CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK AGRICOLE CIB ( FORMERLY CALYON BANK, EARLIER CREDIT AGRICOLE INDOSUEZ), MUMBAI V. ITO (IT) 2(1), MUMBAI

ITA 724/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8279 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: K
• Next Hearing Date: 01-12-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 25-01-2011
• Court: TRIBUNAL
• Assessee Lawyers: IN
• Keywords: Transfer pricing; Business expenditure; Earning of tax free income; Question of law
• Section: 244A; 14A; 115JB; 37(1); 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL K BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.724/MUM/2011 ASSESSMENT YEAR: -2004-05 CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK, HOECHST HOUSE, 11 TH FLOOR, NARIMAN POINT, MUMBAI 400 021. VS.` THE ASSISTANT COMMISSIONER OF INCOME TAX, (INTERNATIONAL TAXATION) -1(2), SCINDIA HOUSE, BALLARAD ESTATE MUMBAI 400 038. APPELLANT RESPONDENT ITA NO.1135/MUM/2011 ASSESSMENT YEAR: -2004-05 ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)-1 (2), MUMBAI. VS.` CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK, (FORMERLY CALYON BANK, EARLIER CREDIT AGRICOLE INDOSUEZ) 11 TH , 12 TH 14 TH FLOOR, HOECHAST HOUSE, NARIMAN POINT MUMBAI 21. APPELLANT RESPONDENT CROSS OBJECTION NO. 220/MUM/2013 ARISING OUT OF ITA NO.724/MUM/2011 ASSESSMENT YEAR: -2004-05 ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)-1 (2), MUMBAI. VS.` CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK, (FORMERLY CALYON BANK, EARLIER CREDIT AGRICOLE INDOSUEZ) 11 TH , 12 TH 14 TH FLOOR, HOECHAST HOUSE, NARIMAN POINT MUMBAI 21. APPELLANT RESPONDENT CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 2 | P A G E ITA NO.4116/MUM/2014 ASSESSMENT YEAR: -2004-05 CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK, (FORMERLY CALYON BANK, ERSTWHILE CREDIT AGRICOLE INDOSUEZ) 11 TH , 12 TH 14 TH FLOOR, HOECHAST HOUSE, NARIMAN POINT MUMBAI 21. VS.` ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)-1 (2), MUMBAI 1 ST FLOOR, SCINDIA HOUSE, N.M. ROAD, BALLARD, PIER, MUMBAI 4000038. APPELLANT RESPONDENT ORDER PER BENCH, THESE CROSS APPEALS AND ONE CROSS OBJECTION BY THE REVENUE ARE DIRECTED AGAINST THE ORDER DATED 26.11.2010 OF CIT(A) ARISIN G FROM ASSESSMENT PASSED U/S 143(3). THE ASSESSEE HAS ALSO FILED THE APPEAL AGAI NST THE ORDER DATED 28.1.2014 OF CIT(A) ARISING FROM PENALTY ORDER PASSED U/S 271(1) (C). FIRST WE TAKE UP THE QUANTUM APPEAL FILED BY THE ASSESSEE IN ITA NO. 724 /MUM/2011, WHERE IN THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- 1. THE COMMISSIONER OF INCOME-TAX (APPEALS) - 15, MUMBAI (CIT(A)) ERRED IN HOLDING THAT THE ASSESSING OFFICER (AO) WAS JUST IFIED IN BRINGING TO TAX, THE INTEREST OF RS. 3,28,918 RECEIVED BY THE INDIA BRANCH FROM THE HEAD OFFICE (HO)/OVERSEAS BRANCHES. THE APPELLANT SUBMITS THAT THE INTEREST RECEIVED RE PRESENTS A RECEIPT FROM 'SELF' AND THEREFORE OUGHT TO BE IGNORED IN COMPUTI NG ITS TAXABLE INCOME. THE APPELLANT PRAYS THAT THE AO BE DIRECTED ACCORDI NGLY. 2. HAVING HELD THAT THE INTEREST RECEIVED BY THE HO I OVERSEAS BRANCHES IS LIABLE TO TAX IN INDIA, THE CIT(A) ERRED IN NOT DIR ECTING THE AO TO ALLOW A ASSESSEE BY SHRI MADHUR AGARWAL REVENUE BY SHRI N. PADMANABHAN DATE OF HEARING 01.12.2014 DATE OF PRONOUNCEMENT 10.12.2014 CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 3 | P A G E DEDUCTION FOR THE INTEREST OF RS.24,98,898 PAID BY THE INDIA BRANCH TO THE HOI OVERSEAS BRANCHES ON THE BASIS THAT THE PROVISI ONS OF SECTION 40(A)(I) OF THE INCOME-TAX ACT, 1961 (THE ACT) ARE APPLICABL E. THE APPELLANT SUBMITS THAT THE PROVISIONS OF SECTIO N 40(A)(I) ARE NOT ATTRACTED AS THE INTEREST PAYMENT TO THE HOI OVERSE AS 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.24,98,898. 3. THE CIT(A) ERRED IN CONFIRMING THE AO'S ACTION O F CHARGING TO TAX, PROFIT OF RS.2,86,44,359, ARISING ON REVALUATION OF UNMATU RED FORWARD FOREX CONTRACTS. 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 LOSS IS NOT DEDUCTIBLE IN ARRIVING AT THE TAXABLE INCOME, T HE AO OUGHT NOT TO HAVE CHARGED TO TAX, THE PROFIT ARISING ON REVALUATION O F FOREX CONTRACTS. THE APPELLANT PRAYS THAT THE AO BE DIRECTED ACCORDI NGLY. 4. THE CIT(A) ERRED IN ENHANCING THE ASSESSMENT BY HOLDING THAT THE INTEREST OFRS.54,74,384 PAID ON FCNR(B) DEPOSITS IS DISALLOWABLE UNDER SECTION 14A AS IT WAS INCURRED IN RELATION TO THE E XEMPTED INTEREST INCOME OF RS. 5,26,095 ON BALANCES HELD IN NOSTRO ACCOUNTS . THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO DELE TE THE DISALLOWANCE OFRS.54,74,384. 5. THE CIT(A) ERRED IN CONFIRMING THAT THE PROVISIO N OFRSA,89,204 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. 6. THE CIT (A) ERRED IN UPHOLDING THAT THE EXPENDIT URE INCURRED IN RELATION TO THE VOLUNTARY SEPARATION PLAN / VOLUNTARY RETIREMENT SCHEME IS DED UCTIBLE 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. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 4 | P A G E 7. 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. 8. THE CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS .1, 13,628 BEING THE ADJUSTMENT MADE BY THE AO IN RESPECT OF THE ARM'S L ENGTH PRICE OF THE INTEREST PAID ON CALL BORROWINGS. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO DELE TE THE ADDITION OFRS.1,13,628. 9. WITHOUT PREJUDICE, THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO RECOMPUTE THE ADJUSTMENT ON COMPARING THE RATE OF I NTEREST PAID WITH 105% OF THE LONDON INTER BANK OFFER RATE (LIBOR). 10. THE CIT(A) ERRED IN CONFIRMING THAT THE INTERES T PAID UNDER THE PROVISIONS OF THE ACT CANNOT BE ADJUSTED AGAINST TH E INTEREST RECEIVED UNDER SECTION 244A OF THE ACT. THE APPELLANT SUBMITS THAT ONLY THE NET INTEREST (O N ADJUSTING THE INTEREST PAID) OUGHT TO HAVE BEEN CHARGED TO TAX AND PRAYS T HAT THE AO BE DIRECTED ACCORDINGLY. 11. THE AO ERRED IN HOLDING THAT THE APPELLANT'S IN COME IS LIABLE TO TAX AT THE RATE AS APPLICABLE TO A NON-RESIDENT COMPANY. 2. GROUND NO. 1 IS REGARDING TAXABILITY OF INTEREST RECEIVED BY THE INDIAN BRANCHES FROM HO/OVERSEAS BRANCHES . 2.1 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. AUTHORIZED REPRESENTATI VE OF THE ASSESSEE HAS STAED THAT THE ASSESSEE DOES NOT WANT TO PRESS THIS GROUN D AND HE IS READY TO PAY THE TAX FROM INTEREST RECEIVED FROM HO/OVERSEAS BRANCHES. H E HAS THUS PLEADED THAT THIS GROUND MAY BE DISMISSED AS NOT PRESSED. LD. DR RAIS ED NO OBJECTION IF THE GROUND NO. 1 OF THE ASSESSEES APPEAL IS DISMISSED A S NOT PRESSED. ACCORDINGLY, GROUND NO. OF THE ASSESSEES APPEAL IS DISMISSED BEI NG NOT PRESSED. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 5 | P A G E 3. GROUND NO. 2 IS REGARDING DEDUCTABILITY OF INTER EST/COMMISSION PAID TO HO/OVERSEAS BRANCHES BY INVOKING THE PROVIS IONS OF SECTION 40(A)(I). 3.1 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2002-03 VIDE ORDER DATED 21.3.2014 IN ITA NO. 4471/MUM2009 IN PARA 5 AS UNDER:- 5. WE HAVE HEARD LEARNED AR AS WELL AS LEARNED DR AND 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 B ENCH 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 HAS 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 CONSEQUENCE IS THAT THE INTEREST PAID BY THE ASSESS EE TO ITS HO/OVERSEAS BRANCHES WOULD BECOME DEDUCTIBLE. HOWEV ER, WE FIND THAT THE AMOUNT OF INTEREST DISALLOWED HAS BEEN WRO NGLY TAKEN IN THIS GROUND. ON THE PERUSAL OF THE ASSESSMENT ORDER , IT WAS NOTICED THAT THE AMOUNT ACTUALLY DISALLOWED BY THE AO IS RS . 21,51,539/- AND NOT RS. 33,55,026/-. THE AO IS THEREFORE, 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 TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2001-02, WE DECIDE THIS ISSUE IN F AVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 6 | P A G E 3.2 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, T HIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 4. GROUND NO. 3 IS REGARDING TAXING PROFIT ARISING ON REVALUATION OF UNMATURED FORWARD FOREX CONTRACTS. 4.1 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 IN PARA NO. 12 TO 14 AS UNDER:- 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 THE PREVIOUS ASSESSMENT YEAR BUT HAS BEEN ALLOWED BY THE TRIBUNA L THEREFORE ON THE SAME ANALOGY THE PROFIT ARISING ON REVALUATION HAS TO BE TAXED. HOWEVER, THE LEARNED AR HAS SUBMITTED THAT TAXING OF THE PRO FIT IS SUBJECT TO THE FINAL OUT COME ON THE 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 TR IBUNAL IN THE EARLIER YEARS I.E. 1998-99 THEN THE NATURAL COROLLARY WOULD BE THAT THE PROFIT ARISING ON REVALUATION OF THE UNMATURED FORWARD FOREX CONTRACT IS LIABLE TO BE TAXED AS INCOME. ACCORDINGLY, WE DISMISS THIS GROUND OF THE ASSESSEE. 4.2 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND CONSEQUE NTLY THE PROFIT ARISING ON REVALUATION OF UNMATURED FORWARD FOREX CONTRACT IS LIABLE TO BE TAXED AS INCOME. 5. GROUND NO. 4 IS REGARDING DISALLOWANCE U/S 14A O N ACCOUNT OF THE INTEREST AS EXPENDITURE PAID ON FCNR(B) IN RELATION TO THE EXEMPT INCOME ON BALANCE OF NOSTRO ACCOUNTS. 5.1 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE DISALLOWANCE OF INTEREST U/ S 14A AROSE DUE TO THE CLAIM OF CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 7 | P A G E THE ASSESSEE REGARDING NON TAXABILITY OF THE INTERE ST RECEIVED FROM HEADOFFICE/OVERSEAS BRANCHES. SINCE THE ASSESSEE HA S ALREADY CONCEDED TO THE TAXABILITY OF THE INTEREST RECEIVED FROM HO/OVERSEA S BRANCHES, IN GROUND NO. 1 OF THIS APPEAL, THEREFORE, ONCE THE INCOME IS OFFERED TO TAX, THE PROVISIONS OF SECTION 14A WOULD NOT BE APPLIED FOR DISALLOWANCE OF ANY EX PENDITURE. AN IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWNC CASE FOR A.Y. 2001-02 IN ITA NO. 4295/MUM/2005, WHEREIN THE TRIBUNAL VIDE ORDER DATED 7.8.2013 IN PARA 7 AND 8 HELD AS UNDER:- 7. THESES APPEALS, WITH THE INSTANT ISSUE HAS BEEN DECIDED BY THE COORDINATE BENCH IN ITA NOS. 6615/MUM/2003, CO NO. 283/MUM/2003 AND ITA NO. 6400/MUM/2003, WHEREIN IT WAS HELD, 4. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE DEPARTM ENTAL STAND IS THAT THE INTEREST ON NOSTRO ACCOUNT AMOUNTING TO RS. 13. 66 CRORE BE CHARGED TO TAX IN THE CURRENT YEAR, WHICH HAS NOT B EEN OPPOSED BY THE LEARNED AR. SIMULTANEOUSLY THE LEARNED COUNSEL FOR THE ASSESSEE, ON ORAL INSTRUCTIONS CONVEYED THE UNDERTAKING OF TH E ASSESSEE NOT TO OPPOSE THE DEPARTMENTAL APPEAL ABOUT THE CHARGEABIL ITY OF INTEREST ON NOSTRO ACCOUNT BEFORE THE HONBLE BOMBAY HIGH CO URT FOR ASSESSMENT YEAR 1996-97, IN RESPECT OF WHICH SUBSTA NTIAL QUESTION OF LAW HAS BEEN ADMITTED. IN VIEW OF THESE RIVAL BUT C OMMON SUBMISSIONS WE ARE OF THE CONSIDERED OPINION THAT T HE ASSESSMENT ORDER ON THIS COUNT NEEDS TO BE APPROVED IN PREFERE NCE OVER THE VIEW TAKEN BY THE LEARNED CIT(A). THIS GROUND TAKEN BY T HE REVENUE ABOUT THE CHARGEABILITY OF INTEREST ON NOSTRO ACCOUN T AMOUNTING TO RS. RS. 13.66 CRORE IS, THEREFORE, ALLOWED. 5. IT IS OBSERVED THAT THE LD. CIT(A) MADE ENHANCEM ENT OF INCOME TO THE TUNE OF RS. 32.79 CRORE BY COMPUTING DISALLOWAN CE UNDER SECTION 14A IN RESPECT OF SUCH INTEREST INCOME ON NOSTRO AC COUNT, WHICH WAS HELD BY HIM TO BE NOT CHARGEABLE TO TAX AS AGAI NST THE AOS DECISION AS TO THE CHARGEABILITY OF THIS AMOUNT. WH EN THE VIEW OF THE LD. CIT(A) ON THIS ISSUE IS OVERTURNED AND THAT OF THE AO IS RESTORED, INTEREST ON NOSTRO ACCOUNT BECOMES TAXABLE. ONCE THE INCOME ITSELF IS CHARGEABLE TO TAX, THERE CAN BE NOM QUESTION OF COMPUTING ANY DISALLOWANCE UNDER SECTION 14A, THE MANDATE OF WHIC H OPERATES TO DISALLOW DEDUCTION FOR EXPENSES INCURRED IN RELATIO N TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE AGAINST THE ENHANCEM ENT DONE BY THE LEARNED CIT(A) FOR RS. 32.79 CRORE BY INVOKING THE PROVISIONS OF CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 8 | P A G E SECTION 14A ARE ALSO CONSEQUENTLY ALLOWED. 8. IN THE INSTANT YEAR, THE FACTS ARE IDENTICAL, AN D THE ASSESSEE, HAS AGREED TO HAVE THE INTEREST INCOME CHARGEABLE TO TAX, THE ISSUE OF COMPUTING THE DISALLOWANCE UNDER SECTION 14A COMES TO A NAUGHT. 5.2 SINCE THE ASSESSEE HAS ALREADY OFFERED THE CORR ESPONDING INCOME TO TAX, THEREFORE, NO DISALLOWANCE CAN BE MADE U/S 14A. 6. GROUND NO. 5 IS REGARDING DISALLOWANCE OF PROVIS IONS FOR NON PERFORMING ASSETS (NPA) U/S 37(1). 