AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (4) TMI 791
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....tenance etc. The assessee submitted before Assessing Officer that these expenses had been incurred by the head office specifically for the operations of the Indian branches and were supported by the statutory audit report. The assessee also submitted that bills and vouchers were available which would be produced as and when required. The Assessing Officer however observed that these expenses had not been debited to the profit and loss account but were claimed as incurred specifically for the Indian operations correctness of which could not be verified. Assessing Officer also referred to the decision of the Tribunal in case of American Express Bank Ltd. v. Dy. CIT [IT Appeal No. 7072/M/1990] in which it was held that such expenses have to be covered under section 44C. Assessing Officer therefore disallowed the expenses and observed that the necessary deduction could be claimed under section 44C. 2.1 The assessee disputed the decision of the Assessing Officer and submitted before CIT(A) that the expenditure had been incurred exclusively for running the Indian branches. It was pointed out that expatriate officers were rendering services in Indian branches and expenses were directly r....
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.... also allowed by the Tribunal in assessment years 1995-96, 1996-97 and 1998-99 (supra). The decision of the Tribunal in assessment year 1996-97 had come for consideration before the Hon'ble High Court of Mumbai in Income-tax Appeal No. 2386/2008 in which the High Court allowed the claim relating to salary to expatriate employees and other expenses were referred back to the Assessing Officer for fresh consideration. The facts in the present appeals are identical. Though the details of other expenses had been filed before Assessing Officer the same had not been examined. Therefore in our view following the judgment of Hon'ble High Court in assessment year 1996-97 (supra) the expenses relating to staff cost are allowed and other expenses are restored to the Assessing Officer for fresh order after necessary examination as to whether the same were incurred exclusively for the Indian branches. 3. The second dispute is regarding additions on account of revaluation of outstanding foreign exchange contracts. The assessee during the course of business had entered into certain forward foreign exchange contracts. As per the method of accounting being followed by the assessee, these contracts ....
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....d for exemption of income by way of dividend. It was observed by him that only the income from dividend was exempt which would mean that only the net dividend income after excluding the expenses. The Assessing Officer noted that the assessee had both borrowed and own funds which were mixed up. The assessee could not prove that own funds were used in making the investment. The Assessing Officer therefore attributed the interest expense to the tax free interest income on the average rate. It was observed by him the average rate of interest on borrowings by the assessee was at 8.45 per cent and therefore at that rate he allocated the interest to the investment at Rs. 59,15,000 in August 2000 and granted exemption only in respect of balance interest income of Rs. 7,35,004 (6650004 - 5915000) Similar disallowances were also made which were Rs. 18,34,000 in assessment year 2000-01 and Rs. 12,44,662 in assessment year 2001-02. The assessee disputed the decision of the Assessing Officer and submitted before CIT(A) that the assessee had invested Rs. 7 crores in tax free bonds on 6-3-1998. It was pointed out that as on 31-3-1998 the assessee had own capital of Rs. 49.53 crores and reserve of....
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....e to hold that gross interest will be eligible for deduction under section 10(15)(iv). As regards the applicability of section 14A to which oblique references have been made by the Assessing Officer in some of the years, we find that this aspect had been considered by the CIT(A) in assessment year 1998-99 who gave a clear finding that there were no nexus between borrowed funds and the investment. He therefore allowed the claim fully in assessment year 1998-99 and the said decision of the CIT(A) was accepted by the revenue. The interest income under consideration in these years is in respect of the same investment made in assessment year 1998-99 and therefore there being a finding that the investment in assessment year 1998-99 was out of own fund no interest expenditure can be attributed to the earning of income from the same investment in these years. This view gets support from the judgment of Hon'ble High Court of Karnataka in case of Sridev Enterprises (supra) in which the Hon'ble High Court held that nature and status of the investment on the first day of the accounting year was the same as on the last day of previous year and if in the previous year, the same was explained out....
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....ty of compensatory interest of Rs. 24,007 paid by the assessee to RBI for not maintaining the proper balances. The Assessing Officer disallowed the same as being penal in nature. In appeal the assessee submitted that the interest had been charged for shortfall in CRR maintained by the bank in August/September 1995. The assessee had therefore to pay interest which was compensatory in nature and has to be allowed. It was pointed out that under the provisions of section 43(3) of the RBI Act, penal interest of 3 per cent above the bank rate was payable on the amount by which such balance with the banks fell short of the prescribed minimum balance and if the shortfall continued in the next fortnight, the penal interest increased to 5 per cent. The Learned AR submitted though the word used was 'penal' the nature was actually compensatory. CIT(A) referred to the judgment of Hon'ble Supreme Court in case of Prakash Cotton Mills (P.) Ltd. v. CIT [1993] 201 ITR 684/67 Taxman 546 in which it was held that in order to understand the true nature of payment by way of damages/penalty, provisions of the statute have to be examined to find out whether the payment is compensatory or penal. He also r....