) deleted the same, the Revenue carried the issue in appeal before the Tribunal in ITA No.306/Mum/2001. The Co-ordinate Bench vide order dated 21/04/2004 dismissed the ground raised in the appeal of Revenue by observing as under:- "3. We have heard the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer for making disallowance u/s. 40(a)(ia) of the Act . The assessee in ground No.1 of the appeal has raised a ground assailing the findings of CIT(A) in holding that payment of interest by branch to head office is not allowable. 8.1 The ld. Authorized Representative for the assessee placing reliance on the decision rendered by Special Bench in the case of Sumitomo Mitsui Banking Corporation vs. DCIT, 19 taxmann.com 364 (Mum)(SB) submitted that where an Indian branch of a foreign bank pays interest to head office and other overseas branches on advances received by it, the said interest is neither deductible in the hands of Indian branch nor chargeable to tax in the hands of head office/ overseas branches, all being single entity. The ld. Authorized Representative for the assessee further placed reliance on the decision of Hon'ble Delhi High Court in the case of PCIT vs. The Bank of Tokyo Mitsubishi UFJ Ltd. in ITA NO.604 of 2015 decided on 08/04/2016 to submit that on remittance of interest by branch office to head office, the head office was not liable to pay any tax under the Act, hence, no question of deduction of tax at source. On the other hand, ld. Departmental Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce from the said payment of interest made by the PE, the question of disallowance of the said interest by invoking the provisions of section 40(a)(i) does not arise." Thus, in the light of the decision of Special Bench, ground No.3 raised in appeal by the Revenue is dismissed and ground No.1 in the appeal of assessee is allowed. 9. Disallowance of Broken Period Interest Rs. 9,32,48,681/-: During the period relevant to assessment year under appeal, the assessee has paid broken period interest amounting to Rs. 9,32,48,681/- on securities held as stock in trade on 31/03/2002. The Assessing Officer disallowed the same. The CIT(A) deleted the addition placing reliance on the decision in the case of American Express International Banking Corporation vs. CIT, 258 ITR 601(Bom). 9.1 The ld. Authorized Representative for the assessee submitted that it is now well settled that broken period interest is allowable. The ld. Authorized Representative for the assessee pointed that the Hon'ble Apex Court in the case of CIT vs. State Bank of India,281 Taxman 368. has dismissed the SLP filed against the decision of Hon'ble Karnataka High Court in the case of CIT vs. State Bank of India, 428 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative for the assessee has further placed reliance on the Instructions No.17/2008 (supra). The relevant part of said Instructions is extracted herein below: "(i) Under section 36(1)(vii) of the Act, deduction on account of bad debts which are written off as irrecoverable in the accounts of the assessee is admissible. However, this should be allowed only if the assessee had debited the amount of such debts to the provision for bad and doubtful debt account under section 36(1)(viia) of the Act, as required by section 36(2)(v) of the Act. (ii) While considering the claim for bad debts under section 36(1)(vii), the Assessing Officer should allow only such amount of bad debts written off as exceeds the credit balance available in the provision for bad and doubtful account created under section 36(1)(viia) of the Act. The credit balance for this purpose will be the opening balance i.e. the balance brought forward as on 1st April of the relevant accounting year." The Hon'ble Gujarat High Court in the case of CIT vs. UTI Bank Ltd. 29 taxmann.com 79 has observed that the CBDT Circular No.17 of 2008 dated 26/11/2008 had clarified the position beyond any doubt. Thus, the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure is that no debit note was raised by head office . The CIT(A) has negated the objection raised by the Assessing Officer by placing reliance on the decision in the case of Kedarnath Jute Manufacturing Co. 82 ITR 353(SC). Regarding applicability of section 44C of the Act, the CIT(A) placed reliance on the decision of Hon'ble Jurisdictional High Court in the case of Emirates Commercial Bank (supra) to conclude that payment of salary to expatriate employees paid by the head office is an allowable expenditure in view of Article 7(3) of the DTAA and section 37 of the Act and such expenditure does fall within the ambit of section 44C of the Act. We find no infirmity in the findings of CIT(A) on this issue, hence, ground No.6 of the appeal is dismissed. 12. Transfer Pricing Adjustment: The Transfer Pricing Officer(TPO) made transfer pricing adjustment of Rs. 47,80,644/- in respect of Correspondent Banking Services rendered by the assessee to its AEs. The Assessing Officer accordingly made addition in the assessment order. Purportedly, the assessee did not compute Arm's Length Price(ALP) of its international transactions. The TPO applied TNMM as the most appropriate method to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a limited submission in respect of ground No.2, that the TPO has selected comparable that is engaged in merchant banking activities. The assessee is engaged in banking services. Merchant banking activities are not comparable to correspondent banking services. Therefore, while computing arm's length price the TPO has erred in selecting comparable engaged in providing merchant banking activities. 16.1 We find that while adjudicating Transfer Pricing issue, the CIT(A) has rejected all the comparable selected by the TPO. One of the comparable ( Pioneer Investcorp Ltd.) selected by the TPO was a registered category one merchant banker with SEBI. The CIT(A) has rejected the said comparable on the ground of functional disparity. The Revenue has failed to substantiate that the a functions carried out by the assessee are similar to those of a merchant banker. The assessee in ground No.2 has assailed rejection of comparables suggested by the assessee. No submissions were made by the ld. Authorized Representative for the assessee in this regard. Ergo, ground No.2 of the appeal is dismissed. 17. The ld. Authorized Representative for the assessee stated at Bar that he is not pressing ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
