DCIT, Circle-1(1), Hyderabad V. M/s. Andhra Bank, Hyderabad

ITA 630/HYD/2012

• Counselvise Citation: 63022514 RSA 2012
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 27-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: SRHI S ANANTHAM
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Retrospective amendment; Question of law; Bad and doubtful debts; Revised return
• Section: 43B; 14A; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 630/HYD/2012 ASSESSMENT YEAR : 2007-08 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(1), HYDERABAD. VS. ANDHRA BANK LTD., HYDERABAD. PAN: AAACN7323G (APPELLANT) (RESPONDENT) AND ITA NO. 715/HYD/2012 ASSESSMENT YEAR : 2007-08 ANDHRA BANK LTD., HYDERABAD. PAN: AAACN7323G VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 1(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SRHI S. ANANTHAM & SMT. LALITHA RAMESWARAN REVENUE BY : SHRI P. SOMA SEKHAR REDDY DATE OF HEARING : 03 -10- 2013 DATE OF PRONOUNCEMENT : 04 -10- 2013 O R D E R PER B. RAMAKOTAIAH, A.M.: THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF CIT(A)-II, HYDERABAD DATED 08/20/2012 FOR THE AY 2007-08. WE H AVE HEARD THE LD. AR OF THE ASSESSEE AND LD.CIT DR AND PERUSED TH E PAPER BOOKS PLACED ON RECORD. 2 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. ITA NO. 630/H/12 BY REVENUE REVENUE HAS RAISED FOUR GROUNDS IN I TS APPEAL. 2. GROUND NOS. 2 & 3 ARE PERTAINING TO DEPRECIATION ON HTM INVESTMENTS OF RS. 293,31,88,038/-. THE AO DISALLOW ED THE SAID DEPRECIATION CLAIM OF THE ASSESSEE ON THE GROUND TH AT THE CLAIM WAS NOT ROUTED THROUGH P&L ACCOUNT BUT A CLAIM WAS MADE IN RESPECT OF DEPRECIATION ON HTM CATEGORY THROUGH A NOTE AND THE REFORE IS NOT ALLOWABLE EXPENDITURE AS PER THE PROVISIONS OF IT A CT FOLLOWING CBDT CIRCULARS,CASE LAWS RELIED UPON BY THE ASSESSEE, RE LEVANT ACCOUNTING STANDARDS, RBI GUIDELINES AND ACCOUNTING PRINCIPLES . 3. ON APPEAL, THE CIT(A) FOLLOWING HIS PREDECESSOR S DECISION IN AY 2005-06, SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO ASCERTAIN THE FACTS AND ALLOW DEPRECIATION ACCOR DINGLY. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CANVASSED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2006-07 IN ITA NO. 97/HYD/2010 VIDE ORDER DATED 04/04/2013. THE LEARNED DR NEITHER CONTROVERTED THE SUBMISSION OF THE LEARNED COUNSEL NOR BROUGHT ANY C ONTRARY DECISION ON RECORD AGAINST THE SAID ORDER. 5. AFTER HEARING THE PARTIES AND PERUSING THE RECOR D, WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED B Y THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN ASSESSEE S OWN CASE FOR AY 2006-07 WHEREIN THE COORDINATE BENCH HELD AS FOL LOWS: 50. WE ARE OF THE OPINION THAT THE ASSESSEE BANK IS HOLDING VARIOUS GOVERNMENT SECURITIES IN ORDER TO COMPLY WITH THE STATUTORY LIQUIDATED RATIO. THE BANK WOULD HAVE TO HOLD REQUISITE PERCENTAGE OF DEPOSITS IN THE FORM OF CASH, GOLD, GOVERNMENT OR APPROVED SECURITIES. THE GOVERNMENT SECURITIES 3 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. HELD FOR THE PURPOSE OF COMPLY WITH THE SLR HAS BEEN HELD TO BE STOCK IN TRADE AND THEREFORE VALUE OF THE SAME AS ON 31 ST MARCH HAS TO BE MADE AND THERE IS ANY DEPRECIATION THE SAME SHOULD BE ALLOWED AS A REVENUE DEDUCTION. HOWEVER, THE RBI HAS ISSUED CIRCULAR WHEREIN THEY HAVE CLASSIFIED THE INVESTMENT MADE TO COMPLY WITH SLR REQUIREMENT AS `HELD TO MATURITY (HTM), `AVAILABLE FOR SALE (AFS) AND `HELD FOR TRADE (HFT). BASED ON THE RBI CIRCULAR LOWER AUTHORITIES CAME TO THE CONCLUSION THAT INVESTMENT IN GOVERNMENT SECURITIES WHICH ARE CLASSIFIED UNDER THE HEAD HTM CANNOT BE CONSIDERED AS STOCK IN TRADE AND THEREFORE DEPRECIATION IN VALUE OF SUCH SECURITIES CANNOT BE ALLOWED AS A DEDUCTION. THE APEX COURT IN THE CASE OF UCO BANK LTD VS CIT REPORTED IN 240 ITR 355 HAS HELD THAT VALUE OF THE SECURITIES AT COST OR MARKET VALUE WHICHEVER IS LES S SHOULD BE ACCEPTED FOR INCOME TAX EVEN IF THE BANKS IN THEIR BOOKS DO NOT VALUE ON THAT BASIS. THEREFORE, IT IS AN ACCEPTED PROPORTION THAT INVESTMENT MADE BY THE BANK TO COMPLY WITH THE SLR REQUIREMENT WOULD CONSTITUTE THEIR STOCK IN TRADE AND DEPRECIATION IN VALUE OF THE SAME IS AN ALLOWABLE DEDUCTION. 51. RESPECTFULLY FOLLOWING THE DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE UPHOLD THE CLA IM OF THE ASSESSEE AND DIRECT THE AO TO ALLOW DEPRECIATIO N / FALL IN VALUE OF INVESTMENT IN GOVERNMENT SECURITIES INC LUDING THOSE CLASSIFIED UNDER HTM CATEGORY. NO DOUBT THE V ALUE IN OPENING STOCK IN THE NEXT YEAR WOULD CORRESPONDINGL Y BE ADJUSTED. THIS ISSUE IS DECIDED IN FAVOUR OF THE A SSESSEE. 6. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF AY 2006-07 IN ASSESSEES OWN CASE, RESPECTFULLY FOL LOWING THE SAME WE UPHOLD THE DIRECTIONS OF LD.CIT(A) WITH A D IRECTION TO AO TO FOLLOW THE SAME IN THIS YEAR ALSO AS PER THE ORDER OF ITAT SUPRA.. ACCORDINGLY, GROUND NO. 2 RAISED BY TH E REVENUE IS DISMISSED. 4 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. 7. GROUND NO.4 IS PERTAINING TO THE BROKEN PERIOD I NTEREST. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSESSEE BANK HAD BEEN PAYING BROKEN PERIO D INTEREST ON PURCHASE OF SECURITIES AND CLAIMED THE SAME AS A DEDUCTION FROM THE INTEREST INCOME EARNED. THE AO D ISALLOWED THE BROKEN PERIOD INTEREST, INCURRED AT THE TIME OF PURCHASE OF SECURITIES IN RESPECT OF HTM CATEGORY, AMOUNTING TO RS. 33,40,84,583/- ON THE GROUND THAT HTM CATEGORY OF S ECURITIES ARE CAPITAL ASSETS. THE CIT(A) FOLLOWING HIS PREDE CESSORS ORDER IN AY 2005-06, DIRECTED THE AO TO DELETE THE SAID DISALLOWANCE. 8. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO ORDINATE BENCH OF ITAT IN ASSESSEES OWN CASE FOR AY 2006-07 (SUPRA). THE LEARNED DR HAS NOT OBJECTED TO THE FACTS AVAILA BLE ON RECORD. 10. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIE S AND PERUSING THE RECORD, WE FIND THAT THE ISSUE IN DISP UTE IS COVERED BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2006-07 WHEREIN THE COORDINATE BENC H HELD AS FOLLOWS: 55. EARLIER IN THE ORDER WHILE CONSIDERING THE ALL OWABILITY OF DEPRECIATION OR REDUCTION IN VALUATION OF THE GO VERNMENT SECURITIES HELD TO COMPLY WITH THE SLR RATIO, WE HA VE HELD THAT THE ENTIRE SUCH INVESTMENT IN ORDER TO COMPLY WITH SLR WOULD CONSTITUTE STOCK IN TRADE AND CLASSIFICATION OF THESE ASSETS BY THE RBI IS NOT BINDING ON THE INCOME TAX AUTHORITIES. SUCH CLASSIFICATION WOULD NOT ALTER TH E CHARACTERISTIC OF THE INVESTMENTS TO COMPLY WITH SL R REQUIREMENT AS STOCK IN TRADE. 5 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. 56. AS HELD BY THE SUPREME COURT IN THE CASE OF SOU THERN TECHNOLOGIES LTD V JCIT (320 ITR577), DIRECTIONS OF THE RBI ARE NOT BINDING FOR DECIDING THE ISSUE UNDER THE IN COME TAX ACT. SECURITIES WHICH ARE HELD FOR COMPLY WITH SLR HAS CONSISTENTLY BEEN HELD TO BE STOCK IN TRADE. THAT B EING SO THERE CAN BE NO FURTHER DISTINCTION AND NO PART SUC H HOLDING WILL CEASE TO BE STOCK IN TRADE MERELY BECAUSE RBI HAS CLASSIFIED THE SAME AS `HELD TO MATURITY. 57. THE BOMBAY HIGH COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL LTD VS CIT REPORTED IN 258 IT R 601 (BOM) AND THE MADRAS HIGH COURT IN THE CASE OF KARU R VYSYA BANK LTD IN TC(A) NO 2139 OF 2009 DATED 13.07 .2007 HAS HELD THAT THE BROKEN PERIOD INTEREST INCLUDED I N THE PURCHASE PRICE OF GOVERNMENT SECURITIES HELD BY THE BANKING COMPANY TO COMPLY WITH SLR REQUIREMENT IS ENTITLED TO DEDUCTION. 58. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE ASSESSING OFFICER TO ALLOW A SUM OF RS.5,07,02,515/ - BEING BROKEN PERIOD INTEREST (NET) INCLUDED IN THE PURCHA SE VALUE OF HTM SECURITIES AS REVENUE DEDUCTION. THE ASSESSE E APPEAL ON THIS ISSUE IS ALLOWED. 11. AS THE ISSUE UNDER CONSIDERATION IS IDENTICAL T O THAT OF AY 2006- 07, FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THAT YEAR, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND DI SMISS THE GROUND NO. 4 OF THE REVENUE. 12. GROUND NO. 1 IN REVENUES APPEAL AND GROUND NO. 5 IN ASSESSEES APPEAL ARE PERTAINING TO DISALLOWANCE U/ S 14A OF THE ACT. 13. THE AO FOUND THAT THE ASSESSEE HAD CLAIMED RS. 18,84,25,249/- AS EXEMPT INCOME AND THE ASSESSEE CONSIDERED ONLY RS. 28,19,221/- FOR DISALLOWANCE IN RESPECT OF EXPENDITURE RELATING TO THE EXEMPTED INCOME. THE A O NOTED THAT THE ASSESSEE HAD CONSIDERED ONLY TWO MONTHS SA LARY OF 6 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. THE ASSESSEE-BANKS INVESTMENT DEPARTMENT FOR DISAL LOWANCE EVEN THOUGH THERE WAS EXPENDITURE INCURRED IN RELAT ION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME AS INTEREST E XPENSES WHICH IS INDIRECTLY ATTRIBUTABLE TO EARNING OF SUCH INCOME. THEREFORE, THE AO HAD APPLIED RULE 8D OF THE IT RUL ES AND COMPUTED THE DISALLOWANCE WHICH WORKED OUT TO RS. 24,82,31,316/-, AFTER REDUCING RS. 28,19,221/- OF DISALLOWANCE MADE BY THE ASSESSEE. 14. ON APPEAL, THE CIT(A) OBSERVED THAT AN IDENTICA L ISSUE WAS INVOLVED IN THE EARLIER ASSESSMENT YEARS FROM 2 000-01 TO 2005-06 AND HIS PREDECESSOR HAD CONFIRMED THE DISAL LOWANCE MADE BY THE AO, BUT, FOR THE YEAR UNDER CONSIDERATI ON, THE AO HAD APPLIED RULE 8D FOR THE COMPUTATION OF DISAL LOWANCE U/S 14A. SINCE RULE 8D WILL BE APPLICABLE IN THE AY 2008-09 AND IS NOT WITH RETROSPECTIVE EFFECT AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GODREJ BOY CE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81, THE CIT(A) HEL D THAT THE APPLICATION OF RULE 8D FOR CALCULATION OF DISALLOWA NCE U/S 14A DONE BY THE AO WAS NOT PROPER. CIT(A) THEREFORE DI RECTED THE AO TO RECALCULATE THE DISALLOWANCE U/S 14A BY OBSER VING AS UNDER: IT IS AN ADMITTED FACT THAT THERE WOULD BE CERTAIN PORTION OF ADMINISTRATIVE COSTS/OPERATING EXPENDITU RE ATTRIBUTABLE TO INCOME EXEMPT AND OTHER ACTIVITIES RELATING TO EARNING OF SUCH EXEMPT INCOME. IN THE A YS 2000-01 TO 2005-06, THE AO MADE THE DISALLOWANCE USING THE FORMULA TAX FREE INCOME/GROSS INCOME X INTEREST PAID ON LOANS, WHICH HAS BEEN CONFIRMED BY MY PREDECESSOR. THEREFORE, FOR THIS YEAR ALSO FOLLOWIN G THE DECISION OF MY PREDECESSOR, THE AO IS DIRECTED TO RECALCULATE THE DISALLOWANCE U/S 14A BY APPLYING TH E SAME FORMULA TO THE FACTS OF THE CASE. 7 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. 15. AGAINST THE SAID ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US CONTENDING THAT THE CIT(A) ERRED IN LAW I N STATING THAT CIT(A) IN ASSESSMENT YEARS 2000-01 TO 2005-06 DIREC TING THE AO TO RECALCULATE THE DISALLOWANCE U/S 14A OF THE ACT IN RESPECT OF DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE COSTS/OPE RATING EXPENDITURE ATTRIBUTABLE TO INCOME EXEMPT BASED ON THE SAID FOR MULA, AS THE CIT(A) IN THE SAID ASSESSMENT YEARS DID NOT DIRECT THE AO TO FOLLOW THE ABOVE FORMULA FOR COMPUTING THE AMOUNT DISALLOW ABLE FOR EARNING TAX FREE INCOME BUT DIRECTED THAT ONLY 2 MONTHS SAL ARY OF OFFICERS AND STAFF IN THE INVESTMENT DIVISION OF THE BANK BE DIS ALLOWED AS INCURRED FOR EARNING TAX FREE INCOME. 16. REVENUE ALSO IS IN APPEAL BEFORE US ON THIS ISS UE AGAINST THE ORDER OF THE CIT(A). 17. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINA TE BENCH IN ITA NO. 218/HYD/2010 VIDE ORDER DATED 04/04/2013 IN ASS ESSEES OWN CASE FOR AY 2006-07. 18. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT IN AY 2006-07 IN ASSESSEES OWN CASE THE COORD INATE BENCH HELD AS FOLLOWS: 69. IT IS THE CONTENTION OF THE ASSESSEE THAT THE E NTIRE INVESTMENT OF TAX FREE SECURITIES WERE MADE OUT OF INTEREST FREE FUNDS. THEY RELIED ON THE DECISIONS OF MUNJAL SALES CORPORATION V CIT (298 ITR 298 SC): CIT V RELIANCE UTILITIES &POWER LTD ( 313 ITR 340 BOM). IT HAS BEEN HELD IN THESE DECISIONS THAT WHEN THE ASSESSEE HAS SUFFICIENT INT EREST FREE FUNDS, THE INVESTMENTS SHOULD BE CONSIDERED TO HAVE BEEN MADE OUT OF THOSE FUNDS AND NOT INTEREST BEARI NG BORROWALS. IT IS ONLY WITH THE INTRODUCTION OF RULE 8D, INTEREST EXPENDITURE WAS APPORTIONED ON THE BASIS O F INVESTMENT, EVEN THOUGH THERE WAS NO DIRECT NEXUS B ETWEEN THE BORROWALS AND THE INVESTMENTS. RULE 8D IS NOT APPLICABLE TO THE AY UNDER APPEAL ( GODREJ & BOYCE MFG CO LTD (328 ITR 81 BOM). HOWEVER IT WAS HELD BY THE B OMBAY 8 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. HIGH COURT A REASONABLE AMOUNT SHOULD BE DISALLOWED UNDER 14A. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDE R OF THE CIT(A) DELETING THE DISALLOWANCE OF INTEREST DISALL OWANCE OF RS.30,47,08,129/- U/S 14A. 70. AS REGARDS DISALLOWANCE OF ADMINISTRATIVE , THE CIT(A) UPHELD THE DISALLOWANCE OF RS. 3,17,01,996/- AT 5% OF THE TAX EXEMPT INCOME. WE HAVE HELD IN THE APPEAL BY THE AS SESSEE THAT THEIR CONTENTION THAT NO EXPENSES WERE INCURRE D CANNOT BE ACCEPTED. THE EXPENDITURE TO BE DISALLOWED IS TO BE NECESSARILY TO BE MADE ON AN ESTIMATE BASIS. WE FIN D THAT THE DELHI HIGH COURT IN THE CASE OF CIT VS. ORIENT AL STRUCTURAL ENGINEERS PVT. LTD., IN ITA NO. 605 OF 2 012 DATED 15 TH JANUARY, 2013 HAS UPHELD THE DISALLOWANCE OF REASONABLE AMOUNT BASED ON THE FACTS OF THE CASE. W E FOLLOW THE SAID DECISION OF THE DELHI HIGH COURT AN D REDUCE THE DISALLOWANCE TO 2% EXPENDITURE AS RELATING TO E ARNING OF THE EXEMPTED INCOME U/S 14A, WHICH HAS BEEN ALREADY DECIDED IN THE ASSESSEES APPEAL IN ITA 97/H/10 S UPRA. IN VIEW OF THIS DECISION THE APPEAL BY THE REVENUE FOR A HIGHER DISALLOWANCE U/S 14A IS PARTLY ALLOWED. 19. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT T HE AO TO RESTRICT THE DISALLOWANCE TO 2% OF THE INCOME CLAIMED EXEMPT AS RELATING TO EARNING SUCH INCOME. ACCORDINGLY, THE ASSESSEE GROU ND IS TREATED AS PARTLY ALLOWED, WHERE AS REVENUE GROUND IS DISMISSE D.. 20. IN THE RESULT, APPEAL OF THE REVENUE BEING 630/ HYD/12 IS DISMISSED. ITA NO. 715/H/12 APPEAL BY THE ASSESSEE 21. GROUND NO. 1 IS GENERAL IN NATURE. GROUND NO 5 IS ALREADY DEALT WITH IN REVENUE APPEAL. GROUND NO. 2 IS PERTAINING TO THE DISALLOWANCE U/S 35D OF THE ACT. 22. THE ASSESSEE IN ITS RETURN OF INCOME FOR AY 200 7-08 CLAIMED DEDUCTION OF ONE-FIFTH OF THE EXPENSES IN CONNECTIO N WITH THE PUBLIC 9 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. ISSUE U/S 35 OF THE IT ACT. FROM THE COMPUTATION OF INCOME ANNEXED TO THE RETURN, THE AO NOTICED THAT THE ASSESSEE HAD REDUCED A SUM OF RS. 3,64,08,364/- TOWARDS CLAIM U/S 35D STATING THA T DEDUCTION CLAIMED U/S 35D IN RESPECT OF AMORTIZATION OF PUBLI C ISSUE EXPENSES INCURRED IN CONNECTION WITH THE ISSUE OF THE SHARES . THE AO AFTER ANLAYSING THE ISSUE BY REFERRING TO THE PROVISIONS OF SECTION 35D, CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FOL LOWING THE DECISION OF THE CIT(A) IN ASSESSEES OWN CASE IN EA RLIER ASSESSMENT YEARS AS WELL AS THE DECISION OF THE ITAT IN AY 200 1-02 TO 2004-05 WHEREIN THE ACTION OF THE AO WAS UPHELD BY THE AUTH ORITIES, DISALLOWED THE CLAIM FOR DEDUCTION U/S 35D IN THE Y EAR UNDER CONSIDERATION. 23. ON APPEAL, THE CIT(A) FOLLOWING THE DECISION OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR AY 2005-06 CONFIRMED THE DISALLOWANCE MADE BY THE AO. 24. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE CONCEDED THAT THE ISSUE IN DISPUTE IS COVERED AGAINST THE ASSESSE E BY THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN ASSES SEES OWN CASE FOR AYS 2000-01 TO 2004-05 IN ITA NOS. 615 TO 619/H YD/2007 VIDE ORDER DATED 22/05/2009. 25. AFTER HEARING THE PARTIES AND PERUSING THE RECO RD, WE FIND THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DEC ISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA). TH E COORDINATE BENCH DISCUSSED THE ISSUE IN PARA 7 TO 9 OF ITS ORD ER AND HELD IN PARA 10 & 11 AS UNDER: 10. BEFORE PARTING, IT MAY BE MENTIONED THAT WE HAV E INTERPRETED THE PROVISION AS PER THE ACTUAL LANGUAG E USED IN THE SECTION, SUPPORTED WITH THE INTENTION OF THE LE GISLATURE GATHERED FROM THE FINANCE BILL, 2008. IT WAS IN THE CASE OF KANNAILAL SUR VS. PARAMNIDHI SADHUKHAN (AIR 1957 SC 907 AT P.910), THE SUPREME COURT SAID THAT THE FIRST AN D PRIMARY RULE OF CONSTRUCTION IS THAT THE INTENTION OF THE L EGISLATURE 10 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. MUST BE FOUND IN THE WORDS USED BY THE LEGISLATURE ITSELF. AGAIN, IN THE CASE OF KANTA GOEL (SMT.) VS. B.D. PA THAK (AIR 1977 SC 1599 AT P.1661), THE SUPREME COURT SAID THA T THE INTERPRETATIVE EFFORT MUST BE ILLUMINATED BY THE GO AL THOUGH GUIDED BY THE WORD. WE HAVE KEPT THESE PRINCIPLES I N MIND WHILE DEALING WITH THE ISSUE. 11. IN THE LIGHT OF THE AFORESAID DISCUSSION, WE UP HOLD THE ORDERS OF THE CIT(A) IN CONFIRMING THE DISALLOWANCE . 26. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE COORDINATE BENCH, WE UPHOLD THE ORDER OF THE CIT(A) IN CONFIR MING THE ACTION OF THE AO IN REJECTING THE ASSESSEES CLAIM OF DEDUCTI ON U/S 35D. GROUND NO. 2 RAISED BY THE ASSESSEE IS DISMISSED. 27. GROUND NO. 3 IS PERTAINING TO THE DISALLOWANCE U/S 36(1)(VIIA) OF THE ACT. 28. DURING THE YEAR UNDER CONSIDERATION, THE AO NOT ED THAT ASSESSEE MADE A PROVISION FOR BAD AND DOUBTFUL DEBT S RS. 97,48,84,948/- AND ALSO MADE A PROVISION OF RS. 49, 90,24,000/- TOWARDS STANDARD ASSETS. IT WAS NOTICED THAT WHILE CLAIMING THE DEDUCTION U/S 36(1)(VIIA) OF THE ACT, THE ASSESSEE HAD CLAIMED A SUM TOTAL OF PROVISION FOR BAD AND DOUBTFUL DEBTS AND P ROVISION FOR STANDARD ASSETS I.E. RS. 147,39,08,948/-. THE ASSES SEE REVISED THE RETURN ON 25/03/2009 CLAIMING A TOTAL INCOME OF RS. 470,31,79,129/-, WHICH IS THE SAME FIGURE AS IN THE ORIGINAL RETURN. HOWEVER, IN THE COMPUTATION STATEMENT, IT CLAIMED HIGHER DEDUCTION U/S 36(1)(VIIA) OF THE ACT I.E. A DEDUCTION OF RS. 334,43,19,444/- WHI CH IS THE MAXIMUM DEDUCTION ALLOWABLE UNDER THE HEAD PROVISION FOR DO UBTFUL DEBTS AS PER THE COMPUTATION PROVIDED IN THE ACT. EVEN THOUG H ASSESSEE CLAIMED A HIGHER DEDUCTION U/S 36(1)(VIIA) IN THE C OMPUTATION SHEET ENCLOSED WITH THE RETURN, ITS REFLECTION IS NOT SEE N IN THE TOTAL INCOME FIGURE REPORTED IN THE REVISED RETURN. THEREFORE, T HE CLAIM OF HIGHER DEDUCTION IN THE COMPUTATION SHEET ENCLOSED TO THE REVISED RETURN WAS 11 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. IGNORED ON TECHNICAL GROUNDS BY THE AO. HE ALSO HE LD THAT EVEN ON THE MERITS OF THE CASE, THE CLAIM OF MAXIMUM PERMIS SIBLE DEDUCTION AS PER FORMULA IN SECTION 36(1)(VIIA) IS RELATED TO THE PROVISION MADE IN THE BOOKS OF ACCOUNT, SINCE WITHOUT MAKING ANY P ROVISION IN THE BOOKS OF ACCOUNT, THE ASSESSEE CANNOT CLAIM THE MAX IMUM PERMISSIBLE DEDUCTION. THEREFORE, THE AO REJECTED T HE COMPUTATION OF INCOME ANNEXED TO THE REVISED RETURN BOTH ON TECHNI CAL GROUNDS AND MERITS OF THE CASE. IN VIEW OF THE ABOVE OBSERVATIO NS, THE AO DISALLOWED RS. 49,90,24,000/- ON ACCOUNT OF PROVISI ON FOR STANDARD ASSETS U/S 36(1)(VIIA) BY NOTING THAT THE ITAT, HYD ERABAD UPHELD THE ACTION OF THE AO ON THIS ISSUE VIDE ITS ORDER DATED 22/05/2009 IN RESPECT OF ATS 2001-02 TO 2004-05 IN ASSESSEES OWN CASE. 29. ON APPEAL, BEFORE THE CIT(A) THE ASSESSEE CONTE NDED THAT THE AO OUGHT TO HAVE SEEN THE DEDUCTION U/S 36(1)(VIIA) ALLOWABLE ON ACCOUNT OF BAD AND DOUBTFUL DEBTS TO THE EXTENT OF SEVEN & ONE HALF PERCENT OF THE TOTAL INCOME AND AN AMOUNT NOT EXCEE DING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES O F A BANK IN COMPUTING ITS TOTAL INCOME, IRRESPECTIVE OF THE PRO VISION MADE IN ITS BOOKS OF ACCOUNT AND THEREFORE THE DEDUCTION FOR BA D AND DOUBTFUL DEBTS OF RS. 334,43,19,444/- SHOULD HAVE BEEN ALLOW ED INSTEAD OF RS. 97,48,84,948/- WHILE COMPLETING THE ASSESSMENT. THE ASSESSEE RELIED ON HONBLE BANGALORE BENCH OF ITAT IN THE CASE OF S YNDICATE BANK VS. DCIT, 78 ITD 103 WHICH HAS BEEN APPLIED IN THE CASE OF VIJAYA BANK BY THE SAME BENCH OF ITAT AND SIMILAR VIEW TAK EN BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF DCIT VS . KARNATAKA BANK LTD., 175 TAXMAN 325. 30. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) DISCUSSED AND EXAMINED THE ISSUE WITH CBDT INSTRUCT ION NO. 17/2008, CASE LAWS RELIED UPON BY THE ASSESSEE AND WITH THE PROVISIONS OF SECTION 36(1)(VIIA). THEREAFTER, THE CIT(A) FOLLOWING THE DECISION OF THE HONBLE P&H HIGH COURT IN THE CASE OF STATE BANK OF 12 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. PATIALA VS. CIT, 272 ITR 54 HELD THAT THE AO IS JUS TIFIED IN ALLOWING THE PROVISION MADE OF RS. 97,48,84,948 U/S 36(1)(VI IA) OF THE ACT AND DISALLOWING THE CLAIM OF RS. 334,43,19,444/-. 31. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 32. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPO N THE FOLLOWING CASES IN SUPPORT OF ASSESSEES CASE: 1. SYNDICATE BANK VS. DCIT [2001] 78 ITD 103 (BANG .) 2. ACIT VS. VIJAYA BANK IN ITA NOS. 150 & 151/BANG/ 2004 ORDER DT. 9 TH JUNE, 2006. HOWEVER, THE LEARNED COUNSEL FAIRLY ADMITTED THAT T HE ITAT A BENCH IN THE CASE OF SYNDICATE BANK FOR AY 2006-07 AND 20 07-08 IN ITA NOS. 668 & 669 AND 708 & 709/BANG/2010, ORDER DATED 19/06/2013, DID NOT ALLOW THE ISSUE CONSEQUENT TO THE DECISION OF THE HONBLE P&H HIGH COURT IN THE CASE OF STATE BANK OF PATIALA , 272 ITR 54. 33. THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E ORDERS OF THE REVENUE AUTHORITIES. 34. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD. IN FACT THIS IS THE FIRST YEAR IN WHICH THE ISSUE HAS ARISEN AS THE PROVISION MADE BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS LESS THAN THE AMOUNT ALLOWABLE U/S 36(1)(VIIA) OF THE IT ACT. THE LEARNED CIT(A) AFTER CONSIDERING THE PROVISIONS OF LAW AS W ELL AS THE ACTUAL PROVISION MADE BY THE ASSESSEE FOR BAD AND DOUBTFUL DEBTS, ULTIMATELY CONCLUDED VIDE PARAS 6.9 AND 6.10 IN HIS ORDER AS U NDER: 6.9 IF THE INTENTION OF THE LEGISLATURE IS THAT DED UCTION SHOULD NOT BE LINKED TO THE PROVISION MADE IN THE A CCOUNTS, THE LANGUAGE OF THE SECTION WILL NOT HAVE THE WORDI NG IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE, INSTEAD IT WOULD HAVE STATED THAT THE SCHEDULED BAN K WOULD 13 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. BE ENTITLED TO A DEDUCTION OF AN AMOUNT WHICH IS A N AGGREGATE OF 7.5% OF THE TOTAL INCOME AND 10% OF TH E AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCH ES WITHOUT REFERENCE TO ANY PROVISION. THEREFORE, I A M OF THE OPINION THAT ANY PROVISION IN THE SECTION REFERS TO ANY PROVISION MADE IN THE ACCOUNTS OF THE ASSESSEE BANK AND DEBITED THE AMOUNT OF SUCH DEBT OR PART OF THE DEBT IN THAT PREVIOUS YEAR TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. RELIANCE IS PLACED ON THE DECISION OF THE HONBLE HIGH COURT OF P&H IN THE CA SE OF STATE BANK OF PATIALA VS. CIT 272 ITR 54 WHERE IT H AS BEEN HELD THAT IT IS NECESSARY TO MAKE A PROVISION FOR B AD AND DOUBTFUL DEBTS IN THE ACCOUNT BOOKS IN THE SAME PRE VIOUS YEAR IN WHICH SUCH PROVISION IS CLAIMED AS DEDUCTI ON U/S 36(1)(VIIA). THEREFORE, IT IS HELD THAT DEDUCTION I S AVAILABLE ONLY TO THE EXTENT OF THE PROVISION MADE IN THE BOO KS AND ACCORDINGLY THE DEDUCTION FOR PROVISIONS OF BAD AND DOUBTFUL DEBTS AS COMPUTED U/S 36(1)(VIIA) IS RESTR ICTED TO THE AMOUNT PROVIDED BY THE APPELLANT IN ITS BOOKS A ND THE AO IS JUSTIFIED IN ALLOWING THE PROVISION MADE OF R S. 97,48,84,948/- U/S 36(1)(VIIA) OF IT ACT AND DISALL OWING THE CLAIM OF RS. 334,43,19,444/-. 6.10 HOWEVER, IF THE RETURNED INCOME IS TAKEN AT RS . 288,27,68,633/- AS DIRECTED IN PARA 5.5 THEN THE AO WILL HAVE TO ADD BACK THE AMOUNT OF RS. 236,94,34,496 (RS. 334,43,19,444 RS. 97,48,84,948) IN THE COMPUTATIO N. 35. SINCE THE CIT(A) FOLLOWED THE DECISION OF THE H ONBLE HIGH COURT OF P&H IN CASE OF STATE BANK OF PATIALA (SUPR A), WE DO NOT FIND ANY REASON TO DIFFER FROM THE ORDER OF THE CIT(A). MOREOVER, THE COORDINATE BENCH OF ITAT, BANGALORE IN CASE OF SYN DICATE BANK (SUPRA) HAS ANALYSED THE ISSUE AND CONCLUDED AS UND ER: 48. AS FAR AS GR.NO.3 RAISED BY THE REVENUE IN THE ORIGINAL GROUNDS OF APPEAL IS CONCERNED, THE AO DISALLOWED T HE ENTIRE CLAIM FOR DEDUCTION OF RS.503,49,00,000/- ON THE FOLLOWING GROUND. A) THE PROVISION FOR BAD AND DOUBTFUL DEBTS IN RESPECT OF RURAL ADVANCES WAS CREATED BY DEBIT TO PROFIT AND LOSS ACCOUNT OF ONLY A SUM OF RS.295,55,54,682 WHEREAS THE CLAIM FOR DEDUCTION ACTUALLY MADE U/S.36(1)(VIIA) OF THE ACT WAS A SUM OF RS.503,49,00,000/-. THE AO WAS OF THE VIEW THAT AS LAID DOWN BY THE HONBLE PUNJAB AND HARYANA HIGH COURT 14 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. IN THE CASE OF STATE BANK OF PATIALA VS. CIT 272 IT R 53 (P & H), CLAIM FOR DEDUCTION U/S.36(1)(VIIA) OF THE ACT CANNOT BE GREATER THAN THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT AS PROVISION. THE AO THEREF ORE PROPOSED TO DISALLOW A SUM OF RS.207,93,45,318 (DIFFERENCE BETWEEN RS.503,49,00,000 AND RS.295,55,54,682). B) APART FROM THE ABOVE THE AO ALSO DISALLOWED THE SUM OF RS.295,55,54,682 OUT OF RS.503,49,00,000 CLAIMED AS DEDUCTION U/S.36(1)(VIIA) OF THE ACT. TH E REASONS GIVEN FOR DISALLOWING CLAIM FOR DEDUCTION OF RS.295,55,54,682/- U/S.36(1)(VIIA) OF THE ACT BY TH E AO WAS THAT THERE WAS ALREADY CREDIT BALANCE IN THE PB DD AS ON 1.04.2005 BALANCE B/F WAS RS. 912,57,47,169. ACCORDING TO THE AO 10% OF AARA CAN BE CREATED AS PROVISION EACH YEAR PROVIDED THERE IS NO BROUGHT FORWARD BALANCE AS ON THE FIRST DAY OF THE PREVIOUS YEAR IN THE PBDD ACCOUNT.10% OF THE AARA AS ADMITTED BY THE ASSESSEE AS PER REVISED CENSUS OF 2001 WAS 352.53 CRORES. ACCORDING TO THE AO EVEN IF BAD DEBTS WRITTEN OFF OF RS.179,21,88,992 IS REDUCE D STILL THE BALANCE IN THE PBDD ACCOUNT WAS RS.733,35,58,177/-. SINCE THE BALANCE SO AVAILABLE IN PBDD ACCOUNT WAS MORE THAN 10% OF AARA, THE AO HELD THAT DEDUCTION ON THE BASIS OF NEW PROVISION O F RS.295,55,54,682/- CANNOT BE ALLOWED. IN THIS REGAR D THE AO REFERRED TO THE CONTENTION OF THE ASSESSEE WHICH WAS TO THE EFFECT THAT IN EACH YEAR THE ASSES SEE CAN CREATE 10% OF AARA AND CONCLUDED THAT THE EXPRESSION NOT EXCEEDING TEN PERCENT OF THE AGGREGATE AVERAGE ADVANCES USED IN SEC.36(1)(VIIA) OF THE ACT CANNOT MEAN THAT PROVISION CAN BE CREATED EACH YEAR IRRESPECTIVE OF THE AVAILABLE BALANCE IN THE PBDD ACCOUNT. THE AO ALSO REFERRED TO A SITUATION WHERE THERE IS NO CLAIM FOR BAD DEBTS IN A YEAR EVE N THEN THE ASSESSEE WILL BE ENTITLED TO CLAIM DEDUCTI ON BY WAY OF PBDD WHICH ACCORDING TO THE AO WOULD NOT BE THE INTENTION OF THE LEGISLATURE. THE AO THUS REFUSED TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF 10% OF AARA. 49. THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY FOLLOWING THE DECISION OF THE DECISION OF THE ITAT IN ASSESSEES OWN CASE REPORTED IN 78 ITD 103 WHEREIN IT WAS HELD THAT IRRESPECTIVE OF THE DEBIT TO THE PROFIT A ND LOSS ACCOUNT ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFU L DEBTS (PBDD), AN ASSESSEE IS ENTITLED TO 10% OF THE AARA AS 15 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. DEDUCTION U/S.36(1)(VIIA) OF THE ACT. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE AFORESAID DECIS ION WAS AS FOLLOWS: 20. THE LEARNED CIT HAS ALSO ACTED UNDER THE MISCONCEPTION THAT DEDUCTION UNDER CL. (VIIA) IS RELATED TO THE ACTUAL AMOUNT OF PROVISION MADE BY T HE ASSESSEE FOR BAD AND DOUBTFUL DEBTS. THE TRUE MEANING OF THE CLAUSE, AS INDICATED EARLIER, IS THA T ONCE A PROVISION FOR BAD AND DOUBTFUL DEBTS IS MADE BY A SCHEDULED BANK HAVING RURAL BRANCHES, THE ASSESSEE IS ENTITLED TO A DEDUCTION WHICH IS QUANTIFIED NOT WITH RESPECT TO THE AMOUNT PROVIDED FOR IN THE ACCOUNTS, BUT WITH RESPECT TO A CERTAIN PERCENTAGE OF THE TOTAL INCOME AND ALSO A CERTAIN PERCENTAGE OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE BANK. IN OTHER WORDS, THIS IS A SPECIFIC DEDUCTION GIVEN BY THE STATUTE IRRESPECTIVE OF THE QUANTUM PROVIDED BY THE ASSESSE E IN ITS ACCOUNTS TOWARDS PROVISION FOR BAD AND DOUBT FUL DEBTS. 50. IN THE APPEAL BEFORE THE TRIBUNAL, IN GROUND NO .3 OF THE ORIGINAL GROUNDS OF APPEAL, THE REVENUE HAS CHALLEN GED THE ORDER OF CIT(A) IN SO FAR AS IT RELATES TO THE DELE TION OF A SUM OF RS.207,83,45,338 WHICH IS THE DIFFERENCE BET WEEN RS.503,49,00,000 AND RS.295,55,54,682. THE LEARNED DR RELIED ON THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF CANARA BANK IN ITA NO.58/BANG/2004 DATED 9. 6.2006. IN THE AFORESAID DECISION THIS BENCH CONSIDERED THE DECISION OF THE ITAT IN THE CASE OF SYNDICATE BANK 78 ITD 103(BANG)AND THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PA TIALA (SUPRA)AND HELD THAT THE DECISION RENDERED BY THE H ONBLE HIGH COURT HAS TO BE FOLLOWED. THE ABOVE DECISION I S THE DECISION BROUGHT TO OUR NOTICE ON THE ISSUE RENDERE D AFTER THE DECISION IN ASSESSEES OWN CASE. JUDICIAL DISC IPLINE DEMANDS THAT WE FOLLOW THE LATER DECISION WHICH HAS CONSIDERED BOTH THE DECISIONS ON THE ISSUE. WE THER EFORE RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF CANARA BANK(SUPRA), ALLOW GR.NO.3 RAISED BY THE REVENUE AND HOLD THAT DISALLOWANCE TO THE EXTENT OF RS.207,83,45,338/- BE RESTORED. THUS GR.NO.3 RAISED BY THE REVENUE IS ALLOWED. 36. RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN AS ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE ASSES SEES GROUND. 16 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. 37. GROUND NO. 4 IS PERTAINING TO DISALLOWANCE OF D EPRECIATION/FALL IN VALUE OF INVESTMENTS HELD TO MATURITY. 38. THE CONTENTION OF THE ASSESSEE IN GROUND NO. 4 IS THAT THE CIT(A) ERRED IN GIVING DIRECTIONS TO THE AO TO VERI FY WHETHER, I) SHIFTING OF SECURITIES TO CATEGORIES OF AFS( AVAILA BLE FOR SALE & HFT (HELD FOR TRADING) FROM HTM (HELD TO MATURITY) IS A S PER THE RBI NORMS, II) THE ASSESSEE BANK IS ACCOUNTING FOR THE APPRECIATION IN THE VALUE OF SECURITIES IN ITS BOOKS AND III) THE PROFI T FROM REDEMPTION/SALE OF SECURITIES IS BEING OFFERED AS BUSINESS INCOME, AND IF SO ALLOW DEPRECIATION/FALL IN VALUE OF HTM SECURITIES AS DED UCTION. HE FURTHER CONTENDED THAT, WHEN THE INVESTMENTS HELD TO MATURI TY WERE VALUED AS ON 31/03/2007 AT THEIR MARKET VALUE WHICH IS LOWER BY RS. 293,31,88,038 COMPARED TO COST OF PURCHASE, THE SAI D AMOUNT IS ALLOWABLE AS DEDUCTION IRRESPECTIVE OF THE CATEGORY IN WHICH SUCH INVESTMENTS ARE HELD BY THE ASSESSEE. 39. THIS ISSUE HAS BEEN DECIDED BY US IN REVENUES APPEAL VIDE PARAS 2 TO 6 (SUPRA) WHEREIN FOLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2006-07 DIRECTED THE AO TO ALLOW DEPRECIATION / FALL IN VALUE OF INVESTMENT IN GOVERNMENT SECURITIES INCLUDING THOSE CLASSIFIED UNDER HTM CAT EGORY. THIS GROUND IS ALLOWED. 40. GROUND NO. 6 IS PERTAINING TO THE DISALLOWANCE OF UNREALIZED INTEREST. 41. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO NOTED THAT THE ASSESSEE HAD DEDUCTED INTEREST THAT WAS NOT REALIZED ON ADVANCES IDENTIFIED AS NPAS IN THE CURR ENT YEAR, FROM OUT OF THE CURRENT YEARS INTEREST INCOME AND CREDITED 17 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. ONLY THE NET INTEREST TO THE PROFIT AND LOSS ACCOUN T. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THERE IS NO PROVISION UNDER THE IT ACT TO DEDUCT, FROM OU T OF CURRENT YEARS INCOME OF A CLAIM WHICH WAS NOT AT ALL RELEV ANT TO THE CURRENT YEAR. 42. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANC E MADE BY THE AO FOLLOWING THE DECISION OF HIS PREDECESSOR IN AY 2005-06 IN ASSESSEES OWN CASE. 43. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 44. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISIO N OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2006 -07 IN ITA NO. 97/HYD/2010. THE LEARNED DR HAS NOT OBJECTE D TO THE FACTS AVAILABLE ON RECORD. 45. AFTER HEARING THE PARTIES AND PERUSING THE RECO RD, WE FIND THAT SIMILAR ISSUE CAME UP BEFORE THE COORDINA TE BENCH IN ASSESSEES OWN CASE FOR AY 2006-07 (SUPRA) WHEREIN THE COORDINATE BENCH HELD AS FOLLOWS: 61. THE DELHI HIGH COURT HELD THAT INCOME WHICH WAS EARLIER RECOGNISED IS NOT TO BE ALLOWED IN THE SUBSEQUENT YEAR IN CASE IT IS PERMISSIBLE FOR THE ASSESSEE TO WRITE OFF SUCH INCOME IN CONCERNED ASSESSMENT YEAR WHEN IT WAS FOUND THAT IT WAS NOT RECOVERABLE. IN THIS CONNECTION THEY HAVE ALSO REFERRED TO THE DECISION OF THE APEX COURT IN THE CASE OF VIJAYA BANK REPORTED IN 323 ITR 166 AND TRF LTD REPORTED IN 323 ITR 397. THE DELHI HIGH COURT UPHELD THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF INTEREST REVERSED. 18 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. 62. RESPECTFULLY FOLLOWING THE ABOVE WE DIRECT THE AO TO ALLOW DEDUCTION OF RS.2.36 CRORES BEING UNREALISED INTEREST OFFERED FOR TAX IN THE EARLIER YEAR NOW REVERSED BY THE ASSESSEE. 46. AS THE ISSUE IN THE YEAR UNDER CONSIDERATION IS SIMILAR TO THAT OF AY 2006-07, RESPECTFULLY FOLLOWING THE DECI SION OF THE COORDINATE BENCH IN THAT YEAR, WE SET ASIDE THE ORD ER OF THE CIT(A) AND ALLOW THE UNREALIZED INTEREST CLAIM OF T HE ASSESSEE. GROUND NO. 6 IS, ACCORDINGLY, ALLOWED. 47. GROUND NO.7 IS PERTAINING TO THE DISALLOWANCE O F PROVISION FOR LEAVE ENCASHMENT. 48. THE AO NOTED THAT THE ASSESSEE MADE A PROVISION OF RS. 12,96,95,594/- TOWARDS LEAVE ENCASHMENT AND DEBITED TO PROFIT & LOSS ACCOUNT. HE FURTHER NOTED THAT AS PER THE PROVISIONS OF SECTION 43B, THE SAME HAS TO BE ADDED BACK IN COMPUTATION OF INCOME, BUT, THE ASSESSEE HAD NOT AD DED THE SAID AMOUNT TO THE INCOME IN THE COMPUTATION OF STA TEMENT, FOR WHICH FILED A NOTE WHEREIN STATED AS UNDER: AMOUNT OF PROVISION TOWARDS LEAVE ENCASHMENT DEBITE D TO PROFIT AND LOSS ACCOUNT IS NOT CONSIDERED FOR DISALLOWANCE IN VIEW OF THE RECENT JUDGMENT GIVEN B Y THE HONBLE HIGH COURT OF KOLKATA IN THE CASE OF EXIDE INDUSTRIES LTD. VS. UNION OF INDIA WHEREIN IT WAS S TATED THAT LEAVE ENCASHMENT IS NEITHER A STATUTORY LIABIL ITY NOR A CONTINGENT LIABILITY AND IT IS A PROVISION TO BE MADE FOR THE BENEFIT OF THE EMPLOYEES IN EACH FINANCIAL YEAR AND IS THUS ASCERTAINED LIABILITY. 49. THE AO NOTED THAT THE GOVT. OF INDIA CHALLENGED THE DECISION OF KOLKATA HIGH COURT BEFORE THE HONBLE S UPREME COURT AND THE APEX COURT VIDE INTERIM ORDER DATED 08/05/2009 HAD DIRECTED EXIDE INDUSTRIES LTD. TO PA Y TAXES AS IF CLAUSE F OF SECTION 43B EXISTS ON THE STATUTE BO OK. 19 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. FOLLOWING THE SAID DECISION OF THE APEX COURT, THE AO DISALLOWED THE PROVISION MADE IN RESPECT OF LEAVE E NCASHMENT OF RS. 12,96,95,594/- DEBITED TO P& L A/C BY THE AS SESSEE. 50. ON APPEAL, THE CIT(A) FOLLOWING THE DECISION OF HIS PREDECESSOR IN ASSESSEES OWN CASE FOR AY 2006-07, CONFIRMED THE DISALLOWANCE MADE BY THE AO ON ACCOUN T OF LEAVE ENCASHMENT. 51. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 52. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECIS ION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2006 -07 IN ITA NO. 97/HYD/2010. THE LEARNED DR BESIDES AGREEI NG WITH THE SUBMISSION OF THE LEARNED COUNSEL, PLACED RELIA NCE ON THE ORDERS OF THE AUTHORITIES BELOW. 53. WE FIND THAT THE ISSUE IS COVERED AGAINST THE A SSESSEE BY THE DECISION OF THE COORDINATE BENCH IN AY 2006- 07 (SUPRA) WHEREIN THE COORDINATE BENCH HELD AS FOLLOWS: 63. THE NEXT GROUND OF APPEAL IS AGAINST DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT. THE ASSESSEE HAS PROVIDED LEAVE ENCASHMENT AND CLAIMED IT AS DEDUCTION. HOWEVER, AMOUNT CLAIMED FOR RS.105691015/- , THE SAME WAS DISALLOWED IN VIEW OF THE AMENDMENT TO SECTION 43B BY THE INTRODUCTION OF SUB SECTION (F) WHICH PROVIDES FOR ALLOWING DEDUCTION ON LEAVE ENCASHMENT ONLY ON THE ACTUAL PAYMENT. THERE IS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE HAS PARTED WITH THE AMOUNT FOR MAKING PAYMENT FOR THE LEAVE ENCASHMENT. THIS WAS MERELY A PROVISIONS MADE BY THE ASSESSEE. NO DOUBT, THE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD VS UNION OF INDIA (292 ITR 470) HELD THAT THEY HAVE STRUCK DOWN THE 20 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. SECTION 43B IN A WRIT PETITION FILED. BUT THAT DECISION WHICH IS APPLICABLE TO PARTIES TO THE WRIT PETITION AND THE SAME WILL NOT BE APPLICABLE TO THE ASSESSEE IN THE APPELLATE PROCEEDINGS. THE ITAT WHICH IS CREATURE OF THE INCOME TAX ACT IS BOUND BY THE PROVISIONS OF THE ACT AND THEREFORE IN VIEW OF THE SPECIFIC PROVISIONS OF SUB-CLAUSE (F) TO SECTIO N 43B THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS.1056911015/- TOWARDS PROVISIONS FOR LEAVE ENCASHMENT CANNOT BE ALLOWED. 54. RESPECTFULLY FOLLOWING THE SAID DECISION, WE UP HOLD THE ORDER OF THE CIT(A) IN CONFIRMING THE ACTION OF THE AO IN MAKING THE DISALLOWANCE OF PROVISION FOR LEAVE ENCA SHMENT OF RS. 12,96,95,594/- AND DISMISS THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE. 55. GROUND NO. 8 IS PERTAINING TO DEDUCTION U/S 36( 1)(VII) IN RESPECT OF DEBTS WRITTEN OFF BY THE NON-RURAL BRANC HES OF THE ASSESSEE-BANK. 56. THE ASSESSEE ADMITTED THAT THIS GROUND IS NOT R AISED BEFORE THE CIT(A) AND RAISED FOR THE FIRST TIME BEF ORE US. TO THIS EFFECT, HE FILED A PETITION SEEKING ADMISSION OF GROUND NO. 8 AS ADDITIONAL GROUND FOR THE REASON THAT THIS GROUND IS PURELY BASED ON QUESTION OF LAW. 57. AFTER HEARING THE PARTIES, WE ADMIT THIS ADDITI ONAL GROUND AS THIS IS A LEGAL ISSUE. 58. THE ASSESSEE SUBMITTED THAT IT HAD WRITTEN OFF AN AMOUNT OF RS. 123,90,95,848/- AS BAD DEBTS WRITTEN OFF IN RESPECT OF ITS NON-RURAL BRANCHES DURING THE ASSESS MENT YEAR, THEREFORE, THE SAME MAY BE ALLOWED AS DEDUCTION FOL LOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F CATHOLIC 21 ITA NOS. 630 & 715/HYD/2012 ANDHRA BANK. SYRIAN BANK LTD., VS. CIT, 18 TAXMANN.COM 282 (SC). HE ALSO RELIED ON THE DECISION OF COORDINATE BENCH IN ASSES SEES OWN CASE FOR AY 2006-07 IN ITA NO. 97/HYD/2010. 59. AFTER HEARING THE PARTIES AND PERUSING THE RECO RD, AS THE FACTS PERTAINING TO THIS ISSUE ARE AVAILABLE WITH T HE AO, WE REMIT THE ISSUE TO THE FILE OF THE AO WITH A DIRECT ION TO DECIDE THE SAME FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF CATHOLIC SYRIAN BANK VS. CIT, [2012] 18 TAX MAN.CO 282 (SC). 60. IN THE RESULT, APPEAL OF THE ASSESSEE IS PART LY ALLOWED. 61. TO SUM UP APPEAL OF THE REVENUE BEING ITA NO. 630/HYD/2012 IS DISMISSED AND THE APPEAL OF THE ASSESSEE BEING ITA NO. 715/HYD/2012 IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 04.10.2013 SD/- SD/- (P. MADHAVI DEVI) (B. RAMA KOTAIAH) JUDICIAL MEMBER ACCO UNTANT MEMBER HYDERABAD, DATED: 04 OCTOBER, 2013. KV COPY TO:- 1) ANDHRA BANK, 5-9-11, HEAD OFFICE, SAIFABAD, HYDE RABAD 500 001. 2) DCIT, CIRCLE 1(1), HYDERABAD,. 3) CIT(A)-II, HYDERABAD. 4) CIT-I, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T. A.T., HYDERABAD.