SBT, Trivandrum V. The ACIT, Trivandrum

ITA 102/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77447 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 14-03-2014
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Keywords: Depreciation; Bad and doubtful debts; Difference of opinion; Change of opinion
• Section: 143(3); 14A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 102&103/COCH/2014 ASSESSMENT YEARS : 2006-07 & 2007-08 STATE BANK OF TRAVANCORE, HEAD OFFICE, POOJAPURA, TRIVANDRUM [PAN : AAGCS 9120G] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), TRIVANDRUM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) I.T.A. NOS. 109&110/COCH/2014 ASSESSMENT YEARS: 2006-07 & 2007-08 THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), TRIVANDRUM. VS. STATE BANK OF TRAVANCORE, HEAD OFFICE, POOJAPURA, TRIVANDRUM [PAN : AAGCS 9120G] (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) REVENUE BY SMT. LATHA V. KUMAR, JR. DR ASSESSEE BY SHRI C. NARESH, CA DATE OF HEARING 08/05/2014 DATE OF PRONOUNCEMENT 06/06/2014 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A)-I, TRIVANDRUM AND THEY RELATE TO THE ASSESSM ENT YEAR 2006-07 AND 2007- 08. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A. NOS. 102,103,109&110/COCH/2014 2 2. THE ASSESSEE IS A BANKING COMPANY. THE ASSESSME NT IN THE HANDS OF THE COMPANY FOR THE ASSESSMENT YEAR 2006-07 WAS ORIGINA LLY COMPLETED U/S. 143(3) OF THE ACT ON 22-12-2008. THE ASSESSEE HAD RETURNED AN INCOME OF RS. 100.32 CRORES AND THE ASSESSMENT WAS MADE ON A TOTAL INCOM E OF RS.70.69 CRORES. SUBSEQUENTLY, THE ASSESSING OFFICER NOTICED THAT TH ERE WAS ESCAPEMENT OF INCOME AND ACCORDINGLY, HE RE-OPENED THE ASSESSMENT RELATING TO AY 2006-07 BY ISSUING NOTICE U/S. 148 OF THE ACT AND COMPLETED TH E SAME BY MAKING VARIOUS ADDITIONS. THE ASSESSMENT RELATING TO THE ASSESSME NT YEAR 2007-08 WAS COMPLETED U/S. 143(3) OF THE ACT BY MAKING VARIOUS ADDITIONS. AGGRIEVED BY THE ASSESSMENT ORDERS PASSED FOR BOTH THE YEARS, THE AS SESSEE PREFERRED THE APPEALS BEFORE THE LD. CIT(A) AND THE APPEALS WERE PARTLY A LLOWED. AGGRIEVED, BOTH THE PARTIES HAVE FILED THESE APPEALS BEFORE US ON THE I SSUES DECIDED AGAINST EACH OF THEM. 3. WE SHALL TAKE UP THE APPEAL FILED BY THE ASSESSE E FOR THE ASSESSMENT YEAR 2006-07. THE FIRST ISSUE RELATES TO THE VALIDITY OF RE-OPENING OF THE ASSESSMENT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS RE- OPENED THE ASSESSMENT, ONLY ON CHANGE OF OPINION AN D HENCE THE RE-OPENING IS NOT VALID. IN THIS REGARD, HE PLACED RELIANCE ON T HE DECISION OF THE HONBLE SUPREME COURT RENDERED IN THE CASE OF CIT VS. KELVI NATOR INDIA LIMITED (187 TAXMAN 312). 3.1 ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAD ADEQUATE REASONS TO BELIEVE THAT THE INCOME HAS ESC APED ASSESSMENT. HE FURTHER SUBMITTED THAT THE LD CIT(A) HAS EXAMINED T HE CONTENTIONS OF THE ASSESSEE IN DETAIL AND HAS UPHELD THE VALIDITY OF T HE RE-OPENING. 3.2 WE HAVE CONSIDERED THE RIVAL CONTENTIONS ON THI S ISSUE. WE NOTICE THAT THE ASSESSING OFFICER HAS RECORDED THE REASONS AND THE SAME WAS INTIMATED TO THE ASSESSEE, VIDE HIS LETTER DATED 10-05-2010. THE REASONS FOR REOPENING WERE I.T.A. NOS. 102,103,109&110/COCH/2014 3 EXTRACTED BY THE LD. CIT(A) IN HIS ORDER. WE NOT ICE THAT THE ASSESSING OFFICER HAS POINTED OUT FIVE ISSUES, ON THE BASIS OF WHICH HE HAS ENTERTAINED THE BELIEF THAT THERE WAS ESCAPEMENT OF INCOME. THOUGH THE AS SESSEE CONTENDS THAT THE ASSESSING OFFICER HAS ALREADY EXAMINED THOSE ISSUES AND FORMED OPINION THEREON, YET NO MATERIAL WAS PLACED BEFORE US TO SUBSTANTIAT E THE SAID CLAIM. WE NOTICE THAT ONE OF THE ISSUES RELATED TO THE EXCESSIVE CLA IM OF DEPRECIATION THAT WAS ALLOWED IN THE ORIGINAL ASSESSMENT ORDER. THE ASSE SSING OFFICER FOUND THE SAME TO BE EXCESSIVE ON THE BASIS OF TAX AUDIT REPORT, S INCE THE ELIGIBLE DEPRECIATION CERTIFIED BY THE TAX AUDITOR DIFFERED FROM THE AMOU NT THAT WAS ACTUALLY ALLOWED IN THE ASSESSMENT ORDER. ON THIS ISSUE, IN OR VIEW, I T CANNOT BE SAID THAT THE ASSESSING OFFICER HAD FORMED ANY OPINION. IN RESPE CT OF OTHER ISSUES, AS POINTED OUT BY US EARLIER, THE ASSESSEE DID NOT PRODUCE ANY MATERIAL TO SUBSTANTIATE ITS CLAIM THAT THE ASSESSING OFFICER HAD EXAMINED THE I SSUES AND FORMED AN OPINION IN THE ORIGINAL ASSESSMENT ORDER. UNDER THESE CIRCU MSTANCES, WE ARE UNABLE TO AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND ACCO RDINGLY UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 4. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF DE PRECIATION ON FIXED ASSETS AMOUNTING TO RS. 1.23 CRORES. THE FACTS RELATING T O THE SAME ARE DISCUSSED IN BRIEF. IN THE ORIGINAL RETURN OF INCOME, THE ASSES SEE HAD CLAIMED AN AMOUNT OF RS. 57,49,21,556/- AS DEPRECIATION AND THE SAME WAS ALLOWED. HOWEVER, IT WAS NOTICED LATER THAT THE TAX AUDITOR HAS CERTIFIED TH E AMOUNT OF DEPRECIATION ADMISSIBLE FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION AS RS. 56,25,86,558/-. ACCORDINGLY, THE ASSESSING OFFICER TOOK THE VIEW TH AT THE DEPRECIATION WAS ALLOWED IN EXCESS BY AN AMOUNT OF RS. 1,23,34,998/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4.1 IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) TO OK THE VIEW THAT THE STATUTORY AUDITOR HAS GIVEN THE REPORT AFTER VERIFI CATION OF CLAIMS AND RATES OF I.T.A. NOS. 102,103,109&110/COCH/2014 4 DEPRECIATION AND HENCE, THE ASSESSING OFFICER WAS J USTIFIED IN RELYING UPON THE REPORT OF THE STATUTORY AUDITOR. 4.2 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISS UE. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS COMPUTED THE AMOUNT OF DEPREC IATION BY ADOPTING CORRECT AMOUNT OF WRITTEN DOWN VALUE OF THE ASSETS AND ALSO BY APPLYING THE APPLICABLE RATES. HE FURTHER SUBMITTED THAT THE DIFFERENCE BE TWEEN THE AMOUNT OF DEPRECIATION SHOWN IN THE TAX AUDIT REPORT AND IN T HE RETURN OF INCOME HAS ARISEN ON ACCOUNT OF CONSIDERATION OF INCORRECT RATE OF DE PRECIATION ON AUTOMATIC VOLTAGE CONTROLLER AND MOTOR CARS PURCHASED IN 1998 -99 AND 2001-02 WHICH HAD THE CASCADING EFFECT IN THE SUBSEQUENT YEARS RESULT ING IN CARRY FORWARD OF WRONG AMOUNT OF WDV. THE LD. AR FURTHER SUBMITTED THAT T HE ASSESSING OFFICER IS REQUIRED TO DETERMINE CORRECT AMOUNT OF TOTAL INCOM E AND IN THAT PROCESS HE IS REQUIRED TO ASCERTAIN THE CORRECT AMOUNT OF DEDUCTI ON ADMISSIBLE UNDER THE ACT. ACCORDINGLY, HE SUBMITTED THAT THE TAX AUTHORITIES ARE NOT JUSTIFIED IN NOT EXAMINING THE EXPLANATIONS FURNISHED BY THE ASSESSE E. 4.3 ON THE CONTRARY, THE LD. DR PLACED STRONG RELIA NCE ON THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. 4.4 WE HAVE HEARD THE RIVAL CONTENTIONS ON THI S ISSUE. IN OUR VIEW, AS POINTED OUT BY THE LD. AR, THE ASSESSING OFFICER IS REQUIRED TO ASCERTAIN THE CORRECT AMOUNT OF DEPRECIATION THAT IS ALLOWABLE TO THE ASSESSEE AND ACCORDINGLY, ALLOW THE SAME WHILE COMPUTING THE TOTAL INCOME. I N THE INSTANT CASE, THERE WAS DIFFERENCE IN THE AMOUNT OF DEPRECIATION THAT WAS C LAIMED IN THE RETURN OF INCOME AND THAT WAS CERTIFIED BY THE TAX AUDITOR. WITH REGARD TO THE SAID DIFFERENCE, THE ASSESSEE HAS FURNISHED AN EXPLANATI ON, VIZ., THE OPENING WDV OF AUTOMATIC VOLTAGE CONTROLLER AND MOTOR CARS PURCHAS ED IN THE EARLIER YEARS GOT CHANGED DUE TO THE APPLICATION OF WRONG RATE OF DEP RECIATION IN THE EARLIER YEARS. WE NOTICE THAT THE ABOVE SAID EXPLANATION OF THE AS SESSEE WAS NOT EXAMINED BY I.T.A. NOS. 102,103,109&110/COCH/2014 5 THE ASSESSING OFFICER. THE ASSESSING OFFICER COULD HAVE FOUND OUT THE CORRECT POSITION ON THIS ISSUE BY CALLING FOR AN EXPLANATIO N FROM THE TAX AUDITOR ALSO. HENCE, IN OUR VIEW, THE ASSESSING OFFICER WAS NOT J USTIFIED IN NOT EXAMINING THE EXPLANATIONS GIVEN BY THE ASSESSEE BEFORE MAKING TH E IMPUGNED DISALLOWANCE. ON THE VERY SAME REASONING THE LD. CIT(A), IN OUR V IEW, IS NOT JUSTIFIED IN DECIDING THIS ISSUE AGAINST THE ASSESSEE WITHOUT EX AMINING THE SUBMISSIONS OF THE ASSESSEE. ACCORDINGLY, IN OUR VIEW, THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FI LE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ISSUE AFRESH BY TAKING I NTO CONSIDERATION THE EXPLANATIONS FURNISHED BY THE ASSESSEE AND TAKE APP ROPRIATE DECISION IN ACCORDANCE WITH LAW. 5. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF INTE R-BRANCH CREDIT BALANCE TRANSFERRED TO THE RESERVE ACCOUNT. THE ASSESSING O FFICER NOTICED THAT THE ASSESSEE HAS TRANSFERRED THE NET CREDIT BALANCE AMO UNT OF RS. 23.87 CRORES OUTSTANDING IN INTER-BRANCH ACCOUNT TO THE RESER VE ACCOUNT, I.E., THE AMOUNT SHOWN AS LIABILITY WAS TRANSFERRED TO THE RESERVE A CCOUNT. THE ASSESSEE HAS PASSED THIS ENTRY AS PER RBI LETTER DATED 20-12-200 5. IN THE RETURNS OF INCOME, THE ASSESSEE DID NOT OFFER THE ABOVE SAID AMOUNT AS ITS INCOME ON THE GROUND THAT THE INTER-BRANCH TRANSACTION IS NOT TAXABLE UN DER THE PRINCIPLE OF MUTUALITY. HOWEVER, THE ASSESSING OFFICER TOOK THE VIEW THAT T HE RBI LETTER CITED ABOVE RECOGNIZES THE UN-RECONCILED INTER-BRANCH AMOUNT BA LANCE AS INCOME OF THE ASSESSEE. ACCORDINGLY, THE ASSESSING OFFICER ASSESS ED THE ABOVE SAID AMOUNT AS MISCELLANEOUS INCOME OF THE ASSESSEE. 5.1 BEFORE THE LD. CIT(A), THE ASSESSEE PLACED RELI ANCE ON THE DECISION RENDERED BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF PUNJAB NATIONAL BANK VS. ACIT (I.T.A. NO. 2047/DEL/2007 DATED 25-10-2011 RELATING TO THE ASSESSMENT YEAR 2005-06). THE LD. CIT(A) HOWEVER TOOK THE VIE W THAT THE DECISION I.T.A. NOS. 102,103,109&110/COCH/2014 6 RENDERED BY THE DELHI BENCH OF TRIBUNAL CENTERS ARO UND THE APPLICABILITY OF PROVISIONS OF SEC. 41(1) OF THE ACT. ON THE CONTRA RY, THE LD. CIT(A) PLACED RELIANCE ON THE DECISION RENDERED BY THE CO-ORDINAT E BENCH OF THE COCHIN TRIBUNAL IN THE ASSESSEES OWN CASE IN I.T.A. NOS. 98&99/COCH/2002 RELATING TO THE ASSESSMENT YEARS 1997-98 AND 1998-99 AND ACCORD INGLY, DIRECTED THE ASSESSING OFFICER TO DECIDE THIS ISSUE AS PER THE D IRECTIONS GIVEN BY THE TRIBUNAL. FOR THE SAKE OF CONVENIENCE, WE EXTRACT THE RELEVAN T OBSERVATIONS MADE BY THE LD. CIT(A) ON THIS ISSUE: 16.6 ON IDENTICAL ISSUE, THE ITAT COCHIN BENCH IN I.T.A. NOS. 98 & 99/COCH/2002 FOR THE A.YS 1997-98 AD 1998-99 IN APP ELLANTS OWN CASE HAS HELD THAT: THE AMOUNT, WHICH HAS BEEN CREDITED, IS IN RESPECT OF TRANSACTIONS BETWEEN THE HEAD OFFICE AND THE BRANCH OFFICE OR TH E BRANCHES INTER SE. IF THE AMOUNT HAS BEEN CREDITED IN THE H EAD OFFICE OR IN ONE OF THE BRANCH OFFICES, THEN THE CORRESPONDING A MOUNT STANDS DEBITED IN THE BRANCH. IF THE ASSESSEE BANK HAS NO T CLAIMED DEBIT OF SUCH ENTRIES MADE IN THE BRANCH, THEN CREDIT OF SUCH ENTRIES CANNOT BE TREATED AS INCOME. HENCE, THE ASSESSING OFFICER WILL BE REQUIRED TO ASCERTAIN AS TO WHETHER THE CORRESPONDI NG DEBIT ENTRY HAS BEEN CLAIMED BY THE BRANCH AS EXPENDITURE AND I F THE SAME HAS NOT BEEN CLAIMED AS EXPENDITURE, THEN THE AMOUNT CR EDITED CANNOT BE TAXED AS INCOME. IN CASE, CREDIT IS IN RESPECT OF UN-RECONCILED ENTRIES I.E. THE CORRESPONDING DEBIT ENTRIES ARE NO T AVAILABLE, THEN THE AMOUNT CANNOT BE TREATED AS INCOME AS ONE CANNO T EXPECT TO EARN FROM ONESELF. THE CREDIT IS IN RESPECT OF INT ER-BRANCH TRANSACTIONS AND BRANCHES ARE PART OF THE APPELLANT BANK; HENCE, ON THE PRINCIPLE OF MUTUALITY, THE AMOUNT CANNOT BE TREATED AS INCOME. THE ISSUE IS RESTORED BACK ON THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION. 16.7 SINCE THE MATTER NOW STANDS RESTORED BACK TO THE ASSESSING OFFICER ON THIS ISSUE, IT WOULD BE PRE-MATURE TO DECIDE UPO N THIS ISSUE. THE APPEAL ON THIS GROUND STANDS AS PRE-MATURE, THE ASSESSING OFFICER IS DIRECTED TO DO IN ACCORDANCE WITH THE DIRECTIONS OF THE LEARNED ITAT. ACCORDINGLY, THE APPEAL ON THIS GROUND IS DI SMISSED FOR STATISTICAL PURPOSES . I.T.A. NOS. 102,103,109&110/COCH/2014 7 5.2 WE HAVE HEARD THE PARTIES ON THIS ISSUE. WE NOTICE THAT THE LD. CIT(A) HAS FOLLOWED THE DECISION RENDERED BY THE CO-ORDINA TE BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, REFERRED SUPRA. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER ON THIS ISSUE. 6. THE LAST ISSUE IN THE APPEAL OF THE ASSESSEE FILED FOR THE AY 2006-07 RELATES TO THE ASSESSMENT OF APPRECIATION IN VALUAT ION OF SECURITIES HELD AS STOCK IN TRADE. THE AO NOTICED THAT THE ASSESS EE HAS BEEN ALLOWED AN AMOUNT OF RS.387.53 CRORES AS DEDUCTION TOWARDS LOS S IN THE VALUE OF SECURITIES. THE AO TOOK THE VIEW THAT THE GAIN IN VALUE OF SECURITIES ALSO SHOULD HAVE BEEN CONSIDERED BY THE ASSESSEE AND ONLY THE N ET LOSS, IF ANY, IS ALLOWABLE AS DEDUCTION. THE AO, FURTHER EXPRESSED THE VIEW T HAT IF THE LOSS IS CLAIMED IN RESPECT OF AN INVESTMENT IN A PRIOR YEAR DUE TO FAL L IN ITS VALUE AND IN THE CURRENT YEAR, IF PART OF LOSS IS RECOUPED DUE TO AP PRECIATION OF THE VALUE, THEN THE SAID INCREASE SHOULD BE ASSESSED TO TAX. HENCE , THE AO ASKED FOR DETAILS OF THE SECURITIES WHOSE VALUE HAS APPRECIATED. SINCE THE ASSESSEE DID NOT FURNISH THE DETAILS, THE AO DISALLOWED 50% OF THE AMOUNT CL AIMED AS LOSS IN THE VALUE OF SECURITIES. 6.1 THE LD CIT(A) ACCEPTED WITH THE PRINCIPLES EXPRESSED BY THE AO, BUT DIRECTED THE AO DETERMINE THE ACTUAL QUANTUM, INSTE AD OF MAKING ADHOC DISALLOWANCE. 6.2 THE LD A.R SUBMITTED THAT THE ASSESSEE HAS BEEN FOLLOWING CONSISTENT METHOD OF VALUING STOCK IN TRADE AT COST OR MARKET VALUE, WHICHEVER IS LESS. ACCORDINGLY HE SUBMITTED THAT MARKET VALUE HAS TO B E NECESSARILY IGNORED, IF IT IS MORE THAN THE COST, SINCE THE SAID APPRECIATION IS NOTIONAL UNTIL IT IS ACTUALLY REALIZED. HE FURTHER SUBMITTED THAT THE ASSESSEE H AS VALUED THE STOCK IN TRADE ACCORDING TO THE METHOD CONSISTENTLY FOLLOWED AND H ENCE THERE IS NO REQUIREMENT TO DISTURB THE LOSS CLAIMED BY THE ASSE SSEE. I.T.A. NOS. 102,103,109&110/COCH/2014 8 6.3 ON THE CONTRARY, THE LD D.R POINTED OUT THA T THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS CALLED FOR BY THE AO AND HENCE THE AO WAS CONSTRAINED TO MAKE THE DISALLOWANCE ON ESTIMATED BASIS. 6.4 WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISS UE. ACCORDING TO THE ASSESSEE, IT HAS BEEN CONSISTENTLY FOLLOWING THE ME THOD OF VALUING THE STOCK, VIZ., COST OR MARKET VALUE WHICHEVER IS LESS. AC CORDINGLY, IT WAS CONTENDED THAT THERE IS NO REQUIREMENT TO DISTURB THE CLAIM M ADE BY THE ASSESSEE. HOWEVER, THE CASE OF THE AO IS THAT THE ASSESSEE HA S IGNORED THE GAINS AND HAS CLAIMED THE LOSS ONLY. FURTHER THE AO HAS ALSO EXPRESSED THE LOSS RECOUPED DURING THE YEAR SHOULD BE NETTED OFF AGAIN ST THE CLAIM. IN OUR VIEW, IT APPEARS THAT THE AO HAS NOT BEEN PROPERLY APPREC IATED ABOUT THE METHOD ADOPTED BY THE ASSESSEE. IF THE ASSESSEE IS FOLLOW ING THE METHOD OF VALUATION CITED ABOVE, THE APPRECIATION OF VALUE OF ANY STOCK , THE LOSS OF WHICH WAS CLAIMED IN THE EARLIER YEAR, WOULD BE AUTOMATICALLY GET ADJUSTED IN THE VALUATION. FOR EXAMPLE, THE MARKET VALUE OF A SECU RITY HAVING A COST OF RS.100/- WAS, SAY RS.60/- AND RS.80/- RESPECTIVELY AS ON 31.3.2005 AND 31.3.2006. THE ASSESSEE WOULD BE CLAIMING A LOSS O F RS.40/- IN THE YEAR ENDING 31.3.2005 BY VALUING THE ABOVE SAID SECURITY AT A VALUE OF RS.60/-. IN THE YEAR ENDING 31.3.2006, THE SAME SECURITY WILL B E VALUED AT RS.80/-, MEANING THEREBY THE LOSS TO THE EXTENT OF RS.20/- ( LOSS RECOUPED IN THAT SECURITY) WOULD BE AUTOMATICALLY NETTED OFF AGAINST THE LOSS INCURRED IN OTHER SECURITIES. 6.5 WE HAVE ALREADY NOTICED THAT THE ASSESSEE HA S FAILED TO FURNISH THE DETAILS OF VALUATION OF STOCK IN TRADE AND HAS ALSO FAILED TO CLARIFY THE DOUBTS RAISED BY THE AO AND HENCE THE AO WAS CONSTRAINED T O MAKE ADHOC DISALLOWANCE. SINCE THE ASSESSEE IS CLAIMING THAT IT IS FOLLOWING CONSISTENT METHOD OF VALUATION, IN OUR VIEW, THE ASSESSEE SHOU LD FURNISH ALL THE RELEVANT I.T.A. NOS. 102,103,109&110/COCH/2014 9 DETAILS AND CLARIFY THE DOUBTS RAISED BY THE AO IN RESPECT OF THIS CLAIM. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THIS MATTER TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH. THE ASSESSEE IS DIRECTED TO EXPLAIN THE PRINCIPLES AND METHODS FOLLOWED FOR VALUING THE STOCK IN TRADE AND ALSO CLEAR ALL THE DOUBTS OF THE AO IN THIS MATTER. THE ORDER OF LD CIT(A) STANDS MODIFIED ACCORDINGLY. 7. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2006-07. THE ONLY ISSUE URGED RELATES TO THE DISALLOWANCE MADE U/S 36(1)(VIIA) OF THE ACT. ACCORDING TO THE AO, THE CLAIM MADE BY THE ASSESSEE RESULTS IN ALLOWING THE DEDUCTION TWICE. THE AO HA S ARRIVED AT THIS CONCLUSION WITH THE FOLLOWING OBSERVATIONS:- ON VERIFYING THE PAST RECORDS ALSO IT WAS FOUND TH AT THE ASSESSEE HAS NOT BEEN DEBITING THE BAD DEBTS WRITTEN OFF TO THE PROV ISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT CREATED U/S 36(1)(VIIA) OF T HE ACT RESULTING IN DUPLICATION OF CLAIM OF BAD DEBTS IN VIOLATION OF T HE PROVISIONS OF SECTION 36(1)(VII) R.W.S 36(1)(VIIA) R.W.S 36(2)(V) HOWEVER, ACCORDING TO THE ASSESSEE, IT HAS BEEN DEB ITING THE BAD DEBTS WRITTEN OFF ONLY TO THE PROVISION FOR BAD AND DOUBTFUL DEB TS ACCOUNT AND ONLY THE DEBIT BALANCE AVAILABLE IN THE ABOVE SAID PROVISION ACCOU NT WAS CLAIMED AS DEDUCTION. THUS, WE NOTICE THAT OBSERVATIONS MADE BY THE AO AN D THE SUBMISSIONS MADE BY THE ASSESSEE CONTRADICTS WITH EACH OTHER. 7.1 THERE APPEARS TO BE NO DISPUTE FOR CLAIMING DEDUCTION BOTH U/S 36(1)(VII) AND 36(1)(VIIA) OF THE ACT. THE DISPUTE RELATES TO THE ISSUE VIZ.., WHETHER THE ASSESSEE HAS COMPLIED WITH THE PROVISO TO 36(1)(VII ) OF THE ACT. HENCE, THIS ISSUE ALSO REQUIRES ONLY CLARIFICATION, I.E., THE ASSESSE E HAS TO SATISFY THE AO THAT IT HAS DEBITED THE BAD DEBTS WRITTEN OFF BY IT (A) FIRST T O THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT AND (B) THE NET DEBIT BALAN CE FOUND IN THE PROVISION ACCOUNT WAS ONLY CLAIMED AS DEDUCTION U/S 36(1)(VII ) OF THE ACT. HENCE, IN OUR I.T.A. NOS. 102,103,109&110/COCH/2014 10 VIEW, THIS MATTER ALSO REQUIRES EXAMINATION AT THE END OF THE AO. ACCORDINGLY WE MODIFY THE ORDER OF LD CIT(A) AND RESTORE THIS MATT ER ALSO TO THE FILE OF THE AO FOR EXAMINATION OF THE SAME AFRESH. THE ASSESSEE I S DIRECTED TO CLARIFY THE METHOD FOLLOWED BY IT AND FURNISH ALL THE DETAILS T HAT MAY BE CALLED FOR BY THE AO. 8. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE AS SESSEE FOR THE AY 2007-08. THE ONLY ISSUE URGED THERE IN RELATES TO THE DISALL OWANCE MADE U/S 14A OF THE ACT. THE LD A.R FAIRLY ADMITTED THAT THIS ISSUE I S DECIDED AGAINST THE ASSESSEE BY HONBLE KERALA HIGH COURT IN THE CASE OF CATHOLI C SYRIAN BANK (237 CTR 167). WE ALSO NOTICE THAT THE LD CIT(A) HAS FOLLOWED THE ABOVE SAID DECISION IN CONFIRMING THE DISALLOWANCE MADE U/S 14A OF THE ACT . ACCORDINGLY, WE UPHOLD HIS ORDER ON THIS ISSUE. 9. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2007-08. THE FIRST ISSUE RELATES TO THE DISAL LOWANCE OF CLAIM MADE U/S 36(1)(VII) OF THE ACT. IN THE PRECEDING PARAGRAPHS , WHILE CONSIDERING AN IDENTICAL ISSUE IN AY 2006-07, WE HAVE SET ASIDE THE MATTER T O THE FILE OF THE AO FOR EXAMINATION OF THE SAME AFRESH. IN THIS YEAR ALSO, THE DISALLOWANCE HAS BEEN MADE SINCE THE AO WAS NOT PROPERLY APPRECIATED OF T HE METHODOLOGY FOLLOWED BY THE ASSESSEE FOR CLAIMING DEDUCTION U/S 36(1)(VII) AND 36(1)(VIIA) OF THE ACT. ACCORDINGLY, WE MODIFY THE ORDER OF LD CIT(A) AND S ET ASIDE THIS ISSUE ALSO TO THE FILE OF THE AO FOR FRESH EXAMINATION. THE ASSESSEE IS DIRECTED TO CLARIFY THE METHOD FOLLOWED BY IT AND FURNISH ALL THE DETAILS T HAT MAY BE CALLED FOR BY THE AO. 10. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF CONTRIBUTION TO RETIRED EMPLOYEES MEDICAL BENEFIT SCHEME BY INVOKING THE PR OVISIONS OF SEC. 40A(9) OF THE ACT. THE DEPARTMENT HAS PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE MADRAS HIGH COURT IN THE CASE OF T STANES A ND COMPANY VS. CIT (221 I.T.A. NOS. 102,103,109&110/COCH/2014 11 ITR 209). THE LD CIT(A), HOWEVER, DELETED THE DISA LLOWANCE BY FOLLOWING THE DECISION RENDERED BY THE COCHIN BENCH OF ITAT IN TH E ASSESSEES OWN CASE IN ITA NO.861/COCH/2005 DATED 08-08-2007 RELATING TO AY 20 02-03. 10.1 BEFORE US, IT WAS NOT SHOWN THAT THE DECISI ON RENDERED BY THE TRIBUNAL IN AY 2002-03 HAS BEEN REVERSED BY THE HIGH COURT. UN DER THESE CIRCUMSTANCES, WE ARE INCLINED TO FOLLOW THE DECISION RENDERED BY THE CO-ORDINATE BENCH ON THIS ISSUE. SINCE THE LD CIT(A) HAS FOLLOWED THE DECISI ON OF THE TRIBUNAL, REFERRED ABOVE, WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE FOR AY 2006-07 AND BY THE REVENUE FOR AY 2007-08 ARE TREATED AS PARTLY ALLOWE D. THE APPEAL FILED BY THE REVENUE FOR AY 2006-07 IS TREATED AS ALLOWED. THE APPEAL FILED BY THE ASSESSEE FOR AY 2007-08 IS DISMISSED. PRONOUNCED ACCORDINGLY ON 06-06- 2014. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 6TH JUNE, 2014 GJ COPY TO: 1. STATE BANK OF TRAVANCORE, HEAD OFFICE, POOJAPURA , TRIVANDRUM 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCL E-1(1), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-I,TRIVAN DRUM. 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN