M/S. EXPORT IMPORT BANK OF INDIA, MUMBAI V. THE ADDL CIT (OSD) RG 3(1), MUMBAI

ITA 347/MUM/2008

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101190 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: J
• Next Hearing Date: 11-02-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 16-01-2008
• Court: TRIBUNAL
• Department Lawyers: NEENA SINGH
• Assessee Lawyers: DINESH VYAS; SRIHARI IYER
• Keywords: Depreciation; Notional interest
• Section: 14A; 37; 10

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.347/MUM/2008 ASSESSMENT YEAR: 2005-06 EXPORT IMPORT BANK OF INDIA, CENTRE ONE BUILDING, FLOOR 21, WORLD TRADE CENTRE COMPLEX, CUFFE PARADE, MUMBAI-400005 / VS. ACIT(OSD)RG. 3(1) AAYAKAR BHAVAN, M.K. RD. MUMBAI-40020 (ASSESSEE) (REVENUE) P.A. NO.AAACE2769D ITA NO.316/MUM/2008 ASSESSMENT YEAR: 2005-06 DCIT CIR 3(1) R.NO.607, AAYAKAR BHAVAN, M.K. RD. MUMBAI-40020 / VS. EXPORT IMPORT BANK OF INDIA, CENTRE ONE BUILDING, FLOOR 21, WORLD TRADE CENTRE COMPLEX, CUFFE PARADE, MUMBAI-400021 (REVENUE) (RESPONDENT) P.A. NO.AAACC1759M !' / ASSESSEE BY SHRI DINESH VYAS, & SRIHARI IYER (AR) / REVENUE BY SMT. NEENA SINGH PANDEY (DR) EXPORT IMPORT BANK OF INDIA 2 # $ % & / DATE OF HEARING : 26/08/2015 ! % & / DATE OF ORDER: 23/09/2015 ! / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEALS HAVE BEEN FILED BY THE ASSESSEE AS WELL AS REVENUE AGAINST THE ORDER OF LD. COMMISSION ER OF INCOME TAX (APPEALS)-XXVII, MUMBAI (HEREINAFTER CAL LED AS LD CIT(A) )DATED 15.10.2007 FOR THE ASSESSMENT YEAR 20 05-06. THE GROUNDS RAISED BY THE ASSESSEE IN THE APPEAL ME MO ARE REPRODUCED HEREUNDER: 1(A)(I) &2(A)(I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)OUGHT TO HAVE HELD THAT EXEMPTION OF INTEREST INCOME UNDER SECTION 10 (23G) OF THE INCOM E TAX ACT, 1961 (THE ACT) IS TO BE GRANTED WITHOUT DEDUCTING INTEREST COST, I.E. ACTUAL AS WELL AS NOTIONAL. 1(A)(II)& 2(A)(II) WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTERNATE: THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD THAT EXEMPTION OF INTEREST INCOME UNDER SECTION 10(23G) OF THE ACT IS TO BE GRANTED WITHOUT DEDUCTING NOTIONAL INTEREST COST . 1(B) & 2(B) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD THAT EXEMPTION UNDER S ECTION 10(34) OF THE ACT AGAINST DIVIDEND INCOME IS TO BE GRANTED WITHOUT DEDUCTING NOTIONAL INTEREST COST. 1(C) & 2(C) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD THAT PENAL INTEREST AND INTEREST RECEIVED DURING THE YEAR ON NON-PERFORMING ASSETS R ELATING TO THE PERIOD UPTO 31 ST MARCH, 1999, BEING THE RELEVANT FINANCIAL YEAR DURING WHICH PERIOD, THE APPELLANT W AS NOT LIABLE TO PAY INCOME TAX KEEPING IN VIEW THE THEN E XISTING SECTION 37 OF THE EXPORT-IMPORT BANK OF INDIA ACT, 1981. EXPORT IMPORT BANK OF INDIA 3 FIRST WE TAKE UP THE ASSESSEES APPEAL: 2. GROUND NO.1(A)(I) AND 2(A)(I) ARE NOT PRESSED BY THE LD COUNSEL AND THEREFORE THESE ARE DISMISSED. 3. GROUND NO.1(A)(II) & GROUND NO.2(A)(II): IN THESE GROUNDS, THE ASSESSEE HAS CONTENDED, WITHOUT PREJUD ICE TO HIS OTHER ARGUMENTS, THAT, IN ALTERNATIVE AND IN ANY VI EW OF THE MATTER, LD CIT(A) OUGHT TO HAVE HELD THAT IF THE EX EMPTION U/S 10(23G) OF THE ACT WAS TO BE GRANTED AT NET OF INTE REST INCOME, THEN, THE DEDUCTION FOR INTEREST COST INCURRED WAS TO BE TAKEN ONLY IN RELATION TO EARMARKED BORROWINGS UTILIZED B Y THE ASSESSEE FOR THE PURPOSE OF GRANTING LOANS TO THE E NTERPRISES, INTEREST INCOME WHEREOF IS EXEMPT UNDER SECTION 10( 23G) OF THE ACT. THE ASSESSING OFFICER(HEREINAFTER CALLED A S AO), HAS DISCUSSED THIS ISSUE IN PARA 7.1 TO 7.10 OF THE ASS ESSMENT ORDER. 3.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE AO THAT THE ASSESSEE HAS CLAIMED EXEMPTION U /S 10(23G) ON THE TOTAL AMOUNT OF INTEREST INCOME EARN ED BY THE ASSESSEE. THE AO OBSERVED THAT THE ASSESSEE HAS ALS O INCURRED INTEREST COST ON THE FUNDS BORROWED. IN VI EW OF THESE FACTS, THE AO POINTED OUT THAT ASSESSEE WAS ELIGIBL E TO CLAIM DEDUCTION OF THE INTEREST INCOME U/S 10(23G) ON THE AMOUNT OF NET INTEREST INCOME ONLY I.E. GROSS INTEREST INC OME LESS INTEREST COST. THE ASSESSEE REPLIED THAT THE DEDUCT ION U/S EXPORT IMPORT BANK OF INDIA 4 10(23G) WAS ALLOWABLE UPON GROSS AMOUNT OF INTEREST . THE ALTERNATIVE PRAYER OF THE ASSESSEE BEFORE AO WAS TH AT, IF THE EXEMPTION WAS TO BE QUANTIFIED AT NET INTEREST INCO ME THEN, THE SPECIFIC COST INCURRED, IF ANY, HAS TO BE ONLY CONSIDERED, SINCE, IN LAW, THERE IS NO SCOPE FOR ANY ESTIMATE O F EXPENDITURE AND NO NOTIONAL EXPENDITURE CAN BE ALLOCATED AND DE DUCTED IN DETERMINING EXEMPT INTEREST INCOME. THE AO DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT EXEMPTION U/S 10(23G) IS TO BE GRANTED AT GROSS AMOUNT ONLY. THE AO REJECTED AFORESAID ALTERNATIVE PRAYER ALSO OF THE A SSESSEE. 3.2. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) { HERE INAFTER CALLED AS LD. CIT(A)} THERE ALSO, SUBMISSIONS OF TH E ASSESSEE WERE NOT ACCEPTED. 3.3. STILL AGGRIEVED, THE ASSESSEE FILED THE APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF LD CIT(A). DURING THE COURSE OF HEARING BEFORE THE TRIBUNAL, LD COUNSEL OF THE ASSE SSEE HAS SUBMITTED THAT THE GROUND WITH REGARD TO CLAIM OF E XEMPTION U/S 10(23G) AT GROSS INTEREST INCOME IS NOT PRESSED BUT ASSESSEE WAS STILL AGGRIEVED FOR NON ACCEPTANCE OF ITS ALTERNATE PRAYER THAT DEDUCTION FOR THE INTEREST COST INCURRE D IS TO BE TAKEN ONLY IN RELATION TO EARMARKED BORROWINGS UTIL IZED BY THE ASSESSEE FOR THE PURPOSE OF GRANTING LOANS TO THE E NTERPRISES, INTEREST INCOME WHEREOF IS EXEMPT U/S 10(23G) OF TH E ACT. IN SUPPORT OF THIS ALTERNATIVE PRAYER, HE HAS PLACED C OPY OF THE JUDGMENT OF HONBLE ITAT IN OWN CASE OF THE ASSESSE E VIDE ORDER DATED 14 TH 2013 FOR A.YS. 2000-01 TO 2002-03. RELIANCE EXPORT IMPORT BANK OF INDIA 5 HAS BEEN PLACED UPON THE JUDGMENTS OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD. 366 ITR 505 (BOM) AND CIT VS. RELIANCE UTILITIES & POWER LTD. 3 13 ITR 340 (BOM). COPIES OF BALANCE SHEET AND CHARTS WERE SUB MITTED SHOWING THAT OWN FUNDS OF THE ASSESSEE IN THE FORM OF PAID CAPITAL AND RESERVES WERE FAR MORE IN COMPARISON TO THE AMOUNT OF LOANS GRANTED OUT OF MIXED FUNDS, INTERES T INCOME WHEREOF IS EXEMPT U/S 10(23G) OF THE ACT. FURTHER R ELIANCE WAS PLACED UPON THE JUDGMENTS OF HONBLE GUJARAT HI GH COURT IN THE CASE OF AFFECTION INVESTMENTS LTD. VS ACIT 3 26 ITR 255 (GUJ) AND HONBLE MADRASH HIGH COURT IN THE CASE OF LAKSHMI VILAS BANK LTD. VS. CIT 284 ITR 93 (MAD), FOR THE P ROPOSITION THAT NO TRIBUNAL OF FACT HAS ANY RIGHT OR JURISDICT ION TO COME TO CONCLUSION, ENTIRELY CONTRARY TO THE ONE REACHED BY ANOTHER BENCH OF THE SAME TRIBUNAL ON THE SAME FACTS. IT WA S FURTHER SUBMITTED, TAKING HELP OF THESE JUDGMENTS, THAT ONC E THE TRIBUNAL HAD COME TO THE CONCLUSION THAT THE FACT S ITUATION WAS IDENTICAL, TO THE ONE OBTAINING IN A DECIDED MA TTER, NO CO- ORDINATE BENCH OF THE TRIBUNAL HAS ANY RIGHT OR JUR ISDICTION TO RECORD A CONTRARY DECISION, ENTIRELY CONTRARY TO TH AT REACHED BY ANOTHER CO-ORDINATE BENCH OF THE SAME TRIBUNAL ON T HE SAME SET OF FACTS AND CIRCUMSTANCES. 3.4 ON THE OTHER HAND, LD DR HAS RELIED UPON THE OR DERS OF LOWER AUTHORITIES AND SUBMITTED THAT ORDERS OF THE AO AND LD CIT(A) SHOULD BE CONFIRMED. EXPORT IMPORT BANK OF INDIA 6 3.5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROU GH THE ORDERS OF THE LOWER AUTHORITIES, PAPER BOOKS FILED BEFORE US AND COPIES OF JUDGMENTS SUBMITTED BEFORE US. THE ISSUE BEFORE US IS THAT EXEMPTION U/S 10(23G) WILL BE ALLOWABLE TO THE ASSESSEE ON THE INTEREST INCOME AFTER DEDUCTING THE AMOUNT OF INTEREST COST INCURRED ONLY IN RELATION TO EARMARK BORROWING UTILIZED BY THE ASSESSEE FOR THE PURPOSE OF GRANTIN G LOANS TO THE CUSTOMS, INTEREST INCOME WHEREOF IS EXEMPT U/S 10(23G) OF THE ACT, OR PROPORTIONATE AMOUNT OF INTEREST ON NOTIONAL BASIS CAN ALSO BE DEDUCTED FROM THE GROSS INTEREST INCOME OF THE ASSESSEE TO ARRIVE AT THE AMOUNT OF NET INTERES T INCOME ELIGIBLE FOR EXEMPTION U/S 10(23G) OF THE ACT. IT H AS BEEN NOTED BY US THAT THIS ISSUE CAME UP BEFORE THE TRIB UNAL IN ASSESSEES OWN CASE IN THE ASSESSMENT YEARS 2000-01 TO 2002- 03. THE RELEVANT PORTION FROM THE ORDER OF THE TRIB UNAL DATED 14.08.2013 FOR THESE YEARS IN ITA NO.7361 TO 7363/MUM/2005 IS REPRODUCED BELOW: 16. BEFORE US, THE AR REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES AND SUBMITTED THAT THE EXEMPTION AS CLAIMED UNDER SECTION 10(23G) SHOULD BE ALLOWED, WHICH HAS BEEN ACCEPTED BY THE REVENUE AUTHORITIES. BUT THE ISSUE IS WITH REGARD T O RESTRICTION OF THE EXEMPTION AT A LOWER FIGURE, WHI CH IS BASICALLY THE INTEREST EXPENSES ON RUPEE ADVANCES. 17. ON THE BASIS OF THESE ARGUMENTS, THE AR PLEADED THAT THE ASSESSEE WAS ELIGIBLE FOR EXEMPTION UNDER SECTION 10(23G) AND ALSO ON THE AMOUNT ON WHICH IT HAS BEEN CLAIMED, WHICH THE ASSESSEE TOOK AS AN ALTERNATIVE PLEA. 18. THE DR ON THE OTHER HAND SUBMITTED THAT THE REVENUE AUTHORITIES WERE VERY REASONABLE IN THEIR ORDERS, WHEREIN, THEY HAVE ALLOWED THE EXEMPTION, EXPORT IMPORT BANK OF INDIA 7 BUT HAVE TAKEN ONLY THE NET QUALIFYING AMOUNT, INSTEAD OF THE GROSS FIGURES, WHICH THE ASSESSEE HA S TAKEN. 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND THE SHORT ISSUE BEFORE US IS WHETHER THE EXEMPTION IS T O BE ALLOWED AT RS. 8,58,00,484/- OR RS. 6,70,94,603/- , AS RESTRICTED BY THE AO. 20. FROM THE DETAILS REPRODUCED BY THE AO, WE FIND THAT THE IMPUGNED FIGURES ARE EXPENSE OF INTEREST O N LOAN GIVEN TO GUJARAT PIPAVO PORT LTD. AT RS. 1,21,86,219/- AND TO INFORMATION TECH. PART AT RS. 65,19,660/-, BEING OTHER THEN FOREIGN CURRENCY BORROWINGS. 21. ASSESSEE IS NEITHER A COMPANY REGISTERED UNDER THE COMPANIES ACT NOR IS IT A BANKING COMPANY AS PER THE BANKING REGULATION ACT, 1949. AS PER BANKING ACT, BANKING MEANS THE ACCEPTING, FOR THE PURPOSE OF LENDING OR INVESTMENT, OF DEPOSITS OF MONEY FROM ITS PUBLIC, REPAYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWAL BY CHEQUES, DRAFT, ORDER OR OTHERWISE AND BANKING COMPANY MEANS ANY COMPANY WHICH TRANSACTS THE BUSINESS OF BANKING IN INDIA. BOTH THESE CLASSIFICATIONS DOES NOT EMBRACE THE ASSESSEE WITHIN ITSELF. THEREFORE, THE ASSESSEE IS A LENDER FOR LOANS ONLY AND TO EARN INTEREST THER EON. AT TIMES, IT HAS TO PROCURE FOREIGN CURRENCY LOANS ITSELF, FOR MAKING FURTHER ADVANCES. WHEN WE GO THROUGH THE IMPUGNED ORDERS AND THE SUBMISSIONS MADE WE FIND THAT THERE IS NO DENIAL BY THE REVENUE AUTHORITIES ON THE FACT THAT THE BUSINESS OF THE ASSESSEE WAS OF UN-DIVISIBLE NATURE AND ASSESSEE BEING THE CREATION OF THE PARLIAMENT, IS NOT A BANK ING COMPANY AND CERTAINLY NOT A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956. THE DEPARTMENT CANNOT TAKE THE VIEW OF PROPOSING THE COST OF INTER EST TO BE SEPARATELY INDUCED ON THE ASSESSEE, AS THE ENTIRE COSTS HAVE ALREADY GOT EMBEDDED IN THE COSTS/TOTAL EXPENSES. IN ANY CASE, CIRCULAR NO. 780 DATED 07.10.1999, AS RELIED UPON BY THE DEPARTMENT CANNOT BE MADE APPLICABLE ON THE ASSESSEE, AS THE ASSESSEE IS A PUBLIC FINANCIAL INSTITUTION AND NOT A EXPORT IMPORT BANK OF INDIA 8 BANK. FURTHER, ON GOING THROUGH WITH THE DETAILS, A S FILED, THE ASSESSEE HAS SUBSTANTIAL OWN FUNDS, WHIC H ARE EMPLOYED BY IT IN BONDS/SECURITIES, AND IS THUS COVERED BY THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD., REPORTED IN 313 ITR 340 (BOM) AND OTHER CASE, AS CITED AND PLACED/MENTIONED IN THE SYNOPSIS . 22. IN THESE CIRCUMSTANCES, THE ASSESSEE HAVING THE BUSINESS OF LENDING, WAS CORRECT IN CLAIMING THE DEDUCTION, WHICH WAS CLAIMED AT NET FIGURES BECAUSE , THE INTEREST HAS GOT EMBEDDED IN THE SPECIFIC COSTS . 23. THE GROUNDS, CONCERNING EXEMPTION UNDER SECTION 10(23G) ALONG WITH ALTERNATIVE PLEAS ARE THEREFORE ALLOWED. 3.6. THE PERUSAL OF THE ABOVE ORDER WOULD REVEAL TH AT HONBLE BENCH HAS TAKEN A VIEW THAT REVENUE CANNOT TAKE A V IEW OF PROPOSING THE COST OF INTEREST TO BE SEPARATELY IND UCED ON THE ASSESSEE, AS THE ENTIRE COSTS HAVE ALREADY GOT EMBE DDED IN THE COSTS/TOTAL EXPENSES. FURTHER, IN ANY CASE, CIRCULA R NO. 780 DATED 07.10.1999, RELIED UPON BY THE DEPARTMENT, CA NNOT BE MADE APPLICABLE ON THE ASSESSEE, AS THE ASSESSEE IS A PUBLIC FINANCIAL INSTITUTION AND NOT A BANK. FURTHER, ON G OING THROUGH THE DETAILS, AS FILED, IT IS NOTED THAT THE ASSESSEE HAS SUBSTANTIAL OWN FUNDS, WHICH ARE EMPLOYED BY IT IN BONDS/SECURITIES, AND THUS, THE CASE OF THE ASSESSE E IS FOUND TO BE COVERED WITH THE JUDGMENT OF HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & P OWER LTD. 313 ITR 340 (BOM). IT IS FURTHER SEEN BY US THAT WORKIN G SHEETS SUBMITTED BEFORE US BY THE LD COUNSEL DEPICT SIMILA RITY IN FACTS IN THIS YEAR ALSO, IN AS MUCH AS, THE OWN FUN DS OF THE ASSESSEE ARE CONSISTENTLY FAR IN EXCESS OF THE AMOU NT OF IMPUGNED LOANS GRANTED AND INVESTMENT MADE IN SHARE S AND EXPORT IMPORT BANK OF INDIA 9 SECURITIES, OUT OF MIXED FUNDS, SINCE LAST MANY YEA RS. FROM THE PERUSAL OF THESE WORKING SHEETS, WITH THE ASSIS TANCE OF LD COUNSEL, IT IS SEEN THAT THE OWN FUNDS OF THE ASSES SEE ARE TO THE TUNE OF RS.2512.49/- CRORES WHEREAS TOTAL OF ALL THE AMOUNTS OF LOANS IN INR GRANTED AND INVESTMENT IN SHARES AND SECURITIES OUT OF MIXED FUNDS ARE TO THE TUNE O F RS.236.02 CRORES ONLY, WHICH HAPPENS TO BE MERELY 9.39 % OF T HE AGGREGATE AMOUNT OF THE OWN FUNDS OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, INVESTMENTS IN SHARES AND LOAN S CAN BE PRESUMED TO HAVE BEEN MADE OUT OF OWN FUNDS. THIS V IEW HAS ALSO BEEN SUPPORTED BY ANOTHER JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD., S UPRA. THUS, RESPECTFULLY FOLLOWING THE JUDGMENT OF HONBL E CO- ORDINATE BENCH IN THE OWN CASE OF THE ASSESSEE AND IN VIEW OF THE JUDGMENTS OF HONBLE JURISDICTIONAL HIGH COURT, WE HOLD THAT DEDUCTION FOR THE INTEREST COST INCURRED WAS T O BE TAKEN ONLY IN RELATION TO EARMARKED BORROWINGS UTILIZED B Y THE ASSESSEE FOR THE PURPOSE OF GRANTING LOANS TO THE E NTERPRISES, INTEREST INCOME WHEREOF IS EXEMPT U/S 10(23G) OF TH E ACT FOR THE PURPOSE OF COMPUTING NET INTEREST INCOME ELIGIB LE FOR DEDUCTION U/S 10(23G) OF THE ACT. THUS, GROUND NO.1 (A)(II) AND GROUND NO.2(A)(II) ARE ALLOWED. 4. GROUND NO.1(B) AND GROUND NO.2(B): THE ASSESSEE HAS CONTENDED THAT LD. CIT(A) OUGHT TO HAVE HELD THAT E XEMPTION U/S 10(34) OF THE ACT IS TO BE GRANTED ON THE AMOUN T OF GROSS DIVIDEND INCOME. EXPORT IMPORT BANK OF INDIA 10 4.1. THIS ISSUE HAS BEEN DISCUSSED BY THE AO IN PAR A 8.1 TO 8.5 OF THE ASSESSMENT ORDER. IT WAS OBSERVED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT TOTAL DIVIDEND INCOME ON WHICH EXEMPTION WAS CLAIMED, WAS SHOWN AT RS.2,12,0 3,240/. THE EXEMPTION WAS CLAIMED BY THE ASSESSEE AT GROSS AMOUNT OF DIVIDEND INCOME, BECAUSE ACCORDING TO THE ASSESS EE, THERE WAS NO SPECIFIC COST INCURRED IN EARNING SUCH INCO ME. BUT THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE AND THEREFORE, IT WAS HELD BY THE ASSESSIN G OFFICER THAT THERE WAS INTEREST COST AND MANAGERIAL COST AT TRIBUTABLE FOR EARNING DIVIDEND INCOME AND THEREFORE BENEFIT O F EXEMPTION ON THE PROPORTIONATE NOTIONAL AMOUNT OF COST WAS NO T AVAILABLE TO THE ASSESSEE. 4.2 BEFORE THE LD CIT(A), THE ASSESSEE MADE DETAILE D SUBMISSIONS BUT NO RELIEF WAS GIVEN TO THE ASSESSEE BY THE LD. CIT(A), REITERATING THE OBSERVATIONS MADE BY THE AS SESSING OFFICER IN THE ASSESSMENT ORDER. THE LD. CIT(A) REL IED UPON THE EARLIER YEAR ORDERS IN ASSESSEES OWN CASE IN REJEC TING THE CLAIM OF THE ASSESSEE AND ALSO TOOK HELP OF SECTION 14A FOR REFUSING THE DEDUCTION TO THE ASSESSEE. 4.3. BEFORE US LD. COUNSEL HAS PLACED RELIANCE UPON THE ORDER OF THE HONBLE TRIBUNAL IN ASSESSEES OWN CASE AND SUBMITTED THAT THE ISSUE WAS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE AND ALSO PLACED RELIANCE UPON THE JUDGMENT OF HONB LE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) AND HDFC BANK LTD. (SUPRA). EXPORT IMPORT BANK OF INDIA 11 4.4. ON THE OTHER HAND, LD DR RELIED UPON THE ORDER S OF THE LOWER AUTHORITIES AND REQUESTED FOR UPHOLDING THE S AME. 4.5. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER. IT IS OBSERVED BY US THAT THIS ISSUE CAME UP BEFORE THE H ONBLE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 2000-01 TO 2002-03 IN ITA NO.7361 TO 7363/MUM/2005. THE REL EVANT PORTION OF THIS ORDER IS REPRODUCED BELOW: 34. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND WE FIND THE ASSESSEE HAD SUBSTANTIAL FREE FUNDS COMING FROM PRECEDING YEARS, WHICH WERE PURE INCOME, AS THERE WAS NO LIABILITY OF TAX UP TO THE CURRENT YEAR. BASICALLY MOVING ON THE SAME ANALOGY, AS IN THE EARLIER GROUND OF APPEAL AND DECISION TAK EN THEREIN, THIS GROUND, ALSO DESERVES TO BE ALLOWED I N FAVOUR OF THE ASSESSEE. 35. THE GROUND OF APPEAL, IS THEREFORE, ALLOWED. 4.6 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ENTIRE MATERIAL. IT IS SEEN BY US THAT THE FACTS OF THE IMPUGNED YEAR ARE SIMILAR TO THAT AS WERE DISCUSSED IN THE E ARLIER YEARS ORDERS. DETAILED DISCUSSION HAS ALREADY BEEN BY US IN THIS REGARD WHILE DISPOSING GROUND NO.1(A)(II) AND GROUN D NO.2(A)(II), ABOVE. IT IS SEEN BY US THAT ASSESSEE S OWN FUNDS EXCEED THE INVESTMENT MADE AND THEREFORE NO DISALLO WANCE COULD HAVE BEEN MADE BY THE ASSESSING OFFICER IN TH E GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AND THEREFORE, RESPECTFULLY FOLLOWING JUDGMENTS OF HONBLE TRIBUNAL IN ASSESSEE S OWN CASE AND JURISDICTIONAL HIGH COURT, WE DECIDE THESE GROUNDS IN EXPORT IMPORT BANK OF INDIA 12 FAVOUR OF THE ASSESSEE. THUS, GROUND NO.1(B) AND GR OUND NO.2(B) ARE ALLOWED. 5. GROUND NO.1(C) AND GROUND NO.2(C) : THE ASSESSEE HAS CONTENDED THAT LD CIT(A) OUGHT TO HAVE HELD THAT TH E INTEREST AND PENAL INTEREST RECEIVED DURING THE YEAR OF RS.22,09,62,134/- ON NON PERFORMING ASSETS (NPA), P ERTAINING TO THE FINANCIAL YEARS ENDED UPTO 31 ST MARCH, 1999, BEING THE RELEVANT YEARS UPTO WHICH THE INCOME OF THE ASSESSE E WAS NOT SUBJECT TO INCOME TAX, CANNOT BE ASSESSED AS INCOME FOR THE YEAR UNDER CONSIDERATION. THE AO HAS DISCUSSED THIS ISSUE IN PARA 9.1 TO 9.10 AND LD CIT(A) HAS DISCUSSED THIS I SSUE IN PARA 6 TO 6.3 AND 7 OF APPELLATE ORDER. 5.1 THE BRIEF FACTS IN THIS REGARD ARE THAT THE ASS ESSEE IS A PUBLIC FINANCIAL INSTITUTION WITHIN THE MEANING OF SECTION 4A OF THE COMPANIES ACT 1956. THE ASSESSEE CAME INTO E XISTENCE AS A RESULT OF THE ACT BY THE PARLIAMENT CALLED AS THE EXPORT IMPORT BANK OF INDIA ACT, 1981. BEING STATUTORY BOD Y, THE ASSESSEE WAS NOT LIABLE TO PAY INCOME TAX, SERVICE TAX OR ANY OTHER TAX IN RESPECT OF ITS INCOME. SINCE THE ASSES SEE WAS NOT LIABLE FOR ANY TAX THE ASSESSEE WAS NOT OBLIGED TO FILE ITS RETURN OF INCOME. 5.2 FURTHER FACTS IN THIS REGARD ARE THAT, THE ASSE SSEE HAD ENJOYED SPECIAL PRIVILEGE OF EXEMPTION FROM INCOME TAX BECAUSE OF SECTION 37 OF THE EXPORT-IMPORT BANK O F INDIA ACT, 1981. THE RELEVANT PROVISIONS OF SECTION 37 OF THE EXPORT- IMPORT BANK OF INDIA ACT, 1981 READS AS UNDER: EXPORT IMPORT BANK OF INDIA 13 NOTWITHSTANDING ANYTHING CONTAINED IN THE INCOME- TAX ACT, 1961, OR THE COMPANIES (PROFITS) SURTAX ACT, 1964 OR ANY OTHER ENACTMENT FOR THE TIME BEING IN FORCE RELATING TO TAX ON INCOME, PROFITS OR GAINS. THE EXIM BANK SHALL NOT BE LIABLE TO PAY INCOME TAX, SURTAX OR ANY OTHER TAX IN RESPECT OF- (A) ANY INCOME. PROFITS OR GAINS ACCRUING TO THE EX PORT DEVELOPMENT FUND OR ANY AMOUNT RECEIVED TO THE CREDIT OF THAT FUND; AND (B) ANY INCOME. PROFITS OR GAINS DERIVED, OR ANY AMOUNT RECEIVED. BY THE EXIM BANK. 5.3 SUBSEQUENTLY, AFORESAID SECTION 37 WAS OMITTED BY THE FINANCE ACT OF 1998, W.E.F 01.04.1999. WITH OMISSIO N OF SECTION 37 OF EXPORT IMPORT BANK OF INDIA ACT, 1981 , THE ASSESSEE BECAME LIABLE TO TAX REGIME W.E.F. 01.04.1 999. AS A RESULT THEREOF, THE FIRST FINANCIAL YEAR OF THE ASS ESSEE WAS BETWEEN 01.04.1999 TO 31.03.2000, BEING ASSESSMENT YEAR 2000-01. SINCE THEN, AS INFORMED, THE ASSESSEE HAS BEEN FILING ITS RETURN OF INCOME REGULARLY. 5.4. THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER HAS OBSERVED THAT IN THE STATEMENT OF INCOME SUBMITTED DURING THE YEAR UNDER REFERENCE, THE ASSESSEE HAS DEDUCTED RS.21.60,34,746/- AND RS. 49,27,388/-, REPRESENTING THE PENAL INTEREST RECEIVED DURING THE YEAR ON LOANS CL ASSIFIED AS NON PERFORMING ASSETS FOR THE FINANCIAL YEAR ENDED 31-3-1999 AND PENAL INTEREST RECEIVED DURING THE YEAR PERTAIN ING TO THE PERIOD UP TO 31 -3-1999, RESPECTIVELY. ITS JUSTIFI CATION WAS GIVEN BY WAY OF NOTE NO.6 IN ANNEXURE-I, FORMING PA RT OF THE STATEMENT OF INCOME. THE ASSESSEE WAS REQUESTED BY THE AO TO EXPORT IMPORT BANK OF INDIA 14 JUSTIFY THE BASIS ON WHICH THIS INCOME SHOULD NOT B E CONSIDERED AS FORMING PART OF TAXABLE INCOME OF THE ASSESSEE BANK. THE ASSESSEE EXPLAINED TO THE AO THAT THE INC OME OF THE ASSESSEE WAS NOT SUBJECT TO TAX IN TERMS OF SEC. 37 OF THE EXPORT-IMPORT BANK OF INDIA ACT, 1981 AS IT STOOD U PTO 31-3- 1999. IT WAS EXPLAINED TO AO THAT THE ASSESSEE WAS ACCOUNTING INTEREST ON NPA LOANS AND PENAL INTEREST ON CASH BA SIS. HENCE, PENDING RECEIPTS, NO SUCH INTEREST IS CREDITED IN P & L A/C. THE ASSESSEE EXPLAINED THAT THE INTEREST INCOME CLAIMED AS NOT SUBJECT TO INCOME LAX UNDER REFERENCE INCLUDED INTE REST INCOME ON NPA LOANS AND PENAL INTEREST PERTAINING T O THE PERIOD ENDED UPTO 31-3-1999, BEING THE PERIOD UPTO WHICH, IN ANY VIEW OF THE MATTER, THE ASSESSEE WAS NOT LIABLE TO INCOME TAX. IT WAS FURTHER EXPLAINED THAT PROVISIONS OF SE C. 43D OF THE INCOME TAX ACT,1961 PROVIDES THAT INTEREST ON NPA L OANS AND PENAL-INTEREST IS CHARGEABLE TO INCOME TAX IN THE P REVIOUS YEAR IN WHICH INTEREST INCOME ON SUCH NPA LOANS IS EITHE R CREDITED TO THE P & L ACCOUNT OR IN THE PREVIOUS YEAR IN WHI CH IT IS RECEIVED , WHICHEVER IS EARLIER. SINCE THE INCOME O F THE ASSESSEE WAS NOT CHARGEABLE TO TAX, THEREFORE, THE INTEREST RECEIVED ON NPA IS NOT CHARGEABLE TO TAX. BUT, THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLA NATION GIVEN BY THE ASSESSEE ON THE GROUND THAT THERE IS NO EXPL ICIT PROVISIONS EITHER U/S.43D OR ANY OTHER PROVISIONS O F THE ACT, PROVIDING FOR EXCLUSION OF INCOME. REGULAR ACCOUNTI NG POLICY IS FOLLOWED BY THE ASSESSEE' BANK IN RECOGNIZING THE I NCOME. ACCORDINGLY, THE PENAL INTEREST AND INTEREST RECEIV ED DURING EXPORT IMPORT BANK OF INDIA 15 THE YEAR ON LOANS CLASSIFIED AS NON-PERFORMING ASSE TS AGGREGATING TO RS.22,09,62,134/- I.E. (RS.49,26,388 + RS. 21,60,34,746) WAS INCLUDED IN TAXABLE INCOME FOR T HE YEAR UNDER CONSIDERATION BY THE AO. IN DOING SO, THE AO FOLLOWED HIS ORDERS OF EARLIER ASSTT YEARS I.E. 1999-2000 TO 2004-05 . 5.5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A) AND MADE DETAILED ARGUMENTS CONTENDING THAT ASSESSING O FFICER ERRED IN ASSESSING INTEREST AND PENAL INTEREST RECE IVED ON NON PERFORMING ASSET PERTAINING TO THE FINANCIAL YEAR E NDED UPTO 31-3-1999, BEING RELEVANT YEARS UPTO WHICH THE INCO ME OF THE ASSESSEE WAS NOT SUBJECT TO TAX. 5.6. THE LD CIT(A) DID NOT ACCEPT THE SUBMISSIONS O F THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSER VING AS UNDER: I HAVE CAREFULLY CONSIDERED THE REPLY GIVEN BY THE APPELLANT AND PERUSED THE ASSESSMENT ORDER. THE BAS IC ISSUE INVOLVED IN THIS CASE WHETHER THE PROVISIONS OF SCC.43D ARC APPLICABLE IN THE CASE OF THE ASSESSEE OR NOT. THE APPELLANT HAS RECEIVED THE INTEREST AND PENAL I NTEREST ON NON PERFORMING ASSETS DURING THE YEAR AND THE APPELLANT IS FOLLOWING SYSTEM OF ACCOUNTING TO RECO GNIZE SUCH INTEREST ON RECEIPT BASIS, THEREFORE THE SAME IS APPLICABLE AS PER P & L ACCOUNT OF THE ASSESSEE ITS ELF. IT IS IMMATERIAL THAT THE INTEREST IS RELATED TO THE NPA P RIOR TO 31-03-1998 WHEN THE INCOME OF THE APPELLANT WAS EXE MPT FROM INCOME TAX OR NOT. THIS ISSUE HAS BEEN DISCUSS ED IN DETAIL BY MY PREDECESSOR IN ASSTT YEAR 1999-2000 VID E ORDER DATED 5-1-2005 AND HELD THAT THE INTEREST AND PENAL INTEREST ON NPA IS TAXABLE IN THE HANDS OF THE APPEL LANT. IN ASSTT YEAR 2004-05 ALSO THE ISSUE WAS DECIDED AGAINS T THE ASSESSEE. IN VIEW OF THIS FACT, THE ADDITION ON ACCOUNT OF INTEREST AND PENAL INTEREST AMOUNTING TO EXPORT IMPORT BANK OF INDIA 16 RS.22,09,62,134/- TOWARDS THE INCOME OF THE ASSESSEE IS JUSTIFIED AND CONFIRMED. THIS GROUND OF APPEAL IS D ECIDED AGAINST THE APPELLANT. 5.7. BEFORE US, LD COUNSEL SUBMITTED THAT ASSESSING OFFICER HAS WRONGLY TAXED THE INCOME FOR THE PERIOD PRIOR TO 01 .04.1999, WHEN THE INCOME OF THE ASSESSEE WAS EXEMPT IN VIEW OF SECTION 37 OF EXPORT-IMPORT BANK OF INDIA ACT, 1981. IT WAS FURTHER ARGUED BY HIM THAT THIS ISSUE STOOD COVERED IN FAVO UR OF THE ASSESSEE WITH TWO JUDGMENTS OF HONBLE ITAT IN ASSE SSEES OWN CASE I.E. FOR A.Y. 1999-2000 IN ITA NO.52/MUM/2 005 DATED 14 TH MAY 2007 AND FOR A.Y. 2000-01 TO 2002-03 IN ITA NO.7361 TO 7363/MUM/2005 DATED 14 TH AUGUST 2013. 5.8. ON THE OTHER HAND, LD DR RELIED UPON THE ORDER S OF THE AO AND LD CIT(A). FURTHER, IT WAS SUBMITTED BY THE LD DR THAT SECTION 43D HAS BEEN BROUGHT ON THE STATUTE, WHICH HAS GOT OVERRIDING EFFECT. HOWEVER WITH REGARD TO THE DECIS IONS OF THE HONBLE TRIBUNAL, IN ASSESSEES OWN CASE, THERE WAS NOTHING WITH LD DR TO DISTINGUISH THE SAME ON FACTS OR LAW. 5.9. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER A UTHORITIES, THE SUBMISSIONS MADE BY BOTH THE SIDES AND ORDERS O F THE HONBLE TRIBUNAL IN ASSESSEES OWN CASE OF EARLIER YEARS. IT IS NOTED BY US THAT IT HAS BEEN HELD BY THE TRIBUNAL I N ASSESSEES OWN CASE FOR A.Y. 1999-2000 THAT INCOME OF THE ASSE SSEE EARNED UPTO 31.03.1999 IS CLEARLY EXEMPT BECAUSE OF SECTION 37 OF EXPORT-IMPORT BANK OF INDIA ACT, 1981. IT WAS FURTHER HELD THAT OMISSION OF SECTION 37 SHALL TAKE PLACE W .E.F. EXPORT IMPORT BANK OF INDIA 17 01.04.1999. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW: 4. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND HAVE GONE THROUGH THE RECORD. IN OU R VIEW, THE CONTENTION OF THE ASSESSEE DESERVES TO SUCCEED. THE ASSESSEE IS A CORPORATION INCORPORATED BY THE ACT OF THE PARLIAMENT. AS PER SECTION 37 OF TH E EXPORT IMPORT BANK OF INDIA ACT, 1981, AS IT STOOD ON 31.03.2009, THE ASSESSEE WAS NOT LIABLE TO PAY ANY INCOME-TAX, SUR-TAX OR ANY OTHER TAX IN RESPECT OF ITS INCOME OF THE GENERAL FUND AND EXPORT DEVELOPMENT FUND. THE SAID SECTION 37, WHICH WAS IN THE STATUTE BEFORE ITS DELETION READ AS UNDER: 'NOTWITHSTANDING ANYTHING CONTAINED IN THE INCOME- TAX ACT, 1961, OR THE COMPANIES (PROFITS) SURTAX ACT, 1964 OR ANY OTHER ENACTMENT FOR THE TIME BEING IN FORCE RELATING TO TAX ON INCOME, PROFITS OR GAINS, THE EXIM BANK SHALL NOT BE LIABLE TO PAY INCOME TAX, SURTAX OR ANY OTHER TAX IN RESPECT OF- (A) ANY INCOME, PROFITS OR GAINS ACCRUING TO THE EX PORT DEVELOPMENT FUND OR ANY AMOUNT RECEIVED TO THE CREDIT OF THAT FUND; AND (B) ANY INCOME, PROFITS OR GAINS DERIVED, OR ANY AMOUNT RECEIVED BY THE EXIM BANK.' THE EXEMPTION CONTAINED IN SECTION 37 BY THE ABOVE ACT OF THE PARLIAMENT WAS NOTWITHSTANDING ANYTHING CONTAINED IN INCOME TAX ACT, 1961, COMPANIES ACT 1956 OR ANY OTHER ENACTMENT RELATING TO INCOME OR PROFITS AND GAINS. IN OTHER WORDS, THE EXEMPTION WA S ABSOLUTE AND OVERRIDING THE PROVISIONS OF THE INCOM E- TAX ACT. CLAUSE 117 OF THE FINANCE (NO.2) ACT, 1998, WHIH HAD EFFECT ON OMISSION OF SECTION 37 OF EXPORT IMPORT BANK OF INDIA ACT 1981 READS AS UNDER: '117. OMISSION OF SECTION 37 OF ACT 28 OF 1981 - IN THE EXPORT-IMPORT BANK OF INDIA ACT, 1981, SECTION 3 7 SHALL BE OMITTED WITH EFFECT FROM THE 1 ST DAY OF APRIL, 1999.' EXPORT IMPORT BANK OF INDIA 18 THERE IS NO AMBIGUITY THAT THE OMISSION OF SECTION 37 OF EXPORT IMPORT BANK OF INDIA ACT 1981 IS W.E.F 0L.04.L999. IT TECHNICALLY AMENDS THE PROVISIONS OF SECTION 37 OF THE EXPORT IMPORT BANK OF INDIA ACT 1981 THAT WERE IN FORCE UPTO TO 3L.03.L999. IN OTHE R WORDS, INCOME ACCRUED UPTO 31 ST MARCH 1999 ARE CLEARLY EXEMPT UNDER THE SAID EXPORT IMPORT BANK OF INDIA ACT 1981. FURTHER, WITH EFFECT FROM 01.04.199 9 THE AFORESAID PROVISIONS OF SECTION 37 OF THE EXPOR T IMPORT BANK OF INDIA ACT 1981 WERE TO BE TAKEN AS NOT IN THE STATUTE BOOK. IN OTHER WORDS, THE INCOME EARNED AFTER 01.04.1999 ARE CLEARLY LIABLE TO TAX BECAUSE OF THE AMENDMENT. IDENTICAL ISSUE WAS DEALT BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V. RONALD WILLIAM TRIKARD (215 ITR 638) AND THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF MCDERMOTT INTERNATIONAL INC. (NO.1) V. UNION OF INDIA (173 IT R 155) AND THE ISSUE HAS BEEN DECIDED IN THE MANNER IN WHICH THE ASSESSEE IS NOW CANVASSING BEFORE US. THEREFORE, WE HOLD THAT THE INTEREST INCOME OF THE ASSESSEE FOR THE YEAR ENDED, 31.03.1999 IS EXEMPT FROM THE INTEREST TAX ACT BY VIRTUE OF SECTION 37 OF THE : EXPORT IMPORT OF BANK OF INDIA ACT 1981 5.10. FURTHER, THIS ISSUE WAS EXAMINED IN DETAIL BY THE HONBLE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.200 0-01 TO 2002-03 ALSO. RELEVANT PARAS OF THIS ORDER ARE REPR ODUCED BELOW: 36. EFFECTIVE GROUND NO. 3 IS WITH REGARD TO TAXIN G PENAL INTEREST AND INTEREST ON NON PERFORMING ASSET (NPA) UPTO 31.03.1998, FOR WHICH THERE WAS NO LIABILITY OF TAX ON THE ASSESSEE. 37. IT IS SEEN FROM THE ORDERS OF THE REVENUE AUTHORITIES THAT THEY HAVE VIRTUALLY FOLLOWED THE L INE ADOPTED BY THE REVENUE AUTHORITIES IN THE PRECEDING YEAR. IT HAS TO BE MENTIONED THAT IN THE PRECEDING YEAR, THE ORDERS OF THE REVENUE AUTHORITIES WERE EXPORT IMPORT BANK OF INDIA 19 QUASHED BY THE COORDINATE BENCH, AS THERE WAS NO ELIGIBILITY OF TAX UPTO 31.03.1999. IN THIS CIRCUMSTANCE, THE IDEA OF RELIANCE ON THE PRECEDING YEAR HAS TO BE PUT IN OBLIVION. WE HAVE TO EXAMINE THE TAXABILITY OF INCOME IN THE CURRENT YEAR, WHEN SECTION 37 OF EXPORT IMPORT BANK OF INDIA, 1981 WAS REPEALED. 38. IT IS A FACT THAT THE ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNTS IN THE FORM, AS APPLICABLE. THIS IS ALSO A FACT THAT ANY INCOME/LOSS SHOWN IN ITS ACCOUNTS WERE JUST FIGURE WORK, BECAUSE, THE ASSESSEE WAS NEITHER ELIGIBLE NOR LIABLE NOR OBLIGE D TO FILE ANY RETURN UNDER ANY LEGISLATIONS, FOR THE TIM E BEING IN FORCE. WE DO FIND RELEVANCY IN THE ARGUMEN TS OF THE DR THAT SINCE MERCANTILE SYSTEM IS BEING ADOPTED FOR MAINTAINING THE BOOKS, THE ASSESSEE WOULD BE AWARE AS TO WHICH PERIOD/YEAR THE INTEREST AND PENAL INTEREST RELATED TO, AND SINCE BEING TAXE D FOR THE FIRST TIME, THE ADDITION OF INTEREST/PENAL INTEREST WAS VALID. THIS ARGUMENT, MAY HAVE BEEN ACCEPTABLE, WHERE THE RETURNS ARE BEING FILED AND ADJUSTMENTS BEING MADE YEAR TO YEAR AND AS SUCH, & THERE IS NO LOSS TO THE REVENUE. BUT THE INSTANT CA SE IS DIFFERENT. IN THE INSTANT CASE UPTO 31.03.1999, ASSESSEE WAS NOT ELIGIBLE TO FILE ITS RETURN, THOUG H IT WAS MAINTAINING ITS BOOKS (AS ADMITTED BY THE AR). WHEN THE BOOKS ARE MAINTAINED, ALL EXPENSES AND INCOMES GET EMBEDDED IN THE RESULTS, MEANING WHEREBY, THAT INTEREST AND PENAL INTEREST PERTAININ G TO THE PRECEDING YEARS, WOULD HAVE GOT EMBEDDED IN THE YEARS WHICH THEY RELATED TO. ON THIS OBSERVATIO N, IN OUR OPINION, THE INTEREST AND PENAL INTEREST UPT O 31.03.1999 CANNOT BE BROUGHT TO TAX IN THE CURRENT YEAR, AS CLAIMED BY THE AO/DR. WE MUST ALSO MENTION THAT THE PROVISIONS OF SECTION 43D SHALL NO T BE APPLICABLE IN THE CASE OF THE ASSESSEE. THE AO/DR, RELYING ON THE MINORITY DECISION IN THE CASE OF STATE BANK OF TRAVANCORE VS CIT, REPORTED IN 158 ITR 102, HELD THAT INTEREST OF STICK LOANS WAS RIGHT LY TREATED AS INCOME, WHICH HAD ACCRUED TO THE ASSESSEE. THIS, IN OUR OPINION, CANNOT BE ACCEPTED, EXPORT IMPORT BANK OF INDIA 20 BECAUSE, WHAT THE REVENUE AUTHORITIES ARE ATTEMPTIN G TO DO IS, TO TAX INTEREST AND PENAL INTEREST ON NPA UPTO 31.03.1999, WHICH, PERIOD WAS NON- EXISTENT, S O FAR AS TAX PROVISIONS WERE CONCERNED. IN ANY CASE, HONBLE SUPREME COURT IN THE CASE OF UCO BANK VS CIT, REPORTED IN 237 ITR 889, HAS COVERED CIRCULAR DATED 09.10.1984. THIS CIRCULAR COULD NOT APPLIED, BECAUSE IT WAS BENEFICIAL FOR THE BANKS AND NOT FOR THE ASSESSEE. THE HONBLE SUPREME COURT HELD, THAT INTEREST ON STICKY LOANS, PERTAINING TO EARLIER YEA RS COULD NOT BE TAXED. IN THE LIGHT OF THIS JUDGMENT, AND RESPECTFULLY FOLLOWING THE SAME, WE CANNOT ENDORSE THE VIEWS TAKEN BY THE REVENUE AUTHORITIES. 39. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A ) AND DIRECT THE AO TO DELETE THE INTEREST AND PENAL INTEREST ON NPA ACCOUNT UPTO 31.03.1999, AT RS.50,89,66,421/-. 40. THE GROUND OF APPEAL IS, THEREFORE, ALLOWED. 5.11. THE PERUSAL OF THE ABOVE DECISIONS OF THE HON BLE TRIBUNAL CLARIFIES THAT INCOME OF THE ASSESSEE FOR, THE PERIOD UPTO 31.03.1999, WAS EXEMPT. HONBLE BENCH HAS ALSO TAKEN INTO CONSIDERATION, THE EFFECT OF PROVISIONS OF SEC TION 43D, WHILE HOLDING THAT INCOME OF THE ASSESSEE PERTAINS TO THE PERIOD UPTO 31.03.1999, AND EVEN IF IT WAS RECEIVED BY THE ASSESSEE SUBSEQUENT TO THAT DATE, WOULD NOT BE LIAB LE TO TAX. IT IS SEEN BY US THAT THERE IS NO CHANGE IN THE FACTS IN THIS YEAR AS COMPARED TO THE FACTS OF A.YS. 2000-01, 2001-02 & 2002- 03. THE LD DR ALSO COULD NOT POINT OUT ANYTHING WRO NG IN SUBMISSIONS OF THE LD COUNSEL OR THE MATERIAL PLACE D BEFORE US, TO MAKE A DISTINCTION FROM THE FACTS OF EARLIER YEARS. LD DR COULD NOT BRING OUT ANYTHING TO DISTINGUISH THE OR DERS OF THE HONBLE TRIBUNAL IN ASSESSEES OWN CASE. THEREFORE, KEEPING IN EXPORT IMPORT BANK OF INDIA 21 VIEW ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE DECIDE THESE GROUNDS IN FAVOUR OF THE ASSESSEE AND HOLD TH AT PENAL INTEREST AND INTERST RECEIVED DURING THE YEAR ON NO N PERFORMING ASSETS AGGREGATING TO RS.22, 09,62,134/- ( INCLUSIVE OF RS.85,94,581/- FOR YEAR ENDED 31.03.1999) PERTAI NING TO F.Y. ENDED UPTO 31.03.1998/31.03.1999 IS NOT TAXABL E IN THE HANDS OF THE ASSESSEE IN THE YEAR UNDER CONSIDERATI ON. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. NOW, WE TAKE THE REVENUES APPEAL: 7. THE REVENUE HAS RAISED FOLLOWING GROUNDS WITH AP PEAL MEMO: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEPRECIATION OF RS.6,82,99,443/- BY ADOPTING WDV OF A.Y. 1999-00. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 8. THE REVENUE HAS CHALLENGED THE ACTION OF LD CIT( A) IN ALLOWING DEPRECIATION OF RS.6,82,99,443/- BY ADOPT ING WDV OF ASSESSMENT YEAR 1999-00. DURING THE COURSE OF HEARI NG, LD DR HAS RELIED UPON THE ORDER OF ASSESSING OFFICER W HEREAS LD. COUNSEL HAS RELIED UPON THE ORDER OF LD CIT(A), ON THIS ISSUE. EXPORT IMPORT BANK OF INDIA 22 8.1AO HAS DISCUSSED THIS ISSUE IN PARA 11 TO 11.4 O F THE ASSESSMENT ORDER. 8.2 ON THE OTHER HAND, LD CIT(A) HAS DISCUSSED THIS ISSUE IN PARA 8 AND 9 OF THE APPELLATE ORDER . 8.3. THE BRIEF FACTS ARE THAT THE AO COMPUTED DEPRE CIATION ALLOWANCE AT RS.5,62,95,949/-, AS AGAINST THE CLAIM OF THE ASSESSEE FOR RS.6,82,99,443/-(REVISED), BY ADOPTING WDV ON THE BASIS OF THE A.Y. 1999-00. THE AO HELD THAT M ETHOD AND BASIS ADOPTED BY THE ASSESSEE IN THIS REGARD CANNOT BE ACCEPTED IN VIEW OF THE VERY BASIC STAND OF THE ASS ESSEE THAT ITS INCOME WAS NOT CHARGEABLE TO INCOME TAX UPTO FI NANCIAL YEAR ENDED 31.3.1999, WAS NOT ACCEPTED BY THE DEPAR TMENT AS IN THE OPINION OF THE DEPARTMENT, THE INCOME OF THE ASSESSEE WAS CHARGEABLE TO INCOME TAX FOR THE FINANCIAL YEAR ENDED UPTO 31.3.1999. ACCORDINGLY, ASSESSMENT WAS MADE BY THE ASSESSING OFFICER AND THE ASSESSEE WAS REQUIRED TO CLAIM DEPRECIATION AS PER THE STAND TAKEN BY THE DEPARTME NT. 8.4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), RE-ITERATING THE SUBMISSIONS AS WERE MADE BY THE AS SESSEE BEFORE THE ASSESSING OFFICER. THE LD CIT(A) EXAMINE D THIS ISSUE IN DETAIL AND DECIDED IT IN FAVOUR OF ASSESSEE AND ALLOWED THIS ISSUE BY HOLDING AS UNDER: THIS ISSUE HAS BEEN DISCUSSED IN DETAIL BY MY PREDECESSOR AND IT WAS HELD THAT THERE IS NO LEGAL BASIS FOR ADOPTING WDV OF THE APPELLANT BY REDUCING RS.1,20,03,494/- AS NOTIONAL DEPRECIATION FOR THE EARLIER ACCOUNTING PERIOD IN WHICH NEITHER THE EXPORT IMPORT BANK OF INDIA 23 APPELLANT WAS ASSESSABLE TO TAX NOR ANY DEPRECIATIO N WAS ACTUALLY ALLOWED TO BE APPELLANT UNDER THE ACT. THE WDV OF AN ASSET HAS TO BE WORKED OUT IN ACCORDANCE WITH THE DEFINITION GIVEN IN SEC.43(6) O F THE ACT. AS PER THESE PROVISIONS, WDV, MEANS IN THE CASE OF ASSETS ACQUIRED BEFORE THE PROVIO0US YEAR, THE ACTUAL COST TO THE ASSESSEE, LESS ALL THE DEPRECIATION ACTUALLY ALLOWED TO HIM UNDER THIS ACT OR UNDER THE I.T. ACT 1922. THUS, THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEPRECATION AS CLAIMED BY THE APPELLANT IN THIS RETURN AND OF INCOME AND ALLOWED RELIEF OF RS.1,20,03,494/-. THIS GROUND OF APPEAL I S DECIDED IN FAVOUR OF THE APPELLANT. 8.5. WE HAVE GONE THROUGH THE ORDERS OF THE LOWER A UTHORITIES. LD DR HAS NOT BEEN ABLE TO POINT OUT ANYTHING WRONG IN THE FINDINGS OF LD CIT(A). IT HAS BEEN INFORMED THAT DE CISION OF THE LD. CIT(A) ON THIS ISSUE, IN EARLIER YEARS, HAS ATT AINED FINALITY, AS IT REMAINED UNCONTESTED BY THE REVENUE. THUS, AS A MATTER OF CONSISTENCY AND HARMONY, NO DIFFERENT VIEW CAN B E TAKEN IN THIS YEAR. KEEPING IN VIEW, THESE FACTS AND CIRCUMS TANCES OF THE CASE, WE FIND NO REASON TO INTERVENE IN THE FIN DINGS RECORDED BY LD CIT(A), AS PER LAW. ACTION OF THE AO IN REDUCING THE AMOUNT OF WDV ON NOTIONAL BASIS FOR THE AMOUNT O F DEPRECIATION WHICH WAS NEITHER CLAIMED NOR ACTUALLY ALLOWED, SHOULD NOT HAVE BEEN DEDUCTED FROM THE ORIGINAL COS T OF THE ASSETS. THEREFORE, WE HOLD THAT THE CLAIM OF THE AS SESSEE WAS JUSTIFIED AND LD CIT(A) HAS RIGHTLY REVERSED THE AC TION OF AO IN REJECTING THIS CLAIM. THEREFORE, APPEAL OF THE REVE NUE IS DISMISSED. EXPORT IMPORT BANK OF INDIA 24 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER 2015. SD/- (JOGINDER SINGH ) SD/- (ASHWANI TANEJA) ' # / JUDICIAL MEMBER $ # / ACCOUNTANT MEMBER # '$ MUMBAI; ( DATED 23/09/2015 CTX? P.S/. . . ! %'&'( )(*& / COPY OF THE ORDER FORWARDED TO : 1. *+, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. / / # 0 ( * ) / THE CIT, MUMBAI. 4. / / # 0 / CIT(A)- , MUMBAI 5. 34 - , / *& 5 , # '$ / DR, ITAT, MUMBAI 6. 6! 7$ / GUARD FILE. ! / BY ORDER, .3* - //TRUE COPY// +/, - (DY./ASSTT. REGISTRAR) , # '$ / ITAT, MUMBAI