M/s. Bhilwara Mahila Urban Cooperative Bank Ltd., BHILWARA V. DCIT, BHILWARA

ITA 73/JODH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78207 (ITAT-JODHPUR)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-05-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 10-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: R L BILDA
• Keywords: Business income; Business expenditure; Earning of tax free income; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 263; 63; 28

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO.73 & 74/JODH/2014 (A.YS. 2007-08 & 2009-10) M/S. BHILWARA MAHILA URBAN VS. DC IT, CIRCLE, COOPERATIVE BANK LTD., BHILWARA. LOKJEEVAN COMPLEX, NAGORI GARDEN, BHILWARA. PAN NO. AAAAB 1724 F (APPELLANT) (RESPONDENT) ITA NO.147/JODH/2014 (A.Y. 2009-10) DCIT, CIRCLE, VS. M/S. BHIL WARA MAHILA URBAN BHILWARA. COOPERATIVE BANK LTD., LOKJEEVAN COMPLEX, NAGORI GARDEN, BHILWARA. PAN NO. AAAB 1724 F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUNIL PORWAL & SHRI R.L. BILDA. DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 20/05/2014. DATE OF PRONOUNCEMENT : 12/06/2014. 2 O R D E R PER HARI OM MARATHA, J.M ALL THE ABOVE CAPTIONED THREE APPEALS BEING RELATE D TO THE SAME ASSESSEE INVOLVING ALMOST IDENTICAL ISSUES ARISING OUT OF COMMON SET OF FACTS AND INVOLVING TWO A.YS ARE BEING DECIDED BY T HIS COMMON ORDER FOR THE SAKE OF CONGRUENCE, CONVENIENCE AND BREVITY. ITA NO.73/JODH/2014 (A.Y. 2007-08) 2. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE FOR A.Y 2004-05 AGAINST THE ORDER OF THE CIT(A), DATED 10.12.2013. IN THIS YEAR, THE REVENUE IS NOT IN APPEAL. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A CO-OPERATIVE SOCIETY WHICH IS ENGAGED IN THE B USINESS OF BANKING UNDER THE PERMISSION AND LICENSE OF RESERVE BANK OF INDIA [RBI]. THE ASSESSEE CARRIES ON ITS BUSINESS O F BANKING UNDER THE NAME AND STYLE OF M/S BHILWARA MAHILA URB AN CO- OPERATIVE BANK LIMITED. FOR THE A.Y. 2007-08, IT FI LED ITS RETURN OF INCOME [ROI] ON 16.10.2007 DECLARING TOTAL INCOM E OF RS. 3 30,64,102/- ALONGWITH AUDITED COPIES OF ACCOUNTS A ND AUDIT REPORT U/S 44AB OF THE INCOME-TAX ACT, 1961 ['THE A CT', FOR SHORT] IN FORM NO. 3CA AND 3CD. ASSESSMENT ORDER WAS FRAMED ON 19.3.2009 U/S 143(3) OF THE ACT AT TOTAL INCOME OF RS. 42,80,793/- AS AGAINST RETURNED INCOME OF RS. 30.64 .102/-. SUBSEQUENTLY, THE LD. CIT, AJMER PASSED ORDER U/S 2 63 OF THE ACT ON 25.3.2011 OBJECTING AND FINDING THAT THE ORD ER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT EREST OF THE REVENUE. REGARDING DEBITED EXPENDITURE OF EXPENSES ON ACCOUNT OF FORGED DRAFT PROVISION AND CLAIM OF DEDU CTION ON ACCOUNT OF PREMIUM ON GOVERNMENT SECURITIES WRITTEN OFF OF RS. 15,10,300/- AND FBT EXPENSES OF RS. 31.054/- INTO THE PROFIT AND LOSS ACCOUNT AND FINALLY SET ASIDE ORDER ON ALL THE THREE COUNTS. THE A.O. HAS PASSED FRESH ORDER U/S 263 R. W.S 143(3) OF THE ACT ON 30.11.2011 AND THIS ORDER IS THE SUBJECT MATTER OF APPEAL BEFORE US. IN THIS ORDER THE A.O. HAS ADDED ALL THE THREE AMOUNTS WHICH ARE STATED ABOVE AND HAS ASSESS ED THE TOTAL INCOME OF THE ASSESSEE AT RS. 84,62,547/-. A GAINST THIS ORDER, THE ASSESSEE FILED APPEAL AND THE LD. CIT(A) HAS GIVEN PART RELIEF TO THE ASSESSEE. THE ASSESSEE IS FURTH ER AGGRIEVED 4 AND IN THE SECOND APPEAL FILED BEFORE THE APPELLATE TRIBUNAL, IT HAS RAISED THE FOLLOWING GROUNDS: THAT UNDER THE FACTS OF THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN:- (1) CONFIRMING THE ADDITION OF RS. 26,40,400/- ON A CCOUNT OF PROVISION OF NPA DEBITED TO PROFIT AND LOSS ACC OUNT AND NOT ALLOWING THE SAME IN TERMS OF PROVISIONS OF SECTION 36(1)(VIIA). (2) NOT DIRECTING THE AO TO GIVE THE CREDIT OF AMOR TIZATION OF PREMIUM ON GOVERNMENT SECURITIES IN SUCCEEDING YEARS (RS. 1,81,817/- FOR NEXT 4 ASSESSMENT YEARS) (3) ANY OTHER MATTER WITH THE PRIOR APPROVAL OF THE HON'BLE BENCH. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. FACTS APROP OS GROUND NO. 1 WHICH IS IN RELATION TO CONFIRMATION OF ADDIT ION OF RS. 26,40,400/- MADE ON ACCOUNT OF PROVISION OF NON-PE RFORMING ASSET [NPA] DEBITED TO THE PROFIT AND LOSS ACCOUNT AND NOT ALLOWING THE SAME IN TERMS OF PROVISIONS OF SECTION 36(1)(VIIA) 5 OF THE ACT ARE THAT INITIALLY THE A.O. HAD ALLOWED THIS AMOUNT BUT THE LD. CIT(A) HAS SET ASIDE THIS ISSUE U/S 263 OF THE ACT. AS PER THE ASSESSEE, THIS PROVISION OF NPA WAS MADE AS PER THE ORDER OF THE RBI VIDE INSTRUCTION AT PARA 9.6 ISSUE D BY IT AND BECAUSE THIS LIABILITY HAD CRYSTALLIZED AS A RESULT OF DECISION OF HON'BLE DEBT RECOVERY APPELLATE TRIBUNAL, DELHI, TH EREFORE, THIS CLAIM OF NPA IS ALLOWED. IN FACT, THIS AMOUNT RELATES TO FORGED DRAFTS OF THE SAME AMOUNT. ONE OF THE REGUL AR CUSTOMERS OF THE ASSESSEE BANK PRODUCED FIVE DEMAND DRAFTS OF STATE BANK OF INDIA [SBI] ON VARIOUS DATES WHICH WE RE ALLOWED IN THE ORDINARY AND NORMAL COURSE OF BANKING BUSINESS. BUT WHEN THE ASSESSEE BANK SENT THE ACCOUNT PAYEE DRAFTS FOR CLEARANCE, HOW IT WAS SUBSEQUENTLY DISCOVERED THAT THOSE DRAFT S WERE FORGED ONES AND THE DEBT RECOVERY TRIBUNAL [DRT], J AIPUR, IN ITS ORDER AWARDED IN FAVOUR OF SBI OF THIS ENTIRE A MOUNT WHEN THIS MATTER WAS TAKEN UP BEFORE IT. ON THE BASIS O F THE ORDER OF DRT, THE RBI SENT REPORT DATED 8.6.2006 IN WHICH IT WAS STATED THAT THE BANK IS NOT AT IN FAULT NOR IT WAS NEGLIGENT IN ITS ACTIONS AND THAT IN SUCH CASES, THE PAYING BANK [SB I IN THIS CASE] IS TO BE HELD PRIMARILY RESPONSIBLE IN CASE S UCH FORGED 6 DRAFTS ARE ENCASHED. HOWEVER, IN VIEW OF THE DECIS ION OF THE DRT, THESE EXPENSES ARE TO BE DEBITED TO THE EXTENT OF ORIGINAL AMOUNT OF PAYMENTS OF DRAFTS BY MAKING A PROVISION TO THAT EXTENT [RS. 26,40,400/-]. BY ACTING UNDER THE ABOV E DIRECTION OF THE RBI, THE ASSESSEE BANK COMPLIED AND MADE PRO VISION OF THIS AMOUNT BY DEBITING RS. 26,40,400/- TO ITS PROF IT AND LOSS ACCOUNT. THE CASE OF THE ASSESSEE IS THAT SUCH TYP E OF EXPENSES CANNOT BE TREATED AS REGULAR EXPENSES LIKE PAYMENT OF SALARY, RENT ELECTRICITY, ETC. BUT ESSENTIALLY SUCH EXPENS ES INCURRED DURING THE COURSE OF BUSINESS ARE DEFINITELY INCIDE NTAL AND CONNECTED WITH ORDINARY COURSE OF ASSESSEES BUSINE SS. THE ASSESSEE FURTHER SUBMITTED THAT IT IS A REGISTERED COOPERATIVE SOCIETY WHOSE ACCOUNTS ARE SUBJECTED TO AUDIT BY TH E CONCERNED AUTHORITIES INCLUDING CO-OPERATIVE DEPARTMENT OF TH E GOVERNMENT. IT STATED THAT AS PER ITS AUDITED ACCO UNT, THE SURPLUS FOR THE YEAR IS RS. 30,50,894/- AFTER PROVI DING FOR NPA AND OTHER ADVANCES. IT STATED THAT THE SOCIETY IS GOVERNED BY THE PROVISIONS OF SECTION 36(1)(VIIA) AND 36(1)(VII I) OF THE ACT IN CASE OF ADVANCES WHERE PROVISIONS FOR BAD AND DOUBT FUL DEBTS ARE MADE, IN CASE OF BANKING BUSINESS THE BAD AND D OUBTFUL 7 DEBTS ARE CALLED AS NPA. IN THIS REGARD THE ASSESS EE HAS RELIED ON THE MAIN PROVISIONS OF SECTIONS REFERRED TO ABOV E AND FINALLY PRAYED FOR ALLOWANCE OF THE SAME. THE CALCULATION OF THIS AMOUNT AS TO SHOW IT WAS ARRIVED AT IS AS UNDER: 1 NET PROFIT (AFTER PROVISION FOR NPA) (AS PER COMPUTATION) RS. 30,64, 102.00 2 PROVISION FOR NPA RS. 26,40,400.00 3 TOTAL PROFIT (FOR SECTION 36(L)(VIIA) (1+2) RS. 57,04,502.00 4 7 % OF TOTAL INCOME (AS CALCULATE AS PER S.NO. 3) RS. 4,27,838.00 5 TOTAL ADVANCES (A) DUE FROM ADVANCES (7,95,50,897.25+5,56,67,185.00) (B) INTEREST DUE TOTAL (A+B) RS. 1,35,218,082.25 RS. 46,43, 182.00 RS. 13,98,61,264.29 6 5% OF SUCH ADVANCES / ASSETS (REFER FOR ADVANCES AMOUNT IN S.NO. 5) RS. 69,93,063.00 7 TOTAL PROVISION TO ALLOW (4+6) RS. 74,20,901.00 8 PROVISION CLAIMED DURING THE YEAR RS. 26,40,000.00 9 FURTHER ASSESSES ENTITLED FOR SPECIAL RESERVE IN TERMS OF SECTION 36(1) (VIII) IN ADDITION TO ABOVE. 4.1 APART FROM THE ABOVE, THE ASSESSEE ALSO MADE TH E FOLLOWING SUBMISSIONS: 8 (1) 'EVERY BANK DURING OPERATIONS OF BANKING ACTIVI TIES HAS TO MAKE CERTAIN ADVANCES AS PER IT'S OBJECTS, E.G. AGRICULTURAL ADVANCES, SME ADVANCES, HOUSING ADVAN CES OR ANY OTHER ADVANCES. ALL THESE ADVANCES FORMS 'DE BTS' OF BANKING BUSINESS & HAVE BEEN CLASSIFIED TO BE DISCL OSED UNDER THE HEAD 'LOAN & ADVANCES'. THUS ALL ADVANCE S AS MADE IN TERMS OF BANKING BUSINESS ARE NOMENCLATU RED AS 'LOANS & ADVANCES'. IT IS WORTH TO NOTE THAT THESE 'LOANS & ADVANCES' DO NOT INCLUDE 'CAPITAL ADVANCES'. ALL CAPITAL ADVANCE S ARE SEGREGATED UNDER THE HEAD 'WORK IN PROGRESS AND CAPITAL COMMITMENTS' & ARE GROUPED UNDER THE HEAD FIXED ASSETS. (2) AS PER RBI GUIDELINE EVERY BANK IS TO SEGREGATE THESE BUSINESS ADVANCES INTO 'STANDARD ASSETS' AND 'NON STANDARD ASSETS' AND 'BAD & DOUBTFUL ASSETS'. ACCORDING TO AGING OF INDIVIDUAL ADVANCES THE PROV ISIONING AS SPECIFIED BY RBI ARE TO BE MADE IN CASE OF 'NON STANDARD ASSETS' AND 'DOUBTFUL ASSETS' THE DETAILS THEREOF ARE AS PER CHART FILED SEPARATELY. (3) SECTION 36(VIIA) OF INCOME TAX ACT, ALSO PERMITS SUCH PROVISIONING AS 'BUSINESS EXPENDITURE' SUBJECT TO CERTAIN RIDERS & TO A BANKING BUSINESS. (4) IN CASE OF ASSESSEE A CASE FILED BY SBI IN DEBT RECOVERY TRIBUNAL JAIPUR. THE CASE WAS IN RESPECT OF FIVE FO RGED 9 DRAFTS WORTH RS. 26.40 LAKHS DRAWN ON SBI, BHILWARA . THESE DRAFTS WERE COLLECTED BY ASSESSEE FOR IT'S CU RRENT ACCOUNT HOLDER. THESE DRAFTS WERE CLEARED BY SBI IN YEAR 2000-01 & CASE AGAINST ASSESSEE WAS LODGED IN THE Y EAR 2003-04 SBI. THE DRT JAIPUR HAD DELIVERED JUDGMENT ON 07.05.200 4 IN FAVOR OF SBI AND HAS THE BANK TO PAY THE SAID AMOUN T ALONG WITH INTEREST. NOW THE BANK HAS TO DRAT DEBT RECOVE RY APPELLATE TRIBUNAL) NEW - DELHI AGAINST SUCH ORDER & HAS OBTAINED STAY FOR RECOVERY. THUS THERE IS NO PAYMENT / CLAIM MADE BY ASSESSEE; ONLY A CONTINGENT LIABILITY OF RS. 26.40 LAKHS + INTERES T DUE THEREON IS ON ASSESSEE. THE PROVISIONING IS MADE ON DEBTS. THE BANK AUTHORITIES HAVE RECOMMENDED A SEPARATE PROVISION J 'FOR THIS CLAIM BUT NO SUCH SP ECIFIC PROVISION MADE. ' 4.2 AFTER CONSIDERING THE SAME THE LD. CIT(A) HAS C ONCLUDED THAT THE ASSESSEE HAS NOT DEBITED THIS AMOUNT UNDER THE PROV ISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT FOR NPA AS REQUIRED BY THE A CT AND THE PROVISION HAS BEEN CREATED FOR THE CONTINGENT LIABILITY ON AC COUNT OF FORGED BANK DRAFTS. THEREFORE, HE HAS ALSO CONFIRMED THE IMPUG NED DISALLOWANCE BY DENYING CLAIM OF DEDUCTION U/S 36(1)(VIIA) OF THE A CT. HE HAS ALSO NOT 10 ALLOWED THIS CLAIM U/S 36(1)(VIII) OF THE ACT BECAU SE THE ASSESSEE HAS NOT SHOWN THAT IT HAS FULFILLED THE REQUISITE CONDITION S LAID DOWN THEREIN IN RESPECT OF CREATING SPECIAL RESERVED AND HAS NOT S HOWN THAT THE ASSESSEE IS CARRYING ON THE ELIGIBLE BUSINESS OF PROVIDING O NLY LONG TERM FINANCE OF NOT LESS THAN FIVE YEARS. ACCORDINGLY, HE HAS CO NFIRMED THE ADDITION OF RS. 26,40,400/-. 4.3 BEFORE US, BOTH THE PARTIES HAVE REITERATED THE IR ARGUMENTS IN LINE WITH THE ARGUMENTS TAKEN FOR AND AGAINST BEFORE THE LD. CIT(A). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE MATERIAL ON RECORD INCLUDING THE ORDER OF TH E AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE WRITTEN SUBMISSIONS AND TH E PAPER BOOK FILED BEFORE US. FROM THE RECORDS, WE HAVE FOUND IT FOR A FACT THAT THE ASSESSEE HAD DEBITED THIS PROVISION IN THE PROFIT AND LOSS ACCOUNT OF THE YEAR. ONCE CUSTOMER OF THIS ASSESSEE BANK NAMELY S HRI RAJ KUMAR JAIN PRESENTED FIVE DEMAND DRAFTS OF SBI TO THE APPELLAN T BANK AND THESE WERE SENT FOR CLEARANCE TO THE SBI WHO CLEARED THE SAME AND COLLECTION WAS CREDITED IN THE CUSTOMERS ACCOUNT. SUBSEQUENTLY, IT WAS DISCOVERED THAT THE BANK DRAFT WAS FORGED ONE. A CA SE WAS FILED AGAINST 11 THE SBI AS PER LAW AGAINST THE CONCERNED PARTIES. THE DRT, IN ITS ORDER HAS HELD THE BANK CHAIRMAN AND SHRI RAJ KUMAR JAIN AS LIABLE JOINTLY AND SEVERELY FOR PAYMENT OF RS. 37,75,080/- ALONGWITH I NTEREST THEREON. THE ASSESSEE BANK WAS GIVEN LIBERTY TO RECOVER THE AMOU NT FROM SHRI RAJ KUMAR JAIN IF THE AMOUNT WAS PAID BY HIM TO THE SBI . THIS ORDER OF THE DRT WAS RENDERED ON 7.5.2004. REPORT DATED 16.10.2 008 WAS PREPARED BY THE RBI [INSPECTION REPORT OF THE ASSESSEE BANK] WHICH STATED THAT THE ASSESSEE HAS MOVED THE DRAT, NEW DELHI AGAINST THE ORDER OF THE DRT, JAIPUR AND HAD OBTAINED STAY AGAINST THIS ORDER. I T IS TRUE THAT THE BANK BOARD HAS PASSED RESOLUTION ON 10.3.2007 ACCORDING TO WHICH, PROVISION WAS TO BE MADE FOR FORGED BANK DRAFT TO THE TUNE OF RS. 26,40,000/-. THE INSPECTION REPORT DATED 16.10.2008 ALSO SPEAKS ABOU T THE CREATION OF THIS PROVISION. THE RELEVANT PARA OF THE INSPECTION REP ORT READS AS UNDER: 'HOWEVER, THERE WAS A CASE PENDING AGAINST THE BANK IN DEBT RECOVERY APPELLATE TRIBUNAL (DRAT), NEW DELHI. THE CASE WAS FILED BY STATE BANK OF INDI A IN RESPECT OF FIVE FORGED DRAFTS DRAWN ON SBI, BHILWARA AND COLLECTED BY THE BMUCB FOR ITS CURRENT ACCOUNT HOLDER, INVOLVING AN AMOUNT OF RS. 26.42 LAKH. THE SAID DRAFTS WERE CLEARED BY SBI, BHILWAR A THROUGH CLEARING IN THE YEAR 2000-01. A CASE WAS LO DGED IN 2003-04 BY THE SBI AGAINST THE BANK IN DRT JAIPU R FOR 12 RECOVERY OF THE PAYMENT. DRT, JAIPUR HAD DELIVERED JUDGMENT IN FAVOUR OF SBI AND ORDERED THE BANK TO P AY THE SAID AMOUNT ALONG WITH INTEREST TO SBI. THE BA NK HAD MOVED DEBT RECOVERY APPELLATE TRIBUNAL (DRAT), NEW DELHI AGAINST THIS ORDER AND OBTAINED STAY AGAI NST THIS DECISION. THE NEXT HEARING OF THIS CASE IS SC HEDULED FOR NOVEMBER 11, 2008. THE BANK HAS MADE PROVISION OF RS. 26.42 LAKHS FOR THE SAME. 5.1 FOR READY REFERENCE, WE WOULD LIKE TO EXTRACT S ECTIONS 36(1)(VIIA) AND 36(1)(VIII) OF THE ACT AS UNDER: IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DE BTS MADE BY (A) A SCHEDULED BANK [NOT BEING 21 [* * *] A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTS IDE INDIA] OR A NON-SCHEDULED BANK 22 [OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK], AN AMOUNT 23 [NOT EXCEEDING SEVEN AND ONE-HALF PER CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKI NG ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AN D AN AMOUNT NOT EXCEEDING 24 [TEN] PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER : 13 42 [(VIII) IN RESPECT OF ANY SPECIAL RESERVE CREATED AND MAINTAINED BY A SPECIFIED ENTITY, AN AMOUNT NOT EXCEEDING TWEN TY PER CENT OF THE PROFITS DERIVED FROM ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION (BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE) CAR RIED TO SUCH RESERVE ACCOUNT: 5.2 TESTING THE APPLICABILITY OF THE ABOVE PROVISIO N TO THE FACTS OF THIS CASE, WE HAVE NOTICED THAT THE ABOVE PROVISION DEB ITED IN THE PROFIT AND LOSS ACCOUNT OF RS. 26,40,000/- IS AGAINST NPA OF 73,37,655/- ELIGIBLE FOR CLAIM U/S 36(1)(VIIA) OF THE ACT. THE PROVISION F OR RS. 26,40,400/- IS THUS MADE WITH REGARD TO FORGED BANK DRAFTS. THIS FACT IS ALSO FORTIFIED FROM THE RESOLUTION PASSED BY THE MANAGEMENT OF THE BANK AS WELL AS INSPECTION REPORT OF THE RBI EXTRACTED ABOVE. WE D O NOT FIND ANY RELATION BETWEEN THE TWO. THE DRT HAS GIVEN LEVERAGE TO THE ASSESSEE TO MAKE RECOVERIES FROM THE CUSTOMER SHRI RAJ KUMAR JAIN IN CASE IT PAYS THIS AMOUNT TO THE SBI. AT BEST, THIS PROVISION CAN BE STATED TO MEET THE CONTINGENT LIABILITY ARISING OUT OF FORGED BANK DRA FTS. THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE APPELLATE AUTHORITY AND THE RESULT AND OUTCOME OF THAT WAS NOT BROUGHT TO OUR NOTICE EVEN AT THE TIME OF HEARING OF THIS APPEAL. THUS, IT CANNOT BE STATED THAT THE LIABILITY OF THIS AMOUNT HAS CRYSTALLIZED AS YET. THEREFORE, CLAIM O F DEDUCTION U/S 14 36(1)(VIIA) OF THE ACT CANNOT BE ALLOWED. HOWEVER, THIS CLAIM CAN BE CONSIDERED UNDER THE PROVISIONS OF SECTION 36(1)(VI II) OF THE ACT IN CASE THE ASSESSEE FULFILLS THE CONDITIONS LAID THEREIN I N RESPECT OF CREATING A SPECIAL RESERVE AND THE ASSESSEE CARRIED ON ELIGIBL E BUSINESS OF PROVIDING LONG TERM FINANCE OF NOT LESS THAN FIVE YEARS. IN THAT VIEW OF THE MATTER, THE ISSUE IS RESTORED TO THE FILE OF THE A.O. FOR M AKING INVESTIGATION INTO THE FACTS AS TO WHETHER THIS PROVISION APPLIES TO T HIS ISSUE OR NOT. ACCORDINGLY, GROUND NO. 1 IS PARTLY ALLOWED. 6. GROUND NO. 2 OF THIS APPEAL IS REGARDING CLAIM O F CREDIT OF AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES IN SUCCEEDING YEARS. 6.1 FACTS OF THIS GROUND ARE THAT THE ASSESSEE HAS CLAIMED A SUM OF RS. 15,10,300/- ON ACCOUNT OF PREMIUM ON GOVERNMENT SEC URITIES WRITTEN OFF. THIS AMOUNT IS SAID TO BE A GENUINE BUSINESS EXPENS E/CHARGE TO THE PROFIT AND LOSS ACCOUNT AS IT WAS CHARGED ON THE SECURITIE S KEPT AS HELD TO MATURITY [HTM] AND HELD FOR TRADING HFT] /AVAIL ABLE FOR SALE [AFS] AS PER THE RBI GUIDELINES, RULES, REGULATIONS AND INST RUCTIONS. AS PER THE A.O., THIS ADDITION HAS BEEN MADE AS PREMIUM ON GOV ERNMENT SECURITIES WRITTEN OFF IS NOT ALLOWABLE U/SS 28 TO 40 OF THE A CT. DURING APPEAL, IT 15 WAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE SECURI TIES WERE HELD BY THE ASSESSEE BANK AS STATUTORY LIABILITY WHICH IS COMPU LSORY TO MAINTAIN AS STATUTORY LIQUID RATIO [SLR] AS PER THE GUIDELINES /DIRECTIVES OF THE RBI. IT WAS STATED THAT AS PER FACE VALUE OF THE SECURIT IES HELD BY THE BANK, ANY EROSION IN VALUE ON ACCOUNT OF DIFFERENCE IN PU RCHASE PRICE AND FACE VALUE DUE TO PREMIUM ETC ARE TO BE CHARGED TO PROFI T AND LOSS ACCOUNT AND BECAUSE THE BANK IS GOVERNED BY THE INSTRUCTION S OF THE RBI THIS AMOUNT IS TO BE ALLOWED BEING JUSTIFIED AS A REGULA R BUSINESS EXPENSE. THE ASSESSEE MADE FURTHER SUBMISSIONS IN THIS REGAR D AS UNDER: (1) 'THE A.O. BIASED ON DIRECTIONS IN ORDER U/SEC. 263 OF INCOME TAX ACT, 1961 HAS FURTHER PREFERRED TO ADD A SUM OF RS. 15,10,300.00 BEING DEDUCTION ON ACCOUNT OF PREM IUM ON GOVERNMENT SECURITIES, ON THE PRETEXT THAT SAME BEI NG CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE IN TERMS OF SECTION 28 TO 40 OF INCOME TAX ACT, 1961 & THUS HAVE DISALL OWED THE SAME, WITHOUT CONSIDERING THE FOLLOWING FACTS:- (A) THAT THESE SECURITIES WERE HELD BY THE APPELLANT BANK AS 'STATUTORY LIQUIDITY' WHICH I S COMPULSORY TO MAINTAIN SLR (STATUTORY LIQUID RATIO) AS PER GUIDELINES / DIRECTIVES OF RBI, THE GOVERNING B ODY. (B) THAT FURTHER AS PER GUIDELINES OF RBI THESE SECURIT IES ARE TO BE KEPT BYBANK IN THREE TIER SYSTEM (1) HELD FOR MATURITY (HTM) (2) HELD FOR TRADING (HFT) & (3) 16 AVAILABLE FOR SALE (AFS) AND ANY EROSION IN VALUE O N ACCOUNT OF DIFFERENCE IN PURCHASE PRICE AND FACE VA LUE DUE TO PREMIUMS ETC. ARE TO BE CHANGED TO PROFIT A ND LOSS ACCOUNT. (C) THAT THE SAID SECURITIES ARE OF FACE VALUE FOR RS. 100.00 HELD BY BANK BUT TO MAINTAIN SLR RATIO & RBI GUIDELINES WERE BROUGHT ON PREMIUM & NOW SAME PREMIUM IS WRITTEN OFF AMOUNTING TO RS. 15,10,300.00 & IS A REGULAR REVENUE EXPENDITURE & SHOULD BE ALLOWED IN TERMS OF SECTION 36/37 (1) OF INCOME TAX ACT, 1961 BEING IN 'BUILDING EXPEDIENCY' AND CANNOT BE CONSIDERED AS 'CAPITAL EXPENDITURE'. ALTERNATIVELY IF A.O'S VIEW'S ARE SUSTAINED E.G. 'C APITAL EXPENDITURE' THAN SAME LOSS / EXPENDITURE SHOULD HA VE BEEN ALLOWED IN 'EQUAL INSTALLMENT' OVER THE LIFE O F SECURITY (UPTO PERIOD OF MATURITY) AS A PRUDENT ACC OUNTING POLICY IN TERMS OF SECTION 36(1)(IIIA). THUS IT IS REQUESTED THAT SUCH 'WRITE OFF' SHOULD BE ALLOWED OVER A PERI OD OF TIME (OVER THE TIME OF MATURITY). THUS IT IS REQUESTED TO KINDLY ALLOW THIS EXPENDITU RE OTHERWISE OVER A PERIOD E.G. IN THIS YEAR AS WELL A S IN SUCCEEDING YEARS TOO. THIS SIMILAR VIEW HAS BEEN HE LD BY CBDT IN LETTER NO. F.NO. 225/45/96 -IT (A-II) DATED 12.03.96 OF IDBI FOR 'INCOME FROM DEEP DISCOUNT BONDS'. 17 FURTHER VIDE BOARD'S CIRCULAR NO. 599 DATED 24.04.1 991 IT HAS BEEN CLARIFIED THAT 'SECURITIES HELD BY BANK AR E THEIR STOCK IN TRADE'. HOWEVER IN VIEW OF VIJAYA BANK LTD. V/S CIT (1991) 187 ITR 541 (SC) IT HAS FURTHER BEEN CLARIFIED THAT THE A.O. SHOULD DETERMINE ON THE FACTS AND CIRCUMSTANCES OF EACH CASE AS TO WHETHER ANY PARTICULAR SECURITY CONSTITU TES STOCK IN TRADE OR INVESTMENT TAKING INTO ACCOUNT TH E GUIDELINES ISSUED BY RBI IN THIS REGARD FROM TIME T O TIME. (CIRCULAR NO. 665 DATED 05.10.93). LOOKING TO FACTS IT IS REQUESTED TO KINDLY ALLOW TH E SAID EXPENDITURE. ' 6.2 HOWEVER, AFTER CONSIDERING THE RIVAL SUBMISSION S, THE LD. CIT(A) FOUND THAT THIS CLAIM OF EXPENDITURE ON ACCOUNT OF PREMI UM ON GOVERNMENT SECURITIES OF RS. 15,10,300/- HAS BEEN MADE AS UN DER: DETAILS PREMI UM PRORATA PERI OD 6. 17 G.SEC. 86700 17340 5 5.69 G.SEC. 10690 17817 6 7.38 G.SEC. 82000 164000 5 5.64 G.SEC. 0 0 6.01 G.SEC. 16220 12477 13 6.01 G.SEC. 0 0 11.5 IFCI 33450 334500 1 6.13 0 0 TOTAL 15103 546134 18 6.3 WE WOULD LIKE TO EXTRACT THE RELEVANT PORTION O F THE LD. CIT(A)S FINDING GIVEN IN THIS REGARD AT PAGE 13 OF HIS ORDE R AS UNDER: THE APPELLANT HAS EXPLAINED THAT OUT OF ABOVE SECURITIES, SECURITIES AT SERIAL NO. 2,3,4,6, 7 AND 8 ARE HELD TO MATURITY (HTM) WHILE SECURITY AT SERIAL NO. 1 AND 5 ARE AVAILABLE FOR SALE (AFS). IN ABOVE CIRCUMSTAN CES, AS PER THE INSTRUCTION NO. 7 OF 2008 OF CBDT, THE PREMIUM CAN BE AMORTIZED OVER THE PERIOD REMAINING TO THE MATURITY ONLY IN RESPECT OF SECURITIES HELD TO MATURITY. ACCORDINGLY, THE CLAIM OF THE ASSESSEE FO R PREMIUM PAID ON THE PRO-RATA BASIS OF RS.5,16,317 ( RS. 5,46,134 RS. 17,340 RS. 12,477 RS. 5,16,317) ONLY IS ALLOWABLE TO THE ASSESSEE SUBJECT TO VERIFICATIO N BY THE AO AND NO SUCH PRO-RATA CLAIM ON THE OTHER SECU RITIES IS ALLOWABLE. SO, OUT OF THE TOTAL PREMIUM PAID OF RS. 15,10,300 WHICH HAS BEEN CLAIMED BY THE ASSESSEE, T HE CLAIM TO THE EXTENT OF RS. 5,16,317 AS DISCUSSED AB OVE IS ALLOWED. 6.4 BEFORE US, LIMITED GROUND TAKEN BY THE ASSESSEE IS THAT THE LD. CIT(A) SHOULD HAVE GIVEN DIRECTION TO THE A.O. TO G IVE CREDIT OF AMORTIZATION OF PREMIUM ON GOVERNMENT SECURITIES IN THE SUCCEEDING YEARS I.E. NEXT FOUR A.YS. WE HAVE ALSO FOUND THAT THIS ISSUE RAISED BEFORE HIM REMAINED UNADJUDICATED AND THEREFORE, TO THAT E XTENT, WE RESTORE 19 THE ISSUE TO THE FILE OF THE A.O. AND ALLOW GROUND NO. 2 FOR STATISTICAL PURPOSES. 6.5 IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.74/JODH/2014 & 147/JU /2014 (A.Y. 2009-10) 7. THESE ARE CROSS APPEALS ARISING OUT OF THE ORDER OF THE CIT(A), DATED 31.12.2013 FOR A.Y. 2009-10. 7.1 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : - THAT UNDER THE FACTS OF THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN:- (1) CONFIRMING THE ADDITION OF RS. 21,50,400/- ON A CCOUNT OF EXCESS OF NPA PROVISION OF EARLIER YEAR (A.Y. 2 007- 08) CREDITED TO PROFIT AND LOSS ACCOUNT AS INCOME F OR THE YEAR, WHEREAS SAME PROVISION HAS ALREADY DISALLOWED BY LD. CIT(A) IN ASSESSMENT YEARS. 20 (2) CONFIRMING THE DISALLOWANCE OF NPA THE PROVISIO N OF RS.1.00 LACS FOR STANDARD ASSETS AND RESTRICTING TH E NPA PROVISION FOR DOUBTFUL ASSETS. (3) CONFIRMING THE DISALLOWANCE OF RS. 35,02,000/- ON ACCOUNT OF PROVISION MADE FOR THE EROSION IN THE INVESTMENTS. (4) ANY OTHER MATTER WITH THE PRIOR APPROVAL OF THE HON'BLE BENCH . 7.2 THE REVENUE HAS RAISED THE FOLLOWING GROUNDS :- THE LD. CIT(A), AJMER IN THE PRESENT FACTS AND CIR CUMSTANCES OF THE CASE HAS ERRED IN:- (1) TREATING THE INCOME OF RS. 47,67,000/- AS SHORT TERM CAPITAL GAIN AS AGAINST THE BUSINESS INCOME ASSESSE D, WITHOUT APPRECIATING THE FACTS OF THE CASES. (2) ALLOWING TO SET-OFF OF LOSS OF RS. 92,53,402/- AGAINST THE SHORT TERM CAPITAL GAIN OF RS. 47,67,000/- WITH OUT APPRECIATING THE FACTS OF THE CASE. (3) THE APPELLANT CRAVES TO ADD, AMEND, ALTER, DELE TE OR MODIFY THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 21 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. FACTS APROP OS GROUND NOS. 1 AND 2 OF REVENUES APPEAL ARE THAT THE ASSES SEE HAS CLAIMED A SUM OF RS. 92,53,402/- AS OTHER EXPENSES ON ACCOUNT OF LOSS DUE TO TRADING IN SLR AND NON-SLR SECURITIE S AND HAS CLAIMED THAT THESE ARE GENUINE BUSINESS LOSSES WHIC H HAVE BEEN CHARGED TO THE PROFIT AND LOSS ACCOUNT AS PER THE R ULES AND REGULATIONS AND INSTRUCTIONS OF THE RBI. IT IS CLA IMED THAT THE LOSSES TOTALING TO RS. 92,53,402/- HAS OCCURRED ON ACCOUNT OF LOSS IN TRANSACTIONS IN INVESTMENTS. AS PER THE A. O., INCOME RECEIVED FROM UNITS OF MUTUAL FUNDS IS EXEMPT U/S 1 0(35) OF THE ACT AND SINCE NO EXPENDITURE HAS BEEN INCURRED IN R ESPECT OF EXEMPT INCOME IN VIEW OF SECTION 14A OF THE ACT, NO EXPENDITURE RELEVANT THERETO IS ALLOWABLE. THE CAS E ASSERTED BY THE ASSESSEE IS THAT THE LOSS INCURRED ON ACCOUN T OF INVESTMENT IS A LOSS IN THE REGULAR COURSE OF BUSIN ESS OF BANK AND AS PER THE RBI BYE-LAWS, THE ASSESSEE IS PERMIT TED TO DO BUSINESS OF TRADING IN INVESTMENTS AND SECURITIES, THEREFORE, PROFIT OR LOSS ON ACCOUNT OF SUCH TRADING ACTIVITIE S BECOMES ALLOWABLE. AS PER THE A.O., IN ASSESSEES CASE IN T HE LAST A.Y. 22 2008-09 THE ASSESSEE WAS ALLOWED TO DEDUCT DIVIDEND INCOME FROM MUTUAL FUND OF RS. 65,81,442/- AS EXEMPT INCOM E. HOWEVER, DURING THIS YEAR, THE ASSESSEE INCURRED LO SS OF RS. 92,53,402/- FROM MUTUAL FUND ACTIVITIES. INCOME FR OM MUTUAL FUND IS OF COURSE, EXEMPT U/S 10(35) OF THE ACT AND EXPENSES FOR EXEMPT INCOME ARE NOT ALLOWABLE U/S 14A OF THE ACT. THEREFORE, THE ENTIRE CLAIM OF RS. 92,53,402/- HAS BEEN DELETED. 8.1 BEFORE THE LD. CIT(A), THE ASSESSEE ALMOST REPE ATED THE SAME ARGUMENTS ALONGWITH RELEVANT PRECEDENTS FAVOUR ING TO ITS CLAIM AND ON THOSE SUBMISSIONS FILED IN FORM OF WRI TTEN SUBMISSIONS. THE LD. CIT(A) CALLED FOR REMAND REPO RT FROM THE A.O. THE A.O. FILED HIS REMAND REPORT WHICH READS AS UNDER: ' A DISALLOWANCE OF RS. 92,53,402/- WAS MADE WHILE CO MPLETING THE ASSESSMENT DISALLOWING THE NET LOSS FROM INVEST MENT CLAIMED BY THE ASSESSEE IN ITS P&L ACCOUNT. IN THIS REGARD, THE ASSESSEE WAS PROVIDED PROPER OPPORTUNITY THROUGH OR DER SHEET ENTRY DATED 26. 08.201 1 TO SHOW CAUSE WHY NOT THE SAID CLAIM OF LOSS BE DISALLOWED AND AFTER CONSIDERING THE REP LY OF THE ASSESSEE, IT IS FOUND THAT AS THE PROFIT (DIVIDEND) FROM THE 23 INVESTMENT IS NOT TAXABLE, ANY LOSS FROM THESE INVE STMENT CANNOT BE ALLOWED AND ACCORDINGLY THE ORDER HAS BEE N PASSED IN THE SPIRIT OF THE I.T. ACT, 1961. THEREFORE, THE SU BMISSION OF THE ASSESSEE IS NOT ACCEPTABLE. FURTHER RELIANCE IS BEING MADE ON THE DECISION OF THE MADRAS HIGH COURT IN THE CAS E OF COMMISSIONER OF INCOME-TAX, MADRASII V. S.S. THIAGA RAJAN (DEED) BY LRS. (129 ITR 0115), COPY ENCLOSED. ' 8.2 THE ASSESSEE WAS GIVEN OPPORTUNITY TO REBUT THE OBSERVATIONS IN THE REMAND REPORT AND HIS REJOINDER WAS FILED WHICH REA DS AS UNDER: 'LOSS IN TRADING OF INVESTMENT RS. 92,53,402.00: TH E AO CONSIDERED HERE SUCH 'INVESTMENT' AS 'PURE INVESTME NTS' AND THUS HAS CONCERNED FOR DIVIDEND AND 'CAPITAL LOSS' MAY BE SHORT TERM/ LONG TERM AS PER THE HOLDINGS. THUS IT IS CLEAR FROM AO'S VIEWS THAT THE SAID INVE STMENTS ARE NOT '-BUSINESS ASSETS' BUT 'CAPITAL INVESTMENTS' AN D THUS ACCORDINGLY SHOULD BE GIVEN 'SET-OFF' FROM ANY CAPI TAL GAIN AS PER PARA 3 BELOW AND BALANCE SHOULD BE ALLOWED TO C ARRY FORWARD FOR SET OFF TO FURTHER GAINS IF ANY. ' 8.3 FINALLY, THE LD. CIT(A) HAS CONCLUDED THAT THE ASSESSEE HAS SOLD THE UNITS OF MUTUAL FUNDS I.E. UTI INFRA ADVAN TAGE, ITI INDEX SELECT AND UTI ENERGY FUND. THE LOSS INCURRE D IN THE 24 ABOVE UNITS OF MUTUAL FUNDS WERE PRODUCED IN THE FO RM OF A CHART BEFORE THE LD. CIT(A) IN WHICH THE ASSESSEE H AS TREATED IT AS SHORT TERM CAPITAL LOSS INCURRED ON ACCOUNT OF L OSS ON SHARE OF MUTUAL FUNDS. IT WAS CONTENDED THAT THE A.O. HI MSELF HAS TREATED IN HIS REMAND REPORT THESE TRANSACTIONS AS SALE OF INVESTMENTS. THEREFORE, THE LD. CIT(A) HAS CONSIDE RED THE RIVAL SUBMISSIONS AND HAS COME TO THE CONCLUSION THAT WHE N THE A.O. HAS DISALLOWED THE ABOVE LOSS OF RS. 92,53,402/- WI TH REFERENCE TO SECTIONS 10(35) AND 14A OF THE ACT, BUT HAS NOT ALLOWED THE ABOVE LOSS IN SALE OF UNITS OF MUTUAL FUNDS, HE HAS OBSERVED THAT THE PROVISIONS OF SECTION 10(35) WILL NOT APPL Y TO TRANSFER OF UNIT OF MUTUAL FUND. THE ASSESSEE IN THIS CASE HAS SOLD UNITS OF MUTUAL FUND. THEREFORE, SECTION 10(35) HAS BEEN HELD TO BE NON APPLICABLE. HE HAS FURTHER OBSERVED THAT THESE EXPENSES CLAIMED ARE NOT RELATED TO EXEMPT INCOME SO THERE I S NO QUESTION OF APPLICATION OF SECTION 10(35) OF THE AC T. FINALLY, THE LD. CIT(A) HAS HELD AS UNDER: I HAVE CONSIDERED THE CONTENTIONS OF THE APPELLANT AS WELL AS ASSESSMENT ORDER. FROM THE FACTS OF THE CASE, IT E MERGES THAT ASSESSEE HAS SOLD THE UNITS OF MUTUAL FUNDS I. E. UTI INFRA ADVANTAGE, UTI INDEX SELECT AND UTI ENERGY FUND AND ASSESSEE 25 HAS SUBMITTED THE CHART OF SAID LOSS INCURRED BY TH E ASSESSEE IN ABOVE UNITS OF THE MUTUAL FUNDS. THE ASSESSEE DU RING APPEAL STATED THEM TO BE THE SHORT TERM CAPITAL LOS S INCURRED ON ACCOUNT OF LOSS ON SHARE OF MUTUAL FUND. THE APP ELLANT HAS ALSO POINTED OUT THAT THE AO ALSO IN THE REMAND REP ORT HAS TREATED THE ABOVE TRANSACTIONS AS SALE OF INVESTMEN TS OF THE APPELLANT. FURTHER, AS PER THE ASSESSMENT ORDER IN THE EARLIER YEAR I.E. A.Y. 2008-09, THE ASSESSEE HAD RECEIVED T HE DIVIDENDS ON THE SIMILAR UNITS WHICH WAS TREATED AS EXEMPT U/ S 10(35) OF THE I.T. ACT. IN VIEW OF ABOVE DISCUSSION, THESE AS SETS ARE TREATED AS INVESTMENTS FOR WHICH ASSESSEE HAS INCUR RED SHORT TERM CAPITAL LOSS. THE AO HAS DISALLOWED THE ABOVE LOSS OF RS. 92,53,4 02 REFERRING TO THE SEC. 10(35) AND 14A OF THE I.T. AC T. THOUGH THE AO HAS NOT ALLOWED THE ABOVE LOSS IN SALE OF AB OVE UNITS OF MUTUAL FUND REFERRING TO THE SEC. 10(35) OF THE I.T . ACT, IT MAY BE MENTIONED HERE THAT THIS SECTION ONLY EXEMPTS TH E INCOME RECEIVED IN RESPECT OF UNITS OF A MUTUAL FUND IN TH E FORM OF DIVIDENDS ETC. THE PROVISO TO SEC. 10(35) PROVIDES THAT THE ABOVE CLAUSE WILL NOT APPLY IN RESPECT OF TRANSFER OF UNITS OF A MUTUAL FUND. IN THE PRESENT CASE, ASSESSEE HAS SOLD THE UNITS OF A MUTUAL FUNDS. ACCORDINGLY PROVISION FOR SEC. 1 0(35) IS NOT APPLICABLE IN SUCH CASES. ALSO THE ABOVE TRANSACTIO NS ARE NOT EXPENSES RELATING THE EXEMPTED INCOME SO THERE IS N O QUESTION OF APPLICABILITY OF SEC. 14A OF THE I.T. ACT. 26 DURING APPEAL, ASSESSEE HAS SUBMITTED THE DETAILS O F LOSS ON SALE OF MUTUAL FUNDS. THESE UNITS HAVE BEEN HELD FO R SHORT TERM OF LESS THAN ONE YEAR. ACCORDINGLY, THE ABOVE AMOUNT IS SHORT TERM CAPITAL LOSS. ACCORDINGLY, ABOVE AMOUNT IS NOT ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME. HOWEVER, THE ASSESSEE DURING APPEAL HAS CLAIMED THE SET OFF OF SHORT TERM CAPITAL GAINS OF RS. 47,67,000 .AGAINST IT AS DISCUSSED IN GROUND NO. 9 OF THIS APPEAL WHICH HAS BEEN HELD TO BE ALLOWABLE FOR SET OFF IN GROUND NO. 9. THE BALANCE AMOUNT OF SHORT TERM CAPITAL GAINS OF RS. 44,86,402 IS ALLOWE D TO BE CARRIED FORWARD. 8.4 WITH REGARD TO DISALLOWANCE OF RS. 47,67,000/-, THE FOLLOWING PARAS OF THE LD. CIT(A)S ORDER ARE RELEV ANT: 'THE LEARNED ASSESSING OFFICER HAS ERRED IN NOT ALLOWING A SUM OF RS. 4767000/- AND TAX FREE INCOME UNDER SECTION 10(35) AND ADDING THE SAME TO THE ASSESSED INCOME OF THE ASSESSEE. ASSESSEE HAS EARNE D A SUM OF RS. 4767000/- AS AND TAX FREE INCOME FROM THE INVESTMENTS INCOME OF SUCH INVESTMENTS ARE DULY EXEMPTED UNDER SECTION 10(35) OF THE INCOME TAX ACT . AS SUCH THE DISALLOWING OF RS. 4767000/- INCOME EXEMPTED UNDER THE INCOME TAX ACT, IS NOT JUSTIFYIN G, BAD IN LAW REQUIRED TO BE ALLOWED. ' 27 AS PER THE COMPUTATION OF INCOME IN THE RETURN FILE D, THE ASSESSEE HAD SHOWN OTHER INCOME AS UNDER: OTHER INCOME NET INCOME FROM INVESTMENTS 4767000 LESS: NET LOSS FROM INVESTMENTS 9253402 (-) 4486402 THE AO HAS DISALLOWED THE NET LOSS FROM INVESTMENTS OF RS. 92,53,402 AS DISCUSSED IN GROUND NO. 8 WHILE NE T INCOME FROM INVESTMENT OF RS. 47,67,000 HAS BEEN BROUGHT TO TAX. THE ASSESSEE HAS CONTESTED THE ABOV E ADDITION. 9.2 DURING APPEAL APPELLANT HAS SUBMITTED AS U NDER: 'THE ASSESSEE DURING THE YEAR HAS EARNED A SUM OF R S. 47,67,000.00 AS 'DIVIDEND' FROM INVESTMENTS HELD & SAME TO BE TREATED AS EXEMPTED U/SEC. 10(35) OF INCOME TAX ACT, 1961. IF THESE 'INVESTMENTS' ARE NO T CONSIDERED AS 'BUSINESS ASSET' AND IF THESE INVESTMENTS ARE HELD AS BUSINESS ASSET (AS PRAYED I N GROUND NO. 8 ABOVE, THAN LOSS OF SUCH INVESTMENTS TRANSACTIONS SHOULD BE CONSIDERED AS 'BUSINESS LOSS ' TO SET OFF FROM 'OTHER BUSINESS INCOME' FOR THE YEAR AS WELL THIS DIVIDEND SHOULD ALSO BE CONSIDER TO 28 SET - OFF FROM SUCH 'CAPITAL LOSSES' FOR THE YEAR I F SUCH INVESTMENTS NOT CONSIDERED AS 'BUSINESS ASSET' . IT IS TO NOTE THAT IN SIMILAR CIRCUMSTANCES THE ASSESSEE HAS BEEN GRANTED EXEMPTION FOR DIVIDEND FROM MUTUAL FUND TO THE EXTENT OF RS. 65,81,442.00 U/SEC. 143(3). IN ASST. YEAR 2008-09, COPY OF ORDER DATED 20.12.10 U/SEC. 143(3) IS ENCLOSED HEREWITH. ' THE ASSESSEE FURTHER SUBMITTED AS UNDER: 'WITH RESPECT TO GROUND NO. 9 OF OUR GROUNDS OF APPEAL, THAT LD AO HAS ERRED IN NOT ALLOWING A SUM OF RS. 47,67,000.00 AS TAX FREE INCOME U/SEC. 10(35) A ND ADDING THE SAME TO ASSESSEE'S INCOME. WE HAVE CLAIM ED IT AS 'DIVIDEND' WHICH IS APPARENT MISTAKE OF FACT. ACTUALLY IT IS 'SHORT TERM GAIN ON SALE OF SHARES' & THUS IT IS NOT CONSIDERED AS 'BUSINESS INCOME' THAN DUE 'SET OFF U/SEC. 70(2) SHOULD HAVE BEEN GRANTED BY A O OUT OF 'SHORT TERM LOSS' AS DISCUSSED IN GROUND OF APPEALS NO. 8. THE AO HAS NOT CONSIDERED THIS ASPECT AND STRAIGHT WAY HAS ADDED A SUM OF RS. 47,67,000.00 AS OTHER INCOME AND HAS NOT CONSIDERED 'SET OFF' OUT OF 'SHORT TERM LOSS ON SHARES' OF RS. 92,53,402.00. AFTER CONSIDERING THE FACTS AND CHARTS AS ENCLOSED THE FINAL CONCLUSION WOULD BE: 29 (A) SHORT TERM LOSS ON SHARES RS. 92,53,402.00 (GROUND NO. 8) (B) SHORT TERM GAIN ON SHARES RS. 47,67,000.00 GROUND NO. 9) THE AO HAS DISALLOWED THE LOSS FROM INVESTMENTS OF RS. 92, 53,402 AS DISCUSSED IN GROUND NO. 8 LEADING TO TAXATION OF NET INCOME OF RS. 47,67,700 AS SUCH. DURING APPEAL, THE ASSESSEE HAS SUBMITTED THAT ASSESSEE HAS INCURRED THE NET LOSS OF RS. (-) 44, 86,402 AS COMPUTED ABOVE ON ACCOUNT OF SHORT TERM LOSS ON SHARES. THE ASSESSEE HAS ALSO FILED THE DETAILS OF THESE TRANSACTIONS CARRIED OUT BY THE ASSESSEE. THE ASSESSEE HAS INCURRED THE LOSS OF RS. 92,53,402 ON THE SALE OF UNITS OF MUTUAL FUND I.E. UTI INFRA ADVANTAGE, UTI INDEX SELECT AND UTI ENERGY WHICH WERE SOLD IN LESS THAN ONE YEAR. FURTHER, THE ASSESSEE HAS ALSO FILED THE DETAILS OF PROFIT OF RS. 47,67,000 BOOKED ON SECURITIES SOLD I N LESS THAN ONE YEAR. APPARENTLY, THIS GROUND OF APPEAL IS CONSEQUENTIAL IN NATURE TO GROUND NO. 8. AS SUCH, ASSESSEE'S CLAIM OF ALLOWING SET OFF OF ABOVE SHORT TERM CAPITAL LOSS AGAINST THE SHORT TER M CAPITAL GAINS IS ALLOWABLE AS PER LAW. ACCORDINGLY, BALANCE AMOUNT OF SHORT TERM CAPITAL LOSS OF RS. (- ) 44, 86,402 IS ALLOWED TO BE CARRIED FORWARD. THIS GROUND OF APPEAL IS DECIDED ACCORDINGLY . 30 9. AFTER CONJOINTLY CONSIDERING THE SUBMISSIONS OF THE PARTIES ON THESE TWO ISSUES, WE ARE ALSO IN AGREEMENT WITH THE LD. C IT(A)S FINDING. THE ASSESSEES CLAIM OF ALLOWANCE OF SET OFF OF SHORT T ERM CAPITAL LOSS AGAINST SHORT TERM CAPITAL GAIN BECOMES ALLOWABLE IN LAW. THUS, THE BALANCE AMOUNT OF SHORT TERM CAPITAL LOSS OF RS. 44,86,402/ - HAS TO BE ALLOWED AS CARRIED FORWARD. ACCORDINGLY, WE DO NOT FIND ANY ME RIT IN BOTH THE GROUNDS OF REVENUE RAISED IN ITS APPEAL. 10. NOW COMING TO THE ASSESSEES APPEAL, GROUND NO. 1 RELATES TO THE CONFIRMATION OF ADDITION OF RS. 21,50,000/- ON ACCO UNT OF NPA PROVISION OF EARLIER YEAR I.E. 2007-08 CREDITED TO PROFIT AND LOSS ACCOUNT AS INCOME OF THE YEAR IS RELATED TO THE SIMILAR ISSUE RAISED IN ASSESSEES APPEAL FOR A.Y. 2007-08 AS GROUND NO 1 WHICH WE HAVE RESTORED BACK TO THE FILE OF THE A.O. THEREFORE, WITH SIMILAR OBSERVATIONS AND SIMILAR FINDING, WE RESTORE THE ENTIRE ISSUE TO THE FILE OF THE A.O. AN ALLOW GROUND NO. 1 OF THIS APPEAL FOR STATISTICAL PURPOSES. 11. GROUND NO. 3 OF ASSESSEES APPEAL WAS NOT PRESS ED BY THE LD. A.R. AT THE TIME OF HEARING. THEREFORE, GROUND NO. 3 STAND S DISMISSED AS NOT PRESSED. 31 12. IN VIEW OF OUR FINDING GIVEN IN RESPECT OF GROU ND NO. 1, IT WOULD BE JUST TO RESTORE GROUND NO 2 AS WELL TO THE FILE OF THE A.O. ACCORDINGLY, GROUND NO. 1 STANDS ALLOWED FOR STATISTICAL PURPOSE S. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES WHEREAS THAT OF THE REVENUE IS DISMISSED. (ORDER PRONOUNCED IN THE COURT ON 12 TH JUNE, 2014). SD/- SD/- (N.K.SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12 TH JUNE, 2014. VL/ COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.