Appeal Details
Counselvise Citation
[2014] 140 COUNSELVISE.COM (IT) 73959 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
7 month(s) 9 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
10-01-2014
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
H
Assessment Year
2009-2010
Appeal Filed On
31-05-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI B.C. MEENA ITA NO. 3199/DEL/2013 A.YR. 2009-10 SAHARA INDIA FINANCIAL CORPN. LTD., VS. DCIT CEN. CIR.6, 1-KAPOORTHALA COMPLEX, NEW DELHI. ALIGANJ, LUCKNOW. PAN: AADCS 8698 C AND ITA NO. 3512/DEL/2013 A.YR. 2009-10 DCIT CEN. CIR.6, VS. SAHARA INDIA FINANCIAL CORP N. LTD., NEW DELHI. 1-KAPOORTHALA COMPLEX, ALIGANJ, LUCKNOW. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI AJAY VOHRA ADV. & SHRI ROHIT GARG CA & MS. SHIKHA SHARAN CA RESPONDENT BY : SHRI R.S. MEENA CIT (DR) O R D E R PER R.P. TOLANI, J.M: : THESE ARE CROSS APPEALS, FILED BY THE ASSESSEE AS W ELL AS THE REVENUE, AGAINST THE ORDER DATED 28-03-2013 PASSED BY THE F CIT(APPEALS-1), NEW DELHI, RELATING TO ASSESSMENT YEAR 2009-10. BOTH TH E APPEALS ARE HEARD TOGETHER AND DISPOSED OF BY A CONSOLIDATED ORDER FO R THE SAKE OF CONVENIENCE. RESPECTIVE GROUNDS RAISED ARE AS UNDER : REVENUES APPEAL: (ITA NO. 3512/DEL/2013) : 1. THE ORDER OF LD. CIT(A) IS NOT CORRECT IN LAW A ND FACTS. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 26 ,66,105/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OUT OF INTERE ST EXPENDITURE ON THE BASIS OF FINDINGS OF SPECIAL AUD ITORS IN THEIR AUDIT REPORT UNDER SECTION 142(2A) I.T. ACT, 1961. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 6, 62,19,260/- MADE BY AO ON ACCOUNT OF EXPENDITURE BY INVOKING TH E PROVISIONS OF SECTION 40A(2)(B) OF THE I.T. ACT ON THE BASIS OF FINDINGS OF SPECIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CAT(A) HAS ERRED IN DELETING THE ADDITION OF RS.48, 15,804/- OUT OF TOTAL DISALLOWANCE OF RS.55,01,261/- MADE BY AO ON ACCOUNT OF DISALLOWANCE OUT OF EXPENSES AS CAPITAL IN NATUR E ON THE BASIS OF FINDINGS OF SPECIAL AUDITORS IN THEIR AUDIT REPO RT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 44 ,05,688/- MADE BY AO ON ACCOUNT OF TREATMENT OF EXPENSES RELA TING TO ANTIVIRUS SOFTWARE IN THE NATURE OF THE PREPAID EXP ENSES ON THE BASIS OF FINDINGS OF SPECIAL AUDITORS IN THEIR AUDI T REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 66 ,81,102/- MADE BY AO ON ACCOUNT OF EXCESSIVE DEPRECIATION ON UPS ON THE BASIS OF FINDINGS OF SPECIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 72 ,99,852/- MADE BY AO ON ACCOUNT OF OUT OF EXCESSIVE DEPRECIAT ION ON PRINTERS ON THE BASIS OF FINDINGS OF SPECIAL AUDITO RS IN THEIR AUDIT REPORT UNDER SECTION 142(2A) OF I.T. ACT. 196 1. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 3 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1855,58,99,424/- MADE BY AO ON ACCOUNT OF BEING 35% OF THE TOTAL AMOUNT OF DEPOSIT COLLECTED DURING THE YEAR B Y THE ASSESSEE UNDER VARIOUS DEPOSITS MOBILIZATION SCHEME S, AS UNEXPLAINED DEPOSIT ON THE BASIS OF FINDINGS OF SPE CIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE L D. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 18 5,02,71,929/- OUT OF TOTAL DISALLOWANCE OF RS. 467,96,79,775/- MA DE BY AO ON ACCOUNT OF PROVISION OF INTEREST AS EXCESSIVE ON AC COUNT OF CHANGE IN ACCOUNTING POLICY ON THE BASIS OF FINDING S OF SPECIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTION 142(2A ) OF I.T. ACT, 1961. 10. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 12 ,98,355/- OUT OF TOTAL DISALLOWANCE OF RS. 13,10,627/-MADE BY AO ON ACCOUNT OF INVOKING THE PROVISIONS OF SECTION 41(1) OF THE INCOME TAX ACT, 1961 ON THE BASIS OF FINDINGS OF SPECIAL AUDIT ORS IN THEIR AUDIT REPORT UNDER SECTION 142(2) OF I.T. ACT, 1961 . 11. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 8, 88,997/- MADE BY AO UNDER SECTION 41(1) OF THE INCOME TAX 1961 ON THE BASIS OF FINDINGS OF SPECIAL AUDITORS IN THEIR AUDIT REPO RT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 12. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 15 ,04,12,669/- MADE BY AO UNDER SECTION 41(1) OF THE INCOME TAX 19 61 ON THE BASIS OF FINDINGS OF SPECIAL AUDITORS IN THEIR AUDI T REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 13. ON THE FACTS AND CIRCUMSTANCES OF HIS CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 6,91,230/ - MADE BY AO ON ACCOUNT OF EXPENSES RELATED TO ASSOCIATE CONCERN S DEBITED IN THE BOOKS OF THE ASSESSEE COMPANY ON THE BASIS OF F INDINGS OF 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 4 SPECIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTIO N 142(2A) OF I.T. ACT, 1961. 14. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 81,91,044 /- MADE BY AO ON ACCOUNT OF ADVERTISEMENT EXPENSES ON THE BASI S OF FINDINGS OF SPECIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 15. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW AN AD DITIONAL RELIEF OF RS. 21,86,37,443/- TO ASSESSEE ON ACCOUNT OF PAYMENT MADE TO BCCI. 16. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 11 ,86,24,109/- MADE BY AO ON ACCOUNT OF INTEREST ON SECURITIES REL ATING TO PRE- ACQUISITION PERIOD OF FINDINGS OF SPECIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 17. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 8, 14,000/- MADE BY AO ON ACCOUNT OF PRIOR PERIOD EXPENSES ON THE F INDINGS OF SPECIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTIO N 142(2A) OF I.T. ACT, 1961. 18. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 70 ,13,750/- MADE BY AO ON ACCOUNT OF WRITTEN OFF IN THE BOOKS O F ACCOUNT OF BAD DEBTS REPRESENTING AMOUNTS OF ADVANCE TO M./S G ANESH BANZOPLAST LTD. ON THE FINDINGS OF SPECIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 19. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 46 ,26,500/- MADE BY AO ON ACCOUNT OF DIMINUTION IN THE VALUE OF CURRENT INVESTMENT ON THE FINDINGS OF SPECIAL AUDITORS IN T HEIR AUDIT REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 5 20. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 15 0,38,35,341/- MADE BY AO ON PROTECTIVE BASIS AND DELETING THE ADD ITION OF RS. 11,11,192/- ON ACCOUNT OF INVOKING THE PROVISION OF SECTION 40(A)(IA) ON THE FINDINGS OF SPECIAL AUDITORS IN TH EIR AUDIT REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 21. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2, 53,43,772/- MADE BY AO ON ACCOUNT OF IMPUTING NOTIONAL INTEREST INCOME FOR WHICH NO PROVISION WAS MADE IN THE ACCOUNTS AS THE ASSETS TURNED NPAS ON THE FINDINGS OF SPECIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 22. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 2, 00,00,000/- MADE BY AO ON ACCOUNT OF DIMINUTION IN THE VALUE OF INVESTMENT ON THE FINDINGS OF SPECIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTION 142(2A) OF I.T. ACT, 1961. 23. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 1, 25,45,009/- MADE BY AO STOCK OF STATIONARY ON THE FINDINGS OF S PECIAL AUDITORS IN THEIR AUDIT REPORT UNDER SECTION 142(2A ) OF I.T. ACT, 1961. 24. THE APPELLANT CRAVES LEAVE TO ADD, AMEND ANY/AL L THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HE ARING OF THE APPEAL. ASSESSEES APPEAL (ITA NO. 3199/DEL/2013) : 1(A) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON TH E FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLO WANCE U/S 14A OF THE ACT TO THE EXTENT OF RS. 2,19,74,418/- 1(B) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE T HAT EXPENDITURE INCURRED BY THE APPELLANT FOR INVESTMENT YIELDING I NCOME 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 6 EXEMPT FROM TAX WAS MADE FOR MEETING OF STATUTORY O BLIGATION AND THEREFORE, NO DISALLOWANCE U/S 14A OF THE ACT W AS CALLED FOR. 1(C) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE T HAT APPELLANT HAS VOLUNTARILY DISALLOWED DIRECT EXPENSES RELATABLE TO EARNING OF EXEMPT FROM TAX AND THEREFORE, THERE WAS NO JUSTIFI CATION IN INVOKING PROVISIONS OF RULE 8D(2) OF THE INCOME TAX RULES 1962 AND DISALLOWING RS. 2,19,74,418/- U/S 14A OF T HE ACT. 1(D) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE T HAT NO DISALLOWANCE WAS CALLED FOR U/S 14A AS THE APPELLAN T HAD RETURNED LOSS IN PLACE OF INCOME AND PROVISIONS 14A ARE ONLY APPLICABLE FOR MAKING DISALLOWANCE OUT OF INCOME CH ARGEABLE TO TAX. 1(E) THAT IN ANY VIEW OF THE MATTER AND ON FACTS AN D CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED FOR CO NFIRMING THE DISALLOWANCE U/S 14A OF THE ACT TO THE EXTENT OF RS . 2,19,74,418/- WHICH IS OVERSTATED IN ANY VIEW OF TH E MATTER. 2(A) THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN DISALLOWING RS. 6,85,457/- BY HOLDING THE REPLACEMENT OF UPS AS A CAPITAL EXPENDI TURE WHICH WAS CLAIMED BY THE APPELLANT TO BE REVENUE IN NATUR E. 2(B) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CT AND ON CIRCUMSTANCES OF THE CASE IN OBSERVING THAT THE REP LACEMENT OF UPS IS AN ADDITION TO THE ASSET AND, THEREFORE, ENT ITLED TO DEPRECIATION AS AGAINST THE CLAIM OF THE APPELLANT THAT THE REPLACEMENT OF A DEPLETED ASSET IS IN THE NATURE OF A REVENUE EXPENDITURE 3(A) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON TH E FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE DISALLO WANCE OF INTEREST TO THE EXTENT OF RS. 282,94,07,846 3(B) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE T HAT THERE WAS NO CHANGE IN THE SYSTEM FOR ACCOUNTING FOLLOWED BY APP ELLANT AND 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 7 CHANGE IN PROVISION IS ONLY BECAUSE OF CHANGE IN AC COUNTING ESTIMATES OF INTEREST PROVISION BASED ON SOUND ACCO UNTING PRINCIPLES AND THEREFORE, THERE IS NO JUSTIFICATION IN CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS. 282,94,07,846 /- OUT OF INTEREST PROVISION. 3(C) THAT WITHOUT PREJUDICE, ON THE FACTS OF THE CA SE AS WELL AS IN LAW, THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OUT OF INTEREST PROVISION TO THE EXTEN T OF RS. 282,94,07,846/- BY DEDUCTING THE ACTUAL INTEREST PA ID BY THE APPELLANT DURING THE YEAR FROM THE PROVISION MADE A ND WORKING OUT DISALLOWANCE OF RS. 282,94,07,846/- THEREBY WHI CH IS CONTRARY TO THE MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE, NOT TENABLE IN LAW. 3(D) THAT IN ANY VIEW OF THE MATTER, THE LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS W ELL AS IN LAW IN CONFIRMING OF DISALLOWANCE OF INTEREST PROVISION TO THE EXTENT OF RS. 282,94,07,846/- 4(A) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON TH E FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING ADDITION OF RS. 150,38,35,341/- ON A PROTECTIVE BASIS OUT OF TOTAL DISALLOWANCE MADE U/S 40A(IA) OF THE ACT BY THE AO AMOUNTING TO RS. 1 50,49,46,533/- 4(B) THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) HAS ERRED IN LAW IN SETTING ASIDE ADDITION U/S 40A(IA) MADE BY THE AO TO THE EXTENT OF RS. 150,38,35,341/- WHICH IS BE YOND OF HIS POWER CONFERRED U/S 251 OF THE ACT AND FURTHER, DIR ECTING THE AO TO GET CHECKED FROM THE TDS WING THE QUANTIFICAT ION OF THE DISALLOWANCE. 4(C) THAT WITHOUT PREJUDICE, THE LD. CIT(A) HAS ERR ED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING T HE ADDITION OF RS. 150,38,35,341/- ON A PROTECTIVE BASES WHEN T HE SUBSTANTIAL AMOUNT OF INTEREST STOOD PAID DURING TH E COURSE OF RELEVANT PREVIOUS YEAR AND WAS NOT OUTSTANDING ON 3 1ST MARCH, 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 8 2009 TO BE PAID AND AS MUCH PROVISIONS OF SECTION 4 0A(IA) WERE NOT APPLICABLE ON THE FACTS OF THE CASE TO THE EXTE NT OF THE QUANTUM OF INTEREST PAID. 4(D) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON TH E FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING ON A PROTEC TIVE BASIS DISALLOWANCE U/S 40A(IA) MADE ON AN ESTIMATE BASIS WHICH IS CONTRARY TO THE PROVISIONS OF SECTION 40A(IA) OF TH E ACT AND NOT TENABLE IN LAW. 4(E) THAT IN ANY VIEW OF THE MATTER, THE LD. CIT(A) HAS ERRED IN LAW IN UPHOLDING THE ADDITION OF RS. 150,38,35,341/- ON A PROTECTIVE BASIS AND AT THE SAME TIME HOLDING THAT TDS DEFAULT DISALLOWANCE U/S 40A(IA) OUT OF EXPENDITURE ON ACCO UNT OF INTEREST PAYMENT CANNOT BE MADE ON ESTIMATE BASIS W HICH IS NOT JUSTIFIED ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW. 5(A) THAT THE LD. CIT (A) HAS ERRED IN LAW AND ON T HE FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITIO N OF RS. 2,25,01,961/- MADE BY THE AO ON ACCOUNT OF ACCRUED INTEREST ON F.D.R. 5(B) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE T HAT THE INTEREST OF RS. 2,25,01,961/- WHICH WAS ADDED DURING THE YEAR B Y THE AO STOOD ALREADY SUBJECTED TO TAX IN EARLIER YEARS AND THE SUSTAINING OF ADDITION THEREOF TANTAMOUNT TO DOUBLE TAXATION OF SAME INCOME WHICH IS NOT TENABLE IN LAW. 5(C) THAT THE LD. CIT(A) HAS ERRED IN LAW IN CONFIR MING THE ADDITION BY OBSERVING THAT THERE WAS SEVERAL REMEDY AVAILABL E TO THE APPELLANT SUCH AS RECTIFICATION U/S 154 OF THE ACT OR REVISION U/S 264 OF THE ACT WHILE SUSTAINING THE ADDITION WHICH IS NOT TENABLE IN LAW. 6(A) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON TH E FACTS AND CIRCUMSTANCES OF THE CASE IN UPHOLDING THE ADDITION MADE BY THE AO ON ACCOUNT OF MISMATCH WITH AS-26 ON A PROTE CTIVE BASIS AMOUNTING TO RS. 6,11,425/- 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 9 6(B) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE T HAT THE APPELLANT WAS NOT IN RECEIPT OF ANY INCOME NOR IN KNOW OF THE TDS CERTIFICATES UPLOADED BY BANK OF BARODA IN AS-26 TO THE EXTENT OF RS. 6,11,425/- AND, THEREFORE, THERE WAS NO JUST IFICATION IN CONFIRMING THE ADDITION ON A PROTECTIVE BASIS. 7. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN ADJUDICA TING THE GROUND NO. 32 OF THE GROUNDS OF APPEAL FILED BEFORE HIM IN WHICH THE APPELLANT HAD OBJECTED TO NON-ALLOWANCE OF FULL CRE DIT OF THE TAX DEDUCTED AT SOURCE BY THE AO. 8. THAT THE ORDER PASSED BY THE LD. CIT(A) IS AGAIN ST MERITS, CIRCUMSTANCES AND LEGAL ASPECTS OF THE CASE. 9. THAT THE APPELLANT CRAVE LEAVE TO ADD, ALTER, AM END OR WITHDRAW ANY OR ALL THE GROUNDS OF APPEAL ON OR BEFORE THE D ATE OF HEARING. 2. BRIEF FACTS ARE ASSESSEE FIRM IS AN RBI REGISTER ED RESIDUARY NBFC ENGAGED IN THE ACTIVITY OF COLLECTING DEPOSITS MAIN LY FROM RURAL PARTS OF INDIA FROM SMALL DEPOSITORS, WHICH ARE COLLECTED THROUGH A BATTERY OF AGENTS SPREAD OVER THE RURAL AREAS. DEPOSITS ARE COLLECTED UNDER VARIOUS SCHEMES LIKE DAILY DEPOSITS, TERM DEPOSITS, RECURRING DEPOSITS, SMALL DEPOSITS ETC. IT FILED ITS RETURN OF INCOME FOR THIS AY DECLARING TOTAL LOSS A T RS.9,99,48,394/-. SUBSEQUENTLY, A REVISED RETURN WAS FILED ON 28.03.2 011 SHOWING REVISED LOSS AT RS.10,45,98,718/-.THE CASE WAS SELECTED FOR THE SCRUTINY, NECESSARY NOTICES OF HEARING WERE ISSUED. 2.1. ACCORDING TO AO ASSESSEE WAS ASKED FOR COMPLIA NCE OF VARIOUS INFORMATION ON DIFFERENT DATES, HOWEVER PROPER COMP LIANCE WAS NOT MADE AND ASSESSES REPLIES ARE CLAIMED TO BE EVASIVE. AO OBSERVED THAT ASSESSEE HAD A TENDENCY TO FILE IRRELEVANT AND VOLUMINOUS DE TAILS IN ORDER TO BE EVASIVE. IT MAY BE MENTIONED THAT THESE ALLEGATIONS ARE VEHEMENTLY DENIED BY THE ASSESSEE BEFORE CIT(A) AND BEFORE US AS WELL . 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 10 2.2. ACCORDING TO AO THE ASSESSEES ACCOUNTS WERE V ERY VOLUMINOUS, COMPLEX AND DIFFICULT TO INTERPRET, THEREFORE IT WA S NOT POSSIBLE FOR HIM TO DETERMINE THE TRUE AND CORRECT TAXABLE INCOME OF TH E ASSESSEE. IN VIEW OF ALLEGED COMPLEXITY OF THE ACCOUNTS AND IN THE INTER EST OF THE REVENUE, AO DEEMED IT FIT TO APPOINT SPECIAL AUDITOR (FOR SHORT SA)AS PROVIDED U/S 142(2A) OF THE INCOME TAX ACT, 1961. APPROPRIATE SH OW CAUSE WAS ISSUED ON ASSESSEE CALLING FOR ITS COMMENTS BEFORE ISSUE OF D IRECTION FOR AUDIT U/S 142(2A) OF THE ACT. THE REPLY OF THE ASSESSEE ALONG WITH A PROPOSAL WAS SENT ON 20-12-2011 TO THE LD. CIT(CENTRAL)-I, NEW DELHI FOR HIS APPROVAL FOR ISSUE OF DIRECTION U/S 142(2A), SAME WAS RECEIVED V IDE LETTER DT.21.12.2011. THE ASSESSEE THEREAFTER WAS DIRECTED VIDE ORDER DAT ED 23.12.2011 U/S 142(2A) OF THE I.T. ACT TO GET ITS ACCOUNTS FOR F.Y. 2008-0 9 RELEVANT TO A.Y. 2009-10 AUDITED BY M/S KAPOOR TANDON & CO., 21, DARYAGANJ, NEW DELHI WHO WAS NOMINATED FOR THE PURPOSE OF CONDUCTING THE SPECIAL AUDIT IN ACCORDANCE WITH PROVISIONS OF SECTION 142(2A) OF THE I.T. ACT AND F URNISH THE REPORT OF SUCH AUDIT IN PRESCRIBED FORM NO.6B AS PER RULE 14A OF T HE I.T. RULES AND ON TERMS OF REFERENCE ANNEXED THERETO AS ANNEXURE A WITHIN 6 0 DAYS FROM THE DATE OF THE RECEIPT OF THE ORDER. 2.3. AO HAS ALLEGED THAT ASSESSEE WAS NON COOPERATI VE IN THE PROCESS OF SPECIAL AUDIT AND WAS INDULGING IN DELAYING TACTICS . THE DELAY IN THIS BEHALF IS ATTRIBUTED TO THE ASSESSEE ON VARIOUS REASONS WHICH ARE DETAILED BY AO IN HIS ORDER. BESIDES ASSESSEE DID NOT PROVIDE PROPER INFO RMATION MORE PARTICULARLY COMPUTER SOFTWARE OF ITS ACCOUNTS I.E. SOFT COPY. A SSESSEE INSISTED TO PROVIDE HARD COPIES. ACCORDING TO AO THE ASSESSMENT WAS COM PLETED UNDER A NON CO- OPERATIVE ATMOSPHERE. BASED ON SPECIAL AUDIT REPORT , ASSESSEES EXPLANATIONS AND AO'S OBSERVATIONS NARRATED IN DETAILS BY AO, TH E TOTAL INCOME OF THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 11 ASSESSEE WAS COMPUTED AS UNDER AFTER VARIOUS ADDITI ONS:- INCOME / (LOSS) AS PER REVISED RETURN OF INCOME (A) (-) RS.10,45,98,718 ADD 1 INTEREST DISALLOWANCE ON NON-BUSINESS ADVANCES AS DISCUSSED ABOVE IN PARA NO1 26,66,105 2 ADDITION ON ACCOUNT OF EXCESSIVE PAYMENTS U/S 40(A)(2)(B) AS DISCUSSED ABOVE IN PARA NO2 6,62,29,260 3 DISALLOWANCE OF EXPENSES UNDER SECTION 14A AS DISCUSSED ABOVE IN PARA NO3 2,16,51,917 4 DISALLOWANCE OF CAPITAL NATURE AS DEBITED IN PROFIT AND LOSS ACCOUNT AS DISCUSSED ABOVE IN PARA NO 4 55,01,261 5 DISALLOWANCE OF EXPENSES RELATING TO FUTURE ASSESSM ENT YEARS CLAIMED IN THE YEAR UNDER CONSIDERATION AS DISCUSSED ABOVE IN PARA NO 5 44,05,688 6 EXCESS CLAIM OF DEPRECIATION IN UPS AS DISCUSSED ABOVE IN PARA NO 6 66,81,102 7 EXCESS CLAIM OF DEPRECIATION IN PRINTERS AS DISCUSS ED ABOVE IN PARA NO 7 72,99,852 8 DISALLOWANCE OF DEPOSITS UNDER SECTION 68 AS DISCUS SED ABOVE IN PARA NO 8 1855,58,99,424 9 DISALLOWANCE OF INTEREST DEBITED TO PROFIT AND LOSS ACCOUNT AS DISCUSSED ABOVE IN PARA NO 9 467,96,79,775 10 ADDITION UNDER SECTION 41(1) AS DISCUSSED ABOVE IN PARA NO 10 15,26,12,293 11 DISALLOWANCE OF EXPENSES RELATING TO ASSOCIATE CONCERNS DEBITED IN PROFIT AND LOSS ACCOUNT AS DISCUSSED ABOVE IN PARA NO 11 6,91,230 12 DISALLOWANCE OF ADVERTISEMENT EXPENSES AS DISCUSSED ABOVE IN PARA NO 12 81,91,044 13 ADDITION OF PRE ACQUISITION INTEREST REDUCED FROM T HE INTEREST INCOME AS DISCUSSED ABOVE IN PARA NO 13 11 ,86,24,109 14 DISALLOWANCE OF PRIOR PERIOD EXPENSES AS DISCUSSED ABOVE IN PARA NO 14 8,11,830 15 DISALLOWANCE OF BALANCES WRITTEN OFF AS DISCUSSED ABOVE IN PARA NO 15 70,13,750 16 DISALLOWANCE OF PROVISION FOR DIMUNITION IN INVESTM ENT AS DISCUSSED ABOVE IN PARA NO 16 4,626,500 17 DISALLOWANCE UNDER SECTION 40(A)(IA) ON ACCOUNT OF NON-DEDUCTION OF TDS AS DISCUSSED ABOVE IN PARA NO 17 150,49,46,533 18 ADDITION OF INTEREST NOT RECOGNIZED ON NON-PERFORMI NG ADVANCES AS DISCUSSED ABOVE IN PARA NO 18 2,53,43,772 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 12 19 DISALLOWANCE OF PROVISION FOR DIMUNITION IN SAHARA ASSET MANAGEMENT CO. AS DISCUSSED ABOVE IN PARA NO 19 2,00,00,000 20 ADDITION OF INTEREST INCOME ON MERCANTILE BASIS AS DISCUSSED ABOVE IN PARA NO 20 2,25,01,961 21 ADDITIONS ON ACCOUNT OF INCOME NOT DISCLOSED BUT APPEARING IN 26AS AS DISCUSSED ABOVE IN PARA NO 21 26,43,175 22 ADDITION ON ACCOUNT OF CHANGE IN ACCOUNTING POLICY IN CASE OF PRINTING AND STATIONERY EXPENSES AS DISCUSS ED ABOVE IN PARA NO 22 92,51,495 2522,72,72,076 TOTAL ADDITIONS / DISALLOWANCES (B) 2522,72,72,076 TOTAL INCOME OF THE ASSESSEE (A) + (B) 2512,26,73,358 TOTAL INCOME ROUNDED OFF U/S 288A 2512,26,73,360 2.4. AGGRIEVED ASSESSEE PREFERRED 1 ST APPEAL CHALLENGING ALL THE ADDITIONS. CIT(A) BY DETAILED ORDER DATED 28-3-2013 GAVE SUBST ANTIAL PART RELIEF TO THE ASSESSEE. AGGRIEVED FROM HIS ORDER BOTH THE PARTIES ARE BEFORE US. 3. GROUND NO 2 OF THE ASSESSEE IS NOT PRESSED AS T HE ALTERNATIVE RELIEF IN THE FORM OF 60% DEPRECIATION ON UPS HAS BEEN GIVEN. 3.1. A PERUSAL OF THE REMAINING RESPECTIVE GROUNDS WILL REVEAL THAT REVENUES GROUND NO. 6 AND ASSESSEE GROUND NO 2 PER TAINING TO DEPRECIATION AND REPLACEMENT OF UPS; REVENUES GROUND NO 9 AND A SSESSESS GROUND NO 3 REGARDING PROVISION OF INTEREST DUE TO CHANGE IN ME THOD OF ACCOUNTING ESTIMATES; AND REVENUES GROUND NO 21 AND ASSESSEE S NO. 4 REGARDING PROTECTIVE ADDITIONS U/S 40A(IA) ARE INTERCONNECTED . REVENUES GROUNDS NO. 10, 11 &12 PERTAIN TO COMMON ISSUE I.E. DELETION OF ADDITIONS U/S 41(1) ON 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 13 ACCOUNT OF CESSATION OF LIABILITY. REST OF THE GROU NDS FROM BOTH SIDES ARE BY AND LARGE INDEPENDENT. SINCE MAIN APPEAL IS BY REVE NUE, THE SAME IS TAKEN FIRST FOR ADJUDICATION. 4. REVENUES GROUND NO. 2: INTEREST ON NON BUSINESS ADVANCES :- 4.1. THE SPECIAL AUDITOR (SA) APPOINTED BY AO WAS O F THE VIEW THAT OUT OF ADVANCES AMOUNTING TO RS 21,65,39,847/- RS 3,44,81, 079/-1 WAS NOT BACKED BY ANY BUSINESS EXPEDIENCY. THEREFORE, A SUM OF RS 26,92,972/- BEING INTEREST WORKED ON @7.81% PAID TO AVERAGE OF OPENI NG AND CLOSING DEPOSITS WAS PROPOSED TO BE DISALLOWED. ON SAS OBSERVATIONS AO ISSUED A SHOW CAUSE NOTICE. 4.1. ASSESSEE REPLIED THAT THIS DISALLOWANCE COMP RISED OF - (I) RS 2,56,331/- BEING AMOUNT DUE FROM SAHARA EST ATE- HOSPITALITY (SEH), WHERE THE ASSESSEE IS A MEMBER OF THE AOP ; (II) RS 87,680/- DUE FROM SAHARA LIFE INSURANCE CO . LTD. (SLICL), BEING AMOUNT OF ELECTRICITY RECOVERABLE ON THE LET OUT PREMISES THE ASSESSEE; (III) REMAINING RS 3,41,37,068/- CONSISTED OF: A) SALE PROCEEDS OF RS 3,28,34,832/- RECEIVABLE FR OM AMBEY VALLEY LIMITED (AVL) ON ACCOUNT OF SALE OF ASSESSEE LAND; AND B) AMOUNT OF OUTSTANDING LEASE RENTAL FROM AVL. 4.2. ASSESSEE FILED EXPLANATION AND RAISED VARIOUS PLEAS TO DEMONSTRATE THAT THE ASSESSEE HAD SURPLUS INTEREST FREE FUNDS O UT OF WHICH SUCH ADVANCES WERE MADE AND THESE OUT STANDINGS WERE ALSO BACKED BY BUSINESS EXPEDIENCY, WHICH DID NOT FIND FAVOUR WITH AO AND T HE DISALLOWANCE WAS MADE. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 14 4.3. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CI T(A) CONTENDING THAT: (I) IN THE CASE OF M/S SAHARA INDIA MASS COMMUNICAT ION LTD (SIMCL) IN ONE OF SEVERAL ACCOUNTS A SUM OF RS.94, 084/- WAS OUTSTANDING, IS SELECTIVELY PICKED UP, HOWEVER THE RE ARE OTHER BRANCH ACCOUNTS WHICH HAVE AMOUNTS PAYABLE BY THE ASSESSEE , WHICH WERE NOT CONSIDERED BY AO. AN AMOUNT OF RS.15,39,604/- W AS OUTSTANDING IN THE BOOKS OF THE APPELLANT COMPANY AGAINST M/S S IML ACCOUNT ITSELF AND ANOTHER BALANCE OF RS.93,76,467/- WAS AL SO OUTSTANDING. THESE DIFFERENT AMOUNTS RELATED TO DIFFERENT UNITS OF M/S SIML LIKE GORAKHPUR, NOIDA, LUCKNOW ETC. IF ALL THE DEBIT AND CREDIT BALANCES ARE AGGREGATED IT LEAVES A NET CREDIT BALANCE OF RS .1,08,21,987/- WHICH IS TO BE PAID BACK BY ASSESSEE TO MSIL. THUS THERE IS NO CASE AT ALL OF INTEREST FREE ADVANCE GIVEN BY ASSESSEE, RATHER THE POSITION IS REVERSE. BESIDES VARIOUS SMALL AMOUNTS REPRESENT PENDING REC ONCILIATION OF BALANCES LIKE STAFF ADVANCES OCCASIONED BY TRANSFER OF THE STAFF TO THAT COMPANY AND STANDS DEBITED IN THAT COMPANYS ACCOUN T, AMOUNTS RELATING TO RECOVERY OF OUTSTANDING RENT OR ELECTRI CITY CHARGES OF PREMISES LET OUT ON LEASE ETC. (II) APROPOS RS.3,28,34,832/- RECEIVABLES FROM AVL , RS.11,05,232/- WERE OUTSTANDING LEASE CHARGES RECOV ERABLE AND BALANCE RS.3,17,29,600/- REPRESENTS SALE PROCEEDS O F ASSESSEES LAND SOLD THROUGH AVL, WHICH ARE PENDING REMITTANCE. ASS ESSEE WANTED TO SELL A PIECE OF LAND HELD IN THE VICINITY OF AMBEY VALLEY, LONAWALA. AVL WAS ENTRUSTED WITH THE TASK OF NEGOTIATIONS TO FETCH MAXIMUM SALE PRICE WHICH WAS DONE. AFTER THE SALE, AMOUNT W AS RECEIVED BY AVL WHICH IS HOLDING IT IN TRUST ON ASSESSES BEHALF . THUS THE OUTSTANDING IS NOT IN THE NATURE OF ANY INTEREST FR EE LOAN GIVEN TO AVL, 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 15 THEREFORE, THE ALLEGATIONS WERE TOTALLY INCORRECT. THE SALE OF LAND HAS BEEN SHOWN IN ASSESSEES ACCOUNTS AND OFFERED FOR T AX. ASSESSEE PLACED RELIANCE ON THE FOLLOWING CASES FOR THE PROP OSITION THAT IF NO INTEREST HAS ACCRUED THEN NO ADDITION CAN BE MADE O N NOTIONAL INCOME:- - JWALA PRASAD RADHA KRISHNA 198 ITR 415 (ALL.); - HIGHWAY CONSTRUCTION CO. PVT. LTD. 199 ITR 703 (GAU .); - CIT VS. HOTEL SAVERA 239 ITR 795; - B & A PLANTATIONS & INDUSTRIES LTD. 242 ITR 22 (GUJ .); - CIT VS. SOUTH INDIA CORPORATION (AGENCIES) LTD. 293 ITR 237 (MAD.). (III) BESIDES, IT WAS DEMONSTRATED FROM ACCOUNTS T HAT, IN ANY CASE, THE APPELLANT HAD OVERALL INTEREST FREE SURPLUS FUN DS AVAILABLE IN THE FORM OF SHARE CAPITAL; RESERVES AND SURPLUS TO THE TUNE OF RS.1670.47 CRORES. THE ADVANCE FUNDS BEING LESS AND THERE BEIN G NO NEXUS BETWEEN THE BORROWED FUNDS AND THE ALLEGED NON BUSI NESS ADVANCES, THERE IS NO JUSTIFICATION IN PRESUMING THAT THE ADV ANCES WERE OUT OF BORROWED FUNDS ONLY AND TO DISALLOW NOTIONAL INTERE ST THEREON. FOR THIS PROPOSITION ASSESSEE RELIED ON THE LANDMARK JUDGMEN T IN THE CASE OF C.I.T. VS. BOMBAY SAMACHAR LTD. 74 ITR 723 (BOM.) W HICH HAS BEEN APPROVED IMPLIEDLY IN MADHAV PRASAD JATIA 118 ITR 2 00 (SC). FURTHER RELIANCE WAS PLACED ON REGAL THEATRE VS. C. I.T. 225 ITR 205 (DEL.); C.I.T. VS. CENTUARY FLOUR MILLS LTD. 334 IT R 377 (MAD.); RADICO KHAITAN LTD. 274 ITR 354 (ALL.). (IV) ASSESSEE FURTHER SUBMITTED THAT AS PER R.B.I. GUIDELINES FOR RESIDUARY NON BANKING COMPANIES DIRECTIONS 1987 THE ENTIRE MOBILISED DEPOSITS WERE TO BE INVESTED IN THE APPRO VED SECURITIES. THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 16 INTEREST WHICH HAS BEEN PAID ON THE DEPOSITS MOBILI SED WAS ONLY PURSUANT TO A CONTRACTUAL RELATIONSHIP BETWEEN THE APPELLANT AND THE DEPOSITORS. ALL THE CONDITIONS AS PROVIDED FOR ALLO WANCE OF INTEREST ON BORROWED CAPITAL IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(I)(III) OF THE INCOME TAX ACT, 1961 ARE DULY COM PLIED WITH, THEREFORE, THERE WAS NEITHER JUSTIFICATION IN MAKIN G ANY DISALLOWANCE OUT OF THE INTEREST PAID NOR IN PRESUMING THAT THE INTEREST BEARING FUNDS WERE UTILISED FOR NON BUSINESS ADVANCE. FOR THIS PR OPOSITION RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- - C.I.T. VS. GAUTAM MOTORS 334 ITR 326 (DEL.); - MADHAV PRASAD JATIA 118 ITR 200 (SC); - C.I.T. VS. TIN BOX CO. 135 TAXMAN 145. (IV) ASSESSEE ALSO FILED CHART SHOWING INTEREST FR EE AMOUNTS PAYABLE TO ASSOCIATE CONCERNS AS UNDER: F.A. CODE ACCOUNT HEAD CREDIT AMOUNT 335314 S.W.F. 3,716,618 567002 SAHARA INDIA 166,451,834 567122 SAHARA INDIA, NOIDA 2,589,743 567009 SAHARA INDIA MASS COMMUNICATION, RASHTRIYA SAHARA 1,539,604 567073 SAHARA INDIA MASS COMMUNICATION, RASHTRIYA SAHARA 9,376,467 567182 SAHARA INDIA MEDIA COMMUNICATION LTD. 265,395 567243 SAHARA NET CORP LTD. 2,048,468 (V) ASSESSEE THUS PLEADED THAT, IF IT HAD GIVEN INT EREST FREE ADVANCES IT HAS ALSO RECEIVED MORE INTEREST FREE FUNDS FROM ASSOCIATE CONCERNS. BESIDES IT HAD AMPLE INTEREST FREE FUND IN FORM OF SHARE CAPITAL; RESERVES AND SURPLUS WHICH IS NOT DISPUTED, THEREFO RE, THERE IS NO JUSTIFICATION IN MAKING ANY DISALLOWANCE BY WRONGLY ALLEGING THEM TO 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 17 BE NON BUSINESS ADVANCES. ASSESSEE REFERRED TO EXPL ANATION SUBMITTED BEFORE AO, FOR EACH AND EVERY ADVANCES EXPLAINING THAT ALL DEBIT BALANCES WERE BACKED BY NORMAL BUSINESS EXIGENCIES OF A GROUP OF ASSOCIATED CONCERNS IN INTER UNIT TRANSACTIONS AND RELIED ON CITATIONS:- - BHARTI TELEVENTURE LTD. 331 ITR 502 (DEL.); - C.I.T. VS. SAMBANDHAM SPINNING MILLS LTD. 298 IT R 306 (MAD.); - SMT. CHANCHAL KATYAL VS. C.I.T. 298 ITR 182 (ALL .); - S. A. BUILDERS LTD VS. C.I.T. (A) 288 ITR 1 (SC) . 4.4. LD. CIT(A) HELD THAT AMOUNTS IN QUESTION WERE RECOVERABLE PAYMENTS OR OTHER RECEIVABLES ON BEHALF OF ITS ASSOCIATE CON CERNS. OUT OF RS.3,44,81,079/- A SUM OF RS.3,28,34,832/- ARE TWO RECEIVABLES OUTSTANDING FROM AMBEY VALLEY LTD., BEING LEASE CHARGES OF PROP ERTY AMOUNTING TO RS.11,05,232/- AND SALE PROCEEDS OF APPELLANTS LAND AMOUNTING TO RS.3,17,29,600/- PENDING REMITTANCE. THE APPELLANT S CLAIM THAT THESE AMOUNTS HAVE ALREADY BEEN ACCOUNTED FOR AND INCOME FROM LEASE RENT AND ON SALE OF LAND OFFERED TO TAX IS NOT DISPUTED. BESIDE S, THE APPELLANT OWED PAYMENT LIABILITIES TO ASSOCIATE CONCERNS FOR INTER UNIT TRANSACTIONS TOTALLING RS.18,59,88,129/- FOR WHICH NO INTEREST EXPENDITURE IS CLAIMED. ALL THESE RECEIVABLES / PAYABLES ARE RELATED TO ASSOCIATE CON CERNS AND ARE IN THE NATURE OF ROUTINE BUSINESS TRANSACTIONS. SALE OF LAND AND AMOUNT RECEIVABLE ON THAT ACCOUNT, OR LEASE RENTAL RECEIVABLE, FROM AMBEY VAL LEY CANNOT BE SAID TO BE NOT FOR BUSINESS PURPOSES AS THE BUSINESS OF THE AP PELLANT INCLUDES LEASING OUT OF AND INVESTMENT IN PROPERTY. IN ANY CASE, THE SE AMOUNTS ARE RECEIVABLES AND NOT ADVANCES GIVEN. THE REVENUE HAS ITSELF ACCE PTED RECEIVABLES FROM TWO OF THE ASSOCIATE CONCERNS OF THE APPELLANT AT R S.3,44,011/-. REASONS GIVEN BY AO FOR OVERLOOKING OTHER SIMILAR TRANSACTI ONS (RECEIVABLES) ARE NOT VERY COGENT. ASSESSEES ANOTHER ARGUMENT THAT IT HA D SUFFICIENT INTEREST FREE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 18 SURPLUS FUNDS AVAILABLE IN THE FORM OF SHARE CAPITA L AND RESERVES AND SURPLUS TO THE TUNE OF RS.1670.47 CRORES WAS APPRECIATED BY LD. CIT(A). IT WAS HELD THAT THERE BEING NO NEXUS BETWEEN THE BORROWED FUND S AND THE ALLEGED ADVANCES, THERE IS NO JUSTIFICATION IN DISALLOWING THE INTEREST PRESUMING THAT THE ADVANCES WERE INSTEAD OUT OF BORROWED FUNDS. AT THE MOST WHAT REVENUE MAY HAVE TAKEN IS THE DIFFERENCE OF RECEIVABLES AND PAYABLES; IF PAYABLES WERE MORE, DISALLOW ON A PRO-RATA BASIS OUT OF INTE REST CLAIM. IN ASSESSEES CASE THE RECEIVABLES ARE MORE THAN PAYABLES, THEREF ORE, EVEN NO SUCH DISALLOWANCE CAN BE CONTEMPLATED FROM ANY ANGLE. R ECEIVABLES FROM ALV WERE HELD TO BE NOT IN THE NATURE OF INTEREST FREE LOANS. THE ADVANCES WERE FURTHER HELD TO BE BACKED BY BUSINESS EXIGENCIES, T HE DISALLOWANCE WAS DELETED. AGGRIEVED REVENUE IS BEFORE US. 5. LD CIT(DR) SHRI R S MEENA, REFERRED TO VARIOUS O BSERVATION OF AO AND CIT(A) AND FURTHER CONTENDS THAT ASSESSING OFFICER CALLED FOR THE EXPLANATION OF THE ASSESSEE ABOUT THE BUSINESS EXPE DIENCY OF INTEREST FREE ITEMS UNDER LOANS AND ADVANCES. ASSESSEE COULD NOT SATISFACTORILY EXPLAIN. AFTER ADVERTING THE ORDERS OF AO AND CIT (A). LD DR CONTENDS THAT AO WAS JUSTIFIED IN TREATING THE ADVANCE OF RS. 3,17,29,60 0 I.E. SALE PROCEEDS OF A PROPERTY THROUGH M/S AMBEY VALLEY LTD. WAS NOT RELA TED TO ANY BUSINESS NECESSITY, IT WAS NOT ACTING AS AN AGENT / BROKER O N BEHALF OF THE ASSESSEE NOR THERE WAS ANY FORMAL AGREEMENT BETWEEN THEM REGARDI NG DISPOSAL OF THE PROPERTY IN QUESTION. IN THIS SITUATION, IT IS NOT UNDERSTOOD AS TO WHY THE AMOUNT OF RS. 3,17,29,600/- REMAINED WITH M/S AMBEY VALLEY LTD. AS INTERMEDIARY AND WHY IT WAS ALLOWED TO RETAIN THE M ONEY IN QUESTION. 5.1. SIMILARLY, THE CLAIM OF THE ASSESSEE COMPANY T HAT THERE ARE OVERALL CREDIT BALANCES IN THE ACCOUNTS OF THE ASSOCIATE CO NCERNS DOES NOT APPEAR TO 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 19 HAVE BEEN EXAMINED BY THE AO. IN VIEW THEREOF THE R ELIEF GRANTED BY THE LD. CIT(A) IS WITHOUT CALLING FOR COMMENTS FROM AO IN T HIS BEHALF, RELIEF GRANTED IS NOT IN ORDER, THEREFORE, THE ORDER ON TH IS ISSUE SHOULD BE REVERSED. 5.2. IN VIEW OF THE AFORESAID, THE RELIEF GRANTED B Y THE LD. CIT(A) WITHOUT CALLING FOR COMMENTS OF THE AO REGARDING THE CLAIM OF THE ASSESSEE THAT THERE ARE CREDIT BALANCES IN THE ACCOUNTS OF THE AS SOCIATE CONCERNS IS NOT IN ORDER. 6. SHRI AJAY VOHRA, LD COUNSEL FOR THE ASSESSEE CON TENDS THAT CIT(A), DELETED THE AFORESAID DISALLOWANCE BY FACTUALLY OBS ERVING AND VERIFYING THE RECORD AND HOLDING THAT ASSESSEE DEMONSTRATED BUSIN ESS EXPEDIENCY AND ALSO MORE AGGREGATED PAYABILITY OF AMOUNTS TO SISTER CON CERNS THAN RECEIVABLES FROM THE SISTER CONCERNS. THERE WAS CONSISTENT PRAC TICE AMONGST THE GROUP COMPANIES NOT TO PAY / CHARGE INTEREST ON THE MUTUA L OUTSTANDING BALANCES AS THE TRANSACTIONS WERE FREQUENT AND BUSINESS ORIENTE D. IN ANY CASE ASSESSEE IN THIS YEAR IS RATHER A BENEFICIARY IN THESE TERMS, A S IT HAS RECEIVED OVER ALL MORE INTEREST FREE FUNDS. 6.1. THE MAJOR ITEM COMPRISED IN THE AMOUNT OF RS. 3,41,37,068 IS A SUM OF RS.3,28,34,832 OUTSTANDING AGAINST AMBEY VALLEY LTD. OUT OF THE AFORESAID, RS.11,05,232/- REPRESENTED RECEIVABLE L EASE CHARGES , BALANCE AMOUNT OF RS.3,17,29,600 REPRESENTED SALE PROCEEDS OF ASSESSEES LAND SOLD BY AVL ON ITS BEHALF WHICH PAYMENT WAS IN TRUST FOR THE APPELLANT. 6.2. LD. CIT(A) HAS HELD THE ADVANCES TO BE BACKED BY BUSINESS EXPEDIENCY BY ELABORATE REASONS: (A) DISALLOWANCE OUT OF INTEREST PAID ON BORROWED F UNDS CAN BE SUSTAINED ONLY IF THERE IS NEXUS BETWEEN FUNDS B ORROWED AND ADVANCES MADE INTEREST FREE, WHICH NEXUS HAS TO BE ESTABLISHED 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 20 BY THE REVENUE. THE AMOUNTS DUE FROM THE SISTER CO NCERNS REPRESENTED INTER-COMPANY BALANCES, WHICH AROSE IN THE CIRCUMSTANCES MENTIONED ABOVE. THERE WERE NO MONEYS ADVANCED BY THE APPELLANT COMPANY TO THE SISTER CON CERNS, WHICH WERE OUTSTANDING AS AT 31.03.2009. THERE IS NO MOVEMENT OF FUNDS, MUCH LESS OF BORROWED FUNDS, TO SUSTAIN DISALLOWANCE OF ANY PORTION OF INTEREST PAID. (B) EXPENSES ARE INCURRED BY GROUP COMPANIES ON BEH ALF OF EACH OTHER. SIMILARLY, MONEYS MAY BE RECEIVED BY O NE COMPANY ON BEHALF OF THE OTHER GROUP ENTITY, WHICH IS HELD BY THE RECIPIENT COMPANY IN TRUST FOR THE OTHER COMPAN Y, TO WHOM THE MONEY LEGITIMATELY BELONGS. THERE IS NO PRACTIC E BETWEEN THE GROUP COMPANIES OF CHARGING INTEREST ON INTER-C OMPANY BALANCES AS AT THE END OF ANY PREVIOUS YEAR. IT HAS NOT BEEN DISPUTED BY AO THAT ON OVER ALL CONSIDERATION OF SU CH DEBITS AND CREDITS ASSESSEE IN FACT OWED MONEYS TO OTHER G ROUP ENTITIES. IT WAS, THUS, IN THE BUSINESS INTEREST O F THE APPELLANT NOT TO CHARGE INTEREST ON THE OUTSTANDING BALANCES DUE BY OTHER GROUP COMPANIES. (C) THE ASSESSING OFFICER HAS IMPUTED NOTIONAL INTE REST ON OUTSTANDING BALANCES DUE FROM AVL BY WRONGLY HOLDI NG IT TO BE AN INTEREST FREE ADVANCE. THERE IS NO ENABLING P ROVISION TO CHARGE NOTIONAL OR HYPOTHETICAL INCOME. ASSESSEE RE ASONABLY EXPLAINED THE CIRCUMSTANCES IN THIS BEHALF. HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. BOMBAY SAMACHAR LT D. 74 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 21 ITR 723 AND THE HONBLE DELHI HIGH COURT IN THE CA SE OF REGAL THEATRE V. CIT : 225 ITR 205 HELD THAT SO LONG AS T HE CAPITAL BORROWED WAS USED FOR PURPOSES OF BUSINESS, INTERES T PAYABLE THEREON WAS ALLOWABLE DEDUCTION UNDER SECTION 36(1) (III) OF THE ACT AND THAT DISALLOWANCE OF INTEREST COULD NOT BE SUSTAINED ON THE GROUND, SET FORTH BY THE REVENUE, THAT IF THE A SSESSEE HAD COLLECTED THE OUTSTANDING AMOUNTS FROM VARIOUS CONC ERNS, THERE WAS NO NECESSITY TO BORROW. IT WAS HELD BY THE COU RTS THAT IT WAS THE PREROGATIVE OF THE BUSINESSMAN TO DECIDE HO W TO CARRY BUSINESS AND IT WAS NOT FOR THE REVENUE TO SUGGEST WAYS TO REDUCE THE INDEBTEDNESS. (D) AS ASSESSEES OVER ALL PAYABILITY TO SISTER CON CERNS IS MORE THAN RECEIVABILITY, APROPOS ASSESSEE IT MAKES A PRUDENT BUSINESS DECISION THAT INTEREST ON SUCH PAYABLE AND RECEIVABLES IS NOT CHARGED AS IT RESULTS IN ITS BENEFIT. IT IS A CLEAR DEMONSTRATION OF BUSINESS PRUDENCE. IT IS TRITE LAW THAT WHILE ASCERTAINING THE ACUMEN OF BUSINESS PRUDENCE, REVEN UE CANNOT REVIEW SUCH PURELY BUSINESS DECISIONS. (E) BESIDES, ASSESSEE HAS LARGE INVESTIBLE INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES & SURPLUS TO THE TUNE OF RS.1670.47 CRORES. IN THE ABSENCE OF ANY NEXUS E STABLISHED BY THE REVENUE BETWEEN BORROWED FUNDS, ON THE ONE H AND, AND AMOUNTS DUE BY THE SISTER CONCERNS, ON THE OTHER, I T IS TO BE REGARDED THAT THE AMOUNTS DUE FROM THE SISTER CONCE RNS WERE ADVANCED OUT OF INTEREST FREE FUNDS ONLY. 6.3. AN ALTERNATIVE LEGAL ARGUMENT IS MADE TO THE E FFECT THAT ENTIRE AMOUNT OF BORROWED FUNDS HAD TO BE INVESTED BY THE APPELLA NT IN THE DIRECTED 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 22 INVESTMENTS AND INTEREST THEREON IS FULLY ALLOWABLE AS DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT. FOR THIS PROPOSITIO N ALSO, THE ORDER OF THE CIT(A) DELETING THE DISALLOWANCE DESERVES TO BE UPH ELD. 6.4. LD. COUNSEL COUNTERED THE ARGUMENT OF LD DR, T HAT COMMENTS WERE NOT CALLED FROM AO IS MISPLACED. IT IS PLEADED THAT ALL THE RECEIVABLE AND PAYABLES ARE PART OF THE BALANCE SHEET, SCHEDULES A PPENDED THERETO AND ARE THE BASIS FROM WHERE SA AND AO GOT THIS INFORMATION . THUS EVERYTHING WAS ON RECORD, AO FAILED TO APPLY HIS MIND TO EXPLANATI ON AND RECORD. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT HAS NOT BEEN DISPUTED THAT THE OVERALL OWING OF THE ASSESSEE FROM GROUP CONCERN IS MORE THAN THE RECEIV ABLES. IF INTEREST ELEMENT IS COMPUTED ON SUCH TRANSACTIONS THE SIMPLE FACT WH ICH EMERGES IS THAT ASSESSEE WOULD HAVE TO RATHER PAY THE INTEREST AND CLAIM MORE INTEREST EXPENDITURE. A CONVENIENT APPROACH CAN NOT BE ADOPT ED TO RECKON INTEREST RECEIVABLES AND NOT TO FACTOR THE SAME ON SIMILAR O WINGS OF THE ASSESSEE. BESIDES THIS PRACTICE HAS BEEN FOLLOWED BY ALL THE GROUP ENTITIES. IN VIEW THEREOF, CIT(A) IS JUSTIFIED IN APPRECIATING THIS P LEA OF THE ASSESSEE. 7.1. ASSESSEES SHARE CAPITAL, RESERVES AND OTHER I NTEREST FREE FUNDS, FAR EXCEED THAN RECEIVABLES. IN OUR VIEW THE REVENUES COUNTER THAT WHY ASSESSEE BORROWED DOES NOT IMPINGE ON THE SETTLED PROPOSITIO N THAT ASSESSEE IN ITS BUSINESS ACUMEN IS ENTITLED TO USE ITS INTEREST FRE E FUNDS IN THE MANNER IT DEEMS PROPER, THERE IS NO ENABLING PROVISION EMPOWE RING REVENUE TO MAKE SUCH NOTIONAL ADDITIONS IN THESE EVENTUALITIES. 7.2. APROPOS AMBEY VALLEY RECEIVABLE CONSISTING OF ARREARS OF RENTALS AND MONEY HELD IN TRUST, THEY ARE NOT THE ADVANCES GIVE N BY THE ASSESSEE BUT ARE THE MONEYS HELD IN TRUST BY IT ON BEHALF OF THE ASS ESSEE AND ARREARS OF LEASE RENTALS. AO HAS DRAWN ADVERSE INFERENCE AS TO WHY T HE ASSESSEE IS NOT 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 23 RECEIVING IT AND THEREFORE, ESTIMATED A NOTIONAL/HY POTHETICAL INCOME THEREON. BESIDES, CONSIDERING EARLIER SITUATION ASSESSEE OWE S MORE PAYABLE. IN OUR VIEW, HERE ALSO, THERE IS NO ENABLING PROVISION TO SUSTAIN SUCH ADDITION. 7.3. ASSESSEES RELIANCE ON BOMBAY SAMACHAR IS WELL FOUNDED WHICH HAS BEEN FOLLOWED IN A CATENA OF SUBSEQUENT JUDGMENTS B ESIDES OTHER CASE LAWS CITED BY ASSESSEE IN THIS BEHALF SUPPORT ITS CONTEN TIONS. IN VIEW OF THE FOREGOINGS WE SEE NO INFIRMITY IN THE ORDER OF CIT( A) WHICH IS UPHELD. THIS GROUND OF THE REVENUE IS DISMISSED. 8. GROUND NO. 3 : SEC 40A(2)(B) DISALLOWANCE - RELATED PARTIES TRANSACTIONS: 8.1. THE SPECIAL AUDITOR POINTED OUT THAT WHILE RE PORTING TRANSACTIONS WITH RELATED PARTIES UNDER SECTION 40A(2)(B), TRANSACTIO NS AMOUNTING TO RS 27,78,66,907 HAVE NOT BEEN DISCLOSED BY THE ASSESSE E. JUSTIFICATION WAS ASKED AS TO HOW FOLLOWING TRANSACTIONS WERE AT PREV AILING MARKET RATES IN TERMS OF SECTION 40A(2)(B): I) A SUM OF RS 10,000 HAS BEEN EXCESSIVELY PAID TO SAHARA INDIA COMMERCIAL CORPORATION (SICC) FOR 1000 LITERS OF DI ESEL BY PAYING @RS 46.36 INSTEAD OF PREVAILING RATE OF RS 36.35. II) A SUM OF RS 20,32,08,118 HAS BEEN PAID ON ACCO UNT OF RENT AND RS 6,72,94,604 AS UTILITY CHARGES BY THE ASSESSEE C O. TO M/S SAHARA INDIA ON ACCOUNT OF RENTALS AND UTILITY CHARGES OF 1500 BRANCHES OF PARA BANKING DIVISION WHICH WAS EXCESSIVE AND UNREA SONABLE. III) A SUM OF RS 92,466 PAID ON ACCOUNT OF TRAVELL ING EXPENSES TOWARD LEASE RENTALS OF VEHICLES TAKEN ON HIRE TO M /S SAHARA INDIA, WAS ALSO SOUGHT TO BE JUSTIFIED U/S 40A(2)(B). 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 24 8.2. APROPOS POINT NO I), ASSESSEE OFFERED TO TAX AN AMOUNT OF RS 10,000/-. QUA UTILITY CHARGES. II) THE IMPUGNED PREMISES BELO NGED TO SAHARA INDIA WHICH WAS BEING SHARED BY ASSESSEE. AO HAD ALLEGED THAT, ASSESSEE WAS COMPARING THE UTILITY CHARGES RECEIVED FOR A PARTIC ULAR PROPERTY AT 40% AND COMPARING THE SAME WITH THE 33% UTILITY CHARGES BEI NG PAID BY THE ASSESSEE. HOWEVER IF THE RATIO OF UTILITY CHARGES RECEIVED ON ALL THE RENTED PROPERTIES IS COMPARED WITH THE RENTAL INCOME THEN THE RATIO CAME TO ONLY 0.5%. THE ASSESSEE EXPLAINED THAT CHARGES ARE BEING PAID FOR UTILIZING THE PREMISES WITH FULL FLEDGED INFRASTRUCTURE WHICH INCLUDED ENTIRE O FFICE PREMISES, FURNITURE, TELEPHONES, ELECTRICITY, PEONS, SECURITY GUARDS, WA SHING-CLEANING STAFF, COMPUTERS, V-SAT ARRANGEMENTS, INTERNET CONNECTION FACILITIES FROM THE BRANCH TO HEAD OFFICE AND VICE VERSA ETC. AO OBSERV ED THAT NO FIXED ASSET REGISTER IS MAINTAINED BY SAHARA INDIA TO RECORD TH E UTILIZATION OF SUCH FIXED ASSETS BY ASSESSEE FOR PAYING SUCH UTILITY CHARGES. IN THE ABSENCE OF SUCH REGISTER, THE UTILITY CHARGES PAID WERE HELD TO BE EXCESSIVE AS ASSESSEE HAS NOT PROVIDED ANY MARKET RATE COMPARISON TO JUSTIFY IT; THEREFORE, IT WAS DISALLOWED IN TERMS OF SEC. 40A(2)(B). QUA TRAVELL ING AND CONVEYANCE, AO FOUND THAT IN TWO INSTANCES DATED 25.10.2008, THE V EHICLES HAVE BEEN USED BY SH MANISH RAJ (PAYMENTS RS 13,421 AND RS 9,500) WHO WAS WORKING FOR M/S SAHARA INDIA REAL ESTATE CORPORATION LTD, SHOUL D HAVE BEEN DEBITED TO IT. 50% OF THIS AMOUNT I.E. RS 46233 WAS ALSO DISAL LOWED. 8.3. ON ASSESSEES FIRST APPEAL CIT(A) FOUND THAT OBSERVATION ABOUT MANISH RAJ WORKING FOR SICC (A GROUP CONCERN) WAS FACTUALLY INCORRECT IN VIEW OF FORM 16 PRODUCED, THEREFORE, THE DISALLOWAN CE OF RS.46,233/- WAS DELETED. 8.4. THE SECOND PART OF THE DISALLOWANCE OF RS. 6,6 1,73,027/- I.E. UTILITY CHARGES PAID TO SAHARA INDIA WAS FOR USE OF ITS PRE MISES AND HOST OF OTHER 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 25 INFRASTRUCTURE FACILITIES. APROPOS AOS OBSERVATION THAT THE UTILITY CHARGES PAID BY ARE HIGHLY EXCESSIVE AS COMPARED TO RENT OF 0.5% CHARGED BY THE APPELLANT ON SIMILAR USE OF ITS FACILITIES. ASSESSE E EXPLAINED THAT THE INFRASTRUCTURE AVAILABLE WITH AND PROVIDED BY SAHA RA INDIA (FIRM) ARE BY NO MEANS COMPARABLE WITH ASSESSEES LET OUT PREMISES C HOSEN BY AO FOR COMPARISON. THEY ARE CLAIMED TO BE BARE PREMISES BE REFT OF SUCH MULTITUDE OF FACILITIES. IN FEW OTHER PREMISES WHICH ARE SIMI LARLY EQUIPPED, UTILITY CHARGES RECOVERED BY ASSESSEE WERE IN THE RANGE OF 40%-50%. CONSEQUENTLY AO MADE A SKEWED COMPARISON IN THIS BEHALF, LD. CIT (A) FOUND ASSESSEES COMPARISON AND EXPLANATION TO BE CORRECT. ABOUT NON MAINTENANCE OF REGISTER OF FIXED ASSETS, CIT(A) FOUND NO MERIT IN THE ADVERSE INFERENCE. APROPOS MARKET COMPARISON OF UTILITY CHARGES, CIT(A ) FOUND MERIT IN THE ASSESSEES EXPLANATION THAT THE FACILITIES AND ASSE TS USED ARE PART OF THE REGULARLY MAINTAINED, AUDITED AND ACCEPTED BOOKS OF ACCOUNTS, DEPARTMENT HAS BEEN ALLOWING RELATED DEPRECIATION AND EXPENDIT URE, IN RELATION TO THESE ASSETS AND UTILITIES YEAR AFTER YEAR. CIT(A) HELD T HAT, COMPARISON OF FULL INFRASTRUCTURE INSTALLED PREMISES WITH BARE PREMISE S BY AO WAS NOT CORRECT. SEC. 40(A)(2B) MANDATES A COMPARISON BASED ON SAME SET OF FACILITIES AND NOT OF INCOMPARABLE. IT WAS HELD THAT AO HAS NOT BE EN ABLE TO MAKE OUT A CASE IN THIS BEHALF THESE ADDITIONS WERE DELETED. A GGRIEVED REVENUE IS BEFORE US. 9. LD DR CONTENDS THAT LD. CIT(A) HAS NOT TAKEN IN TO CONSIDERATION THE FACT THAT DURING THE FINANCIAL YEAR 2008-09 RELEVAN T TO A.Y. 2009-10, THE BUSINESS ACTIVITY OF M/S SAHARA INDIA HAD NOT COME TO AN END. AS IN THE PAST, M/S SAHARA INDIA WAS WORKING AS AGENT ON BEHALF OF THE ASSESSEE COMPANY AND OTHER ASSOCIATE CONCERNS. DURING THE YEAR, M/S SAHARA INDIA HAD MOBILIZED DEPOSITS OF RS. 5301.68 CRORE ON BEHALF O F THE ASSESSEE COMPANY 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 26 WHICH IS MARGINALLY LESS THAN DEPOSITS OF RS. 6274. 66 CRORES IN THE IMMEDIATELY PRECEDING YEAR. SO ALSO DURING THE YEAR UNDER CONSIDERATION, COMMISSION, DEVELOPMENT AND PROMOTIONAL EXPENSES AG GREGATING TO RS. 80.19 CRORES AND COLLECTION FACILITY EXPENSES RS. 1 27.39 CRORES HAVE SEPARATELY BEEN INCURRED BY THE ASSESSEE COMPANY. 9.1. THUS IT IS HARD TO BELIEVE THAT M/S SAHARA IND IA HAD COMPLETELY VACATED THE PREMISES OCCUPIED BY ITS 1500 BRANCHES AND SAME WERE EXCLUSIVELY UTILIZED BY THE ASSESSEE COMPANY. FURTH ER, AS NOTED BY THE AO, NO DETAILS OF UTILITIES, FACILITIES AND INFRASTRUCT URE EXCLUSIVELY USED BY THE ASSESSEE COMPANY HAVE BEEN FURNISHED. THE ASSESSEE COMPANY WAS NOT MAINTAINING ANY REGISTER OF IMMOVABLE PROPERTIES AN D OTHER UTILITIES TAKEN OVER FROM M/S SAHARA INDIA. FURTHER, NO COMPARABLES HAVE BEEN FILED BY THE RESPONDENT COMPANY TO SUGGEST THAT THE TRANSACTIONS WERE AT ARMS LENGTH. AO'S ORDER IS RELIED ON. 10. SHRI AJAY VOHRA, LD. COUNSEL FOR THE ASSESSEE C ONTENDS THAT ASSESSING OFFICER MADE DISALLOWANCE OF RS.6,62,19,260/- U/S 4 0A(2)(B) OF THE ACT ON THE GROUND THAT THE UTILITY CHARGES PAID BY THE APP ELLANT TO M/S. SAHARA INDIA @ 33.33% WAS HIGHLY EXCESSIVE COMPARED TO UTILITY C HARGES RECEIVED BY THE APPELLANT @ 0.5% ON USE OF ITS FACILITIES. THE FIND ING IS CONTRARY TO THE RECORD, WITHOUT APPRECIATING THE CORRECT FACTS OF T HE ISSUE, AO HAS COMPARED APPLES WITH ORANGES AND FAILED TO NOTICE THE CONSPI CUOUS DIFFERENCE BETWEEN THE LETTING OF FULLY LOADED BUSINESS PREMISES AND B ARE PREMISES. IT WAS DEMONSTRATED THAT PREMISES WERE LEASED ALONG WITH H OST OF FULL OFFICE AUTOMATION INFRASTRUCTURE FACILITIES BY SAHARA INDI A (FIRM), INCLUDING FURNITURE, TELEPHONES, PEONS, SECURITY GUARDS, SWEE PERS, COMPUTER, V-SAT, INTERNET CONNECTION ETC. IT WAS CATEGORICALLY SUBMI TTED THAT COMPARISON 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 27 DRAWN BY AO QUA THE PREMISES LEASED OUT BY THE APPE LLANT WAS DISTORTED SINCE THE APPELLANT DOES NOT MAKE AVAILABLE SERVICE S / USE OF UTILITY IN RESPECT OF ALL SUCH PREMISES. THE PREMISES WHICH WERE LEAS ED OUT ALONG WITH FACILITIES / SERVICES, THE UTILITY CHARGES RECOVERE D BY THE APPELLANT WERE UP TO THE RANGE OF 40-50% OF THE RENT. ASSESSEE DEMONSTRA TED THAT IF LIKE IS COMPARED WITH LIKE THERE IS NO CASE OF EXCESSIVE PA YMENT IN TERMS OF SEC 40A(2)(B). THUS THE DISTORTED COMPARISON MADE BY TH E ASSESSING OFFICER WAS FALLACIOUS. 10.1. LD COUNSEL REFERRED TO THE RENT AGREEMENT WIT H SAHARA INDIA AND ALSO A DETAILED CHART SHOWING COMPARISON WHICH ARE PLACED ON PAPER BOOK IN SUPPORT OF THESE AVERMENTS. IT IS PLEADED THAT LD. CIT(A) DELETED THE DISALLOWANCE MAINLY HOLDING THAT: I. AO'S ADVERSE INFERENCE ON THERE BEING NO REGISTE R OF FIXED ASSETS IS NOT BASED ON ANY REQUIREMENT IN LAW, OR A S PER ACCOUNTANCY PRACTICE OR CONVENTION. II. AO WAS NOT CORRECT IN HOLDING THAT ASSESSEE HAS NOT PROVED THE REASONABLENESS OF THE AMOUNT BY GIVING DETAILS OF T HE ASSETS / UTILITIES, THEIR SEGREGATION OR MARKET COMPARISON. IT IS UNDIS PUTED THAT THESE ASSETS HAVE BEEN REGULARLY DISCLOSED IN THE BOOKS A ND THE DEPARTMENT ITSELF HAS BEEN ALLOWING DEPRECIATION, OR EXPENDITU RE, IN RELATION TO THESE ASSETS AND UTILITIES. III. AO HAS NOT DISCHARGED HIS ONUS BY BRINGING ON RECORD ANY INDEPENDENT EVIDENCE OF SERVICE CHARGES PAYABLE IN COMPARABLE UNCONTROLLED TRANSACTION, BEFORE SEEKING TO DISALLO W DEDUCTION BY INVOKING SECTION 40A(2) OF THE ACT. 10.2. LD COUNSEL CONTENDS THAT SAME ASSESSING OFFIC ER HAS TAKEN CONTRADICTORY POSITIONS. IN THE CASE OF M/S SAHARA INDIA, THE AO INCREASED 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 28 THE RENTAL INCOME RECEIVED FROM THE APPELLANT ALLEG ING THE SAME TO BE LOWER AND THUS TAXING AT HIGHER INCOME, WHICH ACCORDING T O THE ASSESSING OFFICER SHOULD HAVE BEEN RECEIVED BY SAHARA INDIA (FIRM), W HILE HOLDING THE REVERSE POSITION IN THE CASE OF THE APPELLANT. IT IS PLEADE D THAT THE ORDER PASSED BY THE CIT(A) DELETING THE DISALLOWANCE UNDER SECTION 40A( 2)(B) OF THE ACT DESERVES TO BE UPHELD. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FROM THE ABOVE FACTS IT CLEARL Y EMERGES THAT AO HAS MADE A DISTORTED COMPARISON OF RENTALS BETWEEN BAR E PREMISES LET OUT BY THE ASSESSEE WITH FULL FACILITIES LOADED BUSINESS PREMI SES HIRED BY IT. THE CARDINAL PRINCIPLE OF SEC 40A(2)(B) POSTULATES A FA IR COMPARISON BETWEEN NEARLY PLACED COMPARABLE I.E. ARMS LENGTH COMPARAB LES. THE BURDEN TO PROVE LIES ON THE AO, WHICH HAS NOT BEEN PROPERLY D ISCHARGED, IN SUCH A CASE EXPENDITURE INCURRED BY ASSESSEE CANNOT BE HELD AS EXCESSIVE U/S 40A(2)(B). THE NON MAINTENANCE OF REGISTER CAN NOT BE A FATALI TY IN AS MUCH AS REVENUE HAS NOT DENIED THE EXISTENCE OF ASSETS, THEIR DISCL OSURE IN BOOKS, SCHEDULE OF FIXED ASSETS AND BALANCE SHEET, DEPRECIATION & EXPE NDITURE HAS BEEN DULY ALLOWED THEREON. AO HAS NOT TRIED TO IDENTIFY ANY O THER INDEPENDENT COMPARABLE. IN CONSIDERATION OF ALL THE FOREGOINGS, WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE, THIS GROUND OF THE R EVENUE IS DISMISSED. 12. GROUND NO. 4: (ASSESSEE GR. 2) CAPITAL VS REVENUE EXPENDITURE UPS & REPAIRS: 12.1. THE SA INDICATED THAT ASSESSEE HAS DEBITED A SUM OF RS 47,22,391 UNDER THE HEAD REPAIRS TO BUILDING, THOUGH SIMILAR NATURE OF WORK IN THE SAME VOUCHER HAS BEEN CAPITALIZED. BESIDES UPS REPLACEME NT OF RS. 10,14,447/- WAS NOT PROPERLY INCORPORATED IN THE BOOKS. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 29 12.2. ASSESSEE FILED ITS EXPLANATION WHICH DID NOT FIND FAVOUR WITH AO. IT WAS HELD THAT ASSESSEE HAD NOT STARTED THE NEW BUSI NESS THROUGH ITS PARA BANKING BRANCHES DURING THE YEAR, IF OLD UPS WERE D ISCARDED THEN THEY OUGHT TO HAVE BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNT S OR DISPOSED OFF. SIMILARLY THE PARA BANKING BRANCHES HAVE BEEN OPERA TING FOR SO MANY YEARS, AND IT WAS NOT POSSIBLE THAT BRANCHES WERE OPERATIN G WITHOUT UPS. ACCORDINGLY A SUM OF RS 10,14,477 AFTER ALLOWING DE PRECIATION WAS ADDED TO THE INCOME OF THE ASSESSEE. AGGRIEVED ASSESSEE WENT IN FIRST APPEAL. 12.3. CIT(A) FOUND THE DISALLOWANCE COMPRISED OF TW O ITEMS RS.44,86,784/- AS CAPITALISATION OF REPAIRS TO BUIL DING AND RS.10,14,477/- AS CAPITALISATION OF UPS PURCHASED. AO HELD THAT THE E XPENSES OF RS. 44,86,784/- RELATING TO WORK CARRIED OUT IN OFFICE WAS NOT TO BE ALLOWED AS REVENUE EXPENDITURE, AS PART OF SIMILAR WORK IN SA ME BUILDING WAS CAPITALIZED. ASSESSEE EXPLAINED THAT SAME VENDOR CA RRIED OUT WORK IN TWO DIFFERENT PREMISES AND NOT SAME PREMISE. WHILE REVE NUE EXPENDITURE WAS CLAIMED IN RESPECT OF WORKS EXECUTED AT SAHARA IND IA TOWER, 7 KAPORTHALA COMPLEX, CAPITAL EXPENDITURE WAS CLAIMED FOR CONST RUCTION OF NEW STRUCTURES, PARTITIONS, ROLLING SHUTTERS, ETC., AT SAHARA INDIA BHAWAN, 1 KAPOORTHALA COMPLEX. BOTH BUILDINGS BEING LOCATED I N ALIGANJ, LUCKNOW AND VENDOR HAVING RAISED A COMMON VOUCHER, CREATED CONFUSION AT THE AOS END. THE RELEVANT REVENUE EXPENDITURE WAS CLAIMED O N REPAIR TO ANOTHER BUILDING WHERE NO NEW ASSET OF ENDURING NATURE WAS CREATED. CIT(A) AGREED WITH ASSESSES EXPLANATION. 12.4. APROPOS REPLACEMENT OF UPS. LD. CIT(A) AGREED WITH THE AOS STAND TO THE EXTENT THAT UPS ARE ADDITIONS TO ASSETS THE WRITTEN DOWN VALUE OF BLOCK OF ASSETS WAS TO BE REDUCED BY THE DEPRECIATED VALU E OF OLD EQUIPMENT AND ENHANCED BY VALUE OF NEW EQUIPMENT AND ALLOW APPROP RIATE DEPRECIATION 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 30 THEREON. ANY REALISATION FROM SCRAP SALE WAS TO BE CONSIDERED. ASSESSEES ALTERNATE GROUND TO DEPRECIATION @ 60% ON UPS TREAT ING IT AS COMPUTER PERIPHERAL WAS ALLOWED RELYING ON THE FOLLOWING CAS ES:- - ORIENT CERAMICS & INDUSTRIES 56 DTR (DEL.)397; - EXPEDITORS INT (INDIA) LTD. 118 TTJ (DEL.) 652.; - ACIT VS. RAMKISHAN VERMA 143 TTJ (UO) 1 (JP.) AGGRIEVED REVENUE IS IN APPEAL BEFORE US. 13. LD CIT(DR) RELIED ON THE ORDER OF AO. 14. LD COUNSEL FOR THE ASSESSEE CONTENDS THAT THE E XPENDITURE OF RS.44,86,784 WAS FOR CHANGE OF FLOORING AND REPAIRS TO PARTITIONS ETC., IN A DEFERENT BUILDING. IT DID NOT BRING INTO EXISTENCE ANY NEW ASSET OR BENEFIT OF ENDURING NATURE IN THE CAPITAL FIELD. REPLACEMENT OF UPS HAS BEEN HELD AS CAPITAL EXPENDITURE BY LD. CIT(A) BY ALLOWING DEPRE CIATION THEREON @ 30% (I.E., OF 60%). THIS IS WHY ASSESSEE HAS NOT PRES SED GROUND NO. 2 OF ITS APPEAL. 15. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, . FROM THE ABOVE FACTS IT CLEA RLY EMERGES THAT LD CIT(A) VERIFIED THE FACTS AND HAS GIVEN COGENT FINDINGS OF THE FACT ABOUT TWO DIFFERENT PREMISES INVOLVED IN THE CAPITAL AND REVE NUE EXPENDITURE, A FACT WHICH WAS MISS APPRECIATED BY AO. BESIDES CIT(A) FO LLOWING JUDICIAL PRECEDENTS HAS ADOPTED A CORRECT APPROACH BY HOLDIN G UPS AS COMPUTER PERIPHERALS AND ALLOWING CORRECT RATE OF 60% SUBJEC T TO NO OF USER DAYS. WE SEE NO INFIRMITY IN DECISION ON THIS ISSUE WHICH IS UPHELD AND RESPECTIVE GROUNDS OF REVENUE AND ASSESSEE ARE DISMISSED,. 16. GROUND NO. 5 : ANTI VIRUS SOFTWARE EXPENSES. 16.1. AO OBSERVED THAT THE ANTIVIRUS SOFTWARE PURCH ASED BY ASSESSEE FOR RS. 4,14,398/- HAD A WARRANTY FOR 3 YEARS, THEREFORE, T HIS EXPENDITURE NEEDS TO BE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 31 SPREAD OVER A PERIOD OF 3 YEARS FROM THE DATE OF IN STALLATION I.E. 21.10.2008. THUS THE EXPENSE FOR A PERIOD OF 2 YEARS AND 161 DA YS WILL BE ALLOWABLE IN FUTURE ASSESSMENT YEAR AND THE PROPORTIONATE AMOUNT WAS SOUGHT TO BE ALLOWED. ASSESSEE REPLIED THAT EXPENDITURE ON ANTI VIRUS SOFTWARE IS A RECURRING REVENUE EXPENDITURE IRRESPECTIVE OF THE P ERIOD OF USE, THEREFORE, THERE WAS NO REASON TO DISALLOW RS. 44,05,688/-. AO , HOWEVER, TREATED IT AS DEFERRED REVENUE EXPENDITURE RESULTING IN DISALLOWA NCE OF RS 44,05,688. 16.2. IN FIRST APPEAL CIT(A) HELD THAT THE EXPENDIT URE ON ANY CUSTOM-MADE SOFTWARE FOR A LARGE BUSINESS ESTABLISHMENT IS RECU RRING REVENUE EXPENDITURE FOR MAINTENANCE OF INFORMATION AND COMPUTING SYSTEM S. ATTRITION IN CUSTOM- MADE ANTI-VIRUS SOFTWARE IS HIGH AND EVERY YEAR UPG RADES ARE TO BE MADE AT EQUAL COST OR NOMINALLY LESSER AMOUNTS. THE EXPENDI TURE INCURRED WAS HELD TO BE ALLOWABLE REVENUE IN NATURE. 17. LD DR RELIED ON THE AOS ORDER. 18. LD COUNSEL FOR THE ASSESSEE CONTENDS THAT THE C IT(A) ALLOWED DEDUCTION FOR THE ENTIRE EXPENDITURE ON THE GROUND THAT IN THIS ERA OF FAST MOVING TECHNOLOGY, THERE IS HIGH RISK OF OBSOLESCE AND, THEREFORE, ONE TIME EXPENDITURE INCURRED ON ANTI-VIRUS SOFTWARE SHOULD BE ALLOWED AS DEDUCTION IN THE YEAR OF PURCHASE ITSELF. THE EXPENDITURE ON PURCHASE OF SOFTWARE LICENSES/ UPGRADES HAS BEEN HELD TO BE ALLOWABLE EX PENDITURE BY THE DELHI HIGH COURT IN THE CASES OF CIT V. ASAHI INDIA SAFET Y GLASS LTD. 346 ITR 329; AND CIT V. AMWAY INDIA ENTERPRISES: 346 ITR 3 41. 18.1. THERE IS NO CONCEPT OF DEFERRED REVENUE EXPEN DITURE UNDER THE ACT THUS EVEN IF ANY PART OF THE REVENUE EXPENDITURE RE SULTS IN BENEFIT IN THE SUBSEQUENT PERIOD, THE SAME WILL BE ALLOWABLE REVEN UE EXPENDITURE IN THE YEAR OF PURCHASE. THE EXPENDITURE BEING REVENUE IN NATURE, ITS PART 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 32 DISALLOWANCE, IN ANY CASE IS A REVENUE NEUTRAL EXER CISE, ACADEMIC IN NATURE SINCE THE APPELLANT BEING A COMPANY IS SUBJECTED TO UNIFORM RATE OF TAX. 19. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. EXPENDITURE HAS BEEN HELD BY A O TO BE DEFERRED REVENUE IN NATURE AND PART IS HELD ALLOWED IN THIS YEAR ON POSSIBLE USER BASED ON WARRANTY. THERE IS NO CONCEPT OF DEFERRED REVENU E EXPENDITURE IN THIS BEHALF IN VIEW THEREOF AND RESPECTFULLY FOLLOWING A BOVE JUDGMENTS OF HONBLE DELHI HIGH COURT WE UPHOLD THE ORDER OF CIT (A), THIS GROUND OF REVENUE STANDS DISMISSED. 20. GROUND NOS. 6 & 7 : DEPRECIATION @60% IN CASE OF UPS AND PRINTERS: 20.1. AO HELD THAT UPS AND PRINTERS HAVE A DUAL PUR POSE AND ARE NOT SOLELY DEPENDANT ON THE COMPUTERS FOR ENTIRE OPERATIONS. A SSESSEES CLAIM OF COMPUTER PERIPHERALS ELIGIBLE FOR DEPRECIATION @60% WAS REJECTED, AO HELD THEM TO BE ITEMS OF MACHINERY AND ALLOWED DEPRECIAT ION ON UPS 15% RESULTING IN DISALLOWANCE OF RS 66,81,102/- AND PR INTERS AT RS. 72,99,852. 20.2. IN FIRST APPEAL CIT(A) ALLOWED THE CLAIM OF T HE ASSESSEE ON THE REASONING ADOPTED IN GROUND NO. 4 WHILE DISALLOWIN G THE CLAIM OF REPLACEMENT OF PRINTERS AS REVENUE EXPENDITURE AND DIRECTING TO ALLOW DEPRECIATION @ 60% ON PRINTERS. 20.3. AFTER HEARING THE PARTIES, FOR THE SAME REASO NS AND JUDICIAL PRECEDENTS IN GROUND 4, WE UPHOLD THE ORDER OF CIT(A), REVENUE GROUND IS DISMISSED. 21. GROUND 8 : ADDITION ON ACCOUNT OF FRESH CASH CREDITS: U/S 68 OF THE ACT. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 33 21.1. THIS IS THE MAJOR GROUND OF THE REVENUE APPEA L. THE ASSESSEE IS A REGISTERED RNBFC ENGAGED IN THE COLLECTION OF DEPOS ITS OF SMALL AND MEDIUM NATURE BY A VIDE NETWORK OF RURAL AGENTS. EV ERY YEAR A HUGE VOLUME OF DEPOSITS IS COLLECTED BY ASSESSEE UNDER VARIOUS SCHEMES DURING THE COURSE OF IT. IN ORDER TO VERIFY THE NEW DEPOSITS COLLECTE D DURING THE YEAR, IN TERMS OF SEC 68 OF THE ACT, AO PROCEEDED TO EXAMINE THEM. SA SUBMITTED HIS REPORT ALLEGING THAT ASSESSEE HAS NOT COOPERATED DU RING AUDIT PROCEDURE, SOFT COPIES I.E. COPIES OF ACCOUNTING SOFTWARE WAS NOT P ROVIDED. IT WAS FURTHER MENTIONED THAT DUE TO SHORT TIME AVAILABLE FOR AUDI T THEY HAD TO FACE LOTS OF DIFFICULTIES. REPORT OF SPECIAL AUDITOR IN THIS BEH ALF WAS CONSIDERED, VARIOUS NOTICES WERE ISSUED ON THE ASSESSEE FOR WHOM REPLIE S WERE GIVEN. AO ALSO HELD THAT ASSESSEE WAS NOT COOPERATIVE IN THE ASSES SMENT PROCEEDINGS, AS REQUISITE INFORMATION WAS NOT FURNISHED IN THE DESI RED SOFT COPY FORMAT, IDENTITY OF DEPOSITORS AND THE PROOF ABOUT THEIR G ENUINENESS WAS BEING NOT PRODUCED; NOTICES SERVED ON THEM REMAINED LARGELY U NCOMPLIED WITH. AO HAS MENTIONED THESE FACTS IN HIS ORDER IN DETAILS; THEY ARE NOT REPRODUCED FOR THE SAKE OF BREVITY. 21.2. GIST OF AOS OBSERVATIONS IS SUMMARIZED AS U NDER: I. DURING THE YEAR UNDER CONSIDERATION DEPOSITS UNDER 35 DIFFERENT SCHEMES UNDER DAILY DEPOSIT SCHEME, MONTHLY DEPO SIT SCHEME AND FIXED DEPOSIT SCHEMES. THE DETAILS IN RESPECT OF THE DEPOSITS AS GIVEN IN SCHEDULE-3 ARE GIVEN BELOW : 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 34 II. THE NUMBER OF ASSESSEE'S BRANCHES ARE STATED TO BE MORE THAN 1500, THE NUMBER OF DEPOSITORS ARE ABOUT 3 (THREE) CRORES AND THE NO. OF AGENTS THROUGH WHOM DEPOSITS ARE COLLECTED OR RE PAYMENTS MADE WERE SEVERAL LAKHS IN NO. IN VIEW OF VARIOUS ALLEGE D COMPLEXITIES SOFT COPY OF BOOKS OF ACCOUNTS, DATA ETC. WERE ASKED BY SA AND AO TO BE PROVIDED BY THE ASSESSEE AS IT WILL HELP IN ANALYZI NG REVENUE IMPLICATIONS U/S 68, 269S, 269T, 40A(3) AND TDS COM PLIANCE. THE SOFT COPY WAS CALLED FROM THE ASSESSEE IN VIEW OF T HE PROVISIONS OF SEC.2(12A) & SEC.2(22AA) OF THE INCOME TAX ACT READ WITH CLAUSE (T) OF SUBSECTION-(1) OF SEC. 2 OF THE INFORMATION TECH NOLOGY ACT, BUT IT WAS NEVER PROVIDED. THE SPECIAL AUDITORS ALSO REPOR TED THAT NEITHER SOFTWARE OF THE BOOKS OF ACCOUNTS, DATA OR ACCESS TO IT WAS PROVIDED TO THEM DESPITE SPECIFIC REQUEST. III. FOLLOWING OTHER INCONSISTENCIES WERE NOTICED QUA DE POSIT REGISTERS: A. SAME NAME WITH SAME ADDRESS ARE APPEARING REPEATEDL Y NO. OF TIMES IN THE CASE OF LARGE NUMBER OF DEPOSIT ORS WITH DIFFERENT ACCOUNT NUMBERS UNDER THE SAME SCHEME THU S CLUBBING OF VARIOUS ACCOUNTS OF A SINGLE DEPOSITOR WAS NOT P ROVIDED. B. PAN OF THE DEPOSITORS WERE NOT GIVEN C. IN LARGE NUMBER OF CASES THE ADDRESSES ARE NOT COMP LETE DETAIL OF DEPOSITS (AS PER THE BALANCE SHEET): AMOU NT IN RS OPENING BALANCE (INCLUDING INTEREST ACCRUED) 180,5 56,912,832.00 (+) DEPOSITS COLLECTED DURING THE YEAR 53,016,855,4 98.00 TOTAL 233,573,768,330.00 (+) INTEREST ACCRUED DURING THE YEAR 12,075,786,321 .00 TOTAL 245,649,554,651.00 (- ) DEPOSITS REPAID = (79,681,860,771.00) (-) INTEREST PAID DURING THE YEAR (9,246,378,475.00 ) TOTAL 156,721,315,405.00 (-) AMOUNT DUE TO INVESTOR EDUCATION & PROTECTION FUND (33,494,519.00) (-) INTEREST DUE TO INVESTOR EDUCATION & PROVIDENT FUND (2,818,437.00) CLOSING BALANCE (INCLUDING INTEREST ACCRUED) 156,68 5,002,449.00 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 35 D. IN CASE OF REPAYMENTS OF DEPOSITS, ACCOUNT NO. ARE NOT GIVEN. E. SOME SUCH ILLUSTRATIVE EXAMPLES ARE MENTIONED BY AO . IV. PAN OF THE DEPOSITORS, COMPLETE ADDRESSES, MODE OF COLLECTION / REPAYMENTS IN RESPECT OF MATURITY OF RS. 20,000/ - & ABOVE IN RESPECT OF DEPOSITORS LEDGERS OF 3 GUJRAT BRANCHES NAMELY (I) KONDAGAON (II) DANTEWADA & (III) GODHRA WERE NOT PROVIDED. V. DURING THE COURSE OF SPECIAL AUDIT, SOFT COPIES OF THE VARIOUS DEPOSIT LEDGERS, PARTICULARS OF LOANS AND DEPOSITS ATTACHED WITH THE TAX AUDIT REPORT WERE ASKED BUT NOT FILED BY ASSESSEE. THUS, THE QUANTIFICATIONS OF THE TAX IMPLICATIONS UNDER SEC 2 69SS AND 269T OF THE INCOME TAX ACT, 1961 WAS DIFFICULT. 21.3. ASSESSEE CONTENDED BEFORE SA THAT DEPOSIT LED GERS ARE PART OF BOOKS OF ACCOUNT AND AS PER DEFINITION OF BOOKS OF ACCOUN T UNDER SECTION 2(12A) OF THE INCOME TAX ACT IT MEANS BOOKS OF ACCOUNT IN PRI NTED FORM. THEREFORE, CALLING FOR THE SOFT COPY OF APPEARS TO BE BEYOND J URISDICTION AS YOU HAVE BEEN APPOINTED AS SPECIAL AUDITORS TO CONDUCT THE A UDIT UNDER SECTION 142(2A) OF THE INCOME TAX ACT. IT WAS REMINDED TO S A THAT ALREADY PRINT- OUTS OF DEPOSIT LEDGERS OF MORE THAN 50 BRANCHES WE RE SUBMITTED AND PRINTOUTS OF REMAINING BRANCHES SHALL BE SUBMITTED WHENEVER SA REQUIRED FOR THE AUDIT . OUT OF TOTAL 69 BRANCHES SA COULD CHECK HARD COPIES OF ONLY 53 BRANCHES. 21.4. IN THE COURSE OF ASSESSMENT PROCEEDINGS, AO A GAIN DEMANDED SOFT COPY HOLDING A VIEW THAT IF THE SOFT COPIES WERE NO T MADE AVAILABLE IT WAS NOT POSSIBLE TO COMMENT ON THE TAX AUDIT REPORT PAR TICULARS OF LOANS AND 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 36 ADVANCES. FROM HARD COPIES OF 69 BRANCHES CALLED BY SA, ONLY 53 BRANCHES COULD BE CHECKED DUE TO NON AVAILABILITY OF SOFT CO PY. IT WAS OBSERVED THAT FROM HARD COPIES THAT MANY ACCOUNTS APPEARED WITH SAME NAME AND ADDRESSES AS NEW DEPOSITS DURING THE YEAR UNDER CO NSIDERATION. THE ASSESSEE WAS SPECIFICALLY REQUIRED TO SUBMIT BRANCH WISE DET AILS ABOUT THE MODE OF COLLECTION AND REPAYMENTS OF DEPOSITS IN TERMS OF S ECS. 269SS AND 269T WHICH ARE TABULATED BY AO IN HIS ORDER. ASSESSEE FILED THESE BRANCH WISE DETAILS. 21.5. AO FURTHER HELD THAT DUE TO NON COOPERATION O F ASSESSEE, THE SPECIAL AUDIT WAS INITIATED AFTER A DELAY OF ALMOST THREE M ONTHS. THE TIME AND EFFORTS REQUIRED TO COMPILE THE INFORMATION REQUIRED BY THE AUDITORS OR THE AO IN THE ABSENCE OF DATA IN ELECTRONIC MODE IS HIGHLIGHTED IN THE ORDER. ACCORDING TO AO ASSESSEE WANTONLY DELAYED THE PROCESS BY FIRST N OT PROVIDING THE DATA IN ELECTRONIC MODE AND THEN PROVIDING HARD COPIES OF T HE DATA AT BELATED STAGE. OUT OF HARD COPIES OF 69 BRANCHES THE AUDITOR COULD CHECK THE DETAILS FOR 53 ONLY, WHO SUBMITTED A DETAILED LIST OF DEPOSITORS W HERE THE PROVISIONS OF 269SS AND 269T WERE CONTRAVENED. INSTANCES IN THIS BEHALF ARE LISTED BY AO IN HIS ORDER. 21.6. ACCORDING TO AO, AS THE ADDRESSES OF MANY OF THE DEPOSITORS WERE FOUND TO BE INCOMPLETE, MULTIPLE TRANSACTIONS PERTA INING TO A SINGLE DEPOSITOR COULD NOT BE CLUBBED; EXAMINATION OF IDENTITY OF TH E DEPOSITOR BECAME DIFFICULT. BESIDES THE GENUINENESS OF THE NEW DEPOS IT TRANSACTIONS BECAME VERY DOUBTFUL. PAN CERTIFICATES WERE NOT AVAILABLE IN MAJORITY OF THE CASES TO CONFIRM THE IDENTITY OF THE DEPOSITOR. AO HELD THAT ONUS IN THIS BEHALF LIED ON THE ASSESSEE IN THE FIRST PLACE. 21.7. THOUGH SA ACCEPTED THAT KYC NORMS PRESCRIBE D BY RBI WERE FOLLOWED BY ASSESSEE, BUT THE NAMES & ADDRESSES WER E FOUND INCOMPLETE IN 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 37 LARGE NO. OF CASES ON TEST CHECK. BESIDES, KYC NORM S DO NOT REQUIRE ANY PROOF REGARDING THE CREDITWORTHINESS OF THE DEPOSIT ORS, IT WAS UNVERIFIABLE AND DOUBTFUL. 21.8. AO THEN ISSUED 1126 SUMMONS ON TEST CHECK BAS IS IN RELATION TO 53 BRANCHES COVERED IN THE SPECIAL AUDIT REPORT TO VER IFY THE GENUINENESS, IDENTITY AND CREDITWORTHINESS OF THE DEPOSITORS ON SAMPLE BASIS. OUT OF THESE 1126 SUMMONS, 832 SUMMONS WERE ISSUED BY SPEED POST ON NEW DEPOSITORS, REQUIRING THEM TO FURNISH FOLLOWING DETAILS/DOCUMEN TS :- (1) COPY OF IDENTITY PROOF AND ADDRESS PROOF (2) DATE WISE DETAIL OF INVESTMENTS IN DEPOSITS MADE, I F ANY WITH M/S SAHARA INDIA FINANCIAL CORPORATION LTD. DURING F.Y. 2008- 09 WITH MODE OF DEPOSITS, CHEQUE/DD. NO, DATE, AMOU NT, NAME OF THE BANK , BRANCH AND BANK ACCOUNT NO. (3) EVIDENCE IN SUPPORT OF SOURCE OF SUCH DEPOSITS (4) ASSESSMENT PARTICULARS IF ASSESSED VIZ- YOUR PAN, W ARD/CIRCLE, (5) COPY OF IT RETURN, BALANCE SHEET, ETC. FOR A.Y. 20 09-10. (6) S.NO., DISTINCTIVE NO. OF CERTIFICATE IN RESPECT OF SAID DEPOSIT, IF ANY, HAVE BEEN RECEIVED 21.9. ACCORDING TO AO OUT OF 1126 SUMMONS ONLY 197 DEPOSITORS REPLIED; OUT OF WHICH 154 ASKED FOR ADJOURNMENT, 346 SUMMONS RETURNED BACK DUE TO INCOMPLETE ADDRESS, 78 SUMMONS RETURNED AS THE PERS ON WAS NOT PRESENT THERE, 5 SUMMONS HAVE BEEN REFUSED TO BE ACCEPTED, 2 SUMMONS WERE ISSUED TO PERSON WHO HAVE DIED, 3 SUMMONS WERE NOT ACCEPTE D AS THERE ARE MANY PERSONS WITH THE SAME NAME AT THE GIVEN ADDRESS, 21 SUMMONS RETURNED AS THE DEPOSITOR HAD LEFT THE AVAILABLE ADDRESS DUE TO SHIFTING AND THE REMAINING 474 SUMMONS WERE NOT REPLIED. SUMMARY OF BRANCH WIS E SUMMONS AND 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 38 RESPONSE FOR THE SAME IS ALSO TABULATED BY AO IN HI S ORDER. THE FATE OF SUMMONS IS STATED BY AO AS UNDER:- (I) IN REPLIES RECEIVED IN MANY CASES SAME LANGUAGE , FONT, DRAFTING HAVE BEEN USED BY DIFFERENT DEPOSITORS (II) IN MANY CASES REPLY WAS RECEIVED AFTER 5-10 DA YS OF PRESCRIBED DATE. (III) IN MANY CASES REQUEST FOR ADJOURNMENT WERE MA DE. (IV) ADJOURNMENT WAS ALLOWED FOR 7 DAYS IN NUMBER O F CASES AND THE SAME WERE COMMUNICATED THROUGH FAX; SOME OF THE M COULD BE SENT, FAX COULD NOT BE SENT BECAUSE OF PCO NUMBER. AO INFERRED THAT REPLUGING DEPOSITORS GOT IN TOUCH WITH THE ASSESSEE AND GOT THE FAX NO. OF AO'S OFFICE. IT IMPLIED THAT THE ASSESSEE IN ORDER TO DELAY THE PROCESS OF VERIFICATION WAS INSTIGATING THE DEPOSIT ORS TO FILE ADJOURNMENT PETITIONS. (V) IN THREE CASES IT WAS OBSERVED THAT THE DEPOSITORS HAVE DENIED HAVING MADE ANY INVESTMENT IN THE ASSESSEE COMPANY. NAME OF THE DEPOSITORS ADDRESS BRANCH DISPATCH NO. MOHAMED AJAZ ND 16 7TH CROSS PADARAYAN NAPURURA BANGALORE VINAYAK NAGAR 1973 MOHAMED IQBAL NO 16 7TH CROSS PADARAYAN NAPUR BANGALORE VINAYAK NAGAR 1974 NOOR MOHAMED NO 16 7TH CROSS PADARAYAN NAPUR BANGALORE VINAYAK NAGAR 1975 (VI) IN TWO CASES DEPOSITORS STATED THAT THEY MADE INVES TMENTS IN OFCDS OF M/S SAHARA INDIA REAL ESTATE CORPORATION L TD AND NOT STATED ANYTHING ABOUT DEPOSITS WITH THE ASSESSEE CO MPANY : 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 39 NAME OF THE DEPOSITORS ADDRESS BRANCH DISPATCH NO. SHIV KUMAR DUBEY AB 137 AMARPURI, PAHARGANJ, NEW DELHI PAHARGANJ 997 SURESH CHANDER AQ 136 AMARPURI, PAHARGANJ, NEW DELHI PAHARGANJ 998 (VII) OUT OF THE 43 REPLIES OF SUMMONS RECEIVED, 33 PERTA INED TO RECEIPT OF DEPOSITS AND OUT OF THE 33 RECEIVED 31 H AVE ACCEPTED THAT THEY HAVE DEPOSITED THE MONEY IN CASH. ONLY 2 DEPOS ITORS HAVE CONFIRMED THAT THEY HAVE DEPOSITED THE MONEY BY CHE QUE. SIMILARLY OUT OF 10 REPLIES PERTAINING TO REPAYMENTS, 5 HAVE CONFIRMED THAT THEY HAVE RECEIVED IN THE MONEY IN CASH. 21.10. AO NOTED THAT IN EARLIER YEARS SIMILAR ADDIT IONS WERE MADE UNDER SECTION 68 IN THE CASE OF ASSESSEE WHICH HAS BEEN D ELETED BY THE APPELLATE AUTHORITIES. ASSESSEES CLAIM THAT THIS ISSUE IS CO VERED IN ITS FAVOUR BY EARLIER ORDERS, WAS REJECTED BY HOLDING THAT FACTS OF THIS YEAR ARE DISTINGUISHABLE. COMPARATIVE DATA IS TABULATED BY AO FOR DISTINCTION OF THE FACTS OF YEAR IN QUESTION AND EARLIER APPELLATE ORDERS IN HIS ORDER. CONSEQUENTLY AO PROPOSED AN OPPORTUNITY TO EXPLAIN WHY AN ADDITION U/S 68 SHOULD NOT BE MADE IN RESPECT OF NEW DEPOSITS ON ESTIMATE BASIS BASED UPON THE RESULTS OF THE SAMPLE VERIFICATION AND DISTINGUISHING FACTS : DISTINGUISHING FACTS : FACTS OF THE PREVIOUS ASSESSMENT YEARS FACTS OF THE CURRENT ASSESSMENT YEAR 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 40 MOBILIZATION OF THE DEPOSITS IS UNDER THE SCHEMES APPROVED BY RBI AND IN ACCORDANCE WITH RNBC (RBI) DIRECTIONS, 1987. THE DEPOSITS ARE MONITORED AND SUPERVISED BY RBI . THE RBI HAS REQUIRED THE ASSESSEE TO MAINTAIN PROPER KYC NORMS FOR THE DEPOSITS TAKEN DURING THE YEAR UNDER CONSIDERATION AFTER 01.04.2006 AND THE RBI HAS ALSO REQUIRED THAT WHATEVER KYC NORMS ARE INCOMPLETE FOR THE PREVIOUS PERIODS IN RESPECT OF DEPOSITS ACCEPTED BEFORE 01.04.2006, THE SAME SHALL BE COMPLETED WHEN THE DEPOSITS MATURE. HOWEVER, KYC NORMS DOES NOT REQUIRE TO HAVE THE PROOF REGARDING THE CREDITWORTHINESS OF THE DEPOSITORS. ON TEST CHECK OF THE DATA OF DEPOSITS, IT WAS FOUND THAT PAN OF THE DEPOSITORS HAVE NOT BEEN GIVEN AND IN LARGE NUMBER OF CASES THE ADDRESS ARE NOT COMPLETE. THE FACT OF INCOMPLETE ADDRESS HAVE BEEN ESTABLISHED ON SAMPLE VERIFICATION . THE MAJOR PORTION OF THE DEPOSITS COLLECTED WAS UNDER THE RECURRING DEPOSIT SCHEME IN WHICH COLLECTIONS WERE RECEIVED FROM YEAR TO YEAR FROM THE SAME PERSON AND GENUINENESS OF DEPOSIT IN THE PRECEDING ASSESSMENT YEARS IN CERTAIN CASES HAVE BEEN ACCEPTED. THERE HAS BEEN NO ASSESSMENT AS THE ASSESSMENT ARE PENDING FOR WANT OF DECISION OF THE PENDING WRITS FILED BY THE ASSESSEE BEFORE HONBLE DELHI HIGH COURT FROM THE A. Y. 2005-06 TO 2008-09, THUS THIS BASIS MAY NOT BE APPLICABLE IN THE CURRENT YEAR NO VERIFICATION OF DEPOSIT WAS UNDERTAKEN DURING THE ASSESSMENT YEAR UNDER APPEAL. IT WAS CONTENTED THAT NOT BEING A SINGLE IOTA OF ANY DEPOSITOR WAS IDENTIFIED AS UNEXPLAINED BY THE ASSESSING OFFICER. A DETAILED VERIFICATION EXERCISE WAS UNDERTAKEN ON SAMPLE BASIS, RESULTS OF WHICH HAVE SHOWN THAT ONLY 197 DEPOSITORS RESPONDED OUT OF 1126 SUMMONS ISSUED TO DEPOSITORS OF 53 BRANCHES. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 41 ADDITIONAL EVIDENCE WAS FILED SUCH AS LIST OF CONFIRMATIONS OF THE DEPOSITORS, CONFIRMATIONS OF THE DEPOSITORS, PHOTOCOPIES OF APPLICATION FORMS, LIST OF COMMISSION AGENTS ALONG WITH CODE AND THEIR CONFIRMATIONS. NO SUCH PROOF HAS BEEN PROVIDED IT IS NOT A CASE WHERE VERIFICATION WAS NOT MADE OR THE ASSESSEE DID NOT COOPERATE OR ON VERIFICATION TRANSACTIONS WERE FOUND DUBIOUS NATURE OR FAKE OR NON- GENUINE, RATHER IN MOST OF THE MATTERS THE DEPOSITS WERE FOUND TO BE VERIFIED. (PAGE 44 OF THE CIT (A) ORDER) A DETAILED VERIFICATION EXERCISE WAS UNDERTAKEN ON SAMPLE BASIS, RESULTS OF WHICH HAVE SHOWN THAT ONLY 197 DEPOSITORS RESPONDED OUT OF 1126 SUMMONS ISSUED TO DEPOSITORS OF 53 BRANCHES. 21.11. ASSESSEE REPLIED ON 09.08.2012 GIST WHEREOF IS AS UNDER: A. IT IS UNDISPUTED FACT THAT THE ASSESSEE COMPANY IS A RNBC COMPANY GOVERNED BY THE RESERVE BANK OF INDIA. IT IS IN THE BUSINESS OF ACCEPTING THE DEPOSITS FROM THE GENERAL PUBLIC A T LARGE BY WAY OF DIFFERENT DEPOSIT SCHEMES, APPROVED BY RESERVE BANK OF INDIA. ASSESSEES BUSINESS IS AKIN TO A BANKING INDUSTRY A ND LIKEWISE THE DEPOSIT ACCOUNT OF PUBLIC AT LARGE ARE OPENED AT TH E BEHEST OF CUSTOMER. AS AND WHEN A CUSTOMER DEPOSITS MONEY IN ANY OF THE SCHEME AN ACCOUNT NUMBER IS ALLOTTED AND A DEPOSIT ACCOUNT IS OPENED. THE SEQUENCE OF OPENING OF DEPOSIT ACCOUNT AND ALLO TMENT OF DEPOSIT ACCOUNT NUMBER IS ON FIRST COME FIRST SERVE BASIS. THE ALLEGATION REGARDING DEPOSIT NOT BEEN MAINTAINED IN ALPHABETIC ORDER NOR BEING SCHEME WISE, IS MADE WITHOUT APPRECIATING THE REALT IES. B. EVERY DEPOSITOR PARTICULARLY RURAL AREA DOES NOT HAVE PAN ALLOTTED, NON-MENTIONING OF PAN CAN NOT BE HELD AS ASSESSEES DEFAULT. COMPLETE DETAILS WITH REFERENCE TO THE IDENTITY OF THE PERSONS, THEIR 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 42 KYC AND VERIFICATIONS PRESCRIBED BY RBI FOR RNBFCS HAVE BEEN FOLLOWED WHICH IS EXPLICITLY ACCEPTED BY SPECIAL AU DITORS IN THEIR REPORT. NOT EVEN A SINGLE DEPOSIT ACCOUNT HAS BEEN LEFT IN WHICH DETAILS HAVE NOT BEEN SUBMITTED. QUA REPAYMENTS POINTED OUT BY AO, THEY ARE MADE BY CHEQUES; DOCUMENTS OF THE IDENTITY PROOF OF THE PERSONS WERE ALSO SUBMITTED WITH REFERENCE TO THEIR IDENTITY. C. AS PER RBI REGULATIONS, THE DEPOSIT LEDGERS MAIN TAINED DO NOT REQUIRE MENTIONING OF PAN NO. OF THE DEPOSITOR AND THE MODE OF COLLECTION OF THE DEPOSIT. ASSESSEE FILED A CATEGOR ICAL REPLY STATING THAT AS PER RBI NORMS IN RESPECT OF KYC, THERE IS NO REQ UIREMENT OF MENTIONING PAN AND THE MODE OF REPAYMENT IN THE DEP OSITOR LEDGER. D. FOR EVERY DEPOSITOR ASKED BY AO, IT HAD PROVIDED PROOF OF IDENTITY OF THE AND HIS COMPLETE ADDRESS ON THE BAS IS OF RECORD MAINTAINED BY ASSESSEE IN COMPLIANCE TO RBI GUIDELI NES. APROPOS RANDOM EXAMINATION OF DEPOSITOR LEDGERS FROM 3 BRAN CHES, SOME REPAYMENTS OF RS.20,000/- AND ABOVE WERE MADE ON MA TURITY/PRE- MATURITY BASIS. IT WAS DEMONSTRATED THAT THESE REPA YMENTS WERE MADE THROUGH BANKING CHANNELS ONLY, AND ANY ADVERSE INFE RENCE IN THIS BEHALF WAS UNWARRANTED. E. SPECIAL AUDITORS REPORT QUA TOR-12 CLEARLY STAT ES THAT ASSESSEE FURNISHED RECORD OF 69 BRANCHES AS INITIALLY ASKED BY THEM. THE AUDITORS COULD ONLY CHECK THE ADDRESSES IN RESPECT OF 53 BRANCHES ONLY, IT IS ACCEPTED THAT ALL HARD COPIES WERE PROV IDED TO THEM. NO FURTHER RECORD WAS ASKED BY AUDITORS. F. NOT A SINGLE INSTANCE IS QUOTED IN EFFECTIVE TER MS, WHERE ASSESSEE DID NOT PROVIDED THE DATA REQUIRED BY SPEC IAL AUDITORS OR BY AO SUBJECT TO THE FACT THAT IT WAS WITHIN THE PARAM ETER OF RBI 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 43 REGULATIONS. EVEN IN BANKS IF A DEPOSITOR WANTS TO OPEN FDRS IN DIFFERENT DENOMINATION THE BANK DOES NOT INSIST ON DEPOSITOR TO MAKE ONLY ONE CONSOLIDATED FIXED DEPOSIT. G. THE PROPOSED ADVERSE INFERENCE THAT NON CLUBBING OF DEPOSITORS ACCOUNTS INDICATES THAT DEPOSITS ARE NO T GENUINE IGNORING THE OTHER RECORD IS UNTENABLE. IT IS AT THE OPTION OF THE DEPOSITOR TO OPEN MORE THAN ACCOUNTS WHICH THE ASSESSEE AS A RNB FC CANNOT REFUSE TO OPEN. ASSESSEES EFFORTS TO FOLLOW THE RE GULATIONS OF A LAW IN THIS BEHALF CANNOT BE USED AS A TOOL TO HOLD SUCH D EPOSITS AS NON GENUINE ON ASSUMPTION. 21.12. APROPOS NON MENTIONING OF PAN, ASSESSEE REPL IED THAT, THE DEPOSITOR BASE OF THE ASSESSEE COMPRISES OF PERSONS OF SMALL MEANS IN WIDE SPREAD RURAL AREAS, HAVING PETTY INCOME THEY CAN NOT BE EX PECTED TO POSSESS PA. STATISTICALLY OUT OF 120 CRORES INDIAN POPULATION A BOUT 12 CRORES PAN NOS. ONLY ARE ALLOTTED BY DEPARTMENT. THEREFORE, TO SAY THAT NON-AVAILABILITY OF PAN NO. IS CLINCHING EVIDENCE FOR CONFIRMATION OF T HE IDENTITY OF THE DEPOSITOR IS TOTALLY BASELESS. THE ECONOMY OF THE C OUNTRY IS AGRICULTURE BASED AND AGRICULTURE INCOME IS EXEMPT FROM INCOME-TAX. ASSESSEE IS DILIGENTLY FOLLOWING KYC NORMS AS ISSUED BY THE RESERVE BANK OF INDIA WHICH FACT HAS BEEN VERIFIED AND CERTIFIED BY THE SPECIAL AUDI TORS ON CHECKING OF 53 BRANCHES. THEY HAVE CATEGORICALLY STATED THAT DUE C OMPLIANCE OF KYC NORMS HAS BEEN VERIFIED BY THEM IN FOLLOWING TERMS: ON A TEST BASIS, WE HAVE VERIFIED THE KYC NORMS FO R THE DEPOSITS TAKEN DURING THE YEAR UNDER CONSIDERATION AND APART FROM MINOR ADDRESS CORRECTIONS; WE HAVE FOUND THE SAME TO BE IN ORDER. THUS THE LEARNED ASSESSING OF FICER MAY NOT DRAW ANY ADVERSE INFERENCE ON THE SAME. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 44 21.13. ANY ENTITY WHICH IS IN THE BUSINESS OF MOBIL IZATION OF DEPOSIT, BE IT A BANKING COMPANY OR BE IT A CO-OPERATIVE OR BE IT A POST OFFICE OR RNBFC, IS NOT EXPECTED TO INSIST FOR DEMONSTRATIVE PROOF O F CREDITWORTHINESS FROM THE DEPOSITOR LEST HE RUNS AWAY TO SOME OTHER BANK. TH AT IS TO PROMOTE SMALL SAVINGS, NO SUCH NORMS ARE PRESCRIBED BY RBI REGULA TIONS FOR BANKING INDUSTRY IN INDIA. 21.14. APROPOS THE ISSUE OF SUMMONS, ASSESSEE REPL IED THAT AO'S ANALYSIS ABOUT OUTCOME OF 1126 SUMMONS DOES NOT TALLY WITH T HE REMARKS IN EXPLANATION COLUMN. THE CORRECT POSITION BASED ON T HE REMARKS GIVEN IN THE LIST OF 1126 SUMMONS ISSUED WORKS OUT AS FOLLOWS:- - SEVEN PERSONS NAMES HAVE BEEN REPEATED IN THE LIST SUPPLIED - IN CASE OF SHRI P.V.M. REDDY AT SL. NO. 713 WHOSE N AME IS NOT TRACEABLE NEITHER ADDRESS IS TRACEABLE SO AS TO ENA BLE US TO EXPLAIN TO WHOM THE SUMMON HAS BEEN ISSUED. - AS REGARDS THE BALANCE 1118 DEPOSITORS, 161 PERSONS HAVE ACKNOWLEDGED RECEIPT OF THE NOTICES OUT OF WHICH 44 PERSONS HAVE CONFIRMED THE DEPOSIT AND 117 PERSONS REQUESTED FOR ADJOURNMENT. - IN THE CASE OF 350 SUMMONS RETURNED DUE TO INCOMP LETE ADDRESSES. - IN 71 CASES SUMMONS RETURNED BECAUSE THE PERSONS WERE NOT THERE. - IN 6 CASES SUMMONS RETURNED AS DEPOSITORS REFUSE D TO ACCEPT. - 2 SUMMONS WERE ISSUED TO DEAD PERSONS. - 1 SUMMON WAS REFUSED BECAUSE OF MANY PERSONS WERE AVAILABLE WITH THE SAME NAME AT THE SAID ADDRESS. - 15 SUMMONS RETURNED WITH REMARKS OF THE POSTAL AU THORITIES THAT THE DEPOSITOR HAS LEFT FROM THE ADDRESS. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 45 - 512 PERSONS HAVE NOT REPLIED INSPITE OF RECEIVING THE NOTICES. 21.15. AS REGARDS THE PERSONS WHO HAVE ACCEPTED AN D RESPONDED, THERE IS NO OCCASION TO DOUBT THEIR GENUINENESS AS THE SU MMONS HAVE BEEN RECEIVED BY THEM AND HAVE RESPONDED. SOME OF THEM MAY HAVE TAKEN ADJOURNMENT FOR SEARCHING DETAILS AND IN THE MEANW HILE, I.E. TIME BETWEEN THE ISSUANCE OF NOTICE AND FILING OF REPLY THEY MA Y HAVE RESPONDED ALSO. 21.16. AS REGARDS THE SUMMONS WHICH HAVE BEEN RETU RNED BACK DUE TO INCOMPLETE ADDRESSES, THERE ARE NUMBER OF CASES WHE RE PROPER ADDRESSES HAVE NOT BEEN MENTIONED IN THE ISSUED SUMMONS. 21.17. A LIST OF 57 PERSONS WHERE POSTAL ADDRESS M ENTIONED IN SUMMONS IS WRONG, THEREFORE, NO ADVERSE INFERENCES IS CALLED FOR. 21.18. AS REGARDS THE BALANCE, IN MOST OF THE CASE S PIN CODE NO. HAS NOT BEEN MENTIONED IN CASE OF REGISTERED LETTERS OR SPEED POST LETTERS THE POST OFFICE DOES NOT ACCEPT LETTERS WITHOUT HAVING PIN C ODE. POSTAL AUTHORITIES ON FINDING THAT THE PIN CODE IS NOT TRACEABLE, MAY HAV E RETURNED BACK THE LETTERS THUS THEY COULD NOT REACH THE DEPOSITORS. 21.19. AS REGARDS 78 PERSONS SUMMONED (CORRECT FIG URE 71 PERSONS) WHICH HAVE BEEN RETURNED ON THE GROUND PERSON WAS NOT PRESENT THERE AT THE TIME OF DELIVERY OF THE LETTER, THEIR IDENTITY AND GENUINENESS BY ITSELF STANDS PROVED ED. THIS IS SO BECAUSE THE PERSON WAS EXISTI NG AND IF AT THE GIVEN TIME, DEPOSITOR IS NOT PRESENT FOR THE POSTMAN NO A DVERSE INFERENCE IS CALLED FOR. 21.20. SIMILAR IS THE POSITION WITH REFERENCE TO 5 DEPOSITORS (CORRECT FIGURE 6 PERSONS) WHO HAVE REFUSED TO ACCEPT THE SU MMON. ONCE A PERSONS HAS REFUSED TO ACCEPT THE SUMMON, HIS IDENTITY AND GENUINENESS STANDS IMPLIEDLY ESTABLISHED MEANING THEREBY THAT THE PERS ONS IS EXISTING AND, THEREFORE, ALSO NO ADVERSE INFERENCE SHOULD BE CALL ED FOR. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 46 21.21. AS REGARDS 2 SUMMONS ON DEAD PERSONS, THE F ACT THAT THESE PERSONS ARE ACCEPTED AS DEAD, THEIR IDENTITY AND GE NUINENESS OF THESE PERSONS STAND FULLY JUSTIFIED AND NO ADVERSE VIEW BE TAKEN IN THE MATTER ON THIS COUNT. 21.22. AS REGARDS 3 PERSONS (CORRECT FIGURE 1 PERS ONS) WHO HAVE NOT ACCEPTED THE SUMMONS AS THERE ARE MANY PERSONS WITH THE SAME NAME ON THE SAME ADDRESS, IT CANNOT BE PRESUMED THAT THE PERSON S ARE NON-EXISTING AND CALLS FOR NO ADVERSE VIEW. 21.23. AS REGARDS 21 SUMMONS (CORRECT FIGURE 15 PE RSONS) RETURNED WITH THE REMARKS THAT THE DEPOSITOR IS NOT AVAILABL E AT THE ADDRESS, IT IS TO BE APPRECIATED THAT THERE ARE NUMBER OF PERSONS WHO MI GHT HAVE CHANGED THEIR ADDRESSES OVER A PERIOD OF TIME AND, THEREFORE, NO ADVERSE VIEW IN THIS RESPECT IS CALLED FOR. 21.24. AS REGARDS 474 SUMMONS (CORRECT FIGURE 512) WHICH ARE SERVED AND FOR WHICH REPLY HAS NOT BEEN RECEIVED SIGNIFIES THAT THE IDENTITY AND GENUINENESS OF THE DEPOSITORS STANDS EXPLAINED AND, NO ADVERSE INFERENCE CAN BE TAKEN IN THE MATTER. 21.25. ASSESSEE ENCLOSED ACCOUNT OPENING FORM OF A LL THE DEPOSITORS TO WHOM SUMMONS WERE ISSUED ALONGWITH THEIR IDENTITY P ROOF. SINCE IN MAJORITY OF CASES THE ACCOUNT STOOD MATURED AS ON D ATE, THE PROOF OF RE- PAYMENT OF THEIR DEPOSIT ACCOUNTS AT ITS MATURITY O R PRE-MATURITY WHICH WERE MOSTLY BY CHEQUES, WERE ALSO FILED. 21.26. A CHART ABOUT THESE 1126 DEPOSITORS WITH EN CLOSURES WAS FILED. THEY WERE DETAILS ABOUT THE DETAILS OF CASES IN WHI CH PAN NOS. HAVE BEEN SUPPLIED BY THE DEPOSITORS, FORM NO.15G/H GIVEN BY THE DEPOSITORS, CASES IN WHICH TDS WAS NOT DEDUCTED AND PAYMENT HAS BEEN MAD E THROUGH BANKING INSTRUMENTS. BESIDES SOME COPIES OF FORM 16 ISSUED BY ASSESSEE IN RESPECT OF TDS DEDUCTED ON TESTBASIS. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 47 21.27. ASSESSEE THUS CLAIMED THAT REASONABLE AND DU E COMPLIANCE FOR DISCHARGE OF PRIMARY ONUS HAS BEEN DISCHARGED BY TH E ASSESSEE, NO ADVERSE INFERENCES IS CALLED FOR. YEAR-WISE SUMMARY, CONTAI NING DETAILS ABOUT THE DEPOSITORS WHO HAD OPENED THE ACCOUNT IN RESPECT OF 1126 (CORRECT NUMBER 1118) QUA WHICH THE SUMMONS WERE ISSUED, WAS ALSO F ILED. THESE ACCOUNTS WERE OPENED IN F.Y.2001-02 ONWARDS AND, THEREFORE, AFTER 10 YEARS IF A DEPOSITORS ADDRESS IS FOUND TO BE DIFFERENT, SAME DOES NOT CALL FOR ANY ADVERSE INFERENCE. THE DEPOSITORS MAY CHANGE THEIR ADDRESS OR THEY MIGHT HAVE LEFT THEIR PLACES BECAUSE OF WHICH THE SUMMONS WHICH WERE ISSUED IN RESPECT OF DEPOSITS WHICH WERE STARTED IN THE F.Y.2 001-02 ONWARDS MAY NOT HAVE BEEN RECEIVED BY THEM. 21.28. THE MATURITY VOUCHERS/DOCUMENTS ALSO CONTA IN KYC DOCUMENT OF THE RESPECTIVE DEPOSITORS TO WHOM REPAYMENT HAS BEEN MADE DURING THE YEAR WHEREIN HIS IDENTITY/ADDRESS ETC. AS ON THE DA TE OF TAKING OF THE MATURITY PROCEEDS STAND DULY MENTIONED AND THE DEPOSITOR SHO ULD BE TRACEABLE WITH REFERENCE THERETO. 21.29. DUE TO SOME ADVERSE PUBLICITY, RESERVE BANK OF INDIA PUT ASSESSEE UNDER STRICT SURVILLANCE AND BY AN ORDER I MPOSED DIRECTIONS, DURING THE RELEVANT PREVIOUS YEAR, TO CLOSE THE BUSINESS O F THE ASSESSEE. DISPUTE WENT TO HONBLE SUPREME COURT AND, THEREAFTER, THE BUSINESS WAS AGAIN STARTED AND NO NEW ACCOUNT HAS BEEN OPENED AFTER 30 .06.2010 AFTER THE RECEIPT OF THE RBI ORDER TO CLOSE THE EXISTING BUSI NESS BY 2015. AFTER 30.06.2011 NO FURTHER INSTALLMENTS/ RENEWALS ARE TA KEN AND ASSESSEE IS ONLY SERVICING MATURITY OF THE DEPOSITS. 21.30. FURTHER THE DEPOSITS IN QUESTION WERE OBTAI NED BY THE ASSESSEE THROUGH THE SERVICES OF ITS MAIN AGENT IN THE EARLI ER YEARS M/S. SAHARA INDIA WHO, IN TURN, HAD A TEAM OF FIELD WORKERS OF LACS O F PERSONS THROUGH WHOM 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 48 DEPOSIT WERE BEING PROCURED FROM WIDE SPREAD AREAS MAINLY RURAL. THE FIELD WORKERS WERE IN TOUCH WITH THE AGENT AND ASSESSEE, COMPLETE DETAILS OF KYC NORMS OF THE FIELD WORKERS AND THEIR IDENTITY ETC. WERE AVAILABLE WITH THE ASSESSEE AND THE FIELD WORKERS ON THE OTHER HAND WE RE DIRECTLY IN TOUCH WITH THE DEPOSITORS. 21.31. SINCE 2011, NO DEPOSIT IS BEING MOBILIZED B Y THE ASSESSEE COMPANY AND, THEREFORE, THERE ARE NO COMMISSION AGE NTS/FIELD WORKERS ON ROLL OF THE ASSESSEE COMPANY. IN THESE CIRCUMSTANCE S, IF A DEPOSITOR WHOSE DEPOSIT HAS MATURED DOES NOT REPLY, IT DOES NOT LEA D TO ANY ADVERSE INFERENCE BECAUSE ASSESSEE HAS NO DIRECT CONTROL OVER THE DEP OSITOR ANY MORE. THE ASSESSEE COMPANY DOES NOT POSSESS ANY LEGAL FORCE O R AUTHORITY SO AS TO ENFORCE THE ATTENDANCE OF THE DEPOSITOR OR REPLY T O THE SUMMON ISSUED. 21.32. AS REGARDS THE DEPOSITORS WHO HAVE NOT REPL IED TO NOTICES, THE MATTER WAS PLACED BEFORE THE BOARD OF THE ASSESSEE COMPANY, WHICH FOLLOWING RBI DIRECTIONS MARKED A LIEN ON SUCH DEPO SITORS, IF THE ACCOUNT IS EXISTING AND NOT MATURED AS ON 31.07.2012 THAT REPA YMENTS WILL ONLY BE MADE THROUGH BANKING CHANNELS AFTER TAKING THEIR CO MPLETE KYC, AFFIDAVIT AND CONFIRMATION. THUS ON RBI DIRECTIVE KYC COMPLIA NCE ON MATURITY IS ENSURED. 21.33. APROPOS REST OF THE DEPOSITORS, ASSESSEE FI LED COMPLETE DETAILS WITH REFERENCE TO THE PAYMENT OF THEIR MATURITY PRO CEEDS AND KYC DOCUMENTS SHOWING THEIR IDENTITY. ASSESSEE RESPONDE D TO VARIOUS PARAS OF AO'S LETTER PARA 9.AA LISTED TWO CASES WHOSE CONF IRMATIONS WERE RECEIVED THROUGH FAX WITH THE OBSERVATIONS THAT NO FAX NUMBE R WAS PROVIDED TO THE DEPOSITOR BY AOS OFFICE. PARA 9.B.- 4 CASES IN WHI CH SAME LANGUAGE, SAME FONT AND DRAFTING WAS USED AND IN PARA C. 3 CASES W HERE REPLIES WERE RECEIVED LATE AFTER A GAPE OF 4 5 DAYS OF APPOINTED DATE. D. IN A NUMBER OF CASES 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 49 WHERE REQUEST FOR ADJOURNMENT WAS RECEIVED, AND IN PARA E. WHERE THE REQUEST FOR ADJOURNMENT WAS MADE THROUGH FAX AND IN SEVERAL CASES TO WHICH REPLY FAX COULD NOT BE SENT AS THE TRANSMITTING NUM BER WAS FOUND TO BE THAT OF P.C.O. ASSESSEE OBJECTED TO AOS CONSIDERING THE SE IRRELEVANT ASPECTS FOR ARRIVING AT A CONCLUSION THAT SUMMONED DEPOSITORS G OT IN TOUCH WITH THE ASSESSEE AND GOT THE FAX NUMBER OF THE OFFICE AND T HE ASSESSEE IS THUS A PARTY IN DELAYING THE PROCESS OF VERIFICATION. 21.34. THERE IS NO HARM IN HELPING THE DEPOSITORS WHO APPROACHED THE ASSESSEE TO GIVE THEM IN UNDERSTANDING THE ISSUE AN D COMPLY WITH SUMMONS. IN ORDER TO PROMOTE THE PROCESS OF VERIFICATION THE Y WERE SUPPLIED WITH THE REQUISITE INFORMATION LIKE FAX NUMBER, ADDRESS AND PROFORMA FOR FURNISHING REQUISITE INFORMATION. IT WAS BENEFICIAL FOR VERIFI CATION AS DEPOSITORS FEEL SCARED BY INCOME TAX NOTICES AND APPROACHED ASSESSE E FOR GUIDANCE IN COMPLIANCE. THERE IS NO REASON TO MISCONCEIVE ASSES SES GOOD EFFORTS INTO ADVERSE INFERENCES. 21.35. ASSESSEE CLAIMED THAT THERE WERE NO DISTING UISHING FEATURES IN THE OBSERVATIONS WITH REFERENCE TO THE FACTS OF EAR LIER YEARS. INTRODUCTION OF KYC NORMS, RATHER HELPED EVERYBODY IN THE SYSTEM, AS PROOF OF IDENTITY OF THE DEPOSITORS BECAME STRONGER. CONSEQUENTLY BY KY C NORMS, GENUINENESS OF DEPOSIT AND ITS REPAYMENT GOT AUTOMATICALLY STRE NGTHENED. THE INTRODUCTION OF KYC NORMS AND THE DEPOSITS BEING UN DER RBI GUIDELINES ARE AKIN TO BANKS, THIS CLEAR PROPOSITION OF LAW STRENG THENS THE ASSESSEE CASE ON THESE ASPECTS. AFTER INTRODUCTION OF KYC NORMS, THE RE SHOULD NOT BE ANY DOUBT LEFT IN RELATION TO THE IDENTITY AND GENUINEN ESS OF THE DEPOSITS AND REPAYMENTS. THUS COMPLIANCE OF PROVISIONS OF SEC. 6 8 AS PROPOUNDED BY VARIOUS JUDICIAL DECISIONS ON BANKING INDUSTRY, THE SE REQUIREMENTS STAND FULFILLED. APPRECIATING ALL THE RELEVANT FACTORS AN D JUDICIAL PRECEDENTS, 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 50 APPELLATE AUTHORITIES HAVE DELETED SUCH ADDITIONS I N VARIOUS EARLIER YEARS. SOME FACTS RATHER STRENGTHENED BY KYC NORMS AND RBI WATCH EXIST IN THIS YEAR. THUS THE FACTS OF CREDITWORTHINESS OF THE DEP OSITOR ARE SAME AND STRENGTHENED BY INTRODUCTION OF KYC NORMS. IT WAS CLAIMED THAT THIS COMPLIANCE BY ASSESSEE CONSTITUTES REASONABLE DISCH ARGE OF PRIMARY ONUS U/S SEC 68. THUS FACTS AND CIRCUMSTANCES ABOUT THESE DE POSITS WERE CLAIMED TO BE SAME WITH EARLIER YEARS. 21.36. MAJOR PORTION OF THE DEPOSITS ARE UNDER REC URRING SCHEMES COMING FROM EARLIER YEARS, A FACT ACCEPTED BY APPE LLATE AUTHORITIES, CONSEQUENTLY THEIR GENUINENESS CANNOT BE CHALLENGED AGAIN YEAR AFTER YEAR. 21.37. ANOTHER DISTINGUISHING FACT MENTIONED BY AO , ABOUT ASSESSEES PENDING WRIT PETITIONS CHALLENGING THE ORDERS FOR S PECIAL AUDIT PASSED UNDER SECTION 142(2A) BEFORE THE HONBLE DRLHI HIGH COURT , HAS NO RELEVANCE, AS ASSESSEE IS DEFENDING ITS LEGAL RIGHTS. AO WITHOUT ANY JUSTIFICATION OR LOGIC HAS ERRONEOUSLY HELD IT AS A DISTINGUISHING FACT VI S A VIS EARLIER YEARS. BESIDES, NO DEPOSIT WAS ACCEPTED UNDER THE F.D. SCH EME FROM JUNE, 2007 ONWARDS AND ONLY MIS SCHEME WAS OPERATIVE WHICH ALS O STANDS CLOSED IN JUNE, 2008. THUS LOOKING FROM ANY ANGLE THERE IS NO JUSTIFICATION IN DISTINCTION OF FACTS AMONGST EARLIER AND CURRENT YEAR. RATHER THE STRONG PARITY OF THE FACTS AMONGST PRECEDING YEARS AND CUR RENT YEAR STANDS ON STRONGER FOOTING IN THIS YEAR IN FAVOUR OF THE ASSE SSEE. 21.38. ASSESSEE ENCLOSED 10,000 APPLICATION FORMS IN RESPECT OF ACCOUNTS OPENED DURING THE YEAR TO DEMONSTRATE THAT FOR EACH DEPOSIT WAS ALLOWED TO BE OPENED AFTER SUBMISSION OF DULY FILLE D ACCOUNT OPENING FORM CONTAINING PROPER DETAILS ABOUT ADDRESS, INTRODUCTI ON BY THE FIELD AGENT WHOSE COMPLETE KYC DETAILS WERE AVAILABLE WITH THE ASSESSEE. SUCH DETAILS IN 40 VOLUMES WERE PRODUCED BEFORE SA AND AO. THUS THERE WAS NO CHANGE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 51 AT ALL IN THE FACTS AS COMPARED TO EARLIER YEARS ON VARIOUS COUNTS I.E. MAJOR DEPOSITS BEING RECURRING IN NATURE, R.B.I. SUPERVIS ION UNDER ITS REGULATIONS, NATURE OF DEPOSITS, KYC NORMS ETC. THE FACTUAL POSI TION IN THE PRECEDING YEARS IS SIMILAR IN ALL MATERIAL TERMS FOR ALL THES E YEARS CONSEQUENTLY THE FINDINGS OF EARLIER APPELLATE ORDERS ACCEPTING DEPO SITS U/S 68 ARE APPLICABLE AND BINDING ON ASSESSEES CASE. 21.39. WITHOUT PREJUDICE TO THESE ARGUMENTS, ASSES SEE RAISED A LEGAL PLEA THAT THE DEPOSITS MOBILIZED BY IT ARE NOT IN T HE NATURE OF UNEXPLAINED CREDITS TO WHICH THE PROVISIONS OF SECTION 68 OF TH E INCOME TAX ACT ARE APPLICABLE, IT 68 READS AS UNDER: WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR, AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINION OF ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE CHARGED TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. 21.40. SECTION POSTULATES TWO IMPORTANT FACTORS F OR CONSIDERATION: A) THAT THE ADDITION IN RESPECT OF UNEXPLAINED CRED ITS CAN ONLY BE MADE QUA EACH DEPOSIT AND NOT ON A GENERALIZED BASI S OR PRO RATA BASIS ON THE WHOLE AMOUNT OF DEPOSIT. B) AO IS VESTED WITH A JUDICIOUS DISCRETION TO HOLD ANY DEPOSIT AS EXPLAINED OR OTHERWISE WHICH IS EVIDENT BY USE OF WORDS MAY AND NOT SHALL BY THE LEGISLATURE. THUS AO HAS TO JUD ICIALLY EXAMINE ISSUES IN THE LIGHT OF EXPLANATION FURNISHED BY THE ASSESSEE AND CONSIDERING ALL RELEVANT FACTS . 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 52 21.41. THE SECTION IN CLEAR TERMS PROVIDES THAT AO S POWER OF VERIFICATION TO BE QUA A SPECIFIC CASH CREDIT, WHI CH CLEAR MEANS EACH PERSON AND CASH CREDIT. AO HAS NO POWER TO GO BEYOND THE E XPRESS WORDINGS OF THIS DEEMING PROVISION. BY NO STRETCH OF IMAGINATION, AO HAS POWER TO ADOPT AN ADHOC METHOD TO CHANGE ITS ESTIMATE EVERY YEAR AN D ADOPT 35% OF ALL THE FRESH DEPOSITS IN THE CURRENT YEAR, MAJORITY OF WHI CH ARE RECURRING DEPOSITS FROM EARLIER YEAR, AS UNEXPLAINED CASH CREDITS U/S 68. THIS ESTIMATED ADHOC ADDITION IS UNTENABLE CONTRARY TO THE SPECIFIC MAND ATE OF DEEMING FICTION OF SEC. 68 AND WITHOUT ANY ENABLING PROVISION IN THIS BEHALF. 21.42. CATENA OF JUDICIAL PRECEDENTS HOLD THAT THE ROUTINE YARDSTICKS OF INGREDIENTS OF SEC 68 ARE NOT BE APPLIED TO BANKING INDUSTRY AND COMPLIANCE OF KYC NORMS IS REASONABLE DISCHARGE OF PRIMARY ONU S. IT IS NOT JUDICIOUS TO GIVE A COMPLETE GO BYE TO RBI REGULATIONS. IN LONG HISTORY OF ASSESSEES LITIGATION IN WHICH DEPOSITS HAVE BEEN HELD TO BE G ENUINE BY APPELLATE AUTHORITIES YEAR AFTER YEAR, HAVE BEEN WILLY NILLY DISTINGUISHED. THE DEPARTMENT IS NOT ALLOWING THE ISSUE TO SETTLE IN I NCOME TAX PROCEEDINGS WHICH ARE NON-ADVERSARIAL IN NATURE. SA AND AO HAVE BEEN TRYING TO POSE THE ASSESSEE AS ADAMANT AND NON COOPERATIVE, IGNORING THE VOLUMINOUS COMPLIANCE MADE BY IT. THE LATE COMMENCEMENT OF AU DIT, SPACE CONSTRAINTS OF AUDITORS WHICH ARE ATTRIBUTABLE TO THEIR PROBLEM S HAVE BEEN CONVENIENTLY IGNORED AND EVERY BLAME IS BEING PUT ON THE ASSESSE E. 21.43. AO HOWEVER DID NOT AGREE WITH ASSESSES SUBM ISSIONS AND MADE THE ADDITIONS OF RS. 1855,58,99,424/- U/S 68 IN THIS BEHALF BY DETAILED OBSERVATIONS MENTIONED IN HIS ORDER. 21.44. IN FIRST APPEAL WHERE CIT(A) DELETED THIS E STIMATED ADHOC ADDITION, GIST OF RELEVANT OBSERVATIONS AND CONCLUS IONS ARE AS UNDER: 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 53 I. THIS TYPE OF ADDITIONS U/S 68 HAS BEEN ON GOING SINCE AY 1994- 95, WHICH HAVE NOT FOUND FAVOUR WITH THE APPELLATE AUTHORITIES I.E. THE CIT(A) AND THE ITAT. IT IS UNDISPUTED THAT ASSESSE E IS A RNBC WITH OVER 3 CRORE DEPOSITORS, CONSISTING MAINLY OF MICRO , SMALL AND MEDIUM SELF-EMPLOYED, BUSINESS AND HOUSE-HOLD SAVER S, SPREAD OVER LARGE PARTS OF THE COUNTRY. AO APPOINTED SA CONTEND ING THAT THERE ARE COMPLEXITIES IN ACCOUNTS. ASSESSEE PROVIDED THE INF ORMATION NOT IN THE PARTICULAR SOFTWARE FORMAT BUT FURNISHED HARD COPIE S OF INFORMATION ALONG WITH EXPLANATION IN SUPPORT OF ITS LEGAL CONT ENTIONS. AO IN PAST ALSO CONDUCTED A SAMPLE CHECKS, AND HELD A PART RAN GING FROM 15% TO 100% OF THE DEPOSITS AS UNEXPLAINED CREDITS. APPELL ATE AUTHORITIES HAVE CONSISTENTLY REJECTED THIS TYPE OF ESTIMATED, GENERALIZATION AND ADHOC DISALLOWANCE BY HOLDING THAT IT IS NOT PERMI SSIBLE U/S 68. II. THE DISPUTE IS SAME AS EARLIER YEARS, AS AGAINS T EARLIER 15-100%, ESTIMATE DISALLOWANCE, NOW 35% ARE HELD TO BE UNEXP LAINED. IN ALL EARLIER YEARS THIS TYPE OF ESTIMATED ADDITIONS BY W AY OF ASSESSMENT, REASSESSMENT AND REVISIONARY ORDER U/S 263 FOR AY 1 994-95, HAVE BEEN DELETED AND DECIDED IN ASSESSEES FAVOUR BY CI T(A) OR THE ITAT. THE PARITY OF FACTS, CIRCUMSTANCES AND ISSUE AMONGST THE CURRENT AND EARLIER YEARS IS TABULATED BY LD. CIT(A ) AS UNDER: SL. OBSERVATIONS OF AO FINDINGS DURING APPEAL PROCEEDIN GS 1 BOOKS OF ACCOUNTS AS DEFINED U/S 2(12A) / 2(22A) OF THE INCOME TAX ACT, 1961 (THE ACT) R.W.S. 2(1)(T) OF THE INFORMATION TECHNOLOGY ACT, 2000 WERE REQUISITIONED BUT NOT PRODUCED BY APPELLANT. APPELLANTS DEFENCE, THAT BOOKS OF ACCOUNTS AS DEFINED UNDER THE ACT ALONE IS TO BE CONSIDERED, IS NOT ACCEPTABLE AS ELECTRONIC RECORD CANNOT BE SAID TO BE NOT COVERED WITHIN THE DEFINITION OF BOOKS OF ACCOUNT. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 54 2 SAMPLE VERIFICATION / TEST CHECK METHOD IS VALID AND CAN BE APPLIED TO THE UNIVERSE OF DEPOSITS. WHILE THE METHOD MAY BE VALID, ADVERSE INFERENCE THAT DEPOSITS ARE UNEXPLAINED CANNOT BE GENERALIZED. ANY SUCH ADVERSARIAL CONCLUSION HAS TO BE DRAWN ONLY ON THE BASIS OF FACTS AND NOT ON ASSUMPTION AS IT WILL LEAD TO PENAL CONSEQUENCES INCLUDING PROSECUTION UNDER THE ACT. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 55 3 NO SATISFACTORY EXPLANATION (I) ONLY TWO DEPOSITORS ACCEPTED THAT THEY HAD DEPOSITED THROUGH ACCOUNT PAYEE CHEQUES; (II) SUMMONS RETURNED BACK DUE TO INCOMPLETE ADDRESS; (III) PERSONS NOT FOUND BY POSTAL AUTHORITIES; (IV) PERSONS DID NOT REPLY; (V) PERSONS HAD LEFT THE PLACE; (VI) MANY PERSONS BY THE SAME NAME; (VII) PERSONS REFUSED TO ACCEPT THE LETTER; (VIII) PERSONS WERE DEAD. I) THERE IS NO REQUIREMENT UNDER THE ANY LAW TO MAKE DEPOSITS IN CHEQUE ONLY BANKS, POST-OFFICES, ETC., ACCEPT CASH DEPOSITS THESE QUERIES RAISED FUTILE IN SUCH CASES; (II) MANY ADDRESSES FOUND TO BE INCORRECTLY RECORDED, MOST CASES HAD ALREADY MATURED AND REPAID BY THE APPELLANT (REF. PARA-12.3 B ABOVE); (III) MOST CASES HAD ALREADY MATURED AND REPAID BY THE APPELLANT (REF. PARA-12.3 C ABOVE); (IV) THEIR NON-REPLY CANNOT BE HELD AGAINST THE APPELLANT AS THE PERSONS UNDISPUTEDLY EXIST; (V) APPELLANT HAS NO CONTROL OVER SEMI- EMPLOYED OR SELF-EMPLOYED PEOPLE MIGRATING FOR BETTER ECONOMIC OPPORTUNITIES; (VI) NORMAL SOCIO-CULTURAL PHENOMENON IN INDIA; (VII) THEIR REFUSAL CANNOT BE HELD AGAINST THE APPELLANT AS THE PERSONS UNDISPUTEDLY EXIST; (VIII) CASES HAD ALREADY MATURED AND REPAID BY THE APPELLANT. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 56 4 UNSATISFACTORY REPLIES (I) DETAILS AS REQUIRED NOT FURNISHED; (II) REPLIES RECEIVED BY FAX THOUGH NO SUCH NO. FURNISHED; (III) SAME LANGUAGE, FONT, DRAFTING USED, EVEN FROM DIFFERENT PLACES; (IV) REPLIES RECEIVED AFTER 5- 10 DAYS FROM THE DATE GIVEN IN SUMMONS; (V) REQUEST FOR ADJOURNMENT; (VI) ADJOURNMENTS GIVEN THROUGH FAX, WHICH WERE FOUND TO BE PCOS. (I) QUERIES WERE COMPLEX AND IN ENGLISH, MOST DEPOSITORS ARE PEOPLE OF SMALL MEANS AND WOULD NOT KNOW THE LANGUAGE; (II) DEPOSITORS APPROACHED APPELLANTS BRANCHES WHO FACILITATED RESPONSES TO SUMMONS; (III) APPELLANTS BRANCHES FACILITATED RESPONSES WHEN APPROACHED BY THE DEPOSITORS, ONE BRANCH OFFICE MAY COVER SEVERAL PLACES; (IV) HAS NO SIGNIFICANCE SINCE REPLIES WERE IN FACT RECEIVED; (V) IT IS A RIGHT OF ANY PERSON SUMMONED, AT LEAST SOME RESPONSE WAS RECEIVED AND CANNOT HELD AGAINST THE APPELLANT; (VI) IN SMALL PLACES (VILLAGES, BLOCKS, EVEN DISTRICT TOWNS), PEOPLE DO NOT HAVE PERSONAL FAXES AND USE THE LOCAL PCO FOR LONG-DISTANCE CALLS OR SENDING FAXES. 5 BASIC INGREDIENTS OF CASH CREDIT NOT SATISFIED. IT IS NOT A NORMAL CASE OF CASH CREDITS. APPELLANT IS A RNBC UNDER REGULATION OF THE RBI AND FOLLOWS KYC NORMS AS ADMITTED BY SPECIAL AUDITOR / REVENUE. 6 IDENTITY AND GENUINENESS DOUBTFUL. AS IN SL.5 ABOVE. 7 CREDITWORTHINESS OF DEPOSITORS NOT ESTABLISHED. AS DEPOSITS ARE INSIGNIFICANT / SMALL / NOT VERY LARGE, THE CREDITWORTHINESS OF DEPOSITORS HAS NO SIGNIFICANCE. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 57 8 ONUS OF ASSESSEE NOT DISCHARGED. GENERAL ONUS TO PRODUCE DOCUMENTS IN ELECTRONIC FORM NOT DISCHARGED, CASE- SPECIFIC DOCUMENTS WERE PRODUCED AND THUS ONUS WAS DISCHARGED. 9 DEFECTS IN DOCUMENTS PRODUCED (PARA-8.3.13 OF ASSESSMENT ORDER. THE DEFECTS NOTED WERE FOUND TO BE EITHER INCORRECT OR NOT MATERIAL TO THE MATTER IN ISSUE; AS UNDER: (A) APPLICANT AND INTRODUCER ARE SAME THIS IS POSSIBLE IF THE AGENT IS HIMSELF THE DEPOSITOR; (B) INTRODUCER SIGNATURE NOT PRESENT APPLICANT IDENTIFIED BY PHOTOGRAPH, ADDRESS AND SIGNATURE OR THUMB IMPRESSION; INTRODUCER SIGNATURE FOUND ON SECOND / SUBSEQUENT PAGE; (C) APPLICANT SIGNATURE NOT PRESENT THUMB IMPRESSION & KYC DOCUMENTS PRESENT; (D) LEFT THUMB IMPRESSION OF APPLICANT / INTRODUCER NOT PRESENT APPLICANTS BEING LADIES, RIGHT THUMB IMPRESSION WAS TAKEN; INTRODUCERS SIGNATURE PRESENT IN FIRST / SECOND / SUBSEQUENT PAGES; (E) NAME AND CODE OF COLLECTOR NOT PRESENT INTRODUCER AND COLLECTOR BEING THE SAME PERSON, NAME MENTIONED IN THE INTRODUCER COLUMN; (F) NOMINEE SIGNATURE NOT PRESENT NO REQUIREMENT UNDER ANY LAW FOR NOMINEE SIGNATURE; (G) PHOTO NOT PRESENT NO REQUIREMENT FOR PHOTO, KYC DOCUMENT PRESENT. 21.45. THUS IT HAS BEEN REPEATEDLY HELD THAT THE D EPOSITS COLLECTED BY ASSESSEE UNDER VARIOUS RBI REGULATED SCHEMES, WITH OUT THERE BEING ANY ADVERSE OBSERVATIONS OF RBI, CAN NOT BE HELD AS UN EXPLAINED CREDITS U/S 68. IT IS HELD THAT ON PRINCIPLE OF CONSISTENCY, BRINGI NG FINALITY OF REPETITIVE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 58 ISSUES IN INCOME TAX PROCEEDINGS AND PRINCIPLES OF JUDICIAL DISCIPLINE THE ASSESSEE DESERVED TO SUCCEED. RELIANCE WAS PLACED O N HONBLE SUPREME COURT IN: UOI V. KAMLAKSHI FINANCE CORP. LTD. [AIR 1992 SC 711]; KHALID AUTOMOBILES V. UNION OF INDIA [4 SCC (SUPPL.) 653] PANNALAL BINJRAJ V. UNION OF INDIA [1957] 31 ITR 565 (SC); 21.46. IN CIT V. SIMON CARVES LTD. (1976) 105 ITR 212 (SC), THE APEX COURT HELD THAT: THE TAXING AUTHORITIES EXERCISE QUASI-JUDICIAL POW ERS AND IN DOING SO THEY MUST ACT IN A FAIR AND NOT A PARTISAN MANNE R. ALTHOUGH IT IS PART OF THEIR DUTY TO ENSURE THAT NO TAX WHICH IS L EGITIMATELY DUE FROM THE ASSESSEE SHOULD REMAIN UNRECOVERED, THEY MUST A LSO AT THE SAME TIME NOT ACT IN A MANNER AS MIGHT INDICATE THAT SCA LES ARE WEIGHTED AGAINST THE ASSESSEE. IT IS IMPOSSIBLE TO SUBSCRIBE TO THE VIEW THAT UNLESS THOSE AUTHORITIES EXERCISE THE POWER IN A MA NNER MOST BENEFICIAL TO THE REVENUE AND CONSEQUENTLY MOST ADV ERSE TO THE ASSESSEE, THEY SHOULD BE DEEMED TO HAVE EXERCISED I T IN A PROPER AND JUDICIOUS MANNER. 21.47. LD. CIT(A) SUMMARIZED HIS CONCLUSIONS, ABOU T AOS TEST-CHECK AS UNDER: A. THERE IS NO SURVIVING INSTANCE OF DENIAL OF DEPOSIT . OUT OF 5 CASES CITED BY THE REVENUE, ALL FIVE ACCOUNTS HAD MATURED AND BEEN REFUNDED BY CHEQUE. WHILE ONE OF THESE PERSONS HAD DIED, TWO PERSONS HAD REPLIED IN THE NEGATIVE TO THE AOS QUERY WHETHER T HEY HAD MADE ANY FRESH DEPOSIT DURING THE YEAR. AS THE DEPOSITS MADE BY THESE 2 PERSONS WERE OLD, THEIR REPLY WAS CORRECT. EVENTUALLY, THE REVENUE DOES NOT MENTION ANY CASE OF DENIAL IN THE CONCLUDING PARA-8 .3.14 OF THE ASSESSMENT ORDER. THIS FACT ALONE, THAT THERE WAS N O DENIAL, TOGETHER WITH THE FACT THAT THE APPELLANT IS A RNBC ENGAGED IN THE BUSINESS OF 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 59 COLLECTING DEPOSITS FROM SMALL INVESTORS, LEADS TO A CONCLUSION IN FAVOUR OF THE APPELLANT. B. THE REVENUE POINTED OUT THAT 361 QUERY LETTERS / SU MMONS WERE RETURNED BACK WITH THE POSTAL REMARK INCOMPLETE AD DRESS. RECORDS PRODUCED BEFORE ME SHOW THAT ACTUALLY THERE WERE 35 2 SUCH CASES (AND NOT 361 CASES) OUT OF WHICH ONLY 5 CASES WERE LIVE, I.E. DEPOSITS HAD NOT MATURED, AND IN ALL THE REMAINING 347 CASES THE DEPOSITS HAD ALREADY MATURED. IN 234 CASES THE PAYMENTS HAD BEEN MADE BY CHEQUES. IN THE REMAINING 113 CASES PAYMENTS HAD BE EN MADE BY CASH AND IN ALL THE CASES THE PAYMENTS WERE BELOW RS.20, 000/-. IT WAS FOUND THAT IN ALL THE CASES KYC NORMS PRESCRIBED BY THE RBI HAD BEEN FOLLOWED, AS ALSO OBSERVED BY THE SPECIAL AUDITOR. C. THE REVENUE FURTHER POINTED OUT THAT 78 PERSONS (CO RRECT FIGURE IS FOUND TO BE 71 AS CLAIMED BY APPELLANT) WERE NOT FO UND BY THE POSTAL AUTHORITIES. RECORDS PRODUCED BEFORE ME SHOW THAT A LL WERE MATURED DEPOSIT CASES. IN 48 CASES THE PAYMENTS HAD BEEN MA DE BY CHEQUES. IN THE REMAINING 23 CASES PAYMENTS HAD BEEN MADE BY CA SH AND IN ALL THE CASES THE PAYMENTS WERE BELOW RS.20,000/-. IT WAS F OUND THAT IN ALL THE CASES KYC NORMS PRESCRIBED BY THE RBI HAD BEEN FOLLOWED, AS ALSO OBSERVED BY THE SPECIAL AUDITOR. D. IN RESPECT OF OTHER CATEGORIES OF RESPONSES OR LACK OF RESPONSES TO VERIFICATION BY THE REVENUE, NO ADVERSE INFERENCE C AN BE DRAWN AGAINST THE APPELLANT IF THE LETTERS WERE SERVED, OR COULD NOT BE SERVED DUE TO NATURAL (DEATH) OR SOCIO-ECONOMIC REASONS. 21.48. THUS CIT(A) HELD THAT ASSESSEES CASE WAS F AVOURABLY COVERED BY SERIES OF EARLIER DECISIONS WHICH ARE ON SAME FACTS IN ASSESSES OWN CASE. INGREDIENTS OF SEC 68 ABOUT IDENTITY, GENUINENESS A ND CREDITWORTHINESS WERE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 60 TO BE APPLIED ON THE BASIS OF YARD STICK LAID DOWN BY VARIOUS JUDICIAL PRECEDENTS IN RESPECT OF BANKING INDUSTRY. ASSESSEE BEING REGISTERED RNBFC FELL IN THE CATEGORY OF BANKING INDUSTRY AND THE NA TURE OF PRIMARY ONUS LYING ON ASSESSEE WAS AKIN TO BANKING INDUSTRY. COMPLIANC E WITH RBI REGULATIONS AND KYC NORMS WAS REASONABLE DISCHARGE OF THE ASSES SEESS ONUS U/S 68. THE ALLEGATION ABOUT NON COMPLIANCE OF SUMMONS HAS BEEN WRONGLY INFERRED BY AO. THERE IS NO BASIS TO HOLD THAT ASSESSEE WAS INSTIGATING DEPOSITOR TO BE NON COOPERATIVE. COMPLIANCE OF SUMMONS CANNOT BE EN FORCED BY ASSESSEE. IT WAS ALSO UPHELD THAT SEC 68 CAN NOT BE APPLIED I N ESTIMATED, ADHOC OR GENERALIZED MANNER. IN ORDER TO MAKE LEGALLY SUSTAI NABLE ADDITION U/S 68 EACH SPECIFIC DEPOSIT I.E. CASH CREDIT WAS TO BE ID ENTIFIED AS UNEXPLAINED. AO WAS OBLIGED TO JUDICIALLY ASCERTAIN THE NATURE OF P RIMARY ONUS CAST ON ASSESSEE, ITS DISCHARGE AND AFTER CONSIDERING THE ASSESSEES EXPLANATION, HOLDING IT TO BE UNSATISFACTORY IN EFFECTIVE MANNER , ONLY SPECIFIC DEPOSIT CAN BE HELD TO BE UNEXPLAINED AND ADDED U/S 68. THERE W AS NO JUSTIFICATION IN CHANGING ESTIMATE EVERY YEAR AND HOLDING DEPOSITS T O BE UNEXPLAINED @ 35% IN THIS YEAR WITHOUT APPRECIATING GLARING FACTS T HAT MAJORITY OF DEPOSITS WERE RECURRING IN NATURE COMING FROM EARLIER YEARS, MADE THESE UNJUSTIFIED ADDITION, WHICH WAS DELETED. CIT(A) HAS PASSED A D ETAILED ORDER FOR SAKE OF BREVITY GIST HAS BEEN MENTIONED. AGGRIEVED REVENUE IS BEFORE US . 22. LD. CIT(DR) SHRI R S MEENA CONTENDS THAT FAILUR E IN DISCHARGING ITS ONUS IN TERMS OF SEC 68 IS FURTHER COMPOUNDED BY TH E NON COOPERATION IN PROPER AUDIT AND ASSESSMENT IS SUMMARIZED AS UNDER : 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 61 1. DELAY IN AUDIT AND NON-COOPERATION OF THE ASSESSEE . 22.1. THE WORK OF AUDIT STARTED AROUND MID-MARCH2012, A BOUT 85 DAYS WERE LOST DUE TO ASSESSEE'S NON-COOPERATION BESIDES EXTENSIONS OF AUDIT PERIOD WAS GRANTED AT THE REQUEST OF THE ASSESSEE F OR FOUR TIMES EACH FOR 30 DAYS EACH IN FEBRUARY, MARCH, APRIL & MAY 2012. 22.2. THE DIRECTION FOR SPECIAL AUDIT U/S 142(2A) W AS ISSUED ON 23.12.2012, DESPITE REPEATED REMINDERS FROM AOS OFFICE AS WELL AS BY THE AUDITORS, THE ASSESSEE DID NOT PROVIDE THE BOOKS OF ACCOUNTS, NE CESSARY RECORDS, INFORMATIONS TO THE SPECIAL AUDITORS TO ENSURE TIM ELY COMMENCEMENT OF THE WORK OF AUDIT. THE SPECIAL AUDIT IN THE CASE OF THE ASSESSEE FOR THE A.Y.- 2009-10 CONCLUDED ON 15 TH JUNE2012 AND TWO COPIES OF THE SPECIAL AUDIT REPORT WERE FURNISHED TO THE ASSESSEE BY THE AUDITO RS ON 15.06.2012. ON COMPLETION OF THE SPECIAL AUDIT, SPECIAL AUDIT REPO RTS CONSISTING OF SEVEN VOLUMES WERE SUBMITTED BY THE ASSESSEE COMPANY ON 1 9.06.2012. 2. REASONS TO ESTIMATE THE ADDITION U/S 68: 22.3. ASSESSEE REFUSED TO PROVIDE SOFTWARE COPY OF THE LEDGER ACCOUNTS TO SA BY CONTENDING THAT PROVIDING SOFT COPY WAS NOT C OVERED IN THE DEFINITION OF BOOKS OF ACCOUNT UNDER THE IT ACT 1961, COMPLICA TED THE SITUATION. THE STAND TAKEN BY THE ASSESSEE IS UNTENABLE IN LAW ON FOLLOWING PROPOSITIONS: A. AS PER SECTION 2(12A) OF THE IT ACT 1961, THE BOOKS OF ACCOUNT HAVE BEEN DEFINED TO INCLUDE THE FOLLOWING: - BOOKS OR BOOKS OF ACCOUNT INCLUDES LEDGERS, DAY-B OOKS, CASH BOOKS, ACCOUNT-BOOKS AND OTHER BOOKS, WHETHER KEPT IN THE WRITTEN FORM OR AS-PRINT-OUTS OF DATA STORED IN A 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 62 FLOPPY, DISC, TAPE OR ANY OTHER FORM OF ELECTRO-MAG NETIC DATA STORAGE DEVICE;] B. FURTHER, AS PER SECTION 2(22AA) OF THE ACT ,THE DO CUMENTS ARE DEFINED AS UNDER:- DOCUMENT INCLUDES AN ELECTRONIC RECORD AS DEFINED IN CLAUSE (T) 7 OF SUB-SECTION (1) OF SECTION 2 OF THE INFORMATION TECHNOLOGY ACT, 2000 (21 OF 2000);] C. AS REGARDS DEFINITION OF ELECTRONIC RECORD UNDER THE INFORMATION TECHNOLOGY ACT, 2000, AS PER SECTION 2( 1)(T) THE ELECTRONIC RECORD HAS BEEN DEFINED AS UNDER:- ELECTRONIC RECORD MEANS DATA, RECORD OR DATA GENE RATED, IMAGE OR SOUND STORED, RECEIVED OR SENT IN AN ELECT RONIC FORM OR MICRO FILM OR COMPUTER GENERATED MICRO FICH E; 22.4. A CONJOINT READING OF ABOVE PROVISIONS AND P ROVISIONS OF CLAUSE (III) OF SUB SECTION (1) OF SECTION 142 OF THE IT ACT 196 1, THE ASSESSING OFFICER HELD THAT IT WAS WITHIN HIS JURISDICTION TO CALL FO R: (II) TO PRODUCE, OR CAUSE TO BE PRODUCED, SUCH ACCO UNTS OR DOCUMENTS AS THE [ASSESSING] OFFICER MAY REQUIRE, O R (III) TO FURNISH IN WRITING AND VERIFIED IN THE PRE SCRIBED MANNER INFORMATION IN SUCH FORM AND ON SUCH POINTS OR MATTERS (INCLUDING A STATEMENT OF ALL ASSETS AND LIABILITIE S OF THE ASSESSEE, WHETHER INCLUDED IN THE ACCOUNTS OR NOT) AS THE [ASSESSING] OFFICER MAY REQUIRE: 22.5. THUS THE NON-COOPERATIVE ATTITUDE OF THE ASSE SSEE IS WRIT LARGE IN THE PROCEEDINGS, WHICH NEEDS TO BE TAKEN INTO CONSIDERA TION WHILE DECIDING THE REVENUE GROUND. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 63 22.6. LD CIT (DR) RESPONDING TO QUERY BY BENCH AS T O WHETHER ANY SUMMONS UNDER SECTION 131 OF THE IT ACT, 1961 WAS I SSUED ON THE APPELLANT COMPANY CONTENDS THAT AS PER THE PROVISIONS OF CLAU SES (II) AND (III) OF SUB SECTION (1) OF 142 OF THE IT ACT, 1961, THE AO CAN CALL FOR NOT ONLY BOOKS OF ACCOUNTS BUT ALSO DOCUMENTS ALONG WITH INFORMATION IN SUCH A FORM AND ON SUCH POINTS OR MATTERS AS HE MAY REQUIRE. 4. AOS DIFFICULTIES IN DISCHARGING STATUTORY FUNCTION S DUE TO NON COOPERATION 22.7. THE DIFFICULTIES FACED FOR THE PURPOSES OF VERIFICA TION OF IDENTITY / GENUINENESS / CREDITWORTHINESS OR VIOLATION OF SECT ION 269SS/269T OR VIOLATION OF 40A(3) ASPECTS ARE HIGHLIGHTED IN THE ASSESSMENT ORDER. THE INFORMATION PROVIDED IN THESE LEDGERS PERTAINING T O VIOLATION OF SECTION 269SS & 269T AS DETAILS WERE MAINTAINED NEITHER BRA NCH-WISE NOR IN ALPHABETICAL ORDER NOR SCHEME-WISE. IT WAS NOT POSS IBLE TO CARRY OUT ANY USEFUL ANALYSIS OF THE DATA OR CONDUCT PROPER INVES TIGATION FOR THE PURPOSE OF A PROPER ASSESSMENT. THEREFORE, AO REJECTED THE BOO KS OF ACCOUNTS AND FRAMED THE ASSESSMENT TO THE BEST OF HIS JUDGMENT I NCLUDING ESTIMATION OF 35% UNEXPLAINED CASH CREDITS. AO HAS MENTIONED THE DEFICIENCIES IS COMPLIANCES INCLUDING AS UNDER:- A. SAME NAME WITH SAME ADDRESS ARE APPEARING REPEAT EDLY NO. OF TIMES IN THE CASE OF LARGE NUMBER OF DEPOSITORS WIT H DIFFERENT ACCOUNT NUMBERS UNDER THE SAME SCHEME WHICH INDICATED THAT CLUBBING OF ACCOUNTS IN CASE OF A SINGLE DEPOSITOR HAVE NOT BEE N, B. PAN OF THE DEPOSITORS HAVE NOT BEEN GIVEN C. IN LARGE NUMBER OF CASES THE ADDRESS ARE NOT COM PLETE D. IN CASE OF REPAYMENTS, ACCOUNT NO. ARE NOT GIVEN . 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 64 22.8. A SSESSEE PROVIDED THE AUDITORS WITH HARD COPIES OF 6 9 BRANCHES, OUT OF WHICH THE AUDITOR COULD CHECK THE DETAILS FOR 53 BRANCHES ONLY. THE SPECIAL AUDITOR HAS SUBMITTED A DETAILED LIST OF DE POSITORS WHERE THE PROVISIONS OF 269SS AND 269T HAVE BEEN CONTRAVENED. FROM THE LIST OF DEPOSITORS AO OBSERVED THAT MANY ADDRESSES ARE INCO MPLETE, THE SPECIAL AUDITOR HAD ALSO POINTED OUT IN THE REPORT THAT MAN Y DEPOSITS HAVE BEEN ACCEPTED DURING THE YEAR WHICH ARE APPEARING IN THE NAME OF THE SAME PERSON. PROVISIONS OF SEC. 68 ARE APPLICABLE TO REC URRING DEPOSIT ALSO. TO VERIFY THE GENUINENESS, IDENTITY AND CREDITWORTHINESS OF THE D EPOSITORS ON SAMPLE BASIS FROM AVAILABLE INFORMATION TOTAL OF 1126 SUMMONS WE RE ISSUED BY SPEED POST TO VARIOUS OF AUDITED 53 BRANCHES. 22.9. OUT OF 1126 SUMMONS ONLY 197 DEPOSITORS REPLI ED AND OUT OF WHICH 154 HAS ASKED FOR ADJOURNMENT, 346 SUMMONS RETURNED BACK DUE TO INCOMPLETE ADDRESS, 78 SUMMONS RETURNED AS THE PERS ON IS NOT PRESENT THERE, 5 SUMMONS HAVE BEEN REFUSED TO BE ACCEPTED, 2 SUMMO NS HAVE BEEN ISSUED TO PERSON WHO HAVE DIED, 3 SUMMONS HAVE NOT BEEN AC CEPTED AS THERE ARE MANY PERSONS WITH THE SAME NAME AT THE GIVEN ADDRES S, 21 SUMMONS RETURNED AS THE DEPOSITOR HAS LEFT THE AVAILABLE AD DRESS HAVING SHIFTED AND THE REMAINING 474 SUMMONS REMAINED PENDING REPLY. 22.10. THE ASSESSEE HAS NOT QUESTIONED THE SAMPLE S IZE BUT AT MANY PLACES TRIED TO POINT OUT THAT THERE WAS NO NEED OF DRAWIN G OUT THIS SAMPLE AS IN ITS EARLIER YEAR ASSESSMENTS BEFORE THE INCOME TAX APPE LLATE TRIBUNAL IN THE CASE OF DEPUTY COMMISSIONER OF INCOME TAX VS. SAHAR A INDIA FINANCIAL CORPN. DTD. 20 MAY, 2003 81 TTJ (LUC) SAME METHOD H AS BEEN ADOPTED. APART FROM NON COMPLIANCE, REPLIES RECEIVED FROM TH E DEPOSITORS IN RESPONSE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 65 TO THE SUMMONS WERE FOUND TO BE NOT SATISFACTORY BY AO ON FOLLOWING OBSERVATIONS;- I) IN NUMBER OF CASES DETAILS AS REQUIRED IN THE S UMMONS HAVE NOT BEEN FURNISHED, II) WHILE GOING THROUGH THE REPLIES RECEIVED FROM CREDITORS, IT HAS BEEN OBSERVED THAT ALTHOUGH NO FAX NUMBER WAS MENTI ONED IN THE SUMMONS ISSUED FROM THIS OFFICE BUT STILL LARGE NO. OF REPLIES WERE RECEIVED BY FAX. III) IN MANY CASES, SAME LANGUAGE, FONT, DRAFTING WERE USED BY DIFFERENT DEPOSITORS, IN SOME CASES BY DEPOSITORS O F DIFFERENT PLACES. IV) IN MANY CASE REPLIES WERE RECEIVED AFTER 5-10 DAYS FROM THE DATE GIVEN IN THE SUMMONS. V) IN NUMBER OF CASES DETAILS AS REQUIRED IN THE S UMMONS HAVE NOT BEEN FURNISHED AND INSTEAD REQUEST FOR ADJOURNMENT HAVE BEEN MADE. VI) IN NUMBER OF CASES ADJOURNMENT HAS BEEN ALLOWE D FOR 7 DAYS AND COMMUNICATIONS IN THIS REGARD WERE RESENT THROU GH FAX ON THE NUMBERS THROUGH WHICH ADJOURNMENT PETITIONS WER E RECEIVED. IN SEVERAL CASES, IT COULD NOT BE SENT BE CAUSE THE FAX NO. BELONGING TO PCO. EXAMPLES OF SUCH CASES SHOWIN G ABOVE OBSERVATIONS WERE ALSO CITED IN THE SHOW-CAUSE DT. 26.07.2012. 22.11. AO OBSERVED THAT IT WAS CLEAR THAT SUMMONED DEPOSITORS CAME IN TOUCH WITH THE ASSESSEE AND GOT THE FAX NO. OF HIS OFFICE, WHICH TRANSPIRES THAT THE ASSESSEE PUT IN ITS BEST EFFORTS IN DELAYI NG THE PROCESS OF VERIFICATION BY WAY OF INSTIGATING THE DEPOSITORS TO FILE ADJOUR NMENT PETITIONS. IN TWO CASES IT HAS BEEN OBSERVED THAT CREDITORS HAVE DENI ED OF HAVING MADE ANY 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 66 INVESTMENT IN ASSESSEE COMPANY. IN ALMOST ALL THE C ASES SELECTED ON SAMPLE BASIS, THE DEPOSITORS HAVE FAILED TO PROVIDE THE NE CESSARY DOCUMENTARY EVIDENCE TO SATISFY THE THREE BASIC INGREDIENTS OF CASH CREDITS I.E. THE PROOF OF IDENTITY, CAPACITY OF THE CREDITOR AND GENUINENESS OF THE TRANSACTION FOR EXAMINATION DURING THE PRESENT ASSESSMENT PROCEEDIN GS. 22.12. THE IDENTITY AND GENUINENESS OF THE TRANSACT IONS INVOLVING RECEIPT OF DEPOSITS WAS HELD TO BE DOUBTFUL ON FOLLOWING POINT S: - A) PAN IS NOT AVAILABLE IN LARGE NO. OF THE CASES, B) THE TRANSACTIONS ARE ALMOST IN CASH AND NOT THROUGH THE NORMAL BANKING CHANNELS AND THE SAME HAS ALSO BEEN CONFIRM ED BY THE DEPOSITORS WHO HAVE RESPONDED. I.E. OUT OF 48 DEPOS ITORS WHO HAVE RESPONDED AND CONFIRMED THE DEPOSITS, 46 HAVE STATE D THAT THE DEPOSITS HAVE BEEN MADE IN CASH. C) CREDIT WORTHINESS OF THE DEPOSITORS WAS HELD AS NOT ESTABLISHED SINCE NO DOCUMENTARY EVIDENCE WAS PRODUCED REGARDIN G PROOF OF INCOME OR WEALTH OF THE DEPOSITORS IN MOST OF THE C ASES. 22.13. AO WAS OF THE VIEW THAT ONUS LIES ON THE ASS ESSEE TO EXPLAIN THE CASH CREDITS IN TERMS OF SEC 68 AND THE BURDEN CAN ONLY BE DISCHARGED BY FURNISHING THE REQUISITE DETAILS, DOCUMENTS, EXPLAN ATIONS, CLARIFICATION ETC. INCLUDING THE PERSONAL DEPOSITION OF THE LENDER BEF ORE THE ASSESSING OFFICER AND THE ASSESSEE HAS FAILED TO DISCHARGE THE SAID B URDEN. THEREFORE IN THESE FACTS AND CIRCUMSTANCES, THE THREE REQUIRED TESTS I .E. IDENTITY, GENUINITY AND CREDITWORTHINESS OF THE DEPOSITOR ARE NOT SATISFIED IN CASE OF THE ASSESSEE. 22.14. THE METHOD OF TEST CHECKING IS WELL RECOGNI ZED AND IS ALSO ACCEPTED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 67 22.15. THE ENTIRE EXPLANATION OF THE ASSESSEE REVOLVES ARO UND THE KYC NORMS. HOWEVER ON RANDOM TEST CHECK, IT WAS FOUND TO BE NOT PROPER AS IN MANY CASES APPLICATIONS FORMS WERE INCOMPLETE. IN M ANY CASES THE PHOTOGRAPH OF THE DEPOSITORS WAS NOT THERE, IN SUBS TANTIAL NO. OF CASES SIGNATURE OF THE APPLICANTS DID NOT APPEAR, IN LOTS OF THE CASES THE NOMINEES SIGNATURE WAS NOT THERE, IN SEVERAL CASES THE APPLI CANT AND THE INTRODUCER WERE SAME. THE ASSESSEE HAS CLAIMED ITS BUSINESS T O BE AKIN TO BANKS, BUT THERE THESE NORMS ARE VERY STRICT AND ENTIRE KYC NO RMS ARE FOLLOWED CORRECTLY. THE FACTS AND CIRCUMSTANCES AND THE PRA CTICES FOLLOWED BY THE ASSESSEE WITH REGARD TO COLLECTION OF DEPOSITS ARE ENTIRELY DIFFERENT AND CAN BE EASILY DISTINGUISHED FROM THAT OF THE BANKS. CLU BBING OF SEVERAL DEPOSIT ACCOUNTS BELONGING TO THE SAME DEPOSITOR IS A KEY R EQUIREMENT OF THE KYC NORMS AND ALL THE BANKS TODAY MAINTAIN THE ENTIRE L IST OF ACCOUNTS BELONGING TO A PARTICULAR DEPOSITOR. IN THESE CIRCUMSTANCES I T CANNOT BE SAID THAT KYC NORMS HAVE BEEN CORRECTLY FOLLOWED BY THE ASSESSEE, WHICH NOT ONLY TALK ABOUT THE IDENTITY BUT ALSO TALKS ABOUT THE PROOF O F RESIDENCE 22.16. THE FACTUAL MATRIX OF THE ARGUMENTS IS SUMM ARIZED BY LD. CIT(DR) AS UNDER:- 1. THE ASSESSEE EITHER DO NOT WISH THAT THE INFORMATIO N BE FURNISHED OR WANTS TO AVOID CERTAIN INFORMATION FROM COMING TO T HE NOTICE OF REVENUE AUTHORITIES. 2. ONLY 69 HARD COPIES OF BRANCHES OUT OF MORE THAN 15 00 BRANCHES WAS PROVIDED TO THE SPECIAL AUDITOR AND THE DATA IN SOF T COPIES WAS ALWAYS DENIED AND NOT PROVIDED. THE ACT OF NOT FURNISHING THE SOFT COPIES CLEARLY PROVES THAT THOUGH THE INFORMATION WAS READ Y BUT THE SAME IS 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 68 BEING AVOIDED, OBVIOUSLY FOR SOME DELIBERATE REASON S BEST KNOWN TO THE ASSESSEE. 3. INSPITE OF GRANTING REPEATED OPPORTUNITIES TO DISCH ARGE THE ONUS UNDER SECTION 68, THE ASSESSEE HAS FAILED TO DISCHARGE IT S ONUS TO EXPLAIN THE CREDITS IN ITS BOOKS STATED TO BE THE DEPOSIT COLLE CTION AS THE BASIC THREE INGREDIENTS OF THE CASH CREDITS I.E. (I) THE IDENT ITY, II) CAPACITY OF CREDITORS AND III) GENUINENESS OF THE TRANSACTION H AVE NOT BEEN SATISFIED AND THAT TOO WHEN THE ONUS AS PER THE ACT SQUARELY LIES SOLELY ON THE ASSESSEE TO SUO-MOTO DISCHARGE THE SAME.. 4. THEREFORE THE PROVISIONS OF SECTION 68 OF THE INCOM E TAX ACT ARE APPLICABLE ON UNEXPLAINED CREDITS GIVEN THE COLOUR OF PART OF THE DEPOSIT COLLECTIONS. 5. RESULTS OF ENQUIRY/INVESTIGATIONS ON A SAMPLE SIZE CAN BE EQUALLY APPLIED TO THE ENTIRE UNIVERSE OF DEPOSITS CONSIDER ING THE SHEER VOLUME OF DATA/INFORMATION AND THE PECULIAR FACTS OF THE C ASE. 22.17. LD DR CONTENDS THAT IN VIEW OF THE ABOVE FAC TS, CIRCUMSTANCES AND ARGUMENTS, IT IS CLEAR THAT THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS WHICH SQUARELY LIED ON IT TO PROVE IDENTITY, CREDITWORTHI NESS AND GENUINENESS OF THE DEPOSITS IN TERMS OF SEC 68. SINCE AO WORKED UN DER CONSTRAINTS MENTIONED BY HIM AND AS THE ASSESSEE FAILED TO DISC HARGE ITS ONUS WITH RESPECT TO DEPOSITS, SAME PATTERN OF ADDITION AS MA DE IN A.Y.S 1999-2000, 2000-20001, 2001-2002, 2002-2003, 2003-2004 & A.Y. 2004-05 WAS ADOPTED. KEEPING INTO MIND THE BUSINESS OF THE ASSE SSEE, ALL RELATED FACTS, THE OUTCOME OF SAMPLE VERIFICATION AND THE PREVIOUS YEA RS PATTERN AO WAS JUSTIFIED IN ESTIMATING THE QUANTUM OF ADDITION @ 3 5% OF THE NET COLLECTION OF DEPOSITS DURING THE YEAR. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 69 22.18. CIT(A) HELD THE ASSESSEES CASE FAVOURABLE, COVERED BY EARLIER ORDERS IN APPELLANTS OWN CASE, OVERLOOKING THE DIS TINGUISHING FACTS TABULATED BY ASSESSING OFFICER. SUPPORT IS DRAWN BY CIT(A) FROM SUPREME COURT DECISION IN UOI V. KAMLAKSHI FINANCE CORP. L TD. [AIR 1992 SC 711] AND KHALID AUTOMOBILES V. UOI [4 SCC (SUPPL.) 653] AND PANNALAL BINJRAJ; AND SIMON CARVES LTD. (SUPRA) HAS NO RELEVANCE. 22.19. LD DR CONTENDS THAT THE FINDINGS RECORDED BY THE LD . CIT(A) INDICATE THAT RELEVANT ISSUES INVOLVED IN THE CASE HAVE BEEN MIS-APPRECIATED INCLUDING THE FACT THAT THE ASSESSEE DID NOT CO-OPE RATE WITH THE ASSESSING OFFICER. LD. CIT(A)S FINDING THAT THE BOOKS OF AC COUNT AS DEFINED UNDER THE ACT ALONE ARE TO BE CONSIDERED FOR EXAMINATION, IS NOT TENABLE AS ELECTRONIC RECORDS ARE COVERED WITHIN THE DEFINITION OF BOOKS OF ACCOUNT. IT IS PLEADED THAT LD. CIT(A) COMPLETELY ABDICATED HIS STATUTORY RESPONSIBILITY AND RESTRICTED HIMSELF TO CRITICIZING AND FINDING FAULT S WITH THE ASSESSING OFFICER. LD. CIT(A) HAS A RESPONSIBILITY ON HIS SHO ULDERS TO NOT ONLY CORRECT THE MISTAKES COMMITTED BY THE ASSESSING OFFICER BUT ALSO HAS THE POWER TO STRENGTHEN HIS FINDINGS RECORDED BY THE AO AND IF NEED BE, TO GO FOR ENHANCEMENT OF ASSESSMENT. 22.20 . RELIANCE IS PLACED ON OBSERVATIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF NOVA PROMOTERS AND FINLEAS (P) LTD. 342 ITR 167 FOR THE OBSERVATION . THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS OBSER VED THAT IF SUMMONS HAD BEEN SERVED IT WOULD MEAN THAT THE P ARTIES WERE PRESENT AT THE ADDRESSES AND EVEN IF THEY WERE NOT FOUND BY THE INSPECTOR AT THE ADDRESSES FURNISHED BY THE ASSESSE E, IT WAS FOR THE ASSESSING OFFICER TO HAVE MADE ENQUIRIES FROM T HE POST OFFICER REGARDING THE WHEREABOUTS OF THE ADDRESSEES . WE DO NOT 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 70 THINK THAT THERE WAS, IN THIS CASE, ANY SUCH DUTY C AST ON THE ASSESSING OFFICER. IT IS RATHER UNFORTUNATE THAT THE ASSESSEE SEEMS TO HAVE SENT THE ASSESSING OFFICER ON A VAIN CHASE. 22.21. THE HONBLE APEX COURT IN THE CASE OF JUTE CORPORA TION OF INDIA LTD, HAS HELD THAT THE AAC HAS ALL PLENARY PO WER WHICH AN ASSESSING OFFICER HAS. THE APEX COURT AGAIN IN THE CASE OF KA PUR CHAND SHRIMAL VS. CIT 131 ITR 451 HAS HELD THAT THE APPELLATE AUTHORI TY HAS JURISDICTION AS WELL AS DUTY TO CORRECT ERRORS COMMITTED BY THE AO AND HE CAN GIVE FURTHER DIRECTIONS TO HIM. 22.22. A CAREFUL EXAMINATION OF THE DECISION RENDERED BY IT AT LUCKNOW BENCH IN APPEAL NOS. ITA. NO. 747/ALL/2000 AND ITA NO. 304/LUCK/2001 FOR A.Y. 96-97 WILL REVEAL THAT FACTS OF THE ASSESSMENT YEAR UNDER CONSIDERATION ARE DISTINGUISHABLE ON FOLLOWIN G RESPECT: (A) IN THE ASSESSMENT YEAR 96 -97, THERE WAS NO SUGGEST ION BY THE SPECIAL AUDITORS ABOUT ANY NON CO-OPERATION, NOT PROVIDING REQUISITE RECORDS / INFORMATION OR DELIBERATE DELAY ON THE PART OF THE ASSESSEE COMPANY. (B) IN ASSESSMENT YEAR 96 97, THE AO REFUSED TO ACCEP T THE APPROACH ADOPTED BY THE AUDITORS TO EXAMINE THE DEPOSITS ON SAMPLE TEST CHECK BASIS, WHEREAS IN THIS YEAR NO SUCH SITUATION EXIST S. IN FACT, THE AO HIMSELF HAS CHOSEN TO MAKE VERIFICATION OF THE GENU INENESS AND CORRECTNESS OF THE DEPOSITS ON TEST CHECK BASIS AND ACCORDINGLY NOTICES WERE ISSUED ONLY TO 1118 DEPOSITORS. IN THE YEAR CO NSIDERATION, IT IS THE ASSESSEE COMPANY WHICH IS OBJECTING TO THE SAMPLE S IZE PICKED UP BY THE SPECIAL AUDITOR (C) IN THE ASSESSMENT YEAR 96 97, THE CIT(A) SET- ASI DE THE ISSUE OF DEPOSITS AND DIRECTED THE AO TO CONDUCT INQUIRIES I N RESPECT OF 100 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 71 BRANCHES AND THERE-AFTER TAKE A REASONABLE VIEW OF THE MATTER. WHEREAS IN THIS YEAR LEARNED CIT(A) HAS SUMMARILY D ISPOSED OF THE MATTER WITHOUT AFFORDING ANY SUCH OPPORTUNITY TO TH E AO TO MAKE FURTHER INQUIRIES NOR DID HE MAKE ANY ATTEMPT ON HI S OWN PART. (D) IN THE ASSESSMENT YEAR 96 -97, THE ASSESSEE COMPANY ITSELF WAS INSISTING THAT THE SPECIAL AUDITORS WERE FULLY JUST IFIED IN MAKING VERIFICATION OF DEPOSITS ON SAMPLE TEST CHECK BASI S ( REFERENCE IS INVITED TO PARA 9 AND 13 OF ORDER OF THE ITAT DATED 26.05.2003). HOWEVER, IN THE YEAR UNDER CONSIDERATION THE ASSESS EE COMPANY HAS CONTRADICTED ITS OWN STAND. (E) IN THE ASSESSMENT YEAR 96 -97, THE ASSESSING OFFICE R HAD BROUGHT TO TAX THE ENTIRE DEPOSITS WHEREAS IN THE YEAR UNDER C ONSIDERATION ONLY 35% OF THE FRESH DEPOSITS HAVE BEEN HELD TO BE UNEX PLAINED. (F) IN THE ASSESSMENT YEAR 96 -97, THE AO DID NOT TAKE INQUIRIES TO LOGICAL END AND DID NOT ADOPT ANY SYSTEMATIC APPROACH TO CO LLECT AND CONFRONT THE ADVERSE MATERIAL WITH THE ASSESSEE COMPANY. WHE REAS, IN THE YEAR UNDER CONSIDERATION THE AO HAS CARRIED OUT DETAILED INVESTIGATION IN AT LEAST 1118 CASES AND RESULT OF ENQUIRY WAS DULY COM MUNICATED TO THE ASSESSEE BEFORE TAXING 35% OF THE FRESH DEPOSITS. (G) WHILE DISPOSING OF ITA. NOS. 747/ALL/2000, NO RELIE F WAS GRANTED TO THE ASSESSEE COMPANY AND THE HONBLE ITAT UPHELD TH E DECISION OF THE CIT(A) WHERE IN DIRECTIONS FOR FURTHER INQUIRIE S WERE GIVEN BY HIM. (H) AO IN ASSESSMENT YEAR 96 97, BROUGHT TO TAX THE 1 00% DEPOSITS INCLUDING OPENING BALANCE OF DEPOSITS AS UNEXPLAINE D WHICH WAS NOT IN KEEPING WITH THE ADDITIONS OF 15%, 20% AND 50% MADE BY THE REVENUE IN EARLIER YEARS. HOWEVER, IN THE YEAR UNDE R CONSIDERATION 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 72 ONLY 35% OF THE FRESH DEPOSITS HAVE BEEN BROUGHT TO TAX WHICH IS CONSISTENT WITH THE APPROACH OF THE DEPARTMENT IN T HE EARLIER YEARS, AS ASSESSEE SUCCEEDED ON THE ARGUMENTS IN A.Y. 96 -97 THAT THE SAME DEPOSITS COULD NOT BE BROUGHT TO TAX TWICE. (I) IN THE ASSESSMENT YEAR 96 -97, LEARNED CIT(A) MADE DETAILED INDEPENDENT INVESTIGATION AND FRESH MATERIAL/EVIDEN CE WAS CALLED FOR BY HIM, IN THIS YEAR NO SUCH ATTEMPTS WERE MADE. IT IS TRITE THAT THE FIRST APPELLATE AUTHORITY HAS CO-TERMINUS POWERS WHICH TH E ASSESSING OFFICER HAS BESIDES IT IS SETTLED POSITION OF LAW THAT IT IS NOT ONLY THE POWER BUT OBLIGATION OF THE APPELLATE AUTHORITY TO CORRECT AS SESSING OFFICERS MISTAKES BUT ALSO STRENGTHEN HIS ORDER. (J) IN THE ORDER DATED 22.07.2005, THE HONBLE ITAT LUC KNOW DID NOT AGREE WITH THE REVENUE MAINLY BECAUSE THERE WAS UN EXPLAINABLE DELAY OF 18 MONTHS ON THE PART OF THE AO TO TAKE UP THE REA SSESSMENT PROCEEDINGS WHICH WAS DEVIATION FROM COMPLIANCE OF DIRECTIONS ISSUED BY THE CIT(A) AND AO EXCEEDED THE MANDATE GIVEN BY THE CI T(A). 22.23. LD. CIT(DR) CONTENDS THAT THERE IS NO MERIT IN THE OBSERVATIONS OF THE LEARNED CIT(A) AND CLAIM OF THE ASSESSEE THA T THE ISSUE OF CASH CREDITS IS COVERED IN ITS FAVOUR BY THE ORDER OF THE ITAT LUCKNOW IN A.Y. 96 -97IS NOT CORRECT. RATHER SOME FINDINGS OF THE ITAT IN A. Y. 96 -97 SUPPORT THE AOS APPROACH, AS : A. IN PARA 13 OF THE ORDER IT HAS BEEN HELD THAT - CONSIDERING THE CIRCUMSTANCES UNDER WHICH THE SPECIAL AUDIT WAS DON E AND ALSO THE TIME LIMIT FOR COMPLETING THE SPECIAL AUDIT AND IN VIEW OF THE HUGE MATERIAL IN THE SHAPE OF LEDGER AND OWNER ACCOUNT B OOKS, THE AUDITORS COULD NOT HAVE BEEN EXCEPTED TO DO MORE THAN WHAT H AS BEEN DONE I.E. IF THE AUDIT WORK WAS TO BE DONE BY EXAMINATION AND SCRUTINY OF ALL THE BOOKS OF ACCOUNT OF 1100 BRANCHES OF THE SISTER CON CERN AND ALL THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 73 BOOKS OF THE ASSESSEE, THEN SUCH EXERCISE COULD HAV E CONSUMED NOT ONLY SEVERAL MONTHS BUT SEVERAL YEARS. HENCE, THE O NLY PROPER METHOD WAS TO MAKE SAMPLE SCRUTINY BY TAKING UP SOME OF TH E BRANCHES AND SOME OF THE DOCUMENTS. THE METHOD OF TEST CHECKING IS WELL RECOGNIZED AND IS ALSO ACCEPTED BY THE INSTITUTE OF CHARTERED ACCOUNTS. EVEN THE A.O. HAS ADOPTED THE SAME COURSE. B. IN PARA 17 IT IS OBSERVED THAT UNLESS THERE IS A VALID REASON FOR REJECTING THE REPORT OF THE SPECIAL AUDITORS, THE S AME SHOULD BE RELIED UPON. C. IN PARA 54 OF ORDER IT IS HELD THAT - WE ARE FULLY ALIVE TO THE LEGAL POSITION THAT AS PER REQUIREMENT OF 68 OF THE ACT, THE ASSESSEE IS UNDER OBLIGATION TO PROVE ENTRIES WHICH ARE FOUND R ECORDED IN THE BOOKS OF ACCOUNT AND ADMITTEDLY AMOUNTS OF DEPOSIT ARE THERE. 22.24. ADVERTING TO CASES RELIED ON BY THE ASSESSE E VIZ 1. CIT V. DIVINE LEASING & FINANCE LTD. ( 299 ITR 268 ) 2. CIT V. OASIS HOSPITALITIES P. LTD. ( 333 ITR 119) 3. CIT V. VALUE CAPITAL SERVICES (P) LTD. ( 307 ITR 33 4 ) 4. ASSESSEES OWN CASE ITA NO. 747/ALLD/2000, A.Y. 96- 97 5. ASSESSEES OWN CASE ITA NO. 304/LUC/2001, A.Y. 96-9 7 6. CIT V. KINETIC CAPITAL FINANCE LTD. ( 354 ITR 296 ) 7. CIT V. CITIZEN URBAN CO-OP BANK LTD. ( 336 ITR 62 ) 8. ACIT V. CITIZEN URBAN CO-OP BANK LTD. ( 120 ITD 513 ) 9. CIT V. PRAGATI CO-OPERATIVE BANK LTD. ( 278 ITR 170 ) 10. DCIT V. DHANLAKSHMI BANK LTD. ( 76 TTJ 439 ) 11. CITIZEN CO-OP. SOCIETY V. ACIT (ITA NO. 1003/HYD/20 11) 22.25. LD DR PLEADS THAT THE CASES AT SERIAL NOS. 1 TO 4 DEAL WITH THE NATURE OF PRIMARY ONUS ON ASSESSEE IN THE CASE OF A PPLICATION OF SHARE CAPITAL. OTHER JUDGMENTS WERE NOT RENDERED IN THE BACKGROUND OF NON COOPERATION BY THE ASSESSEE. IN THIS CASE THE ASSESSEE COMPANY WAS FULLY AWARE OF THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 74 DIFFICULTIES BEING FACED BY THE REVENUE. APROPOS JU DGMENTS AT SERIAL NOS. 7 TO 12, THEY DO NOT HAVE UNIVERSAL APPLICATION BEING IN THE CONTEXT OF FACTS OF INDIVIDUAL CASES: 22.26. IN THE CASE OF CIT V. KINETIC CAPITAL FINAN CE LTD. 354 ITR 296, THE HONBLE DELHI HIGH COURT DELETED ADDITION U/S 6 8, OBSERVING THAT NECESSARY VERIFICATION WAS MADE BY THE ASSESSING OF FICER AND IN REMAINING FOUR CASES THE VERIFICATION WAS DONE AT THE FIRST A PPELLATE STAGE. IN THIS CASE THE ASSESSING OFFICER WAS COULD NOT EVEN VERIFY THE DETAILS OF AGGREGATE DEPOSITS IN INDIVIDUAL CASES AND LD CIT(A) ALSO DID NOT MAKE ANY INDEPENDENT VERIFICATION AT HIS OWN LEVEL. 22.27. APROPOS ASSESSEES CONTENTION THAT SECTION 68 PROVIDES FOR ADDITION IN RESPECT OF INDIVIDUAL AND SPECIFIC CRED ITS APPEARING IN THE BOOKS OF ACCOUNTS QUA WHICH ASSESSEE FAILS TO FURNISH SAT ISFACTORY EXPLANATION IT IS PLEADED BY LD DR THAT AO HAS ENUMERATED VARIOUS DIFFICULTIES FACED DUE TO NON-FURNISHING OF INFORMATION IN SOFT COPIES DURING THE SPECIAL AUDIT AS WELL ASSESSMENT PROCEEDINGS. CONSTRAINED BY THESE D IFFICULTIES AO WAS LEFT WITH NO ALTERNATIVE BUT TO ADOPT THE METHOD OF ESTI MATION. IN VIEW OF THE THESE FACTS ALSO THE CITED JUDGMENTS ARE NOT APPLIC ABLE TO THE INSTANT CASE. 22.28. THE DECISION OF CIT V. CITIZEN URBAN CO-OP BANK LT D. 336 ITR 62 (P&H), IS BASED ON THE FACTS THAT ASSESSEE BANK COOPERATED IN DISCHARGING ITS PRIMARY ONUS QUA THE IDENTITY OF THE MEMBERS O F THE SOCIETY AND THEIR CREDIT WORTHINESS. SIMILARLY IN THE CASE OF CIT V. PRAGATI CO-OPERATIVE BANK LTD. 278 ITR 170 (GUJ) ALSO, FACTS ARE DIFFERENT A S ASSESSEE BANK WAS ENJOYING TAX EXEMPTION U/S 80P AND THEREFORE, THE H ONBLE COURT HELD THAT 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 75 THERE COULD EXIST NO REASON FOR THE ASSESSEE BANK TO INDULGE IN ANY ACTIVITY WHICH WOULD YIELD UNDISCLOSED INCOME. 22.29. IN THE CASES OF DCIT V. DHANLAKSHMI BANK LTD. 76 T TJ 439 FACTS ARE CLEARLY DISTINGUISHABLE. THE ISSUE IN QUE STION PERTAINED TO FDRS WHERE THE DEPOSITORS DO NOT REMAIN IN REGULAR TOUCH WITH THE BANK BESIDES BRANCH MANAGER EXTENDED NECESSARY CO-OPERATION TO A O REGARDING IDENTITY OF THE FDR HOLDERS AND IN SOME CASES EVEN THE PAYME NT WAS WITHHELD. 22.30 . IT IS SUBMITTED THAT THE CASES RELIED UPON BY THE ASSESSEE ARE CLEARLY DISTINGUISHABLE ON FACTS. LD DR FURTHER CON TENDS THAT ASSESSEES CLAIM TO FOLLOW KYC NORMS AND BY THEIR COMPLIANCE T HE PRIMARY ONUS QUA THE IDENTITY, CREDIT WORTHINESS AND GENUINENESS OF DEPOSITS IS CLAIMED TO BE DISCHARGED. HOWEVER EVEN KYC INFORMATION OF INDIVID UAL DEPOSITORS IS NOT ASCERTAINABLE FROM THE DETAILS OBTAINED IN THE PRES CRIBED FORMAT FURNISHED BY ASSESSEE. THESE DEFICIENCIES HAVE BEEN DISCUSSED IN DETAIL BY THE AO AT PARA 8.1.10 (PAGE 50) AND AT PARA 8.3.12 TO 8.3.13 (PAGE S 97 TO 113) TO THE EFFECT THAT THE KYC NORMS PRESCRIBED BY THE RBI FOR THE BA NKS ARE NOT FULFILLED FROM THE FORMAT DEVISED BY THE ASSESSEE. 22.31. ASSESSEE ADMITS THAT IT IS DIFFICULT TO CLU B TOGETHER THE DEPOSITS OBTAINED IN THE NAME OF A PARTICULAR DEPOSITOR FOR VARIOUS REASONS; THUS THE CONDITIONS BASED ON KYC NORMS IN THIS BEHALF ARE NO T SATISFIED. ASSESSEE HAS FILED A PAPER BOOK CONTAINING A TRAIL OF DOCUMENTS PERTAINING TO THE PROCEDURE FOLLOWED FOR OPENING A NEW ACCOUNT UNDER KYC NORMS ON 9.08.2012, FEW DAYS BEFORE THE PASSING OF IMPUGNED ASSESSMENT ORDER ON 16.08.2012. IT WAS NOT HUMANLY POSSIBLE FOR THE AO TO SCRUTINIZE SUCH A VOLUMINOUS RECORD WITH IN A PERIOD OF SEVEN DAYS. T HEREFORE, TO THIS EXTENT IT 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 76 SHOULD BE HELD THAT AO COULD NOT VERIFY THIS RECORD . ASSESSEE ADOPTED A DEVICE BY INITIALLY AVOIDING FURNISHING REQUISITE I NFORMATION TO THE ASSESSING OFFICER AND THERE-AFTER TO SUBMIT VOLUMINOUS RECORD TOWARDS THE END OF THE ASSESSMENT CLAIMING THAT REQUISITE INFORMATION WAS DULY MADE AVAILABLE. 22.32. APROPOS ASSESSEES ARGUMENT THAT THE DEPARTM ENT ITSELF HAS ALLOWED COMMISSION AND INTEREST WITH RESPECT TO THE DEPOSIT S IN QUESTION, IT IS CONTENDED THAT THIS OBSERVATION HAS BEEN NOTICED NOTE OF BY THE DEPARTMENT AND CIT(C)-1, NEW DELHI AND NECESSARY REMEDIAL ACTI ON AS PER LAW SHALL BE INITIATED IN DUE COURSE. BESIDES, A MISTAKE COMMITT ED BY THE ASSESSING OFFICER WILL NOT ENTITLE THE ASSESSEE TO CLAIM THAT THE DEPOSITS IN QUESTION SHOULD BE ACCEPTED AS GENUINE. 22.33. LD. DR FURTHER CONTENDS THAT PLAIN READING OF SECTION 68 MAKES IT CLEAR THAT THE LEGISLATURE HAS NOT MADE ANY DIST INCTION BETWEEN A CREDIT ENTRY FOUND RECORDED IN THE CASE OF AN RNBC AND THA T OF THE BOOKS OF AN ORDINARY PERSON. THEREFORE, IT IS AGAINST THE SPIRI T OF LAW TO ARGUE THAT ASSESSEE IS REQUIRED TO COMPLY WITH CONDITIONS LAI D DOWN U/S 68 ON KYC AND OTHER PARAMETERS, OTHERWISE ITS RNBC BUSINESS M AY BE FINISHED. WHEN THE PROVISIONS OF LAW ARE CLEAR AND UNAMBIGUOUS THE COURTS HAVE TO GIVE EFFECT TO SUCH PROVISIONS IRRESPECTIVE OF DIFFICULT IES AND HARDSHIPS WHICH MAY BE CAUSED TO AN ASSESSEE. RELIANCE IS PLACED ON - T ARULATA SHYAM AND OTHERS (108 ITR 345) (SC)- & PATIL VIJAY KUMAR AND OTHERS (151 ITR 48) (KN). IT IS PLEADED THAT THE ORDER OF CIT(A) MAY BE REVERSED . LD. DR HAS FILED WRITTEN SUBMISSIONS WHICH ARE CONSIDERED. 23. IN REPLY ASSESSEES COUNSEL SHRI AJAY VOHRA CON TENDS THAT DURING THE YEAR UNDER CONSIDERATION, AN AMOUNT OF RS. 5300 CRO RES WAS MOBILIZED BY THE ASSESSEE RNBC FROM SEVERAL DEPOSITORS UNDER VAR IOUS SCHEMES FLOATED 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 77 WITH THE APPROVAL OF RBI. THE ASSESSING OFFICER, H OWEVER, ON ESTIMATE BASIS MADE ADDITION OF 35% OF THE DEPOSITS DURING THE YEA R, HOLDING IT TO BE A LEGALLY PERMISSIBLE AND REASONABLE ESTIMATE ALLEGIN G THAT ASSESSEE HAS FAILED TO DISCHARGE ITS PRIMARY ONUS IN TERMS OF SECTION 6 8. SINCE AY 1994-95 THE ISSUE OF DISCHARGING OF PRIMARY ONUS IN TERMS OF S EC 68 HAS BEEN RAGING BETWEEN ASSESSEE AND DEPARTMENT. THE FACTS ABOUT RN BFC STATUS OF ASSESSEE, RBI REGULATIONS, NATURE OF BANKING BUSINE SS, NO. OF DEPOSITS IN CRORES AND LACS OF DEPLOYED FIELD WORKS BY THE ASSE SSEE OR ITS COLLECTION AGENTS ETC. WHICH ARE MATERIAL TO THE ISSUE HAVE NO T BEEN DISPUTED. THE STATUS OF EARLIER LITIGATION HISTORY IS DEMONSTRATED AS UN DER: A.Y. 1994-1995 15% OF OPENING BALANCE OF DEPOSITS & 30% OF DEPOSITS COLLECTED DURING THE YEAR ARE TREATED AS INCOME OF THE APPELLANT. A.Y. 1995-1996 15% OF OPENING BALANCE OF DEPOSITS & 30% OF DEPOSITS COLLECTED DURING THE YEAR ARE TREATED AS INCOME OF THE APPELLANT. A.Y. 1996-1997 100% DEPOSITS COLLECTED ARE TREATED AS UNEXPLAINED A.Y. 1997-1998 100% DEPOSITS COLLECTED ARE TREATED AS UNEXPLAINED A.Y. 1998-1999 100% DEPOSITS COLLECTED ARE TREATED AS UNEXPLAINED A.Y. 1999-2000 35% DEPOSITS COLLECTED ARE TREATED AS UNEXPLAINED A.Y. 2000-2001 35% DEPOSITS COLLECTED ARE TREATED AS UNEXPLAINED A.Y. 2001-2002 35% DEPOSITS COLLECTED ARE TREATED AS UNEXPLAINED A.Y. 2002-2003 35% DEPOSITS COLLECTED ARE TREATED AS UNEXPLAINED A.Y. 2003-2004 35% DEPOSITS COLLECTED ARE TREATED AS UNEXPLAINED A.Y. 2004-2005 35% DEPOSITS COLLECTED ARE TREATED AS UNEXPLAINED 23.1. CONSEQUENT TO ACTION U/S 263 OF THE INCOME TA X ACT ORDERS FOR THE A.Y. 1994-95 AND 1995-96 WERE SET ASIDE, IN THE SEC OND INNINGS THE ASSESSING OFFICER TREATED THE ENTIRE DEPOSITS COLLE CTED BY THE APPELLANT RNBFC AS UNEXPLAINED INCOME EXCEPT FOR RS.1 LAC IN THE A.Y. 1994-95. THESE ADDITIONS MADE IN EARLIER YEARS HAVE BEEN DEL ETED AT THE FIRST APPELLATE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 78 STAGE. FOR THE A.Y. 1994-95, ITAT UPHELD THE DECISI ON OF CIT(A) DELETING SUCH ADDITIONS. 23.2. IN A.Y. 1996-97 ORIGINAL ADDITION WAS SET ASI DE BY THE LD. CIT(A), THE ACTION WAS CONFIRMED BY THE TRIBUNAL. IN SECOND RO UND ONCE AGAIN 100% OF THE DEPOSITS WERE ADDED AS UNEXPLAINED BY AO WHICH WAS DELETED BY LD. CIT(A). REVENUE CHALLENGED THIS ORDER AND ITAT WAS PLEASED TO UPHELD THE CIT(A)S ORDER DELETING THESE ADDITIONS. 23.3. AGAINST FIRST ROUND ORDER OF CIT(A) FOR AY 19 96-97 IN REVENUE APPEAL, ITAT BY ORDER DATED 26.05.2003 FROM PAGE 1 3 ONWARDS THE TRIBUNAL MADE VARIOUS OBSERVATIONS GIST THEREOF IS AS FOLLOW S:- I.THE A. O. HAS NOT CONSIDERED THE NATURE OF THE BU SINESS OF THE ASSESSEE WHILE MAKING ADDITION U/S 68, THE ASSESSEE IS A NON BANKING FINANCIAL INSTITUTION, WHICH WAS RECOGNIZED BY THE RESERVE BANK OF INDIA WHICH WAS IN FORCE. II. IT HAD ENGAGED THE SERVICES OF M/S SAHARA INDIA AS ITS AGENT. ASSESSEE COMPANY IS AKIN TO A BANKING AND THE DEPOS ITS RECEIVED BY IT ARE NOT IN NATURE OF TAKING OF ANY LOAN OR DEPOSIT AS IN A ROUTINE BUSINESS. III. IF THE TOTAL DEPOSITS MOBILIZED DURING THE YEA R WERE FOUND TO BE UNEXPLAINED CREDITS U/S 68, THERE WAS NO JUSTIFICAT ION TO ALLOW REIMBURSEMENT OF EXPENSES AT 3% OF THE DEPOSITS MOB ILIZED. SECONDLY, THE DEPOSITS MADE WERE NOT THE FRESH DEPO SITS DURING THIS YEAR, BUT THE DEPOSITS WERE COMING FROM THE EARLIER YEARS AND IN EARLIER YEARS, A PART OF THE DEPOSITS WERE TREATED AS GENUINE. THUS, IF THE ACTION OF THE A. O. IS UPHELD, IT SHALL LEAD TO ABSURDITY, INASMUCH AS THE DEPOSITS WHICH HAVE BEEN TREATED TO BE GENUI NE IN EARLIER YEARS HAVE TO BE TREATED AS NON-GENUINE DURING SUBSEQUENT YEAR. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 79 IV. PRIOR TO ASSESSMENT YEAR 1993-94, NO SUCH ADDIT ION WAS MADE AND IN AYS 1994-95 AND 1995-96, ADDITION OF 15% OF THE OPENING BALANCE AND 30% OF THE CLOSING BALANCE WAS MADE AND IN AY 1996-97 I.E. THE ASSESSMENT YEAR UNDER CONSIDERATION, ADDIT ION ON ACCOUNT OF 100% DEPOSITS HAS BEEN MADE. IN THE REASSESSMENT FO R AY1992-93, VIDE ORDER DATED 15.03.2002, THE A. O. HAS ESTIMATE D THE UNEXPLAINED DEPOSITS TO THE EXTENT OF 50% OF THE DEPOSITS COLLE CTED DURING THE YEAR. THUS, THERE IS NO CONSISTENCY IN THE APPROACH OF TH E DEPARTMENT. V. THE SCHEMES ARE RUN BY THE ASSESSEE UNDER THE DI RECT SUPERVISION OF RESERVE BANK OF INDIA, ACCOUNTS ARE AUDITED BY THE TAX AUDITORS, STATUTORY AUDITORS AND SPECIAL AUDITORS. EVEN IN WR IT PETITIONS THE INVESTIGATION IS CALLED FOR. THE ASSESSEE HAS FILED THE COPY OF JUDGMENT OF HON'BLE DELHI HIGH COURT DATED 12TH MAY 2000 IN THE CASE OF MR. B.S. SEHGAL VS GOVERNOR OF R.B.I. CONSEQUENT TO A P IL THE ALLEGATIONS OF IRREGULARITIES WERE MADE AGAINST SAHARA GROUPS O F COMPANIES ALSO. ALTHOUGH THE ALLEGATIONS WERE REGARDING UTILIZATION OF FUNDS, BUT IT HAS BEEN OBSERVED AT PAGE 1613 OF THE PAPER BOOK THAT S AHARA INDIA FINANCIAL CORPORATION WAS INSPECTED BY R.B.I. AND T HE ALLEGATIONS WERE NOT FOUND CORRECT, NO MERIT IS FOUND AGAINST T HE ALLEGATIONS MADE IN PIL AGAINST SAHARA GROUP. BY THIS JUDGMENT NAME OF SAHARA GROUPS OF COMPANY WAS DELETED FROM THE ARRAY OF PARTIES BY THE HON'BLE HIGH COURT. THIS REFLECTS THE SCRUTINY OF THE AFFAIRS OF THE ASSESSEE BY DIFFERENT AGENCIES FROM TIME TO TIME. VI. A.O. ASKED THE ASSESSEE TO PRODUCE THE DEPOSITO RS HAVING DEPOSIT OF RS.20.000/- OR MORE HOWEVER, ADDITION OF ENTIRE DEPOSITS WAS MADE. BEFORE THE LD. CIT(A) ADDITIONAL EVIDENCE ABOUT CON FIRMATIONS ETC. WAS FILED. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 80 THE ASSESSEE HAD OFFERED TO GET THE EXAMINATION OF ALL THE DEPOSITS RELATING TO ONE BRANCH AS A SAMPLE CHECKING. IN THE CASE OF LIFE INSURANCE CORPORATION OF INDIA VS. CIT, 219 ITR 410 IN A DIFFERENT CONTEXT, THE HON'BLE SUPREME COU RT OF INDIA HAS OBSERVED THAT LAW DOES NOT CONTEMPLATE OR REQUIRE T HE PERFORMANCE OF IMPOSSIBLE ACT 'LEX NON COGIT AD IMPOSSIBILIA. THE DEPARTMENT RELIED ON KALE KHAN MOHAMMAD HANIF V S. CIT, 50 ITR 1 (SC), CIT VS PRECISION FINANCE PRIVATE LIMITE D, 208 ITR 465, WHICH WERE FOUND TO BE DISTINGUISHABLE ON FACTS. VII. THE PRIMARY BURDEN OF PROOF LIES ON THE ASSESS EE TO PROVE THE IDENTITY OF THE DEPOSITORS ETC. BUT THE NATURE AND VOLUME OF THE BUSINESS OF THE ASSESSEE HAS TO BE DULY CONSIDERED. IN THE CASE OF THE ASSESSEE, EVEN VERIFICATION FROM SOME OF THE DEPOS ITORS WAS FILED, WHICH WAS NOT DOUBTED BY DEPARTMENT AND IF THE VER IFICATION IN FILED IN RESPECT OF SOME DEPOSITORS AND PARTICULAR TRANSA CTIONS WERE FOUND TO BE GENUINE, THEN GENERAL ADDITION U/S 68 CANNOT BE JUSTIFIED. IX. ITAT PLACED RELIANCE ON THE CASES OF CIT VS. SM T. P. K. NOORJEHAN, 237 ITR 570 (SC) & CIT VS ROOHINI BUILDE RS, 256 ITR 360 (GUJ), IN LATER CASE IT HAS BEEN HELD THAT UNS ATISFACTORY NESS OF THE EXPLANATION OF THE ASSESSEE DOES NOT MEAN AND NEED NOT AUTOMATICALLY RESULT IN DEEMING THE AMOUNT CREDITED IN THE BOOKS AS INCOME OF THE ASSESSEE. THE SPECIAL LEAVE PETITION FILED BY THE R EVENUE WAS ALSO DISMISSED. THUS, THE PROVISIONS OF SECTION 68 CANNO T BE APPLIED WITHOUT HAVING REGARD TO THE NATURE OF DEPOSITS ETC . IN THE CASE OF DY. CIT VS. DHANLAXMI BANK LIMITED, 76 TTJ COCHIN 439, THE COCHIN BENCH OF ITAT, WHILE CONSIDERING TH E SCOPE OF BURDEN OF PROOF IN THE CASE OF CASH CREDIT HAS OBSE RVED AS UNDER : 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 81 'FAILURE OF BRANCH MANAGER, WHO IDENTIFIED CERTAIN DEPOSITS ALONE IS NOT SUFFICIENT TO TREAT THE DEPOS ITS AS INCOME OF THE ASSESSEE AND ADD THE SAME IN THE HAND S OF THE ASSESSEE U/S 68'. X. THE BENCH FOUND FORCE IN THE ARGUMENT OF THE ASS ESSEE'S COUNSEL THAT IF THE REVENUE SUSPECTS GENUINENESS OF THE DEP OSITS IT WOULD HAVE BEEN PROPER TO INSTRUCT THE ASSESSEE TO STOP PAYMEN T TILL THE DEPOSITORS APPEARED BEFORE THE A.O. AND SATISFIED HIM. AS A CONSEQUENCE, THE BOARD OF DIRECTORS OF THE ASS ESSEE ALSO PASSED A RESOLUTION PUTTING A LIEN ON THE REPAYMENT OF DEPOS ITS WHICH ARE UNPAID AS ON DATE. 23.4. AFTER MAKING SUCH OBSERVATIONS WHICH HAS BEEN SUMMARIZED ABOVE ITAT HELD THAT: I. IN VIEW THE ABOVE FACTS AND CIRCUMSTANCES AND A LSO CONSIDERING THE PAST HISTORY OF ITS CASE IT IS CLEAR THAT PRIMA RY ONUS CAST ON THE ASSESSSEE IN TERMS OF NATURE OF BUSINESS READ WITH SEC. 68 HAS BEEN DULY DISCHARGED. II. THE ALLEGATIONS OF NON COOPERATION ARE BASED O N WRONG ADVERSE INFERENCES, WHICH ARE CONTRARY TO MATERIAL AVAILABL E ON RECORD AND PROCEEDINGS AND CAN NOT BE APPLIED TO ASSESSSEE'S C ASE. BESIDES ASSESSEE BEING RNBFC HAVING COMPLIED WITH KYC NORMS AND RBI REGULATIONS: IT CANNOT BE HELD THAT DESPITE THIS CO MPLIANCE ADDITION UNDER PROVISIONS OF SECTION 68 OF THE INCOME TAX AC T IN RELATION TO THE DEPOSITS MOBILIZED BY THE ASSESSEE COMPANY CAN BE MADE. III. THE APPLICABILITY OF SEC. 68 IN CASES OF BANK ING INDUSTRY AND INCLUDING NBFC HAS BEEN HELD SETTLED BY VARIOUS JUD ICIAL PRONOUNCEMENTS. ACCORDING TO THESE JUDICIAL PRECEDE NTS COMPLIANCE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 82 OF KYC NORMS PRESCRIBED BY RBI GUIDELINES AMOUNTS T O DISCHARGE OF PRIMARY ONUS BY BANKING ESTABLISHMENTS. IV. EARLIER CASE HISTORY OF THE ASSESSEE CLEARLY DEMON STRATES THAT SUCH ADDITIONS MADE U/S 68 HAVE BEEN DELETED. THERE BEING NO CHANGE IN BUSINESS ACTIVITY, PARITY AND SIMILARITY ON FACTS OF ALL THESE YEARS IS ACCEPTED. 23.5. LD COUNSEL AFTER ADDRESSING ASSESSEES PAST HISTORY ADVERTED TO THE FACTS OF YEAR IN QUESTION AND ASSESSING OFFICERS AL LEGATIONS. CASE OF THE ASSESSING OFFICER I. RE: NON-PRODUCTION OF SOFT COPIES OF BOOKS OF ACCOU NT 23.6. THE ASSESSEE DURING THE COURSE OF SPECIAL AUD IT, VOLUNTEERED TO MAKE AVAILABLE PRINT OUTS OF THE COMPUTERIZED BOOKS OF A CCOUNTS INCLUDING DEPOSIT LEDGERS, IN A MANNER DESIRED BY THE SPECIAL AUDITOR . LOOKING AT THE SPACE CONSTRAINT OF THE SPECIAL AUDITOR, AS AN INITIAL IN STALMENT, DEPOSIT LEDGERS FOR 69 BRANCHES WERE FURNISHED. IT WAS FURTHER AGREED T HAT AFTER THE VERIFICATION / TEST CHECK OF AVAILABLE 69 BRANCHES IS COMPLETED, R EMAINING RECORD OF BRANCHES, PRINT OUTS ETC. WILL BE MADE AVAILABLE AS DESIRED BY THE AUDITOR. THE SPECIAL AUDITOR, HOWEVER, OUT OF 69 BRANCHES CO ULD COMPLETE VERIFICATION OF 53 BRANCHES ONLY. NO FURTHER REQUISITION FROM TH E SPECIAL AUDITOR FOR PRODUCING FURTHER RECORD OF ANY OTHER BRANCH WAS RE CEIVED BY ASSESSEE, IN SUCH EVENTUALITY IT CANNOT BE HELD THAT ASSESSEE WA S NON COOPERATIVE FOR BRANCHES. IT IS A TRAVESTY OF JUSTICE THAT DESPITE THEIR BEING NO FURTHER REQUISITION FROM AUDITORS FOR THE REASONS BEST KNOW N TO THEM, IT HAS BEEN UNJUSTIFIABLY HELD THAT ASSESSEE IS ADAMANT AND NON COOPERATIVE. THE FACTS AND ARGUMENTS WILL UNFOLD THAT ASSESSES IN REASONAB LE TERMS DISCHARGED ITS 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 83 PRIMARY ONUS. THE ALLEGATIONS ARE GENERALIZED ASSUM PTIONS, PRESUMPTIONS, SURMISES AND TO PAINT A WRONG AND PREJUDICED IMAGE OF THE ASSESSEE. RE : NON PRODUCTION OF SOFT COPIES OF BOOKS OF ACCO UNTS : 23.7. AS PER SECTION 2(12A) OF THE ACT, BOOKS OF A CCOUNT HAS BEEN DEFINED TO INCLUDE PRINT OUT OF THE DATA STORED IN A FLOPPY , DISK, TAPE OR ANY OTHER FORM OF ELECTRONIC DEVICE. IN OTHER WORDS, WHAT TH E LAW MANDATES IS ONLY FURNISHING PRINT OUTS OF THE ELECTRONICALLY STORED DATA INSTEAD OF FURNISHING SUCH DATA ELECTRONICALLY. REFERENCE, IN THIS REGAR D, MAY BE MADE TO THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 1999-2000 TO 2000-03 WHEREIN THE T RIBUNAL WHILE DELETING LEVY OF PENALTY UNDER SECTION 272A(1)(C) OF THE ACT , HELD AS UNDER: 7. WE HAVE CAREFULLY CONSIDERED RELEVANT FACTS AND ARGUMENTS ADVANCED. IT IS NOT IN DISPUTE THAT THE INFORMATION CALLED FOR WAS FILED. THE INFORMATION CALLED FOR WAS FILED BY FILING PRIN T OUT OF THE COMPUTER RECORD. PENALTY U/S 272A(1)(C) IS ATTRACTED IF ANY PERSON TO WHOM A SUMMON IS ISSUED TO GIVE EVIDENCE OR BOOKS OF ACCOU NTS OR OTHER DOCUMENTS OMITS TO PRODUCE BOOKS OF ACCOUNTS OR DOC UMENTS. HOWEVER, IN THE PRESENT CASE, THE ASSESSEE HAS NOT OMITTED TO PRODUCE THE BOOKS OF ACCOUNTS OR DOCUMENTS. THE WORD DOCUM ENT AS DEFINED IN SECTION 2(22AA) INCLUDES AN ELECTRONIC RECORD. T HE DEFINITION IS NOT AN INCLUSIVE DEFINITION SO AS TO RESTRICT THE MEANI NG OF THE WORD DOCUMENT AS ONLY AN ELECTRONIC RECORD WILL BE CON SIDERED AS A DOCUMENT. THE PRINT OUT OF THE RECORD WILL ALSO BE CONSIDERED AS A DOCUMENT AND IT WILL BE A SUFFICIENT COMPLIANCE WHE THER AN INFORMATION CALLED FOR IS FURNISHED EITHER BY WAY O F FILING PRINT OUTS OF COMPUTER RECORD OR BY FILING SOFT COPY OF ELECTRONI C DATA. THUS, IT CANNOT BE SAID THAT THERE WAS ANY OMISSION ON THE P ART OF ASSESSEE TO PRODUCE BOOKS OF ACCOUNTS NOR DOCUMENTS AS REQUIRED IN A SUMMON ISSUED U/S 131(1) OF THE ACT. WE, THEREFORE, CANCEL THE PENALTY LEVIED IN ALL CASES. 23.8. THIS DECISION HAS BEEN ACCEPTED BY REVENUE AS NO APPEAL HAS BEEN PREFERRED DEPARTMENT ON THIS ISSUE BEFORE THE HIGH COURT. IN VIEW OF THIS 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 84 TRIBUNAL DECISION WHICH VINDICATES ITS STAND AND WH ICH IS ACCEPTED BY THE DEPARTMENT THAT FURNISHING OF PRINT OUTS IS SUFFICI ENT COMPLIANCE OF NOTICES. BESIDES THE ASSESSEE HAD NEVER DENIED FURNISHING OF THE DEPOSIT LEDGER IN PHYSICAL FORM AND PRINT OUTS FOR ANY OF THE BRANCHE S. 1 ST INSTALMENT OF DEPOSIT LEDGERS OF 69 BRANCHES WAS FURNISHED AS AGREED WITH THE SPECIAL AUDITORS, OUT OF WHICH, VERIFICATION OF ONLY 53 BRANCHES COUL D BE DONE BY THEM. THUS ON ONE HAND AUDITORS WERE NOT ABLE TO VERIFY WHAT W AS IN THEIR POSSESSION AND ON THE OTHER HAND THE ASSESSEE HAS BEEN BLAMED FOR NON SUPPLY OF INFORMATION. II. RE: NON-ADHERENCE TO KYC NORMS 23.9. THE ASSESSING OFFICER ON TEST CHECK OF THE D EPOSITS HELD THAT THE ASSESSEE FAILED TO ADHERE TO THE KYC NORMS LAID DOW N BY THE RBI. THIS IS IN DIRECT CONTRADICTION TO THE CATEGORICAL OBSERVATION S OF SPECIAL AUDITOR APPOINTED BY HIM. SA AFTER CARRYING OUT VERIFICATIO N OF THE DEPOSIT ACCOUNTS, ACCEPTED THAT THE ASSESSEE HAD FULLY COMPLIED WITH THE KYC NORMS AS MANDATED BY RBI WHICH IS WRIT LARGE ON THE SPECIAL AUDITORS REPORT OBSERVING AS UNDER: ON TEST CHECK BASIS, WE HAVE VERIFIED THE KYC NORM S FOR THE DEPOSITS TAKEN DURING THE YEAR UNDER CONSIDERATION AND APART FROM MINOR ADDRESS CORRECTIONS; WE HAVE FOUND THE SAME I N ORDER. THUS THE LEARNED ASSESSING OFFICER MAY NOT DRAW ANY ADVE RSE INFERENCE ON THE SAME. 23.10. THUS THE FINDING OF THE ASSESSING OFFICER TH AT THE ASSESSEE HAD NOT COMPLIED WITH KYC NORMS IS BASED ON IGNORING THE AU DIT REPORT, RECORD AND IS AN ATTEMPT TO BLOW MINOR DEFICIENCIES OUT OF PRO PORTION., III. SUMMONS ISSUED BY THE ASSESSING OFFICER 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 85 23.11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ISSUED SUMMONS TO 1126 DEPOSITORS. THE STATUS OF RE SPONSE RECEIVED / NOT RECEIVED IS SUMMARIZED AS UNDER: A) OUT OF 1126 SUMMONS, 229 DEPOSITORS HAD REPLIED (OU T OF THOSE 133 HAD REQUESTED FOR ADJOURNMENT ,46 HAD ACCEPTED HAVING MADE DEPOSIT IN CASH AND 2 ACCEPTED HAVING MADE PAYMENT BY ACCOUNT PAYEE CHEQUES). B) 361 SUMMONS WERE RETURNED BACK DUE TO INCOMPLETE AD DRESS. C) 80 PERSONS WERE NOT FOUND AT THE GIVEN ADDRESS. D) 5 PERSONS HAD REFUSED THE SUMMONS. E) 2 WERE REPORTED DEAD. F) IN 3 CASES, THERE WERE MANY PERSONS BY THE SAME NAM E ON THE SAID ADDRESS AND, THEREFORE, THE SUMMONS WERE RETUR NED. G) IN 22 CASES, PERSONS HAD LEFT THE PLACE. H) IN 424 CASES NO RESPONSE HAD BEEN RECEIVED TILL DAT E. 23.12. THOUGH ASSESSEE EXPLAINED THE FULL IMPLICATI ON OF RESULTS OF THE SUMMONS, IGNORING THE SAME AND MAKING GUESS WORK AS SESSING OFFICER HELD THAT THE DEPOSIT ACCOUNTS ACCEPTED BY THE ASSESSEE ON WHICH SA AND RBI HAD NO ISSUE AT ALL, AS NON-GENUINE BY 35% OF THE NEW D EPOSITS. IN TERMS OF PROVISIONS OF SECTION 68 OF THE ACT, THE PRIMARY ON US LIES ON THE ASSESSEE TO EXPLAIN THE NATURE AND SOURCE OF THE AMOUNT FOUND T O BE CREDITED. THE EXPRESSION `NATURE MEANS BRINGING ON RECORD EVIDEN CE ABOUT NATURE OF THE RECEIPT, LIKE- LOAN, ADVANCE, SHARE APPLICATION MON EY, ETC. THE EXPRESSION `SOURCE ENVISAGES ESTABLISHING THE IDENTITY AND CR EDITWORTHINESS OF THE SOURCE/ PERSON FROM WHOM THE AMOUNT IS RECEIVED. TH E ONUS IS PRIMARY IN 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 86 NATURE THUS ONCE REASONABLE EXPLANATION, EVIDENCE A ND CIRCUMSTANCES, ARE FURNISHED BY THE ASSESSEE, IT AMOUNTS TO DISCHARGE OF PRIMARY ONUS AND THEN ONUS EFFECTIVELY SHIFTS TO THE REVENUE TO PROVE IT OTHERWISE. IN REBUTTAL GENERAL ASSUMPTIONS AND SURMISES CANNOT BE CONSIDER ED AS EFFECTIVE REBUTTAL, WHICH REQUIRES COUNTER EVIDENCE AND COGENT REASONS. 23.13. SECTION 68 HAS BEEN SUBJECT MATTER OF JUDICI AL INTERPRETATION BY VARIOUS COURTS/TRIBUNAL. THE RATIO EMANATING FROM THESE DEC ISIONS MAY BE SUMMARIZED AS UNDER: (I) THE ASSESSEE HAS TO PRIMA FACIE PROVIDE DOCUMEN TS TO PROVE THE IDENTITY OF THE CREDITOR AS WELL AS THE GENUINENESS OF THE TRANSACTION. (II) THE IDENTITY STANDS ESTABLISHED IF INFORMATION REGARDING PAN OR OTHER IDENTITY/ DOCUMENT OF THE CREDITOR IS PROVIDE D. (III) THE CREDITWORTHINESS OF THE SAID DEPOSITOR NE EDS TO BE PROVED BY THE ASSESSEE TO ESTABLISH THAT THE CREDITOR WAS HAVING SUFFICIENT SOURCE WHEREFROM CREDIT HAS BEEN GIVER. HOWEVER, TH E ASSESSEE IS NOT REQUIRED TO PROVE SOURCE OF SOURCE. (IV) THE GENUINENESS OF THE TRANSACTION SHALL, PRIM A FACIE, STAND ESTABLISHED WHERE THE AMOUNT HAS BEEN TRANSMITTED T HROUGH BANKING OR OTHER INDISPUTABLE CHANNELS. (V) ONCE IDENTITY OF THE CREDITOR, GENUINENESS OF T RANSACTION AND CREDITWORTHINESS OF THE CREDITOR IS PRIMA FACIE EST ABLISHED, THE BURDEN SHIFTS TO THE REVENUE. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 87 (VI) THE REVENUE, THEN, IN ORDER TO INVOKE THE PROV ISIONS OF SECTION 68 OF THE ACT HAS TO BRING ON RECORD FURTHER, EVIDE NCE TO CONTROVERT THE EVIDENCE FURNISHED BY THE ASSESSEE. 23.14. THUS IT IS SETTLED LAW THAT ONCE THE PRIMAR Y ONUS IS DISCHARGED AND THERE IS NOTHING TO EFFECTIVELY FOR REBUTTAL WI TH THE AO, NO ADDITION CAN BE MADE UNDER SECTION 68. IN VIEW OF THIS LEGAL POS ITION, IT IS IMPERATIVE TO ANALYZE WHETHER THE ASSESSEE HAS, DISCHARGED ITS PR IMARY BURDEN UNDER SECTION 68 OF THE ACT OR NOT. THE PECULIAR BUSINESS MODEL OF THE ASSESSEES RNBFC FOR ACCEPTANCE OF DEPOSITS, IS AS UNDER: PROCEDURE FOR ACCEPTING DEPOSIT & MAKING MATURITY P AYMENTS: - I. IN CASE OF FDR(S) : AT THE STAGE OF ACCEPTANCE OF DEPOSITS 1. AGENT APPROACHES THE DEPOSITORS. 2. GETS ACCOUNT OPENING FORM FILLED & COLLECTED MONEY. KYC DOCUMENTS ARE COLLECTED FROM ALL THE DEPOSITORS AND IN CASE, AMOUNT OF DEPOSIT EXCEEDS RS. 50,000, PAN OF RESPECTIVE DEPOSITOR IS ALSO OBTAINED. 3. SUBMITTED THE FILLED FORMS IN THE BRANCH OFFICE AND MONEY SO COLLECTED. 4. BRANCH ISSUES RECEIPT AND CERTIFICATE OF FDR AFTER OPENING OF THE ACCOUNT WHICH IS GIVEN TO DEPOSITOR. 5. COMMISSION ON DEPOSIT RECEIVED CALCULATED AT DAY EN D AND CREDITED IN FIELD WORKER LEDGER. 6. FIELD WORKER CAN, THEREAFTER, WITHDRAW HIS COMMISSI ON AS PER HIS REQUIREMENT. 7. CREDIT FOR INTEREST IN THE ACCOUNTS OF DEPOSITORS O N YEAR TO YEAR BASIS. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 88 AT THE STAGE OF PREMATURE WITHDRAWAL/MATURITY: 8. ADVICE FOR PAYMENT IS ISSUED BY REGISTERED OFFICE T O BRANCH OFFICE BEFORE MATURITY DATE. 9. ON DUE DATE OF MATURITY OR THEREAFTER, ACCOUNT HOLD ER APPROACHES THE BRANCH, FILLS MATURITY WITHDRAWAL FORM, SUBMIT KYC DOCUMENTS, SURRENDERS FD CERTIFICATES AND RECEIVES MATURITY AM OUNT. II. IN CASE OF MONTHLY ACCOUNTS: AT THE STAGE OF ACCEPTANCE OF DEPOSITS 1. AGENT APPROACHES THE DEPOSITORS. 2. GETS ACCOUNT OPENING FORM FILLED AND COLLECTS AMOUN T OF FIRST INSTALMENT. KYC DOCUMENTS ARE COLLECTED FROM ALL TH E DEPOSITORS AND IN CASE AMOUNT OF DEPOSIT EXCEEDS RS. 50,000, PAN O F RESPECTIVE DEPOSITOR IS ALSO OBTAINED WHEREVER APPLICABLE. 3. SUBMITS THE ACCOUNT OPENING FORM AND AMOUNT OF FIRS T INSTALMENT, AT BRANCH OFFICE. 4. BRANCH ISSUES RECEIPT OF MONEY SO COLLECTED AND PAS S BOOK. 5. INITIAL COMMISSION ON DEPOSIT RECEIVED CALCULATED A T DAY END AND CREDITED IN FIELD WORKER LEDGER. 6. FIELD WORKER CAN WITHDRAW HIS COMMISSION AS PER HIS REQUIREMENT 7. THEREAFTER, EVERY MONTH AGENT COLLECTS INSTALMENTS FROM DEPOSITORS, DEPOSITS THE SAME AT THE BRANCH AND BRANCH ISSUES R ECEIPT(S) FOR AMOUNT COLLECTED AND UPDATES PASS BOOK OF DEPOSITOR . 8. COMMISSION CREDITED TO ACCOUNT OF FIELD WORKER ON T HE AMOUNT COLLECTED FROM MONTH TO MONTH. AT THE STAGE OF PREMATURE WITHDRAWAL/MATURITY: 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 89 1. DEPOSITOR AT THE TIME OF LAST INSTALMENT OR THEREAF TER SUBMITS APPLICATION AT BRANCH FOR MATURITY PAYMENT. 2. ADVICE FOR MATURITY PAYMENT IS ISSUED BY REGISTERED OFFICE TO BRANCH OFFICE. 3. THE INFORMATION OF ADVICE RECEIVED AT BRANCH IS GIV EN BY AGENT TO DEPOSITOR. 4. DEPOSITOR SURRENDERS PASS BOOK, SUBMITS THE DOCUMEN TS REQUIRED AS PER KYC NORMS AND RECEIVES MATURITY. III. IN CASE OF DAILY SCHEME: AT THE STAGE OF ACCEPTANCE OF DEPOSITS A. AGENT APPROACHES THE DEPOSITORS. B. GETS ACCOUNT OPENING FORM FILLED AND COLLECTS AMOUN T OF FIRST INSTALMENT. C. SUBMITS THE ACCOUNT OPENING FORM AND AMOUNT OF FIRS T INSTALMENT AT BRANCH. D. BRANCH ISSUES RECEIPT OF MONEY SO COLLECTED AND PAS S BOOK. E. THEREAFTER, ACCOUNT IS ALLOTTED TO COLLECTOR OF THA T AREA WHO COLLECTS INSTALMENTS ON DAILY COLLECTION SHEET, DEPOSITS THE SAME AT THE BRANCH AND BRANCH ISSUES A COLLECTOR RECEIPT TO COLLECTOR FOR TOTAL AMOUNT DEPOSITED BY HIM. F. AT THE END OF THE FORTNIGHT, BRANCH ISSUES A CONSOL IDATED DEPOSITORY RECEIPT TO DEPOSITOR FOR TOTAL DEPOSIT RECEIVED IN THAT FORTNIGHT AND ALSO UPDATES PASS BOOK OF DEPOSITOR. G. INITIAL COMMISSION CALCULATED AFTER RECEIVING 25 IN STALMENTS AND CREDITED IN FIELD WORKER LEDGER. H. FIELD WORKER CAN WITHDRAW HIS COMMISSION AS PER HIS REQUIREMENT. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 90 AT THE STAGE OF PREMATURE WITHDRAWAL/MATURITY: 1. DEPOSITOR AT THE TIME OF LAST INSTALMENT OR THEREAF TER SUBMITS APPLICATION AT BRANCH FOR MATURITY PAYMENT. 2. ADVICE FOR MATURITY PAYMENT IS ISSUED BY REGISTERED OFFICE TO BRANCH OFFICE. 3. THE INFORMATION OF ADVICE RECEIVED AT BRANCH IS GIV EN BY AGENT TO DEPOSITOR. 4. DEPOSITOR SURRENDERS PASS BOOK, SUBMITS THE DOCUMEN TS AS REQUIRED UNDER KYC NORMS AND RECEIVES MATURITY AMOUNT. COMMON PROCESSES APPLICABLE FOR ALL SCHEMES (I) AT EVERY DAY END, ENCRYPTED DATA FILE OF ALL TH E TRANSACTIONS OF THAT DAY/DEMAND OF MATURITY/LOAN IS PREPARED THROUG H SOFTWARE AND TRANSFERRED TO REGISTERED OFFICE VIA INTERNET IN EL ECTRONIC FORM. (II) COMMISSION ON INSTALMENTS (DAILY & RD SCHEMES) AND OVERRIDING COMMISSION CALCULATED AT REGISTERED OFFICE AND PROV IDED TO BRANCHES EVERY MONTH IN THE FORM OF ELECTRONIC ADVICE. BRANC HES LOAD THE ADVICE DATA THROUGH SOFTWARE AND COMMISSION IS CREDITED IN THE RESPECTIVE FIELD WORKER ACCOUNT. 23.15. THIS ENTIRE PROCESS IS CARRIED OUT THROUGH CUSTOMIZED SOFTWARE. BRANCH CANNOT ALTER THE DATA ONCE GENERATED, ALL TH E ADVICES RELATED TO MATURITY, COMMISSION ETC ARE PROVIDED ELECTRONICALL Y IN ENCRYPTED FORM. DURING THE COURSE OF PROCEEDING, ASSESSEE EXPLAINED THE AFORESAID PROCESS OF ACCEPTANCE OF DEPOSITS BY BRINGING ON RECORD THE FO LLOWING DOCUMENTARY EVIDENCES, ON SAMPLE BASIS: 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 91 A) COPY OF THE APPLICATION FORM OF ONE OF THE DEPOSITO R (REFER PG 35 OF PB FILED ON 01.10.2103). B) COPY OF THE VOTER IDENTITY CARD OF THE DEPOSITOR RE CEIVED BY THE ASSESSEE FOR COMPLYING WITH KYC NORMS (REFER PG 55 OF PB FILED ON 01.10.2103). C) COPY OF DAILY COLLECTION SHEET PREPARED BY THE COLL ECTOR SHOWING THAT THE AMOUNT WAS RECEIVED FROM THE DEPOSITOR (REFER P G 37-42 OF PB FILED ON 01.10.2103). D) COPY OF THE PASSBOOK OF THE DEPOSITOR WITH ENTRIES REFLECTING COLLECTION OF CASH (REFER PG 43-51 OF PB FILED ON 0 1.10.2103). E) COPY OF THE LEDGER ACCOUNT OF THE DEPOSITOR MAINTAI NED IN THE BOOKS OF THE ASSESSEE(REFER PG 52 OF PB FILED ON 01.10.2103) . F) COPY OF THE APPLICATION FORM SUBMITTED BY THE DEPOS ITOR FOR PRE- MATURE WITHDRAWAL / WITHDRAWAL ON MATURITY OF THE D EPOSIT ACCOUNT(REFER PG 53 OF PB FILED ON 01.10.2103). G) COPY OF ADVICE ISSUED BY THE REGISTERED OFFICE OF T HE ASSESSEE COMPANY FOR MAKING FINAL PAYMENT DUE TO THE DEPOSIT OR (REFER PG 54 OF PB FILED ON 01.10.2103). H) COPY OF THE RELEVANT EXTRACTS OF THE BANK STATEMENT OF ASSESSEE COMPANY SHOWING THE PAYMENT MADE TO THE DEPOSITOR ( REFER PG 56 OF PB FILED ON 01.10.2103). I) COPY OF THE TDS CERTIFICATE ISSUED TO THE DEPOSITOR IN RESPECT OF THE TAX DEDUCTED AT SOURCE FROM THE PAYMENT OF INTEREST , WHEREVER APPLICABLE (REFER PG 77-80 OF PB FILED ON 01.10.210 3). J) COPY OF THE STATEMENT SHOWING COMMISSION DUE TO THE AGENT ON THE ABOVE DEPOSITORS ACCOUNT (REFER PG 57 OF PB FILED ON 01.10.2103). 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 92 K) COPY OF THE TDS CERTIFICATE ISSUED BY ASSESSEE COMP ANY TO THE ABOVE COMMISSION AGENT SHOWING THAT TAX WAS DULY DEDUCTED ON THE AMOUNT PAID TO COLLECTOR(S) AS COMMISSION (REFER PG 58-66 OF PB FILED ON 01.10.2103). 23.16. IT IS CONTENDED THAT BEFORE ACCEPTING ANY PARTICULAR DEPOSIT FROM THE DEPOSITOR, THE ASSESSEE HAS TO MANDATORILY FOLLOW SEVERAL IMPORTANT STEPS. ASSESSEE BEING A REGISTERED RNBFC, SEVERAL C HECKS AND CONTROLS HAVE BEEN PUT IN PLACE IN THE SYSTEM. THEY BY NECESSARY IMPLICATION ARE INBUILT IN THE ABOVE PROCESS OF ACCEPTANCE OF THE DEPOSIT(S). ASSESSEE IS ONE OF THE BIGGEST SMALL DEPOSIT COLLECTOR IN INDIA HAVING OVE R 3.5 CRORES DEPOSIT ACCOUNTS WHICH ARE SERVICED THROUGH OVER 1500 BRANC HES WITH THE HELP OF AROUND 4 LACS COMMISSION AGENTS AND AROUND 5000 STA FF MEMBERS. THE EXERCISE IS CARRIED OUT BY CUSTOMIZED SOFTWARE COMP LAINT TO RBI DIRECTORS, WHICH CAN NOT BE TEMPERED WITH BY FIELD STAFF. IN S UCH A SCENARIO IT IS IMPOSSIBLE THAT A DEPOSIT ACCOUNT CAN BE OPENED WIT HOUT FOLLOWING AFORESAID STEPS. FURTHER, IT IS HIGHLY IMPROBABLE THAT ASSESS EE WILL CONNIVE WITH SO MANY PEOPLE WOULD TOGETHER TO ENABLE IT TO LAUNDER ITS ALLEGED UNACCOUNTED MONEY THROUGH RBI REGULATED CHANNELS. NO IOTA OF EV IDENCE HAS BEEN BROUGHT ON RECORD OR WHISPERED BY SA OR AO IN THIS BEHALF TO SUPPORT THE ALLEGED LAUNDERING.. 23.17. NATURE OF DEPOSITS IS UNDISPUTEDLY UNDER VAR IOUS SCHEMES FLOATED BY ASSESSEE RNBC AS PER THE APPROVAL AND CONDITIONS ST IPULATED BY THE RBI INCLUDING FURTHER INVESTMENT OF COLLECTED FUNDS IN SPECIFIED OR NOMINATED SECURITIES. THUS THERE IS NO DIRECT ADVANTAGE TO TH E ASSESSEE AS DEEMED BY THE AO TO SUPPORT HIS UNFOUNDED ALLEGATIONS. EVIDENCES REGARDING IDENTITY OF THE DEPOSITORS: 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 93 23.18. AS A RESIDUARY NON BANKING COMPANY (RNBC) DULY REGISTERED WITH RESERVE BANK OF INDIA (RBI), THE ASSESSEE HA S TO MANDATORILY ADHERE TO RESIDUARY NON BANKING COMPANY (RESERVE BANK) DIR ECTIONS, 1987 ISSUED BY THE RBI. IN TERMS OF THE SAID DIRECTIONS , THE ASSESSEE HAS TO STRICTLY COMPLY WITH KYC NORMS, MAINTENANCE OF REGISTER OF D EPOSITS, FILING OF RETURN WITH RBI ETC. IN COMPLIANCE OF THESE DIRECT IONS, THE ASSESSEE HAD, DURING THE RELEVANT PREVIOUS YEAR, SCRUPULOUSLY AND METICULOUSLY FOLLOWED KYC NORMS BEFORE ACCEPTING ANY DEPOSITS. ADDITIONA LLY, KEEPING IN MIND THE EARLIER DIRECTIONS OF THE ITAT, ASSESSEE HAS IN SISTED ON THE DEPOSITOR(S) TO AGAIN COMPLY WITH THE KYC NORMS BEFORE RELEASING PA YMENT ON PRE-MATURE WITHDRAWAL OR MATURITY OF THE DEPOSIT ACCOUNT(S). 23.19. THE ASSESSEE HAD FILED MONTHLY / ANNUAL RETU RNS WITH THE RBI GIVING DETAILS OF THE DEPOSITS ACCEPTED DURING THE YEAR. COPY OF ONE SUCH RETURN IS PLACED AT PG 165-184 OF PB. DURING THIS YEAR, THE A SSESSEE HAD OVER 3 CRORES DEPOSIT ACCOUNTS HAVING DENOMINATION OF LESS THAN R S.10,000 PER DEPOSIT AND ONLY 44,006 DEPOSIT ACCOUNTS WITH DENOMINATION MORE THAN RS.50,000 PER DEPOSIT. THE RBI HAS ALSO UNDERTAKEN ROUTINE AND PE RIODIC INSPECTION OF THE BOOKS OF ACCOUNTS AND RECORDS MAINTAINED BY THE ASS ESSEE COMPANY AND MADE NO ADVERSE COMMENTS AND/OR REPORTED ANY DISCRE PANCY, VIS-A-VIS THE GENUINENESS OF THE ACTIVITY OF COLLECTION AND REPAY MENT OF DEPOSITS. 23.20. IN SEVERAL CASES, DEPOSITORS FILED FORM 15G /15H REQUIRING THE ASSESSEE FOR NON DEDUCTION OF TAX AT SOURCE FROM TH E INTEREST DUE. THE ASSESSEE HAS DULY SUBMITTED RELEVANT RETURNS AS MAN DATED IN SECTION 197A OF THE ACT READ WITH RULE 29C OF THE INCOME-TAX RULES, 1962, ON MONTHLY BASIS TO THE CONCERNED CIT. THERE HAS NEVER BEEN ANY ADV ERSE REMARKS BY THE DEPARTMENT ABOUT THE CORRECTNESS OF SUCH PRESCRIBED TDS RELATED RETURNS 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 94 23.21. IN MANY CASES, THE DEPOSITORS HAD INDICATE D THEIR PAN IN THE APPLICATION FORM AND TAX WAS DEDUCTED AT SOURCE OUT OF INTEREST PAID TO SOME OF THE DEPOSITORS WHEREVER INTEREST PAID EXCEEDED T HE MINIMUM AMOUNT AS PRESCRIBED IN SECTION 194A OF THE ACT. IN CASES WH ERE REPAYMENT OF DEPOSIT ALONGWITH INTEREST EXCEEDED RS. 20,000/-, THE PAYME NT WAS MADE BY ACCOUNTS PAYEE CHEQUES EXCEPT IN CERTAIN UNAVOIDAB LE CIRCUMSTANCES, WHICH DEMONSTRATES THAT THE IDENTITY OF THE DEPOSITORS HA D BEEN ESTABLISHED. EVIDENCES REGARDING GENUINENESS OF THE TRANSACTIONS : 23.22. RBI REGULATIONS AND CONDITIONS ABOUT COLLEC TION OF DEPOSITS HAVE NEVER BEEN CLAIMED BY ANYBODY I.E. RBI, INTERN AL AUDITORS OR SPECIAL AUDITOR TO HAVE BEEN VIOLATED BY ASSESSEE. THE DEPO SITS COLLECTED ARE DULY REPORTED IN THE MONTHLY / ANNUAL RETURNS FILED WITH RBI IN TERMS OF STATUTORY RULES I.E. RESIDUARY NON BANKING COMPANY (RESERVE B ANK) DIRECTIONS, 1987. THERE IS NO ALLEGATION BY SPECIAL AUDITOR OR THE LD AO THAT ASSESSEE HAS VIOLATED ANY RBI CONDITION FOR COLLECTION OF DE POSIT INCLUDING KYC NORMS. THE DEPOSITS BEING IN COMPLIANCE WITH REGULA TORY PRESCRIPTIONS OF APPLICABLE STATUTORY RULES AND REGULATIONS, LEAVES NO DOUBT ABOUT THE GENUINENESS OF THE DEPOSITS. REGARDING CREDITWORTHINESS OF THE DEPOSITORS: 23.23. ASSESSEES ONUS IN RESPECT OF CREDITWORTHINE SS OF THE DEPOSITORS IS TO BE TESTED IN THE CONTEXT OF THE NATURE OF BUSINESS OF THE ASSESSEE AND NOT DIVORCED THEREFROM. FOR ANY RNBC REGISTERED WITH RB I ENGAGED IN THE BUSINESS OF MOBILIZING DEPOSITS, IT IS WELL NIGH IM POSSIBLE TO INSIST ON THE DEPOSITOR TO SUBMIT DOCUMENTS TO ESTABLISH CREDITWO RTHINESS OF THE PROSPECTIVE DEPOSITORS BEFORE ACCEPTING THE DEPOSIT . SUCH A STAND IS AGAINST THE BANKING BUSINESS REGULATIONS AND WOULD HAVE SER IOUS ADVERSE EFFECT ON THE BANKING BUSINESS. ASSESSEES INSISTENCE OF CON DITIONS WHICH IS NOT ASKED 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 95 BY OTHER SIMILAR BANKING INSTITUTION WILL MAKE THE DEPOSITORS RUN AWAY TO SOME OTHER INSTITUTION. ASSESSEE CANNOT RUN THE RIS K OF BEING BRANDED AS A DEPOSITOR UNFRIENDLY NASTY AND SNOOPING RNBC, WHICH REQUIRES FOR PAPERS AND QUESTIONS WHICH ARE NOT ASKED BY OTHERS. SUCH A N EXERCISE IS LIKELY TO FINISH ITS BUSINESS. 23.24. AS A MATTER OF CUSTOMARY PRACTICE AND RNBC R EGULATIONS, BANK NEVER ENQUIRIES OR INSISTENCE ON PROOF ABOUT THE SOURCE O F SUCH DEPOSIT OR CREDITWORTHINESS OF SUCH DEPOSITOR. IT IS TO BE PR OPERLY APPRECIATED THAT IN THE CONTEXT OF ASSESSEES BUSINESS, WHICH IS AKIN T O BANKING BUSINESS, THE PRIMARY ONUS ON THE ASSESSEE WOULD STAND DISCHARGED IF THE ASSESSEE IS ABLE TO SHOW COMPLIANCE OF KYC NORMS, WHICH ARE INSISTED UPON BY RBI AS A CONDITION PRECEDENT FOR OPENING THE ACCOUNT. THUS ONCE THE RNBFC HAD COMPLIED WITH THE KYC NORMS A FACT WHICH IS ADMITTE D BY THE SPECIAL AUDITOR, THE PRIMARY ONUS ON THE ASSESSEE TO PROVE THE CREDITWORTHINESS OF THE DEPOSITORS STOOD DISCHARGED, FOLLOWING DECISIONS AR E RELIED: ACIT V. CITIZEN URBAN CO-OP BANK LTD.:120 ITD 513(A MRITSAR TRIBUNAL) 23.25. THE RELEVANT EXTRACTS OF THE TRIBUNAL DECISI ON IS AS UNDER: 26. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. THE FACTS ARE NOT IN DISPUTE. THE ISSUE IS AS TO WHETHER THE PROVISIONS OF SECTION 68 OF THE ACT ARE APPLICABLE AND WHETHER IT HAS RIGHTLY BEEN APPLIED TO THE ASSESSEE-BANK. THE LEAR NED CIT(A), WHILE DELETING THE ADDITION MADE, HAS OBSERVED THAT THE A SSESSEES CASE WAS SUBJECT TO RULES LAID DOWN UNDER THE BANKING REGULA TION ACT, AS ALSO THE REGULATIONS OF THE RBI; THAT ALL THE BANKING OP ERATIONS ARE UNDER AUDIT AND REPORT IN THIS REGARD GOES TO THE RBI; TH AT, THEREFORE, THE CASE OF THE ASSESSEE-BANK COULD NOT BE PUT AT PAR W ITH THE CASES OF OTHER PERSONS, SINCE THE BANK DOES NOT HAVE ANY CON TROL IN RESPECT OF THE AMOUNTS CREDITED IN ITS ACCOUNTS; THAT THE BANK IS TO MAINTAIN 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 96 ACCOUNTS OF ITS CUSTOMERS, WHICH ACCOUNTS CAN BE OP ERATED ONLY BY THOSE CUSTOMERS AND THE BANK DOES NOT HAVE ANY CONT ROL OVER THE AMOUNTS IN THE ACCOUNTS. WHILE HOLDING IN FAVOUR TH E ASSESSEE, THE LEARNED CIT(A) HAS DULY TAKEN INTO CONSIDERATION TH E PROVISIONS UNDER SECTION 68 OF THE ACT, WHICH ARE EXPLICIT. 27. AS PER SECTION 68 OF THE ACT, WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOU S YEAR AND THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF, OR THE EXPLANATION OFFERED BY HIM IS NOT, IN THE OPINI ON OF THE ASSESSING OFFICER, SATISFACTORY, THE SUM SO CREDITED MAY BE C HARGED TO INCOME- TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR. THE BUSINESS OF THE ASSESSEE-BANK IS TO CARRY ON BANKING TRANSAC TIONS. THE BANK, FOR ALL ITS BANKING ACTIVITIES, IS STRICTLY GOVERNE D BY THE BANKING REGULATION ACT, 1949. THE SAID ACT DEFINES A BANKIN G COMPANY AS A COMPANY WHICH TRANSACTS THE BUSINESS OF BANKING. B ANKING IS DESCRIBED AS ACCEPTING, FOR THE PURPOSE OF LENDING OR INVESTMENT OF MONEY, DUE FROM THE PUBLIC REPAYABLE ON DEMAND OR O THERWISE AND WITHDRAWAL BY CHEQUE, DRAFT ORDER OR OTHERWISE. THU S, THE DEPOSITS HELD BY THE ASSESSEE ARE ITS STOCK IN TRADE. THE AM OUNTS IN THE ACCOUNTS MAINTAINED BY THE ASSESSEE-BANK WERE NOT I N THE CONTROL OF THE ASSESSEE-BANK. THEY ARE THE DEPOSITS IN THE SAV INGS ACCOUNTS OF THE CUSTOMERS OF THE ASSESSEE-BANK. TO THESE DEPOSITS, SECTION 68 OF THE ACT IS NOT ATTRACTED. IN THE CASES OF BANKING COMPA NIES LIKE THE ASSESSEE, THE CUSTOMERS IDENTITY IS REQUIRED TO BE TAKEN BY THE BANK WITH PROPER INTRODUCTION, PHOTOGRAPHS AND ADDRESS, ETC. THIS IS SO, BECAUSE ANY PERSON FROM THE GENERAL PUBLIC CAN OPEN THE ACCOUNT WITH THE BANK. THE OTHER CASES OF ACCEPTANCE OF DEP OSITS CANNOT BE EQUATED WITH THAT OF THE BANK. IN THOSE CASES, NORM ALLY, DEPOSITS ARE ACCEPTED FROM THE PEOPLE CONNECTED WITH OR KNOWN TO THE DEPOSITEES. IT IS IN ACCORDANCE WITH THE TERMS OF SECTION 131 O F THE NEGOTIABLE INSTRUMENTS ACT THAT THIS REQUIREMENT IS THERE. AS SUCH, IF INTRODUCTION OF THE CUSTOMER HAD DULY TAKEN BY THE BANK, THE BAN K WOULD NOT BE LIABLE IN CASE OF A FRAUD. MOREOVER, PERTINENTLY, I F THE CUSTOMER SEEKS TO OPERATE THE ACCOUNT WITH CASH ONLY, THE BANK CAN OPEN AN ACCOUNT WITHOUT INTRODUCTION AND WITHOUT PROPER IDENTIFICAT ION. FURTHER, THE BANK IS NOT OBLIGED TO QUESTION THE SOURCE OF DEPOS ITS MADE BY ITS 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 97 CUSTOMERS. ALSO, THE CUSTOMERS CAN RETAIN THE AMOU NT IN HIS SAVINGS BANK ACCOUNT WITH THE ASSESSEE-BANK FOR ANY PERIOD. THE AMOUNT HAS TO BE REPAID BY THE BANK TO ITS CUSTOMERS IMMEDIATE LY ON DEMAND. THESE FEATURES DISTINGUISH THE CASE OF THE BANK FRO M OTHER ORDINARY ASSESSEES. THEREFORE, THE PROVISIONS OF SECTION 68 OF THE ACT ARE NOT APPLICABLE TO THE BANK AS THEY ARE IN THE CASES OF THE OTHER ASSESSEES. STILL FURTHER, UNDER SECTION 35 OF THE BANKING REGU LATION ACT, 1949, A BANKING COMPANY IS SUBJECT TO PERIODICAL INSPECTION S AND AUDIT BY THE RBI AND IN CASE ANY DEFAULT IS FOUND, THE BANK IS L IABLE FOR HEAVY MONETARY PENALTY, BESIDES CANCELLATION OF ITS LICEN SE. THIS IS NOT THE CASE WITH OTHER ASSESSEES. A BANK, UNDER THE RBI GU IDELINES, IN ORDER TO MAINTAIN CONFIDENTIALITY IN RESPECT OF THE INFOR MATION COLLECTED BY A BANK RELATING TO ITS CUSTOMERS, SUCH INFORMATION IS NOT TO BE DIVULGED TO OUTSIDERS. THERE IS NO SUCH OBLIGATION WITH OTHE R ASSESSEES. 28. DESPITE THE RBI GUIDELINES PROVIDING MAINTENANC E OF SECRECY WITH REGARD TO THE INFORMATION REGARDING THE CUSTOMERS O F THE BANK, THE ASSESSEE FURNISHED TO THE ASSESSING OFFICER WHATEVE R INFORMATION IT HAD IN ITS POSSESSION. THE ADDRESSES OF THE ACCOUNT HOLDERS, AS MENTIONED IN THE BANK LEDGERS, AS ALSO THE ADDRESSE S OF THE INTRODUCERS OF THE ACCOUNTS WERE FURNISHED TO THE A SSESSING OFFICER. NOW IF THE ADDRESSES OF THE CUSTOMERS OF THE ASSESS EE-BANK WERE FOUND TO BE INCOMPLETE, THIS CANNOT FORM THE BASIS FOR MAKING THE ADDITION IN QUESTION. UNDISPUTEDLY; THE ASSESSEE-BA NK DID NOT VIOLATE ANY OF THE RELEVANT GUIDELINES OF THE RBI . IN THE MASTER CIRCULAR OF THE RBI (COPY AT PAGE 75 OF THE ASSESSEES PAPER BO OK), INTRODUCTION BY AN EXISTING ACCOUNT HOLDER BY THE BANK HAS BEEN HELD TO BE ONE OF THE PROPER METHODS OF INTRODUCTION OF A CUSTOMER TO THE BANK FOR OPENING AN ACCOUNT. THE BANK WAS NOT REQUIRED TO GO FOR DETAILED VERIFICATION OF THE ADDRESSES/WHEREABOUT OF ITS CUS TOMERS, THOUGH THIS POSITION HAS NOW CHANGED AND AT PRESENT THE REQUIRE MENT IN THIS REGARD CALLS FOR A MUCH MORE STRINGENT COMPLIANCE. IN BAPULAL PREMCHAND V. NATH BANK LTD. AIR 1946 (BOM.) 482, AS POINTED OUT, IT HAS BEEN HELD, INTER ALIA, THAT THERE IS NO ABSOLUT E OBLIGATION ON A BANK TO MAKE INQUIRIES ABOUT A PROPOSED CUSTOMER, S O AS TO AVAIL OF THE PROTECTION UNDER SECTION 131 OF THE NEGOTIABLE INSTRUMENTS ACT. IN UNION OF INDIA V. NATIONAL OVERSEAS & GRINDLAYS BAN K LTD. [1978] 48 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 98 COMP. CAS. 277 (DELHI) REFERRING TO THE BAPULAL PRE MCHANDS CASE (SUPRA), IT WAS HELD THAT THE BANK COULD RELY ON TH E INTRODUCTION OF ANY OLD CUSTOMER AND THAT IF THE BANK BONA FIDE ACTED O N THE REFERENCE OF A CUSTOMER, IT CAN AVAIL OF THE PROTECTION UNDER SECT ION 131 OF THE NEGOTIABLE INSTRUMENTS ACT. SO FAR AS REGARDS NON-O BTAINING OF PHOTOGRAPHS OF THE ACCOUNT HOLDERS, IT IS TRUE THAT THE SAME WERE NOT OBTAINED IN THE NORMAL COURSE. PERTINENTLY, IN SAVI NGS BANK ACCOUNTS WHERE CHEQUE FACILITIES WERE NOT PROVIDED, RBI GUID ELINES (PAGE 76 OF THE ASSESSEES PAPER BOOK) PROVIDED EXEMPTION. THUS , IN RESPECT OF ACCOUNTS WITH ONLY CASH TRANSACTIONS, EVEN THE RULE OF PROPER INTRODUCTION DID NOT OPERATE STRICTLY. ALL THIS SHO WS THAT THE ASSESSEE- BANK DID NOT COMMIT ANY INFRINGEMENT IN TAKING PROP ER INTRODUCTION AND, THEREFORE, IT IS INCORRECT THAT THERE WAS ANY DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO ACCOMMODATE TAX DODGERS . 23.26. THIS DECISION HAS BEEN APPROVED BY THE PUNJA B & HARYANA HIGH COURT IN THE CASE OF CIT V. CITIZEN URBAN CO-OP BANK LTD. :336 ITR 62 (P&H) . CIT V. PRAGATI CO-OPERATIVE BANK LTD.: 278 ITR 170 (GUJ.) 23.27. THE RELEVANT EXTRACTS FROM THE ABOVE DECISIO N OF THE HIGH COURT ARE REPRODUCED AS UNDER: 15. APPLYING THE SETTLED LEGAL POSITION TO THE FACT S OF THE CASE, IT IS APPARENT THAT THE ASSESSEE HAD FURNISHED THE DETAIL S WHICH WOULD DISCHARGE THE ONUS WHICH LAY ON THE ASSESSEE CONSID ERING THE FACT THAT DEPOSITS WERE MADE BY THIRD PARTIES, VIZ., CUSTOMER S OF THE BANK. IT IS NOBODYS CASE THAT THE DEPOSITS WERE MADE EITHER BY THE DIRECTORS OF THE ASSESSEE-BANK OR ANY OF THE RELATIVES OF THE DI RECTORS. AS TO WHAT WOULD BE THE SCOPE OF THE INQUIRY AND THE DEGREE OF PROOF THAT WOULD BE REQUIRED IN SUCH CIRCUMSTANCES, IS NOT REQUIRED TO BE DEALT WITH IN THE FACT SITUATION OF THE PRESENT CASE. THE OPINION EXPRESSED BY THE PATNA HIGH COURT HAS BEEN IMPLIEDLY APPROVED BY THE APEX COURT IN THE CASE OF CIT V. ORISSA CORPORATION (P.) LTD. [19 86] 159 ITR 782 (SC) WHEN IT IS STATED THAT, ONCE THE ASSESSEE HAD GIVEN THE NAMES AND ADDRESSES OF THE ALLEGED CREDITORS AND IT WAS IN TH E KNOWLEDGE OF THE REVENUE THAT THE SAID CREDITORS WERE INCOME-TAX ASS ESSEES, IF THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 99 REVENUE DID NOT MAKE ANY EFFORT TO PURSUE THE SO-CA LLED ALLEGED CREDITORS, THE ASSESSEE COULD NOT DO ANYTHING FURTH ER AND THE ASSESSEE HAD DISCHARGED THE BURDEN THAT LAY ON THE ASSESSEE. IT WAS FOR THE REVENUE TO EXAMINE THE SOURCE OF INCOME OF THE ALLE GED CREDITORS TO FIND OUT THEIR CREDITWORTHINESS. 16. THE FINDING BY THE TRIBUNAL THAT THE ASSESSEE-B ANK CANNOT HAVE ANY UNDISCLOSED INCOME HAS TO BE APPRECIATED IN THE CONTEXT OF FINDING BY THE CIT(A) THAT THE ACTIVITIES OF THE ASSESSEE-B ANK ARE REGULATED BY THE PROVISIONS OF THE BANKING REGULATIONS ACT, 1949 , AND THE GUIDELINES ISSUED BY RBI. THIS IS APART FROM THE FA CT THAT UNDER PROVISIONS OF SECTION 80P OF THE ACT, ENTIRE INCOME FROM BANKING ACTIVITIES IS EXEMPT IN THE HANDS OF THE ASSESSEE, A CO-OPERATIVE BANK. THUS, THERE CAN EXIST NO REASON FOR THE ASSESSEE-BA NK TO INDULGE IN ANY ACTIVITY WHICH WOULD YIELD UNDISCLOSED INCOME. DCIT V. DHANLAKSHMAI BANK LTD.: 76 TTJ 439 (COCHIN TRIBUNAL) 23.28. THE PERTINENT OBSERVATIONS OF THE TRIBUNAL A RE REPRODUCED AS UNDER: WE FIND CONSIDERABLE FORCE IN THE ARGUMENT OF T HE ASSESSEES LEARNED COUNSEL THAT IF THE REVENUE SUSPECTS THE GE NUINENESS OF THE DEPOSITS, IT WOULD HAVE BEEN PROPER TO INSTRUCT THE ASSESSEE TO STOP PAYMENT TILL THE DEPOSITORS APPEAR BEFORE THE AO AN D SATISFIES HIM. IT IS DIFFICULT TO HOLD THAT WHEN THOUSANDS OF DEPOSIT S ARE MADE WITH THE ASSESSEE-BANK, THE ASSESSEE SHOULD BE IN A POSITION TO IDENTIFY EACH AND EVERY DEPOSITOR. IT IS TRUE THAT AS FAR AS THE TAXING AUTHORITIES ARE CONCERNED BANKS AND INDIVIDUALS OR FOR THAT MATTER ANY INSTITUTION ARE LIABLE TO BE TAXED AND TREATED EQUALLY. AT THE SAME TIME, IT IS ALSO TRUE THAT LAW DOES NOT DEMAND IMPOSSIBLE. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE ORDER OF THE LEARNED FIRST APPELLATE AUTHORITY DOES NOT WARRANT ANY INTERFERENCE.. CITIZEN CO-OP SOCIETY V. ACIT: ITA NO. 1003/ HYD/20 11 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 100 9. IT IS FURTHER OBSERVED THAT THE SOCIETY HAS OPEN ED A SB ACCOUNT WHEREVER IT HAS ACCEPTED DEPOSIT FROM ITS MEMBERS T O CREDIT INTEREST PERIODICALLY. THERE IS FACILITY FOR THE DEPOSITOR T O WITHDRAW INTEREST. THERE IS NO DISPUTE WITH REGARD TO PAYMENT OF INTER EST. THE CUSTOMERS HAVE REGULARLY WITHDRAWN THE AMOUNT FROM THEIR SB A CCOUNTS WHICH ARE PROVED THAT THE AMOUNT DEPOSITED BELONGS TO THE DEPOSITOR AND NOT BELONGS TO THE ASSESSEE. 10. THE SOCIETY HAS MAINTAINED SYSTEMATIC RECORDS A ND BOOKS OF ACCOUNTS FOR ITS BUSINESS. IT HAS ACCEPTED ALL THE DOCUMENTS AS REQUIRED UNDER KYC NORMS. IT HAS ISSUED A PROPER DE POSIT CERTIFICATE AND CREDITED THE INTEREST AS WELL AS THE MATURITY P ROCEEDS DIRECTLY CREDITED ITS DEPOSITOR SAVINGS BANK ACCOUNT. IN NO OCCASION IT HAS DIRECTLY PAID THE DEPOSITS DIRECTLY TO THE DEPOSITO R. IN THE PRESENT CASE THE ASSESSEE SOCIETY IS SUBJECTED TO RULES LAID DOW N BY MULTI-STATE CO- OPERATIVE SOCIETY ACT AND RULES. THE SOCIETY BOOKS OF ACCOUNTS ARE SUBJECTED TO AUDIT BY THE REGULATORY BODIES EVERY Y EAR. THEREFORE, THE ASSESSEE CANNOT BE EQUATED WITH OTHER NORMAL BUSINE SS CONCERNS. SINCE THE ASSESSEE HAS NO CONTROL OVER THE DEPOSITS AS IT IS THE PROPERTY OF THE DEPOSITORS AND THE SOCIETY REQUIRED TO PAY ON DEMAND. THE CUSTOMERS USUALLY GO THE BANK FOR MAKING DEPOSI T TO EARN BETTER INTEREST. THE CUSTOMERS WILL GO THE BANKS WHERE THE Y GET MORE INTEREST. THERE IS NO DISPUTE IN THESE ASSESSMENT YEARS THE A SSESSEE HAS BEEN CARRYING OUT THE BANKING BUSINESS. WHETHER OR NOT T HE BUSINESS IS CARRIED OUT WITH OR WITHOUT PERMISSION, IT IS BOUND BY THE BANKING REGULATIONS ACT, 1949. THE DEPOSITS AND LOANS ARE J UST BUYING AND SELLING ACTIVITY FOR THE ASSESSEE. THE AMOUNTS MAIN TAINED AT THE CUSTOMERS ACCOUNT IS NOT IN THE CONTROL OF THE SOCI ETY AS IT IS REQUIRED TO PAY THE DEPOSITS ON DEMAND. IN THE PRESENT CASE WHAT IS REQUIRED TO BE DONE BEFORE ACCEPTING THE DEPOSIT IS TO TAKE PRO PER PROOF OF ADDRESS, IDENTITY, PHOTOGRAPH AND INTRODUCTION FOR OPENING AND ACCEPTING THE DEPOSITS. ONCE THE ASSESSEE COMPLIED WITH THE REQUIREMENT IT IS NOT THE ASSESSEE SOCIETY DUTY TO QUESTION ABOUT THE SOURCE OF DEPOSITOR AND IT IS NOT ITS DUTY TO SEEK ANY OTHER PARTICULARS . ONLY THE REQUIREMENT IS, TO REPORT TO THE CONTROLLI NG AUTHORITIES WHEREVER SUSPICIOUS TRANSACTIONS ARE REPORTED OR DO UBT ABOUT THE ANTI MONEY LAUNDERING ACT. THEREFORE THESE FEATURES DIST INGUISH THE CASE OF THE ASSESSEE FROM OTHER NORMAL ASSESSEE. FURTHER THE ASSESSEE HAS TO MAINTAIN THE CONFIDENTIALITY IN RESPECT OF INFOR MATION COLLECTED FROM ITS CUSTOMERS, SUCH INFORMATION CANNOT BE DIVULGED TO OUTSIDERS . THERE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 101 IS NO FINDINGS FROM THE ASSESSING OFFICER THAT THE ASSESSEE VIOLATED THE REGULATORY AUTHORITIES. USUALLY THE BANKS ARE NOT R EQUIRED TO GO FOR VERIFYING THE CORRECTNESS OF THE DETAILS FURNISHED BY THE DEPOSITOR AND SOURCES OF THE AMOUNT DEPOSITS. THE DEPOSITS ACCEPT ED AND REPAID IS PART OF THE ASSESSEE BUSINESS, IF IT PUT HARD RULES AND CONDITIONS ITS BUSINESS MAY NOT BE AS USUAL. THEREFORE IT CANNOT B E SAID THAT IT HAS VIOLATED THE PROVISIONS AND DID COMMIT ANY INFRINGE MENT OR IT IS INCORRECT TO SAY THAT THERE WAS ANY DELIBERATE ATTE MPT TO ACCOMMODATE BLOCK MONEY. THE SOCIETY IS ACTED IN BON FIDE MANNE R AND COMPLIED WITH THE KYC NORMS AS PRESCRIBED FOR BANKING INSTIT UTIONS AND DUE DILIGENCE. THEREFORE, IN OUR OPINION THE SOCIETY DI SCHARGED THE ONUS OF PROOF IN RESPECT OF IDENTITY AND GENUINENESS OF THE TRANSACTIONS AS FOR AS A BANKING IS CONCERNED. THE FACTS OF THE CASE AR E SIMILAR TO THAT OF ITAT PUNE BENCH IN THE CASE OF SRI MAHAVIR NILGARI SAHAKARI PAT SANSTHA LTD VS. DCIT REPORTED IN 74 TTJ 793 AND THE DECISION OF THE HONBLE GUJARATH HIGH COURT IN THE CASE OF CIT VS. PRAGATHI CO- OPERATIVE BANK LTD., REPORTED IN 278 ITR 170. THERE FORE THE ONUS ON THE ASSESSEE TO PROVE THE CREDIT IS LIMITED TO THE MAINTENANCE OF SYSTEMATIC RECORDS COMPLY THE KYC NORMS. IT IS NOT OBLIGATORY ON THE PART OF THE ASSESSEE TO VERIFY THE CREDITWORTHINESS OF THE DEPOSITOR. THEREFORE, WE HOLD THAT THE ASSESSEE DISCHARGED THE ONUS CASTE ON HIM IN THIS REGARD. - HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. VAL UE CAPITAL SERVICES LTD: 307 ITR 334 AND AGAIN, IN THE CASE OF CIT VS. OASIS HOSPITALITIES PRIVATE LTD: 333 ITR 119 HAS HELD THAT BEFORE AN AMOUNT CREDITED IN THE BOOKS OF THE ASSESSEE COULD BE TAXE D AS ASSESSEES UNDISCLOSED INCOME UNDER SECTION 68 OF THE ACT, THE REVENUE HAD TO DISCHARGE FURTHER BURDEN OF PROVING THAT THE AMOUNT FOUND CREDITED IN THE BOOKS OF THE ASSESSEE ACTUALLY EMANATED FROM TH E COFFERS OF THE ASSESSEE. IN THE ABSENCE OF THE DEPARTMENT LEADING EVIDENCE TO PROVE THE AFORESAID, THE ONUS THAT SHIFTED TO REVENUE COU LD NOT BE CONSIDERED TO HAVE BEEN DISCHARGED SO AS TO JUSTIFY THE ADDITI ON UNDER SECTION 68 OF THE ACT. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 102 - IT IS FURTHER PLEADED THAT INGREDIENTS OF SEC 68 I. E. IDENTITY, GENUINENESS AND CREDITWORTHINESS HAVE BEEN APPLIED BY COURTS DEPENDING ON THE NATURE BUSINESS, REGULATORY NORMS AND PRACTICAL ASPECTS. 23.29. HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. DIVINE LEASING & FINANCE LTD: 299 ITR 268 LAID DOWN VARIOUS PARAMETE RS FOR DISCHARGE OF PRIMARY ONUS: 16. IN THIS ANALYSIS, A DISTILLATION OF THE PRECEDENTS YIELDS THE FOLLOWING PROPOSITIONS OF LAW IN THE CONTEXT OF SEC TION 68 OF THE INCOME-TAX ACT. THE ASSESSEE HAS TO PRIMA FACIE PRO VE (1) THE IDENTITY OF THE CREDITOR/SUB-SCRIBER; (2) THE GENUINENESS OF THE TRANSACTION, NAMELY: WHETHER IT HAS BEEN TRANSMITTED THROUGH BAN KING OR OTHER INDISPUTABLE CHANNELS; (3) THE CREDITWORTHINESS OR FINANCIAL STRENGTH OF THE CREDITOR/SUBSCRIBER; (4) IF RELEVANT DETAILS OF THE ADDRESS OR PAN IDENTITY OF THE CREDITOR/SUBSCRIBER ARE FURNISH ED TO THE DEPARTMENT ALONG WITH COPIES OF THE SHAREHOLDERS RE GISTER, SHARE APPLICATION FORMS, SHARE TRANSFER REGISTER ETC. IT WOULD CONSTITUTE ACCEPTABLE PROOF OR ACCEPTABLE EXPLANATION BY THE A SSESSEE. (5) THE DEPARTMENT WOULD NOT BE JUSTIFIED IN DRAWING AN ADV ERSE INFERENCE ONLY BECAUSE THE CREDITOR/SUBSCRIBER FAILS OR NEGLE CTS TO RESPOND TO ITS NOTICES; (6) THE ONUS WOULD NOT STAND DISCHARGED IF THE CREDITOR/SUBSCRIBER DENIES OR REPUDIATES THE TRANSA CTION SET UP BY THE ASSESSEE NOR SHOULD THE ASSESSING OFFICER TAKE SUCH REPUDIATION AT FACE VALUE AND CONSTRUE IT, WITHOUT MORE, AGAINST T HE ASSESSEE. (7) THE ASSESSING OFFICER IS DUTY-BOUND TO INVESTIGATE THE CREDITWORTHINESS OF THE CREDITOR/SUBSCRIBER THE GENUINENESS OF THE TRAN SACTION AND THE VERACITY OF THE REPUDIATION. THIS DECISION HAS BEEN DULY APPROVED BY THE SUPREM E COURT VIDE SLP(C) 375/2008:216 CTR 195. 23.30. IT IS INTERESTING THAT THE ASSESSING OFFICER HAS ALLOWED DEDUCTION OF THE INTEREST PAID ON THESE NEW DEPOSITS AS WELL AS COMM ISSION PAID TO THE AGENT FOR MOBILIZING THE DEPOSITS. AO HAS THUS CONTRADICT ED HIMSELF BY ALLOWING 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 103 ALL THE INCIDENTAL EXPENSES FOR COLLECTION OF THESE VERY DEPOSITS AND INTEREST PAID TO DEPOSITORS. THE STAND ADOPTED BY AO IS CONT RARY TO FACTS, LAW AND MATERIAL AVAILABLE ON RECORD. AOS ACTION IS SELF CO NTRADICTORY IN VIEW OF: (A) ALLOWING DEDUCTION OF INTEREST PAID ON THE DEPOSITS ; AND (B) ALLOWING COMMISSION PAID FOR MOBILIZING DEPOSIT(S); AND (C) LEVYING PENALTY UNDER SECTIONS 271D/271E OF THE ACT FOR ACCEPTANCE/REPAYMENT OF DEPOSITS IN CASH EXCEEDING RS.20,000 QUA, THUS HOLDING THE DEPOSITS AS GENUINE DEPOSITS LIABL E FOR PENALTIES ON DEFAULT OF RECEIVING THEM IN CASH. (D) SEC. 68 SPECIFICALLY CREATES THE FICTION FOR EXAMI NING THE IDENTITY, GENUINENESS AND CREDITWORTHINESS QUA EACH CASH CRED IT AND NOT ON ADHOC BASIS. THERE IS NO ENABLING PROVISION IN SEC 68 TO HOLD THE DEPOSIT AS NOT PROVED ARE TO HELD SO BY AN ESTIMATE ON AD-HOC BASI S. IT UNAMBIGUOUSLY MANDATES THE ADDITION QUA A SPECIFIC DEPOSIT AND SP ECIFIC DEPOSITOR. THUS THE GUESS WORK BASED AD HOC ADDITION MADE BY THE AS SESSING OFFICER HOLDING THE 35% OF THE DEPOSITS MOBILIZED DURING TH E YEAR, AS UNEXPLAINED CASH CREDIT, IS NOT SUSTAINABLE IN THE EYES OF LAW. THIS PROPOSITION IS SUPPORTED BY THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. KINETIC CAPITAL FINANCE LTD.: 354 ITR 296 . (E) RELIANCE IS ALSO PLACED ON THE DECISION OF HONBLE ITAT IN APPELLANT OWN CASE OF A.Y. 1996-97 DATED 22.07.2005 WHEREIN S IMILLAR DECISION OF CIT(A) DELETING ADDITION U/S 68 ON ACCOUNT OF UNEXP LAINED DEPOSIT, HAS BEEN UPHELD. 23.31. CASE LAWS CITED BY LD. DR ARE DISTINGUISHED AND IT IS CONTENDED THAT NOVA PROMOTERS IS A CASE OF SHARE CAPITAL OF PRIVAT E COMPANY AND NOT 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 104 RNBFC. BESIDES, LOVELY EXPORTS (SC) (SUPRA) HAS BEE N IMPLIEDLY FOLLOWED THERE. 24. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, AND PROCEED TO DECIDE THE ISSU ES IN FOLLOWING ORDER: (I) WHETHER ASSESSEES FILING OF HARD COPIES OR THE PRINT OUTS OF THE RECORD ASKED TO BE PRODUCED IN SOFT COPY IS SUFFICI ENT COMPLIANCE TO THE REQUIREMENTS OF SA AND AOS NOTICES UNDER THE I NCOME TAX ACT ? - IN VIEW OF THE EARLIER JUDGMENT IN THE CASE OF ASSE SSEE FOR AY 1999-2000 TO2002-03 ITAT WHILE DELETING THE PENALTY U/S 271E AND D, ITAT HAS HELD THAT THE PRODUCTION OF PRINTOUTS O F THE COMPUTER RECORD WILL BE SUFFICIENT COMPLIANCE OF THE REQUIRE MENTS ASKED BY NOTICES OR SUMMONS U/S 131. THUS THE ITAT JUDGMENT IN ASSESSEES MAKES IT CLEAR THAT SUPPLY OF HARD COPIES OR PRINT OUTS, BY ASSESSEE, IS A PROPER COMPLIANCE OF NOTICES OR SUMMONS IN THIS BEH ALF. RESPECTFULLY FOLLOWING THE DECISION OF ITAT IN ASSESSEES OWN CA SE WE DECIDE THIS QUESTION IN FAVOUR OF THE ASSESSEE (II) WHETHER ASSESSEE DELIBERATELY FAILED TO COOP ERATE IN PRODUCING ITS RECORD? - FROM THE FACTS, CIRCUMSTANCES AND RECORD IT EMERGES THAT SPECIAL AUDITOR REQUIRED DEPOSIT LEDGERS OF 69 BRAN CHES IN 1ST INSTALMENT AND COMPLETED AUDIT OF ONLY 53 BRANCHES. NO FURTHER REQUISITION ABOUT DEPOSIT LEDGERS WAS MADE BY SA AS THERE IS NO FINDING ABOUT SUCH REQUISITION. APROPOS 53 BRANCHES SA HAS GIVEN A CLEAR FINDINGS THAT ASSESSEES RECORD IS BY AND LAR GE IN COMPLIANCE OF KYC NORMS AND NO ADVERSE OBSERVATION IS CALLED FOR IN THIS BEHALF. IN THESE CIRCUMSTANCES, ASSESSEE HAVING FURNISHED PRIN T OUTS FOR WHAT WAS ASKED FOR, IT CAN NOT BE HELD THAT IT DID NOT C OOPERATE IN PRODUCTION 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 105 OF RECORD. SUCH A VIEW CAN NOT BE ADOPTED ON GENERA L ASSUMPTIONS AND HAS TO BE BASED ON COGENT MATERIAL. FOR THE RECORD NOT ASKED BY THE SA NO ADVERSE INFERENCE CAN BE DRAWN AGAINST ASSESSEE. (III) WHETHER APROPOS THE PROCESS OF SUMMONS ISSUED BY AO AND ADVERSE INFERENCE DRAWN BY THE AO IS JUSTIFIED? - ASSESSEE FURNISHED DETAILED EXPLANATION BEFORE AO ABOUT EACH CATEGORY OF SUMMONS ISSUED AND ITS DEFENSE ABOUT TH E PROPOSED ADVERSE INFERENCE. AO NEITHER CONSIDERED THE EXPLAN ATION NOR REBUTTED IT AND HELD THAT SUMMONS ARE UNCOMPLIED AND MADE TH E ADDITIONS @35% ESTIMATED BASIS. ASSESSEE ENDEAVORED TO DEMONS TRATE THAT BY IMPLICATIONS MOST OF THE SUMMONS ARE TO BE CONSTRUE D AS NOT SUGGESTING THE DEPOSITS TO BE NON GENUINE. BESIDES ENFORCING ATTENDANCE OF SUMMONED DEPOSITORS WAS NOT IN THE HA NDS OF THE ASSESSEE LOOKING AT THE HUGE DEPOSIT BASE. AOS INF ERENCE THAT ASSESSEE WAS CONNIVING WITH DEPOSITORS TO ENSURE SU MMONS ARE NON COMPLIED AND VERIFICATION PROCESS IS OBSTRUCTED IS WITHOUT ANY COGENT BASIS. BEFORE CIT(A) ASSESSEE REITERATED THE PLEADI NGS AND ON CONSIDERATION THEREOF BY DETAILED OBSERVATIONS CIT( A) HELD THAT THE CONCLUSIONS ARRIVED AT BY AO IN THIS BEHALF WERE WI THOUT ANY BASIS. AFTER CONSIDERING ALL THE FACTS AND CIRCUMSTANCES W E UPHOLD THE FINDINGS OF CIT(A) THAT THE CONCLUSIONS AND ADVERSE INFERENCE DRAWN BY AO ON THIS ISSUE WAS NOT JUSTIFIED. (IV) WHETHER FACTS AND CIRCUMSTANCES OR ASSESSES CA SE ARE SIMILAR TO EARLIER YEARS AND ITAT JUDGMENTS IN ASSESSES OWN CA SE OR TO BE FOLLOWED? - ASSESSEE HAS A LONG HISTORY OF LITIGATION WITH DEPARTMENT ON VARIOUS ISSUES INCLUDING SEC 68, THE SAME IS TABLED ABOVE. AO HAS MADE A 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 106 CHART CONTENDING THAT THERE ARE DISTINGUISHING FEAT URES IN EARLIER YEARS. CIT(A) HAS REFERRED TO ALL THESE ISSUES AND BY OBJE CTIVE FINDINGS IN A TABULATED CHART HELD THAT FACTS AND CIRCUMSTANCES O F THE EARLIER AND CURRENTS YEARS ARE BY AND LARGE THE SAME. ASSESSEE CONTINUES TO RNBFC UNDER THE SAME REGULATORY REGIME OF RBI, BUSI NESS MODEL AND THE PATTERN OF COLLECTING DEPOSITS REMAIN PRACT ICALLY SAME. RATHER IN THIS YEAR THE BOARD OF DIRECTORS AND AUDITORS WE RE APPOINTED AS SUGGESTED BY THE RBI. THUS ASSESSEES BANKING BUSIN ESS AFFAIRS WERE UNDER RBI WATCH WITH A REVAMPED BOARD AND AUDITORS AS RECOMMENDED AND APPROVED BY RBI. IN THE ENTIRETY OF FACTS AND CIRCUMSTANCES WE HAVE NO HESITATION TO HOLD THAT FA CTS AND CIRCUMSTANCES OF THIS YEAR ARE ON REASONABLE PARITY WITH EARLIER YEARS. THIS BEING SO WE HAVE TO RESPECTFULLY FOLLOW THE IT AT JUDGMENTS IN EARLIER YEARS RENDERED IN ASSESSES OWN CASE DELETIN G SUCH ADDITIONS. (V) WHETHER ASSESSEE BUSINESS OF COLLECTION OF DEPO SITS AS RNBFC IS AKIN TO BANKING BUSINESS AND THE PRIMARY ONUS U/ S 68 IS TO BE DISCHARGED IN TERMS OF JUDICIAL PRECEDENTS IN THIS BEHALF? - THIS PROPOSITION HAS NOT BE DISPUTED BY THE AO OR LD DR. THE CONTENTION ADVANCED BY THE LD DR. IS TO THE EFFECT THAT RBI NORMS BY THEMSELVES ARE NOT CONCLUSIVE FOR SEC. 68 AND THERE WERE DEFICIENCIES IN ASSESSEES RECORD QUA MAINTENANCE OF KYC RECORD AS PRESCRIBED BY RBI. SINCE THE ISSUE ABOUT RNBFC BEING BANKING ACTI VITY IS NOT DISPUTED THE ANSWER IS IN AFFIRMATIVE. APROPOS THE CONTENTION THAT KYC NORMS AND RBI REGULATIONS ARE NOT CONCLUSIVE. THE PROPOSITION IN THIS BEHALF HAS BEEN SETTLED BY VARIOUS COURT/ I TAT JUDGMENTS LIKE CITIZEN URBAN CO-OPT. BANK (AMRITSAR) WHICH IS CONF IRMED BY P & H HIGH COURT (SUPRA); PRAGATI CO-OPT. BANK(GUJ); CITI ZEN CO-OPT. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 107 SOCIETY(HYD); DHABLAXMI BANK(COCHIN); SHRI MAHAVIR NILGARI SAHKARI PAT SANSTHA(PUNE) (ALL SUPRA). IT SHALL BE APPRECIATED THAT HONBLE SUPREME COURT IN LOVELY EXPORTS AND OTHER C ASES AND HONBLE DELHI HIGH COURT IN OASIS HOSPITALITIES, VA LUE CAPITAL, DWARKADHISH INVESTMENTS (SUPRA) AND VARIOUS OTHER J UDGMENTS HAVE HELD THAT NATURE OF PRIMARY ONUS AND DISCHARGE THER EOF IN TERMS OF SEC. 68 IS A QUESTION OF FACTS AND IS NOT A STATIC PROPO SITION. THE NATURE OF BUSINESS, REGULATORY NORMS, RULES, REGULATION AND V ARIOUS OTHER FACTORS UNDER WHICH DEPOSITS ARE COLLECTED IS TO BE PROPER LY CONSIDERED. THE FACT THAT LEGISLATURE HAS NOT PRESCRIBED ANY FIXED PARAMETERS IN THIS BEHALF, SEC. 68 BEING A DEEMING FICTION AND AO BEIN G ENTRUSTED THE DUTY OF SATISFYING HIMSELF IN OBJECTIVE TERMS UNDER LINE THESE RELEVANT ASPECTS. THE PRIMARY ONUS AND DISCHARGE THEREOF IS TO BE EXAMINED BY THE AO WITH OBJECTIVITY. THAT IS HOW THE ONUS U/S 68 QUA SHARE CAPITAL APPLICATIONS, BANKING INDUSTRY AND OTHER STATUTORIL Y REGULATED ENTERPRISES HAS BEEN DIFFERENTLY TREATED IN TERMS O F PRIMARY ONUS. IT IS TO BE APPRECIATED THAT MAJORITY OF THE DEPOSITS ARE RECURRING DEPOSITS COMING FROM EARLIER YEARS. BESIDES ASSESSEE HAS ABO UT 3 CRORES OF DEPOSITORS BELONGING SMALL INCOME GROUP PEOPLE WHO MAY NOT BE VERY EDUCATED AND A BIG NET WORK OF FIELD AGENTS SPREAD OVER VARIOUS RURAL AND OTHER AREAS, MANY OF THEM MAY ALSO NOT BE VERY LITERATE. IT HAS NOT BEEN DISPUTED THAT POSSIBLE DEFICIENCIES IN KYC CO MPLIANCE HAS BEEN NOTED BY THE BOARD AND AS SUGGESTED BY RBI, LIEN HA S BEEN PUT ON SUCH ACCOUNTS AND NOT TO REPAY UNLESS THESE KYC DEF ICIENCIES ARE MADE GOOD. UNDER THESE FACTS AND CIRCUMSTANCES EXPE CTING THE SUBSTANTIAL RURAL AND AGRO BASED CITIZENRY TO POSSE SS PAN CARD AND DRAWING ADVERSE INFERENCE THEREFROM IS NOT JUSTIFIE D IN THESE FACTS AND 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 108 CIRCUMSTANCES. WE HAVE ALREADY HELD THAT EARLIER IT AT ORDERS IN ASSESSES OWN CASE ARE TO BE RESPECTFULLY FOLLOWED. IN VIEW THEREOF IT IS TO BE HELD THAT ASSESSEES BUSINESS IS AKIN TO BANK ING BUSINESS AND THE DISCHARGE OF PRIMARY ONUS BY THE ASSESSEE HAS TO BE ON THE SAME LINES THAT OF BANKING INDUSTRY. A CATENA OF JUDGMENTS HAS BEEN ALREADY REFERRED IN THIS BEHALF. IN CONSIDERATION OF OVERAL L FACTS AND CIRCUMSTANCES, HISTORY OF EARLIER LITIGATION AND IT AT JUDGMENT IN ASSESSEES OWN CASE, WE HOLD THAT ASSESSEE DISCHARG ED ITS PRIMARY ONUS IN TERNS OF SEC 68. 24.1. APROPOS ASSESSEES LEGAL CONTENTION THAT FICT ION CREATED BY DEEMING PROVISIONS OF SEC 68 CONTEMPLATE ANY ADDITION AT AL L, REFERS TO A SPECIFIC DEPOSIT AND THERE IS NO PROVISION FOR MAKING ESTIMA TED ADHOC ADDITION @ 35%. BESIDES DEPARTMENT ON A SAMPLE CHECK BASIS HAS BEEN ADOPTING VARYING RATES WITHOUT ANY REASONABLE BASIS. IT HAS BEEN IGN ORED THAT MOST OF THE DEPOSITS ARE RECURRING DEPOSITS COMING FROM EARLIER YEARS. WE ARE OF THE VIEW THAT THE SCOPE OF A DEEMING FICTION, AND THE M ETHOD OF SPECIFIC ADDITION OF DEPOSIT IS TO BE FOLLOWED STRICTLY. A PLAIN REA DING OF SEC. 68 CONTEMPLATES THAT THE SATISFACTION OF AO HAS TO BE EXERCISED QUA EACH DEPOSIT OR CASH CREDIT. IT DOES NOT PRESCRIBE ANY ADHOC OR ESTIMATE D ADDITION. THEREFORE, WE ARE INCLINED TO AGREE WITH THE REASONING ADOPTED BY LD. CIT(A) ON THIS ISSUE AND UPHOLD HIS FINDINGS THAT SUCH ADDITION CAN NOT BE MADE U/S 68. 24.2. IN CONSIDERATION OF THE AFORESAID DISCUSSIONS AND OBSERVATIONS WE UPHOLD THE ORDER OF CIT(A) DELETING THIS ADDITION, THIS GROUND OF THE REVENUE IS DISMISSED. 25. REVENUES GROUND NO 9 & ASSESSEES GROUND NO 3 : 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 109 ADDITION ON ACCOUNT OF CHANGE IN ACCOUNTING ESTIMAT E/POLICY ON INTEREST: 25.1. DURING THE COURSE OF PROCEEDINGS THE ASSESSEE HAS MADE A REQUEST FOR ADMISSION OF ADDITIONAL EVIDENCE BEING BOARD RESOLU TIONS QUA THE CHANGE IN PROVISION OF ESTIMATE ON THE LINES SUGGESTED BY RBI IN TERMS OF RULE 29 OF THE ITAT RULES, 1963. AFTER HEARING BOTH THE PARTIE S, WE ARE OF THE VIEW THAT THESE DOCUMENTS BEING ASSESSES STATUTORY RECORD ARE NECESSARY FOR PROPER ADJUDICATION OF THE ISSUE. IN VIEW THEREOF THE SAME IS ADMITTED. 25.2. BRIEF FACTS ARE: SPECIAL AUDITOR FOUND THAT A VERAGE BALANCE OF OPENING AND CLOSING DEPOSITS OF EARLIER YEARS HAS INCREASED BY 3% AS COMPARED WITH THE EARLIER ASSESSMENT YEAR, A SHORT PROVIDED INTER EST OF EARLIER YEARS WAS FULLY PROVIDED IN THIS YEAR. ACCORDING TO AO, THIS AMOUNTED TO DEPARTURE FROM MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY TH E ASSESSEE. JUSTIFICATION IN THIS BEHALF WAS ASKED, ASSESSEE REPLIED ON 30.07 .2012 CONTENDING THAT: I. THE FIGURE OF INTEREST PROVISION HAS WRONGLY BEE N TAKEN BY AUDITOR AT RS. 1218,36,28,517/-, THE CORRECT FIGURE AND % THUS WAS RS. 1216,83,23,131/- AND 7.80%. THE INCREASED PROVISION OF INTEREST WAS MADE ON THE RESOLUTION OF RECONSTITUTED BOARD OF DI RECTORS AND AUDIT COMMITTEES SUGGESTIONS. THEY SUGGESTED AND RESOLVE D TO MAKE THE INTEREST PROVISION BASED ON BEHAVIOR PATTERN OF THE DEPOSIT ON A MERCANTILE BASIS. THE PROVISION AMOUNTED TO CHANGE OF RATE OF INTEREST WHICH AT BEST IS NOTHING BUT CHANGE IN CALCULATION OF AN ACCOUNTING ESTIMATE FOR WHICH THERE WAS NO REQUIREMENT OF MAKI NG A DISCLOSURE IN THE NOTES TO ACCOUNTS. SCHEDULE 15CLAUSE (B) OF THE FINANCIAL STATEMENTS WERE SIGNIFICANT POLICIES ARE MENTIONED REFERS TO ALLOWABLE ACCOUNTING ESTIMATES UNDER ACCEPTED ACCOUNTING POLI CIES. DEPOSIT SCHEMES UP TO 31ST MARCH 2008, WERE MAINLY OF RECUR RING NATURE AND 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 110 THE PROVISION OF ACCRUED INTEREST LIABILITY THEREON WAS ESTIMATED EARLIER AT THE MINIMUM INTEREST RATE PAYABLE ON MATURITY OF A FULLY COMPLIANT DEPOSIT. FULLY COMPLIANT OF DEPOSITS WERE ELIGIBLE FOR SOME REBATES, HOWEVER MANY OF THE DEPOSITS WERE NOT FULLY COMPLIE D BY THE DEPOSITORS AND RATE OF INTEREST PAYABILITY WAS DEC IDED AT THE TIME OF REPAYMENT. ADDITIONAL INTEREST, IF ANY PAYABLE, FOR FULL MATURITY ACCOUNT WAS ACCOUNTED IN THE YEAR OF MATURITY. II. RBIS ORDER ON JUNE 04, 2008, PROHIBITING ASSES SEE FROM ACCEPTING ANY DEPOSIT FROM PUBLIC WAS CHALLENGED BY IT; THEREAFTER RBI ISSUED ANOTHER ORDER ON 17TH JUNE 2008 DIRECTIN G COMPANY TO WIND UP ITS DEPOSIT RECEIVING ACTIVITY BY 31ST MARC H 2015. RBI FURTHER PUT CONDITIONS THAT THE COMPANY WILL APPOINT AUDITO RS AS WELL AS INDEPENDENT DIRECTORS NOMINATED BY RBI, IN COMPLIAN CE THERETO ASSESSEE APPOINTED AUDITORS AS WELL AS DIRECTORS NO MINATED BY RBI. IN DISCHARGE OF THEIR OFFICIAL FUNCTIONS THEY REVIEWED THE RATE AND METHOD OF INTEREST ACCRUAL AND SUGGESTED THESE CHANGES IN RATE OF INTEREST PROVISION THE OFFICIAL MEETINGS. IT WAS RECOMMENDED THAT INTEREST ACCRUAL QUA EACH DEPOSIT ACCOUNT SHOULD BE MADE DEP ENDING ON THE STATUS OF DEPOSIT AT THE TIME OF MAKING PROVISION F OR ACCRUAL OF INTEREST. THE RATE FOR ACCRUAL PROVISION WAS TO BE APPLIED AS APPLICABLE TO THE STATUS OF THE DEPOSIT I.E. REGULAR, OR LAPSE DEPOSIT. AS ONLY RATE OF % OF ACCRUED INTEREST WAS CHANGED BECAUSE OF REGULA TORY EXIGENCIES, IT WAS ONLY CHANGE OF RATE IN AN ACCOUNTING ESTIMATE A ND NOT A CHANGE IN ACCOUNTING POLICY. ASSESSEE ALSO SOUGHT OPINION FRO M THE ACCOUNTING EXPERTS (COPY ON RECORD)WHO ALSO OPINED LIKE WISE. FOLLOWING OF THIS PATTERN OF ACCOUNTING ESTIMATE AS SUGGESTED BY NEW BOARD & AUDITORS 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 111 CONSEQUENT TO RBI DIRECTION & OPINED BY ACCOUNTING EXPERTS RESULTED IN INCREASE IN THE PROVISION OF INTEREST DURING THE YEAR. IN EARLIER YEARS AS WELL, SHORTFALL OF INTEREST PROVIDED ON MATURITY OF DEPOSIT HAS BEEN DULY ALLOWED BY THE DEPARTMENT IN THE YEAR OF SUCH PROVISION. IN THIS YEAR IT WAS DONE BASED ON SUGGESTED LINES UNDER AEG IS OF RBI REGIME. 25.3. AO HOWEVER WAS OF THE VIEW THAT IT WAS A SIGN IFICANT CHANGE IN ACCOUNTING POLICY AND NOT A MERE CHANGE IN ACCOUNT ING ESTIMATE. EVEN IF IT WAS TO BE HELD AS CHANGE IN ACCOUNTING ESTIMATE, IT WAS NOT DISCLOSED IN THE FINANCIAL STATEMENTS. AO REFERRED TO CBDT NOTIFICAT ION NO. SO 69(E), DATED 25-1-1996, APPLICABLE TO ASSESSMENT YEAR 1997-98 ON WARDS WHICH IS REPRODUCED IN HIS ORDER. IT WAS HELD THAT THIS NOTI FICATION PROPOSED AN IMPORTANT CONCEPT OF PRUDENCE STATING THAT PROVISIO NS SHOULD BE MADE FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION . AS PER THE NOTIFIED ACCOUNTING STANDARDS THE ASSESS EE SHOULD HAVE MADE SUCH PROVISION YEAR AFTER YEAR, AS THE I NTEREST LIABILITY WAS ALWAYS A KNOWN LIABILITY. AO HELD THAT, THERE WAS A CLEAR DEPARTURE FROM THE NOTIFIED PRUDENCE BASIS OF ACCOUNTING, WHICH HAS BE EN WRONGLY TERMED AS A CHANGE IN ACCOUNTING ESTIMATES. 25.4. AO THUS HELD THAT IT WAS NOT A CHANGE IN ACCO UNTING ESTIMATE AS IT AMOUNTED TO CHANGE IN ACCOUNTING POLICY IN THE NAME OF BEHAVIORAL PATTERN OF THE DEPOSITS. EVEN IF IT IS HELD AS A CHANGE IN THE ACCOUNTING ESTIMATE THEN ALSO AS PER THE CBDT NOTIFICATION MENTIONED ABOVE T HE ASSESSEE WAS REQUIRED TO DISCLOSE ALL MATERIAL FACTS IMPACTING F INANCIAL STATEMENTS, WHICH IT HAS NOT DONE. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 112 25.5. ASSESSEES CONTENTION THAT THE INTEREST PROVI SION CREATES A REVENUE NEUTRAL POSITION WAS REJECTED HOLDING EACH ASSESSME NT YEAR TO BE A SEPARATE AND INDEPENDENT FROM OTHER YEARS AND CORRECT INCOME OF EACH YEAR WAS TO BE CALCULATED ON THE SIMILAR LINES, DETAILS OF THE SA ME ARE TABULATED BY AO IN HIS ORDER. IT WAS HELD THAT BECAUSE OF THE CHANGE I N ACCOUNTING POLICY THE ASSESSEE HAS EXCESSIVELY PROVIDED RS.467,96,79,775/ - (BEING 3% OF AVERAGE OF OPENING AND CLOSING DEPOSITS). AMOUNT WAS DISALL OWED AS CHANGE IN MERCANTILE SYSTEM OF ACCOUNTING AND NOT ACCOUNTING ESTIMATES. IT WAS FURTHER HELD THAT IT IS NOT BONA FIDE AS IT WAS ADO PTED TO EVADE TAX. 25.6. IN FIRST APPEAL, LD. CIT(A) REFERRED TO HISTO RICAL DATA WITH REGARD TO DEPOSITS RAISED AND REPAID, INTEREST PROVIDED AND P AID AS UNDER: TABLE OF DEPOSITS & INTEREST PAID FINANCIAL YEAR ---> 2004-05 2005-06 2006-07 2007-08 2008-09 OB 8510.64 11042.75 14823.77 17058.82 16933.85 COLL 6391.64 7922.63 6915.89 6274.66 5301.68 TOTAL 14902.28 18965.38 21739.66 23333.48 22235.53 PAID 3859.53 4141.61 4680.84 6399.63 7971.53 DEPOSITS (DEP) CB 11042.75 14823.77 17058.82 16933.85 14264.01 OB 292.91 494.5 737.42 1048.82 1121.86 PROV 572.06 624.16 651.8 815.09 1207.57 TOTAL 864.97 1118.66 1389.22 1863.91 2329.43 PAID 370.47 381.24 340.4 742.05 924.91 INTEREST (INTT) CB 494.5 737.42 1048.82 1121.86 1404.52 OB 3.44 4.48 4.97 6.15 6.62 PROV 5.18 4.21 3.82 4.81 8.47 TOTAL 5.80 5.90 6.39 7.99 10.48 PAID 9.60 9.21 7.27 11.60 11.60 INTT / DEP (%) CB 4.48 4.97 6.15 6.62 9.85 AVG DEP 9776.70 12933.26 15941.30 16996.34 15598.93 AVG INTT 393.71 615.96 893.12 1085.34 1263.19 AVG INTT / DEP % 4.03 4.76 5.60 6.39 8.10 INTT DISALLOWED 467.97 LEGEND 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 113 OB OPENING BALANCE COLL COLLECTIONS DURING THE YEAR PROV PROVISION MADE DURING THE YEAR PAID AMOUNT ACTUALLY PAID / REPAID DURING THE YEAR CB CLOSING BALANCE AVG AVERAGE CIT(A) AFTER ANALYSING THIS DATA OBSERVED THAT TH ERE IS WIDE VARIATION IN THE INTEREST PROVIDED AS A COMPONENT OF NET DEPO SITS FROM YEAR TO YEAR. IT RANGED FROM 4.81% TO A HIGH OF 11.6% IN FYS 2007-08 AND 2008-09. IN THIS VARIABLE SCENARIO, A MORE ACCURATE METHOD TO CALCUL ATE THE REAL INCOME SHOULD BE MADE TO ACCOUNT FOR BOTH INTEREST INCOME AND EXPENDITURE, WHICH IS THE MAJOR COMPONENT OF P&L ACCOUNT. EARLIER ACCO UNTING OF ACCRUAL OF INTEREST ON MERCANTILE BASIS RESULTED IN INACCURACI ES, WHICH WERE POINTED OUT BY THE AUDITORS APPOINTED BY THE RBI. THE INTEREST PAID AS PROPORTION OF DEPOSITS REPAID HAS BEEN HIGHER THAN THE COMPONENT OF INTEREST PROVISION AS PROPORTION OF NET DEPOSITS, RANGING FROM 7.27% AGAI NST 3.82% (FY 2006-07) TO 11.6% AGAINST 4.81% (FY 2007-08), WHICH INDICATE D THAT ASSESSEES INTEREST PROVISIONING EARLIER HAS BEEN ON A LOWER S IDE. THE ENDEAVOUR OF RBI AND ITS AUDIT WOULD BE ENSURE A SAFER STATE OF FINA NCIAL AFFAIRS FROM THE POINT OF VIEW OF DEPOSITOR PROTECTION, WHICH COULD HAVE R ESULTED IN HIGHER PROVISIONING FOR INTEREST THAN THE REAL INTEREST EX PENDITURE. REFERRING TO ASSESSES STAND THAT THERE IS NO CHANGE IN THE ACCOU NTING POLICY AND IT WAS SIMPLY A CASE OF CHANGE OF RAT E OF ACCRUAL IN ACCO UNTING ESTIMATE, CIT(A) AGREED WITH IT. IT WAS HELD THAT THERE IS NO CHANGE IN ACCOUNTING POLICY, BUT ONLY A CHANGE IN ESTIMATE WITHIN THE EXISTING POLIC Y. 25.8. DESPITE THIS FINDING, CIT(A), HOWEVER WAS OF THE VIEW THAT AS PER PARAGRAPH-11 OF THE CBDT NOTIFICATION NO. SO 69(E), DATED 25-1-1996, ANY CHANGE IN ACCOUNTING ESTIMATE WAS ALSO TO BE DISCLO SED AND QUANTIFIED IN THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 114 FINAL ACCOUNTS WHICH IS NOT DONE. HE ALSO HELD THAT FOR CHANGE IN METHOD OF ACCOUNTING IN INCOME TAX LAW (SECTION 145),ONLY REQ UIREMENTS IS THAT THE METHOD SHOULD BE REGULARLY FOLLOWED, AND ANY SUCH C HANGE IN THE METHOD OF ACCOUNTING OR ACCOUNTING ESTIMATE ALSO WAS REQUIRED TO BE INCORPORATED IN THE STATEMENT TO THE FINAL ACCOUNTS (AS-I & AS-II N OTIFIED VIDE NOTIFICATION NO. SO 69(E), DATED 25-1-1996). AFTER ADVERTING TO VARIOUS CASE LAWS CIT(A) HELD THAT THE ASSESSEE IS ENTITLED TO A PART ICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHT. EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT CAN NOT BE DECISIVE OR CONCLUSIVE IN THE MATTER {KEDARNATH JUTE MFG. CO. LTD. V. CIT [1971] 82 ITR 363 (SC)}.T HERE IS NO ESTOPPEL IN SUCH MATTERS, AND THE OFFICER IS NOT BOUND BY THE M ETHOD FOLLOWED IN EARLIER YEARS {CIT V BRITISH PAINTS INDIA LTD. [1991] 188 I TR 44 (SC)}. THE ITO, EVEN WHEN HE ACCEPTS THE ASSESSEES METHOD OF ACCOU NTING, IS NOT BOUND BY THE FIGURES OF PROFITS SHOWN IN THE ACCOUNTS {CIT V MCMILLAN & CO. [1958] 33 ITR 182 (SC)}. IT WAS HELD IN SOUTHERN TECHNOLOG IES LTD. V DCIT(2010) 320 ITR 577 (SC) THAT REAL INCOME HAS TO BE CHARGED TO TAX AND METHOD OF ACCOUNTING OR RBI GUIDELINES / DIRECTIVES WILL HAVE NO CONSEQUENCE ON THE CHARGEABILITY OF INCOME UNDER THE INCOME TAX ACT. 25.9. CBDT NOTIFICATION NO. SO 69(E), DATED 25-1-19 96 IS CLEAR IN PARAGRAPH-11, THAT ANY CHANGE IN THE ACCOUNTING EST IMATE HAS ALSO TO BE DISCLOSED AND QUANTIFIED IN THE FINAL ACCOUNTS. ITA T, DELHI HAS UPHELD ITS VIEW, THAT THE INTEREST EXPENDITURE PROVIDED THEN I N ITS ACCOUNTS WAS CORRECT (ITAT ORDER DATED 12.10.2003 IN ITA NOS.667/LUCK/20 02 FOR AY 1994-95 & 101/LUCK/2000 FOR AY 1990-91). ABOUT THE CORRECTN ESS OF ASSESSEES EARLIER ACCOUNTING ESTIMATE OF INTEREST PROVISION O R THE ONE RECOMMENDED BY RBI AUDITORS, CIT(A) OBSERVED THAT BOTH ESTIMATES C ANNOT BE CORRECT AT THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 115 SAME TIME. ASSESSEE MAY HAVE PROVIDED FOR LOWER INT EREST TO PROJECT BETTER FINANCIAL HEALTH AND THE RBI AND ITS AUDITOR MAY PR OJECT HIGHER INTEREST EXPENDITURE ESTIMATES TO ARRIVE AT A MORE CONSERVAT IVE ESTIMATE OF FINANCIAL HEALTH TO PROTECT DEPOSITOR INTERESTS. 25.10. CIT(A) THOUGH HELD THAT IT WAS CHANGE OF ACC OUNTING ESTIMATE, NEVERTHELESS HELD THAT INTEREST PROVISION NOW MADE WAS EXCESSIVE. HE FOUND THAT THE ACTUAL PAYMENT OF INTEREST AT RS.924,63,78 ,475/- DURING THE RELEVANT PREVIOUS / FINANCIAL YEAR (2008-09) IS LOWER THAN T HE PROVISION OF INTEREST AT RS.1207,57,86,321/- BY RS.282,94,07,846/-. IN VIEW OF THESE FACTS HE RESTRICTED THE DISALLOWANCE OF RS.467,96,79,775/- T O THIS EXTENT, AS OTHERWISE IT WILL RESULT IN THE ANOMALY THAT INTEREST PROVISI ON AT RS.739,61,06,546/- (RS.1207,57,86,321/- MINUS RS.467,96,79,775/-) WHIC H WILL GO BELOW THE INTEREST ACTUALLY PAID BY THE APPELLANT AT RS.924,6 3,78,475/- DURING THE PREVIOUS YEAR. THE GROUND WAS ACCORDINGLY DISPOSED BY CONFIRMING RS.282,94,07,846/- AND GIVING RELIEF OF RS.185,02,7 1,929/- TO ASSESSEE. AGGRIEVED BOTH PARTIES ARE BEFORE US. 26. LD CIT(DR) CONTENDS THAT DESPITE HOLDING IT TO BE CHANGE IN ACCOUNTING ESTIMATE DUE TO NON COMPLIANCE WITH CBDT NOTIFICATION, FINALLY CIT(A) MODIFIED THE ESTIMATE OF PROVISION OF INTERE ST MADE BY THE ASSESSEE AS WELL AS BY AO. OUT OF TOTAL CLAIM OF INTEREST OF RS.1207,57,86,321/- ,ASSESSES CLAIM TO THE EXTENT OF ACTUAL PAYMENT OF RS.924,63,78,475/- IS ALLOWED, RESULTING INTO RELIEF OF RS.185,02,71,929; WHICH IS CHALLENGED BY THE REVENUE. ON THE OTHER HAND, THE ASSESSEE IS CON TESTING THE DISALLOWANCE OF RS.282,94,07,846/- CONFIRMED BY THE CIT(A). 26.1. ASSESSEES CASE IS - FIRSTLY THERE HAS BEEN N O CHANGE IN ACCOUNTING POLICY DURING THE YEAR AND IT HAS CONTINUED TO FOLL OW MERCANTILE SYSTEM OF ACCOUNTING AS IN THE PAST. ONLY ACCOUNTING ESTIMATE S HAVE BEEN CHANGED TO 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 116 PROVIDE FOR RATE OF INTEREST INTEREST IN LINE WITH THE DIRECTIVES OF THE RBI, AUDITORS AND BOARD OF DIRECTORS. SECONDLY, EVEN IF THERE IS A CHANGE IN ACCOUNTING POLICY, THE SAME IS PERMISSIBLE UNDER TH E LAW SUBJECT TO THE CONDITION THAT THE CHANGE IS BONAFIDE AND IS REGULA RLY FOLLOWED BY THE ASSESSEE. THE LD. CIT(A) HELD THAT THERE WAS NO CH ANGE IN ACCOUNTING POLICY, BUT THERE WAS CHANGE IN ACCOUNTING ESTIMATE S ONLY. 26.2. LD. CIT(A) FURTHER HELD THAT THERE IS NO DOU BT THE ASSESSEE HAS A RIGHT TO CHOOSE THE METHOD OF ACCOUNTING, AND THE ONLY RE QUIREMENT UNDER THE INCOME TAX LOW IS THAT THE METHOD SHOULD BE REGULAR LY FOLLOWED, AND ANY CHANGE IN THE METHOD OF ACCOUNTING OR ACCOUNTING ES TIMATES IS REQUIRED TO BE INCORPORATED IN THE STATEMENT OF FINAL ACCOUNTS. TH US, THE LD. CIT(A) CONCLUDES THAT THE TAX PAYER IS FREE TO ADOPT EITHE R CASH SYSTEM OF ACCOUNTING OR MERCANTILE SYSTEM OF ACCOUNTING AND THE DEPARTME NT IS BOUND TO ACCEPT THE ASSESSEES CHOICE OF METHOD REGULARLY EMPLOYED AND AO IS PERMITTED TO INTERVENE IN CASE IT IS FOUND THAT THE INCOME, PROF ITS OR GAINS CANNOT BE ARRIVED AT BY THE CHANGE EMPLOYED BY THE ASSESSEE. ENTITLEMENT TO A PARTICULAR DEDUCTION WILL DEPEND ON THE PROVISION O F LAW RELATING THERETO AND NOT ON ASSESSEES VIEW. EXISTENCE OR ABSENCE OF ENTR IES IN THE BOOKS OF ACCOUNTS CANNOT BE DECISIVE; IT IS NOT ONLY THE RIG HT BUT THE DUTY OF THE AO TO DECIDE WHETHER OR NOT THE BOOKS DISCLOSE TRUE STATE OF ACCOUNTS AND CORRECT INCOME. 26.3. IT EMERGES THAT THE SYSTEM BEING FOLLOWED BY THE ASSESSEE UP TO FINANCIAL YEAR 2007-08 WAS MORE ACCURATE AND REALIS TIC AS THE SAME WAS FOLLOWED AFTER TAKING INTO CONSIDERATION THE BEHAVI ORAL PATTERN OF THE DEPOSITORS DURING THE ENTIRE PERIOD OF DEPOSITS IN QUESTION. IT IS A MATTER OF COMMON KNOWLEDGE THAT THE RECONCILIATION OF ACCOUNT S IS MORE REALISTIC AND CORRECT WHEN THE SAME IS EFFECTED AT THE TIME OF FI NAL SETTLEMENT OF ACCOUNTS. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 117 THUS, PROVIDING INTEREST ON QUARTERLY BASIS WILL ON LY ADD TO THE CONFUSION AND UNCERTAINTY DURING THE INTERVENING PERIOD. THEREFOR E, IT IS AGAINST COMMON SENSE THAT THE RBI WOULD ISSUE SUCH AN INSTRUCTION/ DIRECTIVE. ACCORDING TO DR, THERE IS NO EVIDENCE ON RECORD TO SUGGEST THAT ANY SUCH DIRECTION WAS ISSUED BY THE RBI OR ITS NOMINEES. THE RBI DIRECTIV ES/PRUDENTIAL NORMS ISSUED WITH RESPECT TO AN RNBC WOULD ONLY ENSURE TH AT THE STAKEHOLDERS HAVE PROPER INFORMATION WITH RESPECT TO THE ACTUAL STATE OF AFFAIRS AND NO MATERIAL INFORMATION IS SUPPRESSED IN REGARD TO FIN ANCIAL HEALTH OF THE COMPANY. 26.4. LD CIT(A)S FINDINGS ARE NOT CORRECT - IN AS MUCH AS THEY ARE NOT BASED ON THE FACTUAL MATRIX OF THE PRESENT CASE. WH ETHER THERE HAS BEEN ANY CHANGE IN ACCOUNTING POLICY OR ESTIMATE IS TO BE AS CERTAINED ON THE BASIS OF FACTS AND RELEVANT MATERIAL ON RECORD. IT EMERGES T HAT ASSESSEE HAS NOT COOPERATED IN THE ASSESSMENT PROCEEDINGS AND RELEVA NT INFORMATION AND RECORDS WERE PROPERLY NOT MADE AVAILABLE. THEREFOR E, THE CLAIM OF THE ASSESSEE AND THE FINDINGS RECODED BY THE CIT(A) ARE TO BE VIEWED IN THE BACKGROUND OF NON-COOPERATION. ONE OF THE OBJECTIV ES FOR BRINGING IN THE CHANGE IN ACCOUNTING POLICY/ACCOUNTING ESTIMATES IS CLAIMED TO PRESENT MORE REALISTIC AND CORRECT POSITION OF DEPOSIT ACCOUNTS AS MANDATED BY THE RESERVE BANK OF INDIA AND ITS APPOINTEES. THERE IS NO EVIDE NCE TO SUGGEST THAT THE RESERVE BANK OF INDIA OR ITS NOMINEE DIRECTORS OR T HE AUDITORS ISSUED ANY SUCH DIRECTIONS TO THE APPELLANT COMPANY. EVEN THE ADDITIONAL EVIDENCE DO NOT CONTAIN ANY SUCH DIRECTIONS. THE PROVISIONING O F INTEREST ON THE BASIS OF BEHAVIORAL PATTERN OF INDIVIDUAL ACCOUNTS IS ALSO N OT AS PER THE ESTABLISHED HISTORY OF THE INDIVIDUAL DEPOSITORS ACCOUNTS, THE SUBMISSIONS MADE BEFORE CIT(A) ALSO DO NOT REFLECT SUCH FACT. IT IS NOT EST ABLISHED THAT THE CHANGE IN 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 118 ACCOUNTING POLICY OR ACCOUNTING ESTIMATES WAS BROUG HT IN LINE WITH THE DIRECTIVES ISSUED BY THE RBI. 26.5. THE ADDITIONAL EVIDENCE ALSO SHOW THAT ON 6 TH DECEMBER, 2008 A MEETING OF THE BOARD OF DIRECTORS OF THE APPELLANT COMPANY WAS HELD AT HOTEL SAHARA STAR,MUMBAI. AS PER THE DOCUMENT ONE O F THE ITEMS OF AGENDA OF THE MEETING WAS PROVISIONING OF INTEREST ON DEPO SITS. HOWEVER, A CLOSE READING OF THE MINUTES SUGGEST THAT THE BOARD DISCU SSED AND AUTHORIZED SHRI R.S. DUBEY EXECUTIVE DIRECTOR (FINANCE, ACCOUNTS& T AXATION) TO PREPARE A NOTE TO SEE THE OVERALL IMPACT ON THE FINANCIAL POS ITION OF THE COMPANY BY PREPARING TWO SETS OF BALANCE SHEET, ONE AS PER EST ABLISHED PRACTICE AND OTHER BY MAKING PROVISIONING OF INTEREST AS ADVISED BY TH E STATUTORY AUDITORS TO FACILITATE AN APPROPRIATE DECISION COULD BE TAKEN I N THE NEXT AUDIT COMMITTEE MEETING. HOWEVER, THERE IS NO EVIDENCE TO SUGGEST T HAT SUCH A NOTE WAS PREPARED OR PLACED BEFORE THE AUDIT COMMITTEE. IT IS EQUALLY IMPORTANT TO NOTE THAT THE STATUTORY AUDITORS M/S KALYANIWALLA & MISTRY, WERE NOT PRESENT IN THE SAID MEETING. 26.6. THE DOCUMENT SOUGHT TO BE FILED AS ADDITIONAL EVIDENCE IS EXTRACT OF THE MINUTES OF THE MEETING OF AUDIT COMMITTEE HELD ON 3 RD FEBRUARY, 2009 AT THE SAME VENUE. IT IS MENTIONED THAT AFTER DISCUSSI ONS IT WAS DECIDED THAT FOR THE FINANCIAL YEAR 2008-09 AND ONWARDS, INTEREST AC CRUAL ON OUTSTANDING DEPOSIT ACCOUNTS SHALL BE MADE ACCOUNT WISE DEPENDI NG UPON THE STATUS OF ACCOUNTS AS ON THE DATE OF ACCRUAL OF INTEREST FOR THE PURPOSE OF COMPUTATION OF ALD OF THE COMPANY AT THE EACH QUARTER COMMENCIN G FROM THE QUARTER ENDING ON 31 ST MARCH,2009. IT WAS FURTHER PROVIDED THAT THE APPROVAL OF THE BOARD OF DIRECTORS OF THE COMPANY WITH REGARD TO CH ANGE IN METHOD OF COMPUTATION OF ACCRUAL OF INTEREST ON DEPOSITS BE O BTAINED THROUGH CIRCULAR RESOLUTION AND THE RBI BE INFORMED ACCORDINGLY. IT IS STILL NOT KNOWN 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 119 WHETHER THE AFORESAID APPROVAL OF THE BOARD OF DIRE CTORS WAS ACTUALLY OBTAINED AS NO EVIDENCE THEREOF HAS BEEN PLACED ON RECORD. 26.7. THESE FACTS CLEARLY SUGGEST THAT THE ACCRUAL OF INTEREST WAS TO BE CALCULATED ON QUARTERLY BASIS ONLY FOR THE PURPOSE OF COMPUTATION OF AGGREGATE LIABILITY TO DEPOSITORS OF THE COMPANY. F URTHER, THIS WAS TO COMMENCE FROM THE QUARTER ENDING ON 31 ST MARCH, 2009 AND NOT EARLIER. IN SUCH SITUATION THERE WAS NO REQUIREMENT ON THE PART OF THE APPELLANT COMPANY TO PROVIDE FOR THE INTEREST LIABILITY FOR THE EARLI ER YEARS AS NO SUCH DECISION WAS TAKEN BY THE BOARD OF DIRECTORS NOR ANY DIRECTI ON TO THIS EFFECT WAS GIVEN BY THE RBI. 26.8. BESIDES SEEKING APPROVAL OF THE NOMINEE DIREC TORS AND STATUTORY AUDITORS APPOINTED BY THE RBI IS ONE ISSUE AND BRIN GING ABOUT CHANGES IN ACCOUNTING ESTIMATES IS ENTIRELY DIFFERENT ISSUE. T HEREFORE, IN THE ABSENCE OF ANY EVIDENCE, THE CLAIM OF THE APPELLANT COMPANY TH AT THE NECESSARY CHANGE HAD TO BE BROUGHT ABOUT IN LINE WITH THE DIRECTIONS OF THE RBI IS FACTUALLY INCORRECT. THE CHANGE IS UNILATERAL ACT OF THE APPE LLANT, AIMED AT ARTIFICIALLY REDUCING PROFITS AND CONSEQUENT TAX LIABILITY. 26.9. CBDT NOTIFICATION NO. SO 69(E), DTD 25-1-1996 , DIRECTION IN PARAGRAPH-11 LAYS DOWN THAT ANY CHANGE IN THE ACCOU NTING ESTIMATE IS ALSO TO BE DISCLOSED AND QUANTIFIED IN THE FINAL ACCOUNT S. NOT FOLLOWING THE CBDT NOTIFICATION, OR DOING ANYTHING CONTRARY TO THE NOT IFICATION, IS BOUND TO ATTRACT ADVERSE DECISION. ASSESSEES CONTENTION THAT ITAT, DELHI HAS UPHELD THE VIEW THAT INTEREST EXPENDITURE PROVIDED IN ITS ACC OUNTS WAS CORRECT (ITAT ORDER DATED 12.10.2003 IN ITA NOS. 667/LUCK/2002 FO R AY 1994-95 & 101/LUCK/2000 FOR AY 1990-91), IS NOT EMANATING FRO M THE ORDER. THEREFORE, EITHER THE APPELLANTS EARLIER ACCOUNTIN G ESTIMATE OF INTEREST 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 120 PROVISION WAS CORRECT, OR THE ESTIMATE MADE AFTER A UDIT BY RBI AUDITORS IS CORRECT. BOTH ESTIMATES CANNOT BE CORRECT AT THE SA ME TIME. 26.10. IT IS SETTLED POSITION OF LAW THAT WHILE COM PUTING REAL INCOME, METHOD OF ACCOUNTING OR RBI GUIDELINES\ DIRECTIVES WILL HA VE NO CONSEQUENCE ON THE CHARGEABILITY OF INCOME UNDER THE IT ACT, WHICH IS A SELF CONTAINED CODE. RELIANCE IS PLACED ON THE FOLLOWING JUDGMENTS OF TH E HONBLE SUPREME COURT:- - KEDARNATH JUTE MFG. CO. LTD. V.CIT; - CIT V.BRITISH PAINTS INDIA LTD. - CIT V.MCMILLAN & CO. ; - SOUTHERN TECHNOLOGIES LTD. V DCIT 26.11. ASSESSEE HAS TO CLOSE ITS BUSINESS RELATIN G TO OBTAINING OF DEPOSITS LATEST BY 31.03.2015 AS MANDATED BY THE RBI AND THI S HAS ALREADY STARTED REFLECTING IN DECREASING BALANCE OF ALD. IN A CASE WHERE THE WINDING UP OF OPERATIONS IS CERTAIN IN NEAR FUTURE , IT WILL BE I MPOSSIBLE TO ENSURE THAT THE CHANGE BROUGHT IN BY THE ASSESSEE WOULD BE FOLLOWED REGULARLY. THEREFORE, VIEWED FROM ANY ANGLE, THE ACTION OF THE AO IS FULL Y JUSTIFIED AND DESERVES TO BE SUSTAINED. 27. LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND CONTENDS THAT APPELLANT ACCEPTS DEPOSITS FROM PUBLIC UNDER VARIOUS SCHEMES ON WHICH INTEREST IS PAYABLE. THE RATE OF INTEREST ON SUCH DEPOSITS IS C ONTINGENT UPON ITS REGULARITY. IF THE ACCOUNT IS REGULAR, THE INTEREST IS PAID AT THE AGREED REGULAR RATE; IN CASE OF DEFAULT, INTEREST IS PAYABLE AT TH E AGREED REDUCED RATES. 27.1. UP TO IMMEDIATELY PRECEDING YEAR ASSESSMENT Y EAR 2008-09, THE APPELLANT WAS PROVIDING FOR INTEREST ON A CONSERVAT IVE BASIS, I.E., AT THE LOWEST RATE ASSUMING THAT THE ACCOUNTS OF ALL DEPOS ITORS WOULD BE IRREGULAR I.E. THERE WOULD BE DEFAULT BY THE DEPOSITORS. IF ANY DEPOSIT WAS FOUND TO BE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 121 REGULAR, PAYMENT OF INTEREST IN EXCESS QUA SUCH DEP OSIT WAS ALSO CHARGED TO THE PROFIT AND LOSS ACCOUNT AND CLAIMED AS DEDUCTIO N IN THAT YEAR ITSELF. THUS THIS SYSTEM OF PROVISIONING OF INTEREST ON DEPOSITS AND EXCESS ACTUAL PAYMENT WAS CONSISTENTLY AND REGULARLY FOLLOWED EARLIER ALS O. 27.2. IN THE CURRENT YEAR, RBI TAKING NOTE OF SOME ADVERSE MEDIA REPORTS AGAINST ASSESSEE, ISSUED PROHIBITORY ORDER DATED 04 .06.2008 DEBARRING THE APPELLANT FROM ACCEPTING FURTHER DEPOSITS AND REPAY THEM ON MATURITY. THE SAID ORDER WAS MODIFIED BY THE RBI VIDE THEIR LETTE R DATED 17.06.2008 TO THE EXTENT THAT THE APPELLANT WAS ALLOWED TO ACCEPT DEP OSITS UP TO 30.06.2011 AND THEREAFTER, WIND DOWN THE ACTIVITIES COMPLETELY BY 30.06.2015. RBI FURTHER DIRECTED THE APPELLANT TO APPOINT STATUTORY AUDITORS FROM THE PANEL OF AUDITORS APPROVED BY THE RBI AND ALSO DIRECTED TO I NDUCT 50% OF THE DIRECTORS NOMINATED BY THE RBI ON THE BOARD OF DIRE CTORS. IN COMPLIANCE OF THESE RBI DIRECTIONS, APPELLANT APPOINTED M/S G.D. APTE & CO., CHARTERED ACCOUNTANTS AND M/S. KALYANIWALLA & MISTRY, CHARTER ED ACCOUNTANTS AS JOINT SPECIAL STATUTORY AUDITORS FOR THE PREVIOUS Y EAR ENDED 31.03.2009. MR. H.N. SINOR, MR. A.K.D. JADHAV AND MR. T.N. MANOHARA N WERE APPOINTED AS INDEPENDENT DIRECTORS ON THE BOARD. THE AUDIT COMMI TTEE WAS DIRECTED TO BE CHAIRED BY MR. T.N. MANOHARAN, NOMINATED BY THE RBI . 27.3. THE NEW STATUTORY AUDITORS SUBSEQUENT TO THEI R APPOINTMENT UNDERTOOK DETAILED EXAMINATION OF ACCOUNTING POLICY ADOPTED, INCLUDING THE METHOD OF PROVIDING INTEREST. ACCORDING TO THE NEWLY APPOINTE D STATUTORY AUDITORS, EARLIER ESTIMATES POLICY ADOPTED BY THE APPELLANT F OR PROVISIONING OF INTEREST RESULTED IN UNDERPROVIDED OR INTEREST LIABILITY. T HE STATUTORY AUDITORS, THEREFORE, RECOMMENDED TO THE ASSESSEES BOARD FOR CHANGE IN THE ACCOUNTING ESTIMATE IN THIS BEHALF, FROM PROVIDING INTEREST AT THE LOWEST BASE RATE TO PROVISIONING ON RATE OF THE REGULARITY OF D EPOSIT. PURSUANT TO THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 122 RECOMMENDATION OF THE STATUTORY AUDITORS, THE BOARD OF DIRECTORS OF THE APPELLANT COMPANY, IN THE MEETING HELD ON 03.02.200 9 DECIDED TO ACCORDINGLY MODIFY THE ACCOUNTING ESTIMATE AND BASE RATE OF PROVIDING INTEREST. ACCORDINGLY, IN THE ANNUAL ACCOUNTS FOR T HE YEAR ENDED 31.03.2009, ASSESSEE MADE PROVISION FOR INTEREST ON DEPOSITS OF RS. 1207,57,86,321/-. 27.4. THE ASSESSING OFFICER NOT ACCEPTING THE CHANG E IN THE BASIS OF SUCH PROVISION DISALLOWED THE INTEREST PROVIDED IN THE B OOKS OF ACCOUNTS ON THE GROUND THAT THE INTEREST PROVISION WAS EXCESSIVE. T HE AO HELD THAT INTEREST PROVISION @ 3% OF THE AVERAGE OF OPENING AND CLOSIN G DEPOSITS WAS EXCESSIVE AND THUS, DISALLOWED A SUM OF RS.467,96,7 9,775/- ( 3% OF RS.15598,93,25,833/- BEING AVERAGE DEPOSIT). 27.5. ON APPEAL, THE CIT(A), WHILE ACCEPTING THAT T HERE WAS NO CHANGE IN THE ACCOUNTING POLICY I.E. THE SAME REMAINED TO BE MERCANTILE SYSTEM, OBSERVED THAT THE CHANGE IN THE RATE OF INTEREST AD OPTED FOR PROVISIONING, WAS SIMPLY A CHANGE IN ACCOUNTING ESTIMATE ONLY. FURTH ER, THE CIT(A) HELD THAT I T ACT ENTITLES THE APPELLANT TO CHANGE THE METHOD O F ACCOUNTING, PROVIDED THE PROVISION MADE EARLIER WAS NOT ACCURATE, CHANGE WAS BONAFIDE AND IT WAS FURTHER REQUIRED TO BE CONSISTENTLY AND REGULARLY F OLLOWED. DESPITE GIVING THESE CATEGORICAL FAVOURABLE FINDINGS LD. CIT(A), M ISTAKENLY HELD THAT THE INTEREST PROVISION MADE DURING THE RELEVANT PREVIOU S YEAR WAS EXCESSIVE, IMPLIEDLY ADOPTING UNPERMISSIBLE HYBRID SYSTEM OF A CCOUNTING. THUS ON THIS MISUNDERSTANDING FINDING APPLIED WRONG BASIS THAT T HE ACTUAL PAYMENT OF INTEREST DURING THE RELEVANT PREVIOUS YEAR AT RS.92 4,63,78,475 WAS LOWER THAN THE PROVISION OF INTEREST AT RS.12,07,57,86,32 1 BY AN AMOUNT OF RS.282,94,07,846. CONSEQUENTLY LD. CIT(A) RESTRICTE D THE DISALLOWANCE TO RS.2,82,94,07,846 OUT OF RS.467,96,79,775 MADE BY AO. THE ORDER OF LD. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 123 CIT(A) BECOMES CONTRADICTORY IN AS MUCH AS CHANGE I S HELD TO BE BONAFIDE AND A CHANGE OF ACCOUNTING ESTIMATE AND NOT OF ACCO UNTING METHOD. AT THE SAME TIME INSTEAD OF FOLLOWING THE CONSISTENT MERCA NTILE METHOD, HE HAS ALLOWED THE INTEREST ON CASH BASIS, WHICH RESULTS I N MAKING THE SYSTEM HYBRID WHICH IS NOT PERMITTED BY SEC. 145. HAVING UPHELD T HE PRINCIPLE, ENTIRE INTEREST LIABILITY OUGHT TO HAVE BEEN ALLOWED AS A NATURAL CONSEQUENCE. 27.6. IT IS SUBMITTED THAT IN THIS CASE, THE APPELL ANT HAS MERELY CHANGED ITS ACCOUNTING ESTIMATES WITH RESPECT TO PROVISION OF R ATE OF INTEREST ON DEPOSITS. ASSUMING FOR THE SAKE OF ARGUMENT THAT SUCH A CHANG E IS TO BE REGARDED AS CHANGE IN ACCOUNTING POLICY. THEN ALSO IT IS TO BE ACCEPTED IN VIEW OF THE STATUTORY RIGHT THAT AN ASSESSEE IS ENTITLED TO CHA NGE THE METHOD OF ACCOUNTING IF THE SAME IS BONA FIDE AND THE CHANGED METHOD IS CONSISTENTLY FOLLOWED THEREAFTER. RELIANCE IS MADE TO THE DECISI ON OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF SNOW WHITE FOOD PRODUCTS CO. LTD. V. CIT: 141 ITR 861: ALL THAT THE SECTION LAYS DOWN THAT IF AN ASSESSEE REGULARLY EMPLOYS A METHOD OF ACCOUNTING HIS INCOME SHOULD BE COMPUTE D IN ACCORDANCE THEREWITH. THE SECTION, IN ITS TERMS, DO ES NOT REQUIRE ANY ENQUIRY INTO THE BONA FIDES OF THE ASSESSEE IN FOLL OWING A REGULAR METHOD. A RECOGNISED METHOD OF ACCOUNTING FOLLOWED REGULARL Y WOULD NECESSARILY RESULT IN A PROPER COMPUTATION OF THE A SSESSEE'S REAL INCOME. EVEN IF ONE REGULAR METHOD OF ACCOUNTING IS SUBSTITUTED BY ANOTHER REGULAR METHOD THE SAME RESULT WILL FOLLOW. ONLY IN A CASE WHERE THE ASSESSEE CHANGES HIS REGULAR METHOD OF AC COUNTING BY ANOTHER METHOD AND DOES NOT FOLLOW THE CHANGE REGUL ARLY THEREAFTER IT MIGHT BE POSSIBLE FOR THE ASSESSEE BY INTRODUCIN G SUCCESSIVE CHANGES IN HIS METHODS OF ACCOUNTING TO EXCLUDE ITE MS OF HIS INCOME FROM BEING INCLUDED IN THE COMPUTATION OF HIS TOTAL INCOME. THEREFORE, WHEN AN ASSESSEE CHANGES HIS REGULAR MET HOD OF ACCOUNTING BY ANOTHER REGULAR METHOD THE QUESTION O F HIS BONA FIDES HAVE LITTLE RELEVANCE. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 124 ONLY IN THE YEAR WHERE A CHANGE IN THE METHOD OF AC COUNTING IS INTRODUCED FOR THE FIRST TIME, IT IS TO BE EXAMINED BY THE REVENUE AUTHORITIES WHETHER THE CHANGE INTRODUCED IS MEANT TO BE REGULARLY FOLLOWED OR NOT. IT APPEARS TO US THAT IT IS IN THI S CONTEXT ONLY THAT THE EXPRESSION 'GOOD FAITH' AND 'BONA FIDE' OCCUR IN TH E OBSERVATIONS IN THE EARLIER JUDGMENT NOTED EARLIER. IN OUR OPINION, WHERE IT IS FOUND THAT AN ASSESSEE HAS EMPLOYED (CHANGED ) HIS REGULAR METHOD OF ACCOUNTING BY ANOT HER RECOGNISED METHOD AND HAS FOLLOWED THE LATTER METHOD REGULARLY , THEREAFTER, IT IS NOT OPEN TO THE REVENUE AUTHORITIES TO GO INTO THE QUESTION OF BONA FIDES OF THE INTRODUCTION AND CONTINUANCE OF THE CH ANGE. FOR THE ABOVE REASONS THE ASSESSEE SUCCEEDS IN THIS REFERENCE. THE QUESTION REFERRED TO US ARE BOTH ANSWERED IN THE NE GATIVE AND IN FAVOUR OF THE ASSESSEE. IN THE FACTS AND CIRCUMSTAN CES, THERE WILL BE NO ORDER AS TO COSTS. 27.7. THE METHOD OF PROVISIONING FOR INTEREST HITHE RTO FOLLOWED BY THE APPELLANT WAS NOT FOUND TO BE RATIONAL BY RENOMINAT ED AUDITORS AND BOARD AT THE RECOMMENDATIONS OF RBI. THEY WERE OF THE VIEW T HAT PRESENT ESTIMATE RESULTED IN UNDER PROVISIONING OF INTEREST BY ADOPT ING THE LOWEST BASE RATE. INTEREST WAS ACTUALLY AGREED TO BE PAID AT HIGHER R ATE ON REGULAR DEPOSITS. IT WAS NOT IN CONSONANCE WITH THE ACCRUAL METHOD OF AC COUNTING AND CONSERVATIVE PRINCIPLES OF PRUDENCE WHICH REQUIRED TO PROVIDE FOR ANTICIPATED LOSSES WHILE NOT RECOGNIZING ANTICIPATE D GAINS. IT IS PRECISELY FOR THIS REASON THAT THE RBI APPROVED AUDITORS RECOMMEN DED CHANGE IN THE METHOD OF ACCOUNTING TO REFLECT TRUE AND FAIR VIEW OF INCOME IN THIS YEAR, BY CHANGING THE BASE RATE OF INTEREST. 27.8. AS PER THE ACCOUNTING STANDARD-1 (AS-1) ON DISCLOSURE OF ACCOUNTING POLICIES ISSUED BY THE INSTITUTE OF CHA RTERED ACCOUNTANTS OF INDIA, THE MAJOR CONSIDERATION GOVERNING THE SELECT ION AND APPLICATION OF ACCOUNTING POLICY(IES) ARE: 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 125 A) PRUDENCE IN VIEW OF THE UNCERTAINTY ATTACHED TO FUTURE EVENT S, PROFITS ARE NOT ANTICIPATED BUT RECOGNISED ONLY WHEN REALISED THOUG H NOT NECESSARILY IN CASH. PROVISION IS MADE FOR ALL KNOW N LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION. B. SUBSTANCE OVER FORM THE ACCOUNTING TREATMENT AND PRESENTATION IN FINANC IAL STATEMENTS OF TRANSACTIONS AND EVENTS SHOULD BE GOVERNED BY TH EIR SUBSTANCE AND NOT MERELY BY THE LEGAL FORM. C. MATERIALITY FINANCIAL STATEMENTS SHOULD DISCLOSE ALL MATERIAL ITEMS, I.E. ITEMS THE KNOWLEDGE OF WHICH MIGHT INFLUENCE THE DE CISIONS OF THE USER OF THE FINANCIAL STATEMENTS. 27.9. ON THIS CONCEPT OF PRUDENCE CLOSING STOCK IS VALUED AT LOWER OF COST OR MARKET VALUE. IN OTHER WORDS THE PRUDENCE NORM LAYS DOWN THAT, WHILE ANTICIPATED LOSSES (OR FALL IN MARKET VALUE) IS TAK EN INTO ACCOUNT, ANTICIPATED / UNREALIZED PROFITS ARE NOT TAKEN INTO ACCOUNT WHILE DETERMINING THE CORRECT PROFITS. RELIANCE IN THIS BEHALF IS PLACED ON CHAIN RUP SAMPATRAM V. CIT :24 ITR 17 (SC); CIT VS. WOODWARD GOVERNOR INDIA (P) L TD. AND HONDA SIEL POWER PRODUCTS LTD. 312 ITR 254 (SC)@263-264 . 27.10. ACCOUNTING STANDARD AS -1 HAS BEEN NOTIFIED BY THE CENTRAL GOVERNMENT VIDE NOTIFICATION NO. SO69(E) DATED 25.0 1.1996 FOR PURPOSES OF SECTION 145(2) AND IS, THUS, MANDATORY FOR DETER MINING THE INCOME OF AN ASSESSEE CHARGEABLE UNDER THE HEAD PROFITS AND GAI NS OF BUSINESS OR PROFESSION AS PER THE METHOD OF ACCOUNTING FOLLOWE D BY THAT ASSESSEE, IN TERMS OF SUB-SECTION (1) OF SECTION 145 OF THE ACT. CONSEQUENTLY THE CHANGED METHOD OF ESTIMATE FOR INTEREST IS IN ACCORDANCE WI TH (A) CONCEPT OF PRUDENCE, (B) REFLECTS TRUE AND FAIR VALUE OF THE A CCOUNTS, (C) HAS BEEN ADOPTED ON THE SUGGESTION OF THE STATUTORY AUDITORS NOMINATED BY RBI, (D) IS 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 126 A MORE SCIENTIFIC CHANGE AND A RATIONAL METHOD OF A CCOUNTING, (E) THE CHANGE IS BONAFIDE. 27.11. CONSIDERING THAT THE CHANGED METHOD FOR PRO VIDING FOR INTEREST HAS BEEN CONSISTENTLY FOLLOWED IN ALL SUBSEQUENT YE ARS, IT IS CONTENDED BY THE ASSESSEE THAT THE CHANGE IN THE RATE OF ESTIMATE DE SERVES TO BE ACCEPTED. CONSEQUENTLY THE PROVISION OF INTEREST ON THE BASIS OF THIS CHANGE IS TO BE ALLOWED DEDUCTION IN IT TOTALITY. 27.12. ADVERTING TO ARGUMENTS OF LD. CIT DR THAT TH E CHANGE IN THE METHOD OF ACCOUNTING SHOULD NOT BE ACCEPTED IN VIEW OF THE FOLLOWING: A) THE FACTS ON RECORD DO NOT SUPPORT THE BONAFIDES OF THE APPELLANT IN EFFECTING THE CHANGE INASMUCH AS (I) THERE IS NO EV IDENCE TO SUGGEST THAT RBI OR ITS NOMINATED DIRECTORS OR THE STATUTOR Y AUDITORS ISSUED ANY DIRECTIONS TO THE APPELLANT COMPANY FOR ADOPTING TH E CHANGED BASIS AND (II) THE EARLIER SYSTEM BEING FOLLOWED FOR PROV IDING FOR INTEREST AFTER TAKING INTO CONSIDERATION THE BEHAVIORAL PATT ERN OF THE INVESTORS DURING THE ENTIRE PERIOD OF DEPOSIT WAS MORE ACCURA TE / REALISTIC. B) CONSIDERING THAT THE APPELLANT COMPANY HAD TO WIND UP THE BUSINESS ACTIVITIES BY 31.03.2015, IT WOULD BE IMPOSSIBLE TO ENSURE THAT THE CHANGED METHOD WOULD BE REGULARLY FOLLOWED. C) ASSESSEE DID NOT PLACE ON RECORD THE NOTE SUBMITTED BY MR. R. S. DUBEY, EXECUTIVE DIRECTOR (FINANCE, ACCOUNT AND TAX ATION), AS DIRECTED BY THE BOARD, TO SEE THE OVERALL I MPACT ON THE FINANCIAL POSITION OF THE COM P AN Y, BY P R EPA R ING TWO SETS OF BALANCE SHEET - ONE, AS PER ESTABLISHED PRA C TICE AND THE OTHE R BY MAK ING PR OV I SION I NG OF INTEREST AS ADVISED BY THE STATUTORY AUDITORS OF THE COMPANY, S O THAT 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 127 APPROPRIATE DECISION COULD BE TAKEN IN THE NEXT AUD IT COMMITTEE MEETING . 27.13. IT IS SUBMITTED THAT ASSESSEE HAS PLACED ON RECORD VARIOUS DOCUMENTS IN SUPPORT OF THE SUBMISSION THAT THE CHANGE IN THE METHOD OF ACCOUNTING WAS MADE BY THE APPELLANT PURSUANT TO THE SUGGESTIO N MADE BY THE NEW INDEPENDENT STATUTORY AUDITORS APPOINTED DURING THE RELEVANT PREVIOUS YEAR INCLUDING: - COPY OF PROHIBITORY ORDER PASSED BY RBI RESTRAINING THE APPELLANT COMPANY TO CARRY ON PRESENT BUSINESS (PAGES 2365-23 66 OF THE PAPER BOOK). - COPY OF EXTRACTS OF THE MINUTES OF MEETING OF THE A UDIT COMMITTEE OF THE APPELLANT HELD ON 03.02.2009- FILED AS ADDITION AL EVIDENCE. - COPY OF EXTRACTS OF MINUTES OF MEETING OF THE BOARD OF DIRECTORS OF THE APPLICANT HELD ON 25.08.2009- FILED AS ADDITION AL EVIDENCE. - COPY OF EXPERT OPINION SOUGHT BY THE APPELLANT WITH RESPECT TO ACCOUNTING TREATMENT OF CREATION OF PROVISION OF IN TEREST PAYABLE TO DEPOSITORS (PAGES 2367-2371 OF THE PAPER BOOK). - ACCOUNTS ARE AUDITED BY STATUTORY AUDITORS, FINAL S TATEMENTS, NOTES AND ANNUAL ACCOUNTS ARE APPROVED AND PUBLISHED BY THE B OAR OF DIRECTS. AT EVERY STAGE RBIS PRESENCE IS DISCERNABLE. THESE FACTS CANNOT BE IGNORED TO ARRIVE AT A CONJECTURE THAT DUE TO SOME HYPERTECHNICAL DEFICIES THE ENTIRE EXERCISE IS CONTRIVED OR THE DE CISION IS TAKEN WITHOUT CONSIDERING THE PROPER RECORD. 27.14. ALL THE FACTS AND CIRCUMSTANCES INDICATE THA T THE AUDITORS AND BOARD OF DIRECTORS TOOK PROPER NOTE OF THE SUGGESTIONS OF TH E AUDITORS AND APPROVED THE RECOMMENDED AND NECESSARY CHANGE IN THE ESTIMAT E OF ACCOUNTING FOR INTEREST ON DEPOSITS, INCLUDING THE NOTE PREPARED B Y SHRI R. S. DUBEY, AS DIRECTED BY THE BOARD IN THE MEETING HELD ON 06.12. 2008. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 128 27.15. IN ANY CASE, IT IS BE INDEPENDENTLY EVALUATE D, WHETHER THE EARLIER METHOD FOLLOWED BY THE APPELLANT WHICH ADMITTEDLY R ESULTED IN UNDER PROVISIONING OF INTEREST, WAS MORE SCIENTIFIC / RAT IONAL VIS--VIS THE CHANGED METHOD ADOPTED BY THE ASSESSEE IN THIS YEAR. IT TAK ES INTO ACCOUNT THE BEHAVIORAL PATTERN UP TO THE DATE OF PROVISIONING O F INTEREST. A DISPASSIONATE ANALYSIS WILL YIELD TO THE CONCLUSION THAT THE CHAN GED METHOD IS IN LINE WITH THE ACCRUAL METHOD OF ACCOUNTING IN AS MUCH AS THE SAME OBSERVES THE PRINCIPLE OF PRUDENCE; REFLECTS TRUE AND FAIR VALUE OF THE ACCOUNTS OF THE APPELLANT; IS A MORE SCIENTIFIC AND RATIONAL METHOD OF PROVISIONING FOR INTEREST. THE GAMUT OF BACKGROUND FACTS CORROBORAT E THAT THE CHANGE IS BONAFIDE AND THE INTEREST DESERVES TO BE ALLOWED FU LLY. 27.16. EVEN THOUGH, ON RBI DIRECTION THE APPELLANT HAS TO WIND UP ACCEPTING DEPOSITS BY 31.03.2015, EVEN THEN THE CHANGED METHO D WOULD BE FOLLOWED BY THE APPELLANT FOR SEVEN YEARS WHICH IS A LONG PERIOD OF TIME. IT CANNOT BE ASSUMED AS POINTED BY LD DR THAT THERE IS NO POS SIBILITY THAT CHANGED METHOD WOULD BE REGULARLY FOLLOWED. FUTURE EVENTS C ANNOT BE ANTICIPATED ON SURMISES, SEVEN YEARS IS A LONG TIME AND REGULATION S MAY ALSO CHANGE, THE ASSESSEE UNDERTAKES TO FOLLOW THE CHANGED METHOD TI LL THE TIME OF ITS EXISTENCE. 27.18. IT HAS BEEN PLEADED BY REVENUE THAT THE BOAR D HAD ONLY AUTHORIZED THE CHANGE FOR ONLY THE LAST QUARTER OF THE RELEVANT PR EVIOUS YEAR 2008-09. IT SHALL BE NOTED THAT PROVISION OF INTEREST IS ALWAYS MADE AT THE END OF THE YEAR AND NOT ON QUARTER TO QUARTER BASIS. IT IS NOT THE CASE OF REVENUE THAT FOR THREE QUARTERS ALREADY PROVISION WAS MADE FOR. THEREFORE, THE APPROVAL BY THE BOARD SIGNIFIES PROVISION OF INTEREST FOR THE ENTI RE PREVIOUS YEAR 2008-09, RELEVANT TO AY 09-10. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 129 27.19. APROPOS THE ISSUE, WHETHER ARREARS OF INTERE ST OF EARLIER YEARS COULD BE ALLOWED IN THIS YEAR PURSUANT TO THE CHANGE, IT IS SUBMITTED THAT ONCE THE CHANGED BASIS OF ACCOUNTING FOR INTEREST WAS ADOPTE D, AS A NATURAL CONSEQUENCE ASSESSEE HAS TO RECALCULATE INTEREST PA YABLE ON DEPOSITS AS ON 31.03.2009. ONCE THE CHANGE IN THE METHOD WAS BONAF IDE, ALLOWANCE OF SHORT PROVISION OF INTEREST FOR THE EARLIER YEARS IS FATE ACCOMPLI TO SUCH CHANGE. IT IS TO BE BORNE IN MIND THE ASSESSEE WAS NOT IN GOOD LIGHT WITH RBI, TO PROVE ITS CREDENTIALS IT WAS NECESSARY TO ABIDE WITH RBI DIRECTIVES WHICH INCLUDED THEIR NOMINEE AUDITORS AND DIRECTORS. NON COMPLIANC E WOULD HAVE RESULTED IN RBI AND REGULATORS GETTING DISPLEASED. THUS LOOKING FROM ANY ANGLE THE CHANGE IS BONAFIDE AND TENABLE. THERE IS NO MERIT I N DEPARTMENTS ALLEGATION THAT ASSESSES CARRIED OUT THIS EXERCISE FOR EVADIN G INCOME TAX. 27.20. AN ANALOGY IS CITED FROM ACCOUNTING STANDAR D-6 (AS-6) ON DEPRECIATION ACCOUNTING TO SUPPORT THE ARGUMENT T HAT THE ARREARS OF INTEREST RELATING TO EARLIER YEARS HAD TO BE NECESS ARILY ADOPTED AND ALLOWED IN THE YEAR OF CHANGE IN THE BASIS OF PROVISIONING FOR INTEREST. AS-6 PROVIDES THAT ONCE THERE IS A CHANGE IN THE METHOD OF CALCUL ATING DEPRECIATION, THEN, DEPRECIATION ADMISSIBLE THEREON IS TO BE RECALCULAT ED FROM THE FIRST DAY OF USE OF ASSET AND FURTHER, THAT THE ARREARS OF DEPRECIAT ION ARE NECESSARILY TO BE CHARGED TO THE PROFIT OF THE YEAR IN WHICH THE BASI S FOR PROVIDING FOR DEPRECIATION WAS CHANGED. 27.21. SO IS THE CASE WITH CHANGE IN WARRANTY PROV ISION. RELIANCE IN THIS REGARD IS ALSO PLACED ON THE DECISION OF THE H ONBLE DELHI HIGH COURT IN THE CASE OF CIT V. WHIRLPOOL OF INDIA LTD.: 242 CTR 245, WHEREIN CHANGED ARREARS CAUSED BY CHANGE RATE OF PROVISION FOR WARR ANTY, RELATING TO SALES EFFECTED IN EARLIER YEARS WAS HELD ALLOWABLE IN THE YEAR IN WHICH THE CHANGED PROVISION WAS CREATED . IT IS CONTENDED THAT INTEREST DEPRECIATION AND 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 130 WARRANTY PROVISION STAND ON EXACT PARITY, BOTH ARE CHARGED TO P & L A/C, THEREFORE, WHIRLPOOL JUDGMENT IS FULLY APPLICABLE T O ASESSEES CASE. 27.22. FURTHER RELIANCE IN THIS CONNECTION IS PLAC ED ON FOLLOWING DECISIONS (THOUGH RENDERED IN THE CONTEXT OF SECTIO N 115J OF THE ACT): - APOLLO TYRES LTD. VS CIT : 255 ITR 273 (SC) - BOMBAY TYRES INTERNATIONAL LTD. VS. DCIT : 51 ITD 339 (MUM.) - DCIT V. EICHER GOODEARTH : 64 TTJ 208 (DEL.) 27.23. BESIDES CHANGE IN THE METHOD OF VALUATION OF CLOSING STOCK ALSO STANDS ON SAME ANALOGY, COURTS HAVE HELD THAT EVEN THOUGH THE CHANGE IN VALUATION OF STOCK MAY RESULT IN LESSER INCOME, IT IS NOT POSSIBLE TO CHANGE THE OPENING STOCK OF THAT YEAR AS WELL - CIT V. CARBORANDUM UNIVERSAL LTD. 149 ITR 759 (MAD. ) CIT V. MOPEDS INDIA LTD.: 173 ITR 347 (A.P.) 27.24. ENTIRE ISSUE IN DISPUTE REVOLVES AROUND THE YEAR(S) OF ALLOW ABILITY OF INTEREST, WHICH, ON A MACRO LEVEL, IS REVENUE NEUTR AL, GIVEN THAT INTEREST PAYABLE ON DEPOSITS IS ALLOWABLE IN ONE YEAR OR THE OTHER. ASSESSEE IN APPEALS IN SEVERAL EARLIER YEARS, IN THAT CASE THE CLAIM BEING OTHERWISE GENUINE ITAT TO ENSURE A PROPER ASSESSMENT HAS TO I SSUE DIRECTIONS TO ALLOW THE CORRESPONDING INTEREST IN THE RESPECTIVE YEAR. THIS WILL RESULT IN REDUCING TAXABLE INCOME OF EARLIER YEARS, THUS MAKING THE EN TIRE EXERCISE REVENUE NEUTRAL AT MACRO LEVEL. A USEFUL REFERENCE CAN BE M ADE TO OBSERVATIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. NA GRI MILLS CO. LTD. : 33 ITR 681 (BOM) @ PG 684 AS UNDER:- WE HAVE OFTEN WONDERED WHY THE INCOME-TAX AUTHORIT IES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PER MISSIBLE DEDUCTION UNDER THE INCOME-TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOWABLE MAY BE MATERIAL WHEN THE RAT E OF TAX 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 131 CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS I S DIFFERENT; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED A T A UNIFORM RATE, AND WHETHER THE DEDUCTION IN RESPECT OF BONUS WAS G RANTED IN THE ASSESSMENT YEAR 1952-53 OR IN THE ASSESSMENT YEAR C ORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEAR 1953-54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTM ENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT F RITTER AWAY ITS ENERGIES IN FIGHTING MATTERS OF THIS KIND. BUT, OBV IOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THE N, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THE CHARACT ER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSESSEE OR THE TAX TH AT THE DEPARTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR T HE OTHER. 27.25. THE SAME HAS BEEN QUOTED WITH APPROVAL BY TH E DELHI HIGH COURT IN CIT VS. SHRIRAM PISTONS & RINGS LIMITED : 220 CTR 4 04, EXTRACTED AS UNDER : 17 . FINALLY, WE MAY ONLY MENTION WHAT HAS BEEN ARTICULATED BY THE BOMBAY HIGH COURT IN CIT V. NAGR I MILLS CO. LTD. [1958] 33 ITR 681 AS FOLLOWS : 'WE HAVE OFTEN WONDERED WHY THE INCOME-TAX AUTHORITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDUCTION UNDER THE INCOME-TAX ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DEDUCTION IS ALLOWABLE MAY BE MATERIAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS I S DIFFERENT; BUT IN THE CASE OF INCOME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DEDUCTION IN RESPECT OF BONUS WAS GRANTED IN THE ASSESSMENT YEAR 1952-53 OR IN THE ASSESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASSESSMENT YEAR 1953-54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEPARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT FRITTER AWAY ITS ENERGIES IN FIGHTING MATTERS OF TH IS 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 132 KIND. BUT, OBVIOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THEN, THE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARACTER WHICH DO NOT AFFECT THE TAXABILITY O F THE ASSESSEE OR THE TAX THAT THE DEPARTMENT IS LIKE LY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER.' (P. 684) 18. IN THE REFERENCE THAT IS BEFORE US THERE IS NO DOU BT THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE. THE ONLY DISP UTE IS REGARDING THE DATE ON WHICH THE LIABILITY HAD CRYST ALLIZED. IT APPEARS THAT THERE WAS NO CHANGE IN THE RATE OF TAX FOR THE ASSESSMENT YEAR 1983-84 WITH WHICH WE ARE CONCERNED . THE QUESTION, THEREFORE, IS ONLY WITH REGARD TO THE YEA R OF DEDUCTION AND IT IS A PITY THAT ALL OF US HAVE TO EXPEND SO M UCH TIME AND ENERGY ONLY TO DETERMINE THE YEAR OF TAXABILITY OF THE AMOUNT. 27.26. IN VIEW OF THE AFORESAID, IT IS CONTENDED TH AT THE CHANGE IN THE BASIS FOR PROVIDING FOR INTEREST NEEDS TO BE APPROVED AND PROVISION OF INTEREST MADE BY THE ASSESSEE BE ALLOWED. 28. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT HAS BEEN CONTENDED BY THE D EPARTMENT THAT WHILE DECIDING THIS ISSUE THE ASSESSEES NON COOPERATION IN THE PROCEEDINGS SHALL BE KEPT IN MIND. IN OUR VIEW, THE ISSUE OF PROVISION O F INTEREST AND ACCOUNTING ESTIMATE ARE ISSUE OF PRINCIPLE AND NOT OF VERIFIC ATION OF FACTS. THE QUANTIFICATION AND DISALLOWANCE HAS BEEN WORKED BY AO AND CIT(A), WHICH ESTABLISHES THAT RELEVANT FACTS WERE ON RECORD. TO DECIDE WHETHER IT IS A CHANGE OF METHOD OF ACCOUNTING OR INTEREST ESTIMATE IS BASED ON INTERPRETATION OF SEC. 145, REASONS FOR CHANGE AND APPLYING THE FINDINGS IS A QUESTION OF INTERPRETATION. THUS WE ARE UNABLE TO A CCEPT THIS CONTENTION THAT ALLEGED NON COOPERATION HAS ANY ROLE TO DECIDE THI S ISSUE AND ADVERSE INFERENCE IN THIS BEHALF MAY BE TAKEN. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 133 28.1. IT HAS NOT BEEN DISPUTED THAT ASSESSEE CAME U NDER THE WATCHFUL GLARE OF RBI, PURSUANT THERETO SAID PROHIBITORY ORDER WAS PA SSED. RBI FURTHER DIRECTED THE ASSESSEE TO APPOINT INDEPENDENT DIREC TORS AND AUDITORS ON ITS PANEL. LD. DR HAS PLEADED THAT THE BOARD MEETING IM PLIEDLY REFERS TO CHANGE OF INTEREST ESTIMATE FOR LAST QUARTER AND IT IS NOT CLEAR WHETHER SHRI R K GUPTA SUBMITTED ANY COMPARATIVE REPORT AS RESOLVED IN THE BOARD MEETING WAS NOT CONSIDERED. WE ARE UNABLE TO SUBSCRIBE TO BOTH THE CONTENTIONS, ASSESSEE IN PAST HAD NOT MADE PROVISION FOR INTEREST ON QUARTE RLY BASIS AND IT IS CONSERVATIVE ACCOUNTING PRACTICE TO MAKE ANY PROVIS ION AT THE END OF THE YEAR. THE FACT THAT AUDITORS AND BOARD APPROVED THE CHANGED PROVISION AND FINAL AUDITED ACCOUNTS TAKES IN ITS STRIDE THAT THE Y MUST HAVE LOOKED INTO ALL THE RELEVANT ASPECTS. IT CANNOT BE PRESUMED THAT MR . GUPTA DID NOT SUBMIT THE REPORT AND AUDITORS AND BOARD GLOSSED OVER THE RELE VANT REQUIREMENTS BEFORE ACCEPTING THE ACCOUNTS AND RESULTS. THIS ALSO BELIE S LD. DRS CONTENTION THAT IT IS NOT CLEAR WHETHER RBI AND ITS APPOINTEES GAVE SU CH RECOMMENDATION. PLETHORA OF CORRESPONDENCE IN THIS BEHALF HAS BEEN REFERRED INCLUDING RBIS PROHIBITIVE ORDER AND RECONSTITUTION OF BOARD AND A UDITORS THEY DEMONSTRATE THAT THE CHANGES WERE BONA FIDELY MADE UNDER THESE FACTS AND CIRCUMSTANCES. THEREFORE, THERE IS NO GAINSAYING THAT THE PROCESS SEEMS TO BE SUSPICIOUS. THUS WE ARE OF THE VIEW THAT THE EXERCISE OF CHANGE OF INTEREST PROVISION IS CARRIED OUT IN THE BACKDROP OF RECOMMENDATIONS OF B OARD AND AUDITORS NOMINATED UNDER RBI DIRECTIONS. 28.2. NOW THE MAJOR ISSUE WHICH IS TO BE DECIDED IS WHETHER THE CHANGE IN RATE OF INTEREST PROVISION AMOUNTS TO CHANGE IN AC COUNTING ESTIMATES OR CHANGE IN METHOD OF ACCOUNTING? IN OUR CONSIDERED V IEW TO CREATE PROVISION OF INTEREST IS ESSENTIAL PART OF THE INCOME RECOGNI TION PROCESS. MERCANTILE SYSTEM PERMITS DEBITING PROVISION OF INTEREST ON AC CRUAL BASIS, RATE OF ACCRUAL 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 134 OF INTEREST ARE NEVER PRESCRIBED. SIMILLARLY THERE IS NO ACCOUNTING STANDARD OR PRINCIPLE THAT ONCE ASSESSEE ADOPTS A PARTICULAR R ATE OF INTEREST IT CAN NEVER BE CHANGED. THE CREDITORS MAY CHANGE, INTEREST PAYA BLE TO THEM IS ALSO SUBJECT TO CHANGE IN VARIOUS EXIGENCIES. THUS IN RO UTINE COURSE AN ASSESSEE HAS DISCRETION TO CHANGE THE RATE OF INTEREST INCLU DING WITH RETROSPECTIVE EFFECT ON OUTSTANDING BALANCES DEPENDING ON CIRCUMS TANCES. THUS CHANGE IN RATE OF ACCRUAL OF INTEREST CANNOT TANTAMOUNT TO CH ANGE IN METHOD OF ACCOUNTING. THIS IS HOW NO INTEREST IS PROVIDED IN RESPECT OF STICKY LOANS AND THERE CANNOT BE FETTER IN ASSESSES BUSINESS ACUMEN TO INCREASE OR DECREASE THE RATE OF ACCRUED INTEREST AT THE CLOSING OF THE YEAR . IT IS NOT ENVISAGED BY THE ACCOUNTING STANDARDS SEC. 145 OR OTHER INCOME TAX PROVISIONS TO TREAT EVERY CHANGE IN RATE OF INTEREST UPWARD OR DOWNWARD AS CH ANGE IN SYSTEM OF ACCOUNTING. THUS CHANGE IN RATE OF INTEREST HAS BEE N RIGHTLY HELD BY CIT(A) TO BE A CHANGE IN ESTIMATE. 28.3. THIS VIEW IS SUPPORTED BY HONBLE DELHI HIGH COURT IN WHIRLPOOL INDIA (SUPRA) JUDGMENT WHERE CHANGE IN PROVISION OF WARRANTY IS ALLOWED RETROSPECTIVELY, THE FACTS OF WHIRLPOOL JUDGMENT AR E AT PARITY WITH ASSESSES CASE. IN THE ASSESSEES CASE CHANGE IS NOT A UNILA TERAL ACT OF THE ASSESSEE BUT A COMMERCIAL DECISION TAKEN ON THE RECOMMENDATIONS AND CONCURRENCE OF REGULATORY STAKE HOLDERS. APROPOS THE DISCLOSURE IN ACCOUNTS WE ARE UNABLE TO AGREE WITH AO THAT IN CASE OF CHANGE OF RATE OF ESTIMATE ALSO IT OUGHT TO HAVE BEEN SPECIFICALLY MENTIONED IN NOTES. WE FIND MERIT IN THE ARGUMENTS OF LD COUNSEL THAT CBDT DIRECTION HAS BEEN MISREAD, IT MAY BE FOR GUIDANCE AND DO NOT CREATE A LEGAL BINDING AS LONG AS THE AS SESSEE IS ABLE TO COMPLY WITH AS. IN ANY CASE ALL THE DISCLOSURES ARE MANIFE ST BY AUDITORS AND BOARDS SUGGESTION, EXPERT OPINION AND DETAILED WORKING. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 135 28.4. EVEN IF IT IS ASSUMED THAT IT IS A CHANGE IN METHOD OF ACCOUNTING EVEN THAN THE CHANGE IS TO BE ALLOWED. SEC. 145 ENABLES THE ASSESSEE TO CHANGE ITS METHOD OF ACCOUNTING PROVIDED IT IS BONAFIDE. IN OU R CONSIDERED VIEW THERE CANNOT BE ANY DOUBT ABOUT BONAFIDES OF THE ASSESSEE . CONSIDER A SITUATION WHERE ASSESSEE DOES NOT COMPLY WITH THE RECOMMENDAT ION OF AUDITORS AND RECONSTITUTED BOARD ON THIS ISSUE. ASSESSEE, WHO IS ALREADY IN THE EYE OF RBI IS SURE TO EARN A BAD NAME BY NOT ACCEPTING THEM AN D WILL BEST TRY TO AVOID. THUS THE CHANGE IS NOT ONLY BONAFIDE BUT ALSO IN TH E INTEREST OF HEALTH OF ITS BUSINESS. CONSEQUENTLY EVEN ASSUMING IT A CHANGE IN METHOD OF ACCOUNTING IT HAS TO BE ALLOWED IN TERMS OF SEC 145. 28.5. OUR VIEWS ARE SUPPORTED BY AFOREMENTIONED JUD GMENTS IN THE CASES OF APOLLO TYRE LTD.; BOMBAY TYRES INT.; EICHER GOODEAR TH LTD.; CORBORANDUM UNIVERSAL AND MOPED INDIA (ALL SUPRA) 28.6. ASSESSEE IS IN PERINEAL LITIGATION WITH DEPAR TMENT AND EARLIER YEARS ARE PENDING AT ONE STAGE OR OTHER. THE PROPOSAL NOT TO ALLOW THE INTEREST OF EARLIER YEARS EVEN ACCEPTING THE CHANGE IS REVENUE NEUTRAL AT MACRO LEVEL. HAVING ACCEPTED FOR THIS YEAR IT BECOMES ADMITTED L IABILITY AND ASSESSEE HAS ARIGHT TO CLAIM IT IN EARLIER YEARS AS A CONSEQUENT IAL RELIEF IN YEARS UNDER LITIGATION. IN THIS SITUATION GOING BY JUDGMENTS OF NAGRI MILLS WHICH IS APPROVED BY HONBLE DELHI HIGH COURT IN SHRIRAM PIS TONS(SUPRA), THE EXERCISE BECOMES ACADEMIC AND REVENUE NEUTRAL EXE RCISE, WHICH IS OF NO AVAIL. THIS VIEW HAS BEEN FURTHER UPHELD BY HONBLE SUPREME COURT IN THE RECENT CASE OF EXCEL INDUSTRIES 358 ITR 259. 28.7. IN OUR VIEW THE CLAIM OF ASSESSEE QUA PROVISI ON OF INTEREST IS FULLY JUSTIFIED. HAVING HELD IT TO BE A CHANGE IN ACCOUNT ING ESTIMATE, CIT(A) SHOULD NOT HAVE RETAINED PART OF PROVISION BY APPLY ING CASH SYSTEM OF ACCOUNTING FOR INTEREST PROVISION AND INDIRECTLY CO NVERTING IT INTO HYBRID 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 136 SYSTEM IS NOT PERMISSIBLE U/S 145. CONSEQUENTLY REV ENUE GROUND NO 9 IS DISMISSED AND GROUND NO. 3 OF ASSESSEE IS ALLOWED. 29. REVENUE GROUND NOS. 10: ADDITIONS ON ACCOUNT OF SEC 41(1) RS 13,10,627.19/ - 29.1. SA AND AO PROPOSED CESSATION OF LIABILITIES U /S 41(1) AS UNDER:: A. IN 21 CASES AMOUNTING TO RS 13,10,627/- EXCESS ASSE SSEE THOUGH WROTE OFF PROVISIONS PERTAINING TO EXPENDITURE ACCO UNTS AND CREDITED TO THE PROFIT AND LOSS ACCOUNT. HOWEVER SA ME WAS REDUCED IN THE COMPUTATION OF INCOME. ACCORDINGLY A SSESSEE WAS ASKED AS TO WHY THE ABOVE AMOUNT OF RS 13,10,627.19 /- SHOULD NOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE IN ACC ORDANCE WITH PROVISIONS OF SECTION 41(1). 29.2. ASSESSEE REPLIED THAT ITEM NO. 5 DEPRECIATION , I.E. RS. 1,07,631/- IS ALLOWABLE AT THE PRESCRIBED RATES HENCE ITS WRITE B ACK CANNOT BE SUBJECTED TO TAX. ITEMS NO. 12, I.E. PENSION FUND AMOUNTING TO R S. 38,806/- AND SL. NO. 2, I.E. BONUS TO STAFF AMOUNTING TO RS. 39/- IS BEING CLAIMED ON PAYMENT BASIS ONLY. IF THESE THREE ITEMS ARE REDUCED FROM THE FIG URE OF RS. 13,10,627/-, THE BALANCE COMES TO RS. 11,64,150/-. OUT OF THIS A SUM OF RS. 11,51,878/- STANDS ALREADY SURRENDERED BY THE ASSESSEE IN THE R ETURN FOR THE A.Y. 2008-09 ON ACCOUNT OF EXCESSIVE PROVISION MADE, IT CANNOT B E TAXED AGAIN IN THIS YEAR. THE REMAINING BALANCE OF RS. 12,272/- WAS SUR RENDERED VOLUNTARY TO BUY PEACE. 29.3. AO MISTAKENLY HELD THAT ASSESSEES REVISED CO MPUTATION OF INCOME IS NEITHER AVAILABLE ON THE ASSESSMENT RECORD OF ASSES SMENT YEAR 2008-09 NOR IT COULD HAVE BEEN FILED AFTER 19.01.2010 AS REVISED R ETURN I.E. THE DATE OF 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 137 PROCESSING OF THE RETURN, NO COGNIZANCE THEREOF CAN BE TAKEN. EVEN OTHERWISE THESE PROVISIONS WERE WRITTEN BACK IN THE YEAR UNDE R CONSIDERATION AND AMOUNT OF RS 13,10,627 ARE LIABLE TO BE INCLUDED IN THE TOTAL INCOME U/S 41(1) OF THE ACT. 29.4. APROPOS 12 CASES OF SUNDRY CREDITORS AMOUNTIN G TO RS 8,88,997/- OUTSTANDING AS ON 31.03.2009 SINCE A PERIOD OF MORE THAN 3 YEARS, ASSESSEE REPLIED THAT THESE CREDITORS ARE APPEARING IN THE B OOKS OF ACCOUNT AND ARE ACKNOWLEDGED AS LIABILITIES. THESE ACCOUNTS ARE PE NDING SETTLEMENT WITH THEM DUE VARIOUS REASONS/DISPUTES AND WILL BE SETTL ED IN DUE COURSE. SINCE THEY ARE ACKNOWLEDGED AS LIABILITY SEC 41(1) CANNOT BE APPLIED. 29.5. APROPOS LIABILITIES PERTAIING TO RECONCILIAT ION OF CERTAIN CHEQUES IN CERTAIN ACCOUNTS OUTSTANDING AS ON 31.03.2009, SPE CIAL AUDITOR SUMMED UP THAT OUT OF CHEQUES ISSUED BUT NOT PAID, A SUM OF R S 10,86,42,931/- IS OUTSTANDING AND NO SPECIFIC REPLY IS GIVEN BY ASSES SEE, SEC. 41(1) WAS PROPOSED. BESIDES ASSESSEE HAS SUBMITTED THAT A SUM OF RS.4,16,18,900/- IS OUTSTANDING AS UNPAID COMMISSION UP TO 31.03.2009.O N A SIMILAR FOOTING THE RENT PAYABLE AMOUNTING TO RS.1,50,838/-WHICH REMAIN ED UNADJUSTED FOR MORE THAN 3 YEARS WAS ALSO PROPOSED U/S 41. 29.6. IN WAS SUBMITTED THAT PROVISIONS OF SECTION 4 1(1) CANNOT BE APPLIED QUA 1.CHEQUES ISSUED BUT NOT PRESENTED RS. 10,86,42,93 1/- 2.COMMISSION PAYABLE RS. 25,81,00,086/- 3.RENT PAYABLE RS. 1,50,838/- 29.7. THE FIRST ITEM REPRESENTED CHEQUES ISSUED BU T NOT PRESENTED WHICH HAS BEEN CREDITED ON 31.03.2009. THE BASIC PURPOSE OF CREATION OF THIS HEAD IS THAT THESE CHEQUES WERE ISSUED BUT NOT PRESENTED FOR PAYMENT TILL 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 138 31.03.2009. THEY MAY NOT BE REFLECTED IN THE BANK R ECONCILIATION STATEMENT AND MAY APPEAR SEPARATELY IN THE ACCOUNTS OF THE AS SESSEE. THESE RECONCILIATION ENTRIES AS A MATTER OF ACCOUNTING SY STEM WERE REVERSED ON IST APRIL,2009 BY DEBITING CHEQUES ISSUED BUT NOT PRESE NTED ACCOUNT AND CREDITING RESPECTIVE BANK ACCOUNTS. THIS CLEARLY ME ANT THAT ON 1ST APRIL, 2009 THE HEAD ONCE AGAIN MERGED WITH THE RESPECTIVE ACCOUNTS TO WHICH THE CHEQUES RELATED AND WERE REFLECTED IN THE RESPECTIV E ACCOUNTS. 29.8. AS REGARDS THE SECOND ITEM, I.E. COMMISSION P AYABLE, THESE AMOUNT REPRESENTED COMMISSION PAYABLE TO THE FIELD-FORCE W HICH WAS PAID IN THE SUBSEQUENT PERIOD. IT IS KNOWN LIABILITY AND ACKNOW LEDGED BY THE ASSESSEE. THE AUDITORS HAVE THEMSELVES POINTED OUT THAT MAJOR PORTION OF THE PROVISION STANDS ALREADY PAID BY MAY, 2010.CONSEQUENTLY THERE WAS NO JUSTIFICATION IN ADDING IT U/S 41(1). THE THIRD ITEM, I.E. RENT PAYA BLE, IS ALSO AN ACKNOWLEDGED LIABILITY ITS DEFERMENT OF CANNOT LEAD TO INVOKING THE PROVISIONS OF SECTION 41(1).AS LONG AS THE LIABILITY IS ACKNOWLEDGED, IT IS ALLOWABLE TIME LIMIT IS NOT RELEVANT FOR PROVISIONS OF SECTION 41(1). 29.9. AO HELD THIS REPLY ALSO TO BE UNSATISFACTORY AND ADDED THE AMOUNTS 41(1). 29.10. AGGRIEVED ASSESSEE PREFERRED 1 ST APPEAL. CIT(A) VERIFIED THE MATERIAL AVAILABLE ON RECORD AND WAS OF THE VIEW THAT AO HAD NOT REFERRED TO HIS OWN RECORDS BEFORE ADDING THESE AMOUNTS AS CESSATION OF BUSINESS LIABILITIES U/S 41(1). ASSESSEES REPLY ON EACH ITEM WAS HELD TO BE SATISFACTORY. IT WAS HELD THAT THERE WAS NO CESSATION OF BUSINESS LIABILITY E XCEPT RS.12,272/- SURRENDERED BY IT. RESULTING IN RELIEF OF RS.12,98, 355/- (RS.13,10,627/- - RS.12,272/-). AGGRIEVED REVENUE IS BEFORE US. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 139 30. LD. CIT(DR) RELIED ON THE ORDER OF AO. 31. ASSESSEE CONTENDS THAT PROPER EXPLANATION FILED BY IT WAS NOT APPRECIATED BY AO. CIT(A) EXAMINED THE ISSUES AND A FTER DUE VERIFICATION FOUND THAT THESE AMOUNTS HAD NOT BEEN CLAIMED AND A LLOWED DEDUCTION IN THE EARLIER YEARS, THE WRITE BACK OF THE SAME COULD NOT , ATTRACT THE MISCHIEF OF SECTION 41(1) OF THE ACT; AND (B) THE AMOUNTS HAD A LREADY BEEN TAXED / OFFERED FOR TAXATION IN THE EARLIER YEARS. RS.1,07, 631/- REPRESENTED WRITE BACK OF PROVISION FOR DEPRECIATION MADE IN EARLIER YEARS IT WAS RECALCULATED AND CLAIMED ONLY AS PER THE PROVISIONS OF THE ACT. RELI EF IS GIVEN ON FOLLOWING REASONS: 1) REVERSAL OF RS.38,806 REPRESENTING CONTRIBUTION TO PENSION FUND AND RS.39 REPRESENTING BONUS TO STAFF WERE BEING CLAIME D ON PAYMENT BASIS IN TERMS OF SECTION 43B OF THE ACT WHILE THE PROVISION MADE THEREOF WAS ADDED BACK IN THE COMPUTATION OF INCOME . 2) RS.11,51,878 WAS ALREADY ADDED BACK IN THE RETURN F OR ASSESSMENT YEAR 2008-09. 3) RS.12,272 WAS SURRENDERED BY THE APPELLANT IN THE Y EAR UNDER APPEAL. IT IS PLEADED THAT ORDER OF THE CIT (A) DOES NOT WA RRANT INTERFERENCE. 32. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS A SETTLED PROPOSITION OF LAW THAT LIABILITIES WHICH ARE ACKNOWLEDGED IN BOOKS BY THE ASSESSEE CAN NOT BE CO NSTRUED TO HAVE CEASED U/S 41(1). THE TIME LIMIT FOR ENFORCING A SUIT FOR DEBT IS NOT APPLICABLE TO THEM, AS THE RIGHT TO LEGALLY ENFORCE A SUIT DOES N OT EXTINGUISH THE DEBT WHICH CAN BE ADJUSTED BY CREDITOR AGAINST ANY OTHER SUM O F THE DEBTOR AND BY ACKNOWLEDGING EACH YEAR THE LIMITATION GETS EXTENDE D. ON OTHER ISSUES ALSO CIT(A) AFTER DUE VERIFICATION HAS GIVEN THE RELIEF ON FACTS WE SEE NO INFIRMITY IN THE ORDER ON THESE ISSUES, REVENUE GRO UND IS DISMISSED. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 140 33. GROUND NO. 11 : ADDITION OF RS.8,88,997/-OUTSTA NDING CREDITORS U/S 41(1) 33.1. QUA DISALLOWANCE U/S 41(1) IN RESPECT OF OUTS TANDING CREDITORS DETAILED AT PAGE 135 OF THE ASSESSMENT ORDER AMOUNTING TO RS .8,88,997/-,ASSESSEE EXPLAINED THAT THESE ACCOUNTS WERE PENDING SETTLEME NT FOR VARIOUS DISPUTES/REASONS AND WERE TO BE SETTLED IN DUE COUR SE. THEY ARE ACKNOWLEDGED LIABILITIES; THEREFORE, PROVISIONS OF SECTION 41(1) WILL NOT BE ATTRACTED. ASSESSING OFFICER ADDED THE AMOUNTS UNDE R SECTION 41(1) HOLDING THAT APPELLANT HAS NOT PROVIDED ANY CORRESPONDENCE TO PROVE THE DISPUTE OF THE LIABILITIES. 33.2. AGGRIEVED ASSESSEE PREFERRED 1 ST APPEAL AND PUT FORTH ITS EXPLANATION. CIT(A) PLACED RELIANCE ON HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAXVS.SHRI VARDHMAN OVERSEAS LIMITED343 ITR 408 (DEL.)HOLDING THAT: THE ASSESSEE HAD NOT UNILATERALLY WRITTEN BACK THE ACCOUNTS OF THE SUNDRY CREDITORS IN ITS PROFIT & LO SS ACCOUNT. THE LIABILITY WAS SHOWN IN THE BALANCE SHE ET AS ON 31.03.2002. THE ASSESSEE BEING A LIMITED COMPAN Y, THIS AMOUNTED TO ACKNOWLEDGING THE DEBT IN FAVOUR O F THE CREDITORS FOR PURPOSES OF SECTION 18 OF THE LIMITAT ION ACT, 1963. THE ASSESSEES LIABILITY TO THE CREDITORS, TH US SUBSISTED AND DID NOT CEASE NOR WAS IT REMITTED BY THE CREDITORS. THE LIABILITY WAS ENFORCEABLE IN A COURT OF LAW. THE AMOUNT WAS NOT ASSESSABLE UNDER SECTION 41(1). 33.3. FURTHER RELIANCE WAS PLACED ON THE FOLLOWING JUDGMENTS FOR SIMILAR VIEW HAS BEEN PROPOSITION:- - C.I.T. VS. JAIPUR JEWELLERS (EXPORTS)187 TAXMAN 1 69(DEL.) - C.I.T. VS. G.P. INTERNATIONAL LIMITED186 TAXMAN 2 29(P&H) - C.I.T. VS. SMT SITA DEVI JUNEJA187 TAXMAN 96 (P& H) - C.I.T. VS. EASTERN MEDIKIT LIMITED135 ITD 461 (DE L.) (TRIB.) 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 141 - C.I.T. V TAMILNADU WAREHOUSING CORPORATION 292 I TR 310(MAD.) 33.4. LD. CIT(A) FOR THE SAME REASONS AS MENTIONED IN GROUND NO 10 HELD THAT THESE BEING ACKNOWLEDGED LIABILITIES, IN THE B OOKS OF ASSESSEE, THERE WAS JUSTIFICATION IN ADDING THESEAMOUNT U/S 41(1) AND A LLOWED THE GROUND. AGGRIEVED REVENUE IS BEFORE US. 34. LLD. DR RELIED ON THE ORDER OF AO. 35. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT, LD. CIT(A) FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT V. SHRI VARDHMAN OVERSEAS LIMITED : 343 ITR 408 AND OTHER JUDICIAL PRECEDENTS HAS RIGHTLY HELD THAT IN SUCH A SITUATION, THERE WA S NO REMISSION / CESSATION OF LIABILITY SO AS TO WARRANT INVOCATION OF SECTION 41 (1) OF THE ACT. FURTHER RELIANCE IS PLACED ON: - CIT V. MOHAN MEAKIN LTD. 205 TAXMANN 43 (DEL.) - CIT V. JAIPUR JEWELLERS (EXPORTS) 187 TAXMANN 169 (DEL.) - CIT V. G.P. INTERNATIONAL LIMITED 186 TAXMANN 229 (P&H) - CIT V. SMT SITA DEVI JUNEJA 187 TAXMANN 96 (P&H) - CIT V. TAMILNADU WAREHOUSING CORPORATION 292 ITR 310 (MAD.) - CIT V. EASTERN MEDIKIT LIMITED 135 ITD 461 (DEL.) (TRIB.) 35.1. THE ORDER PASSED BY THE CIT(A) BEING IN ACCOR DANCE WITH LAW, DOES NOT CALL FOR ANY INTERFERENCE. 36. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. SINCE THESE AMOUNTS REPRESENT ACKNOWLEDGED LIABILITIES. IN VIEW OF CATENA OF JUDICIAL PRECEDENTS CITED BY L D CIT(A) AND FOR THE SAME REASONS AS TAKEN WHILE DECIDING GROUND NO 10 WE FIN D NO INFIRMITY IN THE ORDER OF CIT(A). SAME IS UPHOLD, REVENUE GROUND IS DISMISSED. 37. GROUND NO. 12: ADDITION OFRS.15,04,12,669/- U/ S 41(1) OF THE ACT . 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 142 37.1. THIS ADDITION COMPRISES OF: A) RS.10,86,82,931/- REPRESENTING CHEQUES WHICH WER E ISSUED BUT NOT PRESENTED FOR PAYMENT ON LAST DATE OF THE PREVI OUS YEAR I.E. 31.3.2009. B) RS.4,16,18,900/- OUT OF COMMISSION PAYABLE. C) RS.1,50,838/- ON ACCOUNT OF RENT PAYABLE. 37.2. APROPOS FIRST ITEM, IT WAS EXPLAINED THAT A S UM OF RS.10,86,82,931/- REPRESENTED CHEQUES ISSUED BUT NOT PRESENTED WHICH WAS CREDITED IN THE SEPARATE ACCOUNT ON 31.03.2009. TO MAKE BANK RECONC ILIATION STATEMENT MORE CLEAR, THE ENTRIES OF OUTSTANDING CHEQUES WERE CREDITED TO A SEPARATE ACCOUNT SO THAT ACCOUNTS AS ON 31.03.2009 REFLECT A TRUE AND FAIR VIEW OF THE POSITION. THESE ENTRIES WERE REVERSED ON 01.04.2009 BY DEBITING TO SUCH ACCOUNT, I.E. CHEQUES ISSUED BUT NOT PRESENTED AND ONCE AGAIN THEY MERGED WITH THE RESPECTIVE BANK ACCOUNT ON WHICH THE CHEQU E WAS ISSUED. THUS BY ONLY TRANSFERRING THE ENTRY OF CHEQUES ISSUED BUT N OT PRESENTED AND CREDITING THEM TO A SEPARATE ACCOUNT DOES NOT TANTAMOUNT TO A NY CESSATION OF A LIABILITY, MORE SO AS ON THE NEXT 1 ST OF APRIL, THE SAME HAS BEEN REVERSED. BESIDES THESE ARE ACKNOWLEDGED DEBTS WHICH DO NOT E NTAIL TO PROVISIONS OF SECTION 41(1). 37.3. AS REGARDS THE SECOND ITEM, I.E. OUTSTANDING COMMISSION PAYABLE, TO THE FIELD-FORCE USED FOR COLLECTION OF DEPOSITS. AS SESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND CONSEQUENT THEREOF THE COM MISSION WAS BEING CREDITED IN THE ACCOUNT AFTER DUE DEDUCTION OF TDS WHERE APPLICABLE. AO HOWEVER MADE AN ADDITION OF RS.4,16,18,900/- U/S 41 (1). 37.4. APROPOS THIRD ITEM IT WAS EXPLAINED TO BE REN T PAYABLE FOR WHICH PROVISION HAS BEEN MADE AS PER MERCANTILE SYSTEM OF ACCOUNTING. MODE AND TIME OF PAYMENT OF RENT WAS AN ISSUE BETWEEN THE LA NDLORD AND THE TENANT. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 143 THE RENT IS PAYABLE, PURSUANT TO AN AGREEMENT IN RE SPECT OF THE PREMISES BEING USED FOR ITS BUSINESS PURPOSES AND THE EXPENS ES HAVE BEEN DULY ALLOWED. OUTSTANDING ACKNOWLEDGED RENT CAN NOT BE T ERMED AS CESSATION OF LIABILITY 41(1). AO HOWEVER MADE THE ADDITION. 37.5. IN 1 ST APPEAL, CIT(A) RELYING ON THE SAME REASONS AND CAS E LAWS AS MENTIONED FOR GROUNDS NO 10 AND 11 HELD THAT, IT IS A WELL SETTLED LAW THAT TILL THE TIME DEBT IS ACKNOWLEDGED IN ASSESSEES BOOKS O F ACCOUNT IT CANNOT BE DISALLOWED U/S 41(1). AGGRIEVED REVENUE IS BEFORE US. 38. LD CIT(DR) RELIED ON THE ORDER OF AO. 39. LD COUNSEL FOR THE ASSESSEE CONTENDS THAT CIT(A ) DULY CONSIDERED THAT: A) AMOUNT OF RS.10,86,82,931 REPRESENTED CHEQUES ISSUE D BUT NOT PRESENTED FOR PAYMENT AS ON THE LAST DATE OF THE PR EVIOUS YEAR. THE SAME WERE CREDITED IN A SEPARATE ACCOUNT AT THE END OF THE RELEVANT YEAR AND SUBSEQUENTLY REVERSED ON 1.04.2009. AN ENT RY ENTERED IN BOOKS ONLY FOR THE PURPOSES OF MANAGEMENT ACCOUNTI NG CAN NOT RESULT IN ANY CESSATION OF LIABILITY SO AS TO ATTRACT THE MISCHIEF OF SECTION 41(1) OF THE ACT; B) COMMISSION PAYABLE TO FIELD FORCE IS DULY ACKNOWLED GED LIABILITY IN THE BOOKS OF ACCOUNTS. THERE WAS NO BASIS TO HOLD T HAT LIABILITY IN THIS BEHALF HAS CEASED. C) AMOUNT OF RS. 1,50,838 REPRESENTS RENT PAYABLE TO S ISTER CONCERN, WHICH IS DULY ACKNOWLEDGED AS LIABILITY. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 144 FOR THE REASONS ADOPTED BY LD. CIT(A), THE DOES NOT WARRANT ANY INTERFERENCE. 40. WE HAVE HEARD BOTH THE PARTIES, FACTS AND ISSUE S IN QUESTION IN PRINCIPLE ARE SIMILAR TO GROUND NO 10 & 11, FOLLOWI NG OUR ORDER ON THESE GROUNDS REVENUE GROUND IS DISMISSED. 41. GROUND13:DISALLOWANCE OF RS 6,91,230/- IN RELAT ION ASSOCIATE CONCERNS: 41.1. AO FOUND THAT MANY OF THE BILLS DEBITED BY AS SESSEE UNDER THE HEAD TELEPHONE/TRAVELLING EXPENSES WERE IN THE NAME OF S AHARA PARIVAAR OR SAHARA INDIA. ASSESSEE EXPLAINED THAT THESE RELATED TO VISITS OF VARIOUS OFFICERS WHO ARE POSTED IN ITS BRANCH/REGION/AREA/Z ONE OFFICES. ASSESSEE WAS USING M/S. SAHARA INDIAS TOTAL INFRASTRUCTURE AND BRANCHES, THEREFORE, IN MOST OF THE CASES THEIR ADDRESS IS MENTIONED AS C/O SAHARA PARWAR. THERE IS NO ENTITY IN THE GROUP BY THE NAME OF SAHARA INDIA PARIWAR. IN PUBLIC PERCEPTION GROUP CONCERNS ARE COMMONLY KNOWN AS PAR IWAR. MANY TIMES VENDOR MAKE THE BILLS IN THIS NAME, HOWEVER THE FAC T REMAINS THAT THESE SERVICES ARE USED BY THE ASSESSEE. TWO BILLS OF RS. 16,044/- AND RS. 71,318/- DRAWN BY M/S SAHARA GLOBAL AND THE SAME RELATES TO TRAVELING EXPENSES INCURRED BY ASSESSEES EMPLOYEE AND THE BILL IS DEB ITED IN ITS BOOKS. ASSESSEE ALSO FILED A CHART SETTING OUT THE REASONS IN RESPE CT OF EACH ITEM OF LISTED EXPENDITURE TO DEMONSTRATE THAT THIS EXPENDITURE AR E RELATABLE TO ITS EMPLOYEES ALONG WITH THEIR EMPLOYEE CODE NO. AND CO PY OF FORM NO. 16 ISSUED TO THEM. 41.2. AO HOWEVER DISALLOWED THIS EXPENDITURE AS NOT INCURRED FOR ASSESSEE. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 145 41.3. IN FIRST APPEAL CIT(A) HELD THAT EXPENSES CLAIMED ARE ACTUALLY INCURRED ON APPELLANTS EMPLOYEES, EXPLANATION ABOUT EXIGENC IES WHICH LEAD TO USE NAME OFSAHARA INDIA IN THE BILLS WAS ACCEPTED AND A DDITION WAS DELETED. AGGRIEVED REVENUE IS BEFORE US. 42. LD CIT(DR) RELIED ON THE ORDER OF AO. 42.1. ASSESSEES COUNSEL IN REPLY CONTENDS THAT LD CIT(A) AFTER VERIFICATION HAS GIVEN A CLEAR FINDING OF FACT THAT THE EXPENSE S WERE INCURRED BY AND ON BEHALF OF THE EMPLOYEES OF THE APPELLANT AND WERE, THEREFORE, INCURRED WHOLLY AND EXCLUSIVELY FOR ITS BUSINESS. LD. CIT(A) HAS TAKEN INTO ACCOUNT THE EVIDENCES INCLUDING A CHART SETTING OUT THE REA SONS AS TO HOW THEY WERE RELATABLE TO THE BUSINESS OF THE APPELLANT. CLAIM I S FURTHER SUPPORTED BY CODE NUMBERS OF EMPLOYEES AND FORM -16 ISSUED BY THE APP ELLANT. THE ORDER OF THE CIT(A) BEING BASED ON FACTUAL FINDINGS AND PROP ER REASONS DESERVES TO BE UPHELD. 43. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE FACTUAL VERIFICATION AND FINDINGS OF LD. CIT(A) IT CLEARLY EMERGES THAT THE EXPENDITURE IN QUESTION WAS INCURR ED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE APPELLANT ON IT S EMPLOYEES AND EXPENSES ARE ACTUALLY INCURRED BY THE ASSESSEE. THERE IS NO ALLEGATION THAT ENTITY C/O WHOM THE BILLS ARE ISSUED HAS DOUBLY CLAIMED IT. CO NSEQUENTLY, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE, WHI CH IS UPHELD. THIS REVENUE GROUND IS DISMISSED. 44. GROUND NO. 14: DISALLOWANCE OF EXPENDITURE IN R ELATION TO DISPROPORTIONATE ALLOCATION OF ADVERTISEMENT EXPENS ES: 44.1. SPECIAL AUDITOR POINTED OUT THAT, FOR THE BCC I SPONSORSHIP CONTRACT, 10% EXPENDITURE IS ALLOCATED TO THE ASSESSEE, WHERE IN OTHER ADVERTISEMENT A/C I.E. AS FOR OTHER CONSULTANCY CHARGES PAID TO PERCEPT (DEBITED IN RETAINER 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 146 SHIP FEES ACCOUNT) ASSESSEE HAS ALLOCATED 25% OF TH E EXPENDITURE AMOUNTING TO RS.1,36,51,740/-. OUT OF SAME RS 1,01,12,400/- HAS BEEN BOOKED UNDER THE HEAD RETAINER SHIP FEES WHEREAS RS 35,39,340 HA S BEEN BOOKED UNDER THE HEAD ADVERTISEMENT. THE ASSESSEE WAS REQUIRED BY AO TO JUSTIFY THAT IF ALLOCATION IN CASE OF BCCI IS 10%, THEN IN THE OTHE R CASE WHY THE EXPENDITURE ALLOCATION CAN BE ALLOWED AT 25%. BESID ES, WHY ADVERTISEMENT EXPENSES IN RESPECT OF PAYMENT TO M/S B.C.C.I. HAS BEEN BOOKED ONLY IN TWO COMPANIES AND NOT OF THE OTHER GROUP COMPANIES , CONSEQUENTLY RS 81,91,044 WERE PROPOSE TO BE DISALLOWED UNDER SECTION 37. 44.2. ASSESSEE VIDE LETTER DATED 30.07.2012 EXPLAI NED THAT B.C.C.I. HAD ENTERED INTO AN AGREEMENT WITH M/S SAHARA AIRLINES LIMITED(SAL) ON 19.02.2005 FOR SPONSORSHIP OF THE INDIAN CRICKET TE AM TO DISPLAY LOGO SAHARA ON THEIR UNIFORM. SUBSEQUENTLY ON 06.01.2006 SAL APPROACHED M/S B.C.C.I. AND REQUESTED THAT IT MAY BE PERMITTED TO ASSIGN THE ACQUIRED RIGHTS TO OTHER CONCERN AS AT THAT TIME NEGOTIATIONS FOR T AKEOVER OF M/S SAHARA AIRLINES LIMITED BY M/S JET AIRWAYS WERE IN PROGRES S. B.C.C.I. ACCEDED TO THE REQUEST TO ALLOW SAL TO ASSIGN THE RIGHT TO ANY GROUP CONCERN. PURSUANT THERETO SAL ASSIGNED THIS RIGHT TO ASSESSEE TO CARR Y ON AND CONTINUE THE AGREEMENT. IT WAS APPREHENDED THAT R.B.I. INTERVENT ION MAY RESULT IN CURTAILING OF ASSESSES BUSINESS, THEREFORE, IT APP ROACHED M/S SAHARA INDIA COMMERCIAL CORPORATION LIMITED(SICCL) WHICH AT THAT TIME, WAS THE MAJOR BUSINESS CONCERN OF THE GROUP. IT WAS ENGAGED IN TH E BUSINESS OF DEVELOPMENT OF INFRASTRUCTURE PROJECTS OF AMBEY VAL LEY CITY, WITH SAHARA CITY HOMES AND OTHER HOUSING PROJECTS THROUGH VARIO US OTHER GROUP CONCERNS. MAXIMUM BRAND VALUE OF SAHARA LOGO ON IND IAN CRICKET TEAM WAS USEFUL FOR BENEFIT OF SICCL, CONSEQUENTLY AN AG REEMENT WAS ENTERED INTO BETWEEN M/S SAHARA INDIA FINANCIAL CORPORATION LIMITED THE ASSESSEE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 147 COMPANY AND SICCL ON 20.02.2006.IT WAS AGREED THAT 10% OF THE PAYMENT TO BCCI WOULD BE BORNE BY ASSESSEE AND BALANCE 90% WILL BE BORNE BY SICCL. THIS AGREEMENT IS VALID FROM 20.02.2006 ONWA RDS AND WAS ALSO APPLICABLE DURING THE RELEVANT PREVIOUS YEAR. THERE WAS NO OTHER COMPANY WHEREIN BRAND VALUE FOR ADVERTISING WITH BCCI WAS R EQUIRED AND IT WAS A MANAGEMENT DECISION TO SHARE THESE EXPENSES BETWEEN ASSESSEE AND SICCL. THIS BEING A COMMERCIAL/ BUSINESS DECISION TAKEN BY THE BOARD OF BOTH THE COMPANIES AND THE AGREEMENT WAS CONTRACTUALLY BIND ING, THEREFORE, THERE IS NO JUSTIFICATION IN DRAWING ANY ADVERSE INFERENCE I N THIS REGARD. 44.3. IT IS WELL SETTLED LAW THAT REVENUE CANNOT CL AIM TO PUT ITSELF IN THE ARM CHAIR OF A BUSINESS MAN AND ASSUME THE ROLE AS TO H OW MUCH EXPENDITURE SHOULD HAVE BEEN INCURRED BY WHOM. THERE IS NO LAW WHICH CAN ENABLE REVENUE TO RE-WRITE AND SUBSTITUTE THE TERMS OF PAR TIES TO A VALID AND BINDING AGREEMENT. 44.4. AS REGARDS ALLOCATION OF EXPENSES OF 25%, THE Y STOOD ALTOGETHER ON A DEFERENT FOOTING AND RELATED TO NEON SIGN BOARDS AN D RETAINERSHIP OF M/S PERCEPT FINSERVE PVT. LTD. AND M/S PERCEPT H. PVT. LTD. FOR OTHER ADVERTISEMENT MODES. FOR A CONSOLIDATED FEE THEY AR RANGE ADVERTISEMENT FOR GROUP CONCERN. IT HAS BEEN AGREED AMONGST MAJOR BE NEFICIARIES GROUP CONCERNS THAT THE SAME SHALL BE SHARED EQUALLY. CON SEQUENT THERETO 25% OF THE EXPENDITURE IS SHARED BY ASSESSEE AND THE BALAN CE 3/4TH EXPENSES ARE SHARED BY OTHER 3 CONCERNS VIZ. M/S SAHARA INDIA, S ICCL AND M/S SAHARA INDIA MASS COMMUNICATION RESPECTIVELY. UNDER THESE CIRCUMSTANCES THE EXPENDITURE IS DIRECTLY, WHOLLY AND EXCLUSIVELY ATT RIBUTABLE TO ASSESSEES BUSINESS. SINCE CONDITIONS OF SECTION 37 ARE FULFIL LED, THERE IS NO JUSTIFICATION TO RESTRICT THE SAME TO 10% ON ASSUMPTIONS AND COMP ARING BCCI FEES WITH 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 148 ALTOGETHER DEFERENT MODE OF ADVERTISEMENT I.E. NEON SIGN BOARDS AND CONSULTANCY. 44.5. THE REPLY OF THE ASSESSEE WAS NOT FOUND TO BE SATISFACTORY BY AO. IT WAS HELD THAT IT WAS NOT FOLLOWING A CONSISTENT SYS TEM OF ACCOUNTING AND COST ALLOCATION RESULTING IN DISALLOWANCE OF RS 81,91,04 4/-. 44.6. IN FIRST APPEAL, CIT(A) CONSIDERED THE TURNOV ER OF GROUP COMPANIES WHICH WERE BENEFICIARIES IN ADVERTISEMENT OF INDIAN CRICKET TEAM. REFERENCE WAS MADE TO CIT(A)S ORDER IN THE CASE OF ASSOCIATE CONCERN SAHARA INDIA MASS COMMUNICATION (SIMC) FOR AY 2005-06 VIDE ORDE R DATED 17.12.2012 AS UNDER: 9.4 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS FILED BY THE APPELLANT. THE FACT OF EXP ENDITURE IS NOT DISPUTED. THE ONLY DISPUTE IS REGARDING THE NAT URE OF NEXUS BETWEEN THE EXPENDITURE AND THE BUSINESS OF THE FIV E / SIX ENTITIES BELONGING TO THE SAHARA GROUP, INCLUDING T HE APPELLANT FIRM, WHICH ACCORDING TO THE AO IS NOT ESTABLISHED. IT IS A WELL- KNOWN FACT THAT IN ADVERTISEMENTS OF SAHARA GROUP W HAT IS PROJECTED IS THE BRAND SAHARA PARIWAR. THIS IS SU PPOSED TO ADVANCE THE COMMERCIAL INTEREST OF THE GROUP AS A W HOLE. IT IS NOT THE CASE THAT ANY COMPANY- SPECIFIC ADVERTISEME NTS IS CHARGED UNDER THIS HEAD. THEREFORE, THE GROUP HAD A PPORTIONED 1/6 TH OF SUCH EXPENDITURE TO ITS FOLLOWING SIX CONCERNS, VIZ. (I) SAHARA INDIA, (II) SAHARA INDIA MUTUAL BENEFIT CO. LTD., (III) SAHARA INDIA AIRLINES LTD., (IV) SAHARA INDIA MASS COMMUNICATION APPELLANT), (V) SAHARA INDIA HOUSING LTD. (LATER KNOWN AS SICCL) AND (VI) SAHARA INDIA FINANC IAL CORP. LTD. (SIFCL). THIS WAS IN ACCORDANCE WITH REVENUES ASSESSMENT ORDER DATED 23.04.1999 FOR AY 1996-97 IN THE CASE OF SIFCL. FOLLOWING THE REVENUES ABOVE ORDER, THE GROUP HAS BEEN APPORTIONING THE EXPENDITURE UNDER THIS HEAD E QUALLY AMONG THESE SIX ENTITIES. AFTER THE TAKEOVER AND ME RGER OF SAHARA INDIA AIRLINES LTD. WITH JETLITE, THIS EXPEN DITURE IS NOW BEING APPORTIONED EQUALLY (1/5 TH EACH) AMONG THE REMAINING FIVE ENTITIESOF THE GROUP, INCLUDING THE APPELLANT. THIS WAS ACCEPTED BY BOTH THE REVENUE AND THE SAHARA GROUP A ND, 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 149 THEREFORE, THISPOSITION HAD ATTAINED FINALITY. THER EAFTER, IN THE ABSENCE OF ANY EVIDENCE TO CONTROVERT THE CLAIM OF THE APPELLANT, FOR THE REVENUE TO RAISE THE PLEA THAT T HE NEXUS BETWEEN THE ADVERTISEMENT EXPENDITURE ON SAHARA PA RIWAR IS NOT PROVED IS, IN MY OPINION, NOT APPROPRIATE AND T ANTAMOUNT TO THE REVENUE GOING BACK ON ITS DECISION. IT HAS ALSO BEEN POINTED OUT THAT IN OTHER ASSESSMENTS RELATING TO VARIOUS E NTITIES OF THE GROUP, SUCH AS SIFCL (AYS 2002-03 TO 2004-05) AND S AHARA INDIA COMMERCIAL CORPORATION LTD (SICCL, AYS 2005-0 6 & 2006-07); NO SUCH DISALLOWANCE HAD BEEN MADE. THE R ULE OF CONSISTENCY WILL, THEREFORE, ALSO COME INTO PLAY. I N THIS VIEW OF THE MATTER, THE DISALLOWANCE MADE IS NOT LEGALLY TE NABLE AND, THEREFORE, THIS GROUND OF APPEAL IS ALLOWED. APPELL ANT GETS RELIEF OF RS.6,46,13,848/-. IT NOW APPEARS THAT THE EXPENDITURE ON ADVERTISEMEN TS IS BEING SHARED AMONG FOUR GROUP CONCERNS EQUALLY @ 25%, VIZ . SAHARA INDIA (FIRM), SIMC AND SICCL, APART FROM THE APPELL ANT. EARLIER, THE ADVERTISING EXPENSE WAS SHARED BY SAHA RA INDIA MUTUAL BENEFIT CO. LTD. ALSO, WHICH NOW STANDS MERG ED WITH SICCL. AS EQUAL APPORTIONMENT IS BEING FOLLOWED AC CORDING TO AN EARLIER DECISION OF THE REVENUE, NO DISALLOWANCE SHOULD BE MADE BY THE REVENUE AT THIS STAGE. THIS GROUND OF A PPEAL IS ALLOWED. APPELLANT GETS RELIEF OF RS.81,91,044/-. AGGRIEVED REVENUE IS BEFORE US. 45. LD. DR RELIED ON THE ORDER OF AO. 46. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT LD. CIT(A) DELETED THE ABOVE DISALLOWANCE RELYING UPON HIS OWN ORDER DATED 17.12.2012 IN THE CASE OF SAHARA INDIA MASS COMMUNICATION LTD. IN APPEAL N O. 75/09-10 FOR ASSESSMENT YEAR 2005-06. DEPARTMENT HAD IN THE PAS T ACCEPTED THAT EXPENDITURE ON ADVERTISEMENT INCURRED ON ADVERTISIN G THE BRAND SAHARA PARIWAR AND WAS ALLOWED TO BE APPORTIONED @ 25% TO THE GROUP COMPANIES INCLUDING THE APPELLANT: 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 150 46.1. SINCE THE ORDER PASSED BY LD. CIT(A) IS BASED ON PROPER VERIFICATION AND APPRECIATION OF FACTS ABOUT AGREEMENT, ROLE OF GROUP CONCERNS AND EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR ASSESSES BUSINESS, IT DESERVES TO BE UPHELD. BESIDES THE ORDERS HAVE BEEN ACCEPTED BY REVENUE RELYING ON THE PAST HISTORY OF THE CASE; ON THE PRI NCIPLE OF CONSISTENCY ALSO CIT(A)S ORDER DESERVES TO BE UPHELD. 47. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW AO WAS NOT CORRECT IN COMPARING BCCI FEE WITH NEON SIGN ADVERTISEMENT. BO TH MODES ARE ENTIRELY DEFERENT AND EXTENT OF ONE MODE OF EXPENDITURE CANN OT BE APPLIED TO OTHER ON SURMISES AND CONJECTURES. CIT(A) HAS GIVEN DETAILED AND JUSTIFIABLE REASONS TO ALLOW THEM. BESIDES HIS ORDERS FOR EARLIER YEARS HAVE BEEN ACCEPTED BY THE DEPARTMENT, THERE EXIST NO NEW FACTS OR CIRCUMSTANC ES TO TAKE ANOTHER VIEW. IN VIEW THEREOF THIS GROUND OF THE REVENUE IS DISMI SSED. 48. GROUND NO. 15 DISALLOWANCE OF SPONSORSHIP PAY MENT MADE TO BCCI 48.1. LD. DR ARGUED THAT AS PER GROUNDS OF APPEAL R AISED BEFORE THE LD. CIT(A), THE APPELLANT HAS NOT AGITATED THE ISSUE OF ADDITIONAL EXPENDITURE ON SPONSORSHIP OF INDIAN NATIONAL CRICKET TEAM. THEREF ORE, LD. CIT(A) SHOULD NOT HAVE GRANTED ADDITIONAL RELIEF OF RS. 21,86,37, 443/-. ASSESSEE HAS ALSO ADMITTED THAT THE RELIEF GRANTED BY THE LD. CIT(A) IS AS A CONSEQUENTIAL RELIEF DUE TO ASSOCIATE COMPANIES APPELLATE ORDER. IN THE ABSENCE OF A SPECIFIC GROUND IN ASSESSEES APPEAL, CIT(A) HAS ERRED IN PR OVIDING ADDITIONAL RELIEF. 48.2. LD. COUNSEL FOR ASSESSEE IS HEARD WHO CLAIMS THAT CIT(A) ALLOWED THE ADDITIONAL RELIEF SUO-MOTU AS A CONSEQUENCE TO THIS , ORDER OF A GROUP CONCERN, NAMELY SICCL (APPEAL NO.65/12-13 FOR AY 20 09-10) VIDE ORDER DATED 28.02.2013, HOLDING THAT EXPENDITURE ON SPONS ORSHIP TO BCCI HAD TO 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 151 BE APPORTIONED IN THE RATIO OF TURNOVER OF THE VARI OUS GROUP COMPANIES. ON THAT BASIS, THE CIT(A) FOLLOWING THIS ORDER HELD TH AT THE APPELLANT WAS ENTITLED TO ADDITIONAL DEDUCTION OF RS.21,86,37,443 ON THE BASIS OF ALLOCATION OF EXPENDITURE ON TURNOVER BASIS. THE SICCL IS IN A PPEAL BEFORE THE TRIBUNAL AGAINST THE ABOVE CIT(A)S. IN THESE FACTS THE ORDE R OF THE CIT(A) ON THIS ISSUE MAY BE SET ASIDE TO THE ASSESSING OFFICER WIT H THE DIRECTION TO ALLOW RELIEF, IF ANY, IN THE LIGHT OF OR BY ITAT DECISION IN THE APPEAL OF SICCL. 48.3. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE VIEW THAT ASSESSEE GROUP CONSISTS OF VARIOUS CONCERNS AND MUTUALLY SHARING E XPENDITURE ON VARIOUS PARAMETERS. IN THE CASE OF SICCL IT HAS BEEN HELD T HAT APPORTIONMENT WAS DISPROPORTIONATE AND IT WAS DISTURBED. AS IT HAD A CONSEQUENT EFFECT ON ASSESSES SHARE, CIT(A) ENDEAVORED TO A HOLISTIC VIE W. IN OUR VIEW BEING APPELLATE AUTHORITY HE HAS THE POWER TO MODIFY THE ASSESSMENT INCLUDING GRANTING RELIEF WHICH IS FOUND TO BE DUE TO THE ASS ESSEE THOUGH NOT SPECIFICALLY CLAIMED. HOWEVER THE DISTRIBUTION WILL DEPEND ON THE OUTCOME OF ITAT JUDGMENT, SINCE CONSEQUENTIAL RELIEF MAY BE AWARDED. IN THE INTEREST OF SUBSTANTIAL JUSTICE WE SET ASIDE THE ISSUE BACK TO THE FILE OF AO. THIS GROUND OF THE REVENUE IS THUS ALLOWED FOR STATISTIC AL PURPOSE. 49. GROUND 16: PRE-ACQUISITION INTEREST INCURRED A T THE TIME OF PURCHASES: 49.1. SA FOUND THAT THE A SUM OF RS.11,86,24,108.95 /- BEING PRE-ACQUISITION INTEREST INCURRED AT THE TIME OF PURCHASE OF SECURI TIES IS CLAIMED AS REVENUE EXPENDITURE IN ACCORDANCE WITH AS-13. AS PER SUPREM E COURT RULING IN THE CASE OF CIT V VIJAYA BANK LTD 187 ITR 541, PRE ACQU ISITION INTEREST IS PART OF COST OF SECURITIES AND CANNOT BE REDUCED FROM IN TEREST EARNED. AO ASKED ASSESSEE AS TO WHY EXPENDITURE OF RS.11,86,24,108.9 5 IN THIS BEHALF SHOULD NOT BE DISALLOWED. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 152 49.2. ASSESSEE REPLIED THAT IT IS FOLLOWING ACCOUNT ING STANDARD-13 IN RESPECT OF INVESTMENT AS PRESCRIBED AND LAID DOWN B Y THE ICAI. THE OBSERVATIONS OF THE HONBLE SUPREME COURT IN THE CA SE OF VIJAYA BANK WERE NOT APPLICABLE TO ITS CASE FOR WHICH DETAILED REASO NING WAS OFFERED. EXPLANATION REGARDING CBDT CIRCULAR AND AS-13 WAS F ILED. 49.3. AO HELD THAT THOUGH CIT (APPEALS) HAS DELETED SIMILAR DISALLOWANCE IN EARLIER YEARS BUT DEPARTMENT HAS NOT ACCEPTED TH IS DECISION AND FURTHER APPEALS ON THIS ISSUE ARE PENDING. IN THIS CASE RE LIANCE IS PLACED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F C.K. GANGADHARAN & ANOTHER VS. CIT REPORTED IN (2008) 304 ITR 61, HOLD ING THAT THE DEPARTMENT HAS NOT PREFERRED AN APPEAL IN ONE CASE WOULD NOT O PERATE AS A BAR FOR THE DEPARTMENT TO PREFER AN APPEAL IN ANOTHER CASE WHER E THERE IS JUST CAUSE FOR DOING SO OR IT IS IN THE PUBLIC INTEREST TO DO SO FOR A PRONOUNCEMENT BY HIGHER COURT WHEN DIVERGENT VIEWS ARE EXPRESSED BY THE TRIBUNALS OR THE HIGH COURTS. THUS THE CLAIM IN THIS REGARD WAS DISA LLOWED, ADDING A SUM OF RS 11,86,24,108.95 TO INCOME OF THE ASSESSEE. 49.4. IN FIRST APPEAL, CIT(A)REFERRED TO HIS ORDER DATED 15 03.2013 IN THE CASE OF SAHARA INDIA LIFE INSURANCE CORPORATION LTD . (SILICL) IN APPEAL NO.340/11-12 FOR AY 2004-05, HOLDING AS UNDER: 6.2 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE. THE JUDGMENT OF HONBLE SUPREME C OURT CITED BY THE AO IN THE CASE OF VIJAYA BANK VS. ADDL . CIT (187 ITR 541) WILL NOT BE APPLICABLE TO THE PRESENT CASE AS IT WAS RENDERED IN THE CONTEXT OF CHARGEABILITY OF INCOME UNDER THE HEAD INTEREST ON SECURITIES WHICH HAS SINCE BEEN REMOVED FROM THE LAW, AND ALSO FOR THE REASON THAT THE SAID DECISION WAS APPLICABLE IN THE CASE OF BANKING COMPANIES WHICH H AVE INTER- BANK BORROWINGS, AT RATES CALLED LIBOR, WHEREAS T HE PRESENT CASE IS OF A COMPANY IN THE INSURANCE BUSINESS TO W HICH INTER- BANK BORROWINGS AND INTEREST RATES ARE NOT APPLICAB LE. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 153 6.3 THE APPELLANT HAD INVESTED IN GOVT. SECURITIES, OF THE CENTRAL AS WELL AS STATE GOVERNMENT, AS PRESCRIBED BY THE RBI GUIDELINES. THESE INSTRUMENTS, ALSO KNOWN AS GUILT- EDGED SECURITIES, ARE DATED INTEREST BEARING BONDS, TRADE D FREELY IN THE MONEY MARKET. WHEN AN INVESTOR PURCHASES THESE SECU RITIES FROM THE OPEN MARKET, THE COST PAID IS THE PRICE OF THE BOND INCREASED BY THE INTEREST ACCRUED ON THE INSTRUMENT FROM THE DATE OF ISSUE TO THE DATE OF PURCHASEAND ADJUSTED W ITH THE DISCOUNT PREVAILING IN THE MARKET BASED ON DEMAND A ND SUPPLY. THEREFORE, THE APPELLANT RIGHTLY CREDITED THE FACE VALUE ALONG WITH ACCRUED INTEREST ON THE BONDS TO ITS BALANCE-S HEET. THE EFFECT ON P & L ACCOUNT WOULD BE A REDUCTION OF THE INTEREST COMPONENT OF THE COST PAID FOR THE BONDS. THUS, THE RE WAS NO INFIRMITY IN THE METHOD OF ACCOUNTING ADOPTED BY TH E APPELLANT, AND THE INCOME AND THE EXPENDITURE WITH REGARD TO T HE INTEREST ACCRUED AND PAID ON GOVT. SECURITIES WAS PROPERLY A CCOUNTED FOR IN THE P & L ACCOUNT. IN THIS VIEW OF THE MATTE R ALSO, THE AMOUNT CANNOT BE BROUGHT TO TAXATION. 19.3 FOLLOWING MY OWN ORDER IN ASSOCIATE GROUP CASE (M/S SAHARA INDIA LIFE INSURANCE CORPORATION LTD.; APPEAL NO.34 0/11-12; AY 2004-05; ORDER DATED 15.03.2013) ON SIMILAR ISSUE, AND FOLLOWING THE EARLIER ORDERS IN THE APPELLANTS OWN CASE AS WELL AS CASE LAWS RELIED UPON, I HOLD THAT ADDITION ON ACCOUNT OF INTEREST O N SECURITIES RELATING TO PRE-ACQUISITION PERIOD IS NOT SUSTAINABLE AND IS DELETED. APPELLANT GETS RELIEF OF RS.11,86,24,109/-. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 50. LD DR RELIED ON THE ORDER OF AO. 51. LD COUNSEL IN REPLY CONTENDS THAT IN VIEW OF T HE RELEVANT FACTORS LIKE RBI GUIDELINES, CBDT CIRCULARS, RATIO OF ABOVE JUDI CIAL PRECEDENTS AND CONSISTENT ACCOUNTING SYSTEM FOLLOWED BY THE APPELL ANT. THESE SECURITIES ARE PURCHASED ON CUM-INTEREST BASIS I.E. COST PLUS INTE REST DUE, WHICH IS UNPAID TILL THE DATE OF PURCHASE. THE INTEREST SUBSEQUENTL Y RECEIVED THEREON IS 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 154 CREDITED TO INTEREST A/C, LIKE WISE INTEREST PAID I N ADVANCE TO SELLER IS DEBITED TO INTEREST A/C. IN OTHER WORDS SUPPOSING ASSESSEE PURCHASES THESE SECURITIES ON MINUS INTEREST BASIS IN THAT CASE IT WILL HAV E TO PAY ONLY THE COST AND SUBSEQUENT INTEREST DUE WILL BE HANDED OVER AND BEC OME INCOME OF THE SELLER. ON SAME ANALOGY THE AMOUNT PAID FOR TRANSAC TION, INCLUDES ACTUAL COST OF SECURITY PLUS THE INTEREST RECEIVABLE THEREON WH ICH CAN BE CALCULATED, AS SECURITIES ARE FIX INTEREST BEARING. THUS BOTH COMP ONENTS ARE WORKED OUT SEPARATELY AND DO NOT BECOME CONSOLIDATED PRICE MER ELY BECAUSE THEY ARE PAID UNDER THE SAME AGREEMENT. BY THIS ESTABLISHED COMMERCIAL PRACTICE, ASSESSEE PAYS THE SELLER AMOUNT RECEIVABLE AS INTER EST ON SUCH SECURITIES IN ADVANCE, IT RETAINS THE CHARACTER OF ADVANCE INTERE ST PAID SIMPLICITOR AND DOES NOT ASSUME THE NATURE OF COMPONENT OF COST OF SECUR ITY. IT IS A WIDELY USED PRACTICE IN THIS TRADE. THIS ADVANCE INTEREST IS ON REVENUE A/C TO BE EARNED THERE ON WHEN RECEIVED. THEREFORE, RIGHTLY THE COST PORTION IS DEBITED TO SECURITIES INVESTMENT A/C AND INTEREST PORTION UP T O THE DATE OF PURCHASE, TO THE INTEREST A/C AND OFFERED TO TAX AS REVENUE OF T HE YEAR OF RECEIPT. WHENEVER THE SECURITIES ARE SOLD, THE PROFIT / LOSS ARISING THEREON, HAS BEEN OFFERED CONSISTENTLY UNDER THE HEAD PROFIT AND GAINS OF BU SINESS OR PROFESSION. THE INCOME IS COMPUTED BY DEDUCTING FROM THE SALE VALU E, THE PURCHASE PRICE OF THE INVESTMENT LESS INTEREST ACCRUED / RECEIVED UP TO THE DATE OF PURCHASE. INTEREST RECEIVED UP TO THE DATE OF SALE IN RESPECT OF SECURITIES PURCHASED CUM-INTEREST IS OFFERED FOR TAX AS BUSINESS INCOME ON SALE OF SECURITY. THIS IS RECOGNIZED MATCHING PRINCIPLE OF ACCOUNTING WHICH I S ALSO A RECOGNIZED ACCOUNTING PRACTICE, CONSISTENTLY FOLLOWED BY THE A SSESSEE SUPPORTED BY JUDICIAL PRECEDENTS IN FOLLOWING CASES: - AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION V. ACIT: 258 ITR 601 (BOM.). 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 155 - CIT V. CITI BANK NA. 130 TAXMAN 334 (BOM) - CIT V. NEDUNGADI BANK LTD. 264 ITR 545 (KER) - CIT V. SOUTH INDIAN BANK LTD. 241 ITR 374 (KER) 51.1. LD COUNSEL CONTENDS THAT THE CLAIM IS ALSO BA CKED BY DOCTRINE OF CONSISTENCY METHOD FOLLOWED BY THE APPELLANT AND CI T(A)S SEVERAL ORDERS DELETING THE ADDITIONS IN A.Y. 1999-00, 2000-01, 20 01-02, 2002-03, 2003-04 & 2004-05. THE ADDITION HAS BEEN REPEATEDLY DELETED BY THE CIT(APPEALS) YEAR AFTER YEAR BY VERIFICATION OF FACTS, CONSISTEN T TREATMENT FOLLOWED BY THE APPELLANT & APPLYING THE JUDICIAL DECISIONS ON THE ISSUE IN THE CASES OF THE APPELLANT AND OTHER ASSOCIATED COMPANIES. THE ASSES SING OFFICER HAS FAILED TO APPRECIATE THE COMPONENTS OF COST OF SECURITIES AND DISTINCTLY CALCULATED UNPAID INTEREST THEREON. IT HAS BEEN ERRONEOUSLY HE LD BOTH DEFERENT COMPONENTS TO BE ONE. ADDITION HAS BEEN REPEATED SO LELY BY FOLLOWING HIS OWN EARLIER ORDERS ONLY. THE ORDER OF THE CIT(APPEA LS) IS RELIED ON. 52. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN OUR CONSIDERED VIEW, TH E AMOUNT PAID FOR ACQUIRING SECURITIES CONSISTS OF TWO DISTINCT ELEME NTS, COST PRICE OF THE SECURITY AND FUTURE INTEREST DUE THEREON. DUE TO AD VANCE PAYMENT OF INTEREST SOME DISCOUNT ETC. IS TRANSACTED DEPENDING ON THE M ARKET CONDITIONS QUA THE INTEREST ELEMENT. THE AMOUNT PAID THUS CONTAINS THE SE TWO ELEMENTS. AFTER ACQUISITION ASSESSEE ON MATCHING PRINCIPLE DEBITS T HE COST OF SECURITY TO INVESTMENT A/C AND INTEREST COMPONENT TO INTEREST A /C, THE DUE INTEREST WHEN RECEIVED IS CREDIT TO INTEREST A/C. THE WHOLE ISSUE HAS ARISEN AS AO FAILED TO APPRECIATE THE NUANCES OF COMPONENTS OF AMOUNT PAID FOR TRANSFER OF SECURITIES. INSTEAD OF APPRECIATING TWO DISTINCT CO MPONENTS BOTH HAVE BEEN HELD TO BE ATTRIBUTABLE TO COST, WHICH IN OUR VIEW IS NOT CORRECT. IN 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 156 CONSIDERATION OF ENTIRETY OF FACTS AND CIRCUMSTANCE S WE FIND THAT CIT(A)S ORDER IS BASED ON CORRECT APPRECIATION OF FACTS AND APPLICATION OF JUDICIAL PRECEDENT. THEREFORE, NO INTERFERENCE IS CALLED FOR . REVENUE GROUND IS DISMISSED. 53. GROUND NO. 17 (MISTAKENLY TYPED AS 18)- DISALLO WANCE OF EXPENDITURE IN RELATION TO PRIOR PERIOD EXPENSES: 53.1. BRIEF FACTS ARE: AO FOUND THAT IN 5 CASES AMO UNTING TO RS 13,54,009/- THE EXPENSES PERTAIN TO PRIOR PERIOD, ASSESSEE WAS REQUESTED TO JUSTIFY IT. ASSESSEE IN ITS REPLY CONTENDED THAT I) FIRST ITEM IS A BILL OF VOLTAS LTD. BEING MAINT ENANCE CHARGES FOR THE PERIOD 01.03.2008 TO 31.03.2008. THE INVOICE WA S RECEIVED IN THIS YEAR, AFTER VERIFICATION, PAYMENT WAS MADE ON 01.07 .2008 AFTER DEDUCTION OF T.D.S. AS THE BILL WAS RECEIVED AND AC KNOWLEDGED DURING THE YEAR THE EXPENDITURE CRYSTALLIZED IN THI S YEAR, THEREFORE, IT IS ALLOWABLE. II) THE SECOND ITEM REPRESENTS AIR TRAVELING EXPE NSES FOR 28.03.2008 AND 31.03.2008, THESE BILLS WERE GIVEN B Y THE TRAVEL AGENT ON 10.05.2008 AND WERE ALLOWED ON 14.05.2008 THE LI ABILITY CRYSTALLIZED DURING THIS YEAR, HENCE ALLOWABLE. III.) DELIVERY OF SOFTWARE IS DATED 10.07.2008, BI LL IS DATED 17.07.2008 (IT ONLY MENTIONS DATE OF AGREEMENT AS 1 7.11.2004), BILL WAS APPROVED ON 15.11.2007. THE DELIVERY OF THE SO FTWARE IS MADE IN THE CURRENT YEAR ONLY. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 157 IV.) RS. 5,05,442/- AND RS. 34,567/- ARE AGAINST M UNICIPAL TAXES, IT HAS BEEN ALREADY DEBITED TO PRIOR PERIOD EXPENSES I N THE ENCLOSURE IX OF THE TAX AUDIT REPORT. 53.2. THE REPLY WAS FOUND TO BE UNSATISFACTORY AND DISALLOWED BY AO HOLDING THAT THESE ITEMS REPRESENTED PRIOR PERIOD E XPENSES. 53.3. IN FIRST APPEAL CIT(A) CONSIDERED THE FACTS A ND HELD THAT ISSUE DEPENDS ON THE YEAR OF CRYSTALLIZATION OF LIABILITY. THE AM OUNTS MAY RELATE TO THE EARLIER PERIOD, THE FINALIZATION AND CRYSTALLIZATIO N OF THE EXPENDITURE HAS TAKEN PLACE IN THIS YEAR. THE APPELLANT HAS BEEN RE COGNIZING EXPENSES ON ACCRUAL AND CRYSTALLIZATION BASIS. THIS POLICY HAS BEEN CONSISTENTLY FOLLOWED BY THE APPELLANT OVER THE YEARS. THE FACTUM OF EXPE NSES HAS NOT BEEN DISPUTED BY THE REVENUE. THE APPELLANT IS A COMPANY HAVING SEVERAL BRANCHES SPREAD ACROSS THE COUNTRY AND ACCOUNTS CON SOLIDATION MAY BE A GENUINE PROBLEM. FURTHER, THERE IS LITTLE CHANCE OF DERIVING ANY TAX ADVANTAGE BY SHIFTING EXPENSES FROM ONE YEAR TO ANOTHER IN VI EW OF THE SAME RATE OF TAX. THEREFORE, ON PRINCIPLE OF CONSISTENCY REVENUE NEUTRALITY AND JUDICIAL PRECEDENTS CITED BY ASSESSEE, CLAIM WAS ALLOWED. 54. LD DR RELIED ON AO'S ORDER. 55. LD COUNSEL CONTENDS THAT ASSESSING OFFICER DIS ALLOWED AN AMOUNT OF RS. 8,14,000/- AS PRIOR PERIOD EXPENDITURE AS UNDER : - BILL OF M/S VOLTAS LTD. - RS.20,365 - TRAVELLING EXPENSES - RS.51,135 - BILL OF M/S CREDENCE ANALYTICS - RS.7,02,500 55.1. APROPOS VOLTAS BILL ASSESSEE RECEIVED BILL OF RS.1,22,192 DURING THE RELEVANT PREVIOUS YEAR RELATING TO THE PERIOD 1.3.2 008 TO 31.8.2008, I.E., FOR A PERIOD OF SIX MONTHS. THE ASSESSING OFFICER ON PRO PORTIONATE BASIS 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 158 DISALLOWED RS.20,365 FOR THE PERIOD 1.3.2008 TO 31. 3.2008, ON THE GROUND THAT THE SAME RELATED TO THE PRECEDING YEAR. 55.2. THE SECOND BILL REPRESENTS EXPENDITURE ON TRA VELLING WHICH WAS UNDERTAKEN BETWEEN 28.3.2008 TO 31.3.2008. THE BIL L WAS RAISED BY THE TRAVEL AGENT IN THE RELEVANT PREVIOUS YEAR FOR THE PERIOD 28.3.2008 TO 06.04.2008. AO DISALLOWED THE ENTIRE AMOUNT OF RS.5 1,135 ON THE GROUND THAT THE TRAVEL WAS UNDERTAKEN IN THE PRECEDING YE AR, THE EXPENDITURE PERTAINED TO THAT YEAR. 55.3. APROPOS M/S CREDENCE ANALYTICS, IT IS RAISED BY THE VENDOR IN THIS YEAR ON COMPLETION OF PHASE III OF THE IMPLEMENTATI ON AS SOFTWARE AND CUSTOMIZATION CHARGES, IN JULY, 2008. THE ASSESSING OFFICER, HOWEVER, TREATED THE SAME AS PRIOR PERIOD EXPENDITURE SOLELY ON THE BASIS THAT THE BILL CONTAINS REFERENCE OF AGREEMENT DATED 07.11.2004 AND APPROVA L DATED 05.11.2007. 55.4. THE CIT (APPEALS) DELETED THE ABOVE DISALLOWA NCE ON THE BASIS THAT THE LIABILITY IN RESPECT OF THE AFORESAID AMOUNTS H AD CRYSTALLIZED DURING THE RELEVANT PREVIOUS YEAR ON RECEIPT OF BILLS BY THE A SSESSEE, EVEN THOUGH IT MAY PERTAIN TO EARLIER PERIOD. IN COMING TO THIS CONCLU SION CIT(A) RELIED ON FOLLOWING CASES FOR THE PROPOSITION THAT LIABILITY IS DEDUCTIBLE IN THE YEAR OF CRYSTALLIZATION THEREOF EVEN THOUGH SUCH LIABILITY RELATED TO THE EARLIER YEARS: - CIT V. EXXON MOBIL LUBRICANTS P. LTD: 328 ITR 17 (DEL.) - SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES LTD. V. CIT: 213 ITR 523 (GUJ) - CIT V. MODI PON LTD.: 334 ITR 102 (GUJ.) - ACIT V. BIRLA SOFT LTD.: 46 SOT 437 (DEL.) 55.5. THAT APART, IT IS SUBMITTED THAT THE QUESTION OF ALLOWABILITY OF PRIOR PERIOD EXPENDITURE IN ESSENCE A REVENUE NEUTRAL EXE RCISE AS HELD IN THE FOLLOWING CASES: 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 159 - CIT V. TRIVENI ENGINEERING & INDUSTRIES LTD: 336 ITR 374 (DEL.) - CIT V. SHRI RAM PISTONS AND RINGS LTD.: 174 TAXMA N 147(DEL) - CIT V. NAGRI MILLS CO. LTD.: 33 ITR 681 (BOM.) 55.6. THE ORDER PASSED BY THE CIT(APPEALS) DESERVES TO BE UPHELD AND IS RELIED ON. 56. WE HAVE HEARD THE RIVAL CONTENTIONS, IN OUR VIE W THE TRAVELLING BILLS WERE SUBMITTED, APPROVED AND PAID BY THE ASSESSEE I N THIS YEAR. THE SOFTWARE WAS DELIVERED IN THIS YEAR, MERELY BECAUSE PERIODIC AL SUPPLY OR UP GRADATION OF SOFTWARE WAS GOVERNED BY AN EARLIER AGREEMENT, W ILL NOT DETRACT FROM THE FACT THAT IT IS SUPPLIED IN THIS YEAR. ON OTHER ISS UES ALSO WE SEE NO INFIRMITY IN THE ORDERS OF CIT(A). THE LIABILITIES CRYSTALLIZED IN THIS YEAR AND DISALLOWANCES BEING REVENUE NEUTRAL AS THE ASSESSEE AND DEPARTMENT ARE IN PERPETUAL LITIGATION. NO INTERFERENCE IS CALLED FOR . THIS REVENUE GROUND IS DISMISSED. 57. GROUND NO. 18:DISALLOWANCE OF EXPENDITURE IN RE LATION TO WRITE OFF OF PRINCIPAL AMOUNT OF GANESH BENZOPLAST NCDS: 57.1. BRIEF FACTS ARE: AO FOUND THAT A SUM OF RS.70 ,13,750/- DEBITED UNDER THE HEAD SUNDRY BALANCES WRITTEN OFF IS ON ACCOUNT OF SETTLEMENT OF CLAIM WITH M/S. GANESH BENZOPLAST P LIMITED (GBPL) NCDS AS IS OF PRINCIPAL AMOUNT AND NOT TO ANY INCOME, PROVISIONS OF 36(1)(V II) DO NOT APPLY AND CANNOT BE ALLOWABLE AS A BAD DEBT. 57.2. ASSESSEE REPLIED THAT IT IS A RNBC GOVERNED B Y RBI DIRECTIONS AND UNDISPUTEDLY MAKING OF SUCH INVESTMENTS IS A PART O F ITS BUSINESS ACTIVITIES. IN PURSUANCE OF BUSINESS IT INVESTED RS. 5 CRORE ON 10TH MAY 1997 IN 19% 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 160 NON CONVERTIBLE DEBENTURES OF GBPL DUE FOR REDEMPTI ON ON 07 TH JULY 2002. THE DEBENTURES WERE SECURED BY PARI PASSU FIRST CHA RGE ON COMPANYS FIXED ASSETS. GBPL REGULARLY SERVICED THE INTEREST UPTO 0 7 TH OCTOBER 2000 BUT DEFAULTED THEREAFTER. GBPL BECAME A SICK INDUSTRY A ND WAS REGISTERED WITH BIFR ON 24-11-2006. IN THIS BLEAK SCENARIO ASSESSEE ENTERED INTO A ONE TIME SETTLEMENT (OTS) ACCORDING TO WHICH GBPL AGREE D TO PAY AN AMOUNT OF RS. 3.50 CRORES IN FIVE EQUAL YEARLY INSTALLMEN TS. IT ONCE AGAIN DEFAULTED IN MAKING THE PAYMENT AS PER THE TERMS OF THE OTS AND PAID ONLY A SUM OF RS.69,86,250/- AS AGAINST THE DUE AMOUNT OF RS. 1, 28,62,500/- UPTO APRIL 2008. GBPL ONCE AGAIN REQUESTED TO SETTLE THE DUES BY PAYING AN ADDITIONAL AMOUNT OF RS. 2.10 CRORES TOWARDS THE FULL AND FINA L SETTLEMENT. ASSESSEE AGREED ON THE CONDITION THAT THE SAME SHALL BE PAID ON OR BEFORE 31 ST JULY 2008, WHICH PAID RS. 2.10 CRORES ON 31 ST JULY 2008 CONSEQUENTLY REMAINING RS. 70,13,750/- WAS PROPOSED FOR ARE WRITE OFF. 57.3. BOARD OF DIRECTORS APPROVED THE PROPOSAL OF W RITE OFF AND PURSUANT THERETO THE AMOUNTS WERE WRITTEN OFF IN THE ACCOUNT S IN NATURE OF TRADE ADVANCE. THEY HAVE BEEN WRITTEN OFF ON SATISFACTION OF CONDITIONS OF BOTH SECTIONS. 36(1)(VII) & 36(2) OF THE INCOME TAX ACT AND ARE FULLY ALLOWABLE DEDUCTION. 57.4. AO HOWEVER HELD THAT REPLY OF THE ASSESSEE WA S NOT SATISFACTORY AS IT HAS BEEN ACCEPTED THAT THIS MONEY WAS AN INVESTMENT AS PER RBI GUIDELINES. EVEN IF THE SUBMISSIONS OF THE ASSESSEE ARE ACCEPTE D THEN ALSO THIS AMOUNT SHOULD HAVE BEEN WRITTEN OFF IN THE FINANCIAL YEAR 2006-07 AND NOT THE CURRENT FINANCIAL YEAR AS THE FIRST OTS WITH GBPL W AS APPROVED ON 24 TH NOVEMBER 2006 AND THE OTS AGREED IN APRIL 2008 IS J UST AN EXTENSION OF THE SAME. THUS RS 70,13,750 WAS ADDED BACK. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 161 57.5. IN FIRST APPEAL CIT(A) HELD THAT, ASSESSEE WA S CARRYING ON BUSINESS OF INVESTMENT, DURING THE COURSE THEREOF THE AMOUNT OF RS. 5 CRORES WAS ADVANCED AS A TRADE ASSET AND INTEREST WAS TO BE EA RNED THEREON. IF SUCH TRADE ADVANCE BECOMES BAD, SECTIONS 36(1)(VII) READ WITH SECTION 36(2) ALLOW SUCH WRITE OFF AS A PERMISSIBLE DEDUCTION. AFTER 1ST AP RIL, 1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO CONCLUSIVELY ESTABLISH THAT THE DEBT OR BUSINESS ADVANCE, ACTUALLY HAS BECOME BAD AND IRREVOCABLE. IT IS ENOU GH IF THIS AMOUNT IS WRITTEN OFF AS IRREVOCABLE IN THE ACCOUNTS OF ASSES SES {TRF LTD. V CIT [2010] 323 ITR 397 (SC)}. CIT(A) ALLOWED THE CLAIM OF WRITE OFF AND THE GROUND OF APPEAL WAS ALLOWED. AGGRIEVED REVENUE IS BEFORE US. 58. LD. CIT(DR) RELIED ON AOS ORDER. 58.1. LD. COUNSEL FOR ASSESSEE CONTENDS THAT THE AS SESSING OFFICER DISALLOWED THE ABOVE WRITE-OFF ON THE GROUNDS THAT (A) THE WRITE-OFF SHOULD HAVE BEEN MADE IN FINANCIAL YEAR 2006-07 WHEN THE F IRST OTS WAS ENTERED WITH M/S. GANESH BENZOPLAST LTD.; AND (B) THAT THE AMOUNT WRITTEN OFF WAS IN THE NATURE OF INVESTMENT AND NOT TRADE DEBT / TRADE ADVANCE. LD. CIT(A) VERIFIED THAT INTEREST ACCRUED ON THESE GBPL DEBENT URES WAS DULY OFFERED TO TAX IN THE EARLIER YEARS AND, THEREFORE, THE CONDIT IONS IN SECTIONS 36(1)(VII) READ WITH 36(2) OF THE ACT RELATING TO ALLOWABILITY OF BAD DEBTS WRITE OFF WERE FULLY COMPLIED WITH. RELYING ON THE DECISION OF TH E SUPREME COURT IN VIJAYA BANK LTD. V. CIT: 323 ITR 166 AND TRF LTD. V . CIT: 323 ITR 397, IT WAS SUBMITTED THAT DEDUCTION ALLOWABLE IN THE YEAR OF WRITE OFF. 58.2. THE CIT(APPEALS) ACCEPTED THAT THE INVESTMENT IN NON-CONVERTIBLE DEBENTURES OF GBP WAS MADE IN COURSE OF BUSINESS AS A RNBC, THE INVESTMENTS HELD BY THE APPELLANT WERE IN THE NATUR E OF STOCK-IN-TRADE. BESIDES, IT IS ONLY IN THIS YEAR THE AMOUNT FINALLY BECAME BAD AND IS WRITTEN 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 162 OFF. THE DECISION OF THE CIT(APPEALS) BEING IN ACC ORDANCE WITH LAW DOES NOT WARRANT ANY INTERFERENCE. 59. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FIRST QUESTION TO BE DECID ED IS WHETHER INVESTMENT OF RS. 5 CRS. IN GBPL WAS TRADE INVESTMENT OR ADVAN CE OR NOT? AS PER THE FACTS ON RECORD, ASSESSEE OFFERED THE INTEREST AS B USINESS INCOME. AS A RNBC IT HAS TO CARRY ON THE BUSINESS OF INVESTMENT IN RB I APPROVED INVESTMENTS. THIS FACT HAS NOT BEEN DISPUTED BY AO, IN THESE FAC TS AND CIRCUMSTANCES CIT(A) IS RIGHT IN HOLDING IT TO BE BUSINESS INVEST MENT. ANY LOSS OF BUSINESS INVESTMENT OR STOCK IS ALLOWABLE AS WRITE OFF OR LO SS. BESIDES, RELIANCE ON HONBLE SUPREME COURT IN THE CASE OF TRF LTD (SUPRA ) IS JUSTIFIED. IT IS CLEAR THAT IT IS IN THIS YEAR ONLY THE ADVANCE IS FINALLY TREATED AS BAD AND WRITTEN OFF, THEREFORE, IT IS ELIGIBLE TO BE ALLOWED IN THI S YEAR. THIS GROUND OF THE REVENUE IS DISMISSED 60. GROUND NO. 19: DISALLOWANCE OF PROVISION FOR DI MINUTION IN INVESTMENT: 60.1. THE ASSESSEE CLAIMED A SUM OF RS.46,26,500/- AS PROVISION FOR DIMINUTION IN INVESTMENT. AO WAS OF THE VIEW THAT A SSESSEE TREATED ITS INCOME FROM SECURITIES, FIXED DEPOSITS AND LOANS AN D ADVANCES AS BUSINESS INCOME AND NOT CAPITAL GAINS. IN THAT CASE SECURITI ES ARE TO BE CARRIED AT COST OR MARKET VALUE WHICHEVER IS LOWER. THE CLAIM OF DI MINUTION WAS NOT IN LINE WITH CONSISTENT METHOD OF ACCOUNTING. 60.2. ASSESSEE EXPLAINED THAT IN FACT THERE IS NO A DVERSE IMPACT OF TAXABLE INCOME. THE EFFECT OF THE ENTRY WAS EXPLAINED THAT BY DEBITING THE DIFFERENCE BETWEEN MARKET VALUE AND THE COST TO P/L A/C., CONS EQUENTLY, THE VALUE OF SECURITIES REFLECTED IN THE ACCOUNTS REFLECT AT MAR KET RATES. IT WAS SOUGHT TO BE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 163 EXPLAINED BY AN EXAMPLE - IF THE COST OF THE CLOSIN G STOCK IS SAY RS. 1,000/- WHILE ITS MARKET VALUE IS ONLY RS. 900/-. THERE ARE TWO WAYS TO REFLECT THE REDUCTION IN THE VALUE OF RS. 100/-. THE FIRST WAY IS TO SHOW THE VALUE OF THE CLOSING STOCK AT RS. 900/-. THUS RS. 100/- WILL BE AUTOMATICALLY ABSORBED BY THE GROSS PROFIT AND IT WILL BECOME LOWER BY RS. 10 0/-. 60.3. BY SHOWING CLOSING STOCK IN TRADING ACCOUNT A T RS. 1,000/- AND DEBITING THE ACCOUNT ON DIMINUTION OF VALUE OF INV ESTMENT BY RS. 100/- AND CHARGING IT TO THE P/L A/C. IT WILL WORK OUT REAL T AXABLE INCOME OF THE YEAR. IN THE BALANCE SHEET, IN BOTH CASES THE CLOSING STO CK WILL BE REFLECTED AT RS. 900 (RS. 1000-100). 60.4. IT WAS PLEADED THAT THE REDUCTION/ DIMINUTION IN VALUE HAS BEEN CLAIMED FOLLOWING THIS PROPER METHOD AND CALLS FOR NO ADVERSE INFERENCE ON THIS COUNT. 60.5. AO HOWEVER WAS OF THE VIEW THAT ASSESSEES ST AND WAS INCONSISTENT IF IT IS COMPARED WITH THE STAND IN WRITE OFF EFFECTED IN THE CASE OF GBPL, CLAIM WAS DISALLOWED. 60.6. IN FIRST APPEAL CIT(A), ALLOWED THE CLAIM CON SIDERING THAT ASSESSEES BUSINESS WAS TO RAISE DEPOSITS FROM THE PUBLIC AND TO DEPLOY THEM IN INVESTMENTS AGREEABLE TO RBI. THE INCOME FROM SUCH INVESTMENTS IS TREATED AS ASSESSES BUSINESS INCOME AND THEY ARE IN THE NAT URE OF STOCK-IN-TRADE. IT IS SETTLED LAW THAT DIMINUTION IN THE VALUE OF STOCK- IN-TRADE IS AN ALLOWABLE BUSINESS DEDUCTION. AO CANNOT DENY IT ON THE GROUND THAT ENTRIES WERE POSTED IN DIFFERENT MANNER. BESIDES GBPL WAS CASE O F WRITE OFF OF BAD BUSINESS ADVANCE AND VALUATION OF CLOSING STOCK WER E TWO SEPARATE ISSUES. THE IMPACT ON BOOK RESULTS WAS SAME AS PROPOSED BY SA, AO AND ASSESSEE. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 164 THUS MARKET VALUE AND CONSEQUENT ENTRIES MADE BY TH E ASSESSEE WERE CORRECT I.E. DICREASE IN THE VALUE OF BUSINESS INVESTMENTS WHICH IS AN ALLOWABLE BUSINESS EXPENDITURE U/S 28 OR U/S 37(1). IN ANY CA SE, REVENUE WAS ADEQUATELY PROTECTED BY THE WRITE BACK OF INCREASE IN VALUE UP TO COST-LEVEL, AND BOOKING OF INCOME AT SALE MINUS COST ON DISPOSA L OF THE ASSET. AGGRIEVED, REVENUE IS BEFORE US. 61. LD. CIT(DR) RELIED ON THE ORDER OF AO 62. LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT AS PA RT OF ITS BUSINESS, THE APPELLANT HOLDS INVESTMENTS IN VARIOUS SECURITIES, WHICH ARE, IN THE NATURE OF STOCK-IN-TRADE AND ARE CONSISTENTLY VALUED AT LOWER OF COST OR MARKET VALUE. THE AO DISALLOWED THE PROVISION FOR DIMINUTION IN T HE VALUE OF CURRENT INVESTMENT ON THE GROUND THAT SINCE THE APPELLANT H AD TREATED ALL INCOME EARNED FROM INVESTMENTS AS BUSINESS INCOME, THERE W AS NO QUESTION OF ALLOWING DEDUCTION FOR PROVISION OF DIMINUTION. 62.1. ON APPEAL, IT WAS SUBMITTED BEFORE THE CIT (A PPEALS) THAT THE APPELLANT BEING A RNBC HAS TO MAKE DIRECTED INVES TMENT IN GOVERNMENT SECURITIES, MUTUAL FUNDS, FDRS AS PER THE PRESCRIBE D LIMITS. IN TERMS OF THE MANDATORY RESERVE BANK OF INDIA PRUDENTIAL NORMS RE AD WITH ACCOUNTING STANDARD-13, CURRENT INVESTMENTS ARE TO BE VALUED A T LOWER OF COST OR MARKET VALUE AND DIMINUTION WITH REFERENCE TO COST THEREOF HAS TO BE DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT WAS FURTHER POINTED OUT TO THE LD. CIT(APPEALS) THAT THIS METHOD HAS BEEN CONSISTENTLY FOLLOWED BY THE APPELLANT SINCE INCEPTION. 62.2. LD. CIT(APPEALS) AGREED WITH ASSESSEE AND DEL ETED THE DISALLOWANCE, HELD AS UNDER: 22.3 I HAVE CONSIDERED THE RIVAL CLAIMS. ONE PART OF THE BUSINESS OF THE APPELLANT IS TO RAISE DEPOSITS FROM THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 165 PUBLIC. ANOTHER PART OF ITS BUSINESS IS TO DEPLOY T HE DEPOSITS RAISED IN INVESTMENTS ACCORDING TO RBI DIRECTIVES APPLICABLE TO RNBCS. THE INCOME FROM SUC H INVESTMENTS, AND THE INTEREST PAID TO THE PUBLIC ON THE DEPOSITS, FORM THE MAINSTAY FOR THE AMOUNTS CREDITE D OR DEBITED TO THE P&L ACCOUNT. THE INCOME FROM THE INVESTMENTS, BOTH BY WAY OF BENEFITS FROM THE INVES TMENT OR DISPOSAL THEREOF, ARE ACCOUNTED FOR AS INCOME UN DER THE HEAD BUSINESS. THEREFORE, THESE INVESTMENTS ARE IN THE NATURE OF STOCK-IN-TRADE FOR THE BUSINESS OF THE AP PELLANT. IT IS TRITE THAT DIMINUTION IN THE VALUE OF STOCK-I N-TRADE IS AN ALLOWABLE BUSINESS DEDUCTION. FURTHER, THE DIMIN UTION IN THE VALUE OF INVESTMENTS FURTHER IMPACTS THE BAL ANCE SHEET OF THE APPELLANT, WHEREIN THE VALUE OF THE INVESTMENTS, AT COST OR MARKET VALUE, GETS REDUCED. IN THIS VIEW OF THE MATTER, I AM OF THE OPINION THAT DIMINU TION IN THE VALUE OF BUSINESS INVESTMENTS IS AN ALLOWABLE BUSINESS EXPENDITURE U/S 28 OR U/S 37(1) IN THE CON TEXT OF THE APPELLANT A RNBC. IT IS NOT IN THE NATURE OF BA D DEBT ALLOWABLE U/S 36(1)(VII) AND 36(2) ONLY WHEN IT IS WRITTEN OFF IN THE ACCOUNTS, AS OPINED BY THE REVENUE, BECA USE A REALIZABLE DEBT WRITTEN OFF AND REDUCTION IN VALUE OF AN INVESTMENT ARE TWO COMPLETELY DIFFERENT THINGS. IN ANY CASE, REVENUE IS ADEQUATELY PROTECTED BY THE WRITE BACK OF INCREASE IN VALUE UP TO COST-LEVEL, AND BOOKING OF INCOME AT SALE MINUS COST ON DISPOSAL OF THE ASSET. IN THE CIRCUMSTANCES, I AM INCLINED TO ALLOW THE CLAIM OF THE APPELLANT. THIS GROUND OF APPEAL IS ALLOWED. APPELL ANT GETS RELIEF OF RS.46,26,500/-. 62.3. LD. COUNSEL RELIED ON FOLLOWING DECISIONS, WH EREIN IT HAS BEEN HELD THAT CURRENT INVESTMENTS ARE VALUED AT LOWER OF COS T OR MARKET VALUE: - CIT V. STATE BANK OF PATIALA: 212 ITR 59(STAT.) - AMERICAN EXPRESS INTERNATIONAL BANKING CORP. V. C IT:258 ITR 601 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 166 62.4. THE ORDER PASSED BY THE CIT(APPEALS) BEING I N ACCORDANCE WITH THE LAWS, MANDATORY PRUDENTIAL DIRECTIONS OF THE RBI AN D APPLICABLE ACCOUNTING STANDARD, IN CONSONANCE WITH DESERVES TO BE UPHELD. 63. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT EMERGES THAT THESE INVESTME NTS WERE HELD AS STOCK-IN- TRADE AND EITHER WAYS THE INCOME THEREON I.E. PROFI TS FROM THE INVESTMENT OR DISPOSAL THEREOF, ARE ACCOUNTED FOR AS BUSINESS INC OME. ASSESSEE FOLLOWS THIS METHOD CONSISTENTLY. LOOKING AT THE ENTIRETY OF FA CTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT DIMINUTION IN THE VALUE OF BUSINESS INVESTMENTS IS AN ALLOWABLE BUSINESS EXPENDITURE U/ S 28 OR U/S 37(1), IT IS NOT A CASE OF WRITE OFF OF BAD DEBT AS TRIED TO BE COMP ARED BY AO WITH GBPL. CIT(A)S IS RIGHT IN HOLDING THAT IN ANY CASE, REVEN UES INTEREST IS PROTECTED BY THE WRITE BACK OF INCREASE IN VALUE UP TO COST-LEVE L, AND BOOKING OF INCOME AT SALE MINUS COST ON DISPOSAL. RELIANCE PLACED ON CIT V. STATE BANK OF PATIALA AND AMERICAN EXPRESS INTERNATIONAL BANKING CORPORAT ION IS JUSTIFIED. IN VIEW THEREOF WE UPHOLD THE ORDER OF CIT(A), REVENUE GROUND IS DISMISSED 64. GROUND NO 20:& ASSESSEES GROUND NO. 4(A) TO 4( E): DISALLOWANCES U/S 40(A)(IA) EXPENDITURE ON WHICH TDS IS NOT DEDUCTED. 64.1. ON SPECIAL AUDITOR OBSERVATIONS AO WAS OF TH E OPINION THAT ON INTEREST OF RS.2,20,26,731/- PAID TO BRANCHES TDS W AS NOT BEEN DEDUCTED. ON TEST BASIS IT WAS FOUND THAT THE RATIO BETWEEN T OTAL INTEREST AND ON WHICH TDS WAS NOT DEDUCTED CAME TO ABOUT 12.78%. THE ASSE SSE WAS ASKED TO FURNISH DETAILS OF TDS PAYMENTS AND EXPLANATION IN THIS BEHALF. 64.2. ASSESSEE CONTENDED THAT OBSERVATIONS ARE NOT CORRECT FOR THE FOLLOWING REASONS : 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 167 1) IT IS OBSERVED THAT FEW ACCOUNTS HAVE BEEN MENTIONE D BY THE AUDITORS IN THEIR LIST AT TWO PLACES MEANING THEREB Y THAT THERE IS DUPLICACY IN THEIR REPORTING OF THAT EXPENDITURE . 2) THERE ARE NUMBER OF ACCOUNTS IN WHICH THE AUDITORS HAVE POINTED OUT NON-DEDUCTION OF TAX AT SOURCE BUT IN F ACT IN THESE ACCOUNTS TAX HAS BEEN DEDUCTED AT SOURCE AND DULY D EPOSITED WITH THE GOVERNMENT TREASURY. 3) THERE ARE NUMBER OF ACCOUNT WHICH HAVE BEEN POINTED OUT BY THE AUDITORS IN WHICH NO TAX HAS BEEN DEDUCTED AT S OURCE IN THEIR LIST WHICH PAYMENTS WERE NOT SUBJECT TO DEDU CTION OF TAX AT SOURCE IN LIGHT OF THE FACTS THAT THE DEPOSITORS HAD SUBMITTED FORM NO. 15G/15H IN RESPECT OF INTEREST FOR NON-DED UCTION OF TAX AT SOURCE. 4) THERE ARE NUMBER OF ACCOUNTS IN WHICH THE AMOUNT ME NTIONED BY THE AUDITORS IS INCORRECT. 5) THERE ARE NUMBER OF ACCOUNTS IN WHICH THERE IS AN E RROR IN MENTION OF THE ACCOUNT NUMBERS BECAUSE OF WHICH WE HAVE NOT BEEN ABLE TO VERIFY THE VERACITY OF THE AUDITOR S STATEMENT IN RESPECT OF TDS ON SUCH ACCOUNTS. 6) THERE ARE NUMBER OF CASES WHERE EVEN CLUBBING OF AC COUNTS OF PERSON OF SAME NAME AND ADDRESS AMOUNT OF INTEREST IS LESS THEN RS. 5,000/-. 64.3. PROPER TDS DEDUCTION HAS BEEN MADE WHEREVER I T WAS APPLICABLE AND STANDS DEPOSITED IN THE GOVERNMENT TREASURY ALSO. T DS RETURNS HAVE BEEN 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 168 DULY FILED AND THE ASSESSMENT OF TDS IS COMPLETED B Y THE DEPARTMENT THUS, THERE IS NO JUSTIFICATION IN DRAWING ANY ADVERSE IN FERENCES. 64.4. PAYMENT MADE TO M/S. BLOOMBERG SERVICES (INDI A) PVT. LTD. IS IN THE NATURE OF SUBSCRIPTION TO DATA BASE AND NOT FOR CAR RYING OUT ANY WORK PURSUANT TO ANY CONTRACT AND IS NOT COVERED U/S 194 C. IT WAS OPINED BY LEGAL ADVISORS ALSO THAT NO CONTRACTUAL SERVICES WERE REN DERED BY BLOOMBERG, THEREFORE, THERE IS NO TDS LIABILITY, NO DISALLOWAN CE U/S 40(A)(IA) WAS CALLED FOR. 64.5. APROPOS PAYMENTS MADE TO M/S. SAHARA HOSPITAL ITY LTD.(HPL) FOR ARRANGING MEETINGS AND CONFERENCES, A SUM OF TO RS. 88,312.71/- ( WRONGLY MENTIONED AS RS. 8,77,797.51/- BY SA) REFERENCE WAS MADE TO THREE BILLS. THE CHARGES ARE MAINLY FOR ROOM RENT OR BUSINESS CE NTRE USE ETC., NO CONTRACT HAS BEEN ENTERED INTO BETWEEN THE ASSESSEE AND HPL. THIS EXPENDITURE IS INCURRED AT PREVAILING RATES AND NOT UNDER ANY CONT RACT. 64.6. PAYMENT OF RS.2,07,337/- TO M/S. AMBY VALLEY LTD. REPRESENTS CHARGES FOR ROOMS AND FOODING ETC., PAID BY ASSSESS EE AS A REGULAR CUSTOMERS AND NOT UNDER ANY CONTRACT. PAYMENT OF REGULAR LODG ING AND BOARDING ARE NOT LIABLE FOR TDS. CONSEQUENTLY SECTION 40(A)(IA) IS N OT ATTRACTED. 64.7. AO HOWEVER DID NOT AGREE WITH THE ASSESSEE AN D BY DETAILED OBSERVATIONS (THEY ARE NOT REPRODUCED FOR BREVITY A S THEY HAVE BEEN DEALT BY LD. CIT(A)) HELD THAT THESE PAYMENTS ARE COVERED BY SECTION 40(A)(IA) DUE TO NON DEDUCTION OF TDS. THUS THE TOTAL AMOUNT OF RS 1 50,49,46,533/- (RS 150,38,35,341/- +RS 9,03,855/- +2,07,337), WAS ADDE D TO THE INCOME OF THE ASSESSEE. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 169 64.8. IN FIRST APPEAL, ASSESSEE CONTENDED THAT SPEC IAL AUDITOR HAS MADE MISTAKES AS IN MOST OF THE CASES INTEREST WAS BELOW RS.5,000/-. IN CASES OF 23 LAKH DEPOSITORS WHERE DECLARATIONS FOR NON DEDUC TION OF TDS WERE FILED HAVE BEEN IGNORED. CLUBBING OF INTEREST IS NOT POSS IBLE AS THERE ARE INTER- BRANCH DEPOSITS, AND IT IS NOT POSSIBLE EVEN WHEN T HERE ARE INTRA-BRANCH DEPOSITS BY DIFFERENT AGENTS OR DUE TO PASSAGE OF T IME OR THE DEPOSITORS INVESTING IN DIFFERENT TYPES OF ACCOUNTS / SCHEMES. THE APPELLANT FURTHER CONTENDED THAT TDS ASSESSMENTS ON ITS LIABILITIES HAVE BEEN MADE BY THE INCOME TAX DEPARTMENT ITSELF AND NO ADVERSE VIEW HA S BEEN REPORTED IN THIS BEHALF ON TDS COMPLIANCE. 64.9. PAYMENTS TO M/S. BLOOMBERG ARE FOR SUBSCRIPTI ON TO DATA BASE, IT IS IN THE NATURE OF PURCHASE OF A SERVICE AND THUS NO TDS WAS LIABLE TO BE DEDUCTED. PAYMENTS OF RS.2,07,337/- TO M/S. AAMBY V ALLEY LTD., WERE ON ACCOUNT OF BOOKING OF ROOMS AND CONFERENCE HALL FOR HOLDING ASSESSES MEETINGS AS REGULAR GUEST/CUSTOMER FROM TIME TO TIM E. RS.8,77,797/- TO M/S. SHL WERE FOR ARRANGING THEM. ASSESSEES CLAIM THAT T HESE PAYMENTS WERE AT MARKET RATES AND NOT IN PURSUANCE TO ANY CONTRACT L IABLE FOR TDS U/S 194CWAS FOUND BY CIT(A) TO BE CORRECT. 64.10. ASSESSEE DEMONSTRATED THAT THE CONCLUSIONS REACHED BY THE SA AND AO ARE INCORRECT ON VARIOUS COUNTS. THE PERCENT AGE OF DEFAULT WAS INITIALLY WORKED OUT BY THE REVENUEAT 12.78% AND SU BSEQUENTLY REDUCED TO 12.34%.CONSEQUENTLY OF A SUM OF RS.150,38,35,341/- WAS DISALLOWED OUT OF THE TOTAL INTEREST OF RS.1218,36,28,517/- PROVIDED BY THE APPELLANT DURING THE YEAR. IN CT(A)S OPINION, FOR TDS DEFAULT DISALLOWAN CE CANNOT BE MADE ON ESTIMATE BASIS AS LAW DOES NOT PROVIDE FOR IT. THIS CONTENTION OF ASSESSEE WAS UPHELD. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 170 64.11. HOWEVER, CIT(A) FURTHER OBSERVED THAT THE DE PARTMENT HAS A FULL- FLEDGED TDS WING WHICH ENSURES IMPLEMENTATION OF TD S PROVISIONS AND ITS ASSESSMENT. IT WOULD BE APPROPRIATE TO GET THE MATT ER CHECKED BY THE TDS WING, THE ADDITION OF RS.150,38,35,341/- IS, FOR TH E TIME BEING, UPHELD ON PROTECTIVE BASIS. IN CASE IT IS FOUND THROUGH THE T DS WING THAT TDS DEFAULTS HAVE TAKEN PLACE, TO THE EXTENT OF SUCH DEFAULTS TH E ADDITION SHALL BE UPHELD. IF IT IS FOUND THAT THERE IS NO SUBSTANTIATED DEFAU LT, THE ADDITION SHALL BE DELETED. THE EXERCISE SHALL BE COMPLETED WITHIN A P ERIOD OF SIX MONTHS, I.E. BY 30.09.2013. THE BALANCE DISALLOWANCE OF RS.11,11 ,192/- (RS.9,03,855/- + RS.2,07,337/-) WAS DELETED. AGGRIEVED REVENUE IS BEFORE US. 65. LD. CIT(DR) CONTENDS THAT THE ASSESSEE HAS NOT MAINTAINED SYSTEMATIC RECORDS TO AGGREGATE INTEREST PAYABLE AND PAYMENT A TO INDIVIDUAL DEPOSITORS. IN THE ABSENCE OF SUCH RECORDS IT IS NOT POSSIBLE T O CLUB TOGETHER THE INTEREST PAYMENT TO INDIVIDUAL PERSONS. FURTHER, THE ASSESSE E COMPANY HAS FAILED TO COOPERATE WITH THE AO/ SA AND THE SOFT COPY OF LEDG ER ACCOUNTS WERE NOT SUPPLIED. IN VIEW OF SUCH NON COMPLIANCE, THERE IS NO JUSTIFICATION FOR SUSTAINING THE DISALLOWANCE ON PROTECTIVE BASIS. 65.1. THE CLAIM OF THE ASSESSEE COMPANY IS FACTUALL Y INCORRECT AND NOT TENABLE IN LAW. THE SUBMISSIONS MADE BY ASSESSEE BE FORE CIT(A) MILITATES AGAINST THE ASSESSEES OWN CLAIM. IT IS TO BE APPRE CIATED THAT UNLESS THE TAX PAYER MAINTAINS A SYSTEMATIC RECORD OF THE AGGREGAT E DEPOSITS AND AMOUNT OF INTEREST PAYABLE TO A PARTICULAR CREDITOR, IT IS DI FFICULT TO VERIFY COMPLIANCE OF TDS PROVISIONS. ASSESSEE ITSELF ADMITS THAT OUT OF 3 CRORE ACCOUNTS, ONLY 23 LAKH ACCOUNTS HAVE BEEN CLUBBED WHICH IS VERY INSI GNIFICANT FOR VERIFICATION. THE RETURNS OF TDS FILED ON THE BASIS OF SUCH INCOM PLETE RECORDS CANNOT BE CONSIDERED TO BE PROPER COMPLIANCE TO THE TDS PROVI SIONS. DIFFICULTIES FACED 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 171 BY THE ASSESSEE CANNOT BE CLAIMED TO AVOID A STATUT ORY LIABILITY. THERE SHOULD NOT HAVE BEEN ANY DIFFICULTY IN MAINTAINING PROPER RECORDS OF INDIVIDUAL DEPOSITORS AND THE AGGREGATE AMOUNT OF INTEREST PAY ED/CREDITED TO THEIR ACCOUNTS LOOKING AT THE FACILITIES OF WORK FORCE AS SESSEE ENJOYS. 65.2. AFTER REFERRING TO THE QUOTATION OF JUSTICE R OWLATT RELIANCE IS PLACED ON THE CASE OF TARULATA SHYAM AND OTHERS (108 ITR 3 45), THE HONBLE APEX COURT HAS HELD THAT:- ONCE IT IS SHOWN THAT THE CASE OF THE ASSESSEE COME S WITHIN THE LETTER OF LAW, HE MUST BE TAXED, HOWEVER GREATER THE HARDSHIP MAY APPEAR TO THE JUDICIAL MIN D TO BE. 65.3. SIMILAR VIEWS HAVE BEEN EXPRESSED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF PATIL VIJAY KUMAR AND OTHERS (151 IT R 48). ACCORDING TO THE HONBLE COURT:- WHEN THE MEANING OF THE WORDS IS CLEAR AND UNAMBIGUOUS, THE COURT HAS TO GIVE EFFECT TO IT WHA TEVER BE THE CONSEQUENCES ,AS THE COURT HAS NO JURISDICTI ONS TO MITIGATE HARSH CONSEQUENCES OF THE STATUE, IF ANY. 65.4. CONSEQUENT TO DIRECTIONS OF THE LD. CIT(A), THE VERIFICATION WAS TO BE DONE BY THE AO WITH THE HELP OF THE TDS WING OF THE DEPARTMENT ON OR BEFORE 30.9.13 WHICH COULD NOT BE DONE. AO VIDE HIS LETTER DATED 8.10.2013 HAS SUBMITTED THAT CIT TDS, LUCKNOW HAS ALREADY BEEN REQUESTED FOR PROPER VERIFICATION OF TDS DEFAULTS IN THE ABOVE CA SE ON 19.09.2013 AND A MEETING WAS ALSO HELD IN THE CHAMBER OF CIT (C) 1 , NEW DELHI WITH CIT TDS, LUCKNOW AND CIT (APPEALS)-XXVI ON 20.9.2013 RE GARDING VERIFICATION OF TDS IN THE CASE OF M/S SAHARA INDIA FINANCIAL CO RPORATION LIMITED. IN THE MEETING, CIT (TDS), LUCKNOW STATED THAT AS THE ASSESSEE IS NOT 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 172 COOPERATING AND THE DATA IS VOLUMINOUS, THE PROCESS OF VERIFICATION OF TDS CANNOT BE COMPLETED IN THE GIVEN TIME. 65.5. IN VIEW THEREOF, IT IS REQUESTED BY LD. CIT(D R) THAT THE REVENUE MAY BE GRANTED FURTHER EXTENSION OF SIX MONTHS FOR LOGI CAL VERIFICATION, ASSESSEE MAY BE DIRECTED TO COOPERATE IN A PROPER MANNER. 66. LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT AFOR ESAID GROUND RELATING TO DELETION OF DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT HAS TWO PARTS: (A) DISALLOWANCE OF RS.1,50,38,35,341/-; ( QUA INTEREST TO DEPOSITORS) (B) DISALLOWANCE OF RS.11,11,192/- (RS. 9,03,855 M/S BL OOMBERG +RS.2,07,337 AVL) 66.1. LD. CIT(APPEALS) AFTER VERIFICATION HELD THA T PAYMENT TO M/S BLOOMBERG WAS FOR SUBSCRIPTION TO DATA BASE WHICH W AS IN THE NATURE OF PURCHASE OF SERVICES NOT LIABLE FOR TDS. PAYMENTS M ADE TO M/S. AVL IS ON ACCOUNT OF BOOKING OF ROOMS AND CONFERENCE HALLS FR OM TIME TO TIME AS REGULAR GUESTS/ CUSTOMERS, NOT BY WAY OF CONTRACT. THEREFORE, THERE IS NO TDS LIABILITY. FOR TDS VERIFICATION, ASSESSEE HAS N O OBJECTION TO EXTENSION OF 6 MONTHS FROM LAST DUE DATE AND ASSURES COOPERAT ION. 67. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. APROPOS THE ISSUE ABOUT BLOOMB ERG, AMBY VALLEY AND SHL IT HAS BEEN VERIFIED AND FINDINGS OF FACT HAVE BEEN GIVEN BY LD. CIT(A), THAT THESE PAYMENTS ARE FOR PURCHASE OF SERVICES , HOSPITALITY OR ARRANGEMENT THEREOF; PAID AS A REGULAR CUSTOMER IN NORMAL COURS E AND NOT BY ANY CONTRACT. THESE FACTS HAVE NOT BEEN MATERIALLY REBUTTED BY TH E DEPARTMENT IN VIEW THEREOF WE UPHOLD THE ORDER OF CIT(A) QUA THESE PAY MENTS. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 173 67.1. APROPOS ISSUE OF TDS ON INTEREST TO INDIVIDU AL DEPOSITORS, CIT(A) ON PROPER CONSIDERATIONS HELD: A) THAT THE PROVISIONS IN RESPECT OF TDS AND SEC. 40A(IA) DO NOT PROVIDE ANY POWER TO HOLD NON DEDUCTION OF TDS ON E STIMATE BASIS, SIMILARLY SEC. 40A(IA) ALSO DOES NOT PROVIDE FOR AN Y ESTIMATED DISALLOWANCE. THUS SPECIFIC ITEM OF EXPENDITURE WHI CH WAS LIABLE FOR TDS IS TO BE IDENTIFIED AND DISALLOWED. THERE IS A REASON FOR THAT AS IF THE TDS IS PAID IN THE SUBSEQUENT YEAR THEN CORRESP ONDING EXPENDITURE IS TO BE ALLOWED. THUS NON IDENTIFICATI ON OF EXPENDITURE QUA WHICH THE TDS IS NOT DEDUCTED IS TO BE SPECIFIE D. ADOPTION OF ESTIMATED DEFAULT ON THESE PROVISIONS; WHICH BY VER Y NATURE ARE AMOUNT AND ITEM SPECIFIC, WILL RENDER THE PROVISION S UNWORKABLE, WHICH CANNOT BE THE INTENTION OF LEGISLATURE. IN OU R CONSIDERED VIEW LD CIT(A) HAS TAKEN A PROPER CONCLUSION IN THE MATTER TO HOLD THAT SUCH DISALLOWANCE CANNOT BE MADE ON ESTIMATED BASIS. HAV ING HELD SO THERE WAS NO NEED FOR CIT(A) TO GO FURTHER FOR ANY PROTEC TIVE ADDITION, BE THAT AS IT MAY SINCE VERIFICATION HAS BEEN DIRECTED TO PROTECT THE INTEREST OF REVENUE, NOW WE DEAL WITH THE TIME LIMI T EXTENSION REQUEST OF DEPARTMENT. B) ASSESSEE CLAIMS THAT IT HAS DULY COMPLIED WITH P ROVISIONS BY FILING OF TDS RETURNS. DEPARTMENT HAS CARRIED OUT T DS ASSESSMENTS ON SUCH RETURNS AND NO ADVERSE OBSERVATIONS WHATSOEVER HAVE BEEN REPORTED. HOWEVER, LD. CIT(A) ALLOWED FURTHER VERIF ICATION OF TDS ASSESSMENT WITHIN A PERIOD OF 6 MONTHS ENDING ON 30 -9-2013, KEEPING IN VIEW THE INTEREST OF REVENUE. REVENUE SO FAR HAS NOT BEEN ABLE TO COMPLY WITH THIS DIRECTION AND VERIFICATION SCHEDUL E. LD. DR DURING 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 174 THE COURSE OF HEARING HAS MADE AN EARNEST REQUEST T O EXTEND THE TIME OF VERIFICATION FOR A FURTHER PERIOD OF 6 MONTHS FR OM LAST DATE. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT CIT (A) HAVING HELD THAT ESTIMATED ADDITION U/S 40A(IA) CANNOT BE MADE ON ESTIMATE BASIS, GROUND RAISED BY ASSESSEE SHOULD HAVE BEEN ALLOWED. THERE IS NO OCCASION FOR UPHOLDING PROTECTIVE ADDITION AND DIRE CTING FURTHER VERIFICATION BY TDS WING. HE THUS OBJECTED TO EXTEN SION CONTENDING THAT ASSESSEE IS BEING TAKEN ON A SPREE OF REPETITI VE PROCEEDING. IT IS BEING ASSUMED THAT DEPARTMENTAL AUTHORITIES DO NOT CARRY OUT PROPER TDS VERIFICATION, FOR WHICH ASSESSEE IS AT RECEIVIN G END. HOWEVER LD. COUNSEL AGREED FOR A SHORTER EXTENSION. AFTER HEARI NG BOTH THE PARTIES AND IN THE INTEREST OF SUBSTANTIAL JUSTICE, DEPART MENT WAS ORALLY ALLOWED A FURTHER EXTENSION OF 6 MONTHS AS PRAYED I .E. FROM 30-9- 2013, PROTECTIVE ADDITION CANNOT BE UPHELD, THE MAT TER IS THEREFORE, RESTORED BACK TO AO, IF DEPARTMENT FAILS TO CARRY O UT THE EXERCISE IN THIS EXTENDED TIME I.E. UP TO 31-3-2014, ORDER OF L D. CIT(A) WILL BECOME FINAL REQUIRING NO INTERFERENCE. IF AO COMES IN POSSESSION OF ANY SPECIFIC INFORMATION THEN THE ISSUE SHALL BE DE CIDED ACCORDINGLY KEEPING IN MIND THAT CIT(A) HAS ALREADY GIVEN A FIN DING THAT ESTIMATED DISALLOWANCE U/S 40A(IA) CANNOT BE MADE, AFTER GIVING THE ASSESSEE AN ADEQUATE OPPORTUNITY OF BEING HEARD. T HIS GROUNDS OF THE REVENUE AND ASSESSEE IN THIS BEHALF ARE ACCORDINGLY PARTLY ALLOWED. 68. GROUND NO. 21:ADDITIONS OF INTEREST EARNED ON N ON-PERFORMING ASSETS NOT RECOGNIZED AS INCOME: 68.1. ON SAS OBJECTION, AO WAS OF THE OPINION THAT A SUM OF RS 1,72,63,565/- BEING INTEREST EARNED ON THE NON-PERF ORMING ASSETS AS CLASSIFIED BY THE ASSESSEE AND A SUM OF RS 80,80,20 7/- BEING OVERDUE INTEREST 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 175 EARNED ON THE NON-PERFORMING ASSETS WAS NOT PROVID ED BY ASSESSEE ON THE PRETEXT THAT THE ADVANCES HAVE BECOME BAD. ACCORDIN GLY SHOW CAUSE WAS ISSUED BY AO AS TO WHY AN AMOUNT OF RS 2,53,43,772/ - MAY NOT BE ADDED TO THE INCOME AS PER MERCANTILE SYSTEM. 68.2. THE ASSESSEE VIDE ITS REPLY DATED 30.07.2012 SUBMITTED THAT SPECIAL AUDITORS HAVE RELIED ON NBFC PRUDENTIAL NORMS (RESE RVE BANK DIRECTIONS 1998) IN THEIR REPORT. AS PER THE RBI PRUDENTIAL NO RMS OF INCOME RECOGNITION, NO INTEREST IS REQUIRED TO BE PROVIDED ON STICKY/ SUB-STANDARD ASSETS, EVEN IF THE INTEREST HAS BEEN PROVIDED DURI NG THE YEAR UNDER CONSIDERATION IN WHICH THE ADVANCE BECOMES SUB-STAN DARD, THEN INTEREST EARNED UP TO THE PERIOD TILL IT BECOMES SUB-STANDAR D NEEDS TO BE REVERSED. THUS AS PER RBI NORMS THE ASSESSEE IS RIGHT IN NOT PROVIDING THE INTEREST. 68.3. THE SPECIAL AUDITORS HAVE WORKED OUT ACCRUED INTEREST AND OVERDUE INTEREST OF RS. 1,72,63,565/- AND RS. 80,80,207/- A S UNDER: SR. NO. PARTICULARS O/S FV AS ON 31.03.2009 INCOME NOT PROVIDED DURING THE YEAR OVERDUE INTEREST @36% 1 PRANIK SHIPPING AND SERVICES LTD. (22%) 36010288.86 7922263.55 5041440.00 2 PRAKASH INDUSTRIES LTD. (27%) 33764082.00 9116302.14 3038768.00 3 15% GARWARE NYLON 1500000.00 225000.00 TOTAL: 17263565.69 8080207.00 68.4. AS REGARDS M/S. PRANIK SHIPPING & SERVICES LT D., ASSESSEE GAVE A LOAN OF RS. 5.50 CRORE TO M/S. PRANIK SHIPPING & SERVICE S LTD. AGAINST ENGLISH MORTGAGE OF PROPERTY SITUATED AT 15 TH FLOOR OF MAKER CHAMBERS IV NARIMAN 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 176 POINT MUMBAI. THE WHOLE PRINCIPAL WAS DUE FOR REPAY MENT ON 24 TH JANUARY 1999 AND INTEREST WAS PAYABLE ON QUARTERLY RESTS. T HE COMPANY HAS PAID RS. 52.50 LAKHS TOWARDS THE PRINCIPAL AND CLEARED THE E NTIRE INTEREST TILL 24 TH JANUARY 1999. THIS PROPERTY WAS GIVEN ON LEAVE & LI CENSE BASIS TO M/S. TAMARA CAPITAL ADVISORS PVT. LTD. VIDE AGREEMENT DA TED 1 ST MARCH 2005 FOR A PERIOD OF 33 MONTHS THE MONTHLY RENTAL OF RS. 4,8 7,300/- RECEIVED FROM TAMARA CAPITAL ADVISORS PVT. LTD WAS ADJUSTED IN TH E AMOUNT OUTSTANDING. THE TOTAL OUTSTANDING PRINCIPAL AS ON 31 ST MARCH 2009 WAS RS. 3,60,10,288.86/- AND A PROVISION OF RS. 1,80,05,144 .43/- WAS MADE AS PER PRUDENTIAL NORMS DIRECTION OF RBI. 68.5. AS REGARDS M/S. PRAKASH INDUSTRIES LTD., A LO AN OF RS 5.00 CRORE WAS GIVEN @ 28% FOR 180 DAYS VIDE AGREEMENT DATED 23.07 .1996 AGAINST THE SECURITY OF 33,86,400 EQUITY SHARES OF THE COMPANY. AT THE TIME OF MATURITY THE COMPANY EXPRESSED ITS INABILITY TO PAY THE DEBT S AND ON THEIR REQUEST FOR PRINCIPAL ALONG WITH INTEREST OF RS. 65.00 LACS WAS RESCHEDULED FOR A PERIOD 63 MONTHS. THE COMPANY PAID INSTALLMENTS UP TO 1 ST APRIL 1998 AND DEFAULTED, THEREAFTER COMPANY INCURRED HUGE LOSSES AND WAS DECLARED A SICK INDUSTRIAL COMPANY UNDER THE PROVISIONS OF SICK IN DUSTRIAL COMPANIES (SPECIAL PROVISION) ACT 1985 (SICA). ASSESSEE FILED A CASE UNDER SECTION 138 OF NEGOTIABLE INSTRUMENT ACT 1881 & THE SAME IS DUE FOR CROSS EXAMINATION. TOTAL OUTSTANDING PRINCIPAL AS ON 31-3 -2009 WAS RS. 3,37,64,082/- AND A PROVISION OF RS. 1,68,82,041/- WAS MADE AS PER PRUDENTIAL NORMS OF RBI. 68.6. AS REGARDS 15% GARWARE NYLON LTD., AN AMOUNT OF RS. 15,22,500/- WAS INVESTED IN THEIR 15% DEBENTURES, IT INCURRED H UGE LOSSES AND NETWORTH WAS SUBSTANTIALLY ERODED, SUBSEQUENTLY IT WAS ALSO REGISTERED WITH BIFR. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 177 THEY HAVE NOT PAID ANY AMOUNT FROM LAST FEW YEARS. THE TOTAL OUTSTANDING PRINCIPAL AS ON 31 ST MARCH 2009 WAS RS. 15,22,500/- AND A PROVISION OF RS. 15,22,500/- WAS MADE AS PAR PRUDENTIAL NORMS OF RBI . 68.7. IN LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES , ASSESSEE CLAIMED THAT THESE ASSETS HAVE TURNED AS NPA, AS PER THE PRUDENT IAL NORMS GUIDELINES OF THE R.B.I ONLY. THE ASSESSEE IS PROHIBITED TO PROVI DE FOR ANY INCOME THEREON ON ACCRUAL BASIS. GUIDELINES ARE MANDATORY ISSUED U NDER CHAPTER IIIB OF RBI ACT, 1934 AND INTEREST, IF ANY, REALIZED SUBSEQUENT LY IS RECOGNIZED ON RECEIPT BASIS. THIS PRACTICE IS BEING CONSISTENCY FOLLOWED BY ASSESSEE SINCE THE INTRODUCTION OF PRUDENTIAL NORMS DIRECTIONS BY RBI. 68.8. TO SHOW CONSISTENCY OF THIS METHOD AND PRACT ICE OF NPA INCOME, ASSESSEE DEMONSTRATED THAT IN THE CASE OF ADVANCE T O M/S. UDBHAV, LOAN WAS NPA IN EARLIER ASSESSMENT YEAR ON SETTLEMENT ARRIVE D AT IN ASSESSMENT YEAR 2001-02 INTEREST REALIZED ON SETTLEMENT HAS BEEN OF FERED AY 2001-02. 68.9. IN CASE OF ONE SHRI CD SHAH, ASSESSEE ADVANCE D A SECURED LOAN OF RS. 5.25 CRORE BY A MORTGAGE OF PROPERTY ON 4-12- 1996 @ 34% INTEREST, PAYABLE QUARTERLY AND REPAYMENT WAS DUE ON 24-9- 1997. THE BORROWER DEFAULTED IN PAYMENTS, CONSEQUENTLY ASSESSEE SOLD THE MORTGAGED PROPERTY FOR A CONSIDERATION OF RS. 7.75 CRORE ON 18-7- 2003 (I.E. IN F.Y. 2003-04) AND ADJUSTED RS. 4,14,77,380/- AGAINST PRINCIPAL, RS.11 ,71,153.85/- TOWARDS MISC. EXPENSES AND REMAINING RS. 3,48,51,466.15/- T OWARDS INTEREST ACCOUNT. THUS IN THIS CASE ASSESSEE SETTLED THE LOANS ON JUL Y, 2003 BY SALE OF PROPERTY MORTGAGED BY THE BORROWER. FOLLOWING THE RBI DIRECT IONS THE INTEREST INCOME WAS RECOGNIZED IN F.Y.2003-04 RELEVANT TO A.Y. 2004-05 AND WHOLE OF IT WAS OFFERED TO TAX IN THIS YEAR. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 178 68.10. ASSESSEE FILED FURTHER SUBMISSION PLEADING B EFORE AO THAT LD. CIT(A) IN APPELLANTS OWN CASE IN EARLIER YEARS HAS DELETE D SIMILAR DISALLOWANCES IN AYS 1999-00, 2000-01, 20001-02, 2002-03, 2003-04 & 2004-05. 68.11. AO CONSIDERED THE REPLY AND NOT FOUND IT TO BE SATISFACTORY. RELYING ON C.K. GANGADHARAN & ANOTHERS VS. CIT (2008) 304 I TR 61 (SC). AO HELD THAT THOUGH, THE CIT(A) HAS ALLOWED SIMILAR RELIEF BUT THE DEPARTMENT HAS NOT ACCEPTED THEM AND IS IN APPEALS. FURTHER RELIANCE WAS PLACED ON STATE BANK OF TRAVANCORE VS. CIT (SC) ; CIT VS. MERCANTILE BAN K LTD. IN 237 ITR 676(BOM). AO HELD THAT, AS THE INTEREST HAS ACCRUED TO THE ASSESSEE AS PER MERCANTILE SYSTEM OF ACCOUNTING, IT WAS TO BE TAXED BY MAKING AN ADDITION OF RS2,53,43,772/- TO THE INCOME OF THE ASSESSEE. 68.12. IN FIRST APPEAL CIT(A) HELD THAT, IT IS WELL SETTLED THAT RBI DIRECTIVES AND INCOME-TAX LAW OPERATE IN SEPARATE AND INDEPEND ENT SPHERES. WHILE THE OBJECTIVE OF RBI IS TO ENSURE THAT BANKS / NBFCS / RNBCS DO NOT OVERSTATE THEIR PROFITS BUT PROJECT A MORE REALISTIC PICTURE BY PROVISIONING FOR NPAS AND ALSO NOT RECOGNIZING INCOMES ON SUCH ASSETS. H ONBLE DELHI HIGH COURT JUDGMENT IN CIT VS. VASISTH CHAY VAAPAR LTD. 330 IT R 440(DEL.), WHERE FOLLOWING THE REAL INCOME THEORY PROPOSED IN SOUT HERN TECHNOLOGIES LTD.(SUPRA) IT IS HELD THAT: THE DISPUTE BEFORE THE APEX COURT CENTERED AROUND DEDUCTIBILITY OF PROVISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RBI ACT, THEIR LORDSHIPS OF THE A PEX COURT OBSERVED THAT INSOFAR AS THE PERMISSIBLE DEDU CTIONS OR EXCLUSIONS UNDER THE ACT ARE CONCERNED, THE SAME ARE ADMISSIBLE ONLY IF SUCH DEDUCTIONS/EXCLUSIONS SATIS FY THE RELEVANT CONDITIONS STIPULATED THEREFOR UNDER THE A CT. TO THAT EXTENT, IT WAS OBSERVED THAT THE PRUDENTIAL NO RMS DO NOT OVERRIDE THE PROVISIONS OF THE ACT. HOWEVER, TH E APEX COURT MADE A DISTINCTION WITH REGARD TO 'INCOME RECOGNITION' AND HELD THAT INCOME HAD TO BE RECOGNI ZED 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 179 IN TERMS OF THE PRUDENTIAL NORMS, EVEN THOUGH THE S AME DEVIATED FROM MERCANTILE SYSTEM OF ACCOUNTING AND/O R SECTION 45 OF THE INCOME-TAX ACT. IT CAN BE SAID, THEREFORE, THAT THE APEX COURT APPROVED THE REAL INCOME THEORY WHICH IS ENGRAINED IN THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC. 68.13. HONBLE DELHI HIGH COURT HELD THAT INCOME NO T PROVIDED FOR UNDER THE RBI PRUDENTIAL NORMS WAS NOT TO BE BROUGHT TO TAX U NDER THE INCOME TAX ACT, 1961. THERE IS A DISTINCTION IN AS MUCH AS THE PRESENT CASE IS THAT OF A RNBC AND NOT OF NBFC, BUT BOTH CLASSES OF ENTITIES ARE REGULATED BY SIMILAR RBI DIRECTIONS. IT HAS BEEN HELD BY THE HONBLE SUP REME COURT IN UNION OF INDIA V KAMLAKSHI FINANCE CORP. LTD.[AIR 1992 SC 71 1] AND KHALID AUTOMOBILES V UNION OF INDIA [4 SCC (SUPPL.) 653]TH AT THE DECISIONS OF THE JURISDICTIONAL HIGH COURT AND THE TRIBUNAL ARE BIND ING ON THE INCOME-TAX AUTHORITIES WITHOUT ANY RESERVATION. CIT(A) THUS RE LYING ON BINDING PRECEDENT ALLOWED THE GROUND AND RELIEF. AGGRIEVED REVENUE IS BEFORE US. 69. LD. CIT(DR) RELIED ON AO'S ORDER. 70. LD. COUNSEL FOR THE ASSESSE CONTENDS THAT ASSES SEE EXPLAINED ALL THE FACTS AND CIRCUMSTANCES LEADING THE ADVANCES BECOMI NG NPAS IN THE CASES OF M/S. PRANIK SHIPPING & SERVICES LTD., M/S. PRAKASH INDUSTRIES LTD. AND GARWARE NYLON LTD. AS THE ADVANCES HAD TURNED INTO NON-PERFORMING ASSETS (NPA), AS PER THE MANDATORY PRUDENTIAL NOR MS GUIDELINES OF THE RBI. ASSESSEE CANNOT PROVIDE FOR ANY INTEREST THERE ON ON ACCRUAL BASIS. SUBSEQUENTLY REALIZED INTEREST WAS TO BE RECOGNIZED ON RECEIPT BASIS, THIS IS CONSISTENTLY FOLLOWED BY THE APPELLANT SINCE THE IN TRODUCTION OF PRUDENTIAL NORMS ISSUED BY RBI. THE SETTLED LEGAL POSITION APR OPOS ACCRUAL OF INTEREST ON NPAS IS AS UNDER: 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 180 70.1. INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IS TO BE DETERMINED AS PER THE METHOD O F ACCOUNTING CONSISTENTLY FOLLOWED BY AN ASSESSEE. SUB-SECTION (1) OF 145 OF THE ACT CLEARLY PRESCRIBES THE METHOD OF ACCOUNTING TO BE FOLLOWED BY AN ASSES SEE FOR COMPUTING INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. THIS PROVISION MANDATES THAT INCOME CH ARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. 70.2. SECTION 209(3) OF THE COMPANIES ACT, 1956, HO WEVER, MAKES IT MANDATORY FOR COMPANIES TO KEEP ACCOUNTS ON ACCRUAL BASIS ONLY. THE ACCOUNTS PREPARED BY AN ASSESSEE MUST CONFORM TO TH E MANDATORY ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHA RTERED ACCOUNTANTS OF INDIA, THE PREMIER ACCOUNTING BODY IN THE COUNTRY. FURTHER, SECTION 211 OF THE COMPANIES ACT, 1956 REQUIRES THAT THE FINANCIAL STATEMENTS OF COMPANIES SHOULD BE PREPARED IN COMPLIANCE WITH THE ACCOUNTIN G STANDARDS. FURTHER, SUB-SECTION (2) OF SECTION 145 OF THE ACT MANDATES THAT AN ASSESSEE SHALL BE REQUIRED TO FOLLOW THE ACCOUNTING STANDARDS THAT MA Y BE NOTIFIED BY THE CENTRAL GOVERNMENT. VIDE NOTIFICATION NO. SO 69(E) DATED 25.1.1996, THE CENTRAL GOVERNMENT HAS, FOR PURPOSES OF SECTION 145 (2) OF THE ACT, NOTIFIED ACCOUNTING STANDARD-1 RELATING TO DISCLOSURE OF AC COUNTING POLICIES. 70.3. PARA 16 OF ACCOUNTING STANDARD-1 RELATING TO DISCLOSURE OF ACCOUNTING POLICIES PROVIDES THAT THE ACCOUNTING P OLICY ADOPTED BY AN ASSESSEE SHOULD BE SUCH SO AS TO REPRESENT A TRUE A ND FAIR VIEW OF THE STATE OF AFFAIRS OF THE BUSINESS OF THE ASSESSEE. PARA 17 OF THE SAID ACCOUNTING STANDARD FURTHER PROVIDES THAT SELECTION AND APPLIC ATION OF ACCOUNTING POLICY MUST BE GOVERNED, INTER ALIA, BY PRUDENCE MEANING IN VIEW OF THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 181 UNCERTAINTY ATTACHED TO FUTURE EVENTS, PROFITS ARE NOT ANTICIPATED BUT RECOGNIZED ONLY WHEN REALISED THOUGH NOT NECESSARIL Y IN CASH. 70.4. UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, IN COME IS TAXABLE WHEN THE SAME ACCRUES OR IS EARNED, IRRESPECTIVE OF THE TIME OF RECEIPT. HOWEVER, EVEN UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, IT IS THE REAL INCOME WHICH HAS ACCRUED IN A PRACTICAL SENSE THAT IS TO BE BROU GHT INTO ACCOUNT FOR TAX PURPOSES. IN OTHER WORDS, ACCRUAL HAS TO BE OF INCO ME FOR WHICH THERE IS CERTAINTY THAT THE SAME WOULD ULTIMATELY BE RECEIVE D. WHERE THERE IS UNCERTAINTY REGARDING ULTIMATE COLLECTION OF INCOME , SUCH AS INTEREST, THE ACCRUAL THEREOF IS POSTPONED TILL THE TIME UNCERTAI NTY EXISTS AS PER ACCOUNTING STANDARD 9 (AS-9) ON REVENUE RECOGNITIO N. 70.5. THE COURTS HAVE HELD THAT EVEN UNDER THE ACCR UAL SYSTEM OF ACCOUNTING, IT IS ILLUSORY TO TAKE CREDIT FOR INTER EST WHERE THE PRINCIPAL ITSELF IS DOUBTFUL OF RECOVERY. RELIANCE ISPLACED ON THE D ECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V FE ROZEPUR FINANCE (P) LTD.: 124 ITR 619 WHEREIN IT WAS HELD THAT UNLESS INCOME ACCRUED, THE RE COULD BE NO TAX LIABILITY AND THAT EVEN UNDER MERCA NTILE SYSTEM OF ACCOUNTANCY, AN ASSESSEE COULD FORGO THE WHOLE OR P ART OF A DEBT, WHICH WAS IRRECOVERABLE, AND THE SAME COULD NOT BE ADDED TO T HE INCOME OF THE ASSESSEE. THE HONBLE COURT, REFERRING TO THE DECIS ION OF THE HONBLE APEX COURT IN THE CASE OF SHOORJI VALLABHDAS, 46 ITR 144 , OBSERVED A READING OF THE AFORESAID PASSAGE CLEARLY SHOWS THAT INCOME-TAX IS LEVIED ON INCOME, WHETHER MERCANTILE SYSTEM OF ACCOUNTANCY IS MAINTAI NED OR ON CASH BASIS. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE LEVY OF TAX. IT WAS FURTHER HELD THAT EVEN IF AN ENTRY OF HYPOTHETICAL INCOME IS MAD E IN THE BOOKS OF ACCOUNT, BUT IF THE INCOME DOES NOT RESULT AT ALL, WHEN THER E IS NEITHER ACCRUAL NOR RECEIPT OF INCOME, NO TAX CAN BE LEVIED.THE DEPART MENTS SPECIAL LEAVE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 182 PETITION AGAINST THE ABOVE CASE WAS DISMISSED BY TH E HONBLE SUPREME COURT VIDE SLP (CIVIL) NO.8158 OF 1981. [144 ITR (ST.) 50 ]. 70.6. THE AFORESAID PRINCIPLE WAS REITERATED IN THE LATER JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V MOTO R CREDIT CO. (P) LTD.: 127 ITR 572; IN THIS CASE, TOO, THE HONBLE SUPREME COURT DISMIS SED THE REVENUES SPECIAL LEAVE PETITION VIDE SLP (CIVIL) N O. 2806 OF 1981 [149 ITR (ST.) 93]. 70.7. IN THE FOLLOWING CASES, HONBLE SUPREME COURT HAS FURTHER RECOGNIZED THE THEORY OF REAL INCOME AND HELD THAT NOTWITHSTAN DING THAT AN ASSESSEE MAY BE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, T HE ASSESSEE COULD ONLY BE TAXED ON REAL INCOME AND NOT ANY NOTIONAL/ HYPOTHET ICAL / ILLUSORY INCOME. FURTHER RELIANCE IS PLACED ON HONBLE SUPREME COURT JUDGMENTS IN THE CASE OF CIT V SHOORJI VALLABHDAS AND CO: 46 ITR 144; CI T VS. A. RAMAN AND CO.: 67 ITR 11; GODHRA ELECTRICITY CO LTD. V CIT: 2 25 ITR 746 ;UCO BANK V CIT: 237 ITR 889. 70.8. SECTION 45Q OF THE RESERVE BANK OF INDIA ACT, 1934, WHICH PROVIDES AS FOLLOWS: CHAPTER IIIB TO OVERRIDE OTHER LAWS. 45Q. THE PROVISIONS OF THIS CHAPTER SHALL HAVE EFFE CT NOTWITHSTANDING ANYTHING INCONSISTENT THEREWITH CONTAINED IN ANY OTHER LAW FOR THE TIME BEING IN FO RCE OR ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW. 70.9. THUS, BY VIRTUE OF SECTION 45Q OF THE RBI ACT , 1934, THE PROVISIONS OF CHAPTER IIIB OF THE SAID ACT SHALL OVERRIDE THE PRO VISIONS OF ALL OTHER ACTS, INCLUDING THE INCOME-TAX ACT, 1961. IN TERMS OF THE PRUDENTIAL NORMS (ISSUED BY THE RBI IN EXERCISE OF THE POWERS AVAILA BLE UNDER CHAPTER IIIB OF THE RBI ACT), INTEREST OR ANY OTHER CHARGE ON NPA S HALL BE RECOGNIZED ONLY 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 183 WHEN IT IS ACTUALLY REALIZED. THE RELEVANT RBI DIRE CTIONS IN THIS BEHALF CONFIRM ASSESSES CLAIM. 70.10. THE HAS HELD THAT WHERE AN ACT MAKES A PROVI SION, SUCH AS IN SECTION 45Q OF THE RBI ACT, 1934 TO THE EFFECT THAT THE PRO VISIONS OF THE SAID ACT WOULD OVERRIDE THE PROVISIONS OF ALL OTHER ACTS, IT WOULD BE THE SAID ACT THAT WOULD PREVAIL. IN THAT VIEW OF THE MATTER, THE PRO VISIONS OF SECTION 45Q OF THE RBI ACT, 1934 AND THE PRUDENTIAL NORMS ISSUED T HEREUNDER WOULD PREVAIL OVER THE PROVISIONS OF THE ACT. ACCORDINGL Y, NO INTEREST EVEN OTHERWISE COULD BE SAID TO HAVE ACCRUED ON LOANS CL ASSIFIED AS NPAS. 70.11. FURTHER, RELIANCE IS PLACED ON THE DECISIONS OF THE MADRAS HIGH COURT IN CASE OF CIT V INDIA EQUIPMENT LEASING LTD: 293 I TR 350; HONBLE SUPREME COURT IN THE CASE OF TRO V CUSTODIAN, SPECI AL COURT ACT, 1934: 293 ITR 369; CIT V ELGI FINANCE LTD: 293 ITR 357 (M AD);INDIA EQUIPMENT LEASING LTD REPORTED IN 293 ITR 350(MAD); VASISTH C HAYVYAPAR LTD: 330 ITR 440 (DEL); ITAT, DELHI BENCH IN THE CASE OF DEPUTY COMMISSIONE R OF INCOME TAX, CIRCLE 2(1) V. BHARTIYA SAMRUDDHI FINA NCE LTD.: [2013] 58SOT 141. 70.12. LD COUNSEL CONTENDS THAT IN VIEW OF THESE P LEADINGS, SETTLED JUDICIAL PROPOSITIONS THAT NOTIONAL INTEREST CANNOT BE ADDED , ORDER OF THE CIT(APPEALS), DESERVES TO BE UPHELD. 71. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LEGAL POSITION ABOUT THE R EAL INCOME THEORY HAS BEEN ELUCIDATED BY THE LD COUNSEL BY WAY OF CATENA OF CA SE LAWS MENTIONED ABOVE. THE ADVANCES/LOANS IN QUESTION HAD BECOME NPA AND S TICKY THERE IS NO DISPUTE ON THESE FACTS. AO HAS RELIED ON THE SUPREM E COURT JUDGMENT IN THE CASE OF SOUTHERN TECHNOLOGIES APROPOS LD. CIT(A) HA S RELIED ON HONBLE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 184 DLHI HIGH COURT JUDGMENT IN THE CASE OF VASISRH CHA YA VAAPAR LTD. (SUPRA) WHICH AFTER CONSIDERING THE SOUTHERN TECHNOLOGIES C ASE HAS HELD THAT INCOME NOT PROVIDED FOR UNDER THE RBI PRUDENTIAL NORMS IS NOT TO BE BROUGHT TO TAX UNDER THE INCOME TAX ACT, 1961. THE DISTINCTION BET WEEN VASISTH CHHAYA BEING NBFC AND ASSESSEE BEING RNBC ALSO HAS BEEN C ONSIDERED BY CIT(A) AND A RIGHT CONCLUSION HAS BEEN ARRIVED AT THAT BO TH CLASSES OF ENTITIES ARE REGULATED BY SIMILAR RBI DIRECTIONS. IN VIEW OF THE FACT OF ADVANCES BECOMING NPAS ON THE CONCEPT OF REAL INCOME, PRUDEN TIAL RBI NORMS AND RELEVANT AS ISSUED BY ICAI AND CASE LAWS, WE SEE NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE. THIS GROUND OF THE REVENUE IS DISMISSED. 72. GROUND NO. 22:RS. 2 CRORES - DIMINUTION IN THE VALUE OF INVESTMENT 72.1. IN GROUND NO. 22, THE REVENUE IS CHALLENGING THE RELIEF OF GRANTED BY THE LD. CIT(A). IN OUR CONSIDERED VIEW, ISSUE IS S IMILAR TO GROUND NO 19. SAME ARGUMENTS AND CONTENTIONS ARE RAISED BY BOTH T HE PARTIES. ISSUE BEING CONTENDED TO BE SIMILAR, FOLLOWING OUR ORDER ON GRO UND NO. 19, THIS GROUND OF THE REVENUE IS DISMISSED. 73. GROUND NO. 23:DISALLOWANCE OF EXPENDITURE ON ST ATIONERY 73.1. ON SAS OBJECTION, AO OBSERVED THAT QUA THE O PENING STOCK OF STATIONERY RS. 92,51,945 ASSESSEE HAS NOT SHOWN ANY CLOSING STOCK . IT IS NOT POSSIBLE THAT THE ENTIRE STATIONERY PURCHASED ON 31 /03/2009 FOR RS.1,25,45,009/- CANNOT BE CONSUMED ON THE SAME DAY. 73.2. ASSESSEE SUBMITTED THAT STATIONERY ITEMS ARE BEING PURCHASED FOR THE PURPOSE OF ITS OWN CONSUMPTION AND NOT FOR ANY RESA LE. ENTRIES FOR PURCHASE OF STATIONERY ITEMS OF RS.1,25,45,009/- CONTAINS A LIST OF VARIOUS EARLIER BILLS WHICH ARE INCLUDED THERE IN. THE AGGREGATE AMOUNT I NCLUDES SEVERAL BILLS FOR SUPPLY OF STATIONERY MADE IN JANUARY, FEBRUARY AND BEGINNING OF MARCH. THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 185 STATIONERY PURCHASED THROUGH THESE BILLS STAND CONS UMED BY THE ASSESSEE AND BECAUSE OF HUGE NETWORK OF BRANCHES IT WAS NOT POSS IBLE TO MAINTAIN A MEANINGFUL STOCK REGISTER. ASSESSEE AS A MATTER OF PRUDENCE AND EFFICIENCY DECIDED TO CLAIM THE STATIONERY AS CONSUMED ON PURC HASE. THE EXERCISE WAS REVENUE NEUTRAL AND COST EFFECTIVE AS IT AVOIDED MA MMOTH WORK OF IDENTIFYING PETTY STATIONERY ITEMS AT VARIOUS BRANC HES. SUCH CONSUMABLE PURCHASES AS ALLOWABLE AS REVENUE EXPENDITURE, THEF ORE, CLOSING BALANCE WAS NOT APPEARING . 73.3. AO HOWEVER ADDED REJECTED THE EXPLANATION AND ADDED THE AMOUNT. 73.4. IN FIRST APPEAL, CIT(A) FOUND THAT THE CLAIM WAS CORRECT IN AS MUCH AS THE UNDISPUTEDLY BILLS RELATED TO VARIOUS DATES IN THE PERIOD JANUARY TO MARCH, 2009, IN INSTITUTIONAL PURCHASES BILLS ARE U SUALLY RAISED AFTER SUPPLY. THE APPELLANT HAS CRORES OF SMALL DEPOSITORS SPREAD OVER A LARGE RURAL EXPANSE. NATURALLY, FOR MAINTAINING THE LARGE DATA / RECORDS ASSESSEE REQUIRES SUBSTANTIAL CONSUMABLES LIKE STATIONERY. THE APPELL ANT, HAVING BRANCHES SPREAD ACROSS THE COUNTRY, IS BOUND TO HAVE TIME LA G BETWEEN ACCOUNTING IN THE BRANCHES AND ITS CONSOLIDATION WHILE PREPARING THE FINAL ACCOUNTS IN HQ, HENCE THE JOURNAL ENTRY WAS PASSED. THE STATIONERY BEING A CONSUMABLE AND EXERCISE OF AO AT THE END OF THE DAY WAS EFFECTIVEL Y REVENUE NEUTRAL, THE ADDITION WAS DELETED. AGGRIEVED REVENUE IS IN APPEAL. 74. LD DR CONTENDS THAT THE ADDITION IS RESTRICTED BY THE AO TO THE PURCHASES OF STATIONERY MADE BY THE APPELLANT COMPA NY TOWARDS THE END OF THE FINANCIAL YEAR AND THEREFORE, UNUTILIZED STOCK OF STATIONERY SHOULD HAVE BEEN EITHER SHOWN IN THE CLOSING STOCK OR THE SAME SHOULD HAVE BEEN REDUCED FROM THE ACTUAL CONSUMPTION. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 186 75. LD. COUNSEL CONTENDS THAT THE PURCHASES RELATED TO SEVERAL BILLS FOR SUPPLY OF STATIONERY IN JANUARY, FEBRUARY AND BEGI NNING OF MARCH, 2009, WHICH STATIONERY STOOD CONSUMED BY THE APPELLANT. T HE CLOSING STOCK METHOD WAS AVOIDED TO AVOID MAMMOTH INVENTORY, TO SAVE E FFORTS, CAST AND HASSELS FOR ACCOUNTING AND MANAGEMENT EFFICIENCY. STATIONER Y IN ANY CASE IS A CONSUMABLE ITEM, ALLOWABLE AS REVENUE EXPENDITURE B ESIDE THE EXERCISE IS REVENUE NEUTRAL. ORDER OF LD. CIT(APPEALS) IS RELIE D ON. 76. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL. LD. CIT(A) HAS GIVEN PROPER AND DETAILED REASONING FOR HOLDING THAT SUBSTANTIAL PURCHASES RELATED TO EARLIER MONTHS, ST ATIONERY IS A CONSUMABLE REVENUE EXPENDITURE. DISPENSING WITH CLOSING STOCK INVENTORY WAS FOR EFFICIENCY AND EXERCISE WAS REVENUE NEUTRAL. WE UPH OLD HIS ORDER, REVENUE GROUND IS DISMISSED. 77. IN THE RESULT REVENUE APPEAL IS PARTLY ALLOWED. ASSESSEES APPEAL : 78. GROUND NOS. 1(A) TO 1(E): DISALLOWANCE UNDER SE CTION 14A : 78.1. ON SA REPORTING AO WAS OF THE VIEW THAT ASSE SSEE HAD OFFERED ONLY DISALLOWANCE OF RS.26,646/- OF EXPENSES IN TERMS OF SEC. 14A(2) R/W RULE 8D. IT OWNS DEPOSITS EARNING TAX FREE INCOME, CLAIMED T O ACQUIRED OUT OF SHARE CAPITAL AND RESERVES. CONSEQUENTLY A SHOW CAUSE NOT ICE WAS ISSUED AS TO WHY A PROPER DISALLOWANCE SHOULD NOT BE MADE. 78.2. THE ASSESSEE SUBMITTED THAT A PLAIN READING OF THE SEC 14A AND RULE 8D PRESCRIBES THAT POWER TO DETERMINE SUCH EXPENDIT URE INCURRED BY REFERRING TO METHOD PRESCRIBED CAN ONLY BE EXERCISE D IF AND ONLY IF THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS N OT SATISFIED WITH THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 187 CORRECTNESS OF ITS CLAIM. IT HAS ALREADY OFFERED A DISALLOWANCE OF RS.26,646/- UNDER SECTION 14A THE WORKING OF WHICH HAS BEEN GIV EN IN THE TAX AUDIT REPORT ITSELF. NO SATISFACTION HAS BEEN RECORDED BY AO THAT IT IS NOT A CORRECT WORKING. THE ASSESSEE MAINTAINS A SEPARATE INVESTME NT DIVISION LOOKING AFTER THE TOTAL INVESTMENTS AS PER RBI GUIDELINES. THE EN TIRE EXPENDITURE INCURRED BY THIS INVESTMENT DIVISION, IS IDENTIFIABLE. FOR W ORKING OUT THE DISALLOWANCE ITS TAX AUDITORS HAVE CONSIDERED THE TOTAL EXPENDI TURE OF THE INVESTMENT DIVISION BY IDENTIFYING EXEMPT AND NOT EXEMPT INCOM E ON PRO RATA WORKING OF TOTAL INVESTMENTS. THEREFORE, NO FURTHER DISALLO WANCE U/S 14A R.W. RULE 8D OF THE INCOME TAX ACT WAS REQUIRED 78.3. THE WORKING PROPOSED BY THE SPECIAL AUDITORS IN TOR-7 WAS DEFECTIVE IN VARIOUS RESPECTS LIKE- FIGURES OF INTEREST TAKEN IS INCORRECT, AVERAGE OF INVESTMENT FROM WHICH INCOME DOES NOT FORM PART OF TOTAL INCOME IS INCORRECT AND THE AMOUNT OF DISALLOWANCE WORKED OUT BY THEM IS ALSO INCORRECT, ASSESSEE WITHOUT PREJUDICE ALSO OFFERED ALTERNATIVE CALCULATIONS CLAIMING TO BE ON PROPER PARAMETERS. 78.4. AO HELD ASSESSES REPLY AS UNSATISFACTORY, IT WAS HELD THAT INTEREST EXPENSE SHOULD HAVE ALSO BEEN CONSIDERED WHILE CALC ULATING THE DISALLOWANCE UNDER SECTION 14A. NO NEXUS IS ESTABLI SHED BY THE ASSESSEE THAT SHARE CAPITAL AND RESERVES AND SURPLUS WERE USED FO R ACQUISITION OF SUCH INCOME GENERATING ASSETS. CONSEQUENTLY DISALLOWANCE OF RS 2,16,51,917 /- WAS MADE AS PER CALCULATION MENTIONED IN THE ORDER. 78.5. IN FIRST APPEAL BEFORE CIT(A) IT WAS PLEADED THAT QUA EXEMPT INCOME OF RS. 68,37,583/- EARNED BY ASSESSEE ON UTI 64 B ONDS, WHICH ALSO HAVE MATURED DURING THE YEAR. THE APPELLANT IS MAINTAINI NG A SEPARATE AND INDEPENDENT INVESTMENT DIVISION AT MUMBAI, MAINTAIN ING ITS SET OF ACCOUNTS, 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 188 IN ACCORDANCE WITH R.B.I. GUIDELINES. THE TOTAL EXP ENDITURE OF THIS DIVISION WAS TAKEN INTO CONSIDERATION VIS--VIS TOTAL INCOM E DERIVED FROM THE INVESTMENT DIVISION AND ON A PRO RATA BASIS RESULTA NT DISALLOWANCE OF RS.26,646/- WAS OFFERED U/S 14A FOR ASSESSMENT. 78.6. SPECIAL AUDITORS WORKED OUT DISALLOWANCE BY T REATING INTEREST PAID BY THE APPELLANT AS DIRECT EXPENDITURE FOR THE PURPOSE S OF DISALLOWANCE BY TREATING THE EXPENDITURE AS INDIRECT EXPENDITURE. A SSESSEE POINTED OUT THAT IT HAS SHARE CAPITAL OF RS.913,04,87,300/- AND RESERVE & SURPLUS OF RS.757,42,50,160/-. MEANING THEREBY, THE TOTAL INT EREST FREE FUNDS WHICH WERE AVAILABLE WITH THE APPELLANT WERE TO THE TUNE OF RS.1670,47,37,460/- QUA WHICH TAX FREE INCOME CAME TO RS.61,11,38,800/ -. THE INVESTMENTS BEING OLD IGNORING ASSESSEES SPECIFIC REPLY, AO HA S NOT ESTABLISHED ANY NEXUS TO THE EFFECT THAT ANY BORROWED FUNDS WERE US ED FOR THEIR ACQUISITION. THE WORKING OF DISALLOWANCE ADOPTED BY AO WAS INCOR RECT AS THE CORRECT WORKING RESULTED IN DISALLOWANCE OF RS.216,51,917/- ONLY AS AGAINST PROPOSED RS.96,53,24,600/-. ALL THESE FACTS AND WOR KING WERE SUBMITTED BEFORE THE AO BY THE APPELLANT ALONG WITH REPLY DAT ED 23.07.2012. 78.7. LD. AO TOOK AN ADVERSE VIEW BY ERRONEOUSLY HO LDING THAT THE ONUS LIES ON THE ASSESSEE TO PROVE THAT THE INVESTMENT I N INTEREST BEARING SECURITIES WAS MADE OUT OF ITS SURPLUS NON INTEREST BEARING FU NDS. ISSUE OF ONUS IS OTHER WAY ROUND, IF AO WAS NOT SATISFIED THEN IT WAS HIS ONUS TO PROVE THAT ASSESSEES CLAIM WAS WRONG. IT IS WELL SETTLED LAW THAT THERE CAN BE NO DISALLOWANCE UNDER SECTION 14A ON PRESUMPTION ONLY, RELIANCE WAS PLACED ON THE JUDGMENTS OF THE DELHI ITAT IN THE CASES OF :- - MINDA INVESTMENTS LTD. VS D.C.I.T. 52 DTR (TRIB.) (DEL.) - C.I.T. VS METALMAN AUTO PVT. LTD. 336 ITR 434 (P & H) - C.I.T. VS HERO CYCLES LTD. 323 ITR 518 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 189 78.8. ON ANOTHER MATERIAL ASPECT LD. AO HAS NOT GIV EN ANY FINDING WITH REFERENCE TO THE FACT THAT THE AMOUNT OF EXPENDITUR E IN RELATION TO EARNING OF THE EXEMPTED INTEREST INCOME IS NOT DETERMINABLE. I N THE CASE OF MAXOPP INVESTMENT LTD. & ANOTHER VS C.I.T. 247 CTR 162 HON BLE DELHI HIGH COURT HAS HELD THAT RULE 8D ALSO MAKES IT CLEAR TH AT WHERE AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATI SFIED WITH (A) CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR ( B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN R ELATION TO EXEMPTED INCOME, SHALL DETERMINE THE AMOUNT OF THE EXPENDITU RE TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE 2 OF RUL E 8D. RULE 8D(1) PLACES THE PROVISIONS OF SECTION 14A(2) AND (3) IN THE COR RECT PERSPECTIVE. IT IS THEREFORE, CLEAR THAT DETERMINATION OF AMOUNT OF EX PENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WILL BE APPLICABLE IF A PART FROM OBJECTIVE CRITERIA, AO GIVES A REASONABLE OPPORTUNITY IN ORDE R TO SATISFY HIMSELF ABOUT THE CORRECTNESS OF ASSESSES CLAIM. IT HAS ALSO BEE N HELD THAT IN CASE THE ASSESSING OFFICER IS NOT SATISFIED THEN AFTER GIVIN G ASSESSEE AN OPPORTUNITY MAY REJECT THE CLAIM AFTER STATING COGENT REASONS FOR DOING SO. 78.9. IN THE CASE OF THE APPELLANT WITHOUT REJECTIN G ITS CLAIM LD. ASSESSING OFFICER HAS APPLIED RULE 8D ONLY BASED ON THE OPINI ON OF THE SPECIAL AUDITORS WITHOUT APPRECIATING THAT IT WAS HIS ONUS TO PROVE THE NEXUS WHICH IS ERRONEOUSLY HELD AS ASSESSEES ONUS TO ESTABLISH TH E NEXUS. THUS WITHOUT CITING ANY COGENT REASON FOR REJECTION OF THE CLAI M AND ONLY ON PRESUMPTIONS THE DISALLOWANCE HAS BEEN MADE. 78.10. SECTION 14A OF THE INCOME TAX ACT, 1961 READ S AS FOLLOWS:- 14A(1) FOR THE PURPOSE OF COMPUTING THE TOTAL IN COME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 190 EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THIS ACT. 78.11. THE TOTAL INCOME HAS BEEN DEFINED UNDER SECT ION 2(45) TO MEAN THE TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5 COM PUTED IN THE MANNER LAID DOWN IN THIS ACT. SECTION 5 OF THE INCOME TAX ACT L ET OUT THE SCOPE OF TOTAL INCOME AND LAYS DOWN AS TO WHICH INCOMES ARE TO BE INCLUDED IN THE TOTAL INCOME FOR THE PURPOSE OF THE ACT. INCOME HAS BEEN DEFINED UNDER SECTION 2(24) OF THE INCOME TAX ACT TO INCLUDED PROFITS AND GAINS, DIVIDENDS AND OTHER ITEMS MENTIONED THEREIN BUT NONE OF THE DEFIN ITION WHICH HAS BEEN MENTIONED HEREIN ABOVE SPEAKS OF A SITUATION OF COM PUTATION OF A LOSS. 78.12. ASSESSEE RETURNED A LOSS OF RS.10,45,98,718/ - IN THE REVISED RETURN FILED BY IT. SINCE INCOME RETURNED WAS A LOSS THERE WAS NO JUSTIFICATION IN INVOKING THE PROVISIONS OF SECTION 14A. WORD LOSS HAS NOT BEEN DEFINED UNDER THE INCOME TAX ACT NOR IT CAN BE EQUATED WITH INCOME. THE WORD LOSS HAS A SEPARATE CONNOTATION AND TRANSPIRES FROM THE INCOME TAX ACT ITSELF IN AS MUCH AS UNDER SECTION 271(1)(C) EXPLANATION-4 FO R THE PURPOSE OF DEFINITION OF THE EXPRESSION THE AMOUNT OF TAX SOU GHT TO BE EVADED THE REFERENCE TO LOSS DECLARED HAS BEEN GIVEN AND ANY D EDUCTION TO THE LOSS DECLARED OR ITS CONVERSION INTO INCOME HAS TO BE CO NSIDERED FOR FINDING OUT DIFFERENCE WHICH WILL TANTAMOUNT TO CONCEALED INCOM E. PROVISIONS OF SECTION 14A ARE APPLICABLE FOR MAKING DISALLOWANCE OUT OF I NCOME, THERE BEING LOSS IN ASSESEES CASE, NO DISALLOWANCE UNDER SECTION 14 A CAN BE MADE. 78.13. ACCORDING TO RBI GUIDELINES ASSESSEE INVEST ED IN US 64 UNITS CONSEQUENT TO GREAT SHARE MARKET CRASH BY GOVTS. INTERVENTION, ON A MANDATORY BASIS, LARGE UNIT HOLDERS OF US 64 WERE A LLOTTED TAX FREE INTEREST US 64 BONDS IN LIEU THEREOF. THUS, THE INVESTMENT W AS NOT MADE BY THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 191 APPELLANT VOLUNTARILY BUT IT WAS MANDATORY ACT OF R EGULATOR TO CONVERT UTI USABLE (WHICH IS A GOVERNMENT ORGANISATION) INTO TA X FREE BONDS. 78.14. THE COCHIN TRIBUNAL IN THE CASE OF STATE BAN K OF TRAVANCORE VS. ACIT 318 ITR (AT) 171 (COCHIN) HAS HELD THAT IF AN INVESTMENT IS MADE FOR MEETING ANY STATUTORY OBLIGATIONS WHICH YIELD TAX F REE INTEREST INCOME NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE. ASSESSE ES CASE FALLS ON EXACT PARITY AS THE ORIGINAL INVESTMENT WHICH WAS NOT TAX FREE, HAS BEEN CONVERTED INTO TAX FREE INCOME BY DIRECTIVES OF THE R.B.I. CO MPULSORY CONVERSION OF US 64 UNITS IN THE TAX FREE US 64 BONDS IS ALSO BY GOVT. ORGANIZATION UTI. BOTH CASES ARE OF REGULATORY MANDATES, FOLLOWING TH IS JUDGMENT ALSO NO DISALLOWANCE UNDER SECTION 14A IS CALLED FOR. 78.15. IT WAS CONTENDED THAT AMOUNT OF DISALLOWANCE IS PATENTLY ARBITRARY AS AGAINST TAX FREE INCOME OF RS.68,37,583/- DISALLOW ANCE UNDER SECTION 14A HAS BEEN MADE AT AN EXORBITANT AMOUNT OF RS.2,16,51 ,917/- OVER AND ABOVE DISALLOWANCE OF RS.26,646/- OFFERED. THERE IS NO JU STIFICATION IN MAKING SUCH EXORBITANT DISALLOWANCE UNDER SECTION 14A, EXCEEDIN G THE TAX FREE INCOME EARNED BY THE ASSESSEE. RELIANCE FOR THIS PROPOSITI ON WAS PLACED ON ACIT VS.PUNJAB STATE COOP-MKT FED. LTD (ITA NO. 548/CHD /2011). IN THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF C. I.T. VS. DELITE ENTERPRISES (2009(2) TMI 498), IT HAS BEEN HELD IF THERE IS NO INCOME NO DISALLOWANCE UNDER SECTION 14A SHOULD BE MADE. APPL YING THE SAME PRINCIPLES THERE IS NO JUSTIFICATION IN SUCH DISALL OWANCE WHICH FAR EXCEEDS TAX FREE INCOME. 78.16. DELHI TRIBUNAL IN THE CASE OF DCI T VS. MAH ARASHTRA SEAMLESS LTD. 52 DTR (TRIB.) (DEL) 5 HELD AS FOLLOWS:- IT REMAINS UNDISPUTED THAT THE FUNDS ARE MIXED AND IT IS NOT POSSIBLE TO ASCERTAIN AS TO WHETHER THE INVESTM ENT IN 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 192 TAX FREE BONDS WAS OUT OF ASSESSEES OWN FUNDS. THE SOURCE OF INVESTMENT IN TAX FREE BONDS ARE NOT IDEN TIFIED. THE A. O. DID NOT ESTABLISH ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENT IN TAX FREE BONDS . THE CASH FLOW OF THE ASSESSEE WAS NOT SEEN, THEREFORE, THE LD. CIT(A) IS CORRECT IN OPINING THAT THE APPORTIONMENT ON A PRO RATA BASIS WAS IMPROPER IN ABSENCE OF ANYTHING BROUGHT BY THE ASSESSING OFFICER TO REBUT ASSESSEE S STAND THAT THE INVESTMENT IN TAX FREE BONDS HAS BEE N MADE OUT OF FUNDS OF THE SHARE-HOLDERS OF THE ASSESSEE. 78.17. MUMBAI ITAT IN THE CASE OF BUNGE AGRI BUSINE SS (INDIA) (P) LTD. 64 DTR (MUM) (TRIB.) 201, HELD THAT IF FUNDS ARE AVAIL ABLE FOR BOTH INTEREST FREE AND INTEREST BEARING INCOME, THEN RIGHT PRESUMPTION CAN BE DRAWN THAT INTEREST FREE FUNDS ARE FIRST USED FOR TAX FREE INV ESTMENT AND NO DISALLOWANCE OF INTEREST SHOULD BE MADE SECTION 14A. 78.18. IN FOLLOWING CASES IT HAS BEEN HELD THAT IF THERE NO NEXUS IS ESTABLISHED BETWEEN BORROWED FUNDS AND NON-BUSINESS ADVANCES AN D IF THE ASSESSEE HAS SUFFICIENT NET OWNED FUNDS, NO DISALLOWANCE OF INTE REST CAN BE MADE: - REGAL THEATRE VS. C.I.T. 225 ITR 205 (DEL.) - C.I.T. VS. RADICO KHAITAN LTD. 274 ITR 354 (ALL. ) 78.18. HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 HAS HELD IN THE LAST PARAG RAPH AS FOLLOWS :- IF THERE BE INTEREST FREE FUNDS AVAILABLE TO THE A SSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAILABLE . IN OUR OPINION THE SUPREME COURT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. C.I.T. 224 ITR 627 (S C) HAD THE OCCASION TO CONSIDER THE DECISION OF THE KOLKATA HI GH COURT IN THE CASE OF WOOL COMBERS OF INDIA LTD. 134 ITR 219 (KOL.) WHERE SIMILAR ISSUE HAD ARISEN BEFORE THE SUPREME C OURT. IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT I N ESSENCE AND TRUE CHARACTER THE TAX WAS PAID OUT OF THE PROF ITS OF THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 193 RELEVANT YEAR AND NOT OUT OF OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS AND IN THOSE CIRCUMSTANCES THE APPE LLANT WAS ENTITLED TO CLAIM THE DEDUCTION. .. THE PRINCIPLES, THEREFORE, WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AND/OR L OANS TAKEN THEN A PRESUMPTION WOULD ARISE THAT INVESTMENT WOUL D BE OUT OF INTEREST FROM FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS AVAILABLE WERE SUFFICIENT T O MEET THE INVESTMENT. IN THIS CASE THIS PRESUMPTION IS ESTABL ISHED CONSIDERING THE FINDING OF FACTS BOTH BY CIT AND IT AT. 78.19. MUMBAI ITAT IN THE CASE OF BAYER BIOSINGS (P ) LTD. VS. ADDL. CIT 72 DTR 371 ALSO HAS TAKEN SIMILAR VIEW AS UNDER:- IN THE ABSENCE OF ANY FINDING WHATSOEVER THAT EXPE NSES WERE INCURRED BY THE ASSESSEE DIRECTLY OR INDIRECTLY FOR THE PURPOSE OF EARNING TAX EXEMPT INCOME AND IN VIEW OF THE ADMITT ED POSITION THAT THE ASSESSEE HAD SUFFICIENT NON INTEREST BEARI NG FUNDS TO MAKE THE INVESTMENT ON WHICH TAX EXEMPT INCOME HAS BEEN EARNED, DISALLOWANCE OF RS. 1,66,000/- OFFERED BY THE ASSESSEE ITSELF IS TO BE ACCEPTED AS FAIR AND REASONABLE AND , THEREFORE, NO FURTHER DISALLOWANCE COULD BE MADE UNDER SECTION 14 A BY APPLYING RULE 8D . 78.20. CIT(A) DECIDED THE ISSUE BY FOLLOWING OBSERV ATIONS 7.2 I HAVE CONSIDERED THE ASSESSMENT ORDER, THE SUB MISSIONS MADE AND THE CASE LAWS CITED. FIRSTLY, RULE 8D IS A PPLICABLE WITH EFFECT FROM AY 2008-09 AND IS, THEREFORE, APPL ICABLE TO THE PRESENT AY. SECONDLY, THE SEPARATE ACCOUNT MAINTAIN ED FOR THE INVESTMENT DIVISION OF THE APPELLANT AT MUMBAI ALLO CATES ONLY SOME ADMINISTRATIVE EXPENSES AMOUNTING TO RS.26,646 /- DIRECTLY ATTRIBUTABLE TO THAT ACTIVITY BUT DOES NOT INCLUDE INTEREST OR OTHER EXPENDITURE ALLOCABLE. THIRDLY, PUBLIC DEPOSI TS RAISED BY THE APPELLANT, AN RNBC, ARE INVESTED IN ACCORDANCE WITH THE RBI DIRECTIVES, WHICH INCLUDE A COMPONENT OF INVEST MENTS IN SECURITIES / FUNDS THAT YIELD TAX FREE INCOMES. THE REFORE, IT CANNOT BE CONCLUDED THAT AMOUNT INVESTED IN ASSETS GENERATING EXEMPT INCOME IS FROM SHARE CAPITAL AND RESERVES, O R THAT THERE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 194 IS NO NEXUS BETWEEN INTEREST BEARING FUNDS AND SUCH INVESTMENTS. IN ANY CASE THIS CLAIM OF THE APPELLAN T HAS NOT BEEN ESTABLISHED. FOURTHLY, THE FACT THAT THE RETUR NED INCOME OF THE APPELLANT FOR THIS AY IS A LOSS WILL HAVE NO BE ARING ON WORKING OUT THE EXPENDITURE RELATING TO EXEMPT INCO ME UNDER RULE 8D FOR THE REASON THAT INCOME INCLUDES LOSS , OR NEGATIVE INCOME, THAT MAY GET REDUCED OR ENHANCED I MPACTING THE TAX LEVIABLE ON THE APPELLANT. IN THE CIRCUMSTA NCES, I HOLD THAT THE EXPENDITURE IN RELATION TO EXEMPT INCOME O F THE APPELLANT SHALL BE DETERMINED IN ACCORDANCE WITH RU LE 8D. I ALSO FIND THAT THE SPECIAL AUDITOR, THE AO AND THE APPELLANT HAVE WORKED OUT DIFFERENT FIGURES, POINTING TO THE FACT THAT THERE IS DIFFERENCE OF OPINION ON THE ISSUE. WITH THESE O BSERVATIONS, THE EXPENDITURE UNDER RULE 8D IS WORKED OUT IN THE SUBSEQUENT PARA. 7.3 THE AMOUNTS TO BE TAKEN INTO CONSIDERATION AS P RE BALANCE-SHEET OF THE APPELLANT ARE (I) INTEREST PAI D ON DEPOSITS AT RS.1216,83,23,131/- (AS PER SCHEDULE-13 TO THE B ALANCE SHEET, AND NOT RS.1218,36,28,517/- MENTIONED BY AO WHICH IS GROSS INTEREST); (II) INVESTMENTS IN FINANCIAL ASSE TS YIELDING EXEMPT INCOME AT RS.61,11,33,800/- (THE AMOUNT SHOW N AS INVESTED IN SHARES IN SCHEDULE-5 TO THE BALANCE SHE ET IS RS.149,98,54,208/- AS ON 31.3.2009 AND RS.164,93,57 ,517/- AS ON 31.03.2008 AND NO INVESTMENT IS SEPARATELY SHOWN FOR UNITS / MUTUAL FUNDS, THUS THE BASIS OF THE FIGURE TAKEN IS NOT KNOWN NOR INDICATED IN THE ASSESSMENT ORDER OR THE SUBMIS SIONS FILED, HOWEVER I AM TAKING THIS FIGURE AS IT IS UNDISPUTED ); AND (III) AVERAGE OF TOTAL ASSETS AT RS.18208,85,44,666/- (I. E. AVERAGE OF RS.17380,00,68,014/- AS ON 31.03.2009 AND RS.19037,70,21,317/- AS ON 31.03.2008, AND NOT RS.18501,05,04,993/- TAKEN BY THE AO WHICH APPEARS INCORRECT). THE WORKING AS PER RULE 8D IS AS UNDER: - RECALCULATION UNDER RULE 8D EXEMPT INCOME 68,37,583 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 195 INTEREST EXPENDITURE ON DEPOSITS 12,16,83,23,131 = A ASSETS YIELDING EXEMPT INCOME AS ON 01.04.2008 (I) 0 AS ON 31.03.2009 (II) 61,11,33,800 AVERAGE (I + II) / 2 30,55,66,900 = B TOTAL ASSETS AS ON 01.04.2008 (I) 1,90,37,70,21,317 AS ON 31.03.2009 (II) 1,73,80,00,68,014 AVERAGE (I + II) / 2 1,82,08,85,44,666 = C RULE 8(2)(I) DIRECT EXPENSES 26,646 = D 8(2)(II) INDIRECT INTEREST EXPENDITURE (A X B / C) 2,04,19,938 8(2)(III) 1/2 % OF AVERAGE VALUE OF ASSETS YIELDING EXEMPT INCOME 15,27,835 EXPENDITURE RELATABLE TO EXEMPT INCOME 2,19,74,418 = E ADDITION TO BE MADE (E-D) 2,19,47,772 7.4 ACCORDINGLY, I HOLD THAT EXPENDITURE RELATING T O EXEMPT INCOME DISALLOWABLE U/S 14A, AS CALCULATED UNDER RU LE 8D IN PARA-7.3 ABOVE, TO BE RS.2,19,74,418/-. AS THE APPE LLANT HAS ALREADY OFFERED RS.26,646/- IN THE COMPUTATION, THE NET AMOUNT OF RS.2,19,47,772/- SHALL BE ADDED TO THE RETURNED INCOME OF THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 196 APPELLANT. THERE IS A MARGINAL INCREASE IN THE AMOU NT OF ADDITION, BUT THAT IS ONLY DUE CHANGE IN EXISTING F IGURES AND NOT ON ACCOUNT OF ANY ENHANCEMENT OF INCOME. THE ADDITI ON MADE BY THE REVENUE IS UPHELD AND REVISED MARGINALLY UPW ARD AS ABOVE. THE GROUND OF APPEAL IS DISMISSED. 79. LD COUNSEL FOR THE ASSESSEE SHRI AJAY VORA CONT ENDS THAT, ON ON FACTS AND IN LAW 14A DISALLOWANCE AS CONFIRMED BY THE LD. CIT(A), IS NOT SUSTAINABLE: I. IT HAS NOT BEEN DISPUTED THAT ASSESSEE IS MAINTA INING AN EXCLUSIVE INVESTMENT DIVISION, FOR WHICH SEPARATE B OOKS OF ACCOUNTS ARE MAINTAINED. WHILE FILING THE RETURN OF INCOME, SUO MOTO ITOFFERED AN AMOUNT OF RS.26,646 UNDER SECTION 14A CALCULATED ON THE BASIS OF PROPORTIONATE EXPENDITURE OF INVESTMENT DIVISION, A S RELATABLE TO EARNING OF TAX FREE INCOME. NO OTHER EXPENDITURE IS INCURRED IN RELATION TO EARNING OF EXEMPT INCOME. LEGAL POSITI ONS FOR APPLICABILITY OF SECTION 14A READ WITH RULE 8D IS SUMMARIZED AS U NDER:- (A) SECTION 14A REQUIRES DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE SAID SE CTION REQUIRES CONSIDERATION OF ACTUAL EXPENDITURE ONLY F OR THE PURPOSE OF DISALLOWANCE AND NOT ANY NOTIONAL DISALL OWANCE. (B) SUB-SECTIONS (2) AND (3) OF THE AFORESAID SECTION EMPOWER THE ASSESSING OFFICER TO APPLY THE FORMULA GIVEN IN RULE 8D OF THE RULES SUBJECT TO HIS RECORDING SATIS FACTION THAT THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS INCORRECT. WHERE THE A SSESSEE CLAIMS THAT NO EXPENDITURE IS INCURRED OR CLAIMS TH AT CERTAIN EXPENDITURE IS INCURRED IN RELATION TO EXEMPT INCOM E, THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 197 ASSESSING OFFICER, BEFORE PROCEEDING TO APPLY THE F ORMULA GIVEN IN RULE 8D OF THE RULES MUST, IN BOTH SITUATIONS RE CORD HIS PRIMA FACIE SATISFACTION AS TO WHY THE ASSESSING OF FICER DOES NOT AGREE WITH THE CLAIM OF THE ASSESSEE. (C) ON BEING SATISFIED AND AFTER RECORDING SATISFACTION REQUIRED UNDER SUB-SECTION (2), THE ASSESSING OFFIC ER CAN PROCEED TO MAKE DISALLOWANCE AS PER RULE 8D OF THE I.T. RULES. II. HONBLE SUPREME COURT IN THE CASE OF CIT V. WAL FORT SHARE AND STOCK BROKERS (P) LIMITED.326 ITR 1 OBSERVED THAT F OR ATTRACTING SECTION 14A OF THE I.T. ACT, THERE HAS TO BE A PROX IMATE CASE FOR DISALLOWANCE, WHICH IS ITS RELATIONSHIP WITH THE TA X EXEMPT INCOME. FOLLOWING THIS DECISION, THE HONBLE HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LIMITED VS. DCIT :328 ITR 81 OBSERVED AS UNDER: .. IN ORDER TO DETERMINE THE QUANTUM OF THE DISALLOWANCE, THERE MUST BE A PROXIMATE RELATIONSHI P BETWEEN THE EXPENDITURE AND THE INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME. ONCE SUCH A PROXIMAT E RELATIONSHIP EXISTS, THE DISALLOWANCE HAS TO BE EFF ECTED. ALL EXPENDITURE INCURRED IN THE EARNING OF INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME HAS TO BE DISALLOWED SUBJECT TO COMPLIANCE WITH THE TEST ADOP TED BY THE SUPREME COURT IN WALFORT AND IT WOULD NOT BE PERMISSIBLE TO RESTRICT THE PROVISIONS OF SECTION 1 4A BY AN ARTIFICIAL METHOD OF INTERPRETATION. HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVE STMENT LTD. V. CIT :347 ITR 272 OBSERVED THAT THE EXPRESSION EXPE NDITURE INCURRED REFER TO ACTUAL EXPENDITURE AND NOT SOME IMAGINED 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 198 EXPENDITURE. THE COURT OBSERVED THAT AS A NECESSAR Y COROLLARY, IF NO EXPENDITURE IS INCURRED IN RELATION TO THE EXEMPT I NCOME, NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE I .T. ACT. AS REGARDS THE APPLICATION OF RULE 8D FOR ASSESSMENT Y EAR 2008-09, THE COURT OBSERVED AS UNDER: 29. SUB-SECTION (2) OF SECTION 14 A OF THE SAID AC T PROVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME. HOWEVER, IF WE EXAMINE THE PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSING OFFICER IS REQUIRED T O DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF TH E ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN R ELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE SAID ACT. IN OTHER WORDS, THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMP T INCOME WOULD BE TRIGGERED ONLY IF THE ASSESSING OFF ICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RECORD TH AT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. SUB-SECTIO N (3) IS NOTHING BUT AN OFFSHOOT OF SUB-SECTION (2) OF SECTI ON 14A. SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN REL ATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE SAID ACT. IN OTHER WORDS, SUB-SECTION (2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB - SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE ASS ERTS 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 199 THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION T O EXEMPT INCOME. IN BOTH CASES, THE ASSESSING OFFICER , IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, A S THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE IN ACCORDANCE WITH ANY PRESCR IBED METHOD, AS MENTIONED IN SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT. IT IS ONLY IF THE ASSESSING OFFICER I S NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE ASSESSING OFFICER GETS JURI SDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD. THE PRESCRIBED METHOD BEING THE METHOD STIPULATED IN RULE 8D OF THE SAID RULES. WHI LE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WO ULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. III. THE PROVISIONS OF SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT, PERMITS THE ASSESSING OFFICER TO APPLY THE PRO CEDURE OF COMPUTING DISALLOWANCE BY APPLYING THE FORMULA PRESCRIBED IN RULE 8D OF THE RULES, IF AND ONLY IF, THE AO RECORDS SATISFACTION THAT THE EXPENDITURE DISALLOWED BY THE ASSESSEE UNDER THAT SECTION IS NO T CORRECT AND/OR SUFFICIENT. THUS RECORDING OF SUCH SATISFACTION BEC OMES A MUST. 79.1. IN THIS CASE, THE ASSESSING OFFICER EXCEPT RE FERRING TO SAS OBSERVATIONS HAS NOT RECORDED ANY SATISFACTION NOR BROUGHT ON RECORD ANY EVIDENCE, WHATSOEVER, TO HOLD THAT SUO-MOTO DISALLO WANCE OFFERED IN THE RETURN OF INCOME UNDER SECTION 14A OF THE ACT IS IN CORRECT OR INSUFFICIENT. NO COGENT REASONS HAS BEEN CITED AND AO HAS NOT BEE N ABLE TO POINT OUT AS TO HOW ACCORDING TO HIM, ACTUAL EXPENDITURE INCURRED I N RELATION TO THE EXEMPT INCOME WAS MORE THAN THE SUO-MOTO DISALLOWANCE OF R S.26,646 MADE BY THE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 200 APPELLANT. THUS STATUTORY ONUS CAST BY STATUTE HAS NOT BEEN DISCHARGED BY AO. 79.2. CIRCULAR NO. 14/2006 DATED 28 TH DECEMBER 2006, CONTAINING EXPLANATORY NOTES ON PROVISIONS OF FINANCE ACT, 200 6, EXPLAINS THE LEGISLATIVE INTENT BEHIND INSERTION OF THE AFORESAI D PROVISIONS AS UNDER- 11. METHOD FOR ALLOCATING EXPENDITURE IN RELATION TO EXEMPT INCOME 11.1 SECTION 14A OF THE INCOME-TAX ACT, 1961, PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER CHAPTER-IV OF THE SAID ACT, NO DEDUCTION SHALL BE A LLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME-TAX ACT. IN THE EXISTING PROVISIONS OF SECTION 14A, HOWEVER, NO METHOD OF COMPUTING THE EXPENDITURE INCURRED IN RELATION TO I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME HAS BE EN PROVIDED FOR. CONSEQUENTLY, THERE IS CONSIDERABLE D ISPUTE BETWEEN THE TAXPAYERS AND THE DEPARTMENT ON THE MET HOD OF DETERMINING SUCH EXPENDITURE. 11.2 IN VIEW OF THE ABOVE, A NEW SUB-SECTION (2) HAS BE EN INSERTED IN SECTION 14A SO AS TO PROVIDE THAT IT WO ULD BE MANDATORY FOR THE ASSESSING OFFICER TO DETERMINE TH E AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. HOWEVER, THE ASSESSING OFFICER SHALL FOLLOW THE PRESCRIBED METHOD IF, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, HE IS NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME. PROVISIONS OF SUB-SECTION (2), WILL ALSO BE APPLICA BLE IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . (EMPHASIS SUPPLIED) 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 201 79.3. A SIMPLE ANALYSIS REVEALS THAT PROVISION HAS BEEN INSERTED TO FIRST RECORD A SATISFACTION ON COGENCY OF REASONS THAT AS SESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REFERENCE TO THE ACCOUNTS OF THE ASSESSEE. THEREAFTER IT PROVIDE S A MANDATORY METHOD/PROCEDURE TO DETERMINE THE EXPENDITURE INCUR RED IN RELATION TO EXEMPT INCOME. MANDATORY RECORDING OF A DISCERNABLE FINDING THAT AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE REGARDING SUCH EXPENDITURE IS ALSO CLEAR FROM CIRCULAR NO. 14/2006 (SUPRA) EXPLAINING THE SCOPE OF AMENDMENT MADE IN SECTION 14A OF THE ACT. 79.4. IT IS CONTENDED THAT SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT, BEING ONLY PROCEDURAL PROVISIONS, CANNOT OVERRIDE T HE SUBSTANTIVE PROVISION CONTAINED IN SUB-SECTION (1) AND, THEREFORE, WHAT C OULD BE DISALLOWED UNDER THIS SECTION IS ONLY THE AMOUNT ACTUALLY INCURRED I N RELATION TO EXEMPT INCOME. RELIANCE FOR THIS PROPOSITION IS PLACED ON THE DECISIONS: - SIL INVESTMENT LTD. V. ACIT: 148 TTJ 213 (DEL.) - PTC INDIA LTD. V. DCIT: ITA NOS. 580 AND 581 (DEL ) 2009 (DEL. TRIB.) - M/S. AUCHTEL PRODUCTS LTD. V. ACIT: I.T.A. NO. 31 83 /MUM/2011 (MUM.) 79.5. IN FOLLOWING DECISIONS ALSO THE COURTS HAVE, IN THE CONTEXT OF DISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 14A OF THE ACT HAVE REPEATEDLY HELD THAT IN THE ABSENCE OF ANY FINDING OF DISSATISFACTION AND COGENT MATERIAL TO HOLD THAT INTEREST EXPENDITURE R ELATED DIRECTLY OR INDIRECTLY TO THE EXEMPT INCOME, NO PART OF INTEREST EXPENDITU RE COULD BE DISALLOWED. - CIT V. HERO CYCLES: 323 ITR 518 (P&H) - CIT V. METALMAN AUTO P. LTD.: 336 ITR 434 (P&H) - CIT V. RELIANCE UTILITIES AND POWER LTD.: 313 ITR 340 (BOM.) 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 202 - CIT V. K. RAHEJA CORPORATION LTD.: ITA NO. 1260/2 009 (BOM.) - DISHMAN PHARMACEUTICALS &CHEMICALS LTD. V. DY. CI T: 45 SOT 37 (AHD.) (URO) - MINDA INVESTMENTS LTD. V. DY. CIT: 138 TTJ 240 (D EL) - ACIT V. CHAMPION COMMERCIAL CO LTD: ITA NO. 644/ KOL ./2012(KOL.) - EIMCO ELECON (INDIA) LTD. V. ADDL. CIT: [2013] 33 TAXMANN.COM 476 (AHD.) - DY. CIT V. JAMMU & KASHMIR BANK LTD.: 142 ITD 553 (ASR.) 79.6. IN VIEW OF THE ABOVE, IT IS ONLY THE COMMON I NTEREST EXPENDITURE, INCURRED ON BORROWED FUNDS, NOT DIRECTLY ATTRIBUTAB LE TO ANY PARTICULAR ACTIVITY (TAXABLE OR NON-TAXABLE), WHICH CAN ONLY B E CONSIDERED FOR APPORTIONMENT UNDER RULE 8D(2)(II). 79.7. IN ASSESSES CASE IN INVESTMENT IN US-64 UNITS OF UTI LONG TIME TOOK WHEN DIVIDEND FROM US-64 UNITS OF UTI WAS TAXABLE I N THOSE YEARS. IT IS WELL KNOWN THAT UTI RAN INTO ROUGH WEATHER RAISING LOT OF HUE AND CRY FROM GENERAL INVESTORS. TO SURMOUNT IT, BY GOVT INTERVEN TION ALL US-64 UNITS WERE MANDATORILY CONVERTED INTO TAX FREE BONDS OF UTI. T HE DIVIDEND EARNED IN EARLIER YEARS WAS OFFERED TO TAX AND TAXED BY THE D EPARTMENT. SINCE THEY HAVE BEEN CONVERTED BY UTI INTO TAX FREE BONDS BY R EGULATORY INTERVENTION. 79.8. APART FROM ABOVE, THE APPELLANT HAS INVESTMEN TS IN SHARES OF COMPANIES AS PART OF THE PORTFOLIO OF DIRECTED INV ESTMENTS MADE IN ACCORDANCE WITH THE POLICY DIRECTION OF RESERVE BAN K OF INDIA (RBI) AS APPLICABLE TO RESIDUARY NON-BANKING COMPANY (RNBC ). SUCH INVESTMENT IN SHARES HAS BEEN BROUGHT FORWARD FROM EARLIER YEARS AND THERE IS NO FRESH INVESTMENT MADE DURING THE YEAR UNDER A PPEAL WHEREFROM EXEMPT INCOME HAS BEEN EARNED. ASSESSEE CLAIMS THAT INVES TMENT IN SECURITIES 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 203 YIELDING TAX FREE INCOME WAS OUT OF INTEREST FREE O WNED FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES & SURPLUS, IN EARLIER YE ARS. FOR THAT REASON, INTEREST PAID ON DEPOSITS AT RS.12,16,83,23,131 HAS NOT BE ALLOCATED TO SECURITIES / INSTRUMENTS YIELDING TAX FREE INCOME. FURTHER, THE INSTRUMENTS BEING IN THE NATURE OF DIRECTED INVESTMENTS, WHIC H IN THE CASE OF RNBC ARE IN THE NATURE OF STOCK-IN-TRADE, NO DISALLOWA NCE UNDER SECTION 14A OF THE ACT IS CALLED FOR. REFERENCE IN THIS REGARD MA Y BE MADE TO THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD. V. JCIT: 250 CTR 291 (KAR.) 79.9. LD COUNSEL RAISED FURTHER PLEA OF MIXED PO OL OF FUNDS CONTENDING THAT: (A) IT IS AN ADMITTED POSITION THAT THE APPELLANT H AS MIXED POOL OF FUNDS COMPRISING OF INTEREST FREE OWNED FUNDS AS WE LL AS BORROWED MONEYS IN SUCH A SITUATION, THE APPORTIONMENT OF FU NDS SHOULD BE DONE IN A MANNER BENEFICIAL TO THE APPELLANT, VIZ, THE I NVESTMENT IN SECURITIES YIELDING TAX FREE INCOME SHOULD BE PRESU MED TO HAVE COME OUT OF OWNED FUNDS WHILE THE BORROWED FUNDS SHOULD BE TAKEN TO HAVE BEEN USED FOR PURPOSES OF BUSINESS. RELIANCE IS PLA CED ON INDIAN EXPLOSIVES LTD. VS. CIT: 147 ITR 392 (CAL). IN THE CASE OF MIXED POOL OF FUNDS WERE USED IN THE INVESTMENT IN SECURITIES YIELDING TAX FREE INCOME. IT HAS BEEN HELD THAT SUCH INVESTMENT SHOUL D BE PRESUMED TO HAVE COME OUT OF OWNED FUNDS AND NOT OUT OF BORROWE D MONEY. RELIANCE IS PLACED ON WOOLCOMBERS OF INDIA LTD VS. CIT: 134 ITR 219 (CAL); ALKALI & CHEMICAL CORPORATION OF INDIA L TD VS. CIT (CAL): 161 ITR 820 IMPLIEDLY APPROVED IN 220 ITR 627 @ 632 . (B) THE CIT(A), THEREFORE, ERRED IN ALLOCATING INDI RECT INTEREST EXPENDITURE TO THE EXTENT OF RS.2,04,19.938. FURTH ER % OF AVERAGE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 204 VALUE OF ASSETS YIELDING EXEMPT INCOME QUALIFIED BY THE CIT(A) AT RS.15,27,835 IN TERMS OF RULES 8(2)(III) IS UNCALLE D FOR CONSIDERING THAT THE INVESTMENTS MADE BY THE APPELLANT ARE DIR ECTED INVESTMENTS IN TERMS OF RNBC DIRECTIVES, 1987 ISSUED BY RBI AND THERE IS NO SUBSTANTIAL MOVEMENT IN THE PORTFOLIO / THERE ARE I NFREQUENT TRANSACTIONS OF PURCHASE AND SALE. (C) WITHOUT PREJUDICE TO THE ABOVE, IT IS CONTENDED THAT THE DISALLOWANCE MADE AT RS.2,16,51,917 (ENHANCED BY CI T(A) AT RS. 2,19,47,772) IS MUCH ABOVE THE TAX FREE INCOME OF R S.68,37,583 EARNED BY THE APPELLANT DURING THE RELEVANT YEAR. IT IS SUBMITTED THAT THE ABOVE DISALLOWANCE UNDER SECTION 14A OF THE ACT , AT BEST, SHOULD BE MAXIMUM TO THE TAX FREE INCOME EARNED BY THE APP ELLANT AS HELD BY THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. PUNJAB STATE CO-OP. & MARKETING FEDERATION LTD. (ITA NO. 5 48/CHD/2011). 80. LD CIT (DR) SHRI R. S. MEENA CONTENDS THAT THE CLAIM OF THE ASSESSEE REGARDING AVAILABILITY OF INTEREST FREE FUNDS I.E. SHARE CAPITAL AND RESERVES AND SURPLUS IS FACTUALLY INCORRECT. AS PER ASSESSEES BA LANCE SHEET, SHARE CAPITAL OF RS. 913,04,87,300/- WAS AVAILABLE AS ON 31.03.2009 OUT OF WHICH SHARE CAPITAL OF RS.750 CRORES WAS RAISED BY THE ASSESSEE COMPANY BY ISSUE OF PREFERENCE SHARES DURING THE FINANCIAL YEAR UNDER C ONSIDERATION. THUS, AT THE BEGINNING OF THE FINANCIAL YEAR UNDER CONSIDERATION , SHARE CAPITAL OF RS.163.04 CRORES ONLY WAS AVAILABLE WITH THE APPELL ANT. SIMILARLY, OUT OF TOTAL RESERVES OF RS.757.42 CRORES, RESERVES AND SU RPLUS OF RS. 205.26 CRORES WERE ONLY AVAILABLE FOR DISPOSAL AND BALANCE AMOUNT REPRESENTS SHARE PREMIUM ACCOUNT, CAPITAL RESERVE, REVALUATION RESER VES AND SPECIAL RESERVES U/S 45IC OF THE RBI ACT. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 205 80.1. THERE IS NO EVIDENCE THAT THE APPELLANT INVES TED IN TAX FREE INVESTMENTS ONLY OUT OF EQUITY SHARE CAPITAL AND PA ID UP RESERVES. THIS FACT HAS BEEN CLEARLY NOTED BY THE SPECIAL AUDITORS AS P ER PAGE 133 OF THE PAPER BOOK VOLUME-1 FILED BY THE APPELLANT COMPANY. AS ON 31.03.2009, ASSESSEE HAD FIXED ASSETS VALUING AT RS. 304.76 CRORES AND I NVESTMENTS OF RS. 11011.32 CRORES WHICH AGGREGATE TO RS. 11315 CRORES AND THE SAME COULD NOT HAVE BEEN INVESTED OUT OF INTEREST FREE FUNDS O F RS. 368.30 CRORES (SHARE CAPITAL RS. 163.04 CRORES AND DISPOSABLE RESERVES A ND SURPLUS RS. 205.26 CRORES). 80.2. IN VIEW OF THE AFORESAID, THERE IS NO MERIT I N THE CLAIM OF THE APPELLANT COMPANY THAT THE INVESTMENT IN TAX FREE BONDS AND S ECURITIES WAS MADE OUT OF INTEREST FREE FUNDS AVAILABLE AT THE DISPOSAL OF THE APPELLANT COMPANY. IN SUCH A SITUATION, THE PROVISIONS OF RULE 8D(2) AND 8D(3) READ WITH SECTION 14A OF THE IT ACT 1961, PARTICULARLY CLAUSE (II) OF RULE 8D(2) ARE CLEARLY APPLICABLE TO THE FACTS OF THE CASE, WHICH ARE ADVE RTED TO BY LD. CIT (DR). ASSESSING OFFICER HAS MADE A DISALLOWANCE OF RS. 21 6,51,917/- WHICH WAS DULY EXAMINED BY THE LEARNED CIT(A) IN LIGHT OF THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT COMPANY AND AFTER CONSIDERA TION THEREOF, THE FINDINGS OF THE AO HAVE BEEN SUSTAINED BY HIM. 80.3. THE DECISION OF THE LEARNED CIT(A) IS KEEPING IN LINE WITH THE FACTS OF THE CASE AND THE STATUTORY PROVISIONS OF IT ACT AND IT RULES. IN FACT, THE LEARNED CIT(A) COULD HAVE GONE FOR ENHANCEMENT IN T HIS CASE ON THE BASIS OF OBSERVATION BY THE CIT(A) IN PARA 7.3 OF HIS ORDER THAT THE INVESTMENT IN SHARES AS ON 31.03.2009 AND 31.03.2008 WAS RS. 149, 98,54,208/- AND OF RS. 164,93,57,517/- RESPECTIVELY. THEREFORE, THE VALUE OF AVERAGE INVESTMENT 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 206 YIELDING TAX FREE INCOME SHOULD HAVE BEEN TAKEN AT RS.157,46,05,586 AS AGAINST WHICH HE HAS TAKEN THE AVERAGE VALUE OF ASS ETS YIELDING EXEMPT INCOME AT RS. 30,55,66,900/- ONLY. 80.4. FURTHER, THERE IS NO MERIT IN THE ARGUMENT OF THE APPELLANT COMPANY THAT DURING THE YEAR UNDER CONSIDERATION IT HAD EAR NED EXEMPT INCOME OF RS. 68,37,583/- AND THE DISALLOWANCE SHOULD HAVE BEEN R ESTRICTED TO THE EXTENT OF EXEMPT INCOME. THE HONBEL SPECIAL BENCH OF ITAT, D ELHI HAS, IN THE CASE OF CHEMINVEST LTD. VS ITO, 121 ITD 318(DELHI), HELD THAT EXPENDITURE IN RELATION TO EXEMPT INCOME IS TO BE DISALLOWED U/S 1 4A EVEN WHEN NO EXEMPTED INCOME IS EARNED DURING THE YEAR. 80.5. THE CLAIM OF THE APPELLANT IS DEVOID OF MERIT , THAT THE INVESTMENT IN SECURITIES AND BONDS HAS BEEN MADE BY THE ASSESSEE COMPANY IN COMPLIANCE TO THE DIRECTIONS OF THE RBI AND THEREFORE INTEREST FREE INCOME EARNED ON SUCH INVESTMENTS WOULD NOT CALL FOR ANY DISALLOWANC E. FIRSTLY, THE LAW DOES NOT MAKE ANY SUCH DISTINCTION BETWEEN THE INVESTMEN T MADE BY AN ASSESSEE IN NORMAL COURSE OF BUSINESS AND THE INVESTMENT MAD E IN-COMPLIANCE TO DIRECTIONS OF THE RBI. FOR THE PURPOSES OF DISALLOW ANCE U/S 14A, WHAT IS TO BE SEEN IS WHETHER THERE IS ANY INVESTMENT WHICH HA S POTENTIAL TO YIELD EXEMPT INCOME. ONCE IT IS HELD THAT THE INVESTMENT IS CAPABLE OF YIELDING EXEMPT INCOME, THE PROVISIONS OF SECTION 14A OF THE IT ACT 1961 WOULD APPLY. SECONDLY, THERE IS NO EVIDENCE SUGGESTING SP ECIFIC DIRECTIONS BY THE RBI TO MAKE INVESTMENT IN A PARTICULAR SECURITY OR BOND. IT WAS A COMMERCIAL DECISION TAKEN BY THE MANAGEMENT OF THE APPELLANT COMPANY TO UTILIZE INTEREST BEARING FUNDS FOR INVESTMENT IN BO NDS AND SECURITIES. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 207 80.6. ADVERTING TO THE CASE LAWS RELIED UPON BY THE APPELLANT COMPANY, IT MAY BE SEEN THAT JUDGEMENTS AT SERIAL NOS. (A) TO ( E) ARE DISTINGUISHABLE ON FACTS. IN ALL THE CASES RELIED UPON BY THE APPELLAN T COMPANY THE ASSESSEES WERE HAVING MIXED/COMMON POOL OF FUNDS AND THE INTE REST FREE FUNDS WERE SUFFICIENT TO TAKE CARE OF INVESTMENT YIELDING EXEM PT INCOME. THEREFORE, IT WAS HELD IN THE AFORESAID CASES THAT SINCE THE VOLU ME OF INTEREST FREE FUNDS WAS SUFFICIENT ENOUGH TO TAKE CARE OF TAX FREE INVE STMENTS, NO DISALLOWANCE U/S 14A OF THE ACT WAS CALLED FOR. HOWEVER, AS SUBM ITTED HERE IN BEFORE, IN THE PRESENT CASE THE APPELLANT COMPANY DID NOT HAVE SUFFICIENT INTEREST FREE FUNDS TO TAKE CARE OF THE INVESTMENT. 80.7. IT MAY BE RELEVANT TO MENTION HERE THAT THE H ONBLE CALCUTTA HIGH COURT, HAS IN THE CASE OF DHANUKA & SONS VS CIT REP ORTED IN 339 ITR 319, HELD THAT THE ASSESSEE HAS TO ESTABLISH NEXUS BETWE EN THE INTEREST FREE FUNDS AND INVESTMENT THEREOF IN SHARES, SECURITIES AND BO NDS ETC. THE HONBLE COURT HAS GONE TO THE EXTENT TO HOLD THAT IF THE AS SESSEE HAS MADE INVESTMENT IN EARLIER YEARS, THEN HE HAS TO ESTABLISH AVAILABI LITY OF INTEREST FREE FUNDS AND INVESTMENT THEREOF IN SHARES IN THE EARLIER YEARS. SOME OF THE CITATIONS DEAL WITH THE CASES WHERE THE ASSESSEES WERE HOLDING SHA RES AS STOCK IN TRADE. HOWEVER, IN THE INSTANT CASE THE DISALLOWANCE HAD B EEN MADE IN RESPECT OF BONDS AND SECURITIES HELD AS INVESTMENTS AND NOT AS STOCK IN TRADE. AS SUBMITTED EARLIER, ONLY AVERAGE INVESTMENT OF RS. 3 0,55,66,900 HAS BEEN TAKEN INTO CONSIDERATION BY THE AO AND CIT(A) FOR D ISALLOWANCE U/S 14A OF THE IT ACT 1961. THEREFORE, THE RATIO LAID DOWN IN THE AFORESAID CASES DOES NOT APPLY TO THE FACTS OF THE ASSESSEES CASE. 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 208 81. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT HAS NOT BEEN DISPUTED THAT THE ADMINISTRATION, EXPENSES AND BOOKS OF ACCOUNTS OF INVESTMENT DIVISI ON ARE SEPARATELY CARRIED OUT AND MAINTAINED BY THE ASSESSEE. NO INFIRMITY HA S BEEN FOUND BY THE DEPARTMENT IN THIS BEHALF. ONE OF THE MAIN ISSUE IS ON WHOM LIES THE ONUS TO ESTABLISH NEXUS OF AVAILABLE FUNDS WITH FREE AND TA XABLE INCOME. SIMILARLY COURTS HAVE HELD THAT A FINDING IN OBJECTIVE TERMS ABOUT ASSESSEE WORKING BEING UNSATISFACTORY IS TO BE RECORDED BY AO IN THE ORDER. CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. PUNJA B STATE CO-OP. & MARKETING FEDERATION LTD. (ITA NO. 548/CHD/2011) HA S HELD THAT IN ANY CASE THE DISALLOWANCE U/S 14A CANNOT EXCEED TAX FREE INC OME OF THE ASSESSEE. IF MECHANICAL METHOD OF RULE 8D IS APPLIED, IT LEADS T O MANIFESTLY ABSURD RESULTS IN AS MUCH AS FOR TAX FREE INCOME OF RS.68,37,583/- DISALLOWANCE OF RS.2,16,51,917 (ENHANCED BY CIT(A) AT RS. 2,19,47,7 72) IS MADE U/S 14A WHICH IS WAY TOO MUCH THAN THE EXEMPT INCOME. AS TH E INTERPRETATION OF PROVISIONS OF SEC. 14A R/W RULE 8D IS LEADING TO UN ANTICIPATED ABSURDITIES WHICH CANNOT BE THE INTENTION OF LEGISLATURE. UNDER THESE CIRCUMSTANCES HELP OF EXTERNAL AIDS OF CONSTRUCTION FOR INTERPRETATION OF STATUTE IS CALLED FOR. LOOKING AT THE VARYING INTERPRETATION OFFERED BY VA RIOUS COURTS AND BENCHES OF TRIBUNAL IN RELATION TO SEC. 14A, IT IS QUITE A RDUOUS TO PRECISELY DECIDE THE ISSUE. IN GIVEN FACTS AND CIRCUMSTANCES WITHOUT GOI NG INTO ALL THE ISSUES, IN OUR VIEW IT IS APPROPRIATE TO TAKE GUIDANCE FROM CH ANDIGARH BENCH JUDGMENT IN THE CASE OF PUNJAB STATE COOPT MFT. FED.(SUPRA) HOLDING THAT THE DISALLOWANCE OF EXPENDITURE IN ANY CASE CANNOT EXCE ED THE INCOME EARNED. IN OUR VIEW THIS JUDGMENT TAKES A HOLISTIC VIEW THAT D ISALLOWANCE IN TERMS OF SEC. 14A CAN BE MAXIMUM TO THE EXTENT OF EXEMPT INC OME, THERE IS NO DISPUTE THAT IN THIS CASE WHICH IS AT RS. 68,37,58 3/-. THIS JUDGMENT IMPLIES 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 209 THAT REASONABLE EXPENDITURE LESS THAN THE EXEMPT IN COME CAN BE DISALLOWED. IN OUR CONSIDERED OPINION, IN THE INTEREST OF JUSTI CE, IT WILL BE REASONABLE TO ESTIMATE AND DISALLOW, 50% OF EXEMPT INCOME (RS.68 ,37,583/-) AS RELATABLE TO EXEMPT INCOME U/S 14A R/W RULE 8D. WE DO NOT GO INTO VARIOUS PLEA TAKEN BY BOTH SIDES OFFERING DIVERSE VIEWS BASED ON JUDIC IAL CITATIONS. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 82. GROUND NO. 2 IS NOT PRESSED BY ASSESSEE HENCE A LREADY DISMISSED. 83. GROUND NOS. 3(A) TO 3(D) OF THE ASSESSEE HAVE B EEN ALREADY ALLOWED WHILE DECIDING GROUND NO. 9 OF REVENUES APPEAL REG ARDING PROVISION OF INTEREST APPROVING CHANGE IN RATE OF INTEREST PROVI SION. 84. THE ISSUE RAISED IN GROUND NOS. 4 OF THE ASSESS EES APPEAL HAS BEEN ALREADY SET ASIDE ALONG WITH GROUND NO. 17 OF REVEN UES APPEAL SUPRA. 85. GROUNDS OF APPEAL NOS. 5(A) TO 5(C) DOUBLE TA XATION 85.1. ASSESSEE WAS ALLEGED TO HAVE SHORT PROVIDED I NTEREST ON FDRS BY RS.2,25,01,961/-. ASSESSEE REPLIED THAT IT HAD PRO VIDED EXCESS INTEREST IN THIS BEHALF IN THE EARLIER YEARS BY NETTING OF IN TEREST EARNED AND PAID ON ACCRUAL BASIS AND IT STANDS TAXED ACCORDINGLY. AO, HOWEVER, ADDED THE SAME. 85.2. IN FIRST APPEAL LD. CIT(A) DID NOT DISPUTE TH ESE FACTS AND OBSERVED THAT IF THE AMOUNT IS BROUGHT TO TAX IN THIS YEAR, THE C ORRESPONDING AMOUNTS WOULD HAVE TO BE REDUCED FROM THE INCOME OF EARLIER YEARS AND IT CANNOT BE TAXED TWICE. HOWEVER, HE HELD THAT IT IS TRITE THAT INCOME IS TAXABLE IN THE RIGHT YEAR WHEN ACCRUES OR ARISES. THEREFORE, THE C ORRECT AMOUNT OF INTEREST INCOME ON FDRS ACCRUING TO THE APPELLANT SHOULD BE TAXED IN THIS YEAR. SO FAR AS DOUBLE TAXATION OF EXCESS AMOUNTS IN EARLIER YEARS IS CONCERNED, THE APPELLANT HAS ALREADY SUBMITTED YEAR-WISE DETAILS T O THE REVENUE AND HAS SEVERAL ALTERNATIVE REMEDIES, SUCH AS RECTIFICATION U/S 154 OR REVISION U/S 264, 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 210 WHICH MAY BE PURSUED BY IT. THEREFORE THE ACTION OF THE AO WAS UPHELD AND ASSESSEES GROUND OF APPEAL IS DISMISSED. 85.3. AGGRIEVED ASSESSEE IS AN APPEAL, LD COUNSEL C ONTENDS THAT IT IS UNDISPUTED THAT INTEREST ON THESE FDRS HAS BEEN ACC OUNTED AND OFFERED TO TAX IN EARLIER YEARS. ASSESSEE IS LIABLE TO TAX AT UNIF ORM RATE, THUS THERE IS NO OCCASION OF ANY LOSS TO THE REVENUE. BESIDES THE AP PEALS OF EARLIER YEARS ARE ALSO PENDING, IT IS NOT THE CASE OF REVENUE THAT TH EY WANT TO TAX THE SAME INCOME TWICE. IN THIS BACKGROUND IN ANY CASE APPELL ATE AUTHORITIES WILL BE PLEASED TO EITHER DELETE THE DOUBLE TAXATION OR DIR ECT THE AO TO IDENTIFY THE RELEVANT YEARS WHERE THE INCOME IS TAXED AND REDUCE THE INCOME ACCORDINGLY. THIS WILL LEAD TO AVOIDABLE BURDEN ON BOTH THE PART IES, AND THERE BEING NO LOSS TO REVENUE, THERE WILL BE NO MEANINGFUL YIELD. RELIANCE IS PLACED ON ABOVE REFERRED JUDGMENTS HONBLE DELHI HIGH COURT I N THE CASE OF SHRIRAM PISTONS & RINGS & BOMBAY HIGH COURT IN NAGRI MILLS (SUPRA). 85.4. IT IS PLEADED THAT THE ADDITION DESERVES TO B E DELETED. 86. LD. DR RELIED ON THE ORDERS OF LOWER AUTHORITIE S. 87. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT EMERGES FROM RECORD THAT TH ERE IS NO DISPUTE ON THE FACT THAT IMPUGNED FDR INTEREST STANDS TAXED IN EAR LIER YEARS. LD. CIT(A) HELD THAT THERE SHOULD BE NO DOUBLE TAXATION. TAKIN G A TECHNICAL PLEA THAT RIGHT INCOME SHOULD BE TAXED IN RIGHT YEAR, THE ADD ITION HAS BEEN CONFIRMED ON THE REASON THAT ALTERNATIVE REMEDY SHOULD BE P URSUED BY THE ASSESSEE. IN OUR VIEW CIT(A) HAS PLENARY POWERS TO DECIDE THE IS SUE AS IT IS ONE OF THE REMEDY. MERE EXISTENCE OF ALTERNATE REMEDY CANNOT B E A GROUND TO DENY THE DUE RELIEF WHEN THE ELIGIBILITY TO RELIEF IS ALSO EXPRESSED BY CIT(A). IN OUR VIEW THIS TYPE OF RELIEF BASED ON CONSIDERATION OF AVOIDING UNNECESSARY EXERCISE IN CASE OF REVENUE NEUTRAL ISSUES HAS BEEN GRANTED TO ASSESSEE. OUR 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 211 VIEW IS FURTHER SUPPORTED BY RECENT SUPREME COURT J UDGMENT IN THE CASE OF CIT VS. EXCEL INDUSTRIES 358 ITR 295 HOLDING IN THI S BEHALF AS UNDER: 32. THIRDLY, THE REAL QUESTION CONCERNING US IS TH E YEAR IN WHICH THE ASSESSEE IS REQUIRED TO PAY TAX. THERE IS NO DISPUTE THAT IN THE SUBSEQUENT ACCOUNTING YEAR, THE ASSESSEE DID MAKE IMPORTS AND DID DERIVE BENEFITS U NDER THE ADVANCE LICENCE AND THE DUTY ENTITLEMENT PASS B OOK AND PAID TAX THEREON. THEREFORE, IT IS NOT AS IF TH E REVENUE HAS BEEN DEPRIVED OF ANY TAX. WE ARE TOLD T HAT THE RATE OF TAX REMAINED THE SAME IN THE PRESENT ASSESSMENT YEAR AS WELL AS IN THE SUBSEQUENT ASSESS MENT YEAR. THEREFORE, THE DISPUTE RAISED BY THE REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX E FFECT. THERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THIS LITIGATION WHEN IT WAS QUITE CLE AR THAT NOT ONLY WAS IT FRUITLESS (ON MERITS) BUT ALSO THAT IT MAY NOT HAVE ADDED ANYTHING MUCH TO THE PUBLIC COFFERS. 87.1. IN VIEW THEREOF AND RESPECTFULLY FOLLOWING TH E ABOVE JUDGMENTS THE ADDITION IS DELETED, THIS GROUND OF THE ASSESSEE IS ALLOWED. 88. GROUND NO.6 BANK OF BARODA ENTRY NOT OFFERED BY THE ASSESSEE: 88.1. ON SPECIAL AUDITORS INDICATION AO ASKED THE ASSESSEE TO EXPLAIN THAT WHILE VERIFYING FORM 16A IT IS FOUND THE ASSESSEE H AS NOT OFFERED INCOME OF RS 82,83,607.77/- IN THE BOOKS AS PER THE 26AS AVAI LABLE. A SUM OF RS 22,29,675/- BEING TDS DEDUCTED HAS ALSO NOT BEEN CL AIMED ON THE ABOVE INCOME. THE DETAILS OF THE SAME ARE AS UNDER: PARTICULARS/SECTION AMOUNT AS PER DETAILS ENCLOSED IN THE LETTER TDS CLAIMED AS PER DETAILS ENCLOSED ENCLOSED IN THE LETTER 193 3501179.00 793368.00 194A 4512301.77 1403465.00 194C 55000 1246 194D 79190 17594 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 212 PARTICULARS/SECTION AMOUNT AS PER DETAILS ENCLOSED IN THE LETTER TDS CLAIMED AS PER DETAILS ENCLOSED ENCLOSED IN THE LETTER 194H 110937 11427 194J 25000 2575 TOTAL(RS) 8283607.77 2229675.00 88.2. THE ASSESSEE OFFERED FOLLOWING COMMENTS WERE OFFERED: (1) AT SL. NO. 48 A SUM OF RS. 7,93,368/- HAS BEEN REPORTED WHERE DEDUCTOR IS MAHINDRA & MAHINDRA AND THE RELATABLE I NCOME TO THIS TDS IS RS. 35,01,179/. THE SAID AMOUNT ALSO FI NDS PLACE AT SL. NO. 47 OF THE LIST MEANING THEREBY THAT IT IS L OADED IN THE LIST AT TWO PLACES. AS REGARDS INCOME OF RS. 35,01,179/- AND RELATABL E TO TDS OF RS. 7,93,368/-, THE SAME HAS ALREADY BEEN SH OWN BY US AND THE TDS STANDS CLAIMED. AS REGARDS REPETITION OF THE SAME AMOUNT AND RELA TABLE TDS THEREON, WE HAD APPROACHED M/S MAHINDRA & MAHIN DRA IN THIS REGARD AND THEY HAVE INFORMED US THAT IT WA S AN INADVERTENT MISTAKE COMMITTED ON THEIR PART IN LOAD ING TDS RETURNS AND THEY WILL BE REVISING THEIR RETURNS SHO RTLY. COPY OF CORRESPONDENCE IN THIS RESPECT IS ENCLOSED HEREWITH AND, THEREFORE, YOUR HONOUR WILL APPRECIATE THAT THE TDS OF RS. 7,93,368/- WHICH HAS BEEN SHOWN IN 26AS AT TWO PLAC ES ACTUALLY RELATES TO ONLY ONE TDS CERTIFICATE AND THE OTHER AMOUNT WAS A DUPLICACY BECAUSE OF ERROR COMMITTED B Y M/S MAHINDRA & MAHINDRA AND, THEREFORE, NO INCOME WITH REFERENCE TO DUPLICACY IS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE AND NEITHER THE ASSESSEE HAS CLAIMED ANY T DS WITH REFERENCE THERETO (ANNEXURE-24) . (2) AS REGARDS THE ITEM MENTIONED AT SL. NO. 95 TO 459 DUE TO CLERICAL MISTAKE WHILE FILING THE FORM NO. 26Q AT T HE HYDERABAD ZONE OFFICE OF THE ASSESSEE COMPANY, PAN NUMBER OF THE ASSESSEE WAS WRONGLY MENTIONED IN PLACE OF PAN OF T HE DEDUCTEE AS A RESULT OF WHICH TDS WHICH WAS DEDUCTE D AND 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 213 DEPOSITED IN THE ACCOUNT OF THE RESPECTIVE DEDUCTEE S IS APPEARING IN 26AS RELATABLE TO THE ASSESSEE COMPANY . THE INCOME WHICH IS RELATABLE TO SUCH TDS IS RS. 3,34,6 98/- WHILE TDS TOTALS TO RS. 34,495/-. REVISED FORM 26Q HAS BE EN FILED BY THE HYDERABAD ZONE OFFICE AND WE HAVE DOWNLOADED RE VISED AS-26 AND COPY OF THE SAME IS BEING ENCLOSED HEREWI TH, ON A PERUSAL OF WHICH YOUR HONOUR WILL APPRECIATE OUR SU BMISSIONS IN THIS RESPECT (ANNEXURE-25) . (3) AS REGARDS MISMATCH MENTIONED AT SL. NO. 586, CANARA BANK WHILE LOADING THEIR TDS RETURN HAD WRONGLY MENTIONE D TDS FIGURE WHICH WAS EXCESSIVE BY RS. 2,60,276/-. ON POINTING OUT THE MISTAKE TO CANARA BANK, THEY HAVE REVISED THEIR RETURN AND HAVE CORRECTED THE FIGURE EARLIER TAKEN AT RS. 72,86,054/- TO RS. 70,25,778/- WITH THIS REV ISION THE TOTAL TDS AS PER AS-26 OF DEDUCTED BY CANARA BANK TALLIES WITH T.D.S. DEDUCTED AS SHOWN BY US AT RS. 780,63,060/- THE INCOME IN RESPECT THERETO STANDS ALREADY OFFERED FOR ASSES SMENT AND THIS FACT IS VERIFIABLE WITH REFERENCE TO THE REVIS ED AS-26 RELATABLE TO THE ASSESSEE COMPANY AS DOWNLOADED, A COPY OF WHICH IS ENCLOSED HEREWITH. (4) AS REGARDS SL. NO.619 TO 622, TDS CERTIFICATES WERE NOT MADE AVAILABLE TO US BY THE BANK ALTHOUGH RELATABLE INCO ME SANDS OFFERED FOR ASSESSMENT. NOW, WE HAVE OBTAINED TDS C ERTIFICATES AND, THEREFORE, IT IS PRAYED THAT CREDIT THEREOF MA Y KINDLY BE ALLOWED WHICH AMOUNT OF TDS TOTALS TO RS. 1,323/-. THE INCOME RELATABLE THERETO IS VERIFIABLE IN THE DETAILS OF I NTEREST ACCRUED ON BANK DEPOSITS WHICH HAS BEEN FILED BEFORE YOUR H ONOUR (ENCLOSED T.D.S. CERTIFICATE AS ANNEXURE-26 ). (5) AS REGARDS SL. NO. 90, INCOME FROM FDR OF PNB STAND OFFERED TO TAX IN F.Y.2007-08 AND T.D.S. THEREON ALSO ST ANDS CLAIMED IN F.Y.2007-08 BECAUSE THE INCOME RELATE TO F. Y.20 07-08 ONLY (ENCLOSED IS RELEVANT PORTION OF RETURN OF A. Y. 20 08-09 ANNEXURE-27 ) . (6) AS REGARDS SL. NO. 717 TO 721, INDUSIND BANK L IMITED THE OBSERVATION OF AUDITOR ARE TOTALLY INCORRECT IN AS MUCH AS THE INCOME STANDS OFFERED AND T.D.S. CERTIFICATE STANDS CLAIMED IN 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 214 F.Y.2008-09 RELEVANT TO YEAR UNDER ASSESSMENT AND T .D.S. CERTIFICATE IS MADE AT SL. NO. 374 TO 378 IN RETUR N OF INCOME. (ENCLOSED IS RELEVANT PORTION OF RETURN OF A. Y. 20 09-10 ANNEXURE-28 ) . (7) AS REGARDS SL. NO. 892, TATA ASSET MANAGEMENT LIMITED THE INCOME OF RS. 25,000/- RELATABLE TO TDS CERTIFICATE STANDS ALREADY OFFERED TO TAX. HOWEVER CLAIM OF T.D.S. OF RS. 2,575/- WAS NOT MADE AS THE CERTIFICATE WAS NOT AVAILABLE W ITH ASSESSEE. NOW, WE HAVE OBTAINED THE T.D.S. CERTIFICATE AND TH EREFORE IT IS REQUESTED THAT CLAIM MAY KINDLY BE ALLOW TO THE ASS ESSEE OF RS. 2,575/- (ENCLOSED T.D.S. CERTIFICATE AS ANNEXURE-29 ). (8) AS REGARDS SL. NO. 860, INDUSIND BANK LIMITED THE INCOME OF RS. 1,10,937/- RELATABLE TO TDS CERTIFICATE STANDS OFFE RED TO TAX ALREADY. HOWEVER CLAIM OF T.D.S. OF RS. 11,427/- WA S NOT MADE AS THE CERTIFICATE WAS NOT AVAILABLE WITH ASSESSEE. NOW, WE HAVE OBTAINED THE T.D.S. CERTIFICATE AND THEREFORE IT IS REQUESTED THAT CLAIM MAY KINDLY BE ALLOW TO THE ASSESSEE OF RS. 11 ,427/- (ENCLOSED T.D.S. CERTIFICATE AS ANNEXURE-30 ). (9) AS REGARDS SL. NO. 824 TO 826 AND 833 TO 858, THE SAME RELATES AND T.D.S. CLAIM IN RESPECT OF STAR HEALTH AND ALLI ED INSURANCE COMPANY LIMITED AGAINST INCOME FROM COMMISSION WHIC H STANDS DULY ACCOUNTED FOR IN THE BOOKS OF CMSD DIV ISION. HOWEVER T.D.S. CLAIM OF RS. 17,594/- WAS NOT MADE A S THE CERTIFICATE WERE NOT AVAILABLE WITH ASSESSEE. ONE P ERSUASION, STAR HEALTH AND ALLIED INSURANCE COMPANY LIMITED HA S GIVEN A CONSOLIDATED CERTIFICATE FOR RS. 21,445/- WHICH IS BEING ENCLOSED HEREWITH (ANNEXURE-31). YOU ARE REQUESTED TO KINDLY ALLOW CREDIT OF RS. 17,594/- AS BALANCE T.D.S. ALRE ADY STAND ALREADY CLAIMED. (10) AS REGARDS SL. NO. 822, INCOME FROM ICICI PRU DENTIAL MUTUAL FUND STANDS ALREADY OFFERED TO TAX IN F.Y.2007-08. HOWEVER, SINCE THE T.D.S. CERTIFICATE WAS NOT AVAILABLE WIT H ASSESSEE. THE CLAIM OF THE SAME WAS NOT TAKEN BY ASSESSEE. NO W, WE HAVE OBTAINED THE T.D.S. CERTIFICATE YOU ARE REQUESTED T O KINDLY ALLOW CREDIT OF T.D.S. OF RS. 566/- EITHER IN F.Y.2 007-08 OR F.Y.2008-09 (ENCLOSED T.D.S. CERTIFICATE AS ANNEXURE-32 ). 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 215 (11) AS REGARDS SL. NO. 70, BANK OF RAJASTHAN LIMI TED THE OBSERVATION OF AUDITORS ARE INCORRECT IN AS MUCH AS THE INCOME STAND OFFERED TO TAX AND TDS STANDS CLAIMED BY ASSE SSEE. HOWEVER FROM FIGURE OF INCOME A REVERSAL ENTRY HAS BEEN NETTED OFF (46,038 14,300 = 31,738) IN RETURN OF INCOME. AS REGARDS SL. NO. 66, BANK OF RAJASTHAN LIMITED THE CLAIM OF TDS OF RS. 119/- HAS NOT BEEN MADE BECAUSE TDS CERTIFICATE IS NOT AVAILABLE WITH US. HOWEVER TOTAL INCOME FROM BANK OF RAJASTHAN LIMITED STANDS OFFERED TO TAX AND IT IS REQUESTED THAT THE CLAIM OF T.D.S. BE ALLOWED TO US . (12) AS REGARDS. SL. NO. 462 TO 473, 475 TO 486 AN D 488 TO 499 BANK OF BARODA, IT HAS BEEN APPREHENDED THAT BANK OF BAR ODA HAD DEDUCTED CERTAIN TDS / BANK CHARGES ETC. DUE TO WHI CH ASSESSEE COULD NOT ACCOUNT FOR INCOME OF RS.20,31,750/-. ASS ESSEE IS OFFERING THE SAME TO TAX WITH THE REQUEST TDS DEDUC TED THEREON RS.4,18,541/- AND RS.41,854/- MAY ALSO BE ALLOWED T O THE ASSESSEE. BANK HAS NOT PROVIDED THESE CERTIFICATE TO US. WE HAVE ALSO WRITTEN A LETTER TO THE BANK FOR PROVIDIN G T.D.S. CERTIFICATE (COPY OF WHICH IS ENCLOSED AS ANNEXURE-33 ). AS REGARDS SL.NO.500 TO 501, BANK OF BARODA THE INC OME MENTIONED APPEARS INCORRECT ALSO WE COULD NOT FIND OUT DETAIL OF TDS OF RS.5,69,571/-. (13) AS REGARDS, SL.NO.786, ICICI BANK LIMITED THE TDS CERTIFICATE IS NOT AVAILABLE WITH US HENCE THE SAME HAS NOT BEE N CLAIMED. FURTHER, INCOME STANDS OFFERED TO TAX AND IT IS PRA YED THAT THE CLAIM OF TDS BE ALLOWED TO US. (14) AS REGARDS SL. NO. 821, HDFC ASSET MANAGEMENT COMPANY INCOME STANDS ALREADY OFFERED TO TAX IN F.Y.2007-08 . HOWEVER, SINCE THE T.D.S. CERTIFICATE WAS NOT AVAILABLE WITH ASSESSEE. THE CLAIM OF THE SAME WAS NOT TAKEN BY ASSESSEE. YO U ARE REQUESTED TO KINDLY ALLOW CREDIT OF T.D.S. OF RS. 6 80/- EITHER IN F.Y.2007-08 OR F.Y.2008-09. 88.3. ON PERUSAL OF THE SUBMISSIONS AO OBSERVED THA T A SUM OF RS 20,31,750 HAS BEEN OFFERED TO TAX WHICH NEEDS TO BE ADDED TO THE INCOME. FURTHER FOR A SUM OF RS 5,69,571 AND A SUM RS 41,85 4 APPEARING ON L-99 OF 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 216 VOLUME I OF THE SPECIAL AUDIT REPORT, THE ASSESSE H AS NOT OFFERED ANY SATISFACTORY EXPLANATION, WHICH IS TO BE ADDED. ACC ORDINGLY, A SUM OF RS 26,43,175 (RS.20,31,750 + RS.5,69,571 + RS.41,854) WASS ADDED TO THE INCOME OF THE ASSESSEE. 88.4. ON APPEAL, THE CIT(A) SUSTAINED THE ADDITION ON PROTECTIVE BASIS, OBSERVING AS UNDER: I HAVE CONSIDERED THE ASSESSMENT ORDER, THE SUBMIS SIONS MADE AND THE RECORDS PRODUCED BEFORE ME. THE CORRESPONDENCE BETWEEN THE APPELLANT AND THE BANK CLEARLY INDICATES THAT THERE WAS CONFUSION IN THE M ATTER. THE UNDISPUTED AMOUNT OF RS.20,31,750/- WAS ALREADY ADDED BACK BY THE APPELLANT. THE OTHER AMOUNTS OF RS.5,69,571/- AND RS.41,854/- WERE UNCLEAR AND DISPUTABLE. THE MATTER SHOULD HAVE BEEN VERIFIED FR OM THE BANK BY THE REVENUE BEFORE TAKING AN ADVERSE VIEW. THE FACTUAL POSITION SHALL BE VERIFIED / CLARIFIED IN T HE MATTER AND CORRECT INCOME BROUGHT TO TAX IN THE RELEVANT Y EAR. THE AO AND APPELLANT ARE DIRECTED ACCORDINGLY. 89. AFTER ARGUMENTS, LD. COUNSEL THOUGH AGREED FOR SET ASIDE, HOWEVER, CONTENDS THAT IT IS PECULIAR CASE. IT IS SUBMITTED THAT IT WILL BE MORE APPROPRIATE TO SET ASIDE THE MATTER THE FILE OF THE AO WITH A DIRECTION THAT THIS ISSUE MAY BE TAKEN UP WITH THE BANK OF BARODA TO VE RIFY, IF ANY INCOME HAS ACCRUED TO ASSESSEE ON SUCH VERIFICATION, SAME MAY BE TAXED AND CREDIT FOR CORRESPONDING TDS MAY BE ALLOWED. 90. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, DEPARTMENT HAS NO OBJECTION TO THIS PROPOSITION. IN VIEW THEREOF MATTER IS ACCORDINGLY SET ASIDE TO AO. 91. GROUND NO. 7: NON-ADJUDICATION OF GROUND 32 RAI SED BEFORE CIT(A) 91.1. AFTER HEARING BOTH THE PARTIES, IT EMERGES TH AT LD CIT(A) HAS NOT ADJUDICATED THIS AROUND. SINCE VARIOUS ISSUES INCLU DING TDS VERIFICATION ARE 3199 & 3512/D/2013 SAHARA INDIA FINANCIAL CORPN. LTD. 217 SET ASIDE TO AO, IN OUR CONSIDERED VIEW IT WILL BE EXPEDIENT TO RESTORE THIS ISSUE ALSO TO AO, TO DECIDE IT A FRESH AFTER GIVING THE ASSESSEE AN ADEQUATE OPPORTUNITY OF BEING HEARD. 92. GROUNDS 8,9 & 10 ARE CLAIMED TO BE GENERAL IN NATURE, HENCE NOT PRESSED ARE ACCORDINGLY DISMISSED. 93. ASSESSES APPEAL IS PARTLY ALLOWED. 94. AS A RESULT APPEALS FILED BY THE REVENUE AND A SSESSEE BOTH ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 10- 01-2014. SD/- SD/- (B.C. MEENA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10-01-2014. MP COPY TO : I. ASSESSEE II. ASSESSING OFFICER III. CIT(A) IV. CIT V. DR, ITAT.
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