Sindhudurg Dist. Central Co-Op Bank Ltd, Kolhapur V. ITO,Wd. 2(4), Kudal

ITA 617/PUN/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7530 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 16-01-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Business income; Opportunity of being heard
• Section: 43B; 143(3); 234B; 37(1); 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO. 617/PN/11 (ASSTT. YEAR: 2007-08) THE SINDHUDURG DIST. CENTRAL CO-OP BANK LTD., .. APPELLANT SINDHUDURG NAGARI, TAL . KUDAL, DIST. SINDHUDURG VS. INCOME-TAX OFFICER, .. RESPONDEN T WD. 2(4) KUDAL APPELLANT BY : SHRI S.P. JOSHI/P S PHADNIS/SUSHANT P HADNIS RESPONDENT BY : SHRI S K SINGH DATE OF HEARING : 16.01.20 12 DATE OF PRONOUNCEMENT : 02.03. 2012 ORDER PER G.S. PANNU, A.M .: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), KOLHAPUR DATED 1 3.12.2010 WHICH, IN TURN, HAS ARISEN FROM ORDER DATED 30.12.2009 PASSED BY THE ASSESSING OFFICER, UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SH ORT THE ACT), PERTAINING TO THE ASSESSMENT YEAR 2007-08. 2. THE FIRST GROUND OF APPEAL RAISED BY THE ASSESSEE IS AGAINST THE ACTION OF THE COMMISSIONER OF INCOME-TAX(APPEALS) IN UPHOLDIN G AN ADDITION OF RS 1,07,57,609/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF AN EX-GRATIA PAYMENT TO EMPLOYEES. 3. IN BRIEF THE FACTS ARE THAT THE ASSESSEE IS A CO-OPERA TIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING AND PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOT ICED THAT THE ASSESSEE HAD, INTER ALIA, CLAIMED DEDUCTION OF A SUM OF RS 1,07,57,609/- UNDER SECTION 43B OF THE ACT ON ACCOUNT OF EX- GRATIA PA YMENT TO ITS EMPLOYEES. SUCH DEDUCTION WAS CLAIMED IN THE COMPUTATIO N OF TOTAL INCOME ANNEXED WITH THE RETURN OF INCOME WHEREAS NO PROVISION FOR SUCH AN EXPENDITURE WAS CONTAINED IN THE FINANCIAL STATEMENTS FO R THE YEAR UNDER CONSIDERATION, ALTHOUGH THE ASSESSEE WAS FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING. AS PER THE ASSESSING OFFICER, THE SAID EXPENDI TURE WAS NOT CRYSTALLIZED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND, THEREFORE, THE SAME WAS NOT ALLOWABL E AS A DEDUCTION. ON BEING SHOW-CAUSED, THE ASSESSEE EXPLAINED DURING THE ASSESSMEN T PROCEEDINGS THAT THE EXPENDITURE ON EX-GRATIA PAYMENT TO THE EMPLOYEES OF RS 1,07,57,609/- CRYSTALLIZED IN THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND FOR THIS PURPOSE, REFERENCE WAS MADE TO RESOLUTION NO. 55 PASSED BY THE BOARD OF DIRECTORS OF THE ASSESSEE BA NK ON 13.3.2007. IT WAS EXPLAINED THAT THE ACTUAL PAYMENT TOWARDS THE LIAB ILITY WAS MADE ON 18.10.2007. ACCORDINGLY, IT WAS CONTENDED THAT THAT TH E LIABILITY HAVING CRYSTALLIZED BEFORE THE END OF THE PREVIOUS YEAR RELEV ANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE SAME HAVING BEEN PAI D BEFORE FILING OF THE RETURN OF INCOME, THE DEDUCTION FOR SUCH EXPENDITURE WAS RIGHTLY CLAIMED AS PER SECTION 43B OF THE ACT. 4. THE AFORESAID CLAIM OF THE ASSESSEE HAS SINCE BEEN DISAL LOWED BY THE ASSESSING OFFICER. AS PER THE ASSESSING OFFICER, THERE WAS NO JUSTIFIABLE REASON FOR NOT HAVING MADE A PROVISION IN THE ACCOUNT B OOKS BEFORE THE END OF THE YEAR; THAT IN RESPECT OF A SIMILAR CLAIM WITH REGA RD TO THE LIABILITY TOWARDS BONUS PAYMENT OF RS 12,10,997/-, THE APPELLANT HAD MA DE A PROVISION IN THE ACCOUNT BOOKS DULY FOLLOWING THE PRINCIPLES OF MERCANTILE SYSTEM OF ACCOUNTING. AS PER THE ASSESSING OFFICER, THERE WAS NO JUS TIFICATION FOR THE ASSESSEE NOT HAVING MADE THE IMPUGNED PROVISION IN A SIMI LAR MANNER AND IN FACT, AS PER THE ASSESSING OFFICER THE CLAIM WAS AN AFTERT HOUGHT. SECONDLY, AS PER THE ASSESSING OFFICER, THE IMPUGNED PAYMENT WAS NOT CO VERED UNDER THE PROVISIONS OF SECTION 43B OF THE ACT, BUT WAS TO BE CONSID ERED IN TERMS OF SECTION 37(1) OF THE ACT. ACCORDING TO THE ASSESSING OFFICE R EVEN UNDER SECTION 37(1) OF THE ACT, THE SAME WAS NOT DEDUCTIBLE SI NCE THE LIABILITY HAD NOT CRYSTALLIZED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND THEREFORE SUCH EXPENDITURE CANNOT BE CONSIDERED TO HAVE BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR TH E PURPOSES OF THE BUSINESS OR PROFESSION DURING THE YEAR UNDER CONSIDERATION . FOR ALL THE ABOVE REASONS, THE ASSESSING OFFICER DID NOT ALLOW THE DEDUCTION CLAIMED BY THE ASSESSEE OF RS 1,07,57,609/- ON ACCOUNT OF EX-GRATIA PAYME NT MADE TO EMPLOYEES. THE ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE COMMISSIONER OF INCOME-TAX (APPEALS). 5. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (AP PEALS), THE ASSESSEE PRIMARILY REITERATED THE SUBMISSIONS MADE BEFORE T HE ASSESSING OFFICER. AS PER THE ASSESSEE, PAYMENT WAS MADE IN TERMS OF THE RESOLUTION NO 55 PASSED BY THE BOARD OF DIRECTORS OF THE BANK ON 13 .3.2007 AND THE SAME HAVING BEEN PAID BEFORE THE DUE DATE OF FILING OF THE RETURN, IT WAS ALLOWABLE IN TERMS OF SECTION 43B OF THE ACT. THE ASSE SSEE ALSO SUBMITTED THAT SUCH PAYMENT WAS COVERED UNDER SECTION 43B OF THE ACT AND WAS AN ALLOWABLE DEDUCTION, EVEN THOUGH NO PRO VISION FOR SUCH EXPENDITURE HAD BEEN MADE IN THE ACCOUNT BOOKS FOR THE YEAR ENDING 31.3.2007. THE ASSESSEE ALSO JUSTIFIED THE CRYSTALLIZATION OF SUCH LIABILITY BEFORE 31.3.2007 ON THE BASIS OF THE BOARD RESOLUTION NO. 55 PASSED ON 13.3.2007. 6. AS PER THE COMMISSIONER OF INCOME-TAX (APPEALS), THE LIABILITY COULD NOT BE SAID TO HAVE BEEN ACCRUED DURING THE YEAR UNDER CONSI DERATION INASMUCH AS NO PROVISION WAS MADE FOR SUCH EXPENDITURE IN THE ACCO UNT BOOKS FOR THE YEAR ENDED ON 31.3.2007. AS PER THE COMMISSIONER OF IN COME-TAX (APPEALS), OTHER THAN THE PURPORTED BOARD RESOLUTION, THE ASSESSEE HAD NOT FILED ANY CORROBORATIVE EVIDENCE LIKE MINUTES OF THE DISCUSSION WIT H THE EMPLOYEES UNION OR CORRESPONDENCE WITH SINDHUDURGA ZILLA MADHYA VARTHI KARMACHARI SANGHATANA, KUDAL AS WAS THE CASE WITH REGARD TO A SIMI LAR RESOLUTION DATED 17.7.2006 PERTAINING TO THE EARLIER FINANCIAL YEAR O F 2005-06. AS PER THE COMMISSIONER OF INCOME-TAX (APPEALS) FOR THE EARLIER F INANCIAL YEAR 2005-06, ASSESSEE HAD PASSED A DETAILED RESOLUTION ON 17.7.2006, I. E. AFTER THE CLOSE OF THE RELEVANT FINANCIAL YEAR BASED ON CORRESPONDENCE A ND DISCUSSION WITH THE EMPLOYEES UNION AND CONSIDERING ALL THESE, DEDUCTIO N THEREOF WAS ALLOWED BY THE ASSESSING OFFICER IN THE PRECEDING YEAR. AS PER THE COMMISSIONER OF INCOME-TAX (APPEALS), THE RESOLUTION NO 55 APPEARED TO BE ONLY AN AFTERTHOUGHT AND, THEREFORE, NO CREDENCE COULD BE GIVEN TO SUCH RESOLUTION. THEREFORE, AS PER THE COMMISSIONER OF INCOM E-TAX (APPEALS), ASSESSEE WAS NOT ENTITLED TO DEDUCT THE AMOUNT OF RS 1,07, 57,609/- REPRESENTING EX- GRATIA PAYMENT WHILE COMPUTING ITS IN COME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION EITHER UNDER SECTION 3 6(1)(II) READ WITH SECTION 43B OR UNDER SECTION 37(1) OF THE ACT, AND ACCORDI NGLY THE DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN SUSTAIN ED. 7. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED IN DECIDING THE ISSUE ON THE BRIEFNESS OF THE RESOLUTION PASSED FOR THE FINAN CIAL YEAR UNDER CONSIDERATION AS COMPARED TO THE RESOLUTION PASSED ON AN EARLIER OCCASION FOR THE PRECEDING FINANCIAL YEAR OF 2005-06. THE LEARNED COUNSEL POINTED OUT THAT THE ASSESSEE BANK PASSED THE RESOLUTION NO 55 DATED 13.3.2 007 ACCEPTING THE LIABILITY TO PAY BONUS AND OR EX-GRATIA TO THE ST AFF AND OTHER EMPLOYEES BEFORE THE GANESH CHATURTHI FESTIVAL OF THE YEAR 2007 . THOUGH THE RESOLUTION WAS BRIEF, IT REFERRED TO THE DETAILED RESOLUTION OF THE EARLIER YEAR AND HAS RECORDED THAT THE BONUS/EX-GRATIA BE PAID AT THE SAME RATES AS PER THE EARLIER YEAR, I.E. FINANCIAL YEAR 2005-06. THEREFORE, ACCORDIN G TO HIM, THE RESOLUTION CANNOT BE CONSIDERED AS AN AFTERTHOUGHT ON MERE SUSPICI ON. IN THIS CONNECTION, REFERENCE HAS BEEN MADE TO PAGE NOS 73 TO 11 2 OF PAPER BOOK NO 2 WHEREIN A PHOTOCOPY OF THE RELEVANT PAGES OF TH E MINUTE BOOK HAS BEEN PLACED TO SHOW THAT THE RESOLUTION WAS PASSED IN THE NORM AL COURSE AND BEFORE THE NEXT RESOLUTION CONTAINED IN THE MINUTE BO OK DATED 19.5.2007. 8. IN SUPPORT OF HIS SUBMISSION THAT ON PASSING OF THE RE SOLUTION ON 13.3.2007, THE LIABILITY CRYSTALLIZED DURING THE YEA R ENDING 31.3.2007. A REFERENCE HAS BEEN MADE TO THE DECISION OF THE TRIBUNA L IN THE CASE SHRI DOODHGANGA VEDGANGA SSK LTD. V. DCIT IN ITA NO 392/ PN/97 DATED 10.02.2006, A COPY OF WHICH HAS BEEN PLACED IN THE PAP ER BOOK NO. 1. 9. WITH REGARD TO THE PLEA OF THE REVENUE THAT THE ABSENCE OF AN ENTRY IN THE ACCOUNT BOOKS TOWARDS PROVISION FOR EX-GRATIA, THE L EARNED COUNSEL POINTED OUT THAT THE NON-EXISTENCE OF THE ENTRIES IN T HE ACCOUNT BOOKS ARE NOT DETERMINATIVE OF THE ALLOWABILITY OF A CLAIM AS LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MANUFACTURI NG CO. V. CIT 82 ITR 363 (SC). IN THE COURSE OF THE HEARING, THE LEARNED COUNSEL ALSO RELIED UPON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF ADDL. CIT V. BUCKAU WOLF NEW ENGINEERING WORKS LTD. 46 CTR 200 (BOM) . THE LEARNED COUNSEL ACCORDINGLY CONTENDED THAT THE EXPENDITURE IN QUESTION DULY ACCRUED BEFORE 31.3.2007 ON THE BASIS OF THE BOARD RESOLUTION NO 55 DATED 13.3.2007 AND THE SAME HAVING BEEN PAID BEFORE THE FILING OF T HE RETURN OF INCOME, WAS NOT ONLY ALLOWABLE UNDER SECTION 43B OF THE ACT, BUT I N THE ALTERNATIVE, IT WAS ALSO ALLOWABLE UNDER SECTION 37(1) OF THE ACT SINCE PAYME NT OF EX-GRATIA TO EMPLOYEES IS AN ADMISSIBLE DEDUCTION COVERED UNDER SECTION 37(1) OF THE ACT AND IN THIS CONNECTION, RELIANCE WAS PLACED ON THE JUDGME NT OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V. NATIONAL ENG INEERING INDUSTRIES LTD. 208 ITR 1002 (CAL). 10. ON THE OTHER HAND, THE LEARNED CIT- DEPARTMENTA L REPRESENTATIVE, JUSTIFIED THE DISALLOWANCE MADE BY THE LOWER AUTHORIT IES ON THE GROUND THAT ASSESSEE HAD FAILED TO ESTABLISH WITH COGENT EVIDENCE THAT THE LIABILITY IN QUESTION HAD ACCRUED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LEARNED DEPARTMENTAL RE PRESENTATIVE ALSO POINTED OUT THAT EVEN IF IT IS PRESUMED THAT RESOLUTIO N NO 55 WAS ACTUALLY PASSED ON 13.3.2007, AS CLAIMED BY THE ASSESSEE, THERE IS N O REASON TO SHOW AS TO WHY THE ASSESSEE DID NOT ACT IN PURSUANCE TO SUCH RE SOLUTION BY MAKING A SUITABLE PROVISION IN THE ACCOUNT BOOKS FOR THE YEAR E NDING 31.3.2007. THEREFORE, ACCORDING TO THE LEARNED DEPARTMENTAL REPR ESENTATIVE, THE ACTION OF THE ASSESSEE IN NOT MAKING A PROVISION FOR SUCH LIABILI TY IN THE BOOKS OF ACCOUNT FOR THE YEAR ENDING 31.3.2007 WOULD DEMONSTRA TE THAT SUCH LIABILITY HAD NOT ACCRUED. WITH REGARD TO THE RELIANCE PLACED BY THE ASSESSEE ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. (SUPRA), THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE SAME CANNOT BE APPLIED IN THE PRESENT CASE AS THE ISSUE RELATES TO A CONTRACTUAL LIABILITY AS AGAINST THE CASE OF A STATUTORY LIABILITY D EALT WITH BY THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. ( SUPRA). IT WAS, THEREFORE, CONTENDED THAT THE LOWER AUTHORITIES WERE JUSTIFIED IN MAKING THE IMPUGNED DISALLOWANCE. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. AFTER HAVING CONSIDERED THE FACT-SITUATION OF THE CASE AS EMERGING FRO M THE ORDERS OF THE LOWER AUTHORITIES AS WELL AS THE MATERIAL ON RECORD, TH E CRUX OF THE CONTROVERSY REVOLVES AROUND AS TO WHETHER THE LIABILITY ON ACCOUNT OF EX-GRATIA PAYMENT TO EMPLOYEES OF RS 1,07,57,609/- CAN BE SAID TO HAVE ACCRUED OR CRYSTALLIZED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN THIS CONNECTION, IT WOULD BE RELEVANT TO NOTICE THA T ASSESSEE HAD CLAIMED DEDUCTION FOR THE SUM OF RS 1,07,57,609/- IN THE COMPU TATION OF INCOME ANNEXED WITH THE RETURN OF INCOME, AND NO PROVISION F OR SUCH AN AMOUNT WAS MADE IN THE FINANCIAL STATEMENTS PREPARED ON THE BASIS O F THE ACCOUNT BOOKS FOR THE YEAR ENDING 31.3.2007, RELEVANT TO THE ASSESSM ENT YEAR UNDER CONSIDERATION. THE CLAIM OF THE ASSESSEE THAT THE LIABIL ITY HAD INDEED CRYSTALLIZED AND ACCRUED BEFORE THE CLOSE OF THE YEAR IS F UNDAMENTALLY BASED ON THE RESOLUTION PASSED BY ITS BOARD OF DIRECTORS ON 13 .3.2007. THE CLAIM OF THE ASSESSEE THAT THE LIABILITY HAS CRYSTALLIZED AND ACCRUE D BEFORE 31.3.2007 IS ASSAILED BY THE REVENUE ON TWO POINTS. FIRSTLY, THE PUR PORTED BOARD RESOLUTION DATED 13.3.2007 HAS BEEN DOUBTED; AND, SECONDLY, THE NON-EXISTENCE OF THE RELEVANT ENTRIES IN THE ACCOUNT BOOKS FOR THE YEAR ENDIN G 31.3.2007 TOWARDS SUCH LIABILITY. 12. IN SO FAR AS THE SECOND OBJECTION OF THE REVENUE IS CONCERNED, THE ARGUMENT OF THE REVENUE IS THAT THE ASSESSEE IS MAINTAIN ING ITS ACCOUNT BOOKS ON A MERCANTILE BASIS AND, THEREFORE, THE LIABILITY T OWARDS EX-GRATIA PAYMENT TO EMPLOYEES PERTAINING TO THE YEAR UNDER CONSIDERATION OUGHT TO HAVE BEEN PROVIDED IN THE ACCOUNT BOOKS PERTAINING TO THE YEAR UN DER CONSIDERATION. THE CONTRA-PROPOSITION OF THE ASSESSEE THAT THE NON-EXISTENCE O F ENTRIES IN THE ACCOUNT BOOKS IS NOT DETERMINATIVE OF THE QUESTION, WHICH IS BASED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KEDERNATH JUTE MFG. CO. (SUPRA) IS SOUGHT TO BE DISTINGUISHED ON THE GROUND THAT THE HONBLE SUPREME COURT WAS DEALING WITH A ISSUE OF A STATUTORY L IABILITY. IN OUR CONSIDERED OPINION, THE QUESTION THAT ASSESSEE HAD NOT M ADE AN ENTRY IN ITS ACCOUNT BOOKS FOR SUCH LIABILITY, EVEN THOUGH IT WAS FOLLO WING A MERCANTILE SYSTEM OF ACCOUNTING, CANNOT BE FATAL AND IPSO FACTO DETE RMINATIVE OF THE ISSUE AS TO WHETHER SUCH LIABILITY HAD CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION OR NOT. THE EFFORT BY THE REVENUE TO D ISTINGUISH THE PROPOSITION LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE O F KEDARNATH JUTE MFG. CO. (SUPRA), IN OUR VIEW, IS UNFOUNDED AS IS APPARENT FROM THE OBSERVATIONS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF BACKAU W OLF NEW ENGINEERING WORKS LTD (SUPRA) WHICH HAS BEEN RENDERED IN THE BACKGROUN D OF SOMEWHAT SIMILAR ARGUMENTS OF THE REVENUE. THE HONBLE BOMBAY HIGH COURT OBSERVED THAT IT IS TRUE THAT IN THE ABOVE DECISION, THE SUPREME COU RT WAS CONSIDERING THE STATUTORY LIABILITY FOR PAYMENT OF SALES TAX, BUT THE OBSERVATIONS TO BE FOUND AT PAGE 367 WOULD SEEM TO APPLY TO ALL TYPES OF LIABIL ITIES AND NOT ONLY TO TAX LIABILITY . FOLLOWING THE AFORESAID UNDERSTANDING ASCRIBED TO TH E HONBLE SUPREME COURT JUDGMENT, AS PROPOUNDED BY THE HONBL E BOMBAY HIGH COURT, IT FOLLOWS THAT THE PROPOSITION IN THE CASE OF KEDARNA TH JUTE MFG. CO (SUPRA) WOULD APPLY TO THE LIABILITY IN QUESTION ALSO. NOTAB LY, AS PER THE HONBLE SUPREME COURT WHETHER THE ASSESSEE IS ENTITLED TO A PART ICULAR DEDUCTION OR NOT WILL DEPEND ON THE APPLICABLE LEGAL PROVISION AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS AND NOR CAN THE EXIST ENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER. IN THIS VIEW OF THE MATTER, WE THEREFORE FIND NO SUBSTANCE IN THE SAID OBJECTION RAISED BY THE REVENUE. 13. IN SO FAR AS FIRST OBJECTION RAISED BY THE REVENUE IS CONCERNED, HEREIN ALSO, WE FIND THAT THE APPROACH OF THE REVENUE IS GUID ED MORE BY SUSPICION THAN SUBSTANCE. AS PER THE REVENUE, THE BOARD RESOLUTION NO 55 IS AN AFTERTHOUGHT AND THE SAME IS DOUBTED ON THE GROUND T HAT IT HAS BEEN PASSED IN BRIEF WORDS AS COMPARED TO A SIMILAR BOARD RESOLUTION P ASSED ON 17.7.2006 PERTAINING TO THE LIABILITY OF BONUS/EX-GRATIA OF TH E EARLIER YEAR. THE BOARD RESOLUTION NO 55 DATED 13.3.2007 AND THE RESOLUTION P ASSED ON AN EARLIER OCCASION FOR THE PRECEDING YEAR NO 20 DATED 17.7.2006 H AS BEEN REPRODUCED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN PARA 2. 3.1 OF THE IMPUGNED ORDER. FOR THE SAKE OF BREVITY, WE ARE NOT REPRODUCIN G THE TWO RESOLUTIONS IN THIS ORDER. WE HAVE PERUSED THE SAME. THE CASE SET-UP B Y THE REVENUE IS THAT THE RESOLUTION PASSED ON 17.7.2006 FOR THE FY 200 5-06 IS QUITE DETAILED WHEREAS THE RELEVANT RESOLUTION DATED 13.3.2007 FOR T HE INSTANT YEAR SIMPLY STATES THAT THE BANK HAS DECIDED TO PAY THE AMOUNT OF BONUS/EX-GRATIA AS PER A DETAILED DISCUSSION IN THE MATTER. AS PER THE REV ENUE, THE DETAILED DISCUSSION HAS NOT BEEN ELABORATED EITHER IN THE RESOLUT ION OR EVEN IN THE COURSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE ASSESSING OF FICER. UNDER THESE CIRCUMSTANCES, IT IS CONTENDED THAT NO CREDENCE BE GIVEN TO THE RESOLUTION DATED 13.3.2007 AS IT IS SELF-SERVING AND AN AFTERTHOUGHT. 14. IN THIS BACKGROUND, WE HAVE CAREFULLY CONSIDERED THE RIVAL STANDS. FIRSTLY, THE PLEA OF THE REVENUE ARTICULATED BEFORE U S THAT THE ASSESSEE DID NOT ACT IN PURSUANCE TO SUCH RESOLUTION, IN OUR VIEW, IS CLE ARLY UNFOUNDED. IN FACT, IT IS NOBODYS CASE THAT THE ASSESSEE HAS NOT PAID THE AMO UNT IN QUESTION. THE MATERIAL ON RECORD CLEARLY SHOWS THE FACT-SITUATION, WHI CH IS NOT DISPUTED BY THE REVENUE, THAT THE AMOUNTS HAVE BEEN ACTUALLY PAID BY THE ASSESSEE, ALBEIT BEFORE THE FILING OF THE RETURN. THEREFORE, THE PLE A OF THE REVENUE THAT THE RESOLUTION HAS NOT BEEN ACTED UPON BY THE ASSESSEE MERELY BECAUSE THERE IS NO ENTRY FOR THE PROVISION IN THE ACCOUNT BOOKS, CANNOT STAND INASMUCH AS THE AMOUNTS HAVE BEEN ACTUALLY PAID, ALBEIT, AFTER THE CL OSE OF THE YEAR, AND SUCH PAYMENTS ARE IN TERMS OF THE SAID RESOLUTION. FURTHER- MORE, THE ABSENCE OF A DETAILED NARRATION OF THE DISCUSSIONS OF THE BOARD MEETI NG IN THE RESOLUTION CANNOT IPSO FACTO LEAD TO THE DISREGARDING OF THE SAME. NO DOUBT, IN THE RESOLUTION PASSED ON 17.7.2006 PERTAINING TO THE LIABI LITY FOR THE PRECEDING FINANCIAL YEAR THERE IS A DETAILED NARRATION WITH REG ARD TO THE DISCUSSION/CORRESPONDENCE WITH THE EMPLOYEES UNION, ETC. H OWEVER, IT IS ALSO TO BE KEPT IN MIND THAT IN THE INSTANT YEAR THE RESOL UTION DATED 13.3.2007 ADOPTS THE LIABILITY TO PAY EX-GRATIA ON SIMILAR RATES AS PAID BY THE ASSESSEE FOR THE PRECEDING FINANCIAL YEAR. IN-FACT, THE REFERENCE T O THE BONUS/EX-GRATIA PAID IN THE PRECEDING FINANCIAL YEAR OF 2005-06 IS CLEARLY NOTED IN THE RESOLUTION DATED 13.3.2007 AND THEREAFTER, IT HAS BEEN RESOLVED THAT THE BONUS/EX-GRATIA BE PAID AT THE SAME RATES IN THE INSTANT YEAR ALSO. UN DER THESE CIRCUMSTANCES, IN THE ABSENCE OF ANY OTHER CORROBORATIVE EVIDENCE LE D BY THE REVENUE, WE FIND THAT THE BOARD RESOLUTION NO 55 DATED 13.3.2007 HAS BEEN MERELY DISBELIEVED BY THE REVENUE AUTHORITIES WITHOUT DEMONST RATING ANY FALSITY IN THE SAME. THEREFORE, IN SO FAR AS THE BRIEFNESS OF THE BOA RD RESOLUTION NO 55 DATED 13.3.2007 IS CONCERNED, WE DO NOT FIND ANY MERI T IN THE OBJECTIONS RAISED BY THE REVENUE. 15. THE ONLY OTHER ASPECT TO BE SEEN AS TO WHETHER THE BOARD RESOLUTION NO 55 DATED 13.3.2007 CAN BE SAID TO HAVE CRYSTALLIZED THE LIABILITY FOR EX- GRATIA PAYMENT TO THE EMPLOYEES. IN OUR CONSIDERED OPI NION, THE ADOPTION OF THE RESOLUTION NO 55 BY THE BOARD OF DIRECTORS OF THE ASSESSEE BANK ON 13.3.2007 INVESTS THE ASSESSEE WITH THE LIABILITY TO PAY E X-GRATIA TO ITS EMPLOYEES. THE SAID RESOLUTION HAVING BEEN ADOPTED PR IOR TO THE CLOSE OF THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSI DERATION, IN OUR VIEW, IMPLIES THAT THE LIABILITY TOWARDS EX-GRATIA TO WARDS EMPLOYEES CRYSTALLIZED AND ACCRUED DURING THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR UNDER CONSIDERATION ITSELF. 16. FOR THE AFORESAID REASONS, WE THEREFORE, DEEM IT FIT AND PROPER TO SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APP EALS) AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION. THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS, AS ABOVE. 17 GROUND NO. 2 RELATES TO THE ADDITION OF RS 40,58, 000/- BEING PAYMENTS TOWARDS GRATUITY FUND. THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER FOR THE REASON THAT THERE WAS NO SEPARATE PROVISION MAD E FOR PAYMENT OF GRATUITY AND THE ASSESSEE COULD ONLY PRODUCE COPIES OF THE APPLICATION MADE FOR APPROVAL OF GRATUITY FUND AND NOT APPROVAL ORDE R. IT WAS ALSO POINTED OUT THAT THE IMPUGNED AMOUNT WAS DEBITED BY THE ASSESSEE TO RENT, RATES, TAXES. 18. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (A PPEALS), IT WAS CONTENDED BY THE ASSESSEE THAT IT MAINTAINED A GROUP GRA TUITY FUND WITH LIC OF INDIA, AND THAT LIC RAISED A DEMAND FOR RS 40,85,871/ - AS RENEWAL PREMIUM ON THE BASIS OF ACTUARIAL VALUATION. IT WAS FURTHER STAT ED THAT THE ASSESSEE HAD MADE AN APPLICATION FOR APPROVAL BEFORE THE COMMISSION ER OF INCOME-TAX ON 31.5.1995 ALONGWITH THE DEED OF VARIATION WHICH WAS S TILL PENDING. THE PLEA OF THE ASSESSEE WAS THAT EVEN A PROVISION MADE ON A SCIENTIFI C BASIS ON ACCOUNT OF GRATUITY IS AN ALLOWABLE DEDUCTION AS IT REPRESENTED A REAL LIABILITY. ACCORDING TO THE ASSESSEE, IT HAD NOT ONLY SET UP A TRUST BUT ALSO H AD APPLIED FOR APPROVAL IN TIME AND ACCORDINGLY PROVIDED FOR LIABILI TY OF GRATUITY AS DEMAND BY THE LIC AND ALSO PAID THE PREMIUM TOWARDS GRATUITY O N 26.4.2007. THE ASSESSEE ACCORDINGLY SUBMITTED THAT SUCH PAYMENT HAVING BEEN MADE BEFORE THE DUE DATE OF FILING OF RETURN AND WAS LIABLE TO B E ALLOWED AS A DEDUCTION UNDER SECTION 43B OF THE ACT. IT WAS THUS URGED THAT T HE ADDITION MADE ON ACCOUNT OF GRATUITY WAS NOT JUSTIFIED AND MAY BE DELETE D. 19. THE COMMISSIONER OF INCOME-TAX (APPEALS) CONSIDERED THE DETAILED SUBMISSIONS OF THE ASSESSEE AND FOUND NO SUBSTANCE THEREIN. A CCORDING TO HIM, IN THE ABSENCE OF APPROVAL FROM THE COMMISSIONER OF INCOME-TAX, THE GRATUITY FUND COULD NOT BE TREATED AS APPROVED GRATUI TY FUND AND, THEREFORE, THE PROVISION MADE TOWARDS SUCH UNAPPROVED GRATUITY FUN D COULD NOT BE ALLOWED AS A DEDUCTION UNDER SECTION 40A(7) OF THE ACT. HE ACCORDINGLY AFFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. AG AINST SUCH ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE IS IN FURTHE R APPEAL BEFORE US. 20. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE COMMISSIONER OF INCOME-TAX, KOLHAPUR VIDE ORDER DATED 15.11.2011 HAS SINCE GRANTED APPROVAL TO THE GRATUITY FUND OF THE ASSESSEE W .E.F. 25.4.1995, COPY OF WHICH IS PLACED ON RECORD, AND, THEREFORE, THE ASSESSEE WOULD BE SATISFIED IF THE ISSUE IS SENT BACK TO THE ASSESSING OFFICER WITH DIRECTION S TO ADJUDICATE THE ISSUE AFRESH IN THE LIGHT OF THE APPROVAL GRANTED BY T HE COMMISSIONER OF INCOME-TAX AND AS PER LAW. TO THIS PRAYER OF THE ASSESSEE , THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT RAISED ANY OBJECT ION. 21. IN VIEW OF THE ABOVE ADMITTED POSITION, WE SET ASI DE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS ASPECT AND R ESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO AD JUDICATE THE ISSUE AFRESH IN THE LIGHT OF THE APPROVAL GRANTED BY THE COMMISSIO NER OF INCOME-TAX AND AS PER LAW. NEEDLESS TO MENTION, THE ASSESSING OFFICER SHALL A FFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND THEREAF TER DECIDE THE ISSUE ACCORDING TO LAW. THE ASSESSEE SUCCEEDS ON THIS GROUND FOR ST ATISTICAL PURPOSES. 22. THE NEXT GROUND RELATES TO THE ADDITION OF RS 1,1 7,405/- MADE ON ACCOUNT OF UNCLAIMED CREDITORS. DURING THE COURSE OF ASSESSM ENT, THE ASSESSING OFFICER FOUND THAT THERE WAS A SURPLUS OF RS 1,17, 405/- ARISING OUT OF GOLD AUCTIONS ETC., CARRIED OUT BY THE ASSESSEE. THE CLAI M SET-UP BY THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE AUCTION WAS DONE IN ACCORDANCE WITH THE GUIDELINES OF THE RESERVE BANK OF IN DIA. THE ASSESSING OFFICER DID NOT ACCEPT THE SUBMISSION OF THE ASSESSEE AND D ISALLOWED THE CLAIM OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE FAILE D TO PRODUCE ANY RELEVANT DETAILS. DURING THE APPELLATE PROCEEDINGS BE FORE THE COMMISSIONER OF INCOME-TAX (APPEALS), IT WAS CLARIFIED BY THE ASSESSEE THAT ASSESSEE HAD GIVEN LOANS AGAINST OLD MORTGAGED ASSETS AND SOME OF THE LOANS REMAINED UNPAID, WHICH FORCED THE APPELLANT BANK TO SELL OFF T HE GOLD IN AUCTIONS WHICH WAS TAKEN AS SECURITY AGAINST LOAN AND THE AUCTION PROCEED S WERE CREDITED TO THE LOAN ACCOUNT AND THE SURPLUS/EXCESS WAS CREDITED TO THE CONCERNED PARTIES ACCOUNT UNDER THE HEAD CREDIT TO RESERVE FUND, WHICH WA S LIABLE TO BE REFUNDED TO THE RESPECTIVE BORROWER/CUSTOMER. ACCORDINGLY , IT WAS CONTENDED THAT SUCH AMOUNT DUE WAS IN THE FORM OF A LIABILITY O F THE ASSESSEE AND NOT INCOME BY WAY OF SURPLUS FROM AUCTION. THE COMMISSIONER OF INCOME-TAX (APPEALS), HOWEVER, DIS-AGREED WITH THE SUBMISSIONS OF TH E ASSESSEE AND HELD THAT THE SURPLUS WAS RECEIVED BY THE ASSESSEE IN THE COURSE OF ITS CARRYING ON OF THE BUSINESS OF ADVANCING LOANS AND THEREFORE, ANY SU RPLUS ARISING OUT OF SUCH ACTION, WHICH WAS NOT CLAIMED BY THE BORROWERS, WAS IN CIDENTAL TO THE BUSINESS OF THE ASSESSEE AND TAXABLE AS BUSINESS INCOME UNDER SECTION 28 OF THE ACT. HE ACCORDINGLY UPHELD THE ADDITION OF RS 1,17 ,405/- FOR THE REASON THAT THE UNCLAIMED SURPLUS ARISING OUT OF THE AUCTION OF TH E GOLD TAKEN AS SECURITY FROM THE BORROWERS WAS BUSINESS INCOME OF THE ASSESSEE. AGGR IEVED BY THIS ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSE E IS IN FURTHER APPEAL BEFORE US. 23. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT OF RS 1,17,405/- REPRESENTED UNCLAIMED CREDITORS RESERVE FUND FOR WHICH THE ASSESSEE HAD A LIABILITY TO PAY TO THE CREDITORS AS AND WH EN THEY ASKED FOR THE MONEY. THE LEARNED COUNSEL POINTED OUT THAT THE ASSESS EE HAD SOLD OFF BY WAYOF AUCTION GOLD WHICH WAS KEPT AS SECURITY FOR THE LOA NS TAKEN BY VARIOUS PEOPLE WHO WERE NOT REPAYING THE LOANS. THE AMOUNT R EALIZED BY THE ASSESSEE OVER AND ABOVE THE AMOUNT DUE FROM THE CREDITOR S WAS KEPT IN THE UNCLAIMED CREDITORS RESERVE FOUND AND IT IS POINTED OUT THAT OUT OF THE SAME, ASSESSEE HAS PAID 23,076/- IN THE SUBSEQUENT YEAR. THE LEARNED COUNSEL POINTED OUT THAT IN ANY CASE THE BA LANCE OF UNCLAIMED CREDITORS FUND OF RS 94,329/-, I.E. (RS 1,17,405/- MINU S RS 23,076/-) WAS A PART OF A SUM OF RS 14,25,276/- OFFERED FOR TAXATION IN THE ASSESSMENT YEAR 2009-10. IT WAS SUBMITTED THAT AFTER WAITING FOR A RE ASONABLE PERIOD THE UNCLAIMED BALANCES, INCLUDING BALANCE IN THE UNCLAIMED CRE DITORS RESERVE FUND HAS BEEN OFFERED BY THE ASSESSEE ITSELF AS INCOME IN THE ASSESSMENT YEAR 200-9 10 AND THEREFORE NO ADDITION IN THIS YEAR IS MA INTAINABLE. 24. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE APPEARING FOR THE REVENUE HAS JUSTIFIED THE ADDITION MADE BY PO INTING OUT THAT THE EXCESS SALE PROCEEDS OF THE SECURITIES SOLD WAS EARNED IN THE COUR SE OF BUSINESS AND, THEREFORE, THE AMOUNTS HAVE BEEN RIGHTLY TAXED. 25. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. TH E AMOUNT IN QUESTION IS A BALANCE LYING IN THE ACCOUNT UNCLAIMED CR EDITORS RESERVE FUND. THE ASSESSING OFFICER ADDED THE SAME AS AN INCOME ON THE GROUND THAT THE ASSESSEE WAS UNABLE TO PRODUCE ANY DETAILS REGARDING THE SA ME. BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), ASSESSEE SUBMITTED T HAT ASSESSEE HAD ADVANCED LOANS AGAINST MORTGAGE OF GOLD AND IN SOME CASES THE LOANS REMAINED UNPAID. IN SUCH CASES OF NON-PAYMENT, ASSESSEE SOL D OFF THE PLEDGED GOLD AND THE AUCTION PROCEEDS REALIZED IN EXCESS OF THE AMOUNTS DUE WAS CREDITED TO THE IMPUGNED RESERVE FUND. THE CLAIM OF THE ASSESSEE IS THAT THE SAID AMOUNT IS LIABLE TO BE REFUNDED TO RESPECTIVE BORROWERS/CUSTOMERS AND IN THAT REGARD IT HAS BEEN ASSERTED THAT A SUM OF R S 27,076/- HAS BEEN REFUNDED IN THE SUBSEQUENT FINANCIAL YEAR. IT IS ALSO T HE PLEA OF THE ASSESSEE THAT AFTER WAITING FOR A REASONABLE PERIOD THE ENTIR E BALANCE LYING IN THE IMPUGNED RESERVE FUND HAS BEEN OFFERED FOR TAXATION I N ASSESSMENT YEAR 2009-2010 AS A PART OF RS 14,25,376/-, DETAILS OF WHICH ARE STATED TO HAVE BEEN PLACED IN THE PAPER BOOK - 2 AT PAGES 124 TO 131 . IT IS POINTED OUT THAT THE SUM OF RS 14,25,376/- INCLUDES THE AMOUNT OF RS 94 ,329/- REMAINING UNPAID OUT OF RS 1,17,405/-. ON THIS ASPECT, WE ARE IN CLINED TO UPHOLD THE PLEA OF THE ASSESSEE THAT THE IMPUGNED AMOUNT IS NOT LIABLE TO BE ASSESSED AS INCOME IN THE YEAR UNDER CONSIDERATION. HOWEVER, THE P LEA OF THE ASSESSEE OF HAVING OFFERED THE REQUISITE SUM FOR TAXATION IN THE ASSESSMENT YEAR 2009-10 IS LIABLE TO BE VERIFIED BY THE ASSESSING OFFICER. IN CASE IT IS FOUND THAT THE UNCLAIMED BALANCE REMAINING OUT OF RS 1,17,405/- HAS BE EN OFFERED FOR TAXATION IN THE ASSESSMENT YEAR 2009-10 NO ADDITION SHA LL BE MAINTAINABLE IN THIS YEAR. IF THE ASSESSING OFFICER IS NOT SATISFIED, THEN HE SHALL BE AT LIBERTY TO TAKE A VIEW AS PER LAW. NEEDLESS TO MENTION, WHILE CARRY ING OUT THIS EXERCISE, THE ASSESSING OFFICER SHALL GIVE A REASONABLE OPPORTUNITY TO THE ASSESSEE FOR PRESENTING ITS CASE AND THEN DECIDE THE ISSUE AS PER LAW. T HUS, ON THIS GROUND ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 26. THE NEXT GROUND IS WITH REGARD TO THE ADDITION O F RS 14,00,000/- ON ACCOUNT OF CONTINGENT PROVISION FOR STANDARD ASSETS. THE ASSE SSING OFFICER DISALLOWED THE PROVISION ON THE GROUND THAT SUCH LIABIL ITY WAS OF UNASCERTAINED NATURE AND A CONTINGENT LIABILITY. IN APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS), IT WAS SUBMITTED BY THE ASSESSEE THA T THE STATED PROVISION WAS MADE FOR STANDARD ASSETS AS PER THE GUIDELI NES ISSUED BY THE RBI VIDE CIRCULARS DATED 9.4.1999, 2.12.1999 AND 10.5 .2000 AND THAT SUCH DIRECTIONS OF THE RBI WERE BINDING ON THE ASSESSEE AS HELD BY THE HONBLE UTTARANCHAL HIGH COURT IN THE CASE OF CIT V. NAINITAL BANK LTD. 309 ITR 335 (UTTARANCHAL). THE COMMISSIONER OF INCOME-TAX (APPEAL S) REJECTED THE SUBMISSIONS OF THE ASSESSEE. ACCORDING TO HIM, THE SUBMISSION OF THE ASSESSEE WAS NOT LEGALLY SUSTAINABLE AND THE ISSUE IN APPEAL STOOD COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE C ASE OF SOUTHERN TECHNOLOGIES LTD. V. JT. CIT 320 ITR 577 (SC). HE FUR THER HELD THAT AS THE AMOUNT CLAIMED WAS NOT FOR AN ASCERTAINED LIABILITY, IT COULD NOT BE ALLOWED UNDER SECTION 37 OF THE ACT. THE COMMISSIONER OF INCOME-T AX (APPEALS) ACCORDINGLY AFFIRMED THE ACTION OF THE ASSESSING OFFICER AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 27. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CLAIM IN QUESTION IS ON ACCOUNT OF A PROVISION MADE FOR STANDARD A SSETS AS PER THE PREVAILING RBI GUIDELINES. THE LEARNED COUNSEL POINT ED OUT THAT IN TERMS OF THE GUIDELINES, THE ASSESSEE BANK HAD PREPARED A STATEMENT OF STANDARD ASSETS, SUBSTANDARD ASSETS, ETC. AND MADE A PROVISION IN THE BOO KS OF ACCOUNT. IT WAS SUBMITTED THAT THE DIRECTIONS OF RBI IN THE FORM OF PRUDENTIAL NORMS WAS MANDATORY AND, THEREFORE, THE PROVISIONS MADE IN PURSU ANCE OF THE SAME CONSTITUTED AN ALLOWABLE EXPENDITURE. IN THIS REGARD, RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE UTTARANCHAL HIGH COURT I N THE CASE OF NAINITAL BANK LTD. (SUPRA) WHEREIN THE BINDING NATURE OF THE RBI GUIDELINES HAVE BEEN APPRECIATED AND THE PROVISION CREATED ON THAT BASIS WAS F OUND TO BE ALLOWABLE EXPENDITURE. 28. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESEN TATIVE POINTED OUT THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) MADE NO M ISTAKE IN DISALLOWING THE IMPUGNED CLAIM FOLLOWING THE SUBSEQUEN T JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOL OGIES LTD (SUPRA). 29. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. I N OUR VIEW, THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS CORRECTLY APPRECIA TED THE POSITION AND SUSTAINED THE DISALLOWANCE FOLLOWING THE JUDGMENT OF THE HONBLE SUPREME COURT THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA). THE HONBLE SUPREME COURT HAS CLEARLY POINTED OUT THAT CLAIM FOR D EDUCTION OF AN EXPENDITURE IS LIABLE TO BE GOVERNED BY THE PROVISION S OF THE ACT AND NOT MERELY ON ACCOUNT OF THE RBI GUIDELINES. IN OUR VIEW, THE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT THE CASE OF SOUTHERN TE CHNOLOGIES LTD. (SUPRA) CLEARLY APPLIES TO THE PRESENT CASE AND THE CLAIM OF THE ASSESSEE HAS BEEN RIGHTLY REJECTED BY THE LOWER AUTHORITIES. THUS, ON TH IS GROUND, ASSESSEE HAS TO FAIL. 30. THE NEXT GROUND RELATES TO AN ADDITION OF RS 15, 00,000/- ON ACCOUNT OF GAT SACHIV SALARIES. THE ASSESSING OFFICER DISALLOWED THE E XPENDITURE OF RS 15,00,000/- BY OBSERVING THAT NO SUCH SALARY HAS BEEN D EBITED TO THE PROFIT & LOSS ACCOUNT, BUT WAS DEBITED TO GAT SACHIV SALARY DEFI CIT PAYABLE ACCOUNT APPEARING UNDER CURRENT/OTHER LIABILITIES. BEFORE TH E COMMISSIONER OF INCOME- TAX (APPEALS), THE ASSESSEE EXPLAINED THAT GAT SACHIVS WE RE PERSONS WHO ASSISTED THE BANK FOR RECOVERY OF CUSTOMER OVERDUES, AND SAL ARIES WERE PAID TO THEM AS PER THE DIRECTIONS OF THE STATE GOVERNMENT AND DULY AUTHORIZED BY BOARD RESOLUTION OF THE ASSESSEE BANK. IT WAS FURTHER CLA IMED THAT THE IMPUGNED EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS AND WAS INCURRED DURING THE YEAR UNDER APPEAL AND AS SUCH, THE SAID EXPENDITURE WAS ALLOWABLE. THE COMMISSIONER OF INCOME-TAX (APPEALS) AFF IRMED THE ADDITION MADE BY THE ASSESSING OFFICER. ACCORDING TO HIM, THE ASSESSEE WAS SILENT ON THE ISSUE RAISED BY THE ASSESSING OFFICER THAT THE AMOUNT WAS NOT DEBITED TO THE PROFIT & LOSS ACCOUNT BUT TO THE GAT SACHIV SALARY DEFICIT ACCOUNT, WHERE THERE WAS OPENING BALANCE OF RS 25 LAKHS. BEING AGGRIEVE D, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 31. BEFORE US, LEANED COUNSEL FOR THE ASSESSEE HAS FURNI SHED A WRITTEN NOTE EXPLAINING THE FACTUAL ASPECTS OF THE CLAIM, WHI CH IS AS UNDER: THE GAT SACHIVS ARE FROM ZILLA CADRE OF SECRETARIE S. THEY ARE IN THE EMPLOYMENT OF ZILLA SAHAKARI DEKHREKH SOCIETY. THE INCOME OF THIS MANAGEMENT SOCIETY IS FROM THE CONTRIBUTION OF RS @ 1.75% OUTSTANDING AGRICULTURAL LOANS GIVEN TO VARIOUS VIKAS CO- OP. SOCIETIES AT VILLAGE LEVEL BY THE DIST. CENTRAL CO-OP. BANK. A SINGLE GAT SACHIV IS ENTRUSTED WITH THE WORK OF 2 OR 3 VILLAGE VIKAS SOC IETIES AND LOOKS AFTER THE DOCUMENTATION OF THE LOANS TO BE OBTAINED BY THE VI KAS SOCIETIES FROM THE DIST. CENTRAL BANK AND DISBURSEMENT THEREOF TO THE MEMBER S OF THE VIKAS SOCIETY AND ALSO SEES THAT THE LOANS ARE REPAID BY THE MEMBERS TO TH E VIKAS SOCIETIES AND IN TURN, THE LOANS ARE TIMELY REPAID BY THE SOCIETIES TO THE BAN K. THUS, THE WORK BY THE GAT SACHIVS INDIRECTLY BENEFITS THE BANK IN RECOVERIES OF ITS LOANS. THE STATE DEPARTMENT OF CO-OPERATION HAS ISSUED A CIRCULAR DIRECTING THE ZI LLA CENTRAL CO-OP. BANK TO BEAR THE DEFICIT BETWEEN THE INCOME OF THE DEKAHREKH SOCIETY AND THE SALARIES PAID TO THE GAT SACHIVS (OPERATIVE AND TEXTILE DEPTS CIRCULAR WITH ENGLISH TRANSLATION ENCLOSED AT PAGES 64 TO 69 OF PAPER BOOK 1) AND COPY OF THE RUL ES OF DEKHAREKH SOCIETY WITH TRANSLATION OF THE RELEVANT RULE ARE PLACED AT PAGE S 143 TO 146 OF PAPER BOOK NO. 2). DETAILS OF PROVISIONS MADE IN EARLIER YEARS ARE PLA CED AT PAGE 147 OF THE PAPER BOOK NO. 2. A COPY OF THE GOVT. OF MAHARASHTRA AGRI. & CO-OPERATION DEPARTMENTS NOTIFICATION PRESCRIBING CONTRIBUTION @ 1.75% OF TH E OUTSTANDING AGRICULTURAL LOANS IS PLACED AT PAGES 148 TO 151 OF PAPER BOOK 2 (SEE PAR A 9(II)). THE AMOUNT OF RS 15,00,000/- WAS DEMANDED BY THE DEKHAREKH SOCIETY AS PER ITS DEMAND LETTER DATED 7.4.2006 (COPY ENCLOSED AT PAGES 152 TO 153 OF THE PAPER BOOK NO. 2). ON RECEIPT OF THIS DEMAND, THE ASSESSEE ACCEPTED THE LIABILITY TO PAY THE DEMANDED SUM OF RS 15 LAKH BY PASSING A RESOLUTION NO 31 DATED 17.7.2006. (COPY WITH ENGLISH TRANSLATION OF THE RESOLUTION PLACED AT PAGES 70 TO 72 OF PAPER BO K NO.1). IT WOULD BE APPARENT FROM THE RESOLUTION THAT THE LIABILITY TO PAY THIS AMOUNT WAS ACCEPTED DURING THE FY 2006-07 AND HENCE THE LIABILITY ACCRUED IN THAT FY RELEVANT TO AY 2007-08. THE AMOUNT WAS PAID ON 25.7.2006. FOR THIS PROPOSITION, RELIANCE IS PLACED ON THE ITAT, PUNES DECISION IN THE CASE OF DUDHGANGA VEDGANGA S SK LTD COPY PLACED AT PAGE 5 TO 12 OF PAPER BOOK NO. 1 SEE PARA 7 TO 9 OF TH E ORDER). IT WOULD BE ALSO APPARENT THAT THE PROVISION OF RS 25 LACS AVAILABLE AS ON 1. 4.2006 WAS FOR LIABILITIES OF YEARS EARLIER TO FY 2006-07. THE LIABILITY OF RS 15,00,00 0/- ACCRUED IN FY 2006-07 AND THEREFORE, THOUGH IT MAY HAVE BEEN PAID BY DEBIT TO THE EARLIER AVAILABLE PROVISION, IT IS LEGALLY AN EXPENDITURE OF THE FY 2006-07 AND HENCE MAY BE ALLOWED AS ADMISSIBLE DEDUCTION FOR ASSESSMENT YEAR 2007-08. 32. IN SUM AND SUBSTANCE, THE PLEA OF THE ASSESSEE IS THA T THE SUM OF RS 15,00,000/- BE ALLOWED A DEDUCTION ON ACCRUAL BASIS IND EPENDENT OF THE EARLIER AVAILABLE PROVISION. AS PER THE ASSESSEE, WHEN THE EARLIER PROVISION OF RS 25 LAKHS IS FOUND TO BE NOT REQUIRED OR IN EXCESS, THE RECOURSE IS TO DISALLOW A PARTICULAR CLAIM IN RESPECTIVE YEAR, BUT NOT TO DISAL LOW THE CLAIM OF RS 15 LAKHS WHICH PERTAINS TO THE CURRENT ASSESSMENT YEAR. 33. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE DEFENDED THE ACTION OF THE LOWER AUTHORITIES BY PLACING RELIANCE ON THE RESPECTIVE ORDERS. 34. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUB MISSIONS. H AVING REGARD TO THE FACTUAL MATRIX, IN PRINCIPLE, NO FAULT CAN BE FOU ND WITH THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF SALARIES TO GAT SACHIVS. SO, HOWEVER, THE ALLOWABILITY OF THE SUM OF RS 15 LAKHS IN QUESTION HAS A DIFFERENT ANGLE. THE REVENUE HAS POINTED OUT THAT THE ASSESSEE HAS THE BALANC E LYING IN THE PROVISION OF RS 25 LAKHS ON ACCOUNT OF GAT SACHIV SALARIES, WHICH IS BROUGHT FORWARD FROM PRECEDING YEARS. IN THE CURRENT YEAR, WH EN A DEMAND OF RS 15 LAKH HAS BEEN RAISED AGAINST THE ASSESSEE, THE ASSESSEE ACCEPT ED THE SAME AND DEBITED IT TO THE PROVISION ALREADY MADE IN THE BOOKS OF ACCOUNT IN EARLIER YEARS. THE EXPENDITURE OF RS 15 LAKHS WAS THUS NOT CLAI MED IN THE PROFIT & LOSS ACCOUNT AND THE SAME HAS BEEN CLAIMED FOR THE PURPOS ES OF INCOME-TAX ONLY IN THE COMPUTATION OF INCOME ANNEXED TO THE RETU RN OF INCOME. AS PER THE ASSESSEE, THE CLAIM OF RS 15 LAKHS SHOULD BE ALLOWED AS SUCH, INDEPENDENT OF THE PROVISION OF RS 25 LAKHS AVAILABLE. IN OUR VIEW, T HE CLAIM OF THE ASSESSEE IS QUITE MIS-PLACED, INASMUCH AS THERE IS NO ASSERTION BY T HE ASSESSEE AT ANY STAGE THAT THE PROVISION OF RS 25 LAKHS CREATED IN THE PR ECEDING YEARS WAS DISTINCT OR DIFFERENT FROM THE DEMAND OF RS 15 LAKHS NOW RAISED AGAINST THE ASSESSEE BY DEKHAREKH SOCIETY. THEREFORE, IN THE ABSENCE OF ANY MATERIAL TO CLARIFY THE AFORESAID POSITION, WE FIND OURSELVES IN AGR EEMENT WITH THE AUTHORITIES BELOW THAT THE CLAIM OF THE ASSESSEE IS NOT J USTIFIED. THE ASSESSEE THUS FAILS ON THIS GROUND. 35. THE ONLY OTHER GROUND PRESSED BY THE LEARNED COU NSEL RELATES TO CHARGING OF INTEREST UNDER SECTION 234A AND 234B BEING CONSEQUENTIAL, NO DECISION IS REQUIRED. 37. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED. DECISION PRONOUNCED IN THE OPEN COURT ON 2 ND DAY OF MARCH, 2012. SD/- SD/- (I C SUDHIR) (G.S . PANNU) JUDICIAL MEMBER ACCOUNTANT MEMB ER PUNE, DATED 2 ND MARCH, 2012 B COPY TO:- 1) THE SINDHUDURG DIST. CENTRAL CO-OP BANK LTD, KUD AL 2) ITO WD 2(4) KUDAL 3) THE CIT (A), KOLHAPUR 4 THE CIT-II KOLHAPUR 5) DR, A BENCH, I.T.A.T., PUNE. 6) GUARD FILE TRUE COPY BY ORDER SR. PS, ITAT PUNE