BANK OF BAHRAIN & KUWAIT B.S.C., MUMBAI V. DCIT (iT) 3(2), MUMBAI

ITA 7781/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71367 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 12-08-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 11-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH; AJEET KUMAR JAIN
• Assessee Lawyers: F V IRANI
• Keywords: Depreciation; Transfer pricing
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL K KK K BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI ! ! ! ! , ' ' ' ' #$ #$ #$ #$ % % % % & & & & , . BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI RAJENDRA SINGH RAJENDRA SINGH RAJENDRA SINGH RAJENDRA SINGH, AM , AM , AM , AM & && & SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM ./ I II I.T.A. NO.7781/MUM/2010 .T.A. NO.7781/MUM/2010 .T.A. NO.7781/MUM/2010 .T.A. NO.7781/MUM/2010 ( '( '( '( '( ) ) ) ) / ASSESSMENT YEAR :2006-07) BANK OF BAHRAIN & KUWAIT B.S.C, JOLLY MAKER CHAMBERS NO. 2, 225, NARIMAN POINT, MUMBAI-400021 ( ( ( ( / VS. DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)- 3(2), SCINDIA HOUSE, BALLARD ESTATE, N. M. ROAD, MUMBAI $* ' ./ + ./ PAN/GIR NO. :AAACB2140F ( *, / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( -.*, / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) *, *, *, *, / / / / / APPELLANT BY : SHRI F. V. IRANI -.*, -.*, -.*, -.*, 0 00 0 / / / / /RESPONDENT BY : SHRI NARENDRA SINGH & SHRI AJEET KUMAR JAIN ( ( ( ( 0 00 0 1' 1' 1' 1' / DATE OF HEARING : 24 TH SEPTEMBER 2013 23) 23) 23) 23) 0 00 01' 1' 1' 1' /DATE OF PRONOUNCEMENT: 30 TH SEPTEMBER 2013 #4 / O R D E R PER : & , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER DATED 20.10.2010 PASSED U/S 143(3) R.W.S 144C (13) OF THE INCOME TAX ACT IN PURSUANT TO THE DIRECTIONS OF DRP DATED 16.9.2010 U/S 144C(5) OF THE INCOME TAX ACT FOR THE ASSESSMENT YEAR 2006- 07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: 1.(A) THE DISPUTE RESOLUTION PANEL [HEREINAFTER RE FERRED TO AS DRP], HAS ERRED IN CONFIRMING THE ADJUSTMENT TO A LP, AMOUNTING TO RS. 16,251,987/-, IN RESPECT OF REIMBU RSEMENT BY THE APPELLANT, OF THE SHARE OF HEAD OFFICE EXPENSES AND NRI DESK EXPENSES TO AN ASSOCIATED ENTERPRISE (AE) AS PROPOS ED BY THE TRANSFER PRICING OFFICER (TPO) AND THE ASSESSING OF FICER (AO). ITA NO. 7781/M/2010 BANK OF BAHRAIN & KUWAIT B.S.C 2 (B) THE DRP HAS ALSO ERRED IN HOLDING THAT DEDUCTIO N FOR THE SHARE OF THE HO EXPENSES AND NRI DESK EXPENSES HAS TO BE RESTRICTED TO THE LIMIT PRESCRIBED UNDER SECTION 44 C OF THE INCOME-TAX ACT, 1961 (ACT). (C) THE APPELLANT RESPECTFULLY SUBMITS THAT THE SHA RE IN HO EXPENSES AND NRI DESK EXPENSES REPRESENT THE EXPENS ES DIRECTLY ATTRIBUTABLE TO AND CONNECTED WITH THE BUS INESS OF THE INDIAN BRANCHES. AS SUCH, THEY CANNOT BE CONSIDERED AS OVERHEADS TO WHICH THE PROVISIONS OF SECTION 44C ARE APPLICABLE. THE ENTIRE AMOUNT OF SHARE IN HO EXPENS ES AND NRI DESK ARE CERTIFIED BY AN INDEPENDENT FIRM OF CHARTE RED ACCOUNTANTS AS HAVING BEEN INCURRED BY THE HEAD OFF ICE FOR AND ON BEHALF OF THE INDIAN BRANCHES AND THE APPELLANT. THEREFORE, NO ADJUSTMENT ON ACCOUNT OF ALP IS JUSTIFIED. (D) THE APPELLANT, THEREFORE, PRAYS THAT THE UNWARR ANTED ADJUSTMENT OF RS. 16,251,987/- TO THE ALP IN RESPEC T OF THE REIMBURSEMENT OF NRI DESK EXPENSES BY TREATING THEM AS OVERHEADS BE DELETED. 3. THE ONLY ISSUE ARISES IS REGARDING THE ADJUSTMEN T TO THE ARMS LENGTH PRICE IN RESPECT OF REIMBURSEMENT BY THE ASS ESSEE TO AE ON ACCOUNT OF THE SHARE HEAD OFFICE EXPENSES AND NRI D ESK EXPENSES. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDE RED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT AN I DENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2002-03 IN ITA NO. 6731/M/2006 VIDE ORDER DATED 28.1.2011. FOR THE ASSESSMENT YEAR 2002-03 THE TRIB UNAL HAS REPRODUCED THE DETAILS OF THE EXPENSES IN PARA 9 AS UNDER: SR. NO. (1) NATURE OF EXPENSES (II) ALLOCATED BY 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 A) OFFICER OF THE HEAD OF OBD B) FINANCIAL CONTROL 13,307 5,320 NIL 5,320 ITA NO. 7781/M/2010 BANK OF BAHRAIN & KUWAIT B.S.C 3 OBD AND VARIOUS OTHER HEAD OFFICE SUPPORT CENTERS C) INFORMATION TECHNOLOGY D) HUMAN RESOURCE E) OPERATIONS F) INTERNAL AUDIT 5,213 4,782 4,762 2,226 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 CON VERSION OF BD INTO INDIAN RUPEES HAS BEEN UNCONTROVERTEDLY ADOPTED BY THE TPO AS 1 BD INR 129.44) 4. THE LD. AR OF THE ASSESSEE HAS POINTED OUT THAT THE EXPENSES REGARDING NRI DESK REPRESENTING DIRECT COSTS, INDIR ECT COST ARE SIMILAR IN NATURE FOR THE YEAR UNDER CONSIDERATION. HE HAS REF ERRED THE DETAILS OF THE EXPENSES IN RESPECT OF ALLOCATION OF DIRECT STAFF C OST, ALLOCATION OF STAFF COST INCURRED BY THE HEAD OFFICE/SUPPORT CENTRES AN D GENERAL EXPENSES INCURRED BY THE HEAD OFFICE AND ALLOCATED TO THE AS SESSEE IN INDIA. THE DETAILS OF THE EXPENSES FOR THE YEAR UNDER CONSIDER ATION AS FILED BY THE ASSESSEE ARE AS UNDER: DETAILS OF ALLOCATION OF DIRECT STAFF COST DETAILS OF ALLOCATION OF DIRECT STAFF COST DETAILS OF ALLOCATION OF DIRECT STAFF COST DETAILS OF ALLOCATION OF DIRECT STAFF COST PARTICULARS AMT. (BD) NRI DESK EXPENSES BAHRAIN KUWAIT DUBAI SUB-TOTAL TRAVEL EXPENSES INCURRED BY HO VISITING OFFICIALS TO THE BRANCH 34,805 29,818 192 64,815 2,238 TOTAL 67,053 ITA NO. 7781/M/2010 BANK OF BAHRAIN & KUWAIT B.S.C 4 DETAILS OF AL DETAILS OF AL DETAILS OF AL DETAILS OF ALLOCATED STAFF COST INCURRED BY HEAD OF FICE SUPPORT CENTRES LOCATED STAFF COST INCURRED BY HEAD OFFICE SUPPORT CENTRES LOCATED STAFF COST INCURRED BY HEAD OFFICE SUPPORT CENTRES LOCATED STAFF COST INCURRED BY HEAD OFFICE SUPPORT CENTRES PARTICULARS AMT. (BD) OFFICE OF THE HEAD OF OVERSEAS BUSINESS DIVISION INTERNAL AUDIT FINANCIAL CONTROL INFORMATION TECHNOLOGY HUMAN RESOURCES OPERATIONS 11,250 2,360 3,087 6,206 5,627 3,268 TOTAL 31,798 DETAILS OF ALLOCATED GENERAL EXPENSES INCURRED BY H EAD OFFICER DETAILS OF ALLOCATED GENERAL EXPENSES INCURRED BY H EAD OFFICER DETAILS OF ALLOCATED GENERAL EXPENSES INCURRED BY H EAD OFFICER DETAILS OF ALLOCATED GENERAL EXPENSES INCURRED BY H EAD OFFICER PARTICULARS AMT (BD) AMT (BD) DEPRECIATION ADVERTISING RENT AND MAINTENANCE LESS: EXPENSES RECLASSIFIED OTHER ADD: EXPENSES RECLASSIFIED 9,863 (171) 15,889 171 7,739 4,991 9,692 16,060 SUB-TOTAL ADD: TRAVEL & ENTERTAINMENT NOT ALLOCATED 38,482 576 TOTAL 39,058 5. THUS, APPARENTLY THE NATURE OF THE EXPENSES ARE SIMILAR AS IN THE ASSESSMENT YEAR 2002-03. THIS TRIBUNAL FOR THE ASSE SSMENT YEAR 2002-03 AFTER A DETAILED DISCUSSION AND FINDING HAS ARRIVED TO THE CONCLUSION IN PARA 24 AS UNDER: 24. TO SUM UP, THE DIRECT AND EXCLUSIVE NRI DESK E XPENSES (A), BEING THE ITEMS 1 AND 2 OF TABLE EXTRACTED A BOVE, INCURRED BY THE HEAD OFFICE ARE NOT HIT BY SECTION 44C AND H ENCE TO BE ALLOWED IN FULL AS PER GENERAL OF THE ACT ; ALLOCATED/SHARED/APPORTIONED STAFF COSTS INCURRED B Y OBD AND VARIOUS OTHER HEAD OFFICE SUPPORT CENTRES TO NRI DE SK (B), BEING THE ITEMS 3 AND 4 OF ABOVE TABLE, SUBJECT TO VERIFICATION ITEM 3A) IN TERMS OF DIRECTION GIVEN IN PARA 22 ABO VE AND OTHER COMMON HEAD OFFICE EXPENSES OTHER THAN THOSE A AND B ABOVE (C), ARE TO BE CONSIDERED WITHIN THE PURVIEW OF S ECTION 44C ONLY. THE IMPUGNED ORDER IS SET ASIDE AND THE MATTER IS R ESTORED TO THE ITA NO. 7781/M/2010 BANK OF BAHRAIN & KUWAIT B.S.C 5 FILE OF THE AO FOR 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 ORIGIN ALLY 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. 6. RESPECTFULLY FOLLOWING THE ORDER OF THIS TRIBUNA L THE DIRECT AND EXCLUSIVE NRI DESK EXPENSES INCURRED BY THE HEAD OF FICER ARE ALLOWED IN FULL AS THE SAME ARE NOT HIT BY SECTION 44C. THE AL LOCATED EXPENSES TOWARDS STAFF COST INCURRED BY OBD AND VARIOUS OTHE R HEAD OFFICER SUPPORT CENTRES TO NRI DESK ARE TO BE CONSIDERED AS PER THE PROVISIONS OF SECTION 44C ONLY SUBJECT TO THE VERIFICATION AND CORRECTNES S OF THE EXPENSES MENTIONED IN THE TABLES ABOVE AS PER THE DIRECTIONS OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2002-03. SIMILARLY, THE OTHER COMMO N HEAD OFFICER EXPENSES ARE ALSO TO BE CONSIDERED AS PER THE PROVI SIONS OF SECTION 44C ONLY. THEREFORE, THE AO HAS TO WORK OUT THE AMOUNT OF DEDUCTION U/S 44C AFRESH AS PER LAW IN RESPECT OF THE COMMON EXPENSES COVERED U/S 44C. ACCORDINGLY, THE ORDERS OF AUTHORITIES BELOW ARE MO DIFIED. 7. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUND AS UNDER: A) THE DISPUTE RESOLUTION PANEL HAS ERRED IN INVOK ING THE PROVISIONS OF CHAPTER X OF THE INCOME TAX ACT, 1961 (ACT) TO NRI DESK EXPENSES AND THEREFORE, THE APPLICATION OF TRA NSFER PRICING PROVISIONS TO THE SAME IS ILLEGAL, WITHOUT ANY JUST IFICATION AND BAD IN LAW. 8. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT IF THE MAIN GROUNDS OF THE ASSESSEES APPEAL ARE DECIDED AS PER THE ORD ER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2002-03 THEN THE ASSESSEE WOULD NOT PRESS THE ITA NO. 7781/M/2010 BANK OF BAHRAIN & KUWAIT B.S.C 6 ADDITIONAL GROUND AND THE SAME MAY BE DISMISSED. AS WE HAVE DECIDED THE MAIN GROUND OF THE ASSESSEE BY FOLLOWING THE EA RLIER ORDERS OF THIS TRIBUNAL THEREFORE, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS DISMISSED BEING NOT PRESSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER 2013 SD/- SD/- ( ! ) ' #$ ( RAJENDRA SINGH RAJENDRA SINGH RAJENDRA SINGH RAJENDRA SINGH ) ACCOUNTANT MEMBER ( & ) ' #$ (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 30 TH SEPTEMBER 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI