The Lakshmi Vilas Bank Ltd., CHENNAI V. ACIT, Trichy

ITA 1548/CHNY/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8081 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 15-10-2015
• Assessment Year: 1998-1999
• Appeal Filed On: 04-06-2014
• Court: TRIBUNAL
• Department Lawyers: RAJIB KUMAR HOTA
• Assessee Lawyers: G SITARAMAN
• Keywords: Reopening of assessment; Capital asset; General deduction; Depreciation; Business expenditure; Question of law; Cost of acquisition; Bad and doubtful debts; Condonation of delay; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3); 234B; 14A; 115JB; 37(1); 32; 147; 148

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER I.T.A.NO S . 1205, 1548, 1620, 1206, 1207, 1208, 1209, 27 , 1621 & 1622 /MDS/2014 ASSESSMENT YEAR S : 1997 - 98, 98 - 99, 2000 - 01, 01 - 02, 02 - 03,04 - 05, 06 - 07 & 2009 - 10 THE LAKSHMI VILAS BANK LTD., SALEM ROAD, KATHAPARAI, KARUR. [PAN: A AAC CT4291P ] VS. THE ASSISTANT/JOINT COMMISSIONER OF INCOME TAX , COMPANY CIRCLE I , TIRUCHIRAPALLI. ( / APPELLANT ) ( / RESPONDENT ) I.T.A. NOS.1364, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 ASSESSMENT YEARS: 1997 - 98, 98 - 99, 2000 - 01, 01 - 02, 04 - 05, 06 - 07, 07 - 08 & 08 - 09 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I, T IRUCHIRAPALLI. VS. THE LAKSHMI VILAS BANK LTD., SALEM ROAD, KATHAPARAI, KARUR. ( / APPELLANT ) ( / RESPONDENT ) ASSESSEE BY : SHRI G. SITARAMAN, C.A. DEPARTMENT BY : SHRI RAJIB KUMAR HOTA, CIT - DR / DATE OF HEARI NG : 15 . 10 .201 5 / 29.01.2016 / DATE OF P RONOUNCEMENT : 29 . 0 1 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH ESE CROSS APPEALS ARE DIRECTED AGAINST THE SEPARATE ORDER S OF THE LD. COMMISSIONER OF INCOME TAX (APPE ALS) , TRICHY FOR DIFFERENT ASSESSMENT YEAR S AS STATED ABOVE . SINCE ALL THE APPEALS PERTAIN TO SAME ASSESSEE AND I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 2 HEARD TOGETHER, ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. FIRST WE SHALL TAKE UP COMMON GROUNDS RAISED BY THE ASSE SSEE IN ITS APPEAL FOR ADJUDICATION. VALIDITY OF REOPENING OF ASSESSMENT FOR THE ASSESSMENT YEARS 2000 - 01, 2001 - 02, 2002 - 03 AND 2004 - 05 IN I.T.A. NOS. 1620, 1206, 1208 AND 1209/MDS/2014: 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE BUSINESS OF BANKING AND FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2000 - 01 ON 28.11.2000 ADMITTING A TOTAL INCOME OF .29,54,09,020/ - . THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. THE REGULAR SCRUTINY ORDER UN DER SECTION 143(3) OF THE ACT WAS PASSED ON 28.03.2003 BY ASSESSING TAXABLE INCOME OF THE ASSESSEE AT .51,87,90,020/ - . AGAINST THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT (A), VIDE ITS ORDER DATED 30.03.2005 REMITTED SOME OF THE ISSUES FOR FRESH CONSIDERATION OF THE ASSESSING OFFICER IN VIEW OF THE SPECIFIC DETAILS FILED AFRESH BY THE ASSESSEE BEFORE HIM AND SAME WAS DIRECTED THE ASSESSING OFFICER TO DECIDE THE MATTER IN TH E LIGHT OF THE NEW FACTS. ON FURTHER APPEAL BEFORE THE ITAT, THE TRIBUNAL VIDE ITS ORDER DATED 13.10.2006 SET ASIDE ONE ISSUE AND I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 3 RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE DE NOVO. 3. THEREAFTER, THE ASSESSMENT ORDER PASSED UN DER SECTION 143(3) OF THE ACT DATED 28.03.2003 WAS REOPENED BY ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT AND SERVED ON THE ASSESSEE ON 30.03.2007 . IN RESPONSE TO 148 NOTICE, THE ASSESSEE REQUESTED TO TREAT THE RETURN OF INCOME FILED ON 28.11.2000 AS IF IT FILED IN RESPONSE TO THE NOTICE UNDER SECTION 148. NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ALONG WITH QUESTIONNAIRE ON 10.08.2007. AFTER CONSIDERING THE VARIOUS DETAILS CALLED FOR AND SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER PASSED T HE REASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 147, 250 AND 254 OF THE ACT ON 31.12.2007. 4. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE HAS RAISED VARIOUS GROUND S INCLUDING REOPENING OF THE ASSESSMENT BEYOND THE PERIOD OF 4 YEARS. AFTER CONSIDERI NG THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A), SOME OF THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED AND ALSO SUSTAINED THE ADDITIONS MADE BY THE ASSESSING OFFICER AND PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 4 5. BEFORE THE TRIBUNAL, THE ASSESSEE HAS RAISED THE FIRST GROUND WITH REGARD TO VALIDITY OF REOPENING OF THE ASSESSMENT . 6. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE RAISED IN THE GROUNDS APPEAL PERTAIN S TO VALIDITY OF REOPENING OF THE ASSESSMEN T FOR ALL THE ASSESSMENT YEARS IS NOT PRESSED AND ALSO MADE AN ENDORSEMENT IN THE GROUNDS OF APPEAL AS NOT PRESSED . ACCORDINGLY, THE ABOVE ISSUE RAISED IN THE GROUNDS OF APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2000 - 01, 2001 - 02, 2002 - 03 AND 2004 - 05 IS DISMISSED AS NOT PRESSED. 7 . THE NEXT COMMON GROUND RAISED IN THE APPEALS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 1997 - 98, 1998 - 99 AND 2000 - 01 RELATES TO INTEREST PAID TO SIDBI AND NABARD. IN THE ASSESSMENT YEAR, THE DISALLOWANCE WAS MADE FOR THE R EASON THAT THE EXPENDITURE CLAIMED IS NOT RELATED TO THE ACCOUNTING PERIOD IN QUESTION AND SECTION 43B DOES NOT APPLY FOR THE ABOVE REASON. UNDER SECTION 43B, IF THE ASSESSEE INCURS A LIABILITY UNDER CERTAIN EXPENDITURE SUCH AS BONUS, INTEREST, ETC. DURING THE ACCOUNTING PERIOD AND SAME IS PAID BEFORE FILING OF RETURN, THE SAME NEED TO BE ALLOWED. HOWEVER, IN THE INSTANT CASE, THE DUE DATE FOR 2 ND INSTALMENT IS MAY, 1997 AND THEREFORE THE LIABILITY TO PAY IS I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 5 ARISING ONLY IN THE NEXT ACCOUNTING PERIOD. THERE FORE, THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE TOWARDS THE INTEREST PAYABLE TO SIDBI AND NABARD AT .2,23,55,384/ - FOR THE ASSESSMENT YEAR 1997 - 98. EXCEPT CHANGE OF FIGURES, THE FACTS ARE SIMILAR FOR THE ASSESSMENT YEAR 1998 - 99 AND 2000 - 01. 8 . ON APPEAL, THE LD. CIT(A) REMITTED THE BACK TO THE ASSESSING OFFICER AND DIRECTED TO VERIFY THE SANCTION LE TTERS, AGREEMENTS WITH THE ABOVE ORGANIZATIONS TO FIND OUT WHETHER THE ASSESSEE HAS INCURRED THE LIABILITY DURING THE ACCOUNTING PERIOD IN QUESTION OR NOT AND ALLOW THE SAME AS PER LAW. 9 . AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL IN I.T.A. NO. 1401/MDS/2012 ORDER DATED 22.03.2013 IN ASSESSEE S OWN CASE AND PRAYED THAT THE TRIBUNAL ORDER MAY BE FOLLOWED FOR THE ASSESSMENT YEARS UNDER A PPEAL. 1 0 . ON THE OTHER HAND, THE LD. DR FAIRLY CONCEDED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 6 ASSESSEE S OWN CASE. HOWEVER, HE RELIED ON THE ORDER PASSED BY THE AUTHORITIES BELOW. 11 . WE HAVE HEARD BOTH SIDES AND FIND THAT THE TRIBUNAL , IN IT S COMMON ORDER IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2004 - 05, 2007 - 08 & 2008 - 09 IN I.T.A. NOS. 1401, 1402 AND 1403/MDS/2012 DATED 22.03.2013 , CONSIDERED SIMILAR ISSUES AND DECIDED AS UNDER: 17. GROUNDS NO. 7 AND 8 RELATE TO ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) QUA INTEREST PAID BY THE ASSESSEE TO SIDBI AND NABARD. RELEVANT FACTS OF THESE GROUNDS ARE THAT IN COURSE OF THE ASSESSMENT, THE ASSESSEE HAD CLAIMED EXPENDITURE OF .5,50 ,329/ - AND .2,58,089/ - AS PAYABLE TO SIDBI AND NABARD RESPECTIVELY WITH DUE DATES OF PAYMENT AS 1 ST NOVEMBER AND 1 ST MAY OF EACH YEAR. PER ASSESSING OFFICER, THE INTEREST DUE AS ON 01.11.2003 HAD ALREADY BEEN PAID AND THE AMOUNT STATED TO BE OUTSTANDING W AS ONLY PAYABLE ON 01.05.2004 [AFTER CLOSURE OF THE ASSESSMENT YEAR ON 31.03.2004]. 18. IN SUPPORT, ASSESSEE S PLEA WAS THAT SINCE IT HAD BEEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT WAS ENTITLED FOR THE RELIEF AS THE AMOUNT HAD ACCRUED, ASCERTAIN ED AND BECAME PAYABLE BEFORE THE CLOSURE OF THE RELEVANT ACCOUNTING PERIOD. HOWEVER, IN THE ASSESSMENT ORDER AND AFTER PLACING RELIANCE ON THE CASE LAW OF ED SASUN & CO VS. CIT 69 ITR 237 (SC), THE ASSESSING OFFICER MADE DISALLOWANCE AND HELD THAT DUE DAT E OF 1 ST MAY (SUPRA) WOULD FALL AFTER THE CLOSURE OF THE ASSESSMENT YEAR ON 31.03.2004, THE AMOUNT IN QUESTION COULD NOT BE DEDUCTED FROM THE INCOME OF THE IMPUGNED ASSESSMENT YEAR. 19. IN ASSESSEE S APPEAL, THE CIT(A) HAS ALSO AFFIRMED THE ADDITION BY HOLDING AS UNDER: 19. THE APPELLANT BANK HAS CLAIMED INTEREST PAYABLE TO SIDBI AT .5,50,329 AND ALSO INTEREST PAYABLE TO NABARD AT .2,58,089. THE DUE DATES FOR PAYMENT OF INTEREST FOR THESE INSTITUTIONS ARE 1 ST NOVEMBER AND 1 ST MAY. THE INTEREST IS DUE ON 1 ST NOVEMBER 2003 HAS ALREADY BEEN PAID. THE OUTSTANDING AMOUNT FOR THE 1 ST INST ALLMENT WAS DUE ON MAY 2004. THE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 7 APPELLANT BANK CLAIMS IT ON MERCANTILE BASIS AND WANTS THE DEDUCTION ON THE GROUND THAT THEY HAVE ACCRUED BEFORE THE DUE DATES PRESCRIBED BY THE ACT. EVEN IN MERCANTILE SYSTEM, THE EXPENSES CLAIMED ONLY THE DUE DATES. THE D UE DATE IS FALLING AFTER THE PREVIOUS YEAR. THEREFORE THE AMOUNT HAS NOT BECOME DUE. HENCE THE ASSESSING OFFICER HAS HELD THAT THE AMOUNT PAYABLE FOR THE NEXT YEAR CANNOT BE REDUCED FROM THE TOTAL INCOME FROM THE YEAR UNDER CONSIDERATION 2004 - 05. THEREFORE THIS IS ADDED BACK FOLLOWING THE DECISION OF THE SUPREME COURT IN THE CASE OF ED SASUN & CO VS CIT 69 ITR 237. I DO NOT FIND ANY REASON TO INTERFERE IN THE DECISION OF THE ASSESSING OFFICER AS THE APPELLANT CANNOT CLAIM THE EXPENDITURE RELATED TO ASSESSME NT YEAR 2005 - 06 IN THE YEAR UNDER CONSIDERATION AND THEREFORE THE CLAIM OF THE APPELLANT BANK IS REJECTED CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER AT .8,08,418. 20. BEFORE US, THE ASSESSEE ARGUES THAT SINCE IT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT IS ENTITLED FOR THE DEDUCTION IN HAND AS THE LIABILITY TO PAY THE INTEREST HAD ACCRUED AND CERTAIN IN THE PREVIOUS YEAR RELEVANT TO THE IMPUG NED ASSESSMENT YEAR. IN THE ALTERNATIVE, IT ALSO RAISES A CONTENTION THAT IT WOULD HAVE NO OBJECTION EVEN IF THE AMOUNT IS ALLOWED FOR DEDUCTION IN THE YEAR OF ACTUAL PAYMENT. IN REPLY, THE REVENUE ALSO ACTS VERY FAIRLY BEFORE US AND DOES NOT OBJECT TO A SSESSEE S LATTER CONTENTION. 21. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE RELEVANT CONTENTS OF ASSESSMENT ORDER AND THAT OF THE CIT(A). THE FAIR SUBMISSIONS OF BOTH PARTIES HAVE ALSO BEEN CONSIDERED. IN OUR VIEW, SINCE THE ASSESSEE ITSELF PRAYS TH AT THE AMOUNT IN QUESTION BE MADE ALLOWABLE IN THE YEAR OF ACTUAL PAYMENT WHICH IS NOT OPPOSED BY THE REVENUE, WE HOLD THAT THE PAYMENT OF INTEREST PAYABLE TO SIDBI AND NABARD ON 1 ST MAY WOULD BE ALLOWED TO BE DEDUCTED IN THE YEAR OF ACTUAL PAYMENT. ACCORD INGLY, THE GROUND STANDS PARTLY ACCEPTED WITH THIS MODIFICATION TO THE EXTENT ABOVE SAID. 1 2 . IN VIEW OF THE ABOVE FINDINGS OF THE TRIBUNAL AND THE LD. DR HAS ALSO FAIRLY CONCEDED THAT THE ISSUE IS COVERED BY THE ABOVE DECISION OF THE TRIBUNAL, WE HOLD THAT THE PAYMENT OF INTEREST PAYABLE TO SIDBI AND NABARD ON 1 ST MAY WOULD BE ALLOWED TO BE DEDUCTED IN THE YEAR OF ACTUAL I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 8 PAYMENT. ACCORDINGLY, THE GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES FOR ALL THE ASSESSMENT YEARS UNDER APPEAL I.E. ASSESSMENT YEAR S 1997 - 98, 1998 - 99 AND 2000 - 01. 13 . THE NEXT COMMON GROUND RAISED IN THE APPEALS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2000 - 01, 2001 - 02 AND 2002 - 03 [IN I.T.A. NOS. 1620, 1206 AND 1208/MDS/2014] RELATES TO DISALLOWANCE OF LEASE EQUALISATION CHARGE S . IN THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2000 - 01, THE ASSESSING OFFICER MADE AN ADDITION OF .20,40,000/ - BEING LEASE EQUALIZATION CHARGES CLAIMED BY THE ASSESSEE AS NOT ALLOWABLE. THE ASSESSEE HAS GIVEN ITS ASSETS UNDER LEASE FOR A PERIOD OF SIX YEARS AND AT THE END OF SIX YEARS, THE OWNERSHIP OF ASSETS WILL BE PASSED TO THE LESSEE. THE ACTUAL LIFE OF THE ASSETS IS APPROXIMATELY 10 YEARS. THE ASSESSEE HAS RECOVERED THE ENTIRE COST OF LEASED ASSET ALONG WITH INTEREST IN 6 YEARS. THE ASSESSING OFFI CER HAS OBSERVED THAT THE ASSESSEE HAS AMORTISED THE TOTAL DEPRECIATION AVAILABLE FOR THE ASSET DURING ITS LIFE TIME [10 YEARS] OVER A PERIOD OF SIX YEARS ITSELF UNDER THE HEAD LEASE EQUALIZATION CHARGES. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS CONT ENDED THAT IT FOLLOWS THE GUIDANCE NOTE OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND ACCORDINGLY CLAIMED THE DEDUCTION. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT NONE OF THE PROVISIONS OF SECTI ONS 32 TO 43C OF THE ACT PROVIDES FOR ANY DEDUCTION OF I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 9 LEASE EQUALIZATION CHARGES AND ACCORDINGLY DISALLOWED .20,40,000/ - AND ADDED TO THE RETURNED INCOME OF THE ASSESSEE. 14 . ON APPEAL, THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 15 . ON BEING AGGRIEVED, THE ASSESSEE IS IN APP EAL BEFORE THE TRIBUNAL AND THE LD. COUNSEL FOR THE ASSESSEE STRONGLY RELIED ON THE DECISION IN THE CASE OF CIT V. VIRTUAL SOFT SYSTEMS LTD. 341 ITR 593 (DELHI) AND ALSO IN THE CASE OF CIT V. INDIAN RAILWAY FINANCE CORPORATION LTD. 362 ITR 548 (DELHI) AND SUBMITTED THAT THE LEASE EQUALIZATION CHARGES SHOULD NOT BE DISALLOWED. 16 . ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 17 . WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. THE ASSESSEE HAS GIVEN ITS ASSETS UNDER LEASE FOR A PERIOD OF SIX YEARS AND AT THE END OF SIX YEARS, THE OWNERSHIP OF ASSETS WILL BE PASSED TO THE LESSEE. THE ACTUAL LIFE OF THE ASSETS IS APPROXIMATELY 10 YEARS. THE ASSESSEE HAS RECOVERED THE EN TIRE COST OF LEASED ASSET ALONG WITH INTEREST IN 6 YEARS. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS AMORTISED THE TOTAL DEPRECIATION AVAILABLE FOR THE ASSET DURING ITS LIFE TIME [10 YEARS] OVER A PERIOD OF SIX YEARS I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 10 ITSELF UNDER THE HEAD LEA SE EQUALIZATION CHARGES AND HELD THAT NONE OF THE PROVISIONS OF SECTIONS 32 TO 43C OF THE ACT PROVIDES FOR ANY DEDUCTION OF LEASE EQUALIZATION CHARGES AND ACCORDINGLY DISALLOWED A SUM OF .20,40,000/ - . THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HOWEVER, WE ARE OF THE OPINION THAT WHILE ALLOWING THE DEDUCTION OF ACCOUNT OF LEASE EQUALIZATION CHARGES FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER THE INCOME TAX ACT, THE DIFFERENCE BETWEEN THE ANNUAL LEASE CHARGES OF THE LEASED A SSETS AND DEPRECIATION ALLOWED UNDER THE INCOME TAX ACT SHOULD BE TAKEN INTO CONSIDERATION AND NOT THE DIFFERENCE BETWEEN THE ANNUAL LEASE CHARGES AND DEPRECIATION CLAIMED BY THE ASSESSEE AS PER THE COMPANIES ACT, 1956. THE ABOVE RATIO HAS BEEN LAID DOWN O N SIMILAR FACTS AND CIRCUMSTANCES IN THE CASE OF INFRASTRUCTURE LEASING & FINANCIAL SERVICES LTD. V. DCIT 146 ITD 297, WHEREIN, THE MUMBAI BENCHES OF THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED TH E RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE GUIDANCE NOTE ISSUED BY ICAI EXPLAINING THE CONCEPT OF LEASE EQUALIZATION WITH THE ILLUSTRATION. THE SAID GUIDANCE NOTE IS BASICALLY ISSUED FOR THE PU R POSE OF ACCOUNTING AND THE CONCEPT OF LEASE EQUALIZATION, AS MENTIONED THEREIN, IS BASED ON THE RATIONALE OF MATCHING COST WITH REVENUE SO THAT THE PERIODIC NET INCOME FROM THE FINANCE LEASE IS DETERMINED IN A TRUE AND FAIR MANNER. THIS CONSTITUTES THE PARALLEL METHOD OF ACCOUNTING FOLLOWE D BY THE ASSESSEE FOR THE PURPOSE OF REVENUE RECOGNITION OF LEASING BUSINESS AND AS PER THIS METHOD, THE LEASE RENTAL IS SPLIT INTO FINANCE INCOME AND BALANCE AMOUNT WHICH IS CALLED ANNUAL LEASE CHARGE. THE ANNUAL LEASE CHARGE REPRESENTS RECOVERY OF INVEST MENT MADE IN THE LEASED ASSET OVER THE LEASE TERM AND WHEN THE DEPRECIATION CLAIMED ON THE LEASED ASSETS IS I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 11 MORE THAN THE CORRESPONDING LEASE CHARGE, THE DIFFERENCE IS CREDITED TO THE P&L ACCOUNT AS LEASE EQUALIZATION. SIMILARLY, IF THE DEPRECIATION CLAIME D ON THE LEASED ASSET IS LESS THAN THE CORRESPONDING ANNUAL LEASE, P&L ACCOUNT IS DEBITED BY LEASE EQUALIZATION CHARGES EQUIVALENT TO THE DIFFERENCE AMOUNT. CONSEQUENTLY, THE FINANCE CHARGES, WHICH IS THE ACTUAL INCOME FROM THE LEASED TRANSACTION, IS RECOG NIZED AS REVENUE AND THE DIFFERENCE BETWEEN THE DEPRECIATION AND ANNUAL LEASE CHARGE IS DEBITED OR CREDITED TO THE P&L ACCOUNT SO AS TO NULLIFY THE EFFECT OF SUCH DIFFERENCE ON THE PROFIT. THE RECOVERY OF INVESTMENT IN THE LEASED ASSETS MADE IN THE RELEVAN T YEAR IS THUS MATCHED WITH THE CORRESPONDING EXPENSES CLAIMED IN THE FORM OF DEPRECIATION AND THE EFFECT OF HIGHER OR LOWER CLAIM OF DEPRECIATION, THAN THE CORRESPONDING RECOVERY OF INVESTMENT MADE IN THE LEASED ASSETS IS NULLIFIED. IN THE BOOKS OF ACCOUN T, THE LEASING COMPANIES ARE ENTITLED TO CLAIM THE DEPRECIATION BY FOLLOWING ONE OF THE VARIOUS METHODS PRESCRIBED IN THE COMPANIES ACT AND IF SUCH DEPRECIATION CLAIMED IS MORE OR LESS THAN THE CORRESPONDING ANNUAL LEASE CHARGE REPRESENTING RECOVERY OF INV ESTMENT IN THE LEASED ASSET OVER THE LEASE TERM, THE DIFFERENCE IS ADJUSTED IN THE FORM OF LEASE EQUALIZATION BASED ON THE RATIONALE OF MATCHING COST WITH THE REVENUE SO THAT THE RESULTANT INCOME FROM THE LEASING IS TRUE AND FAIR. THE CONCEPT OF LEASE EQUA LIZATION THUS IS BASICALLY AN ACCOUNTING CONCEPT AND THE SAME IS FOLLOWED FOR THE PURPOSE OF REVENUE RECOGNITION OF LEASING INCOME AS PER THE GUIDANCE NOTE ISSUED BY ICAI. IT IS NO DOUBT TRUE THAT THE CONCEPT OF LEASE EQUALIZATION CAN ALSO BE FOLLOWED FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THE INCOME TAX ACT AS HELD IN THE VARIOUS JUDICIAL PRONOUNCEMENTS CITED BY THE LD. COUNSEL FOR THE ASSESSEE. HOWEVER THE SAME, IN OUR OPINION, HAS TO BE DONE WITH PROPER CARE AND CAUTION OTHERWISE IT MAY RESU LT IN ABSURDITY AND GIVE MISLEADING RESULT. IN THE CASES LIKE THE ONE IN HAND, WHERE THE RELEVANT TRANSACTIONS ARE TREATED AS FINANCE LEASE AND THE ASSESSEE IS ALLOWED DEPRECIATION AFTER HAVING FOUND HIM THE OWNER OF THE LEASED ASSETS, THE DEPRECIATION ALL OWED AS PER THE RATES PRESCRIBED IN THE INCOME TAX ACT COULD BE MORE THAN THE DEPRECIATION CLAIMED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AT THE RATE PRESCRIBED UNDER THE COMPANIES ACT. FOR EXAMPLE, THE ASSESSEE MAY BE ENTITLED TO CLAIM DEPRECIATION AT 10 0% ON THE LEASED ASSETS IN THE FIRST YEAR ITSELF UNDER THE INCOME TAX ACT WHEREAS IN THE BOOKS OF ACCOUNT, IT MIGHT HAVE CLAIMED DEPRECIATION ON THE SAID LEASED ASSETS UNDER THE COMPANIES ACT @ 10%. IN SUCH A CASE, IF THE ANNUAL LEASING CHARGE IS EQUIVALEN T TO 30% OF THE VALUE OF LEASED ASSETS, THE ASSESSEE WOULD DEBIT ITS P&L ACCOUNT BY LEASE EQUALIZATION CHARGES TO THE EXTENT OF 20% OF THE VALUE OF ASSET AS PER THE GUIDANCE NOTE ISSUED BY ICAI. IF THE LEASE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 12 EQUALIZATION CHARGES SO DEBITED ARE ALLOWED AS D EDUCTION WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE UNDER THE INCOME TAX ACT IN ADDITION TO 100% DEPRECIATION ALREADY ALLOWED, THE ASSESSEE WILL GET DEDUCTION OF 120% OF THE VALUE OF ASSET IN THE FIRST YEAR ITSELF AND THE VERY PURPOSE OF ADOPTING THE CONCEPT OF LEASE EQUALIZATION BASED ON THE RATIONALE OF MATCHING COST WITH THE REVENUE WOULD BE DEFEATED. THIS WILL RESULT IN ABSURDITY AND GIVE MISLEADING RESULTS. IN OUR OPINION, IT IS THEREFORE NECESSARY THAT WHILE ALLOWING DEDUCTION ON ACCOUNT OF LEAS E EQUALIZATION CHARGES FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER THE INCOME TAX ACT, THE DIFFERENCE BETWEEN THE ANNUAL LEASE CHARGE OF THE LEASED ASSETS AND DEPRECIATION ALLOWED ON THE SAID LEASED ASSET UNDER THE INCOME TAX ACT SHOULD BE TAKEN INTO C ONSIDERATION AND NOT THE DIFFERENCE BETWEEN THE ANNUAL LEASE CHARGE AND DEPRECIATION CLAIMED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AS PER THE COMPANIES ACT. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH. THE ASSES SEE IS DIRECTED TO FURNISH THE WORKING OF LEASE EQUALIZATION CHARGES BASED ON THE FIGURES OF THE DEPRECIATION ON THE LEASED ASSETS ALLOWED AS PER THE INCOME TAX ACT WHICH THE A.O. SHALL VERIFY AND ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF LEASE EQUALIZATION CHARGES BASED ON SUCH VERIFICATION IN ACCORDANCE WITH LAW. IN THE RESULT, APPEALS OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 1 8 . RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE MUMBAI BENCHES OF THE TRIBUNAL, WE REMIT THE MATTER BACK TO THE ASSESSING OFFICER TO VERIFY AND ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF LEASE EQUALIZATION CHARGES IN ACCORDANCE WITH LAW. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOS E FOR ALL THE ASSESSMENT YEARS UNDER APPEAL. 19 . THE FIRST GROUND RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1997 - 98 RELATES TO DISALLOWANCE OF DEPOSIT I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 13 MOBILIZATION EXPENSES. THE ASSESSEE HAS CLAIMED DISALLOWANCE OF EXPENSES INCURRED T OWARDS DEPOSIT MOBILIZATION EXPENSES AND ANNUAL GENERAL BODY MEETING. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO HOW THE EXPENDITURE IS FULLY ALLOWABLE. VIDE ITS LETTER DATED 26.12.2007, THE ASSESSEE HAS SUBMITTED AS UNDER: THE BANK IS CONDUCTING DEPOSITS MO BILIZATION MONTH EVERY YEAR AT FESTIVAL/HARVEST TIMES TO TAP THE ADDITIONAL FLOW OF MONEY BY WAY OF BONUS/SALE PROCEEDS. DURING THIS PERIOD, IN ORDER TO GIVE MORE THRUST FOR MOBILIZATION OF DEPOSITS, THE BRANCHES ARE PERMITTED TO INCUR EXPENSES TOWARDS PRI NTING OF PAMPHLETS, DECORATION OF BRANCH WITH PAPER RIBBONS, BALLOONS AND FESTOONS TO GIVE A FESTIVE LOOK TO THE BRANCH. THE BRANCHES ARE ALLOWED ONLY AN AMOUNT BETWEEN RS. 100/ - AND RS. 200/ - FOR THIS PURPOSE DEPENDING UPON THE SIZE OF THE BRANCH, IN ORDE R TO MONITOR THAT THESE EXPENSES ARE WITHIN THE PERMITTED LEVEL, THE BRANCHES ARE ADVISED TO ACCOUNT THE SAME BY A SEPARATE SUB - HEAD UNDER MISCELLANEOUS EXPENDITURE. THUS IT CAN BE SEEN, THAT THE EXPENDITURE ARE IN THE NATURE OF BUSINESS EXPENDITURE AND NO PART THEREOF IS IN THE NATURE OF ENTERTAINMENT EXPENSE. THE TRIBUNAL ALSO VIDE ITS ORDER ITA NO: 1161(MDS)/95 DATED 22.05.2003 FOR THE ASSESSMENT YEAR 1991 - 92 HAS ALLOWED THESE EXPENSES STATING THAT THEY ARE NOT IN THE NATURE OF ENTERTAINMENT EXPENDITUR E. SIMILARLY IN RESPECT OF ANNUAL GENERAL MEETING EXPENSES, THE BANK HAS INCURRED THE EXPENDITURE FOR CONDUCTING THE ANNUAL GENERAL MEETING AND ACCOUNTED UNDER SEPARATE SUB - HEAD UNDER MISCELLANEOUS EXPENSES FOR MONITORING. NO PART OF THIS EXPENDITURE IS IN THE NATURE OF ENTERTAINMENT EXPENDITURE'. 20. THE BREAK - UP OF THE EXPENSES AND ALL CONCERNED VOUCHERS ARE NOT PRODUCED BEFORE THE ASSESSING OFFICER AND THEREBY THE ASSESSEE HAS NOT DISCHARGED ITS ONUS. THEREFORE, THE DIRECTION GIVEN BY THE TRIBUNAL I N ITS ORDER DATED 22.05.2003 COULD NOT BE EXECUTED BY THE ASSESSING OFFICER. MOREOVER, IN 3CD REPORT UNDER CLAUSE NO 4 AND POINT NO. 8, IT HAS BEEN I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 14 CLEARLY STATED THAT THE DEPOSIT MOBILIZATION EXPENSES OF .1,22,686/ - AND THE GENERAL MEETING EXPENSES OF .1,16,129/ - ARE IN THE NATURE OF ENTERTAINMENT EXPENSES. THEREFORE, THE ASSESSING OFFICER, AFTER DUE VERIFICATION OF THE VOUCHERS, DETERMINED THE AMOUNT OF DISALLOWANCE UNDER SECTION 37(2A) OF THE ACT AND D ISALLOWED .1,19,408/ - I.E. 50% OF TOTAL EXPENSES [ .1,22,686 + .1,16,129 = 2,38,815]. 21 . THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 22 . ON BEING AGGRIEVED , THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. BY RELYING ON THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 1990 - 91, THE LD. COUNSEL FOR THE ASSESSEE HAS PRAYED THAT THE DISALLOWANCE MAY BE DELETED. 23. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 24 . WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY THE CONSOLIDATED ORDER OF THE TRIB UNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 1990 - 91 & 1991 - 92 IN I.T.A. NOS. 1161 I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 15 & 1162(MDS)/95 VIDE ORDER DATED 22.05.2003, WHEREIN THE TRIBUNAL HAD HELD AS UNDER: 6. FOR THE ASSESSMENT YEAR 1991 - 92 THE CLAIM IS WITH REGARD TO DISALLOWANCE OF 50% OF DEPOSIT MOBILISATION EXPENSES TREATING THEM AS ENTERTAINMENT IN NATURE. THIS ISSUE HAS BEEN COME UP BEFORE THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1984 - 85 AND THE TRIBUNAL VIDE ITS ORDER OF 11 TH NOVEMBER, 1991 HAD HELD THAT SUCH DEPOSIT MOBILISATION EXPENSES INCURRED BY THE BANK IS IN NO WAY ENTERTAINMENT EXPENDITURE AND THE DISALLOWANCE WAS DELETED. FOLLOWING THE EARLIER ORDER OF THE TRIBUNAL, WE ALLOW THE CLAIM OF THE ASSESSEE IN REGARD TO THIS AMOUNT. 25 . AT THE TIME O F HEARING, THE LD. DR COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL AND FAIRLY CONCEDED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL IN THE ASSESSMENT YEAR 1991 - 92 IN ASSESSEE S OWN CASE, WE REVERSE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. NO OTHER GROUND HAS BEEN RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1997 - 98 EXCEPT ADDITIONAL GROUND RAISED AND THE SAME IS ADJUDICATED HEREIN ABOVE AT PARA NO.12 ALONG WITH OTHER ASSESSMENT YEARS. 26. THE NEXT ISSUE RAISED IN THE APPEAL OF THE ASSESSEE IN THE ASSESSMENT YEAR 2001 - 02 IS WITH REGARD TO DISALLOWANCE OF .1,46,85,272/ - PROVISION CREATED FOR LEAVE ENCASHMENT. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS SUBMITTED THAT THE PROVISION CREATED FOR LEAVE ENCASHMENT IS A CERTAIN I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 16 LIABILITY AND NOT A CONTINGENT LIABILITY. SINCE THE ASSESSEE HA S NOT FURNISHED THE PARTICULARS WITH REGARD HOW MANY EMPLOYEES WANTED TO REALLY GO FOR VACATION AND TO CLAIM THE SAID AMOUNT, HOW MANY WANTED TO SIMPLY ENCASH THE LEAVE, THE ASSESSING OFFICER HAS HELD THAT IT IS ONLY A CONTINGENT LIABILITY AND NOT A CERTAI N LIABILITY AND ACCORDINGLY DISALLOWED .1,46,85,272/ - AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 27. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 28. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE TRIBUNAL. T HE LD. COUNSEL FOR THE ASSESSEE HAS PRAYED THAT THE MATTER MAY BE REMITTED BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION AND RELIED ON THE DECISION IN THE CASE OF DCIT V. ERNST AND YOUNG P. LTD. 32 ITR (TRIB.) 639 (KOL) . ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDER PASSED B Y THE AUTHORITIES BELOW. 29 . AFTER HEARING BOTH SIDES, WE FIND THAT T HE ASSESSEE HAS CLAIMED DEDUCTION OF THE AMOUNT OF .1,46,85,272/ - IN RESPECT OF PROVISION FOR LEAVE ENCASHMENT. THE ASSESSEE HAS NOT FURNISHED ANY DETAILS ABOUT THE RANGE OF POINTS CONSIDERED WHILE ARRIVING AT THE LIABILITY AND HOW MANY EMPLOYEES WOULD REALLY GO FOR VACATION AND CLAIM THE SAID AMOUNT AND HOW MANY EMPLOYEES WANTED TO SIMPLY ENCASH THE LEAVE, ETC. IN THE ABSENCE OF THE ABOVE PARTICULARS, THE ASSESSING OFFICER HAS CONSIDERED THE SAME AS I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 17 CONTINGENT LIABILITY AGAINST THE CLAIM OF THE ASSESSEE AS CERTAIN LIABILITY. IT IS A FACT THAT L EAVE SALAR Y IS PAYABLE ONLY WHEN A PERSON GOES ON LEAVE AND DURING THE PERIOD OF LEAVE, THE SALARY PAID TO HIM IS KNOWN AS LEAVE SALARY. IT CANNOT BE ASCERTAINED WITH ANY CERTAINTY WHETHER IN A PARTICULAR YEAR, THE EMPLOYEE WOULD GO ON LEAVE. IT WILL DEPEND UPON THE OPTION OF THE EMPLOYEE. UNLESS THE EMPLOYEE GOES ON LEAVE, THE ASSESSEE IS NOT REQUIRED TO PAY LEAVE SALARY. THE LIABILITY WILL ONLY ARISE WHEN A PERSON GOES ON LEAVE AND IT IS ONLY FOR THAT PARTICULAR PERIOD HE IS ON LEAVE , THE LEAVE SALARY IS PAYABLE. T HEREFORE, IT CANNOT BE CONSIDERED AS CERTAIN LIABILITY. IN THE ABSENCE OF VARIOUS PARTICULARS CALLED FOR BY THE ASSESSING OFFICER, WE FIND THAT THE PROVISION CREATED IS NOT A CERTAIN LIABILITY AND IT IS ONLY A CONTINGENT LIABILITY AND RIGHTLY DISALLOWED TH E CLAIM OF THE ASSESSEE, WHICH WAS CONFIRMED BY THE LD. CIT(A). 30 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION IN THE CASE OF DCIT V. ERNST AND YOUNG P. LTD. (SUPRA), WHEREIN, THE ASSESSEE MADE PROVISION FOR LEAVE ENCASHMENT ON THE BASIS OF ACTUARIAL VALUATION AND SOUGHT DEDUCTION THEREOF. THE KOLKATA BENCHES OF THE TRIBUNAL HAS SET ASIDE THE MATTER FOR FRESH ADJUDICATION. THE PROVISIONS OF SECTION 43B(F) OF THE ACT HAD BEEN STUCK DOWN BY THE HON BLE CALCUTTA HIGH COURT AS BEI NG ARBITRARY AND ULTRA VIRES, BUT THE HON BLE SUPREME COURT HAD ORDERED STAY OF THE JUDGEMENT OF THE HON BLE HIGH COURT. CLAUSE (F) TO SEC I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 18 43B PROVIDES THAT ANY SUM PAYABLE BY AN EMPLOYER IN LIEU OF LEAVE AT THE CREDIT OF HIS EMPLOYEE SHALL BE ALLOWED ONLY ON ACTUAL PAYMENT AND NOT ON MERE PROVISION. THIS CLAUSE WAS INSERTED BY THE FINANCE ACT, 2001, W.E.F 01.04.2002, I.E., ASSESSMENT YEAR 2002 - 03. THE ABOVE AMENDMENT IS NOT RETROSPECTIVE AND IT IS PROSPECTIVE. THEREFORE, THE CASE LAW RELIED ON BY THE LD. C OUNSEL FOR THE ASSESSEE HAS NO APPLICATION SINCE THE PRESENT APPEAL PERTAINS TO ASSESSMENT YEAR 2001 - 02. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 31 . THE ONLY ISSUE RAISED IN THE APPEAL OF THE ASSESSEE IN T HE ASSESSMENT YEAR 2001 - 02 [IN I.T.A. NO. 120 7 /MDS/2014] IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE OF .45,09,991/ - UNDER SECTION 14(A) OF THE ACT. THE ASSESSING OFFICER HAS OBSERVED THAT EVEN THOUGH THE ASSESSEE B ANK HA S EARNED DIVIDEND INCOME AS WELL INTEREST INCOME WHICH WAS IN THE CATEGORY OF INCOME EXEMPT FROM TAX, AS NO EXPENDITURE TO EARN SUCH EXEMP TED INCOME WAS DISALLOWED U/S 14A OF THE ACT. THE AR OF THE ASSESSEE HAS CLAIMED THAT NO EXPENDITURE WAS INVOLVED EITHER IN TERMS OF INTEREST ON THE AMOUNT INVESTED IN SECURITIES OR MANPOWER AND THEREFORE NO DISALLOWANCE WAS REQUIRED TO BE MADE. THE ASSESS ING OFFICER COULD NOT BELIEVE THAT THERE SHOULD BE SOME EXPENDITURE IN FORM OF TRAVEL TELEPHONE, POSTAGE, STATIONERY AND M ANPOWER MUST HAVE BEEN INVOLVED IN EARNING INCOME WHICH IS EXEMPT UNDER INCOME TAX ACT. THUS THE ASSESSING OFFICER HAS DISALLOWED, 2% OF THE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 19 EXEMPTED INCOME UNDER S EC TION 14A R.W. RULE 8D TO MEET THE REQUIREMENT OF S EC TION 14A OF THE ACT . BEFORE THE LD. CIT(A), T HE AR OF THE ASSESSEE ARGUED THAT THE ENTIRE EXPENDITURE IS TOWARDS INDIVISIBLE OF BANKING AND PURCHASE AND SALE SECURITIES, NO PART OF EXPENDITURE CAN BE SAID TO HAVE BEEN INCURRED DIRECTLY FOR EARNING TAX FREE INCOME. THE LD. CIT(A) HAS OBSERVED THAT T HE ITAT , IN ASSESSEE 'S OWN CASE , RESTRICTED THIS DISALLOWANCE TO THE EXTENT OF 2% OF SUCH INCOME AND THIS HAS BEEN ACCEPTED BY TH E ASSESSEE BANK ITSELF EVEN FOR THE EARLIER YEARS ON THIS ISSUE. ACCORDINGLY, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS A S MADE BEFORE THE LOWER AUTHORITIES. SINCE THE LD. CIT(A) HAS DECIDED THE ABOVE ISSUE IN VIEW OF THE DIRECTION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE EARLIER ASSESSMENT YEAR, WHICH WAS DULY AGREED UPON BY THE ASSESSEE, WE FI ND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A). ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 32 . NO OTHER GROUND HAS BEEN RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2001 - 02 IN I.T.A. NO. 1207/MDS/2014 AND ACCORDIN GLY, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. 3 3 . THE NEXT ISSUE RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2002 - 03 IN I.T.A. NO.1208/MDS/2014 IS WITH REGARD TO THE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 20 DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS EPABX OF .15,994/ - . THE ASSESSEE BANK HAS INCURRED EXPENDITURE TOWARDS EPABX AT HYDERABAD BRANCH AND CLAIMED AS REVENUE EXPENDITURE. HOWEVER, THE ASSESSING OFFICER CONSIDERED IT AS CAPITAL IN NATURE AND ALLOWED DEPRECIATION @ 20% AND BALANCE AMOUNT OF .12,795/ - W AS ADDED BACK TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. THE LD. COUNSEL FOR THE ASSESSEE HAS NOT ARGUED ANYTHING AS TO HOW THE EXPENDITURE INCURRED TOWARDS EPABX IS NOT CAPITAL EXPENDITURE. IN VI EW OF THE ABOVE, WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE GROUND RAISED BY THE ASSESSEE. 34 . THE NEXT ISSUE RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004 - 05 IN I.T.A. NO.1209/MDS/2014 IS WITH REGARD TO THE DISALLOWANCE OF AMORTIZATION EXPENDITURE OF .71,21,573/ - . THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS SHOWN HTM CATEGORY OF SECURITIES IN THE CLOSING STOCK AT BOOK VALUE OF .1,67,40,73,798/ - , WHICH IS AFTER DEDUCTING FROM THE COST [ .1,68,11 ,95,371/ - ], AMORTIZATION AMOUNT OF .71,21,573/ - . THE RBI PERMITTED THE BANKS TO AMORTISE THE EXPENDITURE IN HTM CATEGORY IF THE ACQUISITION COST IS MORE THAN THE FACE VALUE (PREMIUM OVER FACE VALUE), THE PREMIUM AMOUNT WAS PERMITTED TO BE AMORTISED FOR TH E PERIOD REMAINING TO MATURITY. THE ASSESSING OFFICER HAS ALSO NOTICED THAT THE SINCE HTM CATEGORY OF SECURITIES ARE TREATED AS CAPITAL IN NATURE AND IS TO BE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 21 SHOWN IN THE BOOKS OF ACCOUNTS AT COST AS PER ACCEPTED ACCOUNTING PRACTICES, THERE IS NO QUESTION OF ALLOWING DEDUCTION FOR THE DIFFERENCE IN THE AMOUNT OF COST AND THE FACE VALUE OF THE SECURITIES FOR INCOME TAX PURPOSES. THEREFORE, THE CLAIM OF THE ASSESSEE RELATING TO AMORTIZATION EXPENDITURE WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSE SSEE. 35 . ON APPEAL, THE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 36 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE CONSOLIDATED ORDER OF THE COORDINATE BE NCH OF THE TRIBUNAL IN THE CASE OF DCIT V. CITY UNION BANK LTD. IN I.T.A. NO 935/MDS/2010 & OTHERS VIDE ORDER DATED 08.07.2011 AND PLEADED THAT THE SAME SHOULD BE FOLLOWED. 37 . AFTER HEARING BOTH SIDES, WE FIND THAT THE COORDINATE BENCH OF THE TRIBUNAL, IN THE CASE OF DCIT V. CITY UNION BANK LTD. IN I.T.A. NO 935/MDS/2010 & OTHERS, HAS OBSERVED AND HELD AS UNDER: 48. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER MADE ADDITION TOWARDS AMORTIZATION EXPENSES OBSERVING THAT AMORTIZATION EXPENSES W AS TO BE TREATED LIKE INTEREST ON PURCHASE OF SECURITIES. THEREFORE, HE HELD THAT THE SAID AMOUNT WAS TO BE CAPITALIZED AND ADDED TO THE INCOME OF THE ASSESSEE. 49. ON APPEAL, THE LD. CIT(A), FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COU RT IN ASSESSEE S OWN CASE REPORTED IN 291 ITR 144 ALLOWED THE CLAIM OF THE ASSESSEE. 50. AT THE TIME OF HEARING, THE LD. DR FAIRLY CONCEDED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 22 HON BLE JURISDICTIONAL HIGH COURT REP ORTED IN 291 ITR 144 (SUPRA). THE HON BLE MADRAS HIGH COURT HAS HELD THAT THE INVESTMENTS ARE MADE IN ACCORDANCE WITH THE REQUIREMENTS OF THE ACT WHEREIN THE MARKET PRICE CHARGED FROM THE VALUE SHOWN IN THE OPENING BALANCE AND AT THE END OF THE YEAR, THE S AME COULD BE ALLOWED AS DEPRECIATION. THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED IN ALL THE YEARS UNDER CONSIDERATION. 3 8 . RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, WHEREIN, THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT HAS BEEN FOLLOWED, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 39 . AS FAR AS THE ISSUE RELATES TO LOSS ON SALE OF INVESTMENT ADJUSTED TO OPENING DEPRECIATED VALUE OF SECURITIES IS CONCERNED [A.Y. 2004 - 05] , THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE BANK WAS CLAIMING DEDUCTION FOR DIMINUTION IN VALUE OF SECURITIES AT THE END OF THE YEAR. FOR THIS PURPOSE, THE ASSESSEE HAS WORKED OUT CUMULATIVE DEPRECI ATED VALUE OF SECURITIES AT THE END OF THE YEAR AND REDUCE D FROM THE SAME, THE CUMULATIVE DEPRECIATED VALUE OF SECURITIES AT THE END OF EARLIER PREVIOUS YEAR. THE ASSESSING OFFICER HAS OBSERVED THAT IF THE DIFFERENCE WAS POSITIVE, THEN AS PER CASE I ABOVE (PARA 4, PAGE 8 OF THE ORDER), THE DIFFERENCE WAS CLAIMED AS DEPRECIATION FOR THE YEAR AND IF THE DIFFERENCE BETWEEN THE TWO FIGURES WAS NEGATIVE, THEN AS PER CASE II, THE DIFFERENCE WAS OFFERED AS INCOME IN THE FORM OF APPRECIATION . FOR THE IMPUGNED ASS ESSMENT YEAR 2004 - 05, CUMULATIVE DEPRECIATION WORKED OUT BY THE ASSESSEE AS ON 31.03.2004 WAS I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 23 .24,28,19,280/ - . OUT OF THIS, THE DEPRECIATION AS ON 31.03.2003 WAS TO BE REDUCED TO ARRIVE AT THE NET DEPRECIATION FOR THE ASSESSMENT YEAR 2004 - 05. IT WAS OBSERVED THAT OUT OF THE CUMULATIVE DEPRECIATION AS ON 31.03.2003 ( .18,20,82,679/ - ), A SUM OF .62 ,84,190/ - WAS REDUCED BY STATING OPENING BALANCE DEPRECIATION UTILISED TOWARDS LOSS ON SALE OF INVESTMENTS . WHEN SPECIFICALLY ASKED, THE ASSESSEE COULD NOT EXPLAIN AS TO ON WHAT BASIS THE ALLEGED LOSS ON SALE OF INVESTMENT HAS BEEN REDUCED FROM THE OPENI NG BALANCE OF CUMULATIVE DEPRECIATION AS ON 31.03.2003. IN THE ABSENCE OF ANY DETAILS AS TO WHAT INVESTMENT WAS SOLD AND WHETHER IT WAS OF HTM CATEGORY OR OF AFS & HFT CATEGORY AND IN WHICH ASSESSMENT YEAR AND HOW THIS LOSS AROSE, THE ASSESSING OFFICER HAS DISALLOWED THE LOSS CLAIMED IN THE FORM OF DEPRECIATION AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 40 . ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 41 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITT ED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION IN THE CASE OF CIT V. THE KARUR VYSYA BANK LTD. IN T.C.(A) NO. 2139 OF 2008 ORDER DATED 13.07.2009 AND PRAYED THAT THE SAME SHOULD BE FOLLOWED IN THE PRESENT CASE. I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 24 42 . AFTER HEARING BOTH SIDES, WE HAVE PERUSED THE ORDER OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. THE KARUR VYSYA BANK LTD. (SUPRA), WHEREIN THE HON BLE HIGH COURT HAS HELD AS UNDER: 5. THE THIRD QUESTION OF LAW RAISED BY THE REVENUE IS 'WHETHER THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE LOSS ON SALE OF SECURITY INCURRED BY THE ASSESSEE BANK WAS ALLOWABLE AS REVENUE LOSS IGNORING THE FACT THAT LOSS ON SALE OF SECURITIES CATEGORISED AS PERMANENT ASSETS CANNOT BE TREATED AS BUSINESS LOSS'. AS FAR AS THIS QUESTION OF LAW IS CONCERNED, HERE AGAIN, THE QUESTION ARISES IN RESPECT OF THE SALE MADE BY THE BANK IN RESPECT OF GOVERNMENT SECURITIES AND IF ANY LOSS IS SUSTAINED BY BANK, SUCH TRANSFER WOULD BE TREATED AS CAPITAL LOSS OR REVENUE EXPENDITURE. NOW APPLYING THE PRINCIPLE AS ENUNCIATED IN THE RULING VIZ., (2005) 273 ITR 510 (MAD) (SUPRA), WHEN ONCE THE GOVERNMENT SECURITIES HAVE ALREADY BEEN HELD AS STOCK - IN - TRADE, ANY FURTHER SUBSEQUENT SALE BY THE BANK TO EITHER THIRD PARTY AND ANY LOSS ON SUCH TRAN SFER WILL ALSO BE TREATED ONLY AS A REVENUE EXPENDITURE AND CANNOT BE OF A PERMANENT NATURE TREATING THE SECURITY AS A CAPITAL EXPENDITURE. SINCE THE MAIN QUESTION HAS ALREADY BEEN DECIDED FOLLOWING THE HON BLE SUPREME COURT DECISION THAT SUCH SECURITIES A RE STOCK - IN - TRADE AND LOSS OF GOVERNMENT SECURITY TRANSFER WOULD ONLY AMOUNT TO REVENUE EXPENDITURE AND THE TRIBUNAL WAS RIGHT IN HOLDING THE SAME FOLLOWING THE DECISION OF THIS COURT. HENCE THIS QUESTION OF LAW IS ALSO ANSWERED AGAINST THE REVENUE. 43 . RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT (SUPRA), WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 44 . THE NEXT ISSUE IS WITH REGARD TO DISALLOWANCE OF BROK ERAGE PAID ON PURCHASE OF GOVERNMENT SECURITIES FROM THE TOTAL INCOME. THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS HELD THAT THE HTM CATEGORY OF SECURITY IS CAPITAL IN NATURE. THEREFORE, ANY EXPENDITURE INCURRED FOR ACQUISITION OF CAPITAL ASSET WOULD B E TREATED AS CAPITAL EXPENDITURE. IN VIEW OF THIS, THE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 25 BROKERAGE PAID OF .54,250/ - FOR PURCHASE OF HTM SECURITIES DURING THE YEAR WOULD BE CAPITAL EXPENDITURE WHICH IS NOT ALLOWABLE FROM THE PROFIT EARNED BY THE ASSESSEE. ON APPEAL, THE LD. CIT(A) CONFIRM ED THE FINDINGS OF THE ASSESSING OFFICER. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION IN THE CASE OF CIT V. THE KARUR VYSYA BANK LTD. IN T.C.(A) NO. 2139 OF 2008 ORDER DATED 13.07.2009 AND PRAYED THAT THE SAME SHOULD BE FOLLOWED IN THE PRESENT CASE. 45 . AFTER HEARING BOTH SIDES, WE HAVE PERUSED THE ORDER OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. THE KARUR VYSYA BANK LTD. (SUPRA), WHEREIN THE HON BLE HI GH COURT HAS HELD AS UNDER: 4. THE NEXT QUESTION OF LAW IS AS TO 'WHETHER THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE INTEREST PAID ON CHARGE OF INVESTMENT IS ALLOWABLE AS REVENUE EXPENDITURE DISREGARDING THE PRINCIPLE THAT THE INTEREST PAID ON CHA RGE OF INVESTMENTS CATEGORIZED AS 'PERMANENT' ARE TO BE TREATED AS CAPITAL EXPENDITURE AND NOT AS REVENUE EXPENDITURE'. AS FAR THIS QUESTION OF LAW IS CONCERNED, THE MAIN CONTENTION RAISED BY VARIOUS PARTIES IN RESPECT OF THE GOVERNMENT SECURITIES HELD BY THE BANKS ARE TO BE TREATED AS STOCK - IN - TRADE, CAME UP FOR CONSIDERATION BEFORE THIS COURT AND THIS COURT IN THE DECISION REPORTED IN (2005) 273 ITR 510 (MAD) (SUPRA), BY FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT REPORTED IN (1999) 156 CTR (SC) 3 80 : (1999) 240 ITR 355 (SC) (SUPRA), HELD THAT THOSE GOVERNMENT SECURITIES, WHICH ARE HELD BY THE BANKS ARE ALL STOCK - IN - TRADE, THE SECURITY WILL NOT BE OF PERMANENT NATURE, NOT A CAPITAL EXPENDITURE AND WHATEVER EXPENDITURE INCURRED IN THE PURCHASE AND T HE SUBSEQUENT REALISATION WILL ALL BE TREATED AS REVENUE EXPENDITURE. THAT BROAD PRINCIPLE ON THE NATURE OF GOVERNMENT SECURITIES HAS BEEN HELD TO BE STOCK - IN - TRADE AND THE QUESTION NOW ARISES IN THIS CASE IS WHETHER THE INTEREST PAID ON CHARGE OF INVESTME NTS IS ALLOWABLE AS REVENUE EXPENDITURE DISREGARDING THE PRINCIPLE THAT THE INTEREST PAID ON CHARGE OF INVESTMENTS CATEGORISED AS PERMANENT IS TO BE TREATED AS CAPITAL EXPENDITURE AND NOT I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 26 AS REVENUE EXPENDITURE. THE DEPARTMENT'S CONTENTION THAT THE INTER EST PAID ON CHARGES OF INVESTMENTS CANNOT BE TREATED AS REVENUE EXPENDITURE IS NOT NOW AVAILABLE WHEN THE VERY GOVERNMENT SECURITIES ITSELF IS TREATED TO BE STOCK - IN - TRADE AS PER THE DECISION OF THIS COURT. WHATEVER EXPENSES INCURRED OR INTEREST PAID THERE IN ON SUCH SHARES WAS ONLY REVENUE EXPENDITURE AND NOT A CAPITAL EXPENDITURE IN NATURE AND THE TRIBUNAL BY FOLLOWING THE DECISION OF THIS COURT REPORTED IN (2005) 273 ITR 510 (MAD) (SUPRA) AND BY FOLLOWING THE HON BLE SUPREME COURT DECISION REPORTED IN (19 99) 156 CTR (SC) 380 : (1999) 240 ITR 355 (SC) (SUPRA) HAS ARRIVED AT THE CONCLUSION THAT THE INTEREST PAID WILL NOT BE A CAPITAL EXPENDITURE AND ONLY A REVENUE EXPENDITURE. HENCE, WE HOLD THAT THE TRIBUNAL S FINDING IS LEGAL, VALID AND CORRECT. THEREFORE, THIS QUESTION IS ALSO ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE FOLLOWING THE ABOVE DECISIONS OF THIS COURT AND THE HON BLE SUPREME COURT. 46 . RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT (SUPRA), WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 4 7 . THE NEXT ISSUE RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004 - 05 IN I.T.A. NO.1209/MDS/2014 RELATES TO DISALLOWANCE OF DEDUCTION CLAIMED UNDER CLAUSE (VIII) OF SUB - SECTION (1) OF SECTION 36 OF THE ACT. THE ASSESSEE BANK CLAIMED DEDUCTION UNDER CLAUSE (VIII) OF SUB - SECTION (1) OF SECTION 36 OF THE ACT BY CREATING A RESERVE IN ADDITION TO DEDUCTION UNDER THE PROVISIONS OF SECTION 3 6(1)(VII), CLAUSE (VIIA)(A) OF THE ACT. SINCE THE ASSESSEE HAS CREATED A SPECIAL RESERVE ACCOUNT AND HAS ALREADY TRANSFERRED PROFITS DERIVED FROM BUSINESS OF PROVIDING LONG TERM FINANCE (LOAN FOR A TERM MORE THAN FIVE YEARS) FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES, NOT EXCEEDING 40% TO SUCH RESERVE, SO IT WAS ELIGIBLE FOR DEDUCTION UNDER CLAUSE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 27 (V III) TO SUB - SECTION (1) OF SECTION 36 OF THE ACT. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS CLAIMED THAT IT IS A PUBLIC COMPA NY WHICH IS ENGAGED IN THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR PURCHASE OF RESIDENTIAL HOUSES IN TERMS OF COMPANIES ACT, 1956. HOWEVER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE IS A BANKING COMPANY WHICH IS ALSO A PUBLIC LIMITED COMPANY , BUT HAS NOT BEEN FORMED WITH THE MAIN OBJECT OF PROVIDING LONG TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES. THE ASSESSING OFFICER HAS FURTHER OBSERVED THAT SINCE THE MAIN OBJECT OF THE ASSESSEE BANK IS TO CARRY O N BUSINESS OF BANKING AND BEING REGULATED BY RESERVE BANK OF INDIA, THE ASSESSEE BANK IS NOT REGULATED BY THE NATIONAL HOUSING BOARD. FURTHER, IT WAS OPINED THAT THE BANKING COMPANIES HAVE BEEN TAKEN OUT OF THE PURVIEW OF THE INDIAN COMPANIES ACT FOR REG ULATION PURPOSES AND DIRECTION AND GUIDELINES ISSUED BY THE RBI HAVE PRECEDENCE OVER THE PROVISIONS OF THE COMPANIES ACT APPLICABLE TO THE BANKING COMPANIES. THE BANKS ARE DEEMED TO BE BANKING COMPANIES AND THEY MAY NOT BE REGISTERED UNDER THE COMPANIES AC T . SINCE THE CLAUSE (VIII) TO SUB - SECTION (1) OF SECTION 36 OF THE ACT HAS BEEN AMENDED BY FINANCE ACT, 2006 W.E.F. 01.04.2007 AND LATER SUBSTITUTED IBID W.E.F. 01.04.2008, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM THE DEDUCTION FOR THE ASSESSMENT YEAR 2004 - 05 AND THE CLAIM OF DEDUCTION HAS BEEN WRONGLY ALLOWED TO THE ASSESSEE IN THE EARLIER ASSESSMENT ORDER DATED 29.12.2006 I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 28 HAS BEEN WITHDRAWN, BY RELYING ON VARIOUS DECISIONS, THE ASSESSING OFFICER HAS MADE THE ADDITION OF .30,22,639/ - . 48 . ON APPEAL, THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 49 . BEFORE THE TRIBUNAL, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT SINCE THE ASSESSING OF FICER HAS HELD THAT THE DEDUCTION WAS ALLOWABLE TO FINANCIAL CORPORATION AND NOT TO BANKS, THE FINANCIAL CORPORATION INCLUDES PUBLIC COMPANY AND THE ASSESSEE BEING A PUBLIC COMPANY WITH THE MEANING OF SECTION 3 OF THE COMPANIES ACT, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE IS ELIGIBLE FOR CLAIMING DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. 50 . BOTH PARTIES HAVE BEEN HEARD. FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT, IT HAS TO BE SEEN WHETHE R THE BANKING COMPANIES ARE INCLUDED UNDER PUBLIC COMPANY . IF THE TERM PUBLIC COMPANY COVERED A BANKING COMPANY , THEN THE LEGISLATURE NEED NOT HAVE PROVIDED TWO SEPARATE EXPRESSIONS, ONCE REFERRING TO A BANKING COMPANY AND ANOTHER TO A PUBLIC COMPANY . IT IS AN UNDISPUTED FACT THAT BANKING COMPANIES ARE SPECIFICALLY INCLUDED IN THE DEFINITION W.E.F. 01.04.2008 BY FINANCE ACT, 2007 . IT IS A FACT THAT THE LEGISLATURE INCLUDED BANKING COMPANY FOR THE FIRST TIME FROM 01.04.2008 CLEARLY SHOWS THAT PRIOR TO THIS ENACTMENT , I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 29 THE TERM PUBLIC COMPANY DID NOT INCLUDE THE BANKING COMPANY. IN VIEW OF THE ABOVE, THE PRESENT APPEAL PREFERRED BY THE ASSESSEE PERTAINS TO THE ASSESSMENT YEAR 2004 - 05, WHERE, THE BANKING COMPANIES ARE NOT INCLUDED AS PUBLIC COMPANY FOR THE PURPOSE OF CLAIMING ANY DEDUCTION ON PAR WITH PUBLIC COMPANIES INCLUDING THE CLAIM OF DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT . UNDER THESE FACTS AND CIRCUMSTANCES, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 51 . THE NEXT ISSUE RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004 - 05 IN I.T.A. NO.1209/MDS/2014 RELATES TO CONFIRMATION OF DISALLOWANCE OF .43,993/ - TOWARDS SURPLUS ON SALE OF JEWELLERY. THE ASSESSEE SOLD JEWELLERY PLEDGED AGAINST LOAN TAKEN BY THE CUSTOMERS AND REALIZ ED EXCESS AMOUNTS ON SALE OF SUCH JEWELLERY AS COMPARED TO THE AMOUNT LENT AND DUE TO IT AS INTEREST. BEFORE THE ASSESSING OFFICER, THE AR OF THE ASSESSEE ARGUED THAT WHEN THE PLEDGED JEWELS WERE SOLD, THE SURPLUS, AFTER ADJUSTING THE AMOUNT DUE TO THE BAN K FROM THE BORROWERS WAS SHOWN UNDER OTHER LIABILITIES . HOWEVER, THE ASSESSING OFFICER ADDED THIS ON THE GROUND THAT THE SURPLUS BELONGED TO THE ASSESSEE. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 30 TRIBUNAL IN ASSESSEE S O WN CASE IN I.T.A. NO. 1402/MDS/2014 DATED 22.03.2013. 52 . BOTH SIDES HAVE BEEN HEARD. IT IS A FACT THAT TH E ASSESSEE SOLD JEWELLERY PLEDGED AGAINST LOAN TAKEN BY THE CUSTOMERS AND REALIZED EXCESS AMOUNTS ON SALE OF SUCH JEWELLERY AS COMPARED TO THE AMOUNT LENT AND DUE TO IT AS INTEREST AND THE SAME WAS SHOWN UNDER OTHER LIABILITIES . HON BLE KERALA HIGH COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. V. ADDL. CIT (SUPRA) HAS HELD THAT ANY SURPLUS CANNOT BE TREATED AS A LIABILITY WHEN THE ASSESSEE HAS NO CASE THAT IT IS PAYABLE TO ANYBODY OR IT IS A LIABILITY DUE FROM THE ASSESSEE TO ANY PERSON. 53. FOLLOWING THE SAME ANALOGY, WE ARE OF THE OPINION THAT T HE SALE OF SURPLUS TOWARDS SALE OF JEWELLERY FOUND IN THE HANDS OF THE ASSESSEE CANNOT BE TREATED AS LIABILITY OR PROVISION FOR LIABILITY AND IT CANNOT BE CARRIED ON FOR INDEFINITE PERIOD, WHEN THERE IS NO POS SIBILITY OF ANY ONE CLAIMING ANY AMOUNT AGAINST THIS SURPLUS. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY HELD THAT THE SURPLUS BELONGED TO THE ASSESSEE AND WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) CONFIRMING THE ADDITION MADE ON THIS ACCOUNT. THUS, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 5 4 . THE NEXT ISSUE RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004 - 05 IN I.T.A. NO.1209/MDS/2014 RELATES TO I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 31 CONFIRMATION OF ENTERTAINMENT EXPENSES. THE ASSESSEE BANK HAS INCURRED AN AMOUNT OF .18,53,257/ - AS ENTERTAINMENT EXPENDITURE AND CLAIMED THE SAME FOR BUSINESS PURPOSE. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS NOT PRODUCED VOUCHERS FOR THE ABOVE EXPENSES AND THEREFORE, DISALLOWED 5% OF THE EXPENDITURE CLAIMED AT .92,691/ - . ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS A ND ARE NOT PERSONAL EXPENSES AS OBSERVED BY THE ASSESSING OFFICER. HE ALSO SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR EARLIER ASSESSMENT YEAR. 5 5 . AFTER HEARING BOTH SIDES, WE FIND THAT ON IDENTICAL FACTS, SIMILAR ISSUE HAS CAME UP BEFORE THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE AND THE TRIBUNAL IN ITS CONSOLIDATED ORDER DATED 22.03.2013 IN I.T.A. NOS. 1401, 1402 & 1403/MDS/20 12 HAS OBSERVED AND HELD AS UNDER: 43. NOW, WE COME TO GROUND NO. 3 RAISED BY THE ASSESSEE. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE IMPUGNED ASSESSMENT YEAR, IT HAD CLAIMED ENTERTAINMENT EXPENDITURE S DEDUCTION INVOLVING AN AMOUNT OF RS.20,93,720/ - . ITS CLARIFICATION IN SUPPORT WAS THAT FOR THE PURPOSE OF BUSINESS S PROMOTION AND CANVASSING, THE SUM HAD BEEN INCURRED FOR SERVING TEA, COFFEE ETC. TO THE CUSTOMERS, WHICH ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IS NEITHER CAPITAL NOR PERSONAL EXPENSES. AS IT IS FOUND FROM THE ASSESSMENT ORDER, THE ASSESSING OFFICER FOUND SUBSTANCE IN ASSESSEE S ARGUMENT, HOWEVER, HE DISALLOWED THE CLAIM @ 5% TO THE TUNE OF RS.1,04,686/ - AFTER I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 32 OBSERVING THAT THERE WERE NO DEFINITE BASIS TO COME TO THE C ONCLUSION THAT THEY HAD BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE CIT(A) HAS ALSO CONFIRMED THE ADDITION. THEREFORE, THE ASSESSEE RAISES THE INSTANT GROUND. 44. IN THE COURSE OF ARGUMENTS, THE ASSESSEE WOULD REITERATE TH E PLEADINGS IN THE GROUNDS WHICH IN TURN ARE VEHEMENTLY OPPOSED BY THE REVENUE. 45. WE HAVE HEARD BOTH PARTIES AND PERUSED THE ASSESSMENT ORDER AS WELL AS CIT(A) S ORDER. ADMITTEDLY, THE ENTERTAINMENT EXPENSES IN QUESTION @ 95% STAND ACCEPTED BY BOTH AU THORITIES BELOW. IN OTHER WORDS, THE EXPENSES STAND ACCEPTED IN PART AND DISALLOWED @ 5% BY THE ASSESSING OFFICER AND CIT(A) MERELY ON PRESUMPTION (SUPRA). IN OUR VIEW, WITHOUT ANY COGENT MATERIAL ON RECORD AS RELIED UPON THE EVIDENCE BY THE AUTHORITIES BE LOW, THEY HAVE ERRED IN DISALLOWING THE CLAIM RAISED BY THE ASSESSEE MERELY ON CONJUNCTURES AND SURMISES. THEREFORE, FOLLOWING OUR REASONING QUA OTHER EXPENDITURE (SUPRA), GROUND RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2004 - 05 DECIDED HEREINABOVE, WE AC CEPT THE INSTANT GROUND AS WELL. 5 6 . THE DR COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL IN ASSESSEE S OWN CASE. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE DELETE THE ADDITION MADE BY THE ASSESSING OFFICER AND ALLOW THE GRO UND RAISED BY THE ASSESSEE. 5 7 . THE FIRST GROUND RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006 - 07 IN I.T.A. NO. 1621/MDS/2014 IS WITH REGARD TO VALIDITY OF REOPENING OF ASSESSMENT NOT CONSIDERED BY THE LD. CIT(A). THE FACTS OF THE C ASE ARE THAT THE ASSESSEE HAS FILED RETURN OF FRINGE BENEFIT FOR THE ASSESSMENT YEAR 2006 - 07 ON 04.12.2006 OFFERING A FRINGE BENEFIT VALUE OF .1,11,24,143/ - . THE CASE OF THE ASSESSEE WAS PROCESSED UNDER SECTION 115WE(1) ON 20.03.2008. THE SAME WAS REOPENED BY ISSUE OF NOTICE UNDER I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 33 SECTION 115WH OF THE ACT DATED 30.03.2011, WHICH WAS SERVED ON THE ASSESSEE ON 04.04.2011. IN RESPONSE TO THE NOTIC E, THE ASSESSEE VIDE THEIR LETTER DATED 26.04.2011 SUBMITTED A COPY OF THE ORIGINAL RETURN FILED BY THEM ON 04.12.2006. AGAIN A NOTICE UNDER SECTION 115WE(2) OF THE ACT WAS ISSUED ON 16.01.2012 AND IN RESPONSE TO THAT, THE AR OF THE ASSESSEE APPEARED BEFOR E THE ASSESSING OFFICER ON 25.01.2012 AND SUBMITTED THE DETAILS CALLED FOR. AFTER EXAMINATION OF THE DETAILS FURNISHED BY THE ASSESSEE AND AFTER DULY CONSIDERING THE REPLY FURNISHED BY THE BANK ON 28.02.2012 TO THE ADDITIONS PROPOSED BY THE ASSESSING OFFIC ER VIDE HIS LETTER DATED 27.01.2012, THE ASSESSMENT UNDER SECTION 115WG R.W.S. 115WE(3) OF THE ACT WAS COMPLETED ON 29.02.2012 BY ASSESSING THE VALUE OF FRINGE BENEFITS AT .6,61,93,544/ - . BEFORE THE LD. CIT(A), BESIDES CHALLENGING THE ADDITION OF .5,50,6 9,401 BEING THE PROVISION FOR CONTRIBUTION TO SUPERANNUATION FUND AS FRINGE BENEFITS, THE ASSESSEE HAS ALSO SPECIFICALLY CHALLENGED THE REOPENING OF THE ASSESSMENT UNDER SECTION 115WE(3) OF THE ACT BEYOND THE TIME LIMIT VIDE GROUND NO. 2 OF ASSESSEE S GROU NDS APPEAL FILED BEFORE THE LD. CIT(A) . WE FIND THAT I N THE APPELLATE ORDER, THE LD. CIT(A) HAS NOT CONSIDERED THE ISSUE RAISED BEFORE HIM WITH REGARD TO VALIDITY OF REOPENING OF THE ASSESSMENT BEYOND THE TIME LIMIT. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE LD. CIT(A) TO DECIDE FIRST THE ISSUE OF VALIDITY OF REOPENING OF ASSESSMENT UNDER SECTION I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 34 115WE(3) BEYOND THE TIME LIMIT IN ACCORDANCE WITH LAW AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASS ESSEE. IN VIEW OF THE ABOVE, SINCE THE LD. CIT(A) IS REQUIRED TO BE ADJUDICATED THE ISSUE OF VALIDITY OF REOPENING OF ASSESSMENT, THE ISSUE OF ADDITION MADE TOWARDS FRINGE BENEFIT, ON MERIT, IS NOT REQUIRED TO BE ADJUDICATED BY US. THUS, THE APPEAL FILED B Y THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5 8 . ANOTHER APPEAL PREFERRED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2006 - 07 [IN I.T.A. NO. 27/MDS/2014] IS DIRECTED AGAINST THE ORDER PASSED UNDER SECTION 143(3) R.W.S. 263 OF THE ACT , WHEREIN THE FOL LOWING GROUNDS HAVE BEEN RAISED: 1. THE CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN NOT CONSIDERING THE ADDITIONAL STATEMENT OF FACTS AND ADDITIONAL GROUNDS OF APPEAL RELATING TO THE APPLICABILITY OF SECTION 115JB TO THE APPELLANT. 2. THE APPEL LANT SUBMITS THAT SECTION 115JB IS APPLICABLE ONLY TO THE ASSESSEE COMPANY PREPARING THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET IN ACCORDANCE WITH THE SCHEDULE VI OF THE COMPANIES ACT AND THAT IT IS PREPARING THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET IN ACCORDANCE WITH BANKING COMPANIES REGULATION ACT AND THAT THEREFORE SECTION 115JB IS NOT BE APPLICABLE TO THE APPELLANT BANK. 3. THE APPELLANT THEREFORE, PRAYS THAT IT IS NOT LIABLE TO PAY TAX UNDER SECTION 115JB OF THE ACT. 59 . BEFORE THE LD. CIT (A), THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUND FOR CONSIDERATION: THE APPELLANT SUBMITS THAT THE PROVISIONS RELATING TO TAX ON BOOK PROFITS ARE NOT APPLICABLE TO BANKING COMPANIES AND THAT, THEREFORE, I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 35 THE PROFITS, BASED ON THE NORMAL PROVISI ONS OF THE ACT, IF ANY, MAY BE DETERMINED AND ASSESSED. 6 0 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE PROVISIONS RELATING TO THE BOOK PROFITS ARE APPLICABLE ONLY IN CASE OF COMPANIES PREPARING THE BALANCE - SHEET IN ACCORDANCE WIT H SCHEDULE VI OF THE COMPANIES ACT, 1956. HOWEVER, THE ASSESSEE, BEING A SCHEDULED BANK, PREPARES THE INCOME RETURN AS PER THE BANKING REGULATIONS ACT AND NOT AS PER COMPANIES ACT. THEREFORE, IT WAS SUBMITTED THAT THE PROVISIONS RELATING TO BOOK PROFITS AR E NOT APPLICABLE TO THE ASSESSEE BANK. WE FIND FORCE IN THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE. ON CAREFUL PERUSAL OF THE ORDER OF THE LD. CIT(A) REVEALS THAT THE LD. CIT(A) HAS NOT ADJUDICATED THE ADDITIONAL GROUND RAISED BEFORE HIM . IN VIEW OF THE ABOVE FACTS, WE DIRECT THE LD. CIT(A) TO ADJUDICATE THE ABOVE ADDITIONAL GROUND, WHICH WAS RAISED BEFORE HIM DURING THE COURSE OF APPELLATE PROCEEDINGS AND NOT CONSIDERED AND ADJUDICATED BY THE LD. CIT(A) IN HIS CONSOLIDATED ORDER DATED 25.10.2013. AC CORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THUS, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6 1 . THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 IN I.T .A. NO.1622/MDS/2014 RELATES TO CONFIRMATION OF DISALLOWANCE OF DRAFT PAYABLE MORE THAN 3 YEARS. IN THE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 36 ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOTICED IN THE BALANCE SHEET OF THE ASSESSEE THAT FOR THE ASSESSMENT YEAR 2009 - 10, THERE IS AN OUTSTANDING L IABILITIES OF .2,44,19,929/ - TOWARDS DRAFT PAYABLE MORE THAN 3 YEARS, ETC. THIS ACCOUNT REFLECTS THE AMOUNT REMAINED WITH THE ASSESSEE BANK FOR MORE THAN THREE YEARS UNCLAIMED BY THE CUSTOMERS WHO HAD OBTAINED DEMAND DRAFT FROM THE BANK. BEFORE THE ASSESSING OFFICER, T HE AR OF THE ASSESSEE HAS SUBMITTED THAT THE OUTSTANDING AMOUNTS ARE TO BE KEPT AS LIABILITY AS THE SAME CAN BE CLAIMED BY THE CUSTOMERS AT ANY TIME. IN THE ABSENCE OF FURNISH DETAILS OF SUCH CLAIMS OF THE CUSTOMERS ENTERTAINED DURING THE RELEVANT PREVIOUS YEAR AND THE AMOUNT PAID TO CUSTOMERS FROM DRAFT PAYABLE MORE THAN 3 YEARS, THE ASSESSING OFFICER, B Y FOLLOWING THE DECISION IN THE CASE OF TV SUNDARAM IYENGAR & SONS 222 ITR 344 (SC), THE ASSESSING OFFICER HAS WORKED OUT THE OUTSTANDING LIABILITIES DURIN G THE RELEVANT PREVIOUS YEAR AT .20,19,246/ - BY REDUCING THE TOTAL OUTSTANDING LIABILITIES OF .2,44,19,929/ - . SINCE THE ASSESSEE BANK COULD NOT COME UP WITH EVEN A SINGLE CASE WHERE SUCH PAYMENT WAS MADE OUT OF THE STALE DRAFT ACCOUNT, THE OUTSTANDING LI ABILITIES WORKED OUT AT .20,19,246/ - WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, EVEN BEFORE THE LD. CIT(A), THE ASSESSEE COULD FURNISH ANY CASE OF SUCH PAYMENT MADE OUT OF THE STALE DRAFT ACCOUNT , THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER WAS CONFIRMED. I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 37 6 2 . WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERIALS ON RECORD. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION IN THE CASE OF DCIT V. CITY UNION BANK LTD. IN I.T.A. NO 935/MDS/20 10 & OTHERS VIDE ORDE R DATED 08.07.2011, WHEREIN, THE TRIBUNAL, BY FOLLOWING ITS OWN ORDER IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEARS 2001 - 02 AND 2002 - 03, DECIDED THE ISSUE AGAINST THE REVENUE ONLY ON THE GROUND THAT THE DECISION OF THE TRIBUNAL WAS N OT REVERSED BY ANY HIGHER FORUM. HOWEVER, O N SIMILAR FACTS AND CIRCUMSTANCES, THE HON BLE KERALA HIGH COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. V. ADDL. CIT [2012] 349 ITR 569, HAS OBSERVED AND HELD AS UNDER: 2. THE NEXT QUESTION PERTAINS TO ASSES SMENT OF EXCESS CASH IN THE CUSTODY OF THE ASSESSEE WHICH IS KEPT IN THE SUSPENSE ACCOUNT UNDER THE HEAD' OTHER LIABILITIES AND PROVISIONS'. ON GOING THROUGH THE TRIBUNAL'S ORDER WE NOTICE THAT THE ASSESSEE THEMSELVES CONCEDED THAT THE AMOUNT IS EXCESS CAS H WITH THEM RETAINED FOR SEVERAL YEARS AND THERE IS NO CLAIMANT FOR THE SAME. WE DO NOT KNOW WHY IT IS NOT INCOME AS THE ASSESSEE THEMSELVES HAVE NO CASE THAT IT IS PAYABLE TO ANYBODY OR IT IS A LIABILITY DUE FROM THE ASSESSEE TO ANY PERSON. WE DO NOT FIND ANY QUESTION OF LAW ARISING FROM THE DECISION OF THE TRIBUNAL ON THIS ISSUE WHEREIN THE FINDING RECORDED IS THAT THE AMOUNT DOES NOT REPRESENT LIABILITY AND IT IS WRONGLY SHOWN BY THE ASSESSEE AS LIABILITY EVEN THOUGH THE COUNSEL FOR THE APPELLANT HAS REL IED ON THE DECISION OF THE BOMBAY HIGH COURT IN CIT V. BANK OF RAJASTHAN LTD. REPORTED IN [2010] 326 ITR 526 (BORN) ; [2010] 40 DTR (BORN) 173, WHAT WE NOTICE IS THAT UNLIKE IN THIS CASE CASH FOUND IS NOT EXCESS CARRIED OVER FOR SEVERAL YEARS BUT IS EXCESS CASH AVAILABLE IN THE IMMEDIATE PAST YEAR. SO MUCH SO, WHEN THERE IS NO POSSIBILITY OF ANYONE CLAIMING ANY AMOUNT AGAINST THIS SURPLUS IN THE SUSPENSE ACCOUNT MAINTAINED BY THE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 38 ASSESSEE, IN OUR VIEW, THE APPELLANT CANNOT TREAT IT AS A LIABILITY OR A PROVI SION FOR LIABILITY. FURTHER, AS AND WHEN A CLAIM IS MADE AND THE APPELLANT HAS TO MAKE ANY PAYMENT, THE SAME WILL BE ALLOWABLE AS A DEDUCTION IN THE YEAR IN WHICH THE CLAIM IS MADE. SO MUCH SO, IN OUR VIEW, THE TRIBUNAL RIGHTLY REJECTED THE CLAIM OF THE AS SESSEE AT LEAST IN RESPECT OF THE ARREARS CARRIED OVER FOR SEVERAL YEARS. HOWEVER, WE FEEL THAT THE EXCESS FOUND DURING THE PREVIOUS YEAR NEED NOT BE TREATED AS INCOME AND CAN BE TREATED AS SURPLUS IN THE SUSPENSE ACCOUNT FOR THREE YEARS TO MEET A LIABILIT Y IN THE EVENT OF ANY CLAIM BEING MADE. WE, THEREFORE, CONFIRM THE FINDING OF THE TRIBUNAL ON THIS ISSUE IN RESPECT OF ARREARS BROUGHT FORWARD EXCEPT .95,000 WHICH IS FOUND IN THE PREVIOUS YEAR. 6 3 . RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HON BLE KERALA HIGH COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. V. ADDL. CIT (SUPRA), WE ARE OF THE OPINION THAT T HE AMOUNT OF STALE DRAFT S FOUND IN THE HANDS OF THE ASSESSEE CANNOT BE TREATED AS LIABILITY OR PROVISION FOR LIABILITY AND IT CANNOT BE CARRIE D ON FOR INDEFINITE PERIOD AND IT HAS TO BE TREATED AS INCOME OF THE ASSESSEE. HOWEVER, WE MAKE IT CLEAR THAT WHENEVER THE ASSESSEE HAS TO MAKE PAYMENT AGAINST THE STALE DRAFTS AT ANY TIME IN FUTURE, THE SAME HAS TO BE CLAIMED AS EXPENDITURE. WITH THIS OBS ERVATION, WE DISMISS THE GROUND TAKEN BY THE ASSESSEE. 6 4 . THE NEXT GROUNDS RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 IN I.T.A. NO. 1622/MDS/2014 IS WITH REGARD TO SURPLUS ON SALE OF JEWELLERY AND APPRECIATION IN VALUE OF SEC URITIES. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED BOTH THE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 39 ISSUES AND ACCORDINGLY, BOTH THE ISSUES RAISED IN THE GROUNDS OF APPEAL OF THE ASSESSEE ARE DISMISSED AS NOT PRESSED. 6 5 . THE NEXT ISSUE RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 IN I.T.A. NO. 1622/MDS/2014 IS WITH REGARD TO CONFIRMATION OF ADDITION MADE TOWARDS PROVISION FOR BONUS . THE ASSESSEE BANK DEBITED TO THE PROFIT AND LOSS ACCOUNT AN AMOUNT OF .42,06,821/ - TOWARDS PROVISION FOR BONUS, WHICH WAS NOT ALLOWABLE AS REVENUE EXPENSE AND THEREFORE, THE ASSESSEE BANK ADDED BACK .42,00,000/ - ONLY IN THE COMPUTATION MEMO. ACCORDINGLY, THE DIFFERENCE OF .6,821/ - WAS ADDED BACK. THE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY CONTENDED THAT ONLY RS.42,00,000/ - HAS BEEN PROVIDED AS BONUS AS PER TAX AUDIT REPORT AND THE ASSESSING OFFICER HAS WRONGLY ADOPTED THE FIGURE AT .42,18,821/ - . IF IT IS SO, THE ADDITION MADE BY THE ASSESSING OFFICER SHOULD BE MORE THAN .6,821/ - . SINCE THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE AND THE ADDITION MADE BY THE ASSESSING OFFICER ARE CONTRARY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND REMIT THE MATTER BACK TO THE A SSESSING OFFICER TO VERIFY FROM THE TAX AUDIT REPORT AS TO WHAT WAS THE ACTUAL PROVISION MADE FOR BONUS AND DECIDE THE ISSUE DE NOVO. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 40 6 6 . THE NEXT GROUND RAISED IN THE A PPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 IN I.T.A. NO. 1622/MDS/2014 IS WITH REGARD TO CONFIRMATION OF ADDITION MADE TOWARDS PAYMENT OF DONATION. THE ASSESSEE BANK HAS DEBITED TO THE PROFIT AND LOSS ACCOUNT AN AMOUNT OF .5,51,690/ - TOWARDS DONATION. THE ASSESSEE BANK HAS PRODUCED RECEIPT TO THE EXTENT OF .3,00,000/ - ONLY. THE ASSESSING OFFICER HAS OBSERVED THAT DEDUCTION ON ACCOUNT OF DONATION IS ALLOWED AT 50% I.E., . 1,50,000/ - ONLY. HE ALSO OBSERVED THAT SINCE THE D EDUCTION IS REQUIRED TO BE CONSIDERED UNDER CHAPTER VIA SEPARATELY, THE ENTIRE AMOUNT OF .5,51,690/ - IS REQUIRED TO BE ADDED BACK AND .1,50,000/ - TO BE ALLOWED AS DEDUCTION. SINCE THE ASSESSEE BANK ITSELF HAS ADDED .3,00,000/ - ONLY IN THE COMPUTATION ME MO, THE ASSESSING OFFICER HAS ADDED BACK THE BALANCE AMOUNT OF .2,51,690/ - . ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. BEFORE US , THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE AMOUNT WAS ACTUALLY PAID FOR ADV ERTISEMENT CHARGES IN THE SOUVENIRS AND TREATED IT AS DONATION AND CONTENDED THAT THE ADVERTISEMENT CHARGES IN SOUVENIRS ARE DEDUCTIBLE IN VIEW OF THE CBDT CIRCULAR. IF IT IS SO, WHAT PREVENTED THE ASSESSEE BANK TO CLAIM THE SAME UNDER ADVERTISEMENT CHARG ES RATHER THAN CLAIMING IT AS DONATION . THE LD. COUNSEL FOR THE ASSESSEE HAS NOT ABLE TO GIVE ANY CONVINCING REPLY TO THE SPECIFIC QUERY RAISED BY THE BENCH. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 41 PASSED BY THE AUTHORITIES BELOW AND ACC ORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. INTEREST UNDER SECTION 234B OF THE ACT [A.Y. 2000 - 01 IN I.T.A. NO. 1620/MDS/2014; A.Y. 2001 - 02 IN I.T.A. NO. 1206/MDS/2014; A.Y. 2002 - 03 IN I.T.A. NO. 1208/MDS/2014 AND A.Y. 2004 - 05 IN I.T.A. NO. 1 209/MDS/2014: 6 7 . THE NEXT COMMON GROUND RAISED IN THE APPEALS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2000 - 01 IN I.T.A. NO. 1620/MDS/2014, 2001 - 02 IN I.T.A. NO. 1206/MDS/2014, 2002 - 03 IN I.T.A. NO. 1208/MDS/2014, 2004 - 05 IN I.T.A. NO. 1209/MDS/2014 [O NLY INTEREST UNDER SECTION 234B], 2009 - 10 IN I.T.A. NO. 1622/MDS/2014 [INTEREST UNDER SECTION 234C AND 234D] IS WITH REGARD TO CHARGING OF INTEREST UNDER SECTION 234B AND 234D OF THE ACT 6 8 . IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS LEVIED INTER EST UNDER SECTION 234B OF THE ACT AND THE DETAILS ARE AS UNDER: A.Y. 2000 - 01 A.Y. 2001 - 02 A.Y. 2002 - 03 A.Y.2004 - 05 TAX PAYABLE BEFORE GIVING CREDIT TO ADVANCE TAX AND TDS AS PER ASSESSMENT ORDER 13,75,63,199 14,67,44,676 18,90,00,959 31,84,23,312 ADVAN CE TAX AND TDS 15,12,23,703 16,34,87,500 19,15,41,688 20,55,74,359 REFUND DUE 1,36,60,504 1,67,42,824 25,40,728 NO REFUND 69 . FROM THE ABOVE, IT IS VERY CLEAR THAT THE TDS AND ADVANCE TAX PAID IS IN EXCESS OF THE TAX PAYABLE BY THE ASSESSEE AND MOREO VER THE ASSESSEE IS DUE TO GET THE REFUND OVER THE EXCESS PAYMENT OF TAXES FOR THE ASSESSMENT YEARS 2000 - 01, 2001 - 02 AND 2002 - 03. IN VIEW OF THE ABOVE , LEVY OF INTEREST I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 42 UNDER SECTION 234B OF THE ACT IS NOT WARRANTED. ACCORDINGLY WE DELETE THE INTEREST LEVI ED BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEARS 2000 - 01, 2001 - 02 AND 2002 - 03 AND ALLOW THE GROUND RAISED BY THE ASSESSEE IN THE ABOVE ASSESSMENT YEARS. 7 0 . HOWEVER, FOR THE ASSESSMENT YEAR 2004 - 05, THOUGH THE TDS AND ADVANCE TAX AND PAID BY THE ASS ESSEE IS LESS THAN THE TAX PAYABLE BY THE ASSESSEE, WHILE DECIDING THE APPEAL OF THE ASSESSEE, THE APPEAL OF THE ASSESSEE WAS PARTLY ALLOWED AND . ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO REWORK AND LEVY THE INTEREST CHARGEABLE UNDER SECTION 234B O F THE ACT WHILE GIVING EFFECT TO THE ORDER OF THE TRIBUNAL. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. INTEREST UNDER SECTION 234C OF THE ACT [A.Y. 200 9 - 1 0 IN I.T.A. NO. 1622/MDS/2014: 7 1 . IN THE ASSESSMENT ORD ER, THE ASSESSING OFFICER HAS LEVIED INTEREST UNDER SECTION 234C OF THE ACT AFTER ASSESSING THE INCOME OF THE ASSESSEE. THE LD. CIT(A) HAS HELD THAT CHARGING OF INTEREST IS MANDATORY AND ACCORDINGLY, HE REJECTED THE GROUND RAISED BY THE ASSESSEE. BEFORE US , THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER WENT IN WRONG TO CHARGE THE INTEREST UNDER SECTION 234C OF THE ACT AFTER ASSESSING THE INCOME OF THE ASSESSEE INSTEAD OF CHARGING THE INTEREST ON INCOME RETURNED. ACCORDINGLY WE DI RECT THE ASSESSING OFFICER TO REWORK THE INTEREST I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 43 UNDER SECTION 234C OF THE ACT ON THE INCOME RETURNED INSTEAD OF CHARGING THE INTEREST OF ASSESSED INCOME. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7 2 . WITH REGARD TO C HARGING OF INTEREST UNDER SECTION 234D OF THE ACT IS CONCERNED, THE ASSESSING OFFICER HAS LEVIED INTEREST UNDER SECTION 234D OF THE ACT FOR THE ASSESSMENT YEAR S 2000 - 01 , 2001 - 02 AND 2002 - 03, IN I.T.A. NO.1620/MDS/2014, I.T.A.NO. 1206/MDS/2014 AND I.T.A. NO .1208/MDS/2014. FOR THE ASSESSMENT YEAR 2000 - 01, THE ORIGINAL ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 28.03.2003. THEREAFTER, THE ASSESSMENT WAS REOPENED UNDER SECTION 147 OF THE ACT AND COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R.W .S. 147 OF THE ACT ON 31.12.2007. FOR THE ASSESSMENT YEAR 2001 - 02, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 30.03.2004 AND THEREAFTER, THE ASSESSMENT WAS REOPENED UNDER SECTION 147 OF THE ACT AND COMPLETED THE ASSESSMENT UNDER SECTIO N 143(3) R.W.S. 147 OF THE ACT ON 31.12.2007. SIMILARLY, FOR THE ASSESSMENT YEAR 2002 - 03, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 30.03.2004 AND THEREAFTER, THE ASSESSMENT WAS REOPENED UNDER SECTION 147 OF THE ACT AND COMPLETED THE ASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE ACT ON 31.12.2007. WE ARE OF THE CONSIDERED OPINION THAT THE INTEREST UNDER SECTION 234D OF THE ACT CAN BE LEVIED IN THE CASE OF REGULAR ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE ACT AND I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 44 NO INTEREST CAN BE LEVIED ON THE REASSESSMENT COMPLETED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT. T HE COORDINATE BENCH OF TRIBUNAL IN THE CASE OF K. ANJI REDDY V. DCIT [2013] 35 TAXMANN.COM 653 (HYDERABAD TRIB.) HAS CONSIDERED SIMILAR ISSUE AND THE TRIBUNAL HAS HE LD THAT WHERE THE ASSESSMENT HAS ALREADY BEEN COMPLETED UNDER SECTION 143(3) OF THE ACT AND REASSESSMENT WAS DONE UNDER SECTION 147 OF THE ACT , THE SAME WOULD NOT BE HELD AS REGULAR ASSESSMENT AND THUS THE INTEREST UNDER SECTION 234D OF THE ACT COULD NOT BE LEVIED ON THE ASSESSEE IN AN ASSESSMENT COMPLETED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT. ACCORDINGLY, KEEPING IN VIEW OF THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DELETE THE INTEREST LEVIED UNDER SECTION 234D OF THE ACT FOR THE ASSESSMENT YEARS 2000 - 01, 2001 - 02 AND 2002 - 03 . 7 3 . WITH REGARD TO CHARGING OF INTEREST UNDER SECTION 234D OF THE ACT FOR THE ASSESSMENT YEAR 2009 - 10 IS CONCERNED, THE ASSESSING OFFICER HAS LEVIED INTEREST UNDER SECTION 234D OF THE ACT WHILE COMPLETING THE ASSESSMENT FOR THE ADDITIONS MADE BY HIM. SINCE WE HAVE DELETED/SUSTAINED SOME OF THE ADDITIONS AND THE GROUND IS CONSEQUENTIAL TO THE ORIGINAL GROUND, THE INTEREST LEVIED UNDER SECTION 234D OF T HE ACT, BEING CONSEQUENTIAL, THE ASSESSING OFFICER IS DIRECTED TO REWORK THE ACTUAL INTEREST LEVIABLE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 45 UNDER SECTION 234D AFRESH IN VIEW OF OUR DECISION IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 IN I.T.A. NO. 1622/MDS/2014. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7 4 . WITH REGARD TO CHARGING OF INTEREST UNDER SECTION 220 OF THE ACT FOR THE ASSESSMENT YEARS 2001 - 02 AND 2002 - 03 IN I.T.A. NOS. 1206 & 1208/MDS/2014 AND IS CONCERNED, THE PAYME NT OF TDS AND ADVANCE TAX IN THE ABOVE ASSESSMENT YEARS ARE CLEARLY STATED IN PARA 6 9 OF THIS ORDER, WHEREBY, THE ASSESSEE IS DUE FOR REFUND IN THE RESPECTIVE ASSESSMENT YEARS. WE ARE OF THE CONSIDERED OPINION THAT THAT T HE ADJUSTMENT MADE BY THE REVENUE O F THE AMOUNT DETERMINED BY IT AS INTEREST BY INVOKING SECTION 220 OF THE ACT FROM THE REFUND THAT WAS DUE TO THE ASSESSEE AT THAT TIME CANNOT BE REGARDED AS LAWFUL. IN THE CASE OF VIKRANT TYRES [2001] 247 ITR 821 (SC), IT WAS HELD BY THE HON BLE SUPREME CO URT THAT (PAGE 826): IT IS SETTLED PRINCIPLE IN LAW THAT THE COURTS WHILE CONSTRUING REVENUE ACTS HAVE TO GIVE A FAIR AND REASONABLE CONSTRUCTION TO THE LANGUAGE OF A STATUTE WITHOUT LEANING TO ONE SIDE OR THE OTHER, MEANING THEREBY THAT NO TAX OR LEVY C AN BE IMPOSED ON A SUBJECT BY AN ACT FOR PARLIAMENT WITHOUT THE WORDS OF THE STATUTE CLEARLY SHOWING AN INTENTION TO LAY THE BURDEN ON THE SUBJECT. IN THIS PROCESS COURTS MUST ADHERE TO THE WORDS OF THE STATUTE AND THE SO CALLED EQUITABLE CONSTRUCTION OF T HOSE WORDS OF THE STATUTE IS NOT PERMISSIBLE. . . . IF WE APPLY THIS PRINCIPLE IN INTERPRETING SECTION 220 OF THE ACT, WE FIND THAT THE CONDITION PRECEDENT FOR INVOKING THE SAID SECTION IS ONLY IF THERE IS A DEFAULT IN PAYMENT OF THE AMOUNT DEMANDED UNDER A I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 46 NOTICE BY THE REVENUE WITHIN THE TIME STIPULATED THEREIN AND IF SUCH A DEMAND IS NOT SATISFIED THEN SECTION 220(2) CAN BE INVOKED. 7 5 . WE OF THE OPINION THAT N O INTEREST CAN BE CHARGED UNDER SECTION 220(2) OF THE ACT FOR THE PERIOD WHEN THERE IS NO DE MAND OUTSTANDING. IN THE PRESENT CASE S ALSO THE DEMAND ARISES FROM THE ORDER PASSED U NDER SECTION 154/251/143(3) OF THE ACT , WHEREBY , VARIOUS ADDITION S HAVE BEEN MADE IN THE REASSESSMENT ORDER. THAT MEANS THE A SSESSING O FFICER HAS TO RECOMPUTE THE INTEREST U NDER SECTION 220(2) OF THE ACT IN TERM S OF THE ABOVE. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2001 - 02 AND 2002 - 03 IS ALLOWED. 7 6 . ALL THE APPEALS FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 1997 - 98, 1998 - 99, 2000 - 01, 2001 - 02, 2004 - 05, 2006 - 07, 2007 - 08 AND 2008 - 09 ARE FOUND TO HAVE BEEN FILED BELATEDLY. THE REVENUE HAS FILED PETITION FOR CONDONATION OF DELAY AND THE LD. DR HAS SUBMITTED THAT THE JURISDICTIONAL ASSESSING OFFICER WAS DEPUT ED ON ELECTION DUTY AT ANDHRA PRADESH AND THEREFORE, THE DEPARTMENT COULD NOT FILE THE APPEALS IN TIME FOR THE ASSESSMENT YEARS1997 - 98, 1998 - 99, 2000 - 01 AND 2001 - 02. FOR THE ASSESSMENT YEARS 2004 - 05, 2006 - 07, 2007 - 08 AND 2008 - 09, THE LD. DR HAS SUBMITTED T HAT THE JURISDICTIONAL ASSESSING OFFICER WAS DEPUTED TO ATTEND TRAINING AT DTRTI, CHENNAI AND WAS ALSO DEPUTED FOR SEARCH OPERATION CONDUCTED BY THE INVESTIGATION WING AND ALSO PART OF A SURVEY OPERATION I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 47 CONDUCTED BY THE DEPARTMENT. IT WAS, THEREFORE, SUBM ITTED THAT THE DELAY IN FILING THE APPEALS MAY BE CONDONED AND PRAYED THAT THE APPEALS MAY BE ADMITTED FOR HEARING. THE LD. COUNSEL FOR THE ASSESSEE HAS NOT OBJECTED TO THE SUBMISSIONS OF THE LD. DR. SINCE WE ARE OF THE OPINION THAT THE REVENUE WAS PREVENT ED BY SUFFICIENT CAUSE IN NOT FILING THE APPEALS IN TIME, WE CONDONE THE DELAY IN FILING THE APPEALS AND THE APPEALS FILED BY THE REVENUE ARE TAKEN UP FOR HEARING. 7 7 . IN THE REVENUE S APPEAL THE FIRST COMMON GROUND RAISED IN ITS APPEAL IN I.T.A. NO S .13 64 , 1365 & 1366 /MDS/2014 [A.Y.1997 - 98 , 1998 - 99 & 2001 - 02 ], & I.T.A.NO.1735/MDS/2014 [A.Y. 2000 - 01] IS WITH REGARD TO DELETION OF ADDITION MADE BY THE ASSESSING OFFICER TOWARDS SOFTWARE EXPENSES INCURRED BY THE ASSESSEE . IN THE DE NOVO ASSESSMENT, THE ASSES SING OFFICER, BY FOLLOWING THE DIRECTIONS OF THE TRIBUNAL, RE - EXAMINED THE ISSUE OF SOFTWARE EXPENSES AND CONCLUDED THAT THERE IS AN ENDURING BENEFIT ON THE SOFTWARE ACQUIRED FOR THE BUSINESS AND TREATED IT AS CAPITAL EXPENDITURE AND SUSTAINED THE DISALLOW ANCE MADE IN THE ORIGINAL ORDER UNDER SECTION 143(3) OF THE ACT. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AR OF THE ASSESSEE ARGUED THAT THE SOFTWARE EXPENSES ARE TO BE CONSIDERED AS REVENUE EXPENDITURE. IT WAS ALSO SUBMITTED THAT IN VIEW OF THE ADV ANCED TECHNOLOGY, THE SOFTWARE BECOMES OBSOLETE WITHIN SHORT INTERVALS AND THE SOFTWARE PURCHASED SERE NOT CUSTOMER MADE BUT ONE AS CAN BE USED BY ANYONE. THE ASSESSEE HAS I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 48 ONLY A RIGHT TO USE. FURTHER, IT WAS SUBMITTED THAT FOR ANY REASON IF IT IS TREATED AS CAPITAL EXPENDITURE, DEPRECIATION IS APPLICABLE TO COMPUTERS AND THE SAME MAY BE ALLOWED. BY FOLLOWING THE DECISION IN THE CASE OF CIT V. SOUTHERN ROADWAYS LTD. 304 ITR 84 (MAD), WHEREIN, IT WAS HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON COMP UTER SOFTWARE PACKAGES WERE REVENUE EXPENDITURE; AND ALSO BY FOLLOWING THE DECISION OF CIT V. VARINDER AGRO CHEMICALS LTD. 309 ITR 272 (P&H) , THE LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 78 . ON BE I NG AGGRIEVED, THE REVENUE IS IN A PPEAL BEFORE THE TRIBUNAL AND THE LD. DR HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER. 79 . AFTER HEARING BOTH SIDES, WE FIND THAT THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SOUTHERN ROADW AYS LTD. (SUPRA), WHEREIN, IT WAS HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON COMPUTER SOFTWARE PACKAGES WERE REVENUE EXPENDITURE, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. FURTHER, IN THE CASE OF DCIT V. DANFOSS INDUSTRIES P. LTD. IN I .T.A. NO. 369 & 370/MDS/2013 ORDER DATED 28.06.2013 FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09, THE COORDINATE BENCH OF THE TRIBUNAL, BY FOLLOWING ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2005 - 06 IN I.T.A. NO. 612/MDS/2011, HELD THAT THE SOFTWARE EXPE NSES INCURRED WERE IN THE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 49 NATURE OF REVENUE EXPENDITURE. BY TAKING CONSISTENT VIEW, WE HOLD THAT THE SOFTWARE EXPENSES INCURRED ARE IN THE NATURE OF REVENUE EXPENDITURE . THEREFORE, W E FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) . ACCORDINGLY, THE GROUN D RAISED BY THE REVENUE IN ALL THE ABOVE ASSESSMENT YEARS IS DISMISSED. 8 0 . FOR THE ASSESSMENT YEAR 2000 - 01 IN I.T.A. NO. 1735/MDS/2014, THE LD. CIT(A) HAS SET ASIDE THE ISSUE OF DISALLOWANCE OF SOFTWARE EXPENSES TO THE ASSESSING OFFICER TO DECIDE AFRES H . BEFORE US, THE LD. DR HAS SUBMITTED THAT THE LD. CIT(A) CAN ONLY CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT AND NOT SET ASIDE THE ISSUE BACK TO THE ASSESSING OFFICER SINCE THE POWER OF THE LD. CIT(A) IN SETTING ASIDE THE ASSESSMENT AND REFER THE C ASE BACK TO THE ASSESSING OFFICER FOR MAKING FRESH ASSESSMENT HAS BEEN OMITTED BY THE FINANCE ACT, 2001 W.E.F. 01.06.2001. 8 1 . WITH REGARD TO THE ISSUE OF DISALLOWANCE OF SOFTWARE EXPENSES, VARIOUS COURTS AND TRIBUNAL HAVE HELD THAT THE SAME ARE IN THE N ATURE OF REVENUE EXPENDITURE AND FOR OTHER ASSESSMENT YEARS, WE HAVE ALSO CONSIDERED THE ISSUE AND DECIDED AGAINST THE REVENUE AT PARA 80 OF THIS ORDER . ACCORDINGLY, FOR THE ASSESSMENT YEAR 2000 - 01 ALSO, THE GROUND RAISED BY THE REVENUE IS DISMISSED. I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 50 8 2 . WITH REGARD TO THE POWER OF LD. CIT(A) TO SET ASIDE THE MATTER TO THE ASSESSING OFFICER IS CONCERNED, IN THE GROUNDS APPEAL, THE REVENUE HAS STATED AT GROUND NO. 6 THAT THE CIT(A) ERRED IN DIRECTING THE AO TO CONSIDER THE ISSUE BASED ON CASE LAWS RELIED BY THE ASSESSEE AS THE POWER OF CIT(A) SETTING ASIDE THE ASSESSMENT AND REFER THE CASE BACK TO AO FOR MAKING FRESH ASSESSMENT HAVE BEEN OMITTED BY FINANCE ACT 2001 W . E . F . 1.6.2001 , WHEREIN IT IS CLEARLY MENTIONED THAT IT IS EFFECTIVE FROM 01.06.2001 RELE VANT TO THE ASSESSMENT YEAR 2001 - 02 ONWARDS. THE PRESENT APPEAL IN HAND RELATES TO THE ASSESSMENT YEAR 2000 - 01 AND THE AMENDMENT MADE IN THE FINANCE ACT, 2001 CLEARLY INDICATES THAT IT IS NOT RETROSPECTIVE, BUT ONLY PROSPECTIVE I.E., FROM 01.06.2001. ACCOR DINGLY, THE GROUND RAISED BY THE REVENUE STANDS DISMISSED. 8 3 . THE NEXT COMMON GROUND RAISED IN THE APPEAL OF THE REVENUE I.T.A. NO.1364/MDS/2014 [A.Y.1997 - 98], I.T.A. NO.1365/MDS/2014 [A.Y. 1998 - 99], I.T.A. NO.246/MDS/2014 [A.Y. 2006 - 07], 247/MDS/2014 [ A.Y.2007 - 08] & 248/MDS/2014 [A.Y. 2008 - 09 ] IS WITH REGARD TO DELETION OF ADDITION MADE TOWARDS BAD DEBTS WRITTEN OFF. THE REASON GIVEN BY THE ASSESSING OFFICER IS THAT THE AMOUNT CLAIMED WAS IN EXCESS OF THE PROVISIONS MADE UNDER SECTION 36(1)(VIIA) OF THE ACT. THE AR OF THE ASSESSEE, BY RELYING ON THE DECISION IN THE CASE OF CATHOLIC SYRIAN BANK V. CIT 343 ITR 270, HAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE PROVISION UNDER SECTION 36(1)(VIIA) WAS RELATABLE ONLY I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 51 TO RURAL DEBTS AND NOT TO URBAN DEBTS AND T HE URBAN DEBTS, WHEN WRITTEN - OFF, WERE ALLOWABLE UNDER SECTION 36(1)(VII) AND THE PROVISION MADE UNDER SECTION 36(1)(VIIA) NEED NOT BE CONSIDERED. IT WAS FURTHER SUBMITTED BEFORE THE LD. CIT(A) THAT THE AMOUNT WRITTEN OFF WERE ONLY URBAN DEBTS AND THAT, RU RAL DEBTS WERE NOT INCLUDED AND THEREFORE, THE DEDUCTION WAS ALLOWABLE. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE AR OF THE ASSESSEE AND KEEPING IN VIEW OF THE DECISION AND OTHER FACTS, HELD THAT THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER S ECTION 36(1)(VII) OF THE ACT IS ALLOWED AND ACCORDINGLY, DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON THIS ACCOUNT. 84. WE HAVE HEARD BOTH SIDES. THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CATH OLIC SYRIAN BANK V. CIT (SUPRA) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, WHEREIN THE HON BLE SUPREME COURT HAS HELD AS UNDER: THE QUESTION FOR OUR CONSIDERATION IS - WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE(S) IS ELIGIBLE FOR D EDUCTION OF THE BAD AND DOUBTFUL DEBTS ACTUALLY WRITTEN OFF IN VIEW OF SECTION 36(1)(VII) WHICH LIMITS THE DEDUCTION ALLOWABLE UNDER THE PROVISO TO THE EXCESS OVER THE CREDIT BALANCE MADE UNDER CLAUSE (V IIA) OF SECTION 36(1) OF INCOME TAX ACT, 1961 ('ITA' FOR SHORT)? 2. UNDER SECTION 36(1)(VII) OF THE ITA 1961, THE TAX PAYER CARRYING ON BUSINESS IS ENTITLED TO A DEDUCTION, IN THE COMPUTATION OF TAXABLE PROFITS, OF THE AMOUNT OF ANY DEBT WHICH IS ESTABLISHED TO HAVE BECOME A BAD DEBT DURING THE PREVIOUS YEAR, SUBJECT TO CERTAIN CONDITIONS. HOWEVER, A MERE PROVISION FOR BAD AND DOUBTFUL DEBT(S) IS NOT ALLOWED AS A DEDUCTION IN THE COMPUTATION OF TAXABLE P ROFITS. IN ORDER TO PROMOTE RURAL BANKING AND IN ORDER TO ASSIST THE SCHEDULED COMMERCIAL BANKS IN MAKING ADEQUATE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 52 PROVISIONS FROM THEIR CURRENT PROFITS TO PROVIDE FOR RISKS IN RELATION TO THEIR RURAL ADVANCES, THE FINANCE ACT , INSERTED CLAUSE (VIIA) IN SUB - SECTION (1) OF SECTION 36 TO PROVIDE FOR A DEDUCTION, IN THE COMPUTATION OF TAXABLE PROFITS OF ALL SCHEDULED COMMERCIAL BANKS, IN RESPECT OF PROVISION S MADE BY THEM FOR BAD AND DOUBTFUL DEBT(S) RELATING TO ADVANCES MADE BY THEIR RURAL BRANCHES. THE DEDUCTION IS LIMITED TO A SPECIFIED PERCENTAGE OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES COMPUTED IN THE MANNER PRESCRIBED BY THE IT RULES , 1962. THUS, THE PROVISIONS OF CLAUSE (VIIA) OF SECTION 36(1) RELATING TO THE DEDUCTION ON ACCOUNT OF THE PROVISION FOR BAD AND DOUBTFUL DEBT(S) IS DISTINCT AND INDEPENDENT OF THE PROVISIONS OF SECTION 36(1)(VII) RELATING TO ALLOWANCE OF THE BAD DEBT(S). IN OTHER WORDS, THE SCHEDULED COMMERCIAL BANKS WOULD CONTINUE TO GET THE FULL BENEFIT OF THE WRITE OFF OF THE IRRECOVERABLE DEBT(S) UNDER SECTION 36(1)(VII) IN ADDITION TO THE BENEFIT OF DEDUCTION FOR THE PROVISION MADE FOR BAD AND DOUBTFUL DEBT(S) UNDER SECTION 36(1)(VIIA) . A READING OF THE CIRCULARS ISSUED BY CBDT INDICATES THAT NORMALLY A DEDUCTION FOR BAD DEBT(S) CAN BE ALLOWED ONLY IF THE DEBT IS WRITTEN OFF IN THE BOOKS AS BAD DEBT(S). NO DEDUCTION IS ALLOWABLE IN RESPECT OF A MERE PROVISION FOR BAD AND DOUBTFUL DEBT(S). BUT IN THE CASE OF RURAL A DVANCES, A DEDUCTION WOULD BE ALLOWED EVEN IN RESPECT OF A MERE PROVISION WITHOUT INSISTING ON AN ACTUAL WRITE OFF. HOWEVER, THIS MAY RESULT IN DOUBLE ALLOWANCE IN THE SENSE THAT IN RESPECT OF SAME RURAL ADVANCE THE BANK MAY GET ALLOWANCE ON THE BASIS OF CLAUSE (VIIA) AND ALSO ON THE BASIS OF ACTUAL WRITE OFF UNDER CLAUSE (VII). THIS SITUATION IS TAKEN CARE OF BY THE PROVISO TO CLAUSE (VII) WHICH LIMITS THE ALLOWANCE ON THE BASIS OF THE ACTUAL WRITE OFF TO THE EXCESS, IF ANY, OF THE WRITE OFF OVER THE AMOU NT STANDING TO THE CREDIT OF THE ACCOUNT CREATED UNDER CLAUSE (VIIA). HOWEVER, THE REVENUE DISPUTES THE POSITION THAT THE PROVISO TO CLAUSE (VII) REFERS ONLY TO RURAL ADVANCES. IT SAYS THAT THERE ARE NO SUCH WORDS IN THE PROVISO WHICH INDICATES THAT THE PR OVISO APPLY ONLY TO RURAL ADVANCES. WE FIND NO MERIT IN THE OBJECTION RAISED BY THE REVENUE. FIRSTLY, CBDT ITSELF HAS RECOGNIZED THE POSITION THAT A BANK WOULD BE ENTITLED TO BOTH THE DEDUCTION, ONE UNDER CLAUSE (VII) ON THE BASIS OF ACTUAL WRITE OFF AND ANOTHER, ON THE BASIS OF CLAUSE (VIIA) IN RESPECT OF A MERE PROVISION. FURTHER, TO PREVENT DOUBLE DEDUCTION, THE PROVISO TO CLAUSE (VII) WAS INSERTED WHICH SAYS THAT IN RESPECT OF BAD DEBT(S) ARISING OUT OF RURAL ADVANCES, THE DEDUCTION ON ACCOUNT OF ACTU AL WRITE OFF WOULD BE LIMITED TO THE EXCESS OF THE AMOUNT WRITTEN OFF OVER THE AMOUNT OF THE PROVISION ALLOWED UNDER CLAUSE (VIIA). THUS, THE PROVISO TO CLAUSE (VII) STOOD INTRODUCED IN ORDER TO PROTECT THE REVENUE. IT WOULD BE MEANINGLESS TO I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 53 INVOKE THE SA ID PROVISO WHERE THERE IS NO THREAT OF DOUBLE DEDUCTION. IN CASE OF RURAL ADVANCES, WHICH ARE COVERED BY THE PROVISIONS OF CLAUSE (VIIA), THERE WOULD BE NO SUCH DOUBLE DEDUCTION. THE PROVISO LIMITS ITS APPLICATION TO THE CASE OF A BANK TO WHICH CLAUSE (VII A) APPLIES. CLAUSE (VIIA) APPLIES ONLY TO RURAL ADVANCES. THIS HAS BEEN EXPLAINED BY THE CIRCULARS ISSUED BY CBDT. THUS, THE PROVISO INDICATES THAT IT IS LIMITED IN ITS APPLICATION TO BAD DEBT(S) ARISING OUT OF RURAL ADVANCES OF A BANK. IT FOLLOWS THAT IF THE AMOUNT OF BAD DEBT(S) ACTUALLY WRITTEN OFF IN THE ACCOUNTS OF THE BANK REPRESENTS ONLY DEBT(S) ARISING OUT OF URBAN ADVANCES, THE ALLOWANCE THEREOF IN THE ASSESSMENT IS NOT AFFECTED, CONTROLLED OR LIMITED IN ANY WAY BY THE PROVISO TO CLAUSE (VII). 3. ACCORDINGLY, THE ABOVE QUESTION IS ANSWERED IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE(S). FOR THE ABOVE REASONS, I AGREE THAT THE APPEALS FILED BY THE ASSESSEES STAND ALLOWED AND THE APPEALS FILED BY THE REVENUE STAND DISMISSED WITH NO ORDER AS T O COSTS. 85. IN VIEW OF THE ABOVE DECISION OF THE HON BLE SUPREME COURT, WE FIND NO ILLEGALITY IN THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED FOR ALL THE ASSESSMENT YEARS. 86 . THE NEXT COMMON GROUND RAISE D IN THE APPEAL OF THE REVENUE IN I.T.A. NOS. 245, 246 , 247 & 248 /MDS/2014 [A.Y. 2004 - 05, 2006 - 07 , 2007 - 08 & 2008 - 09] IS WITH REGARD TO ALLOWABILITY OF DEDUCTION UNDER SECTION 36( I )(VIIA) OF THE ACT. IN THE FOLLOWING ASSESSMENT YEARS, THE ASSESSING OFFICE R HAS MADE DISALLOWANCE AGAINST THE CLAIM OF DEDUCTION UNDER SECTION 36(I )(VIIA) OF THE ACT. A.Y. CLAIMED IN THE RETURN ALLOWED BY THE AO DISALLOWANCE MADE BY THE AO 2004 - 05 22,20,00,000/ - 4,52,90,296/ - 17,67,09,704/ - 2006 - 07 8,22,82,529/ - 5,64,78,408/ - 2,58,04,121/ - 2007 - 08 10,18,36,091/ - 1,95,53,562/ - 8,22,82,529/ - 2008 - 09 17,59,91,049/ - 7,43,64,614/ - 10,16,26,435/ - I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 54 87 . THE ABOVE DISALLOWANCES IS ON ACCOUNT OF DEDUCTION CLAIMED EVERY YEAR ON THE OUTSTANDING BALANCES OF AVERAGE ADVANCES MADE BY TH E BANK AT THE END OF THE ACCOUNTING YEAR, AS PER RULE 6ABA. SINCE THE INCOME IS REQUIRED TO BE COMP U TED SEPARATELY FOR EACH YEAR AS EACH ACCOUNTING YEAR IS A SEPARATE UNIT FOR ASSESSMENT PURPOSES, DEDUCTION HAS BEEN WORKED OUT ON THE AVERAGE ADVANCE MADE B Y THE RURAL BRANCH OF THE BANK DURING THE YEAR. DEDUCTION IS AVAILABLE FOR THE PROVISION FOR BAD AND DOUBTFUL DEBT MADE IN RESPECT OF INCREMENTAL ADVANCES MADE BY THE RURAL BRANCHES DURING THE YEAR. THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSING OFFICER HA S INTERPRETED THE ACT AND RESTRICTED THE DEDUCTION UNDER SECTION 36(I)(VIIA) TO THE AVERAGE ADVANCES MADE BY RURAL BRANCH OF THE BANK DURING THE YEAR. BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN I.T.A. NO. 5 52 & 553/MDS/2009 FOR THE ASSESSMENT YEARS 2001 - 02, 2002 - 03 DATED 18.12.2009 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON THIS ACCOUNT. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON REC ORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. FOR THE SAKE OF CLARITY AND TO HAVE BETTER UNDERSTANDING OVER THE ISSUE, THE ENTIRE FACTS WITH REGARD TO THE ISSUE IS REPRODUCED FOR THE ASSESSMENT YEAR 2004 - 05 IN I.T.A. NO. 245/MDS/2014. IN THE ASSESS MENT ORDER, THE ASSESSING OFFICER HAS OBSERVED AS UNDER: I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 55 3. ALLOWABLE DEDUCTION U/S 36(1)(VIIA): IN THE ASSESSMENT ORDER DATED 29.12.2006, THE AO DISALLOWED THE ENTIRE CLAIM OF DEDUCTION U/S 36(1)(VIIA), SINCE THE ASSESSEE DID NOT PROVIDE DETAILS OF PROV ISION CREATED FOR BAD AND DOUBTFUL DEBTS, PROOF OF THE POPULATION PLACES WHERE THE RURAL BRANCHES ARE LOCATED, MONTHLY AVERAGE AGGREGATE ADVANCES OUTSTANDING BALANCES ETC. THE CIT(A) DELETED THE ADDITION MADE BY THE AO BASED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF 'CATHOLIC SYRIAN BANK LTD., CS CIT'. THE HON'BLE ITAT IN THE ORDER DATED 22.02.2013 REMITTED BACK THE ISSUE TO THE AO AS UNDER: - WE ARE OF THE VIEW THAT THE C I T(A) HAS IGNORED THE DECISION OF HON'BLE APEX COURT TO THE EXT ENT AFORESAID. THEREFORE, WE RESTORE THE GROUND BACK TO THE ASSESSING OFFICER TO RE - DECIDE THE ISSUE IN THE LIGHT OF OBSERVATIONS MADE HEREIN ABOVE AND PASS FRESH ORDER AFTER AFFORDING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. AS PER DIRECTIONS O F THE HON'BLE ITAT THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF PROVISIONS MADE, PROOF OF THE POPULATION PLACES WHERE THE RURAL BRANCHES ARE LOCATED WITH AVERAGE AGGREGATE ADVANCES OUTSTANDING BALANCES ETC. THE ASSESSEE BANK SUBMITTED THE ABOVE DETAI LS. FURTHER IT WAS STATED THAT IN THE PROFIT AND LOSS ACCOUNT UNDER PROVISIONS AND CONTINGENCIES, THE PROVISION FOR NPA TO THE TUNE OF RS.22,20,00,000/ - WAS MADE. AFTER CAREFUL CONSIDERATION OF THE FURNISHED PARTICULARS, THE ISSUE WAS DECIDED AS UNDER - I N THE ASSESSMENT ORDER IN PAGE NO.18, IN PARA NO.2, THE AO OBSERVED AS UNDER. - THE DEDUCTION MENTIONED IN THE FIRST PROVISO VIZ, THAT FOR ASSETS CLASSIFIED BY RBI AS DOUBTFUL ASSETS OR LOSS ASSETS IN ACCORDANCE WITH THE GUIDELINES ISSUED IS TO BE AVAILED OF AT THE OPTION OF THE ASSESSEE. THE VERY WORD OPTION INDICATES THAT THE ASSESSEE HAS BEEN ALLOWED TO CHOOSE EITHER OF THE TWO DEDUCTIONS. IN OTHER WORDS, IF THE ASSESSEE CHOOSES FOR THE OPTION TO CLAIM A DEDUCTION IN THE PROVISO, IT CANNOT CLAIM A DEDUC TION AS MENTIONED IN CLAUSE 'A'. I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 56 BASED ON THE ABOVE, THE ASSESSEE WAS ASKED TO CLARIFY WHETHER IT EXERCISE OPTION (A) I.E. WHETHER IT CLAIMS DEDUCTION ON DOUBTFUL DEBTS AS CLASSIFIED BY THE RBI OR (B) 7.5% OF GROSS TOTAL INCOME AND 10% OF AGGREGATE AVERA GE RURAL ADVANCES. THE ASSESSEE BANK STATED THAT IT CLAIMS AS PER OPTION (B). 3.1 THE OTHER ISSUE INVOLVED RELATES TO QUANTUM OF DEDUCTION AVAILABLE UNDER MAIN PROVISION OF SECTION 36(1)(VIIA)(A). IT IS RELEVANT TO MENTION HERE THAT THE ASSESSEE WAS CLAIMING DEDUCTION EVERY YEAR ON THE OUTSTANDING BALANCES OF AVERAGE ADVANCES MADE BY THE BANK AT THE END OF THE ACCOUNTING YEAR, AS PER RULE 6ABA. SINCE THE INCOME IS REQUIRED TO BE COMPUTED SEPARATELY FOR EACH YEAR AS EACH ACCOUNTING YEAR IS A SEPARATE U NIT FOR ASSESSMENT PURPOSES, DEDUCTION HAS TO BE WORKED OUT ON THE AVERAGE ADVANCE MADE BY RURAL BRANCH OF THE BANK DURING THE YEAR. DEDUCTION IS AVAILABLE FOR THE PROVISION FOR BAD AND DOUBTFUL DEBT MADE IN RESPECT OF INCREMENTAL ADVANCES MADE BY THE RURA L BRANCHES DURING THE YEAR. IN THE ASSESSMENT ORDER, THE AO IN PAGE NO.18 AND IN PARA NO.1 OBSERVED AS UNDER: - .THE DEDUCTIONS ARE AVAILABLE ONLY IN RESPECT OF ADVANCES MADE BY THE RURAL BRANCHES IN RELEVANT YEAR, AS CAN BE SEEN FROM THE WORDING 'A GGREGATE AVERAGE ADVANCES MADE BY A RURAL BRANCHES' USED IN THIS SECTION AND ALSO THE WORDS THE AMOUNT OF ADVANCES MADE BY EACH RURAL BRANCH USED IN RULE 6 ABA THE INCOME IS TO BE COMPUTED SEPARATELY FOR EACH YEAR AFTER GRANTING DEDUCTION. THE SPECIFICATIO N OF 'ADVANCE' IN THIS CONTEXT PERTAINS TO ADVANCES CONTAINING THE CLOSING BALANCE OF THE PRECEDING YEAR.' BASED ON THE ABOVE OBSERVATION, THE ISSUE WAS DECIDED AS UNDER. - 3.1. IT IS WORTH MENTIONING THAT THE RBI PROVIDES FOR MAKING PROVISION FOR BAD AND DOUBTFUL DEBT WHICH HAS BECOME NPA AS PER THE PRUDENTIAL NORMS PRESCRIBED BY IT. THESE NORMS DIRECT BANKS TO MAKE PROVISION IN RESPECT OF SECURED ADVANCES TO THE EXTENT OF 20% OF THE AMOUNT IF THE DEBT REMAINS DOUBTFUL FOR ONE YEAR, THIS PROVISIONING I NCREASES TO 30% IF THE DEBT/ADVANCE REMAINS DOUBTFUL FOR A PERIOD BETWEEN 1 TO 3 YEARS AND PROVISIONING GOES UPTO 50% IF THE DEBT IS DOUBTFUL FOR MORE THAN 3 YEARS. HOWEVER, IF THE ADVANCE IS NOT COVERED BY REALISABLE VALUE OF SECURITY, THEN PROVISIONING C AN BE MADE UPTO 100% OF THE ADVANCE GIVEN. THE BANKS ARE REQUIRED TO MAKE PROVISIONING FOR 100% OF THE ADVANCE IN RESPECT OF 'LOSS OF ASSETS'. THUS, AFTER I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 57 A GAP OF FEW YEARS, ALMOST THE ENTIRE AMOUNT OF LOAN WHICH BECOMES BAD AND DOUBTFUL HAS TO BE PROVIDE D FOR BY THE BANKS. THE BANKS ARE ALLOWED DEDUCTION IN RESPECT OF PROVISION MADE FOR BAD AND DOUBTFUL DEBTS. 3.2. IN THIS CONTEXT, ALLOWING DEDUCTION UNDER SUB - CLAUSE (A) OF CLAUSE (VIIA) OF SUB - SECTION (1) OF SECTION 36 IN RESPECT OF BOTH THE LIMBS OF T HE SUB - CLAUSE (I) DEDUCTION IN RESPECT OF PROVISION MADE FOR BAD AND DOUBTFUL DEBTS (II) DEDUCTION @ 10% ON THE CUMULATIVE OUTSTANDING BALANCE AT THE END OF THE ACCOUNTING YEAR (AVERAGE AGGREGATE ADVANCES) OF THE LOAN GIVEN BY THE RURAL BRANCHES, YEAR AFTER YEAR ON THE SAME AMOUNT ADVANCED, WITHOUT RECOURSE TO THE FIGURE OF THE AMOUNT ACTUALLY ADVANCED BY THE RURAL BRANCHES OF THE BANK DURING THE YEAR, WOULD RESULT IN ALLOWING DEDUCTION WHICH MAY BE MORE THAN THE AMOUNT ADVANCED BY THE RURAL BRANCHES O F THE BANK . THIS IS ABSURD AND OF COURSE NOT THE INTENTION OF LEGISLATURE. 3.3. THIS CAN BE EXPLAINED WITH A SIMPLE EXAMPLE. FOR ARGUMENT SAKE, SAY THE RURAL BRANCHES OF A BANK MADE ADVANCES DURING THE FINANCIAL YEAR 1989 - 90, SAY TO THE EXTENT OF RS.10 CRORES AND NO ADVANCES WERE MADE BY THE RURAL BRANCHES, IN THE FOLLOWING 10 YEARS. IF THE INTERPRETATION OF THE ASSESSEE AS EVIDENT FROM CLAIM OF DEDUCTION U/S 36(1)(VII)(A) IS ACCEPTED, THE ASSESSEE WOULD CLAIM DEDUCTION, UNDER THE MAIN PROVISION OF SECT ION 36(1)(VIIA)(A) ON THE AGGREGATE OUTSTANDING RURAL ADVANCES WHICH REMAIN SAME THROUGHOUT @ 10% AS PER SUB - CLAUSE (A) OF CLAUSE (VIIA) OF SUB - SECTION(L) OF SECTION 36 FOR EVERY 10 YEARS FOLLOWING ASST. YEAR 1990 - 91 WITHOUT MAKING ANY ADVANCE IN LAST 10 Y EARS (ENTIRE AMOUNT LENT WOULD BE WRITTEN OFF BY WAY OF PROVISION). THIS INTERPRETATION IS ABSURD. DEDUCTION FOR THE PROVISION FOR BAD AND DOUBTFUL DEBTS CLAIMED BY THE ASSESSEE BANK HAS TO BE WORKED OUT IN RESPECT OF ADVANCES MADE DURING THE YEAR. A DEDUC TION HAS TO BE WORKED OUT FOR EACH YEAR, BASED ON INCREMENTAL ADVANCES GIVEN BY THE RURAL BRANCHES OF THE BANK, FROM THE INCOME COMPUTED FOR EACH ACCOUNTING YEAR. 3.4. ANY OTHER INTERPRETATION OF CLAUSE (VIIA)(A) (AS ADOPTED BY THE ASSESSEE BANK) WOULD RESULT IN ABSURDITY. THUS ALLOWING DEDUCTION FOR THE SAME ADVANCE YEAR AFTER YEAR ON ACCOUNT OF GRANTING DEDUCTION UNDER SECOND LIMB OF SUB - CLAUSE (A) OF CLAUSE (VIIA) OF SUB - SECTION (1) OF SECTION 36 @ 10% OF THE AVERAGE AGGREGATE ADVANCES MADE BY THE RU RAL BRANCHES WHICH ARE OUTSTANDING AT THE END OF THE ACCOUNTING YEAR AND AT THE SAME TIME ALLOWING DEDUCTION FOR THE PROVISIONS MADE FOR BAD AND DOUBTFUL DEBT WOULD RESULT IN DEDUCTION WHICH MAY BE MORE THAN THE AMOUNT LENT BY THE RURAL BRANCHES OF THE BAN K. NEEDLESS TO SAY, THIS WAS NOT THE INTENTION OF THE LEGISLATURE. I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 58 THE ASSESSEE HAS CLAIMED DEDUCTION TO THE EXTENT OF RS.22,20,00,000/ - . THIS HAS BEEN WORKED OUT AS UNDER: ON RURAL ADVANCES (10% OF AGGREGATE AVERAGE RURAL ADVANCES) RS.8,97,38,394 NON RURAL ADVANCES (7.5 OF TOTAL INCOME) RS.4,10,56,320 10% OF DOUBTFUL AND LOSSESS RS.9,12,05,286 TOTAL RS. 22,20,00,000 3.5. THIS CLAIM IS NOT CORRECT IN THE CONTEXT OF DISCUSSIONS ABOVE AND IS REWORKED AS UNDER. IT IS RELEVANT TO MENTION THAT T HE ASSESSEE BANK HAS MADE PROVISION FOR BAD AND DOUBTFUL DEBTS TO THE EXTENT OF RS.22,20,00,000/ - ONLY AS SHOWN IN THE SCHEDULE 17 OF THE ANNUAL REPORT. THE ACTUAL WORKING OF THE ALLOWABLE DEDUCTION U/S 36(1)(VIIA) WOULD BE AS FOLLOWS: (A) AGGREGATE AVER AGE RURAL ADVANCES AS ON 31.03.2004 89,73,83,937 (B) AGGREGATE AVERAGE RURAL ADVANCES AS ON 31.03.2003 72,98,45,944 (C) INCREASE IN AGGREGATE AVERAGE RURAL ADVANCES DURING THE YEAR [(A) - (B)] 16,75,37,933 (D) DEDUCTION ALLOWABLE ON AGGREGATE RURAL ADVANCES [ @ 10% OF (C)] 1,67,53,799 (E) 7.5% OF GROSS TOTAL INCOME BEFORE DEDUCTION UNDER CHAPTER VIA 2,85,36,497 (F) TOTAL OF (D) AND (E) 4,52,90,296 (G) PROVISION MADE FOR BAD AND DOUBTFUL DEBTS BY THE BANK 22,20,00,000 (H) LEAST OF (F) O R (G) ALLOWABLE AS DEDUCTION U/S 36(1)(VIIA) 4,52,90,296 3.6. THE ASSESSEE IS THEREFORE ENTITLED TO A DEDUCTION OF RS. 4,52,90,296/ - ONLY AND THEREFORE THE ALLOWANCE IS LIMITED TO THE ABOVE EXTENT AND THE EXCESS CLAIM OF RS. 17,67,09,704/ - (22,20,00,00 0 - 4,52,90,296) IS DISALLOWED. 88. FROM THE ABOVE, FOR THE ASSESSMENT YEAR 2004 - 05, IN THE ASSESSMENT ORDER 29.12.2006, T HE A SSESSING O FFICER DISALLOWED THE ENTIRE CLAIM OF DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT SINCE THE ASSESSEE DID NOT PROV IDE DETAILS OF PROVISION CREATED FOR BAD AND DOUBTFUL DEBTS, PROOF OF THE I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 59 POPULATION PLACES WHERE THE RURAL BRANCHES ARE LOCATED, MONTHLY AVERAGE AGGREGATE ADVANCES OUTSTANDING BALANCES, ETC. ON APPEAL, THE LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSES SING OFFICER BASED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. V. CIT. ON APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL VIDE ITS ORDER DATED 22.02.2013 REMITTED BACK THE ISSUE TO THE ASSESSING OFFICER TO RE - DECIDE THE I SSUE IN THE LIGHT OF OBSERVATIONS MADE HEREIN ABOVE AND PASS FRESH ORDER AFTER AFFORDING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. IN THE SECOND ROUND OF LITIGATION, AFTER EXAMINING THE DETAILS FILED BY THE ASSESSEE WITH REGARD TO THE CLAIM MADE BY THE ASSESSEE UNDER SECTION 36(1)(VIIA) , THE ASSESSEE BANK WAS ASKED TO CLARIFY WHETHER IT EXERCISE OPTION (A) I.E. WHETHER IT CLAIMS DEDUCTION ON DOUBTFUL DEBTS AS CLASSIFIED BY THE RBI OR (B) 7.5% OF GROSS TOTAL INCOME AND 10% OF AGGREGATE AVERAGE RURAL A DVANCES AND THE ASSESSEE BANK STATED THAT IT CLAIMS AS PER OPTION (B). ACCORDINGLY, THE ASSESSING OFFICER HAS R ESTRICTED THE SAME AS TABULATED HEREINABOVE AFTER REWORKING THE AGGREGATE AVERAGE RURAL ADVANCES. THE A SSESSING O FFICER HAS RECOMPUTED THE AGGREG ATE AVERAGE RURAL ADVANCES BY ADOPTING ONLY THE INCREMENTAL ADVANCES MADE DURING THE YEAR BY THE RURAL BRANCHES AND ALSO BY EXCLUDING BRANCHES WHICH WERE SITUATED AT PLACES WITH POPULATION OF MORE THAN 10,000 ACCORDING TO THE LATEST CENSUS. THE A SSESSING O FFICER HAS ALSO HELD THAT THE PROVISION FOR 'STANDARD ADVANCES' CANNOT BE MADE PART OF I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 60 PROVISION FOR BAD AND DOUBTFUL DEBTS FOR WHICH DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT IS ALLOWABLE. 89. THE QUESTIONS OF LAW RAISED BEFORE THE HON'BLE APEX CO URT IN THE CASE OF CATHOLIC SYRIAN BANK WERE AS FOLLOWS: . WHETHER THE FULL BENCH OF THE HIGH COURT HAS GROSSLY ERRED IN REVERSING THE FINDING OF THE EARLIER DIVISION BENCH THAT ON A CORRECT INTERPRETATION OF THE PROVISO TO CLAUSE (VII) OF SECTION 36(1 ) AND CLAUSE (V) TO SECTION 36(2) IS ONLY TO DENY THE DEDUCTION TO THE EXTENT OF BAD DEBTS WRITTEN OFF IN THE BOOKS WITH RESPECT TO WHICH PROVISION WAS MADE UNDER CLAUSE (VIIA) OF THE INCOME TAX ACT? WHETHER THE FULL BENCH WAS CORRECT IN REVERSING THE FI NDINGS OF THE EARLIER DIVISION BENCH THAT IF THE BAD DEBT WRITTEN OFF RELATE TO DEBT OTHER THAN FOR WHICH THE PROVISION IS MADE UNDER CLAUSE (VIIA), SUCH DEBTS WILL FALL SQUARELY WITHIN THE MAIN PART OF CLAUSE (VII) WHICH IS ENTITLED TO BE DEDUCTION AND IN RESPECT OF THAT PART OF THE DEBT WITH REFERENCE TO WHICH A PROVISION IS MADE UNDER CLAUSE (VIIA), THE PROVISO WILL OPERATE TO LIMIT THE DEDUCTION TO THE EXTENT OF THE DIFFERENCE BETWEEN THAT PART OF DEBT WRITTEN OFF IN THE PREVIOUS YEAR AND THE CREDIT BAL ANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA)?' [PARA 11 OF THE ORDER] 90. AFTER EXAMINING THE VARIOUS CIRCULARS ISSUED BY THE BOARD IN RELATION TO SECTION 36(1)(VIIA) AND 36(1)(VII) AND ALSO THE STATEMENT OF OBJECTS AND REASONS TO THE FINANCE ACT 1986, THE HON'BLE SUPREME COURT CAME TO THE CONCLUSION THAT THE LEGISLATIVE INTENTION BEHIND THE INTRODUCTION OF SECTION 36(1)(VIIA) WAS TO ENCOURAGE RURAL ADVANCES AND TO AID CREATION OF THE PROVISION FOR BAD DEBTS IN RELATI ON TO SUCH RURAL BRANCHES. SOME OF THE SALIENT FINDINGS OF THE HON'BLE SUPREME COURT ARE AS FOLLOWS: I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 61 A MERE PROVISION FOR BAD AND DOUBTFUL DEBTS IS NOT AN ALLOWABLE DEDUCTION IN THE COMPUTATION OF TAXABLE PROFITS. HOWEVER, IN THE CASE OF RURAL ADVANCES, I N LINE WITH THE POLICY TO PROMOTE RURAL BANKING, A PROVISION MAY BE ALLOWABLE U/S SEC.36(1)(VIIA), WITHOUT INSISTING ON AN ACTUAL WRITE - OFF. PROVISIONS OF SECTIONS 36(1) (VII) AND 36(1)(VIIA) OF THE ACT ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTION AN D THEY OPERATE IN THEIR RESPECTIVE FIELDS. A SCHEDULED BANK MAY HAVE BOTH URBAN AND RURAL BRANCHES. IT MAY GIVE ADVANCES FROM BOTH BRANCHES WITH SEPARATE PROVISION ACCOUNTS FOR EACH. IN THE NORMAL COURSE OF ITS BUSINESS, AN ASSESSEE BANK IS TO MAINTAIN D IFFERENT ACCOUNTS FOR THE RURAL DEBTS AND FOR NON - RURAL/URBAN DEBTS. MAINTENANCE OF SUCH SEPARATE ACCOUNTS WOULD NOT ONLY BE A MATTER OF MERE CONVENIENCE BUT WOULD BE THE REQUIREMENT OF ACCOUNTING STANDARDS. THE BAD DEBTS WRITTEN OFF IN DEBTS, OTHER THAN THOSE FOR WHICH THE PROVISION IS MADE UNDER CLAUSE (VIIA), WILL BE COVERED UNDER THE MAIN PART OF SECTION 36(1)(VII), WHILE THE PROVISO WILL OPERATE IN CASES UNDER CLAUSE (VIIA) TO LIMIT DEDUCTION TO THE EXTENT OF DIFFERENCE BETWEEN THE DEBT OR PART THERE OF WRITTEN OFF IN THE PREVIOUS YEAR AND CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA). IN CASE OF RURAL ADVANCES WHICH ARE COVERED BY CLAUSE (VIIA), THERE WOULD BE NO DOUBLE DEDUCTION. THE PROVISO, IN ITS TER MS, LIMITS ITS APPLICATION TO THE CASE OF A BANK TO WHICH CLAUSE (VIIA) APPLIES. INDISPUTABLY, CLAUSE (VIIA) APPLIES ONLY TO RURAL ADVANCES. IF THE AMOUNT OF BAD DEBT ACTUALLY WRITTEN OFF IN THE ACCOUNTS OF THE BANK REPRESENTS ONLY DEBT ARISING O UT OF UR BAN ADVANCES, THE ALLOWANCE THEREOF IN THE ASSESSMENT IS NOT AFFECTED, CONTROLLED OR L IMITED IN ANY WAY BY THE PROVISO TO CLAUSE (VII). A STATUE IS NOT NORMALLY CONSTRUED TO PROVIDE FOR A DOUBLE BENEFIT UNLESS IT IS SPECIFICALLY SO STIPULATED OR IS CLEAR FROM THE SCHEME OF THE ACT. PROVISO TO SEC 36(1)(VII) WOULD NOT PERMIT BENEFIT OF DOUBLE DEDUCTION, OPERATING WITH REFERENCE TO 'RURAL' LOANS, WHILE UNDER SECTION 36(1)(VII), THE ASSESSEE WOULD BE ENTITLED TO GENERAL DEDUCTION UPON AN ACCOUNT HAVING BEC OME BAD DEBT AND BEING WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 62 91. A NUMBER OF CASES DECIDED BY THE HON'BLE HIGH COURTS AND ALSO BY THE APEX COURT ARE CITED / REFERRED TO IN THE ABOVE JUDGEMENT. CASES OF VIJA YA BANK VS. CIT (323 ITR 166) AND SOUTHERN TECHNOLOGIES VS JCIT (320 ITR 577) ARE REFERRED TO THEREIN. ACCOUNTING STANDARD AS29 AND ALSO THE EFFECT OF BOARD'S CIRCULAR'S HAVE ALSO B E EN DISCUSSED AT LENGTH IN THE ORDER ALONG WITH THE SUBJECT OF INTERPRETATI ON AND CONSTRUCTION OF THE RELEVANT SECTIONS. THUS, THE JUDGEMENT IS A COMPREHENSIVE ONE WHICH HAS CONSIDERED THE RATIOS LAID DOWN BY VARIOUS COURTS, THE IMPLICATIONS OF BOARD'S CIRCULARS AND ACCOUNTING STANDARDS. 92. THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF CATHOLIC SYRIAN BANK THAT 'MERE PROVISION FOR BAD AND DOUBTFUL DEBTS MAY NOT BE ALLOWABLE, BUT IN THE CASE OF A RURAL ADVANCE, THE SAME, IN TERMS OF SECTION 36(1)(VIIA) MAY BE ALLOWABLE WITHOUT INSISTING ON AN ACTUAL WRITE OFF .IN CASE OF RURAL ADVANCES WHICH ARE COVERED BY CLAUSE (VIIA), THERE WOULD BE NO DOUBLE DEDUCTION. THE PROVISO, IN ITS TERMS, LIMITS ITS APPLICATION TO THE CASE OF A BANK TO WHICH CLAUSE (VIIA) APPLIES. INDISPUTABLY CLAUSE (VIIA) APPLIES ONLY TO RURAL ADVANCES.' (E MPHASIS SUPPLIED) (PARA 25&27). 93. THUS, IT CAN BE SEEN THAT IN THE CASE OF PROVISION MADE TOWARDS NON - RURAL DEBTS, NO DEDUCTION CAN BE ALLOWED AS THERE IS NO SPECIFIC PROVISION IN THE INCOME TAX ACT TO ALLOW THE SAME. THIS INDICATES THAT THE PROVISIO N MADE TOWARDS URBAN DEBT SHOULD BE ADDED BACK AND ALLOWED ONLY WHEN BAD DEBTS ARE REALLY WRITTEN OFF. THE QUESTION OF DOUBLE DEDUCTION BEING ALLOWED I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 63 DOES NOT ARISE THEREIN AT ALL, BECAUSE IT IS ALLOWED ONLY ON ACTUAL WRITE OFF. THE HON BLE APEX COURT HAS ALSO HELD THAT THE PROVISO TO S EC TION 36(1)(VII) APPLY ONLY IN RESPECT OF RURAL DEBTS. IN VIEW OF THE ABOVE DECISION AND IN VIEW OF THE OPTION EXERCISED BY THE ASSESSEE THAT IT CAN CLAIMS DEDUCTION ON DOUBTFUL DEBTS AS PER OPTION (B) I.E. 7.5% OF GROSS TOT AL INCOME AND 10% OF AGGREGATE AVERAGE RURAL ADVANCES , THE ASSESSING OFFICER HAS RIGHTLY WORKED OUT THE ALLOWABLE DEDUCTION, WHICH IS LESS THAN THAT OF THE PROVISION MADE BY THE ASSESSEE AS DOUBTFUL DEBTS, ALLOWED THE DEDUCTION OF BAD DEBTS FOR ALL ASSESSM ENT YEARS AND REMAINING BALANCE WAS BROUGHT TO TAX. ACCORDINGLY, WE REVERSE THE ORDER OF THE LD. CIT(A) AND CONFIRM THE ADDITION MADE BY THE ASSESSING OFFICER FOR ALL THE ABOVE ASSESSMENT YEARS. THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED. 94 . THE FIR ST GROUND RAISED IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 1997 - 98 IN I.T.A. NO. 1364/MDS/2014 IS WITH REGARD TO DELETION OF ADDITION MADE TOWARDS PAYMENT MADE TO SEBI. THE ASSESSING OFFICER DISALLOWED .1,00,000/ - TOWARDS REGISTRATION FEE BY CONSIDERING IT AS CAPITAL EXPENDITURE. BY MAKING THE PAYMENT OF FEE TO SEBI, THE ASSESSEE BANK IS NOT GETTING ANY CAPITAL ASSET. IT WAS THE CONTENTION OF THE AR OF THE ASSESSEE THAT SINCE THE FEE PAID BY THE ASSESSE E IS ONLY A FEE PAID TO A REGULATORY AUTHORITY , IT IS REVENUE EXPENDITURE, WHICH IS ALLOWABLE UNDER SECTION 37(1) OF THE ACT. BY FOLLOWING THE CONSOLIDATED ORDER OF THE TRIBUNAL I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 64 IN ASSESSEE S OWN CASE IN I.T.A. NO. 631/MDS/2000 & OTHERS DATED 10.03.2006, T HE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION MADE ON THIS ACCOUNT. THE COORDINATE BENCH OF THE TRIBUNAL IN ITS ABOVE ORDER DATED 10.03.2006 HAS OBSERVED THAT ...... SEBI IS A REGULATORY AUTHORITY. THEREFORE, REGISTRATION WITH SEBI I S MANDATORY FOR THE PURPOSE OF DEALING IN SECURITIES AND STOCKS. THE PAYMENT MADE TO SEBI IS IN THE NATURE OF FEE FOR THE PURPOSE OF ENABLING THE ASSESSEE TO CARRY OUT ITS BUSINESS. THE PAYMENT OF RERNEWAL FEE IS ONLY FOR THE PURPOSE OF CONTINUING THE BUSI NESS AS A MERCHANT BANKER. REGISTERING WITH SEBI IS ONLY TO IDENTIFY THE PERSON WHO IS DEALING IN SECURITIES. THEREFORE, IN OUR OPINION, THE SUBSCRIPTION TO SEBI WILL NOT GIVE ANY ENDURING BENEFIT TO THE ASSESSEE. IN OUR OPINION, THE FEE PAID BY THE ASSESS EE IS ONLY A FEE PAID TO A REGULATORY AUTHORITY, THEREFORE, IT IS A REVENUE EXPENDITURE. BY THE PAYMENT OF FEE TO SEBI, THE ASSESSEE IS NOT GETTING ANY CAPITAL ASSET. THEREFORE, IN OUR OPINION, THE SUBSCRIPTION MADE TO SEBI HAS TO BE ALLOWED AS REVENUE EXP ENDITURE. THE ABOVE FINDINGS OF THE TRIBUNAL HAVE NOT BEEN REVERSED BY ANY HIGHER COURT. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 9 5 . T HE NEXT ISSUE RAISED IN THE GROUNDS OF APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2004 - 05 IN I.T.A. NO. 245/MDS/2014 IS WITH REGARD TO I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 65 DELETION OF ADDITION MADE TOWARDS INTEREST ON NON PERFORMING ASSETS , WHICH READS AS UNDER: 4. THE CIT(A) FAILED TO AP PRECIATE THE FACT, THE ASSESSING OFFICER CHARGED INTEREST ONLY ON THOSE NON - PERFORMING ASSETS WHICH FALL UNDER THE CATEGORY OF MORE THAN 90 DAYS AND LESS THAN 180 DAYS OLD AND LEVIED INTEREST FOR THE PERIOD OF 180 DAYS ONLY. AFTER CAREFULLY GOING THROUGH THE ORDERS OF AUTHORITIES BELOW, WE FIND THAT THE ABOVE GROUND RAISED BY THE REVENUE IS NOT EMANATING FROM THE ASSESSMENT ORDER DATED 24.05.2013 PASSED UNDER SECTION 143(3) R.W.S. 254 OF THE ACT BY THE ASSESSING OFFICER. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED AS NOT MAINTAINABLE. 9 6 . IN THE R ESULT, THE APPEALS FILED BY THE REVENUE IN I.T.A. NOS. 1364, 1365 & 1366/MDS/2014 FOR AY 1997 - 98, 98 - 99 & 2001 - 02; I.T.A. NO.1735/MDS/2014 FOR AY 2000 - 01 & I.T.A. NOS. 245, 246, 247 & 248 /MDS/2 014 FOR AY 2004 - 05, 06 - 07, 07 - 08 & 08 - 09 ARE PARTLY ALLOWED ; THE APPEALS FILED BY THE ASSESSEE IN I.T.A. NOS, 1205, 1548, 1620, 1206 & 1208/MDS/2014 FOR THE A.Y. 1997 - 98, 98 - 99, 2000 - 02, 01 - 02, 02 - 03 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES, I.T.A. NO. 1207/MDS/2014 FOR AY 2001 - 02 IS I.T.A.NOS.1205, 1548, 1620, 1206, 1207, 1208, 1209, 27, 1621 & 1622/MDS/2014 & I.T.A. NOS.13 64, 1365, 1735, 1366, 245, 246, 247 & 248/MDS/2014 66 DISMISSED, I.T.A. NO. 1209/MDS/2014 FOR AY 2004 - 05 IS PARTLY ALLOWED, I.T.A. NOS. 27 & 1621/MDS/2014 FOR AY 2006 - 07 ARE ALLOWED FOR STATISTICAL PURPOSES AND I.T.A. NO. 1622/MDS/2014 FOR AY 2009 - 10 IS PARTLY ALLOWED FOR STAT ISTICAL PURPOSES. ORDER PRONOUNCED ON THE 29 TH JANUARY , 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 29 . 0 1 .201 6 VM/ - / COPY TO: 1. / APPELLA NT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.