2019 (2) TMI 466 - HC - Income Tax

Bank justified as business loss for NRI expenses & share replacement.

Commissioner of Income Tax (IT) -2 Versus M/s. Hongkong and Shanghai Banking Corporation Ltd.

The Court upheld the Tribunal's decision regarding NRI Mobilization expenses and replacement of shares by the bank to EMGF. The bank's actions were deemed ... Addition on NRI Mobilization expenses - whether said amount was expended towards administrative and other related expenses and the entire expenditure was for the purposes of head office and, therefore, no restrictions in terms of Section 44C? - Held that:- Assessee supported the view of the Tribunal and contended that in an identical situation for the earlier assessment years, the Revenue had not carried the matters in appeal before the High Court. We note that non-filing of the appeals by the Revenue could not have been on the ground of low tax effect. Under the circumstances, the decisions of the Revenue not to challenge the Tribunal's judgment in earlier years in respect of this very assessee, can be seemed as conscious decision of accepting the proposition involved. This question is, therefore, not entertained. Addition on account of replacement of shares by the assessee - whether such loss had to be allowed as business expenditure? - Held that:- The assessee was not under the legal obligation to make the payment in absence of any specific contract or a Court order to maintain its reputation in the market and cordial business relations with the customers. The Supreme Court in case of Nainital Bank [1966 (9) TMI 46 - SUPREME COURT] in similar circumstances, had held that such a claim was allowable under Section 10(2)(xv) of the Indian Income Tax Act,1922. In such case, large quantity of jewellery pledged with the respondent assessee bank by its constituents and currency notes were stolen by dacoits from the premises of the bank. In regard to the loss of jewellery, the bank settled the claim and claimed a loss as a business loss expenditure. The Supreme Court held that sole question to be judged is whether the bank in incurring the expenditure acted in the interest of and for the purpose of its business. It is also agreed that the credit of a banking business is very sensitive. It largely thrives upon the confidence which its constituents have in its management. To maintain such confidence, the management had to make concessions to preserve the goodwill and relations with its clients. Under such circumstances, the expenditure was allowed. No question of law is, therefore, arises. Issues:1. Whether the Tribunal erred in concurring with the decision of CIT(A) regarding NRI Mobilization expensesRs.2. Whether the Tribunal erred in concurring with the decision of CIT(A) regarding replacement of shares by the assessee to EMGFRs.Analysis:Issue 1: NRI Mobilization ExpensesThe respondent, a bank, claimed &8377;4.36 crores under 'NRI Deposit Mobilization' for the Assessment Year 2000-01. The Tribunal accepted the claim based on previous years' decisions and other references. The Revenue argued that Section 44C provisions were not applied by the Tribunal. However, the assessee's counsel pointed out that the Revenue did not challenge similar matters in earlier years, indicating acceptance. The Court noted the Revenue's conscious decision and did not entertain this question.Issue 2: Replacement of Shares to EMGFThe respondent bank claimed a loss of &8377;3.50 crores due to a dispute involving shares of Zee Telefilms held by EMGF. The bank, as a mediator, faced a claim from Jas-One Diamonds Pvt. Ltd. regarding stolen shares. To maintain market reputation and client relations, the bank agreed to pay the loss. The Assessing Officer rejected the claim, leading to Tribunal intervention. The Tribunal upheld the claim citing a Supreme Court decision and the bank's need to maintain dignity in the market. The Court noted that the bank was not legally obligated to make the payment but did so to uphold its reputation and business relations. Citing the precedent set by the Supreme Court in a similar case, the Court allowed the expenditure as a business loss under Section 10(2)(xv) of the Indian Income Tax Act, 1922.In conclusion, the Court dismissed the tax appeal, emphasizing the bank's actions were in the interest of its business and to maintain goodwill with clients, thus justifying the allowed expenditure.