Bank of Maharashtra, Pune V. Deputy Commissioner of Income-tax,

ITA 1370/PUN/2014

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4089 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-07-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 01-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANDEEP GARG; DR SUBHASH CHANDRA
• Keywords: Capital asset; Business income; Depreciation; Opportunity of being heard; Earning of tax free income; Question of law; Bad and doubtful debts; Rule 8D
• Section: 14A; 115JB; 40(a)(ia); 250; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 1370 /P U N/201 4 / ASSESSMENT YEAR : 20 1 0 - 11 BANK OF MAHARASHTRA, LOKMANGAL, 1501, SHIVAJINAGAR, PUNE 411005 PAN : AACCB0774B ....... / APPELLANT / V/S. DEPUTY COMMISSIONER OF INCOME TAX, RANGE - 1, PUNE / RESPONDENT ASSESSEE BY : S HRI ANANTHAN WITH SHRI MUDIT AGARWAL (CHIEF MANAGER TAXATION) REVENUE BY : DR. SUBHASH CHANDRA & SHRI SANDEEP GARG / DATE OF HEARING : 17 - 12 - 2018 / DATE OF PRONOUNCEMENT : 11 - 0 3 - 201 9 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMI SSIONER OF INCOME TAX (APPEALS) - I, PUNE DATED 28 - 03 - 2014 FOR THE ASSESSMENT YEAR 2010 - 11. 2 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 2. THE ASSESSEE HAS RAISED MULTIPLE GROUNDS IN APPEAL. THEREFORE, THE GROUNDS ASSAILING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ARE DECIDED IN SERIATIM . 3. THE FIRST GROUND OF APPEAL IS : 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISALLOWANCE OF RS.206,26,67 ,664/ - U/S 36(1)(VII) OF THE I. T. ACT 1961, BEING BAD IN LAW, ARBITRARY, PERVERSE AND LEGALLY UNSUSTAINABLE. THE SAID CLAIM MAY PLEASE BE ALLOWED TO THE APPELLANT. 1.1 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE APPELLAN T BANK HAD NOT WRITTEN OFF THE DEBTS . 1.2 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PRUDENTIAL WRITE OFF IS NOT A WRITE OFF. 1.3 THE LEARNED CIT(A) ERRED IN HOLDING THAT FOR THE PURPOSE OF WRITE OFF, THE AMOUNT OF DOUBTFUL DEBTS HAS TO BE DEBITED TO PROFIT & LOSS ACCOUNT AND NOT TO PROVISION ACCOUNT. 1.4 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE LEARNED ASSESSING OFFICER MADE THE ADDITION ON SURMISES & CONJUNCTURES. 1.5 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CITA) ERRED IN NOT APPRECIATING THE FACT THAT THE WRITE OFF NEED NOT BE EFFECTED ONLY BY WAY OF DEBIT TO PROFIT & LOSS ACCOUNT. 3 .1 SHRI ANANTHAN APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A NATIONALIZED BANK. THE ASSESSEE BANK HAD WRITTEN OFF BAD DEBTS IN RESPECT OF NON - RURAL ADVANCES AND CLAIMED DEDUCTION OF RS.206,26,67,664/ - U/S. 36(1)(VII) O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). THE CLAIM WAS MADE BY THE ASSESSEE IN LINE WITH THE DECISION OF HONBLE SUPREME COU RT OF INDIA IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. COMMISSIONER OF INCOME TAX REPORTED AS 206 TAXMAN 182. THE DEBTS WERE WRITTEN OFF AT B RANCH LEVEL AND AT THE LEVEL OF HEAD OFFICE. THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS HAS ERRED IN 3 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 C OMING TO THE CONCLUSION THAT THE ASSESSEE HAS NOT ACTUALLY WRITTEN OFF IRRECOVERABLE. HE FURTHER ERRED IN OBSERVING THAT BAD DEBTS WRITTEN OFF WERE DEBITED TO P & L ACCOUNT. THE LD. AR POINTED THAT THE ASSESSEE HAS CREATED PROVISION FOR BAD AND DOUBTFUL DEBTS BY DEBITING P & L ACCOUNT. THE LD. AR CONTENDED THAT SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1505/PN/2008 FOR ASSESSMENT YEAR 2005 - 06 AND ITA NOS. 1135 TO 1138/PN/2013 FOR ASSESSMENT YEARS 2006 - 07 TO 2009 - 10. THE TRIBUNAL VIDE ORDER DATED 17 - 09 - 2014 RESTORED THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR VERIFICATION. THE LD. AR SUBMITTED THAT GROUND NO. 1 OF APPEAL MAY BE ALLOWED IN THE SAME TERMS. 3 .2 DR. SUBHASH CHANDRA REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER. HOWEVER, THE LD. DR FAIRLY ADMITTED THAT THE ISSUE RAISED IN GROUND NO. 1 BY THE ASSESSEE WAS SUBJECT MATTER OF APPEAL BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEARS 2005 - 06 TO 2009 - 10. 3 .3 BOTH SIDES HEARD . ORDERS OF THE AUTHORITIES BELOW PERUSED. IN GROUND NO. 1 OF APPEAL THE ASSESSEE HAS ASSAILED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN DISALLOWING ASSESSEES CLAIM U/S. 36(1)(VII) OF THE ACT ON ACCOUNT OF WRITE OFF OF DEBTS BY NON RURAL BRANCHES OF ASSESSEE B ANK. WE OBSERVE THAT IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1505/PN/2008 AND IN ITA NOS. 1135 TO 1138/PN/2013 (SUPRA). THE RELEVANT EXTRACT OF THE FINDINGS OF CO - ORDINATE BENCH ON THE ISSUE ARE REPRODUCED HERE - IN - UNDER : 28. BY WAY OF GROUND OF APPEAL NO.3, ASSESSEE HAS RAISED A CLAIM OF DEDUCTION OF RS.68,06,15,000/ - U/S 36(1)(VII) OF THE ACT ON ACCOUNT OF WRITE OFF ON DEBTS BY THE NON - RURAL BRANCHES OF THE ASSESSEE BAN K. THE LEARNED COUNSEL FOR THE ASSESSEE EXPLAINED THAT THE SAID CLAIM WAS RAISED BY WAY OF AN ADDITIONAL GROUND OF APPEAL BEFORE THE CIT(A) VIDE LETTER DATED 26.08.2008 BUT THE SAME HAS NOT BEEN INADVERTENTLY CONSIDERED BY THE 4 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 CIT(A). IN THIS CONNECTION, A REFERENCE HAS BEEN INVITED TO A COPY OF THE COMMUNICATION ADDRESSED TO THE CIT(A), WHICH IS PLACED IN THE PAPER BOOK. BEFORE US, IT IS SOUGHT TO BE CANVASSED THAT THE SAID CLAIM IS COVERED BY THE JUDGEMENT OF THE HONBLE HIGH COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. CIT, (2012) 343 ITR 270 (SC) AND IN THE CASE OF ASSESSEE FOR ASSESSMENT YEARS 2002 - 03, 2003 - 04 AND 2004 - 05 THE TRIBUNAL VIDE ITS ORDER DATED 30.05.2014 (SUPRA) ADMITTED SUCH AN ADDITIONAL GROUND BUT REMITTED THE SAME BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION IN THE LIGHT OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA). THE AFORESAID FACTUAL MATRIX HAS NOT BEEN DISPUTED BY THE LEARNED CIT - DR APPEARING FOR THE REVENUE. AS A RESULT, FOLLOWING THE PRECEDENT IN THE ASSESSEES OWN CASE, WE DEEM IT FIT AND PROPER TO DIRECT THE ASSESSING OFFICER TO CONSIDER THE SAID CLAIM OF THE ASSESSEE IN THE LIGHT OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA). NEE DLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY TO PUT - FORTH ITS CLAIM AND ONLY THEREAFTER HE SHALL PROCEED TO ADJUDICATE THE CLAIM OF THE ASSESSEE AS PER LAW. THUS, ON THIS GROUND ASSESSEE SUCCEEDS FOR STATISTICAL PUR POSES. 3 .4 SINCE, THE ISSUE IN PRESENT APPEAL IS IDENTICAL TO THE ONE ALREADY CONSIDERED BY THE CO - ORDINATE BENCH IN ASSESSEES OWN CASE AND THERE HAS BEEN NO CHANGE IN THE FACTS, WE DEEM IT APPROPRIATE TO RESTORE THE ISSUE TO ASSESSING OFFICER FOR RE - A DJUDICATION WITH SIMILAR DIRECTIONS. THE GROUND NO. 1 OF THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE IN THE SAME TERMS. 4 . THE GROUND NO. 2 OF THE APPEAL IS : 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CITA) HAS ERRED IN RESTRICTING THE CLAIM MADE BY THE APPELLANT U/S 36[1][VIIA] OF THE I. T. ACT 1961 TO RS.45,14,84,690/ - AS AGAINST THE CLAIM OF RS. 416,44,00,000/ - MADE BY THE APPELLANT. 2.1 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE DEDUCTION SHOULD BE RESTRICTED TO THE PROVISION MADE IN THE BOOKS ACCOUNTS FOR RURAL ADVANCES. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THE ENTIRE PROVISION MADE HAS TO BE CONSIDERED AND NOT THE PROVISION RELATING TO RURAL ADVANCES ONLY BE CONSIDERED. 2.3 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE HON'BLE SUPREME COURT DID NOT LAY DOWN THE LAW THAT THE 5 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 DEDUCTION SHOULD BE ALLOWED BY ONLY CONSIDERING THE PROVISION FOR RURAL ADVANCES IN THE BOOKS. 2.4 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE DEDUCTION SHOULD BE RESTRICTED TO THE PROVISION MADE IN THE BOOKS OF ACCOUNTS FOR RURAL ADVANCES. 4 .1 THE LD. AR SUBMITTED THAT DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE BAN K MADE PROVISION FOR BAD AND DOUBTFUL DEBTS TO THE TUNE OF RS.250,61,57,000/ - . THE ASSESSEE CLAIMED AN AMOUNT OF RS.416,44,00,000/ - U/S. 36(1)(VIIA) OF THE ACT WHICH WAS CALCULATED AS PER THE FORMULA CONTAINED IN SECTION. HOWEVER, THE AUTHORITIES BELOW R ESTRICTED THE ADDITION TO THE EXTENT OF PROVISION MADE FOR RURAL BRANCHES. IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1505/PN/2008 AND IN ITA NOS. 1135 TO 1138/PN/2013 (SUPRA). THE TRIBUNAL ALLOWED ASSESSEES CLAIM TO THE EXTENT OF TOTAL PROVISION MADE AND NOT ONLY RESTRICTING TO THE PROVISION FOR RURAL BRANCHES ALONE. 4 .2 THE LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). HOWEVER, THE LD. DR ADMITTED THAT THE ISSUE SIMILAR TO T HE ONE RAISED IN GROUND NO. 2 WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS. 4 .3 BOTH SIDES HEARD. IN GROUND NO. 2 OF APPEAL THE ASSESSEE HAS ASSAILED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN RESTRIC TING THE DEDUCTION U/S. 36(1)(VIIA) TO THE EXTENT OF PROVISION MADE FOR RURAL BRANCHES ALONE. THE ASSESSEE IS CLAIMING DEDUCTION TO THE EXTENT OF ENTIRE PROVISION MADE. WE FIND THAT THIS ISSUE WAS CONSIDERED BY THE CO - ORDINATE BENCH IN ASSESSEES OWN CAS E FOR THE ASSESSMENT YEARS 2005 - 06 TO 6 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 2009 - 10 IN ITA NO. 1505/PN/2008 AND IN ITA NOS. 1135 TO 1138/PN/2013 (SUPRA). THE TRIBUNAL DECIDED THE ISSUE AS UNDER : 49. IN THIS REGARD, THE PLEA OF THE ASSESSEE IS THAT DEDUCTION U/S 36(1)(VIIA) OF THE ACT IS AL LOWABLE TO THE EXTENT IT WAS COMPUTABLE IN TERMS OF SECTION 36(1)(VIIA) OF THE ACT AND CANNOT BE RESTRICTED TO THE AMOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS ACTUALLY MADE IN THE ACCOUNT BOOKS. ACCORDINGLY, ASSESSEE HAS RAISED THE CLAIM TO THE EXTENT O F RS.172,49,54,970/ - , WHICH WAS RESTRICTED BY THE CIT(A) TO RS.83,00,00,000/ - REPRESENTING THE AMOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS ACTUALLY MADE IN THE ACCOUNT BOOKS. THIS ASPECT OF THE CONTROVERSY HAS ALREADY BEEN ADJUDICATED BY US IN ASSESSEE S APPEAL FOR ASSESSMENT YEAR 2005 - 06, WHEREIN IT HAS BEEN HELD THAT THE DEDUCTION U/S 36(1)(VIIA) OF THE ACT IS ADMISSIBLE ONLY TO THE EXTENT OF PROVISION FOR BAD AND DOUBTFUL DEBTS ACTUALLY MADE IN THE BOOKS OF ACCOUNT. THE CIT(A) HAS ALREADY ALLOWED RS.8 3,00,00,000/ - FOLLOWING THE AFORESAID PROPOSITION WHICH IS HEREBY AFFIRMED, AND THE BALANCE OF ASSESSEES CLAIM IS INADMISSIBLE AS THE CORRESPONDING PROVISION HAS NOT BEEN MADE IN THE BOOKS OF ACCOUNT. THUS, ASSESSEES GROUND OF APPEAL NO.11 AND GROUND OF APPEAL NOS.2 TO 6 OF THE REVENUE ARE DISMISSED. 4 .4 WE FIND THAT IN THE EARLIER ASSESSMENT YEARS, THE COMMISSIONER OF INCOME TAX (APPEALS) HAD ALLOWED THE DEDUCTION U/S. 36(1)(VIIA) TO THE EXTENT OF PROVISION MADE IN THE BOOKS OF ACCOUNT FOR BAD AND DOUBTFUL DEBTS U/S. 36(1)(VIIA) OF THE ACT. AGAINST WHICH THE DEPARTMENT WAS IN APPEAL. THE TRIBUNAL DISMISSED THE GROUND RAISED BY THE DEPARTMENT AND UPHELD THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). BOTH THE SIDES ARE UNANIMOUSLY IN STATING THAT THE ISSUE IN PRESENT APPEAL IS IDENTICAL TO THE ONE ALREADY ADJUDICATED BY THE TRIBUNAL IN EARLIER ASSESSMENT YEARS. THUS, THE DEDUCTION U/S. 36(1)(VIIA) IS ALLOWED TO THE EXTENT OF PROVISION MADE , IN THE SAME TE RMS. CONSEQUENTLY, GROUND NO. 2 OF THE APPEAL IS PARTLY ALLOWED. 5 . THE GROUND NO. 3 OF THE APPEAL IS : 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF THE CLAIM OF LOSS OF RS. 109,18,52.937/ - AS PER SECURITIES TRADING ACCOUNT . 7 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 3.1 THE LEARNED CIT (A) ERRED IN HOLDING THAT THE HTM INVESTMENTS ARE NOT STOCK IN TRADE. 3.2 THE LEARNED CIT(A) ERRED IN RELYING ON THE RESERVE BANK OF INDIA GUIDELINES IN THIS REGARD AND TREATMENT ACCORDED BY THE APPELLANT BANK IN THE BOOKS OF ACCOUNT AS PER THE GUIDELINES. 5 .1 THE LD. AR SUBMITTED THAT THE ASSESSEE TREATS ALL THE INVESTMENTS AS STOCK IN TRADE FOR THE PURPOSE OF INCOME TAX. IN THE R ETURN OF INCOME THE ASSESSEE HAS CLAIMED LOSS OF RS.62,50,00,000/ - ON THE VALUATION OF SECURITIES HELD AS STOCK. D URING ASSESSMENT PROCEEDINGS, IT WAS POINTED THAT WHILE ARRIVING AT A TRADING LOSS OF RS.109,18,52,937/ - THE CLOSING STOCK WAS VALUED AT COST OR MARKET VALUE, WHICHEVER IS LOWER. WHILE MAKING THE CLAIM , THE DEPRECIATION ON INVESTMENT S , AMORTIZATION OF HTM SECURITIES AS PER BOOKS WAS ADDED BACK IN THE RETURN OF INCOME. ON THE SAME BASIS THE PROFIT ON SALE OF SECURITIES AS PER BOOKS RS.204,27,88,848/ - WAS ALSO REDUCED FROM THE TAXABLE INCOME IN THE RETURN OF INCOME. THIS WAS DONE TO NULLIFY THE EFFECT OF THE TREATMENT GIVEN TO THE SECURITIES IN THE BOOKS AND TO OFFER TRADING RESULTS AS PER THE PROVISIONS OF THE INCOME TAX. IN ASSESS MENT PROCEEDINGS, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF ASSESSEE AND HELD THE SECURITIES CLASSIFIED UNDER HTM CATEGORY AS CAPITAL ASSETS. THE ASSESSING OFFICER FURTHER HELD THAT THE VALUATION OF HFT AND AFS SECURITIES ARE TO BE CONSIDERED AS PER T HE CBDT INSTRUCTION NO. 17/2008 DATED 26 - 11 - 2008 AND AS SUCH NET DEPRECIATION HAS TO BE ALLOWED. THUS, THE ASSESSING OFFICER DISALLOWED NET DEPRECATION OF RS.3,80,88,268/ - AND FURTHER HELD THAT PROFIT ON SALE OF INVESTMENTS AS PER BOOKS RS.204,27,88,848/ - SHOULD BE BROUGHT TO TAX. THE LD. AR POINTED THAT IDENTICAL DISALLOWANCE ON SECURITIES WAS MADE IN THE EARLIER ASSESSMENT YEARS . THE MATTER TRAVELLED UP TO TRIBUNAL IN ITA NO. 1505/PN/2008 AND IN ITA NOS. 1135 TO 1138/PN/2013 (SUPRA). THE 8 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 TRIBUNAL DECI DED THE ISSUE IN FAVOUR OF THE ASSESSEE. THEREAFTER, THE DEPARTMENT CHALLENGED THE SAME BEFORE THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO. 920 OF 2015 . THE HONBLE HIGH COURT VIDE ORDER DATED 27 - 02 - 2018 UPHELD THE FINDINGS OF TRIBUNAL. 5 . 2 THE LD. DR VEHEMENTLY OPPOSED THE GROUND RAISED BY ASSESSEE AND PRAYED FOR CONFIRMING THE FINDINGS OF ASSESSING OFFICER ON THIS ISSUE. HOWEVER, THE LD. DR FAIRLY ADMITTED THAT THE ISSUE RAISED IN GROUND NO. 3 WAS SUBJECT MATTER OF APPEAL BEFORE THE TRIB UNAL IN EARLIER ASSESSMENT YEARS. 5 .3 BOTH SIDES HEARD ON THE ISSUE OF DISALLOWANCE OF CLAIM OF LOSS IN RESPECT OF SECURITIES HELD UNDER HTM CATEGORY. BOTH SIDES ARE UNANIMOUS IN STATING THAT THE PRESENT ISSUE WAS SUBJECT MATTER OF APPEAL BEFORE THE TR IBUNAL IN ITA NO. 1505/PN/2008 AND IN ITA NOS. 1135 TO 1138/PN/2013 (SUPRA). THE CO - ORDINATE BENCH ADJUDICATED THE ISSUE BY OBSERVING AS UNDER : 20. IN THE BACKGROUND OF THE AFORESAID LEGAL POSITION, A PREMISE WHICH CAN BE DRAWN IS THAT FOR THE PURPOSES OF VALUATION OF THE CLOSING STOCK IT IS PERMISSIBLE FOR THE ASSESSEE TO VALUE IT AT THE COST OR MARKET VALUE, WHICHEVER IS LOWER. IN - FACT, THE HONBLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM VS. CIT, (1953) 24 ITR 481 (SC) HELD THAT THE ASSESSEE IS ENTITLED TO VALUE THE CLOSING STOCK EITHER AT COST PRICE OR MARKET VALUE, WHICHEVER IS LOWER. IN THE PRESENT CASE, REVENUE DOES NOT DISPUTE THAT THE METHOD OF THE VALUATION ADOPTED BY THE ASSESSEE, NAMELY, VALUING THE STOCK EITHER AT COST PRICE OR MARKET VALUE WHICHEVER IS LOWER, IS A GENERALLY ACCEPTED METHOD OF VALUATION. NO DOUBT, THERE ARE NO STATUTORY RULES FOR THE VALUATION OF CLOSING STOCK BUT THE ORDINARILY ACCEPTED METHOD OF COMMERCIAL ACCOUNTING SUPPORT THE VALUATION OF CLOSING STOCK BASED ON THE LOWER OF THE COST OR MARKET VALUE. THEREFORE, THE DEPARTURE FROM THE ERSTWHILE METHOD OF VALUATION OF CLOSING STOCK BY THE ASSESSEE IS QUITE APPROPRIATE, AND IN FACT IS LINE WITH A METHOD APPROVED BY THE HONBLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPA TRAM (SUPRA). IN - FACT, THE ONLY BASIS FOR THE REVENUE TO CHALLENGE THE BONA - FIDES OF THE CHANGE IS THAT THE CHANGE HAS BEEN EFFECTED ONLY FOR THE PURPOSE OF ASSESSMENT OF TAXABLE INCOME AND IS NOT INCORPORATED IN THE ACCOUNT BOOKS. THE AFORESAID PLEA OF TH E REVENUE, IN OUR VIEW, IS QUITE 9 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 MISPLACED BECAUSE IT IS WELL UNDERSTOOD THAT ASSESSEE IS A BANKING COMPANY AND IS STATUTORILY MANDATED TO MAINTAIN ITS BOOKS OF ACCOUNT IN TERMS OF THE RBI GUIDELINES. ON THE OTHER HAND, THE ASSESSMENT OF TAXABLE INCOME HAS TO BE BASED ON THE PRINCIPLE OF LAW AND CANNOT BE GUIDED MERELY BY THE TREATMENT METED OUT TO A PARTICULAR TRANSACTION IN THE ACCOUNT BOOKS. IN - FACT, THIS ASPECT OF THE CONTROVERSY HAS ALSO BEEN ANSWERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CORPORATION BANK LTD. (SUPRA) BY RELYING ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. VS. CIT, (1971) 82 ITR 363 (SC). THEREFORE, WE DO NOT FIND ANY MERITS IN THE ABOVE OBJECTION OF THE REVENUE. MOREOVER, THE PL EA OF THE LEARNED CIT - DR THAT NATURE OF HTM SECURITIES IS DISTINCT FROM AFS AND HFT SECURITIES AND THUS HTM SECURITIES ARE NOT STOCK - IN - TRADE, IS QUITE WRONG. IT CANNOT BE DENIED THAT THE SECURITIES HELD BY THE BANK ARE STOCK - IN - TRADE. ANOTHER PLEA OF THE LEARNED CIT - DR WAS TO THE EFFECT THAT THE INVESTMENTS IN THE HTM CATEGORY ARE NOT TRADEABLE AND THE ASSESSEE MAY NOT BE SELLING THE HTM SECURITIES PRIOR TO THEIR MATURITY. THEREFORE, AS PER THE LEARNED CIT - DR, SUCH SECURITIES COULD NOT BE CONSIDERED AS ST OCK - IN - TRADE. THE AFORESAID PLEA OF THE REVENUE HAS BEEN ASSAILED BY THE LEARNED COUNSEL FOR THE ASSESSEE - BANK. HE HAS FURNISHED A STATEMENT SHOWING NET PROFIT ON SALE OF HTM SECURITIES AS PER THE BALANCE SHEET FOR THE VARIOUS ASSESSMENT YEARS, VIZ. 2006 - 07 TO 2009 - 10. ON THIS BASIS, IT IS SOUGHT TO BE CONTENDED THAT THE HTM CATEGORY SECURITIES ARE ALSO VIEWED AS STOCK - IN - TRADE BY THE ASSESSEE - BANK. IN OUR OPINION, THE PLEA OF THE LEARNED CIT - DR IS QUITE UNTENABLE PRIMARILY BECAUSE THE VERY NATURE OF BAN KING ACTIVITIES ALLOWED AS PER THE BANKING REGULATION ACT, 1949 ARE IN THE SPHERE OF BUSINESS / TRADE ACTIVITIES; AND, ACCORDINGLY THE RECOGNITION OF INVESTMENTS IN HTM CATEGORY AS STOCK - IN - TRADE IS NOT DEPENDENT ON THE FREQUENCY OF THEIR SALE / PURCHASE CARRIED OUT BY THE ASSESSEE - BANK. 21. IN VIEW OF THE AFORESAID DISCUSSION, WE, THEREFORE, CONCLUDE BY HOLDING THAT IN THE PRESENT CASE THE METHOD OF VALUATION OF THE CLOSING STOCK ADOPTED BY THE ASSESSEE I.E. COST OR MARKET VALUE, WHICHEVER IS LOWER IS FAIR AND PROPER AND THE INCOME - TAX AUTHORITIES HAVE ERRED IN NOT ACCEPTING THE SAME. THE ORDERS OF THE AUTHORITIES BELOW ON THIS ASPECT ARE HEREBY REVERSED. 5 .4 THE LD. AR HAS FURTHER DRAWN OUR ATTENTION THAT THE DECISION OF TRIBUNAL HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO. 920 OF 2015 (SUPRA). THE COPY OF THE HONBLE HIGH COURT ORDER DATED 27 - 02 - 2018 WAS FURNISHED BEFORE US. A PERUSAL OF SAME SHOWS THAT ONE OF THE QUESTION OF LAW BEFORE THE HONBLE HIGH COURT FOR CO NSIDERATION WAS : (I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITION OF RS.359,24,58,508/ - IN ALLOWING LOSS OF VALUATION OF HELD TO MATURITY (HTM) SECURITIES, WHEN HTM SECURITIES A RE CAPITAL IN NATURE? 10 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 THE AFORESAID QUESTION WAS DECIDED BY THE HONBLE HIGH COURT IN FAVOUR OF THE ASSESSEE UPHOLDING THE ORDER OF TRIBUNAL. THUS, IN VIEW OF THE FACT THAT THE ISSUE HAS NOW BEEN SETTLED BY THE HONBLE HIGH COURT IN FAVOUR OF THE ASSESSEE , WE FIND MERIT IN GROUND NO. 3 OF THE APPEAL BY ASSESSEE. CONSEQUENTLY, GROUND NO. 3 RAISED IN THE APPEAL IS ALLOWED. 6 . THE GROUND NO. 4 OF THE APPEAL IS : 4. WITHOUT PREJUDICE TO THE CLAIM AS PER GROUND NO. 3, THE LEARNED CIT(A) ERRED IN HOLDING THAT ONLY NET DEPRECIATION OF RS.3,80,88,268/ - IS ALLOWABLE IN THE CASE OF HFT & AFS SECURITIES. 4.1 T HE LEARNED CIT (A) ERRED IN ADDING THE NOTIONAL APPRECIATION. 6 .1 THE RELIEF SOUGHT BY THE ASSESSEE IN GROUND NO. 4 IS AN ALTERNATE CLAIM TO THE ISSUE RAISED IN GROUND NO. 3. SINCE, THE GROUND NO. 3 HAS BEEN ALLOWED THE CLAIM MADE BY ASSESSEE IN GROUND NO. 4 HAS BECOME INFRUCTUOUS AND HENCE, THE SAME IS DISMISSED AS SUC H. 7 . THE GROUND NO. 5 OF THE APPEAL IS : 5. WITHOUT PREJUDICE TO THE CLAIM AS PER GROUND NO. 3 & 4, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PROFIT ON SALE OF INVESTMENTS OF RS . 204,27,88,848/ - CREDITED TO THE PROFIT & LOSS ACCOUNT CANNOT BE EXCLUDED FROM THE TOTAL INCOME. 7 .1 THE RELIEF SOUGHT BY THE ASSESSEE IN GROUND NO. 5 IS CONSEQUENTIAL TO THE CLAIM OF ASSESSEE IN GROUND NO. 3 OF THE APPEAL. SINCE, THE CLAIM OF ASSESSEE IN GROUND NO. 3 HAS BEEN ALLOWED, THE CONSEQUENTIAL RELIEF HAS T O BE ALLOWED TO THE ASSESSEE . IN APPEAL BY THE ASSESSEE ITA NO. 1505/PN/2008 AND IN ITA NOS. 1135 TO 1138/PN/2013 (SUPRA) S IMILAR PRAYER WAS MADE BY THE ASSESSEE. THE CO - ORDINATE BENCH HELD AS UNDER : 11 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 24. IN - PRINCIPLE, WE HAVE ALREADY UPHELD THE STAND O F THE ASSESSEE TO VALUE THE STOCK OF ITS INVESTMENTS / SECURITIES AT LOWER OF COST OR MARKET VALUE. BY APPLICATION OF SUCH METHOD OF VALUATION OF ITS STOCK OF SECURITIES / INVESTMENTS IN ASSESSMENT YEAR 2005 - 06 ASSESSEE CLAIMED DEDUCTION FOR A LOSS OF RS.3 59,24,58,508/ - . THE EFFECT OF THE CHANGE IN METHOD OF VALUATION ON THE COMPUTATION OF INCOME FOR THE PURPOSES OF INCOME TAX IS A MATTER OF FACTUAL APPRECIATION, WHICH IS LIABLE TO BE VERIFIED BY THE ASSESSING OFFICER APPROPRIATELY. FOR THE AFORESAID PURPOS E, WE THEREFORE DIRECT THE ASSESSING OFFICER TO CONSIDER THE STAND OF THE ASSESSEE STATED AFORESAID AND THEREAFTER RE - WORK THE INCOME OF THE ASSESSEE ACCORDINGLY. NEEDLESS TO MENTION, THE ASSESSEE SHALL PROVIDE NECESSARY WORKINGS TO THE ASSESSING OFFICER, INCLUDING THE INVESTMENT TRADING ACCOUNT AND / OR SUCH OTHER WORKINGS WHICH WOULD ENABLE THE ASSESSING OFFICER TO RE - WORK THE INCOME OF THE ASSESSEE IN ACCORDANCE WITH OUR DECISION IN THE EARLIER PARAGRAPHS. THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A N APPROPRIATE OPPORTUNITY OF BEING HEARD AND THEREAFTER RE - WORK THE COMPUTATION OF INCOME AS PER LAW AND KEEPING IN MIND THE AFORESAID DIRECTIONS. THUS, ON GROUND OF APPEAL NO.1 ASSESSEE SUCCEEDS. THE ASSESSEE IS DIRECTED TO FURNISH THE WORKINGS OF INCOME TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL CONSIDER THE SAME AND SHALL DECIDE THE ISSUE IN LINE WITH THE EARLIER DIRECTIONS OF THE TRIBUNAL. CONSEQUENTLY, GROUND NO. 5 RAISED IN THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE . 8 . THE GR OUND NO. 6 OF THE APPEAL IS AS : 6. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACTION OF THE LEARNED CIT(A) M UPHOLDING THE DISALLOWANCE OF RS.11,90,22,000/ - MADE BY THE LEARNED ASSESSING OFFICER U/S 14 A OF THE I. T. ACT 1961, BEING BAD IN LAW, ARBITRARY, PERVERSE AND LEGALLY UNSUSTAINABLE THE SAME MAY PLEASE BE DELETED. 6.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE LEARNED ASSESSING OFFICER ERRED IN INVOKING THE PROVISIONS OF SEC 14A WITHOUT RECORDING ANY FINDING AS TO THE NEXUS BETWEEN THE EXPENDITURE AND EXEMPT INCOME. 6.2 THE LEARNED C IT(A) FAILED APPRECIATE THE FACT SI NCE THE BANK HAD HUGE NON - INTEREST BEARING FUNDS FAR EXCEEDING THE INVESTMENTS, THE INCOME OF WHICH IS EXEMP T FROM TAX, NO DISALLOWANCE CAN BE MADE OF ANY INTEREST EXPENDITURE. 12 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 6.3 THE LEARNED CI T(A) FAILED APPRECIATE THE FACT THAT THE INVESTMENTS OF THE APPELLANT BANK BEING STOCK IN TRADE, NO DISALLOWANCE CAN BE MADE U /S 14A. 8 .1 THE LD. AR MADE TWO FOLD SUBMISSIONS. THE FIRST CONTENTION OF THE AR IS THAT THE INVESTMENTS WERE HELD BY THE ASSESSEE AS STOCK IN TRADE, THEREFORE, NO DISALLOWANCE U/S. 14A IS WARRANTED. TO SUPPORT HIS CONTENTIONS THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECIS IONS : I . MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME TAX, NEW DELHI, 2018 (3) TMI 805 (SC); II . THE PR. COMMISSIONER OF INCOME TAX VS. STATE BANK OF PATIALA, 391 ITR 218 (P & H). THE SECOND ALTERNATE SUBMISSION OF LD. AR IS THAT WHILE MAKING DISALLOWANCE U/S. 14A OF THE ACT THE AUTHORITIES BELOW HAVE NOT FOLLOWED THE LAW LAID DOWN IN THE CASE OF COMMISSIONER OF INCOME TAX VS. HDFC BANK LTD. REPORTED AS 49 TAXMANN.COM 335 (BOMBAY). THE LD. AR CONTENDED THAT THE ASSESSEE HAD HUGE NON INTEREST BEARING FUNDS, THEREFORE, DISALLOWANCE UNDER RULE 8D(2)(II) WAS NOT WARRANTED. THE LD. AR FURTHER POINTED THAT DISALLOWANCE U/S. 14A R.W. RULE 8D WAS MADE IN THE EARLIER ASSESSMENT YEARS AS WELL. THE TRIBUNAL IN PRINCIPLE HELD THAT NO DISALLOWANCE U/S. 14A IS TO BE MAD E IN RESPECT OF INTEREST EXPENDITURE. HOWEVER, FOR THE PURPOSE OF VERIFICATION THE ISSUE WAS REMITTED BACK TO THE FILE OF ASSESSING OFFICER. 8 .2 TE LD. DR VEHEMENTLY DEFENDED THE IMPUGNED ORDER IN CONFIRMING DISALLOWANCE U/S. 14A MADE BY THE ASSESSING OFFICER. 13 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 8 .3 BOTH SIDES HEARD. THE FIRST CONTENTION OF THE ASSESSEE IS THAT THE INVESTMENTS WERE HELD BY THE ASSESSEE AS STOCK IN TRADE, THEREFORE, NO DISALLOWANCE U/S. 14A WAS REQUIRED TO BE MADE IN RESPECT OF EXEMPT INCOME EARNED ON SHARES HELD AS S TOCK IN TRADE. THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF PR. COMMISSIONER OF INCOME TAX VS. STATE BANK OF PATIALA (SUPRA) HAS DECIDE D THE ISSUE OF DISALLOWANCE U/S. 14A IN RESPECT OF EXPENDITURE IN EARNING EXEMPT INCOME FROM SHARES HELD AS STOCK IN TRADE. THE HONBLE HIGH COURT AFTER PLACING RELIANCE ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. WALFORT SHARE & STOCK BROKERS (P) LTD. REPORTED AS 326 ITR 1 HELD THAT THAT NO DISALLOWA NCE U/S. 14A IS TO BE MADE WHERE THE SHARES ARE HELD AS STOCK IN TRADE. FOR THE SAKE OF COMPLETENESS RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED HERE - IN - BELOW : 26. WHAT IS OF VITAL IMPORTANCE IN THE ABOVE JUDGMENT ARE THE OBSERVATIONS EMPHASISED BY U S. EACH OF THEM EXPRESSLY STATES THAT WHAT IS DISALLOWED IS EXPENDITURE INCURRED TO 'EARN' EXEMPT INCOME. THE WORDS 'IN RELATION TO' IN SECTION 14A MUST BE CONSTRUED ACCORDINGLY. THUS, THE WORDS 'IN RELATI ON TO' APPLY TO EARNING EXEMPT INCOME. THE IMPORTANCE OF THE OBSERVATION IS THIS. WE HAVE HELD THAT THE SECURITIES IN QUESTION CONSTITUTED THE ASSESSEE'S STOCK - IN - TRADE AND THE INCOME THAT ARISES ON ACCOUNT OF THE PURCHASE AND SALE OF THE SECURITIES IS ITS BUSINESS INCOME AND IS BROUGHT TO TAX AS SUCH. THAT INCOME IS NOT EXEMPT FROM TAX AND, THEREFORE, THE EXPENDITURE INCURRED IN RELATION THERETO DOES NOT FALL WITHIN THE AMBIT OF SECTION 14A . NOW, THE DIVID END AND INTEREST ARE INCOME. THE QUESTION THEN IS WHETHER THE ASSESSEE CAN BE SAID TO HAVE INCURRED ANY EXPENDITURE AT ALL OR ANY PART OF THE SAID EXPENDITURE IN RESPECT OF THE EXEMPT INCOME VIZ. DIVIDEND AND INTEREST THAT AROSE OUT OF THE SECURITIES THAT CONSTITUTED THE ASSESSEE'S STOCK - IN - TRADE. THE ANSWER MUST BE IN THE NEGATIVE. THE PURPOSE OF THE PURCHASE OF THE SAID SECURITIES WAS NOT TO EARN INCOME ARISING THEREFROM, NAMELY, DIVIDEND AND INTEREST, BUT TO EARN PROFITS FROM TRADING IN I.E. PURCHASING A ND SELLING THE SAME. IT IS AXIOMATIC, THEREFORE, THAT THE ENTIRE EXPENDITURE INCLUDING ADMINISTRATIVE COSTS WAS INCURRED FOR THE PURCHASE AND SALE OF THE STOCK - IN - TRADE AND, THEREFORE, TOWARDS EARNING THE BUSINESS INCOME FROM THE TRADING ACTIVITY OF PURCHA SING AND SELLING THE SECURITIES. IRRESPECTIVE OF WHETHER THE SECURITIES YIELDED ANY INCOME ARISING THEREFROM, SUCH AS, DIVIDEND OR INTEREST, NO EXPENDITURE WAS INCURRED IN RELATION TO THE SAME. 14 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 8 .4 THE HONBLE APEX COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA) HAS APPROVED THE JUDGMENT RENDERED IN THE CASE OF PR. COMMISSIONER OF INCOME TAX VS. STATE BANK OF PATIALA (SUPRA). THEREFORE, IN VIEW OF THE LAW SETTLED BY THE HONBLE APEX COURT, NO DISALLOWANCE U/S. 14A IS WARRANTED IN RESPECT OF SHARES HELD BY THE ASSESSEE AS STOCK IN TRADE. 8 .5 SINCE, THE DISALLOWANCE U/S. 14A HAS BEEN SET AT NAUGHT ON THE GROUND OF ASSESSEE HOLDING THE INVESTMENT AS STOCK IN TRADE , T HE ALTERNATE CONTENTION OF ASSESSEE WITH REGARD TO DISALLOWANCE MADE UNDER RULE 8D( 2 )(II) IN RESPECT OF INTEREST EXPENDITURE HAS BECOME ACADEMIC. THUS, IN VIEW OF OUR ABOVE FINDINGS GROUND NO. 6 RAISED IN THE APPEAL BY THE ASSESSEE IS ALLOWED. 9 . THE GROUND NO. 7 OF THE APPEAL IS : 7. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DISALLOWANCE OF RS.153,00,00,000 / - UPHELD BY THE LEARNED CI T(A) ON ACCOUNT OF DISALLOWANCE OF PROVISION FOR WAGE REVISION, BEING BAD IN LAW, ARBITRARY, PERVERSE AND LEGALLY UNSUSTAINABLE THE SAME MAY PLEASE BE DELETED. 7.1 THE LEARNED CI T(A) FAILED APPRECIATE THE FACT THAT IT WAS AN ASCERTAINED LIABILITY AND AS SUCH, WAS ALLOWABLE. 9 .1 THE LD. AR SUBMITTED THAT THE ASSESSEE HAS CREATED PROVISION FOR WAGE ARREARS IN MEETING OF BOARD OF DIRECTORS. THE MINUTES OF THE MEETING WERE SIGNED ON 27 - 11 - 2009 WHEREIN IN PRINCIPLE THE REVISION OF WAGES WAS ACCEPTED. THUS, THE LIABILITY FOR REVISED WAGE PAYMENTS CRYSTALLIZED. HOWEVER, ACTUAL QUANTIFICATION WAS DELAYED TILL THE SIGNING OF MEMORANDUM OF SETTLEMENT ON 27 - 0 4 - 2010. THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS HELD THAT THE P ROVISION FOR W AGES IS A CONTINGENT LIABILITY , 15 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 WHEREAS , IT HAD CRYSTALLIZED IN THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. IT IS A WELL SETTLED LAW THAT WHERE THE LIAB ILITY HAS CRYSTALLIZED IT IS NO MORE A CONTINGENT LIABILITY. TO SUPPORT HIS CONTENTION S THE LD. AR PLACED RELIANCE ON THE FOLLOWING DECISIONS : I . BHARAT EARTH MOVERS VS. COMMISSIONER OF INCOME TAX, 245 ITR 428 (SC); II . COMMISSIONER OF INCOME TAX VS. BHARAT HEA VY ELECTRICALS LTD., 352 ITR 88 (DELHI); III . COMMISSIONER OF INCOME TAX VS. MAHINDRA UGINE & STEEL CO. LTD., 250 ITR 84 (BOM) ; IV . ALLAHABAD BANK VS. DCIT, 2016 (3) TMI 1087 ITAT KOLKATA. 9 .2 ON THE OTHER HAND LD. DR VEHEMENTLY DEFENDED THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE ADDITION. THE LD. DR CONTENDED THAT TILL 31 - 03 - 2010 THE LIABILITY ON ACCOUNT OF WAGE REVISION HAD NOT CRYSTALLIZED. THE MINUTES OF THE MEETING DATED 27 - 11 - 2009 WOULD SHOW THAT THE NEGOTIATIONS WERE STILL IN PROC ESS. 9.3 BOTH SIDES HEARD. THE AUTHORITIES BELOW HAVE DISALLOWED PROVISIONS FOR WAGES CLAIMED BY THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR ON THE GROUND THAT THE WAGE REVISION LIABILITY IS NOT ASCERTAINED AS ON 31 - 03 - 2010. A PERUSAL OF RECORDS REVE AL THAT THE MINUTES OF BOARD MEETING IN WHICH THE ISSUE OF WAGE REVISION WAS DELIBERATED AND FINALIZED WERE SIGNED ON 27 - 11 - 2009. THE RELEVANT EXTRACT OF THE SAME IS REPRODUCED IN PARA 8.3 OF THE IMPUGNED ORDER. IN PRINCIPLE WAGE REVISION WAS ACCEPTED B Y THE BOARD TO BE EFFECTIVE FROM 01 - 11 - 2007. THERE WERE SOME OTHER PERIPHERAL ISSUES WHICH WERE LEFT OPEN TO BE DISCUSSED IN THE SUBSEQUENT MEETINGS. THUS, 16 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 THE LIABILITY FOR PAYMENT OF WAGE ARREARS CRYSTALLIZED WHEN THE DECISION WAS TAKEN BY THE BOARD. THE QUANTIFICATION OF PAYMENT OF WAGES WAS CARRIED OUT ON A LATER DATE WHEN MEMORANDUM OF SETTLE MENT W AS SIGNED ON 27 - 04 - 2010. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF BHARAT EARTH MOVERS VS. COMMISSIONER OF INCOME TAX (SUPRA) HELD THAT WHERE TH E BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR , THE DEDUCTION SHOULD BE ALLOWED A LTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND I S DISCHARGED AT A FUTURE DATE. FOR THE SAKE OF READY REFERENCE AND COMPLETENESS THE RELEVANT EXTRACT O F THE JUDGMENT RENDERED BY THE HONBLE APEX COURT IN THE AFORESAID CASE IS REPRODUCED HERE UNDER : 4. THE LAW IS SETTLED; IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIAB ILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUGH IT WILL BE D ISCHARGED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. 9.4 THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF ALLAHABAD BANK VS. DCIT (SUPRA) FOLLOWING THE RATIO LA ID DOWN IN THE CASE OF BHARAT EARTH MOVERS VS. COMMISSIONER OF INCOME TAX (SUPRA) ALLOWED THE CLAIM OF ASSESSEE ON CLAIM OF DEDUCTION ON ACCOUNT OF PROVISION FOR SALARY ARREARS. IN THE SAID CASE THE FACTS WERE SOMEWHAT SIMILAR TO THE CASE IN HAND. THE RE VISION OF SALARY IN PRINCIPLE WAS AGREED AFTER NEGOTIATIONS BETWEEN BANK ASSOCIATIONS AND EMPLOYEES UNION DURING THE RELEVANT ASSESSMENT YEAR. HOWEVER, THE ACTUAL QUANTIFICATION OF PAYMENT OF REVISED SALARY WAS MADE IN THE SUBSEQUENT ASSESSMENT YEAR. THE TRIBUNAL FOLLOWING THE RATIO LAID DOWN BY THE HONBLE APEX COURT ALLOWED THE CLAIM OF ASSESSEE H OLDING THAT THE LIABILITY COULD BE ASCERTAINED WITH REASONABLE CERTAINTY. 17 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 9.5 WE ARE OF CONSIDERED VIEW THAT IN THE PRESENT CASE THE AUTHORITIES BELOW HAVE ERRED IN COMING TO THE CONCLUSION THAT THE LIABILITY HAS NOT CRYSTALLIZED IN THE ASSESSMENT YEAR UNDER APPEAL AS THERE WAS NO QUANTIFICATION OF PAYMENT OF WAGES. THE CREATION OF LIABILITY AND QUANTIFICATION OF LIABILITY ARE TWO DIFFERENT STAGES. AS SOON AS THE LIABILITY IS CRYSTALLIZED , IT IS NO MORE CONTINGENT. THE QUANTIFICATION AND DISCHARGE OF LIABILITY IS THE SECOND STAGE WHICH CAN HAPPEN IN FUTURE. THUS, WE FIND MERIT IN THE GROUND RAISED BY ASSESSEE. ACCORDINGLY, THE CLAIM OF ASSESSEE IN RESPECT OF PROVISION FOR WAGE ARREARS IS ACCEPTED. RESULTANTLY, THE GROUND NO. 7 OF APPEAL IS ALLOWED. 10. THE GROUND NO. 8 OF THE APPEAL IS : 8. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACTION OF THE LEARNED CIT (A) IN GIVING DIRECTION TO THE LEARNED ASSESSING OFFICER WITH REGARD TO THE ALLOWANCE OF THE DEDUCTION U/ S 36 ( 1 )(VIII) OF THE LT. ACT 1961, BEING BAD IN LAW, ARBITRARY, PERVERSE AND LEGALLY UNSUSTAINABLE THE SAME MAY PLEASE BE DELETED. 10 .1 THE LD. AR SUBMITTED THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 36(1)(VIII) IN RESPECT OF LOANS ADVANCED TO SPECIFIED ENTITY. THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION @ 20% OF PROFITS EARNED FROM SPECIFIED ENTITY PROVIDED RESERVES ARE CREATED. THE A SSESSEE COMPLIED WITH THE PROVISION OF SECTION TO CLAIM DEDUCTION. THE ASSESSING OFFICER DISALLOWED THE CLAIM BY HOLDING THAT THE ASSESSEE HAS NOT PROVIDED THE DETAILS. THE LD. AR CONTENDED THAT ALL THE RELEVANT DETAILS WERE FURNISHED BY THE ASSESSEE TO ASSESSING OFFICER . THE COMMISSIONER OF INCOME TAX (APPEALS) RESTORED THE ISSUE BACK TO THE FILE OF ASSESSING OFFICER. HOWEVER, TILL DATE THE ASSESSING OFFICER HAS NOT GIVE N EFFECT TO THE DIRECTIONS OF COMMISSIONER OF INCOME TAX (APPEALS). 18 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 10 .2 THE LD. DR SUBMITTED THAT THE ASSESSEE HAS FAILED TO PROVIDE NECESSARY DETAILS BEFORE THE ASSESSING OFFICER. THE ISSUE MAY BE RESTORED TO THE ASSESSING OFFICER FOR FRESH EXAMINATION. 10 .3 BOTH SIDES HEARD. THE ISSUE IN GROUND NO. 8 IS WITH RESPECT TO ASSESSEES ELIGIBILITY FOR CLAIMING DEDUCTION U/S. 36(1)(VIII). THE DEDUCTION HAS BEEN DENIED TO THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAS FAILED TO FURNISH RELEVANT DOCUMENTS TO CLAIM SUCH DEDUCTION. ON THE CONTRARY THE CONTENTION OF THE ASSESSE E IS THAT ALL THE RELEVANT DOCUMENTS WERE FURNISHED BEFORE THE ASSESSING OFFICER. WITHOUT FURTHER GOING INTO THE MERIT S, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE DOCUMENTS FURNISHED BY THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE DE NOVO, AFTER AF FORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WITH LAW. THUS, THE GROUND NO. 8 IS ALLOWED FOR STATISTICAL PURPOSE. 1 1 . THE GROUND NO. 9 OF THE APPEAL IS : 9. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACTION OF THE LEARNED C IT(A) IN UPHOLDING THE DISALLOWANCE U /S 40(A)(IA) OF THE I. T. ACT 1961, IN RESPECT OF SHORT DEDUCTION OF TAX BEING BAD IN LAW, ARBITRARY, PERVERSE AND LEGALLY UNSUSTAINABL E THE SAME MAY PLEASE BE DELETED. 9.1 THE LEARNED C IT(A) ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 40(A)(IA) IS APPLICABLE EVEN IN CASES OF SHORT DEDUCTION. 1 1 .1 THE DISALLOWANCE U/S. 40(A)(IA) OF THE ACT HAS BEEN MADE FOR SHORT DEDUCTION OF TAX AT SOURCE. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. S K TEKRIWAL REPORTED AS 361 ITR 432 HAS HELD THAT THE PROVISION OF SECTION 40(A)( IA) ARE NOT ATTRACTED WHERE THERE IS SHORT DEDUCTION OF TAX. THE PROVISION OF SECTION 40(A)(IA) APPLY WHERE NO TAX HAS BEEN DEDUCTED AT SOURCE. THUS, IN VIEW OF THE LAW LAID DOWN IN THE 19 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 CASE OF COMMISSIONER OF INCOME TAX VS. S K TEKRIWAL (SUPRA) NO DISAL LOWANCE U/S. 40(A)(IA) IS WARRANTED. ACCORDINGLY, ADDITION MADE U/S. 40( A )(IA) IS DELETED AND GROUND NO. 9 RAISED IN THE APPEAL IS ALLOWED. 1 2 . THE GROUND NO. 10 OF THE APPEAL IS : 10. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACTIO N OF THE LEARNED C IT(A) IN DIRECTING THE LEARNED ASSESSING OFFICER TO ALLOW DEPRECIATION AT THE RATE OF 10% ON UPS BEING BAD IN LAW, ARBITRARY, PERVERSE AND LEGALLY UNSUSTAINABLE THE SAME MAY PLEASE BE DELETED. 10.1 THE LEARNED CIT(A) FAILED TO APPREC IATE THE FACT THAT UPS BEING ENERGY SAVING DEVICE BEING ELECTRICAL EQUIPMENT ELIGIBLE FOR DEPRECIATION @ 80%. 10.2 WITHOUT PREJUDICE TO THE ABOVE, UPS BEING PART OF COMPUTER PERIPHERALS IS ELIGIBLE FOR DEPRECIATION @ 60%. 1 2 .1 THIS ISSUE WAS RAISED FOR THE FIRST TIME BY THE COMMISSIONER OF INCOME TAX (APPEALS). THE ASSESSEE HAD CLAIMED DEPRECIATION ON UPS @ 80%. THE COMMISSIONER OF INCOME TAX (APPEALS) RESTRICTED THE SAME TO 15%. THE LD. AR SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF C OMMISSIONER OF INCOME TAX VS. ORIENT CERAMICS & INDUSTRIES LTD. REPORTED AS 358 ITR 49 HAS HELD THAT THE DEPREICAITON ON UPS HAS TO BE COMPUTED AT 60%. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. SARASWAT INFOTECH LTD. REPORTED AS 2013 (1) TMI 861 . THUS, IN VIEW OF THE SETTLED POSITION, THE ASSESSEES CLAIM OF DEPRECIATION ON UPS IS RESTRICTED TO 60%. THUS, IN VIEW OF THE AFOREMENTIONED DECISIONS THE GROUND NO. 10 OF THE APPEAL BY ASSESSEE IS PARTLY ALLOWED. 1 3 . THE GROUND NO. 11 OF THE APPEAL IS : 20 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 11. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACTION OF THE LEARNED CIT(A) IN DIRECTING THE LEARNED ASSESSING OFFICER TO TAX THE ACCRUED INTEREST INCOME ON NON PERFORMING ASSETS WHICH ARE LESS THAN 180 DAYS BEING BAD IN LAW, ARBITRARY, PERVERSE AND LEGALLY UNSUSTAINABLE THE SAME MAY PLEASE BE DELETED. 11.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT ONCE AN ACCO UNT IS CLASSIFIED AS NPA AS PER RESERVE BANK OF INDIA NORMS, THEN, NO INTEREST INCOME CAN BE RECOGNIZED ON ACCRUAL BASIS. 11.2 THE LEARNED CIT(A) FAILED IN NOT CONSIDERING THE ENTIRE PROVISIONS OF RULE 6EA OF INCOME TAX RULES, 1962. 11.3 WITHOUT PREJUDIC E TO THE ABOVE, THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT INTEREST ON STICKY LOANS CANNOT BE TAXED ON ACCRUAL BASIS. 1 3 .1 THE LD. AR SUBMITTED THAT IN RESPECT OF INTEREST INCOME ON NON PERFORMING ASSETS (NPAS) NO ADDITION WAS MADE BY THE AS SESSING OFFICER. THE ISSUE WAS RAISED FOR THE FIRST TIME BY THE FIRST APPELLATE AUTHORITY. THEREFORE, IT IS A CASE OF ENHANCEMENT OF INCOME. THE LD. AR SUBMITTED THAT THIS ISSUE HAS BEEN SETTLED IN FAVOUR OF THE ASSESSEE BY THE HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. DEOGIRI NAGARI SAHAKARI BANK LTD. REPORTED AS 379 ITR 24. 1 3 .2 BOTH SIDES HEARD. ORDERS OF THE AUTHORITIES BELOW PERUSED. THE ISSUE RAISED IN GROUND NO. 11 OF THE APPEAL IS WITH REGARD TO DISALLOWANCE OF INTEREST ON NPAS. THE ISSUE IS NO MORE RES INTEGRA. THE ASSESSEE HAS CREATED A PROVISION IN THE P & L ACCOUNT ON ACCOUNT OF INTEREST ON NPAS AND HAS CLAIMED THE SAME DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. DEOGIRI NAGARI SAHAKARI BANK LTD. (SUPRA). THE HONBLE HIGH COURT FOL LOWING THE DECISION OF HONBLE APEX COURT IN THE CASE OF UCO BANK VS. 21 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 COMMISSIONER OF INCOME TAX REPORTED AS 237 ITR 889 HELD THAT INTEREST ON STICKY LOANS HAS TO BE ALLOWED. THUS, IN VIEW OF THE AFORESAID DECISION THE GROUND NO. 1 1 RAISED IN THE APPEAL B Y THE ASSESSEE IS ALLOWED. 1 4 . THE GROUND NO. 12 OF THE APPEAL IS : 12. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ACTION OF THE LEARNED CIT(A) III HOLDING THAT THE PROVISIONS OF SECTION 115JB ARE APPLICABLE TO THE APPELLANT BANK BEING BAD IN LAW, ARBITRARY, PERVERSE AND LEGALLY UNSUSTAINABLE THE SAME MAY PLEASE BE DELETED. 12.1 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE TO A PPELLANT BANK . 12.2 THE LEARNED CIT(A) ERRED IN ADDING VARIOUS ITEMS TO THE BOOK PROFIT WHICH ARE NOT COVERED BY THE EXPLANATION 1 TO SECTION 115JB(2). 12.3 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) ERRED IN NOT GIVING AN OPTION TO THE APPELLAN T BANK TO RECAST THE PROFIT & LOSS ACCOUNT. 1 4 .1 THE LD. AR SUBMITTED THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS INVOKED THE PROVISIONS OF SECTION 115JB AS ARE APPLICABLE TO THE COMPANIES. THE ASSESSEE IS NOT A COMPANY REGISTERED UNDER COMPANIE S ACT, 1956 AND HENCE , DOES NOT PREPARE ITS ACCOUNTS AS PER THE PROVISIONS OF COMPANIES ACT . THE ASSESSEE IS A NATIONALIZED B ANK AND HENCE THE ACCOUNTS ARE PREPARED ACCORDING TO THE SCHEDULED PRESCRIBED BY THE RBI GUIDELINES. THE LD. AR POINTED THAT IDENTICAL ADDITION WAS MADE IN THE EARLIER ASSESSMENT YEARS. THE TRIBUNAL IN THE APPEAL BY ASSESSEE IN ITA NO. 1505/PN/2008 AND IN ITA NOS. 1135 TO 1138/PN/2013 (SUPRA) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DELETED THE ADDITION. 22 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 1 4 .2 THE LD. DR DEFENDED THE ACTION OF COMMISSIONER OF INCOME TAX (APPEALS) IN INVOKING THE PROVISIONS OF SECTION 115JB AND PRAYED FOR DISMISSING THE GROUND NO. 12 OF THE APPEAL. 1 4 .3 BOTH SIDES HEARD. THE ASSESSEE HAS ASSAILED THE ACTION OF COMMISSIONER OF INCOME TAX (APPEALS) IN INVOKING MAT PROVISION S U/S. 115 JB OF THE ACT. THE SAID PROVISION S ARE INVOKED ONLY IN RESPECT OF COMPANIES. THE ASSESSEE IS A B ANK AND IS NOT GOVERNED BY COMPANIES ACT, 1956. HENCE, THE SAID PROVISION S WOULD NOT APPLY IN THE CASE OF A BANK. THE CO - ORDINATE BENCH OF TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS HAS DECIDED THIS ISSUE BY HOLDING AS UNDER : 35. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. OSTENSIBLY, THERE IS NO DISPUTE THAT ASSESSEE IS A BANKI NG COMPANY. THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF CANARA BANK (SUPRA) HELD THAT SECTION 115JB OF THE ACT IS NOT APPLICABLE TO A BANKING COMPANY. IN COMING TO SUCH CONCLUSION, THE BANGALORE BENCH OF THE TRIBUNAL RELIED UPON THE EARLIER DECISION S OF THE TRIBUNAL IN THE CASES OF UNION BANK OF INDIA VS. ACIT (ITA NOS.4702 & 4706/2010 DATED 30.06.2011) AND INDIAN BANK VS. ADDL. CIT (ITA NO.469/MDS/2010 DATED 03.08.2011). SIMILAR IS THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF S TATE BANK OF HYDERABAD (SUPRA). IN SO FAR AS THE OBJECTION OF THE LEARNED CIT - DEPARTMENTAL REPRESENTATIVE, BASED ON THE AMENDMENT MADE TO SECTION 115JB OF THE ACT BY THE FINANCE ACT, 2012 IS CONCERNED, THE SAME IS MISCONCEIVED BECAUSE THE SAID AMENDMENT IS APPLICABLE FROM ASSESSMENT YEAR 2013 - 14 ONWARDS. THEREFORE, THE AFORESAID AMENDMENT DOES NOT NEGATE THE RATIO OF THE AFORESAID PRECEDENTS, WHICH HOLD THE FIELD SO FAR AS THE ASSESSMENT YEAR BEFORE US IS CONCERNED. THEREFORE, FOLLOWING THE AFORESAID PRECED ENTS AND IN THE ABSENCE OF ANY CONTRARY DECISION, WE HEREBY HOLD THAT ASSESSEE, BEING A BANKING COMPANY, DOES NOT FALL WITHIN THE PURVIEW OF SECTION 115JB OF THE ACT. THE ASSESSING OFFICER IS HEREBY DIRECTED TO CONSIDER THE AFORESAID LEGAL POSITION AS AND WHEN HE IS TO FINALLY DETERMINE THE TOTAL INCOME. THUS, ON THIS ADDITIONAL GROUND OF APPEAL NO.3 ASSESSEE SUCCEEDS. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISION OF CO - ORDINATE BENCH , WE FIND MERIT IN GROUND NO. 12 OF THE APPEAL. ACCORDINGLY, GROUND NO. 12 IS ALLOWED. 23 ITA NO . 1370/PUN/2014, A.Y. 2010 - 11 1 5 . THE GROUND NO. 13 OF THE APPEAL IS AS UNDER : 13. THE APPELLANT CRAVES THE PERMISSION TO ADD, AMEND, MODIFY, ALTER , REVISE, SUBSTITUTE, DELETE ANY OR ALL GROUNDS OF APPEAL, IF DEEMED NECESSARY AT THE TIME OF H EARING OF THE APPEAL. 1 5 .1 THE GROUND NO. 13 IS GENERAL IN NATURE, HENCE, REQUIRES NO ADJUDICATION. 1 6 . IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED IN THE TERMS AFORESAID. ORDER PRONOUNCED ON MONDAY, THE 11 TH DAY OF MARCH, 2019. SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 11 TH MARCH, 2019. RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - I, PUNE 4. / THE CIT - I, PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / PRIVATE SECRETARY, , / ITAT, PUNE