Kerala State Industrial Dev Corpn Ltd, Trivandrum V. ACIT, Trivandrum

ITA 354/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69036 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 31-05-2013
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: V DEVARAJAN
• Keywords: Bad and doubtful debts; Provision of bad debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 380 /COCH/2013 ASSESSMENT YEAR : 2008-09 THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), THIRUVANANTHAPURAM. VS. M/S. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., KESTON ROAD, KOWDIAR, THIRUVANANTHAPURAM-695 003. [PAN: AAACK 9434D] (REVENUE-APPELLANT) (ASSESSEE -R ESPONDENT) I.T.A. NO. 354/COCH/2013 ASSESSMENT YEAR : 2008-09 M/S. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD., KESTON ROAD, KOWDIAR, THIRUVANANTHAPURAM-695 003. [PAN: AAACK 9434D] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), THIRUVANANTHAPURAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) REVENUE BY SMT. S. VIJAYAPRABHA, JR. DR ASSESSEE BY SHRI V. DEVARAJAN, CA DATE OF HEARING 20/08/2013 DATE OF PRONOUNCEMENT 06/11/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 27-03-2013 PASSED BY THE LD. CIT(A), TRIVANDRUM AND THEY RELATE TO THE A SSESSMENT YEAR 2008-09. 2. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING O FFICER MADE THE FOLLOWING ADDITIONS: (A) DISALLOWANCE U/S. 14A OF THE ACT. (B) DISALLOWANCE OF CLAIM OF BAD DEBTS MADE U/S. 3 6(1)(VII) OF THE ACT. (C) ADDITION MADE U/S. 41(4A) OF THE ACT. I.T.A. NOS. 380&354/COCH/2013 2 IN THE APPEAL FILED BY THE ASSESSEE, THE LD. CIT(A) DELETED THE ADDITION RELATING TO BAD DEBTS CLAIM AND CONFIRMED THE ADDITION OF REMAINING TWO ITEMS. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) BOTH THE PARTIES HAVE FILED THESE APPEALS BEFORE US ON THE POINTS DECIDED AGAINST EACH OF THEM. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE IS A GOVERNMENT OF KERALA UNDERTAKING ENGAGED IN PROVIDING FINANCIA L ASSISTANCE FOR INDUSTRIAL PROJECTS DEVELOPED IN THE STATE OF KERALA. THE FINANCIAL AS SISTANCE IS PROVIDED BY WAY OF GIVING TERM LOANS AND/OR BY MAKING INVESTMENTS IN THE SHAR E CAPITAL OF THE BORROWER. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED D IVIDEND INCOME OF RS. 1.57 CRORES. HOWEVER THE ASSESSEE DID NOT ALLOCATE ANY AMOUNT AS EXPENDITURE INCURRED IN RELATION TO THE DIVIDEND INCOME. ACCORDINGLY IT DID NOT DIS ALLOW ANY AMOUNT AS REQUIRED BY THE PROVISIONS OF SEC. 14A OF THE ACT. THE AO, BY PLAC ING RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. MUMBAI VS. DCIT (328 ITR 81), HELD THAT THE DISALLOWANCE IS RE QUIRED TO BE MADE UNDER RULE 8D. ACCORDINGLY, BY APPLYING RULE 8D(2)(III), THE ASSES SING OFFICER DISALLOWED 0.5% OF THE AVERAGE VALUE OF INVESTMENT WHICH WORKED OUT TO RS. 24,64,479/-. 3.1 THE ASSESSEE HAD CLAIMED DEDUCTION FOR BAD DEBT S U/S. 36(1)(VII) OF THE ACT TO THE TUNE OF RS.55,99,112/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE WAS ALSO CLAIMING DEDUCTION FOR THE PROVISION CREATED FOR BA D AND DOUBTFUL DEBTS U/S 36(1)(VIIA) OF THE ACT. HENCE, AS PER THE PROVISO TO SEC. 36(1 )(VII) OF THE ACT, THE AMOUNT OF BAD DEBTS OR PART THEREOF CLAIMED BY THE ASSESSEE IS RE QUIRED TO BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER SEC. 36(1)(VIIA) OF THE ACT. THE AO NOTICED THAT THE ASSESSEE HAS CREATED THE PROVISION FOR BAD AND DOUB TFUL DEBTS TO THE EXTENT OF RS.57.00 LAKHS AND HAS CLAIMED THE SAME U/S 36(1)(VIIA) OF T HE ACT. SINCE THE BAD DEBT CLAIM OF RS.55,99,112/- WAS LESS THAN THE PROVISION AMOUNT O F RS.57.00 LAKHS CLAIMED U/S 36(1)(VIIA) OF THE ACT, THE ASSESSING OFFICER HELD THAT THE BAD DEBTS CLAIM DOES NOT EXCEED THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT. I.T.A. NOS. 380&354/COCH/2013 3 ACCORDINGLY, THE AO DISALLOWED THE BAD DEBTS CLAIM OF RS.55,99,112/- MADE BY THE ASSESSEE. 3.2 THE ASSESSING OFFICER NOTICED THAT THE ASSE SSEE WAS ALSO CLAIMING DEDUCTION U/S. 36(1)(VIII) OF THE ACT IN RESPECT OF SPECIAL RESERV E CREATED AND MAINTAINED BY IT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE C LAIMED A DEDUCTION OF RS.2.50 CORES. THE AO NOTICED THAT THE ASSESSEE HAS DEPICT ED THE SPECIAL RESERVE ACCOUNT IN SCHEDULE -2 OF THE BALANCE SHEET AS AT 31.3.2008 AS UNDER:- RESERVES AND SURPLUS:- (A) SPECIAL RESERVE:- UNDER SECTION 36(1)(VIII) OF I.T. ACT AS PER LAST BALANCE SHEET 53,96,19,451 ADDITION DURING THE YEAR 2,50,00,000 ----------------- 56,46,19,451 LESS:- LOANS AND ADVANCES AS PER CONTRA 53,96,19,451 ----------------- 2,50,00,000 ======== THE PROVISIONS OF SEC. 36(1)(VIII) REQUIRES THE ASS ESSEE TO MAINTAIN THE SPECIAL RESERVE ACCOUNT. FURTHER AS PER THE PROVISIONS OF SEC. 41( 4A) OF THE ACT, ANY AMOUNT WITHDRAWN FROM THE SPECIAL RESERVE ACCOUNT CREATED U/S. 36(1) (VIII) OF THE ACT, SHALL BE DEEMED TO BE PROFITS AND GAINS OF THE ASSESSEE AND ACCORDINGL Y, BE CHARGEABLE TO INCOME TAX AS THE INCOME OF THE PREVIOUS YEAR IN WHICH THE AMOUNT IS WITHDRAWN. SINCE THE ASSESSEE HAS REDUCED THE LOANS AND ADVANCES AMOUNT FROM THE SPECIAL RESERVE ACCOUNT, THE ASSESSING OFFICER PROPOSED TO TREAT THE AMOUNT OF R S.53.96 CRORES AS THE INCOME OF THE ASSESSEE U/S 41(4A) OF THE ACT. THE ASSESSEE SUBMI TTED THAT IT HAS REDUCED THE AMOUNT OF RS.53.96 CRORES BOTH FROM THE SPECIAL RES ERVE ACCOUNT AND LOANS AND ADVANCES ACCOUNT, AS A CONTRA ITEM, FOR THE PURPOSE OF PREPARATION OF FINANCIAL STATEMENTS ONLY AND NOT IN THE BOOKS OF ACCOUNT. I T WAS FURTHER SUBMITTED THAT THE ASSESSEE IS REQUIRED TO CREATE PROVISION FOR BAD DE BTS AS PER THE GUIDELINES ISSUED BY IDBI. AS PER THE SAID GUIDE LINES, THE AMOUNT AVAI LABLE IN SPECIAL RESERVE ACCOUNT CREATED U/S 36(1)(VIII) OF THE ACT CAN BE TREATED A S PART OF THE PROVISION FOR BAD DEBTS. I.T.A. NOS. 380&354/COCH/2013 4 THE ASSESSEE FURTHER SUBMITTED THAT THE SPECIAL RES ERVE ACCOUNT IS MAINTAINED INTACT IN THE BOOKS OF ACCOUNT. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE IS FOLLOWING THE ABOVE SAID METHOD OF PRESENTATION OF ACCOUNTS FOR THE PAS T SEVERAL YEARS AND THE SAME HAS BEEN ACCEPTED BY THE DEPARTMENT. HOWEVER, THE AO D ID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND HELD THAT THE AMOUNT OF RS.53.9 6 CRORES IS TO BE TREATED AS UTILISATION OF AMOUNT AVAILABLE IN THE SPECIAL RESE RVE ACCOUNT. ACCORDINGLY, THE AO ASSESSED THE SUM OF RS. 53.96 CRORES AS INCOME OF T HE ASSESSEE UNDER SECTION 41(4A) OF THE ACT. 4. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A ) NOTICED THAT THE ASSESSING OFFICER OMITTED TO MAKE DISALLOWANCE OF PROPORTIONATE INTER EST EXPENDITURE RELATABLE TO THE EXEMPTED DIVIDEND INCOME U/S. 14A OF THE ACT. THE LD. CIT(A), BY PLACING RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT VS. CATHOLIC SYRIAN BANK & ORS. (344 ITR 259) HELD THAT INTEREST EXPENDITURE IS REQUIRED TO B DISALLOWED IN TERMS OF RULE 8D(2)(III) OF THE INCOM E TAX RULES. ACCORDINGLY, THE LD. CIT(A) ISSUED NOTICE FOR ENHANCEMENT FOR MAKING DIS ALLOWANCE OF PROPORTIONAL INTEREST RELATABLE TO THE INVESTMENTS. AFTER HEARING THE AS SESSEE, HE DETERMINED THE PROPORTIONAL INTEREST AT RS.11,69,196/- AND DIRECTE D THE AO TO ADD THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. WITH REGARD TO THE EXPENDI TURE RELATABLE TO THE DIVIDEND INCOME, THE LD. CIT(A) UPHELD THE DISALLOWANCE OF R S. 24,64,479/- MADE BY THE ASSESSING OFFICER. 4.1 WITH REGARD TO THE DISALLOWANCE OF BAD DEBT S CLAIM OF RS.55,99,112/-, THE ASSESSEE SUBMITTED BEFORE LD. CIT(A) THAT THE PROV ISION FOR BAD AND DOUBTFUL DEBTS REFERRED TO UNDER THE PROVISO TO SEC. 36(1)(VII) IS THE OPENING BALANCE OF PROVISIONS AVAILABLE AS ON THE FIRST DAY OF FINANCIAL YEAR AND NOT THE CLOSING BALANCE OF THE PROVISION ACCOUNT. THE LD CIT(A) ACCEPTED THE SAID CONTENTIONS OF THE ASSESSEE BY PLACING RELIANCE ON THE DECISION RENDERED BY THE HO NBLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. (256 CTR 76). BEFORE THE LD. CIT( A), THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF TOURISM FINANCE CORPORATION OF INDIA LTD. VS. JCIT (2010) 2 ITR (TRIB.) 1 (DEL.) WHEREIN SIMILAR I.T.A. NOS. 380&354/COCH/2013 5 VIEW WAS FOUND EXPRESSED. ACCORDINGLY, THE LD. CIT( A) DELETED THE DISALLOWANCE OF RS.55,99,112/-. 4.2 WITH REGARD TO THE ASSESSMENT MADE U/S. 41(4A) OF THE ACT, THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT IT DID NOT WIT HDRAW ANY AMOUNT FROM THE SPECIAL RESERVE ACCOUNT. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS MADE AN ADJUSTMENT BY REDUCING AMOUNT FROM BOTH THE LOANS AND ADVANCES ACCOUNT AND ALSO FROM THE SPECIAL RESERVE ACCOUNT ONLY IN THE BALANCE SHEET F OR PRESENTING THE SAME TO THE SHARE HOLDERS AND ALSO TO COMPLY WITH THE DIRECTIONS ISSU ED BY THE IDBI. THE ASSESSEE HAS ALSO SUBMITTED ACCOUNT COPIES OF SPECIAL RESERVE AC COUNT AS AVAILABLE IN ITS JOURNAL LEDGER TO SUBSTANTIATE ITS CLAIM THAT IT DID NOT WI THDRAW ANY AMOUNT FROM THE SPECIAL RESERVE ACCOUNT. HOWEVER, THE LD. CIT(A) DID NOT AG REE WITH THE SAID CONTENTIONS OF THE ASSESSEE AND HELD THAT THE METHOD ADOPTED BY THE AS SESSEE FOR PRESENTING THE ACCOUNT WOULD AMOUNT TO UTILISATION OF AMOUNT AVAILABLE IN SPECIAL RESERVE ACCOUNT FOR MAKING PROVISIONS AS PER THE DIRECTIONS ISSUED BY IDBI. A CCORDINGLY, HE CONFIRMED THE ASSESSMENT MADE U/S. 41(4A) OF THE ACT. 5. THE FIRST ISSUE RELATES TO THE DISALLOWANCE MADE U/S 14A OF THE ACT. THE CONTENTION OF THE ASSESSEE IS THAT IT DID NOT INCUR ANY EXPENDITURE IN EARNING THE DIVIDEND INCOME. IT WAS ALSO SUBMITTED THAT THE AS SESSEE HAS INVESTED INTO THE SHARE CAPITAL OF MANY COMPANIES IN THE REGULAR COURSE OF BUSINESS OF PROVIDING FINANCIAL ASSISTANCE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS USED ITS OWN FUNDS FOR MAKING INVESTMENTS IN SHARES. HE ALSO SUBMITTED THAT THE AO WAS NOT RIGHT IN TAKING AVERAGE VALUE OF ALL THE INVESTMENTS FOR THE PURPOSE OF CAL CULATING THE DISALLOWANCE OF EXPENSES, INSTEAD OF THE AVERAGE VALUE OF DIVIDEND YIELDING I NVESTMENTS. 5.1 HOWEVER, THE LD D.R SUBMITTED THAT THE LD C IT(A) HAS FOLLOWED THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL KERALA HIGH COURT IN DISALLOWING A PART OF INTEREST EXPENDITURE. THE LD D.R FURTHER SUBMITTED THAT THE CLAIM OF THE ASSESSEE THAT IT DID NOT INCUR ANY EXPENDITURE IN REALISING THE DIVIDEND INC OME IS NOT ADMISSIBLE IN VIEW OF THE SPECIFIC PROVISION CONTAINED IN SUB. SEC. 3 OF SEC. 14A, WHEREIN IT IS CLEARLY STATED THAT I.T.A. NOS. 380&354/COCH/2013 6 THE PROVISIONS OF SEC. 14A(2) SHALL APPLY IN RELATI ON TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED. 5.3 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THOUGH THE ASSESSEE HAS CONTENDED THAT IT DID NOT UTILISE BORROWED FUNDS FO R MAKING INVESTMENTS IN PURCHASE OF SHARES, YET NO MATERIAL WAS FURNISHED BY IT TO SUBS TANTIATE THE SAID CLAIM. THE ASSESSEE HAS ALSO NOT SHOWN AS TO HOW THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CATHOLIC SYRIAN BANK (SUPRA) I S NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. WE NOTICE THAT THE LD CIT(A) HAS DU LY ADDRESSED THE CONTENTION OF THE ASSESSEE WITH REGARD TO THE MANNER OF COMPUTATION O F AVERAGE VALUE OF INVESTMENTS IN PARAGRAPH 11.2 OF HIS ORDER, I.E., THE LD CIT(A) HA S EXPRESSED THE VIEW THAT, AS PER RULE 8D(2)(III), THE AVERAGE VALUE OF INVESTMENT, I NCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME IS REQUIRED TO BE CONSIDERED, MEANING THEREBY THE ENTIRE VALUE OF INVESTMENTS MADE IN SHARES IS REQUI RED TO BE CONSIDERED. WE AGREE WITH THE SAID VIEW EXPRESSED BY LD CIT(A). FURTHER, AS PER SEC. 14A(3) OF THE ACT, THE DISALLOWANCE AS PER SEC. 14A(2) IS REQUIRED TO BE M ADE, EVEN IF THE ASSESSEE CLAIMS THAT IT DID NOT INCUR ANY EXPENDITURE IN EARNING THE DIV IDEND INCOME. UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO INTERFE RE WITH THE DECISION RENDERED BY LD CIT(A) ON THIS ISSUE. 6. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F CLAIM OF BAD DEBTS. BEFORE AO, THE ASSESSEE SUBMITTED A COPY OF PROVISION FOR BAD AND DOUBTFUL ACCOUNT, WHICH IS EXTRACTED BY THE AO AS UNDER:- PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNTS PARTICULARS RS. PARTICULARS RS. TO BAD DEBTS (AMOUNT DEBITED IN CURRENT YEAR P&L ACCOUNT) TO BALANCE C/D (CLOSING BALANCE) 5599112 100888 BY BALANCE B/D (OPENING BALANCE BY CURRENT YEAR PROVISION U/S 36(1)(VIIA) AS PER THE ACT OR PROVISION CREATED, WHICHEVER IS LESS NIL 5700000 TOTAL 5700000 TOTAL 5700000 I.T.A. NOS. 380&354/COCH/2013 7 BEFORE LD CIT(A), THE ASSESSEE PLACED RELIANCE ON T HE FOLLOWING CASE LAW TO CONTEND THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS REF ERRED TO IN THE PROVISO TO SEC. 36(1)(VII) OF THE ACT IS THE OPENING BALANCE OF THE PROVISION AS ON 1.4.2007 FOR THE YEAR UNDER CONSIDERATION. TOURISM FINANCE CORPORATION OF INDIA LTD (2 ITR (T RIB) 1(DEL)) CIT VS. UTI BANK (2013)(256 CTR (GUJ) 76). THE LD CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSES SEE AND ACCORDINGLY DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT OBSE RVATIONS MADE BY LD CIT(A) ARE EXTRACTED BELOW:- 11.3 THE THIRD GROUND OF APPEAL IS REGARDING DENI AL OF DEDUCTION OF BAD DEBTS WRITTEN OFF AMOUNTING TO RS.55,99,112 OVER AND ABO VE THE PROVISION CREATED U/S. 36(1)(VIIA). IN THE ASSESSMENT ORDER, THE ASSESSI NG OFFICER HAS OBSERVED THAT THE ASSESSEE HAS NOT SET OFF THE SAID AMOUNT OF B AD DEBTS WRITTEN OFF DURING THE YEAR AGAINST THE PROVISIONS MADE DURING THE YEAR O F RS.57,00,000 AND CLAIMED DEDUCTION FOR BOTH THE AMOUNTS. HE HAS FURTHER ST ATED THAT THE PROVISO TO SEC. 36(1)(VII) RESTRICTS THE WRITE OFF RELATING TO SUC H DEBTS BY PUTTING A RESTRICTION THAT THE WRITE OFF SHALL BE LIMITED TO THE AMOUNT BY WH ICH SUCH DEBT EXCEEDS THE CREDIT BALANCE IN THE PROVISIONS FOR BAD AND DOUBT FUL DEBTS MADE UNDER CLAUSE 36(1)(VIIA). DURING THE COURSE OF APPELLATE PROCE EDINGS, THE APPELLANT SUBMITTED THAT AS DECIDED BY HONBLE ITAT DELHI BENCH IN THE CASE OF TOURISM FINANCE CORPORATION OF INDIA LTD. (SUPRA) AND HONBLE GUJA RAT HIGH COURT IN THE CASE OF UTI BANK LTD. (SUPRA), THE AMOUNT OF OPENING BALAN CE IN THE PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT CREATED U/S. 36(1)(VIIA) IS TO BE CONSIDERED AND NOT THE CLOSING BALANCE (AS DONE BY ASSESSING OFFICER) FOR THE PURPOSE OF RESTRICTION. IN THE AFORESAID CASE, THE HONBLE GUJARAT HIGH CO URT HAS HELD AS UNDER: HELD: FROM THE STATUTORY PROVISIONS, IT CAN BE SEE N THAT IN ADDITION TO THE DEDUCTION AVAILABLE TO AN ASSESSEE UNDER SEC. 36(1 )(VII) FOR BAD DEBTS, IN CASE OF SPECIAL CLASS OF BANKS MENTIONED IN CL. (VI IA), DEDUCTIONS SUBJECT TO FULFILMENT OF CERTAIN CONDITIONS IS AVAILABLE IN RE SPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS. ONE OF THE RESTRICTIONS IS OF LIMITING SUCH DEDUCTION TO A MAXIMUM OF A SPECIFIED PERCENTAGE OF TOTAL INCOME O F THE ASSESSEE COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLA USE AND NOT EXCEEDING PRESCRIBED PERCENTAGE OF AGGREGATE AVERAGE ADVANCE MADE BY THE RURAL BRANCHES OF SUCH BANK. IN THE PRESENT CASE, THE QU ESTION OF METHOD OF OPERATION OF PROVISO TO SEC. 36(1)(VII) ARISES. SU CH PROVISO AS NOTED, PROVIDES THAT IN CASE OF AN ASSESSEE TO WHICH CL.(VIIA) APP LIES, THE AMOUNT OF DEDUCTION RELATING TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS T HE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE U NDER THAT CLAUSE. IN THIS RESPECT, THE PROVISION IS SILENT. HOWEVER, THE ISSUE HAS BEEN MADE I.T.A. NOS. 380&354/COCH/2013 8 SUFFICIENTLY CLEAR BY THE CBDT CIRCULAR NO. 17 OF 2 008 DT. 26 TH NOV. 2008, WHICH SAYS THAT WHILE CONSIDERING THE CLAIM FOR BAD DEBTS U/S. 36(1)(VII), THE ASSESSING OFFICER SHOULD ALLOW ONLY SUCH AMOUNT OF BAD DEBTS WRITTEN OFF AS EXCEEDS THE CREDIT BALA NCE AVAILABLE IN THE PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT CRE ATED U/S. 36(1)(VIIA). THE CREDIT BALANCE FOR THIS PURPOSE WI LL BE THE OPENING CREDIT BALANCE I.E. THE BALANCE BROUGHT FORWARD AS ON 1 ST APRIL OF THE RELEVANT ACCOUNTING YEAR. WHEN SUCH CIRCULAR ISSUE D U/S. 119(2) CLARIFIES THE POSITION BEYOND ANY DOUBT, THERE IS N O REASON TO ENTERTAIN THE REVENUES APPEALS. TO WORK OUT THE PROVISO TO SEC. 36(1)(VII), THE AMOUNT OF DEDUCTION CLAIMED BY THE ASSESSEE IN RESPECT OF BAD DEBTS WAS NOT REQUIRED TO BE REDUCED BY THE CLOSING BALANCE FOR THE DOUBTFUL DEBTS ACCOUNT BUT BY THE OPENING BALANCE THEREOF CATHOLIC SYRIAN BANK LTD. VS. CIT (2012) 248 CTR (SC) 1: (2012) 68 DTR (SC) 1 : (2012) 343 ITR 270 (SC) AND UCO BANK VS. CIT (1999) 154 CTR (SC) 88: ( 1999) 237 ITR 889 (SC) APPLIED. THEREFORE, IT IS SEEN THAT THE HONBLE GUJARAT HIGH COURT RELYING UPON THE VARIOUS JUDGMENTS OF HONBLE SUPREME COURT AND ALSO CBDT CIRCULAR NO. 17 OF 2008 HELD THAT FOR THE PURPOSES OF PROVISO TO SE C. 36(1)(VII), THE AMOUNT OF DEDUCTION CLAIMED BY THE ASSESSEE IN RESPECT OF BAD DEBTS WAS REQUIRED TO BE REDUCED BY THE OPENING BALANCE OF PROVISION FOR BAD AND DOUBTFUL DEBTS CREATED AND NOT THE CLOSING BALANCE. AS GIVEN IN T HE ASSESSMENT ORDER, THE OPENING BALANCE OF PROVISION FOR BAD AND DOUBTFUL D EBTS IS NIL AND THEREFORE, THE ENTIRE AMOUNT OF BAD DEBT OF RS. 55,99,112/- IS ALLOWABLE AS DEDUCTION. THE ADDITION MADE BY THE ASSESSING OFFICER IS THERE FORE, DELETED. WE NOTICE THAT THE LD CIT(A) HAS FOLLOWED THE DECIS ION RENDERED BY THE HONBLE GUJARAT HIGH COURT, WHEREIN THE HONBLE HIGH COURT HAS PLAC ED RELIANCE ON THE CIRCULAR NO.17 OF 2008 DATED 26 TH NOV. 2008 ISSUED BY THE CBDT IN DECIDING THIS ISSU E. HENCE, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF LD CIT(A) ON THIS ISSUE. 7. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF RS.53.96 CRORES RELATING TO THE SPECIAL RESERVE CREATED U/S 36(1)(VIII) OF THE ACT. ACCORD ING TO THE ASSESSEE, IT HAS REDUCED THE ABOVE SAID AMOUNT FROM THE SPECIAL RESERVE ACCOUNT WHILE PREPARING THE BALANCE SHEET FOR PRESENTING THE SAME TO THE SHARE HOLDERS BY MAK ING CORRESPONDING REDUCTION FROM THE LOANS AND ADVANCES ACCOUNT. ACCORDING TO THE A SSESSEE, IT HAS MAINTAINED THE SPECIAL RESERVE ACCOUNT INTACT IN ITS BOOKS OF ACCO UNT AND SUCH A REDUCTION WAS NOT MADE IN THE BOOKS OF ACCOUNT, BUT ONLY IN THE BALAN CE SHEET. HOWEVER, THE SAID I.T.A. NOS. 380&354/COCH/2013 9 EXPLANATION WAS NOT ACCEPTED BY THE AO. HENCE, THE AO TREATED THE ABOVE SAID AMOUNT OF RS.53.96 CRORES AS UTILISATION OF SPECIAL RESERVE ACCOUNT AND ACCORDINGLY BROUGHT THE SAME TO TAX AS PER SECTION 41(4A) OF TH E ACT. 7.1 THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE L D CIT(A) HAS BEEN EXPLAINED BY THE FIRST APPELLATE AUTHORITY AS UNDER IN PARAGRAPH 11.4 OF HIS ORDER:- .....DURING THE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT HAS POINTED OUT THAT NO AMOUNT HAS BEEN WITHDRAWN FROM THE RESERVE CREATED US 36(1)(VII) AND ONLY FOR THE PURPOSE OF PRESENTATION IN THE BALANC E SHEET, TOTAL AMOUNT OF LOANS AND ADVANCES HAS BEEN DEDUCTED FROM IT. IT HAS BE EN SUBMITTED THAT THE SAME HAS DONE FOR MEETING THE IDBI GUIDELINES. THE APPEL LANT HAS ALSO FILED GENERAL LEDGER OF SPECIAL RESERVES FROM 1.4.2007 TO 24.3. 2012 TO SHOW THAT NO AMOUNT HAS BEEN DEDUCTED IN THE SPECIAL RESERVE. AS PER T HIS LEDGER, THE OPENING BALANCE AS ON 1.4.2007 WAS RS.53,96,19,451/-. SEPAR ATE FIGURES FOR SPECIAL RESERVE CREATED FOR F.YRS. 2007-08, 2008-09, 2009-1 0 AND 2010-11 HAVE BEEN GIVEN IN THIS GENERAL LEDGER A/C AND THE CLOSING BA LANCE AS ON 31.3.2011 HAS BEEN SHOWN AT RS. 62,20,71,451/-. THERE IS NO DEBIT IN THIS ACCOUNT . FURTHER, THE APPELLANT HAS FILED BALANCE SHEET RELE VANT TO F.Y 2011-12 SHOWING FIGURES OF SPECIAL RESERVE U/S 36(1)(VII) OF THE I T ACT AS ON 31.3.2011 AND 31.3.2012. THE AMOUNT AS ON 31.3.2011 IS SAME AS SH OWN IN THE LEDGER I.E RS.62,20,71,451/-. FOR WORKING OUT THE SAID RESERVE AS ON 31.3.2012, THE AFORESAID AMOUNT HAS BEEN TAKEN AS OPENING BALANCE AND AFTER MAKING THE ADDITION MADE DURING THE YEAR 2011-012 AT RS. 327 L AKHS, CLOSING BALANCE HAS BEEN SHOWN AT RS.6547.71 LAKHS. FURTHER, THE APPELL ANT HAS GIVEN A COPY OF SCHEDULE 8 OF BALANCE SHEET AS AT 31.3.2008 LOANS A ND ADVANCES WHICH IS REPRODUCED AS UNDER: (A) LOANS: CONSIDERED GOOD: SECURED LOANS RUPEE LOANS 2,275,896,344 2,5 43,460,825 (INCLUDING DEBTS DUE BY SUBSIDIARY COMPANY RS.1,60,0000/) UNSECURED LOAN RUPEE LOAN(INCLUDING DEBTS DUE BY SUBSIDIARY COMPANIES RS. 20,70,000/-) 14,755,706 62,064,714 SOFT LOAN IDBI 24,435,808 25,322,808 2,315,087,858 2,630,848,347 LESS: SPECIAL RESERVE U/S 36(1)(VIII) AND NPA PROVI SION AS PER RBI GUIDELINES 4,80,803,549 475,200,249 1,834,284,309 2,155,648,098 I.T.A. NOS. 380&354/COCH/2013 10 IT CAN BE SEEN FROM THE ABOVE THAT SPECIAL RESERVE AMOUNT HAS BEEN DEDUCTED FROM ASSETS IN THE FORMS OF SECURED LOAN, UNSECURED LOAN AND SOFT LOAN AS GIVEN IN IDBI GUIDELINES DISCUSSED BELOW. THE APPELLANT HAS ALSO CONTENDED THAT AS PER SEC. 41(4A), ANY AMOUNT SUBSEQUENTLY WITHDRAWN FROM SPECIAL RESERVE ONLY I S DEEMED TO BE INCOME CHARGEABLE TO TAX, THEREFORE, THE SECTION COMES IN TO PLAY ONLY WHEN ANY AMOUNT IS WITHDRAWN FROM THE ACCOUNT. IT HAS BEEN CONTENDE D THAT THE APPELLANT HAS NOT WITHDRAWN ANY AMOUNT FROM THE SAID AMOUNT AND ONLY FOR THE PURPOSE OF PRESENTATION IN THE BALANCE SHEET IN SCHEDULE 2; AM OUNT OF LOAN AND ADVANCES HAS BEEN SHOWN AS CONTRA AND REDUCED FROM SPECIAL R ESERVES. IN NUTSHELL THE APPELLANT HAS CLAIMED THAT THE SPE CIAL RESERVE CREATED U/S 36(1)(VII) HAS NOT BEEN UTILIZED WHEREAS THE CASE O F AO IS THAT ASSESSEE HAS MADE UTILIZATION OUT OF THE SAID RESERVE. THE QUESTION TO BE ANSWERED IS WHETHER THE ACTION OF APPELLANT IN MAKING PROVISION FOR BAD DEBTS AS PER IDBI GUIDELINES AMOUNTS TO WITHDRAWAL OUT OF SAID RESERVE OR NOT. IN THIS REGARD NOTE (3) OF CIRCULAR NO.F1.1/94-95 DT 26.4.94 OF IDBI ISSUED TO ALL STATE INDUSTRIAL DEVELOPMENT CORPORATION (SIDCS) IS REPRODUCED AS UN DER: SIDCS HAVE BEEN PERMITTED TO CREATE A SPECIAL RESE RVE TO AVAIL OF THE BENEFIT AS PERMISSIBLE IN TERMS OF SECTION 36(1)(VI II) OF THE INCOME TAX ACT, 1961. THE CUMULATIVE BALANCE OF PROVISIONS AVA ILABLE/MADE UNDER THIS SECTION IS ADMISSIBLE FOR PROVISION PURPOSES. THE RESERVE CAN, THEREFORE, BE UTILIZED TO CREATE SPECIFIC PROVISIONS FOR ASSET S CLASSIFIED AS DOUBTFUL OR LOSS. THE ASSETS AND LIABILITIES SHOULD BE REDUCED TO THE EXTENT OF PROVISION UTILIZED FROM THE CUMULATIVE BALANCE OF RESERVES U/ S 36(1)(VII), I.E TO SAY, ASSETS ARE TO BE SHOWN AS NET OF PROVISIONS. 7.2 WE NOTICE THAT THE ISSUE BOILS DOWN TO THE QUESTION, AS RIGHTLY POSED BY LD CIT(A), WHETHER THE ACTION OF THE ASSESSEE IN CONSI DERING THE AMOUNT AVAILABLE IN SPECIAL RESERVE ACCOUNT FOR THE PURPOSE OF DETERM INING THE PROVISION FOR BAD AND DOUBTFUL DEBTS AS PER THE GUIDE LINES ISSUED BY ID BI WOULD AMOUNT TO UTILISATION OF THE SAID SPECIAL RESERVE OR NOT. THE LD CIT(A) HAS TAK EN THE VIEW AS UNDER:- IF THE APPELLANT CLAIMS THAT GUIDELINES OF IDBI HA VE BEEN FOLLOWED, WHICH IS THE CASE HERE, IT IS DEEMED TO BE TAKEN THAT THERE WAS TRANSFER OF FUNDS FROM SPECIAL RESERVE ACCOUNT TO BAD & DOUBTFUL DEBT PROVISION AC COUNT. BY NOT DEBITING THE AMOUNT UTILISED FROM THE SPECIAL RESERVE LEDGER ACC OUNT AND SHOWING THE REDUCTION IN SPECIAL RESERVE IN BALANCE SHEET ONLY, THE APPELLANT HAS MADE AN UNSUCCESSFUL ATTEMPT TO GIVE AN IMPRESSION THAT THE RE WAS NO WITHDRAWAL FROM THE SPECIAL RESERVE. NO AMOUNT OF DRESSING GIVEN T O THE BALANCE SHEET CAN PREVENT APPLICABILITY OF SECTION 41(4A) IN ITS CASE . THE APPELLANT STOPPED MAKING I.T.A. NOS. 380&354/COCH/2013 11 PROVISION OF BAD DEBTS AS PER THE SAID IDBI GUIDELI NES (WHICH IN MY OPINION COULD BE USED ONLY TILL SAID AMENDMENT OF ACT I.E, TILL A U 1997-98) FROM FINANCIAL 2010- 11 ONWARDS AND THAT IS WHY NO SUCH DEDUCTION WAS MA DE FROM THE SPECIAL RESERVE ACCOUNT IN THE BALANCE SHEET FROM SAID FINA NCIAL YEAR. 7.3 BEFORE US, THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS MADE A CONTRA ADJUSTMENT IN THE BALANCE SHEET IN OR DER TO COMPLY WITH THE DIRECTIONS ISSUED BY IDBI, BUT IN THE BOOKS OF ACCOUNT IT HAS MAINTAINED THE SPECIAL RESERVE ACCOUNT INTACT, I.E., IT HAS NOT USED THE SPECIAL R ESERVE AS PRESUMED BY LD CIT(A). HE FURTHER SUBMITTED THAT THE ASSESSEE IS REQUIRED TO COMPUTE PROVISION FOR BAD AND DOUBTFUL DEBTS AS PER THE NORMS PRESCRIBED BY IDBI. WHILE DETERMINING THE AMOUNT OF PROVISION REQUIRED TO BE MADE, THE ASSESSEE IS PERM ITTED TO TAKE INTO ACCOUNT THE AMOUNT AVAILABLE IN SPECIAL RESERVE ACCOUNT. ACCOR DING TO THE SAID GUIDELINES, THE ASSETS AND LIABILITIES SHOULD BE REDUCED TO THE EXT ENT OF PROVISION UTILISED FROM THE CUMULATIVE BALANCE OF RESERVES CREATED U/S 36(1)(VI II), I.E., THE ASSETS ARE TO BE SHOWN AS NET OF PROVISIONS. HENCE, IN THE BALANCE SHEET, THE ASSESSEE HAS REDUCED SPECIAL RESERVE ACCOUNT AND LOANS AND ADVANCES ACCOUNT WITH THE AMOUNT OF PROVISION. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE HA S ADOPTED COLOURABLE DEVICE TO CIRCUMVENT THE PROVISIONS OF INCOME TAX ACT, WHICH WAS STRONGLY REFUTED BY LD A.R. 7.4 THERE SHOULD NOT BE ANY DISPUTE THAT THE BO OKS OF ORIGINAL ENTRY AND EVIDENCES SUPPORTING THE TRANSACTIONS RECORDED IN THE BOOKS A SSUME PRIMARY SIGNIFICANCE. IT IS ALSO A WELL SETTLED PROPOSITION THAT THE ENTRIES RE CORDED IN THE BOOKS ALONE ARE NOT DETERMINATIVE FACTORS FOR THE PURPOSE OF COMPUTING TRUE INCOME OF THE ASSESSEE. HENCE, THE TAX AUTHORITIES ARE REQUIRED TO DETERMIN E THE CORRECT INCOME OF THE ASSESSEE BY CONSIDERING THE BOOKS OF ACCOUNTS, EVIDENCES, ME THOD OF ACCOUNTING, OTHER SURROUNDING FACTORS ETC. 7.5 IN THE INSTANT CASE, THERE IS NO DISPUTE TH AT THE ASSESSEE HAS MAINTAINED THE SPECIAL RESERVE ACCOUNT INTACT, WHICH IS EVIDENCED BY THE FACT THAT THE LD CIT(A) HIMSELF HAS NARRATED ABOUT, WHICH IS EXTRACTED ABOV E, THE TRANSACTIONS AVAILABLE IN THE SPECIAL RESERVE ACCOUNT SINCE 1.4.2007. THE BALANC E IN THE SPECIAL RESERVE ACCOUNT AS I.T.A. NOS. 380&354/COCH/2013 12 ON 1.4.2007 WAS RS.53.96 CRORES. AFTER ADDING THE AMOUNT APPROPRIATED TO THIS ACCOUNT EVERY YEAR, THE BALANCE AVAILABLE IN THIS ACCOUNT A S ON 31.3.2011 WAS RS.62.20 CRORES, WHICH WAS TAKEN AS OPENING BALANCE OF THE SUCCEEDIN G FINANCIAL YEAR. THE LD CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THERE IS NO DE BIT IN THIS ACCOUNT, MEANING THEREBY, THE BOOKS OF ACCOUNT OF THE ASSESSEE DO NOT SHOW AN Y UTILISATION OF SPECIAL RESERVE ACCOUNT. 7.6 HOWEVER, IN THE BALANCE SHEET, THE ASSESSEE HAS REDUCED THE SPECIAL RESERVE ACCOUNT WITH CERTAIN AMOUNT. ACCORDING TO THE ASSE SSEE, IT IS A CONTRA ADJUSTMENT ONLY AND IT HAS MADE CORRESPONDING REDUCTION FROM LOANS AND ADVANCES ACCOUNT ALSO. ACCORDING TO THE ASSESSEE, IT WAS REQUIRED TO DO SO AS PER THE DIRECTIONS ISSUED BY IDBI, WHICH THE ASSESSEE IS REQUIRED TO COMPLY WITH. ACC ORDING TO THE SAID GUIDELINES, THE ASSETS AND LIABILITIES SHOULD BE REDUCED TO THE EXT ENT OF PROVISION UTILISED FROM THE CUMULATIVE BALANCE OF RESERVES CREATED U/S 36(1)(VI II), I.E., THE ASSETS ARE TO BE SHOWN AS NET OF PROVISIONS. WHETHER THE ADJUSTMENTS MADE IN THE BALANCE SHEET ONLY FOR THE PURPOSE OF PRESENTING THE SAME TO THE SHARE HOLDERS / REGULATOR, WITHOUT ACTUALLY DISTURBING THE BOOKS OF ACCOUNT, WOULD AMOUNT TO UT ILISATION OF SPECIAL RESERVE IS THE MOOT QUESTION HERE. THE LD CIT(A) HAS TAKEN THE VI EW THAT THE SAME AMOUNTS TO UTILISATION OF SPECIAL RESERVE, WHICH WOULD ATTRACT THE PROVISIONS OF SEC. 41(4A) OF THE ACT. 7.7 HOWEVER, WE ARE UNABLE TO AGREE WITH THE VIE W EXPRESSED BY LD CIT(A). THE FINANCIAL STATEMENTS ARE PREPARED ON THE BASIS OF B OOKS OF ACCOUNT FOR VARIOUS PURPOSES. THE METHOD OF PRESENTATION OF THE FINANC IAL STATEMENTS WOULD VARY ACCORDING TO THE NEEDS OF THE USER OF THE SAME. SO LONG AS T HEY TALLY WITH THE BOOKS OF ACCOUNT, GENERALLY NO FAULT IS FOUND WITH REGARD TO THE METH OD OF PRESENTATION. 7.8 THE ASSESSEE HAS FURNISHED A COPY OF GUIDELI NES ISSUED BY IDBI. AS PER THE SAID GUIDELINES, THE ASSESSEE IS REQUIRED TO CLASSIFY IT S ASSETS, MAINLY LOANS AND ADVANCES, INTO FOUR CATEGORIES, VIZ., STANDARD ASSETS, SUB-ST ANDARD ASSETS, DOUBTFUL ASSETS AND LOSS ASSETS. THE PURPOSE OF CLASSIFICATION OF THE ASSETS IN THE ABOVE CATEGORIES APPEARS I.T.A. NOS. 380&354/COCH/2013 13 TO BE TO ASCERTAIN ABOUT THE INTRINSIC STRENGTH OF THOSE ASSETS. WE NOTICE THAT THE IDBI HAS ALSO SPECIFIED THE CRITERIA OR BASIS FOR CLASSI FYING THE ASSETS IN THE FOUR CATEGORIES STATED ABOVE. ACCORDING TO THE SAID GUIDE LINES, T HE ASSESSEE IS ALSO REQUIRED TO MAKE PROVISIONS AGAINST THE ASSETS CLASSIFIED AS SUB-STA NDARD, DOUBTFUL AND LOSS CATEGORY, POSSIBLY THESE CATEGORIES BEAR RISK OF RECOVERY. A CCORDING TO THE SAID GUIDELINES, THE SIDCS ARE REQUIRED TO DETERMINE THE AMOUNT OF PROVI SION FOR BAD AND DOUBTFUL DEBTS. ACCORDING TO THE GUIDELINES ISSUED BY IDBI, THE AMO UNT AVAILABLE IN THE SPECIAL RESERVE ACCOUNT U/S 36(1)(VIII) OF THE ACT IS ADMISSIBLE FO R PROVISION PURPOSES. THE MEANING OF THIS GUIDELINE, IN OUR VIEW, IS THAT THE SIDCS CAN TAKE INTO ACCOUNT THE AMOUNT AVAILABLE IN THE SPECIAL RESERVE ACCOUNT WHILE DETERMINING TH E AMOUNT OF PROVISION. LET US EXPLAIN THIS BY A SMALL EXAMPLE. LET US ASSUME THA T ONE SIDC HAS DETERMINED THE AMOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS AS PER THE GUIDELINES ISSUED BY IDBI AT RS.10 CRORES. NORMALLY, THE SAID SIDC IS REQUIR ED TO MAKE PROVISION FOR RS.10.00 CRORES IN ITS BOOKS OF ACCOUNT. LET US ASSUME THAT THE AMOUNT AVAILABLE IN SPECIAL RESERVE ACCOUNT OF THAT SIDC IS RS.4.00 CRORES. SI NCE THE GUIDELINES ISSUED BY IDBI PERMITS UTILISATION OF THE AMOUNT AVAILABLE IN SPEC IAL RESERVE ACCOUNT FOR MAKING PROVISIONS, IT WILL BE SUFFICIENT COMPLIANCE OF THE GUIDELINES, IF THE SIDC MAKES PROVISION FOR RS.6.00 CRORES ONLY, INSTEAD OF RS.10.00 CRORES , I.E. (10.00 (-) 4). THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS CREATED ONLY TO SAFEGUARD THE FINANCIAL INSTITUTION AGAINST BAD DEBTS, I.E., THE POSSIBLE BAD DEBTS RISK IS EVENED OUT TO A NUMBER OF YEARS. HENCE, IN OUR VIEW, THE PERMISSION GIVEN BY IDBI FOR UTILISIN G THE AMOUNT AVAILABLE IN SPECIAL RESERVE ACCOUNT FOR MAKING PROVISION DOES NOT MEAN THAT THE SIDC HAS ACTUALLY UTILISED THE SPECIAL RESERVE ACCOUNT. THE SAID RELAXATION O NLY ALLOWS THE SIDC TO DETERMINE THE AMOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS TH AT IS REQUIRED TO BE MADE AS PER THE GUIDELINES ISSUED BY IDBI, I.E., IN TERMS OF IDBI G UIDELINES, THE PROVISION FOR BAD AND DOUBTFUL AMOUNT SHALL BE COMPUTED BY AGGREGATING TH E AMOUNT AVAILABLE IN SPECIAL RESERVE ACCOUNT WITH THE AMOUNT AVAILABLE IN PROVIS ION FOR BAD AND DOUBTFUL ACCOUNT. 7.9 ACCORDINGLY, IN OUR VIEW, THE PROVISIONS OF SEC. 41(4A) WOULD NOT APPLY SO LONG AS THE SIDC MAINTAINS THE SPECIAL RESERVE ACCOUNT INTA CT IN ITS BOOKS OF ACCOUNT. THE METHOD OF PRESENTATION OF THE SAME IN THE BALANCE S HEET ALSO, IN OUR VIEW, DOES NOT I.T.A. NOS. 380&354/COCH/2013 14 MATTER FOR THE PURPOSES OF SEC. 36(1)(VIII) R.W.S. SEC. 41(4A) OF THE ACT. IN THE INSTANT CASE, THE LD CIT(A) HAS GIVEN A FINDING THAT THERE IS NO DEBIT IN THE SPECIAL RESERVE ACCOUNT, MEANING THEREBY THE ASSESSEE DID NOT MAKE USE OF ANY AMOUNT FROM THE SAID ACCOUNT. HENCE, THE ASSESSEE HAS NOT UTILISED ANY AMOUNT AVAILABLE IN SPECIAL RESERVE ACCOUNT, AS PRESUMED BY THE TAX AUTHORITIES. HENCE , IN OUR VIEW, THERE IS NO REASON TO INVOKE THE PROVISIONS OF SEC. SEC. 41(4A) OF THE AC T, ON THE BASIS OF BALANCE SHEET, WHEREIN CERTAIN ADJUSTMENTS HAVE BEEN MADE BY THE A SSESSEE FOR THE PURPOSE OF PRESENTING IT TO THE SHARE HOLDERS AND THE REGULATO R. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE IMPUGNED ADDITION OF RS.53.96 CRORES. 8. THE APPEAL OF REVENUE IS DISMISSED. THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 06-11-2 013. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 6 TH NOVEMBER, 2013 GJ COPY TO: 1. M/S. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORA TION LTD., KESTON ROAD, KOWDIAR, THIRUVANANTHAPURAM-695 003. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(1), THIRUVANANTHAPURAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-I,THIRUV ANANTHAPURAM. 4. THE COMMISSIONER OF INCOME-TAX, THIRUVANANTHAPU RAM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN