TaxTMI 
TaxTMI 
2024 (2) TMI 101
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.... (5.1 & 5.2) Disallowance of business loss and other expenses 1,78,09,16,700 6 (6.1 & 6.2) Disallowance of proportionate claim of issue discount expenses 1,49,24,355 7 Rebate under section 88E 7,08,99,317 8 Short grant of relief under section 90 4,67,30,903 9 Charging of interest under section 234B & 234D 10 (10.1 & 10.2) Provisions of section 115JB not applicable 11 General Revenue Ground No. Item of disallowance / addition Amount - Rs. 1 & 2 Depreciation on leased assets 43,43,25,891 2 Addition of non cash write back made under section 41(4) 56,19,378 3 Club Membership Fees 1,13,85,062 4 & 5 General 3. The assessee is engaged in the business of banking and related activities. The assessee filed the return of income for AY 2007-08 on 31.10.2007 declaring the total income of Rs. 30,91,68,39,720/-. The assessee later filed a revised return of income on 14.11.2007 declaring the total income of Rs. 30,91,68,39,714 which was once again revised on 28.03.2009 declaring the total income of Rs. 31,23,71,65,697. The assessee vide letter dated 04.03.2010 ....
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....e on the decision of the Special Bench of the Mumbai Benches of the Tribunal in the case of CIT Vs Bank of Bahrain & Kuwait 132 TTJ 505 (Mum)(SB). The Ld.AR brought to our attention that based on the disallowance made in the MTM loss the assessee filed a petition under section 154 to reverse the MTM gains offered to tax and the Assessing Officer reversed the gain offered to tax. The ld AR fairly submitted that if the MTM loss is allowed as a deduction, then directions may be given to the assessing officer to bring the MTM gain reverse back to tax. 6. The Ld. DR, on the other hand, vehemently argued that the MTM loss is not the real loss incurred by the assessee, but arise out of the re-instatement of the derivatives which is notional in nature. Accordingly, the Ld. DR submitted that the lower authorities have correctly disallowed the said loss. The Ld. DR made a without prejudice submission that if the loss is to be allowed as a deduction, then the gain which was deleted by the order under section 154 should be brought back to tax. 7. We heard the parties and perused the material on record. We notice that the Special Bench of the Tribunal in the case of DCIT vs Bank of Bahrai....
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.... same to tax accordingly. DISALLOWANCE UNDER SECTION 14A 9. The assessee had earned certain exempt income and while filing the return of income, has disallowed a sum of Rs. 6.63 crores at 1% of the total dividend income earned towards administrative expenses. The Assessing Officer invoked the provisions of section 14A stating that the assessee has not discharged the onus of evidencing the source of investment is from own funds. Accordingly the assessing officer made a disallowance of Rs. 458.866 crores towards interest paid and Rs. 17.37 crores towards administration expenses after adjusting the suo moto disallowance made by the assessee. Before the CIT(A) the assessee submitted that the assessing officer has made the disallowance under Rule 8D which is not applicable for the year under consideration. The CIT(A) held that even in the year in which Rule 8D was not available disallowance can be made on a reasonable basis and accordingly upheld the disallowance stating that the Assessing Officer has made the disallowance on reasonable basis. 10. Before us, the Ld.AR submitted that the provisions of Rule 8D are applicable only prospectively from A.Y. 2008-09 and, therefore, th....
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....ong term capital gain on which STT is paid, which, in our considered view, is reasonable towards administrative expenses. Accordingly, we hold that no disallowance is warranted and the addition made by the Assessing Officer is deleted. DISALLOWANCE OF BAD DEBTS WRITTEN OFF 14. The assessee, during the year under consideration has written off a sum of Rs. 437,82,57,646/- as bad and doubtful debts. This claim was made after adjusting the credit balance of Rs. 201,49,16,575/- in the provision for bad and doubtful debts. Accordingly, the assessee claimed the net amount of Rs. 236,33,41,071/- as bad debts under section 36(1)(vii). The Assessing Officer held that only writing off of the debts as bad debt in the accounts is not enough and that the assessee is required to furnish complete information to the Assessing Officer to prove with conclusive evidence that the debts have become bad. The Assessing Officer further held that the assessee should furnish the documents, correspondence, action taken, etc. before the assessing authority to demonstrate that the facts which compelled them to reach the conclusion that the debt is irrecoverable. The assessee contended that as per the amen....
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....vailable on record. We find merit in the submissions of- the learned Authorised Representative that after amendment to section 36(1)(vii) from 1st April 1989, once the assessee writes-off the bad debt as irrecoverable in its accounts it will satisfy the condition of 'the said provisions and the assessee is no more required to establish that the debt has actually become irrecoverable. The Hon'ble Supreme Court in TRF Ltd. v/s CIT, [2010] 230 ITR 14 (SC), has expressed this view. Further, in case of Vijaya Bank Ltd. v/s CIT, [2010] 323 ITR 166 (SC), the Hon'ble Apex Court held that mere debit to the Profit & Loss account is not sufficient to claim write-off as the assessee has to simultaneously reduce the amount from loans and advances or debtors on assets side of the Balance Sheet to claim right-off. The Hon'ble Supreme Court observed, closing down individual account of each debtor in the hooks of account is not-necessary. However, the Hon'ble Supreme Court taking note of Explanation-1 to section 36(1)(vii) of the Act observed that mere provisions for bad debt will not entitle for deduction under section 36(1)(vii) of the Act. On a careful perusal of the assessme....
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....ss. The Ld.AR accordingly submitted that the loss is incurred in the regular course of business of the assessee and, therefore, should be allowed as a deduction. The Ld.AR further drew our attention to the details furnished before the Assessing Officer (pages 436 to 667 of paper book). 22. The Ld. DR, on the other hand, submitted that the assessee has not discharged the onus that the loss incurred is in the regular course of business and also the computation of reported loss is arrived at. Accordingly, the Ld. DR prayed that the issue may go back to the Assessing Officer for verification, afresh. 23. We heard the parties and perused the material on record. The breakup of the loss on sale of re-possessed assets claimed by the assessee is as given below:- Disallowance of Business Loss and other expenses 178,09,16,700 Loss on sale of repossessed assets Auto Loans 43,61,88474 Construction equipment 61,39,328 Construction durable 34,19,331 Commercial Vehicles 61,03,76,060 Farm Equipment 38,07,55,377 Two wheeler 25,86,53,352 Car overdraft 7,25,19,187 Sub total-loss on sale of repossessed assets 1,76,80,51,109 Oth....
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.... the directions of the ITAT. 27. We heard the parties and perused he materials on record. We notice that the co-ordinate bench in assessee's own case for A.Y. 2002-03 had considered the similar issue and has issued a direction to spread the expenditure over the tenure of the bond. The relevant finding of the Tribunal in this regard is extracted below:- "22. We have heard the rival contentions of the parties and perused the material available on record. As far as the nature of expenditure it of bonds / debenture and issue expenses are concerned, dispute that such expenditure is revenue in nature. In fact, in case o Madras Industrial Corp. (supra), the Hon'ble Supreme Court expenditure incurred on issue and discount of bond / debenture are revenue in nature as the liability incurred by the assessee is wholly and exclusively for the purpose of business, However, at the same time, the Hon'ble Supreme Court held that since by incurring such expenditure the assessee secures a benefit for a number of years and there is continuing benefit to the business of the assessee over the entire period of bond / debenture, the liability should be spread over the period of bond / ....
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....t of the findings of the Assessing Officer. Accordingly, the CIT(A) did not consider the claim of the assessee. 30. The Ld.AR submitted that the claim is submitted before the Assessing Officer vide letter dated 26/11/2010 in form 10BB and 10DC which have not been considered by the Assessing Officer. The Ld.AR also submitted that in the subsequent years, when the claim was made in the return of income, the Assessing Officer has allowed the said claim. 31. The Ld. DR, on the other hand, submitted that the claim which is not made by the assessee in the return of income cannot be entertained. 32. We heard the parties and perused the material on record. From the submissions of the Ld.AR it is noticed that the assessee has been allowed the rebate under section 88E in the subsequent assessment years, i.e. A.Ys 2006-07 and 2008-09 when the same is claimed in the return of income by the assessee. We, therefore, direct the Assessing Officer to consider the submissions made by the assessee in this regard vide letter dated 26/11/2010 and allow the claim in accordance with law. Needless to say that the assessee be given a reasonable opportunity of being heard. It is ordered accordingly....
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....sessee towards expenditure disallowable under section 14A of the Act. Admittedly, the assessee has not challenged the aforesaid decision of the learned Commissioner (Appeals). Learned Departmental Representative has also not . .advanced any substantive argument to defer from the view expressed by the learned Commissioner (Appeals). In any case of the matter, as per the decision of. the Co-ordinate Bench in Krung Thai Bank v/s JDIT, 45 DTR 218, and subsequent decisions of different Benches of the Tribunal, , provisions of section 115JB AND 115J Act are not applicable to banking companies, In view of the .aforesaid, we do not find any reason to interfere With, the order .of the learned Commissioner (Appeals) on this issue. Accordingly we uphold the order of the learned Commissioner (Appeals) by dismissing-the ground no.11 raised by the Revenue." 39. Respectfully following the above decision of the coordinate bench we hold that provisions of section 115JB is not applicable to assessee and allow the ground. TRANSFER PRICING ISSUE Adjustment towards margin under charged on Back officer support services 40. The Assessing Officer made a reference under section 92CA(1) to the T....
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....), on further appeal rejected the various contentions of the assessee with regard to the comparables and upheld the adjustment made towards back office support services. With regard to the adjustment towards recovery of expenses, the CIT(A) held that the expenses needed for monitoring activities of AE is required to be benchmarked and, therefore, upheld the adjustment made by the TPO. 43. The Ld. AR during the course of hearing submitted that out of the 24 comparables included by the TPO, the assessee is not contended the inclusion of companies in Sl. No. 2,3,4,5,7,9, 11,15 & 17. The Ld. AR submitted that most of the other comparables included by the TPO are functionally different from that of the assessee and that certain comparables are failing the TPO's filter. In this regard, the ld. AR drew our attention to the details of the filters applied by the TPO as tabulated below to submit that some of the comparables included by the TPO fails filters applied by the TPO himself - 1 Companies whose data is not available for the FY 2006-07 are excluded Para 8 page 2 of the TPO order 2 Companies whose ITES income<Rs. 1crore are excluded Para 8 page 2 of the TPO order ....
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....nstance, for retailers, using our own people, processes and technologies, we capture and analyze millions of prices each week, enabling our clients to optimize the revenue on their catalogue of products, most profitably. We study over 10 million customer web transactions every quarter to identify embedded buying patterns so our clients can bundle their products most effectively." Net cost plus margin amounting to 90.23%, is unusually high in comparison to other companies selected by the TPO. 5 Genesys International Corporation Ld. Fails TPO filter no. 8 as company is functionally different 10 as company providing geographical information services P compromising photogrammetry, remote sensing, cartography, data conversion, related computer based services and other related services. 6 HCL Comnet Systems & Services Ltd. Fails TPO filter no. 7 as company has prepared financial S statements ended June 30, 2007. 7 ICRA Techno Analyties Ld. Fails TPO filter no. 8 as company is functionally different as company providing software development services, we development and hosting services and sub license 8 Infosys BPO Ltd. In Bombay HC-Pentair Water Ind....
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....ITES income of Rs. 939.1 crore is 14.75% of total operating revenue of Rs. 13,683.9 crore In Bombay HC-Pentair Water India P. Ltd. company was excluded on the basis of high turnover (Rs. 939.78 crore against Rs 11 crore) 45. The Ld. DR on the other hand relied on the order of the TPO. 46. We have heard the parties and perused the material on record. The major reason as submitted by the ld. AR for seeking exclusion of the comparables is that the functions of the comparables are different from that of the assessee-company, Therefore, before proceeding further, we will look at the functions performed by the assessee as per the Transfer Pricing Report. Treasury Support: • Processing of treasury-related transactions • Ensuring accounting of deals after deal validation and manual entries are posted where system support is not available • Validation of deals, confirmation and settlement of deals • Verification of transactions entered with the documents, sending deal confirmations to counter parties, settlement of deals • Settlement-related activities • Preparation of reports and MIS, follow up with c....
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....3% of total activity 47. From the above it is clear that the functions of the assessee is rendering back officer support services to AE in the field of Treasury, account opening, maintenance and related activities and technology support in terms of website maintenance, customer information and risk management. It is also relevant to mention here that the revenue of the assessee generated from rendering these services is Rs. 6,03,38,090 which includes the mark up of 10%. Given this we will now considered each of the comparables for the purpose of exclusion/inclusion in the ensuing paragraphs. Accentia Technologies Ltd. The Ld. AR submitted that the company is functionally different and is providing medical transcription, coding and software development. In this regard, we noticed that in the statement of accounts of the company, the income from operations (schedule-O page 716 of the PB) mainly consists of medical transcription, coding and software development. We also noticed that income from medical transcription is more than 50% of the revenue, therefore, we see merit in the submission of ld. AR that the company is not functionally comparable with the assessee....
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....ed with assessee which is rendering captive back office services to its AE. It is also relevant to notice here that in various decisions of the Co-ordinate Bench of the Tribunal, the inclusion of the said company has been rejected on the ground that the company is providing KPO services and therefore there is merit in the argument that the company which is rendering KPO services cannot be compared with the assessee. Accordingly, we direct the TPO to exclude Eclerx Services Ltd. from the list of comparables. Genesys International Corporation Ltd. The exclusion of this company is contended for the reason that the company is functionally different wherein the company is providing geographical information services comprising photogrammetry remote sensing data conversion and related computer based services. In this regard our attention was drawn to the annual report of the company where the business profile of the company is stated (page 1088 of PB schedule-M). Therefore, in our considered view there is merit in the contention of the assessee that the company is not functionally comparable to the assessee which is a back office service provider to its AE in various ban....
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.... its AE which is different from the nature of services rendered by the company. Accordingly on the basis of functional comparability we hold that ICRA Techno Analytic Ltd. be excluded. Infosys BPO Ltd. The exclusion of the company is contended for the reason that the company is deriving very high turnover from its operations and therefore, the same cannot be compared with the assessee company. In this regard, we noticed that the turnover of the company is Rs. 649.56 crores which is significantly higher when compared to the turnover of the assessee derived from rendering back officer support services. In our considered view when the operations of the company is much larger than that of the assessee, the assets employed and the risk undertaken would also be different and therefore, there cannot be any comparison between the company having a significantly higher turnover and the company with the lower turnover. We notice from the filters applied by the TPO that the filter for lower turnover of Rs. 1 crore has been applied whereas there is no filter on upper turnover. It is settled position that while the turnover filter upper limit of the turnover filter should also ....
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.... Morgan Stanley Advantage Services Pvt. Ltd. (supra) based on functionality, therefore, in our considered view the company which is into plastic and IT (KPO) Services is not functionally comparable with that of the assessee and accordingly we hold that Mold-Tek Technologies Ltd. should be excluded from the list of comparables. R Systems International Ltd. The ld. AR argued that the company is engaged mainly in sale of software products and rendering software development services. The ld. AR further argued that the income from ITES in the case of the company is only 14.75% and accordingly fails to filter applied by the TPO stating ITES revenue is less than 75% of total revenue. In this regard, we perused the financials of the company wherein we noticed that out of the total revenue of Rs. 117.54 crores is derived from sale of software products and rendering software development services. Therefore, we see merit in the submission of ld. AR that functions of the company cannot be compared with that of the assessee which is engaged in providing back office support services to its AE. Therefore, in our considered view based on functionality the company is not comparabl....
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....ounts of this company have been perused where the data entry charges and vendor payments have been specified at approximately 64.68 per cent of the total cost. This itself shows that this company is getting things done through outside vendor and is not carrying on work by employing its own human resources where as in case of the assessee, it carries on its business through its own employees for whom during the year it has incurred cost of almost 59 per cent of the total cost. The order of the co-ordinate bench in assessee's own case for the assessment year 2006 - 07 has also been perused wherein the co-ordinate bench has directed for exclusion of this comparable holding that the outsourcing model has its impact on the overall profitability of the company and therefore the business model of the comparable company is different than the assessee and hence it is required to be excluded. In view of this there is no reason to deviate from the order of the co-ordinate bench in assessee's own case for earlier years. Further, the Delhi High Court had also an occasion to consider the exclusion of Vishal information technologies Ltd. in Rampgreen Solutions (P.) Ltd. v. CIT [2015] 377 ....
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....,85,423 B Legal expenses 55,14,827 C Internal audit expenses 73,44,177 D IT expenses 5,35,417 Total 1,51,79,844 50. The assessee further submitted before the TPO that these cost / costs are necessary for the purpose of exercising control over AE and, therefore, the same is recovered on a cost to cost basis from the AE. The TPO, however, did not accept the submissions of the assessee and held that these are in the nature of business support services for which the assessee is required to charge a margin since benefit is derived by the AE. The TPO did a benchmarking by selecting the following comparables to arrive at the arithmetic mean margin:- Name of the company Operating profits on operating costs (%) Financial Year 2006-07) Capital Trust -6.71 Crisil Limited 21.41 Cyber Media events Limited 10.64 Educational Consultants (India) Limited 10.64 ICRA Management Consulting Services Ltd 15.23 IDC (India) Limited 15.33 NTPC Electric Supply Co.Ltd. 16.78 Arithmetic mean 11.59 51. Accordingly, the TPO made a TP adjustment as per below working:- Amount - Rs. A ....
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....record. We noticed that the Co-ordinate Bench in assessee's own case for AY 2004-05 and 2005-06 (ITA No. 5276/Mum/2013 and ITA No. 6217/Mum/2008 dated 03.11.2017) has considered the similar issue and has held that .............. "17. We have heard rival contentions and perused the material available on record. Learned Counsels appearing for both the parties have agreed before us that the issue is covered in favour of the assessee by the decision of the Tribunal in assessee's own case for preceding assessment year as submitted in the paper book. As could be seen from the material on record, in the impugned assessment year, there is no new lease transaction. The assessee has claimed depreciation on its own fixed assets and depreciation claimed on leased assets were continuing from past lease transactions. Notably, in assessment year 1997-98, the Tribunal while deciding the issue in ITA no.5424/Mum./2001, dated 13^th July 2016, had allowed assessee's claim of depreciation. The same view was reiterated by the Tribunal while deciding the cross appeals for assessment year 2000-01 in ITA no.4657/Mum./2004 and ITA no.4826/Mum./2004 dated 31^st January 2017. In view of the aforesai....
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....ord. Learned Counsels appearing for both the parties have agreed before us that the issue is covered by the decision of the Tribunal in the preceding assessment years. Notably, in assessment year 2000-01, the Tribunal while deciding identical issue in ITA no.4657/Mum./2004 and ITA no.4826/Mum./2004, dated 31^st January 2017, has restored the matter back to the file of the Assessing Officer for considering afresh. In fact, in assessment year 2002-03 also in assessee's own case, the Tribunal while deciding identical issue in ITA no.836/Mum./2008 and ITA no.392/Mum./2008 dated 7th July 2017, has restored the issue to the Assessing Officer for considering afresh keeping in view the directions of the Tribunal in the preceding assessment year. Therefore, consistent with the view expressed by the Tribunal in the preceding assessment year as referred to above, we restore the issue to the file of the Assessing Officer for considering afresh with similar direction and only after reasonable opportunity of being heard to the assessee. Ground no.4, raised by the Revenue is allowed for statistical purposes." 63. Respectfully following the above decision of the Tribunal, the issue is restored ....