DCIT, CHENNAI V. Indian Bank, CHENNAI

ITA 2125/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96391 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 10-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 14-08-2014
• Court: TRIBUNAL
• Department Lawyers: M N MAURYA
• Assessee Lawyers: S SWAMINATHAN
• Keywords: Reopening of assessment; Capital asset; Business income; General deduction; Depreciation; Business expenditure; Residential status; Double taxation relief; Rule of consistency; Transactions in derivatives; Earning of tax free income; Advance ruling; Speculation loss; Bad and doubtful debts; Difference of opinion; Reason to believe; Unabsorbed depreciation; Change of opinion; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 14A; 115JB; 43(5); 148; 90; 15

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER I.T.A.NO S . 880/MDS/2010, 1923/MDS/2011, 1871/MDS/2012, 1395, 1396 & 1397/MDS/2014 ASSESSMENT YEAR S :200 7 - 08, 2008 - 09, 2009 - 10, 2007 - 08, 2005 - 06, & 2010 - 11 INDIAN BANK, HEAD OFFICER, 66, RAJAJI SALAI, CHENNAI . [PAN: AAACI1607G] VS. THE AS SISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(2), CHENNAI 600 034. ( APPELLANT ) ( R ESPONDENT ) I.T.A.NO S . 887/MDS/2010, 2025/MDS/2011, 2198/MDS/2012, 2124, 2125 & 2126/MDS/2014 ASSESSMENT YEAR S :2007 - 08, 2008 - 09, 2009 - 10, 2005 - 06, 2007 - 08, & 2010 - 11 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(2), CHENNAI 600 034. VS. INDIAN BANK, HEAD OFFICER, 66, RAJAJI SALAI, CHENNAI. ( APPELLANT ) ( R ESPONDENT ) A SSESSEE BY : SHRI S. SWAMINATHAN, C.A. DEPARTMENT BY : SHRI M.N. MAURYA , CIT - DR / DATE OF HEARING : 1 0 . 09 .201 5 / DATE OF P RONOUNCEMENT : 30 .1 1 .201 5 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : TH E SE SIX CROSS APPEAL S ARE DIRECTED AGAINST THE SEPARATE ORDER S OF THE LD. COMMISSION ER OF INCOME TAX (APPEALS) , C HENNAI FOR THE ASSESSMENT YEAR S 2005 - 06, 2007 - 08 TO 2010 - 11. SINCE ALL THE APPEALS PERTAIN TO SAME I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 2 ASSESSEE AND HEARD TOGETHER, ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A. NO S . 1396 & 1395/MDS /2014 (BY ASSESSEE) & I.T.A. NOS. 2124 & 2125/MDS/2014 (BY REVENUE) FOR A.Y 2005 - 06 & 2007 - 08 2. FIRST WE TAKE UP THE CROSS APPEALS WHICH ARE AGAINST DIFFERENT ORDERS OF THE LD. CIT(A) II, CHENNAI BOTH DATED 06.03.2014 PASSED CONSEQUENT TOP ASSESSMENT OR DER UNDER SECTION 143(3) R.W.S. 147 OF THE ACT FOR THE ASSESSMENT YEARS 2005 - 06 AND 2007 - 08. 3. WE CONSIDER THE FACTS AS RELATING TO THE ASSESSMENT YEAR 2005 - 06 FOR ADJUDICATION. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A NATIONALIZED BANK AND CENTRAL PUBLIC SECTOR UNDERTAKING. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BANKING. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005 - 06 ON 25.10.2015, DECLARING AN INCOME OF .NIL [AFTER SETTING OFF THE BROUGHT FORWARD LOSSES]. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND THE CASE WAS SELECTED FOR SCRUTINY. AN ASSESSMENT UNDER SECTION 143(3) OF THE ACT WERE MADE ON 31.12.2007 BY ASSESSING THE INCOME AT .1,82,9 6,50,331/ - . SUBSEQUENTLY, THE ASSESSING OFFICER REOPENED THE ASSESSMENT UNDER SECTION 147 OF THE ACT BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT ON 28.03.2012. W HILE COMPLETING THE REASSESSMENT UNDER SECTION 143(3) R.W.S. 147 OF THE ACT ON 31.03.2013, T HE ASSESSING OFFICER ASSESSED THE LOSSES AT .261,34,67,929/ - , BEFORE SETTING OFF EQUAL AMOUNTS OF BROUGHT FORWARD LOSSES BY DISALLOWANCE THE EXCESS I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 3 DEPRECIATION CLAIMED ON ATMS AND UPS AND EXPENSES UNDER SECTION 36(I)(VIIA) OF THE ACT. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND CHALLENGED THE REASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND MATERIALS ON RECORD, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSMENT REOPENED BY THE ASSESSING OFFICER IS WITHOUT JURISDICTION AND THE ORDER OF THE ASSESSING OFFICER IS BAD IN LAW. HE ALSO CONTENDED THAT THE ATMS ARE SUBSTANTIALLY IN THE NATURE OF COMPUTERS AND HENCE, THEY ARE ELIGIBLE FOR DEDUCTION @ 60% AND NOT AT 15% AS APPLICABLE TO OTHER NORMAL PLANT AND MACHINERY. 6. ON THE OTHER HAND, THE LD. DR STRONGLY RELIED ON THE ORDERS OF AUTHORITIES BELOW. HE HAS ALSO SUBMITTED THA T THE ASSESSMENT WAS VALIDLY REOPENED BY ASSIGNING REASONS AND THERE IS NO QUESTION OF CHANGE OF OPINION. FURTHER, WITH REGARD TO DEPRECIATION ON ATMS, HE RELIED ON THE DECISION IN THE CASE OF HDFC BANK LTD. V. ACIT 2010(1) TMI 759 ITAT, MUMBAI. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 4 7. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WITH REGARD TO VALIDITY OF REOPENING OF ASSESSMENT, THE ASSESSING OFFICER WAS OF THE OPINION THAT CERTAIN INCOME HAD ESCAPED ASSESSMENT AND ACCORDINGL Y INITIATED REASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT ON 28.03.2012 BY RECORDING REASONS THEREON. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER HAS COMPLETED THE REASSESS MENT ORDER UNDER SECTION 143(3) R.W.S. 147 OF THE ACT ON 31.03.2013. ON APPEAL, THE LD. CIT(A) HAS OBSERV ED THAT AS PER THE PROVISIONS OF SECTION 147 OF THE ACT, IF THERE IS ANY INCOME WHICH IS ASSESSABLE TO TAX BUT HAS ESCAPED FROM ASSESSMENT, THE INCOME TAX ACT EMPOWERS THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT UNDER SECTION 147 OF THE ACT. WHERE THERE IS AN ASSESSABLE INCOME FOR ANY OF THE ASSESSMENT YEARS AND THE SAME WAS NOT BROUGHT TO TAX, IT CONSTITUTES A REASON FOR REOPENING THE RETURN UNDER SE CTION 147 OF THE ACT. AS PER THESE PROVISIONS, THE ESCAPEMENT OF INCOME CONSTITUTES (I) UNDERSTATEMENT OF INCOME OR CLAIM OF EXCESSIVE LOSS, DEDUCTION, ALLOWANCE OR RELIEF IN THE RETURN [WHERE THE RETURN OF INCOME HAS NOT BEEN SUBJECTED TO SCRUTINY ASSESSM ENT UNDER SECTION 143(3)] OR (II) UNDERASSESSMENT OF TAXABLE INCOME, OR ASSESSING THE INCOME AT TOO LOW A RATE, OR GRANTING EXCESSIVE RELIEF, OR GRANTING/COMPUTATION OF EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE, IF THE RETURN WAS ALRE ADY SUBJECTED TO SCRUTINY ASSESSMENT I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 5 UNDER SECTION 143(3). IN THE PRESENT CASE, THE ASSESSEE, IN ITS RETURN OF INCOME, HAS CLAIMED DEPRECIATION ON ATMS AND UPS @ 60% BY CLASSIFYING THEM UNDER THE COMPUTERS BLOCK AS AGAINST ALLOWABLE DEPRECIATION OF 15%. TH IS WAS NOT EXAMINED AT THE TIME OF THE SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT DATED 31.12.2007. THUS, THERE IS AN UNDERASSESSMENT OF TAXABLE INCOMES, WITHIN THE MEANING OF SECTION 147 OF THE ACT AND ACCORDINGLY, THE LD. CIT(A) CONFIRMED THE RE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S. 147 OF THE ACT BY RELYING VARIOUS JUDICIAL PRONOUNCEMENTS. WE FIND THAT, I N THIS CASE, THE ISSUE OF REOPENING WAS DONE WHERE THE INCOME CHARGEABLE TO TAX ARE UNDER - ASSESSED, AND AS PER EXPLANATION 2(C) TO SECTION 148, IT SHALL BE DEEMED TO HAVE BEEN INCOME CHARGEABLE TO TAX HAS BEEN ESCAPED ASSESSMENT. THEREFORE, IN OUR OPINION, THE ASSESSING OFFICER, WHILE PASSING THE ORIGINAL ASSESSMENT ORDER UNDER SECTION 143(3) HAS NOT EXPRES SED ANY OPINION AS HE HAS ONLY CONSIDERED THE DETAILS FILED BY THE ASSESSEE. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS COMMUNICATED THE REASONS FOR REOPENING OF THE ASSESSMENT AND THE SAME IS REPRODUCED AS UNDER: 2. PRIMA FA CIE, REASSESSMENT PROCEEDINGS U/S 147 WAS INITIATED IN THIS CASE FOR THE FOLLOWING REASONS: THE ASSESSEE BEING PUBLIC SECTOR BANK HELD ATMS AND HAD CLAIMED DEPRECIATION 60% APPLICABLE TO SOFTWARE/ COMPUTER UNDER THE CATEGORY OF COMPUTES. SINCE ATMS ARE M ECHANICAL MACHINES WORKING AT THE COMMAND OF SOFTWARE. IN MODERN I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 6 TECHNOLOGY, ALL AND OTHER PLANT & MACHINERY ARE OPERATED THROUGH COMMAND OF SOFTWARE ONLY BUT ARE ELIGIBLE FOR DEPRECIATION @ 15% ONLY. ON SIMILAR LINES, ATMS ARE ELIGIBLE FOR DEPRECIATION @ 15% ONLY. THUS, THE ASSESSEE HAS CLAIMED EXCESS DEPRECIATION WHICH NEEDS TO BE DISALLOWED. I HAVE REASON TO BELIEVE THAT THE AMOUNT TO THE EXTENT OF EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE HAS ESCAPED ASSESSMENT. THE ISSUE OF DEPRECIATION ON ATMS AND UPS AND THEIR ALLOWANCE WERE NEVER CONSIDERED AT THE TIME OF ORIGINAL ASSESSMENT UNDER SECTION 143(3) OF THE ACT. ONLY, WHEN THE ASSESSING OFFICER HAS TAKEN ONE OF THE PERMISSIBLE VIEWS AT THE TIME OF ORIGINAL PROCEEDINGS AND REOPENED THE ASSESSMENT, THEN IT MAY BE HELD THAT THERE IS CHANGE OF OPINION. IN THE PRESENT CASE, NO DETAILS WERE CALLED FOR BY THE ASSESSING OFFICER OR FILED BY THE ASSESSEE ON THIS ISSUE, NO FINDING EITHER POSITIVE OR NEGATIVE WAS ARRIVED AT DURING THE COURSE OF THE ORIGINAL ASSESS MENT PROCEEDINGS, THERE IS NO QUESTION OF CHANGE OF OPINION AS CONTENDED BY THE ASSESSEE. THEREFORE, THE REOPENING OF ASSESSMENT IS NOT AMOUNTING TO ANY CHANGE OF OPINION. THUS, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, WE DISMISS THE GROUND RAISED BY THE ASSESSEE. 8. THE NEXT GROUND RAISED IN THE APPEAL S OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005 - 06 AND 2007 - 08 IN I.T.A. NO. 1396/MDS/2014 AND I.T.A. NO. 1935/MDS/2014 RELATES TO DISALLOWANCE OF EXCESS DE PRECIATION CLAIMED ON ATMS AND UPS AMOUNTING TO .1,36,10,446/ - FOR THE ASSESSMENT YEAR 2005 - 06 AND .4,65,16,938/ - FOR THE ASSESSMENT YEAR 2007 - 08 . THE I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 7 ASSESSEE HAS CLAIMED DEPRECIATION AT 6 0% ON ATMS TREATING THEM AS COMPUTERS. THE ASSESSING OFFICER HAS HELD THAT THESE CANNOT BE TREATED AS COMPUTER AND ACCORDINGLY RESTRICTED THE CLAIM OF DEPRECIATION TO 15% AS AGAINST 60% CLAIMED BY THE ASSESSEE AND DISALLOWED THE EXCESS DEPRECIATION CLAIMED. 9. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE HAS SUBMITT ED THAT THE ATMS CANNOT BE CONSIDERED AS ORDINARY MACHINERY OR EQUIPMENT SINCE IT PERFORMS A VARIETY OF FUNCTIONS AND HAS TO BE CONSIDERED AS A COMPUTER SYSTEM FOR DISBURSEMENT OF CASH AT LOCATIONS CONVENIENT TO CUSTOMERS. THE ASSESSEE HAS FURTHER SUBMITTE D BEFORE THE LD. CIT(A) THAT THE ATMS HAVE ALL THE COMPUTER SOFTWARE AND LINKED TO THE MAIN COMPUTER SERVERS (SYSTEMS). THE ATMS PROCESS THE CUSTOMERS REQUESTS, ANALYSE THE AVAILABILITY OF CREDIT BALANCE IN THEIR ACCOUNTS, DELIVER THE CASH AND SEND THE SA ME INFORMATION TO THE MAIN COMPUTER SYSTEM, SO THAT THE CREDIT BALANCE IN THE CUSTOMERS ACCOUNTS IS DEBITED BY THE SAID AMOUNT. IT WAS ALSO SUBMITTED THAT THE ATMS CAN ALSO BE USED FOR ACCOUNT BALANCE VERIFICATION, PAYMENT OF VARIOUS CHALLANS/BILLS, ETC. AND ARGUED THAT THE ATMS ARE NOTHING BUT THE EXTENSIONS OF THE COMPUTER SYSTEMS AND HENCE ELIGIBLE FOR DEDUCTION @ 60%. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE MATERIALS ON RECORD, THE LD. CIT(A) HAS NOT ACCEPTED THE VIEW OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER FOR BOTH THE ASSESSMENT YEARS UNDER APPEAL . I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 8 1 0 . ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE, WHILE REITERATING THE SUBMISSIONS AS MADE BEFORE THE LD . CIT(A) HAS SUBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR CLAIMING DEDUCTION @ 60% ON ATM ON PAR WITH COMPUTER SYSTEMS AND PRAYED THAT THE ORDER OF THE LD. CIT(A) ON THIS ISSUE MAY BE REVERTED. 11 . ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDER PASSED BY THE AUTHORITIES BELOW. 12 . WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. REGARDING ALLOWABILITY OF 60% DEPRECIATION ON THE ATMS, THE ASSESSING OFFICER HAS OBSERVED THAT THE ATMS IS DIFFERE NT TYPE OF MACHINE, DIFFERENT FROM THOSE OF COMPUTERS AND ALLOWED DEPRECIATION @ 15% ONLY AS APPLICABLE TO PLANT AND MACHINERY. THE LD. CIT(A) HAS CONFIRMED THE ORDER PASSED BY THE ASSESSING OFFICER. BEFORE US, THE LD. DR HAS PLACED RELIANCE ON THE DECISIO N IN THE CASE OF VENTURE INFORTECH GLOBAL (P) LTD. V. DCIT (2008) 25 SOT 184 (MUM), WHEREIN THE MUMBAI BENCHES OF THE TRIBUNAL HAS HELD THAT HIGHER RATE OF DEPRECIATION OF @ 60% TO ATM CANNOT BE ALLOWED., HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE, BY FILIN G COPY OF THE ORDER OF THE DELHI BENCHES OF THE TRIBUNAL, AT PAGE 221 IN THE PAPER BOOK, IN THE CASE OF DCIT V. GLOBAL TRUST BANK LIMITED IN ITA NO. 474/DEL/2009 DATED20.04.2011 HAS STRONGLY CONTENDED I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 9 THAT DEPRECIATION @ 60% TO ATM SHOULD BE ALLOWED. IN TH E CASE OF DCIT V. GLOBAL TRUST BANK LIMITED (SUPRA), THE TRIBUNAL HAS OBSERVED AS UNDER: 5. IN THE PRESENT APPEAL, WE ARE ONLY CONCERNED WITH THE GROUND REGARDING ASSESSEE'S CLAIM OF DEPRECIATION ON LAN, WAN, ATM ETC. AT 60% AS AGAINST 25% ALLOWED BY THE AO. THE OTHER GROUNDS OF APPEAL RAISED BY THE REVENUE IN THIS APPEAL ARE NOT MAINTAINABLE FOR WANT OF COD APPROVAL, AND THEY HAVE ALSO NOT BEEN RESTORED BACK FOR FRESH DISPOSAL WHILE RECALLING THE TRIBUNAL'S EARLIER ORDER DATED 17.6.2009. 6. IN THE COU RSE OF HEARING OF THIS APPEAL, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON SEVERAL DECISIONS INCLUDING THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. BSES RAJDHANI POWER LTD. IN ITA NO.1266/2010. THE HON'BLE DELHI HIGH COURT IN THE AF ORESAID CASE VIDE ORDER DATED 31.08.2010 HAS HELD THAT COMPUTER ACCESSORIES AND PERIPHERALS SUCH AS PRINTERS, SCANNERS AND SERVER ETC. FORMED AN INTERNAL PART OF THE COMPUTER SYSTEM AND, IN FACT, THE COMPUTER ACCESSORIES AND PERIPHERALS CANNOT BE USED WITH OUT THE COMPUTER. THE HON'BLE HIGH COURT THUS HELD THAT THEY ARE THE PART OF THE COMPUTER SYSTEM AND ARE ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60%. IN THE PRESENT CASE, WE ARE CONCERNED ABOUT THE DEPRECIATION ON LAN, WAN, ATM EQUIPMENTS. DURING TH E YEAR UNDER CONSIDERATION, THE ASSESSEE HAS PURCHASED CERTAIN EQUIPMENTS IN THE FORM OF LAN, WAN, ATM ETC. APART FROM COMPUTER AND OTHER RELATED ITEMS. IT IS NOT IN DISPUTE THAT LAN, WAN, ATM EQUIPMENTS CANNOT BE USED WITHOUT THE COMPUTER. IN THE CASE OF DCIT VS. DATACRAFT INDIA LTD. - (2010) 6 TAXMANN.COM 85 (MUM. - ITAT)(SB), THE ITAT SPECIAL BENCH OF MUMBAI HAS OBSERVED THAT ROUTER IS A HARDWARE DEVICE THAT ROUTES DATA FROM A LOCAL AREA NETWORK (LAN) TO ANOTHER NETWORK CONNECTION. IN THAT CASE, THE SPECIA L BENCH HAS TAKEN A VIEW THAT ROUTERS AND SWITCHES IN THE CIRCUMSTANCES OF THAT CASE ARE TO BE INCLUDED IN THE BLOCK OF COMPUTER ENTITLED TO RATE OF DEPRECIATION AT 60%. SINCE THE LAN, WAN, ATM ETC. CANNOT FUNCTION WITHOUT A COMPUTER, THEY CAN BE HELD TO B ECOME A PART AND PARCEL OF COMPUTER AND AS LONG AS THEY ARE AN INTEGRAL PART OF THE COMPUTER, THEY ARE CLASSIFIED AS A COMPUTER. 7. AUTOMATED TELLER MACHINE OR AUTOMATIC TELLER MACHINE (ATM) IS THE COMPUTERIZED TELECOMMUNICATION DEVICE THAT ALLOWS BANK' S CUSTOMERS TO ACCESS THE BANK AT PLACES OTHER THAN THE NORMAL BANK WITHOUT HAVING TO TAKE THE TROUBLE TO GO TO THE BANK IN PERSON AND COLLECT THE CASH AS IS DONE UNDER THE CONVENTIONAL METHOD OF WITHDRAWING MONEY FROM THE BANK. THE ATM MACHINES ARE I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 10 COMPUT ERIZED MACHINES WHICH NOT ONLY ALLOW THE CUSTOMERS TO WITHDRAW MONEY BUT THEY CAN CHECK THE ACCOUNT BALANCE, PAY BILLS, PURCHASE GOODS AND SERVICES, AND THEREFORE, UNLESS IT IS COMPUTERIZED AND LINKED WITH THE MAIN SERVER, IT IS NOT POSSIBLE TO OPERATE THE ATM. 8. THE LAN EQUIPMENT IS CALLED LOCAL AREA NETWORK EQUIPMENT WHICH IS PART OF THE COMPUTER HARDWARE WHICH ENABLES FOR A GROUP OF COMPUTERS AND ASSOCIATED COMPUTER DEVICES TO SHARE THE DATA THROUGH THIS DEVICE. IN OTHER WORDS, THE DATA IS STORED AT SINGLE COMPUTER PROCESSOR OR SERVER AND ALL THE OTHER COMPUTERS ARE CONNECTED THROUGH LOCAL AREA NETWORK EQUIPMENT AND THE SINGLE PROCESSOR CAN BE ACCESSED BY THE OTHER COMPUTERS AND THE DATA STORED IS USED BY THE OTHER COMPUTERS. 9. THE WAN EQUIPMENT I S CALLED WIDE AREA NETWORK, MEANING, TWO OR MORE LAN WOULD FORM A WAN I.E. TO COVER LARGE GEOGRAPHICAL AREA. THE COMPUTER NETWORK IS DONE BY USE OF WIDE AREA NETWORK EQUIPMENT. THUS, THIS IS ALSO AN INTEGRAL PART OF COMPUTER HARDWARE. 10. IN THIS CONNEC TION, A REFERENCE IS ALSO INVITED TO THE INFORMATION TECHNOLOGY ACT, 2000 WHEREIN SECTION 2(I) DEFINES THE TERM 'COMPUTERS' WHICH ALSO INCLUDES 'COMPUTER NETWORK'. THE TERM 'COMPUTER NETWORK' MEANS THE INTERCONNECTION OF ONE OR MORE COMPUTERS THROUGH THE U SE OF SATELLITE, MICROWAVE, TERRESTRIAL LINE OR OTHER COMMUNICATION MEDIA, AND TERMINALS OR A COMPLEX CONSISTING OF TWO OR MORE INTERCONNECTED COMPUTERS WHETHER OR NOT THE INTERCONNECTION IS CONTINUOUSLY MAINTAINED. FROM THIS ANGLE ALSO, LAN, WAN AND ATM W OULD UNDOUBTEDLY FORM A PART OF COMPUTER. 11. IN THE LIGHT OF THE VIEW WE HAVE TAKEN ABOVE, WE DIRECT THE AO TO ALLOW DEPRECIATION AT THE RATE OF 60% ON LAN, WAN AND ATM EQUIPMENTS. WE ORDER ACCORDINGLY. 13 . RESPECTFULLY FOLLOWING THE DECISION OF THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF DCIT V. GLOBAL TRUST BANK LIMITED (SUPRA), WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW DEPRECIATION @ 60% TO ATMS. THUS, THE GROUND I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 11 RAISED BY THE ASSES SEE IS ALLOWED AND SUBJECT TO RECOMPUTATION OF WDV FOR EACH ASSESSMENT YEAR ACCORDINGLY. 14 . IN THE RESULT, THE APPEAL S FILED BY THE ASSESSEE IN I.T.A. NO. 1396/MDS/2014 FOR THE ASSESSMENT YEAR 2005 - 06 AND I.T.A. NO. 1395/MDS/2014 FOR THE ASSESSMENT YEA R 2007 - 08 ARE PARTLY ALLOWED. 15. IN THE REVENUE APPEALS IN I.T.A. NO. 2124 & 2125/MDS/2014 FOR THE ASSESSMENT YEARS 2005 - 06 AND 2007 - 08, THE FIRST GROUND IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION. 16. THE SECOND GROUND RAISED IN BOTH THE APPE ALS OF THE REVENUE RELATES TO ALLOWANCE OF DEPRECIATION FOR UPS @ 60%. 17. THE ASSESSEE HAS CLAIMED DEPRECIATION FOR UPS @ 60% TREATING THEM AS COMPUTERS. THE ASSESSING OFFICER HAS HELD THAT THE UPS CANNOT BE TREATED AS COMPUTERS AND ACCORDINGLY RESTRIC TED THE CLAIM OF DEPRECIATION TO 15% AS AGAINST 60% CLAIMED BY THE ASSESSEE AND DISALLOWED EXCESS DEPRECIATION CLAIMED. 18. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). THE ASSESSEE HAS SUBMITTED BEFORE THE LD. CIT(A) THAT UPS ALSO F ORMS PART OF THE COMPUTER SYSTEM AND THEREFORE, IT CANNOT BE EQUATED WITH PLANT AND MACHINERY. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND CONSIDERING VARIOUS DECISIONS OF TRIBUNAL/DELHI HIGH COURTS, THE LD. CIT(A), BY FOLLOWING THE DECISION OF T HE CHENNAI BENCHES OF THE TRIBUNAL IN THE CASE OF INDIAN OVERSEAS BANK IN ITA NO. 99/MDS/2010 DATED 19.03.2013, DIRECTED I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 12 THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION @ 60% ON UPS FOR BOTH THE ASSESSMENT YEARS . 19. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. DR HAS SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON UPS @ 60%. THE LD. DR HAS RELIED ON THE DECISION OF THE DELHI BENCHES OF ITAT IN THE CASE OF NESTLE INDIA LTD . V. DCIT 111 TTJ 498. 20 . WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WITH REGARD TO ALLOWABILITY OF 60% DEPRECIATION ON THE UPS, THE ASSESSING OFFICER HAS HELD THAT THESE CANNOT BE TREATED AS COMPUTER RESTRICTED THE CLAIM OF DEPRECIATION TO 15% AS AGAINST 60% CLAIMED BY THE ASSESSEE. ON APPEAL, THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE CHENNAI BENCHES OF TRIBUNAL IN THE CASE OF INDIAN OVERSEAS BANK IN I.T.A. NO. 99/MDS/2010 DATED 19. 03.2013 , HAS HELD THAT THE UPS ATTACHED TO THE COMPUTERS ARE PART OF COMPUTER SYSTEMS AND ELIGIBLE FOR DEPRECIATION @ 60% AND DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON UPS @ 60%. WITH REGARD TO ALLOWABILITY OF DEPRECIATION @ 60% ON UPS, WHILE CONSIDERING SIMILAR ISSUE RAISED IN THE CASE OF INDIAN OVERSEAS BANK (SUPRA), BY FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF ORIENTAL CERAMICS & INDUSTRIES LTD. 56 DTR (DEL) 397, THE TRIBUNAL HAS OBSERVED AS UNDER: I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 13 28. WE DO NO T AGREE WITH THE SUBMISSIONS OF THE AR THAT THE UPS IS AN ENERGY SAVING DEVICE, THEREFORE, DEPRECIATION @ 80% SHOULD BE GRANTED. HOWEVER, WE ARE IN CONSONANCE WITH THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF ORIENT CERAMICS & INDUSTRIES LTD. (S UPRA) WHEREIN THE HON BLE COURT HAS GRANTED DEPRECIATION @ 60% BY TREATING UPS AS PART OF COMPUTER HARDWARE. ACCORDINGLY, WE ALLOW DEPRECIATION @ 60% ON UPS AND PARTLY ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 21 . AT THE TIME OF HEARING, THE LD. DR HA S RELIED ON THE DECISION IN THE CASE OF NESTLE INDIA LTD. V. DCIT (SUPRA), WHEREIN THE DELHI BENCHES OF THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE REVENUE AND REJECT ED THE PLEA OF THE ASSESSEE FOR CLAIM ING DEPRECIATION @ 60% ON UPS. HOWEVER, THE D ELHI BENCHES OF THE TRIBUNAL IN THE CASE OF NEPTUNE INFORMATION SOLUTIONS LTD. IN I.T.A. NO. 962/DEL/2006 VIDE ORDER DATED 21.04.2011 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF C IT V. BSES RAJDHANI POWERS LTD. VIDE ORDER DATED 31.08.2010 IN ITA NO. 1266/2010 AND ALSO BY FOLLOWING THE DECISION OF THE ITAT DELHI IN THE CASE OF EXPEDITORS INTERNATIONAL (INDIA) (P) LTD. V. CIT (2008) 118 TTJ 652 AND DIRECTED THE ASSESSING OFFICER TO A LLOW DEPRECIATION @ 60% TO UPS . THEREFORE, WE FIND NO FORCE IN THE ARGUMENTS OF THE LD. DR. 22 . FURTHER, THE TRIBUNAL, IN THE CASE OF INDIAN OVERSEAS BANK V. DCIT IN I.T.A. NO. 1949/MDS/2012 DATED 18.06.2014, HAS ALSO ALLOWED DEPRECIATION ON UPS AT THE RATE OF 60%. ACCORDINGLY, I N VIEW OF THE ABOVE DECISIONS OF THE COORDINATE BENCHES OF TRIBUNAL, WE ARE OF THE FIRM VIEW THAT T HE LD. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 14 CIT(APPEALS) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON UPS @ 60% AND WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(APPEALS) ON THIS ISSUE . ACCORDINGLY, GROUND RAISED IN BOTH THE APPEAL S OF THE REVENUE FOR THE ASSESSMENT YEAR 2005 - 06 AND 2007 - 08 IS DISMISSED. 2 3 . THE THIRD COMMON GROUND RAISED IN THE APPEALS OF THE REVENUE FOR BOTH THE ASS ESSMENT YEARS IS WITH REGARD TO THE CLAIM OF DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT. 2 4 . THE ASSESSEE , IN ITS PROFIT AND LOSS ACCOUNT , MADE A PROVISIONS FOR BAD AND DOUBTFUL DEBTS AT .207,44,84,803/ - FOR THE ASSESSMENT YEAR 2005 - 06 AND .162,79 ,79,551/ - FOR THE ASSESSMENT YEAR 2007 - 08. HOWEVER, THE ASSESSEE, IN ITS RETURN OF INCOME, CLAIMED THE ALLOWABLE DEDUCTION UNDER SECTION 36(1)(VIIA) AT .149,42,88,880/ - FOR THE ASSESSMENT YEAR 2005 - 06 AND .162,79,79,551/ - FOR THE ASSESSMENT YEAR 2007 - 08. IN THE REASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE TOTAL AVERAGE AGGREGATE ADVANCES SHOULD NOT BE CONSIDERED BECAUSE SOME OF THESE AMOUNTS ARE THE BROUGHT FORWARD AMOUNT FROM THE EARLIER YEARS, WHERE THE ASSESSEE HAD ALREADY CLAIMED 10 % OF THE AMOUNTS AS DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT. HE FURTHER OBSERVED THAT ONLY THE INCREMENTAL AVERAGE AGGREGATE ADVANCES MADE DURING THE YEAR ARE ELIGIBLE FOR DEDUCTION I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 15 UNDER SECTION 36(1)(VIIA) OF THE ACT AND ACCORDINGLY H E DISALLOW ED THE BALANCE AMOUNT CLAIMED BY THE ASSESSEE. 2 5 . THE ASSESSEE CARRIED THE MATTER IN APPEALS BEFORE THE LD. CIT(A) FOR BOTH THE ASSESSMENT YEARS AND THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) ARE REPRODUCED AS UNDER : 4.3.2 THE ASSESSEE BEFORE THE UNDERSI GNED SUBMITTED THAT THE PROVISIONS OF THE INCOME TAX ACT CLEARLY PROVIDES FOR DEDUCTION @ 10% OF AVERAGE AGGREGATE ADVANCES AT THE END OF EACH MONTH MADE BY THE RURAL BRANCHES. HENCE, THE ASSESSING OFFICER'S ACTION OF RESTRICTING THE DEDUCTION TO THE INCRE MENTAL AVERAGE AGGREGATE ADVANCES IS NOT AS PER THE LAW AND NEEDS TO BE DELETED. FOR THE THIS PURPOSE, THE ASSESSEE ALSO RELIED ON THE DECISION OF THE CHENNAI ITAT IN THE CASE OF LAKSHMI VILAS BANK LTD. VS. ACIT IN ITA NOS.551, 552 & 553/MDS/2009 DATED 18. 12.2009. THE RELEVANT PORTION OF ASSESSEE'S SUBMISSIONS ARE AS UNDER - RESTRICTION OF DEDUCTION U/S36(1) ( VIIA) RS.130,20,57,500/ - YOUR APPELLANT HAD CLAIMED DEDUCTION IN RESPECT OF THE PROVISIONS MADE FOR NON PERFORMING ASSETS I.E., PROVISIONS FOR BAD A ND DOUBTFUL DEBTS. AS PER THE PROVISIONS OF SECTION 36)(1)(VIIA), A BANKING COMPANY WOULD BE ENTITLED TO DEDUCTION COMPUTED IN THE MANNER PROVIDED THEREIN NAMELY, (1) AN AMOUNT NOT EXCEEDING 7LH% OF THE TOTAL INCOME BEFORE MAKING ANY DEDUCTIONS UNDER CHA PTER VI - A AND THIS SECTION; AND (2) AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE RURAL ADVANCES MADE BY THE RURAL BRANCHES. THE METHODOLOGY OF COMPUTATION OF AVERAGE RURAL ADVANCES HAS BEEN PRESCRIBED IN RULE 6 ABA OF THE INCOME TAX RULES, 1962. YOUR A PPELLANT HAD COMPUTED THE DEDUCTION IN THE SAID MANNER. THE RULE REQUIRES COMPUTATION OF AVERAGE OUTSTANDING ADVANCES AT THE END OF EACH MONTH AND THE ASSESSING AUTHORITY HAS PROCEEDED TO CONSIDER THAT THE OPENING BALANCE OF EVERY MONTH SHOULD BE EXCLUDED FOR ARRIVING AT AVERAGE RURAL ADVANCES OUTSTANDING. THE RULE HAS NOT WARRANTED COMPUTATION OF AVERAGE ADVANCES GRANTED DURING THE YEAR OR AVERAGE ADVANCES AS REDUCED BY THE OPENING BALANCE. THE INTERPRETATION THUS TAKEN BY THE ASSESSING AUTHORITY IS THAT T HE APPELLANT WOULD BE ENTITLED TO DEDUCTION ONLY IN RESPECT I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 16 OF THE INCREMENTAL ADVANCES OUTSTANDING AND ACCORDINGLY, HP HAS RESTRICTED THE DEDUCTION. YOUR APPELLANT SUBMITS THAT SUCH INTERPRETATION IS NOT IN TERMS OF THE PROVISIONS OF THE INCOME TAX RULE S AND THE COMPUTATION SHALL BE MADE STRICTLY IN ACCORDANCE WITH THE RULES AND NOT BY INSERTING CERTAIN MEANING OR WORDS WHICH HAVE NOT BEEN INCORPORATED EITHER IN THE ACT OR UNDER THE RULES. IN THIS REGARD, THE HON 'BLE INCOME TAX APPELLATE TRIBUNAL, CHENN AI BENCH, IN THE CASE OF LAKSHMI VILAS BANK IN ITA NO.551, 552, 553/ MDS/2009 DATED 18 - 12 - 2009, HELD THAT THE AVERAGE RURAL ADVANCES AS CONSIDERED UNDER RULE 6 ABA IS THE AVERAGE OF THE CLOSING BALANCES ONLY. A COPY OF THE ORDER OF THE HON 'BLE INCOME TAX APPELLATE TRIBUNAL, CHENNAI BENCH IS ANNEXED. 26 . THE ASSESSEE HAS ALSO FILED SIMILAR SUBMISSIONS BEFORE THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2007 - 08. 2 7 . AFTER CONSIDERING T HE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE TRIBU NAL IN THE CASE OF LAKSHMI VILAS BANK IN I.T.A. NO. 551, 552, 553/MDS/2009 DATED 18.12.2009, THE LD. CIT(A) HAS ALLOWED THE GROUND RAISED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS. 28. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL FOR BOTH THE ASSESSMENT YEARS. THE LD. DR SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER AND SUBMITTED THAT AGAINST THE DECISION OF THE TRIBUNAL, THE DEPARTMENT HAS PREFERRED APPEALS AND THE SAME IS PENDING BEFORE THE HON BLE JURISDICTIONAL HIGH COURT. ON THE OTHER HAND, T HE LD. COUNSEL FOR THE ASSESSEE STRONGLY RELIED ON THE DECISION OF THE LD. CIT(A), WHEREIN THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE TRIBUNAL, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 17 29. WE HAVE HEARD BOTH SIDES, PERUSED THE MA TERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. T HE LD. CIT(A), AFTER EXAMINING THE DETAILED SUBMISSIONS OF THE ASSESSEE AND ALSO BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF LAKSHMI VILAS BANK LTD. V. ACIT (SUPRA), ALLOWED THE GROUND RAISED BY THE ASSESSEE BY OBSERVING AS UNDER: 4.3.3 I HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS CAREFULLY. AS PER THE PROVISIONS OF SEC.36(1)(VIIA), THE ASSESSEE, BEING A SCHEDULED BANK, IS ELIGIBLE FOR DEDUCTION OF NOT EXCEEDING 10% OF THE' AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE BANKS COMPUTED IN THE PRESCRIBED MANNER.' THE STATUTES CLEARLY CONTAIN THAT THE DEDUCTION IS AVAILABLE ON THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES, AND NOT ON THE INCREMENTAL AD VANCES ONLY. THEREFORE, THE ASSESSING OFFICER'S INTERPRETATION, THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION ONLY ON THE INCREMENTAL AVERAGE AGGREGATE ADVANCES OF THE RURAL BRANCHES, IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. FOR THIS PURPOSE, REL IANCE IS ALSO PLACED ON THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF LAKSHMI VILAS BANK IN ITA NO.551,552,553/MDS/2009 DATED 18 - 12 - 2009. THE RELEVANT PORTION OF THE DECISION OF THE DECISION, IS REPRODUCED AS UNDER: 4.1 ISSUE NO.1 - REGARDING CO MPUTATION OF AGGREGATE AVERAGE ADVANCES, MADE BY THE RURAL BRANCHES: 4.1.1 WE HAVE HEARD THE LEARNED A.R. AS WELL AS LEARNED DEPARTMENTAL REPRESENTATIVE AND CONSIDERED THE RELEVANT RECORDS. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE PROV ISIONS OF SECTION 36(1)(VIIA) REFERS TO THE COMPUTATION IN THE PRESCRIBED MARINER. HE HAS THEN REFERRED RULE 6ABA OF INCOME TAX RULES, 1962 AND SUBMITTED THAT THIS ISSUE WAS CONSIDERED BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. CITY UNION BANK LID, VIDE ORDER DATED 30.10.2009 IN I.T.A. NO.1485/MDS/2007. 4.1.2 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT AS PER THE SECTION 5 OF THE INCOME TAX ACT, THE INCOME IS COMPUTED FOR THE PREVIOUS YEAR AND, THER EFORE, ALL DEDUCTIONS ARE TO BE ALLOWED IN RESPECT TO THE PREVIOUS YEAR ONLY. EACH ASSESSMENT YEAR IS A SEPARATE UNIT. HE I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 18 HAS THUS SUBMITTED THAT IF THE OPENING BALANCE IS INCLUDED FOR THE PURPOSE OF COMPUTATION OF AGGREGATE AVERAGE ADVANCES OF THE RURAL B RANCHES FOR COMPUTATION OF DEDUCTION U/S. 36(1)(VIIA), IT WILL DE - HORS THE PROVISIONS OF SECTIONS 4 & 5 OF THE INCOME TAX ACT. HE HAS FURTHER SUBMITTED THAT THE ISSUE IN THE CASE OF CITY UNION BANK WAS NOT ON THE POINT OF CALCULATION OF AGGREGATE AVERAGE A DVANCES MADE BY THE RURAL BRANCHES, THEREFORE THE SAID DECISION IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. 4.1.3 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RELEVANT RECORDS. AT THE OUTSET, WE FIND THAT THE CO - ORDINATE BENCH OF THIS TRIBUNAL I N CASE OF CITY UNION BANK LTD SUPRA CONSIDERED AND ADJUDICATED THIS ISSUE IN PARA 8 AS UNDER: WE HAVE DULY CONSIDER THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD. WE HAVE PERUSED RULE 6ABA OF THE INCOME TAX RULES, 1962. AS PER THE SAID RULE, THE AGGR EGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES HAVE TO BE COMPUTED BY TAKING THE AMOUNTS OF ADVANCES MADE BY EACH RURAL BRANCH AS OUTSTANDING AT THE END OF THE LAST DAY OF EACH MONTH COMPRISED IN THE PREVIOUS YEAR. THUS, IT IS CLEAR THAT THERE IS NO PRO VISION TO CONSIDER ONLY THE ADVANCES MADE DURING THE YEAR UNDER CONSIDERATION. IT IS THE FINDING OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS FURNISHED THE WORKING AS PER RULE 6ABA. IT IS NOT IN DISPUTE THAT THE WORKING IS AS PER RULE 6ABA BUT THE ASSESS ING OFFICER SEEMS TO HAVE INTERPRETED THE PROVISION NOT WARRANTED BY LAW. THEREFORE, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWING THE DEDUCTION TO THE ASSESSEE. 4.1.4 BY FOLLOWING THE PRINCIPLE OF CONSISTENCY, AS THE ISSUE H AS ALREADY BEEN DECIDED BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL, WE DECIDE THIS ISSUE ON MERITS IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 4.3.4 IN VIEW OF THE ABOVE DISCUSSION AND RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF LAKSHMI VILAS BANK IN ITA NO.551,552, 553/MDS/2009 DATED 18 - 12 - 2009, I HOLD THAT THE ALLOWABLE DEDUCTION UJS.36(I)(VIIA) OF THE ACT IS @ 10% OF THE 'TOTAL AVERAGE AGGREGATE ADVANCES' MADE BY THE RURAL BRANCHES AND NOT ON THE INCREMENTAL AVE RAGE AGGREGATE ADVANCES, AS CONTEMPLATED BY THE ASSESSING OFFICER. THE ASSESSEE'S APPEALS IN THIS REGARD ARE ALLOWED. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 19 30 . WE FIND THAT T HE LD. CIT(APPEALS) HAS RIGHTLY FOLLOWED THE DECISION OF THE TRIBUNAL IN THE CASE OF LAKSHMI VILAS BANK (SUPRA) AND W E FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(APPEALS). THUS, T HE GROUND RAISED BY THE REVENUE FOR BOTH THE ASSESSMENT YEARS ARE DISMISSED. 3 1 . THE NEXT GROUND RAISED IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2007 - 08 IS WITH REGARD TO THE CLAIM OF BROUGHT FORWARD UNABSORBED DEPRECIATION LOSSES OF .73,40,85,563/ - TO BE SET OFF AGAINST THE INCOME OF CURRENT ASSESSMENT YEAR I.E., 2007 - 08. THE ASSESSEE HAS CLAIMED THE BROUGHT FORWARD UNABSORBED DEPRECIATION LOSSES FROM THE ASSESSMENT YEAR S 1994 - 95 TO 1998 - 99, AMOUNTING TO .73,40,85,563/ - . HOWEVER, THE ASSESSING OFFICER IN HIS ORDER DISALLOWED THE SAME IN VIEW OF THE AMENDED PROVISIONS OF SECTION 32(2) W.E.F. 01.04.1997. CONSEQUENT TO THE AMENDED PROVISIONS OF SECTION 32(2) W.E.F. 01.04.19 97, THE UNABSORBED DEPRECIATION LOSSES CAN BE CARRIED FORWARD TO EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR IN WHICH THE DEPRECIATION ALLOWANCE WAS COMPUTED. THOUGH THE PROVISIONS HAVE BEEN WITHDRAWN BY THE FINANCE ACT, 2001 [W.E.F. 01.04.2002], THE UNABSORBED DEPRECIATION LOSSES BROUGHT FORWARD FROM THE EARLIER YEARS ARE TO BE RESTRICTED TO A PERIOD OF EIGHT YEARS ONLY. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWE D THE BROUGHT FORWARD UNABSORBED DEPRECIATION LOSSES FROM THE ASSESSMEN T YEARS 1994 - 95 TO 1998 - 99 AMOUNTING TO 73,40,85,563/ - . I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 20 3 2 . ON APPEAL, THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, ALLOWED THE GROUND RAISED BY THE ASSESSEE. 3 3 . ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL . THE LD. DR SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). HE ALSO RELIED ON THE DECISION IN THE CASE OF SYNBIOTICS LTD. V. ACIT [2015] 370 ITR 139 (GU J). 3 4 . WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE HAS CLAIM ED BROUGHT FORWARD UNABSORBED DEPRECIATION LOSSES FROM THE ASSESSMENT YEARS 1994 - 95 TO 1998 - 99, AMOUNTING TO .73,40,85,563/ - AND THE ASSESSING OFFICER HAS DISALLOWED SINCE PROVISIONS OF SECTION 32(2) HAVE BEEN AMENDED BY THE FINANCE ACT, 2001 (W.E.F. 01.04.2002). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED AS UNDER: 4.4.2 I HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS CAREFULLY. AS PER THE PROVISIONS OF SEC.32(2) OF THE ACT, THE UNABSORBED DEPRECIATION OF ANY ASSESSMENT YEAR WILL BE CARRIED FORWARD TO THE FOLLOWING YEAR WHERE IT HAS TO BE TREATED ON PAR WITH THE CURRENT DEPRECI ATION OF THE SAID YEAR AND CARRIED FORWARD TO THE SUBSEQUENT YEARS, IF THERE ARE NO SUFFICIENT INCOMES TO ABSORB THEM. IN OTHER WORDS, THE BROUGHT FORWARD UNABSORBED DEPRECIATIONS FROM THE EARLIER ASSESSMENT YEARS WILL GET MERGED WITH THE CURRENT YEAR'S DE PRECIATION AND BECOMES ELIGIBLE FOR SET OFF, AS IF IT WAS THE CURRENT YEAR'S DEPRECIATION. ESPECIALLY, IN VIEW OF THIS POSITION, THE UNABSORBED DEPRECIATION LOSSES CAN BE CARRIED FORWARD TO ANY NUMBER OF YEARS WITHOUT ANY RESTRICTIONS. 4.4.3 THE ABOVE W AS THE POSITION UPTO A.Y. 1997 - 98. HOWEVER, THE PROVISIONS OF SEC.32(2) WAS AMENDED BY THE FINANCE ACT, 1996 W.E.F. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 21 01.04.1997, AS PER WHICH THE UNABSORBED DEPRECIATION CAN BE CARRIED FORWARD FOR A PERIOD OF EIGHT YEARS ONLY. THIS AMENDED POSITION CONTINUE D UPTO A.Y. 2001 - 02, I.E. TILL THE PROVISIONS OF SEC.32(2) WERE REVERSED BY THE FINANCE ACT, 2001 W.E.F. 01.04.2002. IN OTHER WORDS, THE RESTRICTIONS IMPOSED ON THE CARRY FORWARD POSITION OF UNABSORBED DEPRECIATION WAS APPLICABLE BETWEEN A.Y.1997 - 98 AND 20 01 - 02 ONLY. 4.4.4 AT THE BEGINNING OF THE A.Y. 1997 - 98, ALL THE UNABSORBED LOSSES BROUGHT FORWARD FROM THE EARLIER YEARS, IRRESPECTIVE OF THE YEAR IN WHICH T HEY WERE ORIGINALLY COMPUTED, WERE AT PAR WITH THE CURRENT YEAR'S DEPRECIATION LOSSES (OF A.Y.19 97 - 98), AND A RESULT OF WHICH ALL THESE LOSSES CAN BE CARRIED FORWARD FOR A PERIOD OF 8 YEARS TO BE RECKONED FROM 1997 - 98. THAT IS, THESE UNABSORBED DEPRECIATION LOSSES AVAILABLE AS ON 01.04.1997 CAN BE CARRIED FORWARD UPTO THE A.Y. 2005 - 06 AND CAN BE UTIL IZED FOR SET OFF. THIS WAS THE POSITION FROM A.Y. 1997 - 98 TO 2001 - 02. 4.4.5 FROM 01.04.2002, THE PROVISIONS HAVE BEEN REVERSED BY LIFTING THE RESTRICTIONS IMPOSED ON THE CARRY FORWARD POSITION OF UNABSORBED DEPRECIATION, AS A RESULT OF WHICH ALL THE UNA BSORBED DEPRECIATIONS AVAILABLE AS ON 01.04.2002 AND ELIGIBLE FOR SET OFF DURING THE YEAR 2002 - 03, WILL BECOME THE CURRENT YEAR'S DEPRECIATION LOSSES AND ACCORDINGLY, CAN BE CARRIED FORWARD TO ANY NUMBER OF YEARS. IN SIMPLE WORDS, SINCE THE PROVISIONS IMPO SING THE RESTRICTIONS ON THE CARRYING FORWARD OF THE UNABSORBED DEPRECIATION HAVE BEEN WITHDRAWN WITHIN EIGHT YEARS FROM THE DATE OF ENACTING THE PROVISIONS, NO CARRYING FORWARD OF UNABSORBED DEPRECIATION CAN BE DISALLOWED. THUS, FOR ALL PRACTICAL PURPOSES , THE PROVISIONS OF SEC.32(2), WHICH WERE IN OPERATION FROM 01.04.1997 TO 31.03.2002, HAVE NO IMPACT ON THE CARRY FORWARD POSITION OF THE UNABSORBED DEPRECIATION. 4.4.6 THEREFORE, IN THE INSTANT CASE, ALL THE BROUGHT FORWARD UNABSORBED DEPRECIATION LOSSE S OF RS.73,40,85,563 / - FROM A.YS. 1994 - 95 TO 1998 - 99, ARE ELIGIBLE FOR SET OFF IN THE CURRENT A.Y. 2007 - 08, AND AFTER SET OFF, IF ANY OF THESE LOSSES STILL REMAINS UNABSORBED, THE SAME CAN BE CARRIED FORWARD TO THE SUBSEQUENT YEARS. THE ASSESSING OFFICER I S DIRECTED TO ALLOW THE ASSESSEE'S CLAIM OF BROUGHT FORWARD UNABSORBED DEPRECIATION LOSSES OF RS. 73,40,85,563/ - FROM A.Y S.1994 - 95 TO 1998 - 99 AND THEIR SET OFF AGAINST THE INCOME OF CURRENT A.Y. 2007 - 08. THE ASSESSEE'S APPEAL ON THIS GROUND IS ALLOWED. 3 5 . IN THE GROUNDS OF APPEAL, THE REVENUE HAS RELIED ON THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF DHARTI DREDGING & INFRASTRUCTURE LTD. V. ADDL. CIT [144 ITD 120], WHEREIN, THOUGH THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE JU DGEMENT OF HON BLE GUJARAT HIGH I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 22 COURT IN THE CASE OF GENERAL MOTORS INDIA (P) LTD. SPECIAL CIVIL APPLICATION NO. 1773 OF 2012 DATED 23.08.2012 FOR THE PREPOSITION OF SET OFF OF UNABSORBED DEPRECIATION ALLOWANCE DISPUTED BEFORE US AGAINST THE PROFIT AND GAI NS OF SUBSEQUENT YEAR WITHOUT ANY LIMIT OF PERIOD WHATSOEVER. FOR THE SAME PREPOSITION, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE JUDGEMENTS OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT V. PIONEER ASIA PACKING (P) LTD. 310 ITR 198 AND ALSO IN THE CASE OF CIT V. S & S POWER SWITCHGEAR LTD. 318 ITR 187. HOWEVER, THE HYDERABAD BENCHES OF THE TRIBUNAL, IN THE ABOVE CASE, HAS OBSERVED THAT THE ABOVE JUDGEMENT CANNOT BE CONSIDERED AS BINDING PRECEDENT AS IT IS NOT A JURISDICTIONAL HIGH COURT JUDGE MENTS. 3 6 . IN THE PRESENT CASE, WHILE DISPUTING F OR THE PREPOSITION OF SET OFF OF UNABSORBED DEPRECIATION ALLOWANCE , THE LD. COUNSEL FOR THE ASSESSEE HAS STRONGLY PLACED RELIANCE ON THE DECISIONS OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF C IT V. PIONEER ASIA PACKING (P) LTD. 310 ITR 198 AND ALSO IN THE CASE OF CIT V. S & S POWER SWITCHGEAR LTD. 318 ITR 187 INCLUDING THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS INDIA (P) LTD. (SUPRA). IN VIEW OF THE AMENDED PRO VISIONS AS WELL AS THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT, THE UNABSORBED DEPRECIATION LOSSES CARRIED FORWARD TO EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR IN WHICH THE DEPRECIATION ALLOWANCE WAS I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 23 COMPUTED IS NOT IN DIS PUTE [1994 - 95 TO 1998 - 99] . HOWEVER, THE FINDING OF THE LD. CIT(A) THAT FOR THE CURRENT YEAR 2007 - 08, THE BROUGHT FORWARD UNABSORBED DEPRECIATION LOSSES IS ELIGIBLE IS FOUND TO BE INCORRECT SINCE THE RECKONING OF EIGHT YEARS PERIOD END BY 2006 - 07 AND THEREF ORE, FOR THE ASSESSMENT 2007 - 08, WHICH IS CURRENT ASSESSMENT YEAR, THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING THE DEPRECIATION LOSS. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS ALLOWED. 3 7 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN I.T.A. NO . 2124/ MDS/2014 FOR THE ASSESSMENT YEARS 2005 - 06 IS DISMISSED AND I.T.A. NO. 2125/MDS/2014 FOR THE ASSESSMENT YEAR 2007 - 08 IS PARTLY ALLOWED. I.T.A. NOS. 880/MDS/2010 : [ A.Y. 2007 - 08] 3 8 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 30.10.2007 ADMITTING TOTAL INCOME AT NIL UNDER THE NORMAL PROVISIONS OF THE ACT AND AT .866,51,40,625/ - UNDER THE PROVISIONS OF SECTION 115JB OF THE AC T. AFTER DUE PROCESS, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT DETERMINING TOTAL INCOME AT .790,48,75,820/ - AND BOOK PROFITS UNDER SECTION 115JB OF THE ACT AT .1357,97,1 2,285/ - AND MADE VARIOUS DISALLOWANCES/ ADDITIONS. 3 9 . THE FIRST ISSUE RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO DEPRECIATION ON VALUE OF ASSETS TAKEN OVER FROM BANK OF THANJAVUR [BOT] BY ADOPTING WRITTEN DOWN VALUE [WDV] OF ASSETS TAKEN OVE R FROM BOT IGNORING I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 24 THE VALUE ADOPTED IN THE TAKEN OVER SCHEME APPROVED BY THE RESERVE BANK OF INDIA [RBI]. 40 . AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS GROUND AND ENDORSED IN THE GROUNDS OF APPEAL OF THE ASSESSEE AS NOT PRESSED . ACCORDINGLY, THE GROUND IS DISMISSED AS NOT PRESSED. 4 1 . THE SECOND ISSUE RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO DISALLOWANCE OF BAD DEBTS WRITTEN OFF [TECHNICAL WRITE - OFF] UNDER SECTION 36(1)(VII) AMOUNTING TO .136,31,0 0,000/ - . THE ASSESSING OFFICER MADE DISALLOWANCE ON THE GROUND THAT THESE DEBTS WERE NOT ACTUALLY WRITTEN OFF AT BRANCH LEVEL. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE VERY FACT THAT THESE DEBTS CONTINUED TO APPEAR IN THE BOOKS OF THE BRANCHES MAK E IT CLEAR THAT THE ASSESSEE COULD NOT TERM THESE AMOUNTS AS IRRECOVERABLE. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT THIS AMOUNTS TO WRITE OFF AND THE DEDUCTION CLAIMED SHOULD BE ALLOWED. HOWEVER, THE ASSESSING OFFICER HAS NOT AGREED WITH T HE PLEA OF THE ASSESSEE AND MADE THE DISALLOWANCE. 4 2 . ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 4 3 . ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E THE TRIBUNAL AND SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 25 DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN I.T.A. NO. 1082/MDS/2003 VIDE ORDER DATED 30.06.2011. 4 4 . WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE TRIBUNAL, WHILE DECIDING THE GROUP CASES OF THE ASSESSEE IN I.T.A. NOS. 470 TO 472/MDS/2010 FOR THE ASSESSMENT YEARS 2004 - 05 TO 2006 - 07 VIDE ORDER DATED 11.06.2012, HAS FOLLOWED ITS OWN DECIS ION IN I.T.A. NO. 1082/MDS/2003 DATED 30.06.2011, WHEREIN, THE ISSUE STANDS SETTLED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF VIJAYA BANK V. CIT 323 ITR 166 AND THE TRIBUNAL IN ITS ORDER DATED 11.06.2012 HAS HELD AS UNDER: 11. WE HAVE PERUSED THE ORDERS OF LOWER AUTHORITIES AND HEARD THE RIVAL CONTENTIONS. WE FIND THAT THE ISSUE REGARDING ALLOWANCE OF BAD DEBTS WRITTEN OFF ON TECHNICAL REASONS STAND DECIDED IN FAVOUR OF ASSESSEE BY THIS TRIBUNAL IN ITA NO.1082/M DS/2003 FOR ASSESSMENT YEAR 1998 - 99. IT WAS HELD BY THIS TRIBUNAL AT PARA NOS. 43 & 44 OF ITS ORDER DATED 30/06/11 AS UNDER: - I.T.A. NO. 1082/MDS/2003 42. FIRST ISSUE RAISED BY THE ASSESSEE IS REGARDING DISALLOWANCE OF ITS CLAIM FOR BAD DEBT TECHNIC AL WRITE OFF. 43. A.O. HAD DISALLOWED A PART OF THE CLAIM OF BAD DEBT ON A REASONING THAT THE WRITE - OFF WAS PURELY TECHNICAL, SINCE ASSESSEE HAD NOT REDUCED THE WRITTEN OFF AMOUNTS FROM THE INDIVIDUAL DEBTORS ACCOUNT, THOUGH THE TOTAL AMOUNT OF WRITE - OFF WAS DEDUCTED FROM TOTAL OF THE ADVANCES. 44. WE FIND THIS ISSUE NOW STANDS SETTLED IN FAVOUR OF THE ASSESSEE BY HON'BLE APEX COURT, VIDE ITS DECISION IN VIJAYA BANK V. CIT (323 ITR 166). CRUX OF THIS DECISION AS APPEARING FROM THE HEAD NOTE RUNS AS UNDE R: - BUSINESS EXPENDITURE BAD DEBT DEBT WRITTEN OFF IN THE BOOKS AFTER INSERTION OF EXPLANATION TO S. 36(1)(VII), ASSESSEE IS REQUIRED NOT ONLY TO DEBIT THE P&L A/C BUT SIMULTANEOUSLY ALSO - REDUCE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSETS S IDE OF THE BALANCE SHEET TO THE EXTENT OF THE I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 26 CORRESPONDING AMOUNT SO THAT AT THE END OF THE YEAR THE AMOUNT OF LOANS AND ADVANCES/DEBTORS IS SHOWN AS NET OF PROVISION FOR IMPUGNED BAD DEBT IN THE INSTANT CASE, BESIDES DEBITING THE P&L A/C AND CREATING A PROVISION FOR BAD AND DOUBTFUL DEBTS, THE ASSESSEE BANK HAD SIMULTANEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTORS ON THE ASSETS SIDE OF THE BALANCE SHEET AND CONSEQUENTLY, AT T HE END OF THE YEAR, THE FIGURE OF LOANS AND ADVANCES/DEBTORS WAS SHOWN AS NET OF THE PROVISION THEREFORE, ASSESSEE IS ENTITLED TO BENEFIT OF DEDUCTION UNDER S. 36(1)(VII) CONTENTION THAT IT IS IMPERATIVE FOR THE ASSESSEE - BANK TO CLOSE THE INDIVIDUAL AC COUNT OF EACH DEBTOR IN ITS BOOKS AND A MERE REDUCTION IN THE LOANS AND ADVANCES ACCOUNT OR DEBTORS TO THE EXTENT OF THE PROVISION FOR BAD AND DOUBTFUL DEBT IS NOT SUFFICIENT, IS NOT SUSTAINABLE APPREHENSION THAT IF THE ASSESSEE FAILS TO CLOSE EACH AND EVERY INDIVIDUAL ACCOUNT OF ITS DEBTORS, IT MAY RESULT IN CLAIMING DEDUCTION TWICE OVER IS NOT CORRECT IT IS ALWAYS OPEN TO THE AO TO CALL FOR DETAILS OF INDIVIDUAL DEBTOR S ACCOUNT IF HE HAS REASONABLE GROUNDS TO BELIEVE THAT THE ASSESSEE HAS CLAIMED D EDUCTION TWICE OVER CONTENTION THAT WHERE A BORROWER S ACCOUNT IS WRITTEN OFF BY DEBITING P&L A/C AND CREDITING LOANS AND ADVANCES OR DEBTORS ACCOUNT, IT WOULD RESULT IN ESCAPEMENT OF INCOME FROM ASSESSMENT IF THE BORROWER REPAYS THE LOAN IN THE SUBSEQUE NT YEARS AS THE ASSESSEE WOULD CREDIT THE REPAID AMOUNT TO LOANS AND ADVANCES ACCOUNT AND NOT TO THE P&L A/C HAS NO MERIT IN SUCH CIRCUMSTANCES THE AMOUNTS ARE DULY OFFERED FOR TAX AND THE AO IS SUFFICIENTLY EMPOWERED TO TAX SUCH SUBSEQUENT REPAYMENTS UN DER S. 41(4). HENCE THIS ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE DECISION OF CO - ORDINATE BENCH OF THIS TRIBUNAL, WE ARE INCLINED TO ALLOW THE CLAIM OF ASSESSEE. THIS ISSUE IS DECIDED IN FAVOUR OF ASSESSEE. 4 5 . RESP ECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, WHEREIN THE DECISION OF THE HON BLE SUPREME COURT IS FOLLOWED, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE ON THIS ISSUE. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 4 6 . THE THIRD ISSUE RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF ( - ) .2,93,85,647/ - [ WRONGLY MENTIONED AS .4,21,43,054/ - IN CIT(A) S ORDER] TOWARDS BROKEN PERI OD INTEREST PAID ON PURCHASE OF I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 27 SECURITIES. THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE ABOVE AMOUNT REPRESENTS INTEREST PAID ON PURCHASE OF INVESTMENTS WHICH IS ITS STOCK - IN - TRADE. IT WAS ALSO SUBMITTED THAT THE SAID INTEREST HAS BEEN PAID FROM THE LAST DUE DATE OF PAYMENT OF INTEREST FOR THE SECURITY TO THE DATE OF PURCHASE AND FURTHER SUBMITTED THAT THE ENTIRE INTEREST PAID IS ALLOWABLE AS REVENUE EXPENDITURE SINCE IT IS INCURRED FOR PURCHASE OF STOCK - IN - TRADE. AFTER EXAMINING THE IS SUE, THE ASSESSING OFFICER HAS WORKED OUT THE COMPUTATION OF THE BROKEN PERIOD INTEREST IN THE ASSESSMENT ORDER AND REPRODUCED HEREUNDER: BROKEN PERIOD INTEREST ON SECURITIES HELD AS CLOSING STOCK IS OF .4,21,43,054/ - . AS AGAINST THIS, THE INTEREST DISALL OWED ON SECURITIES HELD AS CLOSING STOCK AMOUNTING TO .7,15,28,701/ - IN ASSESSMENT FOR 06 - 07 VIDE ORDER DATED 31.12.2007 IS TO BE ALLOWED, SINCE THE ASSESSEE BANK HAD SOLD THESE SECURITIES DURING THE FINANCIAL YEAR 2006 - 07. BROKEN PERIOD INT E REST ON CLOS ING STOCK AS ON 31.3.2007 TO BE ADDED : .4,21,43,054 BROKEN PERIOD INTEREST ON OPENING STOCK SOLD TO BE ALLOWED : .7,15,28,701 NET BROKEN PERIOD INTEREST TO BE ALLOWED IN THE ASSESSMENT : ( - ) .293,85,647 THUS, THE BROKEN PERIOD INTEREST ON CLOSING S TOCK OVER AND ABOVE THE BROKEN PERIOD INTEREST RELATING TO OPENING STOCK SOLD DURING THE YEAR IS CONSIDERED FOR DEDUCTION FOR ASSESSMENT PURPOSES, AS COMPUTED ABOVE. ( - ) .293,85,647/ - 4 7 . ON APPEAL, THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE TRIBU NAL IN I.T.A. NO. 980/MDS/2003 DATED 25.10.2007 FOR THE ASSESSMENT YEAR 1986 - 87, PARTLY ALLOWED THE GROUND RAISED BY THE ASSESSEE, WHEREIN, THE TRIBUNAL I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 28 HAS REMITTED THE ISSUE BACK TO THE ASSESSING OFFICER TO DETERMINE THE ALLOWABILITY BASED ON THE CLASSIF ICATION MADE. 4 8 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS ON RECORD. WITH REGARD TO THE CLAIM OF BROKEN PERIOD INTEREST PAID ON PURCHASE OF SECURITIES AS REVENUE EXPENDITURE, WE FIND THAT ISSUE INVOLVED IN THIS APPEAL IS SQUARELY C OVERED BY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, IN ASSESSEE S OWN CASE IN I.T.A. NOS. 470 TO 472/MDS/2010 FOR THE ASSESSMENT YEARS 2004 - 05 TO 2006 - 07 VIDE ORDER DATED 11.06.2012, WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER: 8. WE HAVE PER USED THE ORDERS OF THE AUTHORITIES BELOW AND HEARD THE RIVAL CONTENTIONS. ISSUE IS REGARDING TREATMENT OF AMOUNT PAID BY ASSESSEE TO TRANSFERORS OF SECURITIES, TOWARDS INTEREST ACCRUED AS ON THE DATE OF TRANSFER. HON BLE MUMBAI HIGH COURT IN THE CASE OF AM ERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS. C.I.T. IN 258 ITR 60 HAS CLEARLY HELD THAT WHEN INTEREST RECEIVED BY AN ASSESSEE, FROM TRANSFEREES FOR BROKEN PERIOD IS INCLUDED UNDER THE HEAD BUSINESS INCOME , AMOUNTS PAID BY THE ASSESSEE TO THE TRAN SFERORS FOR BROKEN PERIODS COULD NOT HAVE BEEN DISALLOWED. THIS VIEW WAS REITERATED IN THE CASE OF UNION BANK OF INDIA REFERRED TO SUPRA. HON BLE APEX COURT HAD DISMISSED THE SPECIAL LEAVE PETITION FILED BY THE DEPARTMENT AGAINST SUCH JUDGEMENT OF ORDER OF MUMBAI HIGH COURT ON 27.01.2004 (SLP(C) NO.3710 OF 2004). THEREFORE, EVEN THOUGH IT WAS EARLIER DECIDED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 1996 - 97 IN ITA NO.1901/MDS/04 DATED 25.10.07, THAT BROKEN PERIOD INTEREST COULD NOT BE CONS IDERED AS REVENUE EXPENDITURE BUT HAD TO BE TAKEN AS CAPITAL OUTLAY WHEN PAID FOR ACQUIRING SECURITIES, IN VIEW OF THE LATER DECISIONS OF HON BLE MUMBAI HIGH COURT MENTIONED SUPRA, SUCH BROKEN PERIOD INTEREST HAS TO BE ALLOWED. WE WOULD PREFER TO FOLLOW TH E DECISION OF THE HON BLE MUMBAI HIGH COURT, SINCE SPECIAL LEAVE PETITION FILED BY THE DEPARTMENT AGAINST SUCH DECISION IN THE CASE OF UNION BANK OF INDIA (SUPRA) WAS DISMISSED BY HON BLE APEX COURT. THUS, THIS ISSUE IS DECIDED IN FAVOUR OF ASSESSEE. 4 9 . FURTHER , WE ALSO FIND THAT THE HON BLE JURISDICTIONAL HIGH COURT IN ASSESSEE S OWN CASE IN T.C.(A) NO. 417 OF 2008 VIDE ORDER DATED I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 29 11.02.2014 DECIDED THE ABOVE ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY, FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL AS WELL AS THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 50 . THE FOURTH ISSUE RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF DEDUCTION CLAIMED IN RESPECT OF MARKET RISK AMOUNTING TO .103,00,00,000/ - . THE ASSESSEE HAS MADE A PROVISION FOR MARKET RISK. IT IS CONTINGENT IN NATURE TO COVER ANY FURTHER RISK THAT COULD ARISE IN FUTURE. SINCE CONTINGENT LIABILITIES ARE NOT ALLOWABLE, THE CLAIM OF PROVISIONS MA D E FOR MARKET RISK BY THE ASSES SEE WA S DISALLOWED BY THE ASSESSING OFFICER. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5 1 . WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THE ASSES SMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE BANK HAS ALREADY CLAIMED DEPRECIATION ON INVESTMENTS ON SECURITIES WHICH ARE MARKED TO MARKET. THIS CLAIM OF PROVISION IS OVER AND ABOVE THE DEPRECIATION WHICH WAS ALREADY ALLOWED AND MADE ON AD - HOC BASIS. SINCE IT IS A CONTINGENT IN NATURE AND CONTINGENT LIABILITIES ARE NOT ALLOWABLE, THE CLAIM MADE BY THE ASSESSEE WAS I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 30 DISALLOWED. T HE LD. CIT(A) HAS OBSERVED THAT IN THE ABSENCE OF SPECIFIC PROVISIONS UNDER THE INCOME TAX ACT, THE SAID AMOUNT CANNOT B E ALLOWED AS DEDUCTION. THOUGH, IT IS A FACT THAT THE ASSESSEE HAS MADE THE PROVISION IN ACCORDANCE WITH THE RBI GUIDELINES, BUT THE HON BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (187 TAXMAN 346), HAS HELD THAT THE RBI DIRECTIONS AND THE INCOME TAX ACT OPERATE IN DIFFERENT FIELDS. THEREFORE, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HENCE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A), WE UPHOLD THE ORDER THE ORDER OF THE LD. CIT(A) AND THUS, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 5 2 . THE FIFTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE PERTAINS TO THE DEDUCTION CLAIMED IN RESPECT OF PROVISION FOR NON PERFORMING INVESTMENTS AMOUNTING T O .14,97,23,523/ - . IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE REDUCTION IN VALUE OF INVESTMENTS IS RECOGNIZED AS THE PROVISION FOR NON PERFORMING INVESTMENTS IS MANDATED BY RBI GUIDELINES AND ALSO SUBMITTED THAT AS THE INVESTMENTS ARE HELD BY TH E BANK AS STOCK IN TRADE, ANY DECLINE IN THE VALUE OF INVESTMENT IS AN ALLOWABLE DEDUCTION, WHICH WAS RECOGNIZED IN TERMS OF RBI PRUDENTIAL GUIDELINES. SINCE THE PROVISION MADE IN THIS CASE IS OVER AND ABOVE THE ACTUAL REDUCTION IN VALUE, THE ASSESSING OFF ICER HAS NOT ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND MADE THE DISALLOWANCE. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 31 5 3 . ON APPEAL, THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 5 4 . AFTER HEARING BOTH SIDES, WE FIND THAT THE LD. CIT(A), AFTER CONSIDERING THE DETAILS SUBMISSIONS, HAS OBSERVED AS UNDER: 9.1 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE LEARNED AR. I AM UNABLE TO AGREE WITH THE CONTENTIONS OF THE LEARNED AR. THE AMOUNT REPRESENTS ONLY A PROVISION MADE FOR A PROBABLE FUTURE LOSS ON AN ESTIMATED BASIS. IT IS NOT AN ACTUAL LOSS INCURRED DURING THE YEAR. THE APPELLANT HAS ONLY MADE A PROVISION IN ACCORDANCE WITH RBI GUIDELINES. IN THE ABSENCE OF SPECIFIC PROVISIONS UNDER TH E INCOME TAX ACT, AS IN THE CASE OF SECTION 36(1)(VIIA), WHERE THE PROVISION MADE BY THE APPELLANT FOR BAD AND DOUBTFUL DEBTS IS ALLOWED AS DEDUCTION, THE PROVISION MADE FOR NON PERFORMING INVESTMENTS CANNOT BE ALLOWED AS DEDUCTION. WITH REGARD TO THE RELI ANCE PLACED BY THE APPELLANT IN THE CASE OF NAINITAL BANK (SUPRA), I HAVE ALREADY HELD THAT THE SAID DECISION IS NOT APPLICABLE IN PARAS 4.1 AND 8.1 OF THE ORDER. FOR THE REASONS GIVEN THEREIN, THE ABOVE DECISION WOULD NOT HELP THE CAUSE OF THE APPELLANT. THEREFORE, THIS GROUND OF APPEAL IS DISMISSED. SIMILARLY, THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF T.N. POWER FINANCE AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. V. JCIT [2006] 280 ITR 491, HAS HELD AS UNDER: HELD, THAT MERELY BECAUSE THE RESERVE BANK OF INDIA HAD DIRECTED THE ASSESSEE TO PROVIDE FOR NON - PERFORMING ASSETS, THAT DIRECTION COULD NOT OVERRIDE THE MANDATORY PROVISIONS OF THE INCOME TAX ACT CONTAINED IN SECTION 36(1 ) (VIIA) WHICH STIPULATE A DEDUCTION NOT EXCEEDING 5 PER CE NT. OF THE TOTAL INCOME ONLY IN RESPECT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS WHICH ARE PREDOMINATELY REVENUE IN NATURE OR TRADE RELATED AND NOT FOR PROVISION FOR NON - PERFORMING ASS E TS WHICH ARE OF PREDOMINATELY CAPITAL NATURE. THE ASSESSEE WAS NOT E NTITLED TO DEDUCTION, IN VIEW OF THE EXPLANATION TO SECTION 36(1)(VII) WHICH SAYS THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE IS NOT AN ALLOWABLE DEDUCTION. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 32 55. IN VIEW OF THE ABOVE DECISION OF HON BLE JURISDICTION AL HIGH COURT (SUPRA), W E FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 5 6 . THE SIXTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE M ADE UNDER RULE 8D R.W.S. 14A. THE ASSESSEE HAS CLAIMED A SUM OF .3,25,31,015/ - AS INCOME EXEMPT UNDER THE PROVISIONS OF THE ACT. THE ASSESSEE HAS CONTENDED BEFORE THE ASSESSING OFFICER THAT ONLY IF SPECIFIC EXPENDITURE IS INCURRED IN EARNING EXEMPT INCOME, THE SAME CAN BE ADDED BACK UNDER SECTION 14A OF THE ACT. THE A SSESSEE HAS ALSO SUBMITTED THAT THE DISALLOWANCE UNDER SECTION 14A HAS BEEN MADE BY THE BANK AS DECIDED BY THE TRIBUNAL IN THE EARLIER ASSESSMENT YEARS @ 2% OF THE EXEMPT INCOME AND THE SAME DISALLOWANCE PERCENTAGE SHALL BE FOLLOWED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER HAS OBSERVED THAT RULE 8D PRESCRIBES TO ARRIVE AT THE FIGURE OF EXPENDITURE ATTRIBUTABLE TO THE EXEMPT INCOME, IF IT COULD NOT ARRIVED AT DIRECTLY. THE CASE OF THE ASSESSEE IS SIMILAR TO THE ABOVE PRESCRIP TIONS SINCE THE ASSESSEE S INVESTMENTS AND PAYMENT OF INTEREST, THE COMPONENT OF MANAGERIAL REMUNERATION AND OTHER STAFF EXPENSES ARE INTERLINKED AND IT WOULD BE DIFFICULT TO ALLOCATE INDIVIDUALLY, THE ASSESSING OFFICER WORKED OUT THE EXPENDITURE OF .14,2 7,99,714/ - IN VIEW OF THE PROVISIONS OF RULE 8D AND DISALLOWED THE EXPENDITURE UNDER SECTION 14A OF THE ACT. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 33 5 7 . ON APPEAL, THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF ITAT, MUM BAI IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (26 SOT 303), WHEREIN THE TRIBUNAL HAS DECIDED THE ISSUE AGAINST THE ASSESSEE, DISMISSED THE GROUND RAISED BY THE ASSESSEE. 5 8 . WE HAVE HEARD BOTH SIDES AND PERUSED THE MATERIALS ON RECORD. T HE DISALLO WANCE UNDER SECTION 14A OF THE ACT HAS BEEN DECIDED BY THE TRIBUNAL IN THE EARLIER ASSESSMENT YEARS @ 2% OF THE EXEMPT INCOME AND THEREFORE, THE ASSESSEE HAS PLEADED THAT THE SAME DISALLOWANCE PERCENTAGE SHALL BE FOLLOWED. HOWEVER, THE LD. CIT(A) BY FOLLOW ING THE SPECIAL BENCH OF ITAT, MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE HON BLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DCIT IN 328 ITR 81 HAS HELD THAT RULE 8D COULD NOT BE APPLIED PROSPECTIVELY BUT ONLY FROM THE ASSESSMENT YEAR 2008 - 09. IN VIEW OF THE ABOVE DECISION OF THE HON BLE MUMBAI HIGH COURT, THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN I.T.A. NOS. 470 TO 472/MDS/2010 FOR THE ASSESSMENT YEARS 2004 - 05 TO 2006 - 07 VIDE ORDER DATED 11.06.2012 HAS OBSERVED THAT RULE 8D SHALL BE APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2008 - 09. HOWEVER, WE FIND THAT THOUGH RULE 8D IS A PPLICABLE FROM THE ASSESSMENT YEAR 2008 - 09, THE HON BLE MUMBAI I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 34 HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DCIT (SUPRA) STATES THAT APPLICATION OF PROVISIONS OF 14A ARE 'CONSTITUTIONALLY VALID' AND PROVISIONS OF S ECTION 14A ARE STILL APPLICAB LE FOR EARLIER ASSESSMENT YEARS AND THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE EXPENDITURE BY ADOPTING A REASONABLE BASIS OR METHOD . ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DISALLOW ONLY 2% OF GROSS DIVIDEND RECEIVED TOWARDS EXPENDITURE FOR EARNING SUCH DIVIDEND INCOME. THUS, THE GROUND RAISED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 5 9 . THE SEVENTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF BAD DEBTS WRITTEN OFF OF .51,95,64,198/ - AGAINST THE PROVISIONS MADE BY THE ASSESSEE. THE ASSESSING OFFICER, BY FOLLOWING EARLIER ASSESSMENT ORDERS ON THIS ISSUE, HAS HELD THAT THE WRITE OFF IS DEEMED TO HAVE BEEN ADJUSTED AGAINST THE PROVISIONS UNDER SECTION 36(1)(VIIA), WHICH W AS ALREADY ALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE AND SINCE THE DEPARTMENT HAS FILED SLP BEFORE THE HON BLE SUPREME COURT AGAINST THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF CITY UNION BANK 291 ITR 144 , THE ABOVE DISALL OWANCES WERE MADE . 60 . ON APPEAL, BEFORE THE LD. CIT(A), THE ASSESSEE HAS CONTENDED THAT THE PROVISIONS OF SECTION 36(1)(VII) AND SECTION 36(1)(VIIA) ARE INDEPENDENT AND UNLESS CREDIT BALANCES IN RESPECT OF ACCOUNTS WRITTEN OFF AS BAD DEBTS IS I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 35 MAINTAINE D IN THE BOOKS OF THE BANK AS PER PROVISIONS UNDER SECTION 36(1)(VIIA), NO DISALLOWANCE CAN BE MADE. HOWEVER, THE LD. CIT(A), BY FOLLOWING THE EARLIER ORDER PASSED IN THE ASSESSMENT YEAR 2006 - 07, DIRECTED THE ASSESSING OFFICER TO VERIFY THE CLAIM FOR THE A SSESSMENT YEAR UNDER CONSIDERATION AND ALLOW THE SAME AFTER ENSURING THAT NO DOUBLE DEDUCTION IS ALLOWED. 6 1 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION IN THE CASE OF CATHOLIC SYRIAN BANK LTD. V. CIT 343 ITR 270 (SC). ON TH E OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6 2 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AGAINST THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, THE LD. CIT(A) BY FOLLOWING THE ORDER PASSED FOR THE ASSESSMENT YEAR 2006 - 07, DIRE CTED THE ASSESSING OFFICER TO VERIFY THE CLAIM FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND ALLOW THE SAME AFTER ENSURING THAT NO DOUBLE DEDUCTION IS ALLOWED. WITH REGARD TO THE ABOVE ISSUE, FOR THE ASSESSMENT YEAR 2006 - 07, THE ASSESSEE HAS FILED APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL, WHILE DECIDING THE APPEALS FOR THE ASSESSMENT YEARS 2004 - 05 TO 2006 - 07, BY FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. V. CIT (SUPRA), HAS OBSERVED AS UNDER: 14. WE FI ND THAT DISALLOWANCE WAS MADE BY ASSESSING OFFICER FOR A REASON THAT BAD DEBTS WERE WRITTEN OFF AGAINST A PROVISION. AS PER THE ASSESSING OFFICER, ASSESSEE WAS ALLOWED ITS CLAIM OF PROVISIONS FOR BAD I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 36 DEBTS UNDER SECTION 36(1)(VIIA). ASSESSING OFFICER WAS O F THE OPINION THAT PROVISO TO SECTION 36(1)(VII) WAS APPLICABLE TO BOTH FOR BAD DEBTS ARISING FROM RURAL AND NON - RURAL ADVANCES. IN OUR OPINION THIS ISSUE STANDS RESOLVED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF ORDER OF APEX COURT IN THE CASE OF CATH OLIC SYRIAN BANK LTD(SUPRA). IT WAS HELD BY THE APEX COURT AT PARA 41 OF ITS JUDGEMENT THAT PROVISION OF SEC 36(1)(VII) AND 36(1)(VIIA) OF THE ACT WERE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTION AND OPERATED IN THEIR RESPECTIVE FIELDS. BAD DEBTS WRITTEN O FF, OTHER THAN THOSE FOR WHICH A PROVISION WAS MADE UNDER CLAUSE - (VIIA) WOULD BE COVERED UNDER THE MAIN PART OF SECTION 36(1)(VII), WHILE THE PROVISO WOULD OPERATE TO CASES FALLING IN CLAUSE - (VIIA), SO AS TO LIMIT THE DEDUCTION TO THE EXTENT OF DIFFERENCE BETWEEN THE DEBT OR PART THEREOF WRITTEN OFF IN THE PREVIOUS YEAR, AND CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA). APEX COURT FURTHER HELD THAT PROVISO WOULD NOT PERMIT A BENEFIT OF DOUBLE DEDUCTION, OPERATI NG WITH REFERENCE TO RURAL LOANS, SINCE UNDER SECTION 36(1)(VII), AN ASSESSEE WOULD BE ENTITLED TO GENERAL DEDUCTION UPON AN ACCOUNT BECOMING BAD AND BEING WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS. NO DOUBT, THE REQUIREMENTS OF SEC.36(2) HAS TO BE SATI SFIED. HON BLE APEX COURT HAD REMITTED THE ISSUE BACK TO THE ASSESSING OFFICER FOR CONSIDERATION IN ACCORDANCE WITH LAW AS ENUNCIATED IN ITS JUDGEMENT. THEREFORE, WE ARE OF THE OPINION THAT THE ISSUE REGARDING WRITE - OFF OF BAD DEBTS RAISED BY ASSESSEE IN I TS GROUND NO.4 FOR ASSESSMENT YEARS 2004 - 05 AND 2006 - 07 AND AS GROUND NO.3 FOR ASSESSMENT YEAR 2005 - 06 REQUIRES RECONSIDERATION BY THE ASSESSING OFFICER, IN THE LIGHT OF JUDGMENT OF THE APEX COURT IN CATHOLIC SYRIAN BANK LTD S CASE (SUPRA). ACCORDINGLY, TH ESE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES AND REMITTED BACK TO THE FILE OF ASSESSING OFFICER FOR CONSIDERATION AFRESH. 6 3 . RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE, WE DIRECT THE ASSE SSING OFFICER TO VERIFY WHETHER THE REQUIREMENTS OF SECTION 36(2) OF THE ACT IS SATISFIED OR NOT AND DECIDE THE ISSUE AFRESH BY TAKING INTO CONSIDERATION OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK V. CIT (SUPRA) AND AL SO THERE CANNOT BE DOUBLE CLAIM BY THE ASSESSEE . ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 37 6 4 . THE EIGHTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF DEDUCTION UNDER SECTION 35D OF THE ACT AMOUNTING TO .4,50,03,133/ - . THE ASSESSEE HAS CLAIMED A SUM OF .4,50,03,133/ - AS ONE FIFTH OF THE SHARE ISSUED EXPENSE INCURRED TOWARDS THE INITIAL PUBLIC OFFER OF .22,50,15,663/ - . BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS SUBMITTED THAT DURIN G THE YEAR UNDER CONSIDERATION, THE BANK HAD COME OUT WITH INITIAL PUBLIC OFFER TO RAISE CAPITAL OF .429.77 CRORES OF WHICH ISSUED TO CENTRAL GOVERNMENT IS .342.82 CRORES AND TO PUBLIC .85.95 CRORES. THE BANK HAS ALSO CREDITED .696.19 CRORES TO THE CAP ITAL RESERVE ACCOUNT BEING THE SHARE PREMIUM IN THE IPO PROCESS. THIS CAPITAL WAS RAISED MAINLY TOWARDS INCREASING THE CAPITAL BASE IN ORDER TO ACHIEVE THE CAPITAL ADEQUACY RATIO AS PRESCRIBED BY THE RBI. THE ASSESSEE S COUNSEL HAS SUBMITTED BEFORE THE ASS ESSING OFFICER THAT THIS CAPITAL WAS USED TO START NEW BRANCHES IN RURAL AREAS. IN VIEW OF THE PROVISIONS OF SECTION 35D(1) OF THE ACT, THE ASSESSING OFFICER HAS OBSERVED THAT THE CLAIM OF AMORTIZATION IS ALLOWABLE ONLY TO AN INDUSTRIAL UNDERTAKING WHERE T HE CLAIM IS IN RESPECT OF EXPENDITURE MADE AFTER COMMENCEMENT OF BUSINESS. SINCE THE ASSESSEE BANK IS NOT AN INDUSTRIAL UNDERTAKING, THE ASSESSING OFFICER HAS HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING AMORTIZATION AND ACCORDINGLY DISALLOWED THE C LAIM OF THE ASSESSEE. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 38 6 5 . ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 6 6 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT ASSESSEE BEING A P UBLIC SECTOR BANK REMAIN AN INDUSTRIAL UNDERTAKING AND THE AMENDMENT IN SECTION 35D WOULD ONLY STRENGTHEN THE CLAIM OF THE ASSESSEE. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6 7 . WE HAVE HEARD BOTH SIDES AND PERUSED THE MAT ERIALS ON RECORD. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 35 D OF THE ACT ON THE GROUND THAT THE ASSESSEE HAD ALREADY COMMENCED HIS BUSINESS AND THE DEDUCTION WITH REGARD TO EXTENSION OF THE INDUSTRIAL UNDERTAKING IS NOT APP LICABLE TO THE ASSESSEE SINCE IT IS NOT AN INDUSTRIAL UNDERTAKING. BEFORE THE LD. CIT(A), THE ASSESSEE HAS SUBMITTED THAT THE BANKS ARE CLASSIFIED ONLY UNDER SERVICE SECTOR AND IN VIEW OF THE AMENDMENT IN THE FINANCE ACT, 2008, THE BENEFIT OF DEDUCTION UND ER SECTION 35D SHOULD BE EXTENDED TO THE ASSESSEE. HOWEVER, THE LD. CIT(A) HAS OBSERVED THAT THE AMENDMENT MADE IN THE FINANCE ACT, 2008 IS EFFECTIVE FROM THE ASSESSMENT YEAR 2009 - 10 AND THE SAME CANNOT BE MADE APPLICABLE FOR THE ASSESSMENT YEAR 2007 - 08. A CCORDINGLY , WE DISMISS THE GROUND RAISED BY THE ASSESSEE. 6 8 . THE NINTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO APPLICABILITY OF BOOK PROFITS TO THE BANK. THE ASSESSEE HAS DEBITED AN I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 39 AMOUNT OF .59,88,26,349/ - AS PROVISIONS AND CON TINGENCIES. THE PROVISIONS OF SECTION 115JB REQUIRE THAT IN COMPUTING BOOK PROFITS, THE PROVISION FOR UNASCERTAINED LIABILITY, CONTINGENT LIABILITIES AND DIMINUTION IN VALUE OF ASSETS SHOULD BE ADDED AND THE ASSESSEE WAS ASKED TO FURNISH DETAILS. AFTER CON SIDERING THE DETAILED SUBMISSIONS, THE ASSESSING OFFICER HAS OBSERVED THAT THE PROVISION MADE FOR CLAIMS MADE AGAINST THE BANK AS UN ASCERTAINED LIABILITIES CANNOT BE ACCEPTED AS THE SAME IS NOT MADE ON SCIENTIFIC METHOD OF WORKINGS AND MADE THE DISALLOWANC E. 6 9 . ON APPEAL, THE LD. CIT(A), BY FOLLOWING EARLIER ORDER PASSED IN THE ASSESSMENT YEAR 2006 - 07, HAS HELD THAT THE PROVISIONS OF SECTION 115JB W OULD NOT APPLY TO ASSESSEE S CASE AND DISMISSED THE GROUND RAISED BY THE ASSESSEE. 70 . BEFORE US, THE L D. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 71 . WE HAVE HEARD RIVAL CONTENTIONS. THE LD. CIT(A) , BY FOLLOWING HIS OWN ORDER IN THE ASSESSMENT YEAR 2006 - 07, HAS HELD THAT THE PROVISIONS OF SECTION 115JB WILL NOT APPLY TO ASSESSEE S CASE IS NOT CORRECT. FOR THE VERY SAME ASSESSMENT YEAR, THE ASSESSEE HAS PR EFERRED AN APPEAL BEFORE THE I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 40 TRIBUNAL AND THE TRIBUNAL IN THE CONSOLIDATED ORDER PASSED FOR THE ASSESSMENT YEAR 2004 - 05 TO 2006 - 07 HAS OBSERVED AS UNDER: 20. WE HAVE PERUSED THE ORDERS OF LOWER AUTHORITIES AND HEARD THE RIVAL CONTENTIONS. WE FIND THAT TH E ISSUE REGARDING APPLICABILITY OF SEC.115JB ON A BANK GOVERNED BY BANK REGULATION ACT HAD COMING UP BEFO R E A CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2000 - 01. IT WAS HELD BY THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN IT S ORDER DATED 3RD APRIL, 2011 AS UNDER: - 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ONLY DISPUTE RAISED BY THE ASSESSEE IS THAT SINCE IT IS A BAN K AND IS REQUIRED TO PREPARE ITS ACCOUNTS ACCORDING TO BANKING REGULATION ACT, 1949 AND NOT ACCORDING TO SCHEDULE VI PART II AND III OF THE COMPANIES ACT, 1956, THE PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE TO IT WHILE COMPUTING THE INCOME UNDER MAT. WE FIND THAT RECENTLY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF IN THE CASE OF KRUNG THAI BANK PCL VS. JOINT DIRECTOR OF INCOME TAX [INTERNATIONAL TAXATION] [2010] 45 DTR 218 HAS HELD HAS UNDER: 7. THE PLEA OF THE ASSESSEE IS INDEED WELL TAKEN, AN D IT MEETS OUR APPROVAL. THE PROVISIONS OF S. 115JB CAN ONLY COME INTO PLAY WHEN THE ASSESSEE IS REQUIRED TO PREPARE ITS P&L A/C IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCH. VI TO THE COMPANIES ACT. THE STARTING POINT OF COMPUTATION OF MAT UNDER S. 115JB IS THE RESULT SHOWN BY SUCH A P&L A/C. IN THE CASE OF BANKING COMPANIES, HOWEVER, THE PROVISIONS OF SCH. VI ARE NOT APPLICABLE IN VIEW OF EXEMPTION SET OUT UNDER PROVISO TO S. 211(2) OF THE COMPANIES ACT. THE FINAL ACCOUNTS OF THE BANKING C OMPANIES ARE REQUIRED TO BE PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE BANKING REGULATION ACT. THE PROVISIONS OF S. 115JB CANNOT THUS BE APPLIED TO THE CASE OF A BANKING COMPANY. 8. FURTHER, IT MAY BE NOTED THAT THE AUTHORITY FOR ADVANCE RULING I N THE CASE OF THE TIMKEN COMPANY, IN RE [2010 - TII - 25 - ARA - INTL AND PRAXAIR PACIFIC LTD IN RE [2010 - TII - 25 - ARA - INTL] HAS HELD THAT MAT PROVISIONS ARE APPLICABLE TO A FOREIGN COMPANY THAT DOES NOT HAVE A PHYSICAL PRESENCE IN INDIA, AS SUCH, COMPANIES ARE NOT REQUIRED TO PREPARE ITS ACCOUNTS AS PER COMPANIES ACT. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE CITED DECISIONS OF THE TRIBUNAL, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW THE APPEAL OF THE ASSESSEE ON THE GROUND THAT THE BANK IS NOT REQ UIRED TO PREPARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS OF PART II AND PART III I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 41 OF SCHEDULE VI TO THE COMPANIES ACT AND THEREFORE, THE PROVISIONS OF MAT IN SECTION 115JB IS NOT APPLICABLE TO THE ASSESSEE. RESPECTFULLY FOLLOWING T HE DECISION OF THE CO - ORDINATE BENCH, WE HOLD THAT THE PROVISIONS OF SEC.115JB COULD NOT BE APPLIED ON THE ASSESSEE. IN THE RESULT, THIS ISSUE STANDS DECIDED IN FAVOUR OF ASSESSEE. 7 2 . THE LD. DR COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND HOLD THAT THE PROVISIONS OF SECTION 115JB OF THE ACT COULD NOT BE APPLIED ON THE ASSESSEE. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 73 . THE TENTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO CONFIRMATION OF DISALLOWANCE MADE UNDER RULE 8D R.W.S. 14A IN THE COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB EVEN WHEN NO EXPENDITURE HAS BEEN A CTUALLY INCURRED BY THE ASSESSEE AND FURTHER IN THE ABSENCE OF SECTION 14A(2) & (3) IN EXPLANATION TO SECTION 115JB, RULE 8D CANNOT BE MADE APPLICABLE. T HE ELEVENTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO PROVISION MADE FOR CLAIMS AGAINST TH E BANK IN RESPECT OF SECTION 115JB OF THE ACT. 7 4 . BOTH THE ABOVE DISALLOWANCES [AT PARA 73] ARE CONSEQUENTIAL TO APPLICABILITY OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT. W E HAVE HELD AT PARA 72 OF THIS ORDER THAT THE PROVISIONS OF SECTION 115JB OF THE ACT COULD NOT BE APPLIED ON THE ASSESSEE . FOR MORE CLARITY, IN THE CASE OF SHRIRAM CAPITAL I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 42 LIMITED V. ACIT IN I.T.A. NOS. 512 & 513/MDS/2015 DATED 26.06.2015 FOR THE ASSESSMENT YEAR 2010 - 11 & 2011 - 12 , THE COORDINATE BENCH OF THE TRIBUNAL HAS OBSERVED A S UNDER: 22. WE HAVE HEARD BOTH THE PARTIES. THIS ISSUE OF DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THESE TWO ASSESSMENT YEARS BY INVOKING PROVISION U/S.14A R.W. RULE 8D, WAS ALREADY ADJUDICATED BY US IN OUR EARLIER PARA OF THIS ORDER. IN OUR OPIN ION, DISALLOWANCE MADE U/S.14A R.W. RULE 8D CANNOT BE ADDED WHILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT THAT THE DISALLOWANCE IS ONLY DISALLOWANCE FOR THE PURPOSE OF COMPUTING TAXABLE INCOME OF THE ASSESSEE IN THE NORMAL COURSE. THERE IS NO PROVISIO N IN THE ACT TO ADD THESE KIND OF DISALLOWANCE WHILE COMPUTING BOOK PROFIT U/S.115JB AND IT CANNOT CHANGE THE BOOK PROFIT ON THIS COUNT. THEREFORE EVEN IF THERE IS AN ADDITION IN VIEW OF PROVISION U/S.14A R.W. RULE 8D, THAT CANNOT BE ADDED BACK TO COMPUTE THE BOOK PROFIT U/S.115JB. THIS GROUND IS ALLOWED. 75. IN VIEW OF THE ABOVE, BOTH THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED . 7 6 . WITH REGARD TO GROUNDS NO. 12.1 AND 12.2 IN THE ASSESSMENT YEAR 2007 - 08 I.E. APPLICABILITY OF 115JB TO THE BANK, A T PARA 68 - 72 OF THIS ORDER, BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006 - 07, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND HELD THAT THE PROVISIONS OF SECTION 115JB OF THE ACT COULD NOT BE APPLIED ON THE ASSESSEE. ACCORDINGLY, OUR FINDINGS IN PARA 7 5 SHALL ALSO APPLY TO THESE GROUNDS AND T HUS, BOTH THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 7 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPO SES. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 43 I.T.A. NO. 1923/MDS/2011 [A.Y. 2008 - 09] 7 8 . THE FIRST GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION. 7 9 . THE SECOND GROUND RAISED IN THE APPEAL IS WITH REGARD TO DEPRECIATION ON VALUE OF ASSETS TA KEN OVER FROM BANK OF THANJAVUR [BOT] BY ADOPTING WRITTEN DOWN VALUE [WDV] OF ASSETS TAKEN OVER FROM BOT IGNORING THE VALUE ADOPTED IN THE TAKEN OVER SCHEME APPROVED BY THE RESERVE BANK OF INDIA [RBI]. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESS EE HAS NOT PRESSED THIS GROUND AND ENDORSED IN THE GROUNDS OF APPEAL OF THE ASSESSEE AS NOT PRESSED . ACCORDINGLY, THE GROUND IS DISMISSED AS NOT PRESSED. 8 0 . THE THIRD GROUND RELATES TO BROKEN PERIOD INTEREST PAID ON PURCHASE OF SECURITIES. WE HAVE CO NSIDERED SIMILAR ISSUE FOR THE ASSESSMENT YEAR 2007 - 08 HEREINABOVE FROM PARA 46 TO 4 9 AND, BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL AS WELL AS THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2008 - 09 ALSO WE DIRECT THE ASSESSING OFFICER TO DELETE THE ABOVE DISALLOWANCE. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 44 81 . THE FOURTH GROUND RELATES TO NON PERFORMING I NVESTMENTS. WE HAVE CONSIDERED SIMILAR ISSUE FOR THE ASSESSMENT YEAR 2007 - 08 HEREINABOVE FROM PARA 5 2 TO 55 AND DECIDED THE ISSUE AGAINST THE ASSESSEE. FOR THE ASSESSMENT YEAR 2008 - 09 ALSO, THE ASSESSEE HAS NOT ACTUALLY INCURRED ANY LOSS AND THE PROVISION WAS MADE ONLY FOR A PROBABLE FUTURE LOSS ON AN ESTIMATED BASIS. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 8 2 . THE FIFTH GROUND RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE UNDER SECTION 14A. THE ASSESSING OFFICER MADE DISALLOWANCE O F .22,58,62,431/ - UNDER SECTION 14A OF THE ACT AND COMPUTED IN ACCORDANCE WITH RULE 8D IN RESPECT OF THE TAX FREE INCOME . ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY OBSERVING THAT THE CLAIM OF THE ASSESSEE THAT 2 PER CENT OF EXEMPT INCOME CAN BE TAKEN AS EXPENDITURE INCURRED TO EARN TAX FREE INCOME CANNOT BE ACCEPTED. WHEN THE ACT HAS PRESCRIBED A METHOD FOR QUANTIFYING THE DISALLOWANCE WHERE THE ASSESSING OFFICER HAS NOT SATISFIED WITH THE DISALLOWANCE MADE BY THE ASSESSEE, THE SAME CANNOT BE OVERLOOKED. IN THE ASSESSEE S CASE, THE SECURITIES ARE HELD AS STOCK - IN - TRADE. 8 3 . AFTER HEARING BOTH SIDES, W E HAVE CAREFULLY PERUSED THE ORDERS OF AUTHORITIES BELOW. I N V IEW OF THE DECISION OF THE HON BLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DCIT (SUPRA) THAT RULE 8D IS I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 45 APPLICABLE FROM THE ASSESSMENT YEAR 2008 - 09, WHEN THE ACT HAS PRESCRIBED A METHOD FOR QUANTIFYING THE DISALLOWANCE, THE SAME CA NNOT BE OVERLOOKED. SINCE RULE 8D IS NOT APPLICABLE PRIOR TO THE ASSESSMENT YEAR 2007 - 08, THE TRIBUNAL HAS SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) AND DIRECTED THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE @ 2%. HOWEVER, SINCE RULE 8D IS APPLICAB LE FROM THE ASSESSMENT YEAR 2008 - 09 ONWARDS, THE DISALLOWANCE SHOULD BE MADE BASED ON THE PRESCRIBED METHOD QUANTIFIED BY THE ACT. SINCE THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE UNDER SECTION 14A AND COMPUTED UNDER RULE 8D, WE CONFIRM THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 8 4 . THE SIXTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF BAD DEBTS WRITTEN OFF [TECHNICAL WRITE OFF] TO THE EXTENT OF . 168,17,06,000/ - AGAINST THE PROVISIONS MADE. THE ASSESSING OFFICER HAS HELD THAT INASMUCH AS THE BAD DEBTS HAVE BEEN WRITTEN OFF AGAINST THE PROVISIONS, IT IS NOT ALLOWABLE AS DEDUCTION. FURTHER, THE ASSESSING OFFICER HAS ALSO HELD THAT AS THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS ALLOWABLE UNDER SECTION 36(1)(VIIA) , NO PORTION OF THE BAD DEBTS IS ALLOWABLE. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS CONTENDED THAT THE PROVISIONS OF SECTION 36(1)(VII) AND 36(1)(VIIA) ARE INDEPENDENT AND UNLESS CREDI T BALANCES IN RESPECT OF ACCOUNTS WRITTEN OFF AS BAD DEBTS IS MAINTAINED IN THE BOOKS OF I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 46 THE BANK AS PROVISION UNDER SECTION 36(1)(VIIA), NO DISALLOWANCE CAN BE MADE. 84(I). ON APPEAL, THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, H AS HELD THAT THE PROVISIONS OF SECTION 36(1)(VII) AND 36(1)(VIIA) WERE INDEPENDENT AND THAT THE DEDUCTION ALLOWABLE UNDER SECTION 36(1)(VII) SHOULD NOT RESULT IN DOUBLE DEDUCTION. ACCORDINGLY, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY THE CLA IM AND ALLOW THE SAME AFTER ENSURING THAT NO DOUBLE DEDUCTION IS ALLOWED. WE HAVE ALSO CONSIDERED SIMILAR ISSUE FOR THE ASSESSMENT YEAR 2007 - 08 IN I.T.A. NO. 880/MDS/2010 AT PARA 59 TO 63 AND DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER THE REQUIREMENT S OF SECTION 36(2) OF THE ACT IS SATISFIED OR NOT AND DECIDE THE ISSUE AFRESH BY TAKING INTO CONSIDERATION OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK V. CIT 343 ITR 270, ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSES. 85 . THE SEVENTH AND EIGHTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS WITH REGARD TO DISALLOWANCE OF CLAIM OF AMORTIZATION OF SHARE ISSUE EXPENSES OF RS. 4,50,03,133/ - UNDER SECTION 35D OF THE ACT. SIMILAR ISSUE WA S RAISED IN THE ASSESSMENT 2007 - 08 AND WE HAVE DECIDED THE ISSUE AGAINST THE ASSESSEE FROM PARA 64 TO 6 7 OF THIS ORDER . ACCORDINGLY, FOR THE ASSESSMENT YEAR 2008 - 09 ALSO, WE DISMISS THE GROUND RAISED BY THE ASSESSEE. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 47 86. IN THE RESULT, THE APPEAL FILED B Y THE ASSESSEE FOR THE ASSESSMENT YEAR 2008 - 09 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . I.T.A. NO. 1871/MDS/2012 [A.Y. 2009 - 10] 8 7 . THE FIRST GROUND RAISED IN THE APPEAL OF THE ASSESSEE IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION. 8 8 . THE SEC OND GROUND RAISED IN THE APPEAL IS WITH REGARD TO DEPRECIATION ON VALUE OF ASSETS TAKEN OVER FROM BANK OF THANJAVUR [BOT] BY ADOPTING WRITTEN DOWN VALUE [WDV] OF ASSETS TAKEN OVER FROM BOT IGNORING THE VALUE ADOPTED IN THE TAKEN OVER SCHEME APPROVED BY THE RESERVE BANK OF INDIA [RBI]. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS GROUND AND ENDORSED IN THE GROUNDS OF APPEAL OF THE ASSESSEE AS NOT PRESSED . ACCORDINGLY, THE GROUND IS DISMISSED AS NOT PRESSED. 8 9 . THE THIRD GROUND RELATES INCLUSION OF INCOME OF FOREIGN BRANCHES AT SINGAPORE AND COLOMBO AMOUNTING TO .38,33,66,265/ - WITH THE INCOME CHARGEABLE TO TAX IN INDIA. THE ASSESSEE HAS BRANCHES AT SINGAPORE AND COLOMBO, OUTSIDE INDIA. IN THE COMPUTATION OF INCOME, THE ASSESSEE HAD DEDUCTED THE FOLLOWING AMOUNTS, CLAIMING THAT THE SAME ARE TAXABLE IN THE RESPECTIVE COUNTRIES AND THEREFORE ARE EXEMPT FROM TAXATION IN INDIA AS PER DTA AGREEMENTS UNDER SECTION 90 OF THE ACT. GROSS PROFIT OF FOREIGN BRANCHES . 83,42,13,01 4 ADD: ENTERTAINMENT EXPENSES (FOREIGN) . 1,87,167 ADD: DEPRECIATION (FOREIGN) . 2,40,33,428 . 85,84,33,659 I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 48 9 0 . THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT IN THE MEMO OF INCOME, AN AMOUNT REPRESENTING THE NET PROFIT OF .6,38,44 ,662/ - AFTER MAKING PROVISION FOR BAD AND DOUBTFUL DEBTS AND TAXATION IN RESPECT OF BRANCHES IN SINGAPORE AND COLOMBO HAS BEEN EXCLUDED FROM THE GLOBAL INCOME IN VIEW OF THE AGREEMENT ENTERED INTO WITH THOSE COUNTRIES FOR AVOIDANCE OF DOUBLE TAXATION. CONS EQUENTLY, DOUBLE INCOME TAX RELIEF HAS NOT BEEN WORKED OUT, WHICH OTHERWISE IS ALLOWABLE. IT WAS ALSO SUBMITTED THAT THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT V. SRM BROTHERS 208 ITR 400 UPHOLDS THIS VIEW. THIS DECISION HAS BEEN CONFIRMED BY THE HON BLE SUPREME COURT IN THE CASE OF CIT V. P.V.A.L. KULANDAGAN CHETTIAR 267 ITR 654 . IF HOWEVER, THE FOREIGN INCOME IS TREATED AS TAXABLE, NECESSARY DEPRECIATION IN RESPECT OF FOREIGN ASSETS TO BE ALLOWED AS PER THE INCOME TAX RULES. THE ASSESSEE HAS FURTHE R SUBMITTED THAT DURING THE YEAR ENDED 31.03.2009, A TOTAL SUM OF .3,27,77,083/ - HAS BEEN RECOVERED AND THE SAME HAS BEEN CREDITED IN INDIAN PROFIT & LOSS ACCOUNT AS INCOME. AS THE AMOUNTS WERE NOT ORIGINALLY ALLOWED AS BAD DEBT UNDER THE ACT, THE SAME IS NOT INCOME TAXABLE UNDER SECTION 41(1) AND HENCE THE AMOUNT IS EX CLUDED FROM THE COMPUTATION OF INCOME. THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSIONS MADE BY THE ASSESSEE AND MADE THE DISALLOWANCE. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 49 9 1 . ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) REMITTED THE MATTER BACK TO TH E ASSESSING OFFICER TO ALLOW RELIEF OF TAX BASED ON THE TAX PAID IN THE FOREIGN COUNTRIES. 9 2 . ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AND SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2003 - 04 IN I.T.A. NO. 252/MDS/2007 VIDE ORDER DATED 11.06.2012. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORDER PASSED BY THE AUTHORITIES BELOW. BY RELYING ON THE DECISION OF THE MUMBAI BENCHES OF ITAT IN THE CASE OF B ANK OF BARODA V. ACIT IN I.T.A. NO. 2927/MUM/2011 DATED 25.07.2014, THE LD. DR HAS SUBMITTED THAT THE INCOME OF THE FOREIGN BRANCHES OF THE ASSESSEE SHOULD BE INCLUDED IN THE RETURN OF INCOME AND CREDIT OF SUCH TAXES SHALL BE GIVEN. 9 3 . WE HAVE CONSIDER ED THE RIVAL SUBMISSIONS AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. ON SIMILAR ISSUE, AGAINST THE APPEAL FILED BY THE REVENUE, THE COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2003 - 04 HAS CONSIDERED AND OBSERVED TH AT INCOME OF THE FOREIGN BRANCHES IN SINGAPORE AND COLUMBO HAD TO BE EXCLUDED AND NOT CONSIDERED ONLY FOR TAX CREDITS. ON AN IDENTICAL ISSUE IN SIMILAR SET OF FACTS IN THE CASE OF BANK OF BARODA V. ACIT (SUPRA), THE MU MBAI BENCHES OF THE TRIBUNAL HAS CONSI DERED THE DECISION OF THE HON BLE SUPREME COURT IN THE I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 50 CASE OF P.V.A.L. KULANDAGAN CHETTIAR (SUPRA), AMENDMENT IN SECTION 90(3) AND RELEVANT PORTION OF THE ORDER IS REPRODUCED AS UNDER: 22. THE LEARNED COUNSEL BEFORE US SUBMITTED THAT THE ASSESSEE HAS CE RTAIN BRANCHES LOCATED IN THE FOREIGN COUNTRIES AND THESE BRANCHES ARE TAX RESIDENT OF THOSE COUNTRIES AS PER DTAA. ACCORDINGLY, THE ASSESSEE HAS CLAIMED THAT INCOME TAX PAID / PAYABLE ON THE INCOME OF SUCH BRANCHES IN THE RESPECTIVE COUNTRIES SHOULD BE EX CLUDED FROM THE RETURN OF INCOME FILED IN INDIA. THIS CLAIM WAS MADE IN VIEW OF THE ARTICLE 7 OF THE RESPECTIVE DTAAS, WHEREIN THE INCOME FROM SUCH FOREIGN BRANCHES IS NOT TAXABLE AGAIN ALONG WITH THE INCOME OF THE ASSESSEE IN INDIA. THE ASSESSING OFFICER HAS ALLOWED THE CREDIT / RELIEF FOR THE TAXES PAID ABROAD OUT OF THE TAXES PAYABLE IN INDIA FROM THE TAX PAYABLE ON THE INCOME OF THE ASSESSEE IN INDIA. THE ASSESSING OFFICER FURTHER NOTED THAT AS PER SECTION 90(3), CENTRAL GOVERNMENT HAS NOTIFIED THAT FOR GRANTING RELIEF OF TAX ANY INCOME OF A RESIDENT OF INDIA THE PHRASE MAY BE TAXED IN OTHER COUNTRY HAS TO BE INTERPRETED AS TAXABLE IN INDIA ALSO, AS THE INCOME OF THE P.E. IS TO BE INCLUDED IN THE TOTAL INCOME CHARGEABLE TO TAX IN INDIA SUBJECT TO RELIE F IN ACCORDANCE WITH THE DTAA. WHEREAS, THE ASSESSEE S SUBMISSION BEFORE THE LEARNED COMMISSIONER (APPEALS) WAS THAT THE INCOME OF THE BRANCHES IS TAXABLE ONLY IN THOSE COUNTRIES AND SUCH AN INCOME HAS TO BE EXCLUDED FROM THE INCOME FILED IN INDIA I.E., IT IS NOT TAXABLE IN INDIA. RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN P.V.A.L. KULANDAGAN CHETTIAR (SUPRA). 23. THE LEARNED COMMISSIONER (APPEALS) AGREED WITH THE CONTENTION OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO ALLOW EXCLUSION OF THE INCOME OF FOREIGN BRANCH WITH WHOM THE INDIA HAS DTAA IN THE YEAR 2007 08. HOWEVER, IN THE ASSESSMENT YEAR 2005 06 AND 2006 07, THERE IS NO SUCH FINDING AS STATED ABOVE IN THE FOREGOING PARAGRAPHS. 24. THE LEARNED COUNSEL SUBM ITTED THAT UNDER ARTICLE 7, BUSINESS INCOME IS TO BE COMPUTED, WHICH ENVISAGES THAT THE PROFIT OF THE ENTERPRISE SITUATED IN THE OTHER CONTRACTING STATE I.E., THE SOURCE COUNTRY, THEN IT IS TO BE TAXED THERE, WHATEVER IS ATTRIBUTABLE DIRECTLY OR INDIRECTLY TO THAT P.E. WHICH IS SITUATED IN THE SOURCE STATE. THIS MEANS THAT ONCE THE TAX HAS BEEN PAID IN THE OTHER CONTRACTING STATE, THEN THE SAME CANNOT BE TAXED IN THE RESIDENT STATE. THE NOTIFICATION DATED 29TH AUGUST 2008, AS ISSUED BY THE GOVERNMENT OF IND IA, WILL NOT APPLY IN CASE OF BUSINESS PROFIT OF THE P.E. HE SUBMITTED THAT THE DECISION OF THE HON'BLE SUPREME COURT P.V.A.L. KULANDAGAN CHETTIAR (SUPRA) SQUARELY I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 51 COVERS THE CASE WHEREIN THE HON'BLE SUPREME COURT HELD THAT ONCE THE TAX HAS BEEN PAID / PAY ABLE IN THE COUNTRY OF SOURCE, THEN THE SAME IS PRECLUDED FROM TAXING IN INDIA. THOUGH THIS CASE PERTAIN TO CAPITAL GAIN, HOWEVER, THE SAME PRINCIPLE WILL ALSO APPLY HERE BECAUSE IN THE ARTICLE DEALING WITH THE CAPITAL GAIN, THE PHRASE USED IS MAY BE TAXE D . HE FURTHER SUBMITTED THAT THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN BANK OF INDIA V/S DCIT, ITA NO.2781 AND 3534/MUM./2011, HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING THE AFORESAID SUPREME COURT JUDGMENT. 25. THE LEARNED DEPARTM ENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ESSAR OIL LTD. V/S ACIT, ITA NO.2428/MUM./2007, ETC., ORDER DATED 28TH AUGUST 2013, WHEREIN THE TRIBUNAL HAS NOT ONLY TAKEN INTO CONSI DERATION THE DECISION OF THE HON'BLE SUPREME COURT IN P.V.A.L. KULANDAGAN CHETTIAR (SUPRA) BUT ALSO VARIOUS OTHER DECISIONS OF SUPREME COURT AND HIGH COURTS, INCLUDING THE AMENDMENT BROUGHT IN THE STATUTE IN SUB SECTION (3) OF SECTION 90 W.E.F. ASSESSMENT YEAR 2004 05 AND ALSO THE NOTIFICATION. THUS, THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE DEPARTMENT THAT INCOME OF THE BRANCHES / P.E. SHALL BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE BUT CREDIT OF TAX PAID IN SOURCE COUNTRY WOULD BE ALLOWED HERE IN THE RESIDENT STATE. THE TRIBUNAL HAS ALSO ANALYSED IN DETAIL THE PHRASE MAY BE TAXED TO COME TO THE CONCLUSION THAT IT DOES NOT PRECLUDE THE RESIDENT STATE TO TAX THE RESIDENT ASSESSEE ON THE INCOME WHICH HAS BEEN EARNED BY THE P.E. IN THE SOURCE COU NTRY WHICH ARE LIABLE FOR TAX IN SUCH COUNTRY. 26. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE DECISIONS RELIED UPON BY BOTH THE PARTIES. THE ISSUE OF INTERPRETATION OF PHRASE MAY BE TAXED IN OTHER CONTRACTING STATES , AS USED IN DIFFERENT ARTI CLES INCLUDING ARTICLE 7 IN THE DTAA HAS BEEN DISCUSSED IN DETAIL BY THE TRIBUNAL IN ESSAR OIL LTD. (SUPRA) AFTER TAKING INTO CONSIDERATION VARIOUS DECISIONS OF THE HIGH COURT, SUPREME COURT, AFFECT OF AMENDMENT IN SECTION 90(3) AND NOTIFICATION DATED 28TH AUGUST 2008, ISSUED BY THE CENTRAL GOVERNMENT. THE CONCLUSION ARRIVED BY THE TRIBUNAL AFTER DISCUSSING VARIOUS ASPECTS ARE AS UNDER: I) THE RATIO OF ALL THE JUDGMENTS RENDERED BY THE HON'BLE HIGH COURTS, AS DISCUSSED HEREIN ABOVE AND CONFIRMED BY THE HON'BLE SUPREME COURT SPECIFICALLY IN THE CASE OF TURQUOISE INVESTMENT, ON THE INTERPRETATION OF THE EXPRESSION 'MAY BE TAXED', THAT ONCE THE TAX IS PAYABLE OR PAID IN THE COUNTRY OF SOURCE, THEN COUNTRY OF RESIDENCE IS DENIED OF THE RIGHT TO LEVY TAX ON S UCH INCOME OR I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 52 THE SAID INCOME CANNOT BE INCLUDED IN RETURN OF INCOME FILED IN INDIA, WOULD NO LONGER APPLY AFTER THE INSERTION OF PROVISION OF SUB - SECTION (3) OF SECTION 90 W.E.F. 1ST APRIL, 2004, I.E. ASSESSMENT YEAR 2004 - 05. THE SAID PROVISION AS CONFERR ED UPON THE CENTRAL GOVERNMENT A POWER TO ISSUE NOTIFICATION, ASSIGNING MEANING TO THE TERMS USED IN THE DTAA, WHICH HAS NEITHER BEEN DEFINED UNDER THE ACT NOR IN THE AGREEMENT PROVIDED THAT SUCH A MEANING SHOULD NOT BE INCONSISTENT WITH THE PROVISIONS OF THE ACT OR AGREEMENT. IN PURSUANCE OF SUCH A STATUTORY EMPOWERMENT, CENTRAL GOVT. HAS ISSUED A NOTIFICATION ON 28TH AUGUST, 2008, CLEARLY SPECIFYING THAT WHERE THE DTAA ENTERED INTO BY THE CENTRAL GOVT. WITH THE GOVT. OF ANY OTHER COUNTRY PROVIDES THAT ANY INCOME OF A RESIDENT OF INDIA 'MAY BE TAXED' IN THE OTHER COUNTRY, SUCH INCOME SHALL BE INCLUDED IN HIS TOTAL INCOME CHARGEABLE TO TAX IN INDIA IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT, 1961 AND RELIEF SHALL BE GRANTED IN ACCORDANCE WITH TH E METHOD FOR ELIMINATION OR AVOIDANCE OF DOUBLE TAXATION PROVIDED IN SUCH AGREEMENT. THIS MEANING ASSIGNED TO THE TERM 'MAY BE TAXED' HAS CHANGED ITS COMPLEXION; II) THE NOTIFICATION DATED 28TH AUGUST 2008, REFLECTS A PARTICULAR INTENT AND OBJECTIVE OF T HE GOVERNMENT OF INDIA, AS UNDERSTOOD DURING THE COURSE OF NEGOTIATIONS LEADING TO FORMALIZATION OF TREATY. THEREFORE, SUCH A NOTIFICATION HAS TO BE RECKONED AS CLARIFICATORY IN NATURE AND HENCE INTERPRET TATION GIVEN BY GOVT. OF INDIA THROUGH THIS NOTIFIC ATION WILL BE EFFECTIVE FROM 1ST APRIL 2004, I.E., FROM THE DATE WHEN PROVISION OF SECTION 90(3) WAS BROUGHT IN THE STATUTE, GIVING A LEGAL FRAME WORK FOR CLARIFYING THE INTENT OF ONE OF THE NEGOTIATING PARTIES; III) THE PHRASE 'MAY BE TAXED' IS NOT APPE ARING IN THE STATUTE, BUT IT IS APPEARING IN THE AGREEMENT AND THEREFORE, THE INTERPRETATION AS UNDERSTOOD AND INTENDED BY THE NEGOTIATING PARTIES SHOULD BE ADOPTED. HERE ONE OF THE PARTIES I.E., GOVERNMENT OF INDIA HAS CLEARLY SPECIFIED THE INTENT AND THE OBJECT OF THIS PHRASE. IF PHRASE IS USED IN A STATUTE, THEN 'ANY INTERPRETATION GIVEN BY THE HIGH COURT OR THE SUPREME COURT IS BINDING ON ALL THE SUBORDINATE COURTS AND HAS TO BE RECKONED AS LAW OF THE LAND. HOWEVER, THE MEANING ASSIGNED BY GOVERNMENT OF INDIA FOR A PHRASE OR TERM USED IN THE AGREEMENT THROUGH NOTIFICATION WILL PREVAIL AT LEAST FROM THE ASSESSMENT YEAR 2004 - 05. BECAUSE, WHILE INTERPRETING THE TREATY, THE INTENTION OF THE I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 53 PARTIES TO THE AGREEMENT HAS TO BE GIVEN PRIMACY AND HAS TO BE UNDER STOOD IN THAT MANNER ONLY. THEREFORE, THE NOTIFICATION IS NOT CONTRARY TO THE PROVISIONS OF THE ACT. CONSEQUENTLY, THE EARLIER JUDGMENTS RENDERED IN ASSESSEE'S CASE PRIOR TO ASSESSMENT YEAR 2004 - 05, WILL NOT HAVE BINDING PRECEDENCE IN THIS YEAR OR SUBSEQUE NT YEAR; ._ 27. IN VIEW OF THE AFORESAID FINDINGS / CONCLUSION, WE HOLD THAT THE INCOME OF THE BRANCHES OF THE ASSESSEE SHALL ALSO TAXABLE IN INDIA I.E., IT WOULD BE INCLUDED IN THE RETURN OF INCOME FILED BY THE ASSESSEE IN INDIA AND WHATEVER TAXES HAV E BEEN PAID BY THE BRANCHES IN THE OTHER CONTRACTING STATES I.E., THE SOURCE COUNTRY, CREDIT OF SUCH TAXES SHALL BE GIVEN. ACCORDINGLY, THE GROUND NO.3, AS RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2005 06 AND 2006 07, IS TREATED AS DISMISSED, WHEREAS, GROUND NO.1, AS RAISED BY THE DEPARTMENT IN ITA NO.6018/MUM./2011, FOR THE ASSESSMENT YEAR 2007 08, IS TREATED AS ALLOWED. 9 4. IN VIEW OF THE ABOVE DECISION OF THE MUMBAI BENCHES OF THE TRIBUNAL, WE ARE OF THE CONSIDERED VIEW THAT THE DECISIONS RENDERE D IN ASSESSEE S OWN CASE PRIOR TO ASSESSMENT YEAR 2004 - 05 WILL NOT HAVE BINDING PRECEDENCE IN THE ASSESSMENT YEAR 2009 - 10 OR SUBSEQUENT YEARS. ACCORDINGLY, WE HOLD THAT THE INCOME OF THE ASSESSEE AT SINGAPORE AND COLOMBO WOULD BE INCLUDED IN THE RETURN OF INCOME OF THE ASSESSEE IN INDIA AND WHATEVER TAXES PAID BY THE BRANCHES IN FOREIGN COUNTRIES, CREDIT OF SUCH TAXES SHALL ONLY BE GIVEN. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 9 5 . THE FOURTH GROUND RAISED IN THE APPEAL IS WITH REGAR D TO DISALLOWANCE OF .21,20,56,397/ - UNDER SECTION 14A. SIMILAR GROUND WAS RAISED IN THE ASSESSMENT 2008 - 09 AND WE HAVE DECIDED THE ISSUE AGAINST THE ASSESSEE I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 54 IN PARA 82 TO 83 OF THIS ORDER . ACCORDINGLY, FOR THE ASSESSMENT YEAR 2009 - 10 ALSO, WE DISMISS THE GROUND RAISED BY TH E ASSESSEE. 9 6 . THE FIFTH GROUND RAISED IN THE APPEAL RELATES TO DISALLOWANCE OF .4,50,03,133/ - UNDER SECTION 35D OF THE ACT. THE ASSESSING OFFICER HAS DISALLOWED THE DEDUCTION ON THE GROUND THAT THE ASSESSEE HAD ALREADY COMMENCED ITS BUSINESS AND THE DEDUCTION WITH REGARD TO EXTENSION OF THE INDUSTRIAL UNDERTAKING IS NOT APPLICABLE TO THE ASSESSEE SINCE, THE ASSESSEE IS NOT AN INDUSTRIAL UNDERTAKING. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 9 7 . AFTER HEARIN G BOTH SIDES, WE FIND THAT THE PROVISIONS OF SECTION 35D OF THE ACT HAVE BEEN AMENDED BY THE FINANCE ACT, 2008 WITH EFFECT FROM 01.04.2009 WHEREIN THE WORDS INDUSTRIAL UNIT AND INDUSTRIAL UNDERTAKING WERE SUBSTITUTED WITH THE WORDS UNIT AND UNDERTAK ING . THE MEMORANDUM EXPLAINING THE PROVISIONS CLEARLY STATES AS UNDER: SECTION 35D PROVIDES FOR DEDUCTION OF CERTAIN SPECIFIED PRELIMINARY EXPENSES. THE DEDUCTION IS ALLOWED ON AN AMOUNT EQUAL TO ONE FIFTH OF SUCH EXPENDITURE FOR FIVE SUCCESSIVE PREVIOUS YEARS. THE PRELIMINARY EXPENSES RELATE EITHER TO THE PERIOD BEFORE THE COMMENCEMENT OF THE BUSINESS OR AFTER. HOWEVER, IF PRELIMINARY EXPENSES RELATE TO A PERIOD AFTER THE COMMENCEMENT OF THE BUSINESS, SUCH EXPENSES ARE ONLY ALLOWED IF THEY ARE IN RELATIO N TO THE EXTENSION OF AN INDUSTRIAL UNDERTAKING OR THE SETTING UP OF A NEW INDUSTRIAL UNIT. WITH A VIEW TO PROVIDING A LEVEL PLAYING FIELD TO THE SERVICES SECTOR, IT IS NECESSARY TO EXTEND TO THE SERVICE SECTOR, THE SAME BENEFIT OF AMORTIZATION OF SPECIF IED POST - COMMENCEMENT PRELIMINARY EXPENSES AS IS AVAILABLE TO THE MANUFACTURING SECTOR FOR THE EXTENSION OF AN I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 55 UNDERTAKING OR THE SETTING UP OF A NEW UNIT. THEREFORE, IT IS PROPOSED TO AMEND SECTION 35D ACCORDINGLY. THE AMENDMENT WILL TAKE EFFECT FROM TH E 1 ST DAY OF APRIL, 2009 AND WILL ACCORDINGLY APPLY IN RELATION TO ASSESSMENT YEAR 2009 - 10 AND SUBSEQUENT ASSESSMENT YEARS (CLAUSE 6). FROM THE ABOVE, IT IS VERY CLEAR THAT THE AMENDMENT HAD BEEN BROUGHT ABOUT TO EXTEND THE BENEFIT OF DEDUCTION UNDER SEC TION 35D OF THE ACT TO THE SERVICE SECTOR ALSO. BANKS CANNOT FALL UNDER THE DEFINITION OF INDUSTRIAL UNITS . IF THE ASSESSEES LIKE BANKS WERE TO FALL UNDER THE DEFINITION OF INDUSTRIAL UNITS , THERE WOULD NOT HAVE BEEN ANY NECESSITY FOR AMENDING THE ACT TO INCLUDE SERVICE SECTOR. SINCE THE AMENDMENT EXTENDING THE BENEFIT TO SERVICE SECTOR AND MADE EFFECTIVE ONLY F ROM THE ASSESSMENT YEAR 2009 - 10 AND, THE BANKS ARE COMING UNDER SERVICE SECTOR, THE BENEFIT CAN BE EXTENDED FROM THE ASSESSMENT YEAR 2009 - 10 ONL Y TO THE EXTENT OF SETTING UP OF A NEW UNIT FOR FIVE SUCCESSIVE YEARS. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE ASSESSING OFFICER TO EXAMINE WHETHER THE ASSESSEE HAS SET UP A NEW UNIT OR NOT AND IF SO, H E IS DIRECTED TO ALLOW THE BENEFIT FROM 2009 - 10 ONWARDS. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9 8 . THE SIXTH GROUND RAISED IN THE APPEAL IS WITH REGARD THE DEPRECIATION ON ATM AND UPS. WITH REGARD TO ALLOWAB ILITY OF 60% DEPRECIATION ON UPS, WE HAVE CONSIDERED SIMILAR ISSUE AND DISMISSED THE GROUND RAISED BY THE REVENUE IN I.T.A. NOS. 2124 AND 2125/MDS/2014 FOR THE ASSESSMENT YEAR I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 56 2005 - 06 AND 2007 - 08 AT PARA 1 7 TO 22 OF THIS ORDER. WITH REGARD TO THE ALLOWABIL ITY OF 60% DEPRECIATION ON ATM, WE HAVE CONSIDER THE ISSUE AND ALLOWED THE GROUND RAISED BY THE ASSESSEE IN ITS APPEAL IN I.T.A. NOS.1396 & 1395/MDS/2014 FOR THE ASSESSMENT YEA RS 2005 - 06 AND 2007 - 08 AT PARA 8 TO 13 OF THIS ORDER. ACCORDINGLY, THE GROUND R AISED BY THE ASSESSEE IS ALLOWED. 9 9 . THE SEVENTH GROUND RAISED IN THE APPEAL RELATES TO DISALLOWANCE OF PROVISION MADE FOR CLAIMS AGAINST THE BANK AMOUNTING TO .16,00,00,000/ - . THE ASSESSING OFFICER HAS DISALLOWED THE SUM ON THE GROUND THAT THE ASSESSEE HAS NO T FURNISHED ANY DETAILS ABOUT THE NATURE OF THE CLAIMS AGAINST WHICH THE PROVISION WAS MADE AND OBSERVED THAT IN THE ABSENCE OF THE SAME IT CANNOT BE ALLOW ED AS DEDUCTION AND ACCORDINGLY DISALLOWANCE WAS MADE. ON APPEAL, BEFORE THE LD. CIT(A), THE AR OF THE ASSESSEE HAS SUBMITTED THAT BECAUSE OF THE NATURE OF THE CLAIM IS CONFIDENTIAL, THE ASSESSEE IS NOT IN A POSITION TO DISCLOSE THE NATURE OF CLAIM AND ALS O ARGUED THAT THE QUANTUM OF CLAIM MADE AS COMPARED TO THE TOTAL GROSS INCOME OF THE BANK IS BARE MINIMUM , HE HAS PLEADED THAT THE DEDUCTION SHALL BE ALLOWED. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) CONFIRMED THE ORDER PASSED BY T HE ASSESSING OFFICER. 100 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATED THE SUBMISSIONS AS MADE BEFORE THE LD. CIT(A). HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT FURNISHED ANY DETAILS ABOUT THE NATURE OF EXPENSES. IF ANY I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 57 EXPENSE IS REQUIRED TO BE ALLOWED, IT IS FOR THE ASSESSEE TO PROVE THE NATURE OF THE EXPENDITURE AND ITS RELATION TO ITS BUSINESS. IN THE PRESENT CASE, THE ASSESSEE HAS NOT ABLE TO PROVE THE NATURE OF THE EXPENSES. THEREFORE, WE ARE OF THE OPINION THAT THE GROUND RAI SED BY THE ASSESSEE IS LIABLE TO BE DISMISSED. 10 1 . THE EIGHTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO APPLICABILITY OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT. SIMILAR GROUND WAS RAISED IN THE ASSESSMENT 2007 - 08 AND WE HAVE DECIDED T HE ISSUE IN FAVOUR OF THE ASSESSEE FROM PARA 6 8 TO 72 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2009 - 10 ALSO, WE ALLOW THE GROUND RAISED BY THE ASSESSEE. 10 2 . THE NINTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE UNDER SECTION 14A IN COMPUTING THE BOOK PROFITS UNDER SECTION 115JB , THE TENTH GROUND RAISED IN THE APPEAL RELATES TO DISALLOWANCE OF PROVISION MADE FOR WAGE ARREARS IN COMPUTING THE BOOK PROFITS AND ELEVENTH GROUND RELATES TO DISALLOWANCE OF CLAIMS MADE AGAINST THE BANK WHILE COMPUTING BOOK PROFIT UNDER 115JB OF THE ACT. SIMILAR GROUND S W ERE RAISED IN THE ASSESSMENT 2007 - 08 AND WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FROM PARA 73 TO 7 5 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2009 - 10 ALSO, WE ALLOW BOTH THE GROUND S RAISED BY THE ASSESSEE. 10 3 . IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2009 - 10 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 58 I.T.A. NO. 1397/MDS/2014: [A.Y. 2010 - 11] 10 4 . THE GROUND NO.1 IS GENERAL IN N ATURE AND REQUIRES NO ADJUDICATION. 10 5 . THE SECOND GROUND (A & B) RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO INCLUSION OF INCOME OF FOREIGN BRANCHES AT SINGAPORE AND COLOMBO AMOUNTING TO .82,89,70,657/ - . SIMILAR GROUND H AS BEEN RAISED IN THE ASSESSMENT YEAR 2009 - 10 IN I.T.A. NO. 1871/MDS/2012 AND WE HAVE DECIDED THE ISSUE AGAINST THE ASSESSEE FROM PARA 8 9 TO 9 4 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO, WE DISMISS T HE GROUND RAISED BY THE ASSESSEE. 10 6 . THE THIRD GROUND (A & B) RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF EXPENSES UNDER SECTION 14A R.W.R. 8D OF .23,09,49,928/ - . SIMILAR GROUND WAS RAISED IN THE ASSESSMENT 2008 - 09 AND WE HAVE DECI DED THE ISSUE AGAINST THE ASSESSEE FROM PARA 82 TO 83 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO, WE DISMISS THE GROUND RAISED BY THE ASSESSEE. 10 7 . THE FOURTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF 4 ,50,03,133/ - UNDER SECTION 35D OF THE ACT. SIMILAR GROUND WAS RAISED IN THE ASSESSMENT 2009 - 10 IN I.T.A. NO. 1871/MDS/2012 AND THE GROUND WAS ALLOWED FOR STATISTICAL PURPOSES AT PARA 9 6 AND 9 7 OF THIS ORDER. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 59 ACCORDINGLY, FOR THE ASSESSMENT YEAR 2010 - 11 ALS O, THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 10 8 . THE FIFTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DEPRECIATION ON ATM AND UPS OF .5,24,54,359/ - . WITH REGARD TO ALLOWABILITY OF 60% DEPRECIATION ON UPS, WE HAVE CONSIDERED SIMILAR IS SUE AND DISMISSED THE GROUND RAISED BY THE REVENUE IN I.T.A. NOS. 2124 AND 2125/MDS/2014 FOR THE ASSESSMENT YEAR 2005 - 06 AND 2007 - 08 AT PARA 17 TO 22 OF THIS ORDER . WITH REGARD TO THE ALLOWABILITY OF 60% DEPRECIATION ON ATM, WE HAVE CONSIDER THE ISSUE AND ALLOWED THE GROUND RAISED BY THE ASSESSEE IN ITS APPEAL IN I.T.A. NOS.1396 & 1395/MDS/2014 FOR THE ASSESSMENT YEARS 2005 - 06 AND 2007 - 08 AT PARA 8 TO 13 OF THIS ORDER. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR THE ASSESSMENT YEAR 2010 - 1 1 TOO. 10 9 . THE SIXTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF PROVISION MADE FOR CLAIMS AGAINST THE BANK AMOUNTING TO .22,31,40,333/ - . SIMILAR GROUND WAS RAISED IN THE ASSESSMENT 2009 - 10 IN I.T.A. NO. 1871/MDS/2012 AND WE HAVE DECIDED THE GROUND AGAINST THE ASSESSEE AT PARA 9 9 AND 10 0 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 1 10 . THE SEVENTH GROUND RAISED IN THE APPEAL RELATES TO APPLICABILITY OF BO OK PROFITS UNDER SECTION 115JB OF THE ACT. SIMILAR GROUND WAS RAISED IN THE I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 60 ASSESSMENT 2007 - 08 AND WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FROM PARA 68 TO 72 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO, WE ALLOW THE GROUND RAISED BY THE ASSESSEE. 1 1 1 . THE EIGHTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE MADE UNDER SECTION 14A IN COMPUTING THE BOOK PROFITS AND NINTH GROUND RELATES TO DISALLOWANCE OF CLAIMS MADE AGAINST THE BANK WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. SIMILAR GROUNDS WERE RAISED IN THE ASSESSMENT 2007 - 08 AND WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FROM PARA 73 TO 75 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO, WE ALLOW BOTH THE GRO UNDS RAISED BY THE ASSESSEE. 1 1 2 . THE TENTH GROUND RAISED IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 36(1)(VIIA) OF THE ACT OF .197,51,47,290/ - . SIMILAR GROUND WAS RAISED IN THE ASSESSMENT 2007 - 08 AND WE HA VE CONSIDERED THE ISSUE AND DECIDED THE ISSUE FROM PARA 59 TO 63 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . 1 1 3 . IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR T HE ASSESSMENT YEAR 20 1 0 - 1 1 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 61 I.T.A. NO. 887/MDS/2010 [A.Y. 2007 - 08] (REVENUE APPEAL) 1 1 4 . THE FIRST GROUND RAISED IN THE APPEAL OF THE REVENUE IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION. 1 1 5 . THE SECON D GROUND RAISED IN THE APPEAL OF THE REVENUE PERTAINS TO INCLUSION OF INCOME OF FOREIGN BRANCHES AT SINGAPORE AND COLOMBO AMOUNTING TO .37,43,13,769/ - WITH THE INCOME CHARGEABLE TO TAX IN INDIA. SIMILAR GROUND HAS BEEN RAISED IN THE ASSESSMENT YEAR 2009 - 1 0 IN I.T.A. NO. 1871/MDS/2012 AND WE HAVE DECIDED THE ISSUE AGAINST THE ASSESSEE FROM PARA 8 9 TO 9 4 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2007 - 08, THE GROUND RAISED BY THE REVENUE IS ALLOWED . 1 1 6 . THE THIRD GROUND RAISED IN THE APPEAL OF T HE REVENUE RELATES TO THE DISALLOWANCE OF DEPRECIATION ON SECURITIES PROVIDED BY THE ASSESSEE AT THE TIME OF SHIFTING OF SECURITIES FROM ONE CATEGORY TO ANOTHER AMOUNTING TO .77,85,00,000/ - . THE ASSESSING OFFICER HAS DISALLOWED THE AMOUNT ON THE GROUND THAT AT THE END OF THE YEAR THE SECURITIES WERE UNDER HELD TO MATURITY [HTM] ON WHICH NO DEPRECIATION IS ALLOWABLE SINCE IT IS NOT STOCK - IN - TRADE. 11 7 . ON APPEAL BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT THE BANKS ARE REQUIRED TO CATEGORIZE THE INVESTMENTS UNDER THE HEADS HELD TO MATURITY , AVAILABLE FOR SALE AND HELD FOR TRADING . IT WAS ALSO SUBMITTED THAT IN RESPECT OF HELD TO MATURITY CATEGORY, AS PER THE RESERVE BANK OF INDIA I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 62 GUIDELINES, THE SECURITIES ARE TO BE VALUED AT COST. IN RESPECT OF OTHER TWO CATEGORIES IT HAS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER. WHEN AN ASSET IS TRANSFERRED FROM HELD TO MATURITY CATEGORY TO AVAILABLE FOR SALE CAT EGORY, SUCH TRANSFER SHALL BE VALUED AT COST OR MARKET PRICE, WHICHEVER IS LOWER. THEREFORE, THE AR OF THE ASSESSEE HAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE SUM OF .77,85,00,000/ - REPRESENTED SUCH LOSS PROVIDED IN ACCORDANCE WITH RBI NORMS. AFTER CONS IDERING THE DETAILED SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF STATE BANK OF MYSORE V. DCIT 33 SOT 7, WHICH WAS FOLLOWED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2006 - 07, A LLOWED THE GROUND RAISED BY THE ASSESSEE. 1 1 8 . ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. DR HAS SUBMITTED THAT THE SECURITIES ARE TREATED AS PERMANENT AND HENCE DOES NOT QUALIFY FOR DEPRECIATION. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). HE ALSO RELIED ON THE DECISION IN THE CASE OF DCIT V. ANDHRA BANK LTD. IN I.T.A. NO. 630/HYD/2012 AND VIDE ITS ORDER DATED 04.10.2013 AND ALSO IN THE CASE OF ACIT V. THE S OUTH INDIA BANK LTD. IN I.T.A. NO. 208/COCH/2014 VIDE ITS ORDER DATED 24.12.2014 , WHEREIN THE LD. ACCOUNTANT MEMBER IS THE AUTHOR IN THE ABOVE CASE. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 63 1 1 9 . WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD. THE CASE OF THE ASSESSEE IS THAT AS PER THE RESERVE BANK OF INDIA GUIDELINES, THE SECURITIES ARE VALUED WHEN THE ASSET IS TRANSFERRED FROM HELD TO MATURITY CATEGORY TO AVAILABLE FOR SALE CATEGORY AND THEREFORE, THE SUM OF .77,85,00,000/ - REPRESENTED SUCH LOSS AND CLAIMED IN ACCORDANCE WITH RBI NORMS. HOWEVER, THE CASE OF THE REVENUE IS THAT ONCE THE SECURITIES ARE TREATED AS PERMANENT, THE SAME CANNOT QUALIFY FOR DEPRECIATION. THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF STATE BANK OF MYSORE V. DCIT [2009] 33 SOT 7, ALLOWED THE GROUND RAISED BY THE ASSESSEE. IN THE ABOVE DECISION, THE TRIBUNAL HAS OBSERVED AS UNDER: 7.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE ALSO PERUSED THE RBI MASTER CIRCULAR AND OTHER CASE LAWS ON WHICH THE SR . COUNSEL HAS PLACED STRONG RELIANCE. THE HON'BLE ITAT, BANGALORE BENCH 'B' IN ITA NO. 253/BANG./2007 DATED 24 - 1 - 2008 IN THE CASE OF ASSTT. CI'T (LTU) V. VIJAYA BANK HAD AN OCCASION TO DEAL WITH A SIMILAR ISSUE. AFTER CONSIDERING THE RIVAL SUBMISSIONS, ANA LYZING THE RBI GUIDELINES AND ALSO EXTENSIVELY QUOTING VARIOUS JUDICIAL PRONOUNCEMENTS ON WHICH BOTH THE PARTIES HAVE PLACED THEIR RELIANCE, THE HON'BLE TRIBUNAL HAS OBSERVED THUS - 15. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE IS TREATING THE SECUR ITIES HELD UNDER THE CATEGORY 'HELD FOR MATURITY' AS STOCK - IN - TRADE. IF THERE IS APPRECIATION IN THE MARKET VALUE AS COMPARED TO THE MARKET VALUE AT THE OPENING OF THE YEAR AND SUCH APPRECIATION IS ALSO ACCOUNTED FOR. IT IS NOT CLAIMING DEPRECIATION ONLY F OR THE YEARS, WHEN THE VALUE HAS GONE DOWN. IF THAT HAD BEEN THE CASE, THE ASSESSEE WOULD NOT HAVE ACCOUNTED FOR ANY APPRECIATION IN 3RD, 4TH AND 5TH YEAR. THE METHOD BY WHICH THE ASSESSEE BANK IS VALUING SECURITIES IS IN ACCORDANCE WITH THE ACCOUNTING PRI NCIPLES BY TREATING SUCH SECURITIES AS STOCK - IN - TRADE. MOREOVER, THE REVENUE ITSELF IS TREATING THE PROFIT ON MATURITY OF SUCH SECURITY AS BUSINESS INCOME AND, THEREFORE, SUCH SECURITIES CANNOT BE TREATED AS CAPITAL ASSETS. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 64 16. SPECIAL BENCH, DELHI IN TH E CASE OF NEW INDIA INSURANCE V. ACIT [2007] 18 SOT 51 = (2007 - TIOL - 389 - ITAT - DEL - SB) HAD AN OCCASION TO CONSIDER THE BINDING NATURE OF RBI GUIDELINES. THE SPECIAL BENCH HELD THAT RBI GUIDELINES IN RESPECT OF PROVISION FOR NPA ARE NOT BINDING IN THE COMPUTA TION OF INCOME UNDER THE INCOME - TAX ACT. INCOME IS TO BE ASSESSED AS PER THE PROVISION OF THE INCOME - TAX ACT. THE MADRAS HIGH COURT IN THE CASE OF TAMILNADU POWER & INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. V. CIT 28 0 ITR 491 - (2006 - TIOL - 112 - HC - MAD - IT) HELD THAT PROVISION FOR NON - PERFORMING THE ASSETS DEBITED TO P&L ACCOUNT IS NOT ALLOWABLE, AS DIRECTIVE OF RESERVE BANK OF INDIA MAY NOT OVERRIDE STATUTORY PROVISION. ONCE THE REVENUE IS ACCEPTING THAT PROFIT ARISING ON THE MATURITY OF INVESTMENT IS BUSINE SS INCOME, THEN IT CANNOT TAKE THE STAND THAT IT IS NOT STOCK - IN - TRADE. DURING THE COURSE OF PROCEEDINGS BEFORE US, THE LEARNED AR HAS FILED THE ASSESSMENT ORDER IN THE CASE OF THE ASSESSEE FOR THE ASST. YEARS 2000 - 01 TO 2002 - 03. THE DEPRECIATION CLAIMED I N ALL THESE ASST. YEARS HAS NOT BEEN DISALLOWED. THUS, THE REVENUE IS CONSISTENTLY ACCEPTING THAT DEPRECIATION IS ALLOWABLE. THIS BENCH IN THE FOLLOWING CASES HAS ALLOWED SUCH DEPRECIATION ON THE VALUATION OF THE SECURITIES HELD BY THE BANK: (1) KARNATAK A BANK LTD. V. JT. CIT ITA NO. 50/BANG/97 DATED 27TH JULY, 2003. (2) ING VYSYA BANK LTD. V. DY. CIT[2006] 6 SOT 606 (BANG.) 17. CONSIDERING THE ABOVE DISCUSSION, IT IS HELD THAT THE ASSESSEE IS ENTITLED TO VALUE ALL THE INVESTMENT AT COST PRICES OR MAR KET VALUE WHICHEVER IS LOWER BY TREATING SUCH INVESTMENT AS STOCK - IN - TRADE .... ' 7.3 THE HON'BLE TRIBUNAL IN IT APPEAL NO. 112/BANG./2008, DATED 3 - 12 - 2008 IN THE, CASE OF CORPORATION BANK V. ASSTT. CIT (2009 - TIOL - 75 - ITAT - BANG), BY FOLLOWING THE DECIS ION OF THE HON'BLE TRIBUNAL IN THE CASE OF ASSTT. CIT V. VIJAYA BANK (SUPRA), HAS HELD THAT - 16. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US AND RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UNITED COM MERCIAL BANK V. CIT REFERRED SUPRA, IT IS HELD THAT THE ASSESSEE BANK IS ENTITLED TO VALUE ALL THE INVESTMENT AT COST PRICES OR MARKET VALUE WHICHEVER IS LOWER BY TREATING SUCH STOCK - IN - TRADE . 7.4 IN RBI'S MASTER CIRCULAR, UNDER THE CAPTION 2 CLASS IFICATION, IT HAS BEEN MENTIONED THUS - '(I) THE ENTIRE INVESTMENT PORTFOLIO OF THE BANKS (INCLUDING SLR SECURITIES AND NON - SLR SECURITIES) SHOULD BE CLASSIFIED UNDER THREE CATEGORIES VIZ, 'HELD TO MATURITY', 'AVAILABLE FOR SALE' AND 'HELD FOR TRADING'. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 65 HOWEVER, IN THE BALANCE SHEET, THE INVESTMENTS WILL CONTINUE TO BE DISCLOSED AS PER THE EXISTING SIX CLASSIFICATIONS VIZ; (A) GOVERNMENT SECURITIES, (B) OTHER APPROVED SECURITIES, (C) SHARES, (D) DEBENTURES AND BONDS, (E) SUBSIDIARIES/JOINT VENTURES, AND ( T) OTHER (CP MUTUAL FUND UNITS, ETC.). (II) BANKS SHOULD DECIDE THE CATEGORY OF THE INVESTMENT AT THE TIME OF ACQUISITION AND THE DECISION SHOULD BE RECORDED ON THE INVESTMENT PROPOSALS. 2.3 SHIFTING AMONG CATEGORIES: (I) BANKS MAY SHIFT INVESTMENT S TO/FROM HELD TO MATURITY CATEGORY WITH THE APPROVAL OF THE BOARD OF DIRECTORS ONCE A YEAR. SUCH SHIFTING WILL NORMALLY BE ALLOWED AT THE BEGINNING OF THE ACCOUNTING YEAR. NO FURTHER SHIFTING TO/FROM THIS CATEGORY WILL BE ALLOWED DURING THE REMAINING PART OF THAT ACCOUNTING YEAR.' 7.5 IN VIEW OF THE CLEAR CUT GUIDELINES OF THE RBI AND RESPECTFULLY FOLLOWING THE FINDINGS OF THE HON'BLE TRIBUNAL REFERRED SUPRA, THE CLAIM OF THE ASSESSEE TOWARDS PROVISION OF DEPRECIATION OF RS. 127,21,17,913 ON ACCOUNT OF TRANSFER OF SECURITIES FROM AFS CATEGORY TO HTM CATEGORY IS ALLOWED. IT IS ORDERED ACCORDINGLY. 1 20 . FURTHER, ON AN IDENTICAL SET OF FACT, SIMILAR GROUND WAS RAISED BEFORE THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF DCIT V. ANDHRA BANK LTD. IN I. T.A. NO. 630/HYD/2012 AND VIDE ITS ORDER DATED 04.10.2013 FOR THE ASSESSMENT YEAR 2007 - 08, THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 2. GROUND NOS. 2 & 3 ARE PERTAINING TO DEPRECIATION ON HTM INVESTMENTS OF RS. 293,31,88,038/ - . THE AO DISALLOWED THE S AID DEPRECIATION CLAIM OF THE ASSESSEE ON THE GROUND THAT THE CLAIM WAS NOT ROUTED THROUGH P&L ACCOUNT BUT A CLAIM WAS MADE IN RESPECT OF DEPRECIATION ON HTM CATEGORY THROUGH A NOTE AND THEREFORE IS NOT ALLOWABLE EXPENDITURE AS PER THE PROVISIONS OF IT ACT FOLLOWING CBDT CIRCULARS, CASE LAWS RELIED UPON BY THE ASSESSEE, RELEVANT ACCOUNTING STANDARDS, RBI GUIDELINES AND ACCOUNTING PRINCIPLES. 3. ON APPEAL, THE CIT(A) FOLLOWING HIS PREDECESSOR S DECISION IN AY 2005 - 06, SET ASIDE THE ISSUE TO THE FILE OF TH E AO WITH A DIRECTION TO ASCERTAIN THE FACTS AND ALLOW DEPRECIATION ACCORDINGLY. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CANVASSED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 66 ASSESSEE S OWN CASE FOR AY 20 06 - 07 IN ITA NO. 97/HYD/2010 VIDE ORDER DATED 04/04/2013. THE LEARNED DR NEITHER CONTROVERTED THE SUBMISSION OF THE LEARNED COUNSEL NOR BROUGHT ANY CONTRARY DECISION ON RECORD AGAINST THE SAID ORDER. 5. AFTER HEARING THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN ASSESSEE S OWN CASE FOR AY 2006 - 07 WHEREIN THE COORDINATE BENCH HELD AS FOLLOWS: 50. WE ARE OF THE OPINION THAT THE ASSESSEE BA NK IS HOLDING VARIOUS GOVERNMENT SECURITIES IN ORDER TO COMPLY WITH THE STATUTORY LIQUIDATED RATIO. THE BANK WOULD HAVE TO HOLD REQUISITE PERCENTAGE OF DEPOSITS IN THE FORM OF CASH, GOLD, GOVERNMENT OR APPROVED SECURITIES. THE GOVERNMENT SECURITIES HELD FO R THE PURPOSE OF COMPLY WITH THE SLR HAS BEEN HELD TO BE STOCK IN TRADE AND THEREFORE VALUE OF THE SAME AS ON 31ST MARCH HAS TO BE MADE AND THERE IS ANY DEPRECIATION THE SAME SHOULD BE ALLOWED AS A REVENUE DEDUCTION. HOWEVER, THE RBI HAS ISSUED CIRCULAR WH EREIN THEY HAVE CLASSIFIED THE INVESTMENT MADE TO COMPLY WITH SLR REQUIREMENT AS `HELD TO MATURITY (HTM), `AVAILABLE FOR SALE (AFS) AND `HELD FOR TRADE (HFT). BASED ON THE RBI CIRCULAR LOWER AUTHORITIES CAME TO THE CONCLUSION THAT INVESTMENT IN GOVERNME NT SECURITIES WHICH ARE CLASSIFIED UNDER THE HEAD HTM CANNOT BE CONSIDERED AS STOCK IN TRADE AND THEREFORE DEPRECIATION IN VALUE OF SUCH SECURITIES CANNOT BE ALLOWED AS A DEDUCTION. THE APEX COURT IN THE CASE OF UCO BANK LTD VS CIT REPORTED IN 240 ITR 355 HAS HELD THAT VALUE OF THE SECURITIES AT COST OR MARKET VALUE WHICHEVER IS LESS SHOULD BE ACCEPTED FOR INCOME TAX EVEN IF THE BANKS IN THEIR BOOKS DO NOT VALUE ON THAT BASIS. THEREFORE, IT IS AN ACCEPTED PROPORTION THAT INVESTMENT MADE BY THE BANK TO COMPL Y WITH THE SLR REQUIREMENT WOULD CONSTITUTE THEIR STOCK IN TRADE AND DEPRECIATION IN VALUE OF THE SAME IS AN ALLOWABLE DEDUCTION. 51. RESPECTFULLY FOLLOWING THE DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE UPHOLD THE CLAIM OF THE ASSESSEE AND DIRECT THE AO TO ALLOW DEPRECIATION / FALL IN VALUE OF INVESTMENT IN GOVERNMENT SECURITIES INCLUDING THOSE CLASSIFIED UNDER HTM CATEGORY. NO DOUBT THE VALUE IN OPENING STOCK IN THE NEXT YEAR WOULD CORRESPONDINGLY BE ADJUSTED. THIS ISSUE IS DECIDED IN F AVOUR OF THE ASSESSEE. 6. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF AY 2006 - 07 IN ASSESSEE S OWN CASE, RESPECTFULLY FOLLOWING THE SAME WE UPHOLD THE DIRECTIONS OF LD.CIT(A) WITH A DIRECTION TO AO TO FOLLOW THE SAME IN THIS YEAR ALSO A S PER THE ORDER OF ITAT SUPRA.. ACCORDINGLY, GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 67 IN VIEW OF THE ABOVE DECISION S OF THE TRIBUNAL , WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 1 2 1 . T HE FOURTH GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD TO TAXABILITY OF INTEREST ON SECURITIES ON DUE BASIS. THE ASSESSEE HAS OFFERED INTEREST ON SECURITIES TO TAX ON DUE BASIS AND THE INTEREST ACCRUED BUT NOT DUE WAS NOT OFFERED TO TAX ON THE GROUND THAT THE SAID AMOUNT ACCRUES ONLY ON THE RESPECTIVE FIXED DUE DATES. BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS SUBMITTED THAT THE BANK HAS CONSISTENTLY ACCOUNTS THE INTEREST ON SECURITIES ON ACCRUAL BASIS IN THE BOOKS AND OFFERS THE INTEREST O N SECURITIES ON RECEIPT BASIS TO TAX AND THE HON BLE MADRAS HIGH COURT HAS UPHELD THIS SYSTEM IN THE CASES OF TAMILNADU MERCANTILE BANK 291 ITR 137 AND CITY UNION BANK 2912 ITR 144. THE ASSESSEE HAS ALSO RELIED ON THE DECISION OF UCO BANK V. CIT 240 ITR 3 55. HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE SUBMISSIONS OF THE ASSESSEE AND MADE ADDITION OF .60,88,50,392/ - . 1 2 2 . ON APPEAL, THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND, IN VIEW OF THE JUDICIAL PRONOUNCEMENT OF TH E HON BLE SUPREME COURT IN THE SLP FILED BY THE DEPARTMENT AGAINST THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF FEDERAL BANK 310 ITR 9 [STATUTE] AND IN THE CASE OF TAMILNADU MERCANTILE BANK LTD. IN CC 3043/2008 DATED 07.03.2008, ALL OWED THE GROUND RAISED BY THE ASSESSEE. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 68 1 2 3 . ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. DR STRONGLY SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY RELIE D ON THE ORDER PASSED BY THE LD. CIT(A). 12 4 . AFTER HEARING BOTH SIDES, WE FIND THAT ON THIS ISSUE, THE HON BLE SUPREME COURT HAS DISMISSED THE SLP FILED BY THE DEPARTMENT AGAINST THE DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF FEDE RAL BANK 310 ITR 9 [STATUTE] AND ALSO IN THE CASE OF TAMILNADU MERCANTILE BANK LTD. IN CC 3043/2008 DATED 07.03.2008. THE LD. CIT(A), BY FOLLOWING THE ABOVE DECISION, DECIDED SIMILAR ISSUE FOR THE ASSESSMENT YEAR 2006 - 07 AND ALLOWED THE GROUND RAISED BY TH E ASSESSEE, AGAINST WHICH, THE DEPARTMENT HAS NOT PREFERRED ANY APPEAL BEFORE THE TRIBUNAL. SIMILARLY, BY FOLLOWING HIS OWN DECISION IN THE ASSESSMENT YEAR 2006 - 07 ALSO, THE LD. CIT(A) ALLOWED THE GROUND RAISED BY THE ASSESSEE. MOREOVER, THE LD. CIT(A) , WH ILE DECIDING THE APPEAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2001 - 02 HELD THAT THE ISSUE IS COVERED BY THE DECISION OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF TAMILNADU MERCANTILE BANK LIMITED 291 ITR 137 AND CITY UNION BANK LIMITED 291 IT R 144 AGAINST WHICH THE REVENUE PREFERRED APPEAL BEFORE THE TRIBUNAL AND THE TRIBUNAL IN I.T.A. NO. 239/MDS/2011 VIDE ORDER DATED 12.10.2011 DECIDED THE ISSUE AGAINST THE REVENUE , WHEREIN, THE TRIBUNAL HAS HELD AS UNDER: I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 69 5. THE SECOND ISSUE RAISED, BY TH E REVENUE IS THAT THE COMMISSIONER OF INCOME - TAX (APPEALS) HAS ERRED IN HOLDING THAT THE INTEREST ON SECURITIES HAS TO BE TAXED ON DUE BASIS. THE REVENUE HAS TAXED IT ON ACCRUAL BASIS. THE COMMISSIONER OF INCOME - TAX (APPEALS) HELD THAT THE ISSUE IS COVERED BY THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASES OF TAMILNADU MERCANTILE BANK LIMITED (291 ITR 137) AND CITY UNION BANK LIMITED (291 ITR 144). THE COMMISSIONER OF INCOME - TAX (APPEALS) FURTHER HELD THAT THE INTEREST ON SECURITIES CAN BE TAXED ONLY ON DUE BASIS. 6. AS PER THE TERMS OF SECURITIES ISSUED BY THE GOVERNMENT, THE PROCEEDS AT MATURITY ALONG WITH INTEREST SHALL BE PAID TO THE PERSONS WHO ARE HOLDING THE SECURITIES ON THE DATE OF REDEMPTION. THE HOLDER OF THE SECURITY CANNOT ENCASH T HE SECURITY PREMATURELY BEFORE THE DATE OF REDEMPTION LIKE BANK DEPOSITS. A FIXED BANK DEPOSIT CAN BE REDEEMED EVEN BEFORE THE MATURITY DATE AND THE DEPOSITOR MAY GET A PORTION OF THE INTEREST ACCRUED ON THE DEPOSIT TILL THE DATE OF SURRENDER. IN SUCH CASE S, THE INTEREST IS GENERATED ON ACCRUAL BASIS. BUT IN THE CASE OF A GOVERNMENT SECURITY, IT IS NOT POSSIBLE TO ENCASH IT PRIOR TO THE DUE DATE. A HOLDER OF THE SECURITY MAY BE ABLE TO SELL IT TO ANOTHER PERSON; BUT THERE IS NO PROVISION FOR PREMATURE ENCAS HMENT. ENCASHMENT CAN BE MADE ONLY ON THE DUE DATE. WHEN THE PRINCIPAL AMOUNT INVOLVED, IN THE INSTRUMENT ITSELF IS REDEEMABLE ONLY ON DUE DATE, THERE IS NO REASON TO HOLD THAT THE INTEREST ELEMENT WOULD BE GENERATED ON ACCRUAL BASIS. THE INTEREST, ALSO GO ES ALONG WITH THE PRINCIPAL AMOUNT IN THE CASE OF SECURITIES. THE FALL OUT OF THE ABOVE POSITION IS THAT IN THE CASE OF A GOVERNMENT SECURITY, THE INTEREST COULD BE RECOGNIZED ONLY ON DUE DATE AND NOT ON ACCRUAL BASIS. THIS FUNDAMENTAL CHARACTER OF A GOVER NMENT INSTRUMENT ITSELF IS SUFFICIENT TO JUSTIFY THE METHOD OF INTEREST INCOME RECOGNITION BY THE ASSESSEE - BANK. WE FIND THAT THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) IS JUST AND PROPER IN LAW. THE APPEAL FILED BY THE REVENUE FAILS. 1 2 5 . RE SPECTFULLY FOLLOWING THE ABOVE JUDICIAL PRONOUNCEMENTS, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 12 6 . THE FIFTH GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD T O ALLOWABILITY OF WRITE OFF OF BAD DEBTS BY DEBIT TO PROVISION ACCOUNT AMOUNTING TO .51,95,64,198/ - AND TECHNICAL WRITE OFF AMOUNT TO . 136,31,00,000/ - . SINCE BAD DEBTS ARE ALLOWABLE EXPENDITURE, T HE ISSUE RAISED IN THE APPEAL S I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 70 OF THE REVENUE FOR THE ASS ESSMENT YEAR S 2005 - 06 AND 2007 - 08 IN I.T.A. NOS. 2124 AND 2125/MDS/2014 [CROSS APPEALS AGAINST 143(3) R.W.S. 147 ASSESSMENT] BEFORE THE TRIBUNAL HA VE BEEN CONSIDERED AND DECIDED AGAINST THE REVENUE FROM PARA 23 TO 30 OF THIS ORDER. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE FOR THE ASSESSMENT YEAR 2007 - 08 IS ALSO DISMISSED. 127. IN THE RESULT, THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2007 - 08 IS PARTLY ALLOWED . I.T.A. NO. 2025/MDS/2011 [A.Y. 2008 - 09] 12 8 . THE FIRST GROUND RAISED IN THE APPE AL OF REVENUE IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION. 12 9 . THE SECOND GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD TO ALLOWABILITY OF WRITE OFF OF BAD DEBTS AT HEAD OFFICE AGAINST PROVISIONS [TECHNICAL WRITE - OFF OF BAD DEBTS OF .393,76,00,000/ - UNDER SECTION 36(1)(VII) OF THE ACT. SINCE BAD DEBTS ARE ALLOWABLE EXPENDITURE, THE ISSUE RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007 - 08 AND HAS BEEN CONSIDERED AND DECIDED IN FAVOUR OF THE ASSESSEE FROM PARA 4 1 TO 4 5 OF THIS ORDER. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 1 30 . THE THIRD GROUND RAISED IN THE APPEAL OF THE REVENUE RELATES TO INCLUSION OF INCOME OF FOREIGN BRANCHES AT SINGAPORE AND COLOMBO AMOUNTING TO .38,33,66,265/ - WITH THE INCOME CHARGEABLE TO TAX IN INDIA. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 71 SIMILAR GROUND WAS RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2009 - 1 0 IN I.T.A. NO. 1871/MDS/2012 AND WE HAVE DECIDED THE ISSUE AGAINST THE ASSESSEE FROM PARA 8 9 TO 9 4 OF THIS ORDER. ACCORDING LY, FOR THE ASSESSMENT YEAR 200 8 - 0 9, THE GROUND RAISED BY THE REVENUE IS ALLOWED . 1 31 . THE FOURTH GROUND RAISED IN THE APPEAL OF THE REVENUE RELATES TO DISALLOWANCE OF DEPRECIATION OF .178,68,00,000/ - ON ACCOUNT OF SHIFTING OF SECURITIES FROM AFS TO HT M. SIMILAR GROUND HAS BEEN RAISED BY THE REVENUE IN THE ASSESSMENT 2007 - 08 IN I.T.A. NO. 887/MDS/2010 AND WE HAVE DECIDED THE ISSUE AGAINST THE REVENUE FROM PARA 11 6 TO 1 20 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2008 - 09 ALSO, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 1 3 2 . THE FIFTH GROUND RAISED BY THE REVENUE RELATES TO APPLICABILITY OF BOOK PROFITS TO THE BANK. SIMILAR GROUND WAS RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2007 - 08 IN I.T.A. NO. 8 80/MDS/2010 AND WE HAVE DECIDED THE IS SUE IN FAVOUR OF THE ASSESSEE FROM PARA 6 8 TO 7 2 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2008 - 09, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 133. IN THE RESULT, THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2008 - 09 IS PARTLY ALLOWED . I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 72 I.T.A. NO. 2198/MDS/2012 [A.Y. 2009 - 10] 1 3 4 . THE FIRST GROUND RAISED IN THE APPEAL OF REVENUE IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION. 13 5 . THE SECOND GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD TO ALLOWABILITY OF WRITE OFF OF BAD DEBTS AT HEAD OFFICE AGAINST PROVISIONS [TECHNICAL WRITE - OFF ] OF BAD DEBTS OF .393,76,00,000/ - UNDER SECTION 36(1)(VII) OF THE ACT. SINCE BAD DEBTS ARE ALLOWABLE EXPENDITURE, THE ISSUE RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2 007 - 08 AND HAS BEEN CONSIDERED AND DECIDED IN FAVOUR OF THE ASSESSEE FROM PARA 4 1 TO 4 5 OF THIS ORDER. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 13 6 . THE THIRD GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD TO BROKEN PERIOD INTEREST AMOUNTING TO .51,74,61,891/ - ON THE PURCHASE OF SECURITIES. SIMILAR GROUND WAS RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2007 - 08 IN I.T.A. NO. 880/MDS/2010 AND WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FROM PARA 4 6 TO 4 9 OF THIS ORDER. ACCORDINGLY, FOR T HE ASSESSMENT YEAR 2009 - 10, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 13 7 . THE FOURTH GROUND RAISED IN THE APPEAL OF THE REVENUE RELATES TO DISALLOWANCE OF DEPRECIATION OF .202,64,09,682/ - ON ACCOUNT OF SHIFTING OF SECURITIES FROM AFS TO HTM. SIMI LAR GROUND HAS BEEN RAISED BY THE REVENUE IN THE ASSESSMENT 2007 - 08 IN I.T.A. NO. 887/MDS/2010 AND WE HAVE DECIDED I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 73 THE ISSUE AGAINST THE REVENUE FROM PARA 11 6 TO 1 20 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2009 - 10 ALSO, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 13 8 . THE FIFTH GROUND RAISED IN THE APPEAL OF THE REVENUE RELATES TO TAXABILITY OF INTER E ST ON SECURITIES ON DUE BASIS. SIMILAR GROUND HAS BEEN RAISED BY THE REVENUE IN THE ASSESSMENT 2007 - 08 IN I.T.A. NO. 887/MDS/2010 AND WE HAVE DECIDED THE ISSUE AGAINST THE REVENUE FROM PARA 1 21 TO 12 5 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2009 - 10 ALSO, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 13 9 . THE SIXTH GROUND RAISED IN THE APPEAL OF THE REVENUE RELATES TO THE PROVISION MADE FOR WAGE ARREARS TO STAFF OF .173,00,00,000/ - . THE ASSESSING OFFICER DISALLOWED THE CLAIM ON THE GROUND THAT THE PROVISION WAS TOWARDS A CONTINGENT UNASCERTAINED LIABILITY SINCE THE BIPARTITE AGREEMENT FOR WAGE REVISION WAS ENTERED INTO ONLY ON 27.04.2010. 140 . ON APPEAL BEFORE TH E LD. CIT(A), THE AR OF THE ASSESSEE HAS SUBMITTED THAT THE AMOUNT PROVIDED WAS IN ACCORDANCE WITH ACCOUNTING STANDARD 29 (AS 29) PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND THAT IT WAS NOT A CONTINGENT LIABILITY BUT ACTUAL LIABILITY. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO CONSIDERING VARIOUS I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 74 HIGHER COURTS DECISIONS, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. 1 41 . ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US AND TH E LD. DR HAS SUPPORTED THE ORDER PASSED BY THE ASSESSING OFFICER. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 1 42 . WE HAVE CONSIDER ED THE RIVAL SUBMISSIONS . BEFORE THE ASSESSING OFFICER, THE ASSESSEE, VIDE ITS LETTER DATED 15.12.2011, HAS SUBMITTED THAT BASED ON ITS APPRECIATION OF THE SITUATION, ESTIMATED THE LIABILITY AND MADE A PROVISION FOR WAGE ARREARS OF .173 CRORES DURING THE FINANCIAL YEAR 2008 - 09. FURTHER, IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER VIDE THEIR LETTER DATED 21.12.2011 THAT THE PROVISION FOR WAGE ARREARS HAS BEEN MADE BY THE BANK FOR THE SERVICES THAT HAS BEEN ALREADY RENDERED. THE LIA BILITY TO PAY REMUNERATION IS AN ASCERTAINED EVENT AND ONLY THE QUANTIFICATION OF SUCH LIABILITY IS ESTIMATED. FURTHER, VIDE LETTER DATED 29.12.2011, IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE BIPARTITE AGREEMENT WAS ON WAGES EXPIRED ON 31.10.2 007 PAVING THE WAY FOR FRESH NEGOTIATIONS FOR 9 TH BIPARTITE AGREEMENT BY WHICH REVISED WAGES ARE TO BE FROM 01.11.2007. AS PAYMENT OF REVISED WAGES WAS CERTAIN FROM 01.11.2007, THE BANK STARTED PROVIDING FOR WAGES AS IT IS A CERTAIN LIABILITY TO BE PAID. T HE ASSESSING OFFICER HAS OBSERVED THAT THE BIPARTITE WAGE PACT WAS SIGNED BY INDIAN BANK I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 75 ASSOCIATIONS ON BEHALF OF MEMBER BANKS AND BANK UNIONS ONLY ON 27.04.2010 I.E. AFTER 31 ST MARCH, 2009, THE END OF THE RELEVANT FINANCIAL YEAR AND THEREFORE IT IS CLEAR THAT THE LIABILITY OF WAGE ARREARS DID NOT ARISE IN THE FINANCIAL YEAR 2008 - 09 RELEVANT TO THE ASSESSMENT YEAR 2009 - 10. THE BIPARTITE AGREEMENT SHOULD HAVE BEEN SIGNED AND REVISED WAGES ARE TO BE PAID FROM 01.11.2007 . AFTER COMPLETION OF NEGOTIATIONS, THE BIPARTITE AGREEMENT WAS SIGNED ONLY ON 27.04.2010. IT CANNOT BE SAID THAT SINCE THE BIPARTITE AGREEMENT WAS SIGNED ONLY ON 27.04.2010, THE WAGE REVISION WILL BE EFFECTED FROM THE DATE OF SIGNING OF THE AGREEMENT. THE LD. CIT(A) HAS OBSERVED THAT THE ASSES SEE HAS MADE A PROVISION IN BOOKS BASED ON REASONABLE ESTIMATE IN ACCORDANCE WITH MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY IT. THE ACTUAL PAYMENT OF THIS SUM HAS BEEN MADE DURING JUNE, 2010 ON SIGNING THE AGREEMENT. THOUGH THE AGREEMENT WAS SIGNED ON A LATER DATE, THERE DEFINITELY EXISTED A LIABILITY ON THE PART OF THE ASSESSEE TO PROVIDE FOR IT IN ITS BOOKS. THEREFORE, BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF NEYVELI LIGNITE CORPORATION V. ACIT 93 TTJ 685, THE LD. CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE, THE LD. CIT(A). IN THE CASE OF NEYVELI LIGNITE CORPORATION (SUPRA), THE TRIBUNAL HAS HELD THAT THE PROVISION MADE FOR WAGE ARREARS BASED ON A REASONABLE ESTIMATE WAS AN ALLOWABL E DEDUCTION EVEN THOUGH THE AGREEMENT WAS SIGNED ON A LATER DATE. THE LD. DR COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL. SINCE THE LD. CIT(A) HAS I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 76 FOLLOWED THE ORDER OF THE TRIBUNAL AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, WE FIND NO IN FIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) . WE FURTHER HOLD THAT THE ACTUAL LIABILITY IS ALLOWED IN THE YEAR OF ACTUAL DISCHARGE OF THE SAID LIABILITY AND ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 1 4 3 . WITH REGARD TO THE GROUNDS RAI SED IN 6.6, 6.7 AND 6.8 RELATE TO APPLICABILITY OF BOOK PROFITS TO THE BANK. SIMILAR GROUND WAS RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2007 - 08 IN I.T.A. NO. 880/MDS/2010 AND WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FROM PARA 6 8 TO 7 2 OF T HIS ORDER. HOWEVER, WE MAKE IT CLEAR THAT THERE CANNOT BE DOUBLE CLAIM VIZ. ONE IS PROVISION AND ANOTHER ON ACTUAL PAYMENT. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2009 - 10, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 144 . IN THE RESULT, THE APPEAL OF TH E REVENUE FOR THE ASSESSMENT YEAR 2009 - 10 IS DISMISSED . I.T.A. NO. 2126/MDS/2014 [A.Y. 2010 - 11] 1 4 5 . THE FIRST GROUND RAISED IN THE APPEAL OF REVENUE IS GENERAL IN NATURE AND REQUIRES NO ADJUDICATION. 1 46 . THE SECOND GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD TO ALLOWABILITY OF WRITE OFF OF BAD DEBTS AT HEAD OFFICE AGAINST PROVISIONS [TECHNICAL WRITE - OFF] OF BAD DEBTS OF .377,05,00,000/ - UNDER SECTION 36(1)(VII) I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 77 OF THE ACT. SINCE BAD DEBTS ARE ALLOWABLE EXPENDITURE, THE ISSUE RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007 - 08 AND HAS BEEN CONSIDERED AND DECIDED IN FAVOUR OF THE ASSESSEE FROM PARA 4 1 TO 4 5 OF THIS ORDER. ACCORDINGLY, THE GROUND RAISED IN THE ASSESSMENT YEAR 2010 - 11 BY THE REVENUE IS DISMISSED. 14 7 . THE THIRD GROUND RAISED IN THE APPEAL OF THE REVENUE IS WITH REGARD TO BROKEN PERIOD INTEREST AMOUNTING TO .28,44,86,869/ - ON THE PURCHASE OF SECURITIES. SIMILAR GROUND WAS RAISED BY THE ASSESSEE IN THE ASSESSMENT YEAR 2007 - 08 IN I.T.A. NO. 880/MDS/2010 AND WE HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FROM PARA 4 6 TO 4 9 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2010 - 11, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 14 8 . THE FOURTH GROUND RAISED IN THE APPEAL OF THE REVENUE RELATES TO DISALLOWANCE OF DEPRECIATION OF .49,22,32,974/ - ON ACCOUNT OF SHIFTING OF SECURITIES FROM AFS TO HTM. SIMILAR GROUND HAS BEEN RAISED BY THE REVENUE IN THE ASSESSMENT 2007 - 08 IN I.T.A. NO. 887/MDS/2010 AND WE HAVE DECIDED THE ISSUE AGAINST THE REVENUE FROM PARA 11 6 TO 1 20 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 14 9 . THE FIFTH GROUND RAISED IN THE APPEAL OF THE REVENUE RELATES TO DEPRECIATION FOR UPS @ 60%. WE HAVE CONSIDERED SIMILAR ISSUE AND I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 78 DISMISSED THE GROUND R AISED BY THE REVENUE IN I.T.A. NOS. 2124 AND 2125/MDS/2014 FOR THE ASSESSMENT YEAR 2005 - 06 AND 2007 - 08 FROM PARA 1 7 TO 22 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 1 50 . THE SIXTH GROU ND RAISED IN THE APPEAL OF THE REVENUE RELATES TO DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 36(1)(VIIA) OF THE ACT AT .197,51,47,290/ - . WE HAVE CONSIDERED SIMILAR ISSUE AND DISMISSED THE GROUND RAISED BY THE REVENUE IN I.T.A. NOS. 2124 AND 2125/MDS/ 2014 FOR THE ASSESSMENT YEAR 2005 - 06 AND 2007 - 08 FROM PARA 2 3 TO 30 OF THIS ORDER. ACCORDINGLY, FOR THE ASSESSMENT YEAR 2010 - 11 ALSO, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 1 51 . THE SEVENTH GROUND RAISED IN THE APPEAL OF THE REVENUE RELATES TO DI SALLOWANCE OF LOSS ON REVALUATION OF FORWARD CONTRACTS AT .43,07,133/ - . THE ASSESSEE, IN ITS PROFIT AND LOSS ACCOUNT, DEBITED AN AMOUNT OF .43,07,133/ - BY WAY OF LOSS ON REVALUATION OF DERIVATIVE CONTRACTS. THE ASSESSING OFFICER HAS TREATED THE LOSS AS SPECULATIVE LOSS UNDER SECTION 43(5) OF THE ACT AND DISALLO WED ITS SET OFF AGAINST THE REGULAR BUSINESS INCOME. 1 52 . ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE HAS SUBMITTED THAT THE DERIVATIVE CONTRACTS ENTERED INTO BY THE ASSESSEE ARE FORWARD CONTRACTS TO I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 79 REDUCE THE INCIDENCE OF UNFORESEEN LOSSES THEREBY P ROTECTING THE INTERESTS OF BUSINESS AND THEREFORE, THE DERIVATIVE CONTRACTS WILL AMOUNT TO A BUSINESS TRANSACTION AND NOT A SPECULATIVE TRANSACTION FOR THE PURPOSE OF SECTION 43(5) OF THE ACT. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND EXAMINING THE ISSUE AT LENGTH, THE LD. CIT(A) HAS HELD THAT THE DERIVATIVE CONTRACTS THOUGH INVOLVED FOREIGN EXCHANGE CANNOT BE VIEWED AS SPECULATIVE TRANSACTIONS AND DIRECTED THE ASSESSING OFFICER TO CONSIDER THE LOSSES FROM THE DERIVATIVE CONTRACTS AS REGULAR BUS INESS LOSSES AND ALLOW THEIR SET OFF AGAINST OTHER BUSINESS PROFITS OF THE ASSESSEE. 1 53 . AGGRIEVED, THE REVENUE IS IN APPEAL AND THE LD. DR HAS SUBMITTED THAT THE NOTIONAL LOSS WOULD BE CONTINGENT IN NATURE AND CANNOT BE ALLOWED TO BE SET OFF AGAINST T HE TAXABLE INCOME. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 1 5 4 . WE HAVE CONSIDERED RIVAL SUBMISSIONS. THE POINT AT ISSUE BEFORE US IS WHETHER THE LOSSES FROM THE DERIVATIVE CONTRACTS AMOUNTS A SPE CULATIVE TRANSACTION OR NOT? THE ASSESSING OFFICER HAS OBSERVED THAT THE DERIVATIVE TRANSACTIONS ARE SPECULATIVE TRANSACTIONS UNDER SECTION 43(5) OF THE ACT AND THE RESULTING LOSSES ARE SPECULATIVE LOSSES. ON APPEAL, THE LD. CIT(A), BY REPRODUCING RELEVANT PROVISIONS OF SECTION 43(5) OF THE ACT, HAS OBSERVED THAT FOR THE PURPOSE OF SECTIONS 28 TO 41 (I.E., UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION) MEANS THE CONTRACTS OF PURCHASES OR SALES OF ANY (I) I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 80 SHARES AND STOCKS, AND (II) COMMODITIES PERIODICA LLY OR ULTIMATELY SETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPS. THEREFORE, HE OBSERVED THAT ANY OTHER TRANSACTIONS, OTHER THAN THOSE MENTIONED ABOVE ARE NOT THE SPECULATIVE TRANSACTIONS FOR THE PURPOSE OF INCOME TAX AND IN OTHER WORDS, ONLY THE LOSSES RESULTING FROM THE TRANSACTIONS IN SHARES AND STOCKS AND COMMODITIES, THAT TOO WITHOUT ACTUAL DELIVERY, ARE TO BE CLASSIFIED AS SPECULATIVE LOSSES. ANY OTHER TRANSACTION WHICH IS NOT FALLING INTO THE ABOVE DEFINITION UND ER SECTION 43(5) CANNOT BE TREATED AS A SPECULATIVE TRANSACTION. IN VIEW OF THE ABOVE, THE LD. CIT(A) HAS HELD THAT THE DERIVATIVE CONTRACTS THOUGH INVOLVED FOREIGN EXCHANGE CANNOT BE VIEWED AS SPECULATIVE TRANSACTIONS AND DIRECTED THE ASSESSING OFFICER TO CONSIDER THE LOSSES FROM THE DERIVATIVE CONTRACTS AS REGULAR BUSINESS LOSSES AND ALLOW THEIR SET OFF AGAINST OTHER BUSINESS PROFITS OF THE ASSESSEE. FOR ARRIVING THE ABOVE CONCLUSION, THE LD. CIT(A) HAS RELIED VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THE DECISION OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. SOORAJMULL NAGARMULL 129 ITR 169, WHEREIN, THE HON BLE HIGH COURT HAS HELD THAT THE FORWARD CONTRACTS ARE NOT SPECULATIVE TRANSACTIONS. 155. IT HAS TO BE SEEN WHETHER FOREIGN CURRENCY IN CLUDED IN THE PRESENT DERIVATIVES CONTRACTS REPRESENTS A COMMODITY OR A SHARE AND STOCK? SHARES AND STOCKS MEANS THE SHARES OF THE COMPANIES. HENCE THE FOREIGN CURRENCY I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 81 WILL NOT FALL INTO THE CATEGORY OF SHARES AND STOCKS . COMMODITY MEANS THE ONES WH ICH ARE ELIGIBLE TO BE TRADED IN THE RECOGNIZED COMMODITY EXCHANGES. THE CURRENCY, WHETHER FOREIGN CURRENCY OR INDIAN CURRENCY , IS NOT ALLOWED TO BE TRADED IN THE COMMODITY EXCHANGES. THEREFORE, THE FOREIGN CURRENCY CANNOT BE TREATED AS A COMMODITY . THE DELHI BENCH OF ITAT IN THE CASE OF MUNJAL SHAWA LTD. V. DCIT 94 TTJ 227 HAS HELD THAT THE FOREIGN CURRENCY IS NEITHER A COMMODITY NOR A SHARE. THE SPECIAL BENCH OF ITAT KOLKATA IN THE CASE OF SHREE CAPITAL SERVICES LTD. V. ACIT 121 ITD 498 [KOL] (SB) H AS HELD THAT A CURRENCY CANNOT BE TERMED AS A COMMODITY SO AS TO ATTRACT THE PROVISIONS OF SECTION 43(5) OF THE ACT. SIMILARLY, THE MUMBAI BENCHES OF ITAT IN THE CASE OF DCIT V. INTERGOLD (I) LTD. 124 TTJ 337 (MUM) HAS HELD THAT PROFITS FROM CANCELLATION O F FORWARD EXCHANGE CONTRACTS ARE BUSINESS PROFITS AND NOT SPECULATIVE PROFITS. FURTHER, THE SPECIFIC ISSUE OF 'LOSS ON EVALUATION OF UN - MATURED FORWARD FOREIGN EXCHANGE CONTRACT WAS CONSIDERED BY THE HON'BLE SPECIAL BENCH OF ITAT, MUMBAI IN THE CASE OF DC IT V. BANK OF BAHRAIN & KUWAIT, 41 SOT 290 WHEREIN IT WAS HELD AS BELOW: 58. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THE ASSESSEE'S APPEAL FOR THE FOLLOWING REASONS : - (I) A BINDING OBLIGATION ACCRUED AGAINST THE ASSESSEE THE MINUTE IT ENTERED INTO FORWARD FOREIGN EXCHANGE CONTRACTS. (II) A CONSISTENT METHOD OF ACCOUNTING FOLLOWED BY ASSESSEE CANNOT BE DISREGARDED ONLY ON THE GROUND THAT A BETTER METHOD COULD BE ADOPTED. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 82 (III) THE ASSESSEE HAS CONSISTENTLY FOLLOWED THE SAME METHOD OF ACCOUNTING I N REGARD TO RECOGNITION OF PROFIT OR LOSS BOTH, IN RESPECT OF FORWARD FOREIGN EXCHANGE CONTRACT AS PER THE RATE PREVAILING ON MARCH 31. (IV) A LIABILITY IS S AID TO HAVE CRYSTALLI ZED WHEN A PENDING OBLIGATION ON THE BALANCE SHEET DATE IS DETERMINABLE WITH REASONABLE CERTAINTY. THE CONSIDERATIONS FOR ACCOUNTING THE INCOME ARE ENTIRELY ON DIFFERENT FOOTING. (V) AS PER AS - 11 WHEN THE TRANSACTION IS NOT SETTLED IN THE SAME ACCOUNTING PERIOD AS THAT IN WHICH IT OCCURRED THE EXCHANGE DIFFERENCE ARISES OVER MORE THAN ONE ACCOUNTING PERIOD. (VI) THE FORWARD FOREIGN EXCHANGE CONTRACTS HAVE ALL THE TRAPPINGS OF STOCK - IN - TRADE. (VII) IN VIEW OF THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF WOODWARD GOVERNOR INDIA (I) P. LTD. THE ASSESSEE S CLAIM IS ALLOWABL E. (VIII) IN THE ULTIMATE ANALYSIS, THERE IS NO REVENUE EFFECT AND IT IS ONLY THE TIMING OF TAXATION OF LOSS/PROFIT: 59. WE, ACCORDINGLY, HOLD THAT WHERE A FORWARD CONTRACT IS ENTERED INTO BY THE ASSESSEE TO SELL THE FOREIGN CURRENCY AT AN AGREED PRICE AT A FUTURE DATE FALLING BEYOND THE LAST DATE OF ACCOUNTING PERIOD, THE LOSS IS INCURRED TO THE ASSESSEE ON ACCOUNT OF EVALUATION OF THE CONTRACT ON THE LAST DATE OF THE ACCOUNTING PERIOD, I.E., BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT. 155( I) THE FACTS OF THE ASSESSEE 'S CASE ARE SIMILAR TO THAT OF THE BANK OF BAHRAIN & KUWAIT (SUPRA). WE FIND THAT THE 'RATIO LAID DOWN BY THE SPECIAL BENCH MUMBAI ITAT IS SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE . IN THE ASSESSMENT ORDER, THE LOSS ON ACC OUNT OF RE VALUATION OF FORWARD FOREIGN EXCHANGE CONTRACTS HAS WRONGLY BEEN TREATED AS SPECULATIVE IN NATURE. THE TESTS LAID DOWN IN THE CASE OF BANK OF BAHRAIN & KUWAIT (SUPRA) ARE DULY I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 83 SATISFIED AND THEREFORE, THE LOSS CLAIMED BY THE ASSESSEE ON EVALUATIO N OF UN - MATURED FORWARD FOREIGN EXCHANGE CONTRACT TAKEN TO COVER THE CURRENT ASSETS ON THE LAST DATE OF THE ACCOUNTING PERIOD I.E. BEFORE THE DATE OF MATURITY OF THE FORWARD CONTRACT, IS ALLOWABLE, AS DEDUCTION. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES , WE CONFIRM THE ORDER PASSED BY THE LD. CIT(A) AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 1 5 6 . THE EIGHTH GROUND RAISED IN THE APPEAL OF THE REVENUE RELATES TO DISALLOWANCE OF .49,22,32,974/ - ON ACCOUNT OF DEPRECIATION OF SHIFTING OF SECURITIES FROM AFS TO HTM WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. WITH REGARD TO APPLICABILITY OF 115JB TO THE BANK, AT PARA 68 - 72 OF THIS ORDER, BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006 - 07, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND HELD THAT THE PROVISIONS OF SECTION 115JB OF THE ACT COULD NOT BE APPLIED ON THE ASSESSEE. THEREFORE, THE GROUND RAI SED BY THE REVENUE IS DISMISSED. 15 7 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE FOR THE ASSESSMENT YEAR 2010 - 11 IS DISMISSED . 158. TO SUM UP, ASSESSEE S APPEAL IN I.T.A. NO. 1396/MDS/2014 FOR THE ASSESSMENT YEAR 2005 - 06 AND I.T.A. NO. 1395/MDS/2 014 FOR THE ASSESSMENT 2007 - 08 ARE PARTLY ALLOWED. A SSESSEE S APPEAL IN I.T.A. NO. I.T.A. NO S . 880/10, 1923/11, 1871/12, 1395 TO 1397/14 & OTHERS 84 880/MDS/2010 FOR THE ASSESSMENT YEAR 2007 - 08; I.T.A. NO. 1923/MDS/2011 FOR THE ASSESSMENT YEAR 2008 - 09; I.T.A. NOS. 1871/MDS/2012 FOR THE ASSESSMENT YEAR 2009 - 10 & 1397/MDS /2014 FOR THE ASSESSMENT YEAR 2010 - 11 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 159. REVENUE S APPEAL IN I.T.A. NO. 2124/MDS/2014 FOR THE ASSESSMENT YEAR 2005 - 06 IS DISMISSED & I.T.A. NO. 2125/MDS/2014 FOR THE ASSESSMENT YEAR 2007 - 08 IS PARTLY ALLOWED . REVENUE S APPEAL S IN I.T.A. NOS . 2198/MDS/2012 AND 2126/MDS/2014 ARE DISMISSED AND I.T.A. NOS. 887/MDS/2010 AND 2025/MDS/2011 ARE PARTLY ALLOWED . ORDER PRONOUNCED ON THE 30 TH NOVEMBER , 2015 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 30 . 1 1 .201 5 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF .