DBS BANK LTD, MUMBAI V. ADIT (IT) 1(2), MUMBAI

ITA 9067/MUM/2010

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0322 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 12-06-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 27-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALA
• Keywords: Business income; Rule of consistency; Permanent establishment; Bad and doubtful debts
• Section: 143(3); 234B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI RAVISH SOOD( JM) I.T.A. NO. 9067/MUM/2010 (ASSESSMENT YEAR 2006-07) DBS BANK LIMITED 3 RD FLOOR, FORT HOUSE 221, DR.D.N.ROAD FORT, MUMBAI-400001. PAN : AAACT46 52J VS. ACIT (INTERNATIONAL TAXATION)-1(2) SCIENDIA HOUSE N.M. MARG MUMBAI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI P.J. PARDIWALA & SHRI MADHUR AGARWAL DEPARTMENT BY S HRI SAMUEL DARSE DATE OF HEARING 12.2.2018 DATE OF PRONOUNCEMENT 12.2.2018 O R D E R PER B.R. BASKARAN (AM) :- THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 28.10.2010 PASSED BY THE ASSESSING OFFICER UNDER SE CTION 143(3) READ WITH SECTION 144C(13) OF THE ACT IN CONFORMITY WITH THE DIRECTIONS ISSUED BY THE LEARNED DISPUTE RESOLUTION PANEL (DRP). 2. THE ASSESSEE IS A NON-RESIDENT BANKING COMPANY R EGISTERED IN SINGAPORE AND IS OPERATING IN INDIA THROUGH ITS BRANCHES LOCA TED IN MUMBAI AND NEW DELHI. THE BRANCHES CONSTITUTE PE OF THE ASSESSEE. THE BRANCHES OF THE ASSESSEE ARE ENGAGED IN BANKING ACTIVITY WHICH INCL UDES CORPORATE AND INSTITUTIONAL BANKING, TRADE FINANCE, TRANSACTIONAL AND TREASURY SOLUTIONS. 3. FIRST ISSUE RELATES TO DISALLOWANCE OF INTEREST PAID BY THE BRANCHES TO THE HEAD OFFICE/OVERSEAS BRANCHES. THE ASSESSING OFFICE R NOTICED THAT THE ASSESSEE HAS PAID A SUM OF RS. 99.31 LAKHS AS INTEREST ON FU NDS GIVEN BY THE HEAD OFFICE. THE ASSESSING OFFICER PROPOSED TO DISALLOW THE SAME BY INVOKING PROVISIONS OF SECTION 40(A)(I) OF THE ACT. THE ASSE SSEE CONTENDED THAT IT HAS DEDUCTED TAX AT SOURCE ON SUCH PAYMENTS AND ALSO CO NTENDED THAT INTEREST DBS BANK LIMITED 2 PAID BY THE PE (BRANCHES) TO ITS HEAD OFFICE IS NOT IN THE NATURE OF INCOME IN THE HANDS OF THE HEAD OFFICE AS INTEREST PAYMENT WA S MADE TO SELF. THE ASSESSING OFFICER DID NOT ACCEPT THE SAME AND ACCOR DINGLY DISALLOWED THE INTEREST EXPENSES OF RS. 99.31 LAKHS. THE LEARNED DRP ALSO CONFIRMED THE SAME BY FOLLOWING THE DECISION RENDERED BY KOLKATA SPECIAL BENCH IN THE CASE OF ABN AMRO BANK. 4. THE LEARNED AR SUBMITTED THAT AN IDENTICAL ISSUE CAME TO BE CONSIDERED BY THE COORDINATE BENCHES IN ASSESSEES OWN CASE IN A.Y. 2003-04 (ITA NO. 248/MUM/2007 DATED 7.10.2013) AND ALSO IN A.Y. 2005 -06 (ITA NO. 8671/MUM/2010 DATED 3.3.2017). THE LEARNED AR SUBMI TTED THAT THE COORDINATE BENCHES HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING DECISION RENDERED BY THE SPECIAL BENCH IN THE CASE OF SUMITOMO MITSUI BANKING CORPORATION (2012)(SB)(136 ITD 66)(M UM). 5. WE HAVE HEARD LEARNED DEPARTMENTAL REPRESENTATIV E AND PERUSED THE RECORD. WE NOTICED THAT THE TRIBUNAL HAS ADJUDICATE D AN IDENTICAL ISSUE IN ASSESSEES OWN CASE IN A.Y. 2005-06 BY FOLLOWING TH E DECISION RENDERED IN A.Y. 2003-04. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BE LOW DECISION RENDERED BY THE TRIBUNAL IN A.Y. 2005-06 :- 4. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE P ARTIES AND SEEN THAT SIMILAR DISALLOWANCE WAS MADE IN ASSESSMENT YEAR AN D THE ASSESSEE BANK FILED APPEAL BEFORE THE TRIBUNAL VIDE ORDER DA TED IN ITA NO. 248/M/2007 PASSED THE FOLLOWING ORDER: 2.3 WE HAVE PERUSED THE RECORD AND CONSIDERED THE M ATTER CAREFULLY. THE DISPUTE IS REGARDING DEDUCTION ON AC COUNT OF INTEREST PAID BY THE ASSESSEE, BEING AN INDIAN BRANCH TO THE HEAD OFFICE OF THE BANK. WE FIND THAT THE SAME ISSUE HAD BEEN CONS IDERED BY THE LARGER SPECIAL BENCH OF TRIBUNAL IN CASE OF SUMITOM O MITSUI BANKING CORPORATION VERSUS DCIT(136 ITD 66) AND THE SPECIAL BENCH IN THAT CASE HELD THAT UNDER THE DOMESTIC LAW THE INTEREST PAID BY THE INDIAN BRANCH TO THE HEAD OFFICE WAS NOT ALLOWABLE AS DEDUCTION AS THIS WAS PAYMENT TO SELF. FURTHER IT WAS ALSO HELD THAT THE INTEREST PAYMENT WAS ALLOWABLE AS DEDUCTION WHILE DETERMININ G THE PROFIT ATTRIBUTABLE TO THE PE BEING THE INDIAN BRANCH UNDE R THE PROVISIONS OF ARTICLE 7(2) AND 7(3) OF INDO JAPANESE TREATY RE AD WITH PARAGRAPH DBS BANK LIMITED 3 8 OF THE PROTOCOL. THE SPECIAL BENCH ALSO HELD THAT THE SAID INTEREST CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE BANK I N INDIA UNDER THE DOMESTIC LAW AS IT WAS PAYMENT TO SELF. THERE W AS NO EXPRESS PROVISION IN THE RELEVANT TAX TREATY WHICH WAS CONT RARY TO THE DOMESTIC LAW. THEREFORE, INTEREST PAYMENT WAS NOT T AXABLE IN THE HANDS OF THE BANK AND THUS THERE WAS NO QUESTION OF ANY TAX DEDUCTED AT SOURCE. THE ISSUE IS THUS COVERED IN FA VOUR OF THE ASSESSEE AND WE ACCORDINGLY SET ASIDE THE ORDER OF CIT(A) AND ALLOW THE CLAIM OF EXPENDITURE ON ACCOUNT OF INTERE ST. 5. CONSIDERING THE DECISION OF COORDINATE BENCH IN ASSESSEE S OWN CASE WE FIND THAT THE GROUNDS OF APPEAL RAISED BY ASSESS EE IS FULLY COVERED IN FAVOUR OF THE ASSESSEE, THUS RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL THE GROUND NO.1 OF APPEAL IS ALLOWED. 6. CONSISTENT WITH THE VIEW TAKEN IN EARLIER YEARS, WE HOLD THAT THE IMPUGNED DISALLOWANCE IS NOT WARRANTED IN TERMS OF THE DECISION RENDERED BY THE SPECIAL BENCH IN THE CASE OF SUMITOMO MITSUI BA NKING CORPORATION (SUPRA). ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE AO ON THIS ISSUE AND DIRECT HIM TO DELETE THE DISALLOWANCE. 7. GROUND NO. 2 RELATES TO DISALLOWANCE OF RS. 62.83 LAKHS RELATING TO LOSS ON REVALUATION OF UNMATURED FORWARD FOREIGN EXCHANG E CONTRACTS AS ON 31.3.2006. 8. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED LOSS OF RS. 62.83 LAKHS RELATING TO LOSS ON REVALUATION OF OUTS TANDING FORWARD FOREIGN EXCHANGE CONTRACTS AS ON 31.3.2006. WHEN QUESTIONED , THE ASSESSEE SUBMITTED THAT IT HAS BEEN CONSISTENTLY FOLLOWING P OLICY OF REVALUING OUTSTANDING CONTRACTS AND ACCORDINGLY OFFERING PROF IT ON REVALUATION TO TAX AND CLAIMING LOSS ON SUCH REVALUATION AS DEDUCTION. THE ASSESSING OFFICER DID NOT ACCEPT THE SAME AND HE DISALLOWED THE SAME BY FOLLO WING DECISION RENDERED BY HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. IN DIAN OVERSEAS BANK (183 ITR 200). BEFORE LEARNED DRP THE ASSESSEE SUBMITTED THAT AN IDENTICAL DISALLOWANCE MADE IN EARLIER YEARS HAVE BEEN DECIDE D IN FAVOUR OF THE ASSESSEE BY THE ITAT FOLLOWING THE DECISION RENDERED IN THE CASE OF BANK OF BAHRAIN & KUWAIT. LEARNED DRP NOTICED THAT THE DECISION OF IT AT RENDERED IN THE CASE OF DBS BANK LIMITED 4 BANK OF BAHRAIN & KUWAIT HAS NOT BEEN ACCEPTED AND CHALLENGED BY FILING THE APPEAL BEFORE THE HIGH COURT. ACCORDINGLY, LEARNED DRP APPROVED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 9. THE LEARNED AR SUBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE COORDINATE BENCHES IN ASSESSEES OWN CASE IN A.Y. 2 003-04 AND 2005-06 AND DISALLOWANCE HAS BEEN DELETED BY THE TRIBUNAL. 10. WE HEARD LEARNED DEPARTMENTAL REPRESENTATIVE AN D PERUSED THE RECORD. WE NOTICED THAT THE TRIBUNAL HAS ALLOWED AN IDENTIC AL CLAIM MADE BY THE ASSESSEE IN A.Y. 2003-04 & 2005-06 BY FOLLOWING THE DECISION RENDERED BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WOODWA RD GOVERNOR INDIA PVT. LTD. (312 ITR 224). FOR THE SAKE OF CONVENIENCE WE EXTRACT BELOW THE ORDER PASSED FOR A.Y. 2005-06 :- 15. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PARTIES. WE HAVE SEEN THAT IN ASSESSMENT YEAR, THE ASSESSING OFFICER NOT ALLOWED THE SIMILAR RELIEF TO THE ASSESSEE; HOWEVER ON APPEAL BEFORE CO MMISSIONER (APPEALS) THE RELIEF WAS GRANTED. AGGRIEVED BY THE ORDER OF C OMMISSIONER (APPEALS) THE REVENUE FILED APPEAL BEFORE THE TRIBUNAL. IN AP PEAL BEFORE TRIBUNAL THE ORDER OF COMMISSIONER (APPEALS) WAS SUSTAINED BY OR DER DATED 7 OCTOBER 2013IN ITANO.248/M/2007. THE TRIBUNAL PASSED THE FO LLOWING ORDER: 4.2 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE REC ORDS AND CONSIDERED MATTER CAREFULLY. THE DISPUTE IS REGARDI NG ALLOWABILITY OF LOSS ON ACCOUNT OF REVALUATION OF FOREIGN EXCHANGE CONTRACTS WHICH HAD NOT MATURED DURING THE YEAR ON THE BALANCE-SHEE T DATE. THE AO HAD DISALLOWED THE LOSS AS CONTINGENT IN NATURE AS CONTRACT HAD NOT MATURED AND ALSO HELD THAT IT WAS NOTIONAL. CIT(A ) HAS ALLOWED THE CLAIM FOLLOWING SOME DECISION OF TRIBUNAL. WE FIND THE ISSUE IS COVERED BY THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF CIT VERSUS WOODWARD GOVERNOR INDIA PRIVATE LIMITED (312 ITR 224) IN WHICH IT HAS BEEN HELD THAT ADJUSTMENTS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION CAN BE MADE ON EACH BALANCE-SH EET IN RESPECT OF ANY FORWARD FOREIGN EXCHANGE CONTRACT PENDING AC TUAL PAYMENT AND ANY LOSS ARISING THEREFROM HAS TO BE ALLOWED AS AN ITEM OF EXPENDITURE UNDER SECTION 37(1). WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF CIT(A) IN ALLOWING THE CLAIM OF LOSS O F THE ASSESSEE. THE ORDER OF CIT(A) IS, THEREFORE, UPHELD ON THIS ISSUE . DBS BANK LIMITED 5 16. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSE E S OWN CASE FOR AY AND KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY TH E GROUND NO.6 OF ASSESSEE S APPEAL IS ALLOWED AND THE GROUND NO.1&2 RAISED IN REVENUE S APPEAL IS DISMISSED. 11. CONSISTENT WITH THE VIEW TAKEN IN EARLIER YEARS BY THE TRIBUNAL, WE SET ASIDE THE ORDER PASSED BY THE LEARNED CIT(A) ON THI S ISSUE AND DIRECT HIM TO DELETE THIS DISALLOWANCE. 12. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATE S TO ASSESSMENT OF INTEREST INCOME OF RS. 574.20 LAKHS EARNED BY THE G OVERNMENT OF INDIA BONDS BY THE ASSESSEE IN ITS STATUS AS FII THE AO ASS ESSED THE ABOVE SAID INTEREST INCOME AS PART OF BUSINESS INCOME OF THE ASSESSEE A ND ACCORDINGLY APPLIED HIGHER RATE OF TAX AT 41.82%. 13. THE LEARNED AR SUBMITTED THAT THE HEAD OFFICE O F THE ASSESSEE WAS REGISTERED AS A FII AND HAS ACCORDINGLY INVESTED IN INDIAN MARKET IN SHARES AND BONDS BY BRINGING FUNDS FROM ABROAD. HE SUBMIT TED THAT THE PE OF THE ASSESSEE (BRANCHES IN INDIA) HAS NO CONNECTION WITH THE ABOVE SAID ACTIVITIES OF THE HEAD OFFICE (FII). THE HEAD OFFICE OF THE ASSE SSEE HAS EARNED DIVIDEND INCOME, CAPITAL GAINS AND INTEREST ON BONDS FROM IN VESTMENTS SO MADE BY IT. THE ASSESSING OFFICER HAS ACCEPTED THAT THE DIVIDEN D INCOME IS EXEMPT. HE NOTICED THAT THE CAPITAL GAIN WAS BROUGHT TO TAX IN EARLIER YEAR AND ACCORDINGLY THE ASSESSING OFFICER ASSESSED SHORT TERM CAPITAL G AIN OF RS. 804.64 LAKHS EARNED BY THE ASSESSEE AND ALSO ASSESSED INTEREST I NCOME OF RS. 574.20 LAKHS EARNED BY THE ASSESSEE ON GOVERNMENT OF INDIA BONDS . THE ASSESSING OFFICER HOWEVER APPLIED HIGHER TAX RATE OF 41.82% BY TREATI NG THE ABOVE RECEIPTS AS BUSINESS INCOME OF THE ASSESSEE. THE LEARNED DRP HA S, HOWEVER, DIRECTED THE ASSESSING OFFICER TO EXCLUDE SHORT TERM CAPITAL GAI NS EARNED BY THE ASSESSEE AS FII, AS IT IS NOT ASSESSABLE IN THE HANDS OF THE PR ESENT ASSESSEE IN TERMS OF ARTICLE 13 OF INDO-SINGAPORE TREATY. IN RESPECT OF INTEREST INCOME, EVEN THOUGH LEARNED DRP OBSERVED THAT THE INDIAN BRANCHES OF TH E ASSESSEE WERE NOT THE CUSTODIAN OF GOVERNMENT BONDS AND THEY WERE DIRECTL Y HELD BY THE FII, YET LEARNED DRP TOOK THE VIEW THAT THE INTEREST INCOME FORMS A PART OF RECEIPTS OF DBS BANK LIMITED 6 PE (BRANCHES) AND ACCORDINGLY HELD THAT IT IS CONNE CTED TO PE. ACCORDINGLY, THE LEARNED DRP HELD THAT INTEREST INCOME IS ASSESSABLE AS BUSINESS PROFIT UNDER ARTICLE 7 AND ACCORDINGLY UPHELD THE ORDER OF THE A SSESSING OFFICER IN APPLYING TAX RATE APPLICABLE TO THE BUSINESS INCOME. 14. THE LEARNED AR SUBMITTED THAT LEARNED DRP HAS A CCEPTED THE FACT THAT HEAD OFFICE OF THE ASSESSEE HAS HELD THE GOI BONDS AND THEY WERE NOT HELD BY THE BRANCHES. SINCE THE HEAD OFFICE OF THE ASSESSE E HAS BEEN REGISTERED AS FII AND INVESTMENTS HAVE BEEN MADE DIRECTLY BY THE HEAD OFFICE IN INDIAN MARKET BY BRINGING FUNDS FROM ABROAD, THE LEARNED AR CONTE NDED THAT THE INTEREST INCOME IS NOT ATTRIBUTABLE TO PE (BRANCHES) OF THE ASSESSEE. ACCORDINGLY HE SUBMITTED THAT THE LEARNED DRP WAS NOT CORRECT IN L AW IN HOLDING THAT INTEREST INCOME FORMS PART OF RECEIPTS OF PE. THE LEARNED A R INVITED OUR ATTENTION TO PARAGRAPH 67 OF THE ORDER PASSED BY THE SPECIAL BEN CH IN THE CASE OF SUMITOMO MITSUI BANKING CORPORATION (SUPRA), WHEREI N IT WAS HELD THAT CONCERNED ASSET SHOULD FORM PART OF THE ASSETS OF THE PERMANENT ESTABLISHMENT. THE LEARNED AR ALSO PLACED RELIANC E ON THE DECISION RENDERED BY DELHI SPECIAL BENCH IN THE CASE OF ACIT VS. CLOU GH ENGINEERING LTD. (2011) 130 ITR 137, WHEREIN IT WAS HELD THAT THE INCOME SH OULD BE CONNECTED WITH THE PE EITHER ON THE BASIS OF ASSET TEST OR ACTI VITY TEST. IN THE ABOVE SAID CASE, THE ISSUE DECIDED BY THE SPECIAL BENCH RELATE D TO TAXABILITY OF INTEREST RECEIVED FROM INCOME-TAX REFUND AND THE SPECIAL BEN CH HAS HELD THAT INTEREST ON INCOME TAX REFUND IS NOT EFFECTIVELY CONNECTED W ITH THE PE EITHER ON THE BASIS OF ASSET TEST OR ON THE BASIS OF ACTIVITY TEST. 15. HE FURTHER SUBMITTED THAT THE GOVERNMENT OF INDIA BONDS IS NOT ASSETS OF PERMANENT ESTABLISHMENT AND HENCE IT FAILS TO S ATISFY ASSET TEST REQUIRED FOR LINKING INCOME TO THE PERMANENT ESTABLISHMENT. HE ALSO SUBMITTED THAT THE PE (BRANCHES) PLAYED NO ROLE IN CONNECTION WITH GOI BONDS INVESTMENTS AND HENCE THE ACTIVITY TEST ALSO FAILS. ACCORDING LY, BY DRAWING SUPPORT FROM THE AFORESAID DECISIONS, THE LEARNED AR SUBMITTED T HAT INTEREST EARNED BY THE HEAD OFFICE OF THE ASSESSEE AS FII IS NOT EFFECTIVE LY CONNECTED TO THE PE OF THE DBS BANK LIMITED 7 ASSESSEE EITHER ON THE ASSET TEST OR ACTIVITY TEST AND ACCORDINGLY CONTENDED THAT THE INTEREST INCOME HAS TO BE ASSESSED UNDER ARTICL E 11 OF INDO-SINGAPORE TREATY AND NOT AS BUSINESS INCOME. 16. WE HEARD LEARNED DEPARTMENTAL REPRESENTATIVE AN D PERUSED THE RECORD. WE NOTICED THAT INVESTMENTS HAVE BEEN MADE BY THE H EAD OFFICE OF THE ASSESSEE IN ITS CATEGORY AS FII BY BRINGING FUNDS FROM ABR OAD. IT IS ALSO NOT IN DISPUTE THAT THESE INVESTMENTS DO NOT FORM PART OF ASSETS O F THE PE. IT IS ALSO NOT ON RECORD THAT THE PE WAS ENGAGED IN THE INVESTMENT AC TIVITIES OF FII. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE ASSET TES T/ACTIVITY TEST EXPLAINED BY THE DELHI SPECIAL BENCH IN THE CASE OF CLOUGH ENGINEERI NG LTD. (SUPRA) DOES NOT GET SATISFIED IN THE INSTANT CASE. ACCORDINGLY, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ASSESSING TH E INCOME AS BUSINESS INCOME OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE ORDE R PASSED BY THE ASSESSING OFFICER ON THIS ISSUE AND DIRECT HIM TO ASSESS THE INTEREST INCOME FROM GOVERNMENT BONDS UNDER ARTICLE 11 OF INDO-SINGAPORE TREATY. 17. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATE S TO NET LOSS ON EXCHANGE TRANSACTIONS OF RS. 1073.93 LAKHS. THE ASSESSEE HAS ALSO RAISED AN ADDITIONAL GROUND AS AN ALTERNATIVE CONTENTION ON THIS ISSUE, WHEREIN IT IS STATED THAT A SUM OF RS. 62,83,946/- WHICH HAS ALREADY BEEN DISAL LOWED BY THE AO IS ALSO INCLUDED IN THE ABOVE SAID FIGURE OF RS.1073.93 LAK HS AND HENCE THE SAME RESULTS IN DOUBLE DISALLOWANCE. 18. THE ASSESSEE CLAIMED A SUM OF RS.1073.93 LA KHS AS NET LOSS ON EXCHANGE TRANSACTIONS. THE AO ASKED FOR DETAILS OF THE SAME, WHICH THE ASSESSEE DID NOT FURNISH. THE ASSESSEE ALSO DID NO T EXPLAIN AS TO WHETHER THESE LOSSES PERTAINED TO DERIVATIVES OR INVESTMENT S. THE AO NOTICED THAT THE ASSESSEE HAS REPORTED ONLY GAINS ARISING IN EXCHANG E TRANSACTIONS TO THE TPO. HENCE THE AO TOOK THE VIEW THAT THE LOSS CLAIMED BY THE ASSESSEE IN EXCHANGE TRANSACTIONS IS CONTINGENT IN NATURE AND HENCE NOT ALLOWABLE. IN VIEW OF THE ABOVE AND ALSO FOR THE REASON THAT THE ASSESSEE DID NOT FURNISH DOCUMENTARY DBS BANK LIMITED 8 EVIDENCES, THE AO DISALLOWED THE CLAIM OF RS.1073.9 0 LAKHS REFERRED ABOVE. THE LD DRP DIRECTED THE AO TO ALLOW THE CLAIM BY FO LLOWING THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF WO ODWARD GOVERNOR. HOWEVER, THE AO SUSTAINED THE DISALLOWANCE. 19. WE HEARD THE PARTIES ON THIS ISSUE. THE LD A.R SUBMITTED THAT ABOVE SAID FIGURE OF RS.1073.90 LAKHS INCLUDED THE AMOUNT OF RS.62.83 LAKHS RELATING TO PROVISION CREATED FOR LOSS ARISING ON REVALUATIO N OF OUTSTANDING FOREIGN EXCHANGE CONTRACTS AS ON 31.3.2006. HE SUBMITTED T HAT THE AO HAS SEPARATELY DISALLOWED THE CLAIM OF RS.62.84 LAKHS AND HENCE TH E DISALLOWANCE OF ENTIRE AMOUNT OF RS.1073.90 LAKHS RESULTS IN DOUBLE DISALL OWANCE TO THE EXTENT OF RS.62.84 LAKHS. THE LD A.R FURTHER SUBMITTED THAT THE ASSESSEE HAS BOOKED ACTUAL LOSS ARISING IN FOREIGN EXCHANGE TRANSACTION S AND HENCE IT CANNOT BE CONSIDERED AS CONTINGENT IN NATURE. HE SUBMITTED T HAT THE LOSS WAS INCURRED DURING THE COURSE OF CARRYING ON BUSINESS AND ACCOR DINGLY HE SUBMITTED THAT THE SAME IS ALLOWABLE AS DEDUCTION. 20. WHEN A SPECIFIC QUERY WAS PUT TO LD A.R AS T O WHETHER THE ASSESSEE COULD FURNISH BREAK-UP DETAILS OF LOSS, HE SUBMITTE D THAT THE ASSESSEE MAY NOT BE IN A POSITION TO COLLATE THE DETAILS DUE TO PASS AGE OF TIME. 21. WE NOTICE THAT THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS OF LOSS ARISING FROM EXCHANGE TRANSACTIONS BEFORE THE AO, D RP AND ALSO BEFORE US. THERE SHOULD NOT BE ANY DOUBT THAT THE INITIAL ONUS TO SUBSTANTIATE THE CLAIM IS PLACED UPON THE ASSESSEE. THE LD A.R SUBMITTED THAT THE IMPUGNED LOSS IS ACTUAL LOSS INCURRED IN EXCHANGE TRANSACTIONS DURIN G THE COURSE OF CARRYING ON BUSINESS OF THE ASSESSEE. THE LD A.R MAY BE RIGHT IN HIS SUBMISSIONS, BUT IT IS THE PREROGATIVE OF THE TAX AUTHORITIES TO EXAMINE T HE SUBMISSIONS AND CLAIM AND TO TAKE A DECISION THEREON. IT MAY BE POSSIBLE THAT THE ABOVE SAID LOSS MAY INCLUDE LOSS PERTAINING TO CAPITAL TRANSACTIONS , WHICH COULD NOT ALLOWED AS DEDUCTION. THE LD A.R ALSO SUBMITTED THAT DUE TO P ASSAGE OF TIME OF ABOUT 10 YEARS, IT MAY BE DIFFICULT FOR THE ASSESSEE TO COLL ATE THE DETAILS RELATING TO LOSS. DBS BANK LIMITED 9 THERE IS MERIT IN THIS SUBMISSION ALSO. SINCE THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS AND SINCE CONSIDERABLE TIME HAS ALREADY ELAPSED, IN OUR VIEW, THIS ISSUE MAY BE PUT TO REST BY MAKING ADHOC DISALLOWAN CE IN ORDER TO TAKE CARE OF REVENUE LEAKAGES, IF ANY. THE ASSESSEE HAS SUBMITT ED THAT THE CLAIM OF RS.1073.90 LAKHS INCLUDED THE LOSS ON REVALUATION O F FOREIGN EXCHANGE CONTRACT OF RS.62.84 LAKHS. HENCE THE NET AMOUNT OF LOSS CL AIMED BY THE ASSESSEE IS RS.1011.06 LAKHS. IN OUR VIEW, A DISALLOWANCE OF 2 0% OF RS.1011.06 LAKHS WOULD PUT THIS ISSUE TO REST. ACCORDINGLY, WE MODI FY THE ORDER PASSED BY THE AO ON THIS ISSUE AND DIRECT HIM TO RESTRICT THE DIS ALLOWANCE TO 20% OF RS.1011.06 LAKHS AND THE SAME, IN OUR VIEW, WOULD M EET THE ENDS OF JUSTICE. WE ORDER ACCORDINGLY. 22. THE NEXT ISSUE URGED BY THE ASSESSEE RELATES TO THE CLAIM OF RS.151.65 LAKHS RELATING TO PROVISION FOR BAD AND DOUBTFUL DE BTS. THE ASSESSEE CREATED A PROVISION OF RS. 216.67 LAKHS ON STANDARD ASSETS AS PER THE REQUIREMENTS OF RBI CIRCULARS. HOWEVER, THE ASSESSEE CLAIMED A SUM OF RS.151.65 LAKHS ONLY AS PER PROVISIONS OF SEC. 36(1)(VIIA)(B) OF THE ACT . THE AO, HOWEVER, HELD THAT THE PROVISION FOR BAD DEBTS IS NOT ALLOWABLE AS DED UCTION U/S 37 OF THE ACT AND ACCORDINGLY DISALLOWED THE CLAIM. THE LD DRP ALSO CONFIRMED THE SAME. 23. WE HEARD THE PARTIES ON THIS ISSUE AND PERUS ED THE RECORD. WE NOTICE THAT SEC.36(1)(VIIA)(B) ALLOWS DEDUCTION OF PROVIS ION FOR BAD AND DOUBTFUL DEBTS CREATED BY THE ASSESSEE. THE SAID PROVISION READS AS UNDER:- 36(1)(VIIA) IN RESPECT OF ANY PROVISION FOR BAD A ND DOUBTFUL DEBTS MADE BY---- (A) . (B) A BANK, BEING A BANK INCORPORATED BY OR UNDER T HE LAWS OF COUNTRY OUTSIDE INDIA, AN AMOUNT NOT EXCEEDING F IVE PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING AN Y DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI-A). WE NOTICE THAT THE AO AND LD DRP HAVE FAILED TO EXA MINE THE CLAIM OF THE ASSESSEE IN TERMS OF PROVISIONS OF SEC. 36(1)(VIIA) (B) OF THE ACT. THE LD A.R SUBMITTED THAT THE ASSESSEE HAD MADE HIGHER PROVISI ON OF RS.216.67 LAKHS, DBS BANK LIMITED 10 SINCE THE ELIGIBLE AMOUNT PRESCRIBED UNDER ABOVE SE CTION WOULD DEPEND UPON THE TOTAL INCOME DETERMINED. ACCORDINGLY HE PRAYED THAT THIS MATTER MAY BE RESTORED TO THE FILE OF THE AO WITH THE DIRECTION T O COMPUTE ELIGIBLE AMOUNT OF DEDUCTION AS PER THE PROVISIONS OF SEC. 36(1)(VIIA) (B) SUBJECT TO A MAXIMUM AMOUNT OF RS.216.67 LAKHS, BEING THE AMOUNT OF PROV ISION CREATED BY THE ASSESSEE. 24. WE FIND MERIT IN THE SUBMISSIONS OF LD A.R. ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE CLAIM OF THE ASSESSEE IN TERMS OF SEC. 36(1)(VIIA)(B) OF THE ACT AND ALLOW ELIGIBLE AMOUNT SUBJECT TO A MAXIMUM AMOUNT OF RS.216.67 LAKHS, BEI NG THE AMOUNT OF PROVISION ACTUALLY CREATED BY THE ASSESSEE DURING T HE YEAR UNDER CONSIDERATION. 25. THE NEXT ISSUE CONTESTED BY THE ASSESSEE PE RTAINS TO THE CLAIM OF SET OFF OF BROUGHT FORWARD LOSS. SINCE THE ASSESSMENT ORDE RS PASSED FOR EARLIER YEARS HAVE BEEN CHALLENGED BY THE ASSESSEE/REVENUE BEFORE APPELLATE AUTHORITIES, THE ELIGIBLE AMOUNT OF BROUGHT FORWARD LOSS WOULD UNDER GO CHANGE. HENCE THE ASSESSEE HAS TAKEN THIS GROUND BEFORE US. WE SET A SIDE THIS ISSUE ALSO TO THE FILE OF THE AO WITH THE DIRECTION TO ALLOW THE ELIG IBLE AMOUNT OF BROUGHT FORWARD LOSS THAT IS COMPUTED AFTER GIVING EFFECT TO THE OR DERS OF APPELLATE AUTHORITIES. 26. THE NEXT GROUND RELATES TO THE INTEREST CHA RGED U/S 234B OF THE ACT. CHARGING OF INTEREST IS CONSEQUENTIAL IN NATURE AND HENCE THIS GROUND DOES NOT REQUIRE ADJUDICATION. DBS BANK LIMITED 11 27. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER HAS BEEN PRONOUNCED IN THE COURT ON 12.2.20 18. SD/- SD/- (RAVISH SOOD) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 12/2/2018 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI