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TMI Blog2024 (12) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in the aforesaid argument of the ld. AR, in any case, the nature of services are such that they are reciprocal in nature and hence, there cannot be any attribution of mark up on the same. Hence, we hold that no mark up should be loaded on the attribution of costs towards incidental marketing activities undertaken by the assessee in connection with the correspondent banking activities. We are not inclined to adjudicate the other arguments advanced by the ld. AR that no search process has been identified by the ld. TPO and no AE has been identified in respect of the subject mentioned marketing support services etc and the comparables chosen thereon by the ld. TPO etc as the adjudication of the same would become academic in nature. We hold that no transfer pricing adjustment on account of correspondent banking activity is warranted in the instant case. Decided in favour of assessee. Adjustment on account of Marketing and Support Services relating to External Commercial Borrowings - CIT(A) deleted addition - Coordinate Bench in [ 2020 (1) TMI 443 - ITAT MUMBAI] held that said receipt of fee / commission income has been accepted to be at arm s length. Hence, there is no question of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.47% and made the impugned adjustment which was confirmed by the Ld. CIT(A) - We are of the considered view that the Transfer Pricing Officer has rightly taken the single year data. Merely because the data for financial year 2006-07 was not available, for 13 comparable out of 22 comparable would not allow the assessee to consider multiple year data. We do not find any error or infirmity in the application of single year data used by the Transfer Pricing Officer. We accordingly, decline to interfere with the findings of the Ld. CIT(A), this ground is dismissed. Expenditure incurred on separation/termination of employees - As relying on [ 2024 (10) TMI 523 - ITAT MUMBAI] for the A.Y.2004-2005 we hold that expenditure is fully deductible under section 37 of the Act, since the expenditure is incurred wholly and exclusively for its business and the rationalization was not a part of voluntary separation scheme and, as such, was not covered by the provisions of Section 35DDA of the Act. Accordingly, this ground is allowed. Expenses incurred for mobilization of deposits from Non-resident Indian to be allowed. Addition on account of overfunding of Employees Gratuity Fund - We find for ever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, expenditure on account of administrative expenses cannot be ruled out, therefore in our considered opinion the disallowance to the extent of 1% of the exempt income should meet the ends of justice. Therefore, we direct the Assessing Officer to restrict the disallowance to the extent of 1% of the total exempt income, this ground is partly allowed. Addition on account of Nostro Account Maintenance Charges u/s 40(a)(ia) - This Tribunal in [ 2023 (7) TMI 1518 - ITAT MUMBAI] for the A.Y. 2013-14 and 2014-15 held Nostro Account Maintenance Charges are in the nature of bank charges levied on transaction and the same are not subject to tax deduction at source u/s 195 - the provisions of Section 40(a)(i) of the Act cannot be attracted in case of the deemed remittance of Nostro Account Maintenance Charges without deduction of tax at source. In the case before us also the CIT(A) has concluded that the Assessee was not under obligation to withhold tax from Nostro Account Maintenance Charges in terms of Section 195 of the Act and therefore, could not be treated as an assessee in default . Accordingly, demand raised by the Assessing Officer on the Assessee u/s 201(1) and 201(1A) of the Act w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the transfer pricing adjustment on account of Correspondent Banking Activities of the assessee to the extent of ₹.2,72,81,846/-. As mentioned earlier, in earlier years also a similar dispute arose and the Ld. CIT(A) while deciding the appeal of the assessee at Para No. 27.22 of his order has observed that I find that the same issue arose in the earlier years 2002-2003, 2003-2004 and 2004-2005 and that the arguments are similar and my predecessors after examining the issue at length, had decided that 75% of the costs (direct cost, indirect cost and Head Office Expense allocation) has to be taken for corresponding banking activity. I agree with the views of my predecessors . We find the Coordinate Bench in A.Y. 2002-2003 and 2003-2004 in ITA No. 3857/MUM/2006 ITA No. 4565/MUM/2009 has considered this issue and vide Para No. 14.1 of its order at Page No. 26 and held as under: - 14.12. We have heard the rival submissions and perused the materials available on record including the various judicial pronouncements that were relied upon by the parties at the time of hearing before us. The preliminary facts stated hereinabove are not reiterated herein for the sake of brevity. From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C offices being a part of the HSBC group derived reciprocal benefits and thus the non-charging of costs for providing the incidental marketing support services to overseas HSBC entities would not cause any prejudice to the interest of the assessee as well as the revenue. 