6.1 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR A.Y. 2003-04 VIDE ORDER DATED 21.03.2014 IN PARA 51 AS UNDER:- 51. WE NOTE THAT THE AO HAS DISALLOWED THE CLAIM O F THE ASSESSEE BECAUSE IT WAS FOUND AS A PROVISION FOR NPA. AS FAR AS THE ALL OWBILITY OF THE CLAIM FOR THE PROVISION FOR NPA IS CONCERN, IT IS SETTLE PROP OSITION THAT THE SAME CANNOT BE ALLOWED. THE LD. AR HAS RELIED UPON THE D ECISION OF HONBLE SUPREME COURT IN CASE OF VIJAYA BANK (SUPRA) HOWEVER , WHEN THE PROVISION IN QUESTION IS FOR NPA AND NOT FOR BAD DE BTS THEN IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF SOUTHER N TECHNOLOGY LTD. VS. JCIT 320 ITR 577, PROVISION FOR NPA IS NOT A ALLOWA BLE CLAIM. ACCORDINGLY, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. 6.2 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, W E DECIDE THIS ISSUE AGAINST THE ASSESSEE. 7 . GROUND NO. 6 IS REGARDING THE CLAIM OF EXPENDITU RE OF VRS/VSP PAYMENT U/S 35DDA. 7.1 AT THE TIME OF HEARING, THE LD. AUTHORIZED REPRE SENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES NOT WANT TO PRESS THIS GROUND AND THE SAME MAY BE DISMISSED AS NOT PRESSED. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 9 | P A G E 7.2 THE LD. DR RAISED NO OBJECTION IF THE GROUND NO. 6 OF THE ASSESSEES APPEAL IS DISMISSED AS NOT PRESSED. 7.3 ACCORDINGLY, WE DISMISS THE GROUND NO. 6 OF THE ASSESSEES APPEAL BEING NOT PRESSED. 8. GROUND NO. 7 IS REGARDING CLASSIFICATION OF HO AN D INDIAN BRANCH AS ASSOCIATED ENTERPRISE AS PER SECTION 92 OF THE ACT. 8.1 AT THE TIME OF HEARING, THE LD. AUTHORIZED REPR ESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE DOES NOT WANT TO PRESS THIS GROUND AND THE SAME MAY BE DISMISSED AS NOT PRESSED. 8.2 THE LD. DR RAISED NO OBJECTION IF THE GROUND NO . 7 OF THE ASSESSEES APPEAL IS DISMISSED AS NOT PRESSED. 8.3 ACCORDINGLY, WE DISMISS THE GROUND NO. 7 OF THE ASSESSEES APPEAL BEING NOT PRESSED. 9. GROUND NO. 8 IS REGARDING ADJUSTMENT MADE BY ASSESS ING OFFICER IN RESPECT OF ARMS LENGTH PRICE (ALP) OF INTEREST PAID ON CALL BORROWINGS. 9.1 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. AUTHORIZED REPRESENTATI VE OF THE ASSESSEE HAS SUBMITTED THAT DUE TO SMALLNESS OF THE AMOUNT INVOL VED IN THIS ISSUE, THE SAME MAY BE DISMISSED. 9.2 ACCORDINGLY, FOR WANT OF ANY SERIOUS ARGUMENTS AGAINST THE IMPUGNED ORDER, WE DISMISS THIS GROUND OF ASSESSEES APPEAL. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 10 | P A G E 10. GROUND NO. 9 IS AN ALTERNATIVE PLEA REGARDING A RMS LENGTH INTEREST. 10.1 THIS GROUND IS CONSEQUENTIAL TO THE GROUND NO. 8 OF ASSESSEES APPEAL. SINCE THE GROUND NO. 8 OF ASSESSEES APPEAL IS DIMISSED, ACCORDINGLY, THE ASSESSEE HAS NOT ADVANCED ANY ARGUMENT ON THIS ISSUE AND THE SAME IS , THEREFORE, DISMISSED. 11. GROUND NO. 10 IS REGARDING NETTING OFF INTEREST RECEIVED U/S 244A OF THE ACT. 11.1 THE ASSESSEE RECEIVED INTEREST U/S 244A AMOUNT ING TO RS. 28,04,023/- WHICH WAS NOT OFFERED TO TAX ON THE GROUND THAT THE ASSESSEE WAS NETTING THE SAID INTEREST AGAINST THE INTEREST PAID U/S 220(2) AMOUN TING TO RS. 1,84,71,122/-. THE AUTHORITIES BELOW DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND ASSESSED THE INTEREST RECEIVED U/S 244A AS INCOME FROM OTHER SOU RCES 11.2 BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE O F THE ASSESSEE HAS SUBMITTED THAT THOUGH THE INTEREST RECEIVED U/S 244A IS THE I NCOME OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES HOWEVER, THE NETTI NG IS PERMISSIBLE WHEN THE ASSESSEE HAS ALSO PAID THE INTEREST TO THE DEPARTME NT WHICH WAS HIGHER THAN THE INTEREST RECEIVED. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASSE OF DIT (INTERNATIONAL TAX.) VS. BANK OF AMERICA IN ITA NO. 177/2012 DATED 3.7.2014 . HE HAS ALSO RELID UPON THE FOLLOWING DECISIONS:- (I) R.N. AGARWAL (0 SOT 361)(DEL)(TRIB) (II) GRASIM INDUSTRIES LTD. (ITA NO. 8221/BOM/1989). (III) CYANAMID INDIA LIMITED ( ITA NO. 4561/BOM/1982) (IV) TATA SHARE REGISTERY LTD. VS. JCIT ( ITA NO. 1668/M UM/2001) CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 11 | P A G E 11.3 ON THE OTHER HAND, THE LD. DR HAS VEHEMENTLY O PPOSED THE NETTING OF THE INTEREST AND SUBMITTED THAT THE INTEREST RECEIVED B Y THE ASSESSEE IS INCOME OF THE ASSESSEE WHEREAS THE INTEREST PAID UNDER THE PROVIS IONS OF ACT IS NOT AN ALLOWABLE EXPENDITURE, THEREFORE, THE INCOME ASSESSABLE TO TA X CANNOT BE NET OFF AGAINST THE PAYMENT OF INTEREST WHICH IS NOT ALLOWABLE INTEREST . 11.4 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CO NSIDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DIT (INTER NATIONAL TAX.) VS. BANK OF AMERICA (SUPRA), IN PARA 3 TO 5 AS UNDER:- 3 EVEN WITH REGARD TO QUESTION NO. 2 WE DO NOT FIN D THAT IT IS A SUBSTANTIAL QUESTION OF LAW. THE TRIBUNAL FOUND THAT THE ASSES SEE BANK RECEIVED INTEREST ON REFUND OF TAXES PAID. IT ALSO PAID INTEREST ON THE TAXES WHICH WERE PAYABLE. THE ASSESSEE SOUGHT TO SET OFF THE INTEREST PAID AGAINS T THE INTEREST RECEIVED AND OFFERED THE NET INTEREST RECEIVED TO TAX. WE DO NOT SEE THAT SUCH FINDINGS OF THE TRIBUNAL ARE VITIATED IN LAW. ALL THAT THE TRIBUNAL HAS DONE EARLIER AND NOW IS THAT IN THE CASE OF THS ASSESSEE SIMPLY BECAUSE THE EXERCISE CARRIED OUT BY IT DOES NOT RESULT IN LOSS OF REVENUE AND THERE COULD NOT BE ANY PROHIBITION FOR THE SAME, ALLOWED IT. THAT IS HOW THE ASSESSING OFFICERS OR DER IS SET ASIDE. WE DO NOT SEE HOW ANY LARGER CONTROVERSY OR QUESTION ARISES FOR O UR CONSIDERATION. MR. PINTO WOULD REFER TO SECTION 57 OF THE INCOME TAX ACT, 19 61 IN THAT REGARD AND SUBMIT THAT THIS COURSE WOULD BE ADOPTED BY OTHER ASSESSEE AS WELL AND IN THAT EVENT THE ORDER PASSED BY THIS COURT WOULD COME IN THE WAY OF THE REVENUE IN INVESTIGATING AND PROBING SUCH EXERCISE BY OTHER ASSESSEE. 4. WE DO NOT SEE HOW THIS ORDER CAN BE CITED AS PRE CEDENT INASMUCH AS THE ASSESSEE BEFORE THE TRIBUNAL AND BEFORE US PAID INT EREST TO THE INCOME TAX DEPARTMENT AMOUNTING TO RS.10,26,906/-. THE ASSESSE E CLAIMED THAT THIS WAS BUSINESS EXPENDITURE AND THIS SHOULD HAVE BEEN ALLO WED. THE ASSESSEE HAS RECEIVED THE INTEREST OF RS.1,07,57,930/-. IT WAS S UBMITTED THAT THE AMOUNT OF INTEREST PAID BY THE ASSESSEE SHOULD HAVE BEEN ALLO WED TO BE SET OFF AGAINST THE INTEREST DEPOSITED WITH THE DEPARTMENT AND TAXED IN THE HANDS OF THE ASSESSEE. THE ARGUMENT , AS THAT THE INTEREST PAID TO AND REC EIVED FROM IS THE SAME PARTY I.E. GOVERNMENT OF INDIA AND THEREFORE, BOTH TRANSA CTIONS SHOULD BE TAKEN TOGETHER. 5. WE DO NOT FIND THAT THE TRIBUNAL HAS, IN PERMITT ING THIS EXERCISE, IN ANY WAY VIOLATED ANY OF THE PROVISIONS OF THE INCOME TA X ACT, 1961. IT WAS A PECULIAR SITUATION BETWEEN THE ASSESSEE AND THE DEPARTMENT. THE TRIBUNAL HAS FOLLOWED THE SIMILAR EXERCISE IN THE CASE OF VERY ASSESSEE O N THE PRIOR OCCASION AS WELL. IN SUCH CIRCUMSTANCES WE ARE OF THE OPINION THAT THE S ECOND QUESTION ALSO DOES NOT RAISE ANY SUBSTANTIAL QUESTION OF LAW. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 12 | P A G E 11.5 FOLLOWING THE DECISION OF HON'BLE JURISDICTION AL HIGH COURT, WE DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. 12. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROU NDS AS UNDER:- WITHOUT PREJUDICE, THE CIT(A) OUGHT TO HAVE DIRECT ED THE ASSESSING OFFICER (AO) TO TAX THE INTEREST GRANTED TO THE APPELLANT UNDER SECTION 244A OF THE INCOME TAX ACT 1961 UNDER ARTICLE 12 OF THE DOUBLE TAXATION AV OIDANCE AGREEMENT BETWEEN INDIA AND FRANCE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED 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 AP PLICABLE IN RESPECT ON TAX-FREE SECURITIES RECEIVED BY THE ASSESSEE. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT DECIDING THE ISSUE OF APPLICABILITY OF SECTION 115JB OF THE INCOME TAX AC T, 1961, IN FAVOUR OF THE APPELLANT. 13.1 ADDITIONAL GROUND NO. 1 IS ONLY AN ADDITIONAL PLEA IN RESPECT OF GROUND NO. 10. 13.2 SINCE WE HAVE ALLOWED THE GROUND NO. 10 OF THE ASSESSEES APPEAL, THEREFORE, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE BECOME S INFRUCTUOUS AND ACCORDINGLY DISMISSED. 14. ADDITIONAL GROUND NO. 2 IS REGARDING APPLICABIL ITY OF SECTION 115JB TO BANKING COMPANY. 14.1 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD. AUTHORIZED REPRESENTATI VE HAS RELIED UPON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CONTENTION:- (I) KRUNG THAI BANK PEL. . (16 TAXMANN 239) (II) SYNDICATE BANK V. DCIT (38 TAXMANN.COM 2) (BANGALORE TRIB.) CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 13 | P A G E (III) ICICI LOMBARD GENERAL INSURANCE CO. LTD. VS. ACIT ( 27 TAXMANN.COM 326) (MUM) (IV) STATE BANK OF HYDERABAD V. DCIT (33 TAXMANN.COM 31) ( HYDERABAD TRIB) HE HAS SUBMITTED THAT THE PROVISIONS OF SECTION 115 JB AS EXIST FOR THE A.Y. UNDER CONSIDERATION ARE NOT APPLICABLE IN THE CASE OF A B ANKING COMPANY. 14.2 ON THE OTHER HAND, THE LD. DR HAS SUBMITTED TH AT THE LAW HAS BEEN AMENDED TO BRING THE BANKING COMPANY UNDER THE AMBI T OF PROVISIONS OF SECTION 115JB. 14.3 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT THIS TRIBUNAL HAS TAKEN A VIEW IN A SERIES OF DECISIONS (SUPRA) THAT UN-AMENDED PROVISIONS OF SECTION 115JB ARE N OT APPLICABLE IN THE CASE OF THE BANKING COMPANY. ACCORDINGLY FOLLOWING THE EARLIER ORDERS OF THIS TRIBUNAL ON THE POINT, WE DECIDED THIS ISSUE IN FAVOUR OF THE ASSE SSEE. 15. ADDITIONAL GROUND NO. 3 IS REGARDING ADHOC DISA LLOWANCE U/S 14A. 15.1 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 (SUPRA) IN PARA 59 AS UNDER:- 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 THEREFORE, NO DISALLOWANCE CAN BE MADE U/S.14A ON ACCOUNT OF EXPENDITURE. HE URGED THAT 2% OF THE DIVIDEND INCOME CAN BE DISALLOWANCE ON ACCOUNT OF OPERATING EXPENDITURE . 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 ASSESSEE S APPEAL FOR ASSESSMENT YEAR 2002-03. IN VIEW OF OUR FINDINGS FOR ASSESSMEN T YEAR 2002-03, WE RESTRICT DISALLOWANCE U/S.14A TO 2% OF THE EXEMPT INCOME. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 14 | P A G E 15.2 SINCE RULE 8D IS NOT APPLICABLE FOR THE A.Y. U NDER CONSIDERATION, THEREFORE, TO MAINTAIN THE CONSISTENCY, WE RESTRICT THE DISALL OWANCE U/S 14A TO 2% OF THE EXEMPT INCOME. 16 THE REVENUE IN ITA NO. 1135/MUM/2011 HAS RAISED FOLLOWING GROUNDS:- '1. 0N THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE ADDITIONAL DISALLOWANACE MADE U/S.14A OF THE ACT TO RS.1,00,000/-INSTEAD OF RS. 37,51, 500/- DETERMINED BY 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 RELAT ED TO CREDIT RISK ASSISTANCE AND EDP ASSISTANCE COST INCURRED BY THE HO ON BEHALF OF THE INDIA BRANCH ARE NOT COVERED 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 HOLDING THAT THE ASSESSEE'S CLAIM OF RS.41 LAKHS IN RESPECT OF THE WRITE BACK OF THE COUNTRY RISK PROVISION WAS ALLOWABLE. 4. 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 OFF ICER NOT TO TAX THE INTEREST INCOME ON NOSTRO BALANCES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS 1,64,38,509/- MADE ON ACCOUNT OF COST OF CREDIT RISK ASSISTANCE 17. GROUND NO. 1 IS REGARDING DISALLOWANCE U/S 14A RESTRICTED BY THE CIT(A) ON ADHOC BASIS TO RS. 1,00,000/-. 17.1 WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THIS GROUND IS COM MON TO THE ADDITIONAL GROUND NO. 3 OF THE ASSESSEES APPEAL. IN VIEW OF OUR FINDI NG ON THE ADDITIONAL GROUND NO. 3 OF THE ASSESSEES APPEAL IN PARA 15 OF THIS ORDER, THIS GROUND OF REVENUES APPEAL IS DISMISSED. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 15 | P A G E 18. GROUND NO. 2 IS REGARDING DEDUCTION U/S 37(1) OF THE DIRECT EXPENSES INCURRED BY HO ON CREDIT RISK ASSISTANCE AND EDP AS SISTANCE COST. 18.1 WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2002-03 IN PARA 31 AND 32 AS UNDER:- 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 ASSESSEE S 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 DECI SION OF JCIT VS AMERICAN EXPRESS BANK LTD., REPORTED IN 24 TAXMAN.C OM50. AND HELD, 12. LAST GROUND OF THE REVENUES APPEAL IS AGAINST 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, THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS FAIR ENOUGH TO CONC EDE THAT IT WAS COVERED AGAINST THE REVENUE. WE FIND THAT THE MUMBA I BENCH OF THE TRIBUNAL IN THE CASE OF AMERICAN EXPRESS BANK LTD.( SUPRA) HAS ALSO TAKEN SIMILAR VIEW ON THIS ISSUE IN FAVOUR OF THE ASSESSE E. IN VIEW OF THESE FACTS WE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. THIS GROUN D 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. 18.2 FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL, THIS ISSUE IS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 19. GROUND NO. 3 IS REGARDING WRITE BACK OF COUNTRY RIS K PROVISION ADDED BY THE ASSESSING OFFICER AND DELETED BY THE C IT(A). 19.1 WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 16 | P A G E 19.2 THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSES SEE HAS POINTED OUT THAT THE DISALLOWANCE ON THIS ACCOUNT HAS ALREADY BEEN CONFI RMED BY THIS TRIBUNAL FOR THE A.Y. 2003-04. ACCORDINGLY, NO DISALLOWANCE CAN BE M ADE FOR THE A.Y. UNDER CONSIDERATION. WE NOTE THAT FOR A.Y. 2003-04, AN ID ENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN PARA 44 AND 45 AS UNDER:- 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. 71/21.04.103/2002-03 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 P ROVISION 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 ITSELF HAS FAIRLY CONCEDED THAT THIS ISSUE IS NOW COVERED AGAINST THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF THIS T RIBUNAL 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 SERV ICES 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 ASSESSEE AND IN F AVOUR OF THE REVENUE. 19.3 WE FIND THAT SAME AMOUNT OF RS. 41 LAC WAS DIS ALLOWED FOR A.Y. 2003-04 AND THE ASSESSEE HAS ACCEPTED THE SAME, THEREFORE, NO DOUBLE DISALLOWANCE CAN BE MADE IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY W E DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT(A) QUA THIS ISSUE. 20. GROUND NO. 4 IS REGARDING TAXABILITY OF INTEREST ON NOSTRO ACCOUNT BALANCES. 20.1 WE FIND THAT THIS ISSUE IS COMMON TO THE GROUN D NO. 4 OF THE ASSESSEES APPEAL. ACCORDINGLY, WHEN THE ASSESSEE HAS ADMITTED THE TAXABILITY OF THIS INCOME, THIS GROUND OF REVENUES APPEAL IS ALLOWED. CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 17 | P A G E 21. GROUND NO. 5 IS REGARDING TP ADJUSTMENT ON ACCOUNT OF CREDIT RISK. 21.1 WE HAVE HEARD THE LD. DR AS WELL AS LD. AUTHOR IZED REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSES SEES OWN CASE FOR A.Y. 2002-03 IN PARA 69 TO 71 AS UNDER:- 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 INDIAN BRANCH FOR PROVIDING ASSISTANCE IN DOING CREDIT RISK ANALYSIS FOR THE INDIAN ENTITY. THE TPO NOTED THAT THIS EXPENSES HAS BEEN CHARGED TO THE IN DIAN ENTITY IN THE SAME INVOICES IN WHICH THE HO HAS ALLOCATED EXPENSES OF S.20,391,525/- AS INDIANS SHARE OF HO EXPENSES. FURTHER THE TPO HAS NOTED THA T THIS EXPENSES HAS NOT BEEN DEBITED BY THE ASSESSEE TO ITS PROFIT AND LOSS ACCOUNT, BUT HAS BEEN CLAIMED SEPARATELY AS A DEDUCTION IN THE COMPUTATIO N OF INCOME FILED WITH THE RETURN OF INCOME. THE HO EXPENSES OF RS.20,391,525/ - WAS SUBJECT MATTER OF CONSIDERATION UNDER SECTION 44C. THE ASSESSEE CONTE NDED BEFORE THE TPO THAT HEAD OFFICE HAD ALSO CERTAIN EXPENDITURE WHICH IS DIRECTLY ATTRIBUTABLE TO INDIAN BRANCH, OVER AND ABOVE THE NORMAL HO EXPENSE S/ALLOCATION. THEREFORE, EXPENSES HAVE NOT BEEN CONSIDERED FOR ARRIVING AT T HE LIMITS ALLOWABLE U/S44C. THE TPO HELD THAT THE DETAILS FILED BY THE ASSESSEE INDICATE THAT THESE AMOUNTS OF RS.80,99,091/- ARE NOT BEING DEBITED TO THE PROFIT AND LOSS ACCOUNT ARE BEING CLAIM OF THE COMPUTATION OF INCOME, AS SE PARATE EXPENSES. THE AMOUNTS ARE ALSO NOT BEING PAID WHEN HEAD OFFICE HA D ALREADY CHARGED. THE ASSESSEE EXPENSES TOWARDS COST OF CREDIT RISK SERVI CES TO THE TUNE OF RS.20,391,525/-. THE TPO HELD THAT THESE EXPENSES A PPEAR 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 THE RISK OF A WRONG BUSINESS DECISION, THERE CANNOT BE TWO ALLOCATIONS FOR THE SAME SERVICES. ACCORDINGLY, THE TPO HELD THAT THESE EXPENSES FOR T HE SAME ACTIVITY ARE BEING CLAIMED TWICE ONE AS PART OF THE HEAD OFFICE EXPENS ES AND THE OTHER AS SEPARATE EXPENSES, THE ARMS LENGTH PRICE OF THE SEP ARATELY CLAIMED EXPENSES WAS DETERMINED AS NIL. THE CIT(A) HAS DELETED THE A DDITION MADE BY THE TPO BY ACCEPTING THE EXPLANATION OF THE ASSESSEE THAT T HESE ARE FOR SEPARATE INVOICES AND 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 SAM E INVOICES IN WHICH THE COST OF CREDIT RISK EXPENSES OF RS.20,391,525/- WER E ALSO CHARGED TO THE ASSESSEE. 71. SINCE NO MATERIAL HAS BEEN PRODUCT TO SHOW THAT THIS EXPENDITURE AS CLAIMED BY THE ASSESSEE SEPARATELY IS FOR THE EXCLU SIVE AND DEDICATED WORK/SERVICE DONE BY THE HO TO THE ASSESSEE. FURTHE R THERE IS NO EXPLANATION CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 18 | P A G E BY THE ASSESSEE AS ON WHAT BASIS THIS EXPENDITURE I S CHARGED BY HO. THEREFORE, THIS ISSUE CANNOT BE DECIDED IN THE ABSE NCE OF COMPLETE FACT AS WHETHER THE HEAD OFFICE HAS CHARGED THIS EXPENDITUR E 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 C LAIM. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO RECORD OF THE AO/TPO TO EXAMINE THE FACTS PROPERLY AND THE EVIDENCE TO BE FILED BY THE ASSESSEE 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 MADE TOWAR DS THE DEDICATED EXCLUSIVE SERVICE RENDERED BY THE HEAD OFFICE TO TH E ASSESSEE. ACCORDINGLY THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 21.2 ACCORDINGLY, THIS ISSUE IS SET ASIDE TO THE RE CORD OF ASSESSING OFFICER/TPO IN THE SAME TERMS AS IN THE ASSESSMENT YEAR 2003-04 FO R EXAMINATION OF FACTS AND EVIDENCE TO BE FILED BY THE ASSESSEE IN SUPPORT OF ITS CLAIM. THIS GROUND OF REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S. 22 IN CROSS OBJECTION 220/MUM/2013, THE REVENUE HAS RAISED ONLY GROUND AS UNDER:- WITHOUT PREJUDICE TO THE STAND OF REVENUE THAT THE INTEREST OF RS. 3,28,918/- RECEIVED FROM HO/OVERSEAS BRANCHES IS TAXABLE IN IN DIA AS THE BRANCH 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 ENTI TY NECESSARY DISALLOWANCE BE MADE U/S 14A OF THE I.T. ACT. 23. THE GROUND RAISED IN CROSS OBJECTION IS CONNECT ED WITH THE GROUND NO. 1 OF THE ASSESSEES APPEAL. SINCE THE ASSESSEE HAS ADMIT TED THE INTEREST RECEIVED FROM HO/OVERSEAS BRANCHES AS TAXABLE INCOME, THEREFORE, THE GROUND RAISED IN THE CROSS OBJECTION OF THE REVENUE BECOMES INFRUCTUOUS. HENCE DISMISSED. 24. THERE IS A DELAY OF 313 DAYS IN FILING THE CROS S OBJECTION BY THE REVENUE. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND FACTS A ND CIRCUMSTANCES OF THE CASE, WE CONDONE THE DELAY IN FILING THE CROSS OBJECTION. 25. IN ITA NO. 4116/MUM/2014 THE ASSESSEE HAS CHALLENGE D THE LEVY OF PENALTY U/S 271(1)(C) AND RAISED THE FOLLOWING G ROUNDS:- CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK 19 | P A G E 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) - 10, MUMBAI ['CIT (A)'] ERRED IN UPHOLDING THE ASSESSING OFFICER'S ACTION O F LEVYING A PENALTY OF RS. 69,63,693 UNDER SECTION 271 (1)( C) OF THE INCOME-T AX ACT, 1961 ['THE ACT']. HE ERRED IN OBSERVING THAT THE APPELLANT HAS WILFUL LY CONCEALED ITS PARTICULARS OF INCOME WHILE FILING THE RETURN OF INCOME. THE APPELLANT SUBMITS THAT THE CIT (A) FAILED TO AP PRECIATE THAT THE PROVISIONS OF SECTION 271(1)(C) ARE NOT ATTRACTED IN THE FACTS OF ITS CASE. 2. WITHOUT PREJUDICE, THE LEARNED CIT (A) ERRED DIS MISSING THE GROUND ON TAX RATE APPLICABLE FOR COMPUTING PENALTY, AS INFRUCTUOUS. WITHOUT PREJUDICE TO GROUND 1, THE APPELLANT SUBMIT S THAT TAX ON INCOME ON WHICH PENALTY HAS BEEN LEVIED OUGHT TO HAVE BEEN CO MPUTED IN TERMS OF ARTICLE 12 OF THE INDIA - FRANCE DOUBLE TAX AVOIDANCE AGREEMEN T. 25.1 WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE PENALTY IN THIS CASE HAS BE EN LEVIED AGAINST THE DISALLOWANCE OF CLAIM OF NETTING OF THE INTEREST RE CEIVED U/S 244A AGAINST THE INTEREST PAID BY THE ASSESSEE U/S 220(2) OF THE INC OME TAX ACT. WE HAVE GIVEN OUR FINDING ON THE ISSUE OF NETTING OF INTEREST IN THE QUANTUM APPEAL OF THE ASSESSEE AND HELD THAT NETTING IS PERMISSIBLE AND THEREBY TH E CLAIM OF THE ASSESSEE IS ALLOWED. ACCORDINGLY THE PENALTY LEVIED U/S 271(1)(C ) AGAINST THE SAID ADDITION IS NOT SUSTAINABLE AND HENCE DELETED. 26. IN THE RESULT QUANTUM APPEAL OF THE ASSESSEE AN D APPEAL OF THE REVENUE ARE PARTLY ALLOWED WHEREAS APPEAL OF THE ASSESSEE AGAIN ST PENALTY ORDER IS ALLOWED AND THE CROSS OBJECTION BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF DECEMBER 2014. SD/- SD/- (N.K.BILLAIYA) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED -12-2014 SKS SR. P.S,