Appeal details
Counselvise Citation
464919914 RSA 2009
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 7 month(s) 14 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-03-2014
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
K
Next Hearing Date
27-02-2014
Assessment Year
2002-2003
Appeal Filed On
07-08-2009
Judgement Text
, IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI . . , . . BEFORE SHRI R.C.SHARMA AM & VIJAY PAL RAO, JM ./ I.T.A. NO.4474/M/2009 ( / ASSESSMENT YEAR :2002-03) CALYON BANK (FORMERLY CREDIT AGRICOLE INDOSUEZ) HOECHST HOUSE, 11 TH , 12 TH , 14 TH FLOORS, NARIMAN POINT, MUMBAI-400021 / VS. DDIT(IT) 1(2) SCINDIA HOUSE, BALLARD ESTATE, MUMBAI-400038 ./ ./ PAN/GIR NO. : AACCC3872B ( & / APPELLANT ) .. ( '(& / RESPONDENT ) ./ I.T.A. NO.4649/M/2009 ( / ASSESSMENT YEAR :2002-03) DDIT(IT) 1(2) SCINDIA HOUSE, BALLARD ESTATE, MUMBAI-400038 / VS. CALYON BANK (FORMERLY CREDIT AGRICOLE INDOSUEZ) HOECHST HOUSE, 14 TH FLOORS, NARIMAN POINT, MUMBAI-400021 ./ ./ PAN/GIR NO. : AAACB3537A ( & / APPELLANT ) .. ( '(& / RESPONDENT ) '() '() '() '() / CO NO.218/M/2013 ( / ASSESSMENT YEAR :2002-03) DDIT(IT) 1(2) SCINDIA HOUSE, BALLARD ESTATE, MUMBAI-400038 / VS. CALYON BANK (FORMERLY CREDIT AGRICOLE INDOSUEZ) HOECHST HOUSE, 14 TH FLOORS, NARIMAN POINT, MUMBAI-400021 ./ ./ PAN/GIR NO. : AAACB3537A ( & / APPELLANT ) .. ( '(& / RESPONDENT ) ./ I.T.A. NO.723/M/2011 ( / ASSESSMENT YEAR :2003-04) CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK AGRICOLE CIB (FORMERLY CALYON BANK, EARLIER CREDIT AGRICOLE INDOSUEZ) HOECHST HOUSE, 11 TH FLOORS, NARIMAN POINT, MUMBAI-400021 / VS. DDIT(IT) 1(2) SCINDIA HOUSE, BALLARD ESTATE, MUMBAI-400038 ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 2 ./ ./ PAN/GIR NO. : AACCC3872B ( & / APPELLANT ) .. ( '(& / RESPONDENT ) ./ I.T.A. NO.1134/M/2011 ( / ASSESSMENT YEAR :2003-04) DDIT(IT) 1(2) SCINDIA HOUSE, BALLARD ESTATE, MUMBAI-400038 / VS. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK (FORMERLY CALYON BANK, EARLIER CREDIT AGRICOLE INDOSUEZ) HOECHST HOUSE, 11 TH , 12 TH ,14 TH FLOORS, NARIMAN POINT, MUMBAI-400021 ./ ./ PAN/GIR NO. : AAACB3537A ( & / APPELLANT ) .. ( '(& / RESPONDENT ) '() '() '() '() / CO NO.221/M/2013 ( / ASSESSMENT YEAR :2003-04) ADIT(IT) 1(2), R.NO.119, IST FLOOR, SCINDIA HOUSE, N.M.RD. BALLARD ESTATE, MUMBAI-400038 / VS. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK (FORMERLY CALYON BANK, EARLIER CREDIT AGRICOLE INDOSUEZ) HOECHST HOUSE, 11 TH , 12 TH ,14 TH FLOORS, NARIMAN POINT, MUMBAI-400021 ./ ./ PAN/GIR NO. : AACCC3872B ( & / APPELLANT ) .. ( '(& / RESPONDENT ) * * * * , , , , /ASSESSEE BY : SHRI MADHUR AGARWAL , , , , / REVENUE BY : SHRI AJEET KUMAR JAIN (DR) , ,, , . .. . / DATE OF HEARING : 27 TH FEBRUARY 2014 ,. ,. ,. ,. /DATE OF PRONOUNCEMENT : 21 ST MARCH 2014 / O R D E R PER BENCH, THESE TWO SET OFF CROSS APPEALS AND CROSS OBJECTIO N OF THE REVENUE ARE DIRECTED AGAINST THE ORDERS DATED 29.09.2009 & 19.1 1.2010 OF COMMISSIONER OF INCOME TAX(APPEALS) FOR THE ASSESSMENT YEARS 2002-03 &2003-04 RESPECTIVELY. 2. FOR THE ASSESSMENT YEAR 2002-03 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS. ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 3 THE COMMISSIONER OF INCOME-TAX (APPEALS)-XXXI, MUMB AI (CIT(A)) ERRED IN HOLDING THAT THE ASSESSING OFFICER (AO) WAS JUSTIFIED IN CHARGING TO TAX, THE INTEREST OF RS.3,48,59,282 RECEIVED BY YOUR APPELLANTS FROM THEIR HEAD OFFICE (HO)/OVERS EAS BRANCHES. YOUR APPELLANTS SUBMIT THAT THE INTEREST RECEIVED R EPRESENTS A RECEIPT FROM SELF AND SHOULD THEREFORE BE IGNORED IN COMPUTING THEIR TAXABLE INC OME. YOUR APPELLANTS PRAY THAT THE AO BE DIRECTED ACCORD INGLY. 2.HAVING HELD THAT THE INTEREST RECEIVED BY YOUR AP PELLANTS FROM THEIR HO/OVERSEAS BRANCHES IS LIABLE TO TAX IN INDIA, THE CIT(A) ERRED IN NOT DIR ECTING THE AO TO ALLOW A DEDUCTION IN RESPECT OF THE INTEREST OF RS.1,25,330 PAID BY YOUR APPELLANTS TO THEIR HO/BRANCHES ON THE BASIS THAT THE PROVISIONS OF SECTION 40(A)(I) OF THE INCOME-TAX AC T, 1961 (THE ACT) ARE APPLICABLE. YOUR APPELLANTS SUBMIT THAT THE PROVISIONS OF SECTI ON 40(A)(I) ARE NOT ATTRACTED FOR THE REASON THAT AS STATED EARLIER, THE INTEREST PAYMENT TO HO/BRANCH ES WOULD AMOUNT TO A PAYMENT TO SELF. YOUR APPELLANTS PRAY THAT THE AO BE DIRECTED TO ALL OW THEM A DEDUCTION IN RESPECT OF THE INTEREST PAYMENT OF RS. 1,25,330. 3.THE CIT(A) ERRED IN CONFIRMING THE AOS ACTION OF APPLYING THE PROVISIONS OF ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA A ND FRANCE (DTAA) AND THEREBY CHARGING TO TAX, 10% OF THE INTEREST OF RS.L,25,330 PAID BY YOUR APPELLANTS TO THEIR HO/BRANCHES AS INCOME EARNED BY THE HO/BRANCHES IN INDIA. YOUR APPELLANTS SUBMIT THAT THE PROVISIONS OF ARTIC LE 12 OF THE DTAA ARE NOT APPLICABLE AS THEY AND THEIR HO ARE RESIDENTS OF THE SAME CONTRACTING S TATE IE FRANCE AND FURTHER SUBMIT THAT THE AOS ACTION AMOUNTS TO TAXING OF THE SAME AMOUNT TW ICE OVER. YOUR APPELLANTS PRAY THAT THE AO BE DIRECTED ACCORD INGLY. 4.(A) THE CIT(A) ERRED IN CONFIRMING A DISALLOWANCE OF RS.50,04,624 IN RESPECT OF EXPENSES HELD TO BE ATTRIBUTABLE TOWARDS EARNING THE TAX-FREE INT EREST ON SECURITIES AND DIVIDEND INCOME BY APPLYING THE PROVISIONS OF SECTION 14A READ WITH RU LE 8D IN COMPUTING THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOM E. (B) THE CIT (A) OUGHT TO HAVE APPRECIATED THAT THE PROVISIONS OF RULE 8D WHICH WERE INTRODUCED W.E.F. MARCH 24, 2008 WERE NOT APPLICABLE TO THE SU BJECT YEAR. (C) THE CIT(A) OUGHT TO HAVE HELD THAT AS THE INVES TMENTS WERE MADE IN THE EARLIER YEARS, WHERE IT HAS BEEN HELD THAT NO EXPENDITURE WAS INCURRED IN R ELATION TO EXEMPT INCOME AS THE INVESTMENTS WERE OUT OF OWN FUNDS, NO INTEREST / ADMINISTRATIVE EXPENDITURE COULD BE HELD TO HAVE BEEN INCURRED DURING THE YEAR UNDER APPEAL IN RELATION T O SUCH EXEMPT INCOME. (D) THE CIT(A) OUGHT TO HAVE HELD THAT NO ADMINISTR ATIVE EXPENDITURE WAS INCURRED IN RELATION TO EXEMPT INCOME AS: I. ONLY FOUR INTEREST WARRANTS HAVE BEEN RECEIVED D URING THE YEAR (I.E. TWO INTEREST WARRANTS FOR EACH OF THE TWO BONDS) AND II. THERE IS NO MOVEMENT IN THE INVESTMENTS IN THE LAST SEVERAL YEARS. YOUR APPELLANTS PRAY THAT THE AO BE DIRECTED TO DEL ETE THE DISALLOWANCE OF RS.50,04,624. 5.THE CIT(A) ERRED IN UPHOLDING THE AOS ACTION OF CHARGING TO TAX, PROFIT OF RS.1,98,42,490, ARISING ON REVALUATION OF UNMATURED FORWARD FOREX C ONTRACTS. YOUR APPELLANTS SUBMIT THAT BASED ON HIS STAND IN T HE EARLIER ASSESSMENT YEARS THAT A LOSS ON REVALUATION OF FOREX CONTRACTS BEING A NOTIONAL LOS S, IS NOT DEDUCTIBLE IN ARRIVING AT THE TAXABLE INCOME, THE CIT(A) OUGHT TO HAVE DIRECTED THE AO, N OT TO CHARGE TO TAX, THE PROFIT ARISING ON REVALUATION OF FOREX CONTRACTS. YOUR APPELLANTS PRAY THAT THE AO BE DIRECTED ACCORD INGLY. 6.THE CIT(A) ERRED IN HOLDING THAT THE AO WAS JUSTI FIED IN REJECTING YOUR APPELLANTS CLAIM FOR A DEDUCTION IN RESPECT OF DATA PROCESSING CHARGES OF RS.90,45,380 ON THE BASIS THAT THESE CHARGES QUALIFY FOR TREATMENT AS ROYALTY AND THER EFORE, THE PROVISIONS OF SECTION 40(A)(I) ARE ATTRACTED AS TAX WAS NOT DEDUCTED AT SOURCE. YOUR APPELLANTS SUBMIT THAT THE PROVISIONS OF SECTI ON 40(A)(I) ARE NOT APPLICABLE AS THE DATA PROCESSING CHARGES ARE NEITHER IN THE NATURE OF RO YALTY NOR FEES FOR TECHNICAL SERVICES UNDER THE ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 4 PROVISIONS OF THE DTAA, BUT REPRESENT A MERE REIMBU RSEMENT OF EXPENSES INCURRED BY THEIR REGIONAL DATA PROCESSING CENTRE. YOUR APPELLANTS PRAY THAT THE AO BE DIRECTED TO ALL OW THEM A DEDUCTION IN RESPECT OF THE EXPENSES OF RS.90,45,380. 7.THE CIT(A) ERRED IN UPHOLDING THE AOS CONTENTION THAT YOUR APPELLANTS AND THEIR HO ARE ASSOCIATED ENTERPRISES AND THE TRANSACTIONS BETWE EN THEM ARE COVERED UNDER SECTION 92 OF THE ACT. YOUR APPELLANTS SUBMIT THAT THEY AND THEIR HO ARE NO T ASSOCIATED ENTERPRISES, EITHER UNDER THE PROVISIONS OF THE ACT OR THE DTAA. YOUR APPELLANTS PRAY THAT THE AO BE DIRECTED ACCORD INGLY. 8.THE CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS. 1,51,744 OUT OF THE ADJUSTMENT MADE BY THE TRANSFER PRICING OFFICER (TPO) IN RESPECT OF THE AR MS LENGTH PRICE OF THE INTEREST RECEIVED ON CALL PLACEMENTS. YOUR APPELLANTS SUBMIT THAT NO ADJUSTMENT IS WARRAN TED IN RESPECT OF THE INTEREST RECEIVED ON CALL PLACEMENTS AND PRAY THAT THE AO BE DIRECTED TO DELE TE THE ADDITION OF RS. 1,51,744. 9.THE CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS. 43,67,034, BEING 20% OF THE INTEREST AND COMMISSION IN RESPECT OF EXTERNAL COMMERCIAL BORROW INGS (ECB) ADVANCED TO INDIAN BORROWERS, AS COMPENSATION TO YOUR APPELLANTS FOR SERVICES REN DERED IN RESPECT OF THESE ECB. YOUR APPELLANTS SUBMIT THAT THE TPO OUGHT NOT TO HA VE MADE ANY ADJUSTMENT AS NO SIGNIFICANT SERVICES WERE RENDERED BY THEM WITH RESPECT TO THE ADVANCEMENT OF THE ECB AND THE INTEREST EARNED THEREAFTER WAS PER EFFLUX OF TIME. YOUR APPELLANTS PRAY THAT THE AO BE DIRECTED TO DEL ETE THE ADDITION OF RS.43,67,034. 10.THE CIT(A) ERRED IN CONFIRMING THAT YOUR APPELLANTS IN COME IS TAXABLE AT THE RATE OF 48% AS APPLICABLE TO A NON-RESIDENT COMPANY. YOUR APPELLANTS SUBMIT THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THEIR CASE, THE CIT(A) OUGHT TO HAVE HELD THAT IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 26 OF THE DTAA, TAX ON INCOME IS LEVIABLE AT THE RATE APPLICABLE TO A DOMESTIC COMPA NY OR THE MAXIMUM MARGINAL RATE APPLICABLE TO A CO-OPERATIVE BANK. YOUR APPELLANTS PRAY THAT THE AO BE DIRECTED TO RE- COMPUTE THEIR TAX LIABILITY IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 26 OF THE DTAA. YOUR APPELLANTS CRAVE LEAVE TO ADD TO, AMEND, ALTER , VARY, OMIT OR SUBSTITUTE THE AFORESAID GROUNDS OF APPEAL OR ADD A NEW GROUND OR GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF THE APPEAL AS THEY MAY BE ADVISED. 3. GROUND NO.1 REGARDING TAXABILITY OF INTEREST RECE IVED FROM HEAD OFFICE/OVERSEAS BRANCHES. AT THE TIME OF HEARING TH E LEARNED COUNSEL FOR THE ASSESSEE HAS STATED THAT THE ASSESSEE DOES NOT WANT TO PRESS THIS GROUND AND THEREFORE READY TO PAY THE TAX ON THE INTEREST RECEI VED FROM HEAD OFFICE/OVERSEAS BRANCHES. HE HAS PRAYED THAT THIS GROUND MAY BE DIS MISSED AS NOT PRESSED. LEARNED DR HAS RAISED NO OBJECTION IT THIS GROUND O F THE ASSESSEES APPEAL IS DISMISSED AS NOT PRESSED. ACCORDINGLY GROUND NO.1 O F THE ASSESSEES APPEAL IS DISMISSED BEING NOT PRESSED. 4. GROUND NO.2&3 REGARDING DISALLOWANCE OF INTEREST PAID TO HEAD OFFICE/OVERSEAS BRANCHES BY INVOKING THE PROVISION OF SECTION 40(A)(I). ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 5 5. WE HAVE HEARD LEARNED AR AS WELL AS LEARNED DR A ND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN CASE OF SUMITOMO MITSUI BANKING CORPN. V. DDIT (136 ITD 66. WE FURTHER NOTED THAT FOR THE ASSESSMENT YEAR 1997-98 AND 2001-02 THE TRIBUNAL HA S ALSO CONSIDERED AND DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 6. FOR THE ASSESSMENT YEAR 2001-02 THE TRIBUNAL VID E ORDER DATED 07.08.2013 IN ITA NO.4295 &4965/M/2005 HAS HELD IN PARA 15 AS UNDER: 15. IN VIEW OF OUR DECISION ON GROUNDS NO. 5 AND 6 , ABOVE, TAXING THE INTEREST INCOME RECEIVED FROM HO/OVERSEAS BRANCHES, THE NATURAL CON SEQUENCE IS THAT THE INTEREST PAID BY THE ASSESSEE TO ITS HO/OVERSEAS BRANCHES WOULD BECOME DE DUCTIBLE. HOWEVER, WE FIND THAT THE AMOUNT OF INTEREST DISALLOWED HAS BEEN WRONGLY TAKE N IN THIS GROUND. ON THE PERUSAL OF THE ASSESSMENT ORDER, IT WAS NOTICED THAT THE AMOUNT AC TUALLY DISALLOWED BY THE AO IS RS. 21,51,539/- AND NOT RS. 33,55,026/-. THE AO IS THER EFORE, DIRECTED TO GRANT DEDUCTION FOR THE CORRECT AMOUNT OF RS. 21,51,539/-. 7. FOLLOWING THE DECISION OF SPECIAL IN CASE OF SUM ITOMO MITSUI BANKING CORPN. (SUPRA) AS WELL AS COORDINATE BENCH OF THIS TRIBUNA L IN ASSESSEES OWN CASE FOR A.Y.2001-02, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 8. GROUND NO.4 REGARDING DISALLOWANCE U/S.14A OF IN TEREST AND OPERATING EXPENSES IN TERMS OF RULE 8D. 9. WE HAVE HEARD LEARNED AR AS WELL AS LEARNED DR A ND CONSIDERED THE RELEVANT MATERIAL ON RECORD. LEARNED AR OF THE ASSE SSEE HAS SUBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1997-98 AS WELL AS FOR THE ASSESSME NT YEAR 2001-02. HE HAS FURTHER SUBMITTED THAT THE TRIBUNAL HAS GIVEN THE F INDINGS THAT THE ASSESSEE HAS ITS OWN INTEREST FREE FUND SUFFICIENT FOR INVESTMENT AN D THEREFORE, NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST EXPENDITURE U/S.1 4A. FURTHER THE DISALLOWANCE ON ACCOUNT OF OPERATING EXPENSES HAS BEEN RESTRICTED BY THE TRIBUNAL TO 2% OF THE EXEMPT INCOME. THE LEARNED DR HAS NOT DISPUTED THE FACT THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS. ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 6 10. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT RECORD, WE NOTE THAT FOR THE ASSESSMENT YEAR 2001-02, THE TRIBUNAL HAS DECIDED AN IDENTICAL ISSUE IN PARA 31 AS UNDER: 31. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND P ERUSING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE QUESTION OF ALLOWING EXEMPTION UNDER SECTI ON 10(15) AND (33) ON GROSS BASIS IS NO MORE RES INTEGRA IN VIEW OF THE ORDER PASSED BY THE TRIBUNAL IN ASSE SSEES OWN CASE FOR EARLIER YEARS. AS REGARDS THE CONTENTION OF THE DR FOR MAKING DISA LLOWANCE UNDER SECTION 14A, WE FIND THAT THE SAME IS ALSO A SETTLED ISSUE. IN PRINCIPLE, IT IS H ELD THAT DISALLOWANCE UNDER SECTION 14A IS CALLED FOR. HOWEVER, THE AMOUNT DISALLOWABLE UNDER SECTION 14A HAS BEEN ADJUDICATED IN EARLIER YEARS. AFTER NOTICING THAT THE FUNDS FOR INVESTMENT IN SEC URITIES FETCHING EXEMPT INCOME WERE OUT OF OWN FUNDS, IT HAS BEEN HELD THAT NO DISALLOWANCE UNDER SECTION 14A ON ACCOUNT OF INTEREST IS CALLED FOR. AS REGARDS THE AMOUNT OF OTHER EXPENSES DISALL OWABLE, WE FIND THAT THE TRIBUNAL HAS UPHELD DISALLOWANCE @ 2% OF EXEMPT INCOME IN THE ABOVE REF ERRED CASE. FOLLOWING THE PRECEDENT, WE DIRECT ACCORDINGLY. 11. IT WAS STATED BY THE ASSESSEE THAT THE INVESTME NT IN QUESTION IS THE SAME AS FOR THE ASSESSMENT YEAR 2001-02 AND THERE IS NO CHA NGE IN THE FACTS AND CIRCUMSTANCES. IN VIEW OF THE FACTS THAT THERE IS N O CHANGE IN THE FACTS AND CIRCUMSTANCES FOR THE YEAR UNDER CONSIDERATION AND FOR THE ASSESSMENT YEAR 2001- 02, IN RESPECT OF THE INVESTMENT THEN NO DISALLOWAN CE ON ACCOUNT OF INTEREST IS CALLED FOR, WHEN THE ASSESSEE WAS HAVING ITS OWN IN TEREST FREE FUND FOR MAKING INVESTMENT IN SECURITIES. AS REGARDS THE DISALLOWANCE OF OPERATING/ ADMINISTR ATIVE EXPENSES, BY FOLLOWING EARLIER ORDER OF THIS TRIBUNA L, WE RESTRICT DISALLOWANCE AT 2% OF EXEMPT INCOME. 12. GROUND NO.5 REGARDING TAXABILITY OF THE PROFIT ARISING ON REVALUATION OF THE UNMATURED FORWARD FOREX CONTRACTS. 13. WE HAVE HEARD LEARNED AR AS WELL AS LEARNED DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THE LOSS ON REVALUATION WAS DISALLOWED BY THE AO, IN TH E PREVIOUS ASSESSMENT YEAR BUT HAS BEEN ALLOWED BY THE TRIBUNAL THEREFORE ON THE S AME ANALOGY THE PROFIT ARISING ON REVALUATION HAS TO BE TAXED. HOWEVER, THE LEARNE D AR HAS SUBMITTED THAT TAXING OF THE PROFIT IS SUBJECT TO THE FINAL OUT COME ON T HE ISSUE OF LOSS. 14. HAVING REGARD TO THE FACTS THAT THE LOSS ON REV ALUATION OF UNMATURED FORWARD FOREX CONTRACTS HAS BEEN ALLOWED BY THIS TRIBUNAL IN THE EARLIER YEARS I.E. 1998-99 THEN THE NATURAL COROLLARY WOULD BE THAT THE PROFIT ARISING ON REVALUATION OF THE ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 7 UNMATURED FORWARD FOREX CONTRACT IS LIABLE TO BE TAX ED AS INCOME. ACCORDINGLY, WE DISMISS THIS GROUND OF THE ASSESSEE. 15. GROUND NO.6 REGARDING DISALLOWANCE OF THE DATA PROCESSING CHARGES BY THE AO BY CLASSIFYING THEM TO BE ROYALTY AND INVOKING P ROVISION OF SECTION 40(A)(I). 16. WE HAVE HEARD LEARNED AR AS WELL AS LEARNED DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND ADJUDICATED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02 IN PARA 18 AS UNDER: 18. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ACTION OF THE REVENUE AUTHORITIES ON TREATING THE AMOUNT BEING IN THE NATURE OF ROYALTY AND HENCE NOT ALLOWABLE UNDER SECTION 40(A) (I) CANNOT BE ALLOWED. THE OBVIOUS REASON IS THAT THE ASSESSEE MADE THE PAYMENT ON ACCOUNT OF DA TA PROCESSING COSTS TO ITS HEAD OFFICE. BY NO STANDARD THIS AMOUNT CAN BE CONSIDERED AS ROYALT Y AS A CONSIDERATION FOR THE USE OF THE ASSETS SPECIFIED UNDER EXPLANATION 2 TO SECTION 9(1)(VI). THIS AMOUNT IS IN THE NATURE OF HEAD OFFICE EXPENSES. THE ASSESSEE DID NOT INCLUDE THIS AMOUNT IN THE AMBIT OF HEAD OFFICE EXPENSES TO BE CONSIDERED ON THE TOUCHSTONE OF SECTION 44C OF THE ACT. SINCE AO MADE DISALLOWANCE BY TREATING IT AS ROYALTY, HE HAD NO OCCASION TO CONSI DER THE DEDUCTIBILITY OR OTHERWISE OF THE AMOUNT AS PER THE PRESCRIPTION OF SECTION 44A. UNDER SUCH CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE IN THE INTEREST OF JUSTICE IF THE IMPUGNED ORDER ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE AO. W E ORDER ACCORDINGLY AND DIRECT THE AO TO CONSIDER THE DEDUCTIBILITY OR OTHERWISE OF SUCH AMO UNT BY TREATING IT AS HEAD OFFICE EXPENSES. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REA SONABLE OPPORTUNITY OF BEING HEARD IN SUCH FRESH PROCEEDINGS. 17. ACCORDINGLY, BY FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER T O CONSIDER DEDUCTIBILITY OF THIS AMOUNT AS PER THE PROVISIONS OF THE ACT INCLUDING S ECTION 44C. 18. GROUND NO.7, REGARDING TREATING THE HEAD OFFICE AND INDIAN BRANCH AS ASSOCIATED ENTERPRISE AS PER SECTION 92 OF THE ACT. 19. AT THE TIME OF HEARING, LEARNED AR OF THE ASSES SEE HAS STATED THAT ASSESSEE DOES NOT WANT TO PRESS THIS GROUND AND SAME MAY BE DISMISSED AS NOT PRESSED. LEARNED DR RAISED NO OBJECTION IF GROUND OF THE AS SESSEES APPEAL IS DISMISSED AS NOT PRESSED. ACCORDINGLY WE DISMISS THIS GROUND OF THE ASSESSEES APPEAL BEING NOT PRESSED. 20. GROUND NO.8 REGARDING THE ADDITION OF TP ADJUST MENT IN RESPECT OF INTEREST RECEIVED ON CALL PLACEMENT. ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 8 21. WE HAVE HEARD LEARNED AR AS WELL AS LEARNED DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN CASE OF GROUP CO NCERN NAME M/S. CREDIT LYONNAIS (THROUGH THEIR SUCCESSORS CALYONG BANK), I N ITA NO.1935/M/2007 IN PARA 4.4 AS UNDER: 4.4. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CA REFUL PERUSAL OF THE RELEVANT RECORD, AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CO NSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200 1-02 IN PARA 4 AS UNDER :- 4. HAVING HEARD THE RIVAL SUBMISSIONS ON THIS POIN T AND PERUSED THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT ALBEIT IN THE EARLIER YEARS THE GRO UND OF CHARGEABILITY OF INTEREST INCOME WAS DECIDED IN FAVOUR OF THE ASSESSEE, BUT IN THE C URRENT YEAR THE ASSESSEE CHOSE NOT TO PRESS THIS GROUND BECAUSE OF AN ADDITIONAL GROUND W HICH WAS INITIALLY SOUGHT TO BE RAISED BY THE REVENUE FOR THE CONSEQUENTIAL DISALLO WANCE U/S.14A OF INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED AS THE ACT) BUT SUBS EQUENTLY ABANDONED BECAUSE OF THE ASSESSEE NOT PRESSING OF THIS GROUND IN VIEW OF THE FACT THAT THE LEARNED AR HAS ACCEPTED THE TAXABILITY OF THIS AMOUNT OF INTEREST EARNED FR OM HEAD OFFICE / OVERSEAS BRANCHES, GROUND NO 2 IS DISMISSED THE NATURAL COROLLARY WHIC H, THEREFORE, FOLLOWS IS THAT THE INTEREST PAID TO HO /OVERSEAS BRANCHES IS DEDUCTIBLE GROUND NO. 3 IS ALLOWED. WHEN THE ASSESSEE HAS ACCEPTED THE TAXABILITY AS IN TEREST RECEIVED ON NOSTRO ACCOUNT AND OVERSEAS PLACEMENTS, THEN AS DECIDED BY THIS TRIBUN AL IN ASSESSEES OWN CASE, THE NATURAL CONSEQUENTIAL EFFECT WOULD BE THE CLAIM OF ASSESSEE REGARDING INTEREST PAID TO THE HEAD OFFICE/OVERSEAS BRANCHES, IS ALLOWABLE DEDUCTION. A CCORDINGLY, GROUND O.2 IS DISMISSED AS NOT PRESSED AND GROUND NO.3 IS ALLOWED. 22. ACCORDINGLY, FOLLOWING EARLIER ORDERS OF THIS T RIBUNAL, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 23. GROUND NO.9 DISALLOWANCE OF INTEREST AND COMMIS SION BY THE TPO IN RESPECT TO ECB ADVANCE TO INDIAN BORROWERS. 24 . WE HAVE HEARD LEARNED AR AS WELL AS LEARNED DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE TPO MADE AN ADJUST MENT OF 25% OF INTEREST AND COMMISSION RECEIVED BY OVERSEAS BRANCHES IN RESPECT OF ECB ADVANCE TO INDIAN BORROWERS. THE CIT(A) GRANTED RELIEF OF 5% AND REST RICTED THE ADJUSTMENT TO 20% OF INTEREST AND COMMISSION. AT THE OUTSET, WE NOTE TH AT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN CASE OF M/S. CREDIT L YONNAIS (THROUGH THEIR SUCCESSORS CALYONG BANK) IN VIDE ORDER DATED 31 ST SEPTEMBER 2013 IN PARA 8.7 TO 8.8 AS UNDER: ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 9 8.7 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE BEING INDIAN BRANCH HAS HELPED THE FOREIGN CURRENCY LOAN SYNDICATION IN RESPECT OF TWO LOANS TO RELIANCE PETROLEUM LIMITED AND RELIANCE IN DUSTRIES LIMITED TO THE TUNE OF US$50 MILLION AND USD$ 11 MILLION, RESPECTIVELY. THERE IS NO DISP UTE THAT FOR THESE TWO LOANS, CREDIT AGRICOLE LNDOSUEZ (ASIA), SYNGAPORE WORKED AS AN AGENT AND C REDIT LYONNAIS WORKED AS LEAD ARRANGERS/CC- ARRANGERS. THE ANZ INVESTMENT BANK, B A ASIA LTD. AS WELL AS ABN AMRO BANK WERE ALSO WORKED AS CO-ARRANGERS. THE ROLE OF THE A SSESSEE IN THESE TRANSACTIONS OF FOREIGN CURRENCY LOAN UNDER ECB WAS TO PROVIDE FINANCIAL AN ALYSIS OF THE BORROWERS, GENERAL MARKET CONDITIONS AND REGULATORY ENVIRONMENT. THE LEARNED AR HAS VEHEMENTLY ARGUED THAT AS PER PARA 4 OF PROTOCOL, PROFIT CANNOT BE ATTRIBUTED TO THE P E ON ACCOUNT OF FACILITATION OF CONCLUSION OF LOAN AGREEMENT OR MERE SINGING THEREOF. WE DO NOT AGREE WITH THE CONTENTION OF THE LEARNED AR OF THE ASSESSEE BECAUSE OF THE FACT THAT THE ROLE OF THE A SSESSEE IS NOT MERELY FACILITATION OF CONCLUSION OF LOAN AGREEMENT OR SIGNING THEREOF BUT THE SERVIC ES PROVIDED BY THE ASSESSEE ARE THE CORE- BASIS FOR TAKING THE DECISION OF GRANTING THE LOAN BY THE SYNDICATE. THE ASSESSEE PROVIDED THE SERVICES REGARDING CLIENTS CREDITABILITY ANALYSIS, ITS CAPACITY SO AS TO CONSIDER THE CAPACITY TO REPAY THE LOAN AND RISK INVOLVED IN THE LOAN TRANSA CTION. THEREFORE, THE ROLE OF THE ASSESSEE IN PROVIDING SUCH A CRUCIAL SERVICE IS INEVITABLE FOR TAKING THE DECISION OF PROVIDING LOAN AND AS SUCH CANNOT BE SAID TO BE A MERE FACILITATION OF CONCLUS ION OF THE LOAN AGREEMENT OR SIGNING THEREOF. AT THIS STAGE, PARA 4 OF THE PROTOCOL BETWEEN THE I NDIA AND FRANCE IS QUOTED FOR READY REFERENCE AS UNDER :- 4. NO PROFITS SHALL BE ATTRIBUTED TO A PERMANENT E STABLISHMENT BY REASON OF THE MERE PURCHASE BY THAT PERMANENT ESTABLISHMENT OF GOODS O R MERCHANDISE FOR THE ENTERPRISE. THE PLAIN READING OF PARA 4, MENTIONED ABOVE, MAKES IT CLEAR THAT IF THE ROLE OF THE PE IS ONLY TO FACILITATE THE CONCLUSION OF FOREIGN TRADE OR LOAN AGREEMENT OR MERE SIGNING THEREOF, THEN NO PROFIT SHALL BE ATTRIBUTED TO PE IN TERMS OF ARTICL E 7(2) OF THE INDO FRANCE DTAA. AS WE HAVE DISCUSSED ABOVE THAT THE ASSESSEES ROLE IN PROVIDI NG THE SERVICES IS THE CORE-BASIS OF TAKING THE DECISION OF GRANTING LOAN, THEREFORE, THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE DO NOT FALL UNDER THE TERMS FACILITATION OF CONCLUSION OF LOAN AGREEMENT OR SIGNING THEREOF AS STIPULATED UNDER PARA 4 OF THE PROTOCOL. 8.8 HAVING HELD THAT PARA 4 OF THE PROTOCOL DOES NO T APPLY TO THE CASE OF THE ASSESSEE, NOW, THE QUESTION ARISES AS TO WHETHER THE ADJUSTMENT MADE B Y THE AUTHORITIES BELOW IS JUSTIFIED. FOR MAKING THE ADJUSTMENT, THE AUTHORITIES BELOW HAVE T AKEN INTO CONSIDERATION, THE INCOME TOWARDS INTEREST AS WELL AS THE FEE CHARGED BY THE FOREIGN BRANCH FROM THE CLIENTS. IT IS PERTINENT TO NOTE THAT WHEN THE LOAN IS PROVIDED BY THE SYNDICATE AND THE ASSESSEE HAS NOT CONTRIBUTED TO THE LOAN AMOUNT THEN AS REGARDS THE INCOME OF INTEREST, THE SAME CANNOT BE ATTRIBUTED TO THE ASSESSEE FOR PROVIDING THE SERVICES OF THE FINANCIAL ANALYSIS OF THE BORROWERS, MARKET CONDITION AND REGULATORY ENVIRONMENT IN INDIA. SINCE THE ASSESSEE HAS PROVID ED CERTAIN SERVICES FOR THAT ARMS LENGTH CHARGES CAN BE DETERMINED AS PER THE PROVISIONS OF TRANSFER PRICING REGULATION. THE TPO AS WELL AS C)T(A) HAS NOT BROUGHT OUT ANY COMPARABLE FOR DE TERMINATION OF THE ARMS LENGTH PRICE BUT TOOK THE TOTAL INCOME COMPRISING INTEREST AS WELL AS OTH ER FEES CHARGED BY THE FOREIGN BRANCHES FOR ALLOCATION/ATTRIBUTION TO THE ASSESSEE. IN THIS CAS E, THE ALP HAS NOT BEEN DETERMINED BY TAKING INTO CONSIDERATION UNCONTROLLED SIMILAR TRANSACTION . IN OUR VIEW, THE INTEREST CANNOT BE TAKEN INTO ACCOUNT FOR ATTRIBUTION OF INCOME TOWARDS SERVICE C HARGES/FEES AND, THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE ONLY THE FEE CHARGED BY T HE FOREIGN BRANCHES CAN BE TAKEN INTO CONSIDERATION FOR MAKING ADJUSTMENT UNDER TRANSFER PRICING PROVISIONS. ACCORDINGLY, WE DIRECT THE AO/TPO TO MAKE ADJUSTMENT IN RESPECT OF THE SERVICE S PERFORMED BY THE ASSESSEE FOR FOREIGN CURRENCY LOAN ARRANGED FOR ITS EXISTING CLIENTS BY TAKING INTO ACCOUNT ONLY THE FEE AND OTHER CHARGES RECEIVED BY THE FOREIGN BRANCHES FROM THE B ORROWERS IN QUESTION. SINCE NONE OF THE PARTIES HAVE COME OUT WITH THE SUITABLE COMPARABLES , THEREFORE, WE FIND THAT THE ESTIMATION MADE BY THE CIT(A) AT THE RATE OF 20% IS JUST AND P ROPER, HOWEVER, THE SAME WOULD BE ONLY IN RESPECT OF THE FEE AND CHARGES OTHER THAN INTEREST RECEIVED BY THE FOREIGN BRANCHES. THUS, THESE GROUNDS OF THE ASSESSEE ARE PARTLY ALLOWED. ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 10 25. AS IT IS CLEAR FROM THE EARLIER ORDER OF THIS T RIBUNAL THAT THE BENEFIT OF PARA 4 OF THE PROTOCOL BETWEEN INDIA AND FRANCE DOES NOT A PPLY AS ASSESSEE HAS RENDERED THE KEY SERVICES FOR TAKING DECISION OF GRANTING LO AN BY THE SYNDICATE OF BANKS TO THE INDIAN BORROWERS, HOWEVER AS IT WAS FOUND THAT THE TPO MADE THE ADJUSTMENT WITHOUT CONSIDERING ANY COMPARABLE. BY FOLLOWING EA RLIER ORDERS OF THIS TRIBUNAL, WE DIRECT THE AO/TPO TO MAKE ADJUSTMENT IN RESPECT OF THE SERVICES PERFORMED BY THE ASSESSEE FOR FOREIGN CURRENCY LOAN ARRANGED FOR ITS EXISTING CLIENTS BY TAKING INTO ACCOUNT ONLY THE FEE AND OTHER CHARGES EXCLUDIN G INTEREST RECEIVED BY THE FOREIGN BRANCHES FROM THE BORROWERS IN QUESTION BY APPLYING THE RATE OF 20% AS ACCEPTED IN THE EARLIER ORDER. ACCORDINGLY, THIS GR OUND IS PARTLY ALLOWED. 26. GROUND NO.10 REGARDING RATE OF TAX APPLICABLE TO THE ASSESSEES INCOME. 27. WE HAVE HEARD LEARNED AR AS WELL AS LEARNED DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED BY THE TRIBUNAL IN THE ASSES SEES OWN CASE FOR ASSESSMENT YEAR 2001-02 IN PARA 22 AS UNDER: THE AR BEFORE US, ADMITTED THAT THE ISSUE IS AGAINS T THE ASSESSEE. ON GOING THROUGH THE ORDER OF THE CIT(A), WE FIND THAT THE C IT(A) HAS SUSTAINED THE ORDER OF THE AO BY APPLYING RATE OF TAX @ 48%, INSTEAD OF 35 % AS ASKED FOR BY THE ASSESSEE. NOW THAT THE ASSESSEE HAS ACCEPTED THAT THE COORDIN ATE BENCH OF KOLKATA HAS DEALT WITH THE ISSUE AND FOR THE REASONS MENTIONED THEREI N, THE AR ACCEPTS THE RATE AS APPLIED BY THE AO. WE ALSO FIND THAT THERE IS NO IN FIRMITY IN THE ORDER OF THE REVENUE AUTHORITIES, WHICH WE SUSTAIN. 28. WE FURTHER NOTE THAT EVEN IN THE CASE OF M/S. C REDIT LYONNAIS (THROUGH THEIR SUCCESSORS CALYONG BANK), THE ISSUE HAS BEEN CONSID ERED AND DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE. ACCORDINGLY, FOLLOWI NG THE ORDER OF THIS TRIBUNAL, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE THAT THE RAT E OF TAX APPLICABLE ON THE ASSESSEES INCOME IS 48%. 29. IN THE CROSS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION FOR EXPENSES OF RS.1,08,1 2,701/- INCURRED BY THE HEAD OFFICE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,51,7441- OUT OF THE ADDITION O F RS.4,29,169/- IN RESPECT OF THE TRANSFER PRICING ADJUSTMENT ON ACCOUNT OF INTEREST RECEIVED ON CALL PLACEMENTS. MARGIN OF 5% UNDER PROVISO TO SECTION 92C(2) IS NOT ALLOWABLE WHEN ONL Y ONE ARMS LENGTH PRICE IS DETERMINED BY THE ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 11 TPO. EVEN IF ONE ARMS LENGTH PRICE IS AN AVERAGE O F VARIOUS FIGURES IT STILLS REMAINS ONE ARMS LENGTH PRICE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD.CIT(A) ERRED IN REDUCING THE TRANSFER PRICING ADJUSTMENT MADE FOR THE SERVIC E OF MARKETING OF ECBS FROM 25% (OF INTEREST AND FEE) TO 20%. THE LD.CIT(A) COULD NOT HAVE GIVEN THE RELIEF WITHOUT FIRST DETERMINING HIMSELF THE ARMS LENGTH PRICE ON THE BASIS OF COGENT MATERIAL. 30. GROUND NO.1 REGARDING DEDUCTION OF EXPENSES U/S .37(1). 31. WE HAVE HEARD LEARNED DR AS WELL AS LEARNED AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASS ESSEES OWN CASE FOR THE A.Y.2001-02 IN PARA 34 TO 36 AS UNDER: 34. GROUND NO. 3 PERTAINS TO DISALLOWANCE OF RS. 1 ,16,62,285/- INCURRED BY THE HO ON CREDIT RISK ASSISTANCE. 35. THE ISSUE HAS BEEN DEALT WITH BY THE COORDINATE BENCH, WHEREIN THEY RELIED UPON THE DECISION OF JCIT VS AMERICAN EXPRESS BANK LTD., REP ORTED IN 24 TAXMAN.COM50. AND HELD, 12. LAST GROUND OF THE REVENUES APPEAL IS AGAINS T THE DIRECTION GIVEN BY THE LEARNED CIT(A) TO ALLOW DEDUCTION OF `48,60,08 INDE PENDENT OF THE PROVISIONS OF SECTION 44C OF THE ACT. ON THIS ISSUE AS WELL, T HE LEARNED DEPARTMENTAL REPRESENTATIVE WAS FAIR ENOUGH TO CONCEDE THAT IT W AS COVERED AGAINST THE REVENUE. WE FIND THAT THE MUMBAI BENCH OF THE TRIBU NAL IN THE CASE OF AMERICAN EXPRESS BANK LTD.(SUPRA) HAS ALSO TAKEN SI MILAR VIEW ON THIS ISSUE IN FAVOUR OF THE ASSESSEE. IN VIEW OF THESE FACTS WE U PHOLD THE IMPUGNED ORDER ON THIS ISSUE. THIS GROUND IS NOT ALLOWED. 36. RESPECTFULLY FOLLOWING THE ORDER IN THE ASSESSE ES OWN CASE, WE SUSTAIN THE ORDER OF THE CIT(A). 32. FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL, WE DECIDE THIS ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 33. GROUND 2&3, REGARDING DELETION OF ADDITION MADE DUE TO TP ADJUSTMENT ON ACCOUNT OF INTEREST RECEIVED ON CALL PLACEMENTS. 34. WE HAVE HEARD LEARNED DR AS WELL AS LEARNED AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS GROUND OF REVENUE S APPEAL IS COMMON TO THE GROUND NO.8 OF THE ASSESSEES APPEAL. THE RATE OF I NTEREST RECEIVED BY THE ASSESSEE WAS FOUND BY THE CIT(A), WITHIN THE TOLERANCE LIMIT OF +/- 5% OF ARMS LENGTH PRICE DETERMINATION BY THE TPO AND ACCORDINGLY THE BENEFI T OF PROVISO TO SECTION 92C(2) WAS GIVEN TO ASSESSEE. WE FOUND NO ERROR IN THE ORD ER OF THE CIT(A) QUA THIS ISSUE WHEN THE INTEREST CHARGED BY THE ASSESSEE IS WITHIN THE TOLERANCE RANGE OF THE ARMS LENGTH PRICE DETERMINED BY TPO. ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 12 35. GROUND NO.3 REGARDING REDUCING 5% INTEREST AND FEE OUT OF THE ADDITION MADE BY THE TPO WITH RESPECT TO ECB ADVANCE TO INDI AN BORROWERS. 36. WE HAVE HEARD LEARNED DR AS WELL AS LEARNED AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS ISSUE IS COMMON T O THE ISSUE INVOLVED IN THE GROUND NO.9 OF THE ASSESSEES APPEAL. IN VIEW OF OU R FINDING IN GROUND NO.9 OF THE ASSESSEES APPEAL, THIS GROUND OF THE REVENUES APP EAL IS DISMISSED. CO NO.218/M/2013 37. IN THE CROSS OBJECTION THE REVENUE HAS RAISED T HE ONLY GROUND AS UNDER: WITHOUT PREJUDICE TO THE STAND OF REVENUE THAT THE INTEREST OF RS. 3,48,S9,282/- RECEIVED FROM HO/OVERSEAS BRANCHES IS TAXABLE IN INDIA AS THE BRAN CH AND HO ARE SEPARATE ENTITIES FOR THE PURPOSE OF TAXATION, IF THE INTEREST INCOME IS HELD TO BE EXEMPT BY TREATING THE HO AND BRANCH AS ONE ENTITY NECESSARY DISALLOWANCE MAY BE MADE U/S 1 4A OF THE L T. ACT. 38. WE HAVE HEARD LEARNED DR AS WELL AS AR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS NOT PRESS THE GROUND OF TAXABILITY OF INTEREST OF RS.3.48 CRORES AND CONSEQUENTLY THE SAME IS SUB JECTED TO TAX. ACCORDINGLY THE GROUND RAISED IN THE CROSS OBJECTION FILED BY THE R EVENUE BECOME INFRUCTUOUS AND HENCE DISMISSED. FOR ASSESSMENT YEAR 2003-04. 39. FOR THE ASSESSMENT YEAR 2003-04 THE ASSESSEE HA S RAISED THE FOLLOWING GROUNDS: 1.THE COMMISSIONER OF INCOME-TAX (APPEALS) - 15, M UMBAI (CIT(A)) ERRED IN HOLDING THAT THE ASSESSING OFFICER (AO) WAS JUSTIFIED IN BRINGING TO TAX, THE INTEREST OF RS.62,56,364 RECEIVED BY THE INDIA BRANCH FROM THE HEAD OFFICE (HO)!OVERSEAS B RANCHES. THE APPELLANT SUBMITS THAT THE INTEREST RECEIVED RE PRESENTS A RECEIPT FROM SELF AND THEREFORE OUGHT TO BE IGNORED IN COMPUTING ITS TAXABLE INCOME . THE APPELLANT PRAYS THAT THE AO BE DIRECTED ACCORDI NGLY. 2. HAVING HELD THAT THE INTEREST RECEIVED BY THE HO! OVERSEAS BRANCHES IS LIABLE TO TAX IN INDIA, THE CIT(A) ERRED IN NOT DIRECTING THE AO TO ALLOW A DEDUCTION FOR THE INTEREST OF RS.15,20,204 PAID BY THE INDIA BRANCH TO THE HO! OVERSEAS BRANCH ES ON THE BASIS THAT THE PROVISIONS OF SECTION 40(A)(I) OF THE INCOME-TAX ACT, 1961 (THE ACT) ARE APPLICABLE. THE APPELLANT SUBMITS THAT THE PROVISIONS OF SECTION 40(A)(I) ARE NOT ATTRACTED AS THE INTEREST PAYMENT TO THE HO! OVERSEAS BRANCHES AMOUNTS TO A PAYMENT TO SELF. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLO W A DEDUCTION FOR THE INTEREST PAYMENT OF RS. 15,20,204. 3. THE CIT(A) ERRED IN CONFIRMING THE AOS ACTION O F CHARGING TO TAX, PROFIT OF RS.10,07,98,226, ARISING ON REVALUATION OF UNMATURED FORWARD FOREX C ONTRACTS. ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 13 THE APPELLANT SUBMITS THAT BASED ON HIS STAND IN TH E EARLIER ASSESSMENT YEARS THAT A LOSS ON REVALUATION OF FOREX CONTRACTS BEING A NOTIONAL LOS S IS NOT DEDUCTIBLE IN ARRIVING AT THE TAXABLE INCOME, THE AO OUGHT NOT TO HAVE CHARGED TO TAX, TH E PROFIT ARISING ON REVALUATION OF FOREX CONTRACTS. THE APPELLANT PRAYS THAT THE AO BE DIRECTED ACCORDI NGLY. 4. THE CIT(A) ERRED IN CONFIRMING THAT THE PROVISIO N OF RS.41,00,000 TOWARDS COUNTRY RISK, BEING CONTINGENT IN NATURE IS NOT DEDUCTIBLE IN COMPUTING THE APPELLANTS INCOME. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLOW A DEDUCTION FOR TH E SAID PROVISION IN COMPUTING ITS INCOME. 5. THE CIT(A) ERRED IN ENHANCING THE ASSESSMENT BY HOLDING THAT THE INTEREST OF RS.80,00,944 PAID ON FCNR(B) DEPOSITS IS DISALLOWABLE UNDER SECT ION MA AS IT WAS INCURRED IN RELATION TO THE EXEMPTED INTEREST INCOME OF RS. 18,71,711 ON BALANC ES HELD IN NOSTRO ACCOUNTS. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO DELE TE THE DISALLOWANCE OF RS.80,00,944. 6. THE CIT(A) ERRED IN CONFIRMING THAT THE PROVISIO N OF RS.11,91,663 IN RESPECT OF NON PERFORMING ASSETS IS NOT DEDUCTIBLE UNDER SECTION 37(1) OF THE ACT. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLO W A DEDUCTION FOR THE SAID PROVISION UNDER SECTION 37(1) OF THE ACT. 7. THE CIT (A) ERRED IN UPHOLDING THAT THE EXPENDIT URE INCURRED IN RELATION TO THE VOLUNTARY SEPARATION PLAN / VOLUNTARY RETIREMENT SCHEME IS DE DUCTIBLE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 35DDA OF THE ACT. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALLO W A DEDUCTION FOR THE SAID EXPENDITURE UNDER SECTION 37(1) OF THE ACT. 8. THE CIT(A) ERRED IN CONFIRMING THAT THE INDIA BR ANCH AND THE HO ARE ASSOCIATED ENTERPRISES AND THE TRANSACTIONS BETWEEN THEM ARE COVERED UNDER SECTION 92 OF THE ACT. THE APPELLANT SUBMITS THAT THE INDIA BRANCH AND THE HO ARE NOT ASSOCIATED ENTERPRISES, EITHER UNDER THE PROVISIONS OF THE ACT OR UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) AND PRAYS THAT THE AO BE DIRECTED ACCORDINGLY. 9. THE CIT(A) ERRED IN CONFIRMING THAT 20% OF THE I NTEREST AND COMMISSION ARISING TO THE OVERSEAS BRANCHES IN RESPECT OF EXTERNAL COMMERCIAL BORROWIN GS (ECB) TO INDIAN BORROWERS REPRESENTS ARMS LENGTH COMPENSATION TO THE INDIA BRANCH FOR I TS ROLE IN THE MARKETING OF THESE ECB. THE APPELLANT SUBMITS THAT THE SAID ADJUSTMENT IS N OT WARRANTED AS NO SIGNIFICANT SERVICES WERE RENDERED BY THE INDIA BRANCH WITH RESPECT TO THE AD VANCEMENT OF THE ECB AND THE INTEREST EARNED THEREAFTER WAS PER EFFLUX OF TIME. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO DELE TE THE ADDITION OF RS.26,98,933. 10. THE AO ERRED IN HOLDING THAT THE APPELLANTS IN COME IS LIABLE TO TAX AT THE RATE AS APPLICABLE TO A NON-RESIDENT COMPANY. THE APPELLANT SUBMITS THAT IN ACCORDANCE WITH THE P ROVISIONS OF ARTICLE 26 OF THE INDIA FRANCE DTAA, TAX ON ITS INCOME OUGHT TO HAVE BEEN COMPUTED AT THE RATE AS APPLICABLE TO A DOMESTIC COMPANY. THE APPELLANT PRAYS THAT THE AO BE DIRECTED ACCORDI NGLY. 40. GROUND NO.1 REGARDING TAXABILITY OF INTEREST RE CEIVED FROM INDIAN BRANCHES FROM HO/OVERSEAS BRANCHES. 41. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE HAS STATED THAT THE ASSESSEE DOES NOT WANT TO PRESS THIS GROUND AND THEREFORE READY TO PAY THE TAX ON THE INTEREST RECEIVED FROM HEAD OFFICE/OVERSEAS BRANCHES. HE HAS PRAYED THAT THIS GROUND MAY BE DISMISSED AS NOT PRESSED. LEARNE D DR HAS RAISED NO OBJECTION IT ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 14 THIS GROUND OF THE ASSESSEES APPEAL IS DISMISSED A S NOT PRESSED. ACCORDINGLY GROUND NO.1 OF THE ASSESSEES APPEAL IS DISMISSED B EING NOT PRESSED. 42. GROUND NO.2, REGARDING DISALLOWANCE OF INTEREST PAID TO HO/OVERSEAS BRANCHES BY INVOKING THE PROVISION OF SECTION 40(A) (I), THIS GROUND IS COMMON TO THE GROUND NO.2&3 OF ASSESSEES APPEAL FOR ASSESSME NT YEAR 2002-03. THEREFORE IN VIEW OF OUR FINDING ON THIS ISSUE FOR ASSESSMENT YE AR 2002-03 THIS GROUND OF THE ASSESSEES APPEAL IS ALLOWED. 43. GROUND NO.3 REGARDING THE PROFIT ARISING ON REV ALUATION OF UNMATURED FORWARD FOREX CONTRACT. THIS GROUND IS COMMON TO THE GROUND NO.5 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2002-03. IN V IEW OF OUR FINDING FOR THE ASSESSMENT YEAR 2002-03 ON THIS ISSUE IN PARA 12 OF THIS ORDER, THIS GROUND OF THE ASSESSEES APPEAL IS DISMISSED. 44. GOUND NO.4 REGARDING DISALLOWANCE OF PROVISION TOWARD COUNTRY RISK. THE ASSESSEE MADE A PROVISION OF RS.41,00,000 TOWARDS C OUNTRY RISK MANAGEMENT AS PER RBI GUIDELINES VIDE ITS CIRCULAR NO.DBOD.BP.71/21.0 4.103/2002-03 DATED 19 TH FEBRUARY 2003. THE AO DISALLOWED THE CLAIM OF DEDUC TION AS THIS WAS NOT AN ACTUAL RETURN OF BED DEBTS, BUT ONLY A PROVISION WAS MADE AS PER THE GUIDELINES OF THE RBI THEREFORE, IN VIEW OF THE FIRST PROVISO TO SECTION 36(1)(VIIA)(A) OF THE ACT NO DEDUCTION IS ALLOWABLE TO A FOREIGN BANKING COMPANY . THE CIT(A) HAS CONFIRMED DISALLOWANCE MADE BY THE AO, WHEN THE ASSESSEE ITSE LF HAS FAIRLY CONCEDED THAT THIS ISSUE IS NOW COVERED AGAINST THE ASSESSEE BY T HE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN CASE OF NET INDIA INDUSTRIES LTD. V. ACIT (18 SOT 51) AS WELL AS THE DECISION COORDINATE BENCH IN CASE OF AHMEDABAD AND GUJARAT GAS FINANCIAL SERVICES LTD. V. ACIT (307 ITR 370). 45. BEFORE US, THE LEARNED AR HAS FAIRLY CONCEDED T HAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL. ACCORDINGLY, WE DECIDE THIS ISSUE AGAINST THE ASSES SEE AND IN FAVOUR OF THE REVENUE. 46. GROUND NO.5 DISALLOWANCE U/S14A BEING INTEREST PAID ON FCNR(B) DEPOSITS. THIS ISSUE IS COMMON TO THE GROUND NO.3 RAISED BY T HE REVENUE IN THE CROSS APPEAL AS UNDER: ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 15 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER NOT TO TAX THE INTEREST INCOME OF RS 18,71,711/- ON NOSTRO BALANCES. 47. WE HAVE HEARD LEARNED DR AS WELL AS AR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT AS THE ASSESSEE HAS NOT PRESSED GROUND OF TAXABILITY OF INTEREST REC EIVED NOSTRO ACCOUNT BALANCES IN THE EARLIER YEARS AND CONSEQUENTLY PROVISION OF U/S.14A CANNOT BE INVOKED. 48. LEARNED AR OF THE ASSESSEE HAS STATED THAT THE ASSESSEE IS READY TO OFFER TO TAX THE AMOUNT OF INTEREST RECEIVED ON BALANCE OF N OSTRO ACCOUNT. ACCORDINGLY, LEARNED AR HAS URGED THAT DISALLOWANCE MADE U/S.14A MAY BE DELETED AND THE AMOUNT OF INTEREST MAY BE TAXED. IN VIEW OF THE STA TEMENT OF THE LEARNED AR OF THE ASSESSEE AND TO MAINTAIN THE CONSISTENCE ON THI S ISSUE, WE DIRECT THE AO TO TAX THE INTEREST RECEIVED ON NOSTRO ACCOUNT BALANCES AN D CONSEQUENTLY THE DISALLOWANCE MADE U/S.14A IS DELETED. GROUND NO.5 O F THE ASSESSEES APPEAL AS WELL AS GROUND NO.3 OF THE REVENUES APPEAL ARE ALL OWED. 49. GROUND NO.6 REGARDING DISALLOWANCE OF PROVISION , IN RESPECT OF NON PERFORMING ASSETS. THE ASSESSEE HAD MADE A PROVISIO N OF RS.11.91 LACKS IN RESPECT OF NPA IN PURSUANT TO THE CIRCULAR OF RBI AND CLAIM OF THE SAME AS DEDUCTION. THE AO REJECTED THE ASSESSEES CLAIM FOR DEDUCTION IN R ESPECT OF THE PROVISION MADE ON THE GROUND THAT SECTION 36(1)(VIIA)(B) OF THE ACT P UT A CAP ON ALL SUCH PROVISIONS TO THE EXTENT OF 5% OF TOTAL INCOME WHICH BEING ACCORDE D TO THE ASSESSEE. ACCORDINGLY, THE AO HELD THAT NO SEPARATE CLAIM FOR ANY PROVISION BY WHATEVER NAME CALLED CAN BE SAID TO BE ALLOWABLE TO THE BANK . ON APPEAL, CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO IN VIEW O F THE DECISION OF THE SPECIAL BENCHES OF THIS TRIBUNAL IN CASE OF NET INDIA INDUS TRIES LTD. VS. ACIT (SUPRA) AS WELL AS GUJARAT GAS FINANCIAL SERVICES LTD.(SUPRA). 50. BEFORE US, LEARNED AR OF THE ASSESSEE HAS PLACE D RELIANCE ON THE DECISION OF THE HONBL SUPREME COURT IN CASE OF VIJAYA BANK VS. CIT 323 ITR 166 (SC) AND SUBMITTED THAT THE HONBLE SUPREME COURT HAS HELD T HAT IF AN AMOUNT IS DEBIT TO THE PROFIT AND LOSS ACCOUNT BY CREATING A PROVISION FOR A BAD AND DOUBTFUL DEBT, AND FURTHER IF THE ASSESSEE HAS CORRESPONDINGLY/SIMULTA NEOUSLY OBLITERATED THE SAID ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 16 PROVISION FROM ITS ACCOUNT BY REDUCING THE CORRESPO NDING AMOUNT FROM LOANS AND ADVANCES/DEBTORS ON THE ASSETS SIDE OF THE BALANCE- SHEET, AND CONSEQUENTLY AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANC ES OR THE DEBTORS ON THE ASSETS SIDE OF THE BALANCE-SHEET IS SHOWN AS NET OF THE PR OVISION FOR IMPUGNED BAD DEBT, THE ASSESSEE WILL BE ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII), AS THERE IS AN ACTUAL WRITE OFF BY THE ASSESSEE IN HIS BOOKS. 51. WE NOTE THAT THE AO HAS DISALLOWED THE CLAIM OF THE ASSESSEE BECAUSE IT WAS FOUND AS A PROVISION FOR NPA. AS FAR AS THE ALLOWBI LITY OF THE CLAIM FOR THE PROVISION FOR NPA IS CONCERN, IT IS SETTLE PROPOSITION THAT T HE SAME CANNOT BE ALLOWED. THE LD. AR HAS RELIED UPON THE DECISION OF HONBLE SUPR EME COURT IN CASE OF VIJAYA BANK (SUPRA) HOWEVER, WHEN THE PROVISION IN QUESTIO N IS FOR NPA AND NOT FOR BAD DEBTS THEN IN VIEW OF THE DECISION OF HONBLE SUPRE ME COURT IN CASE OF SOUTHERN TECHNOLOGY LTD. VS. JCIT 320 ITR 577, PROVISION FOR NPA IS NOT A ALLOWABLE CLAIM. ACCORDINGLY, THIS ISSUE IS DECIDED AGAINST THE ASSE SSEE. 52. GROUND NO.7&8 REGARDING DEDUCTIBILITY OF EXPEND ITURE OF VRS PAYMENT UNDER SECTION 35DDA AND NOT UNDER SECTION 37(1). 53. AT THE TIME OF HEARING, LEARNED AR OF THE ASSES SEE HAS STATED THAT ASSESSEE DOES NOT WANT TO PRESS THIS GROUND AND SAME MAY BE DISMISSED AS NOT PRESS. LEARNED DR HAS RAISED NO OBJECTION IF GROUND NO.7&8 OF THE ASSESSEES APPEAL ARE DISMISSED AS NOT PRESS. ACCORDINGLY, THESE GROUNDS OF THE ASSESSEES APPEAL ARE DISMISSED BEING NOT PRESSED. 54. GROUND NO.9 REGARDING DISALLOWANCE OF 20% OF IN TEREST AND COMMISSION AS PER TPO ORDER WITH RESPECT TO ECB ADVANCE TO INDIAN BORROWERS. 55. WE HAVE HEARD LEARNED AR AS WELL AS DR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. THIS GROUND IS COMMON TO THE GR OUND NO.9 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2002-03. IN VIEW OF OUR FINDING ON THIS ISSUE FOR ASSESSMENT YEAR 2002-03, THIS GROUND IS PARTLY ALLO WED. 56. GROUND NO.10 REGARDING RATE OF TAX APPLICABLE TO THE ASSESSEES INCOME. THIS GROUND IS COMMON TO THE GROUND NO.10 OF THE ASSESSE ES APPEAL FOR ASSESSMENT ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 17 YEAR 2002-03, IN VIEW OF OUR FINDING FIR ASSESSMENT YEAR 2002-03, THIS GROUND IS DECIDE AGAINST THE ASSESSEE. 57. ASSESSEE HAS RAISED THE ADDITIONAL GROUNDS AS U NDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN MAKING AN AD-HOC DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX AC T 1961. NO ADDITION OUGHT TO BE MADE AS THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE IN RESPECT OF INTEREST ON TAX FEE SECURITIES RECEIVED BY THE ASSESSEE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED NON ALLOWABILITY OF DEDUCTION U/S 36(1)(VIIA)(B) WHILE COMPUTING THE TAXABLE INCO ME. 58. WE HAVE HEARD LEARNED AR AS WELL AS DR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD ON THE ADMISSIBILITY OF THE ADDI TIONAL GROUNDS RAISED BY THE ASSESSEE. WE NOTE THAT BOTH THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE LEGAL IN NATURE AND NO INVESTIGATION OF FACT IS REQUIRED FOR ADJUDICATION OF THESE GROUNDS. ACCORDINGLY, IN THE INTEREST OF JUSTICE AND IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF NTPC VS. CIT (229 ITR 383) , WE ADMIT THE ADDITIONAL GROUNDS FOR ADJUDICATION ON MERITS. 59. AS REGARDS, THE ADDITIONAL GROUND NO.1 FOR DISA LLOWANCE U/S.14A, WE NOTE THAT THE CIT(A) HAS MADE DISALLOWANCE OF RS.2,00,00 0/- ON AD-HOC BASIS. THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT IN TH E EARLIER YEARS THE TRIBUNAL HAS EXAMINED THIS ISSUE AND FOUND THAT THE ASSESSEE HAS URGED ITS OWN INTEREST FREE FUND FOR THE INVESTMENT IN THE SECURITIES AND THERE FORE, NO DISALLOWANCE CAN BE MADE U/S.14A ON ACCOUNT OF EXPENDITURE. HE URGED TH AT 2% OF THE DIVIDEND INCOME CAN BE DISALLOWANCE ON ACCOUNT OF OPERATING EXPENDI TURE . THE DR HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. AT THE OUTSET, WE NOTE THAT THIS GROUND IS COMMON TO THE GROUND NO.4 OF THE ASSESSEES APPEAL FOR ASSESSMENT YEAR 2002-03. IN VIEW OF OUR FINDINGS FOR ASSESSMENT YEAR 2002-03 , WE RESTRICT DISALLOWANCE U/S.14A TO 2% OF THE EXEMPT INCOME. 60. THE ADDITIONAL GROUND NO.2 REGARDING NON ALLOW BILITY OF DEDUCTION U/S.36(1)(VIIA)(B). 61. WE NOTE THAT THIS ISSUE IS CONNECTED WITH THE I SSUE OF DISALLOWANCE OF PROVISION FOR NON PERFORMING ASSET. AS THE ISSUE OF DISALLOWANCE OF NON PERFORMING ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 18 ASSET HAS BEEN DECIDED AGAINST THE ASSESSEE, THEREF ORE, THIS ISSUE IS ALSO DECIDED AGAINST THE ASSESSEE. 62. FOR THE ASSESSMENT YEAR 2003-04 THE REVENUE IN THE CROSS APPEAL HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE ADDITIONAL DISALLO WANCE MADE U/S.14A OF THE ACT TO RS.2,00,000/-INSTEAD OF RS 73,34,887/- DETERMINED B Y THE ASSESSING OFFICER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT EXPENSES RELATED TO CREDI T RISK ASSISTANCE AND EDP ASSISTANCE COST INCURRED BY THE HO ON BEHALF OF THE INDIA BRANCH ARE NOT COV ERED U/S.44C OF THE IT ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER NOT TO TAX THE INTEREST INCOME OF RS 18,71,711/- ON NOSTRO BALANCES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN A) RESTRICTING THE ESTIMATION TO 20% AS AGAINST 25% DETERMINED BY THE TPO IN RESPECT OF ECB DISBURSAL HOLDING THAT EXPENSES RELATED TO CREDIT R ISK ASSISTANCE AND EDP ASSISTANCE COST INCURRED BY THE HO ON BEHALF OF THE INDIA BRANCH ARE NOT COV ERED U/S.44C OF THE IT ACT. B) DELETING THE ADDITION OF RS.80,99,091/- MADE ON ACCOUNT OF CREDIT RISK ASSISTANCE WITHOUT APPRECIATING THE TPOS FINDINGS THAT THE SAID EXPEN SE HAS BEEN CLAIMED TWICE I.E. ONCE A PART OF THE ALLOCATED HEAD OFFICE AND SECONDLY AS CREDIT ASS ISTANCE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ID. CIT(A) ERRED IN HOLDING THAT INTEREST U/S.234D COULD BE CHARGED ONLY W.E.F. 01.06.2003 AND NOT WITH THE RETROSPECTIVE EFFECT WHEN ON REGULAR ASSESSMENT INSTEAD OF REFUND DEMAND WAS PAYABLE BY THE ASSESSEE. 63. GROUND NO.1 REGARDING RESTRICTION OF DISALLOWA NCE BY THE CIT(A) TO RS.2,00,000/- ON AD-HOC BASIS. THIS ISSUE IS COMMON TO THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. IN VIEW OF OUR FINDING FOR ASSESSM ENT YEAR 2002-03 AS WELL AS ON THE ADDITIONAL GROUND OF THE ASSESSEE THIS GROUND O F THE REVENUES APPEAL IS DISMISSED. 64. GROUND NO.2 REGARDING DEDUCTIBILITY U/S.37(1) O F THE DIRECT EXPENSES INCURRED BY HEAD OFFICE. 65. WE HAVE HEARD LEARNED DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THIS ISSUE OF THE REVENUES APP EAL IS COMMON TO THE ISSUE RAISED IN GROUND NO.1 OF THE REVENUES APPEAL FOR A SSESSMENT YEAR 2002-03. IN VIEW OF OUR FINDING GROUND NO.1 FOR ASSESSMENT YEAR 2002 -03, THIS GROUND OF THE REVENUES APPEAL IS DISMISSED. ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 19 66. GROUND NO.3 REGARDING TAXABILITY OF INTEREST ON NOSTRO ACCOUNT BALANCES. 67. WE HAVE DECIDED THIS GROUND ALONG WITH GROUND N O.5 OF THE ASSESSEES APPEAL ACCORDINGLY, THIS GROUND IS ALLOWED. 68. GROUND NO.4(A) REGARDING ALLOWANCE OF 5% INTERE ST AND FEES OUT OF THE ADDITION MADE BY THE TPO WITH RESPECT OF ECB ADVANC ES TO INDIAN BORROWERS. THIS GROUND OF THE REVENUES APPEAL IS COMMON TO THE GRO UND NO.3 OF THE REVENUES APPEAL FOR ASSESSMENT YEAR 2002-03. IN VIEW OF OUR FINDING ON THE GROUND NO.3 OF THE REVENUES APPEAL IS DISMISSED. 69. GROUND NO.4(B) REGARDING TP ADJUSTMENT IN RESPE CT OF CREDIT RISK ASSISTANCE EXPENSE OF RS.88,99,091/- CHARGED BY HO TO THE INDIA N BRANCH FOR PROVIDING ASSISTANCE IN DOING CREDIT RISK ANALYSIS FOR THE IN DIAN ENTITY. THE TPO NOTED THAT THIS EXPENSES HAS BEEN CHARGED TO THE INDIAN ENTITY IN THE SAME INVOICES IN WHICH THE HO HAS ALLOCATED EXPENSES OF RS.20,391,525/- AS INDIANS SHARE OF HO EXPENSES. FURTHER THE TPO HAS NOTED THAT THIS EXPENS ES HAS NOT BEEN DEBITED BY THE ASSESSEE TO ITS PROFIT AND LOSS ACCOUNT, BUT HA S BEEN CLAIMED SEPARATELY AS A DEDUCTION IN THE COMPUTATION OF INCOME FILED WITH T HE RETURN OF INCOME. THE HO EXPENSES OF RS.20,391,525/- WAS SUBJECT MATTER OF CO NSIDERATION UNDER SECTION 44C. THE ASSESSEE CONTENDED BEFORE THE TPO THAT HEA D OFFICE HAD ALSO CERTAIN EXPENDITURE WHICH IS DIRECTLY ATTRIBUTABLE TO INDIAN BRANCH, OVER AND ABOVE THE NORMAL HO EXPENSES/ALLOCATION. THEREFORE, EXPENSES H AVE NOT BEEN CONSIDERED FOR ARRIVING AT THE LIMITS ALLOWABLE U/S44C. THE TPO HE LD THAT THE DETAILS FILED BY THE ASSESSEE INDICATE THAT THESE AMOUNTS OF RS.80,99,09 1/- ARE NOT BEING DEBITED TO THE PROFIT AND LOSS ACCOUNT ARE BEING CLAIM OF THE COMPUTATION OF INCOME, AS SEPARATE EXPENSES. THE AMOUNTS ARE ALSO NOT BEING PA ID WHEN HEAD OFFICE HAD ALREADY CHARGED. THE ASSESSEE EXPENSES TOWARDS COST OF CREDIT RISK SERVICES TO THE TUNE OF RS.20,391,525/-. THE TPO HELD THAT THESE EX PENSES APPEAR TO BE A DUPLICATION OF SERVICES WHICH ARE BEING PERFORMED B Y THE INDIAN BRANCHES. EVEN IF VETTING IS REQUIRED BY THE PARIS BRANCH TO REDUCE T HE RISK OF A WRONG BUSINESS DECISION, THERE CANNOT BE TWO ALLOCATIONS FOR THE S AME SERVICES. ACCORDINGLY, THE TPO HELD THAT THESE EXPENSES FOR THE SAME ACTIVITY A RE BEING CLAIMED TWICE ONE AS PART OF THE HEAD OFFICE EXPENSES AND THE OTHER AS SE PARATE EXPENSES, THE ARMS LENGTH PRICE OF THE SEPARATELY CLAIMED EXPENSES WAS DETERMINED AS NIL. THE ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 20 CIT(A) HAS DELETED THE ADDITION MADE BY THE TPO BY ACCEPTING THE EXPLANATION OF THE ASSESSEE THAT THESE ARE FOR SEPARATE INVOICES A ND SERVICES RENDERED BY THE HEAD OFFICE. 70. WE HAVE HEARD LEARNED DR AS WELL AS LEARNED AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE TPO HAS RECORDED T HE FACT THAT THESE EXPENSES ARE INVOICED BY THE HEAD OFFICE IN THE SAME INVOICE S IN WHICH THE COST OF CREDIT RISK EXPENSES OF RS.20,391,525/- WERE ALSO CHARGED T O THE ASSESSEE. 71. SINCE NO MATERIAL HAS BEEN PRODUCT TO SHOW THAT THIS EXPENDITURE AS CLAIMED BY THE ASSESSEE SEPARATELY IS FOR THE EXCLUSIVE AND DEDICATED WORK/SERVICE DONE BY THE HO TO THE ASSESSEE. FURTHER THERE IS NO EXPLANAT ION BY THE ASSESSEE AS ON WHAT BASIS THIS EXPENDITURE IS CHARGED BY HO. THEREFORE, THIS ISSUE CANNOT BE DECIDED IN THE ABSENCE OF COMPLETE FACT AS WHETHER THE HEAD OF FICE HAS CHARGED THIS EXPENDITURE ON THE BASIS OF MAN HOUR OR DEDICATED DESK WAS ASSIGNED FOR THIS PURPOSE EXCLUSIVELY FOR THE SERVICE OF THE ASSESSEE. THE ASSESSEE HAS ALSO NOT FILED ANY CERTIFICATE FROM THE AUDITOR OF THE HEAD OFFICE IN SUPPORT OF THIS CLAIM. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO RECORD OF T HE AO/TPO TO EXAMINE THE FACTS PROPERLY AND THE EVIDENCE TO BE FILED BY THE ASSESS EE IN SUPPORT OF THIS CLAIM. THE ASSESSEE IS DIRECTED TO FILE RELEVANT EVIDENCE AND CERTIFICATE FROM THE AUDITOR OF THE HEAD OFFICE TO SHOW THAT THE PAYMENT HAS BEEN M ADE TOWARDS THE DEDICATED EXCLUSIVE SERVICE RENDERED BY THE HEAD OFFICE TO THE ASSESSEE. ACCORDINGLY THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 72. GROUND NO.5 REGARDING CHARGEABILITY OF INTEREST UNDER SECTION 234D. 73. WE HAVE HEARD LEARNED DR AS WELL AS LEARNED AR AND CONSIDERED RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT THI S ISSUE IS NOW COVERED AGAINST THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. IOC (254 CTR 113). ACCORDINGLY, THIS ISSUE IS DECIDED I N FAVOUR OF THE REVENUE AGAINST THE ASSESSEE. CO.NO.221/M/2013 74. THE REVENUE HAS RAISED THE ONLY GROUND AS UNDER : ITA NOS.4474&4649/M/2009& CO NO. 218/M/2013 &ITANOS.723&1134/M/2011 CO NO.221/M/2013 21 WITHOUT PREJUDICE TO THE STAND OF REVENUE THAT THE INTEREST OF RS. 62,56,364/- RECEIVED FROM HO/OVERSEAS BRANCHES IS TAXABLE IN INDIA AS TH E BRANCH AND HO ARE SEPARATE ENTITIES FOR THE PURPOSE OF TAXATION, IF THE INTERE ST INCOME IS HELD TO BE EXEMPT BY TREATING THE HO AND BRANCH AS ONE ENTITY NECESSARY DISALLOWAN CE MAY BE MADE U/S 14A OF THE L T. ACT. 75. THIS GROUND RAISED BY THE REVENUE IN THE CROSS OBJECTION BECOME INFRUCTUOUS, IN VIEW OF THE INTEREST AMOUNT OFFERED BY THE ASSESSEE TO TAX IN GROUND NO.1 OF THE ASSESSEES APPEAL. ACCORDINGLY, THE CO IS DISMISSED AS INFRUCTUOUS. 76. IN THE RESULT, THE CROSS APPEALS FOR BOTH ASSE SSMENT YEARS ARE PARTLY ALLOWED AND REVENUES CROSS OBJECTIONS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF MARCH 2014. SD/- SD/- (R.C.SHARMA) ACCOUNTANT MEMBER (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 21 ST MARCH 2014 A.K.PATEL COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ / // / BY ORDER / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI
