M/S. KEC HOLDINGS LIMITED, MUMBAI V. ASSTT..CI.T., RANGE 8(1), MUMBAI

ITA 3736/MUM/2009

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70829 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-06-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 09-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH
• Assessee Lawyers: RONAK G DOSHI
• Keywords: Capital asset; Business income; Bad and doubtful debts; Onus to prove
• Section: 115JB; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , ! ! ! ! ''#, % BEFORE SHRI SANJAY ARORA, A. M. AND SHRI SANJAY GA RG, J. M. ./ I.T.A. NO. 3736/MUM/2009 ( ( # !)# ( # !)# ( # !)# ( # !)# / / / / ASSESSMENT YEAR: 2005-06) KEC HOLDINGS LIMITED CEAT MAHAL, 1 ST FLOOR, 463, DR. ANNIE BESANT ROAD, WORLI, MUMBAI-400 030 ( ( ( ( / VS. ASST. CIT, RANGE 8(1), MUMBAI * ./ + ./ PAN/GIR NO. AACCK 5600 M ( *, / APPELLANT ) : ( -.*, / RESPONDENT ) *, / / APPELLANT BY : SHRI RONAK G. DOSHI -.*, 0 / / RESPONDENT BY : SHRI SURINDER JIT SINGH (! 0 12 / // / DATE OF HEARING : 28.06.2013 3) 0 12 / DATE OF PRONOUNCEMENT : 14.08.2013 4 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-VIII, MUMBAI (CIT(A) FOR SHORT) DATED 05.03.2009, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2005-06 VIDE ORDER DATED 31.12.2007. 2 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT 2. THE ASSESSEE IS A NON BANKING FINANCIAL COMPANY (NBFC), INCORPORATED UNDER THE COMPANIES ACT, 1956 (THE COMPANIES ACT HEREIN AFTER) WITH THE MAIN OBJECT OF FINANCING INDUSTRIAL ENTERPRISES, WHETHER BY WAY OF MAKING LOANS OR BY SUBSCRIPTION TO THEIR CAPITAL. IT IS ALSO MANDATED BY ITS MEMORANDU M OF ASSOCIATION (MOA) TO OPERATE AS AN INVESTMENT COMPANY, INCLUDING BUY, SELL OR OTHER WISE TRADE OR DEAL IN SECURITIES. THE ASSESSEE-COMPANY IS ENGAGED MAINLY IN ADVANCING LOA NS ON INTEREST TO GROUP COMPANIES, WITH THE SHARE CAPITAL SUBSCRIBED TO, AND LOANS ADV ANCED, BY ITS HOLDING COMPANY, KEC INTERNATIONAL LTD., CONSTITUTING ITS PRINCIPAL SOUR CE OF ITS FUNDS. THE ASSESSING OFFICER (A.O.) DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED CERTAIN DISCLAIMERS AND/OR DISQUALIFICATION/S BY ITS AUDITORS IN THEIR AUDIT R EPORT DATED 26.04.2005 ISSUED U/S.217 AND 217(4A) OF THE COMPANIES ACT. EVEN FOR THE EARLIER YEARS, THE COMPANY HAD VIOLATED THE PROVISIONS OF THE COMPANIES ACT, WHICH HAD COME TO SURFACE ON INSPECTION BY THE DEPARTMENT OF COMPANIES AFFAIRS (DCA), AS IN FACT M ENTIONED IN THE NOTES TO ACCOUNTS FORMING PART OF THE ANNUAL ACCOUNTS FOR T HE YEAR ENDING 31.03.2004, WITH THE SAID VIOLATIONS BEING FINALLY DISPOSED OF BY COMPOU NDING THE OFFENCES (NOTE # 12). THE ASSESSEE-COMPANY IN HIS VIEW HAD NOT MAINTAINED ITS ACCOUNTS PROPERLY, AND HAD NOT MADE FULL DISCLOSURES, ACCOUNTING FOR INCOME AT ITS SWEET WILL . THE COMPANY IS FOLLOWING MERCANTILE METHOD OF ACCOUNTING AND OBLIGED TO MAIN TAIN ITS ACCOUNTS FOLLOWING THE PERCEPTS OF COMMERCIAL ACCOUNTING. IT THEREFORE IS REQUIRED TO MAINTAIN ITS ACCOUNTS FOLLOWING THE ESTABLISHED PRINCIPLES OF ACCOUNTANCY AS ALSO THE APPLICABLE ACCOUNTING STANDARDS. THE TAXABILITY OF INCOME DEPENDS NOT ON THE GUIDELINES ISSUED BY RESERVE BANK OF INDIA (RBI), EVEN ASSUMING THE SAME TO HAVE BEEN FOLLOWED, BUT ON THE PROVISIONS OF THE ACT (REFER PG.2 OF THE ASSESSMENT ORDER). THAT IS, THE RBI GUIDELINES TO THE EXTENT INCONSISTENT WITH THE PROVISIONS OF THE ACT, WILL NOT OBTAIN . THESE DIFFERENCES, RESOLUTION OF WHICH WOULD BE ONLY WITH REFERENCE TO THE APPLICABLE PROVISIONS OF THE ACT, AS WELL AS THE APPLICABLE CASE LAW, CONSTITUTE THE SUBSTANCE OF THE DISPUTES ARISING IN ITS ASSESSMENT. WE SHALL PROCEED GROUND-WISE. 3. GROUND-II; THE FIRST GROUND BEING NOT PRESSED, B EING OTHERWISE GENERAL IN NATURE, WARRANTING NO ADJUDICATION, IS QUA THE WAIVER OF ACCRUED INTEREST AMOUNTING TO RS.1 7.37 3 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT LACS. THE RELEVANT DISCUSSION IS AT PARA 8.14 READ WITH PARA 8.20 OF THE ASSESSMENT ORDER. INTER CORPORATE DEPOSIT (ICD) OF RS.80 LACS WAS GIV EN TO ONE, M/S. GANPATI SUGAR LTD. AS PER NOTE 3(C) OF SCHEDULE L TO THE BALANCE SHEET (NOTES TO THE ACCOUNTS NTA FOR SHORT), THE AMOUNT OUTSTANDING IN ACCOUNT WAS AT RS .83 LACS, INCLUDING RS.3 LACS BY WAY OF INTEREST ACCOUNTED FOR DURING THE YEAR. THE SAID ASSET FALLING UNDER THE CATEGORY OF DOUBTFUL ASSETS AS PER THE PRUDENTIAL NORMS PRESCRI BED BY RESERVE BANK OF INDIA (RBI), THE COMPANY ENTERED INTO A SETTLEMENT FOR REPAYMENT OF THE AMOUNT OUTSTANDING. ACCORDINGLY, THE OUTSTANDING BALANCE WAS CONVERTED INTO EQUITY CAPITAL IN THE INVESTEE- COMPANY, I.E., 8.30 LAC SHARES @ RS.10/- EACH. OF T HE INTEREST ARISING IN ACCOUNT FOR THE CURRENT YEAR, THE SAME STANDS ACCOUNTED FOR TO THE EXTENT OF RS.1.48 LACS, WHILE THE BALANCE RS.17.37 LACS WAS WAIVED. IN THE VIEW OF TH E ASSESSING AUTHORITY WHAT HAD BEEN WAIVED WAS NOT INCOME, WHICH HAD ALREADY ACCRUED, B UT THE RIGHT OF THE RECOVERY, WHICH HAD ALREADY VESTED IN THE ASSESSEE. THE AMOUNT HAD NOT BEEN ESTABLISHED AS BAD OR IRRECOVERABLE. THE ASSESSEES CLAIM OF THE WAIVER B EING A PART OF THE SETTLEMENT (FOR THE RECOVERY OF THE OUTSTANDING) WAS CONSIDERED BY HIM AS ONLY AN ARTIFICE TO DEFRAUD THE REVENUE. IN APPEAL, THE LD. CIT(A) DECIDED THE MATTER ON FI RST PRINCIPLES. THE TAXABILITY OF INCOME ARISES NOT MERELY ON ITS RECEIPT, BUT ALSO O N ITS ACCRUAL, SO THAT WAIVER AFTER ACCRUAL WOULD BE TO NO CONSEQUENCE ( CIT VS. SHIV PRAKASH JANAK RAJ AND CO. PVT. LTD. [1996] 222 ITR 583 (SC)). INCOME IS SAID TO HAVE ACCRUED W HEN IT BECOMES LEGALLY RECOVERABLE, I.E., WHEN THE ASSESSEE IS INVESTED WITH THE LEGAL RIGHT TO RECEIVE IT [ MORVI INDUSTRIES LTD. VS. CIT [1971] 82 ITR 835 (SC) AND CIT VS. THIAGARAJA CHETTY (K.R.M.T.T.) AND CO. [1953] 24 ITR 525 (SC)]. RELINQUISHMENT OR WAIVER OF INCOME AFTER ITS ACCRUAL WOULD, THUS, AMOUNT TO A MERE APPLICATION OF INCOME AND NO T A CHARGE ON THE PROFIT. FOR THIS PROPOSITION HE RELIED ON THE DECISION IN THE CASE O F CIT VS. CONFINANCE LTD. [1973] 89 ITR 292 (BOM) AND CIT VS. SHRIMATI SINGARI BAI [1945] 13 ITR 224 (ALL), WHICH STAND NOTED AND APPROVED BY APEX COURT IN STATE BANK OF TRAVANCORE VS. CIT [1986] 158 ITR 102 (SC), SUBSEQUENTLY FOLLOWED BY IT IN SHIV PRAKASH JANAK RAJ AND CO. PVT. LTD. (SUPRA). REFERENCE WAS ALSO MADE BY HIM TO THE DECISIONS BY THE TRIBUNAL. 4 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IALS ON RECORD AS WELL AS THE DECISIONS RELIED UPON BY THEM, INCLUDING THOSE CITE D AT BAR. BEFORE WE MAY PROCEED TO DISCUSS THE RELEVANT FACTS, WE CONSIDER IT NECESSAR Y AND RELEVANT TO DELINEATE THE LAW IN THE MATTER IN SOME DETAIL. THIS IS AS MOST OF THE ISSUE S ARISING IN THIS APPEAL RELATE TO SUCH LIKE ADJUSTMENTS, WITH THE ASSESSEE CONTENDING OF NON AC CRUAL OF INCOME, BASING ITS CASE ON THE THEORY OF REAL INCOME, WITH IN FACT THE GUIDELI NES/NORMS PRESCRIBED BY RBI BEING BINDING ON IT, WHILE THE REVENUE CONTENDS OF IT TO HAVE ACCRUED, SO THAT THE ASSESSEE WAS IN FACT PLAYING TRUANT, AND HAVING ADOPTED A DEVICE TO DISCLOSE LOWER INCOME WITHOUT ANY OBJECTIVE BASIS. THE CONTROVERSY 5. THE CONTROVERSY ARISING FOR CONSIDERATION AN D DETERMINATION IN THE PRESENT CASE IS WHETHER NON-RECOGNIZING INTEREST INCOME ON NPAS BY THE ASSESSEE-BANK FOLLOWING RBI GUIDELINES, AS A MATTER OF ACCOUNTING POLICY, WOULD BY ITSELF CONSTITUTE A SUFFICIENT GROUND FOR NOT INCLUDING THE SAID INTEREST IN THE COMPUTAT ION OF TOTAL INCOME UNDER THE ACT ON THE BASIS OF ITS NON-RECEIPT; THE ADOPTED METHOD OF ACC OUNTING BEING ADMITTEDLY MERCANTILE? DISCUSSION 6.1 INTEREST INCOME ACCRUES, UNDER MOST CIRCUMS TANCES, ON THE BASIS OF TIME; INTEREST, BY DEFINITION, BEING A CHARGE TOWARD THE OPPORTUNIT Y (OR TIME) COST OF FUNDS PLACED AT THE DISPOSAL OF THE BORROWERUSER. IN FACT, THE RATE OF INTEREST IS ITSELF STATED IN TERMS OF PER UNIT OF TIME. SO HOWEVER, IT MAY WELL BE THAT DESPI TE LAPSE OF TIME, SO THAT INTEREST IS CONTRACTUALLY DUE, THE LENDER CONSIDERS IT AS HAVIN G NOT ACCRUED FOR THE REASON THAT THERE IS CONSIDERABLE UNCERTAINTY WITH REGARD ITS REALIZABIL ITY. IN FACT, THERE COULD ARISE SITUATIONS WHERE EVEN THE PRINCIPAL SUM, I.E., ON AND IN RESPE CT OF WHICH INTEREST INCOME IS BEING CHARGED, IS DOUBTFUL OF RECOVERY. COULD, IN SUCH A CASE, INTEREST INCOME BE SAID TO HAVE ARISEN OR ACCRUED MERELY FOR THE REASON THAT TIME H AS ELAPSED OR THE LENDER HAS PASSED AN ACCOUNTING ENTRY IN ITS RESPECT IN HIS ACCOUNTS? SU RELY NOT. ACCRUAL (OR OTHERWISE) OF INCOME (OR EXPENDITURE) IS A MATTER OF FACT, AND TH E SYSTEM OF ACCOUNTING FOLLOWED DOES NOT GENERATE INCOME, BUT MERELY RECOGNIZES IT, I.E. , BRINGS AN INCOME, OR AN EXPENDITURE 5 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT FOR THAT MATTER, ALREADY ACCRUED, ON RECORD/BOOKS . THIS IN SUM REPRESENTS WHAT IS ALSO REFERRED TO AS THE REAL INCOME THEORY, I.E., INCOME OR PROFIT ARRIVED AT ON THE BASIS OF AND FOLLOWING THE PRINCIPLES OF COMMERCIAL ACCOUNTING, WHICH PROVIDES FOR DUE CREDENCE TO WHAT THE TRADER OR THE BUSINESSMAN CONSIDERS AS HAV ING INURED TO HIM, I.E., APART FROM THE LEGAL RIGHTS. THE SAME WOULD OF COURSE BE SUBJECT T O THE PROVISIONS OF THE INCOME-TAX ACT, SO THAT WHERE A PROVISION OF THE ACT IMPINGES ON A PARTICULAR INCOME OR EXPENDITURE, THE SAME WOULD PREVAIL AND BE GIVEN EFFECT TO. THE CASE LAW IN THE MATTER IS LEGION, WITH THE SAME HAVING BEEN CONFIRMED BY THE HONBLE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JT. CIT [2010] 320 ITR 577 (SC) CITED BY THE REVENUE, EVEN AS OBSERVED BY THE HONBLE COURT IN THE CASE OF CIT VS. VASISTH CHAY VYAPAR LTD. [2011] 330 ITR 440 (DEL), RELIED UPON BY THE ASSESSEE. 6.2 WHAT, THEN, IS THE CONTROVERSY ABOUT ? SECTION 145 OF THE ACT MANDATES COMPUTATION OF INCOME CHARGEABLE TO TAX UNDER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION OR `INCOME FROM OTHER SOURCES IN ACCORDANCE WITH E ITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE, AND IN ACCORD WITH ACCOUNTING STANDARDS NOTIFIED BY THE CENTRAL GOVERNMENT U/S. 145(2) OF T HE ACT. THE CENTRAL GOVERNMENT HAS NOTIFIED TWO ACCOUNTING STANDARDS, BEING AS-I AND A S-II, U/S. 145(2). AS-I EMPHASIZES THAT THE ACCOUNTING POLICIES TO BE ADOPTED BY AN AS SESSEE SHOULD BE SUCH SO AS TO REPRESENT A TRUE AND FAIR VIEW OF THE STATE OF AFFAIRS OF HIS BUSINESS. FURTHER, THAT THE FINANCIAL STATEMENTS ARE BASED ON THE FUNDAMENTAL ACCOUNTING ASSUMPTIONS OF GOING CONCERN, CONSISTENCY AND ACCRUAL; PREPARED AND PRESENTED CONFORMING TO THE CONSIDERATIONS OF PRUDENCE , SUBSTANCE OVER FORM AND MATERIALITY . PRUDENCE ENVISAGES PROVISION FOR ALL KNOWN LIABILITIES AND LOSSES, EVEN THOUGH THE AMOUN T THEREOF CANNOT BE DETERMINED WITH CERTAINTY, AND REPRESENTS A BEST ESTIMATE IN LIGHT OF THE INFORMATION AVAILABLE. AS-II MANDATES THAT ANY CHANGE IN ITS ACCOUNTING POLICY B Y AN ENTERPRISE SHALL BE MADE ONLY WHERE THE ADOPTION OF A DIFFERENT POLICY IS REQUIRE D BY THE STATUTE OR WHERE THE CHANGE WOULD RESULT IN A MORE APPROPRIATE PRESENTATION OF ITS FINANCIAL STATEMENTS BY AN ASSESSEE. 6 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT 6.3 EXAMINING THE ASSESSEES ACCOUNTING POLICY OF RECOGNITION OF INCOME ON NPAS SUBJECT TO REALIZATION, WE FIND THE SAME TO BE, FIR STLY, RATHER, IN SATISFACTION OF THE MANDATE OF PRUDENCE INASMUCH AS, WITHOUT DOUBT, WHERE REALIZABILITY IS CHARACTERIZED BY UNCERTAINTY, INCOME CANNOT BE SAID TO HAVE ACCRUED . AS LONG AS A REASONABLE CERTAINTY (AS TO ULTIMATE REALIZABILITY) CANNOT BE ENTERTAINED AT THE TIME OF RAISING A CLAIM, IT WOULD BE FUTILE TO SUGGEST OR CONTEND THAT THE UNDERLYING IN COME HAS ACCRUED. AND, AS SUCH, IT WOULD ONLY BE PRUDENT TO POSTPONE RECOGNITION OF IN COME TO THE POINT IN TIME OF REALIZABILITY OR TILL THE TIME THE UNCERTAINTY IS R ESOLVED, AND TO THE EXTENT IT IS. IF THAT BE SO, WE DO NOT THINK IT NECESSARY TO EXAMINE THE QUESTIO N OF SATISFACTION OF THE CONDITION OF CHANGE IN AN ACCOUNTING POLICY IN TERMS OF AS-II; T HE ASSESSE HAVING OSTENSIBLY ADOPTED THIS POLICY ONLY FROM THE CURRENT YEAR INASMUCH AS THE NPA NORMS STOOD REVISED. THIS IS AS AN ACCOUNTING POLICY THAT IS PRUDENT CAN ONLY BE REGARDED AS MERITORIOUS AND IN ACCORD WITH THE MANDATE OF THE ACT ITSELF. SO, HOWEVER, THE MOOT QUESTION THAT ARISES FOR BEIN G ANSWERED, IS WHETHER IT COULD AT ALL BE STATED, AS A MATTER ACCOUNTING POLICY, THAT IT WOULD BE UNREASONABLE TO EXPECT ULTIMATE COLLECTION IN RE SPECT OF AN NPA ? THAT IS, WHETHER THE CHARACTERIZATION OF AN ACCOUNT AS A NPA IS ITSELF S UFFICIENT TO BESTOW UNCERTAINTY AS REGARDS REALIZABILITY OF INCOME ARISING THEREON? TH OUGH THE ASSESSMENT AS TO WHETHER IT WOULD BE REASONABLE TO EXPECT ULTIMATE COLLECTION I S ESSENTIALLY THE JOB OF THE MANAGEMENT, SO THAT IT WOULD NORMALLY BROOK NO INTE RFERENCE, PARTICULARLY SO WHERE IT IS BASED ON SOME OBJECTIVE CRITERIA, AS THE ASSET BEIN G A NPA IN THE INSTANT CASE, WE DO NOT THINK THAT IT COULD BE STATED AS A MATTER POLICY TH AT IT WOULD BE UNREASONABLE TO EXPECT REALIZATION WHERE THE ACCOUNT IS A NPA. THIS IS AS THE SAME IS QUINTESSENTIALLY A MATTER OF FACT, INVOLVING A FINDING OF FACT, TO BE DETERMINED ON THE BASIS OF THE UNDERLYING CRITERIA, I.E., UNCERTAINTY OR OTHERWISE QUA REALIZATION . IN A GIVEN CASE, THE NON-PERFORMING ASSET (NPA) MAY BE BACKED BY ADEQUATE AND SUFFICIENT SECU RITY, SO THAT THERE IS NO REASONABLE UNCERTAINTY OR, PER CONTRA, THERE IS REASONABLE CER TAINTY OR EXPECTATION WITH REGARD TO THE ULTIMATE REALIZABILITY OF INCOME AND, AS SUCH, THE SAME CANNOT BE SAID TO HAVE NOT ACCRUED. IN ANOTHER CASE, THE NPA MAY BE INSURED OR BACKED B Y A GUARANTEE BY A SOUND PERSON OR OTHERWISE SECURED. SIMILARLY, A BORROWER MAY BE PER FORMING WELL, THOUGH FACING A TIGHT 7 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT LIQUIDITY POSITION FOR THE TIME BEING, LEADING TO T HE NON-SERVICING OF ITS ACCOUNT. IN ALL SUCH CASES, COULD IT (REASONABLY) BE SAID THAT IT I S NOT REASONABLE TO EXPECT COLLECTION AS INTEREST COULD NOT BE SERVICED FOR THE PAST 90 DAYS , WHICH IS THE PERIOD OF DELINQUENCY FOR AN ACCOUNT TO BE CHARACTERIZED AS A NPA ? WE THINK NOT. AS SUCH, WHILE WE ARE IN AGREEMENT WITH THE VALIDITY OF AN ACCOUNTING POLICY CONFORMING TO THE PRINCIPLE OF PRUDENCE, IN OUR OPINION IT CANNOT BE SAID SO OF ON E WHICH MANDATES NON-RECOGNITION OF INCOME SOLELY ON THE BASIS OF AN ACCOUNT BEING A NP A IN VIEW OF THE OTHER FACTORS HAVING A BEARING ON THE ACCRUAL. IT WOULD BE A DIFFERENT M ATTER WHERE THE POLICY IS STATED IN MORE BROAD TERMS, AS (SAY) WHERE IN THE OPINION OF THE M ANAGEMENT NO REASONABLE CERTAINTY EXISTS (I.E., ON THE ASSESSMENT OF THE OBTAINING FA CTS AND CIRCUMSTANCES) AS TO THE REALIZABILITY OF THE PRINCIPAL AND INCOME. HOWEVER, WHEN INCOME IS NOT TAKEN INTO ACCOUNT SOLELY ON THE GROUND OF THE ACCOUNT BEING A NPA, DE HORS THE OTHER RELEVANT FACTS AND CIRCUMSTANCES, IT MAY LEAD TO AN INCONGRUITY, A S WHERE THE SAME SUGGEST OTHERWISE. IT WOULD, NEVERTHELESS, STILL BE WITHIN THE COMPETENCE OF THE MANAGEMENT TO FOLLOW THE SAME AS AN ACCOUNTING POLICY, FOR WHICH IT MAY HAVE ITS OWN REASONS, AS (SAY) THE BINDING NATURE OF THE GUIDELINES BY RBI. THE SAME, HOWEVER, COULD NOT BE SAID TO BE IN CONFORMITY WITH SECTION 145 OF THE ACT OR AS BINDIN G ON THE INCOME TAX AUTHORITIES, WHO ARE OBLIGED TO EXAMINE THE ACCEPTABILITY OF THE ASS ESSEES CLAIM/S WITH REFERENCE TO THE APPLICABLE PROVISIONS OF THE ACT. WHERE, ON THE BAS IS OF THE SAID EXAMINATION, IT IS FOUND THAT A REASONABLE UNCERTAINTY WITH REGARD TO ANY OF THE NPA ACCOUNTS EXISTS, THE ASSESSEEES CLAIM WOULD STAND TO BE ACCEPTED TO THA T EXTENT, ELSE NOT. THAT IS, IT IS PURELY A QUESTION OF FACT AND, RESULTANTLY, TO BE DECIDED ON THE BASIS OF A FINDING OF FACT . 6.4 THIS, I.E., THE AFORESAID, IS PRECISELY WHAT TH E HONBLE APEX COURT HAS ENDORSED AND CLARIFIED IN THE CASE OF SOUTHERN TECHNOLOGIES LTD . (SUPRA), AND FOR WHICH REFERENCE MAY BE MADE TO ITS JUDGMENT, ORGANIZED UNDER THE DIFFER ENT SUB-HEADS, TO SOME OF WHICH MAY REFER AS UNDER, IN THE CONTEXT OF THE CONTROVERSY I N THE PRESENT CASE: (1) REASONS FOR RBI DIRECTIONS, 1998 IT NEEDS TO BE EMPHASIZED THAT THE RBI DIRECTIONS ARE ONLY DISCLOSURE NORMS. THEY HAVE NOTHING TO DO WITH COMPUTATION OF TOTAL TAXABLE INC OME UNDER THE INCOME-TAX ACT OR WITH 8 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT THE ACCOUNTING TREATMENT. THE RBI DIRECTIONS ONLY L AY DOWN THE MANNER OF PRESENTATION OF NPA PROVISION IN THE BALANCE SHEET OF AN NBFC. [PARA 21, PG.603] (2) ANALYSIS OF PARAGRAPH 9 OF THE RBI DIRECTIONS, 199 8 THE NBFCS HAVE TO ACCEPT THE CONCEPT OF INCOME A S EVOLVED BY THE RBI AFTER DEDUCTING THE PROVISION AGAINST NPA, HOWEVER, AS ST ATED ABOVE, SUCH TREATMENT IS CONFINED TO PRESENTATION/DISCLOSURE AND HAS NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME UNDER THE INCOME-TAX ACT. [PARA 24, PG.603] (3) DEVIATIONS BETWEEN RBI DIRECTIONS, 1998 AND THE COM PANIES ACT IT STANDS EXPLAINED BY THE APEX COURT THAT THE DEVI ATIONS UNDER THE RBI DIRECTIONS WITH THE PROVISIONS OF THE COMPANIES ACT ARE DELIBERATE AND CONTEXTUAL, SERVING A DIFFERENT PURPOSE. THE ACCOUNTING TREATMENT PRESCRIBED BY THE SAID DIRECTIONS, MAY NOT NECESSARILY AGREE WITH THE MERCANTILE SYSTEM OF ACCOUNTING, WOU LD THOUGH OVERRIDE THE PROVISIONS OF THE COMPANIES ACT. IN ITS WORDS: BEFORE CONCLUDING ON THIS POINT, WE NEED TO EMPHAS ISE THAT THE 1998 DIRECTIONS HAS NOTHING TO DO WITH THE ACCOUNTING TREATMENT OR TAXA BILITY OF INCOME UNDER THE INCOME- TAX ACT. THE TWO, VIZ., INCOME-TAX ACT AND THE 1998 DIRECTIONS OPERATE IN DIFFERENT FIELDS. AS STATED ABOVE, UNDER THE MERCANTILE SYSTEM OF ACC OUNTING, INTEREST/HIRE CHARGES INCOME ACCRUES WITH TIME. IN SUCH CASES, INTEREST IS CHARG ED AND DEBITED TO THE ACCOUNT OF THE BORROWER AS INCOME IS RECOGNIZED UNDER ACCRUAL SY STEM. HOWEVER, IT IS NOT SO RECOGNIZED UNDER THE 1998 DIRECTIONS AND, THEREFORE , IN THE MATTER OF ITS PRESENTATION UNDER THE SAID DIRECTIONS, THERE WOULD BE AN ADD BA CK BUT NOT UNDER THE INCOME-TAX ACT NECESSARILY. [PARA 31, PG.606] (4) SCOPE AND APPLICABILITY OF RBI DIRECTIONS, 1998 THE NATURE OF EXPENDITURE UNDER THE INCOME-TAX ACT CANNOT BE CONCLUSIVELY DETERMINED BY THE MANNER IN WHICH ACCOUNTS ARE PRESENTED IN TE RMS OF THE 1998 DIRECTIONS. THEREFORE, IN OUR VIEW, RBI DIRECTIONS, 1998, THOUG H DEVIATE FROM ACCOUNTING PRACTICE AS PROVIDED IN THE COMPANIES ACT, DO NOT OVERRIDE THE PROVISIONS OF THE INCOME-TAX ACT. [PARA 33, PG.607] . SUCH PRESENTATION WILL NOT BIND THE AUTHORITY UNDER THE INCOME-TAX ACT. ULTIMATELY, THE NATURE OF TRANS ACTION HAS TO BE EXAMINED. IN EACH CASE, THE AUTHORITY HAS TO EXAMINE THE NATURE OF EX PENSE/LOSS IN THE FINANCIAL STATEMENTS OF THE NBFC IN TERMS OF THE 1998 DIRECTIONS. THEREFORE , IN OUR VIEW, THE RBI DIRECTIONS 1998 AND THE INCOME-TAX ACT OPERATE IN DIFFERENT FI ELDS. [PARA 33, PGS. 607,608] (5) THEORY OF REAL INCOME AGAIN, QUOTING FROM ITS DECISIONS IN THE CASE OF POONA ELECTRICAL CO. LTD . V. CIT (1965) 57 ITR 521 (SC) (AT PAGE 530), THE HONBLE APEX COU RT EMPHASIZES THAT INCOME-TAX IS A 9 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT TAX ON `REAL INCOME, I.E., THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE INCOME-TAX ACT. TO QUOTE A PART O F THE RELEVANT PARA: THEREFORE, SUBJECT TO THE REQUIREMENTS OF THE INCO ME-TAX ACT, THE PROFITS TO BE ASSESSED UNDER THE INCOME-TAX ACT HAVE GOT TO BE REAL PROFIT S WHICH HAVE TO BE COMPUTED ON ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING. IN OT HER WORDS, PROFITS HAVE GOT TO BE COMPUTED AFTER DEDUCTING LOSSES/EXPENSES INCURRED F OR BUSINESS, EVEN THOUGH SUCH LOSSES/EXPENSES MAY NOT BE ADMISSIBLE UNDER SECTION S 30 TO 43D OF THE INCOME-TAX ACT, UNLESS SUCH LOSSES/EXPENSES ARE EXPRESSLY OR BY NEC ESSARY IMPLICATION DISALLOWED BY THE ACT. [REFER PARAS 34 TO 39, PGS. 608,609] (6) APPLICABILITY OF SECTION 145 AT THE OUTSET, WE MAY STATE THAT IN ESSENCE THE RB I DIRECTIONS, 1998 ARE PRUDENTIAL/PROVISIONING NORMS ISSUED RBI UNDER CHAP TER III-B OF THE RBI ACT, 1934. THESE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITIO N. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOUNTS. THEY FORCE THE NBFCS TO REFLECT TRUE AND CORRECT PROFITS. .. HOWEVER, THESE DIRECTIONS 1998 AND THE INCOME-TAX A CT OPERATE IN DIFFERENT AREAS. THESE DIRECTIONS 1998 HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME..THE ACCOUNTING POLICIES ADOPTED BY AN NBFC CANNOT DETERMINE THE TAXABLE INCOME. [PARA 40, PG. 610] IT IS THUS ABUNDANTLY CLEAR THAT THE RBI DIRECTION S 1998, WHICH ARE BINDING ON THE NBFCS IN VIEW OF S.45JA OF THE RBI ACT, 1934, ARE O NLY DISCLOSURE AND PRESENTATION REQUIREMENTS, SETTING FORTH THE PRUDENTIAL NORMS FO R BEING FOLLOWED BY THEM, ISSUED BY THE RBI IN PUBLIC INTEREST AND/OR TO REGULATE THE F INANCIAL SYSTEM OF THE COUNTRY. THE SAME, THOUGH INCONSISTENT AND, THUS, OVERRIDING THE PROVISIONS OF THE COMPANIES ACT, 1956, IN VIEW OF SECTION 45Q OF THE RBI ACT, SO THA T THE SAME WOULD PREVAIL, ARE NOT IN CONFLICT WITH THE PROVISIONS OF THE ACT, WHICH ARE TOWARD DETERMINATION OF TOTAL INCOME UNDER THE ACT. THE SAID NORMS OR DIRECTIONS HAVE NO THING TO DO WITH THE COMPUTATION OF THE TAXABLE INCOME UNDER THE ACT. THAT IS, THE TWO OPERATE IN DIFFERENT FIELDS. IN FACT, THESE TWO OBSERVATIONS/FINDINGS BY THE APEX COURT, I.E., OF THE SAID DIRECTIONS HAVING NOTHING TO DO WITH THE COMPUTATION OF TAXABLE INCOME UNDER THE ACT; THE TWO BEING IN A DIFFERENT AREAS, ARE ALL PERVASIVE IN THE SAID ORDER, HAVING BEEN REPEATED A NUMBER OF TIMES IN THE JUDGMENT, VIZ. PARA 21/PG. 603, PARA 22/PG.603, PAR A 24/PG.603, PARA 26/PG.604, PARA 10 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT 28/PG.605, PARA 31/PG.606, PARA 32/PG.607, PARA 33/ PG.607, 608, PARA 38/PG.609, PARA 39/PG.609 & PARA 40/PG.610 (OF THE REPORT). FURTHER, IT IS ALSO PATENT THAT THE HONBLE APEX C OURT, VIDE ITS SAID JUDGMENT, CONSIDERED NOT ONLY THE PROVISIONING NORMS FOR NPA ACCOUNTS, BUT ALSO THAT QUA INCOME RECOGNITION, INCLUDING THE CONTENTIONS RAISED WITH RESPECT TO `REAL INCOME THEORY. TRUE, NO DOUBT, AS OBSERVED IN THE CASE OF VASISTH CHAY VYAPAR LTD . (SUPRA), THE HONBLE APEX COURT WAS SEIZED WITH THE ISSUE OF PROVISION FOR BA D AND DOUBTFUL DEBTS IN RESPECT OF NPA ACCOUNTS, AND NOT INCOME NOT BROUGHT ON BOOKS ON TH E BASIS OF NON-ACCRUAL, WITH THE AO HAVING IN FACT ACCEPTED THE ASSESSEES CLAIM TOWARD NON-RECOGNITION OF INTEREST FOR RS.20.34 LAKHS, THE SAID DECISION, AS WOULD BE APPA RENT FROM A READING THEREOF, AS WELL AS THE FOREGOING, DEALS WITH THE LATTER ASPECT, I.E., INCOME RECOGNITION NORMS AS SPELT OUT BY THE RBI, AS WELL. VIDE PARAGRAPH 31 (PAGE 606) OF I TS DECISION IT CLARIFIES, IN NO UNCERTAIN TERMS, ONCE MORE, THAT THE RBIS DIRECTIONS AND THE ACT OPERATE IN DIFFERENT FIELDS. AND, FURTHER, THAT THE ASSESSEE HAS TO PROVE, IN EACH CA SE, THAT INTEREST NOT RECOGNIZED OR TAKEN INTO ACCOUNT WAS IN FACT DUE TO UNCERTAINTY IN COLL ECTION OF INCOME, AND IT WAS FOR THE AO TO ACCEPT THE ASSESSEES SAID CLAIM UNDER THE ACT O R NOT TO . IN FACT, PER SECTION 43D R/W RULES 6EA/6EB, THE ACT HAS ADDRESSED THIS ISSUE, I. E., INCOME RECOGNITION NORMS FOR SCHEDULE BANKS AND FINANCIAL INSTITUTIONS, COMPREHE NSIVELY, PROVIDING A COMPLETE FRAMEWORK FOR IDENTIFICATION OF BAD AND DOUBTFUL DE BT ASSETS FOR THE PURPOSE OF INCOME RECOGNITION. THEREBY, THUS, DOVETAILING AND ALIGNIN G THE REQUIREMENTS OF THE ACT WITH THE GUIDELINES ISSUED AND THE PARAMETERS PRESCRIBED FOR THE PURPOSE BY THE RBI/NHB. THE SAME LISTS THE CATEGORY OF NPA ACCOUNTS ONLY IN THE CASE OF PUBLIC COMPANIES (COVERED UNDER RULE 6EB), AND THAT TOO WHERE THE ACCOUNT HAS REMAINED A NPA (ALSO DEFINED THERE-UNDER) FOR A PERIOD EXCEEDING TWO YEARS. IN F ACT, EVEN SECTION 43D GIVES PRIMACY TO THE BANKS ACCOUNTS, SO THAT WHERE INTEREST STANDS CREDITED TO THE PROFIT AND LOSS ACCOUNT FOR A PARTICULAR YEAR, THE SAME IS TO BE TREATED AS ITS INCOME FOR THAT YEAR EVEN WHERE NOT RECEIVED. WE ARE NOW IN A POSITION TO ANSWER THE QU ESTION POSED AT THE BEGINNING OF OUR DISCUSSION (REFER PARA 5 ABOVE). THE ANSWER IS CLEA RLY IN THE NEGATIVE. 11 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT 6.5 COMING BACK TO THE FACTS OF THE RELEVANT GROUND , BEING GROUND II, IN OUR VIEW, NOTWITHSTANDING THAT THE CASE LAW RELIED UPON BY TH E REVENUE STATES THE CORRECT POSITION OF LAW, THE REVENUES CASE IS INCONSISTENT WITH THE FACTS OF THE CASE. THIS IS AS, AS WE UNDERSTAND, THE INTEREST ON THE ICDS (OF RS.80 LACS ) WAS NOT FORTHCOMING FROM THE BORROWER. IT WAS UNDER THESE CIRCUMSTANCES THAT A S ETTLEMENT WAS ARRIVED AT BETWEEN THE PARTIES, WHEREBY WHILE THE ASSESSEE WAIVED THE INTE REST RECEIVABLE TO THE EXTENT OF RS. 17.37 LACS, THE BORROWER ISSUED IT SHARES FOR THE B ALANCE AMOUNT DUE, I.E., RS.83 LACS. ANY LENDER, FOR WHOM INTEREST INCOME IS A PRIMARY SOURC E OF INCOME, WOULD RESORT TO SUCH A MEASURE ONLY WITH A VIEW TO SAFEGUARD HIS CAPITAL, I.E., AS A MEASURE OF LAST RESORT. THIS IS AS THIS WOULD PUT A STOP TO ITS REGULAR SOURCE OF I NCOME; THE DIVIDEND INCOME ON THE SHARES BEING UNCERTAIN AND, IN ANY CASE, WOULD ARIS E ONLY SUBJECT TO ADEQUATE PROFITS BEING EARNED BY THE BORROWER, AND THEN, AGAIN, ONLY AT TH E DISCRETION OF THE MANAGEMENT. IN FACT, IT NEEDS TO BE APPRECIATED THAT THIS AMOUNTS TO CONVERSION OF A TRADING ASSET (INTEREST BEARING ADVANCE) TO A CAPITAL ASSET, WITH AN UNCERT AIN REMUNERATIVE POTENTIAL, WHICH IS NEITHER AN EASY NOR A DESIRABLE PROPOSITION FOR ANY BUSINESS ENTERPRISES. FURTHER, ON WHAT BASIS DOES THE REVENUE STATE IT TO BE A DEVICE (FOR TAX AVOIDANCE) IS NOT UNDERSTOOD, AND WHICH ALLEGATION CANNOT BE LIGHTLY MADE. IN FACT, T HE BORROWER ALSO WOULD NOT BOOK THE LIABILITY TO THIS EXTENT, SO THAT UNTIL AND UNLESS THE TRANSACTION IS NOT GENUINE WOULD NOT BE ENTERED INTO. IN ANY CASE, SUCH AN ALLEGATION HAS T O HAVE ITS BASIS IN FACT/S AND SUPPORT OF MATERIALS, WHILE WE FIND IT TO BE DE HORS ANY BASIS. AS SUCH, WE ARE UNABLE TO APPRECIATE THE REVENUES CASE. AT THE SAME TIME, THERE IS NO F INDING BY EITHER OF THE AUTHORITIES BELOW THAT THE BORROWER HAS NOT BOOKED THIS LIABILI TY IN ITS ACCOUNTS. THIS IS FUNDAMENTAL TO THE VALIDITY OF THE FINANCIAL ARRANGEMENT UNDER REFERENCE. THE ASSESSEE HAS ALSO IN FACT NEITHER CLAIMED SO, I.E., OF THE BORROWER HAVING NO T BOOKED THE LIABILITY TO INTEREST, OR OF HAVING AFTER BOOKING REVERSED IT PURSUANT TO THIS A RRANGEMENT, NOR PLACED THE SETTLEMENT AGREEMENT ON RECORD. AS SUCH, SUBJECT TO THE CONFIR MATION OF THE BORROWER HAVING NOT BOOKED THIS LIABILITY IN ITS ACCOUNTS, I.E., TOWARD INTEREST FOR RS. 17.37 LACS, WE CONFIRM THE NON ACCRUAL OF THE SAME AS INCOME TO THE ASSESSEE F OR THE YEAR. WE DECIDE ACCORDINGLY. 12 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT 7. THE NEXT GROUND, GD.III, IS IN RESPECT OF CONFIR MATION OF THE ADDITION IN THE SUM OF RS.133.99 LACS, OF INTEREST ON NON PERFORMING ASSET S ON THE GROUND OF THE SAME HAVING ACCRUED. THE ASSESSEES CASE BEFORE THE AUTHORITIES BELOW WAS THAT IT WAS FOLLOWING THE PRUDENTIAL NORMS PRESCRIBED BY RBI, WHICH ARE BINDI NG ON IT. THE SAME PRESCRIBE NON ACCOUNTING OF INCOME ON NON PERFORMING ASSETS (NPA) , WHERE NOT RECEIVED. AS SUCH, WHERE THE INTEREST HAS NOT BEEN RECEIVED FOR THE PE RIOD OF SIX MONTHS AS AT THE CLOSE OF THE YEAR, NO INTEREST INCOME IS BOOKED, WHICH WOULD ONL Y BE ON ITS RECEIPT. THE LD. CIT(A) HAS, IN CONFIRMING THE ADDITION, WHICH IS COMPRISED OF TWO SUMS OF RS.116.96 LACS (AGAINST ADVANCES FOR RS.97.32 LACS) AND RS.17.03 L ACS, RELIED ON THE DECISION IN THE CASE OF STATE BANK OF TRAVANCORE VS. CIT [1986] 158 ITR 102; CIT VS. ASHOKBHAI CHIMANBHAI [1965] 56 ITR 42 AND UIKAM INVESTMENT & FINANCE [2005] 195 ITR 97 (DEL), BESIDES BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF NEW INDIA INDUSTRIES LTD. VS. ASST. CIT [2007] 112 TTJ 917 (DEL) (SB) (18 SOT 51), I.E., A S WERE RELIED UPON BY HIM WHILE DECIDING THE ASSESSEES APPEAL FOR A.Y . 2003-04. 8. BEFORE US, IT WAS SUBMITTED BY THE LD. AR THAT T HE MATTER STANDS SETTLED, AS FAR AS THE TRIBUNAL IS CONCERNED, BY ITS ORDERS IN THE ASS ESSEES OWN CASE FOR A.Y. 2003-04 (IN ITA NO.3734/MUM/2009 DATED 22.07.2011) AND A.Y. 200 4-05 (IN ITA NO.3735/MUM/2009 DATED 03.04.2012), WHEREAT, SIMILA RLY, THE INTEREST STATED TO HAVE ACCRUED ON NPAS STANDS DELETED, PLACING THE COPIES OF THE SAID ORDERS ON RECORD. THE LD. DR, ON THE OTHER HAND, WOULD RELY ON THE ORDERS OF THE AUTHORITIES BELOW, AS WELL AS BY THE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA). THE LD. AR, IN REJOINDER, WOULD FURTHER SUBMIT THAT THE DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) STANDS CONSIDERED BY THE HONBLE DELHI HIGH COURT I N THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPRA), AND WHICH HAS IN FACT BEEN FOLLOWED BY TH E TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2003-04. 9. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 9.1 THE ACCRUAL OR OTHERWISE OF INCOME, OR EXPENDIT URE FOR THAT MATTER, IS ESSENTIALLY A MATTER OF FACT, AND NOT OF LAW. THE LEGAL ASPECT OF THE MATTER, ON WHICH THERE CAN BE NO 13 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT DOUBT, STANDS SETTLED BY THE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA), HOLDING THAT INCOME, WHERE OTHERWISE ACCRUED, WOULD NOT BE NOT SO MERELY BECAUSE THE ASSESSEE WAS PRECLUDED FROM ACCOUNTING FOR THE SAME BY VIRTUE OF THE GUIDELINES BY THE REGULATORY BODY, AS RBI IN THE INSTANT CASE; THE RE LEVANT GUIDELINES HAVING NOTHING TO DO WITH THE COMPUTATION OF TAXABLE INCOME UNDER THE AC T. REFERENCE IN THIS CONTEXT IS DRAWN TO THE DISCUSSION AT PARAS 6.1 TO 6.4 OF THIS ORDER . IN OUR VIEW, THERE IS ONLY AS MUCH OF LAW AS THERE IS TO IT, I.E., THE ISSUE UNDER REFE RENCE, WHICH, AS AFORESAID, IS PRIMARILY FACTUAL. REFERENCE IN THIS REGARD BE MADE TO THE DE CISIONS, INTER ALIA , IN UCO BANK VS. CIT [1999] 237 ITR 889 (SC) AND GODHRA ELECTRICITY CO. LTD. VS. CIT [1997] 225 ITR 746 (SC), CLARIFYING THAT ONLY REAL INCOME, I.E., A S ACTUALLY ACCRUED IN THE FACTS OF THE CASE, COULD BE CONSIDERED AND BROUGHT TO TAX EVEN UNDER T HE ACCRUAL METHOD OF ACCOUNTING. THE SAME, AS THEIR READING WOULD SHOW, TURN ON THE FACT S OF THE CASE. 9.2 THE BASIC QUESTION, HOWEVER, THAT CONFRONTS US IN NOT THIS, I.E., THE ISSUE ON MERITS, BUT AS TO WHETHER THE DECISION BY THE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD . (SUPRA) HAS A BEARING IN THE MATTER. THE DECISION B Y THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR AN EARLIER YEARS (AYS 2003-04 & 2004-05) S TATES OF BEING NOT SO, FOLLOWING THE DECISION IN VASISTH CHAY VYAPAR LTD . (SUPRA). HOWEVER, A COORDINATE BENCH OF THE TRIBUNAL IN HARMIRPUR DISTRICT CO-OPERATIVE BANK LTD. VS. DY. C IT, KANPUR (IN ITA NOS. 114 & 115/LKW/2012 DATED 06.09.2012/COPY ON RECORD) , OF WHICH ONE OF US IS THE AUTHOR, HAS HELD OTHERWISE. OUR OWN FINDINGS, CONTAINED AT PARAS 6.1 THROUGH 6.4 OF THIS ORDER, ARE IN AGREEMENT THEREWITH. AS EXPLAINED AND HELD THERE BY, THE ASPECT OF RECOGNITION OF INCOME ON NPA ACCOUNTS WAS AS MUCH A SUBJECT MATTER OF THE DECISION BY THE APEX COURT IN SOUTHERN TECHNOLOGIES LTD . (SUPRA) AS WAS THE ISSUE REGARDING DEDUCTION OF P ROVISION ON NPAS. FOR BOTH THESE ASPECTS, THE PRIMARY QUESTI ON THAT WAS REQUIRED TO BE ADDRESSED WAS WHETHER THE PRUDENTIAL NORMS PRESCRIBED BY RBI, WHICH ARE MANDATORY FOR BEING FOLLOWED BY THE RESPECTIVE ENTITIES, WOULD BE DECIS IVE OF THE DETERMINATION OF INCOME UNDER THE ACT. IT WAS EXPLAINED BY THE APEX COURT T HAT THE SAID NORMS COULD NOT OVERRIDE THE EXPRESS PROVISIONS OF THE ACT, VIZ. SS. 36(1)(V II), 36(1)(VIIA), 145 OF THE ACT. SECTION 43D IS ALSO RELEVANT IN THIS REGARD. TO CONCLUDE THIS CONTROVERSY, WHICH IS PURELY A MAT TER 14 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT OF FACT, WE DRAW ATTENTION TO PARA 6.4 OF THIS ORDE R (PGS.7-10), AS ALSO PARA 31 (PG.606) OF THE DECISION IN SOUTHERN TECHNOLOGIES LTD . (SUPRA) , WHEREIN THE APEX COURT HAS CLEARLY SAID THAT IN EACH CASE THE ASSESSEE HAS TO PROVE WH ETHER THE INCOME HAS ACCRUED OR NOT ON THE RELEVANT PARAMETERS, AND IT IS FOR THE ASSES SING OFFICER TO ACCEPT OR NOT TO ACCEPT THE ASSESSEES CLAIM WITH REFERENCE TO THE REAL INC OME THEORY, I.E., IN THE FACTS AND CIRCUMSTANCES OF THE CASE . THE UMPTEEN TIMES THE HONBLE APEX COURT HAS CLAR IFIED THIS IN ITS DECISION STANDS ENUMERATED BY US AT PAGES 9, 10 OF THIS ORDER, TO ESTABLISH THAT THIS ASPECT OF THE MATTER SHOULD BE REGARDED AS SETTLED. RATHER, GOING BY THE ASSESSEES ARGUMENT, I.E., OF THE RBI DIRECTIONS BEING NOT APP LICABLE AND, THUS, RELEVANT TO THE COMPUTATION OF INCOME UNDER THE ACT QUA THE PROVISIONING NORMS, BUT SO QUA THE INCOME RECOGNITION NORMS, WOULD RAISE A HOST OF ISSUES. AS , FOR EXAMPLE, AS TO WHETHER ONE PART OF THE SAID DIRECTIONS, ISSUED UNDER THE SAME CHART ER AND AUTHORITY AND, IN FACT, AS COMMON DIRECTIONS TOWARD THE SAME PURPOSES, FOR THE SAME CLASS OF ENTITIES, COULD HAVE OR BEAR A LEGAL CHARACTER DIFFERENT FROM THE OTHER, AND IF SO, ON WHAT BASIS? 9.3 CONTINUING FURTHER, IT MAY AS WELL BE ARGUED TH AT THE ACCOUNTS ARE BEING PREPARED, OR THE ACCOUNTING FOR INCOME ON NPAS PARTICULARLY I S, IN CONFORMITY WITH PART II TO SCHEDULE VI OF THE COMPANIES ACT INASMUCH AS THERE IS, APART FOR NON RECEIPT, NO ACCRUAL OF INCOME ON THESE ACCOUNTS/ASSETS. THE SAME ARE TH US IN AGREEMENT WITH SEC. 145 OF THE ACT. THE ARGUMENT IN NOT WELL FOUNDED AS THE ASSESS EE-COMPANY HAS ADMITTEDLY FOLLOWED THE RBI GUIDELINES, BEING MANDATORY, IN PREFERENCE TO THE REQUIREMENTS OF THE COMPANIES ACT. SECONDLY, EVEN ASSUMING CONSISTENCY WITH THE R EQUIREMENT OF THE COMPANIES ACT, THE SAME CANNOT BE A MATTER OF PRESUMPTION, PRECLUD ING THE A.OS RIGHT TO EXAMINE AND BE SATISFIED IN THE MATTER, AND WHICH WOULD REQUIRE A FINDING ON THE TOUCHSTONE OF THE RELEVANT PARAMETER/S, WHICH WE HAVE EXPLAINED TO BE THE UNCERTAINTY QUA THE REALIZABILITY OF INCOME, AND WHICH THEREFORE HAS TO BE ACCOUNT SP ECIFIC, AND CANNOT BE A SUBJECT MATTER OF A BROAD PRESCRIPTION, AS OF THE ACCOUNT/S BEING A NPA. THE CONCEPT OF UNCERTAINTY, OTHERWISE IMPLICIT IN THE CONCEPT OF ACCRUAL, IS EN SHRINED IN ACCOUNTING STANDARD 9 (AS 9) ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, AND WHICH IS MANDATORY U/S. 211(3A) OF THE COMPANIES ACT. THERE IS AS SUCH NO D ICHOTOMY BETWEEN WHAT STANDS 15 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT STATED BY US, ON ONE HAND, AND THE MANDATE OF S. 14 5 OF THE ACT ON THE OTHER. THE INGREDIENTS OF SEC. 145 STAND ALSO SPELLED OUT IN T HE ACCOUNTING STANDARDS ISSUED BY THE CBDT THERE-UNDER. 9.4 SO, HOWEVER, THE ISSUE BEFORE US IS NOT ON THE MERITS OF THE ISSUE, BUT AS TO WHETHER THE DECISION BY THE APEX COURT IN SOUTHERN TECHNOLOGIES LTD . (SUPRA) COVERS THE ISSUE QUA RECOGNITION OF INCOME ON NPA ACCOUNTS IN VIEW OF TH E RBI GUIDELINES. THE SAME, AS AFORESAID, IS IN OUR VIEW A QUESTION OF FACT . THE SAME BEING SUBJECT TO TWO DIFFERENT, IN FACT, OPPOSITE, VIEWS BY THE ORDERS BY THE COORDINA TE BENCHES OF THIS TRIBUNAL, THE MATTER WAS PUT ACROSS TO THE ASSESSEE. IT ADMITTED TO, FIR STLY, THE MATTER BEING A QUESTION OF FACT AND, TWO, OF BEING SUBJECT TO DIFFERENT, IRRECONCIL ABLE VIEWS. STRICTLY, PER THE PROCEDURE, THE MATTER OUGHT TO BE REFERRED TO A SPECIAL BENCH OF THE TRIBUNAL. ON THIS PROPOSITION BEING MOOTED, THE LD. AR, AFTER TAKING TIME FOR SEE KING INSTRUCTIONS FROM HIS CLIENT, THE ASSESSEE-APPELLANT, CONFIRMED THAT IT WAS IN A POSI TION TO MEET THE CASE ON THE MERITS OF THE ADDITION ON QUANTUM INASMUCH AS THE INTEREST UN DER REFERENCE HAS NOT BEEN RECEIVED EVEN BY NOW, I.E., AFTER A LAPSE OF A NUMBER OF YEA RS. THE MATTER MAY, THEREFORE, BE PROCEEDED WITH ON THE FOOTING OF THE APPLICABILITY OF DECISION BY THE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD . (SUPRA), I.E., ON MERITS, AND RESTORED BACK TO TH E FILE OF THE ASSESSING AUTHORITY FOR NECESSARY DETERMINATION . THE LD. DR ALSO RAISED NO OBJECTION. ACCORDINGLY, THE MATTER OF ACCRUAL OR OTHERWISE OF THE IMPUGNED INTEREST OF RS.133.99 LACS, IS RESTORED BACK TO THE FILE OF THE AO FOR AD JUDICATION AFRESH IN ACCORDANCE WITH LAW, INDEPENDENT OF THE GUIDELINES ISSUED BY THE RBI. TH E AO SHALL DECIDE THE SAME BY ISSUING DEFINITE FINDINGS OF FACT, ACCOUNT WISE, I. E., AS TO WHETHER INTEREST INCOME CAN UNDER THE GIVEN FACTS AND CIRCUMSTANCES BE SAID TO HAVE ACCRUED, I.E., DE HORS THE CLASSIFICATION OF THE RELEVANT DEBTS IN ACCOUNTS AS NPAS. THE ONUS TO SUBSTANTIATE ITS CASE THOUGH WOULD BE ON THE ASSESSEE, WHO SHALL BE ALLOW ED REASONABLE OPPORTUNITY TOWARD THE SAME. WE DECIDE ACCORDINGLY. 10. THE NEXT GROUND, GD. IV, IS IN RESPECT OF THE C ONFIRMATION OF THE ADDITION IN RESPECT OF THE AMOUNT (RS.89 LACS) RECEIVED BY THE ASSESSEE BY TREATING IT AS INTEREST, AS 16 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT AGAINST ON ACCOUNT OF PRINCIPAL BY THE ASSESSEE. TH E MATTER WAS AGAIN ARGUED BEFORE US AS BEING COVERED BY THE ORDERS BY THE TRIBUNAL IN ITS OWN CASE FOR A.YS. 2003-04 AND 2004- 05 (SUPRA), WITH THE LD. DR RELYING ON THE ORDERS B Y THE AUTHORITIES BELOW. 11. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD, INCLUDING THE ORDERS BY THE TRIBUNAL IN THE ASSESSEES OWN CASE F OR THE PRECEDING YEARS. IT HAS BEEN OBSERVED BY THE TRIBUNAL, AND WHICH HAS PREVAILED W ITH IT, IS THAT THE REVENUE CANNOT, WITHOUT BRINGING ANY ADVERSE MATERIAL ON RECORD, AC T CONTRARY TO THE TERMS AGREED TO BETWEEN THE LENDER AND THE BORROWER. AS SUCH, IF TH E PARTIES HAVE DECIDED THAT THE AMOUNT AS PAID IS TO BE ADJUSTED AGAINST PRINCIPAL, THE SA ME CANNOT BE CONSIDERED AS HAVING BEEN RECEIVED ON ACCOUNT OF INTEREST BY RESORTING TO THE COMMERCIAL PRACTICE, OR WHAT WOULD BE MORE BENEFICIAL AS FAR AS THE ASSESSEE IS CONCERNED . THERE CAN BE OF-COURSE NO DOUBT ON THIS POSITION. FURTHER, ON BEING QUESTIONED IN THE MATTER BY THE BENCH AS TO WHETHER THE ACCRUAL OF INTEREST HAS BEEN AGREED TO BETWEEN THE PARTIES, OR IF THE CORRESPONDING PARTY HAS ALSO SIMILARLY ACCOUNTED FOR THE AMOUNT AS TOWA RDS PRINCIPAL, THE LD. AR WAS UNABLE TO ANSWER THE SAME, THOUGH WOULD SUBMIT THAT THE MA TTER MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING AUTHORITY FOR THE ASSESSEE TO SUBS TANTIATE ITS CLAIM IN THIS REGARD WITH REFERENCE TO THE DOCUMENTS FROM THE CORRESPONDING P ARTY. UNDER THESE CIRCUMSTANCES, THEREFORE, WE ONLY CONSIDER IT FIT AND PROPER THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE A.O. TO VERIFY THE ASSESSEES CLAIM OF THE AMOUNT HAVING BEEN RECEIVED ONLY ON ACCOUNT OF PRINCIPAL, AND ALSO GIVEN A DEFINITE FIN DING QUA THE INTEREST ACCRUED, IF ANY, I.E., UNDER THE TERMS OF THE AGREEMENT OR THE DECISION BE TWEEN THE TRANSACTING PARTIES. WE DECIDE ACCORDINGLY. 12. THE NEXT GROUND, GD. V IS IN RESPECT OF CONFIRM ATION OF ADDITION IN RESPECT OF INTEREST IN THE SUM OF RS.157.20 LACS ASSUMED ON TH E VALUE OF THE SHARES (RS.1309.94 LACS) PLEDGED BY THE ASSESSEE-COMPANY TO IDBI TRUSTEESHIP SERVICES LTD. THE BRIEF FACTS ARE THAT THE ASSESSEE IS A PART OF THE RPJ GROUP, HAVIN G SHARE HOLDING IN THE COMPANIES AS RPJ CAPITALS LTD., CESA LTD. AS PER THE TERMS OF THE AG REEMENT ENTERED INTO BY THESE COMPANIES WITH THE FINANCIAL INSTITUTION/S, THEY WE RE REQUIRED TO PLEDGE THE SHARES THEREIN 17 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT WITH THE IDBI TRUSTEESHIP SERVICES LTD. THE ASSESSE E BEING IN THE BUSINESS OF ADVANCING LOANS, THE A.O. WAS OF THE VIEW THAT THE SAME COULD NOT BE WITHOUT ANY BUSINESS INTEREST AND, THEREFORE, ASSUMED INCOME BY WAY OF NOTIONAL I NTEREST ON THE VALUE OF THE SHARES PLEDGED. THE SAME STOOD CONFIRMED IN APPEAL BY THE LD. CIT(A) BY FOLLOWING HIS DECISION IN THE CASE OF M/S. BUSINESS PRESS PVT. LTD. (IN APPEAL NO.CIT(A)-VIII/DCIT-8(1)/IT- 268/2007-08 DATED 10.12.2008), SO THAT, AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 13. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. DURING HEARING, THE LD. DR WAS SPECIFICALLY ENQUIRED BY THE BENCH AS TO HOW THE FACTS AND CIRCUMSTANCES IN THE CASE OF BUSINESS PRESS PVT. LTD. (SUPRA), I.E., THE ORDER RELIED UPON BY THE FIRST APPELLATE AUTHORITY, WERE APPLICABLE IN THE FACTS A ND CIRCUMSTANCES OF THE INSTANT CASE AND, FURTHER, THE COPY OF THE ORDER IN THAT CASE HAVING NOT BEEN MADE AVAILABLE TO THE ASSESSEE, HOW COULD IT PLEAD ITS CASE, WAS UNABLE TO FURNISH ANY SATISFACTORY REPLY. THE LEAST THE REVENUE OUGHT TO HAVE DONE WAS TO MAKE AVAILABLE A COPY OF THE SAID ORDER BEFORE THE TRIBUNAL, ALSO SUPPLYING THE ONE TO THE ASSESSEE IN TIME. FURTHER, AS APPARENT FROM THE EXTRACT FROM THE SAID ORDER REPRODUCED BY THE LD.CI T(A) AT PAGE 12 OF HIS IMPUGNED ORDER, IN THAT CASE THE FUNDS WERE ADVANCED BY THE ASSESSEE-COMPANY TO ITS SISTER CONCERN, WHILE IN THE INSTANT CASE THE ACCOMMODATION PROVIDE D IS NON-FUND BASED. THERE IS NO CHARGE OF THE ASSESSEE BEING ENTITLED TO ANY GUARAN TEE FEE OR COMMISSION, AND WHICH WAS ALSO CLARIFIED BY US DURING HEARING FROM THE LD. AR , AND WHICH, IN ANY CASE, IS NOT THE REVENUES CASE. UNDER THESE CIRCUMSTANCES, WE ARE U NABLE TO COMPREHEND OR APPRECIATE THE REVENUES CASE IN THE LEAST. ALL THAT HAS TRANS PIRED IS THAT, BEING A PART OF THE RPJ GROUP, THE ASSESSEE HAS PLACED ITS INVESTMENT BY WA Y OF SHAREHOLDING IN THE GROUP CONCERNS WITH THE TRUSTEE AS A PART OF THE FINANCIA L ARRANGEMENT TO ENABLE FUNDS BEING BORROWED BY ITS GROUP CONCERNS FROM THE FINANCIAL I NSTITUTIONS. THE ASSUMPTION OF INTEREST UNDER THE CIRCUMSTANCE IS PURELY NOTIONAL, WITHOUT BASIS EITHER IN FACT/S OR IN LAW. WE, ACCORDINGLY, HAVE NO HESITATION IN DIRECTING ITS DE LETION. WE DECIDE ACCORDINGLY. 14. THE NEXT AND THE SIXTH GROUND RELATES TO THE DI SALLOWANCE IN RESPECT OF CLAIM FOR BAD DEBTS IN THE SUM OF RS.155 LACS. THE A.O. OBSER VES WITH REFERENCE TO PARA 5(B) OF 18 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT SCHEDULE L TO THE BALANCE SHEET AS ON 31.03.2005, T HAT THE ASSESSEE HAD WRITTEN OFF LOANS AGGREGATING TO RS.155 LACS GIVEN TO CERTAIN COMPANI ES, ON WHICH INTEREST AGGREGATING TO RS.71.20 LACS UP TO 31.03.2005 REMAINED UNPAID AS O N THAT DATE. ON VERIFYING THE CLAIM, WITH REFERENCE TO THE DETAILS, INCLUDING THE PARTY- WISE BREAK-UP, IT WAS FOUND THAT THE SAME INCLUDED NAMES OF THE PARTIES FROM WHICH THERE HAS BEEN RECOVERY DURING THE YEAR, VIZ. M/S. BEEKAY STEEL INDUSTRIES LTD. AND M/S. RAJ GRAHIA ENTERPRISES PVT. LTD., AT RS.10 LACS AND RS.20 LACS RESPECTIVELY. AS SUCH, THE DEBT S HAD NOT BEEN ESTABLISHED TO BE BAD, AND NO CASE OF THE SAME HAVING BECOME BAD, EVEN PRIMA FACIE , HAD BEEN MADE OUT BY THE ASSESSEE. REFERENCE WAS MADE BY HIM FOR THE PURPOSE TO SEVERAL DECISIONS AS UNDER: 1. NANDLAL VITHALDAS VS. [1989] CIT 180 ITR 609 (BOM) 2. TRAVANCORE TEA ESTATES CO. LTD. VS. CIT [1992] 197 ITR 528 (KER) 3. CIT VS. COATES OF INDIA LTD. [1998] 232 ITR 324 (CAL) 4. CIT VS. AHMEDABAD ELECTRICITY CO. LTD. [2003] 262 ITR 97 (GUJ) 5. SOUTH INDIA SURGICAL CO. LTD. VS. ASST. CIT [2006] 201 CTR 289 (MAD) THE SAME FOUND CONFIRMED BY THE LD. CIT(A) ON THE S AME BASIS, FOLLOWING HIS DECISION FOR A.Y. 2003-04 EXTRACTING THE RELEVANT PART OF TH E SAID ORDER. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 15. BEFORE US, THE ASSESSEES CLAIM WAS PRINCIPALLY WITH REFERENCE TO THE DECISION BY THE APEX COURT IN THE CASE OF T.R.F. LTD. VS. CIT [2010] 323 ITR 397 (SC); THE ASSESSEE PROCLAIMING THE SAID DECISION TO HAVE SETTLED THE C ONTROVERSY WITH REGARD TO THE ONUS ON THE ASSESSEE IN ESTABLISHING A DEBT TO BE BAD, FOR A VALID CLAIM U/S. 36(1)(VII) OF THE ACT. 16. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEE IS IN THE BUSINESS OF ADVANCING LOANS, SO THAT ADVANCING OF INTEREST BEARING LOAN/ADVANCES WOULD QUALIFY FOR BEING BAD DEBT IN TERMS OF SECTIO N 36(1)(VII) R.W.S 36(2) OF THE ACT. FURTHER, THERE IS ALSO NO DOUBT THAT THE AMOUNT HAD BEEN ACTUALLY WRITTEN OFF BY THE ASSESSEE IN ITS ACCOUNTS. THE NOTES TO THE ACCOUNTS (SCHEDULE L) AND THE AUDITORS REPORT BY THE A.O. CONFIRM THE SAME. THE LAW STANDS SINCE SETTLED BY THE HONBLE APEX COURT, SO 19 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT THAT THE WRITE OFF BY THE ASSESSEE IN ITS ACCOUNTS OF A DEBT AS IRRECOVERABLE WOULD ITSELF DEEM OR SIGNIFY IT AS HAVING BECOME BAD. NO DOUBT, THIS WOULD NOT PRECLUDE THE REVENUE FROM DISALLOWING THE CLAIM WHERE THE WRITE OFF IS N OT GENUINE, BUT WE ARE UNABLE TO COME TO ANY SUCH FINDING. IN FACT, THE AMOUNT HAS BEEN W RITTEN OFF, AS CLARIFIED IN THE NOTES TO THE ACCOUNTS, ON THE BASIS OF THE DECISION BY THE B OARD OF DIRECTORS. FURTHER, THE INTEREST ARISING ON THE SAID LOANS HAS REMAINED UNPAID AND, AS IT WOULD APPEAR TO US, FOR A PERIOD BEYOND THE CURRENT YEAR, I.E., WHEN THE TWO, THE AM OUNT OF INTEREST AND THE AMOUNT OF THE PRINCIPAL, ARE COMPARED (WITH EACH OTHER). IN ANY C ASE, THE ONUS TO ESTABLISH THAT THE CLAIM IS NOT GENUINE IS ONLY ON THE REVENUE, WHILE ITS CA SE RESTS SOLELY ON THE NON-DISCHARGE BY THE ASSESSEE OF THE ONUS ON IT TO ESTABLISH THE DEB TS UNDER REFERENCE AS HAVING BECOME BAD. UNDER THE CIRCUMSTANCES, THEREFORE, WE HAVE NO HESITATION IN DIRECTING THE DELETION OF THE SAID DISALLOWANCE. WE DECIDE ACCORDINGLY. 17. THE NEXT GROUND, BEING GD.VII, WAS NOT PRESSED AT THE TIME OF THE HEARING AND IS ACCORDINGLY DISMISSED AS NOT PRESSED. 18. THE NEXT AND THE EIGHTH GROUND RELATES TO THE A DDITION FOR RS.160 LACS ON ACCOUNT OF REVERSAL FOR PROVISION OF NPA. THE BRIEF FACTS A RE THAT THE ASSESSEE HAD WRITTEN BACK THE PROVISION AGAINST THE NPA OUTSTANDING IN ITS AC COUNTS FOR RS.160 LACS. HOWEVER, WHILE COMPUTING ITS INCOME UNDER THE ACT, IT CLAIME D THE DEDUCTION FROM THE NET PROFIT FOR THIS AMOUNT AND, FURTHER, WITHOUT ASSIGNING ANY REA SON FOR THE SAME. THE ONUS TO ESTABLISH ITS RETURN, AND THE CLAIMS PREFERRED THEREBY, IS SQ UARELY ON THE ASSESSEE WHICH HAD NOT BEEN DISCHARGED. ACCORDINGLY, THE A.O. DISALLOWED T HE SAME RELYING ON THE DECISIONS IN THE CASE OF, CIT VS. CALCUTTA AGENCY LIMITED [1951] 19 ITR 191 (SC); CIT VS. IMPERIAL CHEMICAL INDUSTRIES (INDIA) (P.) LTD. [1969] 74 ITR 17 (SC), CIT VS. TRANSPORT CORPORATION OF INDIA LTD. [2002] 256 ITR 701 (AP) AND ASST. CIT VS. USHODAYA ENTERPRISES LTD. [2012] 19 ITR (TRIB) 199 (HYD). IN APPEAL, THE MATTER FOUN D CONFIRMATION AT THE END OF THE LD. CIT(A), WHO RELI ED ON HIS ORDER FOR THE IMMEDIATELY PRECEDING YEAR, I.E., A.Y. 2004-05, WHEREIN THE CLA IM HAD BEEN DISALLOWED, DERIVING SUPPORT FROM THE DECISIONS BY THE APEX COURT IN THE CASE OF SHREE SAJJAN MILLS LTD. VS. CIT 20 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT [1985] 156 ITR 585 (SC) AND INDIAN MOLASSES CO. (PVT.) LTD. VS. CIT [1959] 37 ITR 66 (SC), SO THAT ONLY ACTUAL LIABILITIES IN PRAESENTI AND NOT THOSE WHICH ARE CONTINGENT, ARE ALLOWABLE. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 19. WE HAVE HEARD THE PARTIES, AND PERUSED THE MAT ERIAL ON RECORD. WE ARE MOVED BY THE ASSESSEES ARGUMENT THAT ITS CLAIM, IF DISALLOW ED, MAY AMOUNT TO A DOUBLE JEOPARDY WHERE THE PROVISION HAD NOT BEEN ALLOWED IN THE COM PUTATION OF THE INCOME FOR THE YEAR IN WHICH THE SAME WAS MADE. TRUE, THE PROVISION AGA INST NPA IS NOT ALLOWABLE AS DEDUCTION, AS CLARIFIED BY THE APEX COURT IN SOUTHERN TECHNOLOGIES LTD. (SUPRA). HOWEVER, UNLESS A DEDUCTION QUA THE SAID PROVISION HAD BEEN CLAIMED/ALLOWED IN THE ASSESSMENT OF AN EARLIER YEAR, NO TAXABLE EVENT, IT IS TO BE APPR ECIATED, ARISES FOR THE CURRENT YEAR. IF NO DEDUCTION, AS CLAIMED, HAD BEEN CLAIMED OR ALLOWED TO THE ASSESSEE FOR AN EARLIER YEAR QUA THE PROVISION NOW WRITTEN BACK, HOW WE WONDER THE S AME, I.E., ITS WRITE BACK, OR TO THIS EXTENT, GIVES RISE TO ANY TAX LIABILITY FOR THE CUR RENT YEAR. THERE IS SURPRISINGLY NO CLARITY ON THIS ASPECT OF THE MATTER IN THE ORDERS OF THE R EVENUE AUTHORITIES. THIS ASPECT HAVING NOT BEEN VERIFIED BY THE A.O. AT THE ASSESSMENT STA GE, THE MATTER IS TO BE REMITTED TO HIM FOR THE PURPOSE. THE SAID CLAIM IN FACT HAS BEEN RA ISED IN THE INSTANT CASE BY THE ASSESSEE IN THE ALTERNATE, I.E., WITHOUT PREJUDICE. THE SAME , IN FACT, WOULD OTHERWISE AMOUNT TO A DOUBLE CLAIM BY THE ASSESSEE. AS SUCH, UNDER THE CIRCUMSTANCES, WE THEREFORE ONLY CONSIDER IT PROPER THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O. IF AND TO THE EXTENT THE RELEVANT PROVISION, WHICH STANDS WRITTEN BACK IN ACCOUNTS FOR THE CURRE NT YEAR, HAS NOT BEEN ALLOWED AS DEDUCTION BY THE REVENUE IN THE ASSESSMENT FOR AN E ARLIER YEAR, NO SEPARATE ADDITION ON ITS WRITE BACK FOR THE CURRENT YEAR WOULD ENSUE. ON THE OTHER HAND, THE PROVISION, IF AND TO THE EXTENT ALLOWED, WOULD ON ITS REVERSAL IN THE CU RRENT YEAR STAND CONFIRMED FOR ADDITION IN THE COMPUTATION OF THE INCOME. THE ONUS TO PROVE ITS CLAIM THOUGH WOULD BE SQUARELY ON THE ASSESSEE. WE EMPHASIZE SO, NOT ONLY FOR THE REASON OF THE SAME REPRESENTING THE WELL SETTLED POSITION IN LAW, WHICH STANDS REFURBIS HED BY THE A.O. WITH REFERENCE TO THE CASE LAW, BUT ALSO ON OBSERVING THAT THE ASSESSEE H AS NOT FURNISHED ANY DETAILS IN THE MATTER AND, FURTHER, THAT THE PROVISION ALLOWED TO THE ASSESSEE FOR THE RELEVANT YEAR/S 21 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT WOULD ONLY BE UNDER A RELEVANT PROVISION OF LAW, AN D WHICH MAY NOT EXACTLY CORRESPOND WITH THE PROVISION MADE BY THE ASSESSEE IN ITS ACCO UNTS. THIS WOULD ALSO CLARIFY THE USE OF THE EXPRESSION IF AND TO THE EXTENT BY US. TO CLA RIFY FURTHER, IF THE ASSESSEE HAS BOOKED THE PROVISION OF RS.100/-, WHILE HAS BEEN ALLOWED D EDUCTION IN ITS RESPECT ONLY FOR RS.80, THE REVERSAL (AT RS.100/-) FOR THE CURRENT YEAR WOU LD BE CONSIDERED AS TAXABLE ONLY TO THE EXTENT OF RS.80/-. IF, HOWEVER, OF THE SAME, THE PR OVISION ONLY TO THE EXTENT OF RS.50/- IS REVERSED, THE SAME WOULD HAVE TO BE CONSIDERED FOR THE CURRENT YEAR ON A PRO RATA BASIS. WE DECIDE ACCORDINGLY. 20. THE NEXT AND THE NINTH GROUND RELATES TO TREATI NG THE INCOME BY WAY OF INTEREST ON INCOME TAX REFUND (RS.1,09,539/-) AS INCOME FROM OT HER SOURCES, AS AGAINST BUSINESS INCOME RETURNED BY THE ASSESSEE. THE INTEREST ON TA XES WHICH MAY BE FOUND TO HAVE BEEN PAID IN EXCESS OF THE TAX LIABILITY CANNOT, BY ANY STRETCH OF IMAGINATION, BE CONSIDERED AS FORMING PART OF THE ASSESSEES BUSINESS. ACCORDINGL Y, WE DO NOT FIND ANY MERIT IN THE ASSESSEES CASE, AS WAS ALSO THE TRIBUNALS DECISIO N IN ITS CASE FOR A.Y. 2004-05. WE DECIDE ACCORDINGLY, DISMISSING THE ASSESSEES GROUN D. 21. THE FINAL AND THE TENTH GROUND OF THE ASSESSEE S APPEAL IS IN RESPECT OF THE CORRESPONDING ADJUSTMENT TO THE BOOK PROFIT BY THE A.O. QUA THE ADJUSTMENTS MADE TO ITS REGULAR INCOME, AND WHICH WE MAY TABULATE AS UNDER: I) INTEREST INCOME NOT ACCOUNTED OR ON ACCRUAL BASIS R S.4,68,76,000/- II) PROVISION FOR NON-PERFORMING ASSETS RS.1,60,00,00 0/- III) DIFFERENCE IN INTEREST RS.9,25,986/- IV) DIFFERENCE IN NET PROFIT RS.4,94,332/- 22. BEFORE US, IT WAS THE COMMON CONTENTION OF BOTH THE PARTIES THAT THE ADJUSTMENTS AS MADE TO THE RETURNED INCOME WOULD, WHERE AND TO THE EXTENT THEY SURVIVE IN ASSESSMENT, WOULD ALSO WARRANT A CORRESPONDING ADJU STMENT TO THE BOOK PROFIT. AND, THAT, THEREFORE, THE MATTER IS TO BE REMITTED BACK TO THE FILE OF THE A.O. FOR THE PURPOSE, TO BE DISPOSED OF IN CONSISTENCE WITH HIS ADJUDICATION ON THE RESPECTIVE ADDITIONS ON MERITS. WE FIND THE SAME AS ONLY REASONABLE AND JUSTIFIED UNDE R THE CIRCUMSTANCES. WE MAY THOUGH 22 ITA NO.3736/MUM/2009 (A.Y. 2005-06) KEC HOLDINGS LIMITED VS. ASST. CIT ALSO ADD THAT NO CORRESPONDING ADJUSTMENT MAY BE RE QUIRED WHERE THE ASSESSEE HAS ONLY MADE A BOOK ENTRY, WHICH THEREFORE STANDS ALREADY I NCLUDED IN THE COMPUTATION OF BOOK PROFIT, WITH NO CORRESPONDING ADJUSTMENT TO THE RET URNED INCOME, I.E., WHERE THE TWO ARE DELINKED, OR SO FOUND, AS FOR EXAMPLE IN THE CASE O F REVERSAL OF PROVISION WHICH FORMS THE SUBJECT MATTER OF THE ASSESSEES GROUND # 8. IN OTH ER WORDS, THE DIRECTION OF CORRESPONDING ADJUSTMENTS WOULD APPLY WHERE THE ACCOUNTS AND THE REGULAR PROVISIONS ARE IN CONSISTENCE OR TANDEM, AND NOT WHERE THE TWO PROCEED INDEPENDEN TLY. SUBJECT TO THIS RESERVATION, WE DIRECT THE DETERMINATION OF BOOK PROFIT U/S. 115JB IN CONSISTENCE WITH THE ASSESSED INCOME, I.E., BY MAKING LIKE ADJUSTMENTS, EVEN AS M ANDATED PER THE PROVISION ITSELF. WE DECIDE ACCORDINGLY. 23. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5 16 ( #51 0 4 !71 8 90 :;< 4 !71 0 1 => ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 14, 20 13 SD/- SD/- (SANJAY GARG) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; ?( DATED : 14.08.2013 !.(../ ROSHANI , SR. PS 4 0 -1@ A@)1 4 0 -1@ A@)1 4 0 -1@ A@)1 4 0 -1@ A@)1/ COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -.*, / THE RESPONDENT . 3. B ( ) / THE CIT(A) 4. B / CIT - CONCERNED 5. @!E' -1( , , / DR, ITAT, MUMBAI 6. 'F# G / GUARD FILE. 4( 4( 4( 4( / BY ORDER, : :: :/ // /= = = = (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI