ACIT, Patiala V. State Bank of Patiala, Patiala

ITA 364/CHANDI/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9167 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSHIL KUMAR CIT II
• Keywords: Capital asset; Business income; Depreciation; Rule of consistency; Earning of tax free income; Question of law; Bad and doubtful debts; Tax effect; Revised return; Revenue expenditure
• Section: 143(3); 14A; 133(6); 37(1); 148; 37; 6; 263; 63; 154

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 217/CHD/2015 ASSESSMENT YEAR: 2010-11 THE STATE BANK OF PATIALA, VS. THE ACIT, CIRCLE HO THE MALL, PATIALA PATIALA PAN NO. AACCS0143D ITA NO. 364/CHD/2015 ASSESSMENT YEAR: 2010-11 THE ACIT, CIRCLE VS. THE STATE BANK OF PATIALA PATIALA HO, THE MALL, PATIALA ITA NO. 1097 & 448/CHD/2014 ASSESSMENT YEAR: 2010-11 THE STATE BANK OF PATIALA, VS. THE ACIT, CIRCLE HO THE MALL, PATIALA PATIALA & ITA NO. 126/CHD/2009 ASSESSMENT YEAR: 2003-04 THE ACIT, CIRCLE VS. THE STATE BANK OF PATIALA PATIALA HO, THE MALL, PATIALA (APPELLANT) (RESPONDENT) ASSESSEE BY : SH.C.NARESH DEPARTMENT BY : SH.SUSHIL KUMAR, CIT-II DATE OF HEARING : 19.07.2016 DATE OF PRONOUNCEMENT : 11.08.2016 2 ORDER PER ANNAPURNA GUPTA, A.M. ALL THE ABOVE APPEALS RELATE TO THE SAME ASSESSEE A ND ARE AGAINST THE ORDERS PASSED BY LD. CIT(A), PATIALA UNDER DIFFEREN T PROCEEDINGS RELATING TO ASSESSMENT YEAR 2010-11 AND 2003-04. 2. WE SHALL FIRST TAKE UP THE CROSS APPEALS IN ITA NO. 217/CHD/2015 AND ITA NO. 364/CHD/2015 FILED BY THE ASSESSEE AND REVENUE RESPECTIVELY, AGAINST THE ORDER OF LD. CIT(A) PATIALA DATED 9.1.2 015 FOR THE ASSESSMENT YEAR 2010-11. ITA NO. 217/CHD/2015 :- 3. GROUND NO.1 RAISED BY THE ASSESSEE READS AS UNDE R:- 1. THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY ASSESSING OFFICER / CIT OF RS. 7.03 CRORE B Y INVOKING PROVISION OF SECTION 14A READ WITH RULE 8D OVERRULING THE CONTENTION OF THE APPELLANT THAT INVESTMENTS CONSTITUTED STOCK FOR THE PURPOSE OF DETERMINATION OF TOTAL INCOME, AND THE PROVISIONS O F RULE 8D CANNOT BE MADE APPLICABLE TO THE STOCK IN TRADE . 4. THE FACTS OF THE CASE ARE THAT ASSESSEE HAD SHOW N EXEMPT INCOME IN ITS RETURN OF INCOME BEING DIVIDEND INCOME EXEMPT U /S 10(34), 10(35) AMOUNTING TO RS. 5,61,84,028/- AND INTEREST INCOME EXEMPT U/S 10(15) (IV)(H) AMOUNTING TO RS. 1,48,00,000/-. DURING ASS ESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUIRED TO SHOW CAUSE AS TO WHY E XPENSES ATTRIBUTABLE TO 3 THE SAME SHOULD NOT BE DISALLOWED, IN RESPONSE TO W HICH THE ASSESSEE STATED THAT RULE 8D HAD NO APPLICATION IN THIS YEAR IN VIE W OF THE CLEAR PROVISIONS OF SECTION 14A AND RULE 8D ITSELF AND MOREOVER THE AUDITORS HAD ALREADY ALLOCATED THE ADMINISTRATIVE EXPENSES TO THE EXTENT OF RS. 6.35 LACS BEING EXPENSES OF THE FUNDS DEPARTMENT OF THE ASSESSEE B ANK, INCURRED FOR EARNING EXEMPT INCOME, WHICH DEALT WITH THE ASSETS YIELDING TAX FREE INCOME. THE ASSESSING OFFICER REJECTED THE ASSESSEE S ARGUMENTS AND STATED THAT RULE 8D WAS APPLICABLE IN THE PRESENT CASE AS PER THE PROVISIONS OF SECTION 14A SINCE THE ASSESSEE HAD NOT BEEN ABLE TO LINK ACQUISITION OF THE TAX FREE INVESTMENT WITH THE NON INTEREST BEARING F UNDS. THEREFORE, THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE TO BE M ADE AS PER THE PROVISIONS OF SECTION 14A AT RS. 19.7 CRORES BUT RE STRICTED THE SAME TO THE EXTENT OF EXEMPT INCOME SHOWN AT RS. 7.095 CRORES. 5. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(A) WHERE THE ASSESSEE FILED DETAILED SUBMISSIONS IN WRITING. THE MATTER WAS REMANDED TO THE ASSESSING OFFICER. DURING THE COURSE OF REMAND PROCEEDINGS, THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A). FIRSTLY, IT WAS CONTENDED THAT THE INCOME EARNED BY THE ASSESSE E WAS EARNED ON SHARES AND BONDS WHICH THE ASSESSEE TREATED AND WERE HELD AS ITS STOCK-IN-TRADE. THUS, THE EXEMPT INCOME WAS ONLY INCIDENTAL TO THE MAIN BUSINESS OF TRADING IN SHARES AND BONDS AND, THEREFORE, EXPENSE S INCURRED WERE NOT FOR PRIMARY PURPOSE OF EARNING EXEMPT INCOME AND COULD NOT BE DISALLOWED U/S 14A OF THE ACT. THE ASSESSEE RELIED ON A NUMBER OF JUDICIAL PRONOUNCEMENTS IN SUPPORTS OF ITS CONTENTION. SECO NDLY, IT WAS STATED THAT U/S 14A, NO DISALLOWANCE OF EXPENSE ON ESTIMATE BAS IS COULD BE MADE AND 4 ONLY ACTUAL EXPENDITURE COULD BE DISALLOWED AND ALS O THAT THE ONUS OF PROVING THE NEXUS OF THE EXPENSES INCURRED IS ON TH E ASSESSING OFFICER. RELIANCE WAS PLACED BY THE ASSESSEE ON A NUMBER OF JUDICIAL PROCEEDINGS FOR THIS CONTENTION RAISED. THIRDLY, IT WAS STATED THAT RULE 8-D WAS NOT MANDATORY AND COULD NOT BE INVOKED UNLESS CONDITION S GIVEN IN 14A(2)(III) WERE COMPLIED WITH. FOURTHLY, IT WAS STATED THAT EV EN OTHERWISE THE INVESTMENT IN SHARES AND BONDS, ON WHICH EXEMPT INC OME HAD BEEN EARNED, WAS MADE FROM THE OWN FUNDS OF THE ASSESSEE, BEING CAPITAL AND RESERVES, WHICH WERE MUCH MORE THAN THE INVESTMENT IN THE SHA RES AND BONDS. A NUMBER OF JUDICIAL DECISIONS WERE RELIED UPON BY TH E ASSESSEE IN SUPPORT OF THIS CONTENTION ALSO. LASTLY, IT WAS SUBMITTED THAT THE ISSUE HAD BEEN SETTLED IN THE CASE OF THE ASSESSEE IN ASSESSMENT YEAR 2007 -08 WHEREIN IT WAS HELD BY THE ITAT THAT ONLY ADMINISTRATIVE EXPENSES COULD BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE AND THAT TOO TO THE EXTENT OF 2.5% OF THE TOTAL EXEMPT INCOME. 6. DURING THE REMAND PROCEEDINGS, ASSESSEE WAS ASKE D TO SUBMIT THE DETAILS OF SECURITIES WHICH YIELDED EXEMPT INCOME A ND ALSO WHETHER IT WAS UNDER ANY OBLIGATION TO MAINTAIN THE SECURITIES. D UE REPLY WAS FILED BY THE ASSESSEE, IN WHICH THE ASSESSEE STATED THAT THE OWN FUNDS COMPRISED OF CAPITAL AND RESERVES & SURPLUS OF THE BANK AND FURT HER THAT THE INVESTMENT IN SHARES AND BONDS WAS NOT MADE UNDER ANY OBLIGATI ON BUT SECTION 6 OF THE BANK REGULATION ACT PERMITTED THE ASSESSEE TO D EAL IN SHARES AND BONDS.THE ASSESSING OFFICER REJECTED ALL THE CONTEN TIONS OF THE ASSESSEE IN ITS REMAND REPORT AND HELD THAT THE DISALLOWANCE U/ S 14A READ WITH RULE 8- D HAD BEEN RIGHTLY MADE BY THE ASSESSING OFFICER. 5 7. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND THE REPORT OF THE ASSESSING OFFICER IN REMAND PROCEEDINGS HELD THAT THE ISSUE BEING IDENTICAL TO THAT IN ASSESSMEN T YEAR 2008-09, THE DECISION RENDERED IN APPEAL IN THAT YEAR WAS APPLIC ABLE AND FOLLOWING THE SAME, HELD THAT DISALLOWANCE U/S 14A READ WITH RULE 8D HAD TO BE MADE. FURTHER THE LD. CIT(A) HELD THAT THE ASSESSING OFFI CER HAD ERRED IN LIMITING THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EAR NED BY THE ASSESSEE. LD. CIT(A) PLACED RELIANCE ON THE DECISION OF CHENN AI BENCH OF THE TRIBUNAL IN THE CASE OF BEACH MINERAL CO. LTD. VS. DEPARTMENT OF INCOME TAX ITA NO. 263/MAD/2012 DATED 25.6.2013 IN THIS RE GARD AND FURTHER ON THE CBDT CURRICULAR NO. 5 OF 2014 WHICH STATED THAT DISALLOWANCE U/S 14A IS TO BE MADE IRRESPECTIVE OF THE FACT WHETHER EXEM PT INCOME IS EARNED OR NOT. THEREFORE, AN ENHANCEMENT NOTICE WAS SENT TO T HE ASSESSEE, IN RESPONSE TO WHICH THE ASSESSEE STATED THAT THE ASSESSING OFF ICER IN HIS FURTHER ORDER PASSED SUBSEQUENT TO ORDER U/S 263 OF THE ACT HAD D ISALLOWED EXPENSES ON THE BASIS OF RULE 8D AND, THEREFORE, THE ENHANCEMEN T NOTICE WAS INFRUCTUOUS. LD. CIT(A) AGREED WITH THE CONTENTION OF THE ASSESSEE AND HELD THAT DISALLOWANCE U/S 14A BE MADE TO THE EXTE NT OF RS. 19.7 CRORES AND DEDUCTION OF THE AMOUNT DISALLOWED SUO MOTO BY THE ASSESSEE ON THIS RS. 6,35,000/- BE ALLOWED TO THE ASSESSEE. 8. AGGRIEVED BY THE SAME, THE ASSESSEE RAISED THE P RESENT GROUND BEFORE US. DURING THE COURSE OF HEARING, LD. AR REITERATED THE CONTENTIONS MADE BEFORE THE AUTHORITIES BELOW THAT ALL THE SECURITIE S WERE HELD AS STOCK IN TRADE AND IN VIEW OF THE DECISION OF THE KARNATAKA HIGH COURT IN CCI VS. 6 JCIT 250 CTR 291 (KAR) , HON'BLE KERALA HIGH COURT IN CIT VS. LEENA RAMCHANDRAN (SMT.) 339 ITR 296 (KER) AND CHENNAI BE NCH OF THE TRIBUNAL IN MSA SECURITIES (P) LTD IN 1523/MAD./2012, NO DIS ALLOWANCE U/S 14A OF THE ACT CAN BE MADE. THE ASSESSEE FURTHER CONTENDED THAT IN ANY CASE THE PROVISIONS OF SECTION 14A READ WITH RULE 8D WAS NOT APPLICABLE IN THE PRESENT CASE.LD. AR FURTHER POINTED OUT THAT IDENTI CAL ISSUE HAD COME UP FOR ADJUDICATION IN THE ASSESSEES OWN CASE BEFORE THE TRIBUNAL IN ASSESSMENT YEARS 2008-09 AND 2009-10, WHEREIN THE T RIBUNAL HAD ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE VI DE ITS ORDER DATED 28.3.2016. 9. LD.DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE LD.CIT(A). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDER OF THE AUTHORITIES BELOW AS ALSO THE DOCUMENTS PLACED BEFO RE US. FROM THE PERUSAL OF THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FO R ASSESSMENT YEAR 2008- 09 AND 2009-10 IN ITA NO. 215, 363/CHD/2015 DATED 2 8.3.2016, WE FIND THAT SAID ISSUE HAS BEEN DECIDED BY THE ITAT AT PAG ES 8 TO 11 (PARA 11 TO 16) AS UNDER;_ 11. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. WE ARE IN TOTAL AGREEMENT WIT H THE ARGUMENT OF THE LEARNED D.R. THAT THE COMPUTATIONAL PROVISIONS AS PROVIDED UNDER RULE 8D ARE APPLICABLE IN THE RELEVANT ASSESSMENT YEAR AS T HE YEAR IS 2008-09. WE ARE ALSO NOT IN AGREEMENT WITH THE ARGUMENT OF THE COUNSEL OF THE ASSESSEE TO THE EFFECT THAT SINCE IN THE EARLIER YEARS ONLY 2.5% OF THE 7 TAX FREE INCOME WAS HELD TO BE DISALLOWED UNDER SECTION 14A OF THE ACT BY THE ITAT, IT SHOULD BE FOLLOWED IN THIS YEAR ALSO. SINCE THE YEAR UNDER CONSIDERATION IS ASSESSMENT YEAR 2008-09, IN WHICH YEAR THE PROVISIONS OF RULE 8D ARE APPLICABLE IN FU LL. HOWEVER WE FIND OURSELVES IN AGREEMENT WITH THE ARGUMENT OF THE COUNSEL THAT THE BANK IS HOLDING SECURITIES AS STOCK IN TRADE, THEREFORE EARNING OF INCOME THEREFROM IS ONLY INCIDENTAL TO ITS BUSINESS , THE PROVISIONS OF SECTION 14A CANNOT BE APPLIED. IN THE CASE OF STATE BANK OF HYDERABAD VERSUS DCIT, ITA NO . 450/HYD/2015, DATED 14 TH OF AUGUST 2015 IT HAS BEEN HELD VERY CATEGORICALLY THAT SINCE EARNING OF EXEMP T INCOME IS INCIDENTAL TO ASSESSEES BUSINESS AND SECURITIES ARE HELD IN THE NATURE OF STOCK IN TRADE , HOLDING OF SUCH INCOMES ANCILLARY AND INCIDENTAL TO ASSESSEES BUSINESS, INCOME FROM SUCH SHARES AND SECURITIES CANNOT BE TREATED AS INVESTMENT SO AS TO ATTRACT PROVISIONS OF SECTION 14A OF THE ACT. 12. WE HAVE ALSO PERUSED THE CIRCULAR ISSUED BY THE CBDT NO. 18/2015 DATED 02/11/2015, WHEREBY IN SOME OTHER CONTEXT IT HAS BEEN STATED THAT INCOME ARISING FROM INVESTMENTS OF A BANKING CONCERN IS ATTRIBUTABLE TO THE BUSINESS OF BANKING FALLING UND ER THE HEAD PROFITS AND GAINS OF BUSINESS AND PROFESSI ON. THE CONTENT OF THIS CIRCULAR WERE SHOWN TO US TO EMPHASISE THE FACT THAT THE SHARES AND STOCKS HELD BY THE BANK ARE ITS STOCK IN TRADE AND NOT INVESTMENTS . 13. IN ANOTHER ORDER OF THE ITAT AHEMEDABAD BENCH IN THE CASE OF ANJALI EXIM PRIVATE LIMITED VE RSUS ACIT, ITA NO. 2386/AHD/11 DATED 29.0.2014 IT HAS BEEN HELD AS UNDER: + + THE ISSUE IS COVERED BY A COORDINATE BENCH DECISION IN THE CASE OF DCIT VS GULSHAN INVESTMENT CO LTD [(201 3) - 2013-TIQL-206-ITAT-KOL INASMUCH AS EVEN IF THE PROVISIONS 8 OF SECTION 14A ARE TO BE HELD APPLICABLE IN THIS CASE -AS WAS HELD THEREIN, COMPUTATION PROVISIONS UNDER RULE 8D2 ( II) AND (III) WILL FAIL BECAUSE THE DIVIDEND YIELDING SHARES ARE HELD AS STOCK IN TRADE AND NOT AS INVESTMENTS, AND THE DISALLOWANCE UNDER RULE 8D(2)(I) WILL BE CONFINED TO ONLY DIRECT EXPENSES FOR EARNING THE TAX EXEMPT INCOME. HAVING NOTED THAT THERE ARE ADMITTEDLY NO DIRECTION EXPENSES INCURRED IN EARNING THE DIVIDENDS WHICH CO ULD QUALIFY FOR BEING COVERED BY RULE 8D2(I), WE DELETE THE IMPUGNED DISALLOWANCE OF RS 42,97,650; 14. APART FROM THESE JUDGEMENTS THE LD. COUNSEL OF THE ASSESSEE FILED BEFORE US A NUMBER OF OTHER ORDERS OF VARIOUS BENCHES OF THE TRIBUNALS WHEREBY IT HAS BEEN HELD THAT WHERE THE SECURITIES ETC. HAVE B EEN HELD AS STOCK IN TRADE THE INCOME IN THE FORM OF DIVIDEND EARNED FROM THE SECURITIES PROVISIONS OF SECTION 14A CANNOT BE APPLIED. HOWEVER WE SEE THAT THERE IS ONLY ONE JUDGEMENT OF THE HIGH COURT THAT IS OF KARNATAKA HIGH COURT IN THE CASE OF CCI LTD (SUPRA). IN THE CASE OF AMERICAN EXPRESS BANK (SUP RA) AND DAMANI ESTATES FINANCE PRIVATE LIMITED, WE AGRE E THAT THE SAID ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE. HOWEVER IN VIEW OF THE CLEAR FINDING GIVE N BY THE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD WE FOUND OURSELVES BOUND BY THE SAID JUDGEMENT AND HOL D THAT SINCE THE ASSESSEE BANK IS HOLDING THE SECURIT IES AS ITS STOCK IN TRADE THE DISALLOWANCE UNDER SECTIO N 14A CANNOT BE MADE. KARNATAKA HIGH COURT HAS BEEN HELD IN THE LAST PARAGRAPH AS UNDER: BUT IN THIS CASE, WHEN THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND THE DIVIDEND INCOME IS INCIDENTAL TO THE BUSINESS OF SALE OF SHARES, WHICH REMAINED UNSOLD BY THE ASSESSEE, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HAS TO BE APPORTIONED TO THE EXTENT OF 9 DIVIDEND INCOME AND THAT SHOULD BE DISALLOWED FROM DEDUCTIONS. IN THAT VIEW OF THE MATTER, THE APPROACH OF THE AUTHORITIES IS NOT IN CONFORMITY WITH THE STATUTORY PROVISIONS CONTAINED UNDER THE ACT. THEREFORE, THE IMPUGNED ORDERS ARE NOT SUSTAINABLE AND REQUIRE TO BE SET ASIDE. 15. AS REGARDS THE ARGUMENT THAT THE JUDGEMENT OF THE KARNATAKA HIGH COURT RELATES TO THE ASSESSME NT YEAR 2007 -08 WHICH IS EARLIER TO THE COMING OF RUL E 8D UNDER STATUTE, WE OBSERVE THAT RULE 8D IS A COMPUTATIONAL PROVISION PROVIDED TO CALCULATE THE DISALLOWANCE TO BE MADE UNDER SECTION 14A. WE ARE INCLINED ONLY TO BORROW THE PROPOSITION LAID DOWN B Y THE HIGH COURT THAT SINCE THE DIVIDEND INCOME OR AN Y OTHER EXEMPT INCOME EARNED BY THE ASSESSEE WHICH IS INCIDENTAL TO ITS BUSINESS OF SALE OF SHARES ETC TH E SAME CANNOT BE EXIGIBLE TO DISALLOWANCE UNDER SECTI ON 14A.FURTHER WE ALSO OBSERVE THAT A VERY APT INTERPRETATION OF THE SAID PROPOSITION HAS BEEN GIV EN BY THE AHEMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF ANJALI EXIM PRIVATE LIMITED (SUPRA), WHICH WE HA VE ALREADY REFERRED HEREIN ABOVE. IN THIS ORDER IT HAS BEEN VERY CATEGORICALLY ANALYSED THAT IF THE SHARES ARE HELD THAT AS STOCK IN TRADE AND NOT AS INVESTMENT T HEN EVEN THE DISALLOWANCE UNDER SECTION UNDER RULE 8D WILL BE NIL AS RULE 8D (2)(I) WILL BE CONFINED TO O NLY DIRECT EXPENSES FOR EARNING THE TAX EXEMPT INCOME. IN THE PRESENT CASE ALSO SINCE THERE ARE NO DIRECT EXPENSES INCURRED IN EARNING THE DIVIDEND THE DISALLOWANCE WILL COME TO NIL. 16. IN VIEW OF THE ABOVE, GROUND RAISED BY THE ASSESSEE IS ALLOWED. 11. IT IS CLEAR FROM THE ABOVE THAT THE ITAT HAD DE LETED THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT ,RELYING UPON THE DECISION OF HON'BLE 10 KARNATAKA HIGH COURT IN THE CASE OF CCI VS. JCIT 25 0 CTR 291 (KAR) , WHEREIN IT WAS HELD THAT WHERE SECURITIES ARE HELD AS STOCK IN TRADE, NO DISALLOWANCE U/S 14A CAN BE MADE. WE FIND THAT ITA T ALSO RELIED UPON VARIOUS DECISIONS OF THE TRIBUNAL TO THIS EFFECT. 12. BEFORE US, NO CHANGE IN FACTS IN THE CURRENT YE AR AS COMPARED TO THE PRECEDING YEARS WAS POINTED OUT BY THE LD.DR. THERE FORE THE FACTS IN THE PRESENT CASE BEING IDENTICAL TO THAT IN ASSESSMENT YEARS 2008-09 AND 2009- 10, THAT THE SECURITIES EARNING EXEMPT INCOME UNDIS PUTEDLY WERE HELD AS STOCK IN TRADE, THE DECISION RENDERED BY THE ITAT IN THAT CASE IS SQUARELY APPLICABLE TO THE PRESENT GROUND OF APPEAL RAISED A ND RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE GROUND RAISED BY THE ASSESSEE DELETING THE DISALLOWANCE MADE U/S / 14A. THIS GROUND OF APPEAL RAISED BY THE ASSESSEE IS, TH EREFORE, ALLOWED. 13. GROUND NO.2 RAISED BY THE ASSESSEE READS AS UND ER:- 2. THE CIT(A) ERRED IN CONFIRMING THE ADDITION IN RESPECT OF BAD DEBTS RECOVERED AMOUNTING TO RS. 32. 81 CRORES OVERLOOKING THE FACT THAT NO DEDUCTION WAS A LLOWED IN THE FIRST PLACE WHEN BAD DEBTS WERE WRITTEN OFF IN ANY OF THE PREVIOUS YEARS, THERE IS NO SCOPE FOR CHARGI NG TO TAX WHEN SAME WAS RECOVERED. 14. THE FACTS OF THE CASE ARE THAT AS PER THE ASSES SING OFFICER THE ASSESSEE HAD REDUCED AN AMOUNT OF RS. 32,81,39,346/ - FROM ITS INCOME ON ACCOUNT OF BAD DEBTS WHICH WERE RECOVERED DURING TH E YEAR UNDER CONSIDERATION, ON THE PLEA THAT THE SAME HAD NEITHE R BEEN CLAIMED NOR ALLOWED AS DEDUCTION IN THE YEAR IN WHICH IT WAS WR ITTEN OFF AND, HENCE, NOT 11 COVERED UNDER THE PROVISIONS OF SECTION 41 OF THE A CT. THE ASSESSING OFFICER CONTENDED THAT DEBTS WHICH ARE RECOVERED DU RING THE YEAR ARE REVENUE IN NATURE AND ALSO THAT SIMILAR ADDITION WA S CONFIRMED IN THE EARLIER YEAR BY THE CIT(A). 15. BEFORE THE LD. CIT(A) THE ASSESSEE REITERATED T HE CONTENTIONS MADE DURING ASSESSMENT PROCEEDINGS. AFTER CONSIDERING TH E SAME, LD. CIT(A) HELD THAT THE IMPUGNED ISSUE HAD BEEN DISCUSSED IN DETAIL IN ASSESSMENT YEAR 2008-09 IN THE APPELLATE ORDER HOLDING THE IMP UGNED SUM BE TAXABLE IN THE YEAR. THEREFORE, FOLLOWING THE SAME, THE CIT (A) DISMISSED THE GROUND RAISED BY THE ASSESSEE CONFIRMING THE ADDITI ON MADE BY THE ASSESSING OFFICER. 16. AGGRIEVED BY THIS, THE ASSESSEE FILED THE PRESE NT APPEAL BEFORE US. DURING THE COURSE OF HEARING, THE LD. AR POINTED OU T THAT IDENTICAL ISSUE HAS BEEN ADJUDICATED UPON IN THE ASSESSEES CASE IN PRECEDING YEARS I.E. ASSESSMENT YEARS 2008-09 AND 2009-10 BY THE ITAT VI DE ITS ORDER DATED 28.3.2016 WHEREIN THE ISSUE WAS REMANDED BACK TO TH E ASSESSING OFFICER TO VERIFY IF THE APPELLANT HAD CLAIMED ANY DEDUCTION O F BAD DEBTS U/S 36(I)(VII) IN EARLIER YEARS AND IF NOT, THEN ALLOW THE CLAIM OF THE ASSESSEE IN THE IMPUGNED YEAR. THE LD. DR ON THE OTHER HAND R ELIED UPON THE ORDER OF THE AUTHORITIES BELOW. 17. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL AVAI LABLE ON RECORD. FROM THE PERUSAL OF THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT 12 YEARS 2008-09 AND 2009-10 IN ITA NO. 215, 363/CHD/2 015 DATED 28.3.2016, WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY THE ITA T IN PARAS 20 TO 24 OF THE ORDER AS UNDER:- 20. AGGRIEVED BY THIS, THE ASSESSEE HAS COME IN APPEAL BEFORE US. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT SINCE THE BAD DEBTS WRITTEN OFF WERE NOT CLAIMED AS DEDUCTION, THE RECOVERY OF SUCH BAD DEBTS WRITTEN OFF EARLIER COULD NOT BE BROUGHT TO T AX AS PER THE PROVISIONS OF SECTION 41 OF THE ACT. FURTHE R OUR ATTENTION WAS INVITED TO THE ORDER OF THE HO NBLE ITAT IN ASSESSEES CASE IN THE EARLIER YEAR AND IT WAS SUBMITTED THAT THE ITAT CONFIRMED THE DISALLOWANCE IN THE EARLIER YEAR FOR THE REASON THA T THE ASSESSEE WAS NOT ABLE TO PRODUCE THE DETAILS BEFORE THE AUTHORITIES AND ALSO ON ACCOUNT OF THE F ACT THAT THE TAX AUDITOR IN HIS REPORT HAD CLEARLY STAT ED THAT THE SAID AMOUNT IS TAXABLE. WHEREAS IN THE PRESENT ASSESSMENT YEAR THE ASSESSEE HAD FURNISHED FULL DETAILS OF THE CLAIM AND IT IS EVIDENT FROM TH ESE STATEMENTS THAT NO CLAIM IN ANY EARLIER YEAR IN RES PECT OF BAD DEBTS WRITTEN OFF HAS BEEN MADE. A DETAIL OF RECOVERY IN RESPECT OF RECOVERY OF ACCOUNTS STARTIN G FROM THE FINANCIAL YEAR 2001-02 TO FINANCIAL YEAR 2009-10 WERE ALSO FILED BEFORE US. 21. LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE CIT (APPEALS) HA S RIGHTLY CONFIRMED THE DISALLOWANCE. 22. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08, WE SEE THAT THE SAID ISSUE HAS BEEN DECIDED BY THE ITAT AT PAGE 5 PARA 7 TO 8, AS UNDER . 13 7. IN GROUND NO.2, THE APPELLANT CONTENDED THAT LEARNE D COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLD ING THAT BAD DEBTS RECOVERED DURING THE YEAR WHICH WERE NEITHER CLAIMED NOR ALLOWED AS A DEDUCTION U/S 36(1)(VII) WERE L IABLE TO TAX THEREBY SUSTAINING THE ADDITION OF RS.55,24,00,000/-. 8. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS BEF ORE US, BOTH LD.'AR' AND LD.'DR' STATED THAT THE ISSUE IS SQUA RELY COVERED AGAINST THE ASSESSEE, IN ASSESSEE'S OWN CASE , BY THE TRIBUNALS ORDER. THE DETAIL OF SUCH BAD DEBTS HAS BEEN PROVIDED IN THE PAPER BOOK, FROM PAGE 105 TO 184. A P ERUSAL OF THE ISSUES AND FACTS, INVOLVED IN THE PRESENT CASE AND THE ADJUDICATION MADE BY THE TRIBUNAL IN ASSESSEE'S OWN CASE, IT REVEALS THAT THE SAME ARE SIMILAR IN NATURE. THEREFORE , RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE, THIS GROUND OF APPEAL OF THE ASS ESSEE IS FOUND TO BE COVERED AGAINST THE ASSESSEE. THE RELEVAN T PART OF THE FINDINGS OF THE TRIBUNAL IS REPRODUCED HEREUNDER : 19. WE HAVE HEARD THE RIVAL CONTENTIONS. THE ASSESSEE DURING THE YEAR HAD RECOVERED BAD DEBTS TOTALING RS. 4.52 CR. IN THE ORIGINAL RETURN OF INCOM E, THE SAME WAS INCLUDED AS INCOME BY THE ASSESSEE. HOWEVER, THE ASSESSEE FILED REVISED RETURN OF INCOME AND VIDE NOTE NO.3 IT WAS CLAIMED AS UNDER : BAD DEBTS WRITTEN OFF EARLIER YEAR AND RECOVERED DURING THE YEAR AMOUNTING RS.4,52,49,329/- THOUGH CREDITED TO PROFIT AND LOSS ACCOUNT HAVE BEEN REDUCED FROM INCOME AS DEBTS HAVE BEEN NEITHER CLAIMED NOR ALLOWED AS DEDUCTION IN THE YEAR OF WRITING OFF AND HENCE ARE NOR COVERED BY PROVISION OF SECTION 41(1) OF THE ACT. 20. THE RETURN OF INCOME WAS REVISED TO THE EXTENT OF BAD DEBTS RECOVERED TOTALING RS.4.52 CR. THE COPY OF REVISED COMPUTATION OF INCOME IS PLACED AT PAGES 5 TO 5 OF PB-1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE EXPLANATION OF THE ASSESSEE WAS AS UNDER : 14 THE ASSESSEE BANK DURING THE YEAR UNDER CONSIDERATION RECOVERED BAD DEBTS AMOUNTING TO RS.4,52,49,330/- WRITTEN OFF EARLIER. THE AMOUNT WAS INCLUDED IN THE INCOME IN THE PROFIT & LOSS ACCOUNT BUT WHILE PREPARING THE RETURN, THE AMOUNT OF BAD DEBTS RECOVERED DURING THE YEAR HAS BEEN REDUCED FROM THE TAXABLE INCOME. THE ASSESSEE HAS BEEN CLAIMING DEDUCTION U/S 36(1)(VIIA). AS PER PROVISO TO SECTION 36(1)(VII) THE BAD DEBTS IN THE CASE OF THE ASSESSEE WHERE PROVISIONS OF SECTION 36(1)(VIIA) ARE APPLICABLE ARE ONLY ALLOWABLE TO THE EXTENT THE BAD DEBTS EXCEED THE PROVISION U/S 36(1)(VIIA), IN VIEW OF THE PROVISO TO SECTION 36(1)(VII), THE BANK HAS NEITHER CLAIMED NOR WAS ALLOWED ANY DEDUCTION FOR BAD DEBTS WRITTEN OFF U/S 36(1)(VII). THE PROVISIONS OF SECTION 41(4) ARE ONLY APPLICABLE IN THE CASE OF BAD DEBTS RECOVERED WHICH HAVE BEEN ALLOWED AS DEDUCTION U/S 36(1)(VII) IN THE PAST. AS THE DEBTS RECOVERED DURING THE YEAR WERE NEITHER CLAIMED NOR ALLOWED AS A DEDUCTION U/S 36(1)(VII), THE PROVISIONS OF SECTION 41(4) ARE NOT APPLICABLE AND, AS SUCH, BAD DEBTS RECOVERED DURING THE YEAR HAVE BEEN REDUCED FROM THE INCOME AND THE FACTS HAS BEEN FULLY DISCLOSED IN THE SHAPE OF A NOTE ATTACHED WITH THE RETURN. 21. THE ASSESSING OFFICER NOTICED FROM THE REPORT OF THE AUDITOR IN FORM NO. 3CD AT SR.NO. (18), THERE IS MENTION THAT THE AMOUNT RECOVERED ON ACCOUNT OF ADVANCE WRITTEN OFF AT RS.4.52 CR WAS CREDITED TO PROFIT & LOSS ACCOUNT MEANING THEREBY THAT THE SAME ARE COVERED U /S 41(1) OF THE ACT THOUGH THE CASE OF ASSESSEE IS THAT THESE ARE NOT COVERED U/S 41(4) OF THE ACT. THE ISSUE ARISING IN THE PRESENT CASE IS IN CONNECTION WITH TH E BAD DEBTS RECOVERED. THE A.O. REQUISITIONED THE ASSESSEE TO FILE DETAILS OF BAD DEBTS WRITTEN OFF YEAR WISE AND RECOVERED DURING THE YEAR. THE ASSESSEE HAS FAILED TO 15 FURNISH ANY INFORMATION IN THIS REGARD EITHER BEFORE A.O. OR CIT(A). NO DETAILS HAVE BEEN FILED BY THE LEARNED AR FOR THE ASSESSEE BEFORE US, DESPITE A SPECIFIC QUERY RAISED IN THIS REGARD. THE LEARNED AR HAS PLACED RELIANCE ON THE RATIO LAID DOWN BY THE BANGALORE BEN CH OF TRIBUNAL IN STATE BANK OF MYSORE VS DCIT (2009) 33 SOT 7 (BANG) WITHOUT BRINGING ON RECORD THE FACTUAL ASPECTS ON RECORD. IN THE ABSENCE OF THE SAME AND IN VIEW OF THE REPORT OF AUDITOR AND THE ASSESSEE NOT DISCHARGING ITS ONUS, WE ARE IN CONFORMITY WITH ORDER O F CIT(APPEALS) AND A.O. THAT BAD DEBTS RECOVERED DURING THE YEAR ARE TO BE INCLUDED AS INCOME IN THE HANDS OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF SECTION 41 (4) OF THE ACT. 22. THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS CARRIED OUT PURSUANT TO NOTICE ISSUED U/ S 148 OF THE ACT RELATING TO ASSESSMENT YEAR 2002-03, I N RESPECT OF CLAIM OF BAD DEBTS RECOVERED NOT BEING CHARGEABLE TO TAX, HAD ISSUED LETTER DATED 23.10.2008 U/S 133(6) OF THE ACT TO THE AUDITOR G.S.GOEL & CO. AND IN RESPONSE IT WAS REPLIED AS UNDER:- WE ARE IN RECEIPT OF YOUR ABOVE REFERRED LETTER ON 29.10.2008 AND HAVE NOTED ITS CONTENTS. IN RESPONSE TO THE SAME WE WISH TO SUBMIT THE FOLLOWING REPLY. THE AMOUNT OF RS. 2,93,24,755.99 RECOVERED AGAINST BAD DEBTS WRITTEN-OFF AND ALLOWED AS EXPENDITURE IN EARLIER YEARS U/S 36(1)(VII) OF THE ACT IS CHARGEABLE TO INCOME TAX U/S 41(4) OF THE INCOME TAX ACT, 1961................. IN OUR TAX AUDIT REPORT, IN REPLY TO POINT NO.20 REGARDING AMOUNT CHARGEABLE TO TAX U/S 41, WE HAVE MENTIONED THAT 8 AMOUNT RECOVERED IN RESPECT OF ADVANCES WRITTEN OFF IS RS. 2,93,24,755.99 AND IS CHARGEABLE TO TAX /S 41 OF 16 THE INCOME TAX ACT, 1961. HOWEVER, THE SAME HAS BEEN CREDITED BY THE BANK TO ITS PROFIT AND LOSS ACCOUNT. IN OUR OPINION THIS AMOUNT IS CHARGEABLE TO TAX U/S 41 OF THE INCOME TAX ACT, 1961. 23. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, UPHOLDING THE ORDER OF CIT(APPEALS), WE DISMISS THE GROUND NO.5 RAISED BY THE ASSESSEE. 8(I) THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 23. THERE IS NO DENYING THE FACT THAT THE ITAT HAD DISMISSED THE GROUND RAISED BY THE ASSESSEE ON THE BASIS OF TWO FACTS, FIRSTLY, IT WAS STATED THAT THERE IS A MENTION IN THE TAX AUDIT REPORT THAT THE AMOUN TS RECOVERED ON ACCOUNT OF ADVANCES WERE CREDITED TO PROFIT AND LOSS ACCOUNT THOUGH THE SAME ARE NOT COVERED UNDER SECTION 41 OF THE ACT. FURTHER THE O THER REASON WAS THAT THE ASSESSEE COULD NOT FILE THE DE TAIL OF THESE RECOVERED AMOUNTS BEFORE ANY OF THE LOWER AUTHORITIES. HOWEVER IN THE PRESENT CASE WE SEE THA T THE ASSESSING OFFICER WHILE MAKING THE DISALLOWANCE HAS STATED WHAT HAS BEEN STATED IN THE AUDIT REPORT WHICH IS AT PAGE 5 OF THE ASSESSING OFFICERS ORDER WHICH READS AS UNDER: '1. THE AUDITORS IN PARA 20 OF TAX AUDIT REPORT HAVE S TATED AS UNDER:- THE BANK IS ELIGIBLE FOR DEDUCTION OF PROVISION FOR BAD & DOUBTFUL DEBTS U/S 36(1)(VIIA) OF THE INCOME TAX AC T, HOWEVER THE ACTUAL BAD DEBTS WRITTEN OFF ARE NOT CLAI MED AS EXPENSE WHILE ARRIVING AT THE ASSESSABLE INCOME AND ARE MET FROM THE 'PROVISIONS FOR BAD & DOUBTFUL DEBTS U/S 36 (1)(VIIA) OUTSTANDING IN THE BOOKS OF ACCOUNTS. AS THE BAD DEB TS WRITTEN OFF HAVE NOT BEEN CLAIMED AS EXPENSE WHILE ARRIVING AT THE ASSESSABLE INCOME, THEREFORE, THE BAD DEBTS 17 RECOVERED AMOUNTING TO RS.94,60,13,107/- CREDITED T O CHARGES ACCOUNT A/C MISC. ARE NOT CONSIDERED AS INC OME U/S 41(1) OF THE I.T.ACT. 2. A CERTIFICATE FROM THE MANAGEMENT OF BANK CERTIFY ING THAT BAD DEBTS RECOVERED DURING THE YEAR HAVE NOT BEEN C LAIMED NOR ALLOWED AS A DEDUCTION U/S 36(1)(VII)OF THE ACT IS ALSO ATTACHED WITH THE RETURN AT PAGE 474. IN VIEW OF THE F ACTS STATED ABOVE, THE AMOUNT OF RS.94,60,13,107/-ON ACC OUNT OF BAD DEBTS RECOVERED DURING THE YEAR IS NOT CHARGEABL E TO TAX.' 24. FURTHER, THERE IS NO DENYING THE FACT THAT THE DETAILS OF THESE AMOUNTS RECOVERED WERE FILED BEFORE THE LOWER AUTHORITIES. A COPY OF THE SAME HA S ALSO BEEN FILED BEFORE US. THE ASSESSEE BEING A BAN K IS ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VII) OF THE ACT. FURTHER, THE PROVISIONS OF SECTION 41(4) ARE ALSO APPLICABLE ON SUCH DEBTS THAT ARE RECOVERED DURING THE YEAR WHICH HAVE BEEN REDUCED FROM THE INCOME IN ANY OF THE EARLIER YEARS. IN VIEW OF ALL THESE, WE ARE INCLINED TO SEND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY WITH THE DETAILS FILED BY THE ASSESSEE WHETHER ANY CLAIM OF ANY SUCH NATURE, WHICH REDUCES THE INCOME OF THE ASSESSEE WITH REGAR D TO THESE RECOVERIES, IF MADE IN ANY OF THE EARLIER YEARS THE DISALLOWANCE HAS TO BE SUSTAINED HOWEVER IN CAS E NO SUCH BENEFIT HAS BEEN TAKEN BY THE ASSESSEE OUT OF THESE AMOUNTS RECOVERABLE IN ANY OF THE EARLIER YEA RS THE DISALLOWANCE SHOULD BE DELETED. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 18. WE FIND THAT THE HON'BLE ITAT IN THE IMPUGNED O RDER HAD REMANDED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY WHETHER THE ASSESSEE HAD CLAIMED ANY BAD DEBTS IN EARLIER YEARS AND IF SO, THE DISALLOWANCE MADE IN THE IMPUGNED YEAR WAS TO BE SU STAINED IN VIEW OF THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT AND SEC TION 41(4) OF THE INCOME- 18 TAX ACT, 1961. THE FACTS IN THE IMPUGNED CASE WERE THAT THE TAX AUDIT REPORT STATED THAT BAD DEBT RECOVERED DURING THE YEAR HAD NOT BEEN CLAIMED OR ALLOWED AS DEDUCTION U/S 36(1)(VII) OF THE ACT. FUR THER, THE ASSESSEE HAD FILED ALL THE DETAILS OF THE AMOUNTS RECOVERED BEFO RE THE LOWER AUTHORITIES. TAKING INTO CONSIDERATION THESE FACTS, THE ITAT H ELD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 36(1)(VII) OF THE A CT AND PROVISIONS OF SECTION 41(4) WERE ALSO APPLICABLE TO THE ASSESSEE S CASE,THEREFORE THE MATTER NEEDED RE-EXAMINATION AT THE LEVEL OF THE AS SESSING OFFICER TO DETERMINE WHETHER THE ASSESSEE HAD CLAIMED DEDUCTIO N OF BAD DEBTS IN EARLIER YEAR OR NOT AND THEREAFTER RE-EXAMINE THE C LAIM OF THE ASSESSEE IN THE LIGHT OF PROVISIONS OF SECTION 41(4) OF THE ACT . 19. THE FACTS IN THE PRESENT CASE, WE FIND, ARE ID ENTICAL TO THAT IN ASSESSMENT YEARS 2008-09 AND 2009-10, NO CHANGE IN FACTS HAVING BEEN BROUGHT TO OUR NOTICE BY THE LD.DR. THE AUDITORS IN THE TAX AUDIT REPORT FOR THE IMPUGNED YEAR AT PAGE 20 HAVE CERTIFIED THAT BA D DEBTS RECOVERED DURING THE YEAR WERE NOT LIABLE TO TAX SINCE THEY H AD NOT BEEN CLAIMED AS DEDUCTION IN EARLIER YEARS. A CERTIFICATE OF THE M ANAGEMENT TO THIS EFFECT WAS ALSO ENCLOSED. FURTHER, DETAILS OF THE BAD DEB T WRITTEN OFF EARLIER AND REFERRED DURING THE YEAR WERE ALSO FILED BEFORE THE ASSESSING OFFICER, BUT WERE NOT EXAMINED IN THE LIGHT OF THE PROVISIONS OF SECTION 36(1)(VII) AND 41(4) OF THE ACT. IN VIEW OF THE FACTS OF THE PRESE NT CASE BEING IDENTICAL TO THAT IN ASSESSMENT YEARS 2008-09 AND 2009-10, THE D ECISION RENDERED BY THE ITAT ON THE ISSUE IN THAT CASE IS SQUARELY APPLICAB LE AND RESPECTFULLY FOLLOWING THE SAME, WE SEND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE DETAILS FILED BY THE ASSESSEE AND TO DETERMINE WHETHER 19 THE ASSESSEE HAD CLAIMED DEDUCTION OF BAD DEBTS IN EARLIER YEAR OR NOT AND THEREAFTER RE-EXAMINE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF PROVISIONS OF SECTION 41(4) OF THE ACT, AS DIRECTED BY THE ITAT I N A.Y 2008-09 &2009- 20. WE MAY ADD THAT IT WAS ALSO ARGUED BEFORE US T HAT THE ASSESSEE BEING A SCHEDULED BANK ,PROVISION FOR BAD DEBTS WAS CREAT ED IN THE BOOKS AND CLAIMED AS DEDUCTION AS PER THE PROVISIONS OF SECTI ON 36(1)(VIIA) OF THE ACT. LD. AR STATED THAT THE ACTUAL BAD DEBTS WERE A DJUSTED IN THE PROVISION ACCOUNT CREATED AND NOT WRITTEN OFF IN THE BOOKS OF THE ASSESSEE. THE ASSESSEE THEREFORE WAS COVERED BY THE FIRST PROVIS O TO SECTION 36(1)(VII) BY VIRTUE OF WHICH ONLY AMOUNTS OF BAD DEBTS IN EXCESS OF PROVISION FOR BAD DEBTS CREATED AS PER SECTION 36(1)(VIIA) COULD BE C LAIMED AS DEDUCTION.LD.AR SUBMITTED THAT NO SUCH BAD DEBTS HA D BEEN CLAIMED BY THE ASSESSEE AND THE SAME WAS SUBMITTED TO THE AO ALSO BEFORE WHOM THE BOOKS OF ACCOUNTS WERE ALSO PRODUCED FOR VERIFICATI ON OF THIS FACT. LD AR THEREFORE STATED THAT SINCE NO DEDUCTION HAD BEEN C LAIMED BY THE ASSESSEE OF BAD DEBTS, UNDER SECTION 36(1)(VII) OF THE ACT, SECTION 41(4) WAS NOT APPLICABLE AS IT APPLIED ONLY TO DEDUCTIONS CLAIMED UNDER SECTION 36(1)(VII) OF THE ACT. 21. WE FIND MERIT IN THIS CONTENTION OF THE ASSESSE E. UNDENIABLY THE ASSESSEE IS A SCHEDULED BANK ,WHICH IS ENTITLED TO CLAIM DEDUCTION OF PROVISION FOR BAD AND DOUBTFUL DEBTS AS PER SECTION 36(1)(VIIA) OF THE ACT. FURTHER HAVING CLAIMED DEDUCTION UNDER SECTION 36(1 )(VIIA), THE ASSESSEE IS ONLY ENTITLED TO CLAIM BAD DEBTS WRITTEN OFF IN EXC ESS OF THE PROVISIONS CREATED ,AS PER THE FIRST PROVISO TO SECTION 36(1)( VII) OF THE ACT. FURTHER THE 20 PROVISIONS OF SECTION 41(4) OF THE ACT FOR BRINGING TO TAX BAD DEBTS RECOVERED WHICH WERE WRITTEN OFF IN EARLIER YEARS I S NOT APPLICABLE TO ASSESSEES GOVERNED BY SECTION 36(1)(VIIA) OF THE AC T. HAVING SAID SO ,WE FIND THAT ALL THESE FACTS HAVE NOT BEEN EXAMINED BY THE LOWER AUTHORITIES DESPITE THE CATEGORICAL SUBMISSIONS MADE AND DETAIL S FILED BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS AND ALSO THE REPORT O F THE TAX AUDITORS IN THIS CONTEXT STATING SO AT POINT NO.20 OF THEIR RE PORT. WE THEREFORE ALSO DIRECT THE AO TO EXAMINE THE CLAIM OF THE ASSESSEE VIS--VIS THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND VERIFY WHETHE R THE ASSESSEE HAS BEEN CREATING AND CLAIMING DEDUCTION OF PROVISION FOR BA D AND DOUBTFUL DEBTS U/S 36(1)(VIIA) OF THE ACT. IF YES, WHETHER ANY BAD DEB TS IN EXCESS OF THE PROVISION CREATED HAS BEEN CLAIMED UNDER THE FIRST PROVISO TO SECTION 36(1)(VII) OF THE ACT AND THE SAME HAS BEEN RECOVER ED IN THE IMPUGNED YEAR. ONLY THEN THE ADDITION MADE OF BAD DEBTS RECO VERED IS TO BE SUSTAINED UNDER SECTION 41(4) OF THE ACT. 22. THIS GROUND OF THE ASSESSEE IS THEREFORE, ALLOW ED FOR STATISTICAL PURPOSES. 23. GROUND NO.3 RAISED BY THE ASSESSEE READS AS UND ER:- 3. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 34.98 LACS BY THE ASSESSING OFFICER AS PRIOR PE RIOD EXPENSES WITHOUT APPRECIATING THE FACT THAT THE LIA BILITY TO PAY THESE SUMS AROSE ONLY IN THE CURRENT YEAR AND, THEREFORE, THESE ARE NOT PRIOR PERIOD EXPENSES. 24. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE TAX AUDIT 21 REPORT QUANTIFIED THE EXPENDITURE RELATING TO EARLI ER YEARS DEBITED TO THE PROFIT AND LOSS ACCOUNT AT RS. 1,38,59,638/- AND TH E INCOME PERTAINING TO THE EARLIER YEARS CREDITED TO THE PROFIT AND LOSS A CCOUNT AT RS. 5,59,513/-. THE ASSESSING OFFICER FOUND THAT IN ASSESSMENT YEAR 2002-03, THE ITAT HAD ACCEPTED THE ASSESSEES ARGUMENTS THAT EXPENSES WERE ALLOWABLE IN THE YEAR IN WHICH THEY WERE BOOKED SINCE THE ASSESSEE W AS CONSISTENTLY FOLLOWING THIS METHOD OF ACCOUNTING. BUT AT THE SAM E TIME THE ASSESSING OFFICER NOTICED THAT IN COMPLIANCE OF THE DIRECTION OF THE ITAT IN ASSESSMENT YEAR 2002-03, DURING THE SET ASIDE PROCE EDINGS, 1/3 RD OF SUCH EXPENSES AS POINTED OUT BY THE AUDITORS HAD BEEN DI SALLOWED FOR WANT OF DOCUMENTS / PROOF. THEREFORE, LOOKING INTO THE HIST ORY OF CASE AND TO MAINTAIN CONSISTENCY, THE LD. ASSESSING OFFICER HEL D THAT IT WAS IMPERATIVE TO MAKE ADDITION IN THIS YEAR ALSO. THEREAFTER, ON THE BASIS OF THE DETAILS RELATING TO PRIOR PERIOD EXPENSES, AND OPERATING EX PENSES INCURRED IN EARLIER YEARS, THE ASSESSING OFFICER ESTIMATED THE PRIOR PERIOD EXPENSES FOR THE CURRENT YEAR AT RS. 2,94,15,975/- AND ACCORDING LY, DISALLOWED 1/3 RD OF THE SAME AMOUNTING TO RS. 98,05,325/-. 25. BEFORE THE CIT(A), THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED. THE ISSUE WAS SENT BACK TO THE FILE OF THE ASSESSING OFFICER ON REMAND AND AFTER CONSIDERING THE REMAND REPORT AND OTHER MATERIALS, THE LD. CIT(A) HELD THAT OUT OF PRIOR PE RIOD EXPENSES DETERMINED BY THE AUDITORS AT RS. 1,35,59,638/-, PRIOR PERIOD INCOME OF RS. 5,59,513/- IS TO BE NETTED OFF FOLLOWING THE ORDER OF LD. CIT( A) IN ASSESSMENT YEAR 2009-10 AND PRIOR PERIOD EXPENSES RELATING TO SERVI CE TAX OF RS. 95,01,755/- WHICH IS ALLOWABLE U/S 43-B IS TO BE RE DUCED. THEREAFTER, THE 22 BALANCE PRIOR PERIOD EXPENSES OF RS. 34,98,390/- WE RE HELD TO BE DISALLOWABLE. IN THIS WAY, THE LD. CIT(A) RESTRICTE D THE DISALLOWANCE TO RS. 34,98,390/-. 26. AGGRIEVED BY THIS, THE ASSESSEE CAME UP IN APPE AL BEFORE US. BEFORE US, LD. AR STATED THAT IDENTICAL ISSUE HAD BEEN DEC IDED IN FAVOUR OF THE ASSESSEE BY THE ITAT FOR ASSESSMENT YEARS 2008-09 A ND 2009-10 IN ITA NO. 215, 363/CHD/2015 DATED 28.3.2016. FURTHER LD. AR RELIED ON THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES STATI NG THAT ASSESSEE HAD BEEN CONSISTENTLY FOLLOWING THE SYSTEM OF BOOKING E XPENSES ON RECEIPT OF BILLS AND SUCH EXPENSES HAVE BEEN HELD TO BE NOT PR IOR PERIOD EXPENSES BY VARIOUS HIGH COURTS. LD. DR, ON THE OTHER HAND, RE LIED ON THE ORDERS OF THE LOWER AUTHORITIES. 27. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERE D THE MATERIALS AVAILABLE ON RECORD. FROM THE PERUSAL OF THE ORDER OF THE ITA T IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2008-09 AND 2009-10 IN IT A NOS. 215, 353/CHD/2015 DATED 28.3.2016, WE SEE THAT THE ISSU E HAS BEEN DECIDED AT PAGES 31 & 32 OF THE ORDER WHICH READS AS UNDER:- 31. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 IN ITA NO. 456/CHD/2011 DATED 16.5.2012, WE SEE THAT THE ISSUE HAS BEEN DECIDED AT PARAGRAPH 9,10 AND 11 OF THE ORDER WHICH READ AS UNDER: 23 9. IN GROUND NO.3, THE ASSESSEE CONTENDED COMMISSIONER OF INCOME TAX APPEALS) HAS ERRED IN SUSTAINING THE ADDITI ON OF RS.42,00,000/- BEING 1/5T H OF THE ESTIMATED PRIOR PERI OD EXPENSES OF RS. 2,10,00,000/- IGNORING TOTALLY THE DIRECT IONS AND ORDER OF THE HON'BLE INCOME TAX APPELLATE TRIBUNA L IN THE CASE OF THE APPELLANT IN PREVIOUS YEARS. 10. THIS ISSUE IS COVERED IN ITA NO. 451 TO 455/CHD/ 2011 A.Y. 1996-97, 1998-99,1999-2000, 2001-02 & 2002-03 IN ASSESSEE'S OWN CASE DATED 25.01.2012, AS STATED BY LD. ' AR' AND LD. 'DR'. 11. THE RELEVANT PART OF THE ORDER OF THE HON'BLE TRIB UNAL IS REPRODUCED HEREUNDER : 3. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, LD. 'AR' CONTENDED THAT THE AO HAS NOT COMPLIED WITH THE DIRECTIONS OF THE TRIBUNAL, AS CONTAINED IN PARA 11 OF TH E ORDER DATED 19.06.2008 IN ITA NO. 785/CHD/1999 AND OTHERS, FOR THE ASSESSMENT YEAR 1996-97, IN ASSESSEE'S OWN CASE. HE NARRATED THE ISSUE IN QUESTION, IN THE APPEAL, AS PERTAINING TO PRIOR PERIOD EXPENSES. HE, FURTHER, STATED THAT SINCE THE INCEPTION OF THE BANK , IT HAS BEEN CONSISTENTLY FOLLOWING THE HYBRID METHOD OF ACCOUNTING AND ITEMS IN ISSUE REGARDING PAYMENT OF STATIONERY BILLS, MISC. BILLS, NO-DEPARTURE HAS BEEN MAD E IN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE . LD. 'DR' ON THE OTHER HAND, CONTENDED THAT THE ASSESS EE HAS FAILED TO PRODUCE REQUISITE EVIDENCE IN RESPECT O F SUCH EXPENSES TO ENABLE THE ITO TO TAKE PROPER AND APPROPRIATE VIEW IN THE MATTER. HE REFERRED TO PAGE 7 OF THE ASSESSMENT ORDER DATED 30.11.2009 FOR THE ASSESSMENT YEAR 1996-97, PASSED U/S 143(3) READ WITH SECTION 254 OF THE ACT, WHEREBY THE AO HAS CATEGORICALLY MENTIONED HOWEVER, THE ASSESSEE FAILED TO PRODUCE ANY PROOF IN RESPECT OF STATIONERY EXPEN SES AND MISC. EXPENSES ETC. AS TO ON WHAT BASIS, THEY WERE BOOKED FOR, IN THE YEAR UNDER CONSIDERATION, THOUGH THEY WERE PURCHASED IN EARLIER YEARS. THE AO, FURTHER, 24 MENTIONED ON PERUSAL OF THE AUDIT REPORT OF THE TAX AUDITORS FURNISHED BY THE ASSESSEE WITH THE RETURN O F INCOME, IT IS CLEAR THAT THE ASSESSEE WAS REQUIRED TO PROVIDE DETAILS TO THE AUDITOR IN RESPECT OF PRIOR PE RIOD EXPENSES/INCOME DEBITED TO PROFIT & LOSS ACCOUNT BU T THE ASSESSEE HAS FAILED TO DO SO STATING THE REASONS DEPICTED IN THE AUDIT REPORT AGAINST COLUMN 9(B) AS ALS O IN THE REPLY FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS STATED SUPRA. ACCORDINGLY, THE LD. 'AR' WAS OF THE OPINION THAT IT IS THE FAILURE OF THE ASSE SSEE WHICH LED TO FRAME PRESENT ASSESSMENT. BOTH LD. 'AR' AND LD. 'DR' WERE OF THE OPINION THAT FOR THE PROPER AND JUDICIOUS DISPOSAL OF THE ISSUE IN QUESTION, IN THES E APPEALS, THE CASE(S) MAY BE RESTORED TO THE FILE OF THE AO. 4. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS,FACTS OF THE CASE AND THE RELEVANT MATE RIAL ON RECORD. THE GRIEVANCE OF THE ASSESSEE IS NON- COMPLIANCE WITH THE DIRECTIONS GIVEN BY THE ITAT, IN T HE ABOVE REFERRED DECISION. THE RELEVANT PARA OF THE ITA T ORDER WHILE RESTORING THE APPEAL TO THE AO IS AS UNDER : 11. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RI VAL CONTENTIONS. IN OUR CONSIDERED VIEW, THE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE REGARDING CERTAI N EXPENSES BOOKED ON THE BASIS OF RECEIPT OF BILLS, HAS BEEN FOLLOWED BY THE ASSESSEE RIGHT FROM THE INCEPTIO N. THERE IS NO CHANGE IN THE SYSTEM OF ACCOUNTING. IN OU R CONSIDERED VIEW, NO DISALLOWANCE COULD BE MADE MERELY BECAUSE THE BILLS RECEIVED IN THE YEAR UNDER APPEAL RELATED TO THE PERIOD PRECEDING TO THE YEAR UNDER A PPEAL IN THE LIGHT OF SYSTEM OF ACCOUNTING REGULARLY FOLLOW ED BY THE ASSESSEE. CERTAIN EXPENDITURE SUCH AS TELEPHONE EXPENSES ELECTRICITY ETC. IS BEING BOOKED BY THE ASSESSEE ON THE BASIS OF RECEIPT OF ACTUAL BILLS. SUCH METHOD HAS BEEN FOLLOWED IN THE PAST AND WAS BEING ACCEPTED BY THE DEPARTMENT. THE CIT(A) HAS NOT 25 DISPOSED OF THIS ISSUE ON ANY BASIS. HE HAS ADOPTED THE ARBITRARY PROCEDURE OF ALLOWING 50% AND SUSTAINING DISALLOWANCE OF REMAINING 50%. THE DEDUCTION ON ACCOUNT OF EXPENSES IS EITHER ALLOWABLE TO THE ASSESSE E ON THE BASIS OF THE METHOD OF ACCOUNTING REGULARLY ADOPTED OR IT IS NOT SO ALLOWABLE. WE DO NOT FIND ANY JUSTIFICATION FOR ALLOWING DEDUCTION AT 50% AND DISALLOWING THE REMAINING 50%. SINCE THE ASSESSEE HAS BEEN FOLLOWING A REGULAR SYSTEM OF ACCOUNTING AND THE RE IS NO CHANGE IN RESPECT OF BOOKING OF THE EXPENDITU RE, THE DISALLOWANCE MADE BY THE AO IN OUR VIEW, IS NOT JUSTIFIED IN PRINCIPLE. HOWEVER, THE AO IS ENTITLED TO VERIFY THE CLAIM OF THE ASSESSEE AND DEMANDING DETAI LS OF SUCH EXPENSES. WE RESTORE THE ISSUE TO THE FILE OF THE AO FOR FRESH DECISION IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARD TO THE ASSESSEE. 5. A REFERENCE TO THE OBSERVATIONS RECORDED BY THE AO AT PAGE 7 OF THE IMPUGNED ASSESSMENT ORDER IS PERTINENT AND RELEVANT. SUCH OBSERVATIONS OF THE AO CLEARLY INDICATE THAT THE ASSESSEE HAD NOT COOPERATED WITH THE AO IN THE MATER OF FURNISHING THE REQUIRED DETAILS FOR PROPER APPRECIATI ON AND ADJUDICATION OF THE ISSUE OF PRIOR PERIOD EXPENSES. NEEDLESS TO SAY THAT THE CLAIM HAS BEEN MADE BY THE ASSESSEE AND HENCE, IT IS INCUMBENT UPON THE ASSESSEE TO ADDUCE NECESSAR Y EVIDENCE IN RESPECT OF SUCH CLAIM, FAILING WHICH IT IS NOT POSSIBLE FOR THE AO TO DRAW INFERENCE, AS INTENDED B Y THE ASSESSEE. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE MAY BE RESTORED TO THE FILE OF THE AO FOR THE PURPOSE OF PROPER AND JUDICIOUS DISPOSAL OF THE ISSUE OF PRIOR PERIOD EXPENSES AFRESH, IN ACCORDANCE WITH RELEVANT PROVISIO NS OF THE ACT. THE ASSESSEE IS DIRECTED TO RENDER NECESSARY CO OPERATION IN THE MATTER OF FILING EVIDENCES AND ANY OTHER DET AIL, AS REQUIRED BY THE AO FOR THE PURPOSE OF FRAMING ASSES SMENT. THE AO IS ALSO DIRECTED TO COMPLY WITH THE NECESSARY DIRECTIONS CONTAINED IN THE DECISION OF THE ITAT IN ASSESSEE'S OWN CASE, REPRODUCED ABOVE, AND PROVIDE PROPER AND REASONABLE OPPORTUNITY TO THE ASSESSEE. 26 6. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO.451/CHD/2011 IS ALLOWED FOR STATISTICAL PURPOSES ONLY. 11(I) IN VIEW OF THE ABOVE DISCUSSIONS, THE ISSUE IS RESTORED TO THE FILE OF THE AO, AS INDICATED ABOVE. 32. AS IT HAS BEEN HELD IN EARLIER YEAR BY THE I.T.A.T. THAT LOOKING INTO THE REGULAR SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE, AN EXPENDITURE EITHER HAS TO BE ALLOWED OR NOT TO BE ALLOWED. IN THE PRESENT YEAR ALSO, BOTH THE ASSESS ING OFFICER AS WELL AS THE CIT (APPEALS) HAS INDULGED I N ESTIMATING THE DISALLOWANCE. NOWHERE ANY OF THESE AUTHORITIES HAVE BEEN ABLE TO PINPOINT WHICH EXPENS ES ARE PRIOR PERIOD IN NATURE. A DISALLOWANCE HAS NOT TO BE MADE JUST FOR THE SAKE OF MAKING DISALLOWANCE. WE DO NOT APPRECIATE THE WAY THE ISSUE HAS BEEN HANDLE D BY THE LOWER AUTHORITIES. THE ASSESSEE HAS PROVIDE D ALL DETAILS WHICH WERE ASKED FOR BY THEM. THE ORDE R AND DICTATE OF I.T.A.T. WERE BEFORE THEM. EVEN THE N THEY DID NOT BOTHER TO ANALYZE THE DETAILS FILED BY THE ASSESSEE. IN THE EARLIER YEAR, IN THE PROCEEDINGS SET ASIDE BY THE I.T.A.T., THE ASSESSING OFFICER RESTRI CTED THE DISALLOWANCE ONLY TO STATIONERY AND MISCELLANEO US EXPENSES. THIS YEAR ALSO, SAME HAS BEEN DONE ON AN ESTIMATED BASIS. THIS IS NOT THE RIGHT APPROACH. LOOKING INTO THE FACT THAT THE ONLY DISPUTE REMAINI NG IS WITH REGARD TO STATIONERY AND MISCELLANEOUS EXPENSES, WE ARE INCLINED TO DELETE THE DISALLOWANC E MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT (APPEALS) IN THIS REGARD. THIS GROUND OF APPEA L RAISED BY ASSESSEE IS ALLOWED. 28. AS HAS BEEN HELD BY THE ITAT IN THE ABOVE ORDER, THE AUTHORITIE S BELOW HAD NOT BEEN ABLE TO PIN POINT WHICH EXPENSES WERE PRIOR PERIOD IN NATURE AND DISALLOWANCE HAVE BEEN MADE JUST OF THE SAKE OF MAKING 27 DISALLOWANCE. NECESSARY DETAILS REGARDING THE PRIOR PERIOD EXPENSES WERE PROVIDED BY THE ASSESSEE. THE ORDER AND THE DICTATE OF THE ITAT IN EARLIER YEAR WERE ALSO THERE BEFORE THEM BUT THE SAME WE FI ND WERE NEITHER CONSIDERED NOR WERE THE DETAILS ANALYZED. THE ITAT ON THESE FACTS DELETED THE DISALLOWANCE MADE IN ASSESSMENT YEARS 2008-09 AND 2009-10. 29. IN THE PRESENT CASE ALSO WE FIND THAT COMPLETE DETAILS OF PRIOR PERIOD EXPENSES WERE FILED BEFORE THE LOWER AUTHORITIES AL ONGWITH AVAILABLE EVIDENCES, BUT THE DISALLOWANCE HAS BEEN MADE WITH OUT EXAMINING THE SAME AND POINTING OUT WHICH EXPENSES WERE ACTUALLY PRIOR PERIOD AS PER THE DICTATE OF THE ITAT IN THE PRECEDING YEAR. THE ACT OF MAKING THE DISALLOWANCE APPEARS TO BE TOTALLY ADHOC. THEREFORE , RESPECTFULLY FOLLOWING THE DECISION RENDERED IN A.Y 2008-09&2009-10, WE HO LD THAT NO DISALLOWANCE OF PRIOR PERIOD EXPENSES IS TO BE MADE IN THE IMPUGNED YEAR AND IN VIEW OF THE SAME, THE RESTRICTION OF DISALLO WANCE OF PRIOR PERIOD EXPENSES BY THE LD. CIT(A) TO RS. 34,98,390/- IS TH EREBY DELETED. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLO WED. 30. GROUND NO. 4 OF THE APPEAL READS AS UNDER:- 4.1 THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF LOSS ARISING ON YEAR END ON VALUATION OF SECURITIES AMOUNTING TO RS. 194.73 CRORE HELD AS STOCK IN TRAD E AND HOLDING THAT NO EVIDENCE WAS FURNISHED TO SHOW THE SECURITIES WERE HELD ONLY AS STOCK IN TRADE. 4.2 THE CIT (A) FAILED TO NOTE THAT THE APEX COURT IN UCO BANK'S CASE HELD THAT SECURITIES CONSTITUTED ST OCK NOTWITHSTANDING THEY ARE SHOWN AS INVESTMENTS IN 28 BALANCE SHEET AND FURTHER THAT COMMERCIAL BANKS AS A CLASS ARE SUBJECTED TO PROVISIONS OF BANKING REGULA TION ACT, THEIR DEPLOYMENT AND TREATMENT OF SECURITIES A RE RUN ON COMMON LINES AND HENCE DECISION OF APEX COURT IS SQUARELY APPLICABLE ON FACTS OF THE CASE. 4.3 THE CIT (A) ERRED IN STATING THAT THE APPELLAN T HAD NOT FILED THE SCRIP WISE DETAILS NOR THE TRADING AC COUNT EVEN WHEN THESE WERE FILED WITH THE AO AND EXAMINED BY HIM. 31. THE FACTS RELATING TO ISSUE ARE THAT DURING THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAD SHOWN ITS SECURITIES AS STOC K-IN-TRADE AND FURNISHED A CONSOLIDATED ACCOUNT AT THE END OF THE YEAR AND C LAIMED DEPRECIATION LOSS AS DEDUCTION. WHEN ASKED TO EXPLAIN THE SAME, DUR ING ASSESSMENT PROCEEDINGS, THE ASSESSEE STATED THAT THE SECURITIE S WERE ACTUALLY THE STOCK IN TRADE OF THE ASSESSEE BUT, HAD BEEN CLASSIFIED A S INVESTMENT IN THE BOOKS IN ACCORDANCE WITH THE RBI GUIDELINES . THE ASSESSE E FURTHER SUBMITTED THAT ENTRIES IN THE BOOKS COULD NOT BE DETERMINATIVE OF THE REAL CHARACTER OF THE INCOME AND THE SAME IS TO BE DETERMINED ON THE BASI S OF THE ACCOUNTING SYSTEM CONSISTENTLY FOLLOWED BY THE ASSESSEE. THE L D. ASSESSING OFFICER REJECTED THE ASSESSEES CONTENTION AND HELD THAT TH OUGH THE ASSESSEE HAD BEEN CONSISTENTLY FOLLOWING A METHOD OF ACCOUNTING WHEREBY INVESTMENT IN AVAILABLE FOR SALES(AFS) AND HELD FOR TREATING (HFT ) CATEGORY OF SECURITIES WERE VALUED AFTER NETTING OFF CLASSIFICA TION WISE DEPRECIATION AND APPRECIATION COMPUTED SCRIP-WISE IN EACH CATEGORY A ND THE NET DEPRECIATION IN EACH CLASSIFICATION WAS PROVIDED FOR WHILE THE A PPRECIATION WAS IGNORED, BUT THE PRINCIPLE OF RES JUDICATA DID NOT APPLY IN INCOME TAX PROCEEDINGS. THE ASSESSING OFFICER FURTHER HELD THAT IN THE CASE OF PUNJAB AND SIND BANK 29 VS. CIT, ITA NO. 634 AND 660 OF 2009, IT WAS HELD THAT THE TRUE CHARACTER OF THE SECURITIES WAS TO BE ASCERTAINED TO ARRIVE A T A FINDING WHETHER THE SECURITIES COULD BE TREATED AS INVESTMENT OR STOCK IN TRADE. RELYING UPON THE SAME, THE ASSESSING OFFICER HELD THAT SINCE THE ASSESSEE HAD NOT GIVEN PRECISE INFORMATION REGARDING THE NATURE AND TYPE O F SECURITIES, AS WELL AS TIMELINE BASED NOTIONAL LOSS BOOKED FOR MARK TO MAR KET, THEREFORE THERE WAS NO OPTION BUT TO ESTIMATE SUCH INCOME. THE ASSE SSING OFFICER THEREAFTER DISALLOWED LOSS ON VALUATION OF INVESTME NT OF RS. 1,94,72,73,318/- CLAIMED BY THE ASSESSEE AND MADE A DDITION OF THE SAME TO THE INCOME OF THE ASSESSEE. 32. DURING APPELLATE PROCEEDINGS, THE ASSESSEE ARGU ED THAT IT HAD BEEN CONSISTENTLY TREATING ITS SECURITIES AS STOCK IN TR ADE SINCE 1975-76 AND LITIGATION REGARDING TREATMENT OF SECURITIES WAS SE TTLED. THE ASSESSEE FURTHER SUBMITTED THAT THOUGH RES JUDICATA DID NOT APPLY TO INCOME TAX PROCEEDINGS BUT BECAUSE OF THE PRINCIPLE OF CONSIST ENCY, IT HAS BEEN TREATED AS STOCK IN TRADE AND THE ASSESSING OFFICER HAD POW ER TO INVESTIGATE THE SETTLED FACTS ONLY ON THE BASIS OF ANY CHANGE IN FA CTS OR LAW. THE ASSESSEE FURTHER SUBMITTED THAT THE TREATMENT OF THE SECURIT IES IN THE BOOKS AS INVESTMENT WAS AS PER RBI GUIDELINES AND THE SAME C OULD NOT OVERRIDE THE INCOME TAX PROVISIONS. THE ASSESSEE ALSO DISTINGUIS HED THE DECISION RELIED UPON BY THE ASSESSING OFFICER IN THE CASE OF PUNJAB & SIND BANK (SUPRA) AND FURTHER HELD THAT CIRCULARS OR INSTRUCTIONS COU LD NOT OVERRIDE THE DECISIONS OF COURTS. THE ASSESSING OFFICER SUBMITTE D DETAILED COMMENTS ON THE WRITTEN SUBMISSIONS OF THE ASSESSEE DURING APPE LLATE PROCEEDINGS REPRODUCED AT PARA 9.3 OF THE CIT(A) ORDER, THE GIS T OF WHICH WAS THE 30 PRINCIPLE OF CONSISTENCY WAS TO BE BREACHED IN THE PRESENT CASE ON ACCOUNT OF THE RBI GUIDELINES, CIRCULARS OF CBDT AND VARIOU S DECISIONS OF THE COURTS MORE SPECIFICALLY THAT OF THE SUPREME COURT IN THE CASE OF VIJAYA BANK (SUPRA). AS PER THE ASSESSING OFFICER, ON ACCOUNT OF THE ABO VE, THERE WAS CHANGE IN THE SETTLED POSITION, WARRANTING THE ASSESSING OFFICER TO DISTURB THE SAME AND INVESTIGATE THE ISSUE OF CLAS SIFICATION OF SECURITIES AFRESH RELYING UPON THE DECISION IN THE CASE OF PUN JAB & SIND BANK (SUPRA) AND INSTRUCTION NO. 17 OF CBDT AND IT WAS STATED TH AT IT WAS NECESSARY TO DETERMINE THE TRUE CHARACTER OF THE SECURITIES SHOW N BY THE ASSESSEE WHETHER INVESTMENT OR STOCK-IN-TRADE AND ONLY THERE AFTER ALLOW DEPRECIATION LOSSES ON THOSE SECURITIES WHICH WERE IN THE NATURE OF STOCK IN TRADE. THE ASSESSING OFFICER FURTHER STATED THAT SINCE THE ASS ESSEE HAD NOT PROVIDED NECESSARY DETAILS OF ASSETS FOR THE DETERMINATION O F THE TRUE CHARACTER OF THE SECURITIES AND ALSO QUANTUM OF LOSSES BOOKED, THE C LAIM OF THE ASSESSEE COULD NOT BE ALLOWED. 33. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF BOTH THE ASSESSEE AND THE ASSESSING OFFICER HELD THAT IN VIE W OF THE RBI GUIDELINES, THE CBDT CIRCULAR AND INSTRUCTION AS ALSO THE DECIS ION OF THE DELHI HIGH COURT IN THE CASE OF PUNJAB & SIND BANK (SUPRA), IT WAS IMPERATIVE TO DETERMINE THE TRUE NATURE OF THE SECURITIES AND IN THE ABSENCE OF ANY DETAILS FILED BY THE ASSESSEE THE SAME COULD NOT B E DETERMINED AND THE ASSESSING OFFICER, THEREFORE, HAD RIGHTLY DISALLOWE D THE ENTRE LOSS ON ACCOUNT OF DEPRECIATION CLAIMED BY THE ASSESSEE. RE LEVANT FINDINGS OF THE LD. CIT(A) AT PARA 9.4 OF HIS ORDER ARE AS FOLLOWS: - 31 9.4 I HAVE CONSIDERED THE SUBMISSIONS MADE. THE DECISION OF HON'BLE ITAT IN THE CASE OF THE BANK PE RTAINS TO ASSESSMENT YEAR 1975-76 AND THE DECISION RENDERED I N THE CASE OF UNITED COMMERCIAL BANK (SUPRA) PERTAINS TO ASSESSMENT YEAR 1982-83. SUBSEQUENTLY RBI HAS ISSUE D VARIOUS GUIDELINES REGARDING INVESTMENT PORTFOLIO O F BANK E.G. IN 1992 & 2000. CBDT HAS ISSUED VARIOUS CIRCUL ARS SUBSEQUENTLY. CIRCULAR NO. 610 DATED 31.07.1991 WAS ISSUED PUTTING RELIANCE ON THE ISSUE HELD BY HON'BL E SUPREME COURT IN THE CASE OF VIJAUA BANK. THEREAFTE R, CIRCULAR NO. 665 DATED 05.10.1993 WAS ISSUED WHICH IS AS UNDER: 'WHETHER A PARTICULAR ITEM OF INVESTMENT IN SECURIT IES CONSTITUTE STOCK IN TRADE OR A CAPITAL ASSET IS A Q UESTION OF FACT. IN FACT, THE BANKS ARE GENERALLY GOVERNED BY THE INSTITUTIONS OF THE RESERVE BANK OF LNDIA FROM TIME TO TIME WITH REGARD TO THE CLASSIFICATION OF ASSETS AND ALS O THE ACCOUNTING STANDARD FOR INVESTMENTS.' THE BOARD HAS , THEREFORE, DIRECTED THAT THE A.OS SHOULD DETERMINE ON THE FACTS AND CIRCUMSTANCES OF EACH CASE AS TO WHERE AN Y PARTICULAR SECURITY CONSTITUTES STOCK IN TRADE OR I NVESTMENT TAKING INTO ACCOUNT THE GUIDELINES ISSUED BY THE RE SERVE BANK OF INDIA IN THIS REGARD FROM TIME TO TIME. THE LATEST RBI GUIDELINES CLARIFIED INVESTMENT IN THREE CATEGO RIES I.E. HELD TO MATURITY, AVAILABLE FOR SALE AND AVAILABLE FOR SALE AND HELD FOR TRADING. THE HELD TO MATURITY SECURITI ES NEED NOT BE MARKED TO MARKET AND ARE PERMANENT INVESTMEN T. INSTRUCTION NO.17 AS REFERRED EARLIER WAS ALSO ISSU ED IN YEAR 2008. IN THIS CONNECTION IT IS APPROPRIATE TO REFER TO THE DECISION IN THE CASE OF PUNJAB & SIND BANK V CIT 263 CTR (DEL) 292 WHEREIN THE DECIS ION RENDERED BY HON'BLE SUPREME COURT IN UNITED COMMERC IAL BANK (SUPRA) HAS ALSO BEEN CONSIDERED IN THIS CASE. IT IS OBSERVED AS UNDER: 32 'IN THE INSTANT CASE, WE WOULD LIKE TO CONVEY THAT IN SO FAR AS THE BOOKS OF ACCOUNT ARE CONCERNED, NAMELY, THE BALANCE SHEET, THE ASSESSEE WAS SUPPOSED TO FOLLOW THE MAN DATE F THE RESERVE BANK OF INDIA AND, THEREFORE, THAT BY I TSELF WOULD NOT BE A GROUND TO LABEL THE SECURITIES AS 'INVESTMENT'. ONE WILL HAVE TO SEE THE REAL NATURE OF THESE SECURITIES. IN SOUTHERN TECHNOLOGIES LTD. (SUPRA), THE ASSESSEE WHICH WAS A NON BANKING FINANCIAL CORPORAT ION (NBFC) HAD CLAIMED DEDUCTION OF CERTAIN AMOUNT UNDE R SECTION 36(1))(III) OF THE ACT BEING PROVISION FOR NPAS IN TERMS OF NBFC'S PRUDENTIAL NORMS (RESERVE BANK) DIRECTIONS, 1998 ON THE GROUND THAT IT HAD TO DEBIT THE SAID AMOUNT TO PROFIT AND LOSS ACCOUNT IN TERMS OF PARA 9(4) OF THE SAID RBI DIRECTION IS REDUCING ITS PROFITS, CON TENDING IT TO BE WRITE OFF. IT WAS THE CONTENTION OF THE ASSES SEE THAT IT WAS BOUND TO FOLLOW THE METHOD OF ACCOUNTING PRESCR IBED BY THE RBI AND AS PER THE METHOD FOLLOWED, PROVISIO NS FOR NPAS ACTUALLY REPRESENTED DEPRECIATION IN THE VALUE OF ASSETS AND CONSEQUENTLY, IT WAS DEDUCTIBLE UNDER SE CTION 37(1) OF THE ACT. THE SUPREME COURT DID NOT ACCEPT THIS CONTENTION HOLDING THAT DIRECTIONS ISSUED BY THE RE SERVE BANK DEAL ONLY WITH THE PRESENTATION OF NPAS PROVIS IONS IN THE BALANCE SHEET OF NBFC AND THEY HAD NOTHING TO D O WITH THE COMPUTATION OF TAXABILITY OF PROVISIONS UNDER A CT AND NO DEDUCTION UNDER THE ACT COULD BE ALLOWED ON THAT BASIS. THUS, IRRESPECTIVE OF TREATMENT GIVEN TO THIS TRANS ACTION IN THE BALANCE SHEET BY VIRTUE OF RBI DIRECTIONS, ONE IS TO DISCERN THE TRUE CHARACTER OF THE SECURITIES. SIGNIFICANTLY, THE AO HAS NOT HELD THAT SECURITY SH OWN AS 'INVESTMENT' ARE NOT 'STOCK IN TRADE'. THE DISALLOW ANCE IS MADE ON THE GROUND THAT IT IS NOTIONAL LOSS. CASE O F THE ASSESSEE IS THAT TRIBUNAL PROCEEDED ON THE PRESUMPT ION THAT DEPRECIATION IS CLAIMED ON 'PERMANENT INVESTMENTS' WHEREAS CLAIM OF DEDUCTION WAS TOWARDS DEPRECIATION ON 'CUR RENT INVESTMENTS'. HOWEVER, AS PER REVENUE, UNDER SECTIO N 6 OF BANKING REGULATION ACT, 1949, A BANK IS ENTITLED TO HOLD 33 SECURITIES EITHER AS 'STOCK IN TRADE' OR AS 'INVEST MENT' AND THERE IS NO BAR AGAINST TRADING BY BANK. IT WAS FUR THER ARGUED BY THE REVENUE THAT FLUCTUATION IN VALUATION OF INVESTMENTS CANNOT BE ALLOWED AS DEDUCTION FOR COMP UTING BUSINESS INCOME AND THAT THE ONUS TO ESTABLISH THAT THE SAID SECURITIES WERE HELD AS 'STOCK IN TRADE' WAS ON THE ASSESSEE WHICH HAS NOT BEEN DISCHARGED INASMUCH AS NO TRADIN G ACCOUNT HAS BEEN MAINTAINED BY THE ASSESSEE AND VAL UE OF OPENING AND CLOSING STOCK OF SECURITIES ETC. DID NO T FIND PLACE IN INCOME AND EXPENDITURE ACCOUNT. THE LD. CO UNSEL ALSO STRESSED THAT THE ADMITTED CASE OF THE ASSESSE E IS THAT THE BALANCE SHEET MAINTAINED IN STATUTORY FORMAT TO MEET THE REQUIREMENTS OF BANKING REGULATION ACT AND THER EFORE IT WAS BINDING ON ASSESSEE. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIA L AVAILABLE ON RECORD. THE ISSUE FOR CONSIDERATION RE LATES TO DEPRECIATION ON INVESTMENTS KEPT IN PERMANENT CATEGORY. THERESE INVESTMENTS ARE HELD TILL MATURIT Y DATE. THEREFORE, THE INVESTMENTS ARE NOT HELD BY THE BANK AS STOCK IN TRADE WHICH SHOULD BE VALUED AS PER MARKET PRICE OR COST PRICE. THE ASSESSEE HAVE VALUED THE PERMANENT INVES TMENTS AT A LOWER PRICE AS PER GUIDELINES ISSUED BY RBI. T HE INVESTMENT HELD NOT AS STOCK IN TRADE CANNOT BE VA LUED AT THE YEAREND FOR THE PURPOSES OF INCOME TAX. WHEN TH E INVESTMENTS ARE SOLD WHATEVER MAY BE CAPITAL OR LOS S WILL BE DETERMINED AS PER THE PROVISIONS OF INCOME TAX A CT. HON'BLE MADRAS HIGH COURT IN THE CASE OF TN POWER FINANCIAL & INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. VS. JOINT CIT 280 ITR 491 HELD THAT RBI GUIDELINES CANNOT OVERRIDE STATUTORY PROVISIONS OF INCOME TAX ACT. TH EREFORE, CONTENTION OF ASSESSES THAT ASSESSEES CASES IS COV ERED BY ITAT ORDER FOR AY 1975-76 IS NOT LONGER APPLICABLE. MOREOVER, IN ASSESSMENT YEAR 1975-76 IT WAS HELD TH AT CHANGE IN METHOD OF VALUATION OF STOCK AND SECURITY TO COMPLY WITH THE DIRECTIVE OF THE RESERVE BANK OF IN DIA COULD NOT BE SAID THAT THE CHANGE WAS NOT BONAFIDE. THE 34 VALUATION OF STOCKS AND SECURITIES HELD AS STOCK IN TRADE HAS TO BE VALUED ON MARKET PRICE OR COST PRICE WHICHEVE R IS LOWER. HOWEVER, WHERE STOCKS & SECURITIES ARE HELD AS INVESTMENTS, THE VALUATION CANNOT BE MADE FOR THE P URPOSES OF INCOME TAX AS PER RBI GUIDELINES.' THEREFORE, AS REGARDS THE CHANGE IN FACTS, THE A.O HAS CONTENDED THAT RSI HAS ISSUED FRESH GUIDELINES ON T HIS ISSUE COUPLED WITH CIRCULARS AND INSTRUCTION ISSUED BY CB DT. CIRCULAR NO. 665 DATED 05.10.1993 SAYS THAT WHETHER A PARTICULAR ITEM OF SECURITY CONSTITUTES STOCK IN TR ADE OR INVESTMENT IS A QUESTION OR FACT AND IN THIS REGARD GUIDELINES ISSUED BY RESERVE BANK OF INDIA HAS TO B E CONSIDERED. SUBSEQUENTLY, RESERVE BANK OF INDIA VID E ITS GUIDELINES ISSUED IN YEAR 2000 HAS CATEGORIZED INVE STMENT PORTFOLIO OF THE BANKS IN THREE CATEGORIES AND THE SUBSEQUENT INSTRUCTION NO. -7 OF 2008 OF CBDT SAYS THAT AS PER RBI GUIDELINES THE INVESTMENT CLASSIFIED UNDER HELD TO MATURITY CATEGORY CANNOT BE MARKED TO MARKET AND TH ESE GUIDELINES ARE TO BE CONSIDERED FOR ALLOWING SUCH C LAIMS. THE APPELLANT ALSO SAYS THAT THE ISSUE HAS TO BE DE CIDED ON FACTS OF EACH CASE AS PER THIS CIRCULAR. AS REGARDS THE CLAIM OF THE APPELLANT THAT THE ISSUE IS SETTLED IN EARLI ER YEARS IT IS NOTED THAT, AT THAT POINT OF TIME THE RELEVANT C IRCULAR NO. 665 OR THE RBI GUIDELINES WERE NOT EXISTING. INSTRU CTION NO. 17 OF CBDT IS ALSO ISSUED LATER. THE DECISION OF UN ITED COMMERCIAL BANK (SUPRA) REFERRED BY THE APPELLANT A LSO REFERS TO ASSESSMENT YEAR 1982-83 WHEREIN SUCH RBI GUIDELINES WERE APPARENTLY NOT EXISTING. IN THE CAS E OF PUNJAB & SIND BANK LIMITED (SUPRA) THE DECISION IN THE CASE OF UNITED COMMERCIAL BANK HAS BEEN CONSIDERED AND THEREAFTER IT HAS BEEN HELD THAT THE INVESTMENTS HE LD TILL MATURITY DATE ARE NOT HELD BY BANK AS STOCK IN TRAD E AND THAT THE CONTENTION OF THE ASSESSEE THAT IT IS COVE RED BY HON'BLE ITAT ORDER FOR ASSESSMENT YEAR 1975-76 IS N O LONGER APPLICABLE. IT HAS BEEN HELD THAT ONE HAS TO DISCERN THE TRUE CHARACTER OF THE SECURITIES TO ASCERTAIN W HETHER 35 THESE ARE INVESTMENTS OR STOCK IN TRADE. SIGNIFICAN TLY RESERVE BANK OF INDIA BY ITS GUIDELINES ISSUED IN 1 993 HAS CATEGORIZED INVESTMENT AS PERMANENT INVESTMENT AND CURRENT INVESTMENT AND THE DECISION IN PUNJAB & SIN D BANK (SUPRA) PERTAINS TO LATER YEAR I.E. ASSESSMENT YEAR 1996-97 IN THE CASE OF THE APPELLANT. THE RBI GUIDELINES ISSUED IN YEAR 2000 IS APPLICABLE NOW WHEREIN ALSO THE SECURI TIES ARE CATEGORIZED AS HELD TO MATURITY, HELD FOR TRADING A ND AVAILABLE FOR SALE. THEREFORE, IN VIEW OF THE FACT S I FIND FORCE IN THE SUBMISSION OF THE A.O THAT THE FACTS A RE DIFFERENT IN THIS YEAR. IT IS ALSO NOTED THAT AS P ER SECTION 6 OF THE BANKING REGULATION ACT, BANK IS ENTITLED TO HOLD SECURITIES EITHER AS STOCK IN TRADE OR AS INVESTMEN T ALSO. FURTHER AS REGARDS THE CONTENTION OF THE APPELLANT THAT SECTION 24 OF THE BANKING REGULATION ACT IS APPLICA BLE IN THE CASE OF THE ASSESSEE THE SAME HAS ALSO NOT BEEN SUBSTANTIATED BY WAY OF DETAILED EXPLANATION REGARD ING NATURE OF SECURITIES HELD VIS-AVIS THE RELEVANT PRO VISIONS OF THE BANKING ACT UNDER WHICH SUCH SECURITIES ARE TRA NSACTED. NO TRADING ACCOUNT HAS BEEN MAINTAINED OR PRODUCED BEFORE THE ASSESSING OFFICER AND THE VALUE OF OPENI NG AND CLOSING STOCK OF THE SECURITIES SCRIPWISE AND CLASS IFICATION WISE IS NOT SHOWN IN INCOME AND EXPENDITURE ACCOUNT . THEREFORE, UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT HAS FAILED TO SUBMIT NECESSARY DETAIL S SO AS TO ENABLE THE ASSESSING OFFICER TO DISCERN THE TRUE CH ARACTER OF THE SECURITIES FOR ALLOWING THE CLAIM OF DEPRECI ATION. WITHOUT PREJUDICE TO THE FACTS AS ABOVE, IT IS FURT HER NOTED THAT DESPITE MULTIPLE QUERIES THE APPELLANT EVEN FA ILED TO SUBMIT THE BASIC DETAILS SUBSTANTIATING THE CORRECT NESS OF THE CLAIM OF DEPRECIATION. THE APPELLANT HAS TO JUS TIFY WITH PROPER DOCUMENTARY EVIDENCE THAT THE CLAIM HAS BEEN CORRECTLY MADE BY SUBMITTING SCRIPWISE DETAILS AS A SKED FOR BY THE A.O. IN ABSENCE OF THE SAME THE A.O CANNOT V ERIFY THE CORRECTNESS OF CLAIM MADE. THE ISSUE IN THIS YE AR IS THEREFORE ALSO EVIDENTLY DIFFERENT FROM EARLIER YEA R AS THE 36 APPELLANT FAILED TO JUSTIFY THE CORRECTNESS OF CLAI M OF DEPRECIATION DESPITE MULTIPLE QUERIES BY A.O. UNDER THE FACTS OF THE CASE THEREFORE SINCE NO DETAILS ARE SU BMITTED IN THIS REGARD BY THE APPELLANT AS CONTENDED BY ASSESS ING OFFICER IN ITS SUBMISSION EXCEPT FOR CONTENDING THA T THE DEPRECIATION IS ALLOWABLE, THEREFORE, I HAVE NO OPT ION BUT TO CONFIRM ACTION OF ASSESSING OFFICER. 34. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES, BEIN G THAT THE ASSESSEE HAD BEEN CONSISTENTLY TREATING FOR THE PAST 25 YEARS, I TS SECURITIES AS STOCK IN TRADE, WHICH HAD BEEN ACCEPTED BY THE ITAT AND LIT IGATION ON THIS SCORE HAD BEEN SETTLED. PRINCIPLE OF CONSISTENCY HAD TO B E FOLLOWED. THERE WAS NO CHANGE IN THE FACTS AND LAW FOR DISTURBING THE SET TLED POSITION AND THE CIRCULARS RELIED UPON BY THE REVENUE WERE NOT BINDI NG ON THE ASSESSEE. THE RBI GUIDELINES WERE ONLY WITH RESPECT TO THE MAINTE NANCE OF BOOKS OF ACCOUNT AND COULD NOT HELP IN DETERMINING THE TRUE CHARACTER OF THE SECURITIES. THE LD. COUNSEL FOR THE ASSESSEE FURTHE R STATED THAT THE ISSUE IN ANY CASE HAD BEEN SETTLED IN FAVOUR OF THE ASSESSEE BY THE KARNATAKA HIGH COURT IN THE CASE OF CIT V KARNATAKA BANK 356 ITR 5 49, CORPORATION BANK IN ITA NO 2405 OF 2005 (KARNATAKA) AND CIT V KARUR VYSYA BANK LTD IN ITA NO. 2139 OF 2008 (MADRAS). THE LD. COUNSEL FURT HER POINTED OUT THAT THE SLP IN THE CASE OF KARUR VYSYA BANK HAD BEEN D ISMISSED BY THE SUPREME COURT THEREBY SETTLING THE ISSUE IN FAVOUR OF THE ASSESSEE. 35. THE LD. DR ON THE OTHER HAND, COUNTERED BY REIT ERATING THE CONTENTION OF THE ASSESSING OFFICER AND CIT(A) AND FURTHER STATED THAT IN THE ABSENCE OF ANY DETAILS FURNISHED BY THE ASSESSE E REGARDING THE 37 SECURITIES, THE CLAIM OF LOSS ON ACCOUNT OF DEPRECI ATION HAD BEEN RIGHTLY DISALLOWED. 36. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED TH E MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WHETHER THE SECURITIES HELD BY THE ASSESSEE WERE IN THE NATURE OF ITS STOCK-IN- TRADE ON WHICH LOSS ON ACCOUNT OF DEPRECIATION WAS ALLOWABLE. 37. THE FACTS EMERGING ARE THAT THE ASSESSEE HAD BE EN TREATING ITS SECURITIES AS STOCK-IN-TRADE SINCE A.Y 1976-77 AND VALUING THE SAME AT COST OR MARKET VALUE WHICHEVER IS LESS, WHICH HAD BEEN A CCEPTED ALSO IN VIEW OF THE DECISION OF THE ITAT DT.24-02-83,REFERENCE AGAI NST WHICH WAS DISMISSED BY THE HIGH COURT AND SLP OF THE DEPARTME NT WAS DISMISSED BY THE SUPREME COURT. FURTHER UNDISPUTEDLY DISCLOSURE OF CERTAIN SECURITIES AS INVESTMENT WAS IN PURSUANCE OF RBI GUIDELINES. 38. ON THIS FACTUAL MATRIX, THE HON'BLE KARNATAKA H IGH COURT IN THE CASE OF KARNATAKA BANK LTD V ACIT CIRCLE 2(1), [2013] 34 TAXMANN.COM 150 (KARNATAKA) RELYING UPON VARIOUS DECISIONS OF THE A PEX COURT IN CHAINRUP SAMPATRAM V CIT (1953) 24 ITR 481, INVESTMENT LTD V . CIT [1970] 77 ITR 533, UCO BANK VS. CIT [1999] 237 ITR 889, 240 ITR 3 55, SOUTHERN TECHNOLOGIES LTD V JT. CIT [2010] 320 ITR 577 HELD THAT WHERE ASSESSEE HAD CONSISTENTLY FOR MORE THAN TWO DECADES TREATED INVESTMENT IN SECURITIES AS STOCK-IN-TRADE AND DEPRECIATION WAS CLAIMED AND ALLOWED ON IT, DEDUCTION OF THE SAME COULD NOT BE DENIED UNDER PRE TEXT THAT IT WAS SHOWN 38 AS INVESTMENT IN BALANCE SHEET IN TERMS OF RBI REGU LATION. THE RELEVANT FINDINGS OF THE HON'BLE COURT AT PAGES 8 TO 10 OF T HE ORDER ARE AS UNDER:- 8. FROM THE AFORESAID JUDGMENTS OF THE APEX COURT, NOW IT IS CLEAR THAT A METHOD OF ACCOUNTING ADOPTED BY THE TAX PAYER CONSISTENTLY AND REGULARLY CANNOT BE DISCARDE D BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SHOULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING THE ACCOUNTS OR ON VALUATION. FINANCIAL INSTITUTIONS LIKE BANK, ARE EX PECTED TO MAINTAIN ACCOUNTS IN TERMS OF THE RBI ACT AND ITS REGULATIONS. THE FORM IN WHICH, ACCOUNTS HAVE TO BE MAINTAINED IS PRESCRIBED UNDER THE AFORESAID LEGISL ATION. THEREFORE, THE ACCOUNT HAD TO BE INCONFORMITY WITH THE SAID REQUIREMENTS. RBI ACT OR COMPANIES ACT DO NOT DEAL WITH THE PERMISSIBLE DEDUCTIONS OR EXCLUSION UNDER THE I T ACT. FOR THE PURPOSE OF IT ACT, IF THE ASSESSEE HAS CONS ISTENTLY TREATING THE VALUE OF INVESTMENT FOR MORE THAN TWO DECADES AS INVESTMENT AS STOCK-IN-TRADE AND CLAIM DEPRECIAT ION, IT IS NOT OPEN TO THE AUTHORITIES TO DISALLOW THE SAID DE PRECIATION ON THE GROUND THAT IN THE BALANCE-SHEET IT IS SHOWN AS INVESTMENT IN TERMS OF THE RBI REGULATIONS. THE RBI REGULATIONS, THE COMPANIES ACT AND IT ACT OPERATE ALTOGETHER IN DIFFERENT FIELDS. THE QUESTION WHETHE R THE ASSESSEE IS ENTITLED TO PARTICULAR DEDUCTION OR NOT WILL DEPEND UPON THE PROVISION OF LAW RELATING THERETO A ND NOT THE WAY, IN WHICH THE ENTRIES ARE MADE IN THE BOOKS OF ACCOUNTS. IT IS NOT DECISIVE OR CONCLUSIVE IN THE M ATTER. FOR THE PURPOSE OF IT ACT WHICHEVER METHOD IS ADOPTED B Y THE ASSESSEE, A TRUE PICTURE OF THE PROFITS AND GAINS I .E. REAL INCOME IS TO BE DISCLOSED. FOR DETERMINING THE REAL INCOME, THE ENTRIES IN THE BALANCE SHEET IS REQUIRED TO BE MAINTAINED IN THE STATUTORY FORM MAY NOT BE DECISIV E OR CONCLUSIVE. IT IS OPEN TO THE INCOME TAX OFFICER AS WELL AS THE ASSESSEE TO POINT OUT TRUE AND PROPER INCOME WH ILE SUBMITTING THE INCOME TAX RETURNS. EVEN IF THE ASSE SSEE UNDER SOME MISREPRESENTATION OR MISTAKE FAILS TO MA KE AN 39 ENTRY IN THE BOOKS OF ACCOUNTS, ALTHOUGH UNDER LAW, A DEDUCTION MUST BE ALLOWED BY THE INCOME TAX OFFICER , THE ASSESSEE WILL NOT LOSE ANY RIGHT ON CLAIMING OR WIL L BE DEBARRED FROM BEING ALLOWED THE DEDUCTION. THEREFOR E, THE APPROACH OF THE AUTHORITIES IN THIS REGARD IS CONTR ARY TO THE WELL SETTLED LEGAL POSITION AS DECLARED BY THE APEX COURT. 9. IN THE INSTANT CASE, THE ASSESSEE HAS MAINTAINE D THE ACCOUNTS IN TERMS OF THE RBI REGULATIONS AND HE HAS SHOWN IT AS INVESTMENT. BUT CONSISTENTLY FOR MORE THAN TW O DECADES IT HAS BEEN SHOWN HAS STOCK-IN-TRADE AND DEPRECIATI ON IS CLAIMED AND ALLOWED. THEREFORE, NOTWITHSTANDING THA T IN THE BALANCE SHEET, IT IS SHOWN AS INVESTMENT, FOR THE P URPOSE OF INCOME-TAX ACT, IT IS SHOWN AS STOCK-IN-TRADE. T HEREFORE, THE VALUE OF THE STOCKS BEING CLOSELY CONNECTED WIT H THE STOCK MARKET, AT THE END OF THE FINANCIAL YEAR, WHI LE VALUING THE ASSETS, NECESSARILY THE BANK HAS TO TAKE INTO CONSIDERATION THE MARKET VALUE OF THE SHARES. IF TH E MARKET VALUE IS LESS THAN THE COST PRICE, IN LAW, THEY ARE ENTITLED TO DEDUCTIONS AND IT CANNOT BE DENIED BY THE AUTHORITI ES UNDER THE PRETEXT THAT IT IS SHOWN AS INVESTMENT IN THE B ALANCE SHEET. 10. IN THAT VIEW OF THE MATTER, THE ORDER PASSED B Y THE AUTHORITIES HOLDING THAT IN VIEW OF THE RBI GUIDELI NES, THE ASSESSEE IS ESTOPPED FROM TREATING THE INVESTMENT A S STOCK- IN-TRADE IS NOT CORRECT. THAT FINDING RECORDED BY T HE AUTHORITIES IS HEREBY SET ASIDE. THE APPEAL IS ALLO WED. THE MATTER IS REMANDED BACK TO THE ASSESSING AUTHORITY AND HE SHALL LOOK INTO THESE ENTRIES IN ACCORDANCE WITH LA W AND SHALL ASSESS IN TERMS OF THE LAW DECLARED BY THE AP EX COURT AND THE ASSESSEE IS ENTITLED TO THE EXTENSION OF TH E SAID BENEFIT. BOTH THE SUBSTANTIAL QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 40 39. THIS PROPOSITION HAS BEEN REITERATED BY THE HON 'BLE MADRAS HIGH COURT IN CIT V KARUR VYSYA BANK LTD (2005) 273 ITR 510 (MAD.) AND IN CIT, TRICITY V KARUR VYSYA BANK LTD. IN TAX CASE (A PPEAL) NO. 2139 OF 2008 DATED 13.7.2009. FURTHER, AN SLP AGAINST THE DECISION OF THE MADRAS HIGH COURT IN KARUR VYSYA BANK TAX CASE (APPEAL) NO . 2139 OF 2008, WAS DISMISSED BY THE SUPREME COURT VIDE ORDER DATED 09. 07.2010. THE ISSUE THEREFORE OF ALLOWABILITY OF DEPRECIATION LOSS ON S ECURITIES CONSISTENTLY TREATED AS STOCK IN TRADE THOUGH SHOWN AS INVESTMEN T IN BOOKS FOLLOWING RBI GUIDELINES, IS SETTLED IN FAVOUR OF THE ASSESSE E. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE HOLD THAT THE SECURITIES HE LD BY THE ASSESSEE WERE IN THE NATURE OF ITS STOCK-IN-TRADE AND THE ASSESSE E WAS ENTITLED TO CLAIM LOSS ON ACCOUNT OF DEPRECIATION IN VALUE OF THE SAM E. FURTHER, SINCE WE HAVE ALLOWED THE ASSESSEES CLAIM FOLLOWING THE PRI NCIPLE OF CONSISTENCY, WE FIND NO MERIT IN THE ARGUMENT OF THE LD. DR THAT SINCE NO DETAILS OF SECURITIES WERE SUBMITTED BY THE ASSESSEE, THE DISA LLOWANCE WAS WARRANTED. THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREFORE ALLOWED. 40. GROUND NO.5 RAISED BY THE ASSESSEE IN ITS APPEA L READS AS UNDER:- 5 . THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF BROKEN PERIOD INTEREST PAID ON PURCHASE OF SECUR ITIES OF RS. 60.45 CRORE WITHOUT APPRECIATING THAT SAME I S A REVENUE EXPENDITURE AS HELD BY THE SUPREME COURT IN THE CASE OF CITI BANK (CIVIL APPEAL 1549 OF 2006) 41. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE HAD DEB ITED AN AMOUNT OF RS. 60,45,05,989/- ON ACCOUNT OF BROKEN P ERIOD INTEREST. THE LD. ASSESSING OFFICER DISALLOWED THE SAME AND HELD THAT IT SHOULD BE CAPITALIZED IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE 41 CASE OF VIJAY BANK LTD REPORTED IN [1991] 187 ITR 541 (SC) WHEREIN IT WAS HELD THAT ANY AMOUNT PAID AT THE TIME OF PURCHA SE IS A PART OF PURCHASE CONSIDERATION OF THE ASSET AND THUS A CAPITAL COST. THE LD. CIT(A) UPHELD THE DISALLOWANCE MADE RELYING UPON THE DECISION OF THE HON'BLE APEX COURT AND FURTHER FOR THE REASON THAT ASSESSEE HAD FAILED TO SUBSTANTIATE THE TRUE CHARACTER OF THE SECURITIES BY WAY OF NECESSARY EV IDENCE. 42. BEFORE US, LD. AR ARGUED THAT THE ISSUE OF TREA TMENT OF BROKEN PERIOD INTEREST AS REVENUE OR CAPITAL HAS BEEN SETTLED IN FAVOUR OF THE ASSESSEE BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. CI TI BANK NA IN CIVIL APPEAL NO. 1549 OF 2006 DATED 12.8.2008. THE LD. AR POINTED OUT THAT THE APEX COURT HAS DEALT WITH ITS EARLIER DECISION IN T HE CASE OF VIJAYA BANK LTDS CASE [1991] 187 ITR 541 (SC) AND AFTER DISTI NGUISHING THE SAME HELD THAT BROKEN PERIOD INTEREST PAID ON PURCHASE OF SEC URITIES BE ALLOWED AS REVENUE EXPENDITURE. THE LD. DR, ON THE OTHER HAN D, PLACED RELIANCE ON THE ORDER OF CIT(A) AND FURTHER STATED THAT SINCE T HE ASSESSEE HAD NOT SUBSTANTIATED THE TRUE CHARACTER OF ITS SECURITIES, THE DECISION IN THE CASE OF CIT VS. CITI BANK NA (SUPRA) WOULD NOT APPLY. 43. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E FINDINGS OF THE AUTHORITIES BELOW AND AFTER CONSIDERING THE MATERIA LS ON RECORD FIND THAT WE ARE IN AGREEMENT WITH THE CONTENTION OF THE LD. AR THAT DECISION RENDERED BY THE APEX COURT IN THE CASE OF CITI BANK (SUPRA) SQUARELY APPLIES IN THE CASE OF THE ASSESSEE. THE HELD TILL MATURITY (HTM) SECURITIES ON WHICH BROKEN PERIOD INTEREST WAS PAID AND CLAIMED AS SUCH BY THE ASSESSEE HAVE BEEN TREATED AS STOCK IN TRADE BY THE ASSESSEE, SIN CE ALL INCOME EARNED ON 42 THE SAME UNDENIABLY HAS BEEN RETURNED AS ITS BUSINE SS INCOME. WE FIND THAT THE SAME HAS BEEN ASSESSED AS SUCH BY THE ASSE SSING OFFICER ALSO. HAVING DONE SO, THE INTEREST PAID ON THE SAME CANNO T NOW BE ATTRIBUTED TO HAVE BEEN PAID FOR THE ACQUISITION OF A CAPITAL ASS ET TO BE ADDED TO THE COST OF THE ASSET. THE HON'BLE APEX COURT IN THE CASE OF CITI BANK (SUPRA) HELD THAT INTEREST PAID FOR BROKEN PERIOD ON ACCOUNT OF SECURITIES HELD AS STOCK IN TRADE WAS TO BE TREATED AS REVENUE EXPENDITURE A ND WHILE RENDERING THE JUDGMENT, IT DISTINGUISHED THE DECISION RENDERED BY IT IN THE CASE OF VIJAYA BANK LTD (SUPRA) BY STATING THAT IN THAT CASE, THE ASSETS WERE THE CAPITAL ASSETS AND THEREFORE, BROKEN PERIOD INTEREST PAID FOR THE PURPOSE OF ACQUIRING THEM WAS HELD TO BE ON CAPITAL ACCOUNT. THE HON'BLE APEX COURT HAS DEALT WITH THIS ISSUE IN ITS JUDGEMENT AS FOLLO WS:- WE MAY POINT OUT THAT IN AMERICAN EXPRESS (SUPRA), THE BOMBAY HIGH COURT DISTINGUISHED THE DECISION IN VIJAYA BANK LTD.(SUPR A) BY OBSERVING THUS: 'BEFORE GOING FURTHER WE MAY MENTION AT THE VERY OU TSET THAT THE SECURITY IN THIS CASE WAS OF THE FACE VALUE OF RS.5 LAKHS. IT WAS BOUGHT FOR A LESSER AMOUNT OF RS.4,92,000. THE DIFFERENCE WAS OF RS.8,000. THE ASSESSEE HAS REVALUED THE SECURITY. THE ASSESSE E OFFERED THE NOTIONAL PROFIT FOR TAXATION, AS EXPLAINED HEREINAB OVE, ON ACCRUAL BASIS IN THE APPROPRIATE ASSESSMENT YEAR DURING WHI CH THE ASSESSEE HELD THE SECURITY. THIS DIFFERENCE COULD HAVE BEEN TREATED BY THE DEPARTMENT AS INTEREST ON SECURITIES UNDER SECTION 18. HOWEVER, IN THE INSTANT CASE, THE DEPARTMENT HAS ASSESSED THE S AID DIFFERENCE UNDER SECTION 28 UNDER THE HEAD 'BUSINESS' AND NOT UNDER THE HEAD 'INTEREST ON SECURITIES'. HAVING TREATED THE DIFFER ENCE UNDER THE HEAD 'BUSINESS', THE ASSESSING OFFICER DISALLOWED THE BR OKEN PERIOD INTEREST PAYMENT, WHICH GAVE RISE TO THE DISPUTE. I T WAS OPEN TO THE DEPARTMENT TO ASSESS THE ABOVE DIFFERENCE UNDER THE HEAD 'INTEREST ON SECURITIES' UNDER SECTION 18. HOWEVER, THEY CHOSE T O ASSESS THE INTEREST UNDER THE HEAD 'BUSINESS' AND, WHILE DOING SO, THE DEPARTMENT TAXED BROKEN PERIOD INTEREST RECEIVED, B UT DISALLOWED 43 BROKEN PERIOD INTEREST PAYMENT. IT IS IN THIS LIGHT THAT ONE HAS TO READ THE JUDGMENT OF THE KARNATAKA HIGH COURT AND THE SU PREME COURT IN VIJAYA BANK LTD'S CASE [1991] 187 ITR 541. IN THAT CASE, THE FACTS WERE AS FOLLOWS. DURING THE ASSESSMENT YEAR UNDER C ONSIDERATION, VIJAYA BANK ENTERED INTO AN AGREEMENT WITH JAYALAKS HMI BANK LIMITED, WHEREBY VIJAYA BANK TOOK OVER THE LIABILIT IES OF JAYALAKSHMI BANK. THEY ALSO TOOK OVER ASSETS BELONGING TO JAYAL AKSHMI BANK. THESE ASSETS CONSISTED OF TWO ITEMS, VIZ., RS.58,56 8 AND RS.11,630.00. THE SAID AMOUNT OF RS.58,568 REPRESENTED INTEREST, WHICH ACCRUED ON SECURITIES TAKEN OVER BY VIJAYA BANK FROM JAYALAKSH MI BANK AND RS.11,630 WAS THE INTEREST WHICH ACCRUED UP TO THE 3 HTTP://WWW.ITATONLINE.ORG DATE OF PURCHASE OF SECUR ITIES BY THE ASSESSEE-BANK FROM THE OPEN MARKET. THESE TWO AMOUN TS WERE BROUGHT TO TAX BY THE ASSESSING OFFICER UNDER SECTI ON 18 OF THE INCOMETAX ACT. THE ASSESSEE-BANK CLAIMED THAT THESE AMOUNTS WERE DEDUCTIBLE UNDER SECTIONS 19 AND 20. THIS WAS ON TH E FOOTING THAT THE DEPARTMENT HAD BROUGHT TO TAX, THE AFORESTATED TWO AMOUNTS AS INTEREST ON SECURITIES UNDER SECTION 18. IT IS IN T HE LIGHT OF THESE FACTS THAT ONE HAS TO READ THE JUDGMENT IN VIJAYA BANK LT D.'S CASE [1991] 187 ITR 541 (SC). IN THE LIGHT OF THE ABOVE FACTS, IT WAS HELD THAT THE OUTLAY ON PURCHASE OF INCOME- BEARING ASSET WAS IN THE NATURE OF CAPITAL OUTLAY AND NO PART OF THE CAPITAL OUTLAY CA N BE SET OFF AS EXPENDITURE AGAINST INCOME ACCRUING FROM THE ASSET IN QUESTION. IN OUR CASE, THE AMOUNT WHICH THE ASSESSEE RECEIVED HA S BEEN BROUGHT TO TAX UNDER THE HEAD 'BUSINESS' UNDER SECTION 28. THE AMOUNT IS NOT BROUGHT TO TAX UNDER SECTION 18 OF THE INCOME-TAX A CT. AFTER BRINGING THE AMOUNT TO TAX UNDER THE HEAD 'BUSINESS', THE DE PARTMENT TAXED THE BROKEN PERIOD INTEREST RECEIVED ON SALE, BUT AT THE SAME TIME, DISALLOWED BROKEN PERIOD INTEREST PAYMENT AT THE TI ME OF PURCHASE AND THIS LED TO THE DISPUTE. HAVING ASSESSED THE AM OUNT RECEIVED BY THE ASSESSEE UNDER SECTION 28, THE ONLY LIMITED DIS PUTE WAS-WHETHER THE IMPUGNED ADJUSTMENTS IN THE METHOD OF ACCOUNTIN G ADOPTED BY THE ASSESSEE- BANK SHOULD BE DISCARDED. THEREFORE, THE JUDGMENT IN VIJAYA BANK LTD.'S CASE [1991] 187 ITR 541 (SC) HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. IF THE DEPARTMENT HAD BROUGHT TO TAX, THE AMOUNTS RECEIVED BY THE ASSESSEE-BANK UNDER SEC TION 18, THEN VIJAYA BANK LTD.'S CASE [1991] 187 ITR 541 (SC) WAS APPLICABLE. BUT, 44 IN THE PRESENT CASE, THE DEPARTMENT BROUGHT TO TAX SUCH AMOUNTS UNDER SECTION 28 RIGHT FROM THE INCEPTION. THEREFOR E, THE TRIBUNAL WAS RIGHT IN COMING TO THE CONCLUSION THAT THE JUDGMENT IN VIJAYA BANK LTD.'S CASE [1991] 187 ITR 541 (SC) DID NOT APPLY T O THE FACTS OF THE PRESENT CASE. HOWEVER, BEFORE US, IT WAS ARGUED ON BEHALF OF THE REVENUE, THAT IN VIEW OF THE JUDGMENT IN VIJAYA BAN K LTD.'S CASE [1991] 187 ITR 541 (SC), EVEN IF THE SECURITIES WER E TREATED AS PART OF THE TRADING ASSETS, THE INCOME THEREFROM HAD TO BE ASSESSED UNDER SECTION 18 OF THE ACT AND NOT UNDER SECTION 28 OF T HE ACT AS INCOME FROM SECURITIES CAN ONLY COME WITHIN SECTION 18 AND NOT UNDER SECTION 28. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT. FIRS TLY, AS STATED ABOVE, VIJAYA BANK LTD.'S CASE [1991] 187 ITR 541 ( SC) HAS NO APPLICATION TO THE FACTS OF THIS CASE. SECONDLY, IN THE PRESENT CASE, THE TRIBUNAL HAS FOUND THAT THE SECURITIES WERE HELD AS TRADING ASSETS. THIRDLY, IT HAS BEEN HELD BY THE SUPREME COURT IN T HE SUBSEQUENT DECISION REPORTED IN THE CASE OF CIT V. COCANADA RA DHASWAMI BANK LTD. [1965] 57 ITR 306, THAT INCOME FROM SECURITIES CAN ALSO COME UNDER SECTION 28 AS INCOME FROM BUSINESS. THIS JUDG MENT IS VERY IMPORTANT. IT ANALYSES THE JUDGMENT OF THE SUPREME COURT IN UNITED COMMERCIAL BANK LTD.'S CASE [1957] 32 ITR 688, WHIC H HAS BEEN FOLLOWED BY THE SUPREME COURT IN VIJAYA BANK LTD.'S CASE [1991] 187 ITR 541. IT IS TRUE THAT ONCE AN INCOME FALLS UNDER SECTION 18, IT CANNOT COME UNDER SECTION 28. HOWEVER, AS LAID DOWN BY THE SUPREME COURT IN COCANADA RADHASWAMI BANK LTD.'S CASE [1965 ] 57 ITR 306, INCOME FROM SECURITIES TREATED AS TRADING ASSETS CA N COME UNDER SECTION 28. IN THE PRESENT CASE, THE DEPARTMENT HAS TREATED INCOME FROM SECURITIES UNDER SECTION 28. LASTLY, THE FACTS IN THE CASE OF UNITED COMMERCIAL BANK LTD. [1957] 32 ITR 688 (SC), ALSO S UPPORT OUR VIEW IN THE PRESENT CASE. IN UNITED COMMERCIAL BANK LTD. 'S CASE [1957] 32 ITR 688 (SC), THE ASSESSEE-BANK CLAIMED A SET-OFF U NDER SECTION 24(2) OF THE INDIAN INCOMETAX ACT, 1922 (SECTION 71(1) OF THE PRESENT ACT), AGAINST ITS INCOME FROM INTEREST ON SECURITIES UNDE R SECTION 8 OF THE 1922 ACT (SIMILAR TO SECTION 18 OF THE PRESENT ACT) . IT WAS HELD THAT UNITED COMMERCIAL BANK WAS NOT ENTITLED TO SUCH A S ET-OFF AS THE INCOME FROM INTEREST ON SECURITIES CAME UNDER SECTI ON 8 OF THE 1922 ACT. THEREFORE, EVEN IN UNITED COMMERCIAL BANK LTD. 'S CASE [1957] 32 ITR 688 (SC), THE DEPARTMENT 4 HTTP://WWW.ITATON LINE.ORG HAD 45 ASSESSED INCOME FROM INTEREST ON SECURITIES RIGHT F ROM THE INCEPTION UNDER SECTION 8 OF THE 1922 ACT AND, THEREFORE, THE SET-OFF WAS NOT ALLOWED UNDER SECTION 24(2) OF THE ACT. THEREFORE, UNITED COMMERCIAL BANK LTD.'S CASE [1957] 32 ITR 688 (SC), HAS ALSO N O APPLICATION TO THE FACTS OF THE PRESENT CASE IN WHICH THE ASSESSEE 'S INCOME FROM INTEREST ON SECURITIES IS ASSESSED UNDER SECTION 28 RIGHT FROM INCEPTION. IN FACT, IN UNITED COMMERCIAL BANK LTD.' S CASE [1957] 32 ITR 688 (SC), THE MATTER WAS REMITTED BACK AS IT WA S CONTENDED ON BEHALF OF UNITED COMMERCIAL BANK THAT THE SECURITIE S IN QUESTION WERE A PART OF THE TRADING ASSETS HELD BY THE ASSESSEE I N THE COURSE OF ITS BUSINESS AND THE INCOME BY WAY OF INTEREST ON SUCH SECURITIES WAS ASSESSABLE UNDER SECTION 10 OF THE INDIAN INCOME-TA X ACT, 1922 (SIMILAR TO SECTION 28 OF THE PRESENT ACT). IT IS F OR THIS REASON THAT IN THE SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN THE CASE OF COCANADA RADHASWAMI BANK LTD. [1965] 57 ITR 306, TH E SUPREME COURT HAS OBSERVED, AFTER READING UNITED COMMERCIAL BANK LTD.'S CASE [1957] 32 ITR 688 (SC), THAT WHERE SECURITIES WERE PART OF TRADING ASSETS, INCOME BY WAY OF INTEREST ON SUCH S ECURITIES COULD COME UNDER SECTION 10 OF THE INDIAN INCOME-TAX ACT, 1922. IN THE LIGHT OF WHAT WE HAVE DISCUSSED HEREINABOVE, WE FIND THAT THE ASSESSEE'S METHOD OF ACCOUNTING DOES NOT RESULT IN LOSS OF TAX /REVENUE FOR THE DEPARTMENT. THAT, THERE WAS NO NEED TO INTERFERE WI TH THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE- BANK. THAT, THE JUDGMENT IN THE CASE OF VIJAYA BANK LTD. [1991] 187 ITR 541 (SC), H AD NO APPLICATION TO THE FACTS OF THE CASE. THAT, HAVING ASSESSED INC OME UNDER SECTION 28, THE DEPARTMENT OUGHT TO HAVE TAXED INTEREST FOR THE BROKEN PERIOD INTEREST RECEIVED AND THE DEPARTMENT OUGHT TO HAVE ALLOWED DEDUCTION FOR THE BROKEN PERIOD INTEREST PAID.' THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FA CTS IN AMERICAN EXPRESS (SUPRA). AGREEING WITH THIS VIEW AND ACCEPTING THE DISTINCTI ON POINTED OUT BY THE BOMBAY HIGH COURT, THIS COURT DISMISSED THE TWO SPECIAL LE AVE PETITIONS FILED BY THE REVENUE, ONE OF WHICH WAS DISMISSED BY A THREE JUDG E BENCH. AFTER GOING THROUGH THE FACTS WHICH ARE SIMILAR TO THE FACTS IN AMERICAN EXPRESS (SUPRA), SINCE THE TAX EFFECT IS NEUTRAL, THE METHO D OF COMPUTATION ADOPTED BY THE ASSESSEE AND ACCEPTED BY THE REVENUE CANNOT BE INTE RFERED WITH. WE AGREE WITH 46 THE VIEW EXPRESSED BY THE BOMBAY HIGH COURT IN AMER ICAN EXPRESS (SUPRA) THAT ON THE FACTS OF THE PRESENT CASE, THE JUDGMENT IN V IJAYA BANK LTD. (SUPRA) WOULD HAVE NO APPLICATION. FOR THE REASONS GIVEN ABOVE, T HE QUESTION POSED BEFORE US IS ANSWERED IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE. 44. IN VIEW OF THE SAME, WE HOLD THAT BROKEN PERIOD INTEREST PAID BY THE ASSESSEE IS TO BE ALLOWED AS REVENUE EXPENDITURE. T HIS GROUND OF APPEAL OF THE ASSESSEE IS THEREFORE, ALLOWED. 45. GROUND NO.6 OF THE ASSESSEES APPEAL READS AS U NDER:- 6. THE CIT(A) ERRED IN CONFIRMING THE NON ALLOWANCE OF PROVISION TOWARDS VARIOUS CONTRACTUAL LIABILITIES I.E. RESETTLEMENT AMOUNT, SILVER JUBILEE AWARDS, LIC LIA BILITY, SICK LEAVE, CONTRIBUTION TO RETIRED EMPLOYEES MEDICAL BE NEFIT FUND AND LEAVE ENCASHMENT AGGREGATING TO RS. 517 LACS BA SED ON THE DECISION IN THE CASE OF GOETZ (INDIA) LTD (283 ITR 323 SC). THE CIT(A) FAILED TO APPRECIATE THAT THE SAID DECIS ION DOES NOT RESTRICT THE CLAIMS TO BE ALLOWED BY APPELLATE AUTH ORITIES AND THE ABOVE PROVISIONS BEING A CONTRACTUAL AND STATUT ORY LIABILITY SHOULD HAVE BEEN ALLOWED BY THE CIT(A). 46. BRIEF FACTS RELATING TO THIS ISSUE ARE THAT DUR ING ASSESSMENT PROCEEDINGS THE ASSESSEE HAD CLAIMED THE FOLLOWING DEDUCTION VIDE ITS LETTER DATED 25.2.2013:- I) LEAVE ENCASHMENT - RS. 1,08,00,000/- II) RE-SETTLEMENT LIABILITY - RS. 35,00,000/- III) LIC LIABILITY - RS. 69,00,000/- IV) SICK LEAVE LIABILITY - RS. 1,86,00,000- 47 V) CONTRIBUTION TO SBOP RETIRED RETIRED EMPLOYEE MEDICAL FUND - RS. 1,00,00,000 /- VI)SILVER JUBLEE AWARDS RS.19,00,000/- 47. THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM, SO MADE. THE MATTER WAS TAKEN UP IN APPEAL BEFORE THE LD. CIT(A) WHO DE NIED THE CLAIM OF THE ASSESSEE FOR THE REASON THAT NO SUCH CLAIM HAVING BEEN MADE IN THE RETURN OF INCOME BY THE ASSESSEE, THE DECISION OF THE HON' BLE APEX COURT IN THE CASE OF GOETZ (INDIA) LTD (283 ITR 323 SC) APPLIED AND THE ASSESSING OFFICER HAD RIGHTLY REFUSED TO ENTERTAIN THE AFORES AID CLAIM. 48. BEFORE US, THE LD. AR STATED THAT THE DECISION OF THE APEX COURT RELATED TO THE POWER OF THE ASSESSING OFFICER TO EN TERTAIN A CLAIM MADE IN THE RETURN OF INCOME AND IT DOES NOT MILITATE AGAIN ST THE ACTION OF THE CIT(A) IN CONSIDERING THE IMPUGNED CLAIM. THE LD. A R STATED THAT JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ME TALMAN AUTO (P) LTD 336 ITR 434 (P&H) HAS HELD THAT THE CIT(A) CAN ENTE RTAIN A CLAIM MADE FOR THE FIRST TIME BY THE ASSESSEE. THE LD. DR ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT(A). 49. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH T HE PARTIES , PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND HOLD THA T THE LD. CIT(A) OUGHT TO HAVE ENTERTAINED THE CLAIM MADE BY THE ASSESSEE THR OUGH ITS LETTER FILED BEFORE THE ASSESSING OFFICER. WE FIND THAT THE HON' BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. METALMAN AUTO ((P) LTD (SUPRA) HAS CATEGORICALLY HELD THAT THE DECISION OF THE APEX CO URT IN THE CASE OF GOETZ (INDIA) LTD (283 ITR 323 SC) RELATED ONLY TO THE POWER OF THE ASSESSING 48 OFFICER TO ENTERTAIN A CLAIM NOT MADE IN THE RETURN OF INCOME. THE HON'BLE HIGH COURT IN THAT CASE HAD HELD THAT THE AFORESAID DECISION OF THE APEX COURT DID NOT APPLY TO THE ENTERTAINMENT OF CLAIMS BY THE CIT(A) DURING APPELLATE PROCEEDINGS. THE HON'BLE HIGH COURT IN TH AT CASE AFFIRMED THE FINDINGS OF THE ITAT ON THIS ISSUE AT PARA 7 OF THI S ORDER, AS FOLLOWS:- MERE OMISSION TO CLAIM THE SAID EXEMPTION IN THE RETURN COULD NOT DEBAR THE ASSESSEE FROM CLAIMING THE SAME. JUDGEMENT OF HON'BLE SUPREME COURT IN GOETZE (INDIA) LTD V CIT [2006] 157 TAXMAN 1 WAS NOT APPLICABLE TO SUCH EXEMPTION AS RIGHTLY HELD BY THE TRIBUNAL. ACCORDINGLY, NO SUBSTANTIAL QUESTION OF LAW ARISES. 50. IN VIEW OF THE SAME, WE HOLD THAT THE LD.CIT(A) SHOULD ENTERTAIN THE CLAIM OF THE ASSESSEE AND THEREFORE RESTORE THE ISS UE BACK TO THE FILE OF THE LD.CIT(A) WITH A DIRECTION TO ENTERTAIN THE CLAIM M ADE BY THE ASSESSEE AND ADJUDICATE UPON THE SAME IN ACCORDANCE WITH LAW . THIS GROUND OF APPEAL OF THE ASSESSEE IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 51. THE APPEAL OF THE ASSESSEE IS THEREFORE ALLOWED IN ABOVE TERMS. ITA NO. 364/CHD/2015 (REVENUES APPEAL) 52.. GROUND NOS. 1, 2 AND 3 RAISED BY THE DEPARTMEN T RELATE TO PRIOR PERIOD EXPENSES AND ARE AS UNDER:- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS.98,05,325/- TO RS.34,98,390/- MADE ON ACCOUNT OF PRIOR PERIOD EXPENSES. 49 2. IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE ADDITION ON ACC OUNT OF PRIOR PERIOD EXPENSES WITHOUT APPRECIATING THAT THE AO HA D SOUGHT TO VERIFY THE EXPENDITURE CLAIMED ON THE BASIS OF ACTU AL MILS RECEIVED/SETTLEMENT OR ON CRYSTALLIZATION OF LIABIL ITY, IN LIGHT OF THE COMMENTS OF THE TAX AUDITORS AND ALSO THE QUANTIFIC ATION DONE BY THE AUDITOR, BUT THE ASSESSEE DID NOT PRODUCE ALL THE V OUCHERS. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING SET-OFF OF PRIOR PERIO D EXPENSES AGAINST PRIOR PERIOD INCOME WITHOUT APPRECIATING THAT TAXAB ILITY OF INCOME AND ALLOWANCE OF EXPENDITURE ARE TO BE CONSIDERED S EPARATELY AS PER RELEVANT PROVISIONS OF THE ACT AND THERE IS NO AUTO MATIC SET-OFF OF ONE AGAINST THE OTHER, AND THAT THE AO WAS JUSTIFIE D IN TAXING INCOME OFFERED FOR TAX UNDER THE HEAD 'PRIOR PERIOD INCOME ' WHILE DISALLOWING DEDUCTION IN RESPECT OF PRIOR PERIOD EX PENDITURE. 53. SINCE THIS GROUND HAS ALREADY BEEN ALLOWED BY U S IN GROUND NO.3 RAISED BY THE ASSESSEE IN ITA NO. 217/CHD/2015, FOL LOWING THE SAME REASONING, THESE GROUNDS OF APPEAL RAISED BY THE RE VENUE ARE DISMISSED. 54. GROUND NOS. 4 & 5 RAISED BY THE DEPARTMENT RELA TE TO INTER-BRANCH AND INTER-BANK ENTRIES AND READS AS UNDER:- 4. IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.8,9 4,00,000/- MADE ON ACCOUNT OF UNRECONCILED INTER-BRANCH AND INTER-B ANK ENTRIES. 5. IN THE FACTS AND CIRCUMSTANCES OF TINS C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION ON ACCOUN T OF UN- RECONCILED INTER-BRANCH AND INTER-BANK ENTRIES BY R ELYING ON THE CERTIFICATE FROM THE ASSESSEE THAT THERE WERE NO E NTRIES WHICH WERE HIT BY THE PROVISION OF SECTION 22 OF THE LIMITATIO N ACT, WITHOUT 50 ALLOWING THE AO OPPORTUNITY TO EXAMINE THIS CONTENT ION OF THE ASSESSEE. 55. BRIEFLY STATED, THE FACTS RELATING TO THE ISSUE ARE THAT THERE WERE A NUMBER OF UN-RECONCILED ENTRIES BETWEEN DIFFERENT B RANCHES OF THE ASSESSEE BANK AND IN THE INTER-BANK RE-CONCILIATION ACCOUNT. BEFORE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT NO ADDITION ON THIS ACCOUNT IS CALLED FOR SINCE THE CIT(A) IN PREVIOUS YEAR HAS DELETED THE A DDITIONS MADE AND MOREOVER THE COMMITTEE ON DISPUTES HAS NOT GIVEN P ERMISSION TO THE DEPARTMENT TO PURSUE APPEAL BEFORE THE ITAT. THE A SSESSEE ALSO STATED THAT A CERTIFICATE FROM THE MANAGEMENT TO THE EFFEC T THAT THERE WERE NO ENTRIES HIT BY LIMITATION AS PER ARTICLE 22 OF THE SCHEDULE OF LIMITATION ACT HAD ALSO BEEN FILED. LD. ASSESSING OFFICER REJECTE D THE ASSESSEES CONTENTION AND HELD THAT SINCE THE RESULTANT IMPACT OF CREDIT AND DEBIT AND UN-RECONCILED ENTRIES WERE TAKEN INTO CONSIDERATION TO ARRIVE AT THE TRUE INCOME EARNED BY THE ASSESSEE DURING THE YEAR AND M OREOVER SINCE THE ISSUE OF ARTICLE 22 OF THE SCHEDULE OF LIMITATION ACT WAS PENDING BEFORE THE HON'BLE PUNJAB & HARYANA HIGH COURT AND THAT ADDI TION IN EARLIER ASSESSMENT YEARS HAD BEEN MADE ON THIS ISSUE, HE M ADE AN ADDITION OF RS. 8,94,00,000/- TO THE TOTAL INCOME OF THE ASSESSEE O N ACCOUNT OF UN- RECONCILED BRANCH BALANCES. 56. THE LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER FOLLOWING THE ORDER PASSED IN THE CASE OF ASSESSEE IN APPEAL IN ASSESSMENT YEAR 2008-09 AND MOREOVER IN VIEW OF THE FACT THAT NO ENTRIES WERE HIT BY ARTICLE 22 OF THE LIMITATION ACT. 51 57. AGGRIEVED, THE DEPARTMENT HAS COME UP IN APPEAL BEFORE US. THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER W HILE THE LD. AR RELIED ON THE ORDER OF CIT(A) AND ALSO DREW OUR ATTENTION TO THE FACT THAT THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 200 8-09 AND 2009-10 VIDE ORDER DATED 28.3.2016. 58. WE HAVE HEARD THE REPRESENTATIVES OF BOTH THE P ARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND CONSIDERED TH E MATERIALS AVAILABLE ON RECORD. ON PERUSAL OF THE ORDER OF THE ITAT IN ASSE SSEES OWN CASE FOR ASSESSMENT YEARS 2008-09 AND 2009-10 IN ITA NOS. 21 5 & 363/CHD/2015 ORDER DATED 28.3.2016, WE SEE THAT THIS ISSUE HAS BEEN DECIDED IN PARA 46 AND 47 OF THE ORDER AS FOLLOW:- 46. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. ON PERUSAL OF THE ORDER OF THE CIT (APPEALS), WE SE E THAT HE HAS ADJUDICATED THE ISSUE AS FOLLOWS : 8.3 I HAVE CONSIDERED THE SUBMISSION. THE ISSUE IS COVERED BY DECISION RENDERED IN EARLIER YEAR AND IN THE ASS ESSMENT YEAR 2007-08, THE LD. CIT(A) IN HIS ORDER DATED 28.02.2010 HAS HELD THAT THE ADDITION M ADE FOR UN-RECONCILED ENTRIES WHICH ARE NOT HIT BY ARTI CLE 22 OF LIMITATION ACT ARE TO BE ALLOWED AFTER PROPER VERIFICATION. THE HON'BLE ITAT, THEREAFTER, IN ITS ORDER DATED 16.05.2012 REFERRED TO ITS EARLIER DECISION IN ITA NO. 785/CHANDI/99 FOR A.Y. 1996-97 & OTHERS. THE RELEV ANT PART OF THE DECISION IS REPRODUCED AS UNDER:- 52 'IT IS OBSERVED FROM THE ORDER OF THE CIT(A) THAT T HE ISSUE HAS BEEN RESTORED TO THE FILE OF THE A.O. AS PER PA RA 10.2 OF THE ORDER OF THE CIT(A). THE SAME IS REPRODUCED HEREUNDER:- 'I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION AND THE FACTS OF THE CASE. DURING THE CO URSE OF THE ASSESSMENT PROCEEDINGS, THE A.O. HAD ASKED T HE APPELLANT TO EXPLAIN THESE ENTRIES. THE APPELLANT F ILED A REPLY WHEREIN THEY GAVE THE FIGURE OF THE UN- RECONCILED ENTRIES DATED 31.03.1995 AS ON 31.12.199 7 AND ON THE BASIS OF THIS STATEMENT THE A.O. WORKED OUT THE ADDITION OF RS.1512.75 LACS. IT IS THUS OBVIOUS TH AT THE ENTRIES WHICH REMAINED RECONCILED ON 31.03.1995 REMAINED SO EVEN ON 31.12.1997. IT IS, THUS OBV IOUS THAT SOME OF THE ENTRIES MAY HAVE REMAINED UN- RECONCILED FOR A MUCH LONGER PERIOD. UNDER THE LIMITATION ACTS A CREDITOR CAN ENFORCE LIABILITY ON LY UPTO THREE YEARS AND, THEREAFTER, THE RIGHT TO ENFO RCE THE LIABILITY CASES. THE A.O. IS DIRECTED TO REEXA MINE THIS ISSUE AND RESTRICT THE DISALLOWANCE TO THOSE E NTRIES ONLY WHICH HAVE REMAINED OUTSTANDING FOR A PERIOD O F MORE THAN THREE YEARS ON 31.03.1995. THE MATTER TO THIS LIMITED EXTENT IS RESTORED TO THE FILE OF THE A.O.' THE HON'BLE ITAT THEREAFTER RESTORED THE MATTER TO THE ASSESSING OFFICER TO BE DECIDED ON SAME LINES. THUS IT IS SEEN THAT HB' ITAT HAS DIRECTED TO CONSI DER ONLY THE ENTRIES WHICH HAVE REMAINED OUTSTANDING FOR A PERIO D OF MORE THAN THREE YEARS. THE APPELLANT DURING THE COURSE OF ASS ESSMENT PROCEEDING HAS SUBMITTED THE CERTIFICATE FROM THE M ANAGEMENT THAT NO ENTRIES ARE HIT BY THE LIMITATION ACT. THE A.O H AS NOT CITED A SINGLE INSTANCE WHERE THE ENTRY IS HIT BY THE LIMITATION A CT AND THE ADDITION IS MERELY MADE TO KEEP THE ISSUE ALIVE. THEREFORE, FOL LOWING THE ORDER OF HON'BLE ITAT IN THE PREVIOUS YEAR, THE ADDITION MAD E BY THE A.O. IS DELETED AS THE FACTS ARE EXACTLY SAME. 53 47. ON PERUSAL OF THE SAME, WE DO NOT FIND ANY IN FIRMITY IN THE SAME, AS THE I.T.A.T. IN EARLIER YEAR HAS DIREC TED THE ASSESSING OFFICER TO TAKE THE ENTRIES OUTSTANDING FOR MORE TH AN THREE YEARS. IN THE RELEVANT YEAR, THERE IS NO ENTRY OUTSTANDING FO R MORE THAN THREE YEARS. THIS FACT HAS NOT BEEN CONTROVERTED BY ANY OF THE LOWER AUTHORITIES. EVEN THE LEARNED D.R. BEFORE US COULD NOT CONROVERT THE SAME. IN VIEW OF THE ABOVE, WE CONFIRM THE ORDER O F THE LEARNED CIT (APPEALS). THE GROUND OF APPEAL RAISED BY THE DEP ARTMENT IS DISMISSED. 59. ON PERUSAL OF THE ABOVE ORDER WE FIND THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE FA CT THAT NO INTER BANK ENTRIES WERE OUTSTANDING FOR MORE THAN 3 YEARS. THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE FACT THAT ITA T IN EARLIER YEARS HAD ON AN IDENTICAL ISSUE DIRECTED THE ASSESSING OFFICER T O TAKE INTO CONSIDERATION ONLY THOSE ENTRIES WHICH WERE OUTSTANDING FOR MORE THAN 3 YEARS AND SINCE NO SUCH ENTRIES WERE OUTSTANDING IN THE IMPUGNED YE AR, THE ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE. IN THE RELEVANT YEAR, IT IS THE CONSISTENT STAND OF THE ASSESSEE THAT NO ENTRIES ARE OUTSTANDI NG FOR MORE THAN 3 YEARS. THIS FACT HAS NOT BEEN CONTROVERTED BY THE LOWER AU THORITIES OR EVEN BY THE LD. DR BEFORE US. IN VIEW OF THE SAME, FOLLOWING T HE DECISION RENDERED IN THE ASSESSES CASE IN EARLIER YEAR WE HOLD THAT NO D ISALLOWANCE ON ACCOUNT OF UNRECONCILED INTER BANK BALANCES BE MADE.WE THEREFO RE UPHOLD THE ORDER OF CIT(A) AND THE GROUND OF APPEAL RAISED BY THE DEPAR TMENT IS DISMISSED. 60. GROUND NOS. 6, 7 & 8 RELATE TO DISALLOWANCE OF DEPRECIATION ON ATMS AND READS AS UNDER:- 54 6. IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.3,9 4,7J,403/- MADE ON ACCOUNT OF DISALLOWANCE OF EXCESS DEPRECIATION O N ATMS. 7. IN THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING DEPRECIATION IN RESPEC T OF ATMS AT THE RATE ALLOWABLE FOR COMPUTERS WITHOUT APPRECIATING T HE DECISION IN THE CASE OF THE HON'BLE KARNATAKA HIGH COURT D ECISION IN DIEBOLD SYSTEMS PVT. LTD. VS. COMMISSIONER OF COMMERCIAL TAXES REPORTED AS 144 STC 59 KAR., IN WHICH IT HAS BEEN HELD THAT ATMS CANNOT BE TREATED AS COMPUTERS AFTER DETAILED EXAMINATION OF THE NATURE OF ATMS. 8. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C1T(A) HAS ERRED IN ALLOWING DEPRECIATION ON ATMS A T THE RATE APPLICABLE TO COMPUTERS WITHOUT APPRECIATING THAT I F IT IS HELD THAT ANYTHING CONNECTED TO COMPUTERS IN INPUT OR OUTPUT IS HELD TO BE A COMPUTER FOR THE PURPOSE OF RATE OF DEPRECIATION THEN MANY EQUIPMENT LIKE MOBILE PHONES, ROBOTS, COMPUTER CONT ROLLED MACHINERY ETC. WHICH ARE CONNECTED TO COMPUTERS OR HAVE EMBEDDED COMPUTERS WOULD ALSO QUALIFY FOR DEPRECIATION AT THE RATE APPLICABLE TO COMPUTERS 61. THE FACTS OF THE ISSUE ARE THAT ASSESSEE HAD CLAIMED 60% DEPRECIATION ON ATMS CONSIDERING THE SAME TO BE COMPUTERS WHILE THE ASSESSING OFFICER ALLOWED DEPRECIATION @ 15% HOLDING THE SAME TO BE P LANT AND MACHINERY. THE LD. CIT(A) RELYING UPON HIS ORDER IN THE CASE O F ASSESSEE FOR ASSESSMENT YEAR 2008-09 DELETED THE ADDITION MADE B Y THE ASSESSING OFFICER. 62. BEFORE US, THE LD. DR RELIED ON THE ORDER OF TH E ASSESSING OFFICER WHILE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE OR DER OF THE CIT(A) AND 55 FURTHER POINTED OUT THAT THIS ISSUE HAD BEEN DECIDE D IN FAVOUR OF THE ASSESSEE BY THE HON'BLE ITAT IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2008-09 AND 2009-10 VIDE ORDER DATED 28.3.20 16. 63. WE HAVE HEARD THE REPRESENTATIVES OF BOTH THE P ARTIES, PERUSED THE FINDINGS GIVEN AND CONSIDERED THE MATERIALS AVAILAB LE ON RECORD. FROM THE PERUSAL OF THE ORDER OF THE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2008-09 AND 2009-10 IN ITA NOS. 215 & 363/CHD /2015 ORDER DATED 28.3.2016, WE FIND THAT THE ISSUE HAS BEEN DECIDED AT PARAS 52 TO 53 OF THE ORDER, WHICH READS AS UNDER:- 52. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE CIT (APPEALS) HAS ALLOWED THE CLAIM OF ASSESSEE AT PARA 9.1 OF HIS ORDER, WHICH READS AS UNDER : 9.1 I HAVE CONSIDERED THE SUBMISSION MADE. AS NOT ED ABOVE THE APPELLANT HAS RELIED ON THE PLETHORA OF JUDGMENTS IN HIS FAVOUR. THE LATEST DECISION PERTAI NS TO HON'BLE BOMBAY HIGH COURT WHEREIN IT IS HELD THAT ATM IS A COMPUTER AND ENTITLED TO DEPRECIATIO N @ 60% FOR THE PURPOSE OF INCOME TAX PROCEEDINGS. THERE IS NO ORDER OF THE JURISDICTIONAL HIGH COURT CITED BY EITHER THE APPELLANT OR THE ASSESSING OFFICER. IT IS AN ESTABLISHED LAW THAT WHEN TWO VIE WS ARE POSSIBLE THEN THE VIEW FAVOURABLE TO THE ASSESS EE HAS TO BE TAKEN NAMELY IN CIT VS. POLAR CEMENT PUT. LTD. 226 ITR 625(SC). IN THIS CASE, MOST OF THE LAT EST JUDGMENTS ARE IN FAVOUR OF THE ASSESSEE INCLUDING THE ORDER OF HON'BLE BOMBAY HIGH COURT. THE ISSUE IN THE CASE OF DIEBOLD SYSTEM PVT. LTD. PERTAINS TO 56 COMMERCIAL TAXES AND NOT INCOME TAX. THEREFORE, LOOKING INTO ENTIRETY OF FACTS OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE BOMBAY HIGH COURT I AM OF THE OPINION THAT ATM HAS TO BE TREATED AS A COMPUTER AND IS ENTITLED TO DEPRECIATION @ 60%. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. 53. ON PERUSAL OF THE ABOVE, WE DO NOT FIND ANY INF IRMITY IN THE SAME AS THERE ARE A NUMBER OF JUDGMENTS OF VARI OUS HIGH COURTS WHERE THE ATM IS HELD TO BE COMPUTER AND DEP RECIATION IS ALLOWED @ 60%. THE GROUNDS RAISED BY THE DEPART MENT ARE DISMISSED. 64. ON PERUSAL OF THE ABOVE, WE FIND THAT IN THE PR ECEDING YEAR, THE ITAT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN VIEW OF NUMBER OF JUDICIAL DECISIONS OF THE HON'BLE HIGH COURTS WHICH HELD ATMS TO BE COMPUTERS. RESPECTFULLY FOLLOWING THE SAME, WE DELE TE THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRM THE ORDER OF C IT(A) IN THIS REGARD. THIS GROUND OF APPEAL RAISED BY THE DEPARTMENT IS D ISMISSED. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSE D. ITA NO. 448/CHD/2014 65 . THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY LD. CIT PATIALA U/S 263 OF THE INCOME-TAX ACT, 1961 . FOR A.Y 2010-11. 66. ON PERUSAL OF THE ORDER OF THE CIT(A), WE FIND THAT REVISIONARY POWER U/S 263 HAD BEEN INVOKED ONLY ON THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT FOR ASSESSMENT YEAR 2010-11 HOLDING THE ORDER OF THE ASSESSING OFFICER TO BE ERRONEOUS AND PRE-JUDICIAL TO THE INT EREST OF REVENUE. BEFORE 57 US, LD. COUNSEL OF THE ASSESSEE POINTED OUT THAT TH E ISSUE ON WHICH REVISIONARY POWERS HAD BEEN EXERCISED BY THE LD. CI T HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HON'BLE ITAT IN THE PRECEDING YEAR I.E. ASSESSMENT YEARS 2008-09 AND 2009-10 IN ITA NOS. 2 15 & 363/CHD/2015 VIDE ORDER DATED 28.3.2016 IN THE APPEAL OF THE ASS ESSEE AGAINST THE ORDER PASSED U/S 263 IN ASSESSMENT YEAR 2009-10 ON THE SA ME ISSUE. THE LD. DR ON THE OTHER HAND, STATED THAT REVISIONARY POWER HA D BEEN EXERCISED BY THE LD. CIT ON ACCOUNT OF FACT THAT ASSESSING OFFICER H AD RESTRICTED THE ADDITION, DISALLOWANCE MADE U/S 14A SUO MOTO WITHOU T APPLICATION OF MIND, TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESS EE. THE LD. DR POINTED OUT THAT THE ORDER PASSED BY THE ITAT IN THE PRECED ING YEAR SETTING ASIDE THE ORDER OF CIT(A) PASSED U/S 263 OF THE ACT HAD NOT BEEN DECIDED ON THIS SPECIFIC ISSUE AND, THEREFORE, NEED NOT BE RELIED U PON IN THE PRESENT CASE. 66. WE HAVE HEARD THE CONTENTION OF BOTH THE PARTIE S AND HOLD THAT,SINCE WHILE DECIDING THE ASSESSEES APPEAL FOR THE SAME Y EAR I.E. IN ITA NO. 217/CHD/2015, WE HAVE DELETED THE ADDITION MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT, THE ACTION OF THE LD. CIT U/S 2 63 HAS NO RELEVANCE BEING ON THE SAME ISSUE. THE ARGUMENT OF THE LD. DR THAT THE ORDER PASSED BY THE CIT U/S 263 IS TO BE DECIDED ON THE SPECIFIC REASON FOR WHICH THE ORDER OF THE ASSESSING OFFICER WAS FOUND ERRONEOUS, WE FIND HAS NO MERIT. WHAT IS RELEVANT FOR THE PURPOSE OF DETERMINING THE VALIDITY OF ORDER PASSED U/S 263 IS WHETHER THERE WAS ANY ERRONEOUS O RDER OF THE ASSESSING OFFICER CAUSING PREJUDICE TO THE INTEREST OF REVENU E. SINCE IN THE APPEAL OF THE ASSESSEE, IN QUANTUM PROCEEDINGS, THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES U/S 14A HAS BEEN DELETED IN TOTO, THERE CANNOT BE 58 SAID TO BE ANY ERROR AS SUCH IN THE ORDER OF THE AS SESSING OFFICER CAUSING PREJUDICE TO THE REVENUE. THE ISSUE WHETHER THE ASS ESSING OFFICER HAD APPLIED HIS MIND OR NOT WHILE RESTRICTING THE DISAL LOWANCE MADE TO THE EXTENT OF EXEMPT INCOME WOULD IN NO WAY EFFECT THE OUTCOME OF THE ORDER OF THE ITAT IN QUANTUM PROCEEDINGS AND IT STILL REM AINED THAT NO DISALLOWANCE U/S 14A CAN BE MADE AND HENCE THE ORDE R OF THE AO WAS NOT ERRONEOUS IRRESPECTIVE OF THE FACT THAT HE APPLIED HIS MIND TO IT OR NOT.. THERE IS NO SUBSTANCE IN THE ARGUMENT OF LD. DR TH AT THE VALIDITY OF THE ORDER PASSED BY LD. CIT U/S 263 OF THE ACT HAD TO BE DECIDED ON THE SPECIFIC ISSUE RAISED BY THE LD. CIT IN HIS ORDER P ASSED U/S 263 OF THE ACT. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT PASSED U/S 263 AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA/1097/CHD/2014 (ASSESSEES APPEAL) 67. THIS APPEAL FILED BY THE ASSESSEE AGAINST THE O RDER OF LD. CIT, PATIALA DATED 20.10.2014 IN EXERCISE OF HIS POWER U/S 154 TO RECTIFY A DEFECT IN THE ORDER PASSED U/S 263 OF THE ACT IN THE CASE OF THE ASSESSEE. THE ISSUE INVOLVED RELATES TO DISALLOWANCE MADE U/S 14A OF T HE INCOME TAX ACT, WHICH HAD BEEN ENHANCED BY LD. CIT VIDE HIS ORDER P ASSED U/S 263 OF THE ACT. 68. SINCE WHILE DECIDING THE ASSESSEES APPEAL FOR THE SAME ASSESSMENT YEAR IN ITA NO. 217/CHD/2015, WE HAVE DELETED THE A DDITION MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT AND MOREOVER T HE ORDER PASSED BY LD. CIT U/S 263 HAS BEEN SET ASIDE BY US IN ITA NO. 448 /CHD/2014, THE ACTION 59 OF THE LD. CIT U/S 154 PATIALA IS OF NO CONSEQUENC E AND, THEREFORE, SET ASIDE. THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.126/CHD/2009 (REVENUES APPEAL) 69. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAIN ST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEAL S), PATIALA DATED 8.12.2008 FOR ASSESSMENT YEAR 2003-04. 70. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUT SET POINTED OUT THAT THE COD APPROVAL HAD BEEN GIVEN ONLY IN RE SPECT OF GROUND NOS.3 AND 4 RAISED. COPY OF THE COD APPROVA L WAS FILED BEFORE US. IN THE ABSENCE OF COD APPROVAL FO R THE REMAINING GROUNDS, THE SAME ARE DISMISSED FOR TECHN ICAL REASONS. CONSEQUENTLY, THE GROUNDS TO BE ADJUDICAT ED UPON BY THE TRIBUNAL ARE AS FOLLOWS : 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN ALLOWING THE RELIEF ON ACCOUNT OF DISALLOWANCE U/S 14A WHEN THE ASSESSEE FAILED TO DISCHARGE IT IS ONUS DURING THE ASSESSMENT PROCEEDINGS TO FILE THE DETAILS OF THE EXPENSES THAT HAD BEEN INCURRED IN RELATION TO THE INCOME CLAIMED AS EXEMPT. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS FURTHER ERRED IN ALLOWING THE RELIEF ON ACCOUNT OF DISALLOWANCE U/S 14A WHEN THE ASSESSEE FAILED TO ADVERT TO THE EXCLUSIVE EVIDENCE IN HIS KNOWLEDGE ABOUT EXPENDITURE ON EXEMPT INCOME. 60 71. BOTH THE GROUNDS ARE AGAINST DELETION OF DISALL OWANCE MADE UNDER SECTION 14A OF THE ACT. DURING THE COUR SE OF HEARING BEFORE US, IT WAS BROUGHT TO THE NOTICE OF THE BENCH THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY THE HON 'BLE I.T.A.T. IN ASSESSEES APPEAL IN ITA NO.136/CHD/2009, WHEREI N AFTER CONSIDERING THE ENTIRE ISSUE, THE ORDER OF THE CIT (APPEALS) WAS UPHELD AND THE GROUND RAISED BY THE ASSESSEE WAS DI SMISSED. SINCE THE ISSUE HAS ALREADY BEEN DECIDED BY THE I.T .A.T., NO FURTHER ADJUDICATION IS REQUIRED AND THE GROUND RAI SED BY THE REVENUE IS, THEREFORE, DISMISSED. 72. IN EFFECT, THE APPEAL OF THE REVENUE IS DISMISS ED. 73. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO. 217/CHD/2014 IS PARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE IN IN ITA NO. 364/CHD/2015 IS DISMISSED. ALSO, THE APPEALS OF THE ASSESSEE I.E ITA NOS. 448/CHD/2014 AND IN ITA NO. 1097/CHD/2014 ARE ALLOW ED. THE APPEAL OF THE REVENUE IN IN ITA NO. 126/CHD/2009 IS DISMISSED .. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 11 TH AUGUST, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 61