The DCITAhmedabad Circle-1, Ahmedabad V. UTI Bank Ltd.,(Now know as AXIS Bank Ltd.), Ahmedabad

ITA 673/AHD/2009

• Counselvise Citation: 67320514 RSA 2009
• Duration Of Justice: 4 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-10-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 02-03-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH BAINS CIT D R
• Assessee Lawyers: ARVIND SONDE
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Question of law; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMADABAD , , , , BEFORE SHRI D.K.TYAGI , JUDICIAL MEMBER AND .., SHRI T.R. MEENA, ACCOUNTANT MEMBER .. , ! ' ! ' ! ' ! ' ITA NO. 65/AHD/2009 ASSESSMENT YEAR : 2005-06 UTI BANK LIMITED (NOW KNOWN AS AXIS BANK LIMITED) TRISHUL, OPP SAMTHESHWAR MAHADEV TEMPLE, NEAR LAW GARDEN ELLISBRIDGE, AHMADABAD- 380006 V/S . ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 8, AHMEDABAD PAN NO. AAACU2414K (APPELLANT) .. (RESPONDENT) ITA NO. 673/AHD/2009 ASSESSMENT YEAR : 2005-06 ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE 8, AHMEDABAD V/S . UTI BANK LIMITED (NOW KNOWN AS AXIS BANK LIMITED) TRISHUL, OPP SAMTHESHWAR MAHADEV TEMPLE, NEAR LAW GARDEN ELLISBRIDGE, AHMADABAD- 380006 (APPELLANT) .. (RESPONDENT) #$ % & BY REVENUE SHRI SUBHASH BAINS, CIT. D.R. $ % & /BY ASSESSEE SHRI ARVIND SONDE, A.R. '($) % * /DATE OF HEARING 11 . 1 0 .201 3 +,- % * /DATE OF PRONOUNCEMENT 20.12.2013 O R D E R ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 2 PER : SHRI T.R.MEENA, ACCOUNTANT MEMBER THESE TWO APPEALS ARE CROSS APPEALS FILED BY THE AS SESSEE AS WELL AS REVENUE. THESE APPEALS ARE EMANATED FROM THE ORDER OF THE LD. CIT(APPEALS)- XIV, AHMADABAD, ORDER DATED 20.11.2008 FOR A.Y. 200 5-06. BOTH APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WA Y OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. THE EFFECTIVE GROUNDS OF BOTH APPEALS ARE AS UNDER: GROUNDS OF ITA NO. 65/AHD/2009 (ASSESSEE'S APPEAL) 1.0 DEPRECIATION ON WIND ENERGY GENERATORS [WEG] R S. 15,66,72,000/-. 1.1 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A)ERRED IN NOT ADMITTING APPELLANTS CLAIM FOR DEPRECIATION OF RS. 15.66 CRORES ON THE COST OF 30 WEGS OWNED BY TH E APPELLANT. 1.2 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW,THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THAT (I) THE IMPUGNED TRANSACTION WAS GENUINE LEASE TRA NSACTION SO AS TO ENTITLE THE APPELLANT TO THE DEPRECIATION ALLOWA NCE AS OWNER OF WEGS; (II) THE APPELLANT WAS THE OWNER OF WEGS. (III) THERE WAS NO CONTRAVENTION OF BANKING REGULA TION ACT, 1949 BY ENTERING INTO AN IMPUGNED LEASE TRANSACTION, THE LEASING BUSINESS OBJECT HAS BEEN APPROVED EVEN BY THE RBI; AND (IV) THE CIRCUMSTANCES THAT THE APPELLANT WAS NOT ENGAGED IN BUSINESS OF GENERATION OF ELECTRICITY HAD NO IMPACT ON APPELLANTS RIGHT TO CLAIM DEPRECIATION. 1.3 WITHOUT PREJUDICE TO THE ABOVE, ALTERNATIVELY, IT IS SUBMITTED THAT IF DEPRECIATION IS NOT ALLOWABLE, THEN THE ASSESSING OFFICER BE ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 3 DIRECTED TO ASSESS INCOME THE LEASE RENT ATTRIBUTAB LE TO CAPITAL COMPONENT RECOVERY RELATABLE TO THE COST OF WEGS, S INCE OTHERWISE IT WOULD AMOUNT TO DUAL CHARGE. 2.0 DISALLOWANCE UNDER SECTION 14A RS. 9,40,00,000 /- 2.1 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN SUSTAINING DISALLOWANCE OF RS. 2.20 CRORES OUT OF INTEREST EXPENDITURE AND RS. 7.20 CRORES OUT OF OPE RATING EXPENDITURE BY HOLDING SUCH EXPENDITURE TO HAVE BEE N INCURRED IN EARNING TAX-FREE INCOME. 2.2 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT (I) NO DISALLOWANCE WAS WARRANTED HAVING REGARD TO THE FACT THAT THE TAX FREE SECURITIES CONSTITUTED STOCK-IN-TRADE FOR THE APPELLANT, THAT, HUGE TRADING INCOME/GAINS OUT OF SUCH SECURIT IES WAS BEING CHARGED TO TAX AS TAXABLE BUSINESS PROFITS AND THA T, INVESTMENT WAS INTEGRAL PART OF INDIVISIBLE BANKING BUSINESS C ARRIED ON BY THE APPELLANT. (II) HAVING REGARD TO ADEQUATE INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT IN THE FORM OF PAID-UP SHARE CAPITAL, RESERVES AND SURPLUS, AND INTEREST-FREE CURRENT ACCOUNT BALANCES OF CONSTITUENTS AND THERE BEING NO SPECIFIC INTEREST E XPENDITURE INCURRED FOR EARNING TAX FREE INCOME, NO DISALLOWAN CE WAS WARRANTED OUT OF INTEREST EXPENDITURE. (III) DISALLOWANCE OFFERED BY THE APPELLANT IN ITS RETURN OF INCOME AT RS. 2.20 CRORES DID NOT CONSTITUTE ANY ADMISSION BY THE APPELLANT THAT THE APPELLANT EFFECTED SPECIFIC BORROWING FOR DEPLOYMENT IN TAX FREE INVESTMENT. 2.3 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT, ADMINISTRATI VE EXPENDITURE WAS INCURRED BY THE APPELLANT IN THE COURSE OF INDI VISIBLE BANKING ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 4 BUSINESS OF THE APPELLANT AND NO PART OF SUCH EXPEN DITURE COULD HAVE BEEN DISALLOWED UNDER SECTION 14A. 2.4 WITHOUT PREJUDICE TO THE ABOVE AND NOT WITHSTAN DING WHAT IS STATED HEREINABOVE THE DISALLOWANCE OF OPERATIVE EXPENDITU RES WORKED OUT AT RS. 7.20 CRORES ON THE TAX FREE INCOME OF RS . 29.13 CRORES (CONSTITUTING 24.72% OF TAX FREE INCOME) IS HIGHLY EXCESSIVE AND ARBITRARY AND OUT TO BE SUBSTANTIALLY REDUCED. 3.0 DEDUCTION IN RESPECT OF FEES PAID TO INFOSYS TE CHNOLOGIES LTD (INFOSYS)(RS. 40 LACS) AND WIPRO LTD (WIPRO) (R S. 1.68 LACS) UPHELD AS CAPITAL EXPENDITURE [DISALLOWANCE U PHELD (NET OF DEPRECIATION ALLOWED) RS. 71,26,000] 3.1 IN FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN CONCLUDING THAT FOLLOWING EXPENSES ARE INADMISSIBLE AS BEING CAPITAL IN NATURE. FEES PAID TO INFOSYS FOR ASSISTING IN MIGRATION FR OM ORACLE 8.I TO RS. 40LACS ORACLE 9.I VERSION FEES PAID TO WIPRO LTD FOR SHIFTING OF LEASED LINE RS. 1.68LACS TOTAL RS. 41.68 LACS 3.2 THE LEARNED CIT(A) OUGHT TO HAVE ADMITTED THE A PPELLANTS CLAIM THAT THE AFORESAID FEES AGGREGATING RS. 41.68 LACS WERE ADMISSIBLE REVENUE EXPENDITURE. 4.0 DEDUCTION UNDER SECTION 36(1)(VII) 4.1 THE LD. CIT(A) ERRED IN HOLDING THAT, IN TERMS OF PROVISO TO SECTION 36(1)(VII), SUM WRITTEN OFF DURING THE YEAR AS BAD DEBT SHOULD BE REDUCED BY CLOSING BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS. ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 5 5.0 IN FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN NOT ACCEPTING APPELLANTS CONTENTIO N THAT INTEREST UNDER SECTION 234B WAS LIVABLE WITH RESPECT TO RETU RNED INCOME. GROUNDS OF ITA NO. 673/AHD/2009 (REVENUE'S APPEAL) 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE DISALLOWANCE MADE U/S. 14A AMOUNTING TO RS. 30.17 C RORES. 2. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE DISALLOWANCE OF BAD DEBTS MADE U/S. 36(1)(VII) TO T HE EXTENT OF RS. 16 CRORES. 3. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELE TING THE DISALLOWANCE OF WRITE BACK OF NPA PROVISION OF RS. 69.09 CRORES. 4. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELE TING THE DISALLOWANCE MADE OF RS. 102.39 LAKS MADE ON ACCOUN T OF TECHNICAL SUPPORT FEES. 5. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELE TING THE DISALLOWANCE MADE OF MISCELLANEOUS EXPENSES TO THE TUNE OF RS. 6.48 CRORES. 6. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN DELE TING THE DISALLOWANCE MADE OF CONVEYANCE EXPENSES OF RS. 1.5 1 CRORES. 2. THE ASSESSEE IS A BANKING COMPANY GOVERNED BY TH E BANKING REGULATION ACT, 1947. THE LD. A.O. HAS MADE ASSESSM ENT U/S. 143(3) ON 30.11.2007. THE ADDITIONAL GROUND OF APPEAL RAISED BY THE APPELLANT IS REPRODUCED AS UNDER :- THE LEARNED ASSESSING OFFICER BE DIRECTED TO REDU CE LEASE RENTALS INCOME OF RS.238 LACS FOR EARLIER YEARS REC EIVED DURING THE PREVIOUS YEAR AND OFFERED TO TAX UNDER S ECTION 41(4). SINCE THE SAID SUM AMOUNTS TO DOUBLE TAXATIO N THEREOF ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 6 CONSEQUENT TO DISALLOWANCE OF DEPRECIATION ALLOWANC E ON THE LASED EQUIPMENTS BY THE ORDER DATED 31 ST DECEMBER, 2009 UNDER SECTION 143(3) R.W.S. 254 GIVING EFFECT TO SE T ASIDE ORDER FROM HONBLE ITAT FOR THE ASSESSMENT YEAR 1996-97. 2(I). THE ADDITIONAL GROUND RAISED BY THE APPELLANT IS DIRECTLY ARISES FROM THE ORDER OF THE CIT(A) AND THE INTEREST OF JUSTICE IS ALLOW TO BE ADMITTED. 3. THE GROUND NO.1 OF APPEAL AND THE ADDITIONAL GRO UND OF APPEAL RAISED BY THE APPELLANT IS AGAINST NOT ALLOWING TH E DEPRECIATION ON WIND ENERGY GENERATORS OF RS.15,66,72,000/-. 3(I). THE LD. A.O. HAS OBSERVED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION U/S. 32(1) OF THE I.T. ACT ON WIND ENERGY GENERATOR S (WEGS) TO THE EXTENT OF RS. 15,66,72,000/- DURING THE PREVIOUS YEAR RELEVAN T TO A.Y. 2005-06. THE ASSESSEE BANK HAD ENTERED INTO AN OPERATING LEASE A GREEMENT WITH INDO WIND ENERGY LTD. FOR OPERATING LEASE OF 30 WIND ENERGY G ENERATORS OF 225 CAPACITY FOR A PRIMARY PERIOD OF 10 YEARS. OUT OF THESE 27 W EGS WERE CLAIMED TO HAVE BEEN PUT TO USE DURING THE F.Y. 2003-04 AND THE RE MAINING 3 WEGS WERE CLAIMED TO HAVE BEEN PUT TO USE DURING THE F.Y. 200 4-05. THE ASSESSEE HAD FILED A COPY OF LEASE AGREEMENT BEFORE THE A.O. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS. IT WAS FURTHER OBSERVED THA T IN A.Y. 2004-05, THE A.O. HAD MADE DETAILED INQUIRY AND INVESTIGATION AN D IT WAS FOUND THAT THIS TRANSACTION IS NOT LEASED TRANSACTION BUT FINANCIAL TRANSACTION ONLY. THE ASSESSEE BANKING COMPANY HAD ADVANCE MONEY FOR WEGS , BUT TO AVAIL DEPRECIATION, THE PURCHASE BILL IS OBTAINED IN ITS NAME. THE INCOME FROM THE OPERATION WAS SHOWN AS LEASE RENTAL AND NOT AS AN I NCOME FROM GENERATION OF ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 7 ELECTRICITY. IN ABOVE CIRCUMSTANCES, HE TREATED THI S TRANSACTION AS FINANCIAL TRANSACTION ONLY, AND THE LD. A.O. DISALLOWED THE D EPRECIATION CLAIMED AT RS. 11,01,60,000/-. 3(II). BEING AGGRIEVED BY THE ORDER PASSED BY THE L D. A.O., THE ASSESSEE CARRIED THE MATTER BEFORE THE HONBLE CIT(A) WHO HA D DISMISSED THE APPEAL OF THE ASSESSEE. THE OPERATIVE PORTION IS REPRODUCED AS UNDER : - 3.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE A.R CAREFULLY. FOLLOWING THE ORDER OF MY PREDEC ESSOR FOR A.Y. 2004-05 AS THE TRANSACTIONS ARE FOUND TO BE OF FINANCING TRANSACTIONS, I CONFIRM THE DISALLOWANCE OF DEPRECI ATION OF RS.15.66 CRORES ON WIND ELECTRICITY GENERATORS. AS THE ABOVE MENTIONED TRANSACTIONS HAVE BEEN CONSIDERED AS FINA NCE TRANSACTIONS , THE CONTENTION OF THE A.R. IS CORREC T THAT ONLY INTEREST INCOME SHOULD BE TAXED AND NOT THE PORTION REPRESENTING RECOVERY OF PRINCIPAL. THE A.O. WAS AS KED TO GIVE THE HIS COMMENTS ON THE SUBMISSIONS MADE BY THE A.R . IN THE REMAND REPORT DATED 13.03.2008 HE HAS STATED THAT I N THE ABSENCE OF ANY EVIDENCE, IT CANNOT BE ASSUMED THAT THE PRINCIPAL AMOUNT HAS ALSO BEEN RECOVERED DURING THE LEASE PERIOD AND THE POSSIBILITY OF THE COST OF WEFS RETU RNING BACK TO THE APPELLANT AT THE END OF THE LEASE PERIOD HAS NOT BEEN ADDRESSED BY THE APPELLANT, HENCE ACCORDING TO HIM THE ALTERNATIVE CLAIM OF THE APPELLANT SHOULD BE REJECT ED. CONSIDERING THE FACTS OF THE CASE AND THE CLAIM AND SUBMISSIONS OF THE APPELLANT, AS THE TRANSACTIONS H AVE BEEN HELD AS FINANCE TRANSACTIONS, I FIND THAT IT WOULD BE PROPER TO TAX ONLY THE INTEREST INCOME AND NOT THE AMOUNTS RE COVERED TOWARDS PRINCIPAL. HOWEVER THE APPELLANT HAS NOT MA DE SUCH CLAIM BEFORE THE A.O. NOR HAS GIVEN THE COPIES OF A GREEMENTS ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 8 FOR VERIFICATION AS TO WHETHER THE INCOME OFFERED I NCLUDES PRINCIPAL RECOVERY. EVEN OTHERWISE THE ISSUE WILL D EPEND ON OUTCOME OF APPEAL BEFORE THE ITAT. ACCORDINGLY, THI S CLAIM OF THE APPELLANT IS REJECTED. THIS GROUND IS THUS DISM ISSED. 3(III). NOW THE ASSESSEE IS BEFORE US. THE ASSESSE E HAS SUBMITTED THAT THIS ISSUE HAS BEEN CONSIDERED IN A.Y. 2002-03 BY THE CO -ORDINATE BENCH A. HE DRAWN OUR ATTENTION AT PAGE NO. 74 TO 79 OF PAPER B OOK AND ARGUED THAT THE HONBLE ITAT A BENCH, HAS DECIDED THE APPEAL ON I DENTICAL FACTS IN A.Y. 2002-03 BY CONSIDERING THE HONBLE SUPREME COURT D ECISION IN CASE OF ICDC LTD. VS. CIT &ANR (2013) 350 ITR 527 (SC), HONBLE MUMBAI BENCH, ITA NO. 3006/MUM/2001, ITA NO. 4892/MUM/2003 AND ITA NO. 3 620/MUM.2001 FOR A.Y. 1996-97 ORDER DATED 22 MARCH 2013. THEREFORE, HE PRAY TO ALLOW THE APPEAL IN FAVOUR OF THE ASSESSEE. HE DRAWN OUR ATTE NTION AT PAPER BOOK PAGE NO. 88 TO 101 AND FURTHER ARGUED THAT IN A.Y. 2004- 05, HONBLE ITAT, AHMEDABAD BENCH, AHMEDABAD IN ASSESSEES OWN CASE H AS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE LD. CIT DR VEH EMENTLY RELIED UPON THE ORDER OF THE CIT(A) AND ARGUED THAT THIS IS NOT A L EASE TRANSACTION, BUT A FINANCIAL TRANSACTION. THEREFORE, THE DEPRECIATION CANNOT BE ALLOWED TO THE ASSESSEE. 3(IV). WE HAVE HEARD THE RIVAL CONTENTIONS AND THE SUBMISSION OF THE APPELLANT AND PERUSED THE MATERIAL ON RECORD. IN A .Y. 2004-05 AT PAPER BOOK PAGE NO. 88 TO 101. THE OPERATIVE PORTION IS REPROD UCED AS UNDER :- SINCE THE FACTS IN THE YEAR UNDER APPEAL ARE IDENT ICAL TO THAT OF EARLIER YEAR, FOLLOWING THE DECISION OF THE CO-ORDI NATE BENCH IN THE ASSESSEES OWN CASE FOR A.Y.2002-03, THE DECISION O F HONBLE APEX ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 9 COURT IN THE CASE OF ICDS (SUPRA) AND THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF DEVELOPMENT CREDIT BANK LTD , WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. THUS, THIS GROUND OF THE ASSESSEE IS ALLOWED. 3(V). THE ADDITIONAL GROUND OF APPEAL RAISED BY THE APPELLANT ON THE BASIS OF FINDINGS GIVEN BY THE HONBLE ITAT IN A.Y.1996-97 W HEREIN THE HONBLE ITAT SET ASIDE THE ISSUE TO THE A.O. BY DIRECTING THAT T HE EQUIPMENT UNDER THE LEASE AGREEMENT BOUGHT BY THE BANK EXISTS OR NOT. IF THE SAID ASSET IS EXISTS ACCORDING TO THE DEPARTMENT, DEPRECIATION IS ALLOWE D, IF ALTERNATIVELY NOT EXISTS, THE DEPRECIATION IS NOT ALLOWED DUE TO ANY REASON, THEN THE LEASE RENTAL INCOME THEREOF SHOULD BE EXCLUDED FROM THE TOTAL IN COME. THE ADDITIONAL GROUND HAVING CONSEQUENTIAL EFFECT TO ORDER U/S. 14 3(3) READ WITH SECTION 254, DATED 31.08.2010 FOR A.Y. 1996-97, IS ALLOWED. 3(VI). WE HAVE HEARD THE RIVAL CONTENTION OF THE SU BMISSION OF THE APPELLANT AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IS ID ENTICAL AS CO-ORDINATE BENCH IN A.Y. 2002-03 AS WELL IN A.Y. 2004-05 ALLOW ED THE APPEAL IN FAVOUR OF THE ASSESSEE, THEREFORE, WE HOLD THAT THE GROUND NO .1 OF THE APPELLANT IN PRECEDENCE, DESERVES TO BE ALLOWED AND THE GROUND N O. 1 OF REVENUE IS DISMISSED. 4. GROUND NO.2 OF THE APPELLANT AND GROUND NO. 1 OF THE REVENUE ARE AGAINST THE DISALLOWANCE U/S. 14A OF RS. 9,40,00,00 0/-. ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 10 4(I). THE LD. A.O. HAS OBSERVED THAT THE ASSESSEE H AD MADE SUO MOTU DISALLOWANCE OF RS. 2.2 CRORES U/S. 14A OF THE I.T. ACT. IN RESPECT OF EXPENDITURE INCURRED FOR EARNING TAX FREE INCOME BY THE ASSESSEE, THE LD. A.O ISSUED A SHOW CAUSE NOTICE ON THIS ISSUE WHICH WAS REPLIED BY ASSESSEE. IT WAS SUBMITTED BEFORE THE LD. A.O BY THE ASSESSEE TH AT SECTION 14A(2) HAD BEEN INSERTED BY THE FINANCE ACT, 2006 AND THAT NO FURTHER DISALLOWANCE SHOULD BE MADE. THE ASSESSEE RELIED UPON THE SUBMIS SION MADE BEFORE THE LD. A.O. IN A.Y.2002-03 TO 2004-05 AS FACTS ARE THE SIMILAR. THE LD. A.O. HELD THAT THE ASSESSEE WAS UNABLE TO CORRELATE THE EXACT DATE OF INVESTMENT AND THE INTEREST FREE FUNDS AVAILABILITY ON THE SAID DA TE. THE PROJECTION OF THE ASSESSEE OF TOTAL INTEREST FREE FUNDS AVAILABLE OF RS. 9563 CRORES AGAINST THE TAX FREE INVESTMENT WAS APPARENTLY AN ARITHMETICAL EXERCISE. THE ASSESSEE HAS ADMITTED ITS INABILITY TO GIVE THE EXACT CALCUL ATION FOR THE PURPOSE OF EXEMPTION CLAIMED. THE CURRENT ACCOUNT BALANCE CLAI MED OF RS. 7155 CRORES AS NON-INTEREST BEARING CANNOT BE TERMED AS AVAILAB LE FOR TAX FREE INVESTMENT OF LONG TERM DURATION WHEREAS THE CURRENT ACCOUNT C ANNOT BE STATIC FOR LONG PERIOD. THE ASSESSEE IS REQUIRED TO THE FUND FOR IT S REQUIREMENT FOR CRR AND SLR AS PER THE RBI NORMS. ON VERIFICATION OF THE DE TAILS CRR FOR THIS YEAR, IT WAS REQUIRED AT RS. 1056 CRORES AND SLR AT RS. 6399 CRORES AND IN TOTAL OF BOTH AT RS.7455 CRORES. THE LD. A.O. ANALYZED THE F UND AVAILABILITY OF THE ASSESSEE IN VIEW OF THE INVESTMENT IN FIXED ASSET, CRR AND SLR AT PAGE 9 OF THE ASSESSMENT ORDER AND FINALLY DISALLOWED RS. 37. 37 CRORES U/S. 14A OF THE I.T. ACT. ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 11 4(II). THE ASSESSEE CARRIED THE MATTER BEFORE THE H ONBLE CIT(A) WHO HAD ALLOWED THE APPEAL PARTLY BY OBSERVING AS UNDER :- 4.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS AS ADVANCES BY THE A.R. OF THE APPELLAN T. THE APPELLANT HAS ALREADY DISALLOWED RS. 2.20 CRORES OU T OF INTEREST, THOUGH LATER THE APPELLANT CLAIMED THAT T HE DISALLOWANCE OUT OF INTEREST SHOULD BE NIL. THE INT EREST DISALLOWANCE OF RS. 2.20 CRORES IS CONFIRMED FOLLOW ING THE STAND TAKEN BY MY PREDECESSOR CIT(A) IN EARLIER YEA RS. OUT OF ADMINISTRATIVE OR OPERATING EXPENSES, THE APPELLANT HAS NOT MADE ANY DISALLOWANCE. THE A.O. MADE DISALLOWANCE O F RS. 12.96 CRORES. IN A.Y. 2002-03, CIT(A) HELD THAT DIS ALLOWANCE SHOULD BE MADE IN THE RATIO OF EXEMPT INCOME/OVERAL L GROSS INCOME. OUT OF OPERATING EXPENSES, FOLLOWING THE OR DER OF MY PREDECESSOR, I FIND THAT DISALLOWANCE TO BE MADE IS OF RS. 7.20 CRORES. THUS, FOLLOWING MY PREDECESSORS FINDING IN THE EARLIER YEAR, THE DISALLOWANCE WOULD WORK OUT TO RS. 9.40 C RORES INCLUDING DISALLOWANCE OUT OF INTEREST OF RS. 2.20 CRORES AS AGAINST DISALLOWANCE OF RS. 39.57 CRORES WORKED OUT BY THE A.O. THEREFORE, I CONFIRM THE DISALLOWANCE OF RS. 9 .40 CRORES AND DIRECT REDUCTION OF DISALLOWANCE BY RS. 30.17 C RORES. 4(III). NOW, THE ASSESSEE AND REVENUE ARE BEFORE US . THE LD. COUNCIL FOR THE APPELLANT ARGUED THAT THE IDENTICAL ISSUE IN A.Y. 2 003-04, 2002-03 AND 2004- 05 HAD BEEN DECIDED BY THE HONBLE BENCH IN FAVOUR OF THE ASSESSEE IN ITA NO. 2571 AND 2736/AHD/2006 FOR A.Y. 2003-04, ITA NO . 152 & 233, ITA NO. 818, 4387, 237/AHD/2008 FOR A.Y. 2001-02 TO 2003-04 AND ITA NO. 2572, 2737/AHD/2006-07 FOR A.Y. 2002-03, A.Y. 2004-05 AND 2007-08 AND PRAY TO ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 12 DECIDE THE CASE IN FAVOUR OF THE ASSESSEE. AT THE O UTSET, THE LD. CIT DR SUPPORTED THE ORDER OF THE CIT(A). 4(IV). WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE MATERIAL ON RECORD AND GONE THROUGH THE VARIOUS DECISIONS OF VARIOUS C O-ORDINATE BENCHES OF AHMEDABAD OF VARIOUS ASSESSMENT YEARS. THE OPERATIV E PORTION FOR A.Y. 2003-04 IS REPRODUCED AS UNDER :- 33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT D URING THE YEAR THE ASSESSEE HAS EARNED INTEREST OF RS. 17.45 CRORE ON TAX FREE BOND AND DEBENTURES AS AGAINST WHICH TH E ASSESSEE HAD SUOMOTO DISALLOWED RS. 5.53 CRORE BEIN G THE INTEREST EXPENSES U/S 14A AS AGAINST WHICH THE AO H AS WORKED OUT THE DISALLOWANCE OF RS. 32.76 CRORE. AFT ER GIVING THE CREDIT OF DISALLOWANCE OF RS. 5.53 CRORE MADE B Y THE ASSESSEE, THE AO DISALLOWED RS. 27.23 CRORE U/S 14A . AS ON 31ST MARCH 2003, THE INTEREST FREE FUNDS AVAILAB LE WITH THE ASSESSEE WAS TO THE TUNE OF RS. 3404 CRORE (COM PRISING OF SHARE CAPITAL OF RS. 230 CRORE, RESERVES OF RS. 689 CRORES AND INTEREST FREE DEMAND DEPOSITS OF RS. 248 5 CRORES) AS AGAINST WHICH THE TAX FREE INVESTMENTS W ERE TO THE TUNE OF RS. 589 CRORE. THUS THE INTEREST FREE F UNDS WERE FAR IN EXCESS OF THE INVESTMENTS. CIT (A) HAS GIVEN A FINDING THAT THE FACTS IN AY 2003-04 ARE IDENTICAL TO THE F ACTS OF THE CASE IN AY 2002-03 AND ACCORDINGLY HE HAS FOLLOWED THE DECISION OF CIT (A) FOR AY 2002-03. THESE FACTS HAV E NOT BEEN CONTROVERTED BY THE LD. D.R. NOR HAVE THEY BRO UGHT ON RECORD ANY FACTS TO THE CONTRARY. HONBLE BOMBAY HI GH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & PO WER LTD (SUPRA) HAS HELD THAT IF THERE ARE INTEREST FREE FU NDS ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 13 AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INV ESTMENTS AND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAILABLE. IN THE PRESENT CASE, SINCE THE ASS ESSEE HAS SUOMOTO DISALLOWED RS. 5.53 CRORE U/S 14A, RESPECTFULLY FOLLOWING THE DECISION OF BOMBAY HIGH COURT, WE ARE OF THE VIEW THAT IN THE FACTS OF THE PRESENT CASE, NO FURTHER DISALLOWANCE OVER AND ABOVE THAN WHAT HAS B EEN DISALLOWED BY THE ASSESSEE IS CALLED FOR. AS FAR AS DISALLOWANCE OF OTHER ADMINISTRATIVE EXPENSES IS CONCERNED, THE UNDISPUTED FACT IS THAT THE DISALLOW ANCE HAS BEEN MADE BY THE AO WITHOUT GIVING A FINDING AS TO HOW MUCH ADMINISTRATIVE EXPENDITURE HAS BEEN INCURRED T O EARN THE EXEMPT INCOME. IN THE CASE OF HERO CYCLES (SUPR A) THE HONBLE HIGH COURT HAS HELD THAT THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITUR E IS ALWAYS INCURRED WHICH MUST BE DISALLOWED U/S 14A CA NNOT BE ACCEPTED. DISALLOWANCE U/S 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE. IN THE PRESENT CASE, THE AO HAS PRESUMED THAT THE ASSESSEE MIGHT HAVE INCURRED EXPENDITURE TO EARN THE EXEMPT INCOME. HE HAS NOT G IVEN ANY FINDING OF INCURRING OF EXPENDITURE. IN VIEW OF THESE FACTS AND RESPECTFULLY FOLLOWING THE DECISION OF HI GH COURT, WE ARE OF THE VIEW THAT NO DISALLOWANCE OF ADMINIST RATIVE EXPENSES CAN BE MADE. WE ACCORDINGLY DIRECT FOR THE DELETION OF THE ADDITION MADE BY THE AO AND ALLOW T HIS GROUND OF THE ASSESSEE. 4(V). IN A.Y. 2001-02 TO 2003-04, THIS ISSUE HAS B EEN SET ASIDE TO THE LD. A.O. AS THE ASSESSEE RAISED A NEW GROUND OF APPEAL THAT SUO MOTU TO DISALLOWANCE ALSO CANNOT BE HELD THAT THE ASSESSEE HAD INCURRED EXPENDITURE ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 14 TO EARN TAX FREE INCOME. IN A.Y. 2004-05 ALSO THIS ISSUED HAD REMITTED BACK TO THE LD. A.O. AS THE ISSUE IS IDENTICAL IN YEAR UND ER CONSIDERATION AND IN EARLIER YEARS, THEREFORE, WE HAVE CONSIDERED VIEW THAT THE LD. A.O. SHOULD EXAMINE THIS ISSUE AS PER THE FINDING GIVEN IN A.Y. 04-05 I N ASSESSEES OWN CASE, AFTER GIVING THE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THUS, THESE GROUNDS OF APPEAL OF THE APPELLANT AND REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NO. 3 OF THE ASSESSEE AND GROUND NO.4 OF THE REVENUE ARE AGAINST THE DISALLOWANCE OF PROFESSIONAL FEES AND A MC EXPENDITURE TREATED AS CAPITAL EXPENDITURE PURCHASE OF SOFTW ARE. 5(I). THE LD. A.O. HAS OBSERVED THAT THE ASSESSEE H AS DEBITED RS. 10239503/- AS ANNUAL TECHNICAL SUPPORT FEES FOR ATS PAID TO INFOSYS TECHNOLOGIES LTD. ON VERIFICATION OF THE SALE BILL, IT WAS FOUND THAT THE ASSESSEE HAD PAID CENTRAL SALES TAX @10% ON 70% OF ATS FEES WHICH PROVES THAT THE ASSESSEE HAS PURCHASED THE SOFTWARE . THE LD. A.O. GIVEN REASONABLE OPPORTUNITY OF BEING HEARD BUT NO SPECIF IC REPLY WAS FILED BY THE ASSESSEE. THEREFORE, HE TREATED THIS EXPENDITURE ON ACQUISITION OF INTANGIBLE ASSETS FOR ACQUIRING SOFTWARE AS CAPITAL EXPENDITUR E AND HE ALSO PLACED RELIANCE ON THE DECISION OF CIT VS. ARAWAL CONSTRUC TION (P) LTD. -259 ITR 30(RAJ). HOWEVER, HE ALLOWED THE DEPRECIATION ON IT . HE FURTHER FOUND THAT THE ASSESSEE HAS DEBITED THE PROFESSIONAL FEES OF RS. 4 1,61,000/- IN PROFIT AND LOSS ACCOUNT. HE VERIFIED THE PURPOSE OF PROFESSION AL FEES WHICH WAS FOR CHANGE OF SOFTWARE FROM VERSION TO ANOTHER VERSION AND HELD THAT IT WAS ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 15 RESULTED ENDURING BENEFIT TO THE ASSESSEE. WITH REG ARD TO THE THIRD PAYMENT MADE TO WIPRO, IT WAS OBSERVED THAT THE EXPENDITURE HAD BEEN INCURRED ON SHIFTING OF LEASE LINE FROM ONE LOCATION TO ANOTHER LOCATION WHICH HAS RESULTED IN CREATION OF A NEW ASSET AT THE SHIFTED LOCATION WHICH WAS ALSO HAD ENDURING BENEFIT TO THE ASSESSEE AND CAPITAL IN NATURE ON WH ICH DEPRECIATION WAS ALSO ALLOWED. THE LD. A.O. MADE ADDITION OF RS. 5821801/ - UNDER THIS ACT. 5(II). THE ASSESSEE CARRIED THE MATTER BEFORE THE L D. CIT(A). THE LD. CIT(A) ALLOWED THE APPEAL PARTLY BY OBSERVING AS UNDER :- 8.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSION OF THE A.R. AS PER THE FINDING GIVEN BY MY PREDECESSOR IN A.Y. 2004-05 AND FROM THE DETAILS OF PAYMENTS, I AM OF THE OPINI ON THAT ANNUAL TECHNICAL SUPPORT FEES PAID TO INFOSYS TECHNOLOGIES LTD. ARE IN THE NATURE OF REVENUE EXPENDITURE. BY FOLLOWING THE ORD ER OF THE CIT(A) IN EARLIER YEARS, I HOLD THAT THE A.O. IS NO T JUSTIFIED IN TREATING THE AMOUNT OF RS. 1.02 LAKHS AS CAPITAL IN NATURE. THE APPELLANT GETS RELIEF ON THIS POINT. HOWEVER, THE E XPENDITURE OF RS. 40 LAKHS PAID TO INFOSYS FOR UPGRADATION OF SOFTWA RE AND PAYMENT OF RS. 1.68 LAKHS FOR LEASE LINE HAVE BROUG HT ENDURING BENEFIT TO THE APPELLANT, SO THE ACTION OF THE A.O. IN HOLDING THE SAME AS CAPITAL EXPENDITURE IS CONFIRMED. RELIANCE IS MADE ON THE DECISION OF ITAT DELHI IN THE CASE OF ESCORTS L TD. REPORTED IN 104 ITD 427 AND MARUTI UDYOG LTD. (92 ITD 119) AND OF ITAT CHENNAI IN INDIA EQUIPMENT LEASING LTD. (111 TTJ 25 2). 5(III). NOW THE ASSESSEE AND REVENUE ARE BEFORE US AND ARGUED THAT THIS ISSUE IS IDENTICAL FOR A.Y. 2003-04 AND 2004-05. L D. A.R. FOR THE APPELLANT SUBMITTED THAT THESE PAYMENTS WERE IN RESPECT OF TE CHNICAL SUPPORT/ANNUAL MAINTENANCE FEES AND WERE IN THE NATURE OF PER ODIC LICENSE FEES. THE ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 16 ASSESSEE CLAIMED THIS EXPENDITURE AS REVENUE EXPEND ITURE. HE HAS DRAWN OUR ATTENTION ON PAGE NO.369 TO 375 OF THE PAPER BO OK. IT CAN BE CONCLUDED ON THE BASIS OF MAJOR EXPENSES THAT NONE OF THE ITE M PERTAINED TO ACQUISITION OF ASSET. THIS ISSUE IS IDENTICAL FOR A.Y. 03-04, WHICH HAS BEEN DELETED BY THE HONBLE ITAT. FURTHER, PROFESSIONAL FEES FOR THE A SSISTANT IN MIGRATION ORACLE 8.I TO ORACLE 9.I AND OTHER INCIDENTAL SERVICE FOR RS.40 LACS IS ALSO HAVING NATURE OF REVENUE EXPENDITURE. IT IS REQUIRED FURT HER CONTINUING TO USE OF FINACLE PROGRAM AND TO APPROACH GRADE AND USE ORACL E PROGRAM BECAUSE INFOSYS BASED ITS FINACLE SOFTWARE ON ORACLE PROGRA M. THIS IS A TYPICAL FEATURE OF ANY SAP/ERP PROGRAM WHERE SOFTWARE WORKS IN CONJ UNCTION WITH OPERATIVE WORKS LIKE ORACLE BUT FOR ORACLE CONTINUING USER OF FINACLE SOFTWARE IS NOT POSSIBLE FOR THE APPELLANT. THE IDENTICAL ISSUE HA D ARISEN IN A.Y. 03-04 WHEREIN A.O. HAD DISALLOWED PAYMENT TO INFOSYS OF S IMILAR NATURE WHICH HAD BEEN DELETED BY THE HONBLE ITAT IN A.Y. 03-04. TH E PAYMENT MADE TO WIPRO LTD. RS. 1.68/- LAC WAS NECESSARY TO SHIFT TH E CONNECTIVITY LINK AT VARIOUS LOCATION. THIS WORK WAS ENTRUSTED TO WIPRO LTD. WHOEVER, OTHERWISE HANDLED DAY TO DAY ADMINISTRATION ON LEASE LINE CON NECTIVITY. THERE IS NO ENDURING BENEFIT FROM IT. THEREFORE, IT SHOULD BE ALLOWED. AT THE OUTSET, LD. CIT D.R. VEHEMENTLY RELIED UPON THE ORDER OF THE A.O. 5(IV). WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE MATERIAL ON RECORD. THE ISSUE IS IDENTICAL TO A.Y. 03-04, WHER E CO-ORDINATE BENCH HAD ALLOWED THE APPEAL. THE OPERATIVE PORTION OF THE O RDER IS AS UNDER: ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 17 AS CAN BE SEEN FROM THE INVOICES, PAYMENTS ARE IN RESPECT OF ANNUAL TECHNICAL SUPPORT FEES AND/OR ANNUAL USER LI CENCE FEES FOR THE YEAR UNDER REFERENCE. THE APPELLANT HAS TO PAY CONTRACTED ANNUAL TECHNICA L SUPPORT FEES AMOUNTING TO RS. 54.75 LAKHS TO CONCURRENT YEARS, W HICH IS AKIN TO ANNUAL MAINTENANCE FEES PAID FOR ANY STATE-OF-THE-A RT EQUIPMENT. INFOSYS PROVIDES ANNUAL TECHNICAL SUPPORT FOR OTHER MODULES OF SOFTWARE, SUCH AS BANCSCONNECT, BANKAWAY, BANCSREMO TE, BALM SOFTWARE WHICH ARE ALREADY IN POSSESSION AND USE OF THE ASSESSEE SINCE YEARS, FOR WHICH SUPPORT FEES ARE PAID FOR TH E YEAR UNDER REFERENCE AMOUNTING TO RS. 29.25 LAKHS. THE A.O. HAS DISALLOWED THE PAYMENT ON THE SOLE GROUND THAT INFOSYS HAD LEVIED SALES TAX AND BY IMPLICATION, TH EREFORE, PAYMENT IS TOWARDS ACQUISITION OF INTANGIBLE ASSET BEING SOFTW ARE. IT WAS SUBMITTED THAT THE INVOICES DO CLEARLY REFER TO SER VICE FEES. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND THE SUBMISSIONS AS ADVANCED BY THE APPELLANT........... .. FROM THE ANALYSIS OF THE VOUCHERS MAINTAINED FOR INCURRING T HESE EXPENDITURE, IT IS SEEN THAT ALL THESE EXPENDITURE ARE IN THE NA TURE OF REVENUE EXPENDITURE. THE A.O. WAS NOT JUSTIFIED IN TREATING IT AS CAPITAL EXPENDITURE.' FURTHER IT WAS HELD AS UNDER: THE APPELLANT HAS ALSO AVAILED CERTAIN SUPPORT SER VICES FROM INFOSYS TO ADDRESS TO PECULIAR PROBLEMS ARISING FOR TRANSFE R OF DATA FROM ONE VERSION OF THE SOFTWARE TO THE OTHER VERSION FOR WH ICH AN AMOUNT OF RS. 9.29 LAKHS WAS PAID BEING SUPPORT SERVICE CHARG ES ....... . ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 18 I HAVE CAREFULLY CONSIDERED THE FECTS OF THE CASE A ND THE SUBMISSIONS AS ADVANCED BY THE APPELLANT........... ..FROM THE ANALYSIS OF THE VOUCHERS MAINTAINED FOR INCURRING T HESE EXPENDITURE, IT IS SEEN THAT ALL THESE EXPENDITURE ARE IN THE NATURE OF REVENUE EXPENDITURE. THE A.O. WAS NOT JUS TIFIED IN TREATING IT AS CAPITAL EXPENDITURE' BY FOLLOWING THE CO-ORDINATE BENCH DECISION ON THIS ISSUE, WE ALLOW THE APPEAL OF THE ASSESSEE AND DISMISS THE APPEAL OF TH E REVENUE. 6. GROUND NO. 4 OF THE ASSESSEE AND GROUND NO. 2 OF THE REVENUE ARE AGAINST THE DISALLOWANCE OF BAD DEBTS UNDER SECTION 36(1)(VII) R.W.S. 36(1)(VIIA). 6(I). THE LD. A.O. HAS OBSERVED THAT THE ASSESSEE H AD CLAIMED BAD DEBT OF RS. 699152607/-. THE ASSESSEE HAD NOT CONSIDERED TH E PROVISIONS FOR BAD AND DOUBTFUL DEBT AT THE END OF THE ACCOUNTING YEAR AMOUNTING TO RS.94.25 CRORES. THE A.O. GAVE THE REASONABLE OPPORTUNITY OF BEING HEARD WHICH WAS AVAILED BY THE ASSESSEE. THE ASSESSEE WAS ALSO ASKE D TO PROVE HOW THE DEBT BECAME BAD. AFTER CONSIDERING THE ASSESSEES REPLY , IT WAS HELD THAT CLOSING BALANCE IN THE NPA PROVISION ACCOUNT AS PER RBI GUI DELINES IN THE BANKS BOOK IS RS. 94.25 CRORES. AS PER THE PROVISIONS OF SECTION 36(1)(VII), THE DEDUCTION OF BAD DEBT IS REQUIRED TO BE COMPUTED RE AD WITH THE PROVISO TO THIS SECTION. ACCORDING TO THE PROVISO, THE AMOUNT OF DE DUCTION RELATING TO BAD DEBT IS ALLOWABLE TO THE EXTENT ONLY BY WHICH IT IS MORE THAN THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS MADE. AS PER P ROVISO AND AS PER RBI GUIDELINES, IT WAS RS. 94.25 CRORES AND THE ASSESSE ES CLAIM OF BAD DEBT WAS ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 19 RS. 699152607/- WHICH WAS NOT EXCEEDING THE CREDIT BALANCE IN THE PROVISION OF BAD AND DOUBTFUL DEBT OF RS. 94.25 CRORES. THIS ISSUE WAS IDENTICAL TO EARLIER YEAR. THE RELIANCE IS PLACED ON THE JUDGME NT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISE & ENGINEERS (P) LTD. VS. CIT (2007 ) 207 CTR (GUJ) 729 AND HAD NOT ALLOWED BAD DEBT CLAIMED OF RS. 6991526 07/-. 6(II). THE ASSESSEE CARRIED THE MATTER BEFORE THE L D. CIT(A) AND THE LD. CIT(A) HELD THE GROUND OF APPEAL AS UNDER :- 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS AS ADVANCED BY THE A.R. OF THE APPELLAN T. IT IS SEEN THAT THE APPELLANT HAS CLAIMED BAD DEBTS OF RS. 32. 16 CRORES AS PER THE STATEMENT OF INCOME AFTER DEDUCTING OPENING BALANCE IN THE PROVISION FOR DOUBTFUL ASSETS U/S. 36(1)(VIIA) AS AT 31.03.2004 OF RS. 37.76 CRORES FROM THE TOTAL DEBIT OF RS. 69. 91 CRORES MADE IN THE P & L ACCOUNTANT AS BAD DEBTS WRITTEN OFF. B UT THE A.O. HAS DISALLOWED RS. 69.91 CRORES ON ACCOUNT OF BAD DEBTS . THE APPELLANT AS IN THE EARLIER YEARS HAS CLAIMED THAT ADJUSTMENT WAS REQUIRED TO THE EXTENT OF OPENING BALANCE IN THE PR OVISION ACCOUNT AS PER THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE I.T. ACT BUT MY PREDECESSOR C.I.T(APPEALS) HAS HELD FOR EARLIER YEA RS THAT THE ADJUSTMENT AS PER PROVISO TO SECTION 36(1)(VII) R.W .S36(1)(VIIA) SHOULD BE FOR CLOSING BALANCE IN THE PROVISION ACCO UNT. SINCE THE CLOSING BALANCE FOR THIS YEAR IS OF RS.NIL, THE APP ELLANT CLAIMED THAT THE ENTIRE AMOUNT OF RS. 69.91 CRORES SHOULD B E ALLOWED AS BAD DEBT BEING CONSISTENT WITH THE VIEW ADOPTED BY THE CIT(A) IN EARLIER YEARS. HOWEVER, THE A.O. WHILE DISALLOWING THE CLAIM OF BAD DEBT HAS ADDED BACK RS. 69.91 CRORES AS AGAINST THE CLAIM OF THE APPELLANT OF RS. 32.16 CRORES. AS REGARDS THE F INDINGS OF THE A.O. THAT THE APPELLANT HAS NOT PROVED THAT THE DEB TS HAVE BECOME BAD, THE APPELLANT CLAIMED THAT IT HAS SUBM ITTED ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 20 ELABORATE DETAILS REGARDING BAD DEBTS WRITTEN OFF B EFORE THE A.O. AND THAT SUCH WRITE OFF WAS A NORMAL FEATURE OF BAN KING BUSINESS AND THAT SUCH WRITE OFF CONSTITUTED ONLY 3% OF TOTA L REVENUE AND THE BAD DEBTS HAVE TO BE REPORTED TO THE RBI AND TH E SAME ARE WRITTEN OFF AFTER PROPER REVIEW AT THE HIGHEST LEVE L OF THE BOARD. AS PER THE DETAILS GIVEN BY THE APPELLANT, THE BAD DEB T CLAIM CONSISTS OF RS. 18.98 CRORES IN THE NAME OF RETAILS LOANS SP READ OVER 25,000 RETAILS CUSTOMERS WHO HAD TAKEN LOANS AGAINS T 2-WHEELERS AND RS. 31 CRORES IN RESPECT OF CASES IN BIFR, LIQU IDATION AND DRT. A REMAND REPORT WAS CALLED FROM THE A.O AND IN THE REMAND REPORT THE A.O. HAS STATED THAT THE APPELLANT HAS C LAIMED WRITE OFF OF RS. 69.91 CRORES AND THE CLOSING BALANCE IN THE PROVISION FOR NPAS AS PER RBI GUIDELINES IS OF RS. 94.24 CRORES A ND THAT THE CLAIM IS LESS THAN THE CLOSING BALANCE OF PROVISION , HENCE, THE ENTIRE CLAIM OF RS. 69.91 CRORES HAS BEEN DISALLOW ED. THE A.O. HAS FURTHER STATED THAT HE HAS ALLOWED IN THE PAST THE CLAIM OF THE APPELLANT U/S. 36(1)(VIIA) IN TOTO AND THE DISALLOW ANCE WAS MADE W.R.T. CLAIM U/S. 36(1)(VII) ONLY AND SINCE IN THE YEAR UNDER QUESTION, THERE WAS NO CLAIM U/S. 36(1)(VIIA), NOTH ING HAS BEEN ALLOWED UNDER THIS SECTION. AS FAR AS THE DISALLOWA NCE U/S. 36(1)(VII) IS CONCERNED, IT HAS BEEN MADE AS PER EA RLIER YEARS METHOD ONLY AND FOLLOWING THE SAME, THE ENTIRE CLAI M OF WRITE OFF WAS DISALLOWED. THERE WAS VARIATION IN THE FIGURES OF THE CLAIM AND DISALLOWANCE BECAUSE THE APPELLANT HAS BEEN MAK ING THE CLAIM AS PER ITS OWN METHOD, WHERE IT HAS BEEN REDU CING THE OPENING BALANCE OF THE PROVISION MADE AND FOLLOWING THAT METHOD, ITS FINAL CLAIM WAS RS. 32.17 CRORES AND THE A.O. H AD BEEN FOLLOWING HIS OWN METHOD AND HENCE, THE DIFFERENCE BETWEEN WAS DUE TO DIFFERENT METHODS BEING FOLLOWING BY THE APP ELLANT AND THE A.O. THE A.O. IN HIS REPORT HAS REITERATED THAT THE DISALLOWANCE OF RS. 69.91 CRORES WAS CORRECT, THEREFORE, THE ENTIRE DISALLOWANCE ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 21 SHOULD BE UPHELD ON THIS ISSUE. THE A.O. FURTHER SU BMITTED THAT MERELY GIVING THE NAME OF THE ASSESSEE AND ADJUSTIN G THE COLLATERAL AND SECURITY DOES NOT IPSO FACTO LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS EXHAUSTED ALL ITS OPTION TO R ECOVER THE DEBTS. ON CONSIDERATION OF THE FACTS OF THE CASE AN D THE SUBMISSIONS OF THE A.R. AND THE REMAND REPORT OF TH E A.O., I FIND THAT THE A.O. HAS MADE EXCESS DISALLOWANCE TO THE T UNE OF RS. 37.75 CRORES, AS THE APPELLANT HAS CLAIMED DEDUCTIO N FOR BAD DEBTS OF RS. 32.16 CRORES ONLY AS PER THE STATEMENT OF INCOME AND NOT TO THE TUNE OF RS. 69.91 CRORES. THE EXCESS DISALLOWANCE MADE RS. 37.75 CRORESCAN NOT BE SUSTAINED, HENCE RE LIEF OF RS. 37.75 CRORES IS ALLOWED. FURTHER AS THE APPELLANT H AS NOT MADE FRESH PROVISION DURING THE A.Y.2005-06 U/S. 36(1)(V IIA) AND AS PER THE ORDERS OF CIT(A) FOR EARLIER YEARS THE ADJUSTME NT IS DONE FOR CLOSING BALANCE OF PROVISION FOR DOUBTFUL DEBTS U/S . 36(1)(VIIA) WHICH IS NIL FOR THIS YEAR, THE AMOUNT OF BAD DEBTS CLAIMED U/S. 36(1)(VII) OF RS. 32.16 CRORES IS HELD AS ALLOWABLE AS THE APPELLANT HAS GIVEN ELABORATE DETAILS FOR WRITE OFF AND HAS F OLLOWED RBI GUIDELINES AND AS SUBMITTED THE WRIT OFF CONSISTS O F CASES PERTAINING TO LIQUIDATION AND BIFR CASES AND SMALL ACCOUNTS OF TWO WHEELER LOANS ETC. THUS, THE APPELLANT GETS REL IEF OF RS. 37.75 CRORES ON ACCOUNT OF EXCESS DISALLOWANCE MADE BY TH E A.O. AND BALANCE OF RS. 32.16 CRORES AS BAD DEBTS WRITTEN OF F DURING THE YEAR U/S. 36(1)(VII)OF THE I.T. ACT. 6(III). NOW, THE ASSESSEE AND REVENUE ARE BEFORE US AND THE LD. COUNCIL FOR THE APPELLANT CLAIMED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE ORDER OF THE HONBLE SUPREME COURT OF INDIA IN TRF LTD. CASE, IN ASSESSEES OWN CASE FOR A.Y. 1998-99, 2000-01, 2001 -02. IN SUBSEQUENT YEAR ALSO HONBLE ITAT, AHMEDABAD BENCH, AHMEDABAD IN A. Y. 2003-04, 2002-03 ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 22 AND 2004-05 ALLOWED THE APPEAL IN FAVOUR OF THE ASS ESSEE. HE HAD DRAWN OUR ATTENTION FOR THIS PURPOSE AT VARIOUS PAGE OF THE P APER BOOK AND LD. COUNCIL PRAY TO ALLOWED THE GROUND. AT THE OUTSET, THE LD. AR VEHEMENTLY RELIED UPON THE ORDER OF THE LD. CIT(A). 6(IV). WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE MATERIAL ON RECORD. THE ISSUE IS IDENTICAL WITH EARLIER YEARS A S ADMITTED BY THE BOTH THE PARTIES. THE ISSUE HAS BEEN DECIDED BY CO-ORDINATE BENCH IN A.Y. 2004-05 IN ITA NO. 4386, 4388/AHD/2007 AS UNDER :- 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. WE FIND THAT THE REVENUE IN TAX APPEAL N O. 1077 TO 1080/AHD/2010 (FOR AY 1998-99, 2000-01 & 2001-02) H AD PREFERRED APPEAL BEFORE HIGH COURT AGAINST THE ORDER OF TRIBU NAL AND THE QUESTION RAISED BEFORE HON. GUJARAT HIGH COURT READ S AS UNDER: 'WHETHER THE APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN HOLDING THAT FOR THE PURPOSE OF SECTION 36(1)(VII) ONLY THE CLOSING CREDIT BALANCE IN THE PREVIOUS ACCOUNT OF T HE EARLIER YEARS IS TO BE CONSIDERED. DESPITE THE PROVISION OF SECTION 36(1)(VII) OF THE ACT?' THE HON. GUJ. H. C. HELD AS UNDER: 15. IN THE PRESENT CASE, HOWEVER, THE QUESTION OF METHOD OF OPERATION OF PROVISO TO SECTION 36(L) (VII) ARISES. SUCH PROVISO AS NOTED, PROVIDES THAT IN CASE OF AN ASSESSEE TO W HICH CLAUSE (VIIA) APPLIES, THE AMOUNT OF DEDUCTION RELATING TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANC E IN THE PROVISION FOR ACCOUNT MADE UNDER THAT CLAUSE. THE R EVENUE'S CONTENTION IS THAT BY VIRTUE OF SUCH PROVISO, THE C LAIM OF THE ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 23 ASSESSEE FOR DEDUCTION FOR DEBTS WRITE OFF, SHOULD BE REDUCED BY THE CLOSING BALANCE OF THE ASSESSEE IN HIS ACCOU NT FOR THE PROVISION OF BAD AND DOUBTFUL DEBTS. ON THE OTHER H AND, THE ASSESSEE CONTENTS THAT SUCH DIMINUTION BE LIMITED T O THE OPENING BALANCE OF SUCH ACCOUNT. 16. WE NOTICE THAT IN THIS RESPECT THE PROVISION IS SILENT. WE MAY THEREFORE RECORD THAT THE INTERPRETATION ADOPTE D BY THE TRIBUNAL IN THE IMPUGNED JUDGMENT WOULD ORDINARILY GIVE RISE TO A QUESTION OF LAW PARTICULARLY WHEN IT IS POINTE D OUT THAT THERE IS NO PREVIOUS DECISION OF ANY HIGH COURT ON THE SUBJECT. HOWEVER, THE ISSUE HAS BEEN MADE SUFFICIENTLY CLEAR BY THE CBDT CIRCULAR NO.17/2008 DATED 26-11-2008. IN THE S AID CIRCULAR, THIS VERY ISSUE HAS BEEN EXAMINED AND CLA RIFIED IN THE FOLLOWING MANNER: '2. IN A RECENT REVIEW OF ASSESSMENT OF BANKS CARR IED OUT BY C&AG, IT HAS BEEN OBSERVED THAT WHILE COMPUTING THE INCOME OF BANKS UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS & PROFESSION, DEDUCTIONS OF LARGE AMOUNTS UNDER DIF FERENT SECTIONS ARE BEING ALLOWED BY THE ASSESSING OFFICER S WITHOUT PROPER VERIFICATION, LEADING TO SUBSTANTIAL LOSS OF REVENUE. IT IS, THEREFORE, NECESSARY THAT ASSESSMENTS IN THE CASES OF BANKS ARE COMPLETED WITH DUE CARE AND AFTER PROPER VERIFI CATION. IN PARTICULAR, DEDUCTIONS UNDER THE PROVISIONS REFERRE D TO BELOW SHOULD BE ALLOWED ONLY AFTER A THOROUGH EXAMINATION OF THE CLAIM ON FACTS AND ON LAW AS PER THE PROVISIONS OF THE I.T, ACT, 1961. (I) UNDER SECTION 36(L)(VII) OF THE ACT, DEDUCTION ON ACCOUNT OF BAD DEBTS WHICH ARE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE IS ADMISSIBLE. HOWEVER, TH IS SHOULD ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 24 BE ALLOWED ONLY IF THE ASSESSEE HAD DEBITED THE AMO UNT OF SUCH AMOUNTS TO THE PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT UNDER SECTION 36(1)(VII) OF THE ACT, AS REQ UIRED BY SECTION 36(2) (V) OF THE ACT. (II) WHILE CONSIDERING THE CLAIM FOR BAD DEBTS U/S 36(1)(VII), THE ASSESSING OFFICER SHOULD ALLOW ONLY SUCH AMOUNT OF BAD DEBTS WRITTEN OFF AS EXCEEDS THE CREDIT BALANCE AVA ILABLE IN THE PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT CREATED U/S 36(1) (VIIA) OF THE ACT. THE CREDIT BALANCE FOR THIS PURP OSE WILL BE THE OPENING CREDIT BALANCE I.E., THE BALANCE BROUGHT FO RWARD AS ON 1ST APRIL OF THE RELEVANT ACCOUNTING YEAR.' 17. AS ALREADY NOTED, IN ABSENCE OF SUCH CLARIFIC ATION BY CBDT, WE WOULD HAVE BEEN INCLINED TO ADMIT THE APPEALS. H OWEVER, WHEN SUCH CIRCULAR ISSUED UNDER SECTION 119(2) OF T HE ACT CLARIFIES-THE POSITION BEYOND ANY DOUBT, WE HAVE NO REASON TO ENTERTAIN THE REVENUE'S APPEALS. AS ALREADY NOTED, THE STATUTORY PROVISION IS SILENT ON THE PRECISE METHOD OF WORKING OUT THE DEDUCTION. IT IS BY NOW WELL-SETTLED THAT S UCH CIRCULARS ISSUED BY THE BOARD IN EXERCISE OF ITS STATUTORY PO WERS UNDER SECTION 119(2) OF THE ACT, MAY HAVE THE EFFECT OF R ELAXING THE RIGORS OF A STATUTORY PROVISION. IN THE CASE OF CAT HOLIC SYRIAN BANK LTD. (SUPRA) ITSELF, THE APEX COURT TOUCHED ON THE EFFECT OF THE CIRCULAR ISSUED BY THE BOARD. IT WAS OBSERVE D AS UNDER: 'NOW, WE SHALL PROCEED TO EXAMINE THE EFFECT OF THE CIRCULARS WHICH ARE IN FORCE AND ARE ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (FOR SHORT, 'THE BOAR D') IN EXERCISE THE POWER VESTED IN IT UNDER SECTION 119 O F THE ACT. CIRCULARS CAN BE ISSUED BY THE BOARD TO EXPLAI N OR TONE DOWN THE RIGOROUS OF LAW AND TO ENSURE FAIR ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 25 ENFORCEMENT OF ITS PROVISIONS. THESE CIRCULARS HAVE THE FORCE OF LAW AND ARE BINDING ON THE INCOME-TAX AUTHORITIES, THOUGH THEY CANNOT BE ENFORCED ADVERSE LY AGAINST THE ASSESSEE. NORMALLY, THESE CIRCULARS CAN NOT BE IGNORED. A CIRCULAR MAY NOT OVERRIDE OR DETRACT FROM THE PROVISIONS OF THE ACT BUT IT CAN SEEK TO MITIGA TE THE RIGOUR OF A PARTICULAR PROVISION FOR THE BENEFIT OF THE ASSESSEE IN CERTAIN SPECIFIED CIRCUMSTANCES SO LONG AS THE CIRCULAR IS IN FORCE, IT AIDS THE UNIFORM AND P ROPER ADMINISTRATION AND APPLICATION OF THE PROVISIONS OF THE ACT. (REFER TO UCO BANK V. CIT(1999) 4 SCC 599). ' 18. IN CASE OF UCO BANK VS. COMMISSIONER OF INCOME TAX REPORTED IN 237 ITR 889 THE SUPREME COURT IN CONNECTION WITH EFFECT OF CIRC ULARS ISSUED BY THE BOARD UNDER SECTION 119 OF THE ACT OB SERVED: 'SUCH INSTRUCTIONS MAY BE BY WAY OF RELAXATION OF A NY OF THE PROVISIONS OF THE SECTIONS SPECIFIED THERE OR OTHER WISE. THE BOARD, THUS, HAS POWERS INTER ALIA, TO TONE DOWN TH E RIGOUR OF THE LAW AND ENSURE A FAIR ENFORCEMENT OF ITS PROVISIONS , BY ISSUING CIRCULARS IN EXERCISE OF ITS STATUTORY POWERS UNDER SECTION 119 WHICH ARE BINDING ON THE AUTHORITIES IN THE ADMINIS TRATION OF THE ACT. UNDER SECTION 119(2)(A), HOWEVER, THE CIRCULAR S AS CONTEMPLATED THEREIN CANNOT BE ADVERSE TO THE ASSES SEE. THUS, THE AUTHORITY WHICH WIELDS THE POWER FOR ITS OWN AD VANTAGE UNDER THE ACT IS GIVEN THE RIGHT TO FORGO THE ADVANTAGE W HEN REQUIRED TO WIELD IT IN THE MANNER IT CONSIDERS JUST BY RELAXIN G THE RIGOUR OF THE LAW OR IN OTHER PERMISSIBLE MANNERS AS LAID DOWN IN SECTION 119. THE POWER IS GIVEN FOR THE PURPOSE OF JUST, PROPER AND EFFICIENT MANAGEMENT OF THE WORK OF ASSESSMENT AND IN PUBLIC INTEREST. IT IS A BENEFICIAL POWER GIVEN TO THE BOARD FOR PROPER ADMINISTRATION ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 26 OF FISCAL LAW SO THAT UNDUE HARDSHIP MAY NOT BE CAU SED TO THE ASSESSEE AND THE FISCAL LAWS MAY BE CORRECTLY APPLI ED. HARD CASES WHICH CAN BE PROPERLY CATEGORIZED AS BELONGIN G TO A CLASS, CAN THUS BE GIVEN THE BENEFIT OF RELAXATION OF LAW BY ISSUING CIRCULARS BINDING THE TAXING AUTHORITIES.' 19. IN THE RESULT, BEARING IN MIND THE CIRCULAR ISS UED BY CBDT DATED 26.11.2008 NO FURTHER CONTROVERSY SHOULD ARISE. IN THE RESULT, THE TAX APPEALS ARE DISMISSED. 20. BEFORE US, THE LD. D.R. COULD NOT CONTROVERT TH E SUBMISSIONS MADE BY THE LD. A.R. NOR COULD BRING ANY MATERIAL O N RECORD TO DEMONSTRATE THAT THE DECISION OF HIGH COURT HAS BEE N OVERTURNED BY SUPERIOR COURT. FURTHER, SINCE THE FACTS THE YEAR U NDER APPEAL ARE IDENTICAL TO THAT OF EARLIER YEARS, WE RESPECTFULLY , FOLLOWING THE DECISION OF HON. GUJARAT HIGH COURT, IN ASSESSEE'S OWN CASE ALLOW THIS GROUND IN FAVOUR OF ASSESSEE AND THUS THIS GROUND OF ASSESSEE IS ALLOWED. 6(III). THE LD. CIT DR HAD NOT CONTROVERTED THE SU BMISSIONS MADE BY THE AR NOR COULD HAVE BROUGHT ANY MATERIAL ON RECORD TO DE MONSTRATE THAT THE DECISION OF HONBLE GUJARAT HIGH COURT HAD BEEN OVE RRULED BY THE HONBLE SUPREME COURT. BEING THE ISSUE IS IDENTICAL WITH E ARLIER YEAR, WE RESPECTFULLY FOLLOW THE DECISION OF HONBLE GUJARAT HIGH COURT I N ASSESSEES CASE AND ALLOW THE GROUND NO.4 OF APPEAL OF THE APPELLANT IN HIS FAVOUR. THUS, THE GROUND NO. 2 OF APPEAL OF THE REVENUE IS DISMISSED. NOW, WE ARE TAKING REMAINING GROUNDS OF THE REVENUE . 7. GROUND NO. 3 OF THE REVENUE IS AGAINST DELETING THE DISALLOWANCE OF WRITE BACK OF NPA PROVISION OF RS. 69.90 CRORES. ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 27 7(I). THE LD. A.O. OBSERVED THAT THE ASSESSEE HAD R EDUCED SUM OF RS .69.09 CRORES FROM THE PROFIT SHOWN AS PER THE PROFIT AND LOSS ACCOUNT. THIS REDUCTION WAS ON ACCOUNT OF WRITE BACK OF PROVISIONS FOR NPAS CLAIMED TO HAVE BEEN DISALLOWED AND OFFERED TO TAX IN EARLIER YEARS. THE LD. A.O. GAVE THE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE . THE ASSESSEE AVAILED THE OPPORTUNITY. AFTER CONSIDERING THE ASSESSEES REPLY , IT WAS HELD THAT THE ASSESSEE WAS UNABLE TO IDENTIFY THE ASSETS/ADVANCES CONSTITUTING THE NPAS IN RESPECT OF WHICH DEDUCTION OF RS. 69.09 CRORES HAD BEEN CLAIMED BY IT. IF ANY DEDUCTION WAS CLAIMED BY THE ASSESSEE, THE ONUS LIE S UPON THE ASSESSEE TO PRODUCE THE EVIDENCES IN SUPPORT OF ITS CLAIM. THE ASSESSEE FAILED TO DISCHARGE THE ONUS THAT LAY ON IT IN ACCORDANCE WIT H THE ESTABLISHED LAW. THE A.O. FURTHER HELD THAT THE APPELLANT WAS NOT ABLE T O PRODUCE ANY EVIDENCES TO JUSTIFY THE CLAIM AND TO EXPLAIN AS TO HOW THE FIGU RE OF RS. 69.09 CRORES WAS ARRIVED AT. HE HELD THAT THIS PROVISION HAD BEEN A LLOWED IN EARLIER YEARS. IF THE SAME IS ALLOWED DURING THE YEAR UNDER CONSIDERATION , IT WOULD AMOUNT TO DOUBLE DEDUCTION. THE FIGURES OF ALLOWED CLAIM OF N PAS U/S. 36(1)(VII A) IN EARLIER YEARS AS UNDER : A.Y AMOUNT CLAIMED U/S. 36(1)(VII A) 2004-05 37.75 CRORES 2004-05 14.84 CRORES 2004-05 8.24 CRORES 2004-05 54.32 CRORES WHEN THE ASSESSEE HAD FAILED TO IDENTIFY THE NPAS I N RESPECT OF WRITE BACK OF THE PROVISION FOR NPAS, THE LD. A.O. DISALLOWED RS. 69.09 CRORES. ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 28 7(II). BEING AGGRIEVED BY THE ORDER OF THE LD. A.O. , THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO HAD ALLOWED THE AP PEAL BY OBSERVING AS UNDER :- 6.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS AS ADVANCED BY THE A.R OF THE APPELLANT . FROM THE DETAILS FURNISHED BY THE APPELLANT AS CLAIMED BY TH E APPELLANT, THE TOTAL AMOUNT OF DISALLOWANCE MADE BY THE APPELLANT IN RETURNS OF INCOME IN EARLIER YEARS OF RS. 233.32 CRORES IN RES PECT OF A.YS FROM A.Y. 1998-99 TO A.Y.2004-05. IN THE REMAND REP ORT, THE A.O. HAS STATED THAT IN SPITE OF GIVING ADEQUATE NUMBER OF OPPORTUNITIES TO IDENTIFY THE ASSETS/ADVANCES RELAT ABLE TO THE WRITE BACK AND TO SHOW THAT THE CORRESPONDING ASSETS HAVE NOT BEEN CLAIMED ALREADY AS DEDUCTION, THE APPELLANT COULD N OT PRODUCE THE CORRELATION IN THE ABSENCE OF WHICH, IT WAS NOT POS SIBLE TO RULE OUT THE CLAIM OF DEDUCTION ALREADY MADE WITH RESPECT TO SUCH ASSETS IN EARLIER YEAR. MOREOVER, SINCE THE DEDUCTION HAS BEEN CLAIMED BY THE APPELLANT, THE ONUS LIES ON THE APPELLANT TO JUSTIFY ITS NON INCLUSION AS INCOME. THE A.O. FURTHER STATED THAT W HEN A WRITE BACK IS MADE BY THE APPELLANT, THERE IS A COMPONENT OF SUCH ALREADY CLAIMED DEDUCTION U/S. 36(1)(VIIA ) IN IT, AS A RESULT OF WHICH THE APPELLANT GETS BENEFIT OF DOUBLE DEDUCTIO N ONCE U/S. 36(1)(VIIA) AND THEN ON WRITE BACK OF SUCH AMOUNT. THE A.O. HAS STATED THAT THE CLAIM OF WRITE BACK HAS BEEN RIGHTL Y DISALLOWED BY ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 29 THE A.O. I DO NOT AGREE WITH THE COMMENTS OF THE A. O. IN THE REMAND REPORT. DURING THE APPELLATE PROCEEDINGS, TH E APPELLANT HAS GIVEN YEAR WISE BREAKUP OF RS. 233.32 CRORES OF PROVISION FOR NPA AS NARRATED IN PARA 6.1 AT PAGE 11 IN THE PRESE NT ORDER HEREINABOVE WHICH HAD NOT BEEN CLAIMED BY THE APPEL LANT OVER THE ASSESSMENT YEARS FROM A.Y. 1998-99 TO A.Y. 2004 -05. FURTHER, IT IS GATHERED FROM THE PRESENT A.O. THAT THE APPELLANT HAD NOT CLAIMED DEDUCTION FOR PROVISION FOR THE FOL LOWING AMOUNTS ALSO: A.Y. RS (CRORES) 1997-98 2.6 1995-96 1.42 THUS, TOTAL AMOUNT OF PROVISION OF RS. 237.34 CRORE S HAS BEEN OFFERED BACK IN THE PART YEARS BY THE APPELLAN T AND THE APPELLANT HAS GIVEN YEAR WISE BREAKUP OF RS. 237.34 CRORES. AS NO PART OF SUCH NPA PROVISION HAS BEEN CLAIMED IN T HE PART YEARS, WHEN THE AMOUNT OF RS. 69.09 CRORES OUT OF THE ABOV E AMOUNT OF RS. 237.34 CRORES HAS BEEN WRITTEN BACK, THE SAME C ANNOT BE TAXED AS INCOME FOR THE YEAR IN APPEAL. IN VIEW OF THE ABOVE FACTS THE APPELLANT HAS RIGHTLY EXCLUDED THE SAID AMOUNT OF RS. 69.09 CRORES FROM PROFIT AS PER P & L ACCOUNT. SO THE ADD ITION OF THE SAME AMOUNT BY THE A.O. IS HELD TO BE NOT JUSTIFIED AND THE SAME IS DELETED. ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 30 7(III). NOW, THE REVENUE IS BEFORE US, THE LD. CIT DR RELIED UPON THE ORDER OF THE A.O. AT THE OUTSET, THE LD. A.R. AGAIN REITER ATED ARGUMENT RAISED BEFORE THE LD. CIT(A). THE ASSESSEE HAS NOT CLAIMED THIS D EDUCTION IN EARLIER YEAR, THEREFORE, THE LD. A.O. WAS NOT RIGHT THAT IT WAS A DOUBLE DEDUCTION. THE PROVISION FOR NPA IS BEING MADE AS PER THE RBI GUID ELINES AND IN COMPUTATION OF INCOME, THE SAME IS ADDED BACK IN THE INCOME AS HELD BY LD. CIT(A) AND THEREFORE HE REQUESTED TO CONFIRM THE ORDER OF THE LD. CIT(A). 7(IV). WE HEARD THE RIVAL CONTENTION AND PERUSED TH E MATERIAL ON RECORD. THE NPA PROVISION AS CLAIMED BY THE ASSESSEE IS MADE ON THE BASIS OF RBI GUIDELINES WHICH HAVE BEEN ADDED BACK IN EARLIER YE ARS INCOME. THERE IS NO DOUBLE DEDUCTION OF CLAIM BY THE ASSESSEE. THUS, WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE ON THIS GROUND. 8. GROUND NO. 5 OF THE REVENUE IS AGAINST DELETING THE DISALLOWANCE OF MISCELLANEOUS EXPENSES TO THE TUNE OF RS. 6.48 C RORES. 8(I). THE LD. A.O. HAS OBSERVED THAT MISCELLANEOUS EXPENSE OF RS. 108003931/- WHICH HAS BEEN INCREASED FROM RS. 6.65 CRORES IN THE PRECEDING YEAR TO 10.80 CRORES IN THIS YEAR. THE LD. A.O. GAV E THE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE TO THE ASSESSEE. THE A SSESSEE SUBMITTED THE REPLY BEFORE THE LD. A.O. THAT THE TRANSACTIONS ARE VOLUMINOUS AND COMPRISED OF 434544 TRANSACTIONS. THE ASSESSEE HAD ALSO PRODU CED VOUCHERS OF HEARD OFFICE FOR THE MONTH OF MARCH 2005. IT WAS OBSERVED THAT THE EXPENSES WERE CLAIMED ON SELF MADE VOUCHERS AND WERE NOT SUPPORTE D BY THE THIRD PARTY EVIDENCES, HENCE, THESE EXPENSES WERE NOT VERIFIABL E BY HIM. HE ALSO FOUND ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 31 THAT CERTAIN EXPENSES ARE NOT ALLOWABLE UNDER THE I .T. LAW WHICH REPRODUCED AS UNDER : DATE PARTICULARS AMOUNT 02/03/2005 TAJ PRESIDENT-STAY ARR. CMDS GUEST RS. 4638/- 29/03/2005 PREOPERATIVE EXPENSES-BHATINDA BRANCH RS. 17672/- 29/03/2005 PREOPERATIVE EXPENSES-ASHOKVIHAR BRANCH RS. 4029/- 30/03/2005 PREOPERATIVE EXPENSES-RAJINDRANAGAR-EXP. ON INAUGURATION DAY RS. 2245/- WHEN THE ASSESSEE WAS NOT ABLE TO PRODUCE ALL THE V OUCHERS OF MISCELLANEOUS EXPENSES OF ITS BRANCH OFFICES FOR EXPENSES, HE WAS HELPLESS BUT DISALLOWED ESTIMATED EXPENDITURE OUT OF IT @ 60% I.E. RS. 6480 2358/- AS WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PU RPOSES. 8(II). BEING AGGRIEVED BY THE ORDER THE LD. A.O., T HE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO HAS ALLOWED THE AP PEAL IN FAVOUR OF THE APPELLANT BY OBSERVING AS UNDER :- 8.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND TH E SUBMISSIONS OF THE A.R. AS PER THE FINDING GIVEN BY THE MY PREDECE SSOR IN A.Y. 2004-05 AND FROM THE DETAILS OF PAYMENTS, I AM OF THE OPINION THAT ANNUAL TECHNICAL SUPPORT FEES PAID TO INFOSYS TECHNOLOGIES LTD. ARE IN THE NATURE OF REVENUE EXPE NDITURE. BY FOLLOWING THE ORDER OF THE CIT(APPEALS) IN EARLIER YEARS, I HOLD THAT THE A.O. IS NOT JUSTIFIED IN TREATING THE AMOU NT OF RS. 102 LAKHS AS CAPITAL IN NATURE. THE APPELLANT GETS RELI EF ON THIS POINT. HOWEVER THE EXPENDITURE OF RS. 40 LAKHS PAID TO INFOSYS FOR UPGRADATION OF SOFTWARE AND PAYMENT OF RS. 1.6 8 LAKHS FOR LEASE LINE HAVE BROUGHT ENDURING BENEFIT TO THE APPELLANT, SO THE ACTION OF THE A.O. IN HOLDING THE SAME AS CA PITAL EXPENDITURE IS CONFIRMED. RELIANCE IS MADE ON THE D ECISION OF ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 32 ITAT DELHI IN THE CASE OF ESCORTS LTD. REPORTED IN 104 ITD 427 AND MARUTI UDYOG LTD. (92 ITD 119) AND OF ITAT CHEN NAI IN INDIA EQUIPMENT LEASING LTD. (111 TTJ 250). 8(III). NOW, THE REVENUE IS BEFORE US. THE LD. CIT DR VEHEMENTLY SUPPORTED THE ORDER OF THE LD. AO. AT THE OUTSET, THE LD. A .R FOR THE APPELLANT ARGUED THAT NO DISALLOWANCE WAS MADE IN THE PAST. IT IS NO T POSSIBLE TO GET THE BILLS FOR PURCHASING TEA, DUSTBIN, STATIONARY ETC. THEREFORE, THE SELF MADE VOUCHERS GOT PREPARED UNDER THE INTERNAL CONTROL AND GUIDELINES OF THE BANK. ACCORDINGLY, SENIOR OFFICERS VERIFY THE EXPENSES BEFORE CLAIMING IN THE ACCOUNTS. AS PER THE REQUIREMENTS OF THE LD. A.O., WE PRODUCED SOME OF T HE BILLS FOR VERIFICATION OF HEAD OFFICE EXPENSES. HE ALSO DREW OUR ATTENTION AT PAPER BOOK PAGE NO. 384 TO 423 AND ARGUED THAT THESE EXPENSES ARE PETTY AMOUNT INCURRED BY THE BRANCHES ALL OVER THE INDIA, EXPENSES LIKE HOUSEKEE PING, STATIONARY, EXPENSES FOR TEA ETC, FOR WHICH NO THIRD PARTY EVIDENCES CAN BE MADE AVAILABLE BUT THE BOOKS OF ACCOUNT OF APPELLANT IS AUDITED BY THE INT ERNAL AUDITOR AS WELL AS AUDIT UNDER THE INCOME TAX LAW. THEREFORE, THESE EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES. 8(IV). WE HEARD THE RIVAL CONTENTION AND PERUSED TH E MATTER ON RECORD. AFTER EXAMINING THE DETAILS AND VOLUMINOUS NATURE OF EXPE NDITURE, IT IS NOT POSSIBLE TO KEEP THIRD PARTY EVIDENCES LIKE TEA, STATIONARY, HOUSEKEEPING, ETC. THE APPELLANT IS A BANKING COMPANY AND INTERNAL RULES A ND REGULATION ARE THERE AND SUPERVISING OFFICER VERIFIES THE CLAIM MADE BY THE BRACHES AS WELL AS THE HEAD OFFICE. THE LD. CIT DR HAS ALSO NOT CONTROVER TED THE FINDINGS OF CIT(A) ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 33 THEREFORE WE CONFIRM THE ORDER OF THE LD. CIT(A) AN D DISMISS THE APPEAL OF THE REVENUE ON THIS GROUND. 9. GROUND NO. 6 OF THE REVENUE IS AGAINST DELETING THE DISALLOWANCE OF CONVEYANCE EXPENSES OF RS. 1.51 CRORES. 9(I). THE LD. A.O. OBSERVED THAT THE ASSESSEE HAD D EBITED CONVEYANCE EXPENSES AT RS. 50650333/- WHICH HAS BEEN INCREASED FROM RS. 3.27 CRORES IN PRECEDING YEAR TO RS. 5.06 CRORES IN CURRENT YEA R. THE LD. A.O GAVE THE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE WHICH WAS REPLIED BY THE APPELLANT. THE APPELLANT SUBMITTED BEFORE THE LD. A .O. THAT IT IS NOT POSSIBLE TO GET BILLS OF TAXI AND AUTO RICKSHAWS IN INDIA. THE REFORE, THE SELF MADE VOUCHERS GOT PREPARED UNDER THE INTERNAL CONTROL AN D GUIDELINES OF THE BANK. BUT THE LD. A.O. HELD THAT THE SELF MADE VOUCHERS W ERE NOT VERIFIABLE FOR THE EXPENSES CLAIMED BY THE ASSESSEE. THUS, HE DISALLOW ED 30% OUT TOTAL EXPENSES OF RS. 15195099/- IS NOT INCURRED WHOLLY A ND EXCLUSIVELY FOR THE BUSINESS PURPOSE. 9(II). THE ASSESSEE CARRIED THE MATTER BEFORE THE L D. CIT(A) WHO ALLOWED THE EXPENSES BY OBSERVING THAT : 10.2 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS MADE BY THE APPELLANT. IT IS SEEN FROM THE DETAILS FURNISHED THAT THE EXPENDITURE IS NECESSITATED ON ACCOUNT OF DIVER SE BUSINESS NEEDS SUCH AS VISIT TO PROSPECTIVE CUSTOMERS; COURT ESY MEETS WITH REGULAR CUSTOMERS; VISITS IN CONNECTION WITH P ROCESSING OF LOAN DOCUMENTS; VISITS TO CLEARING HOUSES, VISITS T O OTHER BANKS FOR CONSORTIUM MEETS, MEETING THE AGENTS AND OTHER ASSO CIATES ETC; AND IT WAS EXPLAINED BY THE APPELLANT THAT SUCH EXP ENDITURE ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 34 REPRESENTS MAINLY EXPENDITURE INCURRED BY OFFICIALS OF THE BANK ON LOCAL COMMUTING DURING THE COURSE OF THEIR OFFICIAL DUTY, FOR WHICH THE OFFICIAL CONCERNED CLAIMED THE SAME IN PRESCRIB ED FORMAT FOR NECESSARY REIMBURSEMENT WITH DOCUMENTARY EVIDENCE. AS IN EARLIER GROUND, THE APPELLANT FILED BEFORE THE A.O. ONE FULL BOX FILE CONTAINING CONVEYANCE VOUCHERS FOR SAMPLE MARCH, 20 05 INCURRED AT THE CENTRAL OFFICE AND ALL CLAIMS OF CONVEYANCE EXPENDITURE WERE APPROVED BY SUPERIOR AUTHORITY BASED ON CERTAI N SET OF RULES. FURTHER, THE A.O. DID NOT SPECIFY ANY CONVINCING RE ASONS AS TO WHY THE CLAIM OF THE APPELLANT WAS NOT ACCEPTABLE. IN VIEW OF THE ABOVE FACTS, I HOLD THAT THE DISALLOWANCE MADE IN R ESPECT OF CONVEYANCE EXPENDITURE IS NOT JUSTIFIED AND THE A.O IS DIRECTED TO DELETE THE SAME. 9(III). NOW, THE REVENUE IS BEFORE US AND VEHEMENTL Y RELIED UPON THE ORDER OF THE LD. A.O. AT THE OUTSET, THE LD. A.R FOR THE APP ELLANT ARGUED THAT IN PAST NO DISALLOWANCE HAS BEEN MADE AND THESE EXPENSES ARE V OLUMINOUS IN NATURE AND IT IS NOT POSSIBLE TO GET THIRD PARTY EVIDENCES IN CASE OF TAXI AND AUTO RICKSHAWS EXPENSES SO THE LD. A.O. CAN VERIFY. THE SE EXPENSES WERE INCURRED UNDER THE STRICT SUPERVISION OF THE SUPERV ISING AUTHORITY WHO HAD VERIFIED EXPENSES BEFORE CLAIMING IN THE ACCOUNTS. AS PER THE REQUIREMENTS OF THE LD. A.O., WE PRODUCED SOME OF THE BILLS FOR VER IFICATION OF HEAD OFFICE EXPENSES AS WELL AS BRANCHES OF INDIA. HE HAS ALSO DRAWN OUR ATTENTION AT PAPER BOOK PAGE NO. 424 TO 440 AND EXPLAINED NATURE OF EXPENSES. THUS, HE PRAYED TO CONFIRM THE ORDER OF THE LD. CIT(A). 9(IV). WE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL ON RECORD. THE ASSESSEE HAS NUMBER OF BRANCHES ALL OVER INDIA AND KEEPING IN VIEW OF THE ITA NOS. 65 & 673/AHD/09, A.Y. 05-06. PAGE 35 NATURE OF THE EXPENSES AND VOLUME OF THE BUSINESS, IT IS NOT POSSIBLE TO COLLECT THE THIRD PARTY EVIDENCES. HOWEVER, THESE EVIDENCES HAD BEEN CERTIFIED BY THE SENIOR OFFICERS AS PER THE INTERNAL RULES OF THE AP PELLANT. THE LD. CIT DR HAS NOT CONTROVERTED THE FINDINGS GIVEN BY THE LD. CIT( A). THUS, WE DO NOT FOUND ANY REASON TO INTERVENE IN THE ORDER OF THE LD. CIT (A). ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE APPEAL OF THE REVENUE ON THIS GROUND. 10. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND REVENUES APPEAL IS DISMISSED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 20.12.2013 SD/- SD/- ( D.K.TYAGI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA . . . . % %% % /*0 /*0 /*0 /*0 10-* 10-* 10-* 10-* / COPY OF ORDER FORWARDED TO:- 1. #$ / REVENUE 2. $ / ASSESSEE 3. 55 * '6 / CONCERNED CIT 4. '6- / CIT (A) 5. 0$: /*( , , / DR, ITAT, AHMEDABAD 6. < => / GUARD FILE. BY ORDER/ . , ?/ 5# , '