Tax Tribunal Decision: Partial relief granted, interest disallowance upheld, loss disallowance deleted, foreign deposits deduction allowed.

The Tribunal's decision in the case resulted in partial relief for both parties. The disallowance of interest paid on amounts received under the Portfolio Management Scheme was upheld, while the disallowance of loss on the sale of units to bank and non-bank clients was deleted. Expenditure incurred on mobilization of deposits abroad was allowed as a deduction. The disallowance of salary paid to expatriate employees was also deleted. The Tribunal allowed the taxation of interest received from overseas branches. The Revenue's additional ground for disallowance under section 14A was dismissed.

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Issues involved:

1. Deduction of interest paid for broken period at the time of purchase of securities.
2. Deduction for interest accrued but not due on securities.
3. Disallowance of interest paid on amounts received under the Portfolio Management Scheme (PMS).
4. Disallowance of loss on account of sale of units to bank and non-bank clients.
5. Disallowance of expenditure incurred on mobilization of deposits abroad.
6. Disallowance under section 37(2A) of the Income Tax Act.
7. Taxation of interest received from overseas branches.
8. Disallowance of salary paid to expatriate employees.
9. Application of section 14A for disallowance of expenses related to exempt income.

Detailed Analysis:

1. Deduction of interest paid for broken period at the time of purchase of securities:
The assessee's appeal on this issue was dismissed as it was not pressed during the hearing. The CIT(A) had upheld the disallowance made by the JCIT. The Revenue's appeal on this issue was also dismissed as the CIT(A)'s direction was contingent on the reversal of a decision in an earlier year, which had not occurred.

2. Deduction for interest accrued but not due on securities:
This issue was not pressed by the assessee during the hearing and was consequently dismissed.

3. Disallowance of interest paid on amounts received under the Portfolio Management Scheme (PMS):
The Tribunal upheld the disallowance of Rs. 2,83,676/- representing interest paid in excess of the RBI guidelines, following its own decision in the assessee’s case for the previous year.

4. Disallowance of loss on account of sale of units to bank and non-bank clients:
The Tribunal found that the transactions were not "buy-back transactions" as alleged by the Assessing Officer but were normal business transactions involving the sale and purchase of units. The Tribunal directed the deletion of the addition of Rs. 3,20,79,500/- as the transactions were conducted at arm's length and in the normal course of business, thus allowing the assessee's appeal on this issue.

5. Disallowance of expenditure incurred on mobilization of deposits abroad:
The Tribunal allowed the assessee's claim for deduction of Rs. 39,07,409/- following its own decision in the assessee’s case for earlier assessment years, where it was held that such expenditure was not covered by section 44C of the Act and was incurred exclusively for the Indian operations of the bank.

6. Disallowance under section 37(2A) of the Income Tax Act:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of Rs. 61,460/- made by the Assessing Officer, noting that the expenditure was incurred on the assessee’s employees and not on outsiders, thus not constituting entertainment expenditure.

7. Taxation of interest received from overseas branches:
The assessee conceded this point in favor of the Revenue, and the Tribunal allowed the Revenue's appeal, taxing the interest received from overseas branches.

8. Disallowance of salary paid to expatriate employees:
The Tribunal affirmed the CIT(A)'s decision to allow the deduction of Rs. 14,02,789/- paid as salary to expatriate employees, who were employed in India for services rendered in India, following the Tribunal’s own decision in the assessee’s case for the earlier assessment year.

9. Application of section 14A for disallowance of expenses related to exempt income:
This additional ground raised by the Revenue was dismissed as infructuous because the interest received by the assessee from its overseas branches was accepted to be taxable in India.

Conclusion:
The Tribunal's decision resulted in partial relief for both the assessee and the Revenue, with specific directions and affirmations based on precedents and the factual matrix of the case. The order was pronounced in the open court on 19/10/2016.

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