Niraj Sheth, A.R for the Petitioner. Akhtar Hussain Ansari & Sunil Jha, D.Rs for the Respondent.

The captioned appeals filed by the assessee are directed against the respective orders passed by the CIT(A)-56, Mumbai, dated 26.02.2016 for A.Y. 2009-10 and A.Y. 2010-11. As the issues involved in the captioned appeals are inextricably interlinked or in fact interwoven, the same are therefore being taken up and disposed off by way of a consolidated order. We shall first take up the appeal of the assessee for A.Y. 2009-10 wherein the impugned order has been assailed on the following grounds of appeal before us:

“Re. Relief No. 1

1. The Commissioner of Income-tax (Appeals)-56, Mumbai [hereinafter referred to as "the CIT(A)"] erred in holding that provisions of section 14A (of Income Tax Act, 1961) (hereinafter referred to as "the Act") are applicable with respect to interest received by the branch of the appellants from its HO raving failed to appreciate that interest received from HO is not exempt income.

2. Without prejudice to (1) above, the CIT(A) erred in not appreciating that since the bank had not incurred any expenditure for the purpose of earning the interest amount, provisions of section 14A (of Income Tax Act, 1961) are not applicable.

3. Without prejudice to ground nos. 1 and 2, the CIT(A) erred in upholding the action of AO of applying the provisions of section 14A (of Income Tax Act, 1961) r.w. Rule 8D (of Income Tax Rules, 1962) of the Act not appreciating that the said provisions can be invoked only if the AO is not satisfied with the correctness of the claim of the appellants in respect of such expenditure in relation to such income.

Re. Relief No. 2

4. The CIT(A) erred in upholding the action of the AO of denying the appellant's claim for deduction under 44C of the Act.

Re. Relief No.3

5. The CIT(A) erred in upholding the action of the AO that transfer pricing provisions are applicable for transactions between the branch and its HO/overseas branches having failed to appreciate that Indian branch and the head office are one and the same persons and not separate independent enterprises.

Re. Relief No. 4

6. The CIT(A) erred in upholding the action of the A.O accepting the adjustment of Rs.11,823 made by the TPO on interest received from the HO having failed to appreciate the fact that transaction entered into by the appellants with its HO are at arm‟s length.

Re. Relief No. 5

7. The CIT(A) erred in upholding the action of the AO in accepting the adjustment of Rs. 16,13,103 made by the TPO on interest paid by the Indian branch to its HO having failed to appreciate the fact that transaction entered into by the appellants with its HO are at arm's length. Your appellants crave leave to add to, alter, amend, vary, omit or substitute the aforesaid ground of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised.”

2. Briefly stated, the assessee Doha Bank QSC, Indian Branches, (successors to HSBC Bank, Oman S.A.O.G) is a branch of Oman International Bank SAOG, which is a foreign company registered in Oman. The assessee had filed its return of income for A.Y 2009-10 on 30.09.2009, declaring a total income of Rs.nil. The return of income filed by the assessee was processed as such under Sec. 143(1) (of Income Tax Act, 1961). Subsequently, the case of the assessee was taken up for scrutiny assessment under Sec. 143(2) (of Income Tax Act, 1961).

3. Observing, that the assessee had carried out international transactions during the year under consideration, the A.O made a reference to the Transfer Pricing Officer (for short „TPO‟) under Sec. 92CA(1) (of Income Tax Act, 1961) for benchmarking the said transactions. As the assessee had debited an amount of Rs.96,28,769/- as interest paid on borrowings raised from its Head Office (for short “H.O”), the TPO vide his order determined the Arm‟s Length Value (for short „ALV‟) of the interest so paid at Rs.80,15,666/- and worked out an adjustment of Rs.16,13,103/- in the hands of the assessee. As the assessee taking cognizance of the fact that interest paid to its H.O was in fact a payment to self had already disallowed the same in its computation of income, therefore,no ALP adjustment was made by the A.O. On the other hand, it was observed by the A.O that the assessee in its computation of income had reduced from its income the amount of interest received from its H.O on the ground that the same was an income received from self. After deliberating on the aforesaid facts, the A.O called upon the assessee to explain that now when the H.O and the branch office were separate entities, then why the aforesaid interest income of Rs.3,49,939/- received by it from the H.O may not be considered as part of its taxable income. In reply, it was submitted by the assessee that the ITAT vide its order dated 29.06.2012 in its own case for A.Y 1996-97 and A.Y 1997-98, had held, that the interest received by the Indian branch from its H.O could not be treated as the income of the Indian branch since it was received from self. Although, the ITAT, Mumbai as well as the Hon‟ble High Court in the assessee‟s own case for the earlier years, had held, that interest received by the assessee i.e the India branch from its H.O would not be taxable in the hands of the assessee, the A.O however taking note of the fact that the department had not accepted the aforesaid decisions and had carried the same further in appeal, declined to accept the assessee‟s claim that the interest of Rs.3,61,762/- (as per the order of the TPO) received from the H.O was not taxable in its hands and added the same to the returned income of the assessee. Alternatively, it was observed by the A.O, that in case the interest income received by the assessee from its H.O was held as not taxable, then, the provisions of Sec. 14A (of Income Tax Act, 1961) would be applicable. On the basis of his aforesaid observations the A.O worked out the disallowance under Sec. 14A (of Income Tax Act, 1961) r.w. Rule 8D (of Income Tax Rules, 1962) at an amount of Rs.64,605/-, as under :

A Average value of investment Interest paid X Average value of assets 24,68,054

8,24,92,231 52,265X

389,54,34,000 (385,92,88,000 + 393,15,80,000)

B. An amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the list day of the previous year.

Average value of investment Closing balance of investment as per balance sheet 31.03.2008

52,51,177

Closing balance of investment as per balance sheet 31.03.2009

(315069)

Total 4936108

Average of two years investments 24,68,054 Therefore, average of value of investment

24,68,054

0.5% of Average value of investment of Rs./- 12,340

Total A & B [] 64,605

4. On a perusal of the assessee‟s financial statements, it was further observed by the A.O that the assessee had reduced a sum of Rs. 25,25,634/- being 5% of the “adjusted total income” under Sec. 44C (of Income Tax Act, 1961). It was observed by the A.O that from the details filed by the assessee it was not clear as to whether the expenses incurred by the H.O were in respect of the Indian branch i.e the assessee, the liability in respect of which was borne by the H.O. In the backdrop of his aforesaid observation the A.O disallowed the assessee‟s claim for deduction under Sec. 44C (of Income Tax Act, 1961) on the following grounds:

i. The appellants have not shown any expense under the head “head office expense”. The audit report or the notes to accounts also does not say anything about the head office expense.

ii. The quantum and nature of the expense is not known, In order to claim deduction under section 44C (of Income Tax Act, 1961) there has to be an expense and Section 44C (of Income Tax Act, 1961) is not a blanket deduction provision for 5% of ALP.

Accordingly, the A.O worked out the disallowance under Sec. 44C (of Income Tax Act, 1961) at an amount of Rs. 42,33,512/-. In the backdrop of his aforesaid deliberations the A.O assessed the income of the assessee at Rs.49,77,142/-, vide his order passed under Sec. 143(3) (of Income Tax Act, 1961) r.w.s 92CA (of Income Tax Rules, 1962) of the Act, dated 17.05.2013.

5. Aggrieved, the assessee assailed the assessment framed by the A.O before the CIT(A). However, the CIT(A) not finding favour with the claim of the assessee insofar the aforesaid issues were concerned, viz. (i) disallowance under Sec. 14A (of Income Tax Act, 1961); and (ii) declining of the assessee‟s claim for deduction under Sec. 44C (of Income Tax Act, 1961), therein upheld the same.

6. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. At the very outset of the hearing of the appeal the ld. A.R took us through the facts relevant for disposal of the same. It was submitted by the ld. A.R that the Hon‟ble High Court of Bombay in the assessee‟s own case for A.Ys 1996-97 to 1999-2000 had upheld the order of the Tribunal and had approved the assessee‟s claim for deduction of interest received by its Indian branch from its H.O. It was submitted by the ld. A.R that both the Tribunal and the Hon‟ble High Court had in the assessee‟s own case held that the interest income received by the assessee‟s Indian branch from its H.O was not to be subjected to tax. In order to buttress his aforesaid claim,the ld. A.R had drawn our attention to the order passed by the Tribunal in its own case for the aforementioned preceding years. At the same time, it was fairly stated by the ld. A.R that the Tribunal had in its aforesaid orders observing that the provision of Sec. 14A (of Income Tax Act, 1961) would be applicable to the exempt interest income earned by the assessee from its H.O/overseas branch had thus restored the matter back to the file of the A.O for quantification. Adverting to the disallowance made by the A.O under Sec.14A (of Income Tax Act, 1961), it was submitted by the ld. A.R that as the A.O had failed to record his satisfaction before working out the disallowance under Sec.14A (of Income Tax Act, 1961) r.w. Rule 8D (of Income Tax Rules, 1962), therefore, the same was liable to be vacated on the said count itself. However, the ld. A.R fairly admitted that the issue as regards recording of satisfaction by the A.O, in the backdrop of identical facts had been decided by the Tribunal against the assessee while disposing off its appeal for A.Y 2011-12.(copy placed on record). It was further submitted by the ld. A.R that the disallowance of the interest expenditure under Sec. 14A (of Income Tax Act, 1961) r.w Rule 8D(2)(ii) (of Income Tax Rules, 1962) was to be carried out after netting of the interest income and the interest expenditure. As regards the disallowance pertaining to the administrative expenses worked out by the A.O under Sec. 14A (of Income Tax Act, 1961) r.w Rule 8D(2)(iii) (of Income Tax Rules, 1962), it was submitted by the ld. A.R that as the assessee had not made any investment for earning of the interest income from its head office, thus, no disallowance of any part of the administrative expenses was called for in its hands. Assailing the disallowance of the assessee‟s claim for deduction under Sec. 44C (of Income Tax Act, 1961), it was submitted by the ld. A.R that the same was based on misinterpretation of the said statutory provision by the lower authorities. It was submitted by the ld. A.R that the assessee‟s claim for deduction of Rs. 25,25,634/- i.e 5% of the “adjusted total income”, being lower than the proportionate amount of the H.O expenditure that was attributable to the business of the assessee in India, was rightly claimed by the assessee. In order to buttress his aforesaid claim the ld. A.R took us through the aforesaid statutory provision. It was further submitted by the ld. A.R that in the subsequent years i.e A.Y 2010-11 and A.Y 2011-12 the assessee‟s claim for deduction under Sec. 44C (of Income Tax Act, 1961) had been accepted by the department.

7. Per contra, the ld. Departmental Representative (for short „D.R‟) had relied on the orders of the lower authorities. Insofar the netting of the interest income and interest expenditure for the purpose of working out the disallowance under Sec. 14A (of Income Tax Act, 1961) r.w Rule 8D(2)(ii) (of Income Tax Rules, 1962) was concerned, the ld. D.R fairly accepted the claim of the counsel for the assessee. As regards the disallowance made by the A.O under Sec. 44C (of Income Tax Act, 1961), it was submitted by the ld. D.R that as there was no mention of any H.O expenses attributable to the business of the assessee in India, either in the notes to accounts or the audit report of the assessee‟s India branch, therefore, the lower authorities had by rightly drawing support from sub-section (c) of Sec. 44C (of Income Tax Act, 1961), therein concluded, that in the absence of any such H.O expenditure attributable to the assessee‟s business in India, the claim of the assessee under Sec. 44C (of Income Tax Act, 1961) was liable to be rejected.

8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements that have been pressed into service by them. As regards the interest income received by the assessee from its H.O is concerned, we find, that it is matter of fact borne from the records that the Tribunal and also the Hon‟ble High Court of Bombay had in the assessee‟s own case for A.Ys. 1996-97 to 1999-2000 held, that the interest income received by the assessee from its H.O could not be brought to tax in its hands, for the reason, that one cannot earn income from self. But then, at the same time, we find that the Tribunal while disposing off the appeals of the assessee for the aforesaid preceding years was of the view that as the provisions of Sec.14A (of Income Tax Act, 1961) would be applicable to the exempt interest income earned by the assessee from its H.O/Overseas branches, had thus, restored the matter to the file of the A.O for quantification. Admittedly, the aforesaid facts are not in dispute before us. Insofar, the claim of the ld. A.R that the disallowance made by the A.O under Sec.14A (of Income Tax Act, 1961) was liable to be vacated, for the reason, that he had failed to record his satisfaction prior to working out of the aforesaid disallowance, we find, that the said issue as fairly admitted by the ld. A.R had been decided against the assessee by the Tribunal while disposing off its appeal for A.Y.2011-12, wherein identical facts were involved. Accordingly, finding no reason to take a different view, we respectfully follow the order of the Tribunal for A.Y 2011-12 and reject the aforesaid claim of the assessee. As regards the claim of the ld. A.R that the disallowance of the interest expenditure under Sec. 14A (of Income Tax Act, 1961) r.w Rule 8D(2)(ii) (of Income Tax Rules, 1962) was to be worked out by the A.O after netting of the interest income received and interest expenditure incurred, we find substantial force in the same. Admittedly, the disallowance of the interest expenditure under Sec. 14A (of Income Tax Act, 1961) r.w Rule 8D(2)(ii) (of Income Tax Rules, 1962) has to be carried out after netting of the interest income and interest expenditure. Our aforesaid view is fortified by the order of the Hon’ble High Court of Bombay in the case of CIT, Central-III Vs. Jubiliant Enterprises Pvt. ltd. [ITA No. 1512 of 2014, dated 28.02.2017]. In the said case, the Hon‟ble High Court approving the view taken by the Tribunal that the disallowance made under Sec.14A (of Income Tax Act, 1961) r.w Rule 8D (of Income Tax Rules, 1962) was to be carried out on the basis of netting of the interest expenditure had dismissed the appeal of the revenue. Also, a similar view had been taken by the Hon’ble High Court of Gujarat in the case of PCIT-3, Vs. Nirma Credit and Capital (P. Ltd.) (2018) 300 CTR 286 (Guj). It was observed by the Hon‟ble High Court that for the purpose of working out the disallowance under Rule 8D(2)(ii) (of Income Tax Rules, 1962) the amount of expenditure by way of interest would be interest paid by the assessee on borrowings minus taxable interest earned during the year. In terms of our aforesaid observations, we find ourselves to be in agreement with the claim of the ld. A.R that the disallowance under Sec. 14A (of Income Tax Act, 1961) r.w Rule 8D(2)(ii) (of Income Tax Rules, 1962) as regards the interest expenditure has to be carried out after netting of the interest paid by the assessee on borrowings and the taxable interest income earned during the year under consideration. Accordingly, we direct the A.O to recompute the disallowance under Sec. 14A (of Income Tax Act, 1961) r.w Rule 8D(2)(ii) (of Income Tax Rules, 1962) in terms of our aforesaid observations. We shall now advert to the claim of the ld. A.R that as the assessee had not made any investment for earning of the interest income from its H.O, therefore, no disallowance of any part of the administrative expenses was called for under Sec. 14A (of Income Tax Act, 1961) r.w Rule 8D(2)(iii) (of Income Tax Rules, 1962). We find that a somewhat similar claim was raised by the assessee in its appeal before the Tribunal for A.Y. 2011-12, which, however, was rejected by the Tribunal. In its case for the aforementioned preceding years, it was the claim of the assessee that the disallowance of administrative expenses under Rule 8D(2)(iii) (of Income Tax Rules, 1962) may be restricted to the extent of 1% to 2% of its exempt income. However, the Tribunal taking cognizance of the fact that from A.Y. 2008-09 onwards disallowance under Sec. 14A (of Income Tax Act, 1961) was to be computed in accordance with Rule 8D (of Income Tax Rules, 1962), had thus, rejected the aforesaid claim of the assessee. In our considered view as there is no substance in the claim of the assessee that dehors any investment made for earning of the interest income from its H.O no disallowance was called for under Sec. 14A (of Income Tax Act, 1961) r.w. Rule 8D(2)(iii) (of Income Tax Rules, 1962), we decline to accept the same.

10. We shall now advert to the claim of the assessee that the lower authorities had erred in disallowing its claim for deduction under Sec. 44C (of Income Tax Act, 1961). Before dealing with the said issue, we shall briefly cull out the facts leading to the controversy in hand. On a perusal of the records, we find, that the assessee had claimed deduction of Rs. 17,60,878/- on account of expenses that were incurred in respect of Ms Laila Ali Obaid Al- Mujaini, employee of the assessee bank who was deputed to India. Being of the view that the aforesaid expenditure was in the nature of a H.O expense, the A.O disallowed the same on the ground that the same would be subject to the ceiling of the deduction contemplated in Sec. 44C (of Income Tax Act, 1961). It was further observed by the A.O that the assessee had claimed a deduction of Rs. 25,25,634/- being 5% of the “adjusted total income” under Sec.44C (of Income Tax Act, 1961).

Observing, that the assessee had not shown any expense under the head “Head Office Expenses” either in its audit report or the notes to accounts, the A.O was of the view that no part of the H.O expenses was attributable to the business of assessee in India. Apart from that, the A.O was of the view that as the quantum and nature of the expenses were not known, therefore, for the said reason also the assessee was not entitled for claim of deduction under Sec.44C (of Income Tax Act, 1961). On the basis of his aforesaid observations the A.O disallowed the aforesaid claim of expenditure by the assessee aggregating to an amount of Rs. 42,33,512/- [Rs.17,07,878/- (+) Rs.25,25,634/-]. On appeal,the CIT(A) finding no infirmity in the view taken by the A.O upheld the aforesaid disallowance made by him.

11. Before us, it is the claim of the ld. A.R that both the lower authorities had misconceived or in fact misinterpreted the scope of Sec.44C (of Income Tax Act, 1961).

On a perusal of the orders of the lower authorities, we find, that the A.O had primarily emphasised on sub-section (c) of Sec.44C (of Income Tax Act, 1961), to conclude, that as no part of the H.O expenditure was attributable to the business of the assessee in India, therefore, the assessee‟s claim for deduction under Sec.44C (of Income Tax Act, 1961) worked out to an amount of Rs. nil.

12. We have given a thoughtful consideration to the aforesaid issue and find substantial force in the claim of the ld. A.R that the lower authorities had failed to appreciate the scope and gamut of Sec.44C (of Income Tax Act, 1961) in the right perspective.

For a fair appreciation of the issue under consideration we shall briefly cull out Sec.44C (of Income Tax Act, 1961), which reads as under (relevant extract) :

“44C. Notwithstanding anything to the contrary contained in Section 28 (of Income Tax Act, 1961) to 43A, in the case of an assessee, being a non-resident, no allowance shall be made, in computing the income chargeable under the head „profits and gains of business or profession‟, in respect of so much of the expenditure in the nature of head office expenditure as is in excess of the amount computed as hereunder, namely:-

(a) An amount equal to five percent of the adjusted total income; or

(c) The amount of so much of the expenditure in the nature of head office expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India, whichever is the least.”

Further, the term “Head office expenditure” as contemplated in Sec. 44C (of Income Tax Act, 1961) had been defined in „Explanation (iv)‟ to Sec. 44C (of Income Tax Act, 1961), which reads as under:

“(iv) “head office expenditure" means executive and general administration expenditure incurred by the assessee outside India, including expenditure incurred in respect of:-

(a) rent, rates, taxes, repairs or insurance of any premises outside India used for the purposes of the business or profession;

(b) salary, wages, annuity, pension, fees, bonus, commission, gratuity, perquisites or profits in lieu of or in addition to salary. whether paid or allowed to any employee or other person employed in, or managing the affairs of, any office outside India;

(c) travelling by any employee or other person employed in, or managing the affairs of, any office outside India; and

(d) such other matters connected with executive and general administration as may be prescribed.]”

On a perusal of Sec.44C (of Income Tax Act, 1961), we find, that the same therein contemplates a ceiling on the allowability of the head office expenditure insofar the same is attributable to the business in India, while computing the income of an assessee, being a non-resident, under the head profits and gains of business or profession. Under the said statutory provision the allowability of the expenditure is to be restricted to viz. (i) an amount equal to five percent of the adjusted total income; or (ii) the amount of so much of the expenditure in the nature of head office expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India; whichever is less. As observed by us here in above, the lower authorities held a conviction that from the details filed by the assessee it was not clear as to whether or not the expenses incurred by the assessee were in respect of its Indian branch.

Accordingly, drawing support from sub-section (c) to Sec.44C (of Income Tax Act, 1961), the A.O had concluded that no amount of expenditure was allowable as deduction to the assessee under the said statutory provision. On the contrary, it was the claim of the assessee that working of the Central Administrative expenditure attributable to the Indian branch on the basis of the revenue of the Indian branch in proportion to the revenue of the bank as a whole, therein revealed,that the claim of deduction raised by the assessee @ 5% of the “adjusted total income” was substantially lower than the actual amount of H.O expenditure incurred by the assessee as was attributable to its business in India. We have given a thoughtful consideration to the aforesaid issue before us, and are persuaded to subscribe to the claim of the ld. A.R that the existence or absence of entries in the books of accounts would not be decisive or conclusive to determine the assessee‟s claim for deduction insofar Sec.44C (of Income Tax Act, 1961) is concerned. In fact, we are of a strong conviction that the deduction of H.O expenditure (attributable to the business of the assessee in India) is allowable in accordance with provisions of Sec. 44C (of Income Tax Act, 1961), irrespective of the fact, whether or not any amount is debited in the books of accounts. In this context, it would be relevant to point out that Sec. 44C (of Income Tax Act, 1961) was introduced by the Finance Act, 1976, w.e.f 01.06.1976 wherein the purpose of insertion of the said statutory provision was explained by the CBDT Circular No. 2002, which reads as under:

“25.1. Non-residents carrying on any business or profession in India through their branches are entitled to a deduction, in computing the taxable profits, in respect of general administrative expenses incurred by the foreign head offices in so far as such expenses can be related to their business or profession in India. It is extremely difficult to scrutinize and verify claims in respect of such expenses, particularly in the absence of account books of the head office, which are kept outside India. Foreign companies operating through branches in India sometimes try to reduce the incidence of tax in India by inflating their claims in respect of head office expenses. With a view of getting over these difficulties, the Finance Act has inserted a new section 44C (of Income Tax Act, 1961) in the Income-tax Act laying down certain ceiling limits for the deduction of head office expenses in computing the taxable profits in the case of non-resident taxpayers.”

Accordingly, we are of the considered view, that the legislature in all its wisdom had provided a basis for attributing a part of the head office expenses incurred by an assessee, a non-resident, to the business of the assessee in India. On a perusal of the purpose for making available of the aforesaid statutory provision i.e Sec. 44C (of Income Tax Act, 1961) on the statute, we find, that the same was backed by the reason that it was extremely difficult to scrutinise and verify the veracity of the claims of the non-resident assessee‟s carrying on any business or profession in India, as regards their head office expenses attributable to such business or profession in India. We are unable to concur with the view taken by the lower authorities that the absence of the head office expenses attributable to its business in India, in the audit report or the notes to accounts of the Indian branch would therein render it ineligible to claim the deduction under Sec. 44C (of Income Tax Act, 1961). In our considered view the assessee had rightly claimed deduction of 5% of the “adjusted total income”, as the same is lower than the amount of the head office expenditure incurred by the assessee as is attributable to its business in India. We thus, in terms of our aforesaid observations not finding favour with the view taken by the lower authorities, therein „set aside‟ the order of the CIT(A) and direct the A.O to allow the assessee‟s claim for deduction under Sec. 44C (of Income Tax Act, 1961).

13. The appeal of the assessee is partly allowed in terms of our aforesaid observations.

14. We shall now take up the appeal of the assessee for A.Y. 2010-11. The assessee has assailed the impugned order on the following grounds of appeal before us:

“Re. Relief No. 1

1. The Commissioner of Income-tax (Appeals)-56, Mumbai [hereinafter referred to as "the CIT(A)"] erred in holding that provisions of section 14A (of Income Tax Act, 1961) (hereinafter referred to as "the Act") are applicable with respect to interest received by the branch of the appellants from its HO having failed to appreciate that interest received from HO is not exempt income.

2. Without prejudice to (1) above, the CIT(A) erred in not appreciating that since the bank had not incurred any expenditure for the purpose of earning the interest amount, provisions of section 14A (of Income Tax Act, 1961) are not applicable.

3. Without prejudice to ground nos. 1 and 2, the CIT(A) erred in upholding the action of AO of applying the provisions of section 14A (of Income Tax Act, 1961) r.w. Rule 8D (of Income Tax Rules, 1962) of the Act not appreciating that the said provisions can be invoked only if the AO is not satisfied with the correctness of the claim of the appellants in respect of such expenditure in relation to such income.

Re. Relief No. 2

4. The CIT(A) erred in upholding the action of the AO that transfer pricing provisions are applicable for transactions between the branch and its HO/overseas branches having failed to appreciate that Indian branch and the head office are one and the same persons and not separate independent enterprises.

Re. Relief No. 3

5. The CIT(A) erred in upholding the action of the AO in accepting the adjustment of Rs.29,52,919 made by the TPO on interest paid by the Indian branch to its HO having failed to appreciate the fact that transaction entered into by the appellants with its HO are at arm's length.

Your appellants crave leave to add to, alter, amend, vary, omit or substitute the aforesaid ground of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised.”

At the very outset of the hearing of the appeal, it was submitted by the ld. A.R that as the amount of Interest income received by the assessee from its H.O during the year under consideration was a miniscule amount of Rs.3,866/-,therefore, in all fairness the disallowance under Sec. 14A (of Income Tax Act, 1961) may be restricted to the said extent. It was averred by the ld. A.R, that as instructed, in case the disallowance is restricted to the aforesaid amount of exempt income, then the remaining grounds of appeal would not to be pressed.

15. Per contra, the ld. Departmental Representative (for short „D.R‟) did not object to the aforesaid claim of the counsel for the assessee.

16. We have given a thoughtful consideration to the aforesaid issue before us, and find substantial force in the claim of the ld. A.R that the amount of the disallowance under Sec. 14A (of Income Tax Act, 1961) is liable to be restricted to the extent of the exempt interest income. Our aforesaid view is fortified by the judgments of the Hon’ble High Court of Delhi in the case of JCIT Vs. Joint Investments Pvt.ltd. (2015) 372 ITR 694 (Del) and Cheminvest Ld. Vs. CIT 378 ITR 33 (Del). Accordingly, in terms of our aforesaid observations, the A.O is directed to restrict the disallowance under Sec.14A (of Income Tax Act, 1961) to the extent of the amount of the exempt income of the assessee for the year under consideration. Before parting, we may herein observe that the concession on the part of the assessee for not pressing the other grounds of appeal is solely on the basis of the miniscule amount of the exempt interest income received by the assessee from its H.O during the year under consideration, which thus, shall in no way prejudice its alternative claims which are not being adverted to and therein being adjudicated upon in pursuance to the aforesaid concession of the ld. A.R.

17. The appeal of the assessee is partly allowed in terms of our aforesaid observations.

18. Resultantly, the appeals filed by the assessee are partly allowed in terms of our aforesaid observations.

Order pronounced in the open court on 06.11.2020

Sd/- Sd/-

Pramod Kumar Ravish Sood

(VICE PRESIDENT) (JUDICIAL MEMBER)

Mumbai, Date: 06.11.2020