2024 (2) TMI 101 - AT - Income Tax

Financial services company wins on forex losses, section 14A disallowance deleted, transfer pricing partially allowed

ICICI Bank Ltd Mumbai Versus The Deputy Commissioner of Income-tax, Circle-3 (1), Mumbai

ICICI Bank Ltd Mumbai Versus The Deputy Commissioner of Income-tax, Circle-3 (1), Mumbai - TMI Issues Involved:1. Disallowance of Mark to Market (MTM) Losses2. Disallowance under Section 14A3. Disallowance of Bad Debts Written Off4. Disallowance of Business Loss Claimed on Re-Possessed Assets5. Disallowance of Proportionate Claim of Issue and Discount Expenses on Bonds6. Rebate under Section 88E7. Short Grant of Relief under Section 908. Applicability of Provisions of Section 115JB9. Transfer Pricing Adjustments10. Depreciation on Leased Assets11. Addition of Non-Cash Write Back under Section 41(4)12. Club Membership FeesSummary:1. Disallowance of Mark to Market (MTM) Losses:The Assessing Officer (AO) disallowed MTM losses claimed by the assessee, considering them as notional and non-deductible. The Tribunal, referencing the Special Bench decision in DCIT vs. Bank of Bahrain & Kuwait and the Supreme Court in Woodward Governor Pvt. Ltd v/s CIT, allowed the MTM losses as a deduction. The AO was directed to reverse the MTM gains previously taxed.2. Disallowance under Section 14A:The AO disallowed Rs. 458.866 crores towards interest and Rs. 17.37 crores towards administrative expenses under Section 14A. The Tribunal noted that Rule 8D is applicable only from A.Y. 2008-09 and held that since the assessee had sufficient own funds, no disallowance towards interest was warranted. The suo motu disallowance of 1% on exempt income was deemed reasonable.3. Disallowance of Bad Debts Written Off:The AO disallowed the bad debts of Rs. 437,82,57,646/- claimed by the assessee, requiring proof of irrecoverability. The Tribunal, following the Supreme Court in TRF Ltd. v/s CIT and Vijaya Bank Ltd. v/s CIT, restored the issue to the AO for fresh adjudication, emphasizing that mere write-off in books is sufficient post-amendment of Section 36(1)(vii).4. Disallowance of Business Loss Claimed on Re-Possessed Assets:The AO disallowed Rs. 178,09,16,700/- claimed as a business loss on re-possessed assets. The Tribunal remitted the issue back to the AO for fresh examination, directing the assessee to furnish detailed computations of the loss.5. Disallowance of Proportionate Claim of Issue and Discount Expenses on Bonds:The AO disallowed the claim under Section 154, following a previous disallowance in 2002-03. The Tribunal directed the AO to allow the proportionate expenditure as per the directions of the Tribunal in earlier years.6. Rebate under Section 88E:The CIT(A) rejected the rebate claim under Section 88E as it was not discussed in the assessment order. The Tribunal directed the AO to consider the claim as per the submissions made by the assessee.7. Short Grant of Relief under Section 90:The Tribunal directed the AO to consider the assessee's claim of short grant of relief under Section 90 and allow it in accordance with the law.8. Applicability of Provisions of Section 115JB:The Tribunal, following the decision in the assessee's own case for A.Y. 2004-05, held that the provisions of Section 115JB are not applicable to banks.9. Transfer Pricing Adjustments:The Tribunal excluded several comparables used by the TPO for benchmarking back office support services, directing the TPO to re-compute the ALP. The Tribunal also deleted the adjustment made for pass-through costs, as no value addition was made by the assessee.10. Depreciation on Leased Assets:The AO disallowed depreciation on leased assets, treating them as finance transactions. The Tribunal upheld the CIT(A)'s decision to allow depreciation, noting no new lease transactions were entered during the year and following the consistent view in earlier years.11. Addition of Non-Cash Write Back under Section 41(4):The AO added non-cash write back of Rs. 56,19,378/- to income under Section 41(4). The Tribunal restored the issue to the AO for fresh consideration, following the decision in earlier years.12. Club Membership Fees:The AO treated club membership fees as capital expenditure. The Tribunal upheld the CIT(A)'s decision to allow the fees as business expenditure, following the Supreme Court's decision in United Glass Manufacturing Co. Ltd.Conclusion:Both the assessee's and revenue's appeals were partly allowed. The Tribunal provided specific directions for each issue, emphasizing the need for consistent application of legal principles and thorough examination of facts.