M/s. BARCLAYS BANK PLC, MUMBAI V. DDIT (I.T) - 3(2), MUMBAI

ITA 1728/MUM/2007

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2843 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 21-07-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 26-02-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Keywords: Related party transaction; Transfer pricing; International transaction; Tax effect; Revenue expenditure
• Section: 143(3); 92F; 92A; 10B; 28; 10; 92

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL K BE NCH, MUMBAI BEFORE SHRI RAJENDRA, , ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER / I .TA NO.2050/MUM/2007 ( / ASSESSMENT YEAR: 2002-03 THE ADIT(IT) - 3(2), SCINDIA HOUSE, N.M. ROAD, MUMBAI-400 038 / VS. BARCLAYS BANK PLC, 21/23, MAKER CHAMBERS-VI, NARIMAN POINT, MUMBAI-400 021 / I .TA NO.1728/MUM/2007 ( / ASSESSMENT YEAR: 2002-03 BARCLAYS BANK PLC, 21/23, MAKER CHAMBERS- VI, NARIMAN POINT, MUMBAI-400 021 / VS. THE ADIT(IT) - 3(2), SCINDIA HOUSE, N.M. ROAD, MUMBAI-400 038 / I .TA NO.4654/MUM/2007 ( / ASSESSMENT YEAR: 2003-04 THE ADIT(IT) - 3(2), SCINDIA HOUSE, N.M. ROAD, MUMBAI-400 038 / VS. BARCLAYS BANK PLC, 21/23, MAKER CHAMBERS-VI, NARIMAN POINT, MUMBAI-400 021 / I .TA NO.4668/MUM/2007 ( / ASSESSMENT YEAR: 2003-04 BARCLAYS BANK PLC, 21/23, MAKER CHAMBERS- VI, NARIMAN POINT, MUMBAI-400 021 / VS. THE ADIT(IT) - 3(2), SCINDIA HOUSE, N.M. ROAD, MUMBAI-400 038 ./ ./ PAN/GIR NO. AAACB 4876G ( / APPELLANT ) .. ( / RESPONDENT ) BARCLAYS BANK 2 / ASSESSEE BY: SHRI P. PARDIWALA SHRI NISHANT THAKKAR / REVENUE BY: SHRI SAURABH DESHPANDE / DATE OF HEARING :28.04.2016 ! / DATE OF PRONOUNCEMENT :22.06.2016 / O R D E R PER C.N. PRASAD, JM: THESE APPEALS BY THE REVENUE AND THE ASSESSEE AGAIN ST THE ORDERS OF THE LD. CIT(A)-XXXI, MUMBAI PERTAINING TO ASSESSMENT YEARS 2002-03 & 2003-04. ALL THESE APPEALS WERE HE ARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. THE FIRST ISSUE IN THE REVENUES APPEAL FOR THE ASSESSMENT YEAR 2002-03 IS THAT THE LD. CIT(A) ERRED IN HOLDING THA T ASSESSING OFFICER HAS INCORRECTLY MADE THE DISALLOWANCE OF PROPORTION ATE AMOUNT OF INTEREST EXPENDITURE AMOUNTING TO RS. 23,81,374/- A ND ACCORDINGLY DIRECTING TO TAX THE INTEREST INCOME OF RS. 29,89,2 72/- U/S. 115A ON GROSS BASIS. 3. BRIEF FACTS ARE THAT THE ASSESSEE-COMPANY RECEIV ED INTEREST OF RS. 29,89,272/- FROM FOREIGN CURRENCY LOANS GIVEN T O INDIAN CORPORATES, WHICH IS TAXABLE AT SPECIAL RATE U/S. 1 15A OF THE I.T. ACT. THE ASSESSING OFFICER HELD THAT FROM THE PERUSAL OF THE PROVISIONS OF SECTION 115A(1)(B) AND 115A(1)(A )(II) IT IS CLEAR THAT THE LOWER RATE OF TAX OF 20% IS TO BE APPLIED TO THE AMOUNT OF INCOME ARISING TO THE ASSESSEE FROM INTEREST RECEIV ED AS COVERED UNDER 115A(I)(A)(II) BECAUSE IF THIS LOWER RATE OF TAX IS NOT APPLIED TO THE NET INCOME OF THE ASSESSEE THEN EFFECTIVELY THE ASSESSEE WOULD BE BARCLAYS BANK 3 REDUCING ITS TAX LIABILITY BY CLAIMING SET OFF OF T HE EXPENDITURES IN EARNING INCOME COVERED U/S. 115A AGAINST THE REMAIN ING INCOME WHICH IS CHARGEABLE TO TAX AT HIGHER RATE. THEREFO RE, HE HELD THAT IT IS NOT THE GROSS INTEREST INCOME ON WHICH TAX IS TO BE LEVIED U/S. 115A OF THE ACT BUT ON THE NET INTEREST INCOME. THE ASSESSI NG OFFICER HAS ACCORDINGLY COMPUTED INTEREST ATTRIBUTABLE AT RS. 2 3,81,374/- AND AFTER DEDUCTING THIS AMOUNT FROM THE GROSS INTEREST INCOME OF RS. 29,89,272/-, HE HELD THAT ONLY AN AMOUNT OF RS. 6,0 7,898/- IS ELIGIBLE FOR SPECIAL RATE OF TAX UNDER 115A OF THE ACT. 4. ON APPEAL, THE LD. CIT(A) FOLLOWING THE DECISION OF THE MUMBAI BENCH IN THE CASE OF BANK OF NOVA SCOTIA HELD THAT THE INTEREST IS TAXABLE ON GROSS BASIS. THE LD. DEPARTMENTAL REPRE SENTATIVE PLACES RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 5. THE LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD THE PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. HERE THE QUESTION IS WHETHER SP ECIAL RATE OF TAX U/S. 115A OF THE ACT IS TO BE APPLIED ON GROSS INTE REST OR NET INTEREST? IT WAS HELD BY THE CO-ORDINATE BENCH IN THE CASE OF BANK OF NOVA SCOTIA IN ITA NO. 306 OF 2001 DATED 21.4.2004 THAT GROSS INTEREST INCOME WHICH HAS TO BE THE BASIS FOR APPLICATION OF CONCESSIONAL RATE OF INTEREST AND NOT THE NET INTEREST INCOME. THIS DECISION OF THE CO- ORDINATE BENCH WAS FOLLOWED BY THE LD. CIT(A) OBSER VING AS UNDER: I HAVE CONSIDERED THE ARGUMENTS OF THE AR AND I HAVE ALSO EXAMINED THE FACTS. SECTION 115A PROVIDES SPE CIAL RATE OF TAX IN RESPECT OF INCOME FROM DIVIDEND INTEREST RECEIVE D FROM GOVERNMENT OR ANY INDIAN CONCERN ON MONEYS BORROWED OR DEBT BARCLAYS BANK 4 INCURRED BY GOVERNMENT OR THE INDIAN CONCERN IN FOR EIGN CURRENCY. TAX RATE APPLICABLE IS 20% ON THE AMOUNT OF INCOME BY WAY OF INTEREST RECEIVED BY THE NON-RESIDENT. SUB SECTION (3) OF SEC-115A VERY CLEARLY PROVIDES THAT NO DEDUCTION IN RESPECT OF ANY EXPENDITURE OR ALLOWANCE SHALL BE ALLOWED TO AS SESSEE U/S. 28 TO 44C AND SEC. 57 IN COMPUTING HIS INCOME REFERRED TO IN SEC. 115A(1). IT IS THEREFORE OBVIOUS THAT IT IS THE GR OSS INTEREST INCOME WHICH HAS TO BE THE BASIS FOR APPLICATION OF CONCESSIONAL RATE OF INTEREST AND NOT THE NET INTEREST INCOME. THIS ISSUE WAS EXAMINED BY ITAT IN THE CASE OF BANK OF NOVA SCOTIA IN A.Y. 1997-98 IN THEIR ORDER DATED 21.4.2004. THE ITAT H AS HELD THAT IT IS THE GROSS INTEREST ON WHICH TAX RATE U/S. 115 A IS TO BE APPLIED. ACCORDINGLY, FOLLOWING THIS DECISION, IT IS HELD THAT THE ASSESSING OFFICER HAS INCORRECTLY MADE THE DISALLOW ANCE OF INTEREST OF RS. 23,81,374/-. IT IS HELD THAT THE T AX RATE OF 20% U/S. 115A SHALL BE APPLIED TO THE GROSS INTEREST INCOME OF RS. 29,89,272/-. APPEAL ON THIS GROUND IS ALLOWED. 7. SINCE THE LD. CIT(A) FOLLOWED THE DECISION OF TH E CO-ORDINATE BENCH AND DECIDED THE ISSUE HOLDING THAT TAX RATE UNDER 115A SHALL BE APPLIED TO THE GROSS INTEREST, WE DO NOT FIND AN Y INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). THIS GROUND IS THE REFORE DISMISSED. 8. NEXT ISSUE IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF BROKEN PERIOD INTEREST. 9. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT TH IS ISSUE HAS BEEN DECIDED IN ASSESSEES OWN CASE IN ITS FAVOUR B Y THE CO-ORDINATE BENCH OF ITAT FOR ASSESSMENT YEAR 1991-92 AND 1993- 94 IN ITA NOS. 3823 AND 3824 OF 1998 DATED 3.7.2003, COPY OF WHICH IS PLACED ON RECORD. HE FURTHER SUBMITS THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS CIT (125 TAXMAN 488) HELD THAT BROKEN PERIOD INTER EST PAID SHOULD BARCLAYS BANK 5 BE ALLOWED AS DEDUCTION. THE LD. COUNSEL FOR THE A SSESSEE SUBMITS THAT SLP OF THE DEPARTMENT WAS ALSO DISMISSED BY TH E SUPREME COURT. 10. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITS THA T IN THE CASE OF VIJAYA BANK LTD VS ACIT (187 ITR 541), IT WAS HE LD THAT BROKEN PERIOD INTEREST IS NOT ALLOWABLE AS DEDUCTION AND T HIS DECISION OF THE HONBLE SUPREME COURT WAS NOT CONSIDERED IN AMERICA N EXPRESS INTERNATIONAL BANKING CORPN. (SUPRA). IN REPLY THE LD. COUNSEL FOR THE ASSESSEE BRINGING OUR ATTENTION TO PARA-12 OF THE J UDGEMENT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORP N., SUBMITS THAT THE HIGH COURT HAS INFACT CONSIDERED THE DECISION O F VIJAYA BANK AND SUBMITS THAT THE DECISION OF THE HONBLE SUPREME CO URT IN VIJAYA BANK HAS NO APPLICATION TO THE FACTS OF THE CASE. HE SUBMITS THAT THE FACTS AND CIRCUMSTANCES OF THE ASSESSEE BEING IDENT ICAL TO THE DECISION OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPN.(SUPRA), BROKEN PERIOD INTEREST HAS TO BE ALLOWED AS DEDUCTI ON. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT THE R ATIO OF THE DECISION IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKI NG CORPN., WAS ALSO AFFIRMED BY THE SUPREME COURT IN THE CASE OF C IT VS CITY BANK N.A. IN CIVIL APPEAL NO. 1549 OF 2006 , COPY OF WHICH IS PLACED ON RECORD. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE DECISIONS RELIED ON. THE ISSUE IN QUESTION HAS BEEN DECIDED IN THE CASE OF AMERICAN E XPRESS INTERNATIONAL BANKING CORPN. (SUPRA) HOLDING THAT T HE BROKEN PERIOD INTEREST HAS TO BE ALLOWED AS DEDUCTION CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA BAN K (SUPRA). THE HONBLE BOMBAY HIGH COURT IN THE CASE OF AMERICAN E XPRESS BARCLAYS BANK 6 INTERNATIONAL BANKING CORPN. HAS INFACT CONSIDERED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA BA NK (SUPRA) AND HELD THAT HAVING ASSESSED THE INCOME U/S. 28, THE D EPARTMENT OUGHT TO HAVE TAXED INTEREST ON BROKEN PERIOD INTEREST RE CEIVED AND THE DEPARTMENT OUGHT TO HAVE ALLOWED DEDUCTION FOR BROK EN PERIOD INTEREST PAID OBSERVING AS UNDER: 10. THE ASSESSEE-BANK, LIKE SEVERAL OTHER BANKS, WE RE CONSISTENTLY FOLLOWING THE PRACTICE OF VALUING THE SECURITIES/INTEREST HELD BY IT AT THE END OF EACH YEAR AND OFFER FOR TA XATION, THE APPRECIATION IN THEIR VALUE BY WAY OF PROFIT/INTERE ST EARNED DUE TO EFFLUX OF TIME. THE BANK ALSO CLAIMED DEDUCTION FOR BROKEN PERIOD INTEREST PAYMENTS. HOWEVER, THE DEPARTMENT DID NOT ACCEPT THE ASSESSEE'S METHOD IN THE ASSESSMENT YEAR IN QUESTIO N IN VIEW OF THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF VIJAYA BANK LTD. (SUPRA). THIS JUDGMENT HAS BEEN SUBSEQUENTLY U PHELD BY THE SUPREME COURT IN VIJAYA BANK LTD. 'S CASE (SUPRA). IN VIEW OF THE JUDGMENT OF THE KARNATAKA HIGH COURT, THE DEPARTMEN T TOOK THE VIEW THAT BROKEN PERIOD INTEREST PAYMENT CANNOT BE ALLOWED AS A DEDUCTION BECAUSE IT CAME WITHIN THE AMBIT OF INTER EST ON SECURITIES UNDER SECTION 18 OF THE INCOME-TAX ACT. IT IS THE C ONTENTION OF THE DEPARTMENT THAT THE ASSESSEE-BANK RECEIVED INTEREST ON DATED GOVERNMENT SECURITIES FROM RBI ON HALF-YEARLY BASIS . THAT, THE ASSESSEE-BANK ALSO TRADED IN SUCH SECURITIES. THAT THE ASSESSEE- BANK BOUGHT DATED GOVERNMENT SECURITIES DURING THE INTERVENING PERIOD BETWEEN TWO DUE DATES. THAT, ON PURCHASE OF THE DATED GOVERNMENT SECURITY, THE ASSESSEE BECAME THE HOLDER OF THE SECURITY AND ACCORDINGLY, THE ASSESSEE RECEIVED HAL F-YEARLY INTEREST ON THE DUE DATES FROM RBI ON PURCHASE. THEREFORE, A CCORDING TO THE DEPARTMENT, THE INCOME WHICH THE ASSESSEE-BANK RECEIVED CAME UNDER SECTION 18 OF THE INCOME-TAX ACT - INTEREST O N SECURITIES. UNDER THE CIRCUMSTANCES, IT WAS NOT OPEN TO THE ASS ESSEE-BANK TO CLAIM DEDUCTION FOR BROKEN PERIOD INTEREST PAYMENT MADE TO THE SELLING/TRANSFEROR-BANK. THAT, IT WAS NOT OPEN TO T HE ASSESSEE TO CLAIM DEDUCTION AS REVENUE EXPENDITURE FOR BROKEN P ERIOD INTEREST PAYMENT AS NO SUCH DEDUCTION WAS PERMISSIBLE UNDER SECTIONS 19 AND 20 OF THE INCOME-TAX ACT. THAT, IT WAS NOT A SU M EXPENDED BY THE ASSESSEE FOR REALISING INTEREST UNDER SECTION 1 9 AND, THEREFORE, THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION FO R BROKEN PERIOD INTEREST PAYMENT AS A REVENUE EXPENDITURE UNDER SEC TION 28 OF THE BARCLAYS BANK 7 INCOME-TAX ACT. IN THIS CONNECTION, THE DEPARTMENT FOLLOWED THE JUDGMENT OF THE KARNATAKA HIGH COURT IN VIJAYA BANK LTD.'S CASE (SUPRA). THEREFORE, THE POINT WHICH WE ARE REQUIRED TO CONSIDER IN THIS CASE IS : WHETHER THE JUDGMENT OF THE KARNATAK A HIGH COURT IN VIJAYA BANK LTD. 'S CASE (SUPRA) WAS APPLICABLE TO THE FACTS OF THE PRESENT CASE. 11. BEFORE GOING FURTHER WE MAY MENTION AT THE VERY OUTSET THAT THE SECURITY IN THIS CASE WAS OF THE FACE VALU E OF RS. 5 LAKHS. IT WAS BOUGHT FOR A LESSER AMOUNT OF RS. 4,92,000. THE DIFFERENCE WAS OF RS. 8,000. THE ASSESSEE HAS REVALUED THE SECURIT Y. THE ASSESSEE OFFERED THE NOTIONAL PROFIT FOR TAXATION, AS EXPLAI NED HEREINABOVE, ON ACCRUAL BASIS IN THE APPROPRIATE ASSESSMENT YEAR DURING WHICH THE ASSESSEE HELD THE SECURITY. THIS DIFFERENCE COU LD HAVE BEEN TREATED BY THE DEPARTMENT AS INTEREST ON SECURITIES UNDER SECTION 18. HOWEVER, IN THE INSTANT CASE, THE DEPARTMENT HA S ASSESSED THE SAID DIFFERENCE UNDER SECTION 28 UNDER THE HEAD 'BU SINESS' AND NOT UNDER THE HEAD 'INTEREST ON SECURITIES'. HAVING TRE ATED THE DIFFERENCE UNDER THE HEAD 'BUSINESS', THE ASSESSING OFFICER DISALLOWED THE BROKEN PERIOD INTEREST PAYMENT, WHIC H GAVE RISE TO THE DISPUTE. IT WAS OPEN TO THE DEPARTMENT TO ASSES S THE ABOVE DIFFERENCE UNDER THE HEAD 'INTEREST ON SECURITIES' UNDER SECTION 18. HOWEVER, THEY CHOSE TO ASSESS THE INTEREST UNDER TH E HEAD 'BUSINESS' AND, WHILE DOING SO, THE DEPARTMENT TAXE D BROKEN PERIOD INTEREST RECEIVED, BUT DISALLOWED BROKEN PER IOD INTEREST PAYMENT. IT IS IN THIS LIGHT THAT ONE HAS TO READ T HE JUDGMENT OF THE KARNATAKA HIGH COURT AND THE SUPREME COURT IN VIJAY A BANK LTDS CASE (SUPRA). IN THAT CASE, THE FACTS WERE A S FOLLOWS. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, VIJAYA BAN K ENTERED INTO AN AGREEMENT WITH JAYALAKSHMI BANK LIMITED, WHEREBY VIJAYA BANK TOOK OVER THE LIABILITIES OF JAYALAKSHMI BANK. THEY ALSO TOOK OVER ASSETS BELONGING TO JAYALAKSHMI BANK. THESE AS SETS CONSISTED OF TWO ITEMS VIZ. RS. 58,568 AND RS. 11,630. THE SA ID AMOUNT OF RS. 58,568 REPRESENTED INTEREST, WHICH ACCRUED ON SECUR ITIES TAKEN OVER BY VIJAYA BANK FROM JAYALAKSHMI BANK AND RS. 1 1,630 WAS THE INTEREST WHICH ACCRUED UPTO THE DATE OF PURCHAS E OF SECURITIES BY THE ASSESSEE-BANK FROM THE OPEN MARKET. THESE TW O AMOUNTS WERE BROUGHT TO TAX BY THE ASSESSING OFFICER UNDER SECTION 18 OF THE INCOME-TAX ACT. THE ASSESSEE-BANK CLAIMED THAT THESE AMOUNTS WERE DEDUCTIBLE UNDER SECTIONS 19 AND 20. THIS WAS ON THE FOOTING THAT THE DEPARTMENT HAD BROUGHT TO TAX, THE AFOREST ATED TWO AMOUNTS AS INTEREST ON SECURITIES UNDER SECTION 18. IT IS IN THE LIGHT OF THESE FACTS THAT ONE HAS TO READ THE JUDGMENT IN VIJAYA BANK LTD. BARCLAYS BANK 8 'S CASE (SUPRA). IN THE LIGHT OF THE ABOVE FACTS, I T WAS HELD THAT OUTLAY ON PURCHASE OF INCOME BEARING ASSET WAS IN T HE NATURE OF CAPITAL OUTLAY AND NO PART OF THE CAPITAL OUTLAY CA N BE SET-OFF AS EXPENDITURE AGAINST INCOME ACCRUING FROM THE ASSET IN QUESTION. IN OUR CASE, THE AMOUNT WHICH THE ASSESSEE RECEIVED HA S BEEN BROUGHT TO TAX UNDER THE HEAD 'BUSINESS' UNDER SECTION 28. THE AMOUNT IS NOT BROUGHT TO TAX UNDER SECTION 18 OF THE INCOME-T AX ACT. AFTER BRINGING THE AMOUNT TO TAX UNDER THE HEAD 'BUSINESS ', THE DEPARTMENT TAXED THE BROKEN PERIOD INTEREST RECEIVE D ON SALE, BUT AT THE SAME TIME, DISALLOWED BROKEN PERIOD INTEREST PAYMENT AT THE TIME OF PURCHASE AND THIS LED TO THE DISPUTE. HAVIN G ASSESSED THE AMOUNT RECEIVED BY THE ASSESSEE UNDER SECTION 28, T HE ONLY LIMITED DISPUTE WAS - WHETHER THE IMPUGNED ADJUSTMENTS IN T HE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE-BANK SHOULD BE D ISCARDED. THEREFORE, THE JUDGMENT IN VIJAYA BANK LTD.'S CASE (SUPRA) HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. IF TH E DEPARTMENT HAD BROUGHT TO TAX, THE AMOUNTS RECEIVED BY THE ASSESSE E-BANK UNDER SECTION 18, THEN VIJAYA BANK LTD.'S CASE (SUPRA) WA S APPLICABLE. BUT, IN THE PRESENT CASE, THE DEPARTMENT BROUGHT TO TAX SUCH AMOUNTS UNDER SECTION 28 RIGHT FROM THE INCEPTION. THEREFORE, THE TRIBUNAL WAS RIGHT IN COMING TO THE CONCLUSION THAT THE JUDGMENT IN VIJAYA BANK LTD.'S CASE (SUPRA) DID NOT APPLY TO TH E FACTS OF THE PRESENT CASE. HOWEVER, BEFORE US, IT WAS ARGUED ON BEHALF OF THE REVENUE THAT IN VIEW OF THE JUDGMENT IN VIJAYA BANK LTD.'S CASE (SUPRA), EVEN IF THE SECURITIES WERE TREATED AS PAR T OF THE TRADING ASSETS, THE INCOME THEREFROM HAD TO BE ASSESSED UND ER SECTION 18 OF THE ACT AND NOT UNDER SECTION 28 OF THE ACT AS INCO ME FROM SECURITIES CAN ONLY COME WITHIN SECTION 18 AND NOT UNDER SECTION 28. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT. FIRS TLY, AS STATED ABOVE, VIJAYA BANK LTD.'S CASE (SUPRA) HAS NO APPLI CATION TO THE FACTS OF THIS CASE. SECONDLY, IN THE PRESENT CASE, THE TRIBUNAL HAS FOUND THAT THE SECURITIES WERE HELD AS TRADING ASSE TS. THIRDLY, IT HAS BEEN HELD BY THE SUPREME COURT IN THE SUBSEQUENT DE CISION IN THE CASE OF COCANADA RADHASWAMI BANK LTD. 'S CASE (SUPR A) THAT INCOME FROM SECURITIES CAN ALSO COME UNDER SECTION 28 AS INCOME FROM BUSINESS. THIS JUDGMENT IS VERY IMPORTANT. IT ANALYZES THE JUDGMENT OF THE SUPREME COURT IN UNITED COMMERCIAL BANK LTD.'S CASE (SUPRA), WHICH HAS BEEN FOLLOWED BY THE SUPREM E COURT IN VIJAYA BANK LTD.'S CASE (SUPRA). IT IS TRUE THAT ON CE AN INCOME FALLS UNDER SECTION 18, IT CANNOT COME UNDER SECTION 28. HOWEVER AS LAID DOWN BY THE SUPREME COURT IN COCANADA RADHASWAMI BA NK LTD.'S CASE (SUPRA), INCOME FROM SECURITIES TREATED AS TRA DING ASSETS CAN COME UNDER SECTION 28. IN THE PRESENT CASE, THE DEP ARTMENT HAS BARCLAYS BANK 9 TREATED INCOME FROM SECURITIES UNDER SECTION 28. LA STLY, THE FACTS IN THE CASE OF UNITED COMMERCIAL BANK LTD. 'S CASE (SU PRA) ALSO SUPPORT OUR VIEW IN THE PRESENT CASE. IN UNITED COM MERCIAL BANK LTD.'S CASE (SUPRA), THE ASSESSEE-BANK CLAIMED A SE T-OFF UNDER SECTION 24(2) OF THE INCOME-TAX ACT, 1922 [SECTION 71 (1) OF THE PRESENT ACT) AGAINST ITS INCOME FROM INTEREST ON SE CURITIES UNDER SECTION 8 OF THE 1922 ACT [SIMILAR TO SECTION 18 OF THE PRESENT ACT). IT WAS HELD THAT UCO BANK WAS NOT ENTITLED TO SUCH A SET-OFF AS THE INCOME FROM INTEREST ON SECURITIES CAME UNDER SECTI ON 8 OF THE 1922 ACT. THEREFORE, EVEN IN UNITED COMMERCIAL BANK LTD.'S CASE (SUPRA), THE DEPARTMENT HAD ASSESSED INCOME FROM IN TEREST ON SECURITIES RIGHT FROM THE INCEPTION UNDER SECTION 8 OF THE 1922 ACT AND, THEREFORE, THE SET-OFF WAS NOT ALLOWED UNDER S ECTION 24(2) OF THE ACT. THEREFORE, UNITED COMMERCIAL BANK LTD. 'S CASE (SUPRA) HAS ALSO NO APPLICATION TO THE FACTS OF THE PRESENT CASE IN WHICH THE ASSESSEE'S INCOME FROM INTEREST ON SECURITIES IS AS SESSED UNDER SECTION 28 RIGHT FROM INCEPTION. IN FACT, IN UNITED COMMERCIAL BANK LTD.'S CASE (SUPRA), THE MATTER WAS REMITTED B ACK AS IT WAS CONTENDED ON BEHALF OF UCO BANK THAT THE SECURITIES IN QUESTION WERE A PART OF TRADING ASSETS HELD BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS AND THE INCOME BY WAY OF INTEREST ON S UCH SECURITIES WAS ASSESSABLE UNDER SECTION 10 OF THE INCOME-TAX A CT, 1922 [SIMILAR TO SECTION 28 OF THE PRESENT ACT). IT IS F OR THIS REASON THAT IN THE SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN THE CASE OF COCANADA RADHASWAMI BANK LTD. (SUPRA), THAT THE SUP REME COURT HAS OBSERVED, AFTER READING UNITED COMMERCIAL BANK LTD.'S CASE (SUPRA), THAT WHERE SECURITIES WERE PART OF TRADING ASSETS, INCOME BY WAY OF INTEREST ON SUCH SECURITIES COULD COME UN DER SECTION 10 OF THE INCOME-TAX ACT, 1922. 12. IN THE LIGHT OF WHAT WE HAVE DISCUSSED HEREINAB OVE, WE FIND THAT THE ASSESSEE'S METHOD OF ACCOUNTING DOES NOT RESULT IN LOSS OF TAX/REVENUE FOR THE DEPARTMENT. THAT, THERE WAS NO NEED TO INTERFERE WITH THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE- BANK. THAT, THE JUDGMENT IN THE CASE OF VIJAYA BANK LTD. (SUPRA) HAD NO APPLICATION TO THE FACTS OF THE CASE. THAT, HAVING ASSESSED THE INCOME UNDER SECTION 28, THE DEPARTMENT OUGHT T O HAVE TAXED INTEREST FOR BROKEN PERIOD INTEREST RECEIVED AND TH E DEPARTMENT OUGHT TO HAVE ALLOWED DEDUCTION FOR BROKEN PERIOD I NTEREST PAID. THIS DECISION OF THE AMERICAN EXPRESS INTERNATIONA L BANKING CORPN., HAS BEEN AFFIRMED BY THE HONBLE SUPREME CO URT IN THE CASE BARCLAYS BANK 10 OF CIT VS CITY BANK N.A. BY DISMISSING THE CIVIL AP PEAL NO. 1549 OF 2006 FILED BY THE REVENUE OBSERVING AS UNDER: THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FACTS IN AMERICAN EXPRESS (SUPRA). AGREEING WITH THIS VIEW AND ACCEPTING THE DISTINCTION POINTED OUT BY THE BOMBAY HIGH COURT, THIS COURT DISMISSED THE TWO SPECIAL LEAVE PETITION S FILED BY THE REVENUE, ONE OF WHICH WAS DISMISSED BY A THREE JUDG E BENCH. AFTER GOING THROUGH THE FACTS WHICH ARE SIMILAR TO THE FACTS IN AMERICAN EXPRESS (SUPRA), SINCE THE TAX EFFECT I S NEUTRAL, THE METHOD OF COMPUTATION ADOPTED BY THE ASSESSEE AND A CCEPTED BY THE REVENUE CANNOT BE INTERFERED WITH. WE AGREE WI TH THE VIEW EXPRESSED BY THE BOMBAY HIGH COURT IN AMERICAN EXP RESS (SUPRA) THAT ON THE FACTS OF THE PRESENT CASE, THE JUDGMENT IN VIJAYA BANK LTD (SUPRA) WOULD HAVE NO APPLICATION. FOR THE REASONS GIVEN ABOVE, THE QUESTION POSED BEF ORE US IS ANSWERED IN THE AFFIRMATIVE I.E. IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE. THE APPEAL IS DISMISSED ACCORDINGLY. PARTIES TO BE AR THEIR OWN. RESPECTFULLY FOLLOWING THE ABOVE SAID DECISION, WE REJECT THE GROUND RAISED BY THE REVENUE ON THIS ISSUE. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO. 1728/M/07 A.Y. 2002-03- ASSESSEES APPEAL 13. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSIN G OFFICER IN CHARGING TO TAX GUARANTEE COMMISSION ON CASH BASIS AND DISREGARDING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. BARCLAYS BANK 11 14. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT T HE ISSUE IS AS TO WHETHER THE UPFRONT GUARANTEE COMMISSION RECEIVED BY THE ASSESSEE IS TO BE TAXED IN THE YEAR IN WHICH GUARANTEE HAD A CTUALLY GIVEN OR WHETHER TO BE SPREAD OVER FOR THE PERIOD FOR WHICH GUARANTEE WAS GIVEN AND FAIRLY SUBMITS THAT THIS ISSUE IS DECIDED AGAINST THE ASSESSEE BY THE SPECIAL BENCH, MUMBAI IN THE CASE O F DCIT VS BANK OF BAHRAIN & KUWAIT REPORTED IN 41 SOT 290. 15. WE HAVE PERUSED THE DECISION OF THE SPECIAL BEN CH IN THE CASE OF BANK OF BAHRAIN & KUWAIT (SUPRA) AND FIND THAT T HE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE HOLDING THAT THE GUARA NTEE COMMISSION RECEIVED BY THE ASSESSEE IS TO BE TAXED IN THE YEAR IN WHICH THE GUARANTEE HAD ACTUALLY BEEN GIVEN IRRESPECTIVE OF T HE PERIOD FOR WHICH IT WAS SPREAD OVER OBSERVING AS UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE RECORD OF THE CASE. THE FUNDAMENTAL PRINCIPLE OF TA XING THE INCOME UNDER THE MERCANTILE SYSTEM OF ACCOUNTING IS TIME O F ITS ACCRUAL. IT IS NOT MATERIAL WHETHER THE AMOUNT HAS BEEN RECEIVE D AT THE TIME OF ACCRUAL OR NOT. THE INCOME IS SAID TO ACCRUE WHEN T HE ASSESSEE ACQUIRES THE RIGHT TO RECEIVE THE SAME. THEREFORE, THE BASIC QUESTION TO BE ANSWERED IS AS TO AT WHAT STAGE THE ASSESSEE ACQUIRED THE ABSOLUTE RIGHT TO RECEIVE THE INCOME. THE PRINCIPLE HAS BEEN SUCCINCTLY ENUNCIATED BY THE HONBLE SUPRE ME COURT IN THE CASE OF E.D.SASOON & CO. AND OTHERS (SUPRA), WH EREIN, AFTER CONSIDERING THE OBSERVATIONS OF HONBLE JUSTICE MUK ERJI,J IN THE CASE OF ROGERS PYATT SHELLAC & CO. V SECRETARY OF S TATE FOR INDIA(1925) 1 ITC 363 AT PAGE 371 CONSIDERED THE TE RM ACCRUES, ARISES AND IS RECEIVED AND ALSO THE OBSERVATIONS O F LORD JUSTICE FRY QUOTED BY HONBLE JUSTICE MUKERJI, J IN COLQUHO UN V BROOKS AND OTHERS DECISIONS, OBSERVED AS UNDER:- IT IS CLEAR THEREFORE THAT INCOME MAY ACCRUE TO AN ASSESSEE WITHOUT THE ACTUAL RECEIPT OF THE SAME. IF THE ASSESSEE ACQUIRES A RIGHT TO RECEIVE THE INCOME , THE INCOME CAN BE SAID TO HAVE ACCRUED TO HIM THOUG H BARCLAYS BANK 12 IT MAY BE RECEIVED LATER ON ITS BEING ASCERTAINED. THE BASIC CONCEPTION IS THAT HE MUST HAVE ACQUIRED A RI GHT TO RECEIVE THE INCOME. THERE MUST BE A DEBT OWED TO HIM BY SOMEBODY. IN THE LIGHT OF ABOVE DECISION, THE ISSUE NEEDS TO BE EXAMINED. LD CIT (DR) HAS POINTED OUT THAT THE DECI DING FACTOR WOULD BE WHETHER THE GUARANTEE COMMISSION IS REFUNDABLE OR NOT. IF THE GUARANTEE COMMISSION WAS REFUNDABLE THEN IT CANNOT BE SAID THAT ABSOLUTE RIG HT TO THE COMMISSION HAD ACCRUED IN FAVOUR OF THE ASSESSEE AT THE TIME OF EXECUTION OF CONTRACT FOR FURNISHING GUARANTEE B Y IT BUT IF THE GUARANTEE COMMISSION WAS NOT DEPENDED UPON THE PERIOD OF GUARANTEE AND, THUS, HAD ACCRUED IN FAVOUR OF TH E ASSESSEE ON THE DATE OF EXECUTION OF CONTRACT FOR FURNISHING GUARANTEE THEN THE SAME HAS TO BE TAXED IN THE YEAR IN WHICH THE GUARANTEE WAS FURNISHED IRRESPECTIVE OF THE PERIOD TO WHICH GUARANTEE REMAINED ALIVE. THIS IS SO BECAUSE THE GU ARANTEE COMMISSION CANNOT BE APPORTIONED WITH REFERENCE TO THE PERIOD OVER WHICH THE GUARANTEE EXTENDED. EVEN IN T HE CASE OF BANK OF TOKYO LTD (SUPRA) HEAVILY RELIED UPON BY LD COUNSEL FOR THE ASSESSEE, THIS PRINCIPLE HAS BEEN A CCEPTED, WHICH IS EVIDENT FROM THE OBSERVATIONS NOTED IN PAR A 22 ABOVE. WE, THEREFORE, RESTORE THIS MATTER BACK TO T HE FILE OF THE AO TO EXAMINE THE ISSUE IN THE LIGHT OF ABOVE D ISCUSSION AND IF HE FINDS THAT AS PER THE TERM, THE COMMISSIO N WAS REFUNDABLE ON THE REVOCATION OF GUARANTEE, THEN THE GUARANTEE COMMISSION IS TO BE SPREAD OVER THE PERIO D FOR WHICH THE GUARANTEE IS GIVEN ELSE IT IS TO BE TAXED IN THE YEAR THE GUARANTEE HAD ACTUALLY BEEN GIVEN IRRESPECTIVE OF THE PERIOD FOR WHICH IT SPREAD. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE SP ECIAL BENCH, WE DISMISS THE GROUND OF APPEAL OF THE ASSESSEE ON THIS ISSUE. 16. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE I S THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSIN G OFFICER IN DISALLOWING THE INTEREST PAID TO RBI FOR MAINTAININ G INADEQUATE CASH RESERVE RATIO ON BALANCES. BARCLAYS BANK 13 17. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT T HIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE CASE OF BANK OF AMERICA N.A. IN ITA NO. 4408 OF 2000 DATED 27.11.2013 FOLL OWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS BANK OF BARODA IN INCOME TAX APPEAL NO. 4169 OF 2009 DATED 15.2.2011 WHEREIN IT WAS HELD THAT INTEREST PAID BY THE ASSES SEE TO RBI FOR NOT KEEPING CRR RESERVES ON BALANCES IS NOT FOR INFRACT ION OF LAW AND THEREFORE SUCH INTEREST IS TO BE ALLOWED AS DEDUCT ION. 18. THE LD. DEPARTMENTAL REPRESENTATIVE PLACES RELI ANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 19. HEARD BOTH THE PARTIES, PERUSED THE ORDERS OF T HE LOWER AUTHORITIES AND THE DECISION RELIED ON. IN THE CAS E OF BANK OF AMERICA NA, THE CO-ORDINATE BENCH FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS BANK OF BARODA HEL D THAT INTEREST PAID TO RBI FOR SHORTFALL IN MAINTENANCE OF CRR AND SLR IS TO BE ALLOWED AS DEDUCTION OBSERVING AS UNDER: 7. GROUND NO.7 AND 8 ARE REGARDING DISALLOWANCE IN RESPECT OF AMOUNT PAID TO RBI FOR SHORTFALL IN MAIN TENANCE OF CASH RESERVE RATIO (CRR) AND STATUTORY LIQUIDITY RESERVE (SLR). THE AO DISALLOWED A SUM OF RS.3,74,704/- PAID TO RBI FO R SHORTFALL IN MAINTENANCE OF CRR AS WELL AS AN AMOUNT OF RS.9,30, 377/- PAID TO RBI FOR NOT COMPLYING WITH THE SLR REQUIREMENTS. TH ESE DISALLOWANCES WERE MADE BY AO ON THE GROUND THAT TH E PAYMENTS ARE INFRACTION OF LAW AND THEREFORE, CANNOT BE ALLO WED U/S. 36(1). THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER. 7.1 WE HAVE HEARD THE LD. SR. COUNSEL AS WELL AS TH E LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. SR. COUNSEL HAS SUBMITTED THAT THIS ISSUE HAS BEEN CONS IDERED AND BARCLAYS BANK 14 DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1992-93 IN ITA NO.141/BOM/96 IN FAVOUR OF ASSE SSEE. HE HAS FURTHER SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN CASE OF BANK O F BARODA VIDE ORDER DATED 15.02.2011 IN INCOME TAX APPEAL NO.4169 OF 2009. ON THE OTHER HAND THE LD. DR HAS RELIED UPON THE ORDER S OF AUTHORITIES BELOW. 7.2 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFUL PERUSAL OF RECORD WE NOTE THAT THIS ISSUE IS COVERE D BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BANK OF BARODA (SUPRA), WHEREIN THE HON'BLE HIGH COURT HAS HELD AS UNDER:- THE ONLY QUESTION RAISED BY THE REVENUE IN THIS APPEAL IS, WHETHER THE INTEREST PAID BY THE ASSESSE E FOR NON MAINTENANCE OF THE CASH RESERVE RATIO/ STATUTOR Y LIQUIDITY RATIO AS PER SECTION 24 OF THE BANKING REGULATION ACT, 1949 AND SECTION 42 OF THE RESERVE BANK OF INDIA ACT, 1934 CONSTITUTE PENALTY SO AS TO DISALLOW THE INTEREST CLAIM. THE TRIBUNAL FOLLOWING THE DECISION IN THE CASE OF DCIT V/S. DHANALAKSHMI BANK LTD. (COCHIN) REPORTED IN 76 TTJ 439 HELD THAT THE INTEREST PAID TO THE RBI WAS NOT PENALTY AND ACCORDINGLY THE INTEREST EXPENDITURE IS ALLOWABLE. SLP FILED BY THE REVENUE AGAINST SIMILAR DECISION OF TH E TRIBUNAL IN THE CASE OF DHANALAKSHMI BANK LTD. (SUPRA) HAS BEEN DISMISSED BY THE APEX COURT AS REPORTED IN [2005] 277 ITR (ST) 3. IN THIS VIEW OF THE MATTER, WE FIND NO MERIT IN THE APPEAL AND THE SAME IS DISMISSED WITH NO ORDER AS TO COSTS. 7.3 FOLLOWING THE DECISION OF THE HON'BLE HIGH COU RT WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE. RESPECTFULLY FOLLOWING THE DECISION OF THE JURISD ICTIONAL HIGH COURT AND CO-ORDINATE BENCH, WE ALLOW THE GROUND O F APPEAL OF THE ASSESSEE ON THIS ISSUE. 20. THE THIRD ISSUE IN THE APPEAL OF THE ASSESSEE I S RELATING TO THE TRANSFER PRICING ADJUSTMENT. THE ASSESSEE CHALLENG ED THE ORDER OF BARCLAYS BANK 15 THE LD. CIT(A) IN CONFIRMING THE ADDITION MADE BY T HE ASSESSING OFFICER IN RESPECT OF INTRA-GROUP SERVICES RENDERED BY THE ASSESSEE TO EXTERNAL COMMERCIAL BORROWINGS (ECBS). 20.1. BRIEF FACTS ARE THAT ASSESSEE IS A BANK INCO RPORATED IN THE UNITED KINGDOM CARRYING ON BANKING ACTIVITIES IN IN DIA THROUGH ITS BRANCHES. THE ASSESSEE FILED ITS RETURN OF INCOME ORIGINALLY ON 31.10.2002 REPORTING INCOME OF RS. 19,87,01,880/-. THE RETURN WAS REVISED DECLARING INCOME OF RS. 42,43,43,740/-. AS SESSMENT PROCEEDINGS U/S. 143(2) WERE INITIATED CALLING FOR VARIOUS DETAILS AND SIMULTANEOUSLY TRANSFER PRICING PROCEEDINGS WERE IN ITIATED U/S. 92CA OF THE ACT. THE TRANSFER PRICING OFFICER IN T HE COURSE OF PROCEEDINGS BASED ON TP REPORT OF THE ASSESSEE ISSU ED LETTER TO THE ASSESSEE REQUIRING TO FILE INFORMATION AS TO WHETHE R THE BANK HAS RENDERED ANY MARKETING SERVICES TO OVERSEAS BRANCHE S/HO IN RESPECT OF ANY CORRESPONDENT BANKING ACTIVITIES WHICH OPEN ING OF NOSTRO ACCOUNTS, LETTERS OF CREDIT, EXPORT BILL COLLECTION S, REMITTANCE FACILITIES, CREDIT VIEW/DUE DILIGENCE OF THE CUSTOMERS TO ASCER TAIN THE CREDIT WORTHINESS AND MONITORING THE RISK PROFILE OF THE CUSTOMERS, ASSISTANCE IN EXECUTING FOREIGN CURRENCY LOAN/ECB T RANSACTIONS, DEBTS SYNDICATION ETC., FOR WHICH THE BENEFIT IS D ERIVED BY THE OVERSEAS BRANCHES/HEAD OFFICE. THE ASSESSEE BANK M ADE ITS SUBMISSION STATING THAT ASSESSEE DID NOT RENDER ANY MARKETING SERVICES TO OVERSEAS BRANCHES/HEAD OFFICE IN RESPEC T OF THE BANKING ACTIVITIES MENTIONED BY THE ASSESSING OFFICER. IT WAS FURTHER SUBMITTED BY THE ASSESSEE THAT INSTANCES MAY ARISE WHEREIN ASSESSEE WOULD RENDER INCIDENTAL SERVICES IN THE NORMAL COUR SE OF ITS INDIAN BANKING BUSINESS. FURTHER IT WAS SUBMITTED THAT SU CH SERVICES ARE NECESSARY TO PRESENT A COMPLETE PORTFOLIO OF PRODUC TS/SERVICES TO THE BARCLAYS BANK 16 CUSTOMER BASE IN INDIA AND SUCH INCIDENTAL SERVICES DO NOT RESULT IN ANY INCREMENTAL COST TO THE ASSESSEE BANK IN INDIA . THE ASSESSEE ALSO FURNISHED THE INFORMATION IN RESPECT OF EXTERNAL CO MMERCIAL BORROWINGS STATING THAT ONLY ONE INSTANCE HAD OCCUR RED IN FINANCIAL YEAR 2001-02 WHEREIN AN INDIAN CUSTOMER I.E. HDFC DUE TO ITS REQUIREMENT OF A YEN DENOMINATED EXTERNAL COMMERCIA L BORROWING, APPROACHED THE ASSESSEE BANK. IT WAS SUBMITTED THA T HDFC BANK WAS GIVEN THE CONTACT OF BARCLAYS HONG KONG BANK PURSUA NT TO NEGOTIATION AND FINALIZATION WAS DONE BY HDFC AND B ARCLAYS HONGKONG INDEPENDENTLY, WITHOUT ANY INVOLVEMENT BY THE ASSESSEE. THEREFORE, IT WAS THE CONTENTION OF THE ASSESSEE TH AT ASSESSEE WAS INVOLVED ONLY IN REFERRING ITS OVERSEAS CONTACT ON A REQUISITION MADE BY HDFC AND WAS NOT ENGAGED IN MONITORING ACTIVITIE S FOR THE SAID ECB LOAN AND THEREFORE SUCH REFERRAL SERVICES DO N OT RESULT IN ANY INCREMENTAL COST TO THE ASSESSEE. 20.2. LATER ON SURVEY WAS CONDUCTED IN THE PREMISES OF THE ASSESSEE ON 28.1.2005 AND IN THE COURSE OF SURVEY, VARIOUS D OCUMENTS, E-MAILS RELATING TO ECB TRANSACTION FOUND WITH THE BANK. THE TPO CONFRONTED WITH ALL THESE DOCUMENTS TO THE ASSESSEE AND STATED THAT ASSESSEE HAS RENDERED SERVICES TO ITS AE AND PROPOS ED AN ADJUSTMENT OF 50% OF AGENCY FEES AS ATTRIBUTABLE TO BARCLAYS B ANK PLC I.E. ASSESSEE. HE ALSO PROPOSED TO MAKE ADJUSTMENTS BY ADOPTING 40% OF INTEREST MARGIN INCOME EARNED BY BARCLAYS BANK PLC AS ATTRIBUTABLE TO THE ASSESSEE BARCLAYS INDIA. THE TPO CONCLUDED THAT INDIAN BRANCH PLAYED AN ACTIVE ROLE DEALS WITH RELIANCE IN DUSTRIES LTD, IDBI AND ALSO HDFC BANK. THE TPO BY USING THE DATA AVAI LABLE WITH HIM IN THE CASE OF OTHER FOREIGN BANKS, 25% OF THE AMOU NTS RECEIVED BY THE FOREIGN BRANCHES IN THE TRANSACTIONS CONSISTING OF BOTH FEE AND BARCLAYS BANK 17 NET INTEREST WAS CONSIDERED AS COMPENSATION NOT AT ARMS LENGTH BY MAKING ADJUSTMENT OF RS. 12,04,035/-. THE ASSESSIN G OFFICER PASSED AN ORDER U/S. 143(3) ADOPTING THE ADJUSTMENT MADE B Y THE TRANSFER PRICING OFFICER. 21. FOR THE ABOVE SAID ADJUSTMENT, ASSESSEE PREFERR ED AN APPEAL BEFORE THE LD. CIT(A) CONTENTING THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN: 1) COMPUTING THE ARMS LENGTH PRICE FOR THE TRANSACTIO N IN RELATION TO SHORT TERM DEPOSITS WITHOUT CONSIDERING THE 5% VARIATION FROM THE ARMS LENGTH PRICE PERMITTED TO THE APPELLANT UNDER THE PROVISIONS OF SEC. 92C(2) OF TH E ACT. 2) COMPUTING THE ARMS LENGTH PRICE FOR THE TRANSACTIO N IN RELATION TO SERVICES PROVIDED BY THE APPELLANT TO I TS ASSOCIATED ENTERPRISES. 3) EFFECTIVELY USING THE REVENUE SPLIT METHOD FOR COMP UTING THE ARMS LENGTH PRICE FOR THE TRANSACTION IN RELATION TO SERVICES PROVIDED BY THE APPELLANT TO ITS ASSOCIATED ENTERPR ISES. 4) NOT PROVIDING APPROPRIATE DESCRIPTION OF THE COMPAR ABLES USED AND THE METHOD ADOPTED TO IDENTIFY THE COMPARA BLES FOR THE TRANSACTION IN RELATION TO SERVICES PROVIDE D BY THE APPELLANT TO ITS ASSOCIATED ENTERPRISES. 5) NOT PROVIDING THE REASONS IN TERMS OF COMPARABILITY OF FUNCTIONS PERFORMED, RISKS ASSUMED AND ASSETS UTILI ZED WITH RESPECT TO THE TRANSACTIONS CONSIDERED AS COMPARABL E VIS-- VIS THE APPELLANTS SERVICES PROVIDED TO ITS ASSOCIA TED ENTERPRISES. 6) SELECTING COMPARABLES WHICH THEMSELVES ARE RELATED PARTY TRANSACTIONS. 7) SELECTING COMPARABLES NOT AVAILABLE IN THE PUBLIC D OMAIN FOR DETERMINING THE ARMS LENGTH PRICE FOR THE TRANSACT ION IN BARCLAYS BANK 18 RELATION TO SERVICES PROVIDED BY THE APPELLANT TO I TS ASSOCIATED ENTERPRISES. 21.1. IN SO FAR AS THE TP ADJUSTMENT IN RESPECT OF AGENCY FEE ON THE ECB LOAN IS CONCERNED, THE LD. CIT(A) ACCEPTED THE VIEW OF THE ASSESSING OFFICER THAT ASSESSEE BANK HAS RENDERED S ERVICES TO THE OVERSEAS AES. HE ALSO ACCEPTED THE VIEW OF THE ASS ESSING OFFICER THAT PROFIT SPLIT METHOD CAN ALSO BE USED AND FURTHER OB SERVED THAT HE IS IN AGREEMENT WITH THE TPO THAT IN THE ABSENCE OF DE TAILS OF SERVICES RENDERED BY THE ASSESSEE AND ALSO IN THE ABSENCE OF DETAILS OF EXPENSES INCURRED BY THE ASSESSEE COST PLUS AND TR ANSACTIONAL NET MARGINAL METHOD ARE NOT APPLICABLE. HE ALSO OBSERV ED THAT UNCONTROLLED TRANSACTIONS ARE ALSO NOT AVAILABLE, T HEREFORE, CONTROLLED TRANSACTIONS BETWEEN RELATED PARTIES CAN BE USED. THE LD. CIT(A) FINALLY CONCLUDED THAT IT IS APPROPRIATE TO APPLY A RATE OF 20% TO THE AMOUNT OF INTEREST AND AGENCY FEE EARNED FROM SUCH LOANS DURING THE YEAR TO COMPUTE THE ARMS LENGTH PRICE OF THE SERVI CE RENDERED BY THE ASSESSEE TO THE OVERSEAS BRANCHES. 21.2. THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT TPO ADOPTED PROFIT SPLIT METHOD (PSM) IN BENCH MARKING INTERNAT IONAL TRANSACTION IN RESPECT OF SERVICES PROVIDED BY THE ASSESSEE TO ITS AES IGNORING THE FACT THAT ASSESSEE HAS PLAYED A VERY LIMITED ROLE I N IDENTIFICATION AND EXECUTION OF THE ECB DEALS. THE LD. COUNSEL FOR TH E ASSESSEE SUBMITS THAT THE TPO IN DETERMINING ARMS LENGTH PRICE STAT ED THAT CUP METHOD IS APPLIED USING CONTROLLED TRANSACTIONS AS COMPARABLE. HE FURTHER SUBMITTED THAT THE TPO HAS DETERMINED THE R EVENUE SPLIT OF 25% BASED ON THE DATA OF OTHER FOREIGN BANKS AVAI LABLE WITH HIM. IN THIS REGARD, THE LD. COUNSEL DREW OUR ATTENTIO N TO THE DEFINITION OF 'ARM'S LENGTH PRICE' UNDER SECTION 92F OF THE I.T A CT AND SUBMITTED BARCLAYS BANK 19 THAT ARM'S LENGTH PRICE MEANS A PRICE WHICH IS APPL IED OR PROPOSED TO BE APPLIED IN A TRANSACTION BETWEEN PERSONS OTH ER THAN ASSOCIATED ENTERPRISES, IN UNCONTROLLED CONDITIONS. LD. COUNSEL FURTHER SUBMITTED THAT RULE L0B OF THE INCOME TAX RULES, 1962 ('IT RULES'), DEALING WITH APPLICABILIT Y OF CUP METHOD, STATES THAT THE FIRST STEP IN APPLYING THE CUP METH OD IS TO IDENTIFY THE PRICE CHARGED OR PAID FOR PROPERTY TRANSFERRED OR S ERVICES PROVIDED IN A COMPARABLE UNCONTROLLED TRANSACTION, OR A NUMB ER OF SUCH- TRANSACTIONS. FURTHER RULE L0A DEFINES THE TERM 'UNCONTROLLED TRA NSACTIONS' AND SUBMITTED THAT UNCONTROLLED TRANSACTION MEANS A TRANSACTION BETWEEN ENTERPRISES OTHER THAN ASSOCIATED ENTERPRIS ES, WHETHER RESIDENT OR NON-RESIDENT. HE SUBMITTED THAT THE TPO HAS USED THE DATA OF OTHE R FOREIGN BANKS AVAILABLE WITH HIM. MOST OF THE FOREIGN BANKS OPERATE IN INDIA THROUGH A BRANCH STRUCTURE. THE BRANCH AND ITS HEAD OFFICE WOULD BE TREATED AS ASSOCIATED ENTERPRISES, WITHIN THE MEANI NG THE SECTION 92A OF THE IT ACT. ACCORDINGLY, THE DATA OF OTHER FORE IGN BANKS USED BY THE TPO AS COMPARABLE DATA, WOULD NOT QUALIFY AS 'COMPA RABLE UNCONTROLLED TRANSACTION' FOR THE PURPOSES OF DETER MINING THE ARM'S LENGTH PRICE UNDER SEC. 92 OF THE IT ACT. HENCE, HE SUBMITS THAT THE LEARNED TPO HAS ERRED IN USING CONTROLLED TRANSACTI ONS FOR THE PURPOSE OF APPLYING THE CUP METHOD. HE SUBMITS THAT BASED ON THE INDIA REGULATIONS AS W ELL AS INTERNATIONAL BEST PRACTICES, LD. TPO HAS ERRED IN USING THE DATA OF BARCLAYS BANK 20 OTHER FOREIGN BANKS AS COMPARABLE DATA FOR DETERMIN ING THE ARM'S LENGTH PRICE. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO RULE 10B THE DEFINITION OF CUP SUBMITS THAT THE TPO DID NOT FOL LOW ANY APPROPRIATE METHOD THEREFORE THERE CANNOT BE ANY T P ADJUSTMENT AT ALL. HE PLACES RELIANCE ON THE DECISION OF MUMBAI BENCH IN THE CASE OF KODAK INDIA PVT. LTD VS ACIT IN ITA NO. 7349/M/201 2 DATED 30.4.2013 AND SUBMITS THAT IF THE TPO HAS NOT ADOPT ED THE MOST APPROPRIATE METHOD AND HE ADOPTS METHOD WHICH IS NO T PRESCRIBED IN SEC. 92C(1) THERE CANNOT BE ANY TP ADJUSTMENT AT AL L. THEREFORE, HE SUBMITS THAT THE ADHOC ADJUSTMENT OF 25% MADE BY TH E TPO WHICH WAS REDUCED TO 25% OF THE LD. CIT(A) HAS NO LEG TO STAND. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT EVEN IF THE ASSESSEE HAS CHARGED FOR THE SERVICES, STILL THE SAME IS EXEMPT AS PER ARTICLE-7 OF THE TREATY WITH UK AND NORTHERN IRELAND. THE LD. COUNSEL FOR THE ASSESSEE IN RESPECT OF INTEREST MARGIN INCOME SUBMI TS THAT: THE FUNDING FOR THE ASSETS IS DONE THROUGH BORROWI NGS OR INTERNAL ACCRUALS AT THE BOOKING LOCATION I.E. THE OVERSEAS BRANCH AND NOT THE ASSESSEE. ALL RISKS ON THE LOAN INCLUDING THE RISK OF FOREX F LUCTUATION, ARE BORNE BY THE OVERSEAS BRANCH. THE ASSESSEE IS NOT SUBJECT TO MAINTENANCE OF ANY R ESERVE REQUIREMENTS IN ACCORDANCE WITH THE CAPITAL ADEQUAC Y NORMS FOR BANKING COMPANIES WHILE THE BRANCH BOOKING THE LOAN WOULD BE AS PER THE LOCAL REGULATORY REQUIREMENTS OF THAT JU RISDICTION. SINCE ALL ONGOING MANAGEMENT OF ASSETS & LIABILITIE S ARE MET BY THE OVERSEAS BRANCH, NO PART OF THE INTEREST MARGIN IS ATTRIBUTABLE TO THE APPELLANT. FURTHER, SINCE THE ENTIRE CAPITAL (I.E. LOAN AMOUNT) IS FUNDED BY THE OVERSEAS BRANCH AND NO BARCLAYS BANK 21 CAPITAL IS CONTRIBUTED BY THE APPELLANT IN RESPECT OF ECB DEALS, ANY INTEREST ATTRIBUTION TO THE APPELLANT IS NOT WA RRANTED. IN VIEW OF THE ABOVE ARGUMENTS, IT IS SUBMITTED TH AT NEITHER THE INTEREST MARGIN NOR THE AGENCY/ONE-TIME INCOME ARE ATTRIBUTABLE TO THE APPELLANT, AS THE APPELLANT HAD A VERY LIMITED ROLE TO PLAY IN THESE TRANSACTIONS, AND IT HAS BEEN BENEFITED OUT THIS ACTIVITY BY WAY OF SUBSEQUENT DEALS FROM THESE CLIENTS, WHICH HAVE BEEN BOOKED IN INDIA. THEREFORE, THE ASSESSEE PRAYS THAT THE ATTRIBUTION OF INCOME MADE BY THE TPO BE REJECTED. 21.3. THE LD. COUNSEL FOR THE ASSESSEE ALTERNATIVEL Y SUBMITS THAT INTEREST CANNOT BE TAKEN INTO CONSIDERATION FOR TP ADJUSTMENT IN VIEW OF THE DECISION OF THE CO-ORDINATE BENCH IN THE CAS E OF M/S. CREDIT LYONNAIS IN ITA NO. 1935/M/07 DATED 30 TH SEPTEMBER, 2013 WHEREIN IT WAS HELD THAT INTEREST RECEIVED FROM FOR EIGN BRANCHES SHOULD BE EXCLUDED FOR TP ADJUSTMENT. HE FURTHER P LACING RELIANCE ON THE SAID DECISION SUBMITS THAT IN RESPECT OF SERVIC E CHARGES AT THE RATE OF 20% OF AGENCY FEE ONLY CAN BE ATTRIBUTABLE FOR T HE ASSESSEE AND IN THIS CASE THE LD. COUNSEL FOR THE ASSESSEE REFERRIN G TO THE NOTIFICATION DATED 28.3.2000 AT PAGE 136 OF THE PAPER BOOK ISSU ED BY THE GOVT. OF INDIA, MINISTRY OF FINANCE, DEPARTMENT OF ECONOMIC AFFAIRS TO IDBI IN RESPECT OF ECB LOAN ARRANGED BY BARCLAYS ASIA LTD., SUBMITS THAT THE AGENCY FEES WAS FIXED AT 15,000 USD PER ANNUM THER EFORE AT BEST 20% OF THIS AMOUNT ONLY CAN BE CONSIDERED FOR TP AD JUSTMENT. 22. THE LD. DEPARTMENTAL REPRESENTATIVE REFERRING T O PARA-3.1 OF THE TPOS ORDER SUBMIT THAT ASSESSEE HAS FAILED TO DISCHARGE ITS ONUS TO SUBMIT ALL THE DETAILS IN RESPECT OF TP STUDY BE FORE THE ASSESSING OFFICER TO ADOPT APPROPRIATE METHOD FOR BENCH MARKI NG THE INTERNATIONAL TRANSACTIONS. THE LD. DEPARTMENTAL R EPRESENTATIVE FURTHER SUBMITS THAT ASSESSEE DID NOT CONTEST REND ERING OF SERVICES TO BARCLAYS BANK 22 ITS AE IN FINALIZING THE ECB LOANS BY ITS AES. HE ALSO SUBMITS THAT BASED ON AVAILABLE MATERIALS, TPO ARRIVED AT ALP BY ADOPTING THE PROFITS SPLIT METHOD IN BENCH MARKING THE INTERNATI ONAL TRANSACTIONS THOUGH ASSESSEE DID NOT CO-OPERATE WITH THE ASSESSI NG OFFICER IN ADOPTING THE APPROPRIATE METHOD FOR BENCH MARKING T HE TRANSACTIONS. THUS, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMIT T HAT THE MATTER MAY BE SENT BACK TO THE ASSESSING OFFICER TO FIND A PPROPRIATE METHOD FOR BENCH MARKING THE TRANSACTIONS WITH ITS AES. 23. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAWS RELIED ON. THE LD. CIT(A) DECIDED THIS ISSUE OF TRANSFER PRICING ADJUSTMENT I N A VERY CRYPTIC MANNER AS UNDER: I HAVE CONSIDERED THE ARGUMENTS OF THE AR AND I HAVE ALSO PERUSED ON THE RECORDS. ARGUMENTS OF THE AR THAT IN VIEW OF THE INTEREST AND AGENCY FEE INCOME BEING EXEMPT FROM TAX IN THE HANDS OF OVERSEAS BRANCH, NO ATTRIBUTION SHOULD BE MADE FOR THE SERVICE RENDERED BY THE INDIAN BRANCH IS NOT ACCEPTABLE. INCOME BEING EXEM PT IN THE HANDS OF OVERSEAS BRANCH IS NOT AT ALL RELEVANT CRITERION TO JUDGE THE ARMS LENGTH PRICE OF THE SERVICES REN DERED BY THE APPELLANT TO THE OVERSEAS BRANCHES. I AGREE WI TH THE TPO THAT IN THE ABSENCE OF DETAILS OF EXPENSES INCU RRED BY THE APPELLANT COST PLUS AND TRANSACTIONAL NET MARGI NAL METHOD ARE INAPPLICABLE. UNCONTROLLED TRANSACTION S ARE ALSO UNDER AVAILABLE. CONTROLLED TRANSACTIONS BETW EEN RELATED PARTIES CAN BE USED IN THESE CIRCUMSTANCES. FURTHER PROFIT SPLIT METHOD CAN ALSO BE USED. THE TPO HAS ACTUALLY USED THE PROFIT SPLIT METHOD. THE TOTAL I NCOME BEING GENERATED ON THE DCB LOAN BY WAY OF AGENCY FE E OR INTEREST INCOME IS BEING SHARED BETWEEN THE OVERSEA S BRANCH AND THE INDIAN BRANCH. IT IS THEREFORE HELD THAT EVEN THOUGH THE TPO HAS MENTIONED THAT HE HAS FOLLO WED THE CUP METHOD. HOWEVER, IN FACT THE TPO FOLLOWED PROFIT SPLIT METHOD BECAUSE OF THE PROFIT IN THE TRANSACTI ONS IS FAIRLY KNOWN. BARCLAYS BANK 23 CONSIDERING THE ROLE PLAYED BY THE APPELLANT INDIAN BRANCH IN PROVIDING THE ECB LOANS, I CONSIDERED IT APPROPRIATE TO APPLY A RATE OF 20% TO THE TOTAL AMO UNT OF INTEREST AND AGENCY FEE EARNED FROM SUCH LOANS DURI NG THE YEAR, TO COMPUTE THE ARMS LENGTH PRICE OF THE SERV ICE RENDERED BY THE APPELLANT TO THE OVERSEAS BRANCHES. THE TOTAL INCOME EARNED IS RS. 48,16,141/-. 20% OF THI S AMOUNT COMES TO RS. 9,63,228/-. ADDITION OF THIS AMOUNT I S CONFIRMED. BALANCE ADDITION OF RS. 2,40,807/- (RS. 12,04,035 RS. 9,63,228) IS DELETED. APPEAL ON TH IS GROUND IS PARTLY ALLOWED. 23.1 . ON GOING THROUGH THE ABOVE ORDER OF THE LD. CIT(A) , WE FIND THAT THE CIT(A) HAS NOT DEALT WITH THE ISSUES RAISE D BY THE ASSESSEE IN DETAIL. NONE OF THE ISSUES RAISED BY THE ASSESSEE HAVE BEEN DEALT WITH IN DETAIL BUT THE LD. CIT(A) IN A CRYPTIC MANNER DISPOSED OF THE APPEAL WITHOUT CONSIDERING ALL THESE SUBMISSIONS OF THE ASSESSEE AND SIMPLY ACCEPTING THE CONTENTIONS OF THE ASSESSING O FFICER IN ADOPTING THE PROFIT SPLIT METHOD AND SIMPLY REDUCING THE RAT E ADOPTED BY THE ASSESSING OFFICER TO 20% OF THE TOTAL AMOUNT OF INT EREST AND AGENCY FEES EARNED AS AGAINST 25% ADOPTED BY THE ASSESSING OFFICER. IN VIEW OF THE ASSESSEE RAISING VARIOUS CONTENTIONS, AS WE HAVE DISCUSSED IN THE EARLIER PARAGRAPHS, IN OUR CONSIDERED VIEW, THE MATTER HAS TO GO BACK TO LD. CIT(A) FOR PASSING A SPEAKING ORDER ON ALL THESE CONTENTIONS WHICH WERE RAISED BY THE ASSESSEE BEFOR E THE LD. CIT(A) AND ALSO BEFORE US AS NONE OF THESE CONTENTIONS HAV E BEEN DEALT WITH THE LD. CIT(A) THOUGH RAISED BEFORE HIM. THUS, WE RESTORE THIS ISSUE TO THE FILE OF THE LD. CIT(A) FOR FRESH ADJUDICATIO N IN ACCORDANCE WITH LAW AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEAR D TO THE ASSESSEE. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTI CAL PURPOSE. BARCLAYS BANK 24 24. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 4654/MUM/2007 A.Y. 2003-04 REVENUES AP PEAL 25. THE ONLY ISSUE IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A SSESSING OFFICER ON ACCOUNT OF BROKEN PERIOD INTEREST. 26. THIS ISSUE IS IDENTICAL WITH THE ISSUE IN GRO UND NO.2 IN ITA NO. 2050/M/07 FOR ASSESSMENT YEAR 2002-03 FROM PARA 8 T O 12. THEREFORE, ON SIMILAR LINES AND FOR SIMILAR REASONS , THE GROUND RAISED BY THE REVENUE IN ITA NO. 4654/M/07 FOR ASSESSMENT YEAR 2003-04 IS DISMISSED. ITA NO. 4668/MUM/2007 A.Y. 2003-04 27. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE I S THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSIN G OFFICER IN CHARGING TO TAX GUARANTEE COMMISSION ON CASH BASIS AND DISREGARDING THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. 28. THIS ISSUE IS IDENTICAL WITH THE ISSUE IN GRO UND NO.1 IN ITA NO. 1728/M/07 FOR ASSESSMENT YEAR 2002-03 AT PARA 14 & 15. THEREFORE, ON SIMILAR LINES AND FOR SIMILAR REASONS , THE GROUND RAISED BY THE ASSESSEE IN ITA NO. 4668/M/07 FOR ASSESSME NT YEAR 2003-04 IS DISMISSED. 29. THE NEXT ISSUE IN THE APPEAL OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF THE ASSESSIN G OFFICER IN BARCLAYS BANK 25 DISALLOWING THE INTEREST PAID TO RBI FOR MAINTAININ G INADEQUATE CASH RESERVE RATIO ON BALANCES. 30. THIS ISSUE IS IDENTICAL WITH THE ISSUE IN GRO UND NO.2 IN ITA NO. 1728/M/07 FOR ASSESSMENT YEAR 2002-03 FROM PARA 17 TO 19. THEREFORE, ON SIMILAR LINES AND FOR SIMILAR REASONS , THE GROUND RAISED BY THE ASSESSEE IN ITA NO. 4668/M/07 FOR ASSESSME NT YEAR 2003-04 IS ALLOWED. 31. THE THIRD ISSUE IN THE APPEAL OF THE ASSESSEE I S RELATING TO THE TRANSFER PRICING ADJUSTMENT. THE ASSESSEE CHALLENG ED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ADDITION MADE BY T HE ASSESSING OFFICER IN RESPECT OF INTRA-GROUP SERVICES RENDERED BY THE ASSESSEE TO EXTERNAL COMMERCIAL BORROWINGS (ECBS). 32. THIS ISSUE IS IDENTICAL WITH THE ISSUE IN GRO UND NO.3 IN ITA NO. 1728/M/07 FOR ASSESSMENT YEAR 2002-03 FROM PARA 20 TO 23. THEREFORE, ON SIMILAR LINES AND FOR SIMILAR REASONS , THE GROUND RAISED BY THE ASSESSEE IN ITA NO. 4668/M/07 FOR ASSESSME NT YEAR 2003-04 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 33. TO SUM UP, THE APPEALS FILED BY THE REVENUE ARE DISMISSED AND THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE, 2016. SD/- SD/- (RAJENDRA) (C.N. PRASAD ) ' / ACCOUNTANT MEMBER $ %' /JUDICIAL MEMBER MUMBAI; (' DATED :22 ND JUNE , 2016 . % . ./ RJ , SR. PS BARCLAYS BANK 26 !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+ ,%%-. , -.! , / DR, ITAT, MUMBAI 6. , /01 / GUARD FILE. / BY ORDER, *% //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI