2012 (12) TMI 414 - AT - Income Tax

Tribunal Rules on Taxation, Deductions, and Disallowances for Assessment Years

The Tribunal partly allowed the assessee's appeal, dismissing the Revenue's appeal and addressing issues related to taxation, deductions, and ... Taxation of interest received from head office - Held that:- Interest income of Rs. 5.61 crore which has resulted only from the assessee's dealings with its Head office cannot be charged to tax on the principle of mutuality. Accordingly no tax can be levied on the interest earned by the assessee from its Head office or overseas branches. At the same time the principle of mutuality will extend equally in respect of interest paid by the assessee to its head office or other overseas branches. The assessee cannot claim deduction in respect of interest paid to its head office and overseas branches. The Assessing Officer is directed to allow exemption in respect of interest income and also not to grant any deduction in respect of interest expenditure. Deduction u/s 44C - specific expenses incurred by head office on behalf of Indian branch in revised return u/s 37 - Held that:- When the assessee revised its return and claimed deduction u/s 44C at higher level than that claimed in the original return, it was the duty of the AO to consider the higher claim u/s 44C and not to restrict himself to the claim made in original return - no absurdity in the direction of CIT(A) to AO to consider deduction u/s 44C on the basis of revised return subject to verification of the correctness of the revised return. Therefore, upholding the impugned order on this issue except for the removal of the last sentence from para 6.1., which is contrary to his conclusion on the point - the assessee's ground is accepted to the extent of the removal of the last sentence. Disallowance u/s 43B - employer's contribution to provident fund not paid before the due date under the EPF Act - CIT(A) sustained the disallowance accordingly - Held that:- No disallowance can be made if the employer's contribution or the employees' contribution is paid before the due date of filing return of income as per sec 139(1) as decided in CIT v. Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT ] read along with CIT v. AIMIL Ltd. [2009 (12) TMI 38 - DELHI HIGH COURT]- in favour of assessee. Deduction on account of bad debt written off - disallowance as the assessee could not prove that the amount had become bad in the year - Held that:- As decided in T.R.F. Ltd. v. CIT [2010 (2) TMI 211 - SUPREME COURT] & DIT (International taxation) v. Oman International Bank [2009 (2) TMI 54 - BOMBAY HIGH COURT] deduction of bad debt is allowable on a simple write off and it is not for the assessee to prove that the debt had become bad - in favour of assessee. Non deduction of TDS - paid transaction charges on NOSTRO account with banks outside India - Disallowance u/s 40(a)(i) - Held that:- As decided by the Tribunal in earlier years in assessee's favour. Respectfully following the same, we uphold the impugned order on this issue. This ground is not allowed. Issues:1. Taxation of interest income earned from head office for assessment years 2000-2001 and 2001-2002.2. Disallowance under section 14A in relation to interest income.3. Deduction of specific expenses incurred by head office on behalf of Indian branch under section 44C.4. Disallowance under section 43B for employer's contribution to provident fund.5. Deduction of bad debt written off.6. Taxability of interest income received from head office for assessment year 2001-2002.7. Disallowance under section 43B for EPF contribution.8. Disallowance of provision made for expenses.9. Deduction of bad debt written off for the previous year.10. Deduction of head office expenses under section 44C.11. Disallowance under section 40(a)(i) for transaction charges on NOSTRO account.Analysis:1. Taxation of Interest Income:For assessment year 2000-2001, the Appellate Tribunal held that interest income earned from dealings with the head office cannot be taxed based on the principle of mutuality. The Tribunal referred to a special bench decision and directed the Assessing Officer to allow exemption for interest income and not grant any deduction for interest expenditure.2. Disallowance under Section 14A:The Tribunal found that no disallowance under section 14A was made by the Assessing Officer regarding expenses related to exempt interest income. As this issue did not arise from lower authorities' orders, it was not examined further, and the ground was allowed.3. Deduction of Specific Expenses under Section 44C:Regarding the deduction of expenses incurred by the head office on behalf of the Indian branch under section 44C, the Tribunal upheld the direction of the CIT(A) to consider the revised return's claim for deduction. The Tribunal found no harm in the CIT(A)'s direction and partially allowed the assessee's appeal on this ground.4. Disallowance under Section 43B:The Tribunal allowed the assessee's claim for disallowance under section 43B for the employer's contribution to provident fund, as the contribution was made before the due date of filing the return. Citing relevant judgments, the Tribunal held that no disallowance could be made in such circumstances.5. Deduction of Bad Debt Written Off:The Tribunal upheld the deduction claimed by the assessee for bad debt written off, following the precedent set by the Supreme Court and the jurisdictional High Court. The deduction was allowed based on a simple write-off without the need to prove that the debt had become bad.6. Taxability of Interest Income (2001-2002):For assessment year 2001-2002, the Tribunal reiterated the decision regarding interest income earned from the head office, stating that such interest could not be taxed based on the principle of mutuality. The deduction claimed for interest paid to the head office or overseas branches was also disallowed.7. Disallowance under Section 43B (2001-2002):The Tribunal allowed the disallowance under section 43B for EPF contribution, as the amount was deposited before the due date of filing the return. The ground was allowed based on relevant judgments supporting this position.8. Other Grounds:The Tribunal dismissed grounds related to the provision made for expenses and the claim for deduction of bad debt written off in previous years. It upheld the direction to allow deduction of head office expenses under section 44C and the deletion of disallowance under section 40(a)(i) for transaction charges on the NOSTRO account.In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal, addressing various issues related to taxation, deductions, and disallowances for the assessment years 2000-2001 and 2001-2002.