Escorts Finance Ltd., Faridabad V. DCIT, New Delhi

ITA 36/DEL/2012

• Counselvise Citation: 3620114 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-06-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 04-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR SUDHA KUMARI
• Assessee Lawyers: R M MEHTA; ARUN KUM AR BHATIA
• Keywords: Depreciation; Speculation loss; Bad and doubtful debts
• Section: 14A; 115JB; 145; 37; 28; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI J. S. REDDY, ACCOUNTANT MEMBER I.T.A .NO.-36/DEL/2012 (ASSESSMENT YEAR-2005-06) ESCORTS FINANCE LTD. VS. DCIT C/O. ESCORTS LTD. CIRCLE-11(1), CORPORATE TAXATION C.R. BUILDING 15/5, MATHURA ROAD NEW DELHI. FARIDABAD. PAN: AAACE0763B I.T.A .NO.-5768/DEL/2011 (ASSESSMENT YEAR-2005-06) DCIT VS. ESCORTS FINANCE LTD. CIRCLE-11(1), ROOM NO. 312, C/O. ESCORTS LTD. C.R. BUILDING CORPORATE TAXATION NEW DELHI 15/5, MATHURA ROAD FARIDABAD. PAN: AAACE0763B I.T.A .NO.-37/DEL/2012 (ASSESSMENT YEAR-2006-07) ESCORTS FINANCE LTD. VS. DCIT C/O. ESCORTS LTD. CIRCLE-11(1), CORPORATE TAXATION C.R. BUILDING 15/5, MATHURA ROAD NEW DELHI. FARIDABAD. AAACE0763B 2 I.T.A .NO.-5876/DEL/2011 : (ASSESSMENT YEAR-2006-07) I.T.A .NO.-682/DEL/2012 : (ASSESSMENT YEAR-2007-08) I.T.A .NO.-3500/DEL/2012 : (ASSESSMENT YEAR-2008-09) DCIT VS. ESCORTS FINANCE LTD. CIRCLE-11(1), ROOM NO. 312, C/O. ESCORTS LTD. C.R. BUILDING CORPORATE TAXATION NEW DELHI 15/5, MATHURA ROAD FARIDABAD. PAN: AAACE0763B (APPELLANT) (RESPONDENT) ASSESSEE BY:-SH. R.M. MEHTA, ADV. & SH.ARUN KUMAR BHATIA REVENUE BY:-DR. SUDHA KUMARI, CIT DR ORDER PER BENCH. CROSS-APPEALS ARE FILED FOR THE A.Y. 2005-06 DIREC TED AGAINST THE ORDER OF THE LD. CIT (A)-XIII NEW DELHI, DATED 14.10.2011 . FOR THE A.Y. 2006-07 THE CROSS-APPEALS ARE FILED CHALLENGING THE ORDER O F THE CIT (A)-XIII NEW DELHI DATED 18.10.2011. FOR A.Y. 2007-08 AND A.Y. 2 008-09, THE REVENUE HAS FILED THE APPEAL CHALLENGING THE ORDER OF THE L D. CIT (A)-XIII NEW DELHI DATED 30.11.2011 AND 18.4.2012 RESPECTIVELY. 2. THE ASSESSEE IS A NON BANKING FINANCIAL COMPANY, ENGAGED IN THE BUSINESS OF FINANCING, HIRE PURCHASE AND LEASING OF ASSETS. THE ISSUES THAT ARISE IN ALL THESE APPEALS ARE COMMON AND HENCE FOR THE SAKE OF CONVENIENCE, 3 THE APPEALS ARE HEARD TOGETHER AND DISPOSED OFF BY WAY OF THIS COMMON ORDER. 3. WE HAVE HEARD DR. SUDHA KUMARI THE LD. CIT DR ON BEHALF OF THE REVENUE AND SHRI R.M. MEHTA, THE LD. ADVOCATE ON BE HALF OF THE ASSESSEE. 4. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENTI ONS AND A PERUSAL OF THE PAPERS ON RECORD, AS WELL AS, THE ORDERS OF THE AUT HORITIES BELOW AND CASE LAWS CITED, WE HOLD AS FOLLOWS: WE FIRST TAKE UP CROSS-APPEALS FOR THE ASSESSMENT Y EARS 2005-06, ITA NO. 36/DEL/2012 IN THIS ASSESSEES APPEAL. THE FOLL OWING GROUND IS TAKEN, 1. THE CIT (A) ERRED BOTH ON FACTS AND IN LAW IN C ONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEPR ECIATION TO THE EXTENT OF RS.54,24,886/- PERTAINING TO VEHICLES , MOTOR- LORRIES, TAXIES AND MOTOR CARS WHICH HAD BEEN LEASE D OUT BY THE COMPANY IN ITS BUSINESS OF LEASING. 5. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEPRECIATION ON MOTOR, LORRIES, TAXIS @ 40% AND A ON MOTOR CAR @ 2 5%. HE ALLOWED DEPRECIATION @ 20% AT PARA 2-3 OF PAGE 2 OF HIS ORD ER. THE AO RECORDS THAT SIMILAR ADDITIONS HAVE BEEN MADE IN THE PRECEDING Y EAR AND THE MATTER IS UNDER LITIGATION. HENCE HE REPEATED THE ADDITION. T HE LD. CIT (A) AT PAGE 3 PARA 5.2 ONWARDS FOLLOWED THE DECISION OF HIS PREDE CESSOR CIT (A) XIII ORDER DATED 21.6.2007 FOR THE A.Y. 2003-04 AND ORDE R DATED 19.9.2007 FOR 4 THE A.Y. 2004-05 IN THE ASSESSEES OWN CASE AND DIS ALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED THE ASSESSEE FILED THIS APPEAL. 6. THE TRIBUNAL IN ITA NO. 3779/DEL/2007 & ITA NO. 3818/DEL/2007 C BENCH, THE A.Y. 2003-04 ORDER DATED 6.7.2012, R EVERSED THE ORDER OF THE LD. CIT (A) BY OBSERVING AS FOLLOWS: 31. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH TH E PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE H AVE OBSERVED FROM THE MATERIAL AVAILABLE AND CONTENTIONS OF PART IES THAT THERE WAS NO FRESH LEASING ACTIVITY DONE BY THE ASSESSEE AS I S APPARENT FROM PAGE 81-83 OF PAPER BOOK WHEREIN NO FRESH PURCHASES OF MOTOR CARS/LORRIES ETC,. WAS MADE DURING THE YEAR AND HEN CE IT CAN BE CONCLUDED THAT ASSESSEE WAS CLAIMING DEPRECIATION O N OLD VEHICLES ONLY WHICH WERE ALREADY LET OUT ON HIRE AND ON WHIC H THE ASSESSEE HAD ALREADY BEEN ALLOWED DEPRECIATION @ 40%. IN THE CAS E LAW RELIED UPON BY THE LD AR OF CIT V. MGF (SUPRA) IT WAS CLEA RLY HELD BY HON'BLE DELHI HIGH COURT THAT VEHICLES OWNED BY A N ON BANKING FINANCE COMPANY LEASED TO THIRD PARTY ARE ELIGIBLE FOR HIGHER RATE OF DEPRECIATION @ 40%. RESPECTFULLY FOLLOWING THE HON' BLE DELHI HIGH COURT JUDGMENT, WE HOLD THE VIEW THAT ASSESSEE WAS RIGHTLY ELIGIBLE FOR DEPRECIATION AT HIGHER RATE. IN VIEW OF THE ABOVE, THE FIRST GROUND OF APPEAL SU CCEEDS. 7. THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENT ION OF THE BENCH TO THE PAPER BOOK FILED, SPECIFICALLY TO PAGES 46 & 47 TO DEMONSTRATE THAT THE 5 ASSESSEE HAS NOT MADE ANY FRESH PURCHASES OF MOTOR CAR, LORRIES ETC. DURING THE YEAR. THIS FACT THAT THERE ARE NO ADDITIONS DUR ING THE YEAR IS NOT DISPUTED BY THE REVENUE. 8. THE TRIBUNAL IN ITA NO. 4720/DEL/2007 AND ITA NO . 4799/DEL/2007 FOR THE A.Y. 2004-05 VIDE ORDER DATED 6.7.2012 HAS ALSO IN FAVOUR OF THE ASSESSEE ON THIS ISSUE, WHICH APPLIED THE RATIO OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MG F 285 ITR 142. 9. RESPECTFULLY FOLLOWING THE ORDERS OF THE CO-ORDI NATE BENCH, AS THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, WE ALLOW THIS GROUND OF THE ASSESSEE. IN THE RESULT THE APPEAL OF THE ASSES SEE IS ALLOWED. 10. ITA NO. 5768/DEL/2011 IS A REVENUE APPEAL FOR T HE A.Y. 2005-06 AND THE GROUNDS ARE AS FOLLOWS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING TO ALLOW THE LOSS OF RS.23,95,087/- BEING DERIVED ON ACCOUNT OF SHARE TRADING AS LONG T ERM CAPITAL LOSS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.29, 49,000/- MADE ON ACCOUNT OF DISALLOWANCES U/S 14A OF THE INC OME TAX ACT, 1961. 11. GROUND NO. 1 IS ON THE ISSUE WHETHER THE LONG T ERM CAPITAL LOSS CLAIMED BY THE ASSESSEE, IS TO BE TREATED AS SPECUL ATION LOSS WITHIN THE 6 MEANING OF THE EXPLANATION TO SECTION 73 OF THE IT ACT. THE ASSESSEES CASE IS THAT, IT IS NOT ENGAGED IN THE BUSINESS OF SALE AND PURCHASE OF SHARES AND HENCE EXPLANATION TO SECTION 73 IS NOT ATTRACTED IN THE CASE. 12. THE ISSUE WAS CONSIDERED BY THE ITAT IN ITS ORD ER FOR THE A.Y. 2004- 05. IT WAS HELD AS FOLLOWS: 24. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH TH E PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON REC ORD. EXPLANATION TO SECTION 73 READS AS FOLLOWS:- WHERE ANY PART OF THE BUSINESS OF A COMPANY OTHER THAN A COMPANY W HOSE GROSS TOTAL INCOME CONSIST MAINLY OF INCOME WHICH IS CHAR GEABLE UNDER THE HEAD INTEREST ON SECURITIES, INTEREST FRO M HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURC ES, OR A COMPANY THE PRINCIPLE BUSINESS OF WHICH IS A BUSINE SS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES CONSI ST IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUC H COMPANY SHALL FOR THE PURPOSE OF THIS SECTION BE DEEMED TO BE CARRYING ON A SPECULATIVE BUSINESS TO THE EXTENT TO WHICH TH E BUSINESS CONSIST OF PURCHASE AND SALE OF SUCH SHARES. FROM THE ABOVE DEFINITION, IT IS CLEAR THAT THIS SECTION IS APPLIC ABLE ONLY WHERE SHARES ARE PURCHASED OR SOLD BY A NBFC. THIS SECTIO N DOES NOT TALK ABOUT GOVT. SECURITIES AND THEREFORE, IN OUR O PINION, IN CASE OF GOVT. SECURITIES, THIS EXPLANATION IS NOT A PPLICABLE. WE HAVE OBSERVED FROM COMPUTATION OF CAPITAL GAIN, PLA CED AT PAGE 38OF PAPER BOOK THAT THE LOSS OCCURRED TO ASSESSEE WAS ON 7 ACCOUNT OF SALE OF GOVT. SECURITIES ONLY OTHER THAN ONE BELONGING TO GR SOLVENTS WHICH IS NOT A GOVT. SECUR ITY BUT IS A SHARE. FROM THE DATES OF PURCHASE MENTIONED AGAINST EACH SECURITY, IT IS CLEAR THAT THESE SECURITIES WERE HE LD FOR FAIRLY LONG PERIOD OF TIME. THEREFORE, WE DO NOT AGREE WITH ASS ESSING OFFICER AND LD CIT(A) THAT THE ASSESSEE IS HIT BY E XPLANATION TO SECTION 73 AND THEREFORE WE HOLD THAT LOSS OCCURRED TO ASSESSEE IS OF CAPITAL NATURE AND NOT OF SPECULATIVE NATURE. IN VIEW OF ABOVE, GROUND NO.3 SUCCEEDS. 13. THE LD. CIT (A) AT PARA 7.5 OF THE ORDER HELD A S FOLLOWS: 7.5 ON PERUSAL OF THE AOS ORDER FOR A.Y. 2005-06, IT IS SEEN THAT THERE IS NO DISCUSSION OR FINDING RELATING TO THE C LAIM OF THE APPELLANT COMPANY BEING ONLY AN INVESTOR AND NOT A TRADER IN SHARES / GOVERNMENT SECURITIES. AT THE SAME TIME, F ACTS HAVE NOT BEEN MARSHALLED BY THE AO TO HOLD THAT THE APPE LLANT COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN SH ARES. IN FACT DESPITE ASSESSEES DENIAL OF NOT BEING A TRADER IN SHARES, THE AO HAS NOT RECORDING ANY FINDING TO REJECT THE CLAIM. IN ORDER TO APPLY EXPLANATION TO SECTION 73, IT HAS TO BE FIRST HELD THAT THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF TRA DING IN SHARES. THE FACTS AVAILABLE ON RECORD DO NOT INDICA TE THAT THE APPELLANTS ACTIVITIES WERE IN THE NATURE OF BUSINE SS OF TRADING IN SHARES. ONCE THIS FINDING IS ABSENT, THEN EXPLAN ATION TO SECTION 73 CANNOT BE INVOKED. 8 14. APPLYING THE PROPOSITIONS LAID DOWN BY THE CO-O RDINATE BENCH OF THE TRIBUNAL THAT EXPLANATION TO SECTION 73 DOES NOT AP PLY TO INVESTMENTS IN GOVT. SECURITIES, AND ALSO THE FACT RECORDED BY THE LD. CIT (A) THAT THE ASSESSEE IS NOT IN THE BUSINESS OF TRADING IN SHARE AND HAS INCURRED A LOSS ON ITS INVESTMENT, WE HOLD THAT THE ACTIONS OF THE AO IN INVOKING EXPLANATION TO SECTION 73, IS WRONG. HENCE WE UPHOLD THE ORDER OF THE LD. FIRST APPELLATE AUTHORITY AND DISMISS THIS GROUND OF REVENUE. 15. THE 2 ND GROUND OF REVENUE IS ON THE ISSUE OF DISALLOWANCE U/S 14A. THE TRIBUNAL WHILE DISPOSING OFF THE MATTER FOR THE A.Y. 2004-05 HAS RESTORED, THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION, WITH A DIRECTION TO APPLY THE PROPOSITIONS LAID DOWN BY TH E HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (2011) 203 TAXMAN 364 (DEL) TO THE FACTS OF THE CASE. CONSISTENT WITH THE VIEW TAKEN THEREIN, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR DE NOVO ADJUDIC ATION IN ACCORDANCE WITH LAW. IN THE RESULT THIS GROUND IS ALLOWED FOR STATI STICAL PURPOSES. 16. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED AND THE APPEAL OF THE REVENUE IS ALLOWED IN PART. 17. ITA NO. 37/DEL/2012 IS AN ASSESSEES APPEAL FIL ED FOR THE A.Y. 2006- 07 ON THE FOLLOWING GROUND: 9 1. THE CIT (A) ERRED BOTH ON FACTS AND IN LAW IN C ONFIRMING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEPR ECIATION TO THE EXTENT OF RS.6,86,584/- PERTAINING TO VEHICLES, MOTOR-LORRIES AND TAXIES WHICH HAD BEEN LEASED OUT BY THE COMPANY IN ITS BUSINESS OF LEASING. 2. THE APPELLANT RESERVES TO ITSELF, THE RIGHT TO A DD, ALTER, AMEND, SUBSTITUTE, WITHDRAW AND / OR ANY GROUND(S) OF APPE AL ON OR BEFORE THE DATE OF HEARING. 18. THE ISSUE IS THE SAME AS IN THE YEAR 2005-06. T HE UNDISPUTED FACT IS THAT THERE IS NO ADDITION TO THE LEASED ASSETS DURI NG THE YEAR. FOR THE REASON STATED WHILE DISPOSING OFF THE VERY SAME ISSUE RAIS ED IN THE YEAR 2005-06, WE ALLOW THIS GROUND OF THE ASSESSEE. IN THE RESULT TH E APPEAL OF THE ASSESSEE IS ALLOWED. 19. NOW WE TAKE UP ITA NO. 5876/DEL/2011 WHICH IS A REVENUE APPEAL OF THE A.Y. 2006-07. THE GROUNDS OF APPEAL ARE AS FOLL OWS: 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.20 ,61,28,000/- MADE ON ACCOUNT OF REVERSAL OF INCOME CHARGED TO PR OFIT & LOSS ACCOUNT. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.2, 73,813/- MADE ON ACCOUNT OF DIFFERENCE BETWEEN INFORMATION R ECEIVED THROUGH AIR AND THE BOOKS OF ASSESSEE COMPANY. 10 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN DIRECTING THE AO TO ALLOW LOSS OF RS.1,62,50,375/- AS LONG TERM CAPITAL LOSS. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 20. GROUND NO. 1 IS AGAINST THE DELETION BY THE LD. CIT (A) OF AN ADDITION OF 20,61,28,000/- BEING INTEREST INCOME AND EARLIER YEARS REVERSED DURING THE YEAR. THE CLAIM OF THE ASSESSEE IS BROUGHT OUT AT P ARA 5.2 OF THE CIT (A) ORDER WHICH IS EXTRACTED FOR READY REFERENCE: BEING A NON BANKING FINANCE COMPANY, THE ASSESSEE COMPANY HAD FINANCED SEVERAL CLASSES OF ASSETS UNDER THE HI RE PURCHASE SCHEME OF FINANCING. THE FINANCING BOOK OF THE COMP ANY KEPT ON GROWING AT A RAPID PACE BETWEEN 2001 TO 2003 WIT H THE RESULT THAT A SITUATION STARTED DEVELOPING TOWARDS THE MIDDLE OF 2004 WHEN THERE WAS OVERALL PRESSURE ON THE ECONOMY WITH INCREASING RATE OF INTEREST RESULTING IN LOAN DEFAU LTS OR DELAY IN REPAYMENTS. THE ASSESSEE COMPANY FELT THE IMPACT OF OVERALL TIGHT ECONOMIC CONDITION IN THE COUNTRY AND THE CUS TOMERS STARTED DEFAULTING ON THE PAYMENT OF INSTALLMENTS. THE ASSESSEE COMPANY WAS BOUND BY THE RESERVE BANK OF INDIA NORM S WITH REGARD TO THE INCOME RECOGNITION AND ASSET PROVISIO NING. AS PER THESE NORMS, ONCE AN ASSET BECOMES OF SUB-STANDARD QUALITY OR DOUBTFUL, THE INCOME THERE FROM WHICH IS RECOGNIZED IS ALSO REVERSED. BESIDES THIS, ADEQUATE PROVISION IS ALSO REQUIRED TO BE MADE ON ACCOUNT OF DOUBTFUL NATURE OF RECOVERY OF T HE 11 PRINCIPAL. THERE WERE SUBSTANTIAL DEFAULTS DURING T HE WHOLE OF THE ASSESSMENT YEAR 2006-07 AND THE FINANCIAL POSIT ION OF THE ASSESSEE COMPANY BECAME HUGELY NEGATIVE DUE TO HEAV Y PRESSURE ON PAYMENT OF INTEREST ON PUBLIC FIXED DEP OSITS TAKEN BY THE ASSESSEE COMPANY. IN VIEW OF TIGHT FINANCIAL POSITION THE ASSESSEE COMPANY COULD NOT TAKE VERY EFFECTIVE RECO VERY MEASURES INCLUDING LEGAL ACTION WHEREVER REQUIRED W HICH RESULTED IN THE LOAN DEFAULTS GETTING EXPANDED. TOW ARDS THE END OF THE FINANCIAL YEAR ENDING 31.3.2006 THE COMPANY HAD NO OTHER OPTION BUT TO DECLARE SUBSTANTIAL PART OF ITS LOAN ASSETS AS DOUBTFUL NATURE RESULTING IN A PROVISION OF RS.189. 40 CRORES. AS THE PRINCIPAL AMOUNT OF THE DOUBTFUL ASSETS WAS PRO VIDED FOR, THE INCOME ACCOUNTED FOR AGAINST SUCH ASSETS DURING THE RELEVANT ASSESSMENT YEAR AS ALSO IN THE EARLIER ASS ESSMENT YEARS WHICH WAS OUTSTANDING FOR RECOVERY HAD ALSO TO BE R EVERSED IN ACCORDANCE WITH THE ACCOUNTING NORMS FOR NBFCS AND MORE PARTICULARLY IN VIEW OF THE ACCOUNTING STANDARD 9 I SSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ON REVE NUE RECOGNITION. 21. THE LD. COUNSEL RELIED ON THE ITAT DELHIS ORD ER DATED 31.08.2005 IN APPELLANTS OWN CASE IN ITA NO. 611/2005 FOR A.Y. 2 001-02 AND HONBLE DELHI HIGH COURTS DECISION DATED 11.07.2011 IN THE CASE OF CIT VS. IFCI IN ITA NO. 660/2000 AND SUBMITTED THAT THE CLAIM OF RE VERSAL OF THE INCOME IS FULLY IN ACCORDANCE WITH LAW AND HENCE ALLOWABLE. T HE FIRST APPELLATE 12 AUTHORITY APPLYING THE DECISIONS OF THE TRIBUNAL IN THE CASE OF TEDCO INVESTMENT AND FINANCIAL SERVICES PVT. LTD. 82 TTJ 259 ALLOWED THE CLAIM OF THE ASSESSEE. THE REVENUE DISPUTES THE FINDING OF T HE LD. CIT (A). 22. THE TRIBUNAL WHILE CONSIDERING THE ISSUE IN THE A.Y. 2001-02, AT PARA 11, TOOK A NOTE OF THE DECISION OF THE SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF NEW INDIA INDUSTRIES LTD. VS. ACIT 112 TTJ (DEL), WHEREIN IT IS HELD THAT MERE PROVISION OF BAD AND DOUBTFUL DEBTS ON THE BASIS OF RBI GUIDELINES AND NOT WRITING OFF SUCH DEBTS IN THE PR OFIT & LOSS A/C IS NOT ALLOWABLE AND THAT THE RBI ACT DOES NOT OVERRIDE TH E PROVISIONS OF THE IT ACT 1961 AND HAD DECIDED THE ISSUE OF IN FAVOUR OF THE REVENUE. 23. ON THE ISSUE OF REVERSAL OF EXCESS INCOME OF TH E PREVIOUS YEAR THE TRIBUNAL FOLLOWED THE COORDINATE BENCH ORDER IN ITA NO. 1263/DEL/2002 FOR A.Y. 1998-99 AND ITA NO. 3695/DEL/2002 FOR THE A.Y. 1999-00 ALSO THE ORDER OF THE ITAT FOR THE A.Y. 2000, 2001 AND 2002 AND REMITTED THE MATTER BACK TO THE OFFICE OF THE AO WITH CERTAIN DIRECTION S. AFTER THIS DECISION, THERE ARE CERTAIN JUDGMENTS OF THE COURTS THAT HAVE TO BE CONSIDERED. 24. THE ISSUE AS TO WHETHER, INTEREST INCOME OF EA RLIER YEAR, WHICH IS REVERSED DURING THE YEAR IN ACCORDANCE WITH THE PRU DENTIAL NORMS OF R.B.I., IS TO BE ALLOWED AS A DEDUCTION FROM THE CURRENT YE ARS INCOME UNDER THE 13 INCOME-TAX ACT OR NOT, IS TO BE CONSIDERED IN THE L IGHT OF THE FOLLOWING JUDGMENTS. 25. THE HONBLE SUPREME COURT IN THE CASE OF SOUTHE RN TECHNOLOGIES LTD. VS. JCIT 320 ITR 577 HELD AS FOLLOWS: WHILE COMPUTING THE PROFITS AND GAINS UNDER SECTIO NS 28 TO 43D OF THE INCOME-TAX ACT, 1961 OF A NON-BANKING FI NANCIAL COMPANY, THE DEPARTMENT IS ENTITLED TO TREAT THE P ROVISION FOR NON-PERFORMING ASSETS WHICH IN TERMS OF THE NON-BA NKING FINANCIAL COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 1998, IS DEBITED TO THE PROFIT AND LOSS ACCOUNT, AS INCOME UNDER SECTION 2(24) OF THE ACT. THE NON-BANKING FINANCIAL COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 1998, ARE ONLY DIS CLOSURE NORMS. THEY HAVE NOTHING TO DO WITH THE COMPUTATION OF TOTAL TAXABLE INCOME UNDER THE INCOME-TAX ACT, 1961, OR W ITH ACCOUNTING TREATMENT. THE DIRECTIONS ONLY LAY DOWN THE MANNER OF PRESENTATION OF NPA (NON-PERFORMING ASSETS) IN T HE BALANCE SHEET OF A NON-BANKING FINANCIAL COMPANY. THE OBJEC T OF THE DIRECTIONS THAT NON-BANKING FINANCIAL COMPANIES HAV E TO ACCEPT THE CONCEPT OF INCOME EVOLVED BY THE RESERVE BANK OF INDIA AFTER DEDUCTING PROVISION AGAINST NON-PERFORMING AS SETS IS ONLY DISCLOSURE AND PROVISIONING AND SUCH TREATMENT IS C ONFINED TO PRESENTATION/DISCLOSURE AND HAS NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME UNDER THE INCOME-TAX ACT. PROVISI ON FOR NON- PERFORMING ASSETS IN TERMS OF THE DIRECTIONS OF THE RESERVE 14 BANK OF INDIA DOES NOT CONSTITUTE EXPENSE ON THE BASIS OF WHICH DEDUCTION CAN BE CLAIMED BY THE NON-BANKING F INANCIAL COMPANIES UNDER SECTION 36(1) (VII) OF THE ACT. THE BASIS OF EVERY BUSINESS IS THAT ANTICIPATED LO SSES MUST BE TAKEN INTO ACCOUNT BUT EXPECTED INCOME NEED NOT BE TAKEN NOTE OF. THIS IS THE BASIS OF THE NON-BANKING FINAN CIAL COMPANIES PRUDENTIAL NORMS (RESERVE BANK) DIRECTION S, 1998, AS IT IS CLOSER TO THE REALITY OF CASH LIQUIDITY TH AT PREVENTS NON- BANKING FINANCIAL COMPANIES FROM COLLAPSE. IN 1989 BY THE INSERTION OF A NEW EXPLANATION IN S ECTION 36(1) (VII) OF THE INCOME-TAX ACT, 1961, A DICHOTOM Y WAS BROUGHT IN AND IT HAS BEEN CLARIFIED THAT ANY BAD D EBT WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSE E WILL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MA DE IN THE ACCOUNTS OF THE ASSESSEE. IF AN ASSESSEE DEBITS AN AMOUNT OF DOUBTFUL DEBT TO THE PROFIT AND LOSS ACCOUNT AND CR EDITS THE ASSET ACCOUNT LIKE THE SUNDRY DEBTORS ACCOUNT, IT WOULD C ONSTITUTE A WRITE-OFF OF AN ACTUAL DEBT. HOWEVER, IF AN ASSESSE E DEBITS PROVISION FOR DOUBTFUL DEBTS TO THE PROFIT AND LO SS ACCOUNT AND MAKES A CORRESPONDING CREDIT TO THE CURRENT LI ABILITIES AND PROVISIONS ON THE LIABILITIES SIDE OF THE BALA NCE SHEET, THEN IT WOULD CONSTITUTE A PROVISION FOR DOUBTFUL DEBT. IN THE LATTER CASE THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTIO N AFTER APRIL 1, 1989. THE INCOME-TAX IS A TAX ON REAL INCOME, I.E., TH E PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF 15 THE ACT. THEREFORE, IF BY THE EXPLANATION TO SECTIO N 36(1) (VII) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBI T OF BAD DEBT WHICH IS WRITTEN OFF, THEN ONE HAS TO TAKE INTO ACC OUNT THE EXPLANATION IN COMPUTING THE TOTAL INCOME UNDER THE INCOME- TAX ACT FAILING WHICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THE PROVISION FOR NON-PERFORMING ASSETS DEBITED IN THE PROFIT AND LOSS ACCOUNT UNDER THE RESERVE BANK DIRECTIONS OF 1 998 IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE A DD BACK TO THAT EXTENT IN THE COMPUTATION OF TOTAL INCOME UNDE R THE INCOME-TAX ACT. SECTION 37 APPLIES ONLY TO ITEMS WHICH DO NOT FALL IN SECTIONS 30 TO 36. IF A PROVISION FOR DOUBTFUL DEBT S IS EXPRESSLY EXCLUDED FROM SECTION 36(1)(VII) THEN SUCH A PROVIS ION CANNOT COME UNDER SECTION 37 EVEN ON THE BASIS OF THE REA L INCOME THEORY. THE NATURE OF EXPENDITURE UNDER THE INCOME-TAX ACT CANNOT BE CONCLUSIVELY DETERMINED BY THE MANNER IN WHICH ACCOUNTS ARE PRESENTED IN TERMS OF THE 1998 DIRECTI ONS. THOUGH THEY DEVIATE FROM ACCOUNTING PRACTICE AS PROVIDED I N THE COMPANIES ACT, THEY DO NOT OVERRIDE THE PROVISIONS OF THE INCOME-TAX ACT. PROVISION FOR NON-PERFORMING ASSETS IN TERMS OF TH E DIRECTIONS OF 1998 DOES NOT CONSTITUTE EXPENSE ON T HE BASIS OF WHICH DEDUCTION CAN BE CLAIMED UNDER SECTION 36(1)( VII) OF THE INCOME-TAX ACT. 16 26. APPLYING THE PROPOSITION TO THE FACTS OF THIS C ASE, WE HAVE TO HOLD THAT INTEREST INCOME OF EARLIER YEARS CANNOT BE REDUCED FROM THE INCOME OF THE CURRENT YEAR, MERELY BECAUSE THE RBI PRUDENTIAL NOR MS MANDATE SUCH REVERSAL. WHAT IS TO BE SEEN IS WHETHER SUCH REVERS AL OF EARLIER YEAR INCOME IS AN EXPENSE ALLOWABLE UNDER THE INCOME-TAX ACT. THE ANSWER IS NO. EVEN THE REAL INCOME THEORY DOES NOT COME TO THE AID OF THE ASSESSEE AS IT IS THE CASE OF REVERSAL OF EARLIER YEAR INCOME AND NOT A CASE O F RECOGNIZING CURRENT YEAR INCOME. REAL INCOME THEORY CAN BE APPLIED TO CURREN T YEAR INCOME AND DOES NOT APPLY TO REVERSAL OF INCOME, OF THE EARLIER YEA R, WHICH IS ALREADY RECOGNISED. 27. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. VASISTH CHAY VYAPAR LTD. 330 ITR 440 HAS AFTER CONSIDERING THE D ECISION THAT THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. AND HE HELD AS FOLLOWS: HELD, DISMISSING THE APPEALS, THAT THE ASSESSEE-CO MPANY BEING A NON-BANKING FINANCIAL COMPANY, WAS BOUND BY THE P ROVISIONS OF THE RESERVE BANK OF INDIA ACT, 1934, AND THE 199 8 DIRECTIONS, UNDER WHICH IT WAS MANDATORY ON THE PAR T OF THE ASSESSEE NOT TO RECOGNIZE THE INTEREST ON THE INTER -CORPORATE DEPOSIT AS INCOME, HAVING REGARD TO RECOGNIZED ACCO UNTING PRINCIPLES. THE ACCOUNTING PRINCIPLES WHICH THE ASS ESSEE WAS 17 INDUBITABLY BOUND TO FOLLOW ARE AS-9. THE ADMITTED POSITION WAS THAT THE ASSESSEE HAD NOT RECEIVED ANY INTEREST ON THE INTER- CORPORATE DEPOSIT SINCE THE ASSESSMENT YEAR 1966-67 AS IT HAD BECOME A NON-PERFORMING ASSET IN ACCORDANCE WITH TH E PRUDENTIAL NORMS WHICH WAS ENTERED IN THE BOOKS OF ACCOUNT AS WELL. EVEN IN THE SUCCEEDING ASSESSMENT YEARS, NO I NTEREST WAS RECEIVED AND THE POSITION REMAINED THE SAME UNTIL T HE ASSESSMENT YEAR 2006-07. WINDING UP PETITIONS WERE FILED BY MANY CREDITORS AGAINST THE DEBTOR COMPANY. THESE CIRCUMSTANCES LED TO AN UNCERTAINTY IN SO FAR AS RE COVERY OF INTEREST WAS CONCERNED. EVEN THE PRINCIPAL ITSELF H AD BECOME DOUBTFUL OF RECOVERY. IN THIS SCENARIO IT WAS LEGIT IMATE TO INFER THAT INTEREST THEREUPON HAD NOT ACCRUED. MOREOVER THE ASSESSEE-COMPANY WAS GOVERNED BY THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT. HAVING REGARD TO THE PRO VISIONS OF SECTION 45Q OF THE RESERVE BANK OF INDIA ACT AND PR UDENTIAL NORMS ISSUED BY THE RESERVE BANK OF INDIA IN EXERCI SE OF ITS STATUTORY POWERS, THE INTER-CORPORATE DEPOSIT HAD B ECOME A NON-PERFORMING ASSET AND ON SUCH NON-PERFORMING ASS ET WHERE THE INTEREST WAS NOT RECEIVED AND THE POSSIBILITY O F RECOVERY WAS ALMOST NIL, IT COULD NOT BE TREATED TO HAVE ACCRUED IN FAVOUR OF THE ASSESSEE. THE SUPREME COURT IN SOUTHERN TECHNOLOGIES LTD. V. JOINT CIT (2010) 320 ITR 557 MADE A DISTINCTION WITH REGARD T O INCOME RECOGNITION AND HELD THAT INCOME HAD TO BE RECOGNI ZED IN TERMS OF THE PRUDENTIAL NORMS, EVEN THOUGH THEY DEV IATED FROM 18 MERCANTILE SYSTEM OF ACCOUNTING AND/OR SECTION 145 OF THE INCOME TAX ACT, 1961. IT CAN BE SAID, THEREFORE, T HAT THE SUPREME COURT APPROVED THE REAL INCOME THEORY ENG RAINED IN THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NON- BANKING FINANCIAL COMPANIES. SOUTHERN TECHNOLOGIES LTD. V. JOINT CIT (2010) 320 ITR 557 (SC) EXPLAINED. WHEN T HERE IS A PROVISION IN ANOTHER ENACTMENT WHICH CONTAINS A NON OBSTANTE CLAUSE THAT WOULD OVERRIDE THE PROVISIONS OF THE IN COME-TAX ACT. 28. IN THIS CASE THE ASSESSEE HAS RECOGNIZED THE IN COME IN THE EARLIER ASSESSMENT YEARS. AS STATED, IT IS NOT THE CASE OF RECOGNIZING CURRENT YEAR INCOME. HENCE THIS JUDGMENT DOES NOT COME TO THE AI D OF THE ASSESSEE. IN THIS CASE THE PARTIES ACCOUNTS WOULD HAVE BEEN DEBI TED, INCREASING THE BALANCE IN THE DEBTOR ACCOUNT TO THE EXTENT OF INTE REST ACCRUED BUT NOT RECEIVED. REVERSAL OF SUCH INCOME, WHICH IS ALREADY ACCOUNTED AS INCOME IN THE EARLIER ASSESSMENT YEAR WOULD BE POSSIBLE ONLY BY, PART WRITE OFF THE DEBTS. IF THE DEBTS ARE WRITTEN OFF IN PART I.E. TO THE EXTENT OF INTEREST INCOME SOUGHT TO BE REVERSED. THEN THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF T.R.F. LTD. 323 ITR 397 (SC) WOULD APPL Y. THE ACCOUNTING ENTRIES AND TREATMENT IN THE BOOKS HAVE TO BE CONSI DERED AND IT HAS TO BE SEEN WHETHER THERE IS PART WRITE OFF OF DEBTS IN THE BOO KS OF ACCOUNTS. 19 29. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. INDUSTRIAL FINANCE CORPORATES OF INDIA, IN ITA NO. 660/2010 AT PAGE 18 TO 21 HAD NOT APPROVED THE REASONING OF THE ITAT. AT PARA 24 IT H ELD AS FOLLOWS: 24. IT MAY NOT BE NECESSARY TO GO INTO THE VALIDIT Y OF THE REASONS GIVEN BY THE TRIBUNAL AS IN ANY CASE, THE A SSESSEE WAS ENTITLED TO THIS DEDUCTION. IF THE INCOME WHICH IS EARLIER RECOGNIZED IS NOT TO BE REVERSED IN THE SUBSEQUENT ASSESSMENT YEARS, IN ANY CASE IT IS PERMISSIBLE FOR THE ASSESS EE TO WRITE OFF SUCH AN INCOME IN THE CONCERNED ASSESSMENT YEARS WH EN IT WAS FOUND THAT THE AMOUNT WAS NOT RECOVERABLE. REFERENC E IN THIS CONNECTION CAN BE MADE TO THE JUDGMENTS OF THE SUPR EME COURT IN THE CASE OF VIJAYA BANK VS. COMMISSIONER OF INCO ME TAX AND ANOTHER [323 ITR 166] AND T.R.F. LTD. VS. COMMI SSIONER OF INCOME TAX [323 ITR 397]. 30. VERIFICATION OF FACTS IS REQUIRED. THEN THE PRO POSITIONS LAID DOWN BY THE HONBLE DELHI HIGH COURT AND SUPREME COURT CAN BE APPLIED TO THE FACTS OF THE CASE. IN VIEW OF THE ABOVE DISCUSSIONS WE DE EM IT PROPER TO SET ASIDE THE ISSUE TO THE FILE OF THE AO TO FRESH ADJUDICATI ON IN ACCORDANCE WITH LAW. IN RESULT THIS GROUND OF REVENUE IS ALLOWED FOR STA TISTICAL PURPOSES. 31. GROUND NO. 2 IS AGAINST THE DELETION OF ADDITIO N OF RS.2,73,813/- BY THE LD. CIT (A). THE LD. CIT (A) HAS DEALT WITH THE ISSUE AT PARA 6.2 SHE HELD AS FOLLOWS: 20 I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNSE L AND THE FACTS ON RECORD. THE APPELLANT HAS BEEN ABLE TO REC ONCILE MOST OF THE AIR BASED INFORMATION THE RECONCILIATION WIT H REGARD TO RECEIPTS SHOWN TO EMANATE FROM M/S UCO BANK AND M/S CHECHANI HIMMAT KUMARS BHAGWAN LAL COULD NOT BE RECONCILED BECAUSE AS PER APPELLANT IT HAS HAD NO D EALING WITH THESE TWO PARTIES. DESPITE APPELLANTS REQUEST AO H AS NOT RE- VERIFIED THE ENTRIES FROM THE SAID PARTIES. IN VIEW OF APPELLANTS CATEGORICAL DENIAL OF HAVING NO DEALINGS WITH THESE TWO PARTIES THE ONUS HAD SHIFTED TO THE AO TO ESTABLISH THAT TH E INFORMATION IN THE AIR WAS CORRECT AND THAT THE APPELLANT HAD F AILED TO DISCLOSE THE RECEIPTS. NO SUCH EXERCISE HAS BEEN DO NE BY THE AO. IN THE ABSENCE OF THE NECESSARY VERIFICATION AS ALSO THE ABSENCE OF RESULTANT REAFFIRMATION, IT IS HELD THAT THE ADDITION OF RS.273813 IS NOT JUSTIFIED. THE AO IS ACCORDINGLY D IRECTED TO DELETE THE ADDITION. THE GROUND RAISED BY THE APPEL LANT IS ALLOWED. 32. THE LD. DR COULD NOT CONTROVERT THESE FINDINGS OF THE LD. CIT (A). THE AO HAS NOT DISCHARGED THE ONUS ON HIM. IN THE RESUL T THIS GROUND OF THE REVENUE IS DISMISSED. 33. GROUND NO. 3 IS ON THE ISSUE OF DISALLOWANCE OF THE CLAIM OF LONG TERM CAPITAL LOSS MADE BY THE ASSESSEE, ON THE GROUND TH AT THIS IS SPECULATED LOSS. WE HAVE ADJUDICATED A SIMILAR GROUND IN THE A.Y. 20 05-06 I.E. GROUND NO. 1 OF THE REVENUE APPEAL. BOTH PARTIES SUBMITTED THAT FACTS AND CIRCUMSTANCES 21 ARE IDENTICAL IN THIS YEAR ALSO. CONSISTENT WITH TH E VIEW TAKEN BY US IN THAT YEAR, WE UPHOLD THE FOLLOWING FINDING OF THE LD. CI T (A) PARA 7.3 OF THE CIT (A) ORDER: 7.3 IT IS SEEN THAT A SIMILAR ISSUE HAD COME UP IN A.Y. 2005-06 AND VIDE ORDER DATED 17.10.2011 IN APPEAL NO. 234/2007- 08, IT HAS BEEN HELD THAT THE EXPLANATION TO SECTION 73 IS NOT ATTRACTED IN THE CASE OF THE APPELLANT. AS IN A.Y. 2005-06 SO AL SO IN A.Y. 2006-07, THE APPELLANT HAS INCURRED THE LONG TERM C APITAL LOSS PRIMARILY ON SALE OF BONDS OF MAHARASHTRA STATE ROA D DEVELOPMENT CORPORATION, STEEL AUTHORITY OF INDIA A ND ON SHARES OF INTERDRILL (ASIA) LTD., G.R. SOLVENTS AND JANARDAN PLYWOOD LTD. THESE SHARES/BONDS HAD BEEN HELD AS LO NG TERM INVESTMENTS. IN VIEW OF FACTS BEING IDENTICAL ON TH IS ISSUE TO THAT OF A.Y. 2005-06 FOR THE REASONS GIVEN IN THE APPELL ATE ORDER FOR A.Y. 2005-06, IT IS HELD THAT THE AO HAS ERRED IN I NVOKING EXPLANATION TO SECTION 73 AND IN TREATING THE LONG TERM CAPITAL LOSS AS SPECULATION LOSS. ACCORDINGLY THE AO IS DIR ECTED TO ALLOW LONG TERM CAPITAL LOSS OF RS.16250375 AS CLAI MED IN THE RETURN OF INCOME. THE GROUND IS THUS ALLOWED. 34. IN THE RESULT THIS GROUND OF REVENUE IS DISMISS ED. 35. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED AND THE APPEAL OF THE REVENUE IS ALLOWED IN PART. 36. ITA NO. 682/DEL/2012 IS REVENUE APPEAL FILED FO R THE A.Y. 2007-08 ON THE FOLLOWING GROUNDS: 22 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.13,35,000/- MADE ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE I.T. ACT, 1961. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.20,61,28,000/- MADE ON ACCOUNT OF REVERSAL OF IN COME CHARGED TO PROFIT & LOSS ACCOUNT. 3. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DIRECTING TO ALLOW THE LOS S OF RS.1,76,880/- BEING SPECULATIVE LOSS AS LONG TERM C APITAL LOSS. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARIN G. 37. GROUND NO. 1 IS ON THE ISSUE OF DISALLOWANCE U/ S 14A IS SET ASIDE TO THE FILE OF THE AO FOR FRESH ADJUDICATION, CONSISTE NT WITH THE VIEW TAKEN BY US WHILE DISPOSING OFF GROUND NO. 2 OF THE DEPARTME NTAL APPEAL FOR THE A.Y. 2005-06 IN ITA NO.5876/DEL/2011. GROUND NO. 2 IS ON THE ISSUE OF DELETION OF THE ADDITION OF RS.20.61 CRORE MADE ON ACCOUNT O F REVERSAL OF INCOME BY THE LD. CIT (A). CONSISTING WITH VIEW TAKEN ON THIS ISSUE, WE SET ASIDE THE SAME TO THE FILE OF THE AO FOR FRESH ADJUDICATION. GROUND NO. 3 IS ON THE ISSUE OF APPLICABILITY OF EXPLANATION TO SECTION 73 TO THE FACTS OF THIS CASE. 23 THIS IS DISMISSED FOR THE REASON STATED WHILE ADJUD ICATING THE ISSUE FOR A.Y. 2005-06. IN THE RESULT THIS APPEAL IS ALLOWED IN PA RT. 38. ITA NO. 3500/DEL/2012 IS A REVENUE APPEAL FOR T HE A.Y. 2008-09 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWA NCES OF RS.22,94,39,547/- WHILE CALCULATING BOOK PROFIT U/S 115JB OF THE ACT, 1961 ON ACCOUNT OF PROVISION WRIT TEN BACK. 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN ALLOWING ASSESSEES CLAIM OF LONG TERM CAPITAL LOSS OF RS.24,81,599/- WHICH WAS TREATED BY THE AO AS SPECULATION LOSS. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARIN G. 39. FACTS OF GROUND NO. 1 ARE LUCIDLY EXPLAINED BY THE LD. CIT (A) IN HER FINDING AT PAGE 6 OF HER ORDER. SHE HELD AS FOLLOWS : 5.3 I HAVE CONSIDERED THE SUBMISSION OF THE APPELL ANT AND OBSERVATION OF THE ASSESSING OFFICER. IT IS SEEN TH AT ASSESSING OFFICER HAS ADDED BACK THE PROVISION OF RS.22,94,39 ,574/- WHILE DETERMINING BOOK PROFIT FOR THE YEAR UNDER CONSIDER ATION U/S 115JB OF THE IT ACT. IT IS CLAIMED BY THE APPELLANT THAT IN THE ASSESSMENT YEAR 2006-07, THE APPELLANT HAD MADE A P ROVISION OF RS.38,76,95,202/- WHICH INCLUDES THE PROVISION F OR DOUBTFUL 24 ADVANCES OF RS.3686.24 LACS AND RS.190.71 LACS FOR PROVISION AGAINST BILL DISCOUNTED. WHILE PREPARING THE COMPUT ATION OF INCOME FOR A.Y. 2006-07 THIS PROVISION OF RS.38,76, 95,202/- WAS ADDED BACK IN THE COMPUTATION OF INCOME FOR A.Y . 2006-07 WHICH IS FILED AT PAGE 18 OF THE PAPER BOOK FILED B Y THE APPELLANT. IN THE A.Y. 2007-08 THE PROVISION FOR DO UBTFUL ADVANCES HAS INCREASED TO RS.37,92,82,284/- WHICH M EANS A FURTHER PROVISION TO THE EXTENT OF RS.160.58 LACS W AS MADE DURING THE A.Y. 2007-08. IN THE ASSESSMENT YEAR 200 8-09, OUT OF THE PROVISION OF RS.37,92,82,284/- FOR DOUBTFUL ADV ANCES, AN AMOUNT OF RS.22,94,39,547/- WAS WRITTEN BACK TO THE PROFIT AND LOSS ACCOUNT AND SAME WAS CREDIT IN PROFIT AND LOSS ACCOUNT AS THIS MUCH OF PROVISION WAS NO MORE REQUIRED. WHILE PREPARING THE COMPUTATION OF INCOME FOR A.Y. 2008-09, THIS AM OUNT OF PROVISION WRITTEN BACK CREDITED IN THE PROFIT AND L OSS ACCOUNT WAS REDUCED FROM THE AMOUNT NET PROFIT SHOWN IN THE COMPUTATION OF INCOME FOR A.Y. 2008-09. THE COMPUTA TION OF INCOME FOR A.Y. 2008-09 HAS BEEN FILED AT PAGE-1 OF THE PAPER BOOK FILED BY THE APPELLANT. WHILE MAKING THE ASSES SMENT U/S 143(3), ASSESSING OFFICER ALSO ALLOWED THIS AMOUNT WHILE PREPARING THE COMPUTATION UNDER NORMAL PROVISIONS. HOWEVER, WHILE PREPARING THE BOOK PROFIT U/S 115JB THE ASSES SING OFFICER DID NOT REDUCE THE AMOUNT OF PROVISION WRITTEN BACK FROM THE COMPUTATION OF INCOME. IT IS CONTENDED BY THE APPEL LANT THAT AS PER THE PROVISIONS OF SECTION 115JB, EXPLANATION-1 (I) THE AMOUNT WITHDRAWN FROM ANY RESERVE OR PROVISION, IF ANY, SUCH 25 AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT, THEN SUCH AMOUNT IS REQUIRED TO BE REDUCED FROM THE PROFIT AN D LOSS ACCOUNT. THE APPELLANT FURTHER CONTENDED THAT ASSE SSING OFFICER HAS NOT DONE SO WHILE PREPARING THE BOOK PR OFIT FOR A.Y. 2008-09. THE CONTENTION RAISED BY THE APPELLANT IS VERIFIED AND FOUND TO BE TRUE. THE AMOUNT OF PROVISION WRITTEN B ACK TO THE PROFIT AND LOSS ACCOUNT OF RS.22,94,39,547/- WAS NO MORE REQUIRE AND THE SAME WAS CREDITED IN THE PROFIT AND LOSS ACCOUNT FOR A.Y. 2008-09. THE ASSESSING OFFICER SHO ULD HAVE REDUCED THIS CREDIT IN THE PROFIT AND LOSS ACCOUNT WHILE PREPARING THE BOOK PROFIT FOR A.Y. 2008-09. THE MET HOD ADOPTED BY THE ASSESSING OFFICER IS NOT CORRECT. HE NCE HE IS DIRECTED TO REDUCE THE AMOUNT OF RS.22,94,39,574/- FROM THE PROFIT AND LOSS ACCOUNT WHILE PREPARING THE BOOK PR OFIT FOR A.Y. 2008-09. AS A RESULT, THE GROUND TAKEN BY THE APPEL LANT IS ALLOWED. 40. THE ASSESSEE COMPANY WHILE PREPARING THE COMPUT ATION OF INCOME FOR THE A.Y. 2006-07 ADDED BACK THE PROVISION OF RS.38, 76,95,202/-. IN THE CURRENT A.Y. 2008-09 A PART OF THIS PROVISION FOR D OUBTFUL ADVANCES AMOUNTING TO RS.22,94,39,547/- WAS WRITTEN BACK TO THE PROFIT & LOSS A/C ON THE GROUND THAT THE PROVISION IN QUESTION IS NO LON GER REQUIRED. SUCH WITHDRAWAL FROM THE RESERVE OF A PROVISION HAS TO B E DEDUCTED WHILE COMPUTING BOOK PROFITS U/S 115 JB OF THE IT ACT, AS PER THE SECTION. THUS WE 26 FIND NO INFIRMITY IN THE ORDER OF THE FIRST APPELLA TE AUTHORITY. IN THE RESULT THIS GROUND OF REVENUE IS DISMISSED. 41. GROUND NO. 2 IS ON THE ISSUE AS TO WHETHER THE LOSS ON SALE ON SECURITIES, IS TO BE TREATED AS CAPITAL LOSS OR AS SPECULATIVE LOSS. CONSISTENT WITH THE VIEW TAKEN BY US WHILE DISPOSING OFF GROUN D NO. 1 OF THE REVENUE APPEAL FOR THE A.Y. 2005-06 AND GROUND NO. 3 OF THE REVENUE APPEAL FOR THE A.Y. 2006-07, WE UPHOLD THE FINDING OF THE FIRST AP PELLATE AUTHORITY AND DISMISS THIS GROUND OF REVENUE. 42. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23/8/2013. SD/ SD/- (DIVA SINGH ) (J. S. REDDY) JUDICIAL MEMBER ACCOUNTANT ME MBER DATED: 23/08/2013 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR