DDIT (IT) 4(2), MUMBAI V. OMAN INTERNATIONAL BANK SAOG, MUMBAI

CO 230/MUM/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 9165 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2006-2007
• Appeal Filed On: 01-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEERJA PRADHAN
• Assessee Lawyers: P J PARDIWALA; NEERAJ SHETH
• Keywords: Business income; Depreciation; Opportunity of being heard; Unabsorbed depreciation
• Section: 143(3); 244A; 14A; 37(1); 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND N.K.BILLAIYA (AM ) . . , . . , ./I.T.A.NO.6800/MUM/2010 ( / ASSESSMENT YEAR: 2006-07) OMAN INTERNATIONAL BANK SAOG, 201, RAHEJA CENTRE, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI-400021 / VS. DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) RANGE 4(2), SCINDIA HOUSE, N.M.MARG, MUMBAI-400020. ./ ./PAN/GIR NO. : AAACO0440M ( ' / APPELLANT) .. ( ( ' / RESPONDENT) CROSS-OBJECTION NO.230/MUM/2013 IN ./I.T.A.NO.6800/MUM/2010 ( / ASSESSMENT YEAR:2006-07) DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)RANGE 4(2), SCINDIA HOUSE, N.M.MARG, MUMBAI-400020 / VS. OMAN INTERNATIONAL BANK SAOG, 201, RAHEJA CENTRE, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI-400021 ./ ./PAN/GIR NO. : AAACO0440M ( ' / APPELLANT) .. ( ( ' / RESPONDENT) ' / ASSESSEE BY : SHRI P.J.PARDIWALA & NEERAJ SHETH ( ' * /REVENUE BY S MT.NEERJA PRADHAN * - / DATE OF HEARING : 26.11.2013 * - /DATE OF PRONOUNCEMENT : 27.12.2013 / O R D E R PER B.R.MITTAL, JM THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2006-07 AGAINST ORDER OF ASSESSING OFFICER PASSED UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT, 1961 (THE ACT) DATED 27.7.2010. I.T.A.NO.6800/MUM/2010 CROSS-OBJECTION NO.230/MUM/2013 2 2. IN GROUND NOS.1 AND 2 OF THE APPEAL, THE ISSUE RELATES TO RECEIPT OF INTEREST OF RS.24,14,208/- FROM HEAD OFFICE AND THE AMOUNT OF RS.1,37,58,736/- PAID BY THE ASSESSEE BRANCH IN INDIA TO ITS HEAD OFFICE TOWAR DS INTEREST. 3. THE ASSESSEE IS NON RESIDENT AND CARRIES ON THE BUSINESS OF BANKING WHICH HAS TWO BRANCHES IN INDIA AND ITS HEAD OFFICE AT MUSCAT . 4. THE ASSESSEE CREDITED AN AMOUNT OF RS.24,14,208 /- AS INTEREST RECEIVED FROM ITS HEAD OFFICE IN THE PROFIT AND LOSS ACCOUNT BUT IN T HE COMPUTATION OF INCOME FILED ALONG WITH THE RETURN OF INCOME, ASSESSEE REDUCED THIS AM OUNT FROM TAXABLE INCOME STATING THAT THE SAME IS NOT TAXABLE SINCE INTEREST RECEIV ED FROM SELF. SIMILARLY, THE ASSESSEE DEBITED AN AMOUNT OF RS.1,37,58,736/- OF INTEREST P AID TO ITS HEAD OFFICE, HOWEVER IN THE COMPUTATION OF INCOME, THE SAME HAS BEEN ADDED BACK TO THE TOTAL INCOME STATING THAT THE SAME IS NOT CLAIMED AS DEDUCTION IN VIEW O F THE FACT THAT IT IS A PAYMENT TO SELF. AO DID NOT AGREE WITH THE CONTENTION OF THE ASSESSE E IN RESPECT OF REDUCING THE AMOUNT OF INTEREST OF RS.24,14,208/- FROM TAXABLE INCOME. HOWEVER, THE AO ACCEPTED THE CONTENTION OF THE ASSESSEE FOR ADDING BACK THE AMOU NT OF RS.1,37,58,736/- ON ACCOUNT OF INTEREST PAID BY THE ASSESSEE BRANCH TO HEAD O FFICE ON THE GROUND THAT NO TDS WAS DEDUCTED AND ACCORDINGLY AS PER THE PROVISIONS OF SECTION 40(A)(I), THE SAME IS NOT ALLOWABLE. THE DISPUTE RESOLUTION PANEL-II (DRP) IN ITS ORDER DATED 25.6.2010 CONFIRMED THE VIEW OF AO. HENCE THIS APPEAL BEFORE US. 5. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR NO TICE BY THE LD.AR THAT SIMILAR ISSUE HAS BEEN CONSIDERED IN THE ASSESSEES OWN CAS E BY MUMBAI BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN OMAN INTERNATIONAL BANK SAOG V/S THE ACIT (IT) IN ITA NO.3362/MUM/2009 (AY-2005-06) ORDER DATED 13.11.201 3 AND ITAT HAS STATED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT SPECIAL BENCH OF MUMBAI IN SUMITOMO MITSUI BANKING CORPORATION V/S D Y.DIT (IT) (136 ITD 66) (MUM) (SB) AND ACCORDINGLY THE ADDITION OF RS.24,14,208/- BE DELETED. 6. LD. DR DID NOT DISPUTE THE ABOVE CONTENTION OF T HE ASSESSEE BUT STATED THAT THE INTEREST PAID BY THE ASSESSEE BRANCH TO ITS HEAD OFFICE IS EXEMPT FROM TAX AND THEREFORE, THE EXPENSES INCURRED IN RESPECT OF SAI D PAYMENT BE DISALLOWED AS PER PROVISIONS OF SECTION 14A OF THE ACT. DEPARTMENT HAS FILED CROSS-OBJECTION ON THIS ISSUE. SHE SUBMITTED THAT TO CONSIDER DISALLOWAN CE TO BE MADE U/S 14A MAY BE I.T.A.NO.6800/MUM/2010 CROSS-OBJECTION NO.230/MUM/2013 3 RESTORED TO THE AO AND REFERRED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT V/S ASSAM TRAVELS SHIPPING SERVICE CIT [1967] 63 ITR 232 (SC). 7. ON THE OTHER HAND, LD. AR SUBMITTED THAT DEPART MENT CANNOT FILE CROSS-OBJECTION AS THIS APPEAL IS ARISING OUT OF THE ASSESSMENT ORD ER PASSED BY THE AO U/S 143(3) R.W.S.144C (13) OF THE ACT. HE FURTHER SUBMITTED T HAT THE ABOVE ISSUE IS ALSO NOT ARISING FROM THE ASSESSMENT ORDER PASSED AND THE REFORE THE MATTER NEED NOT BE RESTORED TO THE AO. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. R EPRESENTATIVE OF THE PARTIES AND HAVE ALSO CONSIDERED THE TRIBUNAL ORDER DATED 1 3.11.2013 (SUPRA) AS ALSO THE ORDER OF SPECIAL BENCH ORDER OF TRIBUNAL IN THE CASE O F SUMITOMO MITSUI BANKING CORPORATION(SUPRA). WE OBSERVE THAT THE SPECIAL BEN CH HAS HELD THAT INDIAN BRANCH OF FOREIGN BANK BEING PART OF FOREIGN BANK WAS NOT SE PARATE AND DISTINCT TAXABLE ENTITY IN INDIA AS PER THE DOMESTIC LAW. IT WAS FOREIGN BAN K I.E. HEAD OFFICE WHICH WAS TAXABLE ENTITY IN INDIA. THAT THE INTEREST RECEIVED BY IND IAN BRANCH OF FOREIGN BANK FROM ITS HEAD OFFICE, THEREFORE, DOES NOT GIVE RISE TO ANY INCOME WHICH IS TAXABLE IN INDIA BECAUSE ONE COULD NOT MAKE PROFIT OUT OF ITSELF. IN VIEW OF ABOVE AND FOLLOWING THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN SUMITOMO MITSUI BANKING CORPORATION(SUPRA), WE DELETE THE ADDITION MADE BY AO OF RS.24.14,20 8/- ON ACCOUNT OF INTEREST RECEIVED BY INDIAN BRANCH OF ASSESSEE BANK FROM ITS HEAD OF FICE. WE MAY STATE THAT NO DEDUCTION WITH RESPECT TO INTEREST OF RS.1,37,58,7 36/- PAID BY THE ASSESSEE BRANCH OF THE ASSESSEE-COMPANY TO ITS HEAD OFFICE IS TO BE ALLOWED. IT IS ALSO RELEVANT TO STATE THAT ASSESSEE IN GROUND NO.1(C ) HAS STATED THAT A O HAS MADE THE ADDITIONS OF RS.1,37,58,736/- BEING INTEREST PAID BY THE ASSESS EE BRANCH TO HEAD OFFICE WHICH AMOUNT TO DOUBLE DISALLOWANCE AS THE ASSESSEE ITSE LF HAS NOT CLAIMED DEDUCTION. 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 WHI LE COMPUTING THE INCOME HAS MADE ADDITION/DISALLOWANCE OF THE SAID AMOUNT. 9. IN THIS REGARD, WE DIRECT THE AO THAT WHILE GIV ING EFFECT TO THIS ORDER HE WILL COMPLY WITH THE DIRECTIONS OF DRP AND NOT MAKE FURT HER DISALLOWANCE IF THE ASSESSEE ITSELF HAD MADE THE SAID DISALLOWANCE WHILE COMPUT ING ITS INCOME UNDER THE ACT. SUBJECT TO ABOVE OBSERVATIONS GROUND NO.1 AND 2 OF THE APPEAL ARE ALLOWED. I.T.A.NO.6800/MUM/2010 CROSS-OBJECTION NO.230/MUM/2013 4 10. IN GROUND NO.3 OF THE APPEAL, THE ASSESSEE HAS DISPUTED THE ORDER OF AO IN DISALLOWING TRANSACTIONS CHARGES OF RS.4,20,438/- ON NOSTRO ACCOUNT U/S 40(A)(I) OF THE ACT. 11. AT THE TIME OF HEARING, LD. REPRESENTATIVES OF BOTH THE PARTIES AGREED THAT THE ABOVE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 13.11.201 3 (SUPRS). HE REFERRED PARA 15 OF THE SAID ORDER WHICH READS AS UNDER : 15. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSER VED THAT A SIMILAR ISSUE WAS INVOLVED IN ASSESSEES OWN CASE FOR THE EARLIER YEA RS AND THE SAME HAS BEEN DECIDED BY THE TRIBUNAL CONSISTENTLY IN FAVOUR OF T HE ASSESSEE IN THE SAID YEARS INCLUDING THE IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2004-05 WHICH WAS DECIDED VIDE ORDER DATED 13 TH SEPTEMBER, 2013 PASSED IN ITA NO. 1609/MUM/2008. A S NOTED BY THE TRIBUNAL IN ITS ORDERS, THE TRANSACTIO N CHARGES PAID ON NOSTRO ACCOUNT WERE IN THE NATURE OF BANK CHARGES FOR MAIN TAINING THE ACCOUNTS WITH BANKS OUTSIDE INDIA. THESE CHARGES WERE RECOVERED DIRECTLY BY WAY OF DEBITS TO THE CONCERNED ACCOUNTS OF THE ASSESSEE WITH THESE B ANKS AND THE SAME REPRESENTED BUSINESS INCOME OF THOSE BANKS WHICH AC CRUED/ARISEN OUTSIDE INDIA. AS HELD BY THE TRIBUNAL, NO TAX THEREFORE WAS REQUI RED TO BE DEDUCTED AT SOURCE FROM THE TRANSACTION CHARGES PAID ON NOSTRO ACCOUNT AND THE DISALLOWANCE MADE BY THE A.O. U/S 40(A)(I) OF THE ACT WAS NOT SUSTAIN ABLE. RESPECTFULLY FOLLOWING THE ORDERS OF THE TRIBUNAL ON THE SIMILAR ISSUE INV OLVED IN EARLIER YEARS, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(A) DELETIN G THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF TRANSACTION CHARGES U/S 40(A )(I) OF THE ACT AND DISMISS GROUND NO. 3 OF REVENUES APPEAL. RESPECTFULLY FOLLOWING THE ORDER OF THE CO-ORDINAT E BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DELETE THE DISALLOWANCE MADE BY AO O N ACCOUNT OF TRANSACTION CHARGES U/S 40(A)(I) OF THE ACT. HENCE GROUND NO.3 OF THE APPEAL TAKEN BY ASSESSEE IS ALLOWED. 12. GROUND NO.4 OF THE APPEAL TAKEN BY ASSESSEE REA DS AS UNDER: 4. (A) THE AO ERRED IN NOT ALLOWING A DEDUCTION OF RS.7,32,941/- U/S 37 OF THE ACT ON ACCOUNT OF EXPENSES SPECIFICALLY IN CURRED BY HO FOR INDIAN BRANCHES AND PROCESSING THE SAME UNDER SECTION 44C OF THE ACT; (B) WITHOUT PREJUDICE TO THE ABOVE AND IN ANY EVEN T, THE AO ERRED IN NOT FOLLOWING THE DIRECTIONS OF OF DRP (PER PARA 5 PAG E 6 OF THE DIRECTIONS) THAT SINCE THE EXPENSES SPECIFICALLY INCURRED IN HO OF RS.7,32,941/- WAS NOT REDUCED BY THE APPELLANTS IN COMPUTING THE TOTAL INCOME P ER THE ROI AND THE CLAIM WAS MADE BY THE ASSESSEE BY WAY OF NOTE TO THE ROI AND HENCE THE DISALLOWANCE HAS BECOME IR-RELEVANT 13. THE AO HAS STATED THAT IN THE RETURN OF INCOME VIDE NOTE TO THE COMPUTATION THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.7,32,941/- ON ACCOUNT OF EXPENSES INCURRED I.T.A.NO.6800/MUM/2010 CROSS-OBJECTION NO.230/MUM/2013 5 BY HEAD OFFICE ON BEHALF OF INDIAN BRANCH. THE AO STATED THAT THE SAID EXPENSES ARE WITHIN THE PURVIEW OF SECTION 44C AND THEREFORE NO ADDITIONAL DEDUCTION OR ALLOWANCE IS PERMITTED UNDER THE PROVISIONS OF INCOME TAX ACT. HENCE, HE ADDED THE SAME. 14. AT THE TIME OF HEARING, LD. AR SUBMITTED THAT THE ABOVE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 VIDE ORDER DATED 13.11.20 13 (SUPRA) AND REFERRED PARAS 17 AND 18 OF THE SAID ORDER. HE SUBMITTED THAT SIMIL AR ISSUE HAS ALSO BEEN CONSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE APPEA L FILED BY DEPARTMENT IN DIRECTOR OF INCOME TAX (IT)-II, V/S OMAN INTERNATIONAL BANK IN INCOME TAX APPEAL (LOD) NO.1889 OF 2012 (AY- 1996-97) VIDE ORDER DATED 26.2.2013, W HEREIN THE HONBLE HIGH COURT CONFIRMED THE ORDER OF TRIBUNAL BY RELYING ON ITS OWN DECISION IN THE CASE OF CIT V/S EMIRATES COMMERCIAL BANK LTD (262 ITR 55 (BOM)). HE PLACED ON RECORD A COPY OF THE SAID ORDER TO SUBSTANTIATE HIS SUBMISSIONS. LD. D R HAS NOT DISPUTED THE CONTENTION OF LD.AR. 15. AFTER CONSIDERING THE SUBMISSIONS OF LD. REPRE SENTATIVES OF PARTIES AND THE ORDER OF AO, IT IS OBSERVED THAT SIMILAR ISSUE WAS DECI DED BY ITAT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2005-06 AFTER CONSIDERING THE D ECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF EMIRATES COMMERCIAL BANK LTD . (SUPRA), WHEREIN IT WAS HELD THAT THE TRAVELING EXPENSES INCURRED BY THE HEAD OFFICE ON TRAVELING OF ITS OWN STAFF ARE DIRECTLY IN CONNECTION WITH INDIAN BRANCH AND ARE ALLOWABLE U/S 37(1) OF THE ACT AND SECTION 44C HAS NO APPLICATION TO SUCH EXPENSES. T HE HONBLE JURISDICTIONAL HIGH COURT VIDE ITS ORDER DATED 26.2.2013 IN ASSESSEES OWN CA SE (SUPRA) HAS ALSO CONFIRMED THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 1996-97 ON SIMILAR ISSUE. IN VIEW OF ABOVE AND RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDI NATE BENCH OF THE TRIBUNAL AS WELL AS THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE, WE DELETE THE DISALLOWANCE MADE BY AO OF RS.7,32,941/- BY ALLOWI NG GROUND NO.4 OF THE APPEAL TAKEN BY ASSESSEE. 16. IN GROUND NO.5 OF THE APPEAL, THE ASSESSEE HAS DISPUTED THE ORDER OF AO IN DISALLOWING AN AMOUNT OF RS.17,42,363/- ON ACCOUN T OF EXPENSES INCURRED ON SHRI ZAKARIYA EMPLOYEE OF THE BANK WHO WAS DEPUTED TO I NDIA, BY TREATING THE SAME AS HEAD OFFICE EXPENSES. I.T.A.NO.6800/MUM/2010 CROSS-OBJECTION NO.230/MUM/2013 6 17. AO HAS STATED THAT SHRI ZAKARIYA AN EMPLOYEE O F OMAN OFFICE WAS ON DEPUTATION TO THE BRANCH OFFICE IN INDIA AND THE TOTAL EXPENDITURE INCURRED ON THIS ACCOUNT IN THE ASSESSMENT YEAR UNDER CONSIDERATION WAS RS.17,42,363/-. AO HAS STATED THAT THE SAID EXPENDITURE PERTAINS TO HO E XPENDITURE AND CANNOT BE ALLOWED OF ITS BRANCH OFFICE. ACCORDINGLY, HE ADDED BACK THE SAID AMOUNT TO THE COMPUTATION. 18. ASSESSEE FILED ITS OBJECTION BEFORE DRP AND SU BMITTED THAT SHRI ZAKARIYA WAS DEPUTED TO INDIA ON 25.6.2005. DURING HIS STAY IN INDIA HE WORKED AS OFFICER IN MUMBAI BRANCH. THE EXPENDITURE WAS INCURRED FOR SE RVICES RENDERED IN INDIA AND THE SAME IS ALLOWABLE U/S 37 OF THE ACT. DRP HAS CONFI RMED THE PROPOSED DISALLOWANCE MADE BY AO BY STATING THAT THERE IS NO EVIDENCE WH ICH CAN UNAMBIGUOUSLY POINTED OUT THAT SERVICES SO RENDERED BY SHRI ZAKARIYA IS EXCL USIVELY FOR THE INDIAN BRANCH OPERATION. HE WAS IN THE EMPLOYMENT OF HO AND HA D BEEN DEPUTED TO THE INDIAN BRANCH. AO HAS CORRECTLY APPLIED THE PROVISIONS OF SECTION 44C OF THE ACT TO BRING IT IN TO THE AMBIT THE EXPENDITURE INCURRED ON SHRI ZAKAR IYA. HENCE THIS APPEAL BY THE ASSESSEE. 19. LD. AR SUBMITTED THAT SALARY PAID TO SHRI ZAK ARIYA WHILE WORKING IN INDIAN BRANCH HAD BEEN TAXED IN INDIA AND FILED A COPY OF THE RETURN TO SUBSTANTIATE HIS SUBMISSIONS. HE FURTHER SUBMITTED THAT THERE IS AN AGREEMENT ENTERED INTO PURSUANT TO WHICH SHRI ZAKARIYA HAD BEEN DEPUTED AT MUMBAI BRANCH OFFICE OF THE ASSESSEE FOR A PERIOD OF 2 YEARS. HE SUBMITTED THAT THE EXPENDITU RE HAVE BEEN INCURRED ON SHRI ZAKARIYA FOR HIS WORKING IN ASSESSEES BRANCH OFFIC E IN INDIA AND THEREFORE PROVISIONS OF SECTION 44C OF THE ACT WILL NOT APPLY. 20. ON THE OTHER HAND, LD. DR SUPPORTED THE DISALL OWANCE MADE BY AO AND SUBMITTED THAT BASICALLY HE IS AN EMPLOYEE OF OMAN . 21. WE HAVE CAREFULLY CONSIDERED THE ORDER OF AO A ND THE DIRECTION OF DRP AND THE SUBMISSION OF LD. REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO GONE THROUGH THE LETTER DATED 3.5.2005, COPY IS PLACED ON RECORD, BY WHICH SHRI ZAKARIYA HAS BEEN APPOINTED AS OFFICER IN MUMBAI BRANCH FOR A PERIOD OF TWO Y EARS COMMENCING FROM 1 ST DAY OF HIS REPORTING AT MUMBAI BRANCH. IN THE SAID LETTER ALL OWANCES WHICH WERE TO BE PAID TO HIM AS WELL AS THE DESCRIPTION OF WORK IS STATED. ON PERUSAL OF THE SAID LETTER IT IS OBSERVED THAT HE HAS TO WORK ON FULL TIME BASIS FOR A PERI OD OF TWO YEARS AT MUMBAI BRANCH. NOT ONLY THIS, WE OBSERVE THAT SHRI ZAKARIYA ALSO FILED RETURN OF INCOME IN INDIA FOR THE ASSESSMENT YEAR 2006-07. CONSIDERING THE ABOVE FA CT, WE FIND SUBSTANCE IN THE I.T.A.NO.6800/MUM/2010 CROSS-OBJECTION NO.230/MUM/2013 7 SUBMISSIONS OF LD. AR THAT SHRI ZAKERIYA IS AN EM PLOYEE OF THE ASSESSEE BANK IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE PAYMENT HAS BEEN MADE TO HIM EXCLUSIVELY FOR THE WORK PERFORMED BY HIM FOR ASSES SEES BRANCH AT MUMBAI. THEREFORE, THE SAID EXPENSES PAID TO HIM AGGREGATING TO RS.17 ,42,363/- COULD NOT BE CONSIDERED A PART OF SECTION 44C AND THE SAME ARE TO BE ALLOWED U/S 37 OF THE ACT. THEREFORE, WE DELETE THE SAID DISALLOWANCE OF RS.17,42,363/- BY ALLOWING GROUND NO.5 OF THE APPEAL TAKEN BY ASSESSEE. 22. GROUND NO.6 OF THE APPEAL TAKEN BY ASSESSEE REA DS AS UNDER: 6. (A) THE AO ERRED IN BRINGING TO TAX YEAR-END PROVISION MADE FOR EXPENSES AMOUNTING TO RS.2,47,180/- WHICH SUBSEQUEN TLY TURNED OUT TO BE IN EXCESS. (B) WITHOUT PREJUDICE TO (A) ABOVE, IN VIEW OF THE METHOD OF ACCOUNTING FOLLOWED, THE AO BE DIRECTED TO EXCLUDE THE AFORES AID EXCESS PROVISION FROM THE INCOME OF THE SUBSEQUENT ASSESSMENT YEAR 23. THE ASSESSEE MADE EXCESSIVE PROVISION FOR EXPEN SES OF RS.2,47,180/-. THE ASSESSEE STATED BEFORE THE AO THAT PROVISION FOR EX CESSIVE EXPENDITURE WAS MADE IN ACCORDANCE WITH REGULAR METHOD OF ACCOUNTING FOLLOW ED BY IT. THE AO STATED THAT THE SAID SUM OF RS.2,47,180/- BEING NET EXCESS PROVISI ON IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THE DRP ALSO CON FIRMED THE ACTION OF AO. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 24. AT THE TIME OF HEARING LD. AR SUBMITTED THAT IF DISALLOWANCE OF THE SAME IS CONFIRMED IN THE ASSESSMENT YEAR UNDER CONSIDERATIO N, THE SAID AMOUNT SHOULD BE ALLOWED AS DEDUCTION WITHOUT WRITTEN BACK IN THE S UBSEQUENT YEAR. LD. DR HAS NOT OBJECTED TO THE ABOVE CONTENTION OF LD. AR. 25. IN VIEW OF ABOVE, WE CONFIRM THE ACTION OF THE AO. HOWEVER, WE MAY STATE THAT AS AND WHEN THE ASSESSEE REVERSE THE EXCESS PROVIS ION, THE SAID AMOUNT SHOULD NOT BE CHARGED TO TAX IN THE SUBSEQUENT YEARS. GROUND NO.6 OF THE APPEAL TAKEN BY ASSESSEE IS REJECTED. 26. GROUND NO.7 OF THE APPEAL TAKEN BY ASSESSEE REA DS AS UNDER: 7. THE AO ERRED IN NOT FOLLOWING THE DIRECTION OF THE DRP (PER PARA 8 PAGE 7 OF THE DIRECTIONS ) BY NOT REDUCING THE SUM OF RS. 58,948/- ON ACCOUNT OF REVERSAL OF EXCESS PROVISION WHICH WAS BROUGHT TO TAX IN THE AY 2005-06 I.T.A.NO.6800/MUM/2010 CROSS-OBJECTION NO.230/MUM/2013 8 27. WE HAVE HEARD LD. REPRESENTATIVES OF THE PARTIE S AND PERUSED THE ORDER OF AO AND THE DIRECTION OF DRP. WE OBSERVE THAT THE A O WHILE DISCUSSING THE SAID AMOUNT IN PARA 8.3 OF THE DRAFT ASSESSMENT ORDER STATED THAT THE SUM OF RS.58,948/- ON ACCOUNT OF REVERSAL OF EXCESS PROVISION EXPENSES TA XED IN ASSESSMENT YEAR 2005-06 IS REDUCED FROM TOTAL INCOME FOR ASSESSMENT YEAR 2006 -07. THE DRP ALSO DIRECTED THE AO TO VERIFY THE ABOVE CLAIM IF FOUND CREDITED AND MAKE NECESSARY ADJUSTMENT TO THE CREDIT TO THE TOTAL INCOME. THE LD. AR SUBMITTED T HAT THE AO HAS NOT DEDUCTED THE SAID AMOUNT AND THEREFORE, THE DIRECTION BE GIVEN TO AO TO REDUCE THE SAID AMOUNT SUBJECT TO VERIFICATION IN THE ASSESSMENT YEAR UNDER CONSI DERATION. 28. SINCE DR HAS NOT OBJECTED TO ABOVE SUBMISSION OF THE LD. AR, WE RESTORE THIS ISSUE TO AO WITH A DIRECTION TO VERIFY THE CLAIM AN D IF THE SAID AMOUNT HAS ALREADY BEEN TAXED IN THE PRECEDING ASSESSMENT YEAR, THE NECE SSARY DEDUCTION BE ALLOWED IN THE ASSESSMENT YEAR UNDER CONSIDERATION ON ACCOUNT OF W RITTEN BACK OF THE PROVISIONS IN THE ASSESSMENT YEAR UNDER CONSIDERATION. HENCE, GROUND NO.7 OF THE APPEAL TAKEN BY ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 29. GROUND NO.8 OF THE APPEAL TAKEN BY ASSESSEE REA DS AS UNDER: 8. THE AO ERRED IN NOT FOLLOWING THE DIRECTION OF THE DRP (PER PARA 12 PAGE 8 OF DIRECTION) BY NOT GRANTING REFUND OF RS.6,85, 010/- DETERMINED VIDE ORDER UNDER APPEAL 30. AT THE TIME OF HEARING, LD. AR REFERRED PARA 1 1 OF THE DRP AND SUBMITTED THAT AO DID NOT GRANT CREDIT OF TDS THOUGH DRP DIRECTED THE AO TO GRANT CREDIT FOR TDS CERTIFICATE PRODUCED BY ASSESSEE. THE SAID ORDER O F DRP READS AS UNDER : 11. OBJECTION NO.11 : TDS CREDIT OF RS.5,43,660/ -: GROUND OF OBJECTION: THE AO ERRED IN NOT GRANTING TDS CREDIT OF RS.5,43, 660/-. THE TDS CERTIFICATES WERE NOT REQUIRED TO BE FILED WITH THE E-RETURN FOR THE AY 2006-07. THE AO DID NOT CALL FOR THE TDS CERTIFICATES. THE ASSESSEE FI LED THE COPIES OF TWO TDS CERTIFICATES WITH THE AO ON 29 TH DECEMBER, 2009. THE AO BE DIRECTED TO GRANT CREDIT FOR THE SAID TDS CERTIFICATE WE FIND MERIT IN THE SUBMISSIONS OF LD. AR THAT THE AO WHILE GIVING EFFECT TO THE DIRECTION OF DRP HAS NOT COMPLIED WITH THE DIRECTI ONS. ON PERUSAL OF THE ASSESSMENT ORDER FINALLY PASSED BY AO DATED 27.7.2010, WE OBS ERVE THAT THE SAID ASSESSMENT ORDER IS A NON-SPEAKING ORDER AND ONLY CONTAINS COMPUTAT ION WITHOUT GIVING REASONS. WE ARE OF THE CONSIDERED VIEW THAT THE AO SHOULD HAVE PAS SED A SELF CONTAINED ORDER WHILE I.T.A.NO.6800/MUM/2010 CROSS-OBJECTION NO.230/MUM/2013 9 MAKING ANY ADJUSTMENT OR REJECTING THE CLAIM OF ASS ESSEE AFTER DISCUSSING THE DIRECTIONS GIVEN BY DRP. WITH THE ABOVE DIRECTIONS, WE DIREC T THE AO TO DECIDE THE ISSUE AS PER DIRECTIONS OF DRP AND AFTER GIVING DUE OPPORTUNI TY OF HEARING TO THE ASSESSEE. HENCE, GROUND NO.8 OF THE APPEAL TAKEN BY ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. 31. GROUND NO.9 OF THE APPEAL TAKEN BY ASSESSEE REA DS AS UNDER: 9. THE AO HAS DETERMINED INTEREST OF RS.1,41,350 /- UNDER SECTION 244A FROM 1.4.2006 TO 27.7.2010 (BEING THE DATE OF THE O RDER UNDER APPEAL) THE APPELLANT SUBMIT THAT THEY ARE ENTITLED TO INTE REST U/S 244A FROM 1.4.2006 TILL THE DATE OF RECEIPT OF THE REFUND ORDER 32. WE OBSERVE THAT DRP HAS DIRECTED THE AO IN RES PECT OF THE INTEREST ON REFUND TO BE GRANTED AS UNDER : 12. OBJECTION NO.12 : REFUND TO BE GRANTED: GROUND OF OBJECTION: BASED ON THE OUTCOME OF THE GROUND OF OBJECTION NO. 11 ABOVE, THE AO BE DIRECTED TO GRANT REFUND ALONG WITH INTEREST UNDER SECTION 244A TILL THE DATE OF RECEIPT OF THE REFUND ORDER. THE ASSESSEE HAS NOT RECEIVED AN INTIMATION UNDER SECTION 143(1) FOR THE AY-2006-07. THE ASSESSEE I S ENTITLED TO A REFUND ARISING OUT OF TAX DEDUCTED AT SOURCE ALONG WITH INTEREST U /S 244A THEREON HOWEVER, AO HAS NOT CONSIDERED THE SAID DIRECTION OF THE DRP NOR ANY DISCUSSION IS MADE IN THE ASSESSMENT ORDER AS THE ORDER OF THE AO IS A NON-SPEAKING ORDER. IN VIEW OF ABOVE, WE DIRECT THE AO TO ALLOW INTEREST TO T HE ASSESSEE AS PER PROVISIONS OF ACT AFTER CONSIDERING THE DIRECTION AS GIVEN BY DRP IN PARA 12 OF ITS ORDER. HENCE, GROUND NO.9 OF THE APPEAL TAKEN BY ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. 33. GROUND NO.10 OF THE APPEAL TAKEN BY ASSESSEE RE ADS AS UNDER: 10. THE AO ERRED IN NOT FOLLOWING THE DIRECTION S OF THE DRP (PER PARA 13 OF 9 OF THE DIRECTIONS ) BY NOT RECORDING CARRY FORWAR D OF BUSINESS LOSS AND UNABSORBED DEPRECIATIONS 34. WE OBSERVE THAT THE DRP HAS DIRECTED THE AO TH AT THE CLAIM OF THE ASSESSEE BE EXAMINED AND SUBJECT TO VERIFICATION TO ALLOW CAR RY FORWARD OF BUSINESS LOSS AND UNABSORBED DEPRECIATIONS IF PERMISSIBLE /ALLOWABLE UNDER THE INCOME TAX ACT/RULES. THE AO WHILE PASSING THE FINAL ASSESSMENT ORDER AF TER CONSIDERING THE RECOMMENDATION OF DRP HAS NEITHER CARED TO CONSIDER THE DRP DI RECTION NOR GIVEN EFFECT TO THE DIRECTION OF THE DRP. NOR AO DISCUSSED THE SAID I SSUE WHILE NOT ALLOWING THE CLAIM OF ASSESSEE IN RESPECT OF CARRY FORWARD OF BUSINESS LO SS AND UNABSORBED DEPRECIATION. BE I.T.A.NO.6800/MUM/2010 CROSS-OBJECTION NO.230/MUM/2013 10 THAT AS IT MAY, WE RESTORE THIS ISSUE TO THE FILE O F AO WITH A DIRECTION TO DECIDE THE SAME AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASS ESSEE BY A REASONED ORDER. GROUND NO.10 OF THE APPEAL TAKEN BY ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. CROSS-OBJECTION: 35. WE HAVE DISCUSSED THE SUBMISSIONS OF THE PARTI ES WHILE DISCUSSING GROUND NOS.1 AND 2 OF THE APPEAL TAKEN BY ASSESSEE. WE F IND MERIT IN THE SUBMISSIONS OF LD. AR THAT THE DEPARTMENT CANNOT FILE CROSS-OBJECTION AGAINST THE ASSESSMENT ORDER. THE CROSS-OBJECTION IS TO BE DECIDED AS IF IT IS AN AP PEAL FILED BY THE PARTY. THE APPEAL AGAINST THE ASSESSMENT ORDER CAN BE FILED ONLY BY AN ASSESSEE AND NOT BY DEPARTMENT. HENCE, CROSS-OBJECTION FILED BY DEPARTMENT ARE NOT MAINTAINABLE AND THUS THE SAME ARE DISMISSED. 36. IN VIEW OF ABOVE, THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART AND WHEREAS CROSS-OBJECTIONS OF THE DEPARTMENT ARE DISMISSED. 37. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY AL LOWED AND CROSS-OBJECTION BY DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DAY O F DECEMBER 2013 * 1 2 27 TH DAY OF DECEMBER, 2013 * SD SD ( . . /N.K.BILLAIYA ) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2 DATED 27/12/2013 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. ( ' / THE RESPONDENT. 3. ? ( ) / THE CIT(A)- 4. ? / CIT 5. @ (B , - B , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) - B , /ITAT, MUMBAI