DENA BANK, MUMBAI V. CIT 2, MUMBAI

ITA 3675/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75497 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 23-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MRS LALITHA RAMESWARAN; S ANATHAN
• Keywords: Earning of tax free income; Bad and doubtful debts; Assessment record; Capital expenditure
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI . . , , BEFORE SHRI B. R. MITTAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO. 3821/MUM/2009 ( / ASSESSMENT YEAR: 2005-06) ASST. CIT-2(3) ROOM NO.555, AAYAKAR BHAVAN, MUMBAI / VS. DENA BANK ACCOUNTS DEPARTMENT DENA BANK BUILDING, 2 ND FLOOR, 17/B, HORNIMAN CIRCLE, FORT, MUMBAI-400 001 ! ./' ./PAN/GIR NO. AAACD 4249 B ( # /REVENUE ) : ( $%&' / ASSESSEE ) ./ I.T.A. NO. 4112/MUM/2012 ( / ASSESSMENT YEAR: 2007-08) ASST. CIT-2(3) ROOM NO.552, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 / VS. DENA BANK ACCOUNTS DEPARTMENT DENA BANK BUILDING, 2 ND FLOOR, 17/B, HORNIMAN CIRCLE, FORT, MUMBAI-400 001 ! ./' ./PAN/GIR NO. AAACD 4249 B ( # /REVENUE ) : ( $%&' / ASSESSEE ) ./ I.T.A. NO. 3674/MUM/2012 ( / ASSESSMENT YEAR: 2007-08) DENA BANK ACCOUNTS DEPARTMENT DENA BANK BUILDING, 2 ND FLOOR, 17/B, HORNIMAN CIRCLE, FORT, MUMBAI-400 001 / VS. ASST. CIT (OSD) 2(3) ROOM NO.555, 5 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ! ./' ./PAN/GIR NO. AAACD 4249 B ( $%&' / ASSESSEE ) : ( # /REVENUE ) 2 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) & ./ I.T.A. NO. 3675/MUM/2012 ( / ASSESSMENT YEAR: 2007-08) DENA BANK ACCOUNTS DEPARTMENT DENA BANK BUILDING, 2 ND FLOOR, 17/B, HORNIMAN CIRCLE, FORT, MUMBAI-400 001 / VS. COMMISSIONER OF INCOME-TAX 2 ROOM NO.344, 3 RD FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ! ./' ./PAN/GIR NO. AAACD 4249 B ( $%&' / ASSESSEE ) : ( # /REVENUE ) # ( ) / REVENUE BY : SHRI SANTOSH KUMAR $%&' ( ) / ASSESSEE BY : SHRI S. ANATHAN & MRS. LALITHA RAMESWARAN * $#+ ( , / DATE OF HEARING : 19.11.2013 -./ ( , / DATE OF PRONOUNCEMENT : 05.02.2014 0 / O R D E R PER SANJAY ARORA, A. M.: THIS IS A SET OF FOUR APPEALS, BEING CROSS APPEALS FOR ASSESSMENT YEAR (A.Y.) 2007- 08 AND AN APPEAL BY THE REVENUE FOR A.Y. 2005-06, C HALLENGING THE APPELLATE ORDERS BY THE FIRST APPELLATE AUTHORITY FOR THE RELEVANT YEAR S, AND ANOTHER APPEAL BY THE ASSESSEE CONTESTING THE REVISION ORDER U/S.263 IN RESPECT OF ITS ASSESSMENT FOR A.Y. 2007-08. THE APPEALS RAISING COMMON ISSUES WERE LISTED FOR HEARI NG AND, ACCORDINGLY, HEARD TOGETHER, AND ARE BEING DISPOSED OF VIDE A COMMON, CONSOLIDAT ED ORDER. WE SHALL PROCEED YEAR WISE. REVENUES APPEAL (IN ITA NO.3821/MUM/2009 FOR A.Y. 2005-06) 2. THE ONLY ISSUE IN THE REVENUES APPEAL FOR THIS YEAR IS THE ALLOWANCE OF DEDUCTION U/SS. 36(1)(VII) AND 36(1)(VIIA) OF THE ACT. THE MA TTER WAS ARGUED BEFORE US AS COVERED BY THE DECISION BY THE APEX COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. CIT [2012] 3 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) 343 ITR 270 (SC), HAVING BEEN SINCE FOLLOWED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2006-07 (IN ITA NO.2731/MUM/2011 DATED 10. 04.2013/COPY ON RECORD), AS WELL AS THE DECISION BY THE TRIBUNAL IN OMAN INTERNATIONAL BANK S.A.O.G VS. ACIT (IN ITA NOS.1981 & 1982/MUM/2001 DATED 29.06.2012/COPY ON R ECORD). 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD, AS WELL AS THE CASE LAW RELIED UPON. THE LEGAL POSITION, AS APPARENT, G ETS SETTLED BY THE APEX COURT IN CATHOLIC SYRIAN BANK LTD. (SUPRA), SO THAT IN PRINCIPLE THERE COULD BE AND IS NO DISPUTE. 3.1 IT WOULD BE RELEVANT TO RECOUNT THE FACTS OF TH E CASE IN BRIEF. THE ASSESSEE CLAIMED RS.275.57 CRORES BY WAY OF PROVISION AGAINST NON-PE RFORMING ASSETS (NPAS), OF WHICH RS.53.53 CRORES WAS AGAINST RURAL ADVANCES, AND THE BALANCE RS.222.04 CRORES AGAINST NON-RURAL ADVANCES. THE ASSESSEE ALSO CLAIMED TO HA VE WRITTEN OFF DEBTS FOR RS.318.85 CRORES DURING THE YEAR, WHICH WAS COMMUNICATED PER THE NOTES TO THE RETURN OF INCOME (REFER PARA 1.1/PG.4 OF THE ASSESSMENT ORDER). THE ASSESSEES GROSS TOTAL INCOME (GTI) FOR THE YEAR (BOTH RETURNED AND ASSESSED) BEING NIL (IN FACT, NEGATIVE), THE PROVISION ALLOWABLE U/S. 36(1)(VIIA) WAS LIMITED TO 10% OF THE RURAL AD VANCES, I.E., AT RS.53.53 CRORES , BY THE ASSESSING OFFICER (A.O.). THE CLAIM U/S. 36(1)(VII) WAS ALSO, IN VIEW OF THE PROVISION SO ALLOWED, REDUCED BY HIM TO THE BALANCE RS.265.32 CR ORES (RS.318.85 CR. RS.53.53 CR.). A TOTAL AMOUNT OF RS. 318.85 CR. WAS THUS ALLOWED BY HIM U/SS. 36(1)(VII) AND 36(1)(VIIA) (REFER PARAS 1.3 AND 9(IV) OF THE ASSESSMENT ORDER) . THE CLAIM OF RS.275.57 CRORES ON ACCOUNT OF PROVISION WAS DISALLOWED (THOUGH, IN EFF ECT, THE SAME STOOD ACTUALLY ALLOWED AT RS.53.53 CRORES). THE ALLOWANCE U/S. 36(1)(VIIA) WAS CONFIRMED AT RS. 53.53 CR. IN FIRST APPEAL. AS REGARDS THE DEDUCTION U/S. 36(1)(VII), THE ASSESSEE CONTENDED THAT OF THE DEBT WRITTEN OFF (RS.318.85 CR.), ONLY RS.10.40 CR. IS FOR RURAL ADV ANCES AND THE BALANCE RS.308.45 CR. IN RESPECT OF NON-RURAL ADVANCES. ONLY THE AMOUNT WRIT TEN OFF QUA RURAL ADVANCES (RS. 10.40 CR.) COULD BE SET OFF/ADJUSTED AGAINST THE PROVISIO N MADE AGAINST RURAL ADVANCES (AT RS.53.53 CR.), AND THE BALANCE (RS. 43.13 CR.) IS T O BE CARRIED FORWARD TO THE FOLLOWING YEAR. IN FACT, NO ADJUSTMENT ON THAT ACCOUNT COULD AT ALL BE MADE AS THE SAID PROVISION WAS 4 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) MADE ONLY AT THE YEAR-END, WHILE IT IS ONLY THE PRO VISION AS AT THE BEGINNING OF THE YEAR THAT COULD BE SET OFF. ACCORDINGLY, THE ENTIRE RURA L DEBT WRITTEN OFF (RS.10,39,63,000/-) IS TO BE ALLOWED. FURTHER, AS REGARDS THE NON-RURAL DE BT WRITTEN OFF (RS.308.45 CR., I.E., RS.318.85 CR. RS.10.40 CR.), NO PART OF IT COULD, AND AGAIN FOR THE SAME REASONS, BE ADJUSTED AGAINST THE PROVISION ACCOUNT. THAT IS, TH E PROVISION BEING ONLY FOR RURAL ADVANCES AND, TWO, MADE AT THE YEAR-END. THE IMPACT OF THE TWO ARGUMENTS WAS THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 36(1)(VII) A T RS.318.85 CR. AS AGAINST RS.265.32 CR. ALLOWED BY THE A.O., SO THAT THERE IS A SHORT DEDUC TION BY RS.53.53 CR. THE SAME STOOD ALLOWED BY THE LD. CIT(A), FURTHER CLARIFYING THAT RS.53.53 CR. ALLOWED U/S.36(1)(VIIA) WOULD BECOME THE OPENING PROVISION FOR THE FOLLOWIN G YEAR (I.E., A.Y. 2006-07) (REFER PARA 8.2 OF THE APPELLATE ORDER). AGGRIEVED, THE RE VENUE IS IN APPEAL. 3.2 WE MAY NEXT DELINEATE THE POSITION OF THE LAW A S CLARIFIED BY THE APEX COURT IN CATHOLIC SYRIAN BANK LTD. (SUPRA), FURTHER STATING, IN LIGHT THEREOF, THE MAN NER IN WHICH THE DEDUCTIONS UNDER REFERENCE ARE TO BE COMPUTED: A). SECTIONS 36(1)(VII) AND 36(1)(VIIA) OF THE ACT ARE DISTINCT AND INDEPENDENT PROVISIONS AND OPERATE IN THEIR RESPECT IVE FIELDS. THERE IS, THUS, NO SCOPE FOR LIMITING THE SCOPE OF ONE WITH REFEREN CE TO THE OTHER; THE CONCEPT OF PROVISION FOR BAD AND DOUBTFUL DEBTS FAL LS OUTSIDE THE SCOPE OF SECTION 36(1)(VII) SIMPLICITER , AS CLARIFIED BY EXPLANATION THERETO; B). SECTION 36(1)(VII) IN ITS MAIN PART CONCERNS ON LY A BAD DEBT (OR PART THEREOF), WHILE PROVISO AND EXPLANATION TO S.36(1)(VII) AND S.36(2)(V) SPEAK OF PROVISION FOR BAD AND DOUBTFUL DEBTS. THE PROVISO TO SECTION 36(1)(VII) HAS, THEREFORE, TO BE READ WITH SECTIONS 36(1)(VIIA ) AND 36(2)(V). BAD DEBTS WRITTEN OFF, OTHER THAN THOSE FOR WHICH PROVISION U /S. 36(1)(VIIA) IS MADE, WILL BE COVERED UNDER THE MAIN PART OF SECTION 36(1 )(VII); C). THE PROVISO TO SECTION 36(1)(VII) OPERATES IN CASES UNDER CLAU SE (VIIA), SO AS TO LIMIT THE DEDUCTION U/S.36(1)(VII) TO THE EXTENT OF THE DIFFERENCE BETWEEN THE DEBT (OR PART THEREOF) WRITTEN OFF IN T HE RELEVANT PREVIOUS YEAR AND THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE U/S.36(1)(VIIA); D). THE PROVISO TO SECTION 36(1)(VII) WILL, THUS, RELATE TO CASES (ACCOUNTS) COVERED U/S.36(1)(VIIA) AND, ACCORDINGLY, HAS TO BE READ WITH SECTION 5 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) 36(2)(V), THEREBY DISALLOWING A DOUBLE DEDUCTION. T HE REVENUES INTEREST QUA NON GRANT OF DOUBLE DEDUCTION OR DOUBLE BENEFIT IS WELL PROTECTED, AND ITS APPREHENSION IN THIS REGARD IS THEREFORE MISPLA CED; E). WHILE SECTION 36(1)(VII) IS A GENERAL PROVISION FOR ALL DEBTS, SECTION 36(1)(VIIA)(A) IS FOR RURAL ADVANCES; AND F). THE CONDITION OF S. 36(2)(V) IS INTEGRAL TO S. 36(1)(VII), AND IS THEREFORE REQUIRED TO BE SATISFIED IN RESPECT OF DE BTS COVERED UNDER PROVISO TO S. 36(1)(VII). IN SUM, SECTION 36(1)(VIIA)(A) AND, CORRESPONDINGL Y, PROVISO TO SECTION 36(1)(VII) RELATES ONLY TO RURAL ADVANCES, I.E., IN CASE OF A SCHEDULED BANK, WHILE THE MAIN PART OF SECTION 36(1)(VII) WOULD COVER ALL ADVANCES, RURAL AND NON-RURAL. TWO, TO THE EXTENT OF RURAL ADVANCES WRITTEN OFF U/S. 36(1)(VII), ONLY TH E AMOUNT IN EXCESS OF THE BALANCE IN THE PROVISION ACCOUNT U/S.36(1)(VIIA)(A) (MADE WITH REF ERENCE TO R.6ABA) WOULD SATISFY THE MANDATE OF PROVISO TO SECTION 36(1)(VII) AND 36(2)(V), AND IS THEREFO RE TO BE ALLOWED AS DEDUCTION THERE-UNDER, THE BALANCE BEING DEBITED TO THE PROVISION ACCOUNT. FURTHER, VIDE EXPLANATION 2 TO SECTION 36(1)(VII) (INSERTED BY FINANCE ACT, 2 013 W.E.F. 01.04.2014) IT HAS BEEN CLARIFIED THAT THE PROVISION FOR BAD AND D OUBTFUL DEBTS U/S.36(1)(VIIA) REFERS TO A SINGLE ACCOUNT TOWARD ALL TYPES OF ADVANCES, BOTH R URAL AND NON-RURAL. 3.3 WE MAY, TO BEGIN WITH, TABULATE THE POSITION TH AT EMERGES QUA THE TWO DEDUC TIONS: (AMOUNT IN RS. CRORES ) PARTICULARS ASSESSEE A.O. CIT(A) PROVISION FOR BAD & DOUBTFUL DEBTS U/S.36(1)(VIIA) 275.57 53.53 53.53 WRITTEN OFF OF BAD DEBTS U/S.36(1)(VII) --- (*) 265.32 318.85 TOTAL 275.57 318.85 372.38 (*) REFER PARA 3.4(A) (INFRA) 3.4 THE DISPUTE BEFORE US IS OSTENSIBLY QUA THE QUANTUM OF DEDUCTION U/S. 36(1)(VII), HAVING BEEN ALLOWED BY THE LD. CIT(A) AT RS.318.85 CR. AS AGAINST RS. 265.32 CR. BY THE A.O. THE BREAK-UP OF THE DIFFERENCE (RS.53.53 CR.), I.E., IN TERMS OF RURAL AND NON-RURAL 6 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) ADVANCES, WOULD BE TO OUR MIND OF NO RELEVANCE INAS MUCH AS THE DEDUCTION U/S. 36(1)(VII) COVERS BOTH THE RURAL AND NON-RURAL ADVANCES, THE Q UANTUM (OF WRITE OFF) OF EACH OF WHICH IS AS PER THE BOOKS OF ACCOUNT. FURTHER, THOUGH THE RE COULD BE NO DISPUTE, I.E., IN PRINCIPLE, AS REGARDS THE CLAIM TO BE ALLOWED, WE ARE UNABLE T O, FOR THE FOLLOWING REASONS, CONFIRM ANY PART OF THE AMOUNT CLAIMED, I.E., INCLUDING THA T ALLOWED U/S.36(1)(VII) BY THE A.O. (RS.265.32 CR.), FOR BEING ALLOWED THEREUNDER: A). THE WRITE OFF OF DEBT IN THE PRESENT CASE IS BY WAY OF DEBIT TO THE PROVISION ACCOUNT, CONSUMING PRESUMABLY THE ENTIRE OPENING BALANCE IN THE SAID ACCOUNT, AND WHICH (PROVISION) STANDS ALLOWED (THOUGH NOT FULLY) IN TH E EARLIER YEARS, EITHER U/S. 36(1)(VIIA)(A) OR U/S. 36(1)(VII) (REFER PARA 1.2.5 OF THE ASSESSMENT ORDER). THE SAME WOULD THUS BE ALLOWABLE ONLY TO THE EXTENT NOT ALLOWED FOR THE EA RLIER YEARS, DETAILS OF WHICH ARE ABSENT . ALLOWING ANY AMOUNT IN EXCESS OF THE PROVISION NOT ALLOWED IN THE EARLIER YEARS WOULD AMOUNT TO A DOUBLE DEDUCTION AGAINST THE SAME WRITE OFF. EVEN IF A PART OF THE PROVISION ALLOWED U/S. 36(1)(VIIA)(A) FOR THE EARLIER YEARS I S IN RESPECT OF NON-RURAL ADVANCES; THE DECISION IN THE CASE OF CATHOLIC SYRIAN BANK LTD . (SUPRA) BEING ONLY RENDERED SUBSEQUENTLY, A DOUBLE DEDUCTION COULD NOT BE ALLOW ED AGAINST THE SAME WRITE OFF. A CLAIM FOR DEDUCTION FOR THE CURRENT YEAR WOULD THER EFORE NECESSARILY WARRANT A WRITE BACK OF THE EXCESS PROVISION MADE EARLIER, IN THE BOOKS FOR THE CURRENT YEAR, ENHANCING THE PROFIT FOR THE CURRENT YEAR TO THAT EXTENT AND, AS SUCH, OF NO MOMENT. IT IS PERHAPS FOR THIS REASON THAT THE CLAIM STANDS MADE BY THE ASSESSE ON LY BY WAY OF NOTES TO THE RETURN OF INCOME, WHICH IS ITSELF VULNERABLE IN LAW. FURTHER, A PART OF THE PROVISION FOR THE EARLIER YEARS IS STATED TO HAVE BEEN ALLOWED U/S. 36(1)(VII ) AS WELL, WHICH CLEARLY EXCLUDES A PROVISION (REFER EXPLANATION TO S. 36(1)(VII)). THE SAME MUST THEREFORE NECESSA RILY BE CONSIDERED AS A WRITE OFF OF THE RELEVANT DEBTS, FA LLING IN THE MAIN PART OF S. 36(1)(VII). ACCORDINGLY, THERE COULD BE NO DEDUCTION AGAIN FOR THE SAME DEBTS, I.E., UPON BEING DEBITED TO THE PROVISION ACCOUNT FOR THE CURRENT YE AR. IT MAY BE ARGUED THAT THE DEDUCTION IS TO BE ONLY ON AN ACTUAL WRITE OFF, WHICH MATERIA LIZES IN THE CURRENT YEAR, WITH ONLY A PROVISION THOUGH ALLOWED - HAVING BEEN MADE IN TH E EARLIER YEARS, AND WHICH GETS 7 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) DEBITED IN THE CURRENT YEAR. TRUE, BUT THEN THE DED UCTION U/S. 36(1)(VII) HAVING BEEN ALLOWED FOR AN EARLIER YEAR ON THE BASIS OF A PROVI SION, THE SAME MUST EITHER BE CONSTRUED AS A WRITE OFF OR, IF NOT SO, I.E., IS A PROVISION, WOULD ONLY WARRANT A WRITE BACK FOR THE CURRENT YEAR, TO, AGAIN, THE SAME RESULT. B). WE NEXT CONSIDER THE CLAIM QUA THE BALANCE PROVISION (RS. 222.04 CR.) FOR THE CUR RENT YEAR, THAT IN RESPECT OF RURAL ADVANCES (RS. 53.53 CR.) HAVING BEEN ALLOWED. THE SAME BEING ADMITTEDLY AGAINST NON-RURAL ADVANCES, NO PAR T OF IT COULD BE ALLOWED U/S. 36(1)(VIIA)(A), WHILE, AS AFORE-NOTED, S. 36(1)(VII ) ENVISAGES AN ACTUAL WRITE OFF AND EXCLUDES A PROVISION. THE DISALLOWANCE IN ITS RESPE CT, THUS, APPEARS TO BE CONSISTENT WITH LAW. THE APEX COURT IN VIJAYA BANK VS. CIT [2010] 323 ITR 166 (SC) HAS CLARIFIED THAT WHERE THE PROVISION IS REFLECTED AS A LIABILITY IN THE BALANCE-SHEET, IMPLYING ITS CONTINUITY AND, THUS, CARRY FORWARD IN THE BOOKS OF ACCOUNT AS SUCH, I.E., IN THE FORM OF A CREDIT BALANCE, THE SAME WOULD BE A PROVISION. HOWEVER, WH ERE IT IS ADJUSTED AGAINST DEBTS, SO THAT THE DEBT OUTSTANDING AS AT THE YEAR-END IS RED UCED, IT WOULD, THOUGH REFLECTED AS A PROVISION, ONLY BE A WRITE OFF. CLEARLY, IN SUCH A CASE THERE IS NO QUESTION OF THE PROVISION ACCOUNT BEING CARRIED FORWARD INASMUCH AS THE AMOUN T OF DEBT CARRIED FORWARD IN BOOKS GETS REDUCED TO THAT EXTENT. THE FAILURE TO CLOSE T HE INDIVIDUAL ACCOUNTS (OF THE DEBTORS), I.E., IN THE BOOKS OF THE BRANCH, WOULD NOT BE FATA L TO THE BANKS CLAIM INASMUCH AS THE DETAIL OF THE DEBTS WRITTEN OFF IS AVAILABLE, AND T HE AGGREGATE ADVANCES AS AT THE YEAR-END PER THE HEAD OFFICE BOOKS CAN ONLY BE CONSIDERED AS IN AGREEMENT WITH THAT AS PER ITS DIFFERENT UNITS. IN THE PRESENT CASE, AS IT WOULD APPEAR TO US, IT I S A CASE OF A PROVISION INASMUCH AS THE ASSESSEE CLAIMS A CONTINUITY OF AND SPEAKS IN T ERMS OF A BALANCE IN THE PROVISION ACCOUNT; RATHER, CONTENDING THAT ONLY THE OPENING B ALANCE IN THE PROVISION ACCOUNT IS TO BE ADJUSTED (ON ACCOUNT OF THE ACTUAL WRITE OFF OF DEB T) AND NOT THAT MADE AS AT THE RELEVANT YEAR-END. IF SO, I.E., OF IT BEING A PROVISION, NO AMOUNT THEREOF COULD BE SAID TO BE A WRITE OFF AND, AS SUCH, ALLOWABLE U/S. 36(1)(VII). THIS A SPECT, HOWEVER, GOING TO THE ROOT OF THE MATTER, REQUIRES PROPER VERIFICATION, ARISING ONLY IN VIEW OF THE SUBSEQUENT DECISION OF THE 8 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) APEX COURT IN VIJAYA BANK (SUPRA). WHAT PART OF THE PROVISION, I.E., AS MADE IN THE ACCOUNTS, QUALIFIES AS SO, AND WHAT PART OF IT IS I N EFFECT A WRITE OFF, WOULD NEED TO BE CLARIFIED. WE MAY ALSO CLARIFY HERE THAT THE WRITE OFF OF THE INDIVIDUAL ACCOUNTS THOUGH, EVEN IF SUBSEQUENTLY (I.E., TO THE BALANCE-SHEET DA TE), WOULD HAVE TO FOLLOW INASMUCH AS A WRITE OFF BY DEFINITION IMPLIES THE OBLITERATION/NO N-EXISTENCE OF THE RELEVANT DEBT, IMPLYING ITS NON-CARRY FORWARD IN THE BOOKS OF ACCO UNT FOR THE SUBSEQUENT YEAR. C). THE THIRD ASPECT, WHICH IN OUR VIEW REQUIRES VE RIFICATION AND CLARIFICATION, IS THE FINDING OF THERE BEING NO OPENING BALANCE IN THE PR OVISION ACCOUNT FOR THE CURRENT YEAR. WE SAY SO AS THE ASSESSEE ITSELF SPEAKS OF HAVING W RITTEN OFF DEBTS TO THE EXTENT OF RS. 318.85 CR. DURING THE CURRENT YEAR BY DEBITING THE PROVISION ACCOUNT, NEUTRALIZING, AS IT APPEARS, THE ENTIRE OPENING BALANCE IN THE SAID ACC OUNT (REFER PARA 1.2.5 OF THE ASSESSMENT ORDER). AS SUCH, THE CLAIM OF THERE BEING NIL OPENI NG BALANCE WHICH IS THE AGREED POSITION IN THE SAID ACCOUNT IS APPARENTLY INCONS ISTENT, IF NOT CONTRARY TO THE ASSESSEES CLAIMS. ADMITTEDLY, AN OPENING BALANCE IN THE SAID ACCOUNT WOULD OPERATE TO REDUCE THE CLAIM U/S. 36(1)(VII) TO THAT EXTENT, I.E., TO WHIC H PROVISO TO THAT SECTION IS ATTRACTED. EVEN OTHERWISE, A NIL OPENING BALANCE, THOUGH POSSIBLE, AS WHERE THE ENTIRE CREDIT BALANCE IN THE PROVISION ACCOUNT, INCLUDING THAT MADE AT THE E ND OF THE IMMEDIATELY PRECEDING YEAR, GETS ADJUSTED ON DEBIT QUA THE WRITE OFF FOR THAT YEAR, APPEARS ANOMALOUS. WE SAY SO AS ONCE IT IS CLEAR THAT IT IS ONLY THE BALANCE AS AT THE BEGINNING OF THE YEAR WHICH IS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF PROVISO TO SECTION 36(1)(VII) (AND SECTION 36(2)(V)) AND, THUS, ADJUSTED, THERE IS NO QUESTION AND, THUS , ADJUSTMENT OF THE PROVISION MADE IN THE ACCOUNTS AS AT THE YEAR-END AND, ACCORDINGLY, A NIL OPENING BALANCE FOR THE FOLLOWING YEAR. SUCH A SITUATION COULD ARISE ONLY IN CASE OF NO PRO VISION FOR BAD AND DOUBTFUL DEBTS BEING MADE IN ACCOUNTS FOR THE PRECEDING YEAR. THE SAME S HALL, IN ANY CASE, BE REQUIRED TO BE CONFIRMED. THE REVENUE, IN FACT, ALSO IMPUGNS (VIDE ITS GROUND # 2) THE DIRECTION BY THE LD. CIT(A) TO THIS EFFECT, I.E., TO ADJUST THE PROV ISION MADE (TO THE EXTENT OF RS.53.53 CR.) IN THE FOLLOWING (SUBSEQUENT) YEAR, I.E., BY WAY OF OPENING BALANCE FOR THAT YEAR. THE REVENUES STAND, THOUGH TO NO MOMENT IN VIEW OF OUR CLEAR VERDICT OF ONLY THE OPENING 9 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) BALANCE BEING ADJUSTABLE, MAY PERHAPS BE RESPONSIBL E FOR THE ANOMALY AFORE-REFERRED AND, IN ANY CASE, EXPLAIN OR HELP EXPLAIN THE VARIANCE I N THE PROVISION ACCOUNT, I.E., AS PER BOOKS AND AS PER THE ASSESSMENT RECORD, WHILE CLEAR LY THE LAW ENVISAGES A PARITY BETWEEN THE TWO; A PROVISION BEING MADE AND ADJUSTED (DEBIT ED) ONLY IN THE BOOKS OF ACCOUNT. A RECONCILIATION BETWEEN THE TWO IS IN ANY CASE REQUI RED/PREFERABLE. D). LASTLY, WE WISH TO CLARIFY THAT IT NEEDS TO BE APPRECIATED AND BORNE IN MIND THAT THE DEDUCTIONS IN RESPECT OF BAD DEBTS WRITTEN OFF AN D PROVISION FOR BAD AND DOUBTFUL DEBTS HAVE NECESSARILY TO BE WITH REFERENCE TO THE ENTRIE S MADE IN THE BOOKS OF ACCOUNT. 3.5 THE ISSUE AS TO THE DEDUCTIONS U/SS. 36(1)(VII) AND 36(1)(VIIA)(A) EXIGIBLE TO THE ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE CASE , AS APPARENT FROM THE FOREGOING, IS INDETERMINATE, REQUIRING VERIFICATION AND DEFINITE FINDINGS OF FACT IN RESPECT OF THE MATTERS /ASPECTS SPECIFIED/HIGHLIGHTED AT SUB-PARAS (A) TO (D) OF PARA 3.4 OF THIS ORDER. THE SAID ISSUE IS THUS RESTORED BACK TO THE FILE OF THE FIRS T APPELLATE AUTHORITY FOR FRESH ADJUDICATION PER A SPEAKING ORDER AFTER HEARING THE PARTIES. HE SHALL, IN DOING SO, A T HIS OPTION, OBTAIN A REMAND REPORT FROM THE A.O. ON ANY OF THE MATTERS H E CONSIDERS NECESSARY, ALSO ALLOWING THE ASSESSEE DUE OPPORTUNITY TO PRESENT ITS CASE BE FORE HIM. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE REVENUES APPEAL IS DISPOSED OF IN THE ABOVE INDICATED TERMS. ASSESSEES APPEAL (IN ITA NO.3674/MUM/2012 FOR A.Y. 2007-08) 5. THE FIRST GROUND OF THE ASSESSEES APPEAL RELATE S TO THE DISALLOWANCE OF THE DEDUCTION CLAIMED U/S.35D OF THE ACT IN RESPECT OF EXPENDITURE INCURRED ON PUBLIC ISSUE OF EQUITY SHARES IN THE SUM OF RS.144.24 LACS. AT T HE VERY OUTSET, IT WAS CONCEDED BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL, THAT THE SAID ISSUE STANDS COVERED AGAINST THE ASSESSEE IN VIEW OF THE DECISIO NS BY THE APEX COURT IN THE CASE OF BROOKE BOND INDIA LTD. VS. CIT [1997] 225 ITR 798 (SC) AND PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPN. LTD. VS. CIT [1997] 225 ITR 792 (SC), ALSO RELIED UPON BY THE REVENUE. SO, HOWEVER, THE ASSESSEE PLEADS ITS CASE WITH REFERENCE TO ITS ALTERNATE CLAIM, I.E., THAT THE SAID EXPENDITURE SHOULD BE NETTED AG AINST THE INTEREST INCOME EARNED ON THE 10 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) DEPOSIT OF THE SHARE APPLICATION INCOME, AND ONLY T HE NET EXPENDITURE BE DISALLOWED. HOWEVER, IT WAS OBSERVED BY THE BENCH THAT THE DISA LLOWANCE OF THE PUBLIC ISSUE EXPENDITURE IS ON ACCOUNT OF THE FACT OF IT BEING A CAPITAL EXPENDITURE, WHILE THE INTEREST INCOME IS ONLY REVENUE IN NATURE AND, FURTHER, BEIN G ASSESSABLE U/S.56, ONLY EXPENDITURE TOWARD EARNING THE SAME IS LIABLE TO BE ALLOWED U/S .57; THE LAW IN THE MATTER BEING WELL SETTLED, FOR WHICH REFERENCE BE MADE TO DECISIONS B Y THE APEX COURT AS IN THE CASE OF CIT VS. DR. V. P. GOPINATHAN [2001] 248 ITR 449 (SC). HE COULD NOT FURNISH ANY SATISFACTORY ANSWER TO THE SAID QUERY BY THE BENCH. FURTHER ON, ON A PERUSAL OF THE RECORD, IT WAS FOUND THAT THE SAID GROUND STOOD NOT RAISED BEFORE THE FIRST APPELLATE AUTHORITY, SO THAT IT DOES NOT ARISE OUT OF HIS ORDER. AGAIN, THOUGH THE ISSUE INVOLVES A LEGAL PLEA, THE RELEVANT FACTS BEING NOT ON RECORD, IT WAS WONDERED BY THE B ENCH AS TO HOW THE SAID ALTERNATE GROUND IS ELIGIBLE FOR BEING ADMITTED. HE CONCEDED TO THE SAME, AS WELL AS TO THE FACT THAT NO FACTS AND DETAILS HAVE BEEN BROUGHT ON RECORD BY THE ASSESSEE. UNDER THE CIRCUMSTANCES, THEREFORE, WE FIND NO MERIT IN THE A SSESSEES GROUND NO.1, INCLUDING THE ALTERNATE GROUND, WHICH STANDS DISMISSED. 6. THE SECOND AND THE ONLY OTHER GROUND IN THE ASSE SSEES APPEAL IS TOWARD CONFIRMATION OF THE ASSESSEES LIABILITY U/S.115JB OF THE ACT, REJECTING ITS CLAIM OF THE MAT PROVISIONS OF CHAPTER XII-B OF THE ACT BEING NO T APPLICABLE TO IT. THE MATTER, EVEN AS WAS THE COMMON CONTENTION OF THE PARTIES, STANDS SQUARELY COVERED BY A SERIES OF DECISIONS BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE , INCLUDING IN ITS OWN CASE FOR A.Y. 2006-07 (IN ITA NO.2337/MUM/2011 DATED 10.04.2013 / PB PGS.8-17), TO WHICH, AMONG OTHERS, OUR ATTENTION WAS DRAWN BY THE LD. AR DURIN G HEARING (REFER PB PGS.30 TO 40). 7. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL, ALSO ADOPTED IN ITS OWN CASE, WE REVERSE THE DIRECTION OF THE LD. CIT(A) CONFIRMING THE COMPUTAT ION OF INCOME U/S.115JB; ON THE BASIS THAT THE ASSESSEE, BEING A BANKING COMPANY, IS NOT EXIGIBLE TO TAX UNDER THE MAT PROVISIONS OF CHAPTER XVII-B. WE DECIDE ACCORDINGLY , ALLOWING THE ASSESSEES RELEVANT GROUND. 11 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) 8. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. REVENUES APPEAL (IN ITA NO. 4112/MUM/2012 FOR A.Y. 2007-08) 9. GROUND # 1 BY THE REVENUE IMPUGNS THE DIRECTION BY THE LD. CIT(A) IN ALLOWING ITS CLAIM QUA BAD DEBTS FOR RS.287.89 CRORES ON THE BASIS THAT TH IS WAS ONLY A PROVISION, AND NOT AN ACTUAL WRITE OFF OF BAD DEBTS. THE SAME STAN DS ALLOWED FOLLOWING THE DECISION IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA). THE PRINCIPLES INVOLVED, AS WOULD BE APPARENT FROM THE FOREGOING (REFER PARAS 2, 3 OF TH IS ORDER), ARE NO LONGER RES INTEGRA , AND THE ISSUES THAT SURVIVE ARE ONLY QUA FACTS, BEING NOT DETERMINATE. THE ISSUES ARISING I N THE INSTANT APPEAL BEING PARA MATERIA TO THAT ARISING IN THE REVENUES APPEAL FOR A.Y. 2 005- 06, OUR OBSERVATIONS/DIRECTIONS THEREAT SHALL APPLY FOR THIS YEAR AS WELL. FURTHER, ANOTHER ISSUE COULD ARISE FOR THE CURRENT YEAR, I.E., IF AN Y PART OF THE PROVISION U/S. 36(1)(VIIA)(A) COULD BE SAID TO BE IN RESPECT OF NON-RURAL ADVANCE S. THIS IS AS THE GROSS TOTAL INCOME (GTI) BEING AT A POSITIVE SUM, A PART OF THE PROVIS ION WOULD BE REFERABLE THERETO (I.E., GTI), AND WHICH THE ASSESSEE SPEAKS OF AS BEING IN RELATION TO NON-RURAL ADVANCES. THE RECENTLY INSERTED EXPLANATION 2 TO SECTION 36(1)(VII) COULD ALSO BE RELEVANT IN T HIS REGARD. NO ARGUMENT QUA THE SAID ASPECT WAS ALSO ASSUMED BEFORE US. UNDER THE CIRCUMSTANCES, WE ONLY CONSIDER IT FIT AND PROPER TO, AS IN THE CA SE FOR A.Y. 2005-06, RESTORE THE MATTER, WHICH WE DISCERN TO BE THE SAME AS FOR THAT YEAR, O N LIKE TERMS, BACK TO THE FILE OF THE FIRST APPELLATE AUTHORITY, WHO SHALL DECIDE ON THE SAID A DDITIONAL ASPECT AS WELL, FOR AN ADJUDICATION IN ACCORDANCE WITH LAW AND AFTER HEARI NG THE PARTIES. WE DECIDE ACCORDINGLY. 10. THE REVENUES SECOND GROUND IMPUGNS THE RESTRIC TION OF THE DISALLOWANCE BY THE A.O. U/S.14A OF THE ACT. WHILE THE A.O. HAD COMPUTE D THE SAME APPLYING R. 8D, THE LD. CIT(A) RESTRICTED THE SAME TO 5% FOLLOWING HIS PRED ECESSOR FOR A.Y. 2006-07. 11. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. THIS IS AGAIN A SUBSISTING ISSUE IN THE ASSESSEES CASE. FOR A.Y. 2 003-04, WHEREAT THE DISALLOWANCE WAS RESTRICTED BY THE LD. CIT(A) TO 2% (OF THE TAX-EXEM PT INCOME), THE TRIBUNAL, FOLLOWING THE DICTUM OF GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81 (BOM), RESTORED 12 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) THE MATTER TO THE FILE OF THE A.O. FOR FRESH DETERM INATION ON A REASONABLE BASIS. FOR A.Y. 2006-07, THE DISALLOWANCE WAS, AS AFORE-NOTED, CONF IRMED AT 5%. THE SAME STOOD ACCEPTED BY THE ASSESSEE BY NOT PRESSING ITS RELEVA NT GROUND BEFORE THE TRIBUNAL, WHILE THE REVENUE DID NOT CONTEST THE SAME. UNDER THE CIRCUMS TANCES, WE CONSIDER IT FIT AND PROPER, AND PARTICULARLY TO GIVE A QUIETUS TO THE MATTER, T O RESTRICT THE DISALLOWANCE U/S.14A TO 5% OF THE TAX-EXEMPT INCOME, I.E., AS FOR THE IMMEDIAT ELY PRECEDING YEAR, INASMUCH AS RULE 8D IS ADMITTEDLY APPLICABLE ONLY W.E.F. A.Y. 2008-0 9, AS CLARIFIED IN GODREJ & BOYCE MFG. CO. LTD. (SUPRA). 12. VIDE ITS THIRD AND FOURTH GROUNDS, THE REVENUE CHALLENGES THE ADJUSTMENT TO THE BOOK PROFIT U/S.115JB ON ACCOUNT OF THE EXPENDITURE IN RESPECT OF TAX-EXEMPT INCOME (BY WAY OF BOOK PROFIT) AS WELL AS FOR THE ALLOWANCE OF THE TAX CREDIT U/SS.88-D AND 88-E AGAINST THE TAX ON THE BOOK PROFIT. THE SAID GROUND S, IN VIEW OF OUR DECISION IN RESPECT OF THE ASSESSEES GROUND NO. 2, UPHOLDING THE NON-APPL ICABILITY OF SECTION 115-JB TO THE ASSESSEE, A BANKING COMPANY, WOULD NOT SURVIVE FOR CONSIDERATION. WE DECIDE ACCORDINGLY, DISMISSING THE RELEVANT GROUNDS. 13. IN THE RESULT, THE REVENUES APPEAL IS PARTLY A LLOWED. ASSESSEES APPEAL (IN ITA NO.3675/MUM/2012 FOR A.Y. 2007-08) 14. THE REVISION ORDER CONCERNS THE VARIOUS ADJUSTM ENTS THAT IN THE OPINION OF THE LD. CIT WERE REQUIRED TO BE CONSIDERED BY THE A.O. IN C OMPUTING THE ASSESSEES BOOK PROFIT U/S.115JB OF THE ACT. 15. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. THE APPEAL, AS WOULD BE APPARENT, WOULD BECOME INFRUCTUOUS IN VIEW OF OUR DECISION IN THE ASSESSEES APPEAL ON QUANTUM, FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL, THAT SECTION 115JB IS NOT APPLICABLE TO THE ASSESSEE-COMPANY. WE, ACCORDI NGLY, SET ASIDE THE IMPUGNED ORDER. WE ARE CONSCIOUS, EVEN AS NOTED BY THE LD. CIT, THAT THE ACT HAS BEEN AMENDED BY FINANCE ACT, 2012, SO AS TO INCLUDE WITHIN THE AMBI T OF SECTION 115JB, COMPANIES TO 13 ITA NOS. 3821/M/09, 4112/M/12, 3674 & 3675/M/12 DENA BANK (A.YS. 2005-06 & 2007-08) WHICH THE PROVISO TO SECTION 211(2) OF THE COMPANIES ACT, 1956 IS AP PLICABLE. THE SAME, HOWEVER, IS APPLICABLE W.E.F. 01.04.2013. THOUGH AN ISSUE AS TO THE SAID AMENDMENT BEING CLARIFICATORY AND, THUS, RETROSPECTIVE, COULD ARISE, THE SAID QUESTION WOULD STAND TO BE ANSWERED IN FURTHER APPELLATE PROCEEDINGS INASMU CH AS THE TRIBUNAL HAS TAKEN A CLEAR VIEW IN THE MATTER ON THE BASIS OF THE UN-AMENDED L AW, AND WHICH WE HAVE ADOPTED. IN OTHER WORDS, EVEN GRANTING THE POSSIBILITY OF A DIF FERENT VIEW, THE ONLY COURSE AVAILABLE TO THE REVENUE, I.E., IN CASE IT WISHES TO PURSUE THE MATTER FURTHER, IS TO APPEAL AGAINST THE SAID SET ASIDE, I.E., AS IT WOULD HAVE TO AGAINST O UR ORDER DISPOSING ITS APPEAL ON QUANTUM. WE DECIDE ACCORDINGLY. 16. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED . A.Y. ITA NO. RESULT 2005-06 3821/M/2009 ALLOWED FOR STATISTICAL PURPOSE S 2007-08 4112/M/2012 PARTLY ALLOWED 2007-08 3674/M/2012 PARTLY ALLOWED 2007-08 3675/M/2012 ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 05, 2014 SD/- SD/- (B. R. MITTAL) (SANJAY AROR A) / JUDICIAL MEMBER / ACCOUNTANT MEMBER * + MUMBAI; 1$ DATED : 05.02.2014 #.$../ ROSHANI , SR. PS !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. !2 / THE APPELLANT 2. 3!2 / THE RESPONDENT 3. * 4 ( ) / THE CIT(A) 4. * 4 / CIT - CONCERNED 5. 7#89 3 $:% , , :%/ , * + / DR, ITAT, MUMBAI 6. 9;& <+ / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , * + / ITAT, MUMBAI