ACIT, Trivandrum V. M/s.Kerala Financial Corporation, Trivandrum

ITA 379/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69060 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 03-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 05-06-2013
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: V DEVARAJAN
• Keywords: Recovery proceedings; Bad and doubtful debts; Competent authority

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO.450/COCH/2013 ASSESSMENT YEAR : 2008-09 KERALA FINANCIAL CORPORATION, 1, ASWATHY, VELLAYAMBALAM, TRIVANDRUM-33 [PAN: AA BCK 1316M] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), TRIVANDRUM (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) I.T.A. NO.379/COCH/2013 ASSESSMENT YEAR : 2008-09 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), TRIVANDRUM VS. KERALA FINANCIAL CORPORATION, 1, ASWATHY, VELLAYAMBALAM, TRIVANDRUM-33 [PAN: AA BCK 1316M] (REVENUE-APPELLANT) (ASSESSEE -R ESPONDENT) REVENUE BY SMT. S. VIJAYAPRABHA, JR. DR ASSESSEE BY SHRI V. DEVARAJAN, CA DATE OF HEARING 03/09/2013 DATE OF PRONOUNCEMENT 13/11/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 20-03-2013 PASSED BY THE LD. CIT(A), TRIVANDRUM AND THEY RELATE TO THE A SSESSMENT YEAR 2008-09. THE APPEAL FILED BY THE ASSESSEE IS BARRED BY LIMITATIO N BY 23 DAYS. THE ASSESSEE HAS FILED A PETITION REQUESTING THE BENCH TO CONDONE THE DELA Y. WE HEARD THE PARTIES ON THIS PRELIMINARY ISSUE. HAVING REGARD TO THE SUBMISSION S MADE BY THE ASSESSEE IN THE PETITION, WE CONDONE THE DELAY AND ADMIT THE APPEAL FOR HEARING. I.T.A. NOS. 450&379 /COCH/2013 2 2. THE ASSESSEE IS A GOVERNMENT OF KERALA UNDERTAKI NG ENGAGED IN THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR VARIOUS PROJECTS IN THE STATE OF KERALA. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER MA DE FOLLOWING ADDITIONS: (1) OTS COLLECTION PENDING APPROPRIATION RS . 123729405/- AND RR COLLECTION PENDING APPROPRIAT ION (2) BAD DEBTS WRITTEN OFF RS. 329145422/- (3) OTHER LIABILITIES CEASED RS. 91889841/- (4) LOSS ON SALE OF ASSET RS. 139250/- (5) PRIOR PERIOD EXPENSES RS. 6946311/- IN THE APPEAL FILED BY THE ASSESSEE, THE LD. CIT(A) DELETED THE ADDITIONS IN RESPECT OF (2) & (3) STATED ABOVE AND CONFIRMED THE ADDITIONS RELATING TO REMAINING THREE ITEMS. AGGRIEVED, THE ASSESSEE IS CONTESTING ALL THE THREE ADDITIONS CONFIRMED BY THE LD. CIT(A). THE REVENUE IS CONTESTING THE RELIEF GRANT ED IN RESPECT OF BAD DEBTS WRITTEN OFF. 3. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE R EVENUE WHICH RELATES TO THE BAD DEBTS WRITTEN OFF. THE FACTS RELATING TO SAME ARE STATED IN BRIEF. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 32.91 CRORES IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD BAD DEBTS WRITTEN OFF AND CLAIMED HE SAME AS DEDUCTION. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE IS ELIG IBLE FOR DEDUCTION UNDER SEC. 36(1)(VIIA) OF THE ACT. IN THE CASE OF THOSE KIND OF ASSESSEES, THE MAXIMUM AMOUNT OF BAD DEBTS ALLOWABLE U/S. 36(1)(VII) OF THE ACT SH ALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANC E AVAILABLE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS. FURTHER, AS PER PROVISIONS O F SEC. 36(2)(V) OF THE ACT, THE ASSESSEE IS REQUIRED TO DEBIT THE AMOUNT OF DEBT OR PART THEREOF TO THE PROVISION OF BAD AND DOUBTFUL DEBTS ACCOUNT CREATED U/S. 36(1)(VIIA ) OF THE ACT. THE ASSESSEE SUBMITTED THAT IT HAS DEBITED PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT TO THE EXTENT OF BALANCE AVAILABLE IN THAT ACCOUNT AND THE REMAIN ING AMOUNT ONLY HAS BEEN TAKEN TO PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE SAID EXPLANATION AND ACCORDINGLY DISALLOWED THE CLAIM OF BAD AND DOUBTFUL DEBTS. THE LD. CIT(A) DELETED THE DISALLOWANCE ON NOTICING THAT AN IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE KERALA HIGH C OURT BY ITS ORDER DATED 11-03-2010 I.T.A. NOS. 450&379 /COCH/2013 3 IN I.T.A. NO. 70/2010 AND ALSO BY HONBLE ITAT, COC HIN BENCH IN THE ASSESSEES OWN CASE. AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US 3.1 DURING THE COURSE OF HEARING, THE LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT THIS BENCH OF THE TRIBUNAL HAS CONSIDERED AN IDENTI CAL ISSUE IN THE ASSESSEES OWN CASE IN I.T.A. NOS. 430&431/COCH/2009 RELATING TO THE AS SESSMENT YEAR2004-05 AND 2006- 07. HE ALSO FURNISHED A COPY OF THE ORDER DATED 24 -08-2012 PASSED BY THIS BENCH. WE HAVE GONE THROUGH THE SAID ORDER AND NOTICE THAT TH E TRIBUNAL HAS FOLLOWED THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL HIGH COURT O F KERALA IN THE ASSESSEES OWN CASE. FOR THE SAKE OF CONVENIENCE WE EXTRACT BELOW THE OP ERATIVE PORTION OF THE SAID ORDER: 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECO RD. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE HON'BLE JURISDICTIO NAL KERALA HIGH COURT CONSIDERED AN IDENTICAL ISSUE IN ASSESSEE'S OWN CAS E AND THE HIGH COURT, BY ITS ORDER DATED 11-03-2010, HAS ALLOWED THE CLAIM OF TH E ASSESSEE. THE LD. COUNSEL ALSO FURNISHED A COPY OF THE ORDER OF THE HONBLE H IGH COURT. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE ORDER OF THE HON BLE HIGH COURT:- QUESTION RAISED IS WHETHER THE TRIBUNAL WAS JUSTIF IED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF BAD DEBT ACTUA LLY WRITTEN OFF EVEN IF THE ASSESSEE HAS NOT DEBITED THE SAME IN THE PROVIS ION CREATED FOR BAD AND DOUBTFUL DEBTS. WE HAVE HEARD THE STANDING CO UNSEL APPEARING FOR THE APPELLANT. 2. THE CLEAR FINDING OF THE TRIBUNAL IS THAT WHAT I S CLAIMED AS DEDUCTION IS BAD DEBT ACTUALLY WRITTEN OFF WHICH IS AN ALLOWABLE DEDUCTION U/S. 36(1)(VII) OF THE INCOME TAX ACT. HOWEVER, DEPARTM ENTS CASE IS THAT BAD DEBT WRITTEN OFF IS NOT DEBITED TO THE PROVISION CR EATED FOR BAD AND DOUBTFUL DEBTS AND SO MUCH SO, THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S. 36(1)(VIIA). THE TRIBUNAL RIGHTLY F OUND THAT THE PROVISION CREATED BY THE ASSESSEE IS NOT CLAIMED AS A DEDUCTI ON AND SO MUCH SO, THERE IS NO REQUIREMENT TO DEBIT THE ACTUAL DEBT WR ITTEN OFF IN THE PROVISION CREATED FOR BAD AND DOUBTFUL DEBTS. WE A RE IN COMPLETE AGREEMENT WITH THE FINDING OF THE TRIBUNAL BECAUSE THE DEPARTMENTS APPREHENSION THAT ASSESSEE WOULD HAVE CLAIMED DEDU CTION OF BOTH PROVISION AS WELL AS ACTUAL DEBT WRITTEN OFF DOES NOT ARISE HERE. HOWEVER, IF PROVISION CREATED IS DEBITED TO PROFIT AND LOSS ACCOUNT AND THE SAID PROVISION IS ALSO CLAIMED AS A DEDUCTION A ND ALLOWED, THEN THE DEPARTMENTS STAND CERTAINLY IS CORRECT. HOWEVER, IN VIEW OF THE FACTUAL FINDING BY THE TRIBUNAL THAT PROVISION IS NEITHER C LAIMED NOR ALLOWED AS A DEDUCTION, WE DO NOT FIND ANY MERIT IN THE APPEAL. CONSEQUENTLY THE I.T.A. NOS. 450&379 /COCH/2013 4 SAME IS DISMISSED. HOWEVER, IF THERE IS ANY FACTU AL ERROR IN THE FINDING OF FACT BY THE TRIBUNAL, IT IS FOR THE DEPARTMENT TO ASK FOR RECTIFICATION BEFORE THE TRIBUNAL. 5. IN THE INSTANT ORDER, THE ASSESSEE HAS SUBMITTE D THAT IT HAS DEBITED THE BAD DEBTS CLAIM IN THE PROFIT AND LOSS ACCOUNT ONLY AFTER EXHAUSTING THE BALANCE AVAILABLE UNDER THE HEAD PROVISION FOR BAD AND DOUBTFUL DEBTS. 6. THE CLAIM OF THE ASSESSEE CAN BE EXPLAINED BY WAY OF AN EXAMPLE. LET US ASSUME THAT THE CREDIT BALANCE AVAILABLE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT WAS RS.1.00 LAKH. DURING T HE YEAR THE ASSESSEE DECIDED TO WRITE OFF RS.2.50 LAKHS AS BAD DEBTS. I N THIS KIND OF SITUATION, THE ASSESSEE SHOULD DEBIT THE PROVISION FOR BAD AN D DOUBTFUL ACCOUNT ONLY TO THE EXTENT OF BALANCE AVAILABLE IN THAT ACCOUNT AND THE BALANCE AMOUNT OF BAD DEBTS SHOULD BE DEBITED TO THE PROFIT AND LO SS ACCOUNT. ACCORDINGLY, IN THE EXAMPLE GIVEN ABOVE, THE ASSESSEE SHOULD DEB IT PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT WITH RS.1.00 LAKH AND T HE REMAINING AMOUNT OF RS.1.50 LAKHS SHOULD BE TRANSFERRED TO THE PROFIT A ND LOSS ACCOUNT AND CLAIMED AS DEDUCTION. WE CAN EXPLAIN THIS ASPECT I N ANOTHER WAY ALSO. THERE CANNOT BE ANY DISPUTE THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS CREATED BY DEBITING THE PROFIT AND LOSS ACCOUNT AND HENCE THE SAID ACCOUNT SHOULD ALWAYS SHOW CREDIT BALANCE. IF THE ENTIRE BAD DEBTS CLAIM AMOUNT OF RS.2.50 LAKHS IS DEBITED TO THE PROVISIO N FOR BAD AND DOUBTFUL ACCOUNT, THEN THE SAID ACCOUNT WOULD SHOW A DEBIT BALANCE OF RS.1.50 LAKHS, (RS.1.00 LAKH (-) RS.2.50 LAKHS) AND THE SAI D DEBIT BALANCE IS REQUIRED TO BE TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT AS PER THE ACCOUNTING PRINCIPLES. THE NET EFFECT IS THAT THE BAD DEBTS C LAIM TO THE TUNE OF RS.1.50 LAKHS WOULD STAND DEBITED TO THE PROFIT AND LOSS AC COUNT. 7. HOWEVER, IN THE INSTANT CASES, THE RELEVANT D ETAILS ARE NOT BORNE OUT OF THE RECORD, I.E., THE BALANCE AVAILABLE IN PROVISI ON FOR BAD AND DOUBTFUL DEBTS ACCOUNT; THE AMOUNT OF BAD DEBTS WRITTEN OFF DURING THE YEAR; THE AMOUNT DEBITED TO THE PROVISION FOR BAD AND DOUBTF UL DEBTS ACCOUNT, WHICH WOULD HELP TO ASCERTAIN THE CORRECTNESS OF TH E AMOUNT OF BAD DEBTS TRANSFERRED TO PROFIT AND LOSS ACCOUNT. SINCE THES E FACTS ARE NOT AVAILABLE ON RECORD, IN OUR VIEW, THE CLAIM OF THE ASSESSEE REQUIRES VERIFICATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, THOUGH WE UPHOLD THE DECISION OF THE LD. CIT(A) ON THE PRINCIPLE FOLLOWED BY HIM, YE T SINCE THE FACTUAL ASPECTS DISCUSSED ABOVE REQUIRE VERIFICATION, WE SE T ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE IN THE LIGHT OF DISCUSSIONS MADE SUPRA. I.T.A. NOS. 450&379 /COCH/2013 5 3.2 IN THE INSTANT YEAR ALSO, THE RELEVANT DETAILS, VIZ., BALANCE AVAILABLE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT; THE A MOUNT OF BAD DEBTS WRITTEN OFF DURING THE YEAR; THE AMOUNT DEBITED TO THE PROVISI ON FOR BAD AND DOUBTFUL DEBTS ACCOUNT WERE NOT FURNISHED BEFORE US. ACCORDINGL Y, WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE REQUIRES VERIFICATION AT THE END OF THE ASSESSING OFFICER. WHILE UPHOLDING THE DECISION OF THE LD. CIT(A) ON THE PRI NCIPLE FOLLOWED BY HIM, WE SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WIT H A DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE DISCUSSIONS MADE SUPRA . 4. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE ASS ESSEE. THE FIRST ISSUE RELATES TO THE ASSESSMENT OF OTS COLLECTION AND RR COLLECTION PENDING APPROPRIATION. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICED THAT THE ASSESSEE HAS SHOWN A SUM OF RS. 90,56,721/- IN THE SUSPENSE ACCO UNT UNDER THE HEAD OTHER LIABILITIES IN THE BALANCE SHEET. THE ASSESSEE EX PLAINED ABOUT THE NATURE OF SUSPENSE ACCOUNT BEFORE THE ASSESSING OFFICER. HE ALSO SUB MITTED THAT THE ENTIRE BALANCE IN THE SUSPENSE ACCOUNT AS ON 31-03-2005 AND 31-03-2006 HA S BEEN ASSESSED AS THE INCOME OF THE ASSESSEE AND IN THE APPELLATE PROCEEDINGS, T HE LD. CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO GIVE APPROPRIATE RELIEF WHENEV ER ANY ADJUSTMENT IS MADE IN THE SUSPENSE ACCOUNT. ACCORDINGLY, THE ASSESSEE CLAIME D FOR A DEDUCTION OF RS.51,91,507/- BEING THE ADJUSTMENT MADE IN THE SUSPENSE ACCOUNT. THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE HAS SHOWN THE FOLLOWING I TEMS AS LIABILITIES IN THE BALANCE SHEET: (1) OTS PENDING APPROPRIATION : RS. 9,97,88,821/- (2) RR COLLECTION PENDING APPROPRIATION : RS. 2, 88,95,081/- TOTAL: : RS.12,86,83,702/- THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD ALSO BOOKED THE RECEIPTS UNDER THE ABOVE SAID TWO HEADS IN THE SUSPENSE ACCOUNT. SI NCE THE AMOUNT AVAILABLE IN THE SUSPENSE ACCOUNT WAS ASSESSED AS INCOME IN THE EARL IER YEARS, THE ASSESSING OFFICER PROPOSED TO ASSESS THE ABOVE SAID SUM OF RS.12.86 C RORES ALSO AS INCOME OF THE ASSESSEE. THE ASSESSEE, HOWEVER, OBJECTED TO THE S AID PROPOSAL WITH THE SUBMISSION THAT IT HAD ACCEPTED FOR ASSESSMENT OF BALANCE AVAI LABLE IN THE SUSPENSE ACCOUNT IN I.T.A. NOS. 450&379 /COCH/2013 6 EARLIER YEARS ONLY FOR THE REASON THAT IT WAS NOT I N A POSITION TO GIVE BREAK-UP DETAILS OF SUSPENSE ACCOUNT AND IT WAS ALSO NOT IN A POSITION TO EXPLAIN THE BALANCE AVAILABLE IN THAT ACCOUNT. IT WAS FURTHER SUBMITTED THAT THE AS SESSEE WOULD BE IN A POSITION TO SUBMIT THE BREAK-UP DETAILS OF RS. 12.86 CRORES REF ERRED ABOVE. IT WAS SUBMITTED THAT THESE COLLECTIONS HAVE BEEN ACCOUNTED SEPARATELY TI LL THE TERMS AND CONDITIONS ARE FINALISED WITH THE DEFAULTING BORROWERS. IT WAS FUR THER SUBMITTED THAT THESE COLLECTIONS HAVE BEEN SEPARATELY ACCOUNTED FOR IN THE BOOKS OF ACCOUNT IN ORDER TO HAVE BETTER CONTROL OVER THIS AMOUNT. IT WAS FURTHER SUBMITTED THAT THESE COLLECTIONS WILL BE ADJUSTED AGAINST THE OUTSTANDING LOAN AMOUNTS, AS A ND WHEN THE BORROWERS COMPLY WITH ALL THE TERMS AND CONDITIONS OF OTS/RR SCHEMES . THE ASSESSING OFFICER WAS NOT CONVINCED WITH THE SAID EXPLANATION. WHILE ASSESSIN G THE AMOUNT OF RS. 12.86 CRORES, THE ASSESSING OFFICER GAVE RELIEF OF RS. 49.54 LAKH S RELATING TO THE REDUCTION IN SUSPENSE ACCOUNT AND ACCORDINGLY, ASSESSED THE SUM OF RS.12. 37 CRORES AS THE INCOME OF THE ASSESSEE. THE LD. CIT(A) ALSO CONFIRMED THE ASSESS MENT ON THE REASONING THAT THERE IS NO MATERIAL CHANGE IN THE FACTS DURING THE YEAR UND ER CONSIDERATION WITH REGARD TO THESE ITEMS. 4.1 WE HAVE HEARD THE PARTIES ON THIS ISSUE. BEFOR E PROCEEDING FURTHER, IT IS NECESSARY TO DEAL WITH THE NATURE OF OTS COLLECTION AND RR COLLECTION. WE NOTICE THAT THE ASSESSEE HAS OFFERED FOLLOWING EXPLANATION BEFO RE LD CIT(A) WITH REGARD TO THE NATURE OF OTS COLLECTIONS AND RR COLLECTIONS: GROUND-1: THE LD. OFFICER ERRED IN TREATING THE BA LANCE OF RS. 12,37,29,405/- IN ONE TIME SETTLEMENT AND REVENUE RECOVERY PENDING AP PROPRIATION ACCOUNTS AS INCOME OF THE ASSESSEE FOLLOWING SIMILAR ADJUSTMENT MADE EARLIER FOR THE BALANCE IN SUSPENSE ACCOUNT, OVERLOOKING THE FACT THAT: (A) UNLESS THE BORROWER COMPLIES WITH THE TERMS AND CONDITIONS OF ONE TIME SETTLEMENT SCHEME AND TILL HE REMITS THE FINAL INST ALMENT, THE AMOUNT RECEIVED IN PART CANNOT BE ADJUSTED; (B) THE AMOUNT RECEIVED UNDER REVENUE RECOVERY CANN OT BE ADJUSTED UNTIL FINAL SALE ORDER IS RECEIVED FROM REVENUE RECOVERY AUTHORITY. I.T.A. NOS. 450&379 /COCH/2013 7 (C) EARLIER BALANCE IN SUSPENSE ACCOUNT WAS ADDED S INCE THE ASSESSEE COULD NOT PROVIDE COMPLETE DETAILS FOR THE ENTRIES, WHEREAS, NOW PARTY WISE DETAIL OF ENTIRE AMOUNT LYING IN OTS AND RR ACCOUNT S HAVE BEEN FURNISHED; AND (D) SINCE IN MOST OF THE CASES THE AMOUNT RECEIVED IS NOT EVEN SUFFICIENT TO COVER THE PRINCIPAL AMOUNT DUE, THERE WILL NOT BE A NY AMOUNT AVAILABLE TO ADJUST TOWARDS INCOME. ASSESSING OFFICER HAD TREATED THE AMOUNT RECEIVED U NDER ONE TIME SETTLEMENT SCHEME RS. 9,97,88,621/- AND REVENUE RECOVERY COLLE CTION PENDING APPROPRIATION RS. 2,88,95,081/- AS INCOME OF THE AS SESSEE. ONE TIME SETTLEMENT (OTS) :- UNDER THE OTS SCHEME, A BORROWER HAS TO REMIT AN ADVANCE BEFORE HIS PROPOSAL FOR OTS IS CONSIDERE D AN APPROVED. THE BORROWER IS GRANTED SOME CONCESSIONS IF THE OTS IS APPROVED AND THE EXACT AMOUNT OF CONCESSION CAN BE KNOWN ONLY WHEN THE OTS PROPOSAL IS APPROVED BY THE COMPETENT AUTHORITY. THE INSISTENCE OF ADVANCE IS TO CONFIRM WHETHER THE PARTY IS SERIOUS IN SETTLING THE ACCOUNT OR ONLY EV ADING COERCIVE ACTION TAKEN FOR RECOVERY. MOREOVER, AS PER SIDBI GUIDELINES, THERE SHOULD NOT BE ANY PRINCIPAL WRITE OFF IN THE ACCOUNT AS A RESULT OF SETTLEMENT THROUGH OTS. IN THESE CASES, IF THE ADVANCE AMOUNT IS BOOKED IN THE GROSS RECOVERY ACCOUNT, THE COMPUTER PROGRAMME WILL AUTOMATICALLY SET OFF THIS AMOUNT AL SO ACCORDING TO THE USUAL SET OFF PROCEDURE. THIS WILL AFFECT THE WRITE OFF/WAIV ER PORTIONS OF THE LOAN OUTSTANDING WHEN THE FINAL APPROVAL FOR OTS COMES T HROUGH. SINCE THE AMOUNT RECEIVED IS ONLY AN ADVANCE AND THE TRANSACTIONS WI LL BECOME FINAL ONLY IF ALL THE CONDITIONS IMPOSED UNDER THE OTS SCHEME ARE FULLY C OMPLIED WITH, IT BECOMES IMPERATIVE THAT THE ADVANCE RECEIVED TOWARDS OTS IS CREDITED TO A SEPARATE ACCOUNT, TILL ALL THE CONDITIONS IMPOSED UNDER THE OTS SCHEME ARE FULLY COMPLIED WITH. REVENUE RECOVERY COLLECTION :- OTHER THAN THE NORMAL COURSE OF RECOVERY, THERE ARE MEASURES LIKE INITIATION OF ACTION U/S. 29 OF T HE SFCS ACT, INITIATION OF REVENUE RECOVERY PROCEEDINGS, INVOKING OF PERSONAL GUARANTEE ETC. IN THESE CASES ALSO, THERE WILL BE ADVANCE REMITTANCES AND I F SUCH REMITTANCES ARE CONSIDERED AS NORMAL REMITTANCE AND BOOKED UNDER GR OSS RECOVERY, THE SAME WILL BE SET OFF IN THE ORDER OF PRIORITY IN THE LOAN ACC OUNT AS PER THE COMPUTER PROGRAMME. THE ADVANCE REMITTANCES ARE PRE-REQUISI TE FOR CONSIDERING THE SALE OF ASSETS U/S. 29 OF THE SFCS ACT, AS WELL AS UNDER REVENUE RECOVERY ACTION, IN THE SAME WAY AS UNDER THE ONE TIME SETTLEMENT SCHEM E. THE SALE WILL BECOME FINAL ONLY AFTER THE SALE AMOUNT IS APPROVED BY THE BOARD/DY. COLLECTOR (RR) AS THE CASE MAY BE. THE FORMALITIES AND FINALIZATION OF SALE OF ASSETS UNDER COERCIVE ACTION WILL TAKE SOME TIME TILL THE CONFIRMATION OF THE SALE AND SETTLEMENT OF THE ACCOUNT, THE ADVANCE AMOUNT HAS TO BE KEPT IN A SEP ARATE ACCOUNT. I.T.A. NOS. 450&379 /COCH/2013 8 HENCE, THE AMOUNT LYING IN OTS PENDING APPROPRIATI ON RS. 9,97,88,621/- AND RR COLLECTION PENDING APPROPRIATION RS. 2,88,95 ,081/- ARE ONLY LIABILITIES TILL ALL THE PROCEDURAL FORMALITIES ARE COMPLETE AND CAN NOT BE TAKEN AS INCOME. IT MAY BE SEEN THAT DURING NEXT YEAR I.E. AS ON 31.3.2 009, OTS PENDING APPROPRIATION RS. 9,97,88,621/- HAS BEEN REDUCED TO RS. 72,27,033/- AND RR COLLECTION PENDING APPROPRIATION RS. 2,88,95,081/- HAS BEEN REDUCED TO RS.1,40,53,066/- AFTER MAKING NECESSARY ADJUSTMENTS IN THE ACCOUNTS ON COMPLETION OF ALL NECESSARY PROCEDURAL FORMALITIES. (AS PER COPY OF SCHEDULE-6 OF THE BALANCE SHEET ENCLOSED AS PAGE 1). PUNJAB & HARYANA HIGH COURT IN THE CASE OF HARYANA FINANCIAL CORPORATION (340 ITR 288) HAD HELD THAT EVEN IF THE ASSESSEE I S FOLLOWING CASH METHOD OF ACCOUNTING, INTERIM PAYMENTS RECEIVED FROM DEFAULTI NG BORROWERS TREATED AS CURRENT LIABILITIES CANNOT BE BIFURCATED INTO PRINC IPAL AND INTEREST AND TREATED AS REVENUE RECEIPT, TILL FINAL SETTLEMENT (COPY OF ORD ER ENCLOSED AS PAGE 2 TO 4). BASED ON THE ABOVE FACTS AND PUNJAB & HARYANA HIGH COURT DECISION, THIS ADDITION MAY BE DELETED. 4.2 THE MAIN CONTENTION OF THE ASSESSEE IS THAT T HE TAX AUTHORITIES WERE NOT JUSTIFIED IN ASSESSING THE COLLECTIONS SHOWN UNDER OTS COLLEC TION PENDING APPROPRIATION AND RR COLLECTION, AS THESE COLLECTIONS REPRESENT AMOUNT C OLLECTED FROM BORROWERS, WHICH ARE PENDING FOR APPROPRIATION TILL FINALISATION OF THE TERMS AND CONDITIONS OF CONCERNED WAIVER SCHEMES. ANOTHER MAIN CONTENTION OF THE ASS ESSEE IS THAT IT HAS ACCEPTED FOR THE ASSESSMENT OF AMOUNT AVAILABLE IN SUSPENSE ACCO UNT, ONLY FOR THE REASON THAT IT WAS NOT ABLE TO FURNISH THE BREAK UP DETAILS THEREO F OR OFFER PROPER EXPLANATION AND HENCE IT WAS NOT PROPER FOR THE TAX AUTHORITIES TO ASSESS THE ABOVE SAID AMOUNTS SIMPLY FOR THE REASON THAT THE AMOUNT AVAILABLE IN SUSPENS E ACCOUNT HAS BEEN ASSESSED IN THE EARLIER YEAR. ACCORDING TO THE ASSESSEE, IT CAN FU RNISH THE BREAK UP DETAILS OF OTS/RR COLLECTIONS. IT WAS ALSO SUBMITTED THAT MOST OF TH E AMOUNTS AVAILABLE IN THESE TWO ACCOUNTS HAVE BEEN ADJUSTED IN THE SUCCEEDING YEARS . 4.3 WE NOTICE THAT THE TAX AUTHORITIES HAVE NOT EXAMINED THE ABOVE SAID SUBMISSIONS MADE BY THE ASSESSEE. IN OUR VIEW, THE ASSESSEE HA S EXPLAINED THE CIRCUMSTANCES UNDER WHICH IT HAD AGREED TO THE PROPOSAL OF THE AS SESSING OFFICER TO ASSESS THE AMOUNT AVAILABLE IN SUSPENSE ACCOUNT. ACCORDING TO THE AS SESSEE, THE SITUATION HAS CHANGED IN THE INSTANT YEAR AND IT WOULD BE IN A POSITION TO E XPLAIN EACH RECEIPT WITH THE I.T.A. NOS. 450&379 /COCH/2013 9 DOCUMENTS PERTAINING TO THE CONCERNED BORROWER. UN DER THESE SET OF FACTS, IN OUR VIEW, IT MAY NOT BE PROPER TO ASSESS THE ENTIRE COLLECTIO NS SIMPLY FOR THE REASON THAT IN THE EARLIER YEARS, THE ASSESSEE HAS AGREED FOR THE ASSE SSMENT OF THE AMOUNT AVAILABLE IN SUSPENSE ACCOUNT. IN OUR VIEW, THE ASSESSING OFFIC ER IS OBLIGED TO CONSIDER THE EXPLANATIONS GIVEN BY THE ASSESSEE, I.E., THE ASSES SING OFFICER IS REQUIRED TO EXAMINE THE EXPLANATIONS OF THE ASSESSEE WITH REFERENCE TO THE TERMS AND CONDITIONS RELATING TO THE CONCERNED BORROWER AND THEN ONLY, IN OUR VIEW, HE W OULD BE IN A POSITION TO DETERMINE ABOUT THE TAXABILITY OF THESE RECEIPTS. ADMITTEDLY , THIS EXERCISE HAS NOT BEEN CARRIED OUT BY THE ASSESSING OFFICER. BEFORE US, THE ASSESSEE HAS FURNISHED COPIES OF RECOVERY POLICY 2007-08, WHICH LISTS OUT THE TERMS AND CONDI TIONS RELATING TO OTS SCHEME, WHICH ALSO REQUIRES TO BE CONSIDERED BY THE AO. IN THE A BSENCE OF BASIC FACTS RELATING TO THESE RECEIPTS, WE ARE ALSO NOT IN A POSITION TO EX PRESS ANY OPINION. ACCORDINGLY, IN OUR VIEW, THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTIO N TO EXAMINE THE NATURE OF EACH OF THE RECEIPTS ACCOUNTED UNDER THESE TWO HEADS WITH REFER ENCE TO THE RELEVANT DOCUMENTS AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH TH E LAW. 5. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELA TES TO THE DISALLOWANCE OF RS.1,39,250/- RELATING TO LOSS ON SALE OF ASSETS. ON NOTICING THAT THE AUDITORS OF THE ASSESSEE HAS CATEGORISED THE ABOVE SAID ITEM AS PR IOR PERIOD EXPENDITURE, THE AO DISALLOWED THE CLAIM OF RS.1,39,250/- REFERRED ABOV E. BEFORE LD CIT(A), THE ASSESSEE SUBMITTED THAT THE LOSS WAS INCURRED ON SALE OF PRO PERTY, WHICH WAS ACQUIRED IN SATISFACTION OF CLAIM FROM A BORROWER. IT WAS SUBM ITTED THAT THE PROPERTY WAS SOLD IN VARIOUS YEARS AND THE ASSESSEE COULD QUANTIFY THE L OSS ONLY DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THE ASSESSEE DID NOT FILE ANY DOCUMENT TO SUBSTANTIATE ITS CLAIM AND HENCE THE LD CIT(A) CONFIRMED THIS DISALL OWANCE. BEFORE US, THE ASSESSEE HAS FAILED TO FURNISH ANY MATERIAL TO SUBSTANTIATE THE CLAIM MADE BEFORE LD CIT(A). HENCE, WE HAVE NO OTHER OPTION, BUT TO CONFIRM THE ORDER O F LD CIT(A) ON THIS ISSUE. I.T.A. NOS. 450&379 /COCH/2013 10 6. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F PRIOR PERIOD EXPENDITURE OF RS.69,46,311/-. THE AO NOTICED FROM POINT NO.16 OF THE ANNEXURE TO THE AUDIT REPORT THAT THE ASSESSEE HAS DEBITED THE PROFIT AND LOSS A CCOUNT WITH AN AMOUNT OF RS.69,46,311/- RELATING TO PRIOR PERIOD EXPENDITURE . BEFORE AO, THE ASSESSEE OFFERED FOLLOWING EXPLANATIONS:- AUDITORS IN ITEM 16 OF THEIR REPLY HAD MENTIONED T HAT MISCELLANEOUS INCOME INCLUDE RS.48,05,436/- AND OTHER EXPENSE INCLUDE RS .69,46,311/- RELATING TO EARLIER YEARS. THIS SUM ACTUALLY REPRESENTS THE AM OUNT TRANSFERRED FROM SUSPENSE ACCOUNT. THE ACTUAL AMOUNTS TRANSFERRED A RE RS.49,22,710/- TO INCOME AND RS.51,59,911/- TO EXPENSE ACCOUNT, DETAILS OF W HICH WAS FURNISHED TO YOU IN OUR LETTER DATED 29.12.2010. AUDITORS COULD NOT FURNISH THE DETAILS ON WHICH THE AMOUNT MENTIONED IN THEIR REPORT HAS BEEN ARRIVED A T. SINCE THE NET AMOUNT LYING IN SUSPENSE ACCOUNT HAS ALREADY BEEN ASSESSED AS INCOME BY YOU, ASSESSEE OBJECTS TO YOUR PROPOSAL TO DISALLOW THE SAME AGAIN BASED ON THE AUDITORS REPORT. SINCE THE AUDITORS HAVE GIVEN CLEAR FINDING WITH RE GARD TO THE PRIOR PERIOD EXPENDITURE, THE AO DISALLOWED THE EXPENDITURE OF RS.69,46,311/- REPORTED IN THE AUDIT REPORT. THE LD CIT(A) ALSO CONFIRMED THE SAID ADDITION BY HOLDI NG THAT THE REPORT OF THE AUDITOR IS AN IMPORTANT PIECE OF EVIDENCE AND FURTHER THE ONUS LIES UPON THE ASSESSEE TO PROVE THAT THE STATEMENT OF AUDITOR WAS WRONG. 6.1 BEFORE US ALSO, THE ASSESSEE COULD NOT FURNI SH THE DETAILS OF RS.69,46,311/- REPORTED AS PRIOR PERIOD EXPENSES IN THE AUDITORS REPORT. THE LD A.R REITERATED THE SUBMISSIONS MADE BEFORE THE AO. WE NOTICE THAT THE CLAUSE 16 OF THE AUDITORS REPORT READS AS UNDER:- 16. MISCELLANEOUS INCOME CREDITED TO P & L ACCOUN T INCLUDES RS.48,05,436.00 RELATING TO PREVIOUS YEARS, WHICH HAS NOT BEEN DISC LOSED. OTHER EXPENSES RS.93,69,742.00 INCLUDES PRIOR PERIOD EXPENDITURE O F RS.69,46,311.00 WHICH SHOULD HAVE BEEN DISCLOSED. A PLAIN READING OF THE COMMENT MADE BY THE AUDITOR SUGGESTS THAT THE ASSESSEE HAS FAILED TO DISCLOSE BOTH INCOME AND EXPENDITURE RELA TING TO THE EARLIER YEARS. FURTHER THE AUDITORS HAVE CLEARLY STATED THAT PRIOR PERIOD INCO ME IS INCLUDED IN MISCELLANEOUS INCOME AND THE PRIOR PERIOD EXPENDITURE IS INCLUDE D IN OTHER EXPENSES. HENCE, I.T.A. NOS. 450&379 /COCH/2013 11 NORMALLY THERE SHOULD NOT BE ANY DIFFICULTY IN IDEN TIFYING THE ITEMS OF INCOME/EXPENDITURE RELATING TO THE EARLIER YEARS. HOWEVER, THE ASSESSEE HAS EXPRESSED ITS INABILITY TO GIVE THE DETAILS OF PRIOR PERIOD E XPENDITURE WITH THE SUBMISSION THAT THE AUDITORS ALSO ARE NOT ABLE TO FURNISH THE BREAK UP DETAILS. 6.2 THERE SHOULD NOT BE ANY DISPUTE THAT THE RE PORT GIVEN BY THE AUDITORS IS AN IMPORTANT PIECE OF EVIDENCE. HOWEVER, WE NOTICE TH AT THE ASSESSING OFFICER HAS PLACED RELIANCE ON IT IN PART ONLY, I.E., HE HAS CHOSE TO DISALLOW THE PRIOR PERIOD EXPENDITURE OF RS.69,46,311/- REPORTED BY THE AUDITORS, BUT OMITTE D TO DELETE THE PRIOR PERIOD INCOME OF RS.48,05,436/-. THE SAID ACTION OF THE AO, IN O UR VIEW, DOES NOT APPEAR TO BE FAIR. IN OUR VIEW, THE AO SHOULD HAVE GIVEN EFFECT TO THE REPORT OF THE AUDITORS IN TOTO, I.E., IN OUR VIEW, THE ASSESSING OFFICER SHOULD HAVE DELETED THE PRIOR PERIOD INCOME ALSO. ACCORDINGLY, WE MODIFY THE ORDER OF LD CIT(A) ON TH IS ISSUE AND DIRECT THE ASSESSING OFFICER TO SET OFF THE PRIOR PERIOD INCOME REPORTED BY THE AUDITORS AGAINST THE PRIOR PERIOD EXPENDITURE REPORTED BY THEM AND RESTRICT TH E ADDITION TO THE NET AMOUNT ONLY. 7. IN THE RESULT, THE APPEAL FILED BY THE REVEN UE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY ON 13- 11-2013. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 13TH NOVEMBER, 2013 GJ COPY TO: 1. KERALA FINANCIAL CORPORATION, 1, ASWATHY, VELLAY AMBALAM, TRIVANDRUM-33 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1(1), TRIVANDRUM. 3 THE COMMISSIONER OF INCOME-TAX(APPEALS), TRIVANDR UM. 4.THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN