AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 2081
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....herefore, the same are being taken up and disposed off together by way of a consolidated order. We shall first take up the appeal of the assessee for A.Y. 2003-04. The assessee has assailed the order of the CIT(A) by raising before us the following grounds of appeal: "1. The Commissioner of Income-tax (Appeals) [hereinafter referred to as the CIT(A)] erred in restricting the allowance of Deduction u/s 44C of the Income Tax Act, 1961 ('Act') to Rs.44,70,936/- only, in connection with the disallowance of Head Office Overhead Expenses allocated to the Indian Branch of Rs.70,95,000/- by the appellant. 2. The CIT(A) erred in not appreciating the fact that the allocation of Head Office expenses to the Indian branch was based on a certificate and computation prepared by the recognized International Accounting firm Ernst & Young, Bahrain. 3. The CIT(A) ought to have allowed the Deduction u/s 44C of Rs. 70,95,000/- on the basis of the above certificate. 4. The appellant craves leave to add, alter, amend, modify or delete any of the grounds taken in appeal." 2. The 1d. Authorized Representative (for short 'A.R') for the assessee at the t....
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....No. Particulars Amount 1. Addition of interest in respect of Government securities which had accrued but was not due. Rs. 1,98,59,913/-. 2. Disallowance of interest expenditure incurred for earning of exempt income. Rs. 61,21,073/-. 3. Disallowance of deduction under Sec.44C in respect of Head Office expenses/General Administrative Expenses. Rs. 44,70,936/- 4. Disallowance of deduction under Sec.44C in respect of NRI Desks Expenses. Rs.2,13,71,243/- On appeal, the aforesaid additions/disallowances were deleted by the CIT(A). 7. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. A.R submitted that the issue pertaining to the addition of Rs. 1,98,59,913/- that was made by the A.O in respect of the interest on securities, bonds debentures and zero coupon bonds on the basis of entries in the book of account, which had though accrued but was not due on 31st March, 2003, was squarely covered in favour of the assessee by the order passed by the Tribunal in its own case for A.Y. 2002-03 viz. ADIT(IT)-3(2), Mumbai Vs. Bank of Bahrain & Kuwait, ITA No.6731/Mum/2006, dated 28.01.2011.(cop....
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....enses were concerned, the same were to be considered as per the parameters envisaged in Sec. 44C. 8. Per contra, the ld. Departmental Representative (for short 'D.R') fairly admitted that the issue pertaining to the addition of Rs. 1,98,59,913/- towards interest on securities, bonds, debentures and zero coupon bonds, which had accrued but was not due on 31st March, 2003, was squarely covered in favour of the assessee by the order of the Tribunal in the assesses own case for A.Y. 2002-03. Also, it was submitted by him that the issue as regards the allowing of the deduction under Sec.44C in respect of Head Office expenses/General Administrative expenses and NRI Desk expenses amounting to Rs.44,70,936/- and Rs.2,13,71,243/-, respectively, was also covered by the order passed by the aforesaid order of the Tribunal in the case of the assessee for A.Y. 2002-03. As regards the deletion by the CIT(A) of an addition of Rs. 61,21,073/- the ld. D.R relied on the assessment order. 9. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record and also the judicial pronouncements relied upon by....
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....n the other hand has filed copies of the order of the Mumbai "C" Bench of the Tribunal dated 23.12.2003 in ITA No.8817/Bom/92 for the A, Y. 1989-90 in the case of Union Bank of India vs. DCIT and submitted the identical issue has been decided in the case of a Bank and the should be followed by us. We have carefully perused the order of the Tribunal cited above in that case also, the issue was identical namely, whether in the case of government Securities, interest accrues only on the coupon dates and not on day to day basis in coming to this conclusion, the Tribunal placed reliance on the judgment of the Lahore High Court in Ha veil Shah Sardarilal v. CIT, Punjab (4 ITR 297) the Full Bench judgment of the Patna High Court in Ranjit Prasad Singh v. CIT Bihar & Orissa ( 4 ITC 264) and the Karnataka High Court judgment in Addl.CIT / Mysore v. The Vijaya Bank Ltd. Mangalore (1976) Tax LR 524. It was also noticed by the Tribunal that the contention advanced on behalf of the Revenue before the Tribunal in that case was totally contradictory to the contention advanced by the Revenue before the Karnataka High Court in the case of Vijaya Bank (Supra). Before the Tribunal the department had ....
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.... was incurred by the assessee for earning of exempt income. On a perusal of the orders of the lower authorities, we find that the CIT(A) taking cognizance of the fact that the assessee had sufficient interest free funds available with it which would justify the investments made in exempt income yielding assets, had thus concluded that no disallowance of the interest expenditure was called for in the hands of the assessee. We have given a thoughtful consideration to the observation of the CIT(A) in context of the issue under consideration and do not find any infirmity in the same. In our considered view, in the case the self-owned funds of the assessee are found higher than the investments made in the exempt income yielding assets, then no disallowance under Sec.14A would be called for in the hands of the assessee. Our aforesaid observation is fortified by the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom). At this stage, it would be relevant to point out that the ld. D.R had not pointed out any perversity in the observation of the CIT(A) that the assessee possessed interest free funds much higher than the amount of th....
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.... expenses of Rs.44,70,936/- claimed by the assessee was in order. 14. As regards the NRI Desk expenses, the CIT(A) observed that the allocation of the said expenses as claimed by the assessee as against that held by the TPO was as under: Sr. No. Nature of Expenses Allocated by appellant Allocated by TPO 1. Direct Staff costs 79,789 79,789 2. Travel and communication 21,102 21,102 3. Allocated staff costs incurred by OBD and various other Head Office support centers a) Office of the head of OBD 12,867 Nil b) Financial control 5,742 5,742 c) Information technology 5,180 5,180 d) Human Resources 4,764 4,764 e) Operations 4,545 4,545 f) Internal Audit 1,937 1,937 4. Allocated General and administration costs a) rent and maintenance 14,309 14,309 b) Depreciation 9,804 9,804 c) advertising 3,395 Nil d) Other 6,243 Nil Total 1,69,677 1,47,172 It was observed by the CIT(A) that insofar the issue pertaining to the allowability of the expenses which were incurred overseas exclusively for the business of the Indian branches of the asse....
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....Other 6,641 Nil Total 1,69,185 1,45,848 As regards the expenses covered under category 'C', it was observed by the Tribunal that the said allocated head office expenses were covered under Sec.44C of the Act. As regards the expenses covered under Category-'A' representing "direct staff costs" and "travel and communication expenses", it was observed by the Tribunal that as the said expenses were exclusively incurred for the Indian branch, therefore, the same were to be allowed in full. As regards the expenses covered under Category-'C' i.e allocated staff costs incurred by OBD and various other head office support centre, it was observed by the Tribunal that the said expenses were to be considered only under Sec. 44C and there was no scope in granting separate deduction as regards the same under the general provisions of the Act. However, at the time of adjudicating as hereinabove, it was observed by the Tribunal that as regards the expenses mentioned in the above table at Sr. No. 3(A) i.e allocated staff costs incurred by the OBD and various other H.O support centres, as there was no evidence as regards incurring of t....
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.... 9,804 9,804 c) advertising 3,395 Nil d) Other 6,243 Nil Total 1,69,677 1,47,172 In conformity with the view taken by the Tribunal in the case of the assessee for A.Y 2002-03, the expenses pertaining to the year towards "direct staff costs" and "travel and communication expenses" of Bahraini Dinars :79,789 and Bahraini Dinars : 21,102, respectively, had exclusively been incurred by the head office for the Indian branch, therefore, the same are allowed in full as per the general provisions of the Act. Accordingly, respectfully following the view taken by the Tribunal in the assesses own case for A.Y 2002-03 in context of the issue under consideration, we uphold the order of the CIT(A) to the said extent. 17. Next are the allocated staff costs incurred by the OBD and various other head office support centres given at Serial No. 3(a) to (f) of the table aggregating to Bahraini Dinars: 35,035 and allocated General and Administration costs mentioned at Serial No. 4(a) to (d) of the table at Bahraini Dinar: 33,751. We find that in respect of the aforesaid expenses there is a two fold controversy viz. (i) the basis of allocation of such expenses; and....
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....nses which were claimed to have been incurred by OBD towards staff costs, therefore, the same for the said reason were disallowed. It was the claim of the assessee before the CIT(A) that the expenses incurred by the OBD towards staff cost was allocated on the basis of management experience after considering the time devoted to NRI Desks and other divisions. The CIT(A) finding favour with the aforesaid claim of the assessee had concluded that the staff expenses of OBD were also required to be allocated to the NRI Desks. Accordingly, the CIT(A) observed that the TPO had incorrectly disallowed the claim of allocation of expenses of Bahraini Dinar 12,867 pertaining to the staff costs incurred by the office of the head of OBD. As regards the advertisement expenses of Bahraini Dinar 3,395 and other general administration costs of the H.O of Bahraini Dinar 6,243, the TPO observed that as the assessee had not submitted any justification as regards allocation of the same, therefore, they were not required to be allocated. Accordingly, the CIT(A) was not persuaded to subscribe to the aforesaid view of the TPO and observed, that advertisement which was brought out by the H.O also included exp....
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....on of which have not been allowed by the TPO, viz. (i). advertising expenses : Bahraini Dinar 3,395; and (ii). other expenses: Bahraini Dinar 6,243. As the assessee had failed to furnish any justification for allocation of the advertising expenses of Bahraini Dinar 3,395 and other general administration costs of Bahraini Dinar 6,243 towards the Indian branch of the assessee, therefore, the same were disallowed by the A.O/TPO. The fact that such expenses were incurred by the head office in relation to NRI Desks had however not been controverted by the TPO. In our considered view once it is established that expenses were actually incurred for the business purposes of the assessee, then there would be no need to justify the allocation of such cost. Accordingly, we are of the considered view that the aforesaid two items of allocated head office expenses are liable to be included in the overall limit of Sec.44C. The order of the CIT(A) is upheld to the said extent. 21. To sum up, the direct and exclusive NRI Desk expenses incurred by the head office ('A'), being items at Serial No. 1 & 2 of the table extracted hereinabove, are to be allowed in full as per the general provisio....
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.... adjustment of Rs. 5,266,515/- to ALP in respect of Head Office Overheads a. The CIT(A) erred in not deleting the addition of Rs. 52,66,515/- as determined by the Transfer Pricing Officer (TPO), to the total income of the appellant in respect of Head Office overheads ignoring the fact that the appellant has neither debited the Head Office overheads in its books of account nor claimed the same as expense in the return of income. b. The appellant, therefore, prays that the unwarranted adjustment of Rs. 5,266,515/- to the ALP in respect of the Head Office overheads be deleted. 3. Leave to add, alter and/or supplement grounds of appeal. The appellant craves leaves to add, alter and/or supplement any ground or grounds, if necessary, during the appellate proceedings." 24. Briefly stated, the assessee had filed its return of income for A.Y. 2008-09 on 29.09.2008, declaring a total loss of Rs. 4,86,82,039/- and 'book profit' under Sec. 115JB of Rs. 13,31,88,214/-. Subsequently, the assessee filed a revised return of income declaring a total loss of Rs. 4,86,82,039/- and a 'book loss' under Sec.115JB of Rs. 2,88,15,468/-. Thereafter, th....
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....ing that the amounts, other than the amounts spent on 'direct staff costs' and 'transfer and communication' of the NRI Desks were governed by the provisions of Sec.44C of the Act; (ii) that, the CIT(A) had failed to appreciate that the other costs were directly attributable to and connected with the business of the Indian branch and were wholly and exclusively incurred for the Indian branch, therefore, Sec.44C was not applicable; and (iii) that, the CIT(A) failed to appreciate that the entire cost including other costs, as certified by an independent firm of chartered accountants as having been incurred by the head office for and on behalf of the Indian branches of the assessee, we find that the said contentions of the assessee are squarely covered by the order passed by the Tribunal in the assesses own case for A.Y. 2002-03 i.e ADIT (IT)-3(2), Mumbai, Vs. Bank of Bahrain & Kuwait (ITA No. 6731/Mum/2006, dated 28.01.2011). As had been observed by us at length hereinabove, the Tribunal in the aforesaid case had observed that the expenses representing to "Direct Staff Costs" & "Transfer and Communication Expenses" having been incurred exclusively by the head office fo....