, Û ""
IN THE INCOME TAX APPELLATE TRIBUNAL "L" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN, AM AND PAWAN SINGH, JM
./I.T.A. No.2519 and 2520/Mum/2004
( [ [ / Assessment Year:1999-2000 and 2000-01)
Asstt.Direrctor of Income Tax / M/s Hongkong and Shanghani
(International Taxation)-3(1), Banking Corporation Ltd.,
Vs.
136, Scindia House, 52/60, M G Road,
Mumbai-400001
N M Marg, Ballard Estate,
Mumbai-400038
( /Appellant) .. (× / Respondent)
./I.T.A. No.2679 and 2680/Mum/2004
( [ [ / Assessment Year:1999-2000 and 2000-01)
M/s Hongkong and Shanghani / The Joint Director of Income Tax
Banking Corporation Ltd.,
Vs. (International Taxation)-3,
Tax Adviser, INM 1st floor, Scindia House,
5th floor,52/60, M G Road,
Mumbai-400001
N M Marg, Ballard Estate,
Mumbai-400038
( /Appellant) .. (× / Respondent)
./I.T.A. No.4424/Mum/2005
( [ [ / Assessment Year: 2001-02)
Asstt.Direrctor of Income Tax / M/s Hongkong and Shanghani
(International Taxation)-3(1), Banking Corporation Ltd.,
Vs.
st
136, Scindia House, 1 floor, 52/60, M G Road,
Mumbai-400001
N M Marg, Ballard Estate,
Mumbai-400038
( /Appellant) .. (× / Respondent)
Cross Objection No.84/Mum/2006
Arising out of I.T.A. No.4424/Mum/2005
( [ [ / Assessment Year: 2001-02)
The Addl.Direrctor of Income / M/s Hongkong and Shanghani
Tax Banking Corporation Ltd.,
Vs.
(International Taxation)-3(1), 52/60, M G Road,
st Mumbai-400001
136, Scindia House, 1 floor,
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ITA No.2519/Mum/2004
and other six appeals
N M Marg, Ballard Estate,
Mumbai-400038
( /Appellant) .. (× / Respondent)
./I.T.A. No.4670/Mum/2005
( [ [ / Assessment Year: 2001-02)
M/s Hongkong and Shanghani / Asstt. Director of Income Tax
Banking Corporation Ltd.,
Vs. (International Taxation)-3(1),
Tax Adviser, INM 1st floor, Scindia House,
th
5 floor,52/60, M G Road,
Mumbai-400001
N M Marg, Ballard Estate,
Mumbai-400038
( /Appellant) .. (× / Respondent)
è . / . /PAN. :AAACT2786P
/ Revenue by Shri.Jasbir Chouhan
× /Assessee by Shri A V Sonde
/ Date of Hearing
: 6.10.2015
/Date of Pronouncement: 20.11.2015
/ O R D E R
Per Pawan Singh, JM :
These are six appeals filed by the revenue and cross-appeals thereto
by the assessee. The assessee also filed Cross-objection bearing CO
NO.84/Mum/2006 arising out of ITA No.4424/Mum/2005 for the
assessment year 2001-02. These appeals are directed against the orders
dated 15.1.2004, 20.1.2004 and 30.3.2005 passed by the respective
CIT(A) and it relate to the assessment years 1999-2000, 2000-01 and
2001-02. Since issues urged in all these appeals and cross-objection are
common, these appeals were heard together and are being decided by this
consolidated order, for the sake of convenience.
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ITA No.2519/Mum/2004
and other six appeals
2. First we will deal with the appeal filed by the revenue being ITA
No.2519/Mum/2004, in respect of AY 1999-2000.
3. The assessee herein is engaged in the business of Banking and
financing activities. It filed return of income declaring total income of
Rs.1,53,45,60,780/- on 31/12/1999. The AO made assessment u/s
143(3) of the Income Tax Act, 1961 and after making certain additions
and disallowances computed total income of the assessee at
Rs.1,90,83,89,060/- vide order dated 04/02/2002, against which an appeal
was filed which was disposed of vide order dated 15/01/2004, against
which the present appeal before us.
4. The first issue urged by the revenue is in respect of broken period
interest of Rs.35,06,51,480/-.
5. The facts of the issue are that the assessee claimed disallowance of
broken period interest on securities for Rs.35,06,51,480/-. Consequently
claimed as deduction of Rs.13,25,23,374/- as broken period interest on
securities sold during the year. The assessee claimed that the interest paid
at the time purchase of securities be treated as revenue expenditure. The
AO by following his earlier decisions and the precedent laid down by the
Hon'ble Supreme Court in the case of Vijaya Bank Ltd reported in 187 ITR
541 broken period interest on unsold securities is added back the amount
of Rs.35,06,51,480/-to the total income of assessee. Aggrieved by this
the assessee preferred appeal before first appellate authority.
6. Before the ld.CIT(A), the ld.AR contended that an identical issue
had come up in the assessee's own case in the earlier years relevant to
the assessment year under consideration and the ld. CIT(A) confirmed the
action of the AO. The ld.AR submitted that subsequently the jurisdictional
High Court in the case of American Express International Banking
Corporation V/s CIT reported in 258 ITR 601 (Bom) has decided an
identical issue in which the Hon'ble High Court held that the broken period
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ITA No.2519/Mum/2004
and other six appeals
interest is permissible as a deduction. The ld. AR further submitted that
following the decision of Bombay High Court in the case of American
Express International Banking Corporation (supra), vide order dated
9.10.2002 allowed the claim of the assessee for the assessment years
1980-81 and 1981-82. He further submitted that this decision was not
available before the ld.CIT(A) while deciding the issue before him for
earlier years. Now the issue raised herein stands covered by the decision
of the Jurisdictional High Court in the assessee's own case.
7. After considering the submissions of the ld.AR as well as the
decision rendered by the Jurisdictional High Court in the case of American
Express International Banking Corporation (supra) decided this issue in
favour of the assessee. Aggrieved by the decision of the ld. CIT(A), the
Revenue is in appeal before us.
8. The ld.DR submitted the facts of the case and relied on the order of
AO.
9. At the time of hearing the ld.AR submitted that the issue raised by
the revenue in this appeal is now stands covered in favour of the assessee
and against the revenue by various decisions and orders of the Tribunal
rendered in assessee's own case. Therefore, he prayed that the issue
raised in this appeal be rejected. In support of this contention he placed
reliance on the following decisions:
a) The Hongkong and Shanghai Banking Corporation Ltd V/s DCIT
in ITA Nos.9587/Mum/92 and 9588/Mum/92 (AYs-1989-90 and 1990-91)
order dated 22.2.2006 para 3 of the order;
b) The Hongkong and Shanghai Banking Corporation Ltd V/s DCIT
in ITA Nos.4082/Mum/97(AYs-1991-92) order dated 29.11.2006 para 5 to
10 of the order;
c) The Hongkong and Shanghai Banking Corporation Ltd V/s JCIT
in ITA Nos.709,2604,2605,4709/Mum/99 (AYs-1992-93 to 1994-95 &
1996-97 and 1997-98 order dated 15.2.2007 para 24 to 37 of the order;
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ITA No.2519/Mum/2004
and other six appeals
d) M/s Mercantile Bank Limited V/s Inspecting ACIT in Income Tax
Reference No.153 of 1996 and RA No.865 and 866 of Bombay / 1992
order (AYs 1980-81 and 1991-92) dated 9.10.2002;
e) Supreme Court in the case of British Bank of Middle East (through their
successors HSBC) for the assessment year 1990-91;
f) Bombay High Court in the case of British Bank of Middle East (through
their successors HSBC) for the assessment year 1990-91;
g) American Express International Banking Corporation V/s CIT(258
ITR 601 (Bom);
h) CIT V/s City Bank N A Civil Appeal No.1549 of 2006 order dated
12.08.2008 and
i) CIT V/s Deutche Bank A G in Special Leave Petition No. 345 of 2004
order dated 27.1.2004
10. We heard both the sides and perused the record placed before us.
We find that the issue raised by the Revenue in this ground stands
covered by the orders and decisions of various courts including orders of
the Tribunal. Therefore, respectfully following the same, we reject the
ground No.1 raised by the Revenue.
11. The second issue raised by the revenue is in respect of directing the
AO to delete salaries paid to expatriate employees amounting to
Rs.12,83,33,473/-.
12. During the course of assessment proceedings, the AO observed that
the assessee has paid an amount of Rs.12,83,33,473/- towards the
salaries by ex-patriate officers employed in India. The AO called for the
explanation from the assessee. In response to the query raised by the AO,
the assessee submitted that thee expatriate officers rendered services in
India, therefore any amount paid to them in India or outside is liable to
be taxed in India. The assessee submitted that the assessee paid taxes of
Rs.4,23,65,902/- on the salary paid to ex-patriate officers employed in
India was paid in India. The assessee submitted that the services of
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ITA No.2519/Mum/2004
and other six appeals
these officials were taken in India and accordingly they were paid in India.
Therefore, they were eligible for deduction while computing taxable
income. The explanation tendered by the assessee did not find favour of
the AO. According, the assessing officer disallowed the claim of the
assessee with a liberty to claim benefit of section 44C of the Act.
Aggrieved by the decision of the AO, the assessee preferred an appeal
before the first appellate authority.
13. Before the FFA/ ld.CIT(A), the ld.AR contended that an identical
issue had come up before the ld. CIT(A) in assessee's own case for the
assessment years 1996-97 and 1997-98 and the ld.CIT(A) granted relief
to the assessee.
14. The ld. CIT(A) by following the decision of his predecessor for the
earlier years directed the AO to delete the addition made by him.
Aggrieved by the decision of ld.CIT(A), the Revenue has filed this appeal
before the Tribunal.
15. Before us the ld.DR submitted the facts as submitted before the
lower authorities and relied on the order of AO. He submitted that the
findings of the ld. CIT(A) is not in consonance with law and legal position.
Therefore, he submitted that the order of ld.CIT(A) be set aside and that
of AO be restored.
16. The ld. AR submitted that the issue raised in this ground stands
cover in favour of the assessee by the decision of the Tribunal in JCIT
V/s The British Bank of Middle East in ITA No.4908/Mum/2000(AY- 1997-
98) order dated 28.6.2005, para 117 and 119 and he also placed reliance
on the following decisions:
a) Emirtes Commercial bank Ltd (now known as Abu Dhabi
Commercial Bank Ltd (262 ITR 55);
b) M/s American Express Bank Limited in Income Tax Reference No.3
of 2002 R A No.568/Mum/1998 order dated 17.7.2003;
c) Shinhan Bank V/s DCIT(IT) (2012) 54 SOT 140(Mum) =
(2012) 23 taxmann.com 449(Mum);
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ITA No.2519/Mum/2004
and other six appeals
d) DCIT (IT) V/s Chohang Bank 126 ITD 448 (Mum);
e) ABN Amro Bank N V V/s JCIT in ITA No.692/Cal/2000(AY-1996-97)
dated 30.3.2001;
f) Kedarnath Jute Mfg Co. Ltd.V/s CIT- 82 ITR 363
g) The British Bank of Middle East V/s JCIT in ITA No.751/Mum/1998
(AY-1993-94) order dated 28.6.2005 para 71 and 72.
17. We have heard the parties on this issue and perused the materials
placed before us including the case law relied upon by the parties. We
find that the issue raised by the revenue in this appeal stands covered in
favour of the assessee by the above said decisions. Therefore, following
the principal of consistency, we dismiss Ground No.2 of revenue's appeal.
18. The next ground of appeal pertains to deletion of disallowance of
Rs.33,86,167 incurred on guest house and holiday home in view of the
section 37(4) of the Act .w.e.f.1.4.1998.
19. The AO made the disallowance of Rs.33,86,167/- for the expenses
incurred by the assessee. Aggrieved by the decision of AO, the assessee
preferred appeal before the ld.CIT(A), who in turn following the
amendment in the provision of section 37(4) w.e.f.1.4.1998 directed the
AO to delete the addition. Aggrieved by this, the revenue has urged this
issue before us.
20. We find that since the provisions of section 37(4) has been deleted
by Finance Act, 1997 with effect from 1.4.1998, therefore, this ground has
become infructuous. Therefore, Ground No.3 is dismissed as infructuous.
21. The next issue relates to deletion of disallowance of Rs.10,62,000/-
(in fact the total of the alleged amount is Rs.10,72,000/-) incurred on
library subsidy, contributions to staff cultural committee and recreation
club.
22. The AO observed that the assessee has incurred following amounts:
a) Library subsidy Rs.22,000
b) Staff cultural committees and recreation club Rs.20,000
c) Holiday Home Rs.10,30,000
Total Rs.10,72,000
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ITA No.2519/Mum/2004
and other six appeals
23. The AO called for the explanation from the assessee as to why these
expenses should not be disallowed and added back to the total income of
the assessee. In reply, the assessee contended that these expenses have
been incurred for administrative convenience and therefore, the same
cannot be considered as disallowance u/s 40A(9) of the Act. The AO was
of the view that these payments are said to be made to staff associations,
these are in the nature of contribution referred in section 40A(9) of the
Act. Accordingly, the AO disallowed the claim of the assessee. Aggrieved,
assessee preferred the appeal before the ld.CIT(A).
24. Before the ld.CIT(A), the ld.AR contended that an identical issue has
been decided in favour of the assessee by the predecessor of ld.CIT(A)
for the assessment years 1995-96 to 1998-99.
25. The ld. CIT(A) accepting the plea of the assessee granted relief to
the assessee and directed the AO to delete the disallowance of
Rs.10.62,000/-. Being aggrieved, by the direction of ld.CIT(A), the revenue
is in appeal before us.
26. The ld.DR submitted the facts of the case and relied on the order of
AO. He vehemently argued that the findings of the ld.CIT(A) in not in
accordance with law. He submitted that the order of ld.CIT(A) be set
aside and that of AO be restored.
27. On the contrary, the ld.AR submitted that an identical issue had
come up before the Mumbai Bench of the Tribunal in Tribunal in JCIT V/s
The British Bank of Middle East in ITA No.2501/Mum/1999(AY- 1992-93)
order dated 28.6.2005, para 15 and 16 and in ITA No.751/Mum/98 (AY-
1994-95) para 68 and 69 of the order he also placed reliance on the
following case laws:
a) CIT V/s Bharat Petroleum Corporation Ltd (Bom HC) 252 ITR 43;
b) CIT V/s Hind Lamps Limited (Allahabad High Court) 130 Taxman
586;
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ITA No.2519/Mum/2004
and other six appeals
d) Associated Cement Co.Ltd repoted in 49 TTJ 623 (Bom-ITAT);
e) Chloride Industries Ltd (79 ITD 1)(Cal ITAT).
He submitted that the issue raised by the revenue now stands covered in
favor of the assessee. Therefore, the issue raised by the revenue be
dismissed.
28. After considering the rival submissions and on perusal of the record,
we are of the considered opinion that this issue has already been decided
in favour of the assessee by various judicial forum as mentioned above.
Therefore, respectfully following the previous case law, we dismiss the
Ground No.4 taken by the revenue.
29. The next issue raised by the revenue in this appeal pertains to
deletion of disallowance of Rs.1,46,32,997/- in respect of entertainment
expenses.
30 Facts relating to the issue are that the AO, during the course of
assessment proceedings observed that the assessee has incurred following
expenses :
Entertainment expenses paid to club Rs.25,19,395
Expenditure in the nature of entertainment Rs.54,13,602
Entertainment in the nature of entertainment
included under other heads, i.. staff welfare,
training advertising, salts promotion, local travel
and other expenses Rs.68,00,000
Rs.1,47,32,997
He further observed that assessee has not made any disallowance on
account of above mentioned expenses on the ground that section 37(2)
has been deleted by the Finance Act, 1997. The AO under the provisions
of section 37(1) of the Act disallowed all the expenses and added back
to the total income of the assessee. Aggrieved by this, assessee has filed
appeal before the ld.CIT(A).
10
ITA No.2519/Mum/2004
and other six appeals
31. In the first appellate proceedings, the ld.CIT(A) observed that the
provisions of section 37(2A) had been deleted w.e.f.1.4.1998 and hence
he was of the opinion that the expenditure on entertainment could not be
disallowed. He further observed that mere claiming of deduction is not
sufficient; the assessee has to prove its case. The assessee failed to justify
it and hence AO was right in his decision. He further observed that the AO
while applying the provisions of Act should take reasonable view.
Accordingly, the ld. CIT(A) directed the AO to restrict the disallowance to
Rs.1 lac on estimated basis and delete the balance disallowance of
Rs.1,46,32,997/-. Aggrieved by this the revenue in appeal before us.
32. Before us, the ld. DR reiterate the same contentions as made before
the authorities below and also relied on the order of AO.
33. On the contrary, the ld.AR submitted that an identical issue had
come up before the Hon'ble Delhi High Court in the case of Director of
Income Tax V/s Apparel Exports Promotion Council l (2010) 1
taxmann.com 222 (Delhi) and the Hon'ble High Court, observed and held
that the assessee is entitled to deduction for the expenditure incurred for
entertainment of the staff as well as outsiders for the promotion of
business. He also placed reliance on the following case law:
a) Credit Lyonnais (2012) 28 taxmann.com 91 (Mumbai);
(2013) 21 ITR (T) 359(Mumbai), (2012) 139 ITD 681 (Mumbai) and
b) Finance Act, 1997 deleting the provision of section 37(2).
He therefore prayed that the order passed the ld. CIT(A) be confirmed.
34. After considering the rival submissions and on perusal of the record,
we are of the considered opinion that this issue has already been decided
in favour of the assessee by various judicial forum as mentioned above.
Therefore, respectfully following the previous case law, we dismiss the
Ground No.5 taken by the revenue.
11
ITA No.2519/Mum/2004
and other six appeals
35. The last issue pertains to exemption of interest of Rs.21,82,78,180/-
earned on tax free bonds.
36. The facts regarding the issue are that the assessee earned interest
to the tune of Rs.21,82,78,180/- on the investment made in tax free
bonds and claimed that it is exempt income. The AO called for the
explanation from the assessee as to why the interest earned on tax free
should not be disallowed. The Assessee detailed explanation before the
AO, but the AO did not accept the explanation tendered by the assessee
and after calculating proportionate interest disallowed an interest of
Rs.4,36,55,636/- and added to the total income of the assessee.
Aggrieved by this the assessee preferred an appeal before the ld.CIT(A),
who after discussing every of the matter allowed the claim of the assessee
vide para 11.1 to 11.3 which is as under :
"11.1 I have considered the above submissions made by the
appellant as well as the findings of the AO. On identical issue my ld.
predecessor in the earlier Ayr.98-99 vide order dtd.04/06/2001 decided
in appellant's favour. The said finding is reproduced below: "In the
assessment order the AO. has not established any nexus between the
borrowings and the investment in the tax free bonds. Incidentally the
investment in the tax free bonds were made in the past years. The
AO. has disallowed an amount of interest on the basis of
proportion........ In my view, as the nexus between the borrowings
and the investments have not been established, it cannot be said that
there was any expenditure laid out for earning the tax free income.
Therefore the provisions of section 14A of the Income-tax introduced
w.e.f. 1/4/1962 would be of no benefit to the revenue The AO. is
therefore directed to allow a relief of Rs............ from the total
income of the appellant.
" 11.2 In the year under consideration, the appellant has contended
that if the appellant's net worth i.e. capital, profit reserve and surplus
and current deposits is higher than the investment in tax free
securities, then the investment in tax free securities should be
regarded to be made from its own funds. The newly inserted section
14A of the Income-tax Act, 1961 with retrospective effect, clearly and
specifically provides that in computing the total income no deduction
shall be allowed in respect of expenditure incurred by the assessee in
12
ITA No.2519/Mum/2004
and other six appeals
relation to income which does not form part of the total income under
this Act. In the memorandum explaining the provisions in the Finance
Bill, it has been stated that the very idea of granting
deduction of expenditure incurred in earning non-taxable or exempt
income is against the basic principle of taxation whereby only the net
income, i.e. gross income minus the expenditure is taxed. On the
same analogy, the exemption is also in respect of the net income.
Expenses incurred can be allowed only to the extent they are
relatable to the earning of taxable income.
11.3 I find merits in the appellant's submission that no
disallowance out of interest paid should be made when it has
equivalent reserves and capital available. However, the appellant's
contention that the increase in non-interest bearing deposits i.e.
current account should also be considered as its own fund is not
acceptable as in the business of banking the funds received as
deposits from public at large are to be mainly utilised for the purpose
of making advances and the bank cannot afford to have mismatch of
short term borrowed funds being used for long term investment.
Besides this, certain percentage of deposits whether it is interest free
or interest bearing is also supposed to be kept in SLR as per the
guidelines of RBI. The appellant is also supposed to pay interest on
term deposits to its customers. Therefore, amounts lying
in the current deposits and term deposits should not be categorized
as own funds. In principle, I am also agreeable with the findings of
the AO that the disallowance is called for u/s.14A of the I.T. Act.
However, keeping in view the appellant's submission that it has
interest free funds in the form of reserves relatable to profits and
share capital, therefore, business prudence demands that the
investment in tax free securities ought to come out of interest free
funds which are in the form of reserves and share capital, I hold that
no disallowance should be made to the extent of capital, profit
reserve and surplus available with the bank. The AO is therefore
directed to compute the disallowance accordingly and while doing it
the AO should take into account the gross investment in tax free
instruments during the year under consideration. All the above
judgments cited by the appellant were rendered by the courts prior to
the insertion of section 14A of the I.T. Act. The appellant gets relief
accordingly. Appellant's appeal on this ground is partly allowed."
37. Aggrieved by this the revenue is in appeal before us.
38. The ld. DR submitted the facts of the case and relied on the order of
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ITA No.2519/Mum/2004
and other six appeals
AO.
39. Before us, the ld.AR argued that, the ld. CIT(A) has thoroughly
discussed the factual and legal aspects of the case and he also relied On
identical issue decided by his predecessor in the earlier Ayr.98-99 vide
order dtd.04/06/2001. The Ld. DR could not differentiate how the issue raised
again in this year is different from the previous year, nor been able to show any
contrary law to us.
40. After considering the rival contentions and on perusal of the record,
we find that the issue raised by the revenue in this appeal stands covered
in favour of assessee by the decisions relied upon by the assessee.
Therefore, we do not find any infirmity in the order of ld. CIT(A)
accordingly, we confirm his order. Ground No.6 taken by the revenue
stands dismissed.
41. Now we shall take up the appeal bearing ITA No.2520/Mum/2004
by the revenue in respect of AY-2000-01.
42. The first issue urged by the revenue is in respect of broken period
interest of Rs.58,32,26,272/-.
43. We find that we have decided an identical issue in the revenue's
appeal for the assessment year 1999-2000 vide para 2 to 10 of this order.
Therefore, by following the principle of consistency, we dismiss Ground
No.1 taken by the revenue.
44. The second issue raised by the revenue is in respect of directing the
AO to delete salaries paid to expatriate employees amounting to
Rs.9,77,26,439/-".
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ITA No.2519/Mum/2004
and other six appeals
45. We have already decided similar issue raised by the revenue for the
assessment year 1999-2000 against the revenue vide paragraphs 11 to 17
of this order. Therefore, we do not take different stand than the stand so
taken by us in earlier year. Accordingly, we dismiss Ground No.2 of the
revenue's appeal.
46. The next ground of appeal pertains to deletion of disallowance of
Rs.46,43,398/- incurred on guest house and holiday home in view of the
section 37(4) of the Act .w.e.f.1.4.1998.
47. Since we have decided an identical ground against the revenue for
the assessment year 1999-2000 vide para 18 and 19 of this order above,
we taken the same view here also and dismiss Ground no.3 of revenue's
appeal.
48. The ground No.4 taken by the revenue pertains to deletion of
disallowance of Rs.22,10,218/- incurred on library subsidy, contributions to
staff cultural committee and recreation club.
49. We have already discussed similar ground of revenue's appeal and
vide paragraphs 21 to 28 of this order for the assessment year 1999-
2000, we have dismissed ground taken by revenue thereon. Therefore,
following the above view, here also we dismiss Ground No.4 taken by
Revenue.
50. The next issue raised by the revenue in this appeal pertains to
deletion of disallowance of Rs.1,98,32,482/- in respect of entertainment
expenses.
51. This ground being identical and no change in facts to that of Ground
No.5 for the assessment year 1999-2000, we take similar view as taken
therein vide para No.30 to 35 of this order. Accordingly, we dismiss
Ground No.5 taken by Revenue.
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ITA No.2519/Mum/2004
and other six appeals
52. The last ground of this appeal pertain to deletion of addition of
exemption of interest of Rs.27,91,32,253/- earned on tax free bonds.
53. Similar issue has come up before the Tribunal in Revenue's appeal
for the assessment year 1999-2000 and we, after through discussion
dismissed the ground taken by the Revenue. Respectfully following the
same, here also we take similar view and dismiss Ground No.6 of
Revenue's appeal.
54. Now we shall deal with the assessee's appeal for the assessment
year 1999-2000 being ITA No.2679/M/2004.
55. The first grounds relates to the confirmation of interest accrued but
not due on securities as income of the assessee.
56. The interest accrues on securities for which due date of payment
rises after the day which fall due for payment. The assessee did not
added this interest income in the total income. The AO was of the view
that since the interest in respect of securities for which the due date of
payment arises after the end of the previous year i.e. 31.3.1999 is the
income of the assessee. Therefore, he added the same to the total
income of the assessee. In the appellate proceedings, the ld.CIT(A) by
following the decisions in assessee's own cases for the earlier assessment
years 1995-96 to 1999-2000 confirmed the action of the AO.
57. Before us also, the ld.AR could not brought on record any material
to reverse the view taken by the first appellate authority. On the contrary,
the ld. AR fairly conceded that this issue stands covered in favour of the
revenue by the decision of Tribunal in assessee's own case in ITA
No.9587/Bom/1992 and 9588/Bom/92 (AY-1989-90 and 1990-91) order
dated 22.2.2006 and vide para 2, this issue is decided against the
assessee by holding that the retrospective amendment has been brought
to section 145 w.e.f.AY 1989-90 interpreting that any interest on securities
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ITA No.2519/Mum/2004
and other six appeals
not charged to tax in an earlier year shall be charges to tax on receipt
basis in a subsequent year. Similar view have been taken in ITA
No.4082/Mum/97 (AY-1991-92) dated 29.11.2006 and vide ITA
No.709/Mum/99 (AY-1992-93) order dated 15.2.2007 (para 22 and 38 of
the order)
58. After considering the rival contentions and records available before
us as well as the decisions relied upon by the parties, we are of the
considered opinion that this issue is now settled against the assessee.
Therefore, we dismiss the Ground No.1 taken by the assessee.
59. The second ground raised by the assessee is regarding confirming
the disallowance made by the AO on account of NRI deposit Mobilization
of Rs.3,38,53,896/-.
60. At the time of hearing, the ld.AR submitted that an identical issue
had been came up before this Tribunal in assessee's own case in ITA
Nos.9587/Mum/92 and 9588/Mum/92 (AYs-1989-90 and 1990-91) order dated
22.2.2006 and vide para 8 of the order, the Tribunal has decided this issue in
favour of the assessee. In addition to this submissions, the ld.AR also relie don
the following decisions :
a) JCIT V/s The British Bank of Middle East in ITA
No.4908/Mum/2000(AY- 1997-98) order dated 28.6.2005;
b) Emirtes Commercial bank Ltd (now known as Abu Dhabi
Commercial Bank Ltd (262 ITR 55);
c) M/s American Express Bank Limited in Income Tax Reference
No.3 of 2002 R A No.568/Mum/1998 order dated 17.7.2003;
d) Kedarnath Jute Mfg Co. Ltd.V/s CIT- 82 ITR 363(SC)
61. The ld. DR strongly relied upon the order of the Authorities below.
62. After considering the rival contentions of the parties, on perusal of the
records as well as orders of the Tribunal in assessee's own case including the
cases relied upon, we find that that the facts of the case relied upon by the
assessee and case in hand are similar. The order relied upon by the assessee is
dated 22.2.2006 and the present appeal pertains to the assessment year 1999-
17
ITA No.2519/Mum/2004
and other six appeals
2000, and even today the revenue could not bring any material contrary to
constrain to take a different view. Therefore, respectfully following the order of
the Tribunal in assessee's own case, we allow Ground No.2 taken by the
assessee.
63. The third issue pertains to disallowance of fees paid to Master card
and Visa towards services rendered by them.
64. Before us both the parties conceded that an identical issue had
come up before the Tribunal in assessee's own case in Hongkong and
Shanghai Banking Corporation Ltd V/s JCIT in ITA Nos.
709,2604,2605,4709/Mum/99 (AYs-1992-93 to 1994-95 & 1996-97 and
1997-98 order dated 15.2.2007 para 53 to 55 of the order has restored
this issue to the file of the AO. Facts being the same, we have no other
alternative but to following the said decision of the precedent laid down by
the Tribunal. Accordingly, we restore this ground to the file of the AO
for verification of the facts and fresh decision. Ground No.3 of assessee's
appeals is allowed for statistical purposes.
65. The last ground pertains to the confirmation of disallowance made
by the AO regarding the payment to the Great Eastern Shipping Company
Limited (GESC), and also the claim of Rs.2 crores regarding depreciation
rejected by the ld. CIT.(A).
66. The brief facts of the issue are that the A H Bhiwandiwalla and Co
(AHB) was a tenant in the premises of assessee-bank and Great Eastern
Shipping Co.Ltd (GESCO) was associated enterprise of AHB. Later on both
merged into one company. Since, the assessee-bank was required more
space, the assessee asked GESCO to vacate the premises. Consequent
thereon, for vacating the said premises, the assessee-bank has paid Rs.20
crores to the tenant on the ground that the tenant has incurred huge
amount for renovation of the premises. Accordingly, the assessee claimed
the said expenses as revenue expenses and claimed deduction as revenue
18
ITA No.2519/Mum/2004
and other six appeals
expenses. The AO did not allow the claim of assessee on the ground that
the premises in question will be useful for long time business purpose of
the assessee-bank. Therefore, rejected the claim of the assessee as
expenditure is revenue in nature rather than capital in nature. The AO also
rejected the claim of depreciation of Rs.2 crores on the ground that cost
of the vacated floor has already been included in the WDV on which
depreciation has been claimed by the assessee every year. The ld. CIT(A)
relying on the decision of the Hon'ble Kerala High Court in the case of
CIT V/s Sea Lord Hotel Pvt Ltd reported in 245 ITR 601 confirmed the
action of the AO holding that the expenses incurred for vacating the
premises is permanent in nature and treating the same as capital
expenditure, the AO is justified in rejecting the claim of the assessee.
Aggrieved by the decision of ld.CIT(A), the assessee is in appeal before us.
67. The ld. AR submitted before us the facts as narrated before the
lower authorities and also contended that the premises in question was
very much in need of the assessee-bank and because of it assessee was
facing acute shortage of place. Since the tenant was very old and it has
incurred huge amount on renovation, it was not possible to it to get similar
premises in the same vicinity in bare minimum cost it was the
responsibility of the assessee-bank to get accommodation in the same
area. Therefore, the assessee has no other alternative but to pay such
huge amount to vacate the premises. Therefore, it was revenue in nature.
He, therefore, prayed that the claim of the assessee be allowed. In
support of his contentions he placed reliance on the following decisions:
a) CIT Vs Versus Mohanlal Brother - 1982 133 ITR 642(Bom);
b) CIT v Nav Bharat Nirman (P) Ltd [1983] 141 ITR 723 (Delhi).
c) CIT v. Auto Distributors: 210 ITR 222 (Cal)
The ld. AR further submitted that the Hon'ble Bombay High Court in the
case of Mohanlal Brother (supra) held that the amount paid for obtaining
19
ITA No.2519/Mum/2004
and other six appeals
the possession of premises is business expenditure u/s 37(1) of the Act.
In the case of Nav Bharat Nirmal (P) Ltd (supra), it has also been held by
the Hon'ble Delhi High Court that liability for non-eviction of tenant and
liability to pay brokerage accrued to assessee in relevant accounting year
is expenditure, section 28(i) r.w.s.145 of the Act. The facts of the case in
CIT V/s Auto Distributors Ltd (supra) are similar to the facts of present
case in the said case the Calcutta High Court allowed the claim of the
assessee treating it as business expenditure u/s 37(1) of the Act.
68. The ld. DR relied on the orders of authorities below.
69. After hearing the contentions of both the parties and on perusal of
records including the decisions relied upon by the assessee, we are of the
considered opinion 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 No.4 in part.
70. Since we have allowed main claim of the assessee in respect of
business expenditure, we reject the alternative plea taken by the assessee.
71. Now we shall take up the assessee's appeal being ITA
no.2680/Mum/2004 for AY-2000-01 .
72. Grounds of appeal No.1 to 4 taken by the assessee in this appeal
are identical to that of Grounds of appeal No.1 to 4 to the appeal bearing
No.2679/Mum/2004. We have decided these grounds in favour of the
assessee. Accordingly, we allow these grounds of appeal in favour of the
assessee.
73. The fifth ground taken by the assessee is in respect of disallowing
the loss of Rs.3,50,00,000/- in respect of replacement of shares of Zee
Telefilms to a foreign Institutional Investors (FII).
74. In the computation of income, the assessee claimed a loss of
Rs.3,50,00,000/- on account of replacement of shares to a Foreign
Institutional Investor. The AO called for the explanation from the assessee
20
ITA No.2519/Mum/2004
and other six appeals
as to why this amount should not be added to the total income of the
assessee. In reply, the assessee contended the assessee act as mediatory
to holds securities, collect dividends, obtains deliveries, ensures transfer in
the name of the clients and delivers the securities when the same are sold
by the clients. During the course of such business proceedings. One client
namely Capital Emerging Markets Growth Fund (EMGF) has purchased
certain shares of Zee Telefilms in October, 1994. These shares were duly
registered in the name of EMGF in December, 1994. Subsequently, a
company viz Jas-One Diamonds Pvt Ltd filed a suit in Bombay High Court
claiming that these share were in the name of Jas-One Diamonds Pvt Ltd
and sent for registration in 1994, subsequently stolen and reintroduced
into the market. EMGF was made a defendant. Meaning thereby, EMGF
were holding custody of stolen shares. In December, 1998 the assessee
sent these shares to Zee Tele Ltd. Since Jas-One Diamonds Pvt Ltd filed
a case before the Hon'ble Bombay High Court and stay was on transfer of
shares, dematerialization could not be effected. The bank referred the
case to broker who had acted on behalf of the FII. However, the broker
informed that the case had become time barred and relief sought by
restoring to Arbitration proceedings through the Stock Exchange did not
yield any positive result in view of the lapse of time. Chase Manhattan
Bank, who acted as the Global Custodians for EMGF raised a claim against
the bank on the ground that the FII and the Global Custodians were not
duly notified of the notices/objections as required under the Custody
Agreement. In these transactions, Chase and EMGF suffered loss of 3.5
crores. Since these clients are very important to the bank and to safeguard
their interest the assessee spent Rs.3.5 crores and hence assessee claimed
business loss in the computation of income. The AO did not accept the
claim of assessee and disallowed the same. Aggrieved the assessing filed
appeal before the ld. CIT(A). The ld.CIT(A) held that the assessee was
21
ITA No.2519/Mum/2004
and other six appeals
not responsible for theft of shares as well as the matter being sub-judice
before Hon'ble High Court. The ld. CIT(A) confirmed the action of the AO.
75. Before us the ld.AR contended that the assessee is acting as
mediatory to holds securities, collect dividends, obtains deliveries, ensures
transfer in the name of the clients and delivers the securities when the
same are sold by the clients. In this case also the client of assessee Capital
Emerging Markets Growth Fund (EMGF) has purchased certain shares of
Zee Telefilms in October, 1994. These shares were duly registered in the
name of EMGF. The ld. AR submitted that one company viz Jas-One
Diamonds Pvt Ltd filed a court case claiming these shares belong to it.
Therefore, no further transactions could be continued with respect of
these shares. Thereafter Chase Manhattan Bank, who acted as the Global
Custodians for EMGF raised a claim against the bank on the ground that
the FII and the Global Custodians were not duly notified of the
notices/objections as required under the Custody Agreement. In these
transactions, Chase and EMGF suffered loss of 3.5. These client being
reputed clients and to maintain dignity in the market, the assessee
company paid this amount to them and claimed as business expenses. He
contended that in such type of business whatever losses suffered by the
bank is business loss and should be allowed as business loss. Therefore,
the AO was not justified in disallowing this payment as business loss. In
support of his contention, he placed reliance on the decision of Apex Court
in the case of CIT V/s Nainital Bank Ltd (1966) 62 ITR 638(SC).
76. The ld.Counsel/ AR submitted that in the case of Nainital Bank Ltd,
the large number of currency notes and jewellery were stolen and the
payment of these assets were made by the bank to the constituent and
the Hon'ble Supreme Court allowed the claim of the assessee being loss
incurred by the assessee as business expenditure. He, therefore,
22
ITA No.2519/Mum/2004
and other six appeals
submitted that the facts of the present case and the case cited supra are
same and hence the payment made by the assessee to Zee Telefilms be
allowed as business loss.
77. The ld. DR reiterated the facts of the case as made before the ld.
CIT(A) and relied on the orders of authorities below.
78. After hearing both the parties and on perusal of records as well as
the decision relied upon by the assessee in the case of Nainithal Bank Ltd,
we find this issue stands covered in favour of the assessee. Respectfully
following the decision relied upon by the ld. Counsel, we set aside the
order of ld.CIT(A) and direct the AO to delete the addition made by the
AO.
79. The Ground No.5 is therefore allowed.
80. Now we shall take up the appeal bearing No. I.T.A.
No.4424/Mum/2005in respect of AY-2001-02, Appeal by
Reveue.
81. The first issue urged by the revenue is in respect of broken period
interest of Rs.1,08,09,47,760/-.
82. We find that we have decided an identical issue in the revenue's
appeal for the assessment year 1999-2000 vide para 2 to 10 of this order.
Therefore, by following the principle of consistency, we dismiss Ground
No.1 taken by the revenue.
83. The second issue raised by the revenue is in respect of directing the
AO to delete bonus point on credit cards amounting to Rs.5,97,56,963/-.
84. Facts of the issue are the assessee bank give credit and bonus point
to the customers on purchasing goods on credit cards. These credits
points are converted into cash and credited to the account of the
customers. Aggregating such bonus points on credits cards amounting to
Rs.5,97,56,963/- claimed by the assessee-bank as an expenditure and
23
ITA No.2519/Mum/2004
and other six appeals
deducted the same from the total income of the assessee. The AO
disallowed the same on the ground no provision has been made in the
Income Tax Act. The ld. CIT(A) allowed the claim of the assessee holding
that the bonus points accruing to the customers is a liability against the
commission income earned from the credit cards business, which is
brought to tax as income. The commission income is offered to tax in the
year in which it arises and therefore, the liability which is accrued on
account of bonus points awarded should be allowed as deduction as these
points are awarded on account of the purchase made and the earning of
the commission is directly related to the purchases. Since the assessee is
following the mercantile system of accounting, the liability accrued in the
year consideration should also be allowed. Accordingly, the ld. CIT(A)
allowed the claim of the assessee. Aggrieved revenue is in appeal before
us.
85. The ld. DR reiterated the same contentions as made before the
ld.CIT(A) and relied on the order of AO.
86. The ld.Counsel for the assessee submitted that the ld.CIT(A) has
passed well reasoned order by considering all aspects of the matter and
prayed that the ground raised by the revenue be confirmed. In support of
this contentions he placed reliance on the following decisions :
a) ACIT V/s M/s Shoppers Stop Ltd ITA No.1835/Mum/2010 (AY-
2003-04) dated 25.1.2012;
b) Syndicate bank V/s DCIT (Bang ITAT) (2013) 38 taxmann.com
25);
c) Bharat Earth Movers V/s CIT -245 ITR 428 (SC);
d) Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1 (SC);
e) Rotork India Pvt. Ltd. Vs. CIT reported in 314 ITR 63 (SC);
f) Taparia Tools Ltd v Joint CIT [2003] 260 ITR 102 (Bom),;
g) Vinitee Corporation (P) Ltd. (2005) 146 Taxman 313 (Delhi); and
h) CIT v. Beema Manufacturers P. Ltd. (2003) 130 Taxman 400 (Mad)
24
ITA No.2519/Mum/2004
and other six appeals
87. We find that the ld.CIT(A) has considered this issue with detailed
discussions, we also find that an identical issue had come up before the
various forums/ Judicial authorities, and therein the Courts have decided
this issue in favour of the assessee. Hence, this issue stands covered in
favour of the assessee. Therefore, we do not find any infirmity in the order
of ld.CIT(A). Accordingly, we confirmed his findings. Ground No.2 taken by
the revenue is dismissed.
88. The Ground No.3 of appeal pertains to deletion of disallowance of
Rs.77,17,146/- incurred on guest house and holiday home in view of the
section 37(4) of the Act .w.e.f.1.4.1998.
89. Since we have decided an identical ground against the revenue for
the assessment year 1999-2000 vide para 18 and 19 of this order above,
we taken the same view here also and dismiss Ground no.3 of revenue's
appeal.
90. The ground No.4 taken by the revenue pertains to deletion of
disallowance of Rs.14,99,000/- incurred on library subsidy, contributions to
staff cultural committee and recreation club.
91. We have already discussed similar ground of revenue's appeal and
vide paragraphs 21 to 28 of this order for the assessment year 1999-2000,
we have dismissed ground taken by revenue therein. Therefore, following
the above view, here also we dismiss Ground No.4 taken by Revenue.
92. The next issue raised by the revenue in this appeal pertains to
deletion of disallowance of Rs.2,37,21,174/- in respect of entertainment
expenses.
93. This ground being identical and no change in facts to that of Ground
No.5 for the assessment year 1999-2000, we take similar view as taken
therein vide para No.30 to 35 of this order. Accordingly, we dismiss
Ground No.5 taken by Revenue.
25
ITA No.2519/Mum/2004
and other six appeals
94. The Sixth ground of this appeal pertain to deletion of addition of
exemption of interest of Rs. 26,48,23,923/- earned on tax free bonds.
95. Similar issue has come up before the Tribunal in Revenue's appeal
for the assessment year 1999-2000 and we, after thorough discussion
dismissed the ground taken by the Revenue. Respectfully following the
same, here also we take similar view and dismiss Ground No.6 of
Revenue's appeal.
96. The Seventh ground of appeal is in respect of deletion of addition
made by the AO on account of Deferred Guarantee Commission
amounting to Rs.50,00,000/-.
97. Facts of the case are that the assessee-bank gives guarantee to the
customers and charge commission there over. The receipt on this account
is regularly accounted in the books of accounts for the entire period for
which guarantee is issued. The AO did not allow the claim of the assessee
and added the same to the total income of the assessee. Being aggrieved
by the addition made by the AO, the assessee filed appeal before the ld.
CIT(A) and the ld. CIT(A) by following the decision of Hon'ble Calcutta
High Court in the case of CIT V/s Bank of Tokyo Ltd (71 Taxman 85)
deleted the addition made by the AO. Aggrieved by the order of
ld.CIT(A), the revenue is in appeal.
98. The ld. DR relied on the decision of the AO and also contented the
facts of the issue as mentioned before the ld. CIT(A).
99. The ld. AR submitted the facts and contended that the ld. CIT(A)
has considered the issue and decided in favour of the assessee. He
submitted that the findings of the ld.CIT(A) are in consonance of the law
and, he therefore prayed that the findings of the ld.CIT(A) be upheld. He
also contended that an identical issue had come up before the various
Courts and they have decided the issue in favour of assessee.
Accordingly, he placed reliance on the following case law:
26
ITA No.2519/Mum/2004
and other six appeals
a) BNP Paribas SA (Bombay HC) (2013) (32 Taxman.com 276);
b) CIT V/s Bank of Tokyo Ltd (71 Taxman 85) ;
c) Bank of Baharain and Kuwait (Mumbai ITAT SB) (2010) 41 SOT
290).
100. After hearing both the parties on the issue and on 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 Vs. 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 the commission
accrues at a time. The assessee-bank on the other hand, submits
that the service having a spread of years 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 boil 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, for, the guarantee beyond the expiry date
of the previous year the right to receive for unexpired period, for,
the guarantee beyond the expiry date of the previous year remains
in a suspense. It may or may not fructify into an actual right to
receive for the subsequent period of the term of the guarantee as
the sooner determination of the guarantee is a contingency not
ruled out by the agreement. It is only upon certain conditions being
fulfilled, viz., the guarantee running the full course or period of the
debt guaranteed, that the right to the entirety of the commission
can be said to have accrued".....
Accordingly, we dismiss Ground No.7 taken by the revenue.
101. The last ground of appeal pertains deletion of addition of
Rs.31,03,83,507/- u/s 40(a)(i) of the Act.
27
ITA No.2519/Mum/2004
and other six appeals
102. Facts of the case are that the assessee was appointed as one of the
agent for mobilization and collection of India Millennium Deposits (IMD)
issued by the State Bank of India, from which the assessee earned
commission of Rs.50,26,52,906/-. Out of this the assessee offered tax of
Rs.19,22,69,399/- and claimed balance amount of Rs.31,03,83,507/- as
an expenditure incurred for earning the commission of Rs.50,26,52,906/-
.The AO called for the explanation from the assessee, the assessee
contended that assessee has paid commission of Rs.25,41,43,735/- to
other re-arrangers which is in respect of services rendered by them
outside Indian which is in the nature of their business income and is not
liable to tax in India. The AO did not accept the contention of the
assessee. The AO observed and held that the commission income paid to
the outside parties is clearly in the nature of fee for technical services.
The concerned parties have rendered services to collect deposits meant for
Indian operations and thus there is a business connection and there
income is clearly taxable as per the provisions of section 9 of the Act. The
AO by placing reliance on the decision in the case of Raymonds Ltd V/s
DCIT(80 TTJ 120) and by invoking the provisions of section 195 held that
the assessee failed to deduct tax at source and hence he disallowed the
expenditure u/s 40(a)(i) of the Act. Aggrieved by this finding of the
assessing officer, the assessee filed appeal before the ld. CIT(A).
103. Before the ld.CIT(A), the assessee made detailed submissions and
the ld.CIT(A) incorporated the same in the order vide para 31.1. to 32 of
CIT(A)'s order. The ld. CIT(A) after considering the facts of the case and
rival contentions and also considered the findings of the order of Tribunal
in the case of Maharashtra State Electricity Board V/s DCIT( 2004 270 ITR
36 Mum), observed and held , which is as under :
28
ITA No.2519/Mum/2004
and other six appeals
"In a case where no portion of payment is eligible to tax, the
question of application of Section 195(2) does not arise, because, as
the section itself categorically provides that it comes to play "where
the person responsible for paying any sum chargeable under this Act
(other than salary) to a non-resident considers that whole of such
sum would not be chargeable in the case of the recipient. It would
thus follow that for invoking Section 195(2), it is a sine qua non that
sum being paid to the non-resident is 'chargeable under the
provisions of this Act', i.e., IT Act, 1961 whether fully or partly, i.e.,
the entire sum or the income hidden or embedded therein. When an
income is not eligible to tax in India, by the virtue of the provisions
of the applicable DTAA, the deduction of tax under Section 195 of
the Act does not come to play at all. It leads us to the conclusion
that the expression 'chargeable under the provisions of this Act'
cannot include an income, which in terms of the specific provisions
of the applicable DTTA is not eligible to tax in India."
Accordingly, the ld CIT(A) allowed the claim of the assessee made u/s
40(a)(i) of the Act and directed the AO to delete the addition made on
account of TDS not deducted.
104. Before us, the ld. DR reiterated the same submissions as made
before the ld. CIT(A). He relied on the order of AO.
105. The ld.AR relied on the order of the ld. CIT(A) and in addition
thereof the ld. AR also placed reliance on the decision in the cases of :
a) Credit Lyonnais (through their successors: Calyon Bank) v. ADIT
[2013] 35 taxmann.com 583 (MumTrib)];
b) DDIT V/s Abu Dhabi Commercial Bank Ltd (Mumbai ITAT)
(60 SOT 71); and
c) DDIT V/s Citi bank N A in ITA No.8472/Mum/2004 (AY-2001-02)
dated13.9.2013.
Accordingly, the ld. AR submitted that the issue raised by the assessee in
this appeal stands covered by the above said decisions and hence, the
order of ld. CIT(A) be confirmed.
106. We have considered the rival contentions and perused the record
available before us including the case law relied upon by the parties. We
find that the an identical issue has come up before the Tribunal in number
of cases and the Tribunal in the above cited cases decided the issue in
29
ITA No.2519/Mum/2004
and other six appeals
favour of the assessee. Before us, the ld.DR could not bring any material
contrary to the findings of the Tribunal. Therefore, we have no other
alternative but to dismiss the Ground No.8 taken by the revenue.
107. Now we shall take up the appeal bearing I.T.A.
No.4670/Mum/2005 filed by Bank/ assessee in respect
of AY2001-02.
108. The first ground raised by the assessee is regarding confirming the
disallowance made by the AO on account of NRI deposit Mobilization of
Rs.4,56,28,770/-.
109. This is an identical issue raised by the revenue in ITA
No.2679/Mum/2005, which vide para 59 to 62 of this order has been
dismissed. Accordingly, following the same, we confirm the order of
ld.CIT(A) on this issue. Ground No.1 taken by the assessee is allowed.
110. The second issue raised by the revenue is in respect of directing the
AO to delete salaries paid to expatriate employees amounting to
Rs.11,39,00,527/-under section 44C of the Act.
111. While dealing with the appeal of revenue in ITA
No.2519/Mum/2004, we have dismissed the ground taken by the revenue
on the same issue vide para 11 to 17 of this order and confirmed the order
of ld.CIT(A). Respectfully following the same, we direct the AO to allow
the claim of assessee. Ground No.2 taken by the assessee is allowed.
112. The third issue pertains to disallowance of fees of Rs.2,83,77,518/-
paid to Master card and Visa towards services rendered by them.
113. An identical issue had come up before the Tribunal in assessee's
own case in Hongkong and Shanghai Banking Corporation Ltd V/s JCIT
in ITA Nos.709,2604,2605,4709/Mum/99 (AYs-1992-93 to 1994-95 &
1996-97 and 1997-98 order dated 15.2.2007 para 53 to 55 of the order
has restored this issue to the file of the AO. Facts being the same, we
have no other alternative but to follow the said decision of the Tribunal.
30
ITA No.2519/Mum/2004
and other six appeals
Accordingly, we set aside the order of ld.CIT(A) and restore this ground to
the file of the AO for verification of the facts and fresh decision. Ground
No.3 of assessee's appeals is allowed for statistical purposes.
114. The fourth ground pertains to the confirmation of disallowance
made by the AO regarding the payment to the Great Eastern Shipping
Company Limited (GESC), and also the claim of Rs.20 crores regarding
depreciation rejected by the ld. CIT.(A).
115. This ground is similar to that of Ground No.4 of ITA
No.2679/Mum/2004 filed by the assessee and vide para 65 to 69 of this
order, we have allowed the same. Therefore, following our observations
above, we allow Ground No.4 of this appeal.
116. The last ground of this appeal Loss made on the outstanding
forward contracts of Rs.15.16.14,000/-
117. During the year under consideration, the assessee booked a net loss
of Rs.15,16,14,000/- on account of outstanding foreign contracts. The AO
did not allow the claim of the assessee on the ground that the loss on
valuation of foreign exchange contracts is notional in the sense that the
loss has not finally occurred and the profit/loss will occur only when the
contracts manure. Therefore, the AO disallowed the claim of the assessee.
The ld. CIT(A) confirmed the action of the AO. Aggrieved by the order of
ld. CIT(A), the assessee is in appeal before us.
118. The ld. AR contended that the loss has occurred due to the
valuation, so as to reflect the true value of the asset so that the asset and
liabilities given a true and fair value of the state of affairs of the concerns.
The valuation is done as per guidelines of the RBI and this method of
accounting has been regularly followed by the assessee, therefore, he
prayed that no adjustment should be made on this account. He submitted
time and again this Tribunal as well as the Apex Court held that the loss
suffered by assessee on account of fluctuations of foreign exchange as on
31
ITA No.2519/Mum/2004
and other six appeals
the date of Balance Sheet is an item of expenditure under section 37(1),
allowed the mark to market loss in the case of equity index/stock future as
an allowable loss. Therefore, the ld. AR prayed that the loss suffered by
assessee be allowed as business loss. In support of this contention, the
ld.AR placed reliance on the following decisions:
a) CIT vs. Woodward Governor India P. Ltd. 312 ITR 254(SC); and
b) Bank of Bahrain (132 TTJ 505)Mum(SB).
119. The ld. DR reiterated the same contentions and relied on the orders
of authorities below.
120. We have considered the rival submissions and perused the record.
We find that the issue raised by the assessee stands covered by the
decision of Hon'ble Supreme Court in the case of Woodward
Governor India P. Ltd (supra) wherein the Hon'ble Supreme Court held
that
"that the loss suffered by assessee on account of fluctuations of
foreign exchange as on the date of Balance Sheet is an item of
expenditure under section 37(1), allowed the mark to market loss in
the case of equity index/stock future as an allowable loss."
We find that the issue in hand and the facts of the cases relied upon are
same, therefore, respectfully following the decision of the Hon'ble Apex
Court in the case of Woodward Governor India Pvt.Ltd (supra), we set
aside the order of ld.CIT(A) and direct the AO to delete the addition.
Ground No.5 taken by the assessee is allowed.
121. Now we shall take Cross Objection No.84/Mum/2006 filed
by the assessee in respect of AY-2001-02.
122 The first issue raised by the assessee in cross-objection is regarding
income assessable for the assessment year 2001-02 for the interest in
respect of securities for which the due date of payment (coupon date) had
not risen in the accounting year ended 31st Mach, 2001. Since, we have
32
ITA No.2519/Mum/2004
and other six appeals
dismissed Ground No.1 of revenue's appeal bearing No. I.T.A.
No.4424/Mum/2005 on the same issue. The cross objection on
this Ground does not survive, therefore, rejected.
123. The second ground of cross-objection is regarding net loss of
Rs.15,16,14,000/- on account of outstanding foreign contracts.
124. We have decided this ground in favour of the assessee vide
paragraph 116 to 121 of this order. Therefore, this ground becomes
infructuous. Therefore, dismissed as infructuous.
125. In the result, ITA Nos.2519 and 2520/Mum/2004 by revenue stand
dismissed, ITA No.2679/M/2004 by assessee stands partly allowed for
statistical purposes, ITA No.2680/M/2004 is allowed, ITA No.4424/M/2005
by revenue stands dismissed, ITA No.4670/M/2005 taken by assessee is
partly allowed for statistical purposes and cross-objection Cross
No.84/Mum/2006 filed by the assessee stands rejected.
Pronounced accordingly on 20th Nov, 2015.
th
Û 20 Nov, 2015
Sd/- Sd/-
(B.R.BASKARAN) (PAWANSINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
th
Mumbai: 20 November , 2015.
.../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. × / The Respondent.
3. È() / The CIT(A)- concerned
4. È / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. [ / Guard file.
//True Copy//
/ BY ORDER,
(Asstt. Registrar)
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