14.12.2. Further, the total cost of INM IB division is only Rs 1.55 Crores, whereas the income earned from the activity performed by INM IB division is Rs 4.48 Crores (including income from Indian FI and Rs 1.97 Crores- float income from Vostro account). Even if only the float income from Vostro Account is considered, still the assessee has earned a profit of Rs. 42 Lakhs (1.97-1.55 cr) resulting in profit margin of 27%, which has been already offered to tax. The profit margin arrived is much higher than the margin of 22 percent arrived at by the TPO. If both the income (income from Indian FI and Float income) are considered, the profit margin stands at 189 percent. This shows that the assessee is adequately compensated for the activities carried out by INM IB division. Hence the allegation of the revenue that the assessee has not been adequately compensated has no merits. 14.12.3. We find lot of force in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the head office expenses for arriving at the cost base. It was submitted that only indirect costs are attributable to the activities should have been considered as concerned employees perform the work in the Indian business of the assessee and they do not use any significant additional facility to provide marketing support in respect of correspondent banking activities. Further, there is no reason for allocating head office expenses to the costs incurred for rendering services as the head office expenditure allocated to India is for the purpose of main line of banking business undertaken by the assessee and the inputs provided by the head office are not directly related to the incidental marketing support activity rendered by the assessee. Though we find lot of force in the aforesaid argument of the ld. AR, in any case, the nature of services are such that they are reciprocal in nature and hence, there cannot be any attribution of mark up on the same. Hence, we hold that no mark up should be loaded on the attribution of costs towards incidental marketing activities undertaken by the assessee in connection with the correspondent banking activities. 14.16. In view of the afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical finding has not been controverted by the revenue before us. Hence, we hold that no transfer pricing adjustment in respect of the services rendered by HSBC India in respect of continuing ECBs more so when the 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. 10. Respectfully following the decision of the Coordinate Bench (supra), we decline to interfere with the findings of the Ld. CIT(A). This grievance of the revenue is dismissed. 11. The next grievance relates to the adjustment on account of marketing of derivatives. The Ld. CIT(A) has considered the grievance in respect of adjustment of ₹.7,11,74,284/- in respect of marketing of derivatives at Para No. 28 vide Ground No. 25 of the appeal before him and at Para No. 28.3 he observed that there is no change in the facts of the case and accordingly agreed with the decision of his predecessor and followed the decision given in A.Y. 2004-05. The Coordinate Bench in A.Y.2004-05 in ITA No. 7336/MUM/2010 has considered a similar grievance at Para No. 80 of its order and held as under: - 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and relied upon undisclosed secret comparables in respect of controlled transactions. Thus he submitted that the Ld. CIT (A) findings ought to be upheld, especially since the pricing policy of the Assessee of 30% of the NNBV is a globally accepted practice, followed by the HSBC group. Further, the Ld. TPO has accepted the same in AY 2002- 03 and AY 2003-04. Hence, the CIT ( A) order should be upheld and the adjustment deleted. 12. Respectfully following the decision of the Coordinate Bench (supra), we decline to interfere, this Ground is dismissed. 13. The next two grievances relate to the interest received from HSBC Bank USA and HSBC Hongkong, Singapore and Japan offices. The Ld.CIT(A) has considered this issue at Para No. 30 vide Ground No. 27 of the appeal before him and at Para No. 30.2 followed the decision of his predecessor and directed the Assessing Officer to delete the entire addition. The Coordinate Bench in ITA No. 4786/MUM/2016 in revenue s appeal considered the identical issue vide Ground No. 18 of the appeal before it and held as under: - 148. We have heard both the parties and perused the relevant finding given in the impugned orders. The assessee maintains accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of comparable companies need to be considered and accordingly determined Arm s Length mark-up at 20.47% and made the impugned adjustment which was confirmed by the Ld. CIT(A). 16. We are of the considered view that the Transfer Pricing Officer has rightly taken the single year data. Merely because the data for financial year 2006-07 was not available, for 13 comparable out of 22 comparable would not allow the assessee to consider multiple year data. We do not find any error or infirmity in the application of single year data used by the Transfer Pricing Officer. We accordingly, decline to interfere with the findings of the Ld. CIT(A), this ground is dismissed. 17. With the above the transfer pricing disputes relating to A.Y.2006-07 are decided and since facts for the A.Y. 2007-08 and A.Y. 2008-09 are identical to the facts of A.Y. 2006-07 the Transfer pricing dispute for the assessment year in A.Y.2007-08 and 2008-09 are also decided accordingly. 18. Having decided the Transfer Pricing dispute, we will now address to the domestic issues. 19. The only issue in the appeal of the assessee for the A.Y. 2006-07 to A.Y. 2008-09 in ITA No. 4766, 4767 7010/MUM/2016 relates to the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es laid down under Rule 2BA of the Rules. Since the said payment is not pursuant to a VRS scheme, section 35DDA of the Act should not apply. 25. The Assessee has submitted the statement showing details of severance cost paid to the employees. It has submitted the method of computation of expenses in code on separation and termination of employees. Additionally, as directed during the course of the hearing, assessee has attached sample copies of letters of termination/separation of employees. It has been further submitted that the method of computation for payments to redundant employees per the sample letters of separation / termination of employees is different than the manner contained in the VRS scheme. 27. The said proposition has also been upheld by the Mumbai ITAT in the case of Warner Lambert (India)(P.) Ltd (143 TTJ 571), which has identical facts to the Assessee's. The relevant extracts of the said order are reproduced below (emphasis supplied): 17. We have considered the submissions of both the parties. Sec. 35DDA (1) of the Act reads as under : 35DDA. (1) Where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10(10C) but principles of harmonious construction have to be applied here and it is to be held that the requirements as laid down under r. 2BA have to be met before deduction under s. 35DDA could be allowed. There is no dispute that the scheme adopted by the assessee did not conform to the guidelines laid down under r. 2BA. Therefore, it cannot be held that provisions of s. 35DDA are applicable in the present case. We are in agreement with the pleading of the learned Departmental Representative that deduction of tax under s. 192 out of sum of Rs. 17 lacs without allowing any exemption is not of much relevance, because that does not determine the correct tax liability of the assessee. However, it is an important factor to be taken into consideration in deciding the issue since the assessee has deducted the tax from the entire sum of Rs. 17 lacs. Therefore, the plea of the assessee that the claim of the assessee is not in conformity with r. 2BA, cannot be disputed. It has not been brought on record by the Department that in the assessment order Ms. Chitra Dhoke was allowed exemption as contemplated under s. 10(10C). In view of the above we confirm the order of the learned CIT(A). In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd above this. 26. Having heard the rival submissions, we have carefully perused the orders of the authorities below. The working of the reduction in overfunding of ₹.5,08,60,000/- on account of Employees Gratuity Fund is as under: - Particulars Amount (in ₹.) Surplus as on 31 March 2006 (as per actuarial valuation report) (refer Page 23 to 41 of factual paper book 2) 3,53,90,000/- Surplus as on 31 March 2005 (as per actuarial valuation report) (refer page 1 to 22 of factual paper book 2) 8,62,50,000/- (reduction in overfunding) (5,08,60,000) 27. We find for every year the reduction of expenses claimed is based on valuation determined as per actuarial valuation. Therefore, the ratio laid down by the Hon ble Supreme Court in the case of Bharat Earth Movers v. CIT [245 ITR 428] squarely apply on the facts of the case in Hand. There is no dispute that the excess payment made in the prior years to Employees Gratuity Fund is now been adjusted against the allowability of ₹.5,08,60,000/- arising for the financial year 2005-06. The contention of the Ld. DR is that the assessee itself had added the amount, is not accepted as the same has been done by the assessee out of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seas where transactions have taken place in India. 44. During the course of assessment the AO required the assessee to give details of total commission received by the foreign branches of the assessee bank on international credit cards issued by them where the transactions were completed in India by the card holders and the cards were honoured by the branches of the assessee bank or branches of any other bank in India. The AO was of the view that whatever income arose in or from India to any foreign branch of the assessee is also taxable in India. The assessee could not furnish any details; at the same time it did not deny that no income arose from the transaction in India on credit cards issued by its foreign branches. The AO, therefore, estimated the income. The AO stated that commission income from cards issued by Indian branches was Rs. 9.90 crores. It would be reasonable to estimate income of Rs. 10 crores earned by foreign branches from transactions entered into India. The learned CIT(A) held that the income earned either by way of issuing bank of credit card or acquiring bank of credit card, transaction is accounted for. He also held that under s. 9 of the IT Act all incomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in India. We, therefore, uphold the deletion of addition of Rs. 10 crores. As the issue is squarely covered by the decision of the above referred order of the Tribunal, so we hold that the order of the FAA does not suffer from any legal or factual infirmity as far as issue of taxability of ICMED is considered. Confirming his order, we decide the effective ground of appeal against the AO. 118. Thus, following the aforesaid decision of the Tribunal in assessee s own case by various earlier years, the addition of Rs. 41,33,021/- is deleted. 31. Respectfully following the decision of the Coordinate Bench (supra), we decline to interfere. These grounds are dismissed. 32. The next grievance relates to the deletion of the addition on account of Employee Share Scheme under section 40A(9) of the Act and addition of provision for employee share scheme as contingent liability. 33. The underlying facts in the issue are that cost of shares of ultimate holding company acquired by the assessee to be granted to employees as bonus or incentive have been disallowed by the Assessing Officer. Identical issue was considered by the Coordinate Bench in the case of HSBC Data Processing Electronic (Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the First Appellate Authority has followed the decision of the Coordinate Bench, we do not find any reason to interfere with the findings of the Ld. CIT(A), this Ground is also dismissed. 37. The next ground relates to the deletion of addition of ₹.3,81,88,000/- on account of overfunding of Employee defined benefit pension fund. While deleting the addition, the Ld. CIT(A) has followed the order of his predecessor for the A.Y. 2005-06 and A.Y. 2006-07 wherein the Assessing Officer has been directed not to tax the reduction in the liability on account of unfunded pension. Following the same the Ld. CIT(A) deleted the impugned addition. This Tribunal in ITA No. 4786/MUM/2016 for the A.Y. 2005-06 has confirmed the findings of the Ld. CIT(A). Therefore, respectfully following the decision of the Coordinate Bench, we decline to interfere, this ground is dismissed. 38. The last ground relates to the deletion of addition of ₹.1,43,49,098/- on account of Nostro Account Maintenance Charges under section 40(a)(ia) of the Act. An identical issue has been considered by this Tribunal in ITA No. 2191/MUM/2022 ITA No. 2190/MUM/2022 for the A.Y. 2013-14 and 2014-15. The relevant findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the CIT(A) is in line with the decision of the Mumbai Bench of the Tribunal in the case of Oman International Bank SAOG Vs. Deputy Director of Income Tax (International Taxation) [ITA No. 6800/Mum/2010, dated 27/12/2013], wherein it has been held as under: 15. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that a similar issue was involved in assessee s own case for the earlier years and the same has been decided by the Tribunal consistently in favour of the assessee in the said years including the immediately preceding year i.e. A.Y. 2004- 05 which was decided vide order dated 13th September, 2013 passed in ITA No. 1609/Mum/2008. As noted by the Tribunal in its orders, the transaction charges paid on Nostro Account were in the nature of bank charges for maintaining the accounts with banks outside India. These charges were recovered directly by way of debits to the concerned accounts of the assessee with these banks and the same represented business income of those banks which accrued/arisen outside India. As held by the Tribunal, no tax therefore was required to be deducted at source from the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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