Income Tax Appellate Tribunal - Mumbai
Oman International Bank S.A.O.G., ... vs Assessee on 26 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI ' L ' BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI RAJENDRA SINGH, AM & SHRI VIJAY PAL RAO, JM
ITA No 335/Mum/2004. (Asst Year 1998-99)
ITA No 336/Mum/2004. (Asst Year 19999-00)
ITA No 2762/Mum/2006. (Asst Year 2002-03)
ITA No 1785/Mum/2008. (Asst Year 2003-04)
CROSS OBJECTION No.86/Mum/2004(AY 1998-99)
(Arising in ITA N.581/M/04)
&
CROSS OBJECTION NO.87/Mum/2004(Assessment Year 1999-00)
(Arising out of ITA No.582/M/2004)
M/s Oman International Bank SAOG Vs The Jt Director of Income Tax
201 Raheja Centre (International Taxation)
Free Press Journal Marg Special Range 27, Mumbai
Nariman Point
Mumbai 400 021
(Appellant/Cross Objector ) (Respondent )
ITA No 581/Mum/2004. (Asst Year 1998-99)
ITA No 582/Mum/2004. (Asst Year 19999-00)
ITA No 2872/Mum/2006. (Asst Year 2002-03)
ITA No1608/Mum/2008. (Asst Year 2003-04)
The Jt Director of Income Tax Vs M/s Oman International Bank SAOG
(International Taxation) 201 Raheja Centre
Special Range 27, Mumbai Free Press Journal Marg
Nariman Point
Mumbai 400 021
(Appellant ) (Respondent )
PAN No. AAACO0440M
Assessee by Shri Niraj Sheth
Revenue by Sh Mahesh Kumar
Dt.of hearing 11th March 2013
Dt of pronouncement 22nd MAR 2013
ORDER
PER BENCH:
These four sets of cross appeals and two cross objections by the assessee are directed against the separate orders of the Commissioner of Income Tax(Appeals) for the AYs 1998-99, 99-00, 2002-03 and 2003-04 respectively.2
Oman International Bank SAOG .
2 Some of the grounds raised by the assessee are common in all the appeals; therefore, the grounds raised in the Assessment Year 2003-04, which covers the common grounds raised by the assessee in other appeals, are as under:
The Commissioner of Income-tax (Appeals)-XXXIII, Mumbai [hereinafter referred to as the CIT(A)] erred in upholding the action of the Assistant Director of Income-tax (International Taxation)-3(2), Mumbai (ADIT) in considering interest of Rs.2,24,09,344 received from Head Office as forming part of the taxable income.
2. The CIT(A) erred in upholding the action of the AO in bringing to tax year end provision of Rs. 6,37,899 made for expenses which subsequently turned out to be in excess.
3. Without prejudice to the contention that broken period interest paid on purchase of securities should be allowed as a deduction in the year of purchase of securities, in the event of any authority reversing the decision of the Commissioner of Income-tax ( Appeals) / Tribunal in the earlier year i.e. assessment year 2002-03 that the broken period interest paid to the sellers at the time of purchase of securities is allowable as revenue expenditure in that year, then the AO be directed to allow deduction for the broken period interest disallowed in assessment year 2002-03 in respect of securities sold during the previous year relevant to the assessment year 2003-04.
4. In the event of any authority reversing the decision of the Income- tax Appellant Tribunal for the assessment year 1995-96 that the claim of bad debts written off of Rs. 21.75 lacs, in respect of Biogenics ( I ) Ltd. is allowed as a deduction in the assessment year 1995-96 (being the assessment year relevant to the previous year in which such debts were written off), then the AO be directed to allow deduction for the same in the assessment year 2003- 04 as the appellants have not recovered any amount till date.
5. The CIT(A) ought to have directed the Assessing Officer to grant interest upto the date of receipt of refund order.
2.1 The revenue has raised the following grounds in the respective appeals.
For the Assessment Year 1998-99:
i) On the facts and in the circumstances of the case and in law, the ld Commissioner of Income Tax(Appeals) failed to appreciate that the specific expenses of ` 19,08,922/- incurred by the HO on behalf of the Indian Branch are not within the purview of section 44C of the Act.
ii) On the facts and in the circumstances of the case and in law, the ld Commissioner of Income Tax(Appeals) erred in holding the amount of ` 73,21,896/- on account of swap cost on un-matured contracts as on 31.3.1998 3 Oman International Bank SAOG .
as not contingent liability and allowed a deduction as expenditure pertaining to the Assessment Year 1998-99."
For the Assessment Year 1999-00:
"On the facts and in the circumstances of the case and in law, the ld Commissioner of Income Tax(Appeals) failed to appreciate that the specific expenses of ` 31,86,209/- incurred by the HO on behalf of the Indian Branch are not within the purview of section44C of the Act."
For the Assessment Year 2002-03:
"I On the facts and circumstances of the case and in law the ld Commissioner of Income Tax(Appeals) has erred in directing the Assessing Officer to allow deduction of `. 18,45,898/- u/s 37(1) of the I T act over and above the allowance made u/s 44C of the act.
Ii On the facts and circumstances of the case and in law, the dl Commissioner of Income Tax(Appeals) ) has erred in directing the Assessing Officer to delete the disallowance of ` 13,16,602/- on the ground that the provisions of sec 40(a)(i) are not applicable."
For the Assessment Year 2003-04:
i. On the facts and in the circumstances of the case and in law, the ld Commissioner of Income Tax(Appeals) erred in directing the Assessing Officer to allow assessee's claim for deduction u/s 37 of the act of `. 21,63,436/- representing travelling expenses of HO personnel to India and Certificate fees paid to Auditors.
Ii On the facts and in the circumstances of the case and in law, the ld Commissioner of Income Tax(Appeals) erred in deleting the disallowance of transaction charges of `. 14,13,006/- made on Nostro account u/s 40(a)(i) of the I T Act.
Iii The appellate prays that the order of the ld Commissioner of Income Tax(Appeals) on the above grounds be set aside and the order of the Assessing Officer be restored."
2.2 The revenue has also raised common additional ground in all the appeals vide application dated 26.2.2013 as under:
"Whether provisions of section 14A of the IT. Act will be applicable in the event it is held that the interest received by the assessee from its head office is not taxable in the hands of Indian branch office ?"4
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First we take up the appeals of the assessee:
3 Ground no. 1 is regarding the taxability of interest income received from Head Office.
3.1 This ground is common in all the four appeals of the assessee. 4 We have heard the ld AR of the assessee as well as the ld DR and considered the relevant material on record. At the outset, we note that this issue is covered by the decision of the Special Bench of this Tribunal in the case of Sumitomo Mitsui Banking Corpn. Vs Deputy Director of Income-tax reported in 136 ITD 66 whereby the Special Bench of the Tribunal has held that the interest income received from HO is not chargeable to tax being income to self and therefore, the principle of mutuality as provided under the Income Tax Act would be applicable in respect of such income. The relevant part of the decision of the Special Bench is reproduced as under:
"Keeping in view all the facts of the case and the legal position emanating from the interpretation of the relevant provisions of the domestic law as well as that of the treaty as discussed above, we are of the view that although interest paid to the head office of the assessee-bank by its Indian branch which constitutes its permanent establishment in India is not deductible as expenditure under the domestic law being payment to self, the same is deductible while determining the profit attributable to the permanent establishment which is taxable in India as per the provisions of article 7(2) and (3) of the Indo-Japanese treaty read with paragraph 8 of the protocol which are more beneficial to the assessee. The said interest, however, cannot be taxed in India in the hands of the assessee-bank, a foreign enterprise being payment to self which cannot give rise to income that is taxable in India as per the domestic law. Even otherwise, there is no express provision contained in the relevant tax treaty which is contrary to the domestic law in India on this issue. This position applicable in the case of interest paid by Indian branch of a foreign bank to its head office equally holds good for the payment of interest made by the Indian branch of a foreign bank to its branch offices abroad as the same stands on the same footing as the payment of interest made to the head office. At the time of hearing before us, the learned representatives of both sides have also not made any separate submissions on this aspect of the matter specifically. Having held that the interest paid by the Indian branch of the assessee bank to its head office and other branches outside India is not chargeable to tax in 5 Oman International Bank SAOG .
India, it follows that the provisions of section 195 would not be attracted and there being no failure to deduct tax at source from the said payment of interest made by the permanent establishment, the question of disallowance of the said interest by invoking the provisions of section 40(a)(i) does not arise. Accordingly we answer question No. 1 referred to this Special Bench in the negative, i.e., in favour of the assessee and question 2 in affirmative, i.e., again in favour of the assessee."
4 We further note that the Tribunal for the Assessment Years 2000-01 and 2001- 02 in ITA Nos. 2518/Mum/2004 & 4492/Mum/2005 and 2675/Mum/2004 and 4756/Mum/2005 vide order dated 10.10.2012 by following the decision of the Special Bench in the case of Sumitomo Mitsui Banking Corpn. (supra), in assessee's own case decided this issue in favour of the assessee.
4.1 The revenue has raised an additional ground regarding the disallowance under sec. 14A with respect to the interest received by the assessee from the HO which has been held by the Special Bench as not taxable in the hand of the Indian Branch of assesee.
4.2 The ld DR has submitted that since this issue of taxability of interest received from the Head Office is now covered by the decision of the Special Bench of this Tribunal in the case of Sumitomo Mitsui Banking Corpn. (supra), therefore, prior to the said decision, there was no occasion to raise this issue of disallowability of the expenditure u/s 14A. The ld DR has contended that though the additional ground/plea can be raised before this Tribunal during the course of the hearing; however, for abandoned precaution, the department is also seeking condonation of delay of 333 days in raising this additional ground from the pronouncement of the judgment of the Special Bench in the case of Sumitomo Mitsui Banking Corpn. (Supra). Thus it is pleaded that the delay, if any in raising the additional ground may 6 Oman International Bank SAOG .
be condoned. He has further submitted that for the AYs 2000-01 and 2001-02, the revenue did not raise any additional ground; but during the course of arguments, a plea was taken by the revenue that in case the interest income received from the HO is treated as not taxable; then a disallowance u/s 14A is required to be made. The said plea/contention of the revenue has been turned down by the Tribunal on the ground that no such question of disallowance u/s 14A emerges out of the orders of the authorities below. He has further submitted that prior to that occasion, there was no such issue raised by the department.
4.3 The ld DR has then referred the decision dated 12.9.2012 of the Tribunal in the case of M/s Credit Agricole Indosuez in ITA No. 6615/Mum/2003 & 6400/Mum/2003 and CO no.283/Mum/2003 for Assessment Year 1997-98 and submitted that in the said case, the Commissioner of Income Tax(Appeals) made the disallowance u/s 14A in respect of such interest income on NOSTRO account which was held by him to be not chargeable to tax. During the hearing before the Tribunal, the assessee conceded that the interest income received from Nostro account be held as chargeable to tax and consequently disallowed u/s 14A made by the Commissioner of Income Tax(Appeals) be deleted. Since the assessee conceded the taxability of the interest income as held by the Assessing Officer; therefore, the Tribunal, allowing the claim of the revenue has also allowed the ground of the assessee against the disallowance made by the Commissioner of Income Tax(Appeals) by invoking the provisions of sec. 14A.
4.4 It is clear from the case of M/s Credit Agricole Indosuez (supra) that the issue of disallowance u/s 14A does not arise from the issue of taxability of the interest income received from the HO.
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4.5 The ld DR has further referred to the decision of the Tribunal dated 21.9.2012 in the case of M/s Credit Agricole Indosuez for the AY 1994-95, 1998-99 and 2000-01 and submitted that the issue of disallowance u/s 14A was decided by the Tribunal by considering the fact that the assessee had accepted the taxability of interest received on Nostro account. Therefore, the applicability of sec.14A was accepted. The ld DR has then referred and relied upon the decision dated 9.1.2013 of the Tribunal in the case of M/s Societe Generale for the Assessment Years 1998-99 to 2001-01 in ITA Nos 3597/M/2004, 3595/M/2004, 8198/M/2004, 954/M/2005 and 836/M/2007 and submitted that the Tribunal has held that the provisions of sec. 14A are applicable on the exempt interest income earned from the HO/overseas branches. Thus, the ld DR has submitted that provisions of sec. 14A, as held by the Tribunal are applicable in case of interest income received from HO or overseas branches and treated as exempt. He has also referred to the decision of the Tribunal dated 16.1.2013 in the case of Dresdner Bank AG in ITA No. 2962/M/2004 and 3344/M/2004 and submitted that the plea raised by the revenue regarding the disallowance u/s 14A was rejected by the Tribunal on the ground that the revenue had not taken any such grounds of appeal. The ld DR submitted that the Tribunal had jurisdiction to decide the subject matter before it and while deciding the subject matter all the relevant aspects have to be considered and adjudicated. He has further submitted that the issue of disallowance u/s 14A is very much part and parcel of subject matter of taxability of the interest income received from the HO. Therefore, while deciding the subject matter of taxability of interest income received from HO and giving the finding that the said income cannot be brought to tax, then, the applicability of sec 14A is only one of the various aspects of the same subject matter. In support of his contention, he has relied upon the decision of the Tribunal in the case of Linklaters LLP vs ITO (International Taxation) reported in 40 SOT 51 and 8 Oman International Bank SAOG .
submitted that the Tribunal while deciding an identical issue of jurisdiction of the Tribunal to adjudicate a subject matter from a different angle as relied upon the decision of the Special Bench of this Tribunal in the case of Tata Telecommunications Ltd vs JCIT reported in 121 ITD 384. 4.6 The ld DR also relied upon the decision of the Hon'ble Supreme Court in the case of Hukumchand Mills Ltd. v. Commissioner of Income-tax reported in 63 ITR 232 as well as the full Bench decision of the Hon'ble jurisdictional High Court in the case of Ahmedabad Electricity Co. Ltd. v. Commissioner of Income-tax reported in 199 ITR
351. Thus the ld DR has submitted that the additional ground raised by the revenue may be admitted for adjudication on merits.
4.7 On the other hand, the ld AR of the assessee vehemently opposed the additional ground raised by the revenue and submitted that for the Assessment Year 1996-97, the revenue has not raised any ground for disallowance u/s 14A; even before the High Court. He has referred the order of the Hon'ble High Court for the AY 1996-97 and submitted that the revenue had not raised any such ground for the said Assessment Year; therefore, the revenue cannot be permitted to raise the admitted, concluded issue for the first time for the year under consideration. 4.8 The ld AR has further submitted that for the Assessment Years 2000-01 and 2001-02, the Tribunal has rejected the plea raised by the revenue on the ground that the issue of disallowance u/s 14A does not emerge from the orders of the authorities below. Therefore, when the admissibility of the additional ground has been turned down by the Tribunal in assessee's own case, then a difference view cannot be taken for the year under consideration. The ld AR has further submitted that in the case of M/s Credit Agricole Indosuez (supra), there was no issue of 9 Oman International Bank SAOG .
admissibility of additional ground as the issue was already before the authorities below.
4.9 In the case of M/s Societe Generale (supra), the issue of disallowance u/s 14A was before the authorities below and therefore, there was no question of admission of the additional ground before the Tribunal. He has further submitted that this issue requires facts to be examined and therefore, no additional ground can be admitted at this stage, which requires verification of fresh facts. In support of his contention, he has relied upon the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. Commissioner of Income-tax reported in 229 ITR
383. 4.10 The ld AR of the assessee has further submitted that in the case of Hukumchand Mills Ltd. (supra), the Hon'ble Supreme Court has observed that the department can raise a fresh ground which is permitted under the Rule 27. Therefore, the revenue cannot raise a ground, which cannot be raised under Rule 27.
4.11 In the case in hand, the issue has been decided against the assessee by the CIT(A); therefore, the department cannot raise a ground under Rule 27 and accordingly, the additional ground raised by the department cannot be allowed. 4.12 The ld AR of the assessee has further submitted that even otherwise, section 14A applies to an income which does not form part of the total income; but in case of interest received from HO, there is no income at all. Therefore, there is no question of inclusion in the total income of the assessee and accordingly, the provisions of section 14A are not applicable.
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4.13 Even other wise, in the case of Hukumchand Mills Ltd. (supra), the issue was in respect of written down value for depreciation and the issue raised in the fresh plea was also regarding the same old issue of depreciation. Thus, the ld AR has submitted that the said decision of the Hon'ble Supreme Court does not apply to the facts of the present case.
4.14 The ld AR has also contended that the full bench decision in the case of Hon'ble jurisdictional High Court in the case of Ahmedabad Electricity Co. Ltd. (supra), is also distinguishable and even the Hon'ble High Court has held that the Tribunal has no power to entertain a new issue not arising from the orders of the authorities below.
4.15 The Special Bench of the Tribunal, in the case of ACIT vs DHL Operations BV reported in 13 SOT 581 (Mum) held that an additional ground relating to a new source of income being brought to tax cannot be raised. He has further submitted that the subject matter before the Tribunal cannot be expended. The ld AR has further contended that the time limit for reassessment and revision has already expired and therefore, at this stage the additional ground raised by the revenue cannot be admitted. The ld AR also contended that the ld DR cannot go beyond the assessment order as per the decision of the Special Bench in the case of Assistant Commissioner of Income-tax, Circle 16(1), Mumbai v. Prakash L. Shah reported in 115 ITD 167.
4.16 The ld AR has submitted that the facts regarding the borrowed fund from India has been placed with the HO is required to be examined and even other wise, the borrowed funds from India are not permitted to be placed with the HO by the RBI. The ld AR has further contended that there is a delay of 9 to 10 yeas in filing the 11 Oman International Bank SAOG .
additional ground as the issue arising in the appeal of the assessee; therefore, the revenue cannot raise the additional ground in the appeal; except the Cross Objection. There is no explanation of delay of 9 years and therefore, the additional ground cannot be admitted.
4.17 In rebuttal, the ld DR has referred para 3 of the assessment order and submitted that the Assessing Officer has recorded the facts that the assessee has kept a sizeable fund with the HO on which interest is paid and claimed as deduction in the P&L account. Therefore, the facts are already recorded for the purpose of disallowance u/s 14A. He has further submitted that the subject matter of appeal before the Tribunal is the taxability of the interest income from HO, which also includes the expenses incurred by the assessee in relation to such income. Therefore, the disallowance u/s 14A is part of the subject matter before the Tribunal and is not an issue regarding new source of income as it was in the decision of the Special Bench in the case of DHL Operations (supra). The ld DR has pointed out that the issue before the Special Bench was inbound and outbound receipts relating to the PE which was accepted by the Special Bench being the part of the subject matter and only an entirely new issue of royalty was rejected. Thus, the ld DR has submitted that when the facts regarding the borrowed fund on which the interest is paid by the assessee and placement of the fund with the HO has been recorded by the Assessing Officer in the assessment order, then it cannot be said that for deciding the issue u/s 14A new facts are required to be investigated. 4.18 On the point of enhancement, the ld DR has submitted that the decision in the case of Linklaters LLP (supra) , the Tribunal has held that for adjudication of the subject matter, the Tribunal has all powers to decide all the aspects, even if the outcome of the finding on the subject matter may result enhancement. 12
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5 We have considered the rival submissions as well as the relevant material on record. Having held that the interest income received from the HO is not taxable in view of principle of mutuality, the question arises whether such income which has to be excluded from the total income, shall be the gross receipts or net income after deduction of the expenditure incurred in relation to earning of such income. The aspect of total income under the scheme of Income Tax is understood as the earning of the assessee from all the sources as classified under different heads of income reduced by the expenditure directly and indirectly incurred in relation to the earning of the income and further deducting all the allowable claims and the exemption/deduction while computing the total income. Thus, the total income chargeable to tax means the net income computed from the gross receipts after the deduction of the allowable expenditure and other deductions. As per the scheme of the Income Tax, the income which is chargeable to tax is computed after the deduction of the expenditure which has been incurred for earning such taxable income. Therefore, the expenditure incurred for other than the income chargeable to tax, is not permitted to be reduced from the income for computation of the total income. This aspect of allowing the expenditure incurred in relation to the taxable income is embedded in the provisions of section 14A to ensure that the expenditure incurred in relation to the income which is not chargeable to tax shall not be allowed as deduction against the income which is chargeable to tax. In other words, the income, which is chargeable to tax is taken as net income after deduction of the allowable expenditure and similarly the income which is not chargeable to tax is also taken net and the expenditure incurred in relation to such income is reduced from it. Thus, the income, which does not form part of the total income, shall also be the net income after considering the expenditure directly or indirectly incurred in relation to earning the said income. 13
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5.1 The term 'income' itself under the provisions of the I T Act de-notes the net income and not gross receipt. Therefore, whether it is the income chargeable to tax or an exempt income, the expression of income remains the same as net after deduction of the allowable expenditure and claims 6 The first objection of the ld AR is that the revenue cannot raise this additional ground at this stage as the same does not raise from the orders of the authorities below and therefore, a new plea cannot be raised.
6.1 We do not agree with the contention of the ld AR on this point because the authorities below have charged to tax the interest received from the HO and once the income is taken as part of the total income, then the question of disallowance of expenditure incurred in relation to such income, does not arise. Therefore, so long the interest income received from the HO was held as chargeable to tax, there was no occasion for the taxing authorities to raise such an issue of disallowance of expenditure. The issue of disallowance u/s 14A arises only when a particular income is treated as exempt. Since the interest income received from HO has been held by the Tribunal as not taxable under the provisions of the I T Act by virtue of concept of mutuality; therefore, the question regarding the disallowance of expenditure u/s 14A can be raised only after such a finding. The issue of taxability of the interest income received from HO in the hands of the branch office, being PE in India has been decided by the larger bench of this Tribunal in the case of Sumitomo Mitsui Banking Corporation (supra). Therefore, prior to the said decision, the issue was not finally settled and therefore, there was a reasonable cause for not raising this issue at the earlier stage.
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6.2 Even other wise, for raising an additional issue, there is no limitation provided under the Act; though the parties cannot be allowed to use the delay as a device to cover up an ulterior purpose. We find that there is nothing on record as well as discernible from the records and circumstances of the case that there was an ulterior purpose or motive for not raising this additional ground by the revenue at the earlier stage.
6.3 Further, as it is evident that for the Assessment Years 2000-01 and 2001-02, the revenue has also raised a plea regarding disallowance u/s 14A without filling any additional ground; therefore, we do not find any reason to hold that the delay in filing the additional round is malafide or a device to serve the ulterior purpose. Therefore, we accept the reason for delay in filing the additional ground. 7 The next objection of the ld AR is that when such plea raised by the revenue for the AYs 2001-01 and 2001-02 was rejected by the Tribunal, then this additional ground cannot be admitted for the year under consideration. 7.1 It is to be noted that for the Assessment Years 2001-01 and 2001-02, there was no additional ground filed by the revenue and only during the course of hearing of the appeal, the ld DR had raised a contention that a disallowance u/s 14A in respect of the interest income received from the HO held as exempt should be made. The Tribunal has rejected the contention in limine without examining the issue. The observations of the Tribunal in para 4 as under:
"4. The other contention raised by the learned Departmental Representative for making any disallowance u/s 14A in respect of interest income does not merit acceptance. We have perused the assessment order. It is observed that the Assessing Officer has proceeded with the presumption that the interest income is not exempt. He has not made any disallowance of expenses incurred in relation to such exempt income presumably u/s 14A of the Act. Neither it is the learned CIT(A) who considered arid decided the question of 15 Oman International Bank SAOG .
disallowance u/s 14A. As this issue does not emerges out of the orders of the authorise below, we desist from examining it. This ground is allowed."
7.2 It is clear that the contention was rejected in limine without any discussion on the point that the new plea is part of subject matter before the Tribunal. Whereas for the year under consideration, the revenue has filed additional ground and called upon the Tribunal to examine and decide the issue of same subject matter raised in the additional ground so raised by the revenue. Therefore, the additional ground raised by the revenue cannot be rejected in limine without examining all the aspects of the issue.
8 The next objection raised by the ld AR of the assessee is that the provisions of section 14A cannot be applied in respect of interest received from the HO, which is not an income; therefore, there is no question of exclusion of the same from the total income.
8.1 The ld AR has contended that the Tribunal and the Hon'ble High Court have held that the interest received is not taxable because one cannot earn income from oneself for the purpose of income tax. This issue has been considered by the Tribunal in the case as relied upon by the ld DR and it has been held that the provisions of sec 14A are applicable in respect of interest income received from HO. Therefore, we do not agree with the contention of the ld AR that the provisions of sec. 14A are not applicable because there is no income which is contrary to the fact that the assessee itself has shown the interest received from the HO as income in the P&L account; but has not offered the same for taxation. 16
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8.2 In the case of M/s Societe Generale, the Tribunal has upheld the applicability of section 14A in respect of the interest which was held to be exempt on principle of mutuality. The Tribunal has given the finding in para 44 of the order as under:
"44. We have considered the rival submissions and perused the relevant material on record. We have held above that the amount of interest at 3.97 crore received by the assessee on funds placed with head office / overseas branches is exempt from tax on the principle of mutuality. Similar view has been consistently taken for the earlier years as well. Once interest income is exempt from tax, it is but natural that the expenses incurred in relation to such exempt income cannot be allowed as deduction u/s 14A. Sub-section (1) of section 14A unambiguously provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. When we hold that the interest earned by the assessee from placement of funds with its head office / other overseas branches is exempt from taxation, the natural and logical conclusion which therefore has to follow is that no deduction should be allowed towards expenses incurred in relation to such exempt income. We, therefore, hold in principle that the provisions of section 14A are attracted on the interest earned by the assessee from placement of funds with its head office / overseas brandies which has been claimed and allowed as exempt on the principle of mutuality The learned AR unsuccessfully tried to argue that the funds for such placement with head office / overseas branches were made available from the assessee' s own kitty of interest free available funds. This argument runs contrary to the specific submission made by the assessee before the A.O., which has been reproduced above, by which the assessee submitted that its "placement with the head office! Overseas branches are funded by way of deposits in the foreign currency maintained in India such as EEFC and FCNR deposits". Once the assessee is specifically admitting the placement of funds with head office/overseas branches out of interest bearing deposits, it cannot be argued that the source of such funds was different. We, therefore, hold that the source of the funds placed by the assessee with its head office / overseas branches is the deposits received by it. Since interest income from placement of such funds is exempt from taxation, any interest paid by the assessee on such deposits and other expenses cannot be allowed as deduction u/s 14A. We want to make it clear that our this conclusion is based on the appreciation of the provisions under the Act. The question of allowability or otherwise of such expenses under the governing Treaty was not argued by the id. AR and hence the same has not been considered. Thus it is held in principle that the provisions of section 14A are applicable on the exempt interest income earned from the head office/overseas branches."
8.3 Therefore, there is no ambiguity on the issue that section 14A is applicable in respect of interest received from HO/overseas branches which is held as exempt on the principle of mutuality.
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9 The next objection raised by the ld AR is that the issue requires investigation and examination of the facts; therefore, it cannot be raised at this stage. In support of his contention, he has relied upon the decision of the Hon'ble Supreme Court in the case of NTPC (supra).
9.1 There is no dispute that if an entirely new issue or plea is raised at this stage, the same can not be allowed, if new facts are required to be investigated or examined. However, in case the plea raised at this stage is entirely new and in relation to a fresh subject matter/new source of income, then the condition of investigation of new facts is applicable.
9.2 In the case in hand, the additional ground is in relation to disallowance u/s 14A in respect of interest income held to be exempt on the principle of mutuality. Therefore, this additional plea is not a new subject matter but only an additional aspect of the same subject matter of taxability of interest income. Even otherwise, the issue of disallowance u/s 14A is consequential to the issue of taxability of interest received from the HO. Once the interest income is held to be exempt from tax on the principle of mutuality, the issue of disallowance u/s 14A crops-up from the very issue of taxability; therefore, there is a direct nexus between the issue of taxability and disallowance u/s 14A. If an income is taxable, there is no question of disallowance u/s 14A. On the contrary, if the income is held to be exempt, then the question of disallowance u/s 14A arises from the very subject matter of interest income treated as exempt. Therefore, we find that the aspect of disallowance u/s 14A is part and parcel of the subject matter before this Tribunal regarding the taxability of the interest income received from the HO/overseas branch and cannot be said that this is an entirely a new issue/subject matter or new source of income. 18
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9.3 In the case of NTPC (supra), the issue was a new ground on the question of law arising from the facts, which was on the record in the assessment proceedings. Therefore, the observations of the Hon'ble Supreme Court was in the context of the facts and the issue involved in the case by holding that the Tribunal has jurisdiction to examine the question law, which arises from the facts which are on record in the assessment proceedings.
9.4 In the case in hand, the applicability of sec. 14A is purely a question of law arising from the finding that the interest income is not taxable and only quantum of disallowance requires the examination of the facts. The issue before us is only applicability of section 14A and not the computation of the quantum of disallowance. Therefore, it cannot be said that this issue of applicability of section 14A cannot be admitted as this requires examination of the facts. 9.5 Even otherwise, the issue of taxability of the interest received from the HO itself includes the issue of net or gross. Therefore, the exempt income which has to be excluded from the total income of the assessee shall be the net income and very much in separable part of the main subject matter of taxability of interest income. 9.6 In the case of Hukumchand Mills Ltd. (supra), the Hon'ble Supreme Court while examining the powers and jurisdictional of the Tribunal while deciding the appeals u/s 33(4) has observed at page 237 as under:
"The word "thereon", of course, restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words "pass such orders as the Tribunal thinks fit" include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31 of the Act. Consequently, the Tribunal has authority under this section to direct the Appellate Assistant Commissioner or the Income-tax Officer to hold a further enquiry and dispose of the case on the basis of such enquiry."19
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9.7 While examining Rule 12 & 27 of the I T A T Rules, the Apex Court has observed that rules are not exhaustive of the powers of the Appellate Tribunal and procedural in character and do not, in any way, circumscribe or control the powers of the Tribunal u/s 33(4) of the Act. The relevant part of the observations of the Apex Court is as under:
"The rules are merely procedural in character and do not, in any way, circumscribe or control the power of the Tribunal under section 33(4) of the Act. We are accordingly of the opinion that the Tribunal had jurisdiction to entertain the argument of the department in this case and to direct the Income-tax Officer to find whether any depreciation was actually allowed under the Industrial Tax Rules and whether such depreciation should be taken into consideration for the purpose of computing the written down value."
9.8 By following the decision in the case of Hukumchand Mills Ltd. (supra),, the full Bench of the Hon'ble Jurisdictional High Court in the case of Ahmedabad Electricity Co Ltd (supra) has observed at pages 357 and 358 as under:
"Under section 254(1), the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, " pass such orders thereon as it thinks fit ". This gives a very wide power to the Appellate Tribunal to pass, on the appeal, such orders as it may think fit.
In the case of the Appellate Assistant Commissioner, there is an express power granted to him to enhance the tax liability. This is because the Department does not have a right of appeal before the Appellate Assistant Commissioner. As far as the Appellate Tribunal is concerned, the Department also has a right to file an appeal or cross-objections, as the case may be, if it is aggrieved by any part of the order of the Appellate Assistant Commissioner. Therefore, any express power of enhancement has not been conferred on the Appellate Tribunal. The Tribunal can, in a given case, in dealing with an appeal filed by the Department or considering its cross- objections, enhance the tax liability of the assessee if the Tribunal accepts the Contention of the Department. "
9.9 This observation of the full Bench of the Hon'ble jurisdictional High Court is a befitting answered to the objection raised by the ld AR that if the disallowance u/s 14A is made, the same would amounts to enhancement of assessment. Thus, it is 20 Oman International Bank SAOG .
clear that while deciding the subject matter for which the Tribunal is called upon, it is not binding on the Tribunal to restrict its finding on the subject matter as to avoid any enhancement.
9.10 Interpreting the language of the provisions which confer the jurisdiction to the Tribunal, the Hon'ble High Court has observed at page 367 as under:
"Looked at from a slightly different point of view, if the word "thereon"
can be said to refer to the subject-matter of the appeal, then, as stated by the Supreme Court in the case of Hukumchand Mills [1967] 63 ITR 232, the subject-matter of the appeal is the entire tax proceeding of the assessee which is before the Tribunal for consideration ; and this will cover the proceedings before the Income-tax Officer, before the Appellate Assistant Commissioner as well as before the Tribunal - including the grounds raised before the Tribunal, any additional grounds which may be allowed to be raised before the Tribunal as also cross-objections, if any, before the Tribunal. Undoubtedly, the Tribunal has a discretion to decide whether any additional points can be allowed to be raised before it at the stage of appeal before it. And it may not permit such a new point to be raised for good reasons. But the extent of jurisdiction of the Tribunal is not confined only to points which were considered by the Appellate Assistant Commissioner and which may be challenged in appeal before the Tribunal. The Tribunal can permit other grounds also to be raised before it, provided, of course, that they arise out of the proceedings."
9.11 Thus, the question of allowing an additional point is matter of discretion and therefore, if the Tribunal finds sufficient reasons for allowing a new ground to be raised before it, which relates to the subject matter before the Tribunal , then there is no fetter to the powers of the Tribunal in permitting such a new point or ground to be raised.
9.12 The Hon'ble High Court has gone to the extent that even the Tribunal can permit other ground also to be raised before it, provided they arises out of proceedings. Thus, the Hon'ble High Court has held that the Tribunal has jurisdictional to permit additional ground to be raised before it even though, the 21 Oman International Bank SAOG .
ground does not arise from the orders of the authorities below so long as these grounds are in respect of subject matter of the entire tax proceedings. 9.13 We may clarify that when the Assessing Officer has assessed the interest income received from HO, then the reversal of the findings of the authorities below and holding that the interest received from HO is not taxable on the principle of mutuality and allowing the disallowance u/s 14A may not necessarily mean placing the assessee in worse position, then it was prior to the appeals filed before the Tribunal because the quantum of disallowance has to be determined by the Assessing Officer.
10 As regards the objection of the ld AR that the departmental representative cannot go beyond the assessment order, we are of the view that the additional ground raised by the revenue is not bringing altogether a different case thereby undoing what has been done by the Assessing Officer and accordingly, it would not go beyond the assessment order by raising a new issue or subject matter. But the issue in the additional ground is arising as a result of finding on the subject matter of taxability of interest income received from HO. The Special Bench of the Tribunal in the case of Prakash L. Shah (supra) is not applicable to the facts of the case in hand. Therefore, we do not agree with the contention of the ld AR on this point. 11 The ld AR has also raised a point that borrowings from India cannot be put with the HO as the same are not permitted by the RBI. This contention of the ld AR does not relate to the issue of applicability of section 14A and therefore, the facts whether the assessee has put borrowed fund with the HO or not has to be considered at the time of determining the quantum of disallowance. The AR has also referred the proviso to sec. 14A and submitted that when the Assessing Officer is 22 Oman International Bank SAOG .
not empowered to reassess the assessment u/s 147 or passed any order u/s 154 on the issue of disallowance u/s 14A for any assessment year beginning on or before 1.4.2001, then this issue cannot be raised by the revenue at least for the Assessment Year prior to 1.4.2001.
12 As it is manifest from the proviso to sec. 14A that embargo for the Assessing Officer is only with respect to reassessment u/s 147 or otherwise enhancement of liability under sec. 154. Since the provisions of sec. 14A are inserted by the Finance Act, 2001 with retrospective effect from 1.4.1962; therefore, the legislature have rested the issue already attained the finality in respect of those Assessment Year beginning on or before 1.4.2001. This restriction on the powers of the AO does not effect the disallowability u/s 14A in the proceedings before the Appellate Authorities. Hence, the proviso to section 14A cannot be invoked to rescue the assessee from the applicability of section 14A.
13 In view of the above discussions as well as on the facts and with circumstances of the case, we do not find any merit in the objections raised by the ld AR and accordingly, the additional ground raised by the revenue is admitted for disposal.
14 As we have discussed above, the issue of applicability of section 14A has been covered by the decision of the coordinate Bench of the Tribunal in the case of M/s Societe Generale (supra). Accordingly by following the decision of the coordinate Bench of this Tribunal, we hold that the provisions of sec. 14A are applicable on the exempt interest income earned from the HO/overseas Branches. 14.1 For limited purpose of determining the quantum of disallowance, we set aside this issue to the record of the Assessing Officer with a direction to decide the 23 Oman International Bank SAOG .
quantum of disallowance after giving a reasonable opportunity of hearing to the assessee.
15 The next ground in the appeal of the assessee is regarding the assessment of provision made for expenditure, which is subsequently turned out to be in excess. 15.1 This ground is common for the AY 2002-03 and 2003-04. 16 We have heard the ld AR as well as the ld DR and considered the relevant material on record. The Assessing Officer brought to tax the provision made for expenditure at the year ending which was found in excess aggregating to ` 6,37,899/-. Before the Commissioner of Income Tax(Appeals), the assessee has submitted that the excess amount has been reversed in the subsequent year and offered to tax in the AY 2004-05. Therefore, the assessee alternatively pleaded before the Commissioner of Income Tax (Appeals) that if the action of the Assessing Officer is upheld, then the Assessing Officer may be directed to exclude the said amount for the Assessment Year 2004-05. The Commissioner of Income Tax (Appeals) has adjudicated the issue in para 8 as under:
"8. I find that an identical issue was considered in the appellants own case for Assessment Year 2002-03 and the mater was decided against the appellants. For the sake of consistency I uphold the Assessing Officer's action in disallowing the amounts of `. 6,37,899/- with a direction that the reversal thereof in subsequent year should not be brought to tax as it then would result in double taxation of the same amount. I find that the Assessing Officer has already given this relief in Assessment Year 2004-05."
16.1 As it is evident from the finding of the Commissioner of Income Tax(Appeals) that the Assessing Officer has already given relief in the Assessment Year 2004-05, therefore, this issue has become infructuous as it is to be taxed in this year when the Assessing Officer has already excluded the amount in the Assessment Year 2004-05. Hence, we do not find any error or illegality in the order of the Cit(A), qua this issue. 24
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17 Next ground is regarding the deduction in respect of broken period interest paid on purchase of securities.
18 This issue has been raised by the assessee only as an alternative plea that if the order of the Commissioner of Income Tax(Appeals) for the aY 2002-03 is reversed, then the ground may be allowed for the Assessment Year 2003-04. Since this issue has been decided in favour of the assessee by the Commissioner of Income Tax(Appeals) for the Assessment Year 2002-03 and the revenue has not challenged the finding of the ld Commissioner of Income Tax(Appeals) for the Assessment Year 2002-03, accordingly, in view of the fact that the claim of deduction of broken period has been allowed for the Assessment Year 2002-03, this issue has become infructuous and hence dismissed.
19 Next ground is regarding claim of bad debts written off of ` 21.75 lacs. This ground is common in all the Assessment Years.
20 We have heard the ld AR as well as the ld DR and considered the relevant material on record. Since the claim of bad debts has already been allowed by the Tribunal for the Assessment Year 1995-96; therefore, this issue has become infructuous.
Revenue's appeal
21. We will first take up the appeals of the revenue for the AY 1998-99 in ITA.581/Mum/2004:
22 Ground no.1 is regarding expenditure incurred by the HO on behalf of Indian Branch office allowed by the Commissioner of Income Tax (Appeals) u/s 37(1). This issue is common for all the years.
25
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23 We have heard the ld DR as well as the ld AR and considered the relevant material on record. At the outset, we find that this issue is covered by the decision of the Hon'ble jurisdictional High Court in the case of Commissioner of Income-tax v. Emirates Commercial Bank Ltd reported in 262 ITR 55 wherein the Hon'ble High Court has decided this issue as under:
"Section 44C is applicable only in the cases of those non-residents, who carry on business in India through their branches. The said section was introduced to get over difficulties in scrutinising claims in respect of general admi- nistrative expenses incurred by the foreign head office in so far as such expenses stand related to their business or profession in India having regard to the fact that foreign companies operating through branches in India sometimes try to reduce incidence of tax in India by inflating their claims in respect of the head office expenses. In other words, section 44C seeks to impose a ceiling/ restriction on head office expenses. However, section 44C contemplates allocation of expenses amongst various entities. That, the expenditure which is covered by section 44C is of a common nature, which is incurred for the various branches or which is incurred for the head office and the branch. How- ever, in this case, we are concerned with the expenditure exclusively incurred for the branch. In this case, there is a concurrent finding of fact recorded by the Commissioner (Appeals) as well as the Tribunal stating that the officers came from the head office at Abu Dhabi to Bombay to attend to the work of the Bombay branch and, in connection with that work, the expense was incurred. That, the expense was initially incurred by the head office which was recovered by the head office from the branch in India by raising a debit note. Therefore, the expense was incurred for the branch office in India. These are concurrent findings of fact. We do not wish to interfere with those findings. Hence, section 44C has no application. Before concluding it may be mentioned that no arguments were advanced by the Department on rule 6D. Answer : In the circumstance, we answer the above question No. IV in the affirmative, i.e., in favour of the assessee and against the Department. Accordingly, the above reference is disposed of with no order as to costs."
23.1 Following the decision of the Hon'ble jurisdictional High Court, (supra), we decide this issue in favour of the assessee and against the revenue. 24 Ground no.2 is regarding the deduction of expenditure on account of swap cost on un-matured contracts. This issue is common in the appeals of the revenue as well as the Cross Objection of the assessee for the Assessment Years 1998-99 and 1999-00.
26
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25 We have heard the ld DR as well as the ld AR of the assessee and considered the relevant material on record. At the outset, we note that an identical issue has been considered and decided by the coordinate Bench of this Tribunal in the case of Siam Commercial Bank PCL vs Dy Director of Income Tax (International Taxation) reported in 17 ITR (Trib) 599 (Mum) and held in paras 26 to 33 as under:
"We have heard the rival submissions and perused the relevant material on record. Learned counsel for the assessee has invited our attention towards page 3 of the paper book, showing the working of Rs. 85,302. It was explained that the assessee received FCNR deposit of $2,50,000 on January 14, 2000. This deposit was converted into Indian rupees by selling the same in the open market at the rate of Rs. 43.565 per dollar. It was stated that on the same day, the assessee entered into a forward contract with another to buy equal number of dollars at the rate of Rs. 45.165 on December 29, 2000. The difference between the rates of Rs. 43.565 and Rs. 45.165 when multiplied with $2,50,000 was stated to be resulting loss of Rs. 4,00,000 covering the period from January 14, 2000 to December 29, 2000. It was explained that out of total loss of Rs. 4 lakhs arising out of this transaction covering the above referred period, loss on pro rata basis from January 14 to March 31, 2000 amounting to Rs. 85,302 was considered as SWAP cost in this year. In support of its claim for deduction, the learned authorised representative relied on the Special Bench order of the Tribunal in the case of Deputy CIT v. Bank of Bahrain and Kuwait [2010] 5 ITR (Trib) 301 (Mum).
At this stage, it will be relevant to note that page 4 of the assessee's paper book is a copy of the letter dated March 13, 2011 issued by the RBI to all commercial banks advising them to follow the guidelines dated June 5, 1996 for finalising the accounts for the year ending March 31, 2000 and March 31, 2001 as the applicability of the Accounting Standard 11 to banks was under
examination. It thus becomes evident that the assessee-bank did not disclose the profit or loss on forward contracts in the light of the AS-11. The authorities below have also not examined the issue in light of the AS-11. Since no argument has been advanced on behalf of the assessee or the Revenue on the recognition of income or loss in the light of AS-11, we are refraining from examining its impact on the question of determination of profit or loss on the forward exchange contracts.
As per the Special Bench order in Bank of Bahrain and Kuwait [2010] 5 ITR Trib) 301 (Mum), when a forward contract is entered into by the assessee to buy or sell the foreign currency at an agreed price at a future date falling beyond the last date of the accounting period, loss incurred by the assessee on account of evaluation of the contract on the last date of the relevant accounting period, i.e., before the date of the maturity of the forward contract, is allowable as deduction. We are unable to appreciate as to how the ratio deciendi of this Special Bench order applies to the facts of the instant case. We are confronted with a situation in which the assessee got 27 Oman International Bank SAOG .
FCNR deposit of $2,50,000 on January 14, 2000 and converted it into Indian rupees at the prevailing rate of Rs. 43.656. This transaction was over. Thereafter, the assessee entered into a forward contract with a third party on the same date for purchasing equivalent number of dollars on December 29, 2000. This difference between the buying and selling rate was claimed as loss of Rs. 4 lakhs, spread over two years, i.e., Rs. 85,302 in the current year and the remaining amount in the subsequent year.
There is a basic fallacy in the computation of loss in such a manner. At this juncture it will be relevant to understand the modus operandi of forward contract. If there is an obligation to fulfil a future commitment, the parties may enter into forward contract so as to pre-determine their future liability for taking business decisions. In the context of forward contract for dollars, the buyer undertakes to purchase dollars from the seller on a specified date at a particular rate. If the prevailing rate of dollar as on the date of execution of contract is equal to the rate earlier contracted, there shall not be any profit or loss. Neither the buyer will be interested in buying nor the seller will be interested in selling the dollars at the rate contracted because this transaction will be profit neutral in view of the availability of dollar at the same rate in the open market. But if the prevailing market rate of dollar as on the date of execution of contract is more or less than the rate earlier contracted, there shall arise the question of profit or loss due to forward contract. To illustrate, if a forward contract is made, say on 1st January for purchase of dollar as on 31st January at the rate of Rs 45, the profit or loss from such contract will arise by considering the rate of dollar prevailing as on 31st January. The rate of dollar as on the date of entering into forward contract cannot cause profit or loss. It is only if the rate of dollar on such date is say Rs. 46, the assessee will be benefited with Re.1 per dollar on 31st January. Had he not entered into forward contract, he would have to spend Rs. 46 for purchasing dollar on the 31st January to discharge his business obligations. Now by virtue of the earlier forward contract, the assessee will get dollars at cheaper rate of Rs. 45, thereby causing profit at the rate of Re. 1 per dollar. If however, the rate of dollar comes down to Rs. 44 as on 31st January, the assessee will have to purchase the dollar as on that date as the settled rate of Rs. 45, resulting into loss of Re. 1 per dollar.
It is axiomatic that the question of earning profit or incurring loss on a forward contract can arise only by comparing the rate at which the contract was earlier made and the rate prevailing at the date of execution of contract. It is beyond our comprehension as to how anyone can lawfully work out profit or loss with reference to the rate contracted vis-a-vis the one prevailing as on the date of entering into future contract. It can be logically possible only on the date of execution of contract.
The above rule is subject to one exception. When the date of year ending falls within the date on which future contract was entered into and the date of the execution of such future contract. In such a case it will be incumbent to consider the rate of exchange of the currency, which happens to be stock-in-trade of the banks, as at the end of the year and recognise income or expenditure with reference to the rate at which the foreign exchange was agreed to be purchased so as to project a true and fair view of the affairs of 28 Oman International Bank SAOG .
the assessee as on the balance-sheet date. If the rate of foreign exchange at the close of the year is more or less than that at which the forward contract was entered into, the assessee will be required to account for profit or loss on this score in its accounts at the year end.
Adverting to the facts of the instant case, it is noticed that there is no relation whatsoever between the transaction of the assessee receiving FCNR deposit of $2,50,000 and converting it into Indian rupees with the transaction by which it entered into a forward contract. Both these transactions are independent of each other. On a pertinent query, it was admitted that there is no tripartite agreement between the assessee-bank, its depositor abroad and the party with which it entered into a forward contract. It cannot be so naturally for the reason that when the assessee received FCNR deposit of $2,50,000, that transaction came to an end and was completely closed. The assessee became liable to repay the deposit in the subsequent year in the same currency and in order to repay iii dollars, the assessee needed dollars at the maturity date of deposit,, being December 29, 2000. In order to repay in dollars on such date, the assessee had the option of either purchasing the dollars from market on the said' date or to enter into a forward contract. On December 29, 2000 being the date of repayment of FCNR deposit in the next year, the rate of dollar may have been higher or lower than the rate at which the assessee get converted $2,50,000 at the rate of Rs. 43.565 during the current year. Whether such rate would he higher or lower at the time of maturity in the succeeding year is not capable of ascertainment as at the close of the year on March 31, 2000. The decision of the Special Bench in the case of Bank of Bahrain and Kuwait [2010] 5 ITR (Trib) 301 (Mum) applies to a forward transactions and permits deduction towards loss on the rate at which the contract was entered vis-a-vis the rate prevailing as at the close of the year. Suppose the assessee in the instant case having entered into forward contract for buying dollars on December 29, 2000 at Rs. 45.165 had found that as at the end of the year, i.e., March 31, 2000 the rate of dollar was higher or lower than the rate at which it had entered into forward contract at Rs. 45.165, it could have rightly claimed deduction in respect of the resultant loss or offered to tax the resultant gain on the comparison of the rate as eventually entered vis-a-vis that prevailing as on March 31, 2000. There is absolutely no basis for determining the loss by considering the rate at which the assessee converted US$ on the receipt of deposit with that for which it entered into an agreement at a future date. What is relevant is the question of determining profit or loss on account of exchange rate as on the balance- sheet date. It is impermissible to recognise loss solely on the basis of the forward rate of exchange and the rate prevailing as on the date of entering into contract de hors the rate of exchange at the close of the year falling between the date of entering into and execution of forward contract. It has neither been shown that the assessee recognised any income or loss on such forward contract with reference to the rate prevailing as on March 31, 2000 nor is there any material to quantify such income or loss. As already noted that both transactions of sale and purchase of dollars are totally independent of each other, in our considered opinion, there is no question of estimating any profit or loss on such transaction in the manner in which the assessee has done so, more specifically without divulging the 29 Oman International Bank SAOG .
impact of difference in the rate of dollar as at the end of the year vis-avis that agreed as per the forward contract. In view of the foregoing reasons we uphold the impugned order by not allowing this ground." 25.1 Following the order of the coordinate Bench of this Tribunal, we decide this issue in favour of the revenue and against the assessee. 26 The Cross Objection no. 86/M/2004 for Assessment Year 1998-99 is consequential and accordingly becomes infructuous. However, the Cross Objection no. 87/Mum/2004 for the Assessment Year 1999-00 of the assessee is allowable as consequential effect that the said claim of deduction of swap cost has been disallowed for the Assessment Year 1998-99 as the same is allowable in the year of maturity of contract. Accordingly, the Cross Objection for Assessment Year 1999-00 is allowed.
27 The next ground for the Assessment Year 2002-03 is regarding disallowance made u/s 40(a)(i). This ground is common for the Assessment Year 2003-04 also. 28 We have heard the ld DR as well as the ld AR and considered the relevant material on record. At the outset, we note that this issue is covered by the earlier order of this Tribunal in assessee's own case. For the Assessment Year 2001-02, the Tribunal has decided this issue in para 17 and 18 as under:
17 Last ground is against the deletion of disallowance of ` 13,47,430 in view of section 40(a)(i) of the Act. The assessee paid transaction charges on MOSTRO account with banks outside India. In the absence of assessee having deducted any tax at source on such payments, the Assessing Officer made disallowance u/s 40(a)(i). The ld Commissioner of Income Tax(Appeals) deleted the addition.
18. Both the sides are in agreement that this issue has been decided by the Tribunal in earlier years in assessee's favour. Respectfully following the same, we uphold the impugned order on this issue. This ground is not allowed."30
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28.1 Following the earlier order of this tribunal, we decide this issue in favour of the assessee and against the revenue. Accordingly, the impugned order of the Commissioner of Income Tax(Appeals), qua this issue is upheld. 29 In the result, the appeals filed by the assessee are partly allowed and the Cross Objections of the assessee for the Assessment Year 1998-99 is dismissed whereas the CO for the Assessment Year 1999-00 is allowed. The appeals filed by the revenue for the Assessment Years 1998-99 and 99-00 are partly allowed whereas the appeal for the AYs 2002-03 and 2003-04 are dismissed Order Pronouncement in the Open Court on this 22nd day of MAR 2013 Sd/- Sd/-
( RAJENDRA SINGH ) ( VIJAY PAL RAO )
Accountant Member Judicial Member
Place: Mumbai : Dated: 22nd MAR 2013
Raj*
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai