DCIT, Trichy V. The Lakshmi Vilas Bank Ltd., Karur

ITA 1262/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77273 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 03-03-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 07-06-2013
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Reopening of assessment; Depreciation; Business expenditure; Earning of tax free income; Question of law; Capital expenditure
• Section: 147; 148; 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHE NNAI . . . , ! , ' # $ BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER . I.T.A. NO. ASSESSMENT YEAR !% APPELLANT &'!% RESPONDENT 938/MDS/2013 2003-04 THE LAKSHMI VILAS BANK LIMITED, KATHAPARAI, KARUR PAN:AAACT 4291 P ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I, TIRUCHIRAPALLI 939/MDS/2013 2003-04 THE LAKSHMI VILAS BANK LIMITED, KATHAPARAI, KARUR PAN:AAACT 4291 P ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I, TIRUCHIRAPALLI 940/MDS/2013 2005-06 THE LAKSHMI VILAS BANK LIMITED, KATHAPARAI, KARUR PAN:AAACT 4291 P ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I, TIRUCHIRAPALLI 1262/MDS/2013 2003-04 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I(1), TRICHY M/S. THE LAKSHMI VILAS BANK LIMITED, SALEM ROAD, KATHAPARAI, KARUR-639 002 PAN:AAACT 4291 P 1228/MDS/2013 2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I(1), TRICHY M/S. THE LAKSHMI VILAS BANK LIMITED, SALEM ROAD, KATHAPARAI, KARUR-639 002 PAN:AAACT 4291 P ASSESSEE BY : SHRI G.SEETHARAMAN, CA., REVENUE BY : SHRI T.N.BETGERI, JCIT DATE OF HEARING : 03-03-2014 DATE OF PRONOUNCEMENT : 30-04-2014 #( / O R D E R PER VIKAS AWASTHY, J.M: THESE CROSS APPEALS HAVE BEEN FILED BY THE ASSESSE E AND THE REVENUE FOR THE ASSESSMENT YEARS (AYS) 2003-04 & 2005-06 I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 2 AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX(APP EALS) - TIRUCHIRAPALLI, DATED 22-01-2013. THE CIT(APPEALS) VIDE SINGLE ORDER HAS ADJUDICATED THE APPEALS OF THE ASSESSEE I N SCRUTINY ASSESSMENT PROCEEDINGS U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) FOR THE AYS .2003-04 & 2005- 06 AS WELL AS APPEAL OF THE ASSESSEE ARISING OUT OF RE-ASSESSMENT PROCEEDINGS U/S.143(3) R.W.S.147 FOR THE AY.2003-04 . ITA NO.938/MDS/2013 FOR AY.2003-04, ITA NO.940 & 1228/M DS/2013 FOR AY.2005-06 RELATE TO ASSESSMENT PROCEEDINGS U/S .143(3) OF THE ACT. WHEREAS, ITA NO.939 & 1262/MDS/2013 FOR AY.20 03-04 ARE IN RESPECT OF ASSESSMENT U/S.143(3) R.W.S.147 OF TH E ACT. SINCE COMMON ISSUES ARE INVOLVED IN ALL THE APPEALS, THES E APPEALS ARE TAKEN UP TOGETHER FOR ADJUDICATION. THE GIST OF IS SUES RAISED IN THE APPEALS ARE AS UNDER: S.NO. ITA NO. AY G ROUNDS IN APPEAL APPEAL BY 1. 938/2013 940/2013 2003-04 2005-06 FALL IN THE MARKET VALUE OF GOVT. SECURITIES ASSESSEE ASSESSEE 2. 938/2013 940/2013 2003-04 2005-06 INTEREST PAID AT THE TIME OF PURCHASE OF SECURITIES ASSESSEE ASSESSEE 3. 938/2013 2003-04 LOSS ON SALE OF GOVT. SECURITIE S ASSESSEE 4. 938/2013 2003-04 PROVISION FOR LEAVE ENCASHMENT ASSESSEE 5. 938/2013 1262/2013 1228/2013 2003-04 2003-04 2005-06 DEDUCTION U/S.36(1)(VIIA) ASSESSEE REVENUE REVENUE 6. 938/2013 2003-04 SURPLUS ON SALE OF JEWELLERY AS SESSEE 7. 938/2013 940/2013 2003-04 2005-06 POOJA EXPENSES ASSESSEE ASSESSEE 8. 938/2013 2003-04 SUNDRY EXPENSES ASSESSEE 9. 938/2013 940/2013 2003-04 2005-06 DISALLOWANCE U/S.14A ASSESSEE ASSESSEE 10. 938/2013 2003-04 INTEREST TO SIDBI AND NABARD A SSESSEE I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 3 11. 939/2013 2003-04 RE-OPENING OF ASSESSMENT U/S.147 ASSESSEE 12. 1262/2013 939/2013 1228/2013 2003-04 2003-04 2005-06 DEPRECIATION ON LEASED COMMERCIAL VEHICLES REVENUE ASSESSEE REVENUE 13. 1262/2013 1228/2013 2003-04 2005-06 PAYMENT TO KARUR ROTARY CLUB REVENUE REVENUE 14. 1262/2013 1228/2013 2003-04 2005-06 SOFTWARE EXPENSES REVENUE REVENUE 15. 939/2013 2003-04 DIS-ALLOWANCE OF ENTERTAINMENT EXPENSES ASSESSEE 16. 1228/2013 2005-06 SUBSCRIPTION TO SEBI REVENUE THE LD.AR OF THE ASSESSEE SUBMITTED THAT MAJORITY O F THE ISSUES RAISED IN THE APPEALS BY THE REVENUE AS WELL AS THE ASSESSEE HAVE ALREADY BEEN DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN CROSS-APPEALS OF THE ASSESSEE AND REVEN UE FOR THE AYS.2004-05, 2007-08 AND 2008-09. THE LD.AR PLACED ON RECORD A COPY OF THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.1401, 1402 & 1403/MDS/2012 DECIDED ON 22-03-2013 . THE LD.DR SUPPORTED THE STATEMENT OF THE ASSESSEE. HOW EVER, THE LD.DR PLACED RELIANCE ON THE GROUNDS RAISED BY THE REVENUE IN ITS APPEALS. WE NOW PROCEED TO DECIDE THE ISSUES ON MERITS: 1. FALL IN THE MARKET VALUE OF GOVT. SECURITIES & 2. INTEREST PAID AT THE TIME OF PURCHASE OF SECURIT IES : IN RESPECT OF BOTH THESE ISSUES, THE LD.AR SUBMITTE D THAT THE ISSUES HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 4 AY.2001-02 AND 2002-03 AND THE TRIBUNAL HAD DECIDED THE SAME IN FAVOUR OF THE ASSESSEE IN ITA NO.1575 & 1576/MDS /2006. THE LD.AR ALSO REFERRED TO THE ORDER OF TRIBUNAL IN ITA NO.1401/MDS/2012 (SUPRA). THE LD.AR SUBMITTED THAT IN PURSUANCE TO THE DIRECTIONS OF THE TRIBUNAL IN ITA NO.1401/MDS/2012, THE ASSESSING OFFICER HAS REDONE ASSESSMENT AND HAS ACCEPTED THE CLAIM OF THE ASSESSEE FOR THE AYS.2004-05, 2007-08 AND 2008-09. ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDER OF CIT(APPEALS) ON THE ISSUE. BOTH SIDES HEARD. WE HAVE PERUSED THE ORDERS OF T HE AUTHORITIES BELOW AND THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.1401/MDS/2012 (SUPRA). WE FIND THAT THE ISSUES IN HAND WERE RAISED BEFORE THE TRIBUNAL IN EARLIER AYS IN THE CASE OF ASSESSEE. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE ABOVE MENTIONED APPEAL OF THE ASSESSEE HAS REMITTED THE I SSUES BACK TO ASSESSING OFFICER FOR DECIDING THEM AFRESH. THE BE NCH WHILE REMITTING THE ISSUES HAD ALSO REFERRED TO THE EARLI ER ORDER OF TRIBUNAL IN ITA NO.1575 & 1576/MDS/2006 DECIDED ON 06-03-2009 AND DECISION OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF UNITED COMMERCIAL BANK VS. CIT REPORTED AS 240 ITR 355 (SC) . THE LD.DR HAS NOT CONTRADICTED THE STATEMENT OF AR THAT THE ASSESSING OFFICER HAS ACCEPTED SIMILAR CLAIM OF THE ASSESSEE FOR I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 5 AYS 2004-05, 2007-08 AND 2008-09. WE ARE OF THE CO NSIDERED OPINION THAT BOTH THE ISSUES NEED REVISIT TO ASSESS ING OFFICER FOR FRESH ADJUDICATION. THE ASSESSING OFFICER IS DIREC TED TO MAINTAIN THE DISCIPLINE OF CONSISTENCY AND DECIDE THESE ISSU ES IN THE LIGHT OF THE ORDER OF TRIBUNAL IN ITA NO.1575 & 1576/MDS/200 6 (SUPRA). ACCORDINGLY, BOTH THE GROUNDS IN THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 3. LOSS ON SALE OF GOVT. SECURITIES : THE ISSUE REGARDING LOSS ON SALE OF GOVT. SECURITIE S HAD COME UP BEFORE THE TRIBUNAL IN ITA NO.1402/MDS/2012 FOR THE AY.2007-08 BY THE ASSESSEE. THE TRIBUNAL ON THE ISSUE HAS HEL D AS UNDER: 40. IN THE COURSE OF HEARING THE ASSESSEE SUBMITS THAT IN THE IMPUGNED ASSESSMENT YEAR 2007-08, THE ASSESSING OFFICER HAD MADE DISALLOWANCES/ ADDITIONS QUA INTER EST PAID AT THE TIME OF PURCHASE, DEPRECIATION IN THE VALUE, AM ORTIZATION AND LOSS ON SALE OF SECURITIES. PER ASSESSEE, THE I SSUE OF INTEREST PAID AT THE TIME OF PURCHASE OF SECURITIES AND LOSS ON SALE THEREOF ARE SIMILAR TO THOSE RAISED IN THE ASS ESSMENT YEAR 2004-05 DECIDED HEREINABOVE AND THE ADDITIONS ON DEPRECIATION AND AMORTIZATION QUA THE VALUE OF SECU RITIES IN QUESTION ARE INCIDENTAL THEREOF. 41. THE REVENUE DOES NOT DISPUTE THE SAID FACTUAL POSITION. 42. IN THIS VIEW OF THE MATTER AND MINDFUL OF THE FACT THAT QUA ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2004-05, WE HAVE RESTORED THE MAIN ISSUE OF TREATMENT OF SECURITIES WHETHER I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 6 STOCK-IN-TRADE OR INVESTMENT AS WELL AS INTEREST PA ID AND LOSS OF SALE THEREOF, TO THE FILE OF THE ASSESSING OFFIC ER (SUPRA) FOR VERIFICATION, ETC., WE ARE OF THE VIEW THAT IN ORDE R TO MAINTAIN CONSISTENCY, THE PRESENT FOUR ADDITIONS SHALL ALSO BE DECIDED AFRESH BY THE ASSESSING OFFICER. IN VIEW OF THE FACT THAT THE ISSUE RELATING TO DETE RMINATION OF MARKET VALUE OF GOVERNMENT SECURITIES INCLUDING DETERMINAT ION OF THE FACT; WHETHER THE SECURITIES ARE HELD AS STOCK IN TRADE O R INVESTMENT, HAVE BEEN REMITTED BACK TO ASSESSING OFFICER, WE DE EM IT APPROPRIATE TO REMIT THIS ISSUE TO ASSESSING OFFICE R AS WELL. THE OUTCOME OF THE EARLIER ISSUES WILL DETERMINE NATURE OF LOSS I.E., CAPITAL OR REVENUE. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 4. PROVISION FOR LEAVE ENCASHMENT : THE ASSESSEE HAS MADE PROVISION FOR LEAVE ENCASHMEN T OF ` 1,00,31,813/- IN THE AY.2003-04. THE ASSESSING OFF ICER DIS- ALLOWED THE SAME ON THE GROUND THAT THE ASSESSEE HA S CLAIMED THE AMOUNT WITHOUT ACTUAL PAYMENT. IN FIRST APPEAL, TH E CIT(APPEALS) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R. THE LD.AR OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUAREL Y COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE CO-OR DINATE BENCH OF I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 7 THE TRIBUNAL IN THE CASE OF INDIAN OVERSEAS BANK VS. CIT IN ITA NO.1803/2011 FOR THE AY.2008-09. THE TRIBUNAL IN THE SAID CASE HAS HELD THAT THE PROVISION FOR LEAVE ENCASHMENT IS DEDUCTIBLE. THE LD.AR IN ORDER TO FURTHER SUPPORT HIS SUBMISSIO NS PLACED RELIANCE ON THE DECISION OF THE HONBLE CALCUTTA HI GH COURT IN THE CASE OF EXIDE INDUSTRIES LIMITED VS. UNION OF INDIA REPORTED AS 292 ITR 470. ON THE OTHER HAND, LD.DR VEHEMENTLY SUPPORTED THE O RDER OF CIT(APPEALS) ON THIS ISSUE AND SUBMITTED THAT WITHO UT ACTUAL PAYMENT, THE ASSESSEE CANNOT CLAIM EXPENDITURE ON T HE BASIS OF PROVISION ALONE. WE FIND THAT THE ISSUE IN HAND IS SQUARELY COVERED BY THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CA SE OF CIT VS. PANASONIC HOME APPLIANCES REPORTED AS 323 ITR 344. THE HONBLE HIGH COURT HAS HELD THAT THE PROVISION FOR LEAVE ENCASHMENT OF EMPLOYEES IS A BUSINESS EXPENDITURE A ND IS THUS DEDUCTIBLE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 8 5. DEDUCTION U/S.36(1)(VIIA) : THE ASSESSEE IN ITS APPEAL NO.938/MDS/2013 FOR THE AY.2003-04 HAS RAISED THE ISSUE OF DEDUCTION U/S.36(1)(VIIA). HOWEVER, WE FIND THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE BY THE CIT(APPEALS). THE LD.AR OF THE ASSESSEE STATED AT BAR THAT HE IS NOT PRESSING THIS GROUND AS THE SAME HAS BEEN ALLOW ED BY THE CIT(APPEALS) IN FAVOUR OF THE ASSESSEE. ACCORDINGL Y, THIS GROUND IN THE APPEAL OF THE ASSESSEE IS DISMISSED AS NOT P RESSED. 6. SURPLUS ON SALE OF JEWELLERY : THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT FOR AY.2003-04 HAS MADE ADDITION OF ` 3,40,719/- ON SALE OF JEWELLERY. THE CIT(APPEALS) HAS UPHELD THE FINDINGS OF THE ASS ESSING OFFICER. THE LD.AR HAS PLACED RELIANCE ON THE EARLIER ORDER OF THE TRIBUNAL IN ITA NO.1402/MDS/2012 FOR THE AY.2007-08 WHEREIN IT HAS BEEN HELD THAT THE SURPLUS ON SALE OF JEWELLERY DOES NOT FORM PART OF THE INCOME OF THE ASSESSEE-BANK AND THE ADDITION SO MAD E WAS DELETED. THE RELEVANT EXTRACT OF THE ORDER OF THE TRIBUNAL IS RE- PRODUCED HEREIN BELOW: 52. WE HAVE HEARD BOTH PARTIES. THE ONLY ISSUE IS AS TO WHETHER THE EXCESS AMOUNT IN QUESTION RAISED BY THE ASSESSEE AFTER PUTTING THE SALE OF JEWELLERY GIVES RISE TO ITS INCOME OR NOT. FROM THE ORDER OF THE TRIBUNAL CIT ED BY THE I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 9 ASSESSEE (SUPRA), IT TRANSPIRES THAT THE SAME VERY ISSUE HAD ARISEN AND DECIDED BY THE COORDINATE BENCH AS UNDER : 4. WE HAVE DULY HEARD AND CONSIDERED THE RIVAL S UBMISSIONS. THE ASSESSEE-BANK HAD SOLD CERTAIN JEWELS FOR THE PURPO SE OF REALISING THE LOANS ADVANCED BY IT, ON THE PLEDGE OF THE SAID JEW ELS TO DEFAULTING LOANEES. AFTER ADJUSTING THE AMOUNT DUE TO THE BANK , A SUM OF RS.51,155/- STOOD TO THE CREDIT OF THE BORROWERS AS SURPLUS IN THE JEWELLERY ACCOUNT. THE BANK HAS NOT APPROPRIATED TH E SAID SURPLUS AMOUNT FOR ITS OWN USE OR BUSINESS. IT BELONGS TO T HE ERSTWHILE DEBTORS OF THE BANK WHOSE JEWELS THE BANK HAD SOLD FOR RELEASING THE LOANS ADVANCED TO THEM. THE SAID AMOUNT HAS NOT BEE N APPROPRIATED BY THE ASSESSEE-BANK. HENCE, BY NO STRETCH OF IMAGI NATION IT CAN BE SAID THAT THE SAID AMOUNT OF RS.51,155/- REPRESENTI NG THE SURPLUS IN THE JEWELLERY ACCOUNT FORMED PART AND PARCEL OF THE INCOME OF THE ASSESSEE-BANK. IN THAT VIEW OF THE MATTER, WE UPHOL D THE VIEW TAKEN BY THE FIRST APPELLATE AUTHORITY. ACCORDINGLY, THIS APPEAL IS DISMISSED. IN THE LIGHT THEREOF, WE ALSO HOLD THAT THE ADDITIO N IN HAND IS NOT LIABLE TO BE SUSTAINED. ACCORDINGLY, WE DELE TE THE ADDITION AND ACCEPT THE GROUND. SINCE, THE ISSUE IN HAND IS IDENTICAL TO THE ONE AL READY ADJUDICATED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CAS E OF ASSESSEE FOR EARLIER AYS, RESPECTFULLY FOLLOWING THE SAME, T HE ADDITION OF ` 3,40,719/- ON ACCOUNT OF SALE OF JEWELLERY IS DELE TED. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED, ACCORDINGLY. 7. POOJA EXPENSES : THE ASSESSEE DURING THE AYS. 2003-04 & 2005-06 HAS CLAIMED EXPENDITURES OF ` 2,97,617/- & ` 3,74,700/- RESPECTIVELY TOWARDS POOJA. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 10 TOWARDS POOJA EXPENSES. THE CIT(APPEALS) UPHELD TH E FINDINGS OF THE ASSESSING OFFICER. THE AR HAS RELIED ON THE DE CISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF ARUNA SUGARS LTD., VS. CIT REPORTED AS 132 ITR 718. THE HONBLE HIGH COURT IN THE SAID CASE HAS HELD AS UNDER: 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL WAS RIGHT IN HOLDING THAT TH E EXPENSES INCURRED BY THE ASSESSEE TOWARDS POOJA AND BAKSHISH SHOULD BE ALLOWED AS BUSINESS EXPENSES OR WELFARE EXPENSES OF THE STAFF ?' THE FACTS ARE IN A SHORT COMPASS. THE ASSESSMENT YEARS UNDER CONSIDERATION ARE 1968-69 AND 1969-70. THE ASSESSEE CLAIMED RS. 1,751 AND RS. 3,250 AS MISCELL ANEOUS EXPENSES. THESE HAD BEEN CLASSIFIED AS POOJA EXPENS ES AND ALSO EXPENSES FOR BAKSHISH AND PRESENTATION. THE IT O DISALLOWED THE CLAIM AND THE SAID DISALLOWANCE WAS CONFIRMED BY THE AAC ON APPEAL. ON FURTHER APPEAL, THE INCOME -TAX APPELLATE TRIBUNAL ALLOWED THE APPEALS IN PART. IN PARA. 12 OF ITS ORDER, THE TRIBUNAL POINTED OUT THAT THESE EXPE NSES WERE INCURRED FOR THE POOJAS, ETC., PERFORMED BY THE WOR KERS AND THAT THEY SHOULD FORM PART OF THE WELFARE EXPENSES. IT ALSO POINTED OUT THAT, SIMILARLY, EXPENSES ON BAKSHISH A ND PRESENTATION WERE FOUND TO HAVE BEEN INCURRED IN RE SPECT OF THE WORKERS ALONE. HENCE, THE TRIBUNAL DID NOT FIND ANY REASON FOR THE DISALLOWANCE OF THESE CLAIMS. IT IS THIS CO NCLUSION OF THE TRIBUNAL THAT IS NOW SOUGHT TO BE QUESTIONED. I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 11 HAVING REGARD TO THE FINDING OF THE TRIBUNAL THAT T HESE EXPENSES HAVE BEEN INCURRED ONLY IN RESPECT OF THE WORKERS, IT IS CLEAR THAT THE EXPENSES HAVE BEEN RIGHTLY HELD T O BE ONES INCURRED FOR THE WELFARE OF THE WORKERS. THE CONCLU SION OF THE TRIBUNAL IS BASED ON THE PARTICULAR FACTS AND, THER EFORE, NO QUESTION OF LAW ARISES OUT OF THE ORDER OF THE TRIB UNAL. THE PETITIONS ARE, ACCORDINGLY, DISMISSED WITH COSTS. C OUNSEL'S FEE RS. 250 (RUPEES TWO HUNDRED AND FIFTY ONLY), ONE SE T. THE LD.DR HAS NOT DISPUTED THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE AFORESAID PURPOSE. IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ARUNA SUGARS LTD., (SUPRA), WE HOLD THAT POOJA EXPENSES ARE ALLOWABLE. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 8. SUNDRY EXPENSES : THE ASSESSING OFFICER IN AY.2003-04 HAS DIS-ALLOWED 10% OF THE EXPENDITURE CLAIMED BY THE ASSESSEE UNDER THE HEAD OTHER EXPENSES. THE SAID EXPENDITURE IS IN THE NATURE O F PETTY CASH EXPENDITURE LIKE TICKET CANCELLATION CHARGES, BANK CLEARING EXPENSES, PAPER CUPS AND PLATES ETC., THE LD.AR SU BMITTED THAT THE ASSESSEE HAS MORE THAN 200 BRANCHES ALL OVER IN DIA HAVING TURNOVER OF MORE THAN ` 355 CRORES. THE ASSESSEE HAS CLAIMED THE EXPENDITURE UNDER SUNDRY EXPENSES TO THE TUNE OF ` 1,60,00,727/-. AS COMPARED TO THE NUMBER OF BRANCHES AND DIVISIONS , THE I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 12 EXPENDITURE CLAIMED BY THE ASSESSEE IS QUITE REASON ABLE. THE EXPENDITURES HAVE BEEN MADE ON CERTAIN ITEMS FOR WH ICH NO VOUCHERS COULD BE MAINTAINED. THE LD.AR FURTHER SU BMITTED THAT THE ISSUE IN HAND HAS ALREADY BEEN ADJUDICATED BY T HE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.1401/MDS/2012 FOR T HE AY.2004- 05. WE FIND THAT THE ASSESSING OFFICER AND THE CIT(APPE ALS) HAS ACCEPTED THE EXPENDITURE TO THE EXTENT OF 90% AND H AS MADE DIS- ALLOWANCE OF ONLY 10%. HOWEVER, NO PLAUSIBLE REASO N HAS BEEN GIVEN TO DIS-ALLOW 10% EXPENDITURE. THE CO-ORDINA TE BENCH OF THE TRIBUNAL WHILE ADJUDICATING THE ISSUE HAS HELD AS U NDER: 26. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RIVAL CONTENTIONS RAISED BY BOTH PARTIES AND PERUSED THE RELEVANT FINDINGS OF THE LOWER AUTHORITIES. UNDISPUTEDLY, TH E EXPENDITURE IN QUESTION STANDS ACCEPTED BY THE ASSESSING OFFICE R AS WELL AS CIT(A) @ 90%. WHILE DISALLOWING @ 10%, THEY HOLD THAT POSSIBILITY OF PERSONAL EXPENDITURE IN THE INSTANT CASE COULD NOT BE RULED OUT. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE DISALLOWANCE IN QUESTION HAS BEEN MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) WITHO UT REFERRING TO ANY MATERIAL ON RECORD TO REJECT THE C LAIM OF THE ASSESSEE. ONCE THE ASSESSING OFFICER AND CIT(A) HOL D THAT 90% OF THE EXPENDITURE IS LIABLE TO BE ACCEPTED, WE ARE NOT CONVINCED BY THE REASONING ADOPTED BY THE LOWER AUT HORITIES WITHOUT SPECIFIC REJECTING ASSESSEES DETAILS PLACE D ON RECORD. THEREFORE, WE ACCEPT THE CONTENTION OF THE ASSESSEE . I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 13 FOR THE REASONS AFORESAID, THE SUNDRY EXPENSES DIS- ALLOWED BY THE AUTHORITIES BELOW ARE ALLOWED AND THIS GROUND OF AP PEAL OF THE ASSESSEE IS ACCEPTED. 9. DIS-ALLOWANCE U/S.14A : DURING THE AY.2003-04, THE ASSESSEE HAS EARNED TAX FREE INTEREST INCOME OF ` 39,46,466/- AND DIVIDEND OF ` 18,02,200/- AND IN THE AY.2005-06, THE ASSESSEE HAS EARNED TAX FREE INTERE ST INCOME OF ` 19,97,041/- AND DIVIDEND INCOME OF ` 34,36,276/-. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS EARNED T AX FREE DIVIDEND INCOME AS WELL AS THE INTEREST INCOME BUT NO EXPENDITURE TO EARN SUCH EXEMPT INCOME WAS DIS-ALLOWED U/S.14A. THE ASSESSING OFFICER DIS-ALLOWED 2% OF SUCH INCOME U/S .14A. THE CIT(APPEALS) CONFIRMED THE FINDINGS OF THE ASSESSIN G OFFICER ON THIS ISSUE. THE LD.AR OF THE ASSESSEE SUBMITTED TH AT NO EXPENDITURE WAS INCURRED BY THE ASSESSEE TO EARN TH E EXEMPT INCOME, THEREFORE NO DIS-ALLOWANCE WAS MADE U/S.14A . IT IS UN-DISPUTED FACT THAT THE ASSESSEE HAS EARNE D INTEREST AND DIVIDEND INCOME WHICH ARE EXEMPT FROM TAX. THE HONBLE MADRAS HIGH COURT IN THE CASE OF M/S.SIMPSON AND COMPANY LTD., VS. DCIT IN TAX CASE (APPEAL) NO.2621 OF 2006 DECIDED ON 15- 10-2012 HAS HELD THAT SUCH AN ADDITION OF 2% IN CAS ES WHERE NO I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 14 DIS-ALLOWANCE U/S.14A HAS BEEN MADE IS REASONABLE. THE TRIBUNAL HAS BEEN TAKING A CONSISTENT VIEW OF DIS-ALLOWING 2 % OF INTEREST FREE INCOME U/S.14A OF THE ACT. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(APPEALS) IN UPHOLDING 2% DIS- ALLOWANCE U/S.14A. THIS GROUND OF APPEAL OF THE AS SESSEE IS REJECTED. 10. INTEREST TO SIDBI AND NABARD : THE ASSESSEE HAS BEEN RECEIVING FUNDS FROM SIDBI AN D NABARD ON RE-FINANCE BASIS. THE ASSESSEE IS PAYING HALF Y EARLY INTEREST TO THESE INSTITUTIONS. THE DUE DATE FOR PAYMENT OF IN TEREST IS 1 ST NOVEMBER AND 1 ST MAY. THE ASSESSEE HAS CLAIMED INTEREST PAYABLE TO SIDBI ` 20,41,279/- AND INTEREST PAYABLE TO NABARD ` 7,72,705/- IN THE PERIOD RELEVANT TO THE AY.2003-04 . THE ASSESSEE IS ALLEGEDLY MAINTAINING ACCOUNTS ON MERCH ANTILE BASIS AND CLAIMS THE INTEREST LIABILITY RELATING TO THE P ERIOD RELEVANT TO THE AY.2003-04. THE ASSESSING OFFICER DIS-ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE AMOUNT PAYABLE FOR THE NEXT YEAR CANNOT BE REDUCED FROM THE TOTAL INCOME OF THIS YEA R. THE CIT(APPEALS) UPHELD THE FINDINGS OF THE ASSESSING O FFICER. WE FIND THAT IN ITA NO.1401, RELEVANT TO THE AY.20 04-05, THE ASSESSEE HAD RAISED A CONTENTION THAT IT WOULD HAVE NO OBJECTION I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 15 EVEN IF THE INTEREST AMOUNT PAID BY IT IS ALLOWED I N THE YEAR OF ACTUAL PAYMENT. THIS CONTENTION OF THE ASSESSEE WA S NOT OPPOSED BY THE REVENUE. IN VIEW OF THE STATEMENT MADE BY T HE ASSESSEE, THE TRIBUNAL HELD THAT THE PAYMENT OF INTEREST PAYA BLE TO SIDBI AND NABARD ON 1 ST MAY WOULD BE ALLOWED IN THE YEAR OF ACTUAL PAYMENT. FOR THE AY UNDER CONSIDERATION, THIS GROU ND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ON SAME TERMS. THE ASSESSING OFFICER IS DIRECTED TO DETERMINE THE EXTENT OF ACTU AL INTEREST PAID FROM THE TOTAL INTEREST IN DISPUTE DURING THE RELEV ANT AY AND ALLOW THE SAME. 11. RE-OPENING OF ASSESSMENT U/S.147 (ITA NO.939/M DS/2013) : THE ASSESSEE HAD FILED ITS RETURN OF INCOME FOR THE AY.2003-04 ON 28-11-2003 DISCLOSING ITS INCOME AS ` 47,58,36,490/-. THE ASSESSMENT ORDER U/S.143(3) WAS PASSED IN THE CASE OF ASSESSEE ON 13-02-2006. SUBSEQUENTLY, NOTICE U/S.148 WAS IS SUED ON 18- 07-2008, FOR NON-INCLUSION OF INTEREST RECEIVED FRO M ECGC IN TERMS OF SECTION 43D OF THE ACT AND INTEREST RECEIVED ON ACCRUAL BASIS ON REDUCTION OF NPAS/LESSER PAYMENT OF TAX U/S.41(1) I N RESPECT OF NPAS RELEASED. THE LD.AR SUBMITTED THAT RE-ASSESSM ENT PROCEEDINGS WERE INITIATED BEYOND THE PERIOD OF FOU R YEARS. THERE IS NO ALLEGATION THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 16 TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECE SSARY FOR ASSESSMENT. THEREFORE, THE RE-OPENING PROCEEDINGS ARE BAD IN LAW. THE LD.AR FURTHER CONTENDED THAT NO ADDITION HAS BEEN MADE BY THE ASSESSING OFFICER IN RESPECT OF THE ISSUES O N WHICH RE- ASSESSMENT PROCEEDINGS WERE INITIATED. THE AR POIN TED OUT THAT THE CIT(APPEALS) WITHOUT DECIDING THE ISSUE OF RE-O PENING HAS PROCEEDED TO ADJUDICATE THE ISSUES ON MERIT. ON THE OTHER HAND, THE LD.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES. IT IS AN UN-DIS PUTED FACT THAT RE- ASSESSMENT PROCEEDINGS HAVE BEEN INITIATED AFTER TH E EXPIRY OF FOUR YEARS. IT IS ALSO EVIDENT FROM RECORDS THAT I N THE RE- ASSESSMENT PROCEEDINGS, ADDITIONS HAVE BEEN MADE ON THE GROUNDS OTHER THAN THE REASONS FOR INITIATING PROCE EDINGS U/S.148 OF THE ACT. IN THE PRESENT CASE, WE FIND THAT, TH E RE-ASSESSMENT PROCEEDINGS WERE INITIATED FOR THE REASONS THAT THE INCOME HAS ESCAPED ASSESSMENT ON ACCOUNT OF NON-INCLUSION OF I NTEREST ON AMOUNTS RECEIVED FROM ECGC U/S.43B OF THE ACT AND N ON-INCLUSION OF INTEREST RECEIVED ON ACCRUAL BASIS OF NON-PERFOR MING ASSETS. THE ASSESSING OFFICER HAS MADE ADDITIONS ALTOGETHER UNDER I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 17 DIFFERENT HEADS WITHOUT MAKING ANY ADDITION ON THE ISSUES, ON THE BASIS OF WHICH RE-ASSESSMENT PROCEEDINGS WERE INITI ATED. FURTHER, THE PROVISO TO SECTION 147 EXPRESSLY STATE S THAT WHERE ASSESSMENT IS MADE U/S.143(3), NO ACTION SHAL L BE TAKEN UNDER THIS SECTION AFTER THE EXPIRY OF FOUR YEARS F ROM THE END OF THE RELEVANT AY, UNLESS ANY INCOME CHARGEABLE TO TAX HA S ESCAPED ASSESSMENT BY REASONS OF THE FAILURE ON THE PART OF THE ASSESSEE IN HIS RETURN OR RESPONSE TO NOTICE U/S.142(1) OR T O DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSE SSMENT. IN THE PRESENT CASE, WE DO NOT FIND THAT THE REVENUE HAS A LLEGED ANYWHERE THAT THE ASSESSEE HAS NOT DISCLOSED FULLY AND TRULY MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT. THE H ONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD., REPORTED AS 286 ITR 674 HAS HELD AS UNDER: THE PRE-CONDITION FOR THE EXERCISE OF THE POWER UN DER SECTION 147 OF THE INCOME-TAX ACT, 1961, IN CASES WHERE POW ER IS EXERCISED WITHIN A PERIOD OF FOUR YEARS FROM THE EN D OF THE RELEVANT ASSESSMENT YEAR IS THE BELIEF REASONABLY E NTERTAINED BY THE ASSESSING OFFICER THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THAT ASSESSMENT YEAR. HO WEVER, WHEN THE POWER IS INVOKED AFTER THE EXPIRY OF THE P ERIOD OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR, A FURTHE R PRE- CONDITION FOR SUCH EXERCISE IS IMPOSED BY THE PROVI SO NAMELY, THAT THERE HAS BEEN A FAILURE ON THE PART OF THE AS SESSEE TO I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 18 MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SECTION 142 OR SECTION 148 OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MAT ERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YE AR. UNLESS THE CONDITION IN THE PROVISO IS SATISFIED, T HE ASSESSING OFFICER DOES NOT ACQUIRE JURISDICTION TO INITIATE A NY PROCEEDING UNDER SECTION 147 OF THE ACT AFTER THE EXPIRY OF FO UR YEARS FROM THE END OF THE ASSESSMENT YEAR. IN VIEW OF THE FACTS OF THE CASE AND THE LAW LAID D OWN BY THE HONBLE JURISDICTIONAL HIGH COURT, WE ARE OF THE OP INION THAT THE RE- ASSESSMENT PROCEEDINGS INITIATED AGAINST THE ASSESS EE ARE BAD IN LAW AND ARE THUS LIABLE TO BE SET ASIDE. THE APPEA L OF THE ASSESSEE IS ALLOWED ON THE ISSUE OF RE-OPENING AND THE CROSS- APPEAL OF THE REVENUE I.E., ITA NO.1262/MDS/2013 IS DISMISSED ACCORDINGLY. 12. ITA NO.1228/MDS/2013 (AY.2005-06): THE REVENUE HAS FILED PRESENT APPEAL IMPUGNING THE ORDER OF CIT(APPEALS) ON THE FOLLOWING GROUNDS: THE ORDER OF THE CIT(A) IS ARBITRARY TO LAW AND FAC TS AND RELIED UPON CASES WHICH ARE NOT APPLICABLE TO THE FACTS OF THE CASE. I. THE CIT(A) FAILED TO APPRECIATE THE FACTS THAT A S PER SECTION 36(1)(VIIA), IF THE ASSESSEE IS EXCISING THE OPTION OF CLAIMING DEDUCTION IN RESPECT OF ANY PROVISION MADE BY THE A SSESSEE FOR ANY ASSETS CLASSIFIED BY THE RBI HAS DOUBTFUL O R LOSS ASSETS I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 19 AS PER FIRST PROVISO TO SECTION 36(1)(VIIA), HE IS NOT ENTITLED FOR DEDUCTION OF 10% OF AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE ASSESSEE. II. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE S OFTWARE IS HAVING ENDURING BENEFIT AND EXPENSES ON SOFTWARE SH OULD BE TREATED AS CAPITAL EXPENDITURE. III. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE H IGHER RATE OF DEPRECIATION IS NOT ALLOWABLE FOR THE VEHICLES OF T HE ASSESSEE AS HE IS NOT LETTING THEM FOR HIRE BUT ACTUALLY LEA SING IT OUT. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE A SSESSEE IS CLAIMING THE DEBTS WRITTEN OFF AS URBAN DEBTS ONLY BEFORE CIT(A) AND NO REMAND REPORT WAS CALLED FOR AND RULE 46(1) WAS VIOLATED AND ALSO FAILED TO APPRECIATE THE FACT THA T THE LIST OF DEBTS WRITTEN OFF FILED BY THE ASSESSEE CONTAINS SO ME RURAL DEBTS ALSO. IV. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE A SSESSEE IS CLAIMING THE AMOUNT TO PAID TO M/S.KARUR ROTARY CLU B AS BUSINESS PROMOTION EXPENDITURE ONLY BEFORE CIT(A) A ND NO REMAND REPORT WAS CALLED FOR AND RULE 46(1) WAS VIO LATED. V. THE CIT(A) FAILED TO APPRECIATE THE FACT THAT THE EXPENSE OF SUBSCRIPTION PAID TO SEBI IS IN CONNECTION WITH PUR CHASE OF SALE OF INVESTMENTS AND SHOULD BE TREATED AS CAPITA L EXPENDITURE. THE LD.AR OF THE ASSESSEE HAS SUBMITTED THAT THE AS SESSING OFFICER FOR THE AY.2005-06 HAS NOT MADE ANY ADDITIO N/DIS- ALLOWANCE UNDER ANY OF THE ABOVE HEADS IN HIS ASSES SMENT ORDER. THUS, THE ASSESSEE HAD NOT RAISED ANY SUCH GROUNDS IN ITS APPEAL BEFORE CIT(APPEALS). I.T.A.NOS. 938, 939 940, 1262 & 1228/MDS/13 20 WE FIND THAT THE GROUNDS RAISED BY THE REVENUE IN THE PRESENT APPEAL WERE NOT IN APPEAL BEFORE CIT(APPEAL S). EVEN THE CIT(APPEALS) HAS NOT GIVEN ITS FINDING ON THE SAID ISSUES FOR THE AY.2005-06. THEREFORE, THE PRESENT APPEAL OF THE R EVENUE IS LIABLE TO BE DISMISSED. IN THE RESULT, ITA NOS.938 & 940/MDS/2013 ARE PART LY ALLOWED. ITA NO.939/MDS/2013 IS ALLOWED AND ITA NO S.1262 & 1228/MDS/2013 ARE DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 30 TH APRIL, 2014 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VIKAS AWAS THY) ( . . . ) ( ! ) / VICE PRESIDENT / JUDICIAL MEMBER /CHENNAI, /DATED: 30 TH APRIL, 2014 TNMM ! '#$ %$' /COPY TO: 1. &' APPELLANT 2. !(&' /RESPONDENT 3. ) *' () /CIT(A) 4. ) *' /CIT 5. $-. ! ' / /DR 6. .0 1 /GF