DCIT, CHENNAI V. M/s. Indian Overseas Bank, CHENNAI

ITA 248/CHNY/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1205 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 03-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; General deduction; Depreciation; Business expenditure; Double taxation relief; Question of law; Bad and doubtful debts
• Section: 43B; 143(3); 14A; 115JB; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE N.S. SAINI, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO S . ASSESSMENT YEAR APPELLANT RESPONDENT 98/MDS/2010 2003-04 INDIAN OVERSEAS BANK, ACCOUNTS DEPARTMENT, 763, MOUNT ROAD,, CHENNAI-600 002. PAN:AAACI1223J ADDITIONAL COMMISSIONER OF INCOME TAX, LTU ANNA NAGAR WEST EXTENSION, CHENNAI-101 1495/MDS/2008 2004-05 INDIAN OVERSEAS BANK, ACIT., LTU, CHENNAI- 101 230 6 /MDS/200 8 2005-06 INDIAN OVERSEAS BANK ACIT., LTU, CHENNAI-101 248/MDS/2010 2003-04 DCIT., LTU, CHENNAI-101 INDIAN OVERSEAS BANK 1566/MDS/2008 2004-05 ACIT., LTU, CHENNAI-101 INDIAN OVERSEAS BAN K 393/MDS/2009 2005-06 ACIT., LTU, CHENNAI-101 INDIAN OVERSEAS BAN K ASSESSEE BY : MR. C.NARESH, CA REVENUE BY : MR. SHAJI P.JACOB, ADDL. CIT DATE OF HEARING : 29 TH JANUARY, 2013 DATE OF PRONOUNCEMENT : 5 TH MARCH, 2013 O R D E R PER BENCH : THIS IS A BUNCH OF SIX APPEALS. THE THREE APPEALS ARE FILED BY THE ASSESSEE ( ITA NOS. 98/MDS/2010, 1495 & 2306/MDS/2008) AND THE REMAINING THREE APPEALS (IT A NOS.248/MDS/2010, 1566/MDS/2008 AND 393/MDS/2009) A RE PREFERRED BY THE REVENUE FOR THE RESPECTIVE ASSESS MENT YEARS 2003-04 TO 2005-06 IMPUGNING THE ORDERS OF T HE CIT(A) ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 2 LTU, CHENNAI. SINCE THE ISSUES INVOLVED IN THESE AP PEALS ARE COMMON, THEY ARE TAKEN UP TOGETHER FOR ADJUDICATION . ITA NO.1495/MDS/2008 (A.Y.2004-05): 2. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUG NING THE ORDER OF THE CIT(A)-LTU, CHENNAI DATED 24.04.20 08 RELEVANT TO THE ASSESSMENT YEAR 2004-05. THE ASSESS EE HAS RAISED FOUR GROUNDS OF APPEAL. 3. THE FIRST GROUND OF APPEAL RELATING TO DISALLOW ANCE OF DEPRECIATION ON LAND AND GROUND NO.3 WITH RESPECT TO DISALLOWANCE UNDER SECTION 14A ARE NOT PRESSED BY THE A.R. THEREFORE, BOTH THESE GROUNDS ARE DISMISSED AS HAVI NG NOT PRESSED. 4. GROUND NO.2 RELATES TO BAD DEBTS WRITTEN OFF IN TERMS OF PROVISIONS UNDER SECTION 36 OF THE ACT. A SIMILAR ISSUE HAS ALREADY BEEN ADJUDICATED BY US IN THE ASSESSEES OW N CASE IN ITA NO.265/MDS/2005 FOR THE ASSESSMENT YEAR 1998 -1999. THE RELEVANT EXTRACT OF THE SAID ORDER IS REPRODU CED HEREIN BELOW:- 21. THE REPRESENTATIVES OF BOTH THE SIDES HAVE STA TED THAT THE PRESENT ISSUE HAS BEEN ADJUDICATED BY THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF CATHO LIC ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 3 SYRIAN BANK LTD. (SUPRA). THE HONBLE APEX COURT WH ILE DEALING WITH THIS ISSUE HAS CONCLUDED AS UNDER:- TO CONCLUDE, WE HOLD THAT THE PROVISIONS OF SECTIO NS 36(1)(VII) AND 36(1)(VIIA) OF THE ACT ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTION AND OPERATE IN THEIR RESPECTIVE FIELDS. THE BAD DEBTS WRITTEN OFF IN DEB TS, OTHER THAN THOSE FOR WHICH THE PROVISION IS MADE UN DER CLAUSE (VIIA), WILL BE COVERED UNDER THE MAIN PART OF SECTION 36(1)(VII), WHILE THE PROVISO WILL OPERATE IN CASES UNDER CLAUSE (VIIA) TO LIMIT DEDUCTION TO THE EXTENT OF DIFFERENCE BETWEEN THE DEBT OR PART THEREOF WRIT TEN OFF IN THE PREVIOUS YEAR AND CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA). THE PROVISO TO SECTION 36(1)(V II) WILL RELATE TO CASES COVERED UNDER SECTION 36(1)(VI IA) AND HAS TO BE READ WITH SECTION 36(2)(V) OF THE ACT . THUS, THE PROVISO WOULD NOT PERMIT THE BENEFIT OF DOUBLE DEDUCTION, OPERATING WITH REFERENCE TO RURAL LOANS WHILE, UNDER SECTION 36(1)(VII), THE ASSESSEE WOULD BE ENTITLED TO GENERAL DEDUCTION UPON AN ACCO UNT HAVING BECOME BAD DEBT AND BEING WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR. THIS, OBVIOUSLY, WOULD BE SUBJECT TO SATISFACTION OF THE REQUIREMENTS CONTEMPLATED UNDER SECTION 36(2). CONSEQUENTLY, WHILE ANSWERING THE QUESTION IN FAVOUR OF THE ASSESSEE, WE ALLOW THE APPEALS OF THE ASSESSES AND DISMISS THE APPEALS PREFERRED BY THE REVENUE. FURTHER, WE DIRECT THAT ALL MATTERS BE REMANDED TO THE ASSESSING OFFICER FOR COMPUTATION I N ACCORDANCE WITH LAW, IN THE LIGHT OF THE LAW ENUNCI ATED IN THIS JUDGMENT. S. H. KAPADIA C. J. I.: I HAVE GONE THROUGH THE JUDGMENT OF MY ESTEEMED BROTHER, SWATANTER KUMAR J. AND I AGREE WITH THE CONCLUSIONS CONTAINED THEREIN. HOWEVER, I WOULD LIKE TO GIVE MY OWN REASONS. ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 4 XXX XXX .. HOWEVER, THE REVENUE DISPUTES THE POSITION THAT THE PROVISO TO CLAUSE (VII) REFERS ONLY TO RURAL ADVANC ES. IT SAYS THAT THERE ARE NO SUCH WORDS IN THE PROVISO WH ICH INDICATES THAT THE PROVISO APPLY ONLY TO RURAL ADVA NCES. WE FIND NO MERIT IN THE OBJECTION RAISED BY THE REV ENUE. FIRSTLY, CBDT ITSELF HAS RECOGNIZED THE POSITION TH AT A BANK WOULD BE ENTITLED TO BOTH THE DEDUCTION, ONE U NDER CLAUSE (VII) ON THE BASIS OF ACTUAL WRITE OFF AND A NOTHER, ON THE BASIS OF CLAUSE (VIIA) IN RESPECT OF A MERE PROVISION. FURTHER, TO PREVENT DOUBLE DEDUCTION, TH E PROVISO TO CLAUSE (VII) WAS INSERTED WHICH SAYS THA T IN RESPECT OF BAD DEBT(S) ARISING OUT OF RURAL ADVANCE S, THE DEDUCTION ON ACCOUNT OF ACTUAL WRITE OFF WOULD BE LIMITED TO THE EXCESS OF THE AMOUNT WRITTEN OFF OVE R THE AMOUNT OF THE PROVISION ALLOWED UNDER CLAUSE (VIIA) . THUS, THE PROVISO TO CLAUSE (VII) STOOD INTRODUCED IN ORDER TO PROTECT THE REVENUE. IT WOULD BE MEANINGLE SS TO INVOKE THE SAID PROVISO WHERE THERE IS NO THREAT OF DOUBLE DEDUCTION. IN CASE OF RURAL ADVANCES, WHICH ARE COVERED BY THE PROVISIONS OF CLAUSE (VIIA), THERE W OULD BE NO SUCH DOUBLE DEDUCTION. THE PROVISO LIMITS ITS APPLICATION TO THE CASE OF A BANK TO WHICH CLAUSE ( VIIA) APPLIES. CLAUSE (VIIA) APPLIES ONLY TO RURAL ADVANC ES. THIS HAS BEEN EXPLAINED BY THE CIRCULARS ISSUED BY CBDT. THUS, THE PROVISO INDICATES THAT IT IS LIMITE D IN ITS APPLICATION TO BAD DEBT(S) ARISING OUT OF RURAL ADV ANCES OF A BANK. IT FOLLOWS THAT IF THE AMOUNT OF BAD DEB T(S) ACTUALLY WRITTEN OFF IN THE ACCOUNTS OF THE BANK REPRESENTS ONLY DEBT(S) ARISING OUT OF URBAN ADVANC ES, THE ALLOWANCE THEREOF IN THE ASSESSMENT IS NOT AFFE CTED, CONTROLLED OR LIMITED IN ANY WAY BY THE PROVISO TO CLAUSE (VII). ACCORDINGLY, THE ABOVE QUESTION IS ANSWE RED IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE (S). FOR THE ABOVE REASONS, I AGREE THAT THE APPEALS FIL ED BY THE ASSESSEES STAND ALLOWED AND THE APPEALS FILE D ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 5 BY THE REVENUE STAND DISMISSED WITH NO ORDER AS TO COSTS. 22. IN VIEW OF THE ABOVE, WE DEEM IT APPROPRIATE TO REMAND THE ISSUE BACK TO THE ASSESSING OFFICER TO D ECIDE IT AFRESH IN ACCORDANCE WITH THE LAW LAID DOWN BY T HE HONBLE SUPREME COURT OF INDIA IN THE CASE OF CATHO LIC SYRIAN BANK LTD. (SUPRA). 5. IN VIEW OF THE AFORESAID FINDINGS, WE REMIT THIS MATTER BACK TO THE ASSESSING OFFICER TO DECIDE IT AFRESH FOR THIS ASSESSMENT YEAR ALSO IN ACCORDANCE WITH THE LAW LAI D DOWN BY THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF C ATHOLIC SYRIAN BANK (SUPRA). THIS GROUND OF APPEAL OF THE A SSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. THE FOURTH GROUND OF APPEAL RAISED BY THE ASSESS EE IS WITH RESPECT OF APPLICABILITY OF PROVISIONS OF SECT ION 115JB OF THE ACT. SINCE THIS GROUND OF APPEAL DOES NOT EMAN ATE FROM THE IMPUGNED ORDER OF THE CIT(A), IT WOULD NOT BE A PT FOR THE TRIBUNAL TO ADJUDICATE THE SAME. THE ISSUE WAS NEI THER RAISED BY THE ASSESSEE BY FOLLOWING PROPER PROCEDUR E FOR TAKING ADDITIONAL GROUND IN THE APPEAL BEFORE THE TRIBUNAL. IN ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 6 THE ABSENCE OF THE SAME, THIS GROUND OF APPEAL OF T HE ASSESSEE IS DISMISSED. 7. THE OTHER TWO ISSUES RELATING TO PROFIT AND LOSS ACCOUNT AS PER SCHEDULE VI AND DISALLOWANCE OF PROVISION FO R BAD DEBTS, WAGE ARREARS ETC. ARE CONSEQUENTIAL TO GROUN D NO.4. SINCE GROUND NO.4 HAS BEEN DISMISSED, CONSEQUENTIAL ISSUE ARISING THEREFROM ARE ALSO DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1566/MDS/2008 (A.Y. 2004-05): 9. THE APPEAL HAS BEEN PREFERRED BY THE REVENUE IMPUGNING THE ORDER OF THE CIT(A) LTU CHENNAI DATED 24.04.2008. 10. THE FIRST GROUND OF APPEAL IS WITH RESPECT TO DEPRECIATION ON ASSETS TAKEN OVER BY THE ASSESSEE F ROM THE BANK OF TAMIL NADU. THE CIT(A) HAS ALLOWED DEPRECI ATION ON FIXED ASSETS TAKEN FROM BANK OF TAMIL NADU LTD. AFT ER ITS MERGER WITH ASSESSEE. THE DR POINTED OUT THAT SIMIL AR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 7 IN ITA NO.843/MDS/2001 WHICH WAS DECIDED ON 2 ND JUNE, 2008. THE TRIBUNAL HELD THAT THE REVENUE AUTHORITI ES HAVE NOT TESTED THE FACT OF AMALGAMATION VIS-A-VIS SECTI ON 2(1B) OF THE ACT. IT WAS INCUMBENT UPON THE ASSESSING OFFICE R TO FIND OUT WHETHER AMALGAMATION TOOK PLACE AS PER THE REQU IREMENTS OF THE SECTION. THE TRIBUNAL HELD : 28. BOTH THE PARTIES HAD AGREED THAT THIS ISSUE MAY BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THE FACTUM OF AMALGAMATION ON THE TOUCHSTONE OF SECTION 2(1B). WE ORDER ACCORDINGLY AND RESTORE THIS ISSUE TO THE FILE OF T HE ASSESSING OFFICER WITH A DIRECTION TO DECIDE IT AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. 11. REPRESENTATIVES OF BOTH THE SIDES ARE IN CONSON ANCE THAT IN THE PRESENT CASE ALSO SIMILAR SITUATION HAS ARISEN WHERE PROVISIONS OF SECTION 2(1B) HAVE NOT BEEN TA KEN INTO CONSIDERATION WHILE DECIDING THE ISSUE BY THE ASSES SING OFFICER. WE, THEREFORE, REMIT THIS ISSUE BACK TO TH E ASSESSING OFFICER FOR DECIDING IT AFRESH ON THE SIMILAR DIREC TIONS AS GIVEN BY THE TRIBUNAL VIDE ORDER DATED 2.6.2008. THIS G ROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PU RPOSES. ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 8 12. THE SECOND GROUND OF APPEAL OF THE REVENUE IS W ITH REGARD TO DELETING DISALLOWANCE OF LOSS ON ACCOUNT OF FRAUDS WRITTEN OFF BY THE CIT(A) . THE DR HAS REFERRED T O THE ORDER OF THE TRIBUNAL IN ITA NO.843/MDS/2001 RELEVANT TO THE ASSESSMENT YEAR 1996-97 WHEREIN A SIMILAR ISSUE HAD BEEN RAISED BY THE REVENUE AND THE TRIBUNAL HAD REMITTED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE AFRESH AS THE CIT(A) HAS NOT ADEQUATELY DISCU SSED THE ISSUE. THE CIT(A) ONLY FOLLOWED THE EARLIER ORDER AND THE COPIES OF THE ORDERS WERE NOT PRODUCED BEFORE THE T RIBUNAL FOR DECIDING THE ISSUE. 13. SIMILAR IS THE SITUATION IN THIS CASE. WE FI ND THAT WHILE DECIDING THE ISSUE RELATING TO LOSS ARISING OUT OF FRAUDS WRITTEN OFF, THE CIT(A) HAS FOLLOWED THE EARLIER DECISION O F THE CIT(A) IN ITA NO.321/2006-07 DATED 17.10.2006 FOR THE ASSE SSMENT YEAR 203-04 IN ASSESSEES OWN CASE. FOR THE REASO NS RECORDED IN THE EARLIER APPEAL, THE CIT(A) ALLOWED THIS GROUND OF APPEAL OF THE ASSESSEE AS WELL. THE EARLIER ORD ER OF THE CIT(A) DATED 17.10.2006, WHEREIN REASONS HAVE BEEN GIVEN, HAS NOT BEEN PLACED ON RECORD. WE, THEREFORE, REMIT THIS ISSUE ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 9 BACK TO THE CIT(A) FOR DECIDING IT AFRESH BY PASSIN G A SPEAKING AND DETAILED ORDER CITING REASONS FOR ALLO WING OR DISMISSING THE ISSUE. THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 14. THE THIRD GROUND OF APPEAL OF THE REVENUE IS WI TH RESPECT TO THE DIRECTION GIVEN BY CIT(A) TO THE ASS ESSING OFFICER TO ALLOW THE CLAIM OF DOUBLE TAXATION RELI EF IN RESPECT OF FOREIGN BRANCHES. THE D.R. SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE REVENUE BY THE O RDER OF THE TRIBUNAL IN ITA NO.213/MDS/2010 PASSED IN THE CASE OF DCIT VS. BHARAT OVERSEAS BANK LTD. DATED 30.10.2012. THE DR PLACED ON RECORD A COPY OF THE SAID ORDER ALONG WIT H WRITTEN SUBMISSIONS. WE FIND THAT THE ISSUE DECIDED BY THE TRIBUNAL IN BHARAT OVERSEAS BANK LTD. (SUPRA) IS SIMILAR TO THE ONE IN HAND. THE TRIBUNAL IN THE CASE OF BHARAT OVERSEAS B ANK LTD. HAS HELD AS UNDER:- 10. WE HAVE HEAR D BOTH THE S IDES , PERUSED T HE RECORDS AND GONE THROUGH THE ORDE R S OF THE AUTHORITIES BELOW. IN THIS CASE THE ASSESSEE IS A BANKING COMPANY AND ALSO HAVING A BRA NCH OFFICE AT BANGKOK. THE ASSESS I NG OFFICE R I N THE ORIGINAL A S SESSMENT ORDER GAVE T AX CREDIT TO THE ASSESSE E O N T HE T AX P A I D AT BA N GKOK AT ` 1,08,25 , 780 /- . ACCO R D IN G TO T H E A S SESSEE HE I S EN TI TLED F O R THE TA X RA T E PAYABLE IN INDIA AN D CL A IME D AT ` 1 , 86 ,7 4 , 47 0/ -. THE MATTER WENT TO TH E CIT ( A ) . T H E L EAR N ED CIT ( APPEALS ) ALLO W ED T H E CLAIM OF ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 10 THE ASSESSEE . THE RE VE NUE CAR RI E D T HE MATTER BEFORE THE TRIBUNAL . THE TRIBUNAL VIDE ORD E R DATED 3 0 - 11-2004 D IR ECTED THE ASSESS I NG OFFICER TO ENQU I RE W HE THER THE R E IS A DTAA BET W EEN INDIA AND BANGKOK. THE ASSESSI N G OF FI CE R I N ACCORDAN C E WI T H TH E DIRECTIONS GIVEN BY T HE ITAT ENQUIRED ALL TH E P R OV I S I ONS OF TH E DTAA BETWEEN INDIA AND THAILAND AND AS PER ART I C L E 23(3) BY FO LLOWING THE TA X C RE D I T METHOD W H ATEV E R TAX WA S PAID BY THE ASSE S SEE I N THAILAND W AS GIVEN CREDI T TO TH E A S SESSE E . AGGR I EVED , THE ASSES S EE CARR I ED T H E MA TT E R BEFORE T H E L EA RNE D CIT( APPEALS ) . T H E L EARNED C I T ( APPEALS ) HYPER TEC HN I CA L L Y HEL D THAT T HE O NLY JOB OF THE ASSESS I NG OFFICE R WAS TO SEE W H E TH E R THERE IS A DTAA BETWEEN I NDIA AND THAILAND . W E ARE U N A B LE T O UNDERS T AND THE ABOVE CONCLUSION MADE BY THE LEARNED C IT ( APPEALS) THA T THE JOB OF THE ASSESSING OFFICER IS JU S T TO SEE WHE TH ER THERE IS A DTAA BETWEEN INDIA AND THAILAND. IF THE R E IS A DTAA , THE ASSESSING OF F ICER HAS TO ALLOW THE RELIEF C LAIMED BY THE A S SESSEE. THAT B EING SO , IN OUR OPIN I O N, THE TRI B UNAL N EE D NO T R EF E R IT TO TH E ASS E SSING OFF I CER AS WELL J UST TO SEE AND PA S S AN O R D ER . T H E T R IBUNAL CL E ARLY DI RECTED TH E ASSESS I NG OFF I CER TO E N QU I R E INT O T H E EX I STENCE OF A DTAA BETWEEN INDIA AND BANGKOK . ' ENQU I RY ' M E ANS TO INVEST I GA T E AND APPLY THE SAME. IN OUR OPINION, T H E ASSE SSI NG OF FI CER H AS RIGHTLY IN VESTIGATED AND APPL I ED THE SAME AND DECIDED THE ISSUE. W E THE R EFORE HO L D THAT THE FIND I NG GIVEN BY THE LEARNED CIT(APPEALS ) IS NOT CORRECT. ACCORDINGLY, WE REV E RSE THE ORDER PASSED BY THE LEARNED CIT(APPEALS) ON THIS C O UNT AN D UP H OL D THE O RDER O F THE ASSESSING OFF I CE R. THE LEARNED AR OF THE BANK FAIRLY CONCEDED THAT THE ISSUE HAS BEEN DECIDED AGAINST THE BANK. RESPECTFULLY FOLLOWI NG THE DECISION OF THE TRIBUNAL IN THE AFORESAID CASE, WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND ALLOW THI S GROUND OF APPEAL OF THE REVENUE. 15. THE REVENUE HAS RAISED TWO ADDITIONAL GROUNDS O F APPEAL. THE DR SUBMITTED THAT IN VIEW OF THE JUDGEM ENT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF SHILPA ASSOCIATES VS. ITO REPORTED AS 263 ITR 317 (RAJ), T HE ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 11 ADDITIONAL GROUNDS RAISED BY THE REVENUE MAY BE TAK EN ON RECORD. IN VIEW OF THE SETTLED PROPOSITION OF LAW, THE APPELLANT CAN RAISE ADDITIONAL GROUND IF THE GROUND IS EMANAT ING FROM THE ORDER OF THE CIT(A) AND THE ISSUE HAS BEEN RAI SED BEFORE THE CIT(A) AND INADVERTENTLY HAS NOT BEEN TAKEN IN THE ORIGINAL GROUND OF APPEAL FILED BEFORE THE TRIBUNAL . WE, FIND THAT THE ADDITIONAL GROUND RAISED BY THE REVENUE EM ANATES FROM THE IMPUGNED ORDER OF THE CIT(A), WE, THEREFOR E, TAKE ON RECORD THE ADDITIONAL GROUNDS OF APPEAL OF THE REVE NUE ASSAILING THE ORDER OF THE CIT(A). THE FIRST ADDITIONAL GROUND OF APPEAL RAISED BY T HE REVENUE, IS WITH RESPECT TO DELETION OF DISALLOWANC E OF CONTRIBUTION TOWARDS STAFF WELFARE FUND. THE D.R. S UBMITTED THAT THE FUND IS NOT RECOGNIZED ONE AND ANY CONTRIB UTION MADE BY THE EMPLOYER TOWARDS UNRECOGNIZED WELFARE FUND I S NOT ALLOWABLE AS A DEDUCTION. SIMILAR ISSUE HAS BEEN DE CIDED BY THE TRIBUNAL IN ITA NO.1146/MDS/2008 RELEVANT TO TH E ASSESSMENT YEAR 2002-03 IN THE APPEAL OF THE ASSESS EE. THE FINDINGS OF THE TRIBUNAL IN ITA NO.1146/MDS/2008 AR E REPRODUCED HEREIN BELOW:- ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 12 37. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE PARTIES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW. AS PER THE CONTENTIONS OF THE AR , THE LIABILITY HAS ARISEN OUT OF THE AGREEMENT BETWE EN THE ASSESSEE BANK AND THE EMPLOYEES OF TRADE UNION AND IT IS A CONTRACTUAL LIABILITY. AS PER THE FINDINGS OF THE CIT(A) IT IS MERELY A PROVISION AND THE LIABILITY HAS NOT BEEN CRYSTALLIZED SO FAR. AS PER THE PROVISIONS OF SECTION 40A(7) DEDUCTION CAN BE ALLOWED IN RESPECT OF ANY PROVISION MADE BY THE ASSESSEE FOR PAYMENT OF GRATUITY TO ITS EMPLOYEES ON RETIREMENT OR TERMINATION FROM EMPLOYMENT FOR ANY REASON, PROVIDED THE SAME HAS BEEN CONTRIBUTED TOWARDS APPROVED GRATUITY FUND. FURTHER SUB-SECTION (9) TO SECTION 40A PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER EXCEPT WHERE SUCH SUM IS SO PAID TOWARDS APPROVED RECOGNIZED FUND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(V) . IN THE PRESENT CASE, THE ASSESSEE HAS NO T BEEN ABLE TO SHOW THAT THE LIABILITY HAS BEEN CRYSTALLIZED OR THE CONTRIBUTION HAS BEEN MADE TOWARDS APPROVED FUND AS PER THE PROVISIONS OF THE ACT. THE CLAIM OF THE ASSESSEE BASED UPON THE PROVISION OF SECTION 43B HAS NO MERIT. BEFORE THE PROVISIONS OF SECTION 43B CAN BE APPLICABLE, DEDUCTION MUST OTHERWISE BE ALLOWABLE UNDER THE ACT. IN VIEW OF THE ABOVE DISCUSSION, WE ARE CONSTRAINED TO HOLD THAT THE CONTRIBUTION TOWARDS STAFF WELFARE FUND IS NOT ALLOWABLE EXPENDITURE. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 13 IN VIEW OF THE ABOVE FINDINGS, WE SET ASIDE THE OR DER OF THE CIT(A) ON THIS ISSUE AND ALLOW THIS GROUND OF APPE AL OF THE REVENUE. 16. THE NEXT ADDITIONAL GROUND OF APPEAL RAISED BY THE REVENUE IS WITH REGARD TO PROVISION TOWARDS WAGE AR REARS. THIS ISSUE HAS BEEN DEALT IN DETAIL IN AN APPEAL OF THE REVENUE IN ITA NO.1866/MDS/2006 FOR THE ASSESSMENT YEAR 1999-2000 DECIDED ON 26.02.2013. THE RELEVANT EXTR ACT OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HERE UNDER: - 42. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE SIDES AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDGEMENTS/ORDERS REFERRED TO BY THE RESPECTIVE PARTIES. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.1690/MDS/2006 HAS DECIDED THE ISSUE AGAINST THE ASSESSEE BY HOLDING THAT LIABILITY HAS NOT BEEN CRYSTALLIZED AND IT CAN BE ALLOWED CONSEQUENT UPON ITS CRYSTALLIZATION WITHIN THE FRAMEWORK OF LAW. BE THAT AS IT MAY, IT IS AN ADMITTED FACT THAT AGREEMENT WAS ENTERED BETWEEN THE INDIAN BANKS ASSOCIATION INCLUDING THE ASSESSEE AND THE UNIONS OF STAFF/WORKERS FOR REVISION OF WAGES ETC. IT IS ALSO AN ADMITTED POSITION THAT CONSEQUENT TO REVISION IN WAGES THE AMOUNT HAS BEEN PAID TO THE STAFF. A PERUSAL OF THE ORDER OF ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 14 CIT(A) SHOWS THAT THOUGH IN NOTES ON ACCOUNT IT IS STATED THAT THE PROVISION OF ` 25.00 CRORES WAS MADE IN AN AD-HOC MANNER DURING THE ACCOUNTING PERIOD, IT FORMED PART OF THE LIABILITY INCURRED BY THE BANK ACTUALLY IN THE NEXT ACCOUNTING YEAR AND THE BANK HAS NOT CLAIMED THE AMOUNT FOR THAT YEAR. THE EXPENDITURE IS AN BUSINESS EXPENDITURE ALLOWABLE UNDER SECTION 37 OF THE ACT. NOW, THE QUESTION IS WHEN SUCH EXPENDITURE SHOULD BE ALLOWED: WHETHER IT SHOULD BE ALLOWED IN THE ASSESSMENT YEAR RELEVANT TO THE FINANCIAL YEAR IN WHICH MEMORANDUM OF UNDERSTANDING WAS SIGNED OR IN THE YEAR OF ACTUAL PAYMENT? THE LEARNED AR HAS STATED THAT THE EXPENDITURE MAY BE ALLOWED IN THE YEAR OF ACTUAL PAYMENT. IN VIEW OF THE ABOVE DISCUSSION AND THE STATEMENT MADE BY THE LEARNED AR, WE HOLD THAT THE AMOUNT CLAIMED BY THE ASSESSEE TOWARDS WAGE REVISION BE ALLOWED IN THE YEAR OF ACTUAL DISCHARGE OF THE SAID LIABILITY. THIS GROUND OF APPEAL OF THE REVENUE IS THUS PARTLY ALLOWED. SINCE, THE ISSUE IN HAND IS IDENTICAL TO THE ONE AL READY ADJUDICATED BY THE TRIBUNAL, THE PRESENT GROUND OF APPEAL IS PARTLY ALLOWED FOR THE AFORESAID REASONS. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTL Y ALLOWED. ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 15 ITA NO.2306/MDS/2008 (A.Y:2005-06): 17. THE APPEAL HAS BEEN FILED BY THE ASSESSEE IMPUG NING THE ORDER OF THE CIT(A), LTU DATED 21.10.2008 RELEV ANT TO THE ASSESSMENT YEAR 2005-06. 18. THE FIRST GROUND OF APPEAL IS WITH REGARD TO D EPRECIATION ON LAND. THE A.R. FOR THE ASSESSEE HAS FAIRLY CONCE DED THAT THIS ISSUE HAS ALREADY BEEN ADJUDICATED BY THE TRIB UNAL AGAINST THE ASSESSEE IN EARLIER APPEAL IN ITA NO.1931/MDS/2000 DECIDED ON 31.03.2006 RELEVANT T O THE ASSESSMENT YEAR 1997-98. SINCE THE AR HAS CONCEDED THAT THE ISSUE IS DECIDED BY THE TRIBUNAL AGAINST THE A SSESSEE, WE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN THE AFOREMENTIONED APPEAL, WE DISMISS THIS GROUND OF AP PEAL OF THE ASSESSEE. 19. THE SECOND GROUND OF APPEAL OF THE ASSESSEE REL ATES TO BAD DEBTS WRITTEN OFF. THIS ISSUE HAS ALREADY BEEN ADJUDICATED BY THE TRIBUNAL IN THE APPEAL OF THE ASSESSEE IN IT A NO.1146/MDS/2008, WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER:- ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 16 33. WE HAVE CONSIDERED THE SUBMISSIONS MADE BY TH E REPRESENTATIVES OF BOTH THE SIDES. THE HONBLE SUP REME COURT OF INDIA IN THE CASE OF TRF LTD (SUPRA) HAS HELD AS UNDER:- AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE INCOME TAX ACT, 1961 WITH EFFECT FROM 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH, IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. IN VIEW OF THE ABOVE, WE HOLD THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE JUDGEMENT OF TH E HONBLE APEX COURT. AS IN THE PRESENT CASE, THE ASSESSEE HAS CLAIMED THE BAD DEBTS WRITTEN OFF IN RESPECT OF RURAL ADVANCES. A PERUSAL OF THE DOCUMEN TS ON RECORD SHOWS THAT THE BAD DEBTS WRITTEN OFF BY THE ASSESSEE RELATES TO NON-RURAL BRANCHES AS WELL. THE ISSUE REGARDING WRITING OFF THE BAD DEBTS IN RESPEC T OF NON-RURAL BRANCHES IS COVERED BY THE JUDGEMENT OF T HE HONBLE SUPREME COURT OF INDIA IN THE CASE OF CATHO LIC SYRIAN BANK LTD. REPORTED AS 343 ITR 270(SC). IN VI EW OF THE ABOVE, WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE MATTER AFRESH BY TA KING INTO CONSIDERATION THE AFOREMENTIONED JUDGEMENTS OF THE HONBLE SUPREME COURT OF INDIA. THIS GROUND OF APPE AL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. FOR THE REASONS RECORDED ABOVE, WE REMIT THIS GROUN D BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISS UE FRESH BY TAKING INTO CONSIDERATION THE AFOREMENTIONED JUDGEM ENTS OF ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 17 THE HONBLE SUPREME COURT OF INDIA. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 20. THE THIRD GROUND OF APPEAL OF THE ASSESSEE RELA TES TO DISALLOWANCE UNDER SECTION 14A . THE AR MAKES A STATEMENT AT THE BAR THAT HE IS NOT PRESSING THIS GROUND. THE REFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED AS HA VING NOT PRESSED. 21. THE FOURTH GROUND OF APPEAL OF THE ASSESSEE IS WITH RESPECT TO TAXABILITY OF EXCHANGE GAIN ARISING ON A CCOUNT OF RETURN OF CAPITAL ON ACCOUNT OF REPATRIATION. SIMIL AR ISSUE HAS COME UP EARLIER IN ITA NOS.2412 & 323/MDS/2003 FOR THE ASSESSMENT YEARS 1994-95 AND 1995-96 IN THE APPEAL OF THE ASSESSEE AND THE SAME WAS DECIDED BY THE TRIBUNAL V IDE ORDER DATED 31 ST JANUARY, 2013. THE FINDINGS OF THE TRIBUNAL ON THE ISSUE ARE REPRODUCED HEREIN BELOW:- 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE CIT(A) HAS HELD AS UNDER: 8. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS OF THE LEARNED COUNSEL FOR THE APPELLANT AND THE ASSESSING OFFICER AND PERUSED THE NECESSARY MATERIAL ON RECORD. THE C ONTENTION OF THE APPELLANT'S COUNSEL THAT THE NOTIONAL UNREAL ISED GAIN AROSE ON ACCOUNT OF THE DIFFERENCE IN EXCHANGE RATE DIFFERENCE BETWEEN THE DATE ON WHICH THE FUNDS WERE REMITTED BY CENTRAL OFFICE TO ITS OVERSEAS BRANCHES AND THE DATE ON WHICH THESE ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 18 FUNDS WERE REMITTED BACK TO CENTRAL OFFICE IS A CON TRADICTION IN TERMS. ONCE THE FUNDS REMITTED ORIGINALLY WERE RE CEIVED BACK WITH ENHANCED AMOUNT ON ACCOUNT OF THE EXCHANGE DIFFERENCE, THIS ITSELF SHOWS THAT THE EXCHANGE GAI N DIFFERENCE HAS BEEN REALISED BY THE APPELLANT. IT WOULD THEREF ORE BE WRONG TO SAY THAT NOTIONAL UNREALISED GAIN AROSE. A S REGARDS THE VARIOUS DECISIONS RELIED ON BY THE APPELLANT CO UNSEL IT WOULD BE RELEVANT TO DISCUSS THE RATIO OF THE VARIO US DECISIONS. 151 ITR 446 THIS CASE RELATES TO THE APPELLANT BANK ITSELF. IN THIS CASE THE APPELLANT BANK DEALING IN FOREIGN CUR RENCIES ON BEHALF OF CUSTOMERS, THE LOSS OR PROFIT ARISING ON THE OUTSTANDING CONTRACTS WAS ESTIMATED, BASED ON THE EXCHANGE AS ON THE CLOSING DATE. THE APPELLANT BANK MADE PROVISION FOR THIS AMOUNT I N ITS ACCOUNT FOR THE ACCOUNTING PERIOD ON THE GROUND THA T THIS AMOUNT HAD TO BE PROVIDED FOR BEFORE ASCERTAINING T HE PROFIT AND ACCORDINGLY CLAIMED THE DEDUCTION OF THE SAID A MOUNT FROM THE PROFIT. IT HAS BEEN HELD BY THE HONOURABLE MADRAS HIGH COURT HELD THAT IT CANNOT BE DISPUTED THAT AS AGAINST THE PROFITS EARNED IN THE ACCOUNTING YEAR, ONLY THE ACTUAL LOSS INCURRED CAN BE DEDUCTED AND NOT ANY PROBABLE OR POSSIBLE LOSS. AS THERE WAS NO SETTLEMENT OF THE OUTSTANDING CONTRACTS IN THE ACCOUNTING YEAR IN QUESTION, THE AMOUNT CLAIMED COULD ONLY BE CONSIDERED TO BE A NOTIONAL OR ANTICIPATED LOSS AND SUCH NOTIONAL OR ANTICIPATED LOSS COULD NOT BE ALLOWED DEDUCTION. THE TRIBUNAL WAS, THEREFORE, IN ERROR AND THE AMOUNT CLAIMED COULD NOT BE ALLOWED AS A DEDUCTION. IT CAN THUS BEEN SEEN THAT THE AMOUNT CLAIMED BY TH E APPELLANT ON THE BASIS OF THE ANTICIPATED LIABILITY WAS HELD TO BE NOT ALLOWABLE. THE DECISION WAS AGAINST THE APPE LLANT. 183 ITR200 THE RATIO OF THE DECISION IN THIS CASE WHICH IS ALS O IN THE CASE OF APPELLANT ITSELF IS BASED ON THE REAL INCOME PRINCIPLE. IT HAS BEEN HELD THEREIN ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 19 'THE LEVY OF INCOME TAX IS ON INCOME AND. THOUGH TH E INCOME TAX ACT HAS TAKEN NOTE OF THE TWIN POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VI Z: THE ACCRUAL OF INCOME OR ITS RECEIPT, YET, THE SUBSTANC E OF THE MATTER IS INCOME AND IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH, FOR PURPOS ES OF BOOK-KEEPING, AN ENTRY IS MADE ABOUT AN HYPOTHETICAL INCOME WHICH DOES NOT MATERIALISE AND A MERE BOOK-KEEPING ENTRY CANNOT BE INCOME UNLESS INCOME HAS ACTUALLY RESULTED. THE QUESTION WHETHER THERE IS A LOSS OR PROFIT ON FOREIGN EXCHANGE TRANSACTIONS CAN BE ASCERTAINED ONLY AFTER THE SETTLEMENT OF THE FORWAR D CONTRACTS AND NOT BEFORE AND SO LONG AS THAT STAGE HAS NOT BEEN REACHED, THE LOSS CAN ONLY BE NOTIONAL AND NOT ACTUAL OR REAL AND A NOTIONAL L OSS CANNOT BE CLAIMED AS A DEDUCTION. WHETHER A LOSS OR PROFIT, THE PRINCIPLE APPLICABLE WOULD BE THE SAME AND THE ESTIMATED PROFIT, TILL THE SETTLEMENT OF THE FO RWARD FOREIGN EXCHANGE CONTRACTS, COULD BE REGARDED ONLY AS NOTIONAL AND NOT ACTUAL OR REAL AND SUCH NOTIONA L PROFITS CANNOT BE ASSESSED. 250 ITR 146 THIS CASE ALSO RELATES TO THE DECISION OF THE HIGH COURT IN THE APPELLANT'S OWN CASE. IT HAS BEEN HELD THAT '(II) THAT THE PROVISION MADE IN THE ACCOUNTS TOWARDS THE ESTIMATED PROFIT ON EXCHANGE TRANSACTIONS WAS NOT LIABLE TO TAX AND NOT TO BE INCLUDED IN THE PRO FITS FOR THE YEAR IN QUESTION.' IT IS THUS SEEN THAT THE PROVISION WAS MADE IN THE AMOUNT ON THE BASIS OF THE ESTIMATED PROFIT ON EXCHANGE TR ANSACTION. 246 ITR 206 IN THIS CASE IT HAS BEEN HELD 'THAT THE TRIBUNAL WAS NOT CORRECT IN ITS VIEW THA T THE ESTIMATED PROFIT OF THE ASSESSEE ON CONTRACTS I N ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 20 FOREIGN EXCHANGE WAS LIABLE TO BE INCLUDED AS PART OF THE TOTAL INCOME OF THE ASSESSEE.' IT IS THUS SEEN THAT HERE AGAIN THE PROFIT WAS EST IMATED ON FOREIGN EXCHANGE HELD TO BE NOT TAXABLE ON ACCOUNT OF THE PROFIT BEING ON ESTIMATED. BASIS. 9. IT CAN THUS BEEN SEEN FROM THE DECISIONS CITED AND ANALYSED SUPRA THAT THE CLAIM OF THE APPELLANT WAS BASED ON ESTIMATED LIABILITY OR THE ESTIMATED PROFIT ON EXC HANGE DIFFERENCE. THEREFORE THE RATIOS OF THE ABOVE DECIS IONS WILL NOT APPLY IN THE PRESENT APPEAL SINCE IN THE PRESE NT APPEAL THE ACTUAL AMOUNT DUE TO THE APPELLANT FROM OVERSEAS BRANCHES HAD BEEN RECEIVED AND AS A RESULT OF SUCH RECEIPT THE PROFIT HAS NOT ONLY ACCRUED BUT ALSO BEEN REALI SED BY THE APPELLANT. AS REGARDS THE DECISION OF THE SUPREME COURT IN BROOKE BOND INDIA LTD REPORTED IN 225 ITR 789 RELIED ON BY THE APPELLANT, I MAY MENTION HERE THAT THE SAID DECISION IS WITH REFERENCE TO THE EXPENDITURE INCURRED IN CONNECTION WITH THE INCREASE OF CAPITAL BASE BY AN ASSESSEE. IN THE PRE SENT CASE THE INCREASE OF CAPITAL BASE WAS NOT BY THE APPELLA NT BANK NOR HAS THE APPELLANT INCURRED ANY SUCH EXPENDITURE . THEREFORE, THE RATIO OF THE SAID DECISION IS NOT AP PLICABLE TO THE FACTS OF THE PRESENT CASE 10. THE SUPREME COURT IN CASE OF SUTLEJ COTTON MILL LTD VS COMMISSIONER OF INCOME TAX (WB) HAS FORMULATED THE TESTS FOR DETERMINING THE PROFITABILITY ON ACCOUNT OF THE APPRECIATION OR DEPRECIATION IN THE VALUE OF FOREIG N CURRENCY. IT HAS BEEN HELD THEREIN THAT 'WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF APPRECIATION OR DEPRECIATION IN THE VALU E OF FOREIGN CURRENCY HELD HIM, ON CONVERSION INTO ANOTHER CURRENCY, SUCH PROFIT OR LOSS WOULD ORDINARILY BE TRADING PROFIT OR LOSS IF THE FOREIGN CURRENCY IS HELD BY THE ASSESSEE ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULATING CAPITAL EMBARKED IN THE BUSINESS. BUT, IF ON THE OTHER HAND, THE FOREIGN CURRENCY IS HELD AS A CAPITAL ASSET OR AS FIXED CAPITAL, SUCH PROFIT OR L OSS ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 21 WOULD BE OF CAPITAL NATURE. IT IS NOW WELL SETTLED THAT THE WAY IN WHICH ENTRIES ARE MADE BY AN ASSESSEE IN HIS BOOKS OF ACCOUNT IS NOT DETERMINATIVE OF THE QUESTION WHETHER THE ASSESSEE HAS EARNED ANY PROFIT OR SUFFERED ANY LOSS. THE ASSESSEE MAY, BY MAKING ENTRIES WHICH ARE NOT IN CONFORMITY WITH THE PROPER PRINCIPLES O F ACCOUNTANCY, CONCEAL PROFIT OR SHOW LOSS AND THE ENTRIES MADE BY HIM CANNOT, THEREFORE, BE REGARDED AS CONCLUSIVE ONE WAY OR THE OTHER. WHAT IS NECESSARY TO BE CONSIDERED IS THE TRUE NATURE OF THE TRANSACTION AND WHETHER IN FACT IT HA S RESULTED IN PROFIT OR LOSS TO THE ASSESSEE. FOLLOWING THE SAID DECISION THE BOMBAY HIGH COURT IN CASE OF COMMISSIONER OF INCOME TAX VS BANK OF IN DIA REPORTED IN 218 ITR 371 HAS HELD AS UNDER: 'WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF APPRECIATION OR DEPRECIATION IN THE VALUE OF FOREIGN CURRENCY HELD BY HIM, ON CONVERSION INTO ANOTHER CURRENCY, SUCH PROFIT OR LOSS WOULD ORDINARILY BE TRADING PROFIT OR LOSS IF THE FOREIGN CURRENCY I S HELD BY HIM ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULATING CAPITAL IN THE BUSINESS. IT WOULD, HOWEVER, BE PROFIT OR LOSS OF CAPITAL NATURE, IF THE FOREIGN CURRENCY IS HELD AS A CAPITAL ASSET OR AS FIXED CAPITAL. FOR DETERMINING WHETHER DEVALUATION LOSS IS REVENUE LOSS OR CAPITAL LOSS WHAT IS RELEVANT IS THE UTILISATION OF THE AMOUNT AT THE TIME DEVALUATION AND NOT THE OBJECT FOR WHICH THE LOAN HAD BEEN OBTAINED. EVEN IF THE FOREIGN CURRENCY WAS INTENDED OR HAD ORIGINALLY BEEN UTILISED FOR ACQUISITION OF FIXED ASSET, IF AT THE TIME OF DEVALUATION IT HAD CHANGED ITS CHARACTER AND HAD ASSUMED THE NEW CHARACTER OF STOCK-IN- TRADE OR CIRCULATING CAPITAL, THE LOSS THAT OCCURRED ON ACCOUNT OF DEVALUATION SHALL BE A REVENUE LOSS AND NOT A CAPITAL LOSS. BASED ON THE ABOVE TWO DECISIONS THE TESTS FOR DETERMINING THE TAXABILITY OF PROFIT ARISING OUT OF FOREIGN ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 22 EXCHANGE WOULD BE TO DETERMINE I) WHAT IS THE NATURE OF TRANSACTION? II) WHETHER THE TRANSACTION RELATES TO THE CIRCULATING CAPITAL OR THE INVESTMENT? III) WHETHER A PROFIT HAS RESULTED OUT OF SUCH TRANSACTIONS? 11. APPLYING THE ABOVE TESTS TO THE FACTS OF THE P RESENT CASE THERE IS NO DISPUTE THAT THE APPELLANT'S HEA D OFFICE TRANSFERRED THE AMOUNT TO ITS FOREIGN BRANCHES AS C IRCULATING CAPITAL. THE AMOUNT SO TRANSFERRED BY ANY PARAMETE R CANNOT BE SAID TO BE INVESTMENT. MOREOVER THERE IS NO DIS PUTE IN THE PRESENT CASE THAT THE PROFIT HAS ARISEN AS RESU LT OF THE TRANSACTIONS. IN MY VIEW THEREFORE THE TESTS LAID D OWN BY THE SUPREME COURT IN CASE OF 116 ITR 1 AND BOMBAY HIGH COURT IN 218 ITR 371 ARE SATISFIED WHICH LEAD TO IR RESISTIBLE CONCLUSION THAT THE IMPUGNED AMOUNT WHICH AROSE ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION IS IN THE N ATURE OF REVENUE RECEIPT LIABLE TO BE TAXED. THE ADDITION OF RS.131,59,65,267/- MADE BY THE ASSESSING OFFICER IS THEREFORE CONFIRMED. THE APPELLANT FAILS ON THIS GR OUND. 14. BEFORE US, THE ASSESSEE CONTENDED THAT IT HAS REMITTED CAPITAL TO ITS BRANCHES OUTSIDE INDIA. WH EN THE CAPITAL IN SUBSEQUENT YEARS BECAME EXCESS THE SAME WAS BROUGHT BACK TO INDIA AND THEREFORE, THE EXCHAN GE GAIN RECEIVED BY THE ASSESSEE WAS ON ACCOUNT OF CA PITAL AND THEREFORE, NOT LIABLE TO TAX. WE FIND THAT THE ASSESSEE IS ENGAGED IN BANKING BUSINESS IN INDIA AS WELL AS ABROAD IN ITS BRANCHES. IT IS UNDISPUTED FACT T HAT THE ASSESSEE, FOR ITS BUSINESS PURPOSES, TRANSFERRED MO NEY TO ITS BRANCHES ABROAD AND SUBSEQUENTLY WHEN MONEY WAS SURPLUS IN THE BRANCHES, IT RECEIVED MONEY BACK FROM THE ABROAD BRANCHES. WHEN MONEY WAS RECEIVED BACK EXCHANGE FLUCTUATION INCOME ACCRUED TO THE ASSESSEE. IN THE CASE OF SUTLEZ COTTON MILLS LTD V S CIT, 116 ITR 1, THE HON'BLE SUPREME COURT HAS HELD AS UNDER: ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 23 'WHERE PROFIT OR LOSS ARISES TO AN ASSESSEE ON ACCOUNT OF APPRECIATION OR DEPRECIATION IN THE VALU E OF FOREIGN CURRENCY HELD HIM, ON CONVERSION INTO ANOTHER CURRENCY, SUCH PROFIT OR LOSS WOULD ORDINARILY BE TRADING PROFIT OR LOSS IF THE FOREIGN CURRENCY IS HELD BY THE ASSESSEE ON REVENUE ACCOUNT OR AS A TRADING ASSET OR AS PART OF CIRCULATING CAPITAL EMBARKED IN THE BUSINESS. BUT, IF ON THE OTHER HAND, THE FOREIGN CURRENCY IS HELD AS A CAPITAL ASSET OR AS FIXED CAPITAL, SUCH PROFIT OR L OSS WOULD BE OF CAPITAL NATURE. 15. NO MATERIAL COULD BE BROUGHT BEFORE US TO SHOW THAT THE FOREIGN CURRENCY WHICH WAS BROUGHT BACK BY THE ASSESSEE WAS HELD AS CAPITAL ASSET OR FIXED ASSET OF THE ASSESSEE AND NOT ITS TRADING ASSET. THUS, WE DO NO T FIND ANY GOOD REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AUTHORITIES. THEY ARE CONFIRMED AND THE GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. REPRESENTATIVES OF BOTH THE SIDES ARE IN CONSONANCE THAT THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL. RESP ECTFULLY FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, W E DISMISS THE GROUND OF APPEAL OF THE ASSESSEE FOR THE ASSESS MENT YEAR 2005-06 AS WELL. 22. THE FIFTH GROUND OF APPEAL OF THE ASSESSEE IS W ITH RESPECT TO APPLICABILITY OF PROVISIONS OF SECTION 1 15JB IN THE CASE OF THE BANKS. THE A.R POINTED OUT THAT IN THE PRESENT CASE THIS GROUND OF APPEAL WAS AGITATED BEFORE THE CIT(A). THE CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR WITHOUT ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 24 SPECIFYING REASONS HAS DISMISSED THIS GROUND OF APP EAL OF THE ASSESSEE. COPY OF THE EARLIER ORDER PASSED BY THE PREDECESSOR OF THE CIT(A) HAS NOT BEEN PLACED ON RE CORD BY EITHER OF THE PARTIES. THE A.R. HAS PLACED RELIANC E ON THE ORDER OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF STATE BANK OF HYDERABAD VS. DCIT IN ITA NO.578/HYD/ 2010 RELEVANT TO THE ASSESSMENT YEAR 2007-08 DECIDED ON 7.9.2012, WHEREIN THE TRIBUNAL HAS HELD THAT THE PR OVISIONS OF SECTION 115JB WILL NOT BE APPLICABLE TO THE ASSESSE E AND SET ASIDE THE ASSESSMENT MADE UNDER SECTION 115JB ON TH E ASSESSEE BANK. THE RELEVANT EXTRACT OF THE ORDER OF THE TRIBUNAL IS REPRODUCED HEREIN BELOW:- 13. THE PROVISIONS OF SEC.115JB WILL BE APPLICABL E TO ALL COMPANIES. HOWEVER, IT IS CONTENDED THAT SEC.115JB WILL BE APPLICABLE ONLY WHERE THE ASSESSEE IS REQUIRED TO S HOW PROFIT & LOSS ACCOUNT IN ACCORDANCE WITH SCHEDULE VI OF CO MPANIES ACT. AS THE BANKS ARE REQUIRED TO PREPARE BALANCE S HEET AND PROFIT & LOSS ACCOUNT IN ACCORDANCE WITH THE BANKIN G REGULATION ACT, PROVISION OF 115JB CANNOT BE APPLIE D TO THE BANKS. IN THE CASE OF MAHARASHTRA STATE ELECTRICITY BOARD VS. JCIT (82 ITD 422) IT WAS HELD THAT PROVISIONS OF BO OK PROFIT CANNOT BE APPLIED TO ELECTRICITY COMPANIES. BANKING COMPANIES AND COMPANIES ENGAGED IN GENERATION AND SUPPLY OF ELECTRICITY DO NOT HAVE TO PREPARE THEIR ACCOUNTS IN ACCORDANCE WITH PARTS II AND III OF SCH. VI OF THE COMPANIES ACT BY THE VIRTUE OF PROVISO TO SEC 211(2) OF THE C OMPANIES ACT. WE FIND THAT BY THE FINANCE ACT 2012, WITH EFF ECT FROM 1.4.2013, EVEN COMPANIES TO WHICH PROVISO TO SEC 21 1(2) APPLIES (THE BANKING COMPANIES AND COMPANIES ENGAGE D IN GENERATING AND DISTRIBUTION OF ELECTRICITY), SHOULD PREPARE THEIR ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 25 P&L AND BALANCE SHEET IN ACCORDANCE WITH THE PROVIS IONS OF THE ACT GOVERNING SUCH COMPANIES. THIS WOULD MEAN T HAT PRIOR TO AY 2013-14, PROVISIONS OF SEC 115JB WILL N OT APPLY TO COMPANIES TO WHICH PROVISO TO SEC 211(2) OF THE COM PANIES ACT, 1956 APPLIES. THE ASSESSEE BEING A COMPANY TO WHICH PROVISO TO SEC 211(2) OF THE COMPANIES ACT 1956 APP LIES, WILL NOT BE LIABLE TO BE TAXED UNDER SEC 115JB. 14. THE MUMBAI TRIBUNAL IN THE CASE OF KRUNG THAI BANK VS. JCIT (133 TTJ 435), TO WHICH ONE OF US IS A PARTY H AS HELD THAT PROVISION OF SEC.115JB CANNOT BE APPLIED TO TH E BANKING COMPANY. 15. IN VIEW OF THE ABOVE, AS THE AMENDMENT TO SEC 1 15JB BY THE FINANCE ACT 2012 WILL BE APPLICABLE ONLY FROM T HE AY 2013-2014, WE UPHOLD THE CLAIM OF THE ASSESSEE THAT PROVISION OF SEC.115JB WILL NOT BE APPLICABLE TO TH E ASSESSEE BANK AND SET ASIDE THE ASSESSMENT MADE U/S 115JB ON THE ASSESSEE COMPANY. SIMILAR VIEW HAS BEEN TAKEN BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ICICI LOMBARD GENERAL INSUR ANCE CO. LTD. IN ITA NO.2398/MUM/2009, WHEREIN THE TRIBUNAL RELYING ON THE ORDER OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF STATE BANK OF HYDERABAD (SUPRA) HAS CONCLUD ED THAT THE PROVISIONS OF SECTION 115JB ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. ON THE OTHER HAND, THE DR HAS VEHEMENTLY ARGUED TH AT THE ASSESSEE IS A COMPANY AND THEREFORE, THE PROVIS IONS OF SECTION 115JB ARE APPLICABLE ON THE ASSESSEE. IN OR DER TO ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 26 SUPPORT HIS CONTENTIONS, THE LEARNED DR REFERRED TO THE PROVISIONS OF SECTION 3 OF THE COMPANIES ACT, 1956 TO SAY THAT THE ASSESSEE WAS INCORPORATED IN THE YEAR 1937 UNDER THE PROVISIONS OF INDIAN COMPANIES ACT, 1913 AND ST ILL IT IS GOVERNED BY THE PROVISIONS OF THE COMPANIES ACT, 19 56. THE LEARNED DR FURTHER REFERRED TO SECTION 2 OF THE BAN KING REGULATION ACT, 1949 WHICH STATES THAT THE ACT IS I N ADDITION TO AND NOT IN DEROGATION OF THE COMPANIES ACT, 1956 UNLESS EXPRESSLY PROVIDED. TO GIVE IMPETUS TO HIS SUBMISSI ONS, THE LEARNED DR RELIED ON THE FOLLOWING CASE LAWS:- I) INDIAN OVERSEAS BANK LTD. VS. CIT., MADRAS REPORTED AS 1970 AIR 1530 II) IOB VS. CIT., REPORTED AS 63 ITR 733(MAD) III) CWT VS. S.P.SHANMUGHA KESARI REPORTED AS 121 ITR 403 (MAD) 23. WE HAVE HEARD THE SUBMISSIONS MADE BY BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO EXAMINED THE JUDGEMENTS/ORDERS REFERRE D TO BY BOTH THE SIDES. THE DR HAS PLACED RELIANCE ON THE ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 27 JUDGEMENTS WHICH ARE PRIOR TO NATIONALIZATION OF BA NKS. AFTER THE ENACTMENT OF THE BANKING COMPANIES (ACQUISITION & TRANSFER OF UNDERTAKINGS) ACT, 1970 THE STATUS OF B ANKS HAVE CHANGED AND THE SAID JUDGEMENTS HAVE LOST THEIR RE LEVANCE IN THE POST NATIONALIZATION SCENARIO. THE FACTS OF THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF S.P.SHANMUGHA KESARI (SUPRA) ARE ENTIRELY DIFFERENT FROM THE CASE IN HAND. THEREFORE, THE RATIO OF THE SAID DECI SION IS ALSO NOT APPLICABLE IN THE INSTANT CASE. ON THE CONTRA RY, THE ORDER OF THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF STATE BANK OF HYDERABAD (SUPRA) DEALS WITH AN IDENTICAL ISSUE. THE TRIBUNAL HAS HELD THAT PROVISIONS OF SECTION 115JB CANNOT BE APPLIED TO THE BANKING COMPANY. HOWEVER, IN VIEW O F AMENDMENT TO THE PROVISIONS OF SECTION 115JB BY THE FINANCE ACT, 2012, THE PROVISIONS OF SECTION 115JB ARE APPLICABLE TO THE BANKS AS WELL FROM ASSESSMENT YEA R 2013- 14. RESPECTFULLY FOLLOWING THE DECISION OF THE HYDE RABAD BENCH OF THE TRIBUNAL, WE SET ASIDE THE ORDER OF TH E CIT(A) ON THIS ISSUE AND ALLOW THIS GROUND OF APPEAL OF THE A SSESSEE. ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 28 ITA NO.393/MDS/2009 (A.Y.2005-06): 24. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAI NST THE ORDER OF THE CIT(A) LTU, CHENNAI DATED 21.10.2008. 25. THE FIRST GROUND OF APPEAL RELATES TO CLAIM OF DOUBLE TAXATION RELIEF IN RESPECT OF ITS FOREIGN BRANCHES. . A SIMILAR ISSUE HAS BEEN RAISED BY THE REVENUE IN ITA NO.1566/MDS/2008 FOR THE ASSESSMENT YEAR 2004-05 WH ICH HAS BEEN DECIDED IN PARA 13 OF THIS ORDER. FOR THE REASONS RECORDED IN PARA 13 OF THE ORDER, WE REVERSE THE FI NDINGS OF THE CIT(A) ON THIS ISSUE AND ALLOW THIS GROUND OF A PPEAL OF THE REVENUE. 26. THE REVENUE HAS RAISED ADDITIONAL GROUNDS OF APPEA L. FOR THE REASONS RECORDED IN PARA 14 OF THIS ORDER I N THE APPEAL OF THE REVENUE I.E. ITA NO.1566/MDS/2008 FO R THE ASSESSMENT YEAR 2004-05 WE ALLOW THE PRAYER OF THE LEARNED DR AND TAKE ON RECORD ADDITIONAL GROUNDS RAISED B Y THE REVENUE FOR ADJUDICATION. 27. THE FIRST ADDITIONAL GROUND OF APPEAL OF THE R EVENUE IS WITH RESPECT TO APPLICABILITY OF PROVISIONS OF SECT ION 115JB IN THE CASE OF THE BANKS. SIMILAR ISSUE HAS BEEN RAISE D BY THE ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 29 ASSESSEE IN ITA NO.2306/MDS/2008 FOR THE ASSESSMENT YEAR 2005-06, WHEREIN WE HAVE CONCLUDED THIS ISSUE IN F AVOUR OF THE ASSESSEE VIDE PARA 22 AND 23 OF THE ORDER HERE INABOVE. FOR THE REASONS RECORDED IN PARA 22 AND 23, WE DISM ISS THIS GROUND OF APPEAL OF THE REVENUE. 28. THE SECOND GROUND RAISED BY THE REVENUE IS WITH RESPECT TO DISALLOWANCE OF CONTRIBUTION OF STAFF WE LFARE FUND. THIS ISSUE WAS EARLIER RAISED BY THE REVENUE AND I N ITA NO.1566/MDS/2007 FOR THE ASSESSMENT YEAR 2004-05. WE HAVE ALREADY ADJUDICATED THIS ISSUE IN FAVOUR OF TH E REVENUE. FOR THE REASONS RECORDED IN PARA 15 OF THIS ORDER, WE REVERSE THE FINDINGS OF THE CIT(A) AND ALLOW THIS GROUND OF APPEAL OF THE REVENUE. 29. THE THIRD ADDITIONAL GROUND RAISED BY THE REVEN UE RELATES TO DISALLOWANCE OF DEPRECIATION ON FIXED AS SETS TAKEN OVER FROM BANK OF TAMIL NADU LTD. AN IDENTICAL IS SUE HAS BEEN RAISED BY THE REVENUE IN ITA NO.1566/MDS/2008 FOR THE ASSESSMENT YEAR 2004-05. FOR THE REASONS RECORDED B Y US IN PARA 10 & 11 OF THIS ORDER, WE REMIT THIS ISSUE BA CK TO THE ASSESSING OFFICER WITH THE SIMILAR DIRECTIONS. THE REFORE, THIS ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 30 GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STAT ISTICAL PURPOSES. 30. THE NEXT ADDITIONAL GROUND RAISED BY THE REVENU E IS IN RESPECT OF DISALLOWANCE ON LOSS ON REVALUATION OF I NVESTMENTS. THE LEARNED AR SUBMITTED THAT SIMILAR ISSUE HAS EAR LIER BEEN RAISED IN APPEAL OF THE ASSESSEE IN ITA NO.694/MDS/ 2001 RELEVANT TO THE ASSESSMENT YEAR 1996-97. THE LEARNE D DR AGREES WITH THE STATEMENT OF THE AR . WE FIND THAT THE TRIBUNAL HAS PLACED RELIANCE ON THE JUDGEMENT OF TH E HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. KARUR VYSY A BANK LTD. IN TCA NO.2139 OF 2008 DECIDED ON 13.7.2008. T HE TRIBUNAL HELD AS UNDER:- 37. WE FIND THAT THE HON'BLE MADRAS HIGH COURT IN THE ABOVE QUOTED CASE HAS HELD AS UNDER: 2. IN SO FAR AS THE FIRST QUESTION OF LAW RAISED BY THE REVENUE IS WHETHER THE TRIBUNAL IS RIGHT IN HOLDIN G THAT THE DIMINUTION IN THE VALUE OF THE SECURITIES HELD BY THE BANK SHOULD BE ALLOWED AS DEDUCTION DISREGARDING TH E METHOD PRESCRIBED IN THE RESERVE BANK OF INDIA AS P ER WHICH PERMANENT INVESTMENTS HAD TO BE VALUED ONLY AT COST AND ONLY CURRENT INVESTMENTS WERE TO BE VALU ED AT MARKET PRICE AT THE CLOSE OF THE ACCOUNTING YEAR. THE VERY SAME ISSUE CAME UP FOR CONSIDERATION BEFORE TH IS COURT IN THE DECISION REPORTED IN 273 ITR 510 @ 571 , WHICH WAS RENDERED BY RELYING UPON THE DECISION OF THE ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 31 SUPREME COURT REPORTED IN 1999 240 ITR 355. IN THA T CASE, THE HON'BLE SUPREME COURT CATEGORICALLY FORMULATED THE PRINCIPLES AS UNDER: 1. THAT FOR VALUING THE CLOSING STOCK, IT IS OPEN TO THE ASSESSEE TO VALUE IT AT THE COST OR MARKET VALUE WHICHEVER IS LOWER; 2. IN THE BALANCE-SHEET, IF THE SECURITIES AND SHARES ARE VALUED AT COST BUT FROM THAT NO FIRM CONCLUSION CAN BE DRAWN. A TAXPAYER IS FREE TO EMPLOY FOR THE PURPOS E OF HIS TRADE, HIS OWN METHOD OF KEEPING ACCOUNTS, AND FOR THAT PURPOSE, TO VALUE STOCK-IN-TRADE EITHER AT COS T OR MARKET PRICE. 3. A METHOD OF ACCOUNTING ADOPTED BY THE TAXPAYER CONSISTENTLY AND REGULARLY, CANNOT BE DISCARDED BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNTS OR O F VALUATION. 4. THE CONCEPT OF REAL INCOME IS CERTAINLY APPLICABLE IN JUDGING WHETHER THERE HAS BEEN INCOME OR NOT, BUT, IN EVERY CASE, IT MUST BE APPLIED WITH CARE AND WITHIN THEIR RECOGNIZED LIMITS. 5. WHETHER THE INCOME HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE MUST BE JUDGED IN THE LIGHT OF THE REALITY OF THE SITUATION. 3. FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON' BLE SUPREME COURT, THIS COURT HAS CLEARLY HELD THAT THE ASSESSEE IS ENTITLED TO CHANGE THE METHOD OF VALUAT ION OF GOVERNMENT SECURITIES TO MARKET VALUE FROM COST AND CLAIM DEPRECIATION ON THE DIFFERENCE IN THE DIMINUT ION VALUE. THE TRIBUNAL ALSO RIGHTLY POINTED OUT THE A BOVE RULING AND HELD THAT THE SECURITIES ARE TRADING ASS ETS OF THE BANK AND THE LOSS ARISING ON ITS SALE IS AN ALL OWABLE DEDUCTION. THE LOSS ON SALE OF SECURITIES IS A REV ENUE LOSS CONSIDERING THAT THE SECURITIES ARE TRADING AS SETS AND NOT INVESTMENTS. HENCE, THIS QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 32 38. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF T HE HON'BLE MADRAS HIGH COURT, WE ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. IN VIEW OF THE ABOVE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 31. THE LAST ADDITIONAL GROUND OF APPEAL RAISED BY THE REVENUE IS WITH REGARD TO PROVISION FOR WAGE ARREAR S. THIS GROUND HAS ALREADY BEEN DECIDED IN APPEAL OF THE RE VENUE IN ITA NO.1566/MDS/2008 FOR ASSESSMENT YEAR 2004-05 IN PARA 16 HEREINABOVE. FOR THE REASONS RECORDED ABOVE THI S GROUND OF APPEAL IS ALLOWED. THE APPEAL OF THE REVENUE IS PARTLY ALLOWED IN THE ABOVE SAID TERMS. ITA NO.98/MDS/2010 (A.Y. 2003-04): 32. THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE IMPUGNING THE ORDER OF THE CIT(A), LTU, CHENNAI DAT ED 30.11.2009 RELEVANT TO THE ASSESSMENT YEAR 2003-04. 33. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS AS UNDER:- ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 33 THE CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER IN DISALLOWING THE APPELLANTS CLAIM IN RESPECT OF PROVISION MADE TOWARDS ARREARS OF SALARY AMOUNTING TO ` 12,00,00,000/-. THE APPEAL IS EMANATING FROM THE ORDER GIVING EFFEC T TO THE ORDER PASSED UNDER SECTION 263 OF THE ACT. THE A.R. HAS FAIRLY CONCEDED THAT THE PROVISION MADE TOWARDS ARREARS OF SALARY AMOUNTING TO ` 12 CRORES MAY BE ALLOWED IN THE YEAR OF ACTUAL PAYMENT. IN VIEW OF THE STATEMENT MADE BY THE A.R. , WE REMIT THE FILE BACK TO THE ASSESSING OFFICER WITH A DIRECTION TO ALLOW THE PAYMENT OF ARREARS OF SALARY IN THE YEAR OF ACTUAL PAYMENT. THIS GROUND OF APPEAL IS ALLOWED FOR STAT ISTICAL PURPOSE. ITA NO.248/MDS/2010 (A.Y.2003-04): 34. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAI NST THE ORDER OF THE CIT(A) LTU, CHENNAI DATED 30.11.2009. 35. THE FIRST GROUND OF APPEAL RAISED BY THE REVE NUE IS WITH RESPECT TO DEDUCTION UNDER SECTION 36(1)(VIIA) ALLOWED ON THE TOTAL INCOME BEFORE SETTING OF THE BROUGHT FORW ARD LOSSES. THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF TH E ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 34 ASSESSEE IN ITA NO.1147 /MDS/2008 RELEVANT TO THE ASSESSMENT YEAR 2003-04 DECIDED ON 11THE SEPTEMBER, 2009. THE TRIBUNAL WHILE DEALING WITH THE ISSUE HAS HELD AS UNDER:- 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND TH E RELEVANT RECORDS. THE ISSUE INVOLVED IS WHAT IS TO BE THE TOTAL INCOME FOR COMPUTATION OF THE DEDUCTION U/S.36(1)(V IIA) OF THE INCOME TAX ACT, 1961. THOUGH THE WORD USED IN THIS PROVISION IS TOTAL INCOME AND THE DEFINITION OF TOTAL INCOME U/S .2(45) OF THE INCOME TAX ACT, 1961 WHICH INCLUDES ALL INCOME OF T HE ASSESSEE AS REFERRED IN SECTION 5 AND COMPUTED AS PER THE MA NNER LAID DOWN IN THIS ACT. SINCE THE DEFINITION OF SECTION 2 BEGINS WITH THE TERM UNLESS CONTEXT OTHERWISE REQUIRES WHICH MEANS THAT THE DEFINITION PROVIDED U/S.2 OF THE INCOME TAX ACT, 19 61 ARE NOT EXCLUSIVE. MOREOVER, AS PER SECTION 2(45) OF THE IN COME TAX ACT, 1961 INCOME OF THE ASSESSEE IS TO BE COMPUTED AS P ER THE MANNER PRESCRIBED IN THIS ACT. THE PURPOSE OF TOTAL INCOME U/S.36(1)(VIIA) OF THE INCOME TAX ACT, 1961 IS FOR COMPUTING THE DEDUCTION FOR COMPUTATION OF BUSINESS INCOME AS PER THE PROVISIONS OF SECTION 28 TO 43D OF THE INCOME TAX A CT, 1961. THEREFORE, THE TERM TOTAL INCOME REFERRED IN CLAUSE (VIIA) OF SUB- SECTION 1 OF SECTION 36 OF THE INCOME TAX ACT, 1961 IS USED FOR THE PURPOSE OF STATUTORY DEDUCTION AVAILABLE FOR BU SINESS INCOME. IN THE CASE OF WEST BENGAL INDUSTRIAL DEVELOPMENT C ORPORATION LTD. VS. JCIT.(SUPRA) THE KOLKATA BENCHES OF THIS T RIBUNAL HAS HELD AS UNDER:- '2 . WE HAVE H E A R D B O TH THE P A RT IES AND H AVE GO NE ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 35 T HROU GH THE OR D E RS O F T H E AU T HO RI T IE S BELOW. W E F I ND THA T TH E ISSU E I N VOLVED IN THIS APPEAL H A D COME FOR CONSIDERAT I O N BE F ORE THIS TRIBUNAL ' E' BE N CH I N I.T.A . NO .1 2 0 7/1 994 WHEREIN TH I S TRIBUNAL VIDE I TS OR D ER DATED 18.08 .1 996 H A D H E L D T HAT THE AC CO UNTING OF I NTERE S T O N NON- P ERFOR MING A SSET S IS TO BE ACCOU N TED . FO R ON R EC EIPT BASIS. TH E SIM I LA R ISSUE HAD A L SO COME BE F O R E T H I S T R I BUNAL IN THE ASSESSEE'S AP PE AL F O R THE ASSESSMEN T YEAR 1995 - 1996 WH ER E IN T HIS T RI B U N AL H A VING FO L LOWED IT S EA R L I ER ORD E R ALL OWE D T H E A S SES SEE'S APPEA L . RESPE C TF U L L Y F O L LOWING THE D ECIS ION O F THE TRIBUNAL IN THE ASSESSEE'S OW N CASE, WE DO NOT FI N D ANY M E R I T IN THE ORDER PASSED BY T H E L E A R N E D COMM IS SI O N E R OF IN COM E T AX U/S.263 OF THE A CT W I T H RE GA RD TO T H E D I RECTION TO A S SESS THE IN TE RES T INCOM E O N AC CRUED BASIS . FURT H E R, W I T H RE G A RD T O THE POI N T FO R A L LOWI NG D EDU C T I ON UJS . 36(1) ( VI I A) ON AC CO U NT OF P R O VISION FOR DOUBTFUL DE B TS, W E FIND NO S UBSTA N C E IN THE COMMISSI O N E R OF INC OME T A X 'S ORDE R IN DIRE CT I N G THE ASSESSING O FFI CER TO ALLOW DE D UCT I ON U J S . 3 6(1) (V IIA) AFTER SETT I NG O F F OF BROUGH T FORWA R D B U SI N E S S LOSSES IN AS MUCH AS T HE SE T OFF O F BROUGH T FO R WA R D B USINESS L O S S E S A R E TH E M ATTER OF C H A PTER - VI C ONSI S TING OF SECTI O N S 70 TO 80 AN D N O T FAL L ING W IT HIN T H E MANN E R O F COMPUTAT IO N OF B USI N E SS I N COME IN ACCORDANCE WITH TH E PROV ISION S CONT A INED I N SECTIONS 30 TO 4 3D. B E I T STA T ED HERE T HAT INC OME FROM PR O FIT A N D GAI N FR OM B US IN E S S O R PRO FE SS IO N ARE TO B E COMP UT E D I N ACCO R DA N CE WI TH THE P RO V I S I ON C O N T AI N E D IN S ECTI O N 30 TO 43D AND AS SUCH THE COMPUTAT I ON O F IN C O ME F R O M PROFI T AND GAINS OF B U S I N E SS H AVE N OT HI N G TO DO WITH T H E AMO U N T O F B US IN ES S LO SS ES BROUGH T F ORWA R D FROM EA R LIER YEARS WHICH I S DED UCTIB L E U / S.70 T O 80 OF T HE ACT A N D NOT W IT H IN T HE SECTIO N S 30 TO 43D O F THE ACT . IN TH IS C O NNEC T ION R E F ERE N CE MA Y BE MADE ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 36 TO A D EC I SION OF T H E MAD R A S H I GH C O U RT IN THE C A SE OF COMM I SS IONER O F I NC O M E T AX , M ADRAS V S. L.M. VAN MOPPE S DIAM O ND TO OLS (INDIA ) LIMITE D REPORTED I N 1 07 I TR 386. WE A CCO R DI N GLY , SET AS I D E T H E ORDER PASSE D U / S . 263 B Y TH E C O MMISS IO N E R OF I NCOME T AX.' 10. IN VIEW OF THE ABOVE DISCUSSION AND THE DECISIO N OF THE KOLKATA BENCHES OF THIS TRIBUNAL, WE ARE OF THE VIE W THAT WHILE COMPUTING THE STATUTORY DEDUCTION UNDER CLAUSE (VII A) OF SUB- SECTION 1 OF SECTION 36 OF THE INCOME TAX ACT, 1961 , THE TOTAL INCOME WOULD BE THE BUSINESS INCOME OF THE ASSESSEE BEFORE DEDUCTING THE DEDUCTION UNDER THIS CLAUSE AND DEDUC TIONS UNDER CHAPTER 6A OF THE INCOME TAX ACT, 1961. THEREFORE, THE BROUGHT FORWARD LOSSES WOULD NOT BE DEDUCTED WHILE COMPUTIN G THE TOTAL INCOME FOR THE PURPOSE OF SECTION 36(1)(VIIA). SINC E THE DEDUCTION IS AVAILABLE ONLY FOR COMPUTING THE BUSIN ESS INCOME UNDER THE CLAUSE, THEREFORE THE TOTAL INCOME ALSO R EFERS THE INCOME OF THE ASSESSEE FROM PROFIT AND GAIN FROM A BUSINESS AND SHALL NOT INCLUDE THE INCOME OTHER THAN THE BUSINES S INCOME. WE FIND THAT ISSUE IN HAND IS IDENTICAL TO THE ONE ALREADY DECIDED BY THE TRIBUNAL IN ITA NO.1147/MDS/2008 IN ASSESSEES OWN CASE. RESPECTFULLY FOLLOWING THE SAM E, WE DISMISS THIS GROUND OF THE APPEAL OF THE REVENUE. 36. THE SECOND GROUND OF APPEAL RAISED BY THE REVEN UE IS IN RESPECT OF INTEREST RECEIVED FROM EXPORT CREDIT GUARANTEE CORPORATION (ECGC). THE DR SUBMITTED THAT NO EVIDEN CE WAS FURNISHED BEFORE THE ASSESSING OFFICER FOR CLAIMING THE EXPORT ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 37 CREDIT BY THE ASSESSEE. ON THE OTHER HAND, THE LEAR NED AR STRONGLY SUPPORTING THE ORDER OF CIT(A) ON THE ISSU E STATED THAT CIT(A) HAS PASSED A REASONED ORDER AFTER EXAMI NING ECGC SCHEME. THERE IS NO PROVISION TO PAY INTEREST BY ECGC. THE ASSESSING OFFICER HAS MADE ADDITION ONLY ON THE BASIS OF PRESUMPTION. WE HAVE HEARD THE SUBMISSION S MADE BY BOTH THE PARTIES AND HAVE GONE THROUGH THE IMPU GNED ORDER OF THE CIT(A). THE CIT(A) HAS GIVEN A CATEGOR IC FINDING THAT UNDER CLAUSE (VII) OF THE SALIENT FEATURES OF THE EXPORT CREDIT INSURANCE FOR BANKS, IT IS MENTIONED INTER EST PAYABLE BY THE EXPORTER ON THE PACKING CREDIT ADVANCES WILL NOT BE ELIGIBLE FOR COVER ECIB (WT-PC). AS SUCH THERE IS NO PROVISION TO PAY INTEREST BY ECGC. THE LEARNED AR H AS PLACED ON RECORD A COPY OF THE SALIENT FEATURES OF THE ECIB DATED 26.7.2008, WHEREIN IT HAS BEEN MENTIONED: VII) INTEREST: INTEREST PAYABLE BY THE EXPORTER O N THE POST-SHIPMENT ADVANCES AND THE EXCHANGED LOSS INCURRED BY BANK ON BILLS RETURNED UNPAID WILL NOT BE ELIGIBLE FOR COVER UNDER ECIB (WT PS). ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 38 WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A).THEREFORE, WE DO NOT DEEM IT APPROPRIATE TO INTERFERE WITH THE SAME AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 37. THE THIRD GROUND RAISED BY THE REVENUE RELATES TO LEVY OF INTEREST UNDER SECTION 234D. THE D.R. SUBMITTED THAT INTEREST UNDER SECTION 234D HAS BEEN INTRODUCED WIT H EFFECT FROM 1.6.2003 WITHOUT SPECIFIC REFERENCE TO ANY ASS ESSMENT YEAR. THE CIT(A) OUGHT TO HAVE SEEN THAT INTEREST U NDER SECTION 234D IS LEVIABLE ON OR AFTER 2.6.2003 IRRE SPECTIVE OF THE ASSESSMENT YEAR. THE DR HAS RELIED ON THE JUDGE MENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS . INFRASTRUCTURE DEVELOPMENT FINANCE CO. LTD., REPORT ED AS 340 ITR 580(MAD), WHEREIN THE HONBLE COURT HAS HELD T HAT PROVISIONS OF SECTION 234D ARE APPLICABLE ON THE DA TE ON WHICH REGULAR ASSESSMENT ORDER HAS BEEN PASSED AND NOT THE YEAR OF ASSESSMENT THAT FALLS FOR CONSIDERATION. I N THE PRESENT CASE, REGULAR ASSESSMENT ORDER UNDER SECTION 143(3) WAS PASSED ON 30.03.2006, THE PROVISIONS OF SECTION 234 D CAME INTO OPERATION ON AND FROM 1.6.2003 I.E. PRIOR TO T HE ITA NOS 98 & 248/MDS/2010, ITA NOS. 1566, 1495 & 2306/MDS/2008 ITA NO.393/MDS/2009 39 COMPLETION OF REGULAR ASSESSMENT, THEREFORE, THE PR OVISION OF SECTION 234D WILL APPLY TO ASSESSEE AS WELL. RESPEC TFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF INFRASTRUCTURE DEVELOPMENT FINANCE C O. LTD.,(SUPRA), WE REVERSE THE FINDINGS OF THE CIT(A) ON THIS ISSUE AND ALLOW THE GROUND OF APPEAL OF THE REVENUE . 38. THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, T HE 5 TH DAY OF MARCH, 2013 AT CHENNAI. SD/- SD/- ( N.S. SAINI ) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 5 TH MARCH, 2013. SOMU COPY TO: (1) APPELLANT (4) CIT(A) (2) RESPONDENT (5) D.R. (3) CIT (6) G.F.