DENA BANK, MUMBAI V. PRINCIPAL COMMISSIONER OF INCOME TAX 2, MUMBAI

ITA 2159/MUM/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8133 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 06-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUMAR PADMAPANI BORA DR S
• Assessee Lawyers: MRS LALITHA RAMESWARAN
• Keywords: Business income; Revision of order; Depreciation; Earning of tax free income; Question of law; Wrong claim; Bad and doubtful debts; Revenue expenditure; Capital expenditure; Set aside
• Section: 43B; 143(3); 80IB; 37(1); 80IA; 201; 43; 13; 145; 27; 37; 6; 263; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENCH M UMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.2159/MUM/2018 ( ASSESSMENT YEAR: 2014-15 ) DENA BANK ACCOUNTS DEPARTMENT DENA BANK BUILDING 2 ND FLOOR 17/B, HORNIMAN CIRCLE FORT, MUMBAI-400 023 VS. PCIT-2 ROOM NO.344, 3 RD FLOOR AAYKAR BHAWAN M.K.ROAD MUMBAI-400 020 PAN/GIR NO. AA ACD4249B APPELLANT ) .. RESPONDENT ) REVENUE BY SHRI MANOJ KUMAR SINGH & SHRI KUMAR PADMAPANI BORA , DR S ASSESSEE BY SHRI S.ANANTHAN, CA & MRS. LALITHA RAMESWARAN, CA DATE OF HEARING 13/12 /20 19 DATE OF PRONOUNCEME NT 23 /01 /2020 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF THE LD. PRINCIPLE COMMISSIONER OF INCOME TAX (PCIT) 02, MUMBAI, DATED 27/02/2018 U/S 263 OF THE I.T.ACT, 1961 FOR T HE ASSESSMENT YEAR 2014-15. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME-T AX (PR. CIT) ERRED IN PASSING AN ORDER U/S.263 AND DIRECTING THE ASSESSIN G OFFICER TO MODIFY THE ORDER DATED 29-12-2016 PASSED U/S 143(3) OF INC OME TAX ACT, 1961, YOUR APPELLANTS SUBMIT THAT THE ORDER OF THE PR. CI T IS ILLEGAL, BAD IN LAW AND VOID AND THE SAME OUGHT TO BE QUASHED ITA NO.2159/MUM/2018 DENA BANK 2 1.1. THE APPELLANTS SUBMIT THAT THE ORDER OF THE AO IS NOT ERRONEOUS AND IS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. YOUR APPELLANTS THEREFORE SUBMIT THAT THE ORDER OF THE PR. CIT BE QUASHED. 1.2. THE LEARNED PR. CIT FAILED TO APPRECIATE THE F ACT THAT IN RESPECT OF ALL THE ISSUES, THE LEARNED ASSESSING OFFICER HAS ADOPT ED ONE OF THE POSSIBLE VIEWS. 2. THE LEARNED PR. CIT ERRED IN HOLDING THAT THE AMOUNT OF RS. 402,26,72,141/- BEING THE BAD DEBTS CLAIM OF THE AP PELLANT BANK U/S 36(1)(VII) IS NOT ALLOWABLE. 2.1. THE LEARNED PR. CIT FAILED TO APPRECIATE THE F ACT THAT THE 36(1)(VIIA)(A) IS APPLICABLE ONLY IN RESPECT OF RUR AL DEBTS. 2.2. THE LEARNED PR. CIT ERRED IN NOT CONSIDERING THE BINDING DECISION OF HON'BLE SUPREME COURT IN THE CATHOLIC SYRIAN BANK [ 2012] 343 ITR 270 (SC). 2.3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED PR . CIT ERRED IN HOLDING THAT THE OPENING BALANCE IN THE PROVISION ACCOUNT A S AT 31-03-2013 IS FOR RURAL ADVANCES ONLY. 2.4. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED PR . CIT FAILED TO APPRECIATE THE FACT THAT THE LEARNED ASSESSING OFFI CER ALLOWED THE DEDUCTION AFTER VERIFYING THE SUBMISSIONS MADE BY T HE APPELLANT BANK. 3. THE LEARNED PR. CIT ERRED IN HOLDING THAT AMOU NT OF CONTRIBUTION OF RS. 54,00,00,000/-MADE IN ADVANCE TO GRATUITY FUND IS NOT AN ALLOWABLE DEDUCTION. 3.1. THE LEARNED PR. CIT FAILED TO APPRECIATE THE F ACT THAT THE DEDUCTION IN RESPECT OF CONTRIBUTION TO GRATUITY FUND IS ELIGIBL E ONLY ON PAYMENT BASIS AS PER THE PROVISIONS OF SECTION 43B. 3.2. THE LEARNED PR. CIT ERRED IN INTERPRETING THE WORD OTHERWISE ALLOWABLE TO INCLUDE ADVANCE PAYMENT. 4. THE LEARNED PR. CIT ERRED IN HOLDING THAT AMOUN T OF RS. 2,00,00,000/- PAID PENALTY IS NOT AN ALLOWABLE DEDUCTION. 4.1. THE LEARNED PR. CIT FAILED TO APPRECIATE THE F ACT THAT THE AMOUNT IMPOSED BY RBL IS NOT TOWARDS VIOLATION OF ANY LAW. 5. THE LEARNED PR CIT ERRED IN HOLDING THAT AMOUN T OF RS, 96,00,00,000/- BEING THE PROVISION FOR WAGE ARREARS IS NOT AN ALLOWABLE DEDUCTION. 5.1. THE LEARNED PR. CIT FAILED TO APPRECIATE THE F ACT THAT THE WAGE ARREARS PROVISION IS TOWARDS ASCERTAINED LIABILITY. 5.2. THE LEARNED PR. CIT ERRED IN HOLDING THAT THE WAGE ARREARS PROVISION IS A CONTINGENT LIABILITY. 6. YOUR APPELLANTS FURTHER RESERVE THE RIGHTS TO ADD, AMEND OR ALTER THE AFORESAID GROUNDS OF APPEAL AS THEY MAY THINK FIT BY THEMSELVES OR BY THEIR REPRESENT 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PUBLIC SECTOR BANK, ENGAGED IN THE BANKING BUSINESS, FILED ITS RETURN OF INCOME FOR AY 2014-15 ON 27/11/2014, DECLARING TOTA L INCOME OF RS. ITA NO.2159/MUM/2018 DENA BANK 3 564,72,89,730/- UNDER NORMAL PROVISIONS OF THE I.T. ACT, 1961. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) OF THE I.T.ACT, 1961 ON 29/12/ 2016, DETERMINING THE TOTAL INCOME AT RS. 669,39,34,675/- UNDER NORMAL PROVISIONS OF THE ACT AND BOOK PROFIT OF RS. 944,74 ,945,532/- U/S 115 JB OF THE I.T.ACT, 1961, BY MAKING VARIOUS ADDITION S, INCLUDING ADDITIONS TOWARDS DISALLOWANCES OF EXPENDITURE INCU RRED IN RELATION TO EXEMPT INCOME, ADDITIONS TOWARDS BROKEN PERIOD I NTEREST, DISALLOWANCES OF DEPRECIATION ON VALUE OF INVESTM ENTS AND RE- COMPUTATION OF DEDUCTION CLAIMED U/S 36(1)(VIIA) AN D 36(1)(VIII), IN RESPECT OF PROVISIONS OF BAD DEBTS, AS WELL AS BAD DEBT WRITTEN OFF. 4. SUBSEQUENTLY, THE LD.PCIT-2, MUMBAI HAS ISSUED A SHOW CAUSE NOTICE U/S 263 OF THE I.T.ACT, 1961 AND CALLE D UPON THE ASSESSEE TO EXPLAIN AS TO WHY, THE ASSESSMENT ORDER PASSED BY THE LD. AO U/S 143(3) OF THE I.T.ACT, 1961, DATED 29/12 /2016 SHALL NOT BE REVISED FOR THE REASONS STATED IN HIS SHOW-CAUSE NO TICE. IN THE SAID SHOW-CAUSE NOTICE, THE LD.PCIT OBSERVED THAT THE AS SESSMENT ORDER PASSED BY THE LD. AO IS ERRONEOUS, INSOFAR AS, IT I S PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF SECTI ON 263 OF THE I.T.ACT, 1961, BECAUSE THE LD. AO HAS COMPLETED AS SESSMENT PROCEEDINGS, WITHOUT CONDUCTING REQUIRED ENQUIRIES TO BE CONDUCTED, IN LIGHT OF FACTS OF THE CASE ALONG WITH SPECIFIC P ROVISIONS OF THE ACT, DEALING WITH ISSUES, WHICH RENDERED THE ASSESSMENT ORDER IS ERRONEOUS, INSOFAR AS, IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE. THE PCIT HAD QUESTIONED DEDUCTION ALLOWED TOWARDS B AD DEBTS WRITTEN OFF OF RS. 402,26,72,141/-, IN RESPECT OF N ON-RURAL ADVANCES U/S 36(1)((VII), PAYMENT OF RS. 54 CRORES MADE TOWA RDS CONTRIBUTION TO GRATUITY FUND, PENALTY PAYMENT OF RS. 2 CRORES P AID TO RBI FOR ITA NO.2159/MUM/2018 DENA BANK 4 VIOLATION OF KYC NORMS AND PROVISION FOR WAGE ARRE ARS AMOUNTING TO RS. 96 LACS. IN RESPONSE, THE ASSESEE VIDE ITS L ETTER, DATED 09/02/2018, FILED A DETAILED WRITTEN SUBMISSIONS O N THE ISSUES QUESTIONED BY THE LD.AO AND ARGUED THAT THE ASSESSM ENT ORDER PASSED BY THE LD. AO IS NEITHER ERRONEOUS, NOR PREJ UDICIAL TO THE INTEREST OF THE REVENUE, BECAUSE THE LD. AO, AT THE TIME OF ASSESSMENT PROCEEDINGS HAS EXAMINED ALL FOUR ISSUES QUESTIONED IN SHOW-CAUSE NOTICE ISSUED U/S 263, FOR WHICH THE ASS ESSEE HAS FILED A DETAILED REPLY AND EXPLAINED, HOW DEDUCTIONS CLAI MED FOR BAD DEBTS IS ALLOWABLE UNDER THE PROVISION OF SECTION 3 6(1)(VII) OF THE I.T.ACT, 1961. THE ASSESSE, FURTHER SUBMITTED THAT IN RESPECT OF OTHER ISSUES, LIKE PAYMENT OF GRATUITY FUNDS, PENALTY PAY MENT TO RBI FOR VIOLATION OF KYC NORMS AND PROVISIONS FOR WAGE ARRE ARS HAS BEEN THOROUGHLY EXAMINED BY THE LD. AO, AT THE TIME OF A SSESSMENT PROCEEDINGS, WHICH IS EVIDENT FROM THE FACT THAT TH E ASSESSEE HAS ANNEXED A DETAILED NOTE, IN RESPECT OF ALL FOUR ITE MS, WHICH IS PART OF STATEMENT OF TOTAL INCOME FILED ALONG WITH RETURN O F INCOME. THE LD. AO AFTER BEING SATISFIED WITH EXPLANATION FURNISHED BY THE ASSESSEE HAS CHOSEN TO ACCEPT THE CLAIM OF THE ASSESSEE, INS OFAR AS, PAYMENT OF CONTRIBUTION TO GRATUITY FUND, PENALTY PAYMENT T O RBI FOR VIOLATION OF KYC NORMS AND PROVISION FOR WAGE ARREARS. AS REG ARDS DEDUCTION CLAIMED FOR BAD DEBT WRITTEN OFF, IN RESPECT OF NON -RURAL ADVANCES, THE LD. AO HAS DISCUSSED THE ISSUE IN PARA 7 OF HI S ASSESSMENT ORDER AND COMPUTED ELIGIBLE DEDUCTION IN TABULAR FORM. TH EREFORE, IT IS INCORRECT TO SAY THAT THE ASSESSMENT ORDER PASSED B Y THE LD. AO IS ERRONEOUS, INSOFAR AS IT IS PREJUDICIAL TO THE INTE REST OF THE REVENUE. 5. THE LD.PCIT AFTER CONSIDERING RELEVANT SUBMISSIO NS OF THE ASSESSEE AND ALSO, TAKEN NOTE OF PROVISION OF SECTI ON 36(1)(VIIA) AND ITA NO.2159/MUM/2018 DENA BANK 5 36(1)(VII) AND NEWLY INSERTED PROVISO THERETO, HELD THAT THE ASSESSMENT ORDER PASSED BY THE LD. AO IS ERRONEOUS, INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, IN RESP ECT OF DEDUCTION ALLOWED TOWARDS BAD DEBIT WRITTEN OFF, IN RESPECT O F NON-RURAL ADVANCES. THE LD.PCIT, FURTHER NOTED THAT AS PER TH E PROVISO PROVIDED TO SECTION 36(1) (VIIA) & 36(1)(VII) DEDUC TIONS TOWARDS BAD DEBT WRITTEN OFF IS ALLOWED OVER AND ABOVE, THE AMO UNT OF PROVISION FOR BAD DEBTS IN BOOKS OF ACCOUNTS, AS ON THE FIRST DATE OF FINANCIAL YEAR. IN THIS CASE, IF THE TOTAL AMOUNT AVAILABLE U NDER THE HEAD PROVISION OF BAD AND DOUBTFUL DEBTS ACCOUNT IS CONS IDERED, THEN THE BAD DEBT WRITTEN OFF, IN RESPECT OF RURAL, AS WELL AS NON-RURAL ADVANCES IS LESS. THEREFORE, THE ENTIRE AMOUNT OF R S. 478,85,05,054/- ON ACCOUNT OF BAD DEBT WRITTEN OFF WAS REQUIRED TO BE DEBITED TO PROVISIONS FOR BAD AND DOUBTFUL DEBT ACCOUNTS. THEREFORE, HE OPINED THAT THE ALLOWANCES OF BAD DEB T OF RS. 402,26,72,141/- IS NOT IN ACCORDANCE WITH THE PROVI SION OF CLAUSE (VII) OF SUB SECTION (1) OF SECTION 36 AND EXPLANAT ION 2 THERETO. THE AFORESAID ALLOWANCES HAS RENDERED THE ASSESSMENT OR DER ERRONEOUS, INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE AS BY EXCESS ALLOWANCE, THE LOSS OCCURRED TO THE REVENUE. SIMIL ARLY, THE LD.PCIT, FURTHER NOTED THAT INSOFAR AS, ADVANCES PAYMENT OF CONTRIBUTION TO GRATUITY FUND, ALTHOUGH, THE ASSESSEE HAS DEBITED A SUM OF RS. 5.94 CRORES INTO THE PROFIT AND LOSS ACCOUNT, BUT DEDUCT IONS HAS BEEN CLAIMED TOWARDS TOTAL AMOUNT PAID TOWARDS GRATUITY FUNDS OF RS. 54 CRORES, AS PER THE PROVISIONS OF SECTION 43B OF THE I.T.ACT, 1961. BUT, FACT REMAINS THAT IF YOU GO THROUGH THE PROVISIONS OF SECTION 43B, ITS START WITH THE CLAUSE NOT WITHSTANDING ANYTHING CON TAINED IN ANY OTHER PROVISION OF THIS ACT, A DEDUCTION ALLOWABLE OTHERWISE UNDER THIS ACT. IT MEANS DEDUCTIONS ON ACCOUNT OF PAYMEN T IS ALLOWABLE ITA NO.2159/MUM/2018 DENA BANK 6 U/S 43B, ONLY WHEN THE SAME IS OTHERWISE ALLOWABLE UNDER THE PROVISION OF THE ACT. SINCE, THE ASSESEE IS MAINTAI NING ITS ACCOUNT ON MERCANTILE BASIS, THE ADVANCE PAYMENT WHICH DOES NO T PERTAIN TO THE ASSESSMENT YEAR UNDER CONSIDERATION, IS NOT ALLOWAB LE IN VIEW OF MATCHING PRINCIPLES. THE LD. AO WITHOUT CONSIDERING THESE ASPECTS HAS SIMPLY ALLOWED DEDUCTIONS CLAIMED TOWARDS AMOUN T PAID TO GRATUITY FUND, EVEN THOUGH, THE SAME IS NOT PERTAIN S TO RELEVANT ASSESSMENT YEAR, WHICH RENDERED THE ASSESSMENT ORDE R ERRONEOUS, INSOFAR AS PREJUDICIAL TO THE INTEREST OF THE REVEN UE. 6. AS REGARD, PENALTY PAYMENT FOR VIOLATION OF KYC NORMS TO RBI, THE LD.PCIT OBSERVED THAT THE RBI HAS LEVIED PENALT Y FOR VIOLATION OF KYC NORMS. FURTHER, EXPLANATION (1) TO SECTION 37 D ECLARES THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE , WHICH IS AN OFFENCE OR PROHIBITED BY THE LAW SHALL NOT BE DEEME D TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BE MADE, IN RESPECT OF SUCH EXPE NDITURE. ALTHOUGH, PENALTY PAYMENT FOR VIOLATION OF KYC NORM S, AS PER RBI REGULATIONS IS IN THE NATURE OF EXPENDITURE, WHICH IS INCURRED FOR AN OFFENCE OR PROHIBITED BY THE LAW, THE LD. AO HAS AL LOWED DEDUCTION CLAIMED FOR SAID EXPENDITURE, WHICH RENDERED THE AS SESSMENT ORDER IS ERRONEOUS, INSOFAR AS IT IS PREJUDICIAL TO THE I NTEREST OF THE REVENUE. AS REGARDS, PROVISION FOR WAGE ARREARS OF RS. 96 C RORES, THE LD. PCIT NOTED THAT UNLESS, WAGE REVISION WAS NOTIFIED, THE EXACT LIABILITY WAS NOT ASCERTAINABLE. THE ASSESSEE BANK HAS CLAIME D PROVISION FOR WAGE ARREARS, WHICH WAS DUE FROM 01/11/2012 ONWARDS , BUT THE BANK HAS NOT STARTED ANY PROCESS FOR REVISION OF WA GES. THEREFORE, THE PROVISION CREATED FOR WAGE ARREARS IS IN THE NA TURE OF CONTINGENT LIABILITY, WHICH IS NOT CRYSTALLIZED DURING THE YEA R UNDER CONSIDERATION. ITA NO.2159/MUM/2018 DENA BANK 7 THE LD. AO ALLOWED THE AFORESAID PROVISION WITHOUT APPRECIATING THE FACTS AND ALSO, VERIFYING THE FACTS WITH REGARD TO NATURE OF LIABILITY, WHICH RENDERED THE ASSESSMENT ORDER ERRONEOUS, INSO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFO RE, HE OPINED THAT THE ASSESSMENT ORDER PASSED BY THE LD.AO U/S 143(3) OF THE I.T.ACT, 1961, DATED 29/12/2016 IS ERRONEOUS, INSOFAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND ACCORDINGLY, SET A SIDE THE ASSESSMENT ORDER PASSED BY THE LD. AO AND DIRECT TH E LD. AO TO DISALLOW THE AFORESAID CLAIMS OF DEDUCTIONS AND REC OMPUTE THE TOTAL INCOME IN ACCORDANCE WITH LAW. THE LD. AO MAY ALSO INITIATE APPROPRIATE PENALTY PROCEEDINGS FOR FURNISHING INAC CURATE PARTICULARS OF INCOME, AS THE PATENTLY WRONG CLAIM OF DEDUCTIO NS HAS BEEN MADE BY THE ASSESSEE UNDER CLAUSE (VII) OF SUB SEC TION (1) OF SECTION (36) OF THE I.T.ACT, 1961. AGGRIEVED BY TH E LD.PCIT ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. AR FOR THE ASSESEE SUBMITTED THAT THE LD .PCIT WAS ERRED IN REVISION OF ASSESSMENT ORDER PASSED U/S 14 3(3) OF THE I.T.ACT, 1961, U/S 263 WITHOUT BRINGING ON RECORD, HOW THE ASSESSMENT ORDER IS ERRONEOUS, INSOFAR AS IT IS PRE JUDICIAL TO THE INTEREST OF THE REVENUE. THE LD. AR, FURTHER SUBMIT TED THAT IF YOU GO THROUGH FOUR ISSUES QUESTIONED BY THE LD.PCIT IN HI S ORDER, ALL THOSE ISSUES WERE SUBJECT MATTER OF CONSIDERATION BY THE LD. AO DURING THE ASSESSMENT PROCEEDINGS, FOR WHICH A DETAILED ENQUIR Y WAS CONDUCTED, IN LIGHT OF SUBMISSIONS OF THE ASSESEE. THE LD. AO AFTER BEING SATISFIED WITH EXPLANATION FURNISHED BY THE A SSESSEE HAS ACCEPTED CLAIM OF DEDUCTION TOWARDS BAD DEBT WRITE OFF, IN RESPECT OF NON-RURAL ADVANCES AND RURAL ADVANCES, EVEN THOUGH THE OPENING BALANCE IN PROVISIONS FOR BAD AND DOUBTFUL DEBT ACC OUNT IS MORE THAN ITA NO.2159/MUM/2018 DENA BANK 8 THE AMOUNT OF BAD DEBT WRITTEN OFF FOR THE YEAR. TH E LD. AO AFTER CAREFULLY CONSIDERED THE FACTS OF THE CASE, IN LIGH T OF PROVISIONS OF SECTION 36(1)(VII) & 36(1)(VIIA) HAS ALLOWED DEDUCT IONS TOWARDS BAD DEBT WRITTEN OFF, IN RESPECT OF NON-RURAL ADVANCES BY TAKING OPENING BALANCE AVAILABLE IN PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT, IN RESPECT OF NON RURAL ADVANCES. FURTHER, THE LD. AO HAD ADOPTED ONE OF THE POSSIBLE VIEWS AND AS SUCH THE LD. PCIT WAS ERRED IN INVOKING HIS JURISDICTIONS U/S 263 OF THE I.T.ACT, 1961. HE , FURTHER SUBMITTED THAT AS REGARDS, OTHER ISSUES QUESTIONED BY THE LD. PCIT, LIKE PAYMENT TOWARDS CONTRIBUTION TO GRATUITY FUND, AMOU NT PAID TO RBI TOWARDS PENALTY FOR VIOLATION OF KYC NORMS AND PROV ISIONS FOR WAGE ARREARS ARE ALL SUBJECT MATTER OF DISCUSSIONS BY T HE LD. AO, WHICH IS EVIDENT FROM THE FACT THAT THE ASSESSEE HAS ANNEXED A DETAILED NOTE TO STATEMENT OF TOTAL INCOME, WHERE EACH AND EVERY ISSUE HAS BEEN DISCUSSED AND EXPLAINED, HOW THE DEDUCTION WAS PERM ISSIBLE UNDER RESPECTIVE PROVISIONS OF THE ACT. THE STATEMENT OF TOTAL INCOME IS VERY MUCH PART OF FINANCIAL STATEMENT FILED ALONG W ITH RETURN OF INCOME. THE LD. AO AFTER BEING SATISFIED WITH THE E XPLANATION FURNISHED BY THE ASSESSEE HAS CHOSE TO COMPLETE THE ASSESSMENT WITHOUT MAKING ANY ADDITIONS TOWARDS THOSE ISSUES A ND HENCE, THE LD.PCIT WAS INCORRECT IN COMING TO THE CONCLUSION T HAT THE LD. AO HAS NOT CARRIED OUT REQUIRED ENQUIRIES TO BE CONDUC TED, IN LIGHT OF A PROVISION OF SECTION 263, MORE PARTICULARLY EXPLANA TION (2) INSERTED BY THE FINANCE ACT, 2013. THE LD. AR FOR THE ASSESS EE HAS FILED A DETAILED WRITTEN SUBMISSIONS, WHICH HAS BEEN REPRO DUCED AS UNDER:- 1. GROUND NO. 1 TECHNICAL IT IS A SETTLED PRINCIPLE OF LAW THAT IN ORDER TO I NVOKE THE PROVISIONS OF SECTION 263 OF THE INCOME TAX ACT, 1961, TWIN CONDITIONS OF ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ARE TO B E SATISFIED. THE TERM ERRONEOUS HAS BEEN SUBJECT MATTER OF LITIGATION AND IN ORDER TO PUT AN END TO ITA NO.2159/MUM/2018 DENA BANK 9 THE SAME THE GOVERNMENT VIDE FINANCE ACT, 2015 INSE RTED EXPLANATION '2 TO SECTION 263, IN WHICH IT HAS BEEN DECLARED WHEN AN ORDER SHALL BE DEEMED TO BE ERRONEOUS THE SAID EXPLANATION CONTAINS 4 CLAUSE S (A) TO (D) TO DETERMINE WHETHER THE IMPUGNED ORDER IS ERRONEOUS IN THE OPIN ION OF THE PRINCIPAL COMMISSIONER / COMMISSIONER. BASED ON THE FACTS OF THE PRESENT CASE, IT CAN BE S AID THAT IT IS ONLY CLAUSE (A) & (B) ARE RELEVANT AND THE OTHER 2 CLAUSES ARE NOT RELEVANT CLAUSE (A) DEALS WITH CIRCUMSTANCES WHERE IN THE ORDER HAS BEEN PASS ED WITHOUT MAKING ENQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MA DE. IN THIS CASE, FROM THE FACTS IT CAN BE SEEN THAT THERE WAS AN ENQUIRY BY T HE LEARNED ASSESSING OFFICER AND THE APPELLANT BANK HAD ALSO FURNISHED A DETAILED REPLY THEREFORE, THIS CLAUSE IS NOT APPLICABLE IN THIS CASE. CLAUSE (B) OF THE EXPLANATION DEALS WITH CIRCUMSTAN CES WHERE IN THE ORDER HAS BEEN PASSED ALLOWING ANY RELIEF WITHOUT ENQUIRI NG INTO THE CLAIM. IN THIS CASE, FROM THE FACTS IT CAN BE SEEN THAT THE RELIEF HAS BEEN ALLOWED ONLY AFTER MAKING ENQUIRIES. THEREFORE, THIS CLAUSE IS ALSO NO T APPLICABLE ILL THIS CASE. SINCE THE CONDITIONS TO INVOKE THE POWERS U/S 263 A RE NOT SATISFIED, THE PASSING OF THE IMPUGNED ORDER U/S 263 IS BEYOND THE SCOPE OF THE PROVISIONS OF 263 AND IS NOT TENABLE. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS: CASE LAW RELIED UPON CITATION REFERENCE NO PARA PAGE CASA BUILDERS PVT. LTD. 201 9 (2) TMI 987 - ITAT MUMBAI 11, 14 11&14 SHRI ANIL L. TODARWAL 2018(1) TMI 660 - ITAT MUMBAI 8 20 OM FOREGOING & ENGINEERING (P) LTD. 2017(12) TMI 1000 - I TAT KOLKATA 26 31 - 32 TORRENT PHARMACEUTICALS LTD 201 8(8) TMI 754 - ITAT AHMEDABAD 9.3 59 SHRI NARAYANA TATU RANE 2016 (5) TMI 11 62 - ITAT MUMBAI 20 71 WITHOUT PREJUDICE LO THE ABOVE, THE OTHER CONDITION WHICH IS TO BE SATISFIED FOR INVOKING THE PROVISIONS OF 263 IS THAT THE ORDER SH OULD BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN RESPECT OF THE FOLLOWIN G 3 ITEMS, THERE IS NO PREJUDICE TO THE INTEREST OF THE REVENUE : A) BAD DEBTS OF RS. 402,26,72 141/-WRITTEN OFF IN RESPECT OF NON RURAL ADVANCES AND ALLOWED U/S 36(I)(VIII); ITA NO.2159/MUM/2018 DENA BANK 10 B) PAYMENT OF RS. 54,00,00,000/- MADE TOWARDS CO NTRIBUTION TO GRATUITY FUND, OUT OF WHICH AN AMOUNT OF RS. 48.06 CR BEING AN ADV ANCE PAYMENT BE DISALLOWED AS PER THE PROVISIONS OF SECTION 43 C) PROVISION FOR WAGE ARREARS AMOUNTING TO RS 96, 00,00,000/- IN ALL THE ABOVE CASES, THERE IS NO REVENUE LOSS. A NY RECOVERY MADE IN RESPECT OF BAD DEBTS ALLOWED AD DEDUCTION US/ 36(1)(VII), H AS TO BE OFFERED TO TAX U/S 41(4) IN THE YEAR OF RECOVERY. THE BANK HAS ALSO OF FERED TO TAX THE SUBSEQUENT RECOVERIES MADE IN RESPECT OF THE BAD DEBTS THEREFO RE] EVEN IF IT IS ALLOWED M ONE YEAR, IT IS TAXED IN THE SUBSEQUENT YEARS BASED ON THE RECOVERY. THEREFORE, THE ALLOWANCE IS NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE. LIKEWISE, THE CONTRIBUTION TO THE GRATUITY FUND WILL HAVE TO BE A LLOWED IN THE YEAR OF ACCRUAL. EVEN THE DEPARTMENT ACCEPTS THE SAME THEREFORE, THE RE IS NO REVENUE LOSS IN THIS CASE ALSO. THE PROVISIONS FOR WAGE ARREARS ALSO, IF NOT ALLOWE D IN THIS YEAR, WILL HAVE TO BE ALLOWED IN THE SUBSEQUENT WEARS, WHEN THE ACTUAL PA YMENT IS MADE. IN THIS CASE ALSO, THE BANK HAS MADE PAYMENT OF THE WAGE ARREARS IN THE SUBSEQUENT YEAR. THEREFORE, THERE IS NO REVENUE LOSS. THE TAX RATES FOR CORPORATE HAS BEEN 30% ONLY IN AL L THESE YEARS. THEREFORE, TECHNICALLY, THERE IS NO REVENUE LOSS. SINCE THERE IS NO LOSS TO THE REVENUE, THE ORDER ALLOWING THESE DEDUCTIONS CAN NOT BE TREA TED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN VIEW OF THIS ALSO. THE POWERS U/S 263 CANNOT BE INVOKED. 2. GROUND NO. - 2 - DEDUCTION U/S 36(1)(VII): THE APPELLANT BANK HAD CLAIMED THE NON RURAL DEBTS WRITTEN OFF U/S 36(1)(VII). THE LEARNED COMMISSIONER HAS HELD THAT THE NON RURA L WRITE OFF SHOULD HAVE BEEN ADJUSTED AGAINST THE CREDIT BALANCE IN THE PRO VISION A/C MADE U/S 36(1)(VIIA) TO ARRIVE AT THIS CONCLUSION, LEARNED C OMMISSIONER HAS RELIED ON THE EXPLANATION 2 TO SECTION 36{1)(VII) L THE ORDER OF THE LEARNED COMMISSIONER IS AGAINST THE LAW AND THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF CATHOLIC SYRIAN BANK [2012] 343 ITR 270 (SC). IT IS OUR SUBMISSION THAT THE PURPOSE BEHIND THE IN TRODUCTION OF THE PROVISO TO SECTION 36(1)(VII) IS THAT TO AVOID DOUBLE DEDUCTIO N. IT IS A SETTLED ACCOUNTING PRINCIPLE THAT IN RESPECT OF A BAD DEBT, FIRST PROV ISION IS MADE IN THE ACCOUNTS AND SUBSEQUENTLY, THE DEBT IS WRITTEN OFF. THEREFORE, T HE ALLOWANCE OF A PROVISION PRECEDES THE WRITE OFF. UNDER THIS CIRCUMSTANCE, IN RESPECT OF A DEBT, IF ANY DEDUCTION IS ALLOWED AT THE TIME OF PROVISION U/S 3 0(1HVII#), THEN, WHEN SUCH DEBT IS WRITTEN OFF SUBSEQUENTLY, DEDUCTION ALLOWAB LE U/S 36(1}(VII) IS THE AMOUNT WRITE OFF WHICH EXCEEDS THE AMOUNT ALLOWED U/S 36(1 )(VIIA). THIS CAN BE EXPLAINED WITH THE FOLLOWING EXAMPLE:; AMOUNT (RS.) PARTICULARS SCENARIO - 1 SCENARIO - 2 AMOUNT OF DEBT OUTSTANDING IN THE BOOKS 200 200 PROVISION ALLOWED U/S 36(1)(VIIA) 100 100 ACTUAL WRITE OFF 50 150 ITA NO.2159/MUM/2018 DENA BANK 11 DEDUCTION ALLOWABLE U/S 36{1}(VII) 50 DEPARTMENT ALSO DOES NOT DISPUTE THE FACT THAT THE PROVISO IS TO AVOID DOUBLE DEDUCTION EVEN AT THE TIME OF HEARING AND IN THE SUBSEQUENT WRITTEN SUBMISSION, THERE IS NO REBUTTAL TO OUR SUB MISSION THAT THE INTENTION OF THE PROVISO IS TO AVOID DOUBLE DEDUCTI ON] IT IS THEREFORE AN ACCEPTED FACT THAT THE PROVISO IS TO AVOID DOUBLE D EDUCTION. IT IS UNDER THIS CONTEXT, THE PROVISO HAS TO BE INT ERPRETED ALONG WITH THE EXPLANATION - 2 INSERTED BY THE FINANCE ACT, 2013. FROM THE READING OF THE PROVISO, IT CAN BE SEEN THA T, IT COMES INTO PLAY ONLY WHEN A PROVISION FOR DOUBTFUL DEBTS IS MADE UNDER C LAUSE (VIIA). THE PROVISION FOR DOUBTFUL DEBTS IS MADE U/S CLAUSE (VIID) ONLY W HEN A DEDUCTION IS ALLOWED UNDER CLAUSE (VIIA) R THEREFORE, IF FOR A DEBT, A DEDUCTION S ALLOWED UN DER CLAUSE (VIIA), THEN THE PROVISION ACCOUNT GETS CREATED AND SUBSEQUENTLY, WHEN THE DEBT IS WRITTEN OFF, THE CONDITIONS AS REQUIRED BY THE P ROVISO HAS TO BE COMPLIED WITH. IN OTHER WORDS, IF FOR A DEBT, NO DEDUCTION IS ALLO WED U/S 36{1) (VIIA), THEN AT THE TIME OF WRITE OFF, THE PROVISO DOES NOT APPLY TO SU CH DEBT AND IT WILL BE ALLOWED AS A DEDUCTION AS PER THE MAIN PART OF SECTION 36(1)(V IIA). THIS CONSTRUCTION IS ALSO BASED ON THE FACT THAT THE PROVISO USES THE TERM 'A NY SUCH DEBT 1 IN TWO PLACES THE TERM 'SUCH DEBT' USED IN THE PROVISO DENOTES TH E DEBT FOR WHICH THE DEDUCTION IS ALLOWED AT THE PROVISION STAGE U/S 36( 1)(VIIA) THE LEGISLATIVE INTENT BEHIND THE INTRODUCTION OF THE PROVISO AND THE INTE RPRETATION THEREOF HAS BEEN CLEARLY BROUGHT OUT IN COMMENTARY OF 'CHATURVEDI & PITHISARIA'S INCOME TAX LAW' AT PAGE NO. 3258 VOLUME 36 LH EDITION FURTHER, THIS ARGUMENT GEL SUPPORTED BY THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS BANK OF RAJASTHAN LTD -[2002] 255 ITR 599 (RAJ) IT IS ALSO PERTINENT TO NOTE THAT THE TERM 'SUCH DE BT' CARRIES SIGNIFICANCE. THE HON'BLE SUPREME COURT IN THE CASE OF INTERCONTINENT AL CONSULTANTS TECHNOCRATS (P) LTD [20181 91 TAXMANN.COM 67 (SC), NOTED THE SI GNIFICANCE OF THE TERM 'SUCH' OCCURRING IN SECTION 67 OF THE FINANCE ACT, 1994. IN THAT CASE, THE ISSUE WAS WHETHER THE REIMBURSEMENT OF EXPENSES RECEIVED BY THE ASSESSEE FOR PROVIDING A SERVICE HAS TO BE INCLUDED IN THE VALUE OF SERVICE THE DISPUTE AROSE ON ACCOUNT OF THE FACT THAT THE SECTION 67 OF THE F INANCE ACT, 1994 USED THE TERM 'THE VALUE OF ANY TAXABLE SERVICE SHALL BE THE GROSS AMOUNT CHARGED BY THE SERVICE PROVIDER FOR SUCH SERVICES PROVIDED .....,. ' THE DEPARTMENT CONTENDED THAT THE REIMBURSEMENT OF EXPENSES SHOULD ALSO BE I NCLUDED IN THE VALUE OF TAXABLE SERVICE. HOWEVER, THE ASSESSEE CONTENDED TH AT THE REIMBURSEMENT SHOULD NOT BE INCLUDED IN THE VALUE OF TAXABLE SERV ICE SINCE IT IS NOT FOR PROVISION OF SUCH SERVICES. IN THIS CONTEXT, THE HON'BLE SUPR EME COURT HAD TO DEAL WITH THE SIGNIFICANCE OF THE TERM 'SUCH' IN PARA 24 OF THE JUDGMENT, THE COURT HELD AS FOLLOWS . '24. IN THIS HUE. THE EXPRESSION 'SUCH' OCCURRING IN SECTION 67 OF THE ACT ASSUMES IMPORTANCE IN OTHER WORDS, VALUATION OF TAX ABLE SERVICES FOR CHARGING SERVICE TAX, THE AUTHORITIES ARE TO FIND WHAT IS TH E GROSS AMOUNT CHARGED FOR PROVIDING 'SUCH' TAXABLE SERVICED. AS A FORTIORI, A NY OTHER AMOUNT WHICH IS CALCULATED NOT FOR PROVIDING SUCH TAXABLE SERVICE C ANNOT A PART OF THAT VALUATION AS THAT AMOUNT IS NOT CALCULATED FOR PROVIDING SUCH 'TAXABLE SERVICE'. THAT ACCORDING TO US IS THE PLAIN MEANING WHICH IS TO BE ATTACHED TO SECTION 67 (UNAMENDED, I E , PRIOR TO MAY 01, 2006) OR AFTER I TS AMENDMENT, WITH EFFECT FROM ITA NO.2159/MUM/2018 DENA BANK 12 MAY 01, 2006. ONCE THIS INTERPRETATION IS TO BE GIV EN TO SECTION 67, IT HARDLY NEEDS TO BE EMPHASIZED THAT RULE 5 OF THE RULES WEN T MUCH BEYOND THE MANDATE OF SECTION 67 WE THEREFORE, FIND THAT HIGH COURT WAS RIGHT IN INTERPRETING SECTIONS 66 AND 67 TO SAY THAT IN THE VALUATION OF TAXABLE SERVICE. THE VALUE OF TAXABLE SERVICE SHALL BE THE GROSS AMO UNT CHARGED BY THE SERVICE PROVIDER 'FOR SUCH SERVICE' AND THE VALUATION OF TA X SERVICE CANNOT BE ANYTHING MORE OR LESS THAN THE CONSIDERATION PAID AS QUID PR O QUA FOR RENDERING SUCH A SERVICE IT IS OUR SUBMISSION THAT THE PROVISO M OUR CASE DO ES NOT APPLY TO NON RURAL ADVANCES SINCE ON THE FACTS OF OUR CASE, THE DEDUCT ION U/S 36(1)(VIIA) IS GIVEN FOR RURAL ADVANCES IT IS OUR SUBMISSION THAT IN THE CASE OF A BANK WITH RURAL BRANCHES, THE DEDUCTION U/S CLAUSE 36[1)(VIIA) (A) IS APPLICABLE TO RURAL ADVANCES. IN THIS REGARD, RELIANCE IS PLACED ON THE DECISION IF THE HON'BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK ( SUPRA) (REFER PARA 27). SINCE NO DEDUCTION IS ALLOWED FOR NON RURAL DEBTS A T THE PROVISION STAGE UNDER CLAUSE (VIIA), THE PROVISO TO SECTION 3G(1)(VII) DO GS NOT COME INTO PLAY WHEN THE NON RURAL DEBTS ARE WRITTEN OFF. THEREFORE, THE NON RURAL WRITE OFF HAS TO BE ALLOWED AS DEDUCT ON UNDER THE MAIN PART OF THE SEC TION 3G(1)(VII). IT IS THE SUBMISSION OF THE DEPARTMENT THAT THE EXP LANATION 2 INTRODUCED BY THE FINANCE ACT, 2013 HAS IMPLIEDLY OVERRULED THE DECIS ION OF THE HON'BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK (SUPRA). THIS ARGUMENT IS FALLACIOUS AND NOT BASED ON THE CORRECT. APPRECIATION OF LAW AND FACT THE QUESTION OF LAW DE CIDED BY THE HON'BLE SUPREME COURT IS EXTRACTED IN PARA 11 OF ITS JUDGME NT. THE FIRST QUESTION, WHICH WAS DECIDED BY THE HONBLE SUPREME COURT IN FAVOUR OF THE BANKS IS EXTRACTED HEREUNDER: 'WHETHER THE FULL BENCH OF THE HIGH COURT HAS GROSS LY ERRED IN REVERSING THE FINDING OF THE EARLIER DIVISION BENCH THAT ON A COR RECT INTERPRETATION OF THE PROVISO TO CLAUSE (VII) OF SECTION 36(1) AND CLAUSE (V) TO SECTION 36(2) IS ONLY TO DENY THE DEDUCTION TO THE EXTENT OF BAD DEBTS WRITTEN OFF IN THE BOOKS WITH RESPECT TO WHICH PROVISION WAS MADE UNDER CLAUSE (VIIA) OF THE INCOME-TAX ACT? (* EMPHASIS AP PLIED) WHILE DECIDING THE ABOVE QUESTION, THE HONBLE SUPR EME COURT LAID DOWN THE FOLLOWING STATUTORY PRONOUNCEMENTS: (A) CLAUSE 36(1)(VIIA)(A) APPLIES ONLY TO RURAL ADV ANCES (PARA 27) (B) THE SCOPE OF THE PROVISO TO CLAUSE (VII OF SECT ION 36(1) ONLY SHOWS THAT A DOUBLE BENEFIT IN RESPECT OF THE SAME DEBT IS NOT G IVEN TO A SCHEDULED BANK, (PARA 30) (C) THE PROVISIONS OF SECTION 36(1)(VII) & 36(1)(VI IA) ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTIONS AND OPERATE IN THEIR RESPECTIVE FIELDS (PARA 41) (D) THE BAD DEBTS WRITTEN OFF, OTHER THAN THOSE FOR WHICH THE PROVISION IS MADE UNDER CLAUSE (VIIA), WILL BE COVERED UNDER THE MAIN PART OF SECTION 36(1)(VII). (PARA 41) ITA NO.2159/MUM/2018 DENA BANK 13 (E) THE PROVISO TO SECTION 36(1 )(VU) WILL RELATE T O CASES COVERED U/S 3G(1)(VIIA) AND HASTE BE READ WITH SECTION 36(2)(V) OF THE ACT. (PARA 41) IS RESPECTFULLY SUBMITTED THAT ALL THE ABOVE AUTHOR ITATIVE PRONOUNCEMENT OF THE HON'BLE SUPREME (COURT ARE DECLARATION OF LAW AS EN VISAGED UNDER ARTICLE 141 OF THE CONSTITUTION. IN A RECENT DECISION, THE LARGER BENCH OF THE SUPREME COURT IN THE CASE OF KHODAY DISTILLERIES LTD REPORTED IN [2019] 1Q4TAXMANN COM 25 (SC) UPHELD THE PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF KUNHAYAMMED REPORTED IN [2000] 245 ITR 360 (SC) ABO UT THE BINDING PRECEDENCE OF THE LAW DECLARED BY THE HON'BLE SUPRE ME COURT. IN PARA 24 OF KHODAY'S JUDGMENT THE COURT EXTRACTED THE PRINCIPLE S LAID DOWN IN THE KUNHAYAMMETI JUDGMENT THE RELEVANT EXTRACT IS AS FO LLOWS ....WHERE THE ORDER REJECTING AN SLP IS A SPEAKING ORDER, THAT IS, WHERE REASONS HAVE BEEN ASSIGNED BY THIS COURT FOR REJECTING THE PETITION FOR SPECIAL LEAVE AND ARE STATED IN THE ORDER STILL THE ORDER REMAINS THE ONE REJECTING PRAYER FOR THE GRANT OF LEAVE TO APPEAL THE PETITIONER HAS BEEN TU RNED AWAY AT THE THRESHED WITHOUT HAVING BEEN ALLOWED TO ENTER IN THE APPELLA TE JURISDICTION OF THIS COURT. HERE ALSO THE DOCTRINE OF MERGER WOULD NOT APPLY. LAW STATED OR DECLARED BY THIS COURT IN ITS ORDER S HALL ATTRACT APPLICABILITY OF ARTICLE THE CONSTITUTION. THE REASONS ASSIGNED BY T HIS COURT IN ITS ORDER EXPRESSING ITS ADJUDICATION (EXPRESSLY OR BY NECESS ARY IMPLICATION) ON POINT OFFSET OR LAW SHALL TAKE AWAY THE JURIDICTION OF AN Y OTHER COURT, TRIBUNAL OR AUTHORITY TO EXPRESS ANY OPINION IN CONFLICT IN DEP ARTURE FROM THE VIEW TAKEN BY THIS COURT BECAUSE PERMITTING TO DO SO WOULD BE SUB VERSIVE OF JUDICIAL DISCIPLINE AND AN AFFRONT TO THE ORDER OF THIS COURT.......... ' THEREFORE THE DECISION OF THE HON'BLE SUPREME COURT ON ALL THE ABOVE POINTS ARE BINDING ON ALL COURTS/ TRIBUNALS /AUTHORITIES U NLESS OVERRULED BY A SPECIFIC ENACTMENT. THE EXPLANATION 2 INTRODUCED BY THE FINANCE ACT, 20 13 DOES NOT OVERRULE ANY OF PRONOUNCEMENTS. THE EXPLANATION WAS INTRODUCED ONLY TO NULLIFY A CONFUSION THAT MAY ARISE OUT OF THE ORDER OF THE HO N'BLE SUPREME COURT THAT THE PROVISO DOES NOT APPLY TO NON RURAL DEBTS, BASED ON THE FACTS OF THE CASE BEFORE THE HON'BLE SUPREME COURT, IN WHICH ALL THE BANKS W ERE HAVING BOTH RURAL AND NON RURAL BRANCHES, THE COURT HELD THAT THE PROVISO DOES NOT CONTROL NON RURAL DEBTS. THE DECISION WAS RENDERED BASED ON THE FACTS OF THE CASE BEFORE THE COURT HOWEVER, IT COULD BE INTERPRETED & ARGUED THA T THE PROVISO IS RIOT APPLICABLE EVEN IN THE CASE OF OTHER ASSESSEE, WHO ARE COVERED BY THE OTHER SUB CLAUSES OF SECTION 35(1)(VIIA), AND FOR WHOM DE DUCTION U'S 36(VA) IS GIVEN ONLY FOR NON RURAL DEBTS. IT IS TO AVOID THIS UNINT ENDED MISCHIEF THE EXPLANATION WAS INTRODUCED TO STATE THAT THE PROVISO COVERS NON RURAL DEBT ALSO THE EXPLANATION THEREFORE, HAS TO BE READ IN THE CONTEX T OF THE LEGISLATIVE INTENT BEHIND THE INTRODUCTION OF THE PROVISO AND THE UNIN TENDED HARDSHIP CREATED BY THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC S YRIAN BANK (SUPRA). EVEN AFTER THE INTRODUCTION OF THE EXPLANATION 2, THE LE GISLATIVE INTENT BEHIND THE INTRODUCTION OF THE PROVISO IS UNCHANGED. THE PROVI SO IS TO AVOID DOUBLE DEDUCTION IS AN ACCEPTED FACT. FURTHER, THE FACT TH AT, THE PROVISO WILL COME INTO PLAY ONLY WHEN AN ACCOUNT IS MADE UNDER CLAUSE (VII A) IN RESPECT OF A DEBT BY ALLOWING THE DEDUCTION AT THE PROVISION STAGE IS AL SO NOT ALTERED BY THE EXPLANATION. HAD THE INTENTION OF THE LEGISLATURE I S TO COMPLETELY OVERRULE THE ITA NO.2159/MUM/2018 DENA BANK 14 DECISION OF THE HON'BLE SUPREME COURT, THEY WOULD H AVE AMENDED THE PROVISO ITSELF, OR ALTERNATIVELY, AMENDED THE CLAUSE 36(1}[ VIIA)(A). THERE IS NO AMENDMENT EITHER TO THE PROVISO OR TO CLAUSE (VIIA) (A). THEREFORE, THE AUTHORITATIVE PRONOUNCEMENT OF THE HON'BLE SUPREME COURT IN THE INTERPRETATION O THE APPLICABILITY OF 36(1)(VITTA)(A) TO RURAL ADV ANCES AND THE INTENTION OF THE PROVISO IS TO AVOID DOUBLE DEDUCTION ARE ALL NOT OV ERRULED. THEREFORE, THE EXPLANATION CANNOT BE READ INTO IN A MANNER THAT WI LL DEFEAT THE CLEAR LEGISLATIVE INTENT BEHIND THE PROVISO TO SECTION THE HARMONIOUS WAY OF INTERPRETING THE EXPLANATION IS BY CONSIDERING THE PURPOSE BEHIND THE INTRODUCTION OF THE PROVISO AND THE EFFECT OF THE HON'BLE SUPREME COURT DECISION EVEN THE GOVERNMENT ITSELF A CCEPTS THE FACT THAT THE SUB CLAUSE (A) OF SECTION 36(1 )(VIIA) REFERS TO RU RAL ADVANCES. FROM THE MEMORANDUM IT CAN BE UNDERSTOOD THAT THE LEGISLATIV E INTENT BEHIND THE PROVISO HAS NOT BEEN CHANGED. THEREFORE, THE PURPOS E OF THE EXPLANATION IS ONLY TO AVOID THE MISCHIEF THAT BY PLACING RELIANCE ON THE HON'BLE SUPREME COURT DECISION, NO ASSESSEE SHOULD CONTEND THAT THE PROVI SO DOES NOT COVER NON RURAL ADVANCES IN THOSE CASES WHERE THE DEDUCTION U/S 36( 1 )(VIIA) HAS BEEN GIVEN FOR NON RURAL ADVANCES THEREFORE, THE HARMONIOUS SA Y OF READING THE EXPLANATION IS ONLY TO THE EFFECT THAT THE PROVISO IS APPLICABLE TO THOSE DEBTS FOR WHICH A DEDUCTION IS ALLOWED U/S 36(1)(VIIA) AT THE PROVISION STAGE WHETHER IT IS RURAL OR NON RURAL. IF THE DEDUCTION IS ALLOWED FOR RURAL DEBT, THEN, THE PROVISO ATTRACTS FOR SUCH RURAL DEBTS. ON THE OTHER HAND, I F THE DEDUCTION IS GIVEN FOR A NON RURAL DEBT, THEN THE PROVISO IS APPLICABLE TO S UCH NON RURAL DEBTS. THEREFORE, IRRESPECTIVE OF THE FACT WHETHER THE DEBT IS RURAL/ NON RURAL, ONCE A DEDUCTION IS ALLOWED FOR SUCH DEBT AT THE PROVISION STAGE U/S 36 (1)(VIIA), THEN, SUCH DEBT SHALL BE ADJUSTED AGAINST THE PROVISION A/C WHETHER IT IS RURAL / NON RURAL. THIS IS THE HARMONIOUS WAY OF READING THE EXPLANATION. THE READING OF THE EXPLANATION BY THE LEARNED COMMISSIONER IN SUCH A WAY THAT EVEN IN RESPECT OF A NON RURAL DEBT FOR WHICH NO DEDUCTION IS ALLOWED U/S 36(1)(VI IA) IS COVERED BY THE PROVISO IS TOTALLY AGAINST THE SPIRIT OF THE PROVISO AND TH E EXPLANATION AND IT ALSO RUNS COUNTER TO THE DECISION RENDERED BY THE HON'BLE SUP REME COURT SUCH A READING MAKES THE APPLICABILITY OF THE EXPLANATION BEYOND I TS SCOPE. IT IS A SETTLED PRINCIPLE OF LAW THAT AN EXPLANATIO N CANNOT OVERRIDE THE SECTION. IN FACT THE PROVISO ITSELF DOES NOT OVERRIDE THE SECTI ON. IT ONLY CREATES AN EXCEPTION TO THE MAIN SECTION. THE ARGUMENT OF THE DEPARTMENT IN THE INTERPRETATION OF EXPLANATION 2 IS IN SUCH A WAY THAT IT GOES BEYOND THE PROVISO AND THE SECTION ITSELF. THIS ARGUMENT IS FALLACIOUS AND AGAINST THE SETTLED PRINCIPLES OF LAW, AS SUBMITTED EARLIER, THE PROVISO SHALL ITSELF BE A TTRACTED ONLY WHEN THE DEDUCTION FOR A DEBT IS ALLOWED U/S 36(1)(VIIA). IT IS CLEARLY ESTABLISHED THAT IN RESPECT OF NON RURAL ADVANCES, NO DEDUCTION IS A LLOWED U/S 36(1)(VIIA) AT THE PROVISION STAGE. THEREFORE, THESE DEBTS ARE NOT EVEN COVERED BY THE PROVISO. EVEN IN VIEW OF THIS MATTER, ON THE FACTS OF THE CASE, THE INTRODUCTION OF THE EXPLANATION 2 BY THE FINANCE AC T, 2013 HAS NOT ALTERED THIS POSITION. FURTHER, THERE IS A FALLACY IN THE ARGUMENT OF THE DEPARTMENT THAT THE NON RURAL DEBTS FOR WHICH NO DEDUCTION IS ALLOWED U/S 36(1)(V IIA) IS ALSO COVERED BY THE PROVISO. THIS ARGUMENT RUNS COUNTER TO THE SCHEME O F THE ACT ITSELF. AS PER ITA NO.2159/MUM/2018 DENA BANK 15 SECTION 41 (4), ANY RECOVERY FROM A BAD DEBT WHICH WAS ALLOWED AS A DEDUCTION U/S 36(1 )(VII), IS LIABLE TO BE TAXED AS DEEMED IN COME. ONLY IF A DEDUCTION IS ALLOWED U/S 3G(1)(VII), THE SUBSEQUENT RECOVERY HAS TO BE OFFERED TO TAX THEREFORE, FOR A NON RURAL DEBT FOR WHICH NO DEDUCT ION IS ALLOWED U/S 36(1)(VIIA) HAS TO BE ADJUSTED AGAINST THE PROVISION ALLOWED UN DER THAT SECTION IN RESPECT OF SOME OTHER DEBT WILL HAVE THE EFFECT OF NOT OFFERIN G THE SUBSEQUENT RECOVERY TO TAX. THIS KIND OF INTERPRETATION IS PREJUDICIAL TO THE INTEREST OF THE DEPARTMENT. TO SUM UP , > THE PROVISIONS OF SECTIONS 36(1)(VII) &36(1)(VI IA) ARE DISTINCT AND SEPARATE AND OPERATE IN THEIR RESPECTIVE FIELDS. > THE PURPOSE OF INTRODUCTION OF PROVISO TO SECTI ON 36(1)(VII) IS TO AVOID DOUBLE DEDUCTION IN RESPECT OF A DEBT FOR WHICH DEDUCTION U/S36(1)(VIIA) IS ALLOWED AT THE TIME OF PROVISION AND A DEDUCTION IS ALSO ALLOWED U/S 36{1)(VII) AT THE T IME OF WRITE OFF > THE PROVISO CONTROLS ONLY THOSE DEBTS FOR WHIC H A DEDUCTION WAS ALLOWED U/S 36(1)(VIIA), BE IT RURAL F NON RURAL. > IN RESPECT OF A DEBT FOR WHICH NO DEDUCTION WAS ALLOWED AT THE PROVISION STAGE U/S 36(1)(VIIA), THE DEDUCTION IS ALLOWED UND ER THE MAIN PART OF SECTION 36(1)(VII) AND THE PROVISO DOES NOT GET ATTRACTED A T ALL. > IN RESPECT OF BANKS WITH RURAL BRANCHES, THE D EDUCTION ALLOWED U/S 36(1)(VIIA) IS FOR RURAL DEBTS AND THEREFORE, IN RESPECT OF NON RURAL DEBTS FOR WHICH NO DEDUCTION WAS ALLOWED U/S 36{1)(VIIA), THE PROVISO IS NOT ATTRACTED AT ALL. > THE EXPLANATION INTRODUCED BY THE FINANCE ACT, 2013 ONLY EXPLAINS THAT THE PROVISO TO SECTION 36(1)(VII) IS APPLICABLE TO NON RURAL DEBTS FOR WHICH DEDUCTION IS ALLOWED U/S 36(I)(VIIA) IS ALLOWED. > THE EXPLANATION DOES NOT OVERRULE VARIOUS RATIO S DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK. IT ONLY REMOVES THE UNINTENDED HARDSHIP OF INTERPRETING THE PROVISO AS APPLICABLE ONLY TO RURAL DEBTS EVEN IF AN ASSESSEE IS ALLOWED DEDUCTION FOR NON RU RAL DEBTS U/S 36(1)(VIIA) AT THE PROVISION STAGE. > READING THE EXPLANATION IN SUCH A MANNER THAT IT CONTROLS EVEN A NON RURAL DEBT FOR WHICH NO DEDUCTION WAS ALLOWED U/S 3G(L)(V IIA) GOES BEYOND THE INTENMENT OF THE PROVISO AND ENHANCES THE APPLICABI LITY OF THE PROVISO NOT INTENDED FOR. THIS KIND OF INTERPRETATION IS NOT TE NABLE IN LAW AS IT IS A SETTLED PROPOSITION OF LAW THAT AN EXPLANATION CANNOT GO BE YOND THE PROVISO OR SECTION AND CREATE A NEW LIABILITY ON THE ASSESSEE, NOT ENV ISAGED BY THE SECTION OR PROVISO. 2. GROUND NO. - 3 - PAYMENT TO GRATUITY FUND: THE APPELLANT BANK MADE A CONTRIBUTION OF RS. 54 CR TO GRATUITY FUND DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL AND THE SAME WAS CLAIMED AS DEDUCTION U/S 43B ON PAYMENT BASIS HOWEV ER, THE APPELLANT BANK DEBITED ONLY AN AMOUNT OF RS 5.94 CR TO THE PROFIT & LOSS ACCOUNT THE LEARNED COMMISSIONER IN THE IMPUGNED ORDER HELD THAT THE AS SESSEE IS FOLLOWING ACCRUAL SYSTEM OF ACCOUNTING AND ONLY WHEN THE LIABILITY TO PAY THE AMOUNT ARISES, THE AMOUNT WILL BE ALLOWABLE DEDUCTION. HE INTERPRETED THE WORDS IN SECTION 43B THAT 'DEDUCTION OTHERWISE ALLOWABLE UNDER THE ACT 1 TO REACH HIS CONCLUSION. ITA NO.2159/MUM/2018 DENA BANK 16 IT IS HUMBLY SUBMITTED THAT THE PROVISIONS OF SECTI ON 43B OVERRIDES OTHER PROVISIONS OF THE ACT. IN RESPECT OF ITEMS COVERED BY THE SECTION, THE DEDUCTION IS ALLOWED ONLY IN THE YEAR OF PAYMENT IRRESPECTIVE OF THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE THE WORDS 'DEDUCTION OTHER WISE ALLOWABLE UNDER THE ACT' MEANS ONLY THAT IT IS NOT A DISALLOWABLE EXPEN DITURE SUCH AS CAPITAL EXPENDITURE OR ANY OTHER EXPENDITURE SPECIFICALLY D ISALLOWED UNDER THE ACT IT IS FOR THAT PURPOSE, THESE WORDS HAVE BEEN USED IN THE SECTION THE INTEND BEHIND THE SECTION IS TO ALLOW THE DEDUCTIONS ONLY M THE Y EAR OF ACTUAL PAYMENT. THIS CONTROVERSY HAS BEEN SETTLED BY THE HONBLE SUPREME COURT IN A LATEST DECISION IN THE CASE OF CIT VS MODIPON LTD (REFER PAGE 142 T O 146 OF CASE LAW INDEX). IN PARA 11 OF THE SAID DECISION (REFER PAGE 145- 146), THE HONBLE SUPREME COURT CLEARLY HELD THAT HAVING REGARD TO THE OBJECT BEHIN D THE ENACTMENT OF SECTION 43B, THE LEGISLATIVE INTENT WOULD BE ACHIEVED BY GI VING BENEFIT OF DEDUCTION TO AN ASSESSEE UPON ADVANCE DEPOSIT OF CENTRAL EXCISE DUTY NOTWITHSTANDING THE FACT THAT ADJUSTMENTS FROM SUCH DEPOSITS ARE MADE O N SUBSEQUENT DATES. THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF C L GUPTA & SONS (REFER PAGE 147 TO 151 OF CASE LAW INDEX) AT PAGE NO 150, HELD THAT IRRESPECTIVE OF THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSES, THE DEDUCTION SHALL BE ALLOWED ONLY IN THE PREVIOUS YEAR IN WHICH IT WAS A CTUALLY PAID IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY WAS INCURRED F OR THE PAYMENT OF SUCH SUM AS PER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. IN FACT, IN THAT DECISION, THE ASSESSEE MADE THE PAYMENT IN AN EARLI ER YEAR AND CLAIMED THE DEDUCTION IN THE SUBSEQUENT YEAR THE TRIBUNAL ALLOW ED THE DEDUCTION TO THE ASSESSEE ON FURTHER APPEAL BY THE DEPARTMENT IN WHI CH IT WAS CONTENDED THAT THE DEDUCTION WAS ALLOWABLE ONLY IN THE YEAR OF PAY MENT, THE HIGH COURT REVERSED THE DECISION OF THE TRIBUNAL BY HOLDING T HAT THE DEDUCTION CANNOT BE CLAIMED IN THE SUBSEQUENT YEAR ON ACCRUAL BASIS. THERE ARE DECISIONS OF VARIOUS OTHER HIGH COURTS AL SO TO THE SAME EFFECT. IT IS THEREFORE, SUBMITTED THAT THE DEDUCTION IS AL LOWABLE ON PAYMENT BASIS AND THE REVISION BY THE LEARNED COMMISSIONER IS NOT TEN ABLE IN ANY CASE, THE VIEW ADOPTED BY THE LEARNED ASSESSING OFFICER IS ONE OF THE POSSIBLE VIEWS AND AS SUCH, NO REVISION IS POSSIBLE. FURTHER, IT IS ALSO A CASE OF NO PREJUDICE TO THE DEPARTMENT SINCE THE DEDUCTION IN ANY CASE IS ALLOW ABLE TO THE ASSESSEE IN THE SUBSEQUENT YEARS. A. GROUND NO.-4-PENALTY PAID TO RBI: DURING THE PREVIOUS RELEVANT TO THE YEAR UNDER APPE AL, THE APPELLANT BANK PAID AN AMOUNT OF RS, 2 CR AS PENALTY TO RBI FOR NON COM PLIANCE OF KYC NORMS. THE LEARNED COMMISSIONER IN THE IMPUGNED ORDER HELD THA T THE SAME IS NOT ALLOWABLE AS A DEDUCTION U/S 37 SINCE IT IS FOR VIO LATION OF LAW. IT IS SUBMITTED THAT THE PENALTY PAID TO RBI IS NOT FOR VIOLATION O F ANY LAW. THIS ISSUE IS SQUARELY COVERED BY THE FOLLOWING DECISIONS OF THE TRIBUNAL: CASE LAW RELIED UPON CITATION REFERENCE NO PARA PAGE BAPUNAGAR MAHILA CO- OP. BANK LTD. 2015 (7) TIMI 472- ITAT AHMEDABAD 19-21 166-167 ITA NO.2159/MUM/2018 DENA BANK 17 DBS BANK LIMITED 2018(6) TMI 757- ITAT MUMBAI 12-15 171-172 5. GROUND NO. - 5 - PROVISION FOR WAGE ARREARS: AS PER THE AGREEMENT WITH THE EMPLOYEES OF THE APPE LLANT BANK, THE WAGE REVISION WAS DUE FROM 01-11-2012 ONWARDS. NEGOTIATI ONS WERE GOING ON BETWEEN THE UNIONS AND THE MANAGEMENT. THE BANK EST IMATED A PROVISION OF RS. 96 CR BASED ON THE PAST PRACTICE AND THE EXPECT ED INCREASE. FINALLY THE AGREEMENT WAS REACHED DURING FEB'15 AND THE DISBURS EMENT WAS MADE DURING AUG'15. SINCE THE LIABILITY HAD ACCRUED, THE AMOUNT WAS PROVIDED IN THE BOOKS. THE SAME IS THEREFORE, AN ALLOWABLE EXPENDITURE. TH E LEARNED COMMISSIONER IN HIS IMPUGNED ORDER HELD THAT UNLESS THE WAGE REVISI ON WAS NOTIFIED, THE EXACT LIABILITY WAS NOT ASCERTAINABLE. HE. THEREFORE, OBS ERVED THAT THE PROVISION WAS NOT ALLOWABLE BEING CONTINGENT IN NATURE. THIS ISSUE IS SQUARELY COVERED BY THE FOLLOWING DEC ISIONS: CASE LAW RELIED UPON CITATION REFERENCE NO PARA PAGE ERSTWHILE RAJ GRAMIN BANK, ALWAR C/O. BARODA RAJASTHAN KSHETRIAYA GRAMIN ANK, AJMER 2017 (11) TMI 129 - RAJASTHAN HIGH COURT 4&7 178 - 1B1 BANK OF BARODA ITA NO.2480 & 3081/MUM/2015 - ORDER DATED 17-02- 2017 FOR ASSESSMENT YEAR 2009-10 3-6 185-187 IN ANY CASE, THE VIEW ADOPTED BY THE LEARNED ASSESS ING OFFICER IS ONE OF THE POSSIBLE VIEWS AND AS SUCH, NO REVISION IS POSSIBLE . FURTHER, IT IS ALSO A CASE OF NO PREJUDICE TO THE DEPARTMENT SINCE THE DEDUCTION IN ANY CASE IS ALLOWABLE TO THE ASSESSEE IN THE SUBSEQUENT YEARS.. 8. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTI NG ORDER OF THE PCIT SUBMITTED THAT THE LD. AO HAS ALLOWED DEDUCTIO N TOWARDS BAD DEBT WRITTEN OFF ACCOUNT, IN RESPECT OF NON-RURAL A DVANCES, EVEN THOUGH, THE OPENING BALANCE OF PROVISION FOR BAD AN D DOUBTFUL DEBT ACCOUNTS IS IN EXCESS OF AMOUNT WRITTEN OFF DURING THE YEAR WITHOUT CONSIDERING THE EXPLANATION (2) TO SECTION 36(1)(VI I), WHICH WAS INSERTED BY FINANCE BILL, 2013 W.E.F. 1/04/2014 AND APPLICABLE TO THE AY 2014-15 ONWARDS. THE LD. DR REFERRING TO THE EXP LANATION (2) TO ITA NO.2159/MUM/2018 DENA BANK 18 SECTION 36(1) (VII) AND THE MEMORANDUM EXPLAINING T HE FINANCE BILL SUBMITTED THAT IT IS VERY CLEAR FROM THE PURPOSE BE HIND INSERTION OF EXPLANATION (2) TO SECTION 36(1)(VII), AS PER WHICH THE LEGISLATURE WAS VERY CLEAR IN THEIR THOUGHT KEEPING IN MIND VARIOUS JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE SUPRE ME COURT, IN THE CASE OF CATHOLIC SYRIAN BANK (SUPRA) AND HAD EXPL AINED THE POSITION OF LAW, IN RESPECT OF DEDUCTIONS TOWARDS B AD DEBT WRITE OFF, MORE PARTICULARLY, IN THE LIGHT OF DEDUCTIONS ALLOW ED TOWARDS PROVISION FOR BAD DEBTS U/S 36(1)(VII) AND EXPLAINED THAT IN ORDER TO CLARIFY THE SCOPE AND APPLICABILITY OF PROVISIONS OF CLAUSE (V II), (VIIA) OF SUB SECTION (1) AND SUB SECTION (2), IT IS PROPOSED TO INSERT AN EXPLANATION IN CLAUSE (VII) OF SECTION 36(1) STATIN G THAT FOR THE PURPOSE OF THE PROVISO TO SECTION 36(1)(VII) AND 36 (2)(V) ONLY ONE ACCOUNT AS REFERRED TO THEREIN IS MADE, IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS U/S 36(1)(VA) AND SUCH ACCOU NT RELATES TO ALL TYPES OF ADVANCES, INCLUDING ADVANCE MADE BY THE RU RAL BRANCHES. THEREFORE, FOR AN ASSESSEE TO WHICH CLAUSE (VIIA) O F SECTION 36(1) APPLIES, THE AMOUNT OF DEDUCTION, IN RESPECT OF THE BAD DEBTS ACTUALLY WRITTEN OFF U/S 36(1)(VII) SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH BAD DEBTS EXCEEDS, THE CREDIT BALANCE IN THE PROVIS ION FOR BAD AND DOUBTFUL DEBT ACCOUNT MADE U/S 36(1)(VIIA), WITHOUT ANY DISTINCTION BETWEEN RURAL ADVANCES AND OTHER ADVANCES. ALTHOUGH , THE SUBMISSIONS WERE CALLED, IN RESPECT OF CLAIM OF BAD DEBTS DURING THE ASSESSMENT PROCEEDINGS, THE LD. AO HAS COMPUTED THE BAD DEBTS CLAIMED TO BE ALLOWED IN THE ASSESSMENT ORDER WITHO UT CONSIDERING NEWLY INSERTED EXPLANATION (2) TO SECTION 36(1)(VII ), WHICH COMES INTO EFFECT FOR AY 2014-15. THE LD. DR, FURTHER SUBMITTE D THAT ALTHOUGH, THE ASSESSEE HAS CITED AT LENGTH VARIOUS CASE LAWS, INCLUDING THE HONBLE APEX COURT IN THE CASE OF CATHOLIC SYRIAN B ANK, BUT, FACT ITA NO.2159/MUM/2018 DENA BANK 19 REMAINS THAT THE INTERPRETATION CANVASSED BY THE AS SESSEE IS COMPLETE MISINTERPRETATION, BECAUSE THE MEMORANDUM CLEARLY SPELLS OUT, THE MISCHIEF SOUGHT TO BE CURBED AND THE JUDIC IAL DECISIONS AND INTERPRETATIONS RENDERED INOPERATIVE. THERE IS NO D OUBT THAT THE VIEW EXPRESSED EARLIER DECISIONS ON THE SUBJECT INCLUDIN G THE HONBLE APEX COURT DECISIONS IN THE CASE OF CATHOLIC SYRIAN BANK (SUPRA) STANDS OVERRIDDEN BY EXPRESS EXPLANATION OF INTENTI ON OF THE LEGISLATURE OF INSERTION EXPLANATION (2) TO SECTIO N 36(1)(VII). THEREFORE, THERE IS NO MERIT IN THE ARGUMENTS OF TH E ASSESEE, IN LIGHT OF THE DECISIONS OF HONBLE SUPREME COURT, IN THE C ASE OF CATHOLIC SYRIAN BANK (SUPRA). THUS, TO CONCLUDE, THE LD. AO HAS COMPLETELY IGNORED NEWLY INSERTED EXPLANATION (2) TO SECTION 3 6(1)(VII), WHILE ALLOWING DEDUCTIONS TOWARDS BAD DEBT WRITTEN OFF, W HICH RENDERED THE ASSESSMENT ORDER ERRONEOUS, INSOFAR AS IT IS PREJUD ICIAL TO THE INTEREST OF THE REVENUE. 9. THE LD. DR, FURTHER SUBMITTED THAT IN RESPECT OF OTHER ISSUES, INCLUDING DEDUCTIONS CLAIMED TOWARDS PAYMENT TO GRA TUITY FUND U/S 43B ON ACTUAL PAYMENT BASIS, THE LD.PCIT HAS EXPLAI NED THE LAW AS PREVAILED U/S 43B, AS PER WHICH THE EXPENSES OTHERW ISE, ALLOWABLE UNDER THE ACT IS DEDUCTIBLE U/S 43B ON PAYMENT BASI S, BUT THE INTERPRETATION OF THE ASSESEE THAT ANY AMOUNT PAID IRRESPECTIVE OF THE FACT THAT WHETHER, SUCH AMOUNT IS OTHERWISE ALLOWAB LE UNDER THE ACT OR NOT IS DEDUCTIBLE, EVEN THOUGH THE ASSESSEE HAS ACTUALLY PAID THE AMOUNT IN THE RELEVANT FINANCIAL YEAR. THE LD. CIT( A) HAS RIGHTLY DISTINGUISHED THE CASE LAWS RELIED UPON BY THE ASSE SSEE IN THE CASE OF MODIPON LTD. (SUPRA). LIKEWISE, THE LD. DR HAS S TRONGLY SUPPORTED THE FINDINGS OF THE LD.PCIT, IN RESPECT O F PAYMENTS OF PENALTY TO RBI FOR VIOLATION OF KYC NORMS AND SUBMI TTED THAT SAID ITA NO.2159/MUM/2018 DENA BANK 20 EXPENDITURE IS CLEARLY FALL UNDER THE PURVIEW OF S ECTION 37(1), AS EXPENDITURE INCURRED FOR THE PURPOSE, WHICH IS AN OFFENCE OR PROHIBITED UNDER ANY LAW FOR THE TIME BEING IN FORC E AND SUCH EXPENDITURE IS NOT DEDUCTIBLE U/S 37(1) OF THE I.T. ACT, 1961. AS REGARDS, PROVISIONS FOR WAGE ARREARS, THE LD. DR, S UBMITTED THAT IT IS AN ADMITTED FACT THAT WAGE REVISION HAD NOT OCCURRE D AT THE TIME, WHEN THE ASSESSMENT ORDER WAS PASSED. THEREFORE, TH E CLAIM OF THE ASSESSEE WAS CONTINGENT IN NATURE, WHICH CANNOT BE ALLOWED AS DEDUCTION. THE LD.PCIT AFTER CONSIDERING THE FACTS OF THE CASE HAS RIGHTLY NOTED THAT THE LD. AO HAS ALLOWED THE CLAIM WITHOUT CONSIDERING THE FACTS IN RIGHT PERSPECTIVE, WHICH R ENDERED THE ASSESSMENT ORDER ERRONEOUS, INSOFAR IT IS PREJUDICI AL TO THE INTEREST OF THE REVENUE. IN THIS REGARD, HE HAS FILED DETAILED WRITTEN SUBMISSIONS WHICH IS REPRODUCED AS UNDER:- WRITTEN SUBMISSION: - THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER U/S. 263 PASSED BY THE PR. CIT-2, MUMBAI DATED 27.02,2018 IN RESPECT OF ASSESSMENT ORDER PASSED BY THE AO, ACIT-2(3)(1), MUMBAI, DATED 27.02.2016. THE PR. CIT HAS HELD THAT THE FOLLOWING CLAIMS ARE INCORREC TLY ALLOWED AND WHICH RENDERS THE ASSESSMENT ORDER ERRONEOUS, INSOFAR AS, PREJUDICIAL TO THE INTEREST OF REVENUE AS EXCESS ALLOWANCES/CLAIMS HAV E BEEN ALLOWED. (I) BAD DEBTS RS. 402,26,72,141/- CLAIMED U/G 36(L)(VII) WITHOUT SETTING IT AGAINST PROVISION U/S 36(L)(VIIA). (II) CLAIM OF RS, 48,06,00,000/- U/S 43B IN R ESPECT OF ADVANCE PAYMENT TOWARDS GRATUITY FUND. (III) PENALTY OF RS. 2,00,00,000/- AS PENALTY LEVIE D BY RBI FOR VIOLATION OF KYC NORMS. IV) RS. 96, 00,00,000 /- CLAIMED AS PROVISION FOR WAGES ARREARS. 2. BAD DEBTS RS. 402,26,72,141/- CLAIMED U/S 36(1)( VII) 2.1. DURING THE YEAR, THE ASSESSEE HAS WRITTEN OFF RS. 478.85 CRORES OF BAD DEBTS. AS PER THE ASSESSEE, RS. 4.02 CRORES IS TOWA RDS ADVANCES BY RURAL BRANCHES AND RS. 474.83CRORES IS IN RESPECT OF ADV ANCES MADE BY NON- RURAL BRANCHES. RS. 4.02 CRORES SHOWN AS ADVANCES MADE BY RURAL BRANCHES AND RS. 75.56 CRORES OUT OF ADVANCES MADE BY NON-RURAL BRANCHES HAVE BEEN SET OFF AGAINST OPENING BALANCE OF PROVISIONS FOR BAD ITA NO.2159/MUM/2018 DENA BANK 21 DEBTS U/S. 36{I)(VIII} OF RS. 1235.74 CRORES. THE B ALANCE BAD DEBTS OF NON- RURAL BRANCHES OF RS. 402.26 CRORES HAS BEEN CLAIME D U/S. 36(I)(VII) AND WHICH IS THE SUBJECT MATTER OF THE ORDER U/S. 263 O F THE PR. CIT. THE ASSESSEE HAS ALSO SEPARATELY CLAIMED DEDUCTION THIS YEAR OF RS. 507.85 CRORES U/S- 36(I)(VIIA). 2.2 IT IS POINTED OUT THAT THERE WAS AN AMENDME NT IN LAW, IN AS MUCH AS, EXPLANATION TO SECTION 36(L}(VII) WAS INSERTED BY F INANCE BILL, 2013 WHICH BECAME APPLICABLE W.E.F. 01.04.2014 AND APPLIED TO THE A.Y, 2014-15 WHICH IS THE ASSESSMENT YEAR INVOLVED IN THIS CASE- EXPLA NATION-2 INSERTED READS AS FOLLOWS: EXPLANATION 2,-FOR THE REMOVAL OF DOUBTS, IT IS HER EBY CLARIFIED THAT FOR THE PURPOSES OF THE PROVISO TO CLAUSE (VI I) OF THIS SUBSECTION AND CLAUSE (V} OF SUBSECTION. {2), THE A CCOUNT REFERRED TO THEREIN SHALL BE ONLY ONE ACCOUNT IN RE SPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER CLAUSE(V IIA) AND SUCH ACCOUNT SHALL RELATE TO ALL TYPES OF ADVANCES. INCLUDING ADVANCES MADE BY RURAL BRANCHES' THE MEMORANDUM EXPLAINING THE FINANCE BILL IN THIS REGARD IS REPRODUCED AS BELOW: UNDER THE EXISTING PROVISIONS OF SECTION 36(1)(VII A) OF THE INCOME-TAX ACT, IN COMPUTING THE BUSINESS INCOME OF CERTAIN BANKS A ND FINANCIAL INSTITUTIONS, DEDUCTION IS ALLOWABLE IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY SUCH ENTITIES SUBJECT TO CER TAIN LIMITS SPECIFIED THEREIN. THE LIMIT SPECIFIED UNDER SECTION 36(1)(VI IA)(A) OF THE ACT RESTRICT THE CLAIM OF DEDUCTION FOR PROVISION FOR BAD AND DO UBTFUL DEBTS FOR CERTAIN BANKS (NOT INCORPORATED OUTSIDE INDIA) AND CERTAIN COOPERATIVE BANKS TO 7.5% OF GROSS TOTAL INCOME (BEFORE DEDUCTION UNDER THIS CLAUSE) OF SUCH BANKS AND 10% OF THE AGGREGATE AVERAGE ADVANCE MADE BY THE RURAL BRANCHES OF SUCH BANKS. THIS LIMIT IS 5% OF GROSS T OTAL INCOME (BEFORE DEDUCTION UNDER THIS CLAUSE) UNDER SECTIONS 36(1)(V IIA)(B) AND 36(1)(VIIA)(C) FOR A BANK INCORPORATED OUTSIDE INDI A AND CERTAIN FINANCIAL INSTITUTIONS. PROVISIONS OF CLAUSE (VII) OF SECTION 36(1) OF THE ACT PROVIDES FOR DEDUCTION FOR BAD DEBT ACTUALLY WRITTEN OFF AS IRRE COVERABLE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE PROVISO TO THIS CLAUSE PROVIDES THAT FOR AN ASSESSEE, TO WHICH SECTION 36(1)(VIIA) OF THE ACT A PPLIES, DEDUCTION UNDER SAID CLAUSE (VII) SHALL BE LIMITED TO THE AMOUNT BY WHICH THE BAD DEBT WRITTEN OFF EXCEEDS THE CREDIT BALANCE IN THE PROVI SION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER SECTION 36(1) (VI IA) OF THE ACT. THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT ARE SUBJECT TO THE PROVISIONS OF SECTION 36(2) OF THE ACT. THE CLAUSE (V) OF SECT ION 36(2) OF THE ACT PROVIDES THAT THE ASSESSEE, TO WHICH SECTION 36(1)( VIIA) OF THE ACT APPLIES, SHOULD DEBIT THE AMOUNT OF BAD DEBT WRITTEN OFF TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER SECTION 36(1) (VIIA) OF THE ACT. ITA NO.2159/MUM/2018 DENA BANK 22 THEREFORE, THE BANKS OR FINANCIAL INSTITUTIONS ARE ENTITLED TO CLAIM DEDUCTION FOR BAD DEBT ACTUALLY WRITTEN OFF UNDER S ECTION 36(1)(VII) OF THE ACT ONLY TO THE EXTENT IT IS IN EXCESS OF THE CREDI T BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER SECTI ON 36(1)(VIIA) OF THE ACT. HOWEVER, CERTAIN JUDICIAL PRONOUNCEMENTS HAVE CREATED DOUBTS ABOUT THE SCOPE AND APPLICABILITY OF PROVISO TO SEC TION 36(1)(VII) AND HELD THAT THE PROVISO TO SECTION 36(1)(VII) APPLIES ONLY TO PROVISION MADE FOR BAD AND DOUBTFUL DEBTS RELATING TO RURAL ADVANCES. SECTION 36(1)(VIIA) OF THE ACT CONTAINS THREE SUB- CLAUSES, I.E. SUB-CLAUSE (A), SUB-CLAUSE (B) AND SUB-CLAUSE (C) AND ONLY ONE OF THE SUB-CLAUSES I.E. SUB-CLAUSE (A) REFERS TO RURAL ADVANCES WHEREA S OTHER SUB-CLAUSES DO NOT REFER TO THE RURAL ADVANCES. IN FACT, FOREIGN B ANKS GENERALLY DO NOT HAVE RURAL BRANCHES. THEREFORE, THE PROVISION FOR B AD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA) OF SECTION 36(1) A ND REFERRED TO IN PROVISO TO CLAUSE (VII) OF SECTION 36(1) AND SECTIO N 36(2)(V) APPLIES TO ALL TYPES OF ADVANCES, WHETHER RURAL OR OTHER ADVANCES. IT HAS ALSO BEEN INTERPRETED THAT THERE ARE SEPARAT E ACCOUNTS IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBT UNDER CLAUSE (V IIA) FOR RURAL ADVANCES AND URBAN ADVANCES AND IF THE ACTUAL WRITE OFF OF D EBT RELATES TO URBAN ADVANCES, THEN, IT SHOULD NOT BE SET OFF AGAINST PR OVISION FOR BAD AND DOUBTFUL DEBTS MADE FOR RURAL ADVANCES. THERE IS NO SUCH DISTINCTION MADE IN CLAUSE (VIIA) OF SECTION 36(1). IN ORDER TO CLARIFY THE SCOPE AND APPLICABILITY OF PROVISION OF CLAUSE (VII), (VIIA) OF SUB-SECTION (1) AND SUB-SECTION (2 ), IT IS PROPOSED TO INSERT AN EXPLANATION IN CLAUSE (VII) OF SECTION 36 (1) STATING THAT FOR THE PURPOSES OF THE PROVISO TO SECTION 36(1)(VII) A ND SECTION 36(2)(V), ONLY ONE ACCOUNT AS REFERRED TO THEREIN IS MADE IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VIIA) AND SUCH ACCOUNT RELATES TO ALL TYPES OF ADVANCES, INCL UDING ADVANCES MADE BY RURAL BRANCHES. THEREFORE, FOR AN ASSESSEE TO WHICH CLAUSE (VIIA) OF SECTION 36(1) APPLIES, THE AMOUNT OF DEDU CTION IN RESPECT OF THE BAD DEBTS ACTUALLY WRITTEN OFF UNDER SECTION 36 (1)(VII) SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH BAD DEBTS EXCEE DS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER SECTION 36(1)(VIIA) WITHOUT ANY DISTINCTION B ETWEEN RURAL ADVANCES AND OTHER ADVANCES. THIS AMENDMENT WILL TAKE EFFECT FROM 01.04.2014 AND WILL ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2014-15 AN D SUBSEQUENT ASSESSMENT YEARS. 2.3, THOUGH THE SUBMISSIONS WERE RAILED IN RESPECT OF CLAIM, OF BAD DEBTS DURING THE ASSESSMENT PROCEEDINGS AND THE AO HAS CO MPUTED THE BAD DEBTS CLAIMED TO BE ALLOWED IN THE ASSESSMENT ORDER , IT NEEDS TO BE POINTED OUT THAT THE NEWLY INSERTED EXPLANATION TO SEC. 36(1)(VII) WHICH CAME INTO EFFECT FOR A.Y, 2014-15 WAS NEITHER ENQUI RED INTO BY THE AO, ITA NO.2159/MUM/2018 DENA BANK 23 NOR FINDS ANY MENTION IN THE SUBMISSIONS MADE BY TH E ASSESSE DURING THE ASSESSMENT PROCEEDINGS. IT IS THUS CLEAR THAT A VIT AL CHANGE IN TAW WHICH APPLIED TO A,Y. 20J4-15, THE ASSESSMENT YEAR BEFORE THE ASSESSING OFFICER IN THIS CASE, TOTALLY ESCAPED THE ATTENTION OF THE AO, THE AO HAS NEITHER CONSIDERED, NOR APPLIED HIS MIND ON APPLICATION OF EXPLANATION 2 TO SEC, 36(L)(VII) IN THE FACTS OF THE CASE OF TH E ASSESSE. 2.4. THE ASSESSEE HAS CITED AT LENGTH VARIOUS CA SE LAWS INCLUDING THE APEX COURT DECISION IN THE CASE OF CATHOLIC SYRIAN BANK AND HAS CLAIMED THAT THE DECISION RENDERED BY THE APEX COURT STIL L HOLDS FIELD EVEN AFTER THE EXPLICIT AMENDMENT TO THE LAW. IT IS SUBMITTED THAT THIS IS A TOTALLY INCORRECT INTERPRETATION CANVASSED BY THE ASSESSEE AND IS A COMPLETE MISINTERPRETATION WHERE THE STATUTE IS CLEAR AND EX PLANATORY. THE MEMORANDUM CLEARLY SPELLS OUT THE MISCHIEF SOUGHT T O BE CURBED AND THE JUDICIAL DECISIONS AND INTERPRETATIONS RENDERED INO PERATIVE. THERE IS NO DOUBT THAT THE VIEW EXPRESSED IN THE EARLIER DECISI ONS ON THE SUBJECT INCLUDING THE APEX COURT DECISION IN THE CASE OF CA THOLIC SYRIAN BANK STANDS OVERRIDDEN BY EXPLICIT EXPRESSION OF INTENTI ON OF THE PARLIAMENT THROUGH WHICH THE SECTION HAS BEEN AMENDED. IT IS T O BE NOTED THAT THE ASSESSEE HAS NOT SUBMITTED ANY DECISION RENDERED AF TER THE AMENDMENT AND INSERTION OF THE EXPLANATION 2 TO SECTION 36(L) (VII)IN SUPPORT OF ITS INTERPRETATION. NEEDLESS TO STATE THAT SUCH AN INTE RPRETATION FAILS IN THE FACE OF THE EXPLICIT AND CLEAR MEMORANDUM EXPLAININ G THE AMENDMENTS. REFER CASE LAWS- [2008] 172 TAXMAN 386 (SQ-COMMISSIONER OF INC OME-TAX, AHMADABAD COIN HEALTH FOOD (P.) LTD. * [2009] 180 TAXMAN 494 (BOMBAY)-COMMISSIO NER- OF INCOME- TAX-9, MUMBAI V.AJANTA PHARMA LTD. 2.5, IT MAY ALSO KINDLY BE NOTED THAT SECTION 36(L) (VII)(A) PROVIDES FOR DEDUCTION OF A BLANKET PROVISION FOR BAD AND DOUBTF UL DEBTS WHICH IS APPLICABLE ONLY FOR BANKS, WHEREAS, SUB CLAUSE (B) AND (C) RELATES TO FOREIGN BANKS AND OTHER FINANCIAL INSTITUTIONS. SUB -CLAUSE (A) DEALS WITH SCHEDULED BANKS INCORPORATED WITHIN THE COUNTRY AND CO-OPERATIVE BANKS AND AGRICULTURAL SOCIETY. UNLIKE THE CASE OF OTHER TAXPAYERS WHERE DEDUCTION IS ALLOWED ONLY IF BAD DEBTS ARE WRITTEN OFF U/S. 36(L)[VII), ELIGIBLE BANKS ARE ENTITLED TO CLAIM OF DEDUCTION IN RESPECT OF EVEN PROVISION MADE FOR BAD AND DOUBTFUL DEBTS IRRESPECTIVE OF REQUIREM ENT OF BAD AND DOUBTFUL DEBTS TO BE WRITTEN OFF U/S 36(1)(VIIA). FURTHER, U /S. 36(L)(VIIA), THE AMOUNT ALLOWED TO BE PROVIDED FOR CAD AND DOUBTFUL DEBTS C O'MPRISES OF TWO ITEMS VIZ. 'AN AMOUNT NOT EXCEEDING 7 '/J PERCENT OF THE TOTAL INCOME AND 'AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE ADVANCES MADE BY THE ELIGIBLE BANK'. THUS, IT IS DEAR THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS NOT EXCLUSIVELY LIMITED TO THE ADVANCES MA DE BY RURAL BRANCHES SINCE THE SECTION ALSO ALLOWS PROVISION TO BE MADE LINKED TO THE TOTAL INCOME OF THE HANK. THUS, IT IS NOT CORRECT, AS CAN VASSED BY THE ASSESSEE, THAT THE PROVISION ALLOWED TO BE MADE AS THE PERCENTAGE OF TOTAL INCOME UNRELATED TO THE ADVANCE MADE BY T HE RURAL BRANCHES IS APPLICABLE ONLY TO FOREIGN BANKS/INSTITUTIONS CO VERED UNDER SUB-CLAUSE (B) AND (C) OF SECTION 36(1)(VIIA), ITA NO.2159/MUM/2018 DENA BANK 24 2.6. THUS, TO CONCLUDE, INSERTION OF EXPLANATION 2 TO 36(L)(VII) WAS NEITHER NOTICED NOR CONSIDERED BY THE AO IN THE ASSESSMENT ORDER, AS CAN BE EASILY OBSERVED. NEITHER WAS THE AMENDMENT HIGHLIGH TED BY THE ASSESEE IN THE ASSESSMENT PROCEEDINGS. IN LIGHT OF THE NEWL Y INSERTED EXPLANATION 2 APPLICABLE FOR THE FIRST TIME TO AY 2014-15 INVOL VED, THE COMPUTATION MADE BY THE APPELLANT WAS PATENTLY INCORRECT AND N OT AS PER LAW AND THEREFORE THE CLAIM MADE OF RS. 402 CRORES WAS NOT ALLOWABLE AND WAS AGAINST THE LAW. THIS RENDERS THE ASSESSMENT ORDER ERRONEOUS, IN SO FAR AS, PREJUDICIAL TO THE INTEREST OF REVENUE AS INCOR RECT CLAIM HAS BEEN ALLOWED. 2.7. THE AUTHORISED REPRESENTATIVE HAS ALSO ARGU ED THAT THE SHOW CAUSE NOTICE ISSUED U/S 263 INDICATES THE PREJUDICI AL AND BIASED MINDSET OF THE PRINCIPAL CIT THIS CONTENTION IS AGAIN DEVOI D OF MERIT. THE SHOW CAUSE NOTICE PROVIDES AN OPPORTUNITY TO THE APPELLA NT TO REBUT THE VIEWS EXPRESSED IN THE SHOW CAUSE NOTICE, NATURALLY THE S CN WILL INDICATE THE BASIS FOR THE ISSUE OF SHOW CAUSE AND THE ORDER HAS BEEN PASSED ONLY AFTER HEARING THE ASSESSEE. 2.8 THE ASSESSES HAS ALSO CONTENDED THAT JURISDIC TION UNDER SECTION 263 IS AVAILABLE ONLY IF EXPLANATION 2 TO SECTION 263 A PPLIES TO THE FACTS OF THE CASE. IT HAS ALSO BEEN CONTENDED THAT IN THIS CASE THIS IS NOT AN ORDER PASSED WITHOUT MAKING ENQUIRIES OR INVESTIGATIONS W HICH SHOULD HAVE BEEN MADE. IT IS HUMBLY SUBMITTED THAT THE INHERENT SCOPE OF REVISION ORDERS U/S 263 IS BASED ON SUBSECTION (1) OF SECTIO N 263, THE EXPLANATION 2 ONLY FURTHER ELABORATES THE KINDS OF ORDERS WHICH SHALL BE DEEMED TO BE ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTER EST OF REVENUE. THE EXPLANATION HAS IN NO WAY NARROWED DOWN THE SCOPE A VAILABLE UNDER SECTION 263. WITHOUT PREJUDICE TO THE ABOVE, IN THI S CASE THE AO FAILED TO CONSIDER THE EXPLANATION 2 TO SECTION 36(L)(VII) WH ICH WAS INCORPORATED AND BECAME APPLICABLE FOR THE FIRST TIME IN THE YEA R 2014-15 WHICH WAS THE CASE BEFORE THE AO. THUS IT IS COVERED UNDER EX PLANATION 2 SUB- SECTION (A) AS WELL AS (B) OF SECTION 263. THE NECE SSARY AWARENESS AND VERIFICATION THAT SHOULD HAVE BEEN MADE BY THE ASSE SSING OFFICER IS CONSPICUOUSLY ABSENT. 2.9. ON THE ISSUE OF TAKING ONE POSSIBLE VIEW, IT IS CLEAR THAT AO HAS NOT AT ALL TAKEN ANY VIEW, QUESTION OF TAKING ONE V IEW DOES NOT ARISE. AS A MATTER OF FACT THE AO HAS NOT AT ALL SCRUTINIZED TH E CLAIM VIS-A-VIS THE AMENDED SECTION AND HAS NOT NOTICED THAT THE CLAIM FOR DEDUCTION OF BAD DEBTS WRITE OFF DOES NOT EXCEED THE OPENING PROVISI ON U/S 36(1))(VIIA) AND HENCE THE CLAIM WAS INCORRECT. ACCEPTANCE OF CLAIM WITHOUT ANY ENQUIRY OR INVESTIGATION IN THE CONTEXT OF THE AMENDED SECT ION APPLICABLE FOR THE FIRST TIME THIS YEAR AND MERELY FOLLOWING THE EARLI ER YEAR ASSESSMENT ORDER BY THE AO DURING THE SCRUTINY ASSESSMENT U/S 143(3) IS TANTAMOUNT TO NON-APPLICATION OF MIND BY THE AO [MALABAR INDS. 24 3 ITR 81 (SC)], THE AO IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INVESTIGA TOR. HE IS SUPPOSED TO BE AWARE OF THE CHANGE IN STATUTE AND APPLY IT IN T HE BACKGROUND OF FACTS AND CIRCUMSTANCES OF THE CASE. RELIANCE IS PLACED O N FOLLOWING CASE LAWS. ITA NO.2159/MUM/2018 DENA BANK 25 > {1968) 67 ITR 84 /SCJ RAMPYARI DEVI BARAOGI V/S CIT. ACCEPTANCE WITHOUT ENQUIRY & EVIDENCE. CLTS DIRECTION UPHELD > (173) 88 ITR 323(SC) SMT. TARA DEVI AGGARWAL V.S CIT 263 - APPLICABLE FOR ASSESSMENT IN DIFFERENT HAND > {2005)2 SOT 732 MUM.TRIB) RECON OIL INDUSTRIES LTD VS. JCIT. NON APPLICATION OF MIND ON INCLUSION OF TRADING PRO FIT FOR DEDUCTION U/S 80IA WARRANTS REVISION U/S 263 > (20O6) 101 ITD 495 (MUM TRIB.) ARVEE INTERNATIONAL V/S ADDL. CIT. AO IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INVESTIGA TOR. THESE FAILURE TO INVESTIGATE ON THE FACE OF RETURN OF INCOME MAKE OR DER ERRONEOUS AND PREJUDICIAL > (2O13) 30 TAXMAN 332 (CHENNAI TRIB) CAIRN ENERG Y JFTTFTA (P) LTD V/S DIT(IT), CHENNAI: N ON APPLICATION OF MID ON CLAIM OF DEDUCTION U/S 80IB/80IA > (2013) 31 TAXMAN 77 (PUNJAB HC) VT V/S ABHISHEK INDS. LTD.: NON EXAMINATION OF 80 HHC CLAIM-263 VALID. > (2014} 44 TAXMAN.COM 319 (KERALA HC) CIT, COCHIN V/S ABAD CONSTRUCTIONS P.LTD.: LACK OF PROPER ENQUIRY IN ALLOWING DEDUCTION U/S 80IB (10)-263 VALID. IT IS URGED THAT THE GROUND RAISED BY THE ASSESSEE IN THIS REGARD BE DISMISSED. 3. CLAIM OF RS. 48,06,00,000/- U/S 43B IN RESPECT O F ADVANCE PAYMENT TOWARDS GRATUITY FUND, PENALTY OF RS. 2,00,00,000 L EVIED BY RBI FOR VIOLATION OF KYC NORMS AND RS. 96,00,00,000/- CLAIM ED AS PROVISION FOR WAGES ARREARS. 3.1. THE OTHER ITEMS COVERED IN THE ORDER UNDER SEC TION 263 IS DISCUSSED NEXT. THE GENERAL ARGUMENTS AND CASE JAWS MENTIONED EARLIER IN RESPECT OF INCORRECT CLAIM OF BAD DEBTS WITH REGARDS TO INVOKI NG SECTION 263 AND ITS VALIDITY, IS EQUALLY APPLICABLE HERE. FURTHER, IN R ESPECT OF THESE THREE ITEMS IT IS POINTED OUT THAT THERE IS NO EXPLICIT DISCUSSION IN THE ASSESSMENT ORDER INDICATING ANY OPINION EXPRESSED IN THIS REGARD, UN LIKE THE ISSUE OF BAD DEBTS WRITE OFF CLAIM DISCUSSED ABOVE. ROUTINE SUBMISSION S WERE FILED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. THUS, T HESE ERRORSINN ASSESSMENT ORDER AGAIN ARE ALSO COVERED BY EXPLANAT ION 2 SUB-SECTION (A) AND (B) OF SECTION 263.THESE ERRORS WERE SUBJECT MA TTER OF THE SECOND SHOW CAUSE NOTICE ISSUED U/S 263 BY THE PRINCIPAL CIT 3.2 CLAIM OF RS. 48,06,00,000/- U/S 43B IN RESPECT OF ADVANCE PAYMENT TOWARDS GRATUITY FUND . 3.2.1. IN THE COMPUTATION OF INCOME, THE ASSESSES C LAIMED DEDUCTION OF RS.54 CRORES WHICH WAS PAID TO GRATUITY FUND DURING THE YEAR. HOWEVER AS PER ACTUARIAL LIABILITY THE AMOUNT TO BE ALLOWED IN THE CURRENT YEAR WAS ONLY R$. 5.4 CRORES AND ONLY RS, 5.94 CRORES WAS CLAIME D IN THE PROFIT AND LOSS ACCOUNT. THUS, THE ADMITTED FACT IS THAT THE ENTIRE PAYMENT OF RS,54 CRORES WAS NOT FOR THE AY 2014-15. THE ASSESSEE CLAIMED TH E AMOUNT OF 48.06 CRORES IN THE RETURNED INCOME WHICH W.S TREATED AS ADVANCE IN ITS BOOKS ON THE BASIS OF SEC. 43B, IT HAS BEEN CLAIMED BY THE A SSESSE THAT SUCH PAYMENTS ARE ALLOWABLE SINCE SECTION 43B STARTS WIT H A NON-OBSTANTE CLAUSE ITA NO.2159/MUM/2018 DENA BANK 26 AND OVERRIDES ALL OTHER SECTIONS OF INCOME TAX ACT, IN MAKING SUCH A CLAIM THE ASSESSES HAS IGNORED THE PHRASE 'A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT 'THUS, THE INTERPRETATION SOUGHT BY THE ASSESSEE IS TO IGNORE THE PHRASE (A DEDUCTION OTHERWISE ALLOWABLE UNDER T HE ACT) WHICH IS AGAINST THE CANNONS OF INTERPRETATION OF STATUTE WHICH STAT ES THAT NO PHRASE OR WORDS EXPLICITLY MENTIONED IN THE STATUE SHOULD BE OMITT ED WHILE INTERPRETING A STATUTE. 3.2.2. IN THIS CASE, THE AMOUNT CLAIMED BY THE ASSE SSEE IS AS MUCH AS 3 TIMES MORE THAN THE AMOUNT ALLOWABLE FOR THE YEAR. THE ASSESSEE HAS RELIED ON THE DECISION OF THE APES COURT IN CASE OF MODIPO N. IT IS HUMBLY SUBMITTED THAT THE DISCUSSION THEREIN WAS ON SPECIFIC FACTS O F THE CASE AND WAS NOT ON THE ISSUE OF PAYMENT TO GRATUITY FUND. IN THE CASE OF MODIPON THE ISSUE WAS ADVANCE PAYMENT OF CENTRAL EXCISE DUTY IN THE PLA A CCOUNT. SUCH EXCESS PAYMENT OF EXCISE DUTY WAS MADE FOR A SHORT PERIOD AND IT WAS HELD THAT ONCE PAID TO GOVERNMENT, ASSESSEE HAS NO DOMAIN OVE R THE AMOUNT DEPOSITED. THE PRACTICE WAS CONSISTENTLY FOLLOWED F OR SEVERAL YEARS AND ACCEPTED BY THE DEPARTMENT THE OTHER DECISIONS CITE D HAVE SIMILAR FACTS AND RELATE TO EXCISE /CUSTOMS DUTY' AND THE VALUATION O F CLOSING STOCKS AND ITS CONSUMPTION. THE FACTS IN THE PRESENT CASE IS ENTIR ELY DIFFERENT. HERE THE PAYMENT IS TO GRATUITY FUND AND NOT TO ANY GOVERNME NT ACCOUNT. THE AMOUNT OF LIABILITY ALLOWABLE AS PER BOOKS OF ACCOUNTS REG ULARLY FOLLOWED IS ONLY RS 5.94 CRORES. THE CLAIM OF ANOTHER RS 48.06 CRORES N OT OTHERWISE ALLOWABLE UNDER THE ACT CANNOT BE CLAIMED BY RESORTING TO SEC TION 43B. REFER 306 ITR 54 (KER) CIT V KERALA SOLVENT EXTRACT IONS LTD. WHERE IT WAS HELD THAT SEC. 43B IN ITSELF IS NOT 3 PROVISION PROVIDING TOR DEDUCTION OF ANY ITEM OF EXPENDITURE WHICH IS OTHERWISE NOT ALLOWABL E UNDER ANY OF THE PROVISIONS OF THE ACT. THE OPENING WORDS OF S. 43B DEARLY SHOW THAT THE SECTION IS DEALING WITH DEDUCTIONS OTHERWI SE ALLOWABLE UNDER PROVISIONS OF THE ACT. THE SECTION ONLY LAYS DOWN CONDITIONS FOR ELIGIBILITY FOR DEDUCTION OF CERTAIN ALLOWANCES WHICH ARE OTHERWISE ADMISSIBLE UNDER THE ACT. THE SCHEME OF S . 436 IS TO ALLOW THE DEDUCTIONS REFERRED TO IN CLS. (A) TO (F) ONLY ON PAYMENT BASIS, EVEN THOUGH ASSESSES IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. IN OTHER WORDS. IT TS AN EXCEPTION TO S , 145 INASMUCH AS EVEN IF THE CLAIM IS AN ALLOWABLE DEDUCTION OF T HE ASSESSES, BASED ON SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSES SEE, IT WILL STILL BE INADMISSIBLE UNDER S. 43B, IF IT IS NOT PA ID ON OR BEFORE THE END OF THE RELEVANT PREVIOUS YEAR OR AT LEAST BEFOR E DATE OF FILING OF THE RETURN. THEREFORE, S. 43B IS ONLY SUPPLEMENTARY TO S. 145 AND IT IS ONLY AN ADDITIONAL CONDITION FOR ALLOWANCE OF DE DUCTIONS OTHERWISE ALLOWABLE UNDER THE OTHER PROVISIONS OF T HE ACT. 3.2.3. IT MAY ALSO BE KINDLY NOTED THAT THERE ARE S EVERAL DECISIONS UPHOLDING THIS INTERPRETATION WHERE DISALLOWANCE WAS MADE BY REVENUE IN RESPECT OF UNPAID SALES TAX OR SERVICE TAX LIABILIT Y WHICH WERE NOT CLAIMED BY ASSESSEE IN THEIR PROFIT AND LOSS ACCOUN T, AND IT WAS HELD ITA NO.2159/MUM/2018 DENA BANK 27 THAT SECTION 43B WOULD APPLY ONLY IF THE CLAIM IS M ADE IN THE P & L ACCOUNT. 3.2.4. AN AMOUNT PAID IN ADVANCE, CAN ALWAYS BE CLA IMED AND IS ALLOWABLE: IN THE YEAR IN WHICH IT ACCRUES AND SINCE IT IS ALREAD Y PAID, SECTION 43B WILL NOT PROHIBIT ITS ALLOWANCE. THUS THE CLAIM MADE IN RESPECT OF RS. 48.06 CRORES WAS CLEARLY NOT ALLOWABLE, BUT WAS ERRONEOUSLY ALLOWED BY THE A.O. IT IS URGED THAT THE GROUND RAISED BY THE ASSESEE IN THIS REGARD BE DISMISSED. 3.3. PENALTY OF RS. 2.00.00.000 A AS PENALTY LEVIED BY RBI FOR VIOLATION OF KYC NORMS. 3.3.1. THE ASSESSES HAD CLAIMED AMOUNT OF RS. 2 CRO RES PAID M RESPECT OF PENALTY LEVIED BY RBI FOR FLOUTING OF KYC NORMS. TH E EXPLANATION 1 TO SECTION 37 PROHIBITS ALLOWANCE OF ANY EXPENDITURE FOR ANY P URPOSE WHICH IS AN OFFENCE OR PROHIBITED BY LAW. THE RBI IS ENTRUSTED WITH THE REGULATIONS AND REGULATIONS OF BANKS SUCH AS THE APPELLANT. IT LAYS DOWN RULES AND REGULATIONS AND VIOLATION OF SUCH RULES AND REGULAT IONS HAS LED TO LEVY OF PENALTIES. THE ASSESSES HAS CONTENDED THAT ONLY SUC H PENALTIES WHICH ARE IN RESPECT OF CRIMINAL OFFENCE CAN BE COVERED AND FALL TINDER THE PURVIEW OF SECTION 37(1). THE APEX COURT IN THE CONTEXT OF SEV ERAL CASES HAS HELD THAT WHERE PENALTIES ARE COMPENSATORY IN NATURE, THE SAM E WILL NOT BE DISALLOWED U/S, 37(1). REFER; 201 ITR 684 (SC) PRAKASH COTTON MILLS PVT. LTD. CIT V DHANLAKSHMI BANK LTD./CATHOLIC SYRIAN BAN K LTD, KERALA HIGH COURT ORDER DATED 12.11.2002 * [2014] 49 TAXMANN.COM 565 (PUNJAB & HARYANAJ-N AHAR SPINNING MILLS LTD. V. COMMISSIONER OF INCOME-TAX, LUDHIANA * [1999] 103 TAXMAN 160 (BOMBAY) COMMISSIONER OF INCOME- TAX VS. JOLLY STEEL INDUSTRIES (P.) LTD. THE PENALTY LEVIED FOR VIOLATION OF KYC NORM IS UND ER THE PROVISIONS OF SECTION 47A(L)(C) READ WITH SECTION 46(4)(I) OF THE BANKING REGULATION ACT, 1949. THIS IS NOT COMPENSATORY IN NATURE. THE APEX COURT HAS NOWHERE HELD OR HAS INTERPRETED THE LAW THAT ONLY WHERE CRIMINAL PROCEEDINGS CAN BE LAUNCHED, DISALLO WANCE U/S, 37(1) CAN BE MADE. THUS THE CLAIM MADE IN RESPECT OF RS. 2 CR ORES WAS CLEARLY NOT ALLOWABLE, BUT WAS ERRONEOUSLY ALLOWED BY THE A,O. 3.4, RS. 96.00.00,000/- CLAIMED AS PROVISION FO R WAGES ARREARS. 3,4.1. AS REGARDS THE CLAIM OF PROVISION OF RS. 96 CRORES THE ASSESSEE HAS SUBMITTED THAT WAGE REVISION WAS DUE FROM 01.11 .2000 ONWARDS. HOWEVER, THE ADMITTED FACT IS THAT WAGE REVISION HA D NOT OCCURRED AT THE TIME WHEN THE ASSESSMENT ORDER WAS PASSED AND THE C LAIM WAS CONTINGENT IN NATURE. FURTHERMORE, THE SUBMISSIONS FILED IN THE ITA NO.2159/MUM/2018 DENA BANK 28 ASSESSMENT PROCEEDINGS DID NOT GIVE ANY DETAILS AS TO HOW PROVISIONS WERE COMPUTED, NOR DID THE AO EXAMINE THE COMPUTATI ON. EVEN AS ON DATE, THE ASSESSEE HAS NOT FURNISHED THE DATE OF AC TUAL REVISION OF WAGES AND THE ACTUAL WAGE ARREARS FOR A.Y. 2014-15 BASED ON THE SAME. FAILURE OF THE A.O. TO EXAMINE THIS ISSUE CLEARLY FALLS WIT HIN THE PURVIEW OF ORDER PASSED WHICH ARE ERRONEOUS AND PREJUDICIAL TO THE R EVENUE. THUS THE CLAIM MADE IN RESPECT OF RS, 96 CRORES WAS CLEARLY NOT ALLOWABLE, BUT WAS ERRONEOUSLY ALLOWED BY THE A.O. 10. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. THE LD.PCIT HAS REVISED ASSESSMENT ORDER PASSED U/S 143 (3) OF THE I.T.ACT, 1961 ON FOUR ISSUES. THE LD.PCIT HAS QUEST IONED DEDUCTIONS ALLOWED TOWARDS BAD DEBT WRITTEN OFF UND ER THE PROVISION OF SECTION 36(1)(VII) & (VIIA), INCLUDING NEWLY INS ERTED EXPLANATION (2) TO SECTION 36(1)(VII) OF THE I.T.ACT, 1961. LIKEWIS E, THE LD.PCIT HAS QUESTIONED PAYMENT TOWARDS CONTRIBUTION TO GRATUITY FUND AND DEDUCTION CLAIMED U/S 43B, AMOUNT PAID TO RBI TOWAR DS PENALTY FOR VIOLATION OF KYC NORMS AND DEDUCTION CLAIMED TOWARD S PROVISION FOR WAGE ARREARS. ACCORDING TO THE LD. PCIT, THE LD. AO HAS NOT CONDUCTED REQUIRED ENQUIRIES TO BE CONDUCTED UNDER RESPECTIVE PROVISIONS OF THE ACT, WHICH RENDERED THE ASSESSMEN T ORDER ERRONEOUS, INSOFAR AS IT IS PREJUDICIAL TO THE INTE REST OF THE REVENUE. IT IS THE CONTENTIONS OF THE ASSESSEE THAT THE ASSESS MENT ORDER PASSED BY THE LD. AO IS NEITHER ERRONEOUS, NOR PREJ UDICIAL TO THE INTEREST OF THE REVENUE, BECAUSE THE LD. AO HAS COM PLETED THE ASSESSMENT PROCEEDINGS, AFTER THOROUGHLY EXAMINED ALL FOUR ISSUES QUESTIONED BY THE LD.PCIT IN 263 PROCEEDINGS, WHICH IS EVIDENT FROM THE FACT THAT INSOFAR AS, BAD DEBT WRITTEN OFF IS C ONCERNED, THE LD. AO HAS DISCUSSED THE ISSUE AT PARA 7 OF HIS ASSESSMENT ORDER AND AFTER CONSIDERING RELEVANT FACTS AND ALSO, TAKEN NOTE OF OPENING BALANCE OF PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT HAS ALL OWED THE CLAIM OF BAD DEBT WRITTEN OFF, IN RESPECT OF NON RURAL ADVAN CES. FURTHER, AT THE ITA NO.2159/MUM/2018 DENA BANK 29 TIME OF CONSIDERATION OF THE ISSUE, THE NEWLY INSER TED EXPLANATION(2) TO SECTION 36(1)(VII) WAS VERY MUCH ON IN THE STATU E. THEREFORE, THE LD.PCIT IS INCORRECT IN STATING THAT THE LD. AO OUG HT TO HAVE CONDUCTED REQUIRED ENQUIRIES, IN LIGHT OF EXPLANATI ON (2) TO SECTION 263 OF THE I.T.ACT, 1961. INSOFAR AS, OTHER THREE I SSUES, EVEN THOUGH THERE IS NO SPECIFIC REFERENCE TO THOSE ITEMS IN TH E ASSESSMENT ORDER PASSED BY THE LD. AO, BUT IT WAS AN UNDISPUTED FACT THAT THE DETAILS WITH REGARD TO ISSUES WERE MADE AVAILABLE TO THE LD . AO AT THE TIME OF ASSESSMENT PROCEEDINGS, WHICH IS EVIDENT FROM TH E FACT THAT THE ASSESEE HAS GIVEN A DETAILED NOTE IN STATEMENT OF T OTAL INCOME, WHICH IS PART OF INCOME TAX RETURNS FILED FOR THE Y EAR, WHERE IT HAS NARRATED, HOW AND WHY PAYMENT OF RS. 54 CRORES TOW ARDS GRATUITY FUND IS ALLOWABLE ON ACTUAL PAYMENT, IN LIGHT OF PR OVISIONS OF SECTION 43B OF THE ACT, SIMILARLY, THE ASSESSEE HAS ALSO N ARRATED THE FACTS AND HOW, SAID PAYMENT IS ALLOWABLE U/S 37(1), IN RE SPECT OF PENALTY PAID TO RBI FOR VIOLATION OF KYC NORMS. LIKEWISE, A DETAILED NOTE HAS BEEN ANNEXED REGARDING DEDUCTIBILITY OF PROVISION F OR WAGE ARREARS AMOUNTING TO RS. 96 CRORES, THESE ARE PART OF ASSE SSMENT RECORDS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT IT IS NOT A CASE OF THE LD.PCIT THAT THE LD. AO HAD NOT CONSIDERED THOSE IS SUES AT ALL, AT THE TIME OF ASSESSMENT PROCEEDINGS, WHICH RESULTS I N ERRONEOUS ORDER PASSED BY THE LD. AO, WHICH CAUSED PREJUDIC E TO THE INTEREST OF THE REVENUE. IN ANY WAY, ALL THE FOUR ISSUES QUE STIONED BY THE LD.PCIT WERE THOROUGHLY EXAMINED BY THE LD.AO DURIN G THE ASSESSMENT PROCEEDINGS, AND AFTER CONSIDERING RELEV ANT FACTS AND EXPLANATIONS FURNISHED BY THE ASSESSEE HAS CHOSEN T O ACCEPT THE CLAIM OF THE ASSESSEE AND HENCE, THE SAME CANNOT BE TERMED AS NON CONSIDERATION OF ISSUES OR THE LD. AO HAS FAILE D TO CARRY OUT ITA NO.2159/MUM/2018 DENA BANK 30 REQUIRED ENQUIRIES, WHICH OUGHT TO HAVE BEEN CARRI ED OUT IN ACCORDANCE WITH LAW. 11. THE LANGUAGE USED BY THE LEGISLATURE IN S. 263 IS TO THE EFFECT THAT THE LD.PCIT MAY INTERFERE IN REVISION, IF HE C ONSIDERS THAT THE ORDER PASSED BY THE ITO IS ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IT IS QUITE CLEAR THA T TWO THINGS MUST CO- EXIST IN ORDER TO GIVE JURISDICTION TO THE PCIT TO INTERFERE IN REVISION. THE ORDER OF THE ITO IN QUESTION MUST NOT ONLY BE E RRONEOUS BUT ALSO THE ERROR IN THE ITO ORDER MUST BE OF SUCH A KIND T HAT IT CAN BE SAID OF IT THAT IT IS PREJUDICIAL TO THE INTERESTS OF TH E REVENUE. IN OTHER WORDS, MERELY BECAUSE THE OFFICER'S ORDER IS ERRONEO US, THE PCIT CANNOT INTERFERE. AGAIN, MERELY BECAUSE THE ORDER O F THE OFFICER IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THEN A GAIN, THAT IS NOT ENOUGH TO CONFER JURISDICTION ON THE PCIT TO INTERF ERE IN REVISION. THESE TWO ELEMENTS MUST CO-EXIST, THIS IS BECAUSE, THE FIRST OF THE TWO REQUIREMENTS NAMELY, (I) THE ORDER IS ERRONEOUS AND (II) THE SAME IS ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE , IS NOT SATISFIED. SIMILARLY, IF AN ORDER IS ERRONEOUS BUT NOT PREJUDI CIAL TO THE INTERESTS OF THE REVENUE, THEN ALSO THE POWER OF SUO MOTU REV ISION CANNOT BE EXERCISED. ANY AND EVERY ERRONEOUS ORDER CANNOT BE THE SUBJECT- MATTER OF REVISION BECAUSE THE SECOND REQUIREMENT A LSO MUST BE FULFILLED. THERE MUST BE SOME PRIMA FACIE MATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFULLY EXIGIBLE HAS NOT BEEN I MPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCOR RECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED. 12. THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASS ED BY THE AO. ITA NO.2159/MUM/2018 DENA BANK 31 EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE R EVENUE, FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES PER MISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHER E TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE PCIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORD ER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. AN ORDER OF ASSESSMENT PASSED BY THE ITO WITHOUT MAKING NECESSARY ENQUIRIES ON CERTAIN IMPOR TANT POINTS CONNECTED WITH THE ASSESSMENT WOULD BE ERRONEOUS AN D PREJUDICIAL TO THE INTERESTS OF THE REVENUE, WHEN THE ITO IS EX PECTED TO MAKE AN ENQUIRY OF A PARTICULAR ITEM OF INCOME AND HE DO ES NOT MAKE AN ENQUIRY AS EXPECTED, THAT WOULD BE A GROUND FOR THE PCIT TO INTERFERE WITH THE ORDER PASSED BY THE ITO SINCE SUCH AN ORDE R PASSED BY THE ITO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS O F REVENUE, BUT, THE ITO HAD MADE ENQUIRIES IN REGARD TO THE NATURE OF T HE EXPENDITURE INCURRED BY THE ASSESSEE WHO HAD GIVEN DETAILED EXP LANATION IN THAT REGARD BY A FETTER IN WRITING AND ALL THESE ARE PAR T OF THE RECORD OF THE CASE AND THE CLAIM WAS ALLOWED BY THE ITO ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE SUCH, DECISION OF T HE ITO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DID NOT MAKE ELABORATE DISCUSSION IN THAT REGARD 13. IT IS A SETTLED PRINCIPLE OF LAW THAT IN ORDER TO INVOKE, THE PROVISIONS OF SECTION 263 OF THE I.T.ACT, 1961, THE LD.PCIT SHALL ASCERTAIN FROM THE RECORDS THAT TWIN CONDITIONS EMB EDDED IN SAID PROVISION I.E, THE ORDER OF THE LD. AO IS ERRONEOUS AND IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE ARE TO BE SATISFIED. THE TERM ERRONEOUS ITA NO.2159/MUM/2018 DENA BANK 32 HAS BEEN SUBJECT MATTER OF LITIGATION AND IN ORDER TO PUT AN END TO THE SAME, THE LEGISLATURE VIDE FINANCE ACT, 2013 IN SERTED EXPLANATION (2) TO SECTION 263 IN WHICH IT HAS BEE N DECLARED, WHEN ORDER SHALL BE DEEMED TO BE ERRONEOUS. THE SAID EXP LANATION CONTAINS FOUR CLAUSES (A) TO (D), TO DETERMINE, WHE THER THE IMPUGNED ORDER IS ERRONEOUS IN THE OPINION OF THE PCIT. IN L IGHT OF ABOVE LEGAL POSITION, IF YOU EXAMINE THE FACTS OF THE PRESENT C ASE, IT CAN BE SAID THAT IT IS ONLY CLAUSE (A) AND (B) ARE RELEVANT AND OTHER TWO CLAUSES ARE NOT RELEVANT TO DECIDE, WHETHER THE ORDER PASSE D BY THE LD.AO IS ERRONEOUS, IN LIGHT OF NEWLY INSERTED EXPLANATION ( 2). CLAUSE (A) DEALS WITH CIRCUMSTANCES WHERE THE ORDER HAS BEEN P ASSED WITHOUT MAKING ENQUIRIES OR VERIFICATION, WHICH SHOULD HAVE BEEN MADE. IN THIS CASE, FROM THE FACTS, IT CAN BE SEEN THAT THER E WAS AN ENQUIRY BY THE LD. AO, IN RESPECT OF ALL ISSUES AND THE ASSESE E HAD ALSO FURNISHED A DETAILED REPLY. THEREFORE, WE ARE OF TH E CONSIDERED VIEW THAT THIS CLAUSE IS NOT APPLICABLE IN THIS CASE. CL AUSE (B) OF THE EXPLANATION DEALS WITH CIRCUMSTANCES, WHERE THE ORD ER IS PASSED ALLOWING ANY RELIEF WITHOUT ENQUIRING INTO THE CLAI M. IN THIS CASE, FROM THE FACTS, IT CAN BE SEEN THAT THE RELIEF HAS BEEN ALLOWED ONLY AFTER MAKING ENQUIRIES. THEREFORE, THIS CLAUSE HAS ALSO N OT APPLICABLE IN THIS CASE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE CONDITIONS TO INVOKE THE POWERS U/S 263 OF THE ACT ARE NOT SATISFIED AND HENCE, THE LD.PCIT WAS ERRED IN INVOKING THE SC OPE OF PROVISIONS OF 263 OF THE I.T.ACT, 1961. FURTHER, AS SUMING FOR A MOMENT, BUT NOT ACCEPTING IN ORDER TO INVOKE 263, T HE OTHER CONDITIONS, WHICH IS TO BE SATISFIED IS THAT THE OR DER SHOULD BE PREJUDICIAL TO THE INTEREST OF THE REVENUE, BECAUSE IN RESPECT OF BAD DEBTS CLAIM, IF ANY DEDUCTION ALLOWED U/S 36(1) (VI I) OF THE ACT, THEN WHEN THE RECOVERY OF THE SAME IN SUBSEQUENT YEARS N EEDS TO BE ITA NO.2159/MUM/2018 DENA BANK 33 OFFERED TO TAX U/S 41(4) OF THE ACT. IN RESPECT OF PAYMENT TOWARDS CONTRIBUTION TO THE GRATUITY FUND, WHETHER OR NOT D EDUCTION IS ALLOWED IN FULL ON PAYMENT BASIS IN THIS YEAR, BUT THE SAME NEEDS TO BE ALLOWED IN SUBSEQUENT YEARS, IF SAID PAYMENT IS NOT ALLOWED DURING THE YEAR UNDER CONSIDERATION. LIKEWISE, PROVISION FOR WAGE ARREARS IS ALSO LIABLE TO BE ALLOWED, WHEN THE ACTUAL PAYMENT HAS BEEN MADE. IN THIS CASE, THE ASSESSEE HAS MADE PAYMENT OF THE WAGE ARREARS IN THE SUBSEQUENT YEARS. THEREFORE, WE ARE OF THE CONS IDERED VIEW THAT INVOCATION OF JURISDICTION U/S 263 ON THESE ISSUES IS ALSO INCORRECT. 14. COMING BACK TO CASE LAWS RELIED UPON BY THE ASS ESSEE. THE ASSESEE HAS RELIED UPON THE DECISION OF ITAT, MUMBA I, IN THE CASE OF CASA BUILDERS PVT.LTD. VS PCIT-6 (SUPRA). WE FIN D THAT THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE, IN LIGH T OF PROVISIONS OF SECTION 263 AND ALSO BY FOLLOWING VARIOUS JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF HONBLE BOMBAY HIGH COURT , IN THE CASE OF CIT VS GABRIEL INDIA LTD 203 ITR 108 HELD AS UNDER: - 11. THE PHRASE 'PREJUDICIAL TO THE INTERESTS OF THE REVENUE' HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY TH E AO. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF AO CANNOT B E TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EX AMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT B E TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW . AN ORDER OF ASSESSMENT PASSED BY THE ITO WITHOUT MAKING NECESSARY ENQUIRIE S ON CERTAIN IMPORTANT POINTS CONNECTED WITH THE ASSESSMENT WOUL D BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE WHEN TH E ITO IS ITA 2463/MUM/2015 EXPECTED TO MAKE AN ENQUIRY OF A PART ICULAR ITEM OF INCOME AND HE DOES NOT MAKE AN ENQUIRY AS EXPECTED, THAT WOULD BE A GROUND FOR THE CIT TO INTERFERE WITH THE ORDER PASS ED BY THE ITO SINCE SUCH AN ORDER PASSED BY THE ITO IS ERRONEOUS AND PR EJUDICIAL TO THE INTERESTS OF REVENUE. WHERE THE ITO HAD MADE ENQUIR IES IN REGARD TO THE NATURE OF THE CREDIT RECEIVED BY THE ASSESSEE WHO H AD GIVEN DETAILED EXPLANATION IN THAT REGARD BY A LETTER IN WRITING A ND ALL THESE ARE PART OF THE RECORD OF THE CASE AND THE CLAIM WAS ALLOWED BY THE ITO ON BEING ITA NO.2159/MUM/2018 DENA BANK 34 SATISFIED WITH THE EXPLANATION OF THE ASSESSEE SUCH DECISION OF THE ITO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HI S ORDER HE DID NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 12. COMING TO THE CASE LAWS RELIED UPON BY THE ASSE SSEE. THE ASSESSEE HAS RELIED UPON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GABRIEL INDIA LTD (SUPRA). WE FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE SAID JUDGEMENT OBSERVED THAT IN ORDER TO EXERCISE JURISDICTION U/S 263, THE COMMISSIONER MUST HAVE MATERIAL TO PRI MA FACIE COME TO THE CONCLUSION THAT THE ORDER OF ITO IS ERRONEOUS AS AL SO PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE RELEVANT OBSERVATIONS OF THE COURT ARE AS UNDER:- 'THE POWER OF SUO MOTU REVISION UNDER SUB-S. (1) OF S. 263 IS IN THE NATURE OF SUPERVISORY JURISDICTION AND THE SAME CAN BE EXERCISED ONLY IF THE CIRCUMSTANCES SPECIFIED THEREIN EXIST. TWO CIRCUMSTANCES MUST EXIST TO ENABLE THE COMMISSIONER TO EXERCISE POWER OF REVISION UNDER THIS SUB-SECTION, VIZ., (I) THE ORDER IS ERRONEOUS; (II) BY VIRTUE OF THE ORDER BEING ERRONE OUS PREJUDICE HAS BEEN CAUSED TO THE INTEREST OF THE REVENUE. IT HAS, THEREFORE, TO BE CONSIDERED FIRSTLY AS TO WHEN AN ORDER CAN BE SAID TO BE ERRONEOUS. AN ORDER CANNOT BE TERMED AS ERRONEOUS UNLESS IT IS NOT IN ACCORDANCE WITH LAW. IF AN ITO ACTING IN ACCORDANCE WITH LAW MAKES CERTAIN ASSESSMENT, THE SAME CANNOT BE BRANDE D AS ERRONEOUS BY THE COMMISSIONER SIMPLY BECAUSE ACCORD ING TO HIM THE ORDER SHOULD HAVE BEEN WRITTEN MORE ELABORATELY . THIS SECTION DOES NOT VISUALISE A CASE OF SUBSTITUTION OF JUDGME NT OF THE COMMISSIONER FOR THAT OF THE ITO, WHO PASSED THE OR DER, UNLESS THE DECISION IS HELD TO BE ERRONEOUS. CASES MAY BE VISUALISED WHERE ITO WHILE MAKING AN ASSESSMENT EXAMINES THE A CCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME EITHER BY ACC EPTING THE ACCOUNTS OR BY MAKING SOME ESTIMATES HIMSELF. THE COMMISSIONER, ON PERUSAL OF THE RECORDS, MAY BE OF THE OPINION THAT THE ESTIMATE MADE BY THE OFFICER CONCERNED WAS ON THE LOWER SIDE AND, ITA 2463/MUM/2015 LEFT TO THE COMMISSIONE R, HE WOULD HAVE ESTIMATED THE INCOME AT A HIGHER FIGURE THAN T HE ONE DETERMINED BY THE ITO. THAT WOULD NOT VEST THE COMM ISSIONER WITH POWER TO RE- EXAMINE THE ACCOUNTS AND DETERMINE THE INCOME HIMSELF AT A HIGHER FIGURE. IT IS BECAUSE THE ITO H AS EXERCISED THE QUASI-JUDICIAL POWER VESTED IN HIM IN ACCORDANCE WI TH LAW AND ARRIVED AT A CONCLUSION AND SUCH A CONCLUSION CANNO T BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE COMMISSIONER DOES N OT FEEL SATISFIED WITH THE CONCLUSION. IT MAY BE SAID IN SU CH A CASE THAT IN THE OPINION OF THE COMMISSIONER THE ORDER IN QUESTI ON IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. BUT THAT BY ITSELF WILL NOT BE ENOUGH TO VEST THE COMMISSIONER WITH THE POWER OF SUO MOTU REVISION BECAUSE THE FIRST REQUIREMENT, NAMELY, THE ORDER IS ERRONEOUS, IS ABSENT. SIMILARLY IF AN ORDER IS ERRONEOUS BUT NOT PREJUDICIAL TO THE INTEREST OF THE REVENUE, THEN ALSO THE POWER OF SUO MOTU REVISION CANNOT BE EXERCISED. ANY AND EVERY ERRONEOUS ORDER CANNOT BE ITA NO.2159/MUM/2018 DENA BANK 35 SUBJECT-MATTER C REVISION BECAUSE THE SECOND REQUIR EMENT ALSO MUST BE FULFILLED. THERE MUST BE SOME PRIMA FACIE M ATERIAL ON RECORD TO SHOW THAT TAX WHICH WAS LAWFULLY ELIGIBLE HAS NOT BEEN IMPOSED OR THAT BY THE APPLICATION OF THE RELEVANT STATUTE ON AN INCORRECT OR INCOMPLETE INTERPRETATION A LESSER TAX THAN WHAT WAS JUST HAS BEEN IMPOSED. THERE MUST BE MATERIAL AVAIL ABLE ON RECORD CALLED FOR BY THE COMMISSIONER TO SATISFY HIM, PRIM A FACIE, THAT THE AFORESAID TWO REQUISITES ARE PRESENT. IF NOT, HE HA S NO AUTHORITY TO INITIATE PROCEEDINGS FOR REVISION. EXERCISE OF POWE R OF SUO MOTU REVISION UNDER SUCH CIRCUMSTANCES WILL AMOUNT TO AR BITRARY EXERCISE OF POWER. IT IS WELL-SETTLED THAT WHEN EXE RCISE OF STATUTORY POWER IS DEPENDENT UPON THE EXISTENCE OF CERTAIN OB JECTIVE FACTS, THE AUTHORITY BEFORE EXERCISING SUCH POWER MUST HAV E MATERIALS ON RECORDS TO SATISFY IT IN THAT REGARD. IF THE ACTION OF THE AUTHORITY IS CHALLENGED BEFORE THE COURT, IT WOULD BE OPEN TO TH E COURTS TO EXAMINE WHETHER THE RELEVANT OBJECTIVE FACTORS WERE AVAILABLE FROM THE RECORDS CALLED FOR AND EXAMINED BY SUCH AUTHORI TY. ANY OTHER VIEW IN THE MATTER WILL AMOUNT TO GIVING UNBRIDLED AND ARBITRARY POWER TO REVISING AUTHORITY TO INITIATE PROCEEDINQS FOR REVISION IN EVERY CASE AND START RE- EXAMINATION AND FRESH ENQU IRIES IN MATTERS WHICH HAVE ALREADY BEEN CONCLUDED UNDER THE LAW. IT IS QUASI-JUDICIAL POWER HEDQED WITH LIMITATION AND HAS TO BE EXERCISED SUBJECT TO THE SAME AND WITHIN ITS SCOPE AND AMBIT. SO FAR AS CALLING FOR THE RECORDS AND EXAMINING THE SAME IS C ONCERNED, UNDOUBTEDLY IT IS AN ADMINISTRATIVE ACT, BUT ON EXA MINATION, 'TO CONSIDER', OR IN OTHER WORDS, TO FORM AN OPINION TH AT THE PARTICULAR ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL T O THE INTEREST OF THE REVENUE, IS A QUASI-JUDICIAL ACT BECAUSE ON THIS CO NSIDERATION OR OPINION THE WHOLE MACHINERY OF REEXAMINATION AND RE CONSIDERATION OF AN ORDER OF ASSESSMENT, WHICH HAS ALREADY BEEN C ONCLUDED AND CONTROVERSY ABOUT WHICH HAS BEEN SET AT REST, IS AG AIN SET IN MOTION. IT IS AN IMPORTANT DECISION AND THE SAME CA NNOT BE BASED ON THE WHIMS OR CAPRICE OF THE REVISING AUTHORITY. THERE MUST BE MATERIALS AVAILABLE FROM RECORDS CALLED FOR BY THE COMMISSIONER.-- PARASHURAM POTTERY WORKS CO. LTD, VS. [TO 1977 CTR (SC) 32 : (1977) 106 ITR 1 (SC), SIRPUR PAPER MILLS LTD, VS. ITQ 1977 CTR (AP) 138 : (1978) 114 ITR 404 ( AP), DAWJEE DADABHOV & CO. VS. S.P. JAIN & ANR . (1957) 31 ITR 872 (CAL) AND RUSSELL PROPERTIES 1M. LTD, VS. A. CHOWDHURY, ADDL . CIT (1977) 109 ITR 229 (CAL) RELIED ON .' 13. THE ASSESSE ALSO RELIED UPON THE DECISION OF HO N'BLE DELHI HIGH COURT IN THE CASE OF CIT VS SUNBEAM AUTO LTD (SUPRA). THE HON'BLE DELHI HIGH COURT IN THE SAID JUDGMENT HELD THAT IF THE AO WHILE MAKING ASSESSMENT HAS MADE AN INADEQUATE ENQUIRY, THAT WOU LD NOT, BY ITSELF, GIVE RISE TO COMMISSIONER TO PASS ITA 2463/MUM/2015 ORDER U/S 263, MERELY BECAUSE HE HAS DIFFERENT OPINION IN MATTER. IT IS ONLY IN CASE OF LACK OF ENQUIRY THAT SUCH A COURSE OF ACTION WOULD BE OPEN. THE RELEVANT OBSERVATIONS OF THE HON'BLE COURT ARE AS UNDER:- ITA NO.2159/MUM/2018 DENA BANK 36 'THE SUBMISSION OF THE REVENUE WAS THAT WHILE PASSI NG THE ASSESSMENT ORDER, THE ASSESSING OFFICER DID NOT CON SIDER THE ASPECT SPECIFICALLY WHETHER THE EXPENDITURE IN QUES TION WAS REVENUE OR CAPITAL EXPENDITURE. THAT ARGUMENT PREDI CATED ON THE ASSESSMENT ORDER, WHICH APPARENTLY DID NOT GIVE ANY REASON WHILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDIT URE. HOWEVER, THAT, BY ITSELF, WOULD NOT BE INDICATIVE OF THE FAC T THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND TO THE ISSUE. THER E ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPLE THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS NOT REQUIRED TO GIVE DETAILED R EASONS IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION, ETC. T HEREFORE, ONE HAS TO SEE FROM THE RECORD AS TO WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. ONE HAS TO KEEP IN MIND THE DISTINCTIO N BETWEEN 'LACK OF INQUIRY' AND 'INADEQUATE INQUIRY'. IF THERE WAS ANY INQUIRY, EVEN INADEQUATE, THAT WOULD NOT, BY ITSELF, GIVE OCCASIO N TO THE COMMISSIONER TO PASS ORDERS UNDER SECTION 263 MERELY BECAUSE HE HAS DIFFERENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF 'LACK OF INQUIRY' THAT SUCH A COURSE OF ACTION WOULD BE OPEN . [PARA 12] IN THE INSTANT CASE, THE ASSESSING OFFICER HAD CALLED FOR EXPLANATION ON ITEMS IN QUESTION FROM THE ASSESSEE AND THE ASSE SSEE HAD FURNISHED HIS EXPLANATION. SAID FACT WAS EVEN TAKEN NOTE OF BY THE COMMISSIONER HIMSELF IN HIS ORDER. [PARA 13] THAT C LEARLY SHOWED THAT THE ASSESSING OFFICER HAD UNDERTAKEN THE EXERC ISE OF EXAMINING AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE REPLACEMENT OF DYES AND TOOLS WAS TO BE TREA TED AS REVENUE EXPENDITURE OR NOT. IT APPEARED THAT SINCE THE ASSE SSING OFFICER WAS SATISFIED WITH THE ASSESSEE'S EXPLANATION, HE A CCEPTED THE SAME. [PARA 14] EVEN THE COMMISSIONER CONCEDED THE POSITION THAT THE ASSESSING OFFICER MADE THE INQUIRIES, ELIC ITED REPLIES AND THEREAFTER PASSED THE ASSESSMENT ORDER. THE GRIEVAN CE OF THE COMMISSIONER WAS THAT THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER INQUIRIES RATHER THAN ACCEPTING THE ASSESSE E'S EXPLANATION. THEREFORE, IT COULD NOT BE SAID THAT IT WAS A CASE OF'LACK OF INQUIRY'. [PARA 15] THE INSTANT CASE WAS NOT A CASE WHERE THE COMMISSIONER HAD CONCLUDED THAT THE OPINION OF THE ASSESSING OFFICER WAS CLEARLY ERRONEOUS AND NOT WARRANTED ON THE FACTS BEFORE HIM, VIZ., THE EXPENDITURE INCURRED WAS NOT THE REVENUE EXPENDITURE, BUT SHOULD HAVE BEEN TREATED AS CAPITA L EXPENDITURE. EVEN THE COMMISSIONER IN HIS ORDER PASSED UNDER SECTION 263 WAS NOT CLEAR AS TO WHETHER THE EXPENDITURE COULD BE TREATED AS CAPITAL EXPENDITURE OR IT WAS REVENUE IN NATURE. NO DOUBT, IN CERTAIN CASES IT MAY NOT BE POSSIBLE TO COME TO A D EFINITE FINDING AND, THEREFORE, IT IS NOT NECESSARY THAT IN ALL CAS ES THE COMMISSIONER IS BOUND TO EXPRESS FINAL VIEW, BUT TH E LEAST THAT WAS EXPECTED WAS TO RECORD A FINDING THAT ORDER SOU GHT TO BE REVISED WAS ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF THE REVENUE. NO BASIS FOR THAT WAS DISCLOSED. IN SUM AN D SUBSTANCE, ACCOUNTING PRACTICE OF THE ASSESSEE WAS QUESTIONED. HOWEVER, THAT BASIS OF THE ORDER VANISHED IN THIN AIR WHEN I T WAS ITA 2463/MUM/2015 FOUND THAT VERY ACCOUNTING PRACTICE F OLLOWED FOR A ITA NO.2159/MUM/2018 DENA BANK 37 NUMBER OF YEARS HAD THE APPROVAL OF THE INCOME-TAX AUTHORITIES. INTERESTINGLY, EVEN FOR FUTURE ASSESSMENT YEARS, TH E VERY SAME ACCOUNTING PRACTICE WAS ACCEPTED. [PARA 16] IT WAS IN THAT CONTEXT, THE QUESTION THAT ASSUMED IMPORTANCE WAS AS TO WHET HER POWERS COULD BE EXERCISED UNDER SECTION 263 WHEN TWO VIEWS WERE POSSIBLE. [PARA 17] THE MATTER COULD BE LOOKED FROM ANOTHER ANGEL. WHAT WAS THE MATERIAL/ INFORMATION AVAILABLE WITH THE ASSESSING OFFICER ON THE BASIS OF WHICH HE ALLOWED THE EXPENDITURE AS REVENUE? IT WAS DISCLOSED TO THE ASS ESSING OFFICER THAT THE ASSESSEE WAS A MANUFACTURER OF CAR PARTS. IN THE MANUFACTURING PROCESS, DYES WERE FITTED IN MACHINES BY WHICH THE CAR PARTS WERE MANUFACTURED. THOSE DYES WERE, THUS, THE COMPONENTS OF THE MACHINES. THOSE DYES NEEDED CONST ANT REPLACEMENT, AS THEIR LIFE WAS NOT MORE THAN A YEAR . THE ASSESSEE HAD ALSO EXPLAINED THAT SINCE THOSE PARTS WERE MANU FACTURED FOR THE AUTOMOBILE INDUSTRY, WHICH HAD TO WORK ACCURATE LY AT HIGH SPEED FOR A LONGER PERIOD, REPLACEMENT OF THOSE PAR TS AT SHORT INTERVALS BECAME IMPERATIVE TO RETAIN ACCURACY. BEC AUSE OF THOSE REASONS, THOSE TOOLS AND DYES HAD A VERY SHORT SPAN OF LIFE AND COULD PRODUCE MAXIMUM ONE LAKH PERMISSIBLE SHORTS. THEREAFTER, THEY HAD TO BE REPLACED. WITH THE REPLACEMENT OF SU CH TOOLS AND DYES WHICH WERE THE COMPONENTS OF A MACHINE, NO NEW ASSETS CAME INTO EXISTENCE, NOR WAS THEIR BENEFIT OF AN EN DURING NATURE. IT NEITHER ENHANCED THE LIFE OF EXISTING MACHINES OF W HICH THESE TOOLS AND DYES WERE ONLY PARTS, NOR HAD THEIR PRODUCTION CAPACITY INCREASED. IN CIT V. MYSORE SPUN CONCRETE PIPE (P .) LTD.] 1992] 194 ITR 159/60 TAXMAN 170 (KAR.). THE HIGH COURT HE LD THAT THE REPLACEMENT OF MOULDS WAS NOT IN THE NATURE OF REPL ACEMENT OF A CAPITAL MACHINERY BUT IN THE NATURE OF REPLACEMENT OF APART OF THE MACHINERY WHICH, IN TURN, WAS IN THE NATURE OF MAIN TENANCE OF MACHINERY INSTALLED IN THE FACTORY. SUCH AN EXPENDI TURE WAS TREATED AS REVENUE EXPENDITURE. WITH THIS POSITION IN LAW, IT WAS CLEAR THAT VIEW TAKEN BY THE ASSESSING OFFICER WAS ONE OF THE POSSIBLE VIEWS AND ,THEREFORE, THE ASSESSMENT ORDER PASSED BY HIM COULD NOT BE HELD TO BE PREJUDICIAL TO THE REVE NUE. SUCH AN ORDER, THUS, HAD RIGHTLY BEEN SET ASIDE BY THE TRIB UNAL. [PARA 18] IN THE INSTANT CASE, THE PURPOSE OF REPLACING THE DYES WAS TO MAINTAIN THE EXISTING ASSETS, VIZ., MACHINES AND NOT TO BRIN G A NEW ASSET. MOREOVER, CASE AT HAND WAS ONE OF 'REPAIRS OF MACHI NERY'. THE CASE PROCEEDED ON THE CONTROVERSY RIGHT FROM THE OR DER OF THE ASSESSING OFFICER TILL THE TRIBUNAL AS TO WHETHER T HE EXPENDITURE WAS REVENUE OR CAPITAL IN NATURE. [PARA 19] LIKEWIS E, WHETHER THE COMMISSIONER SHOULD HAVE RECORDED DEFINITE FINDING OR NOT, MAY NOT BE VERY RELEVANT FACTOR IN THE INSTANT CASE WHE RE ON THE FACTS IT WAS FOUND THAT THE OPINION OF THE ASSESSING OFFICER IN TREATING THE EXPENDITURE AS REVENUE EXPENDITURE WAS PLAUSIBLE AN D, THUS, THERE WAS NO MATERIAL BEFORE THE COMMISSIONER TO VARY THA T OPINION AND ASK FOR FRESH INQUIRY. [PARA 20] THUS, THE CONCLUSI ON WOULD BE THAT THE ORDER OF THE TRIBUNAL DID NOT CALL FOR ANY INTE RFERENCE, AS THE QUESTION OF LAW HAD RIGHTLY BEEN DECIDED. [PARA 21] ' ITA NO.2159/MUM/2018 DENA BANK 38 14. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOL LOWING THE RATIOS OF CASE LAWS DISCUSSED HEREINABOVE, WE ARE OF THE CONSIDERE D VIEW THAT THE ITA 2463/MUM/2015 ASSESSMENT PASSED BY THE AO IS NEITHE R ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. HENCE, WE SET ASIDE THE ORDER PASSED BY THE PCIT AND RESTORE THE ASSESSMENT ORDER PASSED BY THE AO U/S 143(3) OF THE ACT. 15. THE ASSESSEE HAS RELIED UPON THE DECISION OF ITAT, KOLKATA, IN THE CASE OF OM FOREGOING & ENGINEERING PVT.LTD. VS PCIT-1, KOLKATA (2017) 12 TMI 100. WE FIND THAT THE CO-ORDINATE BEN CH HAS CONSIDERED AN IDENTICAL ISSUE, IN LIGHT OF NEWLY IN SERTED EXPLANATION (2) TO SECTION 263 AND AFTER CONSIDERING THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL COM PANY LIMITED VS CIT (SURPA) HELD AS UNDER:- 26. THE CIT HAS MADE REFERENCE TO EXPLANATION 2 TO SEC. 263 OF THE ACT INTRODUCED BY THE FINANCE ACT, 2015. EXPLANATIO N-2 SO INTRODUCED SETS OUT CASES IN WHICH ORDER OF THE AO CAN BE DEEM ED AS ERRONEOUS. THE SAID EXPLANATION DOES NOT DISPENSE WITH COMPLIA NCE OR EXISTENCE OF (I) THERE BEING NO ENQUIRY MADE BY THE LD. AO; (II) THE AOS CONCLUSION BEING CONTRARY TO CBDT CIRCULAR OR (III) AGAINST DE CISION OF JURISDICTIONAL HIGH COURT OR SUPREME COURT. IN THE PRESENT CASE TH E CIT IN THE IMPUGNED ORDER HAS NOT BROUGHT FACTS TO SHOW THE EX ISTENCE OF ABSENCE OF ENQUIRY ESPECIALLY WHEN THE AO HAS ALREADY CONCL UDED THAT THE PURCHASES BY THE ASSESEE FROM FOUR PARTIES MENTIONE D BY THE DIT (INVESTIGATION) MUMBAI IN ITS REPORT WERE BOGUS. TH E DECISION OF THE MUMBAI AND DELHI ITAT IN THE CASE OF M/S. SHRI NARA YAN TATU RANE (SUPRA) AND M/S. AMIRA PURE FOODS (P) LTD. (SUPRA) CITED BY THE LD. AR CLEARLY SUPPORTS THE VIEW THAT EXPLANATION-2 TO SEC . 263 OF THE ACT WILL NOT BE OF ANY ASSISTANCE TO THE PLEA OF THE REVENUE UNL ESS THE FACTS AND CIRCUMSTANCES SET OUT THERE IN EXISTS IN A GIVEN CA SE. 16. IN THIS VIEW OF THE MATTER AND BY RESPECTFULLY FOLLOWING THE CASE LAWS DISCUSSED HEREINABOVE, WE ARE OF THE CONSIDERE D VIEW THAT THE CONDITIONS PRESCRIBED U/S 263 ARE NOT FULFILLED TO INVOKE REVISIONAL JURISDICTION BY THE LD.PCIT TO REVISE THE ASSESSMEN T ORDER PASSED BY THE LD. AO U/S 143(3) OF THE I.T.ACT, 1961. THEREFO RE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSMENT ORDER PASSED BY THE LD. AO IS ITA NO.2159/MUM/2018 DENA BANK 39 NEITHER ERRONEOUS, NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE, THEREFORE, QUASH THE ORDER OF THE LD.PCIT U/S 263 O F THE ACT, AND ALLOW THE APPEAL OF THE ASSESSEE. 17. IN THE RESULT, APPEAL FILED BY THE ASSESSE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 /01/ 2020 SD/- (RAVISH SOOD) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 23/01/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//