M/s H.P. State Industrial Development Corporation Ltd., Shimla V. ACIT, Shimla

ITA 1124/CHANDI/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80952 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 24-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 22-11-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMARVEER SINGH
• Keywords: Rule of consistency; Bad and doubtful debts
• Section: 43B; 115JB; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 1226, 1227/CHD/2010 ASSESSMENT YEARS : 2005-06 & 2007-08 ITA NO. 1124/CHD/2011 ASSESSMENT YEARS : 2008-09 ITA NO. 1118/CHD/2013 ASSESSMENT YEARS : 2010-11 H.P. STATE INDUSTRIAL V A.C.I.T. CIRCLE DEVELOPMENT CORPORATION SHIMLA NEW HIMRUS CART ROAD SHIMLA AACCT 0331A (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VISHAL MOHAN RESPONDENT BY: SHRI AMARVEER SINGH DATE OF HEARING 24.9. 2014 DATE OF PRONOUNCEMENT 8.10.2014 O R D E R PER T.R. SOOD, A.M THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 27.9.2010, 31.10.2011 & 20.11.2013 OF THE LD CIT(A) , SHIMLA. ITA NO. 1226/CHD/2010 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION O F RS. 1650866/- MADE ON ACCOUNT OF PREMIUM OF GROUP GRATUITY HOLDI NG THE SAME NOT TO BE ALLOWABLE U/S 36(1)(V) OF IT ACT. 2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION O F RS. 1.33 CRORES MADE ON ACCOUNT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS WRITTEN OFF IN THE COMPUTATION OF BOOK PROFIT U/S 115JB OF IT ACT. 3 GROUND NO. 1 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICE R NOTICED 2 THAT THE ASSESSEE HAS MADE CLAIM ON ACCOUNT OF PRE MIUM PAID TO LIC FOR GROUP GRATUITY SCHEME AMOUNTING TO RS. 1 6,50,766/-. IT SEEMS THAT THE MATTER HAD TRAVELED TO THE TRIBUN AL IN EARLIER ROUND AND THE SAME WAS SET ASIDE TO THE FILE OF ASS ESSING OFFICER FOR REEXAMINATION. THE FINDINGS OF THE TRI BUNAL HAS BEEN EXTRACTED BY THE ASSESSING OFFICER AT PARA 2.1 WHICH IS AS UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSION CAREFULLY. IT IS POINTED OUT BY THE ASSESSEE THAT THE GRATUITY SCHEME OF ITS EMPLOY EES HAVE BEEN SET UP BY WAY OF A DEED DATED 07.04.1986 EFFECTIVE FROM 01.03.1983. IT IS ALSO OBSERVED THAT THE NECESSARY APPLICATION HAS BE EN MADE TO THE COMMISSIONER SEEKING APPROVAL IN THE MONTH OF MAY, 1987. IT IS ALSO SEEN THAT THE GRATUITY SCHEME HAS BEEN FINALIZED BY THE ASSESSEE IN COLLABORATION WITH THE LIC OF INDIA, A PUBLIC FINAN CIAL INSTITUTION. THE ASSESSEE IS A HIMACHAL PRADESH GOVERNMENT UNDERTAKI NG. THE APPLICATION SEEKING APPROVAL MADE TO THE COMMISSION ER IN MAY, 1987 HAS NOT BEEN DISPOSED OF, AS HAS BEEN CONTENDD BY T HE APPELLANT BEFORE THE LOWER AUTHORITIES AS WELL AS BEFORE US. IN ANY CASE, THERE IS NO ORDER DECLINING THE RECOGNITION. THE CONDITION THAT CONTR IBUTIONS MADE TO THE GRATUITY FUND ARE ALLOWED ONLY INCASE THE FUND IS S O APPROVED BY THE COMMISSIONER, HAS BEEN ON THE STATUTE BY WAY OF SEC TION 36(I)(V) OF THE ACT EVEN IN THE EARLIER ASSESSMENT YEARS. IT IS ASS ERTED BY THE APPELLANT, WITHOUT NEGATION FROM THE REVENUE, THAT IN THE PAST YEARS, SUCH CLAIM OF THE ASSESSEE HAS ALWAYS BEEN ALLOWED BY THE ASSESSI NG OFFICER. SUCH A CONDUCT OF THE REVENUE IN THE PAST, AND THAT TOO FO R A REASONABLE LONG PERIOD OF TIME, HAS ALLOWED THE MATTER TO REST IN F AVOUR OF THE ASSESSEE. THEREFORE, WE DO NOT FIND ANY JUSTIFICATION ON THE PART OF THE LOWER AUTHORITIES TO STRAIGHT AWAY DISALLOW THE CLAIM OF THE ASSESSEE IN THIS YEAR. THE ASSESSING OFFICER OUGHT TO HAVE MADE EFFO RTS TO ASCERTAIN THE GRANT OF APPROVAL BY COMMISSIONER OR MADE THE CONCE RNED AUTHORITY AWARE OF THE PECULIAR SITUATION SO AS TO REMEDY THE SITUATION. AGAINST THIS, IT IS POINTED OUT BY THE ASSESSEE THAT IT HAS APPROACHED THE CIT WITH A REMINDER SEEKING APPROVAL IN PURSUANCE TO IT S APPLICATION FILED IN MAY, 1987. UNDER THE CIRCUMSTANCES, WE APPELLATE TR IBUNAL SET ASIDE THE ORDER OF THE CIT (APPEALS) AND RESTORE THE MATTER B ACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL WAIT FOR A REASONABLE P ERIOD OF TIME FOR THE COMMISSIONER TO DISPOSE OF THE ASSESSEES APPLICATI ON FOR APPROVAL AND THEREAFTER ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW. THUS, ON THIS GROUND THE ASSESSEE SUCCEEDS FOR STATISTICAL PURPOS ES. DURING THE SET ASIDE PROCEEDINGS IT WAS SUBMITTED T HAT THE ASSESSING OFFICER MAY MAKLE VERIFICATION FROM THE O FFICE OF THE COMMISSIONER REGARDING FATE OF THE APPLICATION. ALT ERNATIVELY IT WAS CONTENDED THAT IF IT IS FOUND THAT THE GRATUITY EXPENDITURE IS NOT ALLOWABLE U/S 36(1)(IV) THEN SAME MAY BE ALLOWE D U/S 37 AND IN THIS REGARD RELIANCE WAS PLACED ON THE DECIS ION OF HON'BLE MADRAS HIGH COURT IN CASE OF CIT V. PREMIE R COTTON 3 SPG. MILLS LTD., 258 ITR 253. THE ASSESSING OFFICE R CONSIDERED THESE SUBMISSIONS AND VERIFIED FROM THE OFFICE OF T HE COMMISSIONER REGARDING APPROVAL OF THE GRATUITY SCH EME. THE LD. COMMISSIONER VIDE LETTER NO. CIT/TECH/SML/GRATU ITY FUND/2009-10/4140 CLEARLY STATED THAT NO APPLICATIO N FOR APPROVAL OF GRATUITY SCHEME IS PENDING IN THE OFFIC E OF THE COMMISSIONER. HE ALSO OBSERVED THAT THE FACTS OF TH E CASE IN CASE OF CIT V. PREMIER COTTON SPG. MILLS LTD. (SUPR A) ARE DISTINGUISHABLE, THEREFORE DISALLOWED A SUM OF RS. 16,50,766/-. 4 ON APPEAL BEFORE THE LD. CIT(A) IT WAS MAINLY SUB MITTED THAT SIMILAR SUM HAD BEEN ALLOWED IN THE PAST AND T HEREFORE SAME MAY BE ALLOWED DURING THESE YEARS. IT WAS ALSO SUBMITTED THAT PREMIUMS WERE MADE AS PER RULE 101 OF IT RULES , 1962 AND PAYMENT HAS BEEN MADE FOR THE PURPOSE OF PAYMEN T OF GRATUITY TO IRREVOCABLE TRUST. FURTHER THE ASSESSEE HAS APPLIED IN THE PRESCRIBED FORM FOR APPROVAL OF FUNDS, THERE FORE THE CLAIM OF THE ASSESSEE SHOULD BE ALLOWED. 5 THE LD. CIT(A) AFTER EXAMINING THE SUBMISSIONS OB SERVED THAT THE ASSESSING OFFICER HAS CLEARLY OBSERVED THA T NO APPLICATION WAS PENDING IN THE OFFICE OF THE LD. CO MMISSIONER FOR APPROVAL AS PER THE COMMUNICATION. FURTHER THER E IS NO PROVISION OF DEEMING APPROVAL IN SCHEDULE IV OF IT ACT RELATING TO APPROVAL OF GRATUITY FUNDS. IN THIS BACKGROUND THE ADDITION MADE BY THE ASSESSING OFFICER WAS CONFIRMED. 6 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE REITE RATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND T HE LD. CIT(A). HE FURTHER SUBMITTED THAT THE TRIBUNAL HAS CLEARLY OBSERVED THAT SUCH PAYMENTS HAVE BEEN ALLOWED IN PA ST, THEREFORE FOLLOWING THE RULE OF CONSISTENCY, SUCH P AYMENT 4 SHOULD BE ALLOWED. EVEN IF THE CLAIM IS NOT ALLOWAB LE U/S 36(1)(IV) THEN SAME SHOULD BE ALLOWED U/S 37. 7 ON THE OTHER HAND, THE LD. D.R FOR THE REVENUE ST RONGLY SUPPORTED THE ORDER OF LD. CIT(A) AND CONTENDED THA T NO APPLICATION WAS FOUND IN THE OFFICE OF THE LD. COMM ISSIONER FOR APPROVAL OF THE FUND. HE ALSO SUBMITTED THAT SUCH CLAIMS MAY HAVE BEEN ALLOWED IN THE PAST U/S 143(1). IN ANY C ASE WHEN SPECIFIC APPROVAL IS REQUIRED THEN SUCH AMOUNT CANN OT BE ALLOWED IN THE ABSENCE OF APPLICATION. IN THIS REG ARD HE RELIED ON THE DECISION OF HON'BLE DELHI HIGH COURT IN CASE OF SONY INDIA P. LTD V CIT, 285 ITR 213. AT THIS STAGE WE A SKED THE LD. COUNSEL FOR THE ASSESSEE TO CLARIFY THE POSITION RE GARDING PENDENCY OF THE APPLICATION FOR APPROVAL OF GRATUIT Y FUND. THE LD. COUNSEL FOR THE ASSESSEE SHOWED HIS INABILITY T O PRODUCE ANY EVIDENCE THAT THE APPLICATION WAS PENDING BEFOR E THE LD. COMMISSIONER. 8 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULL Y AND FIND THAT IN THE EARLIER ROUND, THE MATTER WAS REF ERRED TO THE ASSESSING OFFICER FOR VERIFICATION OF THE FATE OF A PPLICATION OF THE ASSESSEE FOR REGISTRATION OF GRATUITY SCHEME. THE ASSESSING OFFICER ENQUIRED FROM THE OFFICE OF THE C OMMISSIONER VIDE LETTER NO. CIT/TECH/SML/GRATUITY FUND/2009-10/ 4140. THE COMMISSIONER HAS CLEARLY INFORMED THE ASSESSING OFF ICER THAT NO SUCH APPLICATION WAS PENDING IN THAT OFFICE. IN SUCH CIRCUMSTANCES IN OUR OPINION, THE ASSESSEE SHOULD H AVE TAKEN CAUTION TO PURSUE THE MATTER IN THE OFFICE OF THE C OMMISSIONER OR SHOULD HAVE PRODUCED SOME EVIDENCE BEFORE US TO SHOW THAT THE APPLICATION WAS REALLY PENDING. IN THE ABSENCE OF SUCH EVIDENCE ONLY CONCLUSION WHICH CAN BE REACHED IS TH AT THE 5 GRATUITY FUND OF THE ASSESSEE IS NOT APPROVED. HON' BLE DELHI HIGH COURT HAS CLEARLY EXAMINED THIS ISSUE AND ALSO THE CONTENTION OF THE ALLOWABILITY OF THE CLAIM OF THE ASSESSEE ALTERNATIVELY U/S 37 IN CASE OF SONY INDIA P. LTD V CIT (SUPRA). IN THAT CASE HEAD NOTE READS AS UNDER: SECTION 36 OF THE INCOME-TAX ACT, 1961, PROVIDES F OR DEDUCTIONS THAT ARE ADMISSIBLE WHILE COMPUTING THE INCOME REFERRED TO I N SECTION 28. ONE OF THE DEDUCTIONS WHICH IS MADE ADMISSIBLE UNDER CLAUS E (IV) OF SECTION 36 IS ANY SUM PAID BY THE ASSESSEE BY WAY OF CONTRIBU TION TOWARDS A RECOGNIZED PROVIDENT FUND OR AN APPROVED SUPERANNUA TION FUND. CLAUSE (V) OF SECTION 36(1) SIMILARLY PROVIDES FOR DEDUCTI ON OF ANY SUM PAID BY THE ASSESSEE BY WAY OF CONTRIBUTION TOWARDS AN APPR OVED GRATUITY FUND PROVIDED THE SAME IS UNDER AN IRREVOCABLE TRUST. A PLAIN READING OF SECTION 36(1)(IV) AND (V) MAKES IT MANIFEST THAT DE DUCTIONS THERE UNDER ARE ADMISSIBLE ONLY IF THE EMPLOYER PAYS THE CONTRI BUTIONS TOWARDS A RECOGNIZED PROVIDENT FUND, AN APPROVED SUPERANNUATI ON FUND OR AN APPROVED GRATUITY FUND. THE PROVISIONS OF A TAXING STATUTE HAVE TO BE INTER PRETED STRICTLY APPLYING THE RULE OF LITERAL INTERPRETATION. NOTHING CAN BE ADDED OR SUBSTITUTED BY IMPLICATION OR INTENDMENT. IF PARLIAMENT HAS MADE D EDUCTIONS TOWARDS PROVIDENT FUND, SUPERANNUATION FUND OR GRATUITY FUN D ADMISSIBLE ONLY IN CASES WHERE SUCH FUNDS ARE APPROVED, GRANTING DEDUC TION OF AMOUNTS PAD INTO UNAPPROVED FUNDS UNDER THE COVER OF SECTIO N 37 MAY DEFEAT THE LEGISLATIVE INTENT AND FRUSTRATE THE VERY PURPOSE U NDERLYING THE SPECIFIC PROVISIONS MADE THEREUNDER. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH THE LIC AND MADE CONTRIBUTIONS TOWARDS GRATUITY AND SUPERANNUATION F UNDS FOR THE BENEFIT OF ITS EMPLOYEES. THE ASSESSEE MADE AN APPLICATION TO THE COMMISSIONER FOR APPROVAL OF THE FUND UNDER THE EMP LOYEES GROUP GRATUITY SCHEME (CORPORATE AND FACTORY ) WHICH WAS APPROVED BY THE COMMISSIONER WITH EFFECT FROM SEPTEMBER 30,1998. A SIMILAR APPROVAL FOR THE SUPERANNUATION SCHEME WAS GRANTED BY THE COMMIS SIONER WITH EFFECT FROM OCTOBER 14, 1998. THE ASSESSEE CLAIMED THAT TH E CONTRIBUTIONS MADE BY IT WERE ADMISSIBLE DEDUCTIONS FOR THE ASSES SMENT YEAR 1998-99 FOR THE PREVIOUS YEAR ENDED MARCH 31, 1998, WHICH W AS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THAT THE CONTRIBUTI ON TO AN UNAPPROVED FUND DID NOT QUALIFY FOR DEDUCTION UNDER SECTION 36 (1)(IV) AND 36(1)(V). THE COMMISSIONER (APPEALS) AFFIRMED THE VIEW TAKEN BY THE ASSESSING OFFICER. THE TRIBUNAL ALSO DISALLOWED THE DEDUCTION TOWARDS CONTRIBUTION OF A SUM OF RS. 4,31,342 MADE BY THE ASSESSEE TO TH E GRATUITY FUND AND A SUM OF RS. 35,31,223 CONTRIBUTED TOWARDS THE SUPE RANNUATION FUND ON THE GROUND THAT THE SAID FUNDS WERE NOT APPROVED DU RING THE RELEVANT PERIOD. ON APPEAL: HELD, DISMISSING THE APPEAL, THAT IT WAS COMMON GRO UND THAT THE FUNDS TO WHICH THE ASSESSEE HAD CONTRIBUTED WERE NO T APPROVED EITHER DURING THE YEAR UNDER CONSIDERATION OR AT AN Y TIME UP TO THE DATE OF MAKING THE CONTRIBUTIONS. THEREFORE, THE CO NTRIBUTIONS MADE DID NOT QUALIFY FOR DEDUCTION UNDER SECTION 36 . FURTHER THE DEDUCTION WHICH THE ASSESSEE CLAIMED WAS ADMITTEDLY OF THE NATURE DESCRIBED IN SECTION 36(1)(IV) AND (V). THER EFORE SECTION 37 WOULD NOT COME TO THE AID OF THE ASSESSEE. FROM ABOVE IT BECOMES CLEAR THAT IF PARTICULAR FUND IS NOT APPROVED THEN SECTION 36(1)(IV) WOULD COME INTO OPE RATION AND 6 SUCH EXPENDITURE CANNOT BE ALLOWED. IN SUCH SITUA TION SEC 37 IS NOT APPLICABLE BECAUSE HON'BLE HIGH COURT HAS V ERY CLEARLY HELD THAT DEDUCTION ADMISSIBLE U/S 30 TO 36 CANNOT BE CLAIMED U/S 37. THEREFORE IN OUR OPINION, IN VIEW OF THIS DECISION THE CLAIM OF THE ASSESSEE HAS BEEN CORRECTLY DENIED BY THE AUTHORITIES BELOW AND ACCORDINGLY WE CONFIRM THE O RDER OF THE LD. CIT(A). 9 GROUND NO. 2 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD WITHDRAWN A SUM OF RS. 3.53 C RORES FROM THE ACCUMULATED PROVISIONS CREATED IN THE EARLIER Y EAR. SINCE THE PROVISIONS CREATED IN EARLIER YEAR WERE NOT DEB ITED TO THE PROFIT AND LOSS ACCOUNT IN THOSE YEARS, THE AMOUNT WITHDRAWN DURING THE YEAR FROM SAID PROVISIONS WAS DEDUCTED F ROM THE BOOK PROFIT FOR THE PURPOSE OF COMPUTING PROFIT U/S 115 JB OF IT ACT. IN RESPONSE TO THE QUERY IT WAS SUBMITTED THA T PROVISO TO CLAUSE (I) OF EXPLANATION TO SEC 115JB IS NOT APPLI CABLE BECAUSE PROVISION MADE WAS ALREADY ADDED TO THE PRO FITS OF THE CONCERNED YEAR. THE ASSESSING OFFICER DID NOT FIND FORCE IN THE SUBMISSIONS AND OBSERVED THAT SINCE MAT PROVISION C ONTAINED IN SECTION 115 JB AND 115 JA WERE SELF CONTAINED CO DE IN ITSELF, THEREFORE SAID PROVISO IS APPLICABLE ONLY I F THE PROVISION ORIGINALLY MADE HAD BEEN ADDED TO THE BOOK PROFIT U /S 115 JA OR SECTION115 JB. IT WAS ALSO OBSERVED THAT OUT OF THE TOTAL ACCUMULATED PROVISIONS OF RS. 27.24 CRORES MADE IN THE EARLIER YEARS, PROVISIONS TO THE EXTENT OF RS. 20.29 CRORES WERE SUCH THAT NO AMOUNT WITHDRAWN FROM THE SAME AND CREDITED TO THE PROFIT AND LOSS ACCOUNT IN SUBSEQUENT YEARS COULD I N ANY CASE BE DEDUCTIBLE FROM THE BOOK PROFITS U/S 115 JB AS PROVISION FOR 7 NON PERFORMING LOANS WRITTEN BACK. OUT OF THE BALA NCE PROVISIONS OF RS. 6.95 CRORES, THE ITAT HAD ALREADY ALLOWED DEDUCTIONS IN ASSESSMENT YEARS 2003-04 AND 2004-05 TO THE EXTENT OF RS. 4.75 CRORES. FOR THE PRESENT ASSESSM ENT YEAR 2005-06 THEREFORE THE PROVISIONS WRITTEN BACK COULD BE DEDUCTIBLE, IF AT ALL, ONLY TO THE EXTENT OF RS. 2. 20 CRORES. HOWEVER, THE ASSESSEE HAS CLAIMED DEDUCTION OF RS. 3.53 CRORES, WHICH HAS BEEN DIRECTED TO ALLOWED BY THE I TAT VIDE THE PRESENT IMPUGNED ORDER WITHOUT GOING INTO THE A BOVE RELEVANT FACTS AND BY FOLLOWING ITS EARLIER ORDER D ATED 8.10.2008. THE ASSESSING OFFICER FURTHER OBSERVED T HAT SINCE THE REVENUE HAS FILED AN APPEAL BEFORE THE HON'BLE HIGH COURT, THEREFORE A SUM OF RS. 1.33 CORES WAS ALLOWABLE. AF TER ALLOWING THIS SUM A SUM OF RS. 2.20 CRORES WAS NOT ALLOWED W HILE COMPUTING THE BOOK PROFITS. 10 ON APPEAL BEFORE THE LD. CIT(A) THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED AND TH E LD. CIT(A) AFTER CONSIDERING THE SAME DID NOT AGREE WITH THE S AME AND CONFIRMED THE DISALLOWANCE OF RS. 2.20 CRORES. 11 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE REFE RRED TO VARIOUS DOCUMENTS AND POINTED OUT THAT THE PROVISIO NS CREATED FOR BAD DEBTS IN THE EARLIER YEARS, WAS NOT CLAIMED IN THE COMPUTATION OF INCOME AND THE TAX WAS PAID ON THE B ASIS OF NET PROFITS DECLARED BEFORE SUCH PROVISIONS. THERE FORE CLEARLY THESE PROVISIONS WERE NOT DEBITED TO PROFIT AND LOS S ACCOUNT AND IN TERMS OF PROVISO TO CLAUSE (I) TO SECTION 11 5 JB IF THE AMOUNT HAS BEEN WITHDRAWN FROM RESERVE FROM THE PRO VISIONS MADE AFTER FIRST DAY OF APRIL 1997 THEN SAME ARE RE QUIRED TO BE REDUCED FROM BOOK PROFIT. IN ANY CASE THE ISSUE CAM E UP BEFORE 8 THE HON'BLE HIGH COURT OF HIMACHAL PRADESH IN ITA N O. 25, 29 & 47 OF 2009 AND 12 OF 2010 AND THE SAME WAS DECIDE D IN FAVOUR OF THE ASSESSEE. 12 ON THE OTHER HAND, LD. D.R FOR THE REVENUE SUBMI TTED THAT HE DOES NOT DISPUTE THE FIGURES GIVEN BY THE ASSESS EE BUT HOWEVER, SINCE THE PROVISIONS MADE IN THE EARLIER Y EAR WERE NEVER ADDED TO THE BOOK PROFIT AS THERE WAS A LOSS AND BOOK PROFIT WAS NOT DETERMINED IN THOSE YEARS, THEREFORE THE PROVISO TO CLAUSE (I) OF SECTION 115 JB IS APPLICABLE. 13 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT THE DETAILS OF PROVISIONS CREATED IN THE EARLIER YEARS, IS AS UNDER: ASSESSMENT YEAR AMOUNT OF PROVISIONS CREATED 1998-99 180849000 1999-2000 19792947 2000-01 17551000 2001-02 44616025 2002-03 9102359 2003-04 275000 272186331 WE HAVE VERIFIED THE FIGURES FROM PROFIT AND LOSS A CCOUNT AS WELL AS THE COMPUTATION OF INCOME AND IT BECOMES CL EAR THAT IN ALL THOSE YEARS THE RETURN WAS FILED ON THE BASIS O F PROFIT AND LOSS ACCOUNT BEFORE REDUCING THE PROVISIONS OF DOUB TFUL DEBTS. THEREFORE THESE ARE CLEARLY THE PROVISIONS MADE IN THE EARLIER YEARS AND IN THE PRESENT YEAR THE ASSESSEE HAS WITH DRAWN CERTAIN SUM OUT OF THIS PROVISION AND THEREFORE THE SAME ARE DEDUCTIBLE IN TERMS OF PROVISO TO CLAUSE (I) TO SEC 115 JB. IN FACT IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF T HE HON'BLE HIGH COURT OF HIMACHAL PRADDESH AND THE SAME WAS D ECIDED ON THE BASIS OF PARA 32 TO 35 WHICH IS AS UNDER: 32. WE HAVE GIVEN OUR DEEP AND THOUGHTFUL CONSIDERA TION TO THE RIVAL CONTENTION OF THE PARTIES AND HAVE ALSO GONE THROUG H THE RECORDS. IT WAS 9 NOT DISPUTED BY EITHER OF THE PARTIES BEFORE THE IT AT THAT 2,37,76,034/- REPRESENTS PROVISIONS FOR NON-PERFORMING ASSETS CRE ATED IN EARLIER YEARS BY DEBITING TO THE PROFIT & LOSS APPROPRIATION ACCO UNT ( NOT BY DEBIT TO PROFIT & LOSS ACCOUNT) AND CREDITED TO THE PROFIT & LOSS ACCOUNT FOR THE INSTANT ASSESSMENT YEAR. THE EXPLANATION (I) TO SECTION 115JB READS AS FOLL OWS: EXPLANATION.1- FOR THE PURPOSES OF THIS SECTION, BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION (2).. A ND AS REDUCED BY- ***** (I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVIS ION (EXCLUDING A RESERVE CREATED BEFORE THE 1 ST DAY OF APRIL, 1997 OTHERWISE THAN BY WAY OF A DEBIT TO THE PROFIT AND LOSS ACCOUNT), IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT: PROVIDED THAT WHERE THIS SECTION IS APPLICABLE TO A N ASSESSEE IN ANY PREVIOUS YEAR, THE AMOUNT WITHDRAWN FROM RESERVES C REATED OR PROVISIONS MADE IN A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL,1997 SHALL NOT BE REDUCED FROM THE BO OK PROFIT UNLESS THE BOOK PROFIT OF SUCH YEAR HAS BEEN INCREASED BY THOSE RESERVES OR PROVISIONS (OUT OF WHICH THE SAID AMOUN T WAS WITHDRAWN) UNDER THIS EXPLANATION OR EXPLANATION BELOW THE SEC OND PROVISO TO SECTION 115JA, AS THE CASE MAY BE;. FROM THE PERUSAL OF THE ABOVESAID PROVISION OF LAW, IT WILL BE SEEN THAT BOOK-PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PR OFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-S ECTION (2) OF SECTION 115JB OF THE ACT AND, AS REDUCED BY THE AMOUNT WITH DRAWN FROM ANY RESERVE OR PROVISION, IF SUCH AMOUNT WITHDRAWN FROM THE RESERVE OR PROVISION HAS BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT. IN OTHER WORDS, ANY AMOUNT WITHDRAWN FRO ANY RESERVE OR PROV ISION CREDITED TO THE PROFIT AND LOSS ACCOUNT HAS TO BE REDUCED FROM THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE COMPUTATION OF BOOK PROFIT IN ACCORDANCE WITH SECTION 115 JB OF THE ACT. 33. THIS, HOWEVER, DOES NOT MEAN THAT ALL RESERVES CREATED OTHERWISE THAN BY WAY OF DEBIT TO THE PROFIT AND LOSS ACCOUNT CAN BE REDUCED FROM THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. IT IS ONLY THE RESERVE CREATED AFTER 1 ST APRIL 1997 THAT CAN BE CREDITED TO THE PROFIT AND LOSS ACCOUNT. IT MAY BE NOTICED THAT THIS EXCEPTION TO T HE GENERAL RULE HAD ONLY BEEN INSERTED BY THE FINANCE ACT, 2002 W.E.F 1 .4.2001 (SUPRA). 34. THEREFORE, IN VIEW OF THE DISCUSSION ABOVE, IT CAN BE SAFELY CONCLUDED THAT SECTION 115JB OF THE ACT, PROVIDES T HAT ANY AMOUNT CREDITED TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF AMOUNTS WITHDRAWN FROM THE RESERVE OR PROVISION HAD TO BE REDUCED FRO M THE BOOK PROFIT WITH AN EXCEPTION THAT IF SUCH RESERVE OR PROVISION IS O UT OF RESERVE CREATED PRIOR TO OR BEFORE 1.4.1997 AND, SUCH RESERVE HAS B EEN CREATED NOT BY WAY OF DEBIT TO THE PROFIT AND LOSS ACCOUNT, THEN T HE SAME WILL NOT BE PERMITTED TO BE REDUCED FROM THE NET PROFIT AS PER PROFIT AND LOSS ACCOUNT. 35. NOW, ADVERTING TO THE FACTS AND APPLYING THE AF ORESAID PROVISIONS TO THE PRESENT CASE, IT WOULD BE SEEN THAT IT HAD N OT BEEN DISPUTED BEFORE THE ITAT THAT THE SUM OF 2,37,76,034/- REPRE SENTS THE PROVISION FOR NON-PERFORMING ASSETS CREATED EARLIER YEARS, NO T OUT OF RESERVE CREATED BEFORE 01.04.1997. THEREFORE, THE SAME HAD TO BE REDUCED FOR COMPUTATION OF BOOK PROFIT IN ACCORDANCE WITH SECTI ON 115JB. THE ITAT HAS COME TO CATEGORICAL FINDINGS OF FACT THAT FOLLO WING PROVISIONS WERE AVAILABLE FOR CREDIT TO THE PROFIT AND LOSS ACCOUNT , WHICH HAD BEEN MADE AFTER 01.04.1997 AND NOT PRIOR TO IT:- F.Y. AMOUNT OF PROVISION (RS. CRORES) 1998-99 1.98 1999-00 1.76 10 2000-01 4.48 2001-02 0.91 2002-03 0.03 THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTANCES, WE HAVE LEFT WITH NO OPTION BUT TO UPHOLD THE ORDER PASSED BY THE ITAT. RESPECTFULLY FOLLOWING THE ABOVE, WE DECIDE THIS IS SUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE ASSESSEE TO REDUCE THE AMOUNT WITHDRAWN FROM RESERV E FROM THE BOOK PROFITS. 14 IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 1226/CHD/2010 IS PARTLY ALLOWED. ITA NO. 1227/CHD/2010 15 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS. 2132 626/- MADE ON ACCOUNT OF PREMIUM OF GROUP GRATUITY HOLDING THE SAME NOT T O BE ALLOWABLE UNDER SECTION 36(1)(V) OF THE INCOME TAX ACT, 1961. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS. 2457 025 ON ACCOUNT OF PREMIUM PAID FOR LEAVE ENCASHMENT HOLDING THE SAME NOT TO BE ALLOWABLE. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS. 4619 180/- ON ACCOUNT OF THE INTEREST UNDER THE ASIDE SCHEME. 16 GROUND NO. 1 THIS ISSUE IS IDENTICAL TO THE IS SUE DECIDED BY US IN GROUND NO. 1 IN ITA NO. 1226/CHD/2 010 IN ABOVE NOTED PARA NO. 8 AND FOLLOWING THE SAME WE DE CIDE THIS ISSUE AGAINST THE ASSESSEE. 17 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE ASSESSEE HAS DEBITED A SUM OF RS. 24,57,025/- ON AC COUNT OF PREMIUM PAID FOR LEAVE ENCASHMENT. IN RESPONSE TO THE QUERY IT WAS SUBMITTED AS UNDER: UNDER THE SCHEME THE ASSESSEE HAS TO PAY A PREMIUM AND AGAINST THE SAID PREMIUM, THE ASSESSEES EMPLOYEES SHALL BE ENT ITLED TO BE PAID 11 LEAVE ENCASHMENT AT THE TIME OF THEIR SUPERANNUATIO N. THAT BEING THE CASE THE SAME CAN BY NO STRETCH OF IMAGINATION CAN BE TERMED AS AN UNASCERTAINED LIABILITY. THE SAID MONEY HAS BEEN PA ID TO MEET THE ASCERTAINED LIABILITY OF LEAVE ENCASHMENT. THE SAID DEDUCTION IS ALLOWABLE UNDER SECTION 36(1)(V) OF THE INCOME-TAX ACT, 1961 AND ALSO UNDER SECTION 37 OF THE INCOME-TAX ACT, 1961. THE S AME IS VERY MUCH ALLOWABLE UNDER THE INCOME-TAX ACT AND NO QUESTION OF MAKING ANY DISALLOWANCE ARISES AT ALL. IT IS FURTHER SUBMITTED THAT THE ASSESSEE HAS ALSO FILED AN APPLICATION FOR APPROVAL OF THE SAME THE COMMUNICATION IN RESPECT OF THE SAME IS ALSO BEING PLACED ON RECORD. THE ASSESSING OFFICER AFTER EXAMINING THIS PROVISIO N, OBSERVED THAT THERE WAS NO PROVISION IN THE ACT FOR ACCRUALS OF LEAVE ENCASHMENT. HE REFERRED TO VARIOUS CASE LAWS AND O BSERVED THAT EMPLOYEES WILL BECOME ENTITLED TO LEAVE ENCASH MENT ONLY AT THE TIME OF SUPER-ANNUATION. SUCH CHARGES CAN B E COMPUTED ONLY AT THE TIME OF SUPER ANNUATION AND THEREFORE T HIS EXPENDITURE WAS NOT ALLOWABLE. 17 ON APPEAL BEFORE THE LD. CIT(A) SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED AND THE LD. C IT(A) DID NOT FIND FORCE IN THEM AND CONFIRMED THE DISALLOWAN CE. 18 BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT THE AMOUNT WAS PAID TO LIC ON THE BASIS OF PAR TICULAR SCHEME AND THE AMOUNT WAS CALCULATED AS PREMIUM ON THE BASIS OF VALUATION DONE BY THE LIC. HE CONTENDED T HAT THIS EXPENDITURE IS BASICALLY ALLOWABLE U/S 37 AND IT IS AGAINST THE ACTUAL LIABILITY CALCULATED BY THE LIC AND THEREFOR E THE AMOUNT IS ALLOWABLE EVEN UNDER CLAUSE (F) OF SEC 43B IF TH E AMOUNT WAS PAID THE SAME WAS ALLOWABLE. 19 ON THE OTHER HAND, LD. D.R FOR THE REVENUE SUPPO RTED THE ORDER OF THE LD. CIT(A). 20 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE . THE AMOUNT HAS NOT BE PAID BY WAY OF PROVISION BUT BY W AY OF PREMIUM UNDER A PARTICULAR SCHEME UNDER WHICH THE I NSURANCE 12 COMPANY HAD COMPUTED THE LEAVE ENCASHMENT DUES. TH EREFORE IT CANNOT BE CALLED A PAYMENT TOWARDS A PROVISION. IN ANY CASE ONCE THE PAYMENT HAS BEEN MADE THE SAME IS ALLOWABL E UNDER CLAUSE (F) OF SEC 43B. OTHERWISE ALSO THE ISSUE ST ANDS SETTLED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION O F HON'BLE SUPREME COURT IN CASE OF BHARAT EARTH MOVERS V. CI T, 245 ITR 428 IN WHICH PROVISION FOR LEAVE ENCASHMENT WAS HEL D TO BE ALLOWABLE IF THE SAME WAS BASED ON A PARTICULAR SCH EME PROPORTIONATELY WITH THE ENTITLEMENTS EARNED BY THE EMPLOYEES. LATER ON EFFECT OF THIS JUDGMENT WAS NULLIFIED BY I NSERTION OF CLAUSE (F) TO SEC 43B PROVIDING THAT THE AMOUNT WOU LD BE ALLOWABLE ONLY IF THE SAME HAS BEEN PAID. SINCE TH E AMOUNT HAS BEEN PAID, THEREFORE SAME IS, IN OUR OPINION, A LLOWABLE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE CIT(A) AN D DIRECT THE ASSESSING OFFICER TO ALLOW THIS AMOUNT. 21 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT T HE INTEREST ON FDR HAS ACCRUED FOR A SUM OF RS. 46,19,180/- UND ER ASIDE SCHEME. IN RESPONSE TO THE QUERY IT WAS SUBMITTED AS UNDER: THE CORPORATION IS ALSO A NODAL AGENCY FOR EXECUTIO N OF CIVIL WORKS UNDER THE GOVERNMENT OF INDIA ASSISTANCE TO STATES FOR DEVELOPING EXPORT INFRASTRUCTURE AND OTHER ALLIED ACTIVITIES ( ASIDE) WHICH IS AN ASSISTANCE TO THE STATE GOVERNMENT. THEREFORE IT IS BEING OPERATED THROUGH DIRECTOR OF INDUSTRIALIZES, HIMACHAL PRADES H AND HPSIDC AS A NODAL / EXECUTING AGENCY ONLY. THE FUNDS BEING RECE IVED BY THE CORPORATION UNDER THE SCHEME ARE BASICALLY THE FUND S ON BEHALF OF STATE GOVERNMENT THROUGH DIRECTOR OF INDUSTRIES FOR THE S PECIFIC PROJECTS OF INFRASTRUCTURE DEVELOPMENT TO BE EXECUTED. HERE ALS O, THE CORPORATION IS ENTITLED TO ONLY 10% OF THE QUANTUM OF WORK EXECUTE D AS AGENCY/SUPERVISION CHARGES. AS PER THE SCHEME, THE FUNDS RECEIVED UNDER THE SCHEME ARE REQUIRED TO BE KEPT IN A SEPAR ATE BANK ACCOUNT AS THE FUNDS BELONGS TO THE DIRECTOR OF INDUSTRIES AND THIS BANK ACCOUNT IS BEING OPERATED JOINTLY WITH THE DIRECTOR OF INDUSTR IES. ANY INTEREST RECEIVED ON THIS FUND BY WAY OF PLACING THE FUNDS T EMPORARILY IN FDR ACCOUNTS ARE REQUIRED TO BE CREDITED TO THIS SCHEME ONLY AGAINST WHICH INFRASTRUCTURE DEVELOPMENT PROJECTS ARE BEING EXECU TED. THEREFORE, ANY INTEREST ON THE FUNDS OF THIS SCHEME IS NOT AN INCO ME OF THE CORPORATION AS IT IS CREDITED TO THE ASIDE FUND AND THE SAME HA S BEEN DISCLOSED IN THE BALANCE SHEET BY WAY OF NOTE. 13 THE ASSESSING OFFICER AFTER GOING THROUGH THE SUBMI SSIONS DID NOT AGREE WITH THE SAME AND OBSERVED THAT SIMILAR I SSUE WAS DECIDED BY HON'BLE ANDHRA PRADESH HIGH COURT IN C ASE OF CIT V. A.P. INDUSTRIAL INFRASTRUCTURE CORPORATION LTD., 175 ITR 361. 22 ON APPEAL THE SUBMISSIONS MADE BEFORE THE ASSESS ING OFFICER WERE REITERATED AND RELIANCE WAS PLACED ON THE DECISION OF CIT V. KARNATAKA URBAN INFRASTRUCTURE DEVELOPMEN T AND FINANCE CORP, 284 ITR 582 AS WELL AS THE ORDER OF C HANDIGARH BENCH OF THE TRIBUNAL IN CASE OF H.P. GOVERNMENT E NERGY DEVELOPMENT AGENCY, SHIMLA V ACIT, ITAS NO. 737, 73 8 AND 739/CHD/2009. THE LD. CIT(A) DID NOT FIND FORCE IN THE SAME AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 23 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REIT ERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). HE FILED A COPY OF ASIDE SCHEME AND INVITED OUR ATTENTION TO CLAUSE (I V) WHEREIN GOVERNMENT OF INDIA HAS CLEARLY DIRECTED THAT ANY I NTEREST ACCRUED ON THE DEPOSITS MADE IN SCHEDULED BANK SHOU LD BE UTILIZED FOR THE PURPOSE OF SCHEME WHICH HAS BEEN L ATER ON USED FOR THE PURPOSE OF SCHEME. THEREFORE INTEREST NEVER ACCRUED TO THE ASSESSEE. IN ANY CASE THE ISSUE IS COVERED BY THE DECISION OF CHANDIGARH BENCH OF THE TRIBUNAL IN CASE OF H.P. GOVERNMENT ENERGY DEVELOPMENT AGENCY, SHIMLA V ACIT (SUPRA). HE ALSO RELIED ON THE DECISION OF KARNAT AKA HIGH COURT IN CASE OF CIT V. KARNATAKA URBAN INFRASTRUCT URE DEVELOPMENT AND FINANCE CORP (SUPRA). 24 ON THE OTHER HAND, THE LD. D.R FOR THE REVENUE SUBMITTED THAT THE DECISION OF CHANDIGARH BENCH OF THE TRIBUN AL IN CASE OF H.P. GOVERNMENT ENERGY DEVELOPMENT AGENCY, SHIM LA V. ACIT (SUPRA) IS DISTINGUISHABLE BECAUSE IN THE CAS E BEFORE US 14 THE GRANT IN LATER YEARS HAS NOT BEEN REDUCED BY TH E INTEREST AMOUNT. INTEREST HAS DIRECTLY GONE TO THE ACCOUNT OF THE ASSESSEE, THEREFORE SAME IS ASSEABLE IN THE HANDS O F THE ASSESSEE. 25 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT GOVERNMENT OF INDIA, MINISTRY OF COMMER CE AND INDUSTRY, DEPARTMENT OF COMMERCE HAS SANCTIONED THE GRANT TO THE ASSESSEE VIE LETTER DATED 16.7.2002. CLAUSE 4 OF THE SAME READS AS UNDER: 4 THE RELEASE OF FUND ARE SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS: (I) NO ADMINISTRATIVE EXPENDITURE BE INCURRED OUT O F THE FUNDS ALLOCATED (II) THE ACCOUNT OF THE IMPLEMENTING AGENCY BE KEPT OPEN FOR INSPECTION BY THE SANCTIONING AUTHORITY/AUDIT. (III) THE AMOUNT RECEIVED FROM THE GOVERNMENT BE KE PT IN A SEPARATE HEAD OF ACCOUNT OF THE NODAL AGENCY. (IV) NO PART OF THE FUNDS BE INVESTED EXCEPT IN THE SCHEDULED NATIONALIZED BANKS. ANY INTEREST ACCRUED BE UTILIZ ED FOR THE SCHEME. (V) THE NODAL AGENCY SHALL SUBMIT THE REPORT IN THE PRESCRIBED PROFORMA ALONG WITH THE PROPOSAL FOR RELEASE OF SEC OND INSTALLMENT AS PRESCRIBED IN THE GUIDELINES. (VI) AUDITED ACCOUNTS IN SUPPORT OF THE EXPENDITURE INCURRED FOR THE ASIDE SCHEME BE SUBMITTED WITHIN 9 (NINE) MOHTH S FROM THE CLOSING OF THE ACCOUNTS. HIGHLIGHTED PORTION CLEARLY SHOWS THAT THE ASSESSEE WAS REQUIRED TO INVEST FUNDS IN A SCHEDULED BANK AND TH E INTEREST IF ANY WAS REQUIRED TO BE UTILIZED FOR THE PURPOSE OF SCHEME. THUS IT IS CLEAR THAT THE INTEREST NEVER BELONGS TO THE ASSESSEE. IN ALMOST IDENTICAL SITUATION WHICH AROSE BEFORE TH E HON'BLE KARNATAKA HIGH COURT WHERE THE ASSESSEE, THE KARNA TAKA URBAN INFRASTRUCTURE DEVELOPMENT AND FINANCIAL CORP , A GOVERNMENT COMPANY OWNED BY THE STATE OF KARNATAKA WAS INVOLVED IN PROJECT DEVELOPMENT OF INFRASTRUCTURE A ND WAS 15 PROVIDED FUNDS BY THE PLANNING COMMISSION FOR DEVEL OPMENT OF URBAN INFRASTRUCTURE TO BANGALORE CITY. THE FUNDS R ECEIVED BY IT FROM THE GOVERNMENT OF INDIA WERE DEPOSITED WITH B ANKS FOR THE PERIOD THEY WERE NOT UTILIZED. THE INTEREST EA RNED ON THESE DEPOSITS WAS TRANSFERRED TO THE MEGA CITY ACCOUNT D IRECTLY. ON THE QUESTION WHETHER THE INTEREST ON THE BANK DEPOS ITS WAS TAXABLE AND IT WAS HELD AS UNDER: THE ASSESSEE, THE KARNATAKA URBAN INFRASTRUCTURE DE VELOPMENT AND FINANCIAL CORPORATION, A GOVERNMENT COMPANY OWNED B Y THE STATE OF KARNATAKA, WAS INVOLVED IN PROJECTS OF DEVELOPMENT OF INFRASTRUCTURE AND WAS APPOINTED THE NODAL AGENCY FOR THE IMPLEMENTATI ON OF THE MEGA CITY SCHEME WORKED OUT BY THE PLANNING COMMISSION FOR DE VELOPMENT OF URBAN INFRASTRUCTURE TO BANGALORE CITY. THE FUNDS R ECEIVED BY IT FROM THE GOVERNMENT OF INDIA WERE DEPOSITED WITH BANKS FOR T HE PERIOD THEY WERE NOT UTILIZED. THE INTEREST EARNED ON THESE DEPOSITS WAS TRANSFERRED TO THE MEGA CITY ACCOUNT DIRECTLY. ON THE QUESTION WHETHER THE INTEREST ON THESE BANK DEPOSITS WAS TAXABLE. HELD, THAT THERE WAS NO PROFIT MOTIVE AS THE ENTIRE FUND ENTRUSTED AND THE INTEREST ACCRUED ON THE DEPOSITS IN THE BAN K, THOUGH IN THE NAME OF THE ASSESSEE, HAD TO BE APPLIED ONLY FOR TH E PURPOSE OF WELFARE OF THE NATION AS PROVIDED IN THE GUIDELINES . THE WHOLE OF THE FUNDS BELONGED TO THE STATE EXCHEQUER AND THE A SSESSEE HAD TO CHANNELISE THEM TO THE OBJECTS OF THE CENTRALLY SPONSORED SCHEME OF INFRASTRUCTURAL DEVELOPMENT FOR THE MEGA CITY OF BANGALORE. THE ENTIRE MONEY WAS RECEIVED FOR A PUBL IC PURPOSE AND THE END SCHEME WAS IMPLEMENTED IN ACCORDANCE WI TH THE GUIDELINES OF THE CENTRAL GOVERNMENT. THEREFORE, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE THE INTEREST ACCRUED O N THE BANK DEPOSITS COULD NOT BE TREATED AS INCOME. THIS DECISION HAS BEEN FOLLOWED BY THE CHANDIGARH B ENCH OF THE TRIBUNAL IN CASE OF H.P. GOVERNMENT ENERGY DEV ELOPMENT AGENCY, SHIMLA V. ACIT (SUPRA). THEREFORE FOLLOWIN G THIS DECISION WE ARE OF THE OPINON THAT THE INTEREST INC OME DOES NOT ACCRUED TO THE ASSESSEE AND THE ASSESSEE IS NOT LIA BLE TO BE TAXED ON SUCH INTEREST. THEREFORE WE SET ASIDE THE ORDER OF THE CIT(A) AND DELETE THIS ADDITION. 26 IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 1227/CHD/2010 IS PARTLY ALLOWED. ITA NO. 1124/CHD/2011 16 27 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: 1 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING AN ADDITION OF RS. 14,51,342/- MADE ON ACCOUNT OF DISALLOWANCE IN RESPECT OF THE PAYMENT OF PREMIUM MADE TO LIC UNDER THE GRO8P GRATUITY SCHEME . 2 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING AN ADDITION OF RS. 4,,24,342/- MADE ON ACCOUNT OF DISALLOWANCE IN RESPECT OF THE PAYMENT OF PREMIUM IN RESPECT OF LEAVE ENCASHMENT. 3 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING AN A D OF RS. 10,96,246/- MADE ON ACCOUNT OF INTEREST ON FDRS MADE UNDER THE ASI DE SCHEME. 28 GROUND NO. 1 - SAME ISSUE CAME UP FOR CONSIDERA TION OF THE BENCH IN ITA NO. 1226/CHD/2010 AND WE HAVE ADJU DICATED THE ISSUE AGAINST THE ASSESSEE VIDE PARA NO. 8 OF T HIS ORDER. FOLLOWING THE SAME THIS ISSUE IS DECIDED AGAINST TH E ASSESSEE. 29 GROUND NO. 2 THIS ISSUE IS IDENTICAL TO GROUND NO. 2 DECIDED BY US IN ITA NO. 1227/CHD/2010 WHEREIN THIS AMOUNT WAS HELD TO BE ALLOWABLE VIDE PARA 20 AND FOLLOWING THE SAME WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 30 GROUND NO. 3 THIS ISSUE HAS BEEN DECIDED BY US WHILE DECIDED GROUND NO. 3 IN ITA NO. 1227/CHD/2010 VIDE PARA 25 AND FOLLOWING THE SAME WE DECIDE THIS ISSUE IN FAVO UR OF THE ASSESSEE. 31 IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 1124/CHD/2011 IS PARTLY ALLOWED. ITA NO. 1118/CHD/2013 32 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS OF APPEAL: 1 THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING AN ADDITION OF RS. 52,91,715/- MADE ON ACCOUNT OF INTEREST RECEIVED ON FDRS UNDER ASIDE SCHEME. 17 33 THIS ISSUE HAS BEEN DECIDED BY US WHILE DECIDED GROUND NO. 1 IN ITA NO. 1227/CHD/2010 VIDE PARA 25 AND FOL LOWING THE SAME WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSE E. 34 IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 1118/CHD/2013 IS ALLOWED. 35 IN THE RESULT, APPEALS OF THE ASSESSEE IN ITA NO . 1226, 1227/CHD/2010 & 1224/CHD/2011 ARE PARTLY ALLOWED WH EREAS ITA NO. 1118/CHD/2013 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8.10.2014 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 8.10.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR