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

ITA 681/BANG/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6097 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRISCILLA SINGSIT
• Assessee Lawyers: K P KUMAR SENIOR
• Keywords: Capital asset; Gift; Business income; Depreciation; Bad and doubtful debts; Reassessment proceedings
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NOS.709 & 998/BANG/2012 ASSESSMENT YEARS : 2009-10 & 2010-11 SYNDICATE BANK, CENTRAL ACCOUNTS DEPARTMENT, TAX CELL, HEAD OFFICE, MANIPAL 576 104. PAN : AACCS 4699E VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, CANARA TOWERS, MISSION HOSPITAL ROAD, UDUPI 576 101, KARNATAKA. APPELLANT RESPONDENT ITA NOS.681 & 955/BANG/2012 ASSESSMENT YEARS : 2009-10 & 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1, UDUPI 576 101. VS. SYNDICATE BANK, CENTRAL ACCOUNTS DEPARTMENT, TAX CELL, HEAD OFFICE, MANIPAL 576 104. PAN : AACCS 4699E APPELLANT RESPONDENT ASSESSEE BY : SHRI.K.P. KUMAR, SENIOR ADVOCATE & MS.TANMAYEE RAJKUMAR, ADVOCATE REVENUE BY : MS.PRISCILLA SINGSIT, CIT-(DR) DATE OF HEARING : 10.6.2014 DATE OF PRONOUNCEMENT : 13.6.2014 ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 2 OF 57 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER ITA NOS.681 & 709/BANG/2012 ( A.Y. 2009-10) ITA 681/B/12 IS AN APPEAL BY THE REVENUE, WHILE ITA 709/B/12 IS AN APPEAL BY THE ASSESSEE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 24.02.2012 OF THE CIT(APPEALS), MYSORE, RELATING TO ASSESSMENT YEAR 2009-10. ITA NOS.681/BANG/2012 (REVENUES APPEAL FOR AY 2009 -10) 2. FIRST, WE SHALL TAKE UP FOR CONSIDERATION THE REVEN UES APPEAL. GROUND NO.1 IS GENERAL IN NATURE AND CALLS FOR NO ADJUDICATION. GROUND NO.2 RAISED BY THE REVENUE I S AS FOLLOWS:- 2. PROVISION FOR BAD & DOUBTFUL DEBTS CLAIMED TO TH E EXTENT ELIGIBLE U/S 36(1) (VII A) RS.288,99,92,80 1/- 2.A. THE LEARNED CIT(A) ERRED IN ALLOWING IN FULL THE ASSESSEES CLAIM FOR PROVISION FOR BAD & DOUBTFUL DEBTS AMOUNTING TO RS.797,42,08,202/- BEING 10% OF AVERAGE RURAL ADVANCES EVEN THOUGH THE ASSESSEE HAS DEBITED ONLY RS.508,42,15,401/- TO THE P & L A/ C. 2.B. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING T HE FACT THAT TO CLAIM DEDUCTION TOWARDS PROVISION FOR BAD & DOUBTFUL DEBTS, NECESSARY DEBIT HAS TO BE MADE TO T HE P & L A/C, AND IS ADMISSIBLE ONLY TO THE EXTENT PROVISION HAS BEEN DEBITED. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 3 OF 57 2.C. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING T HE FACT THAT THE ORDERS OF HONBLE ITAT IN ASSESSEES OWN CASE, FOR THE ASST. YEAR 1987-88, HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND DIRECT APPEAL TO HONBLE HIGH COURT HAS BEEN FILED. 2.D. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING T HE DECISION OF HONBLE HIGH COURT OF PUNJAB AND HARYAN A IN THE CASE OF STATE BANK OF PATIALA VS. CIT (2005) 272 ITR 54 WHEREIN IT IS HELD THAT MAKING OF A PROVI SION FOR BAD AND DOUBTFUL DEBT EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS A MUST FOR CLAIMING SU CH DEDUCTION AND THAT PROVISO TO CLAUSE (VII) OF SEC. 36 (1) ALSO SHOWS THAT MAKING OF PROVISION EQUAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE ACCOUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTION UNDER SEC. 36 (1)(VIIA). 3. THE REVENUE SOUGHT TO RAISE THREE ADDITIONAL GROUND S AND THESE ARE CONNECTED TO GROUND NO.2 RAISED BY THE RE VENUE IN ITS ORIGINAL GROUNDS OF APPEAL VIDE LETTER DATED 11 .07.2012. THESE GROUNDS READ AS FOLLOWS: THE APPELLANT SEEKS PERMISSION TO RAISE THE FOLLOW ING ADDITIONAL GROUNDS FOR THE KIND AND FAVOURABLE CONSIDERATION OF THE HONBLE TRIBUNAL: (I) ASSESSEES CLAIM OF DEDUCTION U/S 36(1)(VIIA) OF RS. 674.35 CRORES IS NOT IN ACCORDANCE WITH THE PROVISIONS UNDER THE ACT, READ WITH RULE 6ABA OF TH E IT RULES, 1962, AND HENCE NOT ALLOWABLE TO THAT EXTENT ? (II) SINCE (A) NON-RURAL BAD AND DOUBTFUL DEBTS MA Y BE WRITTEN OFF AND ALLOWABLE U/S 36(I)(VII) INDEPEN DENTLY, AND (B) ONLY RURAL DEBTS WRITTEN OFF CAN BE SET OFF/DEBITED AGAINST THE PROVISIONS MADE U/S 36(1)(V IIA) ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 4 OF 57 IN PREVIOUS YEARS, AND/OR TO BE MADE DURING THE YEA R, AMOUNT OF DEDUCTION SHOULD BE COMPUTED ONLY WITH REFERENCE TO THE AVERAGE ANNUAL ADVANCES OF THE RUR AL 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 ALSO INCLUDE ANY AMOUNT NOT EXCEEDING 7.5% OF TH E TOTAL INCOME, SUCH INCOME SHOULD BE RESTRICTED TO T HE TOTAL INCOME OF RURAL BRANCHES, OR TO THE AMOUNT AS PRESCRIBED UNDER THE RBI PRUDENTIAL NORMS. SINCE THE GROUNDS RAISED ARE LEGAL GROUNDS, WHICH G O TO THE ROOT OF THE MATTER RELATING TO ALLOWANCE OF DEDUCTION U/S 36(1)(VIIA), THE SAME MAY KINDLY BE ADMITTED. DELAY MAY KINDLY BE CONDONED, IN VIEW OF THE LEGAL POSITION CLARIFIED BY THE HONBLE SUPREME COU RT VIDE THEIR LORDSHIP& ORDER DATED 17.02.2012, IN CAS E OF CATHOLIC SYRIAN BANK AND OTHERS (CIVIL APPEAL NO. 1143/2011 AND OTHERS), REPORTED IN 2012-TIOL-16-SC- LT-LB. 4. THE REVENUE SOUGHT TO RAISE TWO ADDITIONAL GROUNDS AND THESE ARE CONNECTED TO GR.NO.2 RAISED BY THE REVENU E IN ITS ORIGINAL GROUNDS OF APPEAL VIDE LETTER DATED 27.3.2 013. THE LETTER AND THE ADDITIONAL GROUNDS SOUGHT TO BE RAIS ED BY THE REVENUE READ THUS: THE APPELLANT SEEKS PERMISSION TO RAISE THE FOLLO WING ADDITIONAL GROUNDS FOR THE KIND AND FAVOURABLE CONSIDERATION OF THE HONBLE TRIBUNAL:- (1) SINCE THE DEDUCTION UNDER SECTION 36(1)(VIIA)(A ) IS ALLOWABLE FOR MAKING PROVISION FOR RURAL ADVANCES O NLY, ASSESSEES CLAIM OF DEDUCTION U/S.36(1)(VIIA)(A) OF ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 5 OF 57 RS.674,35,40.590/- IS NOT IN ACCORDANCE WITH THE PROVISIONS UNDER THE ACT, AND HENCE NOT ALLOWABLE T O THAT EXTENT? (2) SINCE (A) NON-RURAL BAD AND DOUBTFUL DEBTS MAY BE WRITTEN OFF AND ALLOWABLE U/S.36(1)(VII) INDEPENDEN TLY, (B) DEDUCTION UNDER SECTION 36(1)(VIIA)(A) IS ALLOW ABLE FOR MAKING PROVISION FOR RURAL ADVANCES ONLY, AND ( C) ONLY RURAL DEBTS WRITTEN OFF CAN BE SET OFF/DEBITED AGAINST THE PROVISIONS MADE U/S.36(1)(VIIA)(A) IN PREVIOUS YEARS, AND/OR TO BE MADE DURING THE YEAR, AMOUNT OF DEDUCTION U/S.36(1)(VIIA)(A) SHOULD BE COMPUTED ONLY TO THE EXTENT PROVISION FOR RURAL ADVANCES DEBITED TO THE P & L ACCOUNT. 5. THE REVENUE HAS SOUGHT TO RAISE FURTHER ADDITIONAL GROUND VIDE LETTER DATED 24.09.2013 AND THE ADDITIONAL GRO UND IS CONNECTED TO GROUND NO.2. THE GROUND SO SOUGHT TO BE RAISED READS AS FOLLOWS: (I) THE LD. CIT(A) OUGHT TO HAVE NOTED THAT ASSESSEES CLAIM OF 10% OF AVERAGE RURAL ADVANCES U /S 36(1)(VIIA) IS BASED ON CATEGORIZATION OF PLACES AS MADE BY RBI AND NOT IN ACCORDANCE WITH EXPLN.(IA) BELOW SECTION 36(1)(VIIA). RELIANCE IS PLACED ON TH E DECISION OF THE HONBLE HIGH COURT OF KERALA DATED 07.10.2010 IN ITA NO. 234 OF 2009 IN THE CASE OF CI T VS. THE LORD KRISHNA BANK LTD (195 TAXMAN 57) WHEREIN IT HAS BEEN HELD THAT PLACE REFERRED TO I N THE DEFINITION CLAUSE FOR THE PURPOSE OF IDENTIFYING TH E BRANCH AS A RURAL IS THE REVENUE VILLAGE WITH POPUL ATION IN THE VILLAGE AS A UNIT IS LESS THAN 10,000 AND TH EREFORE THE CLAIM OF THE ASSESSEE BANK NEEDS TO BE RESTRICT ED TO THE ADVANCES MADE BY SUCH BRANCHES. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 6 OF 57 6. THE ADDITIONAL GROUNDS SOUGHT TO BE RAISED BY THE REVENUE ARE STATED TO BE CONSEQUENT TO THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. CIT 343 ITR 270 (SC) AND THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. THE LORD KRISHNA BANK LTD. 195 TAXMAN 57 (KER) . THESE DECISIONS WERE RENDERED AFTER THE COMPLETION OF ASSESSMENTS BY THE AO IN THE CASE OF THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS 2009-10 AND 2010-11. 7. THE LEARNED COUNSEL FOR THE ASSESSEE OPPOSED THE ADMISSION OF THE ADDITIONAL GROUND FOR ADJUDICATION . ACCORDING TO HIM, THE ADDITIONAL GROUNDS SOUGHT TO BE RAISED BY THE REVENUE SEEKS TO ENLARGE THE SCOPE OF THE ORIGINAL GROUNDS RAISED BY THE REVENUE AS ALSO THE VERY BASIS ON WHI CH THE AO AND CIT(A) PROCEEDED TO DECIDE THE ISSUE. IF THE A DDITIONAL GROUNDS ARE ENTERTAINED, THEN THE TRIBUNAL WILL VIR TUALLY ENHANCE THE ASSESSMENT. ACCORDING TO HIM, THE TRIBUNAL CAN NEITHER DIRECTLY NOR INDIRECTLY ENHANCE THE ASSESSMENT. IN THIS REGARD, REFERENCE WAS MADE TO TWO DECISIONS OF THE HONBLE SUPREME ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 7 OF 57 COURT VIZ., PATHIKOND BALA 65 ITR 252 (SC) AND M.CORP GLOBAL SERVICES (I) LTD. 309 ITR 434 (SC) . 8. WE WILL DEAL WITH THE ADMISSIBILITY OF THE ADDITION AL GROUNDS SOUGHT TO BE RAISED AFTER CONSIDERING THE ISSUE THA T WAS ORIGINALLY SOUGHT TO BE RAISED BY THE REVENUE. 9. SINCE GROUNDS 2 AND THE ADDITIONAL GROUNDS SOUGHT T O BE RAISED ARE INTERLINKED, WE DEEM IT CONVENIENT TO DE AL WITH THE ORIGINAL GROUND NO.2. 10. THE ASSESSEE IS A BANKING COMPANY CARRYING ON BUSIN ESS OF BANKING. IN ITS RETURN OF INCOME THE ASSESSEE C LAIMED DEDUCTION OF A SUM OF RS.674,35,40,590 ON ACCOUNT O F PROVISION FOR BAD AND DOUBTFUL DEBTS IN RESPECT OF RURAL ADVA NCES, U/S.36(1)(VIIA) OF THE ACT, COMPRISING OF THE FOLLO WING TWO AMOUNTS: 10% AVERAGE RURAL ADVANCES RS.625,95,96,104 7.5% OF GROSS TOTAL INCOME RS. 48,39,44,486 TOTAL RS.674,35,40,590 11. THE AO NOTICED THAT THE PROVISION FOR BAD AND DOUB TFUL DEBTS IN RESPECT OF RURAL ADVANCES CREATED BY DEBIT TO PROFIT AND ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 8 OF 57 LOSS ACCOUNT WAS ONLY A SUM OF RS.446,93,94,737 WHE REAS THE CLAIM FOR DEDUCTION ACTUALLY MADE U/S.36(1)(VIIA) O F THE ACT WAS A SUM OF RS.674,35,40,590/-. THE AO WAS OF THE VIEW THAT AS LAID DOWN BY THE HONBLE PUNJAB AND HARYANA HIGH COURT I N THE CASE OF STATE BANK OF PATIALA VS. CIT 272 ITR 53 (P & H) , CLAIM FOR DEDUCTION U/S.36(1)(VIIA) OF THE ACT CANNOT BE GREA TER THAN THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT AS PR OVISION. THE AO THEREFORE PROPOSED TO DISALLOW A SUM OF RS.227,4 1,45,853 (DIFFERENCE BETWEEN RS.674,35,40,590 AND RS.446,93, 94,737). 12. WITH REGARD TO THE PROPOSAL OF THE AO TO RESTRICT D EDUCTION U/S.36(1)(VIIA) OF THE ACT TO THE EXTENT OF PROVISI ON CREATED BY DEBIT TO PROFIT AND LOSS ACCOUNT OF ONLY A SUM OF RS.446,93,94,737 BASED ON DECISION OF HONBLE PUNJA B AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA), THE ASSESSEE SUBMITTED THAT ITS CLAIM IS BASED ON T HE DECISION OF THE ITAT, BANGALORE IN ASSESSEES OWN CASE REPORTED IN 78 ITD 103 WHEREIN IT WAS HELD THAT IRRESPECTIVE OF THE DEBIT TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF PROVISION FOR BAD AN D DOUBTFUL ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 9 OF 57 DEBTS ( PBDD ), AN ASSESSEE IS ENTITLED TO 10% OF THE AARA AS DEDUCTION U/S.36(1)(VIIA) OF THE ACT. 13. THE AO HOWEVER HELD THAT THE DECISION OF THE ITAT I N ASSESSEES OWN CASE WAS NOT ACCEPTED BY THE REVENUE AND AN APPEAL HAS BEEN PREFERRED TO THE HONBLE KARNATAKA HIGH COURT AND THEREFORE HE WOULD PREFER TO FOLLOW THE DECISIO N OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA). ACCORDINGLY THE AO DISALLOWED A SUM OF RS.227,41,45,853/-. 14. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED APPEAL WITH REGARD TO DISALLOWANCE OF DEDUCTION BOT H U/S.36(1)(VIIA) OF THE ACT. 15. WITH REGARD TO THE DEDUCTION U/S. 36(1)(VIIA) OF T HE ACT, THE ASSESSEE CONTENDED BEFORE CIT(A) THAT THE ITAT IN A SSESSEES OWN CASE FOR AY 87-88 (REPORTED IN 78 ITD 103) HELD THAT IRRESPECTIVE OF THE QUANTUM OF PBDD CREATED IN THE BOOKS OF ACCOUNTS, AN ASSESSEE WAS ENTITLED TO CLAIM DEDUCTI ON BY WAY OF PROVISION OF 10% OF THE AARA. IT WAS ARGUED THAT THE DECISION IN ASSESSEES OWN CASE HAS TO BE FOLLOWED RATHER TH AN THE ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 10 OF 57 DECISION RENDERED BY A NON-JURISDICTIONAL HIGH COUR T IN THE CASE OF STATE BANK OF PATIALA ( SUPRA ). ON THE ABOVE SUBMISSION, THE CIT(A) AGREED WITH THE CONTENTION OF THE ASSESSEE T HAT THE JURISDICTIONAL ITAT BENCHS DECISION IN THE APPELLA NTS OWN CASE IS BINDING ON THE ASSESSING AUTHORITY, NOTWITHSTAND ING THAT THE DECISION HAS NOT BECOME FINAL. THE HONBLE TRIBUNAL HAS, IN ITS ORDER DATED 23.06.2000 IN [2001 178 LTD 103 (BANG.) IN THE APPELLANTS OWN CASE FOR ASSESSMENT YEAR 1987-88, H ELD THAT, IT WAS A MISCONCEPTION THAT THE DEDUCTION UNDER CLAUSE (VIIA) WAS RELATED TO THE ACTUAL AMOUNT OF PROVISION MADE BY T HE ASSESSEE FOR BAD AND DOUBTFUL DEBTS. HE HELD THAT THE TRUE M EANING OF THE CLAUSE WAS THAT, ONCE A PROVISION FOR BAD AND DOUBT FUL DEBTS WAS MADE BY A SCHEDULED RURAL BRANCHES, THE ASSESSE E WAS ENTITLED TO A DEDUCTION WHICH WAS QUANTIFIED NOT WI TH RESPECT TO THE AMOUNT PROVIDED FOR IN THE ACCOUNTS, BUT WITH R ESPECT TO A CERTAIN PERCENTAGE OF THE TOTAL INCOME AND ALSO A C ERTAIN PERCENTAGE OF THE AGGREGATE AVERAGE ADVANCES MADE B Y THE RURAL BRANCHES OF THE BANK. IN OTHER WORDS, THIS WA S A SPECIFIC DEDUCTION GIVEN BY THE STATUTE, IRRESPECTIVE OF THE QUANTUM PROVIDED BY THE ASSESSEE IN ITS ACCOUNTS TOWARDS PR OVISION FOR ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 11 OF 57 BAD AND DOUBTFUL DEBTS. THE CIT(A) ACCORDINGLY HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN DISALLOWING THE AMOUNT CLAIMED UNDER SECTION 36(1)(VIIA) IN PART AND DELET ED THE DISALLOWANCE. 16. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE H AS RAISED GROUNDS NO.2 AND ADDITIONAL GROUNDS REFERRED TO IN THE EARLIER PART OF THIS ORDER. 17. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR NOTICE THAT IDENTICAL ISSUE HAD COME FOR CONSIDERATION IN ASSES SEES OWN CASE IN A.Y.06-07 & 07-08 IN ITA NO.708 & 709/BANG/ 2010 ORDER DATED 19.6.2013 AND THIS TRIBUNAL HELD IN FAV OUR OF THE REVENUE BY ALLOWING THE MAIN GROUND RAISED BY THE R EVENUE. WITH REGARD TO THE ADMISSIBILITY OF THE ADDITIONAL GROUNDS FOR ADJUDICATION THAT ARE SOUGHT TO BE RAISED VIDE AOS LETTER DATED 11.7.2012, 27.3.2013 AND 24.9.2013, THE TRIBUNAL RE FERRED TO THE PROVISIONS OF SEC.36(1)(VIIA)(A) OF THE ACT WHICH ALLOWS DEDUCTION IN RESPECT OF ANY PROVISION FOR BAD AND D OUBTFUL DEBTS MADE BY A SCHEDULED BANK NOT BEING A BANK INCORPORA TED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA OR A NON- SCHEDULED ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 12 OF 57 BANK OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AG RICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTUR AL AND RURAL DEVELOPMENT BANK:- AN AMOUNT NOT EXCEEDING SEVEN AND ONE-HALF PER CEN T (7.5%) OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AN D AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. THE TRIBUNAL HELD THAT THE ASSESSEES METHOD OF COM PUTATION OF 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY ITS R URAL BRANCHES COMPUTED IN THE PRESCRIBED MANNER VIZ., AS PER RULE 6ABA OF THE IT RULES, 1962 HAD NOT BEEN DOUBTED BY THE AO AND HENCE THE ADDITIONAL GROUNDS RAISED WERE HELD T O BE NOT ADMISSIBLE. ON ADDITIONAL GROUND NO.(III) SOUGHT T O BE RAISED IN AOS LETTER DATED 11.7.2012 , THE TRIBUNAL HELD SEC.36(1)(VIIA)(A) OF THE ACT, CLEARLY LAYS DOWN TH AT DEDUCTION OF 7.5% OF THE TOTAL INCOME HAS TO BE ALLOWED AS DEDUC TION. THE PLEA OF THE LEARNED DR TO RESTRICT THE ALLOWANCE TO 7.5% OF THE TOTAL INCOME OF THE RURAL BRANCHES IS CONTRARY TO T HE PROVISIONS OF THE ACT. THE SAID ADDITIONAL GROUND WAS THEREFOR E HELD TO BE UNSUSTAINABLE ON MERITS AND DOES NOT EVEN REQUIRE A N ADMISSION ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 13 OF 57 FOR ADJUDICATION AS IT DOES NOT ARISE OUT OF THE OR DER OF THE AO OR CIT(A). THUS ALL THE ADDITIONAL GROUNDS SOUGHT TO BE RAISED BY THE REVENUE WERE NOT ADMITTED FOR ADJUDICATION. RE SPECTFULLY FOLLOWING THE SAID DECISION RENDERED ON IDENTICAL F ACTS AND CIRCUMSTANCES, WE REFUSE TO ADMIT THE ADDITIONAL GR OUNDS FOR ADJUDICATION, AS THOSE GROUNDS DO NOT ARISE OUT OF THE ORDER OF THE AO OR CIT(A) AND ARE CONTRARY TO THE FACTS AS A DMITTED BY THE AO EXPRESSLY OR SUB-SILENTIO IN THE ORDER OF ASSESSMENT. 18. AS REGARDS THE MERITS OF MAIN GROUND NO.2 RAISED BY THE REVENUE, THE TRIBUNAL IN ASSESSEES OWN CASE HELD T HE ISSUE IN FAVOUR OF THE REVENUE, OBSERVING AS FOLLOWS: 48. AS FAR AS GR.NO.3 RAISED BY THE REVENUE IN T HE ORIGINAL GROUNDS OF APPEAL IS CONCERNED, THE AO DISALLOWED THE ENTIRE CLAIM FOR DEDUCTION OF RS.503,49,00,000/- ON THE FOLLOWING GROUND. A) THE PROVISION FOR BAD AND DOUBTFUL DEBTS IN RESPECT OF RURAL ADVANCES WAS CREATED BY DEBIT TO P ROFIT AND LOSS ACCOUNT OF ONLY A SUM OF RS.295,55,54,682 WHEREAS THE CLAIM FOR DEDUCTION ACTUALLY MADE U/S.36(1)(VIIA) OF THE ACT WAS A SUM OF RS.503,49,00,000/-. THE AO WAS OF THE VIEW THAT AS LAID DOWN BY THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA VS. CIT 272 ITR 53 (P & H), CLAIM FOR DEDUCTION U/S.36(1)(VIIA) OF THE ACT CANNOT BE GREATER THAN THE AMOUNT DEBITED T O THE PROFIT AND LOSS ACCOUNT AS PROVISION. THE AO ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 14 OF 57 THEREFORE PROPOSED TO DISALLOW A SUM OF RS.207,93,45,318 (DIFFERENCE BETWEEN RS.503,49,00,000 AND RS.295,55,54,682). B) APART FROM THE ABOVE THE AO ALSO DISALLOWED THE SUM OF RS.295,55,54,682 OUT OF RS.503,49,00,000 CLAIMED AS DEDUCTION U/S.36(1)(VIIA) OF THE ACT. T HE REASONS GIVEN FOR DISALLOWING CLAIM FOR DEDUCTION O F RS.295,55,54,682/- U/S.36(1)(VIIA) OF THE ACT BY TH E AO WAS THAT THERE WAS ALREADY CREDIT BALANCE IN THE PB DD AS ON 1.04.2005 BALANCE B/F WAS RS. 912,57,47,169. ACCORDING TO THE AO 10% OF AARA CAN BE CREATED AS PROVISION EACH YEAR PROVIDED THERE IS NO BROUGHT FORWARD BALANCE AS ON THE FIRST DAY OF THE PREVIOUS YEAR IN THE PBDD ACCOUNT. 10% OF THE AARA AS ADMITTED BY THE ASSESSEE AS PER REVISED CENSUS OF 2001 WAS 352.53 CRORES. ACCORDING TO THE AO EVEN IF BAD DEB TS WRITTEN OFF OF RS.179,21,88,992 IS REDUCED STILL TH E BALANCE IN THE PBDD ACCOUNT WAS RS.733,35,58,177/-. SINCE THE BALANCE SO AVAILABLE IN PBDD ACCOUNT WAS MORE THAN 10% OF AARA, THE AO HELD THAT DEDUCTION ON THE BASIS OF NEW PROVISION OF RS.295,55,54,682/- CANNOT BE ALLOWED. IN THIS REGARD THE AO REFERRED TO THE CONTENTION OF THE ASSESSEE WHICH WAS TO THE EFF ECT THAT IN EACH YEAR THE ASSESSEE CAN CREATE 10% OF AARA AND CONCLUDED THAT THE EXPRESSION NOT EXCEEDING TEN PERCENT OF THE AGGREGATE AVERAGE ADVANCES USED IN SEC.36(1)(VIIA) OF THE ACT CANNOT MEAN THAT PROVISION CAN BE CREATED EACH YEAR IRRESPECTIVE OF THE AVAILABLE BALANCE IN THE PBDD ACCOUNT. THE AO ALSO REFERRED TO A SITUATION WHERE THERE IS NO CLAIM FOR BAD DEBTS IN A YEAR EVEN THEN THE ASSESSEE WILL BE ENTITLED TO CLAIM DEDUCTION BY WAY OF PBDD WHICH ACCORDING TO THE AO WOULD NOT BE THE INTENTION OF THE LEGISLATURE. THE AO THUS REFUSED TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF 10 % OF AARA. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 15 OF 57 49. THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY FOLLOWING THE DECISION OF THE DECISION OF THE IT AT IN ASSESSEES OWN CASE REPORTED IN 78 ITD 103 WHEREIN IT WAS HELD THAT IRRESPECTIVE OF THE DEBIT TO THE PROF IT AND LOSS ACCOUNT ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS (PBDD), AN ASSESSEE IS ENTITLED TO 1 0% OF THE AARA AS DEDUCTION U/S.36(1)(VIIA) OF THE ACT . THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE AFORESAID DECISION WAS AS FOLLOWS: 20. THE LEARNED CIT HAS ALSO ACTED UNDER THE MISCONCEPTION THAT DEDUCTION UNDER CL. (VIIA) IS RELATED TO THE ACTUAL AMOUNT OF PROVISION MADE BY THE ASSESSEE FOR BAD AND DOUBTFUL DEBTS. THE TRUE MEANING OF THE CLAUSE, AS INDICATED EARLIER, IS THAT ONCE A PROVISION FOR BAD AND DOUBTFUL DEBTS IS MADE BY A SCHEDULED BANK HAVING RURAL BRANCHES, THE ASSESSEE IS ENTITLED TO A DEDUCTION WHICH IS QUANTIFIED NOT WITH RESPECT TO THE AMOUNT PROVIDED FOR IN THE ACCOUNTS, BUT WITH RESPECT TO A CERTAIN PERCENTAGE OF THE TOTAL INCOME AND ALSO A CERTAIN PERCENTAGE OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE BANK. IN OTHER WORDS, THIS IS A SPECIFIC DEDUCTION GIVEN BY THE STATUTE IRRESPECTIVE OF THE QUANTUM PROVIDED BY THE ASSESSEE IN ITS ACCOUNTS TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. 50. IN THE APPEAL BEFORE THE TRIBUNAL, IN GROUND NO .3 OF THE ORIGINAL GROUNDS OF APPEAL, THE REVENUE HAS CHALLENGED THE ORDER OF CIT(A) IN SO FAR AS IT RELA TES TO THE DELETION OF A SUM OF RS.207,83,45,338 WHICH IS THE DIFFERENCE BETWEEN RS.503,49,00,000 AND RS.295,55,54,682. THE LEARNED DR RELIED ON THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF CANARA BANK IN ITA NO.58/BANG/2004 DATED 9.6.2006. IN THE AFORESAID DECISION THIS BENCH CONSIDERED THE ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 16 OF 57 DECISION OF THE ITAT IN THE CASE OF SYNDICATE BANK 78 ITD 103(BANG) AND THE DECISION OF THE HONBLE PUNJA B AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA) AND HELD THAT THE DECISION RENDERED BY THE HONBLE HIGH COURT HAS TO BE FOLLOWED. THE ABO VE DECISION IS THE DECISION BROUGHT TO OUR NOTICE ON T HE ISSUE RENDERED AFTER THE DECISION IN ASSESSEES OWN CASE. JUDICIAL DISCIPLINE DEMANDS THAT WE FOLLOW T HE LATER DECISION WHICH HAS CONSIDERED BOTH THE DECISI ONS ON THE ISSUE. WE THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF CANARA BANK (SUPRA), ALLOW GR.NO.3 RAISED BY THE REVENUE AND HO LD THAT DISALLOWANCE TO THE EXTENT OF RS.207,83,45,338 /- BE RESTORED. THUS GR.NO.3 RAISED BY THE REVENUE IS ALLOWED. 19. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE ON IDENTICAL FACTS AND CIRCUMSTANCES, WE H OLD THAT THE ASSESSEE IN THE PRESENT AY 09-10 IS NOT ENTITLED TO DEDUCTION U/S.36(1)(VIIA)(A) OF THE ACT ON AN AMOUNT GREATER THAN THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT AS PR OVISION AS LAID DOWN BY THE HONBLE PUNJAB AND HARYANA HIGH CO URT IN THE CASE OF STATE BANK OF PATIALA VS. CIT 272 ITR 53 (P & H) . THE DISALLOWANCE MADE BY THE AO IN THIS REGARD IS RESTO RED AND ORDER OF CIT(A) REVERSED ON THIS ASPECT. GR.NO.2 R AISED BY THE REVENUE IS ACCORDINGLY ALLOWED. 20. GROUND NO.3 RAISED BY THE REVENUE READS AS FOLLOWS: - ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 17 OF 57 3. INTEREST ON SECURITIES ON ACCRUAL BASIS RS.31,20,45,192 3.A THE LEARNED CIT (A) ERRED IN ALLOWING RELIEF T O THE ASSESSEE ON THE POINT OF ACCRUED INTEREST ON SECURI TIES AMOUNTING TO RS. 31,20,45,192/- OFFERED ON CASH BAS IS. 3.B THE LEARNED CIT (A) ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYST EM OF ACCOUNTING IN RESPECT OF INTEREST FROM SECURITIES F OR THE PURPOSE OF FINAL ACCOUNTS AS PER ANNUAL REPORT UNDE R THE COMPANIES ACT BUT HAD DEVIATED AND SOUGHT TO REDUCE A SUM OF RS. 295,47,10,034/- AS INTEREST ACCRUED BUT NOT FALLEN DUE FOR THE PURPOSE OF TAXAT ION UNDER THE INCOME TAX ACT. 3.C THE LEARNED CIT (A) FAILED TO APPRECIATE THE F ACT THAT THE ASSESSEE WHILE ACKNOWLEDGING THE INTEREST INCOME AS ACCRUED IN THE ANNUAL REPORT FOR THE YEAR ENDING 31.03.2009 AND THE BASIS ON WHICH ACCOUNTS FINALIZED AND DIVIDENDS PAID, HAS SOUGHT TO DEFER T HE 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, REPRESENTS DUAL TREATMENT OF THE SAME INCOME UNDER DIFFERENT ACTS AND THE ASSESSEE HAS FOLLOWED RECEIPT OR CASH SYSTEM OF ACCOUNTING IN RESPECT OF INTEREST ACCRUED DURING ASST. YEAR 2009-10 BY OFFER ING IT FOR TAXATION UNDER THE I.T. ACT IN THE SUBSEQUEN T YEAR WHICH IS NOT PERMISSIBLE UNDER THE AMENDED PROVISIO NS OF SEC. 145. 3.D THE LEARNED CIT (A) FAILED TO APPRECIATE THE F ACT THAT THE SECURITIES HAVE BEEN CLASSIFIED AS CURRENT INVESTMENTS AND HENCE MAY BE SOLD FREELY AT WILL AT ANY POINT OF TIME. IN SUCH A SITUATION, THOUGH THE PURCHASER OF THE SECURITY IS ENTITLED TO RECEIVE TH E FULL ACCRUED INTEREST ON THE SECURITY ON THE SPECIFIED D UE DATE, HE STILL HAS TO PART WITH THE PROPORTIONAL IN TEREST ACCRUED ON THE SAID SECURITY AS ON THE DATE OF SALE TO THE SELLER. IN VIEW OF THE SAME, IT IS INCORRECT TO STATE ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 18 OF 57 THAT UNLESS RIGHT TO RECEIVE THE ACCRUED INTEREST A RISES IT DOES NOT ACCRUE AT ALL OR THAT THERE IS NO LEGAL RIGHT TO RECEIVE THE INTEREST. 21. THE ASSESSING OFFICER NOTED THAT THE APPELLANT HAD NOT OFFERED TO TAX AN AMOUNT OF RS. 31,20,45,192 REPRES ENTING INTEREST INCOME CREDITED TO PROFIT AND LOSS ACCOUNT BUT NOT OFFERED TO TAX. SINCE THE BANKS ACCOUNTING POLICY WAS TO RECOGNISE REVENUE AND EXPENSES ON ACCRUAL BASIS AND BROKEN PERIOD INTEREST WAS TO BE TREATED AS REVENUE AS PER RESERVE BANK OF INDIA (RBI) GUIDELINES, HE SOUGHT THE BANK S EXPLANATION AS TO WHY THIS AMOUNT SHOULD NOT BE BROUGHT TO TAX IN THE CURRENT ASSESSMENT YEAR. THE BANK REPLIED THAT, THOUGH IT W AS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING, IT HAD CONSIST ENTLY OFFERED TO TAX INTEREST ON SECURITIES ON CASH BASIS AND THI S WAS ACCEPTED BY THE COMMISSIONER (APPEALS) IN ASSESSMENT YEAR 20 05-06. THE ASSESSING OFFICER REJECTED THIS CONTENTION ON T HE GROUND THAT THE DEPARTMENT HAD NOT ACCEPTED THE COMMISSIONER (A PPEALS)S DECISION IN ASSESSMENT YEAR 2005-06 AND THE SAME IS SUE WAS IN VARIOUS LEVELS OF APPEALS IN THE CASE OF OTHER BANK S ALSO, FOR EARLIER ASSESSMENT YEARS. HE WAS OF THE VIEW THAT A CCORDING TO ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 19 OF 57 SECTION 145, THE ASSESSEE COULD NOT FOLLOW DUAL MET HOD OF ACCOUNTING AND SHOULD HAVE OFFERED TO TAX INTEREST ON SECURITIES ON ACCRUAL BASIS ONLY, AS THAT WAS THE REGULAR METH OD OF ACCOUNTING IT EMPLOYED. 22. BEFORE THE CIT(APPEALS), THE ASSESSEE SUBMITTED TH AT INTEREST ON SECURITIES ACCRUED ONLY ON THE DUE DATE FOR INTEREST AND NOT ON ANY EARLIER DATES. THEREFORE, INTEREST A CCRUED BUT NOT DUE COULD NOT BE CHARGED TO TAX. IT HAD BEEN CONSIS TENTLY FOLLOWING THIS BASIS OF ACCOUNTING WHICH HAD BEEN A CCEPTED BY THE DEPARTMENT AND THERE IS NO CAUSE TO DISTURB THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. IT WAS SUBMITT ED THAT THIS ISSUE HAD BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE HIGH COURT OF MADRAS IN THE CASE OF CIT VS BILAHARI INVESTMENTS PRIVATE LIMITED [2007] 294 ITR 353 AND AFFIRMED BY THE HONBLE SUPREME COURT IN [2008] 168 TAXMAN 95, IN THE CASE OF TAMIL NADU MERCANTILE BANK LIMITED [2007] 291 ITR 137 (MA D), CIT VS. CITY UNION BANK LIMITED [2007] 291 ITR 144, DCI T VS HDFC [2006] 98 LTD 319 (BOM ITAT), AND CIT VS. FEDERAI B ANK LTD [2008] 301 ITR 188 (KER). ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 20 OF 57 23. THE CIT(APPEALS) FOUND THAT THE ASSESSEE HAS CONSISTENTLY BEEN OFFERING TO TAX INTEREST ON SECUR ITIES ONLY ON DUE DATE BASIS AND NOT ON THE BASIS OF THE ALLEGED ACCRUAL. HE REFERRED TO THE ORDER OF THE TRIBUNAL DATED 21.11.2 008 IN ITA NO. 1160(BNG)/07 IN THE CASE OF KARNATAKA BANK LTD., FO R ASSESSMENT YEAR 2004-05, WHEREIN THE ITAT HAS OBSER VED THAT THE ISSUE OF BROKEN PERIOD INTEREST ON GOVERNMENT S ECURITIES STOOD COVERED IN FAVOUR OF THE ASSESSEE AS CONSIDER ED BY THE CIT(A) FOLLOWING THE ITATS DECISION IN THAT BANKS CASE AND HENCE DID NOT CALL FOR ANY FURTHER INTERFERENCE. TH E CIT(A) ALSO FOLLOWED HIS OWN ORDER DATED 31.12.2004 IN ITA NO. 255/MNG/CIT(A)MNG/2003-04, IN THE CASE OF KARNATAKA BANK LTD. FOR ASSESSMENT YEAR 1998-99, IN WHICH HE HELD THAT ASSESSING OFFICERS ACTION IN BRINGING TO TAX INTER EST ON SECURITIES, EVEN THOUGH INTEREST HAD NOT LEGALLY AND RIGHTFULLY ACCRUED OR BECOME DUE TO THE APPELLANT IN VIEW OF THE SPECIFIE D DATES FOR INTEREST ON GOVERNMENT SECURITIES, AS LAID DOWN THE REIN, WAS NOT SUSTAINABLE. ACCORDINGLY, HE HELD THAT THE ASSESSIN G OFFICER WAS NOT JUSTIFIED IN BRING TO TAX THE INTEREST ON SECUR ITIES AND DELETED THE ADDITION MADE ON THAT SCORE. THE CIT(APPEALS) WAS ALSO OF ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 21 OF 57 THE VIEW THAT THE INCOME-TAX ACT ENVISAGES LEVY OF TAX ON REAL INCOME AND NOT ON INCOME WHICH IS NOT FOLLOWED BY T HE RIGHT TO RECEIVE INCOME. MERE ENTRIES IN THE BOOKS OF ACCOUN T DO NOT CREATE A RIGHT TO RECEIVE. UNLESS THE RIGHT TO RECE IVE ARISES IN RESPECT OF ACCRUED INTEREST, IT IS NOT INCOME UNDER SECTION 5 OF THE ACT. INTEREST ON SECURITIES IS RECEIVABLE AND T AXABLE ONLY ON DUE BASIS, AS THE HOLDER OF THE SECURITIES DOES NOT GET A RIGHT TO RECEIVE THE INTEREST BEFORE THE DUE DATE. SECTION 1 45(1), AS AMENDED BY THE FINANCE ACT, 1995, WITH EFFECT FROM 01.04.1997, PROVIDES THAT THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OT HER SOURCES SHALL BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSE SSES. SO FAR AS THE SYSTEM OF ACCOUNTING IS CONCERNED, HE WA S OF THE VIEW THAT THE ASSESSEE BANK HAS BEEN FOLLOWING THE SAME SYSTEM IN RETURNING INTEREST ON GOVERNMENT SECURITIES SINCE L AST SEVERAL YEARS AND THERE IS NO CHANGE IN THE METHOD OF ACCOU NTING. THE BANK HAS BEEN CONSISTENTLY AND REGULARLY FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING ONLY AND NOT A HYBR ID SYSTEM. THE CIT(APPEALS) FURTHER OBSERVED THAT A RIGHT TO R ECEIVE INCOME ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 22 OF 57 DOES NOT CONSTITUTE ACCRUAL AND THE ASSESSEE BANK I S ENTITLED TO RECOGNIZE THE REVENUE FROM INTEREST ON GOVERNMENT S ECURITIES AT THE POINT OF ACCRUAL OR ACTUAL RECEIPT, ACCORDING T O ITS OWN ACCOUNTING POLICY. HE WAS OF THE VIEW THAT THERE WA S NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAD CHANGED ITS METHOD OF ACCOUNTING. THUS THE CIT(A) DELETED THE ADDITION O F RS. 31,20,45,192 AS INTEREST ACCRUED ON GOVERNMENT SECU RITIES. 24. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE HAS RAISED GR.NO.3 BEFORE THE TRIBUNAL. AT THE TIM E OF HEARING BEFORE US, IT WAS AGREED BY THE PARTIES THAT THE IS SUE RAISED BY THE REVENUE IN THIS APPEAL HAS ALREADY BEEN DECIDED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. TAM IL NADU MERCANTILE BANK LTD., 291 ITR 137 (MAD). THE QUEST ION OF LAW BEFORE THE HONBLE MADRAS HIGH COURT WAS AS FOLLOWS :- WHETHER, ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT INTEREST ON SECURITIES IS TAXABLE ONLY ON SPECIFIED DATES WHEN IT BECAME DUE FOR PAYMENT AND NOT ON ACCRUED BASIS?' 25. THE HONBLE MADRAS HIGH COURT HELD AS FOLLOWS:- ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 23 OF 57 'IN VIEW OF THE DELETION OF SECTION 18 OF THE INCOME-TAX ACT, 1961, WITH EFFECT FROM 1ST APRIL, 1989, THE THIRD PROVISO TO SECTION 145(1) WAS INSERTED WITH EFFECT FROM APRIL 1, 1989, WHICH IS A SAVING CLAUSE. ALTHOUGH THE AMENDMENT WAS WITH EFFECT FROM APRIL 1, 1989, IT CLEARLY PROVIDES THAT ANY INCOME BY WAY OF INTEREST ON SECURITIES SHALL BE CHARGEABLE TO TAX AS THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH INTEREST IS DUE TO THE ASSESSEE ONLY WHERE NO METHOD OF ACCOUNTING IS REGULARLY EMPLOYED BY THE ASSESSEE. IN OTHER WORDS, IF THE ASSESSEE IS MAINTAINING CASH SYSTEM OF ACCOUNTING, THE AFORESAID PROVISO WOULD NOT APPLY. THE LEGISLATIVE INTENT IS THAT WHEN THE ASSESSEE IS MAINTAINING THE CASH SYSTEM OF ACCOUNTING, INCOME BY WAY OF INTEREST ON SECURITIES WILL HAVE TO BE CHARGED TO TAX ONLY WHEN THE ASSESSEE ACTUALLY RECEIVES THE INTEREST AND NOT ON THE DATE ON WHICH INTEREST ON SUCH SECURITIES MIGHT BECOME DUE. THE ASSESSEE, WHILE FILING THE RETURN OF INCOME FOR THE ASSESSMENT YEARS 1989-90 AND 1990-91, CLAIMED EXCLUSION OF THE SUMS REPRESENTING THE ACCRUED INTEREST FOR THE PERIODS TILL MARCH 31, 1989, AND TILL MARCH, 31, 1990, FOR THE RESPECTIVE ASSESSMENT YEARS, IN RESPECT OF THE SECURITIES HELD BY IT ON THE GROUND THAT IT DID NOT BECOME DUE IN THE RESPECTIVE PREVIOUS YEARS AND THAT EVEN AFTER THE OMISSION OF SECTION 18, THE INTEREST ON SECURITIES SHOULD BE CHARGED ONLY WHEN IT BECAME DUE FOR PAYMENT AS IT DID NOT ACCRUE ON DAY-TO-DAY BASIS. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE CLAIMS OF THE ASSESSEE, HOLDING THAT AFTER THE OMISSION OF SECTION 18 OF THE ACT, I.E., AFTER JULY 8, 1988, INTEREST IS TO B E ASSESSED UNDER THE HEAD BUSINESS OR OTHER SOURCES AS THE CASE MAY BE, AND THEREFORE, THE INTEREST WHICH ACCRUED UP TO THE END OF THE ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 24 OF 57 ACCOUNTING YEAR BECAME TAXABLE AS THE INCOME OF THE PREVIOUS YEAR. THE COMMISSIONER OF INCOME-TAX (APPEALS) HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN HOLDING THAT THE INTEREST ACCRUED UP TO THE LAST DAY OF THE ACCOUNTING YEAR SHOULD BE SUBJECTED TO TAX. THIS WAS UPHELD BY THE TRIBUNAL. ON APPEAL TO THE HIGH COURT: HELD, DISMISSING THE APPEAL THAT EVEN THOUGH SECTION 18 OF THE ACT WAS DELETED, THE ASSESSEE WAS TAXABLE FOR INTEREST ON SECURITIES ONLY ON SPECIFIED DATES WHEN IT BECAME DUE FOR PAYMENT, IN VIEW OF THE THIRD PROVISO TO SECTION 145(1) OF THE ACT, WHICH WAS IN FORCE DURING THE RELEVANT ASSESSMENT YEARS. 26. IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL DECI SION HAS ALSO BEEN RENDERED BY THE HONBLE HIGH COURT OF KER ALA IN THE CASE OF CIT V. FEDERAL BANK, 301 ITR 188 (KER) . IN THE PRESENT CASE, THE ASSESSEE HAS BEEN FOLLOWING THE METHOD OF OFFERING INTEREST ON SECURITIES TO TAX ON RECEIPT BASIS ON M ATURITY AND THE SAME HAS BEEN ACCEPTED BY THE REVENUE IN THE PAST. IN VIEW OF THE AFORESAID DECISION, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERENCE. CONSEQU ENTLY, GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 27. GROUND NO.4 RAISED BY THE REVENUE READS AS FOLLOWS: - ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 25 OF 57 4. LOSS ON VALUATION OF INVESTMENTS - RS.337,17,48,455/- 4.A. THE LEARNED CIT(A) ERRED IN ACCEPTING THE ASSESSEES CLAIM THAT THE ASSESSEE HAS TRADED IN SECURITIES, SHOWN AS INVESTMENTS IN THE BALANCE SHE ET, AND THAT THE ASSESSEE HAS INCURRED LOSS OF RS.209,62,90,162/- ON ACCOUNT OF REVALUING THE INVESTMENTS, HELD AS ON 31-3-2009, AT COST OR MARKE T VALUE WHICHEVER IS LESS. 4.B. THE LEARNED CIT(A) ERRED IN NOT CONSIDERING T HE FACT THAT DURING THE YEAR THE ASSESSEE HAS MADE PRO FIT OF RS.233,45,84,809/- ON SALE OF INVESTMENTS, WHICH IS CREDITED TO P & L A/C, AS AGAINST LOSS OF RS.209,62,90,162/- CLAIMED. 4.C. THE LEARNED CIT(A) FAILED TO CONSIDER THAT AS PER THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA, THE ASSESSEE CAN CLAIM DEPRECIATION ONLY IN RESPECT OF INVESTMENTS HELD UNDER THE CATEGORY HELD FOR TRADI NG AND AVAILABLE FOR SALE, AND THERE WAS NO DEPRECIAT ION ADMISSIBLE TO THE ASSESSEE DURING THIS YEAR. 4.D. THE CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSEE BANK UPTO AY 2004-05 FOLLOWED RBI GUIDELINES WITH REGARD TO VALUATION OF INVESTMENT PORTFOLIO FOR COMPUTATION OF INCOME FOR INCOME TAX PURPOSES AND IT IS ONLY FOR AY 2005-06 THE ASSESSEE STARTED TREATING THE ENTIRE INVESTMENT AS STOCK IN TRADE. 4.E. THE LEARNED CIT (A) ERRED IN NOT CONSIDERING THE ORDERS OF HIS PREDECESSOR IN THE CASE OF CORPORATIO N BANK, MANGALORE, FOR THE ASST. YEAR 2005-06 ITA NO. 66/MNG/CIT(A)/MNG/07-08 DT. 25-4-2008 WHEREIN THE CIT(A) HAS HELD THAT ONLY INVESTMENTS HELD UNDE R THE CATEGORY HELD FOR TRADING CAN BE CONSIDERED A S IN THE NATURE OF STOCK-IN-TRADE, AND THAT INVESTMENTS FALLING UNDER THE CATEGORY AVAILABLE FOR SALE AND HELD ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 26 OF 57 TO MATURITY CANNOT BE CONSIDERED AS STOCK IN TRADE BUT ONLY AS INVESTMENTS. 28. AT THE OUTSET WE HAVE TO CLARIFY THAT THE FIGURE OF RS.337,17,48,455/-MENTIONED IN THE GROUNDS OF APPEA L IS WRONG AND THE CORRECT SUM THAT WAS DISALLOWED WAS RS.209, 62,90,162. WHILE ARRIVING AT THE BUSINESS INCOME FOR THE PURPO SE OF INCOME TAX, THE ASSESSEE DEDUCTED PROFIT ON SALE OF INVEST MENTS AMOUNTING TO RS.233,45,84,809 AND ADDED BACK DEPREC IATION ON INVESTMENT AMOUNTING TO RS.105,91,26,516 AND AMORTI ZATION AMOUNTING TO RS.47,82,51,829. THE ASSESSEE CLAIME D LOSS ON TRADING OF INVESTMENTS AMOUNTING TO RS.209,62,90,16 2 BY FILING AN INVESTMENT TRADING ACCOUNT. 29. ACCORDING TO THE ASSESSEE, IT HAS BEEN CONSISTENTLY TREATING INCOME FROM INVESTMENTS OTHER THAN SHARES AS INCOME FROM BUSINESS AND OFFERING TO TAX SUCH INCOME UNDE R THE HEAD INCOME FROM BUSINESS. THE ASSESSEE POINTED OUT T HAT THE REVENUE HAS ACCEPTED THE CLAIM OF THE ASSESSEE IN T HE PAST. THE ASSESSEE THEREFORE SUBMITTED THAT THE STOCK OF INVESTMENTS HAVE TO BE TREATED AS STOCK-IN-TRADE AND THE DIMINU TION IN THE ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 27 OF 57 VALUE OF THE STOCK-IN-TRADE AS ON THE LAST DAY OF T HE PREVIOUS YEAR HAS TO BE ALLOWED AS A DEDUCTION. IN THIS REG ARD, THE ASSESSEE ALSO POINTED OUT THAT AS PER THE RBI GUIDE LINES, THE ASSESSEE HAS TO CLASSIFY INVESTMENTS IN INDIA INTO THREE CATEGORIES VIZ., (A) HELD TO MATURITY, (B) AVAILAB LE FOR SALE, AND (C) HELD FOR TRADING. THE ASSESSEE POINTED OUT T HAT INVESTMENTS HELD UNDER THE HEAD HELD TO MATURITY ARE VALUED A T COST, EXCEPT IN A CASE WHERE THEY WERE ACQUIRED AT A PREMIUM IN WHICH CASE THE PREMIUM WAS AMORTIZED OVER THE REMAINING LIFE O F THE SECURITY. AS FAR AS INVESTMENTS UNDER THE HEAD AV AILABLE FOR SALE AND HELD FOR TRADING IS CONCERNED, THE ASSE SSEE POINTED OUT THAT SUCH INVESTMENTS WERE VALUED AT COST OR MA RKET PRICE, WHICHEVER IS LOWER. IF THE VALUE OF THE INVESTMENT S ON THE LAST DAY OF THE PREVIOUS YEAR IS LESS THAN THE COST PRIC E, THE DEPRECIATION IN ITS VALUE IS CLAIMED AS A DEDUCTION . THE AO DID NOT ACCEPT THE CLAIM OF THE ASSESSEE. HE WAS OF TH E VIEW THAT THE ENTIRE INVESTMENT PORTFOLIO IN THE CASE OF A BA NK CANNOT BE CONSIDERED AS STOCK-IN-TRADE. HE WAS OF THE VIEW THAT INVESTMENTS UNDER THE CATEGORY AVAILABLE FOR SALE AND HELD FOR TRADING CAN BE CONSIDERED AS STOCK-IN-TRADE, BUT I N THE CASE OF ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 28 OF 57 INVESTMENTS UNDER THE CATEGORY HELD TO MATURITY, THEY WERE PURELY OF THE NATURE OF INVESTMENTS AND NOT IN STOC K-IN-TRADE, THEREFORE THE LOSS CLAIMED ON DIMINUTION OF VALUE C ANNOT BE ALLOWED. THESE OBSERVATIONS OF THE AO ARE FOUND I N PARA IV.8 OF HIS ORDER. HE ULTIMATELY DISALLOWED THE ENTIRE CLAIM OF THE ASSESSEE FOR DEDUCTION OF DIMINUTION IN THE VALUE O F INVESTMENTS OF RS.209,62,90,162 BY REFERRING TO THE REASONS GIV EN FOR MAKING SUCH DISALLOWANCE IN ASSESSEES OWN CASE FOR THE A. Y. 2005-06 TO 2008-09. 30. AGGRIEVED BY THE ADDITION MADE BY THE AO, THE ASSES SEE PREFERRED APPEAL BEFORE THE CIT(APPEALS). BEFORE CIT(A) THE ASSESSEE CONTENDED THAT IT HAS BEEN CONSISTENTLY AN D HISTORICALLY TREATING THE ENTIRE INVESTMENTS AS STO CK-IN-TRADE IN ALL THESE YEARS AND IT WAS A LEGALLY ACCEPTED PRACTICE IN THE BANKING INDUSTRY. IT WAS ALSO A PRUDENT PRACTICE THAT ENABL ED THE BANKING INDUSTRY TO BRING OUT THE REAL INCOME FOR TAXATION PURPOSE AND THEREFORE, THERE WAS NO JUSTIFICATION TO DENY THIS CONSISTENT PRACTICE, WHICH HAD BEEN ACCEPTED EVEN BY THE RBI. THE DEPARTMENT HAD ALSO TAXED THE INCOME FROM SUCH INVE STMENTS AS ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 29 OF 57 BUSINESS INCOME. ALL INVESTMENTS OF THE BANK WERE S TOCK-IN- TRADE AND HENCE HAD TO BE VALUED AT THE LOWER OF C OST OR MARKET VALUE (LCMV). THE RBI CIRCULAR REFERRED TO BY THE ASSESSING OFFICER ONLY GAVE DIRECTIONS FOR UNIFORM PRESENTATI ON IN THE PUBLISHED BALANCE SHEET AND NOT FOR THE PURPOSE OF COMPUTATION OF REAL INCOME UNDER THE INCOME-TAX ACT. THEREFORE, TREATMENT OF THE INVESTMENTS IN THE BOOKS OF ACCOUNT BASED ON RBI GUIDELINES HAD NO BEARING ON THE BANKS INCOME-TAX ASSESSMENT. THE ASSESSING OFFICER WAS NOT JUSTIFIED IN FOLLOWING RBI CLASSIFICATION AND IGNORING THE LCMV METHOD AS PER INTERNATIONAL BANKING PRACTICE. WITH REGARD TO THE ACTION OF THE ASSESSING OFFICER IN ADDING THE PROFIT ON SALE OF I NVESTMENTS IT WAS SUBMITTED THAT THE AO HAD FAILED TO APPRECIATE THAT THE PROFIT CREDITED TO P & L ACCOUNT HAD BEEN REWORKED BY THE ASSESSEE BY PREPARING A SEPARATE INVESTMENT TRADING ACCOUNT. THE SAID ACCOUNT TOOK INTO CONSIDERATION THE ACTUAL PROFIT O N SALE OF INVESTMENTS WHICH WERE OFFERED FOR INCOME-TAX PURPO SES AND THE LOSS ARISING ON ACCOUNT OF VALUING ALL ITS INVESTME NTS WHICH WERE HELD AS STOCK-IN-TRADE (OTHER THAN SHARES) AT LCMV, IN ACCORDANCE WITH THE GENERALLY ACCEPTED ACCOUNTING P RACTICE, ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 30 OF 57 WHICH HAD BEEN UPHELD IN A NUMBER OF JUDICIAL DECIS IONS. IT WAS HIGHLIGHTED THAT THE CLASSIFICATION MADE IN THE BOO KS AS HTM WAS PURELY TEMPORARY SINCE BANKS HAD A RIGHT TO REC LASSIFY THE INVESTMENTS INTO OTHER CATEGORIES ONCE IN A YEAR WI TH THE PERMISSION OF ITS BOARD OF DIRECTORS. FURTHER, AS P ER THE SAID RBI CIRCULARS, THERE WAS NO PROHIBITION ON BANKS SELLIN G SECURITIES IN HTM CATEGORY BEFORE MATURITY. IT WAS ARGUED THAT WH EREVER THE INTENTION OF THE ACT WAS TO COMPUTE INCOME IN ACCOR DANCE WITH RBI CIRCULARS, THE SAME HAD BEEN PROVIDED FOR. FOR EXAMPLE, IN THE CASE OF SECTION 43D READ WITH RULE 6EA, THE ACT CLEARLY PROVIDED THAT INTEREST IN RELATION TO SUCH CATEGORI ES OF BAD AND DOUBTFUL DEBTS, AS MAY BE PRESCRIBED HAVING REGARD TO THE GUIDELINES ISSUED BY RBI, WOULD BE CHARGED TO TAX I N THE YEAR IN WHICH IT WAS CREDITED TO THE PROFIT AND LOSS ACCOUN T, OR WHEN IT WAS RECOVERED, WHICHEVER WAS EARLIER. SIMILARLY, IN SECTION 36(1)(VIIA), A DEDUCTION WAS ALLOWED IN RESPECT OF SUCH CATEGORIES OF DOUBTFUL AND LOST ASSETS IDENTIFIED I N ACCORDANCE WITH THE GUIDELINES OF RBI. IN THE ABSENCE OF ANY S UCH SPECIFIC PROVISION IN THE ACT, THE ASSESSING OFFICER SHOULD NOT HAVE DISALLOWED THE CLAIM BY MAKING REFERENCE TO GUIDELI NES OF RBI. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 31 OF 57 RELIANCE WAS PLACED ON THE DECISION DATED 07/01/200 5 OF THE CHENNAI BENCH OF ITAT IN THE CASE OF BHARAT OVERSEA S BANK LTD. IN ITA NO.241/MDS/2001 FOR THE ASSESSMENT YEAR 1996-97. 31. THE CIT(A) ON A CONSIDERATION OF THE ABOVE SUBMISSI ONS DELETED THE ADDITION MADE BY THE AO HELD AS FOLLOWS : 8.4. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMIS SIONS. THE VIEW THAT INVESTMENTS OF BANKS ARE STOCK-IN-TRA DE IS SUPPORTED BY VARIOUS JUDICIAL PRONOUNCEMENTS INCLUDING THOSE IN THE CASES OF CIT VS. KARUR VYSYA BANK LTD. [2005] 273 ITR 510 (MAD), ITO VS. J&K BANK LTD. [2005] 95 LTD 141 (ASR), UNITED COMMERCIA L BANK VS. CIT [1999] 240 ITR 355 (SC), LAKSHMI VILAS BANK LTD. VS. CIT [2006] 284 ITR 93 (MAD), CIT VS. CORPORATION BANK [1998] 174 ITR 616 (KAR), CIT VS. SOUTH INDIAN BANK LTD. [2000] 241 ITR 374 (KER), CI T VS. BANK OF BARODA [2003] 262 ITR 332 (BOM), CIT VS . NEDUNGADI BANK [2003] 264 ITR 545 (KER], DCIT VS. NEDUNGADI BANK [2003] 85 LTD 1 (COCH), IVORY MAR VS . UNION OF INDIA & ORS. [2002] 255 ITR 425 (DEL), AND THE DECISION OF THE HONBLE ITAT IN ITA NO. 50/BANG/199 7, DATED 29.07.2003, IN THE CASE OF KARNATAKA BANK LTD . 8.5. THE HONBLE ITAT HAS ALSO CONSIDERED THE SAME ISSUE IN ITS ORDER DATED 03.12.2008 IN (ITA NO. 112/BANG/2008 IN THE CASE OF CORPORATION BANK IN ASSESSMENT YEAR 2004-05. IT HAS HELD THAT THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK VS. CIT (1999) 240 ITR 355 WAS DIRECTLY APPLICABLE TO THIS ISSUE. IN THAT CASE, TH E HONBLE SUPREME COURT HAS HELD THAT PREPARATION OF THE BALANCE SHEET IN ACCORDANCE WITH STATUTORY PROVISIONS WILL NOT DISENTITLE THE ASSESSEE FROM SUBMITTING THE INCOME-TAX RETURN ON ITS REAL TAXABL E ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 32 OF 57 INCOME IN ACCORDANCE WITH THE METHOD OF ACCOUNTING IT ADOPTS CONSISTENTLY AND REGULARLY. FOR THE PURPOSE OF INCOME-TAX, WHAT IS TO BE TAXED IS REAL INCOME, WHI CH IS TO BE DEDUCED ON THE BASIS OF THE ACCOUNTING SYSTEM REGULARLY MAINTAINED BY THE ASSESSEE. THE METHOD BY WHICH THE ASSESSEE BANK IS VALUING SECURITIES BY TREATING THEM AS STOCK-IN-TRADE IS IN ACCORDANCE WI TH THE ACCOUNTING PRINCIPLES AND THE REVENUE ITSELF IS TREATING THE PROFIT ON MATURITY OF SUCH SECURITIES AS BUSINESS INCOME. THEREFORE, SUCH SECURITIES CANNOT BE TREATED AS CAPITAL ASSETS. 8.6. FOLLOWING THE ABOVE DECISION OF THE HONBLE SUPREME COURT, AND IN LINE WITH ITS DECISION DATED 24.01.2008 IN ITA NO. 253/BANG/2007 IN THE CASE OF ACIT (LTU) VS. VIJAYA BANK , THE HONBLE ITAT HAS HELD THAT THE ASSESSEE BANK IS ENTITLED TO VALUE ALL INVESTMENTS AT LCMV BY TREATING SUCH INVESTMENTS AS STOCK-IN-TRADE, AND HAS DELETED THE DISALLOWANCE MA DE ON LOSS ON VALUATION. THE HONBLE HIGH COURT OF KARNATAKA HAS, IN THE CASE OF CIT VS. CORPORATION BANK (1998) 174 ITR 616 , ALSO UPHELD THE ITATS DECISION. RESPECTFULLY FOLLOWING THESE JUDICIAL PRONOUNCEMENTS, I DELETE THE DISALLOWANCE OF THE INVESTMENT TRADING LOSS OF RS. 374,97,43,513 CLAIME D BY THE APPELLANT AND DIRECT THE AO TO ALLOW THE SAM E AS DEDUCTION INN COMPUTING THE TOTAL INCOME. THIS GRO UND IS ALLOWED. 32. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE R EVENUE HAS RAISED GROUND NO.4 BEFORE THE TRIBUNAL. WE HAV E HEARD THE RIVAL SUBMISSIONS. AT THE TIME OF HEARING IT WAS B ROUGHT TO OUR NOTICE THAT THE ITAT IN ASSESSEES OWN CASE FOR AY 06-07 IN ITA ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 33 OF 57 NO.708/B/2010 BY ITS ORDER DATED 19.6.2013 DECIDED IDENTICAL ISSUE AND HELD AS FOLLOWS: 58. WE HAVE HEARD THE SUBMISSIONS OF THE LD. DR A ND THE LD. COUNSEL FOR THE ASSESSEE. THE LD. DR RELIE D ON THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. ING VYSYA BANK LTD. IN ITA NO.2886/2005 DATED 06.06.2012. IN THE AFORESAID DECISION, THE HONBLE HIGH COURT OF KARNATAKA TOOK A VIEW THAT THE GUIDELINES ISSUED BY THE RBI WILL NOT BE RELEVANT WHILE COMPUTING INCOME UNDER THE INCOME-TA X ACT. THE HONBLE COURT FURTHER TOOK THE VIEW THAT EVERY INVESTMENT HELD BY A BANK CANNOT BE CONSIDERED AS STOCK-IN-TRADE. THE HONBLE HIGH COURT FINALLY CONCLUDED THAT 30% OF THE INVESTMENTS CAN BE CLOTHE D TO THE CHARACTER OF STOCK-IN-TRADE AND THAT THE REMAINING AMOUNTS WILL BE INVESTMENTS AND THEREFORE DIMINUTION IN THEIR VALUE CANNOT BE ALLOWED AS A DEDUCTION. 59. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER, SUBMITTED THAT IN THE ASSESSEES OWN CASE FOR THE A .Y. 2005-06, THIS TRIBUNAL HAS CONFIRMED THE ORDER OF T HE CIT(A), DELETING IDENTICAL ADDITION MADE BY THE AO. OUR ATTENTION WAS ALSO DRAWN TO THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.492/BANG/2009 FOR THE A.Y. 2005-06, ORDER DATED 13.01.2012, WHEREIN THE TRIBUNAL HAD TO DEAL WITH IDENTICAL ISSUE AS TO WHETHER THE CIT(A) WAS CORREC T IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF PROFIT ON SALE OF INVESTMENTS OF RS.200,77,13,662/- AND DELETING THE ACTION OF THE AO IN DISALLOWING LOSS CLAIMED ON TREATING INVESTMENTS AS STOCK-IN-TRADE B Y DRAWING THE INVESTMENT TRADING ACCOUNT OF RS.775,96,55,047. THE TRIBUNAL HELD: ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 34 OF 57 16. WE HAVE HEARD BOTH SIDES AND FIND THAT THE SUPREME COURT IN THE CASE OF UCO BANK IN 240 ITR 355 HAS HELD AS UNDER : 'IN OUR VIEW, AS STATED ABOVE, CONSISTENTLY FOR 30 YEARS, THE ASSESSEE WAS VALUING THE STOCK-IN-TRADE AT COST FOR THE PURPOSE OF STATUTORY BALANCE-SHEET, AND FOR THE INCOME-TAX RETURN, VALUATION WAS AT COST OR MARKET VALUE, WHICHEVER WAS LOWER. THAT PRACTICE WAS ACCEPTED BY THE DEPARTMENT AND THERE WAS NO JUSTIFIABLE REASON FOR NOT ACCEPTING THE SAME. PREPARATION OF THE BALANCE-SHEET IN ACCORDANCE WITH THE STATUTORY PROVISION WOULD NOT DISENTITLE THE ASSESSEE IN SUBMITTING THE INCOME-TAX RETURN ON THE REAL TAXABLE INCOME IN ACCORDANCE WITH THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE CONSISTENTLY AND REGULARLY. THAT CANNOT BE DISCARDED BY THE DEPARTMENTAL AUTHORITIES ON THE GROUND THAT THE ASSESSEE WAS MAINTAINING THE BALANCE- SHEET IN THE STATUTORY FORM ON THE BASIS OF THE COST OF THE INVESTMENTS. IN SUCH CASES, THERE IS NO QUESTION OF FOLLOWING TWO DIFFERENT METHODS FOR VALUING ITS STOCK-IN-TRADE (INVESTMENTS) BECAUSE THE BANK WAS REQUIRED TO PREPARE THE BALANCE-SHEET IN THE PRESCRIBED FORM AND IT HAD NO OPTION TO CHANGE IT. FOR THE PURPOSE OF INCOME TAX AS STATED EARLIER, WHAT IS TO BE TAXED IS THE REAL INCOME WHICH IS TO BE DEDUCED ON THE BASIS OF THE ACCOUNTING SYSTEM REGULARLY MAINTAINED BY THE ASSESSEE AND THAT WAS DONE BY THE ASSESSEE IN THE PRESENT CASE.' ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 35 OF 57 THE BANGALORE BENCH OF ITAT IN CORPORATION BANK (SUPRA) HAS ALSO FOLLOWED THE ABOVE DECISION OF THE HON'BLE SUPREME COURT AS ALSO THE ITAT, MUMBAI AND ITAT, CHENNAI. FOLLOWING THE ABOVE DECISIONS, WE ARE DECIDING THIS ISSUE IN FAVOUR OF THE ASSESSEE. THIS GROUND OF APPEAL BY THE REVENUE IS DISMISSED. 60. APART FROM THE ABOVE, THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE DECISION RENDERED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF ING VYSYA BANK (SUPRA) IS PER INCURIAM THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF UCO BANK V. CIT, 240 ITR 355 (SC). HE BROUGHT TO OUR NOTICE TH AT THE HONBLE SUPREME COURT APPROVED THE PRACTICE OF NATIONALIZED BANK GOVERNED BY BANKING REGULATION ACT, FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING BOTH FOR BOOK KEEPING AS WELL FOR INCOME-TAX PURPOSES. THE HONBLE APEX COURT UPHELD THE METHOD ADOPTED BY THE BANKS VALUING STOCK-IN-TRADE (INVESTMENTS) AT COST IN BALANCE SHEET IN ACCORDANCE WITH THE BANKING REGULATION ACT AND VALUING THE SAME AT COST OR MARK ET VALUE, WHICHEVER WAS LOWER FOR INCOME-TAX PURPOSES. THE HONBLE COURT TOOK THE VIEW THAT ALL INVESTMENT S HELD BY A BANK ARE TO BE REGARDED AS STOCK-IN-TRADE . 61. THE LD. COUNSEL FOR THE ASSESSEE FURTHER DREW OUR ATTENTION TO A VERY RECENT DECISION OF THE HONBLE HIGH COURT OF KARNATAKA RENDERED ON 11.03.2013 IN THE CASE OF CIT V. VIJAYA BANK, ITA NO.687/2008. THE HONBLE HIGH COURT OF KARNATAKA IN THE AFORESAID CA SE FOLLOWED ITS OWN DECISION RENDERED IN THE CASE OF KARNATAKA BANK LTD. V. CIT IN ITA NO.172/2009 RENDERED ON 11.01.2013, WHEREIN THE COURT TOOK THE VIEW THAT DEPRECIATION CLAIMED ON INVESTMENTS HELD ON MATURITY BY A BANK HAS TO BE TREATED AS STOCK-IN-T RADE IN ACCORDANCE WITH RBI GUIDELINES AND CBDT CIRCULAR . ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 36 OF 57 IT WAS HIS SUBMISSION THAT THE LATER DECISION OF TH E HONBLE KARNATAKA HIGH COURT HAS TO BE FOLLOWED. 62. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS AND ARE OF THE VIEW THAT THE CONTENTION S PUT FORTH ON BEHALF OF THE ASSESSEE DESERVE TO BE ACCEPTED. THE TRIBUNAL IN ASSESSEES OWN CASE ON A N IDENTICAL ISSUE FOR THE A.Y. 2005-06 HAS UPHELD THE CLAIM OF THE ASSESSEE. THE LATER DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IS ALSO IN FAVOUR O F THE ASSESSEE. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIE W THAT THE ISSUE RAISED BY THE REVENUE IN ITS APPEAL IS WITHOUT MERIT. CONSEQUENTLY, THE SAME IS DISMISSED . 33. THE FACTS AND CIRCUMSTANCES IN THE PRESENT YEAR B EING IDENTICAL TO THE EARLIER ASSESSMENT YEAR I.E., AY 0 6-07, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) IS JUST AND P ROPER AND CALLS FOR NO INTERFERENCE. RESPECTFULLY FOLLOWING THE DE CISION OF THE TRIBUNAL FOR AY 06-07 REFERRED TO ABOVE, WE DISMISS , GR.NO.4 RAISED BY THE REVENUE. 34. IN THE RESULT, THE APPEAL BY THE REVENUE IS PARTLY ALLOWED. ITA NO.709/BANG/12 (ASSESSEES APPEAL FOR AY 09-10) 35. GR.NO.1.1, 2.1 TO 2.7 RAISED BY THE ASSESSEE RAISE D BY THE ASSESSEE IN ITS GROUNDS OF APPEAL REVOLVE AROUND TH E DISALLOWANCE OF EXPENSES MADE BY THE AO BY INVOKING THE ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 37 OF 57 PROVISIONS OF SEC.14A OF THE ACT WHILE COMPUTING IN COME UNDER THE NORMAL PROVISIONS OF THE ACT AND ADDING THE SUM SO DISALLOWED TO THE PROFITS AS PER PROFIT & LOSS ACCO UNT FOR THE PURPOSE OF COMPUTING BOOK PROFITS U/S.115JB OF THE ACT. 36. IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL ISSU E WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2006-07 IN ITA NO.708/BANG/12 ORDER DATED 19.6.2013 AND THIS TRIBUNAL REMANDED THE ISSUE FOR FRESH CONSIDERATION BY THE AO IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIG H COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., 328 ITR 81 (BOM) . THE FOLLOWING ARE THE RELEVANT OBSERVATIONS OF THE TRIB UNAL :- 69. IT IS NOT IN DISPUTE BEFORE US THAT IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2005-06 AND THIS TRIBUNAL REMANDED THE ISSUE F OR FRESH CONSIDERATION BY THE AO IN THE LIGHT OF THE D ECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., 328 ITR 81 (BOM) . THE FOLLOWING ARE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL :- 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDERED THE FACTS AND MATERIALS ON RECORD. WE FIND THAT IN THE ASSESSEE'S OWN CASE FOR ASST. YEARS.2000-01 AND 2001-02 IN ITA.1283 AND 1284/BANG/2007, THE TRIBUNAL ALLOWED THE CLAIM OF THE ASSESSEE THAT PRIOR TO THE INSERTION OF RULE 8D , THERE WAS NO BASIS TO MAKE DISALLOWANCE ON ESTIMATE BASIS. HOWEVER, NOW THE BOMBAY HIGH ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 38 OF 57 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 OPPORTUNITY 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 FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL 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 T HE DECISION OF THE BOMBAY HIGH COURT IN GODREJ BOYCE MFG. CO. LTD., AFTER GIVING EFFECTIVE OPPORTUNITY O F HEARING TO THE ASSESSEE. THIS ISSUE IS ALLOWED FOR STATISTICAL PURPOSE. 37. FOLLOWING THE AFORESAID DECISION, WE REMAND THE IS SUE TO THE AO FOR FRESH CONSIDERATION TO BE DECIDED ON THE LINES ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 39 OF 57 INDICATED BY THE TRIBUNAL IN THE ORDER FOR THE A.Y. 2006-07. THE LEARNED COUNSEL FOR THE ASSESSEE HOWEVER SUBMITTED THAT THE AO IN THE ORDER OF ASSESSMENT HAS ACCEPTED THE FACT THAT THE ASSESSEE HAS OWN CAPITAL TO THE TUNE OF RS.521.97 C RORES AND FREE RESERVES TO THE TUNE OF RS.4488.05 CRORES AND NON-INTEREST BEARING CURRENT ACCOUNT BALANCES OF RS.10525.68 CRO RES AND THESE FUNDS EXCEED THE AVERAGE VALUE OF INVESTMENTS OF RS.377.21 CRORES AND THEREFORE NO DISALLOWANCE WHAT SOEVER UNDER RULE 8D(2)(II) OF THE RULES READ WITH SEC.14A OF THE ACT IS CALLED FOR. REFERENCE IN THIS REGARD WAS MADE TO T HE FOLLOWING DECISIONS FOR THE PROPOSITION THAT OVERALL AVAILABI LITY OF INTEREST FREE FUNDS HAVE TO BE SEEN BEFORE MAKING DISALLOWAN CE U/S.14A OF THE ACT READ WITH RULE 8D(2)(II) OF THE RULES. (I) CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM) ; (II) CIT VS. UTI BANK (2013) 32 TAXMANN.COM 370 AND (III) CIT VS . GUJARAT POWER CORPORATION 352 ITR 583 (GUJ.). WE ARE OF TH E VIEW THAT IT WOULD BE APPROPRIATE TO DIRECT THE AO TO CONSIDE R THIS ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE IN THE SET ASIDE PROCEEDINGS AND GIVE SPECIFIC FINDINGS AND DE CISION ON THE SAME. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 40 OF 57 38. GR.NO.3.1 RAISED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF PROVISION MADE FOR PAYMENT OF WAGE ARREARS ON TH E GROUND THAT THE SAME WAS UNASCERTAINED LIABILITY WHICH WAS CONTINGENT UPON THE FINALITY OF THE WAGE AGREEMENT BETWEEN THE MANAGEMENT AND THE EMPLOYEES. ACCORDING TO THE ASS ESSEE THE PROVISION WAS MADE ON ESTIMATE BASIS KEEPING VI EW THE BIPARTITE AGREEMENT BETWEEN THE INDIAN BANKS ASSOCI ATION AND VARIOUS UNIONS WHICH HAD RESULTED IN A CONTRACTUAL AND STATUTORY LIABILITY RELATING TO THE PERIOD ENDING 31.3.2009. THE ASSESSEE MADE A PROVISION OF RS.75 LACS IN ITS BOOKS OF ACCO UNTS TOWARDS WAGE ARREARS OF ITS EMPLOYEES IN THE PROFIT AND LOS S ACCOUNT. THE SAME WAS ADDED BACK TO THE PROFIT AS PER PROFIT AND LOSS ACCOUNT BUT WAS CLAIMED AS DEDUCTION WHILE COMPUTIN G INCOME FROM BUSINESS IN THE COMPUTATION OF TOTAL INCOME. IT WAS POINTED OUT BEFORE AO THAT IT WAS MADE ON REASONABLE BASIS AND THE LIABILITY OF THE ASSESSEE WAS CERTAIN BUT ONLY THE QUANTIFICATION WAS TO BE MADE AFTER THE FINALIZATION OF THE WAGE R EVISION WITH THE INDIAN BANKS ASSOCIATION. THE AO HOWEVER HELD THAT THE LIABILITY WAS UNASCERTAINED AND DISALLOWED THE CLAI M OF THE ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 41 OF 57 ASSESSEE FOR DEDUCTION. THE CIT(A) CONFIRMED THE O RDER OF THE AO. 39. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE POIN TED OUT THAT AFTER BANKS NATIONALIZATION IN 1969 THERE HAVE BEEN BIPARTITE SETTLEMENTS FROM TIME TO TIME BETWEEN THE INDIAN BANKS ASSOCIATION ON THE ONE SIDE AND REPRESENTATI VES OF THE UNION OF EMPLOYEES AND ASSOCIATION OF OFFICERS ON T HE OTHER SIDE. FOR THE 5 YEAR PERIOD COMMENCING FROM 1.11.2 007, THE 9 TH BIPARTITE SETTLEMENT DISCUSSIONS COMMENCED AND SETT LEMENT WAS REACHED IN JUNE, 2010. IT HAS ALWAYS BEEN THE PRAC TICE THAT THE DISCUSSIONS WOULD COMMENCE SOON AFTER THE RELEVANT PERIOD COMMENCES BUT THE SETTLEMENT WOULD BE REACHED AFTER DETAILED DISCUSSIONS IN THE 2 ND OR 3 RD YEAR OF THE RELATED SETTLEMENT PERIOD. IT WAS ALSO SUBMITTED THAT EVERY SETTLEMENT RESULTE D IN INCREASED QUANTUM OF PAY SCALES OVER THE PREVIOUS PERIOD. SU CH LIABILITY IN THE PAST WAS TREATED AS ASCERTAINED LIABILITY AND A LLOWED AS DEDUCTION BY THE REVENUE AND IT IS FOR THE FIRST TI ME IN AY 09-10 THAT THE AO DISALLOWED THE CLAIM FOR DEDUCTION. IN AY 2010-11 ALSO THE PROVISION MADE WAS ALLOWED AS A DEDUCTION BY THE AO. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 42 OF 57 THE LEARNED COUNSEL IN THIS REGARD DREW OUT ATTENTI ON TO A CHART OF SETTLEMENT CLAIMS IN THE PAST AND THE PROVISION MADE IN THE ACCOUNTS AND SUBMITTED THAT THE PROVISION MADE WAS ALWAYS LESS THAN THE ACTUAL LIABILITY AND THEREFORE THE RE VENUE CANNOT HAVE ANY GRIEVANCE. AS FOR AY 09-10 IS CONCERNED, THE LEARNED COUNSEL POINTED OUT THAT THE SETTLEMENT WITH THE EM PLOYEES WERE REACHED IN JUNE, 2010 AND THE ASSESSEE HAD TO MAKE PAYMENT OF AROUND RS.312.87 CRORES. OUR ATTENTION WAS ALSO DRAWN TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHEL 352 ITR 88 (DEL) AND ITAT HYDERABAD IN THE CASE OF NMDC LTD. VS. JCIT 282 ITR (AT) 135 (HYD.). THE LE ARNED DR RELIED ON THE ORDER OF THE CIT(A). 40. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FROM A PERUSAL OF THE CHART OF THE 8 TH AND 9 TH BIPARTITE SETTLEMENT FOR THE PERIOD FROM NOV.2002 TO MAY 2005 AND FROM NOV.2007 TO MAY 2011 RESPECTIVELY, IT IS SEEN THAT RIGHT FROM AY 03 -04 TO 11-12, THE ASSESSEE HAS BEEN MAKING A CLAIM FOR DEDUCTION ON ACCOUNT OF WAGE ARREARS TO BE PAID AND THE REVENUE HAS ALLO WED THE CLAIM EXCEPT IN AY 2009-10. IN THIS YEAR THE PROVI SION FOR WAGE ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 43 OF 57 ARREARS MADE BY THE ASSESSEE WAS AT 8% OF THE WAGES PREVAILING WHILE THE ULTIMATE SETTLEMENT WITH THE W ORKERS WAS AT 12%. THUS THE ESTIMATE MADE BY THE ASSESSEE WAS CONSERVATIVE AND WELL BELOW THE ULTIMATE INCREASE T HAT THE ASSESSEE CONCEDED TO WORKERS IN THE SETTLEMENTS. A S LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF BEML V. CIT, 245 ITR 428 (SC), THE CRITERIA FOR ALLOWING DEDUCTION O N ACCOUNT OF A PROVISION IS THAT THE LIABILITY TO INCUR THE EXPEND ITURE WHICH IS CLAIMED BY WAY OF A PROVISION SHOULD BE CERTAIN AND SECONDLY THE QUANTIFICATION OF SUCH LIABILITY SHOULD BE SCIE NTIFIC/REASONABLE. IN THE PRESENT CASE, THE ASSESSEE WAS LEGALLY BOUND TO PAY THE ULTIMATE REVISION OF WAGES TO BE SETTLED. IN OUR VIEW GOING BY THE PAST HISTORY, THE BASIS ON WHICH THE PROVISION WAS MADE WAS REASONABLE. THE LIABILITY OF THE ASSESSEE TO PAY I NCREASED WAGES IS CERTAIN BUT WHAT WAS PENDING WAS ONLY QUAN TIFICATION. THE REVENUE HAS NOT DISPUTED THE BASIS OF QUANTIFIC ATION OF SUCH LIABILITY. IN SUCH CIRCUMSTANCES, WE ARE OF THE VI EW THAT IN THE LIGHT OF THE PRINCIPLES LAID DOWN BY THE HONBLE SU PREME COURT IN THE CASE OF BEML (SUPRA), THE CLAIM FOR DEDUCTION S HOULD BE ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 44 OF 57 ALLOWED. WE ACCORDINGLY DIRECT THE AO TO ALLOW THE CLAIM OF THE ASSESSEE IN THIS REGARD. 41. IN GR.NO.4.1 TO 4.4 THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) WHEREBY THE CIT(A) HELD THAT THE PROV ISIONS OF SEC.115JB OF THE ACT ARE APPLICABLE. AT THE TIME O F HEARING IT WAS POINTED OUT THAT THE ISSUE HAD BEEN CONSIDERED AND DECIDED BY THE TRIBUNAL IN AY 06-07 IN ITA NO.668/BANG/2010 ORDER DATED 19.6.2013 IN FAVOUR OF THE ASSESSEE. THE FOL LOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ON THE IS SUE: 98. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF TH E LD. COUNSEL FOR THE ASSESSEE. WE FIND THAT THIS I SSUE WAS CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF KRUNG THAI BANK (SUPRA) AND ON THE ABOVE ISSUE HELD AS FOLLOWS:- 5. LEARNED COUNSEL FOR THE ASSESSEE, HOWEVER, CONTENDS THAT THE PROVISIONS OF MAT DO NOT APPLY TO THE ASSESSEE, AND , FOR THIS REASON, VERY FOUNDATION OF IMPUGNED REASSESSMENT PROCEEDINGS IS DEVOID OF LEGALLY SUSTAINABLE MERITS. HIS LINE OF REASONING IS THIS. THE PROVISIONS OF MAT CAN COME INTO PLAY ONLY WHEN THE ASSESSEE PREPARES ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH SCHEDULE VI TO THE COMPANIES ACT .IT IS POINTED OUT THAT , IN TERMS OF THE PROVISIONS OF SECTION 115JB(2),EVERY ASSESSEE IS REQUIRED TO PREPARE ITS PROFIT AND LOSS ACCOUNT IN TERMS ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 45 OF 57 OF THE PROVISIONS OF PART II AND II I OF SCHEDULE VI TO THE COMPANIES ACT . UNLESS THE PROFIT AND LOSS IS SO PREPARED, THE PROVISIONS OF SECTION 115 JB CANNOT COME INTO PLAY AT AL L. HOWEVER, THE ASSESSEE IS A BANKING COMPANY AND UNDER PROVISO TO SECTION 211 (2) OF THE ACT , THE ASSESSEE IS EXEMPTED FROM PREPARING ITS 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 REGULATION ACT . IT IS THUS CONTENDED THAT THE PROVISIONS OF SECTION 115 JB DO NOT APPLY IN THE CASE OF BANKING COMPANIES WHICH ARE NOT REQUIRED TO PREPARE THE PROFIT AND LOSS ACCOUNT AS PER THE REQUIREMENTS OF PART II AND III OF SCHEDULE VI TO THE COMPANIES ACT. SINCE THE PROVISIONS OF SECTION 115 JB DO NOT APPLY TO THE ASSESSEE COMPANY, THE REASONS RECORDED FOR REOPENING THE ASSESSMENT ARE CLEARLY WRONG AND INSUFFICIENT. WE ARE URGED TO QUASH THE REASSESSMENT PROCEEDINGS ON THIS SHORT GROUND. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, VEHEMENTLY RELIES UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITS THAT THERE IS NO SPECIFIC EXCLUSION CLAUSE FOR THE BANKING COMPANIES, AND IN THE ABSENCE OF SUCH A CLAUSE, IT IS NOT OPEN TO US TO INFER THE SAME. THE SUBMISSIONS OF THE LEARNED COUNSEL, ACCORDING TO THE DEPARTMENTAL REPRESENTATIVE, ARE CLEARLY CONTRARY TO THE LEGISLATIVE INTENT AND PLAIN WORDINGS OF THE STATUTE. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 46 OF 57 THE PLEA OF THE ASSESSEE IS INDEED WELL TAKEN, AND IT MEETS OUR APPROVAL. THE PROVISIONS OF SECTION 115 JB CAN ONLY COME INTO PLAY WHEN THE ASSESSEE IS REQUIRED TO PREPARE ITS PROFIT AND LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS OF PART II AND I II OF SCHEDULE VI TO THE COMPANIES ACT . 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 APPLICABLE IN VIEW OF EXEMPTION SET OUT UNDER PROVISO TO SECTION 211 (2) OF THE COMPANIES ACT . THE FINAL ACCOUNTS OF THE BANKING 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 DE CISION 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 BANKING COMPANY. THE DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, CLEARLY SUPPORT THE PLEA OF THE ASSESSEE IN THIS REGARD. CONSEQUENTLY, GROUND NO.3 RAISED BY THE ASSESSEE IS ALSO ALLOWED. 42. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUN AL REFERRED TO ABOVE, WE HOLD THAT PROVISIONS OF SEC.1 15JB OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEE WHICH IS A B ANKING COMPANY. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 47 OF 57 43. GROUND NO.5.1 TO 5.6 RAISED BY THE ASSESSEE RELATE S TO THE VARIOUS ADDITIONS AND DISALLOWANCES MADE IN ARR IVING AT THE BOOK PROFITS U/S.115JB OF THE ACT. SINCE IT HAS BEEN HELD THAT SEC.115JB OF THE ACT IS NOT APPLICABLE TO BANKING C OMPANY, WE ARE OF THE VIEW THAT THESE ISSUES DO NOT REQUIRE AD JUDICATION BUT ARE KEPT OPEN TO BE URGED IN FUTURE PROCEEDINGS, IF NECESSARY. THESE GROUNDS ARE ACCORDINGLY DISMISSED. 44. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PA RTLY ALLOWED. ITA NO.955/BANG/2012 & ITA NO.998/BANG/2012 (AY 201 0-11) 45. ITA NO.955/BANG/2012 IS AN APPEAL BY THE REVENU E WHILE ITA NO.998/BANG/2012 IS AN APPEAL BY THE ASSESSEE. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 31.5.2012 OF CIT(A), MYSORE, RELATING TO AY 2010-11. ITA NO.955/BANG/2012 - APPEAL BY THE REVENUE FOR AY 2010-11. 46. THE EFFECTIVE GROUNDS RAISED BY THE REVENUE IN THEIR APPEAL ARE GR.NO.2 AND 3 WHICH ARE IDENTICAL TO GR. NO.2 AND GR.NO.4 RESPECTIVELY RAISED BY THE REVENUE IN AY 20 09-10. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 48 OF 57 WHILE DEALING WITH THOSE GROUNDS WE HAVE ALREADY HE LD ON GR.NO.2 FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 06-07 ON IDENTICAL FACTS AND CIRCU MSTANCES, THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S. 36(1)(VIIA)(A) OF THE ACT O AN AMOUNT GREATER THAN THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT AS PROVISION AS LAID DOWN B Y THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA VS. CIT 272 ITR 53 (P & H), CLAIM FOR DEDUC TION U/S.36(1)(VIIA) OF THE ACT. THE DISALLOWANCE MADE BY THE AO IN THIS REGARD IS RESTORED AND ORDER OF CIT(A) REVERSE D ON THIS ASPECT. GR.NO.2 RAISED BY THE REVENUE IN THIS AY 2 010-11 IS ACCORDINGLY ALLOWED. THE ADDITIONAL GROUNDS AS WER E RAISED IN AY 09-10 RELATABLE TO GR.NO.2 RAISED IN THIS AY 201 0-11 ARE DISMISSED FOR THE REASONS DISCUSSED IN THE EARLIER PART OF THIS ORDER. AS FAR AS GR.NO.3 IN THIS AY 2010-11 IS CON CERNED, IT IS IDENTICAL TO GR.NO.4 RAISED IN AY 2009-10. WE HAVE ALREADY HELD THAT LOSS ON VALUATION OF INVESTMENTS HAS TO B E ALLOWED AS A DEDUCTION AS CLAIMED BY THE ASSESSEE. FOR THE REAS ONS STATED THEREIN, WE DISMISS GR.NO.4 RAISED BY THE REVENUE. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 49 OF 57 47. IN THE RESULT, ITA NO.955/BANG/2012 IS PARTLY A LLOWED. ITA NO.998/BANG/2012 (ASSESSEES APPEAL FOR AY 2010 -11) 48. GR.NO.1.1 TO 2.7 RAISED BY THE ASSESSEE IN THIS ASSESSMENT YEAR IS WITH REGARD TO DISALLOWANCE OF E XPENSES INVOKING PROVISIONS OF SEC.14A OF THE ACT. THESE G ROUNDS ARE IDENTICAL TO GROUNDS NO. 1.1 TO 2.7 RAISED BY THE A SSESSEE IN AY 2009-10. FOR THE REASONS STATED WHILE DECIDING IDE NTICAL GROUNDS IN AY 2009-10, THESE GROUNDS RAISED IN AY 2 010-11 ARE ALSO ALLOWED FOR STATISTICAL PURPOSES WITH THE SAME DIRECTIONS GIVEN IN AY 09-10. 49. GR.NO.4.1 TO 4.4 AND 5.1 TO 8.1 ARE IDENTICAL T O GR.NO.4.1 TO 4.4 AND 5.1. TO 5.6 RAISED BY THE ASSESSEE IN A.Y.2 009-10. FOR THE REASONS STATED WHILE DECIDING IDENTICAL ISSUE I N AY 2009-10, WE ALLOW GR.NO.4.1 TO 4.4 AND DISMISS GR.NO.5.1 TO 8.1 AS NOT REQUIRING ADJUDICATION. 50. WHAT NOW REMAINS FOR CONSIDERATION IS GR.NO.3. 1 TO 3.5 RAISED BY THE ASSESSEE IN ITS APPEAL. THESE GROUNDS PERTAIN TO THE ACTION OF THE REVENUE AUTHORITIES IN TAXING UNC LAIMED MONIES ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 50 OF 57 IN NOSTRO ACCOUNTS AS INCOME OF THE ASSESSEE TAXABL E U/S.41 OF THE ACT. THE FACTS RELEVANT FOR ADJUDICATION OF THE ISSUE ARE THAT THE ASSESSEE BANK HAD CREDIT TO PROFIT & LOSS A/C. A SUM OF RS.4,98,01,767/- REPRESENTING UNRECONCILED ENTRIES IN NOSTRO ACCOUNTS. CERTAIN FOREIGN CORRESPONDENT BANKS HAD ACCOUNTS WITH THE ASSESSEE AND SOME OF THE ACCOUNTS SHOWED C REDIT BALANCES. SUCH ACCOUNTS ARE CLASSIFIED BY THE ASSE SSEE UNDER THE HEAD NOSTRO ACCOUNTS. THERE WAS NO OPERATION IN THESE ACCOUNTS FOR OVER FIVE YEARS AND THE FOREIGN BANKS ALSO DID NOT CLAIM MONIES LYING IN THESE ACCOUNTS. THE ASSESSEE THEREFORE APPROACHED THE RESERVE BANK OF INDIA AND OBTAINED A PPROVAL FOR CREDITING SUCH UNCLAIMED SUMS TO THE PROFIT AND LOSS ACCOUNT. THE RESERVE BANK OF INDIA IMPOSED CONDITI ONS FOR TAKING THE AFORESAID SUM TO THE PROFIT AND LOSS ACC OUNT. THESE CONDITIONS WERE (I) THE AMOUNT CREDITED TO THE PROF IT & LOSS A/C. SHOULD BE APPROPRIATED TO THE GENERAL RESERVE AND W ILL NOT BE AVAILABLE FOR DECLARATION OF DIVIDEND; (II) APPROPR IATE DISCLOSURES SHOULD BE MADE IN NOTES TO ACCOUNTS INCLUDING THE I MPACT ON THE PROFIT AND LOSS A/C. (III) ANY FUTURE CLAIM IN RESP ECT OF THESE ENTRIES SHOULD BE HONOURED. THE ASSESSEE IN THE CO MPUTATION ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 51 OF 57 OF INCOME FROM BUSINESS EXCLUDED THE AFORESAID SUM AND CONTENDED THAT THE SAME DOES NOT REPRESENT INCOME O F THE ASSESSEE AS THE ASSESSEE HAS NOT TITLE TO THE AMOUN TS IN QUESTION. THE AO HOWEVER WAS OF THE VIEW THAT THE AMOUNT REPRESENTED A TRADING LIABILITY CEASED TO EXIST AND THE SAME HAD TO BE TAXED U/S.41 OF THE ACT. HE WAS ALSO OF THE VIEW THAT THE AMOUNT WHEN RECEIVED WAS NOT INCOME BUT THAT DOES N OT MEAN THAT THE AMOUNT COULD NOT UNDER ANY CIRCUMSTANCES B E TREATED AS INCOME. IN COMING TO THE ABOVE CONCLUSION, THE AO PLACED RELIANCE ON THE DECISION OF THE HONBLE PUNJAB & HA RYANA HIGH COURT IN THE CASE OF CIT VS. MODERN FARM SERVICES 1 59 TAXMAN 96 WHEREIN SIMILAR VIEW AS CANVASSED BY THE AO HAS BEEN EXPRESSED. THE AO ACCORDINGLY BROUGHT TO TAX THE S UM OF RS.4,98,01,767/- AS INCOME OF THE ASSESSEE. 51. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF THE AO. AGGRIEVED BY THE ORDER OF THE CIT (A), THE ASSESSEE HAS RAISED THE AFORESAID GROUNDS OF APPEAL BEFORE THE TRIBUNAL. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 52 OF 57 52. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARN ED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT T HE ISSUE AS TO WHETHER SIMILAR SUMS WHICH ARE CREDITED TO THE P ROFIT & LOSS A/C. AFTER DUE PERMISSION OF RBI AFTER CONDITIONS I MPOSED BY RBI SIMILAR TO THE ONE IMPOSED IN THE CASE OF THE A SSESSEE, HAS ALREADY BEEN CONSIDERED AND DECIDED BY THIS TRIBUNA L IN THE CASE OF VIJAYA BANK VS. CIT ITA NO.455/BANG/2011 DA TED 22.6.2012 AND CANARA BANK VS. CIT ITA NO.390/BANG/2 011 DATED 8.6.2012. IN THE VIJAYA BANK (SUPRA), THE SU M THAT WERE CREDITED TO PROFIT & LOSS A/C. WAS MONIES IN RESPEC T OF STALE DEMAND DRAFTS WHICH REMAINED UNCLAIMED. THE RBI PE RMITTED THE ASSESSEE TO CREDIT THE AFORESAID SUM TO THE PRO FIT AND LOSS ACCOUNT AND APPROPRIATE TO THE GENERAL RESERVE TO B E UTILIZED TO MEET THE FUTURE CLAIMS, IF ANY AND THAT FUTURE CLAI MS IN THIS REGARD FROM THE CUSTOMERS SHOULD BE HONOURED. A CO NDITION THAT THE SUM SO CREDITED WILL NOT BE AVAILABLE FOR DISTR IBUTION OF DIVIDEND WAS ALSO LAID DOWN BY THE RBI. IN THE CAS E OF VIJAYA BANK (SUPRA), THE SUMS IN QUESTION WERE ON ACCOUNT OF LAPSED DEMAND DRAFTS, GIFT CHEQUES AND POSTAL ORDERS. THE RBI PERMITTED THE ASSESSEE TO CREDIT THE SUMS TO PROFIT AND LOSS A/C. ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 53 OF 57 SUBJECT TO THE CONDITIONS WHICH ARE SIMILAR TO THE ONE SET OUT IN THE CASE OF CANARA BANK (SUPRA). THE QUESTION BEFO RE THE TRIBUNAL WAS WHETHER THE SUM SO CREDITED TO PROFIT AND LOSS A/C. CAN BE SAID TO BE INCOME OF THE ASSESSEE AND BROUGH T TO TAX INVOKING PROVISIONS OF SEC.41 OF THE ACT. THE TRIB UNAL HELD THAT THE RBI HAD DIRECTED THE AMOUNT IN QUESTION TO BE K EPT IN GENERAL RESERVE ACCOUNT THOUGH ROUTED THROUGH THE P ROFIT AND LOSS ACCOUNT. THE ASSESSEE WAS BOUND TO HONOUR FUT URE CLAIMS FOR THE AMOUNT SO CREDITED TO PROFIT AND LOSS ACCOU NT AND WAS ALSO NOT PERMITTED TO USE THE FUNDS FOR ANY OTHER P URPOSE. THE TRIBUNAL THEREFORE HELD THAT THE SUM IN QUESTION DO ES NOT HAVE THE CHARACTER OF INCOME AND CANNOT BE BROUGHT TO TA X. THE TRIBUNAL HELD THAT THE PROVISIONS OF SEC.41 OF THE ACT NOR THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CIT VS. TV SUNDARAM IYENGAR & SONS 222 ITR 344 (SC) WOULD APPLY TO THE RECEIPTS IN QUESTION. THE TRIBUNAL FOLLOWED THE DE CISION OF THE DELHI ITAT IN THE CASE OF PUNJAB NATIONAL BANK VS. ACIT IN ITA NO.2047/DEL/2007 ORDER DATED 25.10.2011 WHEREIN ON SIMILAR FACTS THE TRIBUNAL HELD THAT THE RECEIPTS DID NOT R EPRESENT INCOME OF THE ASSESSEE AND CANNOT BE BROUGHT TO TAX. THE LEARNED ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 54 OF 57 COUNSEL FOR THE ASSESSEE PLACED STRONG RELIANCE ON THE AFORESAID DECISIONS AND SUBMITTED THAT THE ADDITION SUSTAINED BY THE CIT(A) SHOULD BE DELETED. THE LEARNED DR RELIE D ON THE ORDER OF THE CIT(A). 53. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS, THE FACTS OF THE PRESENT CASE WITH REFERENCE TO THE CAS ES CITED. IN OUR VIEW THE DECISIONS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE ARE SQUARELY APPLICABLE TO THE FACTS OF TH E PRESENT CASE. THE NATURE OF THE SUMS CREDITED TO PROFIT AN D LOSS ACCOUNT AND THE CONDITIONS IMPOSED BY THE RBI FOR CREDIT TO THE PROFIT AND LOSS ACCOUNT OF THE SUMS IN QUESTION ARE IDENTICAL IN THE CASE OF THE ASSESSEE AND THE CASES DECIDED BY THE TRIBUNAL ON WHICH RELIANCE WAS PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE SUM AND SUBSTANCE OF THE DECISIONS REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT UNCLAIMED AMOUNTS SHOULD NOT BE AUTOMATICALLY BE TREATED AS INCOME OF THE BANK ARISING IN THE COURSE OF ITS BUSINESS ACTIVITY. TH E RESERVE BANK OF INDIA, WHILE GIVING PERMISSION TO CLOSE THESE AC COUNTS HAS CLEARLY STIPULATED THAT THE AMOUNT SO TRANSFERRED S HALL NOT BE ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 55 OF 57 TREATED AS AVAILABLE FOR DISTRIBUTION OF DIVIDENDS, MEANING THEREBY THE RESERVE BANK OF INDIA HAS NOT PERMITTED THE BANK TO TREAT IT AS AN INCOME ONCE AND FOR ALL AND IT HAS A LWAYS STIPULATED CERTAIN CONDITIONS AND PRESCRIBED CERTAIN PROCEDURE S AND FORMALITIES TO SAFEGUARD THE INTEREST OF THE BANK A S A WHOLE BUT THAT DOES NOT TAKE AWAY THE BASIC NATURE OF THE AMO UNTS. IT CANNOT IN ANY WAY CONVERT THE TRANSACTIONS OF THIS NATURE AS REVENUE TRANSACTIONS OF THE BANK NECESSITATING THE SAME TO BE TREATED AS INCOME ON THE REVENUE ACCOUNT. AT LEAST , THE RESERVE BANK OF INDIA WHICH WAS CEASED OF THE ISSUE WHEN IT WAS POSED TO IT DID NOT ACCEPT THE CLAIMS OF THE AS SESSEE THAT THIS SHOULD BE TREATED AS MISCELLANEOUS INCOME, MEA NING THEREBY, THESE AMOUNTS IN QUESTION, EVEN BY EFFLUX OF TIME, CANNOT BE TREATED AS INCOME FOR THE OBLIGATIONS ON THE PART OF THE BANK IS NOT EXTINGUISHED AND RESERVE BANK OF INDIA HAS MADE IT VERY CLEAR THAT THE ASSESSEE BANK WILL BE UNDER OBL IGATION TO DISCHARGE ALL THE OBLIGATIONS ARISING THEREFROM. 54. IN THE LIGHT OF THE AFORESAID DECISIONS OF THE TRIBUNAL ON IDENTICAL FACTS AS THAT OF THE CASE OF THE ASSESSEE IN THE PRESENT ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 56 OF 57 APPEAL, WE ARE OF THE VIEW THAT THE ACTION OF THE R EVENUE AUTHORITIES IN TREATING A SUM OF RS.4,98,01,767/- B EING WRITE BACK OF CREDIT BALANCES IN NOSTRO ACCOUNTS CREDITED TO P ROFIT AND LOSS ACCOUNT CANNOT BE TREATED AS INCOME OF THE ASS ESSEE AND BROUGHT TO TAX. WE ACCORDINGLY ALLOW GROUND NO. 3. 1. TO 3.5 RAISED BY THE ASSESSEE. 55. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS P ARTLY ALLOWED. 56. IN THE RESULT, ALL THE APPEALS ARE PARTLY ALLO WED. PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF JUNE, 2014. SD/- SD/- ( JASON P.BOAZ ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 13 TH JUNE, 2014. MCN / DS/- ITA NOS.681, 709, 955, 998/BANG/2012 PAGE 57 OF 57 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.