DCIT, Trichy V. The Karur Vysya Bank Ltd., Karur

ITA 2433/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7390 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 22-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: S ANANTHAN CA MS R LALITHA
• Keywords: Capital asset; Business income; Earning of tax free income; Period of limitation; Bad and doubtful debts; Time period of passing order; Revised return
• Section: 14A; 37; 56; 28

Judgement Text

, , [ : ] IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI [ CAMP: MADURAI ] . . . , ! ' # $% .'('), + ' , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER #./ ITA NOS.2325 & 2326/MDS/2016 ! ) .) / ASSESSMENT YEARS : 2010-11 & 2011-12 THE KARUR VYSYA BANK LTD., ERODE ROAD, KARUR 639 001. PAN : AAACT 3373 J V. THE JOINT COMMISSIONER OF INCOME TAX, RANGE I, TIRUCHIRAPALLI. (01/ APPELLANT) (2301/ RESPONDENT) #./ ITA NOS.2433 & 2649/MDS/2016 ! ) .) / ASSESSMENT YEARS : 2010-11 & 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1), TRICHY 620 001. V. THE KARUR VYSYA BANK LTD., ERODE ROAD, KARUR 639 002. (01/ APPELLANT) (2301/ RESPONDENT) ! )45 6 7 /ASSESSEE BY : SHRI S. ANANTHAN, CA MS. R. LALITHA, CA '' 6 7 /REVENUE BY : SH. PATHLAVATH PEERYA, CIT 6 5+ / DATE OF HEARING : 15.02.2017 89. 6 5+ / DATE OF PRONOUNCEMENT : 29.03.2017 2 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER: APPEALS AND CROSS-APPEALS OF THE ASSESSEE AND REV ENUE FOR ASSESSMENT YEAR 2010-11 ARE TAKEN UP FIRST FOR DISP OSAL. 2. ASSESSEE HAS TAKEN FOUR GROUNDS OF WHICH, GROUND NO.1 IS GENERAL NEEDS NO SPECIFIC ADJUDICATION. 3. VIDE ITS GROUND NO.2, GRIEVANCE RAISED BY THE AS SESSEE IS THAT DISALLOWANCE OF ` 5,46,512/- MADE UNDER SECTION 14A OF THE INCOME- TAX ACT, 1961 (IN SHORT 'THE ACT') BY THE ASSESSING OFFICER WAS ENHANCED BY THE LD. CIT(APPEALS) TO ` 51,85,950/-. 4. FACTS APROPOS ARE THAT THE ASSESSEE, A SCHEDULED BANK, HAD FILED ITS RETURN FOR IMPUGNED ASSESSMENT YEAR DECLA RING INCOME OF ` 278,96,90,410/-. IN THE COURSE OF ASSESSMENT PROCE EDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD CLAIMED DIVIDEND INCOME AS WELL AS CERTAIN INTEREST INCOME AS EXEMPT FROM TAX. CLAIM OF THE ASSESSEE WAS THAT NO EXPENDITURE WAS I NCURRED FOR THE AMOUNT INVESTED IN SECURITIES, SHARES AND MUTUAL FU NDS WHICH GAVE RISE TO SUCH INCOME. THE ASSESSING OFFICER HELD TH AT THIS WAS NOT 3 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 ACCEPTABLE. HE APPLIED SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME-TAX RULES, 1962. HOWEVER, THE DISALLOWANCE WAS RESTRICTED TO 2% OF SUCH INCOME. SUCH DISALLOWANCE CAME TO ` 5,46,512/-. 5. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE C IT(APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT INVESTMENTS MADE WERE A PART OF ITS TREASURY OPERATIONS. AS PER THE ASSESSEE, THE EXPENDITURE RELATING TO TREASURY DEPARTMENT WAS A NECESSARY COROLLARY TO THE BANKING OPERATIONS. CLAIM OF THE ASSESSEE WAS THAT FOR THE PURPOSE OF INCOME- TAX, ENTIRE PORTFOLIO OF INVESTMENTS, INCLUDING THE TAX-FREE SECURITIES, WERE TREATED AS STOCK-IN-TRADE. AS PER THE ASSESSE E, SINCE THE INVESTMENTS WERE PART OF STOCK-IN-TRADE, DISALLOWAN CE UNDER SECTION 14A OF THE ACT COULD NOT BE MADE. HOWEVER, LD. CIT (APPEALS) WAS NOT IMPRESSED BY THE ABOVE ARGUMENT. ACCORDING TO HIM, ASSESSEE HAD RECEIVED TAX-FREE DIVIDEND OF ` 1,66,21,733/- ON SHARES WORTH ` 82.72 CRORES AND DIVIDEND OF ` 41,07,03,886/- ON MUTUAL FUNDS UNITS OF ` 573.44 CRORES. AS PER LD. CIT(APPEALS), ASSESSEE I TSELF HAD ADMITTED USING ITS TREASURY DEPARTMENT FOR INVESTME NT RELATED MATTERS. THE TREASURY DEPARTMENT, AS PER LD. CIT(APPEALS), I NCURRED EXPENDITURE OF ` 1,88,06,390/- DURING THE RELEVANT PREVIOUS YEAR. A S 4 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 PER LD. CIT(APPEALS), PROPORTION OF INVESTMENTS IN SHARES AND MUTUAL FUNDS CAME TO 1.47% OF TOTAL INVESTMENTS. LD. CIT( APPEALS) WAS OF THE OPINION THAT SAME PERCENTAGE HAD TO BE APPLIED ON THE EXPENDITURE INCURRED IN TREASURY DEPARTMENT, FOR THE PURPOSE O F CALCULATING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. AS PER LD. CIT(APPEALS), THE A.O. FELL IN ERROR IN WORKING OUT THE DISALLOWA NCE AT 2% OF EXEMPT INCOME, WHEN RULE 8D WAS APPLICABLE FOR IMPUGNED AS SESSMENT YEAR. LD. CIT(APPEALS), THEREFORE, CHOSE TO APPLY RULE 8D (2)(III) AND MADE DISALLOWANCE AT HALF PERCENT OF AVERAGE VALUE OF IN VESTMENT. HE DID NOT ACCEPT THE CLAIM OF THE ASSESSEE THAT INVESTMEN TS WERE HELD FOR THE PURPOSE OF STOCK-IN-TRADE AND THEREFORE, DISALL OWANCE UNDER SECTION 14A OF THE ACT WAS NOT REQUIRED. ACCORDING TO THE LD. CIT(APPEALS), RULE 8D DID NOT MAKE ANY DIFFERENTIAT ION BETWEEN SHARES/UNITS HELD AS STOCK-IN-TRADE AND INVESTMENTS . AS PER LD. CIT(APPEALS), ACTUAL DISALLOWANCE BY APPLYING RULE 8D(2)(III) OF INCOME-TAX RULES, 1962 WOULD COME TO ` 51,85,950/- AND NOT ` 5,46,512/- AS WORKED BY THE ASSESSING OFFICER. HE, THEREFORE, ENHANCED THE DISALLOWANCE TO ` 51,85,950/-. 5 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 6. NOW BEFORE US, THE LD. A.R. FOR THE ASSESSEE SUB MITTED THAT INVESTMENTS HELD BY A SCHEDULED BANK, WHATEVER MAY BE THE CAPTION UNDER WHICH IT WAS CLASSIFIED IN THE BALANCE SHEET, OUGHT TO BE CONSIDERED ONLY AS STOCK-IN-TRADE. RELYING ON CIRC ULAR NO.18 DATED 02.11.2015 OF CBDT, LD. AR SUBMITTED THAT INVESTMEN T MADE BY BANKING COMPANY WAS PART OF ITS BUSINESS AS BANKING AND INCOME ARISING FROM SUCH INVESTMENT WOULD FALL ONLY UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. RELYING ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PRINCIPAL CIT V. STATE BANK OF PATIALA [2017(2)TMI 125], LD. A.R. SUBMITTED THAT I NVESTMENTS DONE IN THE COURSE OF A BUSINESS OF BANKING FELL UNDER STOC K-IN-TRADE. THUS ACCORDING TO LD. A.R., THERE WAS NO NEED FOR DISALL OWANCE UNDER SECTION 14A OF THE ACT. 7. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBM ITTED THAT ASSESSEE WAS EMPLOYING ITS TREASURY DEPARTMENT FOR MAKING INVESTMENTS AND FOR TAKING DECISIONS WITH REGARD TO INVESTMENTS, WHICH WOULD YIELD IN TAX-FREE INCOME. ACCORDING TO HIM, ASSESSEE HAD CLASSIFIED THE SHARES UNDER THE HEAD INVESTMENTS AND NOT STOCK-IN- TRADE IN ITS BALANCE SHEET PREPARED IN ACCORDANCE W ITH BANKING REGULATION ACT. AS PER LD. D.R., ASSESSEE WAS CLAI MING SUCH 6 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 INVESTMENTS TO BE A PART OF STOCK-IN-TRADE FOR THE PURPOSE OF INCOME- TAX ONLY. ACCORDING TO HIM, SECTION 14A OF THE ACT CLEARLY APPLIED AND THE LD. CIT(APPEALS) CORRECTLY APPLIED RULE 8D(2)(I II). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS. CLAIM OF THE ASSESSEE IS THAT SHARES/UNITS HELD BY IT WHETHER CLASSIFIED AS INVESTMENT OR STOCK-IN-TRADE IN BALANCE SHEE T, THAT HAS TO BE CONSIDERED AS STOCK-IN-TRADE ONLY FOR TAX PURPOSE, AND SECTION 14A OF THE ACT HAD NO APPLICATION. CIRCULAR NO.18 DATED 0 2.11.2015 OF CBDT IS REPRODUCED HEREUNDER:- SUBJECT: INTEREST FROM NON-SLR SECURITIES OF BANKS REG. IT HAS BEEN BROUGHT TO THE NOTICE OF THE BOARD THA T IN THE CASE OF BANKS, FIELD OFFICERS ARE TAKING A VIEW THA T, EXPENSES RELATABLE TO INVESTMENT IN NON-SLR SECURI TIES NEED TO BE DISALLOWED U/S 57(I) OF THE ACT AS INTER EST ON NON-SLR SECURITIES IS INCOME FROM OTHER SOURCES. 2. CLAUSE (ID) OF SUB-SECTION (1) OF SECTION 56 OF THE ACT PROVIDES THAT INCOME BY WAY OF INTEREST ON SECU RITIES SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD I NCOME FROM OTHER SOURCES, IF, THE INCOME IS NOT CHARGEAB LE TO INCOME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUS INESS AND PROFESSION. 3. THE MATTER HAS BEEN EXAMINED IN THE LIGHT OF TH E JUDICIAL DECISIONS ON THIS ISSUE. IN THE CASE OF C IT V. NAWANSHAHAR CENTRAL COOPERATIVE BANK LTD. [2007] 16 0 TAXMAN 48(SC), THE APEX COURT HELD THAT THE INVESTM ENTS 7 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 MADE A BANKING CONCERN ARE PART OF THE BUSINESS OF BANKING. THEREFORE, THE INCOME ARISING FROM SUCH INVESTMENTS IS ATTRIBUTABLE TO THE BUSINESS OF BANKING FALLING UND ER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSION . 3.2 EVEN THOUGH THE ABOVEMENTIONED DECISION WAS IN THE CONTEXT OF CO-OPERATIVE SOCIETIES/BANKS CLAIMING DE DUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT, THE PRINCIPL E IS EQUALLY APPLICABLE TO ALL BANKS/COMMERCIAL BANKS, TO WHICH BANKING REGULATION ACT, 1949 APPLIES. 4. IN THE LIGHT OF THE SUPREME COURTS DECISION IN THE MATTER, THE ISSUE IS WELL SETTLED. ACCORDINGLY, TH E BOARD HAS DECIDED THAT NO APPEALS MAY HENCEFORTH BE FILED ON THIS GROUND BY THE OFFICERS OF THE DEPARTMENT AND APPEAL S ALREADY FILED, IF ANY, ON THIS GROUND BEFORE COURTS /TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UPON. THIS MAY BE BRO UGHT TO THE NOTICE OF ALL CONCERNED. ( EMPHASIS SUPPLIED ) CBDT ITSELF HAS ACCEPTED THE LINE OF THINKING THAT INCOME FROM INVESTMENT MADE BY A BANKING CONCERN IS PART OF ITS BUSINESS OF BANKING TO BE CONSIDERED UNDER THE HEAD BUSINESS A ND PROFESSION. DIRECT RESULT OF THIS VIEW IS THAT SUCH INVESTMENTS WOULD BE ONLY A PART OF STOCK-IN-TRADE. IN OUR OPINION, HOW THE ASSESSE E HAS TREATED THE SHARES AND MUTUAL FUNDS IN ITS BALANCE SHEET PREPAR ED UNDER BANKING REGULATION ACT MAY NOT BE RELEVANT WHEN THE INCOME THEREFROM IS TREATED AS A PART OF BUSINESS PROFIT AND NOT UNDER THE HEAD OF INCOME FROM OTHER SOURCES. THERE IS NO CASE FOR THE REVE NUE THAT ASSESSEE WAS HOLDING THESE INVESTMENTS SOLELY FOR THE PURPOS E OF EARNING 8 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 DIVIDEND. AT PARA 17 OF ITS JUDGMENT IN THE CASE OF STATE BANK OF PATIALA (SUPRA), HON'BLE PUNJAB & HARYANA HIGH COUR T HELD AS UNDER:- 17. UNDER SECTION 14A, AN EXPENDITURE CAN BE DISALL OWED ONLY IF IT IS INCURRED BY THE ASSESSEE IN RELATION TO INCOME EXEMPT FROM TAX. THE DIVIDEND OR INTEREST FROM THE ASSESSEES STOCK-IN-TRADE I.E. THE SECURITIES WAS E XEMPT FROM TAX IN VIEW OF SECTIONS 10(15)(IV)(H),(34) AND (35). THIS WAS INCIDENTAL TO ITS BUSINESS OF BANKING. THE BUS INESS INCOME ON ACCOUNT OF THE ASSESSEE TRADING IN THE SE CURITIES IS ASSESSABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE EXPENDITURE INCURRED IN RELATI ON TO STOCK-IN-TRADE ARISING AS A RESULT OF INVESTMENT IN SHARES AND DEBENTURES IS DEDUCTIBLE UNDER SECTIONS 28 TO 3 7. 9. ONCE HOLDING OF INVESTMENT WAS CONSIDERED INCIDE NTAL TO THE BUSINESS OF BANKING TO THE ASSESSEE, IN OUR OPINION , SECTION 14A OF THE ACT COULD NOT HAVE BEEN APPLIED. PARA 26 OF TH E VERY SAME JUDGMENT IS ALSO RELEVANT AND IT IS REPRODUCED HERE UNDER:- 26. WHAT IS OF VITAL IMPORTANCE IN THE ABOVE JUDGME NT ARE THE OBSERVATIONS EMPHASIZED BY US. EACH OF THEM EX PRESSLY STATES THAT WHAT IS DISALLOWED IS EXPENDITURE INCUR RED TO EARN EXEMPT INCOME. THE WORDS IN RELATION TO I N SECTION 14A MUST BE CONSTRUED ACCORDINGLY. THUS, THE WORDS IN RELATION TO APPLY TO EARNING EXEMPT INCOME. THE I MPORTANCE OF THE OBSERVATION IS THIS. WE HAVE HELD THAT THE SECURITIES IN QUESTION CONSTITUTED THE ASSESSEES STOCK-IN-TRADE AND THE I NCOME THAT ARISES ON ACCOUNT OF THE PURCHASE AND SALE OF THE SECURITIES IS ITS BUSINESS INCOME AND IS BROUGHT TO TAX AS SUCH. THAT INCOME IS NOT EXEMPT FROM TAX AND, THER EFORE, 9 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 THE EXPENDITURE INCURRED IN RELATION THERETO DOES N OT FALL WITHIN THE AMBIT OF SECTION 14A. NOW, THE DIVIDEND AND INTEREST ARE INCOME. THE QUESTION THEN IS WHETHER THE ASSESSEE CAN BE SAID T O HAVE INCURRED ANY EXPENDITURE AT ALL OR ANY PART OF THE SAID EXPENDITURE IN RESPECT OF THE EXEMPT INCOME VIZ. DI VIDEND AND INTEREST THAT AROSE OUT OF THE SECURITIES THAT CONSTITUTED THE ASSESSEES STOCK-IN-TRADE. THE ANS WER MUST BE IN THE NEGATIVE. THE PURPOSE OF THE PURCHASE OF THE SAID SECURITIES WAS NOT TO EARN INCOME ARISING THEREFROM , NAMELY, DIVIDEND AND INTEREST, BUT TO EARN PROFITS FROM TRA DING IN I.E. PURCHASING AND SELLING THE SAME. IT IS AXIOMATIC, THEREFORE, THAT THE ENTIRE EXPENDITURE INCLUDING ADMINISTRATIV E COSTS WAS INCURRED FOR THE PURCHASE AND SALE OF THE STOCK -IN- TRADE AND, THEREFORE, TOWARDS EARNING THE BUSINESS INCOME FROM THE TRADING ACTIVITY OF PURCHASING AND SELLING THE SECURITIES. IRRESPECTIVE OF WHETHER THE SECURITIES YIELDED ANY INCOME ARISING THEREFROM, SUCH AS, DIVIDEND OR INTEREST, NO EXPENDITURE WAS INCURRED IN RELATION TO THE SAME . WE ARE, THEREFORE, OF THE OPINION THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT COULD NOT HAVE BEEN MADE IN THE ASSESSEE S CASE FOR INVESTMENTS WHICH WERE CONSIDERED AS PART OF STOCK- IN-TRADE FOR TAX PURPOSES. SUCH DISALLOWANCE THEREFORE STANDS DELET ED. 10. GROUND NO.2 OF THE ASSESSEE STANDS ALLOWED. 11. VIDE ITS GROUND NO.3, GRIEVANCE OF THE ASSESSEE IS THAT ONE OF ITS GROUNDS REGARDING METHOD OF CALCULATION OF AGGR EGATE AVERAGE 10 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 RURAL ADVANCES FOR THE PURPOSE OF APPLICATION OF SE CTION 36(1)(VIIA) WAS NOT ADJUDICATED BY THE LD. CIT(APPEALS). 12. ASSESSEE HAD MADE A PROVISION OF ` 76,84,72,154/- IN ITS BOOKS TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS AND CLA IMED IT AS DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT. THIS WAS ARR IVED AT BY THE ASSESSEE AS PER FOLLOWING WORKING: 7.5% OF THE PROFITS BEFORE ALLOWING DEDUCTION UNDER CHAPTER VI-A ` 24,09,20,273 10% OF AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES (AS PER RULE 6ABA) ` 52,75,51,880 TOTAL ` 76,84,72,154 13. HOWEVER, ASSESSING OFFICER RESTRICTED THE CLAIM TO ` 24,48,02,775/- BEING THE ACTUAL PROVISION MADE FOR BAD AND DOUBTFUL DEBTS IN ITS PROFIT & LOSS ACCOUNT. WORK OUT GIVEN BY THE ASSESSING OFFICER READ AS UNDER:- (A) AGGREGATE AVERAGE RURAL ADVANCES DURING THE YEAR 18,45,11,366/ - (B) DEDUCTION ALLOWABLE ON AGGREGATE RURAL ADVANCES [@ 10% OF (B)] 1,84,51,137/ - (C) 7.5% OF GROSS TOTAL INCOME BEFORE DEDUCTION UNDER CHAPTER VIA 26,39,18,480/- (D) TOTAL OF (B) AND (A) 28,23,69,617/ - (E) PROVISION MADE FOR BAD AND DOUBTFUL DEBTS BY THE BANK 24,48,02,775/ - 11 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 (F) LEAST OF (D) OR (E) ALLOWABLE AS DEDUCTION U/S 36(1)(VIIA) 24,48,02,775/ - 14. AGGRIEVED, THE ASSESSEE MOVED IN APPEAL BEFORE THE CIT(APPEALS). LD. CIT(APPEALS) WAS OF THE OPINION THAT THE ACTUAL AMOUNT OF DEDUCTION COMPUTED BY THE ASSESSEE AS WEL L AS THE ASSESSING OFFICER WAS VERY SAME. AS PER THE LD. CI T(APPEALS), THE GROUND WAS PURELY ACADEMIC, SINCE, ACCORDING TO HIM , FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSING OFFICER THO UGH HE FOLLOWED A DIFFERENT METHOD OF COMPUTATION, IT DID NOT EFFEC T THE TAXABLE INCOME OF THE ASSESSEE. 15. BEFORE US, LD. A.R. FOR THE ASSESSEE SUBMITTED THAT WHETHER OR NOT TAXABLE INCOME OF THE ASSESSEE WAS DISTURBED, L D. CIT(APPEALS) WAS OBLIGED TO GIVE A SPECIFIC FINDING ON THE GROUN D RAISED BY THE ASSESSEE. AS PER LD. A.R., THE ISSUE WAS REQUIRED TO BE REMITTED BACK TO THE LD. CIT(APPEALS) TO BE ADJUDICATED ON MERITS . 16. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE CIT(APPEALS). 12 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS. ASSESSEE HAD RAISED GROUND NO.10 BEFORE THE LD. CIT (APPEALS) WHICH READS AS UNDER:- 10. THE LEARNED ASSESSING OFFICER ERRED IN CALCULAT ING THE AVERAGE RURAL ADVANCES FOR THE PURPOSE OF DEDUCTION U/S 36(1)(VIIA) OF THE INCOME-TAX ACT, 1961. 10.1. THE LEARNED ASSESSING OFFICER ERRED IN CONSI DERING THE INCREMENTAL ADVANCES FOR CALCULATING THE AGGREGATE AVERAGE RURAL ADVANCES AS PER THE PROVISIONS OF RULE 6ABA F OR THE PURPOSE OF ARRIVING AT THE DEDUCTION U/S 36(1)(VIIA ). 10.2. THE LEARNED ASSESSING OFFICER FAILED TO APPR ECIATE THE FACT THAT THE RULE 6ABA DOES NOT PRESCRIBE ONLY INC REMENTAL ADVANCES ARE TO BE CONSIDERED FOR ARRIVING AT THE A GGREGATE AVERAGE ADVANCES. 18. IN OUR OPINION, IRRESPECTIVE OF THE FACT WHETHE R COMPUTATION MADE BY THE ASSESSING OFFICER IS HAVING AN EFFECT O N THE TAXABLE INCOME OF THE ASSESSEE, LD. CIT(APPEALS) OUGHT TO H AVE DECIDED THE GROUND RAISED BY THE ASSESSEE ON MERITS. WE ARE, T HEREFORE, OF THE OPINION THAT GROUND NO.10 RAISED BEFORE THE LD. CIT (APPEALS) NEEDS TO BE ADJUDICATED BY HIM. WE, THEREFORE, SET ASIDE TH E ORDER OF THE CIT(APPEALS) AND REMIT THE ISSUE BACK TO THE FILE O F THE LD. CIT(APPEALS) FOR CONSIDERATION IN ACCORDANCE WITH L AW. GROUND NO.3 IS ALLOWED FOR STATISTICAL PURPOSES. 13 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 19. VIDE ITS GROUND NO.4, GRIEVANCE RAISED BY THE A SSESSEE IS THAT CLAIM OF ` 20 CRORES MADE BY THE ASSESSEE UNDER SECTION 36(1)( VIII) OF THE ACT WAS NOT ALLOWED BY THE A.O. 20. ASSESSEE HAD CLAIMED A DEDUCTION OF ` 9,17,03,880/- UNDER SECTION 36(1)(VIII) OF THE ACT, WHICH WAS LATER REV ISED TO ` 9,99,93,927/-. THE ASSESSING OFFICER DID NOT ACCEPT THE REVISED CL AIM MADE THROUGH LETTER DATED 19.12.2011 SINCE THE ASSESSEE DID NOT FILE A REVISED RETURN. RELIANCE WAS PLACED ON THE JUDGMENT OF HON 'BLE APEX COURT IN GOETZE (INDIA) LTD. V. CIT (284 ITR 323). AS PER T HE LD. A.O., THE CALCULATION ADOPTED BY THE ASSESSEE IN THE ORIGINAL CLAIM WAS FOR ` 16,25,20,366/- WHEREAS ONLY ` 13,22,62,398/- WAS ALLOWABLE. 21. IN ITS APPEAL BEFORE THE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT IT WAS ELIGIBLE FOR A CLAIM OF ` 20,00,00,000/-. ASSESSING OFFICER HAD REDUCED THE CLAIM BY NOT ACCE PTING THE DEDUCTION OF NON-CASH EXPENDITURE. AS PER THE ASSE SSEE, IT HAD CREATED A SPECIAL RESERVE OF ` 20 CRORES AND WAS ELIGIBLE FOR DEDUCTION OF ` 20 CRORES UNDER SECTION 36(1)(VIII) OF THE ACT. LD . CIT(APPEALS) WAS OF THE OPINION THAT THE ENHANCED CLAIM COULD NO T BE ALLOWED IN AN 14 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 APPELLATE PROCEEDING. AS PER LD. CIT(APPEALS), ASS ESSEE HAD NOT PLACED BEFORE THE ASSESSING OFFICER THE RE-WORKED C OMPUTATION OF PROFITS FROM ELIGIBLE BUSINESS. RELYING ON JUDGMEN T OF APEX COURT IN THE CASE OF JUTE CORPORATION OF INDIA V. CIT (1991) 187 ITR 688, LD. CIT(APPEALS) HELD THAT ONLY A BONAFIDE GROUND, WHIC H COULD NOT BE RAISED EARLIER FOR GOOD REASONS, COULD BE CONSIDERE D IN AN APPELLATE PROCEEDING. RELYING ON THE JUDGMENT OF APEX COURT IN NATIONAL THERMAL POWER COMPANY LTD. V. CIT (229 ITR 383), LD . CIT(APPEALS) REJECTED THE CLAIM FOR ENHANCED DEDUCTION UNDER SEC TION 36(1)(VIII) OF THE ACT. 22. NOW BEFORE US, THE LD. AR FOR THE ASSESSEE SUBM ITTED THAT HON'BLE APEX COURTS JUDGMENT IN NATIONAL THERMAL P OWER COMPANY LTD. (SUPRA) ACTUALLY WENT IN FAVOUR OF ASSESSEE. A CCORDING TO HIM, NOTHING STOPPED THE APPELLATE AUTHORITIES FROM CONS IDERING A FRESH GROUND RAISED BY THE ASSESSEE, IF IT WAS WITHIN THE FOUR CORNERS OF LAW. RELIANCE WAS ALSO PLACED ON THE DECISION OF BANGALO RE BENCH OF THE TRIBUNAL IN THE CASE OF JCIT V. VIJAYA BANK IN I.T. A. NO.578/BANG/2012 DATED 27.02.2015. 23. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUB MITTED THAT REASON FOR REVISING THE COMPUTATION WAS NEVER PLACE D BY THE ASSESSEE 15 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 BEFORE THE LOWER AUTHORITIES. THEREFORE, ACCORDING TO HIM, CIT(APPEALS) WAS JUSTIFIED IN NOT CONSIDERING THE E NHANCED CLAIM UNDER SECTION 36(1)(VIII) OF THE ACT. 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS. IT MAY BE TRUE THAT THE ASSESSEE HAD MADE A CLAIM OF ` 20 CRORES UNDER SECTION 36(1)(VIII) OF THE ACT FOR THE FIRST TIME B EFORE THE LD. CIT(APPEALS). ASSESSEE HAD SPECIFICALLY STATED THA T IT HAD CREATED A SPECIAL RESERVE WHICH MADE IT ELIGIBLE FOR SUCH CLA IM. ASSESSEE HAD FOR STAKING SUCH CLAIM ADOPTED A METHOD OF COMPUTAT ION WHICH WAS DIFFERENT FROM THE ONE WHICH IT HAD ADOPTED IN ITS ORIGINAL RETURN OF INCOME. WE ARE OF THE OPINION THAT ASSESSEE CANNOT BE STOPPED FROM MAKING AN ENHANCED CLAIM OF DEDUCTION. IT IS NOT A CASE WHERE THE ASSESSEE HAD NOT MADE ANY CLAIM UNDER SECTION 36(1) (VIII) OF THE ACT IN ITS ORIGINAL RETURN. IN OTHER WORDS, IT IS NOT A FRESH CLAIM ALTOGETHER. IT HAD ONLY REVISED ITS CLAIM BASED ON FRESH METHOD OF COMPUTATION WHICH WAS NOT EARLIER ADOPTED BY IT. IN OUR OPINION, THE LOWER AUTHORITIES OUGHT HAVE VERIFIED WHETHER THE METHOD OF COMPUTATI ON ADOPTED BY THE ASSESSEE FOR THE ENHANCED CLAIM WAS ACCEPTABLE UNDE R LAW. WE ARE OF THE OPINION THAT BY VIRTUE OF JUDGMENT OF HON'BL E APEX COURT IN THE CASE OF NATIONAL THERMAL POWER CORPORATION LTD. (SU PRA), ASSESSEE 16 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 COULD MAKE SUCH A CLAIM BEFORE LD. CIT(APPEALS). C ONSIDERING THE FACTS OF THE CASE WE ARE, THEREFORE, OF THE OPINION THAT THE MATTER REQUIRES A FRESH CONSIDERATION BY THE A.O. WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMIT THE ISSUE REGARDING DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT BACK TO THE FILE OF THE A.O. FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 25. GROUND NO.4 OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. 26. NOW, WE TAKE UP THE CROSS-APPEAL OF THE REVENUE . 27. REVENUE HAS RAISED 15 GROUNDS. GROUND NO.1 AND 15 ARE GENERAL NEEDING NO ADJUDICATION. 28. VIDE ITS GROUNDS NUMBERED 2 TO 5, GRIEVANCE RAI SED BY THE REVENUE IS ON AN ADDITION MADE BY THE ASSESSING OFF ICER FOR STALE DRAFT ACCOUNT WHICH WAS DELETED BY THE LD. CIT(APPE ALS). 29. FACTS APROPOS ARE THAT BALANCE SHEET OF THE ASS ESSEE FOR RELEVANT PREVIOUS YEAR DISCLOSED OUTSTANDING LIABIL ITY OF ` 8,82,15,584/- TOWARDS STALE DRAFT ACCOUNT. THE ABOVE SUM REPRESE NTED UNCLAIMED MONEY ON DEMAND DRAFTS, WHICH WERE ISSUED MORE THAN THREE YEARS 17 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 EARLIER. AS PER THE A.O., LEGALLY, SUCH MONEY WHIC H REMAINED UNCLAIMED FOR MORE THAN THREE YEARS COULD NO MORE B E CLAIMED BY THE CREDITOR, SINCE LIMITATION PERIOD KICKED IN. HE TR EATED THE SUM AS INCOME OF THE ASSESSEE, BUT, RESTRICTED THAT ADDITI ON TO ` 2,68,97,833/- BEING THE ACCRETION RELATABLE TO THE RELEVANT PREVI OUS YEAR. RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF CIT V. T.V. SUNDARAM IYENGAR & SONS (222 ITR 344). 30. CHALLENGING THE ABOVE, ASSESSEE MOVED IN APPEAL BEFORE THE CIT(APPEALS). AS PER THE ASSESSEE, CONSIDERATION F OR ISSUING BANK DEMAND DRAFT, ETC. WERE RECOVERED BY THE ASSESSEE F ROM VARIOUS PERSONS. ACCORDING TO IT, THERE WAS NO TIME LIMIT FOR CLAIMING THE MONEY BY THE PERSONS WHO HAD PAID FOR THESE INSTRUM ENTS, IF IT WAS NOT ENCASHED BY THE BENEFICIARY. AS PER THE ASSESSEE, WHEN THEY WERE NOT CLAIMED BY THE BENEFICIARY IN WHOSE FAVOUR THE INSTRUMENTS WERE ISSUED, IT WOULD BE TRANSFERRED TO STALE DRAFT ACCO UNT. IF THE BENEFICIARIES CAME EVEN AFTER THREE YEARS, ENCASHME NT WAS ALLOWED AFTER REVALIDATION. CONTENTION OF THE ASSESSEE WAS THAT IT WAS HOLDING IT AS ONLY AS A TRUSTEE AND COULD NEVER TREAT IT AS ITS OWN MONEY. LD. CIT(APPEALS) WAS APPRECIATIVE OF THIS CONTENTION. ACCORDING TO HIM, THE FACTS IN THE CASE OF T.V. SUNDARAM IYENGAR & SO NS (SUPRA) RELIED 18 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 ON BY THE LD. ASSESSING OFFICER DID NOT FIT WITH TH AT OF THE ASSESSEE. AS PER THE LD. CIT(APPEALS), THE DRAFTS REMAINING U NCLAIMED DID NOT MEAN THAT THERE WAS CESSATION OF LIABILITY ON THE A SSESSEE. LD. CIT(APPEALS) ACCEPTED THE CONTENTION OF THE ASSESSE E THAT IT WAS HOLDING THE STALE DRAFTS AS A TRUSTEE IN FIDUCIARY CAPACITY ON BEHALF OF DRAWEE OF THE INSTRUMENT. RELIANCE WAS ALSO PLACED ON NOTIFICATION DATED 24.05.2014 FROM RESERVE BANK OF INDIA WHEREBY STALE DEMAND DRAFTS WHICH REMAINED UNCLAIMED FOR TEN YEARS OR MO RE HAD TO BE CREDITED BY BANKS TO A SCHEME ACCOUNT CALLED THE D EPOSITOR EDUCATION AND AWARENESS FUND SCHEME, 2014. AS PER THE LD. CIT(APPEALS), THE STALE DRAFT AMOUNTS HAD TO BE TRA NSFERRED TO THE FUND AND THEREFORE, THIS WOULD NEVER BE INCOME OF T HE ASSESSEE. HE DELETED THE ADDITION. 31. NOW BEFORE US, LD. D.R. STRONGLY ASSAILING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT THE STALE DRAFT BECAME PROPERTY OF THE ASSESSEE ONCE THREE YEARS PERIOD FOR MAKING A CLAIM WAS OVER. ACCORDING TO HIM, ASSESSING OFFICER WAS JUSTIFIED I N TREATING SUCH ACCOUNTS AS INCOME OF THE ASSESSEE. 32. PER CONTRA, THE LD. AR RELIED ON THE ORDER OF T HE CIT(APPEALS). 19 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 33. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE ORDERS. JUST BECAUSE A DRAFT REMAINED UNCLAIMED BY THE BENEFICIA RIES, IN OUR OPINION, WOULD NOT ENTITLE THE ASSESSEE TO CLAIM IT AS ITS MONEY OR PROPERTY. ASSESSEE WAS ALWAYS OBLIGED TO PAY THE A MOUNT EITHER TO THE BENEFICIARY OR THE ORIGINAL DRAWER. ASSESSEE H ELD THE MONEY ONLY AS A TRUSTEE IN FIDUCIARY CAPACITY. ONCE THE MONEY IS HELD AS TRUSTEE, THE QUESTION OF LIMITATION WILL NOT ARISE AT ALL. IN ANY CASE, RBI ITSELF HAS ISSUED A NOTIFICATION ON 24.05.2014 MANDATING THE B ANKS TO TRANSFER SUCH UNCLAIMED AMOUNTS TO DEPOSITOR EDUCATION AND AWARENESS FUND SCHEME. IN OUR OPINION, IN SUCH CIRCUMSTANCE S, LD. CIT(APPEALS) WAS JUSTIFIED IN TAKING THE VIEW THAT THE AMOUNT CANNOT BE CONSTRUED AS INCOME OF THE ASSESSEE. WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(APPEALS). 34. GROUND NOS. 2 TO 5 OF THE REVENUE STAND DISMISS ED. 35. VIDE ITS GROUND NOS.6 TO 10, GRIEVANCE RAISED B Y THE REVENUE IS THAT THE CIT(APPEALS) DELETED THE DISALLOWANCE FOR EX-GRATIA PAYMENT MADE BY THE ASSESSEE. 36. FACTS APROPOS ARE THAT ASSESSEE HAD MADE EX-GRA TIA PAYMENT OF ` 8,12,68,024/- TO ITS EMPLOYEES WHO WERE NOT COVERED UNDER 20 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 PAYMENT OF BONUS ACT, 1965. LD. A.O. HELD THAT IT WAS NOTHING BUT APPROPRIATION OF PROFITS BY SENIOR EMPLOYEES WHO HA D INCOME IN EXCESS OF ` 10,000/- PER MONTH. AS PER LD. A.O., THERE WAS NO CO- RELATION BETWEEN THE EX-GRATIA PAYMENT AND THE QUAL ITY OF WORK OF THESE EMPLOYEES. THOUGH ASSESSEE, CLAIMED SUCH PAY MENTS TO HAVE BEEN MADE FOR BUSINESS EXPEDIENCY AND TO ENSURE SMO OTH WORKING AND BETTER RELATIONSHIP WITH ITS EMPLOYEES, THIS WA S NOT ACCEPTED BY THE LD. A.O. ACCORDING TO HIM, SUCH EX-GRATIA PAYM ENT WAS NOT ALLOWABLE EITHER UNDER SECTION 36(1)(II) OR UNDER S ECTION 36(1)(V) OF THE ACT. 37. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE THE CIT(APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT THE PAYMENT OF EX -GRATIA TO EMPLOYEES WHO WERE NOT ELIGIBLE FOR BONUS UNDER PAY MENT OF BONUS ACT WAS IN RECOGNITION OF THEIR CONTRIBUTION AND AL SO AS INCENTIVE TO MOTIVATE THEM FOR BETTER PERFORMANCE. AS PER THE A SSESSEE, THERE WAS A CLEAR METHODOLOGY THROUGH WHICH THE EX-GRATIA PAY MENT WAS CALCULATED. ASSESSEE RELIED ON AN INTERNAL CIRCULA R DATED 28.05.2009 NUMBERED AS 217/2009-INF ISSUED BY ITS HUMAN RESOUR CE DEPARTMENT, IN SUPPORT. LD. CIT(APPEALS) WAS APPRE CIATIVE OF ABOVE CONTENTION. ACCORDING TO HIM, SECTION 36(1)(II) OF THE ACT WAS NOT 21 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 APPLICABLE TO EX-GRATIA PAYMENT SINCE EX-GRATIA PAY MENT WAS NEITHER BONUS NOR COMMISSION. FURTHER ACCORDING TO LD. CIT (APPEALS), THE PAYMENT MADE COULD NOT BE CONSIDERED AS APPROPRIATI ON OF PROFITS SINCE NONE OF THESE EMPLOYEES, WERE SHAREHOLDERS OF THE ASSESSEE. ACCORDING TO LD. CIT(APPEALS), THE EX-GRATIA PAYMEN T WAS DECIDED BY THE ASSESSEE IN CONSULTATION WITH EMPLOYEES UNION AND OFFICERS ASSOCIATION AND BY VIRTUE OF JUDGMENT OF HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF KUMARAN MILLS LTD. V. CIT (200 0) 241 ITR 564, THESE PAYMENTS COULD BE ALLOWED ON THE GROUND OF CO MMERCIAL EXPEDIENCY UNDER SECTION 37 OF THE ACT. HE ALLOWED THE PLEA. 38. NOW BEFORE US, LD. D.R. STRONGLY ASSAILING THE ORDER OF LD. CIT(APPEALS), SUBMITTED THAT THE EX-GRATIA PAYMENT WAS NOT BASED ON ANY PERFORMANCE APPRAISAL OF THE EMPLOYEES AND IT W AS A PURELY GRATUITOUS PAYMENT. THEREFORE, ACCORDING TO HIM, I T COULD NOT BE CONSIDERED AS AN EXPENDITURE FOR BUSINESS EXPEDIENC Y. 39. PER CONTRA, LD. A.R. SUPPORTED THE ORDER OF THE CIT(APPEALS). 40. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE ORDERS. IT IS NOT DISPUTED THAT EX-GRATIA PAYMENT WAS MADE BY THE ASSESSEE TO THE EMPLOYEES WHO WERE NOT COVERED UNDER PAYMENT OF BON US ACT FOR 22 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 PAYMENT OF BONUS. IT IS ALSO NOT DISPUTED BY THE REVENUE THAT SUCH PAYMENT WAS MADE AFTER CONSULTATION WITH UNIONS REP RESENTING THE EMPLOYEES AND OFFICERS OF THE ASSESSEE. WHETHER SU CH EX-GRATIA PAYMENTS ARE REQUIRED OR NOT WAS A BUSINESS DECISIO N. IN OUR OPINION, THE ASSESSING OFFICER COULD NOT HAVE PUT HIMSELF IN THE SHOES OF THE BUSINESSMAN AND DECIDE WHETHER EMPLOYEES CONCERNED WERE ELIGIBLE FOR SUCH EX-GRATIA PAYMENT. WHEN PART OF EMPLOYEES ALONE WERE ELIGIBLE FOR BONUS UNDER PAYMENT OF BONUS ACT, THE ASSESSEE, IN OUR OPINION, WAS JUSTIFIED IN TAKING A BUSINESS DECISIO N AS TO HOW TO TREAT THOSE EMPLOYEES WHO WERE NOT COVERED BY SUCH ENACTM ENT. ASSESSEE CANNOT BE FAULTED FOR MAKING SUCH PAYMENT SO AS TO ENSURE SMOOTH AND BETTER RELATIONSHIP WITH ITS EMPLOYEES. IN ANY CASE, WE FIND HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF KUMARAN MILLS LTD. (SUPRA) HAD HELD THAT EX-GRATIA PAYMENTS COULD NOT BE DISALLOWED IF IT WAS FOUND TO BE COMMERCIAL EXPEDIENT. THEREFORE, I N OUR OPINION, LD. CIT(APPEALS) WAS JUSTIFIED IN DISALLOWING THIS ISSU E. 41. GROUND NOS. 6 TO 10 ARE DISMISSED. 23 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 42. VIDE ITS GROUND NO.11, REVENUE IS AGGRIEVED ON DISALLOWANCE OF ENTERTAINMENT EXPENSES MADE BY THE ASSESSING OFF ICER BEING DELETED BY THE LD. CIT(APPEALS). 43. ASSESSEE HAD CLAIMED A DEDUCTION OF ` 56,45,550/- AS ENTERTAINMENT EXPENDITURE. IT WAS CLARIFIED BY THE ASSESSEE THAT THE AMOUNT HAS BEEN SPENT IN SUPPLYING OF TEA, COFFEE, ETC. TO THE CUSTOMERS. CONTENTION WAS THAT IT WAS INCURRED WHO LLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS. AS PER THE ASSESS EE, THOUGH SECTION 37(2) WAS REMOVED FROM THE ACT, IT DID NOT MEAN THA T EXPENDITURE INCURRED FOR PROMOTING BUSINESS WAS REQUIRED TO BE DISALLOWED. HOWEVER, ASSESSING OFFICER WAS OF THE OPINION THAT THE CLAIM THOUGH ALLOWABLE, THE TYPE OF VOUCHERS MAINTAINED BY THE A SSESSEE AND THE NATURE OF EXPENDITURE DID NOT DEMONSTRATE HOW IT WA S WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HE MADE A DISALLOWANCE OF 5%. 44. AGGRIEVED, THE ASSESSEE MOVED BEFORE THE CIT(AP PEALS). THE CIT(APPEALS) WAS OF THE OPINION THAT THE DISALLOWAN CE WAS NOT WARRANTED SINCE THE EXPENDITURE INCURRED BY THE ASS ESSEE WAS PURELY 24 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 FOR BUSINESS PURPOSE AND WAS NOT OF PERSONAL OR CAP ITAL NATURE. HE, THEREFORE, DELETED THE ADDITION. 45. NOW BEFORE US, LD. D.R. STRONGLY ASSAILING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT 5% ALONE WAS DISALLOWE D SINCE ASSESSEE COULD NOT PROVE THE BUSINESS PURPOSE FOR INCURRING SUCH EXPENDITURE. 46. PER CONTRA, LD. A.R. SUBMITTED THAT THE WHOLE O F THE LEDGER WHICH GAVE BREAK-UP OF EXPENDITURE AND NATURE OF EX PENDITURE WAS PLACED BEFORE THE LOWER AUTHORITIES. ACCORDING TO HIM, THERE WAS NO REASON FOR MAKING AN AD-HOC DISALLOWANCE OF 5%. 47. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE ORDERS. IT IS NOT DISPUTED THAT THE CLAIM OF ENTERTAINMENT EXPEND ITURE WAS IN RELATION TO CUSTOMERS OF THE ASSESSEE-BANK. THERE IS NO GRO UND FOR THE REVENUE THAT ENTERTAINMENT EXPENDITURE WAS INCURRED BY THE EMPLOYEES OF THE ASSESSEE FOR THEIR OWN BENEFIT. I N THE NATURE OF BUSINESS OF THE ASSESSEE, WE CANNOT SAY THAT THE EN TERTAINMENT EXPENDITURE CLAIMED BY THE ASSESSEE WAS NOT REQUIRE D TO BE INCURRED. IN ANY CASE, THERE IS NO REASON WHY AN AD-HOC DISAL LOWANCE OF 5% WAS MADE. IF THE ASSESSING OFFICER WAS OF THE OPINION THAT ANY EXPENDITURE WAS NOT VOUCHED, HE COULD HAVE MADE DISALLOWANCE FO R SUCH 25 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 EXPENDITURE. IN OUR OPINION, THE CIT(APPEALS) WAS JUSTIFIED IN DELETING 5% DISALLOWANCE MADE BY THE ASSESSING OFFICER. WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(APPEALS ). 48. GROUND NO.11 STANDS DISMISSED. 49. VIDE ITS GROUND NOS.12 TO 14, GRIEVANCE RAISED BY THE REVENUE IS THAT ADDITION MADE FOR INTEREST ACCRUED ON NPAS WAS DELETED BY THE LD. CIT(APPEALS). 50. FACTS APROPOS ARE THAT ASSESSEE WAS MANDATED BY RBI GUIDELINES TO MAINTAIN THEIR BOOKS ON ACCRUAL BASIS . AS PER A.O., RULE 6EA, WHICH WAS FRAMED IN ACCORDANCE WITH SECTION 43 D OF THE ACT, PRESCRIBED THE CATEGORIES OF BAD AND DOUBTFUL DEBTS IN RELATION TO WHICH AND THE EXTENT TO WHICH INTEREST HAD TO BE RECOGNIZ ED. ACCORDING TO HIM, IF NO INTEREST WAS BEING PAID BY A BORROWER FO R SIX MONTHS, THEN SUCH STICKY ACCOUNTS HAD TO BE TREATED AS BAD AND D OUBTFUL DEBTS OR IN OTHER WORDS, NON-PERFORMING ASSET. LD. A.O. NOTED THAT RBI HAD LOWERED THE LIMIT FOR RECOGNIZING AN ACCOUNT AS NPA FROM 180 DAYS TO 90 DAYS. HOWEVER, AS PER THE LD. A.O., THERE WAS N O SUCH CHANGE EITHER IN SECTION 43D OR RULE 6EA. AS PER THE A.O. , INTEREST WAS REQUIRED TO BE OFFERED FOR TAXATION ON ACCRUAL BASI S ON ALL NPAS WHICH 26 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 WERE MORE THAN 90 DAYS OLD BUT WERE LESS THAN 180 D AYS OLD AS WELL. LD. A.O. DEMARCATED THE ADDITIONS TO THE LIST OF NP AS MADE IN THE LAST QUARTER OF RELEVANT PREVIOUS YEAR SINCE THESE FELL UNDER THE CATEGORY OF ACCOUNTS WHICH WERE MORE THAN 90 DAYS OLD BUT LESS THAN 180 DAYS. HE COMPUTED AN ACCRUED INTEREST OF ` 74,60,000/- ON SUCH ACCOUNTS HAVING BALANCE OF ` 59.68 CRORES, APPLYING AVERAGE INTEREST RATE OF 10% PER ANNUM. AN ADDITION OF ` 74,60,000/- WAS MADE. 51. IN ITS APPEAL BEFORE THE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT THERE WERE VARIOUS TYPES OF CATEG ORIES MENTIONED IN RULE 6EA, WHICH WERE TO BE TREATED AS BAD AND DO UBTFUL DEBTS FOR THE PURPOSE OF SECTION 43D OF THE ACT. AS PER THE ASSESSEE, IF AN ACCOUNT FALLS UNDER ANY ONE OF THE CLAUSES (A) TO ( E) OF RULE 6EA, THEN IT HAD TO BE TREATED AS BAD AND DOUBTFUL ONE. FURT HER, AS PER THE ASSESSEE, IN RESPECT OF SUB CLAUSES (B) TO (E), AND CERTAIN ITEMS FALLING IN CLAUSE (A) THERE WERE NO LIMIT OF 180 DAYS. IF AN ADVANCE WAS RECALLED, THEN IT IMMEDIATELY BECAME BAD AND DOUBTF UL IRRESPECTIVE OF PERIOD. IN OTHER WORDS, AS PER THE ASSESSEE, WHERE VER THERE WAS A THREAT OF RECOVERY OR THE ACCOUNTS BECAME IRREGULAR , THE SAME BECAME BAD AND DOUBTFUL DEBTS. ASSESSEE ALSO SUBMITTED TH AT ON CLASSIFICATION 27 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 OF ACCOUNTS AS NPA, THE AMOUNTS DUE WERE RECALLED W ITHIN 10 DAYS BY ISSUING NOTICE TO THE DEFAULTING BORROWERS. RELYIN G ON CLAUSE (B) OF RULE 6EA, THE ASSESSEE SUBMITTED BEFORE THE LD. CIT (APPEALS) THAT LOANS WHICH WERE RECALLED HAD TO BE CLASSIFIED AS D OUBTFUL DEBTS. THUS, AS PER THE ASSESSEE, THE DIFFERENTIATION MADE BY THE ASSESSING OFFICER BETWEEN THE ACCOUNTS WHICH WERE MORE THAN 9 0 DAYS IN DEFAULT BUT LESS THAN 180 DAYS WAS NOT WARRANTED. ANOTHER ARGUMENT OF THE ASSESSEE WAS THAT RULE 6EA THOUGH IT WAS INTRODUCED IN THE STATUTE BOOK WITH EFFECT FROM 01.04.1992, WAS NEVER REVISED THOUGH RESERVE BANK OF INDIA WAS PERIODICALLY ISSUING GUIDELINES C HANGING THE CRITERIA FOR CATEGORIZING BAD AND DOUBTFUL DEBTS. 52. LD. CIT(APPEALS), AFTER GOING THROUGH THE SUBMI SSIONS OF THE ASSESSEE, WAS OF THE OPINION THAT RBI HAD REDUCED T IME FRAME FOR RECOGNIZING LOANS/ADVANCES AS NPAS WHERE INTEREST R EMAINED UNPAID, FROM 180 DAYS TO 90 DAYS. SUCH A REVISION, AS PER LD. CIT(APPEALS), WAS EFFECTED ON 01.04.2004. BUT SIMILAR CHANGE WAS NOT MADE TO RULE 6EA. AS PER LD. CIT(APPEALS), RULE 6EA OUGHT HAVE BEEN AMENDED PURSUANT TO REVISION MADE BY RBI BUT WAS NOT DONE. THIS ACCORDING TO HIM, WENT AGAINST THE MANDATE OF SECTION 43D OF THE ACT. HE, 28 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 THEREFORE, HELD THAT ADDITION OF ` 74,60,000/- WAS NOT WARRANTED AND IT WAS DELETED. 53. NOW BEFORE US, THE LD. DEPARTMENTAL REPRESENTAT IVE STRONGLY ASSAILING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT RBI GUIDELINES COULD NOT BE GIVEN PREFERENCE OVER THE PROVISIONS O F THE ACT AND INCOME-TAX RULES. ACCORDING TO HIM, CLAUSE (A) OF RULE 6EA MANDATED TIME PERIOD OF SIX MONTHS, FOR CLASSIFYING A LOAN A CCOUNT AS STICKY ADVANCE. ACCORDING TO HIM, THE CIT(APPEALS) WAS NO T JUSTIFIED IN SUBSTITUTING THE PERIOD OF SIX MONTHS WITH 90 DAYS. THE ADDITION, AS PER THE LD. D.R., WAS CORRECTLY WORKED BY THE A.O. 54. PER CONTRA, THE LD. AR STRONGLY SUPPORTING THE ORDER OF THE CIT(APPEALS), SUBMITTED THAT THIS ISSUE HAD COME UP BEFORE KOLKATA BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT V. THE R OYAL BANK OF SCOTLAND N.V. 2016(11) TMI 665 AND IT WAS HELD THAT INTEREST ON LOANS SHOULD NOT AUTOMATICALLY BE RECOGNIZED ON ACCRUAL B ASIS AND THIS HAD TO BE IN LINE WITH RBI PRUDENTIAL NORMS FOR INCOME RECOGNITION. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF DELHI H IGH COURT IN THE CASE OF CIT V. VASISTH CHAY VYAPAR LTD. (2011) 330 ITR 440. 29 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 55. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE ORDERS. A.O. HAD REFUSED TO CONSIDER ACCOUNTS ON WHICH PRINCIPAL AND INTEREST WERE OUTSTANDING FOR A PERIOD OF MORE THAN 90 DAYS BUT L ESS THAN 180 DAYS, AS STICKY. ACCORDING TO HIM, INTEREST ON SUCH ADVA NCES HAD TO BE CONSIDERED ON THE BASIS OF ACCRUAL. RELIANCE WAS P LACED ON SECTION 43D OF THE ACT. SECTION 43D CLAUSE (A) AND (B) ARE REPRODUCED HEREUNDER:- SPECIAL PROVISION IN CASE OF INCOME OF PUBLIC FINANCIAL INSTITUTIONS, PUBLIC COMPANIES, ETC. 43D. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTA INED IN ANY OTHER PROVISION OF THIS ACT,-- (A) IN THE CASE OF A PUBLIC FINANCIAL INSTITUTION O R A SCHEDULED BANK OR A STATE FINANCIAL CORPORATION OR A STATE IN DUSTRIAL INVESTMENT CORPORATION, THE INCOME BY WAY OF INTERE ST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBT S AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED B Y THE RESERVE BANK OF INDIA IN RELATION TO SUCH DEBTS ; (B) IN THE CASE OF A PUBLIC COMPANY, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR D OUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINE S ISSUED BY THE NATIONAL HOUSING BANK IN RELATION TO SUCH DEBTS , SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED BY THE PUBLIC FINANCIAL INSTITUTION OR THE SCHEDULED BANK OR THE STATE FINANCIAL CORPORATION OR THE STAT E INDUSTRIAL INVESTMENT CORPORATION OR THE PUBLIC COMPANY TO ITS PROFIT AND LOSS ACCOUNT FOR THAT YEAR OR, AS THE CASE MAY BE, IN WHICH IT IS ACTUALLY RECEIVED BY THAT INSTITUTION OR BANK OR CO RPORATION OR COMPANY, WHICHEVER IS EARLIER. 30 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 A READING OF CLAUSES CLEARLY INDICATES THAT CATEGOR IES OF BAD AND DOUBTFUL DEBTS HAD TO BE PRESCRIBED CONSIDERING THE GUIDELINES ISSUED BY RESERVE BANK OF INDIA. IN RESPECT OF INTEREST R ELATABLE TO VARIOUS CATEGORIES PRESCRIBED BY RBI, ASSESSEE CAN OPT FOR BOOKING INTEREST INCOME ON RECEIPT BASIS INSTEAD OF BOOKING IT ON AC CRUAL BASIS. THE ONLY QUESTION THAT REMAINS IS WHETHER RULE 6EA WHIC H GAVE CATEGORIES OF BAD AND DOUBTFUL DEBTS DISABLED AN ASSESSEE FROM CLAIMING THE BENEFIT OF RBI GUIDELINES WITH REGARD TO RECOGNITIO N OF INCOME. RULE 6EA(A)(I) IS REPRODUCED HEREUNDER:- SPECIAL PROVISION REGARDING INTEREST ON BAD AND DOUBTFUL DEBTS OF FINANCIAL INSTITUTIONS, BANKS, ETC. 6EA . THE PROVISIONS OF SECTION 43D SHALL APPLY IN THE CASE OF EVERY PUBLIC FINANCIAL INSTITUTION, SCHEDULED BANK, STATE FINANCIAL CORPORATION AND STATE INDUSTRIAL INVESTME NT CORPORATION WHERE ITS INCOME BY WAY OF INTEREST PER TAINS TO THE FOLLOWING CATEGORIES OF BAD AND DOUBTFUL DEBTS, NAM ELY:-- (A) (I) NON-VIABLE OR STICKY ADVANCES (I.E., WHERE IRREGULARITIES OF THE NATURE SPECIFIED IN SUB-CLAUSE (II) ARE NOTICED IN THE ACCOUNTS OF THE BORROWERS FOR A PERIOD OF SIX MONTH S AND MORE AND THERE ARE NO MINIMUM PROSPECTS OF REGULARISATIO N OF ACCOUNTS, OR WHERE THE ACCOUNTS OR INFORMATION IN R ELATION TO SUCH ACCOUNTS REFLECT USUAL SIGNS OF SICKNESS, SUCH AS,-- 1. APPARENT STAGNATION IN THE BUSINESS AS A RESULT OF THE SLOW OR NEGLIGIBLE TURNOVER; 31 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 2. FREQUENT REQUESTS FOR OVER-DRAWING OR ISSUE OF C HEQUES WITHOUT ENSURING AVAILABILITY OF FUNDS IN THE ACCOU NT; 3. BILLS PURCHASED OR DISCOUNTED REMAIN OVERDUE FOR 3 MONTHS AND MORE OR THE RECOVERY OF SUCH BILLS FROM THE BOR ROWER POSES DIFFICULTIES; 4. IN THE CASE OF TERM LOANS, INSTALMENTS WHICH ARE OVERDUE FOR 6 MONTHS OR MORE; 5. UNEXPLAINED DELAYS BY THE BORROWER IN SUBMISSION OF QUARTERLY OR HALF-YEARLY OPERATING STATEMENTS OR STOCK STATEM ENTS OR BALANCE-SHEETS AND OTHER INFORMATION REQUIRED BY TH E BANK; 6. SLOW MOVEMENT OR STAGNATION OF STOCKS OBSERVED D URING INSPECTIONS; 7. LOW OR NEGLIGIBLE LEVEL OF ACTIVITY OBSERVED DUR ING INSPECTIONS OR SUSPENSION OR CLOSURE OF THE BUSINESS; 8. PERSISTENT DELAY IN COMPLIANCE WITH VITAL REQUIR EMENTS LIKE EXECUTION OF DOCUMENTS, PRODUCING ADDITIONAL SECURI TY WHEN REQUIRED OR NON-COMPLIANCE WITH SUCH REQUIREMENTS; 9. DIVERSION OF FUNDS TO SISTER UNITS OR ACQUIRING CAPITAL ASSETS NOT RELEVANT TO THE BUSINESS OR LARGE PERSONAL WITH DRAWALS BY THE BORROWERS; 10. INTENTIONAL NON-ADHERENCE TO PROJECT SCHEDULES LEADING TO SUBSTANTIAL COST ESCALATIONS AND REQUIREMENT OF ADD ITIONAL TERM FINANCE; 11. THE PRESSURE ON THE LIQUIDITY LEADING TO NON-PA YMENT OF WAGES TO WORKERS OR STATUTORY DUES OR RENTS OF OFFI CE AND FACTORY PREMISES; 12. THE CURRENT LIABILITIES EXCEEDING CURRENT ASSET S; 13. ANY GRAVE IRREGULARITIES OBSERVED BY THE AUDITO RS OF THE BORROWERS WHICH REMAIN TO BE RECTIFIED; 32 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 14. BASIC WEAKNESS REVEALED BY THE FINANCIAL STATEM ENTS OF THE UNIT, FOR EXAMPLE, CONTINUED CASH LOSS BEYOND ONE Y EAR. A CAREFUL READING OF ABOVE RULE WOULD SHOW THAT ONL Y FOR NON-VIABLE OR STICKY ADVANCES HAVING IRREGULARITIES FALLING WITHI N SUB-CLAUSE (II) ALONE THE SIX MONTHS LIMITATION APPLY. HOWEVER, WHERE AC COUNTS OR INFORMATION OF ACCOUNTS SHOW USUAL SIGNS OF SICKNES S, THIS CONDITION REGARDING SIX MONTHS MAY NOT BE APPLICABLE. IN ANY CASE, ONCE THE RULE DOES NOT FOLLOW THE GUIDELINES ISSUED BY RBI, IN OUR OPINION, IT BECOMES NECESSARY TO READ DOWN SUCH RULE SO THAT IT IS IN CONSONANCE WITH THE RBI REGULATIONS OR PRUDENTIAL NORMS FOR RE COGNIZING INCOME. WE ALSO FIND THAT KOLKATA BENCH OF THIS TRIBUNAL IN THE CASE OF ROYAL BANK OF SCOTLAND N.V. (SUPRA) AT PARA 2.6 OF ITS OR DER, HAD HELD AS UNDER:- 2.6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE DETAILE D PAPER BOOK FILED BY THE ASSESSEE. THE FACTS STATED HEREINABOV E REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITERATED FO R THE SAKE OF BREVITY. IT IS NOT IN DISPUTE BEFORE THE LOWER AUTHORITIES THAT THE LOAN ACCOUNTS HAD BECOME STICKY AND DOUBTF UL OF RECOVERY. THE ONLY CONTENTION OF THE REVENUE IS TH AT SECTION 43D OF THE ACT READ WITH RULE 6EA OF THE RULES PERM ITS ACCOUNTING OF INTEREST INCOME ON RECEIPT BASIS ONLY IF THE LOAN ACCOUNT HAD BECOME OVERDUE FOR MORE THAN SIX MONTHS , WHEREAS IN THE INSTANT CASE, IT IS MORE THAN THREE MONTHS BUT LESS THAN SIX MONTHS AS ON 31.3.2010. THE LOAN ACC OUNT BECOMING OVERDUE AND BECOMING STICKY WAS NEVER DISP UTED. 33 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 THE NEXT ISSUE IS WHETHER THE PRUDENTIAL NORMS OF R BI FOR INCOME RECOGNITION WOULD OVERRIDE THE PROVISIONS OF THE I.T. ACT. THIS ISSUE HAS BEEN ADDRESSED BY THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. SUP RA IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION TOWARDS PROVI SION FOR NPA'. WE FIND THAT THE SAME DECISION CLEARLY STATE D THAT THE INTEREST INCOME ON NPA ACCOUNTS SHOULD NOT BE RECOG NIZED ON ACCRUAL BASIS WHICH IS IN LINE WITH RBI PRUDENTIAL NORMS FOR INCOME RECOGNITION. THIS FINE DISTINCTION HAS BEEN DULY CONSIDERED IN THE DECISION OF THE HON'BLE DELHI HI GH COURT IN THE CASE OF CIT V. VASISTH CHAY VYAPAR LTD. SUPRA. WHEN THE ACCOUNT BECOMING NPA IS NOT DISPUTED BY THE REVENUE , THE RECOGNITION OF INCOME IS TO BE DONE ONLY ON RECEIPT BASIS WHICH IS IN CONSONANCE WITH THE REAL INCOME THEORY. IN T HESE CIRCUMSTANCES RESPECTFULLY FOLLOWING THE DECISIONS OF HON'BLE DELHI HIGH COURT IN 330 ITR 440 AND VARIOUS OTHER D ECISIONS REFERRED TO SUPRA, WE HOLD THAT THE INTEREST INCOME ON NPA ACCOUNTS SHOULD NOT BE ASSESSED ON MERCANTILE BASIS AND THE SAME IS TO BE TAXED ONLY ON RECEIPT BASIS. ACCORDI NGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 56. THEREFORE, IN OUR OPINION, CIT(APPEALS) WAS JUS TIFIED IN DELETING THE ADDITION MADE ON INTEREST ON NPAS. WE DO NOT F IND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(APPEALS). 57. GROUND NOS.12 TO 14 OF THE REVENUE STANDS DISMI SSED. 58. NOW, WE TAKE UP THE APPEALS OF THE ASSESSEE AND REVENUE FOR ASSESSMENT YEAR 2011-12. 34 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 59. GROUND NO.2 TAKEN BY THE ASSESSEE FOR THIS ASSE SSMENT YEAR IS SIMILAR TO THE GROUND RAISED BY IT IN ITS APPEAL FO R ASSESSMENT YEAR 2010-11. 60. WE HAVE ALREADY HELD IN I.T.A. NO.2325/MDS/2016 , AT PARAS 8 & 9 ABOVE, THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT WAS NOT WARRANTED IN ASSESSMENT YEAR 2010-11. THE FACTUAL SITUATION BEING THE SAME, WE DELETE THE DISALLOWANCE MADE UNDER SEC TION 14A OF THE ACT FOR THE IMPUGNED ASSESSMENT YEAR ALSO. 61. GROUND NO.2 IS ALLOWED. 62. GROUNDS NOS.3 AND 4 OF THE ASSESSEE ARE SIMILAR TO THE GROUNDS 3 & 4 RAISED BY THE ASSESSEE FOR ASSESSMENT YEAR 2010-11. ACCORDINGLY FOR THE SAME REASONS MENTIONED AT PARA 17 & 18 ABOVE, WE REMIT THE ISSUE RAISED BY THE ASSESSEE IN ITS GR OUND NUMBER 3, BACK TO THE LD. CIT(APPEALS) FOR CONSIDERATION AFRE SH IN ACCORDANCE WITH LAW. FOR REASONS MENTIONED AT PARA 24 ABOVE, WE REMIT THE ISSUE RAISED BY THE ASSESSEE IN ITS GROUND NUMBER 4 BACK TO THE FILE OF THE LD. A.O. FOR CONSIDERATION AFRESH IN ACCORDANCE WIT H LAW. 35 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 63. COMING TO THE APPEAL OF THE REVENUE, GROUNDS RA ISED BY THE REVENUE ARE SIMILAR TO THOSE RAISED BY IT IN ITS AP PEAL FOR ASSESSMENT YEAR 2010-11 EXCEPT FOR GROUND NO.15. GROUNDS 2 TO 5 ARE ON STALE DRAFTS, GROUNDS 6 TO 10 ON EX-GRATIA PAYMENTS, GROU ND 11 ON ENTERTAINMENT EXPENSES AND GROUNDS 12 TO 14 ON INTE REST ON NPA. BASED ON OUR FINDINGS FOR ASSESSMENT YEAR 2010-11, GIVEN AT PARAS 33, 40, 47 AND 56, THESE GROUNDS ARE DISMISSED. TH IS LEAVES US WITH THE GRIEVANCE RAISED BY THE REVENUE IN ITS GROUND N O.15. REVENUE IS AGGRIEVED THAT THE CIT(APPEALS) ALLOWED DEDUCTION O N ACCOUNT OF WAGE SETTLEMENT ON ACTUAL PAYMENT BASIS WITHOUT ASC ERTAINING THE FACTUM OF PAYMENT. 64. ASSESSEE HAD MADE A CLAIM OF ` 18,00,00,000/- AS PROVISION TOWARDS WAGE ARREARS IN ITS RETURN FOR ASSESSMENT Y EAR 2010-11. THE SAID CLAIM WAS DISALLOWED IN THAT YEAR HOLDING THAT IT WAS ONLY A CONTINGENT LIABILITY. THIS DISALLOWANCE WAS UPHELD BY THE CIT(A) IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010-11. THE CIT(APPEALS), WHILE UPHOLDING THIS DISALLOWANCE HAD RELIED ON A B IPARTITE SETTLEMENT ENTERED INTO BY THE ASSESSEE WITH INDIAN BANKS ASSO CIATION AND WORKMENS ASSOCIATION ON 27.04.2010 WHICH FELL IN P REVIOUS YEAR ENDED 31.07.2011 RELEVANT TO ASSESSMENT YEAR 2011-1 2. 36 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 65. THE ASSESSEE HAD DURING THE COURSE OF APPELLATE PROCEEDINGS FOR THE IMPUGNED ASSESSMENT YEAR STAKED A CLAIM FOR ` 17,66,43,818/- BEING THE WAGE SETTLEMENT AMOUNT DISBURSED TO ITS E MPLOYEES. AS PER THE ASSESSEE, IT HAD DISBURSED THE SAID SUM OF ` 17,66,43,818/- DURING THE RELEVANT PREVIOUS YEAR, ON DATES FALLING BETWEE N 22.05.2010 AND 18.03.2011. THE LD. CIT(APPEALS) WAS OF THE OPINIO N THAT THE ASSESSEE HAVING DISBURSED ` 17,66,43,818/-, THE CLAIM WAS ALLOWABLE. 66. NOW BEFORE US, THE LD. DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT THE CIT(APPEALS) HAD BELIEVED THE CLAIM OF THE ASSESSEE REGARDING ACTUAL DISBURSEMENT OF WAGE ARREARS WITHO UT GIVING ANY OPPORTUNITY TO THE ASSESSING OFFICER TO VERIFY THE FACTS. 67. PER CONTRA, THE LD. AR STRONGLY SUPPORTED THE O RDER OF THE CIT(APPEALS). 68. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS. THE CIT(APPEALS) HAD ALLOWED THE CLAIM OF DISBURSEM ENT OF ` 17,66,43,818/- ON ACTUAL PAYMENT BASIS. THE PROVIS ION MADE BY THE ASSESSEE FOR SUCH WAGE ARREARS IN EARLIER YEAR WAS DISALLOWED. AGAINST SUCH DISALLOWANCE, ASSESSEE HAS TAKEN NO GR OUNDS BEFORE THIS 37 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 TRIBUNAL IN ITS APPEAL FOR ASSESSMENT YEAR 2010-11. ACCORDINGLY, THE CLAIM OF THE ASSESSEE THAT IT HAD TO BE ALLOWED ON ACTUAL PAYMENT BASIS WAS, IN OUR OPINION, RIGHTLY ALLOWED BY THE C IT(APPEALS). HOWEVER, WHETHER THE ASSESSEE HAD ACTUALLY DISBURSE D ` 17,66,43,818/- REQUIRES TO BE VERIFIED BY THE A.O. FOR THIS LIMITED PURPOSE, THE MATTER IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. 69. GROUND NO.15 OF THE REVENUE IS ALLOWED FOR STAT ISTICAL PURPOSES. 70. TO SUM UP, APPEALS OF THE ASSESSEE FOR ASSESSME NT YEARS 2010-11 AND 2011-12 ARE ALLOWED PRO-TANTO. APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2010-11 IS DISMISSED AND WHEREA S THAT FOR 2011- 12 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 29 TH MARCH, 2017 AT CHENNAI. SD/- SD/- ( . . . ) ($% .'(') ) (N.R.S. GANESAN) (ABRAHAM P. GEORGE) ! ' /JUDICIAL MEMBER + '/ ACCOUNTANT MEMBER /CHENNAI, ;# /DATED, THE 29 TH MARCH, 2017. KRI. 38 I.T.A. NOS.2325 & 2326/MDS/16 I.T.A. NOS.2433 & 2649/MDS/16 6 2!5 <.5 /COPY TO: 1. ! )45 /ASSESSEE 2. ASSESSING OFFICER 3. =5 () /CIT(A)-1, TIRUCHIRAPALLI 4. PRINCIPAL CIT-1, TRICHY 5. > 2!5! /DR 6. ?) @ /GF.