Baitarani Gramya Bank, Bhubaneswar V. ACIT, Balasore

ITA 318/CTK/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5402 (ITAT-CUTTACK)
• Duration Of Justice: 4 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-07-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Reasonable cause; Bad and doubtful debts; Condonation of delay; Capital expenditure
• Section: 43B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEAR S : 2008 - 09 & 2009 - 2010 BAITARANI GRAMYA BANK, (SUCCEEDED BY ODISHA GRAMYA BANK), 190/702, KOKILA RESIDENCY, ANANTA BIHAR, AIRPORT AREA, POKHARIPUT, BHUBANESWAR. VS. ACIT, BALASORE CIRCLE, BALASORE, PAN/GIR NO. AAAJB 0149 B (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI B.K.MOHAPATRA, AR REV ENUE BY : SHRI D.K.PRADHAN, DR DATE OF HEARING : 17 /08/ 2017 DATE OF PRONOUNCEMENT : 24 /08/ 2017 O R D E R PER N.S.SAINI, AM THESE ARE APPEAL S FILED BY THE ASSESSEE AGAINST THE ORDER S DATED 27.3.2012 AND 15.2.2013 OF THE CIT(A) - CUTTACK FOR THE ASSESSMENT YEAR S 2008 - 09 & 2009 - 2010, RESPECTIVELY. FIRST, WE TAKE UP THE APPEAL IN ITA NO.318/CTK/2013 FOR A.Y. 2008 - 09. 2. THE APPEAL FILED BY THE ASSESSEE IS BARRED BY LIMITATION BY 127 DAYS. THE ASSESSEE HAS FILED AN AFFIDAVIT DULY NOTORISED FOR CONDONATION OF DELAY IN FILING THE APPEAL . AFTER GOING T HROUGH THE CONDONATION PETITION , WE FIND THAT THE ASSESSEE HAD REASONABLE CAUSE FOR NOT FILING THE APPEAL WITHIN THE STIPULATED TIME. LD D.R. DID NOT HAVE ANY SERIOUS OBJECTION FOR 2 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 C ONDONING THE DELAY. WE, THE REFORE, CONDONE THE DELAY OF 127 DAYS IN FILING THE APPEAL BEFORE TH E TRIBUNAL AND ADMIT THE APPEAL FOR HEARING. 3. GROUND NO.1 IS GENERAL IN NATURE AND HENCE, REQUIRES NO SEPARATE ADJUDICATION BY US. 4. GROUND NO.4 OF THE APPEA L IS NOT PRESSED BY LD A.R. OF THE ASSESSEE, HENCE, SAME IS DISMISSED AS NOT PRESSED. 5. IN GROUND NO.2 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.16,50,000/ - UNDER THE HEAD PROVISION FOR STANDA RD ASSETS AS PER RBI NORMS. 6. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN WHY PROVISION FOR STANDARD ASSETS AMOUNTING TO RS.16,50,000/ - SHALL NOT BE DISALLOWED SINCE PROVISIONS FOR EXPENDITURE CLAIMED IN TH E PROFIT AND LOSS ACCOUNT ARE NOT PERMISSIBLE EXPENDITURE UNDER THE ACT. THE ASSESSEE EXPLAINED THAT THE BANK PROVIDED FOR AN AMOUNT OF RS.16,50,000/ - TOWARDS PROVISIONS FOR STANDARD ASSETS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY RESERVE BANK OF INDIA FOR PROVISIONING OF LOANS AND ADVANCES OF A BANK. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND OBSERVED THAT SUCH PROVISION FOR STANDARD ASSETS IS NOT PERMISSIBLE EXPENDITURE UNDER THE ACT AND MOREOVER EXPENDITURE ON S UCH ASSETS IS IN THE NATURE OF CAPITAL EXPENDITURE. THEREFORE, HE DISALLOWED RS.16,50,000/ - AND ADDED TO THE INCOME OF THE ASSESSEE. 3 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 7. ON APPEAL BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT AS PER THE NORMS OF RBI, ALL ASSETS OF THE BANK, WHETHER THEY ARE STANDARD ASSETS OR DOUBTFUL ASSETS, A PROVISION IS BEING MADE TOWARDS BAD DEBT. TO ALLOW SUCH A PROVISION IN THE ACCOUNTS, THE I.T.ACT HAS ALLOWED DEDUCTION U/S.36(1)(VIIA) FOR SUCH PROVISION TOWARDS BAD & DOUBTFUL DEBTS. THE DEDUCTION WAS ALLOWED TO BANKS AS PER RULE 6ABA. THE ASSESSEE BEING A REGIONAL RURAL BANK AND ALL ITS BRANCHES ARE LOCATED IN RURAL AREAS AND BANKING IS PROVIDED TO RURAL MASS OF THE DISTRICT, THE DEDUCTION U/S.36(1 ) (VIIA) AS PER RULE 6ABA IS ELIGIBL E TO THE ASSESSEE BANK. IT WAS SUBMITTED THAT THE ASSESSEE CLAIMED A TOTAL PROVISION OF RS.1,68,13,000/ - , THEREFORE, THE TOTAL PROVISION FOR ALL ASSETS INCLUDING STANDARD ASSETS IS WITHIN THE OVERALL LIMIT FOR WHICH THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUC TION U/S.36(1)(VIIA) OF THE ACT. HENCE, IT WAS SUBMITTED THAT THE DISALLOWANCE OF THE PROVISION FOR STANDARD ASSETS OF RS.16,50,000/ - IS NOT SUSTAINABLE. 8. THE CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND RELYING ON THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF INDIAN MOLASSES CO. LTD VS CIT (1959) 37 ITR 66 (SC), WHEREIN, IT HAS BEEN HELD THAT PROVISION FOR A CONTINGENT OR UNACCRUED LIABILITY IS NOT ALLOWABLE AS DEDUCTION, CONFIRMED THE DISALLOWANCE OF RS.16,50,000/ - MADE BY THE AS SESSING OFFICER. 9. BEFORE US, LD A.R. REITERATED THE SUBMISSION MADE BEFORE THE LOWER AUTHORITIES. 4 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 10. ON THE OTHER HAND, LD D.R. RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF VIJAY BANK VS CIT (2010) 323 ITR 166 (SC), WHEREIN, IT WAS HEL D THAT AFTER APRIL 1, 1989, A MERE PROVISION FOR BAD DEBT WILL NOT BE ENTITLED TO DEDUCTION U/S.36(1)(VII). IF AN ASSESSEE DEBITS AN AMOUNT OF DOUBTFUL DEBT TO THE PROFIT AND LOSS ACCOUNT AND CREDIT THE ASSETS ACCOUNT LIKE SUNDRY DEBTORS ACCOUNT, THAT WOU LD CONSTITUTE A WRITE OFF OF AN ACTUAL DEBT. HOWEVER, IF AN ASSESSEE DEBITS PROVISION FOR DOUBTFUL DEBT TO THE PROFIT & LOSS ACCOUNT AND MAKES A CORRESPONDING CREDIT TO THE CURRENT LIABILITIES AND PROVISIONS ON THE LIABILITIES SIDE OF THE BALANCE SHEET, T HEN IT WOULD CONSTITUTE A PROVISION FOR DOUBTFUL DEBT. IN THE LATTER CASE, THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION AFTER APRIL, 1989. HE FURTHER RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES VS JCIT, 320 ITR 577 (SC), WHEREIN ALSO, SIMILAR FINDING WAS GIVEN. HENCE, IT WAS HIS SUBMISSION THAT THE ORDER OF THE CIT SHOULD BE CONFIRMED. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. IN THE INST ANT CASE, THE UNDISPUTED FACTS ARE THAT THE ASSESSEE MADE A CLAIM FOR DEDUCTION OF RS.1,68,13,000/ - FOR BAD AND DOUBTFUL DEBTS WHICH INCLUDES RS.16,50,000/ - AS PROVISION MADE FOR STANDARD ASSETS IN THE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER DISALLOWED DEDUCTION OF RS.16,50,000/ - ON THE GROUND THAT IT WAS NOT PERMISSIBLE EXPENDITURE AND THAT IT WAS CAPITAL EXPENDITURE . 5 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 11 . 1 ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER ON THE GROUND THAT IT IS A CONTINGENT LIABILITY. 12. WE FIND THAT THE ASSESSEE ARGUED BEFORE THE CIT(A) THAT THE DEDUCTION CLAIMED OF RS.1,68,13,000/ - WHICH INCLUDES RS.16,50,000/ - WAS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT. THE CONTENTION OF THE ASSESSEE WAS THAT IT BEING A RE GIONAL RURAL BANK , PROVISION OF SECTION 36(1)(VIIA) OF THE ACT WAS APPLICABLE TO IT AND THE PROVISION OF RS.1,68,13,000/ - BEING WITHIN THE LIMIT PRESCRIBED U/S.36(1)(VIIA) OF THE ACT, THE SAME WAS FULLY ALLOWABLE. WE FIND THAT THE CIT(A) HAS CONFIRMED TH E ACTION OF THE ASSESSING OFFICER WITHOUT DEALING WITH THE ABOVE SUBMISSION OF THE ASSESSEE. THE ABOVE ACTION OF THE CIT(A) IS CLEARLY ERRONEOUS AND UNSUSTAINABLE. WE FIND THAT NO MATERIAL HAS BEEN BROUGHT BEFORE US BY LD D.R. TO SHOW THAT WHY DEDUCTION U/S.36(1)(VIIA) OF THE ACT IS NOT ADMISSIBLE TO THE ASSESSEE IN RESPECT OF ENTIRE AMOUNT OF RS.1,68,13,000/ - , WHICH HAS BEEN DEBITED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT AS PROVISIONS FOR BAD AND DOUBTFUL DEBTS. SECTION 36(1)(VIIA) OF THE ACT RE ADS AS UNDER: 36(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSE SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 . (VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY (A) A SCHEDULED BANK[NOT BEING [ ] A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA) OR A NON - SCHEDULED BANK [OR A CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL 6 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK] AN AMOUNT [NOT EXCEEDING SEVEN AND ONE - HALF PER CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING (TEN) PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RU RAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. 13 . A PERUSAL OF THE ABOVE SHOWS THAT A PROVISION MADE BY THE ASSESSEE WHICH QUALIFIES FOR DEDUCTION UNDER THIS SECTION IS ALLOWABLE SUBJECT TO THE AMOUNT MENTIONED IN THE ABOVE SECTION. NO MATERIAL HAS BEEN BROUGHT BEFORE US TO SHOW THAT THE ASSESSEE IS NOT A PERSON WHO IS ENTITLED FOR DEDUCTION AS PER THE PROVISION OF SECTION 36(1)(VIIA) OF THE ACT. FURTHER NO MATERIAL HAS ALSO BEEN BROUGHT BEFORE US TO SHOW THAT THE PROVISION OF RS.1,68,1 3,000/ - MADE BY THE ASSESSEE EXCEEDS THE QUALIFYING AMOUNT MENTIONED IN THE SAID SECTION. WE, THEREFORE, DELETE THE DISALLOWANCE OF RS.16,50,000/ - AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 14. IN GROUND NO.3 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEDUCTION OF RS.32,13,587/ - UNDER THE HEAD LEAVE ENCASHMENT U/S.43B(F) OF THE ACT. 15. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN WHY PROVISIO N TOWARDS LEAVE ENCASHMENT OF RS.37,00,000/ - SHOULD NOT BE DISALLOWED SINCE PROVISION FOR EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT ARE NOT PERMISSIBLE EXPENDITURE UNDER THE ACT. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT PROVISION FOR LEAVE ENCASHMENT FOR RS.37,00,000/ - WAS MADE IN THE 7 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 ACCOUNTS. HOWEVER, THE BANK HAS PAID AN AMOUNT OF RS.4,86,413/ - AGAINST LEAVE ENCASHMENT MADE DURING EARLIER YEARS AND NOT ALLOWED TO THEM AS DEDUCTION. THE ASSESSING OFFICER OBSERVED THAT AUDITOR I N HIS REPORT IN SCHEDULE - 18 AT ITEM SL.NO.6(J) MENTIONED THAT LEAVE ENCASHMENT IS ACCOUNTED FOR ON CASH BASIS. THEREFORE, HE DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE REGARDING PAYMENT OF RS.4,86,413/ - . THE ASSESSING OFFICER CONCLUDED THAT PROVISION TOWARDS LEAVE ENCASHMENT OF RS.37,00,000/ - IS NOT PERMISSIBLE UNDER THE ACT. 16. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THOUGH PROVISION MADE IS DISALLOWED U/S 43B(F) OF THE ACT, THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD V S UOI, 292 ITR 470 (SC) HAS HELD THAT LIABILITY TOWARDS LEAVE ENCASHMENT SHOULD BE ALLOWED AS A DEDUCTION EVEN IF THE SAME IS NOT PAID. HE SUBMITTED THAT THE ASSESSING OFFICER HAS DENIED DEDUCTION TOWARDS THE ACTUAL PAYMENT OF LEAVE ENCASHMENT TO THE EMPL OYEES OF RS.4,86,413/ - . 17. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD THAT AS PER SCHEDULE - 5 TO THE BALANCE SHEET UNDER ITEM (H), THE ASSESSEE HAS MADE ACTUAL PAYMENT OF LEAVE ENCASHMENT OF RS.4,86,413/ - DURING THE YEAR. HE, THEREF ORE, DIRECTED THE ASSESSING OFFICER TO ALLOW PAYMENT OF RS.4,86,413/ - AND DISALLOWED BALANCE AMOUNT OF RS.32,13,587/ - . 18. BEFORE US, LD A.R. SUBMITTED THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD., (SUPRA) HAS HELD AS UNDER: 8 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 THE ORIGINAL SECTION WAS INCORPORATED TO PLUG IN DEDUCTIONS CLAIMED BY NOT DISCHARGING STATUTORY LIABILITIES. PROVISION WAS SUBSEQUENTLY MADE TO RESTRICT DEDUCTIONS ON ACCOUNT OF UNPAID LOAN TO THE FINANCIAL INSTITUTIONS. LEAVE ENCASHMENT IS NEITHER STATUT ORY LIABILITY NOR A CONTINGENT LIABILITY. IT WAS A PROVISION TO BE MADE FOR THE ENTITLEMENT OF AN EMPLOYEE ACHIEVED IN A PARTICULAR FINANCIAL YEAR. AN EMPLOYEE EARNS CERTAIN AMOUNT BY NOT TAKING LEAVE WHICH HE OR SHE IS OTHERWISE ENTITLED TO IN THAT PARTIC ULAR YEAR. HENCE, THE EMPLOYER IS OBLIGED TO MAKE APPROPRIATE PROVISION FOR THE SAID AMOUNT. ONCE THE EMPLOYEE RETIRES HE OR SHE HAS TO BE PAID SUCH SUM ON CUMULATIVE BASIS WHICH THE EMPLOYEE EARNS THROUGHOUT HIS OR HER SERVICE CAREER UNLESS HE OR SHE AVAI LS OF THE LEAVE EARNED BY HIM OR HER. THAT COULD NOT HAVE ANY NEXUS WITH THE ORIGINAL ENACTMENT. AN EMPLOYER IS ENTITLED TO DEDUCTION FOR THE EXPENDITURE HE INCURS FOR RUNNING HIS BUSINESS WHICH INCLUDES PAYMENT OF SALARY AND OTHER PERQUISITES TO HIS EMPLO YEES. HENCE, IT IS A TRADING LIABILITY. AS SUCH HE IS OTHERWISE ENTITLED TO HAVE DEDUCTION OF SUCH AMOUNT BY SHOWING THE SAME AS A PROVISIONAL EXPENDITURE IN HIS ACCOUNTS. THE LEGISLATURE BY WAY OF AMENDMENT RESTRICTS SUCH DEDUCTION IN CASE OF LEAVE ENCASH MENT UNLESS IT IS ACTUALLY PAID IN THAT PARTICULAR FINANCIAL YEAR. THE LEGISLATURE IS FREE TO DO SO AFTER THEY DISCLOSE REASONS FOR THAT AND SUCH REASONS ARE NOT INCONSISTENT WITH THE MAIN OBJECT OF THE ENACTMENT. NO REASONS HAVE BEEN PROVIDED. SUCH ENACTM ENT IS ALSO NOT CONSISTENT WITH THE ORIGINAL PROVISION BEING S. 43B WHICH WAS ORIGINALLY INSERTED TO PLUG IN EVASION OF STATUTORY LIABILITY. IT DOES NOT IMPLY THAT THE LEGISLATURE WAS NOT ENTITLED TO BRING SUCH AMENDMENT. THEY WERE WITHIN THEIR POWER TO BR ING SUCH AMENDMENT. HOWEVER, THEY MUST DISCLOSE REASONS WHICH WOULD BE CONSISTENT WITH THE PROVISIONS OF THE CONSTITUTION AND THE LAWS OF THE LAND AND NOT FOR THE SOLE OBJECT OF NULLIFYING THE APEX COURT DECISION. THEREFORE, S. 43B(F) IS STRUCK DOWN BEING ARBITRARY, UNCONSCIONABLE AND DE HORS THE APEX COURT DECISION IN THE CASE OF BHARAT EARTH MOVERS (2000) 162 CTR (SC) 325. 19 THE A.R. HAS CONTENDED THAT EVEN THOUGH THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT HOLDING CLAUSE (F) OF SECTION 43D AS ULTRA VIRUS IS STAYED BY THE HON'BLE SUPREME COURT WHILE ADMITTING THE SLP FILED BY THE REVENUE, THE SAME HAS NOT BEEN REVERSED AND, THEREFORE, THE TRIBUNAL IS BOUND TO FOLLOW THE SAME BEING A BINDING PRECEDENT. HE, THEREFORE, PRAYED THAT THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION AFRESH OF THE ISSUE IN THE LIG HT OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF EXIDE INDUSTRIES LTD (SUPRA) . 19.1 THE DR ALSO AGREED WITH THE SUBMISSION OF LD AR OF THE ASSESSEE. IN THE CIRCUMSTANCES OF THE CASE, WE SET ASIDE THE ORDER OF THE CIT(A) AND 9 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO RE - ADJUDICATE THE ISSUE IN THE LIGHT OF THE HONBL E SUPREME COURT DECISION. HENCE, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT, APPEAL FOR THE ASSESSMENT YEAR 2008 - 09 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. NOW WE TAKE UP THE APPEAL FOR THE ASSESSMENT YEAR 2009 - 10 IN ITA NO.319 /CTK/13 21. GROUND NO.1 IS GENERAL IN NATURE AND HENCE, REQUIRES NO SEPARATE ADJUDICATION. 22. GROUND NO.4 WAS NOT PRESSED BY LD A.R. OF THE ASSESSEE AND, HENCE, SAME IS DISMISSED AS NOT PRESSED. 23. IN GROUND NO.2 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING RS.,39,42,283/ - BEING AMOUNTS WRITTEN OFF/AMORTIZATION OF GOVERNMENT SECURITIES. 24. THE BRIEF FACTS OF THE CASE AS EMER GED FROM THE ORDER OF THE CIT(A) ARE THAT THE ASSESSEE FILED A COPY OF AUDITED FINANCIAL STATEMENT FO R THE FINANCIAL YEAR 2008 - 09. FROM A PERUSAL OF THE SAME , HE OBSERVED THAT THE ASSESSEE HAS CLAIMED RS.1,39,42,283/ - AS ADDITIONAL PROVISION DUE TO WRITE OFF OF ADVANCES/AMORTIZATION OF GOVER NMENT SECURITIES AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR 2008 - 09. THE SAME FORMS A PART OF LIABILITIES OF THE BALANCE SHEET AS ON 31.3.2009 . THE CIT(A) OBSERVED THAT SECTION 36(1)(VII) OF THE ACT DEALING WITH 10 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 ALLOWANCE OF BAD DEBTS WRITTEN OFF BY THE ASSESSEE COVERS BANKING AS WELL AS NON - BANKING ASSESSEES. HE OBSERVED THAT THE HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS CIT (2010) 323 ITR 166 (SC) HELD AS UNDER: AFTER APRIL 1, 1989, A MERE PROVISION FOR BAD DEBT WILL NOT BE ENTITLED TO DEDUCTION U/S.36(1)(VII). IF AN ASSESSEE DEBITS AN AMOUNT OF DOUBTFUL DEBT TO THE PROFIT AND LOSS ACCOUNT AND CREDIT THE ASSETS ACCOUNT LIKE SUNDRY DEBTORS ACCOUNT, THAT WOULD CONSTITUTE A WRITE OFF OF AN ACTUAL DEBT. HOWEVER, IF AN ASSESSEE DEBITS PROVISION FOR DOUBTFUL DEBT TO THE PROFIT & LOSS ACCOUNT AND MAKES A CORRESPONDING CREDIT TO THE CURRENT LIABILITIES AND PROVISIONS ON THE LIABILITIES SIDE OF THE BALANCE SHEET, THEN IT WOULD CONSTITUTE A PROVISION FOR DOUBTFUL DEBT. IN T HE LATTER CASE, THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION AFTER APRIL, 1989. 25. THEREFORE, FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK (SUPRA), HE CONFIRMED THE DISALLOWANCE OF RS.1,39,42,283/ - MADE BY THE ASSESSING OFFICER. 26. IN GROUND NO.3 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE UNDER PROVISION FOR NON - SLR SECURITIES AS PER MARK TO MARKET VALUATION OF RS.2,50, 125/ - . 27. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER DISALLOWED RS.2,50,125/ - BEING PROVISION FOR NON - SLR SECURITIES AS PER MARK TO MARKET VALUATION. 28. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 29. WITH REGARD TO GROUND NOS.2 & 3 OF THE APPEAL, LD A.R. OF THE ASSESSEE RELIED ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK LTD VS ACIT, (2013) 356 ITR 549 (KAR) AND SUBMITTED THAT THE HONBLE HIGH COURT HAS HELD AS UNDER: 11 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 THE ASSESSEE HAD MAINTAINED THE ACCOUNTS IN TERMS OF THE RESERVE BANK OF INDIA REGULATION AND IT HAD SHOWN THE SECURITIES AS INVESTMENTS. BUT CONSISTENTLY FOR MORE THAN TWO DECADES THEY HAD BEEN SHOWN AS STOCK - IN - TRADE AND DEPRECIATION WAS CLAIMED AND AL LOWED. THE VALUE OF THE STOCKS BEING CLOSELY CONNECTED WITH THE STOCK MARKET AT THE END OF THE FINANCIAL YEAR WHILE VALUING THE ASSETS, NECESSARILY THE ASSESSEE HAD TO TAKE INTO CONSIDERATION THE MARKET VALUE OF THE SHARES. IF THE MARKET VALUE WAS LESS T HAN THE COST PRICE, IN LAW, THEY WERE ENTITLED TO DEDUCTIONS AND IT COULD NOT BE DENIED BY THE AUTHORITIES UNDER THE PRETEXT THAT THEY WERE SHOWN AS INVESTMENT IN THE BALANCE SHEET. 30 . HE FURTHER RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF UNITED COMMERCIAL BANK VS CIT, 240 ITR 355 (SC), WHEREIN, IT HAS BEEN HELD AS UNDER: WHERE THE ASSESSEE - BANK HAD BEEN VALUING ITS STOCK - IN - TRADE (INVESTMENTS) 'AT COST' IN THE BALANCE SHEET BUT IT HAD BEEN VALUING THE SAME INVESTMENTS 'AT COST OR MARKET VALUE, WHICHEVER IS LOWER', FOR INCOME - TAX PURPOSES FOR OVER 30 YEARS, THE SAME COULD NOT BE DISCARDED BY THE REVENUE ON THE GROUND THAT ASSESSEE WAS MAINTAINING BALANCE SHEET IN THE STATUTORY FORM ON THE BASIS OF THE COST OF THE INVESTMENTS. FOR V ALUING THE CLOSING STOCK, IT IS OPEN TO THE ASSESSEE TO VALUE IT AT THE COST OR MARKET VALUE, WHICHEVER IS LOWER; 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 OF VALUATION . 31. HE SUBMITTED THAT THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL TO THE FACTS OF ABOVE CASES OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK LTD., (SUPRA) A ND HONBLE SUPREME COURTS IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA). THE ASSESSEE IS ALSO FOLLOWING CONSISTENTLY THE METHOD OF AMORTIZATION OF LOSS ON THE BASIS OF MARKET VALUE OF SECURITIES AS AT END OF THE FINANCIAL YEAR AND VALUING THE GOVERNMENT S ECURITIES ON THE BASIS OF COST OR MARKET PRICE WHICHEVER IF LOWER AND THE SAME HAS BEEN ALLOWED AS DEDUCTION TO THE ASSESSEE. THEREFORE, THE ADDITION SHOULD BE DELETED. 12 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 32. LD D.R. COULD NOT CONTROVERT THE ABOVE SUBMISSION OF LD A.R. OF THE ASSESSEE. 33. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD . IN THE INSTANT CASE THE UNDISPUTED FACTS ARE THAT DURING THE YEAR THE ASSESSEE HAS CLAIMED DEDUCTION OF RS.1, 39,42,283/ - ON AMORTIZATION OF LOSS OF GOVERNMENT SECURITIES AS AT THE END OF THE FINANCIAL YEAR AS THE MARKET VALUE OF THE SECURITIES WAS LOWER THAN THE COST PRICE OF THE SECURITIES TO THE ASSESSEE. SIMILARLY, THE ASSESSING OFFICER ALSO DISALLOWED PROVISI ON FOR NON - SLR SECURITIES AS PER MARK TO MARKET VALUATION OF RS.2,50,125/ - . THE CONTENTION OF THE ASSESSEE HAS BEEN CLAIMING THIS LOSS CONSISTENTLY FOR PAST SO MANY YEAR AND WAS ALLOWED DEDUCTION FOR THE SAME. INSTRUCTION NO.17/2008 DATED 26.11.2008 ISSU ED BY THE CBDT WHEREIN, AT PARA VI, IT HAS BEEN CLEARLY STATED THAT IN THE CASE OF HFT AND AFS SECURITIES OF THE BANK, THE DEPRECIATION AND APPRECIATION TO BE AGGREGATED SCRIPT WISE AND ONLY DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED IN THE ACCOUNTS. 34 . IN VIEW OF THE ABOVE, WE DO NOT FIND ANY MERIT IN THE ACTION OF LOWER AUTHORITIES FOR DISALLOWING LOSS AROSE ON THE YEAR END REVALUATION OF SECURITIES. OUR VIEW IS SUPPORTED BY DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LT D., PASSED IN ITA N0.330 OF 2012; UNITED COMMERCIAL BANK VS. CIT, 240 ITR 355(SC); INVESTMENT LTD. VS. CIT, 77 ITR 533 (SC); AND CIT VS. BANK OF BARODA, 262 ITR 334 (BOM). RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE SUPREME COURT AND 13 ITA NOS.318 & 319/CTK/2013 ASSESSMENT YEARS : 2008 - 09 & 2009 - 2010 HON'BLE BOMBAY HIGH COURT AND CONSIDERING THE CLASSIFICATION OF SECURITY SO MADE AND THE LOSS AROSE ON ACCOUNT OF REVALUATION OF SECURITIES ARE REQUIRED TO BE ALLOWED. LD D.R. HAS NOT CONTROVERTED THE SUBMISSION OF THE ASSESSEE OR CITED ANY CONTRARY DECISION. FACTS BEING I DENTICAL, THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK LTD. (SUPRA) AND HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK LTD (SUPRA) WE SET ASIDE THE ORDERS OF LOWER AUTHORITIES A ND DELETE THE ADDITION OF RS.1,29,42,283/ - AND RS.2,50,125/ - AND ALLOW BOTH THE GROUNDS OF APPEAL OF THE ASSESSEE. 35. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 /08/2017. SD/ - SD/ - ( PAVAN KUMAR GADALE) ( N.S SAINI) JUDICIALMEMBER A CCOUNTANT MEMBER CUTTACK; DATED 24 /08/2017 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PRIVATE SECRETARY ITAT, CUTTACK 1. THE APPELLANT : BAITARANI GRAMYA BANK, (SUCCEEDED BY ODISHA GRAMYA BANK), 190/702, KOKILA RESIDENCY, ANANTA BIHAR, AIRPORT AREA, POKHARIPUT, BHUBANESWAR 2. THE RESPONDENT. ACIT, BALASORE CIRCLE, BALASORE 3. THE CIT(A) - CUTTACK 4. PR.CIT - CUTTACK 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//