AI Drafter 
TaxTMI 
TaxTMI 
2020 (9) TMI 666
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....ranches in India and head office is based at Muscat. During assessment proceedings, assessing officer observed that assessee has credited an amount of Rs. 14,35,542/- as interest received from the head office in its profit and loss account but in the computation of income filed along with the return of income, it has reduced the above said interest income from the taxable income stating that the same is not taxable as it is received from head office (self). Assessing officer also observed that similar issue was involved in the earlier years also and he observed that the transaction is covered within the provisions of section 9 of the Act and the transaction between head office and branch is covered under Section 5 of the Act. Accordingly, he brought the above interest received from head office as taxable income of the assessee. Further, he observed that assessee has debited an amount of Rs. 1,64,68,864/- on account of interest paid to the Head Office. However in the computation of income, the assessee has added back to the total income stating that the same is not claimed a deduction in view of the fact it is a payment to self and hence no expenses incurred on amount of payment to ....
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....urred by head office staff who are visiting India and the certification fees was paid to auditors for issuance of certificate of expense incurred by Head Office. All these expenses were incurred specifically for Indian branches, these are outside the purview to Section 44C of the Act and are allowable Deduction under Section 37 of the Act. AO rejected the contention of the assessee and made the disallowance of Rs. 45,164/-. 6. Aggrieved with the above order, assessee preferred an appeal before Ld CIT(A). Before CIT(A), assessee made a detailed submission that all the above additions made were similar to the earlier assessment years and the coordinate benches of ITAT decided the above issues in favour of the assessee and filed the relevant decisions before him and also made a detailed submission relying on various decisions of the Supreme Court and jurisdictional High Court. The assessee submitted that no doubt ITAT gave the decision in favour of the assessee that the income earned from head office i.e., self and interest paid to head office also self is not chargeable to tax. However, revenue submitted before ITAT that when the income is not chargeable to tax, the provision of s....
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....eduction. It was also pointed out that the DRT in its direction has also directed AO to verify that The assessee itself made disallowance in the return of income filed. The ld.AR referred the assessment order and submitted that the AO while computing the income has mac/c addition/disallowance of the said amount. 9. In this regard, we direct the AO that while giving effect to this order he will comply with the directions of DRP and not make further disallowance if the assessee itself had made the said disallowance while computing its income under the Act ". The AO is directed to follow the above observations of the Hon'ble ITAT in this year also, as the facts of the case in two years are identical. b. Ld CIT(A) confirmed that when the income of the assessee is not taxable, the provision of section 14A is applicable for expenditure incurred on income not part of taxable income. For the sake of clarity, Ld CIT(A) has relied on the decision of coordinate bench, which is reproduced below: 23. After considering the rival submissions and perusing the relevant 'material available on record, h is observed that a similar additional ground was raise....
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....e of bank charges for maintaining the accounts with banks outside India. These charges were recovered directly by way of debits to the concerned accounts of the assessee with these banks and the same represented business income of those banks which accrued/arisen outside India. As held by the Tribunal, no tax therefore was required to be deducted at source from the transaction charges paid on Nostro account and the disallowance made by the A.0 u/s. 40(a)(t) of the act was not sustainable. Respectfully, following the orders of the Tribunal on the similar issue involved in earlier years, we uphold the impugned order of the Id. CIT(A) deleting the disallowance made by the AO on account of transaction charges u/s. 40(a)(i) of the Act and dismiss ground No. 3 of Revenue's appeal". ii. In view of the above observations of the Hon'ble HAT, the facts being identical, the disallowance u/s. 40(a)(i) made by the AO is directed to be deleted." iii. Since the grounds raised, observations of the AO and submissions of the appellant are identical to A.Y.2008-09, the AO is directed to follow the above directions in this year also and delete the additions made. ....
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.... - being income to self and thus holding that the principle of mutuality as provided under the Act is applicable in respect of such income ? Without prejudice to ground no. 1), if it is held that interest received by Head Office is not taxable as income of branch, provision of section 14A is applicable for expenditure incurred on income not part of taxable income. 2). Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was correct in deleting the disallowance made on account of transaction charges of Rs. 4,07,474/- due to violation made u/ s. 40(a)(i) without appreciating the law as per section 195 of the I. T. Act, 1961, taxes are to be deducted on any sum payable outside India. 3). Whether on the facts and in the circumstances of the case and in law, the id. CIT(A) was correct in holding that section 44C is not applicable and these expenses are allowable u/ s. 37(1) of the I.T. Act, without appreciating the fact that the travelling expenses are incurred on travelling of Head Office personnel, who have travelled to various Indian Branches and they are not employees of Indian Branch." 4). The appellant craves leav....
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....covered against the assessee in assessee's own case passed by ITAT, Mumbai. 12. With regard to ground No. 2, he submitted that the disallowance of interest should be made only with reference to net interest expenditure incurred i.e., interest paid on borrowings minus taxable interest earned during the financial year. During the financial year 2006-07, the assessee has earned interest income of Rs. 16,33,86,000/- and incurred interest expenditure of Rs. 12,79,38,000/-. Since there is net interest income earned by the Bank for the year under consideration, no disallowance of interest expenditure should be made u/s 14A of the Act. He also submitted that out of the total interest income credited to P&L account, interest income of Rs. 14,35,542/- pertains to interest received from Head Office/overseas branches which has been held as not taxable in India. Out of total interest expenditure debited to P&L account, interest of Rs. 164,68,864/- is paid to Head office/overseas branches and was not claimed as deduction while computing total income. He submitted that only Net interest expenditure to be considered for disallowance u/s 14A by relying on the following cases: 1. Pr. CIT....
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....we dismissed the appeal of the revenue, CO also dismissed. 17. With regard to ground no 1 raised by the assessee also decided by Ld CIT(A) relying on the decisions of the coordinate banches and accordingly, this ground also dismissed. 18. With regard to ground no 2, Ld AR submitted that disallowance u/s 14A is attracted only when assessee incurs any expenditure for earning the income which is not forming part of total income. He also submitted that in this AY, assessee has not incurred any interest expenditure since assessee has earned the net interest income after setting off the interest expenditure paid to Head office. He brought to our notice case law which says that only net income should be considered for disallowance u/s 14A and futher brought to our notice case law which estimates the disallowance to 1% or 2%. We notice that in the earlier AY, the issue was remitted back to AO for quantification and it was not brought on record the consequential order passed by AO in those years. After considering the submissions, in our considered view, since the interest income earned by assessee dealing with HO i.e., self, the coordinate benches has already adjudicated that this in....