AP Grameena Vikas Bank, Warangal, Hyderabad V. DCIT, Circle-1, Warangal, Warangal

ITA 715/HYD/2015

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9001 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 27-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHAN KUMAR SINGHANIA
• Assessee Lawyers: T UMAKANT
• Keywords: Gift; Business income; Depreciation; Opportunity of being heard; Diversion of income; Additional evidence; Question of law; Bad and doubtful debts; Notional interest; Revised return; Capital expenditure
• Section: 43B; 80C; 143(3); 139(5); 32; 145; 37; 263

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 715 & 1293/HYD/2015 ASSESSMENT YEARS: 2011-12 & 2012-13 M/S AP GRAMEEN A VIKAS BANK, WARANGAL. PAN AAAJA1351N V S. DCIT, CIRCLE - 1 WARANGAL. (APPELLANT) (RESPONDENT) ITA NO.752/HYD/2015 A.Y 2011-12 DCIT, CIRCLE - 1 WARANGAL. V S. M/S AP GRAMEEN VIKAS BANK, WARANGAL. PAN AAAJA1351N (APPELLANT) (RESPONDENT) ASSES SEE BY : SHRI Y. RATNAKAR & SHRI T. UMAKANT REVENUE BY : SHRI MOHAN KUMAR SINGHANIA, CIT (DR) DATE OF HEARING : 28 - 10 - 201 6 DATE OF PRONOUNCEMENT : 27 - 01 - 2017 ORDER PER P. MADHAVI DEVI, J.M.: ITA NO. 715/HYD/2015 (A.Y 2011-12) THIS IS ASSESSEES APPEAL FOR THE A.Y 2011-12 AGAI NST THE ORDER OF THE CIT (A)-3, HYDERABAD, DATED 20.03. 2015. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A REGIONAL RURAL BANK, PROMOTED BY THE STATE BANK GRO UP AND ENGAGED IN THE ACTIVITY OF BANKING, FILED ITS R ETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 30-09-201 1, 2 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. DECLARING AN INCOME OF RS. 142,78,75,981. DURING T HE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSING OFFICER MADE VARIOUS DISALLOWANCES AND TH E CONSEQUENTIAL ADDITIONS TO THE RETURNED INCOME OF T HE ASSESSEE AND COMPUTED THE TAXABLE INCOME OF THE ASS ESSEE. AGAINST THE ADDITIONS MADE IN THE ASSESSMENT ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), WHO GRA NTED PARTIAL RELIEF TO THE ASSESSEE. AGAINST THE ADDITI ONS CONFIRMED BY THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US, WHILE THE REVENUE IS IN APPEAL AGAINST THE RELI EF GIVEN BY THE CIT(A) IN ITA NO.752/HYD/2015. 3. THE GROUNDS RAISED BY THE ASSESSEE FOR THE A.Y 2 011- 12 ARE REPRODUCED BELOW: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS)-3, HYD. DT. 20-03-2015 IN ITA NO. 062 2/DC- 1, WRGL./CIT(A)-3/14-15 TO THE EXTENT IN CONFIRMS T HE VARIOUS ADDITIONS/DISALLOWANCES MADE IN THE ASSESSM ENT IS CONTRARY TO LAW AND FACTS. DISALLOWANCE OF GRATUITY PAYMENT OF RS. 3,68,54,000 2. THE APPELLANT CONTENDS THAT THE LD. CIT(A) ERRE D IN CONFIRMING THE DISALLOWANCE OF THE SUM OF RS. 3,68,54,000/- WHICH REPRESENTS THE GRATUITY PAID TO THE GRATUITY FUND DURING THE FINANCIAL YEAR ENDING 31-0 3-2011 RELEVANT TO THE ASSESSMENT YEAR 2011-12. IN THE FA CTS AND CIRCUMSTANCES OF THE CASE, THE AMOUNT BEING THE PAYMENT MADE BEFORE THE END OF THE FINANCIAL YEAR I S ALLOWABLE AS DEDUCTION UNDER THE I.T ACT. DISALLOWANCE OF PROVISION FOR STANDARD ASSETS OF RS . 3,02,37,921 3. THE APPELLANT CONTENDS THAT THE DISALLOWANCE OF PROVISION FOR STANDARD ASSETS AGGREGATING TO RS. 3,02,37,921 IS ERRONEOUS AND THE LD. CIT(A) ERRED I N UPHOLDING THE DISALLOWANCE OF THE SAID AMOUNT. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THIS AMOUNT IS 3 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. ALLOWABLE AS DEDUCTION WHILE COMPUTING THE APPELLAN TS INCOME. LOSS ON VALUATION OF MUTUAL FUNDS OF RS.8,00,000/- 4. IT IS CONTENDED THAT THE APPELLANT IS ENTITLED T O CLAIM THE LOSS OF RS. 8 LAKHS SUFFERED BEING DIMINUTION I N THE VALUE OF MUTUAL FUNDS. THE APPELLANT CONTENDS THAT IN THE SUBSEQUENT FINANCIAL YEAR ENDED 31-03-2014 WHEN THE SE MUTUAL FUNDS WERE REDEEMED, THE EXTENT OF LOSS ALRE ADY SUFFERED AND PROVIDED IN THE BOOKS OF ACCOUNTS FOR THE YEAR ENDING 31-03-2011 HAS NOT BEEN CLAIMED AS DEDUCTION. 5. IT IS CONTENDED THAT IN THE EVENT THE LOSS IS NO T ALLOWED, A DIRECTION MAY BE GIVEN THAT IN THE FINAN CIAL YEAR 2013-14 THIS AMOUNT MAY BE ALLOWED AS FURTHER LOSS SUFFERED AT THE TIME OF REDEMPTION. DISALLOWANCE OF CLAIM U/S 36(1)(VIIA) OF THE I.T AC T RS. 15,55,64,948/- 6. IT IS CONTENDED THAT THE SUM OF RS. 15,55,64,948 /- WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER IS ALLOWABLE AS DEDUCTION U/S 36(1)(VIIA) OF THE I.T A CT AND THE LD. CIT(A) WAS IN ERROR IN CONFIRMING HE DISALL OWANCE. 7. IT IS FURTHER CONTENDED THAT IN RESPECT OF CLAIM FOR DEDUCTION AT 7.5% OF THE TOTAL INCOME U/S 36(1)(VII A) OF THE I.T ACT NO PROVISION IS REQUIRED TO BE MADE FOR ALL OWING THE ABOVE DEDUCTION. 8. THE APPELLANT CONTENDS THAT THE ABOVE DISALLOWANCES MADE WHILE QUANTIFYING THE APPELLANT S INCOME BE SET ASIDE AND THE APPELLANT BE ALLOWED DEDUCTION OF THE ABOVE AMOUNTS. 9. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND OR A LTER ANY OF THE AFORESAID GROUNDS AS THE OCCASION MAY RE QUIRE. 10. FOR THESE AND OTHER REASONS THAT WILL BE CONTEN DED AT THE TIME OF HEARING OF THE APPEAL, IT IS PRAYED THAT THE APPEAL BE ALLOWED. 4. IN ADDITION TO THE ABOVE, THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDITIONAL GROUND OF APPEAL. 4 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 1. THE APPELLANT CONTENDS THAT IT IS ENTITLED TO TH E DEDUCTION OF RS.12,73,16,121 BEING SALARY ARREARS W HICH HAD ARISEN BECAUSE OF THE PROCEEDINGS DATED 24.07.2 010 BEARING F.NO.8/32010-RRB ISSUED BY THE MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES, NEW DELHI AND PAID TO THE EMPLOYEES ON 4 TH SEPTEMBER, 2010 IN COMPUTING THE TAXABLE INCOME OF THE APPELLANT FOR A .Y 2011-12. 5. GROUND NO.1 IS GENERAL IN NATURE AND THEREFORE, NEEDS NO SPECIFIC ADJUDICATION. 6. AS REGARDS GROUND NO.2 AGAINST THE DISALLOWANCE OF GRATUITY PAYMENT OF RS. 3,68,54,000/- , THE BRIEF F ACTS ARE THAT THE ASSESSING OFFICER HAS OBSERVED THAT THE AS SESSEE HAS DEBITED TO THE PROFIT AND LOSS ACCOUNT, AN AMOU NT OF RS. 3,68,54,000/- TOWARDS GRATUITY CONTRIBUTION FUN D UNDER HEAD OPERATING EXPENSES. DURING THE ASSESS MENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSEE SUB MITTED THAT THE GRATUITY PROVISION IS MADE ON THE BASIS OF AC TUARIAL VALUATION AND SAME IS PAID TO STATE BANK OF INDIA L IFE INSURANCE, VIDE RECEIPT NO. PR/2010-2011/111033, DA TED 30-03-2011 . ON GOING THROUGH THE ASSESSEES SUBMISSIONS, THE A.O FOUND THAT THE ASSESSEE MADE PAYMENTS TO A GRATUITY CONTRIBUTION FUND, WHICH WAS NOT THE APPROVED GRATUITY FUND. OBSERVING THAT, U/S 40 A(7) OF THE ACT, THE PAYMENT TO AN UNAPPROVED GRATUITY FUND WAS NOT ALLOWABLE, HE DISALLOWED THE SAME. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE A.O FOLLOWING HER OWN OR DER IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200 7-08. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE, WHILE REITERAT ING THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUTHORI TIES 5 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. BELOW, SUBMITTED THAT THIS ISSUE HAD ARISEN IN THE ASSESSEES OWN CASE FOR THE A.Y 2010-11IN ITA NO.1771/HYD/2014 AND THE TRIBUNAL VIDE ORDERS DATED 17.04.2015, BY FOLLOWING THE DECISION OF THE HON'BL E CALCUTTA HIGH COURT IN THE CASE OF SREE KAMAKHYA TE A CO. P. LTD., REPORTED IN 199 ITR 714, HAS HELD IN FAVOU R OF THE ASSESSEE. HE ALSO SUBMITTED THAT SUBSEQUENTLY ALSO IN THE ASSESSEES OWN CASE FOR THE A.Y 2007-08 IN ITA NO.713/HYD/2015 DATED 14.06.2016, THIS TRIBUNAL WAS PLEASED TO CONSIDER THE ISSUE AT LENGTH INCLUDING T HE APPLICABILITY OF THE DECISION OF THE HON'BLE CALCUT TA HIGH COURT IN THE ABOVE CITED CASE AND HAS ALLOWED THE DEDUCTION. 8. THE LD. DR HOWEVER, SUBMITTED THAT THE FACTS IN THE CASE OF SREE KAMAKHYA TEA CO. P. LTD., 199 ITR 714, LTD ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE ARE BEFORE US. 9. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE COORDINATE BEN CH OF THIS TRIBUNAL (TO WHICH THE BOTH OF US ARE SIGNATOR IES) IN THE ASSESSEES OWN CASE FOR THE A.Y 2007-08 IN THE ITA NO. 713/HYD/2015 HAS CONSIDERED THIS ISSUE AT LENGTH AN D HAS HELD AS UNDER: 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAD MADE PAYME NT OF RS.2,74,49,769 TOWARDS GROUP GRATUITY FUND OF SBI L IFE INSURANCE ON 21.05.2007 I.E., BEFORE THE DUE DATE O F FILING OF THE RETURN. IT IS NOT THE CASE OF MAKING THE CON TRIBUTION TO 'PROVISION FOR CONTRIBUTION TO THE APPROVED GRATUIT Y FUND' BUT IT IS THE CASE WHERE THE ASSESSEE HAS MADE THE PAYMENT OF GRATUITY FUND DIRECTLY TO SBI LIFE INSUR ANCE. ACCORDING TO THE A.O, THE CONTRIBUTION TO SBI LIFE INSURANCE HAS TO BE MADE THROUGH THE APPROVED GRATUITY FUND A ND SINCE IT IS MADE DIRECTLY, THE DEDUCTION IS NOT ALL OWABLE 6 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. UNDER SECTION 40A(7) AND ALSO UNDER SECTION 43B OF THE LT. ACT. WE FIND THAT THE ISSUE OF ALLOWABILITY OF SUCH DEDUCTION HAD ARISEN IN ASSESSEE'S OWN CASE FOR THE A.Y. 2010 -2011 WHEREIN THE TRIBUNAL AFTER CONSIDERING THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF SREE KAMAKHYA TE A CO. P. LTD., (CITED SUPRA) AND ALSO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF HITECH (IN DIA) P. LTD., VS., UNION OF INDIA & OTHERS (1997) 227 ITR 4 46 ALLOWED THE SAID DEDUCTION. THE RELEVANT PORTION OF THE TRIBUNAL'S ORDER IS REPRODUCED HEREUNDER FOR READY REFERENCE. 14. WE HAVE HEARD BOTH THE PARTIES. THE CONFLICT BETWEEN SECTION 40A(7) AND SECTION 43B HAS BEEN CONSIDERED BY THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF SREE KAMAKHYA TEA CO. (P) LTD. (SUPRA) AND THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELOW (EXTRACTED FROM HEAD NOT AT PAGE 718 TO 199 ITR): UNDER SECTION 36(1)(VA), DEDUCTION IS ALLOWED IN RESPECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND, AS DEFINED IN SECTION 2(5) OF THE ACT, CREATED BY THE EMPLOYER FOR THE EXCLUSIVE BENEFIT OF HIS EMPLOYEES UNDER AN IRREVOCABLE TRUST. AFTER THE INSERTION OF SECTION 40A(7), FOR CLAIMING DEDUCTION FOR GRATUITY PAYMENT, THE ASSESSEE WAS REQUIRED TO FULFILL THE CONDITIONS LAID DOWN IN SECTION 40A(7) AND WITHOUT FULFILLING THE CONDITIONS LAID DOWN THEREIN, NO ASSESSEE WAS ENTITLED TO DEDUCTION UNDER 36(L)(V). THIS HAS UNDERGONE A CHANGE AFTER THE INSERTION OF SECTION 438 FOR AND FROM THE ASSESSMENT YEAR 1984-85. THE PROVISION OF SECTION 438(B) ARE RELEVANT AND APPOSITE IN THE CONTEXT OF THE PROVISIONS OF SECTION 36(1)(V). SECTION 438 HAS OVERRIDING EFFECT OVER THE PROVISIONS OF SECTION 40A(7). UNDER THE PROVISIONS OF SECTION 438, A DEDUCTION IN RESPECT OF ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION INTER ALIA TO A GRATUITY FUND IS TO BE ALLOWED IN COMPUTING THE BUSINESS INCOME OF THAT PREVIOUS YEAR IN WHICH SUCH SUM HAS BEEN ACTUALLY PAID BY HIM. 15. SECTION 43B PERMITS A DEDUCTION IN RESPECT OF ANY PAYMENT BY WAY OF CONTRIBUTION TO A PROVIDENT FUND OR SUPERANNUATION FUND OR ANY OTHER FUND FOR THE WELFARE OF EMPLOYEES IN THE YEAR IN WHICH THE LIABILITY IS ACTUALLY DISCHARGED. WE MAY, HOWEVER, 7 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. ADD THAT CLAUSE (VA) HAS BEEN INSERTED IN SUB- SECTION (1) OF SECTION 36 BY THE FINANCE ACT, 1987. THE EFFECT OF THE AMENDMENT IS THAT NO DEDUCTION WILL BE ALLOWED IN THE ASSESSMENT OF THE EMPLOYER UNLESS SUCH CONTRIBUTION IS PAID TO THE FUND ON OR BEFORE THE DUE DATE. THE DUE DATE IN THE CONTEXT MEANS THE DATE BY WHICH AN EMPLOYER IS REQUIRED TO CREDIT THE CONTRIBUTION TO THE EMPLOYEES' ACCOUNT UNDER THE PROVISIONS OF ANY LAW OR THE TERMS OF THE CONTRACT OF SERVICE OR OTHERWISE. 16. IN THE PRESENT CASE THE APPELLANT HAS NOT MADE ANY PROVISION FOR GRATUITY U/S.40A(7) AS ON 31-03- 2010 AS THE TOTAL AMOUNT HAS BEEN PAID ON 31-03- 2010 AND ACCORDINGLY THE SAID PAYMENT OF GRATUITY O F RS.5,61,93,000/- IS AN ALLOWABLE DEDUCTION U/S.43B OF THE I. T ACT, 1961. 17. RELIANCE IS PLACED ON THE DECISION OF THE HON'B LE ANDHRA PRADESH HIGH COURT, IN THE CASE OF HITECH (INDIA) (P) LTD. (SUPRA) HAVE HELD THAT: 'THE SECOND PROVISION IMPOSES A FURTHER RESTRICTION ON THE ALLOWABILITY OF DEDUCTION OF ANY SUM REFERRE D TO IN CLAUSE (B). IT PROVIDES THAT UNLESS SUCH SUM HAS ACTUALLY BEEN PAID IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE ON OR BEFORE THE DUE DATE, IT SHALL NOT BE ALLOWED AS DEDUCTION. FOR THIS PURPOSE, THE DEFINITION OF 'DUE DATE' AS GIVEN IN THE EXPLANATION TO CLAUSE (VA) OF SUBSECTI ON (1) OF SECTION 36 IS ADOPTED. SUB CLAUSE (X) OF CLA USE (24) OF SECTION 2 INCLUDES WITHIN THE MEANING 'INCOME' ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTIONS TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR OTHER FUND SET UP UNDER THE PROVISIONS OF THE EMPLOYEES STATE INSURANCE ACT, 1948, OR ANY OTHER FUND FOR THE WELFARE OF SUCH EMPLOYEES. THUS, IT IS CLEAR THAT THE EMPLOYEE'S CONTRIBUTION RECEIVED BY THE EMPLOYER WOULD BE 'INCOME' IN HIS HANDS AND THAT WOULD BE ALLOWED AS PERMISSIBLE DEDUCTION UNDER CLAUSE (VA) OF SUB- SECTION (1) OF SECTION 36 IN COMPUTING THE BUSINESS INCOME UNDER SECTION 28 PROVIDED THE ASSESSEE CREDITS THE SAME TO THE RELEVANT FUND. UNDER SECTIO N 438, THE SUM REFERRED TO IN CLAUSE (B) OF SECTION 4 38 IS TREATED DIFFERENTLY, AS IT RELATES TO THE SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER WHICH INCLUDES THE EMPLOYER'S CONTRIBUTION AS WELL AS EMPLOYEES' CONTRIBUTION,. IF SUCH CONTRIBUTIONS WHICH ARE PAYABLE TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FUND ARE PAID WITHIN THE DUE DATE, THE EMPLOYER WILL BE ABLE TO AVAIL OF THE BENEFIT OF DEDUCTION UNDER SECTION 438'. 8 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 18. HENCE WE DISMISS THE GROUND OF THE REVENUE.' 5.1. HENCE, WE FIND THAT IN THE EARLIER YEAR, DISALLOWANCE WAS DELETED BY FOLLOWING THE DECISION IN THE CASE OF SREE KAMAKHYA TEA CO. (P) LTD. (SUPRA). NOW, COMING TO THE FACTS OF THE CASE FOR THE RELEVA NT ASSESSMENT YEAR, THE GROUND ON WHICH A.O. HAS DISALLOWED THE CLAIM OF THE ASSESSEE IS THAT THE PAYMENT IS NOT ROUTED THROUGH THE APPROVED GRATUITY FUND AS IS EVIDENT FROM THE RECITALS IN THE SHOW CA USE NOTICE DATED 03.01.2014 REPRODUCED BY THE A. A. IN PARA 3.1 OF HIS ORDER. ACCORDING TO THE A. A, THE REQUIREMENT OF CLAUSE (B) OF SECTION 40A(7) TO ALLO W THE DEDUCTION OF PAYMENT OF GRATUITY FUND IS THAT T HE CONTRIBUTION SHOULD BE TO AN APPROVED GRATUITY FUND , WHICH IN TURN IS EMPOWERED TO UTILIZE IT TO CONTRIB UTE TO THE GROUP GRATUITY SCHEME ENTERED INTO WITH THE LIC OF INDIA OR ANY OTHER INSURER AS DEFINED IN CLA USE (28BB) OF SECTION 2 OF THE LT. ACT. IN THE CASE BEF ORE US, SBI LIFE IS THE OTHER INSURER AS DEFINED IN CLA USE (28BB) OF SECTION 2 OF THE LT. ACT AND THE ASSESSEE ADMITTEDLY HAS MADE THE PAYMENT DIRECTLY TO SBI LIF E WHICH IS REGISTERED WITH IRDA. ADMITTEDLY, THE ASSESSEE OBTAINED THE APPROVAL OF THE CONCERNED AUTHORITY FOR THE GRATUITY FUND W.E.F. 21.03.2011 V IDE ORDERS DATED 23.06.2014. THUS, FOR THE RELEVANT ASSESSMENT YEAR, THE GRATUITY FUND OF THE ASSESSEE WAS NOT AN APPROVED GRATUITY FUND. THE ASSESSEE HAD MADE PAYMENT TO SBI LIFE DIRECTLY AND SBI LIFE HAS ALSO ACCEPTED THE SAME. WHETHER ASSESSEE CAN MAKE THE CONTRIBUTION TO GROUP GRATUITY SCHEME DIRECTLY IS THE QUESTION BEFORE US. WE FIND THAT SI MILAR QUESTION HAD ARISEN BEFORE THE HON'BLE APEX COURT I N THE CASE OF CIT VS. M/S. TEXTOOL CO. LTD., IN CIVIL APPEAL NO.447 OF 2003 AND THE HON'BLE COURT VIDE IT S DECISION DATED 09.09.2009 HAS HELD AS UNDER : 'THIS APPEAL, BY SPECIAL LEAVE IS DIRECTED AGAINST THE JUDGMENT, DATED 4TH FEBRUARY, 2002, RENDERED BY THE HIGH COURT OF JUDICATURE AT MADRAS, IN TAX CASE NO. 267 OF 1989. ,BY THE IMPUGNED JUDGMENT, THE HIGH COURT HAS ANSWERED THE QUESTION OF LAW, REFERRED TO IT BY THE INCOME TAX APPELLATE TRIBUNAL, MADRAS BENCH (FOR SHORT, 'THE TRIBUNAL'] UNDER SECTION 256(1) OF THE INCOME TAX AO, 1961, (F OR SHORT, 'THE ACT'] AT THE INSTANCE OF THE REVENUE. T HE QUESTION OF LAW, SO REFERRED, WAS AS FOLLOWS: ' ... WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL IS RIGHT IN ALLOWING THE DEDUCTION OF RSSS,84,7S4/- BEING THE PAYMENT MADE BY THE ASSESSEE COMPANY DIRECTLY TO LIFE INSURANCE 9 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. CORPORATION TOWARDS GROUP GRATUITY FUND UNDER SECTION 36 (I)(V) OF THE INCOME TAX ACT, 1961?' MATERIAL FACTS RELEVANT FOR THE PURPOSE OF THE PRES ENT APPEAL MAY BE STATED THUS: FOR THE ASSESSMENT YEAR, 1983-84, FOR WHICH THE RELEVANT PREVIOUS YEAR ENDED ON 30TH APRIL, 1982, T HE ASSESSEE CLAIMED A DEDUCTION OF RS. 92,06,978/ - AS CONTRIBUTION/PROVISION TOWARDS THE APPROVED GRATUIT Y FUND. AS PER THE BREAKUP OF THE SAID AMOUNT, AN AMOUNT OF RS. 5, 84, 754/- WAS PAID AS ANNUAL PREMIUM TO THE LIFE INSURANCE CORPORATION ('LIC' FO R SHORT); A SUM OF RS. 50,00,000/- WAS PAID TO THE LI C AS INITIAL CONTRIBUTION IN THE GROUP LIFE ASSURANCE SCHEME FRAMED BY THE LIC FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AND THE REMAINING AMOUNT OF RS. 36,22,224/ - WAS SHOWN AS PROVISION FOR INIT IAL CONTRIBUTION. IT IS COMMON GROUND THAT ASSESSEE COMPANY'S GRATUITY FUND, VIZ., THE TEXTOOL COMPANY LTD. EMPLOYEES GROUP GRATUITY FUND WAS APPROVED BY THE COMMISSIONER OF INCOME TAX, COIMBATORE, W. E.F 25TH FEBRUARY, 1983. WHILE COMPLETING ASSESSMENT, THE ASSESSING OFFICER ALLOWED A DEDUCTION OF RS. '36,22,224/UNDER SECTION 40A(7) OF THE ACT. HOWEVER, DEDUCTION FOR THE BALANCE AMOUNT WAS DISALLOWED ON THE GROUND THAT PAYMENT TOWARDS THE GRATUITY FUND WAS MADE BY THE ASSESSEE DIRECTLY TO THE LIC AND NOT TO AN APPROVED GRATUITY FUND AND , THEREFORE, IT WAS NOT ALLOWABLE UNDER SECTION 36(1) (V) OF THE ACT. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL TO T HE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OBSERVED THAT THE INITIAL PAYMENT OF RS. 50, 00, 000/ - AND THE ANNUAL PREMIUM OF RS. 5, 57, 943/ - WAS MADE BY THE ASSESSEE DIRECTLY TO THE LIC INSTEAD OF AS A CONTRIBUTION TOWARDS THE APPROVED GRATUITY FUND; THE LIC HAD ACCEPTED THE SAID PAYMENT ON BEHALF OF THE GROUP LIFE ASSURANCE SCHEME FOR THE EXCLUSIVE BENEFIT OF THE EMPLOYEES O F THE ASSESSEE UNDER THE POLICY ISSUED BY IT. UPON PERUSAL OF THE ORIGINAL MASTER POLICY ISSUED BY THE LIC, THE COMMISSIONER RECORDED HIS SATISFACTION THA T THE INITIAL CONTRIBUTION AS WELL AS ANNUAL PREMIUM HAD BEEN CREDITED BY THE LIC TO THE GROUP LIFE ASSURANCE SCHEME ON BEHALF OF THE TEXTOOL COMPANY LTD. EMPLOYEES GROUP GRATUITY FUND ONLY, MEANING THEREBY THAT THE INSURANCE POLICY HAD BEEN TAKEN IN THE NAME OF THE APPROVED GRATUITY FUND ONLY; THIS FUND WAS SHOWN AS THE PAYEE IN THE POLICY; VIDE ITS LETTER DATED 20TH NOVEMBER, 1985, ADDRESSED TO THE 10 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. LA. C., THE ASSESSEE HAD CONFIRMED THAT IN THE SUBSEQUENT ASSESSMENT YEARS, THEY HAD CONTRIBUTED FUNDS TO THE EMPLOYEES GROUP GRATUITY FUND AND THE TRUSTEES IN TURN HAD MADE PAYMENT TO THE LIC IN RESPECT OF THE TEXTOOL CO. LTD.; EMPLOYEES GROUP GRATUITY ASSURANCE SCHEME UNDER THE SAID POLICY AND IT WAS ONLY THE INITIAL PAYMENT AND FIRST ANNUAL PREMIUM HAD BEEN MADE DIRECTLY TO THE LIC AGAINST THE SAID POLICY. THE COMMISSIONER WAS THUS, CONVINCED THAT BY MAKING PAYMENT OF THE AMOUNTS IN QUESTION DIRECTLY TO THE LIC, THE ASSESSEE HAD NOT VIOLATED ANY OF THE CONDITIONS STIPULATED IN SECTIO N 36(L)(V) OF THE ACT. ACCORDINGLY, THE COMMISSIONER CAME TO THE CONCLUSION THAT SINCE, ON THE FACTS OF THE CASE, THE OBJECTIVE OF THE FUND WAS ACHIEVED, A NARROW INTERPRETATION OF THE PROVISION WOULD BE STRAINING THE LANGUAGE OF SECTION 36(L)(V) OF THE A CT SO AS TO DENY THE DEDUCTION CLAIMED BY THE ASSESSEE. CONSEQUENTLY, THE COMMISSIONER ALLOWED THE SAID AMOUNT OF RS.58,84, 754/ - AS DEDUCTION FOR THE RELEVANT ASSESSMENT YEAR. BEING DISSATISFIED WITH THE VIEW TAKEN BY THE COMMISSIONER, THE REVENUE TOOK THE MATTER IN FURTHE R APPEAL TO THE TRIBUNAL. RELYING ON ITS EARLIER DECI SION IN THE CASE OF JANAMBIKAI MILLS LTD, THE TRIBUNAL DISMISSED THE APPEAL. AS STATED ABOVE, BY THE IMPUGNED ORDER, THE AFORE EXTRACTED QUESTION, REFERRED AT THE INSTANCE OF THE REVENUE, HAS BEEN ANSWERED BY THE HIGH COURT IN FAVOUR OF THE ASSESSEE. WHILE ANSWERING THE QUESTIO N, THE HIGH COURT HAS OBSERVED AS FOLLOWS: 'IN OUR OPINION, THE COMMISSIONER OF INCOME TAX (APPEALS) AS WELL AS THE TRIBUNAL HAVE CORRECTLY HELD THAT MERELY BECAUSE THE PAYMENTS WERE MADE DIRECTLY TO THE LIC, THE COMPANY COULD NOT BE DENIED THE BENEFIT UNDER SECTION 36(1)(V) AND THE AMOUNT HAD TO BE CREDITED IN FAVOUR OF THE ASSESSEE. BOTH THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL HAVE CORRECTLY READ THE LAW AND HAVE CORRECTLY RELIED UPON THE AFOREMENTIONED SUPREME COURT JUDGMENT. IN OUR OPINION, SINCE THE FINDING OF FACT IS THAT ALL THE PAYMENTS MADE WERE ONLY TOWARDS THE GROUP GRATUITY FUND, THERE WOULD BE NO QUESTION OF FINDING OTHERWISE. ' LEARNED COUNSEL APPEARING ON BEHALF OF THE REVENUE HAS SUBMITTED BEFORE US THAT THE PROVISIONS OF SECT ION 36(L)(V) OF THE ACT HAVE TO BE CONSTRUED STRICTLY A ND FOR 11 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. CLAIMING DEDUCTION, CONDITIONS LAID DOWN IN SECTION 36(L)(V) OF THE ACT MUST BE FULFILLED. IT IS URGED THAT SINCE DURING THE RELEVANT PREVIOUS YEAR THE CONTRIBUTION BY THE ASSESSEE TOWARDS THE GRATUITY FUND WAS NOT IN AN APPROVED GRATUITY FUND THE HIGH COURT WAS NOT JUSTIFIED IN AFFIRMING THE VIEW TAKEN BY THE COMMISSIONER AS ALSO BY THE TRIBUNAL WHILE ANSWERING THE REFERENCE IN FAVOUR OF THE ASSESSEE. HOWEVER, ON A QUERY BY US AS TO WHETHER THE CONTRIBUTION MADE BY THE ASSESSEE IN THE APPROVED GRATUITY FUND CREDITED BY THE LIC FOR THE EMPLOYEES OF THE ASSESSEE AND ULTIMATELY THE ENTIRE AMOUNT DEPOSITED WITH THE LIC CAME BACK TO THE FUND CREATE D BY THE ASSESSEE FOR THE BENEFIT OF ITS EMPLOYEES AN D APPROVED BY THE COMMISSIONER W.EF 25TH FEBRUARY, 1983, OR NOT, LEARNED COUNSEL IS NOT IN A POSITION TO MAKE A CATEGORICAL STATEMENT IN THAT BEHALF. HAVING CONSIDERED THE MATTER IN THE LIGHT OF THE BACKGROUND FACTS, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN THE APPEAL. TRUE THAT A FISCAL STATUTE IS TO BE CONSTRUED STRICTLY AND NOTHING SHOULD BE ADDED O R SUBTRACTED TO THE LANGUAGE EMPLOYED IN THE SECTION, YET A STRICT CONSTRUCTION OF A PROVISION DOES NOT R ULE OUT THE APPLICATION OF THE PRINCIPLES OF REASONABLE CONSTRUCTION TO GIVE EFFECT TO THE PURPOSE AND INTENTION OF ANY PARTICULAR PROVISION OF THE ACT. ( SEE: SHRI SAJJAN MILLS LTD. VS. COMMISSIONER OF INCOME TAX, M.P. & ANR. (1985) 156 ITR 585). FROM A BARE READING OF SECTION 36(L)(V) OF THE ACT, IT IS MANIF EST THAT THE REAL INTENTION BEHIND THE PROVISION IS THA T THE EMPLOYER SHOULD NOT HAVE ANY CONTROL OVER THE FUNDS OF THE IRREVOCABLE TRUST CREATED EXCLUSIVELY FOR TH E BENEFIT OF THE EMPLOYEES. IN THE INSTANT CASE, IT I S EVIDENT FROM THE FINDINGS RECORDED BY THE COMMISSIONER AND AFFIRMED BY THE TRIBUNAL THAT THE ASSESSEE HAD ABSOLUTELY NO CONTROL OVER THE FUND CREATED BY THE LIC FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AND FURTHER ALL THE CONTRIBUTION MADE BY THE ASSESSEE IN THE SAID FUND ULTIMATELY CAME BACK TO THE TEXTOOL EMPLOYEES GRATUITY FUND, APPROVED BY THE COMMISSIONER WITH EFFECT FROM THE FOLLOWING PREVIOUS YEAR. THUS, THE CONDITIONS STIPULATED IN SECTION 36(1)(V) OF THE ACT WERE SATISFIED. HAVING REGARD TO THE FACTS FOUND BY THE COMMISSIONER AND AFFIRMED BY THE TRIBUNAL, NO FAULT CAN BE FOUND WIT H THE OPINION EXPRESSED BY THE HIGH COURT, WARRANTING OUR INTERFERENCE. ' 6. IN OUR OPINION, THE ASSESSEE'S CASE FOR THE RELE VANT ASSESSMENT YEAR IS SIMILAR TO THE ABOVE CASE. RESPECTFULLY FOLLOWING THE SAME, ASSESSEE'S APPEAL IS ALLOWED. 12 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 7. IN THE RESULT, ITA.NO.713/HYD/2015 OF THE ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE ABOVE, THIS GROUND OF AP PEAL OF THE ASSESSEE IS ALLOWED. 10. AS REGARDS GROUND NO. 3, BRIEF FACTS ARE THAT I N THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE DEBITED SUM O F RS. 3,02,37,921/- TOWARDS PROVISION FOR STANDARD ASSET S UNDER THE HEAD PROVISIONS AND CONTINGENCIES. THE A.O OBSERVED THAT THE STANDARD ASSETS ARE DIFFERENT I N CHARACTER FROM NON PERFORMING ASSETS, AS A STANDA RD ASSET IS A PERFORMING ASSET AND IS NEITHER BAD AND DOUBTFUL FOR RECOVERY. HE OBSERVED THAT IT IS PRESCRIBED BY THE RBI THAT THE PROVISION FOR STANDARD ASSETS NEED NOT B E NETTED OUT FROM GROSS ADVANCES BUT SHOULD BE SHOWN SEPARAT ELY AS CONTINGENT PROVISIONS AGAINST STANDARD ASSETS AND THEREFORE THE HEADING ITSELF INDICATED THAT THIS PR OVISION IS CONTINGENT IN NATURE AS AGAINST THE PROVISION FOR NON PERFORMING ASSETS WHICH IS TO GUARD AGAINST THE LO SS WHICH IS LOOMING LARGE ON THE BANK OR FOR THE LOSS WHICH HAS ALREADY TAKEN PLACE. IN VIEW OF THE SAME, THE A.O DISALLOWED THE PROVISION AND ADDED IT TO THE RETURN ED INCOME OF THE ASSESSEE. AO FURTHER OBSERVED THAT I N THE ASSESSEES OWN CASE FOR THE A.Y. 2007-08, THE TRIBU NAL HAS UPHELD THE DISALLOWANCE. AGGRIEVED, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDE R OF THE A.O. FOLLOWING THE DECISION OF THE INCOME TAX APPEL LATE TRIBUNAL. FURTHER AGGRIEVED, THE ASSESSEE IS IN APP EAL BEFORE US. 13 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 11. WHILE THE LD. COUNSEL FOR THE ASSESSEE FAIRLY A DMITTED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE IN THE A.Y.2007-08, IT IS SUBMITTED THAT THE ASSESSEE HAS MADE THE PROVISION TOWARDS STANDARD ASSETS IN ACCORDANCE WITH THE DIRECTIONS OF THE RBI TO COVER VARIOUS RISKS IN VOLVED IN THE RURAL SECTOR AS THERE IS EVERY POSSIBILITY OF T HE STANDARD ASSET BECOMING LOST OVER NIGHT. IT IS FURTHER SUBM ITTED THAT THE ASSESSEE HAS FILED AN APPEAL BEFORE THE HONBLE HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL IN ITA NO. 502/HYD/2011, FOR THE A.Y. 2007-08 AND ALSO THAT TH E APPEALS ALSO FILED BY ANDHRA BANK ON SIMILAR ISSUES WERE ADMITTED AND ARE CURRENTLY PENDING ADJUDICATION BEF ORE THE HONBLE HIGH COURT. THE LD. DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 12. HAVING REGARD TO THE RIVAL CONTENTIONS AND MATE RIAL ON RECORD, WE FIND THAT THIS ISSUE IS ALREADY DECIDED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE EARLIER A. YS AGAINST THE ASSESSEE AND RESPECTFULLY FOLLOWING THE SAME, W E CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE. ACC ORDINGLY, GROUND OF APPEAL NO. 3 IS REJECTED. 13. AS REGARDS GROUNDS NO. 4 & 5, BRIEF FACTS ARE T HAT FOR THE F.Y. 2010-11, THE ASSESSEE HAS MADE A PROVISION OF RS. 8 LAKHS FOR MUTUAL FUNDS. ON 14-06-2010, THE APPELL ANT HAD PURCHASED, SBI PSU MUTUAL FUNDS OF THE VALUE OF RS.5.00 CRORES FOR RESALE WHENEVER THERE WAS ANY APPRECIATION IN THEIR VALUE. BUT, INSTEAD OF APPREC IATION, THERE WAS DEPRECIATION IN THEIR VALUE IN THE SUBSEQ UENT YEARS. THE MARKET VALUE OF THE MUTUAL FUNDS AS ON 31-03- 14 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 2011 WAS RS. 4.92 CRORES, WHEREBY THE ASSESSEE SUFF ERED A LOSS OF RS. 8 LAKHS. SIMILARLY, IN THE NEXT F.Y. A LSO THE ASSESSEE SUFFERED FURTHER LOSS AND ULTIMATELY IN TH E F.Y ENDED ON 31-03-2014, ALL THE MUTUAL FUNDS WERE REDE EMED RESULTING IN FURTHER LOSS, WHICH WAS CLAIMED AS EXP ENDITURE IN THE ACCOUNTS FOR THE F.Y ENDED ON 31-03-2014 REL EVANT TO THE A.Y 2014-15. IT IS SUBMITTED BY THE LD. COU NSEL FOR THE ASSESSEE, THAT THE AS13 FOR ACCOUNTING OF INVES TMENTS REQUIRES THAT WHENEVER INVESTMENTS SUFFER DIMINUTIO N IN VALUE, A PROVISION SHOULD BE MADE TO RECOGNIZE SUCH DECLINE IN VALUE IN THE FINANCIAL ACCOUNTS. IT IS SUBMITTED THAT THE ACCOUNTING STANDARD 13 FURTHER REQUIRES TH AT ANY REVERSAL OF VALUE (UPWARD REVISION) OR REDUCTION IN VALUE SHOULD BE CHARGED OR CREDITED TO THE PROFIT AND LOS S ACCOUNT STATEMENTS, AND ON THE DISPOSAL OF THE INVE STMENT, PROFIT OR LOSS IS TO BE QUANTIFIED ON THE SALE PROC EEDS MINUS CARRYING AMOUNT VIZ, AMOUNT BROUGHT FORWARD AND PRO FIT AND LOSS ACCOUNT STATEMENT IS TO BE CHARGED OR CRED ITED ACCORDINGLY. IT IS SUBMITTED THAT THE ASSESSEE BAN K HAS ACTED IN ACCORDANCE WITH THE ACCOUNTING STANDARD 13 AND EVEN IF THE SAME IS NOT NOTIFIED, IT IS TO BE FOLLO WED FOR COMPUTING THE INCOME U/S 145 OF THE ACT. IN SUPPOR T OF HIS CONTENTIONS, HE PLACED RELIANCE UPON THE FOLLOW ING DECISIONS. A)CHALLAPALLI SUGARS VS CIT (SC) 98 ITR @ 167 TO 174 B)PRAKASH LEASING LTD.VS.DY.CIT (KAR.) 208 TAXMA N 464 C) CIT VS. UP STATE INDUSTRIAL. (SC) 225 ITR 703 DEV. CORPN. D) CIT VS ELGI FINANCE LTD. (MAD) 293 ITR 35 7 @ 360-361 E) CIT VS VIRUTAL SOFT SYSTEMS LTD (DEL) 341 ITR 59 3 @ P 602 F) CIT VS CANFIN HOMES LTD (KAR) 347 ITR 3 82 G)CIT VS. PACT SECURITIES & (T & AP) 374 ITR 681 SERVICES LTD. @ 688, 692-693 15 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 14. THE LD. DR, ON THE OTHER HAND, SUPPORTED THE OR DERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT WHETHER THE DECLINE IN THE VALUE OF THE MUTUAL FUNDS WAS TEMPOR ARY OR OTHERWISE WAS NOT VERIFIED BY ANY OF THE AUTHORITIE S BELOW. IT IS SUBMITTED THAT EACH INVESTMENT HAS TO BE VALU ED SEPARATELY WHICH WAS NOT DONE BY THE ASSESSEE. 15. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE CIT(A) HAS FOL LOWED HIS OWN ORDER FOR THE A.Y 2009-10 FOR UPHOLDING THE DISALLOWANCE. WE FIND THAT THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE COORDINATE BENCH OF THIS T RIBUNAL FOR THE A.Y 2009-10 AND THE TRIBUNAL HAD REMANDED T HE ISSUE TO THE FILE OF THE A.O WITH A DIRECTION TO RE CONSIDER THE ISSUE IN ACCORDANCE WITH THE DECISION OF THE HO N'BLE APEX COURT IN THE CASES OF THE CATHOLIC SYRIAN BANK REPORTED IN 343 ITR 270(SC) AND VIJAYA BANK REPORTED IN 323 ITR 166. RESPECTFULLY FOLLOWING THE SAME, WE REMAND THIS ISSUE ALSO TO THE FILE OF THE A.O FOR RECONSIDERATI ON IN ACCORDANCE WITH THE DIRECTIONS AS ABOVE. THE GROUND S OF APPEAL NO. 4 AND 5 ARE ACCORDINGLY TREATED AS ALLOW ED FOR STATISTICAL PURPOSES. 16. AS REGARDS GROUNDS NO. 6 AND 7, IT IS AGREED BY BOTH THE PARTIES THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH OF THIS TRI BUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y. 2008-09 IN ITA NO.714/HYD/2015 FOR A.Y 2008-09. WE FIND THAT AT P ARAS 16 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 8 TO 14 OF THE ORDER, THE TRIBUNAL HAS DECIDED THIS ISSUE AS UNDER: 8. THIS IS ASSESSEE'S APPEAL FOR THE A.Y. 2008-09. IN THIS APPEAL, THE ONLY GRIEVANCE OF THE ASSESSEE IS AGAIN ST THE DISALLOWANCE OF DEDUCTION OF A SUM OF RS.10,46,19,4 87 CLAIMED @ 7.5% OF THE GROSS TOTAL INCOME UNDER SECT ION 36(1)(VIIA) OF THE LT. ACT, 1961. 9. BRIEF FACTS OF THE CASE ARE THAT DURING THE COU RSE OF ASSESSMENT PROCEEDINGS FOR THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE FILED A LETTER DATED 6.10.2010 CLAIMING DE DUCTION UNDER SECTION 36(1) (VII A) OF THE LT. ACT AND IT A LSO FILED A REVISED COMPUTATION IN THIS REGARD. THE A.O. HELD T HAT UNDER SECTION 139(5) OF THE ACT, THE ASSESSEE WAS ENTITLE D TO FILE A REVISED RETURN BEFORE THE END OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR OR BEFORE COMPLETION OF TH E ASSESSMENT, WHICHEVER IS EARLIER AND THAT SINCE THE ASSESSEE HAS NOT FILED REVISED COMPUTATION WITHIN THE PERIOD OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THE CLAIM CANNOT BE ACCEPTED. THE MATTER WAS CARRIED IN APPEA L UP TO ITAT AND VIDE ORDERS DATED 29.04.2013 IN ITA.NO.502 AND 967/2011 THE ITAT DIRECTED THE A.O. TO EXAMINE THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE UNDER SECTION 36(1)( VIIA) AND DECIDE THE SAME IN ACCORDANCE WITH LAW, AFTER CONSI DERING ALL THE MATERIAL AND EVIDENCE THAT MAY BE PRODUCED BY T HE ASSESSEE. 10. DURING THE PROCEEDINGS BEFORE THE A.O. UNDER S ECTION 143(3) READ WITH SECTION 254 OF THE ACT, THE ASSESS EE REFERRED TO THE DECISIONS OF THE HON'BLE SUPREME COURT IN TH E CASES OF CATHOLIC SYRIAN BANK REPORTED IN 343 ITR 270(SC) AN D SOUTHERN TECHNOLOGIES REPORTED IN 320 ITR 571(SC) A ND SUBMITTED THAT A PLAIN READING OF SECTION 36(1)(VII A) SHOWED THAT THE ASSESSEE WAS ENTITLED TO TWO DEDUCTIONS, F IRSTLY BASING ON PROVISION MADE BY THE APPELLANT, NOT EXCE EDING 10% OF THE AVERAGE RURAL ADVANCES, AND SECONDLY, A SUM NOT EXCEEDING 7.5% OF THE TOTAL INCOME COMPUTED BEFORE MAKING ANY DEDUCTION UNDER SECTION 36(1)(VIIA) AND SECTION S 80C TO 80U. ASSESSEE FURTHER SUBMITTED THAT HE HAS DEBITED 5% OF THE AVERAGE RURAL ADVANCES AMOUNTING TO RS.85.57 CR ORES IN THE BOOKS AND THAT WITH REGARD TO CLAIM OF 7.5% OF THE TOTAL INCOME, THE LAW DID NOT PROVIDE FOR PROVISION OF SU CH AMOUNT TO BE MADE IN THE BOOKS FOR THE A.Y. 2008-09. THE A . O. HOWEVER, NOTED THAT THE ASSESSEE HAD MADE A PROVISI ON OF 17 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. RS.4,33,70,451 APART FROM THE PROVISION OF 7.5% OF THE TOTAL INCOME TOWARDS BAD AND DOUBTFUL DEBTS AND THAT OUT OF THE PROVISION OF RS.4.33 CRORES, A SUM OF ONLY RS.3.10 CRORES PERTAINS TO RURAL DEBTS. OBSERVING THAT A DEDUCTION FOR PROVISION UNDER CLAUSE (VIIA) OF SECTION 36(1) IS M EANT FOR RURAL DEBTS ONLY AS PER THE DECISION OF THE APEX CO URT IN THE CASE OF CATHOLIC SYRIAN BANK REPORTED IN 343 ITR 27 0 (SC) (CITED SURPA) AND THEREFORE, THAT THE ASSESSEE IS E NTITLED TO A DEDUCTION OF THE ACTUAL AMOUNT CREATED IN THE BOOKS OF ACCOUNT TOWARDS THE PROVISION FOR RURAL BAD AND DOU BTFUL DEBT SUBJECT TO THE CEILING SPECIFIED IN SECTION 36( 1 ) (VIIA) OF THE ACT, HE ACCORDINGLY, ISSUED A SHOW CAUSE NOTICE AS TO WHY THE EXCESS CLAIM OF DEDUCTION UNDER SECTION 36( 1 )(VII A) OF RS.10,46,19,487 SHOULD NOT BE DISALLOWED. THE ASSES SEE SUBMITTED ITS REPLY STATING THAT DURING THE A.Y. 20 08-09, THE LAW DID NOT PROVIDE FOR MAKING A PROVISION OF 7.5% OF THE TOTAL INCOME IN THE BOOKS OF ACCOUNT AND THEREFORE, THE P ROPOSAL TO MAKE THE DISALLOWANCE MAY BE DROPPED. THE A.O. WAS NOT CONVINCED WITH THE ASSESSEE'S CONTENTIONS. HE, THER EFORE, DISALLOWED THE CLAIM OF EXCESS DEDUCTION TOWARDS PR OVISION OF BAD AND DOUBTFUL DEBTS OF RS.I0,46,19,487. ON APPEA L, THE CIT (A) CONFIRMED THE DISALLOWANCE GIVING PARTIAL R ELIEF TO THE ASSESSEE BY OBSERVING AS UNDER: '5.1. I HAVE CONSIDERED THE FACTS ON RECORD AND TH E SUBMISSIONS OF THE AR. THE APPELLANT HAD DEBITED A SUM OF RS.9000.42 LAKHS IN ITS P & L ACCOUNT CONSIS TING OF: I. PROVISION FOR RURAL ADVANCES RS. 85, 57. 00 LAK HS II. PROVISION TOWARDS BAD AND DOUBTFUL DEBTS RS. 433.73 LAKHS III. PROVISION TOWARDS FRAUDS RS. 9. 69 LAKHS. 5.2. THE APPELLANT HAD SUBMITTED THE FOLLOWING REVISED COMPUTATION OF INCOME: PROFIT AFTER DEPRECIATION AS PER INCOME TAX ACT. 53,92,26,496 ADD: 5% OF AVERAGE AGGREGATE RURAL ADVANCES. 85,57,00,000 TOTAL INCOME BEFORE DEDUCTION U/S.36(L)(VIIA) 1,39,49,26,494 LESS: 5% ON AVERAGE ADVANCE 85,57,00,000 18 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 7.5% ON TOTAL INCOME 10 46.19,487 96,03,19,487 TOTAL INCOME: 43,46,07 009 5.3. SEC. 36(L)(VIIA) PROVIDES AS FOLLOWS: '36(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WI TH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28- (VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOUB TFUL DEBTS MADE BY (A) A SCHEDULED BANK ', AN AMOUNT NOT EXCEEDING SEV EN AND ONE-HALF PER CENT OF THE TOTAL INCOME ,,, AND AN AM OUNT NOT EXCEEDING TEN PERCENT OF THE AGGREGATE AVERAGE ADVA NCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. ' 5.4. IN THE NORMAL COURSE, PROVISIONS ARE NOT A DED UCTIBLE EXPENSE. SEC.36( L)(VIIA) IS A SPECIAL PROVISION TH AT PERMITS SUCH A DEDUCTION FOR BAD AND DOUBTFUL DEBTS FOR SPE CIFIED CATEGORIES OF ASSESSEES. HOWEVER, THE SUB-SECTION S TATES THAT DEDUCTION SHALL BE ALLOWED 'IN RESPECT OF ANY PROVI SION FOR BAD AND DOUBTFUL DEBTS MADE BY' THE ASSESSEE. THIS PHRASE APPLIES TO BOTH SEGMENTS OF THE DEDUCTION ALLOWED U NDER THE SUB-SECTION: OF TEN PERCENT OF THE AVERAGE AGGREGAT E RURAL ADVANCES AS WELL AS SEVEN AND ON BEHALF PERCENT OF THE TOTAL INCOME. IN OTHER WORDS, THE DEDUCTION OF SEVEN AND ONE-HALF PERCENT OF THE TOTAL INCOME IS NOT AN ABSOLUTE ALLO WANCE INDEPENDENT OF THE ENTRIES, IF ANY, IN THE BOOKS OF ACCOUNT BUT IS PERMITTED ONLY IN RESPECT OF A PROVISION ACTUALL Y MADE BY AN ASSESSEE AND IS CONSEQUENTLY, CIRCUMSCRIBED BY T HE EXTENT OF SUCH PROVISION. 5. 5. THIS VIEW HAS ALSO BEEN UPHELD IN THE CASE OF STATE BANK OF PATIALA WHERE IT WAS HELD: THE DEDUCTION ALLOWABLE UNDER SECTION 36(1)(VIIA) O F THE INCOME-TAX ACT, 1961, IS IN RESPECT OF THE PROVISIO N MADE. THEREFORE, MAKING OF A PROVISION FOR BAD AND DOUBTFUL DEBT EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS A MUST FOR CLAIMING SUCH DEDUCTION. THE PROVISO TO CLAUSE (VII) OF SECTION 36(1) ALSO SHOWS THAT MAKING OF PROVISION EQUAL TO THE AMOUNT CLAIMED AS 19 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. DEDUCTION IN THE ACCOUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTION UNDER SECTION 36(1) (VIIA).' THE COURT, THEREFORE, UPHELD THE VIEW THAT THE ALLO WANCE U/ S 36(1) (VIIA) HAD TO BE LIMITED TO THE AMOUNT OF PRO VISION CREATED BY THE ASSESSEE IN ITS BOOKS. 5.6. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE JURISD ICTIONAL ITAT IN THE DECISION CITED BY THE ASSESSING OFFICER IN THE CASE OF STATE BANK OF HYDERABAD. 5. 7. IT FOLLOWS THAT NOT ONLY MUST THE PROVISION F OR BAD DEBTS BE DEBITED TO THE P&L ACCOUNT IN ORDER TO ENABLE AN ASSESSEE TO CLAIM DEDUCTION U/ S 36(1)(VIIA),THE AMOUNT OF D EDUCTION ALLOWABLE IS LIMITED BY THE PROVISION SO DEBITED. 5. 8. FURTHER, IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. CIT [2012J 343 ITR 270 (SC), IT HAS BEEN HELD BY THE SU PREME COURT THAT SEC. 36(1)(VIIA) APPLIES ONLY TO RURAL A DVANCES. THEREFORE, THE DEDUCTION UNDER THIS SUB-SECTION MUS T BE LIMITED TO THE AMOUNT OF PROVISION RELATING TO RURA L ADVANCES IN THE BOOKS OF THE APPELLANT. 5.9. AS NOTED ABOVE, THE TOTAL PROVISION DEBITED BY THE APPELLANT WAS 9000.42 LAKHS. OF THIS, PROVISION OF RS.8557.00 LAKHS WAS MADE AS 5% OF THE AVERAGE AGGR EGATE RURAL ADVANCES. THE APPELLANT HAD ALSO SUBMITTED BE FORE THE ASSESSING OFFICER THAT OUT OF THE PROVISION OF RS.4 33.73 LAKHS, RS,310.00 LAKHS RELATED TO RURAL BRANCHES. THEREFOR E, THE TOTAL PROVISION RELATING TO RURAL BRANCHES WAS RS.8 9903. 73LAKHS. 5.10. AGAINST THIS, THE APPELLANT HAD CLAIMED THE F OLLOWING DEDUCTIONS: 5% ON AVERAGE ADVANCE RS.85,57,00,000 7.5% ON TOTAL INCOME AS PER SEC. 36(L)(VIIA) RS.10,46,19,487 TOTAL RS.96,03,19,487 THE DEDUCTION ALLOWABLE U/ S 36( 1 )(VIIA) MUST, TH EREFORE, BE LIMITED TO THE TOTAL PROVISION OF RS. 89903.73 LAKH S CREATED BY THE APPELLANT RELATING TO RURAL BRANCHES. 5.11. IT IS ALSO SEEN FROM THE REVISED COMPUTATION OF INCOME FILED BY THE APPELLANT THAT WHILE THE APPELLANT HAD ADDED BACK THE SUM OF RS. 85, 57, 00, 000, IT HAD NOT ADD ED BACK THE BALANCE PROVISION OF RS.433. 73 LAKHS. THE AR H AS SOUGHT 20 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. TO ARGUE THAT THE SUM OF RS.433. 73 LAKHS WAS ALLOW ABLE AS A DEDUCTION IN ANY CASE. I DO NOT AGREE WITH THIS PLE A. THE AMOUNTS DEBITED TO THE P & L ACCOUNT WERE MERE PROV ISIONS AND DID NOT REPRESENT AN ACTUAL WRITE-OFF OF THE DE BTS IN QUESTION. THEREFORE, THE APPELLANT WAS NOT ENTITLED TO A CLAIM U/ S 36(1)(VII) FOR THIS SUM. SECONDLY, THE DEDUCTI ON U/ S 36(1)(VIIA) HAS BEEN CLAIMED AND ALLOWED ON THE BAS IS OF THE VERY SAME PROVISION AND THE APPELLANT CANNOT CLAIM DEDUCTION FOR THE SAME AMOUNT U/S 36(1) (VIIA) WITHOUT FIRS T ADDING IT BACK. INDEED, THE APPELLANT HAD ITSELF ADDED BACK T HE PROVISION OF RS. 85, 57, 00, 000 AND THERE IS NO RE ASON WHY THE SAME TREATMENT SHOULD NOT BE ACCORDED TO THE SU M OF RS. 433.73 LAKHS. 5.12. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER I S DIRECTED TO ADD THE PROVISION OF RS. 89, 90, 073 LAKHS BEFORE P ROCEEDING TO ALLOW THE DEDUCTION U/S.36(L)(VIIA). 5.13. THE APPELLANT HAS ALSO SUBMITTED THAT THE PRO VISION OF RS.86, 67, 00, 000 REPRESENTED 5% OF THE AVERAGE AG GREGATE RURAL ADVANCES. THE CLOSING BALANCE OF THE RURAL AD VANCES WAS RS.1711.35 CRORES. THE PROVISION OF RS.85,57,00 ,000 REPRESENTS 5% OF THIS CLOSING BALANCE AND NOT OF TH E AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES AS COMP UTED UNDER RULE 6ABA. THE ASSESSING OFFICER IS, THEREFOR E, DIRECTED TO RE-COMPUTE THE AGGREGATE AVERAGE RURAL ADVANCE I N ACCORDANCE WITH RUE 6ABA FOR THE PURPOSE OF ALLOWIN G THE DEDUCTION. 6. O. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED.' 11. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 12. THE LD. COUNSEL FOR THE ASSESSEE, WHILE REITER ATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, HAS ALSO RELIED UPON THE DECISION OF THIS TRIBUNAL IN ITA.NO .1742/2014 FOR THE A.Y. 2010-2011 DATED 25.03.2015 IN THE CASE OF DECCAN GRAMEENA BANK WHEREIN, AFTER FOLLOWING THE D ECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CAS E OF SBH VS. DCIT (IN ITA.NO.1232/H/2006), ITAT HELD THAT 7.5% DEDUCTION OF THE TOTAL INCOME CAN BE CLAIMED INDEPE NDENT OF ANY PROVISIONS MADE FOR BAD AND DOUBTFUL DEBTS. COP Y OF THE SAID ORDER FOR THE A.Y. 2010-2011 IN THE CASE OF DE CCAN GRAMEENA BANK IS FILED BEFORE US. 13. THE LD. D.R. ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND RELIED UP ON THE ORDER OF ITAT IN THE 21 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. ASSESSEE'S OWN CASE FOR A.Y. 2009-2010 WHEREIN THE DISALLOWANCE WAS CONFIRMED. 14. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ONLY ISSUE IS WHETHER T HE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT @ 7.5% OF THE TOTAL INCOME WITHOUT CREATING A PROVISI ON FOR THE SAME IN ITS BOOKS OF ACCOUNT. 14.1. WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE CASE OF DECCAN GRAMEENA BANK, HYDERABAD FOR THE A.Y.2010-2011 AND THE TRIBUNAL HAD HELD IN FAVOUR OF THE ASSESSEE AS UNDER: 'ADDITION ON ACCOUNT OF DISALLOWANCE OF DEDUCTION C LAIMED U/S. 36(L)(VIIA) OF IT ACT RS. 4.44,52,560/-15. WHILE COMPUTING THE TOTAL INCO ME FOR THE YEAR UNDER REFERENCE THE AO HAS DISALLOWED THE CLAI M OF RS.4,44,52,560/-, MADE BY THE ASSESSEE IN THE COMPU TATION FURNISHED ALONG WITH THE RETURN OF INCOME.SUCH CLAIM WAS MADE AS PER THE PROVISIONS OF SEC.36(1)(VIIA) OF THE INCOME-TAX ACT , CALCULATED AT THE RATE OF 7.5% OF THE TOTAL INCOME. THE AO HAS OBSERVED THAT THE DEDUCTION WAS CLAIMED BASED ON STATUTORY PROVISION, WITHOUT THERE BEING ANY CLAIM IN BOOKS OF ACCOUNT. IT WAS FURTHER OPINED BY THE AO T HAT ANY PROVISION CREATED SHOULD HAVE A PURPOSE AND IN THE CASE OF AS SESSEE PROVISION WAS CREATED WITHOUT ANY NECESSITY AS SUCH THE PROVI SION WAS UNWARRANTED AND THE SAID CLAIM TOWARDS BAD AND DOUB TFUL DEBTS UNDER 7.5% CATEGORY IS DISALLOWED TO BE ADDED BACK TO THE RETURNED INCOME AND BROUGHT TO TAX.. THE ASSESSEE'S OBJECTION FOR SUCH DISALLOWANCE/ADDITION WAS ON THE GROUND THAT THE PROVISIONS OF SEC. 36(1) (VIIA) PERMITS BANKING COMPANY TO CLAIM A DEDUCTION NOT EXCEEDING 7 .5% OF TOTAL INCOME COMPUTED, TOWARDS BAD AND DOUBTFUL DEBTS. THE ASSES SEE RELIED ON THE DECISION OF ITAT, HYDERABAD, IN THE CASE OF SBH VS. DCIT (ITA NO.1232/HYD./2006) TO SUPPORT THE CLAIM OF DEDUCTIO N @ 7.5%OF THE TOTAL INCOME. THE ASSESSEE ALSO RELIED ON THE DECISIONOF KARNATAKA HIGH COURT, IN THE CASE OF DCIT, SR VS.KARNATAKA BANK LTD., TO SUPPORT THE ARGUMENT THAT DEDUCTIONS U/S. 36(1)(VII) ARE ALLOWABLE INDEP ENDENTLY AND IRRESPECTIVE OF PROVISIONS FOR BAD AND DOUBTFUL DEB TS, WITHOUT CLAIMING THE DEDUCTION U/S 36(1)(VII) AND 36(1)(VIIA) SIMULT ANEOUSLY.. THE LD CIT (A) PERUSED THE SUBMISSIONS OF THE ASSESSEE AND THE OBS ERVATIONS OF THE AO. THE CIT (A) HELD AS FOLLOWS: 'AS COULD BE SEEN FROM THE FACTS OF THE CASE BROUGH T ON RECORD, THE ASSESSEE CLAIMED A DEDUCTION OF RS. 4,44,52,560/- B EING THE DEDUCTION @7.5% OF THE TOTAL INCOME, AS PER THE PROVISIONS OF SEC. 36( L)(VIIA) BEFORE CLAIMING DEDUCTIONS U/S. CHAPTER VI A AND THE DEDUC TION UNDER SAID CLAUSE, WHILE COMPUTING THE TOTAL INCOME. THE AO DI SALLOWED THE SAME ON THE GROUND THAT THERE WAS NO NECESSITY OF SUCH PROV ISION, WITH THE ADVANCES SECURED AND NO PROVISION FOR BAD AND DOUBT FUL DEBTS HAVE 22 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. BEEN MADE IN BOOKS OF ACCOUNT AND THE DEDUCTION WAS CLAIMED, JUST BECAUSE IT WAS PROVIDED BY THE PROVISIONS OF INCOME - TAX ACT. IN THIS CONTEXT, IT MAY BE RELEVANT TO HOLD THAT, THE DEDUC TION WAS CLAIMED, AS PROVIDED IN SEC. 36(1)(VIIA) OF THE ACT AND NO INFI RMITY WAS POINTED OUT BY THE AO IN THIS REGARD. THE DEDUCTION WAS MADE BY TH E ASSESSEE AS PER THE PROVISIONS OF THE I.T. ACT (SEC. 36(1)(VIIA) RESTRICTING TO THE 7.5% OF THE TOTAL PROFITS, IN ADDITION TO DEDUCTION OF RS.1,96, 65,088 CLAIMED TOWARDS THE DOUBTFUL AND BAD DEBTS OF RURAL ADVANCES, WHICH WAS ALLOWED BY THE AO'. 18. THE LD CIT (A) HELD THAT IT IS ALSO A FACT THAT , NO OTHER DEDUCTIONS WERE CLAIMED BY THE ASSESSEE BANK U/S 36(1)(VII) TO WARDS WRITE OFF OF BAD DEBTS. IN THIS CONTEXT IT IS RELEVANT TO REFER TO THE DECISION OF THE ITAT HYDERABAD, IN THE CASE OF STATE BANK OF HYDERABAD V S. DCIT DATED 28.11.2008 IN ITA NO.1232/HYD/2006 WHEREIN THE TRIB UNAL HELD THAT DEDUCTION U/S 36(1)(VIIA) OF THE INCOME TAX ACT , NOT EXCEEDING 7.5% OF THE TOTAL INCOME COMPUTED, IS TO BE ALLOWED FOR PROVISI ON OF BAD AND DOUBTFUL DEBTS. CONSIDERING THE FACTS OF THE CASE THAT THE D EDUCTION CLAIMED BY THE ASSESSEE TO THE EXTENT OF RS.4,44,52,560 WAS CLAIME D AS PER THE PROVISIONS OF SECTION 36(1)(VIIA) AND WITHOUT CLAIMING ANY DEDUCTION TOWARDS BAD DEBTS WRITTEN OFF AS PER THE PROVISIONS OF SECTION 36(1)(VII) AND ALSO RESPECTFULLY FOLLOWING THE DECISION OF IT AT IN THE CASE OF SBH VS. DCIT (SUPRA), THE CIT (A) WAS OF THE OPI NION THAT THERE IS NO INFIRMITY IN THE CLAIM OF THE ASSESSEE. ACCORDINGLY THE ADDITION OF RS.4,44,52,560 WAS HELD TO BE UNSUSTAINABLE AND THI S GROUND OF APPEAL WAS TREATED AS ALLOWED BY THE CIT(A). 19. AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE U S AND RAISED THE FOLLOWING GROUNDS : 1..... 2..... 3.......... 4. WHETHER THE LD CIT (A) IS CORRECT IN ALLOWING LA W IN DEDUCTION CLAIMED U/S 36(1)(VIIA) OF IT ACT RS.4,44,52,560'. 20. ......................................... 21........................................ 22. WITH RESPECT TO THE ISSUE OF CLAIM OF DEDUCTION U/S36(1)(VIIA) FOR AN AMOUNT OF RS.4,44,52,560, THIS ISSUE IS ALSO COVERE D BY THE ORDER OF THE ITAT HYDERABAD BENCH IN THE CASE OF SBH HYDERABAD I N ITA NO.584/HYD/2013 AND ALSO CATHOLIC SYRIAN BANK LTD VS. CIT (2012) 248 CTR (S.C). RESPECTFULLY FOLLOWING THE ORDER OF THE COORDINATE BENCHES, WE DISMISS GROUND NO.4 OF REVENUE'S APPEAL. 23 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 23. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25TH MARCH, 2015. 14.2. HOWEVER, IN ASSESSEE'S OWN CASE FOR THE A.Y. 2009-2010 IN ITA.NO.610/HYD/2013 DATED 12.08.2015 THE TRIBUNAL A T PARA-6 OF ITS ORDER HAS HELD AS UNDER : '6. ON A REFERENCE TO THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT, IT IS VERY MUCH CLEAR THAT FOR CLAIMING DEDUCTION UNDER T HE SAID PROVISION, ASSESSEE HAS TO CREATE A PROVISION FOR BAD AND DOUB TFUL DEBTS IN ITS BOOKS OF ACCOUNT. THEREFORE, CONTENTION OF LD. AR T HAT THERE IS NO NEED FOR MAKING ANY PROVISION FOR BAD AND DOUBTFUL DEBTS FOR CLAIMING DEDUCTION U/S 36(1)(VIIA) IS NOT ACCEPTABLE. THE HON'BLE P & H HIGH COURT IN CASE OF STATE BANK OF PATIALA VS. CIT (SUPRA) WHILE EXAMINI NG THE PROVISIONS OF SECTION 36(1)(VIIA) HELD THAT FOR CLAIMING DEDUCTION UNDER THE SAID PROVISION, ASSESSEE BANK HAS TO MAKE A PROVISION FO R BAD AND DOUBTFUL DEBTS IN ITS BOOKS OF ACCOUNT AND DEDUCTION U/S 36( 1)(VIIA) IN RESPECT OF RURAL ADVANCES CAN ONLY BE ALLOWED TO THE EXTENT OF THE PROVISION MADE. THE COORDINATE BENCH IN ASSESSEE'S OWN CASE FOR AY 2010-11 IN ITA NO. 51/HYD/2015 DATED 10/04/2015, WHILE DEALING WITH ID ENTICAL ISSUE, HAS HELD AS UNDER: 'IT IS OBSERVED THAT THE ASSESSEE IN THE PRESENT CA SE, BEING ELIGIBLE BANK, IS ENTITLED TO CLAIM DEDUCTION AS PER THE MAIN PROV ISION CONTAINED IN CLAUSE (A) OF S.36(1)(VIIA), IN RESPECT OF ANY PROV ISION FOR BAD AND DOUBTFUL DEBTS TO THE EXTENT OF AN AMOUNT NOT EXCEEDING 7.5% OF THE TOTAL INCOME 'COMPUTED BEFORE MAKING ANY DEDUCTION UNDER S.36(1) (VIIA) AND CHAPTER VIA' AND AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGA TE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK CO MPUTED IN THE PRESCRIBED MANNER. A PERUSAL OF THE IMPUGNED ORDER OF THE LEARNED CIT(A) HOWEVER, SHOWS THAT IT WAS STATED BY THE ASSESSEE B EFORE THE LEARNED CIT(A) THAT NO PROVISION WAS MADE TOWARDS AVERAGE R URAL ADVANCES. IF IT IS SO, IT IS NOT CLEAR AS TO WHAT IS THE BASIS ON W HICH THE PROVISION OF RS.22.40 CRORES (RS.5.38 CRORES IN RESPECT OF URBAN ADVANCES AND RS.17.02 CRORES IN RESPECT OF RURAL ADVANCES)WAS MA DE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. MOREOVER, ALL THESE FACTS AND FIGURES WERE FURNISHED BY THE ASSESSEE BEFORE THE LEARNED C IT(A) FOR THE FIRST TIME AND THE ASSESSING OFFICER THEREFORE, DID NOT H AVE ANY OPPORTUNITY TO VERIFY THE SAME. THE CLAIM OF THE ASSESSEE OF HAVIN G ADJUSTED THE AMOUNT OF RS.22.24 CRORES TOWARDS BAD DEBTS WRITTEN OFF DU RING THE YEAR UNDER CONSIDERATION AGAINST THE OPENING BALANCE OF THE PR OVISION OF RS.40.13 CRORES WAS ALSO MADE BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE LEARNED CIT(A), AND THE ASSESSING OFFICER DID NOT H AVE ANY OPPORTUNITY TO VERIFY THE SAME. HAVING REGARD TO ALL THESE FACTS A ND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT IT WOULD BE FAIR AND PROPER AND IN THE INTERESTS OF JUSTICE TO RESTORE THE ISSUE RELATING TO THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER S.36(1)(VIIA)TO THE FILE OF THE ASS ESSING OFFICER FOR DECIDING THE SAME AFRESH, IN ACCORDANCE WITH THE PR OVISION OF S.36(1)(VIIA) AFTER GIVING PROPER AND SUFFICIENT OPPORTUNITY OF H EARING TO THE ASSESSEE AND AFTER VERIFYING ALL THE RELEVANT FACTS AND FIGU RES. WE ORDER 24 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. ACCORDINGLY. THIS APPEAL OF THE REVENUE IS ACCORDIN GLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES.' KEEPING IN VIEW OF THE AFORESAID ORDER OF THE COORD INATE BENCH, WE ARE INCLINED TO REMIT THE MATTER BACK TO THE FILE OF AO FOR DECIDING AFRESH AFTER VERIFYING THE FACT WHETHER ASSESSEE HAS CREATED ANY PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS OF ACCOUNT IN TERMS WITH SECTION 36(1)(VIIA) . IN CASE IT IS FOUND THAT ASSESSEE HAS MADE A PROV ISION FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS OF ACCOUNT, THEN, D EDUCTION U/S 36(1)(VIIA) CAN BE ALLOWED TO ASSESSEE. IN CASE IT IS FOUND THA T ASSESSEE HAS NOT MADE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS IN IT S BOOKS OF ACCOUNT, THEN, ASSESSEE WOULD NOT BE ELIGIBLE FOR ANY DEDUCT ION U/S 36(1)(VIIA) IN VIEW OF THE RATIO LAID DOWN BY THE HON'BLE P&H HIGH COURT IN CASE OF STATE BANK OF PATIALA VS. CIT(SUPRA). WITH THE AFOR ESAID OBSERVATIONS, WE REMIT THE ISSUE BACK TO THE FILE OF AO FOR DECIDING AFRESH AFTER DUE OPPORTUNITY OF BEING HEARD TO ASSESSEE. GROUND RAIS ED BY THE DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSES. 14.3. THUS, WE FIND THAT THIS ISSUE IS NOW COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY THE DECISION OF THE HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF STATE BANK OF PATIALA REPORTED IN 272 ITR 54 WHEREIN IT HAS BEEN HELD THAT IT IS N ECESSARY TO MAKE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE ACCOUNT BOOKS IN THE SAME PREVIOUS YEAR IN WHICH SUCH PROVISION IS CLAIMED AS DEDUCTION UNDER SECTION 36(1)(VIIA) . THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CIT VS. ANDHRA BANK LTD ., IN ITA.NO.715/HYD/2012 FOR THE A.Y. 2007-08 (TO WHICH ONE OF US I.E., THE J.M. IS A SIG NATORY) VIDE ORDERS DATED 04.10.2013 HAS FOLLOWED THE DECISION CITED SU PRA IN THE CASE OF STATE BANK OF PATIALA AND HAS HELD AS UNDER : 34. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD. IN FACT THIS IS THE FIRST YEAR IN WHICH THE ISSUE HAS ARISEN AS THE PROVISION MADE BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS LES S THAN THE AMOUNT ALLOWABLE U/S 36(1)(VIIA) OF THE IT ACT . THE LEARNED CIT(A) AF TER CONSIDERING THE PROVISIONS OF LAW AS WELL AS THE AC TUAL PROVISION MADE BY THE ASSESSEE FOR BAD AND DOUBTFUL DEBTS, ULTIMATELY CONCLUDED VIDE PARAS 6.9 AND 6.10 IN HIS ORDER AS UNDER: '6.9 IF THE INTENTION OF THE LEGISLATURE IS THAT DE DUCTION SHOULD NOT BE LINKED TO THE PROVISION MADE IN THE ACCOUNTS, THE L ANGUAGE OF THE SECTION WILL NOT HAVE THE WORDING ' IN RESPECT OF ANY PROVI SION FOR BAD AND DOUBTFUL DEBTS MADE', INSTEAD IT WOULD HAVE STATED THAT THE SCHEDULED BANK WOULD BE ENTITLED TO A DEDUCTION OF AN AMOUNT WHICH IS AN AGGREGATE OF 7.5% OF THE TOTAL INCOME AND 10% OF TH E AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES WITHOUT REFEREN CE TO ANY PROVISION. THEREFORE, I AM OF THE OPINION THAT ANY PROVISION I N THE SECTION REFERS TO ANY PROVISION MADE IN THE ACCOUNTS OF THE ASSESSEE BANK AND DEBITED THE AMOUNT OF SUCH DEBT OR PART OF THE DEBT IN THAT PRE VIOUS YEAR TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE U NDER THAT CLAUSE. RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE H IGH COURT OF P&H IN THE 25 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. CASE OF STATE BANK OF PATIALA VS. CIT 272 ITR 54 WH ERE IT HAS BEEN HELD THAT IT IS NECESSARY TO MAKE A PROVISION FOR BAD AN D DOUBTFUL DEBTS IN THE ACCOUNT BOOKS IN THE SAME PREVIOUS YEAR IN WHICH SU CH PROVISION IS CLAIMED AS DEDUCTION U/S 36(1)(VIIA). THEREFORE, IT IS HELD THAT DEDUCTION IS AVAILABLE ONLY TO THE EXTENT OF THE PROVISION MA DE IN THE BOOKS AND ACCORDINGLY THE DEDUCTION FOR PROVISIONS OF BAD AND DOUBTFUL DEBTS AS COMPUTED U/S 36(1)(VIIA) IS RESTRICTED TO THE AMOUN T PROVIDED BY THE APPELLANT IN ITS BOOKS AND THE AO IS JUSTIFIED IN A LLOWING THE PROVISION MADE OF RS. 97,48,84,948/- U/S 36(1)(VIIA) OF IT ACT AND DISALLOWING THE CLAIM OF RS. 334,43,19,444/-. 6.10 HOWEVER, IF THE RETURNED INCOME IS TAKEN AT RS . 288,27,68,633/- AS DIRECTED IN PARA 5.5 THENTHE AO WILL HAVE TO ADD BA CK THE AMOUNT OF RS. 236,94,34,496 (RS. 334,43,19,444 - RS. 97,48,84,948 ) IN THE COMPUTATION.' 35. SINCE THE CIT(A) FOLLOWED THE DECISION OF THE H ON'BLE HIGH COURT OF P&H IN CASE OF STATE BANK OF PATIALA (SUPRA), WE DO NOT FIND ANY REASON TO DIFFER FROM THE ORDER OF THE CIT(A). MOREOVER, T HE COORDINATE BENCH OF ITAT, BANGALORE IN CASE OF SYNDICATE BANK (SUPRA) H AS ANALYSED THE ISSUE AND CONCLUDED AS UNDER: '48. AS FAR AS GR.NO.3 RAISED BY THE REVENUE IN THE ORIGINAL GROUNDS OF APPEAL IS CONCERNED, THE AO DISALLOWED THE ENTIRE C LAIM FOR DEDUCTION OF RS.503,49,00,000/- ON THE FOLLOWING GROUND. A) THE PROVISION FOR BAD AND DOUBTFUL DEBTS IN RESP ECT OF RURAL ADVANCES WAS CREATED BY DEBIT TO PROFIT AND LOSS ACCOUNT OF ONLY A SUM OF RS.295,55,54,682 WHEREAS THE CLAIM FOR DEDUCTION AC TUALLY MADE U/S.36(1)(VIIA) OF THE ACT WAS A SUM OF RS.503,49,0 0,000/-. THE AO WAS OF THE VIEW THAT AS LAID DOWN BY THE HON'BLE 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 CANN OT BE GREATER THAN THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT AS PR OVISION. THE AO THEREFORE PROPOSED TO DISALLOW A SUM OF RS.207,93,4 5,318 (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. THE REASONS GIVEN FOR D ISALLOWING CLAIM FOR DEDUCTION OF RS.295,55,54,682/- U/S.36(1)(VIIA) OF THE ACT BY THE AO WAS THAT THERE WAS ALREADY CREDIT BALANCE IN THE PBDD A S 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 THER E IS NO BROUGHT FORWARD BALANCE AS ON THE FIRST DAY OFTHE PREVIOUS YEAR IN THE PBDD ACCOUNT.10% OF THE AARA AS ADMITTED BY THE ASSESSEE AS PER REVISED CENSUS OF 2001 WAS 352.53 CRORES. ACCORDING TO THE AO EVEN IF BAD DEBTS WRITTEN OFF OF RS.179,21,88,992 IS REDUCED STILL TH E BALANCE IN THE PBDD ACCOUNT WAS RS.733,35,58,177/-. SINCE THE BALANCE S O AVAILABLE IN PBDD ACCOUNT WAS MORE THAN 10% OF AARA, THE AO HELD THAT DEDUCTION ON THE 26 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. BASIS OF NEW PROVISION OF RS.295,55,54,682/- CANNOT BE ALLOWED. IN THIS REGARD THE AO REFERRED TO THE CONTENTION OF THE ASS ESSEE WHICH WAS TO THE EFFECT THAT IN EACH YEAR THE ASSESSEE CAN CREATE 10 % OF AARA AND CONCLUDED THAT THE EXPRESSION 'NOT EXCEEDING TEN PE RCENT 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 SITU ATION WHERE THERE IS NO CLAIM FOR BAD DEBTS IN A YEAR EVEN THEN THE ASSE SSEE WILL BE ENTITLED TO CLAIM DEDUCTION BY WAY OF PBDD WHICH ACCORDING T O THE AO WOULD NOT BE THE INTENTION OF THE LEGISLATURE. THE AO THUS RE FUSED TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF 10% OF AARA. 49. THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY FOLLOWING THE DECISION OF THE DECISION OF THE ITAT IN ASSESSEE'S OWN CASE REPORTED IN 78 ITD 103 WHEREIN IT WAS HELD THAT IRRESPECTIVE OF TH E DEBIT TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF PROVISION FOR BAD AND DO UBTFUL DEBTS (PBDD), AN ASSESSEE IS ENTITLED TO 10% OF THE AARA AS DEDUC TION U/S.36(1)(VIIA) OF THE ACT. THE RELEVANT OBSERVATIONS OF THE TRIBUN AL IN THE AFORESAID DECISION WAS AS FOLLOWS: '20. THE LEARNED CIT HAS ALSO ACTED UNDER THE MISCO NCEPTION THAT DEDUCTION UNDER CL. (VIIA) IS RELATED TO THE ACTUAL AMOUNT OF PROVISION MADE BY THE ASSESSEE FOR BAD AND DOUBTFUL DEBTS. TH E TRUE MEANING OF THE CLAUSE, AS INDICATED EARLIER, IS THAT ONCE A PR OVISION FOR BAD AND DOUBTFUL DEBTS IS MADE BY A SCHEDULED BANK HAVING R URAL BRANCHES, THE ASSESSEE IS ENTITLED TO A DEDUCTION WHICH IS QUANTI FIED NOT WITH RESPECT TO THE AMOUNT PROVIDED FOR IN THE ACCOUNTS, BUT WITH R ESPECT TO A CERTAIN PERCENTAGE OF THE TOTAL INCOME AND ALSO A CERTAIN P ERCENTAGE OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCH ES 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 ACCO UNTS 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 O RDER OF CIT(A) IN SO FAR AS IT RELATES TO THE DELETION OF A SUM OF RS.20 7,83,45,338 WHICH IS THE DIFFERENCE BETWEEN RS.503,49,00,000 AND RS.295,55,5 4,682. THE LEARNED DR RELIED ON THE DECISION OF THE ITAT BANGA LORE 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 DECISI ON OF THE ITAT IN THE CASE OF SYNDICATE BANK 78 ITD 103(BANG)AND THE DECI SION OF THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA)AND HELD THAT THE DECISION RENDERED BY THE H ON'BLE HIGH COURT HAS TO BE FOLLOWED. THE ABOVE DECISION IS THE DECISION BROUGHT TO OUR NOTICE ON THE ISSUE RENDERED AFTER THE DECISION IN ASSESSEE'S OWN CASE. JUDICIAL DISCIPLINE DEMANDS THAT WE FOLLOW THE LATER DECISIO N WHICH HAS CONSIDERED BOTH THE DECISIONS ON THE ISSUE. WE THER EFORE RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF CANARA BANK(SUPRA), 27 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. ALLOW GR.NO.3 RAISED BY THE REVENUE AND HOLD THAT D ISALLOWANCE TO THE EXTENT OF RS.207,83,45,338/- BE RESTORED. THUS GR.N O.3 RAISED BY THE REVENUE IS ALLOWED.' 36. RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN AS ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE ASSESSEE'S G ROUND. 14.4. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE P RECEDENTS ON THE ISSUE INCLUDING IN THE ASSESSEE'S OWN CASE FOR AY 2009-10 , THE ASSESSEE'S APPEAL IS DISMISSED. RESPECTFULLY FOLLOWING THE SAME, THESE GROUNDS OF A PPEALS ARE REJECTED. 17. THE LD. COUNSEL FOR THE ASSESSEE MADE AN ALTERN ATE CLAIM THAT WHERE THE OPENING BALANCE OF PROVISION F OR BAD AND DOUBTFUL DEBTS U/S 36(1)(VIIA) OF THE ACT WAS I N EXCESS OF THE CLAIM OF DEDUCTION, THEN IT MAY BE ALLOWED T O SUCH AN EXTENT, EVEN IF A FRESH PROVISION IS NOT MADE. THIS ALTERNATE CLAIM IS MADE FOR THE FIRST TIME BEFORE U S AND THEREFORE, WE DEEM IT FIT AND PROPER TO DIRECT THE A.O TO CONSIDER THE ALLOWABILITY OF SUCH A CLAIM, WHILE GI VING CONSEQUENTIAL EFFECT TO THIS ORDER. 18. AS REGARDS THE ADDITIONAL GROUND OF APPEAL RAIS ED BY THE ASSESSEE, WE FIND THAT IT RELATES TO THE DISALL OWANCE OF SALARY ARREARS AMOUNTING TO RS. 127360121/-. IT IS SUBMITTED BY THE LEARNED COUNSEL FOR ASSESSEE THAT WHILE COMPLETING THE ASSESSMENT FOR THE EARLIER A.Y. 2010 -11, THE A.O BY HIS ORDER U/S 143(3) OF THE ACT DATED 04-03- 2013, ALLOWED THE SALARY ARREARS AS DEDUCTION AND COMPLET ED THE ASSESSMENT BUT SUBSEQUENTLY THE CIT, U/S 263 OF THE ACT, SET ASIDE THE ASSESSMENT ON THE GROUND THE ASSESSM ENT ORDER PASSED U/S 143(3) OF THE ACT DATED 04-03-201 3 IS 28 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE WITH A DIRECTION TO REDO THE SAME DE NOVO BY EXAMIN ING ALL DETAILS IN ACCORDANCE WITH LAW. IT IS SUBMITTED THA T THE AO, WHILE PASSING THE CONSEQUENTIAL ORDER, HAS DISALLOW ED THE CLAIM TOWARDS PROVISION FOR SALARY ARREARS AGGREGAT ING TO RS.12,73,60,121/- WHICH IS FOR THE PERIOD 1.10.2007 TO 31.03.2009 ON THE GROUND THAT IT IS ONLY A PROVISIO N MADE AND THAT THE ASSESSEE HAS NOT ADDUCED ANY EVIDENCE OF ACTUAL DISBURSEMENT MADE TO TOWARDS EMPLOYEES BEFOR E FILING OF THE RETURN OF INCOME. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT DURING THE F.Y 2009-10 RELE VANT TO THE A.Y 2010-11, THE ORDERS FOR WAGE REVISION WERE ISSUED TO THE ASSESSEE BANK VIDE PROCEEDINGS DATED 24-07-2 010 BY THE MIN. OF FINANCE, NEW DELHI AND WAGE REVISION AR REARS WERE PAID BY THE BANK TO ITS EMPLOYEES FROM 01-10-2 007 TO 31-03-2010 ON 04-09-2010. THE ASSESSEE ALSO FILED THE COPIES OF PROCEEDINGS RELATING TO SANCTION OF PAY A RREARS, BALANCE SHEET SCHEDULES, DEBIT AND CREDIT VOUCHERS AND COPY OF THE VOUCHER EVIDENCING THE PAYMENT OF WAGE REVISION TO THE EMPLOYEES OF THE BANK ON 04-09-2010 ACCORDING TO WHICH THE TOTAL WAGE REVISION ARREARS PAYABLE TO EMPLOYEES AMOUNTED TO RS. 22,97,23,775. IT WAS SUBMITTED THAT OUT OF THE SAID AMOUNT, RS. 12,73,60 ,121 RELATED TO THE PERIOD OF 01-10-2007 TO 31-03-2009 D EBITED TO THE PROFIT AND LOSS APPROPRIATION ACCOUNT FOR TH E YEAR ENDED 31-03-2010 AS PRIOR PERIOD ITEM AND REMAINING AMOUNT OF RS. 10,23,63,597 RELATING TO THE PERIOD O F 01-04- 2009 TO 31-03-2010 WAS DIRECTLY DEBITED TO THE PROF IT AND LOSS ACCOUNT UNDER THE HEAD OPERATING EXPENSES. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAS ENCLOSED ALL T HE 29 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. RELEVANT DOCUMENTS. THE LD CIT(A), BY HIS ORDER DATED 16-09- 2014, ACCEPTED THE LIABILITY OF THE ASSESSEE TO PAY THE ARREARS AND ALSO ACCEPTED THAT THE SAID SUM OF RS. 12,73,60,121 WAS PAID TO ALL THE EMPLOYEES ON 04-09-2010. HOWEVER, THE CIT( A) OBSERVED THAT THE AMOUNT OF EXPENDITURE IN THE FORM OF ARREA RS OF SALARY RELATABLE TO THE PERIOD TO 01-11-2007 TO 31-03-2009 PERTAIN TO THE PERIOD PRIOR TO THE A.Y UNDER CONSIDERATION AND ALS O THAT SUCH LIABILITY HAS ARISEN VIDE PROCEEDINGS DATED 24.07.2 010 I.E. DURING THE F.Y. 2010-11 AND ALSO PAID SUBSEQUENTLY AND THE REFORE IS NOT ALLOWABLE EXPENDITURE DURING THE ASSESSMENT YEAR 20 10-11. AGGRIEVED, THE ASSESSEE FILED FURTHER APPEAL BEFORE THE ITAT AND ITAT ALSO CONFIRMED THE ORDER OF THE CIT(A) AND T HEREFORE THE ASSESSEE IS NOW CLAIMING THE SAID EXPENDITURE IN TH E NEXT A.Y I.E. A.Y 2011-12, THE YEAR OF CRYSTALLIZATION AND FOR TH IS PURPOSE HAS RAISED THIS ADDITIONAL GROUND OF APPEAL BEFORE US. 19. IT IS PRAYED BY THE LEARNED COUNSEL FOR THE ASS ESSEE TO ADMIT AND ADJUDICATE THE SAME. WE FIND THAT THE RELIEF CL AIMED BY THE ASSESSEE IN THE ADDITIONAL GROUND OF APPEAL IS ONLY CONSEQUENTIAL TO THE DIRECTIONS OF ITAT FOR THE A.Y 2010-11 AND T HEREFORE WE DEEM IT FIT AND PROPER TO ADMIT THE ADDITIONAL GROU ND OF APPEAL AND REMIT IT TO FILE OF THE A.O FOR RECONSIDERATION IN ACCORDANCE WITH LAW AND THE JUDICIAL PRONOUNCEMENTS ON THE ISS UE. AO IS THEREFORE TO DIRECTED TO DECIDE THE SAME AFRESH AFT ER GIVING THE ASSESSEE A FAIR OPPORTUNITY OF HEARING. THE ADDITI ONAL GROUND OF APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATIS TICAL PURPOSES. 20. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. 30 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. ITA NO.752/HYD/2015 (A.Y 2011-12) REVENUES APPEAL: 21. THIS IS REVENUES APPEAL FOR THE ASSESSMENT YEA R 2011-12, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL. 1. THE CIT (APPEALS) HAS ERRED ON BOTH IN LAW AND O N FACTS. 2. THE LEARNED CIT(APPEALS) OUGHT NOT TO HAVE ALLOW ED THE ASSESSEE'S CLAIMS OF BROKEN PERIOD INTEREST AS EXPENDITURE WHILE OVERLOOKING THE DECISION OF THE H ON'BLE SUPREME COURT OF INDIA IN THE CASE OF VIJAYA BANK L TD. (187 ITR 541). 3. THE LEARNED CIT (APPEALS) ERRED IN DELETING THE DISALLOWANCE OF PROVISION FOR STAFF FRAUDS OF RS.6 ,68, 153/ - SINCE SUCH PROVISION IS NOT ALLOWABLE AS BUS INESS EXPENDITURE. 4. THE LEARNED CIT (APPEALS) ERRED ON DELETING THE DISALLOWANCE OF AMORTIZATION PROVIDED ON GOVT. SECURITIES AT RS.3,74,28,085/- ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE LEARNED CIT (APPEALS) ERRED ON DELETING THE DISALLOWANCE OF INTEREST ON NON-PERFORMANCE ASSETS RELYING ON THE DECISION OF HON'BLE ITAT IN NO. 502, 967 & 1387 /H/ 14 DATED 29.04.2013, IN THE VIEW OF THE FA CT, THE HON'BLE TRIBUNAL VIDE ITS ORDER IN ITA NO. 610/HYD/2013 DT. 13.03.2014 IN THE CASE OF THE ASSESSEE ITSELF FOR THE ASST. YEAR 2009-10 HAD UPHE LD THE STAND TAKEN BY THE REVENUE WHICH WAS ALSO UPHEL D BY THE HON'BLE HIGH COURT VIDE ORDER IN ITTA NO. 532/2014 DT. 13.11.2014 6. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 22. GROUND NO.1 BEING GENERAL IN NATURE, NEEDS NO A DJUDICATION. 23. AS REGARDS GROUND NO.2 AGAINST THE DISALLOWANC E OF BROKEN PERIOD INTEREST, IT IS AGREED BY THE BOTH THE PARTI ES THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIO N OF THE INCOME TAX APPELLATE TRIBUNAL DATED 29.04.2013 IN THE ASSE SSEES OWN 31 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. CASE FOR THE A.Y. 2008-09 IN ITA NO. 1121 & 1459/HY D/2011, THE REVENUES APPEALS FOR THE A.YS 2007-08 AND 2008-09 RESPECTIVELY. THE COPIES OF THE RELEVANT ORDERS ARE FILED BEFORE US. WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING OBSERVATIONS OF THE TRIBUNAL IN THE ABOVE ORDERS. 3. THE FIRST ISSUE AS RAISED IN GROUND NO.2 RELATE S TO DELETION OF ADDITION OF AN AMOUNT OF RS. 83 LAKHS BEING BROKEN PERIOD INTEREST. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A REGIONAL R URAL BANK WHICH CAME INTO EXISTENCE AFTER AMALGAMATION OF FIVE REGI ONAL RURAL BANKS. IN COURSE OF ASSESSMENT PROCEEDINGS FROM THE IMPUGN ED ASSESSMENT YEAR, THE A.O. NOTED THAT THE ASSESSEE F OR THE PURPOSE OF MAINTAINING STATUTORY LIQUIDITY RATIO (SLR) WITH THE RESERVE BANK OF INDIA, HAD PURCHASED GOVERNMENT SECURITIES ON WH ICH THE RBI PAYS INTEREST ON DUE DATES. IT WAS FURTHER NOTED B Y THE ASSESSING OFFICER THAT THE ASSESSEE HAS INCLUDED BROKEN PERIO D INTEREST FOR THE INTEREST PAYABLE TO THE ASSESSEE. THE ASSESSING OF FICER WAS OF THE VIEW THAT THE BROKEN PERIOD INTEREST PAID AT THE TI ME OF PURCHASE OF SECURITIES WAS A PART OF PURCHASE CONSIDERATION AND THEREFORE THE SAME IS IN THE NATURE OF CAPITAL EXPENDITURE. HE T HEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE BROKEN PERIOD INT EREST SHALL NOT BE DISALLOWED. IN RESPONSE TO THE QUERY MADE BY TH E ASSESSING OFFICER, THE ASSESSEE THOUGH SUBMITTED HIS EXPLANAT ION, THE ASSESSING OFFICER HOWEVER REJECTED THE SAME AND HEL D THAT THE INTEREST ELEMENT INCLUDED IN THE PURCHASE CONSIDERA TION WAS NOT ALLOWABLE AS EXPENDITURE BY FOLLOWING THE DECISION WAS NOT ALLOWABLE AS EXPENDITURE BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT (1 87 ITR 541). THE ASSESSING OFFICER FURTHER REFERRING TO THE CIRC ULAR NO. 665 DATED 05-10-1993 OF THE CBDT HELD THAT THE GOVERNMENT SEC URITIES SINCE ARE COMING WITHIN THE CATEGORY OF HELD TO MATURITY (HMT), SECURITIES CONSTITUTED INVESTMENT AND NOT STOCK IN TRADE. HEN CE, IT IS A CAPITAL EXPENDITURE AND THEREFORE NOT ALLOWABLE. THE ASSES SEE CHALLENGED THE DISALLOWANCE IN APPEAL BEFORE THE CIT(A). 4. IN COURSE OF HEARING BEFORE THE CIT(A) THE ASSES SEE RELYING UPON VARIOUS JUDICIAL PRECEDENTS, SUBMITTED THAT HM T CATEGORY OF SECURITIES ARE NOT INVESTMENT BUT STOCK IN TRADE OF THE ASSESSEE AND AS SUCH NO DISALLOWANCE OF THE BROKEN PERIOD INTERE ST CAN BE MADE. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND RELYING UPON THE DECISION OF HONBLE KERALA HIGH CO URT IN THE CASE OF CIT VS NEDUNGADI BANK LTD. (264 ITR 545) HELD TH AT GOVERNMENT SECURITIES ACQUIRED BY THE ASSESSEE IN PURCHASE OF PROVISIONS OF 32 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. BANKING REGULATION ACT HAVE TO BE TREATED AS STOCK IN TRADE OF BUSINESS OF THE BANK. HENCE, THE BROKEN PERIOD INTE REST IS AN ADMISSIBLE DEDUCTION IN THE COMPUTATION OF TOTAL IN COME OF THE BANK UNDER THE HEAD PROFITS AND GAINS OF BUSINESS. ON THE AFORESAID CONCLUSION, THE CIT(A) DELETED THE ADDITIONAL OF RS . 83 LAKHS. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL ON RECORD. IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS DISALLOWED THE BROKEN PERIOD INTEREST BY HOLDING THE HMT CATEGORY OF SECURITIES AS INVESTMENT AND NOT STOCK IN TRADE OF THE ASSESSEE BY RELYING U PON BOARDS CIRCULAR NO. 665 DATED05-10-1993. THE ASSESSING OF FICER HAS FURTHER RELIED UPON THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF CIT VS VIJAYA BANK (187 ITR 541). HOWEVER, WE FIND THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISIONS OF MUMBAI HIGH COURT IN CASE OF AMERICAN EXPRESS INTER NATIONAL BANKING CORPORATION VS CIT (258 ITR 601) AND DECISI ON OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS NED UNGADI BANK LTD., (264 ITR 545) WHEREIN IT HAS BEEN HELD THAT T HE BROKEN PERIOD INTEREST IS AN ALLOWABLE DEDUCTION. THE CO-ORDINAT E BENCH OF THIS TRIBUNAL FOLLOWING THE AFORESAID DECISIONS HAVE ALS O DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN CASE OF SBH IN I TA NO. 578 AND 779/HYD/10 DATED 07-09-2012. FURTHER, THE CONCLUSIO N ARRIVED AT BY THE ASSESSING OFFICER THAT THE HTM CATEGORY OF S ECURITIES ARE INVESTMENTS AND CANNOT BE CONSIDERED AS STOCK IN TR ADE IS ALSO FOUND TO BE NOT THE CORRECT VIEW. THE HONBLE AP HI GH COURT IN THE CASE OF SBH (151 ITR 703) HAS HELD THAT THE AMOUNT REQUIRED TO BE KEPT IN INDIA AS PER SECTION 24 OF THE BANKING REGU LATION ACT, 1949 IN THE FORM OF CASH, GOLD AND ENCUMBERED SECURITIES IS PART OF STOCK IN TRADE OF THE ASSESSEE. HENCE, IT CANNOT BE HELD THAT HTM CATEGORY OF SECURITIES IS NOT STOCK IN TRADE OF THE ASSESSEE. IN AFORESAID VIEW OF THE MATTER, WE UPHOLD THE CONCLUS ION OF THE CIT(A) TO THE EFFECT THAT BROKEN PERIOD INTEREST IS AN ALL OWABLE DEDUCTION. ACCORDINGLY, WE DISMISS THE GROUND RAISED BY THE RE VENUE ON THIS ISSUE. RESPECTFULLY FOLLOWING THE ABOVE ORDER, THIS GROUND OF APPEAL IS REJECTED. 24. AS REGARDS GROUND OF APPEAL NO.3 AGAINST THE DI SALLOWANCE OF PROVISION FOR STAFF FRAUDS ALSO, IT IS FAIRLY AGREE D BY BOTH THE PARTIES THAT THIS GROUND IS COVERED IN FAVOUR OF TH E ASSESSEE BY THE DECISION OF THE TRIBUNAL (CITED SUPRA) FOR THE A.Y 2007-08 IN ITA 33 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. NO.1121/HYD/2011 DATED 29.04.2013. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PARAS ARE REPRODUCED HEREUN DER:- 8. GROUND NO.4 RELATES TO DELETION OF ADDITION OF RS. 46,45,087/BEING PROVISION FOR STAFF FRAUDS. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSES SEE HAD MADE A PROVISION OF RS. 44,44,087/TOWARDS STAFF FRAUD. IN RESPONSE TO THE QUERY MADE BY THE A 0, TH E ASSESSEE SUBMITTED THAT ALL THE ADVANCES WHICH HAVE BECOME BAD ON ACCOUNT OF FRAUD BY THE STAFF ARE TRE ATED AS LOSS AND ACCORDINGLY PROVISION HAS BEEN MADE. TH E A 0 HOWEVER REJECTED THE CONTENTIONS OF THE ASSESSEE BY OBSERVING THAT THE PROVISION FOR STAFF FRAUDS COULD NOT BE EQUATED WITH THE PROVISION OF BAD AND DOUBTFUL DEBT S. HE WAS FURTHER OF THE VIEW THAT FRAUDS BY STAFF ARE NO RMALLY NOT EASILY LET OFF AND THE AMOUNTS ARE RECOVERED, B UT APPROPRIATE ACTION IS INITIATED FOR RECOVERY OF SUC H LOSS FROM PAYMENTS DUE TO THEM. THE A 0 WAS OF THE OPINI ON THAT SINCE THE ASSESSEE WAS NOT ABLE TO SHOW THAT T HE AMOUNT SO RECOVERED WAS DULY ACCOUNTED FOR, THE CLA IM CANNOT BE ALLOWED. HE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE CIT(A). 9. ON APPEAL, THE CIT(A) AFTER CONSIDERING THE CONT ENTIONS MADE ON BEHALF OF THE ASSESSEE WAS OF THE VIEW THAT STAFF FRAUDS ARE SIMILAR TO EMBEZZLEMENT BY AN EMPLOYEE A ND THEREFORE QUALIFIES AS AN ALLOWABLE EXPENDITURE UND ER SECTION 37 OF THE ACT. THE CIT(A) FOLLOWING A DECIS ION OF ITAT, AMRITSAR BENCH IN CASE OF ITO VS. J&K BANK LT D., (95 ITD 141) ALLOWED THE CLAIM OF THE ASSESSEE. 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS OF THE PAR TIES AND PERUSED THE MATERIAL ON RECORD. FROM THE ASSESSMENT ORDER, IT IS CLEAR THAT THE ASSESSING OF FICER AS NOT DISPUTED THE FACT THAT THERE IS LOSS TO THE BAN K ON ACCOUNT OF STAFF FRAUD BUT HAS ASSUMED THAT THE ENT IRE AMOUNT COULD NOT HAVE BEEN LOST AND PART OF THE LOS S MUST HAVE BEEN RECOVERED, THE AMOUNT SO RECOVERED NEEDS TO BE ACCOUNTED FOR AS INCOME IF THE PROVISIO NS CREATED FOR SUCH LOSS IS TO BE ALLOWED. HOWEVER NO DISALLOWANCE CAN BE MADE ON PRESUMPTIONS. THE ITAT, AMRITSAR BENCH IN THE CASE OF ITO VS J & K BANK LTD (SUPRA) AFTER TAKING INTO CONSIDERATION THE DECISIO N OF HON'BLE SUPREME COURT IN CAST OF BADRI DAS DAGA VS CIT 34 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. (34 ITR 10) AND ASSOCIATED BANKING CORPN. OF INDIA LTD. VIS CIT AIR 1965 (SC) 1188 AND KEEPING IN VIEW THE CBDT'S CIRCULAR NO. 35 DATED 24-11-1965 HELD THAT T HE LOSS BY EMBEZZLEMENT BY EMPLOYEES SHOULD BE TREATED AS INCIDENTAL TO BUSINESS AND THE SAME SHOULD BE ALLOW ED AS DEDUCTION IN THE YEAR IN WHICH IT IS DISCOVERED. THE ITAT, AMRITSAR BENCH FOLLOWING A DECISION OF HON'BL E GUJARAT HIGH COURT HELD THAT EMBEZZLEMENT LOSS BY A N EMPLOYEE SHOULD BE ALLOWED IN THE YEAR IN WHICH IT IS DISCOVERED BY THE ASSESSEE. 11. WE FIND FROM THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH IN CASE OF INCOME TAX OFFICER VS. J&K BANK LTD (SUPRA) THAT THE ISSUE IS SQUARELY COVERED BY THE AFORESAID DECISION OF THE TRIBUNAL. THAT BESIDES CIRCULAR NO.35 DATED 24.11.1 965 OF CBDT ALSO CLARIFIES THAT THE LOSS TO EMBEZZLEMEN T BY AN EMPLOYEE IS AN ALLOWABLE EXPENDITURE U/S 37 OF T HE ACT. IN AFORESAID VIEW OF THE MATTER, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF THE CIT (A) IN ALLOWING T HE EXPENDITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF S TAFF FRAUD. HENCE, THIS GROUND RAISED BY THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE SAME, THIS GROUND OF APP EAL IS DISMISSED. 25. AS REGARDS GROUND NO.5, WE FIND THAT IT IS SIMI LAR TO GROUND NO.2 OF ASSESSEES APPEAL FOR THE A.Y 2012-13. THER EFORE, WE SHALL DEAL WITH THIS GROUND ALONG WITH THE ASSESSEES GRO UND OF APPEAL NO.2 IN THE ASSESSEES APPEAL FOR THE A.Y 2012-13. ITA NO. 1293/HYD/2015(A.Y 2012-13) ASSESSEE APPEAL: 26. THIS IS ASSESSEES APPEAL FOR THE A.Y 2012-13, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1) THE ORDER PASSED BY THE HON'BLE COMMISSIONER OF INCOME TAX (APPEAL)-III, HYDERABAD (HEREAFTER CALLE D THE APPELLATE AUTHORITY FOR THE ASST. YEAR 2012-13 IS 35 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. CONTRARY TO LAW, UNJUST AND UNSUSTAINABLE IN SO FAR AS THE DISMISSAL OF GROUNDS RELATING TO (A)UNINSURED INTEREST ON NPA (B) PROVISION FOR STANDARD ASSETS (C) PROVISION FOR MUTUAL FUNDS (D) PROVISION FOR BAD AND DOUBTFUL DEBTS (CLAIM OF DEDUCTION OF 7.5% OF TOTAL INCOME U/S 36(1)(VIIA) (2) UNREALISED INTEREST ON NON-PERFORMING ASSETS - RS.23,89,OO,OOO/- (I) THE APPELLATE AUTHORITY OUGHT TO HAVE CONSIDERE D THAT THE APPELLANT APPLIES THE INTEREST ON ADVANCES IN REGULAR INTERVALS (MONTHLY/QUARTERLY/HALF YEARLY) T ILL SUCH ADVANCES ARE CLASSIFIED AS NON-PERFORMING ASSE TS AS PER THE PRUDENTIAL NORMS PRESCRIBED BY RESERVE BANK OF INDIA. ONCE THE ADVANCES ARE CLASSIFIED AS NONPERFORMING ASSETS, THE INTEREST CREDITED TO INCO ME A/C. TILL THE DATE OF CLASSIFICATION WILL BE DEBITE D BY TRANSFERRING TO 'INTEREST SUSPENSE A/C' 'INTEREST N OT COLLECTED A/C.(INCA). (II) THE APPELLATE AUTHORITY OUGHT NOT TO HAVE DISM ISSED THE CLAIM FOR UN-REALISED INTEREST ON NON PERFORMIN G ASSETS SIMPLY RELYING UPON THE ORDER OF THE HON'BLE INCOME TAX APPELLATE TRIBUNAL IN ITA NO.610/HYD/2013 DATED 13.03.2014 DECIDING THE ISSUE IN FAVOUR OF THE REVENUE FOLLOWING THE DECISI ON OF HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES (320 ITR 577) AND WITHOUT CONSIDERING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F UCO BANK VA. C.LT (REPORTED IN 237 LT R 889) AND AL SO THE JUDGMENT OF THE DELHI HIGH COURT IN CIT VS. VAS ANTH CHAY VYPAN LTD (REPORTED IN 330 ITR 440) WHICH WERE FOLLOWED BY THE HON'BLE I.T.A.T, HYDERABAD IN THE APPELLANTS OWN CASE FOR THE ASST YEAR 2007-08 AND 2008-09. (III) THE APPELLATE AUTHORITY OUGHT TO HAVE CONSIDE RED THAT THE RBI GUIDELINES ARE NOT SIMILAR TO THE COMMERCIAL BANKS AND OTHER NON BANKING FINANCIAL INSTITUTIONS. 36 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. (IV) THE APPELLATE AUTHORITY FAILED TO CONSIDER THE JUDGMENT OF HON'BLE HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH WHEREIN THE APPEAL FILED BY THE DEPARTMENT AGAINST THE BANK ON THIS GROUND IN I.T.T .A NO.566/2014 WAS DISMISSED AS NOT PRESSED. (3) DISALLOWANCE OF PROVISION OF STANDARD ASSETS THE APPELLATE AUTHORITY ERRED IN CONFIRMING THE DISALLOWANCES OF PROVISION OF STANDARD ASSETS AMOUNTING TO RS.1,54,35,748/- FOR THE ASST.YEAR 201 2- 13 BASING ON THE ORDER OF THE HON'BLE LT.A.T, HYDERABAD IN ITA NO.502/HYD/2011 UPHOLDING THE VIEW THAT PROVISION MADE TOWARDS STANDARD ASSETS WA S LIABLE TO TAX. THE APPELLATE AUTHORITY FAILS TO CONSIDER THAT THE APPELLANT PREFERRED APPEAL BEFORE THE HON'BLE HIGH COURT OF JUDICATURE AT HYDERABAD FOR TELANGANA AND ANDHRA PRADESH AGAINST THE ORDER OF HON'BLE I.T.A.T , HYDERABAD IN I.T.A NO.502/HYD/2011. I. THE APPELLATE AUTHORITY ERRED IN CONFIRMING THE DISALLOWANCE OF THE PROVISION OF RS.1,54,35,748/- M ADE ON STANDARD ASSETS, WHICH WAS MADE AS PER THE DIRECTIONS OF THE RESERVE BANK OF INDIA AND CLAIMED AS A DEDUCTION U/S 36(L)(VIIA) OF THE INCOME TAX ACT,1 961. II. THE APPELLATE AUTHORITY OUGHT TO HAVE CONSIDERE D THE RATIONALE BEHIND THE ISSUE OF CIRCULAR BY THE RESER VE BANK OF INDIA IN DIRECTING THE BANKS TO MAKE A GENE RAL PROVISION ON STANDARD ASSETS ALSO @0.25% I 0.40% I 1 % DUE TO THE VARIOUS RISKS INVOLVED IN THE RURAL SECT OR WHICH MIGHT LEAD TO ALL STANDARD ASSETS BECOMING LO SS ASSETS OVERNIGHT. III. THE APPELLATE AUTHORITY OUGHT TO HAVE CONSIDER ED THE PURPOSE OF INTRODUCING SEC.36(L )(VIIA) IN THE INCO ME TAX ACT, 1961. WHICH ALLOWS A DEDUCTION FOR PROVISION U P TO 10% ON RURAL ADVANCES MADE BY INDIVIDUAL RURAL BRANCHES AND ALSO DIRECT DEDUCTION OF7.5% OF THE TO TAL INCOME COMPUTED BEFORE MAKING ANY DEDUCTION U/S 36(L)((VIIA) AND SEC.80C TO 80D (AS SUBSTITUTED VID E FINANCE ACT, 2002 EFFECTIVE FROM 1-4-2003). 37 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. IV. THE APPELLATE AUTHORITY FAILED TO CONSIDER THAT , EVEN OTHERWISE, THERE IS A LOT OF DISTINCTION BETWEEN COMMERCIAL BANK ADVANCES AND RURAL BANK ADVANCES AND THIS IS THE POINT OF DISTINCTION BETWEEN THE PR ESENT CASE AND THE ANDHRA BANK CASE. THE APPELLATE AUTHORITY OUGHT NOT TO HAVE APPLIED THE SAME PRINCI PLE AS RURAL BANKS ARE ONLY EXPOSED TO RURAL SEGMENT, WHICH ARE ALSO SUBJECTED TO NATURAL CALAMITIES LIKE DROUGHT AND FLOODS AND ALLIED PROBLEMS. A STANDARD ASSET MAY TURN INTO A NON PERFORMING ASSET OVERNIGH T JEOPARDIZING THE PLANS OF THE RURAL BANKS AND PUSHI NG THEM INTO A LOSS SITUATION. A CLOSE READING OF SEC. 36(1) (VIIA) OF THE ACT WOULD REVEAL THE INTENTION OF THE PARLIAMENT IN THIS REGARD. V. THE APPELLATE AUTHORITY, OUGHT TO HAVE SEEN THAT 1. T.A. T. NO.: 467 OF 2010& 1. T.A. T. NO.512 OF 2010 , BEING THE APPEALS FILED BY ANDHRA BANK, AGAINST 1.T .A. NO.:618/HYD/2007 FOR THE ASSESSMENT YEAR 2003-04 & AGAINST 1.T.A. NO.619/HYD/2007 FOR THE ASST.YEAR 2004-05 WERE ADMITTED BY THE HON'BLE HIGH COURT OF JUDICATURE AT HYDERABAD FOR TELANGANA AND ANDHRA PRADESH ON 03.09.2010 & 30.08.2010 RESPECTIVELY. (C) PROVISION FOR MUTUAL FUNDS-70,50,000 I. THE APPELLATE AUTHORITY OUGHT TO HAVE CONSIDERED THAT WHEN THERE IS NO SPECIFIC PROVISION UNDER THE ACT, 1961, THE TAX LIABILITY OF CERTAIN SUMS HAVE TO BE DECIDE D IN ACCORDANCE WITH THE ACCOUNTING PRACTICE. II. THE APPELLATE AUTHORITY OUGHT TO HAVE ALSO CONS IDERED THAT THE PROVISION FOR DEPRECIATION ON MUTUAL FUNDS IS TOWARDS DEPRECIATION ON NON-SLR INVESTMENTS UNDER T HE CATEGORY OF AVAILABLE FOR SALE AND SHOULD BE TAKEN TO UNREALIZED APPRECIATION ACCOUNT AS PER THE RBI GUIDELINES AND ACCORDING TO THE PRINCIPLES LAID DOW N IN AS-13 ISSUED BY THE ICAI. (4) PROVISION FOR BAD AND DOUBTFUL DEBTS DISALLOWANCE OF CLAIM OF DEDUCTION MADE UNDER 36(L)(VIIA) OF THE I.T.ACT, 1961, RS.13, 78, 78,814 /- THE APPELLATE AUTHORITY FAILED TO CONSIDER THAT THE CLAIM UNDER SEC.36(1)(VIIA) IS THE SUBJECT MATTER OF APPE AL IN 38 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. THE PRECEDING YEAR I.E.201 1-12 AND 2012-13 WHEREIN THE HON'BLE CIT (APPEALS). VI HAS ALLOWED THE APPEA LS ON THE SAID ISSUES VIDE ORDER IN APPEAL NO.0320/1112/CIT (APPEALS)-VI DT.31-01-2013 AND ORDER IN APPEAL NO.0652/2013-14/CIT(A)-VI, HYDERABAD DT.16-09-2014 RESPECTIVELY. THE APPELLATE AUTHORITY FAILED TO CONSIDER THE SPIR IT OF THE LAW LAID DOWN BY THE HON'B1E SUPREME COURT IN CATHOLIC SYRIAN BANK LTD VS. CIT (2012 343 ITR 270, OBSERVED THAT, WHERE THE PROVISION U/S.36(1)(VIIA) IS IN RESPECT OF RURAL ADVANCES AND THE BAD DEBTS WRITE O FF U/S.36(1)(VIIA) IS IN RESPECT OF URBAN ADVANCES, TH E RESTRICTION CONTAINED IN THE PROVISO TO SEC.36(L )( VII) WOULD NOT APPLY AND IN SUCH A CASE, THE BENEFIT OF DEDUCTION U/S.36(L )(VII) IN RESPECT OF URBAN ADVAN CES WOULD BE AVAILABLE TO THE BANK, SUBJECT TO PROVISIO NS OF SEC.36(2), WITHOUT ADJUSTING THE PROVISION MADE U/S.36(1)(VIIA). THE APPELLATE AUTHORITY ALSO FAILED TO CONSIDER THA T THE TOTAL DEBTS WRITTEN OFF DURING THE FINANCIAL YEAR 2 010- 11 DOES NOT EXCEED THE CREDIT BALANCE IN THE PROVIS ION FOR BAD AND DOUBTFUL DEBTS AND ACCORDINGLY, THE PRO VISO TO SEC.36(1)(VII) IS NOT APPLICABLE TO THE PRESENT CASE. THE APPELLATE AUTHORITY OUGHT TO HAVE ALSO RELIED U PON THE JUDGMENT OF THE APEX COURT IN THE CASE OF SOUTH ERN TECHNOLOGIES 320 ITR 577 (SC) VIJAYA BANK 323 ITR 166(SC) WHEREIN IT WAS HELD THAT THE BANK WOULD BE ENTITLED TO BOTH THE DEDUCTIONS, ONE UNDER CL. (VII ) ON THE BASIS OF ACTUAL WRITE OFF AND ANOTHER ON THE BASIS OF CL. (VIIA) IN RESPECT OF MERE PROVISIONS. THE APPELLATE AUTHORITY ERRED MATERIALLY IN NOT CONSIDERING THE SCHEME OF DEDUCTION ALLOWABLE U/S.36(1)(VIIA) WHICH READS AS FOLLOWS: ACCORDING TO SEC. 36(1)(VIIA), THE SCHEME OF DEDUCT ION ALLOWABLE UNDER 36(1)(VIIA) THE BANK IS ENTITLED FO R :: DEDUCTIONS (I) BASING ON THE PROVISION MADE NOT EXCEEDING 10% OF THE AYE RAGE RURAL ADVANCES. AND ( II) AN AMOUNT NOT EXCEEDING 7.5% OF THE TOTAL INCOME COMPUTED BEFORE MAKING ANY DEDUCTION U/S. 36(1)(VII A) AND SEC.80C TO 80U (AS SUBSTITUTED VIDE FINANCE ACT , 2002 EFFECTIVE FROM 1-4-2003). 39 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. THE APPELLATE AUTHORITY OUGHT TO HAVE CONSIDERED TH E ORDER OF THE HON'B1E LT.A.T, HYDERABAD 'X' BENCH IN LT.A.NO.610/HYD/2013 FOR THE ASST YEAR 2009-10 WHEREIN IT WAS HELD THAT THE PROVISION OF SEC.36(L) (VII) AND 36(1)(VIIA) OF THE ACT ARE DISTANT AND INDEPEND ENT ITEMS OF DEDUCTIONS AND OPERATE IN THEIR RESPECTIVE FIELDS. WITH REGARD TO THE CLAIM OF 7.5% OF THE TOTAL INCOM E THE LAW DOESN'T PROVIDE FOR PROVISION OF SUCH AMOUNT IN THE BOOKS. HAD IT BEEN THE INTENTION OF THE LEGISLATION TO MAK E PROVISION TOWARDS THE CLAIM OF 7.5% OF THE TOTAL IN COME, THE WORDS BEFORE MAKING ANY DEDUCTION U/S.36(1)(VII A) AND SEC.80C TO 80U WOULD NOT HAVE BEEN INSERTED IN THE SAID SECTION 5) ANY OTHER GROUND THAT MAY BE URGED AT THE TIME O F HEARING. 27. GROUND OF APPEAL NO.1 IS GENERAL IN NATURE AND HENCE NEEDS NO ADJUDICATION. 28. WE FIND THAT GROUND OF APPEAL NO. 3 IS SIMILAR TO THE ASSESSEE GROUND OF APPEAL NO.3 FOR THE A.Y 2011-12 AND FOR THE DETAILED REASONS GIVEN IN THE ORDER EVEN DATED ABOV E, THIS GROUND OF APPEAL IS REJECTED. 29. AS REGARDS GROUND NO. 3(C), WE FIND THAT THIS G ROUND IS SIMILAR TO ASSESSEES GROUND OF APPEAL NO. 4 FOR TH E A.Y 2011-12 AND BY OUR ORDER EVEN DATED, THIS GROUND HAS BEEN S ET ASIDE TO THE FILE OF THE A.O. IN ACCORDANCE WITH THE SAME, THIS GROUND OF APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 30. AS REGARDS GROUND NO.4, WE FIND THAT THIS GROUN D IS SIMILAR TO THE ASSESSEES GROUND OF APPEAL NOS. 6 & 7 FOR T HE A.Y 2011-12 AND BY ORDER EVEN DATED, THE GROUNDS OF APPEAL WERE REJECTED. 40 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. RESPECTFULLY FOLLOWING THE SAME, THE ASSESSEE GROUN D FOR THE RELEVANT A.Y BEFORE US IS ALSO REJECTED. 31. AS REGARDS ALTERNATE CLAIM, THIS ISSUE IS SET A SIDE TO THE FILE OF THE A.O TO CONSIDER THE ALLOWABILITY SUCH CLAIM, WHILE GOING CONSEQUENT EFFECT TO OUR ORDER AS ABOVE. 32. AS REGARDS THE GROUND OF APPEAL NO.5 IN THE REV ENUES APPEAL FOR THE A.Y 2011-12 AND GROUND OF APPEAL NO. 2 IN THE ASSESSEES APPEAL FOR A.Y 2012-13, WE FIND THAT THE SE GROUNDS ARE ON THE ADDITION OF THE INTEREST ON NPAS BROUGHT TO TAX BY THE AO. IT HAS BEEN DELETED BY THE CIT (A) IN THE A.Y 2011- 12 BY FOLLOWING THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL FOR THE A.YS 2007- 08 AND 2008-09 AND THE REVENUE IS IN APPEAL BEFORE US, WHILE FOR THE A.Y 2012-13, THE CIT (A) CONFIRMED THE ADDITION BY FOLLOWING THE INCOME TAX APPELLATE TRIBUNALS ORDER FOR THE A .Y 2009-10 AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. SINCE THE ISSUE INVOLVED IS THE SAME, WE DEEM IT FIT AND PROPER TO DISPOSE OF THE SAID GROUND IN BOTH THE APPEALS AS UNDER. 33. IT IS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT WHILE COMPLETING THE ASSESSMENT FOR THE A.Y 2011-12 , THE AO ADDED A SUM OF RS.18,37,02,000 AS UN-REALISED INTER EST ON NPA, AS ACCORDING TO THE AO, SINCE THE ASSESSEE BANK IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, IT IS REQUIRED TO ACCOUNT FOR, ALL THE INTEREST ACCRUED TO IT IRRESPECTIVE OF THE DATE OF RECEIPT. FURTHER, ACCORDING TO THE AO, EVEN IN RESPECT OF ST ICKY LOANS I.E. NPAS, ACCRUED INTEREST IS TAXABLE AND CONSEQUENTIAL NOTIONAL INTEREST OF RS.13,87,02,000 WAS ADDED AS ACCRUED IN TEREST ON NPA. IT IS SUBMITTED THAT THE ASSESSEE FILED FIRST APPEAL BEFORE THE CIT (A) CONTENDING THAT IN RESPECT OF STICKY LOANS, THERE IS NO 41 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. ACCRUAL OF INTEREST AT ALL, AS THE RECEIPT OF PRINC IPAL AMOUNT ITSELF IS IN JEOPARDY. THE CIT (A), FOLLOWING THE ORDER O F THE INCOME TAX APPELLATE TRIBUNAL FOR THE A.Y 2007-08 AND 2008-09 IN ITA NOS.1121/HYD/2011 & 1459/HYD/2011 DATED 29.04.2013 ALLOWED THE APPEAL AND DELETED THE ADDITION. 34. IT IS SUBMITTED THAT THE TRIBUNAL IN ITS ORDER FOR THE A.Y 2009-10 IN ITA NO.610/HYD/2013 DATED 13.03.2014 TOO K A CONTRARY VIEW IN RELATION TO THE ASSESSMENT OF INTE REST ON NON- PERFORMING ASSETS BY FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD REPORTED IN 320 ITR 577. IT IS SUBMITTED BY THE LEARNED COUN SEL FOR THE ASSESSEE THAT, ADMITTEDLY THE ASSETS HAVE BECOME NO N-PERFORMING ASSETS AND THE LOANS HAVE BECOME STICKY AND IT IS N OT IN DISPUTE THAT THE RECOVERY OF LOANS ITSELF HAS BECOME DOUBTF UL AND UNCERTAIN. IT IS SUBMITTED THAT THE BANK ON ITS PAR T HAS NOT SHOWN ANY NOTIONAL INTEREST IN ITS P&L A/C BUT HAS BEEN A CCOUNTING FOR THE SAME AS INCOME AS AND WHEN INTEREST IS RECEIVED ON THESE NPAS. IT IS SUBMITTED THAT THE ASSESSEE HAD PREFERR ED AN APPEAL BEFORE THE HON'BLE HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL IN ITA NO.610/HYD/2013, BUT THE HON'BLE HIGH COURT HAS DISMISSED ITS APPEAL VIDE ORDER DATED 13.11.2011 DIRECTING TH AT THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHER N TECHNOLOGIES LTD (SUPRA) CAN BE CONSIDERED BY THE ASSESSING AUTHORITY IN TERMS OF THE DIRECTIONS OF THE TRIBUNA L. IT IS THE CASE OF THE ASSESSEE THAT THE HON'BLE HIGH COURT HAS DIS MISSED THE APPEAL ON THE ASSUMPTION THAT THE MATTER WAS REMITT ED BACK TO THE FILE OF THE AO BY THE TRIBUNAL WITH A DIRECTION , WHILE AS A MATTER OF FACT, THE INCOME TAX APPELLATE TRIBUNAL D ISMISSED THE APPEAL. IT IS SUBMITTED THAT FURTHER AGGRIEVED, THE ASSESSEE FILED 42 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. AN SLP BEARING NO.11901 OF 2015 BEFORE THE HON'BLE SUPREME COURT AND THE HON'BLE SUPREME COURT WHILE ORDERING THE NOTICE, HAS PASSED INTERIM ORDERS THAT NO COERCIVE STEPS SH ALL BE TAKEN FOR THE RECOVERY OF THE AMOUNT IN QUESTION AND THE MATT ER IS STILL PENDING. 35. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRIBUNAL DURING THE APPELLATE PROCEEDINGS FOR THE A .Y 2009-10, HAS NOT CONSIDERED THE REAL INCOME THEORY OR PRINCI PLES OF THE ACCRUAL OF INCOME, ACCOUNTING STANDARD/METHOD OF AC COUNTING ETC BEFORE APPLYING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). HE FURTH ER SUBMITTED THAT THE ASSESSEE HAD ALSO RELIED UPON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. VASISTH CHA Y VYAPAR LTD (DELHI) REPORTED IN 330 ITR 440 WHEREIN THE HON'BLE DELHI HIGH COURT HAS EXPLAINED THE DECISION OF THE HON'BLE SUP REME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD AND HAS HELD THAT THE INTEREST ON NPAS CANNOT BE BROUGHT TO TAX BUT THE T RIBUNAL HAS NOT CONSIDERED THE SAME. THEREFORE, ACCORDING TO TH E LEARNED COUNSEL FOR THE ASSESSEE, THE INCOME TAX APPELLATE TRIBUNAL HAS TO CONSIDER THE FACTS OF THE CASE FOR THE A.Y BEFOR E US INDEPENDENTLY AND HAS TO COME TO A DIFFERENT CONCLU SION AS IN THE ASSESSEES OWN CASE FOR THE A.Y 2008-09. IN SUPPORT OF ITS CONTENTION THAT THE INCOME TAX APPELLATE TRIBUNAL C AN TAKE A DIFFERENT VIEW FROM THE EARLIER YEARS ON PROPER APP RECIATION OF FACTS, THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLA CED RELIANCE UPON THE FOLLOWING DECISIONS: A) NEW JEHANGIR VAKIL MILLS CO. VS. CIT 49 ITR 137 @142(S.C) B) ITO V. MURALIDHAR BHAGWANDAS 52 ITR 335 @ 342(S .C) C) RADHASOAMY SATSANG V. CIT 193 ITR 321 @ 329 (S. C) D) CIT V. BRIJLAL LOHIA AND MAHABIR PRASAD 84 ITR 273 @ 277(S.C) 43 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. E) CIT VS. KALPETTA ESTATES LTD 211 ITR 635 @ 638 (KER.) 36. ON THE MERITS OF THE ISSUE, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE FOLLOWING DECISIO NS: I) CIT VS. VASISTH CHAY VYAPAR LTD (DELHI) REPORTED IN 330 ITR 440 (DEL. HIGH COURT) II) SHOORJI VALLABHDAS & CO. VS. CIT (S.C) 46 ITR 144 @ 148 III) CIT VS. FEROZPUR FINANCE PVT. LTD (P&H) 124 ITR 619 @ 623, 619 & 625] IV) CIT VS. MOTOR CREDIT CO. PVT LTD (MAD.) 127 ITR 572 @ 576 V) KEWAL CHAND BAGRI VS. CIT (CAL.)183 ITR 207 @ 209- 212 VI) GODHRA ELECTRICITY CO LTD VS. CIT (S.C) 225 ITR 746 @ 757-75&760 VII) CIT VS. BOKARO STEELS LTD (S.C) 236 ITR 315 VIII) CIT VS. EICHER LTD (DEL.) 320 ITR 410 IX) CBDT NOTIFICATION NO.25.01.1996 (218 ITR (ST.)1) X) CIT VS. U.P. STATE INDUSTRIAL DEVELOPMENT CORPORATI ON REPORTED IN 225 ITR 703 (S.C) XI) CIT VS. PACT SECURITIES AND FINANCIAL SERVICES LTD 374 ITR 681 REPORTED IN (2015) 273 ITR 681 (T & A.P) XII) CIT VS. CANFIN HOMES LTD REPORTED IN (2012) 347 ITR 382 (KARN.) 37. IN SUPPORT OF ITS CONTENTION THAT THE PRUDENCE NORMS ISSUED BY THE RBI TO NON BANKING AND FINANCIAL INST ITUTIONS ARE MANDATORY AND HAVE TO BE FOLLOWED AS STATUTORY RECOMMENDATIONS, THE LEARNED COUNSEL FOR THE ASSESS EE PLACED RELIANCE UPON THE FOLLOWING DECISIONS: A) PEERLESS GEN FINANCE & INV. CO. LTD & ANR.VS. RBI ( S.C) REPORTED (N 1992) 2 SCC 343 B) BARKHA INVESTMENT & TRADING CO. V. CIT (GUJ.) 281 I TR 316 C) TRO VS. CUSTODIAN SPL. COURT ACT 1992 (S.C) 293 ITR 639 D) CIT VS. NAINITAL BANK LTD (UTTARANCHAL) 309 ITR 335 44 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 38. THUS, ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE INTEREST ON THE NPAS CANNOT BE BROUGH T TO TAX ON NOTIONAL BASIS WHEN THERE WAS NO POSSIBILITY OF REC OVERY OF THE NPAS ITSELF AS PER THE PRUDENCE NORMS PRESCRIBED BY THE RBI. 39. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE AUTHORITIES BELOW AND ALSO THE DECISI ON OF THE INCOME TAX APPELLATE TRIBUNAL IN ASSESSEES OWN CAS E FOR THE A.Y 2009-10 AND THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD (SUPRA). 40. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE ARE AWARE OF THE FACT THAT THE ITAT I N ASSESSEES OWN CASE HAS TAKEN DIFFERENT VIEW FOR THE A.YS 2007 -08 & 2008- 09 ON THE ONE SIDE AND FOR THE A.Y 2009-10 AND THE OTHER SIDE. IT IS THEREFORE, TO BE SEEN WHETHER THIS TRIBUNAL C AN TAKE A DIFFERENT VIEW THAN THE VIEW TAKEN BY IT IN THE A.Y 2009-10 PARTICULARLY WHEN ONE OF US (J.M) IS A SIGNATORY TO SUCH AN ORDER. THE INCOME TAX APPELLATE TRIBUNAL FOR THE A. Y 2009-10 WHILE CONSIDERING THE ISSUE HAS HELD AS UNDER: 12. AS REGARDS GROUND NO.5 RELATING TO ADDITION MA DE BY THE AO TOWARDS ACCRUED INTEREST ON NON-PERFORMING ASSETS, WE FIND THAT THE TRIBUNAL HAS CONSIDERED THIS ISSUE IN ASSESSEES CASE AT PARAS 1 3 TO 17 OF ITS ORDER AND HAS HELD IT IN FAVOUR OF THE ASSESSEE. HOWEVER, WE FIND THAT THE TRIBUNAL HAS NOT CONSIDERED THE DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF SOUTHERN TECHNOLOGIES REPORTED IN 320 ITR 577 WHEREIN IT HAS BEEN HELD THAT THE RBI DIRECTIVES WERE ONLY IN THE CONTEXT OF PRESENTATION OF NPAS IN THE BALANCE SHEET AND THE BALANCE SHEET OF NBFC HAS NOTHING TO DO WIT H THE TAXABLE INCOME, WHICH HAS TO BE COMPUTED AS PER THE PROVISIONS OF T HE I.T. ACT. THOUGH THE DECISION OF THE HON'BLE SUPREME COURT IS DATED 11.0 1.2010, THE SAME HAS NOT BEEN CONSIDERED BY THE TRIBUNAL AND, HENCE, THE FIN DING OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.YS 2007-08 AND 2008-0 9 CANNOT BE FOLLOWED. IN VIEW OF THE SAME, THIS GROUND OF APPEAL OF THE REVE NUE IS ALLOWED. 45 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 41. ON A CLOSE READING OF THE ABOVE PARA, IT IS EVI DENT THAT THE TRIBUNAL HAS NOT DISCUSSED THE MERITS OF THE ISSUE, BUT HAS ONLY OBSERVED THAT THE EARLIER DECISIONS OF THE ITAT WER E PASSED WITHOUT CONSIDERING THE DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD REPORTED IN 320 ITR 56 7 AND THEREFORE, ARE NOT TO BE FOLLOWED. THIS TRIBUNAL IN THE CASE OF A.P. BEVERAGES CORPORATION (TO WHICH BOTH OF US ARE SIGN ATORIES) HAS CONSIDERED A SIMILAR ISSUE WHETHER THE TRIBUNAL CAN RECONSIDER AND TAKE A DIFFERENT STAND FROM THE EARLIER YEARS A ND AT PARA 15 TO 20 OF ITS ORDER HAS HELD AS UNDER: 15. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT UNDISPUTEDLY THE ASSESSEE IS C ONFERRED WITH THE PRIVILEGE OF MANUFACTURE AND TRADING OF LIQUOR IN THE STATE OF A.P. BY THE GOVT. OF A.P. FOR A PRIVILEGE FEE. ADMI TTEDLY, THIS ISSUE HAD ARISEN IN THE ASSESSEES OWN CASE IN THE EARLIE R A.YS AND THE TRIBUNAL HAS DECIDED THE ISSUE AGAINST THE ASSESSEE AND THE ASSESSEE IS IN APPEAL BEFORE THE HON'BLE HIGH COURT . IT IS THE CASE OF THE ASSESSEE THAT THIS ISSUE IS NOW COVERED IN F AVOUR OF THE ASSESSEE BY VIRTUE OF THE HON'BLE KARNATAKA HIGH CO URT DECISION IN THE CASE OF KARNATAKA STATE BEVERAGES CORPN. VS. CIT (CITED SUPRA) AND THAT THE DECISION OF THE HON'BLE KARNATA KA HIGH COURT HAS TO BE FOLLOWED SINCE THERE IS NO DECISION OF AN Y OTHER HIGH COURT AGAINST THE ASSESSEE. 16. WE FIND THAT THE COORDINATE BENCH OF THIS TRIBU NAL IN THE ASSESSEES OWN CASE FOR THE A.Y 2006-07, 2008-09 AN D 2009-10 HAS HELD THE ISSUE AGAINST THE ASSESSEE VIDE ORDERS DATED 22.01.2014. WE HAVE PERUSED THE ORDER AND WE FIND T HAT IN THE SAID ORDERS, THE TRIBUNAL HAS CONSIDERED AS TO WHET HER THE PRIVILEGE FEE, SPECIAL PRIVILEGE FEE ETC., PAID BY THE ASSESSEE TO THE GOVT. WAS DIVERSION OF INCOME BY OVERRIDING TITLE . THE TRIBUNAL HAS HELD THAT AS PER THE AMENDED PROVISION OF EXCIS E ACT, THE PAYMENT OF MARGINS IN THE FORM OF PRIVILEGE FEE ETC , IS NOT THE INCOME OF THE GOVERNMENT NOR IS IT DIVERSION OF IN COME BY OVERRIDING TITLE. FURTHER, AT PARA 21 OF ITS ORDER , THE TRIBUNAL HAS ALSO CONSIDERED AS TO WHETHER THE SPECIAL PRIVILEGE FEE PAID TO THE GOVT. CAN BE ALLOWED AS EXPENDITURE. THE TRIBUNAL, AFTER CONSIDERING THE AS-22 HAS OBSERVED THAT IT WOULD BE LOGICAL TO CONSIDER THAT THE ASSESSEE SHOULD HAVE REMITTED ITS MARGIN, PRIVILEGE FEE ETC., AFTER DEDUCTING EXPENSES WHICH ALSO INCLUDED INCOME TAX AND FURTHERMORE, WHEN NO MECHANISM HAS B EEN PROVIDED FOR COMPUTING THE PRIVILEGE FEE, SPECIAL P RIVILEGE FEE ETC., AND ADMITTEDLY THE ASSESSEE HAVING NOT COLLECTED PR IVILEGE FEE, SPECIAL PRIVILEGE FEE ETC., SEPARATELY IN THE BILLS , THE QUANTIFICATION 46 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. OF SUCH FEE IS ALSO NOT POSSIBLE AND IN THESE CIRCU MSTANCES, IT CANNOT BE CLAIMED AS EXPENDITURE. THE TRIBUNAL HELD THAT THE PAYMENT OF SURPLUS/MARGIN/PRIVILEGE IS ONLY PARTLY OF THE PROFIT OF THE ASSESSEE CORPORATION TO THE STATE AND THEREFORE , IT CANNOT BE ANYTHING ELSE BUT APPLICATION OF INCOME AND THEREFO RE, NOT ALLOWABLE AS AN EXPENDITURE. THUS, IT CAN BE SEEN T HAT THE ISSUE AS TO WHETHER THERE IS ANY DIVERSION OF INCOME BY O VERRIDING TITLE TO THE STATE IS CLEARLY AGAINST THE ASSESSEE BY THE ABOVE ORDER OF THE TRIBUNAL AND THE COORDINATE BENCH OF THIS TRIBU NAL IS BOUND TO FOLLOW THE SAME FOR THE SAKE OF UNIFORMITY UNLES S THE FACTS GERMANE TO THE ISSUE HAVE NOT BEEN CONSIDERED BY TH E EARLIER BENCH OR NEW FACTS HAVE EMERGED THIS YEAR REQUIRING FRESH LOOK AT THE ISSUE. 17. THE LEARNED COUNSEL FOR THE ASSESSEE HAD RELIED UPON THE FOLLOWING DECISIONS TO CONTEND THAT THIS TRIBUNAL C AN RE- CONSIDER/RE-EXAMINE THE ISSUE IF THERE IS ANY NEW M ATERIAL, OR CHANGE IN CIRCUMSTANCES: A) NEW JEHANGIR VAKIL MILLS CO. VS. CIT 49 ITR 137 @142(S.C) B) ITO V. MURALIDHAR BHAGWANDAS 52 ITR 335 @ 342(S .C) C) RADHASOAMY SATSANG V. CIT 193 ITR 321 @ 329 (S. C) D) CIT V. BRIJLAL LOHIA AND MAHABIR PRASAD 84 ITR 273 @ 277(S.C) E) CIT VS. KALPETTA ESTATES LTD 211 ITR 635 @ 638 (KER.) 18. WE FIND THAT THE HON'BLE SUPREME COURT IN THE C ASE OF NEW JEHANGIR VAKIL MILLS CO. LTD (SUPRA), HELD THAT THE TRIBUNAL CAN DECIDE THE APPEAL ON THE BASIS OF THE FACTS ADMITTE D AND/OR FOUND BY THE TRIBUNAL. IN THE CASE OF INCOME TAX OF FICER VS. MURALIDHAR BHAGWAN DAS (SUPRA), THE HON'BLE SUPREME COURT HELD THAT IN DECIDING AN APPEAL RELATING TO ONE ASS ESSMENT YEAR, THE APPELLATE AUTHORITY CANNOT GIVE A DIRECTION OR A FINDING THAT A PARTICULAR INCOME WHICH WAS NOT CHARGEABLE TO TAX I N THAT ASSESSMENT YEAR, WAS CHARGEABLE TO TAX IN ANOTHER A .Y. HON'BLE SUPREME COURT, IN THE CASE OF RADHASOAMY STASANG VS . CIT REPORTED IN 193 ITR 321 VS. CIT (SUPRA), HELD THAT THE ASSESSMENTS ARE QUASI-JUDICIAL AND EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY I N THE FOLLOWING YEAR, BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THR OUGH THE DIFFERENT A.YS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND THE PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAI NED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPRO PRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. 19. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS . BRIJ LAL LOHIA AND MAHABIR PRASAD KHEMKA (CITED SUPRA) WAS D EALING WITH THE CASE OF AN ASSESSEE WHO GIFTED SOME OF THE MONEY TO HIS BROTHER AND HIS NEPHEW WHO ARE STATED TO HAVE START ED A NEW FIRM DEALING IN JUTE WHILE THE ASSESSEE HAS STOPPED HIS BUSINESS OF DEALING IN JUTE. THE QUESTION FOR CONSIDERATION WAS WHETHER THE GIFTS STATED TO HAVE BEEN GIVEN BY THE ASSESSEE WERE GENUINE. 47 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. THIS QUESTION HAD COME UP FOR CONSIDERATION BEFORE THE AUTHORITIES WHILE DEALING WITH THE ASSESSMENT OF TH E ASSESSEE FOR THE A.YS 1945-46 AND 1946-47 AND ON THE BASIS OF TH E MATERIAL BEFORE THEM, THE TRIBUNAL HELD THAT THE GIFTS, IN Q UESTION, ARE NOT GENUINE GIFTS. THE HON'BLE HIGH COURT DID NOT INTER FERE WITH THE FINDINGS OF THE TRIBUNAL ON THE GROUND THAT IT WAS A FINDING OF FACT. THE MATTER TRAVELLED UP TO THE HON'BLE SUPREM E COURT ALSO AND THE APEX COURT REFUSED TO INTERFERE WITH THE FI NDING OF THE TRIBUNAL OBSERVING THAT THE QUESTION WHETHER THE GI FTS WERE REAL WAS THE MATTER WITHIN THE JURISDICTION OF THE TRIBU NAL AS THE FINAL FACT FINDING AUTHORITY. THE QUESTION WHETHER THOSE VERY GIFTS WERE GENUINE OR NOT CAME UP AGAIN BEFORE THE AUTHORITIES WHILE DEALING WITH THE ASSESSMENT OF THE ASSESSEE FOR THE A.YS 19 47-48 TO 1951-52. IN THESE YEARS, THE ASSESSEE ADDUCED CONSI DERABLE ADDITIONAL EVIDENCE. ON THE BASIS OF THAT EVIDENCE, THE TRIBUNAL AFTER TAKING INTO CONSIDERATION THE DECISION RENDER ED BY THE TRIBUNAL IN THE PREVIOUS PROCEEDINGS, CAME TO CONCL USION THAT THE GIFTS, IN QUESTION, ARE GENUINE. THE MATTER TRAVELL ED UP TO THE HON'BLE SUPREME COURT AND AFTER CONSIDERING THE EVI DENCE TAKEN INTO CONSIDERATION BY THE TRIBUNAL FOR A DIFFERENT CONCLUSION THAN IN THE EARLIER A.YS, THE HON'BLE SUPREME COURT HELD THAT THE CIRCUMSTANCES TAKEN INTO CONSIDERATION BY THE TRIBU NAL HAVE MATERIAL BEARING ON THE POINTS ON THE ISSUE AND THA T IT CANNOT BE SAID THAT THE TRIBUNAL HAS IGNORED ANY ONE OF THE R ELEVANT CIRCUMSTANCES. THE HON'BLE SUPREME COURT ALSO OBSER VED THAT THE FACT THAT IN THE EARLIER PROCEEDINGS, THE TRIBUNAL TOOK A DIFFERENT VIEW OF THOSE DEEDS IS NOT A CONCLUSIVE CIRCUMSTANC E AND THE DECISION OF THE TRIBUNAL REACHED DURING THOSE PROCE EDINGS DOES NOT OPERATE AS RES JUDICATA. 20. THE HON'BLE KERALA HIGH COURT IN THE CASE OF CI T VS. KALPETTA ESTATES LTD (CITED SUPRA) ALSO HAS HELD TH AT THE DECISION IN THE ASSESSEES CASE RELATING TO PRIOR YEARS WOUL D NOT OPERATE AS RES JUDICATA AND THE TRIBUNAL IS ENTITLED TO TAK E A DIFFERENT VIEW OF THE MATTER, IF NEW MATERIALS ARE PLACED OR ON A CLOSER AND MORE INTELLIGENT ANALYSIS. THUS, IN VIEW OF THE ABO VE DECISIONS, IT CAN BE CONCLUDED THAT THE DECISION IN THE CASE OF A N ASSESSEE IN ONE PARTICULAR YEAR MAY NOT ACT AS RES JUDICATA, BU T IT IS ALSO NOT PERMISSIBLE TO DISTURB A SETTLED POSITION IN THE SU BSEQUENT YEARS WITHOUT ANY BASIS 42. FURTHER, WE FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF KARAN SINGH & OTHERS VS.BHAGWAN SINGH (DEAD) BY LRS AND OTHERS REPORTED IN (1996) 7 S.C.C 559 HAS HELD THAT COURT OF APPEAL SHALL HAVE ALL THE POWERS AND SHALL PERFORM AS NEARLY AS MAY BE, THE SAME DUTIES AS ARE CONFERRED AND IMPOSE D ON THE COURT OF ORIGINAL JURISDICTION. WHEN THE APPEAL, TH EREFORE, IS PENDING IN THIS COURT, IT IS A CONTINUATION OF THE ORIGINAL 48 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. PROCEEDINGS AND THE ENTIRE ISSUE IS AT LARGE. IT IS WELL SETTLED LAW THAT THE COURT CAN TAKE JUDICIAL NOTICE OF THE CHAN GE IN LAW AND MOULD THE RELIEF ON THE BASIS OF THE RIGHTS ALTERED UNDER THE AMENDED LAW. SIMILAR VIEW WAS ALSO EXPRESSED BY TH E HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN PETROLEUM CO RPORATION LTD VS. DILBAHAR SINGH REPORTED IN (2014) 9 S.C.C. 78. 43. THUS, WE ARE CONVINCED THAT THE ISSUE BEFORE US NEEDS A RECONSIDERATION IN THE LIGHT OF THE FACTS AND THE L EGAL PRECEDENTS PLACED BEFORE US BY THE ASSESSEE. WE FIND THAT THE ISSUE OF THE ACCRUAL OF INTEREST INCOME ON NPAS HAD ARISEN BEFOR E THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. VASISTH CHA Y VYAPAR LTD (SUPRA) AND THE HON'BLE DELHI HIGH COURT AFTER CONS IDERING THE IMPACT OF THE SOUTHERN TECHNOLOGIES LTD (SUPRA) ON THE ISSUE HAS CONSIDERED THE ISSUE AT LENGTH AND AT PARAS 18 TO 2 2 OF ITS ORDER HAS HELD AS UNDER: 18. AS NOTED ABOVE, MR. SABHARWAL, ARGUED THAT THE CAS E OF THE ASSESSEE WAS TO BE DEALT WITH FOR THE PURPOSE OF TA XABILITY AS PER THE PROVISIONS OF THE ACT AND NOT THE RBI ACT WHICH WAS THE ACCOUNTING METHOD THAT THE ASSESSEE WAS SUPPOSED TO FOLLOW. WE HAVE ALREADY HELD THAT EVEN UNDER THE INCOME-TAX ACT, INTEREST INCOME HAD NOT ACCRUED. MOREOVER, THIS SUBMISSION OF MR. SABHARWAL IS BASED ENTIRELY ON THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF SOUTHE RN TECHNOLOGIES LTD.S (SUPRA). NO DOUBT, IN FIRST BLUSH, READING O F THE JUDGMENT GIVES AN INDICATION THAT THE COURT HAS HELD THAT RBI ACT DOE S NOT OVERRIDE THE PROVISIONS OF THE INCOME-TAX ACT. HOWEVER, WHEN WE EXAMINE THE ISSUE INVOLVED THEREIN MINUTELY AND DEEPLY IN THE CONTEXT IN WHICH THAT HAD ARISEN AND CERTAIN OBSERVATIONS OF THE APEX COURT C ONTAINED IN THAT VERY JUDGMENT, WE FIND THAT THE PROPOSITION ADVANCED BY MR. SABHARWAL MAY NOT BE ENTIRELY CORRECT. IN THE CASE BEFORE THE SUP REME COURT, THE ASSESSEE A NBFC DEBITED RS. 81,68,516 AS PROVISION AGAINST NPA IN THE PROFIT AND LOSS ACCOUNT, WHICH WAS CLAIMED AS DEDUC TION IN TERMS OF SECTION 36(1)(VII) OF THE ACT. THE ASSESSING OFFICE R DID NOT ALLOW THE DEDUCTION CLAIMED AS AFORESAID ON THE GROUND THAT T HE PROVISION OF NPA WAS NOT IN THE NATURE OF EXPENDITURE OR LOSS BUT MO RE IN THE NATURE OF A RESERVE, AND THUS NOT DEDUCTIBLE UNDER SECTION 36(1 )(VII) OF THE ACT. THE ASSESSING OFFICER, HOWEVER, DID NOT BRING TO TAX RS . 20,34,605 AS INCOME (BEING INCOME ACCRUED UNDER THE MERCANTILE S YSTEM OF ACCOUNTING). THE DISPUTE BEFORE THE APEX COURT CENT ERED AROUND DEDUCTIBILITY OF PROVISION FOR NPA. AFTER ANALYZING THE PROVISIONS OF THE RBI ACT, THEIR LORDSHIPS OF THE APEX COURT OBSERVED THAT INSOFAR AS THE 49 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. PERMISSIBLE DEDUCTIONS OR EXCLUSIONS UNDER THE ACT ARE CONCERNED, THE SAME ARE ADMISSIBLE ONLY IF SUCH DEDUCTIONS/EXCLUSI ONS SATISFY THE RELEVANT CONDITIONS STIPULATED THEREFOR UNDER THE A CT. TO THAT EXTENT, IT WAS OBSERVED THAT THE PRUDENTIAL NORMS DO NOT OVERR IDE THE PROVISIONS OF THE ACT. HOWEVER, THE APEX COURT MADE A DISTINCT ION WITH REGARD TO 'INCOME RECOGNITION' AND HELD THAT INCOME HAD TO BE RECOGNIZED IN TERMS OF THE PRUDENTIAL NORMS, EVEN THOUGH THE SAME DEVIATED FROM MERCANTILE SYSTEM OF ACCOUNTING AND/OR SECTION 45 O F THE INCOME-TAX ACT. IT CAN BE SAID, THEREFORE, THAT THE APEX COURT APPROVED THE REAL INCOME THEORY WHICH IS ENGRAINED IN THE PRUDENTIAL NORMS FOR RECOGNITION OF REVENUE BY NBFC. THE FOLLOWING PASSA GE FROM THE JUDGMENT OF THE APEX COURT WOULD BRING OUT THE DIST INCTION NOTICED BY THE APEX COURT BETWEEN PERMISSIBLE DEDUCTIONS/EXCLU SIONS, ON THE ONE HAND, AND INCOME RECOGNITION ON THE OTHER : '31. BEFORE CONCLUDING ON THIS POINT, WE NEED TO EM PHASISE THAT THE 1998 DIRECTIONS HAS NOTHING TO DO WITH THE ACCOUNTI NG TREATMENT OR TAXABILITY OF 'INCOME' UNDER THE INCOME-TAX ACT. TH E TWO, VIZ., INCOME- TAX ACT AND THE 1998 DIRECTIONS OPERATE IN DIFFEREN T FIELDS. AS STATED ABOVE, UNDER THE MERCANTILE SYSTEM OF ACCOUNTING, I NTEREST/HIRE CHARGES INCOME ACCRUES WITH TIME. IN SUCH CASES, INTEREST I S CHARGED AND DEBITED TO THE ACCOUNT OF THE BORROWER AS 'INCOME' IS RECOG NIZED UNDER ACCRUAL SYSTEM. HOWEVER, IT IS NOT SO RECOGNIZED UNDER THE 1998 DIRECTIONS AND, THEREFORE, IN THE MATTER OF ITS PRESENTATION UNDER THE SAID DIRECTIONS, THERE WOULD BE AN ADD BACK BUT NOT UNDER THE INCOME -TAX ACT NECESSARILY. IT IS IMPORTANT TO NOTE THAT COLLECTAB ILITY IS DIFFERENT FROM ACCRUAL. HENCE, IN EACH CASE, THE ASSESSEE HAS TO P ROVE, AS HAS HAPPENED IN THIS CASE WITH REGARD TO THE SUM OF RS. 20,34,605, THAT INTEREST IS NOT RECOGNIZED OR TAKEN INTO ACCOUNT DU E TO UNCERTAINTY IN COLLECTION OF THE INCOME. IT IS FOR THE ASSESSING O FFICER TO ACCEPT THE CLAIM OF THE ASSESSEE UNDER THE IT ACT OR NOT TO AC CEPT IT IN WHICH CASE THERE WILL BE ADD BACK EVEN UNDER REAL INCOME THEOR Y AS EXPLAINED HEREIN BELOW. 38. THE POINT TO BE NOTED IS THAT THE INCOME-TAX AC T IS A TAX ON 'REAL INCOME', I.E., THE PROFITS ARRIVED AT ON COMMERCIAL PRINCIPLES SUBJECT TO THE PROVISIONS OF THE INCOME-TAX ACT. THEREFORE, IF BY EXPLANATION TO SECTION 36(1)(VII) A PROVISION FOR DOUBTFUL DEBT IS KEPT OUT OF THE AMBIT OF THE BAD DEBT WHICH IS WRITTEN OFF THEN, ONE HAS TO TAKE INTO ACCOUNT THE SAID EXPLANATION IN COMPUTATION OF TOTAL INCOME UNDER THE INCOME- TAX ACT FAILING WHICH ONE CANNOT ASCERTAIN THE REAL PROFITS. THIS IS WHERE THE CONCEPT OF 'ADD BACK' COMES IN. IN OUR VIEW, A PROVISION FOR NPA DEBITED TO PROFIT AND LOSS ACCOUNT UNDER THE 1998 D IRECTIONS IS ONLY A NOTIONAL EXPENSE AND, THEREFORE, THERE WOULD BE ADD BACK TO THAT EXTENT IN THE COMPUTATION OF TOTAL INCOME UNDER THE IT ACT . 39. ONE OF THE CONTENTIONS RAISED ON BEHALF OF NBFC BEFORE US WAS THAT IN THIS CASE THERE IS NO SCOPE FOR 'ADD BACK' OF TH E PROVISION AGAINST NPA TO THE TAXABLE INCOME OF THE ASSESSEE. WE FIND NO MERIT IN THIS CONTENTION. UNDER THE IT ACT, THE CHARGE IS ON PROF ITS AND GAINS, NOT ON GROSS RECEIPTS (WHICH, HOWEVER, HAS PROFITS EMBEDDE D IN IT). THEREFORE, 50 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. SUBJECT TO THE REQUIREMENTS OF THE INCOME-TAX ACT, PROFITS TO BE ASSESSED UNDER THE INCOME-TAX ACT HAVE GOT TO BE REAL PROFIT S WHICH HAVE TO BE COMPUTED ON ORDINARY PRINCIPLES OF COMMERCIAL AC COUNTING. IN OTHER WORDS, PROFITS HAVE GOT TO BE COMPUTED AFTER DEDUCT ING LOSSES/EXPENSES INCURRED FOR BUSINESS, EVEN THOUGH SUCH LOSSES/EXPE NSES MAY NOT BE ADMISSIBLE UNDER SECTIONS 30 TO 43D OF THE INCOME-T AX ACT, UNLESS SUCH LOSSES/EXPENSES ARE EXPRESSLY OR BY NECESSARY IMPLI CATION DISALLOWED BY THE ACT. THEREFORE, EVEN APPLYING THE THEORY OF REAL INCOME, A DEBIT WHICH IS EXPRESSLY DISALLOWED BY EXPLANATION TO SEC TION 36(1)(VII), IF CLAIMED, HAS GOT TO BE ADDED BACK TO THE TOTAL INCO ME OF THE ASSESSEE BECAUSE THE SAID ACT SEEKS TO TAX THE 'REAL INCOME' WHICH IS INCOME COMPUTED ACCORDING TO ORDINARY COMMERCIAL PRINCIPLE S BUT SUBJECT TO THE PROVISIONS OF THE INCOME-TAX ACT. UNDER SECTION 36(1)(VII) READ WITH THE EXPLANATION, A 'WRITE OFF' IS A CONDITION FOR A LLOWANCE. IF 'REAL PROFIT' IS TO BE COMPUTED ONE NEEDS TO TAKE INTO AC COUNT THE CONCEPT OF 'WRITE OFF' IN CONTRADISTINCTION TO THE 'PROVISION FOR DOUBTFUL DEBT'. 40. APPLICABILITY OF SECTION 145.AT THE OUTSET, WE MAY STATE THAT IN ESSENCE RBI DIRECTIONS 1998 ARE PRUDENTIAL/PROVISIO NING NORMS ISSUED BY RBI UNDER CHAPTER IIIB OF THE RBI ACT, 1934. THE SE NORMS DEAL ESSENTIALLY WITH INCOME RECOGNITION. THEY FORCE THE NBFCS TO DISCLOSE THE AMOUNT OF NPA IN THEIR FINANCIAL ACCOUNTS. THEY FORCE THE NBFCS TO REFLECT 'TRUE AND CORRECT' PROFITS. BY VIRTUE OF SE CTION 45Q, AN OVERRIDING EFFECT IS GIVEN TO THE DIRECTIONS 1998 VIS-A-VIS 'I NCOME RECOGNITION' PRINCIPLES IN THE COMPANIES ACT, 1956. THESE DIRECT IONS CONSTITUTE A CODE BY ITSELF. HOWEVER, THESE DIRECTIONS 1998 AND THE INCOME-TAX ACT OPERATE IN DIFFERENT AREAS. THESE DIRECTIONS 1998 H AVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. THESE DIRECTION S CANNOT OVERRULE THE 'PERMISSIBLE DEDUCTIONS' OR 'THEIR EXCLUSION' U NDER THE INCOME-TAX ACT. THE INCONSISTENCY BETWEEN THESE DIRECTIONS AND COMPANIES ACT IS ONLY IN THE MATTER OF INCOME RECOGNITION AND PRESEN TATION OF FINANCIAL STATEMENTS. THE ACCOUNTING POLICIES ADOPTED BY AN N BFC CANNOT DETERMINE THE TAXABLE INCOME. IT IS WELL SETTLED TH AT THE ACCOUNTING POLICIES FOLLOWED BY A COMPANY CAN BE CHANGED UNLES S THE ASSESSING OFFICER COMES TO THE CONCLUSION THAT SUCH CHANGE WO ULD RESULT IN UNDERSTATEMENT OF PROFITS. HOWEVER, HERE IS THE CAS E WHERE THE ASSESSING OFFICER HAS TO FOLLOW THE RBI DIRECTIONS 1998 IN VIEW OF SECTION 45Q OF THE RBI ACT. HENCE, AS FAR AS INCOME RECOGNITION IS CONCERNED, SECTION 145 OF THE INCOME-TAX ACT HAS NO ROLE TO PLAY IN THE PRESENT DISPUTE.' (EMPHASIS SUPPLIED) 19. WE HAVE ALSO NOTICED THE OTHER LINE OF CASES WHERE IN THE SUPREME COURT ITSELF HAS HELD THAT WHEN THERE IS A PROVISIO N IN OTHER ENACTMENT WHICH CONTAINS A NON OBSTANTE CLAUSE, THAT WOULD OV ERRIDE THE PROVISIONS OF INCOME-TAX ACT. CUSTODIAN APPOINTED U NDER THE SPECIAL COURT ACT, 1992S CASE (SUPRA) IS ONE SUCH CASE APA RT FROM OTHER CASES OF DIFFERENT HIGH COURTS. WHEN THE JUDGMENT OF THE SUPREME COURT IN SOUTHERN TECHNOLOGIES LTD.S CASE (SUPRA) IS REA D IN MANNER WE HAVE READ, IT BECOMES EASY TO RECONCILE THE RATIO OF SOU THERN TECHNOLOGIES LTD. (SUPRA) WITH CUSTODIAN APPOINTED UNDER THE SPE CIAL COURT ACT, 1992 (SUPRA). 51 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 20. THUS VIEWED FROM ANY ANGLE, THE DECISION OF THE TR IBUNAL APPEARS TO BE CORRECT IN LAW. THE QUESTION OF LAW IS THUS DECI DED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. AS A RESULT, ALL THESE APPEALS ARE DISMISSED. 44. FURTHER, WE FIND THAT THE HON'BLE JURISDICT IONAL HIGH COURT IN THE CASE OF PACT SECURITIES & FINANCIAL SERVICES LTD IN ITTA NOS.252 AND 291 OF 2003 AND 76 & 77 OF 2006 VIDE OR DER DATED 5.2.2015 HAS HELD THAT THE ACCOUNTING STANDARD ISSU ED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) WOULD BE BINDING ON THE ASSESSEE TILL SUCH TIME THE CENTRAL GOVT. PRESCRIBES THE ACCOUNTING STANDARD. THE HON'BLE HIGH COURT HAS CONSIDERED THE PROVISIONS OF SECTION 211(3C) OF THE COMPANIES ACT, 1956 TO HOLD THAT TILL SUCH TIME THE CENTRAL GOVT. PRESCRIB ES THE ACCOUNTING STANDARD, THE ACCOUNTING STANDARDS ISSUE D BY THE ICAI SHALL BE DEEMED TO BE THE RELEVANT ACCOUNTING STANDARD. FURTHER, IT IS ALSO SEEN THAT THE ISSUE OF INTEREST INCOME ON NPAS HAD COME UP BEFORE VARIOUS OTHER HIGH COURTS IN A N UMBER OF CASES AND THE RESPECTIVE HIGH COURTS HAVE HELD THAT SUCH INCOME WOULD ACCRUE ONLY WHEN IT IS ACTUALLY RECEIVED. THE RELEVANT CASE LAW ARE AS UNDER: (A)CIT & ANOTHERS VS. CANFIN HOMES LTD REPORTED IN 347 ITR 382 (KAR.) (B)CIT VS. GOYAL M G GASES (P) LTD., 303 ITR 159 (DEL) (C) MERCANTILE BANK LTD VS. CIT REPORTED IN 283 ITR 84 (S.C) (D) UCO BANK VS. CIT REPORTED IN 237 ITR 889 (E) CIT VS. KTR INDUSTRIAL FINANCE CO. LTD REPORTED IN (2012) 22 TAXMAN.80(KAR.) RESPECTFULLY FOLLOWING OF THE ABOVE DECISIONS, WE R EJECT THE REVENUES GROUNDS OF APPEAL FOR THE A.Y 2011-12 AND ALLOW THE ASSESSEES GROUNDS OF APPEAL FOR THE A.Y 2012-13. 52 ITA NO. 715/HYD/2015 M/S AP GRAMEEN VIKAS BANK, WARANGAL. 45. IN THE RESULT ASSESSEES APPEALS FOR THE A. Y 2011-12 AND 2012-13 ARE PARTLY ALLOWED, WHILE REVENUES APPEAL FOR THE A.Y 2011-12 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 27 TH JANUARY , 2017. SD/- SD/- (S RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 27 TH JANUARY, 2017 PVV/KRK 1) M/S.MURTHY & KANTH, CAS, FLAT NO.113, SOVEREIGN SHELTERS, LAKADIKAPUL, HYDERABAD -4 2) AP GRAMEENA VIKAS BANK, H.NO.2-5-8/1, OLD BUS DEPOT ROAD, RAMNAGAR, HANAMKONDA, WARANGAL 3) DCIT, CENTRAL -3, HYDERABAD 4) ACIT,CIRCLE-1 AAYAKAR BHAVAN, STATION ROAD, WARANGA L 5) CIT -3, HYDERABAD 6) CIT(3), HYDERABAD 7) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., H YDERABAD. 8) GUARD FILE