Shriram Transport Finance Co. Ltd., CHENNAI V. ACIT, CHENNAI

CO 52/CHNY/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6567 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 29-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R SIVARAMAN ITA
• Keywords: Capital asset; Business income; Earning of tax free income; Bad and doubtful debts; Royalty expenses; Commercial expediency; Revised return; Revenue expenditure
• Section: 43B; 14A; 115JB; 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO. 319/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) THE ACIT COMPANY CIRCLE VI(2) CHENNAI VS M/S SHRIRAM CITY UNION FINANCE COMPANY LTD MOOKAMBIKA COMPLEX 3 RD FLOOR, LADY DESIKA ROAD MYLAPORE, CHENNAI - 4 [PAN AAACS7703H ] (APPELLANT) (RESPONDENT) C.O. NO. 51/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) M/S SHRIRAM CITY UNION FINANCE COMPANY LTD MOOKAMBIKA COMPLEX 3 RD FLOOR, LADY DESIKA ROAD MYLAPORE, CHENNAI - 4 VS THE ACIT COMPANY CIRCLE VI(2) CHENNAI (CROSS OBJECTOR) (RESPONDENT) I.T.A NO. 320/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) THE ACIT COMPANY CIRCLE VI(2) CHENNAI VS M/S SHRIRAM TRANSPORT FINANCE COMPANY LTD MOOKAMBIKA COMPLEX 3 RD FLOOR, LADY DESIKA ROAD MYLAPORE, CHENNAI - 4 [PAN AAACS7018R ] (APPELLANT) (RESPONDENT) ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 2 -: C.O. NO. 52/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) M/S SHRIRAM TRANSPORT FINANCE COMPANY LTD MOOKAMBIKA COMPLEX 3 RD FLOOR, LADY DESIKA ROAD MYLAPORE, CHENNAI - 4 VS THE ACIT COMPANY CIRCLE VI(2) CHENNAI (CROSS OBJECTOR) (RESPONDENT) I.T.A.NO. 22/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) M/S SHRIRAM CITY UNION FINANCE LTD NO.123, ANGAPPA NAICKEN STREET CHENNAI 600 001 VS THE ADDL. CIT COMPANY RANGE VI CHENNAI (APPELLANT) (RESPONDENT) I.T.A.NO. 23/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) M/S SHRIRAM TRANSPORT FINANCE COMPANY LTD MOOKAMBIKA COMPLEX NO.4 LADY DESIKA ROAD MYLAPORE, CHENNAI 600004 VS THE ADDL. CIT COMPANY RANGE VI CHENNAI (APPELLANT (RESPONDENT) DEPARTMENT BY : SHRI SHAJI P. JACOB, SR.DR ASSESSEE BY : SHRI R.SIVARAMAN, ADVOCATE ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 3 -: DATE OF HEARING : 06-09-2011 DATE OF PRONOUNCEMENT : 10-10-2011 O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THE ABOVE CAPTIONED APPEALS AND CROSS OBJECTION S PERTAINING TO SHRIRAM GROUP OF COMPANIES WERE HEARD TOGETHER, THE REFORE, FOR THE SAKE OF CONVENIENCE AND BREVITY, WE PROCEED TO DECI DE THEM BY A COMMON ORDER. I.T.A.NO. 319/MDS/2011 & C.O.51/MDS/2011 M/S SHRI RAM CITY UNION FINANCE COMPANY LTD. 2. THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE, FOR ASSESSMENT YEAR 2007-08 ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) DATED 11.11.2010. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THE ORDER OF THE LEARNED CIT (A) IS CONTRARY T O LAW AND FACTS OF THE CASE. 2.1. THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW THE ROYALTY EXPENSES OF ` 79,24,250/- AS REVENUE EXPENDITURE. 2.2 HAVING REGARD TO THE HON'BLE SUPREME COURT DECI SION IN THE CASE OF M/S JONAS WOODHEAD & SONS (INDIA) LTD V S CIT (224 ITR 342) THE CIT(A) OUGHT TO HAVE CONFIRMED TH E ACTION OF THE ASSESSING OFFICER. 3.1 THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE A O TO RESTRICT THE DISALLOWANCE U/S 14A TO ` 4,23,548/- AS AGAINST ` 6,23,548/- DISALLOWED BY THE AO UNDER RULE 8D. ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 4 -: 3.2 THE LEARNED CIT(A) RELYING ON THE DECISION OF T HE MUMBAI HIGH COURT IN THE CASE OF MIS GODREJ BOYCE MFG CO H ELD THAT RULE 8D WAS APPLICABLE FROM A.Y 2008-09 ONLY. 3.3 IT IS SUBMITTED THAT THE DECISION OF THE HON'B LE HIGH COURT RELIED UPON BY THE CIT(A) HAS NOT BECOME FINAL AND IS BEING APPEALED AGAINST. 4.1 THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE AO TO DELETE THE DISALLOWANCE OF ` 3,38,948/- BEING PROVISION TO EX- GRATIA. 4.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE NON- STATUTORY PAYMENT IS A PROVISION WHICH CANNOT BE AL LOWED UNLESS INCURRED DURING THE YEAR. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCE D AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. GROUND NO.1 IS GENERAL NATURE WHICH REQUIRES NO SPE CIFIC ADJUDICATION. 4. THE ISSUE RAISED VIDE GROUND NOS.2.1 AND 2.2 IS STA TED TO BE COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESS EES OWN CASE DATED 16.7.2009 IN I.T.A.NO. 236/MDS/2009. A COPY OF THI S ORDER IS PLACED ON RECORD. THE ROYALTY EXPENSES OF ` 79,24,250/- ARE BEING HELD AS REVENUE EXPENDITURE BY FOLLOWING THE TRIBUNAL ORDER . THE ASSESSEE HAD PAID ROYALTY OF ` 79,24,250/- TO M/S SHRIRAM CHITS & INVESTMENTS PVT. LTD. FOR USING ITS LOGO. THE ASSESSING OFFICE R DISALLOWED THIS PAYMENT TOWARDS ROYALTY ON THE GROUND THAT IT WAS F OR ACQUIRING ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 5 -: INTANGIBLE ASSET ALTHOUGH THE ROYALTY FOR USE OF LO GO OF THE HOLDING COMPANY WAS PAYABLE ONLY FOR ONE YEAR. THE ASSESSI NG OFFICER FOUND THE MODE AND METHODOLOGY OF PAYMENT AND DURATION OF PAYMENT AS IRRELEVANT AND TREATED THIS EXPENDITURE AS CAPITAL IN NATURE. BUT THE LD. CIT(A), AFTER RELYING ON VARIOUS DECISIONS, HAS FIN ALLY FOLLOWED THE TRIBUNAL ORDER(SUPRA) AND HAS ALSO DISCUSSED THE D ECISION OF HON'BLE SUPREME COURT RENDERED IN THE CASE OF CIT VS WAVIN (INDIA) LTD, 236 ITR 314, IN WHICH THE DECISION OF HON'BLE MADRAS HI GH COURT RENDERED IN THE SAME CASE AND REPORTED IN 143 ITR 281, HAS B EEN UPHELD BY HOLDING AS UNDER: THE TECHNICAL INFORMATION GIVEN TO THE INDIAN COMPA NY WAS NON EXCLUSIVE AND NON TRANSFERABLE. IN OTHER W ORDS, THIS IS NOT AN OUT AND OUT SALE OF TECHNICAL KNOW H OW. THE APPELLANT WAS MERELY GIVEN A NON EXCLUSIVE AND NON TRANSFERABLE RIGHT OF USER OF THE TECHNICAL INFORMA TION. EXPENDITURE IN THESE FACTS CANNOT BE SAID TO BE FOR ACQUISITION OF ANY ASSET AT ALL. 5. THEREFORE, WE ARE IN AGREEMENT WITH THE LD. CIT(A) S FINDING. THE DECISION OF HON'BLE SUPREME COURT REN DERED IN THE CASE OF M/S JONAS WOODHEAD & SONS(INDIA) LTD VS CIT, 22 4 ITR 342, ON WHICH REVENUE HAS RELIED WAS RENDERED ON ENTIRELY DIFFERENT FACTS, AND IS, THEREFORE, DISTINGUISHABLE. WHEN THE DECI SION OF HON'BLE JURISDICTIONAL HIGH COURT ON IDENTICAL FACTS STANDS AFFIRMED BY THE APEX ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 6 -: COURT, SUPPORTS THE CLAIM OF THE ASSESSEE AND WE AR E BOUND TO FOLLOW THAT DECISION. CONSEQUENTLY, GROUND NOS.2.1 AND 2. 2 OF THIS APPEAL STAND DISMISSED. 6. THE NEXT ISSUE OF THIS APPEAL IS REGARDING DISALLOW ANCE U/S 14A. THE ASSESSING OFFICER HAS DISALLOWED ` 6,23,548/- AS AGAINST WHICH THE LD. CIT(A) HAS RESTRICTED IT TO ` 4,23,548/-. WHILE DOING OS, THE LD. CIT(A) HAS FOLLOWED THE DECISION OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ BOYCE MFG CO, FOR HO LDING THAT RULE 8D WAS APPLICABLE FROM ASSESSMENT YEAR 2008-09 ONWARDS AND NOT BEFORE. THE ONLY REASON GIVEN TO DISPUTE THIS DELE TION IS THAT THE HON'BLE BOMBAY HIGH COURTS DECISION HAS NOT YET BE COME FINAL. BUT IN OUR OPINION, THIS IS NOT A VALID REASON FOR CHALLEN GING THE FINDING OF THE LD. CIT(A) WHO HAS FOLLOWED A VALID AND EXISTING PR ECEDENT WHICH HAS NOT BEEN OVERRULED. THERE IS NO CONTRARY DECISION OF THE JURISDICTIONAL HIGH COURT ON THIS ISSUE. THE ASSESSEE-COMPANY HAD GIVEN THE WORKING OF EXPENSES AMOUNTING TO ` 4,08,548/- BEING THE INTEREST EXPENDITURE ON BORROWED FUNDS TO EARN THE EXEMPT IN COME AND OFFERED A SUM OF ` 15,000/- TOWARDS INDIRECT COST TOTALING TO ` 4,23,548/- FOR EARNING THE EXEMPT DIVIDEND INCOME. THE ASSESSING OFFICER HAS ACCEPTED THE WORKING FOR THE INTEREST E XPENDITURE BUT HAS COMPUTED THE INDIRECT EXPENSES RELATABLE TO EXEMPT INCOME BY ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 7 -: RESORTING TO THE PROVISIONS OF RULE 8D(III) OF THE INCOME TAX RULES WHICH WAS NOTIFIED ON 24.3.2008. AS WE HAVE DISCUS SED AND FOUND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE AS SESSEE BY THE DECISION OF HON'BLE BOMBAY HIGH COURT (SUPRA). THE REVENUE COULD NOT BRING TO OUR NOTICE ANY CONTRARY DECISION OF EI THER THE HON'BLE JURISDICTIONAL HIGH COURT OR OF HON'BLE SUPREME COU RT, THEREFORE, WE DO NOT INTERFERE IN THIS FINDING OF THE LD. CIT(A) AND CONFIRM THE SAME. 7. THE NEXT ISSUE OF THIS APPEAL IS REGARDING DELETION OF DISALLOWANCE OF ` 3,38,948/- BEING PROVISION FOR EX-GRATIA. THE FAC TS OF THIS ISSUE ARE THAT THE ASSESSEE-COMPANY HAD MADE A PROVISION OF ` 10,85,030/- TOWARDS EX-GRATIA FOR PAYMENT TO EMPLOY EES WHO ARE NOT COVERED BY THE PAYMENT OF BONUS ACT, AS AN INCENTIV E/REWARD AND TO MAINTAIN HARMONIOUS INDUSTRIAL RELATIONS. OUT OF T HIS TOTAL AMOUNT, AN AMOUNT OF ` 7,46,802/- WAS PAID AND THE BALANCE AMOUNT OF ` 3,38,948/- REMAINED PAYABLE TO THOSE WHO HAD RENDER ED THEIR SERVICES IN THAT YEAR BUT HAVE LEFT SUBSEQUENTLY. SINCE IT WAS NOT CLAIMED BY THEM TILL THE END OF THE NEXT YEAR, THE ASSESSEE-CO MPANY HAS WRITTEN BACK THE AMOUNT IN THE ACCOUNTS FOR THE YEAR ENDED 31.3.2008 AND HAS INCLUDED IT AS INCOME OF THAT YEAR. THE CASE OF TH E ASSESSEE IS THAT BECAUSE THIS AMOUNT IS AN ASCERTAINED LIABILITY AS ON 31.3.2007 AND IT IS NOT AN ITEM COVERED U/S 43B OF THE ACT, THIS CLAIM IS ALLOWABLE U/S 37 ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 8 -: OF THE ACT. IN THIS REGARD, THE ASSESSEE RELIED O N THE DECISION OF ON APEX COURT RENDERED IN THE CASE OF ROTORK CONTROLS INDIA P. LTD VS CIT, 314 ITR 62, WHEREIN IT HAS BEEN HELD THAT ADDITION MADE IN THE ASSESSMENT FOR PROVISION MADE TOWARDS WARRANTY CLA IMS CANNOT BE SUSTAINED. THE LD. CIT(A) HAS DELETED THIS ADDITIO N BASED ON THIS REASONING. 8. BEFORE US, SIMILAR ARGUMENTS WERE ADVANCED. WE ARE CONVINCED BY THE REASONING GIVEN BY THE LD. CIT(A) AS WELL AS BY THE LD.AR. WE, THEREFORE, DO NOT FIND ANY REASON TO IN TERFERE IN THE FINDING OF THE LD. CIT(A). 9. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DIS MISSED. 10. THE CROSS OBJECTION FILED BY THE ASSESSEE SUPPORTS THE ORDER OF THE LD. CIT(A) BUT PINPOINTS SMALL CORRECTION IN THE COMPUTATION. THE GROUNDS GIVEN BY THE ASSESSEE IN ITS CROSS OBJE CTION IS AS UNDER: DISALLOWANCE U/S 14A: 1. THE LEARNED CIT 'A' OUGHT TO HAVE HELD THAT THE ASSESSING OFFICER HAS NOT ESTABLISHED THAT THE PROV ISIONS OF SEC.14A(2) ARE ATTRACTED ON THE FACTS OF THE CASE. 2. IN PARA 7 OF THE APPELLATE ORDER RELATING TO DIS ALLOWANCE OF EXPENSES U/S.14A INCURRED FOR EARNING EXEMPT INCOME , THE LEARNED CIT 'A' HAS RESTRICTED THE DISALLOWANCE TO ` 4,23,548/-. HE OUGHT TO HAVE FIXED THE FIGURE AT ` 3,73,548/- AS UNDER: ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 9 -: DISALLOWANCE TOWARDS DIRECT COST AS ACCEPTED BY CIT (A) ` 4,08,548 DISALLOWANCE TOWARDS INDIRECT COST AS ACCEPTED BY CIT (A) ` 15,000 TOTAL DISALLOWANCE AS SUSTAINED BY CIT (A) ` 4,23,548 LESS: AMOUNT ALREADY DISALLOWED BY THE ASSESSEE IN THE INCOME TAX ADJUSTMENT STATEMENT FILED ALONG WITH THE RETURN OF INCOME ` 5,000 NET DISALLOWANCE TO BE SUSTAINED BY CIT (A) ` 3,73,548 IT IS THEREFORE, PRAYED THAT THE HON'BLE TRIBUNAL MAY BE PLEASED TO FIX THE AMOUNT TO BE DISALLOWED AT ` 3,73,548/- AGAINST ` 4,23,548/- FIXED BY THE LEARNED CIT (A). 11. AFTER CONSIDERING THE SUBMISSION ON THIS ISSUE, WE DIRECT THE ASSESSING OFFICER TO FINALIZE THE AMOUNT TO BE DISA LLOWED AT ` 3,73,548/- AS AGAINST ` 4,23,548/- FIXED BY THE LD. CIT(A), AS THERE IS AN ERROR AS ILLUSTRATED BY THE ABOVE WORKING. ACCO RDINGLY, THE CROSS OBJECTION STANDS ALLOWED. I.T.A.NO. 320/MDS/2011 & C.O.52/MDS/2011 M/S SHRI RAM TRANSPORT FINANCE COMPANY LTD. 12. THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION B Y THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) DATED 11.11.2010, PERTAINING TO ASSESSMENT YEAR 2007-08. ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 10 - : 13. THE GROUNDS RAISED IN REVENUES APPEAL ARE AS UNDER : 1. THE ORDER OF THE LD. CIT(A) IS CONTRARY TO LA W AND FACTS OF THE CASE. 2.1. THE LEARNED CIT(A) HAS ERRED IN DIRECTING TH E AO TO RESTRICT THE DISALLOWANCE U/S 14A TO ` 12,64,541/-. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH OUGH THE HON'BLE HIGH COURT OF BOMBAY HAS IN THE CASE OF M/S GODREJ & BOYCE (328 ITR 81 ) HAS HELD THAT RULE 80 DOES NOT OPERATE RETROSPECTIVELY, THE HON'BLE TRIBUNAL O F MUMBAI HAS STATED IN THE CASE OF YOGESH SHAH VS ACI T ((2010) 8.TAXMANN.COM23 ) IT IS FOR THE ASSESSING O FFICER TO DETERMINE WHETHER THE ASSESSEE HAD INCURRED EXPENDITURE FOR EARNING EXEMPT INCOME. HAVING REGAR D TO THIS DECISION THE CIT(A) OUGHT TO HAVE CONFIRMED TH E ORDERS OF THE ASSESSING OFFICER. 2.3 WITHOUT PREJUDICE TO THE ABOVE IT IS SUBMITTED THAT THE DECISION OF THE HON'BLE HIGH COURT RELIED UPON BY T HE CIT(A) HAS NOT BECOME FINAL AND APPEAL TO HON'BLE SUPREME COURT HAS BEEN FILED BY THE DEPARTMENT. 2.4 THE LEARNED CIT(A) ERRED IN DIRECTING THE AO T O RESTRICT THE DISALLOWANCE U/S 14A TO ` 12,64,541/- WHEN THAT THE ASSESSEE ITSELF HAD DISALLOWED ` 12,79,541/- 3.1 THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE A O TO RESTRICT THE DISALLOWANCE OF DIMINUTION ON VALUE OF INVESTMENTS TO ` 9,36,400/- AS AGAINST ` 15.56,5351- CLAIMED BY THE ASSESSEE. 3.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE SAME AMOUNT HAS BEEN HELD AS INVESTMENTS ONLY AND NOT AS STOCK IN TRADE. 4.1 THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE A SSESSING OFFICER TO VERIFY THE APPELLANT'S CLAIM THAT THE AM OUNT CREDITED TO P&L A/C OF ` 1,69,96,159 BEING THE VALUE OF INVESTMENTS WRITTEN OFF ALLOWED SINCE THE SAME HAS BEEN TAXED IN THE EARLIER YEARS 4.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HAS NOT MADE SUCH A CLAIM EITHER IN ITS RE TURN OF INCOME OR IN A REVISED RETURN. ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 11 - : 4.3 HAVING REGARD TO THE DECISIONS OF THE HON'BLE S UPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. V. CIT (28 4 ITR 323) AND THE HON'BLE TRIBUNAL, MUMBAI BENCH IN THE CASE OF JAY BHARAT CO-OP HOUSING SOCIETY (125 ITO 90), THE CIT( A) OUGHT TO HAVE CONFIRMED THE A.O'S ACTIONS. 5.1 THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE AS SESSEE APPEAL AGAINST THE ASSESSING OFFICER REJECTING THE ASSESSEE CLAIM TO ALLOW THE SUM OF ` 15,02,237 BEING PROVISION FOR DERIVATIVE CONTRACT WHICH WAS ADDED BACK BY THE ASS ESSEE IN THE R/I. 5.2 THE LD. CIT(A) FAILED TO APPRECIATE THAT LOSS ON MARKET TO MARKET BASIS IS A NOTIONAL LOSS WHICH WOULD BE CONTINGENT IN NATURE AND CANNOT BE ALLOWED TO BE SET OFF AGAIN ST TAXABLE INCOME. 5.4 HAVING REGARD TO THE DECISIONS OF THE HON'BLE S UPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. V. CIT (28 4 ITR 323) AND THE HON'BLE TRIBUNAL, MUMBAI BENCH IN THE CASE OF JAY BHARAT CO-OP HOUSING SOCIETY (125 ITO 90), THE CIT(A) OUGHT TO HAVE CONFIRMED THE A.O'S ACTIONS. 6 FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 14. IN THE CROSS OBJECTION, THE ASSESSEE HAS RAISED FOL LOWING GROUNDS: DISALLOWANCE U/S 14A: 1. THE LEARNED CIT 'A' OUGHT TO HAVE HELD THAT THE ASSESSING OFFICER HAS NOT ESTABLISHED THAT THE PROV ISIONS OF SEC.14A(2) ARE ATTRACTED ON THE FACTS OF THE CASE. 2. THE CITA ERRED IN RESTRICTING THE ADDITION AT ` 12,64,541/-. HE OUGHT TO HAVE RESTRICTED THE ADDITION AT ` 12,49,541 AS WORKED OUT BELOW: ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 12 - : AMOUNT DISALLOWED BY THE ASSESSING OFFICER (INCLUSIVE OF ` 52,99,708 DISALLOWED BY APPLYING RULE 8D(2)(III) AS PER WORKING IN PAGE 13 OF THE ASSESSMENT ORDER) ` 65,49,249 LESS: CONSEQUENT IN CITA FINDING THAT RULED 8D(2)(III) IS NOT APPLICABLE, AMOUNT TO BE DELETED ` 52,99,709 NET DISALLOWANCE THAT HAS TO BE SUSTAINED BY CIT (A) ` 12,49,541 IT IS THEREFORE, PRAYED THAT THE HON'BLE TRIBUNAL MAY BE PLEASED TO FIX THE AMOUNT TO BE DISALLOWED AT ` 12,49,541/- AGAINST ` 12,49,541/- FIXED BY THE LEARNED CIT (A). 15. IN REVENUES APPEAL, GROUND NO.1 IS GENERAL IN NATU RE, REQUIRING NO SPECIFIC ADJUDICATION. 16. GROUND NOS.2.1 TO 2.4 ARE IN RELATION TO THE DIRECT ION GIVEN BY THE LD. CIT(A) TO THE ASSESSING OFFICER TO RESTR ICT THE DISALLOWANCE U/S 14A TO ` 12,64,541/- WHICH WAS DONE BECAUSE RULE 8D WAS NOT APPLICABLE TO ASSESSMENT YEAR 2007-08. 17. AS WE HAVE TAKEN A DECISION IN EARLIER APPEAL IN FA VOUR OF THE ASSESSEE BY HOLDING THAT RULE 8D WAS EFFECTIV E FROM ASSESSMENT YEAR 2008-09, WE CANNOT ALLOW THESE GROUNDS. THERE FORE, GROUND NOS. 2.1 TO 2.4 STAND DISMISSED. ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 13 - : 18. THE NEXT ISSUE RAISED VIDE GROUND NOS.3.1 TO 3.2 I S IN RELATION TO RESTRICTION OF DISALLOWANCE OF DIMINU TION ON VALUE OF INVESTMENTS TO ` 9,36,400/- AS AGAINST ` 15,56,535/- CLAIMED BY THE ASSESSEE. THE FACTS OF THIS ISSUE ARE THAT THE ASS ESSING OFFICER HAS DISALLOWED ` 15,56,535/- BEING DIMINUTION IN VALUE OF INVESTMEN TS CLAIMED ON THE GROUND THAT THE COMPANY HAS CLEARLY CLASSIFIED THE ASSETS UNDER INVESTMENTS AND THAT THE DIVIDEND IN COME THEREFROM HAS BEEN CLAIMED AS EXEMPT U/S 10(34) AND THE CLAIM IS CAPITAL IN NATURE. THE ASSESSEE FURNISHED THE DETAILS OF THIS AMOUNT AS UNDER: A) GOVERNMENT OF INDIA LOAN 2007 ` 5,73,030 B) 7.48% GOVERNMENT OF INDIA LOAN 2012 ` 46,305 C) 12% GOVERNMENT OF INDIA LOAN 2008 ` 800 D) NATIONAL SAVINGS CERTIFICATES ` 400 E) GUJARAT STATE FINANCIAL CORPORATION LTD ` 9,36,000 19. THE CASE OF THE ASSESSEE IS THAT ITEMS (A) TO (D) M ENTIONED ABOVE ARE GOVERNMENT SECURITIES HELD BY THE ASSESSE E TO SATISFY THE STATUTORY LIQUIDITY RATIO REGULATIONS FOR NON-BANKI NG FINANCIAL COMPANIES PRESCRIBED BY RESERVE BANK OF INDIA AND H ENCE, FORM PART OF ITS STOCK-IN-TRADE. IT WAS CONTENDED THAT THE S TOCKS OF GUJARAT STATE FINANCIAL CORPORATION ARE NOT HELD AS CAPITAL ASSET SINCE THEY HAVE TO BE ACQUIRED TO OBTAIN LOANS FROM THE STATE FINANCIA L CORPORATION FOR ITS TRADE PURPOSES. IT WAS ARGUED THAT THESE AMOUNTS H AVE BEEN SHOWN ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 14 - : AS INVESTMENTS IN THE BALANCE SHEET, HENCE, THEIR REAL NATURE IS STOCK- IN-TRADE AND IT WOULD NOT CHANGE. THE LD. CIT(A) H AS RESTRICTED THE DISALLOWANCE TO ` 9,36,400/-. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE P ERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. WE HAVE FOUND THAT THE FIRST THREE ITEMS I.E (A), (B) AND (C) ARE GOVERNMENT SEC URITIES HELD BY THE ASSESSEE ARE NOT AS INVESTMENTS BUT TO COMPLY WIT H THE SLR REQUIREMENTS APPLICABLE TO NON-BANKING FINANCIAL CO MPANIES. THUS, THEY HAVE TO BE CONSIDERED AS STOCK-IN-TRADE IN VIE W OF THE DECISION OF HON'BLE SUPREME COURT RENDERED IN THE CASE OF UCO B ANK, 240 ITR 355 AND CHAINRUP SAMPATHRAM, 24 ITR 481. THEREFORE , THIS AMOUNT OF ` 6,20,135/- CANNOT BE BROUGHT TO TAX. WE ARE IN AG REEMENT WITH THIS FINDING OF THE LD. CIT(A) BUT THE REMAINING AM OUNT HAS TO BE DISALLOWED AS HAS BEEN DONE BY THE LD. CIT(A). 21. THE NEXT ISSUE OF THIS APPEAL RELATES TO THE DIRECT ION OF THE LD. CIT(A) GIVEN TO THE ASSESSING OFFICER TO VERIF Y THE ASSESSEES CLAIM THAT THE AMOUNT CREDITED TO PROFIT & LOSS ACCOUNT O F ` 1,69,96,159/- BEING THE VALUE OF INVESTMENTS WRITTEN OFF ALLOWED, SINCE THE SAME HAS BEEN TAXED IN THE EARLIER YEARS. THE CASE OF THE R EVENUE IS THAT ALTHOUGH SUCH A CLAIM IS ALLOWABLE AS PER LAW, BUT SINCE THE ASSESSEE ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 15 - : HAS NOT MADE THIS CLAIM EITHER IN THE RETURN OF INC OME OR IN A REVISED RETURN, THE ASSESSEE CANNOT AVAIL THIS BENEFIT IN V IEW OF THE DECISION OF HON'BLE SUPREME COURT RENDERED IN THE CASE OF GOETZ (INDIA) LTD VS CIT, 284 ITR 323. 22. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIES O N THIS ISSUE. HAVING COGITATED THE ORAL RIVAL SUBMISSION S VIS--VIS THE EVIDENCE ON RECORD, WE WOULD LIKE TO GO WITH THE LD . CIT(A) PARTICULARLY IN VIEW OF THE DECISION OF HON'BLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS INDUSTRIAL FINANCE CORPORATION OF IN DIA LTD, 185 TAXMAN 296, A COPY OF WHICH IS PLACED ON RECORD. IN THIS CASE, THE HON ' B L E DELHI HIGH COURT HEL D T HAT WH E RE THE APPELLANT ENTE R S INTO A CONTRACT FOR PURCHASE OF FOREIGN CURRENCY ON A I FUTURE RA T E AT A PRE DETERMINED RATES , DIFFERENCE BET WEE N FORW ARD CONTRACT RATE AND EXC H ANGE RATE ON DATE O F ENTERING IN TO CON T R A CT HA S TO BE RECOGN I ZED AS INCOME OR EXPENSES , WHICH ARE ASCERT A INE D AND DEF IN I TE IN TERMS OF CONT R ACT AND WOULD BE ALLOWED AS BUSINESS E X PEN DIT URE IN Y EAR OF I ENTERING IN T O FORWARD CONTRACT ITSELF, THOUGH AS PER CONTRACT PA RT P AYM ENT I S I TO BE MADE I N SUCCEEDING YEARS . ~ ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 16 - : 23. IT IS QUITE EVIDENT FROM THE ABOVE THAT THE ASSESS EE IS ENTITLED TO CLAIM IMPUGNED DEDUCTION IN THE RELEV ANT YEAR ITSELF. IN SO FAR AS THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF GOETZ(INDIA) LTD IS CONCERNED, THAT HAS A BINDING O N THE ASSESSING OFFICER BUT THE TRIBUNAL HAS NOT BEEN DISABLED TO A LLOW A LEGAL CLAIM TO THE ASSESSEE. RATHER, IT IS OUR BOUNDEN DUTY TO GI VE DESERVING RELIEF TO THE ASSESSEE. IT WAS FOUND THAT CERTAIN ITEMS OF I NCOME WHICH HAVE ALREADY BEEN TAXED IN THE EARLIER YEARS CANNOT BE T AXED AGAIN WHICH IS AGAINST THE FUNDAMENTAL PRINCIPLES ON WHICH FISCAL LAWS OPERATE. A CONTRARY VIEW HAS TO BE TREATED ILLEGAL AND ILLOGIC AL. THEREFORE, THE IMPUGNED DIRECTION GIVEN BY THE LD. CIT(A) TO THE A SSESSING OFFICER TO VERIFY THE ASSESSEES CLAIM MADE IN THE LETTER DATE D 21.2.2009 THAT THE SAME INCOME WHICH HAS ALREADY BEEN ASSESSED IN EARL IER ASSESSMENT YEAR(S) AND IF SO, HE HAS TO REDUCE THE TOTAL INCOM E BY THE AMOUNT ALREADY ASSESSED, CANNOT BE TREATED AS INCORRECT FI NDING. WE, THEREFORE, CONFIRM THE SAME AND DISMISS GROUND NOS. 4.1 TO 4.3 OF THE APPEAL. 24. THE NEXT ISSUE RAISED VIDE GROUND NOS.5.1 TO 5.4 IS IN RELATION TO A SUM OF ` 15,02,237/- BEING PROVISION FOR DERIVATIVE CONTRACTS, WHICH HAS BEEN ADDED BACK BY THE ASSESSE E ITSELF IN THE RETURN OF ITS INCOME. THE FACTS OF THIS ISSUE ARE THAT DURING THE COURSE ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 17 - : OF ASSESSMENT PROCEEDINGS, THE ASSESSEE REQUESTED T HE ASSESSING OFFICER TO ALLOW THIS SUM WHICH WAS ADDED BACK BY T HE ASSESSEE IN THE ADJUSTMENT STATEMENT, BEING PROVISION FOR DERIVATIV E CONTRACT WORKED OUT ON MARKET TO MARKET BASIS. IN DOING SO, THE AS SESSEE RELIED ON THE DECISIONS OF THE HON'BLE DELHI BENCH RENDERED IN TH E CASE OF ONGC VS DY. CIT, 261 ITR 1 AND HON'BLE MUMBAI BENCH IN THE CASE OF MASHREQ BANK VS DY. CIT, 18 SOT 233. THE CASE OF THE REVEN UE IS THAT THESE CONTRACTS ARE DERIVATIVE CONTRACTS WHICH ARE FOREI GN CURRENCY PRINCIPAL SWAP TRANSACTIONS AND ARE EXECUTED AS A HEDGE AGAI NST FLUCTUATION IN THE INTEREST RATE PAYABLE/RECEIVABLE AND HENCE, THE SE TRANSACTIONS ARE SPECULATIVE IN NATURE. THE LD.DR HAS SUBMITTED THA T THE DECISIONS RELIED ON BY THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE GIVEN CASE AS THEY DEAL WITH FOREIGN EXCHANGE FLUCTUATION . ON THE CONTRARY, THE LD.DR HAS RELIED ON THE DECISION OF GOETZ (IND IA) LTD VS CIT (SUPRA), IN SUPPORT OF ASSESSING OFFICERS DENIAL T O ALLOW THE IMPUGNED RELIEF TO THE ASSESSEE. 25. BEFORE US SIMILAR STAND HAS BEEN MAINTAINED BY THE PARTIES. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE CONSIDERED OPINION THAT THE DERIVATIVE CONTRACTS, FOREIGN EXCH ANGE SWAP TRANSACTIONS AGAINST FLUCTUATIONS IN INTEREST RATE ARE HEDGE TRANSACTIONS. THE LOSS COMPUTED ON MARKET TO MARKE T BASIS IS REVENUE ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 18 - : LOSS AS PER THE ACCOUNTING STANDARDS AND IS ALLOWAB LE AS BUSINESS LOSS. THE DECISION OF HON'BLE DELHI HIGH COURT RENDERED I N THE CASE OF CIT VS INDUSTRIAL FINANCE CORPORATION OF INDIA LTD, 185 TAXMAN 296, IS RELEVANT. IN THIS CASE, IT HAS BEEN HELD AS UNDE R: HELD : THE TRIBUNAL RIGHTLY HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION OF RS. 67.06 CRORES INC URRED IN CONNECTION WITH SWAPPING OF FOREIGN CURRENCY FUNDS IN THE YEAR UNDER CONSIDERATION, I.E. THE ASST. YR. 1995-9 6. THE ASSESSEE HAD RAISED FOREIGN CURRENCY BORROWINGS AND SWAPPED SUCH FOREIGN CURRENCY INTO INDIAN RUPEES IN ORDER TO AUGMENT ITS RUPEE RESOURCES FOR MEETING IT S LENDING REQUIREMENTS. THE FOREIGN CURRENCIES BORROW ED WERE REPAYABLE TO THE FOREIGN LENDERS ON LATER DATE S FALLING WITHIN THE CURRENT PREVIOUS YEAR ENDING ON 31ST MARCH, 1995 AND IN SOME CASES FALLING IN THE NEXT PREVIOUS YEAR RELEVANT TO SUBSEQUENT ASSESSMENT YEA R. IN ORDER TO ENSURE THAT IT IS ABLE TO REPAY THE FOR EIGN LENDERS IN THE FOREIGN CURRENCY ON THEIR RESPECTIVE DUE DATES OF REPAYMENTS, THE ASSESSEE HAD ENTERED INTO FORWARD CONTRACTS AS A SAFEGUARD AGAINST FOREIGN CU RRENCY FLUCTUATIONS. IT IS THE DIFFERENCE BETWEEN THE FORW ARD CONTRACT RATE AND THE EXCHANGE RATE ON THE DATE OF TRANSACTION WHICH WAS CLAIMED AS DEDUCTION IN THAT VERY YEAR. THE FORWARD CONTRACT IS AN AGREEMENT BETWEEN TWO PARTIES, REQUIRING THE DELIVERY AT SOME SPECIFIED F UTURE DATE OF A SPECIFIED AMOUNT OF FOREIGN CURRENCY BY ONE OF THE PARTIES, AGAINST PAYMENT IN DOMESTIC CURRENCY TO THE OTHER PARTY, AT THE PRICE AGREED UPON IN THE CONTRA CT. THE RATE OF EXCHANGE APPLICABLE TO THE FORWARD CONTRACT IS CALLED THE FORWARD EXCHANGE RATE AND THE MARKET FOR FORWARD TRANSACTIONS IS KNOWN AS THE FORWARD MARKET . THUS, IN CASE OF A FORWARD CONTRACT, ASSESSEE ENTER S INTO A LEGALLY BINDING, ENFORCEABLE CONTRACT FOR PURCHAS E OF FOREIGN CURRENCY ON A FUTURE DATE AT THE PREDETERMI NED RATES. THE DATE AND THE RATE OF PURCHASE OF THE FOR EIGN CURRENCY ARE DECIDED AT THE TIME OF ENTERING INTO C ONTRACT. THE DIFFERENCE BETWEEN THE FORWARD CONTRACT AND THE EXCHANGE RATE ON THE DATE OF ENTERING INTO THE CONT RACT HAS TO BE RECOGNIZED AS INCOME OR EXPENSES, WHICH I S ASCERTAINED AND DEFINITE, IN TERMS OF THE CONTRACT AND CANNOT BE REGARDED AS NOTIONAL OR CONTINGENT. IT IS CLEAR THAT THE SWAPPING COST INCURRED BY THE ASSESSEE IS CAPABLE OF DETERMINATION AT THE TIME OF EXECUTION O F THE FORWARD CONTRACT AND SUCH DETERMINATION DOES NOT GE T ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 19 - : POSTPONED. IT WAS A DEBT OWED BY THE ASSESSEE, WHIC H ACCRUED ON THE DATE OF ENTERING INTO THE FORWARD CO NTRACT ITSELF, THOUGH AS PER THE CONTRACT, PART PAYMENT WA S TO BE MADE IN SUCCEEDING YEARS. THE EXPENDITURE UNDER THE ACCRUAL SYSTEM OF ACCOUNTING HAD, THUS, CRYSTALLIZE D ON THE DATE OF THE CONTRACT. NORMALLY THE ORDINARY RUL E IS TO BE APPLIED, NAMELY, REVENUE EXPENDITURE INCURRED IN A PARTICULAR YEAR IS TO BE ALLOWED IN THAT YEAR. THUS , IF THE ASSESSEE CLAIMS THAT EXPENDITURE IN THAT YEAR, THE IT DEPARTMENT CANNOT DENY THE SAME. HOWEVER, IN THOSE CASES WHERE THE ASSESSEE HIMSELF WANTS TO SPREAD TH E EXPENDITURE OVER A PERIOD OF ENSUING YEARS, IT CAN BE ALLOWED ONLY IF THE PRINCIPLE OF MATCHING CONCEPT I S SATISFIED, WHICH UPTO NOW HAS BEEN RESTRICTED TO TH E CASES OF DEBENTURES.-INDUSTRIAL FINANCE CORPN. OF I NDIA LTD. VS. DY. CIT (2006) 101 TTJ (DEL) 894 AFFIRMED; CALCUTTA CO. LTD. VS. CIT (1959) 37 ITR 1 (SC), MET AL BOX COMRANY OF INDIA LTD. VS. THEIR WORKMEN (1969) 73 ITR 53 (SC) AND BHARAT EARTH MOVERS VS. CIT (2000) 162 CTR (SC) 325 : (2000) 245 ITR 428 (SC) APPLIED; MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. C IT (1997) 139 CTR (SC) 555 : (1997) 225 ITR 802 (SC) DISTINGUISHED AND EXPLAINED. 26. THEREFORE, THE DECISION IN THE CASE OF GOETZ (INDI A) LTD (SUPRA) DOES NOT APPLY TO THE TYPE OF CLAIMS MADE B Y THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS SINCE WHAT HAS BEEN WRONGLY OFFERED FOR ASSESSMENT BY THE ASSESSEE IN THE ADJU STMENT STATEMENT IS SOUGHT TO BE RECTIFIED BY THE LETTER DURING AS SESSMENT PROCEEDINGS. THIS CLAIM CANNOT TANTAMOUNT TO A CLAIM OF FRESH DE DUCTION. THE CBDT HAD ALSO CLARIFIED THIS ASPECT VIDE ITS CIRCULAR NO .14XL-35 OF 1955 DATED 11.4.1955, WHICH READS AS UNDER: ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 20 - : ' OFFICERS OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF THE IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS . IT IS ONE OF THEIR DUTIES TO ASSIST A TAX PAYER IN EVERY RESPONSIBLE WAY , PART I CULARLY IN THE MATTER OF C LAIMING AND SECURING RELIEF AND IN THIS REGARD T HE OFFICERS SHOULD TAKE THE INITIATIVE IN GUIDING A TA X PAYER WHERE PROCEEDINGS OR OTHER PARTICULARS BEFORE THEM INDICA TE THAT SOME REFUND OR RELIEF IS DUE TO HIM. THIS ATTITUDE WOULD , IN THE LONG RUN , BENEFIT THE DEPARTMENT , FOR , IT WOULD INSPIRE CONFIDENCE IN H I M T H AT HE MAY BE SURE OF GETTING A SQUARE DEAL FROM TH E DEPARTME N T . ALTHOUGH, THEREFORE, THE RESPONSIBILITY FOR CLAIMIN G REFUNDS AND RELIEF REST WITH THE ASSESSES ON WHOM I T IS IMPOSED BY LAW , OFFICERS SHOULD: (A) DRAW THEIR ATTENTION TO ANY REFUNDS OR RELIEF TO W HI C H T H EY APPE A R T O BE CLEARLY ENT I TLED BUT WH I CH THE Y HAVE OMIT T E D TO CLAIM FOR SOME REASON OR OTHE R ; (B) FREE L Y A D VISE THEM W HEN APPROA C HED B Y TH E M AS TO T HE I R R IGHTS AND LIABILIT I ES AND AS TO THE PROCEDURE T O BE ADOPTED. 27. ACCORDINGLY, WE CONFIRM THE IMPUGNED FINDING OF THE LD. CIT(A) AND DISMISS GROUND NOS. 5.1 TO 5.4 OF REVENU ES APPEAL. OUR ABOVE OBSERVATIONS RESULTS IN DISMISSAL OF REVENUE S APPEAL. 28. THE CROSS OBJECTION OF THE ASSESSEE IS SIMPLY IN SU PPORT OF THE LD. CIT(A)S ORDER BUT THE DISALLOWANCE U/S 14 A HAS TO BE REWORKED AS PER THE GROUNDS REPRODUCED ABOVE. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO CONSIDER THIS WORKING OF T HE ASSESSEE WHILE COMPUTING THE DISALLOWANCE. ACCORDINGLY, THIS CROS S OBJECTION IS ALLOWED TO THAT EXTENT. ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 21 - : I.T.A.NO. 22/MDS/2011 M/S SHRIRAM CITY UNION FINA NCE LTD 29. THIS APPEAL OF THE ASSESSEE, FOR ASSESSMENT YEAR 20 07-08, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), DA TED 11.11.2010. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: I. THE ORDER OF THE CIT A TO THE EXTENT THAT IT HAS CONFIRMED I) DISALLOWANCE OF AMOUNT TRANSFERRED TO STATUTO RY RESE RVE ` 17 , 09 , 56 , 664/ - IN COMPLIANCE WITH MANDATORY PROV I S I ONS OF RESERVE BANK OF IND I A ; AND II) DISALLOWANCE OF BAD DEBTS OF ` 2,12,67,000/- I N COMPUTING INCOME UNDER THE REGULAR PROVISIONS OF THE INCOME TAX A CT , 1961 ; AND I I I) NOT ALLOWING THE APPELLANT ' S CLAIM FOR DEDUCTIO N OF ` 10 , 32,43 , 000/- TRANSFERRED TO RESERVE FUND I N C O M P U T I N G INCOME U/S . 115JB OF THE INCOME TAX ACT , IS AGAINST LAW AND FACTS OF THE CASE. II. COMPUTATION OF INCOME UNDER REGULAR PROVISIONS : A. AMOUNT TRANSFERRED TO STATUTORY RESERVE ` ` ` ` 17,09,56,664/ - I) THE LEARNED CIT ' A ' HAS ERRED IN CONFIRMING THE DISALLOWANC E O F THE AMOUNT OF ` 17 , 09 , 56 , 664/ - TRANSFERRED TO RESERVE FUND U / S 4 5 I C OF THE RBI ACT BY HOLDING THAT IT IS AN APPLICATION OF INCOME . II) THE LEARNED CIT ' A ' HAS FAILED TO APPRECIATE THAT AS PE R SECTION 4 5 IC OF RBI ACT 20 % OF THE NET PROFITS OF THE COMPANY CANNOT F OR M PA R T O F TH E R E AL I NCOME OF THE COMPANY ; THAT THE COMPANY L OSES CONTROL OVER TH I S PART OF THE INCOME FROM THE BEGINNING ; AND THAT A PART OF THE CORPUS OF T H E RIGHT OF THE COMPANY TO HAVE THE ENTIRE I NCOME I S SLICED AWAY A T TH E THRESHOLD IT SE L F. ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 22 - : I II ) THE LEARNED CIT ' A ' FAILED TO APPRECIATE THAT THERE IS N O DIVE R S I O N O R APPLICATION OF INCOME SINCE THE TRANSFER IS NOT TH R OUGH ANY OBLIG A T I O N C REATED BY THE COMPANY OUT OF ITS OWN VOLITION OR GRATUITOUSLY . I V ) THE LEARNED CIT ' A ' FAILED TO APPRECIATE THAT IN VIEW OF THE P R OV I S I ON S OF SEC 45 Q OF THE RBI ACT , THE COMPANY LOSES ITS TITLE OVE R 2 0 % O F THE INCOME AT THE THRESHOLD ITSELF AND IT DOES NOT FORM PART OF THE R EA L INCOME OF THE COMPANY , WHICH REAL INCOME ALONE IS ASSESSABLE TO INCOME TA X . V) THE LEARNED CIT ' A ' FAILED TO APPRECIATE THAT IT IS AN EXPEND I TU RE LA ID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF CARRY I NG I TS BUS I NE SS ; THAT I T CANNOT SURVIVE WITHOUT COMPLYING THE MANDATORY PROV I SIONS O F RB I A CT ; AND AS SUCH IT I S AN ADMISSIBLE DEDUCT I ON U/S . 37 OF THE IN C O ME T A X ACT I NCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY . V I) THE LEA R NED CIT ' A ' HAS FAILED TO APPRECIATE THAT THE ORDER OF THE IT A T ' C ' BENCH , CHENNA I , I N 1 . T . A . NO . 236/MDS/2009 DATED 16 . 0 7 . 09 F O R THE ASSESSMENT YEAR 05-06 , WH I CH HAS BEEN FOLLOWED BY H I M , HA S NO T B ECOME F I NAL AND AN APPEAL AGAINST THAT ORDER HAS BEEN ADMITTED BY THE CH E NNA I HIGH COURT IN TAX CASE NO . 1265/2009 ON 02 . 02 . 10 . B. DISALLOWANCE OF BAD DEBTS WRITTEN OFF ` ` ` ` 2,12,67,000/- I) THE LEARNED CIT ' A ' ER R ED I N CONF I RM I NG THE DISAL L OWANCE OF BAD DEBTS TO THE EXTENT OF ` 2 , 12 , 67 , 000/- MADE BY THE ASSESSING OFFICER . II ) THE LEARNED CIT ' A ' HAS ERRED IN HOLDING THAT THESE BAD DEBTS WH IC H HAVE BEEN ACTUA L LY WRITTEN OFF IN THE BOOKS MAINTA I NED BY THE APP ELLANT TO COMPLY WITH THE PROV I SIONS OF INCOME TAX ACT , ARE HIT BY THE P R OV ISIONS OF EXPLANATION TO 36 ( 1 )( VII ) INTRODUCED BY THE FINANCE ACT 200 1 . I II ) THE CIT ' A ' HAS FAILED TO APPRECIATE THAT THE IMPUGNED BA D DEBTS HAVE BEEN ACTUALLY WRITTEN OFF WITH CORRESPOND I NG R EDUCTIO N IN A S SE T ACCOUNTS AND THEY ARE NO T P R OVISIONS AS ERRONEOUSLY UNDERSTOOD AND AS SESSED BY TH E ASSESSING OFF I CER . HE FA I LED TO APPRECIATE THAT THE WR I TE OFF SATI SF I E S THE L AW AS E N UNCIATED I N : ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 23 - : A) V IJ AYA BANK VS C I T 1 90 TAX M AN 25 7 [ 2010] ( SC ) B) TRF LTD VS CIT 323 ITR 397 [20 1 0] ( SC ) IV ) T H E L EARNED CIT ' A ' ERRED I N I GNOR I NG THE ENTR I ES IN THE B OOK S O F ACCOUNTS MAINTAINED I N TUNE W I TH T HE PROVIS I ONS OF I NCO M E TAX AC T , WHICH HAVE BEEN MA I NTA I NED R EGU L ARLY AND SATISFY THE PROV I SIONS O F SE C . 1 4 5 OF THE IT AC T AND THE FACT THA T ASSESSABLE I NCOME I S COMPUTED O N THE BASIS OF I NCOME AS PER THESE BOOKS . V) THE LEARNED CIT ' A ' FAI L ED TO APPRE C IATE THAT THE APPELLANT HA S M A INTAINED SEPARATE BOOKS OF ACCOUNTS IN TERMS OF THE COMPAN I E S A C T C O M P LY I NG WIT H T HE PROVISIONS OF THAT ACT ; THAT PROV I SION FOR BAD DEBTS TO T HE EXTENT O F ` 2 , 12 , 67 , 000/- HAS BEEN MADE ON L Y I N THE BOOKS MAINTAINED SEPA R A TELY T O COMPLY WITH THE PROVISIONS O F THE COMPAN I ES ACT ; AND THAT T HE E NTRIES I N T H OSE BOOKS CANNOT BE I MPO R TED I N COMPUT I NG THE I NCOME UN DE R INCOME TAX AC T , ESPEC I ALLY AS THE ASSESSING OFFICER HAS PROCEEDED TO COMPUTE THE TOTA L INCOME FROM THE BUSINESS INCOME OF ` 69 , 3 8 , 75 , 9 45 /- ADM I TTED B Y THE ASSESSEE , WHICH I NCOME HAS BEEN AR RI VED AT FROM BOOKS M A INT A INED I N COMP LI ANCE WITH THE PROV I S I ONS OF INCOME TAX ACT . VI ) T HE L EARNED CIT ' A ' FA IL ED T O APPREC I ATE THAT THE APPELLATE TRI B UNAL HAS HELD THAT THE PROF I TS FO R THE PURPOSE OF INCOME TAX AC T H A S TO B E DETERM I NED ON THE BAS I S OF ACCOUNTS PREPARED FOR THE PURPOSE O F INCOME T A X V I DE PARA 19 I N PAGE 18 OF I TS COMMON APPELLATE ORDE R DATED 21 . 04 . 0 6 IN THE APPEALS FOR THE ASSESSMENT YEARS 1997- 98 TO 200 1-02 I N THE APPE LL A NT ' S C ASE I TSE L F IN I . T .A NO .1 3 / MDS / 2001 F OR ASSESSME NT YEAR 1997 1998 , I . T .A NO . 326/MDS / 2002 FO R ASSESSMENT YEAR 1 998 -1999 , I . T . A NO . 711/ MDS / 2004 FO R ASSESSMENT YEAR 1999 - 2000 , I.T.A NO . 233 4 / M DS/2003 FOR ASSE SS M EN T YEA R 2000 - 200 1 AND IN I.T.ANO . 4 6 8 / M DS/2005 FO R ASS ESS M ENT YEAR 200 1- 2002 AND THIS FINDING HAS NO T BEE N CH A LLENGED BY TH E DEPARTMENT I N THE APPEALS F IL ED I N THE H I GH COUR T AGA I N ST T HAT ORDER . VII) T HE LEARNED CIT ' A ' FA IL ED TO APP R E CI A T E T HAT WHAT ' IS P ROVIDED FO R ' IN ST ATU T O R Y ACCO U NTS CA N BE ' WR I TTE N O F F ' IN THE INC O ME TAX ACT AND VICE V E R SA , S I NCE THE TWO SE T S OF ACCOUNTS A R E M AINTAI N E D TO COMPLY WITH THE PROVIS I ONS OF DIFFE R ENT ACTS AND MA I NTENANCE OF S UCH A CCOUNTS HAS BEEN APP R OVED BY THE SC I N THE UCO BANK ' S CASE 240 I TR 355 (SC ) AT P . 36 7 . V III) THE LEARNED CIT ' A ' HAS NOT PROPE R LY APP R EC I ATED T H E IM PO RT OF WRITE OFF OF THE DEBTS I N THE PROF I T AND LOSS ACCOUNT. THE ASSESS I NG OFF IC E R HAS FAILED TO APP R EC I ATE THAT FU LL DETAILS OF ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 24 - : BAD DEBTS HAVE BEE N F URNI S HED IN THE ASSESSMENT PROCEED I NGS ; THAT THEY HAVE BEEN WR I TTEN O F F A F T ER PROPER ASSESSMENT OF EACH ACCOUNT. IX) THE LEARNED CIT ' A ' SHOULD HAVE BEEN P L EASED TO FOLLOW T HE JURISDICTIONAL APPELLATE TRIBUNAL ' S O RDE R S I N THE APPE LL ANT ' S C ASE IT SELF IN ITS ORDER DATED 2 1 . 04 . 2006 FOR ASSESSMENT YEARS 199 7 - 1998 (I . T . A N O . 13/ M DS/2001 ) , 1998 - 1999 ( I.T.ANO . 7 2/ MDS/2002 ) , 1 999 - 2000 ( I. T . AN O . 522/ M DS/2004 ) , 1 999 - 2000 ( 1 . T . A NO . 522 / MDS/2004 ) & 2002 - 2003 ( 1 . T . A NO . 987 / M DS/2006) , WHE R E S I M IL A R BAD DEBTS CLA I MS HAVE BEEN ALLOWED . X ) S I MILA R D I SAL L OWANCE MADE BY THE ASSESS I NG OFF I CE R IN THE IMMEDIATE PRECED I NG ASSESSMEN T YEAR 2006-200 7 WAS DELETED BY CIT(A ) AND THE HO N' B L E IN C OME TAX APPELLATE TRI BUNAL IN ITS ORDE R IN I . T .ANO . 7 26/MDS / 2010 DATED 1 6 . 12 . 20 1 0 HAS C ONF IRM E D THE ORDE R OF C I T ( A ) DELET I NG THE ADDITION . III. COMPUTATION U/S 115JB OF THE INCOMETAX ACT, 19 61 (A) AMOUNT TRANSFERRED TO STATUTORY RESERVE ` ` ` ` 10,32,43,000/- I) THE L EA R NED CIT ' A ' HAS ERRED IN CONFIRMING THE ACTION O F T HE ASSESS I NG O F FICER I N NOT AL L OW I NG THE APPELLANT ' S CLA I M FO R DEDUC TI NG TH E AMOUN T O F ` 10 , 32 , 43 , 000 /- TRANSFERRED TO STATUTORY RESE R VE AS PE R RESE R VE BAN K O F I NDIA GUIDEL I NES I N C OMP U T I NG I NCOME U / S . 1 15JB OF T HE A C T . II ) THE LEARNED CIT ' A ' HAS FAILED TO APP R EC I A T E THA T THIS AMOUNT O F ` 1 0 , 32,4 3 , 000 /- DOES NOT FO R M PART OF THE REA L INCOME O F THE APPE LL A NT O N T HE SAME GROUNDS AS MENT I ONED I N TH E G R O U NDS OF APP E A L AGA I NS T THE CONF I RMATION OF D I SALLOWANCE I N COMPUTAT I ON OF REGULAR I NCO M E . ON THESE GROUNDS AND OTHER GROUNDS THAT MAY BE SUBM ITTED BEFORE OR DURING THE COURSE OF HEARING , IT IS PRAYED THAT THE APPELLANT ' S CLA I M I) F OR DEDUCT I ON OF THE AMOUNT OF ` 17 , 09 , 56 , 664 / - TR ANSFE RRED TO T H E RESERVE FUND I N COMPL I ANCE WITH THE MANDATORY PROV I SIONS OF RB I ACT , ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 25 - : II) FOR ALLOWING BAD DEBTS CLAIM OF ` 2,12,67,000/- IN COMPUTING INCOME UNDER REGULAR PROVISIONS OF THE ACT; AND I I I ) F O R DEDUCT I ON OF ` 10 , 32,4 3 , 000 / - T R ANSFE RR ED T O RE SERVE FUND IN ' - C O M PUT I NG I NCOME U / S . 11 5JB MAY BE ALLOWED BY T H E HO N ' B LE T R IBU N A L . 30. ADMITTEDLY, ALL THE ISSUES TAKEN VIDE GROUND NOS. I , II AND III STAND COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE IN I.T.A. NO. 236/MDS/2009, ORDER DATED 16.7.2009 AND IN I.T.A.NO. 726/MDS/2010 0, ORDER DATED 16.12.2010. THERE IS NO NEED TO ELABORATE THEM. TH EREFORE, BY RESPECTFULLY FOLLOWING THE TRIBUNAL ORDERS(SUPRA), WHICH ARE MENTIONED IN THE GROUNDS ITSELF, WE ALLOW THE APPEAL OF THE A SSESSEE. 31. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWE D. I.T.A.NO. 23/MDS/2011 M/S SHRIRAM TRANSPORT FINAN CE COMPANY LTD . 32. THIS APPEAL OF THE ASSESSEE, FOR ASSESSMENT YEAR 20 07-08, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), D ATED 11.11.2010. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: I. THE ORDER OF THE CIT A TO THE EXTENT THAT IT HAS CONFIRMED B. DISALLOWANCE OF AMOUNT TRANSFERRED TO STATUTO RY ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 26 - : RESE RVE ` 80,79,62,329/ - IN COMPLIANCE WITH MANDATORY PROV I S I ONS OF RESERVE BANK OF IND I A ; AND C. DISALLOWANCE OF BAD DEBTS OF ` 31,42,42,000 I N COMPUTING INCOME UNDER THE REGULAR PROVISIONS OF THE INCOME TAX A CT , 1961 ; AND I I I) NOT ALLOWING THE APPELLANT S CLAIM FOR DEDUCTIO N OF ` 38,10,00,000/- TRANSFERRED TO RESERVE FUND I N C O M P U T I N G INCOME U/S . 115JB OF THE INCOME TAX ACT , IS AGAINST LAW AND FACTS OF THE CASE. II. COMPUTATION OF INCOME UNDER REGULAR PROVISIONS : D. AMOUNT TRANSFERRED TO STATUTORY RESERVE ` ` ` ` 80,79,62,329/- J) THE LEARNED CIT A HAS ERRED IN CONFIRMING THE DISALLOWANC E O F THE AMOUNT OF ` 80,79,62,329/- TRANSFERRED TO RESERVE FUND U / S 4 5 I C OF THE RBI ACT BY HOLDING THAT IT IS AN APPLICATION OF INCOME . II) THE LEARNED CIT A HAS FAILED TO APPRECIATE THAT AS PE R SECTION 4 5 IC OF RBI ACT 20 % OF THE NET PROFITS OF THE COMPANY CANNOT F OR M PA R T O F TH E R E AL I NCOME OF THE COMPANY ; THAT THE COMPANY L OSES CONTROL OVER TH I S PART OF THE INCOME FROM THE BEGINNING ; AND THAT A PART OF THE CORPUS OF T H E RIGHT OF THE COMPANY TO HAVE THE ENTIRE I NCOME I S SLICED AWAY A T TH E THRESHOLD IT SE L F. I II ) THE LEARNED CIT A FAILED TO APPRECIATE THAT THERE IS N O DIVE R S I O N O R APPLICATION OF INCOME SINCE THE TRANSFER IS NOT TH R OUGH ANY OBLIG A T I O N C REATED BY THE COMPANY OUT OF ITS OWN VOLITION OR GRATUITOUSLY . I V ) THE LEARNED CIT A FAILED TO APPRECIATE THAT IN VIEW OF THE P R OV I S I ON S OF SEC 45 Q OF THE RBI ACT , THE COMPANY LOSES ITS TITLE OVE R 2 0 % O F THE INCOME AT THE THRESHOLD ITSELF AND IT DOES NOT FORM PART OF THE R EA L INCOME OF THE COMPANY , WHICH REAL INCOME ALONE IS ASSESSABLE TO INCOME TA X . V) THE LEARNED CIT A FAILED TO APPRECIATE THAT IT IS AN EXPEND I TU RE LA ID OUT WHOLLY AND EXCLUSIVELY FOR THE ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 27 - : PURPOSE OF CARRY I NG I TS BUS I NE SS ; THAT I T CANNOT SURVIVE WITHOUT COMPLYING THE MANDATORY PROV I SIONS O F RB I A CT ; AND AS SUCH IT I S AN ADMISSIBLE DEDUCT I ON U/S . 37 OF THE IN C O ME T A X ACT I NCURRED ON GROUNDS OF COMMERCIAL EXPEDIENCY . V I) THE LEA R NED CIT A HAS FAILED TO APPRECIATE THAT THE ORDER OF THE IT A T C BENCH , CHENNA I , I N 1 . T . A . NO . 235/MDS/2009 DATED 16 . 0 7 . 09 F O R THE ASSESSMENT YEAR 05-06 , WH I CH HAS BEEN FOLLOWED BY H I M , HA S NO T B ECOME F I NAL AND AN APPEAL AGAINST THAT ORDER HAS BEEN ADMITTED BY THE CH E NNA I HIGH COURT IN TAX CASE NO . 1264/2009 ON 02 . 02 . 10 . B. DISALLOWANCE OF BAD DEBTS WRITTEN OFF ` ` ` ` 31,42,42,000/- I) THE LEARNED CIT ' A ' ER R ED I N CONF I RM I NG THE DISAL L OWANCE OF BAD DEBTS TO THE EXTENT OF ` 31,42,42,000/- MADE BY THE ASSESSING OFFICER . II ) THE LEARNED CIT ' A ' HAS ERRED IN HOLDING THAT THESE BAD DEBTS WH IC H HAVE BEEN ACTUA L LY WRITTEN OFF IN THE BOOKS MAINTA I NED BY THE APP ELLANT TO COMPLY WITH THE PROV I SIONS OF INCOME TAX ACT , ARE HIT BY THE P R OV ISIONS OF EXPLANATION TO 36 ( 1 )( VII ) INTRODUCED BY THE FINANCE ACT 200 1 . I II ) THE CIT ' A ' HAS FAILED TO APPRECIATE THAT THE IMPUGNED BA D DEBTS HAVE BEEN ACTUALLY WRITTEN OFF WITH CORRESPOND I NG R EDUCTIO N IN A S SE T ACCOUNTS AND THEY ARE NO T P R OVISIONS AS ERRONEOUSLY UNDERSTOOD AND AS SESSED BY TH E ASSESSING OFF I CER . HE FA I LED TO APPRECIATE THAT THE WR I TE OFF SATI SF I E S THE L AW AS E N UNCIATED I N : C) V IJ AYA BANK VS C I T 1 90 TAX M AN 25 7 [ 2010] ( SC ) D) TRF LTD VS CIT 323 ITR 397 [20 1 0] ( SC ) IV ) T H E L EARNED CIT ' A ' ERRED I N I GNOR I NG THE ENTR I ES IN THE B OOK S O F ACCOUNTS MAINTAINED I N TUNE W I TH T HE PROVIS I ONS OF I NCO M E TAX AC T , WHICH HAVE BEEN MA I NTA I NED R EGU L ARLY AND SATISFY THE PROV I SIONS O F SE C . 1 4 5 OF THE IT AC T AND THE FACT THA T ASSESSABLE I NCOME I S COMPUTED O N THE BASIS OF I NCOME AS PER THESE BOOKS . V) THE LEARNED CIT ' A ' FAI L ED TO APPRE C IATE THAT THE APPELLANT HA S M A INTAINED SEPARATE BOOKS OF ACCOUNTS IN TERMS OF THE COMPAN I E S A C T C O M P LY I NG WIT H T HE PROVISIONS OF THAT ACT ; THAT PROV I SION FOR BAD DEBTS TO T HE EXTENT O F ` 31,42,42,000/- HAS ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 28 - : BEEN MADE ON L Y I N THE BOOKS MAINTAINED SEPA R A TELY T O COMPLY WITH THE PROVISIONS O F THE COMPAN I ES ACT ; AND THAT T HE E NTRIES I N T H OSE BOOKS CANNOT BE I MPO R TED I N COMPUT I NG THE I NCOME UN DE R INCOME TAX AC T , ESPEC I ALLY AS THE ASSESSING OFFICER HAS PROCEEDED TO COMPUTE THE TOTA L INCOME FROM THE BUSINESS INCOME OF ` 3,23,48,89,560/- ADM I TTED B Y THE ASSESSEE , WHICH I NCOME HAS BEEN AR RI VED AT FROM BOOKS M A INT A INED I N COMP LI ANCE WITH THE PROV I S I ONS OF INCOME TAX ACT . VI ) T HE L EARNED CIT ' A ' FA IL ED T O APPREC I ATE THAT THE APPELLATE TRI B UNAL HAS HELD THAT THE PROF I TS FO R THE PURPOSE OF INCOME TAX AC T H A S TO B E DETERM I NED ON THE BAS I S OF ACCOUNTS PREPARED FOR THE PURPOSE O F INCOME T A X V I DE PARA 19 I N PAGE 18 OF I TS COMMON APPELLATE ORDE R DATED 21 . 04 . 0 6 IN THE APPEALS FOR THE ASSESSMENT YEARS 1995-96 TO 200 1-02 I N THE APPE LL A NT ' S C ASE I TSE L F IN I . T .A NO .493/ MDS / 2002 F OR ASSESSME NT YEAR 1996 - 1997 , I . T .A NO . 417/MDS / 2001 FO R ASSESSMENT YEAR 1 997 - 1998 , I . T . A NO . 1523/ MDS / 2004 FO R ASSESSMENT YEAR 1998 - 1999 , I.T.A NO . 436/ M DS/2004 FOR ASSE SS M EN T YEA R 1999- 2000 AND IN I.T.ANO . 1160/M DS/2005 FO R ASS ESS M ENT YEAR 200 1- 2002 AND THIS FINDING HAS NO T BEE N CH A LLENGED BY TH E DEPARTMENT I N THE APPEALS F IL ED I N THE H I GH COUR T AGA I N ST T HAT ORDER . VII) T HE LEARNED CIT ' A ' FA IL ED TO APP R E CI A T E T HAT WHAT ' IS P ROVIDED FO R ' IN ST ATU T O R Y ACCO U NTS CA N BE ' WR I TTE N O F F ' IN THE INC O ME TAX ACT AND VICE V E R SA , S I NCE THE TWO SE T S OF ACCOUNTS A R E M AINTAI N E D TO COMPLY WITH THE PROVIS I ONS OF DIFFE R ENT ACTS AND MA I NTENANCE OF S UCH A CCOUNTS HAS BEEN APP R OVED BY THE SC I N THE UCO BANK ' S CASE 240 I TR 355 (SC ) AT P . 36 7 . V III) THE LEARNED CIT ' A ' HAS NOT PROPE R LY APP R EC I ATED T H E IM PO RT OF WRITE OFF OF THE DEBTS I N THE PROF I T AND LOSS ACCOUNT. THE ASSESS I NG OFF IC E R HAS FAILED TO APP R EC I ATE THAT FU LL DETAILS OF BAD DEBTS HAVE BEE N F URNI S HED IN THE ASSESSMENT PROCEED I NGS ; THAT THEY HAVE BEEN WR I TTEN O F F A F T ER PROPER ASSESSMENT OF EACH ACCOUNT. IX) THE LEARNED CIT ' A ' SHOULD HAVE BEEN P L EASED TO FOLLOW T HE JURISDICTIONAL APPELLATE TRIBUNAL ' S O RDE R S I N THE APPE LL ANT ' S C ASE IT SELF IN ITS ORDER DATED 2 1 . 04 . 2006 FOR ASSESSMENT YEARS 199 5 - 1996 (I . T . A N O . 334/ M DS/2002 ) , 1996 - 1997 ( I.T.ANO . 1168 / MDS/2004 ) , 1 997 - 1998 ( I. T . AN O . 417/ M DS/2001 ) , 1 999-2000 ( I . T . A NO . 436 / MDS/2004 ) & 2000 - 2001 ( I . T . A NO . 805/ M DS/2004) , 2001-02(I.T.A.NO. 1565/MDS/2005) & 2002-2003 (I.T.A .NO. 971/MDS/2006) WHE R E S I M IL A R BAD DEBTS CLA I MS HAVE BEEN ALLOWED . ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 29 - : X ) S I MILA R D I SAL L OWANCE MADE BY THE ASSESS I NG OFF I CE R IN THE IMMEDIATE PRECED I NG ASSESSMEN T YEAR 2006-200 7 WAS DELETED BY CIT(A ) AND THE HO N' B L E IN C OME TAX APPELLATE TRI BUNAL IN ITS ORDE R IN I . T .ANO . 7 25/MDS / 2010 DATED 1 6 . 12 . 20 1 0 HAS C ONF IRM E D THE ORDE R OF C I T ( A ) DELET I NG THE ADDITION . IV. COMPUTATION U/S 115JB OF THE INCOMETAX ACT, (A) AMOUNT TRANSFERRED TO STATUTORY RESERVE ` ` ` ` 38,10,000 J) THE L EA R NED CIT ' A ' HAS ERRED IN CONFIRMING THE ACTION O F T HE ASSESS I NG O F FICER I N NOT AL L OW I NG THE APPELLANT ' S CLA I M FO R DEDUC TI NG TH E AMOUN T O F ` 38,10,00,000 /- TRANSFERRED TO STATUTORY RESE R VE AS PE R RESE R VE BAN K O F I NDIA GUIDEL I NES I N C OMP U T I NG I NCOME U / S . 1 15JB OF T HE A C T . II ) THE LEARNED CIT ' A ' HAS FAILED TO APP R EC I A T E THA T THIS AMOUNT O F ` 38,10,00,000/- DOES NOT FO R M PART OF THE REA L INCOME O F THE APPE LL A NT O N T HE SAME GROUNDS AS MENT I ONED I N TH E G R O U NDS OF APP E A L AGA I NS T THE CONF I RMATION OF D I SALLOWANCE I N COMPUTAT I ON OF REGULAR I NCO M E . ON THESE GROUNDS AND OTHER GROUNDS THAT MAY BE SUBM ITTED BEFORE OR DURING THE COURSE OF HEARING , IT IS PRAYED THAT THE APPELLANT ' S CLA I M I) F OR DEDUCT I ON OF THE AMOUNT OF ` 80,79,62,329/- TR ANSFE RRED TO T H E RESERVE FUND I N COMPL I ANCE WITH THE MANDATORY PROV I SIONS OF RB I ACT , II) FOR ALLOWING BAD DEBTS CLAIM OF ` 31,42,42,000/- IN COMPUTING INCOME UNDER REGULAR PROVISIONS OF THE ACT; AND I I I ) F O R DEDUCT I ON OF ` 38,10,00,000/- T R ANSFE RR ED T O RE SERVE FUND IN C O M PUT I NG I NCOME U / S . 11 5JB MAY BE ALLOWED BY T H E HO N ' B LE T R IBU N A L . ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 30 - : 33. ALL THE ISSUES TAKEN VIDE GROUND NOS. I, II AND III STAND COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE IN I.T.A.NO. 235/M DS/2009, ORDER DATED 16.7.2009 AND IN I.T.A.NO. 725/MDS/20100, ORD ER DATED 16.12.2010. THEREFORE, BY RESPECTFULLY FOLLOWING T HE TRIBUNAL ORDERS(SUPRA), WE ALLOW THE APPEAL OF THE ASSESSEE . 34. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. TO SUMMARIZE THE RESULT, REVENUES A PPEALS IN I.T.A.NOS.319 & 320/MDS/2011 STAND DISMISSED. C.O. NOS.51 AND 52/MDS/2011 AND I.T.A.NOS.22 & 23/MDS/2011 FILED BY THE ASSESSEES STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT O N 10.10.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 10 TH OCTOBER, 2011 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 31 - : IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO. 319/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) THE ACIT COMPANY CIRCLE VI(2) CHENNAI VS M/S SHRIRAM CITY UNION FINANCE COMPANY LTD MOOKAMBIKA COMPLEX 3 RD FLOOR, LADY DESIKA ROAD MYLAPORE, CHENNAI - 4 [PAN AAACS7703H ] (APPELLANT) (RESPONDENT) C.O. NO. 51/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) M/S SHRIRAM CITY UNION FINANCE COMPANY LTD MOOKAMBIKA COMPLEX 3 RD FLOOR, LADY DESIKA ROAD MYLAPORE, CHENNAI - 4 VS THE ACIT COMPANY CIRCLE VI(2) CHENNAI (CROSS OBJECTOR) (RESPONDENT) I.T.A NO. 320/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) THE ACIT COMPANY CIRCLE VI(2) CHENNAI VS M/S SHRIRAM TRANSPORT FINANCE COMPANY LTD MOOKAMBIKA COMPLEX 3 RD FLOOR, LADY DESIKA ROAD MYLAPORE, CHENNAI - 4 [PAN AAACS7018R ] (APPELLANT) (RESPONDENT) ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 32 - : C.O. NO. 52/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) M/S SHRIRAM TRANSPORT FINANCE COMPANY LTD MOOKAMBIKA COMPLEX 3 RD FLOOR, LADY DESIKA ROAD MYLAPORE, CHENNAI - 4 VS THE ACIT COMPANY CIRCLE VI(2) CHENNAI (CROSS OBJECTOR) (RESPONDENT) I.T.A.NO. 22/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) M/S SHRIRAM CITY UNION FINANCE LTD NO.123, ANGAPPA NAICKEN STREET CHENNAI 600 001 VS THE ADDL. CIT COMPANY RANGE VI CHENNAI (APPELLANT) (RESPONDENT) I.T.A.NO. 23/MDS/2011 (ASSESSMENT YEAR : 2007-08 ) M/S SHRIRAM TRANSPORT FINANCE COMPANY LTD MOOKAMBIKA COMPLEX NO.4 LADY DESIKA ROAD MYLAPORE, CHENNAI 600004 VS THE ADDL. CIT COMPANY RANGE VI CHENNAI (APPELLANT (RESPONDENT) ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 33 - : CORRIGENDUM THE ABOVE CAPTIONED CASES HAVE BEEN DISPOSED OF ON 10.10.2011. IN PARA 26 AT PAGE 19, THE FIRST SE NTENCE MAY BE READ AS UNDER: 26. THE DECISION IN THE CASE OF GOETZ (INDIA) LTD (SUPRA) DOES NOT APPLY TO THE TYPE OF CLAIMS MADE BY THE AS SESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS SINCE WHAT HAS BEEN WRONGLY OFFERED FOR ASSESSMENT BY THE ASSESSE E IN THE ADJUSTMENT STATEMENT IS SOUGHT TO BE RECTIFIED BY THE LETTER DURING ASSESSMENT PROCEEDINGS. 2. IN I.T.A.NO.22/MDS/2011 IN THE CASE OF SHRI RAM CITY UNION FINANCE LIMITED, PARA NOS. 30 & 31 MAY BE READ AS UNDER: 30. ADMITTEDLY, ALL THE ISSUES TAKEN VIDE GROUN D NOS. I, II AND III STAND COVERED BY THE ORDERS OF THE TRIBU NAL RENDERED IN ASSESSEES OWN CASE IN I.T.A.NO. 236/MDS/2009, ORDER DATED 16.7.2009 AND IN I.T.A.NO . 726/MDS/20100, ORDER DATED 16.12.2010. THERE IS NO NEED TO ELABORATE THEM. GROUND NO.I(II) & II(B) VIZ. CL AIM OF BAD DEBTS HAS BEEN ALLOWED IN ASSESSEES FAVOUR. THE OTHER GROUNDS I(I) AND I(III) AND II(A) AND III VIZ. REGA RDING AMOUNTS TRANSFERRED TO RESERVE FUND IN REGULAR COMPUTATION AS WELL AS COMPUTATION U/S 115JB HAVE B EEN ALLOWED IN REVENUES FAVOUR. THEREFORE, RESPECTFUL LY FOLLOWING THE TRIBUNALS ORDERS(SUPRA) WHICH ARE MENTIONED IN THE GROUNDS ITSELF, THE ASSESSEES CLA IM FOR ALLOWANCE OF BAD DEBTS OF ` ` ` ` 2,12,67,000/- IS ALLOWED. THE DISALLOWANCE OF TRANSFER OF ` ` ` ` 17,09,56,664/- TO RESERVE FUND IN REGULAR COMPUTATION AND DISALLOWANCE OF ` ` ` ` 10,32,43,000/- TRANSFERRED TO RESERVE FUND IN COMPU TATION U/S 115JB ARE CONFIRMED. 31. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS P ARTLY ALLOWED. ITA 319 &320/11 CO 51 & 52/11 ITA 22 & 23/11 :- 34 - : 3. IN I.T.A.NO.23/MDS/2011 IN THE CASE OF SHRIRAM T RANSPORT FINANCE COMPANY LIMITED, PARA NOS.33 & 34 MAY BE RE AD AS UNDER: 33. ALL THE ISSUES VIDE GROUNDS I, II & III STAND COVERED BY THE ORDERS OF THE TRIBUNAL RENDERED IN ASSESSEES O WN CASE IN I.T.A.NO. 235/MDS/2009, ORDER DATED 16.7.20 09 AND IN I.T.A.NO. 725/MDS/2010, ORDER DATED 16.12.2010. THERE IS NO NEED TO ELABORATE THEM. GROUND NOS.I(II) & I I(B) VIZ. CLAIM OF BAD DEBTS HAS BEEN ALLOWED IN ASSESSEES F AVOUR. THE OTHER GROUNDS I(I) AND I(III) AND II(A) AND III REGARDING AMOUNTS TRANSFERRED TO RESERVE FUND IN REGULAR COMPUTATION AS WELL AS COMPUTATION U/S 115JB HAVE B EEN ALLOWED IN REVENUES FAVOUR. THEREFORE, RESPECTFUL LY FOLLOWING THE TRIBUNALS ORDERS (SUPRA) WHICH ARE MENTIONED IN THE GROUNDS ITSELF, THE ASSESSEES CLA IM FOR ALLOWANCE OF BAD DEBTS OF ` ` ` ` 31,42,42,000/- IS ALLOWED. THE DISALLOWANCE OF TRANSFER OF ` ` ` ` 80,79,62,329/- TO RESERVE FUND IN REGULAR COMPUTATION AND DISALLOWANCE OF ` ` ` ` 38,10,00,000/- TRANSFERRED TO RESERVE FUND IN COMPUTATION U/S 115JB ARE CONFIRMED. 34. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS PA RTLY ALLOWED. 4. RESULT OF THE ORDER MAY BE READ AS UNDER: TO SUMMARIZE THE RESULT, REVENUES APPEALS IN I.T.A .NOS. 319 & 320/MDS/2011 STAND DISMISSED. C.O.NOS.51 AND 52/MDS/2011 AND I.T.A.NOS.22 & 23/MDS/2011 FILED BY THE ASSESSEE STAND PARTLY ALLOWED. 5. THE REST OF THE ORDER WILL REMAIN UNCHANGED . SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 8 TH NOVEMBER, 2011 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR