Infrastructue Development Finance Company Limited, CHENNAI V. ACIT, CHENNAI

ITA 1197/CHNY/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90389 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-04-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 30-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N RENGARAJ I R S
• Keywords: Principle of natural justice; Bad and doubtful debts; Assessment record; Commercial expediency; Capital expenditure
• Section: 143(3); 37(1); 263; 63

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . ! , ' #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A. NO.1197/MDS/2012 ( / ASSESSMENT YEAR : 2007-2008) INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED, KRM TOWER, 8 TH FLOOR, NO.1, HARRINGTON ROAD, CHETPET, CHENNAI 600 031. [PAN: AAACI 2663N] ( %& /APPELLANT) VS THE ASSISTANT COMMISSIONER OF INCOME TAX, CO. CIRCLE II(3), CHENNAI 600 034. ( '(%& /RESPONDENT) / APPELLANT BY : SHRI. FARROKH V. IRANI, ADVOCATE / RESPONDENT BY : SHRI. N. RENGARAJ, IRS, CIT. /DATE OF HEARING : 23.04.2015 /DATE OF PRONOUNCEMENT : 22.05.2015 ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL FILED BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX-I, CHENNAI, DATED 30.03. 2012 PASSED U/S. 263 OF THE ACT. I.T.A.NO.1197/MDS/2012 :- 2 -: 2. THE FIRST GROUND RAISED FOR OUR CONSIDERATION IS WI TH REGARD TO VALIDITY OF ORDER PASSED U/S.263 OF THE ACT BY COMMISSIONER OF INCOME TAX. 3. THE LD. AUTHORISED REPRESENTATIVE FOR ASSESSEE SUBM ITTED THAT ASSESSMENT IN THIS CASE WAS COMPLETED U/S.143(3) OF THE ACT VIDE ORDER DATED 30.12.2009 AND THE ASSESSING OFFICER CO NSIDERED ALL THE ISSUES RAISED BY THE COMMISSIONER OF INCOME TAX IN HIS NOTICE DATED 12.03.2012 FOR REVISING THE ORDER OF ASSESSMENT. 4. THE LD. AUTHORISED REPRESENTATIVE FOR ASSESSEE SUBM ITTED THAT THE ASSESSING OFFICER AFTER CALLING FOR THE VARIOUS CLARIFICATIONS VIDE HIS LETTER DATED 03.07.2009 AND AFTER HAVING BEEN SATIS FIED BY THE REPLY GIVEN BY THE ASSESSEE IN ITS LETTERS DATED 7.12.200 9, 10.12.2009 AND 18.12.2009, HE HAS COMPLETED THE ASSESSMENT AFTER D UE APPLICATION OF HIS MIND. THE ASSESSING OFFICER HAS TAKEN ONE POSS IBLE VIEW WHILE COMPLETING THE ASSESSMENT I.E., NOT TO MAKE ANY AD DITION ON THE ISSUES RAISED BY THE COMMISSIONER OF INCOME TAX. IN THE IMPUGNED ASSESSMENT ORDER, THE COMMISSIONER OF INCOME TAX CANNOT FIND FAULT WITH THE ASSESSING OFFICER. ACCORDING TO THE LD. A UTHORISED REPRESENTATIVE FOR ASSESSEE, THE COMMISSIONER OF IN COME TAX SHOULD NOT HAVE BEEN ISSUED THE NOTICE FOR INVOKING JURISD ICTION U/S.263 OF I.T.A.NO.1197/MDS/2012 :- 3 -: THE ACT ON THE REASON THAT THE ASSESSEE HAS FURNISH ED ALL THE INFORMATION REQUIRED BY THE ASSESSING OFFICER FOR C OMPLETING THE ASSESSMENT AND THE MATTER WAS PROPERLY LOOKED INTO BY THE ASSESSING OFFICER BY DISCUSSING THE ISSUE WITH THE ASSESSEES REPRESENTATIVE. ACCORDING TO HIM, INVOKING JURISDICTION U/S.263 IS TOTALLY BAD IN LAW AND IT WAS NOT WARRANTED. HE SUBMITTED THAT THOUGH THE ASSESSING OFFICER FAILED TO DISCUSS VARIOUS ISSUES IN HIS ORD ER, IT CANNOT BE SAID THAT ASSESSING OFFICER HAS NOT APPLIED HIS MIND. T HE ASSESSEE RELIED ON THE JUDGMENT OF CALCUTTA HIGH COURT IN THE CASE OF CIT VS M/S. J.L. MORRISON (INDIA) LTD IN ITA NO.168/2011 AND G.A. N O1541/2012 VIDE ORDER DATED 15.5.2014. HE FURTHER RELIED ON THE JUDGMENT OF I.T.O VS. LALL & CO., REPORTED IN 53 ITR 231(S.C), WHEREIN IT WAS HELD AS UNDER:- A PROCEEDING FOR ASSESSMENT IS NOT A SUIT FOR ADJ UDICATION OF A CIVIL DISPUTE. THAT AN INCOME TAX PROCEEDING IS IN THE NATURE OF A JUDICIAL PROCEEDING BETWEEN CONTESTING PARTIES, IS A MATTER WHICH IS NOT CAPABLE OF EVEN A PLAUSIBL E ARGUMENT. THE INCOME TAX AUTHORITIES WHO HAVE POWE R TO ASSESS AND RECOVER TAX ARE NOT ACTING AS JUDGES DEC IDING A LITIGATION BETWEEN THE CITIZEN AND THE STATE; THEY ARE ADMINISTRATIVE AUTHORITIES WHO PROCEEDINGS ARE REGU LATED BY STATUE, BUT WHOSE FUNCTION IS TO ESTIMATE THE INCOM E OF THE TAXPAYER AND TO ASSESS HIM TO TAX ON THE BASIS OF T HAT ESTIMATE. TAX LEGISLATION NECESSITATES THE SETTING UP OF MACHINERY TO ASCERTAIN THE TAXABLE INCOME, AND TO A SSESS TAX ON THE INCOME, BUT THAT DOES NOT IMPRESS THE PROCEE DING WITH THE CHARACTER OF AN ACTION BETWEEN THE CITIZEN AND THE STATE. I.T.A.NO.1197/MDS/2012 :- 4 -: 4.1 HE ALSO RELIED ON THE JUDGMENT OF CIT VS. GABRIEL INDIA LTD REPORTED IN 203 ITR 108 (BOM.) WHEREIN IT WAS HELD AS UNDER:- THE INCOME TAX OFFICER IN THIS CASE HAD MADE ENQUI RES IN REGARD TO THE NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE. THE ASSESSEE HAD GIVEN DETAILED EXPLANAT ION IN THAT REGARD BY A LETTER IN WRITING. ALL THESE ARE PART OF THE RECORD OF THE CASE. EVIDENTLY, THE CLAIM WAS ALLOW ED BY THE INCOME-TAX OFFICER ON BEING SATISFIED WITH THE EXPL ANATION OF THE ASSESSEE. SUCH DECISION OF THE INCOME-TAX O FFICER CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE I N HIS ORDER, HE DID NOT MAKE AN ELABORATE DISCUSSION IN T HAT REGARD 4.2 FURTHER, HE SUBMITTED THAT THE AFORESAID VIEWS EXPRESSED BY THE BOMBAY HIGH COURT WAS QUOTED IN THE CASE OF CIT VS. SUNBEAM AUTO LTD., REPORTED IN 332 ITR 167 (DELHI ) AND HE ALSO DREW OUR ATTENTION TO A JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HARI IRON TRADING CO. VS. CIT, REPORTED IN 263 ITR 437 ( PUNJAB), WHEREIN THE FOLLOWING VIEWS WERE EXPRESSED:- THE EXPRESSION 'RECORD' HAS ALSO BEEN DEFINED IN CL AUSE (B) OF THE EXPLANATION SO AS TO INCLUDE ALL RECORDS RELATI NG TO ANY PROCEEDINGS AVAILABLE AT THE TIME OF EXAMINATION BY THE CIT. THUS, IT IS NOT ONLY THE ASSESSMENT ORDER BUT THE E NTIRE RECORD WHICH HAS TO BE EXAMINED BEFORE ARRIVING AT A CONCL USION AS TO WHETHER THE AO HAD EXAMINED ANY ISSUE OR NOT. TH E ASSESSEE HAS NO CONTROL OVER THE WAY AN ASSESSMENT ORDER IS DRAFTED. THE ASSESSEE ON ITS PART HAD PRODUCED ENOU GH MATERIAL ON RECORD TO SHOW THAT THE MATTER HAD BEEN DISCUSSED IN DETAIL BY THE AO. THE LEAST THAT THE TRIBUNAL CO ULD HAVE DONE WAS TO REFER TO THE ASSESSMENT RECORD TO VERIF Y THE CONTENTIONS OF THE ASSESSEE. INSTEAD OF DOING THAT, THE TRIBUNAL HAS MERELY BEEN SWAYED BY THE FACT THAT TH E AO HAS NOT MENTIONED ANYTHING IN THE ASSESSMENT ORDER. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO EXAMINES NUMEROUS ISSUES. GENERALLY, THE ISSUES WHICH ARE AC CEPTED DO I.T.A.NO.1197/MDS/2012 :- 5 -: NOT FIND MENTION IN THE ASSESSMENT ORDER AND ONLY S UCH POINTS ARE TAKEN NOTE OF ON WHICH THE ASSESSEE'S EXPLANATI ONS' ARE REJECTED AND ADDITIONS/DISALLOWANCES ARE MADE. AS A LREADY OBSERVED, WE HAVE EXAMINED THE RECORDS OF THE CASE AND FIND THAT THE AO HAD MADE FULL INQUIRIES BEFORE ACCEPTIN G THE CLAIM OF THE AO QUA THE AMOUNT OF 10 LACS ON ACCOUNT OF DISCREPANCY IN STOCK. NOT ONLY THIS, HE HAS EVEN GO NE A STEP FURTHER AND APPENDED AN OFFICE NOTE WITH THE ASSESS MENT ORDER TO EXPLAIN WHY THE ADDITION FOR ALLEGATION DISCREPA NCY IN STOCK WAS NOT BEING MADE. IN THE ABSENCE OF ANY SUG GESTION BY THE COMMISSIONER AS TO HOW THE INQUIRY WAS NOT P ROPER, WE ARE UNABLE TO UPHELD THE ACTION TAKEN BY HIM UND ER SECTION 263 OF THE ACT. . 4.3 HE ALSO SUBMITTED THAT THE COMMISSIONER OF INC OME TAX HAS NOT ESTABLISHED THAT THE FINDING OF THE ASSESSING OFFI CER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE R EVENUE NOR HE HAS MADE IT CLEAR IN WHAT MANNER HE WANTS THE ASSESSING OFFI CER TO REDO THE ASSESSMENT, WITHOUT SUGGESTING MANNER IN WHICH THE ASSESSING OFFICER IS REQUIRED TO ENQUIRE THE ISSUE IN DISPUTE HE HAS SETASIDE THE ASSESSMENT ORDER. IN OTHER WORDS, IT IS NECESSARY F OR THE COMMISSIONER OF INCOME TO POINT OUT THE EXACT ERROR IN THE ORDER WHICH HE PROPOSES TO REVISE SO THAT THE ASSESSEE WOULD HAVE AN ADEQUA TE OPPORTUNITY OF MEETING THAT ERROR BEFORE THE FINAL ORDER IS MADE. AFFORDING ANY FURTHER OPPORTUNITY AFTER SETTING ASIDE THE ORDER O F THE INCOME TAX OFFICER WOULD NOT AMOUNT TO AN OPPORTUNITY OF MEETI NG THE ALLEGED ERROR IN THE ASSESSMENT PROPOSED TO BE REVISED. FOR THIS PURPOSE, HE RELIED ON THE JUDGMENT OF THE ANDHRA PRADASH HIGH C OURT IN THE CASE I.T.A.NO.1197/MDS/2012 :- 6 -: OF CIT VS. G.K. KABRA REPORTED IN 211 ITR 336 (AP) . FURTHER, HE SUBMITTED THAT COMMISSIONER OF INCOME TAX TRAVELLED BEYOND THE ISSUE RAISED IN THE SHOW CAUSE NOTICE. ON THIS COUNT ALS O SECTION 263 IS BAD IN LAW. ACCORDING TO HIM, THE COMMISSIONER OF INC OME TAX GAVE A DIRECTION TO THE ASSESSING OFFICER TO VERIFY THE GE NUINENESS OF CLAIM OF THE ASSESSEE IN REPRESENTING ASSIGNMENT LOSS. HOWE VER, HE HAS NOT RAISED THE ISSUE OF GENUINENESS OF ASSIGNMENT LOSS IN HIS SHOW CAUSE NOTICE ISSUED TO THE ASSESSEE. FOR THIS PURPOSE, H E RELIED ON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN TC (A) NO.1023 OF 20 05 DATED 19.06.202 IN THE CASE OF M/S. PVP VENTURES LI MITED . HE ALSO PLACED RELIANCE IN THE FOLLOWING CASES:- (I) SHARMA ENGINEERING COMPANY VS. ITO (1986) 26 TTJ 629 (ALLAHABAD). (II) GEOMETRIC SOFTWARE SOLUTIONS CO. LTD VS. ACIT, (2009) 32 SOT 428 (MUM). (III) CIT VS. ASHISH RAJPAL (2010) 320 ITR 674 (DELHI) 4.4 WITHOUT PREJUDICE TO THE ABOVE, HE SUBMITTED T HAT ORDER OF THE ASSESSING OFFICER DATED 30.12.2009 IS SUBJECT MATTE R OF APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AS THE ASS ESSEE CARRIED ON THE APPEAL BEFORE HIM BEFORE ISSUE OF NOTICE BY THE COMMISSIONER OF INCOME TAX (ADMIN) FOR INVOKING JURISDICTION U/S.2 63 ON 12.03.2012. BEING SO, THE ISSUE RAISED BY THE COMMISSIONER OF I NCOME TAX (ADMIN) IN HIS ORDER U/S.263 HAS MERGED WITH THE ORDER OF C OMMISSIONER OF I.T.A.NO.1197/MDS/2012 :- 7 -: INCOME TAX (A) AS A WHOLE HENCE IT WAS NO MORE AMEN ABLE TO REVISIONAL JURISDICTION OF COMMISSIONER OF INCOME T AX (ADMIN) IN VIEW OF EXPLANATION (C) TO SEC. 263 OF THE ACT.. FOR TH IS PURPOSE HE RELIED ON THE FOLLOWING JUDGMENTS: (I) MARICO INDUSTRIES LTD. VS. ACIT 115 TTJ (MUM) 497 . (II) SONAL GARMENTS VS. JCIT, 95 ITD 363 (MUM) (III) SUJATA GROVER VS. DCIT, 74 TTJ 347 (DELHI). (IV) OIL INDIA LTD VS. CIT, 138 (ITR 836) (CALCUTTA). 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTA TIVE RELIED ON THE ORDER OF THE COMMISSIONER OF INCOME TAX. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. WE HAVE CAREFULLY CONSIDERED THE RIVAL S UBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US AND ALSO GON E THROUGH ALL THE JUDGMENTS CITED BY THE PARTIES BEFORE US. FIRST WE TAKE UP THE LEGAL ISSUE WITH REFERENCE TO THE JURISDICTION OF INVOKIN G THE PROVISIONS OF SECTION 263 OF THE ACT BY THE LEARNED CIT. THE SCHE ME OF THE IT ACT IS TO LEVY AND COLLECT TAX IN ACCORDANCE WITH THE PROV ISIONS OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO ER RONEOUS ORDER OF THE ASSESSING OFFICER, THE REVENUE IS LOSING TAX LAWFUL LY PAYABLE BY A PERSON, IT WILL CERTAINLY BE PREJUDICIAL TO THE INT EREST OF THE REVENUE. AS HELD IN THE CASE OF MALABAR INDUSTRIES CO. LTD., VS. CIT (243 ITR 83) (SC), THE COMMISSIONER CAN EXERCISE REVISION JURISDICTIO NAL U/S 263 IF HE IS SATISFIED THAT THE ORDER OF THE ASSESSING OFF ICER SOUGHT TO BE I.T.A.NO.1197/MDS/2012 :- 8 -: REVISED IS (I)ERRONEOUS; AND ALSO (II) PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE WORD ERRONEOUS HAS NOT BEEN DEFINED IN THE INCOME TAX ACT. IT HAS BEEN HOWEVER DEFINED AT PAGE 562 IN BLA CKS LAW DICTIONARY (SEVENTH EDITION) THUS; ERRONEOUS, ADJ. INVOLVING ERROR, DEVIATING FROM TH E LAW. THE WORD ERROR HAS BEEN DEFINED AT THE SAME PAGE IN THE SAME DICTIONARY THUS: ERROR NO. 1 : A PSYCHOLOGICAL STATE THAT DOES NOT CONFORM TO OBJECTIVE REALITY; A BRIEF THAT WHAT IS FALSE IS TR UE OR THAT WHAT IS TRUE IS FALSE. AT PAGE 649/650 IN P. RAMANATHA AIYERS LAW LEXICON REPRINT 2002, THE WORD ERROR HAS BEEN DEF INED TO MEAN- ERROR: A MISTAKEN JUDGEMENT OR DEVIATION FROM THE TRUTH IN MATTERS OF FACT, AND FROM THE LAW IN MATTERS OF JUD GEMENT ERROR IS A FAULT IN JUDGEMENT, OR IN THE PROCESS OR PROCEEDING TO JUDGEMENT OR IN THE EXECUTION UPON THE SAME, IN A COURT OF RECORD; WHICH IN THE CIVIL LAW IS CAL LED A NULLITYIE (TERMS DELAY). SOMETHING INCORRECTLY DONE THROUGH IGNORANCE OR INA DVERTENCE S.99 CPC AND S.215 CR.PC. ERROR, FAULT, ERROR RESPECTS THE ACT; FAULT RESPEC T THE AGENT, AN ERROR MAY LAY IN THE JUDGEMENT, OR IN THE CONDUCT, BUT A FAULT LIES IN THE WILL OR INTENTION. 7. AT PAGE 650 OF THE AFORESAID LAW LEXICON, THE SCO PE OF ERROR, MISTAKE, BLUNDER, AND HALLUCINATION HAS BEEN EXPLAI NED THUS : AN ERROR IS ANY DEVIATION FROM THE STANDARD OR CO URSE OF RIGHT, TRUTH, JUSTICE OR ACCURACY, WHICH IS NOT INT ENTIONAL. A MISTAKE IS AN ERROR COMMITTED UNDER A MISAPPREHENSI ON OF MISCONCEPTION OF THE NATURE OF A CASE. AN ERROR MAY BE FROM THE ABSENCE OF KNOWLEDGE, A MISTAKE IS FROM INSUFFI CIENT OR FALSE OBSERVATION. BLUNDER IS A PRACTICAL ERROR OF A PECULIARLY GROSS OR AWKWARD KIND, COMMITTED THROUGH GLARING IGNORANCE, HEEDLESSNESS, OR AWKWARDNESS. AN ERROR M AY BE OVERLOOKED OR ATONED FOR, A MISTAKE MAY BE RECTIFIE D, BUT THE I.T.A.NO.1197/MDS/2012 :- 9 -: SHAME OR RIDICULE WHICH IS OCCASIONED BY A BLUNDER, WHO CAN COUNTERACT. STRICTLY SPEAKING, HALLUCINATION IS AN ILLUSION OF THE PERCEPTION, A PHANTASM OF THE IMAGINATION. THE ONE COMES OF DISORDERED VISION, THE OTHER OF DISCARDED IMAGINATION. IT IS EXTENDED IN MEDICAL SCIENCE TO M ATTERS OF SENSATION, WHETHER THERE IS NO CORRESPONDING CAUSE TO PRODUCE IT. IN ITS ORDINARY USE IT DENOTES AN UNACC OUNTABLE ERROR IN JUDGEMENT OR FACT, ESPECIALLY IN ONE REMAR KABLE OTHERWISE FOR ACCURATE INFORMATION AND RIGHT DECISI ON. IT IS EXCEPTIONAL ERROR OR MISTAKE IN THOSE OTHERWISE NOT LIKELY TO BE DECEIVED. 8. IN ORDER TO ASCERTAIN WHETHER AN ORDER SOUGHT TO BE REVISED UNDER SECTION 263 IS ERRONEOUS, IT SHOULD BE SEEN WHETHER IT SUFFERS FROM ANY OF THE AFORESAID FORMS OF ERROR. IN OUR VIEW, AN ORDER SOUGHT TO BE REVISED UNDER SECTION 263 WOULD BE ERRONEOUS AND FALL IN TH E AFORESAID CATEGORY OF 'ERRORS' IF IT IS, INTER ALIA, BASED ON AN INCORREC T ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW OR NON-APPLICATION OF MIND TO SOMETHING WHICH WAS OBVIOUS AND REQUIRED APPLICATION OF MIND OR BAS ED ON NO OR INSUFFICIENT MATERIALS SO AS TO AFFECT THE MERITS OF THE CASE AN D THEREBY CAUSE PREJUDICE TO THE INTEREST OF THE REVENUE. 9. SECTION 263 OF THE INCOME-TAX ACT SEEKS TO REMOVE T HE PREJUDICE CAUSED TO THE REVENUE BY THE ERRONEOUS OR DER PASSED BY THE ASSESSING OFFICER. IT EMPOWERS THE COMMISSIONER TO INITIATE SUO MOTO PROCEEDINGS EITHER WHERE THE ASSESSING OFFICER TAKES A WRONG DECISION WITHOUT CONSIDERING THE MATERIALS AVAILABL E ON RECORD OR HE TAKES A DECISION WITHOUT MAKING AN ENQUIRY INTO THE MATTERS, WHERE SUCH INQUIRY WAS PRIMA FACIE WARRANTED. THE COMMISS IONER WILL BE I.T.A.NO.1197/MDS/2012 :- 10 -: WELL WITHIN HIS POWERS TO REGARD AN ORDER AS ERRONE OUS ON THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSIN G OFFICER SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE CL AIM MADE BY THE ASSESSEE IN HIS RETURN. THE REASON IS OBVIOUS. UNLI KE THE CIVIL COURT WHICH IS NEUTRAL IN GIVING A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE IT, THE ROLE OF AN ASSESSING OFFICE R UNDER THE INCOME-TAX ACT IS NOT ONLY THAT OF AN ADJUDICATOR B UT ALSO OF AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN, WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUI RY. HE MUST DISCHARGE BOTH THE ROLES EFFECTIVELY. IN OTHER WORDS, HE MUST CARRY OUT INVESTIGATION WHERE THE FACTS OF THE CASE SO REQUIR E AND ALSO DECIDE THE MATTER JUDICIOUSLY ON THE BASIS OF MATERIALS CO LLECTED BY HIM AS ALSO THOSE PRODUCED BY THE ASSESSEE BEFORE HIM. THE SCHEME OF ASSESSMENT HAS UNDERGONE RADICAL CHANGES IN RECENT YEARS. IT DESERVES TO BE NOTED THAT THE PRESENT ASSESSMENT WA S MADE U/S. 143(3) OF THE INCOME-TAX ACT. IN OTHER WORDS, THE A SSESSING OFFICER WAS STATUTORILY REQUIRED TO MAKE THE ASSESSMENT UND ER SECTION 143(3) AFTER SCRUTINY AND NOT IN A SUMMARY MANNER A S CONTEMPLATED BY SUB-SECTION (1) OF SECTION 143. BULK OF THE RETU RNS FILED BY THE ASSESSEES ACROSS THE COUNTRY IS ACCEPTED BY THE DEP ARTMENT UNDER SECTION 143(1) WITHOUT ANY SCRUTINY. ONLY A FEW CAS ES ARE PICKED UP I.T.A.NO.1197/MDS/2012 :- 11 -: FOR SCRUTINY. THE ASSESSING OFFICER IS THEREFORE, R EQUIRED TO ACT FAIRLY WHILE ACCEPTING OR REJECTING THE CLAIM OF THE ASSE SSEE IN CASES OF SCRUTINY ASSESSMENTS. HE SHOULD BE FAIR NOT ONLY TO THE ASSESSEE BUT ALSO TO THE PUBLIC EXCHEQUER. THE ASSESSING OFFICER HAS GOT TO PROTECT, ON ONE HAND, THE INTEREST OF THE ASSESSEE IN THE SENSE THAT HE IS NOT SUBJECTED TO ANY AMOUNT OF TAX IN EXCESS OF THAT IS LEGITIMATELY DUE FROM HIM, AND ON THE OTHER HAND, H E HAS A DUTY TO PROTECT THE INTERESTS OF THE REVENUE AND TO SEE THA T NO ONE DODGED THE REVENUE AND ESCAPED WITHOUT PAYING THE LEGITIMA TE TAX. THE ASSESSING OFFICER IS NOT EXPECTED TO PUT BLINKERS O N HIS EYES AND MECHANICALLY ACCEPT WHAT THE ASSESSEE CLAIMS BEFORE HIM. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED AND THE GENUINENESS OF THE CLAIMS MADE IN THE RETURN WHEN THE CIRCUMSTANCE S OF THE CASE ARE SUCH AS TO PROVOKE INQUIRY. ARBITRARINESS IN EITHER ACCEPTING OR REJECTING THE CLAIM HAS NO PLACE. THE ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS BECAUSE AN ENQUIRY HAS NO T BEEN MADE OR GENUINENESS OF THE CLAIM HAS NOT BEEN EXAMINED WHER E THE INQUIRIES OUGHT TO HAVE BEEN MADE AND THE GENUINENESS OF THE CLAIM OUGHT TO HAVE BEEN EXAMINED AND NOT BECAUSE THERE IS ANYTHIN G WRONG WITH HIS ORDER IF ALL THE FACTS STATED OR CLAIM MADE THE REIN ARE ASSUMED TO BE CORRECT. THE COMMISSIONER MAY CONSIDER AN ORDER OF THE ASSESSING I.T.A.NO.1197/MDS/2012 :- 12 -: OFFICER TO BE ERRONEOUS NOT ONLY WHEN IT CONTAINS S OME APPARENT ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT BUT ALSO WHEN IT IS A STEREO-TYPED ORDER WHICH SIMPLY ACCEPTS WHA T THE ASSESSEE HAS STATED IN HIS RETURN AND FAILS TO MAKE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH ARE CALLED FOR IN TH E CIRCUMSTANCES OF THE CASE. IN TAKING THE AFORESAID VIEW, WE ARE SUPP ORTED BY THE DECISIONS OF THE HON'BLE SUPREME COURT IN RAMPYARI DEVI SARAOGI V. CIT (67 ITR 84) (SC), SMT. TARA DEVI AGGARWAL V. CI T ITR 323) (SC), AND MALABAR INDUSTRIAL CO. LTD'S CASE ( 243 ITR 83) (SC) . 10. IN MALABAR INDUSTRIAL CO. LTD . CASE THE HON'BLE COURT HAS HELD AS UNDER: THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE O R ERROR COMMITTED BY THE ASSESSING OFFICER, IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACT ED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLI CATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN THE SAME CATEGORY FALL THE ORDERS PAS SED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHOUT APPLICATION OF MIND. IN OUR HUMBLE VIEW, ARBITRARINESS IN DECISION-MAKING WOULD ALWAYS NEED CORRECTION REGARDLESS OF WHETHER IT CAUSES PREJUDIC E TO AN ASSESSEE OR TO THE STATE EXCHEQUER. THE LEGISLATURE HAS TAKEN AMPLE CARE TO PROVIDE FOR THE MECHANISM TO HA VE SUCH PREJUDICE REMOVED. WHILE AN ASSESSEE CAN HAVE IT CORRECTED THROUGH REVISIONAL JURISDICTION OF THE COMMISSIONER UNDER SECTION 264 OR THROUGH APPEALS A ND OTHER MEANS OF JUDICIAL REVIEW, THE PREJUDICE CAUSE D TO THE STATE EXCHEQUER CAN ALSO BE CORRECTED BY INVOKING REVISIONAL JURISDICTION OF THE COMMISSIONER UNDER S ECTION 263. ARBITRARINESS IN DECISION-MAKING CAUSING PREJU DICE TO EITHER PARTY CANNOT THEREFORE BE ALLOWED TO STAND A ND STARE I.T.A.NO.1197/MDS/2012 :- 13 -: AT THE LEGAL SYSTEM. IT IS DIFFICULT TO COUNTENANCE SUCH ARBITRARINESS IN THE ACTIONS OF THE ASSESSING OFFIC ER. IT IS THE DUTY OF THE ASSESSING OFFICER TO ADEQUATELY PRO TECT THE INTEREST OF BOTH THE PARTIES, NAMELY, THE ASSESSEE AS WELL AS THE STATE. IF HE FAILS TO DISCHARGE HIS DUTIES FAIR LY, HIS ARBITRARY ACTIONS CULMINATING IN ERRONEOUS ORDERS C AN ALWAYS BE CORRECTED EITHER AT THE INSTANCE OF THE A SSESSEE, IF THE ASSESSEE IS PREJUDICED OR AT THE INSTANCE OF THE COMMISSIONER, IF THE REVENUE IS PREJUDICED. WHILE M AKING AN ASSESSMENT, THE ITO HAS A VARIED ROLE TO PLAY. H E IS THE INVESTIGATOR, PROSECUTOR AS WELL AS ADJUDICATOR. AS AN ADJUDICATOR HE IS AN ARBITRATOR BETWEEN THE REVENUE AND THE TAXPAYER AND HE HAS TO BE FAIR TO BOTH. HIS DUTY TO ACT FAIRLY REQUIRES THAT WHEN HE ENQUIRES INTO A SUBSTANTIAL M ATTER LIKE THE PRESENT ONE, HE MUST RECORD A FINDING ON T HE RELEVANT ISSUE GIVING, HOWSOEVER BRIEFLY, HIS REASO NS THEREFOR. IN S.N. MUKHERJEE V. UNION OF INDIA AIR 1 990 SC 1984, IT HAS BEEN OBSERVED BY THE HON'BLE SUPREM E COURT AS FOLLOWS: REASONS, WHEN RECORDED BY AN ADMINISTRATIVE AUTHOR ITY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDICI AL FUNCTIONS, WOULD NO DOUBT FACILITATE THE EXERCISE O F ITS JURISDICTION BY THE APPELLATE OR SUPERVISORY AUTHOR ITY. BUT THE OTHER CONSIDERATIONS, REFERRED TO ABOVE, WHICH HAVE ALSO WEIGHED WITH THIS COURT IN HOLDING THAT AN ADMINISTRATIVE AUTHORITY MUST RECORD REASONS FOR IT S DECISION ARE OF NO LESS SIGNIFICANCE. THESE CONSIDE RATIONS SHOW THAT THE RECORDING OF REASONS BY AN ADMINISTRA TIVE AUTHORITY SERVES A SALUTARY PURPOSE, NAMELY, IT EXC LUDES CHANCES OR ARBITRARINESS AND ENSURES A DEGREE OF FA IRNESS IN THE PROCESS OF DECISION-MAKING. THE SAID PURPOSE WO ULD APPLY EQUALLY TO ALL DECISIONS AND ITS APPLICATION CANNOT BE CONFINED TO DECISIONS WHICH ARE SUBJECT TO APPEAL, REVISION OR JUDICIAL REVIEW. IN OUR OPINION, THEREFORE, THE REQUIREMENT THAT REASONS BE RECORDED SHOULD GOVERN THE DECISIONS OF AN ADMINISTRATIVE AUTHORITY EXERCISING QUASI- JUDICIAL FUNCTIONS IRRESPECTIVE OF THE FACT MAY, HO WEVER, BE ADDED THAT IT IS NOT REQUIRED THAT THE REASONS SHOU LD BE AS ELABORATE AS IN THE DECISION OF A COURT OF LAW. THE EXTENT AND NATURE OF THE REASONS WOULD DEPEND ON PARTICULA R FACTS AND CIRCUMSTANCES. WHAT IS NECESSARY IS THAT THE RE ASONS ARE CLEAR AND EXPLICIT SO AS TO INDICATE THAT THE A UTHORITY HAS GIVEN DUE CONSIDERATION TO THE POINTS IN CONTRO VERSY. THE NEED FOR RECORDING OF REASONS IS GREATER IN A C ASE WHERE THE ORDER IS PASSED AT THE ORIGINAL STAGE. TH E APPELLATE OR REVISIONAL AUTHORITY, IF IT AFFIRMS SU CH AN ORDER, NEED NOT GIVE SEPARATE REASONS IF THE APPELL ATE OR I.T.A.NO.1197/MDS/2012 :- 14 -: REVISIONAL AUTHORITY AGREES WITH THE REASONS CONTAI NED IN THE ORDER UNDER CHALLENGE. 11. SIMILAR VIEW WAS EARLIER TAKEN BY THE HON'BLE SUPRE ME COURT IN SIEMENS ENGG. & MFG. CO. LTD. V. UNION OF INDIA AIR 1976 SC 1785 . IT IS SETTLED LAW THAT WHILE MAKING ASSESSMENT ON ASSE SSEE, THE ITO ACTS IN A QUASI-JUDICIAL CAPACITY. AN ASSESSMENT ORDER I S AMENABLE TO APPEAL BY THE ASSESSEE AND TO REVISION BY THE COMMISSIONER UNDER SECTIONS 263 AND 264. THEREFORE, A REASONED ORDER ON A SUBST ANTIAL ISSUE IS LEGALLY NECESSARY. THE JUDGMENTS ON WHICH RELIANCE WAS PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE ALSO POINTS TO THE SAME DIRECTION. THEY HAVE HELD THAT ORDERS, WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVENUE, MUST BE REGARDED AS ERRONEOUS AND PREJU DICIAL TO THE INTERESTS OF THE REVENUE. IF THE ASSESSING OFFICERS ARE ALLOWED TO MAKE ASSESSMENTS IN AN ARBITRARY MANNER, AS HAS BEEN DON E IN THE CASE BEFORE US, THE ADMINISTRATION OF REVENUE IS BOUND T O SUFFER. IF WITHOUT DISCUSSING THE NATURE OF THE TRANSACTION AND MATERI ALS ON RECORD, THE ASSESSING OFFICER HAD MADE CERTAIN ADDITION TO THE INCOME OF THE ASSESSEE, THE SAME WOULD HAVE BEEN CONSIDERED ERRON EOUS BY ANY APPELLATE AUTHORITY AS BEING VIOLATIVE OF THE PRINC IPLES OF NATURAL JUSTICE WHICH REQUIRE THAT THE AUTHORITY MUST INDICATE THE REASONS FOR AN ADVERSE ORDER. WE FIND NO REASON WHY THE SAME VIEW SHOULD NOT BE TAKEN WHEN AN ORDER IS AGAINST THE INTERESTS OF THE REVENUE. AS A I.T.A.NO.1197/MDS/2012 :- 15 -: MATTER OF FACT SUCH ORDERS ARE PREJUDICIAL TO THE I NTERESTS OF BOTH THE PARTIES, BECAUSE EVEN THE ASSESSEE IS DEPRIVED OF T HE BENEFIT OF A POSITIVE FINDING IN HIS FAVOUR, THOUGH HE MAY HAVE SUFFICIENTLY ESTABLISHED HIS CASE. 12. IN VIEW OF THE FOREGOING, IT CAN SAFELY BE SAI D THAT AN ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS A ND PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNDER SECTION 263 IN T HE FOLLOWING CASES: (I) THE ORDER SOUGHT TO BE REVISED CONTAINS ERROR OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. (II) THE ORDER SOUGHT TO BE REVISED PROCEEDS ON INCORREC T ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW . IN THE SAME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL JUSTICE OR WITHO UT APPLICATION OF MIND. (III) THE ORDER PASSED BY THE ASSESSING OFFICER IS A STEREOTYPE ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH IS CALLED FOR IN THE CIRCUMSTANCES OF THE CASE. 13. WE SHALL NOW TURN TO THE FACTS OF THE CASE TO SEE W HETHER THE CASE BEFORE US IS COVERED BY THE AFORESAID PRINCIPL ES. A PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER DO ES NOT SHOW THAT APPLICATION OF MIND ON HIS PART ON THE ISSUES RAISE D BY THE CIT. THE EVIDENCE AVAILABLE ON RECORD IS NOT ENOUGH TO HOLD THAT THE RETURN OF I.T.A.NO.1197/MDS/2012 :- 16 -: THE ASSESSEE WITH REFERENCE TO THIS INCOME WAS OBJE CTIVELY EXAMINED OR CONSIDERED BY THE ASSESSING OFFICER. THE ASSESSM ENT ORDER PLACED BEFORE US WAS THOUGH PASSED AFTER EXAMINATION OR EN QUIRY OR VERIFICATION OR CONSIDERATION OF THE CLAIM MADE BY THE ASSESSEE, THE ASSESSING OFFICER HAS OMITTED TO EXAMINE THE ISSUE S RELATING TO ASSIGNMENT LOSS, PROVISION FOR STANDARD ASSETS IN T RUE PROSPECTIVE. HIS ORDER IS A COMPLETELY NON-SPEAKING ORDER ON THIS IS SUE. IN OUR VIEW, IT WAS A FIT CASE FOR THE LEARNED COMMISSIONER TO EXER CISE HIS REVISIONAL JURISDICTION UNDER SECTION 263 WHICH HE RIGHTLY EXE RCISED BY CANCELLING THE ASSESSMENT ORDER AND DIRECTING THE ASSESSING OF FICER TO PASS A FRESH ORDER CONSIDERING THIS ISSUES RAISED BY THE C IT AND THE ASSESSEE SHOULD HAVE NO GRIEVANCE IN THE ACTION OF LEARNED C OMMISSIONER IN EXERCISING THE JURISDICTION U/S. 263 OF THE IT ACT. 14. IT WAS HOWEVER CONTENDED BY THE LEARNED COUNSEL THAT THE ASSESSING OFFICER HAD TAKEN A POSSIBLE VIEW IN ACCE PTING THE RETURN OF THE ASSESSEE WITH REFERENCE TO THE ISSUE RAISED BY THE CIT AND HENCE, THE COMMISSIONER WAS NOT JUSTIFIED IN ASSUMING THE REVISIONAL JURISDICTION UNDER SECTION 263. WE HAVE GIVEN OUR T HOUGHTFUL CONSIDERATION TO THE AFORESAID SUBMISSIONS. AS ALRE ADY STATED EARLIER, AN ORDER BECOMES ERRONEOUS BECAUSE ENQUIRIES, WHICH OUGHT TO HAVE I.T.A.NO.1197/MDS/2012 :- 17 -: BEEN MADE ON THE FACTS OF THE CASE, WERE NOT MADE A ND NOT BECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF ALL THE F ACTS STATED OR THE CLAIMS MADE IN THE RETURN ARE ASSUMED TO BE CORRECT . THUS, IT IS MERE FAILURE ON THE PART OF THE ASSESSING OFFICER TO MAK E THE NECESSARY ENQUIRIES OR TO EXAMINE THE CLAIM MADE BY THE ASSES SEE IN ACCORDANCE WITH LAW, WHICH RENDERS THE RESULTANT ORDER ERRONEO US AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. NOTHING MORE IS REQ UIRED TO BE ESTABLISHED IN SUCH A CASE. ONE WOULD NOT KNOW AS T O WHAT WOULD HAVE HAPPENED IF THE ASSESSING OFFICER HAD MADE THE REQU ISITE ENQUIRIES OR EXAMINED THE CLAIM OF THE ASSESSEE IN ACCORDANCE WI TH LAW. HE COULD HAVE ACCEPTED THE ASSESSEE'S CLAIM. EQUALLY, HE COU LD HAVE ALSO REJECTED THE ASSESSEE'S CLAIM DEPENDING UPON THE RE SULTS OF HIS ENQUIRY OR EXAMINATION INTO THE CLAIM OF THE ASSESSEE. THUS , THE FORMATION OF ANY VIEW BY THE ASSESSING OFFICER WOULD NECESSARILY DEPEND UPON THE RESULTS OF HIS INQUIRY AND CONSCIOUS, AND NOT PASSI VE, EXAMINATION INTO THE CLAIM OF THE ASSESSEE. IF THE ASSESSING OFFICER PASSES AN ORDER MECHANICALLY WITHOUT MAKING THE REQUISITE INQUIRIES OR EXAMINING THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW, SUCH AN ORDER WILL CLEARLY BE ERRONEOUS IN LAW AS IT WOULD NOT BE BASED ON OBJ ECTIVE CONSIDERATION OF THE RELEVANT MATERIALS. IT IS THER EFORE, THE MERE FAILURE ON THE PART OF THE ASSESSING OFFICER IN NOT MAKING THE INQUIRIES OR NOT I.T.A.NO.1197/MDS/2012 :- 18 -: EXAMINING THE CLAIM OF THE ASSESSEE IN ACCORDANCE W ITH LAW THAT PER SE RENDERS THE RESULTANT ORDER ERRONEOUS AND PREJUDICI AL TO THE INTEREST OF THE REVENUE. NOTHING ELSE IS REQUIRED TO BE ESTABLI SHED IN SUCH A CASE TO SHOW THAT THE ORDER SOUGHT TO BE REVISED IS ERRO NEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN OU R OPINION, THE COMMISSIONER OF INCOME TAX, RIGHTLY ASSUMED JURISD ICTION U/S.263 OF THE INCOME TAX ACT. 15. THE NEXT GROUND RAISED BY THE ASSESSEE IS T HAT THE COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT TH E LOSS OF K16,86,21,187/- INCURRED ON ASSIGNMENT OF LOAN HAS NOT BEEN VERIFIED AS TO WHETHER THE SAME IS A GENUINE BUSINESS LOSS A ND PERTAINS TO ASSESSMENT YEAR 2007-08. 16. THE LD. AUTHORISED REPRESENTATIVE SUBMITTE D THAT LOSS ON ASSIGNMENT OF LOAN WAS INCURRED IN THE ORDINARY COU RSE OF ITS BUSINESS OF MONEY LENDING AND ITS ALLOWABLE U/S. 28/37 OF TH E ACT. THE ASSIGNMENT OF LOAN WAS MADE WITHIN THE FRAMEWORK O F COMMERCIAL EXPEDIENCY AND THE SAME WAS GENERALLY ELIGIBLE WIT HIN THE MEANING OF SECTION 37(1) OF THE ACT. HE RELIED ON THE FOLL OWING JUDGMENTS:- (I) CIT VS. GILLANDERS ARBUTHNOT AND CO. LTD 195 (ITR 3 31) (CALCUTTA). (II) PATNAIK & COL LTD VS. CIT 161 (ITR 365) (S.C). I.T.A.NO.1197/MDS/2012 :- 19 -: (III) INDIAN COMMERCE AND INDUSTRIES CO. P. LTD VS. CIT 213 (ITR 533) (MAD). (IV) CIT VS. INVESTA INDUSTRIAL CORPORATION OF INDIA 11 9 (ITR 380) (BOM). FURTHER, HE SUBMITTED THAT THE COMMISSIONER OF INCO ME TAX ISSUED A NOTICE TO THE ASSESSEE QUESTIONING WHETHER THE AS SIGNMENT LOSS IS ALLOWABLE U/S.36(2)(V) OF THE ACT R.W.S. 36(1)(VIIA ) OF THE ACT. HOWEVER, WHILE PASSING THE ORDER, COMMISSIONER OF I NCOME TAX OBSERVED THAT IT IS ALSO NOT ESTABLISHED OR VERIFIE D THAT THE ASSESSEE HAD SUFFERED GENUINE BUSINESS LOSS ON ACCOUNT OF T HE TRANSACTIONS AND WHETHER THE SAME RELATES TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND GAVE DIRECT ION TO EXAMINE ALLOWABILITY OF EXPENDITURE U/S.37(1) OF THE ACT. ACCORDING TO THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE THE C OMMISSIONER OF INCOME TAX EXCEEDED HIS JURISDICTION AS IT IS BEYOND THE SCOPE OF ISSUING NOTICE BY HIM. 17. ON THE OTHER HAND, THE LD. DEPARTMENTAL RE PRESENTATIVE SUBMITTED THAT THE ASSESSEE HAD DEBITED THE PROVISI ONS IN RESPECT OF LOSS ON ASSIGNMENT OF LOAN OF M/S. ABEL. THE FA CT REMAINS THAT THIS WAS A PROVISION WHICH IS NOT IN RESPECT OF BAD AND DOUBTFUL DEBTS, AS SUCH NO DEDUCTION COULD HAVE BEEN AVAILA BLE U/S.36(1)(VIIA) OF THE INCOME TAX ACT. REGARDING A LLOWABILITY OF THE I.T.A.NO.1197/MDS/2012 :- 20 -: CLAIM U/S.28 OR 37(1) OF THE INCOME TAX ACT, THE PR IMARY REQUIREMENT IS THAT THE SAME SHOULD EITHER BE CLASS IFIED AS LOSS OR EXPENSES. THIS WAS NOT DONE. FURTHER, IT IS ALSO NO T ESTABLISHED OR VERIFIED THAT THE ASSESSEE HAS SUFFERED GENUINE BU SINESS LOSS ON ACCOUNT OF THE TRANSACTIONS AND WHETHER THE SAME RE LATES TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR. IF THE SAME IS TO BE CONSIDERED AS EXPENSES U/S.37(1), THE ASSESSEE HAD TO SATISFY THAT THE EXPENSES HAVE BEEN INCURRED WITHIN THE FRAME WO RK OF COMMERCIAL EXPEDIENCY AND THE SAME WAS GENERALLY EL IGIBLE WITHIN THE MEANING OF SECTION 37(1) OF THE INCOME TAX ACT. NONE OF THIS ASPECT WERE AVAILABLE ON RECORDS AND THE ASSESSING OFFICER ALSO DID NOT CALL FOR ANY OF THE DETAIL TO SATISFY HIMSELF T HAT THE ASSESSEE WAS ELIGIBLE FOR SUCH DEDUCTION. IN THE ABOVE CIRCUMST ANCES, THERE IS AN ERROR OF THE ASSESSING OFFICER WHICH IS ALSO PREJUD ICIAL TO THE INTEREST OF REVENUE. 18. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE PRIMARY ARGUMENT OF THE ASSESSEES COUN SEL IS THAT ASSIGNMENT LOSSES ARE TO BE ALLOWED AS BAD DEBTS AN D IT WAS RIGHTLY CONSIDERED BY ASSESSING OFFICER AS BAD DEBTS. IN OUR OPINION, THIS ARGUMENT OF THE ASSESSEES COUNSEL AT THIS STAGE I S PREMATURE SINCE THE ASSESSEE HAS NOT WRITTEN OFF THE AMOUNT A S BAD DEBTS AND I.T.A.NO.1197/MDS/2012 :- 21 -: CLAIMED LOSS OF ASSETS DUE TO TRANSFER OF DEBTORS B Y DUE DEED OF ASSIGNMENT. IN OUR OPINION, FOR CLAIMING BAD DEBTS AS ALLOWABLE UNDER THE PROVISION, THE SAME BE WRITTEN OFF UNDER THE PROVISION OF THE ACT. BEING SO, WE CANNOT APPRECIATE THE ARGUME NT OF LD. AUTHORISED REPRESENTATIVE FOR ASSESSEE . 19. ALTERNATIVELY, THE AUTHORISED REPRESENTATIVE CON TESTED THE DIRECTION OF THE COMMISSIONER OF INCOME TAX TO ASSE SSING OFFICER TO EXAMINE ALLOWABILITY OF EXPENDITURE U/S. 37(1) OF T HE ACT. IN ORDER TO CLAIM AN EXPENDITURE U/S.37(1) OF THE ACT THE ASSES SEE SHALL SATISFY THAT THE EXPENDITURE INCURRED BY IT WAS ONLY FOR TH E PURPOSE OF BUSINESS AND IT WAS NOT THE CAPITAL EXPENDITURE OR EXPENDITURE IN THE NATURE OF PERSONAL EXPENDITURE. IN OUR OPINION, IF THE GENUINE EXPENDITURE INCURRED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THEN IT IS TO BE ALLOWED. SINCE THERE WAS NO PROPER ENQUIRY B Y ASSESSING OFFICER AT THE TIME OF PASSING ASSESSMENT ORDER CON SIDERING THE TOTALITY OF FACT OF THE CASE, THE COMMISSIONER OF I NCOME TAX GAVE A DIRECTION TO VERIFY THE EXPENDITURE INCURRED FOR TH E PURPOSE OF BUSINESS AND DECIDE THEREUPON. I.T.A.NO.1197/MDS/2012 :- 22 -: 20. THE OBJECTIONS OF THE ASSESSEE REGARDING THE MATT ERS RAISED IN PRESENT PROCEEDINGS BEING SUBJECT MATTER OF APPELLA TE PROCEEDINGS BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) HAS BEEN CONSIDERED REGARDING DOCTRINE OF MERGER. A PERUSAL OF THE ASSESSMENT ORDER, GROUNDS OF APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE ORDER PASSED BY THE CIT(A) III DA TED 12.10.2011 HAVE BEEN EXAMINED. THE ASSESSING OFFICER HAD CONS IDERED ISSUES RELATING TO THE DEDUCTION U/S.36(1)(VIIA)(C) AND 36 (I)(VIII). A READING TO THE ASSESSMENT ORDER INDICATED THAT THE ISSUES C ONSIDERED BY THE ASSESSING OFFICER ARE TOTALLY DIFFERENT FROM THE IS SUES RAISED IN THE PRESENT PROCEEDINGS, EVEN THOUGH THE SAME MAY FALL UNDER THE COMMON HEAD. 'THE SUBJECT MATTER OF APPEAL' AS ENV ISAGED IN CLAUSE (C) OF EXPLANATION TO SECTION 263(1) OF INCO ME TAX ACT REFERS TO THE ISSUES CONSIDERED AND NOT TO ASPECT TOTALLY DIFFERENT FROM THE ISSUES CONSIDERED. IN THE PRESENT EASE, SINCE THE I SSUES ARE TOTALLY DIFFERENT FROM THAT WAS CONSIDERED THE OBJECTION RE FERRED BY THE ASSESSEE IS NOT VALID. WE, THEREFORE, FIND NO MER IT IN THE ARGUMENT OF THE LD. AUTHORISED REPRESENTATIVE. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISSED. 21. THE ASSESSEE RAISED NEXT GROUND WITH REGARD TO COMM ISSIONER OF INCOME TAX NOT CONSIDERING THE FACT THAT THE ASS ESSEE IS ELIGIBLE I.T.A.NO.1197/MDS/2012 :- 23 -: TO CLAIM DEDUCTION U/S 36(1)(VIIA) (C) IN RESPECT O F THE PROVISIONS MADE AS PER PROVISIONING POLICY OF THE COMPANY. 22. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT IN THE NOTICE IT HAS BEEN STATED THAT THE COMPANY WAS ALLOWED A DEDU CTION OF AS K22.75 CRORE UNDER SECTION 36(1)(VIIA)(C) OF THE AC T OUT OF WHICH, AN AMOUNT OF AS K15.51 CRORE REPRESENTED ASSETS OTHER THAN PROVISION FOR DOUBTFUL DEBTS LIKE STANDARD ASSETS, ETC. IT HA S BEEN MENTIONED IN THE NOTICE THAT THE DEDUCTION UNDER SECTION 36(1)(V IIA)(C) IS ADMISSIBLE ONLY AGAINST PROVISION FOR DOUBTFUL DEBT S AND ACCORDINGLY THE AFOREMENTIONED DEDUCTION ALLOWED BY THE ASSESSI NG OFFICER IN RESPECT OF PROVISION FOR STANDARD ASSETS IS ERRONEO US. IN THIS REGARD, IT IS SUBMITTED THAT THE REGULATORY PROVISIONING RE QUIREMENT FOR STANDARD ASSETS WAS NOT APPLICABLE TO THE COMPANY IN AY 2007-08. HOWEVER, THE COMPANY WAS REQUIRED TO CLASSIFY ALL I TS ADVANCES UNDER FOUR CATEGORIES I.E. (I) STANDARD ASSETS, (II ) SUB-STANDARD ASSETS, (III) DOUBTFUL ASSETS, AND (IV) LOSS ASSETS DEPENDING UPON THE PERFORMANCE OF SUCH ASSETS AS PER RBI GUIDELINES. DURING THE CAPTIONED AY, THE COMPANY CREATED PROVISION FOR STA NDARD ASSETS AMOUNTING TO K49.85 CRORES INCLUDING PROVISION UNDE R SECTION 36(1)(VIIA). IT IS SUBMITTED THAT PROVISION ON STAN DARD ASSET IS MADE AS PER THE PROVISIONING POLICY OF THE COMPANY, WHIC H INCLUDES I.T.A.NO.1197/MDS/2012 :- 24 -: PROVISION UNDER SECTION 36(1)(VIIA) OF THE ACT. IT MAY BE NOTED THAT THE STANDARD ASSETS REPRESENT LOANS AND ADVANCES GR ANTED BY THE ASSESSEE AND HENCE, THE PROVISION AGAINST THESE ASS ETS IS AKIN TO THE PROVISION AGAINST DEBTS. IN ITS ANNUAL ACCOUNTS, TH E ASSESSEE ALSO DISCLOSES THE FACT THAT PROVISION AGAINST STANDARD ASSETS INCLUDES PROVISION UNDER SECTION 36(1)(VIIA) OF THE ACT. IT MAY BE NOTED THAT STANDARD ASSETS REPRESENT THOSE LOANS AND ADVANCES WHICH MAY NOT HAVE REMAINED OVERDUE FOR MORE THAN 180 DAYS AND HE NCE CLASSIFIED AS STANDARD ASSETS UNDER RBI GUIDELINES. HOWEVER, T HERE WERE SOME LOANS THOUGH PERFORMING UNDER RBI GUIDELINES BUT HA D OVERDUE FOR A PERIOD NOT EXCEEDING 180 DAYS. AS PER THE PROVISION ING POLICY OF THE COMPANY APPROVED BY THE BOARD, ENTIRE LOAN PORTFOLI O IS REVIEWED ON QUARTERLY BASIS TO DETERMINE THE EXTENT TO WHICH PR OVISION IS REQUIRED. THE PROVISION IS CREATED AFTER CAREFUL EX AMINATION OF THE PORTFOLIO IN VIEW OF THE GENERAL ECONOMIC ENVIRONME NT, ADVERSE FACTORS AFFECTING PARTICULAR SECTORS/ INDUSTRY, EXC EPTIONAL CIRCUMSTANCES CONFRONTING A SPECIFIC BORROWER AFFE CTING HIS REPAYMENT CAPACITY ETC. THE COMPANY MAKES PROVISIO N ON THOSE LOANS/ADVANCES WHICH IN VIEW OF THE MANAGEMENT ARE STRESSED AND DOUBTFUL OF RECOVERY. IT MAY BE NOTED THAT THOUGH S UCH PROVISION IS SHOWN UNDER THE HEAD 'PROVISION AGAINST STANDARD AS SETS', IN TRUE I.T.A.NO.1197/MDS/2012 :- 25 -: SENSE THEY ARE NOTHING BUT PROVISION FOR DOUBTFUL D EBTS ITSELF. IT SHALL BE APPRECIATED THAT BY THE VERY NATURE OF BUSINESS OF THE COMPANY, THERE ARE BOUND TO BE SOME BAD OR DOUBTFUL DEBTS IN RESPECT OF ITS ENTIRE PORTFOLIO OF LOANS AND ADVANCES. IN OTHER WO RDS, EVEN IN RESPECT OF ASSETS THAT ARE CLASSIFIED AS STANDARD A SSETS, A PART OF THE DEBTS ARE DOUBTFUL OF RECOVERY. IT IS PERTINENT TO NOTE THAT THE FACT THAT A PROVISION IS MADE AGAINST STANDARD ASSETS IN ABSENCE OF REGULATORY REQUIREMENT BY ITSELF INDICATES THAT A P ART OF THE STANDARD ASSETS ARE DOUBTFUL OF RECOVERY. ACCORDINGLY, THE E NTIRE PROVISION MADE BY THE COMPANY, INCLUDING IN RESPECT OF STANDA RD ASSETS IS FOR BAD AND DOUBTFUL DEBTS AS ENVISAGED BY SECTION 36(1 )(VIIA) OF THE ACT. IT MAY ALSO BE MENTIONED THAT CBDT INSTRUCTION NO 17/2008 DATED 26 NOVEMBER 2008 ISSUED IN THE CONTEXT OF BAN KS INDICATES THAT PROVISION FOR STANDARD ASSETS ARE NOT ALLOWABL E AS A DEDUCTION UNDER SECTION 37(1) OF THE ACT AS IT IS CONTINGENT IN NATURE. IN THIS CONNECTION, IT IS PERTINENT TO NOTE THAT THE COMPAN Y IS CLAIMING DEDUCTION IN RESPECT OF PROVISION FOR STANDARD ASSE TS UNDER SECTION 36(1)(VIIA) AND NOT SECTION 37(1). IT MAY ALSO BE N OTED THAT THE CBDT HAS NOT INDICATED THAT PROVISION FOR STANDARD ASSETS ARE NOT DEDUCTIBLE UNDER SECTION 36(1)(VIIA) THEY HAVE ONLY COMMENTED ON THE SAME IN THE CONTEXT OF SECTION 37(1). THIS APPE ARS TO INDICATE I.T.A.NO.1197/MDS/2012 :- 26 -: THAT THE CBDT IS OF THE VIEW THAT PROVISION FOR STA NDARD ASSETS ARE IN FACT DEDUCTIBLE UNDER SECTION 36(1)(VIIA), SUBJECT TO THE LIMITS PRESCRIBED IN THE SAID SECTION. IN LIGHT OF ABOVE, IT IS SUBMITTED THAT THE COMPANY IS ELIGIBLE TO CLAIM DEDUCTION UNDER SE CTION 36(1)(VIIA)(C) IN RESPECT OF THE PROVISION MADE FOR STANDARD ASSETS. ACCORDINGLY, THE AMOUNT OF PROVISION FOR STANDARD A SSETS SHOULD ALSO BE INCLUDED FOR THE PURPOSES OF COMPUTING DEDUCTION UNDER SECTION 36(1)(VIIA) AND HE FURTHER RELIED ON THE FOLLOWING JUDGMENTS. (I) THE LITTLE KANCHEERPURAM CO-OPERATIVE URBAN BANK LTD, IN ITA NOS.23 & 24/MDS/2013, DATED 21.03.2013 (II) M/S. THE MAYURBHANJ CENTRAL CO-OPERATIVE BANK LTD IN ITA NO.385/CTK/2012, DATED 30.10.2012. (III) M/S. TAMILNADU STATE APEX CO-OPERATIVE BANK LTD IN ITA NO.948/MDS/2013, DATED 21.01.2014. (IV) THE VELLORE DIST. CENTRAL CO-OPERATIVE BANK LTD IN ITA NO.914/MDS/2013, DATED 17.07.2013. 23. WE HAVE HEARD BOTH PARTIES AND PERUSED THE MATE RIAL ON RECORD . THE ASSESSEE HAD MADE A PROVISION OF K15,51,21,484/- O N ITS STANDARD ASSETS AND CLAIMED DEDUCTION U/S.36(1) (VI IA) OF THE ACT. AT THIS JUNCTURE, A LOOK AT SECTION 36(1)(VIIA) IS NEC ESSARY AND THIS IS REPRODUCED HEREUNDER, FOR BREVITY :- 36(1)(VIIA) A SCHEDULED BANK [NOT BEING A BANK INC ORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON -SCHEDULED BANK [OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICU LTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIVE AGRICULTURAL AND R URAL DEVELOPMENT BANK], AN AMOUNT [NOT EXCEEDING SEVEN AND ONE-HALF PER CENT] OF THE I.T.A.NO.1197/MDS/2012 :- 27 -: TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING [TEN] PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. IT IS CLEAR FROM THE ABOVE THAT IT IS NOT A STANDAR D ALLOWANCE WHICH IS GIVEN, BUT, THE ALLOWANCE IS SUBJECT TO THE ACTUAL PROVISION MADE BY THE ASSESSEE, WHICH IN NO CASE SHALL EXCEED 7.5% OF THE GROSS TOTAL INCOME. THEREFORE, THE ARGUMENT OF THE ASSESSEE THA T WHATEVER THE PROVISION IT HAD ACTUALLY MADE IN ITS BOOKS, A PROV ISION OF 7.5% OF THE GROSS TOTAL INCOME HAD TO BE ALLOWED, IS NOT IN ACC ORDANCE WITH LAW. NOW CONSIDERING THE SECOND ASPECT, WHETHER PROVISIO N FOR STANDARD ASSETS COULD BE CONSIDERED AS PROVISION FOR BAD AND DOUBTFUL DEBTS, ADMITTEDLY A PROVISION ON STANDARD ASSETS IS NOT AG AINST ANY DEBTS WHICH HAD BECOME DOUBTFUL. STANDARD ASSETS ARE ALWA YS CONSIDERED RECOVERABLE, IN THE SENSE, ASSESSEE HAS NO DOUBT O F RECOVERABILITY. WHEN THE ASSESSEE ITSELF HAS TREATED SUCH ASSETS AS GOOD AND RECOVERABLE, ANY PROVISION MADE ON SUCH ASSETS CANN OT BE CONSIDERED AS A PROVISION FOR BAD AND DOUBTFUL DEBTS. THE DEBT ITSELF BEING GOOD, A PROVISION MADE ON GOOD DEBT CANNOT BE CONSIDERED AS A PROVISION FOR BAD AND DOUBTFUL DEBTS. MAY BE, THE RBI HAS MADE A REGULATION FOR 10% PROVISION FOR STANDARD ASSETS ALSO A PRUDENTIAL NORM. THIS CAN HOWEVER BE CONSIDERED AS A MEASURE PRESCRIBED IN AB UNDANT CAUTION, TO DEAL WITH A SITUATION WHERE BANKS ARE NOT TO SUF FER SHOCK OF SUDDEN I.T.A.NO.1197/MDS/2012 :- 28 -: DELINQUENCY THAT COULD HAPPEN IN FUTURE. THERE IS A LWAYS A POSSIBILITY THAT AN ASSET, WHICH IS FULLY RECOVERABLE, MAY NOT BE SO AT FUTURE DATE. NEVERTHELESS, POSSIBILITY OF HAPPENING OF SUCH A CO NTINGENCY CANNOT BE A SUFFICIENT REASON TO CONSIDER A PROVISION MADE ON STANDARD ASSETS ALSO AS A PROVISION FOR BAD AND DOUBTFUL DEBTS. THE REFORE, CLAIM OF THE ASSESSEE THAT PROVISION FOR STANDARD ASSETS ALSO HA S TO BE CONSIDERED FOR APPLYING THE CONDITION SET OUT UNDER SECTION 36 (1)(VIIA) IS NOT IN ACCORDANCE WITH LAW. IF THE PROVISION FOR STANDARD ASSETS IS NOT CONSIDERED AS PROVISION FOR BAD AND DOUBTFUL DEBTS, THE ACTUAL PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY THE AS SESSEE IN ITS BOOKS FALL MUCH BELOW THE ALLOWED BY THE ASSESSING OFFICE R. IN ANY CASE, A LOOK INTO THE ORIGINAL ASSESSMENT ORDER CLEARLY SHO W THAT BUT FOR THE DEDUCTION ALLOWED TO THE ASSESSEE AS CLAIMED BY IT IN ITS RETURN, THERE WAS NO DISCUSSION AS TO HOW SECTION 36(1)(VIIA) WAS APPLIED AND WHETHER THE LIMITS WERE CORRECTED WORKED OUT. ADMIT TEDLY, NO QUESTION WAS ASKED TO THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS ALSO WITH REGARD TO THE CLAIM MADE BY I T UNDER SECTION 36(1)(VIIA), INSOFAR AS IT CONCERNS THE QUANTUM OF SUCH CLAIM. THIS OBVIOUSLY SHOW THAT THERE WAS NO APPLICATION OF MIN D BY THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT. ASSESSING OFFICE R HAD NOT COME TO ANY CONCLUSION AT ALL HAVING NOT CONSIDERED THE CLA IM IN THE LIGHT OF THE I.T.A.NO.1197/MDS/2012 :- 29 -: CONDITIONS SET OUT IN SECTION 36(1)(VIIA) OF THE AC T. WE CANNOT SAY THAT HE HAD TAKEN A VIEW WHICH WAS IN ACCORDANCE WITH LA W. IT IS NOT A CASE WHERE THE ASSESSING OFFICER HAD ADOPTED ONE OF THE COURSES POSSIBLE IN LAW. OF COURSE, A CRYPTIC ORDER OF THE ASSESSING OFFICER BY ITSELF MAY NOT SHOW THAT THERE WAS NO THOUGHT GIVEN BY HIM ON A CLAIM OF THE ASSESSEE. HOWEVER, HERE THERE WAS NO ENQUIRY MADE D URING THE COURSE OF ASSESSMENT PROCEEDINGS. THEREFORE, THE ORDER WHI CH WAS SILENT ON THE CLAIM MADE BY THE ASSESSEE, AND ALLOWING SUCH C LAIM, WITHOUT ANY DISCUSSION, WILL DEFINITELY RENDER IT ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. AS HELD BY HON'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT (243 ITR 83) , PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS A TERM OF WIDE IMPORT AND NOT CONFINED TO LOSS OF TAX. AN ORDER WITHOUT APPLICATION OF MIND I S DEFINITELY PREJUDICIAL TO THE INTERESTS OF THE REVENUE. WE ARE IN AGREEMEN T WITH LD. CIT THAT THE ORDER OF ASSESSING OFFICER WAS ERRONEOUS INSOFA R AS IT WAS PREJUDICIAL TO THE INTERESTS OF REVENUE. NO INTERFE RENCE IS REQUIRED. 24. THE NEXT GROUND RAISED BY THE ASSESSEE IS WITH REGA RD TO THE COMMISSIONER OF INCOME TAX ERRED IN NOT APPRECIATIN G THE FACT THAT THE INTEREST ON DEBENTURES SHOULD BE INCLUDED TO AR RIVE AT THE ELIGIBLE I.T.A.NO.1197/MDS/2012 :- 30 -: RECEIPTS FOR THE PURPOSE OF DEDUCTION U/S.36(1)(VII I) OF THE ACT. 25. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT TH E EXPLANATION IN SECTION 36(1)(VIII) OF THE ACT, DEFI NES THE PHRASE 'LONG TERM FINANCE' AS ANY LOAN OR ADVANCE WHERE THE TERM S UNDER WHICH MONEYS ARE LOANED OR ADVANCED PROVIDE FOR REPAYMENT ALONG WITH INTEREST THEREOF DURING A PERIOD OF NOT LESS THAN F IVE YEARS . THE ASSESSEE HAS EARNED INTEREST ON DEBENTURES ISSUED B Y COMPANIES ENGAGED IN INFRASTRUCTURE DEVELOPMENT, THE TERM 'DE BENTURE' IS NOT DEFINED IN THE ACT. THE DICTIONARY MEANING OF THE T ERM 'DEBENTURE' IS A WRITTEN ACKNOWLEDGEMENT OF A DEBT; A SECURITY ISSUE D BY A COMPANY FOR MONEY BORROWED ON THE COMPANY'S PROPERTY, HAVIN G A FIXED RATE OF INTEREST, AND USUALLY FIXED REDEMPTION RATES. IT MAY FURTHER BE NOTED THAT THE DEBENTURES IN WHICH THE ASSESSEE INVESTED ARE UNLISTED, NON TRADABLE DEBENTURES WHOSE TENURE IS OF MORE THAN 05 YEARS. FURTHER, THE NON-BANKING FINANCIAL (DEPOSIT ACCEPTING OR H OLDING) COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 2007 DEFINE 'INFRASTRUCTURE LOAN' MEANS A CREDIT FACILITY EXTEN DED BY NON- BANKING FINANCIAL COMPANIES TO A BORROWER, BY WAY OF TERM L OAN, PROJECT LOAN SUBSCRIPTION TO BONDS/DEBENTURES/ PREFERENCE SHARES /EQUITY SHARES IN A PROJECT COMPANY ACQUIRED AS A PART OF THE PROJECT FINANCE PACKAGE I.T.A.NO.1197/MDS/2012 :- 31 -: SUCH THAT SUCH SUBSCRIPTION AMOUNT TO BE 'IN THE NA TURE OF ADVANCE' OR ANY OTHER FORM OF LONG TERM FUNDED FACILITY PROVIDE D TO A BORROWER COMPANY ENGAGED IN: DEVELOPING OR OPERATING AND MAINTAINING OR DEVELOPING, OPERATING AND MAINTAINING ANY INFRASTRU CTURE FACILITY. EVEN IN THE BALANCE SHEET, THESE DEBENTURES HAVE B EEN REFLECTED UNDER THE HEAD 'INFRASTRUCTURE LOANS' AND NOT INVES TMENTS . FURTHER, THE FACT THAT THE LOANS IN FORM OF DEBENTURE HAVE B EEN UTILIZED FOR FINANCING INFRASTRUCTURE PROJECTS CAN BE SUBSTANTIA TED BY FROM THE LOAN AGREEMENTS (DEBENTURE IS MERELY THE FORM IN WHICH ' INFRASTRUCTURE LOAN' HAS BEEN GIVEN. HE RELIED ON THE JUDGMENT OF TOURISM FINANCE CORPORATION OF INDIA VS. JCIT, SPL. RANGE -20, NEW DELHI 31 SOT 495 (DELHI). 26. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT THE INTEREST RECEIVED ON DEBENTURES WAS CONSIDERED BY THE ASSESSING OFFICER AS ELIGIBLE FOR DEDUCTION U/S.36(1)(VIII) OF THE ACT. ACCORDING TO HIM, INCLUSION OF INTEREST RECEI VED ON DEBENTURES CANNOT BE CONSIDERED FOR ELIGIBLE U/S.36(1)(VIII). I.T.A.NO.1197/MDS/2012 :- 32 -: 27. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MA TERIAL ON RECORD. THIS ISSUE WAS COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF TOURISM FINANCE CORPORATION OF INDIA LTD VS. JCIT, (2009) 31 SOT 495 (DELHI BENCHES ) WHEREIN IT WAS HELD AS FOLLOWS:- 21. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL AVAILABLE ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE PROVISI ONS OF SECTION 36(1)(VIII) ARE RELEVANT FOR THIS ISSUE AND HENCE W E REPRODUCE THE SAME HEREIN BELOW:- 36(1)(VIII) IN RESPECT OF ANY SPECIAL RESERVE CREATED AND MAINTAINED BY A SPECIFIED ENTITY, AN AMOUNT NOT EXCEEDING TWENTY PERCENT OF THE PROFITS DERIVED FROM ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION (BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE) CARRIED TO SUCH RESERVE ACCOUNT. 22. FROM THE ABOVE, IT IS SEEN THAT FOR THE PURPOSE OF ALLOWING DEDUCTION UNDER THIS SECTION, WE HAVE TO CONSIDER P ROFITS DERIVED FROM BUSINESS OF PROVIDING LONG TERM FINANCE COMPUT ED UNDER THE HEAD PROFITS & GAINS OF BUSINESS OR PROFESSION. TH E LONG TERM FINANCE IS DEFINED UNDER CLAUSE (H) TO EXPLANATION TO SECTION 36(1)(VIII) AS PER WHICH, THE LONG TERM FINANCE MEA NS ANY LOAN OR ADVANCE WHERE THE TERMS UNDER WHICH MONEYS ARE LOAN ED OR ADVANCED PROVIDED FOR REPAYMENT ALONG WITH INTEREST THERE ON DURING THE PERIOD OF NOT LESS THAN FIVE YEARS. FRO M THE ABOVE, IT IS CLEAR THAT PROFITS DERIVED FROM LONG TERM FINANC E ONLY CAN BE CONSIDERED FOR THE PURPOSE OF ALLOWING DEDUCTION UN DER SECTION 36(1)(VIII) AND HENCE THESE RECEIPTS AS INTEREST ON DEPOSITS, LEASE RENTAL, CONSULTANCY AND OTHER PROFESSIONAL CHARGES , LEGAL FEES, GUARANTEE COMMISSION, APPRAISAL FEES, FINANCIAL CHA RGES, INTEREST ON GUARANTEE COMMISSION AND MISC. INCOME ETC. ARE N OT IN THE NATURE OF INCOME FROM LONG TERM FINANCE AND HENCE T HESE RECEIPTS CANNOT BE INCLUDED IN TOTAL INCOME FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE UNDER SECTION 36(1) (VIII) OF THE ACT. THESE RECEIPTS CAN BE ATT RIBUTED TO THE INCOME OF BUSINESS OF PROVIDING LONG TERM FINANCE B UT IT CANNOT BE SAID THAT THESE ARE INCOME DERIVED FROM THE BUSI NESS O PROVIDING LONG TERM FINANCE BECAUSE THE BUSINESS O F PROVIDING LONG TERM FINANCES, CAN BE CARRIED OUT EVEN WITHOUT THESE ACTIVITIES SUCH AS CONSULTANCY LEGAL SERVICE, APPRA ISAL ETC. IN I.T.A.NO.1197/MDS/2012 :- 33 -: LEASING THERE IS NO FINANCE AND HENCE LEASE RENTAL IS NOT INCOME FROM PROVIDING LONG TERM FINANCE. OTHER INTERESTS AND FINANCIAL CHARGES ARE NOT SHOWN TO BE OUT OF PROVIDING LONG T ERM FINANCE AND HENCE NO ELIGIBLE DEDUCTION UNDER SECTION 36(1) (VIII). REGARDING INTEREST ON DEBENTURES, WE ARE IN AGREEME NT WITH LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE THAT THIS INCOME IS IN THE NATURE OF INTEREST ON LOANS BECAUSE DEBENTUR E IS NOTHING BUT LOAN BUT WHETHER THE SAME IS FOR LONG T ERM OR NOT, THIS FACT IS NOT AVAILABLE ON RECORD AND HENCE , THIS ASPECT OF THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION AFTER EXAMIN ING THIS FACTUAL ASPECT REGARDING THE PERIOD OF REPAYMENT OF THESE DEBENTURES ALONGWITH INTEREST AND IF THE SAME IS FO UND TO BE AS PER EXPLANATION (H) TO SECTION 36(1)(VIII) INTER EST ON DEBENTURES SHOULD BE CONSIDERED FOR THE PURPOSE OF ALLOWING DEDUCTION UNDER SECTION 36(1)(VIII). THE A SSESSEE IS ALSO CLAIMING DEDUCTION UNDER THIS SECTION ON RECEI PTS ON ACCOUNT OF DIVIDENDS AND PROFITS ON SALE OF INVESTM ENT. AS PER THE ABOVE DISCUSSION, THESE TWO RECEIPTS ARE AL SO NOT IN THE NATURE OF INCOME FROM LONG TERM FIANC AND HENC E THIS CANNOT BE CONSIDERED FOR ALLOWING DEDUCTION UNDER S ECTION 36(1)(VIII) . BOTH THESE GROUNDS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES . 28. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL, WE ARE INCLINED TO HOLD THAT INTEREST ON DEBENTURES TO BE CONSIDERED E LIGIBLE FOR DEDUCTION U/S.36(1)(VIII) OF THE ACT, IF THE CONDITIONS LAID DOWN IN EXPLANATION (H) TO SEC 36(1) (VIII) HAS FULFILLED AND ACCORDINGLY T HE ASSESSING OFFICER IS DIRECTED TO EXAMINE IN THE LIGHT OF THE ABOVE ORDER OF THE TRIBUNAL. IN OUR OPINION, THE COMMISSIONER OF INCOME TAX HAS GIV EN DIRECTION ON THIS ISSUE TO EXAMINE ALL THE RELEVANT FACTS BEFORE DECIDING WHETHER THE INTEREST ON DEBENTURES PARTAKE THE CHARACTER OF REC EIPTS WITHIN THE MEANING OF ELIGIBLE BUSINESS U/S.36(1) (VIII) OF TH E ACT. BEING SO, WE I.T.A.NO.1197/MDS/2012 :- 34 -: DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMI SSIONER OF INCOME TAX AND UPHOLD THE SAME. 29. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.1197/MDS/2012 IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 22ND DAY OF MAY, 2 015, AT CHENNAI. SD/- SD/- ( . ! ) V. DURGA RAO ' / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER !' /CHENNAI. #$ /DATED:22.05.2015. KV $% &' (' /COPY TO: 1. ) APPELLANT 2. / RESPONDENT 3. * ( )/CIT(A) 4. * /CIT 5. '+, - /DR 6. ,. / /GF.