The Karad Janata Sahakari Bank Ltd., Satara V. Income-tax Officer,

ITA 2150/PUN/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93708 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 11-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Question of law; Cost of acquisition; Bad and doubtful debts; Revised return
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE M S SUSHMA CHOWLA , JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2150 /PN/201 3 ASSESSMENT YEAR: 20 1 0 - 1 1 THE KARAD JANATA SAHAKARI BANK LTD., 100/101, SHIVAJINAGAR, KARAD, DI ST. SATARA . APPELLANT PAN: AAAAT7863R VS. THE TAX RECOVERY OFFICER, SATARA . RESPONDENT A PPELLANT BY : S HRI M.K. KULKARNI RESPONDENT BY : SHRI RAJESH DAMOR DATE OF HEARING : 20 - 0 4 - 201 5 DATE OF PRONOUNCEMENT : 29 - 0 4 - 201 5 ORDER PER SUSHMA CHOWLA, J M : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) - II I, PUNE DATED 15 .1 0 .201 3 RELATING TO ASSESSMENT YEAR 20 1 0 - 1 1 PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 . 2 . THE ASSESS EE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C I T(A) - III, PUNE WAS NOT JUSTIFIED IN DISMISSING THE GROUND OF APPEAL CLAIMING THE DEDUCTION OF RS.1, 1 1,69, 000 / - ON ACCOUNT OF AMORTIZATION OF EXPENSES I.E. PREMIUM PAID AN PURCHASE GOVT. SECURITIES (HTM SECURITIES) THOUGH THIS ISSUE IS COVERED IN FAVOUR OF THIS APPELLANT BANK BY VARIOUS CO - ORDINATE BENCHES OF TRIBUNAL AND ALSO HON'BLE PUNE BENCH OF TRIBUNAL . THE EXPENDITURE ON ACCOUNT OF PREMIU M PAID ON PURCHASE OF HTM SECURITIES BE ALLOWED. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE A. O . OF RS. 1 ,82,78 , 935/ - OUT OF RS.2,32,78,93 5 / - WHICH A. O . OF RS. 1 ,82,78 , 935/ - OUT OF RS.2,32,78,93 5 / - WHICH DEDUCTION WAS CLAIMED UND ER S.36( 1 )(VII - A) OF THE ACT. THE DECISION TO CONFIRM THE DISALLOWANCE MADE BY THE A. O . IS CONTRARY TO PRINCIPLES ENUNCIATED BY THEIR LORDSHIPS OF THE HON'BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK AND ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 2 PROPERLY CLAIMED BY THE APPELLANT BANK. THE CLAIM WAS RESTRICTED BY A .O . TO RS.50 LAKHS. THE CLAIM BE ALLOWED TO THE APPELLANT BANK IN FULL. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD . C I T ( A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS. 2,55,6 0 ,84 1 / - MADE BY THE A.O. R EJECTING THE CLAIM OF INTEREST ON NPA ACCOUNTS AS ACCORDING TO SETTLED L AW AND THE PROVISIONS OF S . 43D OF THE ACT THE NPA INTEREST BECOMES TAXABLE IN THE YEAR OF ACTUAL RECEIPT. THE APPELLANT BANK CORRECTLY FOLLOWED RBI GUIDELINES IN THIS RESPECT AND ALSO DECISIONS OF VARIOUS CO ORDINATE BENCHES OF I TAT AND ESPECIALLY JURISDICTIONAL PUNE BENCH JUDGMENTS AND CBDT INSTRUCTIONS. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE RS. 5, 0 0,000 / - MADE BY THE A. O . WHICH CLAIM WAS MADE BY THE APPELLANT - BANK RELATING TO STANDARD ASSETS AS THE APPELLANT BANK IS OBLIGED TO FOLLOW THE PRUDENTIAL NORMS CIRCULATED BY THE RESERVE BANK OF INDIA. THE SAME BE ALLOWED. 5) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE MAIN PLANK OF THE ARGUMENTS OF THE DEPARTMENT IN MAKING THE DISALLOWANCES IN RESPECT OF THIS APPELLANT BANK WAS THAT THE RESERVE BANK GUIDELINES ISSUED BY IT UNDER RBI ACT, 1934 CANNOT OVERRIDE THE PROVISIONS OF SPECIAL LAW LIKE INCOME - TAX. THIS ANALOGY IS CONTRARY TO VARIOUS JUDICIAL PRECEDENTS PRONOUNCED BY HON'BLE SUPREME COURT AND VARIOUS HIGH COURTS AND ALSO INSTRUCTIONS OF CBDT . THE ANALOGY CANVASSED BY THE DEPTT. IS NOT IN CONSONANCE WITH VARIOUS JUDICIAL PRECEDENTS A RRIVED AT AFTER IN CONSONANCE WITH VARIOUS JUDICIAL PRECEDENTS A RRIVED AT AFTER PROPER INTERPRETATIONS OF THE PROVISIONS OF BOTH THE LAWS KEEPING IN VIEW THE INTEREST OF NATIONAL ECONOMY. 6) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEVY OF INTEREST U/S . 234B AND 234C IS NOT JUSTIFIED. THE LEVY OF INTEREST BE QUASHED. 7) THE APPELLANT CRAVES/LEAVE TO ADD, AMEND OR AFTER ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE ISSUE IN THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS IN RESPECT OF CLAIM OF DEDUCTION ON AMORTIZATION OF EXPENSES I.E. PREMIUM PAID ON PURC HASE OF GOVERNMENT SECURITIES (HTM SECURITIES). 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD CLAIMED DEDUCTION ON ACCOUNT OF AMOR TIZATION OF PREMIUM PAID ON HTM SECURITIES AMOUNTING TO RS. 1,11,69,000/ - . THE ASSESSEE HAD BOOKED THE SAID EXPENDITURE WHEREVER THE BANK MADE INVESTMENT IN GOVERNMENT SECURITIES UNDER HTM SECURITIES AND WHERE THE ACQUISITION COST WAS MORE THAN ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 3 THE FACE VA LUE, THE PREMIUM OVER AND ABOVE THE FACE VALUE WAS AMORTIZED BY THE BANK OVER THE PERIOD REMAINING TO MATURITY. THE SAID BOOKING OF EXPENDITURE WAS IN LINE WITH THE GUIDELINES ISSUED BY THE RBI GOVERNING THE ASSESSEE BANK. THE ASSESSING OFFICER WAS OF TH E VIEW THAT THE PREMIUM AMORTIZED BY THE BANK WAS PART OF THE COST OF GOVERNMENT SECURITIES AND ANY LOSS OR GAIN COULD BE ASCERTAINED ONLY WHEN THE SECURITIES WERE SOLD, HENCE THE DEDUCTION CLAIMED TOWARDS AMORTIZATION OF PREMIUM WAS NOT A LIABILITY, WHICH HAD ACCRUED TO THE BANK AND THE SAID CLAIM COULD NOT BE ALLOWED UNDER THE PROVISIONS OF INCOME - TAX ACT. IN VIEW THEREOF, SUM OF RS.1,11,69,000/ - BOOKED TOWARDS AMORTIZATION OF PREMIUM WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY THE AS SESSING OFFICER. 5. THE CIT(A) WAS OF THE VIEW THAT THE RBI GUIDELINES OR PRUDENTIAL NORMS ISSUED BY THE RBI WERE NOT INTENDED TO REGULATE THE INCOME - TAX LAW AND CONSEQUENTLY, EXPENDITURE BOOKED BY THE ASSESSEE WAS DISALLOWED IN THE HANDS OF THE ASSESSEE , AGAINST WHICH THE GROUND OF APPEAL NO.1 HAS BEEN RAISED BY THE OF THE ASSESSEE , AGAINST WHICH THE GROUND OF APPEAL NO.1 HAS BEEN RAISED BY THE ASSESSEE. 6. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE CONTENDED THAT THE SAID ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY SERIES OF DECISIONS OF PUNE BENCH OF THE TRI BUNAL AND ALSO BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM) . 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HAD RELIED UPON THE RATIO LAID DOWN BY THE PUNE BENCH OF THE TRIBUNAL IN JANATA SAHAKARI BANK LT D. IN ITA NO.819/PN/2010 DECIDED ON 31.05.2013 FOR THE PROPOSITION THAT PREMIUM PAID ON ACQUISITION OF HTM SECURITIES WAS THE PART OF COMPOSITE COST AND ITS VALUATION AT THE END OF THE YEAR SHOULD BE AS PER CONSISTEN T METHOD FOLLOWED BY THE ASSESSEE FOR VA LUATION OF INVENTORY I.E. COST OR MARKET PRICE, WHICHEVER WAS LOWER, BUT NO SEPARATE TREATMENT COULD BE GIVEN TO THE PREMIUM PAID OVER AND ABOVE THE FACE VALUE OF SECURITIES. ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 4 8. IN REJOINDER, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 1515 & 2194/PN/2012 RELATING TO ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 , ORDER DATED 31.01.2014 AND ALSO COVERED BY THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN CIT VS. HDFC BANK LTD. (SUPRA) . 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE IN THE PRESENT APPEAL IS IN RELATION TO THE ALLOWABILITY OF EXPENDITURE ON ACCOUNT OF AMORTIZATION OF PREMIUM ON HTM SECURITIES. WE FIND THAT THE PUN E BENCH OF THE TRIBUNAL IN THE AHMEDNAGAR MERCHANTS CO - OPERATIVE BANK LIMITED V S. JCIT IN ITA NO.712/PN/2013, RELATING TO ASSESSMENT YEAR 2009 - 10 VIDE ORDER DATED 27.11.2013 HAD ALLOWED THE CLAIM OF ASSESSEE, IN TURN RELYING ON THE ORDER OF TRIBUNAL IN NAG AR URBAN CO - OPERATIVE BANK LTD. IN ITA NO.306/PN/2012, OBSERVING AS UNDER: - 2. THE ONLY ISSUE IS WITH REGARD TO ADDITION MADE BY ASSESSING OFFICER WHO HAS DISALLOWED THE AMORTIZATION PREMIUM PAID ON GOVT. SECURITIES OF RS.23,13,525/ - . AT THE OUTSET OF HEA RING, LEARNED AUTHORIZED RS.23,13,525/ - . AT THE OUTSET OF HEA RING, LEARNED AUTHORIZED REPRESENTATIVE POINTED OUT THAT THIS ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE ORDER IN THE CASE OF NAGAR URBAN CO - OPERATIVE BANK LTD., IN ITA NO.306/PN/2012, WHEREIN THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 4. WE HAVE HEARD THE PARTIES. WE FIND THAT THE ISSUE BEFORE US IS CLEARLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT PUNE BENCH IN THE CASE OF LATUR URBAN CO - OP. BANK LTD. IN ITA NO. 778 AND 792/PN/2011, ORDER DATE D 31 - 8 - 2012. THE RELEVANT DISCUSSION AND FINDING OF THE TRIBUNAL ON THE ISSUE IS AS UNDER. 13. SO FAR AS GROUND NO. 2 IS CONCERNED, IT IS IN RESPECT OF THE DISALLOWANCES ON THE LOSS ON SALE OF SURPLUS OF RS. 14,70,000/ - . THE A.O HAS OBSERVED THAT AN AM OUNT OF RS. 14,70,000/ - IS DEBITED TO THE PROFIT & LOSS A/C ON ACCOUNT OF LOSS ON SALE OF SECURITIES. THE A.O HAS FURTHER OBSERVED THAT THE ASSESSEE IN ITS SUBMISSION HAS STATED THAT SECURITIES OF THE BANK ARE HELD UNDER THE HEAD TO MATURITY CATEGORY AND, THEREFORE, LOSS ARISING ON THE SALE OF INVESTMENT IS IN THE NATURE OF CAPITAL LOSS AND THEREFORE, THE SAME IS NOT ALLOWABLE EXPENDITURE. THE A.O MADE THE ADDITION TO THE EXTENT OF RS. 14,70,000/ - . THE LD CIT(A) CONFIRMED THE ADDITION. 14. WE HAVE HEARD THE PARTIES. THE LD COUNSEL PLACED HIS HEAVY RELIANCE ON THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. BANK OF BARODA AND IN THE CASE OF UCO BANK VS. CIT, 240 ITR 355 (SC). IN THE CASE OF BANK OF BARODA (SUPRA), THE ISSUE BEFORE THEIR LORDSHIP WAS WHETHER THE ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 5 ASSESSEE WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF DEPRECIATION IN THE VALUE OF INVESTMENTS. THE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE BANK WAS TO VALUE INVESTMENTS AT COST OR MARKET VALUE WHICHEVER WAS LOWER. THE ASSESSEE HAD CLAIMED THE DEPRECIATION TO THE TUNE OF RS. 11,82,35,007/ - AND THE SAID DEPRECIATION WAS CLAIMED AS A DEDUCTION WHICH WAS DISALLOWED BY THE A.O, BUT THE ASSESSEE BANK SUCCEEDED BEFORE THE CIT(A). THE TRIBUNAL CONFIRMED THE ORDER OF THE CI T(A). THE REVENUE CARRIED THE ISSUE BEFORE THE HONBLE HIGH COURT. THE CORE ISSUE WAS THE METHOD OF VALUATION ADOPTED BY THE ASSESSEE BANK FOR VALUING THE STOCK OF THE SECURITIES. THE HONBLE HIGH COURT FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA). 15. IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA), EVEN THE ISSUE OF VALUATION OF THE STOCK IN TRADE OF THE INVESTMENT WAS BEFORE THE HONBLE SUPREME COURT. IN THE CASE OF THE ASSESSEE, THE ISSUE IS REGARDING ALLOWABILITY OF THE LOSS ON THE SALE OF THE SECURITIES. MERELY BECAUSE THE SECURITIES ARE KEPT UNDER THE HEAD TILL THE MATURITY, THE SAID SECURITY CANNOT BE TREATED AS A PURELY INVESTMENT. LAW IS WELL SETTLED THAT THE SECURITIES HELD BY THE BANK ARE IN THE NATURE OF STOCK - IN - TRADE. WE MAY LIKE TO QUOTE HERE THE DECISION OF THE HONBLE HIGH COURT OF KERALA IN THE CASE OF CIT VS. NEDUNGADI BANK LTD., 264 ITR 545. IN THE SAID CASE, THE HONBLE HIGH COURT HAS HELD THAT THE SECURITIES HELD BY THE BANK AR E IN THE NATURE OF STOCK - IN - TRADE. BOTH THE AUTHORITIES BELOW HAVE MERELY GONE ON THE NOMENCLATURE OF THE HEAD UNDER WHICH THE SECURITIES ARE HELD. IN OUR CONSIDERED VIEW, NOMENCLATURE CANNOT BE DECISIVE FOR THE ASSESSEE BANK. WE, THEREFORE, HOLD THAT T HE LOSS ON THE SALE OF THE SECURITIES IS REVENUE IN NATURE AND SAME IS LOSS ON THE SALE OF THE SECURITIES IS REVENUE IN NATURE AND SAME IS ALLOWABLE. ACCORDINGLY, GROUND NO. 2 IS ALLOWED. 2.1 MOREOVER, THE SAID ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE BY OTHER CO - ORDINATE BENCH IN THE FOLLOWING CASES: I) DEC ISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF KRISHNA GRAMEENA BANK VS. ADDL. CIT (ITA NO. 146/BANG/2011 AND 224/BANG/2011 ORDER DATED 15 - 6 - 2012. II) DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF NATIONAL CO - OP. BANK LTD. VS. JT. CI T RANGE 3 BANGALORE (ITA NO. 1090/BANG/2010 AND 7/BANG/2011, ORDER DATED 11 - 5 - 2012). WE THEREFORE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND ALLOW THE CLAIM OF THE ASSESSEE. 2.1 FACTS BEING SIMILAR, SO FOLLOWING THE SAME REASONING, WE HOLD TH AT AMORTIZATION PREMIUM PAID ON GOVT. SECURITIES OF RS.23,13,525/ - DEBITED TO PROFIT AND LOSS ACCOUNT, AS PER RBI GUIDELINES HAS TO BE ALLOWED BEING EXPENSES INCURRED DURING THE COURSE OF BUSINESS OF BANKING, ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 1 0. FURTHER, ON PERUSAL OF THE ORDER PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 ALONG WITH ORDER IN ITA NOS. 103, 1454 & 2432/PN/2012 , RELATING TO ASSESSMENT YEARS IN KARAD URBAN ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 6 CO - OPERATIVE BANK LTD. VS. ADDL.CIT REFLECTS THAT SIMILAR EXPENDITURE BOOKED ON AMORTIZATION OF PREMIUM ON ACCOUNT OF HTM SECURITIES HAS BEEN ALLOWED AS A DEDUCTION IN THE HANDS OF THE ASSESSEE. FURTHER, THE HON BLE BOMBAY HIGH COURT, BENCH AT AURANGABAD IN CIT VS. M/S. GAJANAN NAG ARI SAHAKARI BANK LTD. IN INCOME TAX APPEAL NO.39 OF 2014 VIDE JUDGMENT DATED 07.01.2015 HAD ALLOWED THE CLAIM OF THE ASSESSEE , IN TURN FOLLOWING THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. BANK OF BARODA (2003) 262 ITR 334 (BOM) AND AL SO FOLLOWING THE JUDGMENT OF THE HONBLE SUPREME COURT IN UCO BANK VS. CIT (1999) 240 ITR 355 (SC) . THE HONBLE BOMBAY HIGH COURT FURTHER HELD THAT THE RELIANCE PLACED BY THE REVENUE ON THE JUDGMENT IN THE CASE OF VIJAYA BANK LTD. VS. CIT (1991) 187 ITR 5 41 (SC) WAS MIS - PLACED. 11. THE ISSUE ARISING BEFORE US IS SIMILAR TO THE ISSUE BEFORE THE TRIBUNAL IN THE AHMEDNAGAR MERCHANTS CO - OPERATIVE BANK LIMITED VS. JCIT (SUPRA) , IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEARS 2008 - 09 AND 2009 - 10 (SUPRA) AND BEFORE THE HONBLE BOMBAY HIGH COURT IN CIT VS. M/S. GAJANAN NAGARI AND BEFORE THE HONBLE BOMBAY HIGH COURT IN CIT VS. M/S. GAJANAN NAGARI SAHAKARI BANK LTD. (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE EXPENDITURE INCURRED ON ACCOUNT OF AMORTIZATION OF PREMIUM ON HTM SECUR ITIES. THUS, THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 12. THE ISSUE IN GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE UNDER SECTION 36(1)(VIIA) OF THE ACT. 13. BRIEFLY, THE FACTS RELATING TO THE ISSUE ARE TH AT THE ASSESSING OFFICER ON GOING THROUGH THE REVISED COMPUTATION OF INCOME NOTED THAT THE ASSESSEE HAD CLAIMED RS.12,84,606/ - BEING 7.5% OF TOTAL INCOME OF RS.1,71,28,080/ - AND RS.2,19,94,335/ - BEING 10% OF RURAL ADVANCES OF RS.21,99,43,351/ - AS DEDUCTIBL E UNDER SECTION 36(1)(VIIA) OF THE ACT ON ACCOUNT OF PROVISION FOR BAD & DOUBTFUL DEBTS. ON VERIFICATION OF THE PROFIT & LOSS ACCOUNT, I T WAS NOTED THAT THE PROVISION ON THIS ACCOUNT HAS BEEN MADE FOR SUM OF RS.50 LAKHS ONLY. THUS, THE ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 7 ASSESSEE WAS ASKED TO EXPLAIN AND CLARIFY AS TO HOW THE ACTUAL DEDUCTION CLAIMED IN THE COMPUTATION OF INCOME WAS ALLOWABLE IN THE HANDS OF THE ASSESSEE. THE CASE OF THE ASSESSEE WAS THAT THE DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT CAN BE ALLOWED WITHOUT MAKING ANY CORRESPONDING PROVISION IN THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER REJECTING THE CONTENTION OF THE ASSESSEE OBSERVED THAT WHEN BAD & DOUBTFUL DEBTS ARE WRITTEN OFF , THE ASSESSEE HAS TO DEBIT THE SAME FIRST TO THE PROVISION ACCOUNT AND CLAIM ONLY THE A MOUNT OF BAD DEBTS EXCEEDING THE BALANCE AVAILABLE IN THE PROVISION AS DEDUCTION. IN OTHER WORDS, BAD DEBTS CLAIMED AS DEDUCTION ARE ADMISSIBLE SUBJECT TO THE CREDIT BALANCE IN THE PROVISION FOR BAD DEBTS ACCOUNT MADE UNDER SECTION 36(1)(VIIA) OF THE ACT . THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD MADE A PROVISION FOR BAD & DOUBTFUL DEBTS FOR SUM OF RS.50 LAKHS. AS AGAINST THE SAID PROVISION, THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 2,32,78,941/ - UNDER SECTION 36(1)(VIIA) OF THE ACT IN THE COMP UTATION OF TOTAL INCOME. THE ASSESSING OFFICER RESTRICTED THE SAID DEDUCTION TO THE AMOUNT OF PROVISION ACTUALLY CREDITED IN THE BOOKS OF ACCOUNT IN THE RELEVANT YEAR I.E. RS.50 LAKHS. 14. THE CIT(A) PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN STATE BANK OF PATIALA REPORTED IN 272 ITR 54 (P&H) FOR THE PROPOSITION THAT THE DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT CAN BE CLAIMED ONLY TO THE EX TENT O F SUCH PROVISION HAS BEEN MADE IN THE BOOKS OF ACCOUNT FOR THE YEAR. THE CIT(A) ALSO NOTED THE FACT THAT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD MADE PROVISION TO THE EXTENT OF ONLY RS.50 LAKHS AS AGAINST THE DEDUCTION CLAIMED UNDER SECTION 36(1)(VIIA) OF THE ACT AT RS.2,32,78,941/ - . AFTER REFERRING TO TH E RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CATHOLIC SYRIAN BANK LTD. VS. CIT (2012) 343 ITR 270 (SC) , WHICH ENDORSES THE VIEW OF HONBLE PUNJAB & HARYANA HIGH COURT , WHEREIN IT WAS HELD THAT IN ORDER TO CLAIM THE PROVISION FOR BAD & DOUBTFUL DEBTS I N RESPECT OF RURAL ADVANCES UNDER SECTION 36(1)(VIIA) OF THE ACT , THE PROVISION HAS TO BE MADE IN THE PREVIOUS YEAR TO WHICH SUCH BAD & DOUBTFUL DEBTS PERTAIN. THE CIT(A) FURTHER NOTED THAT IN THE ORIGINAL ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 8 RETURN OF INCOME, THE ASSESSEE HAD CLAIMED A LESS ER DEDUCTION AND ONLY IN THE REVISED RETURN DURING THE COURSE OF ASSESSMENT PROCEEDINGS , A HIGHER CLAIM OF DEDUCTION OF RS.2.32 CRORES HAD BEEN CLAIMED AS PER INTERNAL CALCULATION BY THE CIT(A). THE CIT(A) THUS, OBSERVED THAT ANY PROVISION MADE BY THE ASS ESSEE AFTER THE PREVIOUS YEAR WAS OVER , CANNOT BE ALLOWED, IN TURN RELYING ON THE CBDT INSTRUCTION NO.17/2008 . FURTHER, RELIANCE WAS PLACED ON THE DECISION OF BANGALORE BENCH OF THE TRIBUNAL IN ITA NOS.708 & 709/BANG/2010 IN THE CASE OF DCIT VS. SYNDICATE BANK FOR ASSESSMENT YEAR S 2006 - 07 AND 2007 - 08, ORDER DATED 09. 06.2003 , WHEREIN IT REVERSED ITS EARLIER DECISION IN THE VERY SAME ASSESSEES CASE FOR THE ASSESSMENT YEAR 1987 - 88 (REPORTED IN 78 ITD 103) WHEREIN IT HAS BEEN HELD THAT IRRESPECTIVE OF THE QUA NTUM OF PROVISION FOR BAD & DOUBTFUL DEBTS CREATED IN THE BOOKS OF ACCOUNT, AN ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION BY WAY OF PROVISION OF 10% OF THE AVERAGE RURAL ADVANCES. IN DOING SO, IT HAS FOLLOWED THE SUBSEQUENT JURISDICTIONAL TRIBUNAL DECISION IN THE CASE OF CANARA BANK IN ITA NO.58/BANG/2004 DATED 09.06.2006 , WHICH CONSIDERED ITS EARLIER DECISIONS IN SYNDICATE BANK AND PUNJAB AND HARYANA HIGH COURT DECISION RENDERED IN THE CASE OF STATE BANK OF PATIALA (SUPRA). THE CIT(A) THUS, DISMISSED THE G ROUND S OF APPEAL RAISED BY THE ASSESSEE. 15. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US CLAIMED THAT THE DISALLOWANCE IN THE HANDS OF THE ASSESSEE WAS MADE ON ACCOUNT OF NOT MAKING ANY PROVISION. HOWEVER , ON ACCOUNT OF STANDARD AS SETS, THERE IS A PROVISION OF ABOUT RS.8 CRORES AND WHERE THE SECTION USED THE WORD ANY , THEN IT ALSO COVERS THE PROVISION MADE ON ACCOUNT OF STANDARD ASSET. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER PLACED RELIANCE ON THE RATIO LAI D DOWN BY LAID DOWN BY THE HONBLE HIGH COURT OF RAJASTHAN IN CIT VS. THE BANK OF RAJASTHAN LTD. (2002) 255 ITR 599 (RAJ) . 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE PUNJAB & HARYANA ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 9 HIGH COURT IN STATE BANK OF PATIALA VS. CIT (SUPRA) AND ALSO PLACED RELIANCE ON THE ORDER OF CIT(A) . 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE CLAIM OF D EDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT . WE FIND THAT PUNE BENCH OF THE TRIBUNAL IN MAHALAXMI CO - OP ERATIVE BANK LTD. VS. ITO IN ITA NO.1658/PN/2011 RELATING TO ASSESSMENT YEAR 2008 - 09 AND THE TRIBUNAL VIDE ORDER DATED 29.10.2013 HAD ELABORATED UPON THE CREATION OF PROVISION AND IN TURN HAD RELIED ON THE RATIO LAID DOWN BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA VS. CIT (SUPRA) AND HAD HELD THAT WHERE THE ASSESSEE HAS FAILED TO MAKE THE PROVISIONS IN THE BOOKS OF A CCOUNT EQUAL TO THE AMOUNT OF DEDUCTION SOUGHT TO BE CLAIMED UNDER SECTION 36(1)(VIIA) OF THE ACT, THE ASSESSEE WAS NOT ENTITLED TO THE ENTIRE CLAIM OF DEDUCTION BUT ONLY DEDUCTION TO THE EXTENT OF RS.50,00,000/ - BEING THE AMOUNT OF PROVISION ACTUALLY MADE IN THE BOOKS OF ACCOUNT WAS ALLOWED IN THE HANDS OF THE ASSESSEE. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - ASSESSEE. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER: - 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE ALSO ANXIOUSLY PERUSED THE AUTHORITIES CITED AT BAR IN ORDER TO DETERM INE THE CONTROVERSY ON HAND. THE RELEVANT PORTION OF SECTION 36(1)(VIIA) OF THE ACT, AS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. A.Y. 2008 - 09 READS AS UNDER : - [(VIIA) [IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY (A) A SCHEDULED BANK [NOT BEING [* * *] A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON - SCHEDULED BANK [OR A CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL D EVELOPMENT BANK], AN AMOUNT [NOT EXCEEDING SEVEN AND ONE - HALF PER CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING [TEN] PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RU RAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER : 10. A BARE PERUSAL OF AFORESAID SECTION CLEARLY BRINGS OUT THAT THE DEDUCTION SPECIFIED THEREIN IS IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY.. AN ELIGIBLE ASSESSEE. THE PRESENCE OF THE AFORESAID EXPRESSION IN THE SECTION SUPPORTS THE PLEA OF THE REVENUE, WHICH IS TO THE EFFECT THAT THE DEDUCTION ALLOWABLE UNDER SECTION 36(1)(VIIA) OF THE ACT IS IN RESPECT OF THE PROVISION MADE BY THE ASSESSEE. IN OUR CONSIDERED OPINION , THE JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA) CLEARLY COVERS THE CONTROVERSY IN FAVOUR OF THE REVENUE AND BELIES THE INTERPRETATION SOUGHT TO BE CANVASSED BY THE ASSESSEE. IN THE CASE BEFORE THE HON BLE HIGH ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 10 COURT, ASSESSEE - BANK HAD ORIGINALLY FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 1985 - 86 CLAIMING DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT AT RS.1,90,36,000/ - . AFTER FILING OF THE RETURN THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT WE RE AMENDED BY FINANCE ACT, 1985 WHEREBY DEDUCTION WAS ENHANCED TO 10% OF THE PROFIT OR 2% OF THE AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES OF THE BANK, WHICHEVER WAS HIGHER. ON ACCOUNT OF THE AMENDED PROVISIONS, ASSESSEE FILED A REVISED RETURN OF I NCOME ON 24.04.1986 ENHANCING THE CLAIM FOR DEDUCTION FROM RS.1,90,36,000/ - TO RS.1,94,21,000/ - . THE ASSESSING OFFICER RESTRICTED THE DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT TO RS.1,90,36,000/ - ONLY AND DISALLOWED THE BALANCE ON THE GROUND THAT IN T HE BOOKS OF ACCOUNT PERTAINING TO THE RELEVANT ASSESSMENT YEAR, ASSESSEE HAD MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS.1,90,36,000/ - ONLY. THE ASSESSEE ARGUED THAT THE PROVISION OF RS.1,90,36,000/ - WAS MADE IN THE BALANCE - SHEET FINALIZED ON 14.02.1 985 WHICH WAS AS PER THE UNAMENDED PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND THAT IN VIEW OF THE AMENDMENT OF SECTION 36(1)(VIIA) OF THE ACT PERMITTING HIGHER CLAIM OF DEDUCTION, THE ASSESSEE COULD NOT HAVE POSSIBLY MADE THE HIGHER PROVISION IN THE BALANCE - SHEET FINALIZED ON A PRIOR DATE, BUT IT MADE UP THE SHORTFALL BY MAKING AN ADEQUATE PROVISION IN THE BALANCE - SHEET OF THE SUBSEQUENT ASSESSMENT YEAR. ON THIS BASIS, IT WAS SOUGHT TO BE MADE OUT THAT THERE WAS SUBSTANTIAL COMPLIANCE WITH THE REQUIRE MENT OF LAW OF MAKING PROVISION FOR BAD AND DOUBTFUL DEBTS AND THEREFORE ASSESSEE JUSTIFIED THE CLAIM OF DEDUCTION FOR THE COMPLETE AMOUNT OF RS.1,94,21,000/ - AND NOT RESTRICTED TO RS.1,90,36,000/ - . THE CIT(A) AS WELL AS THE TRIBUNAL NEGATED THE PLEA OF TH E ASSESSEE AND ACCORDINGLY, THE MATTER WAS CARRIED BEFORE THE HONBLE PUNJAB & HARYANA HIGH COURT. THE HONBLE HIGH COURT REFERRED TO THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND OBSERVED THAT ..THE DEDUCTION ALLOWABLE UNDER THE ABOVE PROVISIONS IS IN RESPECT OF THE PROVISION MADE AND FURTHER WENT ON TO HOLD PROVISIONS IS IN RESPECT OF THE PROVISION MADE AND FURTHER WENT ON TO HOLD THAT ..MAKING OF A PROVISION FOR BAD AND DOUBTFUL DEBTS EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS MUST FOR CLAIMING SUCH DEDUCTION. IN VIEW OF THE AFORESAID JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT, IN OUR VIEW, THE POSITION SOUGHT TO BE CANVASSED BY THE ASSESSEE DESERVES TO BE REPELLED. WE REPRODUCE HEREINAFTER THE RELEVANT PORTION OF THE ORDER OF THE HONBLE HIGH COURT, WHICH READS AS UNDER : - 5. SEC.36(1)(VIIA) OF TH E ACT AS APPLICABLE TO THE ASST. YR. 1985 - 86, READS AS UNDER : IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY A SCHEDULED BANK [NOT BEING A BANK APPROVED BY THE CENTRAL GOVERNMENT FOR THE PURPOSES OF CL.(VIIIA) OR A BANK INCORPORATED BY O R UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON - SCHEDULED BANK, AN AMOUNT NOT EXCEEDING TEN PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI - A) OR AN AMOUNT NOT EXCEEDING TWO PER CENT OF THE AGGREGAT E AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK, COMPUTED IN THE PRESCRIBED MANNER, WHICHEVER IS HIGHER. 6. A BARE PERUSAL OF THE ABOVE SHOWS THAT THE DEDUCTION ALLOWABLE UNDER THE ABOVE PROVISIONS IS IN RESPECT OF THE PROVISION MADE. THEREFOR E, MAKING OF A PROVISION FOR BAD AND DOUBTFUL DEBTS EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS A MUST FOR CLAIMING SUCH DEDUCTION. THE TRIBUNAL HAS RIGHTLY POINTED OUT THAT THIS ISSUE STANDS FURTHER CLARIFIED FROM THE PROVISO TO CL.(VII) OF S.36(1) O F THE ACT, WHICH READS AS UNDER : ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 11 PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH CL.(VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELATING TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CRE DIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. 7. THIS ALSO CLEARLY SHOWS THAT MAKING OF PROVISION EQUAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE ACCOUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTION UNDER S. 36(1)(V IIA) OF THE ACT. THE TRIBUNAL HAS DISTINGUISHED VARIOUS AUTHORITIES RELIED UPON BY THE ASSESSEE WHEREIN DEDUCTIONS HAD BEEN ALLOWED UNDER VARIOUS PROVISIONS WHICH ALSO REQUIRED CREATION OF RESERVE AFTER THE ASSESSEE HAD CREATED SUCH RESERVE IN THE ACCOUNT BOOKS BEFORE THE COMPLETION OF THE ASSESSMENT. IT HAS BEEN CORRECTLY POINTED OUT THAT IN ALL THOSE CASES, RESERVES/PROVISIONS HAD BEEN MADE IN THE BOOKS OF ACCOUNT OF THE SAME ASSESSMENT YEAR AND NOT OF THE SUBSEQUENT ASSESSMENT YEAR. 8. IN THE PRESENT CA SE, THE ASSESSEE HAS NOT MADE ANY PROVISION IN THE BOOKS OF ACCOUNT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, I.E., 1985 - 86, BY MAKING SUPPLEMENTARY ENTRIES AND BY REVISING ITS BALANCE SHEET. THE PROVISION HAS BEEN MADE IN THE BOOKS OF ACCOUNT OF THE SU BSEQUENT YEAR. 9. WE ARE, THEREFORE, SATISFIED THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT SINCE THE ASSESSEE HAD MADE A PROVISION OF RS.1,19,36,000 FOR BAD AND DOUBTFUL DEBTS, ITS CLAIM FOR DEDUCTION UNDER S. 36(1)(VIIA) OF THE ACT HAD TO BE RESTRICTED TO THAT AMOUNT UNDER S. 36(1)(VIIA) OF THE ACT HAD TO BE RESTRICTED TO THAT AMOUNT ONLY. SINCE THE LANGUAGE OF THE STATUTE IS CLEAR AND IS NOT CAPABLE OF ANY OTHER INTERPRETATION, WE ARE SATISFIED THAT NO SUBSTANTIAL QUESTION OF LAW ARISES IN THIS APPEAL FOR CONSIDERATION BY THIS COURT. 11. IN VIEW OF THE AFORESAID INTER PRETATION OF SECTION 36(1)(VIIA) OF THE ACT BY THE HONBLE PUNJAB & HARYANA HIGH COURT, THE ORDERS OF THE LOWER AUTHORITIES DESERVE TO BE UPHELD INASMUCH AS THE ASSESSEE HAS NOT MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNT EQUAL TO T HE AMOUNT OF DEDUCTION SOUGHT TO BE CLAIMED UNDER SECTION 36(1)(VIIA) OF THE ACT, AND THEREFORE, IN OUR VIEW, THE LOWER AUTHORITIES WERE JUSTIFIED IN RESTRICTING THE DEDUCTION TO RS.50,00,000/ - , BEING THE AMOUNT OF PROVISION ACTUALLY MADE IN THE BOOKS OF A CCOUNT. 12. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CITED CERTAIN DECISION IN SUPPORT OF HIS PROPOSITION THAT THE CLAIM OF DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT IS NOT LINKED TO MAKING OF A PROVISION IN THE ACCOUNT BOOKS. AT THE OUTSET, WE MAY OBSERVE THAT THE DECISIONS RELIED UPON BY THE ASSESSEE ARE OF VARIOUS BENCHES OF THE TRIBUNAL AND NOT OF ANY HIGH COURT. THEREFORE, THE JUDGEMENT OF THE HONBLE HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA), WHICH IS CONTRARY TO THE DECISIONS OF THE TRIBUNAL RELIED UPON BY THE ASSESSEE; AND BEING SOLITARY JUDGEMENT OF A HIGH COURT, IS REQUIRED TO BE APPLIED, HAVING REGARD TO THE ESTABLISHED NORMS OF JUDICIAL DISCIPLINE. FOR THE SAID REASON, WE REFRAIN FROM DISCUSSING EACH OF THE DECISIONS OF THE T RIBUNAL RELIED BY THE ASSESSEE BEFORE US. ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 12 18. THE ISSUE BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE PUNE BENCH OF THE TRIBUNAL IN MAHALAXMI CO - OP. BANK LTD. VS. ITO (SUPRA) AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE HAVING F AILED TO MAKE FULL PROVISION, IS ONLY ENTITLED TO THE CLAIM OF DEDUCTION TO THE EXTENT OF RS.50 LAKHS BEING THE AMOUNT OF PROVISION ACTUALLY MADE IN THE BOOKS OF ACCOUNT. CONSEQUENTLY, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE GROUND OF APPEAL NO.2 RA ISED BY THE ASSESSEE. 19. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE OF CLAIM OF INTEREST ON NPAS AMOUNTING TO RS.2,55,60,841/ - . 20. THE FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSING OFFICER NOTED THAT TH E ASSESSEE HAD CHARGED INTEREST ON BAD AND OVERDUE LOAN ACCOUNTS AND CREDITED THE SAME TO THE PROFIT & LOSS ACCOUNT UNDER THE HEAD INTEREST ON LOANS. THE PLEA OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT SIMULTANEOUSLY THE SAID OVERDUE INTEREST WAS DEBITED TO THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY THE PROVISION FOR OVERDUE INTEREST RESERVE SHOULD NOT BE DISALLOWED AS THERE WAS NO EXPLICIT PROVISION UNDER THE INCOME - TAX ACT TO ALLOW SUCH PROVISION OVER AND ABOVE THE LIMIT S PRESCRIBED UNDER SECTION 36(1)(VIIA) OF THE ACT . REJECTING THE PLEA OF THE ASSESSEE IN THIS REGARD AND IN VIEW OF THE FACT THAT THE ASSESSEE WAS FOLLOWING ME RCANTILE SYSTEM OF ACCOUNTING, THE ASSESSING OFFICER HELD THAT INTEREST INCO ME ON NPAS HAD ACCRUED TO THE ASSESSEE AND WAS LIABLE TO BE ASSESSED IN THE HANDS OF THE ASSESSEE ON ACCRUAL BASIS. 21. THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER OBSERVING THAT THE ASSESSEE HAD NOT STRICTLY FOLLOWING THE RBI GUIDELINES ON RECOG NITION OF INCOME WHICH CLEARLY STATED THAT THE INCOME FROM NPAS WAS NOT TO BE RECOGNIZED ON ACCRUAL BASIS, BUT WAS TO BE BOOKED AS INCOME WHEN IT WAS ACTUALLY RECEIVED. 22. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 13 23. THE LEARNED AUTHORIZ ED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE SAID ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE PUNE BENCH OF THE TRIBUNAL IN M/S. THE AJARA URBAN CO - OP BANK LTD. VS. ACIT IN ITA NOS.2067 & 2068/PN/2013 , RELATING TO ASSESSMENT YEARS 2009 - 10 AND 2010 - 11 , ORDER DATED 31.12.2013. 24. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF CIT(A). 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE RECOGNITION OF INTEREST INCOME ACCRUING ON THE NPAS. THE ASSESSEE HAD WORKED OUT THE INTEREST ACCRUED ON SUCH NPAS AND RECOGNIZED THE SAME IN ITS BOOKS OF ACCOUNT AND ON THE CONTRA HAD PASSED AN ENTRY BY REVERSING THE SAME TO THE RESERVE ACCOUNT. AS PER THE GUIDELINES OF RBI, THE INTEREST ON SUCH NPAS IS TO BE RECOGNIZED ONLY ON RECEIPT BASIS AND ADMITTEDLY, DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD NOT RECEIVED ANY INTEREST ON SUC H NPAS FROM ANY PERSON. IN VIEW THEREOF, WE FIND NO MERIT IN THE ORDERS OF AUTHORITIES BELOW IN HOLDING THAT SINCE THE ASSESSEE HAD RECOGNIZED THE ACCRUAL OF INCOME, THE SAME IS TAXABLE IN THE HANDS OF THE ASSESSEE. THE ASSESSEE HAS ALSO PASSED CONTRA EN TRY IN ITS BOOKS OF ACCOUNT TRANSFERRING THE SAME TO RESERVE ACCOUNT. SUCH ACCRUAL OF INTEREST ON NPAS IS NOT TO BE RECOGNIZED AS INCOME IN THE HANDS OF THE ASSESSEE , IN VIEW OF VARIOUS DECISIONS OF THE PUNE BENCH OF THE TRIBUNAL. WE FIND THAT THE PUNE B ENCH OF THE TRIBUNAL IN ACIT VS. MAHARASHTRA NAGRI SAHAKARI BANK LTD. IN ITA NO.2138 /PN/2013, RELATING TO ASSESSMENT YEAR 2009 - 10 , ORDER DATED 31.010.2013 , HELD AS UNDER: - 8. WE FIND THAT A SIMILAR ISSUE OF TAXABILITY OF INTEREST ON NPAS ON ACCRUAL BASIS AROSE BEFORE THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE. THE TRIBUNAL IN ITA NO.1713/PN/2011 VIDE ORDER DATED 28.02.2013 IN TURN, RELYING ON THE RATIO LAID DOWN IN THE CASE OF ACIT, CIRCLE - 3, NANDED VS. OSMANABAD JANTA SAH. BANK LTD., LATUR IN ITA NO.795/PN/2011 ORDER DATED 31.08.2012, OBSERVED AS UNDER: ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 14 3. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE LD. COUNSEL SUBMITS THAT THE ISSUE OF THE TAXABILITY OF THE INTEREST ON STICKY ADVANCES HAS BEEN CONSIDERED AND DECIDED BY THE HON'BLE TRIBUNAL IN THE CASE OF ACIT CIRCLE - 3 NANDED VS. OSMANABAD JANTA SAH. BANK LTD., LATUR IN ITA NO.795/PN/2011 ORDER DATED 31.8.2012. THE LD. COUNSEL HAS FILED THE COPY OF THE TRIBUNAL ORDER WHICH IS PLACED ON RECORD. WE HAVE ALSO HEARD THE LD. D.R. WE FIND THAT THE ISSUE BEFORE US IS SQUARELY COVERED, AS RIGHTLY SUBMITTED BY THE LD. COUNSEL, IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT PUNE IN THE CASE OF OSMANABAD JANTA SAH. BANK LTD. THE OPERATIVE PART OF THE DECISION GIVING REASONS AND FINDINGS IS AS UNDER: '5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE ITAT, VISAKHAPATNAM BENCH, IN THE CASE OF DCIT, VIJAYAWADA VS. THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA, IN ITA.NO.511/VIZAG/2010 DATED 10.03.2011. IN THE SAID CASE ALSO, IT WAS NOTICED BY THE ASSESSING OFFICER THAT ASSESSEE DID NOT INCLUDE THE INTEREST OF RS.18,26,306/ - ON THE NPA ADVANCES. AGAIN THE ISSUE OF APPLICABILITY OF SECTION 43D WAS CONSIDERED TO T HE NON - SCHEDULED BANKS. THE TRIBUNAL PLACED ITS HEAVY RELIANCE ON THE DECISION OF THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 440 (DEL.)], IN WHICH THE HON'BLE DELHI HIGH COURT HAS CONSIDERED THE DECISION IN THE CASE O F SOUTHERN TECHNOLOGIES LTD. [320 ITR 577 (SC)]. THE TRIBUNAL FINALLY HELD THAT THE INTEREST INCOME RELATABLE TO NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE. ADVANCES DID NOT ACCRUE TO THE ASSESSEE. 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT, AHMEDABAD BENCH IN THE CASE OF KARNAVATI COOPERA TIVE BANK LTD. VS. DY.CIT [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA), THE TRIBUNAL HAS CONSIDERED THE PROVISIONS OF SECTION 43D AND ITS APPLICATION TO THE NON - SCHEDULED BANKS. THE REASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE STICKY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX BY FOLLOWING THE DECISION IN THE CASE OF UCO BANK (SUPRA), WHICH IS AS UNDER: '15.1. ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRST OBSERVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTAL PRINCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE SYSTEM OF ACCOUNTANCY IS THAT AN INCOME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON ACCRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETHER IT WAS ACTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, THEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTRARY TO THIS RECOGNIZED PRINCIPLE, THIS SECTION HAS PRESCRI BED THAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED. THE WORDS 'CREDITED' AND 'ACTUALLY RECEIVED' HAS BEEN HIGHLIGHTED HEREINABOVE WHILE REPRODUCING THE SECTION IN QUESTION. THE OTHER ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 15 DEVIATION FROM THE SAID ACCEPTED PRINCIPLE OF ACCOUNTANCY IS THAT AN INCOME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF 'CREDIT' OR 'ACTUALLY RECEIVED', WHICHEVER IS EARLIER IS T O BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CHARGEABILITY OF INCOME BY WAY OF INTEREST. SIMULTANEOUSLY, IT IS NOTEWORTHY THAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE ITA NO.1713/PN/2011 MAHARASHTRA NAGARI SAHAKARI BANK LTD., LATUR OPENING WORD IS 'NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISIONS OF THIS ACT'. THEREFORE, IN SPITE OF ANYTHING CONTAINED IN THE ACT, THE PROVISIONS OF THIS SECTION SHALL OVERRIDE THOSE PROVISIONS. ONCE THE STATUTE HAS CATEGORICALLY MADE A LAW I N RESPECT OF PUBLIC FINANCIAL INSTITUTIONS THAT INTEREST IS CHARGEABLE TO TAX EITHER IN THE YEAR IN WHICH CREDITED OR ACTUALLY RECEIVED, WHICHEVER IS EARLIER, THEN IT IS COMPULSORY TO ABIDE BY THE SAID RULE. ACCORDING TO US, NO SCOPE IS LEFT WITH THE REVEN UE AUTHORITIES TO IGNORE THESE PROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN THE SECTION. (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICATION SECTION 43 - D. AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE - BANK IS A CO - OPERATIVE BANK. UNDISPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLANATION (D) R.W.S. 36(1)(VIIA) ANNEXED TO SECTION 43 - D THE DEFINITION OF THE ENTITIES INCORPORATED BY THE SECTION HAVE BEEN DEFINED AND I N THE ABSENCE OF ANY CONTRARY MATERIAL, WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENTITIES, HENCE THE PROVISIONS OF SECTION 43 - D ARE TO BE APPLIED. (III) APPLICABILITY OF CBDT CIRCULAR. NEXT ISSUE IS THAT WHETHER A CIRCULAR HAVING EFFECT OF RELAXING RIGOUR OF LAW CAN BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF A STATUTE. IN ORDER TO AID PROPER DETERMINATION OF THE INCOME OF MONEY LENDERS AND BANKS, THE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED A CIRCULAR DATED OCTOBER 6, 1952, PROVIDI NG THAT WHERE INTEREST ACCRUING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEE'S TAXABLE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT RECOVERY IS PRACTICALLY IMPROBABLE. THE CBDT U/S.119 OF THE I.T.ACT HAS POWER TO ISSUE CIRCULARS IN EXERCISE OF ITS STATUTORY POWERS. IF THE BOARD CONSIDER IT NECESSARY TO LAY DOWN CERTAIN RULES AND THEN DIRECT THE SUB - ORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUIRED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMENT UNLESS AND UNTIL HELD AS ULTRA VIRES BY A ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 16 COURT OF LAW. THE BOARD HAS POWERS TO RELAX THE SEVERITY OR THE STRICTNESS OF LAW AND THE AUTHORITIES ARE REQUIRED TO FOLLOW THOSE INSTRUCTIONS AS HELD IN THE CASE OF C.B. GAUTAM VS. UNION OF INDIA 108 CTR 304 (SC) & 110 CTR 179 (SC); NAVNITLAL C.ZAVERI 56 ITR 198(SC) AND K.P.VARGHESE 131 ITR 597 (SC). 198(SC) AND K.P.VARGHESE 131 ITR 597 (SC). IN THE LAND - MARK DECISION, THE HON'BLE SUPREME COURT IN THE CASE OF UCO BANK VS. CIT (1999) 237 IT R 889 (SC) HAS THEREFORE HELD, FIRST, THAT A BENEFICIAL CIRCULAR IS NOT TO BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF STATUTE AND BINDING ON THE AUTHORITIES. SECOND, THAT IN RESPECT OF INTEREST ON 'STICKY ADVANCES' INTEREST INCOME IS TO BE TAXED ONL Y WHEN ACTUALLY RECEIVED AS PRESCRIBED BY CBDT CIRCULAR. HOWEVER, IN THE PAST AN INTERESTING TURN HAD TAKEN PLACE BY AN ORDER OF THE HON'BLE KERALA HIGH COURT IN PLACE BY AN ORDER OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF STATE BANK OF TRAVANCORE REPORTED IN 110 ITR 336 (KER.), WHEREIN IT WAS HELD THAT THE ASSESSEE, A BANKING COMPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON 'STICKY ADVANCES' BECAUSE THE ASSESSEE FELT THAT THE INTEREST COULD NOT TO BE REALISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS 'INTEREST SUSPE NSE ACCOUNT'. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WAS AN ACCRUAL OF INCOME LIABLE TO INCOME - TAX AND THE ASSESSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INTEREST INCOME ON SUCH 'STICK ADVANCES' IT ITS ACCOUNTS. HOWEVER, LATER ON AT THE HON'B LE APEX COURT WHILE HOWEVER, LATER ON AT THE HON'B LE APEX COURT WHILE PRONOUNCING THE JUDGMENT OF THE SAID STATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102(SC), THERE WERE HON'BLE THREE JUDGES PRESIDING THE COURT, OUT OF WHICH HON'BLE TWO ITA NO.1713/PN/2011 MAHARASHTRA NAGARI SAHAKARI BANK LTD., LATUR JUDGES WERE IN THE OPINION THAT THE INTEREST ON 'STICKY ADVANCES' WAS RIGHTLY TREATED AS INCOME WHICH HAD ACCRUED TO THE APPELLANT. THERE WAS A DESCENDING NOTE BY ONE OF THE HON'BLE JUDGE AND COMMENTED THAT WHETHER AN INCOME ON RECEIPT BASIS OR ON ACCRUAL BASIS, IT IS THE REAL INCOME AND NOT ANY HYPOTHETICAL INCOME WHICH MAY HAVE THEORETICALLY HYPOTHETICAL INCOME WHICH MAY HAVE THEORETICALLY ACCRUED, I.E. SUBJECT TO TAX UNDER THE ACT. NEVERTHELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE APPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THRE E JUDGES OF THE SUPREME COURT, ALREADY DISCUSSED BY US SUPRA. WE, THEREFORE SUMMARIZE THAT AS OF NOW THE LAW AS LAID DOWN IN UCO BANK IS THAT IN TERMS OF CBDT CIRCULAR THE INTEREST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED IN RESPECT OF THE 'STICKY ADVANCES' WHILE MAKING ASSESSMENT FOR A FINANCIAL INSTITUTION. (IV) INTERPRETATION OF THE LANGUAGE OF THE STATUTE : WE HAVE REPRODUCED VERBATIM THE PROVISIONS OF WE HAVE REPRODUCED VERBATIM THE PROVISIONS OF SECTION 43 - D OF THE I.T.ACT AND EXPRESSED AN OPINION THAT IF THE STATUTE HAS USED THE TERMINOLOGY FOR THE CHARGEABILITY OF INTEREST ON THE BASIS WHEN 'CREDITED' ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 17 OR 'ACTUALLY RECEIVED', THEN IN OUR OPINION NO AMBIGUITY HAS BEEN LEFT BY THE STATUTE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXACT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS LEGAL PROPOSITION WE PLACE RELIANCE ON KESHAVJI RAVJI AND COMPANY VS. PLACE RELIANCE ON KESHAVJI RAVJI AND COMPANY VS. CIT 183 ITR 01 (SC), WHEREIN IT WAS HELD AS UNDER: 'AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIVE INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF THE LEGISLATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTORY LANGUAGE WHICH IS OTHER - WISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETATION ARISES WHEN THE WORDS USED IN THE STATUTE ARE, ON THEIR OWN TERMS, AMBIVALENT AND DO NOT MANIFEST THE INTENTION OF THE LEGISLATURE. MANIFEST THE INTENTION OF THE LEGISLATURE. WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BECAUSE OF THEIR AU THORITATIVE CONSTRUCTION BY SUPERIOR COURTS, THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WHEN USED IN SUBSEQUENT LEGISLATION IN THE SAME OR SIMILAR CONTEXT. TO SAY THAT THE COURT COULD NOT RESORT TO THE SO - CALLED 'EQUITABLE CONSTRUCTION' OF A TA XING STATUTE IS NOT TO SAY THAT, WHERE A STRICT LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLATION, ANOTHER CONSTRUCTION, PERMISSIBLE IN THE LEGISLATION, ANOTHER CONSTRUCTION, PERMISSIBLE IN THE CONTEXT, SHOULD NOT BE ADOPTED. IN THIS RESPECT, TAXING STATUTES ARE NOT DIFFERENT FROM OTHER STATUTES.' WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY THE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST INCOME IN THE CASE OF PUBLIC FINANCIAL INSTITUTION, ETC. SECTION 43 - D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT. IT IS PERTINENT TO MENTION THAT LATER ON, IN THE CASE OF CIT VS. BANK OF AMERICA S.A. 262 ITR 504 (BOM) THE QUESTION OF INTEREST ON 'STICKY LOANS' WAS DECIDED IN FAVOUR OF THE ASSESSEE AND HELD THAT THE QUESTIO N IS TO BE ANSWERED IN FAVOUR OF THE ASSESSEE FOLLOWING THE BE ANSWERED IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC) :: 240 ITR 355 (SC). LIKEWISE, IN AN ANOTHER CASE OF CIT VS. STATE BANK OF INDIA 262 ITR 662 (BO M.) AGAIN IT WAS HELD THAT THE AMOUNT CREDITED TO THE INTEREST SUSPENSE ACCOUNT WAS NOT TAXABLE FOLLOWING THE DECISION PRONOUNCED IN THE CASE OF UCO BANK (SUPRA). (V) JUDGEMENT IN FAVOUR OF REVENUE : FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUNAL HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BASIC REASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE REASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CONTROVERSY. IN THE SAID DECISION OF THE TRIBUNAL, VIZ. JT.CIT V/S. INDIA EQUIPMENT LEASING LTD. (2008)111 ITD 37 (CHENNAI), THE R ESPECTED CO - ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 18 ORDINATE BENCH HAS EXPRESSED THAT QUOTE ' PRIOR TO INSERTION OF SECTION 43D WITH EFFECT FROM 1 - 4 - 1991, RECOGNITION OF INCOME WAS ON THE BASIS OF CIRCULAR OF 9 - 101984. IT SAID THAT FOR FIRST THREE YEARS THE INCOME MAY BE TAKEN ON ACCRUAL BASIS A ND FROM 4TH YEAR ONWARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WAS TO BE RECOGNIZED ON RECEIPT BASIS. SINCE THE INCOME WAS TO BE ASSESSED FOR FIRST THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D WERE INSERTED IN THE ACT. CIRCULAR NO.621, DATED 19 - 12 - 1991 GIVES THE LEGISLATIVE INTENTION STATING THAT SECTION 43D WAS INSERTED WITH A VIEW TO IMPROVING THE VIABILITY OF BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., SO AS TO PROVIDE THAT INTEREST ON STICKY LOANS SHALL BE CHARGED TO TAX ONLY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDITED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEFIT WAS EXTENDED WITH EFFECT FROM 1 - 4 - 2000 IN THE CASE OF PUBLIC COMPANIES ENGAGED IN LONG - TERM FINANCING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANKS. THE LEGISLATURE IN THEIR WISDOM DID NOT EXTEND THE SAME BENEFIT TO NBFCS WHICH HAS BEEN GIVEN TO SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS, ETC. THE PROVISIONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'THE INCOME BY WAY OF INT EREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED BY THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CONTINUES TO EXIST IN THE NEWLY SUBSTITUTED SECTION 43D APPLICABLE WITH EFFECT FROM 1 - 4 - 2000. THIS SHOWS THAT APPLICABLE WITH EFFECT FROM 1 - 4 - 2000. THIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFICIENT FOR RECOGNITION OF INCOME ON CASH BASIS FOR THE PURPOSES OF INCOME - TAX. THE INCOME OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DATED 9 - 10 - 1984. BECAUSE OF THIS REASON, SECTION 43DWAS INSERTED IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF CONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTEREST AND VIABILITY OF THE NBFC. THE GUIDELINES NEVER INTE NDED FOR TAKING THE INTEREST INCOME ACCRUED AS PER SECTION 5 OUT OF THE SCOPE OF THE ACT. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD AMOUNT TO INSERTION OF 'NBFC' IN SECTION 43D, THAT TOO BY A GUIDELINE ISSUED FOR DIFFERENT PURPOSES BY AN AUTHORI TY OTHER THAN THE PARLIAMENT IN OTHER WORDS, THE DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE BEEN APPLIED WHICH IS CONTRARY TO LAW OF LAND.'UNQUOTE. THE BASIC REASON FOR DIRECTING TO ASSESS THE ACCRUED INTEREST ON NPA WAS THE RBI GUIDELINES ISSUED ONLY F OR SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS AND NOT FOR NBFC. THE OBSERVATION OF THE RESPECTED TRIBUNAL WAS THAT IF THE CONTENTION OF THE ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOUNT TO INSERTION OF 'NBFC' IN SECTION 43 - D OF THE I.T.ACT. AS AGAI NST THAT, AS FAR AS THE ASSESSEE IS CONCERNED, IT IS AN ACCEPTED FACT THAT THE ASSESSEE IS A COOPERATIVE BANK AND NOT A NON - BANKING FINANCIAL COMPANY AND THIS ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 19 NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPRECIATED BY US IN ONE OF THE PARAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HON'BLE APEX COURT WHICH IS YET TO BE MENTIONED WHILE DISCUSSING THE ARGUMENTS RAISED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JT. CIT 320 ITR 577 (SC) HAS BEEN CITED BUT THE FUNDAME NTAL DIFFERENCE IS THAT THE ISSUE BEFORE THE HON'BLE COURT WAS IN RESPECT OF PROVISION FOR NPA AND DEBITED TO P&L ACCOUNT BY A NBFC. THE SAID PROVISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDENTIAL NORMS MADE BY THE RESERVE BANK. THEREFORE W E WANT TO MAKE IT CLEAR THAT THE QUESTION FOR CONSIDERATION BEFORE THE HON'BLE COURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WILL BE THE LEGAL POSITION OF THE APPLICABILITY OF ITA NO.1713/PN/2011 MAHARASHTRA NAGARI SAHAKARI BANK LTD., L ATUR EXPLANATION TO SECTION 36(1)(VII) OF THE I.T. ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARAGRAPH FROM THE HELD PORTION IS REPRODUCED BELOW: ' THE INCOME - TAX IS A TAX ON 'REAL INCOME', I.E., THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJEC T TO THE PROVISIONS OF THE ACT. THEREFORE, IF BY THE EXPLANATION TO SECTION 36(1)(VII) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACCOUNT THE EXPLANATION IN COMPUTING THE TOTAL INCOME UNDER THE EXPLANATION IN COMPUTING THE TOTAL INCOME UNDER THE INCOME - TAX ACT FAILING WHICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THE PROVISION FOR NON - PERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RESERVE BANK DIRECTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT IN THE COMPUTATION OF TOTAL INCOME UNDER THE INCOME - TAX ACT.' THEREFORE THE DISTINCTION CAN EASILY BE DRAWN THAT IN THE APPEAL BEFORE US THE QUESTION IS ACCRUAL OF INTEREST INCOME ON STICKY LOAN BUT IN THIS CITED DECISION THE QUES TION BEFORE HE APEX COURT WAS ABOUT THE ADMISSIBILITY OF PROVISION MADE IN RESPECT OF DOUBTFUL DEBTS. (VI ) CONCEPT OF REAL INCOME APPROVED IN THE CASE OF BANKING BUSINESS: BEFORE US, THE THEORY OF 'REAL INCOME' HAS ALSO BEEN ARGUED AND IN SUPPORT A DECI SION OF HON'BLE COURT PRONOUNCED IN THE CASE OF CIT VS. GODHRA ELECTRICITY CO. 225 ITR 746 (SC). IN SHORT, THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE ANY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED, THEN MERELY AN ENTR Y MADE ABOUT A HYPOTHETICAL INCOME BY FOLLOWING BOOK KEEPING METHODS, THE LIABILITY TO TAX CANNOT BE ATTRACTED. ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 20 NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD. 293 ITR 357 (MAD.) HAS TAKEN A VIEW THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF LEASE, FINANCE AND HIRE PURCHASE AND THAT THE PRINCIPLE OF ACCRUAL COMES INTO PLAY WITHOUT INCOME WAS RECOGNIZED AND THAT THE ASSESSEE HAD CLASSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I. AND FOUND THAT CERTAIN ASSETS CAME UNDER THE CATEGORY OF NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT RECOGNIZED ANY INCOME IN CONSONANCE WITH THE NOTIFICATION ISSUED BY RBI AND AS - 9 ISSUED BY ICAI AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT RE COGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPRESSED THAT THERE WAS NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRUAL WOULD ARISE OR NOT, NEVERTHELESS, THE INTEREST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSMENT YEAR ON THE BASIS OF AC TUAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECISION, THE HON'BLE MADRAS HIGH COURT HAS RELIED UPON AN ANOTHER DECISION OF THE SAME HIGH COURT PRONOUNCED IN THE CASE OF JT.CIT VS. INDIA EQUIPMENT LEASING LTD. 293 ITR 350.' 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTLY TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSUE OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANCES, IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERATIVE COORDINATE BENCHES IN THE CASE OF THE DURGA COOPERATIVE URBAN BANK LTD., VIJAYAWADA (SUPRA) AND KARNAVATI COOPERATIVE BANK LTD. (SUPRA). WE FIND NO REASON TO INTERFERE WITH THE REASONED ORDER OF THE LD. CIT(A) AND ACCORDINGLY THE SAME I S CONFIRMED. IN THE RESULT, THE REVENUE'S GROUND IS DISMISSED. 4. WE THEREFORE FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF OSMANABAD JANTA SAH. BANK LTD. (SUPRA) CONFIRMED THE ORDER OF THE LD. CIT(A) AND DISMISS THE GROUNDS TAKEN BY THE REVENUE. 9. THE ISSUE ARISING BEFORE US IS IDENTICAL TO THE ISSUE BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE RELATING TO ASSESSMENT YEAR 2007 - 08 AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT INTEREST ON NPAS IS NOT INCLUDABLE IN THE HANDS OF THE ASSES SEE IN THE YEAR OF ACCRUAL. UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 26. IN VIEW OF T HE RATIO LAID DOWN BY THE PUNE BENCH OF THE TRIBUNAL IN ACIT VS. MAHARASHTRA NAGRI SAHAKARI BANK LTD. (SUPRA) AND THE JURI SDICTIONAL HIGH COURT IN CIT VS. HDFC BANK LTD. (SUPRA) , WE HOLD THAT THE INTEREST ACCRUING ON NPAS IS NOT INCLUDABLE IN THE HANDS OF THE ASSESSEE AS INCOME FOR THE YEAR ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 21 UNDER CONSIDERATION. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDIT ION OF RS.2,55,60,841/ - . 27. THE ISSUE IN GROUND OF APPEAL NO.4 RAISED IS AGAINST THE ADDITION OF RS.5 LAKHS ON STANDARD ASSETS. 28. THE SUBMISSIONS OF THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US WAS THAT THE ISSUE HAS NOT BEEN CON SIDERED BY THE AUTHORITIES BELOW IN THE CORRECT PERSPECTIVE AND MATTER BE SET - ASIDE. HOWEVER, WE FIND THAT BOTH THE ASSESSING OFFICER AND THE CIT(A) HAD CONSIDERED THE SAID ISSUE. THE ASSESSING OFFICER OBSERVED AS UNDER: - 9. DISA L LOWANCE OF CLAIM MADE ON ACCOUNT OF 'CONTINGENT PROVISION FOR STANDARD ASSETS' 9 . 1 AS PER THE REVISED RETURN FILED ON 17/02/2011, THE ASSESSEE BANK HAS C LAIMED DEDUCTION ON ACCOUNT OF CONTINGENT PROVISION AGAINST STANDARD ASSETS AMOUNTING TO RS.5, 00,000 / - . DURING T HE COURSE O F ASSESSMENT PROCEEDINGS, IT WAS REQUESTED T O EXPLAIN THE REASONS AS T O WHY THE CONTINGENT PROVISION AGAINST STANDARD ASSETS AMOUNTING TO RS 5, 00,000/ - SHOUL D NOT BE DISALLOWED AS THERE IS NO SPECIFIC PROVISION IN THE IT ACT, 1961 IN THIS REGARD. IT ACT, 1961 IN THIS REGARD. 9.2 THE ASSESSEE BANK HAS CLAIMED THIS PROVISION U/S.36 (1 ) (VIIA) OF THE I.T ACT, 1961. THE ASSESSEE BANK HAS EXPLAINED THAT AS PER THE RBI GUIDELINES IT IS OBLIGATORY FOR IT TO MAKE A GENERAL PROVISION ON STANDARD ASSETS OF A MINIMUM OF 25% . THE RBI HAS DEFINE D THE STANDARD ASSET AS, 'ONE WHICH DOES NOT DISCLOSE ANY PROBLEM AND WHICH DOES NOT CARRY MORE THAN NORMAL RISK ATTACHED TO THE BUSINESS . SUCH AN ASSET SHOULD NOT BE AN NPA.' THE PROVISION IS MADE AS PER RB I GUIDELINES AND CIRCULARS ON STANDARD ASSETS AN D THE AMOUNT OF PROVISION IS DEBITED TO PROFIT AND LOSS A/C AND IT IS SHOWN AS LIABILITY UNDER THE HEAD RESERVES & RESERVES FUND. IT IS NOT A CONTINGENT LIABILITY, I T IS INCLUDED IN THE TOTA L OF THE BALANCE SHEET OF A BANK. HENCE THE PROVISION FOR STANDARD ASSET IS ALLOWABLE AS NORMAL EXPENDITURE ON ACCRUAL BASIS. 9.3. THE CLAIM OF THE ASSESSEE IS THAT THIS PROVISION AGAINST STANDARD ASSETS WAS MADE AS PER THE GUIDELINES OF RB I VIDE CIRCULAR NO. 19/02/2007 AND IS AN ALLOWABLE DEDUCTION. IN THE FIRST PL ACE, IT IS TO BE MENTIONED THAT THE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (320 ITR 577) CLEARLY HELD THAT THE RBI GUIDELINES OR PRUDENTIAL NORMS ISSUED BY RBI ARE NOT INTENDED TO REGU L AT E INCOME - TAX LAWS. NEVERTHELESS, THE RELEVANT PORTION O F RB I CIRCULAR DATED 19/02/2007 READS AS UNDER: 4. IN ORDER TO ENSURE CONTINUED AND ADEQUATE AVAILABILITY OF CREDIT TO HIGHLY PRODUCTIVE SECTORS OF THE ECONOMY, THE PROVISIONING REQUIREMENT FOR ALL OTHER LOANS AND ADVANCES, WHICH ARE STANDARD ASSETS, INCL UDING THOSE T O AGRICULTURE, SMES AND INDUSTRY IN GENERAL SHALL REMAIN UNCHANGED . THE STANDARD ASSET PROVISIONING ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 22 REQUIREMENTS FOR CATEGORIES OF BANKS MENTIONED AT PARA 2 ABOVE, AFTER THE ABOVE CHANGES, AR E SUMMARISED BELOW . AS HITHERTO, THESE PROVISIONS WOULD BE ELIGIBLE FOR INCLUSION IN TIER II CAPITAL FOR CAPITAL ADEQUACY PURPOSES TO THE PERMITTED EXTENT SR . NO. CATEGORY OF STANDARD ASSET RATE OF PROVISIONING ( A ) DIRECT ADVANCES TO AGRICULTURAL AND SME SECTORS 0.25% (B) PERSONAL LOANS , LOAN S AND ADVANCES QUALIFYING AS CAPITAL MARKET EXPOSURES, COMMERCIAL REAL ESTATE LOANS AND LOANS AND ADVANCES TO SYSTEMICALLY IMPORTANT NBFCS - ND . 2.00 % (C) ALL OTHER LOANS AND ADVANCES NOT INCLUDED IN (A) AND (B) ABOVE 0.40% 9 . 4. IN ACCORDANCE WITH THE AB OVE RBI GUIDELINES, THE ASSESSEE MADE A CONTINGENT PROVISION AT A PERCENTAGE RANGING FROM 0.25% TO 2% OF THE VALUE OF ASSETS. SECTION 37 OF THE I T ACT ENVISAGES THAT AN AMOUNT DEBITED IN THE P&L ACCOUNT IN RESPECT OF AN ACCRUED OR ASCERTAINED LIABILITY ONL Y IS AN ADMISSIBLE DEDUCTION, WHILE ANY PROVISION IN RESPECT OF ANY UNASCERTAINED LIABILITY OR A LIABILITY WHICH HAS NO T ACCRUED, DOES NOT QUALIFY FOR DEDUCTION. A CONTINGENT LIABILITY CANNOT CONSTITUTE DEDUCTIBLE EXPENDITURE FOR THE PURPOSES OF INCOME - TAX ACT. KEEPING ASIDE O F MONEY WHICH MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVEN T WOULD NORMALLY NOT CONSTITUTE AN ALLOWABLE EXPENDITURE UNDER THE INCOME - TAX ACT . AS SEEN FROM RBI CIRCULARS, PROVISIONING FOR STANDARD ASSETS WAS ACT . AS SEEN FROM RBI CIRCULARS, PROVISIONING FOR STANDARD ASSETS WAS INTRODUCED IN THE INTE RESTS OF COUNTER CYCLICALLY AND SO AS TO ENSURE THAT BANKS AND NBFCS CREATE A FINANCIAL BUFFER TO PROTEC T THEM FROM THE EFFECT OF ECONOMIC DOWNTURNS. THE NOMENCLATURE OF T HE PROVISION ITSELF SUGGESTS THAT IT IS A CONTINGENT LIABILITY PROVIDED AT A SMALL PE RCENTAGE OF THE VALUE OF STANDARD ASSETS AND NOT AN ASCERTAINED AND CRYSTALLIZED LIABILITY. THE VERY FACT THAT AS PER RBI CIRCU L AR, THE PROVISIONS TOWARDS STANDARD ASSETS NEED NOT BE NETTED FROM GROSS ADVANCES BUT SHOWN SEPARATELY AS 'CONTINGENT PROVISIONS AGAINST STANDARD ASSETS' IN THE BALANCE SHEET, C L EAR L Y SHOWS THAT IT IS NOT FOR DIMINUTION IN THE VALUE OF ANY ASSETS BUT ONLY TO CREATE A FINANCIAL BUFFER IN ORDER TO PR OT ECT BANKS AND NB F CS FROM THE ECONOMIC DOWNTURNS. THIS IS A LIABILITY WHICH IS CONTI NGENT UPON EVENT I.E . STANDARD ASSETS L IKELY TO BECOME BAD, WHICH MAY OR MAY NOT HAPPEN. THERE IS NO PROVISION UNDER THE IT ACT TO ALLOW SUCH CONTINGENT PROVISION AS DEDUCTION FROM TAXAB L E INCOME. THUS, THE PROVISION FOR STANDARD ASSETS IS ON L Y A CONTINGE NT PROVISION, WHICH IS NOT AN AL LOWABLE DEDUCTION UNDER THE IT ACT . 29. THE RELEVANT FINDINGS OF THE CIT(A) ARE IN PARAS 6 TO 6.2, WHICH READ AS UNDER: - 6. THE FIFTH GROUND RELATES TO DISALLOWANCE DEDUCTION CLAIMED BY THE APPELLANT OF RS5 , 00 , 000/ - ON AC COUNT OF S TANDARD A SSETS. AS P ER T HE ASSESSING OFFICE , IT WAS IN THE NATURE OF A CONTINGENT PROVISION, DEDUCTION OF WHICH WAS NOT ADMISSIBLE UN DER ANY OF THE PROVISIONS OF T HE ACT. JUSTIFYING THE PROVISION, IT WAS CLAIMED BY THE APPELLANT BEFORE THE ASSES SING OFFICER THAT THE SAME WAS MADE PURSUANT TO THE GUIDELINES OF T HE RBI. HOWEVER, WHILE STRESSING THAT THE RB I GUIDELINES OR PRUDENTIAL ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 23 NORMS WERE NOT INTENDED T O REGULATE INCOME - TAX LAWS, T HE ASSESSING OFFICER, AFTER EXAMINING THE RBI CIRCULAR NO.19/02/ 2007 ON THE BASIS OF WHICH THE IMPUGNED PROVISION WAS CLAIMED TO HAVE BEEN MADE, OBSERVED THAT THE PROVISION WAS INTENDED T O BE MADE AT A SMALL PERCENTAGE OF THE STANDARD ASSETS TO ACT AS A BUFFER IN T HE POSSIBLE EVENTUALITY OF THE ASSETS BECOMING BAD. AS PER THE ASSESSING OFFICER, THE PROVISION WAS, THUS, NOT MADE ON ACCOUNT OF DIMINUTION IN THE VALUE NOR IT WAS AN ASCERTAINED LIABILITY BUT ONLY A CONTINGENT ONE AND THEREFORE, NOT ALLOWABLE AS DEDUCTION UNDER THE I T ACT HOLDING SO, T HE PROVISION CLAIMED OF RS.5,00,000/ - WAS DISALLOWED BY THE ASSESSING OFFICER. 6 .1 DURING THE APPELLATE PROCEEDINGS, THE ID. COUNSEL FOR THE APPELLANT REITERATED THE SUBMISSION MADE BEFORE THE ASSESSING OFFICER THAT THE PROVISION HAS BEEN MADE PURSUANT TO THE GUIDELINES ISSUED BY THE RBI AND THEREFORE, AN ALLOWABLE DEDUCTION . 6 .2 T H E SUBMISSIONS OF THE APPELLANT ARE CAREFULLY EXAMINED WITH REFERENCE TO THE RELEVANT GUIDELINES OF RBI AND THE LEGA L POSITION AS APPLICABLE TO THE YEAR. A PERUSAL OF THE GUIDELINES OF RB I ISSUED VIDE CIRCULAR NO.19/02/2007 CLEARLY SHOWS THA T SUCH PROVISION WAS DI R ECTED TO B E MADE BY T HE RBI WITH A VIEW T O ENSURE CONTINUED AND ADEQUATE AVAILABI LITY OF CRED IT TO CERTAIN SECTORS . THE QUANTIFICATION OF THE PROVISION WAS MADE AT A CERTAIN PERCENTAGE FOR E ACH SECTORS AND NOT A NY HISTORIC OF SCIENTIFIC BASIS NOR THE LIABILITY WAS ASCERTAINED. THUS, THE PROVISION WAS CREATED TO ART AS A CUSHION TO ABSORB THE SHOCK THAT MIGHT ARISE IN THE EVENTUALITY OF CERTAIN ASSETS TURNING BAD AND THEREBY, TO ENSURE UNINTER RUPTED AVAILABILITY OF CREDITS TO THE VARIOUS SPECIFIED SECTORS. AS ALREADY MENTIONED HERE INBEFORE , THE RB I GUIDELINES OR PRUDENTIAL NORMS ISSUED BY RBI ARE NOT INTENDED TO REGULATE INCOME - TAX LAWS. THE ADMISSIBILITY OR OTHERWISE OF A PARTICULAR DEDUCTIO N IN COMPUTING THE TOTAL ADMISSIBILITY OR OTHERWISE OF A PARTICULAR DEDUCTIO N IN COMPUTING THE TOTAL INCOME UNDER THE INCOME TAX ACT HAS TO BE DECIDE D UNDER THE PR OVISIONS OF THE ACT ITSELF. THE FACT OF THE MATTER IS THAT THE PROVISION IN QUESTION BEING IN THE NATURE OF PURELY A CONTINGENT ONE AND THERE IS NO PROVISION UNDER THE I T ACT TO ALLOW SUCH CONTINGENT PROVISION AS DEDUCTION FROM TAXABLE INCOME. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED SUCH CONTINGENT PROVISION OF RS.5 ,00,000/ - AND THE ACTION OF THE ASSESSING OFFICER IS ACCORDINGLY, UPHELD. GROUND OF APPEAL N O. 5 FAILS. 30 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FAILED TO CONTR O VERT THE FINDINGS OF THE CIT(A) IN THIS REGARD AND IN THE ABSENCE OF S A ME, WE FIND NO MERIT IN THE PLEA OF ASSESSEE IN ALLOWING DEDUCTION ON ACCOUNT OF CONTINGENT LIA BILITY. THE GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS DISMISSED. 31 . THE ISSUE IN GROUND OF APPEAL NO.5 RAISED BY THE ASSESSEE IS WITH REGARD TO THE COMPLIANCE TO RBI GUIDELINES AND THE ENTRIES MADE IN THE BOOKS OF ACCOUNT , IN VIEW OF THE PROVISION S OF THE INCOME - TAX ACT. ITA NO . 2150 /PN/20 1 3 THE KARA D J ANATA SAHAKARI BANK LTD. 24 3 2 . WE HAVE ALREADY CONSIDERED THE IMPACT OF RBI GUIDELINES AND DECIDED THE ISSUE RAISED IN GROUNDS OF APPEAL NOS.1 AND 3 AND IN VIEW THEREOF, WE DO NOT FIND IT NECESSARY TO ADJUDICATE THE ISSUE RAISED VIDE GROUND OF APPEAL NO.5 A ND THE SAME IS DISMISSED. 3 3 . THE ISSUE IN GROUND OF APPEAL NO.6 IS WITH REGARD TO CHARGING OF INTEREST UNDER SECTION S 234B AND 234C OF THE ACT WHICH IS CONSEQUENTIAL AND HENCE, THE SAME IS DISMISSED. 3 4 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER P RONOUNCED ON THIS 29 TH DAY OF APRIL , 201 5 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 29 TH APRIL , 2015 GCVSR COPY OF THE ORDER IS FORW ARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A) - III , PUNE ; 4) THE CIT - III, PUNE ; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE