ADIT (I.T) -3(2), MUMBAI V. M/s. BANK OF BAHARIN & KUWAIT, MUMBAI

ITA 6731/MUM/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8651 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 14-01-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 12-12-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARISE OUT OF PASSED LD CI
• Assessee Lawyers: AND OTHER
• Keywords: Depreciation; Transfer pricing; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L,MUMBAI BEFORE SHRI R.S. SYAL (AM) & SHRI V. DURGA RAO ((JM ) I.T.A.NO.6731/MUM/2006 (A.Y.2002-03) ADIT (IT)-3(2), SCINDIA HOUSE, R.NO.132, 1 ST FLOOR, N.M. ROAD,MUMBAI-38. VS. BANK OF BAHRAIN & KUWAIT, GR.FLOOR, JOLLY CHAMBERS, MAKER-II, 225, NARIMAN POINT, MUMBAI-400 021. PAN: AAACB2140F APPELLANT RESPONDENT I.T.A.NO.6605/MUM/2006 (A.Y. 2002-03) BANK OF BAHRAIN & KUWAIT, GR.FLOOR, JOLLY CHAMBERS, MAKER-II, 225, NARIMAN POINT, MUMBAI-400 021. PAN: AAACB2140F VS. DDIT (IT)-3(2), SCINDIA HOUSE, R.NO.132, 1 ST FLOOR, N.M. ROAD,MUMBAI-38. APPELLANT RESPONDENT O R D E R PER R.S. SYAL : THESE TWO CROSS APPEALS, ONE BY THE ASSESSEE AND T HE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE LD. CI T(A) ON 31.08.2006 IN RELATION TO THE ASSTT. YEAR 2002-03. 2. THE FIRST GROUND OF THE REVENUES APPEAL IS AGAI NST THE INTEREST INCOME ARISING FROM SECURITIES HELD BY THE LD. CIT( A) TO BE TAXABLE ON DUE BASIS AND NOT ON DAY TO DAY BASIS ON ACCRUAL. 3. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSE SSEE CONTENDED THAT A SPECIAL BENCH WAS CONSTITUTED IN ITS OWN CASE FOR A SSTT. YEARS 1998-99 AND ITA 6731-6605/M/06. 2 1999-2000, WHICH HAS SINCE DISPOSED OF THE APPEALS VIDE ITS ORDER DATED 13-02-2010. PLACING ON RECORD A COPY OF THE ORDER, THE LD. AR SUBMITTED THAT THE SPECIAL BENCH HAS DECIDED THIS ISSUE IN AS SESSEES FAVOUR. THE LD. D.R. CANDIDLY ACCEPTED THE POSITION STATED ON BEHAL F OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE PRECEDENT, WE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. THIS GROUND IS NOT ALLOWED. 4. GROUND NO.2 OF THE DEPARTMENTAL APPEAL IS AGAINS T THE DELETION OF DISALLOWANCE ON ACCOUNT OF BROKEN PERIOD INTEREST. HERE ALSO, BOTH THE SIDES ARE IN AGREEMENT THAT THE SPECIAL BENCH OF TH E TRIBUNAL IN THE AFORENOTED CASE HAS DECIDED THIS ISSUE IN ASSESSEE S FAVOUR. RESPECTFULLY FOLLOWING THE SAME, WE APPROVE THE IMPUGNED ORDER O N THIS ISSUE. THIS GROUND IS NOT ALLOWED. 5. GROUND NO. 3 OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION U/S.14A, BEING THE EXPENDITURE INCURRED I N EARNING THE INCOME CLAIMED TO BE EXEMPT U/S.10(33). THE LD. COUNSEL SU BMITTED THAT THE SPECIAL BENCH OF THE TRIBUNAL IN ASSESSEES OWN CAS E RESTORED THE MATTER TO THE FILE OF AO FOR TAKING A DECISION IN ACCORDA NCE WITH THE SPECIAL BENCH ORDER IN THE CASE OF DAGA CAPITAL MANAGEMENT (117 I TD 169). IT WAS, HOWEVER, SUBMITTED THAT THE HONBLE JURISDICTIONAL HIGH COURT, BY A SUBSEQUENT JUDGMENT, IN THE CASE OF GODREJ & BOYCE MFG. LTD. VS. DCIT (2010) 328 ITR 81 (BOM.), HAS DECIDED THE QUESTION OF DISALLOWANCE U/S.14A OF THE ACT. ITA 6731-6605/M/06. 3 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ISSUE RAISED I N THIS GROUND IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIO NAL HIGH COURT IN GODREJ & BOYCE MFG. LTD. VS. DCIT (2010) 328 ITR 81 (BOM.), IN WHICH IT HAS BEEN HELD THAT DISALLOWANCE OF EXPENSES IS C ALLED FOR U/S.14A IN SUCH CIRCUMSTANCES. HOWEVER, THE MANNER OF COMPUTATION O F SUCH DISALLOWANCE HAS BEEN RESTORED TO THE FILE OF AO FOR MAKING ON S OME REASONABLE BASIS. IT HAS FURTHER BEEN HELD IN THIS CASE THE PROVISION S OF RULE 8D ARE PROSPECTIVE. RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER AND DIRECT THE AO TO COMPUTE DISALLO WANCE U/S.14A IN ACCORDANCE WITH THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE AFORENOTED CASE OF GODREJ & BOYCE LTD. 7. MAIN ISSUE IN THESE APPEALS IS GROUND NO. 4 OF T HE DEPARTMENT AGAINST THE DELETION OF ADDITION MADE ON ACCOUNT OF HEAD OFFICE EXPENSES AND NRI DESK EXPENSES AND THE ONLY GRIEVANCE OF THE ASSESSEE IN ITS APPEAL IS AGAINST THE DEDUCTIBILITY OF EXPENSES U/S .44C. 8. THE FACTS OF THESE GROUND ARE THAT THE ASSES SEE IN THE ORIGINAL COMPUTATION OF INCOME, A COPY OF WHICH IS PLACED AT PAGE 11 OF PAPER BOOK, WORKED OUT THE FIGURE OF PROFIT, AFTER CERT AIN ADDITIONS AND REDUCTIONS FROM THE AMOUNT OF NET PROFIT AS PER PRO FIT AND LOSS ACCOUNT, AT RS.1,48,24,908/-. THEREAFTER, A SUM OF RS.2,18,99, 306/- TOWARDS NRI DESK/OTHER EXPENSES INCURRED AT HEAD OFFICE WAS RE DUCED FOR DETERMINING THE AMOUNT OF LOSS AT RS.70,74,398/-. FURTHER, DEDU CTION WAS CLAIMED FOR ITA 6731-6605/M/06. 4 RS.24,64,413/- FOR HEAD OFFICE ADMINISTRATION EXP ENSES ADMISSIBLE (5%) (RESTRICTED TO). SUBSEQUENTLY THE RETURN WAS REVIS ED. IN THE COMPUTATION FILED ALONG WITH REVISED RETURN OF INCOME, A COPY O F WHICH IS PLACED AT PAGE 15 OF THE PAPER BOOK, LOSS FIGURE OF RS.70,74,398/- WAS MADE AS THE STARTING POINT. SOME DEDUCTIONS WERE CLAIMED OR LOS S WAS ADDED WITH CERTAIN FIGURES TO FIND OUT THE AMOUNT OF LOSS AT R S.1,50,46,963/-. FROM THIS FIGURE, DEDUCTION OF HEAD OFFICE ADMINISTRATIO N EXPENSES, RESTRICTED TO 5% AT RS.24,64,413/-, WAS MADE. THE AO, WHILE FINAL IZING THE ASSESSMENT, NOTED THAT THE SAID EXPENDITURE OF RS.2 ,18,99,306 WAS IN THE NATURE OF GENERAL ADMINISTRATION EXPENSES AND THUS RESTRICTED IT WITHIN THE LIMITS PRESCRIBED U/S.44C OF THE ACT. HOWEVER, NO ADDITION WAS MADE ON THIS ACCOUNT IN THE COMPUTATION OF TOTAL INCOME SINCE THE SAME WAS ALREADY ADJUSTED ON CONSIDERATION OF ARMS LENGTH P RICE. HE COMPUTED THE TOTAL INCOME BY ADOPTING THE `INCOME AS PER COMPUTA TION OF INCOME [BEFORE GIVING DEDUCTION U/S.36(1)(VIIA), U/S.44C O F THE ACT) AT (-) RS.1,50,46,963/-. THEN HE ADDED BACK, INTER ALIA , A SUM OF RS.2,66,55,813/- TOWARDS ADJUSTMENT MADE BY THE TR ANSFER PRICING OFFICER. THEREAFTER, HE ALLOWED DEDUCTION U/S.44C AT RS.24,64,413/-. 9. AGGRIEVED THEREBY, THE ASSESSEE WENT IN FIRST APPEAL. THE LD. CIT (A) CAME TO HOLD THAT THE CLAIM OF EXPENSES OF RS.2 4,64,413/- WAS MADE BY THE ASSESSEE, WHICH WAS ALLOWABLE U/S.44C AS PE R THE BOOKS OF ACCOUNT. ON THE OTHER HAND, THE ASSESSEE HAD ALLOCA TED EXPENSES OF RS.47,17,311/- TO THE INDIAN BRANCH. HE OBSERVED IN PARA 8.6 OF THE IMPUGNED ORDER THAT THE TRANSFER PRICING OFFICER (T PO) COMPUTED SUCH ITA 6731-6605/M/06. 5 EXPENSES ATTRIBUTABLE TO THE OPERATION OF INDIAN BR ANCH AT RS.44,46,522/-. IN VIEW OF THE FACT THAT THE MAXIMUM AMOUNT ALLOWAB LE WAS ONLY RS.24,64,413/- U/S.44C, HE HELD THAT THE REDUCTION OF THE HEAD OFFICE EXPENSES BY THE TPO TO THE TUNE OF RS.44.46 LAKHS W AS OF NO RELEVANCE. ACCORDINGLY, THE CLAIM OF DEDUCTION FOR HEAD OFFIC E EXPENSES WAS HELD TO BE DEDUCTIBLE U/S.44C AS PER LAW. IT WAS FURTHER NO TED THAT THE ASSESSEE HAD CLAIMED NRI DESK EXPENSES. HE TOOK NOTE OF THE AUDITORS CERTIFICATE ON THE ALLOCATION OF SUCH NRI DESK EXPENSES AS REPR ESENTING DIRECT COSTS, INDIRECT COSTS AND ALLOCATION OF INDIRECT COSTS. A CHART HAS BEEN PREPARED ON PAGE 28 OF THE IMPUGNED ORDER, AS UNDER : SR. NO.(I) NATURE OF EXPENSES (II) ALLOCATED B Y APPELLANT (III) ALLOCATED BY TPO (IV) 1. DIRECT STAFF COSTS 81,192 81,192 2. TRAVEL AND COMMUNICATION 17,866 17,866 3. ALLOCATED STAFF COSTS INCURRED BY OBD AND VARIOUS OTHER HEAD OFFICE SUPPORT CENTERS A) OFFICE OF THE HEAD OF OBD B) FINANCIAL CONTROL C) INFORMATION TECHNOLOGY D) HUMAN RESOURCE E) OPERATIONS F) INTERNAL AUDIT 13,307 5,320 5,213 4,782 4,762 2,226 NIL 5,320 5,213 4,782 4,762 2,226 4. ALLOCATED GENERAL AND ADMINISTRATION COSTS A) RENT AND MAINTENANCE B) DEPRECIATION C) ADVERTISING D) OTHER 14,767 9,719 3,390 6,641 14,767 9,719 NIL NIL TOTAL 1,69,185 1,45,848 (FIGURES IN THE ABOVE TABLE ARE IN BD. RATE OF CO NVERSION OF BD INTO INDIAN RUPEES HAS BEEN UNCONTROVERTEDLY ADOPTED BY THE TPO AS 1 BD = INR 129.44) ITA 6731-6605/M/06. 6 10. IN PARA 9.5 OF THE IMPUGNED ORDER, HE FOLL OWED THE ORDER OF HIS PREDECESSOR ABOUT THE DEDUCTIBILITY OF EXPENSES INC URRED OVERSEAS EXCLUSIVELY FOR THE BUSINESS OF THE INDIAN BRANCH OF THE APPELLANT AND HELD THAT THOSE WERE NOT TO BE RESTRICTED U/S.44C. IN PA RA 9.6, HE OBSERVED THAT THE TPO HAD DOUBTED THE PRINCIPLES OF ALLOCATION AD OPTED BY THE AUDITOR UNDER VARIOUS HEADS OF NRI DESK. SINCE OVERSEAS BUS INESS DIVISION (OBD) WAS SUPERVISING THE FUNCTIONS OF NRI DIVISION AND O BD EMPLOYEES WERE SUPERVISING NRI DIVISION WORK, IT WAS OBSERVED BY H IM THAT STAFF COST OF OBD ALSO NEEDED TO BE ALLOCATED. IN THIS BACKDROP O F FACTS, HE CAME TO HOLD THAT THE TPO WAS NOT JUSTIFIED IN RESTRICTING THE NRI DESK EXPENSES TO RS.1,88,78,607/-, AGAINST A SUM OF RS.2,18,89,306 CLAIMED BY THE ASSESSEE AS DEDUCTIBLE IN FULL. BOTH THE SIDES ARE IN APPEAL AGAINST THEIR RESPECTIVE STANDS. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN ORDER TO APPRECIATE THE RIVA L CONTENTIONS IN THE RIGHT PERSPECTIVE, IT IS SINE QUA NON TO TAKE NOTE OF THE RELEVANT PART OF SEC. 44C, WHICH READS AS UNDER : 44C. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTIONS 28 TO 43A, IN THE CASE OF AN ASSESSEE, BEING A NON-RESIDENT, NO ALLOWANCE SHALL BE MADE, IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, IN RESPECT OF SO MUCH OF THE EXPENDITURE IN THE NATURE OF HEAD OFFICE EXPENDITURE AS IS IN EXCESS OF THE AMO UNT COMPUTED AS HEREUNDER, NAMELY :- (A) AN AMOUNT EQUAL TO FIVE PER CENT OF THE ADJUSTED TO TAL INCOME; OR (B) (C) THE AMOUNT OF SO MUCH OF THE EXPENDITURE IN THE NATURE OF HEAD OFFICE EXPENDITURE INCURRED BY THE ITA 6731-6605/M/06. 7 ASSESSEE AS IS ATTRIBUTABLE TO THE BUSINESS OR PROFESSION OF THE ASSESSEE IN INDIA, WHICHEVER IS THE LEAST : PROVIDED. EXPLANATION,--.. (I). (II). (III).. (IV) HEAD OFFICE EXPENDITURE MEANS EXECUTIVE A ND GENERAL ADMINISTRATION EXPENDITURE INCURRE D BY THE ASSESSEE OUTSIDE INDIA, INCLUDING EXPE NDITURE INCURRED IN RESPECT OF (A) RENT, RATES, TAXES, REPAIRS OR INSURANCE OF AN Y PREMISES OUTSIDE INDIA USED FOR THE PURPOSE S OF THE BUSINESS OR PROFESSION; (B) SALARY, WAGES, ANNUITY, PENSION, FEES, BONUS, COMMISSION, GRATUITY, PERQUISITES OR PROFITS I N LIEU OF OR IN ADDITION TO SALARY, WHETHER PAID OR ALLOWED TO ANY EMPLOYEE OR OTHER PERSON EMPLOYED IN , OR MAN AGING THE AFFAIRS OF, ANY OFFICE OUTSIDE INDIA; (C) TRAVELLING BY ANY EMPLOYEE OR OTHER PERSON EMPL OYED IN, OR MANAGING THE AFFAIRS OF, ANY OFFICE OUTSI DE INDIA; AND (D) SUCH OTHER MATTERS CONNECTED WITH EXECUTIVE AND GENERAL ADMINISTRATION AS MAY BE PRESCRIBED. 12. A BARE PERUSAL OF THE ABOVE PROVISION TRA NSPIRES THAT THIS SECTION, ALLOWING DEDUCTION OF HEAD OFFICE EXPENDITURE IN TH E CASE OF NON-RESIDENTS, OPENS WITH A NON-OBSTANTE CLAUSE. IT THEN PROCEEDS WITH BY PROVIDING THAT THE HEAD OFFICE EXPENDITURE, AS EXPLAINED IN EXPLA NATION (IV), CAN BE ALLOWED AS DEDUCTION ONLY TO THE EXTENT PROVIDED HE REIN. IT HAS TWO LIMBS, FIRST, BEING AN AMOUNT EQUAL TO FIVE PERCENT OF THE ADJUSTED TOTAL INCOME AND SECOND, BEING THE AMOUNT OF SO MUCH OF THE EXP ENDITURE IN THE NATURE OF HEAD OFFICE EXPENDITURE INCURRED BY THE A SSESSEE AS IS ATTRIBUTABLE TO THE BUSINESS OR PROFESSION OF THE A SSESSEE IN INDIA. LOWER ITA 6731-6605/M/06. 8 OF THESE TWO AMOUNTS IS DEDUCTIBLE U/S 44C. THE RAT IONALE BEHIND THE INSERTION OF SEC. 44C IS TO OBVIATE THE HARDSHIP FA CED BY THE ASSESSING OFFICERS, IN VERIFYING THE VERACITY OF THE PROPORT IONATE COMMON HEAD OFFICE EXPENDITURE AS CLAIMED BY THE ASSESSEE. IT IS QUITE POSSIBLE THAT THE HEAD OFFICE MAY HAVE DIFFERENT BRANCHES, SPREAD OV ER DIFFERENT COUNTRIES. LET US GO WITH THE ASSUMPTION THAT IN A PARTICULAR CASE THE HEAD OFFICE HAS ITS BRANCHES IN 30 COUNTRIES, INCLUDING ONE IN INDI A. SUPPOSE A COMMON EXPENDITURE OF US$100 IS INCURRED BY THE HEAD OFFIC E, WHICH IS ALLOCATED TO ALL THE 30 BRANCHES, INCLUDING THE INDIAN BRANC H. IN SUCH A SITUATION, IT BECOMES DIFFICULT FOR THE AO TO ASCERTAIN WITH EXAC TITUDE THE PROPORTION REALLY ATTRIBUTABLE TO THE INDIAN BRANCH. OBVIOUSLY , IT WOULD BE OUT OF THE REACH OF THE AO TO CONSIDER AS TO HOW THE APPORTION MENT OF US$100 WAS MADE BY THE HEAD OFFICE IN 30 COUNTRIES AND THEREAF TER TO DECIDE WHETHER THE SHARE ALLOCATED TO THE ASSESSEE IS REASONABLE O R NOT. IN ORDER TO GET RID OF THIS DIFFICULTY, SEC. 44C WAS INSERTED SO THAT T HE AO MAY NOT HAVE TO UNDERTAKE THIS EXERCISE. WITH THE INSERTION OF THIS SECTION, A DUAL PURPOSE HAS BEEN ACHIEVED BY THE LEGISLATURE. FIRSTLY, THE JOB OF THE AO IN VERIFYING THE CORRECTNESS OF SHARE OF THE INDIAN BRANCH IN CO MMON HEAD OFFICE EXPENDITURE HAS BEEN GIVEN A GO BY AND SECONDLY, A CEILING HAS BEEN IMPOSED ON THE QUANTUM OF DEDUCTION OF SUCH HEAD OF FICE EXPENDITURE IN THE ASSESSMENT OF NON-RESIDENT INDIAN BRANCH. FOR E XAMPLE, IF OUT OF US$100 THE HEAD OFFICE HAD ALLOCATED US$10 TO THE INDIAN BRANCH, BUT AS PER THE PROVISIONS OF SEC. 44C THE LIMIT OF THE AMO UNT DEDUCTIBLE COMES TO US$6, THE FIGURE OF US$6 WILL BE ALLOWED AS DEDUCTI ON TO THE INDIAN BRANCH, NOTWITHSTANDING THE ASSESSEES CLAIM FOR US $10 EXPENDITURE. ITA 6731-6605/M/06. 9 13. AT THIS JUNCTURE, IT WOULD BE RELEVANT TO NOTE THAT BROADLY THERE MAY BE TWO TYPES OF HEAD OFFICE EXPENSES, VIZ., THOSE INCURRED BY THE HEAD OFFICE IN COMMON TO BE SHARED BY THE BENEFITTING B RANCHES AND THOSE INCURRED EXCLUSIVELY FOR THE INDIAN BRANCH. THE SPI RIT OF SECTION 44C, AS DISCUSSED ABOVE, IS TO DO AWAY WITH THE EXERCISE OF FINDING THE CORRECT PROPORTION OF THE COMMON HEAD OFFICE EXPENSES CLAIM ED BY THE ASSESSEE. RESULTANTLY, THE CAP PROVIDED U/S.44C BECOMES OPERA TIVE ONLY QUA THE SHARE IN COMMON EXPENDITURE INCURRED BY THE HEAD OFFICE. THE SECO ND CATEGORY OF EXPENSES INCURRED BY THE HEAD OFFICE EXCLUSIVELY FOR THE INDIAN BRANCH ARE OUTSIDE THE PURVIEW OF SEC. 44C AS THERE IS NO QUESTION OF FINDING ANY SHARE OF THE ASSESSEE IN THE EXPENSE S INCURRED BY THE HEAD OFFICE, AS THE ENTIRE AMOUNT RELATES TO THE INDIAN BRANCH ALONE. SUCH EXPENSE ARE DEDUCTIBLE AS PER THE REGULAR PROVISION S AND ARE IN ADDITION TO THE COMMON EXPENDITURE FOR WHICH RESTRICTIVE LIMIT HAS BEEN ENSHRINED IN SEC. 44C. FROM HERE IT FOLLOWS THAT WHEREAS COMMON HEAD OFFICE EXPENSES AS PER THE EXPL. (IV) ARE GOVERNED BY SEC. 44C, THE EXCLUSIVE HEAD OFFICE EXPENSES ARE DEDUCTIBLE SEPARATELY AS PER THE REGUL AR PROVISIONS OF THE ACT. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. EMIRATES COMMERCIAL BANK LTD. (2003) 262 ITR 55 (BOM) HAS HELD THAT SEC . 44C HAS NO APPLICATION TO THE EXPENSES EXCLUSIVELY INCURRED BY THE BRANCH OFFICE IN INDIA. IT HAS BEEN SPECIFICALLY LAID DOWN : IN OTH ER WORDS, SECTION 44C SEEKS TO IMPOSE A CEILING/RESTRICTION ON HEAD OFFIC E EXPENSES. HOWEVER, SECTION 44C CONTEMPLATES ALLOCATION OF EXPENSES AMO NGST VARIOUS ENTITIES. THAT, THE EXPENDITURE WHICH IS COVERED BY SECTION 4 4C IS OF A COMMON NATURE, WHICH IS INCURRED FOR THE VARIOUS BRANCHES OR WHICH IS INCURRED FOR ITA 6731-6605/M/06. 10 THE HEAD OFFICE AND THE BRANCH. HOWEVER, IN THIS CA SE, WE ARE CONCERNED WITH THE EXPENDITURE EXCLUSIVELY INCURRED FOR THE B RANCH. IN THIS CASE, THERE IS A CONCURRENT FINDING OF FACT RECORDED BY T HE CIT(APPEALS) AS WELL AS THE TRIBUNAL STATING THAT THE OFFICERS CAME FROM THE HEAD OFFICE AT ABU DHABI TO BOMBAY TO ATTEND TO THE WORK OF THE BOMBAY BRANCH AND, IN CONNECTION WITH THAT WORK, THE EXPENSES WERE INCURR ED. THAT, THE EXPENSE WAS INITIALLY INCURRED BY THE HEAD OFFICE WHICH WAS RECOVERED FROM THE HEAD OFFICE FROM THE BRANCH IN INDIA BY RAISING A D EBIT NOTE. THEREFORE, THE EXPENSES WERE INCURRED FOR THE BRANCH OFFICE IN INDIA. THESE ARE CONCURRENT FINDINGS OF FACT. WE DO NOT WISH TO INTE RFERE WITH THOSE FINDINGS. HENCE, SECTION 44C HAS NO APPLICATION. ON GOING T HROUGH THE MANDATE OF THE HONBLE JURISDICTIONAL HIGH COURT, IT BECOME VI VID THAT ANY EXPENDITURE INCURRED BY THE HEAD OFFICE EXCLUSIVELY FOR THE IN DIAN BRANCH IS DISTINCTLY DEDUCTIBLE AS PER THE OTHER PROVISIONS OF THE ACT A ND SEC. 44C APPLIES ONLY TO ALLOCATED/SHARED EXPENSES AMONGST VARIOUS ENTIT IES. 14. IN ORDER TO ARRIVE AT THE AMOUNT DEDUCTIBLE UND ER THE ACT IN THE ASSESSMENT OF THE INDIAN BRANCH TOWARDS THE SHARED OR ALLOCATED HEAD OFFICE EXPENSES, THE FOLLOWING THREE STEPS ARE REQU IRED TO BE UNDERTAKEN : (I) A CLAIM BY THE INDIAN BRANCH FOR HAVING BORNE A LLOCATED HEAD OFFICE EXPENSES, (II) SUCH CLAIM AS SUPPORTED BY RELEVANT EVIDENCE . (III) LIMITING THE DEDUCTION OF ALLOCABLE EXPENDITU RE AS PER SECTION 44C. ITA 6731-6605/M/06. 11 THE RESULT OF STEPS (I) & (II) IS THE DETERMINATION OF THE ALLOCABLE HEAD OFFICE EXPENDITURE IN THE HANDS OF THE ASSESSEE. ON CE WE REACH STEP (II), THE AMOUNT ACTUALLY DEDUCTIBLE FROM THE INCOME OF T HE ASSESSEE IS FOUND OUT UNDER STEP (III). 15. IF, HOWEVER, SOME EXCLUSIVE EXPENDITURE HAS BEEN INCURRED BY THE HEAD OFFICE FOR THE INDIAN BRANCH, IT WOULD BE ALLOWED AS PER THE REGULAR PROVISIONS OF THE ACT WITHOUT CLUBBING IT WITH COMMON HEAD OFFICE EXPENSES, PROVIDED THERE IS A VALID CLAIM FOR SUCH EXPENDITURE, WHICH IS SUBSTANTIATED BY THE RELEVANT EVIDENCE. 16. ADVERTING TO THE FACTS OF THE INSTANT CASE, IT IS SEEN THAT BASICALLY THERE IS CLAIM BY THE ASSESSEE IN RESPECT OF THREE CATEGORIES OF HEAD OFFICE EXPENSES, VIZ., DIRECT AND EXCLUSIVE NRI DESK EXP ENSES (HEREINAFTER CALLED A); ALLOCATED STAFF COSTS INCURRED BY OB D AND VARIOUS OTHER HEAD OFFICE SUPPORT CENTRES TO NRI DESK (HEREINAFTER CAL LED B); AND OTHER COMMON HEAD OFFICE EXPENSES OTHER THAN THOSE COVERE D UNDER A AND B ABOVE (HEREINAFTER CALLED C). THE AO, IN THE ASSE SSMENT ORDER, HAS CONSIDERED ALL THE THREE CATEGORIES A, B AND C AS C OVERED U/S.44C ON WHICH HE ALLOWED DEDUCTION U/S.44C AT RS.24,64,413/ . IT WAS, OF COURSE, DONE AFTER ADDING BACK ADJUSTMENTS MADE BY THE TR ANSFER PRICING OFFICER AMOUNTING TO RS2,66,55,813/-, WHICH FIGURE COMPRI SES OF DIRECT AND ALLOCATED EXPENSES OF NRI DESK (A AND B ABOVE) AT R S.2,18,89,306 AND OTHER ALLOCATED EXPENSES (C ABOVE). THE EFFECT OF T HIS ADDITION BY THE AO AND THEREAFTER GRANTING DEDUCTION U/S.44C AT RS.24. 64 LAKHS IS THAT THE ITA 6731-6605/M/06. 12 ABOVE THREE CATEGORIES OF EXPENSES I.E. A, B AND C STOOD CONSIDERED AS PART OF THE HEAD OFFICE EXPENSES COVERED U/S.44C. HOWEVER, THE LD. CIT(A) CAME TO HOLD THAT A SUM OF RS.2,18,89,306 (REPRESEN TING A AND B) WAS TO BE ALLOWED IN FULL, INDEPENDENT OF SEC. 44C, AND FOR THE REMAINING EXPENSES (REPRESENTING C), DEDUCTION WAS TO BE ALL OWED AT RS.24.64 LAKHS U/S 44C AS CLAIMED BY THE ASSESSEE ITSELF. THE GRI EVANCE OF THE LD. D.R. IS THAT THE CIT(A) WAS NOT JUSTIFIED IN TAKING OUT RS2 ,18,89,306 (A AND B) FROM COMMON POOL OF EXPENSES COVERED U/S.44C AND TH US ALLOWING DEDUCTION IN FULL, DETACHING THEM FROM THE AMBIT OF SEC. 44C. IN THE OPPOSITION, THE ASSESSEE IS AGGRIEVED FOR RESTRICTI NG THE DEDUCTION U/S.44C TO RS.24.64 LAKHS INSTEAD OF RS.47.17 LAKHS. 17. IN SO FAR AS EXPENSES COVERED UNDER CAT EGORY C ABOVE ARE CONCERNED, THERE IS NO DISPUTE FROM THE EITHER SIDE THAT THESE ARE ALLOCATED HEAD OFFICE EXPENSES AND THUS COVERED U/S 44C OF TH E ACT. 18. NOW WE COME TO THE DIRECT AND EXCLUS IVE EXPENSES OF NRI DESK COVERED UNDER CATEGORY A, REFERRED TO AS ITEM S 1 AND 2 IN TABLE EXTRACTED ABOVE. IT IS NOTICED THAT THERE IS NO DI SAGREEMENT ON THE AMOUNT ALLOCATED BY THE ASSESSEE AND AS DETERMINED BY TPO, BEING THE FIGURES IN COL. III AND IV OF THE ABOVE TABLE. TH E CORE OF CONTROVERSY IS WHETHER THESE ARE COVERED U/S 44C OR ARE INDEPENDEN T AND HENCE DEDUCTIBLE IN FULL AS PER THE GENERAL PROVISIONS OF THE ACT. WE HAVE CONSIDERED THE CASE OF EMIRATES COMMERCIAL BANK LTD. (SUPRA) , IN WHICH IT HAS BEEN CATEGORICALLY HELD THAT THE EXCLUSIVE EXPENSES INCURRED BY THE ITA 6731-6605/M/06. 13 HEAD OFFICE IN RELATION TO INDIAN BRANCH ARE TO BE ALLOWED AS DEDUCTION IN FULL, WITHOUT COVERING THEM U/S 44C. THE NON-RESID ENT INDIANS (NRI) DESK, IN THIS CASE, HAS BEEN MAINTAINED, BY THE HEA D OFFICE OUTSIDE INDIA, WHICH IS FOR SERVING THE NON-RESIDENT INDIAN CUSTOM ERS. ONLY THE INDIAN BRANCH IS BENEFICIARY OF SUCH NRI DESK. WHEN THE FA CT OF INCURRING SUCH DIRECT AND EXCLUSIVE EXPENSES BY THE HEAD OFFICE FO R THE INDIAN BRANCH AND ITS QUANTUM STANDS PROVED, THE ASSESSEE BECOMES ENT ITLED TO DEDUCTION IN FULL WITHOUT COVERING THEM WITHIN THE PURVIEW OF SE C. 44C. WE, THEREFORE, HOLD THAT EXPENSES COVERED UNDER CATEGORY A ABOVE REPRESENTING DIRECT STAFF COSTS AND TRAVEL & COMMUNICATION EXPENSES AT BD 81,192 AND BD 17,866 RESPECTIVELY ARE TO BE ALLOWED IN FULL. TH E IMPUGNED ORDER IS UPHELD TO THIS EXTENT. 19. NEXT ARE THE ALLOCATED STAFF COSTS INC URRED BY OBD AND VARIOUS OTHER HEAD OFFICE SUPPORT CENTRES GIVEN AT SERIAL N O.3(A TO F) OF THE TABLE AT BD 35,610 AND ALLOCATED GENERAL AND ADMINISTRATI ON COSTS GIVEN AT SERIAL NO. 4(A TO D) OF THE TABLE AT BD 34,517 WHI CH HAVE BEEN REFERRED TO ABOVE AS THE EXPENSES COVERED IN THE CATEGORY B. HE RE THE CONTROVERSY IS TWO-FOLD. FIRST IS THE DISPUTE ABOUT THE BASIS OF A LLOCATION OF SUCH EXPENSES (COVERED UNDER STEPS I AND II ABOVE) AND SECOND IS THE INCLUSION OR OTHERWISE OF SUCH EXPENSES U/S 44C (COVERED UNDER S TEP III ABOVE). THE LD. A.R. VEHEMENTLY ARGUED THAT SINCE THESE ARE THE ALLOCATED EXPENSES TO THE NRI DESK OUTSIDE INDIA, SO DEDUCTION SHOULD BE GRANTED IN FULL. HE TRIED TO DRAW PARITY OF SUCH ALLOCATED COSTS WITH T HE DIRECT AND EXCLUSIVE COSTS OF NRI DESK. INVITING OUR ATTENTION TOWARDS T HE TPOS REPORT, IT WAS ITA 6731-6605/M/06. 14 PUT FORTH THAT THE TPO ACCEPTED THE ALLOCATION OF S UCH EXPENSES AT SERIAL NOS.3 AND 4 OF THE ABOVE TABLE EXCEPT THREE ITEMS V IZ. 3(A) OFFICE OF THE HEAD OF OBD BD 13,307, 4(C) ADVERTISING BD 3,390 AND 4(D) OTHERS BD 6,641. IN THIS VIEW OF THE MATTER, IT WAS ARGUED TH AT THE ALLOCATION OF EXPENSES BY THE TPO IN RESPECT OF OTHER ITEMS SHOUL D BE CONSIDERED AS ALLOWED BY HIM. PER CONTRA, THE LD. D.R. ARGUED T HAT SUCH ALLOCATED EXPENSES ARE PART AND PARCEL OF THE TOTAL EXPENSES COVERED U/S.44C AND NO SEPARATE DEDUCTION IS PERMISSIBLE. 20. WE ARE UNABLE TO COUNTENANCE THE VIEW C ANVASSED BY THE LD. AR THAT THE ALLOCATED EXPENSES OF THE NRI DESK SHOULD ALSO ASSUME THE CHARACTER OF EXCLUSIVE HEAD OFFICE EXPENSES AND BE DEALT WITH ACCORDINGLY. IT IS IMPORTANT TO APPRECIATE THAT THE SOLE CRITERI A FOR CONSIDERING THE INCLUSION OF HEAD OFFICE EXPENSES WITHIN THE SCOPE OF SEC. 44C OR THE GENERAL PROVISIONS IS THEIR EXCLUSIVE OR NON-EXCLUS IVE NATURE. IF THESE ARE SHARED/ALLOCATED/APPORTIONED/NON-EXCLUSIVE HEAD OFF ICE EXPENSES, THEN THEY WILL FIND THEIR RESIDENCE IN THE OVERALL LIMIT U/S 44C. ON THE OTHER HAND, THE EXCLUSIVE EXPENSES INCURRED BY THE HEAD O FFICE FOR THE INDIAN BRANCH SHALL BE DISTINCTIVELY CONSIDERED UNDER THE GENERAL PROVISIONS OF THE ACT. IT IS TOTALLY IMMATERIAL TO CONSIDER THE PLAC E, WHETHER IN OR OUT OF INDIA, WHERE SUCH EXPENSES WERE INCURRED BY THE H EAD OFFICE. IF THE HEAD OFFICE INCURS EXCLUSIVE EXPENSES FOR, SAY MUMBAI BR ANCH OF THE ASSESSEE, THESE SHALL BE DEDUCTIBLE AS PER THE GENERAL PROVIS IONS OF THE ACT, BUT IF COMMON EXPENSES ARE INCURRED FOR THE NRI DESK OUTSI DE INDIA, THOSE SHALL FALL WITHIN THE DOMAIN OF SECTION 44C. IT IS AXIO MATIC AND BASIC THAT ANY ITA 6731-6605/M/06. 15 EXPENDITURE, TO FALL IN CONSIDERATION ZONE OF DEDUC TIBILITY UNDER THE ACT, WHETHER U/S 44C OR GENERAL PROVISIONS, MUST HAVE BE EN INCURRED FOR THE PURPOSE OF BUSINESS OF INDIAN BRANCH. IF THAT IS N OT THE CASE, THEN IT SHALL, AT THE VERY OUTSET, CEASE TO BE CONSIDERED FOR DED UCTION UNDER THE ACT. THE NATURAL COROLLARY, WHICH THUS FOLLOWS, IS THAT THE EXCLUSIVE HEAD OFFICE EXPENSES INCURRED, WHETHER FOR THE OFFICE IN INDIA OR NRI DESK OUTSIDE INDIA, SHALL BE SEPARATELY DEDUCTED UNDER THE GENER AL PROVISIONS OF THE ACT AND IN THE LIKE MANNER, THE SHARED OR ALLOCATED EX PENSES INCURRED BY THE HEAD OFFICE FOR THE INDIAN BRANCH, WITHIN OR OUTS IDE INDIA, SHALL BE CONSIDERED FOR DEDUCTIBILITY UNDER SEC. 44C OF THE ACT. IN THAT VIEW OF THE MATTER, WE OVERTURN THE IMPUGNED ORDER ON THIS SCOR E AND HOLD THAT THE ITEMS OF HEAD OFFICE EXPENSES MENTIONED IN ABOVE TA BLE UNDER 3) A TO F AND 4) A TO D, CAN BE CONSIDERED ONLY UNDER SEC. 44 C AND THERE IS NO SCOPE FOR GRANTING SEPARATE DEDUCTION UNDER THE GEN ERAL PROVISIONS OF THE ACT. IT IS FURTHER SUBJECT TO THE CONDITION THAT TH ESE EXPENSES ARE, IN FACT, INCURRED FOR THE BUSINESS OF INDIAN BRANCH AND THER E IS EVIDENCE IN SUPPORT OF SUCH EXPENSES. IT IS HERE THAT THE ABOVE REFERRE D STEP II COMES INTO PLAY. 21. NOW LET US EXAMINE WHETHER THE ITEMS OF HEAD OFFICE EXPENSES MENTIONED IN ABOVE TABLE UNDER 3) A TO F AND 4) A T O D HAVE BEEN REALLY INCURRED FOR THE INDIAN BRANCH. IT IS IN THIS CONT EXT THAT THE REPORT OF THE TPO IS RELEVANT, WHICH HAS ELABORATED ON THE CORREC TNESS OF THE ALLOCATION OF THESE EXPENSES. THE TPO WAS VERIFYING WHETHER THE ALLOCATED COSTS CLAIMED BY THE ASSESSEE WERE REALLY INCURRED FOR IT S BUSINESS AND WHETHER ITA 6731-6605/M/06. 16 THESE WERE BACKED BY SOME RELEVANT EVIDENCE. IN HIS OPINION THE ASSESSEE DID NOT SATISFY THE PRELIMINARY CONDITION IN RESPEC T OF ITEMS 3(A), 4(C) AND 4(D) OF THE TABLE ABOVE , AS THESE WERE NOT PROVED TO HAVE BEEN INCURRED AT ALL. HE WAS DEALING WITH THE QUESTION OF ALLOCAT ION OF STAFF COSTS AND GENERAL ADMINISTRATION COSTS TO THE ASSESSEE (STEPS I AND II ABOVE) AND NOT ON GRANTING OF DEDUCTION U/S. 44C (STEP III). THE TPO CAN SIMPLY ACCEPT OR REJECT THE ALLOCATION OF EXPENSES TO THE INDIAN BRA NCH BUT CANT ADJUDICATE ON THEIR DEDUCTIBILITY AS PER THE PROVISIONS OF THE I.T. ACT, WHICH FALLS IN THE SOLE JURISDICTION OF THE AO. THE ACCEPTANCE OF ALLOCATION BY TPO IN RESPECT OF ITEMS, OTHER THAN 3(A), 4(C) AND 4(D), MEANT THAT HE GAVE A GREEN SIGNAL ABOUT THE HEAD OFFICE HAVING ACTUALLY INCURRED SUCH EXPENSES FOR THE NRI DESK. THE DISPUTE ON ALLOCATION OF EXP ENSES BETWEEN THE ASSESSEE AND TPO AROSE ONLY IN RESPECT OF THREE ITE MS I.E. 3(A) I.E. OFFICE OF THE HEAD OF OVERSEAS BUSINESS DIVISION (OBD) AMO UNTING TO BD 13,307; 4(C) ADVERTISING AMOUNTING TO BD 3,390; A ND 4(D) OTHERS AMOUNTING TO BD 6,641. 22. THE FIRST DISPUTED ITEM IS ALLOCATED STA FF COSTS INCURRED BY THE OBD AND VARIOUS OTHER HO SUPPORT CENTRES AT BD 13,3 07. THE TPO DID NOT ACCEPT ANY ALLOCATION OF THIS EXPENDITURE TO THE AS SESSEE AS PER PAGES 9 & 10 OF HIS ORDER DATED 10-09-2004. HE OBSERVED THAT ALLOCATION WAS NOT PERMISSIBLE UNLESS A SERVICE CHARGED WAS LEVIED ON THE ASSESSEE. HE OBSERVED : AS THE SERVICE CHARGE IS NOT LEVIED ON THE INDIAN BRANCH BY THE HEAD OFFICE, A DEDUCTION WOULD NOT BE ALLOWED TO INDIAN BRANCH IN RESPECT OF ANY ALLOCATION... THUS, IT IS SEEN THAT THE TPO DID NOT APPROVE ITA 6731-6605/M/06. 17 THE ALLOCATION OF SUCH EXPENSES ON THE GROUND THAT THE HEAD OFFICE HAD NOT RAISED ANY INVOICE OR DEBIT NOTE ON THE ASSESSEE IN RESPECT OF SUCH EXPENSES. ON A PERTINENT QUERY, THE LD. A.R. TOOK U S THROUGH THE RELEVANT PART OF THE AUDITORS REPORT, AS REPRODUCED AT PAGE 27 OF THE IMPUGNED ORDER. HE REFERRED TO ITEM 5 WHICH DEALS WITH ALLO CATION OF INDIRECT COSTS. IT WAS SUBMITTED THAT AS PER THIS REPORT, THE STAF F COSTS OF OBD ATTRIBUTABLE TO NRI DEPARTMENT REPRESENTED 20% OF T HE DIRECT COSTS OF THE OFFICE OF THE HEAD OF OBD AND THE REMAINING 80% WAS ALLOCATED TO THE OVERSEAS BRANCHES OF THE BANK. THE ALLOCATION OF IN DIRECT COSTS OTHER THAN THE OFFICE OF HEAD OF OBD BETWEEN THE NRI DEPARTMEN T AND THE OTHER DEPARTMENTS WAS BASED ON THE RATIO OF THE AVERAGE N UMBER OF STAFF OF THE NRI DEPARTMENT TO THE AVERAGE NUMBER OF STAFF AT HE AD OFFICE DURING THE YEAR. THE LD. A.R., HOWEVER, COULD NOT INVITE OUR A TTENTION TOWARDS ANY INVOICE OR DEBIT NOTE ISSUED BY THE HEAD OFFICE FOR WHICH THE ASSESSEE HAD CLAIMED DEDUCTION OF BD 13,307. HE ACCENTUATED ON P ARA 8.2 OF THE IMPUGNED ORDER, THROUGH WHICH IT WAS MENTIONED BY THE ASSESSEE BEFORE THE LD. CIT(A) THAT EVEN THOUGH NO INVOICE OR DEB IT NOTE WAS RAISED BY THE HEAD OFFICE AND THE HEAD OFFICE EXPENSES WERE N OT REMITTED DURING THE YEAR, BUT IN THE SUBSEQUENT YEAR, THE ASSESSEE REMITTED THE AVAILABLE SURPLUS FUND PLUS HEAD OFFICE EXPENSES TO THE HEAD OFFICE. HE ALSO REFERRED TO THE STAND TAKEN BY THE ASSESSEE BEFORE THE LD. FIRST APPELLATE AUTHORITY THAT A CERTIFICATE DETERMINING THE REMITT ABLE SURPLUS ALLOWABLE UNDER FEMA WAS PREPARED AND CERTIFIED BY THE BRANCH AUDITORS, A COPY OF WHICH WAS FILED BEFORE HIM, TO SHOW THAT THE HEAD OFFICE EXPENSES AND NRI DESK EXPENSES WERE TAKEN INTO ACCOUNT WHILE REM ITTING THE SURPLUS OF ITA 6731-6605/M/06. 18 US $5,97,598 TO THE HEAD OFFICE. THERE CANT BE AN Y DOUBT ON THE PROPOSITION THAT DEDUCTION CAN BE ALLOWED ONLY IN R ESPECT OF EXPENSES ACTUALLY INCURRED BY THE ASSESSEE. IT IS OBLIGATORY ON THE ASSESSEE TO ADDUCE EVIDENCE IN SUPPORT OF SUCH INCURRING OF EXP ENSES. IF ANY EXPENDITURE IS BOOKED IN THE ACCOUNTS WITHOUT ANY E VIDENCE, THE SAME CANNOT BE ALLOWED AS DEDUCTION. THE INCURRING OF TH E EXPENDITURE IS NATURALLY A PRE-CONDITION FOR ITS DEDUCTIBILITY. IN ALL SUCH CIRCUMSTANCES, THE ONUS IS ALWAYS ON THE ASSESSEE TO PROVE THAT SUCH E XPENDITURE WAS ACTUALLY INCURRED BY IT. THIS ONUS CAN BE DISCHARGE D BY LEADING SOME RELIABLE EVIDENCE TO DEMONSTRATE THAT A LIABILITY F OR SUCH EXPENDITURE WAS FASTENED ON THE ASSESSEE, WHICH WAS ACCEPTED BY IT . IT IS NOTED THAT THE ASSESSEE CLAIMED DEDUCTION FOR BD 13,307 WITHOUT AN Y INVOICE OR DEBIT NOTE ISSUED BY THE HEAD OFFICE. THE LD. A.R. IS REL YING ON THE REPORT OF THE AUDITORS FOR CLAIMING DEDUCTION. PRIMARILY, THIS RE PORT DOES NOT MENTION ANY AMOUNT AS CLAIMED BY THE ASSESSEE. NOTWITHSTAND ING THAT, THE JOB OF THE AUDITOR IS TO EXAMINE THE EVIDENCE AND THEN CER TIFY ABOUT ITS CORRECTNESS. AUDITORS REPORT IS PREPARED FROM TH E EXAMINATION OF PRIMARY EVIDENCE. IT CANNOT BE THE CONVERSE SITUAT ION TO ARGUE THAT THE EXISTENCE OF THE PRIMARY EVIDENCE SHOULD BE PRESUME D FROM SUCH REPORT, WHICH IS AGAIN NOT SPECIFIC. IT, THEREFORE, BECOMES CRYSTAL CLEAR THAT IF THERE IS NO EVIDENCE FOR THE INCURRING OF EXPENDITU RE BY THE ASSESSEE, THE DEDUCTION CANNOT BE ALLOWED, SIMPLY ON THE BASIS OF A CLAIM WHICH HAS NO LEGS TO STAND ON. IT IS NOTED THAT THE LD. CIT(A) H AS OBSERVED IN PARA 8.2 THAT SOME CERTIFICATE WAS FILED BEFORE HIM FOR MAKI NG REMITTANCE OF THE SERVICES TO THE HEAD OFFICE. AS THIS EVIDENCE WAS N EITHER FILED BEFORE THE ITA 6731-6605/M/06. 19 TPO NOR THE AO, THE LD. FIRST APPELLATE AUTHORITY S HOULD NOT HAVE DESISTED TO ACCEPT THE SAME IN VIOLATION OF RULE 46A OF IT R ULES. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND DIRECT T HE AO TO VERIFY AS TO WHETHER THE SAID AMOUNT OF BD 13,307 WAS REMITTED B Y THE ASSESSEE TO THE HEAD OFFICE OR NOT. EVEN IF SUCH REMITTANCE IS PROVED IN THE SUCCEEDING YEAR, THE INCLUSION OF SUCH AMOUNT IN TH E OVERALL LIMIT FOR SEC. 44C WILL BE JUSTIFIED. IF, HOWEVER, THE ASSESSEE FA ILS TO CONCLUSIVELY PROVE THAT THIS SUM OF BD 13,307 WAS PAID OR ADJUSTED IN ANY MANNER WITH THE HEAD OFFICE, THEN THIS AMOUNT WOULD BE TOTALLY IGNO RED. 23. THE NEXT TWO ITEMS OF ALLOCATION OF WHI CH HAVE NOT BEEN ALLOWED BY THE TPO ARE OUT OF ALLOCATION OF GENERAL AND ADM INISTRATION COSTS, BEING ADVERTISING AT BD 3,390 AND OTHERS AT BD 6,641. THE TPO DID NOT ACCEPT THE ALLOCATION OF THESE EXPENSES ON THE GROUND THAT THE ASSESSEE COULD NOT SUBMIT ANY JUSTIFICATION FOR ALLOCATION OF SUCH EXP ENSES. THE FACT THAT SUCH EXPENSES WERE INCURRED BY THE HEAD OFFICE IN RELATI ON TO NRI DESK, HAS NOT BEEN CONTROVERTED BY THE TPO. ONCE IT IS ESTABLISH ED THAT THESE EXPENSES WERE ACTUALLY INCURRED FOR THE BUSINESS PURPOSE OF THE ASSESSEE, THEN THERE IS NO NEED TO JUSTIFY THE ALLOCATION OF SUCH COSTS. IT IS NOT A CASE WHERE THE HEAD OFFICE DID NOT RAISE ANY INVOICE OR DEBIT NOTE IN RESPECT OF SUCH EXPENSES. WE, THEREFORE, HOLD THAT THESE TWO I TEMS OF ALLOCATED HEAD OFFICE EXPENSES ARE LIABLE TO THE INCLUDED IN THE O VERALL LIMIT OF SEC. 44C. 24. TO SUM UP, THE DIRECT AND EXCLUSIVE NRI DES K EXPENSES (A), BEING THE ITEMS 1 AND 2 OF TABLE EXTRACTED ABOVE, INCURR ED BY THE HEAD OFFICE ITA 6731-6605/M/06. 20 ARE NOT HIT BY SECTION 44C AND HENCE TO BE ALLOWE D IN FULL AS PER GENERAL PROVISIONS OF THE ACT ; ALLOCATED/SHARED/APPORTIO NED STAFF COSTS INCURRED BY OBD AND VARIOUS OTHER HEAD OFFICE SUPPORT CENTER S TO NRI DESK (B), BEING THE ITEMS 3 AND 4 OF ABOVE TABLE, SUBJECT TO VERIFICATION ITEM 3A) IN TERMS OF DIRECTION GIVEN IN PARA 22 ABOVE AND OTHE R COMMON HEAD OFFICE EXPENSES OTHER THAN THOSE A AND B ABOVE (C), AR E TO BE CONSIDERED WITHIN THE PURVIEW OF SECTION 44C ONLY. THE IMPUGNE D ORDER IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE AO FO R ALLOWING DEDUCTION ACCORDINGLY. IT IS MADE CLEAR THAT THE AO WILL WORK OUT THE AMOUNT DEDUCTIBLE U/S 44C AFRESH AS PER LAW BY CONSIDERING SUM TOTAL OF ITEMS (B) AND (C) AND SHALL NOT RESTRICT HIMSELF ONLY TO THE CLAIM ORIGINALLY MADE BY THE ASSESSEE IN THE RETURN. SUCH DE NOVO DETERMINATION OF THE AMOUNT DEDUCTIBLE U/S 44C BY THE AO WILL ALSO ADDRE SS TO THE ASSESSEES GRIEVANCE IN THIS APPEAL. 25. IN THE RESULT, THE APPEAL OF THE REVENUE IN PAR T AND THAT OF THE ASSESSEE IN FULL ARE ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED ON THE 28TH DAY OF JANUARY , 2011. SD/- SD/- (V. DURGA RAO) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 28TH JANUARY, 2011. NG: ITA 6731-6605/M/06. 21 COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-XXXII,,MUMBAI. 4 DIT(INTERNATIONAL TAXATION),MUMBAI. 5.DR,L BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA 6731-6605/M/06. 22 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 20-01-11 SR.PS/ 2 DRAFT PLACED BEFORE AUTHOR 24-01-11 SR.PS/ 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER **