ACIT, CHENNAI V. Indian Overseas Bank, CHENNAI

ITA 1866/CHNY/2006

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 0741 (ITAT-CHENNAI)
• Duration Of Justice: 6 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 23-01-2013
• Assessment Year: 1999-2000
• Appeal Filed On: 24-07-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: General deduction; Depreciation; Advance ruling; Bad and doubtful debts
• Section: 43B; 14A; 115JB; 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE N.S. SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO S . ASSESSMENT YEAR APPELLANT RESPONDENT 264/MDS/2005 1997-98 INDIAN OVERSEAS BANK, CENTRAL OFFICE FUNDS & ACCOUNTS DEPT. 762, MOUNT ROAD, CHENNAI-600 002. PAN:AAACI1223J JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE-I, CHENNAI-34. 265/MDS/2005 1998-99 INDIAN OVERSEAS BANK JCIT., CHENNAI. 2032 TO 2034 / MDS/2005 1999-2000 2000-01 2001-02 INDIAN OVERSEAS BANK ACIT., COMPANY CIRCLE-II(3), CHENNAI-34 1146 /MDS/200 8 2002-03 INDIAN OVERSEAS BANK ACIT. CIRCLE-II(3) CHENNAI-34. 1866 /MDS/200 6 1999-2000 ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE- II(3), CHENNAI-34. INDIAN OVERSEAS BANK ASSESSEE BY : MR. C.NARESH, CA REVENUE BY : MR. SHAJI P.JACOB, ADDL. CIT DATE OF HEARING : 23 RD JANUARY, 2013 DATE OF PRONOUNCEMENT : 26 TH FEBRUARY, 2013 O R D E R PER BENCH : THE ASSESSEE HAS FILED THE AFOREMENTIONED SIX APPE ALS I.E. ITA NOS. 264 & 265/MDS/2005, 2632 TO 2634/MDS/ 2005 AND 1146/MDS/2008 FOR THE RESPECTIVE ASSESSMENT YEA RS AND THE REVENUE HAS PREFERRED ONE APPEAL I.E. ITA ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 2 NO.1866/MDS/2006 FOR THE ASSESSMENT YEAR 1999-2000 AGAINST THE ORDERS OF THE CIT(A), CHENNAI. SINCE TH E ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THEY ARE TAKE N UP TOGETHER FOR ADJUDICATION. ITA NO.264/MDS/2005(A.Y.1997-98): 2. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUG NING THE ORDER OF THE CIT(A)-XI, CHENNAI DATED 6.12.2004 RELEVANT TO THE ASSESSMENT YEAR 1997-98. IN THE CONCISE GROU NDS OF APPEAL, THE ASSESSEE HAS RAISED ONLY THE FOLLOWING TWO GROUNDS :- I) DISALLOWANCE OF EXPENDITURE ON WILLS WORLD CUP AMOUNTING TO ` 48.05 LAKHS; & II) APPLICABILITY OF PROVISIONS OF SECTION 115JA TO BANK. THE COUNSEL FOR THE ASSESSEE HAS RAISED ALTERNATE GROUND WITHOUT PREJUDICE TO HIS ARGUMENTS BEING RAISED IN GROUND NO.II) WITH REGARD TO PREPARATION OF BOOKS OF ACCOUNT AS PER SCHEDULE VI OF THE COMPANIES ACT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 115JA. ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 3 3. WITH REGARD TO GROUND NO.1 RELATING TO ADVERTISE MENT EXPENDITURE ON WILLS WORLD CUP, THE ASSESSEE HAD A MORTIZED THE TOTAL EXPENDITURE OF ` 1,58,05,001/- OVER THE PERIOD OF THREE YEARS. THE EXPENDITURE WAS INCURRED IN THE PR EVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 1996-97. THE ASSESSEE HAD AMORTIZED THE SAID EXPENDITURE OVER THE PERIOD OF THREE YEARS STARTING FROM ASSESSMENT YEAR 1996-97. ACCORD INGLY, THE ASSESSEE HAD CLAIMED EXPENDITURE TO THE TUNE OF ` 48.05 LAKHS IN THE ASSESSMENT YEAR 1997-98. THE ISSUE HA D ALREADY COME UP FOR ADJUDICATION BEFORE THE TRIBUNA L IN ITA NO.694/MDS/2011 FOR THE ASSESSMENT YEAR 1996-97. TH E TRIBUNAL VIDE ORDER DATED 31.1.2013 HAS ALLOWED TH E ENTIRE ADVERTISEMENT EXPENDITURE TO THE TUNE OF ` 1,58,05,001/- IN THE YEAR OF EXPENDITURE ITSELF IRRESPECTIVE OF TREA TMENT OF EXPENDITURE GIVEN BY THE ASSESSEE IN ITS BOOKS OF A CCOUNT. IN VIEW OF THE FACT THAT THE ENTIRE ADVERTISEMENT EXPE NSES HAS ALREADY BEEN ALLOWED IN THE ASSESSMENT YEAR 1996-97 , THE SAME CANNOT BE ALLOWED IN THE SUBSEQUENT YEAR. THE REFORE, THIS GROUND OF APPEAL OF THE ASSESSEE HAS BECOME INFRUCTUOUS AND THE SAME IS DISMISSED AS SUCH. ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 4 4. THE SECOND GROUND OF APPEAL RELATES TO APPLICABI LITY OF THE PROVISIONS OF SECTION 115JA TO THE BANKS. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SECTION115JA ARE NOT APPLICABLE TO NATIONALIZED BAN KS AS THE NATIONALIZED BANKS ARE NOT COMPANIES REGISTERED UND ER THE PROVISIONS OF THE COMPANIES ACT, 1956. THE PROVISIO NS OF SECTION 115JA ARE ONLY APPLICABLE TO THE COMPANIES WHICH ARE REGISTERED UNDER THE PROVISIONS OF COMPANIES ACT, 1 956 AND ARE SUPPOSED TO MAINTAIN THEIR BOOKS OF ACCOUNT AS PER SCHEDULE VI PROVIDED UNDER THE SAID ACT. THE A.R. SUBMITTED THAT THE NATIONALIZED BANKS PREPARE THEI R BALANCE SHEET IN ACCORDANCE WITH SCHEDULE 3 OF THE BANKING REGULATION ACT. THE PROVISIONS OF SECTION 115JA(2) SPECIFICALLY PROVIDES THAT EVERY ASSESSEE BEING A C OMPANY SHALL PREPARE ITS PROFIT AND LOSS ACCOUNT FOR THE R ELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II & III OF SCHEDULE VI TO THE COMPANIES ACT, 1956. THE REFORE, THE ASSESSEE BEING A NATIONALIZED BANK AND GOVERNED BY THE PROVISIONS OF BANKING REGULATION ACT IS NOT REQUIRE D TO PREPARE BOOKS OF ACCOUNT AS PER THE MANDATORY REQUI REMENT ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 5 OF SECTION 115JA(2) AND AS SUCH THE PROVISIONS OF S ECTION 115JA ARE NOT APPLICABLE TO THE ASSESSEE. IN ORDER TO SUPPORT HIS CONTENTIONS, THE A.R. FOR THE ASSESSEE RELIED O N THE ORDERS OF THE VARIOUS BENCHES OF THE TRIBUNAL IN ITA NO.469/MDS/2010 IN THE CASE TITLED INDIAN BANK VS. ACIT., DECIDED ON 3 RD AUGUST, 2011 AND IN ITA NO.4702 TO 4706/MUM/2010 IN THE CASE TITLED UNION BANK OF INDI A VS. ACIT DECIDED ON 3 RD AUGUST, 2011 AND ITA NO.305/BANG/2011 IN THE CASE OF CANARA BANK VS. CIT DECIDED ON 18 TH JULY, 2012. THE A.R. SUBMITTED THAT NATIONALIZED BANKS AR E DEEMED TO BE COMPANIES UNDER THE PROVISIONS OF BANKING COM PANIES (ACQUISITION & TRANSFER OF UNDERTAKINGS) ACT, 1970. THE AR FURTHER SUBMITTED THAT THE MUMBAI BENCH OF THE TRIB UNAL IN THE CASE OF MAHARASHTRA STATE ELECTRICITY BOARD VS. JCI T., REPORTED AS 82 ITD 422(MUM) HAS HELD THAT STATE ELE CTRICITY BOARD CANNOT BE TREATED AS A COMPANY, AS IT IS NOT REQUIRED TO DISTRIBUTE DIVIDEND, THEREFORE, IT WOULD NOT COM E WITHIN THE MISCHIEF OF SECTION 115JA. SIMILAR VIEW HAS BEEN TA KEN BY THE HONBLE KERALA HIGH COURT IN THE CASE OF KERALA STA TE ELECTRICITY BOARD VS. DCIT., REPORTED AS 329 ITR 91 (KER), ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 6 WHEREIN THE HONBLE HIGH COURT HAS HELD THAT SINCE THE BOARD IS NOT A COMPANY WITHIN THE PROVISIONS OF THE COMPA NIES ACT, PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE TO I T. 5. THE A.R. MADE AN ALTERNATE PLEA, WITHOUT PREJUDI CE TO HIS SUBMISSIONS MADE ON THE POINT THAT THE ASSESSEE IS NOT A COMPANY UNDER THE PROVISIONS OF THE COMPANIES ACT A ND THEREFORE, THE PROVISIONS OF SECTION 115JA AND 115J B ARE NOT APPLICABLE TO IT. THE A.R. SUBMITTED THAT IF AT ALL THE TRIBUNAL HOLDS THAT THE PROVISION OF SECTION 115JA ARE APPLI CABLE TO THE ASSESSEE, THEN LIBERTY BE GRANTED TO THE ASSESSEE T O DRAW ITS BOOKS OF ACCOUNT IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT, 1956. 6. ON THE OTHER HAND, SHRI SHAJI P.JACOB APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT THE ASSESSEE I S A COMPANY UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. THE DR SUBMITTED THAT THE ASSESSEE WAS ORIGINALLY INCORPORATED IN THE YEAR 1937 UNDER THE INDIAN COMP ANIES ACT 1913. SECTION 3 OF THE COMPANIES ACT, 1956 PROV IDES THAT IN THIS ACT UNLESS THE CONTEXT OTHERWISE REQUIRES THE EXPRESSIONS COMPANY, EXISTING COMPANY, PRIVATE COMPANY ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 7 AND PUBLIC COMPANY SHALL SUBJECT TO THE PROVISION S OF SUB- SECTION 2 HAVE THE MEANINGS SPECIFIED BELOW:- I) COMPANY MEANS A COMPANY FORMED AND REGISTERED UNDER THIS ACT OR AN EXISTING COMPANY AS DEFINED IN CLAUSE (II) II) EXISTING COMPANY MEANS A COMPANY FORMED AND REGISTERED UNDER ANY OF THE PREVIOUS COMPANIES LAW SPECIFIED BELOW:- A) ANY ACT OR ACTS RELATING TO COMPANIES IN FORCE BEFORE THE INDIAN COMPANIES ACT, 1866 AND REPEALED BY THAT ACT; B) THE INDIAN COMPANIES ACT, 1866; C) THE INDIAN COMPANIES ACT, 1882; D) THE INDIAN COMPANIES ACT, 1913; E) THE REGISTRATION OF TRANSFERRED COMPANIES ORDINANCE 1942; & F) ANY LAW CORRESPONDING TO ANY OF THE ACTS OR THE ORDINANCE AFORESAID IN FORCE. XXXXXXXXXXX ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 8 7. THE D.R. SUBMITTED THAT THE ASSESSEE COMPANY WAS ORIGINALLY INCORPORATED UNDER THE PROVISIONS OF IND IAN COMPANIES ACT, 1913. A PERUSAL OF SECTION 3(1) OF T HE COMPANIES ACT, 1956 CLEARLY STATES THAT COMPANY FOR MED UNDER INDIAN COMPANIES ACT, 1913 SHALL BE CONSIDER ED AS A COMPANY UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. TO FURTHER SUBSTANTIATE THAT THE ASSESSEE IS A COM PANY, THE DR REFERRED TO SECTION 2 OF THE BANKING REGULATION ACT, 1949 WHICH STATES THAT , THE PROVISIONS OF THIS ACT SHALL BE IN ADDITION TO AND NOT SAVE AS HEREINAFTER EXPRESSLY P ROVIDED, IN DEROGATION OF THE COMPANIES ACT, 1956 AND ANY OTHER LAW FOR THE TIME BEING IN FORCE. THE DR FURTHER REFERRED TO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF THE INDIAN OVERSEAS BANK LTD. VS. CIT., 1970 AIR 1530, WHEREIN THE HONBLE APEX COURT VIDE ITS ORDER DATED 23.4.1 970 HAS HELD THAT THE APPELLANT IS A PUBLIC LIMITED COMPAN Y CARRYING ON BANKING BUSINESS. THE DR ALSO REFERRED TO THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CWT VS. S.P.SHANMUGHA KESARI REPORTED AS 121 ITR 403(MAD), WHEREIN THE HONBLE HIGH COURT HAS HELD THAT THE AS SESSEE IS ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 9 A BANKING COMPANY UNDER THE BANKING REGULATION ACT, 1949. THE DR FURTHER POINTED OUT THAT THE ASSESSEE HAS CO ME UP WITH A PUBLIC ISSUE AND HAD CONVENED ANNUAL GENERAL MEETING DECLARING DIVIDENDS IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956. THE DR FURTHER REFERRE D TO THE RULING GIVEN BY THE AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF CASTLETON INVESTMENT LTD. IN RE REPORTED AS 75 D TR (AAR) 321 IN SUPPORT OF HIS SUBMISSIONS. 8. ON THE ALTERNATE PLEA, THE DR SUBMITTED THAT THE RE IS NO SUCH OPTION FOR CHANGING BOOKS OF ACCOUNT TO MAKE THEM SUITABLE UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956. MOREOVER, METHOD OF COMPUTATION UNDER BOTH THE ACTS , I.E. UNDER THE PROVISIONS OF THE COMPANIES ACT AS WELL A S UNDER THE PROVISIONS OF BANKING REGULATION ACT, IS ALMOST IDENTICAL. FILING OF DOCUMENTS WITH THE REGISTRAR OF COMPANIES IN CASE OF BANKING COMPANIES HAS BEEN EXEMPTED IN VIEW OF S ECTION 32 OF THE BANKING REGULATION ACT, 1949, WHEREIN IT HAS BEEN PROVIDED THAT COPIES OF BALANCE SHEETS AND ACCOUNTS ARE TO BE SENT TO THE REGISTRAR. SECTION 211 OF THE COMPA NIES ACT PROVIDES THAT EVERY BALANCE SHEET OF A COMPANY SHAL L GIVE ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 10 TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF THE C OMPANY AT THE END OF FINANCIAL YEAR AND THE SAME SHOULD BE PREPA RED IN ACCORDANCE WITH SCHEDULE VI. THE BANKING AND/OR IN SURANCE COMPANIES HAVE BEEN EXEMPTED FROM PREPARING THEIR B ALANCE SHEET IN ACCORDANCE WITH THE PROVISIONS OF SAID SEC TION. THE D.R FURTHER REFERRED TO PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.3.1997 WHICH IS PLACED AT ANNEXURE A-1 ALO NG WITH THE WRITTEN SUBMISSIONS BY THE LEARNED DR, WHEREIN ANNEXURE-A1 HAS BEEN SIGNED BY THE GENERAL MANAGER OF THE BANK. WHEREAS ANNEXURE A2 WHICH HAS BEEN DRAWN IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT, 1 956 OF THE ACT, HAS BEEN SIGNED BY THE GENERAL MANAGER AND HAS BEEN CERTIFIED BY THE CHARTERED ACCOUNTANTS. THE D. R. CONTENDED THAT THESE BOOKS OF ACCOUNTS FOR THE RELE VANT ASSESSMENT YEAR 1997-98 WERE NEITHER SIGNED BY THE DIRECTOR/MANAGING DIRECTOR OF THE BANK NOR THE SAME WERE PLACED IN THE ANNUAL GENERAL MEETING AS PER THE PRO VISIONS OF THE COMPANIES ACT, 1956. 9. TO CONTROVERT THE SUBMISSIONS MADE BY THE DR, SH RI C. NARESH APPEARING ON BEHALF OF THE ASSESSEE SUBMITTE D THAT ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 11 NOW ALL THE NATIONALIZED BANKS INCLUDING THE ASSESS EE ARE GOVERNED BY THE BANKING COMPANIES (ACQUISITION & TR ANSFER OF UNDERTAKINGS) ACT, 1970 AND NOT BY THE COMPANIES ACT, 1956. THEREFORE, AFTER NATIONALIZATION OF THE BANKS THE PROVISIONS OF SECTION 3 OF THE COMPANIES ACT AS REF ERRED TO BY THE DR ARE NOT APPLICABLE ON THE NATIONALIZED BANKS . THE A.R. SUBMITTED THAT IT IS AN ADMITTED FACT THAT THE ASSE SSEE BANK WAS ORIGINALLY INCORPORATED IN THE YEAR 1937 UNDER THE PROVISIONS OF INDIAN COMPANIES ACT, 1913 AND THEREA FTER MUCH WATER HAS FLOWN AND AFTER THE NATIONALIZATION OF THE BANKS, THE INDIAN OVERSEAS BANK LTD. WAS TAKEN OVE R BY INDIAN OVERSEAS BANK. ALL THE CASE LAWS RELIED ON B Y THE DR WERE PRIOR TO NATIONALIZATION OF BANKS. THEREFORE, THE SAME ARE NOT APPLICABLE ON THE ASSESSEE BANK NOW. 10. AS REGARDS ADOPTION OF ACCOUNTS IN THE ANNUAL G ENERAL MEETING, THE AR SUBMITTED THAT ACCOUNTS ARE ADOPTED BY THE BOARD OF DIRECTORS OF THE BANK AND NOT IN THE ANNUA L GENERAL MEETING AS IS IN THE CASE OF COMPANIES REGISTERED U NDER THE PROVISIONS OF THE COMPANIES ACT, 1956. THE AR FURTH ER CONTENDED THAT SECTION 115JA(2) MAKES IT MANDATORY TO MAKE ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 12 BALANCE SHEET AND PROFIT AND LOSS ACCOUNT AS PER SC HEDULE VI, THEREFORE, THE ASSESSEE HAD MADE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT AS REFERRED TO IN ANNEXURE-2 TO CO MPLY WITH THE PROVISIONS OF SECTION 115JA(2). 11. AT THIS STAGE, THE DR POINTED OUT THAT GROUND N O.2 RAISED BY THE ASSESSEE IN THE CONCISE GROUNDS OF AP PEAL WAS NOT TAKEN BY THE ASSESSEE IN ITS ORIGINAL GROUNDS O F APPEAL BEFORE THE TRIBUNAL NOR THIS ISSUE WAS RAISED BEFOR E THE CIT(A). IT IS FOR THE FIRST TIME THAT THE ASSESSEE HAS RAISED THIS ISSUE BEFORE THE TRIBUNAL BY MENTIONING IT IN THE C ONCISE GROUNDS OF APPEAL. 12. WHEN CONFRONTED WITH THE SITUATION, THE AR HAS FAIRLY CONCEDED THAT THIS ISSUE WAS NOT RAISED BY THE ASSE SSEE BANK BEFORE THE CIT(A). HOWEVER, THE ISSUE MAY NOT HAVE BEEN CLEARLY SPELT OUT IN THE DETAILED GROUNDS OF APPEAL ORIGINALLY FILED BEFORE THE TRIBUNAL BUT IN PARA 2.7 AND 2.8 R EFERENCE HAS BEEN MADE TO PROVISIONS OF SECTION 115JA FOR ALLOWI NG THE ASSESSEE TO PREPARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT. ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 13 13. IN VIEW OF THE SITUATION THAT THE SECOND GROUND OF APPEAL WHICH HAS BEEN VEHEMENTLY ARGUED BY BOTH THE PARTIE S DOES NOT EMANATE FROM THE IMPUGNED ORDER OF THE CIT(A), IT WOULD NOT BE POSSIBLE FOR THE TRIBUNAL TO ADJUDICATE THE SAME. THE ISSUE WAS NOT RAISED BY THE ASSESSEE BY FOLLOWING PROPER PROCEDURE BY RAISING THE SAME AS ADDITIONAL GROU ND OF APPEAL BEFORE THE TRIBUNAL. THIS GROUND OF APPEAL O F THE ASSESSEE IS DISMISSED FOR THE REASONS AFOREMENTIONE D. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ITA NO.265/MDS/2005 (A.Y.1998-99): 15. THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUG NING THE ORDER OF THE CIT(A)-XI, CHENNAI DATED 29.11.200 4. THE ASSESSEE HAS RAISED AS MANY AS FIVE GROUNDS IN THE CONCISE GROUNDS OF APPEAL FILED BEFORE THE TRIBUNAL. 16. THE FIRST GROUND RAISED BY THE ASSESSEE IS DEPR ECIATION ON BUILDING INCLUDING LAND. THE A.R. FOR THE ASSESS EE HAS FAIRLY CONCEDED THAT THIS ISSUE HAS ALREADY BEEN AD JUDICATED BY THE TRIBUNAL AGAINST THE ASSESSEE IN EARLIER APP EAL IN ITA NO.1931/MDS/2000 DECIDED ON 31.03.2006 RELEVANT T O THE ASSESSMENT YEAR 1997-98. THE TRIBUNAL IN THE SAID A PPEAL ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 14 HAS HELD THAT THERE IS NO QUESTION OF ALLOWING DEPR ECIATION ON LAND TO THE ASSESSEE AND HAS DISMISSED THE GROUND OF THE ASSESSEE. SINCE, THE AR HAS CONCEDED THAT THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL AGAINST THE ASSESSEE , WE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE AFOREMENTIONED APPEAL, DISMISS THIS GROUND OF APPEA L OF THE ASSESSEE. 17. THE SECOND GROUND OF APPEAL RELATES TO DISALLOW ANCE UNDER SECTION 14A. THE CIT(A) HAS UPHELD THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING A SUM OF ` 11,44,630/- BEING 2% OF THE GROSS TAX FREE INCOME AS ESTIMATED EXPEND ITURE INCURRED TO EARN THE SAME U/S.14A. THE AR MAKES A STATEMENT AT THE BAR THAT HE IS NOT PRESSING THIS G ROUND. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED AS HAVING NOT PRESSED. 18. THE THIRD ISSUE RELATES TO THE ADVERTISEMENT EX PENDITURE INCURRED BY THE ASSESSEE ON WILLS WORLD CUP. A SIM ILAR ISSUE HAS BEEN RAISED BY THE ASSESSEE IN ITA NO.264/MDS/2 005 FOR THE ASSESSMENT YEAR 1997-98. FOR THE REASONS RECORD ED BY ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 15 US IN PARA 3 HEREINABOVE ON THE SIMILAR ISSUE, WE D ISMISS THIS GROUND OF APPEAL AS HAVING BECOME INFRUCTUOUS. 19. THE FOURTH ISSUE RAISED BY THE ASSESSEE IS WIT H REGARD TO BAD DEBTS WRITTEN OFF. THE AR SUBMITTED THAT TH E CIT(A) HAS ERRED IN ALLOWING BAD DEBTS AT ` 1,76,90,03,339/- AS AGAINST ` 2,01,58,51,000/-. THE AR SUBMITTED THAT THE CIT(A) HAS ERRED IN NOT TAKING INTO CONSIDERATION THAT THE RE WAS NO BALANCE IN THE PROVISIONS FOR BAD AND DOUBTFUL DEB TS ACCOUNT UNDER SECTION 36(1)(VIIA). THEREFORE, ENTIRE BAD DE BTS WRITTEN OFF SHOULD BE ALLOWED INSTEAD OF RESTRICTING IT. T HE AR FURTHER SUBMITTED THAT THE ISSUE IS NOW SQUARELY COVERED BY THE JUDGEMENT OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. CIT REPORTED AS 3 43 ITR 270(SC). 20. THE DR SUBMITTED THAT THE ASSESSEES CLAIM THAT PROVISION FOR DOUBTFUL DEBTS CREATED UNDER SECTION 36(1)(VIIA) HAS DEBIT BALANCE WHICH IS AN IMPOSSIBILITY. HOWEV ER, THE DR ADMITTED THAT THIS ISSUE HAS BEEN ADJUDICATED BY TH E HONBLE SUPREME COURT OF INDIA IN CATHOLIC SYRIAN BANK LTD .(SUPRA). ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 16 21. THE REPRESENTATIVES OF BOTH THE SIDES HAVE STAT ED THAT THE PRESENT ISSUE HAS BEEN ADJUDICATED BY THE HONB LE SUPREME COURT OF INDIA IN THE CASE OF CATHOLIC SYRI AN BANK LTD. (SUPRA). THE HONBLE APEX COURT WHILE DEALING WITH THIS ISSUE HAS CONCLUDED AS UNDER:- TO CONCLUDE, WE HOLD THAT THE PROVISIONS OF SECTIO NS 36(1)(VII) AND 36(1)(VIIA) OF THE ACT ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTION AND OPERATE IN THEIR RESPECTIVE FIELDS. THE BAD DEBTS WRITTEN OFF IN DEB TS, OTHER THAN THOSE FOR WHICH THE PROVISION IS MADE UN DER 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 THEREOF WRIT TEN OFF IN THE PREVIOUS YEAR AND CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA). THE PROVISO TO SECTION 36(1)(V II) WILL RELATE TO CASES COVERED UNDER SECTION 36(1)(VI IA) AND HAS TO BE READ WITH SECTION 36(2)(V) OF THE ACT . THUS, THE PROVISO WOULD NOT PERMIT THE 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 ACCO UNT HAVING BECOME BAD DEBT AND BEING WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR. THIS, OBVIOUSLY, WOULD BE SUBJECT TO SATISFACTION OF THE REQUIREMENTS CONTEMPLATED UNDER SECTION 36(2). CONSEQUENTLY, WHILE ANSWERING THE QUESTION IN FAVOUR OF THE ASSESSEE, WE ALLOW THE APPEALS OF THE ASSESSES AND DISMISS THE APPEALS PREFERRED BY THE REVENUE. FURTHER, WE DIRECT THAT ALL MATTERS BE REMANDED TO THE ASSESSING OFFICER FOR COMPUTATION I N ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 17 ACCORDANCE WITH LAW, IN THE LIGHT OF THE LAW ENUNCI ATED IN THIS JUDGMENT. S. H. KAPADIA C. J. I.: I HAVE GONE THROUGH THE JUDGMENT OF MY ESTEEMED BROTHER, SWATANTER KUMAR J. AND I AGREE WITH THE CONCLUSIONS CONTAINED THEREIN. HOWEVER, I WOULD LIKE TO GIVE MY OWN REASONS. XXX XXX .. HOWEVER, THE REVENUE DISPUTES THE POSITION THAT THE PROVISO TO CLAUSE (VII) REFERS ONLY TO RURAL ADVANC ES. IT SAYS THAT THERE ARE NO SUCH WORDS IN THE PROVISO WH ICH INDICATES THAT THE PROVISO APPLY ONLY TO RURAL ADVA NCES. WE FIND NO MERIT IN THE OBJECTION RAISED BY THE REV ENUE. FIRSTLY, CBDT ITSELF HAS RECOGNIZED THE POSITION TH AT A BANK WOULD BE ENTITLED TO BOTH THE DEDUCTION, ONE U NDER CLAUSE (VII) ON THE BASIS OF ACTUAL WRITE OFF AND A NOTHER, ON THE BASIS OF CLAUSE (VIIA) IN RESPECT OF A MERE PROVISION. FURTHER, TO PREVENT DOUBLE DEDUCTION, TH E PROVISO TO CLAUSE (VII) WAS INSERTED WHICH SAYS THA T IN RESPECT OF BAD DEBT(S) ARISING OUT OF RURAL ADVANCE S, THE DEDUCTION ON ACCOUNT OF ACTUAL WRITE OFF WOULD BE LIMITED TO THE EXCESS OF THE AMOUNT WRITTEN OFF OVE R 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 MEANINGLE SS TO INVOKE THE SAID PROVISO WHERE THERE IS NO THREAT OF DOUBLE DEDUCTION. IN CASE OF RURAL ADVANCES, WHICH ARE COVERED BY THE PROVISIONS OF CLAUSE (VIIA), THERE W OULD BE NO SUCH DOUBLE DEDUCTION. THE PROVISO LIMITS ITS APPLICATION TO THE CASE OF A BANK TO WHICH CLAUSE ( VIIA) APPLIES. CLAUSE (VIIA) APPLIES ONLY TO RURAL ADVANC ES. THIS HAS BEEN EXPLAINED BY THE CIRCULARS ISSUED BY CBDT. THUS, THE PROVISO INDICATES THAT IT IS LIMITE D IN ITS APPLICATION TO BAD DEBT(S) ARISING OUT OF RURAL ADV ANCES OF A BANK. IT FOLLOWS THAT IF THE AMOUNT OF BAD DEB T(S) ACTUALLY WRITTEN OFF IN THE ACCOUNTS OF THE BANK REPRESENTS ONLY DEBT(S) ARISING OUT OF URBAN ADVANC ES, THE ALLOWANCE THEREOF IN THE ASSESSMENT IS NOT AFFE CTED, ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 18 CONTROLLED OR LIMITED IN ANY WAY BY THE PROVISO TO CLAUSE (VII). ACCORDINGLY, THE ABOVE QUESTION IS ANSWE RED IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE (S). FOR THE ABOVE REASONS, I AGREE THAT THE APPEALS FIL ED BY THE ASSESSEES STAND ALLOWED AND THE APPEALS FILE D BY THE REVENUE STAND DISMISSED WITH NO ORDER AS TO COSTS. 22. IN VIEW OF THE ABOVE, WE DEEM IT APPROPRIATE TO REMAND THE ISSUE BACK TO THE ASSESSING OFFICER TO DECIDE I T AFRESH IN ACCORDANCE WITH THE LAW LAID DOWN BY THE HONBLE S UPREME COURT OF INDIA IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA). 23. THE FIFTH ISSUE RAISED BY THE ASSESSEE IN THE A PPEAL IS WITH RESPECT TO APPLICABILITY OF SECTION 115JA TO T HE ASSESSEE BANK. THIS GROUND OF APPEAL HAS CROPPED UP IN ITA NO.264/MDS/2005. IN THE PRESENT ASSESSMENT YEAR I.E . 1998- 99 ALSO THIS GROUND OF APPEAL IS NOT EMANATING FROM THE ORDER OF THE CIT(A) NOR THE GROUND HAS BEEN RAISED AS ADD ITIONAL GROUND IN ACCORDANCE WITH LAW. THEREFORE, THIS GROU ND OF APPEAL OF THE ASSESSEE IS DISMISSED FOR THE REASONS RECORDED IN PARA 13 HEREINABOVE OF THIS ORDER. 24. IN VIEW OF THE AFORESAID FINDINGS, THE APPEAL O F THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 19 ITA NOS.2032 TO 2034/MDS/2005 : A.Y.(1999-2000 TO 2001-02): 25. THESE THREE APPEALS HAVE BEEN FILED BY THE ASSE SSEE IMPUGNING THE ORDERS OF THE CIT(A)-XI, CHENNAI DATE D 8.7.2005 RELEVANT TO THE ASSESSMENT YEARS 1999-2000 TO 2001-02 RESPECTIVELY. SINCE COMMON ISSUES INVOLVED IN ALL THE THREE APPEALS, THEY ARE TAKEN UP TOGETHER FOR D ISPOSAL. 26. THE FIRST GROUND OF APPEAL RAISED BY THE ASSESS EE IN ALL THESE THREE APPEALS IS WITH RESPECT TO DEPRECIATIO N ON BUILDING INCLUDING LAND. THIS ISSUE HAS ALREADY BE EN ADJUDICATED EARLIER IN ITA NO.265/MDS/2005 FOR TH E ASSESSMENT YEAR 1998-99 IN PARA 16 HEREINABOVE OF T HIS ORDER. SINCE THE ISSUE IN THESE THREE APPEALS IS ID ENTICAL, WE DISMISS THIS GROUND OF APPEAL FOR THE REASONS RECOR DED IN PARA 16 OF THE ORDER. 27. THE SECOND AND THIRD GROUNDS OF APPEAL IN ALL T HESE THREE APPEALS ARE WITH REGARD TO ALLOWING OF BAD DE BTS WRITTEN OFF AND DISALLOWANCE UNDER SECTION 14A RESPECTIVELY . BOTH THESE GROUNDS WERE NOT PRESSED BY THE A.R. FOR THE ASSESSEE ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 20 IN ALL THE THREE APPEALS. THEREFORE, THESE TWO GRO UNDS ARE DISMISSED IN ALL THE THREE APPEALS AS HAVING NOT PR ESSED. 28. THE FOURTH GROUND OF APPEAL IN THESE APPEALS IS WITH REGARD TO APPLICABILITY OF PROVISIONS OF SECTION 11 5JA. THIS ISSUE HAS ALREADY BEEN ADJUDICATED IN ITA NO.264/M DS/2005 FOR THE ASSESSMENT YEAR 1997-98 IN PARA 13 OF THIS ORDER. SINCE THE ISSUE IN THESE THREE APPEALS IS IDENTICAL , WE DISMISS THIS GROUND OF APPEAL FOR THE REASONS RECORDED IN P ARA 13 OF THE ORDER. 29. IN THE RESULT, ALL THESE THREE APPEALS OF THE A SSESSEE ARE DISMISSED. ITA NO.1146/MDS/2008 (A.Y.:2002-03): 30. THE PRESENT APPEAL HAS BEEN FILED BY THE ASSES SEE AGAINST THE ORDER OF THE CIT(A)-XII, CHENNAI DATED 27.2.2008 RELEVANT TO THE ASSESSMENT YEAR 2002-03. 31. THE FIRST GROUND RAISED BY THE ASSESSEE IS WITH RESPECT TO DEPRECIATION ON LAND. THIS ISSUE HAS ALREADY BEE N ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 21 ADJUDICATED EARLIER IN ITA NO.265/MDS/2005 FOR TH E ASSESSMENT YEAR 1998-99 IN PARA 16 OF THIS ORDER. S INCE THE ISSUE IN THIS APPEAL IS IDENTICAL, WE DISMISS THIS GROUND OF APPEAL FOR THE REASONS RECORDED IN PARA 16 OF THE O RDER. 32. THE SECOND GROUND OF APPEAL IS WITH RESPECT TO BAD DEBTS WRITTEN OFF IN RESPECT OF RURAL ADVANCES. THE AR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ISSUE HAS BEEN SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF TRF LIMITED VS. CIT REPORTED AS 323 ITR 397 (SC) . ON THE OTHER HAND, THE DR SUBMITTED THAT THE JUDGE MENT OF THE HONBLE SUPREME COURT OF THE INDIA IN THE CA SE OF TRF LTD. (SUPRA) IS NOT APPLICABLE IN THE FACTS AND CIR CUMSTANCES OF THE PRESENT CASE. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE SHOULD BE DISMISSED. 33. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES. THE HONBLE SUP REME COURT OF INDIA IN THE CASE OF TRF LTD (SUPRA) HAS HELD AS UNDER:- ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 22 AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE INCOME TAX ACT, 1961 WITH EFFECT FROM 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH, IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. IN VIEW OF THE ABOVE, WE HOLD THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE JUDGEMENT OF THE HONBLE AP EX COURT. AS IN THE PRESENT CASE, THE ASSESSEE HAS CL AIMED THE BAD DEBTS WRITTEN OFF IN RESPECT OF RURAL ADVANCES. A PERUSAL OF THE DOCUMENTS ON RECORD SHOWS THAT THE BAD DEBTS WR ITTEN OFF BY THE ASSESSEE RELATES TO NON-RURAL BRANCHES AS WE LL. THE ISSUE REGARDING WRITING OFF THE BAD DEBTS IN RESPEC T OF NON- RURAL BRANCHES IS COVERED BY THE JUDGEMENT OF THE H ONBLE SUPREME COURT OF INDIA IN THE CASE OF CATHOLIC SYRI AN BANK LTD. REPORTED AS 343 ITR 270(SC). IN VIEW OF THE AB OVE, WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFI CER TO DECIDE THE MATTER AFRESH BY TAKING INTO CONSIDERATION THE AFOREMENTIONED JUDGEMENTS OF THE HONBLE SUPREME CO URT OF INDIA. THIS GROUND OF APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 23 34. THE THIRD GROUND OF APPEAL RELATES TO DISALLOWA NCE UNDER SECTION 14A OF THE ACT. THE A.R. SUBMITTED T HAT FOR THE ASSESSMENT YEAR 2002-03, THE CIT(A) HAS MADE DISALL OWANCE UNDER SECTION 14A AT 10%, WHEREAS IN THE EARLIER YE ARS, THE DISALLOWANCE HAS BEEN MADE @ 2%. ON THE OTHER HAND, THE DR SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED 10% ON EXPENSES INCURRED ON EXEMPTED INCOME. IN VIEW OF TH E DECISION OF THE HONBLE KERALA HIGH COURT IN THE CA SE OF CIT VS. DHANALAKSHMI BANK LTD., REPORTED AS 344 ITR 259 , THE MATTER MAY BE REMITTED BACK TO THE ASSESSING OFFICE R. 35. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES. THE ASSESSING OFFICER HAS MADE DISALLOWAN CE @ 10% ON ESTIMATION. THE CIT(A) HAS CONFIRMED THE SAM E. IN OUR CONSIDERED OPINION, TO MEET THE ENDS OF JUSTICE , IT WOULD BE APPROPRIATE THAT THE DISALLOWANCE BE MADE @ 2% A S HAS BEEN DONE IN THE EARLIER ASSESSMENT YEARS. THEREFOR E, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . 36. THE FOURTH GROUND OF APPEAL RELATES TO CONTRIBU TION TOWARDS STAFF WELFARE FUND. THE A.R. SUBMITTED THAT THE BANK HAD CREATED A PROVISION OF ` 2.40 CRORES TOWARDS STAFF WELFARE ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 24 FUND IN THE PROFIT AND LOSS ACCOUNT FOR THE FINANCI AL YEAR ENDED ON 31.3.2002 AND HAD CLAIMED THE SAME AS DEDUCTION FROM ITS PROFIT. THE ASSESSING OFFICER HAS MADE DISALLOWANCE ON THE GROUND THAT FUND TOWARDS WHICH THE PROVISION IS MAD E IS NOT A RECOGNIZED FUND. THE A.R. SUBMITTED THAT THE PAYMEN T IS ALLOWABLE UNDER SECTION 37 AS IT IS NEITHER CAPITAL IN NATURE NOR PERSONAL EXPENDITURE BUT HAS BEEN WHOLLY AND EXCLUS IVELY INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E AND ARISING OUT OF BUSINESS CONTINGENCY ON ACCOUNT OF W AGE REVISION. THE SAME HAS BECOME PAYABLE IN TERMS OF THE AGREEMENT ENTERED INTO BETWEEN THE BANK AND ITS EMP LOYEES AND THEREFORE, THE ASSESSEE BANK IS LIABLE TO PAY T HE SAME. THE AR FURTHER CONTENDED THAT IT IS A CONTRACTUAL O BLIGATION ON THE BANK TO MAKE PAYMENT AND THEREFORE IS ALLOWABL E DEDUCTION. ON THE OTHER HAND, THE DR REPRESENTING THE DEPARTM ENT SUBMITTED THAT THE ASSESSEE HAS MADE MERE PROVISION IN ITS BOOKS OF ACCOUNT AND THE LIABILITY IS NOT SHOWN TO HAVE CRYSTALLIZED DURING THE YEAR. MOREOVER, THE MANNER IN WHICH THE AMOUNT DETERMINED HAS NOT BEEN EXPLAINED BEFOR E THE ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 25 LOWER AUTHORITIES. THE DR FURTHER CONTENDED THAT SI NCE THE FUND IS NOT A RECOGNIZED ONE, THE ASSESSEE CANNOT C LAIM THE BENEFIT OF THE SAME. ONLY CONTRIBUTIONS TOWARDS REC OGNIZED PROVIDENT FUND OR APPROVED SUPERANNUATION FUND OR APPROVED GRATUITY FUND FOR THE PURPOSE AND TO THE EXTENT PROVIDED UNDER SECTION 36(1)(IV) OR (V) ARE ALLOWAB LE AS DEDUCTION UNDER SECTION 40A(9). THE D.R. HAS RELIED ON THE FOLLOWING JUDGEMENTS IN SUPPORT OF HIS CONTENTIONS: - I) SONY INDIA LTD. VS. CIT REPORTED AS 285 ITR 213 (DEL) II) CIT VS. PETROLEUM & MINERALS P.LTD., REPORTED A S 187 ITR 560 (BOM) III) TCM LTD. VS. CIT., REPORTED AS 196 TAXMANN 129 (KER) IV) NATIONAL DIARY DEVELOPMENT BOARD VS. ADDL. CIT. , REPORTED AS 310 ITR (AT) 325 V) CIT VS. SHASUN CHEMICALS & DRUGS LTD., REPORTED AS 347 ITR 532(MAD) 37. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES AND HAVE PERUSED THE ORDERS OF THE AUTHORIT IES BELOW. ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 26 AS PER THE CONTENTIONS OF THE AR, THE LIABILITY HAS ARISEN OUT OF THE AGREEMENT BETWEEN THE ASSESSEE BANK AND THE EMPLOYEES OF TRADE UNION AND IT IS A CONTRACTUAL LI ABILITY. AS PER THE FINDINGS OF THE CIT(A) IT IS MERELY A PROVI SION AND THE LIABILITY HAS NOT BEEN CRYSTALLIZED SO FAR. AS PER THE PROVISIONS OF SECTION 40A(7) DEDUCTION CAN BE ALLOWED IN RESPE CT OF ANY PROVISION MADE BY THE ASSESSEE FOR PAYMENT OF GRATU ITY TO ITS EMPLOYEES ON RETIREMENT OR TERMINATION FROM EMPLOYM ENT FOR ANY REASON, PROVIDED THE SAME HAS BEEN CONTRIBUTED TOWARDS APPROVED GRATUITY FUND. FURTHER SUB-SECTION (9) TO SECTION 40A PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER EXCEPT WHER E SUCH SUM IS SO PAID TOWARDS APPROVED RECOGNIZED FUND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(V) . IN THE PRESENT CASE, THE ASSESSEE HAS NOT BEEN ABLE TO SHO W THAT THE LIABILITY HAS BEEN CRYSTALLIZED OR THE CONTRIB UTION HAS BEEN MADE TOWARDS APPROVED FUND AS PER THE PROVISIONS OF THE ACT. THE CLAIM OF THE ASSESSEE BASED UPON THE PROVISION OF SECTION 43B HAS NO MERIT. BEFORE THE PROVISIONS OF SECTION 43B CAN BE APPLICABLE, DEDUCTION MUST OTHERWISE BE ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 27 ALLOWABLE UNDER THE ACT. IN VIEW OF THE ABOVE DISC USSION, WE ARE CONSTRAINED TO HOLD THAT THE CONTRIBUTION TOWAR DS STAFF WELFARE FUND IS NOT ALLOWABLE EXPENDITURE. THEREFO RE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 38. THE FIFTH GROUND OF APPEAL RELATES TO APPLICABI LITY OF PROVISIONS OF SECTION 115JB. THIS GROUND OF APPEAL HAS CROPPED UP IN ITA NO.264/MDS/2005 FOR THE ASSESSMEN T YEAR 1997-98. IN THE PRESENT ASSESSMENT YEAR 2002-03 AGA IN THIS GROUND OF APPEAL IS NOT EMANATING FROM THE IMPUGNED ORDER OF THE CIT(A). THEREFORE THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED FOR THE REASONS RECORDED IN PARA 13 OF T HIS ORDER. 39. IN VIEW OF THE AFORESAID FINDINGS, THE APPEAL O F THE ASSESSEE IN ITA NO.1146/MDS/2008 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1866/MDS/2006 (A.Y. 1999-2000): 40. THE REVENUE HAS PREFERRED THIS APPEAL IMPUGNIN G THE ORDER OF THE CIT(A)-XII, CHENNAI DATED 31.03.2006 R ELEVANT TO THE ASSESSMENT YEAR 1999-2000. ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 28 41. THE FIRST GROUND OF APPEAL OF THE REVENUE RELAT ES TO ALLOWABILITY OF PROVISION FOR WAGE ARREARS. THE DR APPEARING ON BEHALF OF THE REVENUE SUBMITTED THAT THE CLAIM O F ` 25 CRORES MADE BY THE ASSESSEE IS PURELY ON AD-HOC BAS IS. THE CLAIM OF THE ASSESSEE IS THAT PROVISION HAS BEEN MA DE ON THE BASIS OF 7 TH BIPARTITE SETTLEMENT BETWEEN THE INDIAN BANKS ASSOCIATION AND THE STAFF & OFFICERS ASSOCIATIONS. THE AGREEMENT WAS ACTED UPON ON 23.7.2000 I.E. MUCH AF TER THE CLOSE OF THE ACCOUNTING YEAR 1998-99. THE DR FURTHE R SUBMITTED THAT THE ASSESSEE IS TAKING CONTRADICTORY STAND WHEN THE 6 TH BIPARTITE SETTLEMENT WAS MADE ON 14.2.1995, THE ASSESSEE HAD CLAIMED IT ONLY IN THE ASSESSMENT YEAR 1995- 96. IN THE INSTANT CASE, THE ASSESSEE IS CLAIMING D EDUCTION ON THE BASIS OF MEMORANDUM OF UNDERSTANDING DATED 11.3 .1999. WHEREAS A PERUSAL OF CLAUSE 3 OF THE MOU SHOWS THAT NEGOTIATIONS WERE STILL ON AND IT GOT CRYSTALLIZED ON 27.3.2000 WHEN THE 7 TH BIPARTITE SETTLEMENT WAS SIGNED BY BOTH THE PARTIES. IN THE FINAL MEMORANDUM OF SETTLEMENT FRES H RULES WERE LAID DOWN FOR FIXING SCALES OF PAY, ALLOWANCES AND OTHER BENEFITS INCLUDING PENSIONARY BENEFITS. SINCE THE AGREEMENT ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 29 WITH THE UNIONS OF EMPLOYEES WAS ENTERED INTO AFTER THE CLOSE OF ACCOUNTING PERIOD, NO LIABILITY EXISTS RELEVANT TO THE ASSESSMENT YEAR 1999-2000. THE ARREARS OF SALARY A ROSE ONLY ON THE BASIS OF BIPARTITE SETTLEMENT BETWEEN T HE MANAGEMENT AND THE UNIONS WHICH ARE ON THE DIFFEREN T FOOTING THAN THE GRATUITY OR LEAVE SALARY. IT IS A CONTRAC TUAL LIABILITY AND NOT A STATUTORY PAYMENT. IN ORDER TO SUPPORT HI S SUBMISSIONS, THE DR RELIED ON THE FOLLOWING JUDGEME NTS.:- I) CIT VS. SWADESHI COTTON & FOUR MILLS, REPORTED AS 53 ITR 134 (SC) II) ALEMBIC CHEMICAL WORKS LTD. VS. DCIT., REPORT ED AS 266 ITR 47 (GUJ) III) TAMIL NADU SMALL INDUSTRIES DEVELOPMENT CORP ORATION LTD. VS. CIT., REPORTED AS 242 ITR 122 IV) SESHASAYEE INDUSTRIES LTD. REPORTED AS 242 IT R 691 (MAD) THE D.R. FURTHER REFERRED TO THE ORDER OF THE TRIBU NAL IN ITA NO.1690/MDS/2006 RELEVANT TO THE ASSESSMENT YEAR 1999- 2000 IN THE CASE OF THE ASSESSEE, WHEREIN THE TRIBU NAL HAS HELD AS UNDER:- ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 30 IN THE PRESENT CASE WE FIND THAT THE LIABILITY IN QUESTION CANNOT BE CONSTRUED TO BE A STATUTORY LIABILITY. IT CAN ONLY BE TERMED AS A CONTRACTUAL LIABILITY, AS IT EMANATES OUT OF A CONTRACT. THE MEMORANDUM OF UNDERSTANDING IS ONLY A PRELUDE TO THE CONTRACT. ACTUALLY THE CONTRACT WAS ENTERED INTO IN THE SUBSEQUENT YEAR ON THE BASIS OF THE MEMORANDUM OF UNDERSTANDING. THEREFORE, IN OUR OPINION THE LIABILITY DID NOT CRYSTALLIZE IN THE Y EAR UNDER CONSIDERATION. IT CAN BE ALLOWED ONLY CONSEQUENT UPON ITS CRYSTALLIZATION WITHIN THE FRAMEWORK OF LAW. SUBJECT TO THIS REMARK, WE UPHOLD THE IMPUGNED ORDER ON THIS COUNT. ON THE OTHER HAND, THE AR SUBMITTED THAT SIMILAR IS SUE HAS ALREADY BEEN DECIDED BY THE CO-ORDINATE BENCH O F THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN THE CASE OF NEYVELI LIGNITE CORPORATION REPORTED AS 93 TTJ 685 (CHENNAI ) WHEREIN IT HAS BEEN HELD THAT PROVISION FOR REVISI ON OF SALARY MADE IN THE YEAR OF ENTERING INTO AGREEMENT IRRESPE CTIVE OF THE ACTUAL PAYMENT SHOULD BE ALLOWED. THE TRIBUNAL FURTHER HELD THAT IF THE ACCRUED LIABILITY CAN BE REASONABL Y ESTIMATED, IT SHOULD BE ALLOWED IN THE YEAR OF CREATING OF RES ERVE. 42. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE SIDES AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 31 AND THE JUDGEMENTS/ORDERS REFERRED TO BY THE RESPEC TIVE PARTIES. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.1690/MDS/2006 HAS DECIDED THE ISSUE AGAINST THE ASSESSEE BY HOLDING THAT LIABILITY HAS NOT BEEN C RYSTALLIZED AND IT CAN BE ALLOWED CONSEQUENT UPON ITS CRYSTALLI ZATION WITHIN THE FRAMEWORK OF LAW. BE THAT AS IT MAY, IT IS AN ADMITTED FACT THAT AGRE EMENT WAS ENTERED BETWEEN THE INDIAN BANKS ASSOCIATION IN CLUDING THE ASSESSEE AND THE UNIONS OF STAFF/WORKERS FOR R EVISION OF WAGES ETC. IT IS ALSO AN ADMITTED POSITION THAT CO NSEQUENT TO REVISION IN WAGES THE AMOUNT HAS BEEN PAID TO THE S TAFF. A PERUSAL OF THE ORDER OF CIT(A) SHOWS THAT THOUGH IN NOTES ON ACCOUNT IT IS STATED THAT THE PROVISION OF ` 25.00 CRORES WAS MADE IN AN AD-HOC MANNER DURING THE ACCOUNTING PERI OD, IT FORMED PART OF THE LIABILITY INCURRED BY THE BANK A CTUALLY IN THE NEXT ACCOUNTING YEAR AND THE BANK HAS NOT CLAIMED T HE AMOUNT FOR THAT YEAR. THE EXPENDITURE IS AN BUSINES S EXPENDITURE ALLOWABLE UNDER SECTION 37 OF THE ACT. NOW, THE QUESTION IS WHEN SUCH EXPENDITURE SHOULD BE ALLOWED : WHETHER IT SHOULD BE ALLOWED IN THE ASSESSMENT YEAR RELEVANT ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 32 TO THE FINANCIAL YEAR IN WHICH MEMORANDUM OF UNDERS TANDING WAS SIGNED OR IN THE YEAR OF ACTUAL PAYMENT? THE LE ARNED AR HAS STATED THAT THE EXPENDITURE MAY BE ALLOWED IN T HE YEAR OF ACTUAL PAYMENT. IN VIEW OF THE ABOVE DISCUSSION AN D THE STATEMENT MADE BY THE LEARNED AR, WE HOLD THAT THE AMOUNT CLAIMED BY THE ASSESSEE TOWARDS WAGE REVISION BE ALLOWED IN THE YEAR OF ACTUAL DISCHARGE OF THE SAID LIABILI TY. THIS GROUND OF APPEAL OF THE REVENUE IS THUS PARTLY ALLO WED. 43. THE SECOND GROUND OF APPEAL OF THE REVENUE REL ATES TO DISALLOWANCE UNDER SECTION 14A IN COMPUTING BOOK PR OFITS. THE REVENUE HAS IMPUGNED THAT THE CIT(A) HAS ERRED IN HOLDING THAT EXPENDITURE ON EXEMPTED INCOME TO BE DISALLOWED UNDER SECTION 14A BE TAKEN AS 2%. THE C IT(A) IN EARLIER ORDERS HAD BEEN ALLOWING 2% AS EXPENDITURE TOWARDS EARNING OF THE NON-TAXABLE INCOME. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(A) . THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ITA NOS.264 & 265/MDS/2005 ITA NO.2032 TO 2034/MDS/2005 ITA NO.1146/MDS/08 & 1866/MDS/06 33 44. IN THE RESULT, THE APPEAL OF THE REVENUE IS PA RTLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, TH E 26 TH DAY OF FEBRUARY, 2013 AT CHENNAI. SD/- SD/- ( N.S. SAINI ) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 26 TH FEBRUARY, 2013. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.