ITA No.109 of 2011 Bank of America, Mumbai
IN THE INCOME TAX APPELLATE TRIBUNAL
"K" Bench, Mumbai
Before Shri B. Ramakotaiah, Accountant Member and Shri Amit Shukla, Judicial Member
ITA No.109/Mum/2011
(Assessment year: 2006-07)
Bank of America,N.A, Vs. ADIT (IT) 3(2) Room No.132, Ground Floor, Express Towers, Scindia House, Ballard Nariman Point, Estate, Mumbai 400001 Mumbai 400021
PAN: AAACB 1573 G
(Appellant) (Respondent)
Assessee by: Shri Percy Pardiwala,
Vasanti B.,Patel
Department by: Shri Ajeet Kumar Jain, DR
Date of Hearing: 08/11/2012
Date of Pronouncement: 16/11/2012
ORDER
Per Bench:
This is an appeal by assessee against the orders of the CIT (A)-15 Mumbai dated 22.11.2010. Assessee has raised the following grounds:
1. The CIT(A), has erred in law and on' facts in dismissing the appeal ad-limine (at the admission stage) as being null and void.
2. The CIT(A) having regard to the facts and circumstances of the case ought to have considered the various grounds raised in the appeal before him and adjudicated the same on merits.
3. The CIT(A) erred in holding that "Its subsequent withdrawal is not proper and consequent order passed by the AO under section 143(3) on 10.02.2010 is erroneous. The AO committed a mistake and the appellant cannot claim a vested right on this mistake."
4. The CIT(A) erred in holding that order dated 13.02.2010 was void.
5. The CIT(A) ought to have held that, the adjustments to the arm's length price of the correspondent banking related support services and portfolio analytics services determined by the TPO should be deleted.
6. The CIT(A) ought to have held that, the adjustments to the arm's length price of the Audit and Technology related services, Banc of America Equity Partners (Employee rendering) services, Operational Audit services, Support in relation to Cash Management Services, Portfolio Management Group employees providing regional support services and System's group employees providing regional support determined by the TPO should be deleted.
7. While dealing with the adjustments as referred in ground no. 5 and 6, the CIT(A) ought to have held that, having regard to the provisions as contained in Article 7 of the Double Taxation Avoidance Agreement between India and the United States of America which states that, in determining the profits of the appellant (being a permanent establishment), nothing more than actual cost incurred in respect of such support to overseas branches should be considered, the mark-up arrived at by the AO/TPO needs to be deleted.
8. The CIT(A) ought to have held that the expenses of Rs. 16,79,60,835 incurred by appellant's overseas branches for its Indian operations did not fall within the scope of section 44C of the Act, pertaining to Head Office Expenses. The CIT(A) failed to appreciate that the TPO had determined the arm's length price of these expenses as Rs 16,79,60,835.
9. The CIT(A) failed to appreciate that there has been no failure on the part of your appellant in complying with the provisions of section 40(a)(i) and that the provisions of section 40(a)(i) can have no application to the aforesaid expenditure of Rs 16,79,60,835 incurred by your appellant.
10. Without prejudice, the CIT(A) having upheld the AO's conclusion that the expenditure of `16,79,60,835/- was in the nature of Head Office Expenditure (refer paragraph 4.6 of the assessment order) ought to have allowed the deduction under section 44C of the Act.
11. The CIT(A) ought to have deleted the disallowance of the interest payment of INR 59,30,47,220 made by appellant's Indian Branches to the appellant's Singapore Branch in computing the total income of the appellant in India.
12. The CIT(A) ought to have held that interest payment of INR 59,30,47,220 made by appellant's Indian Branches to appellant's Singapore Branch, is not the income of the appellant and is not liable to be taxed.
13. The CIT(A) ought to have held that consistent with his stand of not allowing a deduction of the interest paid, the interest received of Rs. 8,86,98,558 also being from self was not taxable.
14. The CIT(A) ought to have held that salary of Rs. 1,64,67,795 paid overseas to expatriates did not fall within the scope of section 44C of the Act, pertaining to Head Office Expenses. The CIT(A) ought to have held that these were expenses which were directly attributable to the Indian operations of your Appellants and deductible in computing taxable income and did not attract the restrictive provisions of section 44C of the Act.
15. The CIT(A) ought to have held that amount of Rs. 8,44,37,389 earned by your appellant's Overseas Branches on the loans extended by them to clients situated in India is not liable to be taxed in India under Article 7 of the Indo-US tax treaty read with section 115A of the Act. The CIT(A) ought to have held that, the income of Rs. 4,33,54,634 attributable for the support services provided by the appellant in India in relation to such loans, was already determined by the TPO and added to the appellant's income chargeable to tax and, therefore, nothing further remained to be added.
2. We have heard the learned Counsel and the learned DR in this regard.
3. The facts relating to the present appeal are that assessee Bank of America N.A. is Banking Company incorporated in the USA and has been operating in India since 1964 currently having five branches in India namely Mumbai, New Delhi, Calcutta, Chennai and Bangalore. The Bank's Indian branches offer a range of wholesale banking products catering primarily to multi national companies and other top segment corporate customers. Some of the products offered are various types of loans such as overdrafts, cash credits, term loans, bills discounting, working capital finance etc, acceptance of current accounts, term deposits, securities and money market transactions, derivatives and foreign exchange trading, trade finance related transactions such as guarantees, letters of credits etc. The Indian branches of the bank do not offer any retail banking products. The facts in chronological order leading to this appeal are as follows:
i) The draft order in this case was dated 29/12/20.09 and was served on the assessee on 30/12/2009. Objections were filed with the DRP vide letter dt. 25/01/2010. Subsequent to the filing of the objections, the assessee became aware on 29/1/2010 of a clarification dt.20/01/2010 from the Central Board of Direct Taxes (CBDT) as per which it was clarified that an assessee had the option to either file objections before the DRP or challenge the assessment framed as per the normal appellate channel.
ii) On the same day i.e. 29/01/2010 which falls within the period prescribed under section 144C(2)(b) for assessee to file its objections with the DRP and the Assessing Officer against the draft order, the applicant took the following actions: (a) Filed a letter dt. 29/01/2010 to the DRP withdrawing its objections filed on 25/01/2010. In the letter, it was made clear that in view of the clarification of the CBDT, the assessee desired to exercise the option of filing an appeal before the CIT (A) from the assessment order that would be passed under section 143(3).
(b) A letter dt. 29/1/2010 was filed with AO on that very date informing him that the objections filed before the DRP have been withdrawn and requesting him to pass an assessment order within the prescribed time.
iii) AO passed an order dt. 10/02/2010 under section 144C(3) r.w.s. 143(3) which was served on assessee on 16.02.2010. A tax demand of `.36,34,74,134/- was raised and assessee was informed that they could appeal against the said order to the CIT (A). Assessee filed an appeal against the aforesaid order of AO on 10.03.2010 with the CIT (A). The tax demand raised by AO has been fully paid.
iv) A letter dated 20.04.2010 was served on 23.04.2010 on assessee fixing the first hearing before the DRP on 28.04.2010. Assessee addressed a letter dated 23.04.2010 to the DRP informing them of the withdrawal of their application and filing of the appeal to the CIT (A). In this letter it was also stated that the application filed before the DRP on 25.01.2010 does not survive for consideration. The DRP however, proceeded with the case and in its order dated 13.07.2010 treated the objection filed before the panel 'dismissed as withdrawn' and directed AO to complete the assessment as proposed in the draft order. The AO again passed an order on 20/08/2010 which was challenged before ITAT.
5. Before the CIT (A), it was argued that since assessee had withdrawn the objection before the DRP and as the DRP become functus officio consequent to the withdrawal of objections, the order passed by the DRP was bad in law and the CIT (A) has jurisdiction to entertain the appeal which was filed in time on 10.03.2010. The CIT (A) however, was of the opinion that following the CBDT Circular No.5, assessee has only option to either prefer the appeal before the CIT (A) or before the DRP and since assessee chose to file objection before the DRP, it cannot prefer the appeal before the CIT (A). He dismissed the appeal in limine. However, while dismissing, he also observed that AO having completed the order earlier on 10.02.2010, committed a mistake and therefore, that order becomes void.
6. The learned Counsel submitted that the order of the DRP was challenged before the ITAT in ITA No.7100/Mum/2010 which held the order passed on 28.08.2010 as invalid, therefore, the original order passed on 10.02.2010 is the only valid order. Since this present appeal was not placed before the Bench for consideration, they did not adjudicate the prayer to restore to the file of the CIT (A). Therefore, it was prayed that the matter may to be restored to the file of the CIT (A) for adjudicating the issues on merits.
7. The learned DR accepted the factual position and made submissions.
8. We have considered the issue. As stated in the facts above after assessee withdrew the objections and having passed the order by AO in conformity with the draft order proposed, assessee filed the appeal before the CIT (A). As rightly held by the ITAT, the DRP should not have issued any directions and subsequent order passed by AO was not correct which was rightly cancelled by the Coordinate Bench in ITA No.7100/Mum/2010. The issue was considered elaborately as under:
"4 Having considered the rival submissions and carefully perusal of the relevant material on record, we find that the Assessing Officer has passed two orders in this case one u/s 144C(3) dt 10.2.2010 and another u/s 144C(13) dt 20.8.2010. Both these orders are identical and with same demand of tax. There is no dispute about the fact as explained by the ld Sr counsel that against the draft order dt 29.12.2009 passed u/s 144C(1), the assessee filed its objection dt 25.1.2010 before the DRP. However, in the meantime, the CBDT issued a clarification dt 20.1.2010 regarding the option of an assessee either to go before the DRP or to prefer the normal appellate channel. It was further clarified by the CBDT that it is the choice of assessee whether to file an objection before the DRP against the draft assessment order or to exercise the option and file an appeal later before the Commissioner of Income Tax(Appeals) against the assessment order passed by the Assessing Officer. When the clarification came to the knowledge of the assessee it had immediately filed a letter dated 29.1.2010 before the DRP for expressing the exercise of the option of filing an appeal before the Commissioner of Income Tax(Appeals) and withdrawing the objections filed u/s 144C(2).
4.1 Though, the assessee had an option to exercise either to file the objection before the DRP against the proposed draft assessment order or to opt for an appeal before the Commissioner of Income Tax(Appeals) against the assessment order passed u/s 144C(3). However, once the assessee has filed the objection before the DRP, even though the assessee has liberty to withdraw the same, the proceedings before the DRP would not automatically close because the DRP is having the powers of enhancement of the variation as proposed in the draft order. Therefore, without permission of the DRP, the application/objection, once filed, cannot be withdrawn by the party in view of sub. Sec. 7 & 8 of section 144C of the I T Act which read as under:
"7. The Dispute Resolution Panel may, before issuing any directions referred to in sub. section (5)-a) make such further enquiry, as it thinks fit; or
b) cause any further enquiry to be made by any income tax authority and report the result of the same to it.
8) The Dispute Resolution Panel may confirm, reduce or enhance the various proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub section (5) for further enquiry and passing of the assessment order."
4.2 Since in the case in hand, the DRP after taking note of the fact that the assessee desires to exercise the option to file the appeal before the Commissioner of Income Tax(Appeals) against the assessment order, accepted the request of the assessee for withdrawal of the objection while passing the order dt 13.7.2010 and therefore, no direction per-se were passed by the DRP as per sub. Sec. 5 of sec 144C of the Act. We quote the order of the DRP as under: "In this case, draft assessment order dated 29.12.2009 was issued by the
Assessing Officer against which the assessee has filed following objections
before the Dispute Resolution Panel vide its letter dated 25.1.2010.
.................................................................................. ............................................................................ ..................................................................... Subsequently, vide letter dated 29th January, 2010, the assessee made a request for withdrawal of the objections filed before the DRP mentioning that they intend to opt to proceed to the normal appellate authority i.e. the CIT(A). Assessee was given opportunity of being heard and Shri Virendra A.Mittal, partner Deloitte Harkins & Sells, the authorized representative and Mr. Saurabh Doshi, Asst. Vice President, Country Tax & Finance Bank of America NA attended the proceedings on 28.4.2010. Assessee confirmed its request for withdrawal of objection. In view of the request of the assessee, the objections filed before the Panel are dismissed as withdrawn. The Assessing Officer is directed to complete assessment as proposed in the draft order."
5 Even otherwise, when the objections filed by the assessee were allowed to be withdrawn on the ground that the assessee intend to exercise the option to proceed to file appeal before the Commissioner of Income Tax(Appeals), then there cannot be any direction under sub.sec.5 in the absence of any objection as required under sub. Sec. (2) of sec. 144C of the Act. It is clear from the order dated 13.7.2010 of the DRP that the DRP has not issued any direction on merits of the proposed draft assessment order; therefore, the Assessing Officer got no jurisdiction to pass any order u/s 144C(13). Hence, the order dated 20.8.2010 passed u/s 144C(13) r.w.s 143(3) by the Assessing Officer is without jurisdiction and accordingly is not sustainable.
5.1 Even otherwise, when the Assessing Officer has already passed an assessment order dt 10.2.2010 u/s 144C(3), then the second order would result multiplicity of litigation.
6 In view of the facts and circumstances of the case, we hold that the order dated 20.8.2010 is invalid for want of jurisdiction and accordingly the same is quashed. Since the order of the Commissioner of Income Tax(Appeals) whereby the appeal of the assessee against the assessment order dt 10.2.2010 was allegedly dismissed is not a subject matter before us in the present proceedings; therefore, we do not propose to pass any direction in that respect. However, assessee otherwise is at liberty to take legal remedy as per law".
9. Since the subsequent order passed by AO was cancelled, the order dated 10.02.2010 originally after withdrawal of objections is the valid order and the appeal preferred before the CIT (A) was correctly made within the time as prescribed under the provisions of the Act. As DRP did not give any direction and allowed the objections to be withdrawn, it can not be stated that assessee exercised option to prefer objections before DRP. We are of the opinion that the CIT (A) committed an error in not admitting the appeal. Therefore, we set aside the order of the CIT (A) with a direction to admit the appeal and adjudicate the matter on merits. With these directions, the grounds to that extent are considered allowed. Since the matter is restored to the file of the CIT (A) to consider the appeal on merits, the grounds raised on merits of the addition made by AO are not adjudicated.
10. In the result the appeal filed by assessee is allowed for statistical purposes.
Order pronounced in the open court on 16th November, 2012.
Sd/ Sd/-
( Amit Shukla) (B. Ramakotaiah) Judicial Member Accountant Member
Mumbai, dated: 16th November, 2012.
Vnodan/sps
Copy to:
1. The Assessee
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, "K " Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
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