ACIT LARGE TAX PAYER UNIT, MUMBAI V. UNION BANK OF INDIA, MUMBAI

ITA 4842/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2436 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2008-2009
• Appeal Filed On: 21-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; Retrospective amendment; Bad and doubtful debts
• Section: 14A; 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN , AM AND AMARJIT SINGH , JM ./ I.T.A. NO . 4678 / MUM/20 1 3 ( / ASSESSMENT YEA R : 2 0 0 8 - 0 9 ) UNION BANK OF I NDIA, CENTRAL ACCOUNTS DEPARTMENT, 6 TH FLOOR, 239, VIDHAN BHAVAN MARG, NARIMAN POINT, MUMBAI - 4000 21 / VS. ADDL. COMMISSIONER OF INCOME TAX, LTU, WORLD TRADE CENTER, CUFF PARADE, MUMBAI - 4000 05 ( / APPELLANT ) .. ( / RESPONDE NT ) ./ I.T.A. NO . 4842 /M UM/20 13 ( / ASSESSMENT YEA R : 200 8 - 09 ) ASSTT. COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT, CENTRE - 1, 28 TH FLOOR, WORLD TRADE CENTRE , CUFFE PARA DE , MUMBAI - 400005 / VS. UNION BANK OF INDIA, UNION BANK BHAVAN, CENTRAL ACCOUNTS DEPARTMENT, 6 TH FLOOR, 239, VIDHAN BHAVAN MARG, NARIMAN POINT, MUMBAI - 400021 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAACU0564G / REVENUE BY S HRI C NARESH / ASSESSEE BY SHRI G M DOSS / DATE OF HEARING : 25. 08 . 201 5 / DATE OF PRONOUNCEMENT: 18 . 11. 201 5 4678 /MUM/2013 AND 4842/MUM/2013 2 / O R D E R P ER B R BASKARAN, AM : T HESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 25.3.2013 PASSED BY THE LD.CIT(A) - 24, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEAR 2008 - 09 . 2. THE ASSESSEE IS IN APPEAL IN RESPECT OF FOLLOWING ISSUES: (A) DISALLOWANCE MADE U/S 14A OF THE ACT, (B) RESTRICTING THE DEDUCTION CLAIMED U/S 36(1)(VIII). 3. THE REVENUE IS IN APPEAL IN RESPECT OF FOLLOWING ISSUES: (A) BAD DEBTS WRITTEN OFF; (B) LOSS ON REVALUATION OF INVESTMENT; C) DEDUCTION CLAIMED U/S 80LA; D) DEDUCTION CLAIMED U/S 36 (1)(VIII) OF THE ACT; E) DEDUCTION CLAIMED U/S 36(1)(VIIA) OF THE 4. THE ASSESSEE IS A P UBLIC S ECTOR B ANK AND THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS COMPLETED BY THE AO BY MAKING VARIOUS ADDITIONS. IN THE APPEAL FILED BY THE ASSESSEE BEF ORE THE LD. CIT(A), THE FIRST APPELLATE AUTHORITY GRANT ED PARTIAL RELIEF TO THE ASSESSEE . AGGRIEVED BY THE ORDER PASSED BY THE LD.CIT(A), BOTH THE PARTIES ARE IN APPEAL BEFORE US IN RESPECT OF ISSUES DECIDED AGAINST EACH OF THEM. 5. WE SHALL FIRST TAKE UP THE APPEAL FILED BY THE ASSESSEE. THE FIRST ISSUE RELATES TO DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT . DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED INCOME FROM TAX FREE BONDS TO THE TUNE OF RS.47.17 CRORES AND DIVIDEND INCOME OF RS .6.92 CRORES BOTH AGGREGATING TO RS.54.09 CRORES. THE ASSESSEE CLAIMED THE SAME AS EXEMPT U/S 10 OF THE ACT . HOWEVER, THE ASSESSEE DID NOT 4678 /MUM/2013 AND 4842/MUM/2013 3 DISALLOW ANY EXPENDITURE RELATING TO THE ABOVE SAID EXEMPTED INCOME AS REQUIRED U/S 14A OF THE ACT READ WITH RULE 8 D OF THE INCOME TAX RULES, 1962. THE ASSESSEE CONTENDED BEFORE THE AO THAT NO PART OF INTEREST INCOME IS REQUIRED TO BE DISALLOWED SINCE INVESTMENT S WERE HELD AS TRADE STOCK AND FURTHER IT HAD EARNED NET INTEREST INCOME IN EXCESS OF INTEREST EXPENDITURE. THE AO, HOWEVER, DID NOT ACCEPT THE CONTENTION S OF THE ASSESSEE AND ACCORDINGLY, COMPUTED THE DISALLOWANCE IN TERMS OF RULE 8D OF THE RULES. A CCORDINGLY, THE AO DISALLOWED A SUM OF RS.23.14 CR ORES U/S 14A OF THE ACT. THE LD. CIT(A) ALSO CONFIRMED THE SA ME. 6 . THE LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS HELD VARIOUS INVESTMENT S AS STOCK - IN - TRADE ONLY AND HENCE THE PROFIT OR LOSS ARISING ON THEIR SALE WAS ASSESSED AS BUSINESS INCOME ONLY. HE FURTHER SUBMITTED THAT EXEMPT E D INCOME REFERRED ABOVE WAS INCIDENTAL INCOME EARNED DURING THE COURSE OF CARRYING ON THE BUSINESS . THE LD COUNSEL FURTHER SUBMITTED THAT THE QUESTION OF DISALLOWING EXPENDITURE U/S 14A OF THE ACT SHALL ARISE ONLY IF THE SECURITIES ARE HELD AS INVESTMENTS . HE SUBMITTED THAT THE ASSESSEE DOES NOT H OLD ANY INVESTMENT S AND HENCE THE QUESTION OF MAKING DISALLOWANCE U/S 14A OF THE ACT DOES NOT ARISE. I N SUPPORT OF HIS SUBMISSIONS, T HE LD A.R PLACED HIS RELIANCE ON THE FOLLOWING CASE LAW: A) DCIT V/S M/S INDIA ADVANTAGE SECURITIES LTD ITA NO.6711/MUM/2011 ORDER DATED - 14.09.2012 B) DCIT V/S GULSHAN INVESTMENT CO.LTD - ITA NO.666/KOL/2012 DATED 11.3.2013 C) CCI LTD VS. JCIT (206 TAXMAN 563)(KAR) THE LD A.R SUBMITTED THAT THE DECISION RENDERE D BY THE TRIBUNAL IN THE CASE OF INDIA ADVANTAGE SECURITIES LTD (SUPRA) HAS SINCE BEEN APPROVED BY THE HONBLE BOMBAY HIGH COURT. 7 . THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE IS HAVING SUFFICIENT AMOUNT OF INTEREST FREE FUNDS IN EXCESS OF INVESTMENT S AND HENCE THERE IS 4678 /MUM/2013 AND 4842/MUM/2013 4 NO QUESTION OF MAKING ANY DISALLOWA NCE OUT OF INTEREST EXPENDITURE, IN VIEW OF THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V/S HDFC BANK LTD. [2014] 366 ITR 505 (BOM) . T HE LD. AR FURTHER SUBMITTED THAT THE SEC URITIES , EVEN THOUGH SHOWN AS I NVESTMENT S IN THE BOOKS OF A CCOUNT, YET PROFIT OR LOSS ARISING ON THE IR SALE WA S ASSESSED UNDER THE HEAD INCOME FROM BUSINESS ONLY FOR INCOME TAX PURPOSES. HE FURTHER SUBMITTED THAT ALL THE SECURITIES ARE VALUED AT COST OR MARKET VALUE WHICHEVER IS LESS AT THE YEAR END AND THE SAID VALUATION METHODOLOGY ALSO FORTIFIES THE FACT THAT THE INVESTMENTS ARE HELD AS TRADE STOCK ONLY. 8. THE LD D.R, ON THE CONTRARY, SUBMITTED THAT THE PROVISIONS OF RULE 8D SHALL BE APPLICABLE F ROM AY 2008 - 09 AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD (328 ITR 81). HE FURTHER SUBMITTED THAT THE ASSESSEE HAS SHOWN THE VALUE OF SECURITIES AS INVESTMENTS ONLY IN THE BALANCE SHEET AND HENCE THE ASSESSEE CANNO T TAKE A DIFFERENT STAND FOR THE PURPOSES OF SEC. 14A OF THE ACT. HE FURTHER SUBMITTED THAT THE DISALLOWANCE IS REQUIRED TO BE MADE UNDER RULE 8D(2)(III) TOWARDS ADMINISTRATIVE EXPENSES, EVEN IF THE ASSESSEE PROVES THAT IT HAS GOT SUFFICIENT INTEREST FREE FUNDS. HE FURTHER SUBMITTED THAT THE CLAIM OF THE ASSESSEE THAT IT WAS HAVING SUFFICIENT INTEREST FREE FUNDS AND ALSO THE CLAIM THAT THE SECURITIES ARE HELD AS STOCK IN TRADE HAVE NOT BEEN EXAMINED BY THE AO/CIT(A). 9. WE HAVE HEARD RIVAL CONTENTIONS A ND PERUSED THE RECORD. THE ASSESSMENT YEAR UNDER CONSIDERATION BEING AY 2008 - 09, THE PROVISIONS OF RULE 8D ARE APPLICABLE AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODRE BOYCE MFG. CO. LTD (SUPRA). HOWEVER, A CAREFUL PERUSA L OF THE PROVISIONS OF SEC. 14A(2) WOULD SHOW THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF INCOME AS PER RULE 4678 /MUM/2013 AND 4842/MUM/2013 5 8D, IF THE AO , HAVING REGARD TO THE ACCOUNTS OF THE ASSES SEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. 10. IN THE INSTANT CASE, THE ASSESSEE HAS EARNED EXEMPTED INCOME OF RS.54.09 CRORES AND IT HAS CLAIMED THAT IT DID NOT INCUR ANY EXPENDITURE IN ORDER TO EARN THE ABOVE SAID EXEMPTED INCOME. THE ASSESSEE HAS RAISED MANY CONTENTIONS, VIZ., THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ARE MORE THAN THE INVESTMENTS; THE SECURITIES WERE HELD AS STOCK IN TRADE AND IT HAS EARNED NET INTEREST INCOME WARRANTING NO DISALLOWANCE OF INTE REST EXPENDITURE ETC. HOWEVER, WE NOTICE THAT NEITHER THE AO NOR THE LD CIT(A) DID CONSIDER THE ABOVE SAID CONTENTIONS OF THE ASSESSEE, MORE PARTICULARLY WITH REFERENCCE TO THE ACCOUNTS OF THE ASSESSEE, WHICH IS A MANDATORY CONDITION PRESCRIBED U/S 14A(2) OF THE ACT. THUS, WE NOTICE THAT THE AO HAS PROCEEDED TO COMPUTE THE DISALLOWANCE AS PER RULE 8D OF IT RULES WITHOUT SATISFYING HIMSELF THAT THE CLAIM OF THE ASSESSEE WAS NOT CORRECT BY HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. HENCE, THE DISALLOWA NCE COMPUTED BY THE AO AND THAT CONFIRMED BY LD CIT(A) WAS NOT IN ACCORDANCE WITH THE MANDATE OF LAW. 11. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT 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 AO WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH. THE ASSESSEE IS FREE TO URGE ALL THE CONTENTIONS , WHICH IT MAY DEEM IT NECESSARY BEFORE THE AO IN RESPECT OF THIS ISSUE. AFTE R AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD, THE AO MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. 12. THE NEXT ISSUE URGED BY THE ASSESSEE RELATES TO THE DEDUCTION CLAIMED U/S 36(1)(VIII) OF THE ACT. SECTION 36(1)(VIII) PROVIDES FOR DEDU CTION OF ANY SPECIAL RESERVE CREATED AND MAINTAINED BY A BANK TO THE EXTENT OF 20% OF THE PROFITS DERIVED FROM ELIGIBLE BUSINESS COMPUTED 4678 /MUM/2013 AND 4842/MUM/2013 6 UNDER THE HEAD PROFITS AND GAINS OF BUSINESS CARRIED TO SUCH RESERVE ACCOUNT. ELIGIBLE BUSINESS IS DEFINED AS THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR SPECIFIC PURPOSES. LONG TERM FINANCE IS DEFINED TO MEAN ANY LOAN OR ADVANCE WHERE THE TERMS UNDER WHICH MONEYS ARE LOANED OR ADVANCED PROVIDE FOR REPAYMENT ALONG WITH INTEREST THEREOF DURING A PERIOD OF NOT L ESS THAN FIVE YEARS. 13. THE ASSESSEE WORKED OUT THE DEDUCTION U/S 36(1)(VIII) AS UNDER: - AVERAGE ADVANCES 41937.41 YIELD ON ADVANCES 10.12% COST OF FUNDS 5.76% INTEREST INCOME 4.36% 1828.47 LESS OPERATION EXPENSES 15 % 274.27 PROFIT EARNED 1554.20 DEDUCTION U/S 36(1)(VIII) 20% 301 THE AO DID NOT ACCEPT THE ABOVE SAID WORKINGS. HE NOTICED THAT THE AVERAGE ADVANCES WORKED OUT BY THE ASSESSEE DID NOT TALLY WITH THE FIGURES OF TERM LOAN S REPORTED IN THE BALANCE SHEET, VIZ., RS.32,442/ - CRORES. FURTHER, SINCE THE TERM LOANS REPORTED IN THE BALANCE SHEET WOULD INCLUDE INELIGIBLE ADVANCES, THE AO TOOK THE ELIGIBLE ADVANCES AT 50% OF RS.32,442/ - , I.E., RS.16,221/ - CRORES. THE AO ALSO DID N OT ACCEPT THE NET YIELD ON ADVANCES OF 4.36% WORKED OUT BY THE ASSESSEE. THE AO NOTICED THAT THE ASSESSEE HAD REPORTED INTEREST INCOME OF 6731 CRORES AND INTEREST EXPENDITURE OF 6361 CRORES. ACCORDINGLY THE AO TOOK THE VIEW THAT THE DIFFERENCE BETWEEN TH E TWO FIGURES CITED ABOVE, I.E., RS.370 CRORES WAS THE NET YIELD ON ADVANCES. AFTER ALLOWING DEDUCTION OF 15% FOR EXPENSES, THE PROFIT DERIVED FROM THE ELIGIBLE BUSINESS WAS WORKED OUT AT RS.314.50 4678 /MUM/2013 AND 4842/MUM/2013 7 CRORES. ACCORDINGLY THE AO RESTRICTED THE DEDUCTION U/S 36(1)(VIII) AT 20% OF RS.314.50, VIZ., RS.62.90 CRORES. IT MAY BE NOTICED THAT THE ASSESSEE HAD CLAIMED A DEDUCTION OF RS.301 CRORES. 14. THE LD CIT(A), HOWEVER, WORKED OUT THE DEDUCTION IN A DIFFERENT MANNER. ACCORDING TO LD CIT(A), THE ASSESSEE DID N OT FURNISH THE DETAILS OF WORKING OF AVERAGE ADVANCES UNDER VARIOUS SUB HEADS VIZ., AGRICULTURE, INDUSTRY, INFRASTRUCTURE AND HOUSING. HE ALSO TOOK THE VIEW THAT THE ASSESSEE WAS NOT FORTHRIGHT IN FURNISHING CORRECT DETAILS, SINCE THERE IS HUGE DIFFERENCE BETWEEN THE TERM LOANS REPORTED IN THE BALANCE SHEET AND THE AVERAGE ADVANCES WORKED OUT BY THE ASSESSEE. ACCORDINGLY, THE LD CIT(A) TOOK THE VIEW THAT THE ASSESSEE HAS WORKED OUT THE FIGURES TO SUIT ITS REQUIREMENTS. THE AO NOTICED THAT THE TOTAL INTER EST EARNED BY THE ASSESSEE DURING THE YEAR GAVE AN YIELD OF 9% OF THE AGGREGATE ADVANCES OUTSTANDING AS AT THE YEAR END. ACCORDING LY , HE WORKED OUT THE INTEREST FROM ELIGIBLE BUSINESS AT 9% OF THE TERM LOANS REPORTED IN THE BALANCE SHEET. IN THE SIMILAR MANNER, THE LD CIT(A) WORKED OUT THE PERCENTAGE OF EXPENSES ON THE TOTAL ADVANCES. AFTER SETTING OFF THE EXPENSES ESTIMATED BY HIM AGAINST THE INTEREST INCOME ESTIMATED BY HIM, THE LD CIT(A) ARRIVED AT THE PROFIT FROM ELIGIBLE BUSINESS AT 698.95 CRORES AN D ACCORDINGLY WORKED OUT THE DEDUCTION U/S 36(1)(VIII) AT RS.139.79 CRORES. BOTH THE PARTIES ARE AGGRIEVED BY THE SAID DECISION OF LD CIT(A). 15. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. WE ARE UNABLE TO UNDERSTAND AS TO WHY THE ASSESSEE WORKED OUT THE INTEREST INCOME FROM ELIGIBLE BUSINESS ON AVERAGE BASIS. WHEN THE ASSESSEE IS ABLE TO IDENTIFY THE LONG TERM FINANCE GIVEN TO SPECIFIED PURPOSES, IT SHOULD NOT BE DIFFICULT TO CULL OUT THE ACTUAL INTEREST INCOME EARNED FROM SUCH ADVANCES. SINCE T HE ASSESSEE HAD PROCEEDED TO ASCERTAIN THE INTEREST INCOME ON AVERAGE BASIS AND SINCE THE DETAILS FURNISHED BY THE ASSESSEE WAS NOT CONVINCING TO THE TAX AUTHORITIES, THEY WERE CONSTRAINED TO MAKE THEIR OWN ESTIMATES 4678 /MUM/2013 AND 4842/MUM/2013 8 ACCORDING TO THEIR RESPECTIVE UNDERSTAN DING. IN OUR VIEW, THE APPROACH OF THE ASSESSEE IS NOT APPRECIABLE. IN THIS ERA OF COMPUTERISATION, IT SHOULD NOT BE DIFFICULT AT ALL FOR THE ASSESSEE TO CULL OUT THE ACTUAL INTEREST INCOME EARNED BY IT OUT OF ELIGIBLE BUSINESS. FURTHER, THERE SHOULD NO T BE ANY DISPUTE THAT IT IS THE RESPONSIBILITY OF THE ASSESSEE TO SHOW THAT THE DEDUCTION CLAIMED BY IT U/S 36(1)(VIII) WAS JUSTIFIED. HOWEVER, WITH REGARD TO THE COST OF FUNDS AND ADMINISTRATIVE EXPENSES, THE ASSESSEE IS REQUIRED TO ALLOCATE THE EXPENSES TOWARDS ELIGIBLE BUSINESS ON A REASONABLE BASIS , SINCE THEY ARE INCURRED FROM COMMON POOL OF FUNDS AND ALSO FOR ALL ACTIVITIES OF THE ASSESSEE. HENCE, IN OUR VIEW, THE WORKINGS GIVEN BY THE ASSESSEE, A O AND LD CIT(A) ON APPROXIMATE BASIS CANNOT BE APPROV ED. ACCORDINGLY, IN OUR VIEW, THIS ISSUE ALSO REQUIRES RECONSIDERATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THIS MATTER TO THE FILE OF THE AO FOR HIS RECONSIDERATION. THE ASSESSE E IS DIRECTED TO CULL OUT THE INTEREST INCOME ACTUALLY EARNED FROM OUT OF ELIGIBLE ADVANCES. FROM THE GROSS INTEREST INCOME SO CULLED OUT, THE ASSESSEE IS DIRECTED TO DEDUCT THE COST OF FUNDS AND EXPENSES ON A REASONABLE BASIS AND THEN WORK OUT THE DEDUCT ION U/S 36(1)(VIII) OF THE ACT. THE ASSESSEE IS ALSO DIRECTED TO FURNISH ALL THE EXPLANATIONS AND INFORMATION TO THE ASSESSING OFFICER IN ORDER TO ENABLE HIM TO SATISFY HIMSELF WITH THE WORKINGS FURNISHED BY THE ASSESSEE. ACCORDINGLY, AFTER AFFORDING NEC ESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, THE ASSESSING OFFICER MAY TAKE APPROPRIATE DECISION ON THIS ISSUE IN ACCORDANCE WITH THE LAW. 16. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE. THE FIRST ISSUE RELATES TO THE BAD DEBTS WRITTEN OF F. THE ASSESSEE CLAIMED DEDUCTION OF BAD DEBTS OF RS.330.68 CRORES IN RESPECT OF NON - RURAL DEBTS. THE BAD DEBTS RELATING TO RURAL DEBTS WAS SET OFF AGAINST THE PROVISION MADE U/S 36(1)(VIIA) OF THE ACT. THE AO TOOK THE VIEW THAT THE PROVISION CREATED U/ S 4678 /MUM/2013 AND 4842/MUM/2013 9 36(1)(VIIA) COVERS BOTH RURAL AND NON - RURAL ADVANCES. SINCE THE DEDUCTION OF RS.330.68 CRORES CLAIMED BY THE ASSESSEE WAS LESS THAN THE CREDIT BALANCE AVAILABLE IN THE PROVISION ACCOUNT (CREATED U/S 36(1)(VIIA) OF THE ACT ) , THE AO DISALLOWED THE BAD DEB TS CLAIM RELATING TO NON - RURAL ADVANCES. THE LD CIT(A) NOTICED THAT IDENTICAL DISALLOWANCE MADE BY THE AO IN AY 2007 - 08 HAS SINCE BEEN ALLOWED BY THE ITAT. ACCORDINGLY HE DELETED THIS DISALLOWANCE. 17. WE NOTICE THAT THE TRIBUNAL HAS ALLOWED IDENTICAL CL AIM IN THE ASSESSEES OWN CASE IN AY 2007 - 08, VIDE ITS ORDER DATED 18.1.2003 PASSED IN ITA NOS.6631/MUM/2010 & 6349/MUM/2010. WE NOTICE THAT THE TRIBUNAL HAS FOLLOWED THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK ( 343 ITR 270) AND ALSO IN THE CASE OF CIT VS. KARNATAKA BANK LTD (2012)(349 ITR 705). WE ALSO NOTICE THAT THE NEW EXPLANATION 2, WHICH COVERS BOTH RURAL AND NON - RURAL ADVANCES, HAS BEEN INSERTED UNDER SEC. 36(1)(VII) OF THE ACT BY THE FINANCE ACT, 2013 W.E .F. 1.4.2014 ONLY AND HENCE IT CANNOT HAVE RETROSPECTIVE EFFECT, SINCE IT AFFECTS SUBSTANTIVE RIGHTS OF THE ASSESSEES. ACCORDINGLY, WE ARE OF THE VIEW THAT THERE IS NO REASON TO INTERFERE WITH THE DECISION OF LD CIT(A) ON THIS ISSUE. 18. THE NEXT ISSUE RE LATES TO THE CLAIM OF LOSS ON REVALUATION OF INVESTMENT. IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE IN AY 2007 - 08 (SUPRA) AND IT HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION RENDERED BY THE HONBLE SU PREME COURT IN THE CASE OF UCO BANK VS. CIT (240 ITR 355) AND ALSO THE DECISION OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. BANK OF BARODA (262 ITR 334). ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF LD CIT(A) O N THIS ISSUE, SINCE HE HAS ALSO FOLLOWED THE DECISION OF HONBLE SUPREME COURT RENDERED IN THE CASE OF UCO BANK (SUPRA) IN DECIDING THIS ISSUE IN FAVOUR OF THE ASSESSEE. 4678 /MUM/2013 AND 4842/MUM/2013 10 19 . THE NEXT ISSUE RELATES TO THE DEDUCTION CLAIMED U/S 80LA OF THE ACT. THE AO DI SALLOWED THIS CLAIM FOR THE REASON THAT THE ASSESSEE DID NOT FURNISH THE AUDIT REPORT PRESCRIBED U/S 80LA OF THE ACT ALONG WITH THE RETURN OF INCOME. THE LD CIT(A) NOTICED THAT THE ASSESSEE HAS FURNISHED THE AUDIT REPORT BEFORE THE AO BEFORE FINALISATION OF THE ASSESSMENT ORDER AND ACCORDINGLY, BY FOLLOWING THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. WEB COMMERCE INDIA PVT LTD (2009/179 TAXMANN 310). THE HONBLE DELHI HIGH COURT IN THE ABOVE SAID CASE HAS HELD THAT THE FIL ING OF AUDIT REPORT IS ONLY DIRECTORY AND NOT MANDATORY. SINCE THE ASSESSEE HAS FILED THE AUDIT REPORT BEFORE FINALISATION OF ASSESSMENT ORDER, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DIRECTING THE AO TO ALLOW THE CLAIM. 20 . THE NEXT ISSUE RELATES TO THE DEDUCTION CLAIMED U/S 36(1)(VIII) OF THE ACT. THIS ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE AO IN THE EARLIER PARAGRAPHS WHILE CONSIDERING THE APPEAL FILED BY THE ASSESSEE. 21. THE LAST ISSUE RELATES TO THE DEDUCTION CLAIMED U/S 3 6(1)(VIIA) OF THE ACT. THE AO ALLOWED THE DEDUCTION UNDER THIS SECTION TO THE EXTENT OF THE AMOUNT ACTUALLY PROVIDED FOR IN THE BOOKS OF ACCOUNT. SECTION 36(1)(VIIA) PROVIDES A CAP FOR ALLOWING DEDUCTION U/S 36(1)(VIIA) BY AN AMOUNT NOT EXCEEDING 7.5% OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF BANK. IT APPEARS THAT THE ASSESSEE MADE A PROVISION OF 665.21 CRORES IN THE BOOKS OF ACCOUNT TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. HOWEVER, THE MAXIMUM AMOUNT ALLOWABLE U/S 36(1)(VIIA) APPEARS TO HAVE WORKED OUT MORE. ACCORDINGLY, IT APPEARS THAT THE ASSESSEE CLAIMED THE MAXIMUM AMOUNT ALLOWABLE U/S 36(1)(VIIA) OF THE ACT, EVEN THOUGH IT HAS PROVIDED FOR A LESSER AMOUNT IN ITS BOOKS OF ACCOUNT. THE AO RESTRICTED THE DEDUCTION U/S 36(1)(VIIA) TO THE EXTENT OF 4678 /MUM/2013 AND 4842/MUM/2013 11 THE AMOUNT ACTUALLY PROVIDED FOR IN THE BOOKS OF ACCOUNT. THE LD CIT(A) ALLOWED THE CLAIM OF THE ASSESS EE BY FOLLOWING THE DECISION RENDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR AY 2007 - 08 (SUPRA), WHEREIN THE TRIBUNAL HAS TAKEN THE VIEW THAT THE DEDUCTION U/S 36(1)(VIIA) IS ALLOWABLE TO THE EXTENT PROVIDED IN THAT SECTION IRRESPECTIVE OF THE QUAN TUM ACTUALLY PROVIDED FOR. 22. AT THE TIME OF HEARING, IT WAS BROUGHT TO OUR NOTICE THAT AN IDENTICAL ISSUE WAS CONSIDERED BY ANOTHER CO - ORDINATE BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.6920/MUM/2013 RELATING TO AY 2005 - 06 IN ITS ORDER D ATED 31.7.2015 AND THE TRIBUNAL HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE BY FOLLOWING THE DECISION RENDERED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (272 ITR 54). 23. SINCE THE DECISION RENDERED BY THE TRIBUNAL IN AY 2005 - 06 IS A LATER DECISION AND SINCE THE TRIBUNAL HAS FOLLOWED THE DECISION RENDERED BY HONBLE PUNJAB AND HARYANA HIGH COURT, WE ARE INCLINED TO FOLLOW THE SAME. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE A O. 24. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 18TH TH NOV , 2015. 18TH TH NOV , 2015 SD SD ( AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 18TH NOV , 2015 . 4678 /MUM/2013 AND 4842/MUM/2013 12 . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI