Allahabad Bank, Kolkata V. Add.CIT,Range-6, Kolkata, Kolkata

ITA 1199/KOL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4667 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 18-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 14-08-2012
• Court: TRIBUNAL
• Department Lawyers: RAJAT SUBHRA BISWAS
• Assessee Lawyers: PIYUSH DEY; BARUN KUMAR GHOSH
• Keywords: Depreciation; Business expenditure; Charitable institution; Rule of consistency; Earning of tax free income; Cost of acquisition; Bad and doubtful debts; Revised return; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 14A; 115JB; 80G

Judgement Text

1 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] ITA NO.1199/KOL/2012 ASSESSMENT YEAR : 2008-09 ALLAHABAD BANK -VERSUS- ADDL. C.I.T., RANGE-6, KOLKATA KOLKATA (PAN:AACCA8464F) (APPELLANT) (RESPONDENT) ITA NO.1282/KOL/2012 ASSESSMENT YEAR : 2008-09 D.C.I.T., CIRCLE-6, , -VERSUS- ALLAHABAD BANK KOLKATA KOLKATA (PAN: AACCA8464F) (APPELLANT) (RESPONDENT) FOR THE ASSESSEE: SHRI BARUN KUMAR GHOSH & SHRI PIYUSH DEY, FCA FOR THE DEPARTMENT : SHRI RAJAT SUBHRA BISWAS, CIT (DR) DATE OF HEARING : 18.05.2016. DATE OF PRONOUNCEMENT : 01.06.2016. ORDER PER N.V.VASUDEVAN, JM: ITA NO.1199/KOL/2012 IS AN APPEAL BY THE ASSESSEE WHILE ITA NO.1282/KOL/2012 IS AN APPEAL BY THE REVENUE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 13.06.2012 OF CIT(A) VI, K OLKATA RELATING TO AY 2008-09. ITA NO.1199/KOL/2012: (ASSESSEES APPEAL) 2. GROUND NOS. 1 AND 2 RAISED BY THE ASSESSEE READ AS FOLLOWS :- 1. THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED C OMMISSIONER OF INCOME TAX (APPEAL) - VI, KOL HAS ERRED IN CONFIRMING THE ACTI ON OF LEARNED ASSESSING OFFICER BY RESTRICTING THE AMOUNT OF DEDUCTION IN R ESPECT OF PROVISION FOR BAD & DOUBTFUL DEBTS UNDER SECTION 36(1 )(VIIA) TO RS.268 ,76,31 ,809, BEING THE AMOUNT OF PROVISION MADE IN THE ACCOUNTS AND DISALLOWING R S.276,01,94,417 OUT OF 2 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 RS.544,78,26,226 CLAIMED BY THE APPELLANT IN THE RE TURN OF INCOME TAX FOR THE ASSESSMENT YEAR 2008-09. 2. THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED CO MMISSIONER OF INCOME TAX (APPEAL) - VI, KOL HAS ERRED IN CONFIRMING THE DISA LLOWANCES AMOUNTING TO RS 276,01,94,417 UNDER SECTION 36(1 )(VIIA) AS REFERRE D TO IN GROUND NO.1 AS ABOVE IN DISREGARD OF THE DECISION OF HON'BLE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH IN THE CASE OF SYNDICATE BANK (78 ITD 103) AN D RELYING SOLELY ON THE CBDT'S INSTRUCTION NO.17 OF 2008 DATED 26.11.2008. 3. THE ASSESSEE IS A NATIONALISED BANK. IN THE RETU RN OF INCOME FILED FOR AY 2008-09, THE ASSESSEE CLAIMED A SUM OF RS. 544,78,26,226 BEI NG DEDUCTION FOR PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1 )(VIIA)(A ) OF THE INCOME TAX ACT, 1961 (ACT). SEC.36(1)(VIIA) (A) PROVIDES AS FOLLOWS: OTHER DEDUCTIONS. 36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CL AUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WI TH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28- ( VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DO UBTFUL DEBTS MADE BY (A) A SCHEDULED BANK NOT BEING A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA OR A NON- SCHEDULED BANK OR A CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK, AN AMOUNT NOT EXCEEDING SEVEN AND ONE-HALF PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CL AUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING TEN PER CE NT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCH ES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER : 4. THE AMOUNT OF DEDUCTION CLAIMED HAS BEEN WORKED OUT AS BELOW: RS. THE AGGREGATE AVERAGE ADVANCES 4511,62,74,000 MADE BY THE RURAL BRANCHES 10% OF AGGREGATE AVERAGE ADVANCES 451,16,27,400 MADE BY THE RURAL BRANCHES 7.5% OF TOTAL INCOME (COMPUTED 93,61,98,826 BEFORE MAKING ANY DEDUCTION UNDER CHAPTER VI-A) 544,78,26,226 3 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 THERE IS NO DISPUTE THAT THE ABOVE CALCULATION DONE BY THE ASSESSEE IS CORRECT. IT IS ALSO NOT DISPUTED BY THE ASSESSEE THAT THE PROVISIO N FOR BAD AND DOUBTFUL DEBTS MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS WAS ONLY R S.268,76,31,809/-. THE CLAIM OF THE ASSESSEE BEFORE THE AO WAS THAT ALTHOUGH THE BA NK MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS. 268,76,31,809 IN TH E ACCOUNTS, THE BANK IS ELIGIBLE FOR DEDUCTION FOR AN AMOUNT OF RS. 544,78,26,226 AS PER CALCULATION MADE UNDER SECTION 36(1 )(VIIA). THE ENTITLEMENT FOR DEDUCTION CANNOT BE RESTRICTED TO THE EXTENT OF ONLY PROVISION CREATED IN THE BOOKS SUBJECT TO THE UPPER LIMITS LAID DOWN IN SEC.36(1)((VIIA)(A) GIVEN AS ABOVE. THE AO HOWEVER HELD THAT THE DEDUCTION U/S.36(1)(VIIA)(A) OF THE ACT CANNOT BE GREATER THA N THE PROVISION CREATED IN THE BOOKS OF ACCOUNTS. 5. BEFORE CIT(A), THE ASSESSEE CONTENDED THAT IT I S A MISCONCEPTION THAT DEDUCTION UNDER SECTION 36(1 )(VIIA) IS RELATED TO THE PROVIS ION MADE BY THE ASSESSEE FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNT. IT WAS SUBM ITTED THAT ONCE A PROVISION FOR BAD AND DOUBTFUL DEBTS IS MADE BY A SCHEDULED BANK HAVI NG RURAL BRANCHES, THE ASSESSEE IS ENTITLED TO A DEDUCTION WHICH IS QUANTIFIED NOT WIT H RESPECT TO THE AMOUNT PROVIDED IN THE ACCOUNTS, BUT WITH RESPECT TO CERTAIN PERCENTAG E OF THE TOTAL INCOME (BEFORE MAKING THIS DEDUCTION AND DEDUCTION UNDER CHAPTER VI-A) AN D ALSO A CERTAIN PERCENTAGE OF AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCH ES. IN OTHER WORDS, THERE IS A SPECIFIC DEDUCTION GIVEN BY THE STATUTE IRRESPECTIV E OF THE QUANTUM PROVIDED BY THE ASSESSEE IN THE ACCOUNTS TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. THE ASSESSEE RELIED ON THE DECISION OF THE HON'BLE ITA T, BANGAL ORE BENCH IN SYNDICATE BANK VS. DEPUTY CIT (2001) 78 ITD 103 (BANG) IN SUPPORT OF I TS CONTENTION WHEREIN THE STAND TAKEN BY THE ASSESSEE AS ABOVE WAS ACCEPTED B Y THE TRIBUNAL. 6. THE CIT(A) UPHELD THE ORDER OF THE AO BY FOLLOW ING THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA VS. CIT 272 ITR 53 (P & H), WHEREIN IT WAS HELD THAT THE CLAIM FOR DEDUCTION U/S.36(1)(VIIA)(A) OF THE 4 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 ACT CANNOT BE GREATER THAN THE AMOUNT DEBITED TO TH E PROFIT AND LOSS ACCOUNT AS PROVISION. 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS RAISED GROUND NO.1 & 2 BEFORE THE TRIBUNAL. AT THE TIME OF HEARING IT WAS AGREED BY THE PARTIES THAT IDENTICAL ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBU NAL IN ASSESSEES CASE FOR AY 2005-06 & 2006-07 IN ITA NO.2175& 2176/KOL/2009 ORD ER DATED 16.3.2016 BY FOLLOWING THE DECISION IN THE CASE OF STATE BANK OF PATIALA (SUPRA). FOLLOWING THE SAID ORDERS, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS G ROUND NO.1 & 2 RAISED BY THE ASSESSEE. 8. GROUND NOS. 3 AND 4 RAISED BY THE ASSESSEE READ S AS FOLLOWS :- 3. THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED C OMMISSIONER OF INCOME TAX (APPEAL) - VI, KOL HAS ERRED IN CONFIRMING THE APPLICATION O F PROVISION OF RULE 8D READ WITH SECTION 14A(1 )&(2) OF THE INCOME TAX ACT, 1961 WIT HOUT BRINGING ON RECORD ANY COGENT REASON FOR DISREGARDING AND REJECTING THE ESTIMATE INCLUDING THE MANNER OF MAKING ESTIMATE OF DISALLOWANCE AMOUNTING TO RS.46,20,484 OFFERED BY THE APPELLANT ITSELF IN THE REVISED RETURN OF INCOME FILED BY THE APPELLANT . 4. THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED CO MMISSIONER OF INCOME TAX (APPEAL) - VI, KOL HAS ERRED IN UPHOLDING THE DISALLOWANCES UN DER SECTION 14A BY INVOKING RULE 8D AMOUNTING TO RS 4,20,90,323 IN TOTAL DISREGARD O F ORDER OF HIS LEARNED PREDECESSOR IN THE APPEAL NO.1 014/CIT(A)-VI/2009-10/CIR-6/KOL DATED 15.11.2010 RELATING ASSESSMENT YEAR 2007-08 AND ORDERS OF JURISDICTIONA L ITAT IN THE CASE OF ITO VS B.P.S. SECURITIES PVT. LTD., KOLKATA (ITA NO.123/KOI/2010) AND CIVIL ENGINEERS ENTERPRISES (P) LTD. VS DCIT, KOL (ITA NO.859/KOL/2010). 9. THE ASSESSEE EARNED INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER CHAPTER-III OF THE ACT. IN ACCORDANCE WITH THE PRO VISIONS OF SEC.14-A OF THE ACT WHICH PROVIDES THAT ANY EXPENDITURE INCURRED IN EAR NING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, SHOULD BE E XCLUDED IN ARRIVING AT THE TOTAL INCOME, THE ASSESSEE WAS BOUND TO COMPUTE THE DISAL LOWANCE OF EXPENDITURE U/S.14A OF THE ACT. THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME ON 27.09.2008 WITHOUT ANY ADDITION IN RESPECT OF DISALLOWANCES UNDER SECTION 14A OF THE ACT. SUBSEQUENTLY REVISED RETURN WAS FILED ON 31.03.2010 OFFERING DIS ALLOWANCES OF RS.46,20,484 UNDER 5 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 SECTION 14A OF THE ACT IN THE COMPUTATION OF REVISE D TOTAL INCOME. THE BASIS OF CALCULATION OF DISALLOWANCES UNDER SECTION 14A AMOU NTING TO RS.46,20,484 WAS AS FOLLOWS: (AMOUNT IN RS.) INCOME EXEMPT FROM TAX 453,038,502 INCOME FROM INVESTMENT 17,779,214,000 TOTAL SALARY OF INVESTMENT DEPARTMENT 3,535,885 PROPORTIONATE AMOUNT TO BE DISALLOWED = 35,35,88 5X45.30.38,502 I 17,779,214,000 = 90,099 TOTAL DISALLOWANCE UNDER SECTION 14A = 90,099+ (1 % OF RS.45,30,38,502) = 90,099 + 45,30,385 = 46,20,484 THE ABOVE CALCULATION COMPRISED OF TWO PARTS - ONE IS PROPORTIONATE AMOUNT OF DISALLOWANCE OF SALARY OF INVESTMENT DEPARTMENT AND THE OTHER IS 1 % OF TAX-FREE INCOME. 10. THE AO WAS OF THE VIEW THAT THE ASSESSEE HAS N OT DENIED THAT IT HAD INCURRED EXPENDITURE IN EARNING EXEMPT INCOME AND PROCEEDED TO COMPUTE THE DISALLOWANCE U/S.14A OF THE ACT BY APPLYING RULE 8D OF THE INCOM E TAX RULES, 1961 (RULES). THE AO HAS NOT IN HIS ORDER EXPLAINED THE REASONS WHY T HE AFORESAID AMOUNT OF DISALLOWANCE UNDER SECTION 14A AS OFFERED BY THE AS SESSEE IN ITS REVISED RETURN OF INCOME SHOULD NOT BE ACCEPTED. THE AO HAS HOWEVER EXPRESSED THE VIEW THAT THE CALCULATION OF DISALLOWANCE WAS CLEARLY MADE ON THE BASIS OF ESTIMATION. AS A CONSEQUENCE, BY APPLYING RULE 8D THE AO MADE A DISA LLOWANCE UNDER SECTION 14A OF THE ACT OF RS.54,50,26,415. 11. THE AO COMPUTED THE DISALLOWANCE UNDER RULE 8D( 2)(II) OF THE RULES BY CONSIDERING THE INTEREST PAID AS SHOWN IN SCHEDULE- 15 OF ANNUAL ACCOUNTS AMOUNTING TO RS.4498,87,95,000 FOR THE PURPOSE OF CALCULATION OF THE SAID DISALLOWANCE. THE SAID CALCULATIION WAS MADE AS FOLLOWS: INTEREST PAID X AVERAGE VALUE OF INVESTMENT AVERAGE VALUE OF ASSETS 6 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 := 4498,87,95,000 X 841,80,64,657 75301,53,24,500 = 50,29,36,092 FROM THE ABOVE CALCULATION, IT IS EVIDENT THAT OUT OF TOTAL INTEREST COST AMOUNTING TO RS. 4498,87,95,000, A PROPORTIONATE PART OF INTEREST TO THE EXTENT OF RS. 50,29,36,092 WAS DISALLOWED UNDER SECTION 14A OF THE ACT. 12. THE AO COMPUTED DISALLOWANCE UNDER RULE 8D(2)( III) OF THE RULES AS FOLLOWS: % OF THE AVERAGE INVESTMENTS OF RS.8418,06,46,657= RS.4,20,90,323/-. 13. BEFORE CIT(A), WITH REGARD TO DISALLOWANCE UND ER RULE 8D(2)(II) OF THE RULES, THE ASSESSEE POINTED OUT THAT NO PART OF THE BORROWED F UNDS WERE UTILIZED IN MAKING INVESTMENT IN SHARES, BONDS AND UNIT OF MUTUAL FUND S WHICH YIELD THE TAX FREE INCOME. THE ASSESSEE POINTED OUT THAT IT'S OWNED FUNDS I.E. AGGREGATE OF CAPITAL AND RESERVE AND SURPLUS AS ON 31.03.2008 AMOUNTED TO RS.5,221.0 4 CRORES. THE TOTAL INVESTMENT IN SHARES, UNITS OF MUTUAL FUNDS AND TAX FREE BONDS AS ON 31ST MARCH 2008 WAS ONLY RS.885.89 CRORES (I.E. RS.376.19 CRORES + RS.224.12 CRORES + RS.285.58 CRORES). THUS, THE INVESTMENT IN TAX FREE INSTRUMENTS WAS MUCH LES S THAN THE BANK'S OWNED FUND AS ON 31.03.2008. THE ASSESSEE POINTED OUT THAT THIS FACT WAS VERY RELEVANT AND HAS NOT BEEN CONSIDERED BY THE AO. SINCE, THE INVESTMENT IN TAX FREE INSTRUMENTS DID NOT EXCEED THE OWNED FUND, THERE CANNOT BE ANY PRESUMPTION THAT WH OLE OR PART OF SUCH TAX FREE INVESTMENT WAS MADE OUT OF THE BORROWED FUND. IF TH E INVESTMENT MADE IN THE TAX FREE INSTRUMENT DOES NOT EXCEED THE ASSESSEE OWNED FUND, THE ONUS IS ON THE ASSESSING OFFICER TO PROVE THAT THE ASSESSEE HAS MADE INVESTM ENT OUT OF BORROWED FUND. IT WAS THEREFORE SUBMITTED THAT PROPORTIONATE AMOUNT OF IN TEREST COST AMOUNTING TO RS.50,29,36,092 AS PART OF THE DISALLOWANCE UNDER S ECTION 14A READ WITH RULE 8D HAS TO BE DELETED. 7 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 14. IT WAS SUBMITTED BY THE ASSESSEE THAT SECTION 14A(2) OF THE ACT PROVIDES THAT THE ASSESSING OFFICER IS EMPOWERED TO DETERMINE THE COR RECT AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IN THE FOLLOW ING SITUATIONS: (A) WHERE THE ASSESSING OFFICER, HAVING REGARD TO T HE ACCOUNT, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF EXPENDITURE IN RELATION TO EXEMPT INCOME. (B) WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE H AS BEEN INCURRED BY HIM IN RELATION TO EXEMPT INCOME. IT WAS ARGUED THAT AS THE ASSESSEE HAD CLAIMED A SU M OF RS.46,20,484 AS EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME, THE AO CANNO T INVOKE BLINDLY SUB- SECTION (2) OF SECTION 14A WITHOUT CONTROVERTING THE CLAIM OF T HE BANK. HE SHOULD FIRST BRING ON RECORD THE REASON WHY THE CLAIM OF THE ASSESSEE SHO ULD NOT BE CONSIDERED AS INCORRECT. IT WAS SUBMITTED THAT WHATEVER AMOUNT WAS OFFERED B Y THE ASSESSEE AS DISALLOWANCE U/S.14A OF THE ACT WAS REASONABLE AND REALISTIC ES TIMATE. THE BASIS OF CALCULATION WAS CLEARLY CONVEYED TO THE AO AND THE AO HAS NOT BROUG HT ON RECORD ANY DEFICIENCY IN THE ESTIMATE OF THE AMOUNT OF DISALLOWANCE OFFERED BY THE ASSESSEE AND THEREFORE, DISALLOWANCE OF RS.54,50,26,415 UNDER SECTION 14A B Y INVOKING RULE 8D OF THE RULES IS NOT SUSTAINABLE. 15. REFERENCE WAS MADE TO THE DECISION OF THE HON' BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMI TED 328 ITR 81 (BOM) WHEREIN IT WAS HELD THAT THE PROVISIONS OF RULE 8D OF THE RULES APPLY WITH EFFECT .FROM THE ASSESSMENT YEAR 2008-09 PROVIDED ALL THE CONDIT IONS PRESCRIBED IN SECTION 14A(2) ARE COMPLIED WITH. THE ASSESSEE THUS PRAYED THAT TH E AMOUNT OF RS.46,20,484 AS OFFERED BY THE ASSESSEE AS DISALLOWANCE UNDER SECTI ON 14A SHOULD BE ACCEPTED INSTEAD OF RS.54,50,26,415 AS COMPUTED BY THE AO. 16. THE CIT(A) DID NOT AGREE WITH THE SUBMISSIONS MADE BY THE ASSESSEE AND HE CONFIRMED THE ORDER OF AO. THE CIT(A) FIRSTLY HELD IN PARAGRAPHS-26 & 27 OF HIS ORDER THAT FROM AY 2008-09 RULE 8D OF THE RULES WAS APPLICABLE AND SINCE THE 8 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 ASSESSEE WAS UNABLE TO SUBSTANTIATE ITS CLAIM OF DI SALLOWANCE U/S.14A AS CLAIMED BY IT, THE COMPUTATION OF DISALLOWANCE HAS TO BE MADE IN ACCORDANCE WITH RULE 8D OF THE RULES. WITH REGARD TO THE CONTENTION OF THE ASSESS EE THAT THERE CAN BE NO DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) OF THE RULES BECAU SE THE ASSESSEE HAD SUFFICIENT OWN FUNDS, THE CIT(A) IN PARAGRAPHS 28 TO 30 OF HIS ORD ER HELD THAT THE ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNTS TO PROVE THAT NO BORRO WED FUNDS WERE USED FOR MAKING INVESTMENTS THAT YIELDED TAX FREE INCOME. HE ALSO HELD THAT THE ASSESSEE HAS NOT PROVED THAT INTEREST FREE FUNDS WERE USED TO MAKE I NVESTMENTS THAT YIELDED TAX FREE INCOME. THE CIT(A) ALSO HELD THAT WHEN OWN FUNDS A ND BORROWED FUNDS ARE AVAILABLE THERE CAN BE NO PRESUMPTION THAT OWN FUNDS WERE USE D TO MAKE INVESTMENTS THAT YIELDED TAX FREE INCOME. THEREAFTER HE HAS REFERRE D TO SEVERAL JUDICIAL PRONOUNCEMENTS AND FINALLY UPHELD THE ORDER OF THE AO. 17. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE HAS RAISED GROUND NOS. 3 AND 4 BEFORE THE TRIBUNAL. THE ASSESSEE HAS ALSO RAISED T HE FOLLOWING ADDITIONAL GROUNDS ON THE DISALLOWANCE U/S 14A OF THE ACT : 'THAT ON FACTS AND CIRCUMSTANCES AND ALSO ON LAW, T HE LEARNED CIT (A) AND THE LEARNED AO HAVE FAILED TO APPRECIATE THAT SHARES, SECURITIE S, BONDS ETC., BEING HELD AS STOCK-IN- TRADE, THE PROVISIONS OF RULE 8D(2)(II) AND (III) A RE NOT APPLICABLE TO THE APPELLANT BANK AND ONLY THE AMOUNT OF EXPENDITURE DIRECTLY RELATIN G TO EXEMPT INCOME CAN BE DISALLOWED UNDER RULE 8D(I)'. IN VIEW OF THE ADDITIONAL GROUND BEING URGED, THE A PPELLANT PRAYS FOR MODIFYING THE GROUND NOS. 3 AND 4 IN THE MEMORANDUM OF APPEAL AS FOLLOWS: GROUND NO.3: WITHOUT PREJUDICE TO THE ADDITIONAL GROUND OF APPEA L AS ABOVE, THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APP EAL) - VI, KOL HAS ERRED IN CONFIRMING THE APPLICATION OF PROVISION OF RULE 80 READ WITH SECTION 14A(1) & (2) OF THE INCOME TAX ACT, 1961 WITHOUT BRINGING ON RECORD ANY COGENT REASON FOR DISREGARDING AND REJECTING THE ESTIMATE INCLUDING THE MANNER OF MAKING ESTIMATE OF DISALLOWANCE AMOUNTING TO RS. 46,20,484 OFFERED BY THE APPELLANT ITSELF IN THE REVISED RETURN OF INCOME FILED BY THE APPELLANT. GROUND NO.4: WITHOUT PREJUDICE TO THE ADDITIONAL GROUND OF APPEA L AS ABOVE, THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APP EAL) - VI, KOL HAS ERRED IN UPHOLDING THE DISALLOWANCES UNDER SECTION 14A BY IN VOKING RULE 8D AMOUNTING TO RS. 9 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 4,20,90,323 IN TOTAL DISREGARD OF ORDER OF HIS LEAR NED PREDECESSOR IN THE APPEAL NO. 1014/ CIT(A) - VII 2009-10/CIR-6/KOL DATED 15.11.20 10 RELATING TO ASSESSMENT YEAR 2007-08 AND ORDER OF JURISDICTIONAL ITAT IN THE CAS E OF ITO VS S.P.S. SECURITIES PVT. LTD., KOLKATA (ITA NO. 123/KOI/2010) AND CIVIL ENGI NEERS ENTERPRISES (P) LTD. VS DCIT, KOL (ITA NO. 859/K01/2010) 18. SINCE THE ADDITIONAL GROUNDS OF APPEAL IS A LE GAL ARGUMENT IN SUPPORT OF GROUND NO.3 AND 4 ORIGINALLY RAISED BY THE ASSESSE IN THE GROUNDS OF APPEAL, WE PERMIT THE ASSESSEE TO RAISE THE ADDITIONAL GROUND AND MODIFY GROUNDS NO.3 & 4 AS PRAYED FOR BY THE ASSESSEE. 19. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEF ORE US THAT THE HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK VS CIT 240 ITR 355 (SC) HAS TAKEN A VIEW THAT ALL INVESTMENT HELD BY A BANK ARE STOCK IN TRADE OF BUSINESS OF THE ASSESEE. HE DREW OUR ATTENTION TO THE DECISION OF THE HONBL E ITAT, KOLKATA BENCH IN THE CASE OF GULSHAN INVESTMENT CO. LTD WHEREIN THIS TRIBUNAL TOOK A VIEW THAT WHEN THE SHARES, UNITS OF MUTUAL FUNDS OR BONDS WHICH YIELD TAX FREE INCOME ARE NOT SHOWN AS INVESTMENT THEY SHOULD NOT BE CONSIDERED WHILE APPL YING THE FORMULA UNDER RULE 8D(2)(II)& (III) OF THE RULES. THE FOLLOWING OBSERV ATIONS OF THE ITAT IN THIS REGARD WERE BROUGHT TO OUR NOTICE :- 6. A PLAIN LOOK AT THE ABOVE RULE SHOWS THAT 8D(2) (II) AND (III) CAN ONLY BE APPLIED IN THE SITUATIONS IN WHICH SHARES ARE HELD AS INVESTMENTS, AND THAT THIS RULE WILL NOT HAVE ANY APPLICATION WHEN THE SHARES ARE HELD AS STOCK IN TRADE IT IS SO FOR THE ELEMENTARY REASON THAT THE ONE OF THE VA RIABLES ON THE BASIS OF WHICH DISALLOWANCE UNDER RULES 8D(2)(II) AND (III) IS TO BE COMPUTED IS THE VALUE OF 'INVESTMENTS, INCOME FROM WHICH DOES NOT OR SHALL N OT FORM PART OF TOTAL INCOME', AND, WHEN THERE ARE NO SUCH INVESTMENTS, T HE RULE CANNOT HAVE ANY APPLICATION. WHEN NO AMOUNT CAN BE COMPUTED IN THE LIGHT OF THE FORMULA GIVEN IN RULE 8 D(II) AND (III), NO DISALLOWANCE CAN BE M ADE UNDER RULE 8D (2)(II) AND (III) EITHER. AS HELD BY HON'BLE SUPREME COURT IN T HE CASE OF CIT VS B C SRINIVAS SHETTY ( 128 ITR 294), WHEN COMPUTATION PROVISIONS FAIL, THE CHARGING PRO VISIONS CANNOT BE APPLIED, AND BY THE SAME LOGIC, WHEN THE COMPUTATION PROVISIONS UNDER RULE 8 D (2) (II) AND (III) FAIL, DISALLOWANCE UNDE R THE SAID PROVISIONS CANNOT BE MADE EITHER AS THE SAID PROVISION IS RENDERED UNWOR KABLE. 7. HOWEVER, THAT DOES NOT EXCLUDE THE APPLICATION O F RULE 8 D(2)(I) WHICH REFERS TO THE 'AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM 10 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 PART OF TOTAL INCOME' . IN OTHER WORDS, IN A CASE WHERE SHARES ARE HELD A S STOCK IN TRADE AND NOT AS INVESTMENTS, THE DISALLOWANCE EVEN UNDER RULE 8 D IS RESTRICTED TO THE EXPENDITURE DIRECTLY RELATABLE TO EARNING OF EXEMPT INCOME. CONSEQUENTLY, WHILE SECTION 14 A WILL STILL APPLY IN THE CASES WH ETHER SHARES ARE HELD AS STOCK IN TRADE OR AS INVESTMENTS, AND THAT IS PRECISELY WHAT A SPECIAL BENCH OF THIS TRIB UNAL HAS HELD IN THE CASE OF ITO VS DAGA CAPITAL MANAGEMENT PVT LTD ( 117 ITD SB 169), THE DISALLOWANCE TO BE MADE UNDER SECTION 14 A READ WIT H RULE 8 D WILL BE RESTRICTED TO DIRECT EXPENSES INCURRED IN THE EARNING OF DIVID END INCOME. 8. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT T HAT, IN THE CASE OF GODREJ & BOYCE MFG CO LTD VS DCIT (328 ITR 81) AND DEALING WITH A PERIOD WHEN RULE 8 D WAS NOT APPLICABLE, HON'BLE BOMBAY HIGH COURT HAS NOT ONLY HELD THAT ' THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A, AND FOR THAT PURPOSE, THE ASSESSING OFFICER ID DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT', BUT FURTHER ADDED, WHILE REMITTING THE MATTER TO THE ASSESSING OFFICER FOR COMPUTATION OF DISALLOWANCE UNDER SECTION 14 A, THAT THE ASSESSING OFFICER SHALL EXAMINE WHETHER ' ANY EXPENDITURE (DIRECT OR INDIRECT)' [ EMPHASIS BY UNDERLINING SUPPLIED BY US] IN RELA TION TO EXEMPT INCOME IS INCURRED AND THAT DISALLOW THE SAME. AS A COROLLARY TO THE ABOVE LEGAL POSITION, SO FAR AS DISALLOWANCE UNDER SECTION 14 A IN A SITUATION IN WHICH THE EXEMPT INCOME YIELDING ASSET, SUCH AS SHARES IN QUE STION, IS HELD AS STOCK IN TRADE, AND NOT AS INVESTMENT, THE DISALLOWANCE WILL BE OF RELATED DIRECT AND INDIRECT EXPENDITURE, WHEREAS DISALLOWANCE UNDER RU LE 8D WILL BE RESTRICTED TO DISALLOWANCE OF ONLY DIRECT EXPENSES. REVENUE THUS DERIVES NO ADVANTAGE FROM INVOKING RULE 8D IN SUCH CASES; ON THE CONTRARY, TH E SCOPE OF DISALLOWANCE IS ONLY MINIMISED IN SUCH A SITUATION. 9. SO FAR AS THE CASE BEFORE US IS CONCERNED, AS WI LL BE CLEARLY DISCERNIBLE FROM THE OBSERVATIONS OF THE LEARNED CIT(A) EXTRACTED EA RLIER IN THIS ORDER, LEARNED CIT(A) HAS UPHELD DISALLOWANCE UNDER SECTION 14A IN RESPECT OF EVEN INDIRECT EXPENDITURE, BUT HE HAS MERELY HELD THAT THE PROVIS IONS OF RULE 8D DO NOT COME INTO PLAY IN THIS CASE AS THE SHARES ARE NOT HELD A S 'INVESTMENTS'. AS LEARNED COUNSEL RIGHTLY CONTENDS THE PROVISIONS OF RULE 8 D CAN NEVER BE APPLIED IN A CASE WHERE EXEMPT INCOME YIELD ASSETS ARE NOT HELD AS IN VESTMENTS, AND THAT THE RELATED ASSETS, I.E. SHARES, HAVING BEEN HELD AS ST OCK IN TRADE ALL ALONG, THERE IS NO OCCASION TO INVOKE RULE 8 D. THERE IS NO INFIRMI TY IN THIS APPROACH, NOR DO REVENUE AUTHORITIES STAND TO LOSE ANYTHING BY THIS APPROACH CANVASSED BY THE ASSESSEE. QUITE TO THE CONTRARY OF WHAT LEARNED DEP ARTMENTAL REPRESENTATIVE PERCEIVES TO BE ADVANTAGEOUS TO THE ASSESSING OFFIC ER, IN CASE THE APPLICATION OF RULE 8 D WAS TO BE UPHELD, THERE WOULD HAVE BEEN NO DISALLOWANCE AT ALL SINCE NOT ONLY THAT NO INVESTMENTS WERE HELD BY THE ASSES SEE, ADMITTEDLY THERE ARE NO DIRECT EXPENSES ARE INCURRED ON EARNING OF THE DIVI DENDS AND AS SUCH IN ALL THE 11 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 THREE SEGMENTS OF DISALLOWANCE UNDER RULE 8D(2) I.E . 8D (2) (I), (II) AND (III), THERE WILL BE ZERO DISALLOWANCE. AS AGAINST THIS ZE RO DISALLOWANCE UNDER RULE 8D, THE C IT(A) HAS UPHELD DISALLOWANCE TO THE EXTENT O F RS 1,57,227 IN RESPECT OF INDIRECT EXPENSES ATTRIBUTED TO THE EARNING OF DIVI DENDS, AND IT HAS EVEN THE CASE OF REVENUE THAT THIS DISALLOWANCE FOR INDIRECT EXPE NSES IS UNFAIR OR UNREASONABLE. 10. IN VIEW OF THE ABOVE DISCUSSIONS, WHILE UPHOLD THE CONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A), WE ALSO MAKE IT CLEAR THAT, IN OUR HUMBLE UNDERSTANDING, THE PROVISIONS OF SECTION 14A ARE INDEED ATTRACTED WHET HER OR NOT THE SHARES ARE HELD AS STOCK IN TRADE OR AS INVESTMENTS, EVEN THOUGH TH E PROVISIONS OF RULE 8D(2)(II) AND (III) CANNOT BE INVOKED IN SUCH A CASE, AND EVE N THOUGH THE PROVISIONS OF RULE 8D(2)(I) ARE MUCH NARROWER IN SCOPE THAN THE SCOPE OF SECTION 14 A SIMPLICTOR. WITH THESE OBSERVATIONS, WE CONFIRM THE CONCLUSIONS OF THE LEARNED CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 20. THE LD. COUNSEL ACCORDINGLY SUBMITTED THAT THE DISALLOWANCE UNDER RULE 8D(II) &(III) SHOULD BE DELETED AS INDICATED IN THE DECISI ONS REFERRED TO ABOVE AND THE ASSESSEES COMPUTATION OF DISALLOWANCE ACCEPTED. WI THOUT PREJUDICE TO THE ABOVE SUBMISSION IT WAS SUBMITTED BY HIM THAT THE BASIS O F DISALLOWANCE U/S 14A MADE BY THE ASSESSEE HAS NOT BEEN REJECTED BY THE AO BY ADD UCING COGENT REASONS AND PRAYED THAT THE DISALLOWANCE AS MADE BY THE ASSESSEE SHOUL D BE ACCEPTED. THE LD. DR RELIED ON THE CONCLUSIONS OF CIT(A). 21. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE PROVISIONS OF SECTION 14A AS ORIGINALLY INTRODUCED AND AS AMENDED FROM TIME TO TIME AS WELL AS THE INSERTION OF RULE 8D WAS SUBJECT-MAT TER OF SEVERAL DECISIONS RENDERED BY VARIOUS BENCHES OF THE ITAT AS WELL AS THE HONBLE HIGH COURTS. THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. V. CIT 2011) 203 TAXMAN 364 (DEL) AND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. 328 ITR 81 (BOM) HAVE TAKEN A VIEW THAT RULE 8D OF THE I.T. RULES WILL APPLY ONLY FOR A.YS. 2008-09 AND SUBSEQUENT ASSESSMENT YE ARS. IT HAS ALSO BEEN LAID DOWN THAT THE ASSESSEE HAS TO MAKE A CLAIM (INCLUDING A CLAIM THAT NO EXPENDITURE WAS INCURRED) WITH REGARD TO EXPENDITURE INCURRED FOR E ARNING INCOME WHICH IS NOT CHARGEABLE TO TAX. SUCH A CLAIM HAS TO BE EXAMINED BY THE AO AND ONLY IF ON AN OBJECTIVE SATISFACTION ARRIVED AT BY THE AO THAT TH E CLAIM MADE BY THE ASSESSEE IS NOT 12 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 CORRECT, CAN THE AO PROCEED TO APPLY THE COMPUTATIO N MODE AS SPECIFIED IN RULE 8D(2) OF THE RULES. 22. IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN A STAND THAT A PARTICULAR AMOUNT HAS TO BE DISALLOWED AS EXPENDITURE INCURRED IN EARNING EX EMPT DIVIDEND INCOME. THE AO DID NOT AGREE WITH THE CLAIM OF THE ASSESSEE AND HE ESTIMATED THE DISALLOWANCE ON A DIFFERENT BASIS. THE QUESTION IS WHETHER IT IS MAN DATORY FOR THE AO TO APPLY RULE 8D OF THE RULES, THE MOMENT HE REJECTS THE BASIS OF DI SALLOWANCE AS MADE BY THE AO. WE ARE OF THE VIEW THAT EVEN IN A CASE WHERE THE AO RE JECTS THE CLAIM OF THE ASSESSEE THAT NO EXPENSES WERE INCURRED TO EARN THE EXEMPT INCOME , IT IS NOT MANDATORY FOR HIM TO INVOKE THE METHOD OF CALCULATION PRESCRIBED BY RULE 8D(2) OF THE RULES AND IS FREE TO MAKE THE DISALLOWANCE ON ANY REASONABLE BASIS. IF RULE 8D OF THE RULES IS BLINDLY BY THE AO SOMETIMES IT WILL LEAD TO ABSURD RESULTS. T HE AO EXAMINING THE CLAIM OF THE ASSESSEE REGARDING EXPENDITURE INCURRED IN EARNING THE EXEMPT INCOME, IS BOUND TO TAKE NOTE OF SUCH ABSURDITIES AND REFRAIN FROM INVO KING THE METHOD OF DISALLOWANCE OF EXPENSES AS PRESCRIBED BY RULE 8D(2) OF THE RULES. IN OTHER WORDS, IT IS ONLY WHEN NO REASONABLE AND PROPER PARAMETERS FOR MAKING DISALLO WANCE CAN BE ARRIVED AT, THAT RESORT TO RULE 8D(2) CAN BE HAD BY THE AO. RULE 8D (2) WILL THUS BE A LAST RESORT WHEN IT BECOMES IMPOSSIBLE TO ARRIVE AT A JUST CONCLUSIO N ON THE AMOUNT OF EXPENSES THAT HAS TO BE DISALLOWED AS ATTRIBUTABLE OR INCURRED IN EAR NING EXEMPT INCOME. THE AO, U/S 14A OF THE ACT HAS THE DISCRETION TO SUBSTITUTE THE COMPUTATION OF DISALLOWANCE U/S 14A AS MADE BY THE ASSESSEE IS UNDER ESTIMATION. TH E SATISFACTION CONTEMPLATED U/.S 14A (2) OF THE ACT IS NOT MERELY RESTRICTED TO REJE CTING THE CLAIM MADE BY THE ASSESSEE AND THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT BUT ALSO INCLUDES SUBSTITUTING THE CLAIM MADE BY THE ASSESSEE ON ANY OTHER REASONABLE BASIS AS THE AO DEEMS IT FIT. IN SUCH CIRCUMSTANCES THE CORRECTNESS OF THE AOS JUDG MENT CAN BE REVIEWED BUT IT CANNOT BE SAID THAT THE AO HAD NO JURISDICTION TO D O SO AND AO OUGHT TO RESORT ONLY TO THE PROVISION OF RULE 8D OF THE RULES. IN OTHER WOR DS RULE 8D IS NOT AUTOMATIC AND CAN BE RESORTED TO BY THE AO ONLY AS A MEASURE OF L AST RESORT. 13 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 23. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIE W THAT THE CONCLUSIONS OF THE CIT(A) THAT RULE 8D OF THE RULES HAS TO BE MANDATOR ILY APPLIED IN CASES RELATING TO AY 2008-09 AND SUBSEQUENT AYS IS NOT CORRECT. WE HOLD ACCORDINGLY. 24. WITH REGARD TO THE DISALLOWANCE UNDER RULE 8D( 2)(II) OF THE RULES ON INTEREST EXPENDITURE, THE REVENUE DOES NOT DISPUTE THE FACTS WITH REGARD TO AVAILABILITY OF OWN FUNDS OF THE ASSESSEE I.E. AGGREGATE OF CAPITAL AN D RESERVE AND SURPLUS AS ON 31.03.2008 AMOUNTING TO RS.5,221.04 CRORES. THE REV ENUE ALSO DOES NOT DISPUTE THAT THE TOTAL INVESTMENT IN SHARES, UNITS OF MUTUAL FUN DS AND TAX FREE BONDS AS ON 31ST MARCH 2008 WAS ONLY RS.885.89 CRORES (I.E. RS.376.1 9 CRORES + RS.224.12 CRORES + RS.285.58 CRORES). THUS, THE INVESTMENT IN TAX FREE INSTRUMENTS WAS MUCH LESS THAN THE BANK'S OWN FUND AS ON 31.03.2008. REFERENCE IN THI S REGARD WAS MADE TO THE FOLLOWING DECISIONS FOR THE PROPOSITION THAT OVERAL L AVAILABILITY OF INTEREST FREE FUNDS HAVE TO BE SEEN BEFORE MAKING DISALLOWANCE U/S.14A OF THE ACT READ WITH RULE 8D(2)(II) OF THE RULES. (I) CIT VS. RELIANCE UTILI TIES AND POWER LTD. 313 ITR 340 (BOM); (II) CIT VS. UTI BANK (2013) 32 TAXMANN.COM 370 AND (III) CIT VS. GUJARAT POWER CORPORATION 352 ITR 583 (GUJ.) LAYING DOWN ID ENTICAL PROPOSITION. IN THE LIGHT OF THE AFORESAID DECISIONS, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF INTEREST EXPENSES UNDER RULE 8D(2)(II) OF THE RULES OF RS.50 ,29,36,092 CANNOT BE SUSTAINED AND THE SAME IS DIRECTED TO BE DELETED. THE CONCLUSIO NS TO THE CONTRARY BY THE CIT(A) ARE NOT SUSTAINABLE IN VIEW OF THE JUDICIAL PRONOUNCEME NTS REFERRED TO ABOVE. 25. WITH REGARD TO DISALLOWANCE UNDER RULE 8D(2)(I II) OF THE RULES IS CONCERNED, WE FIND THAT NEITHER THE AO NOR THE CIT(A) HAVE DISPUT ED THE CORRECTNESS OF THE CLAIM OF DISALLOWANCE AS COMPUTED BY THE ASSESSEE BUT HAVE P ROCEEDED TO COMPUTE THE DISALLOWANCE BY APPLYING RULE 8D(2)(III) OF THE RUL ES WITHOUT OBJECTIVELY EXAMINING THE CLAIM MADE BY THE ASSESSEE. THE AO WITHOUT DOI NG SO, DISREGARDED THE CLAIM OF THE ASSESSEE AND IN INVOKED RULE 8D OF THE IT RULES WITHOUT RECORDING THE SATISFACTION AS REQUIRED BY SEC.14A(2) OF THE ACT. THE LAW IS W ELL SETTLED BY NOW THAT WITH REGARD TO EXPENDITURE IN RELATION TO EXEMPT INCOME, AO HAS TO INDICATE COGENT REASONS AS TO 14 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 WHY THE CLAIM OF THE ASSESSEE IS BEING DISREGARDED. IN CIT VS. ASHISH JHUNJHUNWALA IN G.A. NO.2990 OF 2013 IN ITAT NO. 15 7 OF 2013 DATED 08.01.2014 RENDERED BY HON'BLE CALCUTTA HIGH COURT, THE HON'BL E COURT UPHELD ORDER OF THE ITAT WHICH HELD THAT DISALLOWANCE UNDER SEC.14A OF THE A CT MADE BY THE AO WITHOUT REJECTING CLAIM OF THE ASSESSEE WAS BAD IN LAW. TH E FOLLOWING WAS THE DECISION OF THE TRIBUNAL WHICH WAS UPHELD BY THE HONBLE CALCUTTA H IGH COURT:- ' WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGA RD TO EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXE MPTED INCOME, THE AO HAS TO INDICATE COGENT REASONS FOR THE SAME. FROM THE FACT S OF THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSING OFFICER HAS NOT CONSIDERED THE C LAIM OF THE ASSESSEE AND STRAIGHT AWAY EMBARKED UPON COMPUTING DISALLOWANCE UNDER RUL E 8D OF THE RULES ON PRESUMING THE AVERAGE VALUE OF INVESTMENT AT % OF THE TOTAL VALUE. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE COORDINATE BEN CH DECISION IN THE CASE OF J.K. INVESTORS (BOMBAY) LTD., SUPRA, WE UPHOLD THE ORDER OF CIT(A).' THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. R.E.I.AGRO LTD., IN GA 3022 OF 2013 IN ITAT 161 OF 2013 DATED 23.12.2013 ALSO T OOK IDENTICAL VIEW. THE AFORESAID TWO DECISIONS BY THE HON'BLE JURISDICTION AL HIGH COURT ARE BINDING ON THIS TRIBUNAL. HENCE, WE HOLD THAT THE ACTION OF THE AO IN DIRECTLY EMBARKING ON RULE 8D(2) OF THE RULES WAS NOT PROPER AND HENCE THE DIS ALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES IS ALSO DIRECTED TO BE DISALLOWED. THE N ET RESULT WOULD BE THAT THE DISALLOWANCE UNDER SEC.14A OF THE ACT AS MADE BY TH E ASSESSEE BEFORE THE AO IS DIRECTED TO BE ACCEPTED. THUS GROUND NO.3 & 4 AS M ODIFIED IS ALLOWED. 26. GROUND NO.5 RAISED BY THE ASSESSEE READS AS FO LLOWS :- 5. THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED C OMMISSIONER OF INCOME TAX (APPEAL) - VI, KOL HAS ERRED IN CONFIRMING THE DISA LLOWANCE OF THE CLAIM OF THE APPELLANT MADE UNDER SECTION 40 (A)(IA) AMOUNTING T O RS.2,20,94,366 ON THE BASIS OF DEPOSIT OF TDS. 27. THE ASSESSEE CLAIMED DEDUCTION OF RS. 3,17,32,7 34/- ON THE BASIS OF PAYMENT OF TDS DONE DURING THE PREVIOUS YEAR ON THE AMOUNTS WH ICH WERE DISALLOWED IN EARLIER YEARS U/S 40(A)(IA) OF THE ACT FOR NON-DEPOSIT OF T DS. IN THE RETURN OF INCOME THE 15 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 ASSESSEE BANK HAS CLAIMED THE ABOVE DEDUCTIONS ON A CTUAL DEPOSIT OF TDS. THE AO CALLED UPON THE ASSESSEE TO FURNISH AN AUDITOR'S C ERTIFICATE AS EVIDENCE FOR THE DEPOSIT OF THE TDS. THE SAME WAS NOT PRODUCED BEFORE THE AS SESSING OFFICER BY THE ASSESSEET. THEREFORE, THE ASSESSING OFFICER DISALLOWED AN AMOU NT OF RS.3,17,32,734/- ON ACCOUNT OF NON-FURNISHING OF CHALLANS FOR THE DEPOSITS OF T DS BY OBSERVING IN HIS ASSESSMENT ORDER AS FOLLOWS:- 'DISALLOWANCE OF CLAIM ON DEPOSIT OF TDS THE ASSESSEE BANK HAS CLAIMED DEDUCTION OF RS. 3,17 ,32,734/- WHICH WAS DISALLOWED IN EARLIER YEARS U/S 40(A)(IA) FOR NON-D EPOSIT OF TDS IN THE RETURN OF INCOME THE ASSESSEE BANK HAS CLAIMED THE ABOVE DEDU CTIONS ON ACTUAL DEPOSIT OF TDS THE ASSESSEE BANK WAS REQUESTED TO FURNISH AN A UDITOR'S CERTIFICATE AS AN EVIDENCE FOR THE DEPOSIT OF THE TDS VIDE THIS OFFIC E LETTER DATED 28.12.2010. THIS ISSUE WAS ALSO DISCUSSED WITH MR PIJUSH DEY, FCA, A .R., AND MR B.SARKAR, SR MANAGER (TAXATION) ON 21.12.2010. HOWEVER, THE ASSE SSEE BANK HAS FAILED TO FURNISH THE CERTIFICATE FROM THE AUDITOR AS AN EVID ENCE FOR PAYMENT OF TDS ACCORDINGLY, THE SAID CLAIM FOR DEDUCTION OF RS. 3, 17,32,734/- WHICH WAS DISALLOWED U/S 40(A)(IA) IN EARLIER YEARS IS REJECT ED IN ABSENCE OF ANY EVIDENCE FOR DEPOSIT OF TDS ' 28. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT OU T OF RS. 3,17,32,734/- IN RESPECT OF DISALLOWANCES UNDER SECTION 40(A)(IA), THE ASSESSEE IS ABLE TO PRODUCE THE NECESSARY CHALLANS IN RESPECT OF AMOUNT OF EXPENDITURE OF RS. 96,38,368/-. THE ASSESSEE WAS HOWEVER UNABLE TO PRODUCE THE TDS CHALLANS IN RESPE CT OF PAYMENT OF RS. 2,20,94,366 ( RS. 3,17,32,734 - RS. 96,38,368). 29. THE CIT(A) ALLOWED CLAIM OF THE ASSESSEE TO TH E EXTENT THE ASSESSEE PRODUCED CHALLANS EVIDENCING PAYMENT OF TDS. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE CIT(A) IN THIS REGARD: 49. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS O F THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLA NT. THE APPELLANT HAS PRODUCED NECESSARY CHALLANS IN RESPECT OF RS.96,38, 368/-. THE APPELLANT HAS FURTHER SUBMITTED - AT IT COULD NOT ,PRODUCE THE BA LANCE CHALLANS AMOUNTING TO RS.2,20,94,366/-. THEREFORE, THE AMOUNT OF DISALLOW ANCE IS RESTRICTED TO RS.2,20,94,366/- ONLY AND THE APPELLANT GETS RELIEF OF RS.96,38,366/-. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 16 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 30. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSE SSEE HAS RAISED GR.NO.5 BEFORE THE TRIBUNAL. THE LIMITED PRAYER OF THE LD. COUNSEL FO R THE ASSESSE BEFORE US WAS TO REMAND THE MATTER TO THE AO TO ENABLE THE ASSESSEE TO PRODUCE THE BALANCE CHALLANS TO ENABLE THE ASSESSEE TO CLAIM DEDUCTION ON ACTUAL PA YMENT BASIS. WE ARE OF THE VIEW THAT THE REQUEST MADE ON BEHALF OF THE ASSESSEE IS REASONABLE AND ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE FILE OF AO FOR FRESH CONSID ERATION. THE ASSESSEE IS AT LIBERTY TO FILE NECESSARY CHALLANS TO SHOW THAT ACTUAL PAYMENT WERE MADE DURING THE PREVIOUS YEAR AND TO CLAIM DEDUCTION ON SUCH SUM. 31. GROUND NOS. 6 AND 7 RAISED BY THE ASSESSEE REA D AS FOLLOWS :- 6. THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED C OMMISSIONER OF INCOME TAX (APPEAL) - VI, KOL HAS ERRED IN CONFIRMING THE APPLICATION O F PROVISION OF SECTION 115JB OF THE INCOME TAX ACT TO THE CASE OF THE APPELLANT IN DISR EGARD OF THE RATIOS LAID DOWN BY THE HON'BLE KERALA HIGH COURT IN KERALA STATE ELECTRICI TY BOARD VS DY. CIT (2010) 329 ITR 91 (KER), HON'BLE ITAT, MUMBAI IN MAHARASHTRA STATE ELECTRICITY BOARD VS JCIT 82 ITD 422, KRUNG THAI BANK PCL VS JOINT DIT, INTERNATIONA L TAXATION (ITA NO.3390/MUM/09), UNION BANK OF INDIA VS ACIT, LTU, MUMBAI (ITA NO.4702 TO 4706/MUM/2010 DATED 30.06.2011) AND HON'BLE ITAT, C HENNAI IN THE CASE OF INDIAN BANK VS. ADDITIONAL CIT, CHENNAI (ITA NO 469/MD/201 0 DATED 03.08.2011). 7. WITHOUT PREJUDICE TO THE APPELLANTS CLAIM IN GR OUND NO.6 ABOVE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)-VI, KOLKATA HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.4,20,90,323 INSTEAD OF RS.46,20, 484 AS OFFERED BY THE APPELLANT ITSELF UNDER SECTION 14A IN COMPUTATION OF THE BOOK PROFI T UNDER SECTION 115JB. 32. SEC.115JB(1) OF THE ACT PROVIDES THAT N OTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THE ACT, WHERE IN THE CASE OF AN ASSESSEE, BEING A COMPANY, THE INCOME-TAX, PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THE ACT IN RESPECT OF ANY PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING ON OR AFTER THE 1ST DAY OF APRIL, 2007, IS LESS THAN TEN PER CENT OF ITS BOOK PROFIT, SUCH BOOK PROFIT SHALL BE DEEMED TO BE THE TOTAL INCOME OF THE ASSESSEE AND T HE TAX PAYABLE BY THE ASSESSEE ON SUCH TOTAL INCOME SHALL BE THE AMOUNT OF INCOME-TAX AT THE RATE OF TEN PER CENT. SEC.115JB(2) PROVIDES FOR THE PURPOSE OF THE PROVIS IONS OF SEC.115JB OF THE ACT EVERY COMPANY SHALL PREPARE ITS PROFIT AND LOSS ACCOUNT F OR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 (1 OF 1956). EXPLANATION 1 TO SEC.115JB PROVIDES THAT FOR THE PURPOSES OF 17 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 SECTION115JB OF THE ACT, 'BOOK PROFIT' MEANS THE NE T PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARE D UNDER SUB-SECTION (2), AS INCREASED BY AND AS REDUCED BY SOME OF THE ITEMS SE T OUT IN THE SET EXPLANATION. IT WAS THE PLEA OF THE ASSESSEE THAT T HE PROVISIONS OF SECTION 115 JB CAN ONLY COME INTO PLAY WHEN THE ASSESSEE IS REQUIRED TO PREPARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS OF PART II AND III OF SCHEDULE VI TO THE COMPANIES ACT . THE STARTING POINT OF COMPUTATION OF MINIMUM ALTERNATE TAX UNDER SECTION 115 JB IS THE RESULT SHOWN BY SUCH A PROFIT AND LOSS ACCOUNT. IN THE CAS E OF BANKING COMPANIES, HOWEVER, THE PROVISIONS OF SCHEDULE VI OF COMPANIES ACT, 195 6 ARE NOT APPLICABLE IN VIEW OF EXEMPTION SET OUT UNDER PROVISO TO SECTION 211 (2) OF THE COMPANIES ACT. THE FINAL ACCOUNTS OF THE BANKING COMPANIES ARE REQUIRED TO B E PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE BANKING REGULATION ACT. THE PROVI SIONS OF SECTION 115 JB CANNOT THUS BE APPLIED TO THE CASE OF A BANKING COMPANY. 33. THE AO AS WELL AS THE CIT(A) HOWEVER DID NOT A GREE WITH THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSE. THE CIT(APPEALS) AFTER M AKING A REFERENCE TO THE LEGISLATIVE HISTORY OF THE PROVISIONS OF SEC.115JB OF THE ACT W AS OF THE VIEW THAT IN THE LIGHT OF THE PURPOSE FOR WHICH PROVISIONS OF SEC.115JB OF TH E ACT WERE INTRODUCED, IT CANNOT BE SAID THAT THE PROVISIONS OF SEC.115JB OF THE ACT ARE NOT APPLICABLE TO BANKING COMPANIES. THE CIT(A) REFERRED TO THE PURPOSE OF I NTRODUCTION OF SEC.115JB AS EXPLAINED IN CBDT CIRCULAR NO.794 DATED 9.8.2000 WH ICH IS AS FOLLOWS: MINIMUM ALTERNATE TAX ON COMPANIES 43.1 IN RECENT YEARS, AS THE NUMBER OF ZERO TAX COMPANI ES AND COMPANIES PAYING MARGINAL TAX HAD GROWN, MINIMUM ALTERNATE TA X WAS LEVIED UNDER SECTION 115JA OF THE INCOME-TAX ACT FROM THE ASSESS MENT YEAR 1997-98. THE EFFICACY OF THE EXISTING PROVISION, HOWEVER, DECLIN ED IN VIEW OF THE EXCLUSIONS OF VARIOUS SECTORS FROM THE OPERATION OF MAT AND TH E CREDIT SYSTEM. THE ACT HAS, THEREFORE, MODIFIED THE SCHEME OF MAT. THE EXI STING SECTION 115JA HAS BEEN MADE INOPERATIVE W.E.F. 1-4-2001. IN ITS PLACE , THE ACT INSERTS A NEW PROVISION, 115JB OF THE INCOME-TAX ACT. 43.2 THE NEW PROVISIONS PROVIDE THAT ALL COMPANIES HAVI NG BOOK PROFITS UNDER THE COMPANIES ACT, PREPARED IN ACCORDANCE WITH PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT, SHALL BE LIABLE T O PAY A MINIMUM ALTERNATE 18 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 TAX AT A LOWER RATE OF 7.5%, AS AGAINST THE EXISTIN G EFFECTIVE RATE OF 10.5%, OF THE BOOK PROFITS. THESE PROVISIONS WILL BE APPLICAB LE TO ALL CORPORATE ENTITIES WITHOUT ANY EXCEPTION. 43.3 THE NEW PROVISIONS FURTHER PROVIDE THAT FOR PURPOS ES OF MAT, THE COMPANY SHALL FOLLOW SAME ACCOUNTING POLICIES AND S TANDARDS AS ARE FOLLOWED FOR PREPARING ITS STATUTORY ACCOUNT. 43.4 THE AMENDED PROVISION DISCONTINUES THE SYSTEM OF A LLOWING CREDIT FOR MAT IN FUTURE. HOWEVER, THE TAXES PAID UNDER THE EX ISTING PROVISIONS OF SECTION 115JA SHALL GET THE CREDIT. 43.5 THE EXPORT PROFITS UNDER SECTIONS 10A, 10B, 80HHC, 80HHE AND 80HHF ARE KEPT OUT OF THE PURVIEW OF THIS PROVISION AS TH ESE ARE BEING PHASED OUT. THE NEW PROVISIONS ALSO EXEMPT COMPANIES REGISTERED UND ER SECTION 25 OF THE COMPANIES ACT. 43.6 CERTIFICATE FROM AN AUDITOR HAS ALSO BEEN PRESCRIB ED WITH A VIEW TO ASCERTAINING THE EXTENT OF BOOK PROFITS. 43.7 THESE AMENDMENTS WILL TAKE EFFECT FROM 1ST APRIL, 2001 AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YE AR 2001-2002 AND SUBSEQUENT YEARS. 34. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSE SSEE HAS RAISED GROUND NO.6 RAISED BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE AND THE LEARNED DR AND FIND THAT IDENTICAL ISSUE AROSE IN ASSESSEES CASE AND IT HAS BEEN HELD THAT PROVISIONS OF SEC.115JB OF TH E ACT ARE NOT APPLICABLE TO BANKING COMPANIES. THE FOLLOWING ARE THE RELEVANT OBSERVAT IONS OF THE TRIBUNAL IN ITA NO.1460/KOL/13 FOR AY 2003-04, IN ASSESSEES OWN CA SE: 15. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED SUBMISSIONS AS WERE MADE BEFORE THE LEARNED CIT(A). THE LEARNED C OUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE PROVISIONS OF SEC.115JB OF THE ACT WERE AMENDED WITH EFFECT FROM 01.04.2013 MAKING IT OBLIGATORY, INTER ALIA , FOR BANKS TO PREPARE P & L ACCOUNT IN ACCORDANCE WITH THE BANKING REGULATI ON ACT IS CLEARLY INDICATIVE OF LEGISLATIVE UNDERSTANDING THAT UPTO A ND INCLUDING A.Y. 2012-13, SECTION 115JB HAD NO APPLICATION TO BANKS AND INSUR ANCE COMPANIES. IT WAS SO HELD BY ITAT, HYDERABAD IN THE CASE OF STATE BANK OF HYDERABAD DATED 07.09.2013 IN ITA NO. 578/HYD/2010 AND ITAT MUMBAI IN THE CASE OF ICICI LOMBARD GENERAL INSURANCE CO. LTD. DATED 10.10.2012 IN ITA NO.2398/MUM/2009. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A). 19 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THAT THIS ISSUE WAS CONSIDERED BY THE MUMBA I BENCH OF THE TRIBUNAL IN THE CASE OF KRUNG THAI BANK (SUPRA) AND ON THE ABOVE IS SUE HELD AS FOLLOWS:- 5. LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, CONT ENDS THAT THE PROVISIONS OF MAT DO NOT APPLY TO THE ASSESSEE, AND , FOR THIS RE ASON, VERY FOUNDATION OF IMPUGNED REASSESSMENT PROCEEDINGS IS DEVOID OF LEGA LLY SUSTAINABLE MERITS. HIS LINE OF REASONING IS THIS. THE PROVISIONS OF MA T CAN COME INTO PLAY ONLY WHEN THE ASSESSEE PREPARES ITS PROFIT AND LOSS ACCO UNT IN ACCORDANCE WITH SCHEDULE VI TO THE COMPANIES ACT .IT IS POINTED OUT THAT , IN TERMS OF THE PROVISIONS OF SECTION 115JB(2),EVERY ASSESSEE IS RE QUIRED TO PREPARE ITS PROFIT AND LOSS ACCOUNT IN TERMS OF THE PROVISIONS OF PART II AND II I OF SCHEDULE VI TO THE COMPANIES ACT . UNLESS THE PROFIT AND LOSS IS S O PREPARED, THE PROVISIONS OF SECTION 115 JB CANNOT COME INTO PLAY AT ALL. HOW EVER, THE ASSESSEE IS A BANKING COMPANY AND UNDER PROVISO TO SECTION 211 (2 ) OF THE ACT , THE ASSESSEE IS EXEMPTED FROM PREPARING ITS BOOKS OF AC COUNTS IN TERMS OF REQUIREMENTS OF SCHEDULE VI TO THE COMPANIES ACT , AND THE ASSESSEE IS TO PREPARE ITS BOOKS OF ACCOUNTS IN TERMS OF THE PROVI SIONS OF BANKING REGULATION ACT . IT IS THUS CONTENDED THAT THE PROVISIONS OF S ECTION 115 JB DO NOT APPLY IN THE CASE OF BANKING COMPANIES WHICH ARE NOT REQUIRE D TO PREPARE THE PROFIT AND LOSS ACCOUNT AS PER THE REQUIREMENTS OF PART II AND III OF SCHEDULE VI TO THE COMPANIES ACT . SINCE THE PROVISIONS OF SECTIO N 115 JB DO NOT APPLY TO THE ASSESSEE COMPANY, THE REASONS RECORDED FOR REOP ENING THE ASSESSMENT ARE CLEARLY WRONG AND INSUFFICIENT . WE ARE URGED TO QU ASH THE REASSESSMENT PROCEEDINGS ON THIS SHORT GROUND. 6. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, VEHEMENTLY RELIES UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMIT S THAT THERE IS NO SPECIFIC EXCLUSION CLAUSE FOR THE BANKING COMPANIES, AND IN THE ABSENCE OF SUCH A CLAUSE, IT IS NOT OPEN TO US TO INFER THE SAME. THE SUBMISSIONS OF THE LEARNED COUNSEL, ACCORDING TO THE DEPARTMENTAL REPRESENTATI VE, ARE CLEARLY CONTRARY TO THE LEGISLATIVE INTENT AND PLAIN WORDINGS OF THE ST ATUTE. 7. THE PLEA OF THE ASSESSEE IS INDEED WELL TAKEN, AND IT MEETS OUR APPROVAL. THE PROVISIONS OF SECTION 115 JB CAN ONLY COME INTO PLAY WHEN THE ASSESSEE IS REQUIRED TO PREPARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS OF PART II AND I II OF SCHEDULE VI TO TH E COMPANIES ACT . THE STARTING POINT OF COMPUTATION OF MINIMUM ALTERNATE TAX UNDER SECTION 115 JB IS THE RESULT SHOWN BY SUCH A PROFIT AND LOSS ACCOU NT. IN THE CASE OF BANKING COMPANIES, HOWEVER, THE PROVISIONS OF SCHEDULE VI A RE NOT APPLICABLE IN VIEW OF EXEMPTION SET OUT UNDER PROVISO TO SECTION 211 ( 2) OF THE COMPANIES ACT . THE FINAL ACCOUNTS OF THE BANKING COMPANIES ARE REQ UIRED TO BE PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE BANKING REGUL ATION ACT . THE PROVISIONS OF SECTION 115 JB CANNOT THUS BE APPLIED TO THE CAS E OF A BANKING COMPANY. 17. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DECISIO N OF THE MUMBAI BENCH OF THE TRIBUNAL, WE HAVE TO NECESSARILY HOLD THAT PROVISIO NS OF SECTION 115JB OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEE WHICH IS A BANKING C OMPANY. THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, CLEARLY SUPPOR T THE PLEA OF THE ASSESSEE IN THIS 20 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 REGARD. CONSEQUENTLY, GROUND NO.6 & 7 RAISED BY T HE ASSESSEE ARE ALSO ALLOWED. IN VIEW OF THE DECISION ON GROUND NO.6 & & THE GRIEVAN CE PROJECTED IN GROUNDS NOS. 8 & 9 DO NOT REQUIRE ADJUDICATION AS THOSE GROUNDS ARE ON THE MANNER IN WHICH BOOK PROFITS U/S.115JB OF THE ACT WERE COMPUTED. THESE GROUNDS HAVE BECOME INFRUCTUOUS IN VIEW OF THE CONCLUSION ON GR.NO.6 & 7. 35. THE DECISION RENDERED IN THE CASE OF KRUNG THA I BANK REFERRED TO ABOVE WAS RENDERED BY ORDER DATED 30.09.2010 IN ITA NO.3390/2 009 PASSED BY ITAT G BENCH, MUMBAI. THE HON'BLE ITAT, MUMBAI IN MAHARA SHTRA STATE ELECTRICITY BOARD VS JCIT 82 ITD 422(MUM) TOOK THE VIEW THAT PROVISIO NS OF SEC.115JB OF THE ACT ARE NOT APPLICABLE TO ELECTRICITY GENERATION COMPANIES GOVERNED BY THE PROVISIONS OF ELECTRICITY ACT. THE HON'BLE KERALA HIGH COURT IN K ERALA STATE ELECTRICITY BOARD VS DY. CIT (2010) 329 ITR 91 (KER), HAS ALSO TAKEN THE SAME VIEW. IN VIEW OF THE ABOVE GROUND NO.6 RAISED BY THE ASSESSEE IS ALLOWED. IN V IEW OF THE DECISIONS IN GROUND NO.6 NO ADJUDICATION IS REQUIRED ON GROUND NO.7 RAISED B Y THE ASSESSEE. 36. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ITA NO.1282/KOL/2012 (REVENUESS APPEAL) 37. GROUND NOS. 1 AND 2 RAISED BY THE REVENUE READ AS FOLLOWS :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN LAW IN DELETING THE ADDITION OF RS.108,45,17,830/- BEING A MORTIZATION OF PREMIUM PAID FOR PURCHASE OF SECURITIES WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN LAW AND ON FACTS BY PLACING RELIANCE ON THE PROVISIONS OF S ECTION 115JB OF THE 1. T.ACT, 1961 FOR DELETING THE DISALLOWANCE OF RS.108,45,17, 830/- MADE WHILE COMPUTING TAXABLE INCOME UNDER NORMAL COMPUTATIONAL PROVISION S. 38. THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER D ATED 30.12.2010 DISALLOWED AN AMOUNT OF RS.108,45,17,830/- ON ACCOUNT OF AMORTISA TION OF PREMIUM PAID FOR PURCHASE OF SECURITIES BY OBSERVING IN THE ASSESSME NT ORDER AS FOLLOWS:- 'THE ASSESSEE BANK DEBITED A SUM OF RS. 108,45,17,8 30/- AS AMORTISATION OF PREMIUM PAID FOR PURCHASE OF SECURITIES. THE SAID A MORTISATION IN THE ACCOUNTS WAS MADE FOLLOWING GUIDELINE OF RBI. HOWEVER, FOR I NCOME TAX RETURN, ALL 21 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 SECURITIES OF THE BANK ARE HELD AS TRADING STOCK AN D FULL DEPRECIATION ON SECURITY HELD AS CLOSING STOCK, AS MARKED TO MARKET AS ON 31 .03.2008 HAS BEEN ALLOWED AS PER THE INVESTMENT TREADING ACCOUNT SUBMITTED DURIN G THE COURSE OF HEARING. FULL PURCHASE CONSIDERATION OF ALL THE SECURITIES WAS AL SO ACCEPTED IN THE SAID INVESTMENT TRADING ACCOUNT. THEREFORE, THERE IS NO SCOPE FOR ALLOWING THE AMORTISATION EXPENSE CHARGED SEPARATELY IN THE ACCO UNTS, IN THE COMPUTATION OF INCOME AS PER INCOME-TAX ACT. THEREFORE, A SUM OF R S. 108,45,17,830/- IS ADDED BACK TO TOTAL INCOME.' 39. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT INV ESTMENTS IN BANK ARE CLASSIFIED INTO THREE CATEGORIES - (A) HELD TO MATURITY (HTM) , (B) HELD FOR TRADING (HFT) AND (C) AVAILABLE FOR SALE (AFS). AS PER THE GUIDELINES OF RESERVE BANK OF INDIA IN RESPECT OF HTM CATEGORY OF INVESTMENT, IF THE PURCH ASE COST OF SECURITIES IS MORE THAN THE FACE VALUE SUCH EXCESS CALLED PREMIUM, IS REQUI RED TO BE AMORTIZED BY DEBITING THE BANK'S PROFIT AND LOSS ACCOUNT FOR THE PERIOD TILL MATURITY. IT WAS FURTHER POINTED OUT THAT THE AO DID NOT DISPUTE THE FACT THAT THE ACCOU NTING TREATMENT FOR AMORTIZATION IS IN CONFORMITY WITH THE GUIDELINES OF RESERVE BANK OF I NDIA. THE AO WENT BY THE FACT THAT FOR THE PURPOSE OF INCOME TAX RETURN ALL SECUR ITIES OF THE BANK ARE HELD AS TRADING STOCK AND FULL DEPRECIATION ON SECURITIES HELD AS T RADING STOCK AS MARKED TO MARKET ON 31ST MARCH 2008 HAS BEEN ALLOWED AS PER THE INVESTM ENT TRADING ACCOUNT SUBMITTED ALONG WITH THE RETURN OF INCOME. IT WAS ARGUED THAT THE AO WAS UNDER IMPRESSION THAT FULL PURCHASE CONSIDERATION OF ALL THE SECURITIES W AS INCLUDED IN THE SAID INVESTMENT TRADING ACCOUNT AND AMORTIZATION AMOUNT IS CHARGED SEPARATELY IN THE PROFIT AND LOSS ACCOUNT HELD THAT THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED IN COMPUTATION OF TOTAL INCOME OF THE BANK. IT WAS CONTENDED THAT PREMIUM P AID AT THE TIME OF PURCHASE OF INVESTMENTS WAS NOT SHOW AS PURCHASE COST OF THE IN VESTMENT AND IT HAS ALWAYS BEEN THE CONSISTENT PRACTICE OF THE ASSESSEE THAT PREMIU M PAID ON PURCHASE OF INVESTMENTS IS AMORTIZED AND CLAIMED AS A DEDUCTION SEPARATELY OVER THE LIFE OF THE INVESTMENTS IN THE PROFIT AND LOSS ACCOUNT AND THIS PRACTICE IS FO LLOWED BY ALL NATIONALIZED BANKS. IT WAS POINTED OUT THAT IT CAN BE SEEN FROM THE DETAIL S OF THE INVESTMENT TRADING ACCOUNT FILED BY THE ASSESSEE THAT THE PREMIUM IN RESPECT O F PURCHASE OF INVESTMENTS UNDER HTM CATEGORY HAS NOT BEEN INCLUDED. THE ASSESSEE A LSO POINTED OUT THAT THE LD. 22 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 COMMISSIONER OF INCOME-TAX (APPEALS)-VI, KOLKATA HA S ALREADY DEALT WITH THIS ISSUE IN THE ASSESSMENT YEARS 2006-07 AND 2007-08 VIDE AP PEAL NO. 649/CIT(A)-VI/08- 09/CIR-6 DATED 09-11-2009 AND APPEAL NO. 1014/CIT(A )-VI/08- 09/CIR-6 DATED 15-11- 2010. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)- VI, KOLKATA IN APPEAL NO. 649/CIT(A)-VI/08-09/CIR-6 DATED 09-11-2009 FOR THE ASSESSMENT YEAR 2006-07 IN PARA 4 HAS OBSERVED AS UNDER:- 'I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND ALSO THE ASSESSMENT ORDER OF THE A.O. AS SEEN FROM THE DETAILS OF THE I NVESTMENT TRADING ACCOUNT FILED BY THE BANK, THE PREMIUM IN RESPECT OF PURCHASE OF INVESTMENTS UNDER HTM CATEGORY HAS NOT BEEN INCLUDED. IN THE ASSESSMENTS FOR THE EARLIER YEARS, THE AMOUNT CHARGED TO PROFIT AND LOSS ACCOUNT BY WAY OF AMORTISATION OF PREMIUM WAS CONSISTENTLY ALLOWED BY THE A.O IN VIEW OF THIS , I DIRECT THE A. O TO DELETE THE ADDITION OF RS. 124,23,38,703/-. THIS GROUND OF APP EAL IS ALLOWED. ' THE COMMISSIONER OF INCOME-TAX (APPEALS)-VI, KOLKAT A. IN APPEAL NO. 1014 DATED 15.11.2010 IN THE ASSESSMENT YEAR 2007-08 HAS HELD ON THE SAME ISSUE AS FOLLOWS:- 'I HAVE CONSIDERED THE ABOVE SUBMISSION OF THE ASSE SSEE AND THE 'INVESTMENT TRADING ACCOUNT FILED DURING THE APPELLATE PROCEEDINGS. IT IS SEEN THAT IN THE 'INVESTMENT TRADING ACCOUNT' THE AMOUNT FOR PURCHASE COST RELATED TO HT M SECURITIES WHICH IS DEBITED IS THE FACE VALUE OF THE SECURITY OR THE PURCHASE PRICE WH ICHEVER IS LOWER. THIS MEANS THAT IF THE HTM SECURITIES ARE PURCHASED AT A PREMIUM, THEN ONLY THE FACE VALUE OF THE SECURITY IS DEBITED IN THE INVESTMENT TRADING ACCOUNT AND TH E PREMIUM AMOUNT IS TREATED SEPARATELY. AS PER THE REI GUIDELINES THE PREMIUM A MOUNT IS AMORTIZED OVER THE MATURITY PERIOD OF SUCH SECURITY. THE AT) HAS WRONG LY UNDERSTOOD THAT THE PREMIUM PAID ON PURCHASE OF THESE SECURITIES HAS ALREADY BEEN DE BITED IN THE INVESTMENT TRADING ACCOUNT. IN FACT THIS PREMIUM IS DEBITED IN THE P&L ACCOUNT THROUGH THIS AMORTIZATION PROCESS ONLY. SINCE THE PREMIUM PAID ON PURCHASE OF SECURITIES IS AN EXPENDITURE INCURRED BY THE ASSESSEE THEREFORE IT HAS T BE ALLO WED TO THE ASSESSEE. THE ASSESSEE HAS CLAIMED THIS AMORTISATION OF PREMIUM AS PER THE ACC OUNTING GUIDELINES ISSUED BY THE RBI AND SUCH EXPENDITURE HAS BEEN ALLOWED TO THE AS SESSEE IN EARLIER YEARS ALSO REGULARLY. THEREFORE, THERE IS NO REASON WHY IT SHO ULD NOT BE ALLOWED THIS YEAR ALSO. 'HENCE, THIS DISALLOWANCE OF RS. 105,54,53,000/- IS DELETED. ' 40. ON CONSIDERING THE ABOVE SUBMISSIONS, THE LEAR NED CIT(A) DELETED THE ADDITION MADE BY THE AO, OBSERVING AS FOLLOWS: 7. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, SUBMISSIONS OF THE APPELLANT AND THE ORDER OF MY LEARNED PREDECESSOR I.E. COMMISSIONER OF INCOME-TAX (APPEAL S)-VI, KOLKATA. THE FINANCE ACT, 2012 HAS INSERTED AN EXPLANATION 3 UND ER SUB-SECTION 2 OF SECTION 23 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 115JB STATING THAT THE ASSESSEE BEING A COMPANY TO WHICH THE PROVISO TO SUB- SECTION (2) OF SECTION 211 OF TILE COMPANIES ACT, 1 956 (1 OF 1956) IS APPLICABLE PROVIDING THAT THE ASSESSEE FROM ASSESSMENT YEAR CO MMENCING ON OR BEFORE THE 1 ST DAY OF APRIL, 2012, HAS AN OPTION TO PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR EITHER IN ACCORDANCE WITH TH E PROVISIONS OF PART II AND PART III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 OR IN ACCORDANCE WITH THE PROVISIONS OF THE ACT GOVERNING SUCH COMPANY. IT ST ATES AS FOLLOWS:- 'EXPLANATION 3. - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT FOR THE PURPOSES OF THIS SECTION, THE ASSESSEE, BEING A COM PANY TO 'WHICH THE PROVISO TO SUB-SECTION (2) OF SECTION 211 OF THE COMPANIES ACT, 1956 IS APPLICABLE, HAS, FOR AN ASSESSMENT YEAR COMMENCING ON OR BEFORE THE 1 ST DAY OF APRIL, 2012, AN OPTION TO PREPARE ITS PROFIT AND LOSS ACCO UNT FOR THE RELEVANT PREVIOUS YEAR EITHER IN ACCORDANCE WITH THE PROVISI ONS OF PART IL AND PART III OF SCHEDULE VI TO THE COMPANIES ACT, 1956 OR IN ACCORDANCE WITH THE PROVISIONS OF THE ACT GOVERNING SUCH COMPANY.'; (1 OF 1956)' 8. THE APPELLANT IS A PUBLIC SECTOR BANK AND IS GOV ERNED BY THE PROVISIONS OF THE BANKING REGULATION ACT, 1949 AND IT HAS PREPARED IT S ACCOUNTS AND FINANCIAL STATEMENTS IN ACCORDANCE WITH THIRD SCHEDULE OF THE BANKING REGULATION ACT, 1949 AS SUBMITTED IN THE WRITTEN SUBMISSIONS DURING APPELLATE PROCEEDINGS (SUPRA). THE ASSESSING OFFICER HAS MADE THE ADJUSTM ENTS IN THE NET PROFIT DERIVED IN THE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH THIRD SCHEDULE OF THE BANKING REGULATION ACT, 1949. IN THE FACTS AND CIRC UMSTANCES AND IN VIEW OF THE EXPLANATION 3 UNDER SUB-SECTION 2 OF SECTION 115JB AND ALSO RESPECTFULLY, FOLLOWING THE ORDER OF MY LD. PREDECESSOR I.E. THE COMMISSIONER OF INCOME-TAX (APPEALS)-VI, KOLKATA'S APPEAL NO. 1014 DATED 15.11 .2010 OF THE ASSESSMENT YEAR 2007-08, IT IS HELD THAT SINCE THE AMOUNT CHAR GED TO PROFIT & LOSS ACCOUNT BY WAY OF AMORTISATION OF PREMIUM WAS CONSISTENTLY ALLOWED BY THE ASSESSING OFFICER UP TO THE ASSESSMENT YEAR 2005-06 AND NOW W ITHOUT ANY CHANGE IN LAW IT CANNOT BE SUDDENLY CHANGED. THE RULE OF CONSISTENCY HAS TO BE FOLLOWED BY HIM. THE ASSESSEE HAS CLAIMED THIS AMORTISATION OF PREMI UM AS PER THE ACCOUNTING GUIDELINES ISSUED BY THE RBI AND HAS PREPARED ITS A CCOUNTS AND FINANCIAL STATEMENTS IN ACCORDANCE WITH THIRD SCHEDULE OF THE BANKING REGULATION ACT, 1949 AND SUCH EXPENDITURE HAS BEEN ALLOWED TO THE A SSESSEE IN EARLIER YEARS ALSO REGULARLY. THEREFORE, THE ADDITION OF RS.1 08,45, 1 7,830/- IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 41. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVE NUE HAS RAISED GROUND NO.1 & 2 BEFORE THE TRIBUNAL. WE HAVE HEARD THE SUBMISSION OF THE LEARNED DR WHO RELIED ON THE ORDER OF THE AO. THE LEARNED COUNSEL FOR THE A SSESSEE RELIED ON THE ORDER OF THE CIT(A). 24 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 42. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. TH E ASSESSEE WHILE COMPUTING ITS TOTAL INCOME CLAIMED DEDUCTION UNDER THE HEAD AMORT IZATION OF PREMIUM ON PURCHASE OF SECURITIES HELD TO MATURITY. THE ASSESSEE IN TH E COURSE OF ITS BANKING BUSINESS, TO MEET THE STATUTORY LIQUIDITY RATIO REQUIREMENTS PRE SCRIBED BY THE RBI, HAS TO MAKE INVESTMENTS IN CENTRAL AND STATE GOVERNMENT SECURIT IES. AS PER RBI DIRECTIONS SUCH INVESTMENTS ARE CLASSIFIED INTO THREE CATEGORIES AS UNDER : I) AVAILABLE FOR SALE (AFS) II) AVAILABLE FOR TRADING (AFT) III) HELD TO MATURITY (HTM). THE ASSESSEE POINTED OUT THAT THE INVESTMENTS WHICH WERE MADE BY THE ASSESSEE AND CATEGORIZED AS HTM WERE PURCHASED AT A PRICE WHICH WAS HIGHER THAN ITS REDEEMABLE VALUE. IN OTHER WORDS, THESE SECURITIES WERE PURCH ASED AT A PREMIUM. THE DIFFERENCE BETWEEN THE ACTUAL COST OF THESE INVESTMENTS AND TH E FACE VALUE OF SUCH INVESTMENTS WERE SPREAD OVER TO THE LIFE OF THE INVESTMENTS AND PROPORTIONATE DEDUCTION WAS CLAIMED BY THE ASSESSEE UNDER THE HEAD 'AMORTIZATIO N OF HTM'. THE FURTHER CLAIM OF THE ASSESSEE WAS THAT ALL THE SECURITIES HELD BY TH E ASSESSEE WERE HELD AS STOCK-IN- TRADE BY THE ASSESSEE. THE FACE VALUE OF THE SECU RITIES HELD IN HTM CATEGORY IS ALONE SHOWN IN THE BOOKS AS COST AND THE PREMIUM IS NOT C LAIMED AS COST OF THE SECURITIES, AS THE PREMIUM IS CLAIMED BY WAY OF AMORTIZATION OF PR EMIUM OVER THE LIFE OF THE SECURITY. THE REVENUE CAN HAVE GRIEVANCE ONLY WHER E THE COST PRICE OF THE INVESTMENT AS RECORDED IN THE INVESTMENT TRADING ACCOUNT INCLU DES PREMIUM PAID AT THE TIME OF ACQUISITION AND ALSO THE SAME PREMIUM IS SEPARATELY CLAIMED IN THE PROFIT AND LOSS ACCOUNT AGAIN AS A DEDUCTION. THE PLEA OF THE ASSE SSEE THAT THERE IS NO SUCH DOUBLE CLAIM FOR SAME COST HAS BEEN FOUND TO CORRECT BY TH E CIT(A). THE ORDER OF THE AO IS SILENT ON THIS ASPECT. THE ASSESSING OFFICER DIS ALLOWED THE CLAIM OF THE ASSESSEE ON THE ASSUMPTION THAT FULL PURCHASE CONSIDERATION OF ALL THE SECURITIES WAS INCLUDED IN THE SAID INVESTMENT TRADING ACCOUNT AND AMORTIZATION AM OUNT IS CHARGED SEPARATELY IN THE PROFIT AND LOSS ACCOUNT AGAIN AND HE THEREFORE HELD THAT THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED IN COMPUTATION OF TOTAL INCOME. THIS FACTUAL ASSUMPTION OF THE AO IS WRONG AS FOUND BY THE CIT(A) WHICH HAS NOT BEEN DISPUTED BEFORE US. IN THESE 25 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. CONSEQUENTLY GR.NO.1 & 2 RAISED BY T HE REVENUE IS DISMISSED. 43. GROUND NO.3 RAISED BY THE REVENUE READS AS FOL LOWS :- 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN LAW IN ENTERTAINING AND ALLOWING THE FRESH CLAIM OF DEDUCT ION U/S.80G IN RESPECT OF DONATIONS OF RS.7,38,900/- MADE BY THE ASSESSEE REL YING ON THE JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF GOETZ (INDIA) LTD. -VS- CIT 284 ITR 323. 44. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.7,38,9001- HOLDING THAT THE SAME WAS NOT CLAIMED IN THE INCOME TAX RETURN U/S 8 0G AND 35AC OF THE INCOME-TAX ACT, 1961, BY OBSERVING AS FOLLOWS:- 'THE ASSESSEE INCLUDED A SUM OF RS.7,38,900/- PAID AS DONATION UNDER THE HEAD 'OTHER EXPENDITURES '. THE ASSESSEE BANK DID NOT CL AM DEDUCTION U/S 80G EITHER IN THE ORIGINAL RETURN OR IN THE REVISED RE{URN. DURIN G THE COURSE OF HEARING. THE ASSESSEE BANK HAS INFORMED THAT THE DONATION OF RS. 7,38,900/- COMPRISES OF DONATION TO KALYANAM KAROTI, RS. 88,900/- DONATION TO URIVI VIKRAM CHARITABLE TRUST OF RS. 2,50,000/-, DONATION TO LALAJI MEMORIA L EDUCATION SOCIETY AND DONATION TO THE WEST BENGAL NATIONAL UNIVERSITY OF JURIDICAL SCIENCES RS. 2,00,0001-, IN RESPECT OF DONATION TO URIVI VIKRAM CHARITABLE TRUST, THE ASSESSEE BANK HAS CLAIMED THE AMOUNT AS 100% DEDUCTION UNDER SECTION 35AC OF THE INCOME-TAX ACT AS THE DONEE INSTITUTION IS RECOGNIZ ED UNDER SECTION 35AC. THE SUBMISSION OF THE ASSESSEE HAS BEEN CAREFULLY CONSI DERED. IN VIEW OF THE JUDGEMENT OF THE HON 'BLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD VS CIT 284 ITR 323 ANY NEW CLAIM IN RESPECT TO ANY DED UCTION WHICH IS NOT MADE IN THE RETURN OF INCOME CANNOT BE ALLOWED WITHOUT FILI NG A REVISED RETURN. DEDUCTION U/S 35AC OR 80G CANNOT BE ALLOWED AT THIS STAGE AS THE ASSESSEE HAS NOT MADE ANY SUCH CLAIM EITHER IN THE ORIGINAL RETURN OR IN THE REVISED RETURN. ACCORDINGLY, THE DONATION OF RS. 7,38,900/- IS ADDED BACK. ' 45. ON APPEAL BY THE CIT(A) VIDE PARAGRAPH 11 OF H IS ORDER HELD THAT THE DEDUCTION HAD BEEN CLAIMED BY THE ASSESSEE AT 100% NOT U/S.80 G OF THE ACT BUT AS OTHER EXPENSES IN THE PROFIT AND LOSS ACCOUNT AND THEREFO RE THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. (S UPRA) WILL NOT APPLY TO THE CASE OF THE ASSESSEE. THE CIT(A) FOUND THAT THE DEDUCTION CLAIMED WAS OTHERWISE ALLOWABLE AND TO THE EXTENT IT WAS ALLOWABLE, THE AO WAS DIRE CTED TO ALLOW THE CLAIM FOR DEDUCTION. IN THE GROUNDS OF APPEAL, THE REVENUE D OES NOT DISPUTE THE FACT THAT THE 26 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 DEDUCTION CLAIMED BY THE ASSESSEE IS ALLOWABLE AS F OUND BY THE CIT(A). WE ARE OF THE VIEW THAT THE CIT(A) AS FIRST APPELLATE AUTHORI TY IS ENTITLED TO ALLOW THE DEDUCTION CLAIMED AND THE RESTRICTION LAID DOWN IN THE DECISI ON IN THE CASE OF GOETZE (INDIA) LTD., IS APPLICABLE ONLY TO MAKING CLAIM BEFORE AO AND NO T BEFORE THE APPELLATE AUTHORITIES UNDER THE ACT. IN VIEW OF THE ABOVE CONCLUSION, WE FIND NO MERIT IN GROUND NO.3 RAISED BY THE REVENUE. 46. GROUND NO.4 RAISED BY THE REVENUE READS AS FOL LOWS :- 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN LAW IN REDUCING THE ADDITION OF RS.54,50,26,415/- MADE UND ER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB TO RS.4,20,90,323/-. 47. IN VIEW OF THE CONCLUSIONS IN GROUND NO.6 RAIS ED BY THE ASSESSEE IN ITS APPEAL THAT PROVISION OF SECTION 115JB OF THE ACT ARE NOT APPLI CABLE IN THE NATIONALISED BANK, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN GROUND NO .4 RAISED BY THE REVENUE AND THE SAME IS DISMISSED. 48. GROUND NO.5 RAISED BY THE REVENUE READS AS FOL LOWS :- 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) ERRED IN LAW AND ON FACTS IN ALLOWING THE DEDUCTION IN RESPECT OF CL UB MEMBERSHIP FEES OF RS.6,78,655/- 49. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF R S.6,78,655/- PAID TO SATURDAY CLUB REGARDING RENEWAL OF MEMBERSHIP SUBSCRIPTION F OR 4 EXECUTIVES FOR FIVE YEARS. THE ASSESSEE SUBMITTED THAT THE MEMBERSHIP IS NOT I N THE INDIVIDUAL NAME BUT IT IS A CORPORATE MEMBERSHIP. THE ASSESSEE RELIED ON THE DE CISION IN THE CASE OF WILLARD INDIA LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX (2 004) 87 TT J (DEL) 102 WHEREIN IT WAS HELD THAT SUBSCRIPTION/MEMBERSHIP FE E OF EMPLOYEES PAID BY ASSESSEE TO CLUBS IS ALLOWABLE BUSINESS EXPENDITURE OBSERVED AS UNDER:- '30. IN GROUND NO. 4 THE ASSESSEE HAD CHALLENGED DI SALLOWANCE OF A SUM OF RS. 16,959 ON ACCOUNT OF PAYMENT MADE TO CLUBS BY WAY O F SUBSCRIPTION/MEMBERSHIP FEE FOR VARIOUS EMPLOYEES O F THE COMPANY. 27 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 31. WE HAVE HEARD THE PARTIES. IT WAS NECESSARY FOR THE ASSESSEE TO HAVE MEMBERSHIP OF CLUBS IN THE NAME OF ITS EMPLOYEES FO R THE PURPOSE OF HIS BUSINESS. IN CATENA OF CASES VARIOUS BENCHES OF TRI BUNAL ARE ALLOWING SUCH EXPENDITURE AS NECESSARY BUSINESS EXPENDITURE. A RE FERENCE IS AVAILABLE IN ITO VS. BRIGHT BROS. LTD. (1984) 18 TTJ (BOM) 377 AND A LSO IN HJ INDUSTRIES VS. ITO (1988) 261TD 259 (BOM). ACCORDINGLY THE AO IS D IRECTED TO ALLOW THE DEDUCTION OF RS. 16,959. THE ASSESSEE'S GROUND STAN DS ALLOWED. ' 50. ON APPEAL BY THE ASSESSEE, THE CIT(A) ALLOWED T HE CLAIM OF THE ASSESSEE. THE CIT(A) HELD THAT THE MEMBERSHIP IN QUESTION WAS A C ORPORATE MEMBERSHIP AND THE SUM IN QUESTION OF RS.6,78,655/- WAS PAID TO SATURD AY CLUB LTD., FOR RENEWAL OF SUBSCRIPTION FOR FOUR EXECUTIVES FOR FIVE YEARS. TH E CIT(A) FOUND THAT THE MEMBERSHIP IS A CORPORATE MEMBERSHIP AND NOT IN THE NAME OF AN Y INDIVIDUAL AND THAT THE MEMBERSHIP IS TO BE ALLOWED TILL THE PERSONS ARE IN JOB AND IT WILL SHIFT IN THE NAME OF NEXT EXECUTIVE ON THE SUPERANNUATION OF THE EARLIER EXECUTIVE AND WAS PAID FOR RENEWAL OF MEMBERSHIP FOR FIVE YEARS AND HAS NOT BEEN PAID AS INITIAL CAPITAL MEMBERSHIP FEE. TAKING NOTE OF THESE ASPECTS, THE CIT(A) ALLOWED TH E CLAIM FOR DEDUCTION, HOLDING THAT THE EXPENDITURE WAS REVENUE EXPENDITURE. 51. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVEN UE HAS RAISED GROUND NO.5 BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE FOLLOWING JUDICIAL PRONOUNCEMENTS SUPPORT THE CLAIM OF THE ASSESSEE TH AT THE EXPENDITURE IN QUESTION IS REVENUE IN NATURE. 1. COMMISSIONER OF INCOME TAX VS. INFOSYS TECHNOLOGIES LTD. 349 ITR 610 (KARN); WHEREIN IT WAS HELD THAT T HE AMOUNT PAID BY ASSESSEECOMPANY TOWARDS SUBSCRIPTION FOR OBTAINING CORPORATE MEMBERSHIP IN CLUB IS ALLOWABLE AS REVENUE EXPENDIT URE 2. CIT VS. THE SANDUR MANGANESE & IRON ORES LTD. ITA N O. 13 TO 24 /2002 DATED 21.3.2005; IN WHICH THE HONBLE K ARNATAKA HIGH COURT AGREED WITH THE VIEW EXPRESSED BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT STATE CORPORATION LTD. VS. CIT 209 ITR 649 (GUJ.) THAT GETTING MEMBERSHIP OF SPORTS CLUB CANNOT BE TERMED AS CAPITAL EXPENDITURE BUT IS ALLOWABLE AS REVENUE EXPENDITURE. 28 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09 3. CIT VS. UNITED GLASS MGF CO. LTD. CIVIL APPEAL NO. 6448 & 6449/2012; HONBLE SUPREME COURT ORDER DATED 12.9.2 012; WHEREIN THE HONBLE SUPREME COURT HELD THAT CLUB MEMBERSHIP FEE PAID FOR EMPLOYEES INCURRED BY THE ASSESSEE IS BUSINESS EXPENSE U/S.37 OF THE ACT. 52. IN THE LIGHT OF THE ABOVE JUDICIAL PRONOUNCEME NTS, WE ARE OF THE VIEW THAT THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO AND ALLOWING THE EXPENSES INCURRED BY THE ASSESSEE AS REVENUE EXPEND ITURE. THUS GR.NO.5 IS DISMISSED. 53. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. 54. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE COURT ON 01.06.2016. SD/- SD/- [M.BALAGANESH ] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 01.06.2016. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.ALLAHABAD BANK, 2, NETAJI SUBHAS ROAD, KOLKATA-70 0001. 2. ADDITIONAL CIT, RANGE-6, KOLKATA. 3. CIT(A)-VI, KOLKATA 4. CIT-II, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, ASST. REGISTRAR, ITAT, KOLKATA BENCHES 29 ITA NO.1199/KOL/2012 &1282/KOL/2012- ALLAHABAD BANK A.Y.2008-09