Income Tax Appellate Tribunal - Mumbai
Standard Chartered Bank,Mumbai vs Ddit(It) 2 (1), Mumbai on 16 December, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL
"I" BENCH, MUMBAI
SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER
SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER
MA No. 208/MUM/2024
(Arising out of ITA No. 2839/Mum/2019)
(Assessment Year: 2002-2003)
&
MA No. 201/MUM/2024
(Arising out of ITA No. 1683/Mum/2019)
(Assessment Year: 2003-2004)
Standard Chartered Bank Ltd.
Tax Department, 7th Floor,
Crescenzo, 7th Floor, C-38/39,
G-Block, Behind MCA Club,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400051, Maharashtra.
[PAN:AABCS4681D] ............. Appellant
Assistant Commissioner Vs
(International Taxation)
Air India Building,
Nariman Point, Mumbai -400021
Maharashtra. ................ Respondent
Appearance
For the Appellant/Department : Shri Poras Kaka
Shri Manish Kant
For the Respondent/Assessee : Ms. Rajeshwari Menon
Date
Conclusion of hearing : 20.09.2024
Pronouncement of order : 16.12.2024
ORDER
Per Rahul Chaudhary, Judicial Member:
1. These are two Miscellaneous Applications preferred by the Assessee. By way of MA.No.208/Mum/2024 the Assessee is seeking rectification of the common order, dated 15/03/2024, passed by the Tribunal disposing off the appeal preferred by the Assessee for the Assessment Year 2002-03 [ITA MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 No.1683/Mum/2019] whereas by way of MA.No.201/Mum/2024 the Assessee is seeking rectification of the common order, dated 15/03/2024, passed by the Tribunal disposing off the appeal preferred by the Assessee for the Assessment Year 2003-2004 [2839/Mum/2019].
MA No.208/Mum/20242. We would first take up MA No.208/Mum/2024 pertaining to the Assessment Year 2002-03. The prayer clause of the aforesaid application reads as under:
"11. In view of the above, the Applicant prays that the Hon'ble ITAT may be pleased to:
(a) rectify the present order in accordance with the direction issued by this jurisdictional tribunal in Applicant's own case for AY 2001-02 and provide direction/clarification as sought by your Applicant with respect to recoveries made against securities losses for the AY 2002-03;
(b) rectify the present order and allow ground No. 2 of the appeal following its Order dated 15.03.2024 for the AYs 2002-03 and 2003-04 without any direction for verification of undisputed facts by the learned AO;
(c) pass such further or other orders as the facts and circumstances of the case may require;
(d) grant costs of and incidental to this present application."
3. We have heard both sides and perused the material on record on this issue.
4. The first mistake apparent on record pointed out during the course of hearing was in relation to Ground No.6 raised by the Assessee in appeal for the Assessment Year 2002-03. By way of the aforesaid ground it was contended on behalf of the Assessee that the recovery of securities losses of INR.10,68,03,977/-
2MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 made during the relevant previous year should not be brought to tax in view of the fact that the losses incurred pertained to Assessment Year 1993-94 and the issue of deductibility of said losses had not attend finality.
4.1. The relevant facts in brief are that Mr. Hiten P. Dalal (hereinafter referred to as 'the Broker'), one of the brokers involved in the securities market scam had, in May 1992, delivered to the Assessee certain shares/debentures (for short 'Securities') against certain contracts for purchase of securities, wherein his contractual obligations remained unfulfilled. Subsequently, the Broker disputed the Assessee's right to the title over these securities. The Assessee had claimed deduction for INR.1,427.60 Crores in the Assessment Year 1993-94 being the securities losses suffered by the Assessee in transactions undertaken through the Broker. However, losses to the extent of INR.333.45 Crores were allowed by the Assessing Officer for Assessment Years 1993-94 and INR.5.04 Crores for the Assessment Year 1995-96. The allowability of balance loss was subjudice since the appeals filed by the Assessee/Department are pending. Subsequently, the Supreme Court upheld the Assessee's right as pledgee against the said securities and also the right to retain dividends & bonus shares received on these securities. Accordingly, the Assessee realised INR.10,68,03,977/- during the previous year relevant to the Assessment Year 2002-03 as proceeds of the pledged securities and accretions during the relevant previous year. The Assessee's contention was that since the allowability of losses to the extent of INR.1089.11 Crores claimed by the Assessee during the Assessment Year 1993-94 had not attend finality, the proceeds of INR.10,68,03,977/- realised during the relevant previous year cannot be brought to tax and the same should be offset against such unrecovered 3 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 loss. The Assessing Officer and the CIT(A) rejected the aforesaid contention and taxed the recoveries made in the hands of the Assessee. Subsequent to filing of the appeal for the Assessment Year 2002-03 before the Tribunal, vide order, dated 27/07/2023, passed in appeal preferred by Revenue for Assessment Year 1993-94, the Tribunal had allowed deduction for the security losses. Therefore, considering the aforesaid order, during the course of hearing before the Tribunal, it was submitted that the Assessee did not wish to press Ground No.6 pertaining to non-taxability of recovery made against securities losses. It is submission of the Assessee that the Assessee had sought direction to the effect that in case the Department's appeal against the order, dated 27/07/2023, passed by the Tribunal for Assessment Year 1993-94 is allowed, then the Ld. Assessing Officer be directed not to tax the recoveries made against the said losses in AY 2002-03. However, the aforesaid direction was not given by the Tribunal and this constituted a mistake apparent on record. Accordingly, by way of the present rectification application the Assessee has sought the following directions:
"In case, the Department succeed in its appeal before the Hon'ble High Court/Supreme Court in AY1993-94 that loss is not allowable in the said AY, then the Ld. AO be directed to not to tax the recoveries against the said securities losses in the AY under consideration."
4.2. We note that the Tribunal has disposed off the Ground No.6 raised by the Assessee as under:
"63. With regard to Ground No. 6 which is in respect of recoveries against securities loss, at the time of hearing, Ld.AR of the assessee submitted that this ground is academic in nature, accordingly, the same requires no specific adjudication, Ground No. 6 raised by the assessee is kept open."
4.3. On perusal of the above we find that the Tribunal has specifically 4 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 stated that Ground No. 6 raised by the Assessee is kept open. The directions being sought are clearly dependent upon the outcome of the appellate proceedings before the Hon'ble High Court and the Hon'ble Supreme Court. Therefore, in order to redress the grievance of the Assessee, it is clarified that subject to judgment/direction of the Hon'ble High Court/Hon'ble Supreme Court in the appellate proceedings arising from the order, dated 27/07/2023, passed by the Tribunal in appeal for the Assessment Year 1993-1994, the recoveries of securities losses would not be taxed during the Assessment Year 2002-2003 in case the Revenue succeeds its appeal for the Assessment Year 1993-94 before the Hon'ble High Court/Hon'ble Supreme Court and the deduction for securities losses in disallowed. Accordingly, paragraph 63 of the order, dated 15/03/2024, shall be replaced by and be read as under:
"63. With regard to Ground No. 6 which is in respect of recoveries against securities loss, at the time of hearing, Ld.AR of the assessee submitted that this ground is academic in nature, accordingly, the same requires no specific adjudication, Ground No. 6 raised by the assessee is kept open. Subject to judgment/direction of the Hon'ble High Court/Hon'ble Supreme Court in the appellate proceedings arising from the order, dated 27/07/2023, passed by the Tribunal, the recoveries of securities losses would not be taxed during the Assessment Year 2012-2013 in case the Revenue succeeds its appeal for the Assessment Year 1993-94 before the Hon'ble High Court/Hon'ble Supreme Court and as a result the deduction for securities losses claimed in Assessment Year 1993-94 is disallowed."
5. According to the Assessee the second mistake apparent on record that crept into the order, dated 15/03/2024, passed by the Tribunal pertains to directions given by the Tribunal in paragraph 56 of the said order while disposing off Ground No.2 raised by the Assessee in appeal for the Assessment Year 2002-
03. Paragraph 56 of the order dated 15/03/2024 reads as under:
"56. It was held that the intra group services should have 5 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 provided and such services must be at Arm's Length Price. As per OECD, allocation of cost based on approved allocation key and certified by the CPA certificate is relevant. The revenue cannot reject the CPA certificate since the same are specific and authenticated. As per Rule 10D(2)(A), the document must be supported by authentic documents, which includes authentication by the CPA. Therefore, the certification of allocation key and the same was authenticated by the CPA is proper documents as per Rule 10(2)(A) of the I.T. Rules. Respectfully following the above decision, we observe that in the given case also, the assessee has provided informations under Rule 10D(2)(A) and the cost allocation was also certified by the statutory auditors (CPA) of the Head Office and the service branches are submitted before tax authorities. However, this was not taken cognizance by the tax authorities. Therefore, we direct the Assessing Officer to verify the CPA certificate and verify the allocation key and relevant allocation of the cost to the Indian entity. Therefore, we rely on the above decision and findings of the Coordinate Bench in assessee's own case, we are inclined to allow the Ground No.2 raised by the assessee with the above direction."
5.1. In paragraph 56 above, the Tribunal has directed the Assessing Officer to verify the CPA Certificate and allocation key and relevant allocation of the cost to the Indian entity.
5.2. The submission made on behalf of the Assessee is that the aforesaid directions issued by the Tribunal constitute mistake apparent on record. According to the Assessee, Ground No.2 raised by the Assessee should have been allowed by the Tribunal by deleting the Transfer Pricing Addition of INR.34.97 Crores by placing reliance upon the CPA Certificate furnished by the Assessee during the assessment proceedings on account of the following:
(a) The Tribunal had incorrectly recorded that the Assessing Officer had failed to take cognizance of the CPA Certificate whereas the Transfer Pricing Officer and the Assessing Officer had applied their mind to the same. No dispute was raised by the Revenue regarding the CPA Certificates and the allocation keys.
(b) All the facts relevant for adjudication of Ground No.2 were on 6 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 record and therefore, the Tribunal, being the final fact finding authority could not have remanded the issue back to the file of the Assessing Officer and to this extent the order passed by the Tribunal is contrary to the various judgments of the Jurisdictional Hon'ble High Courts.
5.3. Per Contra the Learned Departmental Representative supported the order passed by the Tribunal and reiterated the stand of the Revenue as taken at the time the hearing of the appeal.
5.4. We have given thoughtful consideration to the rival submission.
5.5. It is admitted position that in the return of income the Assessee had claimed deduction for expenses of INR.76.94 Crores being cost allocated to Indian operations. During the assessment proceedings a reference was made to the Transfer Pricing Officer (TPO) under Section 92CA(3) of the Act for determining the Arm's Length Price (ALP) of the total cost allocation of INR.76.94 Crores. The TPO accepted the cost allocation of INR.41.97 Crores. However, the ALP of the balance cost allocation of INR.34.97 Crores was treated as 'Nil' by the TPO as the Assessee had only provided details and supporting documents pertaining to 60% of the cost allocation for demonstrating the benefit derived by the Indian operations. Thus, TPO accepted cost allocation of INR.41.97 Crores without any adjustment whereas in relation to the balance cost allocation of INR.34.97 Crores the TPO concluded that the Assessee has failed to meet the benefit test and in the absence of details/supporting the benefit derived by the Indian operations could not be demonstrated by the Assessee. Therefore, the ALP for the 40% of cost allocation was determined as 'Nil' by the TPO and transfer pricing adjustment of INR.34.97 Crores was proposed. The Assessing Officer confronted the Assessee with the aforesaid transfer pricing adjustment proposed by the TPO. Further, the Assessing Officer also asked the Assessee to show cause why deduction for cost allocation should not be disallowed under Section 40(a)(i) of the Act on account of failure to withhold tax under Section 7 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 195 of the Act. In response, the Assessee filed reply letter dated 18/03/2005. The Assessing Officer took note of the fact that even before the TPO that Assessee had not furnished original vouchers and had taken a position that there was no agreement for sharing the cost and no invoices were raised on Indian Branch. After considering the findings of the TPO and the reply of the Assessee, the Assessing Officer made the transfer pricing addition of INR.34.97Crores. The Assessing Officer also concluded that even on merits the entire amount of cost allocation of INR.76.94 Crores is to be disallowed under Section 40(a)(ia) of the Act. The appeal preferred by the Assessee before the CIT(A) on these issues did not yield any favorable result and the CIT(A) declined to grant any relief to the Assessee.
5.6. All the above facts are captured in detail in paragraph 32 to 45 of the Order, dated 15/03/2024, passed by the Tribunal. The grievance raised by the Assessee by way of present rectification application is limited to the Transfer Pricing Adjustments. In this regard we note that after recording the rival submissions in paragraph 47 to 50 of the order dated 15/03/2024, the Tribunal proceeded to return a finding in paragraph 55 of the said order that the decisions of the co-ordinate Bench of the Tribunal in the case of the Assessee on which reliance was placed by the Assessee did not deal with the issue of Transfer Pricing Adjustments and issue raised therein was limited to allowability of cost allocated in terms of the provisions contained in Section 44C of the Act. The Tribunal, in principle accepted the contention of the Assessee that the entire cost allocation cannot be disallowed in absence of a separate agreement for cost allocation between head office and the Indian operations/branch. After referring to the decision in the case of Jabil Circuit India Private Limited Vs. Asst. CIT, Circle 3(2)(1) [ITA No.2200/Mum/2017 & ITA No.867/Mum/2018 for the Assessment Year 2012-13 & 2013-14] the Tribunal disposed off the Ground No.2 raised by the Assessee with the following directions:
"56. .....However, this was not taken cognizance by the tax authorities. Therefore, we direct the Assessing Officer to verify the CPA certificate and verify the allocation key and 8 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 relevant allocation of the cost to the Indian entity. Therefore, we rely on the above decision and findings of the Coordinate Bench in assessee's own case, we are inclined to allow the Ground No.2 raised by the assessee with the above direction."
5.7. First contention raised by the Assessee is that the finding returned by the Tribunal that the tax authorities did not take cognizance of the CPA Certificate and allocation keys during the assessment proceedings is factually incorrect. It was submitted on behalf of the Assessee that the TPO and Assessing Officer had applied mind to the CPA Certificate and verified the same during the assessment proceedings. In this regard, we note that it is admitted fact that the Assessee had only filed supporting documents and details for 60% of the cost allocated before the TPO and the Assessing Officer. This becomes clear on perusal of letter dated, 16/02/2005, filed by the Assessee before the TPO in response to notice, dated 25/01/2005 [placed at Page 145 to 152 of the Factual Paper Book]. In paragraph 37 of the order, dated 15/03/2024, passed by the Tribunal, the relevant extract of the aforesaid letter has been reproduced by the Tribunal. The aforesaid position is also apparent from the submissions on Ground No.2 filed by the Assessee before CIT(A) placed at Page 219 to 227 of the Factual Paper Book filed by the Assessee. The relevant extract of the aforesaid submission reads as under:
"9. Reasons for Disallowance by the AO are as under:
a) The Assessing Officer has held that the entire amounts are in the nature of royalty. The Assessing Officer has disallowed the entire amounts of Rs. 86.99 crores (Rs.
76.94 cr. + Rs. 10.06 cr.), as per details given below, since no taxes were deducted at source u/s 40(a)(i) of the Act.
b) The Assessing Officer has also accepted the finding of the TPO in the order passed under Section 92CA(3), treating the ALP as NIL for expenses of Rs.34.97 Crores.
Summary of Submission
Sr. Reasons for Assessee's submission
No. Disallowance
1. Assessing Officer xx xx
has held that the
9
MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 entire amounts i.e. Rs. 86.99 crores are in the nature of royalty and since no taxes were deducted at source, same is disallowed u/s 40(a)(i) of the Act
2. The assessing These expenses are officer has also directly attributable to accepted the assessee's operations in finding of the India and same is TPO in the Order allocated on scientific passed u/s. basis and substantiated 92CA(3). treating by certificate issued by the ALP as NIL Auditor.
for expenses of Rs. 34.97 crores. The assessee was able to explain the benefits received by SCB India with reference to entire cost allocated.
When assessee was
asked to produce
evidence for such
expenses allocated, on
sample basis, assessee
was able to substantiate
the expenses of Rs.
41.97 crores which is
more than 60% of total
expenses.
Considering the
magnitude of total
expenses allocated and
fact that it is incurred
outside India, assessee
made best efforts to file
details of expenses
allocated to India.
TPO after detailed
examination accepted
that expenses of Rs.
41.97 crores were
considered to be
10
MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 rendering the benefits to the assessee, then there is no reason for not accepting the balance expenses of Rs.34.97 crores.
When expenses are
incurred of technology
cost, it is not logical on
part of mainly on account
the Assessing officer to
the expenses ie Rs.
34.97 crore does not yield
conclude that part of any
benefits to the assessee.
At any point of time,
neither TPO nor the
Assessing officer has
challenged the
correctness of auditor
certificate, Auditor has
vouched for correctness
of cost allocated to India.
By disallowing part of
expenses, in a way, AO
try to conclude that
certificate. By issuing
Auditor certificate is partly
incorrect without
providing any cogent
reason for the same.
Detailed Submissions
(I) Disallowance of Rs. 34.97 crores on the basis of the
transfer pricing adjustment.
1. The Appellant submits that the Assessing Officer (AO) erred in denying the deduction for the cost Rs. 34.97 crores by accepting the findings given in the order u/s. 92CA(3). Further, even TPO erred in treating the ALP for the expenses of Rs. 34.97 crores at 'nil'.
2. The AO/TPO ought to have considered followings:
Of the total expenses incurred by SCB (HO), expenses incurred during the year 2001 which are attributable to the operations carried out in India were allocated at Rs. 76.94 crores. These expenses 11 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 are directly attributable to its operations in India and hence should be allowed as a deduction. Hence, when the total expenses of Rs. 76.94 crores were allocated to SCB-India (Assessee/ Appellant) on scientific basis and substantiated by audit certificate issued by M/s KPMG Audit Plc - UK there is no reason for AO/ TPO to assume that only expenses of Rs. 41.97 crores yield benefits to Appellant.
The appellant has submitted the details of benefits received by SCB-India branch with reference to entire costs of Rs. 76.94 crores (Refer Annexure 2A). The TPO has not made any adverse comments with reference to the same.
Hence, the finding of the TPO that the balance expenses could not be demonstrated to have given benefit to the assessee is not correct After having furnished the details of benefits received by SCB India, the Appellant had filed contemporaneous evidences/details under various heads separately.
Though practically it would not be possible for any assessee to produce contemporaneous evidences for 100% of expenses particularly when the expenses are to the magnitude of Rs. 76.94 crores, Appellant had made its best efforts to file such details with reference to in the time the expenses of Rs. 41.97 crores, i.e. 60% of the available total expenses.
The TPO has erred in treating the ALP for the expenses of Rs.34.97 crores at 'nil' merely because the details could be filed for expenses of Rs. 41.97 crores only.
Further, on the basis of details furnished when TPO, after detail examination. has accepted that expenses of Rs. 41.97 crores were considered to be rendering benefits to the assessee, then there is no reason for him for not accepting that balance expenses of Rs. 34.97 crores could also have given benefits to assessee, particularly when the appellant had made detail submissions explaining how the entire expenses of Rs. 76.94 crores have given benefits to it.
3. Expenses directly attributable to its operation in India are allocated as per Audit certificate 12 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 Various expenses incurred by HO, such as, Information System & Technology (IS&T) costs, Group Technology cost, etc. are allocated on some reasonable basis to Appellant.
These expenses are specifically attributable to Appellant's-operation in India. Further, such expenses are allocated on the basis of audit certificate issued by M/s KPMG Audit Plc - UK. In other were basis of audit of various expenses and the basis of allocations are certified by KPMG.
Hence when expenses are attributable to Appellant's operation carried out in India and are allocated on the basis of audit certificate, AO/TPO erred in treating ALP at 'nil' for part of such expenses of Rs.34.97 crores on so-called assumption that the same does not yield benefits to the Appellant.
Since AO has disallowed part of the expenses (Rs. 34.97 cr.) related to Group Technology cost, Hong Kong / Singapore Direct cost, the same is dealt with hereunder.
xx xx xx xx ✓ Such costs are allocated to India operation and the bases of allocations are certified by KPMG. Even the AO/TPO have accepted such basis of allocation since they have accepted part of such allocated cost.
✓ Benefits derived by Appellant with reference to entire expenses were explained to the AО/ТРО.
Hence, it is submitted that the action of AO/ TPO to treat ALP for part above referred expenses at 'nil' is baseless. The entire expenses are attributable to Appellant's operations in India and the same should be allowed as a deduction.
4. Benefits to the Appellant xx xx 13 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004
5. The Appellant submits that the action of TPO of not accepting ALP of entire expenses of Rs. 76.94 crores is not tenable, particularly when the Appellant had substantiated the expenses of Rs. 41.97 crores, which is more than 60% of the total expenses, by filing various contemporaneous evidences and details, and such details demonstrated the benefits derived by the Appellant, as has been accepted by the TPO. The details furnished with reference to 60% of the total cost adequately represent the cost incurred under various heads, aggregating to Rs. 76.94 crores. The Appellant submits that in the current business environment, it should not have been practically possible for any businessman to substantiate 100% of expenses by filing detailed evidences in the limited available time, particularly when the quantum of the costs involved is Rs. 76.94 crores.
6. The Appellant further submits that the evidences produced adequately represented costs incurred under various heads and thus provided contemporaneous evidence of services / benefits under various heads with supporting for the higher amounts for which the charge has been allocated to it.
7. The Appellant further submits that whatever evidences provided by the Appellant were adequate and complete to enable the Assessing officer to conclude that 60% of the costs were incurred for the benefit of SCB-India. The TPO, after detailed examination could not find any discrepancies on any of the evidence provided. The observation at para 10 the Order passed u/s. 92CA(3) is reproduced below: "... Thus out of total cost allocation to this Indian branch of Rs. 76.94 crores, Rs. 41.97 crores is accepted. Hence, there is no reason for AO/TPO to assume that balance expenses could not be demonstrated to have given benefit to the appellant.
8. The Appellant submits that detailed explanation provided on the benefits derived by SCB-India from each category of costs along with actual evidence to the extent of 60% should provide conclusive evidence, that the entire costs of Rs. 76.94 crores are attributable to the Indian operations.
9. The appellate submits that the AO erred in holding that part of the expenditure is required to be disallowed in the absence of details.
14MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 In view of the above, it is respectfully submitted that the disallowance of Rs. 34.97 crores made based on the transfer pricing order is unjustified and should be deleted." (Emphasis Supplied) 5.8. From the above it is apparent that the TPO had proposed Transfer Pricing Adjustments of INR.34.97 Crores on the ground that the Assessee had failed to satisfy the benefit test. Since the TPO had rejected the claim at the very threshold, there was no occasion for the TPO to benchmark the cost allocated by taking into account the CPA Certificate furnished by the Assessee. Further, perusal of Assessment Order clearly shows that the TPO/Assessing Officer had clearly taken a stand that in absence of relevant documents/details the benefit derived from the Indian operations could be determined and therefore, benchmarking of cost allocation could not be done. Thus, we reject the contention of the Assessee that the authorities below had verified the CPA Certificate furnished by the Assessee for benchmarking the cost allocation. The finding returned by the Tribunal that the authorities below had not taken cognizance of the CPA Certificate is supported by the material on record which has been referred to by the Tribunal in its order.
5.9. Further, a perusal of the submission field before the CIT(A), reproduced in paragraph 5.7 above also shows that the Assessee had submitted before the CIT(A) that the action of TPO of not accepting ALP of entire expenses of INR.76.94 Crores was not tenableas as the Assessee had substantiated the expenses of INR.41.97 Crores, which is more than 60% of the total expenses, by filing various contemporaneous evidences and details, and such details demonstrated the benefits derived by the Assessee. It was also submitted by the Assessee that it was not practically possible for any businessman to substantiate 100% of expenses by filing detailed evidences in the limited available time particularly when the quantum of the costs involved is Rs. 76.94 crores. Thus, admittedly supporting documents related to the balance expenses of 34.97 Crores, being 40% of the allocated cost, were not filed during the assessment 15 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 proceedings. Before the CIT(A) it was contended on behalf of the Assessee that no Transfer Pricing Adjustment should be made in the hands of the Assessee since the TPO has failed to point out any infirmity in the documents/details furnished in relation to expenses of INR.41.97 Crores and has accepted the same. Reliance was also placed on the CPA Certificate furnished by the Assessee. On perusal of the detailed submission made by the Assessee before the CIT(A) reproduced in paragraph 5.7 above, it can be seen that reliance has been placed upon the CPA Certificate to justify ALP of the cost allocated to the Indian operations. It was submitted by the Assessee that various expenses incurred by the head office (such as information and technology cost etc.) were allocated on 'some reasonable basis' to the Assessee. A copy of the CPA Certificates (along with the relevant Annexures) was placed before the Tribunal as part of the Factual Paper Book at Page 263 to 268. The aforesaid certificate reads as under:
"Report on Standard Chartered Bank ("the Bank") Head Office Administration Expenses schedules for Standard Chartered Bank India Branch for the year ended 31 December 2002 In accordance with the terms of our engagement letter dated 29 May 2003, we have reviewed the attached Standard Bank Head Office Administration Expense Schedule ("the Schedules") which we have initialed for identification purposes only. The Schedules have been prepared by the directors of the Bank and they have sole responsibility for both their preparation and allocation policy applied therein. The schedules have been prepared for the Standard Chartered Bank India Branch of the Bank.
The Schedules set the Bank's Head Office Administration Expense allocation for the year ended 31 December 2002. The Bank's Head Office Administrative Expense, ("the costs") are defined and allocated to the Standard Chartered Bank India Branch based on the Bank's allocation policy which has been determined by the directors of the Bank.
Under the terms of our engagement letter, our responsibility is to form an opinion on whether the aggregate costs of the Bank as shown on the attached Schedules have been accurately extracted from the books and records kept by the Bank and have been allocated in accordance with the Bank's allocation policy, on 16 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 the basis of the work performed, and report to the Bank.
Our report has been prepared for the Bank solely in connection with the completion of Standard Chartered Bank India Branch local tax return. It has been released to the Bank, on the basis that our report shall not be copied, referred to or disclosed, in whole (save for the Bank's own internal purposes) or in part, without our prior written consent. We hereby consent that the Bank make available our report to the Deputy Director of Income Mumbai India.
xx xx We have examined the records of the Bank and carried out such tests and received such explanations from management, as we consider necessary work we have performed is to enable us significantly less in scope than an audit and hence provides to form our of assurance than an audit. We were not required to, nor did we, form any opinion as to whether the stated allocation policies applied by the directors of the Bank, are appropriate.
On the basis of the work performed, in our opinion:
the amounts reported on the Schedules as the Bank's costs by category of expenditure in the year ended December 2002 have been accurately extracted from the accounting records of the Bank for that period, and the allocation of Bank's costs to the Standard Chartered Bank India Branch has been properly calculated in accordance with the Bank's allocation policy."
5.10. On perusal of CPA Certificate it is clear that the allocation of cost was made as per the Assessee's allocation policy and the certificate issued did not express any opinion on the appropriateness of the allocation policies and the opinion expressed therein was limited the calculations made. Therefore, in appeal before the Tribunal the Assessee was, in effect, seeking deletion of the Transfer Pricing Adjustment on the basis of aforesaid CPA Certificate without any verification by the tax authorities. The aforesaid request of the Assessee was rejected by the Tribunal and the issue was remanded back to the file of 17 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 the Assessing Officer/TPO with the directions. It is not the case of the Assessee that the Tribunal does not have the power to remand the issue back to the file of the authorities below in terms of Rule 28 of the Income Tax (Appellate Tribunal), Rules 1963. The submission advanced on behalf of the Assessee is that the Tribunal being the final fact finding authority should have decided the issue in favour of the Assessee on the basis of CPA Certificate. We are alive to the fact that the Tribunal being the final fact-finding Authority is required to return finding of fact. However, for doing so all the relevant material/facts should be available on record. In case the material facts/information are not available on record and the Tribunal may, in its discretion, remand the issue back to the file of the authorities below. While it has been submitted on behalf of the Assessee that all materials/fact relevant for adjudication of the issue of transfer pricing adjustment were available on record, the same was rejected. We do not find merit in the aforesaid submission in view of the facts narrated hereinabove. We have already rejected the submission of the Assessee that the authorities below had taken cognizance of the CPA Certificate. In our view, the authorities below did not object to the allocation policy or computation of cost allocation solely for the reason that the contention of the Assessee that the cost allocated resulted in benefit to Indian operations/branch was rejected at the threshold by the authorities below on account of failure of the Assessee to furnish supporting documents. Vide order dated 15/03/3024, the Tribunal had accepted the contention of the Assessee that the entire cost allocation cannot be rejected on account of non-submission of original vouchers and agreement/invoices, and thereby provided another opportunity to the Assessee to establish that the cost allocation was at ALP.
18MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 Equity also required that Revenue should also be granted opportunity to verify the allocation/computation of the cost said to have been incurred outside India for the purpose of Indian operations. Thus, we reject the contention of the Assessee that the directions issued by the Tribunal in paragraph 56 of the order, dated 15/03/2024, constituted mistake apparent on record. Further, before parting we would like to observe that formation of view by the Tribunal that an issue should be remanded back to the file of the authorities below cannot constitute a mistake apparent on record in the facts and circumstances of the present case since the issue whether the complete details/documents are on record is itself a disputed/debatable issue. In the facts of the present case, the remand of the issue back to the file of the authorities below can, at best, constitute error of judgment (and not mistake apparent on record as contended by the Assessee) which may be subjected to judicial review in appellate proceedings under Section 260A of the Act and the same does not fall within the ambit of powers vested in the Tribunal under Section 254(2) of the Act to rectify the mistake apparent on record.
5.11. Thus, In terms of paragraph 4.3 above, prayer in paragraph 11
(a) made in the present Miscellaneous Application is allowed while prayer in paragraph 11 (b) to (d) of the present application are rejected in view of in terms of paragraph 5.10 above.
MA No.201/Mum/20246. Now we would take up MA No.201/Mum/2024 filed in ITA No.2839/Mum/2019 pertaining to the Assessment Year 2003-04. The prayer clause of the aforesaid application reads as under:
19MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 "11. In view of the above, the Applicant prays that the Hon'ble ITAT may be pleased to:
(a) rectify the present order in accordance with the direction issued by this jurisdictional tribunal in Applicant's own case for AY 2001-02 and provide direction/clarification as sought by your Applicant with respect to recoveries made against securities losses for the AY 2003-04;
(b) rectify the present order and allow ground No. 2 of the appeal following its Order dated 15.03.2024 for the AYs 2002-03 and 2003-04 without any direction for verification of undisputed facts by the learned AO;
(c) pass such further or other orders as the facts and circumstances of the case may require;
(d) grant costs of and incidental to this present application."
9. Since there is no change in the facts and circumstances of the case when compared to M.A. No.208/Mum/2024 pertaining to Assessment Year 2002-03, prayer in Para 11 (a) above is allowed while prayer in paragraph 11 (b) to 11 (d) of the Application are rejected. Accordingly, it is clarified that subject to judgment/direction of the Hon'ble High Court/Hon'ble Supreme Court in the appellate proceedings arising from the order, dated 27/07/2023, passed by the Tribunal, the recoveries of securities losses would not be taxed during the Assessment Year 2003-2004 in case the Revenue succeeds its appeal for the Assessment Year 1993-94 before the Hon'ble High Court/Hon'ble Supreme Court and the deduction for securities losses in disallowed. However, no change would be require to be made in paragraph 73 of the order dated 15/03/2023, in view of the language thereof (reproduced herein below):
"73. Coming to the appeal relating to A.Y. 2003-04, since facts and grounds in this case are mutatis mutandis, therefore the decision taken in assessee's case for the A.Y. 2002-03 are 20 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 applicable to this assessment year also. With regard to Ground No. 7 relating to premium paid to acquire the retail loan portfolio, we have decided the issue on the basis of deferred revenue expenditure, the same is directed to be allowed to the assessee at 1/5th of the premium paid on acquisition of portfolio. Therefore, this ground is partly allowed. All other grounds raised are similar to the grounds raised in A.Y. 2002-03, the same are disposed off mutatis mutandis to other grounds in A.Y. 2002-03. Accordingly, the appeal filed by the assessee is partly allowed."
10. In result, both the Miscellaneous Application preferred by the Assessee are partly allowed.
Order pronounced on 16.12.2024.
Sd/- Sd/-
(Narendra Kumar Billaiya) (Rahul Chaudhary)
Accountant Member Judicial Member
मुंबई Mumbai; दिन ुं क Dated : 16.12.2024 Milan, LDC 21 MA No. 208/Mum/2024 & M.A. No.201/Mum/2024 ITA No.2839/Mum/2018 & ITA No. 1683/Mum/2024 Assessment Year 2002-2003 & AY 2003-2004 आदे श की प्रतितिति अग्रे तिि/Copy of the Order forwarded to :
1. अपील र्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयक्त/ The CIT
4. प्रध न आयकर आयक्त / Pr.CIT
5. दिभ गीय प्रदिदनदध, आयकर अपीलीय अदधकरण, मुं बई / DR, ITAT, Mumbai
6. ग र्ड फ ईल / Guard file.
आिे श नस र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदधकरण, मुं बई / ITAT, Mumbai 22