West Bengal Infrastructure Development Finance Corporation Ltd., Kolkata V. DCIT, Circle -6, Kolkata, Kolkata

CO 104/KOL/2012

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1482 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 12-11-2012
• Court: TRIBUNAL
• Assessee Lawyers: J P KHAITAN; ANAN
• Keywords: Depreciation; Rule of consistency; Earning of tax free income; Retrospective amendment; Bad and doubtful debts; Revised return; Revenue expenditure; Capital expenditure
• Section: 43B; 14A; 139(5); 145; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B , KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & HONBLE SRI M.BALAGANESH, AM] ITA NO.388/KOL/2008 ASSESSMENT YEAR : 2001-02 WEST BENGAL INFRASTRUCTURE DEVELOPMENT -VS- A.C.I. T., CIRCLE-6, FINANCE CORPORATION, KOLKATA KOLKATA (PAN AAACW3432D) ( APPELLANT ) (RESPONDENT) ITA NO.464/KOL/2008 ASSESSMENT YEAR : 2001-02 A.C.I.T., CIRCLE-6, -VS- WEST BENGAL INFRASTRUCT URE KOLKATA DEVELOPMENT FINANCE CORPORATION KOLKATA (PAN:AAACW3432D) (APPELLANT) (RESPONDENT) ITA NO.463/KOL/2008 ASSESSMENT YEAR : 2003-04 A.C.I.T., CIRCLE-6, -VS- WEST BENGAL INFRASTRUCT URE KOLKATA DEVELOPMENT FINANCE CORPORATION KOLKATA (PAN:AAACW3432D) (APPELLANT) (RESPONDENT) ITA NO.389/KOL/2008 ASSESSMENT YEAR : 2003-04 WEST BENGAL INFRASTRUCTURE DEVELOPMENT -VS- A.C.I. T., CIRCLE-6, FINANCE CORPORATION, KOLKATA KOLKATA (PAN AAACW3432D) ( APPELLANT ) (RESPONDENT) ITA NO.580/KOL/2008 ASSESSMENT YEAR : 2004-05 WEST BENGAL INFRASTRUCTURE DEVELOPMENT -VS- A.C.I. T., CIRCLE-6, FINANCE CORPORATION, KOLKATA KOLKATA (PAN AAACW3432D) ( APPELLANT ) (RESPONDENT) ITA NO.568/KOL/2008 ASSESSMENT YEAR : 2004-05 ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 2 A.C.I.T., CIRCLE-6, -VS- WEST BENGAL INFRASTRUCT URE KOLKATA DEVELOPMENT FINANCE CORPORATION KOLKATA (PAN:AAACW3432D) (APPELLANT) (RESPONDENT) ITA NO.1080/KOL/2009 ASSESSMENT YEAR : 2005-06 A.C.I.T., CIRCLE-6, -VS- WEST BENGAL INFRASTRUCT URE KOLKATA DEVELOPMENT FINANCE CORPORATION KOLKATA (PAN:AAACW3432D) (APPELLANT) (RESPONDENT) ITA NO.604/KOL/2012 ASSESSMENT YEAR : 2006-07 D.C.I.T., CIRCLE-6, -VS- WEST BENGAL INFRASTRUCT URE KOLKATA DEVELOPMENT FINANCE CORPORATION KOLKATA (PAN:AAACW3432D) (APPELLANT) (RESPONDENT) ITA NO.324/KOL/2012 ASSESSMENT YEAR :2006-07 WEST BENGAL INFRASTRUCTURE DEVELOPMENT -VS- A.C.I. T., CIRCLE-6, FINANCE CORPORATION, KOLKATA KOLKATA (PAN AAACW3432D) ( APPELLANT ) (RESPONDENT) ITA NO.1028/KOL/2011 ASSESSMENT YEAR : 2007-08 D.C.I.T., CIRCLE-6, -VS- WEST BENGAL INFRASTRUCT URE KOLKATA DEVELOPMENT FINANCE CORPORATION KOLKATA (PAN:AAACW3432D) (APPELLANT) (RESPONDENT) ITA NO.984/KOL/2011 ASSESSMENT YEAR :2007-08 WEST BENGAL INFRASTRUCTURE DEVELOPMENT -VS- A.C.I. T., CIRCLE-6, FINANCE CORPORATION, KOLKATA KOLKATA (PAN AAACW3432D) ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 3 ( APPELLANT ) (RESPONDENT) ITA NO.1283/KOL/2012 ASSESSMENT YEAR : 2008-09 D.C.I.T., CIRCLE-6, -VS- WEST BENGAL INFRASTRUCT URE KOLKATA DEVELOPMENT FINANCE CORPORATION KOLKATA (PAN:AAACW3432D) (APPELLANT) (RESPONDENT) C.O.NO.104/KOL/2012 (A/O ITA NO.1283/KOL/2012) ASSESSMENT YEAR :2008-09 WEST BENGAL INFRASTRUCTURE DEVELOPMENT -VS- A.C.I. T., CIRCLE-6, FINANCE CORPORATION, KOLKATA KOLKATA (PAN AAACW3432D) ( CROSS OBJECTOR ) (RESPONDENT) FOR THE DEPARTMENT : SHRI RAJAT SUBRA BISWAS, CIT(D R)&SHRI PINAKI MUKHERJEE,JCIT,SR.DR FOR THE ASSESSEE : SHRI J.P.KHAITAN, SR.ADVOCATE & SHRI ANANDA SEN, AD VOCATE DATE OF HEARING : 13.10.2015 DATE OF PRONOUNCEMENT : 16.10.2015. ORDER PER SHRI N.V.VASUDEVAN, JM ITA NO.388/KOL/2008 IS AN APPEAL BY THE ASSESSEE WH ILE ITA NO.464/KOL/2008 IS AN APPEAL BY THE REVENUE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 21.01.2008 OF CIT(A)-VI, KOLKATA, RELATING TO AY 20 01-02. ITA NO.388/KOL/2008 (ASSESSEES APPEAL): 2. GROUND NOS.1 AND 2 RAISED BY THE ASSESSEE READ A S FOLLOWS :- I. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) ERRED IN NOT GRANTING RELIEF U/S 43B OF THE INCOME TAX ACT 1 961 IN RESPECT OF INTEREST AGGREGATING TO RS.14077397/- ON TERM LOAN PAID TO ICICI DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02 WHEN NO CLAIM FOR DEDUCTION WAS MADE BY THE APPELLANT ON THIS ACCOUNT IN ANY OTHER ASSESSMENT YEAR. II. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) SHOULD HAVE HELD THAT MISTAKE IN NOT RECOGNIZING INTEREST EXPENDITURE AGGREGATING TO ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 4 RS.14077397/- ON TERM LOAN PAID TO ICICI ON MERCANT ILE BASIS WHILE PREPARING THE ACCOUNTS FOR THE ASSESSMENT YEAR 2001-02 SHOULD NOT DEBAR THE APPELLANT FROM CLAIMING THE SAME IN THE YEAR OF PAYMENT, I.E. ASSESSMENT YE AR 2001-02, UNDER SECTION 43B, WHEN THE SAID INTEREST ON TERM LOAN WAS NOT AN ALLOWABLE EXPENDITURE IN ANY OTHER ASSESSMENT YEAR IN VIEW OF THE PROVISION CONTAINED IN SECTION 43B(D) OF THE INCOME TAX ACT, 1961. 3. THE ASSESSEE IS A GOVERNMENT COMPANY WHOLLY OWNE D BY THE GOVERNMENT OF WEST BENGAL. IT IS A NON BANKING FINANCE COMPANY RE GISTERED WITH THE DEPARTMENT OF NON-BANKING SUPERVISION, KOLKATA REGIONAL OFFICE OF RESERVE BANK OF INDIA. DURING THE PREVIOUS YEAR RELEVANT TO A.Y.2001-02 I.E. ON 1 8.9.2000 AND 18.11.2000 THE ASSESSEE PAID EMI TO ICICI BANK IN RESPECT OF TERM OF LOAN TAKEN BY THE ASSESSEE. THE EMI COMPRISED OF BOTH REPAYMENT OF PRINCIPAL AND IN TEREST. THE INTEREST COMPONENT ON THE PAYMENT OF EMI WAS A SUM OF RS.1,40,77,397/- . DUE TO INADVERTENCE THE INTEREST PAYMENT HAD NOT BEEN CLAIMED AS DEDUCTION IN THE PROFIT AND LOSS ACCOUNT, AS THE ENTIRE PAYMENT IN QUESTION WAS MISTAKENLY TAKEN AS RE-PAYMENT OF PRINCIPAL. THIS MISTAKE WAS HOWEVER NOTICED AND RECTIFIED IN THE FO LLOWING FINANCIAL YEAR. 4. IN THE APPEAL FILED BY THE ASSESSEE FOR A.,Y.20 01-02, THE ASSESSEE RAISED ADDITIONAL GROUND BEFORE CIT(A) AND POINTED OUT THAT U/S 43B(D ) OF THE ACT ANY PAYMENT OF INTEREST ON ANY LOAN OR BORROWING FROM A FINANCIAL INSTITUTION SHALL BE ALLOWED AS DEDUCTION IN COMPUTING THE INCOME FROM BUSINESS ONL Y IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY PAID. THE ASSESSEE POINTED OUT BEFORE CIT(A) THAT THE INTEREST PAYMENT CANNOT BE CLAIMED IN ANY OTHER ASSESSMENT Y EAR IN VIEW OF THE SPECIFIC PROVISION OF SECTION 43B OF THE INCOME TAX ACT, 196 1 (ACT). SINCE THE PAYMENT WAS ACTUALLY MADE BY THE ASSESSEE, THE SAME SHOULD BE A LLOWED. THE ASSESSEE ALSO POINTED OUT THAT THERE WAS NO REQUIREMENT OF DEBITING THE I NTEREST EXPENSES IN QUESTION TO THE PROFIT AND LOSS ACCOUNT AND IN THIS REGARD THE DECI SION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF ASSOCIATED PIGMENTS LTD. VS 23 4 ITR 589 (CAL) WHEREIN IT WAS HELD THAT THE PROVISION IN THE BOOKS WAS NOT NECESS ARY FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 43B OF THE ACT ON THE BASIS OF ACTUAL PAYMENT. IT WAS ALSO HIGHLIGHTED THAT THE DEBIT IN THE PROFIT AND LOSS ACCOUNT WAS N OT MADE OWING TO A MISTAKE. CIT(A) HOWEVER REJECTED THE CLAIM OF THE ASSESSEE ON THE G ROUND THAT THE AMOUNT IN QUESTION WAS NOT DEBITED IN THE PROFIT AND LOSS ACCOUNT AND NO REVISED RETURN WAS FILED BY THE ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 5 ASSESSEE NOR WAS THE INTEREST EXPENSES IN QUESTION SHOWN AS ALLOWABLE OR DISALLOWABLE U/S 43B OF THE ACT. 5. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE H AS RAISED GROUND NOS.1 AND 2 BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DR. THE LD. COUNSEL FOR THE ASSESSEE BESIDES REITER ATING THE SUBMISSIONS MADE BEFORE CIT(A), FURTHER SUBMITTED THAT THE REQUIREMENT OF D EBIT IN THE PROFIT AND LOSS ACCOUNT OF INTEREST EXPENSES IS NOT REQUIRED AND IN THIS RE GARD MADE REFERENCE TO THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF ASSO CIATED PIGMENTS LTD. VS CIT (SUPRA). WITH REGARD TO THE ASSESSEE NOT HAVING FIL ED THE REVISED RETURN OF INCOME, THE LD. COUNSEL FOR THE ASSESSEE REFERRED TO THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS CIT 284 ITR 323 (SC) AND SUBMITTED THAT THE AFORESAID DECISION ONLY BARS A CLAIM BEING CONSIDER ED BY AO WITHOUT FILING OF A REVISED RETURN OF INCOME AND THAT SUCH BAR DOES NOT EXTENT TO THE APPELLATE AUTHORITIES UNDER THE ACT. OUR ATTENTION WAS DRAWN TO THE FOLLO WING DECISIONS FOR THE PROPOSITION THAT THE RATIO LAID DOWN BY THE HONBLE SUPREME COU RT IN THE CASE OF GOETZE (INDIA) LTD DOES NOT APPLY TO THE APPELLATE AUTHORITIES UND ER THE ACT. (I) UNIVERSAL SUBSCRIPTION AGENCY P. LTD. VS. JCIT 293 ITR 244 (ALL) (II) CIT VS PRUTHVI BROKERS & SHAREHOLDERS (P) LTD 349 I TR 366 (BOM) (III)CIT VS. SAM GLOBAL SECURITIES LTD. 360 ITR 682 (DEL) (IV)CIT VS. RAJASTHAN FASTENERS P. LTD. 363 ITR 271 (RAJ) 7. HE ALSO DREW OUR ATTENTION TO THE REMAND REPORT OF THE AO FILED BEFORE CIT(A) WHEREIN THE AO HAS ACCEPTED THE FACT THAT THE INTER EST PAYMENT IN QUESTION WAS ALLOWABLE U/S 43B OF THE ACT IN A.Y.2001-02 BUT CAN NOT BE ALLOWED BECAUSE OF ABSENCE OF A VALID RETURN OR REVISED RETURN MAKING SUCH A CLAIM. 8. THE LD. DR RELIED ON THE ORDER OF CIT(A). ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 6 9. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION OF TH E RIVAL SUBMISSIONS. FROM A PERUSAL OF THE REMAND REPORT OF THE AO, A COPY OF W HICH IS PLACED AT PAGE 39 OF THE PAPER BOOK FILED BY THE ASSESSEE, IT IS CLEAR THAT THE AO DOES NOT DISPUTE THE FACT THAT AN AMOUNT OF RS.1,40,77,397/- WAS INTEREST ON TERM LOAN WHICH WAS PAID TO ICICI DURING THE PREVIOUS YEAR RELEVANT TO A.Y.2001-02. I T IS ALSO NOT IN DISPUTE THAT THE PROVISION OF SECTION 43B OF THE ACT WILL APPLY TO S UCH INTEREST PAYMENT AND THEREFORE THE INTEREST EXPENDITURE IN QUESTION CANNOT BE CLAI MED BY THE ASSESSEE AS DEDUCTION IN ANY OTHER ASSESSMENT YEAR IN VIEW OF THE SPECIFIC B AR CONTAINED IN SECTION 43B(D) OF THE ACT. IN OTHER WORDS IRRESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWING BY THE ASSESSEE, INTEREST, EXPENSES OF THE NATURE REFERRED TO SECTION 43B(D) OF THE ACT CAN BE ALLOWED AS A DEDUCTION ONLY IN THE YEAR IN WHICH SU CH INTEREST ARE ACTUALLY PAID. THE DEBIT TO THE PROFIT AND LOSS ACCOUNT OF AN AMOUNT W HICH IS CLAIMED AS DEDUCTION U/S 43B OF THE ACT IS NOT A REQUIREMENT AND THE DECISIO N OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF ASSOCIATED PIGMENTS LTD. VS CI T (SUPRA) SUPPORTS THE PLEA OF THE ASSESSEE IN THIS REGARD. THE ONLY OBJECTION WHICH R EMAINS FOR CONSIDERATION IS AS TO WHETHER IN THE ABSENCE OF A REVISED RETURN OF INCOM E FILED BY THE ASSESSEE MAKING CLAIM FOR DEDUCTION ON ACCOUNT OF INTEREST EXPENSES THE DEDUCTION CAN BE ALLOWED. THE RELIANCE PLACED BY THE REVENUE IN THIS REGARD IS ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE INDIA LTD. (SUP RA) WHEREIN IT HAS LAID DOWN THAT THE AO CANNOT CONSIDER A CLAIM MADE BY AN ASSESSEE BEFORE HIM, IN THE ABSENCE OF SUCH CLAIM BEING MADE IN THE RETURN OF INCOME OR A REVISED RETURN OF INCOME. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESS EE, SUCH A BAR DOES NOT EXTEND TO THE APPELLATE AUTHORITIES UNDER THE ACT. THE DECISIONS REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE SQUARELY SUPPORT THE STAND OF THE ASSESSEE IN THIS REGARD. WE, THEREFORE, HOLD THAT A SUM OF RS..1,40,77,397/- SHOULD BE ALLOWED AS DEDUCTION. WE HOLD AND DIRECT ACCORDINGLY AND ALLOW THE GROUNDS RAISED BY THE ASS ESSEE IN THIS REGARD. ITA NO.464/KOL/2008 (REVENUES APPEAL) 10. GROUND NO.1 RAISED BY THE REVENUE READS AS FOLL OWS :- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS BY DELETING THE ADDITION OF INTEREST OF RS.1,24,31.423/- MADE ON ACCOUNT OF NON -PROVISION OF INTEREST ON NON- PERFORMING ASSET (NPA). ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 7 11. THE FACTUAL BACKGROUND WITH REGARD TO THE GROUN D RAISED BY THE REVENUE ARE THAT THE ASSESSEE HAD NOT RECOGNIZED AS INCOME INTEREST THAT HAS TO RECEIVE ON LOANS THAT IT HAD LENT BECAUSE THESE LOANS HAD BECOME NON-PERFORM ING ASSETS(NPA), WITHIN THE MEANING OF THE PRUDENTIAL NORMS LAID DOWN IN NON-BA NKING FINANCIAL COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 1998 (P RUDENTIAL NORMS). AS PER THE AFORESAID NORMS INCOME ON NON- PERFORMING ASSETS SH ALL BE RECOGNIZED ONLY WHEN IT IS ACTUALLY REALIZED. THE AO REJECTED THE CLAIM OF THE ASSESSEE AND CONSIDERED A SUM OF RS.1,24,31,423/- WHICH WAS INTEREST ON NPA WHICH WA S NOT RECOGNIZED BY THE ASSESSEE AS INCOME IN THE BOOKS OF ACCOUNTS. THE AO WAS OF THE VIEW THAT THE PRUDENTIAL NORMS OF RESERVE BANK OF INDIA ARE NOT B INDING WHEN IT COMES TO COMPUTING THE TOTAL INCOME UNDER THE INCOME TAX ACT , 1961. AO ALSO REFERRED TO HIS ORDER IN A.Y.2002-03 ON SIMILAR ISSUE THAT HAD COME FOR CONSIDERATION IN ASSESSEES OWN CASE AND THE ISSUE WAS HELD AGAINST THE ASSESSE E. IT WAS ALSO HELD IN THE EARLIER YEAR THAT THE PROVISION OF SECTION 43D OF THE ACT W ILL ALSO NOT APPLY IN THE CASE OF THE ASSESSEE. 12. ON APPEAL BY THE ASSESSEE THE CIT(A) FOLLOWING THE DECISION OF THE HONBLE ITAT IN ASSESSEES OWN CASE FOR A.Y.2002-03 IN ITANO.395 /KOL/2006 ORDER DATED 25.08.2006 DELETED THE ADDITION MADE BY THE AO. THE REVENUE HAS RAISED GROUND NO.1 AGAINST THE ORDER OF THE CIT(A). 13. AT THE TIME OF HEARING IT WAS NOT DISPUTED BY THE PARTIES BEFORE US THAT THE IDENTICAL ISSUE HAD COME FOR CONSIDERATION IN ASSES SEES OWN CASE IN A.Y.2002-03 AND THE TRIBUNAL HELD THAT THE ASSESSEE NEED NOT RECOGN IZE THE INTEREST INCOME ON NPS. THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN T ECHNOLOGIES LTD. 320 ITR 577 (SC) NO DOUBT TOOK A VIEW THAT THE PRUDENTIAL NORMS OF RESERVE BANK OF INDIA REGARDING NPA WILL NOT BE APPLICABLE WHEN IT COMES TO COMPUTING THE TOTAL INCOME UNDER THE INCOME TAX ACT. THE AFORESAID DECISION OF THE HONBLE SUPREME COURT WAS HOWEVER CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS VASISTH CHAYT VYAPAR LTD. 330 ITR 440 (DELHI) AND THE HONB LE DELHI HIGH COURT AT PAGE ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 8 450 HELD THAT THE REAL INCOME THEORY WAS STILL RELE VANT AND RECOGNITION OF INCOME IN TERMS OF PRUDENTIAL NORMS DID NOT DEVIATE FROM THE MERCANTILE SYSTEM OF ACCOUNT U/S 145 OF THE ACT. THEREFORE THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC WAS HELD TO HAVE BEEN RECOGNIZED BY THE HONBLE SUP REME COURT. 14. IT IS ALSO SEEN THAT SECTION 43D OF THE ACT IS APPLICABLE IN ASSESSEES CASE. THE RELEVANT PROVISIONS OF SEC.43D OF THE ACT READS THU S: SEC.43D: SPECIAL PROVISION IN CASE OF INCOME OF PUBL IC FINANCIAL INSTITUTIONS, PUBLIC COMPANIES, ETC. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THIS ACT, (A) IN THE CASE OF A PUBLIC FINANCIAL INSTITUTION O R A SCHEDULED BANK OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTM ENT CORPORATION, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF B AD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED B Y THE RESERVE BANK OF INDIA IN RELATION TO SUCH DEBTS; (B) IN THE CASE OF A PUBLIC COMPANY, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED 700B HAVING REGARD TO THE GUIDELINES ISSUED BY THE NATIONAL HOUSING BA NK IN RELATION TO SUCH DEBTS, SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED BY THE PUBLIC FINANCIAL INSTITUTION OR THE SCHEDULED BANK OR THE STATE FINANCIAL CORPORATION OR THE STATE INDUSTRIAL INVESTMENT CORPORATION OR THE PUBL IC COMPANY TO ITS PROFIT AND LOSS ACCOUNT FOR THAT YEAR OR, AS THE CASE MAY BE, IN WHICH IT IS ACTUALLY RECEIVED BY THAT INSTITUTION OR BANK OR CORPORATION OR COMPA NY, WHICHEVER IS EARLIER. EXPLANATION : FOR THE PURPOSES OF THIS SECTION, (A) 'NATIONAL HOUSING BANK' MEANS THE NATIONAL HOUS ING BANK ESTABLISHED UNDER SECTION 3 OF THE NATIONAL HOUSING BANK ACT, 1987 (5 3 OF 1987); (B) 'PUBLIC COMPANY' MEANS A COMPANY, (I) WHICH IS A PUBLIC COMPANY WITHIN THE MEANING OF SECTION 3 OF THE COMPANIES ACT, 1956 (1 OF 1956); (II) WHOSE MAIN OBJECT IS CARRYING ON THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES; AND (III) WHICH IS REGISTERED IN ACCORDANCE WITH THE HO USING FINANCE COMPANIES (NHB) DIRECTIONS, 1989, GIVEN UNDER SECTION 30 AND SECTIO N 31 OF THE NATIONAL HOUSING BANK ACT, 1987 (53 OF 1987); (C) 'PUBLIC FINANCIAL INSTITUTION' SHALL HAVE THE M EANING ASSIGNED TO IT IN SECTION 4A OF THE COMPANIES ACT, 1956 (1 OF 1956); ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 9 (D) 'SCHEDULED BANK' SHALL HAVE THE MEANING ASSIGNE D TO IT IN CLAUSE (II) OF THE EXPLANATION TO CLAUSE (VIIA) OF SUB-SECTION (1) OF SECTION 36; (E) 'STATE FINANCIAL CORPORATION' MEANS A FINANCIAL CORPORATION ESTABLISHED UNDER SECTION 3 OR SECTION 3A OR AN INSTITUTION NOTIFIED UNDER SECTION 46 OF THE STATE FINANCIAL CORPORATIONS ACT, 1951 (63 OF 1951); (F) 'STATE INDUSTRIAL INVESTMENT CORPORATION' MEANS A GOVERNMENT COMPANY WITHIN THE MEANING OF SECTION 617 OF THE COMPANIES ACT, 1956 (1 OF 1956), ENGAGED IN THE BUSINESS OF PROVIDING LONG-TERM FINA NCE FOR INDUSTRIAL PROJECTS. 15. THE ASSESSEE IS A STATE INDUSTRIAL INVESTMENT CORPORATION WITHIN THE MEANING OF EXPLANATION (F) OF SECTION 43D. THE ASSESSEE IS A G OVERNMENT COMPANY WITHIN THE MEANING OF SECTION 617 OF THE COMPANIES ACT, 1956 E NGAGED IN THE BUSINESS OF PROVIDING LONG TERM FINANCIAL FOR INDUSTRIAL PROJEC TS. ALL THE SHARES OF THE ASSESSEE ARE HELD BY THE WEST BENGAL GOVERNMENT CLAUSE (2) OF TH E MAIN OBJECTS OF THE ASSESSEE SPECIFICALLY PROVIDES THAT THE OBJECT OF PROVIDING CREDIT FACILITIES RELATING TO INFRASTRUCTURE ETC. THE TERMS OF MONEY LENDING WITH THE ASSESSEE EXTEND REPAYMENT OF PERIOD OF MORE THAN FIVE YEARS. IN TERMS OF SECTION 43D OF THE ACT INTEREST IN RESPECT OF NON-PERFORMING ASSETS IS CHARGEABLE TO TAX IN THE Y EAR IN WHICH SUCH INTEREST IS CREDITED TO THE PROFIT AND LOSS ACCOUNT OR THE YEAR IN WHICH THIS IS ACTUALLY RECEIVED WHICHEVER IS EARLIER. THE CATEGORIES OF BAD OR DOUB TFUL DEBTS INTEREST IN RESPECT OF WHICH IS COVERED BY SECTION 43D HAVE BEEN PRESCRIBE D BY RULE 6EA OF THE IT RULES 1962. THE ASSESSEES NPA FALLS WITHIN THE PURVIEW O F RULE 6EA. 16. IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001-02,. THE AO FOLLOWING ORDER OF THE CIT(A) FOR THE ASSESSMENT YEAR 2002-03 , HELD THAT THE ASSESSEE DID NOT FALL IN THE CATEGORIES OF INSTITUTION MENTIONED IN SECTI ON 43D. IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2004-05 THE AO HELD THAT THE AS SESSEE DID NOT FALL UNDER SECTION 43D BECAUSE IT WAS NOT NOTIFIED UNDER SECTION 4A(2) OF THE COMPANIES ACT, 1956. WE ARE OF THE VIEW THAT SECTION 4A IS IN RESPECT OF PU BLIC FINANCIAL INSTITUTIONS ONLY, A CATEGORY SEPARATELY COVERED BY EXPLANATION (C) OF S ECTION 43D. THE ASSESSEE, BEING A STATE INDUSTRIAL INVESTMENT CORPORATION, IT IS COVE RED BY EXPLANATION (F) AND IT IS OF NO CONSEQUENCE THAT IT IS NOT A PUBLIC FINANCIAL INSTI TUTION WITHIN THE MEANING OF EXPLANATION (C). ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 10 17. IT IS ALSO PERTINENT TO MENTION THAT THE ENTIRE INTEREST ON NP A WAS OFFERED TO TAX IN THE ASSESSMENT YEAR 2006-07. AT PAGE 32 OF THE P RINTED ACCOUNTS FORMING PART OF THE PAPER BOOK IN ITA 324/K/20 12 FOR THE ASSESSMENT YE AR 2006-07, THE FOLLOWING NOTE APPEARS :- 'INTERST ON NON PERFORMING ASSETS (N.P.A) WITH REFERENCE TO NOTE NO.7 TO THE NOTES ON ACCOUNT S FOR THE ACCOUNTING YEAR 2004-05, IT IS NOTED THAT IN CONSONANCE WITH THE CO MMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA, THE COMPANY HAS WRITTEN B ACK THE ENTIRE PROVISIONS FOR DOUBTFUL DEBTS RECOVERABLE FROM THE AGENCIES OF THE GOVT. OF WEST BENGAL, WHICH HAS BEEN REALIZED IN FULL WITH INTEREST ON 3L.3.200 7. FURTHER INTEREST ACCRUED THEREON TILL THE END OF THE YEAR HAS BEEN .TREATED AS INCOME FOR THE YEAR'. AS SUCH. THE ASSESSEE HAS FILED ADDITIONAL GROUND I N ITA 324/K/12 FOR THE ASSESSMENT YEAR 2006-07 TO THE EFFECT THAT IN THE EVENT THE GR OUND RELATING TO INTEREST ON NP A IN THE DEPARTMENT'S APPEALS FOR THE ASSESSMENT YEARS 2 001-02, 2003-04, 2004-05 AND 2005-06 BEING ADJUDICATED AGAINST THE ASSESSEE, THE AO SHOULD BE DIRECTED TO EXCLUDE SUCH INTEREST OFFERED TO TAX IN THE ASSESSMENT YEAR 2006-07. 18. ON BEHALF OF THE REVENUE, THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE WITH REFERENCE TO THE PROVISIONS OF SECTION 43D WERE NOT DISPUTED. IT WAS CONTENDED ON BEHALF OF THE REVENUE THAT THE RBI DIRECTIVES HAD N O BINDING EFFECT ON THE INCOME TAX ACT. IT WAS ALSO CONTENDED THAT UNDER THE MERCANTIL E SYSTEM INCOME HAD TO BE BOOKED AS SOON AS IT ACCRUED AND THE QUESTION OF T AXABILITY WAS TO BE DECIDED ACCORDING TO PRINCIPLES OF LAW AND NOT ACCOUNTANCY PRACTICE. RELIANCE IN THIS BEHALF WAS PLACED ON THE JUDGMENT OF THE HONBLE SUPREME C OURT IN TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD., (1997) 227 ITR 172 (S C), STATE BANK OF TRAVANCORE V CIT (1986) 158 ITR 102 (SC) AND CIT V SHIV PRAKASH JANAK RAJ & CO.PVT. LTD. (1996) 222 ITR 583 (SC). 19. WE ARE OF THE VIEW THAT IN THE INSTANT CASE D UE TO UNCERTAINTY IN COLLECTION THERE WAS NO ACCRUAL OF INCOME HAVING REGARD TO THE REAL INCOME THEORY WHICH IS ENGRAINED IN THE RBI'S PRUDENTIAL NORMS FOR RECOGNITION OF RE VENUE AS HELD BY THE HON'BLE DELHI ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 11 HIGH COURT IN VASISTH CHAY VYAPAR LTD. AS SUCH, THE ASSESSEE DID NOT ACCOUNT FOR SUCH INTEREST. THE JUDGMENT OF THE HON'BLE SUPREME COURT IN STATE BANK OF TRAVANCORE'S CASE (SUPRA) ACTUALLY SUPPORTS THE ASS ESSEE. IN THAT CASE, IT WAS HELD THAT THE CONCEPT OF REAL INCOME WAS CERTAINLY APPLICABLE IN JUDGING WHETHER THERE HAD BEEN INCOME OR NOT. IN SHIV PRAKASH JANAK RAJ'S CASE (AU PE), FOR THE ASSESSMENT YEAR 1968- 69, RESOLUTION FOR WAIVER OF INTEREST WAS PASSED DU RING THE PREVIOUS YEAR BUT FOR THE ASSESSMENT YEARS 1969-70 TO 1971-72, SUCH RESOLUTIO N WAS PASSED AFTER THE EXPIRY OF THE RELEVANT PREVIOUS YEAR. THE REVENUE DID NOT PRE SS ITS CASE FOR THE ASSESSMENT YEAR 1968-69. THE HON'BLE SUPREME COURT HELD THAT INTERE ST FOR THE ASSESSMENT YEARS 1969- 70 TO 1971-72 HAD ACCRUED TO THE ASSESSEE AND THE R ESOLUTION FOR WAIVER AFTER THE EXPIRY OF THE RELEVANT PREVIOUS YEAR ONLY MEANT THA T THE ASSESSEE HAD GIVEN UP THE INCOME WHICH HAD ACCRUED TO IT. AS SUCH, IT WAS HEL D THAT INTEREST WAS CHARGEABLE TO TAX FOR THE ASSESSMENT YEARS 1969-70 TO 1971-72 ON THE BASIS OF ACCRUAL. IN THAT CONTEXT, RELIANCE WAS PLACED ON STATE BANK OF TRAVA NCORES CASE TO HOLD THAT THE CONCEPT OF REAL INCOME CANNOT BE EMPLOYED SO AS TO DEFEAT THE PROVISIONS OF THE ACT AND THE RULES. FURTHER THERE CAN BE NO DISPUTE WITH REGARD TO THE PROPOSITION LAID DOWN IN TUTICORIN ALKALI'S CASE(SUPRA) BUT THE FACT IS T HAT THERE IS NO ACCRUAL OF INCOME IN SO FAR AS THE ASSESSEE IS CONCERNED. 20. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIE W THAT THE CIT(A) WAS JUSTIFIED IN COMING TO THE CONCLUSION THAT INTEREST ON NPA NEED NOT BE RECOGNIZED AS INCOME BY THE ASSESSEE. THE RELEVANT GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 21. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLL OWS :- 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS BY DELETING THE ADDITION OF RS.11,74,79,000/- ON ACCOUNT OF INTEREST ON RECURRI NG DEPOSITS MADE ON ACCRUAL BASIS. 22. THE SECOND GROUND IN RESPECT OF INTEREST ON RE CURRING DEPOSIT IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE AFORESAID ORDER IN IT ANO.395/KOL/2006 ORDER DATED 25.08.2006 READ WITH THE ORDER DATED SEPTEMBER 21, 2007 PASSED ON THE MA AGAINST THE AFORESAID ORDER. THE MATERIAL FACTS ARE THAT T HE ASSESSEE CREATES SINKING FUND BY DEPOSITING FROM TIME TO TIME THE REQUIRED AMOUNTS W ITH BANKS IN THE FORM OF RECURRING ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 12 DEPOSITS OF VARYING PERIODS RANGING FROM 3 TO 10 YE ARS. INTEREST ON SUCH RECURRING DEPOSITS IS NOT PAYABLE AT THE END OF PREVIOUS YEAR BUT IS PAYABLE ONLY ON THE MATURITY OF THE PERIOD FOR WHICH THE RESPECTIVE RECURRING DE POSITS HAVE BEEN MADE. SUCH RECURRING DEPOSITS ARE MADE WITH THE SOLE OBJECT OF HAVING FUNDS IN HAND AT THE TIME OF REDEMPTION OF INFRASTRUCTURE DEVELOPMENT BONDS ISSU ED BY THE ASSESSEE TO RAISE FUNDS FOR THE PURPOSE OF PURSUING ITS OBJECTS OF PROVIDIN G INFRASTRUCTURE FINANCE. SINCE BOTH INTEREST AND PRINCIPAL ARE DUE AND PAYABLE ONLY UPO N MATURITY, THE ASSESSEE DID NOT ACCOUNT FOR ANY INTEREST. ACCORDING TO THE REVENUE, IN CASE OF A RECURRING DEPOSIT, INTEREST IS RECEIVED AND REINVESTED AND AS SUCH INT EREST IS REQUIRED TO BE TAXED EVERY YEAR AND NOT ALTOGETHER AT THE TIME OF MATURITY. 23. THE SAID ISSUE CONSTITUTED GROUNDS (XII) AND ( XIII) IN THE APPEAL FOR THE ASSESSMENT YEAR 2002-03 (PAGE 89 OF THE PAPER BOOK FILED BY THE ASSESSEE IN ITA 464/K/08) WHICH WAS DEALT WITH IN PARAGRAPHS 13 TO 15 AT PAGES 99 TO 102 OF THE SAID PAPER BOOK. BY THE MA ORDER DATED SEPTEMBER 21,2007 CERTAIN MISTAKES IN FIGURES WERE CORRECTED (PAGES 103, 104 OF THE SAID PAPER BO OK). 24. WE ALSO FIND THAT THE HON'BLE KERALA HIGH COUR T IN CIT V FEDERAL BANK LTD., (2008) 301 ITR 188 (KER) HAS HELD THAT INTEREST IN RESPECT OF SECURITIES BECAME DUE AND RECEIVABLE ONLY UPON MATURITY AND THERE WAS NO ENTITLEMENT TO INTEREST PRIOR TO MATURITY. IT IS ALSO PERTINENT TO MENTION THAT THE ENTIRE INTEREST WAS ACCOUNTED FOR AND OFFERED TO TAX BY THE ASSESSEE IN THE ASSESSMENT YE AR 2005-06. IN THIS CONNECTION, ATTENTION IS INVITED TO NOTE 6 OF THE ASSESSEE'S AC COUNTS FOR THE FINANCIAL YEAR ENDED MARCH 31, 2005 AT PAGE 33 OF THE PAPER BOOK IN ITA NO. 1080/K/2009 FOR THE ASSESSMENT YEAR 2005-06. IT WAS SUBMITTED THAT IN T HE EVENT THE GROUNDS RELATING TO INTEREST ON RECURRING DEPOSIT IN THE REVENUE'S APPE ALS FOR THE ASSESSMENT YEARS 2001- 02, 2003-04 AND 2004-05 ARE ADJUDICATED AGAINST THE ASSESSEE, THE AO SHOULD BE DIRECTED TO EXCLUDE SUCH INTEREST ACCOUNTED FOR AND OFFERED TO TAX IN THE ASSESSMENT YEAR 2005-06 FROM THE ASSESSMENT FOR THAT YEAR. ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 13 25. ON BEHALF OF THE REVENUE, RELIANCE WAS PLACED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN CIT V T.N.K. GOVINDARAJULU CHETTY, (1987) 165 ITR 231 (SC). THAT CASE RELATED TO INTEREST ON LAND ACQUISITION COMPEN SATION AND IT WAS HELD THAT SUCH INTEREST ACCRUED ON YEAR TO YEAR BASIS. IN THE INST ANT CASE, THERE WAS NO ACCRUAL SINCE THE INTEREST WAS NEITHER DUE NOR RECEIVABLE UNTIL M ATURITY. THE DECISION OF THE HONBLE SUPREME COURT IN CIT V. A.GAJAPATHY NAIDU, (1964) 5 3 ITR 114 (SC) SOUGHT TO BE RELIED UPON ON BEHALF OF THE REVENUE ACTUALLY SUPPO RTS THE PLEA OF THE ASSESSEE IN ITS CONTENTION THAT INTEREST INCOME IS TAXABLE ONLY UPO N MATURITY WHEN THE RIGHT TO RECEIVE INTEREST ACCRUED TO THE ASSESSEE. IN LAXMIPAT SINGH ANIA V CIT, (1969) 72 ITR 291 (SC), RELIED UPON ON BEHALF OF THE REVENUE IT WAS H ELD THAT WHERE THE AMOUNT HAD ESCAPED ASSESSMENT ON ACCRUAL BASIS IT COULD NOT BE TAXED IN ANOTHER YEAR ON THE BASIS OF RECEIPT. NO SUCH SITUATION HAS ARISEN IN THE INS TANT CASE INASMUCH AS ACCRUAL OF INTEREST IS ONLY UPON MATURITY AND THERE IS NO QUES TION OF ANY INCOME ESCAPING ASSESSMENT ON ACCRUAL BASIS. ON BEHALF OF THE REVEN UE, IT WAS ALSO SUBMITTED THAT THE THREE DECISIONS RELIED UPON IN CONNECTION WITH NON- PROVISION OF INTEREST ON NP A WERE ALSO RELEVANT FOR DECIDING THE GROUND RELATING TO INTEREST ON RECURRING DEPOSITS. WE ARE OF THE VIEW THAT NONE OF THE SAID DECISIONS IS OF ANY ASSISTANCE TO THE REVENUE SINCE THERE IS NO ACCRUAL OF INTEREST PRIOR TO MATU RITY. 26. FOR THE REASONS GIVEN ABOVE, WE UPHOLD THE ORD ER OF THE CIT(A) AND DISMISS THE RELEVANT GROUND OF APPEAL OF THE REVENUE. 27. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ITA NO.463/KOL/2008 & ITA NO.389/KOL/2008: 28. ITA NO.463/KOL/2008 IS AN APPEAL BY THE REVENU E WHILE ITA NO.389/KOL/2008 IS AN APPEAL BY THE ASSESSEE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 22.1.2008 OF CIT(A)-VI, KOLKATA, RELATING TO AY 200 3-04. ITA NO.463/KOL/2008: (REVENUES APPEAL): 29. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THIS APPEAL READS THUS: ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 14 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS BY DELETING THE ADDITION OF INTEREST OF RS.46,09,03,012/- MADE ON ACCOUNT OF NO N-PROVISION OF INTEREST ON NON- PERFORMING ASSET (NPA). 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS BY DELETING THE ADDITION OF RS.91,02,90,549/- ON ACCOUNT OF INTEREST ON RECURRI NG DEPOSITS MADE ON ACCRUAL BASIS. 30. THE AFORESAID GROUNDS OF APPEAL ARE IDENTICAL TO THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN ITA NO.464/KOL/2008 FOR AY 2001-02 A ND ARISE UNDER SAME FACTS AND CIRCUMSTANCES. FOR THE REASONS STATED WHILE DECI DING SIMILAR GROUNDS OF APPEAL IN AY 2001-02, WE DO NOT FIND MERITS IN THESE GROUNDS OF APPEAL RAISED BY THE REVENUE. CONSEQUENTLY, THE APPEAL BY THE REVENUE IS DISMISSE D. ITA NO.389/KOL/2008: (ASSESSEES APPEAL): 31. GROUND NO. I TO III RAISED BY THE ASSESSEE REA DS AS FOLLOWS: I. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, ,THE LD. CIT(APPEALS) ERRED IN HOLDING THAT INTEREST AMOUNTING TO RS.503100000/- T AXABLE IN THE HANDS OF THE APPELLANT WITH REGARD TO DEPOSIT WITH PAY AND ACCOUNTS OFFICE , GOVERNMENT OF WEST BENGAL, WHEN THE RIGHT TO RECEIVE SUCH INTEREST INCOME WAS NOT F INALLY DETERMINED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04. II. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) ERRED IN NOT FOLLOWING THE ORDER OF THE JURISDICTIONAL INCOM E TAX APPELLATE TRIBUNAL IN RESPECT OF INTEREST INCOME ON DEPOSIT WITH PAY & ACCOUNTS O FFICE IN THE APPELLANTS OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2002- 03 ON THE SAME ISSUE WHEN FACTS IN BOTH THE ASSESSMENT YEARS WERE IDENTICAL. III. THAT THE LD. CIT(APPEALS) ERRED IN NOT FOLLOWI NG THE ORDER OF THE JURISDICTIONAL INCOME TAX APPELLATE TRIBUNAL IN THE APPELLANTS OW N CASE FOR THE ASSESSMENT YEAR 2002-03 WHEN THE SAME WAS ACCEPTED BY THE DEPARTMEN T. 32. THE FACTS WITH REGARD TO THE AFORESAID GROUNDS OF A PPEAL ARE AS FOLLOWS: THE ASSESSEE HAS MADE DEPOSITS FROM TIME TO TIME WI TH THE PAY & ACCOUNTS OFFICE OF THE GOVERNMENT OF WEST BENGAL. WHEN THESE DEPOSITS WERE MADE INITIALLY, IT DID NOT CARRY ANY INTEREST. BY A LETTER DATED 13 TH JUNE. 2001 THE PRINCIPAL SECRETARY TO THE GOVERNMENT OF WEST BENGAL WROTE TO THE PRINCIPAL A CCOUNTANT GENERAL (A&E) TO THE EFFECT THAT THE DEPOSITS OF THE PUBLIC SECTOR UNDE RTAKING WERE MAINTAINED UNDER PUBLIC ACCOUNTS MAJOR HEAD 8342, WHICH WAS AN INTER EST BEARING ACCOUNT. HOWEVER, THE STATE GOVERNMENT HAD NOT BEEN PAYING INTEREST F OR THE SAID DEPOSITS AND THE OFFICE OF THE ACCOUNTANT GENERAL RAISED AN OBJECTION AND S UGGESTED THAT THESE ACCOUNTS BE ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 15 TRANSFERRED FROM MAJOR HEAD 8342 TO 8449, A NON-INT EREST BEARING HEAD. ACCORDINGLY, THE SAID TRANSFER WAS EFFECTED BY THE PRINCIPAL SEC RETARY TO 8449, A NON-INTEREST BEARING HEAD. THEREAFTER IT WAS FELT NECESSARY BY T HE STATE GOVERNMENT TO MAINTAIN THE DEPOSIT ACCOUNT OF THE ASSESSEE UNDER INTEREST BEAR ING HEAD I.E. 8342 AND FOR THAT REASON THE PRINCIPAL SECRETARY SOUGHT FOR THE PERMI SSION FOR TRANSFERRING THE DEPOSIT OF THE ASSESSEE FROM HEAD 8449 TO 8342. IT WAS ALSO DE CIDED THAT THE STATE GOVERNMENT WILL PAY THE INTEREST ON THE DEPOSITS OF THE ASSESS EE AT THE SAME RATE AT WHICH THE STATE GOVERNMENT HAS BEEN RECEIVING THE LOAN AGAINST THE CENTRAL PLAN ASSISTANCE. [PAGE 182 OF THE PAPER BOOK]. HOWEVER, THE RATE AT WHICH THE INTEREST IS TO BE PAID WAS NOT DECIDED OR COMMUNICATED. FURTHER THE STATE GOVERNME NT DID NOT PAY ANY INTEREST ACCORDING TO THE RATE AT WHICH LOAN FOR CENTRAL PLA N ASSISTANCE IS ALLOWED. HOWEVER BY A LETTER DATED 31 ST MARCH, 2004 ULTIMATELY THE STATE GOVERNMENT DECID ED TO PAY INTEREST ON THE DEPOSITS OF THE APPELLANT WITH THE PAY AND ACCOUNTS OFFICE AT THE RATE APPLICABLE FOR NORMAL WAYS AND MEANS ADVANCE AVAILE D BY THE STATE GOVERNMENT. 33. ACCORDING TO THE ASSESSEE THE POINT OF TIME WH EN INTEREST INCOME CAN BE CONSIDERED AS CRYSTALIZED IS WHEN THE STATE GOVERNM ENT BY ITS LETTER DATED 28.2.2005 ULTIMATELY QUANTIFIED THE INTEREST PAYABLE TO THE A SSESSEE. TILL SUCH TIME IT CANNOT BE SAID THAT INTEREST INCOME HAD ACCRUED TO THE ASSESS EE. ON THE BASIS OF THAT LETTER DATED 28.2.2005, WHICH WAS RECEIVED IN THE PREVIOUS YEAR RELEVANT TO 2005-06, THE ASSESSEE OFFERED TO TAX INTEREST INCOME. 34. THE AO HOWEVER DID NOT ACCEPT THE PLEA OF THE ASSESSEE AND HE HELD THAT INTEREST INCOME HAD ACCRUED TO THE ASSESSEE AND QUANTIFIED T HE SAME AT RS.50.31 CRORES WHICH WAS QUANTIFIED BY THE COMPTROLLER AND AUDITOR GENER AL IN HIS COMMENTS U/S.619(4) OF THE COMPANIES ACT, 1956 ON THE ACCOUNTS OF THE ASSE SSEE. ACCORDINGLY A SUM OF RS. 50.31 CRORES WAS ADDED TO THE TOTAL INCOME OF THE A SSESSEE. 35. BEFORE CIT(A) THE ASSESSEE POINTED OUT THAT IN AY 2002-03 IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE I N ITA NO. 395/KOL/2006 AND BY ORDER DATED 25.8.2006 THE ADDITION MADE BY THE REVE NUE AUTHORITIES WAS DELETED BY THE ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 16 CIT(A). THE CIT(A) WAS HOWEVER OF THE VIEW THAT TH E LETTER DATED 13.6.2001 OF THE PRINCIPAL SECRETARY, GOVERNMENT OF WEST BENGAL ACTU ALLY DECIDED THE RATE OF INTEREST AND THEREFORE INTEREST INCOME SHOULD BE DEEMED TO H AVE ACCRUED TO THE ASSESSEE AS AND FROM THE SAID DATE. ACCORDING TO THE CIT(A) TH E LETTER DATED 5.3.2004 AND 31.3.2204 WAS ONLY A CONFIRMATION OF WHAT WAS ALREA DY DECIDED AND WAS NOT A LETTER WHICH CREATES LIABILITY OF THE GOVERNMENT TO PAY IN TEREST AND THE RIGHT OF THE ASSESSEE TO RECEIVE INTEREST. ON SUCH REASONING, THE ORDER OF THE AO WAS CONFIRMED BY THE CIT(A). 36. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE LETTERS DATED 13.6.2001 AND 5.3.2004 AND 31.3.2001, COPIES OF WHICH ARE PLACED AT PAGES 43 TO 50 OF THE PAPER FILED BY THE ASSESSEE IN ITA NO.389/KOL/2008 FOR AY 2001-02. IT WOULD BE SEEN FROM THE LETTER DATED JUNE 13, 2001 (PAGE 43) THAT THE PRINCIPAL SECRETARY WROTE TO THE PRINCIPAL ACCOUNTANT GENERAL (A & E) FOR APPROVAL I N RESPECT OF THE GOVERNMENT'S DECISION TO PAY INTEREST ON DEPOSIT WITH PAY & ACCO UNTS OFFICE AT THE SAME RATE AT WHICH THE STATE RECEIVED LOAN AGAINST CENTRAL PLAN ASSISTANCE FROM THE DEPARTMENT OF EXPENDITURE, MINISTRY OF FINANCE, GOVERNMENT OF IND IA. THE DECISION OF THE STATE GOVERNMENT WAS THUS SUBJECT TO APPROVAL AND IT CANN OT BE SAID THAT INTEREST ACCRUED ON THE BASIS OF A DECISION AWAITING APPROVAL. THE NEXT LETTER DATED MARCH 5, 2004 AT PAGE 45 IS TO THE EFFECT THAT THE STATE GOVERNMENT HAD S INCE REVIEWED THE MATTER AND DECIDED THAT INTEREST WOULD BE PAID AS APPLICABLE F OR NORMAL WAYS AND MEANS ADVANCE AVAILED BY THE STATE GOVERNMENT FROM THE RESERVE BA NK OF INDIA. THE SAID LETTER DATED MARCH 5, 2004 WAS TO TAKE EFFECT FROM APRIL 1, 2003 . BY THE LETTER DATED MARCH 31, 2004 (PAGE 46) THE SAID LETTER DATED MARCH 5, 2004 WAS MODIFIED TO SAY THAT IT WOULD BE EFFECTIVE FROM APRIL 1, 2001. LETTER DATED MARCH 31, 2004 (PAGE 47) IS WITH REGARD TO SANCTION OF INTEREST FOR THE PERIOD FROM APRIL 1 , 2001 TO MARCH 31, 2002. THE LETTER DATED FEBRUARY 28, 2005 (PAGE 50) IS WITH REGARD TO SANCTION OF INTEREST FROM APRIL 1, 2001 TO MARCH 31, 2004. IT WOULD BE CLEAR FROM THE AFORESAID COMMUNICATIONS THAT THE QUANTUM OF INTEREST RECEIVABLE FOR THE PREVIOUS YEA R ENDED MARCH 31, 2003 GOT FINALISED AND CRYSTALLISED ONLY UPON SANCTION IN FE BRUARY 2005. AS STATED HEREINBEFORE, THE LETTER DATED JUNE 13, 2001 DID NOT FINALLY DECI DED THE RATE OF INTEREST SINCE IT WAS ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 17 SUBJECT TO APPROVAL. BY THE COMMUNICATIONS OF MARCH 2004, A DIFFERENT RATE OF INTEREST THAN THAT PROPOSED IN THE LETTER DATED JUNE 13, 200 1 WAS DECIDED TO BE APPLIED WITH RETROSPECTIVE EFFECT. THE SANCTION WAS FINALLY GIVE N IN RESPECT OF THE AMOUNTS QUANTIFIED IN FEBRUARY 2005. THE ASSESSEE IN FACT A CCOUNTED FOR SUCH INTEREST IN ITS ACCOUNTS FOR THE FINANCIAL YEAR ENDED MARCH 31, 200 5 ( NOTE 4(III) AT PAGE 33 OF THE PRINTED ACCOUNTS INCLUDED IN THE PAPER BOOK FOR THE ASSESSMENT YEAR 2005-06 BEING ITA NO. 1080/K/2009). THE ASSESSEE OFFERED THE SAID INTEREST INCOME TO TAX IN THE ASSESSMENT YEAR 2005-06. 37. IN THE LIGHT OF THE FACTUAL BACKGROUND AS ABOV E, WE ARE OF THE VIEW THAT THERE WAS NO ACCRUAL OF INTEREST INCOME IN THE PREVIOUS YEAR RELEVANT TO AY 2003-04 AND THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A) CANNOT BE SUSTAINED. THE SAME IS DIRECTED TO BE DELETED AND GROUNDS NO.I TO III ARE ALLOWED. 38. GROUND NO.IV RAISED BY THE ASSESSEE READS AS F OLLOWS: V. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) SHOULD HAVE HELD THAT RS.264324776/- BEING INTEREST INCOME ON LOANS CREDITED IN EARLIER FINANCIAL YEARS WAS AN ALLOWABLE DEDUCTION IN COMPU TING THE TOTAL INCOME WHEN THE SAME WAS REVERSED FOLLOWING THE RBI PRUDENTIAL NORM S AND DIRECTIVES ON THE RELEVANT ASSETS BECOMING NON-PERFORMING ASSETS (NPA) AND WRI TTEN OFF IN THE PROFIT AND LOSS ACCOUNT AND SHOWN BY WAY OF REDUCTION FROM THE INTE REST INCOME IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04. 39. THE MATERIAL FACTS RELATING TO THE 4TH GROUND ARE THAT DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2003-04 THE ASSESSE E HAD TO REVERSE INTEREST INCOME OF RS.26,43,24,776/- ACCOUNTED FOR IN EARLIER FINANCIA L YEARS SINCE THE ASSETS CONCERNED BECAME NPA DURING THE PREVIOUS YEAR ENDED MARCH 31, 2003 RELEVANT TO THE ASSESSMENT YEAR 2003-04 ACCORDING TO RBI'S PRUDENTI AL NORMS. THE ASSESSEE HAVING ACCOUNTED FOR SUCH INTEREST INCOME IN THE EARLIER Y EARS WROTE IT OFF AS IRRECOVERABLE. THE DEBTORS ON ACCOUNT OF ACCRUED INTEREST WERE RED UCED TO THE EXTENT OF RS.26,43,24,776/- AND THE SAME AMOUNT WAS REDUCED F ROM THE INTEREST INCOME CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE EFFECT OF REDUC TION OF THE SAID AMOUNT FROM THE INTEREST INCOME ON THE CREDIT SIDE OF THE PROFIT AN D LOSS ACCOUNT WAS THE SAME AS THAT OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSE E HAVING WRITTEN OFF THE DEBT WHICH HAD BECOME BAD AS IRRECOVERABLE IN ITS ACCOUNTS, IT CLAIMED DEDUCTION IN RESPECT ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 18 THEREOF UNDER SECTION 36(1 )(VII) OF THE ACT. THE S PECIFIC CASE OF THE ASSESSEE BEFORE CIT(A) WAS THAT THE SAID AMOUNT OF RS.26,43,24,776/ - WAS ALLOWABLE AS BAD-DEBT WRITTEN OFF AS IRRECOVERABLE UNDER SECTION 36( 1)( VII) OF THE ACT. 40. THE CIT(A) DISMISSED THE ASSESSEE'S GROUND REL YING UPON THE DECISION OF THE HYDERABAD BENCH OF HON'BLE TRIBUNAL IN STATE BANK O F HYDERABAD V DCIT, (2005) 94 ITD 219 OBSERVING THAT THE ASSESSEE HAD NOT WRITTEN OFF THE AMOUNT AS BAD DEBT UNDER SECTION 36(1)(VII) AND THAT THE CASE OF THE ASSESSE E WAS THAT THERE IS NO QUESTION OF WRITING OFF UNDER SECTION 36(1)(VII) OF THE ACT. 41. IT WAS SUBMITTED THAT THE FINDING OF THE CIT(A ) IS CONTRARY TO THE SPECIFIC CASE PLEADED BY THE ASSESSEE VIZ. THAT THE AMOUNT IN QUE STION WAS A BAD DEBT WRITTEN OFF AS IRRECOVERABLE AND IN RESPECT OF WHICH THE ASSESSEE WAS ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VII) OF THE ACT. IT WAS SUBMITTED THA T THE DECISION IN THE CASE OF STATE BANK OF HYDERABAD (SUPRA) WAS A CASE IN WHICH THERE WAS NO WRITE OFF IN THE BOOKS OF ACCOUNT AND THE OBSERVATIONS TO THE SAID EFFET IN T HE SAID DECISION WAS BROUGHT TO OUR NOTICE, WHICH READS THUS: ADMITTEDLY, THE ASSESSEE HAS NOT WRITTEN OFF THE I MPUGNED SUM AS BAD DEBT UNDER SECTION 36(1)(VII) OF THE ACT AND IN FACT THE CASE OF THE ASSESSEE IS THAT THERE IS NO QUESTION OF WRITE OFF UNDER SECTION 36(1)(VII) OF T HE ACT. IT WAS SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN DENYING RELIEF TO THE ASSESSEE IN THE INSTANT CASE BECAUSE OF THE STAND TAKEN BY THE STATE BANK OF HYDERABAD AND IN IGNORING THE ASSESSEES CLAIM OF BAD DEBT UNDER SEC TION 36(1)(VII). 42. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A RE OF THE VIEW THAT THAT IF THERE IS A WRITE OFF THE INTEREST AMOUNT IN QUESTION IN THE DE BTORS ACCOUNT, THAN THE DEDUCTION SHOULD BE ALLOWED. THE FACTS SHOW THAT THERE WAS A DEBIT TO THE PROFIT AND LOSS ACCOUNT OF A SUM OF RS.26,43,24,776 BECAUSE THE CREDIT SIDE OF INTEREST INCOME SHOWN IN THE PROFIT AND LOSS ACCOUNT WAS REDUCED TO THIS EXTENT AND THIS HAS THE EFFECT OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT. HOWEVER AS TO WHETHER THE DEBTORS ACCOUNT WAS REDUCED TO THE EXTENT OF RS.26,43,24,776 BY WAY OF WRITE OF F OF INTEREST TO THAT EXTENT IS A ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 19 MATTER WHICH REQUIRES VERIFICATION BY THE AO AND IF FACTUALLY IT IS FOUND THAT THERE WAS SUCH A WRITE OFF THAN THE DEDUCTION CLAIMED BY THE ASSESSEE HAD TO BE ALLOWED AS DEDUCTION AS THE CONDITIONS FOR ALLOWABILITY OF SUC H DEDUCTION LAID DOWN U/S.36(1)(VII) OF THE ACT ARE SATISFIED. THE DECISION REFERRED TO BY THE CIT(A) IN THE CASE OF STATE BANK OF HYDERABAD (SUPRA) IS A CASE WHERE FACTUALLY THERE WAS NO WRITE OFF AS BAD DEBTS IN THE BOOKS OF ACCOUNTS. THE SAID DECISION WILL NOT APPLY TO THE FACTS OF THE PRESENT CASE. WE THEREFORE ALLOW GROUND NO.IV SUBJ ECT TO VERIFICATION OF THE WRITE OFF IN THE DEBTORS ACCOUNT AS STATED ABOVE. 43. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS P ARTLY ALLOWED. 44. IN THE RESULT APPEAL BY THE ASSESSEE IS PARTLY ALLOWED AND THAT BY THE REVENUE IS DISMISSED. ITA NO.580/KOL/2008 & ITA NO.568/KOL/2008: 45. ITA NO.568/KOL/2008 IS AN APPEAL BY THE REVENUE WHI LE ITA NO.580/KOL/2008 IS AN APPEAL BY THE ASSESSEE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 14.2.2008 OF CIT(A)-VI, KOLKATA, RELATING TO AY 200 4-05. ITA NO.568/KOL/2008: (REVENUES APPEAL): 46. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THIS APPEAL READS THUS: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS BY DELETING THE ADDITION OF INTEREST OF RS.55,27,48,832/- MADE ON ACCOUNT OF NO N-PROVISION OF INTEREST ON NON PERFORMING ASSETS (NPA). 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS BY DELETING THE ADDITION OF RS.138,72,53,722/- ON ACCOUNT OF INTEREST ON RECURR ING DEPOSITS MADE ON ACCRUAL BASIS. 47. THE AFORESAID GROUNDS OF APPEAL ARE IDENTICAL TO THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN ITA NO.464/KOL/2008 FOR AY 2001-02 A ND ARISE UNDER SAME FACTS AND CIRCUMSTANCES. FOR THE REASONS STATED WHILE DECI DING SIMILAR GROUNDS OF APPEAL IN AY 2001-02, WE DO NOT FIND MERITS IN THESE GROUNDS OF APPEAL RAISED BY THE REVENUE. CONSEQUENTLY, THE APPEAL BY THE REVENUE IS DISMISSE D. ITA NO.580/KOL/2008 (ASSESSEES APPEAL): ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 20 48. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE R EAD THUS : I. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) SHOULD HAVE HELD THAT THE APPELLANT IS ENTITLED TO DEDUCTI ON OF RS.14593510/- U/S 36(1)(VIIA)(C) PROVISO OF THE INCOME TAX ACT 1961 BEING A STATE IN DUSTRIAL INVESTMENT CORPORATION, A GOVERNMENT COMPANY WITHIN THE MEANING OF SECTION 61 7 OF THE COMPANIES ACT 1956 AND ENGAGED IN THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR INDUSTRIAL PROJECTS. THEREFORE, THE PROVISION TO SECTION 36(1)(VIII) OF THE INCOME TAX ACT 1961, IS NOT APPLICABLE IN THIS CASE. II. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED IN RELYING UPON THE PROVISO TO SECTION 36 (1)(VIII) OF THE INCOME TAX ACT 1961, WHEN THE CLAIM OF THE APPELLANT WAS UNDER SECTION 3 6(1)(VIIA) (C) OF THE ACT. 49. THE ASSESSEE CLAIMED A DEDUCTION OF A SUM OF R S.1,45,93,510/- U/S.36(1)(VIIA)( C) OF THE ACT. THE SAID PROVISIONS AND PROVISIONS OF SEC.,36(1)(VIII) OF THE ACT, IN SO FAR AS IT IS RELEVANT FOR THE PRESENT APPEAL, READ AS FOLLOWS: SEC.36: OTHER DEDUCTIONS. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSE S SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28: (VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOUB TFUL DEBTS MADE BY (C) A PUBLIC FINANCIAL INSTITUTION OR A STATE FINAN CIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPORATION, AN AMOUNT NOT EX CEEDING FIVE PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCT ION UNDER THIS CLAUSE AND CHAPTER VI-A): . EXPLANATION : FOR THE PURPOSES OF THIS CLAUSE (V) 'STATE INDUSTRIAL INVESTMENT CORPORATION' MEANS A GOVERNMENT COMPANY WITHIN THE MEANING OF SECTION 617 OF THE COMPANIES ACT, 1956 (1 OF 1956), ENGAGED IN THE BUSINESS OF PROVIDING LONG-TERM FINA NCE FOR INDUSTRIAL PROJECTS AND ELIGIBLE FOR DEDUCTION UNDER CLAUSE (VIII) OF T HIS SUB-SECTION (VIII) IN RESPECT OF ANY SPECIAL RESERVE CREATED AN D MAINTAINED BY A SPECIFIED ENTITY, AN AMOUNT NOT EXCEEDING TWENTY PER CENT. OF THE PROFIT S DERIVED FROM ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD 'PROFITS AND GAINS OF BUSIN ESS OR PROFESSION' (BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE) CARRIED TO SUCH RESERVE ACCOUNT: PROVIDED THAT WHERE THE AGGREGATE OF THE AMOUNTS CA RRIED TO SUCH RESERVE ACCOUNT FROM TIME TO TIME EXCEEDS TWICE THE AMOUNT OF THE P AID UP SHARE CAPITAL AND OF THE GENERAL RESERVES OF THE SPECIFIED ENTITY, NO ALLOWA NCE UNDER THIS CLAUSE SHALL BE MADE IN RESPECT OF SUCH EXCESS. EXPLANATION: IN THIS CLAUSE, (A) 'SPECIFIED ENTITY' MEANS, (I) A FINANCIAL CORPORATION SPECIFIED IN SECTION 4A OF THE COMPANIES ACT, 1956 (1 OF 1956); (II) A FINANCIAL CORPORATION WHICH IS A PUBLIC SECT OR COMPANY; (III) A BANKING COMPANY; (IV) A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRIC ULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN K; ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 21 (V) A HOUSING FINANCE COMPANY; AND (VI) ANY OTHER FINANCIAL CORPORATION INCLUDING A PU BLIC COMPANY; (B) 'ELIGIBLE BUSINESS' MEANS, (I) IN RESPECT OF THE SPECIFIED ENTITY REFERRED TO IN SUB-CLAUSE (I) OR SUB-CLAUSE (II) OR SUB-CLAUSE (III) OR SUB-CLAUSE (IV) OF CLAUSE (A), THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR- (A) INDUSTRIAL OR AGRICULTURAL DEVELOPMENT; (B) DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA ; OR (C) DEVELOPMENT OF HOUSING IN INDIA; (II) IN RESPECT OF THE SPECIFIED ENTITY REFERRED TO IN SUB-CLAUSE (V) OF CLAUSE (A), THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR THE CON STRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES; AND (III) IN RESPECT OF THE SPECIFIED ENTITY REFERRED T O IN SUB-CLAUSE (VI) OF CLAUSE (A), THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR DEVELOP MENT OF INFRASTRUCTURE FACILITY IN INDIA; (C) 'BANKING COMPANY' MEANS A COMPANY TO WHICH THE BANKING REGULATION ACT, 1949 (10 OF 1949) APPLIES AND INCLUDES ANY BANK OR BANKI NG INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT; (D) 'CO-OPERATIVE BANK', 'PRIMARY AGRICULTURAL CRED IT SOCIETY' AND 'PRIMARY CO- OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN THE EXPLANATION TO SUB-SECTION (4) OF SECTION 80P; (E) 'HOUSING FINANCE COMPANY' MEANS A PUBLIC COMPAN Y FORMED OR REGISTERED IN INDIA WITH THE MAIN OBJECT OF CARRYING ON THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RES IDENTIAL PURPOSES; (F) 'PUBLIC COMPANY' SHALL HAVE THE MEANING ASSIGNE D TO IT IN SECTION 3 OF THE COMPANIES ACT, 1956 (1 OF 1956); (G) 'INFRASTRUCTURE FACILITY' MEANS (I) AN INFRASTRUCTURE FACILITY AS DEFINED IN THE EX PLANATION TO CLAUSE (I) OF SUB-SECTION (4) OF SECTION 80-IA, OR ANY OTHER PUBLIC FACILITY OF A SIMILAR NATURE AS MAY BE NOTIFIED BY THE BOARD IN THIS BEHALF IN THE OFFICIAL GAZETTE AND WHICH FULFILS THE CONDITIONS AS MAY BE PRESCRIBED; (II) AN UNDERTAKING REFERRED TO IN CLAUSE (II) OR C LAUSE (III) OR CLAUSE (IV) OR CLAUSE (VI) OF SUB-SECTION (4) OF SECTION 80-IA; AND (III) AN UNDERTAKING REFERRED TO IN SUB-SECTION (10 ) OF SECTION 80-IB; (H) 'LONG-TERM FINANCE' MEANS ANY LOAN OR ADVANCE W HERE THE TERMS UNDER WHICH MONEYS ARE LOANED OR ADVANCED PROVIDE FOR REPAYMENT ALONG WITH INTEREST THEREOF DURING A PERIOD OF NOT LESS THAN FIVE YEARS; 50. BOTH THE GROUNDS RELATE TO THE ASSESSEE'S CLAI M FOR DEDUCTION OF PROVISION MADE IN ACCORDANCE WITH SECTION 36(1)(VIIA)(C) OF THE ACT A MOUNTING TO RS.L,45,93,5101-. THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAVING NOT BEEN NOTIFIED UNDER SECTION 4A(2) ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 22 OF THE COMPANIES ACT, 1956, IT WAS NOT COVERED BY S ECTION 36(1)(VIIA)(C). THE CIT(A) EXTRACTED THE PROVISO TO SECTION 36(1)(VIII) IN HIS ORDER AND OBSERVED THAT IN THE ABSENCE OF DETAIL THE ASSESSEE'S ENTITLEMENT COULD NOT BE ASCERTAINED IN THE LIGHT OF THE SAID PROVISO. 51. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSES SEE HAS RAISED THE AFORESAID GROUNDS BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIV AL SUBMISSIONS AND PERUSED THE RELEVANT STATUTORY PROVISIONS. 52. THE DEDUCTION IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS IS AVAILABLE UNDER SECTION 36(1)(VIIA)(C), INTER ALIA, TO A STAT E INDUSTRIAL INVESTMENT CORPORATION DEFINED IN EXPLANATION (V). PUBLIC FINANCIAL INSTIT UTION NOTIFIED UNDER SECTION 4A OF THE COMPANIES ACT, 1956 IS SEPARATELY MENTIONED IN EXPL ANATION (III). THAT THE ASSESSEE IS NOT A PUBLIC FINANCIAL INSTITUTION NOTIFIED UNDER S ECTION 4A OF THE COMPANIES ACT, 1956 DOES NOT AFFECT ITS COVERAGE UNDER EXPLANATION (V). THE SAID EXPLANATION (V) TO SECTION 36(1)(VIIA)(C) READS AS FOLLOWS:- '(V)'STATE INDUSTRIAL INVESTMENT CORPORATION' MEANS A GOVERNMENT COMPANY' WITHIN THE MEANING OF SECTION 617 OF THE COMPANIES ACT, 1956 ( 1 OF 1956), ENGAGED IN THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR INDUSTR IAL PROJECTS AND ELIGIBLE FOR DEDUCTION UNDER CLAUSE (VIII) OF THIS SUB-SECTION. ' IT HAS ALREADY BEEN HELD HEREINABOVE WHILE DEALING WITH THE REVENUE'S APPEAL FOR THE ASSESSMENT YEARS 2001-02, 2003-04, 2004-05 AND 2005 -06 THAT THE ASSESSEE IS A GOVERNMENT COMPANY WITHIN THE MEANING OF SECTION 61 7 OF THE COMPANIES ACT 1956 ENGAGED IN THE BUSINESS OF PROVIDING LONG TERM FINA NCE FOR INDUSTRIAL PROJECTS. THE OTHER REQUIREMENT OF EXPLANATION (V) IS THAT THE AS SESSEE MUST BE ELIGIBLE FOR DEDUCTION UNDER CLAUSE (VIII) OF SECTION 36(1). 53. THE REQUIREMENT OF EXPLANATION (V) IS ONLY THA T THE CORPORATION MUST BE ELIGIBLE FOR DEDUCTION UNDER CLAUSE (VIII). IT IS NOT STIPUL ATED THAT THE DEDUCTION UNDER THE SAID CLAUSE SHOULD HAVE BEEN CLAIMED OR ALLOWED. CLAUSE (VIII) OF SECTION 36(1) IS APPLICABLE TO 'A SPECIFIED ENTITY' CARRYING ON 'ELI GIBLE BUSINESS'. THE ELIGIBILITY WILL DEPEND UPON WHETHER THE ASSESSEE IS A 'SPECIFIED EN TITY' ENGAGED IN 'ELIGIBLE ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 23 BUSINESS'. DEDUCTION UNDER CLAUSE (VIII) IS ALLOWED IN RESPECT OF ANY SPECIAL RESERVE CREATED AND MAINTAINED AND THE QUANTUM OF DEDUCTION IS NOT TO EXCEED 20% OF THE PROFITS DERIVED FROM ELIGIBLE BUSINESS SUBJECT TO T HE CEILING LAID DOWN IN THE PROVISO TO CLAUSE (VIII). THE CREATION AND MAINTENANCE OF THE RESERVE AND DETERMINATION OF AMOUNT OF DEDUCTION ARE MATTERS RELATING TO ALLOWAN CE OF THE DEDUCTION UNDER CLAUSE (VIII) AND HAVE NOTHING TO DO WITH THE ELIGIBILITY FOR DEDUCTION. THE CIT(A) WAS THEREFORE WHOLLY UNJUSTIFIED DENYING THE ASSESSEE'S CLAIM BY REFERRING TO THE PROVISO TO SECTION 36(1)(VIII) WHICH IS ONLY FOR DETERMINATION OF THE QUANTUM OF DEDUCTION. 54. THE ASSESSEE IS A 'SPECIFIED ENTITY' IN TERMS OF EXPLANATION (A)(II) TO SECTION 36(1)(VIII). THE ASSESSEE BEING A GOVERNMENT COMPAN Y AS DEFINED IN SECTION 617 OF THE COMPANIES ACT 1956 IS A' PUBLIC SECTOR COMPANY' AS PER SECTION 2(36A) OF THE ACT. THE ASSESSEE IS ENGAGED IN 'ELIGIBLE BUSINESS' IN TERMS OF EXPLANATION (B )(I) READ WITH CLAUSES (G) AND (H) OF THE EXPLANATION. THE AS SESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR INDUSTRIAL AND AGRI CULTURAL DEVELOPMENT AND FOR DEVELOPMENT OF INFRASTRUCTURE FACILITIES IN INDIA. IN THIS CONNECTION, ATTENTION IS INVITED TO CLAUSE (2) OF THE MAIN OBJECTS OF THE ASSESSEE E XTRACTED HEREINABOVE. THE INFRASTRUCTURE FACILITIES FOR THE DEVELOPMENT OF WH ICH THE ASSESSEE PROVIDES FINANCE FALL WITHIN THE PURVIEW OF THE EXPLANATION TO CLAUSE (I) OF SECTION 80IA( 4). THE FINANCE PROVIDED BY THE ASSESSEE IS REPAYABLE ALONG WITH IN TEREST DURING A PERIOD OF MORE THAN FIVE YEARS. 55. THE AFORESAID PROVISION OF RS.L ,45,93,510/- W AS WRITTEN BACK DURING THE PREVIOUS EAR RELEVANT TO THE ASSESSMENT YEAR 2006-07. ALTHOU GH THE AO HAD NOT ALLOWED DEDUCTION OF THE SAID AMOUNT FOR THE ASSESSMENT YEA R 2004-0- HE SUBJECTED THE PROVISION WRITTEN BACK TO TAX IN THE ASSESSMENT YEA R 2006-07. AS SUCH, IN GROUND (I) OF ITA 324/K/12 FOR THE ASSESSMENT YEAR 2006-07 THE AS SESSEE HAS CONTENDED THAT IF THE DEDUCTION IS NOT ALLOWED IN THE ASSESSMENT YEAR 200 4-05, THE PROVISION WRITTEN BACK CANNOT BE TAXED IN THE ASSESSMENT YEAR 2006-07. ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 24 56. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEAR NED COUNSEL FOR THE ASSESSEE AND THE LEARNED DR AND ARE OF THE VIEW THAT THE ASSESSE E IS ENTITLED TO DEDUCTION U/S.36(1)(VIIA)( C) OF ACT AS THE ASSESSEE SATISFI ES THE CONDITIONS LAID DOWN IN THE PROVISIONS REFERRED TO ABOVE. IN VIEW OF THE ABOVE CONCLUSION, THE ALTERNATIVE SUBMISSION MADE BY THE ASSESSEE DOES NOT REQUIRE AD JUDICATION. THE GROUNDS OF APPEAL OF THE ASSESSEE ARE ACCORDINGLY ALLOWED. 57. IN THE RESULT APPEAL BY THE ASSESSEE IS ALLOWE D AND THAT BY THE REVENUE IS DISMISSED. ITA NO.1080/KOL/2009 58. THIS IS AN APPEAL BY THE REVENUE AGAINST THE O RDER DATED 9.2.2009 OF CIT(A)-VI, KOLKATA RELATING TO AY 2005-06. 59. THE GROUNDS OF APPEAL RAISED BY THE REVENUE RE ADS THUS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.58,84,56,852/- BEING INTEREST ACCRUED ON NON-PERFORMING LOANS WHICH WAS TO BE RECOGNISED AS INCOME U/S 5 OF THE I.T.ACT, 1961. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADDITION OF RS.58,84,56,852/- BEING AC CRUED INTEREST ON NON-PERFORMING LOANS WITHOUT APPRECIATING THE FACT THAT IN THE YEA R UNDER CONSIDERATION THE ASSESSEE HAS RECOGNIZED INCOME ON ACCRUAL BASIS ON OTHER INVESTM ENTS OF SIMILAR NATURE. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, LD. CIT(A) HAS ERRED IN LAW IN DELETING THE SAID ADDITION OF RS.58,84,56,852/- WIT HOUT CONSIDERING THAT THE ASSESSEE IS NOT COVERED UNDER THE PROVISION OF SECTION 43D OF T HE I.T.ACT, 1961, WHICH ONLY PERMITS NOT TO RECOGNISE THE INTEREST INCOME ON ACCRUAL BAS IS IN RELATION TO THE PRESCRIBED CATEGORY OF BAD & UNDOUBTFUL DEBTS. 60. THE AFORESAID GROUNDS OF APPEAL ARE IDENTICAL TO THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN ITA NO.464/KOL/2008 FOR AY 2001-02 A ND ARISE UNDER SAME FACTS AND CIRCUMSTANCES. FOR THE REASONS STATED WHILE DECI DING SIMILAR GROUNDS OF APPEAL IN AY 2001-02, WE DO NOT FIND MERITS IN THESE GROUNDS OF APPEAL RAISED BY THE REVENUE. CONSEQUENTLY, THE APPEAL BY THE REVENUE IS DISMISSE D. ITA NO. 604/KOL/2012 & ITA NO. 324/KOL/2012: ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 25 61. ITA NO.604/KOL/2012 IS AN APPEAL BY THE REVENU E WHILE ITA NO.324/KOL/2012 IS AN APPEAL BY THE ASSESSEE. BOTH THESE APPEALS ARE FILED AGAINST THE ORDER DATED 30.12.2011 AND RELATE TO AY 2006-07. ITA NO.324/KOL/2012: (ASSESSEES APPEAL): 62. THE GROUND RAISED BY THE ASSESSEE READS AS FOL LOWS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) SHOULD HAVE HELD THAT WRITE BACK OF PROVISION FOR DOUBTFUL /SUB-STANDARD ASSETS OF RS.14593511/- BY THE APPELLANT COULD NOT BE BROUGHT TO TAX AGAIN IN THE ASSESSMENT YEAR 2006-07 WHEN THE SAME WAS ALREADY TAXED IN EARLIER ASSESSMENT YEAR 2004-05. 63. WHILE DECIDING GROUNDS OF APPEAL OF THE ASSESS EE FOR AY 2004-05, WE HAVE ALREADY SEEN THAT THE ASSESSEE IN THAT YEAR CLAIMED AS DEDUCTION A SUM OF RS.1,45,93,510 AS PROVISION FOR BAD AND DOUBTFUL DE BTS U/S.36(1)(VIIA)(C ) OF THE ACT. THIS WAS NOT ALLOWED AS A DEDUCTION AS CLAIMED BY T HE ASSESSEE BY THE AO AND THE CIT(A). WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR AY 04-05 IN ITA NO.580/KOL/2008, WE HAVE ALREADY ALLOWED THE CLAIM OF THE ASSESSEE FOR THE AFORESAID DEDUCTION. IN THE PRESENT AY 2006-07, TH E PROVISION WAS WRITTEN BACK AND OFFERED AS INCOME BY THE ASSESSEE AS THE DEBTS CEAS ED TO BE BAD DEBTS OR WERE REALISED. THE CLAIM OF THE ASSESSEE WAS THAT IF TH E AMOUNT CLAIMED AS DEDUCTION IN AY 04-05 IS NOT ALLOWED AS A DEDUCTION, THAN THE WR ITE OFF THE SAID SUM IN THE BOOKS OF ACCOUNTS WHEREBY IT WAS SHOWN AS INCOME, THE SAM E SHOULD NOT BE TAXED AS IT WOULD AMOUNT TO DOUBLE TAXATION. SINCE WE HAVE ALL OWED THE CLAIM OF THE ASSESSEE FOR AY 04-05, WE ARE OF THE VIEW THAT THE CLAIM MAD E BY THE ASSESSEE DOES NOT REQUIRE ADJUDICATION. CONSEQUENTLY, THE GROUND OF APPEAL O F THE ASSESSEE IS DISMISSED. 64. THE ASSESSEE HAS FILED TWO ADDITIONAL GROUNDS OF APPEAL. THESE ADDITIONAL GROUNDS CAN BE DECIDED ON THE BASIS OF FACTS ALREAD Y ON RECORD AND INVOLVE APPLICATION OF LAW TO FACTS ON RECORD. THEY ARE THEREFORE ADMI TTED FOR ADJUDICATION: 65. THE FIRST ADDITIONAL GROUND OF APPEAL READS TH US: 1. FOR THAT IN THE EVENT THE GROUND RELATING TO I NTEREST ON NON PERFORMING ASSETS (NPS) IN ITA NO.463/KOL/2008 FOR ASSESSMENT YEAR 20 03-04, ITA NO.464/.KOL/2008 FOR ASSESSMENT YEAR 2001-02, ITA NO.568/KOL/2008 FOR AS SESSMENT YEAR 2004-05 AND ITA NO.1080/KOL/2009 FOR ASSESSMENT YEAR 2005-06 RELATI NG TO NON PROVISION OF INTEREST ON NPA BEING ADJUDICATED AGAINST THE ASSESSEE THE LEAR NED ASSESSING OFFICER SHOULD BE ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 26 DIRECTED TO EXCLUDE SUCH INTEREST ACCOUNTED FOR AND OFFERED TO TAX IN THE ASSESSMENT YEAR 2006-07. 66. WE HAVE ALLOWED THE CLAIM OF THE ASSESSEE FOR EXCLUDING INTEREST ON NPA IN AY 2003-04, 2001-02, 2004-05 AND 2005-06. SINCE THE C LAIM HAS BEEN ALLOWED THE WRITE BACK OF INTEREST ON NPA IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FOR AY 2006-07 AND OFFERING THE SAID INTEREST INCOME TO TAXATION NEED NOT BE EXCLUDED, AS IT CANNOT BE SAID THAT THE SAME INCOME IS TAXED TWICE. IN OTHER WORD S, THE ASSESSEE DID NOT OFFER THE INTEREST INCOME ON NPA IN THE PAST AND NOW THAT THE SAID INTEREST INCOME IS CONSIDERED AS HAVING ACCRUED TO THE ASSESSEE UNDER THE MERCANT ILE SYSTEM OF ACCOUNTING, THE SAME OUGHT TO BE OFFERED TO TAX AND TAXED AND HAS B EEN DONE SO. THE ASSESSEE THEREFORE CANNOT HAVE ANY GRIEVANCE WHATSOEVER IN T HIS REGARD. THE FIRST ADDITIONAL GROUND IS ACCORDINGLY DISMISSED. 67. THE SECOND ADDITIONAL GROUND RAISED BY THE ASS ESSEE READS THUS: FOR THAT IN THE EVENT GROUND NO.3 OF APPEAL BEARIN G ITA NO.984/KOL/2011 BEING DECIDED AGAINST THE ASSESSEE THE LEARNED ASSESSING OFFICER SHOLD BE DIRECTED TO EXCLUDE INTEREST OF RS.1,45,63,00,272/- FROM THE IN COME OF THE ASSESSMENT YEAR 2006- 07. 68. THIS ADDITIONAL GROUND HAS BEEN DEALT WITH WHI LE DEALING WITH GROUND NO.3 IN ITA NO.984/KOL/2011 WHICH IS AN APPEAL BY THE ASSES SEE FOR AY 2007-08, IN THIS VERY SAME ORDER. FOR THE REASONS STATED THEREIN TH IS ADDITIONAL GROUND OF APPEAL IS DISMISSED. 69. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS D ISMISSED. ITA NO.604/KOL/2011 (REVENUES APPEAL): 70. THERE IS A DELAY OF 14 DAYS IN FILING THIS APP EAL BY THE REVENUE. THE SAME HAS BEEN EXPLAINED AS OWING TO INTERVENING PUBLIC HOLID AYS AND BREAK DOWN OF PHOTO COPY MACHINE. WE HAVE CONSIDERED THE REASONS ASSIGNED F OR THE DELAY IN FILING THE APPEAL AND ARE OF THE VIEW THAT THE DELAY IN FILING THE AP PEAL HAS OCCASIONED OWING TO REASONABLE AND SUFFICIENT CAUSE. THE DELAY IS ACCOR DINGLY CONDONED. 71. THE ONLY GROUND OF APPEAL RAISED BY THE REVENU E IN ITS APPEAL READS THUS: ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 27 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN LAW IN NOT CONSIDERING THE LEGAL POINT THAT THE REVISED RETURN OF ASSESSEE WAS NOT VALID HAVING BEEN FILED BEYOND THE TIME LIMIT PRESCRIBED U/S 139(5) A ND HENCE THE REVISED INCOME COULD NOT BE TREATED AS RETURNED INCOME FOR THE PURPOSE OF LE VYING INTEREST U/S 234C. 2. THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DELE TE OR MODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 72. THE ONLY GROUND IN THE REVENUES APPEAL RELATE S TO THE COMPUTATION OF INTEREST UNDER SECTION 234C. THE MATERIAL FACTS ARE THAT THE ASSESSEE FILED ITS ORIGINAL RETURN ON NOVEMBER 30, 2006 SHOWING A TOTAL INCOME OF RS.495. 03 CRORES AND A SUM OF RS.6.12 CRORES AS REFUNDABLE (PAGE 37 OF PAPER BOOK IN ITA 324/K/12). THE SAID RETURN WAS PROCESSED UNDER SECTION 143(1) ON MAY 30, 2007. THE STATUTORY AUDIT WAS COMPLETED ON MARCH 24, 2008 AND THE CAG AUDIT ON APRIL 28, 20 08. THE ACCOUNTS WERE ADOPTED AT THE ANNUAL GENERAL MEETING HELD ON AUGUST 14, 20 08. THEREAFTER, IN COURSE OF THE ASSESSMENT PROCEEDINGS ON OCTOBER 22, 2008 THE ASSE SSEE SUBMITTED A REVISED COMPUTATION OF INCOME ALONG WITH AUDITED ACCOUNTS S HOWING AN INCOME OF RS.228.83 CRORES AND CLAIMING A REFUND OF RS.95.L5 CRORES (PA GE 39 OF PAPER BOOK). IN THE SAID REVISED STATEMENT, THE ASSESSEE MENTIONED INTEREST OF RS.56,87,807/- PAYABLE UNDER SECTION 234C. THE AO COMPUTED THE ASSESSEE'S INCOME AS PER THE REVISED COMPUTATION OF INCOME. HOWEVER, HE CHARGED INTEREST UNDER SECTI ON 234C OF RS.62,13,902/- ON THE BASIS OF THE INCOME FIGURES SHOWN IN THE RETURN SUB MITTED ON NOVEMBER 30, 2006. THE CIT(A) FOLLOWING HIS PREDECESSOR'S ORDER FOR THE AS SESSMENT YEAR 2004-05 GRANTED RELIEF TO THE ASSESSEE. HE HELD THAT INTEREST UNDER SECTION 234C WAS TO BE CHARGED ON THE BASIS OF THE REVISED COMPUTATION WHICH WAS ACCE PTED FOR THE PURPOSE OF MAKING THE ASSESSMENT. HE HELD THAT INTEREST UNDER SECTION 234C WAS COMPENSATORY IN NATURE AND WHEN THERE WAS LESSER LIABILITY FOR PAYMENT OF ADVANCE TAX ON THE BASIS OF THE ACCEPTED REVISED COMPUTATION, NO INTEREST UNDER SEC TION 234C CAN BE CHARGED ON THE GROUND THAT THE INCOME SHOWN IN THE ORIGINAL RETURN WAS HIGHER. THUS, THE AO WAS DIRECTED TO CHARGE INTEREST UNDER SECTION 234C ON T HE BASIS OF REVISED COMPUTATION AS PER THE PAST PRACTICE OF CHARGING INTEREST WITH REF ERENCE TO THE ACCEPTED BASIS OF ASSESSMENT. AGGRIEVED BY THE ORDER OF THE CIT(A) TH E REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 28 73. IT WAS SUBMITTED THAT THE CIT(A) WAS ENTIRELY JUSTIFIED IN TAKING THE VIEW THAT HE DID. INTEREST UNDER SECTION 234C IS PAYABLE IN CASE OF SHORTFALL IN PAYMENT OF ADVANCE TAX INSTALMENTS WITH REFERENCE TO THE TAX DUE ON TH E RETURNED INCOME. IT WAS SUBMITTED THAT IN A CASE LIKE THE ASSESSEE'S, DELAY OCCURS ON ACCOUNT OF STATUTORY AUDIT AND CAG AUDIT AND SUBSEQUENT ADOPTION OF ACCOUNTS AT THE AN NUAL GENERAL MEETING. AFTER SUCH AUDIT AND ADOPTION, THERE IS A LIKELIHOOD OF VARIAT ION BETWEEN THE INCOME SHOWN IN THE ORIGINAL RETURN FILED WITHIN THE DUE DATE ON THE BA SIS OF UNAUDITED ACCOUNTS AND THE INCOME AS PER THE AUDITED ACCOUNTS. BY THE TIME THE AUDITED ACCOUNTS BECOME AVAILABLE, EVEN THE PERIOD FOR FILING THE REVISED R ETURN EXPIRES. THIS HAS BEEN HAPPENING IN THE ASSESSEES CASE FOR SEVERAL YEARS. IT HAS BEEN THE PRACTICE IN THE ASSESSEES CASE TO ACCEPT REVISED COMPUTATION ON TH E BASIS OF AUDITED ACCOUNTS FOR THE PURPOSE OF COMPLETING THE ASSESSMENT. IN THE ASSESS MENT ORDER FOR THE ASSESSMENT YEAR 2006-07 THE ASSESSING OFFICER MADE THE FOLLOWING OB SERVATION :- THE INCOME AS PER REVISED COMPUTATION IS ACCEPTED AS CONVENTIONALLY FOR UNDERTAKINGS OF GOVT THIS KIND OF DELAY DUE TO LATE STATUTORY AU DIT HAD BEEN ALLOWED EARLIER. 74. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND T HE ORDER OF THE CIT(A) IN THE LIGHT OF THE RELEVANT PROVISIONS OF SEC.234C OF THE ACT. THE PROVISIONS OF SEC.234-C OF THE ACT READ THUS: 234C: INTEREST FOR DEFERMENT OF ADVANCE TAX. (1) WHERE IN ANY FINANCIAL YEAR, (A) THE COMPANY WHICH IS LIABLE TO PAY ADVANCE TAX UNDER SECTION 208 HAS FAILED TO PAY SUCH TAX OR (I) THE ADVANCE TAX PAID BY THE COMPANY ON ITS CURR ENT INCOME ON OR BEFORE THE 15TH DAY OF JUNE IS LESS THAN FIFTEEN PER CENT OF THE TA X DUE ON THE RETURNED INCOME OR THE AMOUNT OF SUCH ADVANCE TAX PAID ON OR BEFORE THE 15 TH DAY OF SEPTEMBER IS LESS THAN FORTY-FIVE PER CENT OF THE TAX DUE ON THE RETURNED INCOME OR THE AMOUNT OF SUCH ADVANCE TAX PAID ON OR BEFORE THE 15TH DAY OF DECEM BER IS LESS THAN SEVENTY-FIVE PER CENT OF THE TAX DUE ON THE RETURNED INCOME, THEN, T HE COMPANY SHALL BE LIABLE TO PAY SIMPLE INTEREST AT THE RATE OF ONE PER CENT PER MON TH FOR A PERIOD OF THREE MONTHS ON THE AMOUNT OF THE SHORTFALL FROM FIFTEEN PER CENT O R FORTY-FIVE PER CENT OR SEVENTY-FIVE PER CENT, AS THE CASE MAY BE, OF THE TAX DUE ON THE RETURNED INCOME; ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 29 (II) THE ADVANCE TAX PAID BY THE COMPANY ON ITS CUR RENT INCOME ON OR BEFORE THE 15TH DAY OF MARCH IS LESS THAN THE TAX DUE ON THE RETURN ED INCOME, THEN, THE COMPANY SHALL BE LIABLE TO PAY SIMPLE INTEREST AT THE RATE OF ONE PER CENT ON THE AMOUNT OF THE SHORTFALL FROM THE TAX DUE ON THE RETURNED INCOME: PROVIDED THAT IF THE ADVANCE TAX PAID BY THE COMPAN Y ON ITS CURRENT INCOME ON OR BEFORE THE 15TH DAY OF JUNE OR THE 15TH DAY OF SEPT EMBER, IS NOT LESS THAN TWELVE PER CENT OR, AS THE CASE MAY BE, THIRTY-SIX PER CENT OF THE TAX DUE ON THE RETURNED INCOME, THEN, IT SHALL NOT BE LIABLE TO PAY ANY INTEREST ON THE AMOUNT OF THE SHORTFALL ON THOSE DATES; (B) THE ASSESSEE, OTHER THAN A COMPANY, WHO IS LIAB LE TO PAY ADVANCE TAX UNDER SECTION 208 HAS FAILED TO PAY SUCH TAX OR, (I) THE ADVANCE TAX PAID BY THE ASSESSEE ON HIS CUR RENT INCOME ON OR BEFORE THE 15TH DAY OF SEPTEMBER IS LESS THAN THIRTY PERCENT OF THE TAX DUE ON THE RETURNED INCOME OR THE AMOUNT OF SUCH ADVANCE TAX PAID ON OR BEFORE TH E 15TH DAY OF DECEMBER IS LESS THAN SIXTY PER CENT OF THE TAX DUE ON THE RETURNED INCOME, THEN, THE ASSESSEE SHALL BE LIABLE TO PAY SIMPLE INTEREST AT THE RATE OF 1932D [ONE PER CENT] PER MONTH FOR A PERIOD OF THREE MONTHS ON THE AMOUNT OF THE SHORTFALL FROM TH IRTY PER CENT OR, AS THE CASE MAY BE, SIXTY PER CENT OF THE TAX DUE ON THE RETURNED I NCOME; (II) THE ADVANCE TAX PAID BY THE ASSESSEE ON HIS CU RRENT INCOME ON OR BEFORE THE 15TH DAY OF MARCH IS LESS THAN THE TAX DUE ON THE RETURN ED INCOME, THEN, THE ASSESSEE SHALL BE LIABLE TO PAY SIMPLE INTEREST AT THE RATE OF ONE PER CENT ON THE AMOUNT OF THE SHORTFALL FROM THE TAX DUE ON THE RETURNED INCOME: PROVIDED THAT NOTHING CONTAINED IN THIS SUB-SECTION SHALL APPLY TO ANY SHORTFALL IN THE PAYMENT OF THE TAX DUE ON THE RETURNED INCOME WHERE SUCH SHORTFALL IS ON ACCOUNT OF UNDERESTIMATE OR FAILURE TO ESTIMATE (A) THE AMOUNT OF CAPITAL GAINS; OR (B) INCOME OF THE NATURE REFERRED TO IN SUB-CLAUSE (IX) OF CLAUSE (24) OF SECTION 2, AND THE ASSESSEE HAS PAID THE WHOLE OF THE AMOUNT O F TAX PAYABLE IN RESPECT OF INCOME REFERRED TO IN CLAUSE (A) OR CLAUSE (B), AS THE CAS E MAY BE, HAD SUCH INCOME BEEN A PART OF THE TOTAL INCOME, AS PART OF THE REMAINING INSTALMENTS OF ADVANCE TAX WHICH ARE DUE OR WHERE NO SUCH INSTALMENTS ARE DUE], BY T HE 31ST DAY OF MARCH OF THE FINANCIAL YEAR. PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS SU B-SECTION SHALL APPLY TO ANY SHORTFALL IN THE PAYMENT OF THE TAX DUE ON THE RETU RNED INCOME WHERE SUCH SHORTFALL IS ON ACCOUNT OF INCREASE IN THE RATE OF SURCHARGE UND ER SECTION 2 OF THE FINANCE ACT, 2000 (10 OF 2000), AS AMENDED BY THE TAXATION LAWS (AMENDMENT) ACT, 2000, AND THE ASSESSEE HAS PAID THE AMOUNT OF SHORTFALL, ON OR BE FORE THE 15TH DAY OF MARCH, 2001, IN RESPECT OF THE INSTALMENT OF ADVANCE TAX DUE ON THE 15TH DAY OF JUNE, 2000, THE 15TH DAY OF SEPTEMBER, 2000, AND THE 15TH DAY OF DECEMBE R, 2000: PROVIDED ALSO THAT NOTHING CONTAINED IN THIS SUB-SE CTION SHALL APPLY TO ANY SHORTFALL IN THE PAYMENT OF THE TAX DUE ON THE RETU RNED INCOME WHERE SUCH SHORTFALL IS ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 30 ON ACCOUNT OF INCREASE IN THE RATES OF SURCHARGE UN DER SECTION 2 OF THE FINANCE ACT, 2000, AS AMENDED BY THE TAXATION LAWS (AMENDMENT) O RDINANCE, 2001, AND THE ASSESSEE HAS PAID THE AMOUNT OF SHORTFALL ON OR BEF ORE THE 15TH DAY OF MARCH, 2001, IN RESPECT OF THE INSTALMENT OF ADVANCE TAX DUE ON THE 15TH DAY OF JUNE, 2000, THE 15TH DAY OF SEPTEMBER, 2000, AND 15TH DAY OF DECEMBER, 2 000. EXPLANATION : IN THIS SECTION, 'TAX DUE ON THE RETURNED INCOME' MEANS THE TAX CHARGEABLE ON THE TOTAL INCOME DECLARED IN THE RETU RN OF INCOME FURNISHED BY THE ASSESSEE FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL IMMEDIATELY FOLLOWING THE FINANCIAL YEAR IN WHICH THE ADVANCE T AX IS PAID OR PAYABLE, AS REDUCED BY THE AMOUNT OF, (I) ANY TAX DEDUCTIBLE OR COLLECTIBLE AT SOURCE IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII ON ANY INCOME WHICH IS SUBJECT TO SUCH DEDUCTION OR COLLECTION AND WHICH IS TAKEN INTO ACCOUNT IN COMPUTING SUCH TOTAL INCOME; (II) ANY RELIEF OF TAX ALLOWED UNDER SECTION 90 ON ACCOUNT OF TAX PAID IN A COUNTRY OUTSIDE INDIA; (III) ANY RELIEF OF TAX ALLOWED UNDER SECTION 90A O N ACCOUNT OF TAX PAID IN A SPECIFIED TERRITORY OUTSIDE INDIA REFERRED TO IN THAT SECTION ; (IV) ANY DEDUCTION, FROM THE INDIAN INCOME-TAX PAYA BLE, ALLOWED UNDER SECTION 91, ON ACCOUNT OF TAX PAID IN A COUNTRY OUTSIDE INDIA; AND (V) ANY TAX CREDIT ALLOWED TO BE SET OFF IN ACCORDA NCE WITH THE PROVISIONS OF SECTION 115JAA. (2) THE PROVISIONS OF THIS SECTION SHALL APPLY IN R ESPECT OF ASSESSMENTS FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1989, AND SUBSEQUENT ASSESSMENT YEARS. 75. INTEREST U/S.234C IS CHARGED FOR DEFERMENT OF ADVANCE TAX AND IS CHARGED WITH REFERENCE TO TAX DUE ON RETURNED INCOME. TAX DUE ON RETURNED INCOME HAS BEEN DEFINED IN EXPLANATION TO 234C(1) AS TAX CHARGEABLE ON THE TOTAL INCOME DECLARED IN THE RETURN OF INCOME FURNISHED BY THE ASSESSEE FOR THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL IMMEDIATELY FOLLOWING THE FINA NCIAL YEAR IN WHICH THE ADVANCE TAX IS PAID OR PAYABLE. THE PLEA OF THE ASSESSEE THAT THE CHARGING OF INTEREST U/S.234C OF THE ACT SHOULD BE WITH REFERENCE TO THE TAX ON TOTA L INCOME DECLARED IN A REVISED COMPUTATION OF INCOME FILED AND NOT ON THE TAX PAYA BLE ON THE TOTAL INCOME DECLARED IN THE ORIGINAL RETURN OF INCOME IS CONTRARY TO THE PROVISIONS OF EXPLANATION TO SEC.234C(1) OF THE ACT. CHARGING OF INTEREST IS MA NDATORY AND IF THERE ARE GOOD GROUND WAIVE INTEREST THAN IT IS FOR THE ASSESSEE T O SEEK APPROPRIATE REMEDIES OPEN TO ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 31 IT IN LAW. THE CIT(A)S ORDER IN OUR VIEW IS CONTR ARY TO THE PROVISIONS OF LAW AND CANNOT BE SUSTAINED. ACCORDINGLY, THE APPEAL OF TH E REVENUE IS ALLOWED. 76. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS D ISMISSED AND THAT BY THE REVENUE IS ALLOWED. ITA NO. 1028/KOL/2011 & ITA NO.984/KOL/2011: 77. ITA NO.1028/KOL/2011 IS AN APPEAL BY THE REVEN UE WHILE ITA NO.984/KOL/2011 IS AN APPEAL BY THE ASSESSEE. BOTH THESE APPEALS A RE DIRECTED AGAINST THE ORDER DATED 4.3.2011 OF CIT(A)-VI, KOLKATA, RELATING TO AY 2007 -08. ITA NO.1028/KOL.2011 (REVENUES APPEAL): 78. THERE IS A DELAY OF 14 DAYS IN FILING THIS APP EAL BY THE REVENUE. THE SAME HAS BEEN EXPLAINED AS OWING TO INTERVENING PUBLIC HOLID AYS AND BREAK DOWN OF PHOTO COPY MACHINE. WE HAVE CONSIDERED THE REASONS ASSIGNED F OR THE DELAY IN FILING THE APPEAL AND ARE OF THE VIEW THAT THE DELAY IN FILING THE AP PEAL HAS OCCASIONED OWING TO REASONABLE AND SUFFICIENT CAUSE. THE DELAY IS ACCOR DINGLY CONDONED. 79. THE GROUNDS RAISED BY THE REVENUE READS THUS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,76,10,845/- MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF PRIOR PERIOD EXPENSES. IF THE FACT OF PRIOR PERIOD EXPENDITURE WHICH CAME FOR DISCUSSION DURING THE ASSESSMENT PROCEEDIN GS REMAINED UNCONTROVERTED, IT CAN BE DISALLOWED EVEN IF THE REVISED RETURN ITSELF IS NOT BEING PROCEEDED WITH. 2. THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DELE TE OR MODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. ITA NO.984/KOL/2011 (ASSESSEES APPEAL) 80. THE GROUNDS RAISED BY THE ASSESSEE READS THUS: I. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT (APPEALS) ERRED IN LAW IN HOLDING THAT THE INCOME OF THE APPELLANT SHO ULD BE COMPUTED ON THE BASIS OF THE RETURN OF INCOME IN COMPLETE DISREGARD TO THE PARTI CULARS AND DETAILS OF VARIOUS INCOME SUBMITTED DURING THE COURSE OF ASSESSMENT. II. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) SHOULD HAVE HELD THAT THE ASSESSMENT OF THE APPELLANT'S IN COME WAS REQUIRED TO BE MADE BASED ON THE REAL INCOME OF THE APPELLANT DURING THE PREV IOUS YEAR CORRESPONDING TO THE ASSESSMENT YEAR 2007-08. ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 32 ILL. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) SHOULD HAVE HELD THAT THE INTEREST INCOME OF RS. 145630027 2/- COULD NOT BE BROUGHT TO TAX AGAIN IN THE ASSESSMENT FOR THE ASSESSMENT YEAR 200 7-08 WHEN THE SAME WAS ALREADY TAXED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, I.E., ASSESSMENT YEAR 2006- 07, ON THE BASIS OF MATERIALS BROUGHT BEFORE THE LD. ASSES SING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2006 -07, THE RELEVANT ORDER PASSED ON 10TH DECEMBER, 2008. IV. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(APPEALS) WAS NOT JUSTIFIED IN TREATING A SUM OF RS. 750000/- AS NOT ADMISSIBLE UNDER THE INCOME TAX ACT, 1961 WHEN THE SAME WAS CLAIMED BY THE APPELLANT AS NORMAL REVENUE EXPENDITURE BEING 1/10TH OF THE AMORTIZATION EXPENSES FOR CHANGE IN O BJECT CLAUSE AND THE SAID AMOUNT HAD ALL ALONG BEEN GRANTED TO THE APPELLANT UPTO AS SESSMENT YEARS 2006-07. V. THAT THE APPELLANT CRAVES LEAVE TO ALTER, AMEND AND/OR TO TAKE ADDITIONAL GROUNDS BEFORE OR AT THE TIME OF HEARING THIS APPEAL. 81. WE SHALL FIRST TAKE UP FOR CONSIDERATION THE F IRST TWO GROUNDS OF APPEAL RAISED BY THE ASSESSEE. IF ON THOSE GROUNDS WE COME TO A CONC LUSION THAT THE ASSESSMENT DONE BY THE AO IGNORING THE DETAILS FILED IN THE COURSE OF ASSESSMENT PROCEEDINGS THEN WE HAVE TO SET ASIDE THE ORDER OF CIT(A) AND DIRECT TH E AO TO MAKE AN ASSESSMENT DE NOVO IN THE LIGHT OF THE AUDITED STATEMENTS OF INCO ME AVAILABLE FOR THE RELEVANT ASSESSMENT YEAR. WITH THIS PRELUDE, WE WILL TAKE U P GROUNDS NO.1 & 2 RAISED BY THE ASSESSEE. 82. THE FIRST TWO GROUNDS OF THE ASSESSEE'S APPEAL ARE AGAINST THE ACTION OF THE A0 IN IGNORING THE REVISED COMPUTATION OF INCOME BASED ON AUDITED ACCOUNTS FILED IN COURSE OF ASSESSMENT PROCEEDINGS ON JUNE 23, 2009 AFTER EX PIRY OF THE TIME LIMIT PRESCRIBED UNDER SECTION 139(5) WHICH HAS BEEN UPHELD BY THE C IT(A) MAINLY RELYING UPON GOETZE (INDIA)'S CASE. THOUGH THE AO FRAMED THE ASS ESSMENT ON THE BASIS OF THE REVISED RETURN FILED ON MARCH 15, 2008, HE PICKED U P PRIOR PERIOD EXPENSES OF RS.1,76,10,845/- FROM THE AUDITED ACCOUNTS SUBMITTE D ON JUNE 23, 2009 AND DISALLOWED THE SAME. THE CIT(A), HAVING UPHELD THE AO'S ACTION IN IGNORING THE REVISED COMPUTATION, HELD THAT THE AO COULD NOT HAV E MADE THE SAID DISALLOWANCE ON THE BASIS OF THE AUDITED ACCOUNTS AND NO SUCH DISAL LOWANCE COULD BE MADE ON THE BASIS OF THE UNAUDITED ACCOUNTS FILED EARLIER WHICH DID N OT SHOW ANY PRIOR PERIOD EXPENSES. AGAINST THE SAID DELETION OF RS.1,76,10,845/- THE R EVENUE IS IN APPEAL. ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 33 83. THE MATERIAL FACTS THAT COULD BE GATHERED ARE THAT THE ASSESSEE FILED ITS ORIGINAL RETURN ON OCTOBER 30, 2007 DECLARING INCOME OF RS.1 46.33 CRORES WHICH WAS REVISED ON MARCH 15,2008 FOR CLAIMING HIGHER TDS CREDIT. TH E STATUTORY AUDITORS COMPLETED AUDIT ON DECEMBER 29, 2008, THE CAG ON MARCH 3, 200 9. THE ACCOUNTS WERE ADOPTED AT THE ANNUAL GENERAL MEETING ON APRIL 9, 2009. BAS ED ON SUCH AUDITED ACCOUNTS, THE ASSESSEE FILED REVISED COMPUTATION IN COURSE OF ASS ESSMENT PROCEEDINGS ON JUNE 23, 2009 SHOWING AN INCOME OF RS.28.83 CRORES. IT IS PE RTINENT TO MENTION THAT THE ASSESSEE'S ASSESSMENTS, INTER ALIA, FOR THE ASSESSM ENT YEARS 2004-05, 2005- 06 AND 2006-07 WERE MADE ON THE BASIS OF SUCH REVISED COMP UTATION AND AUDITED ACCOUNTS WHICH BECAME AVAILABLE AFTER THE EXPIRY OF TIME LIM IT FOR FILING REVISED RETURN. IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2006-07, T HE AO HIMSELF OBSERVED THAT CONVENTIONALLY THE ASSESSMENT WAS MADE ON THE BASIS OF REVISED COMPUTATION AND AUDITED ACCOUNTS AS THERE WAS DELAY IN COMPLETING T HE AUDIT. 84. THE PURPOSE OF THE ASSESSMENT IS TO ARRIVE AT THE PROPER FIGURE OF INCOME AND IT WOULD BE A TRAVESTY OF JUSTICE IF AUDITED ACCOUNTS WHICH BECOME AVAILABLE DURING THE COURSE OF ASSESSMENT PROCEEDINGS ARE IGNORED MERELY BECAUSE OF EXPIRY OF THE TIME LIMIT FOR FILING REVISED RETURN. FURTHER, IN THE IN STANT CASE, THE ASSESSEE ALSO SUBMITTED EXPLANATION FOR THE DIFFERENCE BETWEEN THE REVISED RETURN AND THE REVISED COMPUTATION OF INCOME (PAGES 108C AND 108D OF THE PAPER BOOK IN ITA NO. 984/K/L1). ONE OF THE MAJOR ITEMS OF DIFFERENCE WAS ON ACCOUNT OF INTERES T OF RS.145.63 CRORES ON NPA WHICH WAS OFFERED TO TAX IN THE ASSESSMENT YEAR 200 6-07 AND THEREFORE, EXCLUDED FROM THE REVISED COMPUTATION FILED FOR THE ASSESSMENT YE AR 2007-08 ON JUNE 23, 2009. THE CIT(A) ALSO REJECTED THE ASSESSEE'S ADDITIONAL GROU ND IN RESPECT OF THE INTEREST OFRS.145.63 CRORES RELYING UPON GOETZE (INDIA)'S CA SE, WHICH IS SUBJECT MATTER OF GROUND 0.3 OF THE ASSESSEES APPEAL. THE ASSESSEES SUBMISSIONS IN RESPECT OF GOETZE (INDIA)S CASE HAVE BEEN MADE WHILE DEALING WITH IT A 388/K/08 FOR THE ASSESSMET YEAR 2001-02. 85. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW THAT THE ORDER OF CIT(A) HAS TO BE SET ASIDE AND THE AO SHOULD BE DIR ECTED TO MAKE AN ASSESSMENT DE ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 34 NOVO ON THE BASIS OF THE AUDITED STATEMENTS AVAILAB LE. IN THIS REGARD, WE ARE ALSO OF THE VIEW THAT THE PRINCIPLE LAID DOWN IN GOETZE INDIAS CASE (SUPRA), WILL NOT BIND THE APPELLATE AUTHORITIES AS CLARIFIED BY THE HONBLE S UPREME COURT IN THE SAID DECISION. THEREFORE IN THE INTEREST OF JUSTICE AND FAIR PLAY WE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO MAKE AN ASSESSMENT DE NOVO ON THE BASIS OF AUDITED STATEMENTS FILED BY THE ASSESSEE. IN VIEW OF THE ABOVE CONCLUSION N O DECISION IS GIVEN ON THE VARIOUS OTHER GROUNDS RAISED BY THE REVENUE AND THE ASSESSE E IN THEIR RESPECTIVE APPEALS. ALL CONTENTIONS ARE LEFT OPEN. THUS BOTH THE APPEALS O F THE ASSESSEE AND REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1283/KOL/2012 & C.O.NO.104/KOL/2012: 86. ITA NO.1283/KOL/2012 IS AN APPEAL BY THE REVEN UE AGAINST THE ORDER DATED 1.6.2012 OF CIT(A)-VI, KOLKATA RELATING TO AY 2008- 09. THE ASSESSEE HAS FILED CROSS OBJECTION BEING C.O.NO.104/KOL/2012 AGAINST T HE VERY SAME ORDER OF CIT(A). ITA NO.1283/KOL/2012: REVENUES APPEAL: 87. THERE IS A DELAY OF 5 DAYS IN FILING THE APPEA L BY THE REVENUE. THE SAME HAS BEEN EXPLAINED AS OWING TO INTERVENING PUBLIC HOLIDAYS A ND BREAK DOWN OF PHOTO COPY MACHINE. WE HAVE CONSIDERED THE REASONS ASSIGNED F OR THE DELAY IN FILING THE APPEAL AND ARE OF THE VIEW THAT THE DELAY IN FILING THE AP PEAL HAS OCCASIONED OWING TO REASONABLE AND SUFFICIENT CAUSE. THE DELAY IS ACCOR DINGLY CONDONED. 88. THE GROUNDS OF APPEAL RAISED BY THE REVENUE RE ADS THUS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) ERRED IN LAW IN HOLDING THAT DISALLOWANCE UNDER SECTION 14A OF THE INCOME T AX ACT READ WITH RULE 8D OF THE INCOME TAX RULES SHOULD NOT BE APPLIED ON THE INVES TMENTS MADE IN PREFERENCE SHARES OF HALDIA PETROCHEMICALS LTD. (HPL) UNDER DIRECTION OF GOVERNMENT OF WEST BENGAL. 2. THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DELE TE OR MODIFY ANY OF THE GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING. 89. THE ASSESSEE HAD ADDED BACK AN AMOUNT OF RS.55 ,92,B96/- U/S 14A READ WITH RULE BD. THE ASSESSING OFFICER, HOWEVER, RECOMPUTED THE DISALLOWANCE U/S 14A READ WITH RULE BD AT AN AMOUNT OF RS.1,04,60,946/-. THER EFORE, THE ASSESSING OFFICER ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 35 MADE AN ADDITION OF RS.48,68,050/- ON THIS ACCOUNT. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT RECALCULATED ITS DISALLOWANCE AT AN A MOUNT OF RS. 63,22,363/-. 90. THE ASSESSEE HAD EARNED DIVIDEND OF RS. 41,02,8 47/- FROM INVESTMENTS IN SBI- SHF LIQUID PLUS (MUTUAL FUND) DURING THE FINANCIAL YEAR 2007-08, WHICH HAD BEEN CONSIDERED AS EXEMPT INCOME U/S 10(35) OF THE INCOM E TAX ACT FOR THE ASSESSMENT YEAR 2008-09. IT HAD INVESTED RS. 25 CRORE IN SBI-S HF LIQUID PLUS UNITS - INSTITUTIONAL PLAN DAILY DIVIDEND ON 11.12.2007 WHI CH HAD SINCE BEEN REALIZED ON 5.3.2008. DIVIDEND EARNED ON THE SAID INVESTMENT WA S RS. 39,29,933/- FOR A PERIOD OF 88 DAYS (FROM 11.12.2007 TO 5.3.2008). A FURTHER SU M OF RS. 25 CRORE WAS INVESTED BY THE ASSESSEE IN SBI-SHF LIQUID PLUS UNITS- INSTITUT IONAL PLAN DAILY DIVIDEND ON 28.3.2008 AND DIVIDEND AGGREGATING TO RS. 172914/- ACCRUED THEREON FOR A PERIOD OF 4 DAYS (28.3.2008 TO 31.3.2008). THUS, THE ASSESSEE H AD MADE INVESTMENTS OF RS 25 CRORE FOR 92 DAYS (88 DAYS PLUS 4 DAYS) IN TWO TRAN CHES, ON WHICH DIVIDEND AGGREGATING TO RS. 41,02,847/- HAD BEEN EARNED. WHI LE DETERMINING THE QUANTUM OF INTEREST EXPENSES DISALLOWABLE U/S 14A READ WITH RU LE 8D IN RELATION TO ABOVEMENTIONED EXEMPT DIVIDEND INCOME, THE ASSESSEE HAD CONSIDERED THE AVERAGE COST OF FUNDS WORKED OUT AT 8.90% P. A. FOR THE FIN ANCIAL YEAR 2007-08 AS REPORTED IN THE DIRECTORS' REPORT (PAGE-6 OF THE PRINTED ACCOUN TS). INTEREST AT THE RATE OF 8.90% P.A. FOR 92 DAYS ON INVESTMENTS OF RS. 25 CRORE WOR KED OUT TO RS. 55,92,896/-, WHICH THE ASSESSEEE HAD CONSIDERED DISALLOWABLE U/S 14A R EAD WITH RULE 8D. 91. WHILE COMPUTING THE QUANTUM OF DISALLOWANCE U/ S 14A, THE ASSESSEE DID NOT CONSIDER AN AGGREGATE SUM OF RS. 198,80,09,710/- (R S. 194,61,95,7101- IN 1% CUMULATIVE PREFERENCE SHARES OF HALDIA PETROCHEMICA LS LTD (HP L) AND RS. 4,18,14,000/- IN EQUITY SHARES OF THE CALCUTTA STOC K EXCHANGE ASSOCIATION LTD (CSEAL)), BEING INVESTMENTS MADE BY THE APPELLANT P URSUANT TO THE DIRECTIONS DESIRE OF THE GOVERNMENT OF WEST BENGAL, AS INVESTMENTS FO R THE PURPOSE OF RULE BD. THE APPELLANT-COMPANY IS WHOLLY OWNED BY THE GOVERNMENT OF WEST BENGAL. THE ASSESSEE IS PRIMARILY ENGAGED IN THE BUSINESS OF PR OVIDING FINANCE FOR INFRASTRUCTURAL DEVELOPMENT IN THE STATE OF WEST BENGAL. FOR THIS P URPOSE, THE ASSESSEE WAS REQUIRED ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 36 TO FOLLOW THE SUGGESTIONS MADE BY THE STATE GOVERNM ENT FROM TIME TO TIME. HP L WAS FORMED NEAR HALDIA PORT IN THE DISTRICT OF MIDNAPOR E IN THE STATE OF WEST BENGAL AS A JOINT VENTURE WHERE THE GOVERNMENT OF WEST BENGAL I S A MAJOR SHAREHOLDER WITH THE OBJECTIVE OF PROMOTING ALL-ROUND DEVELOPMENT IN THE STATE. ON THE BASIS OF REQUEST BY SAID HP L, THE ASSESSEE HAD GRANTED UNSECURED LOANS FOR THE PURPOSE OF LAYING GAS PIPE LINE AND OTHER INFRASTRUCTURAL ACTIVITIES TO T HE EXTENT OF RS. 175.00 CRORE AT INTEREST RATE OF 16% P.A. UP TO FEBRUARY 2002, THE ASSESSEE HAD ACCOUNTED FOR INTEREST INCOME TO THE EXTENT OF RS. 19.62 CRORE. HOWEVER, THE SAID INTEREST COULD NOT BE REALIZED FROM HPL AND THE SAID LOAN HAD BECOME DOUBTFUL OF RECOVE RY. MEANWHILE, THE ASSESSEE HAD RECEIVED A LETTER DATED 12.10.2004 (ANNEXURE-A ENCL OSED) FROM THE GOVERNMENT OF WEST BENGAL, THE CO-PROMOTER OF HPL. PURSUANT TO TH E INSTRUCTIONS CONTAINED IN THE SAID LETTER, THE APPELLANT-COMPANY HAD NO OTHER ALT ERNATIVE BUT TO REALIGN THE OUTSTANDING LOAN AND ACCRUED INTEREST AGGREGATING T O RS. 194.62 CRORE INTO PREFERENCE SHARES OF HPL. THUS, DUE TO CIRCUMSTANCES BEYOND TH E ASSESSEE, IT HAD TO REALIGN THE OUTSTANDING LOAN AND ACCRUED INTEREST INTO INVESTME NT WHICH OTHERWISE HAD BEEN DOUBTFUL OF RECOVERY. SUBSEQUENT TO THE CONVERSION OF UNSECURED LOAN INTO PREFERENCE SHARES, TILL DATE THE ASSESSEE COMPANY HAD NOT RECE IVED ANY AMOUNT AS DIVIDEND ON SUCH PREFERENCE SHARES. ACCORDINGLY, INVESTMENTS IN PREFERENCE SHARES OF HPL HAD NOT BEEN CONSIDERED BY THE ASSESSEE INVESTMENT FOR THE PURPOSE OF RULE 8D. 92. ON THE ABOVE SUBMISSIONS, THE CIT(A), AGREED W ITH THE SUBMISSIONS OF THE ASSESSEE OBSERVING AS FOLLOWS: 4. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. THE ISSUE IS REGARDING DISALLOWANCE OF % % EXPENDITURE AS PER RULE 80 (2)(III), RELATIN G TO THE INVESTMENT IN HALDIA PETROCHEMICAL LTD. THE APPELLANT-COMPANY IS A WHOLL Y OWNED PUBLIC SECTOR ENTERPRISE OF THE GOVERNMENT OF WEST BENGAL. THE APPELLANT IS PRIMARILY ENGAGED IN THE BUSINESS OF PROVIDING FINANCE FOR INFRASTRUCTURAL DEVELOPMEN T IN THE STATE OF WEST BENGAL AND THE APPELLANT IS REQUIRED TO FOLLOW THE GUIDELINES MADE BY THE STATE GOVERNMENT FROM TIME TO TIME. HPL WAS FORMED NEAR HALDIA PORT IN THE DIS TRICT OF MIDNAPORE IN THE STATE OF WEST BENGAL AS A JOINT VENTURE AND THE GOVERNMENT O F WEST BENGAL IS A MAJOR SHAREHOLDER. ON THE BASIS OF REQUEST BY SAID HPL, T HE APPELLANT-COMPANY HAD GRANTED UNSECURED LOANS FOR THE PURPOSE OF LAYING GAS PIPE LINE AND OTHER INFRASTRUCTURAL ACTIVITIES TO THE EXTENT OF RS.175.00 CRORE AT INTE REST RATE OF 16% P.A. UP TO FEBRUARY 2002, THE APPELLANT HAD ACCOUNTED FOR INTEREST INCO ME TO THE EXTENT OF RS.19.62 CRORE. ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 37 HOWEVER, THE SAID INTEREST COULD NOT BE REALISED FR OM HPL AND THE SAID LOAN HAD BECOME DOUBTFUL OF RECOVERY AS PER THE APPELLANT. THE APPE LLANT WAS INSTRUCTED RECEIVED A LETTER DATED 12.10.2004 OF THE GOVERNMENT OF WEST BENGAL, THE EO-PROMOTER ,OF HPL INSTRUCTING THE APPELLANT-COMPANY TO REALIGN THE OU TSTANDING LOAN AND ACCRUED INTEREST AGGREGATING TO RS.194.62 CRORES INT 0 PREFERENCE SH ARES OF HPL. THUS DUE TO CIRCUMSTANCES BEYOND THE APPELLANT- COMPANY'S CONTR OL, IT HAD TO REALIGN THE OUTSTANDING LOAN AND ACCRUED INTEREST INTO INVESTME NT WHICH OTHERWISE HAD BEEN DOUBTFUL OF RECOVERY AS PER THE APPELLANT. 5. THE APPELLANT HAS NEVER RECEIVED ANY AMOUNT AS D IVIDEND ON SUCH PREFERENCE SHARES SUBSEQUENT TO THE CONVERSION OF UNSECURED LOAN INTO PREFERENCE SHARES, TILL DATE AS PER THE SUBMISSIONS OF THE APPELLANT. HPL IS INTO HEAVY LOSSES. THE PLEA OF THE APPELLANT IS THAT THE CONVERSION OF OUTSTANDING LOAN INTO PREFER ENCE SHARES WERE UNDER COMPULSION AND IT IS THE CONVERSION OF THE LOAN IN TO EQUITY O F A NON-REALISABLE LOAN. IT IS NOT AN INVESTMENT IN ACTUALITY BUT A DECISION UNDER COMPUL SION. THE APPELLANT FURTHER SUBMITTED THAT NO EXPENDITURE WHATSOEVER IS BEING INCURRED BY IT IN RELATION TO THE SAID PREFERENCE SHARES OF HPL AND IT HAS RESULTED IN TO A LOSS FROM INTEREST TO NO DIVIDEND. THE APPELLANT HAS CONVERTED ITS LOAN AMOUNT WHICH IS A BUSINESS I TEM INTO A CAPITAL ITEM BECAUSE OF COMPULSION ONLY. 6. RULE 8D READ WITH SECTION 14A IS APPLICABLE FROM THE ASSESSMENT YEAR 2008- 09 AND DOES NOT PROVIDE ANY EXCEPTION FOR EXPENDITURE @ % % ON THE TOTAL INVESTMENTS. THE ASSESSING OFFICER HAS ALSO NOT DISALLOWED PROPORTIO NATE INTEREST UNDER RULE 80(2)(II) READ WITH SECTION 14A. 7. THE PLEA OF THE APPELLANT THAT EXPENDITURE @1/2 % RELATING TO THE INVESTMENT IN HPL AMOUNTING TO RS.194.62 CRORES AS PREFERENCE SHARES OF HPL SHOULD NOT BE DISALLOWED IS ACCEPTED. THE APPELLANT HAS NOT MADE THE INVESTMENT S AS INVESTMENTS OF RS.194.62 CRORES INTO PREFERENCE SHARES OF HPL. IT HAS GIVEN IT AS A LOAN AND AS PER THE INSTRUCTIONS OF THE WEST BENGAL GOVERNMENT LOOKING INTO THE FINA NCIAL POSITION OF THE DEBTOR AND THE POLICY OF THE GOVERNMENT; THE SAME WAS CONVERTED AS PREFERENCE SHARES. THE DEBTOR IS STILL INCURRING LOSSES AND NO DIVIDEND WHAT SO EVER HAS BEEN RECEIVED EVER BY THE APPELLANT. THE INTEREST WAS ALSO NOT RECEIVED SINCE LONG AS DISCUSSED SUPRA. THEREFORE, IN THESE FACTS AND CIRCUMSTANCES WHERE A LOAN AS A COM PULSION IS CONVERTED INTO PREFERENCE SHARES WHICH HAS NOT YIELDED ANY DIVIDEND, THE PLEA OF THE APPELLANT ON EQUITY PRINCIPLE IS ACCEPTED THAT THE EXPENSES UNDER RULE 80(2)(III) SHOULD NOT BE DISALLOWED ON THE SAID AMOUNT OF RS.194.62 CRORES WORTH OF PREFERENCE SHAR ES OF HPL. THE APPELLANT HAS ACCEPTED THAT AN AMOUNT OF RS.63,22,363/- IS DISALL OWABLE UNDER RULE 80(2)(III) READ WITH SECTION 14A. THESE GROUNDS OF APPEAL ARE PARTLY AL LOWED. 93. BEFORE THE TRIBUNAL, THE REVENUES GROUND OF A PPEAL RELATES TO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT AS AGAINST DIVIDEND INCOME OF RS.41,02,847/-, THE ASSE SSEE OFFERED RS.55,92,89-6/- FOR DISALLOWANCE [INCREASED TO RS.63,22,363/- BEFORE C IT(A)]. THE AO DID NOT SPECIFY A SINGLE REASON AS TO WHY THE ASSESSEES CLAIM OF EXP ENDITURE WAS NOT ACCEPTABLE AND STRAIGHTAWAY EMBARKED UPON COMPUTING DISALLOWANCE U NDER RULE 8D. SUCH ACTION OF THE AO IS WHOLLY UNSUSTAINABLE IN VIEW OF THE JUDG MENTS OF THE HONBLE CALCUTTA HIGH COURT IN GA NO.2290 OF 2013, ITAT NO.157 OF 20 13, V SHRI ASHISH ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 38 JHUNJHUNWALA DECIDED ON JANUARY 8,2014 AND IN GA NO .3022 OF 2013,, ITAT NO.161 OF 2013, CIT V REI AGRO LTD. DECIDED ON DECEMBER 23 ,2013. 94. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE ARE O F THE VIEW THAT THE MANDATE OF RULE 8D(2)(III) OF THE RULES IN RESPECT OF DISALLOW ANCE OF OTHER EXPENSES INCURRED TO EARN TAX FREE INCOME IS AS FOLLOWS: (III) 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 O F THE TOTAL INCOME, AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 95. THAT PREFERENCE SHARES HAVE TO BE CONSIDERED T O DETERMINE THE AVERAGE VALUE OF INVESTMENTS IS NOT IN DISPUTE. THE FACT THAT A LOA N WAS CONVERTED INTO PREFERENCE SHARE CONSEQUENT TO DIRECTION OF STATE GOVERNMENT CAN BE NO GROUND NOT TO TREAT PREFERENCE SHARE AS INVESTMENT WHICH ARE LIKELY TO YIELD TAX F REE INCOME. THE DIVIDEND EARNED ON SUCH PREFERENCE SHARES WOULD CERTAINLY BE CLAIMED A S DEDUCTION. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CONCLUSI ONS OF THE CIT(A) CANNOT BE ACCEPTED. 96. THE LEARNED DR RELIED ON THE ORDER OF THE AO. THE LEARNED AR MADE SUBMISSIONS THAT EVEN THOUGH THE ASSESSEE HAS NOT FILED CROSS-O BJECTION ON THE ISSUE OF DISALLOWANCE U/S.14A OF THE ACT, YET THE ASSESSEE C OULD RAISE LEGAL ISSUE LEGAL ISSUE ON THE QUANTUM OF DISALLOWANCE. THE LAW BY NOW IS WEL L SETTLED THAT EVEN WITHOUT FILING A CO THE ASSESSEE IS ENTITLED TO URGE A GROUND BEFO RE THE TRIBUNAL ON ISSUES DECIDED BY THE CIT(A) AGAINST THE ASSESSEE. IT WAS HIS SUB MISSION THAT THE DISALLOWANCE U/S.14A OF THE ACT CANNOT BE MADE AS THERE WAS NO D IVIDEND RECEIVED ON THE PREFERENCE SHARES AND IN ANY EVENT THE DISALLOWANCE U/S.14A OF THE ACT CANNOT BE IN EXCESS OF THE DIVIDEND INCOME EARNED BY THE ASSESSE E. FOR THE PROPOSITION THAT WHEN THERE IS NO DIVIDEND INCOME NO DISALLOWANCE U/S.14A OF THE ACT IS CALLED FOR, THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANC E ON THE FOLLOWING DECISIONS: CIT VS. WINSOME TEXTILE INDUSTRIES LTD. 319 ITR 204 (P & H) CIT VS. CORRTECH ENERGY (P) LTD. 372 ITR 97 (GUJ.) CIT VS. SHIVAM MOTORS PVT. LTD. 545 TAXMANN.COM 262 (ALL) ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 39 ORDER DATED 26.2.2009 OF THE HONBLE BOMBAY HIGH CO URT IN ITA NO.110 OF 2009 IN THE CASE OF CIT VS. DELITE ENTERPRISE ORTDER DATED 12.9.2014 OF THE BANGALORE ITAT IN THE CASE OF M/S.ALLIANCE INFRASTRUCTURE PROJECTS PVT.LTD. ITA NO.220,2324, 1 043 AND 1217/BANG/2013. CIT VS. HOLCIM INDIA PVT. LTD. 57 TAXMANN.COM 28 (D EL) 97. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS AND PERUSED THE DECISIONS REFERRED TO BY THE LEARNED COUNSEL FOR TH E ASSESSEE. THE PROPOSITION LAID DOWN IN THE AFORESAID DECISION IS THAT IN THE ABSEN CE OF EXISTENCE OF TAX FREE INCOME THERE CAN BE NO DISALLOWANCE U/S.14A OF THE ACT. I N THE PRESENT CASE HOWEVER THERE WAS EXEMPT INCOME AND THEREFORE PROVISIONS OF SEC.1 4A OF THE ACT HAVE TO BE APPLIED. THE LEARNED COUNSEL FOR THE ASSESSEE HAS HOWEVER AR GUED THAT SINCE NO DIVIDEND WAS RECEIVED ON PREFERENCE SHARES THE INVESTMENT IN PRE FERENCE SHARE SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF DETERMINING AVERAGE V ALUE OF INVESTMENTS U/RULE 8D(2)(III) OF THE RULES. WE ARE UNABLE TO AGREE WI TH SUCH A PROPOSITION. THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE DO NOT LAY DOWN SUCH PROPOSITION OF BREAKING UP INDIVIDUAL INVESTMENTS AND SEE WHETH ER THOSE INVESTMENTS YIELDED TAX FREE INCOME AND EXCLUDE THOSE INVESMENTS FOR THE PU RPOSE OF WORKING OUT AVERAGE VALUE OF INVESTMENTS UNDER RULE 8D(2)(III) OF THE RULES. WE ARE HOWEVER OF THE VIEW THAT THE DISALLOWANCE UNDER SEC.14A OF THE ACT CANN OT BE IN EXCESS OF THE TAX FREE INCOME EARNED BY THE ASSESSEE DURING THE PREVIOUS Y EAR. WE THEREFORE HOLD THAT THE DISALLOWANCE U/S.14A OF THE ACT BE RESTRICTED TO TH E TAX FREE INCOME EARNED BY THE ASSESSEE. THE DIRECTION GIVEN ABOVE WILL RESULT IN RELIEF TO THE ASSESSEE THAN WHAT WAS GIVEN BY THE CIT(A). THE RELEVANT GROUNDS OF T HE REVENUE ARE ACCORDINGLY TREATED AS DISMISSED. C.O.NO. 104/KOL/2012 IN ITA NO.1283/KOL/2012: (BY A SSESSEE) 98. THE GROUNDS RAISED IN THE CO READS THUS: I. FOR THAT THE CIT(A) ERRED IN UPHOLDING THE DISA LLOWANCE OF THE ASSESSEES CLAIM FOR DEDUCTION OF RS.7,50,000/-, BEING 1/10 TH OF THE REGISTRATION FEE OF RS.75,00,000/- PAID IN 2000-01 FOR CHANGE IN OBJECT CLAUSE, AND IN HOLDING THAT IT WAS A CAPITAL EXPENDITURE OR WAS NOT COVERED BY SECTION 35D. ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 40 II. FOR THAT FURTHER AND IN ANY EVENT AND WITHOUT PREJUDICE TO THE AFORESAID, THE ASSESSEE IS ENTITLED TO DEPRECIATION IN RESPECT OF THE SAID EXPENDITURE. 99. THE ASSESSEE CLAIMED DEDUCTION OF A SUM OF RS . 7,50,0001- WHICH WAS 10% OF AMORTISATION OF EXPENSES FOR CHANGE IN OBJECT CLAUS E THE ASSESSEE CONSIDERED AS REVENUE EXPENDITURE AND CLAIMED AS DEDUCTION U/S.35 D OF THE ACT. IN THE FINANCIAL YEAR 2000-01, A SUM OF RS. 75,00,0001- WAS PAID ON ACCOUNT OF REGISTRATION FEES FOR CHANGE IN OBJECT CLAUSE AND THE SAME WAS DEBITED UN DER THE HEAD 'MISCELLANEOUS EXPENDITURE' AND 1/10TH OF THE SAID AMOUNT, I. E., RS. 7,50,000/- WAS AMORTISED EVERY YEAR AND THE SAME WAS CLAIMED AS REVENUE EXPENDITUR E IN RESPECTIVE YEAR'S INCOME. IN THE ASSESSMENT OF EARLIER ASSESSMENT YEARS UP TO 2006-07, THE LD. ASSESSING OFFICERS HAD ACCEPTED THE SAME AND ALLOWED THE DEDU CTION- IN COMPUTING THE TOTAL INCOME. IN THE PRESENT AY 2008-09, THE AO DID NOT A CCEPT THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE EXPENDITURE IN QUESTION WAS CAPITAL EXPENDITURE. 100. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT TH E CLAIM OF THE ASSESSEE HAD ALL ALONG BEEN ACCEPTED BY THE DEPARTMENT AND THEREFORE , ON THE SAME SET OF FACTS, THE LD. ASSESSING OFFICER CAN NOT DISALLOW THE CLAIM. THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OFCITVS . HINDUSTHAN MOTORS LTD [192 ITR 619} WHEREIN IT WAS HELD THAT IT IS TRUE THAT T HERE IS NO RES JUDICATA BUT THERE MUST BE SOME SUBSTANTIAL GROUND FOR ONE INCOME TAX OFFIC ER TO DIFFER FROM ANOTHER INCOME TAX OFFICER IN THE EARLIER ASSESSMENT YEAR. RELIAN CE WAS ALSO PLACED ON THE DECISION IN THE CASE OF RADHASWAMI SATSANG VS. CIT [193 ITR 321} WHEREIN THE HON 'BLE SUPREME COURT OBSERVED AT PAGE 329 THAT 'WE ARE AWA RE OF THE FACT, STRICTLY SPEAKING RES JUDICATA DOES NOT APPLY FOR INCOME TAX PROCEEDI NG. AGAIN, EACH ASSESSMENT YEAR BEING UNIQUE, WHAT IS DECIDED IN ONE YEAR MAY NOT A PPLY IN THE FOLLOWING YEAR BUT WHEN' A FUNDAMENTAL ASPECT PERMEATING THROUGH THE D IFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTI ES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NO T BE AT ALL APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. ' 100. THE CIT(A) HOWEVER UPHELD THE ORDER OF THE A O, OBSERVING AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF TH E ASSESSING OFFICER IN THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. THE EXPENDITURE INCURRED BY ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 41 ASSESSEE IS NOT KIND OF EXPENDITURE ALLOWED U/S 350 OF THE INCOME TAX ACT, 1961. THE EXPENDITURE WAS INCURRED ON CHANGE OF OBJECT CLAUSE WHICH IS A CAPITAL EXPENDITURE. THE PROVISIONS OF SECTION 350 (I) (II) APPLY ONLY I N CONNECTION WITH SETTING UP THE NEW UNIT AND THE SAID CONDITION AND CIRCUMSTANCES DO NO T APPLY IN THE CASE OF THE APPELLANT. THEREFORE, PROVISIONS OF SECTION 35D ARE NOT APPLICABLE. '14. THE APPELLANT HAS CLAIMED THAT THE SAID EXPEND ITURE WAS ALLOWED IN ASSESSMENT YEAR 2006-07 BY THE ASSESSING OFFICER. THE PRINCIPA L OF RES JUDICATA DOES NOT APPLY IN INCOME TAX OF THE SAID EXPENDITURE HAD BEEN DISALLO WED BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2007-08 AND THEREFORE THE PRINCIPAL OF RULE OF CONSISTENCY IN ASSESSMENT YEAR 2008-09 IS ALSO NOT APPLICABLE. '15. MY LD. PREDECESSOR IN THE ASSESSMENT YEAR 2007 -08 VIDE APPEAL NO.880/CIT(A)NII2009-10/CIR-6/KOL DATED04.03.2011 A LSO DISALLOWED THE SAID EXPENDITURE BY OBSERVING IN HIS APPELLATE ORDER AS FOLLOWS:- 'HERE I FIND THAT THIS AMORTIZED EXPENDITURE IS BEI NG CLAIMED BY THE ASSESSEE FOR THE REGISTRATION FEES PAID FOR CHANGE IN THE OBJECT CLAUSE OF THE ASSESSEE COMPANY. GENERALLY THIS TYPE OF EXPENDITURE IS CAPI TAL EXPENDITURE SINCE THE ASSESSEE DERIVES LONG TERM BENEFIT FROM IT. BEING A CAPITAL EXPENDITURE SUCH EXPENDITURE IS NOT ALLOWABLE UNDER GENERAL CLAUSE O F SECTION 37. THIS EXPENDITURE COULD BE ALLOWED ONLY IF IT SATISFIES T HE CONDITION PRESCRIBED ULS 35D. ULS 35D AMORTIZED EXPENDITURE FOR EXPENDITURE INCURRED AFTER COMMENCEMENT OF BUSINESS CAN BE ALLOWED ULS 35D(1) (II) ONLY TO AN INDUSTRIAL UNDERTAKING. I FIND THAT THIS EXPENDITURE WAS INCUR RED AFTER COMMENCEMENT OF BUSINESS I.E. IN F. Y 2000-01. SINCE THE ASSESSEE I S NOT AN INDUSTRIAL UNDERTAKING THEREFORE IT CANNOT BE ALLOWED AMORTIZED AMOUNT FOR AN EXPENDITURE WHICH IS INCURRED AFTER COMMENCEMENT OF BUSINESS. THEREFORE, 1 AM OF THE OPINION THAT THIS AMOUNT TO RS. 7,50,0001- CANR.OT BE ALLOWED TO THE ASSESSEE. AS REGARDS THE ARGUMENT OF THE ASSESSEE THAT THIS EXPENDITURE SHOU LD BE ALLOWED BECAUSE IT HAS BEEN ALLOWED IN EARLIER ASSESSMENT YEARS, I FEEL TH AT UNDER THE INCOME TAX LAW EACH ASSESSMENT YEAR IS DIFFERENT AND IT IS NOT NEC ESSARY TO FOLLOW A PRECEDENCE YEAR AFTER YEAR IF IT IS NOT AS PER LAW. 16. IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULL Y FOLLOWING THE JUDGMENT OF MY LD. PREDECESSOR DISALLOWANCE OF RS.7,50,000/- IS C ONFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. 101. WE HAVE HEARD THE RIVAL SUBMISSIONS. IN GUJA RAT NARMADA VALLEY FERTILIZERS LTD. (2013) 215 TAXMAN 0072, THE HONBLE GUJARAT HI GH COURT HELD ON IDENTICAL FACTS THAT THE DISALLOWANCE OF EXPENSES U/S.35D OF THE ACT WHICH IS TO BE ALLOWED OVER A PERIOD OF 10 YEARS CANNOT BE DISALLOWED IN THE 7 TH YEAR. IN THAT CASE, PRELIMINARY EXPENSES WERE AMORTIZED CLAIMED AS DEDUCTION U/S. 3 5D. THE SAME WAS ALLOWED IN THE FIRST YEAR AND THEREAFTER FOR THE FOLLOWING 6 AYS. IN THE 7 TH AY, THE AO RESTRICTED DEDUCTION ON GROUND THAT ONLY ELIGIBLE EXPENSES WER E ALLOWED TO BE SPREAD OVER U/S. ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 42 35D AND THEREFORE, EXPENSES ONLY TO EXTENT THAT HAD NEXUS TO ELIGIBLE PROJECTS WERE ADMISSIBL. HOWEVER, TRIBUNAL, NOTED THAT IN LAST S EVEN YEARS, NO SUCH DISALLOWANCES WERE MADE AND DIRECTED SUCH BENEFIT TO BE GRANTED. ON APPEAL BY THE REVENUE, THE HONBLE GUJARAT HIGH COURT HELD, SINCE LAST SEVERAL YEARS, AO HAD GRANTED SUCH CLAIM ON SAME CONSIDERATION. THE HONBLE HIGH COURT HELD THAT FOLLOWING RULE OF CONSISTENCY, TRIBUNAL THEREFORE, CORRECTLY HELD THA T SUCH CLAIM COULD NOT HAVE BEEN SUDDENLY DISALLOWED AND THE REVENUES APPEAL WAS DI SMISSED. IN THE PRESENT CASE ALSO THE ALLOWANCE OF EXPENSES HAS BEEN MADE IN THE PAST AND IT WAS SOUGHT TO BE DISTURBED FOR THE FIRST TIME IN AY 07-08. SUCH ACTION CANNOT BE SUSTAINED. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT WE HOLD THAT THE DISALLOWANCE U/S.,35D OF THE ACT BE DELETED. THE C ROSS OBJECTION IS ALLOWED. 102. IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED. WHILE THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. 103. THE RESULT IN THE VARIOUS APPEALS MAY BE SUMM ED UP AS FOLLOWS: SL.NO./AY ITA NO. APPEAL BY ASSESSEE/REVENUE RESULT 1. (2001-02) ITA NO.388/KOL/08 ASSESSEE ALLOWED 2. (2001-02) ITA NO.464/KOL/08 REVENUE DISMISSED 3. (2003-04) ITA NO.389/KOL/08 ASSESSEE PARTLY ALLOW ED 4. (2003-04) ITA NO.463/KOL/08 REVENUE DISMISSED 5. (2004-05) ITA NO.580/KOL/08 ASSESSEE ALLOWED 6. (2004-05) ITA NO.568/KOL/08 REVENUE DISMISSED 7. (2005-06) ITA NO.1080/KOL/08 REVENUE DISMISSED 8. (2006-07) ITA NO.324/KOL/12 ASSESSEE DISMISSED 9. (2006-07) ITA NO.604/KOL/12 REVENUE ALLOWED 10. (2007-08) ITA NO.984/KOL/11 ASSESSEE ALLOWED FOR SP 11. (2007-08) ITA NO.1028/KOL/11 REVENUE ALLOWED FOR SP 12. (2008-09) ITA NO.1083/KOL/12 REVENUE DISMISSED, 13. (2008-09 C.O.104/KOL/12 IN ITA NO.1083/KOL/12 ASSESSEE ALLOWED ORDER PRONOUNCED IN THE COURT ON 16.10.2015. SD/- SD/- [M.BALAGANESH] [N.V.VASUDEVAN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 16.10.2015. R.G.(.P.S.) ITA NO.388&464/KOL/2008 W.B.INFRASTRUCTURE DEVELOPMENT FINAN CE CORPN. A.YR.2001-02 43 COPY OF THE ORDER FORWARDED TO: 1 . WEST BENGAL INFRASTRUCTURE DEVELOPMENT FINANCE CORP ORATION LTD., MANGALAM BUILDING A BLOCK, 1 ST FLOOR, 24, HEMANTA BASU SARANI, KOLKATA-700001. 2 A.C.I.T., CIRCLE-6, KOLKATA. 3 . CIT(A)-VI, KOLKATA 4. CIT II, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES