BANK OF INDIA, MUMBAI V. ADDL CIT 2(1), MUMBAI

ITA 8297/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3709 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2000-2001
• Appeal Filed On: 30-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAVIN VARMA
• Assessee Lawyers: J D MISTRY
• Keywords: Earning of tax free income; Revised return
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, M UMBAI BEFORE S/SHRI B.R.MITTAL(JM) AND RAJENDRA(AM) . . , !' !' !' !' , !# !# !# !# ! !! ! $ $ $ $ ./I.T.A. NO.9155/MUM/2010 ( % % % % & & & & / ASSESSMENT YEAR:2000-2001) ADDL. CIT, RANGE 2(1), AAYAKAR BHAVAN, M.K. ROAD, 5 TH FLOOR, M.K. ROAD, MUMBAI. % % % % / VS. BANK OF INDIA, C-5C-5, G BLOCK STAR HOUSE, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400051 ' !# ./ ( ./PAN/GIR NO. : AAACB 0472 C ( ') /APPELLANT ) .. ( *+') / RESPONDENT ) ./I.T.A. NO.8297/MUM/2010 ( % % % % & & & & / ASSESSMENT YEAR:2000-2001) BANK OF INDIA, C-5C-5, G BLOCK STAR HOUSE, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400051 % % % % / VS. ADDL. CIT, RANGE 2(1), AAYAKAR BHAVAN, M.K. ROAD, 5 TH FLOOR, M.K. ROAD, MUMBAI. ' !# ./ ( ./PAN/GIR NO. : AAACB 0472 C ( ') /APPELLANT ) .. ( *+') / RESPONDENT ) ASSESSEE BY : SHRI J.D.MISTRY REVENUE BY : SHRI PRAVIN VARMA % , -# / DATE OF HEARING : 18.4.2013 ./& , -# / DATE OF PRONOUNCEMENT : 08 .5.2013 !0 / O R D E R PER B.R.MITTAL, JM: THE CROSS APPEALS HAVE BEEN FILED BY THE DEPARTME NT AND THE ASSESSEE FOR ASSESSMENT YEAR 2000-2001 AGAINST ORDER DATED 12.10 .2010 OF LD CIT(A)-4, MUMBAI. I.T.A. NOS.9155 & 8297/MUM/2010 ASSESSMENT YEAR:2000-2001 2 2. FIRSTLY, WE TAKE UP THE APPEAL OF ASSESSEE BEING I.T.A. NO.8297/M/2010. 3. GROUND NO.1 OF APPEAL READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX (HERE INAFTER REFERRED TO AS AO) HAS ERRED IN DISALLOWING THE DEDUCTION FOR F EES PAID TO MASTER CARD OF RS. 119.47 LACS AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS CIT (A)] HAS ERRED IN CONFIRMING THE ACTION OF LEARNED AO. THE LEARNED AO BE DIRECTED TO ALLOW THE DEDUCTION OF RS.119.47 FOR FEES PAID TO MASTER CARD AND REDUC E THE TOTAL INCOME ACCORDINGLY. 4. THE ASSESSEE DURING THE PERIOD 1.4.1999 TO 31.1. 2000 MADE A PAYMENT OF US$ 278885.75 TO MASTER CARD INTERNATIONAL WHICH COMES TO RS.119.47 LACS IN INDIAN RUPEE. THE SAID PAYMENT WAS MADE WITHOUT DEDUCTION OF TAX AT SOURCE. THE AO CONSIDERING THE PROVISIONS OF SECTION 40(A)(I) OF THE INCOME TA X ACT, DISALLOWED THE CLAIM OF THE ASSESSEE. BEING AGGRIEVED, ASSESSEE FILED APPEAL B EFORE THE FIRST APPELLATE AUTHORITY. 5. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT PRO VISIONS OF SECTION 40(A)(I) ARE NOT APPLICABLE AS THE AMOUNT OF LICENSE FEE PAID TO MASTER CARD IS NOT PAYMENT OF ROYALTY AS PER SECTION 9(1)(VI) AND ARTICLE 12 OF D TAA AGREEMENT. IT WAS FURTHER SUBMITTED THAT THE ACTIVITIES OF MASTER CARD ARE CA RRIED OUT IN INDIA. HENCE, THERE IS NO QUESTION OF DEDUCTING TAX. LD CIT(A) VIDE PARA 14 CONFIRMED THE ACTION OF AO BY FOLLOWING THE ITAT ORDER IN ASSESSEES OWN CASE IN EARLIER YEARS. HENCE, THIS APPEAL BY THE ASSESSEE. 6. AT THE TIME OF HEARING, LD A.R. FAIRLY CONCEDED THAT ABOVE ISSUE IS COVERED AGAINST THE ASSESSEE IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1996-97 IN I.T.A. NO.2223/M/2000 AND IN A.Y. 1998-99 IN I.T.A. NO.457 9/M/2003 BY A COMMON ORDER DATED 27.3.2008, WHICH WAS ALSO FOLLOWED BY THE TRI BUNAL IN ASSESSMENT YEAR 1999-2000 IN I.T.A. NO.4580/M/2003 VIDE ORDER DATED 30.11.201 0 AGAINST THE ASSESSEE. WE CONSIDER IT USEFUL TO REPRODUCE PARA 2.5 OF THE OR DER OF THE TRIBUNAL DT.27.3.2008, WHICH IS AS UNDER: THE ASSESSEE IN THIS CASE HAS MADE CERTAIN PAYMENT S TO US COMPANY FOR ALLOWING USE OF CERTAIN SERVICES, ETC. IN INDIA. TH E CONTENTION OF THE ASSESSEE THAT THESE REMITTANCES WERE NOT EXIGIBLE TO TAX IN INDIA, IS TO BE NECESSARILY REJECTED FOR THE REASON THAT THE US COMPANIES; AS P ER THE OWN ADMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE, HAVE CHOSEN TO AG REE WITH THE CONTENTION OF I.T.A. NOS.9155 & 8297/MUM/2010 ASSESSMENT YEAR:2000-2001 3 THE INCOME-TAX DEPARTMENT THAT THEY ARE LIABLE TO P AY TAX UNDER THE INDIAN INCOME-TAX ACT. THESE US COMPANIES HAVE ALSO REMITT ED THE AMOUNT OF INCOME- TAX. UNDER THESE CIRCUMSTANCES WE HAVE TO SEE WHETH ER THE INVOKING OF PROVISIONS OF SECTION 40(A)(I) BY THE ASSESSING OFF ICER AND AS UPHELD CIT(A) WAS RIGHT IN LAW. RELEVANT PORTION OF SECTION 40(A(I) I S EXTRACTED BE FOLLOWS. 40(A)(I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSUED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES FOR TECH NICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE OUTSIDE INDIA. ON WHICH TAX HAS NOT BEEN PAID OR DEDUCTED UNDER CHAPTER XVII-B PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN PAID OR DEDUCTED UNDER CHAPTER XVLL-B IN ANY SUBSEQUENT YEAR. SUCH S UM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS Y EAR IN WHICH SUCH TAX HAS BEEN PAID OR DEDUCTION ON A PERUSAL OF THIS SECTION WE HAVE TO NECESSARILY HOLD THAT THE DEDUCTION, IF ANY, CAN BE ALLOWED, ONLY IN THE YEAR IN WHICH THE TAX HAS BEEN PAID OR DEDUCTED UNDER CHAPTER XVII-B. AS IN THE IMPUGNED ASSESSMENT YEAR NO TAX HAS BEEN DEDUCTED WHILE REMITTING THESE AMOUNTS TO COMPANIES SITUATED OUTSIDE INDIA, WE HOLD THAT THE FIRST APPELLATE AUTHORITY WAS RIGHT I N UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER THIS BENCH OF THE TRI BUNAL IN I.T.A. NO.709/MUM/1999 & ORS IN THE CASE OF HONG KONG & SH ANGHAI BANKING CORPORATION HAVE TAKEN A SIMILAR VIEW AND DIRECTED THE ASSESSING OFFICER TO VERIFY THE PAYMENT OF TAXES AFTER ALLOWING OPPORTUNITY TO THE ASSESSEE AND TO ALLOW DEDUCTION IN THE RELEVANT YEARS. IN THIS CASE, ADMI TTEDLY, NO TAX HAS BEEN PAID FOR THE YEAR UNDER CONSIDERATION AND THEREFORE WE D O NOT FEEL IT NECESSARY TO RESTORE THE MATTER. THIS GROUND OF THE ASSESSEE IS REJECTED. 7. HOWEVER, LD A.R. SUBMITTED THAT THE PAYER HAD PA ID THE TAXES AND ACCORDINGLY, DEDUCTION SHOULD BE ALLOWED TO THE ASSESSEE SUBJECT TO VERIFICATION. LD D.R. SUBMITTED THAT NO EVIDENCES HAVE BEEN FILED BY THE ASSESSEE T HAT AMOUNT HAS BEEN PAID BY THE PAYEE AND, THEREFORE, ORDER OF LD CIT(A) BE CONFIRM ED. 8. CONSIDERING ABOVE SUBMISSIONS OF LD REPRESENTATI VES OF PARTIES AND THE EARLIER ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A SSESSMENT YEARS 1996-97, 1998-99 AND 1999-2000(SUPRA) AND ALSO IN THE ABSENCE OF ANY EVIDENCE ON RECORD THAT PAYEE HAS PAID THE TAXES ON THE AMOUNT PAID BY THE ASSESSEE A S FEE TO MASTER CARD, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF LD C IT(A). HENCE, GROUND NO.1 OF APPEAL IS REJECTED. 9. GROUND NOS.2 & 3 ARE AS UNDER: I.T.A. NOS.9155 & 8297/MUM/2010 ASSESSMENT YEAR:2000-2001 4 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING THE LOSSES INCU RRED OF RS.17,21,15,970 AND THE LEARNED CIT (A) HAS ERRED I N SETTING ASIDE THIS ISSUE TO THE AO WITH A DIRECTION TO ALLOW THE CLAIM AFTER VERIFICATION. THE LEARNED AO BE DIRECTED TO ALLOW THE DEDUCTION FOR L OSSES WRITTEN OFF OF RS.17,21,15,970 AND REDUCE THE TOTAL INCOME ACCORDI NGLY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED AC HAS ERRED IN DISALLOWING EXPENSES OF JAK ARTA OFFICE OF RS.42,21 ,790 AND THE LEARNED CIT (A) HAS ERRED IN SETTING A SIDE THIS ISSUE TO THE AO WITH A DIRECTION TO ALLOW AFTER VERIFICATION OF DETAILS FILED .THE LEARNED AO BE DIRECTED TO ALLOW DEDUCTION FOR EXPENSES OF J AKARTA OFFICE OF RS.42,21 ,790 AND REDUCE THE TOTAL INCOME ACCORDING LY. 10. LD A.R. DID NOT PRESS FOR GROUND NOS.2 & 3. TH EREFORE, GROUND NOS.2 & 3 ARE DISMISSED AS NOT PRESSED. 11. GROUND NO.4 OF APPEAL READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE (EARNED AO HAS ERRED IN DISALLOWING NEW YORK BRANCH STATE FRANCHISE TAX OF RS.49,63,956 AND TOKYO BRANCH BUSINESS TAX AND P RE FACTURAL MUNICIPAL INHABITANT TAX OF RS.8,05,37,231 AND THE LEARNED CIT (A) ERRED IN SETTING ASIDE THIS ISSUE TO THE AO WITH A DIRECT ION TO ALLOW AFTER VERIFICATION ON THE BASIS OF ACTUAL PAYMENT MADE IN RESPECT OF TAXES PAID. THE (EARNED AO BE DIRECTED TO ALLOW DEDUCTION FOR T AXES PAID IN RESPECT OF NEW YORK BRANCH STATE FRANCHISE TAX OF RS.49,63, 956 AND TOKYO BRANCH BUSINESS TAX, PRE FACTURAL MUNICIPAL INHABIT ANT TAX OF RS.8,05,37,231 AND REDUCE THE TOTAL INCOME ACCORDIN GLY. 12. ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF N EW YORK BRANCH STATE FRANCHISE OF RS.49,63,956/- AND TOKYO BRANCH BUSINESS TAX AND PRE FACTURAL MUNICIPAL TAX OF RS.8,05,37,231/-. ASSESSING OFFICER DISALLOWED THE CLAIM ON THE GROUND THAT ASSESSEE HAS NOT PRODUCED ANY DOCUMENTARY EVIDENCE TO PROVE THAT ABOVE AMOUNTS HAVE BEEN ACTUALLY PAID. BEING AGGRIEVED, ASSESSEE FIELD APP EAL BEFORE LD CTI(A). 13. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT DE TAILS WERE SUBMITTED TO THE AO VIDE LETTER DATED 5.12.2002. AO DID NOT CALL FOR A NY FURTHER INFORMATION OR CLARIFICATION. IT WAS ALSO CONTENDED THAT IN EARLIER YEARS, CLAIM OF THE ASSESSEE WAS ALLOWED BY LD CIT(A). LD CIT(A) AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE HAS STATED THAT AO DID NOT CALL FOR ANY FURTHER INFORMATION, AS SUCH ASSES SEE BANK DID NOT FILE ANY DOCUMENTARY EVIDENCE. LD CIT(A) HAS DIRECTED THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AND ALLOW I.T.A. NOS.9155 & 8297/MUM/2010 ASSESSMENT YEAR:2000-2001 5 THE CLAIM ON THE BASIS OF ACTUAL PAYMENT IN RESPECT OF TAXES PAID RELATING TO NEW YORK AND TOKYO BRANCH. HENCE, ASSESSEE IS IN FURTHER AP PEAL BEFORE THE TRIBUNAL. 14. DURING THE COURSE OF HEARING, LD A.R. REFERRED TO PAGES 22-34 OF PB AND SUBMITTED THAT ASSESSEE HAD PAID TAXES RELATING TO NEW YORK AND TOKYO BRANCH AND HAD CLAIMED DEDUCTION ON THE BASIS OF ACTUAL PAYMENT. HE SUBMITTED THAT CLAIM MADE BY THE ASSESSEE SHOULD BE ALLOWED. 15. ON THE OTHER HAND, LD D.R. SUBMITTED THAT LD CI T(A) HAS GIVEN DIRECTION TO THE AO TO VERIFY THE CLAIM AND ALLOW THE CLAIM ON THE BASI S OF ACTUAL PAYMENT IN RESPECT OF TAXES PAID RELATING TO ASSESSEES NEW YORK AND TOKYO BRAN CH AND HENCE, THERE IS NO GRIEVANCE OF THE ASSESSEE. 16. WE AGREE WITH LD D.R. THAT ASSESSEE SHOULD HAVE NO GRIEVANCE AGAINST THE ORDER OF LD CIT(A) AS LD CIT(A) HAS DIRECTED THE AO TO AL LOW CLAIM OF THE ASSESSEE ON THE BASIS OF ACTUAL PAYMENT IN RESPECT OF TAXES PAID RELATING TO ASSESSEES NEW YORK AND TOKYO BRANCH AFTER VERIFICATION. HENCE, GROUND NO.4 OF A PPEAL IS REJECTED. 16. GROUND NO.5 OF APPEAL READS AS UNDER: 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING EXPENSES OF RS. 13,18,63,913 U/S 14A BEING EXPENSES INCURRED IN RELATION TO EXEMPT INCOM E AND [EARNED CIT(A) HAS ERRED IN DISALLOWING EXPENDITURE OF 0.5% OF AVE RAGE INVESTMENTS . THE LEARNED AO BE DIRECTED NOT TO DISALLOW ANY EXPE NSES U/S 14A OF THE ACT. WITHOUT PREJUDICE TO THE ABOVE AND ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, IT IS SUBMITTED THAT DISALLOWA NCE OF EXPENDITURE OF 0.5% OF AVERAGE INVESTMENTS IS SUBSTANTIALLY ON HIG HER SIDE AND SAME BE REDUCED SUBSTANTIALLY. 17. ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF RS.13,18,63,913/- UNDER SECTION 14A OF THE I.T.ACT, 1961 ON ACCOUNT OF INTEREST EXE MPT INCOME OF RS.41,61,40,131/- ON INFRASTRUCTURE LENDING, RS.43,05,62,315/- ON DIVID END INCOME AND RS.25,21,63,494/- ON INTEREST EARNED ON TAX FREE BONDS. ASSESSING OFFIC ER HAS CONSIDERED 12% AS THE ESTIMATED EXPENSES FOR EARNING THE EXEMPT INCOME TO MAKE AGGREGATE DISALLOWANCE OF I.T.A. NOS.9155 & 8297/MUM/2010 ASSESSMENT YEAR:2000-2001 6 RS.13,18,63,913/-. ASSESSING OFFICER HAS STATED THA T ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE FOR EARNING ABOVE EXEMPT INCOME. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEFORE LD CIT(A). 18. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT AS SESSEE MADE INVESTMENT IN SECURITIES/LENDING OUT OF ASSESSEES OWN FUNDS I.E. SHARE CAPITAL RESERVES AND SURPLUS AND NON INTEREST BEARING FUNDS. ALTERNATIVELY, IT WAS CONTENDED THAT THE DISALLOWANCE U/S.14A TOWARDS INCURRING OF EXPENDITURE FOR EARNIN G EXEMPT INCOME COULD BE OF RS.17,24,525 AS UNDER: (TOTAL DIRECTORS REMUNERATION HAS BEEN APPORTIONED TO THE TREASURY DIVISION ON THE BASIS OF THE PROPORTION THAT THE INCOME OF TREA SURY BEARS TO THE TOTAL INCOME OF THE BANK I.E. RS. 55,225,274,732) EXPENSES APPORTIONED TOWARDS TOTAL EXPENSES EXEMPT INCOME EXEMPT INCOME OF TREASURY DIVISION T OTAL INCOME OF TREASURY DIVISION EXPENSES APPORTIONED TOWARDS EXEMPT INCOME 31,368,3 87 1,098,865,940 19,987,916,145 EXPENSES APPORTIONED TOWARDS EXEMPT INCOME = RS.1 ,724,525 I.T.A. NOS.9155 & 8297/MUM/2010 ASSESSMENT YEAR:2000-2001 7 19. LD CIT(A) HAS STATED THAT HE DOES NOT AGREE WIT H ASSESSEE THAT NO EXPENSES HAVE BEEN INCURRED FOR EARNING DIVIDEND EXEMPT INCO ME AND INTEREST ON TAX FREE BONDS. LD CIT(A) HAS STATED THAT THE DISALLOWANCE WORKED O UT BY THE ASSESSEE OF RS.17,24,525 RELATING TO EARNING OF EXEMPT INCOME IS NOT A REASO NABLE METHOD. HE HAS STATED THAT ASSESSEE HAS NOT INCURRED ANY DIRECT INTEREST EXPEN SES AND DIRECTED THE AO TO DISALLOW 0.5% OF AVERAGE INVESTMENT FOR EXPENSES ON ACCOUNT OF EARNING OF EXEMPT INCOME AND, ACCORDINGLY, RECOMPUTE THE DISALLOWANCE TO BE MADE. BEING AGGRIEVED, ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 20. DURING THE COURSE OF HEARING, LD A.R. REFERRED ITAT ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1999-2000 I T.A. NO. 4580/M/200 3 DATED 30.11.2010 (SUPRA) AND SUBMITTED THAT THE TRIBUNAL RESTORED THE MATTER ON THE ABOVE ISSUE TO THE FILE OF AO WITH A DIRECTION TO REEXAMINE THE ISSUE TO DECIDE THE DI SALLOWANCE TO BE MADE. LD A.R. FURTHER REFERRED PAGE 69 OF PB AND SUBMITTED THAT T HE DISALLOWANCE @ 0.5% OF THE AVERAGE INVESTMENT COMES TO RS.2.1221 CRORE. HOWEV ER, LD D.R. SUBMITTED THAT LD CIT(A) HAS ONLY GIVEN THE DIRECTION TO THE AO TO MA KE DISALLOWANCE @ 0.5% OF THE AVERAGE INVESTMENT. HE SUBMITTED THAT SIMILAR ISSU E HAS RECENTLY BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 BEING I.T.A. NO.2781/M/2011 VIDE ORDER DATED 15.6.2012 AND THE T RIBUNAL AFTER CONSIDERING SUBMISSIONS OF THE PARTIES VIDE PARAS 10 & 11 OF TH E ORDER HAVE RESTORED THE MATTER TO THE FILE OF AO WITH A DIRECTION THAT REASONABLE DIS ALLOWANCE U/S.14A MAY BE ARRIVED AT AS PER LAW AND TAKING INTO CONSIDERATION THE DIRECTION GIVEN IN VARIOUS DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL. THE SAID PARAS 10 & 11 OF ORDER OF THE TRIBUNAL READ AS UNDER: 10. WE HAVE HEARD THE ARGUMENTS FROM BOTH THE SIDE S AND HAVE ALSO PERUSED THE MATERIAL AND CASE LAWS, PLACED ON RECOR D AND CITED BEFORE US. THE CASES CITED BY THE AR GIVE INDICATION THAT THE DISALLOWANCE IS TO BE MADE ON A REASONABLE BASIS, BUT WE HAVE NOT FOUND A NY WORKING ON THE DISALLOWANCE, AND HOW THE AR HAS ARRIVED AT FIGURE OF RS.15,76,875 AND HOW AND WHY .5% OF AVERAGE OF INVESTMENT YIELDING T AX FREE INCOME WAS EXCESSIVE. IN THIS SENSE, WE FEEL IT WOULD BE APPR OPRIATE TO RESTORE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION THAT A REASONABLE DISALLOWANCE UNDER SECTION 14A MAY BE ARRIVED AT, AS PER LAW AND TAKING INTO CONSIDERATION, THE DIRECTIONS GIVEN IN THE VARIOUS VARIOUS DECISIONS OF THE COORDINATE BENCHES. I.T.A. NOS.9155 & 8297/MUM/2010 ASSESSMENT YEAR:2000-2001 8 11. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A ) ON THIS ISSUE AND RESTORE THE ISSUE TO THE FILE OF THE AO WITH DIRECT IONS AS GIVEN IN THE ABOVE PARA. THE GROUND OF APPEAL, IS THUS ALLOWED IN PART. 21. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTA TIVES OF PARTIES AND EARLIER ORDERS OF THE TRIBUNAL(SUPRA). WE AGREE WITH LD A. R. THAT THE DISALLOWANCE MADE BY THE AO BY FOLLOWING 12% OF THE INCOME AS EXPENSES IS N OT JUSTIFIED AND IS NOT BASED ON ANY RATIONAL BASIS. THERE IS NO DISPUTE TO THE FACT TH AT FOR MAKING THE DISALLOWANCE U/S.14A OF THE ACT, THE EXPENDITURE WHICH IS RELATED TO THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT HAS TO BE IDENTIFIED. A O HAS TO IDENTIFY THE EXPENDITURE WHICH CAN REASONABLY SAID TO HAVE BEEN INCURRED ON TAX EXEMPT INCOME BEFORE MAKING ANY DISALLOWANCE U/S.14A OF THE ACT. ON PERUSAL OF THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2003-04(SUPRA), WE OBSERVE THAT ASS ESSEE STATED THAT THE DISALLOWANCE OF 0.5% OF TAX FREE INCOME WOULD BE REASONABLE. HO WEVER, ASSESSEE ALSO REFERRED THE DECISION DATED 29.11.2011 OF ITAT KOLKATA IN I.T.A. NO.1625/KOL/2010 IN THE CASE OF DCIT VS THE DIAMOND CO. LTD. , WHEREIN, THE ISSUE W AS WHETHER 1% DISALLOWANCE WAS JUSTIFIED ON THE TOTAL DIVIDEND INCOME AND THE TRIB UNAL DIRECTED THE AO TO RESTRICT THE DISALLOWANCE OF 1% OF THE EXEMPT INCOME AS EXPENSES RELATING TO EXEMPT INCOME. NOW THE QUESTION ARISES AS TO WHETHER THE DISALLOWANCE OF RS.17,24,525/- PROPOSED BY THE ASSESSEE AS PER CALCULATIONS MADE AT PAGE 16 OF THE LD CIT(A)S ORDER AND ALSO MENTIONED HEREINABOVE, IS REASONABLE OR THE DISALLO WANCE @ 0.5% OF AVERAGE INVESTMENT SHOULD BE DISALLOWED TOWARDS EXPENSES ON ACCOUNT OF EARNING OF EXEMPT INCOME. SINCE SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2003-04(SUPRA) AND THE TRIBUNAL RES TORED THE MATTER TO THE FILE OF AO WITH A DIRECTION THAT A REASONABLE DISALLOWANCE U/S .14A MAY BE ARRIVED AT, AS PER LAW AND TAKING INTO CONSIDERATION THE DIRECTIONS GIVEN IN VARIOUS BENCHES OF THE COORDINATE BENCHES OF THE TRIBUNAL, WE CONSIDER IT PRUDENT TO RESTORE THIS ISSUE TO THE FILE OF AO WITH A DIRECTION TO MAKE REASONABLE DISALLOWANCE U/ S.14A AS PER LAW AND TAKING INTO CONSIDERATION THE DETAILS AS MAY BE FILED BY THE AS SESSEE AND THE DECISIONS OF THE COORDINATE BENCHES THAT MAY BE RELIED UPON BEFORE H IM. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) AND RESTORE THE ISSUE TO THE FIL E OF AO BY ALLOWING GROUND OF APPEAL NO.5 TAKEN BY THE ASSESSEE FOR STATISTICAL PURPOSES . I.T.A. NOS.9155 & 8297/MUM/2010 ASSESSMENT YEAR:2000-2001 9 22. GROUND NO.6 OF APPEAL READS AS UNDER: 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED AO HAS ERRED IN DISALLOWING FEES PAID TO MA STER CARD INTERNATIONAL OF RS. 98,18,000 AND THE LEARNED CIT (A) ERRED IN S ETTING ASIDE THIS ISSUE TO THE LEARNED AO WITH A DIRECTION TO ALLOW AS PER LAW AFTER VERIFICATION OF TAXES PAID. THE LEARNED AO BE DIRECTED TO ALLOW DED UCTION OF RS 98,18,000 AND REDUCE THE TOTAL INCOME ACCORDINGLY. 23. WE HAVE HEARD LD REPRESENTATIVES OF PARTIES AND CONSIDERED THE ORDERS OF AUTHORITIES BELOW. ON PERUSAL OF ORDER OF LD CIT(A ), IT IS OBSERVED THAT ASSESSEE CLAIMED DEDUCTION IN REVISED RETURN OF INCOME FOR PAYMENT O F FEE TO MASTER CARD/VISA INTERNATIONAL AMOUNTING TO RS.45,25,000 AND RS.50,9 3,000 FOR ASSESSMENT YEARS 1996- 97 AND 1997-98, RESPECTIVELY WHICH WERE DISALLOWED BY INVOKING PROVISIONS OF SECTION 40(A)(I) OF THE ACT STATING THAT NO TAX WAS DEDUCTE D AT SOURCE WHILE MAKING THE PAYMENTS OUTSIDE INDIA. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT VISA INTERNATIONAL HAS PAID FULL TAX ON 15.7.1999, HENCE, THE ASSESSEE BANK IS ENTITLED TO CLAIM DEDUCTION, WHICH WAS DISALLOWED EARLIER, IN THE YEAR OF PAYMEN T OF TAXES. IT WAS CONTENDED THAT DEDUCTION OF RS.96,18,000 BE ALLOWED DURING THE ASS ESSMENT YEAR UNDER CONSIDERATION. ASSESSEE PLACED RELIANCE ON THE CBDT INSTRUCTION NO .F.NO.275/201/95-IT DT.29.1.1997, WHICH CLARIFIED THAT NO PAYMENT FOR TDS SHOULD BE E NFORCED AFTER THE TAX DEDUCTOR HAS SATISFIED THE OFFICER IN CHARGE OF TDS THAT TAXES H AVE BEEN PAID BY THE DEDUCTEE ASSESSEE. ASSESSEE ALSO STATED THAT AO HAS NOT DIS CUSSED THE SAID ISSUE IN THE ASSESSMENT ORDER. LD CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSESSEE IN PARA 35. HAS STATED THAT ASSESSEE BANK HAS PAID TO MASTER CA RD INTERNATIONAL WITHOUT DEDUCTING TAX. HENCE, AO IS JUSTIFIED IN DISALLOWING THE PAY MENTS. HOWEVER, LD CIT(A) HAS DIRECTED THE AO TO VERIFY THE CLAIM OF THE ASSESSEE REGARDING TAXES PAID IN THIS YEAR UNDER CONSIDERATION IN RESPECT OF EARLIER YEARS A ND ALLOW THEM AS PER LAW. LD A.R. DURING THE COURSE OF HEARING SUBMITTED THAT REQUISI TE DETAILS ARE PLACED AT PAGES 70-75 OF PB. THEREFORE, THERE IS NO QUESTION TO VERIFY A ND DEDUCTION SHOULD BE ALLOWED IN ASSESSMENT YEAR ITSELF. HOWEVER, LD D.R. SUBMITTED THAT THERE IS NO DISCUSSION ON THE ABOVE ISSUE IN THE ASSESSMENT ORDER BUT LD CIT(A) H AS GIVEN THE DIRECTION TO THE AO TO ALLOW THE CLAIM AS PER LAW ON VERIFICATION AND THER E SHOULD BE NO GRIEVANCE TO THE ASSESSEE ON IT. I.T.A. NOS.9155 & 8297/MUM/2010 ASSESSMENT YEAR:2000-2001 10 24. WE FIND SUBSTANCE IN THE SUBMISSION OF LD D.R. THAT LD CIT(A) HAS GIVEN DIRECTION TO THE AO TO ALLOW CLAIM OF THE ASSESSEE PER LAW AFTER VERIFICATION AND, THEREFORE, NO INTERFERENCE IS CALLED FOR. BEFORE WE PART WITH TH IS GROUND, WE OBSERVE THAT IN THE STATEMENT OF FACTS AND ALSO AT PAGE 75 OF PB, ASSES SEE HAS STATED THE TOTAL AMOUNT OF RS.96,18,000 BUT IN THE ORDER OF LD CIT(A) IN PARA 33 AND ALSO IN THE GROUND OF APPEAL TAKEN, THE AMOUNT MENTIONED IS RS.98,18,000. WE D IRECT THAT ASSESSEE WILL STATE THE CORRECT AMOUNT TO THE AO AT THE TIME WHEN AO GIVE E FFECT TO THIS ORDER. GROUND NO.6 OF APPEAL IS REJECTED SUBJECT TO ABOVE DIRECTION. 25. ASSESSEE HAS ALSO TAKEN ADDITIONAL GROUND AS UN DER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT BANK PRAYS THAT WHILE COMPUTING THE TOTAL INCOME, THE PROVISIONS OF MINIMUM ALTERNATE TAX (MAT) U/S.115JA BE NOT APPLIED TO THE BANK AND LD AO BE DIRECTED TO COMPUTE TOTAL INC OME AS PER THE NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961. 26. AT THE TIME OF HEARING, LD A.R. SUBMITTED THAT INCOME OF THE ASSESSEE BE ASSESSED AS PER NORMAL PROVISIONS IN STEAD OF COMPU TING THE TOTAL INCOME U/S.115JA OF THE ACT AS THE INCOME OF THE ASSESSEE WILL BE MORE UNDER THE NORMAL PROVISIONS THAN BOOK PROFIT AS PER SECTION 115JA AFTER GIVING EFFEC T TO THE ORDER OF LD CIT (A). LD D.R. SUBMITTED THAT ABOVE GROUND DOES NOT ARISE OUT OF O RDER OF LD CIT(A). HE SUBMITTED THAT AO WILL COMPUTE THE INCOME OF THE ASSESSEE AS PER LAW WHILE GIVING EFFECT TO THE ORDER OF LD CIT(A) AND IF ASSESSEE HAS ANY GRIEVANC E IN RESPECT OF SAID ORDER TO BE PASSED BY THE AO, ASSESSEE CAN FILE AN APPEAL AGAIN ST THAT ORDER. 27. WE AGREE WITH LD D.R. THAT ADDITIONAL GROUND TA KEN BY THE ASSESSEE DOES NOT ARISE OUT OF ORDER OF LD CIT(A). IF ASSESSEE HAS A NY GRIEVANCE IN RESPECT OF ORDER WHILE GIVING EFFECT TO THE ORDER OF LD CIT(A), ASSESSEE C AN AGITATE THE SAID ORDER AS PER LAW. HENCE, ADDITIONAL GROUND TAKEN BY ASSESSEE IS REJEC TED. 28. NOW WE TAKE UP APPEAL TAKEN BY THE DEPARTMENT B EING I.T.A. NO.9155/M/2010 ON THE FOLLOWING GROUNDS 1.THE ORDER OF THE CIT(A) IS OPPOSED AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, LD CIT(A) ERRED IN EXCLUDING THE PROFITS OF THE FOREIGN BRANC HES AMOUNTING TO RS.63.03 CRORE FROM THE TOTAL INCOME WITHOUT APPREC IATING THAT THE BANK I.T.A. NOS.9155 & 8297/MUM/2010 ASSESSMENT YEAR:2000-2001 11 IS A RESIDENT ASSESSEE AND UNDER THE PROVISIONS O F SECTION 5 OF THE I.T.ACT ALL THE INCOME INCLUDING INCOME FROM FOREIG N SOURCES ARE TO BE INCLUDED IN THE TOTAL INCOME CHARGEABLE TO TAX. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, LD CIT(A) ERRED IN EXCLUDING THE PROFITS OF THE BRANCHES AMOU NTING TO RS.63.03 CRORES FROM THE TOTAL INCOME WITHOUT APPRECIATING T HAT CREDIT FOR TAXES PAID IN FOREIGN COUNTRIES SHALL BE ALLOWED TO SET O FF AGAINST THE TAX CHARGEABLE ON TOTAL INCOME INCLUDING THE INCOME FRO M FOREIGN SOURCES WHICH WERE SUBJECTED TO TAX IN FOREIGN COUNTRIES. 29. AT THE TIME OF HEARING, LD REPRESENTATIVES OF P ARTIES CONCEDED THAT ABOVE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04(SUPRA) WHICH HAS BEEN DECID ED BY FOLLOWING THE EARLIER ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NO .1679/M/2001 DATED 27.3.2008 FOR ASSESSMENT YEAR 1997-98. WE OBSERVE THAT LD CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY FOLLOWING THE EARLIER ORDERS OF THE TRI BUNAL IN ASSESSEES OWN CASE THAT PROFITS OF THE FOREIGN BRANCHES HAS TO BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE. IN VIEW OF ABOVE, WE UPHOLD THE ORDER OF LD CIT(A) AND REJECT GROUNDS OF APPEAL TAKEN BY THE DEPARTMENT. 30. IN THE RESULT, APPEAL FILED BY ASSESSEE IS ALLO WED IN PART FOR STATISTICAL PURPOSES AND APPEAL FILED BY DEPARTMENT IS DISMISSED. 1 -2 % 1- 3, 45!6 ! 0 - 7 , - 89 / , #1 , - 89 ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH MAY 2013 . !0 , ./& #! ; <%2 8 TH MAY, 2013 / , = SD/- SD/- ( !' , /RAJENDRA ) ( . . /B.R.MITTAL) !# / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; <% DATED 08 / 05/2012 . % . ./ PARIDA , SR. PS !0 !0 !0 !0 , ,, , *-> *-> *-> *-> ?!>&- ?!>&- ?!>&- ?!>&- / COPY OF THE ORDER FORWARDED TO : I.T.A. NOS.9155 & 8297/MUM/2010 ASSESSMENT YEAR:2000-2001 12 1. ') / THE APPELLANT 2. *+') / THE RESPONDENT. 3. @ ( ) / THE CIT(A)- 4. @ / CIT 5. >A= *-% , , / DR, ITAT, MUMBAI 6. =B C / GUARD FILE. !0% / BY ORDER, +>- +>- +>- +>- *- *-*- *- //TRUE COPY// 8 (ASSTT. REGISTRAR) , / ITAT, MUMBAI