DCIT, Udupi V. M/s Syndicate Bank, Udupi

ITA 680/BANG/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73398 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 21-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 16-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRISCILLA SINGSIT
• Assessee Lawyers: K P KUMAR
• Keywords: Capital asset; Business income; Depreciation; Earning of tax free income; Retrospective amendment; Bad and doubtful debts; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 14A; 115JB; 37(1); 263

Judgement Text

ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 1 OF 45 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE C BENCH, BANGALORE BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.680/BANG/2012 (ASSESSMENT YEAR: 2008-09) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1 UDUPI 576101 VS. SYNDICATE BANK CENTRAL ACCOUNTS DEPTT. TAX CELL, HEAD OFFICE MANIPAL 576 104 PAN: AACCS 4699 E (APPELLANT) (RESPONDENT) ITA NO.708/BANG/2012 (ASSESSMENT YEAR: 2008-09) SYNDICATE BANK CENTRAL ACCOUNTS DEPTT. TAX CELL, HEAD OFFICE MANIPAL 576 104 PAN: AACCS 4699 E VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1 UDUPI 576101 (APPELLANT) (RESPONDENT) DEPARTMENT BY: MS. PRISCILLA SINGSIT, CIT (DR) ASSESSEE BY: SHRI K.P. KUMAR, ADVOCATE DATE OF HEARING: 21/01/2014 DATE OF PRONOUNCEMENT: 14/03/2014 O R D E R PER BENCH: 1. THESE ARE THE CROSS APPEALS DIRECTED AGAINST TH E ORDER OF THE CIT (A), MYSORE, DATED: 24.2.2012. THE RELE VANT ASSESSMENT YEAR IS 2008-09. WE SHALL FIRST ADJUDICATE THE REVENUES APPEAL: ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 2 OF 45 REVENUE APPEAL ITA NO. 680/BANG/2012 2. THE REVENUE HAS, IN ITS MEMORANDUM OF AP PEAL, RAISED THE FOLLOWING GROUNDS, NAMELY: (1) THAT THE CIT (A) ERRED IN ALLOWING IN FULL THE ASSE SSEES CLAIM FOR PROVISION FOR BAD & DOUBTFUL DEBTS, AMOUN TING TO RS.593,16,34,351/- U/S 36(1)(VIIA) OF THE ACT BE ING 10% OF AVERAGE RURAL ADVANCES AND 7.5% OF THE TOTAL INCOME; (2) THAT THE CIT (A) ERRED IN ALLOWING ASSESSEES CLAIM OF RS.12,80,483/- BEING INTEREST REVERSED ON NPA; (3) THAT THE CIT (A) ERRED IN ALLOWING THE ASSESSEES C LAIM FOR DEDUCTION U/S 35D OF THE ACT, AMOUNTING TO RS.3,33,10,139/- BEING 1/5 TH OF PUBLIC ISSUE EXPENSES AND BOND ISSUE EXPENSES; (4) THAT THE CIT (A) ERRED IN ALLOWING RELIEF TO THE AS SESSEE ON THE POINT OF ACCRUED INTEREST ON SECURITIES AMOU NTING TO RS.16,76,60,611/- OFFERED ON CASH BASIS; & (5) THAT THE CIT (A) ERRED IN ACCEPTING THE ASSESSEES CLAIM THAT THE ASSESSEE HAD TRADED IN SECURITIES, SHOWN A S INVESTMENTS IN THE BALANCE-SHEET AND THAT THE ASSES SEE HAD INCURRED LOSS OF RS.30.21 CRORES ON ACCOUNT OF RE- VALUING THE INVESTMENTS HELD AS ON 31.3.2008 AT COS T OR MARKET VALUE WHICHEVER WAS LESS. 2.1. SUBSEQUENTLY, THE REVENUE, VIDE ITS APPLICATI ON DATED: 2.4.2013, SOUGHT THE PERMISSION OF THIS BENC H TO RAISE THE FOLLOWING ADDITIONAL GROUNDS, NAMELY: I. (1) SINCE THE DEDUCTION U/S 36(1)(VIIA) IS ALLOWABLE FO R MAKING PROVISION FOR RURAL ADVANCES ONLY, ASSESSEES CLAIM OF DEDUCTION U/S 36(1)(VIIA) OF RS.593,16,34,351/- IS NOT IN ACCORDANCE WITH THE PROVISIONS UNDER THE ACT AND, H ENCE, NOT ALLOWABLE TO THAT EXTENT? (2) SINCE (A) NON-RURAL BAD AND DOUBTFUL DEBTS MAY BE W RITTEN OFF AND ALLOWABLE U/S 36(I)(VII) INDEPENDENTLY, (B) DEDUCTION U/S 36(1)(VIIA)(A) IS ALLOWABLE FOR MAKING PROVISIO N FOR RURAL ADVANCES ONLY, AND (C) ONLY RURAL DEBTS WRITTEN OFF CAN BE SET OFF/DEBITED AGAINST THE PROVISIONS MADE U/S ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 3 OF 45 36(1)(VIIA)(A) IN PREVIOUS YEARS, AND/OR TO BE MADE DURING THE YEAR, AMOUNT OF DEDUCTION U/S 36(1)(VIIA)(A) SH OULD BE COMPUTED ONLY TO THE EXTENT PROVISION FOR RURAL ADV ANCES DEBITED TO P & L ACCOUNT. SINCE THE GROUNDS RAISED ARE LEGAL GROUNDS WHICH GO TO THE ROOT OF THE MATTER RELATING TO ALLOWANCE OF DEDUCTI ON U/S 36(1)(VIIA), THE SAME MAY KINDLY BE ADMITTED. DELA Y MAY KINDLY BE CONDONED IN VIEW OF THE LEGAL POSITION CL ARIFIED BY THE HONBLE SUPREME COURT VIDE THEIR LORDSHIPS ORD ER DATED 17.2.2012 IN THE CASE OF CATHOLIC SYRIAN BANK AND OTHERS REPORTED IN 343 ITR 270 (SC). II. VIDE D.RS LETTER DATED 11.7.2012 : (I) ASSESSEES CLAIM OF DEDUCTION U/S 36(1)(VIIA) OF RS.593.16 CRORES IS NOT IN ACCORDANCE WITH THE PROVISIONS UNDER THE ACT READ WITH RULE 6ABA OF THE IT RULES 1961 AND, HENCE, NOT ALLOWABLE TO THAT EXTENT? (II) SINCE (A) NON-RURAL BAD AND DOUBTFUL DEBTS MAY BE WRITTEN OFF AND ALLOWABLE U/S 36(1)(VII) INDEPENDENTLY, AND (B) ONLY RURAL DEBTS WRITTEN OFF CAN BE SET OFF/DEBITED AGAINST THE PROVISIONS MADE U/S 36(1)(VIIA) IN PREVIOUS YEARS, AND/OR TO BE MAD E DURING THE YEAR, AMOUNT OF DEDUCTION SHOULD BE COMPUTED ONLY WITH REFERENCE TO THE AVERAGE ANNUAL ADVANCES OF THE RURAL BRANCHES, AND RESTRICTED TO 10% THEREOF, SUBJECT TO AVAILABLE CREDIT BALANCE TO THIS ACCOUNT; & (III) ALTERNATIVELY, AND WITHOUT PREJUDICE TO THE GROUNDS ABOVE, IF THE COMPUTATION OF THE PROVISION HAS TO A LSO INCLUDE ANY AMOUNT NOT EXCEEDING 7.5% OF THE TOTAL INCOME, SUCH INCOME SHOULD BE RESTRICTED TO THE TOT AL INCOME OF RURAL BRANCHES, OR TO THE AMOUNT AS PRESCRIBED UNDER THE RBI PRUDENTIAL NORMS. SINCE THE GROUNDS RAISED ARE LEGAL GROUNDS WHICH GO TO THE ROOT OF THE MATTER RELATING TO ALLOWANCE OF DEDUCTI ON U/S 36(1)(VIIA), THE SAME MAY KINDLY BE ADMITTED IN VIE W OF THE LEGAL POSITION CLARIFIED BY THE HONBLE SUPREME COU RT VIDE THEIR LORDSHIPS ORDER DATED 17.2.2012 IN THE CASE OF CATHOLIC SYRIAN BANK AND OTHERS [CIVIL APPEAL ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 4 OF 45 NO.1143/2011 AND OTHERS] REPORTED IN 2012-TIOL-16-S C-IT- LB. III. THE REVENUE HAS AGAIN COME UP WITH YET ANOTHER APPLICA TION DATED 27.9.2013, SEEKING PERMISSION OF THIS BENCH T O RAISE THE FOLLOWING ADDITIONAL GROUND, NAMELY: (I) THE LD. CIT (A) OUGHT TO HAVE NOTED THAT ASSES SEES CLAIM OF 10% OF AVERAGE RURAL ADVANCES U/S 36(1)(VI IA) IS BASED ON THE CATEGORIZATION OF PLACES AS MADE BY RB I AND NOT IN ACCORDANCE WITH EXPLANATION (IA) BELOW SECTI ON 36(12)(VIIA). RELIANCE IS PLACED ON THE DECISION O F THE HONBLE HIGH COURT OF KERALA DATED 07.10.2010 IN IT A NO.234 OF 2009 IN THE CASE OF CIT V. THE LORD KRISH NA BANK LTD [195 TAXMAN 57] WHEREIN IT HAS BEEN HELD T HAT PLACE REFERRED TO IN THE DEFINITION CLAUSE FOR TH E PURPOSE OF IDENTIFYING THE BRANCH AS A RURAL IS THE REVENUE VI LLAGE WITH POPULATION IN THE VILLAGE AS A UNIT IS LESS THAN 10 ,000 AND, THEREFORE THE CLAIM OF THE ASSESSEE BANK NEEDS TO B E RESTRICTED TO THE ADVANCES MADE BY SUCH BRANCHES. 2.2. THE ADDITIONAL GROUNDS SOUGHT TO BE RAISED BY THE REVENUE WERE STATED TO BE CONSEQUENT TO THE JUDGMEN TS OF (I) THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIA N BANK LTD V. CIT 343 ITR 270 (SC) AND (II) THE HONBLE KERAL A HIGH COURT IN CIT V. THE LOD KRISHNA BANK LTD 195 TAXMAN 57 (KER) WHICH WERE, ACCORDING TO THE REVENUE, DELIVERED AFT ER THE CONCLUSION OF THE ASSESSMENTS BY THE AO IN THE PRES ENT ASSESSEES CASE FOR THE AY UNDER DISPUTE. THE ADMIS SIBILITY OR OTHERWISE OF THE SAME IS DEALT WITH BY US IN THE LA TTER PART OF THIS ORDER. 3. WE HAVE SINCE NOTICED THAT THE GROUND NO.1 ABOV E AND THE ADDITIONAL GROUNDS SOUGHT TO BE RAISED BY T HE REVENUE BEING INTER-CONNECTED; WE THOUGHT IT FIT TO DEAL WI TH THE SAME CONCURRENTLY AS BELOW. ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 5 OF 45 4. BRIEFLY STATED, THE FACTS OF THE ISSUES ARE AS UNDER: THE ASSESSEE BANK IS CARRYING ON THE BUSINESS OF BANKING. DURING THE YEAR UNDER DISPUTE, THE ASSESS EE HAD, IN ITS RETURN OF INCOME CLAIMED DEDUCTION OF RS.593,16,34, 351/- U/S 36(1)(VIIA) OF THE ACT. BEING QUERIED BY THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE CAME UP WIT H A CLARIFICATION THAT WE HAVE MADE A PROVISION FOR BAD AND DOUBTFUL DEBT S [NPAS] FOR RS.349,87,49,928/- IN OUR BOOKS DURING T HE FY 2007-08 [AY 2008-09]. HOWEVER, WE ARE CLAIMING DEDUCTION U/S 36(1)(VIIA) TO THE EXTENT OF RS.541,49,17,628/- BEING 10% OF AVERAGE RURAL ADVAN CES OF RS.5414,91,76,282/- AND 7.5% OF GROSS TOTAL INCO ME BEFORE ALLOWING THIS DEDUCTION AMOUNTING TO RS.54,38,90,855/-, RELYING ON ITAT BANGALORE BENCH DECISION DATED 23.6.2000 IN OUR OWN CASE FOR THE AY 1987-88 [78 ITD 103]. OUR SIMILAR CLAIMS UP-TO THE AY 2007-08 IS ALLOWED BY CIT (A), MANGALORE. ITAT, BANGALORE HAS ALLOWED THE CLAIM OF VIJAYA BANK, CAN ARA BANK ALSO. [COURTESY: PAGE 4 OF THE ASST. ORDER] 4.1. AFTER EXTENSIVELY QUOTING THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BA NK OF PATIALA V. CIT - 272 ITR 53 (P&H), THE AO HAS STAT ED THAT 6.7. THEREFORE, AS HELD BY THE HONBLE HIGH COURTS , THE ASSESSEES CLAIM FOR DEDUCTION OF PROVISION OVER AN D ABOVE WHAT IS DEBITED IN THE BOOKS OF ACCOUNTS AND SHOWN IN THE STATEMENT OF COMPUTATION OF BUSINESS INCOME CANNOT BE ALLOWED AS DEDUCTION. 6.8. THE ASSESSEE HAS RELIED ON THE DECISION OF TH E HONBLE ITAT, BANGALORE BENCH, IN THEIR OWN CASE FO R THE AY 1987-88 WHICH IS REPORTED IN 78 ITD 103. IT MAY BE MENTIONED HERE THAT THE DEPARTMENT HAS NOT ACCEPTED THE SAID DECISION AND AN APPEAL TO THE HONBLE HC WAS F ILED. ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 6 OF 45 6.9. SINCE AS PER THE DECISION OF THE HONBLE HIGH COURT OF P & H AND KERALA, THE CLAIM FOR DEDUCTION OF PROVIS ION, OVER AND ABOVE WHAT IS DEBITED IN THE BOOKS OF ACCO UNT IS NOT ADMISSIBLE, THE SAME IS DISALLOWED. AS AGAINST DEDUCTION OF RS.593,16,34,351/- CLAIMED, THE PROVIS ION TO BE CONSIDERED IS ONLY RS.349,87,49,928/-.EXCESS AMO UNT CLAIMED OF RS.243,28,84,423/- IS DISALLOWED. FURTHER, THE ASSESSEE HAD CLAIMED BAD DEBTS WRITTEN OFF U/S 36(1)(VII) AS UNDER: A. OUT OF INCOME RS. 32,14,25,430 OUT OF PROVISIONS RS.409,34,00, 121 TOTAL 441,48,25,551 THE BAD DEBTS WRITTEN OFF BY NON-RURAL BRANCHES IS SHOWN AS UNDER: B. OUT OF INCOME RS. 21,29,44,194 OUT OF PROVISIONS 371,00,62,381 TOTAL 392,3 0,06,575 THE DIFFERENCE BETWEEN A AND B AMOUNTING TO RS.49,18,18,976/- IS CONSIDERED AS WRITE OFF RELATI NG TO RURAL BRANCHES . [SOURCE: PAGE 4 OF THE ASST. ORDER] 4.1.1. EXTENSIVELY QUOTING THE PROVISIONS OF SS. 36 (1)(VII) AND 36(1)(VIIA) OF THE ACT AND ALSO APPLYING THE JU DGMENTS OF THE HONBLE KERALA HIGH COURT IN THE CASE OF SOUTH INDI AN BANK LTD V. CIT- (2010) 191 TAXMAN 272(KER FB) , THE AO TO OK A STAND THAT 7.6. THE ASSESSEE HAS SHOWN THE B/F BALANCE IN PROVISION FOR BAD & DOUBTFUL DEBTS AT RS.1486,78,05,837/- AND HAS ADDED THE NEW PROVISION OF RS.349,87,49,928/- MAKING A TOTAL OF RS.1836,65,55,765/-. THE TOTAL BAD DEBTS WRITTEN O FF INCLUDING THOSE RELATING TO RURAL BRANCHES (RS.49,18,18,976/-) IS RS.441,48,25,551/- WHICH IS LESS THAN THE PROVISION CREATED AND ALSO THE PROVISION BROUGHT TOWARD. THE ENTIRE CLAIM OF BAD DEBTS SHOU LD HAVE BEEN ADJUSTED AGAINST THE PROVISIONS FOR BAD A ND ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 7 OF 45 DOUBTFUL DEBTS AS AGAINST SETTING OFF OF ONLY A SUM OF RS.49,18,18,976/- BEING WRITE OFF OF RURAL BAD DEBT S. 7.7. SINCE THE ASSESSEE HAS SET OFF RS.49,18,18,97 6/- AGAINST THE PROVISIONS, THE BALANCE CLAIMED AS DEDUCTION U/S 36(1)(VII) AMOUNTING TO RS.392,30,06,575/- HAS TO BE DISALLOWED SINCE THE CLAIM FOR BAD DEBT IS LESS THAN THE AMOUNT IN CREDI T IN THE ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS . 7.8. IT MAY BE MENTIONED HERE THAT OUT OF TOTAL BA D DEBTS WRITTEN OFF OF RS.441,48,25,551/- SHOWN BY TH E ASSESSEE IN THE COMPUTATION, RS.409,34,00,121/- IS ON ACCOUNT OF PRUDENTIAL WRITE OFF ONLY WHICH IS OUT O F ONLY PROVISION CREATED OUT OF ADVANCES AND CLASSIFIED AS NON-PERFORMING ASSETS WITHOUT ACTUALLY WRITTEN OF F OF BAD DEBTS. THE JURISDICTIONAL HONBLE KARNATAKA H IGH COURT IN ITS DECISION IN THE CASE OF VIJAYA BANK IN ITA NO. 54 & 55/2004 HAS HELD THAT MERE CREATION OF PROVISION DOES NOT AMOUNT TO WRITTEN OFF OF BAD DE BTS AND THAT DEDUCTION OF PROVISION FOR NON-PERFORMING ASSETS OUT OF ADVANCES DO NOT AMOUNT TO WRITTEN OFF . HOWEVER, THE HONBLE SUPREME COURT IN CIVIL APPEAL NOS. 3286 & 3287 OF 2010 ARISING OUT OF SLP FILED AGAINST THE SAID JUDGMENT OF KARNATAKA HIGH COURT H AS SET ASIDE THE HIGH COURTS JUDGMENT AND ALLOWED ASSESSEES APPEAL. IN THE CIRCUMSTANCES, THE DISALLOWANCE U/S 36(1)(VII) IS RESTRICTED TO RS.392,30,06,575/- ONLY AS DISCUSSED IN THE PRECEDI NG PARA. ACCORDINGLY, RS.392,30,06,575/- CLAIMED AS DEDUCTIO N U/S 36(1)(VII) IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME. [REFER: PAGES 10 & 11 OF THE ASST. ORDER] 4.2. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE OF DISALLOWANCE OF DEDUCTION U/S 36(1)(VII) AND U/S 36 (1)(VIIA) OF THE ACT BEFORE THE CIT (A). AFTER DUE CONSIDERATION OF THE ASSESSEES CONTENTIONS ON BOTH THE ISSUES, THE CIT (A) DECIDED THE ISSUES IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS, N AMELY: ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 8 OF 45 PROVISION FOR BAD & DOUBTFUL DEBTS U/S 36(1)(VIIA) RS.243.28 CRORES: 3.4.(ON PAGE 4) I HAVE CAREFULLY CONSIDERED THE FA CTS OF THE CASE AND THE RIVAL CONTENTIONS. THE HONBLE TR IBUNAL HAS IN ITS ORDER DATED 23.6.2000 IN (2001) 78 ITD 103 (BANG) IN THE APPELLANTS OWN CASE FOR THE ASSESSME NT YEAR 1987-88, HELD THAT, IT WAS A MISCONCEPTION THA T THE DEDUCTION UNDER THE CLAUSE (VIIA) WAS RELATED TO TH E ACTUAL AMOUNT OF PROVISION MADE BY THE ASSESSEE FOR BAD AN D DOUBTFUL DEBTS. THE TRUE MEANING OF THE CLAUSE WAS THAT, ONCE A PROVISION FOR BAD & DOUBTFUL DEBT WAS MADE B Y A SCHEDULED BANK HAVING RURAL BRANCHES, THE ASSESSEE WAS ENTITLED TO A DEDUCTION WHICH WAS QUANTIFIED NOT WI TH RESPECT TO THE AMOUNT PROVIDED FOR IN THE ACCOUNTS, BUT, WITH RESPECT TO A CERTAIN PERCENTAGE OF THE TOTAL I NCOME AND ALSO A CERTAIN PERCENTAGE OF THE AGGREGATE AVER AGE ADVANCES MADE BY THE RURAL BRANCHES OF THE BANK. I N OTHER WORD, THIS WAS A SPECIFIC DEDUCTION GIVEN BY THE STATUTE, IRRESPECTIVE OF THE QUANTUM PROVIDED BY TH E ASSESSEE IN ITS ACCOUNTS TOWARDS PROVISION FOR BAD & DOUBTFUL DEBTS. 3.5. I AM OF THE CONSIDERED VIEW THAT THE JURISDICT IONAL ITAT BENCHS DECISION IN THE APPELLANTS OWN CASE I S BINDING ON THE ASSESSING AUTHORITY, NOTWITHSTANDING THAT THE DECISION HAS NOT BECOME FINAL. RESPECTFULLY FO LLOWING THIS DECISION, I HOLD THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE SUM OF RS.243,28,84,423/- CLAIMED U /S 36(1)(VIIA) AND DIRECT THE AO TO ALLOW THE SAME.. BAD & DOUBTFUL DEBTS U/S 36(1)(VII) RS.392,30,06, 575: 4.5. (ON PAGE 7) I HAVE CAREFULLY CONSIDERED THE F ACTS OF THE CASE AND THE RIVAL VIEWPOINTS. I HAVE ALSO GON E THROUGH THE DECISIONS RELIED ON BY THE LD. AR. AS SUBMITTED BY THE LD. AR IT HAS BEEN HELD IN VARIOUS JUDICIAL DECISIONS THAT THE PROVISO TO SECTION 36(1)(VII) WH ICH RESTRICTS THE DEDUCTION IN RESPECT OF BAD DEBTS WRI TTEN OFF IS APPLICABLE ONLY FOR RURAL BRANCHES. THE JURISDI CTIONAL HIGH COURT IN THE CASE OF KARNATAKA BANK LTD (SUPRA ) HAD TAKEN A SIMILAR VIEW. 4.6. IN THE CASE OF SOUTH INDIAN BANK THE DECISION OF DIVISION BENCH CITED BY THE APPELLANT WAS REVERSED BY FULL ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 9 OF 45 BENCH OF HONBLE HIGH COURT OF KERALA IN 326 ITR 17 4. THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK CITED BY THE APPELLANT AND OTHER CAS ES CITED ABOVE ARE BASICALLY RELYING ON THE DIVISION B ENCH DECISION IN THE CASE OF SOUTH INDIAN BANK. WHEN TH IS WAS POINTED OUT THE APPELLANT FILED RECENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK L IMITED V. CIT CIVIL APPEAL NO.1143 OF 2011 DATED 17.2.2012 WHICH IS UNREPORTED. IN THE QUESTION WHETHER ON T HE FACTS AND CIRCUMSTANCES OF THE CASE THE ASSESSEE IS ELIGI BLE FOR DEDUCTION OF BAD AND DOUBTFUL DEBTS ACTUALLY WRITTE N OFF IN VIEW OF SECTION 36(1)(VII) WHICH LIMITS THE DEDUCTI ON ALLOWABLE UNDER THE PROVISO TO THE EXCESS OVER THE CREDIT BALANCE MADE UNDER CLAUSE VII(A) OF SECTION36(1). THE HONBLE SUPREME COURT WHILE APPROVING THE VIEW TAKE N BY THE DIVISION BENCH OF KERALA HIGH COURT IN THE CASE OF SOUTH INDIAN BANK HELD AS FOLLOWS: TO CONCLUDE, WE HOLD THAT THE PROVISIONS OF SECTION S 36(1)(VII) AND 36(1)(VIIA) U/S 36(2). WITH REGARD TO THE CONTENTION OF THE AO THAT THE BA D DEBTS WRITTEN OFF WERE ONLY TECHNICAL WRITE OFF AND CANNO T BE ALLOWED, I FIND THAT THE HONBLE SUPREME COURT IN T HE CASE OF VIJAYA BANK (SUPRA) HAD CLEARLY HELD THAT THERE IS NO DISTINCTION BETWEEN A TECHNICAL WRITE OFF AND ACTUA L WRITE OFF AS LONG AS THE AMOUNT IS REDUCED FROM ADVANCES. RESPECTFULLY FOLLOWING THE SAID DECISIONS OF HONBL E SUPREME COURT, THE CLAIM OF THE APPELLANT IS ALLOWE D. 4.3. DURING THE COURSE OF HEARING BEFORE US, THE L EARNED DR MADE THE FOLLOWING SUBMISSIONS, NAMELY: - THAT THE CIT (A) ERRED IN ALLOWING IN FULL THE A SSESSEES CLAIM FOR PROVISION FOR BAD& DOUBTFUL DEBTS AMOUNTING TO RS.593.16 CRORES U/S 376(1)(VIIA) BEING 10% OF AVER AGE RURAL ADVANCES AND 7.5% OF THE TOTAL INCOME, EVEN T HOUGH THE ASSESSEE HAD DEBITED ONLY RS.349.87 CRORES TO T HE P & L A/C; - THAT THE CIT (A) ERRED IN NOT CONSIDERING THE FA CT THAT TO CLAIM DEDUCTION TOWARDS PROVISION FOR BAD AND DOUBT FUL ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 10 OF 45 DEBTS, NECESSARY DEBIT HAS TO BE MADE TO THE P & L A/C AND ADMISSIBLE ONLY TO THE EXTENT PROVISION HAS BEEN DE BITED; - THAT THE CIT (A) ERRED IN NOT CONSIDERING THE FA CT THE ORDERS OF THE HONBLE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1987-88 HAS NOT BEEN ACCEPTED BY TH E DEPARTMENT AND DIRECT APPEAL TO HONBLE HIGH COURT HAS BEEN FILED; - THAT THE CIT (A) ERRED IN NOT CONSIDERING THE DE CISION OF HONBLE HIGH COURT OF P & H IN THE CASE OF STATE BA NK OF PATIALA V. CIT (2005) 272 ITR 53 (P & H) WHEREIN IT HAS BEEN HELD THAT MAKING OF A PROVISION FOR BAD AND D OUBTFUL DEBT EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS A MUST FOR CLAIMING SUCH DEDUCTION AND THAT PROVISO T O CLAUSE (VII) OF S. 36(1) ALSO SHOWS THAT MAKING OF PROVISION EQUAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE ACC OUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTION U/S 36(1) (VIIA) OF THE ACT. 4.3.1. IN CONCLUSION, IT WAS AVERRED THAT THE ASSESSEE IS ENTITLED ONLY TO THE EXTENT PROVISION HAS BEEN DEBI TED. 4.3.2. ON THE OTHER HAND, THE LEARNED AR SUPPORTED THE FINDINGS OF THE CIT (A) ON THE ISSUE. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND ALSO PERUSED THE RELEVANT MATERIALS ON RECORD. 5.1. AT THIS POINT OF TIME, WE WOULD LIKE TO REFER TO THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN T HE ASSESSEES OWN FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEARS 2006-07 AND 2007-08 IN ITA NOS.668 & 669/10 & ITA NOS.708 & 709/2010 DATED 19.6.2013 WHEREIN AN IDENTICAL ISSUE TO THAT OF THE PRESENT ONE HAD CROPPED UP FOR CONSIDERATION. THE EARLIER BENCH HAD AN OCCASION TO REFER TO THE FINDINGS OF T HE ITAT, ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 11 OF 45 BANGALORE BENCH IN THE CASE OF CANARA BANK IN ITA NO.58/BANG/2004 DATED 9.6.2006. IN THE AFORESAID F INDINGS, THE BENCH HAD CONSIDERED THE DECISION OF THE ITAT IN TH E CASE OF SYNDICATE BANK REPORTED IN 78 ITD 103 (BANG) AND AL SO THE JUDGMENT OF THE HONBLE PUNJAB AND HARYANA HIGH COU RT IN THE CASE OF STATE BANK OF PATIALA V. CIT (2005) 272 ITR 54 (P&H) AND CAME TO THE CONCLUSION THAT THE RULING OF THE HONB LE HIGH COURT HAD TO BE FOLLOWED. 5.1.1. IN CONSONANCE WITH THE FINDINGS OF THE EAR LIER BENCH IN THE ASSESSEES OWN CASE FOR THE AYS 2006-07 AND 2007-08 WHICH HAD, IN FACT, FOLLOWED THE LATEST FINDINGS OF THE BENCH OF THIS TRIBUNAL IN THE CASE OF CANARA BANK IN ITA NO. 58/BANG/2004 DATED 9.6.2006, WE ALLOW THE REVENUES APPEAL BY HOLDING THAT THE DISALLOWANCE TO THE EXTENT OF RS.243,28,84,423/- CLAIMED U/S 36(1)(VIIA) OF THE A CT REQUIRES TO BE RESTORED. IT IS ORDERED ACCORDINGLY. IN SUBSTANCE, THE FIRST GROUND OF THE REVENUE IS ALLOW ED. 5.2. WE SHALL NOW DEAL WITH THE ADMISSIBILITY OR O THERWISE OF THE ADDITIONAL GROUNDS RAISED BY THE REVENUE (SU PRA) FOR CONSIDERATION. 5.2.1. THE LEARNED AR OPPOSED THE ADMISSION OF THE ADDITIONAL GROUNDS FOR ADJUDICATION. IT WAS THE CA SE OF THE LEARNED AR THAT THE ADDITIONAL GROUNDS SOUGHT TO BE RAISED BY THE REVENUE SEEKS TO ENLARGE THE SCOPE OF THE ORIGI NAL GROUNDS RAISED BY IT AND ALSO THE VERY BASIS ON WHICH THE A O AND THE CIT (A) PROCEEDED TO DECIDE THE ISSUE. IT WAS, THEREFOR E, PLEADED THAT ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 12 OF 45 THE ADDITIONAL GROUNDS SOUGHT TO BE RAISED BY THE R EVENUE REQUIRE TO BE REJECTED. 5.2.2. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMI SSIONS ON THE ISSUE. IN THE MEANWHILE, WE WOULD LIKE TO P OINT OUT THAT THE IDENTICAL ISSUE OF ADDITIONAL GROUNDS RAISED IN THE PRESENT APPEAL BY THE REVENUE HAS SINCE BEEN CONSIDERED BY THE EARLIER BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE F OR THE AYS 2006-07 AND 2007-08 IN ITA NOS.708 & 709/BANG/2010 DATED 19.6.2013. AFTER DUE CONSIDERATION OF THE REVENUE S CONTENTIONS AND ALSO FOR THE DETAILED REASONS RECORDED THEREIN, THE HONBLE BENCH CAME TO THE CONCLUSION THAT THE ADDITIONAL G ROUNDS SOUGHT TO BE RAISED BY THE REVENUE CANNOT BE ADMITT ED FOR ADJUDICATION. FOR APPRECIATION OF FACTS AND FOR RE ADY REFERENCE, THE BRIEF ADDITIONAL GROUNDS SOUGHT TO BE RAISED BY THE REVENUE IN THE PRESENT APPEALS AND THE RELEVANT PORTIONS OF THE FINDINGS OF THE BENCH ON SIMILAR ISSUES ARE EXTRACTED AS BEL OW: I. SINCE THE DEDUCTION U/S 36(1) (VIIA) IS ALLOWABLE F OR MAKING PROVISION FOR RURAL ADVANCES ONLY, ASSESSEES CLAI M OF DEDUCTION U/S 36(1)(VIIA) OF RS.593,16,34,351/- IS NOT IN ACCORDANCE WITH THE PROVISIONS UNDER THE ACT AND, H ENCE, NOT ALLOWABLE TO THAT EXTENT? 46 (ON PAGE 35)THE PROVISIONS OF SECTION 36(1)(VIIA)(A) OF THE ACT LAYS DOWN AS FOLLOWS: (VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOU BTFUL DEBTS MADE BY (A) A SCHEDULED BANK..IN THE PRESCRIBED MANNER; PROVIDED THAT A SCHEDULED BANK OR A NON-SCHEDULED B ANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION , BE ALLOWED IN ANY OF THE RELEVANT ASSESSMENT YEARS, DEDUCTION IN RESPECT OF ANY PROVISION MADE BY IT FO R ANY ASSETS CLASSIFIED BY THE RESERVE BANK OF INDIA AS D OUBTFUL ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 13 OF 45 ASSETS OR LOSS ASSETS IN ACCORDANCE WITH THE GUIDEL INES ISSUED BY IT IN THIS BEHALF, FOR AN AMOUNT NOT EXCE EDING FIVE PER CENT OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOKS OF ACCOUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR. THE SECTION CLEARLY LAYS DOWN THAT DEDUCTION OF 7.5 .% OF THE TOTAL INCOME HAS TO BE ALLOWED AS DEDUCTION. THE P LEA OF THE LEARNED DR TO RESTRICT THE ALLOWANCE TO 7.5% OF THE TOTAL INCOME OF THE RURAL BRANCHES IS CONTRARY TO THE PRO VISIONS OF THE ACT. THE DEDUCTION ON ACCOUNT OF PBDD IN RESPE CT OF NON- PERFORMING ASSETS CONTEMPLATED BY THE FIRST PROVISO TO SEC. 36(1) (VIIA)(A) IS BASED ON CLASSIFICATION OF NON-P ERFORMING ASSETS AS PER THE PRUDENTIAL NORMS OF RESERVE BANK OF INDIA. THE AO DID NOT DISPUTE THE CLASSIFICATION AS MADE B Y THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. THE DEDUCTION U NDER THE FIRST PROVISO TO SEC. 36(1)(VIIA)(A) OF THE ACT IS IN ADDITION TO WHAT IS ALLOWED UNDER SEC. 36(1)(VIIA)(A) OF THE AC T AND THE ASSESSEE IS GIVEN THE OPTION TO CLAIM DEDUCTION UND ER THE PROVISO. THE ABOVE BEING THE PURPORT OF THE PROVIS IONS, WE FIND NO BASIS FOR ADDITIONAL GR. NO. (III) SOUGHT T O BE RAISED BY THE ASSESSEE. GR.NO. (III) IS, THEREFORE, HELD TO BE UNSUSTAINABLE ON MERITS AND DOES NOT EVEN REQUIRE A N ADMISSION FOR ADJUDICATION AS IT DOES NOT ARISE OUT OF THE ORDER OF THE AO OR CIT (A). II. (I) ASSESSEES CLAIM OF DEDUCTION U/S 36(1)(VIIA) O F RS.593.16 CRORES IS NOT IN ACCORDANCE WITH THE PROVISIONS UND ER THE ACT READ WITH RULE 6ABA OF THE IT RULES 1961 AND, HENCE , NOT ALLOWABLE TO THAT EXTENT? ETC. 42.(ON PAGE 31) .THERE IS NO DISPUTE BY THE AO IN THE ORDER OF ASSESSMENT THAT THE PROVISIO N OF RS.503.49 CRORES IS NOT IN ACCORDANCE WITH RULE 6AB A OF THE RULES. THE CASE OF THE AO WAS THAT (I) DEDUCTION U /S 36(1)(VIIA)(A) WILL BE ALLOWED ONLY TO THE EXTENT P ROVISION IS CREATED IN THE BOOKS; (II) EVEN WHEN SUCH PROVISION IS CREATED IN THE BOOKS, IF THERE IS OPENING BALANCE IN THE PB DD A/C THAT HAS TO BE TAKEN INTO ACCOUNT AND IT IS ONLY WHERE T HE PROVISION MADE IS IN EXCESS OF THE OPENING BALANCE OF PROVISI ON AVAILABLE IN PBDD A/C., SUBJECT TO THE LIMITS PRESC RIBED IN SEC.36(1)(VIIA)(A) OF THE ACT THAT WILL BE ALLOWED AS DEDUCTION. THEREFORE, THE ADDITIONAL GR. NO.(I) SOUGHT TO BE R AISED BY THE REVENUE DOES NOT ARISE OUT OF THE ORDER OF THE AO O R THE CIT ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 14 OF 45 (A) AND THE SAME CANNOT BE THEREFORE ADMITTED FOR ADJUDICATION. EVEN ASSUMING THAT THERE WAS AN ERRO R ON THE PART OF THE AO IN THIS REGARD THAT COULD HAVE BEEN SET RIGHT EITHER IN PROCEEDINGS U/S 263 OF THE ACT OR BY THE CIT (A) IN EXERCISE OF HIS POWERS OF ENHANCEMENT. THE REVENUE CANNOT SEEK TO RAISE AN ISSUE CONCLUDED IN THE ASSESSMENT IN THE FORM OF AN ADDITIONAL GROUND BEFORE THE TRIBUNAL. III. THE LD. CIT (A) OUGHT TO HAVE NOTED THAT ASSESSEES CLAIM OF 10% OF AVERAGE RURAL ADVANCES U/S 36(1)(VIIA). REVENUE VILLAGE WITH POPULATION IN THE VILLAGE AS A UNIT IS LESS THAN 10,000 AND, THEREFORE THE CLAIM OF THE ASSESSEE BANK NEEDS TO BE RESTRICTED TO THE ADVANCES MADE BY SUCH BRANCHES . 31(ON PAGE 22).IN THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE AO, A QUERY WAS RAISED BY TH E AO BY HIS LETTER 12.3.2008 REGARDING THE CLAIM OF THE ASS ESSEE WITH REGARD TO DEDUCTION ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS U/S 36(1)(VIIA) OF THE ACT AS TO WHE THER THE AAR A WAS WORKED OUT ON THE BASIS OF 2001 CENSUS BECAUS E THE ASSESSEE HAS IN ONE OF ITS LETTERS DATED 19.2.2008 CLAIMED THAT AARA HAVE BEEN WORKED OUT BASED ON 1991 CENSUS . THE ASSESSEE IN RESPONSE TO THE SAME BY ITS LETTER DATED 20.2.2008 GAVE A WORKING OF AARA AS PER 2001 CENSUS DATA. THE FIGURE AS ORIGINALLY GIVEN IN THE BOOKS IN THIS REGARD WAS REVISED TO 3525,25,92,038/-. IN PARA III 1.4 OF T HE AOS ORDER, THE AO HAS ACCEPTED SUCH WORKING GIVEN BY TH E ASSESSEE. THE CIT (A) HAS ALSO NOT THOUGHT IT FIT TO MAKE ANY ENQUIRIES IN THIS REGARD IN EXERCISE OF HIS POWERS OF ENHANCEMENT. ASSUMING THE ORDER OF THE AO TO BE ER RONEOUS ON THIS ASPECT, THE SAME COULD ONLY BE SET RIGHT IN PROCEEDINGS U/S 263 OF THE ACT. THIS ISSUE DOES NOT ARISE OUT OF THE ORDER OF THE AO OR CIT (A) AT ALL. THE ISSUE IS NO DOUBT ONE FACET OF THE CLAIM FOR DEDUCTION U/S 36(1) (VIIA)(A) OF THE ACT BUT THIS ASPECT HAS BEEN EXAMINED AND ACCEPTED BY THE AO IN THE ORDER OF ASSESSMENT AND NOT INTERFERED WITH BY THE CIT (A) EITHER IN FIRST APPEAL OR BY CIT IN EXERCISE OF POW ERS U/S 263 OF THE ACT. WE ARE, THEREFORE, OF THE VIEW THAT TH E ADDITIONAL GROUND NO.3F NOW SOUGHT TO BE RAISED BY THE REVENUE CANNOT BE ADMITTED FOR ADJUDICATION. ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 15 OF 45 5.2.3. IN A NUT-SHELL, IN CONFORMITY WITH THE FINDI NGS OF THE EARLIER BENCH ON THE ISSUE OF ADMISSIBILITY OF IDEN TICAL ADDITIONAL GROUNDS, THE REVENUES APPLICATIONS FOR SEEKING PER MISSION OF THIS BENCH FOR RAISING THE ADDITIONAL GROUNDS AS DE TAILED ABOVE ARE REJECTED OR IN OTHER WORDS THEY CANNOT BE ADMITTED FOR ADJUDICATION. IT IS ORDERED ACCORDINGLY. 6. WITH REGARD TO THE SECOND GROUND OF THE REVENUE THAT THE CIT (A) ERRED IN ALLOWING THE ASSESSEES CLAIM OF R S.12,80,483/- BEING INTEREST REVERSED ON NPA, THE ISSUE, IN BRIE F, IS AS UNDER: IT WAS THE STAND OF THE AO THAT OUT OF TOTAL PRIOR PERIOD EXPENSES REPORTED IN TAX AUDIT REPORT OF RS.1,20,85 ,869/-, THE ASSESSEE HAD OFFERED FOR TAXATION RS.9,07,642/- TRE ATING OTHER EXPENSES AS STRICTLY NOT IN THE NATURE OF PRIOR PER IOD EXPENSES. IT WAS NOTICED FROM THE DETAILS OF EXPENSES, AN AMOUNT OF RS.12,80,483/- BEING INTEREST ON PERFORMING ASSETS HAS BEEN TREATED BY THE ASSESSEE AS PRIOR PERIOD EXPENSES. THIS WAS, ACCORDING TO THE AO, NOTHING BUT REVERSAL OF INTERE ST TREATED AS INCOME AND OFFERED FOR TAX IN THE PREVIOUS YEAR. A FTER CONSIDERING THE ASSESSEES CONTENTIONS, THE AO DISA LLOWED THE ASSESSEES CLAIM OF RS.12,80,483/- AS REVERSAL OF I NTEREST ON NEWLY IDENTIFIED NPAS ON THE PREMISE THAT ONCE THE INCOME OF THAT YEAR IS PROPERLY RECORDED, THE ASSESSEE CANNOT REDUCE THE INCOME FROM THE SUBSEQUENT YEARS COMPUTATION ON TH E GROUND THAT IN THE EARLIER YEAR INCOME WAS SHOWN ON ACCRUA L BASIS WRONGLY AND, THUS, THE INCOME OF THIS YEAR GETS RED UCED IF SET OFF IS PERMITTED. THE ASSESSEE HAD NOT CLAIMED ANY EXP ENDITURE AGAINST THE CURRENT YEARS INCOME, BUT, SEEKING RED UCTION OF CURRENT YEARS INCOME WHICH WAS NOT PERMISSIBLE. I N THE IMMEDIATELY PRECEDING YEAR, THE ASSESSEE HAVING DEC LARED INCOME ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 16 OF 45 ON THE ACCRUAL BASIS, THE ONLY COURSE OPEN TO THE A SSESSEE WAS TO DERECOGNIZE THAT INCOME WAS TO TREAT THE SAME AS BA D DEBT BY FOLLOWING THE RBIS NORMS. ADMITTEDLY, THE ASSESSE E HAD NOT WRITTEN OFF THE SAID SUM AS BAD DEBT U/S 36(1)(VII) OF THE ACT. [REFER: PARA 8.4. OF THE ASST. ORDER]. 6.1. WHEN THE ISSUE WAS TAKEN UP BY THE ASSESSEE O N APPEAL, THE CIT (A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON THE REASONING THAT THE INCOME IN RESPECT OF NON-PERFORMING ASSETS CAN BE REVERSED ONLY WHEN THE ACCOUNT IS IDENTIFIED AS NPA. THE SAME CANNOT BE TREATED AS PRIOR PERIOD EXPENSES SIN CE THE CAUSE OF ACTION ARISES ONLY IN THE CURRENT YEAR WHEN THE ACCOUNTS HAVE BEEN IDENTIFIED AS NPA. [REFER: PARA 5.2 OF THE CIT(A)S ORDER]. 6.2. AGGRIEVED, THE REVENUE CAME UP BEFORE US WITH A PLEA THAT THE CIT (A) FAILED TO APPRECIATE THE FACT THAT THE AO HAD DISALLOWED THE SUM NOT AS PRIOR PERIOD EXPENSES, BU T, ON THE GROUND THAT THE ASSESSEE WAS SEEKING REDUCTION OF C URRENT YEARS INCOME CLAIMING THAT IN EARLIER YEAR INCOME WAS SHO WN ON ACCRUAL BASIS WRONGLY WHICH WAS NOT PERMISSIBLE AND ALSO CONSIDERING THAT THE SUM HAD NOT BEEN WRITTEN OFF B Y THE ASSESSEE AS BAD DEBT U/S U/S 36(1)(VII) OF THE ACT. 6.2.1. ON THE OTHER HAND, THE LEARNED AR SUPPORTED THE STAND OF THE CIT (A) ON THE ISSUE. 6.3. IN THE MEANWHILE, OUR REFERENCE WAS DRAWN TO THE FACT THAT A SIMILAR ISSUE TO THAT OF THE PRESENT ONE CAM E UP FOR ADJUDICATION BEFORE THE EARLIER BENCH OF THIS TRIBU NAL IN THE CASE OF SYNDICATE BANK IN ITA NOS. 377 & 378/B/2010 DATE D ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 17 OF 45 7.6.2013 FOR THE ASSESSMENT YEARS 1990-91 AND 1999- 2000. AFTER HAVING CONSIDERED THE RIVAL SUBMISSIONS, THE EARLIER BENCH HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS, NAMELY: 5.1.5. (ON PAGE 10).A SIMILAR ISSUE TO THAT OF THE PRESENT ONE UNDER CONSIDERATION HAD CROPPED UP BEFORE THE EARLIER BENCH OF THIS TRIBUNAL IN THE AS SESSEES OWN CASE FOR THE AYS 2000-01 AND 2001-02 DATED 9.10.2009 WHEREIN THE HONBLE BENCH HAD, AFTER HEAR ING THE RIVAL PARTIES, RECORDED ITS FINDINGS THAT 18WE ARE OF THE VIEW THAT APPEAL OF THE ASSESSEE IS TO BE ALLOWED. THE ASSESSEE IS BOUND T O FOLLOW THE RBI GUIDELINES AND SECONDLY THE SAME MET HOD OF ACCOUNT WAS BEING FOLLOWED BY THE ASSESSEE CONSISTENTLY WHICH WAS ALWAYS ACCEPTED BY THE REVEN UE. SINCE THE ASSESSEE IS BOUND TO FOLLOW AND HAS ONLY FOLLOWED THE RBI GUIDELINES, THE REVERSAL OF THE EN TRY CANNOT BE FAULTED WITH. WE HOLD ACCORDINGLY. 6.3.1. FURTHERMORE, THE HONBLE DELHI HIGH COURT, I N THE CASE OF CIT V. INDUSTRIAL FINANCE CORPORATION OF IN DIA LIMITED REPORTED IN (2011) 12 TAXMANN.COM 268 (DELHI), HAS HELD AS UNDER: THE UN-AMENDED SECTION 36(1)(VIII) ALLOWED THE DED UCTION TO A FINANCIAL INSTITUTION FOR AN AMOUNT NOT EXCEED ING 40 PER CENT OF THE TOTAL INCOME CARRIED TO A SPECIAL R ESERVE. FOR CLAIMING THIS DEDUCTION, THIS CLAUSE REQUIRED T HAT THE RESERVE TO THE EXTENT OF 40 PER CENT OF THE TOTAL I NCOME BE CREDITED BY DEBIT TO PROFIT AND LOSS ACCOUNT. BY T HE FINANCE ACT, 1997 THE PHRASE AND MAINTAINED WAS INSERTED AFTER THE WORD CREATED IN SECTION 36(1)( VIII) WITH EFFECT FROM 1.4.1998. BY THE SAME FINANCE ACT, 199 7, CLAUSE (V) OF SECTION 36(2) WAS ALSO MADE APPLICABL E WITH RETROSPECTIVE EFFECT FROM 1.4.1992 TO ALL THE ASSES SEES TO WHICH CLAUSE (VIIA) OF SUB-SECTION (1) OF SECTION 3 6 APPLIED WHICH WAS EARLIER APPLICABLE TO ONLY BANKS. THE FI NANCE ACT, 1997, HAS ALSO MADE PROVISIONS BY PROVISO TO S ECTION 36(1)(VII) APPLICABLE TO ALL THE ASSESSEES WITH RET ROSPECTIVE ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 18 OF 45 EFFECT FROM 1.4.1992 WHICH WAS EARLIER APPLICABLE T O BANKS ONLY. SIMULTANEOUSLY, SUB-SECTION (4A) WAS INSERTE D IN SECTION 41 BY THE FINANCE ACT 1997 WITH EFFECT FROM 1.4.1998 WHEREBY ANY AMOUNT SUBSEQUENTLY WITHDRAWN FROM THE SPECIAL RESERVE CREATED BY THE ASSESSEE UN DER SECTION 36(1)(VIII) IN RESPECT OF WHICH, DEDUCTION HAD BEEN ALLOWED EARLIER IS DEEMED TO BE THE PROFIT AND GAIN S OF BUSINESS OR PROFESSION AND IS MADE CHARGEABLE TO TA X IN THE YEAR IN WHICH SUCH AMOUNT IS WITHDRAWN. IT IS CLEAR FROM THE READING OF THE PROVISIONS OF C LAUSE (VIII) OF SUB-SECTION (1) OF S. 36 THAT THE WORDS AND MAI NTAINED WERE INSERTED ONLY BY WAY OF AMENDMENT MADE W.E.F. 1.4.1998. AS PER THE UN-AMENDED PROVISION WHICH IS APPLICABLE TO THE INSTANT CASES, ONLY REQUIREMENT W AS FOR CREATION OF RESERVE EQUIVALENT TO RS.40 PER CENT OF TOTAL INCOME BY DEBIT TO THE PROFIT AND LOSS ACCOUNT. IN THIS SCENARIO, THE MOOT QUESTION WAS AS TO WHETHER THE AMENDMENT WAS PROSPECTIVE OR IT WAS ONLY CLARIFICAT ORY IN NATURE AND WAS TO BE GIVEN RETROSPECTIVE EFFECT. . 6.3.2. IN CONFORMITY WITH THE REASONING OF THE EARL IER BENCH ON AN IDENTICAL ISSUE AND ALSO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT (SUPRA), WE ARE OF THE VIEW THAT THE CIT (A) WAS JUSTIFIED IN ALLOWING THE ISSUE IN FAVOUR OF THE AS SESSEE. IT IS ORDERED ACCORDINGLY. 7. THE THIRD GROUND RAISED BY THE REVENUE IS WITH REGARD TO THE ALLOWING OF THE ASSESSEES CLAIM BY THE CIT (A) FOR DEDUCTION U/S 35D OF THE ACT, AMOUNTING TO RS.3,33, 10,139/- BEING 1/5 TH OF PUBLIC ISSUE AND BOND ISSUE EXPENSES. 7.1. BRIEFLY STATED, THE ASSESSEE HAD CLAIMED DEDU CTION U/S 35D OF THE ACT OF RS.2,45,15,858/- BEING 1/5 TH OF RS.12,25,79,290/- INCURRED TOWARDS FOLLOW ON PUBLIC OFFER III INSTALLMENT. SIMILARLY, STAMP DUTY PAID OF RS.7,06 ,94,281/-ON BONDS ISSUED [TIER II CAPITAL] WAS CLAIMED AS DEFER RED REVENUE ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 19 OF 45 EXPENSES U/S 35D IN 5 INSTALLMENTS RS.19,53,985/- BEING 1 ST INSTALLMENT AND RS.68,40,296/- AS SECOND INSTALLMEN T IN THE AY 2008-09. AFTER HAVING CONSIDERED THE ASSESSEES CO NTENTION, ANALYZING THE PROVISIONS OF S. 35D OF THE ACT AND A LSO REFERRING TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CA SE OF BROOKE BOND INDIA LTD V. CIT REPORTED IN 225 ITR 798 (SC), THE AO HAD REJECTED THE ASSESSEES CLAIM FOR DEDUCTION U/S 35D OF THE ACT, AMOUNTING TO RS.3,33,10,139/- FOR THE REASONING THA T 9.5. THE EXPENSES INCURRED IN CONNECTION WITH ISSU E OF SHARES AND BONDS BEING INCURRED FOR EXPANSION OF CAPITAL BASE IS A CAPITAL EXPENDITURE AND THE SAME IS CONSIDERS AS DEFERRED REVENUE EXPENDITURE TO BE AMORTISED U/S 35D SUBJECT TO THE ABOVE MENTIONED CONDITIONS. THE ASSESSEE HAS ALREADY COMMENCED ITS BANKING BUSINESS. THE ASSESSEE IS A BANKING COMPANY AND CANNOT BE CONSIDERED AS AN INDUSTRIAL UNDERTAKI NG. SECTION 35D REFERRED TO AN INDUSTRIAL UNIT WHICH CONCERNED PRODUCTION OR OPERATION. IT IMPLIES THAT THE INDUSTRIAL UNDERTAKING OR THE UNIT MUST BE ENGAGED IN SOME MANUFACTURING, PRODUCING OR PROCESSING ACTIVIT Y. THE BUSINESS OF THE COMPANY IS THAT OF BANKING WHIC H IS NOT COVERED U/S 35D. THE EXPENSES ARE ADMISSIBLE, AFTER COMMENCEMENT OF BUSINESS, ONLY IN CONNECTION WITH EITHER EXTENSION OF INDUSTRIAL UNDERTAKING OR SETTING UP OF NEW INDUSTRIAL UNIT. THEREFORE, THE ASSESSEE S CASE DOES NOT COME WITHIN THE PURVIEW OF SECTION35D . 7.2. WHEN THE ISSUE WENT BEFORE THE CIT (A) FOR ADJUDICATION, THE CIT (A) DECIDED THE ISSUE IN FAVO UR OF THE ASSESSEE FOR THE FOLLOWING REASONS, NAMELY: 6.5. (ON PAGE 12)..THE AO HAS HELD THAT THE EXPENDITURE WAS NOT COVERED U/S 35D BECAUSE THE BAN K HAD ALREADY COMMENCED ITS BUSINESS AND IT WAS NOT A N INDUSTRIAL UNDERTAKING. IT IS APPARENT THAT HE TRE ATED THE EXPENDITURE AS CAPITAL IN NATURE. HOWEVER, IT IS T HE APPELLANTS CASE THAT THE EXPENDITURE WAS REVENUE I N NATURE BECAUSE IT WAS THE COST OF RAISING WORKING C APITAL. THOUGH, THERE IS MERIT IN THE ARGUMENT THAT THIS WA S NOT A ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 20 OF 45 PURELY CAPITAL EXPENDITURE, THE NATURE OF EXPENSES INVOLVED IS NOT COMPARABLE TO INTEREST ON BORROWED CAPITAL, BUT, IS A ONETIME EXPENDITURE INCURRED TO FACILITAT E ISSUE OF SHARES AND BONDS. AS CAPITAL WAS RAISED TO MEET TH E BANKS WORKING CAPITAL NEEDS IN KEEPING WITH RBIS C APITAL ADEQUACY NORMS, THE EXPENDITURE WAS INCURRED IN THE COURSE OF BUSINESS AND WAS INCIDENTAL TO THE APPELL ANTS REGULAR BANKING BUSINESS. UNDER THESE CIRCUMSTANCE S, THE EXPENDITURE IS ALLOWABLE UNDER SECTION 37(1). HOWE VER, SINCE THE APPELLANT HAS CHOSEN TO AMORTIZE THE EXPE NDITURE OVER FIVE YEARS IN TERMS OF ITS OWN ACCOUNTING POLI CY WHICH IS CONSISTENTLY FOLLOWED, I DIRECT THAT THE EXPENDI TURE DEBITED IN THE CURRENT YEAR MAY BE ALLOWED AS GENER AL DEDUCTION U/S 37(1). IN VIEW OF THIS, I DELETE THE ADDITIONS OF RS.2,45,15,858/- AND RS.87,94,281/- TOWARDS EXPENDITURE INCURRED ON PUBLIC ISSUE OF SHARES AND BOND 7.3. AGGRIEVED, THE REVENUE HAS COME UP BEFORE US FOR RESTORATION OF THE AOS STAND ON THE ISSUE. IT WAS CONTENDED BY THE LEARNED DR THAT THE CIT (A) FAILED TO APPRECIAT E THE FACT THAT THE EXPENSES WERE ADMISSIBLE AFTER COMMENCEMENT OF BUSINESS, ONLY IN CONNECTION WITH EITHER EXTENSION OF INDUSTR IAL UNDER- TAKING OR SETTING UP OF NEW INDUSTRIAL UNIT. IT WA S, FURTHER, ARGUED THAT THE CIT (A) FAILED TO APPRECIATE THE FA CT THAT THE WORDS INDUSTRIAL UNDER-TAKING HAD BEEN SUBSTITUTE D WITH THE WORD UNDER-TAKING ONLY W.E.F. 1.4.2009 BY THE FIN ANCE ACT, 2008 AND, HENCE, DEDUCTION U/S 35D WAS NOT AVAILABL E TO THE BANK IN THE CURRENT ASSESSMENT YEAR. IT WAS, THERE FORE, PLEADED THAT, THE STAND OF THE AO REQUIRES TO BE RESTORED. 7.3.1. THE LEARNED AR PRESENT SUPPORTED THE FINDING S OF THE CIT (A) ON THE ISSUE. 7.3.2. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMI SSIONS AND ALSO PERUSED THE RELEVANT MATERIALS ON RECORD. AS A MATTER ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 21 OF 45 OF FACT, A SIMILAR ISSUE UNDER DISPUTE HAS BEEN ELA BORATELY AND COMPREHENSIVELY DEALT WITH IN THE ASSESSEES OWN CA SE FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 BY THE EARLIER BENCH OF THIS TRIBUNAL (SUPRA). IN RESPECT OF THE CLAIM OF DEDUCTION ON PUBLIC OFFER , THE EARLIER BENCH HAD DECIDED THE ISSUE IN FAVOUR OF RE VENUE, THE REASONING OF WHICH IS EXTRACTED AS UNDER: 78. (ON PAGE 58).IN OUR VIEW, THE ORDER OF THE CIT (APPEALS) CANNOT BE SUSTAINED. FIRSTLY, TH E PROVISIONS OF SECTION 35D OF THE ACT WERE APPLICABL E ONLY WHEN THE EXPENSES ARE INCURRED AFTER COMMENCEMENT O F BUSINESS IN CONNECTION WITH EXPANSION OF INDUSTRIAL UNDERTAKING OR IN CONNECTION WITH SETTING UP OF A N EW INDUSTRIAL UNIT. ADMITTEDLY, THE ASSESSEE WAS NOT AN INDUSTRIAL UNDER-TAKING. THIS ASPECT HAS BEEN OVER LOOKED BY THE CIT (A). EVEN ASSUMING THAT THE CLAIM IS NO T ONE MADE U/S 35D OF THE ACT, THE ASSESSEES CLAIM FOR DEDUCTION AS A REVENUE EXPENDITURE ON THE BASIS THA T THE ISSUE OF SHARE CAPITAL WAS FOR MEETING THE WORKING CAPITAL REQUIREMENT CANNOT ALSO BE SUSTAINED. THE FACT THA T THE CAPITAL RAISED BY ISSUE OF SHARES IS FOR MEETING TH E WORKING CAPITAL REQUIREMENT OR OTHERWISE, WILL NOT BE A RELEVANT CONSIDERATION THIS ASPECT HAS BEEN MADE C LEAR BY THE HONBLE SUPREME COURT IN THE CASE OF BROOKE BOND INDIA LTD [SUPRA] WHEREIN AT PAGE NO.801 IN THE CON CLUDING PART OF THE JUDGMENT, THE HONBLE SUPREME COURT OBS ERVED THAT BY ISSUE OF SHARES, THERE IS INCREASE IN CAPIT AL AND, THEREFORE, THERE IS AN EXPANSION OF CAPITAL BASE OF THE COMPANY AND, THEREFORE, THE EXPENSES WILL RETAIN TH E CHARACTER OF CAPITAL EXPENDITURE. IN VIEW OF THE A BOVE, WE ARE OF THE VIEW THAT THE ACTION OF THE CIT (APPEALS ) IN DELETING THE ADDITION MADE BY THE AO CANNOT BE SUSTAINED. IN CONSONANCE WITH THE OBSERVATIONS OF THE EARLI ER BENCH ON AN IDENTICAL ISSUE OF THE PRESENT ONE UNDER DISP UTE, WE ARE OF THE VIEW THAT THE CIT (A) WAS NOT JUSTIFIED IN DELE TING THE ADDITION MADE BY THE AO ON THIS SCORE. IN ESSENCE, THE ADDI TION MADE BY THE AO ON THIS ISSUE IS UPHELD. ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 22 OF 45 7.3.3. WITH REGARD TO THE CLAIM OF THE EXPENSES I NCURRED BY THE ASSESSEE ON PUBLIC ISSUE OF BONDS, THE EARLIER BENCH HAD REASONED AS UNDER: 116THE REMAINING SUM OF RS.60,40,296/- BEING 1/5 TH OF EXPENSES OF RS.3,42,01,479/- IS THE EXPENSES INCURRED BY THE ASSESSEE ON PUBLIC ISSUE OF BONDS. WE HAVE ALREADY HELD WHILE DECIDING THE GROUND NO.5 OF THE REVENUE IN AY 2006-07 THAT EXPENDITURE INCURRED ON RAISING FUNDS BY ISSUE OF BONDS IS AKIN TO COST OF BORROWING. IN THE PRESENT YEAR, WE FIND THAT THE C LAIM OF THE ASSESSEE HAS BEEN TESTED U/S 35D OF THE ACT. W E ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE IS ALLOW ABLE U/S 37(1) OF THE ACT AS EXPENDITURE WHOLLY AND NECESSAR ILY INCURRED IN CONNECTION WITH THE BUSINESS OF THE ASS ESSEE. THE ASSESSEE HAS CLAIMED ONLY 1/5 TH OF THE TOTAL EXPENSES AND HAS AMORTIZED THE CLAIM OF EXPENSES FOR THE PER IOD OF THE BOND. WE THEREFORE UPHOLD THE ORDER OF THE CIT (A) TO THE EXTENT OF ALLOWING DEDUCTION OF A SUM OF RS.68,40,296/-.. IN CONCURRENCE WITH THE FINDINGS OF THE EARLIER BENCH (SUPRA) ON AN IDENTICAL ISSUE, WE UPHOLD THE STAND OF THE CIT (A) ON THIS POINT. IN SUBSTANCE, THIS PART OF THE ISSU E IS DECIDED AGAINST THE REVENUE. 8. THE NEXT GROUND IS WITH REGARD TO THE INTEREST OF RS.16,76,60,611/- ALLOWED ON SECURITIES ON ACCRUAL BASIS. THE ISSUE, IN BRIEF, IS THAT THE AO NOTICED THAT THE AS SESSEE HAD NOT OFFERED TO TAX AN AMOUNT OF RS.16.76 CRORES REPRESE NTING INTEREST ACCRUED BUT NOT DUE ON SECURITIES. AS THE BANKS A CCOUNTING POLICY WAS TO RECOGNIZE REVENUE AND EXPENSES ON ACC RUAL BASIS AND THE SAID INTEREST WAS TO BE TREATED AS REVENUE AS PER THE GUIDELINES OF RBI, THE BANK (ASSESSEE) WAS REQUIRED TO EXPLAIN AS TO WHY THIS AMOUNT SHOULD NOT BE BROUGHT TO TAX IN THE ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 23 OF 45 ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSEE TOOK A STAND THAT THOUGH IT WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, IT HAD CONSISTENTLY OFFERED TO TAX INTEREST ON SECU RITIES ON DUE BASIS WHICH HAS BEEN, ACCORDING TO THE ASSESSEE, WA S ACCEPTED BY THE THEN CIT (A) FOR THE ASSESSMENT YEAR 2005-06 . HOWEVER, THE AO TOOK A DIVERGENT VIEW ON THE PREMISE THAT TH E FINDING OF THE THEN CIT (A) FOR THE AY 2005-06 WAS NOT ACCEPTE D BY THE REVENUE EVEN IN THE CASES OF OTHER BANKS (ASSESSEES ) ALSO. IT WAS THE STAND OF THE AO THAT AS PER S.145 OF THE ACT, T HE ASSESSEE COULD NOT FOLLOW DUAL METHOD OF ACCOUNTING AND SHOU LD HAVE OFFERED TO TAX INTEREST ON SECURITIES ON ACCRUAL BA SIS WHICH WAS REGULAR METHOD OF ACCOUNTING IT EMPLOYED. ON AN AP PEAL, THE CIT (A) HAD ALLOWED THE ISSUE IN FAVOUR OF THE ASSE SSEE ON THE REASONING THAT 7.4..I FIND THAT THE APPELLANT HAS CONSISTENTLY OFFERED TO TAX INTEREST ON SECURITIES ONLY ON DUE DATE BASIS AND NOT ON THE BASIS OF THE ALLEGED ACCRUAL. THE JURISDICTIONAL ITAT IN ITS ORDER DATED 21.11.20 08 IN ITA NO.1160 (BNG)/07 IN THE CASE OF KARNATAKA BANK LTD, FOR ASSESSMENT YEAR 2004-05, HAD DECIDED THE ISSUE IN FAVOUR OF THE BANK. BESIDES, I ALSO FIND THAT THE VARIOUS JUDICIAL DECISIONS RELIED UPON BY THE LD. AR ARE IN FAVOUR OF THE APPELLANT. RESPECTFULLY FOLLOWING THE SAID DEC ISIONS, THE AO IS DIRECTED TO DELETE THE ADDITION MADE IN R ESPECT OF INTEREST ACCRUED BUT NOT DUE ON SECURITIES.. 8.1. BEFORE US, IT WAS SUBMITTED BY THE LEARNED DR THAT THE CIT (A) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING IN RESPEC T OF INTEREST FROM SECURITIES FOR THE PURPOSE OF FINAL ACCOUNTS A S PER ANNUAL REPORT UNDER THE COMPANIES ACT, BUT, HAD DEVIATED A ND SOUGHT TO REDUCE A SUM OF RS.16.76 CRORES AS INTEREST ACCR UED, BUT, NOT FALLEN DUE FOR THE PURPOSE OF TAXATION UNDER THE IN COME-TAX ACT. IT WAS ALSO CONTENDED THAT THE CIT (A) FAILED TO AP PRECIATE THE FACT ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 24 OF 45 THAT THE ASSESSEE WHILE ACKNOWLEDGING THE INTEREST INCOME AS ACCRUED IN THE ANNUAL REPORT FOR THE YEAR-ENDING 31 .3.2008 AND THE BASIS ON WHICH ACCOUNTS FINALIZED AND DIVIDENDS PAID, HAS SOUGHT TO DEFER THE TAXATION UNDER THE I.T. ACT OF THE ABOVE AMOUNT ON THE GROUND THAT IT IS YET TO RECEIVE THE SAME. THIS IN OTHER WORDS, IT WAS ARGUED, REPRESENTS DUAL TREATME NT OF THE SAME INCOME UNDER DIFFERENT ACTS AND THE ASSESSEE H AS FOLLOWED RECEIPT OR CASH SYSTEM OF ACCOUNTING IN RESPECT OF INTEREST ACCRUED DURING THE AY 2008-09 BY OFFERING IT FOR TA XATION UNDER THE I.T. ACT IN THE SUBSEQUENT YEAR WHICH IS NOT PE RMISSIBLE UNDER THE AMENDED PROVISIONS OF S. 145. IT WAS ALS O THE STAND OF THE LEARNED DR THAT THE CIT (A) FAILED TO APPRECIAT E THE FACT THAT THE SECURITIES HAVE BEEN CLASSIFIED AS CURRENT INVE STMENTS AND, HENCE, MAY BE SOLD FREELY AT WILL AT ANY POINT OF T IME. IN SUCH A SITUATION, IT WAS CONTENTED, THOUGH THE PURCHASER O F THE SECURITY IS ENTITLED TO RECEIVE THE FULL ACCRUED INTEREST ON THE SECURITY ON THE SPECIFIED DUE DATE, IT STILL HAS TO PART WITH T HE PROPORTIONAL INTEREST ACCRUED ON THE SAID SECURITIES AS ON THE D ATE OF SALE OF THE SELLER. IN VIEW OF THE SAME, THE LEARNED DR A RGUED, IT IS INCORRECT TO STATE THAT UNLESS RIGHT TO RECEIVE THE ACCRUED INTEREST ARISES IT DOES NOT ACCRUE AT ALL OR THAT THERE IS N O LEGAL RIGHT TO RECEIVE THE INTEREST. IN VIEW OF THE ABOVE SUBMISSION, THE LEARNED DR PLE ADED THAT THE STAND OF THE CIT (A) ON THIS ISSUE REQUIRES TO BE R EVERSED. 8.2. ON HIS PART, THE LEARNED AR PRESENT SUPPORTE D THE FINDINGS OF THE CIT (A) ON THE ISSUE. 8.3. WE HAVE CAREFULLY EXAMINED THE RIVAL SUB MISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. OUR REFERENCE WAS ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 25 OF 45 INVITED TO THE FACT THAT THE ISSUE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF (I) HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. TAMIL NADU MERCANTILE BANK LTD [ 291 ITR 137 (MAD)]; (II) HONBLE KERALA HIGH COURT IN CIT V. FE DERAL BANK [301 ITR 188 (KER)]; AND (III) THE FINDINGS OF THE EARLI ER BENCH OF THIS TRIBUNAL IN ITA NO.1160/2007 DATED: 21.11.2008 IN T HE CASE OF KARNATAKA BANK LIMITED FOR THE AY 2004-05. ALSO TH E FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE AYS 2006-07 AND 2007-08 (SUPRA) WHEREIN AN IDEN TICAL ISSUE TO THAT OF THE PRESENT ONE UNDER DISPUTE CAME UP FO R ADJUDICATION. AFTER TAKING INTO ACCOUNT THE ASSESS EES CONTENTIONS, THE FINDINGS OF THE CIT (A) AND ALSO E XTENSIVELY QUOTING THE JUDGMENT OF THE HONBLE MADRAS HIGH COU RT IN THE CASE OF TAMIL NADU MERCANTILE BANK LIMITED (SUPRA), THE HONBLE BENCH HAD RECORDED ITS FINDINGS AS UNDER: 111. (ON PAGE 77) IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL DECISION HAS ALSO BEEN RENDERED BY THE HONBLE HIGH COURT OF KERALA IN THE CASE OF CIT V. FEDERAL BANK 301 ITR 1 88 (KER). IN THE PRESENT CASE, THE ASSESSEE HAS BEEN FOLLOWIN G THE METHOD OF OFFERING INTEREST ON SECURITIES TO TAX ON RECEIPT BASIS ON MATURITY AND THE SAME HAS BEEN ACCEPTED BY THE R EVENUE IN THE PAST. IN VIEW OF THE AFORESAID DECISION, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT (A) DOES NOT CALL FO R ANY INTERFERENCE.. 8.3.1. IN CONCURRENCE WITH THE FINDINGS OF THE EARL IER BENCH ON A SIMILAR ISSUE IN THE ASSESSEES OWN CASE (SUPR A), WE FIND NO INFIRMITY IN THE STAND OF THE CIT (A) WARRANTING OU R INTERFERENCE. IN ESSENCE, THIS ISSUE IS DECIDED AGAINST THE REVEN UE. IT IS ORDERED ACCORDINGLY. ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 26 OF 45 9. THE LAST GROUND RAISED BY THE REVENUE IS WITH R EGARD TO LOSS ON VALUATION OF INVESTMENTS AMOUNTING TO RS.216,64,40,818/-. 9.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAD OBSERVED THAT THE ASSESSEE BANK, IN ITS COMPUTA TION OF BUSINESS INCOME, DEDUCTED RS.196,09,30,654/- BEING PROFIT ON SALE OF INVESTMENTS AND ADDED BACK RS.9,66,20,161/- AS DEPRECIATION ON INVESTMENTS AND RS.49,61,34,108/- AS AMORTIZATION. OBSERVING THAT THE CLAIM FOR LOSS IN TRADING OF INVESTMENTS HAD NOT BEEN ALLOWED IN EARLIER ASSESSM ENT YEARS, THE AO HAD CALLED FOR DETAILS OF VALUATION OF INVES TMENTS AS STOCK-IN-TRADE. THE AO HAD ALSO OBSERVED THAT THE ASSESSEE COULD NOT VALUE INVESTMENTS UNDER THE CATEGORY OF HEAD TO MATURITY [HTM] AS STOCK-IN-TRADE AND COULD NOT ADO PT DUAL METHOD FOR VALUATION OF INVESTMENTS, VIZ., ONE METH OD FOR COMPUTING BOOK PROFITS AND ANOTHER METHOD FOR INCOM E-TAX COMPUTATION. IT WAS OBSERVED BY THE AO THAT AS PER RBIS MASTER CIRCULAR NO. DBOD NO. BP.BC/21/21.04.141/2003-04 DA TED: 2.9.2003, THE WHOLE INVESTMENT PORTFOLIO OF A BANK COULD NOT BE CLASSIFIED AS STOCK-IN-TRADE AND NO DEPRECATION WAS AVAILABLE IN CASE OF HTM CATEGORY. IN SO FAR AS INVESTMENTS IN THE AVAILABLE FOR SALE [AFS] AND HELD FOR TRADING [HFT] CATEGOR IES WERE CONCERNED, DEPRECIATION/APPRECIATION SHOULD BE AGGR EGATED FOR EACH OF THE CLASSIFICATION AND NET DEPRECIATION, IF ANY, SHOULD BE DEBITED TO THE PROFIT & LOSS ACCOUNT. ACCORDING TO PARAGRAPH 4 OF CBDTS CIRCULAR NO.665 DATED 5.10.1993, THE QUESTIO N OF WHETHER A PARTICULAR ITEM OF INVESTMENT IN SECURITI ES CONSTITUTED A STOCK-IN-TRADE OR A CAPITAL ASSET WAS A QUESTION OF FACT AND THE AO SHOULD DETERMINE ON THE FACTS AND CIRCUMSTANCES OF EACH ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 27 OF 45 CASE AS TO WHETHER ANY PARTICULAR SECURITY CONSTITU TED STOCK-IN- TRADE OR INVESTMENT BY TAKING INTO ACCOUNT THE GUID ELINES ISSUED BY THE RBI IN THAT REGARD FROM TIME TO TIME. THE A O WAS, THEREFORE, OF THE VIEW THAT THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK V. CIT [1999] 240 ITR 355 (SC) RELIED ON BY THE ASSESSEE WAS RENDERED BEFORE THE RBIS GUIDELINES ON VALUATION OF INVESTMENT PORTFOL IO. THE AO WAS, THEREFORE, OF THE VIEW THAT ONCE THE GUIDELINE S CAME INTO FORCE, THE ASSESSEE SHOULD HAVE FOLLOWED THE SAME. IT WAS THE OPINION OF THE AO THAT EVEN THOUGH THE ASSESSEE HAD FOLLOWED THE RBIS GUIDELINES FOR THE PURPOSE OF BOOKS OF ACCOUN T, BUT, NOT FOR COMPUTATION OF INCOME FOR INCOME-TAX PURPOSE. 9.2. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE WIT H THE CIT (A). THE CIT(A) HAD, AFTER DUE CONSIDERATION OF RIVAL SUBMISSIONS AND ALSO VARIOUS JUDICIAL PRONOUNCEMENT S INCLUDING THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN ITA NO.50/BANG/1997 DATED 29.7.2003 IN THE CASE OF KARN ATAKA BANK ON A SIMILAR ISSUE, DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE. THE RELEVANT PORTION OF THE FINDINGS OF THE CIT (A) IS EXTRACTED AS UNDER: 10.6. (ON PAGE 23) FOLLOWING THE ABOVE DECISION OF THE HONBLE SUPREME COURT [UCO BANK V. CIT (1999) 240 I TR 355 (SC)] AND IN LINE WITH ITS DECISION DATED 24.1. 2008 IN ITA NO.253/BANG/2007 IN THE CASE OF ACIT (LTU) V. V IJAYA BANK, THE HONBLE ITAT HAS HELD THAT THE ASSESSEE B ANK IS ENTITLED TO VALUE ALL INVESTMENTS AT LCMV BY TREATI NG SUCH INVESTMENTS AS STOCK-IN-TRADE AND HAS DELETED THE DISALLOWANCE MADE ON LOSS ON VALUATION. THE HONBL E HIGH COURT OF KARNATAKA HAS, IN THE CASE OF CIT V. CORPORATION BANK (1998) 174 ITR 616 ALSO UPHELD THE ITATS DECISION. RESPECTFULLY FOLLOWING THESE JUDI CIAL PRONOUNCEMENTS, I DELETE THE DISALLOWANCE OF THE INVESTMENT TRADING LOSS OF RS.216,64,40,818/- CLAIM ED BY ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 28 OF 45 THE APPELLANT AND DIRECT THE AO TO ALLOW THE SAME A S DEDUCTION IN COMPUTING THE TOTAL INCOME.. 9.2.1. BEFORE US, IT WAS THE STAND OF THE REVENUE T HAT - THE CIT (A) ERRED IN NOT CONSIDERING THE FACT THAT DURING THE YEAR THE ASSESSEE HAD MADE PROFIT OF RS.196,09,30,6 54/- ON SALE OF INVESTMENTS WHICH WAS CREDITED TO P & L ACCOUNT AS AGAINST THE LOSS OF RS.30,21,30,325/- CLAIMED; - THE CIT (A) FAILED TO CONSIDER THAT AS PER THE GUID ELINES ISSUED BY THE RBI, THE ASSESSEE CAN CLAIM DEPRECIAT ION ONLY IN RESPECT OF INVESTMENTS HELD UNDER THE CATEGORY HELD FOR TRADE AND AVAILABLE FOR SALE AND IN THE CASE OF HEAD TO MATURITY CATEGORY, DEPRECIATION CANNOT BE CLAIMED AS THESE SECURITIES WERE NOT ALLOWED TO BE MARKED TO MARKET; - THE CIT (A) ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSEE BANK UP-TO THE AY 2004-05 FOLLOWED RBI GUIDELINES WITH REGARD TO VALUATION OF INVESTMENT P ORTFOLIO FOR COMPUTATION OF INCOME FOR INCOME-TAX PURPOSES A ND IT WAS ONLY FROM THE AY 2005-06, THE ASSESSEE STARTED TREATING THE ENTIRE INVESTMENT AS STOCK-IN-TRADE; & - THE CIT (A) ERRED IN NOT CONSIDERING THE ORDER OF H IS PREDECESSOR IN THE CASE OF CORPORATION BANK FOR THE AY 2005-06 ITA NO.66/MNG/CIT(A)/MNG/07-08 DATED 25.4.2008 WHEREIN THE CIT (A) HAD HELD THAT ONLY INVESTMENTS HELD UNDER THE CATEGORY HELD FOR TRADI NG CAN BE CONSIDERED AS IN THE NATURE OF STOCK-IN-TRADE AN D THAT INVESTMENTS FALLING UNDER THE CATEGORY AVAILABLE F OR SALE AND HELD TO MATURITY CANNOT BE CONSIDERED AS STOC K-IN- TRADE BUT ONLY AS INVESTMENTS. 9.2.2. ON HIS PART, THE LEARNED AR SUPPORTED THE ST AND TAKEN BY THE FIRST APPELLATE AUTHORITY ON THE ISSUE . 9.3. AT THE OUT-SET, WE WOULD LIKE TO REFER TO THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE AYS 2006-07 & 2007-08 (SUPRA) ON A SIMILAR ISSU E TO THAT OF ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 29 OF 45 THE ISSUE UNDER CONSIDERATION. THE BENCH HAD, AFTE R DUE CONSIDERATION OF THE RIVAL SUBMISSIONS, THE JUDGMEN T OF THE HONBLE JURISDICTIONAL HIGH COURT DATED 11.3.2013 I N THE CASE OF CIT V. VIJAYA BANK IN ITA NO.687/2008, DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. FOR APPRECIATION OF FACTS AND FOR READY REFERENCE, THE RELEVANT PORTION OF THE FINDING OF T HE EARLIER BENCH IS EXTRACTED AS UNDER: 62. (ON PAGE 50). WE HAVE GIVEN A CAREFUL CONSIDE RATION TO THE RIVAL SUBMISSIONS AND ARE OF THE VIEW THAT THE CONTENTIONS PUT FORTH ON BEHALF OF THE ASSESSEE DESERVE TO BE A CCEPTED. THE TRIBUNAL IN ASSESSEES OWN CASE ON AN IDENTICAL ISSUE FOR THE AY 2005-06 HAS UPHELD THE CLAIM OF THE ASSESSEE . THE LATER DECISION OF THE HONBLE HIGH COURT OF KARNATA KA IS ALSO IN FAVOUR OF THE ASSESSEE. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ISSUE RAISED BY THE REVENUE IN IT S APPEAL IS WITHOUT MERIT. CONSEQUENTLY, THE SAME IS DISMISSED . 9.4. IN VIEW OF THE PROPOSITION OF THE EARLIER B ENCH ON A SIMILAR ISSUE [SUPRA], WE ARE OF THE VIEW THAT THIS GROUND OF THE REVENUE DESERVES TO BE REJECTED. IT IS ORDERED ACC ORDINGLY. ASSESSEE APPEAL ITA NO.708/BANG/2012 10. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), MYSORE DT .24.2.2012 FOR ASSESSMENT YEAR 2008-09 RAISING THE FOLLOWING G ROUNDS: 1.1 THAT THE CIT(A) ERRED IN SUSTAINING THE ASSESSING OFFICERS ACTION IN DISALLOWING AN ESTIMATED EXPEND ITURE DEEMED TO HAVE BEEN INCURRED IN EARNING THE EXEMPTE D INCOME AS DISALLOWABLE UNDER SECTION 14A WHILE COMPUTING THE TOTAL INCOME IN THE CONVENTIONAL METH OD AS WELL AS IN ARRIVING AT THE BOOK PROFIT UNDER SECTIO N 115JB WHERE NO SUCH EXPENDITURE WAS EVER INCURRED BY THE APPELLANT. ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 30 OF 45 2.1 THAT THE CIT(A) OUGHT TO HAVE NOTED AND HELD THAT THE APPELLANTS INVESTMENT RESULTING IN EXEMPTED IN COME HAD COME OUT OF OWN FUNDS OR NON-INTEREST BEARING F UNDS AND AS SUCH THERE WAS NO FINANCIAL OR INTEREST COST AT ALL WARRANTING ASSUMPTION OF EXPENDITURE FOR PURPOSES O F SECTION 14A OF THE ACT. 2.2 THAT THE CIT(A) FAILED TO APPRECIATE THAT RULE 8D COULD BE APPLIED ONLY IF THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPE NDITURE OR THE CLAIM THAT NO EXPENDITURE HAD BEEN INCURRED AND IN THE ABSENCE OF ANY REASONS GIVEN BY THE ASSESSIN G OFFICER TO CONCLUDE THAT THE CLAIM OF THE APPELLANT WAS INCORRECT, NO DISALLOWANCE COULD BE MADE IN TERMS O F RULE 8D. 2.3 THAT THE CIT(A) FAILED TO APPRECIATE THAT THE ASSET S EARNING TAX FREE INCOME WERE TRADING ASSETS OF THE BANK AND THE INCOMES SO RECEIVED WERE INCIDENTAL RECEIPT S TO WHICH SECTION 14A WOULD NOT APPLY AS HELD BY ITAT-D ELHI IN THE CASE OF LEO INDUSTRIES LTD V. ITO (143 TAXMA N 23(ITAT DEL)) 2.4 THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ISSUE WAS COVERED IN FAVOUR OF THE APPELLANT BY VAR IOUS DECISIONS OF HIGH COURTS AND TRIBUNALS INCLUDING TH AT OF THE JURISDICTIONAL ITAT IN THE APPELLANTS OWN CASE IN ITS ORDER DATED 09.10.2009 IN ITA 1282 TO 1284/BANG/200 7 FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02. 2.5 WITHOUT PREJUDICE, THE CIT(A) FAILED TO DEAL WITH THE CONTENTION OF THE APPELLANT THAT THE ASSESSING OFFICER ERRED IN CONSIDERING THE GROSS INTEREST EARNED WHIL E COMPUTING DISALLOWANCE UNDER CLAUSE 2(II) OF RULE 8 D WITHOUT APPRECIATING THAT THE NET INTEREST EARNED B Y THE APPELLANT IS ONLY A NEGATIVE FIGURE SINCE THE INTER EST EARNED FAR EXCEEDED THE INTEREST PAID AND THAT THER EFORE NO AMOUNT COULD BE DISALLOWED EVEN APPLYING RULE 8D . 2.6 WITHOUT PREJUDICE, THAT THE CIT(A) FAILED TO APPRECIATE THAT FOR THE PURPOSE OF RULE 8D(2)(III), WHERE INVESTMENTS GIVING RISE TO EXEMPT INCOME IS NIL, SU CH INVESTMENTS SHOULD NOT BE TAKEN INTO ACCOUNT AND ER RED IN HOLDING THAT EVEN WHERE THERE IS NO INCOME RECEI VED FROM THE INVESTMENT, RULE 8D WOULD BE APPLICABLE. ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 31 OF 45 2.7 THAT IN ANY CASE AND WITHOUT PREJUDICE TO THE ABOVE, ADMINISTRATIVE EXPENSES TO EARN THE EXEMPTED INCOME WAS NEGLIGIBLE AND FROM THAT STANDPOINT ASSUMPTION OF EXPENDITURE AT RS.30,09,99,982/- IS GROSSLY EXCESSIVE. 3.1 THAT THE CIT(A) ERRED IN REJECTING THE APPELLANTS CONTENTION THAT SECTION 115JB OF THE ACT AT THE THR ESHOLD HAD NO APPLICATION TO THE APPELLANT. 3.2 THAT THE CIT(A) ERRED IN HOLDING THAT THE ISSUE ON NON-APPLICABILITY OF SECTION 115JB RAISED BY THE APPELLANT WAS A NEW ISSUE FOR THE FIRST TIME AND TH AT IT WAS ACCEPTED BY THE APPELLANT FOR THE EARLIER YEARS HAVING FAILED TO NOTE THAT THE ISSUE HAD BEEN RAISE D BEFORE THE CIT(A) EVEN DURING EARLIER YEARS. 3.3 THAT THE CIT(A) ERRED IN HOLDING THAT BY VIRTUE OF THE DEEMING PROVISIONS OF THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKING) ACT, THE APPELLANT WOULD BE DEEMED TO BE A COMPANY FOR THE PURPOSES OF THE INCOME-TAX ACT. 3.4 THAT THE LEARNED CIT(A) OUGHT TO HAVE ACCEPTED THE APPELLANTS CONTENTION THAT NOT BEING A COMPANY UND ER THE COMPANIES ACT, 1956 BUT BEING A BANK GOVERNED B Y THE PROVISIONS OF THE BANKING COMPANIES (ACQUISITIO N AND TRANSFER OF UNDERTAKINGS) ACT, 1970 AND DEEMED AS A COMPANY UNDER THE LATTER ACT COULD NOT BE CONSTRUED AS A COMPANY FOR THE PURPOSES OF CHARGING MAT. 4.1 THAT THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF LOSS AS PER INVESTMENT TRADING ACCO UNT IN COMPUTING BOOK PROFITS UNDER SECTION 115JB, HAVING FAILED TO APPRECIATE THAT THE INVESTMENTS HELD BY T HE APPELLANT CONSTITUTED STOCK IN TRADE AND THAT THE L OSS AS PER TRADING ACCOUNT DID NOT REPRESENT ANY PROVISION MUCH LESS DIMINUTION IN THE VALUE OF ITS ASSETS AND AS S UCH DID NOT WARRANT ADD BACK FOR THE PURPOSES OF SECTION 11 5JB. 4.2 THAT THE CIT(A) ERRED IN UPHOLDING THE ADDING BACK TO BOOK PROFITS, ESTIMATED EXPENSES RS.30,09,99,982 /- ATTRIBUTABLE TO EARNING TAX FREE INCOME. ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 32 OF 45 4.3 THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THAT SINCE THE APPELLANT HAD NOT INCURRED ANY EXPENDITUR E IN EARNING TAX FREE INCOME NO AMOUNT SHOULD HAVE BEEN ADDED IN COMPUTING THE BOOK PROFITS ON THE SAME GRO UNDS AND FOR THE SAME REASONS STATED IN GROUND NO. 2 ABO VE. 4.4 WITHOUT PREJUDICE TO THE ABOVE, THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF THE SAME EXPENDITURE THAT WAS DISALLOWED IN THE NORMAL COMPUTATION WITHOUT APPRECIATING THE FACT THAT THE LONG TERM CAPITAL GA INS WHICH IS EXEMPT U/S 10(38) IN THE NORMAL COMPUTATIO N IS NOT EXEMPT AS PER THE BOOK PROFITS AND THEREFORE TH E ESTIMATED EXPENDITURE ATTRIBUTABLE TO THAT CANNOT B E DISALLOWED U/S 14A. 4.5 THAT, WITHOUT PREJUDICE, THE CIT (A) OUGHT TO HAVE APPRECIATED THAT THE PROVISIONS OF RULE 8D WOULD NO T STAND ATTRACTED IN COMPUTING BOOK PROFITS IN THE AB SENCE OF PROVISIONS SIMILAR TO SUB SECTIONS (2) AND (3) O F SECTION 14A IN SECTION 115JB. 4.6 THAT THE CIT(A) ERRED IN HOLDING THAT THE PROVISION FOR FUTURE INTEREST SACRIFICE IN CDR ACCOUNTS WAS F OR FUTURE LOSS WHICH WOULD BE ADMITTED IN THE FUTURE Y EARS HAVING FAILED TO APPRECIATE THAT IT REPRESENTED A P ROVISION FOR MEETING AN ASCERTAINED LIABILITY. 4.7 THAT THE CIT(A) OUGHT TO HAVE NOTED AND HELD THAT THE PROVISION FOR FUTURE INTEREST SACRIFICED IN CDR ACCOUNTS NEITHER REPRESENTED DIMINUTION IN THE VALU E OF ASSETS NOR ANY UNASCERTAINED LIABILITY AND AS SUCH DID NOT WARRANT ADD BACK FOR THE PURPOSES OF SECTION 11 5JB. 4.8 THAT THE CIT(A) ERRED IN PROCEEDING ON THE PREMISE THAT THE PROVISION FOR FUTURE INTEREST SACRIFICE IN CDR ACCOUNTS PERTAINED TO LIABILITY WHICH IS UNASCERTAI NED OR REPRESENTED DIMINUTION IN VALUE OF ASSETS. 4.9 THAT THE COMMISSIONER OUGHT TO HAVE NOTED AND HELD THAT THE PROVISION FOR REWARD POINTS ON CREDIT CARDS REPRESENTED PROVISION FOR ASCERTAINED LIABILITIES A ND THEREFORE DID NOT WARRANT ADD BACK FOR THE PURPOSES OF SECTION 115JB. ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 33 OF 45 5. THAT THE CIT-AS ORDER TO THE EXTENT QUESTIONED HEREIN IS OTHERWISE BAD AND INOPERATIVE IN LAW. EACH OF THE FOREGOING GROUNDS IS WITHOUT PREJUDICE TO THE OTHER AND THE APPELLANT CRAVES LEAVE TO ADD TO, AME ND OR DELETE ALL OR ANY OF THE FOREGOING EITHER BEFORE OR AT THE TIME OF HEARING. A PERUSAL OF THE GROUNDS OF APPEAL RAISED INDICATE THAT THEY ARE IN RESPECT OF TWO ISSUES NAMELY :- I) DISALLOWANCE UNDER SECTION 14A OF THE ACT TOWARDS EXPENDITURE RELATED TO THE EARNING OF EXEMPT INCOME ; AND II) THE APPLICABILITY OF SECTION 115JB OF THE ACT TO TH E ASSESSEE BANK. 11.0 DISALLOWANCE U/S.14A OF THE INCOME TAX ACT R.W. RU LE 8D. 11.1 THE GROUNDS RAISED AT S.NOS.1.1 TO 2.7 RELATE TO THE DISALLOWANCE OF EXPENDITURE RELATED TO THE EARNING OF EXEMPT INCOME BY THE ASSESSEE BANK. THE FACTS OF THE MATT ER AS EMERGE FROM A PERUSAL OF THE MATERIAL ON RECORD IS THAT IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS EARNED AN AMOUNT OF RS.85,13,79,986 AS EXEMPT INCOME; COMPRISING OF DIV IDEND INCOME FROM SHARES AND VENTURE FUNDS EXEMPT U/S.10( 34) OF THE ACT AND LONG TERM CAPITAL GAINS (LTCG) ON SALE OF SHARES AND VENTURE FUNDS EXEMPT U/S.10(38) OF THE ACT. THE RE CORD SHOWS THAT THE ASSESSEE HAS NOT SHOWN THE INCURRENCE ON A NY EXPENDITURE FOR THE EARNING OF THE ABOVE EXEMPT INC OME. 11.2 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER, ON EXAMINATION OF THIS ISSUE, HE LD THAT EXPENDITURE INCURRED FOR EARNING SUCH EXEMPT INCOME IS REQUIRED TO BE DISALLOWED. THE ASSESSING OFFICER ALSO HELD THAT THE ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 34 OF 45 PROVISIONS OF RULE 8D OF THE IT RULES, 1962 ARE AP PLICABLE IN THE RELEVANT PERIOD AND WORKED OUT THE DISALLOWANCE OF EXPENDITURE INCURRED IN EARNING SUCH EXEMPT INCOME, IN ACCORDAN CE WITH THE PROVISIONS OF SEC. 14A R.W. RULE 8D, AT RS.30,09,99 ,982 AS UNDER: I) AMOUNT OF EXPENSES DIRECTLY RELATED TO THE EARNING INCOME NOT FORMING PART OF TOTAL INCOME [RULE 8D(I)] : NIL. II) AMOUNT OF EXPENSES ON INTEREST INDIRECTLY RELATED TO THE EARNING OF EXEMPT INCOME [RULE 8D(II)] : RS.27,76,31,127. III) 0.5% OF THE AVERAGE VALUE OF INVESTMENT IN SHARES AND VENTURE FUNDS AS ON 1.4.2007 AND AS ON 31.3.2008 [RULE 8D(II)] : RS.2,33,68,855. TOTAL : RS.30,09,99,982. 11.3 ON APPEAL, THE LEARNED CIT (APPEALS) CONCURRE D WITH THE DECISION OF THE ASSESSING OFFICER AND HELD THAT THE DISALLOWANCE U/S.14A OF THE ACT IS APPLICABLE TO TH E ASSESSEE'S CASE AND ALSO UPHELD THE DECISION OF THE ASSESSING OFFICER IN APPLYING THE PROVISIONS OF RULE 8D OF THE IT RULES FOR THE PURPOSE OF COMPUTING THE SAID DISALLOWANCE OF RS.30,09,99,9 82. 11.4 THE LEARNED AUTHORIZED REPRESENTATIVE WAS HEA RD AT LENGTH IN SUPPORT OF THE GROUNDS RAISED AT S.NOS.1. 1 TO 2.7 ON THIS ISSUE AND WRITTEN SUBMISSIONS WERE ALSO SUBMIT TED ON THIS ISSUE. THE GIST OF THE ASSESSEE'S SUBMISSIONS ON TH E ISSUE OF DISALLOWANCE U/S.14A R.W. RULE 8D ARE AS UNDER: I) RULE 8D OF THE IT RULES, 1962 CAN BE INVOKED BY THE ASSESSING OFFICER ONLY IF THE ASSESSING OFFICER IS NOT SATISF IED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE OR THE CLAIM PUT ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 35 OF 45 FORTH THAT NO EXPENDITURE HAS BEEN INCURRED TO EARN THE EXEMPT INCOME. IT IS SUBMITTED THAT THE ASSESSING OFFICER HAS NOT MADE ANY SPECIFIC FINDING TO THIS EFFECT AND CONTENDED T HAT IN THE ABSENCE OF SUCH A FINDING, NO DISALLOWANCE COULD B E MADE IN TERMS OF RULE 8D; II) THE ASSETS EARNING TAX FREE INCOME WERE TRADING ASSETS OF THE ASSESSEE BANK AND THE INCOME SO RECEIVED WERE INCID ENTAL RECEIPTS TO WHICH THE PROVISIONS OF SECTION 14A OF THE ACT WOULD NOT APPLY; III) THE EXEMPT INCOME HAS BEEN EARNED OUT OF OWN FUNDS OR NON-INTEREST BEARING FUNDS AND THEREFORE THERE IS N O INTEREST COST AT ALL AND THEREFORE DISALLOWANCE U/S.14A OF THE AC T WOULD NOT BE APPLICABLE. IV) EVEN IF DISALLOWANCE HAS TO BE MADE U/S.14A OF THE ACT, THE DISALLOWANCE HAS TO BE COMPUTED BY CONSIDERING THE NET INTEREST EARNED AND NOT GROSS INTEREST AS COMPUTED BY THE AS SESSING OFFICER. SINCE THE NET INTEREST IS A NEGATIVE FIGU RE, NO DISALLOWANCE CAN BE MADE U/S.14A R.W RULE 8D; V) EVEN IF DISALLOWANCE HAS TO BE MADE, THE INVEST MENTS WHICH YIELD NIL INCOME OUGHT TO BE EXCLUDED FROM THE COMP UTATION U/S. 14A R.W. RULE 8D; AND VI) IF AT ALL THE DISALLOWANCE IS TO BE MADE, I T IS U/S.14A R.W. RULE 8D (III), TO THE EXTENT OF RS.2,33,68,855 ONLY . IN SUPPORT OF ITS CASE, THE LEARNED AUTHORIZED REPRESENTATIVE RELIED ON VARIOUS JUDICIAL DECISION S, INCLUDING THE ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 36 OF 45 DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2006-07 AND 2007-08 IN ITA NOS.708 & 709/BANG/2010 DT.19.6.2013, IN WHI CH IT FOLLOWED ITS OWN EARLIER DECISION IN THE ASSESSEE'S CASE FOR ASSESSMENT YEAR 2005-06. 11.5 PER CONTRA, THE LEARNED AUTHORIZED REPRESENTA TIVE PLACED SUPPORT AND RELIED ON THE DECISIONS OF THE A UTHORITIES BELOW, IN MAKING AND SUSTAINING THE DISALLOWANCE U/ S.14A R.W. RULE 8D AMOUNTING TO RS.30,09,99,982. 11.6.1 WE HAVE HEARD BOTH PARTIES AT LENGTH AND PER USED AND CAREFULLY CONSIDERED MATERIAL ON RECORD INCLUDI NG THE JUDICIAL DECISIONS CITED. AS REGARDS THE APPLICABILITY OF T HE PROVISIONS OF SECTION 14A OF THE ACT TO THE ASSESSEE'S CASE, WE F IND THAT THIS ISSUE HAS BEEN DEALT WITH BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE IN EARLIER YEAR S IN ITA NO.668 & 669/BANG/2010 DT.19.6.2013. IN THIS ORDER , THE CO- ORDINATE BENCH OF THE TRIBUNAL RELIED ON THE DECISI ON OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD., 328 ITR 81 (BOM) HOLDING, AT PARAS 69 AND 70 THEREOF, AS UNDER : 69. IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN C ASE FOR THE A.Y. 2005-06 AND THIS TRIBUNAL REMANDED THE ISSUE FOR FRESH CONSIDERATION BY THE AO IN THE LIGH T OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ &BOYCE MFG. CO. LTD., 328 ITR 81 (BOM). THE FOLLOWING ARE THE RELEVANT OBSERVATIONS OF THE TRIB UNAL :- 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSID ERED THE FACTS AND MATERIALS ON RECORD. WE FIND THAT IN THE ASSESSEE'S OWN CASE FOR ASST. YEARS.2000-01 AND 200 1-02 IN ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 37 OF 45 ITA.1283 AND 1284/BANG/2007, THE TRIBUNAL ALLOWED T HE CLAIM OF THE ASSESSEE THAT PRIOR TO THE INSERTION O F RULE 8D, THERE WAS NO BASIS TO MAKE DISALLOWANCE ON ESTIMATE BASIS. HOWEVER, NOW THE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE (SUPRA) HAS HELD AS UNDER : 'THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE ASSESSING OFFICER SHOULD DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FRO M MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFIC ER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIO NMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFI CER SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSE SSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATE RIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE.' 33. RESPECTFULLY FOLLOWING THE BOMBAY HIGH COURT DECISION, WE ARE INCLINED TO RESTORE THIS ISSUE BAC K TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH BY FOLLOWING THE RATIO OF THE DECISION OF T HE BOMBAY HIGH COURT IN GODREJ BOYCE MFG. CO. LTD., AFTER GIV ING EFFECTIVE OPPORTUNITY OF HEARING TO THE ASSESSEE. T HIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSE. 70. FOLLOWING THE AFORESAID DECISION, WE REMAND THE ISSUE TO THE AO FOR FRESH CONSIDERATION TO BE DECID ED ON THE LINES INDICATED BY THE TRIBUNAL IN THE ORDER FO R THE A.Y. 2005-06. 11.6.2 FROM THE ABOVE DECISION (SUPRA), IT IS CLEAR THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAS, IN THE ASSE SSEE'S OWN CASE IN EARLIER YEARS HELD THAT THE PROVISIONS OF S ECTION 14A OF THE ACT ARE APPLICABLE TO THE ASSESSEES. THEREFORE, F OLLOWING THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ITA ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 38 OF 45 NOS.6689, 669, 708 & 709/BANG/2010 DT.19.6.201, WE HOLD THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE APPLIC ABLE TO THE ASSESSEE. WE THEREFORE DISMISS GROUND NOS.1.1, 2.3 AND 2.4 RAISED BY THE ASSESSEE ARE DISMISSED. 11.7.1 IN THIS APPEAL, THE LEARNED AUTHORIZED REPRE SENTATIVE OF THE ASSESSEE HAS CONTENDED THAT THE ASSESSING OF FICER HAS NOT GIVEN ANY REASON TO CONCLUDE THAT THE CLAIM OF THE ASSESSEE IS INCORRECT AND IN THE ABSENCE OF THE SAME, NO DISALL OWANCE CAN BE MADE UNDER RULE 8D OF THE IT RULES, 1962. THE SUBM ISSIONS AND CONTENTIONS OF THE ASSESSEE IN THIS REGARD HAVE BEEN CAREFULLY CONSIDERED. IN TERMS OF SECTION 14A(2) OF THE ACT, THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXP ENDITURE INCURRED IN RELATION TO EXEMPT INCOME, IF HAVING RE GARD TO THE ACCOUNTS OF THE ASSESSEE, HE/SHE IS NOT SATISFIED W ITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. IT IS A SETTLED PRINCIPLE THAT THE AS SESSING OFFICER NEEDS TO RECORD HIS/HER NON-SATISFACTION WITH THE C ORRECTNESS OF THE CLAIM AND IN THE ABSENCE OF SUCH A RECORDING, T HE DISALLOWANCE IS UNTENABLE. 11.7.2 IN THE CASE ON HAND, WE FIND THAT THE ASSESS ING OFFICER IN PARA 11 OF THE ORDER OF ASSESSMENT HAS EXAMINED THE ISSUE OF DISALLOWANCE U/S.14A OF THE ACT AND RECORD ED HIS VIEW AS TO WHY HE FEELS THAT THE ASSESSEE'S CLAIM, THAT IT HAD NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME, IS NOT A CCEPTABLE. THE RECORDINGS IN PARA 11, IN OUR CONSIDERED VIEW, SATISFIES THE REQUIREMENT OF LAW. WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF ASSESSMENT ON THIS COUNT AND THEREFORE HAVE NO HESI TATION IN UPHOLDING THE DECISION OF THE LEARNED CIT (APPEALS) , IN THIS ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 39 OF 45 REGARD UPHOLDING THE APPLICABILITY OF THE PROVISION S OF SECTION 14A OF THE ACT TO THE ASSESSEE'S CASE ON HAND. WE ACCORDINGLY DISMISS GROUND AT S.NO.2.2. 11.8.1 HAVING UPHELD THE APPLICABILITY OF THE PROVI SIONS OF SECTION 14A OF THE ACT TO THE ASSESSEE IN THE CASE ON HAND, THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAD IN ITS ORDER FOR THE EARLIER ASSESSMENT YEARS, REMANDED THE ISSUE OF COMPUTATION OF THE EXPENDITURE BACK TO THE FILE OF THE ASSESSING OFFIC ER TO DETERMINE THE QUANTUM OF DISALLOWANCE. HOWEVER, AS HELD BY T HE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED CIT (APPEALS), THE PROVISIONS OF RULE 8D OF THE IT RULES, 1962 ARE APP LICABLE FOR AND FROM THE YEAR UNDER CONSIDERATION I.E. ASSESSMENT Y EAR 2008-09. SINCE IN THE EARLIER ASSESSMENT YEARS, THE PROVISIO NS OF RULE 8D WERE NOT APPLICABLE AND THEREFORE THE ASSESSING OFF ICER WAS DIRECTED TO ESTIMATE THE EXPENDITURE RELATED TO THE EARNING OF EXEMPT INCOME. SINCE THE PROVISIONS OF RULE 8D OF THE RULES BECOMES APPLICABLE FOR ESTIMATING THE EXPENDITURE F ROM THE PERIOD UNDER CONSIDERATION, WE HOLD THAT THE EXPEND ITURE RELATED TO THE EARNING OF EXEMPT INCOME IS COVERED BY THE P ROVISIONS OF RULE 8D. ASSESSEE'S GROUND AT S. NO.2.1 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 11.8.2 THE COMPUTATION OF EXPENDITURE AS PER RULE 8 D CONTAINS THREE LIMBS, NAMELY :- I) EXPENDITURE DIRECTLY RELATED TO THE EXEMPT INCOM E; II) INTEREST EXPENDITURE NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME; AND III) AN AMOUNT EQUAL TO ONE HALF PERCENT OF THE AV ERAGE VALUE OF INVESTMENT, THE OPENING DAY AND CLOSING DAY OF THE RELEVANT YEAR ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 40 OF 45 UNDER CONSIDERATION, INCOME FROM WHICH DO NOT OR SH ALL NOT FORM PART OF TOTAL INCOME. 11.8.3 AS REGARDS THE FIRST LIMB OF RULE 8D(I), THE RE IS NO DISPUTE SINCE THE ASSESSING OFFICER HAS ACCEPTED TH E EXPLANATION OF THE ASSESSEE THAT THERE IS NO DIRECT EXPENDITURE AND HAS ACCEPTED THAT THE EXPENDITURE UNDER THIS LIMB AS NI L. 11.8.4 AS REGARDS THE SECOND LIMB IN RESPECT OF INT EREST EXPENDITURE NOT DIRECTLY RELATED TO ANY PARTICULAR INCOME I.E. RULE 8D(II), IT IS THE CONTENTION OF THE ASSESSEE THAT T HE INVESTMENTS WHICH HAVE YIELDED THE EXEMPT INCOME HAS COME OUT O F ITS OWN FUNDS OR NON-INTEREST BEARING FUNDS AND THEREFORE N O DISALLOWANCE CAN BE MADE UNDER RULE 8D(II). IN SUP PORT OF THIS PROPOSITION, THE ASSESSEE PLACED RELIANCE ON THE FO LLOWING JUDICIAL DECISIONS : (I) CIT V RELIANCE UTILITIES & POWER LTD. (2009) 31 3 ITR 340. (II) CIT V UTI BANK LTD. (2013) 32 TAXMAN.COM 370. (III) CIT V GUJARAT POWER CORPORATION (2013) 352 I TR 583 (GUJ). IT IS NOW SETTLED PRINCIPLE, UPHELD IN SEVERAL JUD GMENTS INCLUDING THOSE RELIED UPON BY THE ASSESSEE (SUPRA) , THAT DISALLOWANCE TOWARDS INTEREST IS NOT TENABLE IF THE INVESTMENTS ARE MADE OUT OF OWN FUNDS OR NON-INTEREST BEARING F UNDS AND IT IS NECESSARY TO ESTABLISH THE NEXUS BETWEEN THE INT EREST BEARING FUNDS AND THE INVESTMENTS WHICH EARNED THE EXEMPT I NCOME. WE FIND THAT THIS ISSUE HAS NOT BEEN EXAMINED BY TH E ASSESSING OFFICER. WE, THEREFORE, DEEM IT FIT TO REMAND THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE THE AS SESSEE'S CLAIM THAT ALL THE INVESTMENTS MADE IN EARNING THE EXEMPT INCOME HAVE ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 41 OF 45 BEEN MADE OUT OF OWN FUNDS AND NON-INTEREST BEARING FUNDS. ACCORDINGLY, ASSESSEE'S GROUND AT S.NO.2.5 IS DISMI SSED. 11.8.5 IN RESPECT OF THE DISALLOWANCE UNDER THE THI RD LIMB I.E. RULE 8D(II) , AS WE HAVE ALREADY HELD THAT THE PROVISIONS OF RULE 8D ARE APPLICABLE TO THE ASSESSEE, IT FOLLOWS THAT THE DISALLOWANCE AS PROVIDED IN THE THIRD LIMB OF RULE 8D IS ALSO APPLICABLE TO THE ASSESSEE. AS REGARDS THE COMPUTA TION OF DISALLOWANCE AS PER THE THIRD LIMB OF RULE 8D, A PL AIN READING OF THE PROVISION SHOWS THAT THE DISALLOWANCE HAS TO BE ONE-HALF- PERCENT (VIZ. 0.5%) OF THE AVERAGE VALUE OF THE INV ESTMENT AS ON THE FIRST AND LAST DAY OF THE YEAR UNDER CONSIDERAT ION, I.E. 1.4.2007 AND 31.3.2008, INCOME FROM WHICH IS NOT OR SHALL NOT PART OF TOTAL INCOME. IN THIS VIEW OF THE MATTER, WE DIRECT THE ASSESSING OFFICER TO MAKE THE COMPUTATION OF THE DI SALLOWANCE UNDER RULE 8D(III) AT 0.5% OF THE AVERAGE VALUE OF THE INVESTMENTS AS ON 1.4.2007 AND 31.3.2008, IN RESPEC T OF THOSE INVESTMENTS, THE INCOME FROM WHICH DO NOT OR SHALL NOT FORM PART OF THE ASSESSEE'S TOTAL INCOME; I.E. INVESTMEN TS THAT GENERATE OR ARE LIKELY TO GENERATE EXEMPT INCOME. IT IS ORD ERED ACCORDINGLY. ACCORDINGLY, ASSESSEE'S GROUND AT S.N O.2.6 IS DISMISSED. THE ASSESSEE'S GROUNDS RAISED AT SERIAL NOS.1 TO 2 .7 ARE ACCORDINGLY DISPOSED OFF. 11.9 AS REGARDS THE CONTENTION OF THE ASSESSEE THA T ONLY NET INCOME AND NOT GROSS INCOME SHOULD BE CONSIDERE D FOR DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D, THERE IS NOTHING IN THE PROVISIONS OF LAW THEREIN TO SUBSTANTIATE SUCH A CLAIM AND WE ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 42 OF 45 THEREFORE REJECT THIS CLAIM. ACCORDINGLY ASSESSEE' S GROUND AT S.NO.2.7 IS DISMISSED. 12. APPLICABILITY OF SECTION 115JB OF THE ACT. 12.1 IN GROUNDS AT S.NOS.3 AND 4 , THE ASSESSEE CONTENDS THAT THE PROVISIONS OF SECTION 115JB OF THE ACT APPLY ON LY TO A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 AN D DO NOT APPLY TO THE ASSESSEE. IT IS SUBMITTED THAT THE AS SESSEE IS NOT A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 BU T IS A BANK, GOVERNED BY THE PROVISIONS OF THE BANKING COM PANIES (ACQUISITION & TRANSFER OF UNDERTAKINGS) ACT AND IS ONLY DEEMED TO BE A COMPANY FOR THE PURPOSES OF INCOME TAX ACT, 1961. IN VIEW OF THIS, IT IS SUBMITTED THAT THE ASSESSEE CAN NOT BE CONSTRUED AS A COMPANY FOR THE PURPOSES OF SECTION 115JB OF THE ACT. 12.2 THE LEARNED CIT (APPEALS) UPHELD THE DECISIO N OF THE ASSESSING OFFICER THAT THE PROVISIONS OF SECTION 11 5JB OF THE ACT ARE APPLICABLE TO THE ASSESSEE FOR THE FOLLOWING RE ASONS : (I) BY VIRTUE OF THE DEEMING PROVISIONS OF THE BANK ING COMPANIES (ACQUISITION & TRANSFER OF UNDERTAKINGS) ACT, THE A SSESSEE IS DEEMED TO BE A COMPANY; AND (II) THE ASSESSEE HAS ACCEPTED THE APPLICABILITY O F SECTION 115JB IN THE EARLIER YEARS AND HAS RAISED THIS ISSUE ONLY FOR THE FIRST TIME. 12.3.1 WE HAVE HEARD BOTH THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AND THE LEARNED DEP ARTMENTAL REPRESENTATIVE FOR REVENUE AND PERUSED AND CAREFULL Y CONSIDERED ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 43 OF 45 THE MATERIAL ON RECORD. THE ISSUE OF THE APPLICABIL ITY OF SECTION 115JB OF THE ACT TO THE ASSESSEES CASE HAS BEEN CO NSIDERED AND ADJUDICATED BY CO-ORDINATE BENCH OF THIS TRIBUNAL I N THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2006-07 AN D 2007-08 IN ITA NOS.668, 669/BANG/2012 BY ORDER DT.19.6.2013 WHEREIN AT PARAS 98 AND 99 IT HAS BEEN HELD AS UNDER : 98. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF T HE LD. COUNSEL FOR THE ASSESSEE. WE FIND THAT THIS ISSUE W AS CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN T HE CASE OF KRUNG THAI BANK (SUPRA) AND ON THE ABOVE IS SUE HELD AS FOLLOWS:- 5. LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, CONTE NDS THAT THE PROVISIONS OF MAT DO NOT APPLY TO THE ASSESSEE, AND, FOR THIS REASON, VERY FOUNDATION OF IMPUGNED REASSESSME NT PROCEEDINGS IS DEVOID OF LEGALLY SUSTAINABLE MERITS . HIS LINE OF REASONING IS THIS. THE PROVISIONS OF MAT CAN COM E INTO PLAY ONLY WHEN THE ASSESSEE PREPARES ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH SCHEDULE VI TO THE COMPA NIES ACT. IT IS POINTED OUT THAT, IN TERMS OF THE PROVIS IONS OF SECTION 115JB(2),EVERY ASSESSEE IS REQUIRED TO PREP ARE ITS PROFIT AND LOSS ACCOUNT IN TERMS OF THE PROVISIONS OF PART II AND II I OF SCHEDULE VI TO THE COMPANIES ACT . UNLE SS THE PROFIT AND LOSS IS SO PREPARED, THE PROVISIONS OF S ECTION 115 JB CANNOT COME INTO PLAY AT AL L. HOWEVER, THE ASSE SSEE IS A BANKING COMPANY AND UNDER PROVISO TO SECTION 211 (2 ) OF THE ACT , THE ASSESSEE IS EXEMPTED FROM PREPARING I TS BOOKS OF ACCOUNTS IN TERMS OF REQUIREMENTS OF SCHEDULE VI TO THE COMPANIES ACT , AND THE ASSESSEE IS TO PREPARE ITS BOOKS OF ACCOUNTS IN TERMS OF THE PROVISIONS OF BANKING REGU LATION ACT . IT IS THUS CONTENDED THAT THE PROVISIONS OF S ECTION 115 JB DO NOT APPLY IN THE CASE OF BANKING COMPANIES WH ICH ARE NOT REQUIRED TO PREPARE THE PROFIT AND LOSS ACCOUNT AS PER THE REQUIREMENTS OF PART II AND III OF SCHEDULE VI TO T HE COMPANIES ACT . SINCE THE PROVISIONS OF SECTION 115 JB DO NOT APPLY TO THE ASSESSEE COMPANY, THE REASONS RECO RDED FOR REOPENING THE ASSESSMENT IS CLEARLY WRONG AND INSUF FICIENT . WE ARE URGED TO QUASH THE REASSESSMENT PROCEEDINGS ON THIS SHORT GROUND. ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 44 OF 45 6. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHE R HAND, VEHEMENTLY RELIES UPON THE ORDERS OF THE AUTHORITIE S BELOW AND SUBMITS THAT THERE IS NO SPECIFIC EXCLUSION CLA USE FOR THE BANKING COMPANIES, AND IN THE ABSENCE OF SUCH A CLA USE, IT IS NOT OPEN TO US TO INFER THE SAME. THE SUBMISSIONS O F THE LEARNED COUNSEL, ACCORDING TO THE DEPARTMENTAL REPRESENTATIVE, ARE CLEARLY CONTRARY TO THE LEGISLA TIVE INTENT AND PLAIN WORDINGS OF THE STATUTE. 7. THE PLEA OF THE ASSESSEE IS INDEED WELL TAKEN, A ND IT MEETS OUR APPROVAL. THE PROVISIONS OF SECTION 115 JB CAN ONLY COME INTO PLAY WHEN THE ASSESSEE IS REQUIRED TO PRE PARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROV ISIONS OF PART II AND I II OF SCHEDULE VI TO THE COMPANIES AC T . THE STARTING POINT OF COMPUTATION OF MINIMUM ALTERNATE TAX UNDER SECTION 115 JB IS THE RESULT SHOWN BY SUCH A PROFIT AND LOSS ACCOUNT. IN THE CASE OF BANKING COMPANIES, HOWEVER, THE PROVISIONS OF SCHEDULE VI ARE NOT APPL ICABLE IN VIEW OF EXEMPTION SET OUT UNDER PROVISO TO SECTION 211 (2) OF THE COMPANIES ACT. THE FINAL ACCOUNTS OF THE BAN KING COMPANIES ARE REQUIRED TO BE PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE BANKING REGULATION ACT. THE PROVISIONS OF SECTION 115 JB CANNOT THUS BE APPLIED TO THE CASE OF A BANKING COMPANY. 99. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE DEC ISION OF THE MUMBAI BENCH OF THE TRIBUNAL, WE HAVE TO NECESSARILY HOLD THAT PROVISIONS OF SECTION 115JB O F THE ACT ARE NOT APPLICABLE TO THE ASSESSEE WHICH IS A B ANKING COMPANY. THE DECISIONS RELIED UPON BY THE LD. COUNS EL FOR THE ASSESSEE, CLEARLY SUPPORT THE PLEA OF THE ASSES SEE IN THIS REGARD. CONSEQUENTLY, GROUND NO.3 RAISED BY TH E ASSESSEE IS ALSO ALLOWED. FOLLOWING THE AFORESAID DECISION OF THE CO-ORDINAT E BENCH IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 2006-0 7 AND 2007-08 IN ITA NOS.668 & 669/BANG/2012 DT.19.6.2013 , WE HOLD THAT THE PROVISIONS OF SECTION 115JB OF THE AC T ARE NOT APPLICABLE TO THE ASSESSEE. ITA NOS.680 & 708 OF 2012 SYNDICATE BANK MANIPAL PAGE 45 OF 45 13. THE GROUND RAISED AT S.NO.5 BEING GENERAL IN NATURE, NO ADJUDICATION IS CALLED FOR THEREON. 14. IN THE RESULT , BOTH THE REVENUES AS WELL AS THE ASSESSEES APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH MARCH, 2014. SD/- SD/- (JASON P. BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 14 TH MARCH, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE