ADIT (IT) 2(1), MUMBAI V. SOCIETE GENERALE, MUMBAI

ITA 571/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49393 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 04-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 22-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBACHAN RAM
• Assessee Lawyers: BRIJMOHAN POORANMAL AGA RWAL
• Keywords: Capital asset; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI T.R. SOOD (AM) AND SHRI VIJAY PAL RAO (JM) I.T.A.NO.571/MUM/2010 ASSESSMENT YEAR: 2005-06 THE DY. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) -2(1), R.NO.120, LST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI.400 038 VS. M/S. SOCIETE GENERALE, MAKER CHAMBERS IV, 13 TH FLOOR, J. BAJAJ MARG, NARIMAN POINT, MUMBAI 400 021. PAN: AABCS 7484 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBACHAN RAM RESPONDENT BY : SHRI BRIJMOHAN POORANMAL AGARWAL O R D E R PER T.R. SOOD, AM: IN THIS APPEAL THE REVENUE HAS RAISED VARIOUS GROU NDS OF APPEAL WHICH INVOLVE THE FOLLOWING THREE DISPUTES: (A) DELETION OF ADDITION ON ACCOUNT OF BROKER PERIOD IN TEREST (B) DELETION OF ADDITION ON ACCOUNT OF REVALUATION LOSS ON FOREIGN EXCHANGE CONTRACT. (C) DELETION OF ADDITION ON ACCOUNT OF GUARANTEE COMMIS SION. ISSUE NO.1 2. AFTER HEARING BOTH THE PARTIES, WE FOUND THAT DURIN G THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE CLAIMED INTEREST EXPENSES AMOUNTING TO ` 6,30,35,736/- BY WAY OF BROKEN PERIOD INTEREST ON SECURITIES PURCHASED DURING THE YEAR. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD PAID A PRICE FOR SECURITY WHICH WA S DETERMINED WITH REFERENCE TO THE ACTUAL VALUE. THEREFORE, THE SAME WAS PAID FOR THE CAPITAL ASSET AND ACCORDINGLY DISALLOWED THE INTEREST PAID FOR THE BR OKEN PERIOD WHILE PURCHASING THE SECURITIES. ITA NO.571/MUM/2010 M/S.SOCIETE GENERALE 2 3. THE LEARNED CIT(A) DELETED THE ADDITION BY FOLLO WING VARIOUS JUDGMENTS VIDE PARA 2.3 OF HIS ORDER WHICH IS AS UNDER: I HAVE CONSIDERED THE ARGUMENTS. THE ISSUE STANDS SETTLED BY THE BOMBAY HIGH COURT IN THE CASE OF AMERICAN EXPRESS I NTERNATIONAL BANK (258 ITR 601). THE BOMBAY HIGH COURT HAS ALSO IN APPELLANT OWN CASE IN IT 87 OF 1996 FOR A.Y.1985-86 & 1986-87 VIDE ORDER DATED 16.07.2003 REJECTED APPLICATION U/S.256(1) AG AINST THE DECISION IN STANDARD CHARTERED BANK. THE ISSUE IS ALSO COVER ED BY SC DECISION IN THE CASE OF UNION BANK OF INDIA. THE BROKEN PERI OD INTEREST PAID ON PURCHASE OF SECURITIES TILL DATE OF ACQUISITION OF SUCH SECURITIES IS ALLOWABLE A DEDUCTION IN THE COMPUTATION OF TOTAL I NCOME AS HELD IN CIT VS. CITI BANK N.A.(2003) 264 ITR 18(BOM.) CIT V S. SOUTH INDIAN BANK LTD. (2000) 241 ITR 374 (KER) AND CIT VS. NEDU NAGADI BANK LTD. (2003) 264 ITR 545 (KER) AS HELD BY COCHIN TRIB A CIT VS. STATE BANK OF TRAVANCORE (2008) 12 DTR 2326 (COCH-TRIB) D ATED 08.08.2007 CIT V. CITI BANK (CIVIL APPEAL NO. 1549 OF 2006 A.Y. 1978- 79) DATED 12.08.2008 (SC). RESPECTFULLY FOLLOWING T HE JUDICIAL PRONOUNCEMENTS AND PREDECESSORS ORDER, THE AO IS DI RECTED TO ALLOW THE BROKEN PERIOD INTEREST AS REVENUE EXPENDITURE. APPELLANTS APPEAL ON THIS GROUND IS ALLOWED. 4. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATIVE R ELIED ON THE ORDER OF THE ASSESSING OFFICER. 5. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED EVEN IN EARLIER YEARS B Y THE TRIBUNAL IN FAVOUR OF THE ASSESSEE AND IN THIS REGARD HE RELIED ON THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 1995-96 AND 1997-98. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND TH AT IN THE ASSESSMENT YEAR 1995-96 IN THE ASSESSEES OWN CASE THE TRIBUNA L IN ITA NO.740/MUM/99 ORDER DATED 12.12.2003 DECIDED THE ISSUE VIDE PARA 3 WHICH IS AS UNDER: FACTS OF THE INSTANT APPEAL ARE IDENTICAL WITH THE ALREADY DECIDED APPEALS OF THE ASSESSEE REFERRED HEREIN ABOVE BECAU SE THE ASSESSEE HAS CLAIMED DEDUCTION OF ` 2,20,95,095/- AS BROKER PERIOD INTEREST PAID ON PURCHASE OF SECURITIES TREATING THE SAME AS REVENUE EXPENDITURE. THE AO HAS RELIED UPON THE THEN AVAILABLE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK 18 7 ITR 541. THE FIRST APPELLATE AUTHORITY HAS SIMPLY FOLLOWED THE D ECISIONS OF HIS PREDECESSOR AND AFFIRMED THE ADDITION. NOW WE HAVE NOTICED THAT THE ISSUE IS SQUARELY COVERED BY A LATEST DECISION OF T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF AMERICAN E XPRESS INTERNATIONAL BANKING CORPORATION 258 ITR 601 WHICH WAS ALSO FOLL OWED BY THE TRIBUNAL IN THE AFORECITED DECISION. WE HAVE ALSO N OTICED THAT THE ITA NO.571/MUM/2010 M/S.SOCIETE GENERALE 3 HONBLE BOMBAY HIGH COURT HAS DISTINGUISHED THE DEC ISION OF VIJAYA BANK (SUPRA) RELIED UPON BY THE REVENUE AUTHORITIES . RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH C OURT AS WELL AS TAKING A CONSISTENT VIEW AS ADOPTED IN ASSESSEES OWN CASE BY MUMBAI BENCHES WE HEREBY REVERSE THE FINDINGS OF LD.CIT(A) AND DIRECT THE AO TO ALLOW THE DEDUCTION OF BROKEN PERIOD INTEREST PAID BY THE ASSESSEE ON THE PURCHASE OF SECURITIES. 7. SINCE NO CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE, THEREFORE, FOLLOWING THE ABOVE ORDER, WE DECIDE THE ISSUE AGAI NST THE REVENUE. ISSUE NO.2. 8. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED NET LOSS OF ` 19,91,04,131/-. THE ASSESSING OFFICER WAS OF THE VI EW THAT MERELY THE ASSESSEE WAS FOLLOWING CERTAIN GUIDELINES OF THE C ONTROLLING AUTHORITIES DOES NOT MEAN THE CORRECT INCOME CANNOT BE COMPUTED AS PER T HE PROVISIONS OF INCOME-TAX ACT. HE THEN DISCUSSED VARIOUS CASE LAWS AND OBSER VED THAT THE LOSS WAS ONLY A NOTIONAL LOSS BECAUSE FOREIGN EXCHANGE CONTRACTS H AD NOT EXPIRED AND ACCORDINGLY HE DISALLOWED THE SAME. 9. THE LEARNED CIT(A) FOLLOWING THE ORDER OF THE TR IBUNAL ALLOWED THE LOSS VIDE PARA 3.3 OF HIS ORDER WHICH IS AS UNDER: I HAVE CONSIDERED THE FACTS AND THE CONTENTION OF THE AO AND THE APPELLANT. IT IS SEEN THAT THE ASSESSEE HAS CLAIMED LOSS ON REVALUATION OF FORWARD CONTRACT AND SHOWN AS INCOME ON PROFIT O F REVALUATION OF FORWARD CONTRACT EXCHANGE GAIN. THE LOSS WAS BEING DISALLOWED EARLIER BY THE AO AS WELL AS CIT(A), HOWEVER THE HONBLE I. T.A.T IN ASSESSEE OWN CASE FOR A.Y. 1996-97 & 1997-98 HAS ALLOWED THE SAME IN FAVOUR OF APPELLANT. RELIANCE IS ALSO PLACED ON FOLLOWING DECISIONS THE BOMBAY HIGH COURT IN CIT V. VITRE ENGINEERING CO. 1 50 ITR 183 HAS HELD THAT EXPENDITURE OR LOSS ON ACCOUNT OF UNFAVOU RABLE EXCHANGE RATE EXISTING AS ON THE LAST DAY OF THE ACCOUNTING YEAR WAS AN ALLOWABLE DEDUCTION IN THE CASE OF ASSESSEE FOLLOWI NG THE MERCANTILE SYSTEM OF ACCOUNTING. IN ECHJAY FORGINGS V. CIT 252 ITR 15, THE BOMBAY HIGH COURT HAD TO CONSIDER, INTER ALIA, WHE THER A PROVISION FOR INCREMENTAL LIABILITY FOR REPAYMENT OF A LOAN I N FOREIGN EXCHANGE WAS TO BE ADDED BACK IN DETERMINING BOOK PROFIT U/S .115J. THE HIGH COURT HELD THAT SUCH A PROVISION COULD NOT BE ADDED BACK AND THAT IT WAS PROPER DEBIT TO THE PROFIT AND LOSS ACCOUNT. AL SO IN CIT V. BANK OF INDIA 218 ITR 371, THE BOMBAY HIGH COURT HELD THAT FOREIGN CURRENCY HELD BY THE ASSESSEE IN ITS FOREIGN BRANCH WAS TO B E VALUED ON THE BASIS OF THE EXCHANGE RATES AT THE EN OF THE FINANC IAL YEAR AS SUCH ITA NO.571/MUM/2010 M/S.SOCIETE GENERALE 4 FOREIGN CURRENCY CONSTITUTED AS STOCK-IN-TRADE. ACC ORDINGLY, I ALLOWED THE DEDUCTION ON ACCOUNT OF NOTIONAL LOSS AS THE PR OFIT IS BEING ADDED BY THE ASSESSEE ITSELF. THEREFORE, RESPECTFULLY FOL LOWING ITT DECISION IN APPELLANT OWN CASE, THE NOTIONAL LOSS SO CLAIMED IS ALLOWED TO THE APPELLANT. THUS THIS GROUND OF APPEAL IS ALLOWED. 10. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATI VE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 11. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSE E. FURTHER, NOW THE ISSUE HAS BEEN DECIDED BY THE HONBLE SUPREME COURT IN THE CA SE OF CIT V. WOODWARD GOVERNOR INDIA P.LTD. (312 ITR 254)(SC). 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE LEARNED CIT(A) HAS CORRECTLY DECIDED THE ISSUE BY FOLLOWING ORDER OF THE TRIBUNAL AS WELL AS THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT V. BANK OF INDIA (218 ITR 371). THEREFORE, WE FIND NOTHING WRONG IN THE FINDINGS OF THE CIT(A) WHICH WE CONFIRM. ISSUE NO.3 13. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD R ECEIVED CERTAIN GUARANTEE COMMISSION. SOME OF THE GUARANTEE COMMISSION FOR WH ICH CONTRACTS HAD NOT EXPIRED WAS NOT SHOWN AS INCOME. ON ENQUIRY, IT WA S EXPLAINED THAT WHEREVER THE VALIDITY OF GUARANTEE EXTENDED TO NEXT YEAR AND TH E GUARANTEE COMMISSION RECEIVED WAS MORE THAT ` 50,000/- SUCH COMMISSION WAS TREATED AS ADVANCE. AO DID NOT AGREE WITH THIS EXPLANATION AS ACCORDING TO HIM THIS WAS NOT THE ACCEPTED METHOD OF ACCOUNTING. ACCORDING TO HIM TRANSACTION S INVOLVING BANK GUARANTEE HAS TO BE RECKONED IN THE YEAR IN WHICH GUARANTEE I S GIVEN. ACCORDINGLY, GUARANTEE COMMISSION OF ` 1,31,62,854/- WAS TREATED BY THE AO AS INCOME. 14. THE LEARNED CIT(A) DECIDED THE ISSUE BY FOLLOWI NG THE ORDERS OF THE EARLIER YEARS IN FAVOUR OF THE ASSESSEE. ITA NO.571/MUM/2010 M/S.SOCIETE GENERALE 5 15. BOTH THE PARTIES WERE HEARD. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TRIBUNAL IN THE ASSESSMENT YEAR 2002-03 IN ITA NO. 3769/MUM/2009 AN D THE ISSUE WAS DECIDED VIDE PARA 4 OF ITS ORDER WHICH IS AS UNDER: THIS ISSUE IS BEING AGITATED IN EARLIER YEARS ALSO . SINCE THE ASSESSEE IS CONSISTENTLY ACCOUNTING THE GUARANTEE COMMISSION AN D SPREAD IT OVER A PERIOD OF GUARANTEE GIVEN IN EACH CASE AND SUBSTA NTIAL AMOUNT OF GUARANTEE COMMISSION WAS ACCOUNTED IN THE YEAR ALSO , THERE IS NO NEED TO DEVIATE FROM THE FINDINGS OF THE CIT(A), BO TH LEGALLY AND FACTUALLY. THERE IS NO MERIT IN REVENUES CONTENTIO NS. IT IS ALSO NOTICED THAT THE AO HAS NOT EXAMINED WHETHER ANY SUCH BANK GUARANTEE COMMISSION RECEIVED IN EARLIER YEARS WAS ACCOUNTED IN THIS YEAR AS PER THE ACCOUNTING POLICY FOLLOWED. IF HE IS OF THE OPI NION THAT THE AMOUNT HAS ACCRUED AT THE TIME OF RECEIPT ITSELF SIMILAR A DJUSTMENT FOR THE OPENING AMOUNT SHOULD ALSO HAVE BEEN CONSIDERED BY HIM. THIS WAS NOT DONE. THE ASSESSEE IS CONSISTENTLY FOLLOWING OF FERING GUARANTEE COMMISSION SPREADING OVER THE PERIOD OF GUARANTEE G IVEN. SINCE THIS ISSUE WAS AGITATED IN EARLIER YEARS AND CONSISTENTL Y HELD BY THE CIT(A) IN ASSESSEES FAVOUR, THERE IS NO NEED FOR US TO D EVIATE FROM THE ORDERS OF THE CIT(A). ACCORDINGLY THE GROUNDS ARE R EJECTED. 16. SINCE NO CONTRARY DECISION HAS BEEN BROUGHT TO OUR NOTICE, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL IN THE ASSESSEE S OWN CASE, WE DECIDE THE ISSUE AGAINST THE REVENUE. 17. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 8 TH DAY OF JULY, 2011. SD. SD. (VIJAY PAL RAO) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED THE 8 TH JULY, 2011. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE DIT (INTL. TAXATION), MUMBAI. 4. THE CIT(A)-11, MUMBAI 5. THE DR I BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI