Allahabad Bank, Kolkata V. Addl. CIT, Range - 6, Kolkata, Kolkata

ITA 2175/KOL/2009

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4916 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 30-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: B K GHOSH; PIJUSH DAS
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 14A; 115JB

Judgement Text

I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 1 OF 20 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NOS. 2175/KOL/ 2009 ASSESSMENT YEAR: 2005-2006 ALLAHABAD BANK, KOLKATA,........................... .......................APPELLANT 2, NETAJI SUBHAS ROAD, KOLKATA-700 001 [PAN: AACCA 8464 F] -VS.- ADDITIONAL COMMISSIONER OF INCOME TAX,............. .............RESPONDENT RANGE-6, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 & I.T.A. NOS. 2176/KOL/ 2009 ASSESSMENT YEAR: 2006-2007 ALLAHABAD BANK, KOLKATA,........................... ..........................APPELLANT 2, NETAJI SUBHAS ROAD, KOLKATA-700 001 [PAN: AACCA 8464 F] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,................. ...............RESPONDENT RANGE-6, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 & I.T.A. NOS. 2070/KOL/ 2009 ASSESSMENT YEAR: 2005-2006 DEPUTY COMMISSIONER OF INCOME TAX,................. ...............APPELLANT RANGE-6, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- ALLAHABAD BANK, KOLKATA,........................... ..........................RESPONDENT 2, NETAJI SUBHAS ROAD, KOLKATA-700 001 [PAN: AACCA 8464 F] I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 2 OF 20 APPEARANCES BY: SHRI B.K. GHOSH AND SHRI PIJUSH DAS, FCA, FOR THE A SSESSEE SHRI G. MALLIKARJUNA, CIT, D.R., FOR THE DEPARTMENT DATE OF CONCLUDING THE HEARING : JANUARY 28, 2016 DATE OF PRONOUNCING THE ORDER : MARCH 16, 2016 O R D E R PER SHRI P.M. JAGTAP :- OUT OF THESE THREE APPEALS, TWO APPEALS BEING ITA N O. 2175/KOL/2009 (ASSESSEES APPEAL) AND ITA 2070/KOL/ 2009 (REVENUES APPEAL) ARE CROSS APPEALS FOR A.Y. 2005-06, WHICH A RE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S)-VI, KOLKATA DATED 28.10.2009, WHILE THE REMAINING THIRD APPEAL BEING ITA NO. 2176/KOL/2009 IS THE ASSESSEES APPEAL FOR A.Y. 200 6-07, WHICH IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-VI, KOLKATA DATED 09.11.2009. SINCE SOME OF THE ISSUES INVOLVED IN THESE APPEALS ARE COMMON, THE SAME HAVE BEEN HEA RD TOGETHER AND ARE BEING DISPOSED OF BY A SINGLE CONSOLIDATED ORDER. 2. FIRST WE TAKE UP THE CROSS APPEALS FOR A.Y. 200 5-06. THE ISSUE INVOLVED IN GROUNDS NO. 1 & 2 OF THE ASSESSEES APP EAL RELATES TO THE DISALLOWANCE OF RS.19,31,16,000/- MADE BY THE ASSES SING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 3. THE ASSESSEE IN THE PRESENT CASE IS A GOVERNMENT OF INDIA UNDERTAKING, WHICH IS ENGAGED IN BANKING BUSINESS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 31.10.2005 DECLARING A LOSS OF RS.6,67,27,05,079/- UNDER NORMAL PROVISIONS OF THE ACT AND THE I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 3 OF 20 NEGATIVE BOOK PROFIT OF RS.3,39,63,29,770/- UNDER S ECTION 115JB OF THE ACT. IN THE SAID RETURN, DIVIDEND INCOME OF RS.26.1 0 CRORES AND INTEREST ON TAX-FREE BONDS OF RS.22.74 CRORES RECEIVED DURIN G THE YEAR UNDER CONSIDERATION WAS CLAIMED TO BE EXEMPT BY THE ASSES SEE. THE DISALLOWANCE ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO THE SAID EXEMPT INCOME WAS OFFERED BY THE ASSESSEE TO THE EX TENT OF RS.50,14,233/- AS REQUIRED BY THE PROVISIONS OF SEC TION 14A. THE ASSESSING OFFICER, HOWEVER, FOLLOWED THE ORDER OF A SSESSMENT PASSED BY HIM IN ASSESSEES OWN CASE FOR A.Y. 2004-05 AND MAD E A DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF 5% OF EXEMPT INC OME, WHICH RESULTED IN THE IMPUGNED ADDITION TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(APPEALS) CONFIRMED THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER UNDER SECTION 14A. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE RELYI NG ON THE SEVERAL DECISIONS OF THE TRIBUNAL, THE SIMILAR DISALLOWANCE MADE UNDER SECTION 14A HAS BEEN RESTRICTED BY THE TRIBUNAL TO 1% OF TH E EXEMPT INCOME BY TREATING THE SAME TO BE FAIR AND REASONABLE. IN THE PRESENT CASE, THE DISALLOWANCE OFFERED BY THE ASSESSEE UNDER SECTION 14A IS MORE THAN 1% OF THE EXEMPT INCOME AND THIS BEING THE UNDISPUTED POSITION, WE HOLD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) UNDER SECTION 14A OVER AND ABOVE T HE DISALLOWANCE OFFERED BY THE ASSESSEE AT MORE THAN 1% OF THE EXEM PT INCOME IS NOT SUSTAINABLE. THE SAME IS, THEREFORE, DELETED AND GR OUNDS NO. 1 &2 OF THE ASSESSEES APPEAL FOR A.Y. 2005-06 ARE ALLOWED. I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 4 OF 20 5. THE ISSUE INVOLVED IN GROUNDS NO. 3 & 4 OF THE A SSESSEES APPEAL FOR A.Y. 2005-06 RELATES TO THE DISALLOWANCE OF RS.11,6 3,09,158/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPE ALS) ON ACCOUNT OF DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 36( 1)(VIII) OF THE ACT. 6. THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECT ION 36(1)(VIII) IN RESPECT OF RESERVE CREATED FROM PROFITS EARNED OUT OF LONG-TERM FINANCE PROVIDED FOR INDUSTRIAL, AGRICULTURE AND INFRASTRUC TURE DEVELOPMENT WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND T HAT THE ASSESSEE- COMPANY IS NOT A FINANCIAL CORPORATION. ON APPEAL, THE LD. CIT(APPEALS) FOLLOWED HIS APPELLATE ORDER PASSED IN ASSESSEES C ASE FOR A.Y. 2004-05 AND CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSIN G OFFICER ON THIS ISSUE. HE ALSO HELD THAT THE AMENDMENT MADE BY THE FINANCE ACT, 2007 TO SECTION 36(1)(VIII) W.E.F. 1 ST APRIL, 2008 CLEARLY ESTABLISHES THAT PRIOR TO 1 ST APRIL, 2008, THE BANKS WERE NOT ENTITLED TO DEDUCT ION UNDER SECTION 36(1)(VIII). 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. IT IS OBSERVED THAT THIS ISSUE INVOLVED IN GROUNDS NO. 3 & 4 OF THE ASS ESSEES APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF UNION BANK OF INDIA VS.- ACIT RENDERED VIDE ITS ORDER DATED 30.06.2011 PASSED IN ITA NOS. 4702 TO 4706/MUM./2010, WHEREIN A SIMILAR ISSUE HAS BEEN DE CIDED BY THE TRIBUNAL VIDE PARAGRAPH NOS. 9, 10, 11 & 12, WHICH READ AS UNDER:- 9. WE FIND THAT AS PER EXPLANATION (A) TO SEC. 36( 1)(VIII) 'FINANCIAL CORPORATION' IS DEFINED TO INCLUDE A PUB LIC COMPANY AND A GOVERNMENT COMPANY. WE ARE OF THE OPINION THAT AN Y ENTITY INCORPORATED UNDER A STATUTE CARRYING ON THE BUSINE SS OF FINANCING WOULD COME UNDER THE DEFINITION OF FINANC IAL CORPORATION. THE DEFINITION IS NOT AN EXHAUSTIVE DE FINITION AND THE I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 5 OF 20 TERM FINANCIAL CORPORATION HAS BEEN DEFINED IN AN I NCLUSIVE MANNER SO AS TO INCLUDE A GOVT. COMPANY AND A PUBLI C COMPANY. HENCE FINANCIAL CORPORATION SHOULD INCLUDE 'BANK' A LSO. THE MEMORANDUM EXPLAINING THE AMENDMENT TO SEC. 36(1)(V III) W.E.F. 1.2.2008 HAS CLEARLY STATED AS FOLLOWS: 'THE PROVISION HAS ALSO BEEN RESTRUCTURED TO PROVID E FOR DIFFERENT CATEGORIES OF ENTITIES (WHICH NOW ALSO IN CLUDES CO-OPERATIVE BANKS) AND THEIR RESPECTIVE ACTIVITIES FOR ELIGIBILITY OF THE DEDUCTION UNDER THE SAID CLAUSE. FOR CLAIMING DEDUCTION UNDER THE SAID CLAUSE, (I) A FIN ANCIAL CORPORATION SPECIFIED IN SEC. 4A OF THE COMPANIES A CT OR A FINANCIAL CORPORATION WHICH IS A PUBLIC SECTION COMPANY OR A BANKING COMPANY OR A CO-OPERATIVE BANK (OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY O R A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK). THE AMENDMENT ALSO PROVIDES DEFINITIONS OF THE EXPR ESSIONS 'BANKING COMPANY', 'CO-OPERATIVE BANK', 'PRIMARY AG RICULTURAL CREDIT SOCIETY'. 10. FURTHER THE RESTRUCTURING DONE TO DEFINE THE FI NANCIAL CORPORATION IS ONLY CLARIFICATORY AS WE CAN SEE FRO M THE NOTES ON CLAUSES WHICH READ AS FOLLOWS: 'THE PROPOSED AMENDMENT FURTHER SEEKS TO DEFINE CER TAIN TERMS INCLUDING SPECIFIED ENTITIES AND 'ELIGIBLE BU SINESS' FOR THE PURPOSES OF DEDUCTION. 11. SINCE THE DEFINITION IS ONLY CLARIFICATORY IN N ATURE, IT CAN BE PRESUMED THAT THE ENTITY SUCH AS THE ASSESSEE WERE COVERED IN THE DEFINITION FROM THE INCEPTION OF THE SECTION. 12. EVEN OTHERWISE THE ASSESSEE IS A GOVT. COMPANY SINCE THE CENTRAL GOVT. HOLDS MORE THAN 51% OF THE SHARE CAPI TAL OF THE BANK AND AS DEFINED IN SEC. 617 OF THE COMPANIES AC T THE ASSESSEE IS A GOVT. COMPANY. HENCE THE DEDUCTION U/S. 36(1)( VIII) HAS TO BE ALLOWED TO THE ASSESSEE AS IT IS ENGAGED IN THE BUS INESS OF PROVIDING LONG TERM FINANCE FOR INDUSTRIAL, AGRICUL TURE AND INFRASTRUCTURE DEVELOPMENT IN INDIA AND IS A GOVT. COMPANY. THE ASSESSEE IS A FINANCIAL CORPORATION 'WITHIN THE MEA NING OF SEC. 36(1)(VIII) SINCE IT IS GOVT. COMPANY. HOWEVER THE DEDUCTION AVAILABLE UNDER THIS SECTION WILL BE RESTRICTED TO THE AMOUNT TRANSFERRED TO SPECIAL RESERVE SUBJECT TO THE LIMIT OF PRESCRIBED PERCENTAGE OF PROFITS DERIVED FROM PROVIDING LONG T ERM FINANCE FOR THE APPROVED PURPOSES MENTIONED IN SEC 36(1)(VI II). FOR THE PURPOSE OF DETERMINING THE DEDUCTION AVAILABLE TO T HE ASSESSEE U/S. 36(1)(VIII) THE ISSUE IS REMITTED BACK TO THE FILE OF THE A.O. SUBJECT TO THE ABOVE DIRECTION THE APPEAL OF THE AS SESSEE ON THIS ISSUE IS ALLOWED. I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 6 OF 20 RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH OF THIS TRIBUNAL IN THE CASE OF UNION BANK OF INDIA (SUPRA) , WE HOLD THAT THE ASSESSEE IN THE PRESENT CASE IS ENTITLED FOR DEDUCT ION UNDER SECTION 36(1)(VIII) AND ACCORDINGLY DIRECT THE ASSESSING OF FICER TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 36(1)(V III) AFTER VERIFYING THE QUANTUM THEREOF IN ACCORDANCE WITH LAW. GROUNDS NO. 3 & 4 OF THE ASSESSEES APPEAL FOR A.Y. 2005-06 ARE ACCORDINGLY TREATED AS ALLOWED. 8. THE ISSUE INVOLVED IN GROUND NO. 5 OF THE ASSESS EES APPEAL FOR A.Y. 2005-06 RELATES TO THE DISALLOWANCE OF RS.2,31,42,8 3,800/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPE ALS) BY RESTRICTING THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 3 6(1)(VIIA) OF THE ACT FOR PROVISION FOR BAD AND DOUBTFUL DEBTS. 9. IN THE RETURN OF INCOME, DEDUCTION UNDER SECTION 36(1)(VIIA) ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS WAS CLAIMED BY THE ASSESSEE TO THE EXTENT OF RS.2,31,42,83,800/-. AS F OUND BY THE ASSESSING OFFICER, A PROVISION FOR BAD AND DOUBTFUL DEBTS, HO WEVER, WAS MADE BY THE ASSESSEE ONLY TO THE EXTENT OF RS.40,00,00,000/- IN HIS BOOKS OF ACCOUNT. HE, THEREFORE, ALLOWED THE CLAIM OF THE ASSESSEE FO R DEDUCTION UNDER SECTION 36(1)(VIIA) ONLY TO THE EXTENT OF RS.40,00, 00,000/- AND DISALLOWED THE BALANCE AMOUNT OF RS.2,31,42,83,800/-. ON APPEA L, THE LD. CIT(APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE BY FOLLOWING HIS APPELLATE ORDER PASS ED IN ASSESSEES OWN CASE FOR A.Y. 2004-05. I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 7 OF 20 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. IT IS OBSERVED THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBL E PUNJAB & HARYANA HIGH COURT IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE IN THE CASE OF STATE BANK OF PATIALA-VS.- CIT REPORTED IN 272 I TR 54, WHEREIN IT WAS HELD THAT THE DEDUCTION ALLOWABLE UNDER SECTION 36( 1)(VIIA) IS IN RESPECT OF THE PROVISION MADE AND, THEREFORE, MAKING OF PRO VISION EQUAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE ACCOUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTION UNDER SECTION 36(1)(VII). SINCE THERE IS NO OTHER DECISION OF ANY HIGH COURT TAKING A DIFFERENT VIEW ON THIS ISSUE HAS BEEN BROUGHT TO OUR NOTICE, WE RESPECTFULLY FOLLOW THE D ECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) CONFIRMING THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF DEDUCTION UNDER SECTION 36(1)(VIIA). GROUND NO. 5 IS ACCORDINGLY DISMISSED. 11. GROUNDS NO. 6 TO 10 OF THE ASSESSEES APPEAL FO R A.Y. 2005-06 AND ADDITIONAL GROUNDS NO. 1 & 2 RAISED BY THE ASSESSEE AND ADMITTED BY US INVOLVE THE ISSUES RELATING TO THE VARIOUS ADDITION S MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES, THE PRELIMINARY ISSUE INVOLVED IN THIS CONTEXT IS WHETHER THE PROVISIONS OF SECTION 115JB ARE APPLICABLE TO THE ASSESSEE-BANK AND THE SAME IS SQUARELY COVERED IN F AVOUR OF ASSESSEE, INTER ALIA, BY THE DECISION OF THE HONBLE KERALA H IGH COURT IN THE CASE OF KERALA STATE ELECTRICITY BOARD VS.- DCIT REPORTED IN 329 ITR 91, MUMBAI I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 8 OF 20 BENCH OF ITAT IN THE CASE OF MAHARASHTRA STATE ELEC TRICITY BOARD VS.- ACIT REPORTED IN 220 ITR 422 AND ANOTHER DECISION O F THE MUMBAI BENCH OF ITAT IN THE CASE OF UNION BANK OF INDIA VS.- AC IT (SUPRA). AS HELD BY THE MUMBAI BENCH OF ITAT IN THE CASE OF UNION BANK OF INDIA (SUPRA), PROVISION OF SECTION 115JB IS NOT APPLICABLE TO THE BANK AS IT IS NOT REQUIRED TO PREPARE ITS PROFIT & LOSS ACCOUNT IN AC CORDANCE WITH SCHEDULE 6B(I) OF THE COMPANIES ACT, 1956 BUT IT PREPARES IT S PROFIT & LOSS ACCOUNT AS PER THE BANKING REGULATION ACT, 1949. RESPECTFUL LY FOLLOWING THE RATIO OF THESE JUDICIAL PRONOUNCEMENTS, WE HOLD THAT THE PROVISION OF SECTION 115JB IS NOT APPLICABLE IN THE CASE OF THE ASSESESE AND ACCORDINGLY DELETE THE ADDITIONS MADE BY THE ASSESSING OFFICER AND CON FIRMED BY THE LD. CIT(APPEALS) WHILE COMPUTING THE BOOK PROFIT OF THE ASSESSEE BY APPLYING THE SAID PROVISION. GROUNDS NO. 6 TO 10 OF THE ASSE SSEES APPEAL FOR A.Y. 2005-06 AS WELL AS THE ADDITIONAL GROUNDS NO. 1 & 2 RAISED BY THE ASSESSEE ARE THUS ALLOWED. 13. NOW WE TAKE UP THE REVENUES APPEAL FOR A.Y. 20 05-06 BEING ITA NO. 2070/KOL/2009, GROUNDS NO. 1 & 2 OF WHICH INVOL VE A COMMON ISSUE RELATING TO THE DELETION BY THE LD. CIT(APPEALS) OF THE ADDITION OF RS.138.83 CRORES .MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PROVISION FOR SALARY ARREARS. 14. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDE R CONSIDERATION, A DEDUCTION OF RS.138.83 CRORES WAS CLAIMED BY THE AS SESSEE ON ACCOUNT OF PROVISION FOR SALARY ARREARS. IN THIS CONNECTION, I T WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THE LAST WAGE AGREEMENT ENTERED INTO WITH THE EMPLOYEES HAD ALREA DY EXPIRED ON 31.10.2002 AND THE REVISION OF SALARY AND WAGES OF OFFICERS AND WORKMEN WAS DUE FROM 01.11.2002. THE NEGOTIATION FOR REVISI ON BETWEEN THE BANK I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 9 OF 20 AND THE UNION OF STAFF AND OFFICERS ASSOCIATION WA S IN PROGRESS DURING THE YEAR UNDER CONSIDERATION AND AS PER ADVICE OF I NDIAN BANKS ASSOCIATION, AN UNDERSTANDING WAS REACHED WITH THE WORKMEN UNION AND OFFICERS ASSOCIATIONS ON WAGE REVISION. IT WAS SUB MITTED THAT EVEN THOUGH THE FINAL AGREEMENT WAS NOT EXECUTED DURING THE YEAR UNDER CONSIDERATION, PROVISION OF RS.138.83 CRORES WAS MA DE IN THE ACCOUNTS BASED ESTIMATE OF SUCH LIABILITY MADE BY THE MANAGE MENT AND DULY VERIFIED BY THE STATUTORY AUDITORS. THESE SUBMISSIO NS MADE BY THE ASSESSEE IN SUPPORT OF ITS CLAIM FOR DEDUCTION ON A CCOUNT OF PROVISION FOR SALARY ARREARS WERE NOT FOUND ACCEPTABLE BY THE ASS ESSING OFFICER. ACCORDING TO HIM, SINCE THE EXPENDITURE ON ACCOUNT OF SALARY ARREARS WAS NOT QUANTIFIED, THE PROVISION MADE FOR THE SAME WAS IN THE NATURE OF UNASCERTAINED LIABILITY AND THE ASSESSEE WAS NOT EN TITLED TO CLAIM DEDUCTION FOR THE SAME. ACCORDINGLY, HE DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE ON ACCOUNT OF PROVISION FOR SALARY ARREARS. 15. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ITS CLAIM FOR DEDUCTION TOWARDS PROVISION FOR SALARY AR REARS WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS) AND AFTER CONSIDERING THE SUBMISSION MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(APPEALS) DELETED T HE SAID DISALLOWANCE FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORD ER:- I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND ALSO THE ORDER OF THE A.O. ACCORDING TO THE ACCOUNTING STAND ARD 29 ISSUED BY THE ICAI 'PROVISION' IS A LIABILITY WHICH CAN BE ME ASURED ONLY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION. A 'LIABIL ITY' IS A PRESENT OBLIGATION OF THE ENTERPRISE ARISING FROM PAST EVEN TS, THE SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUT FLOW FROM THE ENTERPRISE OF RESOURCES EMBODYING ECONOMIC BENEFITS . ACCORDING TO PARAGRAPH 14 OF (AS) 29, A PROVISION SHOULD BE RECO GNIZED WHEN: A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESU LT OF PAST EVENT I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 10 OF 20 B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES EMBO DYING ECONOMIC BENEFITS WILL BE REQUIRED TO SETTLE THE OBLIGATION; AND C) A RELIABLE ESTIMATE CAN BE MADE OUT OF THE OBLIG ATION. IF THE ABOVE CONDITIONS ARE MADE, PROVISION SHOULD BE RECOGNIZED IN THE FINANCIAL STATEMENTS. IT IS AN ACCEPTED PRINCIP LE THAT THE SALARY/WAGE ACCRUED DAILY, WEEKLY, MONTHLY AS PER T HE CONTRACT OF APPOINTMENT. THE LIABILITY OF THE BANK TO PAY SALAR Y AND WAGES AT THE REVISED RATES COMMENCED FROM THE DATE OF EXPIRY OF THE AGREEMENT. THE LIABILITY TO COMPENSATE THE EMPLOYEE S FOR THE SERVICES RENDERED IS AN EXISTING LIABILITY. THERE I S AN EVERY PROBABILITY OF OUTFLOW OF RESOURCES ON ACCOUNT OF S ALARY INCREASE. THE BASIS OF ESTIMATE MADE BY THE BANK IS ALSO RELI ABLE AND WAS NOT DISPUTED BY THE A.O. RECENTLY THE HONBLE APEX COURT IN THE CASE OF ROTO RK CONTROLS INDIA (P) LIMITED VS.- CIT (2009) 180 TAXMAN 422 ( SC) HAS HELD THAT A PROVISION TO QUALIFY FOR RECOGNITION AND DED UCTION, THERE MUST BE A PRESENT OBLIGATION ARISING FROM PAST EVEN T, SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUTFLOW OF RESOUR CES AND IN RESPECT OF WHICH A RELIABLE ESTIMATE OF AMOUNT OF O BLIGATION IS POSSIBLE. THIS DECISION WAS RENDERED BY THE HONORAB LE SUPREME COURT IN CONNECTION WITH THE PROVISION MADE BY THE ASSESSEE FOR OBLIGATION UNDER WARRANTY CONTRACTION CAREFUL ANALY SIS OF THIS DECISION, IT CAN BE SEEN THAT THE COURT HAS TAKEN I NTO COGNIZANCE AS 29 OF ICAI IN DECIDING WHETHER A PROVISION FOR EXPE NDITURE IS ALLOWABLE OR NOT. FOLLOWING THE ABOVE DECISION OF T HE SUPREME COURT, THE ITAT, NAGPUR BENCH IN THE CASE OF WESTER N COALFIELDS LIMITED V ACIT, 2009-TIOL-589-ITAT-NAGPUR HAS ALLOW ED DEDUCTION IN RESPECT OF PROVISION FOR INCREMENTAL W AGES MADE ON ESTIMATED BASIS ON ACCOUNT OF PENDING NATIONAL COAL WAGE AGREEMENT -IV FOR A.Y. 2002-2003. IN MY OPINION PRO VISION FOR WAGE ARREARS MADE BY THE BANK IN THE FINANCIAL YEAR 2004 -2005 SATISFIES ALL THE CONDITIONS PRESCRIBED IN AS 29. HENCE THE A .O IS DIRECTED TO ALLOW THE PROVISION FOR WAGE ARREARS AND THIS GROUN D OF APPEAL IS ALLOWED. 16. THE LD. D.R. SUBMITTED THAT THERE WAS NO BASIS GIVEN BY THE ASSESESE ON WHICH THE AMOUNT OF SALARY ARREARS PAYABLE TO TH E STAFF AND OFFICERS COULD REASONABLY BE QUANTIFIED AND IN THE ABSENCE O F THE SAME AS WELL AS ANY SPECIFIC EVENT THAT OCCURRED DURING THE YEAR UN DER CONSIDERATION SHOWING THAT THE LIABILITY ON ACCOUNT OF SALARY ARR EARS HAD CRYSTALLIZED, THE PROVISION MADE BY THE ASSESESE FOR SALARY ARREA RS REPRESENTED UNASCERTAINED LIABILITY WHICH WAS NOT ALLOWABLE AS DEDUCTION, AS RIGHTLY I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 11 OF 20 HELD BY THE ASSESSING OFFICER. HE CONTENDED THAT TH E LD. CIT(APPEALS), HOWEVER, OVERLOOKED THESE RELEVANT ASPECTS HIGHLIGH TED BY THE ASSESSING OFFICER AND ALLOWED THE CLAIM OF THE ASSESSEE BY RE LYING ON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS (SUPRA) AND ROTORK CONTROLS INDIA (P) LIMITED (SUPRA), WHIC H ARE DISTINGUISHABLE ON FACTS. HE CONTENDED THAT IN BOTH THESE CASES DEC IDED BY THE HONBLE SUPREME COURT, THE PROVISION WAS MADE FOR THE PRESE NT LIABILITY, WHEREAS IN THE CASE OF THE ASSESSEE, THE LIABILITY ON ACCOU NT OF SALARY ARREARS WAS NOT PERTAINING TO THE YEAR UNDER CONSIDERATION ALON E, BUT THE SAME PERTAINED TO A.Y. 2003-04 AND 2004-05 ALSO. HE HAS SUBMITTED THAT THE DECISION OF HYDERABAD BENCH OF ITAT IN THE CASE OF ANDHRA PRADESH GRAMIN VIKAS BANK (ITA NOS. 51 & 88/HYD/2015 DATED 10.04.2015), ON THE OTHER HAND, IS DIRECTLY APPLICABLE TO THE FACTS OF THE PRESENT CASE AND STRONGLY RELIED ON THE SAME IN SUPPORT OF THE REVEN UES CASE ON THIS ISSUE. 17. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE SALARY AND WAGE REVISION WAS DUE FROM 01.11.200 2 AND IT, THEREFORE, CANNOT BE DISPUTED THAT THE LIABILITY ON ACCOUNT OF SUCH WAGE REVISION HAD ALREADY ACCRUED. HE SUBMITTED THAT THE BI-PARTITE T ALKS BETWEEN INDIAN BANKS ASSOCIATIONS AND EMPLOYEES UNION WERE ALMOST AT THE FINAL STAGE AS ON 31.03.2005 AND ON THE BASIS OF NEGOTIATIONS T HAT HAD TAKEN PLACE AND AN UNDERSTANDING THAT HAD REACHED, THE LIABILIT Y WAS ESTIMATED BY THE ASSESSEE AT 13% ON ACCOUNT OF WAGE ARREARS. HE CONT ENDED THAT THE FACT THAT AS PER THE AGREEMENT FINALLY ENTERED INTO IN M AY, 2005, A WAGE REVISION OF 13.25% WAS AGREED IS SUFFICIENT TO SHOW THAT THE PROVISION MADE BY THE ASSESSEE AT 13% REPRESENTED A LIABILITY , WHICH COULD BE REASONABLY ESTIMATED. HE SUBMITTED THAT A SIMILAR I SSUE INVOLVED IN THE CASE OF ABP COMPANY LIMITED VS.- ACIT HAS BEEN DEC IDED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN FAVOUR OF THE ASSESESE IN SIMILAR FACTS AND CIRCUMSTANCES VIDE ITS ORDER REPORTED IN 78 TTJ (CAL) 158. I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 12 OF 20 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE SALARY AND WAGE REVISION AGREEMENT ENTERED INTO BY THE ASSESSE E-BANK WITH ITS STAFF AND OFFICERS EARLIER HAD ALREADY EXPIRED ON 31.10.2 002 AND, THEREFORE, THE NEW REVISION WAS DUE RIGHT FROM 01.11.2002. THE LIA BILITY ON ACCOUNT OF SALARY ARREARS THUS HAD ALREADY ACCRUED AND THE ISS UE THAT IS REQUIRED TO BE CONSIDERED IS WHETHER IT WAS POSSIBLE TO ASCERTA IN OR QUANTIFY THE SAME WITH REASONABLE CERTAINTY IN THE YEAR UNDER CO NSIDERATION. IN THIS REGARD, IT IS OBSERVED THAT THE NEGOTIATIONS BETWEE N INDIAN BANKS ASSOCIATION AND EMPLOYEES UNION HAD ALREADY TAKEN PLACE AND THE FINAL UNDERSTANDING WAS ALMOST REACHED DURING THE YEAR UN DER CONSIDERATION, WHICH IS EVIDENT FROM THE FACT THAT THE FINAL AGREE MENT FOR REVISION WAS ENTERED INTO IN THE MONTH OF MAY, 2005 ITSELF, I.E. IMMEDIATELY AFTER THE END OF THE YEAR UNDER CONSIDERATION. THE FACT THAT THE REVISION WAS FINALLY SETTLED WITH 13.25% IN MAY, 2005 ALSO GOES TO SHOW THAT THE PROVISION MADE BY THE ASSESSEE FOR SUCH REVISION AT 13% IN TH E YEAR UNDER CONSIDERATION WAS A LIABILITY, WHICH COULD BE ASCER TAINED WITH REASONABLE CERTAINTY. 19. IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE, THE LD. D.R. HAS RELIED ON THE DECISION OF THE HYDERABAD BENCH OF THIS TRIB UNAL IN THE CASE OF ANDHRA PRADESH GRAMIN VIKAS BANK. IT IS, HOWEVER, O BSERVED THAT THE SAME IS DISTINGUISHABLE ON FACTS, INASMUCH AS, THE LIABILITY ON ACCOUNT OF SALARY ARREARS IN THE SAID CASE HAD ARISEN AS A RES ULT OF PROCEEDINGS HELD ON 24.07.2010, I.E. MUCH LATER THAN THE CLOSURE OF THE RELEVANT YEAR UNDER CONSIDERATION AND THIS BEING THE UNDISPUTED POSITIO N, THE TRIBUNAL HELD THAT THE SAID LIABILITY HAVING NEITHER ARISEN NOR D ISCHARGED DURING THE RELEVANT YEAR WAS NOT ALLOWABLE AS DEDUCTION. I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 13 OF 20 20. IN THE CASE OF IBP COMPANY LIMITED (SUPRA), THE FACT SITUATION INVOLVED, ON THE OTHER HAND, WAS SIMILAR TO THE CAS E OF THE ASSESSEE INASMUCH AS, THE PAY SCALE AND OTHER BENEFITS OF TH E OFFICERS WERE DUE FOR REVISION W.E.F. 1 ST AUGUST, 1997 AND THE EXERCISE TO REVISE THE SAME W AS ALREADY IN PROGRESS. THE BASIS OF SUCH REVISION WAS ULTIMATELY ACCEPTED BY THE GOVERNMENT AND IT WAS ON THIS BASIS THAT THE AS SESSEE-COMPANY HAD WORKED OUT THE LIABILITY IN RESPECT OF THE SAME. IN THESE FACTS AND CIRCUMSTANCES, IT WAS HELD BY THE COORDINATE BENCH OF THIS TRIBUNAL THAT THE PROVISION FOR INCREASE IN SALARIES AND WAGES MA DE BY THE ASSESSEE ON THE BASIS OF BUREAU OF PUBLIC ENTERPRISE GUIDELINES IN ASSESSMENT YEAR 1989-90 WAS NOT FOR CONTINGENT LIABILITY AND THE RE ASONABLE PROVISION FOR SUCH LIABILITY WAS REQUIRED TO BE TAKEN INTO ACCOUN T FOR ARRIVING AT THE COMMERCIAL PROFIT. IN ARRIVING AT THIS CONCLUSION, THE TRIBUNAL RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF BHARAT EARTH MOVERS LIMITED VS.- CIT REPORTED IN 245 ITR 428, W HEREIN IT WAS HELD BY THE HONBLE APEX COURT THAT IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWE D, ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. IT WAS HELD THAT WHAT SHOULD BE CERTAIN IS THE INCURRING O F THE LIABILITY WHICH SHOULD BE CAPABLE OF BEING ESTIMATED WITH REASONABL E CERTAINTY THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IT W AS HELD THAT IF THESE REQUIREMENTS ARE SATISFIED, THE LIABILITY IS NOT A CONTINGENT ONE BUT IT IS A LIABILITY IN PRESENTI. IN OUR OPINION, THE RATIO OF THESE JUDICIAL PRONOUNCEMENTS IS CLEARLY APPLICABLE TO THE FACTS O F THE PRESENT CASE AND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE IMPU GNED ORDER OF THE LD. CIT(APPEALS) ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PROVISION FOR SALARY ARREARS. GROUNDS NO. 1 & 2 OF THE REVENUES APPEAL ARE ACCORDINGLY DISMISSED. I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 14 OF 20 21. THE ISSUE INVOLVED IN GROUND NO. 3 OF THE REVEN UES APPEAL RELATING TO THE ASSESSEES CLAIM FOR DEDUCTION ON ACCOUNT OF PROVISION FOR SALARY ARREARS WHILE COMPUTING THE BOOK PROFIT UNDER SECTI ON 115JB HAS BECOME INFRUCTUOUS AS A RESULT OF OUR DECISION RENDERED WH ILE DISPOSING OF THE APPEAL OF THE ASSESSEE HOLDING THAT THE PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE-BANK. GR OUND NO. 3 OF THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 22. THE ISSUE INVOLVED IN GROUND NO. 4 OF THE REVEN UES APPEAL FOR A.Y. 2005-06 RELATES TO THE DELETION BY THE LD. CIT(APPE ALS) OF THE ADDITION OF RS.75,00,00,000/- MADE BY THE ASSESSING OFFICER BY WAY OF DISALLOWANCE OF ASSESSEES CLAIM FOR BAD DEBTS WRITTEN OFF UNDER SECTION 36(1)(VII) OF THE ACT. 23. IN THE PROFIT & LOSS ACCOUNT, A SUM OF RS.75,00 ,00,000/- WAS DEBITED BY THE ASSESSEE ON ACCOUNT OF BAD DEBTS WRI TTEN OFF RELATING TO NON-RURAL BRANCHES AND THE SAME WAS CLAIMED AS DEDU CTION UNDER SECTION 36(1)(VII). IN THIS REGARD, THE ASSESSING OFFICER N OTED THAT THE OPENING BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY THE ASSESSEE UNDER SECTION 36(1)(VIIA) WAS TO THE EXTENT OF RS.5 84.04 CRORES. SINCE THE AMOUNT OF BAD DEBTS WRITTEN OFF BY THE ASSESSEE AND CLAIMED AS DEDUCTION UNDER SECTION 36(1)(VII) AT RS.75,00,00,000/- WAS L ESS THAN THE OPENING BALANCE OF PROVISION MADE AS PER SECTION 36(1)(VIIA ), THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS NOT ENTITLED TO ANY DEDUCTION UNDER SECTION 36(1)(VII). ON APPEAL, THE LD. CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF UNDER SECTION 36(1)(VII) AT RS.75,00,00,000/- BY FOLLOWIN G THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2003-04 RE NDERED VIDE ITS ORDER DATED 30.09.2009, WHEREIN IT WAS HELD THAT THE PROV ISO TO SECTION I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 15 OF 20 36(1)(VII) IS NOT APPLICABLE IN RESPECT OF BAD DEBT S WRITTEN OFF RELATING TO NON-RURAL BRANCHES OF THE BANK WHEN PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VIIA) HAS ALL ALONG BEEN CLAIMED BY THE ASSESSEE ONLY IN RESPECT OF DOUBTFUL DEBTS RELATABL E TO RURAL BRANCHES. HE ALSO RELIED ON THE DECISION OF SPECIAL BENCH OF ITA T, COCHIN IN THE CASE OF CATHOLIC SYRIAN BANK LIMITED REPORTED IN 267 ITR 52 (AT), WHEREIN IT WAS HELD THAT THE DEBTS ACTUALLY WRITTEN OFF, WHICH DO NOT ACTUALLY ARISE OUT OF THE RURAL ADVANCES, ARE NOT AFFECTED BY THE PROVISO TO SECTION 36(1)(VII) AND DEDUCTION ON ACCOUNT OF ONLY THOSE BAD DEBTS WR ITTEN OFF, WHICH ARISES OUT OF RURAL ADVANCES IS TO BE LIMITED IN AC CORDANCE WITH THE SAID PROVISO. 24. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES, THIS ISSUE I NVOLVED IN GROUND NO. 4 OF THE REVENUES APPEAL FOR A.Y. 2005-06 NOW STANDS SQUARELY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CATHOLIC SYRIAN BANK LIMITED (2012) 3 SCC 784 WHEREBY THE VIEW TAKE N BY COCHIN SPECIAL BENCH OF ITAT HAS BEEN AFFIRMED BY THE HONBLE APEX COURT. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LIMITED, WE UPHOLD THE IMPUGNE D ORDER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO. 4 OF THE REVENUES APPEAL. 25. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR A.Y. 2006-07 BEING ITA NO. 2176/KOL/2009, GROUNDS NO. 1 & 2 OF W HICH RELATING TO THE ISSUE OF DISALLOWANCE OF PUBLIC ISSUE EXPENSES ARE NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEF ORE US. THE SAME ARE ACCORDINGLY DISMISSED AS NOT PRESSED. I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 16 OF 20 26. IN GROUND NO. 3, THE ASSESSEE HAS DISPUTED THE ADDITION OF RS.45.09 CRORES MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF THE AMOUNT TRANSFERRED F ROM CONTINGENCY ACCOUNT - GENERAL TO THE CREDIT OF PROFIT & LOSS A CCOUNT. 27. DURING THE YEAR UNDER CONSIDERATION, THE ASSESS EE-BANK HAD TRANSFERRED OLD OUTSTANDING BALANCES AGGREGATING TO RS.104.63 CRORES FROM CONTINGENCY ACCOUNT - GENERAL TO THE CREDIT OF THE PROFIT & LOSS ACCOUNT UNDER THE HEAD OTHER INCOME AS PER THE DE CISION TAKEN BY ITS BOARD OF DIRECTORS. ON VERIFICATION OF THE SAME, IT WAS FOUND BY THE ASSESSING OFFICER THAT THE AMOUNTS TRANSFERRED BY T HE ASSESSEE FROM FLABBY ACCOUNTS (I.E. BILLS PAYABLE, DEBIT NOTE PAY ABLE, ETC.) TO THE EXTENT OF RS.43.12 CROES AND FROM SUNDRY CREDITORS TO THE EXTENT OF RS.1.97 CRORES WERE IN THE NATURE OF CESSATION OF LIABILITY AS COVERED BY THE PROVISIONS OF SECTION 41(1) OF THE ACT. HE, ACCORDI NGLY, INVOKED THE SAID PROVISION AND MADE ADDITION OF RS.45.09 CRORES TO T HE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(APPEALS) CONFIRMED THE SAID ADDITION MADE BY THE ASSESSING OFFICER FOR THE FOLLOWING REA SONS GIVEN IN HIS IMPUGNED ORDER:- L HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND ALSO THE ORDER OF THE AO. IN THE ASSESSMENT ORDER AT PAR A 9, AO AFTER ANALYSING THE CREDITS MADE TO THE PROFIT AND LOSS A CCOUNT OPINED THAT REVERSAL OF BILLS PAYABLE/DEBIT NOTE PA YABLE ETC. FOR RS.43.12 CRORES, REVERSAL OF CREDITORS FOR RS. 1.97 CRORES MUST HAVE BEEN DEBITED TO PROFIT AND LOSS ACCOUNT EARLIE R. AO STATED THAT BILLS PAYABLE, DEBIT NOTES PAYABLE AND SUNDRY CREDITORS PAYABLE ARE RECOGNISED IN A MERCANTILE SYSTEM OF AC COUNTING ON ACCRUAL BASIS. THEREFORE THE REVERSAL OF SUCH EXPEN SES ARE SQUARELY COVERED BY U/S 41(1). THEREFORE, A SUM OF RS.45.09 CRORES WAS ADDED BACK TO THE INCOME U/S 41(1) WITH A NOTE THAT ANY ACTUAL EXPENDITURE MET OUT OF SUCH DISALLOWED A MOUNT IN FUTURE WILL BE CONSIDERED AS EXPENDITURE OF THAT PA RTICULAR YEAR. THE APPELLANT AT THE TIME OF THE APPEAL HEARI NG SUBMITTED THAT THESE ACCOUNTS WERE MORE THAN 10 YEARS OLD AND THE I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 17 OF 20 DETAILS OF BILLS PAYABLE, DEBIT NOTES PAYABLE AND S UNDRY CREDITORS BELONGING TO THE CORRESPONDING YEARS WERE NOT PRODUCED. IN VIEW OF THIS I AGREE WITH THE ORDER OF THE A.O. ON THIS GROUND OF APPEAL AND THE GROUND OF APPEAL IS D ISMISSED. 28. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. ALTHOUGH THE LD. D.R. HAS RELIED ON THE DECISION OF PUNE BENCH OF TH IS TRIBUNAL IN THE CASE OF VAIDYANATH URBAN COOPERATIVE BANK LIMITED (ITA N O. 413/PUNE/2014 & OTHERS DATED 31.03.2015), WHEREIN A SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE REVENUE AFTER HAVING FOUND THAT THE U NCLAIMED CREDITORS REPRESENTING TRADING LIABILITY FOR EXPENDITURE INCU RRED HAVING BEEN ALLOWED AS DEDUCTION IN THE ASSESSMENT FOR ANY YEAR , THE TRANSFER OF CREDIT BALANCE OF SUCH UNCLAIMED CREDITORS BY THE A SSESSEE HIMSELF TO THE RESERVE ACCOUNT CLEARLY ATTRACTED THE PROVISIONS OF SECTION 41(1), THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE FAC TS INVOLVED IN THE PRESENT CASE ARE ALTOGETHER DIFFERENT, INASMUCH AS, NO DEDUCTION WAS CLAIMED BY THE ASSESSEE IN ANY YEAR WHILE COMPUTING ITS TOTAL INCOME ON ACCOUNT OF THE AMOUNTS IN QUESTION REPRESENTING FLA BBY ACCOUNTS AND SUNDRY CREDITORS, THE BALANCES OF WHICH WERE CREDIT ED TO THE PROFIT & LOSS ACCOUNT. HE HAS CONTENDED THAT THE ASSESSING OFFICE R AS WELL AS THE LD. CIT(APPEALS) HAVE PROCEEDED ON THE PRESUMPTION THAT THESE AMOUNTS MIGHT HAVE BEEN DEBITED BY THE ASSESSEE TO THE PROF IT & LOSS ACCOUNT IN THE EARLIER YEARS. HE HAS URGED THAT AN OPPORTUNITY MAY, THEREFORE, BE GIVEN TO THE ASSESSEE TO ESTABLISH THAT THE SAID AM OUNTS HAD NOT BEEN CLAIMED BY IT AS DEDUCTION IN ANY OF THE EARLIER YE ARS AND THE PROVISIONS OF SECTION 41(1) THUS ARE NOT APPLICABLE. ALTHOUGH THE LD. D.R. HAS STRONGLY OPPOSED TO THIS REQUEST OF THE LD. COUNSEL FOR THE ASSESSEE, WE CONSIDER IT FAIR AND REASONABLE AND IN THE INTEREST OF JUSTICE TO ACCEDE TO THE SAID REQUEST. ACCORDINGLY, THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO TH E FILE OF THE ASSESSING OFFICER FOR THE LIMITED PURPOSE OF GIVING THE ASSES SEE AN OPPORTUNITY TO I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 18 OF 20 ESTABLISH ITS CASE THAT NO DEDUCTION ON ACCOUNT OF THE AMOUNTS IN QUESTION WAS CLAIMED BY IT WHILE COMPUTING THE TOTAL INCOME OF ANY OF THE EARLIER YEARS. GROUND NO. 3 OF THE ASSESSEES APPEAL FOR A. Y. 2006-07 IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 29. AS REGARDS GROUND NO. 4 OF THE ASSESSEES APPEA L FOR A.Y. 2006-07, IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELA TING TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION UNDER SEC TION 36(1)(VIIA) TO THE EXTENT OF RS.235,71,80,000/- IN THE ABSENCE OF PROV ISION MADE FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNT IS SIMIL AR TO THE ONE INVOLVED IN GROUND NO. 5 OF THE ASSESSEES APPEAL FOR A.Y. 2 005-06, WHICH HAS ALREADY BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN A.Y. 2005-06, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE AND DIS MISS GROUND NO. 4 OF THE ASSESSEES APPEAL. 30. AS REGARDS THE ISSUE INVOLVED IN GROUNDS NO. 5 & 6 OF THE ASSESSEES APPEAL FOR A.Y. 2006-07 RELATING TO THE DISALLOWANC E OF RS.3,72,18,000/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME T AX RULES, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT RULE 8D IS APPLICABLE ONLY FROM A.Y. 2008-09 AND THE DISALLOWANCE UNDER S ECTION 14A FOR THE YEARS PRIOR TO 2008-09 IS REQUIRED TO BE MADE ON SO ME REASONABLE BASIS. IN THIS REGARD, IT IS OBSERVED THAT A SIMILAR ISSUE WAS INVOLVED IN GROUND NO. 10 OF THE ASSESSEES APPEAL FOR A.Y. 2005-06 AN D WHILE DECIDING THE SAME, WE HAVE ALREADY HELD THAT THE DISALLOWANCE OF FERED BY THE ASSESSEE UNDER SECTION 14A BEING MORE THAN 1% OF THE EXEMPT INCOME, IS FAIR AND REASONABLE. FOLLOWING OUR CONCLUSION DRAWN IN A.Y. 2005-06, WE HOLD THAT I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 19 OF 20 DISALLOWANCE OF RS.87.38 LAKHS OFFERED BY THE ASSES SEE UNDER SECTION 14A IN A.Y. 2006-07 BEING MORE THAN 1% OF THE EXEMPT IN COME, IS FAIR AND REASONABLE AND DELETE THE FURTHER DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON TH IS ISSUE. GROUNDS NO. 5 & 6 OF THE ASSESSEES APPEAL FOR A.Y. 2006-07 ARE A CCORDINGLY ALLOWED. 31. AS REGARDS GROUNDS NO. 7 & 8 OF THE ASSESSEES APPEAL FOR A.Y. 2006- 07 AS WELL AS THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE, IT IS OBSERVED THAT THE ISSUES INVOLVED THEREIN RELATING TO THE AD DITIONS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPE ALS) WHILE COMPUTING THE BOOK PROFIT OF THE ASSESSEE UNDER SECTION 115JB ARE SIMILAR TO THE ISSUES INVOLVED IN GROUNDS NO. 6 TO 9 AS WELL AS AD DITIONAL GROUNDS INVOLVED IN THE APPEAL OF THE ASSESSEE FOR A.Y. 200 5-06, WHICH HAVE ALREADY BEEN DECIDED BY US IN THE FOREGOING PORTIO N OF THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN A.Y. 2005-06, WE HOLD THAT THE PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE IN T HE CASE OF THE ASSESSEE- BANK AND ACCORDINGLY ALLOW THESE GROUNDS OF THE ASS ESSEES APPEAL FOR A.Y. 2006-07. 32. IN THE RESULT, THE ASSESSEES APPEALS FOR A.Y. 2005-06 AND 2006-07 ARE PARTLY ALLOWED AND THE REVENUES APPEAL FOR A.Y . 2005-06 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 16, 201 6. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 16 TH DAY OF MARCH, 2016 I.T.A. NOS. 2175 & 2176/KOL./2009 ASSESSMENT YEAR: 2005-2006 & 2006-2007 & I.T.A. NO. 2070/KOL/2009 ASSESSMENT YEAR: 2005-2006 PAGE 20 OF 20 COPIES TO : (1) ALLAHABAD BANK, KOLKATA, 2, NETAJI SUBHAS ROAD, KOLKATA-700 001 (2) ADDITIONAL /DEPUTY COMMISSIONER OF INCOME TAX, RANGE-6, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) COMMISSIONER OF INCOME-TAX (APPEALS)-VI, KOLKA TA (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.