DCIT, Circle- 1(1), Hyderabad V. Andhra Bank Limited, Hyderabad

ITA 168/HYD/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78001 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 03-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Keywords: Business income; Business expenditure; Earning of tax free income; Bad and doubtful debts; Procedural lapse; Revenue expenditure; Capital expenditure
• Section: 43B; 80G; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.167/HYD/14 : ASSESSMENT YEAR 2008 - 09 ITA NO.168/HYD/14 : ASSESSMENT YEAR 2009 - 10 ITA NO.169/HYD/14 : ASSESSMENT YEAR 2010 - 11 DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(1), HYDERABAD V/S. ANDHRA BANK, HYDERABAD ( PAN - AAACN 7323 G) (APPELLANT) (RESPONDENT) ITA NO.244/HYD/1 4 : ASSESSMENT YEAR 2008 - 09 ITA NO.245/HYD/14 : ASSESSMENT YEAR 2009 - 10 ITA NO.246/HYD/14 : ASSESSMENT YEAR 2010 - 11 ANDHRA BANK, HYDERABAD ( PAN - AAACN 7323 G) V/S. DY. COMMISSIONER OF INCOME - TAX CIRCLE 1(1), H YDERABAD (APPELLANT) (RESPONDENT) DEPARTMENT BY : SHRI D.SUDHAKAR RAO DR ASSESSEE BY : SHRI S.ANANTHAN & SMT. LALITHA DATE OF HEARING 29.05.2014 DATE OF PRONOUNCEMENT 18.07.2014 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER: THESE ARE CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE DEPARTMENT - FOR THREE YEARS; HENCE, THERE ARE SIX IN ALL IN THIS BUNCH. THESE APPEALS ARE DIRECTED AGAINST THREE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME - TAX(APPEALS) II, HYDERABAD, A LL DATED 6.11.2013, FOR THE ASSESSMENT YEARS 2008 - 09 TO 2010 - 11. SINCE COMMON ISSUES ARE INVOLVED, THESE APPEALS ARE BEING DISPOSED OF WITH THIS COMMON CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 2 CROSS APPEALS FOR ASSESSMENT YEAR 2008 - 09 REVENUES A PPEAL : ITA NO.167/HYD/2014 ASSESSEES APPEAL : ITA NO.244/HYD/2014 REVENUES APPEAL: 2. FIRST EFFECTIVE GROUND OF THE REVENUE IN ITS APPEAL READS AS FOLLOWS - THE LEARNED CIT(A) ERRED IN DELETING THE DISALLOWANCE OF BROKEN PERIOD INTEREST OF RS.12,09 ,39,097/ - WITHOUT CONSIDERING THE DECISION OF SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT AND IN VIEW OF BOARDS CIRCULAR NO.665 DATED 05/10.1993. 3. WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIA L AVAILABLE ON RECORD. WE FIND THAT ON THIS ISSUE, THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASES, VIZ. IN ITA NOS.95 TO 97 & 218/HYD/2013 DATED 4.4.2013 FOR THE ASSESSMENT YEAR 2006 - 07 AND IN ITA NOS.1592 & 1644/HYD/2008 DATED 30.4. 2013 FOR THE ASSESSMENT YEAR 2005 - 06, IS IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, AND THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE IS IN CONSONANCE WITH THE SAID ORDERS OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07, BESIDES THE ORDERS OF THE CIT(A) ON THIS ISSUE FOR THE ASSESSMENT YEARS 2005 - 06 AND 207 - 08. IN THIS VIEW OF THE MATTER, FOLLOWING THE CONSISTENT VIEW TAKEN BY THE COORDINATE BENCHES OF THE TRIBUNAL IN ASSESSEES OWN CASES FOR THE EARLIER YEARS NOTED ABOVE, WE FIND N O MERIT IN THE ABOVE GROUND OF THE REVENUE ON THIS ISSUE. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND REJECT THE ABOVE GROUND OF THE REVENUE. 4. THE NEXT EFFECTIVE GROUND OF THE REVENUE IN ITS APPEAL READS AS FOLLOWS - THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF UNREALISED INTEREST OF RS.2.49 CRORES ON NPA WITHOUT CONSIDERING THE FACT THAT THE DECISION OF APEX COURT IN THE CASE OF M/S. STATE BANK OF TRAVANCORE (158 ITR 102) IS FAVOUR OF THE REVENUE. ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 3 5. WE HEARD BOTH SID ES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. WE FIND THAT ON THIS ISSUE, THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE DATED 30.4.2013 FOR THE ASSESSMENT YEAR 2005 - 06 IN ITA NOS.1592 & 1644/HY D/2008, IS IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, AND THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE IS IN CONSONANCE WITH THE SAID ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2005 - 06. IN THIS VIEW OF THE MATTER, WE FIND NO MERIT IN THE ABO VE GROUND OF THE REVENUE ON THIS ISSUE. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND REJECT THE ABOVE GROUND OF THE REVENUE 6. THE NEXT EFFECTIVE GROUND OF THE REVENUE IN ITS APPEAL READS AS FOLLOWS - THE LD. CIT(A) ERRED IN DELET ING THE DISALLOWANCE OF RS.287.62 CRORES ON PAYMENT U/S. 43B TOWARDS PENSION AND GRATUITY FUNDS WITHOUT CONSIDERING THE FACT THAT THE EXPENDITURE WAS NOT DEBITED TO P&L A/C. AND THEREFORE IS NOT ELIGIBLE FOR DEDUCTION U/S. 37. 7. BRIEF FACTS RELATING T O THIS ISSUE ARE THAT THE ASSESSEE DURING THE YEAR MADE TOTAL PAYMENT OF RS.331,60,79,000 TOWARDS PENSION AND GRATUITY FUNDS. OUT OF THIS, RS.287,62,00,000 WAS MET OUT OF RESERVES AND THE BALANCE WAS DEBITED TO THE PROFIT & LOSS ACCOUNT, BUT ALL THE PAYME NTS WERE MADE BEFORE THE DUE DATE FOR THE FILING OF RETURN OF INCOME. ASSESSEE CLAIMED DEDUCTION IN RESPECT OF RS.287,62,00,000 AS WELL, IN THE COMPUTATION OF INCOME, AS THE SAID AMOUNT WAS NOT DEBITED TO PROFIT & LOSS ACCOUNT BECAUSE THE PAYMENTS WERE M ADE FROM RESERVES. THE ASSESSING OFFICER REJECTED THE ASSESSEES CLAIM FOR DEDUCTION OF RS.287,62,00,000, OBSERVING THAT IT IS ONLY THE AMOUNT WHICH IS DEBITED TO THE PROFIT & LOSS ACCOUNT, WHICH COULD BE ALLOWED BY WAY OF DEDUCTION. ON APPEAL, THE CIT( A), DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HENCE, REVENUE IS IN APPEAL ON THIS ISSUE. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE DECISION OF THE APEX COURT IN THE ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 4 CAS E OF KEDARNATH JUTE MANUFACTURING COMPANY LTD. V/S. CIT (82 ITR 363) RELIED UPON BY THE ASSESSEE IS NOT APPLICABLE TO THE PRESENT CASE. IT WAS ARGUED THAT ONLY SUCH EXPENDITURE WHICH IS CHARGED TO PROFIT & LOSS ACCOUNT, WHICH CAN BE CLAIMED AS DEDUCTION A ND FOR THIS PURPOSE, THERE IS NO DIFFERENCE BETWEEN THE ACCOUNTS PREPARED AS PER COMPANIES ACT AND INCOME TAX ACT. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER WAS RIGHT IN HOLDING THAT S.43B IS ONLY A SAFEGUARD PROVISION R ESTRICTING A DEBIT TO PROFIT & LOSS ACCOUNT ON THE BASIS OF ACTUAL PAYMENT AS OTHERWISE AN UNSCRUPULOUS EMPLOYER MAY CAUSE HARM TO THE INTEREST OF THE EMPLOYEES BY DEBITING AN AMOUNT TO PROFIT & LOSS ACCOUNT BUT NOT REMITTING IT TO THE STATUTORY AUTHORITIE S. THEREFORE, THIS PROVISION IS NOT OVERRIDING THE BASIC FACT THAT THE EXPENDITURE HAS TO BE DEBITED ONLY TO THE PROFIT & LOSS ACCOUNT. IN THE PRESENT CASE, IT WAS POINTED OUT, PART OF THE AMOUNT HAS BEEN MET FROM RESERVES, AND THE SAME NOT HAVING BEEN T HUS NOT DEBITED TO PROFIT & LOSS ACCOUNT IS LIABLE FOR DISALLOWANCE UNDER S.43B. HE ALSO SUBMITTED THAT IT IS INCORRECT TO SAY THAT MEETING OF LIABILITY OUT OF RESERVES OR APPROPRIATION WOULD BE EQUAL TO CHARGING TO PROFIT & LOSS ACCOUNT. IT WAS FURTHER STATED THAT PROFITS OF AN ASSESSEE ARE DETERMINED ON YEARLY BASIS, AND ACCUMULATED PROFITS, STANDING IN THE FORM OF RESERVES, CANNOT BE TREATED AS THE PROFITS OF THE YEAR. IN THE CIRCUMSTANCES, HE SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN DELETING T HE ADDITION MADE BY THE ASSESSING OFFICER IN TERMS OF S.43B OF THE ACT. 9. THE LEARNED COUNSEL FOR THE ASSESSEE, STRONGLY SUPPORTED THE ORDER OF THE CIT(A) AND ALSO RELIED UPON THE DECISION COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF JOINT CIT VS. LAMTUFF PLASTICS LTD. (ITA NO.135/HYD/2011 FOR THE ASY 1997 - 98 DATED 31.1.2006), DULY FURNISHING A COPY THEREOF BEFORE US. 10. WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. IT IS ON THE GROUND THAT PART OF THE PAYMENTS TO PENSION AND GRATUITY HAVE NOT BEEN ROUTED ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 5 THROUGH THE PROFIT & LOSS ACCOUNT THAT THE ASSESSING OFFICER HAS MADE THE IMPUGNED DISALLOWANCE IN TERMS OF S.43B OF THE ACT. IT IS AN UNDISPUTED FACT THAT THE PAYM ENT RELATING TO IMPUGNED DISALLOWANCE HAS ALSO BEEN MADE BEFORE THE DUE DATE FOR THE FILING OF THE RETURN UNDER S.139(1) OF THE ACT. THE CIT(A) WAS OF THE VIEW THAT THE PURPOSE OF S.43B IS TO ENSURE THAT THE EMPLOYER DOES NOT RETAIN THE AMOUNT WITH HIMS ELF, AFTER MAKING CERTAIN STATUTORY DEDUCTIONS IN CONNECTION WITH THE WELFARE OF THE EMPLOYEES. IT IS TO PLUG SUCH DELAYED/NON - PAYMENT OF SUCH DEDUCTED AMOUNT, S.43B WAS INTRODUCED. IN THE INSTANT CASE, SINCE THE ASSESSEE HAS MADE THE PAYMENT BEFORE THE DUE DATE FOR THE FILING OF THE RETURN, ASSESSEE IS ENTITLED FOR DEDUCTION, AND DISALLOWANCE IN TERMS OF S.43B WAS NOT WARRANTED. EVEN OTHERWISE, THE CIT(A) NOTED THAT THE AMOUNT IN QUESTION IS ALLOWABLE AS A BUSINESS EXPENDITURE UNDER S.37 OF THE ACT. APART FROM THE REASONING GIVEN BY THE CIT(A), APPLYING THE RATIO OF THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF LAMSTUFF PLASTICS (SUPRA), RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, WHICH SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE, WE HOLD THAT IRRESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, AND THE FACT THAT THE ASSESSEE HAS NOT DEBITED THE PAYMENTS MADE TOWARDS GRATUITY AND PENSION FUND TO PROFIT & LOSS ACCOUNT, IMPUGNED DISALLOWANCE MADE BY THE ASSESSING OFFICER IN TERMS OF S.43B IS NOT WARRANTED. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE ABOVE GROUND OF THE REVENUE ON THIS ISSUE. 11. THE NEXT EFFECTIVE GROUND OF THE REVENUE IN ITS APPEAL READS AS FOLLOWS - THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS.2,04,34,107/ - WITHOUT SUPPORTIVE EVIDENCE THAT THE AMOUNT SPENT ANDHRA RURAL DEVELOPMENT TRUST WERE INCURRED WHOLLY LAND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 6 12. BRIEF FACTS OF THE CASE RELATING TO THIS ISSUE ARE THAT THE ASSESSEE CLAIMED AN AMOUNT OF RS.2,04,34,107 SPENT ON ANDHRA BANK RURAL DEVELOPMENT TRUST, WHICH IS ENGAGED IN CONDUCTING SEVERAL TRAININGS FOR PROVIDING SELF EMPLOYMENT TO RURAL YOUTH. AFTER THE TRAINING, THE BANK ALSO PROVIDED FINANC E TO THE RURAL YOUTH. THIS AMOUNT, CLAIMED BY THE ASSESSEE WAS DISALLOWED BY THE ASSESSING OFFICER, FOR THE FOLLOWING REASONS - A ) NONE OF THE ACTIVITIES/TRAININGS CONDUCTED BY THE BANK RELATED TO BANKING ACTIVITY. B ) IT IS FAR FETCHED TO STATE THAT AMOUNT SPEN T ON SUCH ACTIVITIES WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. C ) AS PER THE CORPORATE SOCIAL RESPONSIBILITY VOLUNTARY LOANS 2009 PUBLISHED BY THE MINISTRY OF CORPORATE AFFAIRS, THOUGH NOT BINDING, COMPANIES SHOULD ALLOCATE SPE CIFIC AMOUNT FROM THE BUDGET FOR CSR ACTIVITIES. THIS AMOUNT MAY BE RELATED TO PROFITS AFTER TAX. FOR THE ABOVE REASONS AND OBSERVING FURTHER THAT THE AMOUNT SPENT TOWARDS CORPORATE SOCIAL RESPONSIBILITY ARE TO BE MET OUT OF PROFITS AND AS SUCH, CANNOT BE DEDUCTED BEFORE ARRIVING AT TAXABLE PROFITS, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE AND MADE AN ADDITION OF RS.2,04,34,107. 13. ON APPEAL, THE CIT(A) CONSIDERING THE OBJECTIVES OF THE TRUST AND DETAILS OF THE PROGRAMMES CONDUCTED B Y THE TRUST OBSERVED THAT THE TRUST WAS FORMED WITH THE NOBLE OBJECTIVE OF PROVIDING EMPLOYMENT TO THE RURAL YOUTH BY WAY OF PROVIDING TRAINING AND ALSO THE REQUIRED CREDIT TO HELP THEM TO BE SELF - EMPLOYED. FOR THESE REASONS AND ALSO FOR THE REASONS DIS CUSSED IN PARA 13.4 OF THE IMPUGNED ORDER, EXTRACTED HEREUNDER, THE CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER IN THIS BEHALF. 13.4 THE APPELLANT ALSO SUBMITTED THE STATISTICS AS THE NUMBER OF CANDIDATES TRAINED IN EACH DISTRICT AND THE N UMBER OF CANDIDATES TO WHOM CREDIT WAS PROVIDED BY THE BANK. DURING THE FINANCIAL YEAR, THE TOTAL NUMBER OF CANDIDATES TRAINED WERE 7,671 AND NUMBER OF ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 7 CANDIDATES TO WHOM CREDIT FACILITIES WERE GIVEN 2,744. IN THE PROCESS OF PROVIDING CREDIT FACILITIES T O UNEMPLOYED TO YOUTH IN RURAL AREAS, THE BANK IS EXTENDING ITS ACTIVITIES. THE PROJECT TAKEN UP BY THE BANK IS WORKING ON THE PRINCIPLE OF SYMBIOSIS THAT IT IS HELPING ITSELF IN THE PROCESS OF HELPING THE RURAL YOUTH. IN THIS BACKGROUND, IT CANNOT BE SAID THAT THE EXPENSES ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THEREFORE, THIS GROUND OF APPEAL IS ALLOWED. 14. AGGRIEVED BY THE RELIEF GRANTED BY THE CIT(A), REVENUE IS IN APPEAL BEFORE US ON THIS ISSUE. 15. LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTING THE ORDER OF THE ASSESSING OFFICER SUBMITTED THAT THE CIT(A) IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 16. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, STRO NGLY SUPPORTED THE ORDER OF THE CIT(A) AND PLACED RELIANCE ON THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT V/S, INFOSYS LTD. (360 ITR 714) - KAR. THE LEARNED COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE HAS A CORPORATE SOCIAL RESPONSIBILITY, BY CONDUCTING TRAINING PROGRAMMES FOR RURAL UNEMPLOYED YOUTH, AND LATER ON EXTENDING THEM CREDIT FACILITIES FOR STARTING THEIR OWN ENTERPRISE. HENCE, IT IS SUBMITTED THAT THE EXPENDITURE IN QUESTION HAS BEEN LAID OUT WHOLLY LAND EXCLUSIVELY FOR THE PURPO SE OF BUSINESS, AND AS SUCH IS CLEARLY ALLOWABLE UNDER S.37(1) OF THE ACT. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THE EXPENDITURE IN QUESTIO N RELATES TO THE TRAINING OF UNEMPLOYED RURAL YOUTH BY CONDUCTING TRAINING PROGRAMMES, TO WHOM IT IS SUBMITTED THAT CREDIT FACILITIES ARE EXTENDED FOR STARTING THEIR OWN ENTERPRISES. THE CIT(A) HAS NOTED THE NUMBER OF YOUTH TRAINED, AND THE NUMBER OF PER SONS TO WHOM SUCH CREDIT FACILITIES ARE EXTENDED DURING THE YEAR. THE QUESTION FOR CONSIDERATION BEFORE US IS WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN CONDUCTING SUCH TRAINING PROGRAMMES CAN BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BANKING BUSINESS BEING CONDUCTED BY THE ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 8 ASSESSEE, AND EVEN IF IT IS NOT CONNECTED WITH THE BUSINESS OF THE ASSESSEE, CAN IT BE ALLOWED BY TREATING THE SAME AS HAVING BEEN INCURRED BY THE ASSESSEE IN THE DISCHARGE OF ITS SOCIAL RESPONS IBILITY. IN THE CASE OF INFOSYS TECHNOLOGIES LTD. (SUPRA), HONBLE KARNATAKA HIGH COURT CONSIDERED THE EXPENDITURE CLAIMED BY THE ASSESSEE ON INSTALLATION OF TRAFFIC SIGNALS AT BANNERGHATA CIRCLE, BANGALORE, AS EXPENDITURE HAVING BEEN INCURRED BY THE ASSE SSEE IN DISCHARGE OF ITS CORPORATE SOCIAL RESPONSIBILITIES, WHICH ALSO FACILITATED THE BUSINESS OF THE ASSESSEE, AND HENCE ALLOWABLE AS DEDUCTION UNDER S.37(1) OF THE ACT. SIMILARLY, COORDINATE BENCH OF THE TRIBUNAL IN CROSS APPEALS OF NMDC LTD., HYDERA BAD FOR THE ASSESSMENT YEAR 2008 - 09, VIDE ORDER DATED 28.2.2014 IN ITA NO.714 & 885/HYD/2012, TO WHICH BOTH OF US ARE SIGNATORIES, FOLLOWING THE STILL EARLIER ORDER OF THE TRIBUNAL IN THAT VERY CASE, HELD DONATION OF RS.5 CRORES MADE BY THE ASSESSEE THERE IN TO A MEDICAL COLLEGE, THOUGH NOT RELATED TO THE BUSINESS OF THE ASSESSEE, AS HAVING BEEN INCURRED IN FURTHERANCE OF A CORPORATE SOCIAL RESPONSIBILITY AND HENCE ALLOWABLE AS DEDUCTION UNDER S.37 OF THE ACT. IN THE FACTS OF THE PRESENT CASE, THE AMOUNT SPENT BY THE ASSESSEE - BANK, WAS NOT ONLY IN DISCHARGE OF CORPORATE SOCIAL RESPONSIBILITY TO TRAIN THE RURAL YOUTH, BUT ALSO TO INDIRECTLY TO PROMOTE ITS OWN BUSINESS, SINCE THE RURAL YOUTH TRAINED WERE ITS PROSPECTIVE CLIENTS, AS THE BANK ALSO INTENDED TO EXTENDED CREDIT FACILITIES TO SUCH UNEMPLOYED YOUTH FOR STARTING THEIR OWN ENTERPRISES. IN THIS VIEW OF THE MATTER, FOLLOWING THE DECISION OF THE KARNATAKA HIGH COURT NOTED ABOVE, CONSISTENT VIEW TAKEN BY COORDINATE BENCHES OF THIS TRIBUNAL, IN SIMILAR CI RCUMSTANCES, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A). WE ACCORDINGLY UPHOLD THE SAME REJECTING THE GROUND OF THE REVENUE ON THIS ISSUE. 18. THE NEXT EFFECTIVE GROUND OF THE REVENUE IN ITS APPEAL READS AS FOLLOWS - THE LD. CIT(A) ERRED IN ENTERTAINING ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE IN RESPECT OF BAD DEBTS WRITTEN OFF TO THE TUNE OF RS.109,12,63,726/ - WITHOUT RELYING ON THE DECISION OF APEX COURT IN THE CASE OF GOETZ INDIA. ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 9 19 . WE HAVE CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE CIT(A) IN THE OPENING SENTENCE OF PARA 14 OF THE IMPUGNED ORDER ITSELF NOTED THAT DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT RAI SED ADDITIONAL GROUND OF APPEAL. HOWEVER, THE CIT(A) HAS NOT CONSIDERED IN THE FIRST PLACE THE ADMISSIBILITY OF SUCH ADDITIONAL GROUND, BUT STRAIGHT AWAY PROCEEDED TO DECIDE THE SAME ON ITS MERITS. THOUGH THE CIT(A) IN ALL FAIRNESS, SHOULD HAVE CONSIDER ED THE ADMISSIBILITY OF SUCH ADDITIONAL GROUND AND ONLY AFTER ADMITTING THE SAME, SHOULD HAVE ADJUDICATED THEREUPON ON MERITS, IT IS ONLY A PROCEDURAL LAPSE ON THE PART OF THE CIT(A). IN ANY EVENT, BY DECIDING THE ADDITIONAL GROUND, WHICH UNDISPUTEDLY A LEGAL GROUND, ON ITS MERITS, THE CIT(A) HAS IMPLIEDLY ADMITTED THE SAID GROUND. THE ISSUE ON MERITS, BEING ALLOWABILITY OF BAD DEBTS WRITTEN OFF TO THE TUNE OF RS.109,12,63,726, HAVING BEEN COVERED BY THE DECISION OF THE APEX COURT IN THE CASE OF CATHOLIC SYRIAN BANK (SUPRA), THE SAID ADDITIONAL GROUND OF THE ASSESSEE BEFORE HIM, HAS BEEN ALLOWED BY THE CIT(A). WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) INSOFAR AS THE MERITS OF THE ISSUE IN DISPUTE ARE CONCERNED. WE ACCORDINGLY UPHOLD THE OR DER OF THE CIT(A) REJECTING THE GROUND OF THE REVENUE ON THIS ISSUE. 20. IN THE RESULT, REVENUES APPEAL FOR THE ASSESSMENT YEAR 2008 - 09, BEING ITA NO.167/HYD/2014, IS DISMISSED. ASSESSEES APPEAL: ITA NO.244/HYD/2014: 21. THE FIRST EFFECTI VE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO DISALLOWANCE OF RS.3,64,08,364, CLAIMED BY THE ASSESSEE UNDER S.35D OF THE ACT, ON ACCOUNT OF EXPENDITURE INCURRED IN CONNECTION WITH PUBLIC ISSUE FOR RAISING CAPITAL FOR EXPANSION OF ASSESSEES BUSINE SS. ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 10 22. BRIEF FACTS OF THE CASE IN RELATION TO THIS ISSUE ARE THAT THE ASSESSEE CLAIMED TO HAVE INCURRED EXPENDITURE OF RS.18,20,41,820 IN CONNECTION WITH PUBLIC ISSUE FOR RAISING THE CAPITAL FOR EXPANSION OF ITS BUSINESS, AND CLAIMED 1/5 TH OF SUCH EXPE NDITURE WORKING OUT TO RS.3,64,08,364 AS DEDUCTION IN THE YEAR UNDER APPEAL, IN TERMS OF S.35D OF THE ACT. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE, OBSERVING THAT THE ASSESSEE IS NOT AN INDUSTRIAL UNDERTAKING AND AS SUCH IT IS NOT ENTITL ED TO CLAIM DEDUCTION IN RESPECT OF SUCH EXPENDITURE. ON APPEAL, THE CIT(A) UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 23. AGGRIEVED BY THE ABOVE DISALLOWANCE, ASSESSEE IS IN SECOND APPEAL BEFORE US ON THIS ISSUE. 24. WE HEARD BOTH SI DES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. WE FIND THAT ON THIS ISSUE, THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08, VIZ. IN ITA NO.715/HYD/2012 DATED 4.10. 2013, IS AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE, AND THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE, WHICH FOLLOWED THE ORDERS OF THE TRIBUNAL IN ASSSESSEES OWN CASES FOR ASSESSMENT YEARS 2006 - 07 AND 2005 - 06, IS IN CONSONANCE WITH THE SAID OR DER OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 2007 - 08. IN THIS VIEW OF THE MATTER AND IN THE ABSENCE OF ANYTHING TO THE CONTRARY BROUGHT TO OUR NOTICE, FOLLOWING THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASES FOR EARLIER YEARS, WE FIND NO MERIT IN THE GROUNDS OF THE ASSESSEE ON THIS ISSUE. WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND REJECT THE GROUNDS OF THE ASSESSEE IN THIS BEHALF. 25. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE RELATES TO DISALLOWANCE OF DEDUCT ION OF RS.328,38,53,876, CLAIMED BY THE ASSESSEE UNDER S.36(1)(VIIA) OF THE ACT TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 11 26. FACTS IN BRIEF RELATING TO THIS ISSUE ARE THAT THE ASSESSEE CLAIMED AN AMOUNT OF RS.427,05,12,789 TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER S.36(1)(VIIA) OF THE ACT. THE ASSESSING OFFICER RESTRICTED THE PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS.98,66,58,913 FOR THE FOLLOWING REASONS A ) THE PROVISION FOR BAD AND DOUBTFUL DEBTS SHOULD BE LIMITED TO THE EXTENT OF PROVIS ION MADE IN THE BOOKS OF ACCOUNT; B ) THE CBDT INSTRUCTION NO.17/2008 POINT NO.2 CLAUSE (3) CLARIFIES THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS SHOULD BE RESTRICTED TO THE EXTENT OF PROVISION MADE IN THE BOOKS OF ACCOUNT. 27. ON APPEAL BEFORE THE CIT (A), LEARNED AUTHORISED REPRESENTATIVE REITERATED FOR ALLOWING THE ENTIRE PROVISION CLAIMED OF RS.427,05,12,789 IRRESPECTIVE OF THE PROVISION FOR BAD DEBTS REFLECTED IN THE BOOKS OF ACCOUNT. THE CIT(A), AFTER CONSIDERING THE PROVISIONS OF S.36(1)(VIIA) OF THE ACT, AND ALSO THE CBDTS INSTRUCTION NO.17/2008 DATED 26.11.2008, UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HENCE, ASSESSEE IS IN SECOND APPEAL ON THIS ISSUE. 28 . WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHOR ITIES AND OTHER MATERIAL AVAILABLE ON RECORD. WE FIND THAT ON THIS ISSUE, THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08, VIZ. IN ITA NO.715/HYD/2012 DATED 4.10.2013, IS AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVEN UE, AND THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE, WHICH FOLLOWED THE ORDER OF THE FIRST APPELLATE AUTHORITY IN ASSESSEES OWN CASE ASSESSMENT YEAR 2007 - 08, IS IN CONSONANCE WITH THE SAID ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 2007 - 08. IN TH IS VIEW OF THE MATTER AND IN THE ABSENCE OF ANYTHING TO THE CONTRARY BROUGHT TO OUR NOTICE, FOLLOWING THE VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEAR, WE FIND NO MERIT IN THE GROUNDS OF THE ASSESSEE ON THIS ISSUE. WE ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 12 ACCORDINGLY UPHO LD THE ORDER OF THE CIT(A) ON THIS ISSUE AND REJECT THE GROUNDS OF THE ASSESSEE IN THIS BEHALF. 29. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO DISALLOWANCE OF PREMIUM OF RS.148,36,49,516 PAID TO LIFE INSURANCE CORPORATION OF INDIA TOWARDS LEAVE ENCASHMENT POLICY TAKEN BY THE ASSESSEE FOR ITS EMPLOYEES. 30. FACTS OF THE CASE IN BRIEF RELATING TO THIS ISSUE ARE THAT THE ASSESSEE CLAIMED DEDUCTION IN THE COMPUTATION OF INCOME OF RS.124.82 CRORES TOWARDS PAYMENT MADE TO LIC GROUP LEAVE ENCASHMENT SCHEME. DURING THE COURSE OF ASSESSMENT, THE CLAIM WAS REVISED TO RS.148.36 CRORES, AS THE CLAIM FOR DEDUCTION OF RS.10.576 CRORES FOR ASSESSMENT YEAR 2006 - 07 AND RS.12.97 CRORES FOR ASSESSMENT YEAR 2007 - 08 WERE NOT ALLOWED BY THE A SSESSING OFFICER IN THOSE RESPECTIVE ASSESSMENT YEARS . THE ENTIRE AMOUNT OF RS.148.36 CRORES WAS SAID TO HAVE BEEN PAID DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSING OFFICER DID NOT ALLOW THE DEDUCTION CLAIMED BY THE ASSESSEE FOR THE FOLLOWING REASONS - A ) THE PAYMENT WAS NOT MADE DIRECTLY BY THE ASSESSEE, RATHER THE PAYMENT WAS MADE TO LIC GROUP LEAVE ENCASHMENT SCHEME AND THEREFORE, SUCH PAYMENT IS NOT ALLOWABLE UNDER S.43B(F) OF THE ACT. B ) THE PAYMENT MADE IS NOT DEBITED TO PROFIT & LOSS ACCOUNT, BUT WAS MADE OUT OF GENERAL RESERVES C ) THE LIC GROUP LEAVE ENCASHMENT SCHEME IS NOT RECOGNIZED/APPROVED AS PER S.36(1)(VI)/(V) OF THE ACT, AND THEREFORE, IT IS IN VIOLATION OF PROVISIONS OF S.40A(9) OF THE ACT. 31. ON APPEAL, THE CIT(A) SUSTAINED THE DISALLOWANC E MADE BY THE ASSESSING OFFICER. HENCE, ASSESSEE IS IN SECOND APPEAL ON THIS ISSUE. ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 13 32 . WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. WE FIND THAT ON THIS ISSUE, THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07, VIZ. IN ITA NOS.95 TO 97 & 218/HYD/2013 DATED 4.4.2013, IS IN AGAINST THE ASSESSEE, AND THE IMPUGNED ORDER OF THE CIT(A) ON THIS ISSUE IS IN CONSONANCE WITH THE SAID ORDER OF THE TRIBUNAL FO R THE ASSESSMENT YEARS 2006 - 07. HOWEVER, THE RECENT DECISIONS OF THE UTTARAKHAND HIGH COURT IN THE CASE OF CIT V/S. NAINITAL BANK LTD. (2014)8 TAX CORP(DT)56471; AND OF THE KERALA HIGH COURT IN THE CASE OF CIT V/S. HINDUSTAN LATEX LTD. (2012)22 TAXMANN.C OM 332, RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US, DULY FURNISHING COPIES THEREOF IN THE PAPER - BOOK, ARE IN FAVOUR OF THE ASSESSEE. IT HAS BEEN HELD BY THE UTTARAKHAND HIGH COURT IN THE CASE OF NAINITAL BANK LTD. (SUPRA) AS FOLLOWS - 4.IT IS NOT IN DISPUTE THAT THE PAYMENT OF THE PREMIUM IN QUESTION IS NOT AN EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36. IN ORDER TO SHOW THAT THE EXPENDITURE WAS NOT IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE AND HAD BEEN SPENT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION, REFERENCE WAS DRAWN TO SECTION 43B(F) OF THE ACT. INASMUCH AS, SECTION 43B CONTAINS NON - OBSTANTE PROVISION AND THERE IN CLAUSE (F) PAYMENT BY THE ASSESSEE AS EMPLOYER IN LIEU OF ANY LEAVE TO THE CREDIT OF ITS EMPLOYEES HAS BEEN RECOGNIZED AS A REVENUE EXPENDITURE AND HAS BEEN CERTIFIED AS AN EXPENDITURE NOT FOR PERSONAL EXPENSES OF THE ASSESSEE AND THAT THE SAME IS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROF ESSION OF THE ASSESSEE. A COVER OBTAINED TO DISCHARGE SUCH RECOGNIZED OBLIGATION WILL NOT COME UNDER SECTION 37 OF THE ACT IS NOT ACCEPTED. 33 . IN THE CASE OF HINDUSTAN LATEX LTD. (SUPRA), WHICH IN FACT WAS IN THE CONTEXT OF ORDER OF THE COMMISSIONER PASSE D UNDER S.263 OF THE ACT, DEALING WITH ELIGIBILITY OF DEDUCTION IN RESPECT OF PREMIA PAID TOWARDS INSURANCE COVER, THE KERALA HIGH COURT HAS HELD THAT WHAT IS INTENDED BY CLAUSE (F) OF S.43B WAS TO DENY DEDUCTION FOR LIABILITIES NOT ACTUALLY INCURRED AND TO EXCLUDE PROVISIONS MADE AGAINST FUTURE LIABILITIES FROM BEING GRANTED AS DEDUCTION. IN THE CASE OF INSURANCE PREMIA PAID, IT WAS OBSERVED, THE SAME WAS NOT A PROVISION FOR FUTURE LIABILITY WHICH WAS CLAIMED AS A DEDUCTION. THE ASSESSEE HAD INSURED ITSEL F AGAINST THE LIABILITIES THAT MAY ARISE ON ACCOUNT OF THE CLAIMS ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 14 MADE BY THE EMPLOYEES TOWARDS LEAVE ENCASHMENT. THE ASSESSEE BEING COVERED BY A VALID INSURANCE POLICY AND PREMIUM BEING REGULARLY PAID, INCURS NO LIABILITY TOWARDS LEAVE ENCASHMENT . THE LIA BILITY BEING COVERED BY A VALID INSURANCE POLICY, IS SOLELY THAT OF THE INSURER. THEREFORE, IT WAS HELD THAT EVEN IF 43B (F) STANDS, IN THE CASE OF THE ASSESSEE, WHERE THE LIABILITY IS BORNE BY THE INSURER, THERE CAN BE NO SITUATION WHEREIN ASSESSEE COULD MAKE A VALID CLAIM FOR DEDUCTION U/S 43B(F) SINCE THE ACTUAL LIABILITY IS NOT INCURRED IN ANY OF THE YEARS. THE PREMIUM PAID TOWARDS THE RENEWAL AND CONTINUED VALIDITY OF THE INSURANCE POLICY NECESSARILY BECOMES BUSINESS EXPENDITURE WHOLLY AND EXCLUSIVELY INCURRED FOR THE BUSINESS PURPOSE AND ALLOWABLE AS A DEDUCTION U/S 37. 34 . IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE RECENT DECISIONS OF THE UTTARAKHAND HIGH COURT IN THE CASE OF CIT V/S. NAINITAL BANK LTD. (SUPRA); AND OF THE KERALA HIGH COURT IN THE CASE OF CIT V/S. HINDUSTAN LATEX LTD. (SUPRA), IN PREFERENCE TO THE EARLIER DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006 - 07, WE ACCEPT THE CONTENTIONS OF THE ASSESSEE ON THIS ISSUE, AND DELETE THE ADDITION MADE BY THE ASSE SSING OFFICER IN THIS BEHALF. ASSESSEES GROUNDS ON THIS ISSUE ARE ALLOWED. 35. THE NEXT GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO DISALLOWANCE MADE IN TERMS OF RULE 8D, IN RESPECT OF EXPENDITURE ATTRIBUTABLE TO EARNING OF TAX FREE INCOME. 36. BRIEF FACTS OF THE CASE IN RELATION TO THIS ISSUE ARE THAT THE ASSESSEE EARNED AN AMOUNT OF RS.17,15,33,910 AS TAX FREE INCOME IN THE FORM OF DIVIDENDS FORM COMPANIES AND MUTUAL FUNDS. SINCE THIS AMOUNT IS EXEMPT UNDER S.10 OF THE INCOME - TAX AC T, 1961, THE ASSESSEE ITSELF DISALLOWED AN AMOUNT OF RS.33,41,474 BEING TWO MONTHS SALARY OF OFFICERS AND STAFF WORKING IN INVESTMENT DEPARTMENT UNDER S.14A OF THE ACT. NOT CONVINCED WITH THE QUANTUM OF DISALLOWANCE MADE BY THE ASSESSEE UNDER S.14A, THE ASSESSING ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 15 OFFICER RE - COMPUTED THE EXPENDITURE INCURRED IN CONNECTION WITH SUCH TAX - FREE INCOME, AND MADE A DISALLOWANCE OF RS.2,27,55,994. THE REASONS GIVEN BY THE ASSESSING OFFICER FOR ENHANCING THIS DISALLOWANCE MADE BY THE ASSESSEE, ARE AS FOLLOWS - ( A ) THE RE IS NO RATIONAL BASIS FOR DISALLOWING ONLY TWO MONTHS SALARY OF PERSONS WORKING IN INVESTMENT DIVISION. ( B ) THE TOTAL EXPENSES OF INVESTMENT DEPARTMENT FOR THE RELEVANT ASSESSMENT YEAR IS RS.4,87,41,188. ( C ) IT CANNOT BE SAID THAT ONLY INVESTMENT DEPARTMENT TAK ES ALL DECISIONS, SINCE HIGHER MANAGEMENT ALSO PARTICIPATES IN DECISION MAKING. ACCORDINGLY, MAKING RECOURSE TO THE PROVISIONS OF RULE 8D, THE ASSESSING OFFICER PROCEEDING ON THE BASIS OF PROPORTION OF AVERAGE VALUE OF EXEMPT INVESTMENT ON THE FIRST DAY AND LAST DAY OF PREVIOUS YEAR OF RS.4266331082 TO AVERAGE VALUE OF TOTAL INVESTMENTS ON FIRST DAY AND LAST DAY OF PREVIOUS YEAR OF RS.145994780500, AND APPLYING THE SAID PROPORTION TO THE TOTAL EXPENDITURE ON INVESTMENT DEPARTMENT OF RS.48741188 ARRIVED AT THE PROPORTIONATE AMOUNT RELATING TO EXEMPT INCOME AT RS.1424339. ADDING THERETO, 0.5% OF AVERAGE VALUE OF EXEMPT INCOME OF RS.4266331082, VIZ. RS.2,13,31,655, THE ASSESSING OFFICER MADE A TOTAL DISALLOWANCE IN TERMS OF S.14A OF RS.2,27,55,994. 37. THE CIT(A), ON APPEAL, AFTER DETAILED CONSIDERATION OF THE SUBMISSIONS OF THE ASSESSEE IN THE LIGHT OF THE PROVISIONS OF S.14A AND RULE 8D, UPHELD THE DISALLOWANCE OF RS.2,27,55,994 MADE BY THE ASSESSING OFFICER IN TERMS OF S.14A, AND REJECTED THE GROUNDS OF THE ASSESSEE ON THAT ASPECT. 38. AGGRIEVED, ASSESSEE IS IN SECOND APPEAL BEFORE US ON THIS ISSUE. ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 16 39. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE HAS OFFERED THE INCOME FROM INVESTMENTS, ETC. AS BUSINESS INCOME ONLY, AND HENCE, THE DISALLOWANCE UNDER S.14A COMPUTED BY THE ASSESSING OFFICER IN RELATION TO STOCK IN TRADE IS TO BE DELETED. IN THE CIRCUMSTANCES, RULE 8D IS NOT APPLICABLE. THE LD COUNSEL, DULY FURNISHING COPIES THEREOF IN THE PAPER - BOOK, RELIED UPON THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. V/S. JCIT (250 CTR 291) - KAR., AND THE DECISIONS OF THE MUMBAI BENCH OF THE TRIBUNAL IN DCIT V/S. INDIA ADVANTAGE SECURITIES LTD. IN ITA NO.6711/MUM/2011 DATED 5.9.2012 FOR THE ASSESSMENT YE AR 2008 - 09; AND OF THE DELHI BENCH OF THE TRIBUNAL IN ACIT V/S. CREDENTIAL STOCK BROKERS PVT. LTD. IN ITA NO.1169/DEL/2012 FOR ASSESSMENT YEAR 2008 - 09. 40. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE. 41. WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE ITSELF HAS DISALLOWED AN AMOUNT OF RS.33,41,474, BEING TWO MONTH S SALARY OF OFFERS AND STAFF WORKING IN INVESTMENT DEPARTMENT UNDER S.14A. WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAS NOT PROPERLY APPRECIATED THE FACTS OF THE CASE AND HAS MECHANICALLY APPLIED RULE 8D IN THIS CASE. THE SHARES WERE HELD AS STO CK - IN - TRADE AND NOT AS INVESTMENTS. HENCE, PROFIT OR LOSS HAS TO BE CONSIDERED UNDER THE HEAD BUSINESS OR PROFESSION AND THE CLAIM OF EXPENSES ARE TO BE CONSIDERED UNDER THE HEAD BUSINESS AND PROVISIONS OF S.14A AND RULE 8D ARE NOT APPLICABLE. THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF STATE BANK OF TRAVANCORE (318 ITR 17) HELD THAT ANY EXPENDITURE INCURRED BY THE ASSESSEE BANK FOR INVESTING IN THE BONDS EVEN TAX - FREE WAS EXPENDITURE INCURRED FOR CARRYING ON ITS BUSINESS SO AS TO MAINTAIN THE REQUIRED STATUTORY LIQUIDITY RATIO AND TAX FREE INTEREST IS JUST AN INCIDENCE TO IT. THEREFORE, SINCE THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TO EARN THE SAID DIVIDEND INCOME, THE EXPENDITURE CANNOT BE DISALLOWED AND THE ASSESSEE ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 17 IS ENTITLED TO THE B ENEFIT OF DEDUCTION OF THE ENTIRE EXPENDITURE. WE ARE OF THE OPINION THAT THERE ARE NO DIRECT EXPENSES ATTRIBUTABLE TO THE DIVIDEND INCOME EARNED BY THE ASSESSEE, AND THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. V/S. JCIT (212.TIOL.251 ) ALSO SUPPORTS THIS VIEW. HOWEVER, ASSESSEE ITSELF HAS DISALLOWED AN AMOUNT OF RS.33,41,474, BEING TWO MONTHS SALARY OF OFFICERS AND STAFF WORKING IN INVESTMENT DEPARTMENT UNDER S.14A, AND THE SAID DISALLOWANCE MADE BY THE ASSESSEE ITSELF WORKS OUT TO ALMOST 2% OF THE TAX - FREE INCOME RECEIVED. THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08, VIDE ITS ORDER DATED 4.10.2013 IN ITA NO.630/HYD/2012, HAS HELD DISALLOWANCE 2% OF THE TAX - FREE INCOME EARNED BY THE AS SESSEE AS REASONABLE. TAKING INTO ACCOUNT, THE TOTAL TAX - FREE INCOME OF RS.17,15,33,910 EARNED BY THE ASSESSEE, WE FIND THAT THE DISALLOWANCE OF RS.33,41,474 OFFERED BY THE ASSESSEE ITSELF IN TERMS OF S.14A, WORKING OUT TO ALMOST 2%, IS QUITE REASONAB LE AND IN CONSONANCE WITH THE VIEW TAKEN BY THE TRIBUNAL FOR THE PRECEDING YEAR. IN THIS VIEW OF THE MATTER, WE ACCEPT THE GROUNDS OF THE ASSESSEE ON THIS ISSUE, AND DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN TERMS OF S.14A READ WITH RULE 8D OF THE ACT. 42. IN THE RESULT, ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2008 - 09, BEING ITA NO.244/HYD/2014, IS PARTLY ALLOWED. CROSS APPEALS FOR ASSESSMENT YEAR 2009 - 10 REVENUES APPEAL : ITA NO.168/HYD/2014 ASSESSEES APPEAL : ITA NO.245/HYD/ 2014 REVENUES APPEAL: 43. FIRST EFFECTIVE GROUND OF THE REVENUE IN THIS APPEAL RELATES TO DISALLOWANCE OF BROKEN PERIOD INTEREST OF RS.46,88,07,389. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOS E CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE REVENUE IN ITS APPEAL ITA NO.167/HYD/2014, FOR THE REASONS DISCUSSED PARA 3 HEREINABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 18 THE SAME IS ACCORDINGLY UPHELD AND TH IS GROUND OF THE REVENUE ON THIS ISSUE IS REJECTED. 44. THE NEXT EFFECTIVE GROUND OF THE REVENUE IN THIS APPEAL RELATES TO DISALLOWANCE OF UNREALIZED INTEREST OF RS.7,24,083 ON NPAS. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UND ER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE REVENUE IN ITS APPEAL ITA NO.167/HYD/2014, FOR THE REASONS DISCUSSED PARA 5 HEREINABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). THE SAME IS ACCORDINGLY UPHELD AND THIS GROUND OF THE REVENUE ON THIS ISSUE IS REJECTED. 45. NEXT EFFECTIVE GROUND OF THE REVENUE IN THIS APPEAL RELATES TO DISALLOWANCE OF RS.2,03,66,949, BEING THE AMOUNT SPENT ON ANDHRA RURAL DEVELOPMENT TRUST. FACTS AN D CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE REVENUE IN ITS APPEAL ITA NO.167/HYD/2014, FOR THE REASONS DISCUSSED PARA 17 HEREINABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). THE SAME IS ACCORDINGLY UPHELD AND THIS GROUND OF THE REVENUE ON THIS ISSUE IS REJECTED. 46. NEXT EFFECTIVE GROUND OF THE REVENUE IN THIS APPEAL IS AGAINST THE ACTION OF THE CIT(A) IN ENTERTAININ G THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE AND GRANTING RELIEF IN RELATION TO THE ASSESSEES CLAIM WITH REGARD TO BAD DEBTS WRITTEN OFF TO THE TUNE OF RS.79,94,86,249. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER A PPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE REVENUE IN ITS APPEAL ITA NO.167/HYD/2014, FOR THE REASONS DISCUSSED PARA 19 HEREINABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). THE SAM E IS ACCORDINGLY UPHELD AND THIS GROUND OF THE REVENUE ON THIS ISSUE IS REJECTED. ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 19 47. IN THE RESULT, REVENUES APPEAL FOR THE ASSESSMENT YEAR 2009 - 10, BEING ITA NO.168/HYD/2014, IS DISMISSED. ASSESSEES APPEAL : ITA NO.245/HYD/2014 48. FIRST EFFEC TIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO DISALLOWANCE OF RS.3,64,08,364 CLAIMED BY THE ASSESSEE UNDER S.35D OF THE ACT, ON ACCOUNT OF EXPENDITURE INCURRED IN CONNECTION WITH PUBLIC ISSUE FOR RAISING CAPITAL FOR EXPANSION OF ASSESSEES BUSIN ESS. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE ASSESSEE IN ITS APPEAL ITA NO.244/HYD/2014, FOR THE REASONS DISCUSSED PARA 24 HEREINABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). THE SAME IS ACCORDINGLY UPHELD AND THIS GROUNDS OF THE ASSESSEE ON THIS ISSUE ARE REJECTED. 49. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO DISALLOWANCE O F RS.317,42,36,575 CLAIMED BY THE ASSESSEE UNDER S.36(1)(VIIA) OF THE ACT TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE ASSESSEE IN ITS APPEAL ITA NO.244/HYD/2014, FOR THE REASONS DISCUSSED PARA 28 HEREINABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). THE SAME IS ACCORDINGLY UPHELD AND THIS GROUNDS OF THE ASSESSEE ON THIS ISSUE ARE REJECTED. 50. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO DISALLOWANCE OF PREMIUM OF RS.16,50,23,446 PAID TO LIC OF INDIA TOWARDS LEAVE ENCASHMENT POLICY TAKEN BY THE ASSESSEE FOR THE EMPLOYEES. THE ASSESSING OFFIC ER HAS MADE THIS DISALLOWANCE ON THE GROUND THAT THE ASSESSEE DID NOT MAKE THE PAYMENT DIRECTLY TO THE EMPLOYEES. THE CIT(A), ON APPEAL RELYING ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 20 ASSESSMENT YEAR 2006 - 07, UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HENCE, THIS SECOND APPEAL BY THE ASSESSEE. 51. WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE AND OTHER MATERIAL AVAILABLE ON RECORD. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE ASSESSEE IN ITS APPEAL ITA NO.244/HYD/2014, FOR THE REASONS DISCUSSED PARAS 32 TO 34 HEREINABOVE, WE FIND NO INFIRMITY IN T HE IMPUGNED ORDER OF THE CIT(A). THE SAME IS ACCORDINGLY UPHELD AND THIS GROUNDS OF THE ASSESSEE ON THIS ISSUE ARE ALLOWED. 52. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS AGAINST THE ACTION OF THE ASSESSING OFFICER IN CONSIDERING AN AMOUNT OF RS.12,49,22,229, BEING INTEREST CREDITED BY THE LIC IN LEAVE ENCASHMENT SCHEME, AS THE INCOME OF THE ASSESSEE. 53. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE AND OTHER MATERIAL AVAILABLE ON RECORD. INT EREST TO THE TUNE OF RS.12,49,22,229 WHICH ACCRUED TO THE ASSESSEE, ON THE PAYMENTS MADE BY THE ASSESSEE TO THE LIC BY WAY OF REGULAR PREMIUM PAYMENTS, WAS BROUGHT TO TAX BY THE ASSESSING OFFICER AS THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER APPEAL. ON APPEAL, THE CIT(A), DISTINGUISHING THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF HINDUSTAN LATEX LTD.(22 TAXMAN.COM.332), RELIED UPON BY THE ASSESSEE BEFORE HIM, AND FOLLOWING THE DECISION OF THE TRIBUNAL DATED 4.4.2013 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2006 - 07 IN ITA NO.218/HYD/2010, UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. AS CORRECTLY OBSERVED BY THE CIT(A), THE DECISION OF THE KERALA HIGH COURT IN THE CASE OF HINDUSTAN LATEX LTD.(SUPRA) IS NOT APPLICABLE, IN AS MUCH AS THE SAID DECISION HAS ONLY DEALT WITH ALLOWABILITY OF DEDUCTION IN RESPECT OF PREMIUM PAID TO LIC, THE ISSUE OF NON - TAXABILITY OF ACCRUED INTEREST UNDER THE ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 21 POLICY WAS NOT THERE BEFORE THE HONBLE HIGH COURT IN THAT CASE. EVEN THOUGH IT HAS BEEN VAGUELY SUBMIT TED THAT FACTS OF THE CASE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION ARE NOT SIMILAR TO THOSE CONSIDERED BY THE TRIBUNAL IN ITS ORDER FOR THE ASSESSMENT YEAR 2006 - 07, IN THE ABSENCE OF ANY VALID POINT OF DISTINCTION BROUGHT TO OUR NOTICE BY THE LEARNED C OUNSEL FOR THE ASSESSEE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). WE ACCORDINGLY UPHOLD THE ORDER OF THE CIT(A), AND REJECT THE GROUNDS OF THE ASSESSEE ON THIS ISSUE. 54. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO THE ADDITION MADE BY THE ASSESSING OFFICER, BY WAY OF DISALLOWANCE OF EXPENDITURE, IN TERMS OF S.14A READ WITH RULE 8D, RELATABLE TO EARNING OF TAX - FREE INCOME EARNED BY THE ASSESSEE. GROUNDS OF THE ASSESSEE IN THIS BEHALF CORRESPOND T O THE GROUNDS OF THE ASSESSEE ON THIS VERY ISSUE IN ITS APPEAL FOR THE ASSESSMENT YEAR 2008 - 09. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROU ND OF THE ASSESSEE IN ITS APPEAL ITA NO.244/HYD/2014, FOR THE REASONS DISCUSSED PARA 41 HEREINABOVE, WE FIND NO JUSTIFICATION FOR THE ADDITION MADE BY THE ASSESSING OFFICER, TO THE DISALLOWANCE IN TERMS OF S.14A ALREADY OFFERED BY THE ASSESSEE. THE ADDIT ION, THUS MADE BY THE ASSESSING OFFICER IS ACCORDINGLY DELETED, AND THE GROUNDS OF THE ASSESSEE ON THIS ISSUE ARE ALLOWED. 55. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO THE INTEREST OF RS.93.11 CRORES CREDITED BY IT TO PROFIT & LOSS ACCOUNT ON AGRICULTURAL LOANS TO WHICH AGRICULTURAL DEBT WAIVER & RELIEF SCHEME, 2008 APPLIES, AND THE ACTION OF THE ASSESSING OFFICER IN NOT ACCEPTING THE REQUEST OF THE ASSESSEE FOR DELETING THIS AMOUNT CREDITED TO PROFIT & LOSS ACCOUNT. 56. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE CREDITED AN AMOUNT OF RS.93.11 CRORES TO PROFIT & LOSS ACCOUNT ON ACCOUNT OF AMOUNTS RECEIVABLE FROM GOVERNMENT OF INDIA THROUGH AGRICULTURE DEBT WAIVER AND RELIEF SCHEME, ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 22 2008. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A CLAIM WAS MADE BEFORE THE ASSESSING OFFICER BY THE AUTHORISED REPRESENTATIVE THAT THE ABOVE CREDIT MAY BE REVERSED BECAUSE THE ENTRIES ARE NOTIONAL IN NATURE. THE ASSESSING OFFICER REJECTED THE SAID REQUEST OF THE ASSESSEE, WITH THE FOLLOWING OBSERVATIONS - SUCH A CLAIM IS NOT ACCEPTABLE BECAUSE THE BOOKS OF THE ASSESSEE ARE AUDITED AND THE CREDIT ENTRIES ARE NOT REVERSED IN THE BOOKS. MOREOVER, THE REVENUE IS RECOGNIZED BY THE ASSESSEE, AS CAN BE SEEN FROM THE NOTES TO ACCOU NTS. ONCE THE ASSESSEE RECOGNIZES THE INCOME IN ITS ACCOUNTS, THE SAME HAS TO BE OFFERED TO TAX. THERE IS NO ARITHMETICAL OR CLERICAL ERROR IN THE AMOUNTS WHICH WARRANT REVISION OR REVERSAL. THERE IS NO SANCTION OF LAW FOR SUCH REVERSAL ALSO. THEREFORE, THE CLAIM OF THE ASSESSEE IS REJECTED. 57. ON APPEAL, THE CIT(A) OBSERVED IN THE FIRST PLACE THAT THE ASSESSEE IS SIMPLY SEEKING REVERSAL OF THE AMOUNT CREDITED TO PROFIT & LOSS ACCOUNT BECAUSE THE AMOUNT CREDITED WAS NOT RECEIVED. FURTHER OBSERVING THAT THE VIEW TAKEN BY HIM IN THE CONTEXT OF PROVISION MADE UNDER S.36(2)(V), IN RELATION TO PROVISION FOR BAD AND DOUBTFUL DEBTS THAT SUCH PROVISION COULD BE ALLOWED ONLY TO THE EXTENT OF PROVISION MADE UNDER S.36(2)(V) OF THE ACT, HOLDS GOOD, IN THE CON TEXT OF THIS ISSUE ALSO, UPHELD THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. HENCE, ASSESSEE IS IN SECOND APPEAL ON THIS ISSUE. 58. WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECOR D. WE ARE OF THE CONSIDERED OPINION THAT THE CIT(A) IS NOT JUSTIFIED IN EQUATING THE AMOUNT OF RS.93.11 CRORES RECEIVABLE FROM GOVERNMENT OF INDIA THROUGH AGRICULTURE DEBT WAIVER AND RELIEF SCHEME, 2008 AND CREDITED TO PROFIT & LOSS ACCOUNT WITH THE PRO VISION FOR BAD AND DOUBTFUL DEBTS, WHICH IS GOVERNED BY THE PROVISIONS OF S.36(2)(V). HOWEVER, WHAT IS CREDITED TO THE PROFIT & LOSS ACCOUNT IN THIS CASE IS ONLY WHAT IS RECEIVABLE, AS ON THE DATE OF THE PROFIT & LOSS ACCOUNT, FROM THE GOVERNMENT, AND IT IS THUS, ONLY A NOTIONAL INCOME AND NOT REAL INCOME, WHICH WAS ACTUALLY REALISED BY THE ASSESSEE. THAT BEING SO, THE SAID AMOUNT MERELY ON THE BASIS OF CREDIT MADE TO THE PROFIT & LOSS ACCOUNT, CANNOT BE ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 23 BROUGHT TO TAX IN THE YEAR UNDER APPEAL. WE AR E SUPPORTED IN THIS BEHALF BY THE DECISION OF THE APEX COURT IN THE CASE OF CIT V/S BOKARO STEEL LTD. (102 TAXMAN 94)(SC), WHEREIN THE APEX COURT IN SIMILAR CIRCUMSTANCES, HELD, PER HEAD NOTE, AS FOLLOWS - THE ENTIRE NATURE OF THE TRANSACTION WAS CHANGED BETWEEN THE PARTIES. THERE WAS A RESOLUTION OF THE ASSESSEE - C OMPANY IN THIS REGARD AND, THE INCOME FROM INTEREST DID NOT RESULT AT ALL AS THE ORIGINAL AGREEMENT CEASED TO BE O PERATIVE AB INITIO. THE ENTRY IN THE BOOK S WHICH WAS MADE WAS ABOUT A HYPOTH E TICAL INCOM E WHI C H D I D NOT MATERIALISE AND THE ENTRY WAS REVERSED IN T HE NEXT YEAR. BOTH THE TRIBUNAL AS WELL AS THE HIGH COURT HAD HELD THAT S INCE THIS ENTRY REFLECTED ONLY HYPOTHETICAL INCOME, IT COULD NOT BE BROUGHT TO TAX AS INCOME. ONLY REAL INCOME CAN BE BROUGHT TO TAX. THE ENTRY WHICH WAS INI T IALLY MADE AS INTEREST WAS REVERSED THE NEXT YEAR BECAUSE IN FACT THE NATURE OF THE TRANS A CTION WAS CHANGED AND THE ASSESSEE DID NOT RECEIVE ANY REAL INCOME. THE HIGH COURT HAD, THEREFORE, RIGHTLY HELD THAT E NTRY WAS NOT REFLECTING THE REAL INCOME OF THE ASSESSEE AND, HENCE, NOT EXIGIBLE TO TAX. THUS, MERE ENTRIES IN THE PROFIT AND LOSS ACCOUNT AND THE BOOKS OF ACCOUNT CANNOT CLINCH THE ISSUE WITH REGARD TO TAXABILITY OF AN INCOME. IT IS ONLY SUCH ENTRIES, WHICH REFLECT THE REAL INCOME WHICH CAN BE BROUGHT TO TAX, IN THE RELEVANT ASSESSMENT YEAR. IN THIS VIEW OF THE MATTER, RESPECTFULLY FOLLO W IN G TH E DECISION OF TH E APEX COU R T IN THE CASE OF BOKARO STEEL (SUPRA) , WE SET ASIDE THE IMPUGN E D ORDER O F TH E CIT (A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO GRANT APPROPRIATE RELIEF TO THE ASSESSEE. ASSESSEES GROUNDS ON THIS ISSUE ARE ACCORDINGLY ALLOWED. 59. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO DONATION OF RS.5 ,00,000 MADE BY THE ASSESSEE TO RAJASTHAN GOVERNMENT, AND THE DIRECTION OF THE CIT(A) TO THE ASSESSING OFFICER TO ALLOW THE CLAIM FOR DEDUCTION UNDER S.80G, IF COPY OF 80G APPROVAL IS FURNISHED BY THE ASSESSEE. 60. WE HEARD BOTH SIDES AND PERUSED THE IMPUGNED ORDERS OF THE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. THE ASSESSING ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 24 OFFICER HAS NOT CONSIDERED THE CLAIM OF THE ASSESSEES CLAIM FOR DEDUCTION IN RESPECT OF DONATION OF RS.5,00,000 PAID TO RAJASTHAN GOVERNMENT, STATING THAT APPROVAL UNDER S.80G WAS NOT FURNISHED. IT IS THE CASE OF THE ASSESSEE THAT SINCE THE AMOUNT OF DONATION IN QUESTION HAS BEEN MADE TO A GOVERNMENT AND IS THUS COVERED UNDER S.80G(2)(V) OF THE ACT, THE CIT(A) OUGHT TO HAVE ALLOWED THE CLAIM OF THE ASSESSE E FOR DEDUCTION UNDER S.80G, INSTEAD OF GIVING DIRECTIONS AS ABOVE TO THE ASSESSING OFFICER. WE FIND MERIT IN THE CON T ENTION OF THE ASSESSEE . SINCE TH E DONATION MADE BY TH E ASSESSEE IS TO A STATE GOVERNMENT , VIZ. GOVERNMENT OF RAJASTHAN, THERE IS NO REQU IREMENT OF ANY CERTIFICATE TO BE FURNISHED BY THE ASSESSEE. CONSEQUENTLY, WE FIND THAT THERE IS NO JUSTIFICATION FOR THE CIT(A) TO DIRECT THE ASSESSING OFFICER TO ALLOW RELIEF SUBJECT TO FURNISHING OF CERTIFICATE OF APPROVAL BY THE ASSESSEE . WE ACCORDING LY MODIFY THE DIRECTIONS OF TH E CIT(A) AND DIRECT THE ASSESSING OFFICER TO GIVE APPROPRIATE RELI E F TO THE ASSESSEE, ALLOWING TH E G R OUN D S OF TH E ASSESSEE ON THIS ISSUE. 61. IN THE RESULT, ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009 - 10, BEING ITA NO.245/H YD/2014, IS PARTLY ALLOWED. CROSS APPEALS FOR ASSESSMENT YEAR 2010 - 11 REVENUES APPEAL : ITA NO.169/HYD/2014 ASSESSEES APPEAL : ITA NO.246/HYD/2014 REVENUES APPEAL: 62. FIRST EFFECTIVE GROUND OF THE REVENUE IN THIS APPEAL RELATES TO DISALLOWANCE O F BROKEN PERIOD INTEREST OF RS.133,23,93,835. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE REVENUE IN ITS APPEAL ITA NO.167/HYD/201 4, FOR THE REASONS DISCUSSED PARA 3 HEREINABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). THE SAME IS ACCORDINGLY UPHELD AND THIS GROUND OF THE REVENUE ON THIS ISSUE IS REJECTED. ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 25 63. THE NEXT EFFECTIVE GROUND OF THE REVENUE IN THIS APPEAL RELATES TO DISALLOWANCE OF UNREALIZED INTEREST OF RS.6,16,65,842 ON NPAS. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE REVE NUE IN ITS APPEAL ITA NO.167/HYD/2014, FOR THE REASONS DISCUSSED PARA 5 HEREINABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). THE SAME IS ACCORDINGLY UPHELD AND THIS GROUND OF THE REVENUE ON THIS ISSUE IS REJECTED. 64. NEXT EFFECTI VE GROUND OF THE REVENUE IN THIS APPEAL RELATES TO DISALLOWANCE OF RS.2,04,54,777, BEING THE AMOUNT SPENT ON ANDHRA RURAL DEVELOPMENT TRUST. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE REVENUE IN ITS APPEAL ITA NO.167/HYD/2014, FOR THE REASONS DISCUSSED PARA 17 HEREINABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). THE SAME IS ACCORDINGLY UPHELD AND THIS GROUND OF THE REVENUE ON THIS ISSUE IS REJECTED. 65. IN THE RESULT, REVENUES APPEAL FOR THE ASSESSMENT YEAR 2010 - 11, BEING ITA NO.169/HYD/2014, IS DISMISSED. ASSESSEES APPEAL : ITA NO.246/HYD/2014 66. FIRST EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPE AL RELATES TO DISALLOWANCE OF RS.3,654,08,364 CLAIMED BY THE ASSESSEE UNDER S.35D OF THE ACT, ON ACCOUNT OF EXPENDITURE INCURRED IN CONNECTION WITH PUBLIC ISSUE FOR RAISING CAPITAL FOR EXPANSION OF ASSESSEES BUSINESS. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE ASSESSEE IN ITS APPEAL ITA NO.244/HYD/2014, FOR THE REASONS DISCUSSED PARA 24 HEREINABOVE, WE FIND NO INFIRMITY IN THE I MPUGNED ORDER OF THE CIT(A). THE ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 26 SAME IS ACCORDINGLY UPHELD AND THE GROUNDS OF THE ASSESSEE ON THIS ISSUE ARE REJECTED. 67. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO DISALLOWANCE OF RS.362,62,50,009 CLAIMED BY THE ASSESSEE U NDER S.36(1)(VIIA) OF THE ACT TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE ASSESSEE IN ITS APPEAL ITA NO.244/HYD/2014 FOR THE ASSESSMENT YEAR 2008 - 09, FOR THE REASONS DISCUSSED PARA 28 HEREINABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). THE SAME IS ACCORDINGLY UPHELD AND THIS GROUNDS OF THE ASSESSEE ON THIS ISSUE ARE R EJECTED. 68. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO DISALLOWANCE OF PREMIUM OF RS.13,01,00,494 PAID TO LIC OF INDIA TOWARDS LEAVE ENCASHMENT POLICY TAKEN BY THE ASSESSEE FOR THE EMPLOYEES. FACTS AND CIRCUMSTANCES IN RELA TION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE ASSESSEE IN ITS APPEAL ITA NO.244/HYD/2014, FOR THE REASONS DISCUSSED PARAS 32 TO 34 HEREINABOVE, WE FIND NO INFIRMI TY IN THE IMPUGNED ORDER OF THE CIT(A). THE SAME IS ACCORDINGLY UPHELD AND THIS GROUNDS OF THE ASSESSEE ON THIS ISSUE ARE ALLOWED. 69. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS AGAINST THE ACTION OF THE ASSESSING OFFICER IN CONSIDER ING AN AMOUNT OF RS.17,00,03,371, BEING INTEREST CREDITED BY THE LIC IN LEAVE ENCASHMENT SCHEME, AS THE INCOME OF THE ASSESSEE. FACTS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN TH E CONTEXT OF THE CORRESPONDING GROUND OF THE ASSESSEE IN ITS APPEAL ITA NO.245/HYD/2014 FOR THE ASSESSMENT YEAR 2009 - 10, FOR THE REASONS DISCUSSED PARA 53 HEREINABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE CIT(A). ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 27 THE SAME IS ACCORDINGLY UPHEL D AND THIS GROUNDS OF THE ASSESSEE ON THIS ISSUE ARE REJECTED. 70. THE NEXT EFFECTIVE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO THE ADDITION MADE BY THE ASSESSING OFFICER, BY WAY OF DISALLOWANCE OF EXPENDITURE, IN TERMS OF S.14A READ W ITH RULE 8D, RELATABLE TO EARNING OF TAX - FREE INCOME EARNED BY THE ASSESSEE. GROUNDS OF THE ASSESSEE IN THIS BEHALF CORRESPOND TO THE GROUNDS OF THE ASSESSEE ON THIS VERY ISSUE IN ITS APPEAL FOR THE ASSESSMENT YEAR 2008 - 09, BEING ITA NO.544/HYD/2014. FAC TS AND CIRCUMSTANCES IN RELATION TO THIS ISSUE, FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE CONSIDERED BY US IN THE CONTEXT OF THE CORRESPONDING GROUND OF THE ASSESSEE IN ITS APPEAL ITA NO.244/HYD/2014, FOR THE REASONS DISCUSSED PARA 41 HEREINABOVE, WE FIND NO JUSTIFICATION FOR THE ADDITION MADE BY THE ASSESSING OFFICER, TO THE DISALLOWANCE IN TERMS OF S.14A ALREADY OFFERED BY THE ASSESSEE. THE ADDITION, THUS MADE BY THE ASSESSING OFFICER IS ACCORDINGLY DELETED, AND THE GROUNDS OF THE ASSESSEE ON THI S ISSUE ARE ALLOWED. 71. IN THE RESULT, ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2010 - 11, BEING ITA NO.246/HYD/2014, IS PARTLY ALLOWED. 72. TO SUM UP, WHILE THE APPEALS OF THE REVENUE FOR ALL THE THREE YEARS, BEING ITA NOS.167 TO 169/HYD/2014 ARE DI SMISSED, THE APPEALS OF THE ASSESSEE, BEING ITA NOS.244 TO 246/HYD/2014, ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 18 TH JULY, 2014 SD/ - SD/ - (CHANDRA POOJARI ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DT/ - 18 TH JULY, 2014 ITA NO.167/HYD/2014 & FIVE OTHERS M/S. ANDHRA BANK, HYDERABAD 28 COPY FORWARDED TO: 1. ANDHRA BANK, 5 - 9 - 11, HEAD OFFICE, SAIFABAD, HYDERABAD 2. ADDL. COMMISSIONER OF INCOME - TAX RANGE 1, HYDERABAD 3. COMMISSIONER OF INCOM E - TAX(APPEALS) II HYDERABAD 4. COMMISSIONER OF INCOME - TAX I, HYDERABAD 5 DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S