TaxTMI 
TaxTMI 
2018 (2) TMI 2161
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....cer noticed that the assessee has paid a sum of Rs. 99.31 lakhs as interest on funds given by the head office. The Assessing Officer proposed to disallow the same by invoking provisions of section 40(a)(i) of the Act. The assessee contended that it has deducted tax at source on such payments and also contended that interest paid by the PE (branches) to its head office is not in the nature of income in the hands of the head office as interest payment was made to self. The Assessing Officer did not accept the same and accordingly disallowed the interest expenses of Rs. 99.31 lakhs. The Learned DRP also confirmed the same by following the decision rendered by Kolkata Special Bench in the case of ABN Amro Bank. 4. The Learned AR submitted that an identical issue came to be considered by the Coordinate Benches in assessee's own case in A.Y. 2003-04 (ITA No. 248/Mum/2007 dated 7.10.2013) and also in A.Y. 2005-06 (ITA No. 8671/Mum/2010 dated 3.3.2017). The learned AR submitted that the Coordinate Benches has decided this issue in favour of the assessee by following decision rendered by the Special Bench in the case of Sumitomo Mitsui Banking Corporation (2012)(SB)(136 ITD 66)(Mum). ....
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....f Sumitomo Mitsui Banking Corporation (supra). Accordingly we set aside the order passed by the AO on this issue and direct him to delete the disallowance. 7. Ground No. 2 relates to disallowance of Rs. 62.83 lakhs relating to loss on revaluation of unmatured forward foreign exchange contracts as on 31.3.2006. 8. The Assessing Officer noticed that the assessee has claimed loss of Rs. 62.83 lakhs relating to loss on revaluation of outstanding forward foreign exchange contracts as on 31.3.2006. When questioned, the assessee submitted that it has been consistently following policy of revaluing outstanding contracts and accordingly offering profit on revaluation to tax and claiming loss on such revaluation as deduction. The Assessing Officer did not accept the same and he disallowed the same by following decision rendered by Hon'ble Madras High Court in the case of CIT Vs. Indian Overseas Bank (183 ITR 200). Before learned DRP the assessee submitted that an identical disallowance made in earlier years have been decided in favour of the assessee by the ITAT following the decision rendered in the case of Bank of Bahrain & Kuwait. Learned DRP noticed that the decision of ITAT re....
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....ision of Tribunal in assessee s own case for AY and keeping in view the principle of consistency the ground No.6 of assessee s appeal is allowed and the ground No.1&2 raised in revenue s appeal is dismissed. 11. Consistent with the view taken in earlier years by the Tribunal, we set aside the order passed by the learned CIT(A) on this issue and direct him to delete this disallowance. 12. The Next issue contested by the assessee relates to assessment of interest income of Rs. 574.20 lakhs earned by the Government of India Bonds by the assessee in its status as "FII" The AO assessed the above said interest income as part of business income of the assessee and accordingly applied higher rate of tax at 41.82%. 13. The Learned AR submitted that the head office of the assessee was registered as a "FII" and has accordingly invested in Indian market in shares and bonds by bringing funds from abroad. He submitted that the PE of the assessee (branches in India) has no connection with the above said activities of the Head office (FII). The Head office of the assessee has earned dividend income, capital gains and interest on bonds from investments so made by it. The Assessing Officer ....
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....ue decided by the Special Bench related to taxability of interest received from income-tax refund and the Special bench has held that interest on income tax refund is not effectively connected with the PE either on the basis of "asset test" or on the basis of "activity test". 15. He further submitted that the Government of India Bonds is not "assets of Permanent establishment" and hence it fails to satisfy "asset test" required for linking income to the permanent establishment. He also submitted that the PE (branches) played no role in connection with GOI bonds investments and hence the activity test also fails. Accordingly, by drawing support from the aforesaid decisions, the learned AR submitted that interest earned by the head office of the assessee as FII is not effectively connected to the PE of the assessee either on the asset test or activity test and accordingly contended that the interest income has to be assessed under Article 11 of Indo-Singapore Treaty and not as business income. 16. We heard learned Departmental Representative and perused the record. We noticed that investments have been made by the head office of the assessee in its category as "FII" by bringing....
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....1073.90 lakhs results in double disallowance to the extent of Rs.62.84 lakhs. The Ld A.R further submitted that the assessee has booked actual loss arising in foreign exchange transactions and hence it cannot be considered as Contingent in nature. He submitted that the loss was incurred during the course of carrying on business and accordingly he submitted that the same is allowable as deduction. 20. When a specific query was put to Ld A.R as to whether the assessee could furnish break-up details of loss, he submitted that the assessee may not be in a position to collate the details due to passage of time. 21. We notice that the assessee has failed to furnish the details of loss arising from exchange transactions before the AO, DRP and also before us. There should not be any doubt that the initial onus to substantiate the claim is placed upon the assessee. The ld A.R submitted that the impugned loss is actual loss incurred in exchange transactions during the course of carrying on business of the assessee. The Ld A.R may be right in his submissions, but it is the prerogative of the tax authorities to examine the submissions and claim and to take a decision thereon. It may be p....