9911796707
TMI Blog2024 (10) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... The effective grounds of appeal raised in both the years which have been agued based on chart submitted by the Ld. Counsel of the assessee are being discussed instead of reproducing the entire grounds of appeal. We will discuss in brief the issues raised in various grounds. ITAT Appeal No: 7336/MUM/2010 - Assessee's Appeal 2. Ground No. 1: Tax free income - Rs 24,34,88,920 2.1 Brief facts are that, the Assessee had claimed the gross interest of Rs. 24,14,88,425 earned on tax free bonds as exempt under section 10(15)(iv) of the Income Tax Act, 1961 ('the Act') and gross dividend of Rs. 20,00,495 earned on shares as exempt under section 10(34) of the Act. 2.2. The learned AO held that the cost of investment is taken at 3.84% towards interest on borrowed money, which was invested in tax free securities, which generated the tax free income to the assessee, and accordingly, rejected the submission that if the taxpayer owned funds far greater than borrowed funds no disallowance can be made. However, the CIT (A) disallowed 1 per cent of the incremental investment in tax free bonds (Rs 25,00,00,000/-) made during AY 2004-05. 2.3. Details of interest free funds as available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble with the assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessees." 5. We find that the ITAT, in Assessee's own case for AYs 1997-98 to 2001-02 has decided this issue in the Assessee's favor. Relevant extracts of the ITAT's order dated February 15, 2007, for the assessment year 1997-98 are reproduced below: "67. We have given a careful consideration to the arguments placed before us by both the sides vis-a-vis the factual position as mentioned above. It is true that various Benches of the Mumbai Tribunal have held that exemption is available on gross income and not on net income. However, insertion of section 14A in the Income-tax Act with retrospective effect from 01.04.1962 makes a material departure. As per the new provision no deduction shall be allowed in respect of expenditure incurred in relation to income which does not form part of the total income. It is, therefore, clear that if there is any direct nexus between the expenditure incurred by the assesses and the earning of income which does not form port of the total income, no deduction is permissible for such exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money which is exempted under income tax. The Tribunal has computed the expenditure at 1% of such dividend income, according to them, as the thumb rule applied consistently. We find no reason to interfere. The appeal is dismissed. 5.3. Respectfully following the aforesaid decision of Hon'ble Calcutta High Court, we direct the Ld. AO to disallow 1% of total exempt income u/s. 14A of the Act. Accordingly, the ground No.4 raised by the assessee is partly allowed" (emphasis applied). 7. Moreover, in subsequent AYs 2005-06 to 2007-08 (i.e., until Rule 8D: Method for determining amount of expenditure in relation to income not includible in total income of the Rules was introduced), the CIT(A) deleted the ad hoc disallowance under section 14A of the Act made by the learned AO and held in favour of the Assessee (that no disallowance is warranted under section 14A of the Act), and the AO has not filed an appeal against the CIT(A) order on this ground. Without prejudice, the Assessee submitted that the disallowance cannot exceed 1% of the total exempt income earned during the year, as determined by the Tribunal in AY 2002-03 and 2003-04. 8. Thus, consistent with the past precedence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of both the parties and on perusal of records including the decisions relied upon by the assessee, we are of the considered opinion that the expenditure incurred by the assessee for vacating the premises given to the tenant is a business expenditure and allowable as revenue expenditure, Therefore, we allow Ground 4 in part. 70. Since we allow the main claim taken by the assessee in respect of business expenditure, we reject the alternative plea taken by the assessee." 14. Accordingly, the Assessee prayed that the additional ground raised by the Assessee should be admitted, and the expenditure of Rs 30,00,000 towards vacating the premises should be allowed as revenue expenditure, following the decision of the Hon'ble Tribunal for AYs 1999-2000. Without prejudice, if the Tribunal intends to deny the claim for revenue expenditure, the Assessee requests that the original plea for tax depreciation on payment to Gillanders be allowed. 15. Here in this case, the Tribunal as noted above has already held that expenditure incurred by the assessee for vacating the premises given to the tenant is business expenditure and allowable as Revenue expenditure as paying compensation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), are reproduced below: "After hearing both the parties on the issue and perusal of the records including the case relied upon by the parties, we find that the Ld. CIT(A) has passed well reasoned order and directed the AO to delete the addition. For the sake of convenience, we also reproduce the relevant findings of the Hon'ble Calcutta high court viz CIT(A) Bank of Tokyo Ltd as under: "The Revenue contends that the right to receive the commission being a one-time right, its accrual shall coincide with the commencement of the service rendered by way of guaranteeing the debt repayment; it is immaterial that the repayment covers more than on previous year. Therefore the entirety of commission accrues at a time. The assessee bank on the other hand submits, that the service having a spread of years over the accrual should be year by year. The Revenue's contention that the accrual of the entire commission is a point of time accrual is not tenable. The contesting submissions boils down to one question, whether accrual is co-eval with the pay ability, the same may be payable but may not be apportionable until the happening of an event; in the present case, the expiry of the period, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 64,640. 22. Facts in brief qua this issue are that, as part of the rationalization of operations and workforce, some employees of the Assessee were terminated from bank services during AY 2004-05. Such employees were either redundant, and hence, their employment contract was terminated by the Assessee, or they resigned from the services on account of redundancy. The Assessee made a provision of Rs. 33,00,00,000 towards such separation costs during the subject year. As against this, an amount of Rs.19,19,64,640 was actually paid to the separating employees. Tax under section 192 of the Act has been withheld from the same and paid into the Government treasury. The Learned AO and CIT(A) treated the expenditure as falling within section 35DDA of the Act. 23. It is not disputed that the payments made to the redundant / separating employees have been incurred wholly and exclusively in relation to the Assessee's business and are deductible under section 37 of the Act. Further, tax was deducted at source from such employees and deposited in relation to the said payments. 24. It has been stated that, the Assessee operated a separate VRS scheme from July 7, 2003, to July 31, 2003, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee relatable to subsequent years, the legislature inserted this section in order to allow only 1/5th of the total sum paid by the assessee to its employees. This amount in the hands of the employee has been exempted under s. 10(10C) of the Act to the extent of Rs. 5 lacs. The relevant part of s. 10(10C) reads as under :..." 19. The submission of the learned Departmental Representative is that the provisions of s. 35DDA are applicable because the payment has been made in pursuance to scheme of voluntary retirement and it is not necessary that the said scheme should comply with guidelines as per s. 10 (10C). We are not inclined to accept the plea of the learned Departmental Representative. In the present circumstances, in order to resolve the dispute, we are of the opinion that principles of harmonious construction of statute have to be applied. As per these principles a statute must be received as a whole and one provision of the Act should be conformed with reference to other provisions in the same Act so as to make a consistent enactment of the whole statute. The provisions relating to voluntary retirement scheme are contained in s. 10(10C) and all the conditions laid down t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed while deciding the appeal of the department. Ground No. 7: Salary of Mr. Ashok Bhatia - 50 per cent of total salary and perquisites. 30. Brief facts qua this issue is that, Mr. Ashok Bhatia was employed by HSBC Asia Holdings BV as the Chief Information Officer of India, Middle East and Africa located in the HSBC Software Development Centre, India. He had been deputed to the Indian branch of the Assessee for three years. As a part of his global role, Mr. Ashok Bhatia spent 50 per cent of his time rendering services to the Indian branch of the Assessee and the balance of 50 per cent of time was spent rendering services to the overseas associated enterprise ("AE') of the Assessee. The salary paid to Ashok Bhatia has following three components: Sr No Particulars Amount Deduction claimed by the Assessee in its income-tax return Remarks 1. Onshore salary Rs 74,45,620 Rs 74,45,620 Debited to the profit & loss account of the Assessee and paid by the Assessee. 2 Cash component of the offshore salary Rs. 1,99,53,328 Rs. 1,08,08,053 (i.e., Rs. 1,99,53,328 minus (Rs 1,99,53,328 x 50% x 11 / 12) Paid by the overseas entity and not debited to the profit & loss account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed that the cash component of the offshore salary cannot be considered as head office expenditure as it is a direct cost of the Indian branch of the Assessee. Further, in order to avoid further litigation, the Assessee has restricted its claim to the following two contentions: (a) Though the CIT(A) directed the learned AO to disallow 50 per cent of the total salary and perquisite, in respect of the perquisite component of the offshore salary, no disallowance should be made as the said amount has not been claimed as a deduction in the return of income and thus, there is no question of a disallowance. Moreover, even the learned AO had also not disallowed the perquisite component of the offshore salary. (b) The disallowance of 50 per cent of both onshore salary and offshore salary (cash component) should be restricted proportionately to 11 months (since Mr. Ashok Bhatia has rendered services to the AE for 11 months) and not the entire year. 36. Thus, in view of the fact that Ld. CIT (A) has directed the AO to disallow 50 per cent of the total salary and perquisite, in respect of the perquisite component of the off shore salary, therefore, no disallowance can be made as the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their designation and remuneration, copies of Form no 16 issued to the expatriate employees, the income-tax return forms filed by the expatriate employees, and secondment letters / posting letters justifying the aforesaid facts have been filed which was already been filed before the learned AO / CIT(A). It has been submitted that these employees were deputed to the Indian branch of the Assessee and worked exclusively for the India operations; the cash component of their offshore salary, which the overseas entity has paid, is an expenditure incurred exclusively for the Assessee's Indian branch, and hence, cannot be covered by section 44C of the Act, as it is not a part of the head office cost but a direct cost of the Indian branch. 41. We find that the Tribunal, in Assessee's own case (including that of the British Bank of Middle East now merged / amalgamated with the Assessee) for AYs 1992-93 to 2003-04, has decided this issue in the Assessee's favor. Relevant extracts of the ITAT's order dated February 15, 2007, for AYs 1992-93 to 1997-98 are reproduced as under: "18. There is no dispute that the expatriate employees in question were working exclusively for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deposits, the Assessee has NRI desks in the Middle East, UK, USA, Singapore and Hong Kong 'desks'. The expenditure is in respect to activities exclusively related to the marketing for NRI deposits and to provide personalized and expert service to the NRIs. The expenses incurred toward these NRI desks are in the nature of salaries, travelling, advertising and other incidental expenses. Though the relevant offices outside India have debited this expenditure to the Assessee's head office in Hong Kong, it must be noted that the expenditure has been incurred wholly and exclusively for the purpose of the Assessee's Indian operations and is allowable as a deduction in computing the Assessee's income in respect of its Indian operations. The Indian branch of the Assessee alone benefits from the NRI deposits collected. The income generated forms part of the taxable income of the Assessee. The expenditure that has been incurred in earning such income should, therefore, be fully deducted when arriving at the taxable income. 46. The learned AO held that the expenditure could not be allowed under section 37 of the Act and should be considered part of head office expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the provision of section 44C will hit only such expenditure which are not being capable of being allocable to any particular profit centre and which are required to be allocated on some general basis. The expenses on mobilisation of NRI deposit can not be said to fall in this category because these expenses are for the purpose of India specific operations where non resident Indian deposits are of relevance. These expenses, therefore cannot be allocated to operations in other countries or to the head office. This kind of an expenditure, in our considered view, does not fall under scope of head office expenditure under section 44C of the Act. In the caseof American Express Bank Ltd in which a different view was take by the Tribunal has since been reversed by the Hon'ble Bombay High Court vide judgement dated 17th July, 2003 and a copy of the said judgement was placed before us at pages 16 to 18 of the paper book. Learned counsel has invited our attention to Tribunal decisions, in favour of the assessee on the same issue in the cases of Abu Dhabi Commercial Bank and ABM Amro Bank as well . Copies of these decisions were also placed before us in the paper book. In light of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) has rightly deleted the said disallowance and consequently, these grounds raised by the Revenue are dismissed. Ground No. 7: Disallowance on increased provision made towards pension fund - Rs 30,67,20,000. 52. Brief facts are that during the year ended March 31, 2004 (relevant to AY 2004-05), the Assessee had made a provision of Rs. 30,67,20,000/- towards funding of overall deficit in the pension fund, which has arisen on account of changes in annuity rates. The said provision was based on an independent actuarial report. Such deficit arose since the total liabilities of the pension fund exceeded its total assets. The Assessee paid the said amount to the pension fund in the months of July and August 2004. The provision / payment of the aforesaid amount of Rs 30,67,20,000 was not a "contribution" to the pension fund within the meaning of section 36(1)(iv) of the Act and the Rules made there under. 53. On perusal of the relevant provision, it is een that the term "contribution" is defined in Rule 2(c) of Part A of the Fourth Schedule to the Act read with Rule 1 of Part B thereof to mean "any sum credited by or on behalf of any employee out of his salary, or by an emplo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Statutory Rate of Interest of Provident Fund) the expenditure claimed under section 37(1) of the Act is allowable. The expenditure made from the Fund does not change its nomenclature. It is an expense. If the actual expenditure made by the assessee is not allowable than there is certainly double taxation in the hands of the assessee. It is the statutory requirement under the Provident Fund Rules notified by the Central Government. As per Rule 17, any deficiency/shortfall in the maintenance of Provident Fund Interest Rate shall be made good by the Employer. The Statutory Provisions of the Rules are reproduced as under:..." "16. Thus, ld Counsel submitted that from the above, it is very much evident that in case of any Shortfall in maintaining the Interest Rate in the Provident fund of the employees, it is the responsibility of the Employer. Further, the creation of Employees Provident Fund Trust is Statutory Duty of the employer. The assessee co-operative bank has fulfilled all its statutory liability towards the Employees Provident Funds Act and hence, the payment made towards maintenance of Statutory Interest Rate is allowable expenditure u/s 37(1) of the Act. The CIT(A) in hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls financial products to the Indian FIs, and the revenue earned is booked by the Assessee and offered to tax in India. During the year under consideration, the INM IB division of the Assessee earned 246.89 million. Further, the Assessee has earned a floating income of INR 18.805 million from the Nostro Account. 62. Further, Indian banks have to establish relations with overseas banks as they do not have a network of branches outside India. The Assessee, while dealing with the Indian bank/FIs would also acquaint its customers of the financial products available with the Assessee globally. This would encourage the FIs to bank with the Assessee considering its global reach. Separately, the overseas branches of HSBC would acquaint their customers of global financial products/ global reach of the Assessee (including the Indian branch). No payment is made by the Assessee for such incidental services as primary benefit of FIs choosing to bank with the Assessee in India is obtained by the Assessee. As a result of such services of overseas HSBC branches, the Assessee has earned income from banks domiciled outside India. The details of the income earned were provided in the submission made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efits as a separate transaction unless it is shown that it is separate from the main transaction. 69. Without prejudice to the above, Ld. Counsel submitted that there is no international transaction identified by the Ld. TPO, no Associated Enterprises identified by the Ld. TPO, no search process identified by the Ld. TPO, and no comparable identified by the Ld. TPO. Hence, the Assessee contends that no adjustment on account of corresponding banking activity is warranted. 70. He also drew our attention to the order from the Hon'ble Tribunal in the Assessee's own case for AY 2002-03 & 2003-04 with respect to such activities wherein the entire adjustment has been deleted, and it has been held: "14.12.1....The INM IB division does not use any additional facility, and the employees providing this support do not have any special marketing skills or knowledge of the products provided by the overseas HSBC branches. It is important to emphasize that the global network of the assessee is a direct asset and mainly benefit the assessee to have global reach and the ability to offer services under its network. This directly encourages FI's to approach the assessee for the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed along with the return of income and the same were accepted to be at arm's length by the Ld. TPO. Admittedly these transactions include items which are marketed by INM IB division such as custodian charges, guarantee commission charges etc. as is evident from Annexure' C to form 3CEB. Hence, it could be seen that the main transactions were found to be at arm's length and the incidental benefit arising out of such transaction has been considered as a separate transaction. We find in the instant case that the main business transactions have been accepted to be at arm's length and hence, the Ld. TPO cannot separately treat the incidental benefit as a separate transaction unless it is shown that they are separate from the main business activities..." 14.15 .......the nature of these services are such that they are reciprocal in nature and hence, there cannot be any attribution of markup on the same. Hence, we hold that no markup should be loaded on the attribution of costs towards incidental marketing activities undertaken by the assessee in connection with correspondent banking activities...". 71. Since similar issue has been discussed and decided by the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e merely an oversight on account of their functions and roles. These employees are primarily engaged in the day-to-day operations of the Assessee's business and predominantly provide services to the Assessee. These activities cannot be viewed as separate international transactions by segregating them from routine functions. The Hon'ble Tribunal in the preceding years held as follows: ".......generally in a multinational group, several oversight roles would arise within one's functions as an employee. These are mere incidental activities carried out by the employees, which acquire groupwise liaising and coordination and the same need not be required to be compensated. These employees are not employed for day-to-day functioning of the group companies. The activities carried out by the employees were considered as a separate international transaction by segregating them from routine functions by the Ld. TPO. We also find that in case of certain employees, the Assessee had Suo-moto not claimed deduction of proportionate salary pertaining to services provided to foreign AEs. Hence, the same cannot be subject matter of consideration while making TP adjustment as it would le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirements. * Providing the requirements to the overseas lender AE * Providing credit data to overseas lender AE. Since Indian corporates are customers of the Indian Branch, the credit appraisals are, in any case, done by the Bank from time to time for their local business. Accordingly, the credit data provided to overseas AE does not require additional effort from the Bank. * Liaising between Indian corporate and overseas AE. 75. The Assessee does not assume any risks in the transaction; all risks lie solely with the overseas lender AE. The charging of fees by the Assessee is based on commercial parameters such as the relationship with Indian Corporate, the efforts required by the Assessee, the overall cost of borrowing of the client, etc. During the year under consideration, the Assessee earned INR 1,33,70,278 on the ECB transaction. These ECB transactions were transfer priced between the Assessee and AE in the year in which the ECB was given by the AE, and the transaction was accepted as an arm's length price. 76. Regarding the ECB transactions entered during the year under consideration, the Ld. TPO accepted the transaction at arm's length. However, for the old ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire commission income / Debt Syndication Fee income received by the Assessee have already been accepted to be at arm's length. Accordingly, ground no. 6 raised by the Revenue is dismissed." Furthermore, the Ld.TPO relied on secret comparables not available in the public domain, engaged in controlled transactions between foreign banks and Indian branches, and adopted an ad hoc 25% as compensation. It is asserted that using secret comparables not available in the public domain is arbitrary and contrary to the law. Additionally and wholly contrary to the Transfer Pricing Rules, the Ld. TPO utilized "controlled" data of foreign banks that had engaged in transactions with Indian branches. Rule 10B of the Income Tax Rules, 1962 ('Rules') specifies that the comparability of an international transaction should be assessed with an uncontrolled transaction. Hence, the utilization of controlled transactions by the Ld. TPO as comparables is not in line with the prescribed rules and is contrary to the law. Hence, the CIT (A) order should be upheld, and the adjustment should be deleted. Accordingly, following the aforesaid order this ground of the department is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - "....The Ld. TPO's order suffers from various infirmities. He has picked up secret comparables and not made available the details to the appellant for its reply. Secondly, the secret comparable is in respect of a controlled transaction and hence not independent and not liable to be used as sole benchmark. Thirdly, no prescribed method has been followed to determine the ALP. On the other hand, the appellant has been adopting a remuneration (Transfer) policy consistently followed by HSBC group entities across the globe. The Ld. TPO in the earlier year (2002-03 and 2003-04) have accepted the Arm's Length Price and no adjustments was made. There is no material change in position so far as the transaction was concerned. The NNBV base is higher than INPV base and so the compensation based on this model will have lower % share than in the case of INPV model. Taking all the above facts and circumstances cumulating, there is merit in the arguments put forth by the assessee, remuneration policy of the appellant @ 30% of NNBV is in order." 84. We have gone through the order of the Tribunal and the relevant finding given by the ld. CIT(A) and the arguments from both the parties. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000 Tenor of the deal: 3.5 years Value on the deal per annum: 10 basis points per annum (say) Credit risk on the deal: 3.5 basis points per annum (say) Other event risk/uncertainty, etc.: 4 basis points per annum (say) INPV on the deal: PV of (USD11 mio * 2.5bps * 3.5 years) equals USD 8692 (i.e., Present Value of USD 9625) 60% of the above: USD 5215/- 86. From the working of the difference in the application of two methods as given by the ld. Counsel, we do not find any justification given by the ld.TPO to adopt 60% of NNBV allocation so as to take a contrary stand from the facts of the case presented by the assessee and the transaction of marketing of derivative services. Specially looking to the fact that derivative contract is solely between derivative contract is solely between the Indian customer and the overseas AE; and all risks associated with the derivative contract, including credit risk, market risk, liquidity risk, and country risk, are borne entirely by the overseas AE and the Assessee does not assume any risks in these transactions. For the activities performed, the Assessee has already earned a marketing fee from the AE, amounting to 30% NNBV and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n A.Y. 2004-05 wherein we have allowed this issue treating it as 'Revenue expenditure'. Accordingly, ground No.2 raised by the assessee is allowed. ITA No 4786/MUM/2016- Department Appeal Ground No. 1: Expenses incurred for mobilization of deposits from Non-resident Indians (NRIs) - Rs 9,29,19,828 94. Again this issue is similar to the ground raised in Revenue appeal for A.Y. 2004-05 and accordingly, in view of the finding given hereinabove, the ground raised by the Revenue is dismissed. Ground No. 2: Addition of Rs. 10,70,000 on account of overfunding of Employees Gratuity Fund (Income Tax Approved Fund) 95. The facts are that the Assessee makes a contribution to the approved gratuity fund. The Assessee has contributed to the employee's gratuity fund in excess of the amount required to meet the accrued liability for the current year. The details of the same are as under: Particulars Amount (in Rs.) Net Surplus as on 31 March 2005 as per actuarial valuation report 86.25 million Net Surplus as on 31 December 2004 (as per actuarial valuation report) 85.18 million Overfunding/Excess contribution 1.07 million 96. The Assessee has recognized the over funding/excess con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section" 100. Further, it has been submitted that the excess funds have been adjusted against the contribution of liability payable to the gratuity fund in AY 2006-07. The Ld.CIT(A) in AY 2006-07 has not allowed the deduction of Rs. 10,70,000, as the same has been allowed in AY 2005-06. If assessee has recongnised the excess contribution as asset in its books and credited to profit and loss account amounting to Rs. 10,70,000/- and has been reduced their contribution payable for A.Y. 2006-07 as it was already discharged in A.Y. 2005-06. Then it has been allowed in this year because in A.Y. 2006-07 ld. CIT(A) has not allowed deduction of this amount on the ground that same has been allowed in A.Y. 2005-06. Even if we agree with the ld. AO that it should be disallowed in this year, then the same has to be allowed in A.Y. 2006-07. Thus, no prejudice is cost to the department and accordingly, there is no point tinkering with the finding of the ld. CIT(A) and same is confirmed. 101. In the result, ground No.2 raised by the Revenue is dismissed Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have considered the facts of the case, AO's contention and the Appellant submission. I find that the aforesaid issue is covered in the Appellants' favour by the Supreme Court decision in the case of Sugauli Sugar Works (P) Ltd. (1999) (236 ITR 518). Thus, on the basis of the factual submissions and the above decision, the addition of Rs. 40,27,00,000/- made by the AO on account of Overfunding of Employees Defined Benefit Pension Fund be deleted. Accordingly, this ground of appeal is allowed." 106. Here again once the payment has been made to the employees' pension fund, there is no provision in the Trust Deed for refunds. The Assessee neither obtained nor received any amount from the Trust nor has the Trust agreed to refund any amount to the Assessee. Furthermore, by making these payments, the Assessee did not obtain any benefit regarding liability remission or cessation, nor did it write off any liabilities in its accounts. Hence, the unilateral credit to the Profit & Loss A/c. did not amount to any cessation of liability that could be taxed. The Supreme Court of India in case of Sugauli Sugar Works (P) Ltd. (1999) (236 ITR 518) (supra) 107. Further, the excess fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,123 on account of loss on certain security transactions undertaken by the Assessee 112. Brief facts are that, the Assessee had undertaken certain security transactions with Canbank Financial Services Limited (Canbank). The Assessee had to deliver certain securities to Canbank. However, Canbank stated that the securities were never delivered to them. 113. The Canbank Financial Services Limited had filed suit against the Assessee for default in honoring the said transaction. The summary of the court proceedings is as under: Date Remarks Order dated 30 June 2004 Special Court (Trial of offences relating to transactions in securities) at Bombay - refer para 16 (page no. 31) of the order directed to pay the amount of Rs. 18,59,71,808 along with interest at 15 per cent from 24 June 1991 - refer page 185 of the factual paper book. Hence, the Assessee lost the suit at Bombay Special Court. Order dated 31 August 2004 The Assessee challenged the order the Bombay Special Court before the Supreme Court of India. Supreme Court of India admitted the appeal subject to Assessee depositing the entire amount in Canbank in a fixed deposit account - refer page 187 of the factual paper book. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, we held that the liability to pay has accrued and quantified in current year and hence the deduction of Rs. 55,45,78,123 is allowed in this year. Ground No. 7,8 and 9: Addition of Rs. 41,33,021 on account of interchange income received by the offshore (non-India) branches of the Assessee 118. This issue is covered in Assessee's own case for AY 2000- 01, 2001-02 and 2003-04 (3688/Mum/09, 3689/Mum/09, 2358/Mum/14) - the relevant para of the decision is reproduced as under: "We have heard the rival submissions and perused the material before us. We find that in the matter of Standard Chartered Grindlays Bank Ltd.(supra), the issue of taxability of commission with regard to Credit Cards was deliberated upon and decided by the Tribunal. We would like to re-produce the relevant portion of the order that deals with the facts as well as the reasoning, given by the FAA and the Tribunal, for deciding the issue against the AO. It reads as under: "43. Next ground of appeal is against deletion of addition of Rs. 10 crores being made on alleged commission earned by foreign branches of ANZ Grindlays Bank on their credit card business overseas where transactions have taken plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign branch from the credit given to its card holders outside India cannot be taxed in the hands of the Indian branch since it is not arising in India and also it cannot be attributed to the assets and activities of the Indian branch as is required under art. 7 of DTAA. Therefore, there is no need to further estimate any income. He accordingly deleted the addition. XXXXXXXXXX 48. We have considered the rival submissions. We are in agreement with the finding of the learned CIT(A). Where the foreign branch has issued credit card and even if the transaction takes place in India, the credit is given to the customer outside India and the debt has also arisen outside India. The merchant shipments in India may receive the payment but the merchant shipments do not incur any debt. They merely receive charges for the goods sold or services rendered. However, the charges are received by the foreign branch for providing credit to their card holders outside India. The amount payable by the card holders who have acquired the credit card from branches outside India incurs the debt outside India. Therefore, the fees in respect of such transaction are not taxable in India. We, therefore, uphol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f average adjusted total income as worked out by the AO without giving any reasons. 122. Since AO has grossed up the amount while computing the deduction under section 44C. Section 44C does not provide for grossing up. Hence, grossing up is not required. Accordingly, this ground is dismissed. B. Transfer Pricing Grounds 123. Since transfer pricing grounds are similar to the grounds raised in the earlier year and same are covered by the Tribunal orders for A.Y.2002-03 and 2003-04, the same are dealt herein as per the grounds raised in both the appeals. ITA No: 4765/MUM/2016 - Assessee's Appeal Ground No 3: Correspondent Banking Activity 124. At the outset, this issue is covered in favor of the Assessee by order of the Tribunal in the assessee's own case for AY 2002- 03 and 2003-04, wherein the Hon'ble Tribunal has deleted the TP adjustment relating to the aforesaid issue. 125. Further, facts pertaining to the correspondent banking activity and similar to ground No.8 of assessee's appeal for A.Y.2004-05 and accordingly, in view of the finding given hereinabove, the adjustment is deleted. Ground No 4: Services provided by employees of the bank to overseas AEs 126. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest earned by the Assessee from HSBC USA on the deployment of the surplus fund is at the following rates: Balance Interest Rate Up to USD 100,000,000 Generally, 37 basis points below the Overnight Fed Fund Rate Above USD 100,000,000 Best Efforts 133. The Assessee benchmarked the transaction using the CUP method. Various Indian banks avail similar services from HSBC USA. The rate of interest earned by some of the third-party Indian banks from HSBC USA on the overnight placement of dollar funds was as follows: Sr. No Name of the Bank Balances Interest Rates 1 Bank of Maharashtra Up to USD 15,000,000 Effective Fed Fund Rate (-) 35 basis points Over USD 15,000,000 Best Efforts 2 State Bank of Travancore Up to USD 15,000,000 Effective Fed Fund Rate (-) 35 basis points Over USD 15,000,000 Best Efforts 3 Vysya Bank Ltd Up to USD 5,000,000 Effective Fed Fund Rate (-) 50 basis points USD 5,000,000 to USD 15,000,000 Effective Fed Fund Rate (-) 50 basis points Over USD 15,000,000 Best Efforts 134. Further, the Ld. Counsel for the Assessee clarified that "Best Efforts" should not be equated with "Best rate", and based on best efforts and prevailing mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d publishes the rates for the British Bankers association every day. 142. The calculation of the US Dollar LIBOR is based on data submitted daily from a panel of 16 major financial institutions. This means that the LIBOR is based on the rates bank reports and not actual rates on real loans. 143. Further, there have been allegations that the rate was manipulated by some major banks for their own benefit by submitting falsified numbers to the pool used for computing LIBOR. In view of the above, the LIBOR rates cannot be considered an appropriate benchmarking rate for international transactions during the assessment years under consideration. 144. Ld. Counsel further submitted that, the Assessee is not disadvantaged as the best effort rate has been lower than the generally committed rates compared to transactions between HSBC USA and unrelated banks. Hence, the transaction between the Assessee and HSBC USA is at an arm's length price. 145. The use of Fed Fund rates has been accepted by the LD. TPO and Ld. CIT (A) in the Assessee's own case in AY 2002-03 146. The Ld. Counsel also drew our attention towards the case law of 'Commissioner of Tax v/s Tata Autocomps system ..... X X X X Extracts X X X X X X X X Extracts X X X X
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