Income Tax Appellate Tribunal - Mumbai
Bank Of America, Nt & St B-21, vs Department Of Income Tax on 28 March, 1995
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI "J" BENCH, MUMBAI Before Shri N.V. Vasudevan, (Judicial Member), and Shri Pramod Kumar, (Accountant Member) ITA No. 6133/Mum./1995 Assessment Year : 1991-92 Date of Hearing - 30.4.2010 Dy. Commissioner of Income Tax, SR - 32 ....................... Appellant R.No.557, Aayakar Bhavan, M.K. Road Mumbai 400 020 Vs. Bank of America NT & SA, ..................... Respondent Express Towers Nariman Point` Mumbai 400 021 PAN - 35 - O35 - CY - 7785 Appellant by : Dr. P. Daniel Respondent by : Shri Percy Pardiwalla with Ms. Vasanti B. Patel O R D E R Per Pramod Kumar A.M.
1. This appeal, filed by the Assessing Officer, is directed against the CIT(A)'s order dated 28 th March 1995, for the assessment year 1991-92.
2. In the first ground of appeal, grievance raised by the Assessing Officer is as follows:-
ITA No.6133/Mum./1995 Assessment year : 1991-92 [2] "1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting an addition of Rs.4,73,68,672/-
without appreciating that the assessee has incurred illegal expenses on account of violation of R.B.I's directions with regard to port folio management scheme and therefore illegal expenses cannot be allowed against legal profits and income."
3. Learned Representatives fairly agree that the above issue is now covered, in favour of the assessee, by this Tribunal's order dated 27 th March 2008, in assessee's own case for the assessment year 1990-91. As a matter of fact, in the impugned order, the learned CIT(A) has merely followed his order for the assessment year 1990-91 without giving any further reason but then, as we have noted above, the said stand of the CIT(A) has been upheld by the Tribunal as well. The transaction in respect of which impugned disallowance is made is the same as in the assessment year 1990-91. In this view of the matter, and respectfully following the decision of the Tribunal in assessee's own case, we approve the stand taken by the CIT(A) and decline to interfere in the matter.
4. Ground no.1 is, thus, dismissed.
5. In ground no.2, the grievance is as follows:-
"2. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the disallowance out of entertainment expenses and out of expenses on seminars / meetings, etc. The learned CIT(A) has overlooked that entertainment expenses spent on employees who are entertaining guests are not in the nature of staff welfare but incidental and directly related to other entertainment expenses incurred on guests. The learned CIT(A) has also overlooked that A.O. has disallowed on 25% of expenditure on seminars / meetings because a part of this expenditure is likely to be in the nature of entertainment expenses incurred on hospitality extended to customers. The learned CIT(A) has also overlooked that any expenditure covered ITA No.6133/Mum./1995 Assessment year : 1991-92 [3] u/s 37(2A) is excluded from section 37(1) by way of non-obstante clause."
6. Learned Representatives agree that the above issue is also covered by Tribunal's order for the assessment year 1990-91, wherein the co-ordinate bench has approved CIT(A)'s order for the assessment year 1990-91 on this point. The CIT(A) has, in the impugned order, merely followed his order for assessment year 1990-91. In this view of the matter, respectfully following the co-ordinate bench, we approve CIT(A)'s impugned order on this aspect as well. No interference is called for.
7. Ground no.2 is also, thus, dismissed.
8. In ground no.3, the following grievance is raised:-
"3. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in treating expenditure on presentation articles as not of advertisement kind and accordingly allowing the whole of it u/s 37(1)."
9. Learned Representatives agree that the above issue is also covered, in favour of the assessee, by Hon'ble Bombay High Court's judgment in the case of CIT Vs Allana Sons P. Ltd., 216 ITR 690, wherein it is held that unless presentation articles bear company's name or logo, disallowance under Rule 6B will not be attracted. There is no dispute on the factual aspect that presentation articles did not contain name or logo of the assessee company. In this view of the matter and respectfully following the jurisdictional High Court, we uphold the order of the learned CIT(A) on this issue as well. No interference is thus called for.
ITA No.6133/Mum./1995 Assessment year : 1991-92 [4]
10. Ground no.3 is also dismissed.
11. In ground no.4, the Assessing Officer has raised the following grievances:-
"4. On the facts an din the circumstances of the case and in law, the learned CIT(A) has erred in allowing the share issue expenses disallowed by A.O. overlooking that these were not legitimate expenses of the business and even in the hands of his clients on whose behalf he is said to have incurred them, they were capital expenses."
12. Learned Representatives agree that the above issue is also covered by Tribunal's order for the assessment year 1990-91, wherein the co-ordinate bench has approved CIT(A)'s order for the assessment year 1990-91 on this point. The CIT(A) has, in the impugned order, merely followed his order for assessment year 1990-91. In this view of the matter, respectfully following the decision of the co- ordinate bench, we approve CIT(A)'s impugned order on this aspect as well. No interference is called for.
13. Ground no.4 is also dismissed.
14. In ground no.5, the grievance of the Assessing Officer is as given below:-
"5. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in not including the other expenses while calculating the disallowance under Rule 6D."
15. So far as this disallowance is concerned, the material facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that ITA No.6133/Mum./1995 Assessment year : 1991-92 [5] while computing disallowance under Rule 6D, the assessee had excluded local conveyance and entertainment expenses. It was the stand of the Assessing Officer that all the incidental expenses are to be taken into account for computing the disallowance. Accordingly, on estimate basis, the Assessing Officer disallowed Rs.1,00,000/-. Aggrieved, assessee carried the matter in appeal before the CIT(A) who deleted this ad-hoc disallowance. Now, the Assessing Officer is aggrieved and in appeal before us.
16. Having heard the rival contentions and having perused the material on record, we are not inclined to disturb the conclusion arrived at by the learned CIT(A), as the issue is now covered by Hon'ble Bombay High Court's judgment in the case of CIT Vs Chemet, 240 ITR 624, wherein Their Lordships have held that miscellaneous expenses and local conveyance expenses, etc., are to be excluded for the purposes of computing disallowance under Rule 6D. The order of the learned CIT(A) is in conformity with the stand so taken by Hon'ble Bombay High Court and, accordingly, no interference is called for.
17. Ground no.5, is accordingly dismissed.
18. In ground no.6, the Assessing Officer has raised the following grievance:-
"6. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in treating the securities as stock-in-trade instead of investment."
19. Learned Representatives fairly agree that the above issue is now covered, in favour of the assessee, by Tribunal's order, in assessee's own case for the assessment year 1990-91. The learned CIT(A) has merely followed his order for the assessment year 1990-91 and has not given any independent findings in support of ITA No.6133/Mum./1995 Assessment year : 1991-92 [6] his conclusions. In view of the fact that his order for the assessment year 1990-91, has since been approved by a co-ordinate bench, and in view of learned Representatives agreeing to the issue being covered by the said order, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.
20. Ground no.6 is also, therefore, dismissed.
21. In ground no.7, the Assessing Officer has raised the following grievance:-
"7. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the disallowance of penalty paid to RBI which was in the nature of penalty for infraction of RBI direction which is the law for banks. The learned CIT(A) has erred in treating it as a minor default incidental to carrying on of business for it were so there would be no penalty for such default."
22. The relevant facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has paid Rs.19,000/- to the Reserve Bank of India. The Assessing Officer observed that, as held by Hon'ble Supreme Court in the case of Haji Aziz & Abdul Shakoor Bros. Vs Piara Singh, 124 ITR 40, penalties are not deductible as infraction of law is not a normal incident of business. The Assessing Officer further observed that the payments made by the bank by way of penalties have to be viewed as incurred "in some character other than that of the trader". With these observations, the Assessing Officer disallowed the payment made to the Reserve Bank of India. Aggrieved by the stand so taken by the Assessing Officer, assessee carried the matter in appeal before the learned CIT(A) who reversed the action of the Assessing Officer and observed as follows:-
"20. The amount was paid to the R.B.I. for not adhering Statutory Liquidity requirement. Reliance was placed on 201 ITR 684. The amount ITA No.6133/Mum./1995 Assessment year : 1991-92 [7] paid appears to be in case of a minor default which appears to be incidental to carrying on of the business and does not appear to be for any breach of law. The case appears to be covered by the judgment relied upon by the ld. Advocate. The ground is allowed and the addition made is directed to be deleted."
23. The Assessing Officer is aggrieved of the relief so given by the learned CIT(A) and is in appeal before us.
24. We have noted, as also set out in the statement of facts before the learned CIT(A) at Page-18, that the impugned payment was made for "not adhering to the Statutory Liquidity Ratio requirement:". We find that the issue as to whether or not such a payment can be allowed as deduction in computation of business income, is now covered by decisions of the co-ordinate benches of this Tribunal in the cases of DCIT Vs Dhanlaxmi Bank Ltd., 76 TTJ 439 and Deutsche Bank AG Vs JCIT, ITA No.4699/Mum./1999; order dated 4th May 2007, in favour of the assessee. In these cases, it has been held that though the payment so made is termed as "penal interest", it is compensatory in nature. Learned Counsel for the assessee has also invited our attention to the fact that the payment in question represents compensation for loss caused to RBI by non-maintenance of Statutory Liquidity Ratio. Learned Departmental Representative has not been able to controvert these submissions or point out any good reasons as to why decisions of co-ordinate benches should not be followed. In view of the above discussions and respectfully following the decisions of co-ordinate benches, we uphold the conclusion arrived at by the learned CIT(A) on this issue as well and decline to interfere in the matter.
25. Ground no.7 is thus dismissed.
26. In ground no.8, the Assessing Officer has raised the following grievance:-
ITA No.6133/Mum./1995 Assessment year : 1991-92 [8] "8. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in treating payment to clubs as normal business expenditure where it should be covered under section 37(2A)."
27. Learned Representatives fairly agree that the above issue is also covered in favour of the assessee, by Tribunal's order dated 13 th October 1998, declining reference against Tribunal's order dated 17 th September 1997, wherein the issue was decided in favour of the assessee. While declining the reference, it was noted that the issue is covered by Hon'ble Bombay High Court's judgment in the case of OTIS Elevator Co. India Ltd. Vs CIT, 195 ITR 682. The conclusions arrived at by the learned CIT(A) being in conformity with Hon'ble Bombay High Court's decision, we decline to interfere in the matter. The order of the learned CIT(A) is confirmed on this aspect as well.
28. Ground no.8 is also thus dismissed.
29. In ground no.9, the Assessing Officer has raised the following grievance:-
"9. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition of notional interest on clean loans to brockers advanced while bypassing RBI direction on direct advances by banks to the brokers. The learned CIT(A) erred in agreeing with the assessee that in case of two credits there were instructions from fund advancing party to credit the same in the account of stock broker Harshad Mehta, whereas the assessee could not show proof for the same. The learned CIT(A) erred in concluding that amounts were credited in Harshad Mehta's account against debits in other clients accounts who had instructed the bank to do so even when the assessee could not prove it and hence did not discharge his onus suitably and adequately. The learned CIT(A) also erred in concluding that notional interest cannot be treated as assessee's income on huge sums being advanced by assessee to stock brokers without any valid ITA No.6133/Mum./1995 Assessment year : 1991-92 [9] explanation for the same. The learned CIT(A) erred in concluding that the sum did not belong to assessee but to his clients."
30. So far as this grievance of the Assessing Officer is concerned, a few material facts need to be taken of. The assessee is one of the banks which had some transactions with Harshad Mehta, and it's case was subjected to special audit u/s 142(2A). In the special audit report, following instances were highlighted in which Harshad Mehta was given credit eventhough though there was no backing of sufficient records, bond instruments, SGL forms, or B.R., etc. Date Issuer Bank Cheque Amount (Rs.) Feb. 21, 91 Uco Bank 657543 20,00,00,000 April 20, 90 Bank of America A/c credited 1,51,20,000 April 25, 90 - do - A/c credited 5,71,36,291 Jan. 23, 91 - do - A/c credited 2,46,605
31. On these facts, the assessee was required to show cause as to why interest chargeable on the above clean credits not be treated as income, or in the alternative, funding costs for the same not be disallowed. It was, inter-alia, explained by the assessee that Harshad Mehta had a current account with the assessee and funds were deposited in the said account from time to time, by way of RBI and Bankers' cheques as well. In most of the instances such cheques drawn in favour of the bank were accompanied by instructions from the issuing bank. The assessee not being able to produce these instructions did at best constitute an operational error of non-compliance with the procedure but it did not amount to grant of credit facilities. As per the amount of Rs.20 crores, the assessee submitted that the amount was received from UCO Bank and the credit was given only for one day i.e., till the amount was transferred back to UCO Bank the very next day. There was thus no question of computing any interest on the same. As for Rs.1,51,20,000, ITA No.6133/Mum./1995 Assessment year : 1991-92 [10] it was explained by the assessee that the amount was credited to the debit of Grasim Industries Ltd. It was stated that the same was a part of the deal which involved acquiring four crores units of UTI from various parties (including 10.5 lakhs units from Usha Grasim, and there was a specific authorization from Grasim to debit Grasim and credit various vendors. There was thus no finding or credit facilities to Harshad Mehta.
32. None of the above submissions impressed the Assessing Officer. It was noted by the Assessing Officer that there was no evidence by substantiate the factual elements embedded in the above submissions. He, accordingly, computed notional interest for one day on Rs.20 crores and for 345 days (i.e., 20 th April 1990 to 31 st March 1991) for Rs.1,51,20,000/- and brought the same to tax. (As for the remaining two credits explanations of the assessee bank were accepted and the matter was not perused further).
33. Aggrieved by the additions so made, assessee carried the matter in appeal before the learned CIT(A) who deleted the impugned addition and, so far as credit of Rs.20 crores was concerned, observed that there was no funding or credit facilities by the assessee amount received from the UCO Bank. As far as credit of Rs.151.20 lakhs was concerned, the learned CIT(A) noted that "one fact which is clear from the records is that while assessee bank credited Harshad Mehta's account, it simultaneously debited the account of M/s. Grasim Industries". It was thus noted that for this case also, neither there was any credit facility or funding of any type by the bank. It was in this backdrop that the impugned addition was deleted. The Assessing Officer is aggrieved and is in appeal before us.
34. Having heard the rival contentions and having perused the material on record, we are not inclined to disturb conclusion arrived at by the learned CIT(A) on this issue either. There is a categorical finding by the learned CIT(A), which has ITA No.6133/Mum./1995 Assessment year : 1991-92 [11] not been controverted before us, that the credit of Rs.151.20 lakhs to Harshad Mehta was accompanied by a correspoinding debit to Grasim Industries Ltd. It cannot, therefore, be said that there was extension of any credit facility to Harshad Mehta, by way of crediting the aforesaid amount of Rs.151.20 lakhs. As regards the credit of Rs.20 crores, that amount was credited as it was received from UCO Bank. That credit can also not be viewed by no stretch of logic, as a credit facility to Harshad Mehta. We are not going into the propriety of crediting an instrument drawn up on UCO Bank to the account of Harshad Mehta, but our concern is confined to the question whether such a credit can be treated as grant of a credit facility to Harshad Mehta. There is no element of loan or credit facility to Harshad Mehta in this transaction. When it cannot be treated as a loan or advance at all, obviously there is no occasion to treat it as an interest free loan or advance. The learned CIT(A) was, therefore, quite justified in deleting the impugned additions. On the facts of the case before us, there were no loans, advances or credit facilities extended to Harshad Mehta in above two transactions. We, therefore, uphold the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter.
35. Ground no.9 is also, therefore, dismissed.
36. In the result, appeal is dismissed. Pronounced in the open court today on 31 st day of May 2010.
sd/xx sd/xx
(N.V. Vasudevan) (Pramod Kumar)
Judicial Member Accountant Member
Mumbai; 31 st day of May 2010
ITA No.6133/Mum./1995
Assessment year : 1991-92
[12]
Copies of the order forwarded to :
(1) The Appellant
(2) The Respondent
(3) CIT, Mumbai
(4) CIT(A), Mumbai
(5) DR, "J" Bench
(6) Guard File
True Copy
By Order, etc.
Assistant Registrar
Income Tax Appellate Tribunal
Pradeep J. Chowdhury Mumbai Benches
Sr. Private Secretary
ITA No.6133/Mum./1995
Assessment year : 1991-92
[13]
Date Initial
1. Draft dictated on 24.5.2010 Sr.PS
2. Draft placed before author 25.5.2010 Sr.PS
3. Draft proposed & placed 25.5.2010 JM/AM
before the second
member
4. Draft discussed/approved 25.5.2010 JM/AM
by Second Member
5. Approved Draft comes to 25.5.2010 Sr.PS/PS
the Sr.PS/PS
6. Date of pronouncement 31.5.2010 Sr.PS
7. File sent to the Bench Clerk 31.5.2010 Sr.PS
8. Date on which file goes to
the Head Clerk
9. Date of dispatch of Order