ADIT (IT) - 3(1), MUMBAI v. M/s. BRITISH BANK OF MIDDLE EAST, MUMBAI

ITA 5001/MUM/2004 | 1998-1999
Pronouncement Date: 28-01-2011 | Result: Dismissed

Appeal Details

RSA Number 500119914 RSA 2004
Bench Mumbai
Appeal Number ITA 5001/MUM/2004
Duration Of Justice 6 year(s) 7 month(s) 11 day(s)
Appellant ADIT (IT) - 3(1), MUMBAI
Respondent M/s. BRITISH BANK OF MIDDLE EAST, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted L
Tribunal Order Date 28-01-2011
Date Of Final Hearing 11-01-2011
Next Hearing Date 11-01-2011
Assessment Year 1998-1999
Appeal Filed On 17-06-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L MUMBAI BEFORE SHRI J.SUDHAKAR REDDY (A.M.) AND SHRI VIJAY PAL RAO (J.M.) ITA NOS.5001 & 5002/MUM/2004 (ASSESSMENT YEARS : 1998-99 & 99-00) A.D.I.T. (IT) 3(1) SCINDIA HOUSE R.NO.136 1 ST FLOOR N.M. RD. MUMBAI -38. VS. BRITISH BANK OF MIDDLE EAST 16 VEER NARIMAN RD. FORT MUMBAI 400 023. PAN : AAAFT922G/DC SR27 (APPELLANT) (RESPONDENT) CO NO.53 & 54/MUM/2007 ARISING OUT OF ITA NOS. 5001 & 5002/MUM/2004 (ASSESSMENT YEARS : 1998-99 & 99-00) BRITISH BANK OF MIDDLE EAST 16 VEER NARIMAN RD. FORT MUMBAI 400 023. PAN : AAAFT922G/DC SR27 VS. A.D.I.T. (IT) 3(1) SCINDIA HOUSE R.NO.136 1 ST FLOOR N.M. RD. MUMBAI -38. (CROSS OBJECTOR) (RESPONDENT) ASSESSEE BY : SHRI NARENDRA SINGH [CIT DR] RESPONDENT BY : SHRI PERCY J. PARDIWALLA O R D E R PER J. SUDHAKAR REDDY A.M. THESE APPEALS FILED BY THE REVENUE AND ARE DIRECTED AGAINST THE ORDER OF THE LEARNED CIT (A)-XXXI MUMBAI DATED 24.03.200 4 FOR THE ASSESSMENT YEARS 1998-99 AND 1999-2000. 2. AS THE ISSUES ARISING IN THESE APPEALS ARE COMMO N FOR THE SAKE OF CONVENIENCE THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS COMMON ORDER. 2 ITA NO.5001/MUM/2004 (ASSESSMENT YEAR : 1998-99) THE GROUNDS OF APPEAL FOR THE ASSESSMENT YEAR 1998- 99 ARE AS FOLLOWS: IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN A) THE LEARNED CIT(A) ERRED DIRECTING THE ASSESSIN G OFFICER TO ALLOW LOSS ON REVALUATION OF UNMATURED O IL EXCHANGE CONTRACT AMOUNTING TO ` 50 LAKHS. B) THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSES SING OFFICER TO ALLOW THE ENTIRE INTEREST OF ` 7 20 00 000/- AGAINST ` 79 99 200/- ALLOWED BY THE ASSESSING OFFICER. 3. AFTER HEARING SHRI NARENDRA SINGH LEARNED DR AN D SHRI PERCY J. PARDIWALLA SR. ADVOCATE WE HOLD AS FOLLOWS. 4. IN GROUND NO.1 WHICH RELATES TO THE ISSUE OF ALL OWANCE ON ACCOUNT OF REVALUATION OF UNMATURED OIL EXCHANGE CONTRACT. BOT H PARTIES AGREED THAT THE ISSUE STANDS COVERED BY THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. BANK OF BAHRAIN & KUWAIT 132 TTJ (MUMBAI)(SB) 505 WHERE AT PARA 58 AND 59 IT HAS BEEN HELD AS UNDER: WHERE A FORWARD CONTRACT IS ENTERED IN TO BY THE A SSESSEE 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 O F THE CONTRACT ON THE LAST DATE OF THE RELEVANT ACCOUNTIN G PERIOD I.E. BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT IS ALLOWABLE AS DEDUCTION. 4.1 IN THE RESULT GROUND NO.1 OF THE REVENUE IS DI SMISSED. 5. GROUND NO.2 RELATES TO EXEMPTION IN RESPECT OF I NTEREST ON TAX FREE BONDS. 5.1 THE FACTS HAVE BEEN BROUGHT OUT IN PARA 8.2 AT PAGE 5 OF THE CIT(A)S ORDER. BOTH THE PARTIES BEFORE US SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE B Y THE DECISION OF THE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.1292 & 1293/MUM/2001 J BENCH ORDER DATED 06.06.2002. 3 5.2 THE BENCH OF THE TRIBUNAL IN ITA NO.1628/MUM/20 01 IN THE CASE OF JOINT CIT SPECIAL RANGE VS. MASHREQ BANK PSC VIDE ORDER DATED 23.08.2005 AT PARA 3 HAS HELD AS FOLLOWS: WE HAVE HEARD THE RIVAL SUBMISSIONS IN THE LIGHT O F MATERNAL PLACED BEFORE US AND PRECEDENTS RELIED UPON. WE FI ND THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL STANDS COVERED BY THE ORDEROF THE TRIBUNAL RENDERED IN THE CASE OF STATE BANK OF INDIA VS. JT. CIT BEING ITA NO.1292 & 1293/MUM/01 DATED 06.06.2002. IN THIS CASE THE TRIBUNAL HAS HELD THAT THE GROSS AMOUNT OF INTEREST PAYABLE TO THE ASSESSEE WOULD QU ALIFY FOR EXEMPTION UNDER SUB-SECTIONS (C) (F) AND (H) OF SE CTION 10(15)(IV). THE FACTS BEING IDENTICAL RESPECTIVE FULLY FOLLOWING THE PRECEDENT WE DECIDE THIS ISSUE IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE. 6 RESPECTFULLY FOLLOWING THE DECISION WE UPHOLD T HE ORDER OF FIRST APPELLATE AUTHORITY AND DISMISS THIS GROUND OF REVE NUE. 7 IN THE RESULT THE APPEAL IN ITA NO.5001/MUM/2004 IS DISMISSED. ITA NO.5002/MUM/2004 (ASSESSMENT YEAR : 1999-2000) 8. THE GROUNDS OF APPEAL READ AS FOLLOWS: IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN A) THE LEARNED CIT(A) ERRED DIRECTING THE ASSESSIN G OFFICER TO ALLOW LOSS ON REVALUATION OF UNMATURED OIL EXCHANGE CONTRACT AMOUNTING TO ` 20 LAKHS. B) THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSES SING OFFICER TO ALLOW THE ENTIRE INTEREST OF ` 7 45 71 833/- AGAINST ` 48 10 000/- ALLOWED BY THE ASSESSING OFFICER. C) THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSES SING OFFICER TO DELETE THE ADDITION OF ` 3 94 87 056/- ON ACCOUNT OF PAYMENT OF VRS TO EMPLOYEES. D) THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSES SING OFFICER TO ALLOW THE BAD DEBTS OF ` 1 84 34 398/- WITHOUT SETTING OFF CLOSING PROVISION OF ` 29 63 021/- DETERMINED U/S.36(1)(VIIA) OF THE I.T.ACT. 9. AFTER HEARING THE RIVAL CONTENTIONS WE FIND THA T GROUND NO.1 THE REVENUE IS IDENTICAL TO THE GROUND RAISED BY REVENU E IN ASSESSMENT YEAR 4 1998-99. CONSISTENT VIEW HAS TAKEN BY US IN THAT CASE BY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF BANK OF BAHRAIN & KUWAIT REPORTED IN 132 TTJ 505 WE DISMISS THIS G ROUND OF THE REVENUE. 10. SIMILARLY GROUND NO.2 ARISING IN THIS YEAR IS ALSO IDENTICAL TO THE GROUND NO. 2 FOR ASSESSMENT YEAR 1998-99. CONSISTEN T VIEW HAS TAKEN BY US BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESS EES OWN CASE ON THE VERY SAME ISSUE FOR THE ASSESSMENT YEAR 1997-98 WE DISM ISS THIS GROUND OF REVENUE. 11. GROUND NO.3 RELATES TO THE ISSUE OF ALLOWABILIT Y OF PAYMENTS MADE TO EMPLOYEES UNDER THE VOLUNTARY RETIREMENT SCHEME AS REVENUE EXPENDITURE. THE FIRST APPELLATE AUTHORITY HAS DISCUSSED THIS IS SUE AT PARA 7.4 AND 7.5 ON PAGE 6 & 7 OF ITS ORDER AS UNDER: 7.4 IN SUPPORT OF THE CLAIM FOR DEDUCTION THE LEAR NED AR RELIED UPON VARIOUS DECISIONS ONE OF THEM BEING OF THE SUPREME COURT IN THE CASE OF INDIAN CABLE CO. LTD. VS. WORKMAN AIR 1972 SC 2195 . THE ASSESSEE HAS ALSO RELIED UPON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF BHOR INDUSTRIES LTD. 264 ITR 180 WHERE IT WAS HELD THAT SUCH EXPENDITURE WAS ALLOWABLE IN THE YEAR IN WHICH IT WAS INCURRED NOTWITHSTANDING THAT THE AMOUNT WAS WRITT EN OFF OVER A PERIOD OF TIME. RELIANCE HAS ALSO BEEN PLACED O N THE DECISION OF THE BOMBAY TRIBUNAL IN THE CASE OF VICTORIA MILLS LTD. (ITA NO.4164/M/2000) FOR THE ASSESSMENT YEAR 1996-97 WHEREIN THE TRIBUNAL HAS IN PARA 4 STATED AS FOLLOW S: CALCUTTA HIGH COURT IN THE CASE OF CIT VS. ASSAM O IL CO. LTD. 154 ITR 657 (CAL) AND IN THE CASE OF CIT VS. MACHINERY MANUFACTURING CORPORATION LTD. 198 ITR 559 (CAL) HAS HELD THAT V RS PAYMENTS ARE DEDUCTIBLE AS REVENUE EXPENDITURE. SIMILARLY MADR AS HIGH COURT IN THE CASE OF CIT VS. SIMPSON & CO. LTD. 230 ITR 703 (MAD) F OLLOWING ITS EARLIER DECISION HELD THAT VRS PAYMENT WAS ALLOWABLE AS A REVENUE DEDUCTION WHICH HAS BEEN FOLLOWED BY THE MADRAS HIGH COURT IN SRI RAMAVILAS SERVICE LTD. 211 ITR 763 (MAD) AND CIT VS. GEORGE OAKES LT D. 197 ITR 288 (MAD). THE LEARNED AR ALSO RELIED UPON HE DECISION OF THE CIT(A)-II MUMBAI IN THE CASE OF FUJITSU ICIM LTD. FOR THE ASS ESSMENT YEAR 1998-99 AS WELL AS THAT OF CIT(A)-VI MUMBAI I N THE CASE OF BURROUGHS WELLCOME (I) LTD. FOR THE ASSESSMENT Y EAR 1999- 2000 WHEREIN DEDUCTION HAS BEEN ALLOWED FOR THE VR S EXPENDITURE THOUGH IN THOSE CASES ASSESSING OFFICE R HAS HELD THAT THE EXPENDITURE WAS OF A CAPITAL NATURE. 7.5 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF T HE ASSESSEE ON THIS ISSUE. IT IS TRUE THAT THE FINANC E ACT 2001 HAS 5 INTRODUCED SECTION 35 DDA IN THE INCOME-TAX ACT WHE REBY THE EXPENDITURE ON VOLUNTARY RETIREMENT SCHEME IS REQUI RED TO BE AMORTISED OVER A PERIOD OF 5 YEARS. HOWEVER THE P OINT TO BE NOTED IS THAT THE SAID NEW SECTION HAS COME INTO OP ERATION WITH EFFECT FROM 01.04.2001 AND HENCE APPLICABLE FROM AS SESSMENT YEAR 2001-2. BEFORE THE INTRODUCTION OF THE NEW PR OVISION THE ISSUE OF ALLOWABILITY OF EXPENDITURE ON VRS WILL HA VE TO BE DECIDED AS PER THE POSITION OF LAW PREVAILING AT TH E RELEVANT TIME. AS POINTED OUT BY THE LEARNED AR THE APEX C OURT IN THE CASE OF INDIAN CABLE CO. LTD. VS. THEIR WORKMEN (AIR 1972 SC 2195) HAS HELD PAYMENT TOWARDS VRS AS AN EXPENDITURE ALLOWABLE U/S.37(1) OF THE ACT. IT IS W ORTHWHILE TO QUOTE THE RELEVANT PORTION OF THE SAID ORDER: .IN THE VOLUNTARY RETIREMENT SCHEME ENABLED THE Y OUNGER WORKMEN TO CONTINUE IN SERVICE WHILE IT OFFERED A T EMPTATION FOR THE OLDER EMPLOYEES TO RETIRE FROM SERVICE. THE VOLUNTARY RE TIREMENT SCHEME HAS NOT BEEN CHALLENGED AS MALAFIED BY THE UNIONS. WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT THE PAYMENT OF COMPENSATI ON TO INDUCE THE WORKMEN TO RETIRE PREMATURELY WAS AN ITEM OF EXPEND ITURE INCURRED BY THE COMPANY ON THE GROUND OF COMMERCIAL EXPEDIENCY IN O RDER TO FACILITATE THE CARRYING ON OF THE BUSINESS AND IT WAS AN EXPENDITURE ALLOWABLE U/S.37(1) OF THE ACT. IT IS NOT AN EXPENDITURE OF CAPITAL NA TURE. THE TRIBUNAL WAS JUSTIFIED IN DECLINING TO ADD BACK THIS ITEM OF EXP ENDITURE TO THE GROSS PROFITS. (EMPHASIS SUPPLIED) THEREFORE IN VIEW OF THIS THERE REMAINS NO DOUBT A BOUT ALLOWABLITY OF EXPENDITURE OF ` 3 94 87 056/- INCURRED ON VOLUNTARY RETIREMENT SCHEME (VRS). THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE MADE IN THIS RE GARD. 12. THE LEARNED CIT(A) FOLLOWED THE JUDGMENT OF APE X COURT IN THE CASE OF INDIAN CABLE CO. LTD. (SUPRA) AND THE ISSUE ABOVE S TANDS COVERED BY THE JUDGMENT OF THE JURISDICTION HIGH COURT IN THE CASE OF CIT VS. BHOR INDUSTRIES 264 ITR 190. ACCORDINGLY WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND DISMISS THIS GROUND OF THE REVENUE. 13. LAST GROUND IS AGAINST THE DISALLOWANCE MADE ON ACCOUNT OF BAD DEBTS. 14. AFTER HEARING THE RIVAL CONTENTIONS WE FIND TH AT THE FIRST APPELLATE AUTHORITY HAS DISCUSSED THIS ISSUE AT PARA 10.2 TO 10.4 AND HAS HELD AS UNDER: 10.2 THE ASSESSEE HAD CLAIMED DEDUCTION FOR BAD DE BTS OF ` 1 84 34 398/-. IN COMPUTING THE TOTAL INCOME THE ASSESSING OFFICER HAS ALLOWED DEDUCTION OF ` 1 54 71 377/- AFTER SETTING 6 OFF CLOSING PROVISION FOR BAD AND DOUBTFUL DEBTS OF ` 29 63 021/- 10.3 IT HAS BEEN SUBMITTED THAT CLOSING PROVISION O ` 29 63 021/- MADE U/S.36(1)(VIIA) OUGHT NOT TO HAVE BEEN SET OFF AGAINST THE AMOUNT OF ` 1 84 34 398/-. IN SUPPORT OF THE ABOVE CONTENTION THE ASSESSEE HAS RELIED UPON THE DECISION OF THE MUMBAI ITAT IN OMAN INTERNATIONAL BANK IN ITA NO.6063/M/96 ITA NO.7775 AND 5694/B/95 FOR THE ASSESSMENT YEARS 1993-94 1990-91 AND 1991-92 DATED 27.11.2003 AND 15.12.2003 WHERE THE ISSUE HAS BEEN DISCUSSED AT LENGTH BY THE TRIBUNAL AND MATTER WAS DECIDE IN FAVOUR OF THE ASSESSEE. 10.4 I HAVE GONE THROUGH THE ORDERS OF ITAT AND I A M IN AGREEMENT THEREWITH. I ACCORDINGLY DIRECT THE ASS ESSING OFFICER TO ALLOW BAD DEBTS OF ` 1 84 34 398/- WITHOUT SETTING OFF CLOSING PROVISION OF ` 29 63 021/- DETERMINED U/S.36(1)(VIIA). ACCORDINGLY THIS GROUND OF APPEAL IS ALLOWED. 15. AS IT IS NOT IN DISPUTE THAT THE ISSUE IN QUEST ION IS COVERED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE FOR THE ASSESSMENT YE AR 1997-98 VIDE ORDER OF THE BENCH OF THE TRIBUNAL IN ITA NO.2297/MUM/99 64 02/MUM/96 649/MUM/98 AND OTHERS ORDER DATED 20.06.2005 A BENCH AND ALSO AS THE ISSUE IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF OMAN INTERNATIONAL BANK SAOG REPORTED I N 92 ITD 76 WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY AND DISMISS THIS GROUNDS OF APPEAL. 16. IN THE RESULT APPEAL FILED BY THE REVENUE IS D ISMISSED. CO NO.53 & 54/MUM/2007 17. THE LEARNED SR. ADVOCATE SHRI PERCY J. PARDIWA LLA SUBMITTED THAT IN CASE THE REVENUES APPEALS ARE DISMISSED THEN THE CROSS OBJECTIONS BECOME INFRUCTUOUS. IN VIEW OF THE ABOVE SUBMISSI ONS WE DISMISS BOTH THE CROSS OBJECTIONS FILED BY THE ASSESSEE AS INFRUCTUO US. 7 18. IN THE RESULT BOTH THE APPEALS FILED BY THE RE VENUE AS WELL AS BOTH THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISM ISSED. ORDER PRONOUNCED ON THIS 28 TH DAY OF JANUARY 2011. SD/- (VIJAY PAL RAO) (JUDICIAL MEMBER) SD/- (J.SUDHAKAR REDDY) (ACCOUNTANT MEMBER) MUMBAI DATED 28 TH JANUARY 2011. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- MUMB AI 4. COMMISSIONER OF INCOME TAX CITY- MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH MUM BAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI