Bajaj Finance Ltd., Pune V. Additional Commissioner of Income-tax,

ITA 579/PUN/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1994 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 04-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 25-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D A MAO
• Keywords: Earning of tax free income; Question of law; Bad and doubtful debts
• Section: 14A; 37(1); 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , , !'#'' $ , % & BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM / ITA NOS. 560 & 561/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2009-10 & 2010-11 DY. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE ....... / APPELLANT ' / V/S. BAJAJ FINANCE LIMITED, (EARLIER KNOWN AS BAJAJ AUTO FINANCE LTD.), C/O. BAJAJ AUTO LIMITED, BOMBAY-PUNE ROAD, AKURDI, PUNE 411035 PAN : AABCB1518L / RESPONDENT / ITA NOS. 578 & 579/PN/2014 %' ( ')( / ASSESSMENT YEAR : 2009-10 & 2010-11 BAJAJ FINANCE LIMITED, (FORMERLY KNOWN AS BAJAJ AUTO FINANCE LTD.), 4 TH FLOOR, BAJAJ FINSERV CORPORATE OFFICE, OFF PUNE-NAGAR ROAD, VIMAN NAGAR, PUNE - 411044 PAN : AABCB1518L ....... / APPELLANT ' / V/S. THE ADDL. COMMISSIONER OF INCOME TAX, CIRCLE 8, PUNE / RESPONDENT ASSESSEE BY : SHRI PERCY PARDIWALLA REVENUE BY : SHRI D.A. MAO / DATE OF HEARING : 09-02-2016 / DATE OF PRONOUNCEMENT : 11-04-2016 2 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 * / ORDER PER VIKAS AWASTHY, JM : ITA NO. 560/PN/2014 HAS BEEN FILED BY THE REVENUE ASSAILING THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-V, PUNE DAT ED 16-12-2013 FOR THE ASSESSMENT YEAR 2009-10. THE ASSE SSEE HAS FILED CROSS APPEAL AGAINST THE SAME ORDER OF COMMISSIONER OF I NCOME TAX (APPEALS) IN ITA NO. 578/PN/2014. THE REVENUE IN ITA NO. 561/PN/2014 HAS ASSAILED THE ORDER OF COMMISSIONER OF IN COME TAX (APPEALS)-V, PUNE DATED 16-12-2013 FOR THE ASSESSMENT Y EAR 2010-11. THE ASSESSEE HAS ALSO FILED APPEAL AGAINST THE SAME ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) IN ITA NO. 579/PN/2014. SINCE, THE ISSUES ARISING IN ABOVE APPEALS FOR THE RESPECTIVE ASS ESSMENT YEARS ARE SIMILAR, THESE APPEALS ARE TAKEN UP TOGETHER FOR ADJU DICATION AND ARE DECIDED BY THIS COMBINED ORDER. FOR CONVENIENT AND SERIATIM DISPOSAL OF APPEALS, WE WILL FIRST T AKE UP THE APPEALS OF THE REVENUE AND THEREAFTER THE APPE ALS BY THE ASSESSEE. ITA NOS. 560 & 561/PN/2014 (APPEALS BY REVENUE) 2. THE GROUNDS RAISED BY THE REVENUE IN APPEALS FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11 ARE IDENTICAL. THE FINDINGS GIVE N BY US IN THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2009-10 WOULD MUTATIS MUTANDIS APPLY TO THE APPEAL OF REVENUE FOR ASSESSMENT YEAR 2010-11. 3. THE GROUND NO. 1 RAISED BY THE REVENUE IN ITS APPEAL READS AS UNDER: 3 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITI ON MADE ON ACCOUNT OF GAIN ARISING OUT OF REPURCHASE OF DEBENT URES, RELYING ON THE DECISION OF HIGH COURT OF KARNATAKA IN THE CASE OF CIT VS. INDUSTRIAL CREDIT & DEVELOPMENT SYNDICATE LTD. (200 6) 285 ITR 310, WHEN THE FACTS ARE DISTINGUISHABLE FROM THAT O F THE ASSESSEE. 4. THE ASSESSEE DURING THE FINANCIAL YEAR 2007-08 ISSUED 5 2,48,365 DEBENTURES ON RIGHT BASIS. DURING THE PERIOD BETWEEN MA RCH 24 AND MARCH 26, 2008 THE ASSESSEE REPURCHASED 21,86,380 DEBE NTURES HAVING FACE VALUE OF ` 500/- EACH AGGREGATING TO ` 109.32 CRORES FOR A CONSIDERATION OF ` 101.87 CRORES, RESULTING INTO A GAIN OF ` 7.45 CRORES ON REPURCHASE. THE GAIN ON REPURCHASE OF DEBENTURES WAS SPREAD EQUALLY OVER THE BALANCE PERIOD TO MATURITY OF DEBENTURES I.E. 22 MONTHS. ACCORDINGLY, GAIN OF ` 4,06,54,144/- WAS RECOGNIZED IN THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR 2008-09. FURTHER, THE COMPANY PURCHASED 4,01,500 DEBENTURES OF THE FACE VALUE OF ` 500/- EACH AGGREGATING ` 20.08 CRORES FOR A CONSIDERATION OF ` 19.49 CRORES BETWEEN MARCH 6 AND MARCH 18, 2009. IN THE PROCESS THE ASSE SSEE EARNED GAIN OF ` 58.76 LAKHS ON REPURCHASE. SINCE, THE DEBENTURES COULD B E REISSUED, THE GAIN ON REPURCHASE OF DEBENTURES WAS RECO GNIZED AS INCOME EQUALLY OVER THE BALANCE PERIOD TO MATURITY I.E. 10 MONTHS. ACCORDINGLY, NO GAIN WAS RECOGNIZED IN THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR 2008-09. THE DETAILS OF DEBENTURES REPU RCHASED BY THE ASSESSEE ARE TABULATED HERE-IN-BELOW FOR READY REFERENCE : PARTICULARS NO. OF DEBENTURES AMOUNT (RS.) DEBENTURE REDEMPTION RESERVE GAIN ON REPURCHASE RECOGNIZED IN P & L A/C. DEBENTURES ISSUED IN F.Y. 2007-08 52,48,365 262,41,82,500 - - REPURCHASED IN F.Y. 2007-08 (21,86,380) (109,31,90,000) 7,45,32,598 - REPURCHASED IN F.Y. (4,01,500) (20,07,50,000) 58,76,558 - 4 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 2008-09 TRANSFERRED TO P & L A/C (F.Y. 2008-09) - - (4,06,54,144) 4,06,54,144 REDEEMED IN F.Y. 2009-10 (26,60,485) (133,02,42,500) - - TRANSFERRED TO P & L A/C (F.Y. 2009-10) - - (3,97,55,012) 3,97,55,012 TOTAL - - - 8,04,09,156 5. THE ASSESSING OFFICER HELD THAT THE GAIN ON REDEMPTION OF DEBENTURES HAS ARISEN DURING THE ASSESSMENT YEAR 2009 -10 AND HENCE, THE SAME IS TAXABLE IN ASSESSMENT YEAR 2009-10. ACCOR DINGLY, THE ASSESSING OFFICER MADE ADDITION OF ` 58,76,558/- AS GAIN ON REDEMPTION OF DEBENTURES DURING THE PERIOD RELEVANT TO THE ASSESSM ENT YEAR 2009-10. THE ASSESSING OFFICER FURTHER MADE ADDITION OF ` 40,654,144/- AS GAIN ON REDEMPTION OF DEBENTURES DURING THE FINANCIAL YE AR 2007-08 (RELEVANT TO THE ASSESSMENT YEAR 2008-09) ON PROTECTIVE BASIS IN THE IMPUGNED ASSESSMENT YEAR. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE WITH REGARD TO ADDITION OF ` 58,76,558/- AND ` 40,654,144/- BY PLACING RELIANCE ON THE DECISION OF HON'BLE K ARNATAKA HIGH COURT IN THE CASE OF CIT VS. INDUSTRIAL CREDIT & DEVE LOPMENT SYNDICATE LTD. REPORTED AS 285 ITR 310 (KAR.). 6. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS NOT CLAIM ED DEDUCTION U/S. 41 OF THE ACT. THEREFORE, CONDITION LAID DOWN U/S. 41(1) WILL NOT APPLY IN THE PRESENT CASE. IN SUPPORT OF HIS SUB MISSIONS, THE LD. DR OF THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWING CASE LAWS: I. COMMISSIONER OF INCOME TAX VS. HUKUMCHAND MOHANLAL, 82 IT R 624 (SC); 5 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 II. COMMISSIONER OF INCOME TAX VS. KERALA ESTATE MOORIAD CHALAPURAM (SC), 161 ITR 155 (SC); III. COMMISSIONER OF INCOME TAX VS. P. GANESA CHETTIAR, 133 ITR 103 (MAD.). 7. ON THE OTHER HAND SHRI PERCY PARDIWALLA APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE FINDINGS OF COMMIS SIONER OF INCOME TAX (APPEALS). THE LD. AR SUBMITTED THAT BY REPURC HASING OF DEBENTURES AT A LESSER PRICE BEFORE MATURITY THE ASSESS EE HAS PRE-PONED ITS LIABILITY AND HAS THUS, SAVED FUTURE EXPENDITURE BY WAY OF INTEREST WHICH HAS BEEN CREDITED TO THE P & L A/C. BEING SURPLUS. THE ASSESSING OFFICER HAS ERRED IN MAKING ADDITION OF THE ENTIRE AMOUNT OF THE ALLEGED GAIN ON REPURCHASE OF THE DEBENTURES. THE C ASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. INDUSTRIAL CREDIT & DEVELOPME NT SYNDICATE LTD. (SUPRA). TO FURTHER BUTTRESS HIS SUBMISSIONS THE LD. AR ALSO PLACED RELIANCE ON THE DECISION OF HON'BLE BOMBAY HIGH COURT IN T HE CASE OF COMMISSIONER OF INCOME TAX VS. SULZER INDIA LTD. REPORTED AS 369 ITR 717 (BOM) AND THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF PRISM CEMENT LTD. VS. JOINT COMMISSIONER OF INCOME TAX REPORTED AS 101 ITD 103 (MUM.). 8. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENT ATIVES OF RIVAL SIDES AND HAVE EXAMINED THE ORDERS OF THE AUTHORITIE S BELOW. WE HAVE ALSO CONSIDERED THE DECISION ON WHICH THE LD. DR HAS PLACED RELIANCE. THE REVENUE HAS ASSAILED THE FINDINGS OF COMMISSION ER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION MADE ON ACCOU NT OF GAIN ON REPURCHASE OF DEBENTURES. THE CONTENTION OF THE REV ENUE IS THAT 6 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 SINCE THE GAIN ON REPURCHASE OF DEBENTURES HAS ACCRUED IN THE ASSESSMENT YEAR 2009-10, THEREFORE, THE SAME IS LIABLE TO BE TAXED IN ASSESSMENT YEAR 2009-10. 8.1 ON THE OTHER HAND, THE ASSESSEE HAS SPREAD THE GA IN ON REPURCHASE OF DEBENTURES OVER THE UNEXPIRED PERIOD OF DEBENTURES. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS DELETED THE ADDIT ION BY FOLLOWING THE JUDGMENT RENDERED IN THE CASE OF CIT VS. IN DUSTRIAL CREDIT & DEVELOPMENT SYNDICATE LTD. (SUPRA). THE LD. DR HAS PLACE D RELIANCE ON THE FOLLOWING DECISIONS : (I) COMMISSIONER OF INCOME TAX VS. HUKUMCHAND MOHANLAL (SUPRA), (II) COMMISSIONER OF INCOME TAX VS . KERALA ESTATE MOORIAD CHALAPURAM (SUPRA) AND (III) COMMISSIONER OF INCOME TAX VS. P. GANESA CHETTIAR (SUPRA). WE FIND THAT TH E DECISIONS REFERRED TO BY THE LD. DR ARE DISTINGUISHABLE ON THE FACTS AND NO POSITIVE INFERENCE CAN BE DRAWN FROM THE AFORESAID DECISIONS TO ADJUDICATE THE PRESENT ISSUE. THE DECISION RELIED UPON BY THE LD. DR THUS, WOULD NOT HELP THE CAUSE OF DEPARTMENT. 8.2 IN THE CASE OF CIT VS. INDUSTRIAL CREDIT & DEVELOPMENT SYNDICATE LTD. (SUPRA) THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF DEALING IN SECURITIES, DEBENTURES, SHARES, ETC. AND ALSO GRANTING LOANS AND ADVANCES TO OTHER PARTIES. IN THE YEAR 1973, THE ASSES SEE-COMPANY HAD ISSUED A LARGE NUMBER OF DEBENTURES OF RS. 10 EACH AT PA R. THESE DEBENTURES WERE REDEEMABLE DURING THE ACCOUNTING YEARS CORRESPONDING TO THE ASSESSMENT YEARS 1984-85, 1985-8 6 AND 1986-87 AT THE RATE OF 30 PERCENT, 30 PERCENT AND 40 PERCENT, RESPECTIVELY OF THE FACE VALUE THEREOF. DURING THE PERIOD OF REDEMPTION, THE ASS ESSEE- COMPANY PURCHASED SOME OF THESE DEBENTURES THROUGH A NOMINEE AT A 7 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 PRICE LESS THAN THE FACE VALUE THEREOF. THE ASSESSEE CRED ITED THE DIFFERENCE AMOUNT BETWEEN THE FACE VALUE OF THE DEBENTURE S PURCHASED AND THE COST THEREOF IN ITS BOOKS AS SURPLUS ARISING ON REDEMPTION OF DEBENTURES. THE ASSESSEE CREDITED THESE AMOUNTS TO TH E PROFIT AND LOSS ACCOUNT BUT DID NOT FORM PART OF THE INCOME BY WAY OF CA PITAL GAINS RECEIPT AND HENCE SOUGHT FOR DEDUCTION OF THE AMOUNT FRO M COMPUTATION OF THE INCOME. THE ASSESSING OFFICER HELD THAT THE SURPLUS AMOUNTS WITH THE NOMINEES OF THE ASSESSEE CONSTITUTED I TS REVENUE RECEIPTS AND SHOULD THEREFORE BE INCLUDED WITHIN ITS BUSINES S INCOME. THE ASSESSEE CARRIED THE MATTER IN APPEAL TO TRIBUNAL. T HE TRIBUNAL HELD THAT THE SURPLUS AMOUNTS WERE NOT CHARGEABLE TO TAX EITHER AS REVENUE OR EVEN AS CAPITAL GAIN. THE DEPARTMENT TOOK T HE MATTER IN APPEAL BEFORE HONBLE HIGH COURT. THE ISSUE BEFORE HON BLE HIGH COURT FOR ADJUDICATION WAS; WHETHER THE AMOUNT SAVED BY ASSES SEE BY REDEEMING THE DEBENTURES AT A LOWER PRICE CONSTITUTES IN COME FOR IT BEING TAXED UNDER THE ACT. THE HONBLE HIGH COURT AFTER CONSIDERING VARIOUS JUDGMENT S OF HONBLE SUPREME COURT OF INDIA AND THE PROVISIONS OF THE ACT HELD : 14. IN THE INSTANT CASE, ADMITTEDLY THE ASSESSEE HA D ISSUED DEBENTURES WHICH ARE REDEEMABLE AFTER A PERIOD OF T EN YEARS AT THE FACE VALUE THEREOF. THOUGH THE DEBENTURE-HOLDERS SOLD TH E DEBENTURES BEFORE THE STIPULATED PERIOD AT A DISCOUNTED PRICE TO THE NOMINEE OF THE ASSESSEE, THE CONSIDERATION PAID TO THOSE DEBENTURE -HOLDERS WAS PAID BY THE ASSESSEE AS REFLECTED IN THE BOOKS OF ACCOUNT B Y A LOAN ADVANCED TO THE NOMINEE. THEREAFTER, ON THE DUE DATES THE ASSES SEE HAS REDEEMED THOSE DEBENTURES FOR THE PURPOSE OF ACCOUNTING, THE ENTIRE LIABILITY WAS SHOWN AS A LIABILITY AT THE PRICE PAID BY THE NOMIN EE OF THE ASSESSEE. IN THE BALANCE-SHEET, THE ENTIRE AMOUNT DUE UNDER THE DEBENTURES WAS SHOWN AS A LIABILITY. AFTER REDEMPTION, THE DIFFERE NCE IN THE AMOUNT WAS TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT AND IT W AS SHOWN AS SURPLUS. IT IS OBVIOUSLY ON THE GROUND THAT AFTER REDEMPTION SO MUCH LIABILITY IS SAVED BY THE ASSESSEE AND ACTUALLY THE SAME HAS TO BE SHOWN AS 8 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 SURPLUS THOUGH THERE IS NO REAL INCOME OR PROFIT DE RIVED. NOTWITHSTANDING THE NOMENCLATURE ADOPTED IN THE BALANCE-SHEET TO DE PICT THAT AMOUNT AND THE PLACE WHERE IT IS SHOWN IN REALITY THE ASSESSEE DID NOT RECEIVE THE SAID AMOUNT AS INCOME. THE ASSESSEE WAS ONLY ABLE T O DISCHARGE ITS LIABILITY AT A LESSER AMOUNT AS AGAINST THE FACE VA LUE OF THE DEBENTURES. IT IS WELL RECOGNISED THAT IN REVENUE CASES REGARD MUS T BE HAD TO THE SUBSTANCE OF THE TRANSACTION RATHER THAN TO ITS MER E FORM. IT IS WHOLLY UNREAL AND ARTIFICIAL TO SEPARATE THE BUSINESS FROM ITS OWNER AND TREAT THEM AS IF THEY WERE SEPARATE ENTITIES TRADING WITH EACH OTHER AND THEN BY MEANS OF A FICTIONAL SALE INTRODUCE A FICTIONAL PROFIT WHICH IN TRUTH AND IN FACT DID NOT EXIST. CUT AWAY THE FICTIONS AND YO U REACH THE POSITION THAT THE MAN IS SUPPOSED TO BE SELLING TO HIMSELF A ND THEREBY MAKING A PROFIT OUT OF HIMSELF WHICH ON THE FACE OF IT IS NO T ONLY ABSURD BUT AGAINST ALL CANONS OF MERCANTILE AND INCOME-TAX LAW. MERELY BECAUSE THE AFORESAID AMOUNT WAS SHOWN AS A SURPLUS AMOUNT IN T HE PROFIT AND LOSS ACCOUNT, WHEN THE ASSESSEE DID NOT ACTUALLY RECEIVE ANY INCOME, WE ARE UNABLE TO ACCEDE TO THE SUBMISSION OF SRI SESHACHAL A THAT IT CONSTITUTES INCOME UNDER SECTION 2(24) OF THE ACT. HAVING REGAR D TO THE REALITY OF THE SITUATION, AS THE ASSESSEE HAS NOT DERIVED ANY INCO ME, HE IS ENTITLED NOT TO TREAT IT AS AN INCOME. THEREFORE, THE TRIBUNAL W AS FULLY JUSTIFIED IN ITS CONCLUSION THAT THE SAID SURPLUS AMOUNT REFLECTED I N THE BALANCE-SHEET CANNOT BE TREATED AS AN INCOME OF THE ASSESSEE. WE DO NOT FIND ANY ERROR IN THE SAID CONCLUSION REACHED BY THE TRIBUNAL. 8.3 IN THE CASE OF PRISM CEMENT LTD. VS. JOINT COMMISSION ER OF INCOME TAX (SUPRA) THE ASSESSEE-COMPANY HAD ISSUED NON -CONVERTIBLE DEBENTURES (NCDS) SOME OF WHICH WERE FORFEITED BY IT DUE TO NON- PAYMENT OF CALL MONEY. IT CREDITED THE AMOUNT RECEIVED E ARLIER ON SUCH NCDS AS THE AMOUNT WRITTEN BACK AND SET IT OFF AGAINST T HE EXPENDITURE. THE ASSESSING OFFICER TREATED THE SAID AMOUN T AS INCOME EXIGIBLE TO TAX ON THE GROUND THAT THE ASSESSEE HAD DE RIVED MONETARY BENEFITS; AND THAT EVEN THOUGH THE COMMERCIAL PRODUCTION WAS NOT COMMENCED, THE MONIES WERE BORROWED THROUGH NCDS FOR T HE BUSINESS PURPOSE. ACCORDINGLY, HE MADE ADDITION IN ASSESSEES HAN DS ON THAT ACCOUNT. ON APPEAL, THE COMMISSIONER (APPEALS) UPHELD THE IMPUGNED ADDITION. THE ASSESSEE CARRIED THE MATTER IN SECOND APP EAL BEFORE THE 9 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 TRIBUNAL. THE TRIBUNAL AFTER ANALYZING THE FACTS OF THE CASE AND CONSIDERING VARIOUS DECISIONS OF THE HON'BLE APEX COURT CONCLUDED : 15. THUS, THE EARNEST MONEY OR AN ADVANCE AMOUNT R ECEIVED ON ACCOUNT ISSUANCE OF NCDS, IF FORFEITED ON ACCOUNT OF NONPAY MENT OF CALL MONEY, THE LOAN LIABILITY WOULD ONLY CONVERT INTO A CAPITA L RECEIPT. IT WOULD NOT ASSUME A CHARACTER OF REVENUE RECEIPT OR BUSINESS R ECEIPT BECAUSE NCDS WERE NOT ISSUED IN THE COURSE OF REGULAR BUSINESS O F THE ASSESSEE AS EVIDENT FROM THE FACTS OF THE CASE. ASSESSEE'S MAIN BUSINESS IS OF CEMENT AND IT WAS IN THE PROCESS OF SET UP OF CEMENT MANUF ACTURING PLANT AT SATNA DURING THE IMPUGNED ASSESSMENT YEAR. IN THESE CIRCUMSTANCES, WE ARE CONSTRAINED TO HOLD THAT THE AMOUNT RECEIVED BY THE ASSESSEE IN LIEU OF ISSUANCE OF NCDS WHICH WERE FORFEITED LATER ON A CCOUNT OF NON- PAYMENT OF CALL MONEY ASSUMES A CHARACTER OF CAPITA L RECEIPT WHICH EARLIER WAS SHOWN AS A LOAN LIABILITY IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. IF WE CONSIDER THIS RECEIPT TO BE A BUSIN ESS RECEIPTS EVEN THEN IT WOULD NOT BE TAXABLE TO TAX UNDER THE PROVISIONS OF SECTION 41(1) OF THE ACT, INASMUCH AS THERE WAS NO ALLOWANCE OR DEDU CTION OF THIS LIABILITY IN THE EARLIER YEARS. WE ALSO DO NOT FIND ANY PROVI SION IN THIS ACT ACCORDING TO WHICH THIS TYPE OF RECEIPTS ARE CHARGE ABLE TO TAX. WE, THEREFORE, ARE OF THE CONSIDERED VIEW THAT THE REVE NUE WAS NOT JUSTIFIED IN TREATING THIS RECEIPT AS REVENUE RECEIPT. WE THEREF ORE, SET ASIDE THE ORDER OF CIT(A) AND DELETE THE ADDITION. 8.4 THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIONS DISCUSSED ABOVE, WE FIND THAT THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS WELL REASONED AND TH US NO INTERFERENCE IS CALLED FOR. ACCORDINGLY, GROUND NO. 1 RAISED IN THE APPEAL BY THE DEPARTMENT IS DISMISSED. 9. THE GROUND NO. 2 RAISED IN THE APPEAL BY THE DEPARTME NT READS AS UNDER: 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITI ON OF RS.13,76,12,351/- MADE ON ACCOUNT OF BAD DEBTS BY O VERLOOKING THE FACT THAT THE ASSESSEE COMPANY COULD NOT PROVE THE BONAFIDE OF THE SAID BAD DEBTS AND THE ACCOUNTING ENTRIES TH EREOF. 10 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASS ESSING OFFICER OBSERVED THAT THE ASSESSEE HAD WRITTEN OFF FOLLOWING BAD DEB TS : I. SUNDRY DEBIT BALANCE WRITTEN OFF ` 30,17,702/-. II. NORMAL BAD DEBTS WRITTEN OFF ` 67,29,73,245/-. 11. THE CONTENTION OF THE ASSESSEE IS THAT AMOUNT OF ` 30,17,702/- REPRESENTS PETTY BALANCES WRITTEN OFF FROM VARIOUS HIRERS ACCOUNTS ON FINAL SETTLEMENT. HOWEVER, THE ASSESSEE COULD NOT SUBMIT P ARTY WISE DETAILS ON THE GROUND THAT THE RECORD WAS TOO VOLUMINOU S. THE AMOUNT OF BAD DEBTS WAS QUANTIFIED ON THE BASIS OF CHEQUES DISHON OURED. THE ASSESSING OFFICER DISALLOWED BAD DEBTS WRITTEN OFF IN RESPECT OF SUNDRY DEBTORS ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THAT UNREALIZED CHEQUES REPRESENT BAD DEBTS. AS REGARDS DIS ALLOWANCE OF BAD DEBTS OF ` 67,29,73,245/-, THE ASSESSING OFFICER DISALLOWED 20% OF THE SAME I.E. ` 13,45,94,649/-BY FOLLOWING ASSESSMENT ORDER IN THE PRECEDING ASSESSMENT YEAR. IN FIRST APPEAL THE COMMISSIONER OF INCOME TAX (APPEALS) DELE TED THE ADDITION MADE ON BOTH THE COUNTS UNDER THE HEAD BAD DEBTS WR ITTEN OFF. IN RESPECT OF ` 30,17,702/- THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE ASSESSING OFFICER HAD TAKEN A VERY NARROW VIEW. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF AUTO FINANCE, LEASING OF TWO WHEELERS AND CONSUMER DURABLES. THE ASSE SSEE OBTAINS POST DATED CHEQUES WHICH REPRESENTS EMI. IN CASE THE CHEQUE IS DISHONOURED THE SAME HAS TO BE WRITTEN OFF AS BAD DEBT S. IN CASE OF REISSUE OF CHEQUES THE SAME IS CREDITED TO THE P & L A/ C. BY THE ASSESSEE. ACCORDINGLY, NO ADVERSE VIEW SHOULD BE TAKEN. AS REGARDS DISALLOWANCE OF 20% ON NORMAL BAD DEBTS WRITTEN OFF, THE CO MMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING 11 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 ORDERS OF THE FIRST APPELLATE AUTHORITY IN ASSESSMENT YEA RS 2006-07, 2007-08 AND 2008-09. 12. THE LD. AR OF THE ASSESSEE SUBMITTED AT THE OUTSET THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 1273 & 1709/ PN/2012 FOR THE ASSESSMENT YEARS 2007-08 & 2008-09 DECIDED ON 30 -06-2014. A COPY OF THE ORDER OF TRIBUNAL IN THE AFORESAID APPEALS IS AT PAGES 69 TO 100 OF THE PAPER BOOK. THE LD. DR FAIRLY ADMITTED THAT TH E ISSUE RAISED BY THE REVENUE RELATING TO WRITING OFF OF BAD DEBTS HAS BE EN ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER ASSESSM ENT YEARS. AFTER PERUSING THE ORDER OF CO-ORDINATE BENCH, WE OBSERV E THAT IDENTICAL ISSUE RELATING TO DISALLOWANCE OF BAD DEBTS WAS RAISED BY T HE REVENUE IN APPEAL BEFORE THE TRIBUNAL IN ITA NOS. 1273 & 1709/PN/2 012 (SUPRA). THE TRIBUNAL AFTER APPRECIATING THE FACTS OF THE CASE, FOLLOWED THE JUDGMENT OF HON'BLE SUPREME COURT OF INDIA IN THE CA SE OF TRF LTD. VS. CIT REPORTED AS 323 ITR 397 AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE FINDINGS OF THE TRIB UNAL ON THIS ISSUE ARE AS UNDER: 16. IN THE APPEAL OF THE REVENUE, THE FIRST GROUND RELATES TO THE DISALLOWANCE OF BAD DEBTS WRITTEN-OFF REPRESENTING SUNDRY DEBIT BALANCE WRITTEN-OFF, NORMAL BAD DEBTS WRITTEN-OFF AND LOSS ON SALE OF SEIZED GOODS AMOUNTING TO RS.11,83,05,574/-. 17. IN THIS REGARD, THE RELEVANT FACTS ARE THAT THE ASSESSING OFFICER NOTICED THAT ASSESSEE COMPANY HAS WRITTEN-OFF RS.59 ,15,27,873/- AS BAD DEBTS, THE BREAKUP OF WHICH IS AS UNDER :- 1 SUNDRY DEBIT BALANCES WRITTEN OFF RS.9,73,754/- 2 NORMAL BAD DEBTS WRITTEN OFF RS.19,04,54,343/- 3 LOSS ON SALE OF SEIZED GOODS RS.40,00,99,776/- TOTAL RS.59 ,15,27,873/- 12 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 18. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH DETAILS VIZ. NAME AND ADDRESS OF THE DEBTORS, AMOUNT OF DEBT, DA TE ON WHICH THE DEBT WAS TAKEN, DATE ON WHICH THE DEBT TAKEN BAD AN D EFFORTS MADE FOR RECOVERY OF THE DEBTS. AFTER CONSIDERING THE REPLIE S OF THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT (I) COMPLETE POSTAL AD DRESSES; AND, (II) EVIDENCE REGARDING EFFORTS MADE BY THE ASSESSEE FOR RECOVERY OF THE AMOUNTS WERE NOT FURNISHED. THE ASSESSING OFFICER A LSO NOTED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR OF 2006-07, AN AMOUNT OF RS.28,08,237/- WAS DISALLOWED ON THIS ISSUE. IN THI S BACKGROUND, THE ASSESSING OFFICER PROCEEDED TO DISALLOW 20% OF THE TOTAL DEBTS I.E. RS.11,83,05,574/- (20% OF RS.59,15,27,873/-) AND AD DED THE SAME TO ASSESSEES TOTAL INCOME. THE CIT(A) HAS DELETED THE ADDITION NOTICING THAT HIS PREDECESSOR IN THE ASSESSEES OWN CASE FOR ASSE SSMENT YEAR 2006- 07 HAD DELETED A SIMILAR ADDITION. AGAINST SUCH ORD ER OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 19. AT THE OUTSET, IT WAS A COMMON POINT BETWEEN TH E PARTIES THAT FOR ASSESSMENT YEAR 2006-07, A SIMILAR DELETION MADE BY THE CIT(A) HAS SINCE BEEN AFFIRMED BY THE TRIBUNAL VIDE ITS ORDER IN ITA NO.1066/PN/2010 DATED 31.08.2012. THE RELEVANT DISC USSION IN THE ORDER OF THE TRIBUNAL IS AS UNDER :- 44. THE FIRST GROUND IS WITH REGARD TO DISALLOWANC E OF BAD DEBTS WRITTEN OFF REPRESENTING SUNDRY DEBIT BALANCES WRIT TEN OFF AMOUNTING TO RS.28,08,02,837/-. THE CLAIM OF THE ASSESSEE WAS TH AT THE IMPUGNED SUMS WHICH ARE IRRECOVERABLE IN THE COURSE OF CARRY ING ON FINANCING BUSINESS WERE ALLOWABLE AS BAD DEBTS U/S.36(1)(VII) OF THE ACT R.W.S. 36(2) OF THE ACT. THE MAIN REASONS CITED BY THE ASS ESSING OFFICER WERE FIRSTLY THAT THE ASSESSEE DID NOT FURNISH DETAILS I N RESPECT OF CASES WHERE DEBTS WRITTEN OFF WERE BELOW RS.20,000/- EACH, SECO NDLY THAT THE DEBTS HAD BECOME BAD IN THE PRECEDING ASSESSMENT YEAR OF 2005-06 ITSELF BUT THE SAME HAVE BEEN WRITTEN OFF DURING THE CURRENT A SSESSMENT YEAR I.E., A.Y. 2006-07 AND THAT ASSESSEE CANNOT CHOOSE THE YE AR OF WRITE-OFF, THIRDLY THAT IT WAS NOT KNOWN AS TO WHAT EFFORTS WE RE MADE BY THE ASSESSEE TO RECOVER SUCH BAD DEBTS. THE CIT(A) HAS SINCE ALLOWED THE CLAIM OF THE ASSESSEE. WHILE DOING SO, THE CIT(A) C ONSIDERED THE REMAND REPORT OF THE ASSESSING OFFICER AND THEREAFTER CONC LUDED THAT THE CLAIM OF THE ASSESSEE WAS ALLOWABLE IN TERMS OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT 323 I TR 397 (SC) AND THAT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIT OMAN INTERNATIONAL BANK 313 ITR 128 (BOM). AGAINST THE AFORESAID DECIS ION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 13 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 45. BEFORE US, THE POINT MADE OUT BY THE LD. DR IS THAT THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE CLAIM ON THE GROUND THAT ASSESSEE COULD NOT PROVE THAT THE DEBTS HAD BE COME BAD IN THE YEAR UNDER CONSIDERATION. ACCORDING TO THE LD. DR, THE B ONAFIDES OF THE CLAIM ALSO COULD NOT BE PROVED AND THEREFORE, THE ASSESSI NG OFFICER HAD RIGHTLY DISALLOWED THE CLAIM. 46. ON THE OTHER HAND, LD. REPRESENTATIVE FOR THE R ESPONDENT ASSESSEE VEHEMENTLY POINTED OUT THAT THE RATIO OF T HE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPR A) SQUARELY COVERS THE CONTROVERSY BEFORE US AND THE CIT(A) WAS JUSTIF IED IN ALLOWING THE CLAIM OF THE ASSESSEE. 47. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE ASSESSEE ADMITTEDLY IS IN THE BUSINESS OF FINANCE A ND LEASING AND ADVANCING OF MONIES FOR HIRE PURCHASE OF VEHICLES, ETC. THE CLAIM OF THE ASSESSEE WAS IN TERMS OF SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT. SECTION 36(1)(VII) AS IT STOOD FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION WAS INTERPRETED BY THE HONBLE SUPREME COURT IN THE CAS E OF TRF LTD. (SUPRA). AS PER THE HONBLE SUPREME COURT, AFTER 01.04.1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FAC T HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN-OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. IN THE PRESENT CAS E, THE AFORESAID ASPECT HAS BEEN FULFILLED BY THE ASSESSEE, AS IS CLEARLY E MERGING FROM THE FINDINGS OF THE CIT(A). THE DEBTS IN QUESTION HAVE BEEN WRITTEN-OFF AS IRRECOVERABLE IN THE ACCOUNT BOOKS OF THE ASSESSEE AND THIS ASPECT IS ALSO NOT DISPUTED BY THE ASSESSING OFFICER. IN FACT, AS PER THE ASSESSING OFFICER, THE DEBTS HAD BECOME BAD IN THE PRECEDING ASSESSMENT YEAR AND ACCORDING TO HIM, IT IS INCORRECT THAT THE SAME HAV E BEEN CLAIMED AS WRITE-OFF IN THE INSTANT ASSESSMENT YEAR. BE THAT A S IT MAY, IT CLEARLY ESTABLISHES THAT THE DEBTS HAVE BEEN WRITTEN OFF IN THE ACCOUNT BOOKS AS IRRECOVERABLE, WHICH SQUARELY IS COVERED BY THE LEG AL POSITION PROPOUNDED BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA). THE PLEA OF THE LD. DR TO THE EFFECT THAT THE BONAFIDES OF THE CLAIM ARE NOT ESTABLISHED IS CLEARLY UNTENABLE IN A S MUCH AS THE ASSESSING OFFICER ACCEPTS THE POSITION THAT SUCH DE BTS HAD BECOME BAD IN THE PRECEDING YEAR ITSELF. CONSIDERING THE OVERA LL CIRCUMSTANCES OF THE CASE, WE THEREFORE, FIND NO REASONS TO INTERFERE WI TH THE CONCLUSION OF THE CIT(A) WHICH IS BASED ON THE LEGAL POSITION PROPOUN DED BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA). THER EFORE, ON THIS GROUND REVENUE HAS TO FAIL. 20. IN THIS BACKGROUND, THE LEARNED REPRESENTATIVE APPEARING FOR THE ASSESSEE CONTENDED THAT THE IMPUGNED DEBTS HAVE BEE N WRITTEN-OFF PRIMARILY ON ACCOUNT OF NON-RECOVERY OF AMOUNTS FRO M DELINQUENT CUSTOMERS. EXPLAINING THE RECOVERY EFFORTS, THE LEA RNED COUNSEL EXPLAINED 14 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 THAT THE ASSESSEE HAS A COUNTRYWIDE NETWORK OF RECO VERY AGENCIES AND DIRECT MARKET AGENTS (I.E. DMAS) COUPLED WITH ITS O WN IN-HOUSE COLLECTION TEAMS. IT HAS ALSO BEEN EXPLAINED THAT THE MAJORITY OF DEBTS WRITTEN-OFF IS ON ACCOUNT LOSS ON SALE OF SEIZED GOODS WHICH REP RESENT CASES OF DEFAULTING HIRERS FROM WHOM THE ASSETS WERE SEIZED AND THEREAFTER SOLD. THE LOSS ARISING ON SALE OF SUCH ASSETS IS WRITTEN- OFF AS BAD DEBTS. ACCORDING TO THE LEARNED COUNSEL, THE FACT THAT THE MATURITY OF BAD DEBTS WRITTEN-OFF IS ON ACCOUNT OF LOSS ON SALE OF SEIZED GOODS, THE SAME SHOWS THAT ASSESSEE HAS A RECOVERY MECHANISM IN RELATION TO COLLECTION OF OUTSTANDING DEBTS. IN THIS MANNER, THE LEARNED COUN SEL HAS SUBMITTED THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES O F THE PRESENT YEAR, THE ENTIRE CLAIM IS ALLOWABLE KEEPING IN MIND THE P RECEDENT IN THE ASSESSEES OWN CASE PERTAINING TO ASSESSMENT YEAR 2 006-07 (SUPRA). IT WAS ALSO ASSERTED IN THE COURSE OF HEARING THAT THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2006-07 (SUPRA) ON THIS ASPECT HAS BEEN ACCEPTED BY THE REVENUE, SINCE NO APPEAL HAS BEEN FILED ON T HIS ASPECT BEFORE THE HONBLE HIGH COURT. 21. THE LEARNED DEPARTMENTAL REPRESENTATIVE APPEARI NG FOR THE REVENUE HAS NOT CONTROVERTED THE FACTUAL MATRIX BROUGHT OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE. 22. HAVING CONSIDERED THE RIVAL SUBMISSIONS, AS ALS O THE PRECEDENT IN THE ASSESSEES OWN CASE BY WAY OF THE ORDER OF THE TRIB UNAL DATED 31.08.2012 (SUPRA), WE FIND THAT THE IMPUGNED DISAL LOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER ON MERE CONJECTURES A ND SURMISES. IT IS QUITE CLEAR THAT THE CLAIM OF THE ASSESSEE FOR THE BAD DEBTS WRITTEN-OFF IS IN TERMS OF SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT. IT IS ALSO QUITE CLEAR THAT THE DEBTS IN QUESTION HAVE BEEN ACTUALLY WRITT EN-OFF AS IRRECOVERABLE IN THE ACCOUNT BOOKS OF THE ASSESSEE. IT IS ALSO NO T DISPUTED BY THE REVENUE THAT THE IMPUGNED DEBTS HAVE ARISEN IN THE COURSE OF CARRYING ON ASSESSEES BUSINESS OF FINANCING. IN THE BACKGRO UND OF THE AFORESAID UNDISPUTED FACTS, IN OUR CONSIDERED OPINION, THE IS SUE IS SQUARELY COVERED BY THE PROPOSITION OF LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA). THEREFORE, H AVING REGARD TO THE FACTUAL POSITION AND THE PARITY OF REASONING LAID D OWN BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA), WE F IND NO ERROR ON THE PART OF THE CIT(A) IN DELETING THE IMPUGNED ADDITIO N. WE HEREBY AFFIRM THE ORDER OF THE CIT(A) AND ACCORDINGLY THE REVENUE FAILS ON THIS GROUND. 15 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 THE ISSUE IN PRESENT APPEAL IS IDENTICAL TO THE ISSUE ADJUD ICATED BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES O WN CASE IN EARLIER ASSESSMENT YEARS. THE LD. DR HAS NOT PLACED ON R ECORD ANY MATERIAL TO CONTROVERT THE FINDINGS OF THE CO-ORDINATE BEN CH ON THIS ISSUE. WE FIND NO REASON TO TAKE A CONTRARY VIEW. RESPE CTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH WE DISMISS GR OUND NO. 2 RAISED IN THE APPEAL OF THE DEPARTMENT. 13. THE GROUND NO. 3 RAISED BY THE REVENUE READS AS UNDER: 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) WAS CORRECT IN DISREGARDING THE JUDG MENT OF HON'BLE SUPREME COURT GIVEN IN THE CASE OF SOUTHERN TECHNOL OGIES LTD. VS. JCIT 320 ITR 577 (SC) WHICH SAYS THAT PROVISIONS OF RBI ACT CANNOT OVERRIDE THE PROVISIONS OF SEC. 145 OF THE I NCOME TAX ACT, SINCE, BOTH THE ACTS OPERATE IN DIFFERENT FIELDS AN D THEREFORE ASSESSEE CANNOT RECOGNIZE INTEREST INCOME ON N.P.A. AND YET NOT OFFER IT IN PROFIT AND LOSS ACCOUNT? 14. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2009-10, THE ASSESSEE DID NOT INCLUDE SUM OF ` 24,47,09,172/- BEING INTEREST ON NON- PERFORMING ASSETS. SINCE, THE ISSUE IS RECURRING IN NATURE THE ASSESS ING OFFICER BY FOLLOWING EARLIER ASSESSMENT ORDERS FOR 2005-06 TO 2007-08 MADE ADDITION OF ` 24,47,09,172/- IN THE INCOME RETURNED BY THE ASSESSEE. IN FIRST APPEAL THE ASSESSING OFFICER DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 23. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE A S WELL AS REPLY OF THE APPELLANT. IT IS SEEN THAT IN A.Y. 2006-07, THE AP PEAL WAS DISMISSED ON THIS GROUND RELYING UPON THE JUDGMENT OF THE HON'BL E SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LIMITED REPORTED I N 320 ITR 527 FOR THE PROPOSITION THAT RBI DIRECTIONS HAVE NOTHING TO DO WITH THE COMPUTATION OF INCOME. THIS JUDGMENT OF THE HON'BLE APEX COURT WAS FURTHER ANALYSED BY THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CIT VS. VASISTH CHAY VYAPAR LTD. REPORTED IN 330 ITR 440 (DEL) AND DECIDED THE ISSUE IN 16 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 FAVOUR OF THE ASSESSEE. RECENTLY, PUNE TRIBUNAL IN THE CASE OF DCIT VS. ALFA LAVAL FINANCIAL SERVICES LTD. IN ITA NO. 138/P N/06 FOR A.Y. 2001-02 HELD THAT THE JUDGMENT OF HON'BLE SUPREME COURT IN SOUTHERN TECHNOLOGIES LTD. (SUPRA) STANDS ON A DIFFERENT FOO TING THAN THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASI STHA CHAY VYAPAR LTD. (SUPRA). THE AFORESAID TWO DECISIONS OPERATE IN DI FFERENT FIELDS IN AS MUCH AS THE DECISION IN THE CASE OF SOUTHERN TECHNO LOGIES LTD. (SUPRA) RELATES TO DEDUCTIBILITY OF A PROVISION FOR BAD DEB TS U/S. 36(1)(VII) OR 37(1) OF THE ACT WHEREAS THE JUDGMENT OF THE HON'BLE DELH I HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPRA) DEALS WITH ACCRUAL OF INCOME IN RELATION TO AN ASSET WHICH HAS BEEN CLASSIFIED AS N ON-PERFORMING ASSET IN TERMS OF PRUDENTIAL NORMS ISSUED BY RBI. THEREAFTE R, THE RATIO OF THE DECISION OF ITAT PUNE B BENCH WHICH IS JURISDICTI ONAL TRIBUNAL IS FOUND IN PARA 9 OF THE ORDER WHICH IS REPRODUCED FOR THE SAKE OF CLARITY. .THE ASSESSEE SHALL SATISFY THE ASSESSING OFF ICER THAT IT IS A CASE WHERE THE AMOUNT OF RS 19,95,596/- REPRESENTS UNRECOGNIZED INCOME ON A NON-PERFORMING ASSET CLASSIFIED IN TERM S OF PRUDENTIAL NORMS OF RBI AND IT IS NOT A CASE WHERE A PROVISION OF EQ UIVALENT AMOUNT HAS BEEN DEBITED IN THE PROFIT & LOSS ACCOUNT AND CLAIM ED AS DEDUCTION UNDER SECTION 36(1)(VII) OR 37(1) OF THE ACT. IN CA SE THE ASSESSEE SUCCEEDS IN DEMONSTRATING THE FORMER SITUATION, THEN NO ADDI TION WOULD BE WARRANTED IN TERMS OF THE JUDGMENT OF THE HONBLE D ELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD (SUPRA) AND IN OTHER CASE, THE ASSESSING OFFICER SHALL TAKE APPROPRIATE DECISION I N ACCORDANCE WITH OUR AFORESAID DISCUSSION AND IN LAW. 24. THUS, IT CAN BE SEEN THAT THE HON'BLE JURISDICT IONAL TRIBUNAL HAS CLEARLY HELD THE RATIO THAT IF THE AMOUNT IN QUESTI ON REPRESENTS UNRECOGNIZED INCOME ON A NON-PERFORMING ASSET CLASS IFIED IN TERMS OF PRUDENTIAL NORMS OF RBI, THEN NO ADDITION WOULD BE WARRANTED IN TERMS OF THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD. (SUPRA). THEREAFTER, ON IDENTICAL FACTS, HON'BLE PUNE TRIBUNAL IN THE CASE OF ACIT NANDED VS. OSMANABAD J ANTA SAHAKARI BANK LTD. LATUR IN ITA NO. 795/PN/2011 DATED 31.08. 2012 HAS ALLOWED RELIEF ON ACCOUNT OF INTEREST ON NPA. SEVERAL ORDE RS HAVE BEEN PASSED BY THE TRIBUNAL FOLLOWING THE ABOVE DECISION. 25. IF THE FACTS OF THE PRESENT CASE ARE EXAMINED, IT IS SEEN THAT AMOUNT OF `24,47,09,172/- PERTAINS TO INTEREST ON N ON-PERFORMING ASSETS. THEREFORE, THE ABOVE RATIO IS CLEARLY APPLICABLE ON THE FACTS OF THE CASE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE HON'BLE JURISDICTIONAL TRIBUNAL, AS STATED ABOVE THE ASSESSING OFFICER IS DIRECTED TO DELETE THE 17 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 ADDITION OF `24,47,09,172/- BEING INTEREST PERTAINI NG TO NON-PERFORMING ASSETS. ACCORDINGLY, THE GROUND TAKEN BY THE APPEL LANT IS ALLOWED. 15. THE LD. AR SUBMITTED THAT THE DEPARTMENT HAD AGITAT ED THIS ISSUE BEFORE THE TRIBUNAL IN ITA NO. 1273/PN/2012 (SUPRA). THE C O-ORDINATE BENCH OF THE TRIBUNAL AFTER CONSIDERING DECISIONS OF VARIOUS HON'BLE HIGH COURTS INCLUDING THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF DIT VS. BRAHMAPUTRA CAPITAL FINANCIAL SERVICES LTD. REPORTED AS 335 ITR 182 (DELHI) AND THE DECISION OF PUNE BENCH OF T HE TRIBUNAL IN THE CASE OF DY. COMMISSIONER OF INCOME TAX VS. ALFA LAVAL FINANCIAL SERVICES LTD. IN ITA NO. 138/PN/2006 FOR THE ASSESSMENT YEAR 2001-02 DECIDED ON 30-09-2011 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DISMISSED THE RELEVANT GROUND RAISED BY THE DEPARTMENT IN ITS APPEAL. THE LD. DR FAIRLY ADMITTED THAT THIS ISSUE RAISED BY THE R EVENUE HAS BEEN ADJUDICATED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE APPEAL FILED BY THE DEPARTMENT IN ASSESSMENT YEAR 2007-08. WE OBSERVE THAT THE ISSUE RELATING TO DISALLOWANCE OF INTEREST ON NPA IS REC URRING YEAR AFTER YEAR. THE ASSESSING OFFICER HAS BEEN DISALLOWING THE S AME AND THE APPELLATE AUTHORITY HAS BEEN CONSISTENTLY REVERSING THE FINDINGS OF THE ASSESSING OFFICER. THE CO-ORDINATE BENCH OF THE TRIBUN AL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 IN TH E APPEAL FILED BY THE DEPARTMENT IN ITA NO. 1273/PN/2012 (SUPRA) HAD DISMIS SED THE SIMILAR GROUND RAISED BY THE REVENUE. THE TRIBUNAL CONCLUD ED THAT THE AMOUNT REPRESENTING UNRECOGNIZED INCOME ON NPA CLASSIFIED AS PER THE RBI GUIDELINES CANNOT BE ASSESSED ON ACTUAL BASIS. THE R ELEVANT EXTRACT OF THE FINDINGS OF THE TRIBUNAL ARE AS UNDER: 27. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. THE ASSESSEE BEFORE US IS A NBFC, AND SUM AND SUBSTANCE OF THE D ISPUTE RELATES TO THE STAND OF THE ASSESSEE THAT INTEREST INCOME RELATING TO CERTAIN HIRE PURCHASE TRANSACTIONS DID NOT ACCRUE TO THE ASSESSE E BECAUSE SUCH 18 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 TRANSACTIONS WERE CLASSIFIED AS NPAS FOLLOWING THE RBI GUIDELINES. WHEN THE MATTER CAME UP FOR THE FIRST TIME BEFORE THE TR IBUNAL FOR ASSESSMENT YEARS 1996-97 TO 1999-2000 AND 2000-01 TO 2003-04, VIDE A COMMON ORDER DATED 31.03.2010 THE ISSUE WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER TO BE CONSIDERED IN THE LIGHT OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHN OLOGIES LTD. (SUPRA) AND ALSO ALLOWING THE ASSESSEE TO DEMONSTRATE THE J USTIFICATION AND CRITERION FOR IDENTIFICATION OF NPAS AND NON-ACCRUA L OF INCOME ON SUCH ADVANCES. SUBSEQUENTLY, WHEN SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IS ASSESSEES CASE FOR ASSESSMENT YEARS 2004-05 TO 2006-07, THE TRIBUNAL BY WAY OF A COMMON ORDER DATED 31.08.2012 (SUPRA) AGAIN RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSI NG OFFICER NOT ONLY IN TERMS OF THE DECISION OF THE TRIBUNAL DATED 31.03.2 010 (SUPRA) BUT ALSO REQUIRING THE ASSESSING OFFICER TO TAKE INTO CONSID ERATION SUCH OTHER LEGAL POSITION AS PREVAILING AT THE TIME OF ENSUING REMAND PROCEEDINGS. THE AFORESAID DIRECTION WAS IN THE CONTEXT OF THE J UDGEMENTS OF THE (I) HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) AND BRAHAMPUTRA CAPITAL FINANCIAL SERVICES LTD. (SUPRA); AND, (II) DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF ALFA LAVAL FINANCIAL SERVICES LTD. (SUPRA), WHICH WAS CITED BE FORE THE TRIBUNAL. THE AFORESAID PRECEDENTS WERE NOT AVAILABLE WHEN THE TR IBUNAL CONSIDERED THE ISSUE ON THE EARLIER OCCASION VIDE ORDER DATED 31.10.2010 (SUPRA). 28. IN THE COURSE OF THE IMPUGNED APPELLATE PROCEED INGS BEFORE THE CIT(A) FOR THE PRESENT ASSESSMENT YEAR, ASSESSEE RELIED UP ON THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VAS ISTH CHAY VYAPAR LTD. (SUPRA) AS WELL AS THE DECISION OF THE PUNE BE NCH OF THE TRIBUNAL IN THE CASE OF ALFA LAVAL FINANCIAL SERVICES LTD. (SUP RA) TO SUBMIT THAT THERE IS NO ACCRUAL OF INCOME IN RELATION TO ASSETS WHICH ARE CLASSIFIED AS NPAS IN TERMS OF RBI GUIDELINES. IN THIS CONTEXT, THE CI T(A) HAS FACTUALLY CONCLUDED THAT THE AMOUNT OF RS.12,87,37,505/- PERTA INS TO INTEREST ON NPAS. THIS FINDING OF THE CIT(A) IS NOT DISPUTED BY THE REVENUE. IN THE BACKGROUND OF THIS UNDISPUTED FACTUAL POSITION, NOW WE HAVE TO EXAMINE THE ULTIMATE CONCLUSION OF THE CIT(A). AS PER THE C IT(A), UNRECOGNIZED INCOME ON NPAS CLASSIFIED IN TERMS OF RBI GUIDELINE S CANNOT BE ASSESSED ON ACTUAL BASIS. THE AFORESAID STAND OF THE CIT(A) IS DIRECTLY SUPPORTED BY THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF BRAHAMPUTRA CAPITAL FINANCIAL SERVICES LTD. (SUPRA) , WHICH IS ALSO A CASE OF A NBFC. THE CIT(A) HAS ALSO RELIED UPON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ALFA LAVAL FIN ANCIAL SERVICES LTD. 19 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 (SUPRA), WHICH IS ALSO A COPY OF A NBFC. THE REVENU E HAS NOT BROUGHT TO OUR NOTICE ANY DECISION TO THE CONTRARY. 16. SINCE, THE ISSUE IN THE PRESENT APPEAL IS IDENTICAL, WE RESPECTFULLY FOLLOW THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL AND UPHOLD THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION OF ` 24,47,09,172/- ( ` 6,18,88,570/- IN ASSESSMENT YEAR 2010- 11) BEING INTEREST PERTAINING TO NON-PERFORMING ASSETS. AC CORDINGLY, GROUND NO. 3 RAISED IN THE APPEAL OF THE REVENUE IS REJECTED. 17. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISSED. ITA NO. 578/PN/2014 (A.Y. 2009-10) 18. NOW, WE PROCEED ON TO DECIDE THE APPEALS FILED BY THE ASSESSEE. THE FIRST ISSUE RAISED BY THE ASSESSEE IN APPEAL RELATES T O DISALLOWANCE MADE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE INCO ME TAX RULES, 1962. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEA R UNDER APPEAL, THE ASSESSEE HAS RECEIVED DIVIDEND INCOME FROM VARIOUS CO MPANIES AND INTEREST ON TAX FREE BONDS. THE TOTAL TAX FREE INCOME EA RNED BY THE ASSESSEE DURING THE FINANCIAL YEAR 2008-09 IS ` 36,34,502/-. THE CONTENTION OF THE ASSESSEE IS THAT NO EXPENDITURE HAS B EEN INCURRED ON EARNING EXEMPT INCOME, THEREFORE, NO DISALLOWANCE U/S. 14A IS WARRANTED. HOWEVER, THE ASSESSEE HAS DISALLOWED ` 50,047/- U/S. 14A AS EXPENDITURE INCURRED IN RELATIONS TO THE AFORESAID EXEM PT INCOME, WHICH INCLUDES DEMAT CHARGES ` 26,951/- AND AD HOC DISALLOWANCE OF ` 23,096/- TOWARDS INDIRECT EXPENSES. THE ASSESSING OFFICER MADE DISALLOWANCE U/S. 14A BY INVOKING THE PROVISIONS OF RULE 8D A ND DISALLOWED EXPENDITURE TO THE TUNE OF ` 33,60,173/- IN RESPECT OF TAX FREE INCOME EARNED BY THE ASSESSEE. IN APPEAL BEFORE THE CO MMISSIONER OF 20 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 INCOME TAX (APPEALS) THE ASSESSEE OBJECTED TO THE DISALLO WANCE ON THE GROUND THAT NO SATISFACTION WAS RECORDED BY THE ASSESS ING OFFICER BEFORE INVOKING THE PROVISIONS OF RULE 8D. THE COMMISSIONER OF INCOME TAX (APPEALS) REJECTED THE CONTENTIONS OF THE AS SESSEE AND UPHELD THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 1 4A R.W. RULE 8D. 19. THE LD. AR SUBMITTED THAT THE AUTHORITIES BELOW HAVE ERRED IN MAKING DISALLOWANCES U/S. 14A R.W. RULE 8D. THE ASSESSEE IS HAVING OWN INTEREST FREE FUNDS MUCH MORE THAN THE INVESTMENT M ADE. THE LD. AR REFERRED TO THE BALANCE SHEET OF THE ASSESSEE COMP ANY AS ON 31-03-2009 AND 31-03-2010. THE LD. AR SUBMITTED THAT IN VESTMENT IN 2009 WAS ` 2,73,90,82,451/- WHEREAS THE ASSESSEE COMPANY WAS HAVING OWN FUNDS TO THE TUNE OF ` 10,88,73,73,590/-. SIMILARLY, FOR THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2010-11 THE AS SESSEE HAD INVESTMENTS TO THE TUNE OF ` 3,01,82,68,823/- AGAINST OWN FUNDS OF THE ASSESSEE ` 11,52,54,04,831/-. THE ASSESSEE HAD NOT TAKEN ANY LOANS FOR THE PURPOSE OF INVESTMENTS. THE ASSESSEE HAS PRIMAR ILY MADE INVESTMENT IN EQUITY SHARES, GOVT. BONDS AND MUTUAL FUNDS. THE ASSESSEE HAD NOT EMPLOYED ANY DEDICATED STAFF FOR MANAGIN G INVESTMENTS. THE ASSESSEE HAS NOT INCURRED ANY EXPEND ITURE TO EARN EXEMPT INCOME OR EVEN TO MAINTAIN THE EXEMPT SOURCE OF INCOME EXCEPT FOR DEMAT CHARGES WHICH HAVE BEEN CONSIDERED AS PART O F DISALLOWANCE U/S. 14A. FURTHER, THERE ARE NO INDIRECT ADMINISTRATIVE E XPENSES IN THE FORM OF ELECTRICITY CHARGES, TELEPHONE EXPENSES, PRINTING CHA RGES ETC. RELATING TO EXEMPT INCOME. EVEN IF THERE ARE TO BE CON SIDERED, IN ALL PROBABILITY THEY WOULD NOT EXCEED ` 1000/-. THE CORE AND MAIN OBJECT OF THE ASSESSEE IS FINANCE ACTIVITY AND NOT INVESTMENT IN TAX FREE 21 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 SOURCES OF THE FUNDS. THE TAX FREE INCOME EARNED BY TH E ASSESSEE DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR 2009 -10 IS MERELY 0.71% OF THE TOTAL INCOME OF THE ASSESSEE. THE LD. AR S UBMITTED THAT THE ISSUE RELATING TO DISALLOWANCE U/S. 14A HAD COME UP B EFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 200 8-09. THE TRIBUNAL AFTER CONSIDERING THE ISSUE IN APPEAL DELETED THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D. 20. ON THE OTHER HAND LD. DR VEHEMENTLY SUPPORTED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE DISALLOW ANCE U/S. 14A OF THE ACT. HOWEVER, THE LD. DR ADMITTED THAT TH E ISSUE RELATING TO DISALLOWANCE U/S. 14A WAS ADJUDICATED BY THE T RIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. 21. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESE NTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THE ISSUE RELATING TO DISALLOWANCE U/S. 14A R.W. RU LE 8D HAD COME UP BEFORE THE CO-ORDINATE BENCH OF THE TRIBUNAL IN A SSESSEES OWN CASE IN ITA NO. 1676/PN/2012 FOR THE ASSESSMENT YE AR 2008-09 DECIDED ON 30-06-2014. IN ASSESSMENT YEAR 2008-09, D ISALLOWANCE U/S. 14A R.W. RULE 8D WAS MADE UNDER SIMILAR CIRCUMSTANCES . THE TRIBUNAL WHILE ADJUDICATING THE ISSUE WITH REGARD TO APPLICA BILITY OF PROVISIONS OF RULE 8D AS WELL AS THE MANNER IN WHICH THE SA TISFACTION HAS TO BE RECORDED IN TERMS OF SUB-SECTION (2) OF SECTIO N 14A HAS HELD AS UNDER : 40. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS. PERTINENTLY, THE DISPUTE BEFORE US REVOLVES AROUND THE MODE AND MANN ER OF COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT. NOTABLY, SECTI ON 14A OF THE ACT CONTEMPLATES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY EXPEND ITURE INCURRED BY THE 22 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 ASSESSEE IN RELATION TO AN INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT. IN THE CASE BEFORE US, ASSESS EE HAS EARNED AN INCOME OF RS.1,09,58,664/- WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AS PER THE CHAPTER-III OF THE ACT. IN THE RETURN OF INCOME, ASSESSEE COMPUTED A SUM OF RS.57,600/- AS AN EXPEND ITURE INCURRED IN RELATION TO THE AFORESAID INCOME, AND DISALLOWED IT WHILE COMPUTING TOTAL INCOME UNDER THE ACT. THE DETERMINATION OF SUCH DIS ALLOWANCE ON ACCOUNT OF AN APPLICATION OF SECTION 14A OF THE ACT , IS THE SUBJECT-MATTER OF DISPUTE BEFORE US. THE DISALLOWANCE OF RS.57,600 /- ESTIMATED BY THE ASSESSEE COMPRISED OF DIRECT EXPENSES OF RS.7,600/- RELATING TO DEMAT CHARGES AND RS.50,000/- BASED ON THE PAST ASSESSMEN TS WHEREAS THE REVENUE COMPUTED THE DISALLOWANCE AT RS.71,70,861/- BY INVOKING THE COMPUTATION MECHANISM PROVIDED IN RULE 8D OF THE RU LES. 41. THE ACTION OF THE ASSESSING OFFICER TO INVOKE R ULE 8D OF THE RULES FOR THE PURPOSES OF COMPUTING THE DISALLOWANCE IS THE B ONE OF CONTENTION BEFORE US. THE POWER OF THE ASSESSING OFFICER TO IN VOKE RULE 8D OF THE RULES IN ORDER TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT IS CONTAINED IN SUB-SECTION (2) OF SECTION 14A OF THE ACT. SO HOWEVER, INVOKING OF RULE 8D OF THE RULES BY THE ASSESSING O FFICER IS SUBJECT TO FULFILLMENT OF A CONDITION PRESCRIBED IN SUBSECTION (2) OF SECTION 14A OF THE ACT ITSELF. SUB-SECTION (2) OF SECTION 14A OF THE A CT PRESCRIBES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXP ENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, S UCH METHOD BEING CONTAINED IN RULE 8D OF THE RULES. THE PHRASEOLOGY OF SUB-SECTION (2) OF SECTION 14A OF THE ACT BRINGS OUT THAT THE AFORESAI D EMPOWERMENT OF THE ASSESSING OFFICER TO INVOKE RULE 8D OF THE RULES IS CIRCUMSCRIBED BY FULFILLMENT OF A CONDITION TO THE EFFECT THAT THE A SSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATI SFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO THE INCOME WHICH DOES NOT F ORM PART OF THE TOTAL INCOME. IN-FACT, THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA), THOUGH HOLDIN G THAT THE PROVISIONS OF RULE 8D OF THE RULES WERE APPLICABLE FROM ASSESS MENT YEAR 2008-09 ONWARDS, HAS ALSO LAID DOWN THAT INVOKING OF RULE 8 D OF THE RULES IN ORDER TO COMPUTE THE DISALLOWANCE U/S 14A OF THE AC T IS NEITHER AUTOMATIC AND NOR IS TRIGGERED MERELY BECAUSE OF TH E PRESENCE OF AN EXEMPT INCOME IN THE HANDS OF THE ASSESSEE. THE INV OKING OF RULE 8D OF THE RULES IS PERMISSIBLE ONLY IN CIRCUMSTANCES WHER E THE ASSESSING OFFICER RECORDS THE SATISFACTION MANDATED IN SECTIO N 14A(2) OF THE ACT 23 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 WITH REGARD TO THE INCORRECTNESS OF THE CLAIM OF TH E ASSESSEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. & ORS. (SUPRA) H AS ALSO RELIED UPON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) AND OPINED THA T THE ASSESSING OFFICER CAN DETERMINE THE AMOUNT OF EXPENDITURE INC URRED IN RELATION TO EXEMPT INCOME BY APPLYING RULE 8D OF THE RULES ONLY IF HE RECORDS A FINDING THAT HE WAS NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE, HAVING REG ARD TO THE ACCOUNTS OF THE ASSESSEE. AS PER THE HONBLE DELHI HIGH COURT, SUCH A SATISFACTION ON THE PART OF THE ASSESSING OFFICER WAS APPLICABLE IN RELATION TO SUB-SECTION (2) AS WELL AS SUB-SECTION (3) OF SECTION 14A OF TH E ACT SINCE THE FORMER SUB-SECTION DEALS WITH CASES WHERE ASSESSEE SPECIFI ES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME WHEREAS THE LATTER SUB-SECTION DEALS WITH CA SES WHERE ASSESSEE ASSERTS THAT NO EXPENDITURE HAS BEEN INCURRED IN RE LATION TO AN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN THIS BACKGROUND OF THE MATTER, HAVING REGARD TO THE JUDG EMENTS OF THE HONBLE BOMBAY HIGH COURT AND HONBLE DELHI HIGH COURT IN T HE CASES OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) AND MAXOPP I NVESTMENT LTD. & ORS. (SUPRA) RESPECTIVELY, IT HAS TO BE HELD THAT R ESORT TO RULE 8D OF THE RULES FOR THE PURPOSES OF COMPUTING THE DISALLOWANC E U/S 14A OF THE ACT IS PERMISSIBLE ONLY WHERE THE ASSESSING OFFICER REC ORDS A FINDING THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN SUPPORT OF SUCH EXPENDITURE, HAVING REGARD TO THE A CCOUNTS OF THE ASSESSEE. 42. FURTHER, WE WOULD REFER TO THE FOLLOWING DISCUS SION IN THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOD REJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) :- 70. NOW, IN DEALING WITH THE CHALLENGE IT IS NECES SARY TO ADVERT TO THE POSITION THAT SUB-SECTION (2) OF SECTION 14A PRESCRIBES A UNIFORM METHOD FOR DETERMINING THE AMOUNT OF EXPENDITURE IN CURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME ONLY IN A SITUATION WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE A CCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF T HE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. IT, THEREF ORE, MERITS EMPHASIS THAT SUB-SECTION (2) OF SECTION 14A DOES NOT AUTHOR IZE OR EMPOWER THE ASSESSING OFFICER TO APPLY THE PRESCRIBED METHOD IR RESPECTIVE OF THE NATURE OF THE CLAIM MADE BY THE ASSESSEE. THE ASSES SING OFFICER HAS TO FIRST CONSIDER THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFACTION O F THE ASSESSING OFFICER 24 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 HAS TO BE OBJECTIVELY ARRIVED AT ON THE BASIS OF TH OSE ACCOUNTS AND AFTER CONSIDERING ALL THE RELEVANT FACTS AND CIRCUMSTANCE S. THE APPLICATION OF THE PRESCRIBED METHOD ARISES IN A SITUATION WHERE T HE CLAIM MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE WHICH IS RELATAB LE TO THE EARNING OF INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IS FOUND TO BE INCORRECT. IN SUCH A SITUATION A METHOD HAD TO BE DEVISED FOR APPORTIONING THE EXPENDITURE INCURRED BY THE ASSESS EE BETWEEN WHAT IS INCURRED IN RELATION TO THE EARNING OF TAXABLE INCO ME AND THAT WHICH IS INCURRED IN RELATION TO THE EARNING OF NON-TAXABLE INCOME. AS A MATTER OF FACT, THE MEMORANDUM EXPLAINING THE PROVISIONS OF T HE FINANCE BILL, 2006, AND THE CENTRAL BOARD OF DIRECT TAXES CIRCULA R DATED DECEMBER 28, 2006, STATE THAT SINCE THE EXISTING PROVISIONS OF S ECTION 14A DID NOT PROVIDE A METHOD OF COMPUTING THE EXPENDITURE INCUR RED IN RELATION TO INCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME, THERE WAS A CONSIDERABLE DISPUTE BETWEEN TAXPAYERS AND THE DEPA RTMENT ON THE METHOD OF DETERMINING SUCH EXPENDITURE. IT WAS IN T HIS BACKGROUND THAT SUB-SECTION (2) WAS INSERTED SO AS TO PROVIDE A UNI FORM METHOD APPLICABLE WHERE THE ASSESSING OFFICER IS NOT SATIS FIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. SUB-SECTI ON (3) CLARIFIES THAT THE APPLICATION OF THE METHOD WOULD BE ATTRACTED EVEN T O A SITUATION WHERE THE ASSESSEE HAS CLAIMED THAT NO EXPENDITURE AT ALL WAS INCURRED IN RELATION TO THE EARNING OF NON-TAXABLE INCOME. 71. PARLIAMENT HAS PROVIDED AN ADEQUATE SAFEGUARD T O THE INVOCATION OF THE POWER TO DETERMINE THE EXPENDITUR E INCURRED IN RELATION TO THE EARNING OF NON-TAXABLE INCOME BY ADOPTION OF THE PRESCRIBED METHOD. THE INVOCATION OF THE POWER IS MADE CONDITI ONAL ON THE OBJECTIVE SATISFACTION OF THE ASSESSING OFFICER IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HAVING REGARD TO THE ACCOUNT S OF THE ASSESSEE. WHEN A STATUTE POSTULATES THE SATISFACTION OF THE A SSESSING OFFICER 'COURTS WILL NOT READILY DEFER TO THE CONCLUSIVENES S OF AN EXECUTIVE AUTHORITY'S OPINION AS TO THE EXISTENCE OF A MATTER OF LAW OR FACT UPON WHICH THE VALIDITY OF THE EXERCISE OF THE POWER IS PREDICATED'. (M. A. RASHEED V. STATE OF KERALA [1974] AIR 1974 SC 2249* ). A DECISION BY THE ASSESSING OFFICER HAS TO BE ARRIVED AT IN GOOD FAIT H ON RELEVANT CONSIDERATIONS. THE ASSESSING OFFICER MUST FURNISH TO THE ASSESSEE A REASONABLE OPPORTUNITY TO SHOW CAUSE ON THE CORRECT NESS OF THE CLAIM MADE BY HIM. IN THE EVENT THAT THE ASSESSING OFFICE R IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE, HE MUST RECORD REASONS FOR HIS CONCLUSION. THESE SAFEGUARDS WHICH ARE IMPLICIT IN THE REQUIREMENTS OF FAIRNESS AND FAIR PROCEDURE UNDER A RTICLE 14 MUST BE OBSERVED BY THE ASSESSING OFFICER WHEN HE ARRIVES A T HIS SATISFACTION UNDER SUB-SECTION (2) OF SECTION 14A. AS WE SHALL N OTE SHORTLY HEREAFTER, SUB-RULE (1) OF RULE 8D HAS ALSO INCORPORATED THE E SSENTIAL REQUIREMENTS OF SUB-SECTION (2) OF SECTION 14A BEFORE THE ASSESS ING OFFICER PROCEEDS TO 25 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 APPLY THE METHOD PRESCRIBED UNDER SUB-RULE (2). TO INFER THAT THE SATISFACTION OF THE ASSESSING OFFICER REQUIRED IN T ERMS OF SECTION 14A(2) OF THE ACT WITH REGARD TO THE CORRECTNESS OR OTHERWISE OF THE CLAIM MADE BY THE ASSESSEE WITH RESPECT TO THE EXPENDITURE INCURR ED IN RELATION TO AN INCOME DOES NOT FORM PART OF THE TOTAL INCOME, MUST BE BASED ON REASONS AND RELEVANT CONSIDERATIONS. THE HONBLE HIGH COURT HAS NOT ONLY EMPHASIZED THAT INVOKING OF RULE 8D OF THE RULES TO COMPUTE THE DISALLOWANCE IS CONDITIONAL ON THE RECORDING OF SAT ISFACTION BY THE ASSESSING OFFICER IN REGARD TO THE CORRECTNESS OF T HE CLAIM OF THE ASSESSEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSE SSEE, BUT IT HAS ALSO BEEN HELD THAT SUCH SATISFACTION IS TO BE AN OBJEC TIVE SATISFACTION. THEREFORE, THE SATISFACTION CONTEMPLATED IN SECTION 14A(2) OF THE ACT BEFORE THE ASSESSING OFFICER CAN INVOKE RULE 8D OF THE RULES IN ORDER TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT, IS AN OBJECTIVE SATISFACTION WHICH SHALL BE BASED ON RELEVANT CONSIDERATIONS AND IT SHALL SPELL OUT REASONS FOR HIS CONCLUSION. [UNDERLINED FOR EMPHASIS BY US] 43. IN THE BACKGROUND OF THE AFORESAID LEGAL POSITI ON, WE MAY NOW EXAMINE THE FACTS OF THE PRESENT CASE. IN THE PRESE NT CASE, ASSESSEE HAS EARNED AN INCOME OF RS.1,09,58,664/- WHICH IS AN EX EMPTED INCOME UNDER CHAPTER-III OF THE ACT AND THEREFORE IT DOES FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN THE COMPUTATION OF INCOME, HAVING REGARD TO SECTION 14A OF THE ACT, ASSESSEE DETERMINED THE AMO UNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME AT RS.57,600/-. THE ASSESSING OFFICER DID NOT FIND IT ACCEPTABLE AND INSTEAD DETERMINED T HE AMOUNT OF DISALLOWANCE U/S 14A OF THE ACT BY INVOKING RULE 8D OF THE RULES. THE SAID INVOKING OF RULE 8D OF THE RULES HAS TO BE PRE CEEDED BY RECORDING OF AN OBJECTIVE SATISFACTION BY THE ASSESSING OFFICER WITH REGARD TO THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT AN EXPENDITURE OF RS.57,600/- HAS BEEN INCURRED IN RELATION TO THE IN COME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN ORD ER TO EXAMINE THE COMPLIANCE WITH THE AFORESAID CONDITION, WE HAVE PE RUSED THE DISCUSSION MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORD ER, WHICH READS AS UNDER :- 8. DISALLOWANCE U/S 14A THE ASSESSEE WAS ASKED AS TO WHY DISALLOWANCE U/S 1 4A SHOULD NOT BE MADE IN ACCORDANCE WITH RULE 8D AS TH E ASSESSEE HAS INCURRED EXPENSES FOR EARNING TAX FREE INCOME. THE ASSESSEE HAS SUBMITTED THAT THERE IS NO APPLICABILITY OF RULE 8D IN THE ASSESSEE'S CASE. HOWEVER, I DO NOT AGREE WITH THE CONTENTION OF THE ASSESSEE. CONTEXTUAL INTERPRETATION OF SECTION 14A CLEARLY SUGGESTS THAT EXPENDITURE IN RELATING 26 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 TO EXEMPTED INCOME HAS TO BE DISALLOWED EVEN THOUGH SUCH EXPENDITURE WOULD HAVE BEEN ALLOWABLE UNDER THE COMPUTATIONAL P ROVISIONS RELATING TO VARIOUS HEADS OF INCOME. SECTION 14A HAS AN OVER RIDING EFFECT OVER THE COMPUTATIONAL PROVISIONS UNDER VARIOUS HEADS. CONSE QUENTLY, IN THE CASE OF AN ASSESSEE CARRYING ON A BUSINESS ACTIVITY, ANY EXPENDITURE INCURRED BY HIM EVEN THOUGH ALLOWABLE UNDER SECTION 36(1)(II I) OR SECTION 37 CAN BE DISALLOWED UNDER SECTION 14A IF SUCH EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE INCOME NOT FORMING PART OF TOTAL INCOME. RELIANCE IS PLACED ON ITO VS. DAQA CAPITAL 117 ITD 169 (SPECIAL BENCH). HENCE, A DISALLOWANCE OF RS.71,70,861/- IS MADE U/S 14A OF THE IT ACT, 1961. THE WORKING OF THE SAME IS AS PER ANN EXURE A. HOWEVER, THE ASSESSEE SHALL GET A DEDUCTION OF RS.57,600/- B EING THE AMOUNT ALREADY DISALLOWED BY THE ASSESSEE IN THE STATEMENT OF TOTAL INCOME. THUS, EFFECTIVE DISALLOWANCE U/S 14A WOULD BE RS.71 ,13,261/-. 44. THE AFORESAID DISCUSSION MADE BY THE ASSESSING OFFICER REVEALS THAT ON BEING SHOW-CAUSED AS TO WHY THE DISALLOWANCE U/S 14A SHOULD NOT BE MADE IN ACCORDANCE WITH RULE 8D OF THE RULES, AS SESSEE ASSERTED THAT THERE WAS NO APPLICABILITY OF RULE 8D OF THE RULES IN THIS CASE. THEREAFTER, THE ASSESSING OFFICER HAS PROCEEDED TO INVOKE RULE 8D OF THE RULES MERELY FOR THE REASON THAT HE DID NOT AGREE WITH TH E CONTENTION OF THE ASSESSEE. NO REASONS WHATSOEVER HAVE BEEN ADVANCED BY THE ASSESSING OFFICER AS TO WHY HE DOES NOT AGREE WITH THE DETERM INATION OF EXPENDITURE MADE BY THE ASSESSEE. AS SEEN EARLIER, THE SATISFACTION MANDATED IN SECTION 14A(2) OF THE ACT REQUIRED THE ASSESSING OFFICER TO RECORD A FINDING THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE DETERMINATION OF EXPE NDITURE INCURRED IN RELATION TO THE EXEMPT INCOME MADE BY THE ASSESSEE HAS BEEN MECHANICALLY REJECTED WITHOUT RECORDING ANY OBJECTI VE SATISFACTION. THIS ASPECT OF THE MATTER, IN OUR VIEW, CLEARLY SHOWS TH AT THE ASSESSING OFFICER HAS NOT RECORDED THE REQUIRED OBJECTIVE SAT ISFACTION IN REGARD TO THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT THE EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME WAS RS.57 ,600/-. THEREFORE, THE ACTION OF THE ASSESSING OFFICER TO INVOKE RULE 8D O F THE RULES FOR THE PURPOSES OF COMPUTING THE DISALLOWANCE U/S 14A OF T HE ACT IS UNTENABLE, AS IT SUFFERS FROM ABSENCE OF AN ESSENTIAL REQUIREM ENT OF SUB-SECTION (2) OF SECTION 14A OF THE ACT. IN THIS VIEW OF THE MATT ER, WE ARE SATISFIED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ENHANCIN G THE DISALLOWANCE U/S 14A OF THE ACT TO RS. 71,70,881/- AS AGAINST RS . 57,600/- SUO-MOTU DISALLOWED BY THE ASSESSEE IN ITS RETURN OF INCOME. 27 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 45. BEFORE PARTING, WE MAY REFER TO THE FOLLOWING D ISCUSSION IN PARA 20 OF THE ORDER OF THE CIT(A), WHICH HAS BEEN RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, TO SAY THAT THE REQUIR ED SATISFACTION U/S 14A(2) OF THE ACT HAS BEEN CORRECTLY RECORDED BY TH E ASSESSING OFFICER :- 20. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AS WELL AS REPLY OF THE APPELLANT. THE FIRST OBJECTION OF THE APPELLANT IS THAT THE LD. ASSESSING OFFICER HAS NOT RECORDED REQUISITE SATISF ACTION BEFORE APPLYING PROVISIONS OF SECTION 14A R.W.R. 8D. THIS ARGUMENT OF THE APPELLANT IS WITHOUT ANY MERIT. THE USE OF WORD SATISFACTION IN 14A(2) IS TO BE SEEN IN THE CONTEXT OF APPLICATION OF RULE 8D. THERE IS NO STIPULATION AS TO HOW SATISFACTION IS TO BE BASED. WHETHER THE SATISFACTI ON WAS THERE OR NOT HAS TO BE SEEN FROM THE ACTION OF THE ASSESSING OFFICER READ WITH THE ASSESSMENT ORDER. IN THIS CASE, THERE IS ASSERTION OF THE ASSESSING OFFICER THAT THE APPELLANT HAS INCURRED EXPENSES FOR EARNIN G TAX FREE INCOME IN THE VERY FIRST LINE OF THE ASSESSMENT ORDER. THE AS SESSING OFFICER MAY NOT HAVE DISCUSSED THE SAME IN DETAILS BUT HIS OPENING SENTENCE ITSELF PROVES THAT THE ASSESSING OFFICER WAS CONVINCED THA T EXPENDITURE WAS INCURRED FOR EARNING TAX FREE INCOME. THEREFORE, TH ERE IS NO MERIT IN THE SUBMISSION OF THE APPELLANT THAT THERE WAS NO OBJEC TIVE SATISFACTION BY THE ASSESSING OFFICER BEFORE APPLYING RULE 8D. 46. AS PER THE CIT(A), THE USE OF THE WORD SATISFA CTION IN SECTION 14A(2) OF THE ACT IS TO BE SEEN IN THE CONTEXT OF APPLICAT ION OF RULE 8D OF THE RULES AND THERE IS NO STIPULATION AS TO HOW THE SATISFACT ION IS TO BE BASED, AND THAT THE ASSESSING OFFICER NEED NOT DISCUSS THE SAM E IN DETAIL ALSO. 47. IN OUR CONSIDERED OPINION, THE CIT(A) IS NOT CO RRECT IN OBSERVING THAT THERE IS NO STIPULATION AS TO HOW THE SATISFACTION IS TO BE BASED BECAUSE SECTION 14A(2) OF THE ACT ITSELF PROVIDES THAT THE SATISFACTION CONTEMPLATED THEREIN HAS TO BE MADE, HAVING REGARD TO THE ACCOU NTS OF THE ASSESSEE. THE PRESENCE OF THE AFORESAID EXPRESSION IS SIGNIFI CANT IN SECTION 14A(2) OF THE ACT AND IF THE SAME IS READ WITH THE DISCUSS ION OF THE HONBLE BOMBAY HIGH COURT WHEREIN THE SATISFACTION CONTEMPL ATED IS STATED TO BE AN OBJECTIVE SATISFACTION, IT IS QUITE CLEAR THAT WHAT IS REQUIRED OF THE ASSESSING OFFICER IS TO EXPLICITLY RECORD REASONS F OR HIS CONCLUSION. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS MERELY OBSE RVED IN ONE LINE THAT HE DOES NOT AGREE WITH THE CONTENTION OF THE ASSES SEE. OSTENSIBLY, HAVING REGARD TO THE MANNER IN WHICH THE ASSESSING OFFICER HAS DISCUSSED THE ISSUE IN THE ASSESSMENT ORDER, THE OB JECTIVE SATISFACTION CONTEMPLATED IN SECTION 14A(2) OF THE ACT IS CONSPI CUOUS BY ITS ABSENCE. THEREFORE, IN OUR VIEW, THE CIT(A) ERRED IN REJECTI NG THE PLEA OF THE ASSESSEE THAT THERE WAS NO SATISFACTION RECORDED BY THE ASSESSING 28 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 OFFICER AS REQUIRED IN TERMS OF SECTION 14A OF THE ACT BEFORE INVOKING RULE 8D OF THE RULES. SECONDLY, THE CIT(A) HAS ALSO PROC EEDED ON THE BASIS THAT FROM THE ASSESSMENT YEAR UNDER CONSIDERATION I .E. ASSESSMENT YEAR 2008-09 ONWARDS APPLICATION OF RULE 8D OF THE RULES IS AUTOMATIC. NO DOUBT, RULE 8D OF THE RULES IS EFFECTIVE FROM ASSES SMENT YEAR 2008-09 ONWARDS, AS HELD BY THE HONBLE BOMBAY HIGH COURT I N THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA), SO H OWEVER, IT IS ALSO EVIDENT THAT THE APPLICABILITY OF RULE 8D OF THE RU LES IS SUBJECT TO THE FULFILLMENT OF THE CONDITION PRESCRIBED IN SECTION 14A(2) OF THE ACT, AS WE HAVE SEEN IN THE EARLIER PARAGRAPHS, BASED ON THE J UDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MANUFACTURING CO. LTD. (SUPRA). THEREFORE, THE CIT(A) IS WRONG IN PROCEEDING ON THE BASIS THAT FROM ASSESSMENT YEAR 2008-09 ONWARDS APPLICATI ON OF RULE 8D OF THE RULES IS AUTOMATIC AND MANDATORY. THUS, IN OUR VIEW, THE CIT(A) ERRED IN SUSTAINING THE ACTION OF THE ASSESSING OFF ICER ON THE ISSUE OF COMPUTATION OF DISALLOWANCE U/S 14A OF THE ACT. 48. IN THE RESULT, WE SET-ASIDE THE ORDER OF THE CI T(A) AND DIRECT THE ASSESSING OFFICER TO RETAIN THE DISALLOWANCE U/S 14 A OF THE ACT TO THE EXTENT OF RS.57,600/- AND DELETE THE BALANCE. THUS, ON THIS GROUND ASSESSEE SUCCEEDS. 22. IN ASSESSMENT YEAR 2009-10 DISALLOWANCE HAS BEEN M ADE FOR THE SIMILAR REASONS AND THE COMMISSIONER OF INCOME TAX (APPEALS ) HAS MADE OBSERVATIONS WITH REGARD TO THE SATISFACTION RECORD ED BY THE ASSESSING OFFICER FOR INVOKING THE PROVISIONS OF RULE 8D IN IDE NTICAL WORDS, AS WAS RECORDED IN ASSESSMENT YEAR 2008-09. WE RESPECTFULLY FOLLOW THE ORDER OF CO-ORDINATE BENCH OF THE TRIBUNAL AND DELETE THE ADDITION MADE U/S. 14A R.W. RULE 8D. IN ASSESSMENT YEAR 2008-09 THE ASSESSEE HAD MADE DISALLOWANCE OF ` 57,600/-, WHICH INCLUDES ` 7,600/- TOWARDS DEMAT CHARGES AND ` 50,000/- BASED ON PAST ASSESSMENTS. SIMILARLY, IN THE ASSESSMENT YEAR UNDER APPEAL WE DIRECT T HE ASSESSING OFFICER TO MAKE DISALLOWANCE OF ` 26,951/- TOWARDS DEMAT CHARGES AND ` 50,000/- TO COVER OTHER EXPENDITURE. THUS, TOTAL DISALLOWA NCE U/S. 29 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 14A WOULD BE ` 76,951/-. ACCORDINGLY, THE FIRST ISSUE RAISED IN THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. 23. IN GROUND NO. 2 RAISED BY THE ASSESSEE IN THE APPE AL IS WITH RESPECT TO NON GRANT OF TDS CREDIT. THE ASSESSEE HAD CLAIMED CREDIT OF TAX DEDUCTED AT SOURCE TO THE TUNE OF ` 8,56,92,317/-. THE ASSESSING OFFICER RESTRICTED THE CREDIT OF TDS TO ` 7,86,21,513/- ON THE BASIS OF FORM 26AS. IN FIRST APPEAL THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER IN ALLOWING TDS C REDIT AS PER FORM 26AS. 24. THE LD. AR OF THE ASSESSEE SUBMITTED THAT IN THE ASS ESSMENT YEAR 2008-09 THE TRIBUNAL IN ITA NO. 1676/PN/2012 (SUPRA) HAD CONSIDERED THIS ISSUE AND THEREAFTER REMITTED THE SAME TO THE FILE OF ASSESSING OFFICER TO ALLOW CREDIT FOR THE TAX DEDUCTED AT SOURCE IN T HE LIGHT OF JUDGMENT OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF R AKESH KUMAR GUPTA VS. UNION OF INDIA & OTHERS IN CIVIL MISC. WRIT P ETITION (TAX) NO. 657 OF 2013 DECIDED ON 06-05-2014. 25. ON THE OTHER HAND LD. DR STRONGLY DEFENDED THE ACT ION OF THE AUTHORITIES BELOW IN RESTRICTING CREDIT OF TDS AS PER FORM 26AS. 26. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESE NTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE LD. AR OF THE ASSESSEE HAS CONTENDED THAT THE ISSUE RELA TING TO GRANT OF TDS CREDIT WAS CONSIDERED BY THE CO-ORDINATE BENCH OF T HE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008-09. AFTER PERUSAL OF THE ORDER OF CO-ORDINATE BENCH OF THE TRIBUNAL IN APPEAL BY THE ASSESSE E FOR 30 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 ASSESSMENT YEAR 2008-09 (SUPRA), WE FIND THAT THIS ISSUE WAS REMITTED BACK TO THE FILE OF ASSESSING OFFICER TO ALLOW THE CREDIT FOR THE TDS ON BEHALF OF THE ASSESSEE IN THE LIGHT OF JUDGMENT OF HON'BLE A LLAHABAD HIGH COURT IN THE CASE OF RAKESH KUMAR GUPTA VS. UNION O F INDIA & OTHERS (SUPRA). SINCE, THE ISSUE IN THE PRESENT APPEAL IS ID ENTICAL WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE ISSUE IN SIMILAR TERMS. ACCORDINGLY, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 27. THE ASSESSEE HAS FILED AN ADDITIONAL GROUND OF APPEAL ON ACCOUNT OF CLAIM FOR DEDUCTION IN RESPECT OF AMORTIZATION OF PREMIUM P AID FOR SECURITIES FORMING PART OF BUSINESS ASSETS. THE LD. AR SUBM ITTED THAT THE ASSESSEE IS A NON-BANKING FINANCE COMPANY. THE ASS ESSEE IS REQUIRED TO INVEST IN SPECIFIED SECURITIES FOR MEETING THE SL R REQUIREMENTS AS PRESCRIBED BY THE RESERVE BANK OF INDIA (RBI). ACCORDINGLY, THE ASSESSEE HAS INVESTED IN GOVT. SECURITIES WHICH ARE HELD TO MATURITY (HTM). THE ASSESSEE AMORTIZED THE PREMIU M I.E. THE AMOUNT OF EXCESS OF ACQUISITION PRICE OVER THE FACE VALUE OF THE SECURITIES IN ITS BOOKS OF ACCOUNT IN ACCORDANCE WITH THE RBI GUIDELINES. HOWEVER, WHILE COMPUTING TAXABLE INCOME, THE PREM IUM AMOUNT AMORTIZED THE PROFIT AND LOSS ACCOUNT HAS BEEN D ISALLOWED. THE LD. AR SUBMITTED THAT ISSUE OF AMORTIZATION OF PREMIUM ON BUSINESS ASSETS HAS BEEN DECIDED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. M/S. LORD KRIS HNA BANK LTD. IN INCOME TAX APPEAL NO. 1079 OF 2012. THIS WAS AGAIN REITERATED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF COMMISS IONER OF INCOME TAX VS. HDFC BANK LTD. IN INCOME TAX APPEAL NO. 3 30 OF 2012 DECIDED ON 23 RD JULY, 2014. THE LD. AR PLACED ON RECORD A COPY OF THE 31 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER O F INCOME TAX VS. HDFC BANK LTD. (SUPRA). 28. THE ISSUE RELATING TO AMORTIZATION OF PREMIUM OF BUSINES S ASSETS WAS CONSIDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. HDFC BANK LTD. (SUPRA). ONE OF THE QUESTION OF LAW BEFORE THE HON'BLE HIGH COURT IN THE AFORES AID APPEAL WAS : (C) WHETHER THE ITAT IS RIGHT IN LAW IN HOLDING TH AT THE ASSESSEE IS ENTITLED FOR DEDUCTION WITH RESPECT TO THE DIMINUTIO N IN VALUE OF THE INVESTMENT AND AMORTIZATION OF PREMIUM ON INVESTMEN T HELD TO MATURITY ON THE GROUND OF MANDATE BY RBI GUIDELINES THEREBY IGNORING THE DECISION OF THE SUPREME COURT IN THE CASE OF SOUTHE RN TECHNOLOGIES VS. CIT (320 ITR 577) ? THE HON'BLE HIGH COURT HELD THAT IDENTICAL QUESTION OF LAW W AS FRAMED AND ANSWERED IN FAVOUR OF THE ASSESSEE IN INCOME TAX APPEAL NO. 1079 OF 2012 TITLED COMMISSIONER OF INCOME TAX VS. M/S . LORD KRISHNA BANK LTD. (SUPRA) NOW MERGED WITH HDFC BANK LTD. THE LD. COUNSEL REPRESENTING THE DEPARTMENT BEFORE THE HON'BLE HIGH COURT FAIRLY ADMITTED THAT THE QUESTION C REPRODUCED ABOVE IS COVERED BY THE JUDGMENT RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. M/S. LORD KRISHNA BANK LTD. (SUPRA). THUS, IN THE FACTS OF THE CASE WE REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THE ISSUE IN ACCORDANCE WITH THE JUDGMENT OF HON'BLE BOMBAY HIGH COU RT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. M/S. LORD KRISHNA B ANK LTD. (SUPRA). THUS, THE ADDITIONAL GROUND RAISED IN THE APPEAL BY THE A SSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 32 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 29. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 579/PN/2014 (A.Y. 2010-11) 30. THE FIRST ISSUE RAISED BY THE ASSESSEE IN GROUND NOS . 1 AND 2 RELATES TO DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE INCOM E TAX RULES. SIMILAR ISSUE WAS RAISED BY THE ASSESSEE IN APPEAL FOR THE ASSESSMENT YEAR 2009-10. THE FINDINGS GIVEN BY US IN THE APPEAL OF A SSESSEE FOR ASSESSMENT YEAR 2009-10 ON THE ISSUE WOULD MUTATIS MUTANDIS APPLY IN THE PRESENT APPEAL. THUS, GROUND NOS. 1 AND 2 RAISED B Y THE ASSESSEE IN APPEAL FOR ASSESSMENT YEAR 2010-11 ARE PARTLY ALLOWED. 31. IN GROUND NO. 3 THE ASSESSEE HAS RAISED THE ISSUE RELATING TO NON GRANT OF TDS CREDIT. THE LD. AR OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THIS GROUND ON ACCOUNT OF SMALLNESS OF THE AMOU NT INVOLVED. ACCORDINGLY, GROUND NO. 3 RAISED IN THE APPEAL BY THE ASS ESSEE IS DISMISSED AS NOT PRESSED. 32. THE ASSESSEE RAISED ADDITIONAL GROUND AS GROUND NO. 4 ON ACCOUNT OF CLAIM OF DEDUCTION IN RESPECT OF EMPLOYEE STOCK OPTIONS (ESOP) EXPENDITURE OF ` 1,33,64,340/-. THE LD. AR SUBMITTED THAT THE ASSESSEE IS A LISTED COMPANY AND ISSUED STOCK OPTIONS WIT H A CEILING OF 5% OF THE ISSUED EQUITY CAPITAL OF THE COMPANY TO ITS EMPLO YEES PURSUANT TO EMPLOYEE STOCK OPTION SCHEME 2009. THE SA ID SCHEME WAS FORMULATED IN ACCORDANCE WITH THE SEBI (EMPLOYEE STOC K OPTION SCHEME AND EMPLOYEE STOCK PURCHASE SCHEME) GUIDELINES, 19 99. THE ASSESSEE AS A MATTER OF ABUNDANT CAUTION DID NOT CLAIM DEDUCTION OF ESOP EXPENDITURE OF ` 1,33,64,340/- IN ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2010-11 IN VIEW OF CONFLICTING DECISIONS OF VARIOUS 33 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 BENCHES OF THE TRIBUNAL ON THE ISSUE. NOW, IN THE LIGHT OF BANGALORE SPECIAL BENCH DECISION IN THE CASE OF BIOCON LIMITED VS. DCIT REPORTED AS 25 ITR (TRIB.) 602 THE ADDITIONAL GROUND OF APPEAL IS RA ISED BEFORE TRIBUNAL FOR CLAIMING ESOP EXPENDITURE AS A TAX DEDUCTIBLE EXPENSE. 33. ON THE OTHER HAND LD. DR SUBMITTED THAT THE ASSES SEE RAISED THIS ISSUE FIRST TIME BEFORE THE TRIBUNAL. THE LD. DR SUBMITTED TH AT THE EXPENDITURE WAS NEVER CLAIMED BY THE ASSESSEE. THEREFOR E, THE SAME IS NOT ALLOWABLE. 34. BOTH SIDES HEARD. IT IS AN ADMITTED FACT THAT THE A SSESSEE HAS CLAIMED ESOP EXPENDITURE FOR THE FIRST TIME BEFORE THE TRIBU NAL. THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF GOETZE (IND IA) LTD. VS. CIT HAS HELD THAT THE POWERS OF THE APPELLATE TRIBUNAL ARE NOT IMPING ED TO ACCEPT THE CLAIM OF ASSESSEE WHICH HAS NOT BEEN MADE BEFORE THE ASSESSING OFFICER. WE DEEM IT APPROPRIATE TO REMIT THIS ISSU E BACK TO THE FILE OF ASSESSING OFFICER TO CONSIDER THE CLAIM OF THE ASSE SSEE IN THE LIGHT OF DECISION OF SPECIAL BENCH OF THE BANGALORE TRIBUNAL I N THE CASE OF BIOCON LIMITED (SUPRA). THE ASSESSEE SHALL FILE FRESH COMPU TATION OF INCOME BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER SH ALL CONSIDER THE SAME AND DECIDE THE CLAIM OF ASSESSEE IN ACC ORDANCE WITH LAW. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR THE STATISTICAL PURPOSE. 35. THE ASSESSEE HAS RAISED ANOTHER ADDITIONAL ISSUE AS GROUND NO. 5. THE GROUND NO. 5 RAISED BY THE ASSESSEE IS IN RESPEC T OF AMORTIZATION OF PREMIUM PAID FOR SECURITIES. SIMILAR ISSUE WAS RAISED BY T HE ASSESSEE IN APPEAL FOR THE ASSESSMENT YEAR 2009-10. W E HAVE REMITTED 34 ITA NOS. 560, 561, 578 & 579/PN/2014, A.YS. 2009-10 & 2010-11 THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJU DICATION IN THE LIGHT OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. M/S. LORD KRISHNA BANK LTD . (SUPRA). ACCORDINGLY, IN ASSESSMENT YEAR 2010-11 ALSO WE REMIT HIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO DECIDE THIS ISSUE AFRESH IN SIMILAR TERMS. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 36. IN THE RESULT, THE APPEALS OF THE REVENUE ARE DISMISS ED AND THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 11 TH DAY OF APRIL, 2016. SD/- SD/- ( . . / R.K. PANDA) ( ! ' / VIKAS AWASTHY) #' / ACCOUNTANT MEMBER $ % #' / JUDICIAL MEMBER / PUNE; &# / DATED : 11 TH APRIL, 2016 RK *+,%-.#/#)- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ' () / THE CIT(A)-V, PUNE 4. ' / THE CIT-V, PUNE 5. !*+ %%,- , ,- , . ./0 , / DR, ITAT, B BENCH, PUNE. 6. + 1 23 / GUARD FILE. // ! % // TRUE COPY// #4 / BY ORDER, %5 ,0 / PRIVATE SECRETARY, ,- , / ITAT, PUNE