Deputy Commissioner of Income-tax, V. Vishweshwar Sahakari Bank Ltd., Pune

ITA 358/PUN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93680 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-04-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 26-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income; Question of law; Bad and doubtful debts; Onus to prove
• Section: 14A; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 358/PN/2014 (ASSESSMENT YEAR : 2009-10) DCIT, CIRCLE-1, PUNE .. APPELLANT VS. VISHWESHWAR SAHAKARI BANK LTD., 471/472, MARKET YARD, GULTEKDI, PUNE- 411 007 .. RESPONDENT PAN NO.AAAAT0755G CO NO.11/PN/2015 (ASSESSMENT YEAR : 2009-10) VISHWESHWAR SAHAKARI BANK LTD., 471/472, MARKET YARD, GULTEKDI, PUNE- 411 007 PAN NO.AAAAT0755G .. CROSS OBJECTOR VS. DCIT, CIRCLE-7, PUNE .. APPELLANT IN THE APPEAL ASSESSEE BY : SHRI SUNIL GANOO REVENUE BY : SHRI RAJESH DAMOR DATE OF HEARING : 16-04-2015 DATE OF PRONOUNCEMENT : 24-04-2015 ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE REVENUE AND CO FILED BY TH E ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 09-12 -2013 OF THE CIT(A)-III, PUNE RELATING TO ASSESSMENT YEAR 2009-1 0. FOR THE SAKE OF CONVENIENCE THESE WERE HEARD TOGETHER AND A RE BEING DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO.358/PN/2014 (BY REVENUE) : 2. ALTHOUGH A NUMBER OF GROUNDS HAVE BEEN TAKEN BY THE REVENUE, THEY ALL RELATE TO THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS.2,88,00,000/- MADE BY THE AO ON ACCO UNT OF INTEREST ON NPA U/S.43D OF THE I.T. ACT. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COOPERATIVE SOCIETY ENGAGED IN BUSINESS OF BANKING. IT FILED ITS RETURN OF INCOME ON 23-09-2009 DECLARING TOTAL INCO ME OF RS.18,83,42,860/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE BALANCE SHEET OF THE ASSES SEE FOR THE IMPUGNED ASSESSMENT YEAR SHOWS AN AMOUNT OF RS.2,88 ,00,000/- AS INTEREST RECEIVABLE ON NPA ACCOUNT ON THE ASSET SIDE AND A CONTRA ENTRY NPA INTEREST RESERVE ACCOUNT WAS SHO WN IN THE LIABILITY SIDE. ON BEING ASKED BY THE AO, IT WAS S TATED BY THE ASSESSEE THAT THE INTEREST ACCRUED ON NPA WAS NOT C REDITED TO THE PROFIT AND LOSS ACCOUNT BUT DIRECTLY TAKEN TO THE B ALANCE SHEET. THE RELEVANT DETAILS OF INTEREST ON NPA ACCRUED AND COL LECTED WERE SUBMITTED BEFORE THE AO, THE DETAILS OF WHICH ARE A S UNDER : OVERDUE INTEREST RESERVE AS PER BALANCE SHEET AS AT 31-03-2008 RS.881.04 LACS ADD : INTEREST ON NPA LOANS CREDITED TO RESERVE AND NOT CREDITED TO PROFIT AND LOSS ACCOUNT DURING F.Y. 2008-09 RS.288.29 LACS LESS : INTEREST ON NPA LOANS RECOVERED DURING THE YEAR TRANSFERRED FROM RESERVE AND CREDITED TO P& L A/C. RS.420.66 LACS CLOSING BALANCE AS ON 31-03-2009 RS.748.67 LACS 3 THE AO ASKED THE ASSESSEE AS TO WHY SUCH INTEREST A CCRUED ON NPA SHOULD NOT BE TREATED AS INCOME SINCE THE ASSES SEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE ASS ESSEE JUSTIFIED ITS ACTION BY CITING VARIOUS JUDICIAL DECISIONS. 4. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPLA NATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT THE ASSESS EE ITSELF WAS CREDITING THE ENTIRE INTEREST DUE FROM BORROWERS ON ACCRUAL BASIS. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT OVER DUE INTEREST RECEIVABLE ON NPAS COULD BE ALLOWED AS DEDUCTION, T HE AO WAS OF THE OPINION THAT THE ONLY SECTION UNDER WHICH SUCH INTEREST SHOULD BE ALLOWED AS DEDUCTION WAS SECTION 43D. HOWEVER, THE SAID PROVISION IS APPLICABLE ONLY IN CASE OF A SCHEDULED BANK OR FINANCIAL CORPORATIONS. SINCE THE ASSESSEE IS NEIT HER A SCHEDULED BANK NOR A FINANCIAL INSTITUTION, THEREFORE, IT WAS NOT ENTITLED TO SUCH DEDUCTION. THE FURTHER SUBMISSION OF THE ASSE SSEE THAT SUCH A TREATMENT WAS REQUIRED TO BE GIVEN TO THE NPA INTER EST IN VIEW OF THE RBI INSTRUCTIONS WHICH IS THE APEX CONTROLLING BODY OVER BANKS WAS ALSO NOT ACCEPTED BY THE AO ON THE GROUND THAT SUCH GUIDELINES WERE ONLY FOR THE PURPOSE OF PRESENTATIO N OF NPA PROVISIONS IN THE BALANCE SHEET AND IT HAS NO EFFEC T ON THE TAXABILITY OF SUCH INCOME UNDER THE I.T. ACT. REJE CTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND FOLLOWING TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN T ECHNOLOGIES LTD., REPORTED IN 320 ITR 577 (SC) THE AO HELD THAT OVERDUE INTEREST AMOUNTING TO RS.2,88,00,000/- HAS TO BE BR OUGHT TO TAX. 4 HE ACCORDINGLY MADE ADDITION OF RS.2,88,00,000/- TO THE TOTAL INCOME OF THE ASSESSEE. 5. BEFORE CIT(A) IT WAS ARGUED THAT THE INTEREST ON NPA QUANTIFIED AT RS.2,88,00,000/- WAS NOT DEBITED TO T HE PROFIT AND LOSS ACCOUNT AS OBSERVED BY THE AO BUT WAS SHOWN AS A CONTRA ENTRY ON THE LIABILITY SIDE AGAINST SUCH INTEREST S HOWN AS RECEIVABLE IN THE ASSET SIDE OF THE BALANCE SHEET. IT WAS ARG UED THAT SUCH QUANTIFICATION WAS MADE BY THE ASSESSEE PURSUANT TO THE MANDATORY DIRECTIONS OF THE RBI IN ORDER TO ARRIVE AT THE COR RECT AMOUNT OF PROFIT BEFORE DISTRIBUTION OF DIVIDEND. IT WAS SUB MITTED THAT THE CONDITIONS PRESCRIBED BY RBI FOR THE PURPOSE OF IDE NTIFICATION OF NPA PROVES THAT SUCH ACCOUNTS HAVE NO CERTAINTY OF RECOVERY OF PRINCIPAL AMOUNT ITSELF. THEREFORE, THE QUESTION O F RECOVERY OF INTEREST DOES NOT ARISE AND IN SUCH CASES INTEREST SHOULD BE CONSIDERED AS PROFIT ONLY ON THE ACTUAL RECOVERY. RELYING ON VARIOUS DECISIONS INCLUDING THE DECISION OF THE PUN E BENCH OF THE TRIBUNAL IN THE CASE OF OSMANABAD JANATA SAHAKARI B ANK LTD., VIDE ITA NO.795/PN/2011 ORDER DATED 31-08-2012 FOR A.Y. 2007- 08 IT WAS ARGUED THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. 6. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE AND RELYING ON THE DECISION OF THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF OSMANABAD JANATA SAHAKARI BANK LTD. VIDE IT A NO.795/PN/2011 THE LD.CIT(A) DIRECTED THE AO TO DEL ETE THE 5 ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST RECE IVABLE ON NPAS ON ACCRUAL BASIS FOR THE IMPUGNED ASSESSMENT Y EAR. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET F ILED A COPY OF THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL I N THE CASE OF OSMANABAD JANATA SAHAKARI BANK LTD.(SUPRA) SUBMITTE D THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF THE TRIBUNAL. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO FAIRLY CONCEDED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE. 9. WE FIND THE TRIBUNAL IN THE CASE OF OSMANABAD JA NATA SAHAKARI BANK (SUPRA) WHILE DECIDING AN IDENTICAL I SSUE HAS OBSERVED AS UNDER : 5. WE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND P ERUSED THE RECORD. WE FIND THAT THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE ITAT, VISAKHAPATNAM BENCH, IN THE CASE OF DCIT , VIJAYAWADA VS. THE DURGA COOPERATIVE URBAN BANK LTD. , VIJAYAWADA, IN ITA.NO.511/VIZAG/2010 DATED 10.03.20 11. IN THE SAID CASE ALSO, IT WAS NOTICED BY THE ASSESSING OFFICER THA T ASSESSEE DID NOT INCLUDE THE INTEREST OF RS.18,26,306/- ON THE NPA ADVANCES. AGAIN THE ISSUE OF APPLICABILITY OF SECTION 43D WAS CONSIDERED TO THE NON-SCHEDULED BANKS. THE TRIBUNAL P LACED ITS HEAVY RELIANCE ON THE DECISION OF THE HONBLE HIGH C OURT OF DELHI IN THE CASE OF VASHIST CHAY VYAPAR LTD. [330 ITR 440 ( DEL.)], IN WHICH THE HONBLE DELHI HIGH COURT HAS CONSIDERED THE DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. [320 ITR 577 ( SC)]. THE TRIBUNAL FINALLY HELD THAT THE INTEREST INCOME RELAT ABLE TO NPA ADVANCES DID NOT ACCRUE TO THE ASSESSEE. 6. AN IDENTICAL VIEW HAS BEEN TAKEN BY THE ITAT, AHM EDABAD BENCH IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. VS. DY.CIT [134 ITD 486 (AHMEDABAD)]. IN THE CASE OF KARNAVATI COOPERATIVE BANK LTD. (SUPRA), THE TRIBUNAL HAS CONSIDERED THE PRO VISIONS OF SECTION 43D AND ITS APPLICATION TO THE NON-SCHEDULED B ANKS. THE REASONS GIVEN BY THE TRIBUNAL IN THE CASE OF KARNAVAT I COOPERATIVE BANK LTD. (SUPRA) FOR HOLDING THAT INTEREST ON THE ST ICKY ADVANCES/NPA ADVANCES CANNOT BE BROUGHT TO TAX BY FOL LOWING THE DECISION IN THE CASE OF UCO BANK (SUPRA), WHICH IS AS UN DER: 6 15.1. ON CAREFUL ANALYSIS OF THIS SECTION OUR FIRS T OBSERVATION IS THAT SECTION 43D IS IN CONTRAST WITH THE FUNDAMENTAL PRI NCIPLE OF ACCOUNTANCY. THE CARDINAL PRINCIPLE OF MERCANTILE S YSTEM OF ACCOUNTANCY IS THAT AN INCOME IS TO BE SHOWN IN THE BOOKS OF ACCOUNT ON ACCRUAL BASIS. THE PRINCIPLE IS THAT IT IS IMMATERIAL WHETHER IT WAS ACTUALLY RECEIVED OR NOT, BUT IF AN INCOME IS EXPECTED TO BE RECEIVED, THEN IT SHOULD BE BROUGHT TO BOOKS OF ACCOUNT AS AN INCOME ACCRUED TO THE ASSESSEE. CONTRARY TO THIS RE COGNIZED PRINCIPLE, THIS SECTION HAS PRESCRIBED THAT AN INCO ME BY WAY OF INTEREST SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED. THE WORDS CREDITED AND ACTUALLY RECEIV ED HAS BEEN HIGHLIGHTED HEREINABOVE WHILE REPRODUCING THE SECTI ON IN QUESTION. THE OTHER DEVIATION FROM THE SAID ACCEPTED PRINCIPL E OF ACCOUNTANCY IS THAT AN INCOME BY WAY OF INTEREST SHALL BE CHARG EABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS ACTUALLY RECEIVED. THE ACT SAYS THAT THE INCIDENCE OF CREDIT OR ACTUALLY RECEIVED, WHICH EVER IS EARLIER IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF CHARGEABIL ITY OF INCOME BY WAY OF INTEREST. SIMULTANEOUSLY, IT IS NOTEWORTHY T HAT THIS SECTION IS AN OVERRIDING SECTION BECAUSE THE OPENING WORD IS NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PRO VISIONS OF THIS ACT. THEREFORE, IN SPITE OF ANYTHING CONTAINED IN THE ACT, THE PROVISIONS OF THIS SECTION SHALL OVERRIDE THOSE PRO VISIONS. ONCE THE STATUTE HAS CATEGORICALLY MADE A LAW IN RESPECT OF PUBLIC FINANCIAL INSTITUTIONS THAT INTEREST IS CHARGEABLE TO TAX EITH ER IN THE YEAR IN WHICH CREDITED OR ACTUALLY RECEIVED, WHICHEVER IS E ARLIER, THEN IT IS COMPULSORY TO ABIDE BY THE SAID RULE. ACCORDING TO US, NO SCOPE IS LEFT WITH THE REVENUE AUTHORITIES TO IGNORE THESE P ROVISIONS DUE TO UNAMBIGUOUS USE OF LANGUAGE IN THE SECTION. (II) STATUS OF ASSESSEE FOR THE PURPOSE OF APPLICAT ION SECTION 43-D. AS FAR AS THE STATUS OF THE ASSESSEE IS CONCERNED, THE ASSESSING OFFICER HAS STATED THAT THE ASSESSEE-BANK IS A CO-OPERATIVE BANK. UNDISPUTEDLY, THE ASSESSEE IS ALSO GOVERNED BY THE RBI GUIDELINES. VIDE AN EXPLANATION (D) R.W.S. 36(1)(VIIA) ANNEXED T O SECTION 43-D THE DEFINITION OF THE ENTITIES INCORPORATED BY THE SECTION HAVE BEEN DEFINED AND IN THE ABSENCE OF ANY CONTRARY MATERIAL , WE HEREBY HOLD THAT THE ASSESSEE IS COVERED BY ONE OF THE ENTITIES , HENCE THE PROVISIONS OF SECTION 43-D ARE TO BE APPLIED. (III) APPLICABILITY OF CBDT CIRCULAR. NEXT ISSUE IS THAT WHETHER A CIRCULAR HAVING EFFECT OF RELAXING RIGOUR OF LAW CAN BE TREATED AS INCONSISTENT WITH THE PROV ISIONS OF A STATUTE. IN ORDER TO AID PROPER DETERMINATION OF TH E INCOME OF MONEY LENDERS AND BANKS, THE CENTRAL BOARD OF DIREC T TAXES HAS ISSUED A CIRCULAR DATED OCTOBER 6, 1952, PROVIDING THAT WHERE INTEREST ACCRUING ON DOUBTFUL DEBTS IS CREDITED TO A SUSPENSE ACCOUNT, IT NEED NOT BE INCLUDED IN ASSESSEES TAXAB LE INCOME, PROVIDED THE INCOME TAX OFFICER IS SATISFIED THAT RE COVERY IS PRACTICALLY IMPROBABLE. THE CBDT U/S.119 OF THE I.T .ACT HAS POWER TO ISSUE CIRCULARS IN EXERCISE OF ITS STATUTORY POW ERS. IF THE BOARD CONSIDER IT NECESSARY TO LAY DOWN CERTAIN RULES AND THEN DIRECT THE SUB-ORDINATE AUTHORITIES, SUCH DIRECTIONS ARE REQUI RED TO BE FOLLOWED AND SUCH CIRCULAR WOULD BE BINDING ON THE DEPARTMEN T UNLESS AND UNTIL HELD AS ULTRA VIRES BY A COURT OF LAW. THE B OARD HAS POWERS TO RELAX THE SEVERITY OR THE STRICTNESS OF LAW AND THE AUTHORITIES ARE REQUIRED TO FOLLOW THOSE INSTRUCTIONS AS HELD IN TH E CASE OF C.B. GAUTAM VS. UNION OF INDIA 108 CTR 304 (SC) & 110 CT R 179 (SC); 7 NAVNITLAL C.ZAVERI 56 ITR 198(SC) AND K.P.VARGHESE 131 ITR 597 (SC). IN THE LAND-MARK DECISION, THE HON'BLE SUPREME COUR T IN THE CASE OF UCO BANK VS. CIT (1999) 237 ITR 889 (SC) HAS THEREF ORE HELD, FIRST, THAT A BENEFICIAL CIRCULAR IS NOT TO BE TREATED AS INCONSISTENT WITH THE PROVISIONS OF STATUTE AND BINDING ON THE AUTHORITIE S. SECOND, THAT IN RESPECT OF INTEREST ON STICKY ADVANCES INTEREST I NCOME IS TO BE TAXED ONLY WHEN ACTUALLY RECEIVED AS PRESCRIBED BY C BDT CIRCULAR. HOWEVER, IN THE PAST AN INTERESTING TURN HAD TAKEN PLACE BY AN ORDER OF THE HONBLE KERALA HIGH COURT IN THE CASE OF STATE BANK OF TRAVANCORE REPORTED IN 110 ITR 336 (KER.), WHEREIN IT WAS HELD THAT THE ASSESSEE, A BANKING COMPANY, DID NOT CREDIT IN ITS ACCOUNT THE INTEREST THAT HAD ACCRUED ON STICKY ADVANCES BECA USE THE ASSESSEE FELT THAT THE INTEREST COULD NOT TO BE REALISED. IT CREDITED THE INTEREST TO A SEPARATE ACCOUNT KNOWN AS INTEREST SUSPENSE A CCOUNT. ON REFERENCE, THE HON'BLE COURT HAS HELD THAT THERE WA S AN ACCRUAL OF INCOME LIABLE TO INCOME-TAX AND THE ASSESSEE WAS NOT JUSTIFIED IN NOT CREDITING THE INTEREST INCOME ON SUCH STICK ADVANC ES IT ITS ACCOUNTS. HOWEVER, LATER ON AT THE HON'BLE APEX COUR T WHILE PRONOUNCING THE JUDGMENT OF THE SAID STATE BANK OF TRAVANCORE VS. CIT REPORTED IN (1986)158 ITR 102(SC), THERE WERE H ON'BLE THREE JUDGES PRESIDING THE COURT, OUT OF WHICH HONBLE TWO JUDGES WERE IN THE OPINION THAT THE INTEREST ON STICKY ADVANCES WAS RIGHTLY TREATED AS INCOME WHICH HAD ACCRUED TO THE APPELLAN T. THERE WAS A DESCENDING NOTE BY ONE OF THE HON'BLE JUDGE AND COM MENTED THAT WHETHER AN INCOME ON RECEIPT BASIS OR ON ACCRUAL BA SIS, IT IS THE REAL INCOME AND NOT ANY HYPOTHETICAL INCOME WHICH MAY HA VE THEORETICALLY ACCRUED, I.E. SUBJECT TO TAX UNDER THE ACT. NEVERTHELESS, THAT DECISION WAS NOT FOLLOWED WHILE DECIDING THE A PPEAL OF UCO BANK (SUPRA) BY THE HON'BLE THREE JUDGES OF THE SUPR EME COURT, ALREADY DISCUSSED BY US SUPRA. WE, THEREFORE SUMMAR IZE THAT AS OF NOW THE LAW AS LAID DOWN IN UCO BANK IS THAT IN TER MS OF CBDT CIRCULAR THE INTEREST IS TO BE ADDED AS INCOME ONLY WHEN ACTUALLY RECEIVED OR CREDITED IN RESPECT OF THE STICKY ADVA NCES WHILE MAKING ASSESSMENT FOR A FINANCIAL INSTITUTION. (IV) INTERPRETATION OF THE LANGUAGE OF THE STATUTE : WE HAVE REPRODUCED VERBATIM THE PROVISIONS OF SECTI ON 43-D OF THE I.T.ACT AND EXPRESSED AN OPINION THAT IF THE STATUT E HAS USED THE TERMINOLOGY FOR THE CHARGEABILITY OF INTEREST ON TH E BASIS WHEN CREDITED OR ACTUALLY RECEIVED, THEN IN OUR OPIN ION NO AMBIGUITY HAS BEEN LEFT BY THE STATUTE. IF THE STATUTE IS SO CLEAR THAT AN INTERPRETATION CAN EASILY BE MADE, THEN THAT EXACT MEANING SHOULD BE GIVEN TO THE LANGUAGE OF THE SECTION. FOR THIS L EGAL PROPOSITION WE PLACE RELIANCE ON KESHAVJI RAVJI AND COMPANY VS. CI T 183 ITR 01 (SC), WHEREIN IT WAS HELD AS UNDER: AS LONG AS THERE IS NO AMBIGUITY IN THE STATUTORY LANGUAGE, RESORT TO ANY INTERPRETATIVE PROCESS TO UNFOLD THE LEGISLATIV E INTENT BECOMES IMPERMISSIBLE. THE SUPPOSED INTENTION OF THE LEGISL ATURE CANNOT THEN BE APPEALED TO WHITTLE DOWN THE STATUTORY LANG UAGE WHICH IS OTHER-WISE UNAMBIGUOUS. IF THE INTENDMENT IS NOT IN THE WORDS, IT IS NOWHERE ELSE. THE NEED FOR INTERPRETATION ARISES WHEN THE WORDS USED IN TH E STATUTE ARE, ON THEIR OWN TERMS, AMBIVALENT AND DO NOT MANIFEST THE INTENTION OF THE LEGISLATURE. 8 WHEN WORDS ACQUIRE A PARTICULAR MEANING OR SENSE BE CAUSE OF THEIR AUTHORITATIVE CONSTRUCTION BY SUPERIOR COURTS, THEY ARE PRESUMED TO HAVE BEEN USED IN THE SAME SENSE WHEN USED IN SUBSE QUENT LEGISLATION IN THE SAME OR SIMILAR CONTEXT. TO SAY THAT THE COURT COULD NOT RESORT TO THE SO-CA LLED EQUITABLE CONSTRUCTION OF A TAXING STATUTE IS NOT TO SAY THAT , WHERE A STRICT LITERAL CONSTRUCTION LEADS TO A RESULT NOT INTENDED TO SUBSERVE THE OBJECT OF THE LEGISLATION, ANOTHER CONSTRUCTION, PE RMISSIBLE IN THE CONTEXT, SHOULD NOT BE ADOPTED. IN THIS RESPECT, TA XING STATUTES ARE NOT DIFFERENT FROM OTHER STATUTES. WE CAN THEREFORE SAFELY DRAW A CONCLUSION THAT BY T HE INSERTION OF A SPECIAL PROVISION TO TAX INTEREST INCOME IN THE CASE OF PUBLIC FINANCIAL INSTITUTION, ETC. SECTION 43-D HAS TO BE APPLIED IN ITS LETTER AND SPIRIT. IT IS PERTINENT TO MENTION THAT LATER O N, IN THE CASE OF CIT VS. BANK OF AMERICA S.A. 262 ITR 504 (BOM) THE QUES TION OF INTEREST ON STICKY LOANS WAS DECIDED IN FAVOUR OF THE ASSE SSEE AND HELD THAT THE QUESTION IS TO BE ANSWERED IN FAVOUR OF THE ASS ESSEE FOLLOWING THE DECISION OF UCO BANK REPORTED AT 237 ITR 889(SC ) :: 240 ITR 355 (SC). LIKEWISE, IN AN ANOTHER CASE OF CIT VS. S TATE BANK OF INDIA 262 ITR 662 (BOM.) AGAIN IT WAS HELD THAT THE AMOUN T CREDITED TO THE INTEREST SUSPENSE ACCOUNT WAS NOT TAXABLE FOLLOW ING THE DECISION PRONOUNCED IN THE CASE OF UCO BANK (SUPRA). (V) JUDGEMENT IN FAVOUR OF REVENUE : FROM THE SIDE OF THE REVENUE AN ORDER OF THE TRIBUN AL HAS BEEN VEHEMENTLY RELIED UPON AND THIS IS THE BASIC REASON OF THE ELABORATE DISCUSSION MADE HEREINABOVE SO AS TO UNFOLD THE CON TROVERSY. IN THE SAID DECISION OF THE TRIBUNAL, VIZ. JT.CIT V/S. INDI A EQUIPMENT LEASING LTD. (2008)111 ITD 37 (CHENNAI), THE RESPECTED CO-O RDINATE BENCH HAS EXPRESSED THAT QUOTE PRIOR TO INSERTION OF SE CTION 43D WITH EFFECT FROM 1-4-1991, RECOGNITION OF INCOME WAS ON THE BASIS OF CIRCULAR OF 9-101984. IT SAID THAT FOR FIRST THREE YEARS THE INCOME MAY BE TAKEN ON ACCRUAL BASIS AND FROM 4TH YEAR ONW ARDS, THE INCOME IN RESPECT OF DOUBTFUL DEBTS WAS TO BE RECOG NIZED ON RECEIPT BASIS. SINCE THE INCOME WAS TO BE ASSESSED FOR FIRS T THREE YEARS ON ACCRUAL BASIS, PROVISIONS OF SECTION 43D WERE INSE RTED IN THE ACT. CIRCULAR NO.621, DATED 19-12-1991 GIVES THE LEGISLA TIVE INTENTION STATING THAT SECTION 43D WAS INSERTED WITH A VIEW T O IMPROVING THE VIABILITY OF BANKS, PUBLIC FINANCIAL INSTITUTIONS E TC., SO AS TO PROVIDE THAT INTEREST ON STICKY LOANS SHALL BE CHARGED TO T AX ONLY IN THE YEAR IN WHICH THE INTEREST IS ACTUALLY RECEIVED OR CREDI TED TO THE PROFIT AND LOSS ACCOUNT. THIS BENEFIT WAS EXTENDED WITH EFF ECT FROM 1-4- 2000 IN THE CASE OF PUBLIC COMPANIES ENGAGED IN LON G-TERM FINANCING OF HOUSING PROJECTS APPROVED BY NATIONAL HOUSING BANKS. THE LEGISLATURE IN THEIR WISDOM DID NOT EXTEND THE S AME BENEFIT TO NBFCS WHICH HAS BEEN GIVEN TO SCHEDULED BANKS, PUBL IC FINANCIAL INSTITUTIONS, ETC. THE PROVISIONS OF SECTION 43D AS STOOD AT RELEVANT TIME CONTAINED AN EXPRESSION 'THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBT S AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED B Y THE RBI IN RELATION TO SUCH DEBTS'. THIS EXPRESSION CONTINUES TO EXIST IN THE NEWLY SUBSTITUTED SECTION 43D APPLICABLE WITH EFFEC T FROM 1-4-2000. THIS SHOWS THAT THE RBI GUIDELINES IN RESPECT OF SC HEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS ETC., WERE NOT SUFFIC IENT FOR RECOGNITION OF INCOME ON CASH BASIS FOR THE PURPOSES OF INCOME- TAX. THE INCOME 9 OF SUCH ASSESSEES WAS DETERMINED AS PER CIRCULAR DA TED 9-10-1984. BECAUSE OF THIS REASON, SECTION 43DWAS INSERTED IN THE STATUTE. RBI GUIDELINES IN CASE OF NBFC ARE FOR THE PURPOSE OF C ONTROL AND SUPERVISION WITH RESPECT TO PUBLIC INTEREST AND VIA BILITY OF THE NBFC. THE GUIDELINES NEVER INTENDED FOR TAKING THE INTERE ST INCOME ACCRUED AS PER SECTION 5 OUT OF THE SCOPE OF THE AC T. IF THE CONTENTION OF ASSESSEE WAS ACCEPTED, IT WOULD AMOUNT TO INSERT ION OF 'NBFC' IN SECTION 43D, THAT TOO BY A GUIDELINE ISSUED FOR DIF FERENT PURPOSES BY AN AUTHORITY OTHER THAN THE PARLIAMENT IN OTHER WOR DS, THE DOCTRINE OF 'CASUS OMISSUS' WILL DEEM TO HAVE BEEN APPLIED W HICH IS CONTRARY TO LAW OF LAND.UNQUOTE. THE BASIC REASON FOR DIREC TING TO ASSESS THE ACCRUED INTEREST ON NPA WAS THE RBI GUIDELINES ISSU ED ONLY FOR SCHEDULED BANKS, PUBLIC FINANCIAL INSTITUTIONS AND NOT FOR NBFC. THE OBSERVATION OF THE RESPECTED TRIBUNAL WAS THAT IF T HE CONTENTION OF THE ASSESSEE WAS TO BE ACCEPTED, THEN IT WOULD AMOU NT TO INSERTION OF NBFC IN SECTION 43-D OF THE I.T.ACT. AS AGAINS T THAT, AS FAR AS THE ASSESSEE IS CONCERNED, IT IS AN ACCEPTED FACT THAT THE ASSESSEE IS A COOPERATIVE BANK AND NOT A NON-BANKING FINANCIAL CO MPANY AND THIS NOTEWORTHY DISTINCTION HAS ALREADY BEEN APPREC IATED BY US IN ONE OF THE PARAGRAPHS ABOVE. THERE IS ONE MORE DECISION OF THE HONBLE APEX COURT WHICH IS YET TO BE MENTIONED WHILE DISCUSSING THE ARGUMENTS RAISED FROM THE SIDE OF THE REVENUE. A DECISION IN THE CASE OF SOUTHERN TEC HNOLOGIES LTD. VS. JT. CIT 320 ITR 577 (SC) HAS BEEN CITED BUT THE FUND AMENTAL DIFFERENCE IS THAT THE ISSUE BEFORE THE HONBLE COU RT WAS IN RESPECT OF PROVISION FOR NPA AND DEBITED TO P&L ACCOUNT BY A N BFC. THE SAID PROVISION WAS UNDISPUTEDLY MADE BY THE SAID NBFC AS PER THE PRUDENTIAL NORMS MADE BY THE RESERVE BANK. THEREFOR E WE WANT TO MAKE IT CLEAR THAT THE QUESTION FOR CONSIDERATION B EFORE THE HONBLE COURT WAS THAT IF A PROVISION FOR DOUBTFUL DEBT IS MADE THEN WHAT WILL BE THE LEGAL POSITION OF THE APPLICABILITY OF EXPLANATION TO SECTION 36(1)(VII) OF THE I.T. ACT. FOR THE SAKE OF READY REFERENCE, RELEVANT PARAGRAPH FROM THE HELD PORTION IS REPRODU CED BELOW: THE INCOME-TAX IS A TAX ON REAL INCOME, I.E., THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. THEREFORE, IF BY THE EXPLANATION TO SECTION 36(1)(V II) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACCOUNT THE EXPLANAT ION IN COMPUTING THE TOTAL INCOME UNDER THE INCOME-TAX ACT FAILING W HICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THE PROVISION FOR NON-P ERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RE SERVE BANK DIRECTIONS OF 1998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT IN THE COMPUTATION OF TOTAL INCOME UNDER THE INCOME-TAX ACT. THEREFORE THE DISTINCTION CAN EASILY BE DRAWN THAT IN THE APPEAL BEFORE US THE QUESTION IS ACCRUAL OF INTEREST INCOM E ON STICKY LOAN BUT IN THIS CITED DECISION THE QUESTION BEFORE HE A PEX COURT WAS ABOUT THE ADMISSIBILITY OF PROVISION MADE IN RESPEC T OF DOUBTFUL DEBTS. ( VI ) CONCEPT OF REAL INCOME APPROVED IN THE CASE OF BANKING BUSINESS: 10 BEFORE US, THE THEORY OF REAL INCOME HAS ALSO BEE N ARGUED AND IN SUPPORT A DECISION OF HON'BLE COURT PRONOUNCED IN T HE CASE OF CIT VS. GODHRA ELECTRICITY CO. 225 ITR 746 (SC). IN SHORT, THE VIEW EXPRESSED WAS THAT IF INCOME DOES NOT RESULT AT ALL, THERE CA NNOT BE ANY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY MADE ABOUT A HYPOTHETICAL INCOME BY FOLLOWING BOOK KEEPI NG METHODS, THE LIABILITY TO TAX CANNOT BE ATTRACTED. NOW AT PRESENT THE SITUATION IS THAT THE HON'BLE MA DRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD. 293 ITR 35 7 (MAD.) HAS TAKEN A VIEW THAT THE ASSESSEE IS A COMPANY ENGAGED IN TH E BUSINESS OF LEASE, FINANCE AND HIRE PURCHASE AND THAT THE PRINC IPLE OF ACCRUAL COMES INTO PLAY WITHOUT INCOME WAS RECOGNIZED AND T HAT THE ASSESSEE HAD CLASSIFIED ITS ASSETS ON THE BASIS OF NOTIFICATION ISSUED BY R.B.I. AND FOUND THAT CERTAIN ASSETS CAME UNDER THE CATEGORY OF NPA AND THAT FROM SUCH NPA THE ASSESSEE HAD NOT REC OGNIZED ANY INCOME IN CONSONANCE WITH THE NOTIFICATION ISSUED B Y RBI AND AS-9 ISSUED BY ICAI AND THAT THE ASSESSEE WAS JUSTIFIED IN NOT RECOGNIZING SUCH INCOME. THE COURT HAD FURTHER EXPRESSED THAT T HERE WAS NO OCCASION TO CONSIDER WHETHER THE PRINCIPLE OF ACCRU AL WOULD ARISE OR NOT, NEVERTHELESS, THE INTEREST FROM SUCH NPA WOULD BE TAXED IN THE APPROPRIATE ASSESSMENT YEAR ON THE BASIS OF ACTUAL RECEIPT. IT IS WORTH TO MENTION THAT FOR THIS DECISION, THE HON'BL E MADRAS HIGH COURT HAS RELIED UPON AN ANOTHER DECISION OF THE SA ME HIGH COURT PRONOUNCED IN THE CASE OF JT.CIT VS. INDIA EQUIPMENT LEASING LTD. 293 ITR 350. 7. IN THE CASE BEFORE US, ADMITTEDLY, ASSESSEE HAS DIRECTL Y TAKEN THE INTEREST TO THE BALANCE SHEET AND IT IS NOT ROUTED THROUGH THE PROFIT & LOSS ACCOUNT. MOREOVER, THE ISSU E OF THE TAXABILITY OF THE INTEREST ON THE STICKY LOSSES/ADVANC ES, IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDIN ATE BENCHES IN THE CASE OF THE DURGA COOPERATIVE URBAN BA NK LTD., VIJAYAWADA (SUPRA) AND KARNAVATI COOPERATIVE BANK LT D. (SUPRA). WE FIND NO REASON TO INTERFERE WITH THE REASONED ORDE R OF THE LD. CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. IN TH E RESULT, THE REVENUES GROUND IS DISMISSED. 10. RESPECTFULLY FOLLOWING THE DECISION OF THE COOR DINATE BENCH OF THE TRIBUNAL IN THE CASE CITED (SUPRA) AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE AGAINST THE ORDER OF THE TRIBUNAL WE FIND NO INFIRMITY IN THE ORDER OF THE C IT(A) DIRECTING THE AO TO DELETE THE ADDITION ON ACCOUNT OF INTERES T RECEIVABLE ON NPA ON ACCRUAL BASIS. THE GROUNDS RAISED BY THE RE VENUE ARE ACCORDINGLY DISMISSED. 11 CO NO.11/PN/2015 ( BY ASSESSEE) : 11. THERE WAS A DELAY OF 9 DAYS IN FILING OF THE CO FOR WHICH THE ASSESSEE HAS FILED AN AFFIDAVIT ALONG WITH COND ONATION PETITION EXPLAINING THE REASONS FOR DELAY. AFTER CONSIDERIN G THE CONTENTS OF THE AFFIDAVIT AND AFTER HEARING BOTH THE SIDES THE DELAY IN FILING OF CO IS CONDONED. 12. IN GROUND NO.1 OF CO THE ASSESSEE HAS CHALLENGE D THE ORDER OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 5,21,005/- MADE BY THE AO U/S.14A OF THE I.T. ACT. 13. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEE HAS C LAIMED DIVIDEND/EXEMPT INCOME OF RS.5,69,819/-. THE AO TH EREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY DISALLOWANC E U/S.14A SHOULD NOT BE MADE. IT WAS SUBMITTED BY THE ASSESS EE THAT THE INVESTMENTS YIELDING TAX FREE INCOME ARE THE STOCK IN TRADE OF THE BUSINESS OF BANKING CARRIED ON BY THE ASSESSEE AND THEREFORE SUCH DISALLOWANCE U/S.14A CANNOT BE MADE. FOR THE ABOVE PROPOSITION THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SMT. LEENA RAMCHANDRAN REPORTED IN 2010 (I TI)-GJ- 0374-KER WAS RELIED UPON. IT WAS FURTHER SUBMITTED THAT SINCE THE ASSESSEE BANK HAS MIXED FUNDS IT IS NOT POSSIBLE TO IDENTIFY SOURCE OF INVESTMENTS IN THE CAPTIONED SECURITIES. IT WAS ARGUED THAT WHEN THE ASSESSEE HAS SUFFICIENT OWN FUNDS AS WELL AS BO RROWED FUNDS THEN IN THE ABSENCE OF EVIDENCE THAT THE BORROWED F UNDS WERE UTILIZED FOR MAKING INVESTMENTS NO DISALLOWANCE OF INTEREST 12 U/S.14A CAN BE MADE. FOR THE ABOVE PROPOSITION THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF MAHAV IR STEEL INDUSTRIES DECIDED ON 31-05-2011 AND THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. K. RA HEJA CORPORATION PVT. LTD., WHICH HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT ON 08-08-2011 WERE RELIED UPON. 14. AS REGARDS THE DISALLOWANCE IN RESPECT OF ADMIN ISTRATIVE AND OTHER EXPENSES IS CONCERNED IT WAS ARGUED THAT THE DIVIDEND INCOME IS DIRECTLY CREDITED TO THE BANK ACCOUNTS TH ROUGH ECS AND THE ASSESSEE BANK DOES NOT HAVE TO INCUR ANY EXPEND ITURE FOR EARNING THIS TAX FREE INCOME. IT WAS ARGUED THAT T HE ONUS TO PROVE THAT THE ASSESSEE HAD TO INCUR EXPENDITURE FOR EARN ING TAX FREE INCOME SHIFTS UPON THE DEPARTMENT AND UNLESS THAT O NUS IS DISCHARGED NO DISALLOWANCE ON THIS ACCOUNT CAN BE M ADE. WITHOUT PREJUDICE TO THE ABOVE AND AS AN ALTERNATE SUBMISSI ON IT WAS SUBMITTED THAT AS ON THE FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR THE INVESTMENT IN MUTUAL FUNDS WAS NIL AND THEREFOR E THE COMPUTATION PROVISIONS OF RULE 8D FAILS MISERABLY. ACCORDINGLY, IT WAS ARGUED THAT NO DISALLOWANCE U/S.14A CAN BE M ADE. 15. HOWEVER, THE AO WAS NOT SATISFIED WITH THE EXPL ANATION GIVEN BY THE ASSESSEE AND DISALLOWED AN AMOUNT OF R S.5,21,005/- BEING 0.0825% OF THE EXPENDITURE AS SHOWN IN THE PR OFIT AND LOSS ACCOUNT AT RS.63,15,21,703/-. THE AFORESAID PERCEN TAGE WAS TAKEN BY THE AO ON THE BASIS OF THE RATIO OF EXEMPT DIVID END INCOME TO TOTAL INCOME AS PER PROFIT AND LOSS ACCOUNT. 13 16. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF TH E AO. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSE E HAS TAKEN THIS GROUND IN THE CO. 17. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET REFERRING TO PAGE 10 OF THE ASSESSMENT ORDER DREW THE ATTENTION OF THE BENCH WHERE THE AO HAS COMPUTED THE DISALLOWANCE UNDER RU LE 8D AND SUBMITTED THAT SUCH COMPUTATION IS NOT IN ACCORDANC E WITH THE PROVISIONS OF RULE 8D. HE SUBMITTED THAT THE OWN F UNDS OF THE ASSESSEE ARE MORE THAN THE INVESTMENTS MADE AND THE REFORE THE ASSESSEE NEED NOT HAVE TO INCUR ANY EXPENDITURE ON ACCOUNT OF INTEREST. SO FAR AS THE ADMINISTRATIVE EXPENSES AR E CONCERNED HE SUBMITTED THAT THE ASSESSEE IS NOT REQUIRED TO SPEN D ANY AMOUNT SINCE THE DIVIDENDS ARE DIRECTLY CREDITED. FURTHER , THE INVESTMENTS MADE ARE SHOWN AS STOCK IN TRADE BOTH IN THIS YEAR AS WELL AS IN THE PRECEDING AND SUBSEQUENT ASSESSMENT YEARS. REFERRI NG TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF SHRI APOORVA PATNI AND OTHERS VIDE CONSOLIDATED ORDER DA TED 21-06- 2012 THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTE NTION OF THE BENCH TO PARA 29 AT PAGE 17 OF THE ORDER AND SUBMIT TED THAT THE TRIBUNAL FOLLOWING THE DECISION OF THE HONBLE KARN ATAKA HIGH COURT IN THE CASE OF M/S. CCI LTD. VS. JCIT VIDE IT A NO.359/2011 ORDER DATED 28-02-2012 HAS HELD THAT IN CASE WHERE THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTEN TION OF EARNING DIVIDEND INCOME AND DIVIDEND INCOME IS INCIDENTAL T O THE BUSINESS OF SALE OF SHARES, IT CANNOT BE SAID THAT THE EXPEN DITURE INCURRED IN 14 ACQUIRING THE SHARE HAS TO BE APPORTIONED TO THE EX TENT OF DIVIDEND INCOME SO AS TO DISALLOW. HE SUBMITTED THAT THE AS SESSEE HAD CATEGORICALLY STATED BEFORE THE AO AS WELL AS BEFOR E THE CIT(A) THAT THE INVESTMENTS YIELDING TAX FREE DIVIDEND INC OME ARE THE STOCK IN TRADE OF THE BUSINESS OF BANKING CARRIED O N BY THE ASSESSEE. SINCE THIS FACT HAS NOT BEEN NEGATED BY THE REVENUE AUTHORITIES, THEREFORE, IN VIEW OF THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL NO DISALLOWANCE U/S.14A IS CALLED FOR. 18. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHE R HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 19. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE IN THE IMPUGNED GROUND IS REGARDING THE DIS ALLOWANCE OF RS.5,21,005/- U/S.14A MADE BY THE AO AND UPHELD BY THE CIT(A). IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASS ESSEE THAT SINCE THE INVESTMENTS YIELDING TAX FREE INCOME ARE THE ST OCK IN TRADE OF THE BUSINESS OF BANKING CARRIED ON BY THE ASSESSEE, THEREFORE, NO DISALLOWANCE U/S.14A CAN BE MADE. FROM THE SUBMISS IONS MADE BY THE ASSESSEE BEFORE THE AO WE FIND THE ASSESSEE HAD CATEGORICALLY STATED BEFORE THE AO THAT THE INVESTM ENTS YIELDING TAX FREE INCOME ARE THE STOCK IN TRADE OF THE BUSIN ESS OF BANKING CARRIED ON BY THE ASSESSEE AND THEREFORE NO DISALLO WANCE IS CALLED FOR. FOR THE ABOVE PROPOSITION, THE ASSESSEE HAS R ELIED UPON THE 15 DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SMT. LEENA RAMCHANDRAN (SUPRA). HOWEVER, THE AO HAS NOT COMMENTED UPON THE ABOVE SUBMISSION OF THE ASSESSEE . EVEN THOUGH SUCH AN ARGUMENT WAS TAKEN BEFORE THE CIT(A) , HOWEVER, THE LD.CIT(A) ALSO DECIDED THE ISSUE AGAINST THE AS SESSEE. WE FIND THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI APOORVA PATNI AND OTHER CONNECTED APPEALS (SUPRA) WHILE DEC IDING AN IDENTICAL ISSUE DELETED THE DISALLOWANCE MADE U/S.1 4A WHEREIN THE ASSESSEE WAS A DEALER IN SHARES AND SECURITIES AND HAD EARNED DIVIDEND INCOME ON SHARES OF CERTAIN COMPANIES. TH E RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 29 READS AS UND ER : 29. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S. IN THE CASE OF M/S CCI LTD. (SUPRA), THE ASSESSEE WAS, INTER AL IA, A DEALER IN SHARES AND SECURITIES AND HAD EARNED DIVIDEND INCOME ON SHARES OF CERTAIN COMPANIES. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD RAISED INTEREST BEARING LOANS TO PART-FINANCE THE SHARES AND IT HAD ALSO INCURRED BROKERAGE FOR ARRANGI NG SUCH LOANS. THE ASSESSING OFFICER HELD THAT SUCH EXPENDITURE W AS DIRECTLY ATTRIBUTABLE TO THE EARNING OF DIVIDEND IN COME AND INVOKED SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME- TAX RULES, 1962, TO DISALLOW THE EXPENDITURE THE HON BLE HIGH COURT WAS SEIZED OF THE FOLLOWING QUESTION IN THE ABOV E BACKGROUND: WHETHER THE PROVISIONS OF SECTION 14A OF THE ACT ARE APPLICABLE TO THE EXPENSES INCURRED BY THE ASSESSEE IN THE COURSE OF ITS BUSINESS MERELY BECAUSE THE ASSESSEE IS ALSO HAVING DIVIDEND INCOME WHEN THERE WAS NO MATERIAL BROUGHT TO SHOW THA T THE ASSESSEE HAD INCURRED EXPENDITURE FOR EARNING DIVIDEND INCOME WHICH IS EXEMPTED FROM TAXATION? FOLLOWING DISCUSSION IN THE ORDER OF THE HONBLE HIGH COURT IS WORTHY OF NOTICE: 5. WHEN NO EXPENDITURE IS INCURRED BY THE ASSESSEE IN E ARNING THE DIVIDEND INCOME, NO NOTIONAL EXPENDITURE COULD BE DEDUCTED FROM THE SAID INCOME. IT IS NOT THE CASE OF THE ASSESSEE R ETAINING ANY SHARES SO AS TO HAVE THE BENEFIT OF DIVIDEND. 63% O F THE SHARES, WHICH WERE PURCHASED, ARE SOLD AND THE INCOME D ERIVED THEREFROM IS OFFERED TO TAX AS BUSINESS INCOME. THE REMA INING 37% OF THE SHARES ARE RETAINED. IT HAS REMAINED UNSOLD WITH THE ASSESSEE. IT IS THOSE UNSOLD SHARES HAVE YIELDED DIVIDEND, FOR WHICH, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AT ALL. THOUGH THE DIVIDEND INCOME IS EXEMPTED FROM PAYMENT OF TAX, IF ANY EXPENDITURE IS INCURRED IN EARNING THE SAID INCOM E, THE SAID 16 EXPENDITURE ALSO CANNOT BE DEDUCTED. BUT IN THIS CASE, WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EAR NING DIVIDEND INCOME AND THE DIVIDEND INCOME IS INCIDENTA L TO HIS BUSINESS OF SALE OF SHARES, WHICH REMAINED UNSOLD BY THE A SSESSEE IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN A CQUIRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIE W OF THE MATTER, THE APPROACH OF THE AUTHORITIES IS NOT IN CO NFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT. THER EFORE, THE IMPUGNED ORDERS ARE NOT SUSTAINABLE AND REQUIRE TO BE SET ASIDE. ACCORDINGLY, WE PASS THE FOLLOWING: ORDER I) APPEAL IS ALLOWED. II) IMPUGNED ORDERS ARE HEREBY SET ASIDE. III) THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN VIEW OF THE AFORESAID JUDGMENT, IT IS CLEAR THAT WHERE NO EXPENDITURE IS CANVASSED TO HAVE BEEN INCURRED BY THE ASSESSEE IN EARNING DIVIDEND INCOME, NO NOTIONAL EXPENDITURE CA N BE DEDUCTED BY INVOKING SECTION 14A OF THE ACT. FURTHER AS PER THE HONBLE HIGH COURT, IN A CASE WHEN ASSESSEE HAS NOT RETAI NED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND DIVIDEND INCOME IS INCIDENTAL TO THE BUSINESS OF SALE OF SHARES, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQU IRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF DIVIDEND INCOME SO AS TO BE DISALLOWED. FOLLOWING THE AFORESAID JUDGMENT, WE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APP EALS) AND DIRECT THE ASSESSING OFFICER TO ALLOW APPROPRIATE RELIE F TO THE ASSESSEE ON THIS COUNT. THUS, ON THIS GROUND THE ASSESSEE SUCCEEDS. 20. SINCE THE FACTS OF THE INSTANT CASE ARE IDENTIC AL TO THE FACTS OF THE CASE DECIDED BY THE TRIBUNAL CITED (SUPRA), THE REFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINA TE BENCH OF THE TRIBUNAL AND IN ABSENCE OF ANY CONTRARY MATERIAL BR OUGHT TO OUR NOTICE WE HOLD THAT NO DISALLOWANCE U/S.14A IS REQU IRED WHEN THE ASSESSEE EARNS TAX FREE DIVIDEND INCOME ON INVESTME NTS WHICH ARE HELD AS STOCK IN TRADE OF THE ASSESSEE. THIS GROUN D BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 21. GROUND NO.2 OF THE CO READS AS UNDER : 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) OUGHT TO HAVE ALLOWED DEDUCTION OF RS.1,41 ,23,785/- AS PER THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE I.T. ACT, 1961. THE 17 SAID DEDUCTION MAY PLEASE BE ALLOWED TO THE CROSS OBJEC TOR ASSESSEE. 22. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CASE OF MAHALAX MI COOPERATIVE BANK LTD. VS. ITO VIDE ITA NO.1658/PN/2011 ORDER DA TED 29-10- 2013 SUBMITTED THAT THE ISSUE STANDS DECIDED AGAINS T THE ASSESSEE. IN VIEW OF THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE, GROUND NO.2 OF THE CO IS DISMISSED. 23. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CO FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24-04-2015. SD/- SD/- (SUSHMA CHOWLA) (R.K. PA NDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 24 TH APRIL, 2015 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A)-III, PUNE 4. THE CIT-III, PUNE 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE