BANK OF BARODA, MUMBAI V. ADDL CIT RG 2(1), MUMBAI

ITA 4619/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2659 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 23-02-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 09-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: JASBIR CHOUHAN SR
• Keywords: Double taxation relief; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AN D SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.4619/M/2012 ASSESSMENT YEAR: 2008-09 M/S. BANK OF BARODA, C-26, G-BLOCK, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI 400 051 PAN: AAACB 1534F VS. ADDL. CIT, RANGE 2(1), AAYAKAR BHAVAN, QUEENS ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ITA NO.4873/M/2012 ASSESSMENT YEAR: 2008-09 ACIT 2 (1), AAYAKAR BHAVAN, R.NO.561, 5 TH FLOOR, M.K. ROAD, MUMBAI - 400020 VS. M/S. BANK OF BARODA, C-26, G-BLOCK, BARODA CORPORATE CENTRE, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI 400 051 PAN: AAACB 1534F (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JASBIR CHOUHAN, SR.A.R. REVENUE BY : SHRI C. NARESH, D.R. DATE OF HEARING : 17.08.2015 DATE OF PRONOUNCEMENT : 04.11.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE TITLED CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE HAVE BEEN PREFERRED AGAINST THE ORDER DATED 11.05.2012 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER R EFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT YEAR 2008-09. FOR SAKE OF C ONVENIENCE, THE FACTS HAVE BEEN TAKEN FROM ASSESSEES APPEAL I.E. ITA NO.4619/ M/2012. ITA NO.4619/M/2012 & ITA NO.4873/M/2012 M/S. BANK OF BARODA 2 ITA NO.4619/M/2012 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1.1 THE LD.CIT (A) ERRED ON FACTS IN CONFIRMING T HE DISALLOWANCE OF DEDUCTION U/S 36(1)(VIII) OF THE INCOME TAX ACT ON THE GROUND THAT NO SPECIAL RESERVE HAD BEEN CREATED WHEREAS ON FACTS THE REQUISITE RESERVE HAD BEEN CREATED AND HENCE NO DISALLOWANCE IS WARRANTED. THE LD CIT(A) OUGHT T O HAVE NOTED THAT FROM THE AUDITED AND APPROVED ACCOUNTS FOR THE Y.E 31/03/200 8, AMOUNTS TRANSFERRED TO REVENUE AND OTHER RESERVES FROM THE PROFITS FOR THE RELEVANT YEAR AMOUNTED TO RS 651,05 CR AND THE SAME WAS MAINTAINE D THEREAFTER WITHOUT BEING WITHDRAWN AND HENCE THE COMPLIANCE OF CONDITI ON MENTIONED IN SEC 36(1)(VIII) HAS BEEN FULFILLED. THE LD CIT(A) FAILE D TO APPRECIATE THAT THE REQUIREMENT TO TRANSFER TO A SPECIAL RESERVE IS ONL Y AN ACT OF MAKING AN ACCOUNTING ENTRY WHICH HAS BEEN DULY COMPLIED WITH AND FURTHER THE AMOUNT SO TRANSFERRED HAVE BEEN MAINTAINED THEREAFTER AND MERELY BECAUSE THE RESERVE WAS NOT CHRISTEN AS SPECIAL RESERVE DEDUCTI ON OTHERWISE ALLOWABLE OUGHT NOT TO HAVE BEEN DISALLOWED. 2.1 WITHOUT PREJUDICE TO ABOVE, THE LD CIT(A) FAILE D TO APPRECIATE THAT IN THE FINANCIAL YEAR 2008-09 FOLLOWING THE CURRENT FI NANCIAL YEAR 2007-08 THE APPELLANT HAD AS A MATTER OF ABUNDANT CAUTION TRANS FERRED A SUM OF RS 200 CRORES FROM PROFITS TO RESERVE TO BE MAINTAINED AS A SPECIAL RESERVE AND HENCE BASED ON THE DECISION OF ITAT DELHI IN THE CASE OF POWER FINANCE CORPORATION LTD (2008-TIOL-475-ITAT-DEL) THE CLAIM OF THE APPELLANT SHOULD HAVE BEEN ALLOWED. 3.1 THE LD CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF PROVISION TOWARDS LIABILITY ARISING ON ACCOUNT OF REVISION PAYABLE TO EMPLOYEES. THE LD CIT(A) FAILED TO APPRECIATE THAT PROVISION HAD BEEN MADE BASED ON A REASONABLE ESTIMATE OF THE IMMINENT LIABILITY CONSEQUENT ON THE BIPARTITE SET TLEMENT TALKS THAT WERE BEING HELD BETWEEN THE INDIAN BANK'S ASSOCIATION (IBA) AND VAR IOUS EMPLOYEE UNIONS. 3.2 THE LD CIT(A) FAILED TO APPRECIATE THAT ONCE L IABILITY FOR AN EXPENDITURE WHICH IS CONTRACTUAL IN NATURE IS FOISTED ON APPELL ANT THE SAME IS ALLOWABLE AS DEDUCTION THOUGH THE SAME COULD BE QUANTIFIED BASED ON REASONABLE ESTIMATE ONLY. RELIANCE IS PLACED ON THE DECISION OF ITAT IN NEYVELI LIGNITE CORPORATION V ACIT 93 TTJ 685 (CHEN) 4.1 THE LD CIT (A) ERRED IN CONFIRMING THE DISALLO WANCE U/S 14A COMPUTED AS PER RULE 8D AT RS.65.37 CRORE ON A TAX FREE INCO ME OF RS. 60.81 CRORE OVER LOOKING FACT THAT THE APPELLANT HAD HIMSELF QUANTIF IED THE DISALLOWANCE AT RS.6.05 CRORE BEING 0.5% OF AVERAGE INVESTMENTS EAR NING TAX FREE INCOME. THE CIT (A) HAVING AGREED WITH THE CLAIM OF THE APPELLA NT THAT ITS INTEREST FREE FUNDS FAR EXCEED THE AMOUNT OF INVESTMENTS IN ASSETS EARN ING TAX FREE INCOME OUGHT TO HAVE FOLLOWED THE RATIO LAID DOWN BY JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD 313 ITR 340 AND HE LD THAT NO DISALLOWANCE OF INTEREST AS CONTEMPLATED IN RULE 8D WAS WARRANTED. ITA NO.4619/M/2012 & ITA NO.4873/M/2012 M/S. BANK OF BARODA 3 5. THE LD CIT (A) ERRED IN CONFIRMING THE TAXABILIT Y OF MANAGEMENT FEE AND DIVIDEND FROM FOREIGN SUBSIDIARIES AT 30% INSTEAD O F 10% AS PROVIDED FOR IN THE DOUBLE TAX AVOIDANCE AGREEMENTS. THE CIT (A) HAD CO NSIDERED THE PROVISIONS OF SECTION 91 WHICH WILL APPLY ONLY WHEN THERE IS NO D TAA AND WHERE THERE IS A DTAA, THE RATES PRESCRIBED IN DTAA SHOULD HAVE BEEN THE BASIS. GROUND NOS.1 & 2: 3. THE ISSUE RAISED VIDE GROUND NOS.1 & 2 IS RELATI NG TO THE CONFIRMATION OF DISALLOWANCE OF DEDUCTION IN SECTION 36(1)(VIII) OF THE INCOME TAX ACT. THE ASSESSEE DURING THE YEAR CLAIMED DEDUCTION UNDER SE CTION 36(1)(VIII) OF THE ACT AT RS.161,55,76,163/- IN RELATION TO PROFIT DERIVED FROM ELIGIBLE BUSINESS AND INCOME COMPUTED UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION, TO THE EXTENT, 20% OF SUCH PROFIT AGAINST A RESERVE CREATED IN THIS RESPECT. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE A O), HOWEVER, REJECTED THE CLAIM OF THE ASSESSEE HOLDING THAT THE ASSESSEE HAD NOT CREATED THE SPECIAL RESERVE FOR THIS PURPOSE DURING THE YEAR. THE ASSE SSEE HAD ONLY TRANSFERRED THE AMOUNT TOWARDS THE GENERAL RESERVE. AGGRIEVED BY T HE ORDER OF THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE LD. CIT(A) OBSERVED THAT THERE WAS NO DISPUTE REGARDING THE EL IGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION UNDER SECTION 36(1)(VIII) OF THE AC T. THE ASSESSEE HAD CLAIMED THAT IT HAD TRANSFERRED RS.651.05 CRORES TO REVENUE AND OTHER RESERVES DURING THE FINANCIAL YEAR 2007-08 RELEVANT TO A.Y. 2008-09 I.E. THE YEAR UNDER CONSIDERATION AND CLAIMED THAT THE TRANSFER OF PROF IT TO SUCH GENERAL RESERVES FULFILL THE CONDITION OF TRANSFER TO SPECIAL RESERV E AS PER THE PROVISIONS OF SECTION 36(1)(VIII) OF THE ACT. IT WAS ALSO CLAIME D THAT IN THE SUBSEQUENT PERIOD I.E. ON 31.03.09, THE ASSESSEE HAD TRANSFERRED MORE THAN THE REQUIRED AMOUNT I.E. RS.200 CRORES TO THE SPECIAL RESERVE CREATED A S PER THE REQUIREMENT OF SECTION 36(1)(VIII) OF THE ACT. THE LD. CIT(A), HO WEVER, OBSERVED THAT AS PER THE RELEVANT PROVISIONS, THE ASSESSEE WAS REQUIRED TO TRANSFER THE 20% OF THE ITA NO.4619/M/2012 & ITA NO.4873/M/2012 M/S. BANK OF BARODA 4 PROFIT IN THE SPECIAL RESERVE DURING THE YEAR ITSEL F. HOWEVER, THE ASSESSEE HAD TRANSFERRED THE REQUIRED AMOUNT IN THE GENERAL RESE RVE. SUBSEQUENT TRANSFER OF ANY FUND AMOUNT TO SPECIAL RESERVE DURING THE SUBSE QUENT YEAR WOULD NOT ENTITLE THE ASSESSEE TO CLAIM DEDUCTION DURING THE YEAR UNDER CONSIDERATION. HE, THEREFORE, REJECTED THE CLAIM OF THE ASSESSEE A ND UPHELD THE DISALLOWANCE MADE BY THE AO. 5. BEFORE US, THE LD. A.R. OF THE ASSESSEE, AT THE OUTSET, HAS INVITED OUR ATTENTION TO THE DECISION OF THE CO-ORDINATE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. POWER FINANCE CORPORATION LTD. VS. JC IT ITA NO.1164/DEL/04 DATED 31.07.2008, WHEREIN THE TRIBUNAL ON THE IDENT ICAL ISSUE WHILE ANALYZING THE PROVISIONS OF SECTION 36(1)(VIII) HAS HELD THAT A RESERVE CREATED IN SUBSEQUENT YEARS, HOWEVER, BEFORE FINALIZATION OF G RANT OF DEDUCTION IS REQUIRED TO BE CONSIDERED WHILE ALLOWING ASSESSEES CLAIM OF DEDUCTION MADE UNDER SECTION 36(1)(VIII) OF THE ACT. THE TRIBUNAL, WHIL E HOLDING SO, OBSERVED THAT THE INFERENCE FROM THE WORDS BEFORE MAKING ANY DED UCTION UNDER THIS CLAUSE CARRIED TO SUCH RESERVE ACCOUNT CAN BE DRAWN THAT THE REQUIREMENT OF SPECIAL RESERVE IS TO BE COMPLIED WITH AT THE TIME OF CONSI DERING THE CLAIM OF DEDUCTION AND IT DOES NOT MEAN THAT THE AMOUNT SHOULD BE TRAN SFERRED TO THE SPECIAL RESERVE BEFORE MAKING ANY CLAIM OF DEDUCTION. THE TRIBUNAL FURTHER IN PARA 26 OF THE ORDER HAS OBSERVED IN THE SAID CASE THAT ALT HOUGH THE RESERVE CREATED IN THE YEAR ENDED ON 31.03.98 WAS OF RS.53.74 CRORES F OR THE YEAR ENDED ON 31.03.97 BUT THE PROFIT REMAINING IN GENERAL RESER VE IN F.Y. 1996-97 WAS ONLY RS.5327.54 LAKHS. IT WAS ALSO POINTED OUT THAT AS PER THE DETAILS OF RESERVE AS ON 31.03.98 RS.5300 LAKHS WAS TRANSFERRED OUT FROM GENERAL RESERVE TO SPECIAL RESERVE CREATED UNDER SECTION 36(1)(VIII) OF THE AC T AND THE TRIBUNAL IN THESE FACT AND CIRCUMSTANCES HELD THAT TO THE EXTENT OF R S.53 CRORES, THE SPECIAL RESERVE CREATED DURING F.Y. 1997-98 WAS OUT OF THE REMAINING PROFIT OF F.Y. 1996-97 AND HENCE TO THIS EXTENT THE RESERVE CREATE D IN F.Y. 1997-98 SHOULD BE ITA NO.4619/M/2012 & ITA NO.4873/M/2012 M/S. BANK OF BARODA 5 CONSIDERED FOR ALLOWING THE DEDUCTION UNDER SECTIO N 36(1)(VIII) OF THE ACT. THE PROPOSITION OF LAW LAID DOWN BY THE TRIBUNAL IN THIS RESPECT IS THAT THE AMOUNT OF THE PREVIOUS YEAR WHICH WAS TRANSFERRED T O THE SPECIAL RESERVE OUT OF THE GENERAL RESERVE CREATED DURING THE SUBSEQUENT Y EAR SHOULD BE CONSIDERED FOR DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. AD MITTEDLY, IN THE CASE IN HAND, THE ASSESSEE HAS TRANSFERRED THE AMOUNT OF RS.200 C RORES IN THE SPECIAL RESERVE CREATED DURING THE SUBSEQUENT YEAR, OUT OF THE GENE RAL RESERVE CREATED DURING THE YEAR UNDER CONSIDERATION, WHEREAS THE CLAIM OF DEDUCTION HAS BEEN MADE IN RESPECT OF THE AMOUNT OF RS.161 CRORES ONLY. THE IS SUE UNDER CONSIDERATION IS THUS SQUARELY COVERED BY THE DECISION OF THE CO-ORD INATE DELHI BENCH OF THE TRIBUNAL (SUPRA). WE, THEREFORE, DIRECT THE AO TO ALLOW THE CLAIM FOR THE DEDUCTION TO THE ASSESSEE IN THE LIGHT OF THE DECIS ION OF THE CO-ORDINATE BENCH OF THE DELHI TRIBUNAL IN THE CASE OF M/S. POWER FI NANCE CORPORATION LTD. VS. JCIT (SUPRA). GROUND NOS.3.1 & 3.2 6. GROUND NOS.3.1 & 3.2 RELATE TO THE DISALLOWANCE OF PROVISION TOWARDS LIABILITY ARISING ON ACCOUNT OF WAGE REVISION PAYAB LE TO EMPLOYEES. ACCORDING TO THE ASSESSEE THE PROVISION MADE FOR EXCESS PAYME NT OF WAGES PAYABLE TO THE EMPLOYEES WAS TOWARDS THE ASCERTAINED LIABILITY. I T WAS SUBMITTED THAT AFTER EVERY FIVE YEARS, CHARGES ARE REVISED AS PER THE PO LICY AND AGREEMENT REACHED WITH THE UNIONS. THEREFORE, THE WAGE REVISION FOR THE YEAR UNDER CONSIDERATION WAS MUST AND CERTAIN. HOWEVER, THE NEGOTIATION WAS GOING ON WITH THE UNION AND THE AGREEMENT WAS SIGNED WITH THE UNION ON 27.0 4.10 ONLY. THE LD. CIT(A), HOWEVER, REJECTED THE CLAIM ON THE GROUND T HAT IT WAS A CONTINGENT LIABILITY. HE HELD THAT NO AGREEMENT WAS SIGNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, HENCE THE ASSESSEE WAS NOT ENT ITLED TO CREATE PROVISION FOR THE WAGE REVISION. BEING AGGRIEVED, THE ASSESSEE H AS COME IN APPEAL BEFORE US. ITA NO.4619/M/2012 & ITA NO.4873/M/2012 M/S. BANK OF BARODA 6 7. THE LD. A.R. OF THE ASSESSEE, AT THE OUTSET, HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TATA COMMUNICATIONS LTD. VS. DCIT ITA NOS.3062 & 3438/M/2003 VIDE ORDER DATED 05.12.12 WHEREIN THE T RIBUNAL HAS TAKEN A VIEW THAT IN CASE OF SALARY/WAGE REVISION, WHAT IS IMPOR TANT IS NOT THE DATE OF SIGNING THE AGREEMENT NOR THE DATE OF APPROVAL GRANTED BY T HE DRE, WHAT IS IMPORTANT IS THE EFFECTIVE DATE OF COMMENCEMENT. THE TRIBUNA L, WHILE RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F BHARAT EARTH VS. CIT 245 ITR 428, HELD THAT IN SUCH A CASE THE INCURRING OF LIABILITY WAS CERTAIN AND THE SAME COULD ALSO BE ESTIMATED WITH REASONABLE CE RTAINTY, ALTHOUGH, THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IN THE CASE IN HAND ALSO AS PER THE AGREEMENT AND THE POLICY, THE WAGE REVISION WAS CER TAIN AND IT COULD HAVE BEEN REASONABLY ESTIMATED ALSO. HENCE, THE PROVISION MA DE BY THE ASSESSEE TOWARDS WAGE REVISION WAS ALLOWABLE. RESPECTFULLY FOLLOWIN G THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TATA COMMUNICATIONS LTD. (SUPRA), THIS ISSUE IS ACCORDINGLY DECIDED IN FAVOU R OF THE ASSESSEE AND THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE PROVISION ON ACCOUNT OF WAGE REVISION. GROUND NO.4 8. GROUND NO.4 IS RELATING TO THE DISALLOWANCE UNDE R SECTION 14A. THE LOWER AUTHORITIES HAVE COMPUTED THE DISALLOWANCE UN DER SECTION 14A AS PER THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES. THE LD. A.R. OF THE ASSESSEE, BEFORE US, HAS SUBMI TTED THAT THE AO HAS STRAIGHTWAY APPLIED RULE 8D WITHOUT CONSIDERING THE COMPUTATION WORKING/WORKING GIVEN BY THE ASSESSEE. HE HAS FURT HER RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) TO STRESS THAT IF THE OWN FUNDS OF THE ASSESSEE ARE AVAILABLE, THEN THE PRESU MPTION WILL BE THAT THE ITA NO.4619/M/2012 & ITA NO.4873/M/2012 M/S. BANK OF BARODA 7 ASSESSEE HAD USED THE OWN FUNDS FOR MAKING THE INVE STMENT AND NO INTEREST DISALLOWANCE IS REQUIRED TO BE MADE IN RELATION TO THE INVESTMENTS MADE BY THE ASSESSEE OUT OF HIS OWN FUNDS. IN RELATION TO THE DISALLOWANCE OF ADMINISTRATIVE E XPENSES UNDER RULE 8D(2)(III), THE LD. A.R. HAS SUBMITTED THAT THE AO HAD INCLUDED THE INVESTMENTS WHICH WERE TAKEN AS STOCK IN TRADE IN T HE ACCOUNTS WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE ACT. HE HAD RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. IN ITA NO.1131 OF 2013 VIDE ORDER DATED 17.03.2015 WHEREIN THE HONBLE BOMBAY HIGH COURT HA S UPHELD THE FINDING OF THE TRIBUNAL HOLDING THAT WHILE MAKING THE DISALLOW ANCE UNDER RULE 8D, THE SHARES HELD AS STOCK IN TRADE SHOULD NOT BE CONSIDE RED, ONLY THE SHARES TAKEN AS INVESTMENT IN THE ACCOUNT BE CONSIDERED FOR COMPUTA TION OF DISALLOWANCE OF EXPENDITURE UNDER RULE 8D. THE LD. A.R. HAS SUBMIT TED THAT THE DIVIDEND EARNED IN RESPECT OF SHARES HELD IN STOCK IN TRADE IS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND THE INVESTMENT IN THE SHARES HELD AS STOCK IN TRADE WAS NOT MADE FOR EARNING OF EXEMPT INCOME. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT MA Y BE OBSERVED THAT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81 , THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D R.W .S. 14A(2) IS NOT ARBITRARY OR UNREASONABLE AND ALSO NOT RETROSPECTIV E AND APPLIES FROM A.Y. 2008-09. IT HAS BEEN FURTHER HELD THAT UNDER SECTIO N 14A OF THE INCOME TAX ACT, RESORT CAN BE MADE TO RULE 8D OF THE INCOME TA X RULES FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INC OME, IF, THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. SUB SECTION (2) DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE MET HOD PRESCRIBED BY THE RULES ITA NO.4619/M/2012 & ITA NO.4873/M/2012 M/S. BANK OF BARODA 8 STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT SUCH EXPENDITURE IS CORRECT. THE SATISFACTI ON OF THE ASSESSING OFFICER MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IN A SITU ATION WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTIVE BASIS FOR THE ASS ESSING OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CL AIM OF THE ASSESSEE, THERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO THE METH OD PRESCRIBED BY THE RULES. AN OBJECTIVE SATISFACTION CONTEMPLATES A NOTICE TO THE ASSESSEE, AN OPPORTUNITY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FACTS INCLUDING HIS ACCOUNTS AND RECORDING OF REASONS BY THE ASSESSING OFFICER I N THE EVENT THAT HE COMES TO THE CONCLUSION THAT HE IS NOT SATISFIED WITH THE CL AIM OF THE ASSESSEE. 10. HOWEVER, A PERUSAL OF THE ASSESSMENT ORDER REVE ALS THAT THE AO HAS NOT FOLLOWED THE GUIDELINES OF OBJECTIVE SATISFACTION A S LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SU PRA) WHILE MAKING THE DISALLOWANCE . HE WITHOUT RECORDING ANY REASONING F OR HIS DISSATISFACTION WITH REGARD TO THE WORKING/CLAIM OF THE ASSESSEE, STRAIG HTWAY APPLIED RULE 8D AGAINST THE MANDATE OF THE PROVISIONS OF SECTION 14 A OF THE INCOME TAX ACT. THE LD. CIT(A) ALSO IGNORED THE MANDATE OF THE PROV ISIONS OF SECTION 14 A, WHILE CONFIRMING THE DISALLOWANCE. 11. FURTHER, WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) HAS HELD HAS HELD THAT IF THERE ARE FUNDS AVAILABLE, BO TH INTEREST FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUND GENERATED OR AVAILABL E WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INV ESTMENT. SIMILAR VIEW HAS BEEN TAKEN IN THE CASE OF CIT VS. HDFC BANK LTD. IN ITA NO.330 OF 2012 DECIDED ON 23 RD JULY 2014 BY THE HONBLE BOMBAY HIGH COURT. ITA NO.4619/M/2012 & ITA NO.4873/M/2012 M/S. BANK OF BARODA 9 12. FURTHER, WE FIND THAT THIS TRIBUNAL IN THE CASE OF DCIT VS. INDIA ADVANTAGE SECURITIES LTD. IN ITA NO.6711/M/2011 VI DE ORDER DATED 14.09.2012 WHILE RELYING UPON THE DECISION OF THE H ONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. SMT. LEENA RAMACHANDRAN (33 9 ITR 296) AND FURTHER ON THE DECISION OF THE HONBLE HIGH COURT OF KARNAT AKA IN THE CASE OF CCL LTD. VS. JCIT 250 CTR 291 HAS HELD THAT DISALLOWAN CE UNDER SECTION 14A IN RELATION TO DIVIDEND RECEIVED FROM TRADING SHARES C ANNOT BE MADE. THE SAID FINDING OF THE TRIBUNAL HAS BEEN UPHELD BY THE HON BLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIA ADVANTAGE SECURITIES LTD. IN ITA NO.1131 OF 2013 VIDE ORDER DATED 17.03.2015 (SUPRA) . THE SAID DECISION HOLDS BINDING PRECEDENT UPON THIS TRIBUNAL. IN VIEW OF OUR ABOVE DISCUSSION OF THE MATTER, WE DIRECT THE AO TO DECIDE THIS ISSUE AFRESH IN THE LIGHT OF THE OUR OBSERVATIONS M ADE ABOVE AND TAKING INTO CONSIDERATION THE JUDICIAL PRONOUNCEMENTS IN THE CA SE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT (SUPRA), CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA), CIT VS. HDFC BANK LTD.(SUPRA ) AND IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD. (SUPRA). NEEDLES S TO SAY, THE AO WILL GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS C ASE AND FURNISH WORKING/COMPUTATION ETC. AND THEN TO DECIDE THE CAS E IN ACCORDANCE WITH LAW. 13. THE LD. A.R. OF THE ASSESSEE HAS NOT ADVANCED A NY ARGUMENT IN RELATION TO GROUND NO.5 OF THE APPEAL AND THE SAID GROUND IS ACCORDINGLY DISMISSED. NOW COMING TO THE APPEAL OF THE DEPARTMENT I.E. ITA NO.4873/M/2012 ITA NO.4873/M/2012 14. THE SOLE ISSUE RAISED BY THE REVENUE THROUGH IT S GROUNDS OF APPEAL IS RELATING TO INCLUSION OF INCOME OF FOREIGN BRANCHES INTO THE TOTAL INCOME OF THE ASSESSEE. THE CONTENTION OF THE ASSESSEE BANK HAS BEEN THAT THE FOREIGN BRANCHES OF THE ASSESSEE ARE SUBJECT TO TAX IN THE SOURCE COUNTRY I.E. FOREIGN ITA NO.4619/M/2012 & ITA NO.4873/M/2012 M/S. BANK OF BARODA 10 COUNTRY, THEREFORE, THEIR INCOME CANNOT BE INCLUDED IN THE RETURN OF INCOME FILED IN INDIA. THE LD. A.R. OF THE ASSESSEE HAS BEEN FAIR ENOUGH T O ADMIT THAT THIS ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE IN THE OWN CA SE OF THE ASSESSEE FOR A.Y. 2005-06 IN ITA NO.3367/M/2011 DATED 25.07.2014. THE TRIBUNAL IN THE SAID DECISION, FOLLOWING ANOTHE R DECISION OF THE TRIBUNAL IN THE CASE OF ESSAR OIL LTD. 175 TTJ 785 HAS HELD T HAT THE INCOME OF THE BRANCHES OF THE ASSESSEE IS ALSO TAXABLE IN INDIA A ND THE SAME WOULD BE INCLUDABLE IN THE RETURN OF INCOME. HOWEVER, THE A SSESSEE WILL BE ENTITLED TO CREDIT OF SUCH TAXES WHICH HAVE BEEN PAID BY THE BR ANCHES IN OTHER CONTRACTING STATES. SINCE THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESS EE, HENCE, RESPECTFULLY FOLLOWING THE SAME, THE APPEAL OF THE REVENUE IS TR EATED AS ALLOWED IN THE SAME LINES. 15. IN VIEW OF OUR FINDINGS GIVEN ABOVE, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE APPEAL OF THE REVENUE IS TREATED AS ALLOWED IN TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 04.11.2015. SD/- SD/- (D. KARUNAKARA RAO) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 04.11.2015. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI ITA NO.4619/M/2012 & ITA NO.4873/M/2012 M/S. BANK OF BARODA 11 THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.