TaxTMI 
TaxTMI 
2018 (8) TMI 1916
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....t grievance in assessee's appeal relates to disallowance under Section 14A of the Act. The first grievance of Revenue is also relates to the action of the CIT(A) for reducing the disallowance made under Section 14A of the Act. We found that the issue is covered by the decision of the Tribunal in assessee's own case for A.Y. 2004-05 in ITA No. 5977/Mum/2011 dated 26.07.2017 as well the order of the Tribunal for A.Y. 2007-08 in ITA No. 2966/Mum/2014 dated 13.07.2016 wherein the Tribunal held as under: - "20. The next issue in this appeal of assessee is against the order of CIT(A) in confirming the disallowance of expenditure relatable to exempt income under section 14A of the Act. For this assessee has raised following ground No. 5.1 to 5.3: - 5.1 The CIT (A) erred in confirming the disallowance u/s 14A on an estimated basis at 0.5% of average investments yielding tax free income without appreciating the fact that the appellant had not incurred any expenditure to earn the said income. 5.2 The CIT (A) ought to have noted no disallowance on estimated basis could be done under section 14A .Reliance is placed on the decision of Hon'ble ITAT Delhi in the cas....
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....wance of expenditure u/s 14A in respect of earning of dividend income and tax free interest. The Coordinate Bench of this Tribunal in the case of DCIT Vs. HDFC Bank Ltd. (supra) in para 7.1 and 7.2 has considered an identical issue as under:- 7.1 In the case in hand, the CIT(A) considered the facts and pointed out that the assessee is maintaining the treasury department which looks after the day to day investment portfolio of the bank including tax free investments. Having regard to the said factual proposition, the administrative expenses relatable to the income not forming part of the total income can be attributable to the expenditure of special treasury department maintained by the assessee; but it seems the assessee has not filed the exact detail of the operating expenses and therefore, no option was left but to estimate the disallowance. 7.2 Even otherwise, the overall administration of the bank looks after all the department including the treasury department; therefore, in the absence of the exact expenditure incurred in relation to the activity relating to tax free investment and earning the income not forming part of the total income, in our considered op....
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....e continuation of banking business in U.K. and therefore is allowable in full. Reliance is placed on the decision of Apex Court in CIT V Udaypur Distillery Co. Ltd. 314 ITR 181. 2.3 The CIT (A) ought not to concluded that the appellant hank was a party to the fraud committed by BCCJ against its creditors and hence the payment of compensation did not arise in the course of carrying on its banking business over-looking the fact that the order of court is in connection with a civil proceeding against the appellant and the payment was only a compensation as by the court order itself. 2.4 Without prejudice to the above, the CIT(A) ought to have allowed in any case the interest paid amounting to Rs. 173.65 lacs and legal charges amounting to Rs. 17.19 Lacs being / expenses incurred for delayed payment of compensation and for defending the suit filed against the appellant." 7. Briefly stated facts are that the AO disallowed the payment made to liquidator's Bank of Credit and Commerce International SA and Bank of Credit and Consumers International (overseas Ltd.) amounting to Rs. 364,64,32,957/- and also legal charges paid for defending suit filed by the liquidat....
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....ensation for that. 16. The A.O. has also disallowed the claim of the assessee on the basis that expenditure does not pertain to the year under consideration, which has also been disputed by the assessee. But once it has been held that it is relating to a fraud, the relevant year will not make any difference. But in any case if at any sage it is found as allowable business expenditure then it can be considered under the year under consideration in view of the decision of Saurashtra Cement and Chemical Industries Ltd. vs. CIT 213 ITR 523 (Gui) and Toyo Engg. India Ltd. vs. JCIT 100 TTJ 373, ITAT, Mumbai, both the judgments are relied upon by the assessee. To this limited extent the ground of appeal of the assessee is treated as allowed for statistical purposes. 17. Another ground on which disallowance has been made is that it relates to a foreign branch, the income of which is not includable in the income of the assessee in view of section 90 and the DTAA. Whereas the assessee has claimed that the more beneficial provisions between DTAA and I.T. Act will apply to the assessee. The ground is academic only because the claim has already been rejected as relating to a f....
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.... further explained that the AO disallowed the above sum on the ground that it does not relate to the current assessment year since the transactions took place during financial years 1981 to 1986. He submitted that the liability to pay has crystallized arose and became payable only in the current year based on the orders of High Court of Justice, Chancery Division, Companies Court, UK dated 19/03/2004 and 26/03/2004 and therefore cannot be disallowed for the current assessment year. He placed reliance on the decisions in support of its contention of Hon'ble Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd Vs CIT 213 ITR 177 523 (Guj) and ITAT Mumbai Tribunal in the case of Toyo Engineering India Limited Vs JCIT 100 TTJ 373 (ITAT Mum). 8. He further argued that another reason given by the AO for disallowance of the above amount is that it is expenses incurred for fraud and not a normal business expenses. He explained that assessee is engaged in the business of the banking and as per the Banking Regulation Act, one of the main objects of a banking company is to accept deposits from various depositors and lend money to various borrowers. He cited....
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.... of loans and advances granted by them in normal course of banking due to fraudulent practices followed by the borrowers, and not utilizing loans for the purpose for which it was sanctioned, large scale diversion of bank loans for personnel use, not having sufficient stock or other securities and utilizing the bank funds for speculative purposes, as a result of which the banks are unable to realize their dues in full. In such circumstances the banks usually write off such debts either as bad debts or trading loss and no questions are raised about the misuse of the banks funds by the borrowers and the losses are allowed in full even though the borrowers had cheated or defrauded the banks in such cases resulting in criminal proceedings against the borrowers. 9. On the other hand before us, the learned Sr. DR argued that on the issue of fraudulent transactions Hon'ble High Court justice Chancellery Division the Commence Court London has recorded this fact that how BCCI and these parties collided and the relevant portion of the judgments reads as under:- '"This application is concerned with six transactions involving the Bank of India (BOI and BCCI which took plac....
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.... group as a whole) was undoubtedly fraudulent and this is now common ground between the parties to this application. The second allegation is that BOI, by entering into these six transactions under review, knowingly participated in the carrying on of the business of BCCI SA and BCCI Overseas with intent to defraud the creditors of those companies or for a fraudulent purpose. If this allegation (which is denied) is made out, then I have jurisdiction u/s. 213 of the Insolvency Act 1986 to order BOI to pay compensation to the liquidators for the losses to creditors which have been sustained." 10. We have gone through the argument of both the sides and noted that the transactions of the London Branch of the assessee were perfectly legal and no losses were incurred on such transactions. However the assessee was called upon to pay compensation to the liquidators of BCCI for the losses sustained by creditors and bank in respect of the transactions of BCCI for which the assessee was not a party at all. However as the compensation regarding contribution to liquidator under UIC insolvency Act was made to fulfil its statutory liability consequent on the decision of judicial authoriti....
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....Court in CIT vs. Piara Singh AIR 1980 SC 1271 which was a case of an assessee carrying on smuggling activity and this Court held that the loss arising out of confiscation of currency notes must be allowed as a business loss. In the order of the Tribunal dated 14.10.1998 there is a finding of fact in paragraph 8 to the effect that the heroin forms part of the stock in trade of the assessee. In view of this finding, the Tribunal allowed the assessee's claim of deducting the loss of 5 kg. of heroin whose value was assessed by the Tribunal at Rs. 2 lacs as a business loss. We fully agree with the view taken by the Tribunal. The High Court, however, in paragraph 10 of its judgment observed: "The assessee in this case was engaged in profession of doctor. He had nothing to do with the contraband article Heroin for carrying on his profession. It is an admitted fact that possession of Heroin is an offence under NDPS Act. In this view, the rigour of explanation to Section 37 was fully satisfied and hence the question claiming any deduction for the value of seized article did not arise nor was an assessee entitled to claim any such deduction who was bou....
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....nst the assessee which was reduced substantially in the appeal. 12. In view of the above facts of the case, we are of the view that the compensation paid in term of judgment of Hon'ble High Court of Justice Chanclry Division, Companies Court, London is allowable deduction in view of the commercial expediency. Respectfully following Hon'ble Supreme Court, we allow the claim of assessee. This issue of assessee's appeal is allowed." 7. As the facts and circumstances during the year under consideration are same, respectfully following the order of the Tribunal we do not find any justification for disallowing payment to liquidator of BCCI. The AO is directed to delete the same. 8. Next grievance of assessee relates to disallowance of lease premium paid. The learned counsel for the assessee fairly conceded that the issue is decided against the assessee by the Tribunal in assessee's own case for A.Y. 2004-05 in ITA No. 5977/Mum/2011 dated 26.07.2017 and also in A.Y. 2007-08 vide order dated 13.07.2016. Respectfully following the order of the Tribunal we do not find any infirmity in the order of the CIT(A) for disallowance of premium paid. 9. Similarly, disallowance of pr....
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.... claim was allowed by me in the case of the assessee for A.Y. 04-05. In the year under consideration also, not only that the assessee was the principal trustee but the Asset Management Co. which managed the Mutual Fund merged with the assessee and, therefore, the payment made by the assessee definitely pertains to the business of the assessee. It is not only that the assessee is the principal trustee or the Asset Management Co. managing Mutual Fund merged with the assessee but the payments have also been made on the directions of RBI and SEBI which are therefore in the course of the business of the assessee. The loss suffered by the assessee is not that of capital nature also. Hence, the claim of the assessee is allowed and the ground of appeal is allowed." 14. The learned A.R. placed on record order of the Hon'ble Karnataka High Court in the case of Canara Bank 2014-TIOL-110-HC-KAR-IT, wherein exactly similar issue was decided in favour of the assessee. 15. We have heard the rival contentions and carefully gone through the orders of the Authorities below as well as the order of the Hon'ble Karnataka High Court in the case of Canara Bank (supra). We find that as per t....
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....lowance of loss on account of amount written off. 20. Ground No. 5 relates to exclusion of income of foreign branches. 21. The learned A.R. placed on record order of the Tribunal in assessee's own case for A.Y. 2004-05 wherein this issue was decided in favour of the assessee. 22. Rival contentions have been heard and record perused. The facts of the case are that assessee has its branches located in foreign countries and accordingly the branches are tax residence of those countries and taxes are paid by them as per the laws of the respective countries. These countries are of two types, viz., one with which India has DTAA and the other with which India has no DTAA. In case of countries with which India has DTAA assessee has claimed exclusion of income of the concerned branch from the total income of the assessee claiming that taxes have already been paid on such income as per the provisions of the respective countries and as per DTAA such income is not allowed to be doubly taxed again in the hands of the assessee in India. The -said claim of the assessee has not been accepted by the A.O. with regard to the branches located in Hong Kong, Paris, USA and UK. Whereas the assess....
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....in favour of the assessee by Supreme Court of India in CIT Vs PV.AL.Kulandagan Chettiar, reported in 267 ITR 654 which upheld the decision of ITAT Chennai in the case of PV.AL.Kulandagan Chettiar Vs ITO (3 ITD 426). The ITAT had held that "So the argument that the agreement must be so interpreted as to retain the taxation powers with the Government of India in order to prevent fiscal evasion has only to be rejected. The agreement is mainly for avoidance of double taxation. That means the income shall not be taxed at the same time in both the countries in India and Malaysia. So, if we interpret the agreement to mean that the Indian Government and the Malaysian Government both still retain even after the execution of the agreement the power to tax at the same time the same income it will only frustrate the object with which the agreement is executed". The ITAT had therefore concluded, "As regards business profits paragraph I of Article 7 provides that the profits of an enterprise of a contracting state shall be taxable only in that contracting state. We will take it that the assessee being a resident of India, the enterprise is an Indian enterprise. So the Profits are taxable in Indi....
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.... observing in Para 4 as under: - "4. With the assistance of Mr. Suresh Kumar and Sanjiv Shah, we have perused the memo of Appeal. The Assessing Officer was satisfied that the benefit of the Double Taxation Avoidance Agreement is admissible provided the proof is produced in relation to payment of taxes by the Assessee abroad. In other words, if the Assessee has permanent establishment abroad, then, the Assessee would have to produce evidence regarding payment of taxes pertaining to the income of these establishments abroad. On production of such evidence, the Assessee would be entitled to the benefit. That evidence was always available and as noted by the Commissioner of Income Tax (Appeals) and the Tribunal. In the circumstances, the authorities did nothing but follow their earlier orders based on identical facts and circumstances. The finding of fact, therefore, cannot be termed as perverse or vitiated by any error of law apparent on the face of the record. The Appeal does not raise any substantial question of law. It is devoid of merits and is, accordingly, dismissed. No costs." 27. As the issue is squarely covered in favour of assessee in assessee's own case, r....
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....3-04 as follows:- "Decision" 29. I agree with the submissions of the A.R. that interest on Government securities do not arise on day-to-day basis but only on specified dates. Hence the income of the assessee has not accrued on the closing date of the assessment year. Therefore, the appellant has rightly excluded the interest income on Government securities from the total income of the assessee. Reliance is placed on the decision of ITAT, Mumbai, in the case of Union Bank of India in ITA No.5347/Mum/2007 dated 31/10/2007. SLP filed by the Department has been rejected. Accordingly, I direct the A. O. to allow the claim of the appellant and delete the addition of Rs. 457,86,49,040/. This ground of appeal is allowed. " Therefore, respectfully following the decision of Hon'ble ITAT and that of my predecessor, the ground of appeal is allowed." 28. It is clear from the above order of the CIT(A) that he has followed the order of the Tribunal on this issue. We have also carefully gone through the order of the Tribunal in assessee's own case for A.Y. 2008-09 and A.Y. 2009-10 dated 08.11.2013 wherein the issue has been dealt with at pages 1 and 2. The learned....
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.... the last accounting day should be allowed as a deduction. The first appellate authority further observed that this argument of the assessee was accepted in the assessment years 1992-93 to 1995-96, We agree with the line of reasoning given by the first appellate authority. As long as the securities in question constitute stock in trade, the loss incurred by the assessee due to valuation of securities on the last day of the accounting period should be allowed as a deduction. In the result we uphold the order of the CIT(A) and dismiss the first ground taken by the Revenue." 51. Therefore, in view of the above mentioned decisions of Hon'ble Supreme Court, High Court and that of Hon'ble ITAT the issue is squarely covered in favour of the assessee because the securities under consideration constitute the stock-in-trade in the year under consideration also and the same have been valued as per cost or market price whichever is lower and this method is consistently followed by the assessee. Hence the disallowance made by the A.O. is deleted and the ground of appeal of the assessee is allowed." 33. We have carefully gone through the orders of the Authorities below and fi....