LIC HOUSING FINANCE LTD, MUMBAI V. DCIT CIR 2(2), MUMBAI

ITA 5434/MUM/2011

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8358 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 21-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANADI VARMA LD
• Assessee Lawyers: H P MAHAJANI LD
• Keywords: Diversion of income; Bad and doubtful debts; Notional interest
• Section: 43D

Judgement Text

LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.5434/MUM/2011 ( / ASSESSMENT YEAR:2004-05 ) LIC HOUSING FINANCE LIMITED 2 ND FLOOR, BOMBAY LIFE BLDG. 45/47 VEER NARIMAN ROAD FORT, MUMBAI-400 023. / VS. D CIT - CIRCLE - 2(2) AAYKAR BHAVAN, M.K. MARG MUMBAI- 400 020. '# ./ ./PAN/GIR NO. AAACI-5375-F ( #% /APPELLANT ) : ( &'#% / RESPONDENT ) & ./ I.T.A. NO.5435/MUM/2011 ( / ASSESSMENT YEAR:2005-06 ) LIC HOUSING FINANCE LI MITED 2 ND FLOOR, BOMBAY LIFE BLDG. 45/47 VEER NARIMAN ROAD FORT, MUMBAI-400 023. / VS. D CIT - CIRCLE - 2(2) AAYKAR BHAVAN, M.K. MARG MUMBAI- 400 020. '# ./ ./PAN/GIR NO. AAACI-5375-F ( #% /APPELLANT ) : ( &'#% / RESPONDENT ) A SSESSEE BY : SHRI H.P. MAHAJANI- LD. AR REVENUE BY : SHRI ANADI VARMA - LD. CIT-DR / DATE OF HEARING : 30/07/2019 / DATE OF PRONOUNCEMENT : 04/10/2019 LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 2 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEALS FOR ASSESSMENT YEARS [AY] 2004 -05 & 2005-06 ARE PARTIALLY RECALLED MATTER SINCE THE APPEALS WER E DISPOSED-OFF VIDE TRIBUNAL ORDER DATED 09/10/2015. HOWEVER, FEW ISSUE S HAVE BEEN RECALLED BY THE TRIBUNAL, UPON ASSESSEES MISCELLAN EOUS APPLICATIONS MA NOS. 248-249/MUM/2016 ORDER DATED 01/06/2018 AND ACCORDINGLY, THE ISSUES HAVE COME UP FOR FRESH HEARING BEFORE TH E BENCH. ITA NO. 5434/MUM/2011, AY 2004-05 2.1 AS EVIDENT FROM TRIBUNALS ORDER IN MA NO. 248/ MUM/2011, THE ONLY POINT OF DETERMINATION FOR THIS AY IS WHETHER BALAN CE IN PROFIT & LOSS ACCOUNT, WHICH IS NOT IN THE NATURE OF ANY OTHER R ESERVE HAVING SPECIFIC OBJECTIVES, SHOULD FORM PART OF GENERAL RESERVES OR NOT FOR THE PURPOSE OF PROVISO TO SECTION 36(1)(VIII) AS IT STOOD AT TH E RELEVANT POINT OF TIME. THE CORRESPONDING GROUND OF APPEAL IS GROUND NO. 2( C), WHICH READ AS UNDER: - NOT ACCEPTING THE APPELLANTS SUBMISSION THAT ALL T HE ITEM CLASSIFIED IN THE APPELLANTS BALANCE SHEET UNDER THE HEAD RESERVE & SURPLUS EXCEPTING SPECIAL RESERVE CREATED IN TERM OF 36(1)(VIII) SHOULD BE CO NSIDERED AS GENERAL RESERVES. HE OUGHT TO HAVE APPRECIATED THAT THERE IS NO DEFIN ITION OF GENERAL RESERVE IN THE PROVISO TO SECTION 36(1)(VIII) OR ANYWHERE ELSE IN THE INCOME TAX ACT AND THAT THE REFERENCE TO THE EXPRESSION GENERAL RESERVES IN P LURAL IS SIGNIFICANT. 2.2 THE ASSESSEE COMPANY IS STATED TO BE ENGAGED IN THE BUSINESS OF PROVIDING LONG TERM HOUSING FINANCE AND WAS ELIGIBL E FOR DEDUCTION TO THE EXTENT OF 40% OF SPECIFIED PROFITS U/S 36(1)(VIII) ON CREATION AND MAINTENANCE OF SPECIAL RESERVE. AS PER PROVISO TO T HIS SECTION, WHERE THE AGGREGATE AMOUNTS CARRIED TO SUCH RESERVE ACCOUNT F ROM TIME TO TIME LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 3 EXCEEDS TWICE THE AMOUNT OF THE PAID-UP SHARE CAPIT AL AND OF THE GENERAL RESERVE, NO ALLOWANCE SHALL BE MADE FOR THE EXCESS. WE ARE CONCERNED WITH DETERMINATION OF THE POINT THAT WHETHER THE TE RM GENERAL RESERVE AS USED IN THE PROVISO WOULD INCLUDE THE BALANCE STAND ING IN PROFIT & LOSS ACCOUNT OR NOT? NATURALLY, IF THE BALANCE WOULD BE INCLUDIBLE, THE ASSESSEE WOULD BE ELIGIBLE TO CLAIM HIGHER DEDUCTIO N IN TERMS OF THE PROVISO. THE ASSESSEES RESERVE & SURPLUS AS ON 31/ 03/2004 STOOD AS UNDER: - NO. PARTICU LARS AMT. (RS . IN CRORES) 1. CAPITAL RESERVE 00.48 2. SHARE PREMIUM 124.87 3. SPECIAL RESERVE-I 38.98 4. SPECIAL RESERVE II 460.24 5. DEBENTURE REDEMPTION RESERVE 25.00 6. GENERAL RESERVE 202.75 7. PROFIT & LOSS ACCOUNT 34.00 TOTAL 886.32 2.3 THE LEARNED AR HAS ADVANCED ARGUMENTS TO SUBMIT THAT THE TRIBUNAL, WHILE DISPOSING OF THIS ISSUE IN PARA 21 OF THE ORDER, HAS HELD THAT GENERAL RESERVE CANNOT INCLUDE ANY OTHER RESERVE HAVING SPECIFIC OBJECTIVES AND THERE WAS NO SPECIFIC MENTION THEREI N OF THE BALANCE IN THE PROFIT & LOSS ACCOUNT WHICH IS ALSO DISCLOSED I N THE BALANCE SHEET UNDER THE HEAD RESERVES AND SURPLUS. THE LD. AR ASSERTED THAT THE EXPRESSION USED IS GENERAL RESERVES WHICH IS USED IN PLURAL AND THEREFORE, THE SAME WOULD INCLUDE BALANCE STANDING IN THE PROFIT & LOSS ACCOUNT ALSO. IT HAS FURTHER BEEN SUBMITTED THAT TH E EXPRESSION RESERVES HAS NOT BEEN DEFINED UNDER THE INCOME TAX ACT, 1961 . OUR ATTENTION HAS BEEN DRAWN TO LETTER ISSUED BY DEPARTMENT OF COMPAN Y AFFAIRS (DEPARTMENT LETTER NO. 3/1/80-CL-X DATED 16/02/1982 ) WHEREIN IT HAS LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 4 BEEN CLARIFIED THAT SURPLUS APPEARING IN THE BALANC E SHEET OF THE COMPANY IS A PART OF FREE RESERVE AS DEFINED UNDER THE COMPANYS (ACCEPTANCE OF DEPOSITS) RULES, 1975. IT HAS FURTHE R BEEN PLEADED THAT THE TERM FREE RESERVES IS USED INTER-CHANGEABLY WITH THE EXPRESSION GENERAL RESERVE. IN THE ABOVE BACKGROUND, LD. AR PLEADED FOR INCLUS ION OF BALANCE STANDING IN THE PROFIT & LOSS ACCOUNT AS PART OF GENERAL RESERVES FOR THE PURPOSE OF COMPUTATION UNDER PROVISO TO SEC TION 36(1)(VIII). PER CONTRA, LD. CIT-DR, SUBMITTED THAT RESERVES IS AN APPROPRIATION OUT OF PROFIT & LOSS ACCOUNT AND QUIT E DISTINCT FROM THE EXPRESSION GENERAL RESERVES AND THEREFORE, THE SAME WOULD NOT BE INCLUDIBLE FOR THE PURPOSE OF COMPUTATION. IT HAS B EEN SUBMITTED THAT THE ISSUE STOOD SQUARELY COVERED IN ASSESSEES FAVOR BY THE DECISION OF BANGALORE BENCH OF TRIBUNAL RENDERED IN THE CASE OF CANFIN HOME FINANCE LTD. V/S DCIT ITA NO. 861/BANG/2010 ORDER D ATED 24/01/2012, A COPY OF WHICH HAS BEEN PLACED ON RECORD. 2.4 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND DELIBERATED ON CITED DECISION OF THE TRIBUNAL. AS PER THE PROVI SION OF SEC 36(1)(VIII), CERTAIN SPECIFIED ASSESSEES ARE ELIGIBLE TO CLAIM D EDUCTION TO THE EXTENT OF 40% FROM PROFIT DERIVED FROM SPECIFIED BUSINESS UPON CREATION OF SPECIAL RESERVE. AS PER THE PROVISO, IF THE AMOUNT CARRIED TO SUCH SPECIAL RESERVE ACCOUNT, FROM TIME TO TIME, EXCEEDS TWICE T HE AMOUNT OF THE PAID-UP SHARE CAPITAL AND OF THE GENERAL RESERVES, NO ALLOWANCE UNDER THIS CLAUSE SHALL BE MADE IN RESPECT OF SUCH EXCESS . THE EXPRESSION USED IN THE PROVISO IS THE GENERAL RESERVES. THE TERM GENERAL RESERVES HAVE BEEN USED IN PLURAL SENSE AND PRECEDED BY THE WORDS THE WHICH WOULD INDICATE THAT IT CARRIES SPECIAL MEANING AND CONNOTES GENERAL LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 5 RESERVES ONLY TO THE EXCLUSION OF OTHER. IN OUR CONSIDERED O PINION, THE RESERVES ARE CREATED AS AN APPROPRIATION OUT OF PRO FIT & LOSS ACCOUNT AND THE TERMS PROFIT & LOSS ACCOUNT & GENERAL RESER VES AS MENTIONED IN THE PROVISO COULD NOT BE EQUATED WITH EACH OTHER, I N THE MANNER, AS SUGGESTED BY LD. AR BY RELYING UPON THE LETTER OF D EPARTMENT OF COMPANY AFFAIRS. THE SAID CIRCULAR, IN OUR CONSIDER ED OPINION, WOULD HAVE LIMITED APPLICABILITY IN THE CONTEXT OF WHICH IT HAS BEEN ISSUED AND DESIGNED TO APPLY IN CERTAIN SPECIFIC SITUATION ONL Y. THE EXPRESSION USED IN THE PROVISO ARE QUITE CLEAR WHICH MANDATES THE I NCLUSION OF ONLY THE GENERAL RESERVES AND NOTHING ELSE. AS PER DOCTRINE OF LITERAL INTERPRETATION, WHEN THE WORDINGS IN THE STATUTE AR E CLEAR, THE SAME HAS TO BE GIVEN THE FULL EFFECT. THEREFORE, WE ARE UNA BLE TO ACCEPT THE ARGUMENTS RAISED BY LD. AR, IN THIS REGARD. OUR VIE W IS DULY SUPPORTED BY THE CITED DECISION OF THE TRIBUNAL RENDERED ON I DENTICAL SET OF FACTS AND CIRCUMSTANCES. THE COORDINATE BENCH HAS CONFIRM ED THE STAND OF LEARNED FIRST APPELLATE AUTHORITY IN EXCLUDING THE BALANCES IN SHARE PREMIUM ACCOUNT, PROFIT & LOSS ACCOUNT AND SPECIAL RESERVE ACCOUNT WHILE COMPUTING THE GENERAL RESERVES. NOTHING ON RE CORD WOULD SUGGEST ANY CHANGE IN FACTS OR AS TO HOW THE SAID RULING IS NOT APPLICABLE TO THE FACTS OF THE CASE. RESPECTFULLY, FOLLOWING THE SAME , WE DISMISS GROUND NO.2(C) OF ASSESSEES APPEAL. ITA NO. 5435/MUM/2011, AY 2005-06 3.1 FROM THE PERUSAL OF MA NO. 249/MUM/2016, IT TRA NSPIRES THAT CERTAIN GROUND HAS REMAINED TO BE ADJUDICATED IN TH E ORDER. THESE GROUNDS ARE GROUND NOS. 2(C) & (D) AND GROUND NO.4. LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 6 THESE GROUNDS READ AS UNDER: - 2. WITHOUT PREJUDICE TO GROUND 1, THE LEARNED CIT(A ) ERRED IN CONFIRMING THE ORDER PASSED BY THE AO RESTRICTING THE DEDUCTION U/ S 36(1)(VIII) TO RS.29 CRORES AS AGAINST THE CLAIM MADE BY THE ASSESSEE AT RS.101 CRORES. AMONG OTHER, ID. CIT(A) ERRED IN: - .. (C) NOT ACCEPTING THE APPELLANTS SUBMISSION THAT A LL THE ITEMS CLASSIFIED IN THE APPELLANTS BALANCE SHEET UNDER THE HEAD RESERVES A ND SURPLUS EXCEPTING SPECIAL RESERVE CREATED IN TERMS OF 36(1)(VIII) SHO ULD BE CONSIDERED AS GENERAL RESERVES. HE OUGHT TO HAVE APPRECIATED TH AT THERE IS NO DEFINITION OF GENERAL RESERVES IN THE PROVISO TO SECTION 36(1)( VIII) OR ANYWHERE ELSE IN THE INCOME TAX ACT AND THAT THE REFERENCE TO THE EXPRES SION GENERAL RESERVES IN PLURAL IS SIGNIFICANT. (D) WITHOUT PREJUDICE DISALLOWANCE OF RS.71.65 CROR ES CONFIRMED BY LD. CIT(A) IN AY 2005-06 INCLUDES RS.20.58 CORES DISALL OWED U/S 36(1)(VIII) IN AY 2004-05 AND TO THIS EXTENT THERE IS DOUBLE DISAL LOWANCE OF RS.20.48 CRORES. 4. THE LEARNED CIT(A) ERRED CONFIRMING ADDITION OF INTEREST OF RS.7,37,92,296/- ON NON-PERFORMING ASSETS UNDER SECTION 43D OF INCOM E TAX ACT READ WITH RULE 6EB WITHOUT APPRECIATING THE FACT THAT THE APP ELLANT HAD CONSISTENTLY FOLLOWED THE ACCOUNTING POLICY OF ACCRUING INTEREST ON NPA ON REALIZATION WHICH IS ALSO IN COMPLIANCE WITH MANDATORY NHB GUID ELINES, AS 9 AND OTHER APPLICABLE ACCOUNTING STANDARDS, PROVISIONS OF THE COMPANIES ACT AND INCOME TAX ACT. WITHOUT PREJUDICE, LD. CIT(A) FAILED TO APPRECIAT E THAT: - (A) SECTION 43D INSERTED BY FINANCE ACT 1999 TO PRO VIDE TAX INCENTIVES FOR PROMOTION OF HOUSING IS NOT A CHARGING SECTION AND CAN BE INVOKED ONLY WHEN INCOME IS RECOGNIZED BY THE ASSESSEE IN WHICH CASE ASSESSEE IS GIVEN RELIEF UNDER SECTION 43D SO AS TO TAX THE INT EREST INCOME ON DOUBTFUL DEBTS ONLY WHEN IT IS REALIZED. (B) SECTION 43D CANNOT BE READ IN CONTRADICTION TO NORMS PRESCRIBED BY NHB. (C) AFTER INSERTION OF SECTION 43D METHOD OF ACCOUN TING FOLLOWED BY THE APPELLANT WAS CATEGORICALLY ACCEPTED BY THE DEPARTM ENT IN EARLIER YEARS (D) NOTIONAL INTEREST ON NPA, IF TAXED IN THE HANDS OF THE ASSESSEE, THEN CORRESPONDINGLY SAME AMOUNT SHOULD BE ALLOWED DEDUC TION AS BAD DEBTS UNDER SECTION 36(1)(VII). 3.2 GROUND NO. 2(C) REQUIRE DETERMINATION OF THE EX PRESSION GENERAL RESERVES WHICH HAS ALREADY BEEN DEALT WITH US BY IN AY 2004- 05. THE QUESTION BEING IDENTICAL, OUR ADJUDICATION AS FOR A Y 2004-05 SHALL MUTATIS MUTANDIS APPLY TO THIS YEAR ALSO. THIS GROUND IS DECIDED AGA INST THE ASSESSEE. LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 7 3.3 SO FAR AS GROUND NO. 2(D) IS CONCERNED, IT HAS BEEN SUBMITTED THAT IN AY 2004-05, LD. AO HAD DISALLOWED RS.20.48 CRORE S OUT OF ASSESSEE CLAIM OF RS.91.75 CRORES MADE U/S 36(1)(VIII). IN O THER WORDS, CLAIM TO THE EXTENT OF RS.71.27 CRORES WAS ALLOWED. IT HAS F URTHER BEEN SUBMITTED THAT THE ASSESSEE CARRIED AN AMOUNT OF RS.91 CRORES TO SPECIAL RESERVE AS AGAINST THE REQUIREMENT OF RS.71.27 CRORES AND T HEREFORE, EXCESS AMOUNT WAS CARRIED TO SPECIAL RESERVE WHICH WAS NOT REQUIRED / RELEVANT IN THE CONTEXT OF PROVISO TO SECTION 36(1)(VIII) AN D THEREFORE, THE EXCESS AMOUNT WOULD NOT BEAR THE CHARACTER OF SPECIAL RESE RVE FOR THE PURPOSE OF SECTION 36(1)(VIII). IN THE ABOVE BACKGROUND, IT WAS SUBMITTED THAT EXCESS AMOUNT I.E. RS.20.47 CRORES AS CARRIED TO SP ECIAL RESERVE DURING 31/03/2004 SHOULD NOT BE TREATED AS SPECIAL RESERVE IN AY 2005-06 BUT TREATED AS A PART OF GENERAL RESERVES ONLY FOR THE PURPOSE OF PROVISO TO SECTION 36(1)(VIII). 3.4 UPON CAREFUL CONSIDERATION, WE ARE NOT CONVINCE D WITH ASSERTIONS MADE BY LD. AR SINCE THE CREATION AND MAINTENANCE O F SPECIAL RESERVE WAS THE DECISION OF THE ASSESSEE. THE ASSESSEE COUL D TRANSFER / WITHDRAW AMOUNTS TO / FROM SPECIAL RESERVE, FROM TI ME TO TIME, AS PER ITS OWN DECISION & CONVENIENCE. THE LIMIT PLACED BY PRO VISO TO SECTION 36(1)(VIII) WAS TO BE SEEN WITH REFERENCE TO INDICE S STANDING IN ASSESSEES FINANCIAL STATEMENTS AT YEAR-END AND THE DISALLOWANCE WAS TO BE WORKED OUT AS PER THE PROVISO TO SECTION 36(1)(V III) FOR EACH YEAR SEPARATELY. DURING THE YEAR, THE ASSESSEE COULD TRA NSFER / WITHDRAW ANY AMOUNTS FROM / TO SPECIAL RESERVE. THEREFORE, THERE IS NO FORCE IN THE ARGUMENT OF DOUBLE TAXATION AS URGED BY LD. AR BEFO RE US. IN OUR OPINION, THE DISALLOWANCE WAS TO BE WORKED OUT FOR EACH YEAR SEPARATELY LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 8 KEEPING IN VIEW THE CLOSING BALANCES STANDING IN RE LEVANT ACCOUNTS IN THE FINANCIAL STATEMENTS. THIS GROUND IS DECIDED AGAINS T THE ASSESSEE. 4.1 GROUND NO.4 PERTAINS TO COMPUTATIONS U/S 43D RE AD WITH RULE 6EB. DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED THAT T HE ASSESSEE DID NOT OFFER THE INTEREST INCOME ON DEBTS WHICH REMAINED P AST DUE FOR 90 DAYS AS AGAINST THE PERIOD OF 180 DAYS AS PRESCRIBED IN RULE 6EB OF THE INCOME TAX RULES, 1963. IN DEFENSE, IT WAS SUBMITTE D THAT RULE 6EB WAS BROUGHT INTO STATUTE BY INCOME TAX (THIRTIETH AMEND MENT) RULES, 1999 WITH EFFECT FROM 06/10/1999 AND THE SAME REMAINED U NCHANGED SINCE THEN. NEVERTHELESS, THE PRESCRIPTION UNDER THE SAID RULE WAS GUIDED BY THE NATIONAL HOUSING BANK (NHB) GUIDELINES REFERRED TO IN SECTION 43D(B) OF THE ACT. HOWEVER, NHB GUIDELINES WERE SUP ERSEDED BY HOUSING FINANCE COMPANIES (NHB) DIRECTIONS, 2001 NO TIFIED ON 29/12/2001. THESE DIRECTIONS WERE ISSUED IN EXERCIS E OF THE POWERS CONFERRED ON NHB BY THE STATUTORY PROVISIONS CONTAI NED IN SECTION 30, 30A, 31 & 33 OF THE NHB ACT, 1987. THE NHB DIRECTIO NS AS AMENDED AS ON 31/03/2005, DIFFERED FROM THE ERSTWHILE NHB DIRE CTIONS IN RESPECT OF DEFINITION OF DOUBTFUL DEBTS, NON-PERFORMING ASSETS , INCOME RECOGNITION CRITERIA ETC. DESPITE THE CHANGES MADE BY NHB DIREC TIONS, 2001, NO CORRESPONDING CHANGE WAS PERCEIVED TO HAVE TAKEN PL ACE IN RULE 6EB. IT WAS CONTENDED THAT SINCE THE SUBSTANTIVE PROVISIONS OF SECTION 43D DELEGATING AUTHORITY TO PRESCRIBE THE RELEVANT RULE S FOR RECOGNITION OF INTEREST INCOME WAS TO BE COMPUTED HAVING REGARDS T O THE GUIDELINES ISSUED BY THE NHB, THE NHB DIRECTIONS MUST BE ACCOR DED PRIMACY AND NHB GUIDELINES WOULD PREVAIL OVER RULE 6EB. IT WAS ALSO CONTENDED THAT SUBSTANCE AND AMPLITUDE OF THE SUBSTANTIVE PROVISIO NS OF LAW COULD NOT LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 9 BE CURTAILED BY RULE MAKING AUTHORITY. HOWEVER, NOT CONVINCED WITH SUBMISSIONS, LD. AO DISALLOWED AND ADDED BACK AN AM OUNT OF RS.7.37 CRORES TO THE INCOME OF THE ASSESSEE, AS WORKED OUT BY THE ASSESSEE, IN THE ALTERNATIVE. THE PLEA THAT CERTAIN INTEREST REC EIVED IN SUBSEQUENT YEARS WAS OFFERED TO TAX ALSO COULD NOT FIND FAVOR WITH LD. AO SINCE INTEREST RECEIVED IN SUBSEQUENT YEARS REMAINED UNQU ANTIFIED. 4.2 BEFORE LD. FIRST APPELLATE AUTHORITY, IT WAS, INTER-ALIA, REITERATED THAT THE PROVISIONS OF SECTION 43D COULD NOT BE READ IN CONTRADICTION TO NORMS PRESCRIBED BY NHB AS AMENDED FROM TIME TO TIME. HOW EVER, NOT CONVINCED LD. CIT(A) OPINED THAT NHB GUIDELINES COU LD NOT OVERRIDE THE PROVISIONS OF THE ACT AND THEREFORE, UPHELD THE STA ND OF LD. AO. AGGRIEVED, THE ASSESSEE IS UNDER APPEAL BEFORE US. BOTH THE REPRESENTATIVES HAVE ADVANCED ARGUMENTS, WHICH WE H AVE DULY CONSIDERED. WE HAVE ALSO DELIBERATED ON THE JUDICIA L PRONOUNCEMENTS CITED BEFORE US IN SUPPORT OF THE SUBMISSIONS. 4.3 AT THE OUTSET, THE SUBSTANTIVE PROVISIONS AS CO NTAINED IN SECTION 43D READ AS UNDER: - 43D. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONT AINED IN ANY OTHER PROVISION OF THIS ACT, (A) IN THE CASE OF A PUBLIC FINANCIAL INSTITUTION O R A SCHEDULED BANK OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTM ENT CORPORATION, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD O R DOUBTFUL DEBTS AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED B Y THE RESERVE BANK OF INDIA IN RELATION TO SUCH DEBTS; (B) IN THE CASE OF A PUBLIC COMPANY, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESC RIBED HAVING REGARD TO THE GUIDELINES ISSUED BY THE NATIONAL HOUSING BANK IN R ELATION TO SUCH DEBTS, SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED BY THE PUBLIC FINANCIAL INSTITUTION OR THE SCHEDULED BANK OR THE STATE FINANCIAL CORPORATION OR THE STATE INDUSTRIAL INVESTMENT CORPORATION OR THE PUBL IC COMPANY TO ITS PROFIT AND LOSS ACCOUNT FOR THAT YEAR OR, AS THE CASE MAY BE, IN WH ICH IT IS ACTUALLY RECEIVED BY THAT INSTITUTION OR BANK OR CORPORATION OR COMPANY, WHIC HEVER IS EARLIER. LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 10 ADMITTEDLY, THE ASSESSEE IS COVERED UNDER CLAUSE (B ). IN TERMS OF STATED PROVISIONS, THE INCOME BY WAY OF INTEREST ON CERTAI N PRESCRIBED CATEGORIES OF DOUBTFUL DEBTS SHALL BE CHARGEABLE TO TAX IN THE YEAR IN WHICH IT IS CREDITED OR ACTUALLY RECEIVED, WHICHEVE R IS EARLIER. THE CATEGORIES OF DEBTS, AS PRESCRIBED IN RULE 6EB ARE AS FOLLOWS: - 'RULE 6EB - CATEGORIES OF BAD OR DOUBTFUL DEBTS IN THE CASE OF A PUBLIC COMPANY UNDER CLAUSE (B) OF SECTION 43D. THE PROVISIONS OF CLAUSE (B) OF SECTION 43D SHALL A PPLY IN THE CASE OF EVERY PUBLIC COMPANY WHERE ITS INCOME BY WAY OF INTEREST PERTAIN S TO THE FOLLOWING CATEGORIES OF BAD AND DOUBTFUL DEBTS, NAMELY, - (A) (I) DOUBTFUL ASSET, THAT IS, A DEBT WHICH HAS R EMAINED A NON- PERFORMING ASSET OF THE NATURE SPECIFIED IN SUB CLAUSE (II) FOR A PE RIOD EXCEEDING TWO YEARS; (II) NON-PERFORMING ASSET REFERRED TO IN SUB CLAUSE (I) SHALL BE THE FOLLOWING: - (1) TERM LOAN BEYOND ONE YEAR, IF THE INTEREST AMOU NT REMAIN 'PAST DUE' FOR SIX MONTHS OR INSTALMENT IS OVERDUE FOR MORE TH AN SIX MONTHS; (2) LEASE RENTAL OR HIRE PURCHASE INSTALMENT, IF TH E RENTAL OR THE INSTALMENT IS 'PAST DUE' FOR SIX MONTHS; (3) BILL PURCHASED OR DISCOUNTED, IF THE BILL REMAI NS OVERDUE AND UNPAID FOR SIX MONTHS; OR (4) ANY OTHER CREDIT FACILITY IN THE NATURE OF SHOR T-TERM LOAN OR ADVANCE OTHER THAN THOSE REFERRED TO IN (1), (2) AND (3) AB OVE, IF ANY AMOUNT TO BE RECEIVED IN RESPECT OF SUCH A FACILITY REMAINS ' PAST DUE' FOR A PERIOD OF SIX MONTHS; (B) LOSS ASSET, THAT IS, A DEBT WHICH HAS BEEN IDE NTIFIED AS LOSS AND CONSIDERED AS UNCOLLECTIBLE BUT HAS NOT BEEN WRITTEN OFF IN THE A CCOUNTS OF THE ASSESSEE. EXPLANATION. - FOR THE PURPOSE OF THIS RULE, AN AMO UNT SHALL BE DEEMED TO BE 'PAST DUE' WHEN IT REMAINS UNPAID FOR THIRTY DAYS BEYOND THE DUE DATE.' IT IS EVIDENT THAT RULE 6EB PROVIDE FOR TWO CATEGOR IES OF DOUBTFUL DEBTS (A) DOUBTFUL ASSET WHICH HAS REMAINED NON-PERFORMIN G ASSET (NPA) FOR A PERIOD EXCEEDING 2 YEARS; AND (B) LOSS ASSET WHICH IS IDENTIFIED AS UNCOLLECTABLE. THE PRESCRIBED PERIOD OF DEFAULT TO TREAT TERM LOAN / LEASE RENTAL / BILLS / ANY OTHER CREDIT FACILITIES AS NPA , IS UNIFORM PERIOD OF 6 MONTHS. HOWEVER, THIS PERIOD OF 6 MONTHS, AS PER RE VISED NHB LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 11 GUIDELINES AS APPLICABLE FROM 31/03/2005 IS 90 DAYS WHICH HAS CREATED THE CONTROVERSY. THE ASSESSEE FOLLOWING NHB GUIDELI NES HAS NOT RECOGNIZED INCOME ON THOSE ASSETS WHICH REMAINED NP A BEYOND 90 DAYS. 4.4 UPON DUE CONSIDERATION, WE FIND THAT THE PROVIS IONS OF RULE 6EB WERE INITIALLY IN TANDEM WITH NHB GUIDELINES. HOWEV ER, WITH EFFECT FROM 31/03/2005, THERE WAS A CHANGE IN NHB GUIDELINES WH ICH NOW PRESCRIBED THAT IF A DEBT IS OVERDUE FOR A PERIOD O F 90 DAYS THEN INCOME BY WAY OF INTEREST SHALL BE RECOGNIZED ONLY ON RECE IPT BASIS UNLESS THE ASSESSEE RECOGNIZES THE SAME IN ITS BOOKS OF ACCOUN T. THE ASSESSEE HAS FOLLOWED NHB GUIDELINES AND ACCORDINGLY, NOT RE COGNIZED INCOME ON DEBTS WHICH REMAINED NPA BEYOND A PERIOD OF 90 DAYS AS AGAINST THE PERIOD OF 6 MONTHS AS PRESCRIBED IN RULE 6EB. HENCE , THERE IS A DICHOTOMY BETWEEN WHAT THE ASSESSEE HAS RECOGNIZED AS PER NHB GUIDELINES AND WHAT IT OUGHT TO HAVE RECOGNIZED AS PER RULE 6EB. THEREFORE, THE QUESTION POSED BEFORE US IS WHETHER IN THE MATTER OF REVENUE RECOGNITION, NHB GUIDELINES WOULD PREVAIL O VER EXPRESS PROVISIONS OF RULE 6EB OR THE INCOME HAS TO BE RECO GNIZED STRICTLY AS PER RULE 6EB. IN THE OTHER WORDS, WHETHER ANY CHANGE IN NHB GUIDELINES WOULD AUTOMATICALLY BRING ABOUT CORRESPONDING CHANG E IN RULE 6EB? 4.5 WE ARE UNABLE TO ACCEPT THE ASSERTION THAT NHB GUIDELINES WOULD BRING AUTOMATIC CORRESPONDING CHANGE IN RULE 6EB SI NCE, IN OUR CONSIDERED OPINION, THE DISCRETION WAS LEFT TO THE RULE MAKING AUTHORITY TO FOLLOW OR NOT FOLLOW THE NHB GUIDELINES AS AND WHEN THEY WERE REVISED SINCE THE SUBSTANTIVE PROVISIONS USES THE EXPRESSIO N HAVING REGARD TO WHICH WOULD SHOW THE INTENTION OF LEGISLATURE WAS T O LEAVE THE DISCRETION LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 12 TO THE RULE MAKING AUTHORITY. THE SAID INTERPRETATI ON IS IN LINE WITH THE DECISION OF HONBLE SUPREME COURT IN RAJESH KUMAR V/S DCIT 287ITR 91 INTERPRETING THE EXPRESSION HAVING REGARD TO. 4.6 HAVING SAID SO, WE FIND THAT IDENTICAL QUESTION CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN GIC HOUSING FINANCE LTD. V/S ADIT 45 SOT 318 , WHEREIN THE BENCH, AFTER CONSIDERING THE DECISION OF HONBLE DELHI HIGH COURT RENDERED IN CIT V/S VASISTH CHAY VYAPAR LTD. (2011 330 ITR 440) WHICH LD. AR HAS HEAVILY RELIED UPON, HELD AS UNDER:- 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE PROVI SIONS OF SECTION 43D ARE AS FOLLOWS: '43D. SPECIAL PROVISIONS IN CASE OF INCOME OF PUBLI C FINANCIAL INSTITUTIONS, PUBLIC COMPANIES ETC. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PROVISION OF THIS ACT,- (A) ** ** ** (B) IN THE CASE OF A PUBLIC COMPANY, THE INCOME BY WAY OF INTEREST IN RELATION TO SUCH CATEGORIES OF BAD OR DOUBTFUL DEBTS AS MAY BE PRESC RIBED HAVING REGARD TO THE GUIDELINES ISSUED BY THE NATIONAL HOUSING BANK IN R ELATION TO SUCH DEBTS, SHALL BE CHARGEABLE TO TAX IN THE PREVIOUS YEAR IN WHICH IT IS CREDITED BY THE PUBLIC FINANCIAL INSTITUTION OR THE SCHEDULED BANK OR THE STATE FINA NCE CORPORATION OR, AS THE CASE MAY BE, IN WHICH IT IS ACTUALLY RECEIVED BY THAT INSTIT UTION OR BANK OR CORPORATION OR COMPANY, WHICHEVER IS EARLIER.' 15. THE LEGISLATURE HAVING LAID DOWN THE BROAD PRINCIP LES OF ITS POLICY IN SECTION 43D(B) OF THE ACT, HAS LEFT THE DETAILS TO BE SUPPLIED BY THE RULE MAKING AUTHORITY. WHAT IS DELEGATED TO THE RULE MAKING AUTHORITY IS THE POWER TO DETERM INE, THE DEBTS WHICH CAN BE CONSIDERED AS BAD AND DOUBTFUL, INTEREST INCOME ON WHICH CAN B E CONSIDERED AS NOT HAVING ACCRUED, TO AN ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG. IN DOING SO, THE RULE MAKING AUTHORITY HAS BEEN DIRECTED TO HAVE REGARD TO THE G UIDELINES ISSUED BY THE NHB IN RELATION TO SUCH DEBTS. SECTION 43D OF THE ACT, DOES NOT MAN DATE THE RULE MAKING AUTHORITY TO FOLLOW THE GUIDELINES ISSUED BY THE NHB IN RELATION TO BAD AND DOUBTFUL DEBTS. IN EXERCISE OF SUCH POWER THE RULE MAKING AUTHORITY HAS ENACTED RULE 6E B OF THE RULES. THE RULE SO ENACTED ORIGINALLY WAS IN CONFORMITY WITH THE GUIDELINES IS SUED BY NHB. THE GUIDELINES WERE REVISED BY NHB IN THE YEAR 2004 BUT THE RULE MAKING AUTHORI TY DID NOT THINK IT FIT TO REVISE THE RULES TO BE IN CONFORMITY WITH THE REVISED GUIDELINES. IN OUR VIEW IT CANNOT BE SAID THAT THE GUIDELINES OF THE NHB AS AND WHEN THEY ARE REVISED HAVE TO BE TREATED BY IMPLICATION INCORPORATED IN RULE 6EB OF THE RULES. NHB IS NOT T HE RULE MAKING AUTHORITY FOR THE PURPOSES OF SECTION 43D OF THE ACT. THE DISCRETION IS LEFT TO THE RULE MAKING AUTHORITY TO FOLLOW OR NOT FOLLOW THE GUIDELINES OF NHB AS AND W HEN THEY ARE REVISED. THE PURPOSE OF CLASSIFICATION OF DEBTS AS BAD AND DOUBTFUL BY THE NHB AND THE PURPOSE OF NOT RECOGNISING LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 13 INTEREST INCOME FOR THE PURPOSES OF THE ACT, ARE DI FFERENT. THE CONSIDERATIONS THAT WEIGH WITH THE RELEVANT AUTHORITIES ARE ALSO DIFFERENT. T HEREFORE, IT CANNOT BE SAID THAT THE RULE MAKING AUTHORITY UNDER THE ACT HAS TO AUTOMATICALLY FOLLOW THE GUIDELINES OF NHB AS THEY EXIST FROM TIME TO TIME. IN THAT VIEW OF THE MATTER , WE CANNOT AGREE WITH THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE, THAT THE GUID ELINES ISSUED BY THE NHB, HAS TO BE READ AS PART OF SECTION 43D OF THE ACT. WE CANNOT A LSO AGREE THAT THE EXPRESSION 'HAVING REGARD TO' USED IN SECTION 43D OF THE ACT, MEANS TH AT THE RULE MAKING AUTHORITY SHOULD AMEND THE RULES AS AND WHEN THE GUIDELINES OF NHB A RE REVISED OR THAT WE HAVE TO READ THE GUIDELINES OF NHB AS PART OF SECTION 43D OF THE ACT. 16. WE HAVE ALSO CONSIDERED THE DECISIONS RELIED UPON B Y THE LEARNED COUNSEL FOR THE ASSESSEE. IN THE CASE OF DELHI FARMING & CONSTRUCTI ON (P.) LTD. (SUPRA) AND RAJESH KUMAR (SUPRA) , THE EXPRESSION 'HAVING REGARD TO' WAS CON SIDERED TO HAVE A BROADER MEANING BECAUSE OF THE DISCRETION INHERENTLY NECESSARY IN D ISCHARGE OF THE POWER. IN FACT THE DECISIONS SEEM TO SUGGEST THAT THE RULE MAKING AUTH ORITY IN THE PRESENT CASE, NEED NOT BE BOUND BY THE GUIDELINES OF NHB AND CAN TAKE INTO OT HER CONSIDERATIONS WHILE PRESCRIBING, WHAT ARE THE CRITERIA FOR DETERMINING WHAT ARE BAD AND DOUBTFUL DEBTS FOR THE PURPOSE OF SECTION 43D OF THE ACT. THE DECISION IN THE CASE OF BOMBAY STATE TRANSPORT CORPORATION (SUPRA) IS A CASE WHERE THERE WAS CONFLICT BETWEEN THE RULES AND THE ACT AND AS RIGHTLY SUBMITTED BY THE LEARNED D.R. THAT DECISION IS NOT OF ANY ASSISTANCE TO THE PLEA OF THE ASSESSEE BEFORE US. 17. THE NEXT ASPECT WHICH NEEDS TO BE CONSIDERED IS AS TO WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE EVEN DE HORS SECTION 43D CAN IT BE SAID THAT NO INCOME ACCRUED TO THE ASSESSEE AND CAN IT BE SAID THAT BY APPLYING THE REAL INCOME THEORY THE INTEREST INCOME IN QUESTION CANNOT BE BROUGHT TO TAX. IN THI S REGARD AT THE OUTSET WE HAVE TO BEAR IN MIND THAT ACCRUAL UNDER THE MERCANTILE SYSTEM OF AC COUNTING DEPENDS ON THE LEGAL RIGHT TO RECEIVE AND THE INABILITY OF THE DEBTOR TO MAKE PAY MENT WILL HAVE NO EFFECT ON THE LEGAL RIGHT OF THE CREDITOR TO RECEIVE. IN STATE BANK OF TRAVAN CORE (SUPRA), THE HON'BLE SUPREME COURT HAD TO DEAL WITH ACCRUAL OF INCOME IN THE CONTEXT O F INTEREST ON BAD OR DOUBTFUL DEBTS IN THE CASE OF BANKS. THE FACTS WERE THAT THE ASSESSEE WHI CH WAS A SUBSIDIARY OF THE STATE BANK OF INDIA MAINTAINED ACCOUNTS ON MERCANTILE SYSTEM M AKING ENTRIES ON ACCRUAL BASIS. IT ADOPTED THE CALENDAR YEAR AS ITS PREVIOUS YEAR AND THE CALENDAR YEARS 1964, 1965 AND 1966 FOR WHICH ASSESSMENT YEARS 1965-66, 1966-67 AN D 1967-68 WERE THE RELEVANT A.Y. IN THE COURSE OF ITS BANKING BUSINESS, THE ASSESSEE CH ARGED INTEREST ON ADVANCES CONSIDERED DOUBTFUL OF RECOVERY, OTHERWISE CALLED STICKY ADVAN CES, BY DEBITING THE CONCERNED PARTIES BUT INSTEAD OF CARRYING IT TO ITS PROFIT AND LOSS A CCOUNT CREDITED THE SAME TO A SEPARATE ACCOUNT STYLED 'INTEREST SUSPENSE ACCOUNT' AS THE P RINCIPAL AMOUNTS OF THESE STICKY ADVANCES THEMSELVES HAD BECOME, NOT BAD OR IRRECOVE RABLE BUT EXTREMELY DOUBTFUL OF RECOVERY. HOWEVER, IN ITS RETURNS, THE ASSESSEE DIS CLOSED SUCH INTEREST SEPARATELY AND CLAIMED THAT THE SAME WAS NOT TAXABLE IN ITS HANDS AS INCOME FOR THE CONCERNED YEARS. THE HON'BLE SUPREME COURT ON THE TAXABILITY OF INTEREST INCOME ON ACCRUAL BASIS HELD AS FOLLOWS: '(1) IT IS THE INCOME WHICH HAS REALLY ACCRUED OR A RISEN TO THE ASSESSEE THAT IS TAXABLE. WHETHER THE INCOME HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE MUST BE JUDGED IN THE LIGHT OF THE REALITY OF THE SITUATION. (2) THE CONCEPT OF REAL INCOME WOULD APPLY WHERE THERE HAS BEEN A SURRENDER OF INCOME WHICH IN THEORY MAY HAVE ACCRUED BUT IN THE REALITY OF THE SITUATION, NO INCOME HAD RESULTE D BECAUSE THE INCOME DID NOT REALLY ACCRUE. (3) WHERE A DEBT HAS BECOME BAD, DEDUCTION IN COMPLIANCE WITH THE PROVISIONS OF THE ACT SHOULD BE CLAIMED AND ALLOWED . (4) WHERE THE ACT APPLIES, THE LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 14 CONCEPT OF REAL INCOME SHOULD NOT BE SO READ AS TO DEFEAT THE PROVISIONS OF THE ACT. (5) IF THERE IS ANY DIVERSION OF INCOME AT SOURCE UNDER ANY STATUTE OR BY OVERRIDING TITLE, THEN THERE IS NO INCOME TO THE ASSESSEE. (6) THE CO NDUCT OF THE PARTIES IN TREATING THE INCOME IN A PARTICULAR MANNER IS MATERIAL EVIDENCE OF THE FACT WHETHER INCOME HAS ACCRUED OR NOT. (7) MERE IMPROBABILITY OF RECOVERY, WHERE THE CONDUCT OF THE ASSESSEE IS UNEQUIVOCAL, CANNOT BE TREATED AS EVIDENCE OF TH E FACT THAT INCOME HAS NOT RESULTED OR ACCRUED TO THE ASSESSEE. AFTER DEBITING THE DEBT OR'S ACCOUNT AND NOT REVERSING THAT ENTRY-BUT TAKING THE INTEREST MERELY IN SUSPENSE AC COUNT CANNOT BE SUCH EVIDENCE TO SHOW THAT NO REAL INCOME HAS ACCRUED TO THE ASSESSE E OR BEEN TREATED AS SUCH BY THE ASSESSEE. (8) THE CONCEPT OF REAL INCOME IS CERTAIN LY APPLICABLE IN JUDGING WHETHER THERE HAS BEEN INCOME OR NOT BUT, IN EVERY CASE, IT MUST BE APPLIED WITH CARE AND WITHIN WELL-RECOGNISED LIMITS. WE WERE INVITED TO ABANDON LEGAL FUNDAMENTALISM. WI TH A PROBLEM LIKE THE PRESENT ONE, IT IS BETTER TO ADHERE TO THE BASIC FUNDAMENTA LS OF THE LAW WITH CLARITY AND CONSISTENCY THAN TO BE CARRIED AWAY BY COMMON CLICH ES. THE CONCEPT OF REAL INCOME CERTAINLY IS A WELL-ACCEPTED ONE AND MUST BE APPLIE D IN APPROPRIATE CASES BUT WITH CIRCUMSPECTION AND MUST NOT BE CALLED IN AID TO DEF EAT THE FUNDAMENTAL PRINCIPLES OF THE LAW OF INCOME-TAX AS DEVELOPED.' 18. THE HON'BLE SUPREME COURT IN ITS LATER JUDGMENT IN THE CASE OF UCO BANK (SUPRA) HOWEVER DID NOT AGREE WITH THE AFORESAID VIEW BECAU SE ONE OF THE CIRCULAR OF CBDT HAD BEEN OVERLOOKED WHILE RENDERING THE AFORESAID DECIS ION. THE QUESTION BEFORE THE HON'BLE COURT WAS AS TO WHETHER INTEREST ON A LOAN WHOSE RE COVERY IS DOUBTFUL AND WHICH HAS NOT BEEN RECOVERED BY THE ASSESSEE-BANK FOR THE LAST TH REE YEARS BUT HAS BEEN KEPT IN A SUSPENSE ACCOUNT AND HAS NOT BEEN BROUGHT TO THE PR OFIT AND LOSS ACCOUNT OF THE ASSESSEE, CAN BE INCLUDED IN THE INCOME OF THE ASSESSEE FOR T HE ASSESSMENT YEAR 1981-82. THE CENTRAL BOARD OF DIRECT TAXES HAD ISSUED CIRCULAR N O. 41 (V-6) D OF 1952, DATED OCTOBER 6, 1952. THE CIRCULAR, INTER ALIA, STATED THAT 'INTERE ST ACCRUING TO A MONEY-LENDER ON LOANS ENTERED IN THE SUSPENSE ACCOUNT BECAUSE OF THE EXTR EME UNLIKELIHOOD OF THEIR BEING RECOVERED NEED NOT BE INCLUDED IN THE ASSESSEE'S TA XABLE INCOME IF THE INCOME-TAX OFFICER IS SATISFIED THAT THERE IS REALLY LITTLE PROBABILIT Y OF THE LOANS BEING REPAID. IT WAS CONSIDERED DESIRABLE TO EXTEND THIS PRINCIPLE TO BANKS WHICH, INSTEAD OF TRANSFERRING THE DOUBTFUL DEBTS TO A SUSPENSE ACCOUNT, CREDIT THE INTEREST ON SUCH DEBTS TO THAT ACCOUNT PROVIDED THE INCOME-TAX OFFICER IS SATISFIED THAT RECOVERY IS PR ACTICALLY IMPROBABLE.' THIS CIRCULAR WAS IN FORCE TILL JUNE 20, 1978, WHEN THE CENTRAL BOARD OF DIRECT TAXES ISSUED A CIRCULAR DATED JUNE 20, 1978, WITHDRAWING WITH IMMEDIATE EFFECT TH E EARLIER CIRCULAR OF OCTOBER 6, 1952. THE REASON FOR THE WITHDRAWAL OF THE CIRCULAR OF 19 52 WAS THE DECISION OF THE KERALA HIGH COURT IN STATE BANK OF TRAVANCORE V. CIT [1977] 110 ITR 336 WHEREIN A VIEW WAS EXPRESSED THAT IN SUCH CASES INCOME WOULD ACCRUE UN DER MERCANTILE SYSTEM OF ACCOUNTING. THE CENTRAL BOARD OF DIRECT TAXES, HOWEVER, ISSUED ANOTHER CIRCULAR OF OCTOBER 9, 1984, UNDER WHICH THE CENTRAL BOARD OF DIRECT TAXES DECID ED THAT 'INTEREST IN RESPECT OF DOUBTFUL DEBTS CREDITED TO SUSPENSE ACCOUNT BY THE BANKING C OMPANIES WILL BE SUBJECTED TO TAX BUT INTEREST CHARGED IN AN ACCOUNT WHERE THERE HAS BEEN NO RECOVERY FOR THREE CONSECUTIVE ACCOUNTING YEARS WILL NOT BE SUBJECTED TO TAX IN TH E FOURTH YEAR AND ONWARDS. HOWEVER, IF THERE IS ANY RECOVERY IN THE FOURTH YEAR OR LATER T HE ACTUAL AMOUNT RECOVERED ONLY WILL BE SUBJECTED TO TAX IN THE RESPECTIVE YEARS. THIS PROC EDURE WAS TO APPLY TO THE ASSESSMENT YEAR 1979-80 AND ONWARDS. THE BOARD'S INSTRUCTION N O. 1186, DATED JUNE 20, 1978, WAS MODIFIED TO THIS EXTENT'. THE SAME CIRCULAR FURTHER CLARIFIED THAT UP TO THE ASSESSMENT YEAR LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 15 1978-79 THE TAXABILITY OF INTEREST ON DOUBTFUL DEBT S CREDITED TO SUSPENSE ACCOUNT WILL BE DECIDED IN THE LIGHT OF THE BOARD'S EARLIER CIRCULA R DATED OCTOBER 6, 1952, AS THE SAID CIRCULAR WAS WITHDRAWN ONLY IN JUNE, 1978. THE NEW PROCEDURE UNDER THE CIRCULAR OF OCTOBER 9, 1984, WILL BE APPLICABLE FOR AND FROM TH E ASSESSMENT YEAR 1979-80. THE HON'BLE SUPREME COURT HELD AS FOLLOWS: 'SECTION 119(1) OF THE INCOME-TAX ACT, 1961, PROVID ES THAT, 'THE CENTRAL BOARD OF DIRECT TAXES MAY, FROM TIME TO TIME, ISSUE SUCH ORDERS, IN STRUCTIONS AND DIRECTIONS TO OTHER INCOME-TAX AUTHORITIES AS IT MAY DEEM FIT FOR THE P ROPER ADMINISTRATION OF THIS ACT, AND SUCH AUTHORITIES AND ALL OTHER PERSONS EMPLOYED IN THE EXECUTION OF THIS ACT SHALL OBSERVE AND FOLLOW SUCH ORDERS, INSTRUCTIONS AND DI RECTIONS OF THE BOARD. PROVIDED THAT NO SUCH ORDERS, INSTRUCTIONS OR DIRECTIONS SHALL BE ISSUED (A) SO AS TO REQUIRE ANY INCOME-TAX AUTHORITY TO MAKE A PARTICULAR ASSESSMEN T OR TO DISPOSE OF A PARTICULAR CASE IN A PARTICULAR MANNER ; OR (B) SO AS TO INTERFERE WITH THE DISCRETION OF THE APPELLATE ASSISTANT COMMISSIONER IN THE EXERCISE OF HIS APPEL LATE FUNCTIONS'. UNDER SUB-SECTION (2) OF SECTION 119, WITHOUT PREJUDICE TO THE GENERA LITY OF THE BOARD'S POWER SET OUT IN SUB-SECTION (1), A SPECIFIC POWER IS GIVEN TO THE B OARD FOR THE PURPOSE OF PROPER AND EFFICIENT MANAGEMENT OF THE WORK OF ASSESSMENT AND COLLECTION OF REVENUE TO ISSUE FROM TIME TO TIME GENERAL OR SPECIAL ORDERS IN RESP ECT OF ANY CLASS OF INCOMES OR CLASS OF CASES, SETTING FORTH DIRECTIONS OR INSTRUCTIONS, NOT BEING PREJUDICIAL TO ASSESSEES, AS TO THE GUIDELINES, PRINCIPLES OR PROCEDURES TO BE F OLLOWED IN THE WORK RELATING TO ASSESSMENT. SUCH INSTRUCTIONS MAY BE BY WAY OF RELA XATION OF ANY OF THE PROVISIONS OF THE SECTIONS SPECIFIED THERE OR OTHERWISE. THE BOAR D THUS HAS POWER, INTER ALIA, TO TONE DOWN THE RIGOUR OF THE LAW AND ENSURE A FAIR ENFORC EMENT OF ITS PROVISIONS, BY ISSUING CIRCULARS IN EXERCISE OF ITS STATUTORY POWERS UNDER SECTION 119 OF THE INCOME-TAX ACT WHICH ARE BINDING ON THE AUTHORITIES IN THE ADMINIS TRATION OF THE ACT. UNDER SECTION 119(2)(A), HOWEVER, THE CIRCULARS AS CONTEMPLATED T HEREIN CANNOT BE ADVERSE TO THE ASSESSEE. THUS, THE AUTHORITY WHICH WIELDS THE POWE R FOR ITS OWN ADVANTAGE UNDER THE ACT IS GIVEN THE RIGHT TO FORGO THE ADVANTAGE WHEN REQUIRED TO WIELD IT IN A MANNER IT CONSIDERS JUST BY RELAXING THE RIGOUR OF THE LAW OR IN OTHER PERMISSIBLE MANNERS AS LAID DOWN IN SECTION 119. THE POWER IS GIVEN FOR THE PUR POSE OF JUST, PROPER AND EFFICIENT MANAGEMENT OF THE WORK OF ASSESSMENT AND IN PUBLIC INTEREST. IT IS A BENEFICIAL POWER GIVEN TO THE BOARD FOR PROPER ADMINISTRATION OF FIS CAL LAW SO THAT UNDUE HARDSHIP MAY NOT BE CAUSED TO THE ASSESSEE AND THE FISCAL LAWS M AY BE CORRECTLY APPLIED. HARD CASES WHICH CAN BE PROPERLY CATEGORISED AS BELONGIN G TO A CLASS, CAN THUS BE GIVEN THE BENEFIT OF RELAXATION OF LAW BY ISSUING CIRCULA RS BINDING ON THE TAXING AUTHORITIES. THE QUESTION WHETHER INTEREST EARNED, ON WHAT HAVE COME TO BE KNOWN AS 'STICKY' LOANS, CAN BE CONSIDERED AS INCOME OR NOT UNTIL ACT UAL REALISATION, IS A QUESTION WHICH MAY ARISE BEFORE SEVERAL INCOME-TAX OFFICERS EXERCI SING JURISDICTION IN DIFFERENT PARTS OF THE COUNTRY. UNDER THE ACCOUNTING PRACTICE, INTERES T WHICH IS TRANSFERRED TO THE SUSPENSE ACCOUNT AND NOT BROUGHT TO THE PROFIT AND LOSS ACCOUNT OF THE COMPANY IS NOT TREATED AS INCOME. THE QUESTION WHETHER IN A GIVEN CASE SUCH 'ACCRUAL' OF INTEREST IS DOUBTFUL OR NOT, MAY ALSO BE PROBLEMATIC. IF, THERE FORE, THE BOARD HAS CONSIDERED IT NECESSARY TO LAY DOWN A GENERAL TEST FOR DECIDING W HAT IS A DOUBTFUL DEBT, AND DIRECTED THAT ALL INCOME-TAX OFFICERS SHOULD TREAT SUCH AMOU NTS AS NOT FORMING PART OF THE INCOME OF THE ASSESSEE UNTIL REALISED, THIS DIRECTI ON BY WAY OF A CIRCULAR CANNOT BE CONSIDERED AS TRAVELLING BEYOND THE POWERS OF THE B OARD UNDER SECTION 119 OF THE INCOME-TAX ACT. SUCH A CIRCULAR IS BINDING UNDER SE CTION 119. THE CIRCULAR OF OCTOBER 9, 1984, THEREFORE, PROVIDES A TEST FOR RECOGNISING WH ETHER A CLAIM FOR INTEREST CAN BE LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 16 TREATED AS A DOUBTFUL CLAIM UNLIKELY TO BE RECOVERE D OR NOT. THE TEST PROVIDED BY THE SAID CIRCULAR IS TO SEE WHETHER, AT THE END OF THRE E YEARS, THE AMOUNT OF INTEREST HAS, IN FACT, BEEN RECOVERED BY THE BANK OR NOT. IF IT IS N OT RECOVERED FOR A PERIOD OF THREE YEARS, THEN IN THE FOURTH YEAR AND ONWARDS THE CLAI M FOR INTEREST HAS TO BE TREATED AS A DOUBTFUL CLAIM WHICH NEED NOT BE INCLUDED IN THE IN COME OF THE ASSESSEE UNTIL IT IS ACTUALLY RECOVERED.' 19. ON THE DECISION OF THE HON'BLE SUPREME COURT IN TH E CASE OF STATE BANK OF TRAVANCORE (SUPRA), THE COURT HELD AS FOLLOWS : 'THE FIRST DECISION IS THE MAJORITY JUDGMENT IN STA TE BANK OF TRAVANCORE V. CIT [1986] 158 ITR 102 , DECIDED BY A BENCH OF THREE JUDGES OF THIS COURT BY A MAJORITY OF TWO TO ONE. THIS JUDGMENT DIRECTLY DEALS WITH INTEREST ON 'STICKY ADVANCES' WHICH HAVE BEEN DEBITED TO THE CUSTOMER BUT TAKEN TO THE INTEREST S USPENSE ACCOUNT BY A BANKING COMPANY. THE MAJORITY JUDGMENT HAS REFERRED TO THE CIRCULAR OF OCTOBER 6, 1952, AND ITS WITHDRAWAL BY THE SECOND CIRCULAR OF JUNE 20, 1 978. THE MAJORITY APPEARS TO HAVE PROCEEDED ON THE BASIS THAT BY THE SECOND CIRCULAR OF JUNE 20, 1978, THE CENTRAL BOARD HAD DIRECTED THAT INTEREST IN THE SUSPENSE ACCOUNT ON 'STICKY' ADVANCES SHOULD BE INCLUDIBLE IN THE TAXABLE INCOME OF THE ASSESSEE AN D ALL PENDING CASES SHOULD BE DISPOSED OF KEEPING THESE INSTRUCTIONS IN VIEW. THE SUBSEQUENT CIRCULAR OF OCTOBER 9, 1984, BY WHICH, FROM THE ASSESSMENT YEAR 1979-80 TH E BANKING COMPANIES WERE GIVEN THE BENEFIT OF THE CIRCULAR OF OCTOBER 9, 1984, DOE S NOT APPEAR TO HAVE BEEN POINTED OUT TO THE COURT. WHAT WAS SUBMITTED BEFORE THE COU RT WAS, THAT SINCE SUCH INTEREST HAD BEEN ALLOWED TO BE EXEMPTED FOR MORE THAN HALF A CE NTURY, THE PRACTICE HAD TRANSFORMED ITSELF INTO LAW AND THIS POSITION SHOUL D NOT HAVE BEEN DEVIATED FROM. NEGATIVING THIS CONTENTION, THE COURT SAID THAT THE QUESTION OF HOW FAR THE CONCEPT OF REAL INCOME ENTERS INTO THE QUESTION OF TAXABILITY IN THE FACTS AND CIRCUMSTANCES OF THE CASE, AND HOW FAR AND TO WHAT EXTENT THE CONCEPT OF REAL INCOME SHOULD INTERMINGLE WITH THE ACCRUAL OF INCOME, WILL HAVE TO BE JUDGED 'IN THE LIGHT OF THE PROVISIONS OF THE ACT, THE PRINCIPLES OF ACCOUNTANCY RECOGNISED AND F OLLOWED, AND FEASIBILITY'. THE COURT SAID THAT THE EARLIER CIRCULARS BEING EXECUTIVE IN CHARACTER CANNOT ALTER THE PROVISIONS OF THE ACT. THESE WERE IN THE NATURE OF CONCESSIONS WH ICH COULD ALWAYS BE PROSPECTIVELY WITHDRAWN. THE COURT ALSO OBSERVED THAT THE CIRCULA RS CANNOT DETRACT FROM THE ACT. THE DECISION OF THE CONSTITUTION BENCH OF THIS COURT IN NAVNIT LAL (C.) JAVERI V. K.K. SEN, AAC [1965] 56 ITR 198 , OR THE SUBSEQUENT DECISION IN K.P. VARGHESE V. ITO [1981] 131 ITR 597 (SC), ALSO DO NOT APPEAR TO HAVE BEEN P OINTED OUT TO THE COURT. SINCE THE LATER CIRCULAR OF OCTOBER 9, 1984, WAS NOT POINTED OUT TO THE COURT, THE COURT NATURALLY PROCEEDED ON THE ASSUMPTION THAT THE BENEFIT GRANTE D UNDER THE EARLIER CIRCULAR WAS NO LONGER AVAILABLE TO THE ASSESSEE AND THOSE CIRCULAR S COULD NOT BE RESORTED TO FOR THE PURPOSE OF OVERCOMING THE PROVISIONS OF THE ACT. IN TERESTINGLY, THE CONCURRING JUDGMENT OF THE SECOND JUDGE HAS NOT DEALT WITH THIS QUESTIO N AT ALL BUT HAS DECIDED THE MATTER ON THE BASIS OF OTHER PROVISIONS OF LAW. THE SAID CIRCULARS UNDER SECTION 119 OF THE INCOME- TAX ACT WERE NOT PLACED BEFORE THE COURT IN THE CORRECT PERSPECTIVE BECAUSE THE LATER CIRCULAR CONTINUING CERTAIN BENEFITS TO THE ASSESSEES WAS OVERLOOKED AND THE WITHDRAWN CIRC ULAR WAS LOOKED UPON AS IN CONFLICT WITH LAW. SUCH CIRCULARS, HOWEVER, ARE NOT MEANT FOR CONTRADICTING OR NULLIFYING ANY PROVISION OF THE STATUTE. THEY ARE MEANT FOR EN SURING PROPER ADMINISTRATION OF THE STATUTE, THEY ARE DESIGNED TO MITIGATE THE RIGOURS OF THE APPLICATION OF A PARTICULAR PROVISION OF THE STATUTE IN CERTAIN SITUATIONS BY A PPLYING A BENEFICIAL INTERPRETATION TO THE PROVISION IN QUESTION SO AS TO BENEFIT THE ASSESSEE AND MAKE THE APPLICATION OF THE LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 17 FISCAL PROVISION, IN THE PRESENT CASE, IN CONSONANC E WITH THE CONCEPT OF INCOME AND IN PARTICULAR, NOTIONAL INCOME AS ALSO THE TREATMENT O F SUCH NOTIONAL INCOME UNDER ACCOUNTING PRACTICE. IN THE PREMISES THE MAJORITY DECISION IN THE STATE BANK OF TRAVANCORE V. CIT [1986] 158 ITR 102 (SC), CANNOT BE LOOKED UPON AS LAYING D OWN THAT A CIRCULAR WHICH IS PROPERLY ISSUED UNDER SECTION 119 OF THE INCOME-TAX ACT FOR PROPER ADMINISTRATION OF THE ACT AND FOR RELIEVING THE RIGOUR OF TOO LITERAL A CONSTRUCTION OF THE LAW FOR THE BENEFIT OF THE ASSESSEE IN CERTAIN SITUATIONS WOULD NOT BE BINDING ON THE DEPARTMENTAL AUTHORITIES. THIS WOULD BE CONTRARY TO THE RATIO LA ID DOWN BY THE BENCH OF FIVE JUDGES IN NAVNIT LAL (C.) JAVERI V. K.K. SEN [1965] 56 ITR 19 8 (SC).' 20. WE AGREE WITH THE SUBMISSIONS OF THE LEARNED D.R. THAT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF UCO BANK (SUPRA) DOES NOT OBLITERATE THE RATIO OF THE VERY SAME HON'BLE COURT IN THE CASE OF STATE BANK OF TRA VANCORE (SUPRA) BUT ONLY MODIFIES THE SAME INSOFAR AS A LATER CIRCULAR WHICH IS BENEVOLEN T HAD NOT BEEN BROUGHT TO THE HON'BLE COURTS NOTICE. IN THAT VIEW OF THE MATTER, WE AGREE WITH THE SUBMISSION OF THE LEARNED D.R. THAT REAL INCOME THEORY WOULD BE RELEVANT BUT WOULD HAVE NO APPLICATION SO AS TO DEFEAT THE PROVISIONS OF THE ACT. IN OUR VIEW PROVISIONS OF SE CTION 43D LAY DOWN THE LIMITS UP TO WHICH INTEREST INCOME OF BAD AND DOUBTFUL DEBTS IN THE CA SE OF PUBLIC COMPANIES NEED NOT BE RECOGNISED AS INCOME, IN A CASE WHERE ASSESSEE FOLL OWS MERCANTILE SYSTEM OF ACCOUNTING. BY IMPLICATION IT ALSO LAYS DOWN THAT ANY CLAIM THA T INTEREST INCOME AS NOT HAVING ACCRUED OVER AND ABOVE THE LIMITS LAID DOWN BY THE RULES, S HOULD NOT BE ACCEPTED. THE CLAIM OF THE ASSESSEE IN OUR VIEW IS THEREFORE CONTRARY TO THE P ROVISIONS OF SECTION 43D AND THE CLAIM OF THE ASSESSEE BASED ON REAL INCOME THEORY AND THERE BEING NO REAL ACCRUAL OF INCOME CANNOT BE ACCEPTED. 21. THAT LEAVES US WITH THE DECISION OF THE HON'BLE DE LHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPRA) AND THE HON'BLE MADRAS HIG H COURT IN THE CASE OF ELGI FINANCE LTD. (SUPRA). IN THE CASE OF VASISTH CHAY VYAPAR LT D. (SUPRA), THE ASSESSEE WAS A NON- BANKING FINANCE COMPANY BOUND BY THE PROVISIONS OF THE RESERVE BANK OF INDIA ACT, 1934. IN COMPLIANCE WITH THE DIRECTIONS ISSUED BY THE RBI UNDER THE RBI ACT, 1934, IT DID NOT RECOGNISE INTEREST ON INTERCORPORATE DEPOSIT AS INC OME. THE HON'BLE DELHI HIGH COURT HELD THAT INTEREST INCOME DOES NOT ACCRUE AND THE ACTION OF THE ASSESSEE WAS CORRECT. TO THE SAME EFFECT IS THE DECISION OF THE HON'BLE MADRAS H IGH COURT IN THE CASE OF ELGI FINANCE LTD. (SUPRA). THE HON'BLE DELHI HIGH COURT CONSIDER ED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SU PRA) AND EXPLAINED THAT THE CASE DECIDED BY THE HON'BLE SUPREME COURT INVOLVED A CAS E WHERE PROVISION ON ACCOUNT OF NON- PERFORMING ASSETS WAS CLAIMED AS A DEDUCTION, WHICH WAS HELD BY THE COURT TO BE NOT ALLOWABLE. THE HON'BLE COURT FOUND THAT A DEDUCTION CLAIMED UNDER THE ACT HAD TO SATISFY THE CONDITIONS LAID DOWN UNDER THE ACT AND PRUDENTI AL NORMS OF RBI WILL NOT OVERRIDE THE PROVISIONS OF THE ACT. BUT WHEN IT COMES TO 'INCOME RECOGNITION' PRUDENTIAL NORMS WILL BE RELEVANT. AS RIGHTLY CONTENDED BY THE LEARNED D.R. THE ISSUE BEFORE THE HON'BLE DELHI HIGH COURT WAS NOT IN RELATION TO PROVISIONS OF SECTION 43D AND THEREFORE THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN T ECHNOLOGIES LTD. (SUPRA) WOULD APPLY. THE HON'BLE DELHI HIGH COURT WAS DEALING WITH A CAS E WHERE THERE WAS A CONFLICT BETWEEN THEORY OF 'INCOME RECOGNITION' AND PRUDENTIAL NORMS OF THE RBI. IN THE PRESENT CASE, WE ARE CONCERNED WITH THE PROVISIONS OF SECTION 43D VIS-A- VIS THE GUIDELINES OF NHB REGARDING BAD AND DOUBTFUL DEBTS. THE HON'BLE SUPREME COURT IN TH E CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) HAD TO DEAL WITH DEDUCTION ON ACCOUNT OF CL AIM FOR DEDUCTION ON ACCOUNT OF PROVISION FOR NON-PERFORMING ASSETS IN TERMS OF RBI DIRECTIONS ISSUED UNDER THE RBI ACT, LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 18 1934. THE HON'BLE COURT FOUND THAT UNDER EXPLANATIO N TO SECTION 36(1)(VII) OF THE ACT, PROVISION FOR DOUBTFUL DEBT WAS KEPT OUT OF THE AMB IT OF BAD DEBT WRITTEN OFF. IT WAS FURTHER HELD THAT UNDER THE ACT, TAX IS ON 'REAL INCOME' I. E., PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. RE AL PROFITS CAN BE ARRIVED AT ONLY BY MAKING THE PERMISSIBLE DEDUCTIONS. SINCE THE PROVISION FOR BAD DEBT WAS NOT A PERMISSIBLE DEDUCTION UNDER THE ACT, THE SAME WAS HELD TO BE NO T ALLOWABLE. THE 'REAL INCOME' REFERRED TO BY THE HON'BLE SUPREME COURT IN ITS JUDGMENT IN PARAS 35 TO 39 IS IN THE CONTEXT OF PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE ACT. THE PROVISIONS OF SECTION 43D LAY DOWN THE LIMITS UP TO WHICH INTERES T INCOME OF BAD AND DOUBTFUL DEBTS IN THE CASE OF PUBLIC COMPANIES NEED NOT BE RECOGNISED AS INCOME, IN A CASE WHERE ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. B Y IMPLICATION IT ALSO LAYS DOWN THAT ANY CLAIM THAT INTEREST INCOME AS NOT HAVING ACCRUED OV ER AND ABOVE THE LIMITS LAID DOWN BY THE RULES, SHOULD NOT BE ACCEPTED. THE CLAIM OF THE ASS ESSEE IN OUR VIEW IS THEREFORE CONTRARY TO THE PROVISIONS OF SECTION 43D AND CANNOT THEREFO RE THE CLAIM OF THE ASSESSEE BASED ON REAL INCOME THEORY AND THERE BEING NO REAL ACCRUAL OF INCOME CANNOT BE ACCEPTED. THUS THE DECISION OF THE HON'BLE DELHI HIGH COURT AND THE MA DRAS HIGH COURT WILL NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. RATHER THE DECISI ON OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES (SUPRA) ALONE WILL AP PLY. WE THEREFORE REJECT THE CONTENTION RAISED ON BEHALF OF THE LEARNED COUNSEL FOR THE ASS ESSEE. FOR THE REASONS STATED ABOVE, WE UPHOLD THE ORDER O F CIT(A) AND DISMISS THE APPEAL BY THE ASSESSEE. NOTHING ON RECORD SUGGEST THAT THE AFORESAID RULING HAS SUBSEQUENTLY BEEN REVERSED BY ANY JUDICIAL AUTHORITY OR THE SAME IS NOT APPLICABLE TO THE FACT THE PRESENT CASE. 4.7 BESIDES THE DECISION OF HONBLE DELHI HIGH COUR T WHICH HAS ALREADY BEEN CONSIDERED IN THE ABOVE DECISION, LD. AR HAS A LSO RELIED UPON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN LUDHIANA CENTRAL CO-OP BANK LTD. (99 TAXMANN.COM 81) , THE DECISION OF HONBLE BOMBAY HIGH COURT IN INDIA DEBT MANAGEMENT PVT. LTD. (ITA NO 266 OF 2017 DATED 15/04/2019) AND THE DECISION OF HONBLE BOMBAY HIGH COURT IN SOLAPUR DISTRICT CENTRAL CO-OP. BANK LTD. (102 TAXMANN.COM 440). HOWEVER, UPON CAREFUL STUDY OF THE DECISIONS RENDERED BY HONBLE COURTS, WE FIND THAT THE SAID D ECISIONS DO NOT ADDRESS THE CONFLICT UNDER HAND AND THEY ARE PRIMAR ILY CONCERNED WITH CONCEPT OF INCOME RECOGNITION VIS--VIS PROVISIONIN G NORMS ISSUED BY LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 19 RBI. NO SUCH CONFLICT, AS IN THE PRESENT CASE, IS F OUND TO BE PRESENT IN THESE DECISIONS. SIMILARLY, THE DECISION OF KOLKATA TRIBUNAL IN DCIT V/S THE ROYAL BANK OF SCOTLAND (ITA NO. 496/MUM/2015 14 /10/2016) HAS BEEN RENDERED IN THE CONTEXT OF RULE 6EA AND DO NOT ADDRESS THE CONFLICT BEFORE US. THIS DECISION HAS BEEN FOLLOWED BY CHENN AI TRIBUNAL IN THE KARUR VYSYA BANK LTD. (ITA NOS. 2325-36/MDS.2016 29 /03/2017) . SIMILAR IS THE POSITION OF OTHER DECISIONS CITED BY LD. AR, BEFORE US. THEREFORE, NO GUIDANCE COULD BE OBTAINED FROM ALL T HESE DECISIONS TO RESOLVE THE CONTROVERSY BEFORE US. 4.8 DURING THE COURSE OF HEARING, A DECISION OF HO NBLE DELHI HIGH COURT RENDERED IN HOUSING & URBAN DEVELOPMENT CORPORATION LTD. V/S ADDL. CIT (83 TAXMANN.COM 292 DATED 03/07/2017) , WHICH IS DIRECTLY ON THE POINT FAVORING REVENUE, WAS BROUGHT TO THE NOTICE OF THE BENCH. HOWEVER, IT IS FOUND THAT THE OPERATION OF T HE SAID ORDER HAS SUBSEQUENTLY BEEN STAYED BY HONBLE APEX COURT IN S PECIAL LEAVE PETITION (CIVIL) DIARY NO. 24914/2-18 DATED 06/08/2 018 BY OBSERVING AS UNDER: - DELAY CONDONED ISSUE NOTICE. THERE SHALL BE STAY OF OPERATION OF THE ORDER PASSE D BY THE HIGH COURT, IN THE MEANTIME. THEREFORE, NO GUIDANCE COULD BE OBTAINED FROM THE A FORESAID DECISION ALSO. 4.9 FINALLY, KEEPING IN VIEW THE FACTS AND CIRCUMST ANCES AND RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH RENDERED IN GIC HOUSING FINANCE LTD. V/S ADIT 45 SOT 318, WE CONCUR WITH THE STAND OF LD. FIRST APPELLATE AUTHORITY IN CONFIRMING THE ADDITION MADE BY LD. AO. LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 20 4.10 AT THE SAME TIME, IT IS ALSO TRUE THAT SOME OF THE INCOME MAY HAVE BEEN RECOGNIZED BY THE ASSESSEE IN SUBSEQUENT YEARS UPON RECEIPT OF THE SAME AND THE SAME WOULD HAVE BEEN OFFERED TO TA X IN THOSE YEARS. HOWEVER, UPON PERUSAL OF QUANTUM ASSESSMENT ORDER, WE FIND THAT SUCH INCOME REMAINED UNQUANTIFIED AND THEREFORE, NO RELI EF COULD BE GRANTED TO THE ASSESSEE, ON THIS ACCOUNT. WE ARE ALSO NOT C ONVINCED WITH OTHER ARGUMENTS OF LD. AR THAT THE DEDUCTION SHOULD BE AL LOWED AS BAD DEBTS SINCE THE SAME WOULD BE GOVERNED BY THE REQUIREMENT S OF SECTION 36(1)(VII). 5. RESULTANTLY, GROUND NO. 4 STAND DISMISSED. THE A PPEAL REMAIN PARTLY ALLOWED. CONCLUSION 6. THE GROUNDS IN BOTH THE YEARS AS STATED ABOVE, S TAND DISMISSED. BOTH THE APPEALS REMAIN PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH OCTOBER, 2019. SD/- SD/- (MAHAVIR SINGH) (MA NOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 04/10/2019 SR.PS, JAISY VARGHESE !'! / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT LIC HOUSING FINANCE LTD. ASSESSMENT YEARS :2004-05 & 2005-06 21 2. &'#% / THE RESPONDENT 3. . ( ) / THE CIT(A) 4. . / CIT CONCERNED 5. /0 &)1 , 1 , / DR, ITAT, MUMBAI 6. 023 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.