Standard Chartered Bank,, v. DDIT, Circle-2(2),,

ITA 2238/DEL/2006 | 1999-2000
Pronouncement Date: 02-03-2021 | Result: Partly Allowed

Appeal Details

RSA Number 223820114 RSA 2006
Assessee PAN AAACA1049A
Bench Delhi
Appeal Number ITA 2238/DEL/2006
Duration Of Justice 14 year(s) 8 month(s) 11 day(s)
Appellant Standard Chartered Bank,,
Respondent DDIT, Circle-2(2),,
Appeal Type Income Tax Appeal
Pronouncement Date 02-03-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 02-03-2021
Date Of Final Hearing 13-07-2017
Next Hearing Date 13-07-2017
Assessment Year 1999-2000
Appeal Filed On 20-06-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIB UNAL DELHI BENCH B: NEW DELHI (THROUGH VIDEO CONFERENCING) BEFORE SHRI SUDHANSHU SRIVASTAVA JUDICIAL MEMBER AND SHRI O.P.KANT ACCOUNTANT MEMBER ITA NO.2238/DEL/2006 (ASSESSMENT YEAR 1999-00) ITA NO.2239/DEL/2006 (ASSESSMENT YEAR 2000-01) STANDARD CHARTERED GRINDLAYS LTD. (FORMERLY STANDARD CHARTERED GRINDLAYS BANK LTD.) STANDARD CHARTERED BANK 23-25 M.G. ROAD 3 RD FLOOR FORT MUMABI-400 001. PAN AAACA 1049A VS. DY. DIRECTOR OF INCOME TAX CIRCLE-2(2) INTERNATIONAL TAXATION NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO.2381/DEL/2006 (ASSESSMENT YEAR 1999-00) ITA NO.2382/DEL/2006 (ASSESSMENT YEAR 2000-01) ASST. DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION CIRCLE 2(2) NEW DELHI VS. STANDARD CHARTERED GRINDLAYS LTD. H-2 CONNAUGHT CIRCUS NEW DELHI. PAN AAACA 1049A (APPELLANT) (RESPONDENT) 2 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT APPELLANT BY MS. SHASHI M. KAPIL ADV. RESPONDENT BY SH. G.K. DHALL CIT- DR SH. BHAGWATI CHARAN SR. DR DATE OF HEARING 04.12.2020 DATE OF PRONOUNCEMENT 02.03.2021 ORDER PER SUDHANSHU SRIVASTAVA JM: THE ABOVE CAPTIONED CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE PERTAIN TO ASSESSMENT YEAR S (AY) 1999- 2000 AND 2000-2001 AND AS THE ISSUES INVOLVED IN BO TH THE APPEALS ARE COMMON THEY WERE HEARD TOGETHER AND ARE BEING HEREBY DISPOSED OFF VIDE THIS CONSOLIDATED ORDER FOR THE S AKE OF CONVENIENCE. 2.0 THE LD. AUTHORISED REPRESENTATIVE (AR) AT TH E OUTSET SUBMITTED THAT THE ISSUES INVOLVED IN THESE APPEALS ARE COVERED BY THE ORDER OF THIS TRIBUNAL (ITAT) IN ASS ESSEES OWN CASE FOR AYS 1997-1998 AND 1998-1999. SHE ALSO FILED A P APER BOOK CONTAINING CHART OF ISSUES AND ORDERS OF THE ITAT F ROM WHICH THEY ARE COVERED. IT WAS ACCORDINGLY SUBMITTED THAT APPE ALS RAISED MAY BE DECIDED IN THE LIGHT OF THE EARLIER ORDERS OF TH E TRIBUNAL. 3 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT 3.0 THE LD. DEPARTMENTAL REPRESENTATIVE (DR) ON THE OTHER HAND DID NOT DISPUTE THE FACTUAL POSITION TO THIS EFFECT AND STATED THAT GROUNDS BEING RAISED IN THE CROSS APPEA LS ARE IDENTICAL TO THAT DEALT WITH BY THE ITAT IN EARLIER YEARS. 4.0 ASSESSMENT YEAR 1999-2000 - ASSESSEES APPEAL (ITA NO. 2238/DEL/2006) : THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER PASSED U/S 250 OF THE INCOME TAX ACT 1961 (HEREINAFTER CALLED THE ACT) BY THE LD. COMM ISSIONER OF INCOME TAX (APPEALS)-XXIX NEW DELHI {CIT (A)} VIDE ORDER DATED 26/04/2006. 4.1 THE ASSESSEE HAS RAISED THE FOLLOWING GROUND S OF APPEAL: 1. THE LEARNED CIT (A) HAD ERRED IN LAW AND ON FAC TS IN SURMISING THAT 20% OF NRI EXPENSES AMOUNTING TO RS . 27 43 010 INCURRED ON PERSONNEL TELEPHONE AND TRAV ELLING WERE IN THE NATURE OF HEAD OFFICE EXPENSES AND HEN CE DISALLOWABLE. 2. THE LEARNED CIT(A) HAD ERRED IN SUSTAINING THE D IS- PROPORTIONATE AND EXCESSIVELY EXAGGERATED ESTIMATE OF INDIRECT EXPENSES ATTRIBUTABLE TO EARNING INCOME O N 4 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT FOREIGN CURRENCY LOANS TAXABLE U/S. 115A OF RS. 2 71 28 450/- DESPITE THE FACT THAT A PROPERLY ALLO CATED AMOUNT WAS ALREADY OFFERED TO TAX BY THE APPELLANT U/S. 115A(3) OF THE ACT. 3. THE LEARNED CIT(A) HAD ERRED IN LAW AND ON FACTS IN UPHOLDING AN ESTIMATED DISALLOWANCE OF MANAGERIAL A ND ADMINISTRATIVE EXPENSES OF RS. 1 20 000/- FOR EARNI NG DIVIDEND INCOME BY TREATING THIS AS TAX FREE INCOME WHEREAS DIVIDEND INCOME IS ACTUALLY SUBJECT TO TAX AT SOURCE BEFORE DISTRIBUTION BY THE COMPANY WHICH PAY S THE DIVIDENDS. 4. THE LEARNED CIT(A) HAD ERRED IN LAW AND ON FACTS IN UPHOLDING AN AD HOC ADDITION OF RS. 35 00 000/- ON ACCOUNT OF EXPENSES INCURRED ON EARNING FOREIGN CUR RENCY SYNDICATED TERM LOANS. 5. THE APPELLANT CRAVES LEAVE TO ADD ALTER AND. OR AMEND ALL OR ANY OF THE GROUNDS IN APPEAL AT THE TIME HEARING . 4.2.0 GROUND NO. 1 IS DIRECTED AGAINST 20% DISAL LOWANCE OF NRI EXPENSES AS CONFIRMED BY THE LD. CIT (A). IT IS NOTED THAT THE ASSESSING OFFICER (AO) CONSIDERED THE DISALLOWANCE O F RS. 1 74 64 029/- IN RESPECT OF CLAIM OF NRI EXPENSE IN CURRED OUTSIDE INDIA FOR SOLICITING AND MOBILIZING OF DEPOSITS IN FOREIGN CURRENCY ON THE GROUND THAT THESE EXPENSES WERE NOT BOOKED IN TH E PROFIT & 5 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT LOSS A/C. FURTHER THE ASSESSING OFFICER ALSO HELD THAT THE DEDUCTION IN RESPECT OF THESE EXPENSES HAS ALREADY BEEN ALLOWE D U/S 44C OF THE ACT. THE LD. FIRST APPELLATE AUTHORITY ALLOWED 80% OF THE EXPENSES AND UPHELD THE BALANCE 20% IN RESPECT OF P ERSONNEL TELEPHONE AND TRAVELLING EXPENSES. 4.2.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS A ND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE HAD EARLIER COME UP FOR CONSIDERATION B EFORE THE COORDINATE BENCH IN APPEALS FOR IMMEDIATELY PRECEDI NG YEAR (AY 1998-1999) IN ITA NO. 2180/DEL/06 AND 1459/DEL/2006 VIDE ORDER DATED 28.02.2018 WHEREIN THE MATTER WAS SET-ASIDE TO THE FILE OF THE ASSESSING OFFICER AFTER FOLLOWING THE EARLIER ORDER OF THE ITAT FOR AY 1996-1997. THE RELEVANT FINDING RECORDED BY TRIBUNA L IN AY 1998- 1999 IS REPRODUCED HEREUNDER: 7. AFTER HEARING THE RIVAL SUBMISSIONS AND PERUSIN G THE RELEVANT MATERIAL ON RECORD WE FIND THAT THIS ISSU E HAS BEEN DECIDED BY THE TRIBUNAL IN ITS ORDER FOR THE IMMEDI ATELY PRECEDING ASSESSMENT YEAR. RELEVANT DISCUSSION HAS BEEN MADE IN PARA 15. THE TRIBUNAL FOLLOWED ITS EARLIER ORDER PASSED FOR THE ASSESSMENT YEAR 1996-97 IN WHICH THE MATTE R WAS 6 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT REMANDED TO THE FILE OF ASSESSING OFFICER WITH A DI RECTION TO THE ASSESSEE TO FURNISH DETAILS AS TO WHAT WAS THE AMOU NT OF DEPOSITS RAISED AND HOW THE SAME WAS BROUGHT INTO I NDIA AND THEREAFTER THE ASSESSING OFFICER WAS DIRECTED TO E XAMINE THE DETAILS OF EXPENSES AND THE BASIS OF ALLOCATION OF SUCH EXPENSES FOR CONSIDERING THE ALLOWABILITY OF THE SAME. SUCH DIRECTION GIVEN BY THE TRIBUNAL HAS BEEN REPRODUCED ON PAGE 12 OF T HE TRIBUNAL ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR . IN THE ABSENCE OF ANY DISTINGUISHING FACTS AND CIRCUMSTANC ES RESPECTFULLY FOLLOWING THE PRECEDENT WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND SEND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING IT IN CONFORMITY WIT H THE DIRECTIONS GIVEN BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 1996- 97 WHICH HAVE BEEN EXTRACTED VERBATIM ON PAGE 12 OF THE TRIB UNAL ORDER FOR THE IMMEDIATELY PRECEDING YEAR. 4.2.2 RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCH WE HEREBY SET-ASIDE AND RESTORE TH IS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE MATTER IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE ITAT IN AY 1996-1997 AFTER GIVING DUE OPPORTUNITY TO THE APPELLANT. ACCORDINGLY GROUND N O. 1 IS ALLOWED FOR STATISTICAL PURPOSES. 7 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT 4.3.0 GROUND NO. 2 IS DIRECTED AGAINST THE ORDER OF THE LD. CIT (A) CONFIRMING THE DISALLOWANCE OF ADMIN ISTRATIVE EXPENSES TO THE EXTENT OF RS. 2 71 28 450/- U/S 115 A(3) OF THE INCOME TAX ACT 1961. THE ASSESSEE DURING THE YEAR EARNED INTEREST INCOME OF RS. 9 16 35 000/- ON FOREIGN CUR RENCY LOAN WHICH WAS TAXABLE ON SPECIAL RATE U/S 115A OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT DISALLOWANCE OF INTEREST OUTGO AS MADE BY THE ASSESSEE IN TERMS OF PROVISIONS OF SECTION 1 15A (3) IS UNDERSTATED AND THAT THE CLAIM OF ADMINISTRATIVE EX PENSES ALSO NEEDS TO BE DISALLOWED. THE DISALLOWANCE WAS COMPUTE D IN RATIO OF EXPENDITURE TO GROSS RECEIPT (87%) AS PER PROFIT & LOSS A/C. 4.3.0 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND GONE THROUGH THE ORDERS PASSED BY THE ITAT IN ASSES SEES OWN CASE. THE COORDINATE BENCH WHILE DECIDING THE APPEALS FOR AY 1997-1998 IN ITA NO.1106/DEL/2006 AND 1345/DEL/2006 VIDE ORD ER DATED 30/11/2017 HAS ADJUDICATED WITH THIS VERY ISSUE AND THE MATTER WAS SET-ASIDE TO THE FILE OF ASSESSING OFFICER WITH S PECIFIC DIRECTIONS. THE SAID OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDER: 8 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT 42. THE ISSUE FOR OUR ADJUDICATION RELATES TO THE DISALLOWANCES TO BE WORKED OUT FOR INDIRECT EXPENSE INCURRED BY T HE ASSESSEE IN RELATION TO SUCH IMPUGNED INCOME OF INTEREST. ON PERUSAL OF THE AO ORDER WE OBSERVED THAT HE HAS MADE THE DISAL LOWANCE ON PROPORTIONATE BASIS BETWEEN THE TOTAL OPERATING EXPENSES VIZ A VIZ GROSS RECEIPT OF THE ASSESSEE. IN OUR CONSIDE RED VIEW THE METHOD ADOPTED BY THE AO SUFFERS FROM SEVERAL INFIR MITIES AS DETAILED BELOW:- I) THE LOWER AUTHORITIES HAVE WORKED OUT THE RATIO BETWEEN TOTAL EXPENSES VIZ A VIZ TOTAL RECEIPT AND THAT RATIO HAS BEEN APPLIED TO THE IMPUGNED INTEREST INC OME ON THE SAME GROSS REVENUE. (II) THE PRODUCT OF FOREIGN CURRENCY LOAN WAS IN OP ERATION ONLY FOR FOUR MONTHS EFFECTIVE FROM DECEMBER 96 TO MARCH 97 FOR THE YEAR UNDER CONSIDERATION. (III) THERE ARE CERTAIN COSTS WHICH ARE FIXED IN NA TURE AND THEREFORE ALL SUCH COSTS CANNOT BE ATTRIBUTABLE TO THIS PRODUCT. 43. IN VIEW OF ABOVE WE DIRECT THE AO TO ADOPT THE FOLLOWING METHOD FOR WORKING OUT THE DISALLOWANCE OF INDIRECT EXPENSES INCURRED IN RELATION TO SUCH IMPUGNED INTEREST INCO ME. I) WORK OUT THE RATIO BETWEEN THE TOTAL REVENUE VIZ A VIZ THE GROSS INCOME EARNED BY THE ASSESSEE ON FOREIGN CURRENCY LOAN. (II) BASED ON THE ABOVE RATIO THE INDIRECT EXPENSES WILL BE DETERMINED FOR FOUR MONTHS FOR THE PURPOSE OF DISALLOWANCE U/S 115A OF THE ACT. 44. WE FURTHER FIND THAT THERE IS NO DISPUTE WITH R EGARD TO THE EXPENSES ALREADY DISALLOWED BY THE ASSESSEE IN ITS INCOME TAX 9 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT RETURN. IN VIEW OF THE ABOVE WE DIRECT THE LOWER AU THORITIES TO MAKE THE DISALLOWANCE U/S 115A OF THE ACT IN THE LI GHT OF ABOVE DISCUSSION. THUS THE GROUND OF APPEAL OF THE ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSE. 4.3.1 THE TRIBUNAL HAS PASSED SIMILAR ORDER IN APPEAL FOR IMMEDIATELY PRECEDING AY 1998-1999. WE F IND NO REASON TO DEVIATE FROM THE DIRECTIONS GIVEN BY THE COORDIN ATE BENCH AND RESPECTFULLY FOLLOWING THE SAME WE REMAND BACK THIS ISSUE TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION TO WORK OUT THE DISALLOWANCE IN ACCORDANCE WITH ORDER OF ITAT IN AY 1 997-1998. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 4.4.0 GROUND NO. 3 IS AGAINST THE UPHOLDING OF DISALLOWANCE OF RS. 1 20 000/- U/S 10(33) OF THE ACT . THE ASSESSEE HAS CLAIMED EXEMPT DIVIDEND INCOME TO THE EXTENT OF RS. 15 26 663/- IN RESPECT OF WHICH THE ASSESSING OFFICE R HAS COMPUTED DISALLOWANCE OF RS. 1 20 000/- ON ACCOUNT OF MANAGEMENT/ADMINISTRATIVE EXPENSE ON ESTIMATE BASIS . 4.4.1 THE LD. AR DISPUTED THE DISALLOWANC E ON THE GROUND THAT SINCE THE DIVIDEND PAID BY THE COMPANY ARE POST TAX 10 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT THE EXEMPTION IN THE HANDS OF RECEIPT U/S 10(33) IS MERELY TO AVOID DOUBLE TAXATION AND AS SUCH THERE IS NO QUESTION OF ANY DISALLOWANCE. 4.4.2 THE LD. DR SUPPORTED THE ORDER OF THE LD. CIT (A) AND ARGUED THAT AS PER THE EXPRESS PROVISIONS O F SECTION 14A THE ASSESSING OFFICER HAS RIGHTLY MADE THE DISALLOWA NCE OF ADMINISTRATIVE EXPENSES. 4.4.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS A ND HAVE PERUSED THE ORDERS PASSED BY LOWER AUTHORITIES . WE FIND THAT PROVISIONS OF SECTION 14A WERE INTRODUCED VIDE FINA NCE ACT 2001 WITH RETROSPECTIVE EFFECT FROM 01/04/1962. IT CLEARL Y MEANS THAT THE STATUTE DOES NOT INTEND TO ALLOW CLAIM OF EXPENSES INCURRED IN RELATION OF EXEMPT INCOME EARNED BY THE ASSESSEE. I N THE PRESENT CASE THE ASSESSEE HAS FAILED TO DEMONSTRATE ANY IN FIRMITY WITH THE ESTIMATION OF DISALLOWANCE OF RS. 1 20 000/- MADE B Y THE ASSESSING OFFICER WHICH IN OUR VIEW IS REASONABLE. ACCORDINGL Y WE UPHOLD THE DISALLOWANCE AND REJECT GROUND NO.3 OF THE ASSESSEE S APPEAL. 4.5.0 GROUND NO. 4 OF THE ASSESSEES APPEAL IS DIRECTED AGAINST THE UPHOLDING OF DISALLOWANCE OF EX PENSES TO THE 11 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT TUNE OF RS. 35 00 000/- IN TERMS OF PROVISIONS OF S ECTION 10(15)(IV) OF THE ACT. THE ASSESSEE HAS CLAIMED EXEMPT INCOME AGGREGATING TO RS. 3 22 21 592/0 U/S 10(15)(IV) OF THE ACT BEING F EE IN RESPECT OF FOREIGN CURRENCY LOANS. THE ASSESSING OFFICER CONSI DERED DISALLOWANCE OF RS. 35 00 000/- ON ESTIMATE BASIS. T HE LD. CIT (A) HAS CONCURRED WITH THE ORDER OF ASSESSING OFFICER. 4.5.1 WE FIND THAT THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE COORDINATE BENCH IN THE IMMEDIATELY PRECEDING AY 1998-1999 WHEREIN IT WAS HELD THAT AS PER PROVISIONS OF SECTION 14A CERTAIN DISALLOWANCE IS REQUIRED TO BE MADE IN THE HANDS OF THE ASSESSSEE. HOWEVER THE ISSUE WAS SET-ASIDE TO THE F ILE OF THE ASSESSING OFFICER FOR COMPUTING DISALLOWANCE ON A RE ASONABLE BASIS. THE FINDING OF THE TRIBUNAL IS AS UNDER: 12. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE R ELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE AS SESSEE CLAIMED EXEMPTION OF THE GROSS AMOUNT U/S 10(15)(IV ) OF RS.4.59 CRORE. IT IS BUT NATURAL THAT THE EXPENSES INCURR ED IN RESPECT OF SUCH EXEMPT INCOME CANNOT BE ALLOWED U/S 14A OF THE ACT. THE ASSESSMENT YEAR UNDER CONSIDERATION IS 1998-99. HEN CE THE PROVISIONS OF RULE 8D CANNOT BE INVOKED FOR COMPUTI NG THE AMOUNT OF DISALLOWANCE U/S 14A. UNDER THESE CIRCUMS TANCES 12 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE I N THE FITNESS OF THINGS IF THE IMPUGNED ORDER IS SET ASIDE AND TH E MATTER IS RESTORED TO THE FILE OF ASSESSING OFFICER FOR DETER MINING THE AMOUNT DISALLOWABLE U/S 14A ON SOME REASONABLE BASI S. IT IS HOWEVER MADE CLEAR THAT SUCH FRESH DISALLOWANCE IN THE CONSEQUENTIAL PROCEEDINGS SHOULD NOT EXCEED THE AMO UNT DISALLOWED IN THE ORIGINAL ORDER. 4.5.2 THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THAT IN AY 1998-1999 EXCEPT FOR THE QUANTUM OF DISALLOWANCE WHICH IS RS. 35 00 000/- IN THE YEAR UNDER CONSIDERATION AS AGAI NST RS. 50 00 000/- IN THAT YEAR. IT IS FURTHER NOTED THAT THE ASSESSING OFFICER HAS NOT GIVEN ANY JUSTIFIABLE BASIS FOR EST IMATING DISALLOWANCE OF RS. 35 00 000/- AND AS SUCH WE DEEM IT PROPER TO RESTORE BACK THIS ISSUE TO THE FILE OF THE ASSESSIN G OFFICER TO WORK OUT THE DISALLOWANCE IN ACCORDANCE WITH THE DIRECTION OF THE ITAT IN AY 1998-1999 AFTER GIVING DUE OPPORTUNITY TO THE ASSES SEE. THUS GROUND NO. 4 IS ALLOWED FOR STATISTICAL PURPOSE. 5.0 ASSESSMENT YEAR 1999-2000 REVENUES APPEAL (ITA NO. 2381/DEL/2006): THE REVENUE HAS CHALLENGED THE ORDER OF THE LD. CIT (A) ON THE FOLLOWING GROUND S: 13 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT (A) HAS ERRED- (I) IN DELETING THE EXPENSES OF RS. 1 39 71 223/- I NCURRED BY VARIOUS UNITS OUTSIDE INDIA FOR MOBILIZATION OF NRI DEPOSITS FOR THE PURPOSE OF ASSESSEES BUSINESS IN INDIA. (II) IN DELETING THE ADDITION OF RS. 10 CRORES ON A CCOUNT OF COMMISSION EARNED BY FOREIGN BRANCHES OF ANZ GRINDL AYS BANK ON THEIR CREDIT CARD BUSINESS OVERSEAS WHERE TRANSACTIONS WERE COMPLETED IN INDIA. (III) IN DISALLOWING THE EXPENDITURE OF RS. 35.31 L AKHS ON THE PAYMENTS MADE TO CLUBS. (IV) IN DISALLOWING THE PROVISION MADE FOR BAD AND DOUBTFUL DEBTS IN ACCORDANCE WITH SECTION 36(1)(VII)(A) OF T HE ACT 1961 AMOUNTING TO RS. 15 97 20 374/-. 2. THE APPELLANT PRAYS FOR LEAVE TO ADD ALTER AME ND OR VARY FROM THE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 5.1.0 GROUND NO. 1(I) OF THE REVENUES APPEAL IS AGAINST DELETION OF 80% DISALLOWANCE OF CLAIM OF EX PENSES INCURRED FOR SOLICITING AND MOBILIZING OF DEPOSITS IN FOREIG N CURRENCY FROM NRIS. THIS GROUND IS CONNECTED WITH GROUND NO. 1 OF THE ASSESSEES APPEAL. AS WE HAVE SET-ASIDE THIS ENTIRE ISSUE TO T HE FILE OF ASSESSING 14 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT OFFICER FOR FRESH DETERMINATION OF DISALLOWANCE AC CORDINGLY THIS GROUND OF THE REVENUE ALSO STANDS ALLOWED FOR STATI STICAL PURPOSES. 5.2.0 VIDE GROUND NO.1(II) THE REVENUE IS AGGRI EVED AGAINST ORDER OF THE LD. CIT (A) DELETING ADDITION OF RS. 10 00 00 000/- IN RESPECT OF TAXATION OF COMMISSIO N EARNED BY FOREIGN BRANCHES ON CREDIT CARDS ISSUED OUTSIDE IND IA. THE ASSESSING OFFICER ON THE BASIS OF FINDINGS RECORDED IN AY 1998-1999 WAS OF THE VIEW THAT COMMISSION ON TRANSACTIONS DONE IN INDIA ON CREDIT CARDS ISSUED OUTSIDE INDIA IS TAXABLE UNDER THE PROVISIONS OF INCOME TAX ACT 1961. HOWEVER IN ABSENCE OF ANY DE TAIL THE ADDITION OF RS. 10 00 00 000/- WAS MADE ON ESTIMATE BASIS. THE LD. CIT (A) DELETED THE ADDITION. 5.2.1 WE HAVE CONSIDERED THE FACTS OF THE CASE A ND MATERIAL AVAILABLE ON RECORD. IT IS NOTED THAT THE ASSESSING OFFICER HAS BASED THE DISALLOWANCE ON THE BASIS OF ASSESSMEN T ORDER PASSED FOR AY 1998-1999. WE FIND THAT IN AY 1998-99 THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BEN CH AND AFTER REFERRING TO THE ORDER OF TRIBUNAL FOR AY 1996-1997 IN ITA NO. 4988/DEL/2003 THE ISSUE WAS DECIDED IN FAVOUR OF T HE ASSESSEE BY 15 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT HOLDING THAT THE COMMISSION EARNED BY BRANCHES IS N OT TAXABLE IN INDIA. THE FINDING RECORDED BY TRIBUNAL FOR AY 1996 -1997 IS REPRODUCED HEREUNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE ARE IN AGREEMENT WITH THE FINDING OF THE LEARNED CIT (A). WHERE THE FOREIGN BRANCH HAS ISSUED CREDIT CARD AND EVEN IF T HE TRANSACTION TAKES PLACE IN INDIA THE CREDIT IS GIV EN TO THE CUSTOMER OUTSIDE INDIA AND THE DEBT HAS ALSO ARISEN OUTSIDE INDIA. THE MERCHANT SHIPMENT IN INDIA MAY RECEIVE T HE PAYMENT BUT THE MERCHANT SHIPMENTS DO NOT INCUR ANY DEBT. T HEY MERELY RECEIVE CHARGES FOR THE GOODS SOLD OR SERVICES REND ERED. HOWEVER THE CHARGES ARE RECEIVED BY FOREIGN BRANCH ES FOR PROVIDING CREDIT TO THEIR CARD HOLDERS OUTSIDE INDI A. THE AMOUNT PAYABLE BY THE CARD HOLDERS WHO HAVE ACQUIRED THE C REDIT CARD FROM BRANCHES OUTSIDE INDIA INCUR THE DEBT OUTSIDE INDIA. THEREFORE THE FEES IN RESPECT OF SUCH TRANSACTION ARE NOT TAXABLE IN INDIA. WE THEREFORE UPHOLD THE DELETION OF ADD ITION OF RS. 10 CRORES 5.2.2 IN ABSENCE OF ANY DISTINGUISHING FACT WE RESPECTFULLY FOLLOW THE ORDER OF THE COORDINATE BENC H FOR AY 1996- 1997 1997-1998 AND 1998-1999 AND UPHOLD THE ORDER OF THE LD. 16 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT CIT (A) DELETING THE ADDITION OF RS. 10 00 00 000/- . ACCORDINGLY GROUND NO. 1(II) OF THE REVENUES APPEAL IS DISMISS ED. 5.3.0 GROUND NO. 1(III) IS DIRECTED AGAINST DEL ETION OF DISALLOWANCE OF RS. 35 31 343/- BEING CHARGES PAID F OR MEMBERSHIP OF VARIOUS CLUBS. THE ASSESSING OFFICER CONSIDERED THE DISALLOWANCE ON THE GROUND OF LACK OF BUSINESS EXPEDIENCY. 5.3.1 WE FIND THAT IT IS A RECURRING DISALLOWANCE MADE YEAR AFTER YEAR AND THE MATTER HAS TRAVELLED T O THE ITAT IN EARLIER YEARS. THE COORDINATE BENCH HAS DELETED THE DISALLOWANCE IN ALL THE EARLIER YEARS INCLUDING IMMEDIATELY PRECEDI NG AY 1998-1999 AND THERE IS NO CHANGE IN FACTS IN THE YEAR UNDER C ONSIDERATION WARRANTING US TO TAKE DIFFERENT VIEW. THUS RESPECTFU LLY FOLLOWING THE PRECEDENT WE UPHOLD THE DELETION OF DISALLOWANCE BY THE LD. CIT (A). THE GROUND NO. 1(III) IS DISMISSED. 5.4.0 THE LAST GROUND (GROUND NO. 1(IV)) IS AGAI NST DELETION OF DISALLOWANCE OF PROVISIONS FOR BAD AND D OUBTFUL DEBTS OF RS. 15 97 220 374/- UNDER SECTION 36(1)(VIIA) OF TH E ACT. THE ASSESSING OFFICER CONSIDERED THE DISALLOWANCE BY REL YING ON THE ASSESSMENT ORDER PASSED FOR AY 1998-1999. HOWEVER NO 17 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT INDEPENDENT FINDING WITH REGARD TO FACTS OF THE CURR ENT YEAR HAS BEEN RECORDED BY THE ASSESSING OFFICER. THE LD. CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE. 5.4.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND G ONE THROUGH THE ORDERS PASSED BY LOWER AUTHORITIES AND COORDINATE BENCH OF THE ITAT IN ASSESSEES OWN CASE. THE TRIBUN AL WHILE DECIDING THE APPEAL FOR AY 1997-1998 AND 1998-1999 HAS RESTORED BACK THIS ISSUE TO THE FILE OF THE ASSESSING OFFICE R TO RE-EXAMINE THE CLAIM IN THE LIGHT OF PROVISIONS OF SECTION 36(1)(V IIA) OF THE ACT. IN THE IMPUGNED ORDER THE LD. CIT (A) HAS DIRECTED THE AS SESSING OFFICER TO ALLOW THE CLAIM OF PROVISIONS FOR BAD AND DOUBTFUL D EBTS SUBJECT TO A CEILING OF 5% OF TOTAL INCOME AS PER SECTION 36(1)( VIIA) OF THE ACT. THE FINDING AND DIRECTION OF LD. CIT (A) IS IN LINE WITH THE ORDER PASSED BY THE TRIBUNAL FOR AY 1997-1998 AND 1998-1999. ACC ORDINGLY WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD . CIT (A). THUS GROUND NO. 1(IV) IS ALSO DISMISSED. 5.5.0 AS A RESULT CROSS APPEALS IN ITA NO. 2238/DEL/2006 AND 2381/DEL/2006 ARE PARTLY ALLOWED. 18 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT 6.0 ASSESSEES APPEAL (ITA NO. 2239/DEL/2006) ASSESSMENT YEAR 2000-01: THE GROUNDS RAISED ARE: 1. THE LEARNED CIT (A) HAD ERRED IN LAW AND ON FAC TS IN SURMISING THAT 20% OF NRI EXPENSES AMOUNTING TO RS . 18 03 764 INCURRED ON PERSONNEL TELEPHONE AND TRAV ELLING WERE IN THE NATURE OF HEAD OFFICE EXPENSES AND HEN CE DISALLOWABLE. 2. THE LEARNED CIT(A) HAD ERRED IN SUSTAINING THE D IS- PROPORTIONATE AND EXCESSIVELY EXAGGERATED ESTIMATE OF INDIRECT EXPENSES ATTRIBUTABLE TO EARING INCOME ON FOREIGN CURRENCY LOANS TAXABLE U/S. 115A OF RS. 2 24 18 955/- DESPITE THE FACT THAT A PROPERLY ALLO CATED AMOUNT WAS ALREADY OFFERED TO TAX BY THE APPELLANT U/S. 115A(3) OF THE ACT. 3. THE LEARNED CIT(A) HAD ERRED IN LAW AND ON FACTS IN UPHOLDING AN ESTIMATED DISALLOWANCE OF MANAGERIAL A ND ADMINISTRATIVE EXPENSES OF RS. 10 00 000/- FOR EARN ING DIVIDEND INCOME BY TREATING THIS AS TAX FREE INCOME WHEREAS DIVIDEND INCOME IS ACTUALLY SUBJECT TO TAX AT SOURCE BEFORE DISTRIBUTION BY THE COMPANY WHICH PAY S THE DIVIDENDS. 4. THE LEARNED CIT(A) HAD ERRED IN LAW AND ON FACTS IN UPHOLDING AN AD HOC ADDITION OF RS. 10 00 000/- ON 19 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT ACCOUNT OF EXPENSES INCURRED ON EARNING FOREIGN CUR RENCY SYNDICATED TERM LOANS. 5. THE APPELLANT CRAVES LEAVE TO ADD ALTER AND. OR AMEND ALL OR ANY OF THE GROUNDS IN APPEAL AT THE TIME HEARING . 7.0 REVENUES APPEAL (ITA NO.2382/DEL/2006) ASSESSMENT YEAR 2000-2001: THE GROUNDS RAISED ARE: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE LD. CIT (A) HAS ERRED- (I) IN DELETING THE EXPENSES OF RS. 87 12 458/- INC URRED BY VARIOUS UNITS OUTSIDE INDIA FOR MOBILIZATION OF NRI DEPOSITS FOR THE PURPOSE OF ASSESSEES BUSINESS IN INDIA. (II) IN DELETING THE ADDITION OF RS. 10 CRORES ON A CCOUNT OF COMMISSION EARNED BY FOREIGN BRANCHES OF ANZ GRINDL AYS BANK ON THEIR CREDIT CARD BUSINESS OVERSEAS WHERE TRANSACTIONS WERE COMPLETED IN INDIA. (III) IN DISALLOWING THE EXPENDITURE OF RS. 7.73 LA KHS ON THE PAYMENTS MADE TO CLUBS. (IV) IN DISALLOWING THE PROVISION MADE FOR BAD AND DOUBTFUL DEBTS IN ACCORDANCE WITH SECTION 36(1)(VII)(A) OF T HE ACT 1961 AMOUNTING TO RS. 23 52 79 666/-. 2. THE APPELLANT PRAYS FOR LEAVE TO ADD ALTER AME ND OR VARY FROM THE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 20 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT 8.0 IT IS SEEN THAT THE GROUNDS OF APPEALS FOR A Y 2000-2001 ARE VERBATIM THE GROUNDS RAISED IN APPEALS FOR AY 1999- 2000 IN ITA NO. 2238/DEL/2006 AND 2381/DEL/2006). F URTHER BOTH THE PARTIES BEFORE US SUBMITTED THAT THE ISSUE S INVOLVED IN AY 2000-2001 ARE EXACTLY SAME TO THAT INVOLVED IN CROS S APPEALS FOR AY 1999-2000. 8.1 IN VIEW OF THE ABOVE IT IS ORDERED THAT THE FINDING RECORDED AND DIRECTIONS CONTAINED IN AFORES AID PARA WHILE DECIDING THE CROSS APPEALS FOR AY 1999-2000 ARE AP PLICABLE MUTATIS MUTANDIS TO THE GROUNDS RAISED IN APPEALS FILED BY ASSESSEE AND REVENUE FOR AY 2000-2001 WITH AN EXCEPTION TO GROUND NO. 3 OF THE ASSESSEES APPEAL IN ITA 2239/DEL/2006 WHICH WE ARE ADJUDICATING SEPARATELY HEREUNDER. 8.2 GROUND NO. 3 IS AGAINST UPHOLDING OF DISALLOWANCE TO THE EXTENT OF RS. 10 00 000/- U/S 10 (33) ON AD-HOC BASIS BY THE LD. CIT (A). THE ASSESSEE HAS EARNED E XEMPT DIVIDEND INCOME OF RS. 82 28 000/- U/S 10(33) OF THE ACT. IT IS NOTED THAT THIS GROUND IS PARI MATERIA TO CORRESPONDING GROUND IN ASSESSEES APPEAL FOR AY 1999-2000. HOWEVER THERE IS A CHANGE IN METHOD 21 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT ADOPTED BY THE ASSESSING OFFICER IN MAKING THE DISA LLOWANCE. IT IS NOTED THAT THE ASSESSING OFFICER HAS COMPUTED DISAL LOWANCE TO THE EXTENT OF RS. 72 14 310/- BY APPLYING RATIO OF EXPE NDITURE TO GROSS RECEIPT (87.68%) AS PER PROFIT & LOSS A/C TO THE DI VIDEND INCOME IN ORDER TO DERIVE THE FIGURE OF INADMISSIBLE EXPENSES . THE LD. CIT (A) REDUCED THE DISALLOWANCE TO RS. 10 00 000/- ON ESTIM ATE BASIS. THE METHODOLOGY ADOPTED BY THE ASSESSING OFFICER IN THE YEAR UNDER CONSIDERATION IS AT VARIANCE WITH AY 1999-2000 WHEREI N THE ASSESSING OFFICER ESTIMATED DISALLOWANCE AT RS. 1 20 000/- WITHOUT APPLYING ANY FORMULA WHICH HAS BEEN UPHELD BY US IN VIEW OF THE SPIRIT AND PURPOSE OF SECTION 14A OF THE ACT. ACCOR DINGLY WE FEEL THAT THE CONCLUSION REACHED BY US IN AY 1999-2000 C ANNOT BE APPLIED TO THE YEAR UNDER CONSIDERATION. WE FIND THAT DISALLOWANCE COMPUTED BY THE ASSESSING OFFICER CANNOT BE CONSIDE RED AS REASONABLE AS WE FAIL TO FIND ANY RATIONALE BEHIND THE FORMULA USED FOR DETERMINING INADMISSIBLE EXPENSES FROM DIVIDEND INCOME. WE ARE ALSO AWARE OF THE FACT THAT RULE 8D CANNOT BE AP PLIED IN THE YEAR UNDER CONSIDERATION AS SAME WAS MADE EFFECTIVE FROM AY 2008- 2009. FURTHER THE AD-HOC DISALLOWANCE UPHELD BY THE LD. CIT (A) IS 22 ITA NOS.2238 2239 2381 & 2382 /DEL/2006 STANDARD CHARTERED GRINDLAYS LTD. VS. DDIT EXCESSIVE AND NOT IN CONFORMITY WITH PAST HISTORY. I N THESE CIRCUMSTANCES WE DEEM FIT THAT THE ENDS OF JUSTICE WILL BE MET IF THE DISALLOWANCE IS RESTRICTED TO RS. 2 00 000/-. ACCORD INGLY THE DISALLOWANCE TO THE EXTENT OF RS. 8 00 000/- IS DELE TED. THUS GROUND NO. 3 IS PARTLY ALLOWED. 9.0 AS A RESULT THE CROSS APPEALS IN AY 2000-20 01 ARE PARTLY ALLOWED. 10.0 IN THE FINAL RESULT ALL THE FOUR APPE ALS STAND PARTLY ALLOWED. ORDER PRONOUNCED ON 2 ND MARCH 2021. SD/- SD/- (O.P.KANT) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 02/03/2021 *DRAGON* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI