Bank of Maharashtra, Pune V. ACIT. Range-1, Pune

ITA 734/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9874 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 22-02-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 27-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Capital asset; Opportunity of being heard; Revised return
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILANEDRA KUMAR YADAV, JM AND SHRI G.S. PANNU, AM ITA NO. 734/PN/2011 AND 781/PN/2010 (ASSESSMENT YEAR: 2006-07 AND 2005-06) BANK OF MAHARASHTRA, LOKMANGAL 1501 SHIVAJINAGAR, PUNE-411 005 PAN AACCB 0774 B .. APPELLANT VS. ADDL. CIT RANGE I, PUNE RESPONDENT APPELLANT BY : SHRI SUNIL GANOO RESPONDENT BY : SHRI S.K. SINGH, CIT DR DATE OF HEARING: 03-08-2012 DATE OF PRONOUNCEMENT: 31-10-2012 ORDER PER G.S. PANNU, A.M.: SINCE THESE TWO APPEALS RELATE TO THE SAME ASSESSE E AND INVOLVE CERTAIN COMMON ISSUES, THE SAME HAVE BEEN C LUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PA SSED FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. FIRST, WE MAY TAKE UP APPEAL FOR A.Y. 2005-06 WH ICH ARISES OUT OF ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX I PUNE (FOR SHORT COMMISSIONER) UNDER SECTION 263 OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) DATED 29-3-2010, WHEREIN THE ASSES SEE HAS RAISED THE FOLLOWING SUBSTANTIVE GROUNDS OF APPEAL: IN THE ABSENCE OF CONDITIONS PRECEDENT FOR ASSUMPTION/EXERCISE OF REVISIONAL JURISDICTION U/S 263 OF THE ACT BY THE LEARNED CIT, THE IMPUGNED ORDER IS B AD IN LAW AND WITHOUT JURISDICTION FOR FOLLOWING REASONS I) DEDUCTION CLAIMED FOR AMORTIZATION OF PREMIUM ON HTM SECURITIES BEING A DEBATABLE ISSUE THE SAME CANNOT FORM THE BASIS OF REVISIONAL JURISDICTION; II) THE DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT BEING A DEBATABLE AND CONTENTIOUS ISSUE THE SAME IS OUTSIDE THE SCOPE AND PURVIEW OF REVISIONAL JURISDICTION. 2 ITA NO 734/PN/10 & & 781/PN/11 BANK OF MAHARA SHTRA .Y. 2006-07 & 2005-06 3. IN BRIEF, FACTS ARE THAT THE ASSESSEE IS A BANKI NG COMPANY WHICH FILED ITS RETURN OF INCOME ORIGINALLY ON 31-1 0-2005 DECLARING INCOME OF RS. 203,22,98,600/- WHICH WAS SUBSEQUENTL Y REVISED ON 30-3-2007 WHEREIN LOSS OF RS. 129,69,92,560/- WAS D ECLARED. THE RETURN OF INCOME WAS SUBJECT TO SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT WHEREIN THE ASSESSING OFFICER VIDE ORDER DA TED 29-11-2007 DETERMINED THE TOTAL INCOME AT RS. 178,42,18,150/- AFTER MAKING CERTAIN DISALLOWANCES/ADDITIONS. SUBSEQUENTLY, THE COMMISSIONER ISSUED A NOTICE U/S 263 OF THE ACT ON 30-3-3-3-2010 WHEREBY THE ASSESSEE WAS SHOW CAUSED AS TO WHY THE ASSESSMENT O RDER DATED 29-11-2007 BE NOT CONSIDERED ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTERESTS OF REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT ON VARIOUS POINTS. IN RESPONSE, ASS ESSEE APPEARED AND ALSO FURNISHED A WRITTEN REPLY DATED 18-3-2010 AND ASSERTED THAT THE ASSESSMENT ORDER COULD NOT BE CONSIDERED TO BE ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT. THE COMMISSIONER WAS NOT SATISFIED WITH THE SUBMISSIONS AND AFTER CONSIDERING THE SAME, SET ASI DE THE ASSESSMENT ORDER DATED 29-11-2007 AND DIRECTED THE ASSESSING OFFICER TO EXAMINE AND DECIDE THE ISSUES RAISED BY HIM IN HIS ORDER AND PASS AN ORDER AFRESH AFTER ALLOWING THE ASSESSE E A REASONABLE OPPORTUNITY OF BEING HEARD. IN THIS BACKGROUND, TH E ASSESSEE HAS CHALLENGED THE ORDER OF THE COMMISSIONER BY CONTEND ING THAT THE SAME WAS BAD IN LAW AND WITHOUT JURISDICTION WITH R EGARD TO TWO ISSUES, VIZ. (I) THE DEDUCTION FOR AMORTIZATION OF PREMIUM ON HTM SECURITIES; (II) DISALLOWANCE OF EXPENDITURE U/S 14 A OF THE ACT, AS SUCH ISSUES ARE CONTENTIOUS AND HENCE OUTSIDE THE S COPE OF REVISIONAL PROCEEDINGS U/S 263 OF THE ACT. 3 ITA NO 734/PN/10 & & 781/PN/11 BANK OF MAHARA SHTRA .Y. 2006-07 & 2005-06 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE-BANK IS A DEALER IN MONEY INASMUCH AS IT ACCEPTS DEPOSITS IN MONEY FROM ITS DEPOSITORS AND LEND SUCH MONEY TO ITS BORROWERS AS PER ITS POLICY. THE ASSESSEE-BANK PUR CHASES CENTRAL AND STATE GOVERNMENT SECURITIES AS PER RBI GUIDELIN ES. THE SECURITIES ACQUIRED BY THE BANK ARE CLASSIFIED INTO THREE CATEGORIES, VIZ. (I) HTM (HELD TO MATURITY); (II) AFS (AVAILABL E FOR SALE); AND (III) HFT (HELD FOR TRADING). SUCH ACQUISITION OF SECURI TIES IS MADE IN THE OPEN MARKET AND MOSTLY THE SECURITIES ARE ACQUIRED AT A PREMIUM. FOLLOWING THE GUIDELINES OF RBI, THE PREMIUM ON TH E SECURITIES WAS AMORTIZED OVER THE REMAINING PERIOD OF REDEMPTION/M ATURITY OF SECURITIES AND ACCORDINGLY FOR THE ASSESSMENT YEAR 2005-06 A SUM OF RS. 53,04,06,452/- WAS CLAIMED AS SET OFF AGAINST T HE INTEREST EARNED. THE LEARNED COUNSEL POINTED OUT THAT AS PE R THE ASSESSEE, ALL SECURITIES ARE ITS STOCK-IN-TRADE AND NOT CAPIT AL ASSET. IT IS POINTED OUT THAT SUCH AMORTIZATION OF EXPENDITURE ON PREMIU M ON HTM SECURITIES WAS CONSISTENTLY HELD TO BE DEDUCTIBLE E XPENDITURE UPTO AND INCLUDING THE ASSESSMENT YEAR 2005-06 AND THERE FORE, THERE WAS NO JUSTIFICATION FOR THE COMMISSIONER TO HAVE FOUND THE ASSESSMENT ORDER ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTERESTS OF THE REVENUE U/S 263 OF THE ACT ON THE SAID ISSUE. APAR T THEREFROM, IT IS POINTED OUT THAT DIFFERENT BENCHES OF THE TRIBUNAL IN THE FOLLOWING CASES HAVE HELD THAT AMORTIZATION OF PREMIUM ON PUR CHASE OF GOVERNMENT SECURITIES WAS AN ALLOWABLE DEDUCTION: (1) CATHOLIC SYRIAN BANK LTD. VS. ACIT (2010) 38 SO T 553 (COCHIN) (2) DY. CIT VS. HDFC BANK AND VICE VERSA 2011-TIOL- 681- ITT-MUM. 5. IT WAS THEREFORE, CONTENDED THAT IN THE FACE OF THE AFORESAID DECISIONS, THE ISSUE RAISED BY THE COMMISSIONER WAS A DEBATABLE ISSUE ON WHICH TWO VIEWS ARE POSSIBLE AND THEREFORE , THE SAME WAS 4 ITA NO 734/PN/10 & & 781/PN/11 BANK OF MAHARA SHTRA .Y. 2006-07 & 2005-06 OUTSIDE THE SCOPE OF SEC. 263 OF THE ACT IN TERMS O F THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUST RIAL CO. LTD. VS. CIT (2000) 243 ITR 83 (SC). 6. ON THE OTHER HAND, THE LEARNED CIT DR APPEARING FOR THE REVENUE CONTENDED THAT THE COMMISSIONER WAS RIGHT I N HOLDING THAT THE IMPUGNED AMOUNT ON ACCOUNT OF AMORTIZATION OF PREMIUM ON HTM SECURITIES WAS NOT AN ALLOWABLE DEDUCTION, INAS MUCH AS SUCH SECURITIES WERE IN THE NATURE OF CAPITAL ASSET AND THUS THE ASSESSMENT ORDER ALLOWING SUCH AN EXPENDITURE WAS E RRONEOUS. IN THIS MANNER, THE ORDER OF THE COMMISSIONER WAS SOUG HT TO BE SUPPORTED BY THE LEARNED DR. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL ON RECORD. SECTION 263 OF THE ACT EMPOWERS THE COMMIS SIONER TO CALL FOR AND EXAMINE RECORDS OF ANY PROCEEDINGS UNDER TH IS ACT AND PASS SUCH AN ORDER THEREON AS THE CIRCUMSTANCES OF THE C ASE JUSTIFY INCLUDING AN ORDER FOR ENHANCING OR MODIFICATION OF THE ASSESSMENT OR CANCELING THE ASSESSMENT AND DIRECTING A FRESH A SSESSMENT. SO HOWEVER, THE AFORESAID EXERCISE OF JURISDICTION BY THE COMMISSIONER IS CIRCUMSCRIBED BY FULFILLMENT OF TWO CONDITIONS, VIZ. THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND P REJUDICIAL TO THE INTERESTS OF REVENUE. AS PER THE HONBLE SUPREME C OURT DECISION IN THE CASE OF MALABAR INDUSTRIAL CO. LTD., (SUPRA), I F ONE OF THE CONDITIONS IS ABSENT I.E. IF THE ORDER OF THE ASSES SING OFFICER IS ERRONEOUS, BUT IS NOT PREJUDICIAL TO THE INTEREST O F REVENUE OR IF IT IS NOT ERRONEOUS BUT IS MERELY PREJUDICIAL TO THE INTE RESTS OF REVENUE, RECOURSE CANNOT BE HAD TO SECTION 263 OF THE ACT BY THE COMMISSIONER. HONBLE SUPREME COURT EXPLAINED THAT WHERE THE ASSESSING OFFICER ADOPTED ONE OF THE COURSES PERMIS SIBLE IN LAW AND 5 ITA NO 734/PN/10 & & 781/PN/11 BANK OF MAHARA SHTRA .Y. 2006-07 & 2005-06 IT HAS RESULTED IN LOSS OF REVENUE OR WHERE TWO VIE WS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW WITH W HICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED A S AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF REVENUE UNLESS AND UNTIL IT IS DEMONSTRATED THAT THE VIEW TAKEN BY THE ASSESSING O FFICER IS UNSUSTAINABLE IN LAW. 8. IN THE ABOVE BACKGROUND, WE MAY CONSIDER THE PLE A SET UP BY THE ASSESSEE TO CHALLENGE THE JURISDICTION EXERCISE D BY THE COMMISSIONER U/S 263 OF THE ACT QUA HIS VIEW THAT THE ASSESSING OFFICER ERRED IN NOT DISALLOWING ASSESSEES CLAIM F OR DEDUCTION BY WAY OF AMORTIZATION OF PREMIUM ON HTM SECURITIES. THE ASSESSEE HAS REFERRED TO TWO DECISIONS OF THE TRIBUNAL, VIZ. CATHOLIC SYRIAN BANK LTD. (SUPRA) DATED 6-8-2009 AND HDFC BANK LTD . (SUPRA) DATED 29-6-2011 WHICH CLEARLY ARE CONTRARY TO THE V IEW OF THE COMMISSIONER. AS PER THE TRIBUNAL, AN ASSESSEE-BAN K IS ELIGIBLE TO CLAIM DEDUCTION ON ACCOUNT OF AMORTIZATION OF PREMI UM ON PURCHASE OF SECURITIES WHILE COMPUTING ITS INCOME. THE ASSES SMENT ORDER PASSED BY THE ASSESSING OFFICER IN THIS CASE DATED 29-11-2007 DID NOT MAKE ANY DISALLOWANCE OF THE AMORTIZATION OF PR EMIUM PAID ON PURCHASE OF SECURITIES, WHICH WAS CLAIMED BY THE AS SESSEE AS A DEDUCTION WHILE COMPUTING ITS INCOME. ACCORDING TO THE COMMISSIONER, THE AMORTIZATION OF PREMIUM PAID ON S ECURITIES IS NOT AN ALLOWABLE DEDUCTION INASMUCH AS HTM SECURITIES A RE A CAPITAL ASSET. IN OUR VIEW, HAVING REGARD TO THE DECISION S OF THE TRIBUNAL REFERRED ABOVE, THE VIEW EMERGING AS A RESULT OF AS SESSMENT ORDER ON THE IMPUGNED ISSUE IS A POSSIBLE VIEW AND THEREF ORE, SUCH AN ISSUE CANNOT BE MADE SUBJECT MATTER OF REVISION U/S 263 OF THE ACT FOLLOWING THE PARITY OF THE REASONS LAID DOWN IN TH E CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA). IN VIEW OF THE PRECED ENTS CITED, IT CANNOT 6 ITA NO 734/PN/10 & & 781/PN/11 BANK OF MAHARA SHTRA .Y. 2006-07 & 2005-06 BE HELD THAT THE VIEW OF THE ASSESSING OFFICER BEIN G A POSSIBLE ONE, IS UNSUSTAINABLE IN LAW. THEREFORE, ON THIS COUNT, THE ACTION OF THE COMMISSIONER IS VACATED. 9. FOR A.Y. 2006-07 ALSO, THE COMMISSIONER HAS SET ASIDE THE ASSESSMENT ORDER ON ISSUE OF DEDUCTION FOR AMORTIZA TION OF PREMIUM PAID ON PURCHASE OF HTM SECURITIES. FOR DETAILED D ISCUSSIONS MADE IN THE PRECEDING PARAGRAPHS, WE VACATE THE ACTION O F THE COMMISSIONER FOR ASSESSMENT YEAR 2006-07 AS WELL. 10. ANOTHER ISSUE RAISED BY THE ASSESSEE IS WITH RE GARD TO THE DIRECTION OF THE COMMISSIONER TO RE-COMPUTE THE DIS ALLOWANCE U/S 14A OF THE ACT. IN THIS CONTEXT, THE BRIEF FACTS A RE THAT THE ASSESSEE HAD CLAIMED EXEMPTION IN RESPECT OF INCOMES RECEIVE D ON INFRA- STRUCTURE ADVANCES IN THE ORIGINAL RETURN OF INCOME AS WELL AS IN THE REVISED RETURN. IN THE ORIGINAL RETURN, EXEMPTED I NCOME U/S 10(23G) OF THE ACT WAS RS. 6,78,86,366/- AND A FURTHER CLAI M OF EXEMPTION WAS MADE IN THE REVISED RETURN AMOUNTING TO RS. 5,3 2,89,883/-. IN THE ORIGINAL AS WELL AS IN THE REVISED RETURN, THE ASSESSEE HAD DISALLOWED A PORTION OF INTEREST EXPENDITURE AS RE LATING TO SUCH EXEMPTED INCOME, INVOKING SECTION 14A OF THE ACT. IN THE ORIGINAL RETURN, DISALLOWANCE MADE U/S 14A OF THE ACT STOOD AT RS. 6,22,81,410/- AND A FURTHER DISALLOWANCE IN THE REV ISED RETURN OF RS. 239,69,625/- WAS MADE. THE ASSESSING OFFICER DID N OT DISTURB THE SUO-MOTTO SAID DISALLOWANCE MADE BY THE ASSESSEE U/S 14A OF THE ACT. HOWEVER, IN THE ASSESSMENT FINALIZED U/S 143(3 ) OF THE ACT DATED 29-11-2007, THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE OF RS. 12,10,080/- REPRESENTING 10% OF OPERATING EXPENSES OF INVESTMENT DEPARTMENT. AS PER THE ASSES SING OFFICER, THE SAID DEPARTMENT TOOK CARE OF THE INVESTMENTS WH ICH YIELD 7 ITA NO 734/PN/10 & & 781/PN/11 BANK OF MAHARA SHTRA .Y. 2006-07 & 2005-06 EXEMPTED INCOMES AND THEREFORE, A PORTION OF OPERAT ING EXPENSES OF THE DEPARTMENT RELATED TO EXEMPTED INCOME AND HENCE THE DISALLOWANCE. THE ASSESSEE CONTESTED SUCH ADDITION BEFORE THE CIT(A) WHO VIDE HIS ORDER DATED 25-9-2008 SUSTAINED THE DISALLOWANCE OF RS. 12,10,080/-. 11. SUBSEQUENTLY, THE COMMISSIONER IN THE CAPTIONED REVISIONARY PROCEEDINGS NOTICED THAT THE DISALLOWANCE U/S 14A OF THE ACT CALCULATED BY THE ASSESSEE SUO-MOTTO ON ACCOUNT OF INTEREST ATTRIBUTABLE TO THE INVESTMENT TOWARDS INFRA STRUCT URE ADVANCES WAS INCORRECT. THE COMMISSIONER NOTICED THAT FOR THE P URPOSES OF CALCULATING THE AVERAGE RATE OF INTEREST PAID, ASSE SSEE HAD TAKEN INTO CONSIDERATION ONLY INTEREST ON DEPOSITS AND IN TEREST ON RBI/INTER- BANK BORROWINGS OF RS. 14,07,27,95,000/- AND THE AM OUNT OF OTHER INTEREST OF RS. 78,75,52,000/- WAS NOT CONSIDERED. AS PER THE COMMISSIONER, THE LATTER INTEREST EXPENDITURE WAS A LSO A COST TO THE ASSESSEE AND WAS REQUIRED TO BE CONSIDERED FOR WORK ING OUT AVERAGE INTEREST PAID IN ORDER TO COMPUTE THE INTEREST DISA LLOWABLE U/S 14A OF THE ACT, CORRESPONDING TO THE INVESTMENT IN INFRA S TRUCTURE ADVANCES, WHICH HAVE YIELDED EXEMPTED INCOME U/S 10(23G) OF T HE ACT. AS PER THE COMMISSIONER, AFTER CONSIDERING THE OTHER INTER EST PAID ON RS. 78,75,52,000/- THE DISALLOWANCE WOULD BE ENHANCED B Y RS. 47,11,191/-. ON BEING SHOW CAUSED BY THE COMMISSIO NER ON THE ABOVE LINES, ASSESSEE CONTENDED THAT INTEREST OF RS . 18.26 CR. OUT OF RS. 78,75,52,000/- WAS ON BORROWINGS IN THE NATURE OF RE-FINANCE FROM SIDBI, THE BALANCE INTEREST IS ON LIABILITIES AS PER SCHEDULE 5 WHICH ARE NOT CONSIDERED FOR CALCULATING AFORESAID RATE OF INTEREST. IN ANY CASE, IT WAS SUBMITTED THAT THE DISALLOWANCE MA DE BY THE ASSESSING OFFICER IS REASONABLE AND NO ADDITIONAL D ISALLOWANCE BE MADE. 8 ITA NO 734/PN/10 & & 781/PN/11 BANK OF MAHARA SHTRA .Y. 2006-07 & 2005-06 12. THE COMMISSIONER HOWEVER, HELD AS UNDER: THE ASSESSEE, IN ITS SUBMISSION, HAS ACCEPTED THAT THE INTEREST OF RS. 18.26 CR. ON BORROWINGS IN THE NATU RE OF RE-FINANCE OF SIDBI IS NOT INCLUDED IN THE INTEREST PAID WHILE CALCULATING THE DISALLOWANCE U/S 14A OF THE A CT. THEREFORE, THE SAME IS DIRECTED TO BE INCLUDED WHIL E COMPUTING THE PERCENTAGE OF AMOUNT TO BE DISALLOWED U/S 14A OF THE ACT. REGARDING THE INTEREST ON TIER II BONDS OF RS. 43.67 CR., INTEREST ON VRS 2000 BONDS OF RS . 4.08 CR. CBLO OF RS. 5.29 CR. NOSTRO OF RS. 5.11 CR . AND OTHERS OF RS. 2.31 CR. THE AO IS DIRECTED TO VE RIFY WHETHER THE CORRESPONDING BORROWINGS AGAINST THESE INTEREST EXPENSES HAVE BEEN INCLUDED IN COMPUTING T HE PERCENTAGE FOR THE PURPOSE OF DISALLOWANCE U/S 14A OF THE ACT 13. BEFORE US, A PERTINENT POINT RAISED BY THE ASSE SSEE IS THAT DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT IS DEBATABLE AND CONTENTIOUS ISSUE AND THEREFORE, THERE WAS NO JUSTI FICATION TO INVOKE REVISIONARY POWER OF THE COMMISSIONER U/S 263 OF TH E ACT. SECONDLY, IT IS SOUGHT TO BE MADE OUT THAT THE DISA LLOWANCE U/S 14A OF THE ACT WAS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER OF RS. 12,10,080/-, WHICH WAS THE SUBJECT MAT TER OF APPEAL BEFORE THE CIT(A) AND THEREFORE, IN TERMS OF EXPLAN ATION (C) TO SEC. 263(1) OF THE ACT, THE COMMISSIONER COULD NOT CONSI DER SUCH MATTER IN THE IMPUGNED PROCEEDINGS. 14. ON THE OTHER HAND, THE LEARNED DR HAS SUPPORTED THE ORDER OF THE COMMISSIONER BY POINTING OUT THAT THE COMMISSIO NER WAS JUSTIFIED IN INVOKING REVISIONARY POWERS U/S 263 OF THE ACT AND THAT THE ISSUE WITH REGARD TO THE INTEREST EXPENDITURE A TTRIBUTABLE TO EXEMPTED INCOME WAS NOT THE SUBJECT MATTER OF DISAL LOWANCE BY THE ASSESSING OFFICER, AND HENCE, EXPLANATION (C) TO SE C. 263(1) OF THE ACT DOES NOT IMPAIR THE COMMISSIONER TO INVOKE SEC. 263 OF THE ACT IN THE PRESENT CASE. 15. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IN OUR CONSIDERED OPINION, INVOKING OF EXPLANATION (C) TO SEC. 263(1) BY THE 9 ITA NO 734/PN/10 & & 781/PN/11 BANK OF MAHARA SHTRA .Y. 2006-07 & 2005-06 ASSESSEE TO ATTACK THE IMPUGNED ORDER IS QUITE MIS- PLACED HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. IN TERMS OF EXPLANATION (C) TO SEC. 263(1) OF THE ACT, WHERE AN ORDER PASSED BY THE ASSESSING OFFICER HAS BEEN THE SUBJECT MATTER O F APPEAL, THE POWER OF COMMISSIONER U/S 263(1) OF THE ACT IS CONF INED TO THE MATTERS THAT HAVE AS NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL . NOTABLY, THE POINT RAISED BY THE COMMISSIONER P ERTAINS TO AMOUNT OF INTEREST EXPENDITURE DISALLOWABLE IN TERM S OF SEC. 14A OF THE ACT ON THE GROUND THAT IT HAS BEEN INCURRED IN RELATION TO INCOME EXEMPTED U/S 10(23G) OF THE ACT. THE ASSESSEE HAD MADE SUO MOTTO DISALLOWANCE IN ITS RETURN OF INCOME AND NO DISALL OWANCE WAS MADE BY THE ASSESSING OFFICER. THE ASSESSING OFFI CER CONFINED HIMSELF TO EXAMINING INCURRENCE OF EXPENDITURE IN R ELATION TO EXEMPTED INCOME QUA THE OPERATING EXPENSES OF INVESTMENT DEPARTMENT HANDLING INVESTMENTS YIELDING EXEMPTED I NCOME. IT IS ONLY THE SAID DISALLOWANCE WHICH WAS CONSIDERED AND DECIDED IN APPEAL BY THE CIT(A). SO FAR AS THE POINT RAISED B Y THE COMMISSIONER IS CONCERNED, THE SAME WAS NOT EXAMINE D BY THE ASSESSING OFFICER MUCH LESS CONSIDERED AND DECIDED IN APPEAL BY THE CIT(A). THEREFORE, THE COMMISSIONER IS CORRECT IN HOLDING THAT ON THE PRESENT ISSUE EXPLANATION (C) TO SEC. 263(1) DOES NOT DEBAR INVOKING OF SECTION 263 OF THE ACT. BE THAT AS IT MAY, THE POINT RAISED BY THE COMMISSIONER IS THAT IN ORDER TO COMP UTE THE DISALLOWANCE U/S 14A OF THE ACT, THE ASSESSEE HAS N OT CONSIDERED INTEREST EXPENDITURE OF RS. 78,75,52,000/- AS DETAI LED IN PARA III OF THE IMPUGNED ORDER. THE COMMISSIONER FURTHER OBSER VES THAT THE ASSESSEE ACCEPTED THAT INTEREST OF RS. 18.26 CR. OU T OF SUCH AMOUNT WAS NOT INCLUDED AND ACCORDINGLY, HE DIRECTED THE S AME TO BE INCLUDED WHILE COMPUTING INTEREST PERCENTAGE TO BE DISALLOWED U/S 14A OF THE ACT. WITH REGARD TO THE BALANCE, THE COM MISSIONER 10 ITA NO 734/PN/10 & & 781/PN/11 BANK OF MAHARA SHTRA .Y. 2006-07 & 2005-06 DIRECTED THE ASSESSING OFFICER TO EXAMINE WHETHER T HE BORROWINGS CORRESPONDING TO SUCH INTEREST WERE INCLUDED FOR DI SALLOWANCE OR NOT. IN OUR CONSIDERED OPINION, IT WAS CORRECTLY OBSERVE D BY THE COMMISSIONER THAT THIS ASPECT REQUIRED VERIFICATION . WE FIND NO ERROR ON THE PART OF THE COMMISSIONER WHEREBY HE HAS DIRE CTED THE ASSESSING OFFICER TO VERIFY AND THEREAFTER DECIDE T HE AMOUNT DISALLOWABLE U/S 14A OF THE ACT ON ACCOUNT OF IMPUG NED INTEREST EXPENDITURE. AT THIS POINT, WE ONLY DEEM IT FIT AN D PROPER TO NOT ONLY AFFIRM THE DIRECTION OF THE COMMISSIONER BUT ALSO D IRECT THAT THE ASSESSING OFFICER SHALL CARRY OUT VERIFICATION EXER CISE AND ADJUDICATE THE ISSUE IN ACCORDANCE WITH PREVAILING LEGAL POSIT ION HAVING REGARD TO THE RESULTS OF HIS EXERCISE OF FACTUAL VERIFICAT ION. THEREFORE, ON THIS ASPECT, IN PRINCIPLE, THE ASSESSEE HAS TO FAIL . 16. FOR A.Y. 2006-07 ALSO, THE COMMISSIONER HAS SET ASIDE THE ASSESSMENT ORDER ON ISSUE OF DISALLOWANCE U/S 14A O F THE ACT. ON PARITY OF REASONING GIVEN IN THE FOREGOING PARAGRAP HS, WE NOT ONLY AFFIRM THE DIRECTIONS OF THE COMMISSIONER FOR THIS YEAR ALSO, BUT ALSO DIRECT THAT THE ASSESSING OFFICER SHALL CARRY OUT THE VERIFYING EXERCISE AND ADJUDICATE THE ISSUE IN ACCORDANCE WIT H PREVAILING POSITION HAVING REGARD TO THE RESULT OF FACTUAL VER IFICATION. THE ASSESSEE FAILS ON THIS GROUND. 17. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER 2012. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 31 ST OCTOBER 2012 ANKAM 11 ITA NO 734/PN/10 & & 781/PN/11 BANK OF MAHARA SHTRA .Y. 2006-07 & 2005-06 COPY TO:- 1. ASSESSEE 2. DEPARTMENT 3. THE CIT-I PUNE 4. THE DEPARTMENTAL REPRESENTATIVE, B BENCH, I.T. A.T., PUNE. BY ORDER //TRUE COPY// SR. P.S. I.T.A.T., PUNE