Case Law Details
DCIT Vs Oman International Bank S. A. O. G. (ITAT Mumbai)
The issue under consideration is whether the disallowance u/s 14A is justified even if the bank had not incurred any expenditure for the purpose of earning the interest amount?
ITAT states that, disallowance u/s 14A is attracted only when assessee incurs any expenditure for earning the income which is not forming part of total income. He also submitted that in this AY, assessee has not incurred any interest expenditure since assessee has earned the net interest income after setting off the interest expenditure paid to Head office. He brought to our notice case law which says that only net income should be considered for disallowance u/s 14A and futher brought to our notice case law which estimates the disallowance to 1% or 2%. ITAT notice that in the earlier AY, the issue was remitted back to AO for quantification and it was not brought on record the consequential order passed by AO in those years. After considering the submissions, in our considered view, since the interest income earned by assessee dealing with HO i.e., self, the coordinate benches has already adjudicated that this income cannot be part of total income earned by the branch in India. Since, the interest income is not part of total income, any related expenses for earning this income has to be identified and disallowed. In the given case, it is dealing in banking business. Assessee has submitted that it has earned the net income which it has declared in the branch P&L and for computation, it has eliminated both receipt and payment of interest to the Head Office. In this AY, there is net interest income but it may not be the same situation in all the AYs. The transaction with the Head Office and Branch, which is dealing with themselves has to considered like Mutual Concerns and all the transaction with them should be eliminated for taxation purpose, not just the income but also the expenditure. When the whole transaction is eliminated with the Head Office, it is important to note that it is the main business of the assessee i.e., Banking, all the relevant expenditure for carrying out these transaction also to be eliminated. Therefore, ITAT do not agree with the assessee that only exempt income which is not part of total income alone should be considered to disallowance u/s 14A. As per the provision of section14A at that point of time, it clearly says that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Nowhere it says it is confine to exempt income which is not form part of total income. Therefore, ITAT are also incline to remit this issue back to AO to quantify the disallowance u/s 14A by eliminating the expenditure relevant for earning the above said income, it may not the interest expenditure alone, it will include the administrative and other expenditure. ITAT urge the AO that the disallowance cannot be more than the income earned by the assessee as it is judicial precedent that the disallowance cannot be more than the income earned by the assessee. Accordingly the ground raised by the assessee is remitted back to AO to quantify the disallowance u/s 14A based on the above direction and direction of Coordinate Bench in the earlier AYs. Accordingly, the ground raised by the assessee is allowed for statistical purpose.
FULL TEXT OF THE ITAT JUDGEMENT
The above two cross appeals have been filed by the revenue and assessee against the order of Commissioner of Income Tax (Appeals)- 15, Mumbai, dated 2212.03.2014 for AY 2007-08 respectively and further CO filed by the assessee for the revenue appeal.
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