KOTAK MAHINDRA BANK LTD, MUMBAI V. ADDL CIT RG 3(2), MUMBAI

ITA 1929/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1334 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-04-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 22-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R P MEENA
• Assessee Lawyers: F V IRANI
• Keywords: Business income; Depreciation; Earning of tax free income; Question of law; Bad and doubtful debts; Provision of bad debts
• Section: 143(3); 14A; 154

Judgement Text

INCOME-TAX APPELLATE TRIBUNAL -ABENCH MUMBAI BEFORE S/SH.JOGINDERSINGH,JUDICIAL MEMBER AND RAJENDRA,ACCOUNTANT MEMBER ./ I.T.A./1657/MUM/2012 , / ASSESSMENT YEAR: 2008-09 DCIT-3(2), 6 TH FLOOR, ROOM NO.608 AAYAKAR BHAVAN, MUMBAI-400 020. VS. M/S. KOTAK MAHINDRA BANK LTD. 36-38A, NARIMAN BHAVAN 227, NARIMAN POINT,MUMBAI-400 021. PAN: AAACK 4409 J ./ I.T.A./1929/MUM/2012 , / ASSESSMENT YEAR: 2008-09 M/S. KOTAK MAHINDRA BANK LTD. MUMBAI. VS. DCIT-3(2), MUMBAI-400 020. ./ I.T.A./3491/MUM/2013 , / ASSESSMENT YEAR: 2009-10 DCIT-3(2), MUMBAI. VS. M/S. KOTAK MAHINDRA BANK LTD. MUMBAI-400 020. ./ I.T.A./3592/MUM/2013 , / ASSESSMENT YEAR: 2009-10 M/S. KOTAK MAHINDRA BANK LTD. MUMBAI. VS. DCIT-3(2), MUMBAI-400 020. ./ I.T.A./3492/MUM/2013 , / ASSESSMENT YEAR: 2010-11 DCIT-3(2), MUMBAI. VS. M/S. KOTAK MAHINDRA BANK LTD. MUMBAI-400 020. ./ I.T.A./3593/MUM/2008 , / ASSESSMENT YEAR: 2010-11 M/S. KOTAK MAHINDRA BANK LTD. MUMBAI. VS. DCIT-3(2), MUMBAI-400 020. ./ I.T.A./6394/MUM/2013 , / ASSESSMENT YEAR: 2011-12 DCIT-3(2), MUMBAI. VS. M/S. KOTAK MAHINDRA BANK LTD., MUMBAI-400 020. ./ I.T.A./6217/MUM/2008 , / ASSESSMENT YEAR: 2011-12 DCIT-3(2), MUMBAI. VS. M/S. KOTAK MAHINDRA BANK LTD., MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: R P MEENA ASSESSEE BY: F.V. IRANI / DATE OF HEARING: 18.04.2017 / DATE OF PRONOUNCEMENT: 18.04.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER BENCH - CHALLENGING THE ORDERS OF CIT.S (A),THE ASSESSEE A ND THE ASSESSING OFFICERS (AO.S) HAVE FILED APPEALS FOR THE ABOVE MENTIONED ASSESSMENT YEARS.AS MOST OF THE ISSUES ARE COMMON IN ALL THE APPEALS FOR THE SAKE OF CONVENIENCE WE ARE ADJUDICA TING ALL THE APPEALS BY A SINGLE COMMON ORDER. 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 2 2. ASSESSEE-COMPANY,IS ENGAGED IN THE BUSINESS OF BANK ING AND FINANCIAL SERVICES.THE DETAILS OF FILING OF RETURNS, RETURNED INCOME, ETC. CAN BE SUM MARISED IN FOLLOWING MANNER: A.Y. ROI FILED ON RETURNED INCOME ASSESSMENT DT. ASSESSED INCOME CIT(A) ORDER 2008-09 29.09.2008 513.15 CRORES 22.03.2010 550.71 CRORES 22.12.2011 2009-10 29.09.2009 533.53 CRORES 23.03.2011 575.09 CRORES 04.02.2013 2010-11 29.09.2010 869.04 CRORES 26.03.2012 917.48 CRORES 04.02.2013 2011-12 29.11.2012 997.80 CRORES 14.032013 1154.06 CRORES 20.08.2013 1657/MUM/2012(AY.2008-09): 3. EFFECTIVE GROUND OF APPEAL,RAISED BY THE AO,DEALS W ITH DISALLOWANCE OF BAD DEBTS,,AMOUNTING TO RS. 22.77CRORES.IT WAS BROUGHT TO OUR NOTICE,THA T WHILE DECIDING THE APPEALS FOR THE AY.S. 2003 -04 TO2006-07,(ITA/8523/MUM/2011& OTHERS,DTD.16.03. 2017),THE TRIBUNAL HAS DELIBERATED UPON THE ISSUE IN LENGTH.WE ARE REPRODUCING THE RELEVANT PORTION OF THE SAID ORDER AND IT READS AS UNDER: 3. FIRST GROUND OF APPEAL DEALS WITH DISALLOWANCE OF B AD DEBTS.WHILE COMPLETING THE ASSESSMENT U/S. 143(3) R.W.S.147/263 OF THE ACT,THE AO REDUCED THE BAD DEBTS, AMOUNTING TO RS.2. 84 CRORES FROM THE PROVISION OF BAD DEBTS OF RS.7.12 CRORES A ND ACCORDINGLY ALLOWED NO BAD DEBTS.HE HELD THAT BAD DEBTS WERE ALLOWABLE TO THE EXTENT THEY WE RE IN EXCESS OF PROVISION FOR BAD DEBTS,THAT PROVISIONS HAD ALREADY BEEN ALLOWED,THAT THE PROVIS IONS OF SEC.36(II), 36(1)(VII)(A) AND 36(1)(VIII) OF THE ACT WERE CLEAR IN THAT REGARD. T HE ASSESSEE HAD CLAIMED THAT IT HAD NO OPENING BALANCE OR PROVISION FOR BAD AND DOUBTFUL DEBTS, TH AT THE BAD DEBTS WERE TO BE REDUCED FROM OPENING BALANCE OF PROVISIONS OF BAD AND DOUBTFUL D EBTS, THAT IT WAS ENTITLED TO MAKE CLAIM FOR FULL AMOUNT OF BAD DEBTS,THAT THE PROVISIONS FOR TH E BAD DEBTS EXISTED ON THE LAST DAY OF THE YEAR.HOWEVER THE AO CONSIDERED THE CURRENT YEARS P ROVISION FOR BAD AND DOUBTFUL DEBTS AND MADE AN ADDITION OF RS.2.84 CRORES. 3.1. DURING THE APPELLATE PROCEEDINGS,BEFORE THE FIRST A PPELLATE AUTHORITY (FAA) THE ASSESSEE MADE ELABORATE SUBMISSIONS AND REFERRED TO INSTRUCT ION NO.17/2008 DT.26.11.2008. AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSION OF THE ASSESSEE ,THE FAA HELD THAT THERE WAS NO OPENING BALANCE OF PROVISION FOR BAD AND DOUBTFU L DEBTS AS ON 11.4.2003, THAT INSTRUCTION NO.17/2008 PROVIDED THAT OPENING BALANCE HAD TO BE CONSIDERED FOR THE PURPOSE OF ALLOWING BAD DEBTS IN EXCESS OF THE PROVISIONS OF ALLOWING BAD DEBTS.HE REFERRED TO THE ORDER OF TRIBUNAL DELIVERED IN THE CASE OMAN INTERNATIONAL AND ORDER S OF HIS PREDECESSORS FOR THE EARLIER YEARS.FINALLY, HE HELD THAT ONLY OPENING BALANCE AS ON 1.4.2002 WAS TO BE CONSIDERED FOR ALLOWING BAD DEBTS WRITTEN OFF IN EXCESS OF THE PRO VISIONS, THAT THE OPENING BALANCE ON THAT DATE WAS NIL, THAT THE ENTIRE CLAIM OF THE ASSESSEE UNDE R THE HEAD BAD DEBTS AMOUNTING TO RS.2, 84, 86,343/- WAS TO BE ALLOWED. 3.2. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)SUPPOR TED THE ORDER OF THE AO.THE AUTHORISED REPRESENTATIVE(AR) STATED THAT THE ISSUE STANDS COV ERED BY THE CASES OMAN INTERNATIONAL(2013- TII-11-HC-MUM-ITNL/INCOME TAX APPEAL (LOD) NO.1889 OF 2012 DT.26. 2.2013),UTI BANK LTD. (256CTR76);ABU DHABI COMMERCIAL BANK(ITA/3462,3857, 4022/ MUM/2010 DT.20.07.2012.HE ALSO REFERRED TO THE INSTRUCTION NO.17/2008,DATED 26.11.2008, ISSUED BY THE CBDT.THE AR STATED 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 3 THAT A REQUEST UNDER RULE 27 OF THE ITAT RULES, 196 3, RULES SHOULD BE TAKEN ON RECORD SUPPORTING THE ORDER OF THE FAA. 3.3. WE FIND THAT IN THE CASE OF UTI BANK LTD.(SUPRA),TH E HONBLE GUJARAT HIGH COURT HAS DEALT THE ISSUE IN LIGHT OF THE INSTRUCTION NO.17/2008 DA TED 26.11.2008. WE ARE REPRODUCING THE HEAD NOTES OF THE SAID DECISION AND THE SAME READS AS UN DER :- 14. FROM THE ABOVE STATUTORY PROVISIONS, IT CAN BE SEENTHAT IN ADDITION TO THE DEDUCTION AVAILABLE TO AN ASSESSEE UNDER SECTION 36(1)(VII) F OR BAD DEBTS, IN CASE OF SPECIAL CLASS OF BANKS MENTIONED IN CLAUSE (VIIA), DEDUCTIONS SUBJEC T TO FULFILMENT OF CERTAIN CONDITIONS IS AVAILABLE IN RESPECT OF ANY PROVISION FOR BAD AND D OUBTFUL DEBTS. ONE OF THE RESTRICTIONS IS OF LIMITING SUCH DEDUCTION TO A MAXIMUM OF A SPECIF IED PERCENTAGE OF TOTAL INCOME OF THE ASSESSEE COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND NOT EXCEEDING PRESCRIBED PERCENTAGE OF AGGREGATE AVERAGE ADVANCE MADE BY THE RURAL BRANCHES OF SUCH BANK. FROM THE DECISION OF THE APEX COURT IN THE CA SE OF CATHOLIC SYRIAN BANK LTD. (SUPRA), IT CAN BE GATHERED THAT UNDER CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 36, DEDUCTION IS MADE AVAILABLE IN COMPUTATION OF TAXAB LE PROFITS OF ALL SCHEDULED COMMERCIAL BANKS IN RESPECT OF PROVISIONS MADE BY T HEM FOR BAD AND DOUBTFUL DEBTS RELATING TO ADVANCES MADE BY THEM IN THE RURAL BRAN CHES. SUCH DEDUCTION IS LIMITED TO A SPECIFIED PERCENTAGE OF THE AGGREGATE AVERAGE ADVAN CES MADE BY THE RURAL BRANCHES. THE APEX COURT HELD THAT THE DEDUCTION ON THE ACCOUNT O F PROVISION FOR BAD AND DOUBTFUL DEBTS IS DISTINCT AND INDEPENDENT OF THE PROVISIONS OF SECTION 36(1)(VII) RELATING TO ALLOWANCE OF THE BAD DEBTS. CONTENTION OF THE REVEN UE THAT THE BANKS COVERED BY CLAUSE (VIIA) WERE NOT ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VII) WAS REJECTED. THE COURT HELD THAT PROVISO TO SECTION 36(1)(VII) WOULD ENSURE THA T THERE WOULD BE NO DOUBLE BENEFIT OF DEDUCTION IN SUCH CASES. 15. IN THE PRESENT CASE, HOWEVER, THE QUESTION OF M ETHOD OF OPERATION OF PROVISO TO SECTION 36(1(VII) ARISES. SUCH PROVISO AS NOTED, PR OVIDES THAT IN CASE OF AN ASSESSEE TO WHICH CLAUSE (VIIA) APPLIES, THE AMOUNT OF DEDUCTIO N RELATING TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUC H DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFU L DEBTS ACCOUNT MADE UNDER THAT CLAUSE. THE REVENUE'S CONTENTION IS THAT BY VIRTUE OF SUCH PROVISO, THE CLAIM OF THE ASSESSEE FOR DEDUCTION FOR DEBTS WRITTEN OFF, SHOULD BE REDUCED BY THE CLOSING BALANCE OF THE ASSESSEE IN HIS ACCOUNT FOR THE PROVISION OF BAD AND DOUBTFU L DEBTS. ON THE OTHER HAND, THE ASSESSEE CONTENDS THAT SUCH DIMINUTION SHOULD BE LIMITED TO THE OPENING BALANCE OF SUCH ACCOUNT. 16. WE NOTICE THAT IN THIS RESPECT THE PROVISION IS SILENT. WE MAY THEREFORE RECORD THAT THE INTERPRETATION ADOPTED BY THE TRIBUNAL IN THE IMPUG NED JUDGMENT WOULD ORDINARILY GIVE RISE TO A QUESTION OF LAW PARTICULARLY WHEN IT IS P OINTED OUT THAT THERE IS NO PREVIOUS DECISION OF ANY HIGH COURT ON THE SUBJECT. HOWEVER, THE ISSUE HAS BEEN MADE SUFFICIENTLY CLEAR BY THE CBDT CIRCULAR NO.17/2008 DATED 26-11-2 008. IN THE SAID CIRCULAR, THIS VERY ISSUE HAS BEEN EXAMINED AND CLARIFIED IN THE FOLLOW ING MANNER:- '2. IN A RECENT REVIEW OF ASSESSMENT OF BANKS CARRI ED OUT BY C&AG, IT HAS BEEN OBSERVED THAT WHILE COMPUTING THE INCOME OF BANKS UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS & PROFESSION', DEDUCTIONS OF LARGE AMOUNTS UNDER DIFFERENT SECTION S ARE BEING ALLOWED BY THE ASSESSING OFFICERS WITHOUT PROPER VERIFICATION, LEADING TO SUBSTANTIAL LOSS OF REVENUE. IT IS, THEREFORE, NECESSARY THAT ASSESSMENTS IN THE CASES OF BANKS ARE COMPLETED WIT H DUE CARE AND AFTER PROPER VERIFICATION. IN PARTICULAR,DEDUCTIONS UNDER THE PROVISIONS REFERRED TO BELOW SHOULD BE ALLOWED ONLY AFTER A THOROUGH EXAMINATION OF THE CLAIM ON FACTS AND ON L AW AS PER THE PROVISIONS OF THE I.T. ACT, 1961. (I) UNDER SECTION 36(1)(VII) OF THE ACT, DEDUCTION ON ACCOUNT OF BAD DEBTS WHICH ARE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE IS AD MISSIBLE. HOWEVER, THIS SHOULD BE ALLOWED ONLY IF THE ASSESSEE HAD DEBITED THE AMOUNT OF SUCH DEBS TO THE PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT UNDER SECTION 36(1)(VIIA) OF THE ACT, AS RE QUIRED BY SECTION 36(2)(V) OF THE ACT. 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 4 (II) WHILE CONSIDERING THE CLAIM FOR BAD DEBTS U/S 36(1)(VII), THE ASSESSING OFFICER SHOULD ALLOW ONLY SUCH AMOUNT OF BAD DEBTS WRITTEN OFF AS EXCEED S THE CREDIT BALANCE AVAILABLE IN THE PROVISION FOR BAD & DOUBTFUL DEBT ACCOUNT CREATED U/S 36(1)(V IIA) OF THE ACT. THE CREDIT BALANCE FOR THIS PURPOSE WILL BE THE OPENING CREDIT BALANCE I.E., TH E BALANCE BROUGHT FORWARD AS ON 1ST APRIL OF THE RELEVANT ACCOUNTING YEAR.' 17. AS ALREADY NOTED, IN ABSENCE OF SUCH CLARIFICAT ION BYCBDT, WE WOULD HAVE BEEN INCLINED TO ADMIT THE APPEALS. HOWEVER, WHEN SUCH C IRCULAR ISSUED UNDER SECTION 119(2) OF THE ACT CLARIFIES THE POSITION BEYOND ANY DOUBT, WE HAVE NO REASON TO ENTERTAIN THE REVENUE'S APPEALS. AS ALREADY NOTED, THE STATUTORY PROVISION IS SILENT ON THE PRECISE METHOD OF WORKING OUT THE DEDUCTION. IT IS BY NOW W ELL-SETTLED THAT SUCH CIRCULARS ISSUED BY THE BOARD IN EXERCISE OF ITS STATUTORY POWERS UN DER SECTION 119(2) OF THE ACT, MAY HAVE THE EFFECT OF RELAXING THE RIGOURS OF A STATUT ORY PROVISION. IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) ITSELF, THE APEX COURT TOU CHED ON THE EFFECT OF THE CIRCULAR ISSUED BY THE BOARD. IT WAS OBSERVED AS UNDER:- 'NOW, WE SHALL PROCEED TO EXAMINE THE EFFECT OF THE CIRCULARS WHICH ARE IN FORCE AND ARE ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (FOR SHORT, 'THE BOARD') IN EXERCISE OF THE POWER VESTED IN IT UNDER SECTION 119 OF THE ACT. CIRCULARS CAN BE ISSU ED BY THE BOARD TO EXPLAIN OR TONE DOWN THE RIGOURS OF LAW AND TO ENSURE FAIR ENFORCEMENT OF IT S PROVISIONS. THESE CIRCULARS HAVE THE FORCE OF LAW AND ARE BINDING ON THE INCOME-TAX AUTHORITIES, THOUGH THEY CANNOT BE ENFORCED ADVERSELY AGAINST THE ASSESSEE. NORMALLY, THESE CIRCULARS CAN NOT BE IGNORED A CIRCULAR MAY NOT OVERRIDE OR DETRACT FROM THE PROVISIONS OF THE ACT BUT IT CAN S EEK TO MITIGATE THE RIGOUR OF A PARTICULAR PROVISION FOR THE BENEFIT OF THE ASSESSEE IN CERTAI N SPECIFIED CIRCUMSTANCES. SO LONG AS THE CIRCULAR IS IN FORCE, IT AIDS THE UNIFORM AND PROPER ADMINIS TRATION AND APPLICATION OF THE PROVISIONS OF THE ACT.(REFER TO UCO BANK V. CIT (1999) 4 SCC 599).' 18. IN CASE OF UCO BANK V/S. COMMISSIONER OFINCOME TAX REPORTED IN 237 ITR 889 THE SUPREME COURT IN CONNECTION WITH EFFECT OF CIRC ULARS ISSUED BY THE BOARD UNDER SECTION 119 OF THE ACT OBSERVED: 'SUCH INSTRUCTIONS MAY BE BY WAY OF RELAXATION OF A NY OF THE PROVISIONS OF THE SECTIONS SPECIFIED THERE OR OTHERWISE. THE BOARD, THUS, HAS POWERS, IN TER ALIA, TO TONE DOWN THE RIGOUR OF THE LAW AND ENSURE A FAIR ENFORCEMENT OF ITS PROVISIONS, BY ISS UING CIRCULARS IN EXERCISE OF ITS STATUTORY POWERS UNDER SECTION 119 WHICH ARE BINDING ON THE AUTHORIT IES IN THE ADMINISTRATION OF THE ACT. UNDER SECTION 119(2)(A),HOWEVER, THE CIRCULARS AS CONTEMP LATED THEREIN CANNOT BE ADVERSE TO THE ASSESSEE. THUS, THE AUTHORITY WHICH WIELDS THE POWE R FOR ITS OWN ADVANTAGE UNDER THE ACT IS GIVEN THE RIGHT TO FORGO THE ADVANTAGE WHEN REQUIRED TO W IELD IT IN THE MANNER IT CONSIDERS JUST BY RELAXING THE RIGOUR OF THE LAW OR IN OTHER PERMISSI BLE MANNERS AS LAID DOWN IN SECTION 119. THE POWER IS GIVEN FOR THE PURPOSE OF JUST, PROPER AND EFFICIENT MANAGEMENT OF THE WORK OF ASSESSMENT AND IN PUBLIC INTEREST. IT IS A BENEFICIAL POWER GI VEN TO THE BOARD FOR PROPER ADMINISTRATION OF FISCAL LAW SO THAT UNDUE HARDSHIP MAY NOT BE CAUSED TO THE ASSESSEE AND THE FISCAL LAWS MAY BE CORRECTLY APPLIED. HARD CASES WHICH CAN BE PROPERLY CATEGORISED AS BELONGING TO A CLASS, CAN THUS BE GIVEN THE BENEFIT OF RELAXATION OF LAW BY ISSUIN G CIRCULARS BINDING ON THE TAXING AUTHORITIES.' RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT AND THE O THER JUDGMENTS REFERRED TO BY THE AR,WE HOLD THAT THERE IS NO LEGAL OR ACTUAL INFIRMITY IN THE O RDER OF THE FAA.THEREFORE, CONFIRMING HIS ORDER,WE DECIDE GROUND NO.1 AGAINST THE AO. CONSIDERING THE ABOVE,EFFECTIVE GROUND OF APPEAL,RA ISED BY THE AO,STANDS DISMISSED. 1929/MUM/2012(AY.2008-09): 4. FIRST GROUND OF APPAL,RAISED BY THE ASSESSEE,IS ABO UT DISALLOWANCE OF INTEREST OF RS. 17.30 CRORES U/S.14A R.W.R.8D(2)(II)OF THE ACT.THE AUTHOR ISED REPRESENTATIVE(AR)RELIED UPON THE CASE OF HDFC BANK LTD.(383ITR529.THE DEPARTMENTAL REPRES ENTATIVE(DR)SUPPORTED THE ORDER OF THE FIRST APPELLATE AUTHORITY(FAA).WE FIND THAT SIM ILAR ISSUE WAS DELIBERATED BY THE TRIBUNAL IN 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 5 THE CASES OF PREMIER FINANCE & TRADING CO.LTD.(ITA. /1655/MUM/2013, AY. 2008-09 & OTHERS, DTD. 25.05.2016) AND ADITYA BIRLA NUVO LTD.(ITA/842 7/8483/MUM/2010- DTD. 17. 09. 2014), REFERRED TO BY THE AR.WE ARE REPRODUCING THE RELEVA NT PORTION OF THE ORDER OF THE CASE OF PREMIER FINANCE & TRADING CO.LTD.(SUPRA) AND THAT READS AS UNDER: 9. THE EFFECTIVE GROUND OF APPEAL,RAISED BY THE ASSESS EE,IS ABOUT DISALLOWANCE MADE U/S.14A OF THE ACT,AMOUNTING TO RS.2.21 CRORES UNDER THE HEAD INTE REST EXPENDITURE AND RS.12.15 LAKHS OUT OF THE ADMINISTRATIVE AND OTHER EXPENSES. XXXXX 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREERS THE MATERIAL BEFORE US.WE FIND THAT ASSESSEE WAS HOLDING SHARES AS STOCK IN TRADE AS WELL AS INV ESTMENTS, THAT IT HAD EARNED DIVIDEND INCOME FOR THE SHARES HELD AS STOCK IN TRADE ONLY, THAT AS SESSEE HAD NOT EARNED ANY DIVIDEND FROM THE INVESTMENTS MADE FOR THE YEAR UNDER APPEAL, THAT TH E INVESTMENT WAS MADE IN THE SHARES OF UNQUOTED COMPANIES, THAT IT HAD MADE STRATEGIC INVE STMENT IN GROUP COMPANIES.A PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE REVEALED THAT THE FUN DS AVAILABLE TO IT WAS FAR MORE THAN THE INVESTMENT MADE DURING THE YEAR UNDER CONSIDERATION .THE ASSESSEE HAD MADE INVESTMENT OF RS. 48.43 CRORES,THAT THE FUNDS AVAILABLE TO IT IN FORM OF SHARE CAPITAL, RESERVES & SURPLUS,SHARE APPLICATION MONEY AND UNSECURED LOANS AND OTHERS WA S RS.1,14,44, 54,709/-.THEREFORE IT HAS TO BE PRESUMED THAT INVESTMENTS WERE MADE OUT OF THE O WN FUND AND NOT FROM THE BORROWED FUNDS.WE FIND THAT IN THE CASE OF HDFC BANK LTD.(67 TAXMANN.COM 42) THE HONBLE BOMBAY HIGH COURT HAS HELD THAT WHEN THERE WERE SUFFICIENT OWN FUNDS THERE WAS A PRESUMPTION THAT INVESTMENT IN TAX-FREE SECURITIES WAS MADE OUT OF O WN FUNDS. IN THE CASE OF PAN INDIA NETWORK INFRAVEST PVT.LTD.(ITA/3378/MUM/2013-AY.2009-10,DAT ED11/05/016),WE HAVE HELD AS UNDER : 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.THERE IS NO DOUBT THAT THE ASSESSEE HAD NOT EARNED EXEMPT INCOM E DURING THE YEAR UNDER CONSIDERATION,SO,IN OUR CONSIDERED OPINION, NO DISA LLOWANCE CAN BE MADE U/S.14A OF THE ACT.WE FIND THAT IN THE CASE OF M/S GATEWAY DISTRIP ARKS LTD.(SUPRA),IDENTICAL ISSUE WAS ADJUDICATED BY US,AS UNDER: 3.THE NEXT GROUND PERTAINS TO DELETING THE DISALLO WANCE MADE U/S 14A OF THE ACT IGNORING THE RATIO OF THE TRIBUNAL IN CHEMINVEST LT D. (121 ITD 318)(DEL.). THE CRUX OF ARGUMENT ON BEHALF OF THE ASSESSEE IS THAT NO INCOM E WAS EARNED BY THE ASSESSEE AND MERELY HYPOTHETICAL DISALLOWANCE HAS BEEN MADE. REL IANCE WAS PLACED 378 ITR 33 (DEL.) ORDER DATED 02/09/2015. CONSIDERING THE TOTALITY OF FACTS AND THE ARGUMENTS FROM BOTH SIDES, WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE AFORESAID ORDER DATED 02/09/2015 HELD THAT WHERE NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEARS AND SINCE THE GENUINENESS OF EXPENDITURE IS N OT IN DOUBT, THERE IS NO QUESTION OF DISALLOWANCE U/S 14A OF THE ACT. WHILE COMING TO TH IS CONCLUSION, THE HONBLE HIGH COURT RELIED UPON FOLLOWING DECISIONS:- I. CHEMINVEST LTD. V. CIT [2009] 317 ITR (AT) 86 ( DELHI) [SB] (PARA 15) II. CIT V. CHUGANDAS AND CO. [1964] 55 ITR 17 (SC) (PARA 14) III. CIT V. COCANADA RADHASWAMI BANK LTD. [1965] 57 ITR 306 (SC) (PARA 14) IV. CIT V. CORRTECH ENERGY (P.) LTD. [2015] 372 IT R 97 (GUJ) (PARA 15) V. CIT V.HOLCIM INDIA (P.) LTD.(I.T.A.NO.486 OF 20 14 DECIDED ON 5- 9-2014) (PARA 15) VI. CIT V. HERO CYCLES LTD. [2010] 323 ITR 518 (P&H ) (PARA 15) VII. CIT V. LAKHANI MARKETING INCL. [2015] 4 ITR-O L 246 (P&H) (PARA 15) VIII. CIT V. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 (SC) (PARA 10) IX.CIT V.SHIVAM MOTORS (P.) LTD. (ITA NO. 88 OF 20 14 DECIDED ON 5-5-2014) (PARA 15) X. IT V. WINSOME TEXTILE INDUSTRIES LTD. [2009] 319 ITR 204 (P&H) (PARA 15) , XI. EICHER GOODEARTH LTD. VS. CIT [2015] 378 ITR 28 (DELHI) (PARA 14) 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 6 XII. HARISH KRISHNAKANT BHATT V. ITA [2005] 278 ITR (AT) 1 (AHD) (PARA 10) ' XIII. MAXOPP INVESTMENT LTD. V. CIT [2012] 347 ITR 272 (DELHI) (PARA 12) 3.1. IN VIEW OF THE FACTUAL MATRIX AND FOLLOWING TH E AFORESAID DECISION FROM HONBLE DELHI HIGH COURT AND IN THE ABSENCE OF ANY CONTRARY DECISION BROUGHT TO OUR NOTICE BY EITHER SIDE, WE FIND NO INFIRMITY IN THE CONCLUSION OF THE COMMISSIONER OF INCOME TAX (APPEAL) AND AFFIRMED THE SAME, THUS, THIS GROUND O F THE REVENUE IS ALSO HAVING NO MERIT, CONSEQUENTLY, DISMISSED. RESPECTFULLY,FOLLOWING THE SAME WE DECIDE THE EFFEC TIVE GROUND OF APPEAL AGAINST THE AO. IN OUR OPINION,IN ABSENCE OF ANY EXEMPT INCOME NO D ISALLOWANCE COULD BE MADE U/S.14A OF THE ACT.CONSIDERING THE FACTS-LIKE AVAILABILITY OF SUFF ICIENT OWN FUNDS, NON-RECEIPT OF EXEMPT INCOME DURING THE YEAR, AND STRATEGIC INVESTMENT IN THE SI STER CONCERNS-WE HOLD THAT THE FAA WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE. REVERSING HIS ORDER WE DECIDE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. CONSIDERING THE ABOVE AND RESPECTFULLY FOLLOWING T HE JUDGMENT OF HDFC BANK LTD.(SUPRA),WE DECIDE FIRST GROUND IN FAVOUR OF THE ASSESSEE,HOLDI NG THAT THE FAA WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE UNDER THE HEAD INTEREST EXPENDITUR E. 5. SECOND GROUND OF APPEAL DEALS WITH DISALLOWANCE OF INTEREST OF RS. 1.59 CRORES U/S.14A R. W. R. 8D(2)(III)OF THE ACT.THE AR ARGUED THAT SIMILAR ISS UE WAS DEALT BY THE TRIBUNAL IN THE CASE OF ADITYA BIRLA NUVO LTD. (SUPRA) AND HAD HELD THAT ST RATEGIC INVESTMENT SHOULD NOT BE CONSIDERED FOR MAKING DISALLOWANCE UNDER RULE 8D(2)(III)OF THE RULES,THAT FOR THE REMAINING AMOUNT DISALLOWANCE COULD BE MADE.THE DR LEFT THE ISSUE TO THE DISCRETION OF THE BENCH.WE FIND THAT ISSUE OF STRATEGIC INVESTMENT WAS DEALT BY THE TRIB UNAL IN THE CASE OF ADITYA BIRLA NUVO LTD. (SUPRA)AS UNDER: 2. FIRST GROUND OF APPEAL IS ABOUT ADDITION OF RS. 85. 47 LAKHS MADE U/S.14A OF THE ACT TOWARDS INDIRECT EXPENSES INCURRED FOR EARNING EXEMPT INCOM E.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 16,54,11,716/-, THAT OUT OF THE SAID AMOUNT RS. 11.02 CRORES PERTAINED TO THE DIVIDEND R ECEIVED FROM MUTUAL FUNDS, THAT THE BALANCE AMOUNT OF RS. 5.51 CRORES WAS RECEIVED FROM SHARES FROM THE TOTAL INVESTMENT OF RS. 41.62 CRORES WHICH WAS GROUP COMPANIES. INVOKING THE PROV ISIONS OF SECTION 14A R.W. RULE 8D OF THE INCOME-TAX RULES,1962 (RULES),THE AO MADE A DISALLO WANCE OF RS. 5.9386 CRORES. 2.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSION O F THE ASSESSEE AND THE ASSESSMENT ORDER, FAA HELD THAT HIS PREDECESSOR,IN THE AY.S.2004-05 AND 2 005-06,HAD HELD THAT 0.5% OF AVERAGE INVESTMENT ONLY IN NON-STRATEGIC INVESTMENT HAD TO BE DISALLOWED.ON THE BASIS OF THAT,HE RESTRICTED THE DISALLOWANCE TO RS. 85.47 LAKHS AND PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE. 2.2. BEFORE US, AR STATED THAT SIMILAR ISSUE HAD ARISEN IN THE EARLIER YEARS AND WAS DECIDED IN FAVOUR OF THE ASSESSEE,THAT THE ASSESSEE ITSELF HAD MADE A DISALLOWANCE OF RS. 31.11 LAKHS U/S 14A OF THE ACT.DEPARTMENTAL REPRESENTATIVE (DR) ARGUED THAT DISALLOWANCE U/S 14A HAD TO BE MADE ON THE BASIS OF FACTS OF EACH YEAR. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ISSUE HAD ARISEN IN THE AY.S.2002-03 AND 2005-06 AL SO.DECIDING THE APPEAL FOR THE AY 2005-06 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 7 (ITA NO. 662/MUM/2009),THE TRIBUNAL AT PARAGRAPH NO .21 OF THE ORDER (DT. 01.08.2014) HAS DEALT THE ISSUE AS UNDER: 21. GROUND NO.3 IS ABOUT DISALLOWANCE U/S 14A OF THE AC T,AMOUNTING TO RS. 1.69 LAKHS. BEFORE US,BOTH THE REPRESENTATIVES ADMITTED THAT TR IBUNAL HAD DISMISSED THE APPEAL FILED BY THE AO ON THE IDENTICAL ISSUE,WHILE DECIDING THE APPEAL FOR THE AY 2002-03. 21.1. WE FIND THAT AT PAGE 19-20 OF THE ORDER FOR THE AY 2002-03 (SUPRA) ISSUE OF DISALLOWANCE U/S 14A WAS DISCUSSED AS UNDER: ' 32.GROUND NO. 2 RELATES TO THE RESTRICTION OF THE DISALLOWANCE MADE U/S.14A OF THE ACT. 32.1.DURING THE COURSE OF THE ASSESSMENT PROCEEDING S, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED THE ENTIRE DIVIDEND INCOME HAS BEEN CLA IMED AS EXEMPT. INVOKING THE PROVISIONS OF SEC.14A, THE AO ASKED THE ASSES SEE TO JUSTIFY WHY THE INTEREST EXPENSES INCURRED SHOULD NOT BE APPORTIONED TO WARDS EARNING OF TAX FREE INCOME. IT WAS EXPLAINED THAT DURING THE YEAR, THE ASSESS EE HAS RECEIVED DIVIDENDOF RS. 5.04 CRORES OUT OF 14.80 CRORES HAS BEEN RECEIVED FROM THE GROUP COMPANIES FOR WHICH THE ASSESSEE HAS NOT INCURRED ANY COST. IT WAS FURTHER EXPLAINED THAT THE INVESTMENTS HAVE BEEN MADE OUT OF INTERNAL ACCRUALS OF THE CO MPANY. THE STATEMENT OF THE ASSESSEE DID NOT FIND FAVOUR FROM THE AO WHO WENT ON TO COMPUTE THE DISALLOWANCE U/S.14A AT RS. 18,43,425/-. 32.2.IT WAS EXPLAINED BEFORE THE LD. CIT(A) TH AT TOTAL AMOUNT OF INVESTMENT IN GROUP COMPANY IS RS.54.30 CRORES. IT WAS FURT HER EXPLAINED THAT IN RESPECT OF INVESTMENT IN GROUP COMPANIES,THE ASSESSEE DOES NO T HAVE TO INCUR ANY EXPENDITURE AT ALL.THE LD. CIT (A) WAS CONVINCED WITH THIS EX PLANATION OF THE ASSESSEE. HOWEVER, IN RESPECT OF BALANCE INVESTMENT, THE LD. CIT(A) WAS O F THE OPINION THAT DISALLOWANCE U/S.. 14A NEED TO BE MADE. THE LD.CIT(A) COMPUTED SUCH DI SALLOWANCE AS % OF THE AVERAGE INVESTMENT AND RESTRICT THE DISALLOWANCE U/S.. 14A TO RS. 1,87,954/-. 32.3. BEFORE US, THE LD. DR COULD NOT BRING ANY DIS TINGUISHING FACTS OR DECISION IN FAVOUR OF THE REVENUE. THE LD. DR RELIED UPON THE FINDINGS OF THE AO. 32.4.THE LD. SR. COUNSEL FOR THE ASSESSEE FAIRLY CO NCEDED TO THE FINDINGS OF THE LD. CIT(A). 32.5.WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AU THORITIES BELOW. WE FIND THAT THE MAJOR INVESTMENT OF THE ASSESSEE IS IN ITS GROUP CO MPANIES. AFTER CONSIDERING THIS FACTS, THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE TO RS. 1.87 LAKHS. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE L D. CIT(A). GROUND NO. 2 IS ACCORDINGLY DISMISSED. RESPECTFULLY, FOLLOWING THE ORDER FOR THE YEAR 2002 -03,GROUND NO.3 IS DECIDED AGAINST THE AO. RESPECTFULLY,FOLLOWING THE ORDER FOR THE EARLIER YE ARS,GROUND NO. 1 IS DECIDED IN FAVOUR OF THE ASSESSEE. CONSIDERING THE ABOVE,WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE UNDER RULE 8D(2)(III)OF THE RULES @ OF 0.05% OF THE AVERAGE INVESTMENT.BUT,STRA TEGIC INVESTMENT SHOULD NOT BE CONSIDERED FOR COMPUTING THE DISALLOWANCE.SECOND GROUND IS ALL OWED IN FAVOUR OF THE ASSESSEE,IN PART. 6. DISALLOWANCE OF BAD DEBTS OF RS.45.74 CRORES IS THE SUBJECT MATTER OF GROUND NO.3.DURING THE COURSE OF HEARING THE AR STATED THAT THE ISSUE STAN DS FINALLY DECIDED BY THE ORDER OF THE HONBLE APEX COURT,DELIVERED IN THE CASE OF CATHOLIC SYRIAN BANK LTD.(343ITR270).HE ALSO REFERRED TO 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 8 THE MATTER OF KARNATAKA BANK LTD. (349 ITR705).THE DR STATED THAT MATTER COULD BE DECIDED ON MERITS.WE HAVE HEARD THE RIVAL SUBMISSIONS .WE FIND THAT THE HONBLE SUPREME COURT HAS DEALT WITH THE ISSUE,IN THE CASE OF CATHOLIC SYRIAN BANK LTD.(SUPRA),AS UNDER: THE PROVISIONS OF SECTIONS 36(1)(VII) AND (VIIA) OF THE INCOME-TAX ACT, 1961,ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTION AND OPERATE IN THEIR RESPECTIVE FIELDS. BAD DEBTS WRITTEN OFF, OTHER THAN THOSE FOR WHICH PROVISION IS MADE UNDER CLAUSE (VIIA) , WILL BE COVERED UNDER THE MAIN PART OF SECTION 36(1)(VII) , WHILE THE PROVISO WILL OPER ATE IN CASES UNDER CLAUSE (VIIA) TO LIMIT THE DEDUCTION TO THE EXTENT OF DIFFERENCE BETWEEN THE D EBT OR PART THEREOF WRITTEN OFF IN THE PREVIOUS YEAR AND THE CREDIT BALANCE IN THE PROVISION FOR BA D AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA) . THUS, THE PROVISO WOULD NOT PERMIT THE BENEFIT OF DOUBLE DEDUCTION, OPERATING WITH REFERENCE TO RURAL LOANS WHILE UNDER SECTION 36(1)( VII) . XXXXX THE CLEAR LEGISLATIVE INTENT OF THE PROVISIONS AND UNAMBIGUOUS LANGUAGE OF THE CIRCULARS WITH REFERENCE TO THE AMENDMENTS TO SECTION 36 OF THE AC T IS THAT THE DEDUCTION ON ACCOUNT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VIIA) IS DISTINCT AND INDEPENDENT OF THE PROVISIONS OF SECTION 36(1)(VII) RELATING TO ALLOWA NCE OF THE BAD DEBTS. AFTER INTRODUCTION OF SECTION 36(1)(VIIA) BY THE FINANCE ACT, 1979, WITH EFFECT FROM APRIL 1, 1980, CIRCULAR NO. 258, DATED JUNE 14, 1979, WAS ISSUED BY THE CENTRAL BOAR D OF DIRECT TAXES TO CLARIFY THE APPLICATION OF THE NEW PROVISIONS. THE PROVISIONS WERE INTRODUCED IN ORDER TO PROMOTE RURAL BANKING AND ASSIST SCHEDULED COMMERCIAL BANKS IN MAKING ADEQUATE PROVI SION FROM THEIR CURRENT PROFITS FOR RISKS IN RELATION TO THEIR RURAL ADVANCES. THE DEDUCTIONS WE RE TO BE LIMITED AS SPECIFIED IN THE SECTION. THE CIRCULAR MENTIONS THAT THE PROVISIONS OF NEW CLAUSE (VIIA) OF SECTION 36(1) , RELATING TO THE DEDUCTION ON ACCOUNT OF PROVISIONS FOR BAD AND DOUB TFUL DEBTS, IS DISTINCT AND INDEPENDENT OF THE PROVISIONS OF SECTION 36(1)(VII) RELATING TO ALLOWA NCE OF DEDUCTION OF THE BAD DEBTS. IN OTHER WORDS, SCHEDULED COMMERCIAL BANKS WOULD CONTINUE TO GET THE BENEFIT OF THE WRITE-OFF OF THE IRRECOVERABLE DEBTS UNDER SECTION 36(1)(VII) IN ADD ITION TO THE BENEFIT OF DEDUCTION OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VIIA) . THE LEGISLATIVE INTENT WAS TO ENCOURAGE RURAL ADVAN CES AND THE MAKING OF PROVISIONS FOR BAD DEBTS IN RELATION TO SUCH RURAL BRANCHES. THE COURT WOULD GIVE AN INTERPRETATION TO THESE PROVISIONS WHICH WOULD SERVE THE LEGISLATIVE OBJECT AND INTENT, RATHER THAN TO SUBVERT THEM. THE PURPOSE OF GRANTING SUCH DEDUCTIONS WOULD STAND FRU STRATED IF THESE DEDUCTIONS ARE IMPLICITLY NEUTRALIZED AGAINST OTHER INDEPENDENT DEDUCTIONS SP ECIFICALLY PROVIDED UNDER THE PROVISIONS OF THE ACT. THE DEDUCTIONS PERMISSIBLE UNDER SECTION 3 6(1)(VII) SHOULD NOT BE NEGATED BY READING INTO THIS PROVISION, LIMITATIONS OF SECTION 36(1)(V IIA) ON THE REASONING THAT IT WILL FORM A CHECK AGAINST DOUBLE DEDUCTION. THE LANGUAGE OF SECTION 36(1)(VII) OF THE ACT IS UN AMBIGUOUS AND DOES NOT ADMIT OF TWO INTERPRETATIONS. IT GIVES A BENEFIT TO ALL BANKS, C OMMERCIAL OR RURAL, SCHEDULED OR UNSCHEDULED, TO CLAIM A DEDUCTION OF ANY BAD DEBT OR PART THEREOF, WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THI S BENEFIT IS SUBJECT ONLY TO SECTION 36(2) OF THE ACT. THE PROVISO TO SECTION 36(1)(VII) DOES NOT, IN ABSOLUTE TERMS, CONTROL THE APPLICATION OF THIS PROVISION AS IT COMES INTO OPERATION ONLY WHEN THE CASE OF THE ASSESSEE IS ONE WHICH FALLS SQUARELY UNDER SECTION 36(1)(VIIA) OF THE ACT. THE EXPLANATION TO SECTION 36(1)(VII) , INTRODUCED BY THE FINANCE ACT, 2001, SPECIFICALLY EXCLUDED ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNT OF THE ASSESSEE FROM THE AMBIT AND SCOP E OF ANY BAD DEBT, OR PART THEREOF, WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THUS, THE CONCEPT OF MAKING A PROVISION FOR BAD AND DOUBTFUL DEBTS WILL FALL OUTSIDE THE SCOPE OF S ECTION 36(1)(VII) SIMPLICITER. ONCE THE BAD DEBT IS ACTUALLY WRITTEN OFF AS IRRECOVERABLE AND THE RE QUIREMENTS OF SECTION 36(2) SATISFIED, THEN, IT WIL L NOT BE PERMISSIBLE TO DENY SUCH DEDUCTION ON THE AP PREHENSION OF DOUBLE DEDUCTION UNDER THE PROVISIONS OF SECTION 36(1)(VIIA) AND THE PROVISO T O SECTION 36(1)(VII) . 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 9 RESPECTFULLY,FOLLOWING THE ABOVE,WE DECIDE GROUND N O.3 IN FAVOUR OF THE ASSESSEE. 7. NEXT GROUND IS ABOUT DEPRECIATION OF PREMISES GIVEN ON LEASE.DURING THE COURSE OF HEARING BEFORE US,THE AR DID NOT PRESS THE SAID GROUND.HENC E,SAME STANDS DISMISSED. 8. LAST GROUND OF APPEAL DEALS WITH DEPRECIATION ON LE ASE ASSETS.BEFORE US,THE AR STATED THAT IT WAS CONSEQUENTIAL IN NATURE, THAT IT SHOULD BE REST ORED BACK TO THE FILE OF THE AO TO FOLLOW THE DIRECTIONS OF THE TRIBUNAL GIVEN IN THE EARLIER YEA RSORDERS. DR STATED THAT MATTER COULD BE DECIDED ON MERITS.AFTER CONSIDERING THE RIVAL SUBMI SSIONS,WE DIRECT THE AO TO FOLLOW THE DIRECTIONS OF THE TRIBUNAL GIVEN WHILE ADJUDICATING THE ISSUE UNDER CONSIDERATION IN THE EARLIER YEARS. ITA/3491/MUM/2013(AY.2009-10): 9. SOLITARY GROUND OF APPEAL,RAISED BY THE AO,IS ABOUT ALLOWING BAD DEBTS OF THE ASSESSEE OF RS. 60.15 CRORES WITHOUT APPRECIATING THE FACT THE BAD DEBTS WRITTEN OFF DURING THE YEAR HAD TO BE COMPUTED NOT ONLY WITH OPENING BALANCE BUT ALSO WIT H THE CLOSING BALANCE. 9.1. REPRESENTATIVES OF BOTH THE SIDED AGREED THAT THE I SSUE STANDS DECIDED AGAINST THE AO BY THE ORDER OF THE TRIBUNAL IN THE CASE OF OMAN INTERNATI ONAL BANK SAOG(92ITD76).WE ARE REPRODUCING THE RELEVANT PORTION OF THE ABOVE ORDER AND IT READS AS UNDER: 8.WE NOW COME TO ANOTHER PLEA STRENUOUSLY ARGUED B Y THE LEARNED DEPARTMENTAL REPRESENTATIVE, AND THAT IS WITH REGARD TO THE PROP OSITION THAT IN CASE THE ASSESSEE';S PLEA IS TO BE UPHELD, THE ASSESSEE WILL GET UNDUE BENEFIT IN THE FIRST YEAR OF OPERATIONS, BECAUSE, ON ONE HAND, THE ASSESSEE WILL BE ENTITLED TO AN AD HOC CLAIM ON THE BASIS OF TAXABLE BUSINESS INCOME AND, ON THE OTHER HAND, SUCH AN AD HOC CLAIM WILL NOT BE SE T OFF IN DEDUCTION FOR ACTUAL BAD DEBTS. ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIV E, THIS INCONGRUITY WILL END UP IN A SITUATION THAT THE ASSESSEE WILL GET DEDUCTION FOR MORE THAN ACTUAL BAD DEBTS SOMETHING WHICH IS CLEARLY CONTRARY TO THE SCHEME OF THE ACT AND PATENTLY ABSU RD. 9. THERE ARE TWO ASPECTS TO THIS ISSUE. IN THE FIRS T PLACE, THE AD HOC DEDUCTION UNDER SECTION 36(1)(VIIA)(B) BEING THE LAST ITEM ON THE COMPUTATI ON OF TAXABLE BUSINESS PROFITS IT CANNOT BE TAKEN INTO ACCOUNT AT THE TIME OF ALLOWING DEDUCTION UNDE R SECTION 36(1)(VII), AND, TO THAT EXTENT, THE ACTUAL DEDUCTION ATTRIBUTABLE TO BAD DEBTS [I.E. SE CTION 36(1)(VII) PLUS SECTION 36(1)(VIIA)(B)] WILL INDEED BE MORE THAN THE ACTUAL BAD DEBTS IN THAT YE AR. HOWEVER, SINCE THE PROVISION SO ALLOWED UNDER SECTI ON 36(1)(VIIA)(B) IS TO BE TAKEN INTO ACCOUNT WHILE ALLOWING DEDUCTION FOR ACTUAL BAD DEBTS IN TH E SUBSEQUENT YEAR, THE EFFECT OF EXCESS DEDUCTION, IF ANY, WILL BE SQUARED UP IN THAT SUBSE QUENT YEAR. SECONDLY, A VIEW SEEMS PERFECTLY ACCEPTABLE THAT THE PROVISION FOR BAD DEBTS ALLOWAB LE UNDER SECTION 36(1)(VIIA)(B) BEING INHERENTLY ATTRIBUTABLE TO THE DEBTS OUTSTANDING AT THE END OF THE YEAR, PROVISION ALLOWABLE AS SUCH IS AGAINST FUTURE BAD DEBTS OUT OF DEBTS OUTST ANDING AT THE YEAR END, AND, THEREFORE, IT NEED NOT BE MIXED UP WITH ACTUAL BAD DEBTS INCURRED DURI NG THE YEAR. VIEWED FROM THESE POINTS OF VIEW, THERE IS NO SUCH INCONGRUITY AS PERCEIVED BY THE LE ARNED DEPARTMENTAL REPRESENTATIVE. ACCORDINGLY, WE ARE NOT INCLINED TO UPHOLD THE OBJE CTION TAKEN BY THE REVENUE. 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 10 10. FOR THE DETAILED REASONS SET OUT ABOVE, WE DEEM IT FIT AND PROPER TO DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION UNDER SECTION 36(1)(VI), WITHOUT TAKING INTO ACCOUNT THE ADMISSIBLE DEDUCTION UNDER SECTION 36(1)(VIIA)(B) FOR THE RELE VANT PREVIOUS YEAR, WHICH, IN OUR CONSIDERED VIEW, CAN ONLY BE TAKEN INTO ACCOUNT FOR COMPUTING DEDUCTION UNDER SECTION 36(1)(VI) FOR SUBSEQUENT YEAR(S). THE ASSESSING OFFICER SHALL ALS O MAKE CONSEQUENTIAL AMENDMENTS IN DEDUCTION ADMISSIBLE UNDER SECTION 36(1)(VIIA)(B) I N TERMS OF THE OBSERVATIONS ABOVE. RESPECTFULLY,FOLLOWING THE ABOVE ORDER OF THE TRIBU NAL,EFFECTIVE GROUND OF APPEAL IS DECIDED AGAINST THE AO. ITA/3592/MUM/2013(AY.2009-10): 10. FIRST GROUND OF APPEAL,FILED BY THE ASSESSEE,IS ABO UT DISALLOWANCE MADE U/S.14A R.W.R.8D (2) (II)OF THE RULES. FOLLOWING OUR ORDER FOR THE LAST AY.GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE. 10.1. SECOND GROUND DEALS WITH DISALLOWANCE MADE U/S.14A R.W.R.8D(2)(III)OF THE RULES.THE AO IS DIRECTED TO FOLLOW OUR INSTRUCTION FOR THE EARLI ER AY.GOA -2 STANDS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. 11. NEXT TWO GROUNDS PERTAINS TO NON ADMISSION OF ADDIT IONAL CLAIM REGARDING ALLOWABILITY OF BAD DEBTS WRITING OFF RELATING TO URBAN BRANCHES.RESPEC TFULLY FOLLOWING THE CASE OF CATHOLIC SYRIAN BANK LTD.(SUPRA),WE DECIDE THIRD AND FOURTH GROUNDS IN FAVOUR OF THE ASSESSEE. 12. GROUND NO.5 STANDS DISMISSED AS NOT PRESSED. 13. SIXTH GROUND IS CONSEQUENTIAL IN NATURE,AS HELD IN THE EARLIER YEAR,AT PARAGRAPH NO.8 OF OUR ORDER.WE DIRECT THE AO TO FOLLOW THE DIRECTIONS OF THE TRIBUNAL GIVEN WHILE ADJUDICATING THE ISSUE UNDER CONSIDERATION IN THE EARLIER YEARS. ITA/3492/MUM/2013(AY.2010-11): 14. FIRST TWO GROUNDS OF APPEAL ARE ABOUT ALLOWING BAD DEBT CLAIM OF RS.106.28 CRORES U/S.36(1)(VI) R.W.S.36(1)(VII)OF THE ACT. FOLLOWING OUR ORDER FOR THE AY.2008-09,WE DECIDE BOTH THE GROUNDS OF APPEAL AGAINST THE AO. 15. THIRD GROUND OF APPEAL IS IDENTICAL TO THE EFFECTIV E GROUND OF APPEAL,RAISED BY THE AO,FOR THE AY.2009-10.RESPECTFULLY,FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF OMAN INTERNATIONAL BANK SAOG(SUPRA),WE DECIDE LAST GROUND AGAINST THE AO. ITA/3593/MUM/2013(AY.2010-11): 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 11 16. FIRST TWO GROUND OF APPEAL ARE ABOUT DISALLOWANCE M ADE BY THE AO U/S.14A R.W.R.8D(2)(II) AND(III)OF THE RULES.FOLLOWING OUR ORDERS,FOR EARLI ER YEAR GROUND NO.1 IS ALLOWED AND GROUND NO.2 IS ALLOWED,IN PART.AO WOULD FOLLOW OUR DIRECTIONS W ITH REGARD TO GOA 2. 17 .THIRD GROUND STANDS DISMISSED,AS NOT PRESSED. 18. LAST GROUND IS CONSEQUENTIAL IN NATURE. AO IS DIREC TED TO FOLLOW THE DIRECTIONS OF THE TRIBUNAL PASSED WITH REGARD TO DEPRECIATION OF VARIOUS ASSET S,WHILE ADJUDICATING THE ISSUE UNDER CONSIDERA -TION,FOR THE EARLIER YEARS. ITA/6394/MUM/2013(AY.2011-12): 19. BOTH THE GROUNDS RAISED BY THE AO ARE IDENTICAL TO THE GROUND RAISED BY HIM IN THE EARLIER YEAR I.E.BAD DEBTS.FOLLOWING OUR ORDER FOR THE EARLIER A Y.S. I.E. ORDERS FOR THE AY.S.2008-09 TO 2010- 11,WE DECIDE BOTH THE GROUNDS AGAINST THE AO. ITA/6217/MUM/2013(AY.2011-12): 20. FIRST TWO GROUNDS ARE ABOUT DISALLOWANCES MADE U/S. 14A R.W.R.8D(2)(II)AND 8D(2)(III). THE AO IS DIRECTED TO FOLLOW OUR ORDERS FOR THE EARLIER AY.S.FIRST GROUND STANDS ALLOWED WHEREAS THE SECOND GROUND IS ALLOWED PARTLY. 21. GROUND NO.4 IS DISMISSED,AS NOT PRESSED. 22. GROUNDS 5,6,7 AND 10 DEAL WITH DEPRECIATION OF VARI OUS ASSETS.WE HAVE HELD,IN THE EARLIER AY.S.,THAT THESE GROUNDS ARE CONSEQUENTIAL IN NATUR E AND THE AO HAS TO ADOPT THE WDV OF THE ASSETS OF EARLIER YEARS.AO WILL FOLLOW THE SAME DIR ECTIONS FOR THIS YEAR ALSO. 23. GROUND NO.3 PERTAINS TO DEDUCTION @7.5%,U/S.36(1)(V II)ON THE ASSESSED GROSS TOTAL INCOME (GTI).DURING THE APPELLATE PROCEEDINGS,THE ASSESSEE TOOK A GROUND,WITHOUT PREJUDICE AND CLAIMED THAT THE AO HAD INCREASED THE GTI BY MAKING ADDITIONS ON ACCOUNT OF DISALLOWANCE U/S. 14A AND BAD DEBTS.IT FURTHER ARGUED THAT DEDUCTION U/S.36(1)(VIIA)SHOULD BE INCREASED PROPORTION -ATELY,THAT DEDUCTION WAS NOT RE-WORKED CORRECTLY. 23.1. THE FAA, AFTER CONSIDERING THE SUBMISSIONS OF THE A SSESSEE DIRECTED THE AO TO DISPOSE OFF THE RECTIFICATION APPLICATION FILED BY THE ASSESSEE IN ACCORDANCE WITH INSTRUCTION NUMBER 03/2013, DATED 05/07/2013 OF THE CBDT. 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 12 23.2. BEFORE US, THE AR STATED THAT THE ASSESSEE WAS ENTI TLED TO DEDUCTION AT THE RATE OF 7.5% ON THE ADDITION/DISALLOWANCES MADE BY THE AO. THE DR L EFT THE ISSUE TO THE DISCRETION OF THE BENCH. WE FIND THAT THE ASSESSEE HAD MOVED AN APPLICATION UNDER SECTION 154 OF THE ACT, IN THAT REGARD. ON A QUERY BY THE BENCH, IT WAS STATED THAT THE AO HAD NOT PASSED THE RECOGNITION ORDER. THE AO IS DIRECTED TO DISPOSE OFF THE APPLICATION, FILED B Y THE ASSESSEE, AS PER THE ORDERS OF THE FAA WITHIN A PERIOD OF ONE MONTH FROM THE DATE OF RECEI PT OF OUR ORDER. 24. GROUND NO.8 DEALS WITH ADDITION ON ACCOUNT OF AIR. DURING THE ASSESSMENT PROCEEDINGS, THE AO HELD THAT THE ASSESSEE WAS NOT ABLE TO RECONCILE DIFFERENCE OF RS. 1.40 LAKHS ON ACCOUNT OF TRANSACTIONS LISTED IN THE AIR INFORMATION. 24.1. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDERING THE AVAILABLE MATERIAL, HE HELD THE AO HAD DISALLOWED ON RECONCILE TRANSACTION WORTH RS. 1.40 LAKHS AFTER GIVING SUFFICIENT TIME AND OPP ORTUNITY TO THE ASSESSEE,THAT THE ASSESSEE HAD REQUESTED FOR TIME TO RECONCILE THE DIFFERENCE, THA T PART OF THE DATA IN THE AIR HAD BEEN SUCCESSFULLY RECONCILE BY THE ASSESSEE, THAT IT WAS POSSIBLE THAT THE TRANSACTIONS WERE REPORTED IN EARLIER/SUBSEQUENT ASSESSMENT YEARS, THAT IT WAS AL SO POSSIBLE THAT TRANSACTIONS IN QUESTION REMAIN TO BE REPORTED BY THE ASSESSEE IN ITS BOOKS OF ACCO UNTS, THAT IT HAD FAILED TO RECONCILE THE SAID DISCREPANCY, THAT ON RECONCILE TRANSACTIONS WERE RE QUIRED TO BE EXPLAINED BY THE ASSESSEE MAINLY BECAUSE THE AUTHENTICITY AND THE RELIABILITY AND VA LIDITY OF THE DATA HAD NOT BEEN DISCREDITED BY THE ASSESSEE, THAT NO MATERIAL/EVIDENCE WAS FILED B EFORE THE AO OR HIM TO PROVE THAT THE DATA. FINALLY,HE DIRECTED THE AO TO RE-EXAMINE THE AIR DA TA AND DECIDE THE ISSUE ACCORDINGLY. 24.2. BEFORE US,THE AR STATED THAT THE AMOUNT IN QUESTION WAS VERY MEAGRE AS COMPUTER THE TOTAL TURNOVER,THAT ASSESSEE HAD RECONCILE ALL THE DISCRE PANCIES EXCEPT FOR RS. 1.40 LAKHS, THAT NO ADDITION SHOULD HAVE BEEN MADE ON THE BASIS OF THE AIR DATA. THE DR CONTENDED THAT FAA HAD ASKED THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AN D TO MAKE ADDITION ONLY IF THE ASSESSEE WAS NOT ABLE TO RECONCILE THE FIGURE. WE FIND THAT THERE WAS DISCREPANCY IN THE FIGURES A PPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THE AIR DATA OF THE DEPARTMENT, THAT I T RECONCILE ALL THE THE DISCREPANCIES EXCEPT FOR A SUM OF RS. 1.40 LAKHS, THAT IT HAD REQUESTED THE AO TO GRANT IT SOMETIME TO RECONCILE THE FIGURE, THAT EVEN BEFORE THE FAA THE ASSESSEE DID NOT PRODU CE ANY RECONCILIATION STATEMENT, THAT HE DIRECTED THE AO TO RE-EXAMINE THE ISSUE.. IN OUR OP INION THE ORDER OF THE FAA DOES NOT SUFFER 1929/M/12-KOTAK MAHINDRA BANK LTD. (+7APPLS) 13 FROM ANY LEGAL INFIRMITY.IT WAS THE DUTY OF THE ASS ESSEE TO RECONCILE THE DISCREPANCY. THE FAA HAD NOT CONFIRMED THE ORDER OF THE AO AND HAD GIVEN ONE MORE CHANCE TO THE ASSESSEE.. WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE FAA . WE ARE AWARE THAT ONLY ON THE BASIS OF THE AIR INFORMATION NO ADDITION SHOULD BE MADE. BUT THE CASE UNDER CONSIDERATION IS DIFFERENT. THE ASSESSEE HAD RECONCILE MAJOR PORTION OF THE DIFFERE NCE. THE ONUS WAS ON IT TO DISCREDIT THE VERACITY OF THE REMAINING PORTION OF THE AIR INFORM ATION.THE AO IS DIRECTED TO DECIDE THE ISSUE WITHIN A PERIOD OF ONE MONTH AFTER HEARING THE ASSE SSEE.EIGHTH GROUND STANDS PARTLY ALLOWED. 25. GROUND NO. 9.IS ABOUT NON GRANT OF TDS CREDIT CERTI FICATE.THE AO IS DIRECTED TO VERIFY THE CLAIM MADE BY THE ASSESSEE.IF CREDIT HAS NOT BEEN G IVEN TILL DATE,HE SHOULD PASS THE NECESSARY ORDER WITHIN A PERIOD OF ONE MONTH FROM THE DATE OF RECEIPT OF THE OUR ORDER. AS A RESULT,APPEALS FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED AND THE APPEALS OF THE AO ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH APRIL, 2017. SD/- SD/- ( / RAJENDRA ) ( JOGINDERSINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 18.04.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.