ING Vysya Bank Ltd., V. ACIT, Bangalore

ITA 289/BANG/2013

• Counselvise Citation: 28921114 RSA 2013
• Duration Of Justice: 2 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-05-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 07-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Opportunity of being heard; Proportionate interest; Question of law; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 115JB; 37(1); 145; 37

Judgement Text

ITA.289 & 319/BANG/2013 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'A', BANGALORE BEFORE SHRI. N. V. VASUDEVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A NO.289/BANG/2013 (ASSESSMENT YEAR : 2006-07) M/S. ING VYSYA BANK LTD ING VYSYA HOUSE, NO.22, M G ROAD, BANGALORE 560 001 ..APPELLANT PAN : AABCT0529M V. ADDL. COMMISSIONER OF INCOME-TAX, CIRCLE 11(4), BANGALORE ..RESPONDENT I.T.A NO.319/BANG/2013 (ASSESSMENT YEAR : 2006-07) (BY THE REVENUE) ASSESSEE BY : SHRI. S. ANANTHAN, CA REVENUE BY : SHRI. C. H. SUNDAR RAO, CIT-DR-I HEARD ON : 13.05.2015 PRONOUNCED ON : 12.06.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY ASSESSEE AND REVENUE RES PECTIVELY AGAINST AN ORDER DT 28.09.2012 OF CIT (A) I, BANGALORE. 02. APPEAL OF ASSESSEE IS TAKEN UP FIRST FOR DISPOS AL. APART FROM 8 GROUNDS RAISED ORIGINALLY, ASSESSEE HAS ALSO MOVED AN APPLI CATION FOR ADMISSION OF AN ITA.289 & 319/BANG/2013 PAGE - 2 ADDITIONAL GROUND WHICH ASSAILS DISALLOWANCE OF EXC ESS PROVISION MADE FOR WAGE ARREARS. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT HE IS NOT PRESSING THE ADDITIONAL GROUND. THEREFORE, THE ADD ITIONAL GROUND IS DISMISSED AS NOT PRESSED. 3. OUT OF THE 8 GROUNDS TAKEN BY THE ASSESSEE, GROUND 1 IS GENERAL AND GROUNDS 7 & 8 ARE ON INTEREST LEVIED U/S.234B AND 2 34D OF THE INCOME-TAX ACT, 1961 ('THE ACT' FOR SHORT). THE LATTER GROUNDS ARE CONSEQUENTIAL, NEEDING NO SPECIFIC ADJUDICATION. 4. VIDE ITS GROUND 2, ASSESSEE IS ASSAILING THE DISALL OWANCE OF CLAIM OF RS.1,53,72,053/-, MADE U/S.10(23G) OF THE ACT, DUE TO THE REASON THAT IT WAS UNABLE TO PRODUCE THE NECESSARY CERTIFICATE REQUIRE D UNDER THE SAID SECTION. LD. COUNSEL FOR ASSESSEE, SUBMITTED THAT THIS TRIBUNAL IN ITS OWN CASE FOR A. Y. 2005- 06 HAD CONSIDERED THIS ISSUE AT PARA 5 OF ITS ORDER DT 06.02.2015. ACCORDING TO HIM, FOR THE IMPUGNED ASSESSMENT YEAR ALSO, THE ASS ESSEES LIMITED REQUEST WAS FOR REMITTING THE ISSUE BACK TO THE FILE OF AO SINC E THE ASSESSEE WAS NOW HAVING THE NECESSARY APPROVALS FROM THE CBDT. 5. PER CONTRA, LD. DR SUPPORTED THE ORDERS OF AUTHORIT IES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED THE MATERIALS ON RECORD. WE FIND THAT THE ISSUE REGARDING EXEMPTION CLAIMED U/S.10(23) OF THE ACT, HAD COME UP BEFORE THIS TRIBUNAL IN ASSESSEE'S OWN APPEAL FOR A. Y. 2005- 06 (ITA.288/BANG/2013, DT.06.02.2015) AND THIS TRIB UNAL HAD HELD AS UNDER AT PARAS 6 TO 8 OF ITS ORDER : ITA.289 & 319/BANG/2013 PAGE - 3 6. THE ASSESSEE IS A SCHEDULED BANK AND CARRIES ON BANKING BUSINESS. THE ASSESSEE CLAIMED TO HAVE EARNED AN AM OUNT OF RS.11.77 CRORES BY WAY OF INTEREST FROM INVESTMENTS IN ENTITIES APPROVED U/S. 10(23G). THE AO, HOWEVER, FOUND THAT SOME OF THE ENTITIES DID NOT HAVE APPROVAL FROM THE COMPETENT A UTHORITY FOR CLAIMING EXEMPTION. THE ASSESSEE HAD FURNISHED A LI ST OF SUCH COMPANIES, WHERE THE APPROVAL WAS YET TO BE RECEIVE D. INTEREST FROM THESE PARTIES TOTALING TO RS.2,82,53,262 AS TA BULATED BELOW, WAS THEREFORE BROUGHT TO TAX BY THE AO DENYING EXEM PTION U/S. 10(23G). SL. NO. PARTY AMOUNT 1. GUJARAT INDUSTRIES POWER CO. LTD. 1,15,25,477 2. LANCO KONDAPALLI POWER CORPN. LTD. 46,26,609 3. SAMALPATTI POWER CO. LTD. 3,06,988 4. BSES KERALA POWER LTD. 72,44,263 5. RAJAHMUNDRY EXPRESS WAY 56,52,800 6. SPECTRUM POWER GENERATION LTD. 32,86,000 7. SAMALPATTI POWER CO. LTD. 2,37,735 7. EVEN BEFORE CIT(APPEALS), ASSESSEE WAS NOT ABLE TO FILE REQUIRED CERTIFICATES. 8. BEFORE US, THE LIMITED REQUEST OF THE LEARNED CO UNSEL FOR THE ASSESSEE WAS THAT THE NECESSARY APPROVALS FROM THE CBDT IS AVAILABLE AND WILL BE PROVIDED TO THE ASSESSING OFF ICER. HE PRAYED THAT THE ORDER OF THE ASSESSING OFFICER MAY BE SET ASIDE AND THE ASSESSEE ALLOWED OPPORTUNITY OF PROVIDING T HE NECESSARY APPROVALS FOR GRANT OF EXEMPTION U/S.10(23G) OF THE ACT. WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE T O SET ASIDE THE ADDITION MADE BY THE ASSESSING OFFICER IN THIS REGA RD AND ALLOW OPPORTUNITY TO THE ASSESSEE TO PRODUCE THE REQUIRED CERTIFICATE WHICH WILL ENABLE THE ASSESSEE TO CLAIM EXEMPTION U /S.10(23G) OF THE ACT. FOR STATISTICAL PURPOSE, THE GROUND OF APP EAL IS TREATED AS ALLOWED. ACCORDINGLY WE REMIT THIS ISSUE BACK TO THE FILE OF AO, WITH THE SAME DIRECTIONS AS GIVEN ABOVE FOR A. Y. 2005-06. ITA.289 & 319/BANG/2013 PAGE - 4 7. GROUND 3 OF THE ASSESSEE IS ON DISALLOWANCE OF EXPE NDITURE OF RS.1,93,31,126/- CLAIMED FOR SOFTWARE WHICH WAS DIS ALLOWED BY THE AO CONSIDERING IT TO BE CAPITAL IN NATURE. LD. AR SUB MITTED THAT CIT (A) HAD CONFIRMED THE DISALLOWANCE WITHOUT APPRECIATING THE FACT THAT SOFTWARE DID NOT RESULT IN ANY ENDURING BENEFIT TO THE ASSESSEE AS IT REQUIRED REPLACEMENT AND RENEWAL WITHIN SHORT SPAN OF TIME. AS PER LD. AR, THESE WERE ALL APPLICATION SOFTWARE WHICH HAD SHORT SHELF-LIFE. LD. AR ALSO P OINTED OUT THAT THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR A. Y. 2007-08 HAD ALLOWE D SIMILAR CLAIM OF EXPENDITURE ON SOFTWARE. 8. PER CONTRA LD. DR SUPPORTED THE ORDERS OF AUTHORITI ES BELOW. 9. WE HAVE PERUSED THE MATERIALS ON RECORD AND CONSIDE RED THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT THE CLAIM OF EXPENDITURE WAS ON APPLICATION SOFTWARE. IN ASSESSEE'S APPEAL FOR A. Y. 2007-08 (ITA.898/BANG/2013, DT 06.02.2015), THIS TRIBUNAL I N RESPECT TO THE CLAIM OF SOFTWARE EXPENDITURE AS REVENUE, HAD HELD AS UNDER : 5.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. ON PERUSAL OF TH E JUDICIAL DECISIONS CITED BY THE ASSESSEE (SUPRA), WE FIND THAT THERE A RE A CATENA OF DECISIONS WHEREIN IT HAS BEEN HELD THAT THE EXPENDI TURE INCURRED ON APPLICATION SOFTWARE ARE REVENUE IN NATURE. IT IS S EEN THAT THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S O WN CASE FOR ASSESSMENT YEAR 2001-02 IN ITA NOS.733 & 748/BANG/2 011 DT.28.8.2014, HAS HELD THESE EXPENSES TO BE REVENUE IN NATURE. THE RELEVANT PORTION THEREOF, IS EXTRACTED HERE UNDER : - 7.3 ON CONSIDERATION OF THE MATERIAL ON RECORD, WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE CASE OF IBM INDIA L TD., AND THE JURISDICTIONAL HIGH COURT, VIDE JUDGMENT DATED 10-4 -2013 AT PARA.9 HAS HELD AS UNDER: ITA.289 & 319/BANG/2013 PAGE - 5 9. THE SECOND SUBSTANTIAL QUESTION OF LAW RELATES TO APPLICATION OF THE AMOUNT UTILIZED FOR PROJECTS OF SOFTWARE IN A SUM OF RS.33,14,298/-. THE TRIBUNAL ON CONSIDERAT ION OF THE MATERIAL ON RECORD AND THE RIVAL CONTENTIONS HELD, WHEN THE EXPENDITURE IS MADE NOT ONLY ONCE AND FOR ALL BUT A LSO WITH A VIEW TO BRINGING INTO EXISTENCE AN ASSET OR AN ADVA NTAGE FOR THE ENDURING BENEFIT, THE SAME CAN BE PROPERLY CLAS SIFIED AS CAPITAL EXPENDITURE. AT THE SAME TIME, EVEN THOUGH THE EXPENSES ARE ONCE AND FOR ALL AND MAY GIVE AN ADVAN TAGE FOR ENDURING BENEFIT BUT IS NOT WITH A VIEW TO BRINGING INTO EXISTENCE ANY ASSET, THE SAME CANNOT BE ALWAYS CLAS SIFIED AS CAPITAL EXPENDITURE. THE TEST TO BE APPLIED IS, IS IT A PART OF COMPANY'S WORKING EXPENSES OR IS IT EXPENDITURE LAI D OUT AS A PART OF PROCESS OF PROFIT EARNING. IS IT ON THE CAP ITAL LAYOUT OR IS IT AN EXPENDITURE NECESSARY FOR ACQUISITION OF P ROPERTY OR OF RIGHTS OF A PERMANENT CHARACTER, POSSESSION OF W HICH IS CONDITION ON CARRYING ON TRADE AT ALL. THE ASSESSEE IN THE COURSE OF ITS BUSINESS ACQUIRED CERTAIN APPLICATION SOFTWARE. THE AMOUNT IS PAID FOR APPLICATION OF SOFTWARE AND NOT SYSTEM SOFTWARE. THE APPLICATION SOFTWARE ENABLES THE ASSE SSEE TO CARRY OUT HIS BUSINESS OPERATION EFFICIENTLY AND SM OOTHLY. HOWEVER, SUCH SOFTWARE ITSELF DOES NOT WORK ON STAN D ALONE BASIS. THE SAME HAS TO BE FITTED TO A COMPUTER SYST EM TO WORK. SUCH SOFTWARE ENHANCES THE EFFICIENCY OF THE OPERAT ION. IT IS AN AID IN MANUFACTURING PROCESS RATHER THAN THE TOO L ITSELF. THUS, FOR PAYMENT OF SUCH APPLICATION SOFTWARE, THO UGH THERE IS AN ENDURING BENEFIT, IT DOES NOT RESULT INTO ACQ UISITION OF ANY CAPITAL ASSET. THE SAME MERELY ENHANCES THE PRO DUCTIVITY OR EFFICIENCY AND HENCE TO BE TREATED AS REVENUE EX PENDITURE. IN FACT, THIS COURT HAD AN OCCASION TO CONSIDER WHE THER THE SOFTWARE EXPENSES IS ALLOWABLE AS REVENUE EXPENSES OR NOT AND HELD, WHEN THE LIFE OF A COMPUTER OR SOFTWARE I S LESS THAN TWO YEARS AND AS SUCH, THE RIGHT TO USE IT FOR A LI MITED PERIOD, THE FEE PAID FOR ACQUISITION OF THE SAID RIGHT IS A LLOWABLE AS REVENUE EXPENDITURE AND THESE SOFTWARES IF THEY AR E LICENSED FOR A PARTICULAR PERIOD, FOR UTILIZING THE SAME FOR THE SUBSEQUENT YEARS FRESH LICENSE FEE IS TO BE PAID. T HEREFORE, WHEN THE SOFTWARE IS FITTED TO A COMPUTER SYSTEM TO WORK, IT ENHANCES THE EFFICIENCY OF THE OPERATION. IT IS AN AID IN MANUFACTURING PROCESS RATHER THAN THE TOOL ITSELF. THOUGH CERTAIN APPLICATION IS AN ENDURING BENEFIT, IT DOES NOT RESULT INTO ACQUISITION OF ANY CAPITAL ASSET. IT MERELY EN HANCES THE PRODUCTIVITY OR EFFICIENCY AND THEREFORE, IT HAS TO BE TREATED AS REVENUE EXPENDITURE. IN THAT VIEW OF THE MATTER, TH E FINDING RECORDED BY THE TRIBUNAL IS IN ACCORDANCE WITH LAW AND DO ITA.289 & 319/BANG/2013 PAGE - 6 NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE SEC OND SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE. RESPECTFULLY FOL LOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT ON SI MILAR SET OF FACTS, WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR COMPUTERIZATION OF ITS BRANCHES IS REVENUE IN N ATURE. THESE GROUNDS ARE ACCORDINGLY ALLOWED. 5.4.2 RESPECTFULLY FOLLOWING THE DECISIONS OF THE H ON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF IBM INDIA LTD. (SUPRA) AND THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S O WN CASE FOR ASSESSMENT YEAR 2001-02 AS EXTRACTED ABOVE (SUPRA), WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR PURCHASE O F APPLICATION SOFTWARE IS REVENUE IN NATURE. GROUND NO.1 RAISED B Y THE ASSESSEE IS ACCORDINGLY ALLOWED. FOLLOWING THE ABOVE, WE ALLOW GROUND 3 OF THE ASSES SEE. 10. VIDE ITS GROUND 4, GRIEVANCE OF THE ASSESSEE IS THA T EXPENDITURE OF 62,68,139/- INCURRED FOR EMPLOYEE STOCK OPTION PLAN (ESOP FOR SHORT) WAS DISALLOWED BY THE AO, WHICH DISALLOWANCE WAS CONFIR MED BY THE CIT (A). 11. LD. AR SUBMITTED THAT THE WRITE-OFF OF ESOP EXPENDI TURE WAS IN ACCORDANCE WITH GUIDANCE NOTE ON EMPLOYEE STOCK OPT ION SCHEME BASED PAYMENTS, ISSUED BY ICAI AND WAS NOT A CONTINGENT LIABILITY AS CONSIDERED BY THE LOWER AUTHORITIES. AS PER THE LD. AR, SIMILAR ISSUE HAD COME UP IN ASSESSEE'S OWN CASE FOR A.Y. 2005-06 (ITA.288/BANG/ 2013, DT.06.02.2015, WHERE THIS TRIBUNAL HAD REMITTED THE ISSUE BACK TO THE FILE OF THE AO FOR CORRECT QUANTIFICATION OF THE DEDUCTION. 12. PER CONTRA LD. DR SUPPORTED THE ORDERS OF AUTHORITI ES BELOW. 13. WE HAVE PERUSED THE MATERIALS ON RECORD AND CONSIDE RED THE RIVAL ITA.289 & 319/BANG/2013 PAGE - 7 SUBMISSIONS. WE FIND THAT THE CLAIM OF EXPENDITURE ON ESOP HAD COME UP BEFORE THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR A. Y. 2005- 06. THIS TRIBUNAL HAD HELD AS UNDER AT PARAS 20 -22 OF ITS ORDER : 20. GROUND NO.7 READS AS FOLLOWS:- 7. EXPENDITURE INCURRED ON EMPLOYEE STOCK OPTIONS ( ESOP) AMOUNTING TO RS 1,04,46,542 7.1 THE LEARNED CIT (A) HAS ERRED ON FACTS AND IN L AW BY CONFIRMING THE DISALLOWANCE MADE BY THE LEARNED AO OF A SUM OF RS 1,04,46,542 RELATING TO EMPLOYEE COMPENSATION EXPENSES. 7.2 THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED T HAT THE OBSERVATION IN THE TAX AUDIT REPORT IS NOT CONCLUSI VE OF THE NATURE OF THE EXPENSE. 7.3 THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED THAT THE TREATMENT ADOPTED BY THE APPELLANT IS IN ACCORDANCE WITH THE SEBI GUIDELINES AND THAT THE EXPENDITURE IS NOT A C ONTINGENT LIABILITY AND IS AN ALLOWABLE REVENUE EXPENDITURE. 7.4 THE LEARNED CIT (A) ERRED IN HOLDING THAT THE E SOP EXPENSES ARE ONLY NOTIONAL AND UNASCERTAINED IN THE ABSENCE OF EXERCISE OF THE OPTIONS BY THE EMPLOYEES. 21. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR N OTICE BY BOTH THE PARTIES THAT IDENTICAL ISSUE WAS ALSO CONSIDERED BY THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR A.Y. 2004-05 (SUPRA) AND TH IS TRIBUNAL HELD AS FOLLOWS:- 67. GROUND NO.10 RAISED BY THE ASSESSEE READS AS F OLLOWS : 10. LIABILITY RELATING TO EMPLOYEES COMPENSATION C OST RS 97,73,232 : LEARNED CIT(A) HAS ERRED IN LAW AN D ON FACT BY CONFIRMING THE DISALLOWANCE MADE BY THE AC ON THE GROUND THAT EMPLOYEES COMPENSATION COST OF R S 97,73,232 IS AN UNASCERTAINED EXPENSE AND CONTINGEN T IN NATURE. 68. DURING THE PREVIOUS YEAR RELEVANT TO AY 2004-05 , THE ASSESSEE DEBITED AN AMOUNT OF RS. 9,773,232/- TOWAR DS EMPLOYEE COMPENSATION EXPENSE UNDER THE EMPLOYEE STOCK OPTIO N SCHEME (ESOP). THESE EXPENSES WERE DEBITED TO THE PROFIT A ND LOSS ACCOUNT IN ACCORDANCE WITH THE SEBI GUIDELINES. THE LEARNED AO HAS DISALLOWED THE CLAIM FOR DEDUCTION WHILE COMPUT ING INCOME OF THE AFORESAID EXPENSE ON THE GROUND THAT THEY AR E CONTINGENT IN NATURE AND HENCE NOT ALLOWABLE AS REVENUE EXPENDITU RE. ITA.289 & 319/BANG/2013 PAGE - 8 69. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT THE TREATMENT ADOPTED BY THE ASSESSEE IS IN ACCORDANCE WITH THE S EBI GUIDELINES AND THAT THE EXPENDITURE IS NOT A CONTIN GENT LIABILITY AND ALLOWABLE REVENUE EXPENDITURE. FURTHER THE ASSE SSEE PLACED RELIANCE ON THE DECISION OF THE MADRAS TRIBUNAL IN THE CASE OF SSI LTD. V DCIT (85 ITJ 1049) WHEREIN IT WAS HELD THAT SUCH EXPENDITURE WAS ALLOWABLE AS REVENUE IN NATURE. THE CIT(A) HOWEVER UPHELD THE ORDER OF THE AO. AGGRIEVED BY TH E ORDER OF THE CIT (A), ASSESSEE HAS RAISED GROUND NO.10 BEFOR E THE TRIBUNAL. 70. THE ISSUE RAISED BY THE ASSESSEE IN GROUND NO.1 0 HAS SINCE BEEN CONSIDERED BY THE SPECIAL BENCH OF THE ITAT BA NGALORE IN THE CASE OF BIOCON (2013) 35 TAXMANN.COM 305 (BANGA LORE TRIB) (SB). THE SPECIAL BENCH IN THE AFORESAID DECI SION HELD THAT WHEN AN ASSESSEE ISSUES SHARES UNDER AN EMPLOYEES STOCK OPTION PLAN (ESOP) AND CLAIMED DIFFERENCE BETWEEN M ARKET PRICE AND EXERCISE PRICE AS DEDUCTION UNDER SECTION 37(1), SPREAD EQUALLY OVER VESTING PERIOD OF YEARS, ON BASIS OF S EBI GUIDELINES AND ACCOUNTING PRINCIPLES, THE AO CANNOT DISALLOW T HE SAME HOLDING IT TO BE CONTINGENT LIABILITY. IT WAS FURTH ER HELD THAT THE MERE FACT THAT QUANTIFICATION IS NOT PRECISELY POSS IBLE AND TIME OF INCURRING LIABILITY IS NOT CERTAIN WOULD NOT MAKE A N ASCERTAINED LIABILITY A CONTINGENT. THE SPECIAL BENCH FURTHER H ELD THAT WHERE LIABILITY IN RESPECT OF ESOP IS INCURRED AT END OF EACH YEAR, WHICH IS QUANTIFIED AT END OF VESTING PERIOD WHEN EMPLOYE ES BECOME ENTITLED TO EXERCISE OPTIONS, ON ESOP IT IS AN ASCE RTAINED LIABILITY AND NOT A CONTINGENT LIABILITY. IT WAS HELD THAT DI SCOUNT ON ESOP BEING A GENERAL EXPENSE, IS AN ALLOWABLE DEDUCTION UNDER SECTION 37(1) DURING YEARS OF VESTING ON BASIS OF PERCENTAG E OF VESTING DURING SUCH PERIOD, SUBJECT TO UPWARD OR DOWNWARD A DJUSTMENT AT TIME OF EXERCISE OF OPTION. 71. IN VIEW OF THE AFORESAID DECISION OF THE HON'BL E SPECIAL BENCH, WE ARE OF THE VIEW THAT THE CLAIM OF THE ASS ESSEE FOR DEDUCTION HAS TO BE ALLOWED IN PRINCIPLE. WE, HOWEV ER, REMAND THE ISSUE TO THE ASSESSING OFFICER FOR CONSIDERING QUANTIFICATION OF THE DEDUCTION TO BE ALLOWED IN THE LIGHT OF THE OBSERVATIONS MADE BY THE SPECIAL BENCH IN THIS REGARD. 22. WE ARE OF THE VIEW THAT IT WOULD BE JUST AND AP PROPRIATE TO DIRECT THE AO TO CONSIDER THE CLAIM OF ASSESSEE FOR DEDUCT ION AFRESH IN THE LIGHT OF DIRECTIONS GIVEN IN PARA 71 OF THE ORDER O F TRIBUNAL FOR A.Y. 2004-05. ITA NO.288 & 318/BANG/2013 PAGE 18 OF 50 N EEDLESS TO SAY THAT ASSESSEE WILL BE AFFORDED OPPORTUNITY OF BEING HEARD BEFORE DECIDING THE ISSUE BY THE AO. ITA.289 & 319/BANG/2013 PAGE - 9 FOR THE IMPUGNED ASSESSMENT YEAR ALSO, THEREFORE, W E SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND REMIT THE ISSUE BACK TO THE A O FOR CONSIDERING IT AFRESH IN THE LIGHT OF DIRECTIONS GIVEN BY OF THE TRIBUNAL IN A. Y. 2004-05. GROUND 4 IS THEREFORE TREATED AS ALLOWED FOR STATISTICAL PURPOS ES. 14. VIDE ITS GROUND 5, ASSESSEE ASSAILS AN ADDITION OF RS.1,38,19,183/-, BEING EXPENDITURE RELATING TO RIGHTS ISSUE AND DISALLOWAN CE OF CLAIM OF RS.27,63,837/-, U/S.35D OF THE ACT. 15. LD. AR FAIRLY ADMITTED THAT THE CLAIM U/S.35D OF TH E ACT ON RIGHTS ISSUE EXPENDITURE WAS HELD TO BE NOT ALLOWABLE BY THIS TR IBUNAL IN THE CASE OF ANDHRA BANK V. DCIT (ITA.1644/HYD/2008, DT 30.04.2013). H OWEVER, ACCORDING TO HIM, THE SUM OF RS.1,38,19,893/- WAS SUO MOTU ADDED BACK BY THE ASSESSEE IN ITS COMPUTATION OF INCOME AND THEREFORE, FURTHER AD DITION MADE OF SUCH AMOUNT RESULTED IN DOUBLE DISALLOWANCE. ACCORDING TO HIM, THE DISALLOWANCE U/S.35D OF THE ACT, AT BEST COULD BE MADE WITH REGARD TO THE S UM OF RS.27,63,837/- ONLY. 16. PER CONTRA LD. DR SUPPORTED THE ORDERS OF AUTHORITI ES BELOW. 17. WE HAVE PERUSED THE MATERIALS ON RECORD AND CONSIDE RED THE RIVAL SUBMISSIONS. ASSESSEE HAD DURING THE RELEVANT PREV IOUS YEAR CLAIMED RS.1,38,19,183/- AS EXPENDITURE INCURRED FOR RIGHTS ISSUE. ASSESSEE HAD ALSO CLAIMED A SUM OF RS.27,63,837/-, AS AMORTISATION OF EXPENDITURE INCURRED FOR RIGHTS ISSUE IN AN EARLIER YEAR WHICH WAS CAPITALIS ED IN SUCH EARLIER YEAR. IN OTHER WORDS, FOR THE IMPUGNED ASSESSMENT YEAR, ASSE SSEE HAD CLAIMED ITA.289 & 319/BANG/2013 PAGE - 10 EXPENDITURE INCURRED FOR RIGHTS ISSUE DURING THE R ELEVANT PREVIOUS YEAR AS WELL AS AMORTISATION OF DEFERRED REVENUE EXPENDITURE OF EARLIER YEAR U/S.35D OF THE ACT. AO DISALLOWED BOTH THE CLAIMS. ACCORDING TO HIM, THESE WERE IN THE NATURE OF CAPITAL EXPENDITURE AND SECTION 35D OF TH E ACT APPLIED TO A BANKING COMPANY FOR THE IMPUGNED ASSESSMENT YEAR. ASSESSEE 'S APPEAL IN THIS REGARD BEFORE THE CIT (A) WAS NOT SUCCESSFUL. HOWEVER, WH AT WE FIND IS THAT THE SUM OF RS.1,38,19,183/- WAS CONSIDERED BY THE ASSESSEE ITSELF AS A PART OF INADMISSIBLE EXPENDITURE IN ITS COMPUTATION OF INCO ME FILED ALONG WITH THE RETURN OF INCOME. THE BUSINESS INCOME SHOWN BY THE ASSESSEE IN THE STATEMENT OF COMPUTATION WAS RS.3,53,58,063/-. THE SAID AMOU NT WAS ARRIVED AT AFTER MAKING ADDITIONS AND DEDUCTIONS TO THE PROFIT OF RS .9,05,65,482/-. THE BREAK- UP OF THIS HAS BEEN GIVEN AS SCHEDULE B TO THE COM PUTATION AND SUCH BREAK-UP INCLUDED IN IT A SUM OF RS.1,38,19,183/-. IN THE C OMPUTATION OF TOTAL INCOME DONE BY THE AO IN THE ASSESSMENT ORDER, HE HAS STAR TED FROM A SUM OF RS.5,37,45,182/-. THE SAID SUM OF RS.5,37,45,182/- COMPRISED OF 3 ITEMS, NAMELY, INCOME FROM HOUSE PROPERTY RS.1,38,87,120/- INCOME FROM BUSINESS - RS.3,53,58,063/- INCOME FROM CAPITAL GAINS - RS. 45,00,00/- THUS, EVIDENTLY, THE SUM OF RS.5,37,45,182/- FROM W HICH THE AO STARTED HIS COMPUTATION AND MADE THE DISALLOWANCE DID INCLUDE I NCOME OF RS.3,53,58,063/-, FROM BUSINESS, WHICH AMOUNT WAS ARRIVED AT AFTER AD DING BACK THE INADMISSIBLE OPERATING EXPENDITURE, WHICH INTER ALIA INCLUDED TH E RIGHTS ISSUE EXPENDITURE OF ITA.289 & 319/BANG/2013 PAGE - 11 RS.1,38,98,183/-. IN OTHER WORDS, WHEN THE AO MADE AN ADDITION OF RS.1,65,83,020/-. THE RESULT WAS THAT WHAT WAS ALRE ADY SUO MOTU ADDED BACK BY THE ASSESSEE WAS ONCE AGAIN AGGREGATED, AS POINTED OUT BY THE LD. AR. THIS HAD RESULTED IN A DOUBLE DISALLOWANCE. HENCE, THE DISA LLOWANCE OF RS.1,38,19,183/- IS DELETED. HOWEVER, IN RESPECT OF THE BALANCE AMO UNT OF RS.27,63,837/-, AS ADMITTED BY THE LD. AR IN THE CASE OF ANDHRA BANK ( SUPRA), THIS TRIBUNAL HAD HELD THAT AMORTISATION OF RIGHTS ISSUE U/S.35D OF T HE ACT IN THE YEARS PRIOR TO A. Y. 2009-10 WAS NOT ALLOWABLE. THEREFORE, THE DISAL LOWANCE TO THE EXTENT OF RS.27,63,837/- HAS BEEN RIGHTLY MADE AND IS HEREBY CONFIRMED. GROUNDS 5.1 IS ALLOWED, WHEREAS GROUND 5.2 STANDS DISMISSED. 18. VIDE ITS GROUND 6, ASSESSEE IS AGGRIEVED ON THE APP LICATION OF SEC.115JB OF THE ACT, OUSTING ITS CONTENTION THAT BANKING COM PANIES WERE NOT REQUIRED TO PREPARE THEIR ACCOUNTS IN ACCORDANCE WITH PARTS II & III OF THE COMPANIES ACT, 1956. 19. LD. AR SUBMITTED THAT THIS ISSUE HAD COME UP BEFORE THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR A. Y. 2007-08. ACCORDING T O HIM, IT WAS HELD THAT THE SAID SECTION WAS NOT APPLICABLE FOR BANKING COMPANI ES. 20. PER CONTRA LD. DR SUPPORTED THE ORDERS OF AUTHORITI ES BELOW. 21. WE HAVE PERUSED THE MATERIALS ON RECORD AND CONSIDE RED THE RIVAL SUBMISSIONS. WHETHER SECTION 115JB OF THE ACT CAN BE APPLIED TO THE ASSESSEE, WHICH IS A BANKING COMPANY WAS AN ISSUE BEFORE THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR A. Y. 2007-08, IN ITA.898/BANG/2013, DT.06 .02.2015. THIS TRIBUNAL ITA.289 & 319/BANG/2013 PAGE - 12 HAD HELD AS UNDER AT PARA 7.5.1 AND 7.5.2 OF ITS OR DER : 7.5.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JU DICIAL DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSES SEE'S OWN CASE FOR ASSESSMENT YEAR 2002-03 (SUPRA). ON A PERUSAL OF TH E CITED DECISION IN ITA NO.443/BANG/2013 DT.14.8.2013 IN THE ASSESSE E'S OWN CASE FOR ASSESSMENT YEAR 2002- 03, WE FIND THAT THE ISSUE OF WHETHER OR NOT THE PROVISIONS OF SECTION 115JB OF THE ACT ARE APPLICAB LE TO BANKS HAS BEEN CONSIDERED AND HELD IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER AT PAGES 20 AND 22 THEREOF ARE EXTRACTED HEREUNDER :- 20. GROUND NO.5 RAISED BY THE ASSESSEE READS AS F OLLOWS:- 5. GROUND 5 - SECTION 115JB NOT APPLICABLE 5.1 THE ADJUSTMENT ON ACCOUNT OF MINIMUM ALTERNATIV E TAX PROVISIONS UNDER SECTION 115JB IS BAD IN LAW IN AS MUCH AS THE PROVISIONS OF MAT WERE NEVER APPLICABLE TO THE APPELLANT COMPANY. 21. THE ISSUE RAISED IN THE AFORESAID GROUND IS THE QUESTION AS TO WHETHER THE PROVISIONS OF SECTION 115JB ARE APPLICA BLE TO A BANKING COMPANY. THIS ISSUE IS NO LONGER RES INTEGR A AND HAS BEEN DECIDED BY THE ITAT BANGALORE BENCH IN THE CAS E OF SYNDICATE BANK V. DCIT IN ITA NO.668 & 669/BANG/201 0 VIDE ORDER DATED 19.06.2013 FOR THE A.YS. 2006-07 & 2007 -08. THE RELEVANT PORTIONS OF THE DECISION READS AS FOLLOWS: - 88. GROUND NO.3 RAISED BY THE ASSESSEE READS AS FOL LOWS:- 3. THAT THE LEARNED CIT-A OUGHT TO HAVE ACCEPTED T HE APPELLANTS CONTENTION THAT NOT BEING A COMPANY UND ER THE COMPANIES ACT, 1956 BUT BEING A BANK GOVERNED B Y THE PROVISIONS OF THE BANKING COMPANIES (ACQUISITIO N AND TRANSFER OF UNDERTAKINGS) ACT, 1970 AND DEEMED AS A COMPANY UNDER THE LATTER ACT COULD NOT BE CONSTRUED AS A COMPANY FOR THE PURPOSES OF CHARGING MAT IN THE LIG HT OF A DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE C ASE OF MAHARASHTRA STATE ELECTRICITY BOARD VS. JCIT REPORT ED IN 82 LTD 422 AND THEREFORE SHOULD NOT HAVE TO BE SUBJ ECTED TO THE MAT. 89. THE ASSESSING OFFICER REJECTED THE COMPUTATION OF BOOK PROFITS MADE BY THE APPELLANT ON THE GROUND THAT IT WAS DONE AS PER SCHEDULE-VI OF THE COMPANIES ACT, BUT HAD NO T ITA.289 & 319/BANG/2013 PAGE - 13 ADOPTED THE PROFIT ARRIVED AT IN THE PROFIT AND LOS S ACCOUNT APPROVED BY SHAREHOLDERS IN THE ANNUAL GENERAL MEE TING, CERTIFIED BY THE AUDITORS, AND FILED BEFORE RBI. HE REJECTED THE ASSESSEES CONTENTION THAT THE BANK WAS NOT A COMPA NY AS PER COMPANIES ACT, 1956, BUT A STATUTORY CORPORATION GO VERNED BY THE PROVISIONS OF BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKING) ACT, 1970. IT HAD PREPARED THE PROFIT AND LOSS ACCOUNT AS PER THE LATTER ACT, AND NOT IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT. HOWEVER, IN VIEW OF THE REQUIREMENTS OF SECTION 115JB(2), IT HAD REDRAW N THE PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROV ISIONS OF PARTS II AND ILL OF SCHEDULE VI TO THE COMPANIES AC T. THEREFORE, THE MAT COMPUTED IN ACCORDANCE WITH THE REDRAWN PROFIT AND LOSS ACCOUNT WAS IN ORDER. 90. BEFORE THE CIT(APPEALS), THE ASSESSEE STATED TH AT THE ASSESSING OFFICER HAD ERRED IN ADOPTING THE NET PRO FIT AS PER THE PROFIT AND LOSS ACCOUNT PREPARED ON THE BASIS O F THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1970, FOR COMPUTING THE BOOK PRO FIT UNDER SECTION 115JB. HE OUGHT TO HAVE CALLED FOR AND ADOP TED THE PROFIT AND LOSS ACCOUNT AS REQUIRED UNDER SECTION 1 15JB(2) AND PREPARED AS PER SCHEDULE-VI OF THE COMPANIES AC T. THE ASSESSEE ALSO QUESTIONED THE VARIOUS OTHER ADJUSTME NTS MADE BY THE ASSESSING OFFICER IN COMPUTING THE BOOK PROF IT. ON 16.02.2010, THE ASSESSEE FILED AN ADDITIONAL GROUND OF APPEAL, QUESTIONING THE APPLICABILITY OF SECTION 11 5JB, WHILE THE OTHER ADJUSTMENTS MADE BY THE ASSESSING OFFICER IN COMPUTING THE BOOK PROFIT UNDER THAT SECTION WERE C HALLENGED IN THE ORIGINAL GROUNDS. 91. ON THE APPLICABILITY OF SECTION 115JB, THE ASSE SSEE PLACED RELIANCE ON THE DECISION OF THE MUMBAI BENCH OF THE HONBLE ITAT IN THE CASE OF MAHARASHTRA STATE ELECTRICITY B OARD VS. JCIT [20021 82 ITD 422, WHERE IT WAS HELD THAT A CO MPANY WHICH WAS NOT CONSTITUTED AS A COMPANY WITHIN THE M EANING OF SECTION 3 OF THE COMPANIES ACT, 1956, COULD NOT BE DEEMED AS A COMPANY WITHIN THE MEANING OF SECTION 616(C) O F THE COMPANIES ACT AND SINCE SUCH COMPANY WAS NOT REQUIR ED TO DISTRIBUTE ANY DIVIDEND , IT WOULD NOT COME UNDER T HE MISCHIEF OF SECTION 115JA. 92. THE CIT(APPEALS) WAS OF THE VIEW THAT THIS DECI SION IS NOT APPLICABLE TO THE ASSESSEES CASE BECAUSE THE DECIS ION WAS RENDERED IN THE CONTEXT THAT THE CONCEPT OF AN ANNU AL GENERAL MEETING WAS ALIEN TO THE ELECTRICITY BOARD AND THE REFERENCE TO SECTION 616(C), WHICH WAS RELEVANT TO A COMPANY ENGAGED ITA.289 & 319/BANG/2013 PAGE - 14 IN THE GENERATION OR DISTRIBUTION OF ELECTRICITY. 93. THE ASSESSEE BANK DOES CONDUCT ANNUAL GENERAL M EETINGS, DECLARES DIVIDENDS, AND IS NOT ENGAGED IN GENERATIO N OR DISTRIBUTION OF ELECTRICITY. THE MUMBAI BENCH OF TH E HONBLE ITAT HAS, IN THE CASE OF UNION BANK OF INDIA VS. JC IT IN THEIR ORDER DATED 25.07.2006 IN ITA NOS. 5493-5495/MUM/20 00 FOR ASSESSMENT YEARS 1988-89 AND 1990-91, HELD THAT, EV EN THOUGH THE ASSESSEE WAS FUNCTIONALLY REGULATED BY BANKING REGULATIONS ACT, IT WAS EQUALLY GOVERNED BY THE PRO VISIONS OF THE COMPANIES ACT AS IT WAS BASICALLY A CORPORATE E NTITY. THEREFORE, THE ASSESSEE COMPANY WAS BOUND BY THE PR OVISIONS OF LAW CONTAINED IN SECTION 115J. IN THESE CIRCUMST ANCES, THE CIT(A) HELD THAT THERE IS NOTHING IN THE PROVISIONS OF SECTION 115JB TO EXCLUDE ITS APPLICABILITY TO BANKING COMPA NIES. AS REGARDS THE ADOPTION OF PROFIT DECLARED IN THE PROF IT AND LOSS ACCOUNT PREPARED UNDER THE BANKING COMPANIES (ACQUI SITION AND TRANSFER OF UNDERTAKINGS) ACT, HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT HAS, IN CASE OF APOLLO TYRES LTD. VS. CIT [2002] 255 ITR 273, WHEREIN IT WAS HEL D THAT THE ASSESSING OFFICER HAD NO POWER TO REWORK THE BOOK P ROFIT IF THE PROFITS WERE COMPUTED IN ACCORDANCE WITH PARTS II AND II OF SCHEDULE VI TO COMPANIES ACT. ACCORDINGLY, HE RE FERRED TO HIS OWN ORDER DATED 15.01.2010 IN ITA NO. RB- LIL/UDP/CIT(A)MNG/2008-09 IN THE ASSESSEES OWN CAS E FOR ASSESSMENT YEAR 1990-91 HOLDING THAT IF THE ADJUSTM ENTS CARRIED OUT IN PREPARING THE REVISED PROFIT AND LOS S ACCOUNT WERE IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND ILL OF SCHEDULE V TO THE COMPANIES ACT, THE ASSESSING OFFI CER OUGHT TO CONSIDER ONLY THE REVISED PROFIT AND LOSS ACCOUN T FOR PURPOSES OF COMPUTATION OF BOOK PROFIT UNDER SECTIO N 115J, AND NOT THE PROFIT AS PER THE PROFIT AND LOSS ACCOU NT PREPARED IN ACCORDANCE WITH THE BANKING REGULATION ACT. FOLL OWING THE SAME REASONING, THE CIT(A) DIRECTED THAT COMPUT ATION OF MAT MAY BE DONE ON THE BASIS OF THE PROFIT AND LOSS ACCOUNT REDRAWN BY THE ASSESSEE IN ACCORDANCE WITH THE COMP ANIES ACT. THE ASSESSEE WAS DIRECTED TO FURNISH THE PROFI T AND LOSS ACCOUNT REDRAWN IN ACCORDANCE WITH SCHEDULE VI OF COMPANIES ACT. 94. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE HAS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. 95. AT THE TIME OF HEARING, IT WAS SUBMITTED BY THE LD. DR THAT THE ISSUE CAN BE REMANDED FOR FRESH CONSIDERATION A S WAS DONE BY THE TRIBUNAL IN A.Y. 2005-06 IN ITA NO.504/BANG/2009, ORDER DATED 13.01.2012. THE LD. C OUNSEL ITA.289 & 319/BANG/2013 PAGE - 15 FOR THE ASSESSEE, HOWEVER, SUBMITTED THAT THE TRIBU NAL IN ITS EARLIER ORDER THOUGH NOTED DIRECT JUDGMENTS ON THE POINT VIZ., (1) ORDER DATED 30.09.2010 IN ITA NO.3390/2009 PASS ED BY ITAT G BENCH, MUMBAI IN THE CASE OF KRUNG THAI BANK; (2) ORDER DATED 30.06.2011 IN ITA NOS.4702 TO 4706/ 2010 PASSED BY THE ITAT, MUMBAI F BENCH IN THE CASE OF UNION BANK OF INDIA; AND (3) ORDER DATED 03.08.2011 IN ITA NO.469/2010 PASSE D BY THE ITAT C BENCH, CHENNAI IN THE CASE OF INDIAN B ANK, DID NOT ADJUDICATE ON THE APPLICABILITY OF SECTION 115JB, BUT FOLLOWING AN EARLIER ORDER IN THE ASSESSEES OW N CASE FOR EARLIER YEARS (AT WHICH POINT OF TIME THE ABOVE TRIBUNALS DECISIONS WERE NOT AVAILABLE), RESTORED THE MATTER TO THE ASSESSING OFFICER TO COMPUTE BOOK PRO FITS BASED ON RECAST P & L ACCOUNT PREPARED IN ACCORDANC E WITH THE SCHEDULE-VI OF THE COMPANIES ACT. 96. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMI TTED THAT THE PROVISIONS OF SEC.115JB OF THE ACT WERE AMENDED WITH EFFECT FROM 01.04.2013 MAKING IT OBLIGATORY, INTER ALIA, FOR BANKS TO PREPARE P & L ACCOUNT IN ACCORDANCE WITH T HE BANKING REGULATION ACT IS CLEARLY INDICATIVE OF LEG ISLATIVE UNDERSTANDING THAT UPTO AND INCLUDING A.Y. 2012-13, SECTION 115JB HAD NO APPLICATION TO BANKS AND INSURANCE COM PANIES. IT WAS SO HELD BY ITAT, HYDERABAD IN THE CASE OF ST ATE BANK OF HYDERABAD DATED 07.09.2013 IN ITA NO. 578/HYD/20 10 AND ITAT MUMBAI IN THE CASE OF ICICI LOMBARD GENERA L INSURANCE CO. LTD. DATED 10.10.2012 IN ITA NO.2398/MUM/2009. 97. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A ). 98. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. WE FIND THAT THIS ISSUE W AS CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN T HE CASE OF KRUNG THAI BANK (SUPRA) AND ON THE ABOVE ISSUE H ELD AS FOLLOWS:- 5. LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, CONT ENDS THAT THE PROVISIONS OF MAT DO NOT APPLY TO THE ASSE SSEE, AND , FOR THIS REASON, VERY FOUNDATION OF IMPUGNED REASSESSMENT PROCEEDINGS IS DEVOID OF LEGALLY SUSTA INABLE MERITS. HIS LINE OF REASONING IS THIS. THE PROVISIO NS OF MAT CAN COME INTO PLAY ONLY WHEN THE ASSESSEE PREPA RES ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH SCHE DULE VI ITA.289 & 319/BANG/2013 PAGE - 16 TO THE COMPANIES ACT. IT IS POINTED OUT THAT, IN TE RMS OF THE PROVISIONS OF SECTION 115JB(2),EVERY ASSESSEE I S REQUIRED TO PREPARE ITS PROFIT AND LOSS ACCOUNT IN TERMS OF THE PROVISIONS OF PART II AND II I OF SCHEDULE VI T O THE COMPANIES ACT . UNLESS THE PROFIT AND LOSS IS SO PR EPARED, THE PROVISIONS OF SECTION 115 JB CANNOT COME INTO P LAY AT AL L. HOWEVER, THE ASSESSEE IS A BANKING COMPANY AN D UNDER PROVISO TO SECTION 211 (2) OF THE ACT , THE A SSESSEE IS EXEMPTED FROM PREPARING ITS BOOKS OF ACCOUNTS IN TERMS OF REQUIREMENTS OF SCHEDULE VI TO THE COMPANIES ACT , AND THE ASSESSEE IS TO PREPARE ITS BOOKS OF ACCOUNT S IN TERMS OF THE PROVISIONS OF BANKING REGULATION ACT . IT IS THUS CONTENDED THAT THE PROVISIONS OF SECTION 115 J B DO NOT APPLY IN THE CASE OF BANKING COMPANIES WHICH AR E NOT REQUIRED TO PREPARE THE PROFIT AND LOSS ACCOUNT AS PER THE REQUIREMENTS OF PART II AND III OF SCHEDULE VI TO T HE COMPANIES ACT . SINCE THE PROVISIONS OF SECTION 115 JB DO NOT APPLY TO THE ASSESSEE COMPANY, THE REASONS RECO RDED FOR REOPENING THE ASSESSMENT ARE CLEARLY WRONG AND INSUFFICIENT . WE ARE URGED TO QUASH THE REASSESSME NT PROCEEDINGS ON THIS SHORT GROUND. 6. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, VEHEMENTLY RELIES UPON THE ORDERS OF THE AUTH ORITIES BELOW AND SUBMITS THAT THERE IS NO SPECIFIC EXCLUSI ON CLAUSE FOR THE BANKING COMPANIES, AND IN THE ABSENC E OF SUCH A CLAUSE, IT IS NOT OPEN TO US TO INFER THE SA ME. THE SUBMISSIONS OF THE LEARNED COUNSEL, ACCORDING TO TH E DEPARTMENTAL REPRESENTATIVE, ARE CLEARLY CONTRARY T O THE LEGISLATIVE INTENT AND PLAIN WORDINGS OF THE STATUT E. 7. THE PLEA OF THE ASSESSEE IS INDEED WELL TAKEN, A ND IT MEETS OUR APPROVAL. THE PROVISIONS OF SECTION 115 J B CAN ONLY COME INTO PLAY WHEN THE ASSESSEE IS REQUIRED T O PREPARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE W ITH THE PROVISIONS OF PART II AND I II OF SCHEDULE VI TO TH E COMPANIES ACT . THE STARTING POINT OF COMPUTATION O F MINIMUM ALTERNATE TAX UNDER SECTION 115 JB IS THE R ESULT SHOWN BY SUCH A PROFIT AND LOSS ACCOUNT. IN THE CAS E OF BANKING COMPANIES, HOWEVER, THE PROVISIONS OF SCHED ULE VI ARE NOT APPLICABLE IN VIEW OF EXEMPTION SET OUT UNDER PROVISO TO SECTION 211 (2) OF THE COMPANIES ACT . T HE FINAL ACCOUNTS OF THE BANKING COMPANIES ARE REQUIRE D TO BE PREPARED IN ACCORDANCE WITH THE PROVISIONS OF TH E BANKING REGULATION ACT . THE PROVISIONS OF SECTION 115 JB CANNOT THUS BE APPLIED TO THE CASE OF A BANKING ITA.289 & 319/BANG/2013 PAGE - 17 COMPANY. 99. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DEC ISION OF THE MUMBAI BENCH OF THE TRIBUNAL, WE HAVE TO NECESSARIL Y HOLD THAT PROVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEE WHICH IS A BANKING COMPANY. THE DEC ISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, CL EARLY SUPPORT THE PLEA OF THE ASSESSEE IN THIS REGARD. CO NSEQUENTLY, GROUND NO.3 RAISED BY THE ASSESSEE IS ALSO ALLOWED. 22. FOLLOWING THE DECISION REFERRED TO ABOVE, WE HO LD THE PROVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEE AND ALLOW GROUND NO.5 RAISED BY THE ASSESSEE. 7.5.2 FOLLOWING THE DECISION OF THE CO-ORDINATE BEN CH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2002 -03 (SUPRA) QUOTED ABOVE, WE HOLD THAT THE PROVISIONS OF SECTIO N 115JB OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEE. CONSEQUENTLY, G ROUND NO.4 RAISED BY THE ASSESSEE IS ALLOWED. ACCORDINGLY WE ALLOW GROUND 6 OF THE ASSESSEE. ITA.319/BANG/2013 - REVENUE'S APPEAL : 22. NOW WE TAKE UP APPEAL OF THE REVENUE. REVENUE HAS ALTOGETHER TAKEN 15 GROUNDS OF WHICH, GROUNDS 1, 14 AND 15 ARE GENERAL NEEDING NO ADJUDICATION. VIDE ITS GROUND 2 TO 4, GRIEVANCE OF THE REVENUE IS THAT CIT (A) DELETED AN ADDITION OF RS.16,99,68,583 MADE BY THE AO AGAINST THE CLAIM OF DIMUNITION IN VALUE OF INVESTMENT. THE AMOUNT APPEARS TO HAVE BE EN INCORRECTLY MENTIONED IN THE GROUNDS, SINCE ASSESSMENT ORDERS SPEAKS OF DISA LLOWANCE OF RS.10,56,61,946/- ONLY. 23. LD. DR ASSAILING THE ORDER OF CIT (A) SUBMITTED THA T THE AO HAD MADE SUCH DISALLOWANCE RELYING ON RBI GUIDELINES AND CBD T INSTRUCTIONS DT 26.11.2008. AS PER THE LD. DR, ONLY AGGREGATED NET SCRIPT WISE DEPRECIATION ITA.289 & 319/BANG/2013 PAGE - 18 COULD BE CLAIMED. 24. PER CONTRA LD. AR SUPPORTED THE ORDERS OF AUTHORITI ES BELOW. 25. WE HAVE PERUSED THE MATERIALS ON RECORD AND CONSIDE RED THE RIVAL SUBMISSIONS. INVESTMENT PORTFOLIO OF BANKS INCLUDI NG THE SLR AND NON-SLR SECURITIES AS PER RBI'S CIRCULAR HAS TO BE CLASSIFI ED UNDER THREE CATEGORIES, NAMELY, HELD TO MATURITY (HTM); AVAILABLE FOR SALE (AFS); AND HELD FOR TRADING (HFT). ALL SECURITIES CLASSIFIED AS AFS AN D HFT WERE SHOWN AS STOCK- IN-TRADE BY THE ASSESSEE AND THERE WAS A CLAIM OF D EPRECIATION OF RS.10,56,61,946/- ON DETERMINATION THEREOF. AO WAS OF THE OPINION THAT DEPRECIATION COULD BE ALLOWED ON SECURITIES AGGREGA TED SCRIPTWISE AND ONCE APPRECIATION WAS SET OFF, THE NET AMOUNT THAT COULD BE CLAIMED BY THE ASSESSEE WAS ONLY 5,76,59,169/-. HE MADE DISALLOWANCE OF RS .4,80,02,777/-. ASSESSEE'S APPEAL BEFORE THE CIT (A) ON THIS ISSUE WAS SUCCESS FUL. CIT (A) RELIED N THE DECISION OF THE COORDINATE BENCH IN THE CASE OF COR PORATION BANK IN ITA. NOS.794 & 795/BANG/2011, DT. 18.06.2012 FOR ALLOWIN G THE CLAIM OF THE ASSESSEE. 26. WE FIND THAT THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF THE DECISION OFF THIS TRIBUNAL IN ASSESSEE'S OWN CASE OF A. Y. 2007-08 IN ITA.967/BANG/2013, DT.06.02.2015. AT PARAS 16.1 TO 16.3.3 IT WAS HELD AS UNDER BY THIS TRIBUNAL. 16.1 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CLAIMED DIMINUTION I N THE VALUE OF INVESTMENTS UNDER THE AFS/HFT CATEGORIES TO THE EXT ENT OF ITA.289 & 319/BANG/2013 PAGE - 19 RS.6,05,64,289 BY CONSIDERING ONLY THE DEPRECIATION IN THE VALUE OF SECURITIES AND IGNORING THE APPRECIATION IN THE VAL UE OF OTHER SCRIPS. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE OU GHT TO CONSIDER BOTH THE APPRECIATION AND DEPRECIATION IN THE RESPE CTIVE PORTFOLIOS AND AFTER NETTING OFF, THE BALANCE SHOULD BE OFFERED AS PROFIT FOR TAXATION. AS THE ASSESSEE HAD CLAIMED ONLY THE DEPRECIATION I N VALUE OF SCRIPS AND IGNORED THE APPRECIATION OF VALUE OF OTHER SCRI PS, THE ASSESSING OFFICER DISALLOWED THE ASSESSEE'S CLAIM OF DEDUCTIO N OF RS.6,05,64,289 ON ACCOUNT OF DIMINUTION IN VALUE OF INVESTMENTS UN DER THE AFS/HFT CATEGORIES. 16.2 ON APPEAL, THE LEARNED CIT (APPEALS) ALLOWED T HE ASSESSEE'S CLAIM FOR DEDUCTION OF RS.6,05,64,289 ON DIMINUTION IN THE VALUE OF INVESTMENTS UNDER THE AFS/HFT CATEGORIES BY FOLLOWI NG THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CA SE OF CORPORATION BANK IN ITA NOS.794 & 795/BANG/2011 DT.18.6.2012. 16.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE LEARNED DEPARTMENTAL REPRESENTATIVE AND THE LEARNED AUTHORI SED REPRESENTATIVE. THE BASIC FACTS OF THE MATTER ARE N OT IN DISPUTE. THE ASSESSEE RECOGNIZES THE VALUE OF INVESTMENTS HELD U NDER AFS/HFT CATEGORY AS PER RBI GUIDELINES; AS PER WHICH THE SC RIPS ARE TREATED AS STOCK-IN-TRADE AND VALUED AT MARKET PRICE. WHILE NO DEPRECIATION IN THE VALUE OF INVESTMENTS, IF ANY, IS PROVIDED, ANY APPRECIATION IS IGNORED; THIS IS AS PER THE ACCOUNTING TREATMENT MA NDATED BY RBI GUIDELINES. 16.3.2 FOR THE PURPOSES OF TAX COMPUTATION, THE ASS ESSEE TREATS THE SCRIP AS STOCK-IN-TRADE AND VALUES THE SAME AT COST OR MARKET PRICE, WHICHEVER IS LOWER. IT IS THE CONTENTION OF THE ASS ESSEE THAT THIS SYSTEM OF ACCOUNTING IS CONSISTENTLY FOLLOWED AND IS IN TU NE WITH THE PROVISIONS OF SECTION 145 OF THE ACT. IT WAS ALSO S UBMITTED THAT THE DIFFERENCE BETWEEN THE SALE PRICE AND THE PRICE AT WHICH THE INVESTMENTS ARE RECORDED FOR TAX PURPOSES, IS OFFER ED TO TAX IN THE YEAR OF SALE AND AS SUCH DEPRECIATION IN VALUE CLAIMED I N THE EARLIER YEARS ARE OFFERED TO TAX IN THE FORM OF PROFIT ON SALE OF STOCK-IN-TRADE. 16.3.3 AS MENTIONED BY THE LEARNED CIT (APPEALS) IN THE IMPUGNED ORDER, WE FIND THAT THE ISSUE BEFORE US FOR CONSIDE RATION IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CORPORATION BANK (SUPRA) WHICH WAS RENDERED AFTER ANALYZING THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF UCO BANK LTD., IN 240 ITR 355 (SC). THE RELEVANT PORTION OF THE AB OVE CITED DECISION OF THE CO-ORDINATE BENCH AT PARAS 11 AND 12 THEREOF ARE EXTRACTED HERE UNDER :- 11. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND THE MATERIAL AVAILABLE ON THE RECORD, IT IS NOTICED THA T A SIMILAR ISSUE ITA.289 & 319/BANG/2013 PAGE - 20 HAVING IDENTICAL FACTS HAS BEEN DECIDED IN FAVOUR O F THE ASSESSEE VIDE THE AFORESAID REFERRED TO ORDER DATED 31.05.20 11 IN ITA NO.710/BANG/2010 FOR THE A.Y. 2007-08 IN ASSESSEES OWN CASE AND THE RELEVANT FINDINGS HAS BEEN GIVEN IN PARAS 5 TO 7, WHICH READ AS UNDER:- 05. AT THE TIME OF HEARING, THOUGH THIS IS REVENUE 'S APPEAL, THE LEARNED CHARTERED ACCOUNTANT APPEARING FOR THE ASSESSEE, PLACED ON RECORD A XEROX COPY OF THE ORDER OF THE T RIBUNAL IN ITA 112/BANG/2008 FOR THE ASSESSMENT YEAR 2004-05 A ND DREW OUR ATTENTION TO PARA NOS.14 TO 16 OF THE SAID ORDE R AND PLEADED THAT THE ISSUE ON HAND IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. WE HAVE ALSO HEARD THE LEARNED DR AND CONSIDERED THE FACTS AND MATERIALS ON RECORD. 06. IN OUR CONSIDERED OPINION, THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE IS BI NDING ON US, FACTS AND CIRCUMSTANCES BEING THE SAME. IN THE SAID DECISION CITED ABOVE, THE TRIBUNAL IN PARA NOS.14 TO 16 HAS HELD AS UNDER : '14. WE ARE OF THE CONSIDERED VIEW THAT THE DECISIO N OF THE HON'BLE SUPREME COURT IN THE CASE OF UNITED COMMERC IAL BANK V. COMMISSIONER OF INCOME-TAX REPORTED IN 240 ITR 355 IS DIRECTLY APPLICABLE TO THE FACTS OF THE CASE ON HAND. AS PER THE HEAD NOTE OF THE SAID DECISION, THE HON' BLE APEX COURT HAS HELD THAT PREPARATION OF THE BALANCE SHEET IN ACCORDANCE WITH THE STATUTORY PROVISIONS W OULD NOT DISENTITLE THE ASSESSEE IN SUBMITTING THE INCOM E-TAX RETURN ON THE REAL TAXABLE INCOME IN ACCORDANCE WIT H THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE CONSISTENTLY AND REGULARLY. FOR THE PURPOSE OF INCO ME TAX, WHAT IS TO BE TAXED IS REAL WHICH IS TO BE DEDUCTED ON THE BASIS OF ACCOUNTING SYSTEM REGULARLY MAINTAINED BY THE ASSESSEE. 15. FURTHER, THE METHOD BY WHICH THE ASSESSEE BANK IS VALUING SECURITIES IS IN ACCORDANCE WITH THE ACCOUN TING PRINCIPLES BY TREATING SUCH SECURITIES AS STOCK-IN- TRADE. MOREOVER, THE REVENUE ITSELF IS TREATING THE PROFIT ON MATURITY OF SUCH SECURITY AS BUSINESS INCOME AND, THEREFORE, SUCH SECURITIES CANNOT BE TREATED AS CAP ITAL ASSETS. 16. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US AND RESPECTFULLY FOLLOWING THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF UNITED COMMERC IAL BANK V. COMMISSIONER OF INCOME-TAX REFERRED SUPRA, IT IS ITA.289 & 319/BANG/2013 PAGE - 21 HELD THAT THE ASSESSEE BANK IS ENTITLED TO VALUE AL L THE INVESTMENT AT COST PRICES OR MARKET VALUE WHICHEVER IS LOWER BY TREATING SUCH INVESTMENT AS STOCK-IN-TRADE . WE, THEREFORE, DELETE THE DISALLOWANCE OF Q. 5,21,96,53 7/- MADE BY THE LEARNED COMMISSIONER OF INCOME-TAX(A). OUR DECISION IS ALSO IN LINE WITH THE DECISION OF T HE HON'BLE ITAT, BANGALORE BENCH 'B' IN ITA NO.253/BANG/2007, DATED 24.1.2008 IN THE CASE OF AC IT (LTU), BANGALORE V. VIJAYA BANK.' 07. FOLLOWING OUR ABOVE DECISION, THIS ISSUE IS DEC IDED IN FAVOUR OF THE ASSESSEE BY DISMISSING THE GROUNDS OF APPEAL RAISED BY THE REVENUE. 12. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRE D TO ORDER DATED 31.05.2011 IN ITA NO.710/BANG/2010 FOR THE A. Y. 2007-08 IN ASSESSEES OWN CASE, THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE, WE THEREFORE DO NOT SEE ANY MERIT IN THES E APPEALS OF THE DEPARTMENT. AS WE FIND THAT THE FACTS OF THE ASSESSEE IN THE CA SE ON HAND ARE SIMILAR TO THAT OF THE CITED CASE, I.E. CORPORATION BANK LTD. (SUPRA) FOLLOWED BY THE LEARNED CIT (APPEALS) IN TH E IMPUGNED ORDER, WE CONCUR WITH THE DECISION OF THE LEARNED C IT (APPEALS) IN ALLOWING THE ASSESSEE'S CLAIM OF DIMINUTION IN T HE VALUE OF INVESTMENTS UNDER THE AFS/HFT CATEGORIES AMOUNTING TO RS.6,05,64,289. CONSEQUENTLY, REVENUES GROUNDS AT S.NOS.11 TO 13 ARE DISMISSED. FOLLOWING THE ABOVE, WE ARE OF THE OPINION THAT THE CIT (A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. GROUNDS 2 TO 4 STANDS DISMISSED. 27. VIDE ITS GROUNDS 5 TO 7, REVENUE IS AGGRIEVED THAT THE CIT (A) ALLOWED THE ASSESSEE'S CLAIM OF DEPRECIATION ON CONVERSION OF SECURITIES. 28. LD. DR SUBMITTED THAT ASSESSEE COULD CLAIM CAPITAL LOSS OR GAIN ON SALE OF SECURITIES WHICH WAS CLASSIFIED AS HTM. HOWEVER, A CCORDING TO HIM, THE IMPACT OF DEPRECIATION/APPRECIATION COULD BE CLAIMED ONLY IN THE YEAR OF SALE OF SECURITIES. AS PER THE LD. DR, WHEN THE ASSESSEE S HIFTED ITS INVESTMENTS FROM ITA.289 & 319/BANG/2013 PAGE - 22 AFS TO HFT, IT HAD NOT MADE ANY DEVALUATION OF THE INVESTMENTS IN THE BOOKS. AS PER THE LD. DR, THE INVESTMENTS WERE HELD ON THE SAME VALUE AS IT WERE HELD IN THE HTM CATEGORY. SINCE THE BOOK VALUE REMAINED THE SAME, AS PER LD. DR, IF THE ASSESSEE SOLD THE SAID INVESTMENT IN A LATER YEAR, THE PROFITS OR LOSS ARISING THEREFROM WOULD BE MEASURED TAKING THE BOOK VALUE A S THE BASE AND NOT THE DEPRECIATED VALUE. 29. PER CONTRA, LD.AR SUBMITTED THAT DEPARTMENT HAD NOT CORRECTLY APPRECIATED THE WAY THE ASSESSEE HAD ACCOUNTED THE DEPRECIATION WHILE SHIFTING THE INVESTMENT FROM ONE CATEGORY TO THE OTHER. ACC ORDING TO THE LD. AR, THERE WAS CONSIDERABLE BALANCE IN PROVISIONS CARRIED FORW ARD FROM EARLIER YEAR AND IT WAS AGAINST SUCH PROVISION THAT THE ADJUSTMENTS WER E DONE. IT WAS FOR THIS REASON THAT THE AMOUNT DID NOT ENTER THE PROFIT AND LOSS ACCOUNT. HOWEVER, THE PROVISIONING WAS INDEED REFLECTED IN THE BOOKS OF A CCOUNT. THEREFORE, ACCORDING TO HIM, CIT (A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 30. WE HAVE PERUSED THE MATERIALS ON RECORD AND CONSIDE RED THE RIVAL SUBMISSIONS. ASSESSEE HAD DURING THE YEAR SWITCHED SOME SECURITIES FROM AFS TO HTM CATEGORY AND WHILE MAKING THE SWITCHING, IT HAD CLAIMED THAT IT HAD MADE A REVALUATION OF THE INVESTMENT BASED ON MARKE T PRICE WHICH RESULTED IN A CLAIM OF DEPRECIATION OF RS.5,17,67,388/-. AO TOOK A VIEW THAT SWITCHING HAVING BEEN MADE FROM AFS TO HTM CATEGORY AND SINCE THE SECURITIES WERE UNDER HTM CATEGORY, ASSESSEE COULD CLAIM ONLY CAPIT AL GAIN/LOSS ON SALE. THE CLAIM OF DEPRECIATION WAS NOT ALLOWABLE. IN OTHER W ORDS, AS PER THE AO, SUCH ITA.289 & 319/BANG/2013 PAGE - 23 DEPRECIATION WAS ALLOWABLE ONLY IN AFS AND HTS CATE GORIES. IN ASSESSEE'S APPEAL BEFORE THE CIT (A), LD. CIT (A) HAD TAKEN A VIEW THAT THE DEPRECIATION CLAIMED WAS CONSIDERED IN THE BOOKS OF ACCOUNT AND THIS WAS MENTIONED IN THE 75 TH ANNUAL REPORT OF THE ASSESSEE. HE ALLOWED THE CLA IM OF THE ASSESSEE. 31. WE FIND THAT ASSESSEE HAD AN OPENING BALANCE PROVIS ION OF RS.35,41,71,000/-, AS AT THE BEGINNIG OF THE RELEVA NT PREVIOUS YEAR. AN ADDITIONAL PROVISION OF RS.5,76,59,000/- WAS MADE I N THE BOOKS BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. HOWEVER, WHILE CHARGING ADDITIONAL PROVISION DURING THE RELEVANT PREVIOUS YEAR, ASSESS EE HAD DEDUCTED THE EXCESS PROVISIONS OF RS.5,17,67,000/-, OR IN OTHER WORDS, THE PROVISION MADE BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR WAS AFTE R DEDUCTING THE EXCESS PROVISION. THEREFORE, THE VIEW TAKEN BY THE AO THA T THE DEPRECIATION LOSS WAS NOT CONSIDERED IN THE BOOKS APPEARS TO BE INCORRECT . IN THE CASE OF STATE BANK OF MYSORE V. DCIT (ITA.647 & 706/BANG/2008, DT 29.05.2 009) (33 SOT 7), THIS TRIBUNAL HAD CONSIDERED THE ISSUE AT PARAS 7.2 TO 7 .5 OF THE ORDER AND HELD AS UNDER : 7.1 ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE HAD VE- HEMENTLY ARGUED THAT THE CIT(A) HAD DECIDED THE ISS UE IN A JUDICIOUS MANNER WHICH REQUIRES NO INTERFERENCE AT THIS STAGE . 7.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HA VE ALSO PERUSED THE RBI MASTER CIRCULAR AND OTHER CASE LAWS ON WHICH TH E SENIOR COUNSEL HAS PLACED STRONG RELIANCE. THE HONBLE TRIBUNAL, BANGA LORE BENCH B IN ITA NO. 253/BANG/2007, DT. 24TH JAN., 2008 IN THE C ASE OF ASSTT. CIT (LTU) VS. VIJAYA BANK HAD AN OCCASION TO DEAL WITH A SIMILAR ISSUE. AFTER CONSIDERING THE RIVAL SUBMISSIONS, ANALYZING THE RB I GUIDELINES AND ALSO EXTENSIVELY QUOTING VARIOUS JUDICIAL PRONOUNCEMENTS ON WHICH BOTH THE PARTIES HAVE PLACED THEIR RELIANCE, THE HONBLE TRI BUNAL HAS OBSERVED THUS ITA.289 & 319/BANG/2013 PAGE - 24 '15. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE IS TREATING THE SE- CURITIES HELD UNDER THE CATEGORY HELD FOR MATURITY AS STOCK-IN- TRADE. IF THERE IS APPRECIATION IN THE MARKET VALUE AS COMPARED TO THE MARKET VALUE AT THE OPENING OF THE YEAR AND SUC H APPRECIATION IS ALSO ACCOUNTED FOR. IT IS NOT CLAIMING DEPRECIAT ION ONLY FOR THE YEARS, WHEN THE VALUE HAS GONE DOWN. IF THAT HAD BE EN THE CASE, THE ASSESSEE WOULD NOT HAVE ACCOUNTED FOR ANY APPRE CIATION IN 3RD, 4TH AND 5TH YEAR. THE METHOD BY WHICH THE ASSE SSEE BANK IS VALUING SECURITIES IS IN ACCORDANCE WITH THE ACCOUN TING PRINCIPLES BY TREATING SUCH SECURITIES AS STOCK-IN-TRADE. MORE OVER, THE REVE- NUE ITSELF IS TREATING THE PROFIT ON MATURITY OF SU CH SECURITY AS BUSINESS INCOME AND, THEREFORE, SUCH SECURITIES CAN NOT BE TREATED AS CAPITAL ASSETS. 16. SPECIAL BENCH, DELHI IN THE CASE OF NEW INDIA I NDUSTRIES LTD. VS. ASSTT. CIT (2007) 112 TTJ (DEL)(SB) 917 : (2008 ) 1 DTR (DEL)(SB)(TRIB) 247 : (2007) 18 SOT 51 (DEL)(SB) : 2007-TIOL- 389-ITAT-DEL-SB HAD AN OCCASION TO CONSIDER THE BIN DING NATURE OF RBI GUIDELINES. THE SPECIAL BENCH HELD THAT RBI GUIDELINES IN RESPECT OF PROVISION FOR NPA ARE NOT BINDING IN THE COMPUTATION OF INCOME UNDER THE IT ACT. INCOME IS TO BE ASSESSED A S PER THE PRO- VISION OF THE IT ACT. THE MADRAS HIGH COURT IN THE CASE OF T.N. POWER FINANCE & INFRASTRUCTURE DEVELOPMENT CORPORAT ION LTD. VS. CIT (2007) 213 CTR (MAD) 610 : (2006) 280 ITR 4 91 (MAD) : (2006-TIOL-112-HC-MAD-IT HELD THAT PROVISION FOR NO N- PERFORMING THE ASSETS DEBITED TO P&L A/C IS NOT ALL OWABLE, AS DI- RECTIVE OF RBI MAY NOT OVERRIDE STATUTORY PROVISION . ONCE THE REVENUE IS ACCEPTING THAT PROFIT ARISING ON THE MAT URITY OF INVEST- MENT IS BUSINESS INCOME, THEN IT CANNOT TAKE THE ST AND THAT IT IS NOT STOCK-IN-TRADE. DURING THE COURSE OF PROCEEDINGS BE FORE US, THE LEARNED AUTHORISED REPRESENTATIVE HAS FILED THE ASS ESSMENT ORDER IN THE CASE OF THE ASSESSEE FOR THE ASST. YRS. 2000 -01 TO 2002-03. THE DEPRECIATION CLAIMED IN ALL THESE ASST. YEARS H AS NOT BEEN DIS- ALLOWED .THUS, THE REVENUE IS CONSISTENTLY ACCEPTIN G THAT DEPRE- CIATION IS ALLOWABLE. THIS BENCH IN THE FOLLOWING C ASES HAS AL- LOWED SUCH DEPRECIATION ON THE VALUATION OF THE SEC URITIES HELD BY THE BANK : (1) KARNATAKA BANK LTD. VS. JT. CIT ITA NO. 50/BANG /1997, DT. 27TH JULY, 2003; (2) ING VYSYA BANK LTD. VS. DY. CIT (2006) 6 SOT 60 6 (BANG). 17. CONSIDERING THE ABOVE DISCUSSION, IT IS HELD TH AT THE ASSESSEE IS ENTITLED TO VALUE ALL THE INVESTMENT AT COST PRICES OR MARKET VALUE WHICHEVER IS LOWER BY TREATING SUCH INVESTMENT AS S TOCK-IN- TRADE....' ITA.289 & 319/BANG/2013 PAGE - 25 7.3 THE HONBLE TRIBUNAL IN ITA NO. 112/BANG/2008, DT. 3RD DEC., 2008 IN THE CASE OF CORPORATION BANK VS. ASSTT. CIT 2009 -TIOL-75-ITAT- BANG, BY FOLLOWING THE DECISION OF THE HONBLE TRIB UNAL IN THE CASE OF ASSTT. CIT (LTU) VS. VIJAYA BANK (SUPRA), HAS HELD THAT '16. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE US AND RESPECTFULLY FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK VS. CIT REFERRED SU- PRA, IT IS HELD THAT THE ASSESSEE BANK IS ENTITLED TO VALUE ALL THE IN- VESTMENT AT COST PRICES OR MARKET VALUE WHICHEVER I S LOWER BY TREATING SUCH STOCK-IN-TRADE.........' 7.4 IN RBIS MASTER CIRCULAR, UNDER THE CAPTION 2 C LASSIFICATION, IT HAS BEEN MENTIONED THUS '(I) THE ENTIRE INVESTMENT PORTFOLIO OF THE BANKS ( INCLUDING SLR SECURITIES AND NON-SLR SECURITIES) SHOULD BE CLASSI FIED UNDER THREE CATEGORIES VIZ., HELD TO MATURITY, AVAILABLE FOR SALE AND HELD FOR TRADING. HOWEVER, IN THE BALANCE SHEET, THE IN VESTMENTS WILL CONTINUE TO BE DISCLOSED AS PER THE EXISTING SIX CL ASSIFICATIONS VIZ., (A) GOVERNMENT SECURITIES, (B) OTHER APPROVED SECUR ITIES, (C) SHARES, (D) DEBENTURES AND BONDS, (E) SUBSIDIARIES/ JOINT VENTURES, AND (F) OTHER (CP MUTUAL FUND UNITS, ETC.). (II) BANKS SHOULD DECIDE THE CATEGORY OF THE INVEST MENT AT THE TIME OF ACQUISITION AND THE DECISION SHOULD BE RECORDED ON THE INVEST- MENT PROPOSALS. 2.3 SHIFTING AMONG CATEGORIES : (I) BANKS MAY SHIFT INVESTMENTS TO/FROM HELD TO MAT URITY CATEGORY WITH THE APPROVAL OF THE BOARD OF DIRECTORS ONCE A YEAR. SUCH SHIFT- ING WILL NORMALLY BE ALLOWED AT THE BEGINNING OF TH E ACCOUNTING YEAR. NO FURTHER SHIFTING TO/FROM THIS CATEGORY WIL L BE ALLOWED DUR- ING THE REMAINING PART OF THAT ACCOUNTING YEAR.' 7.5 IN VIEW OF THE CLEAR-CUT GUIDELINES OF THE RBI AND RESPECTFULLY FOLLOW- ING THE FINDINGS OF THE HONBLE TRIBUNAL REFERRED S UPRA, THE CLAIM OF THE ASSESSEE TOWARDS PROVISION OF DEPRECIATION OF RS. 1 ,27,21,17,913 ON AC- COUNT OF TRANSFER OF SECURITIES FROM AFS CATEGORY T O HTM CATEGORY IS AL- LOWED. IT IS ORDERED ACCORDINGLY. WE ARE THEREFORE OF THE OPINION THAT CIT (A) WAS JU STIFIED IN ALLOWING THIS CLAIM. NO INTERFERENCE IS CALLED FOR. GROUNDS 5 T O 7 OF THE REVENUE STAND DISMISSED. 32. VIDE ITS GROUNDS 8 TO 10, GRIEVANCE OF THE REVENUE IS THAT INSURANCE ITA.289 & 319/BANG/2013 PAGE - 26 PREMIUM OF RS.9,16,88,855/- PAID ON HOUSING LOANS OF CUSTOMERS WHICH WAS DISALLOWED BY THE AO AS NON-REVENUE IN CHARACTER, WAS ALLOWED BY THE CIT (A). 33. LD. AR POINTED OUT THAT THIS ISSUE HAD COME UP BEFO RE THE TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA.967/BANG/2013, DT.06.02. 2015, WHEREIN IT WAS HELD AS UNDER AT PARAS 17.2.1 TO 17.2.3 OF THE ORDER : 17.2.1 WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE LEARNED DEPARTMENTAL REPRESENTATIVE AND THE LEARNED AUTHORI SED REPRESENTATIVE AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL O N RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD INCURRED AN AMOUNT OF RS.9,79,33,190 TOWARDS INSURANCE PREMIUM IN RESPECT OF HOUSING LOA N PRODUCTS. IN ITS BOOKS OF ACCOUNT, THE ASSESSEE AMORTISED THIS EXPEN DITURE OVER THE PERIOD OF THE HOUSING LOAN. HOWEVER, IN THE RETURN OF INCOME FILED, THE ENTIRE AMOUNT OF EXPENDITURE WAS CLAIMED AS DEDUCTI ON. THE ASSESSING OFFICER DID NOT CONCUR WITH THIS CLAIM OF THE ASSES SEE AND RESTRICTED THE DEDUCTION TO THE EXTENT OF AMORTIZATION AS MADE BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. 17.2.2 ACCORDING TO THE ASSESSEE, THIS EXPENDITURE IS DIRECTLY RELATED TO THE BUSINESS OF THE ASSESSEE AND IS LIABLE TO BE AL LOWED AS DEDUCTION. IT WAS SUBMITTED THAT THE PROVISIONS OF SECTIONS 30 TO 36 OF THE ACT COVERS SPECIFIC EXPENSES AND SECTION 37 OF THE ACT IS A RE SIDUARY SECTION WHICH PERMITS DEDUCTION OF EXPENSES INCURRED WHOLLY AND E XCLUSIVELY FOR THE PURPOSES OF BUSINESS, PROVIDED THEY ARE NOT CAPITAL IN NATURE, NOT PERSONAL IN NATURE AND NOT PROHIBITED IN LAW. IT IS CONTENDED THAT DEDUCTION WAS ALLOWABLE, IRRESPECTIVE OF WHETHER TH E EXPENSES WERE DEFERRED OVER A PERIOD OF TIME IN THE BOOKS OF ACCO UNT. IN SUPPORT OF THIS CONTENTION, THE ASSESSEE RELIED ON VARIOUS JUDICIAL PRONOUNCEMENTS PUT FORTH BEFORE THE LEARNED CIT (APPEALS). 17.2.3 ON A CAREFUL CONSIDERATION OF THE FACTS OF T HE MATTER, WE CONCUR WITH THE FINDING OF THE LEARNED CIT (APPEALS) IN TH E IMPUGNED ORDER THAT THE EXPENDITURE INCURRED ON INSURANCE PREMIUM ON HO USING LOAN ARE REVENUE IN NATURE AND IS AN ALLOWABLE DEDUCTION. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THESE EXPENSES ARE NOT FOR T HE PURPOSES OF THE ASSESSEE'S BUSINESS OR THAT THEY ARE CAPITAL IN NAT URE. THESE EXPENSES ARE RELATED TO THE HOUSING PRODUCTS WHICH ARE VERY MUCH A PART OF THE ASSESSEE'S BUSINESS ACTIVITIES AND THE PAYMENT OF I NSURANCE PREMIUM ON THE HOUSING PRODUCTS IS ALSO NOT CAPITAL IN NATURE. ONCE THE EXPENDITURE IS ACCEPTED TO BE REVENUE IN NATURE AND INCURRED FO R THE PURPOSES OF BUSINESS, THEN IT IS ALLOWABLE IN THE YEAR IN WHICH IT IS INCURRED. THERE IS ITA.289 & 319/BANG/2013 PAGE - 27 NO CONCEPT OF DEFERRED REVENUE EXPENDITURE IN THE S CHEME OF THE ACT AND UNLESS OTHERWISE EXPRESSLY PROVIDED, THE REVENUE EX PENDITURE IS TO BE ALLOWED IN FULL, IN THE YEAR IN WHICH IT IS INCURRE D. IN THIS VIEW OF THE MATTER, WE CONCUR WITH THE FINDING OF THE LEARNED C IT (APPEALS) THAT THE EXPENDITURE OF RS.2,39,38,811 INCURRED AS INSURANCE PREMIUM IN CONNECTION WITH THEIR HOUSING LOAN SCHEME IS REVENU E IN NATURE AND IS ELIGIBLE FOR DEDUCTION. IT IS ORDERED ACCORDINGLY. CONSEQUENTLY REVENUES GROUNDS AT S.NOS.14 TO 17 ARE DISMISSED. FOLLOWING THE ABOVE, WE DISMISS GROUNDS 8 TO 10 RAI SED BY THE REVENUE. 34. VIDE ITS GROUNDS 11 TO 13, GRIEVANCE RAISED BY THE REVENUE IS THAT ADDITION OF RS.6,07,37,440/- MADE BY THE AO FOR BRO KEN PERIOD INTEREST WAS DELETED BY THE CIT (A). 35. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN ASSE SSEE'S OWN CASE FOR A. Y. 2005-06 ISSUE REGARDING BROKEN PERIOD INTEREST H AD COME UP BEFORE THIS TRIBUNAL AND THIS TRIBUNAL HAD FOLLOWED THE JUDGMEN T OF HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS. KARNATAKA BANK LTD.(ITA.433 O F 2005, DT.12.09.2012) AND HELD IN FAVOUR OF THE ASSESSEE. 36. LD. DR FAIRLY ADMITTED THAT AT THIS POINT OF TIME, THIS ISSUE STOOD COVERED IN FAVOUR OF THE ASSESSEE. 37. WE HAVE PERUSED THE MATERIALS ON RECORD AND CONSIDE RED THE RIVAL SUBMISSIONS. ON THE ISSUE OF BROKEN PERIOD INTERES T, THIS TRIBUNAL IN ASSESSEE'S APPEAL FOR A. Y. 2007-08 (ITA.967/BANG/2013) HAD HE LD AS UNDER AT PARAS 12.3.1 TO 12.3.3 : 12.3.1 WE HAVE HEARD BOTH THE LEARNED AUTHORISED R EPRESENTATIVE OF THE ASSESSEE AND THE LEARNED DEPARTMENTAL REPRESENTATIV E FOR REVENUE ON THE ISSUE BEFORE US AND CAREFULLY PERUSED AND CONSI DERED THE MATERIAL ON ITA.289 & 319/BANG/2013 PAGE - 28 RECORD. THE BRIEF FACTS OF THE MATTER ARE THAT THE ASSESSEE MAKES INVESTMENTS IN GOVERNMENT SECURITIES AS PER RBI GUI DELINES. INTEREST ON THESE SECURITIES IS NORMALLY PAYABLE ON SPECIFIC CO UPON DATES, WHICH ARE 30TH OF JUNE AND 30TH OF DECEMBER OF EVERY YEAR, IN THE CASE OF THE ASSESSEE. THE ASSESSEE ACCOUNTS FOR THE INCOME FROM THE LAST COUPON DATE, 30TH DECEMBER TILL 31ST MARCH AS BROKEN PERI OD INTEREST INCOME ON ACCRUAL BASIS. IT IS THE CONTENTION OF THE ASSES SEE, THAT EVEN THOUGH IT FOLLOWS THE MERCANTILE BASIS OF ACCOUNTING, AN AMOU NT CANNOT BE CHARGED TO TAX UNDER IT CONSTITUTES INCOME AND AS T HE BROKEN PERIOD INCOME DOES NOT CONSTITUTE INCOME, IT IS THEREFORE NOT CHARGEABLE TO TAX. 12.3.2 WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED AND DECIDED IN FAVOUR OF THE ASSESSEE IN SEVERAL CASES CITED BY BOTH THE HON'BLE KARNATAKA HIGH COURT AND THE CO-ORDINATE BENCH OF THIS TRIBUN AL, INCLUDING THE DECISION IN THE CASE OF STATE BANK OF MYSORE IN ITA NO. 1401/BANG/2003 DT.17.4.2009 RELIED ON BY THE LEARNED CIT (APPEALS) IN THE IMPUGNED ORDER. IN THE APPELLATE PROCEEDINGS BEFORE US, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE PLACED RELIANCE ON T HE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V K ARNATAKA BANK LTD. IN ITA NO.433 OF 2005 DT.12.9.2012. THE RELEVA NT PORTION OF THE SAID JUDGMENT AT PARAS 16 & 17 THEREOF IS EXTRACTED HERE UNDER :- 16. IT IS DECLARED UNDER SECTION 5 OF THE ACT THAT WHEN INTEREST IS ACCRUED OR DEEMED TO HAVE BEEN ACCRUED, IT IS LIABL E TO TAX. THE WORD ACCRUED HAS DEFINED THE LEGAL CONNOTATION. T HE INTEREST THAT BECOMES DUE OR LIABLE TO BE PAYABLE WHETHER OR NOT IT IS PAID, THE INTEREST IS ACCRUED OR DEEMED TO HAVE BEEN ACCRUED. IF THE INTEREST DOES NOT BECOME DUE AND NOT LIABLE TO PAY SUCH PART OF THE INTEREST ARISE, IT CANNOT BE SAID THAT THE INTEREST HAS BECO ME ACCRUED. IT APPEARS FORM THE FACTS OF THE CASE THAT THE ASSESSE E IS A BANK. FOR ITS ACCOUNTING PURPOSE, IT HAS SHOWN THE PROPORTION ATE INTEREST ENTITLED TO RECEIVE ON THE GOVT. SECURITIES. BUT FO R THE ASSESSMENT YEAR, ALTHOUGH IT IS NOT ACCRUED, IN THE LEGAL SENS E AND IN TERMS OF SECTIONS 5 AND 145 OF THE I.T. ACT. THE CONTENTION OF THE REVENUE THAT IN THE BOOKS OF ACCOUNTS, THE PROPORTIONATE IN TEREST SHOWN FOR THE BROKEN PERIOD IN THE BALANCE SHEET, SHOULD BE C ONSTRUED AS THE INCOME ACCRUED, IS NOT TENABLE. IN OTHER WORDS, THE INCOME WHICH HAS BECOME DUE AND PAYABLE SHOULD ALONE BE CONSIDER ED AS INCOME ACCRUED AND THAT SHOULD BE OFFERED AS TAX. THE CONT ENTION THAT ASSESSING OFFICER IS ENTITLED TO TAX ON THE INTERES T INCOME ALTHOUGH NOT DUE AND PAYABLE AS ACCRUED, IS UNTENABLE. THE F ACT THAT THE ASSESSEE IN ITS INTERNAL BOOKS OF ACCOUNTING MENTIO NS THE PROPORTIONATE INTEREST, WHICH IS ENTITLED TO RECEIV E, IN ITS BALANCE SHEET FOR THE PURPOSE OF PROFIT AND LOSS CANNOT BE DEEMED AS INCOME ACCRUED, UNLESS SUCH INCOME HAS BECOME DUE AND PAYA BLE. ON THE BASIS OF SUCH AMOUNT, THE ASSESSING OFFICER HAS NO RIGHT TO CHARGE ITA.289 & 319/BANG/2013 PAGE - 29 THE INTEREST, WHICH HAS NOT BECOME DUE AND PAYABLE. 17. IN FACT, WE FIND NO INCONSISTENCY BETWEEN THE A MENDED PROVISIONS OF SECTIONS 145 AND 5 OF THE I.T. ACT. I T MAY BE THAT THE AMENDED PROVISIONS OF SECTION 145 NOW INSISTS MERCA NTILE SYSTEM OF ACCOUNTING WHERE ON THE INCOME ACCRUED THE TAX CAN BE LEVIED WHETHER OR NOT RECEIVED UNLIKE IN CASH SYSTEM. MERE LY BECAUSE IN THE BOOKS OF ACCOUNTS, THE INTEREST INCOME, WHICH I S NOT DUE AND PAYABLE IS SHOWN IN THE ACCOUNT OF THE ASSESSEE. TH AT ITSELF WILL NOT GIVE RIGHT TO A.O. TO TAX UNLESS IT HAS BECOME DUE AND PAYABLE AS PER PROVISIONS OF SECTION 5 OF THE I.T. ACT. 12.3.3 WE FIND THAT THE FACTS OF THE CASE ON HAND A RE EXACTLY SIMILAR, ON THESE ISSUES TO THOSE DECIDED BY THE HON'BLE HIGH C OURT IN THE ABOVE CITED DECISION (SUPRA). RESPECTFULLY FOLLOWING A DE CISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK LTD. (SUPRA), WE HOLD THAT THE BROKEN PERIOD INTEREST DOES NOT CONST ITUTE INCOME IN THE YEAR UNDER CONSIDERATION AS IT HAS NOT BECOME DUE A ND PAYABLE / RECEIVABLE AS PER THE PROVISIONS OF THE ACT. CONSEQ UENTLY, GROUNDS RAISED AT S.NOS.2 TO 4 OF REVENUES APPEAL ARE DISM ISSED. FOLLOWING THE ABOVE, WE DISMISS GROUNDS 11 TO 13 OF THE REVENUE. 38. TO SUMMARISE THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED, WHEREAS THAT OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DAY OF JUNE, 2015. SD/- SD/- (N. V. VASUDEVAN) (ABR AHAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER