ACIT, Patiala V. M/s State Bank of Patiala, Patiala

ITA 450/CHANDI/2011

• Counselvise Citation: 45021514 RSA 2011
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 03-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJEET SINGH
• Assessee Lawyers: PANKAJ JAIN; DEVENDRA GOYAL
• Keywords: Business income; Earning of tax free income; Period of limitation; Bad and doubtful debts; Corroborative evidences; Time period of passing order; Revised return
• Section: 143(3); 14A; 133(6); 148; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.456/CHD/2011 ASSESSMENT YEAR: 2007-08 STATE BANK OF PATIALA, V ACIT, CIRCLE, HEAD OFFICE, PATIALA. THE MALL, PATIALA. PAN : AACCS-0143D & ITA NO. 450/CHD/2011 ASSESSMENT YEAR 2007-08 ACIT, CIRCLE, V STATE BANK OF PATIALA, PATIALA. THE MALL, PATIALA. (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI PANKAJ JAIN & DEVENDRA GOYAL DEPARTMENT BY : SHRI MANJEET SINGH DATE OF HEARING : 18.04.2012 DATE OF PRONOUNCEMENT : 16.05.2012 ORDER PER MEHAR SINGH, AM THESE ARE CROSS-APPEALS FILED BY THE ASSESSEE AND T HE REVENUE, RESPECTIVELY, DIRECTED AGAINST THE ORDER O F CIT(A) PASSED U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SH ORT 'THE ACT') DATED 28.02.2010 RELATING TO ASSESSMENT YEAR 2007-08. 2. IN ASSESSEES APPEAL, THE FOLLOWING GROUNDS HAVE BEEN RAISED: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN HOLDING THAT 2.5% OF THE EXEMPT INCOME IS DISALLOWABLE AS EXPENDITURE AGAINST EXEMPT INCOME U/S 14A OF THE INCOME 2 TAX ACT, 1961 . 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN HOLDING THAT BAD DEBTS RECOVERED DURING THE YEAR WHICH WERE NEITHER CLAIMED NOR ALLOWED AS A DEDUCTION U/S 36(1)(VII) WERE LIABLE TO TAX THEREBY SUSTAINING THE AD DITION OF RS. 55,24,00,000/-. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 42,00,OOO/- BEI NG 1/5 OF THE ESTIMATED PRIOR PERIOD EXPENSES OF RS. 2,10,00, 000/- IGNORING TOTALLY THE DIRECTIONS AND ORDER OF THE HO N'BLE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF THE AP PELLANT IN PREVIOUS YEARS. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 11,89,89, OOO/- ON ACCOUNT OF OUTSTANDING BALANCES IN NOSTRO-BLOCKE D A/C. 5. THAT THE LEARNED COMMISSIONER OF INCOME-TAX (APP EALS) HAS ERRED IN THE HOLDING THAT UNRECONCILED INTER BANK A ND INTER BRANCH ENTRIES ARE COVERED BY ARTICLE 22 OF THE LIMI TATION ACT, ARE REQUIRED TO BE CONSIDERED FOR ADDITION TO TH E INCOME IGNORING THE CONTENTION OF THE APPELLANT THAT ENTRIE S CANNOT BE CONSIDERED UNLESS WRITTEN OFF IN BOOKS OF ACCOU NTS BY THE APPELLANT. 6. THAT THE WHOLE ORDER IS AGAINST THE PROVISION S OF LAW AND FACTS OF THE CASE AND RIGHT IS RESERVED TO ASSAIL THE SAME ON SUCH OTHER GROUNDS AS MAY BE ADVANCED AT THE TIME O F HEARING FOR WHICH THE APPELLANT REQUESTS LEAVE TO A MEND, VARY FROM OR ADD TO THE GROUNDS OF APPEAL , HEREINA BOVE APPEARING. 3. IN CROSS-APPEAL, THE REVENUE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN ALLOWING A RELIEF OF RS.6,64,41,730/- OUT OF THE TOTAL ADDITION OF RS.6,81,45,964/-, MADE BY THE AO ON A/C OF DISALLOWANCE U/S 3 14A, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO DISCHARGE ITS ONUS OF FILING THE DETAILS OF THE EXPENS ES THAT HAD BEEN INCURRED IN RELATION TO THE INCOME CLAIMED AS E XEMPT DURING COURSE OF THE ASSESSMENT PROCEEDINGS. THUS, THE ASSESSEE H AD FAILED TO SHARE THE EXCLUSIVE EVIDENCE IN ITS KNOWLEDGE ABOU T THE EXPENDITURE ON EXEMPTED INCOME WITH THE DEPARTMENT 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE TO L/5 TN OF THE TOTAL EXPENSES OF RS. 2,10,00,000/- CLAIMED UNDER THE HEAD 'PRIOR PERI OD EXPENSES', AS AGAINST THE DISALLOWANCE OF L/3 RD MADE BY THE AO, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO PRODUCE SUPPORTING EVIDENCE IN RESPECT OF THE CLAIM AND, THUS , THE AO WAS JUSTIFIED IN TAKING AN ADVERSE VIEW AS PER SECTION 114 OF THE INDIAN EVIDENCE ACT. 3. IT IS PRAYED THAT THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE AO RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GR OUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND FINALLY DISPOSE D OF. 4. IN GROUND NO. 1, THE ASSESSEE APPELLANT CONTENDE D THAT CIT(A) ERRED IN HOLDING THAT 2.5% OF THE EXEMPT INCOME IS DISALLOWABLE AS EXPENDITURE AGAINST EXEMPT INCOM E U/S 14A OF THE ACT. 5. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, BOTH LD. 'AR AND LD. 'DR' STATED THAT THIS GROUND OF APP EAL IS COVERED AGAINST THE ASSESSEE, IN ASSESSEE'S OWN CAS E IN ITA NO. 593/CHD/2009 & OTHERS, A.Y. 2002-03 TO 2006-07 AND DREW OUR ATTENTION TO THE FINDINGS OF THE ITAT IN P ARA 16 OF THE ORDER. THE SAME ARE REPRODUCED HEREUNDER : 16. IN THE FACTS OF THE PRESENT CASE BEFORE US, TH E ASSESSEE HAD EARNED TAX FREE INCOME TOTALING RS.26. 57 CR AS DETAILED IN PARAS HEREIN ABOVE. FOLLOWING TH E 4 RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG.CO.LTD. (SUPRA), WE ARE OF THE V IEW THAT EXPENDITURE ATTRIBUTABLE TO SUCH EXEMPT INCOME MERITS TO BE DISALLOWED. THE ASSESSING OFFICER HAD COMPUTED THE DISALLOWANCE U/S 14A OF THE ACT ON ACCOUNT OF BOTH ON INTEREST EXPANDED FOR THE PURPOS E OF INVESTMENT IN THE SAID SECURITIES AND PROPORTIONATE OVERHEAD AND ADMINISTRATIVE EXPENSES INCURRED FOR EARNING THE SAID INCOME. THE CIT(APPEALS) HAS DELE TED THE ADDITION IN RESPECT OF THE INTEREST COMPONENT ATTRIBUTABLE TO SUCH INVESTMENTS AND SECURITIES, ON WHICH ASSESSEE'S INCOME IS EXEMPT FROM TAX. THE CIT(APPEALS) HAD ESTIMATED THE ADMINISTRATIVE EXPENSES TO THE EXTENT OF 2.5% OF THE TOTAL TAX FRE E INCOME EARNED BY THE ASSESSEE. THE SAID ESTIMATE W AS MADE KEEPING IN VIEW THAT ONLY EXPENDITURE OF THE FUNDS DEPARTMENT DEALING IN INVESTMENT OF SHARES, BONDS ETC. AND THE BRANCHES WHO HAD ADVANCED INFRASTRUCTURE LOANS WAS REQUIRED TO BE CONSIDERED. AS PER THE WORKING OF THE ASSESSEE AND AS NOTED BY CIT(APPEALS) IN PARA 4.7 AT PAGE 8, THE EXPENDITURE OF RS.44,15,657/- IS ATTRIBUTABLE TO SUCH INCOME IN VI EW OF THE APPLICABILITY OF PROVISIONS OF SECTION 14A OF T HE ACT. IN VIEW OF THE TOTALITY OF THE FACTS AND THE SETTLE D LEGAL PRECEDENTS, WE FIND NO MERIT IN THE SUBMISSION OF T HE LEARNED AR FOR THE ASSESSEE THAT NO DISALLOWANCE IS WARRANTED OUT OF THE EXEMPT INCOME ON ACCOUNT OF OVERHEAD AND ADMINISTRATIVE EXPENSES. THE DELHI BENCH OF TRIBUNAL IN PUNJAB NATIONAL BANK V DCIT HA D HELD THAT THE EXPENDITURE RELATING TO EARNING OF TA X FREE INCOME NEEDS TO BE QUANTIFIED IN THE HANDS OF THE ASSESSEE, KEEPING IN VIEW THE EXPENDITURE INCURRED ON THE SERVICE OF EMPLOYEES WHICH HAD BEEN UTILIZED FO R THE PURPOSE OF CARRYING OUT THE OBJECTS OF THE ASSESSEE . IN THE ENTIRETY OF THE ABOVESAID RATIOS LAID DOWN ON T HE SUBJECT AND THE FACTS OF THE PRESENT CASE, WE ARE I N CONFORMITY WITH THE ORDER OF THE CIT(APPEALS) THAT IN THE 5 ABSENCE OF THE DETAILS BEING MAINTAINED IN RESPECT OF EXPENDITURE INCURRED ON THE EXEMPT INCOME AND THE TAXABLE INCOME SEPARATELY, THE EXPENDITURE ATTRIBUT ABLE TO EARNING OF TAX FREE INCOME NEEDS TO BE ESTIMATED . WE FIND THE CIT(APPEALS) HAD ESTIMATED THE SAID DISALLOWANCE AT 2.5% OF THE TAX FREE INCOME EARNED BY THE ASSESSEE. UPHOLDING THE SAME, WE DISMISS THE GROUND NO.1 RAISED BY THE ASSESSEE. 6. THE FACTS OF THE PRESENT APPEAL AND THE ISSUE DE CIDED BY THE TRIBUNAL IN ITA NUMBER, REFERRED TO BY THE L D. 'AR', ARE SIMILAR IN NATURE AND, HENCE, RESPECTFULLY FOLL OWING THE SAME, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 7. IN GROUND NO.2, THE APPELLANT CONTENDED THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN H OLDING THAT BAD DEBTS RECOVERED DURING THE YEAR WHICH WERE NEITHER CLAIMED NOR ALLOWED AS A DEDUCTION U/S 36(1 )(VII) WERE LIABLE TO TAX THEREBY SUSTAINING THE ADDITION OF RS. 55,24,00,000/-. 8. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS B EFORE US, BOTH LD.'AR' AND LD.'DR' STATED THAT THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE, IN ASSESSEE' S OWN CASE, BY THE TRIBUNALS ORDER. THE DETAIL OF SUCH B AD DEBTS HAS BEEN PROVIDED IN THE PAPER BOOK, FROM PAGE 105 TO 184. A PERUSAL OF THE ISSUES AND FACTS, INVOLVED IN THE PRESENT CASE AND THE ADJUDICATION MADE BY THE TRIBU NAL IN ASSESSEE'S OWN CASE, IT REVEALS THAT THE SAME ARE S IMILAR IN NATURE. THEREFORE, RESPECTFULLY FOLLOWING THE DECIS ION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE, THIS GROUND OF APP EAL OF 6 THE ASSESSEE IS FOUND TO BE COVERED AGAINST THE ASS ESSEE. THE RELEVANT PART OF THE FINDINGS OF THE TRIBUNAL I S REPRODUCED HEREUNDER : 19. WE HAVE HEARD THE RIVAL CONTENTIONS. THE ASSESS EE DURING THE YEAR HAD RECOVERED BAD DEBTS TOTALING RS. 4.52 CR. IN THE ORIGINAL RETURN OF INCOME, THE SAME WAS INCLUDED AS INC OME BY THE ASSESSEE. HOWEVER, THE ASSESSEE FILED REVISED RETURN OF INCOME AND VIDE NOTE NO.3 IT WAS CLAIMED AS UNDER : BAD DEBTS WRITTEN OFF EARLIER YEAR AND RECOVERED DU RING THE YEAR AMOUNTING RS.4,52,49,329/- THOUGH CREDITED TO PROF IT AND LOSS ACCOUNT HAVE BEEN REDUCED FROM INCOME AS DEBTS HAVE BEEN NEITHER CLAIMED NOR ALLOWED AS DEDUCTION IN THE Y EAR OF WRITING OFF AND HENCE ARE NOR COVERED BY PROVISION O F SECTION 41(1) OF THE ACT. 20. THE RETURN OF INCOME WAS REVISED TO THE EXTENT OF BAD DEBTS RECOVERED TOTALING RS.4.52 CR. THE COPY OF REVISED CO MPUTATION OF INCOME IS PLACED AT PAGES 5 TO 5 OF PB-1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE EXPLANATION OF THE ASSESS EE WAS AS UNDER : THE ASSESSEE BANK DURING THE YEAR UNDER CONSIDERAT ION RECOVERED BAD DEBTS AMOUNTING TO RS.4,52,49,330/- WRITTE N OFF EARLIER. THE AMOUNT WAS INCLUDED IN THE INCOME IN TH E PROFIT & LOSS ACCOUNT BUT WHILE PREPARING THE RETURN, THE AMOU NT OF BAD DEBTS RECOVERED DURING THE YEAR HAS BEEN REDUCED FR OM THE TAXABLE INCOME. THE ASSESSEE HAS BEEN CLAIMING DEDUCTION U/S 36(1)(VIIA) . AS PER PROVISO TO SECTION 36(1)(VII) THE BAD DEBTS IN TH E CASE OF THE ASSESSEE WHERE PROVISIONS OF SECTION 36(1)(VIIA) ARE A PPLICABLE ARE ONLY ALLOWABLE TO THE EXTENT THE BAD DEBTS EXCEED THE PROVISION U/S 36(1)(VIIA), IN VIEW OF THE PROVISO TO SE CTION 36(1)(VII), THE BANK HAS NEITHER CLAIMED NOR WAS ALLOWED A NY DEDUCTION FOR BAD DEBTS WRITTEN OFF U/S 36(1)(VII). THE PROVI SIONS OF SECTION 41(4) ARE ONLY APPLICABLE IN THE CASE OF BA D DEBTS RECOVERED WHICH HAVE BEEN ALLOWED AS DEDUCTION U/S 36 (1)(VII) IN THE PAST. AS THE DEBTS RECOVERED DURING THE YEAR WERE NEITHER CLAIMED NOR ALLOWED AS A DEDUCTION U/S 36(1)(VII), THE PR OVISIONS OF SECTION 41(4) ARE NOT APPLICABLE AND, AS SUCH, BAD D EBTS RECOVERED DURING THE YEAR HAVE BEEN REDUCED FROM TH E INCOME AND THE FACTS HAS BEEN FULLY DISCLOSED IN THE SHAPE OF A NOTE ATTACHED WITH THE RETURN. 7 21. THE ASSESSING OFFICER NOTICED FROM THE REPORT O F THE AUDITOR IN FORM NO. 3CD AT SR.NO. (18), THERE IS MENTION THAT TH E AMOUNT RECOVERED ON ACCOUNT OF ADVANCE WRITTEN OFF AT RS.4.52 CR WAS CREDITED TO PROFIT & LOSS ACCOUNT MEANING THEREBY TH AT THE SAME ARE COVERED U/S 41(1) OF THE ACT THOUGH THE CASE OF ASSESSEE IS THAT THESE ARE NOT COVERED U/S 41(4) OF THE ACT. THE ISSUE ARISING IN THE PRESENT CASE IS IN CONNECTION WITH THE BAD DEBTS RECOVERED. THE A.O. REQUISITIONED THE ASSESSEE TO FILE DETAILS OF BAD DEBTS WRITTEN OFF YEAR WISE AND RECOVERED DURING THE YEAR. THE ASSESSEE HAS FAILED TO FURNISH ANY INFORMATION IN THIS REGARD EITHER BEFORE A.O. OR CIT(A). NO DETAILS HAVE BEEN FILED BY THE LEARNED AR FOR THE ASSESSEE BEFORE US, DESPITE A SPECIFIC QUERY RAISE D IN THIS REGARD. THE LEARNED AR HAS PLACED RELIANCE ON THE RATIO LAID DOWN BY THE BANGALORE BENCH OF TRIBUNAL IN STATE BANK OF MYSORE V S DCIT (2009) 33 SOT 7 (BANG) WITHOUT BRINGING ON RECORD THE FACTUAL ASPECTS ON RECORD. IN THE ABSENCE OF THE SAME AND I N VIEW OF THE REPORT OF AUDITOR AND THE ASSESSEE NOT DISCHARGING ITS ONUS, WE ARE IN CONFORMITY WITH ORDER OF CIT(APPEALS) AND A.O. THAT B AD DEBTS RECOVERED DURING THE YEAR ARE TO BE INCLUDED AS INCO ME IN THE HANDS OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF SECTION 41(4) OF THE ACT. 22. THE ASSESSING OFFICER DURING THE ASSESSMENT PRO CEEDINGS CARRIED OUT PURSUANT TO NOTICE ISSUED U/S 148 OF TH E ACT RELATING TO ASSESSMENT YEAR 2002-03, IN RESPECT OF CLAIM OF BAD DEB TS RECOVERED NOT BEING CHARGEABLE TO TAX, HAD ISSUED LET TER DATED 23.10.2008 U/S 133(6) OF THE ACT TO THE AUDITOR G.S.GOEL &CO. AND IN RESPONSE IT WAS REPLIED AS UNDER:- WE ARE IN RECEIPT OF YOUR ABOVE REFERRED LETTER ON 29.10.2008 AND HAVE NOTED ITS CONTENTS. IN RESPONSE T O THE SAME WE WISH TO SUBMIT THE FOLLOWING REPLY. THE AMOUNT OF RS. 2,93,24,755.99 RECOVERED AGAINST BAD DEBTS WRITTEN-OFF AND ALLOWED AS EXPENDITURE IN EARLIER YEA RS U/S 36(1)(VII) OF THE ACT IS CHARGEABLE TO INCOME TAX U/S 41(4) OF THE INCOME TAX ACT, 1961.. IN OUR TAX AUDIT REPORT, IN REPLY TO POINT NO.20 REGARD ING AMOUNT CHARGEABLE TO TAX U/S 41, WE HAVE MENTIONED TH AT 8 AMOUNT RECOVERED IN RESPECT OF ADVANCES WRITTEN OFF IS RS. 2,93,24,755.99 AND IS CHARGEABLE TO TAX U/S 41 OF THE INCOME TAX ACT, 1961. HOWEVER, THE SAME HAS BEEN CREDITED BY THE BANK TO ITS PROFIT AND LOSS ACCOUNT. IN OUR OPINION THIS AMOUNT IS CHARGEABLE TO TAX U/S 41 OF T HE INCOME TAX ACT, 1961. 23. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRC UMSTANCES, UPHOLDING THE ORDER OF CIT(APPEALS), WE DISMISS THE GRO UND NO.5 RAISED BY THE ASSESSEE. 8(I) THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 9. IN GROUND NO.3, THE ASSESSEE CONTENDED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 42,00,OOO/- BEING 1/ 5 TH OF THE ESTIMATED PRIOR PERIOD EXPENSES OF RS. 2,10,00, 000/- IGNORING TOTALLY THE DIRECTIONS AND ORDER OF THE HO N'BLE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF THE A PPELLANT IN PREVIOUS YEARS. 10. THIS ISSUE IS COVERED IN ITA NO. 451 TO 455/CHD/2011 A.Y. 1996-97, 1998-99,1999-2000, 2001-02 & 2002-03 IN ASSESSEE'S OWN CASE DATED 25.01.2012, AS STATED BY LD. 'AR' AND LD. 'DR'. 11. THE RELEVANT PART OF THE ORDER OF THE HON'BLE T RIBUNAL IS REPRODUCED HEREUNDER : 3. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, LD. 'AR' CONTENDED THAT THE AO HAS NOT COMPLIED WITH TH E DIRECTIONS OF THE TRIBUNAL, AS CONTAINED IN PARA 11 OF THE ORDER DATED 19.06.2008 IN ITA NO. 785/CHD/1999 AND OTHERS, FOR THE ASSESSMENT YEAR 1996-97, IN ASSESSE E'S 9 OWN CASE. HE NARRATED THE ISSUE IN QUESTION, IN TH E APPEAL, AS PERTAINING TO PRIOR PERIOD EXPENSES. HE, FURTHER, STATED THAT SINCE THE INCEPTION OF THE BAN K, IT HAS BEEN CONSISTENTLY FOLLOWING THE HYBRID METHOD OF ACCOUNTING AND ITEMS IN ISSUE REGARDING PAYMENT OF STATIONERY BILLS, MISC. BILLS, NO-DEPARTURE HAS BEE N MADE IN THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSE E. LD. 'DR' ON THE OTHER HAND, CONTENDED THAT THE ASSE SSEE HAS FAILED TO PRODUCE REQUISITE EVIDENCE IN RESPECT OF SUCH EXPENSES TO ENABLE THE ITO TO TAKE PROPER AND APPRO PRIATE VIEW IN THE MATTER. HE REFERRED TO PAGE 7 OF THE ASSESSMENT ORDER DATED 30.11.2009 FOR THE ASSESSMEN T YEAR 1996-97, PASSED U/S 143(3) READ WITH SECTION 2 54 OF THE ACT, WHEREBY THE AO HAS CATEGORICALLY MENTIONED HOWEVER, THE ASSESSEE FAILED TO PRODUCE ANY PROOF IN RESPECT OF STATIONERY EXPENSES AND MISC. EXPENSE S ETC. AS TO ON WHAT BASIS, THEY WERE BOOKED FOR, IN THE YEAR UNDER CONSIDERATION, THOUGH THEY WERE PURCHASED IN EARLIER YEARS. THE AO, FURTHER, MENTIONED ON PERUSAL OF THE AUDIT REPORT OF THE TAX AUDITORS FURNISHED BY THE ASSESSEE WITH THE RETURN OF INCOME, IT IS CLEAR THAT THE ASSESSEE WAS REQUIRED TO PROVIDE DETAILS TO THE AUDITOR IN RESPECT OF PRIOR PERIOD EXPENSES/INCOME DEBITED TO PROFIT & LOSS ACCOUNT BUT THE ASSESSEE HAS FAILED TO DO SO STATIN G THE REASONS DEPICTED IN THE AUDIT REPORT AGAINST COLUMN 9(B) AS ALSO IN THE REPLY FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS STATED SUPRA. ACCORDINGLY, THE LD. 'AR' WAS OF THE OPINION THAT I T IS THE FAILURE OF THE ASSESSEE WHICH LED TO FRAME PRESENT ASSESSMENT. BOTH LD. 'AR' AND LD. 'DR' WERE OF THE OPINION THAT FOR THE PROPER AND JUDICIOUS DISPOSAL OF THE I SSUE IN QUESTION, IN THESE APPEALS, THE CASE(S) MAY BE REST ORED TO THE FILE OF THE AO. 4. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS, FACTS OF THE CASE AND THE RELEVANT MATERIAL ON RECO RD. THE GRIEVANCE OF THE ASSESSEE IS NON-COMPLIANCE WITH TH E 10 DIRECTIONS GIVEN BY THE ITAT, IN THE ABOVE REFERRED DECISION. THE RELEVANT PARA OF THE ITAT ORDER WHIL E RESTORING THE APPEAL TO THE AO IS AS UNDER : 11. WE HAVE GIVEN OUR CAREFUL CONSIDERATION TO THE RIVAL CONTENTIONS. IN OUR CONSIDERED VIEW, THE SYSTEM OF ACCOUNTING ADOPTED BY THE ASSESSEE REGARDING CERTAIN EXPENSES BOOKED ON THE BASIS OF RECEIPT OF BILLS, HAS BEEN FOLLOWED BY THE ASSESSEE RIGHT FROM THE INCEPTION. THERE IS NO CHANGE IN THE SYSTEM OF ACCOUNTING. IN OUR CONSIDERED VIEW, NO DISALLOWANCE COULD BE MADE MERELY BECAUSE THE BILLS RECEIVED IN THE YEAR UNDER APPEAL RELATED TO THE PERIOD PRECEDING TO THE YEAR UNDER APPEAL IN THE LIGHT OF SYSTEM OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. CERTAIN EXPENDITURE SUCH AS TELEPHONE EXPENSES ELECTRICITY ETC. IS BEING BOOKED BY THE ASSESSEE ON THE BASIS OF RECEIPT OF ACTUAL BILLS. SUCH METHOD HAS BEEN FOLLOWED IN THE PAST AND WAS BEING ACCEPTED BY THE DEPARTMENT. THE CIT(A) HAS NOT DISPOSED OF THIS ISSUE ON ANY BASIS. HE HAS ADOPTED THE ARBITRARY PROCEDURE OF ALLOWING 50% AND SUSTAINING DISALLOWANCE OF REMAINING 50%. THE DEDUCTION ON ACCOUNT OF EXPENSES IS EITHER ALLOWABLE TO THE ASSESSEE ON THE BASIS OF THE METHOD OF ACCOUNTING REGULARLY ADOPTED OR IT IS NOT SO ALLOWABLE. WE DO NOT FIND ANY JUSTIFICATION FOR ALLOWING DEDUCTION AT 50% AND DISALLOWING THE REMAINING 50%. SINCE THE ASSESSEE HAS BEEN FOLLOWING A REGULAR SYSTEM OF ACCOUNTING AND THERE IS NO CHANGE IN RESPECT OF BOOKING OF THE EXPENDITURE, THE DISALLOWANCE MADE BY THE AO IN OUR VIEW, IS NOT JUSTIFIED IN PRINCIPLE. HOWEVER, THE AO IS ENTITLED TO VERIFY THE CLAIM OF THE ASSESSEE AND DEMANDING DETAILS OF SUCH EXPENSES. WE RESTORE THE ISSUE TO THE FILE OF THE AO FOR FRESH DECISION IN ACCORDANCE WITH 11 LAW AFTER GIVING REASONABLE OPPORTUNITY OF HEARD TO THE ASSESSEE. 5. A REFERENCE TO THE OBSERVATIONS RECORDED BY THE AO AT PAGE 7 OF THE IMPUGNED ASSESSMENT ORDER IS PERTI NENT AND RELEVANT. SUCH OBSERVATIONS OF THE AO CLEARLY INDICATE THAT THE ASSESSEE HAD NOT COOPERATED WITH THE AO IN THE MATER OF FURNISHING THE REQUIRED DETAILS FOR PROPER APPRECIATION AND ADJUDICATION OF THE ISSUE O F PRIOR PERIOD EXPENSES. NEEDLESS TO SAY THAT THE CLAIM HA S BEEN MADE BY THE ASSESSEE AND HENCE, IT IS INCUMBENT UPO N THE ASSESSEE TO ADDUCE NECESSARY EVIDENCE IN RESPEC T OF SUCH CLAIM, FAILING WHICH IT IS NOT POSSIBLE FOR TH E AO TO DRAW INFERENCE, AS INTENDED BY THE ASSESSEE. THERE FORE, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE MAY BE RESTORED TO THE FILE OF THE AO FOR THE PURPOSE OF P ROPER AND JUDICIOUS DISPOSAL OF THE ISSUE OF PRIOR PERIOD EXP ENSES AFRESH, IN ACCORDANCE WITH RELEVANT PROVISIONS OF T HE ACT. THE ASSESSEE IS DIRECTED TO RENDER NECESSARY COOPER ATION IN THE MATTER OF FILING EVIDENCES AND ANY OTHER DET AIL, AS REQUIRED BY THE AO FOR THE PURPOSE OF FRAMING ASSESSMENT. THE AO IS ALSO DIRECTED TO COMPLY WITH THE NECESSARY DIRECTIONS CONTAINED IN THE DECISION OF T HE ITAT IN ASSESSEE'S OWN CASE, REPRODUCED ABOVE, AND PROVI DE PROPER AND REASONABLE OPPORTUNITY TO THE ASSESSEE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 451/CHD/2011 IS ALLOWED FOR STATISTICAL PURPOSES ON LY. 11(I) IN VIEW OF THE ABOVE DISCUSSIONS, THE ISSUE IS RESTORED TO THE FILE OF THE AO, AS INDICATED ABOVE. 12. IN GROUND NO.4, ASSESSEE CONTENDED THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE ADDITION OF RS. 11,89,89,OOO/- ON AC COUNT OF OUTSTANDING BALANCES IN NOSTRO-BLOCKED A/C. 12 13. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS BEFORE US, LD. 'AR' REFERRED TO PAGES 26-28 AND 222 OF THE PAPER BOOK, SUPPORTING HIS CONTENTION THAT THE ADDITION C ANNOT BE SUSTAINED, AS IT REMAINS THE LIABILITY OF THE AS SESSEE. HOWEVER, LD. 'DR' SUPPORTED THE IMPUGNED ADDITIONS MADE BY THE AO AND CONFIRMED BY THE CIT(A). THE RELEVAN T PART OF THE FINDINGS OF THE CIT(A) ARE REPRODUCED HEREUN DER : 7.2 BEFORE ME THE COUNSEL FOR THE APPELLANT HAS STATED THAT NO ADDITION WAS EVER MADE EARLIER ON A/C OF NOSTRO - BLOCKED AC COUNTS. THE NATURE OF ENTRIES IN THIS ACCOUNT WERE SIMILAR TO THE ONES UNDER RECONCILED INTER-BRANCH AND INTER-BANK ENTRIES FOR DEALINGS IN INDIAN CURRENCY AND THE NOSTRO - LOCKED ACCOUNTS PERTAI NED TO UNRECONCILED ENTRIES DEALING IN FOREIGN CURRENCY. H E STATED THAT NO ADDITION SHOULD BE MADE FOR UNRECONCILED ENTRIES AN D THESE SHOULD BE ONLY CONSIDERED FOR ADDITION AS AND WHEN THE ENTRIE S ARE WRITTEN OFF. 7.3 THE A.O. IN HIS REMAND REPORT NO. 753 DATED 14.02.2011 HAS REITERATED THE SAME POSITION AS GIVEN IN THE ASSESS MENT ORDER. 7.4 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF TH E CASE AND RIVAL SUBMISSIONS OF BOTH THE A.O. AND THE COUNSEL OF THE APPELLANT IT IS SEEN THAT THE A.O. HAS RIGHTLY HELD THAT THE UNCLAI MED DEPOSITS IN THE NOSTRO ACCOUNT ARE THE INCOME OF THE APPELLANT ON T HE BASIS OF GUIDELINES ISSUED BY THE RBI. THE A.O. HAS RIGHTLY ADDED THE SAME TO THE INCOME OF THE APPELLANT . THE ADDITION MADE IS THEREFORE UPHELD. 14. THE BRIEF FACTS OF THE CASE ARE THAT, IN THE CO URSE OF ASSESSMENT PROCEEDINGS, THE AO, FOUND THAT THE ASSE SSEE HAD SHOWN NOSTRO-BLOCK ACCOUNT, AS UNSECURED AS ON 31.3.2007. THESE WERE PAYMENTS DEBITED SUBSEQUENTL Y TO THE PARTICULAR BENEFICIARIES. THE AO, ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE, WHO FILED ITS REPLY AS INC ORPORATED AT PAGE 8 OF THE ASSESSMENT ORDER. THE AO, WAS NOT SATISFIED WITH THE SUBMISSION MADE BY THE ASSESSEE AND 13 ON THE BASIS OF GUIDELINES ISSUED BY THE RBI, HE HE LD THAT BALANCES IN THE NOSTRO ACCOUNT, WHICH WERE TRANSFER RED TO BLOCKED ACCOUNTS, WERE UNCLAIMED DEPOSITS. CONSEQUENTLY, AO MADE THE IMPUGNED ADDITION. 15. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS , FACTS OF THE CASE AND THE RELEVANT RECORD AND FOUND THAT THE UNCLAIMED DEPOSITS, REMAINED UNCLAIMED, AS PER THE BOOKS OF ACCOUNT OF THE ASSESSEE, SINCE LONG, AS TRANSPIRED IN THE COURSE OF APPELLATE PROCEEDINGS B EFORE US. THEREFORE, ADDITION MADE BY THE AO AND CONFIRM ED BY THE CIT(A) REMAINS UN-REBUTTED. IT IS FURTHER MENT IONED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V T.V.SUND ARAM AYENGAR & SONS LTD. 222 ITR 344 (S.C). THE HEAD NO TE AND RELEVANT PART OF THE DECISION IS REPRODUCED HER EUNDER: INCOME-BUSINESS INCOME-UNCLAIMED BALANCES- DEPOSITS RECEIVED FROM CUSTOMERS NOT CLAIMED BY THEM-CLAIM BARRED BY LIMITATION-UNCLAIMED BALANCE TRANSFERRED TO PROFIT AND LOSS ACCOUNT-AMOUNT ASSESSABLE AS INCOME-INCOME-TAX ACT,1961. HELD, THAT IF A COMMONSENSE VIEW OF THE MATTER WERE TAKEN, THE ASSESSEE, BECAUSE OF THE TRADING OPERATI ON, HAD BECOME RICHER BY THE AMOUNT WHICH IT TRANSFERRE D TO ITS PROFIT AND LOSS ACCOUNT. THE MONEYS HAD ARIS EN OUT OF ORDINARY TRADING TRANSACTIONS. ALTHOUGH THE AMOUNTS RECEIVED ORIGINALLY WERE NOT OF INCOME NATURE, THE AMOUNTS REMAINED WITH THE ASSESSEE FOR A LONG PERIOD UNCLAIMED BY THE TRADE PARTIES. BY LAPS E OF TIME, THE CLAIM OF THE DEPOSIT BECAME TIME-BARRE D AND THE AMOUNT ATTAINED A TOTALLY DIFFERENT QUALITY . IT BECAME A DEFINITE TRADE SURPLUS. THE ASSESSEE ITSEL F 14 HAD TREATED THE MONEY AS ITS OWN MONEY AND TAKEN THE AMOUNT TO ITS PROFIT AND LOSS ACCOUNT. THE AMOU NTS WERE ASSESSABLE IN THE HANDS OF THE ASSESSEE. 16. SIMILARLY, HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ATLAS CYCLE INDUSTRIES LTD. V CIT 133 ITR 2 31 (P&H) HELD AS UNDER : INCOME-BUSINESS OF MANUFACTURE AND SALE OF CYCLES- ASSESSEE FORFEITING SECURITY DEPOSITS OF SUPPLIERS/PURCHASERS-AMOUNT FORFEITED TO BE INCLUDE D IN TOTAL INCOME. INCOME-AMOUNTS DEPOSITED AS SECURITY BY EMPLOYEES FOR SERVING FOR AGREED PERIOD-FINDING THAT PART OF EXPENDITURE INCURRED ON TRAINING OF PERSONNEL ALLOW ED AS DEDUCTION MET BY FORFEITURE OF DEPOSITS-AMOUNTS FORFEITED TO BE INCLUDED IN TOTAL INCOME. 17. HAVING REGARD TO THE ABOVE LEGAL AND FACTUAL DISCUSSIONS, WE DO NOT FIND ANY MERIT IN THE CONTEN TION RAISED BY THE ASSESSEE, IN RESPECT OF GROUND NO.4 A ND HENCE, FINDINGS OF THE CIT(A) ARE UPHELD. THE GROU ND OF APPEAL RAISED BY THE ASSESSEE IS DISMISSED. 18. IN GROUND NO.5, ASSESSEE POINTED OUT THAT CIT(A ) ERRED I N THE HOLDING THAT UNRECONCILED INTER BANK AND INTER BRANCH ENTRIES ARE COVERED BY ARTICLE 22 OF T HE LIMITATION ACT, ARE REQUIRED TO BE CONSIDERED FOR A DDITION TO THE INCOME IGNORING THE CONTENTION OF THE APPEL LANT THAT ENTRIES CANNOT BE CONSIDERED UNLESS WRITTEN OF F IN BOOKS OF ACCOUNTS BY THE APPELLANT. 15 19. LD. 'AR' REFERRED TO PAGE 33-34 OF THE PAPER BO OK, WHEREBY SIMILAR ISSUE HAS BEEN RESTORED TO THE FILE OF THE AO IN ITA NO.785/CHANDI/1999 A.Y. 1996-97 & OTHERS, ORDER DATED 19.06.2008. THE RELEVANT PART OF THE DE CISION IS REPRODUCED HEREUNDER : 20. GROUND NO. 6 IS AS UNDER: THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT INTE R BANK, INTER BRANCH UNRECONCILED ENTRIES OUTSTANDING FOR MORE THAN THREE YEARS WERE LIABLE TO BE CONSIDE RED FOR THE PURPOSE OF DISALLOWANCE AS THE LIMITATION PERIOD FOR RECOVERY HAS EXPIRED. 21. IT IS OBSERVED FROM THE ORDER OF THE CIT(A) THA T THE ISSUE HAS BEEN RESTORED TO THE FILE OF THE AO A S PER PARA 10.2 OF THE ORDER OF THE CIT(A). THE SAME IS REPRODUCED HEREUNDER : 10.2 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND THE FACTS OF THE CASE. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO HAD ASKED THE APPELLANT TO EXPLAIN THESE ENTRIES. THE APPELLANT FILED A REPLY WHEREIN THEY GAVE THE FIGURE OF THE UNRECONCILED ENTRIES DATED 31.3.1995 AS ON 31.12.1997 AND ON THE BASIS OF THIS STATEMENT THE AO WORKED OUT THE ADDITION OF RS.1512.75 LACS. IT IS, THUS OBVIOUS THAT THE ENTRIES WHICH REMAINED RECONCILED ON 31.3.1995 REMAINED SO EVEN ON 31.12.1997. IT IS, THUS OBVIOUS THAT SOME OF THE ENTRIES MAY HAVE REMAINED UNRECONCILED FOR A MUCH LONGER PERIOD. UNDER THE LIMITATION ACTS A CREDITOR CAN ENFORCE LIABILITY ONLY UPTO THREE YEARS AND THEREAFTER THE RIGHT TO ENFORCE THE LIABILITY CEASES. THE AO IS DIRECTED TO REEXAMINE THIS ISSUE AND RESTRICT THE DISALLOWANCE TO THOSE ENTRIES ONLY WHICH HAVE REMAINED OUTSTANDING FOR A PERIOD OF MORE THAN 16 THREE YEARS ON 31.3.1995. THE MATTER TO THIS LIMITED EXTENT IS RESTORED TO THE FILE OF THE AO. 20. IN VIEW OF THE CONTENTION RAISED BY THE LD. 'AR ', LD. 'DR' WAS ALSO OF THE SIMILAR OPINION, THE ISSUE IS RESTORED TO THE FILE OF THE AO TO ADJUDICATE THE ISSUE AS PE R THE TERMS MENTIONED IN THE ABOVE REPRODUCED DECISION OF THE TRIBUNAL. 21. GROUND NO. 6 IS GENERAL IN NATURE, THEREFORE, N EEDS NO ADJUDICATION. ITA NO. 450/CHD/2011 22. IN GROUND NO.1, REVENUE CONTENDED THAT LD. CIT(A) HAS ERRED IN ALLOWING A RELIEF OF RS.6,64,41,730/- OUT OF THE TOTAL ADDITION OF RS.6,81,45,964/-, MADE BY THE AO ON A/C OF DISALLOWANCE U/S 14A, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO DISCHARGE ITS ONUS OF FILING THE DETAILS OF THE EXPENSES THAT HAD BEEN INCURRED IN RELATION TO THE INCOME CLAIMED AS EXEMPT DURING COU RSE OF THE ASSESSMENT PROCEEDINGS. THUS, THE ASSESSEE HAD FAILED TO SHOW THE EXCLUSIVE EVIDENCE IN ITS KNOWLEDGE ABO UT THE EXPENDITURE ON EXEMPTED INCOME WITH THE DEPARTMENT. 23. THE GROUND RAISED BY THE REVENUE HAS BEEN DULY CONSIDERED AND ADJUDICATED WHILE ADJUDICATING APPEA L OF THE ASSESSEE APPELLANT, AS IS EVIDENT FROM PARA 4 T O 6 OF THIS ORDER. THESE FINDINGS ARE APPLICABLE TO THE GR OUND RAISED BY THE REVENUE. IN VIEW OF THIS GROUND OF A PPEAL, RAISED BY THE REVENUE IS DISMISSED. 17 24. IN GROUND NO. 2, REVENUE CONTENDED LD. CIT(A) H AS ERRED IN RESTRICTING THE DISALLOWANCE TO L/5 TH OF THE TOTAL EXPENSES OF RS. 2,10,00,000/- CLAIMED UNDER THE HEA D 'PRIOR PERIOD EXPENSES', AS AGAINST THE DISALLOWANC E OF L/3 RD MADE BY THE AO, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FAILED TO PRODUCE SUPPORTING EVIDE NCE IN RESPECT OF THE CLAIM AND, THUS, THE AO WAS JUSTIFIE D IN TAKING AN ADVERSE VIEW AS PER SECTION 114 OF THE IN DIAN EVIDENCE ACT. 25. THE GROUND RAISED BY THE REVENUE, HAS BEEN DULY CONSIDERED AND ADJUDICATED WHILE ADJUDICATING APPEA L OF THE ASSESSEE, AS IS EVIDENT FROM PARA 10 TO 11(I) O F THIS ORDER. THESE FINDINGS ARE APPLICABLE TO THE GROUND RAISED BY THE REVENUE. IN VIEW OF THIS GROUND OF APPEAL, RAISED BY THE REVENUE IS DISMISSED. 26. GROUND NOS. 3 & 4, RAISED BY THE REVENUE ARE GE NERAL IN NATURE AND NEED NO SEPARATE ADJUDICATION. THEREF ORE, THE SAME ARE DISMISSED. 27. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH MAY,2012. SD/- SD/- (H.L.KARWA) (MEHA R SINGH) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 16 TH MAY,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), CIT,DR ASSISTANT REGISTRAR ITAT, CHANDIGARH