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

ITA 855/PUN/2008

• Counselvise Citation: 85524514 RSA 2008
• Duration Of Justice: 5 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-10-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 11-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Assessee Lawyers: S ANARDAN
• Keywords: Depreciation; Earning of tax free income; Cost of acquisition; Revised return; Capital expenditure
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHE B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NOS.637 & 638/PN/2007 (A.YS. : 2002-03 TO 2003-04) BANK OF MAHARASHTRA, ASSTT. GENERAL MANAGER (F.M. & A.) 3 RD FLOOR, LOKMANGAL, 1501, SHIVAJINAGAR, PUNE - 411 005. PAN : AACCB0774B . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1 (1), PUNE. . RESPONDENT ITA NO.855/PN/2008 (A.Y. : 2004-05) ADDL. COMMISSIONER OF INCOME TAX, RANGE- 1, PUNE. . APPELLANT VS. BANK OF MAHARASHTRA, F.M.& A. DEPARTMENT, 3 RD FLOOR, LOKMANGAL, 1501, SHIVAJINAGAR, PUNE - 411 005. PAN : AACCB0774B . RESPONDENT ITA NO.967/PN/2008 (A.Y. : 2004-05) BANK OF MAHARASHTRA, DY. GENERAL MANAGER (F.M. & A.) 3 RD FLOOR, LOKMANGAL, 1501, SHIVAJINAGAR, PUNE - 411 005. PAN : AACCB0774B . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1 (1), PUNE. . RESPONDENT ASSESSEE BY : MR. S. ANARDAN & MS. LALITHA RAMESWARAN DEPARTMENT BY : MR. A. K. MODI DATE OF HEARING : 18-03-2014 DATE OF PRONOUNCEMENT : 30-05-2014 ITA NOS.1935 TO 1940/PN/2013 ORDER PER G. S. PANNU, AM THESE ARE THREE APPEALS BY THE SAME ASSESSEE AND ON E APPEAL BY THE REVENUE PERTAINING TO THE DIFFERENT ASSESSMENT YEAR S. SINCE SOME OF THE ISSUES INVOLVED ARE COMMON, THE APPEALS HAVE BEEN C LUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED F OR THE SAKE OF CONVENIENCE AND BREVITY. 2. FIRSTLY, WE MAY TAKE-UP THE APPEAL OF THE ASSESS EE IN ITA NO.637/PN/2007 FOR ASSESSMENT YEAR 2002-03, WHICH I S DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I , PUNE DATED 21.02.2007 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 07.0 3.2005 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 3. IN THIS APPEAL, THE SOLITARY ISSUE RAISED IN THE MEMO OF APPEAL READS AS UNDER :- 1. THE CIT(APPEAL) ERRED IN ENHANCING THE INCOME O F THE APPELLANT BY RS.3,76,53,360/- BY HOLDING THAT THIS AMOUNT REPRESENTING PART OF OPERATING EXPENSES IS TO BE DISALLOWED U/S 14A OF T HE INCOME TAX, ACT, 1961 AS PERTAINING TO INTEREST INCOME OF TAX FREE BONDS. 4. APART THEREFORM, APPELLANT HAS RAISED THREE ADDI TIONAL GROUNDS OF APPEAL VIDE TWO SEPARATE APPLICATIONS, WHICH READ A S UNDER :- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IT MAY PLEASE BE HELD THAT INTEREST RECEIVED BY THE APPELL ANT BANK FROM INFRASTRUCTURE ADVANCES QUALIFIES FOR EXEMPTION U/S 10(23G) OF THE I.T. ACT, 1961 AND THE SAID INCOME BE HELD AS EXEMPT FROM TAXATION. 2. IN VIEW OF THE WELL SETTLED PRINCIPLE OF LAW THA T THERE IS NO ESTOPPEL IN TAX PROCEEDINGS, THE DISALLOWANCE TO TH E EXTENT OF RS.16,53,97,980.00 MADE BY THE APPELLANT BANK U/S 1 4A OF THE I.T. ACT, 1961 VOLUNTARILY IN ITS RETURN OF INCOME AND AS CONFIRME D/ ACCEPTED BY THE LEARNED ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) BEI NG PATENTLY ILLEGAL, BAD IN LAW, DEVOID OF MERITS AND BEING ARBITRARY AND LEGAL LY UNSUSTAINABLE THE SAME MAY PLEASE BE DELETED. ITA NOS.1935 TO 1940/PN/2013 3. THE LEARNED ASSESSING OFFICER BE DIRECTED TO ALL OW THE DEDUCTION OF RS.60 CRORE, BEING THE DEBTS WRITTEN O FF BY THE NON-RURAL BRACHES OF THE APPELLANT BANK. 5. BEFORE WE PROCEED TO ADJUDICATE THE RESPECTIVE G ROUNDS OF APPEAL, A BRIEF BACKGROUND OF THE CASE CAN BE SUMMARIZED AS F OLLOWS. THE APPELLANT IS A NATIONALIZED BANK ENGAGED IN THE BUSINESS OF BANK ING. FOR THE ASSESSMENT YEAR 2002-03, IT FILED A RETURN OF INCOME ON 25.10. 2002 DECLARING AN INCOME OF RS.273,41,03,122/-, WHICH WAS SUBSEQUENTLY REVISED TO RS.270,22,13,577/- BY FILING A REVISED RETURN ON 12.11.2004. THE RETURN OF INCOME FILED WAS SUBJECT TO A SCRUTINY ASSESSMENT BY THE ASSESSING OFFICER WHER EBY THE TOTAL INCOME HAS BEEN ASSESSED AT RS. 299,92,83,782/- VIDE ORDER PAS SED U/S 143(3) OF THE ACT DATED 07.03.2005. THE VARIOUS ADDITIONS/DISALLOWAN CES MADE BY THE ASSESSING OFFICER WERE CARRIED IN APPEAL BEFORE THE CIT(A), WHO HAS ALLOWED PARTIAL RELIEF. NOT BEING SATISFIED WITH THE ORDER OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US IN TERMS OF THE AFORESTATE D GROUNDS OF APPEAL. 6. THE ONLY ISSUE RAISED IN THE MEMO OF APPEAL FILE D BY THE ASSESSEE IS WITH REGARD TO THE ENHANCEMENT OF INCOME MADE BY TH E CIT(A) ON ACCOUNT OF INCREMENTAL DISALLOWANCE QUANTIFIED BY HIM OF RS.3, 76,53,360/- U/S 14A OF THE ACT. BEFORE WE PROCEED FURTHER, WE MAY ALSO AT THI S STAGE REFER TO THE THREE ADDITIONAL GROUNDS OF APPEAL WHICH HAVE BEEN RAISED BY THE ASSESSEE BEFORE THE TRIBUNAL SUBSEQUENT TO FILING OF THE APPEAL MEM O. SUCH ADDITIONAL GROUNDS OF APPEAL HAVE BEEN REPRODUCED BY US IN AN EARLIER PARA OF THIS ORDER. ADDITIONAL GROUND OF APPEAL NO.2 IS WITH RE GARD TO AN AMOUNT OF RS.16,53,97,980/- REPRESENTING EXPENDITURE ON ACCOU NT OF INTEREST, WHICH WAS ADDED BACK BY THE ASSESSEE IN ITS COMPUTATION OF IN COME SUO MOTU ON ACCOUNT OF SECTION 14A OF THE ACT. HOWEVER, BEFORE THE CIT(A), ASSESSEE POINTED OUT THAT THE AFORESAID DISALLOWANCE OUT OF INTEREST EXPENDITURE SUO MOTU MADE BY THE ASSESSEE IN THE RETURN OF INCOME WAS B ASED ON AN INCORRECT APPLICATION OF SECTION 14A OF THE ACT. ADDITIONAL GROUND WAS RAISED BEFORE THE CIT(A) ASKING FOR RELIEF, WHICH HAS NOT BEEN ENTERT AINED PRIMARILY FOR THE ITA NOS.1935 TO 1940/PN/2013 REASON THAT, ACCORDING TO THE COMMISSIONER, HIS APP ELLATE JURISDICTION WAS LIMITED TO GRIEVANCES CAUSED TO THE ASSESSEE BY THE ORDER OF THE ASSESSING OFFICER. ON THIS ISSUE, ACCORDING TO THE COMMISSIO NER, ASSESSEE WAS IN APPEAL AGAINST AN AMOUNT WHICH WAS NOT CLAIMED IN T HE RETURN OF INCOME. ON THE SAID BASIS, THE COMMISSIONER REFUSED TO ENTERTA IN THE AFORESAID GROUND OF APPEAL RAISED. 7. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE POINTED OUT THAT ASSESSEE HAD EARNED TAX-FREE INTER EST INCOME ON SECURITIES AMOUNTING TO RS.8,10,00,000/- AND IN THE RETURN OF INCOME ASSESSEE HAD ADDED BACK INTEREST EXPENDITURE OF RS.16,53,97,980/ - ON THE GROUND THAT IT WAS RELATABLE TO SUCH INCOME AND THUS WAS DISALLOWA BLE IN TERMS OF SECTION 14A OF THE ACT. THE LEARNED COUNSEL SUBMITTED THAT IN THE COURSE OF APPELLATE PROCEEDING BEFORE THE CIT(A), ASSESSEE WAS SERVED W ITH AN ENHANCEMENT NOTICE WHEREBY THE DISALLOWANCE U/S 14A OF THE ACT WAS SOUGHT TO BE ENHANCED ON ACCOUNT OF NON-CONSIDERATION OF A PORTI ON OF OPERATING EXPENSES TOWARDS THE EARNING OF THE TAX-FREE INTEREST INCOME . IN RESPONSE, ASSESSEE NOT ONLY RESISTED THE ENHANCEMENT, BUT IT ALSO PLEADED THAT THE INTEREST CONSIDERED BY IT AS RELATABLE TO THE TAX-FREE INTEREST INCOME WAS ON AN INCORRECT ASSUMPTION BECAUSE ASSESSEE HAD SUFFICIENT NON-INTE REST BEARING FUNDS TO COVER INVESTMENT IN THE SECURITIES, WHICH HAVE YIEL DED THE IMPUGNED TAX-FREE INTEREST INCOME. IT WAS ALSO PUT-FORTH TO THE CIT( A) THAT THE INVESTMENT IN THE SECURITIES, WHICH HAVE YIELDED THE TAX-FREE INTERES T INCOME, WAS MADE IN THE PAST YEARS, WHEN ASSESSEE HAD SUFFICIENT NON-INTERE ST BEARING FUNDS BY WAY OF PROFITS. THE LEARNED COUNSEL SUBMITTED THAT THE CO MMISSIONER HAS UNDULY REFUSED TO ENTERTAIN THE AFORESAID ADDITIONAL GROUN D OF APPEAL, ESPECIALLY WHEN ALL THE MATERIAL AVAILABLE TO ADJUDICATE THE S AME WAS AVAILABLE ON RECORD AND IT IS CONTENDED BEFORE US THAT THE AFORESAID AD DITIONAL GROUND OF APPEAL NO.2 BE ADMITTED AND ADJUDICATED ON MERITS. ITA NOS.1935 TO 1940/PN/2013 8. SIMILARLY, THE ADMISSION OF ADDITIONAL GROUND OF APPEAL NO.1 RELATING TO EXEMPTION U/S 10(23G) OF THE ACT RELATING TO INTERE ST RECEIVED BY ASSESSEE BANK ON INFRASTRUCTURE ADVANCES IS ALSO SOUGHT TO B E JUSTIFIED. IN THIS CONTEXT, THE LEARNED COUNSEL POINTED OUT THAT THE AFORESAID EXEMPTION WAS OSTENSIBLY, AVAILABLE TO THE ASSESSEE AND MERE NON-CLAIMING OF THE SAME CANNOT OPERATE AS AN ESTOPPEL FOR THE TRIBUNAL TO ADMIT AND CONSID ER THE SAME ON ITS MERITS. SIMILARLY, THE ADMISSION OF ADDITIONAL GROUND OF AP PEAL NO.3 RELATING TO A CLAIM OF DEDUCTION OF RS.60 CRORES ON ACCOUNT OF WR ITE-OFF OF DEBTS BY THE NON- RURAL BRANCHES OF THE ASSESSEE BANK IS ALSO SOUGHT TO BE JUSTIFIED. IN THIS CONNECTION, IT IS POINTED OUT THAT AT THE TIME OF T HE PROCEEDINGS BEFORE THE LOWER AUTHORITIES THERE WERE CONFLICTING VIEWS INAS MUCH AS THE FULL BENCH OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. SO UTH INDIAN BANK LTD., (2010) 191 TAXMANN.COM 272 (KERALA) HAD DECIDED THE ISSUE IN FAVOUR OF THE DEPARTMENT. IN SUCH A SCENARIO, ASSESSEE DID NOT R AISE SUCH PLEA BEFORE THE LOWER AUTHORITIES, SO HOWEVER, IN VIEW OF THE SUBSE QUENT JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIA N BANK LTD. VS. CIT, (2012) 343 ITR 270 (SC), THE ISSUE HAS BEEN FINALLY DECIDED IN FAVOUR OF THE ASSESSEE AND IN VIEW OF SUCH FINALITY, THE AFORESAI D ADDITIONAL GROUND BE ADMITTED FOR ADJUDICATION. IT HAS ALSO BEEN ASSERT ED THAT NECESSARY FACTS ARE AVAILABLE ON RECORD AND NO FRESH INVESTIGATION OF F ACTS IS REQUIRED TO ADJUDICATE ANY OF THE ADDITIONAL GROUNDS OF APPEAL. 9. AT THE TIME OF HEARING, IN SO FAR AS THE ADMISSI ON OF THE AFORESTATED ADDITIONAL GROUNDS OF APPEAL IS CONCERNED, THE LEAR NED DEPARTMENTAL REPRESENTATIVE HAS NOT SERIOUSLY OPPOSED THE SAME. AS PER THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL POWER THERMAL CORPORATION VS. CIT, (1998) 229 ITR 383 (SC) AN ADDITIONAL GROUND OF APP EAL CAN BE RAISED BY THE ASSESSEE AT ANY TIME SO LONG AS IT INVOLVES AN ISSU E WHICH IS RELEVANT TO DECIDE THE FINAL TAX LIABILITY OF THE ASSESSEE. AS PER THE HONBLE SUPREME COURT, IF AN ADDITIONAL/FRESH CLAIM IS RAISED ON BO NAFIDE CONSIDERATIONS AND ITA NOS.1935 TO 1940/PN/2013 INVOLVES A POINT OF LAW, WITH THE NECESSARY FACTS B EING ON RECORD, SUCH A FRESH CLAIM DESERVES TO BE ENTERTAINED BY AN APPELLATE AU THORITY. THE APPELLANT BEFORE US IS A NATIONALIZED BANK AND THE ADDITIONAL GROUNDS OF APPEAL NOW SOUGHT TO BE RAISED CONTAIN FRESH CLAIMS, WHICH WER E HITHERTO NOT MADE BEFORE THE ASSESSING OFFICER. SO HOWEVER, IT IS QUITE CLE AR THAT THE FRESH CLAIMS NOW RAISED ARE RELEVANT TO DETERMINE THE ULTIMATE TAX L IABILITY IN THE HANDS OF THE ASSESSEE AND WE ALSO DO NOT FIND ANY MATERIAL TO NE GATE THE BONAFIDE OF THE CLAIMS NOW SOUGHT TO BE RAISED. HAVING REGARD TO T HE ENTIRE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT AND PROPER TO ADMIT T HE AFORESTATED FRESH CLAIMS WHICH ARE QUITE RELEVANT TO DETERMINE THE TAX LIABI LITY OF THE ASSESSEE FOLLOWING THE RATIO OF THE JUDGEMENT OF THE HONBLE SUPREME C OURT IN THE CASE OF NATIONAL THERMAL POWER CORPORATION (SUPRA). THE AF ORESAID DECISION WAS ANNOUNCED IN THE COURSE OF HEARING AND THEREAFTER B OTH THE PARTIES WERE HEARD WITH RESPECT TO THE MERITS OF THE RESPECTIVE ADDITI ONAL GROUNDS OF APPEAL. 10. IN THIS BACKGROUND, NOW WE MAY TAKE-UP THE FIRS T GRIEVANCE OF THE ASSESSEE WHICH RELATES TO DISALLOWANCE U/S 14A OF T HE ACT AS IS MANIFESTED BY WAY OF THE REGULAR GROUND OF APPEAL NO.1 AND THE AD DITIONAL GROUND OF APPEAL NO.2. ACCORDINGLY, THE AFORESAID TWO GROUND S OF APPEAL ARE BEING TAKEN UP TOGETHER. 11. IN THE RETURN OF INCOME FILED, ASSESSEE HAD DEC LARED AN INTEREST INCOME OF RS.8,10,00,000/- WHICH WAS EXEMPT FROM TAX. THE COST OF INVESTMENTS, WHICH YIELDED SUCH EXEMPT INCOME WAS RS.78.50 CRORE S. NOTABLY, SECTION 14A OF THE ACT PRESCRIBES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY EXP ENDITURE INCURRED BY THE ASSESSEE IN RELATION TO AN INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT. ON ACCOUNT OF SECTION 14A OF THE AC T, ASSESSEE SUO MOTU QUANTIFIED INTEREST EXPENDITURE OF RS.16,53,97,980/ - AS RELATABLE TO THE EXEMPTED INCOME AND ACCORDINGLY ADDED BACK THE SAME TO THE TOTAL INCOME. ITA NOS.1935 TO 1940/PN/2013 BEFORE THE CIT(A), ASSESSEE SUBMITTED THAT SINCE TH E INVESTMENT IN THE SECURITIES, WHICH HAVE YIELDED EXEMPT INCOME, WAS M ADE IN PAST YEARS OUT OF NON-INTEREST BEARING FUNDS, NO INTEREST CAN BE SAID TO BE RELATABLE TO SUCH INVESTMENTS. IN THE COURSE OF APPELLATE PROCEEDING S, THE CIT(A) SHOW-CAUSED THE ASSESSEE AS TO WHY THE DISALLOWANCE RETURNED BY THE ASSESSEE ON ACCOUNT OF SECTION 14A OF THE ACT BE NOT ENHANCED BECAUSE T HE ASSESSEE HAS NOT ALLOCATED ANY AMOUNT OUT OF THE OPERATING EXPENSES TOWARDS EARNING OF THE EXEMPT INCOME. AFTER CONSIDERING THE SUBMISSIONS O F THE ASSESSEE, THE CIT(A) HAS NOT ONLY REJECTED ASSESSEES PLEA TO SET -ASIDE THE DISALLOWANCE OF RS.16,53,97,980/- ON ACCOUNT OF INTEREST ALLOCABLE TOWARDS EXEMPT INCOME; BUT, ENHANCED THE DISALLOWANCE U/S 14A OF THE ACT B Y HOLDING THAT AN AMOUNT OF RS.3,76,53,360/- WAS FURTHER REQUIRED TO BE DISA LLOWED U/S 14A OF THE ACT ON ACCOUNT OF OPERATING EXPENSES RELATABLE TO THE EARN ING OF THE EXEMPT INCOME. 12. AGAINST THE AFORESAID BACKGROUND, THE LEARNED C OUNSEL FOR THE ASSESSEE VEHEMENTLY REFERRED TO THE WRITTEN SUBMISSIONS FILE D TO THE CIT(A), WHICH HAVE BEEN REPRODUCED IN PARA 7.2 OF THE IMPUGNED ORDER, WHEREIN ASSESSEE HAD POINTED OUT THAT THE INVESTMENTS WHICH HAVE YIELDED EXEMPT INCOME WERE ACQUIRED IN THE PAST YEARS AND IN THOSE RESPECTIVE YEARS, ASSESSEE HAD ENOUGH PROFITS AND FREE RESERVES WHICH COVERED SUCH INVESTMENTS AND THEREFORE NO INTEREST EXPENDITURE WAS RELATABLE TO SUCH INVESTMENTS. IT WAS AGAIN REITERATED THAT THERE WAS NO JUSTIFICATION FO R ALLOCATING ANY INTEREST EXPENDITURE AGAINST EARNING OF EXEMPT INCOME AND TH E DISALLOWANCE MADE SUO MOTU BY THE ASSESSEE IN THE RETURN OF INCOME CANNOT BE A GROUND TO JUSTIFY THE ADDITION. IN THE COURSE OF HEARING BEFORE US, ASSESSEE HAS RELIED UPON THE FOLLOWING JUDGEMENTS : (I) MUJNAL SALES CORPORATION VS. CIT (2008) 168 TAXMANN.COM 43 (SC); (II) CIT VS. RELIANCE UTILITIE S & POWER LTD. (2009) 178 TAXMANN.COM 135 (BOM); (III) CIT VS. UTI BANK LTD., (2013) 32 TAXMANN.COM 370 (GUJARAT); AND, (IV) PRANIK SHIPPING & SERVICES LTD. VS. ACIT, (2012) 19 TAXMANN.COM 107 (MUM). IN SO FAR AS THE DISALLOWAN CE OUT OF OPERATING ITA NOS.1935 TO 1940/PN/2013 EXPENSES ARE CONCERNED, THE LEARNED COUNSEL FAIRLY POINTED OUT THAT AN APPROPRIATE DISALLOWANCE DESERVES TO BE MADE ON THI S COUNT AS INCURRENCE OF CERTAIN ADMINISTRATIVE EXPENSES TOWARDS EARNING OF IMPUGNED EXEMPT INCOME CANNOT BE RULED OUT. 13. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS DEFENDED THE ACTION OF THE CIT(A) IN DENYING THE PL EA OF THE ASSESSEE AND ALSO ENHANCING THE DISALLOWANCE U/S 14A OF THE ACT ON ACCOUNT OF ALLOCATION OF OPERATING EXPENSES TOWARDS THE EARNING OF IMPUGNED EXEMPT INCOME. 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. FIRSTLY, IN SO FAR AS THE PLEA WITH REGARD TO THE ALLOCATION OF INTEREST EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME IS CONCERNED, THE SAME IN OUR VIEW, C ANNOT BE SHUT-OUT MERELY BECAUSE IT WAS DISALLOWED SUO MOTU BY THE ASSESSEE IN THE RETURN OF INCOME. ON THE CONTRARY, THE CLAIM IS REQUIRED TO BE CONSID ERED AND EXAMINED ON ITS MERITS. AS NOTED EARLIER, SECTION 14A OF THE ACT P RESCRIBES THAT THE ASSESSING OFFICER SHALL, WHILE COMPUTING THE TOTAL INCOME, DE NY DEDUCTION IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATIO N TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. OSTEN SIBLY, IN THIS CASE ASSESSEE HAS EARNED INTEREST INCOME OF RS.8,10,00,000/- ON T AX-FREE SECURITIES, WHICH IS EXEMPT FROM TAX. THE COST OF SUCH SECURITIES IS ST ATED TO BE RS.78.50 CRORES. THE PLEA OF THE ASSESSEE IS THAT NO INTEREST EXPEND ITURE IS RELATABLE TO THE ACQUISITION OF SUCH SECURITIES BECAUSE IN THE YEARS OF THEIR ACQUISITION, ASSESSEE HAD ENOUGH NON-INTEREST BEARING FUNDS IN T HE SHAPE OF CASH PROFITS AND OTHER FREE RESERVES. IN OUR CONSIDERED OPINION , THE PROPOSITION SOUGHT TO BE ADVANCED BY THE ASSESSEE IS QUITE APT AND DESERV ES TO BE EXAMINED IN THE LIGHT OF THE FACTS OF THE PRESENT CASE. IN-FACT, T HE HONBLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. (SUPRA) WAS CONSIDERING A DISALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF INTEREST EXPENDITURE, BEIN G RELATABLE TO EARNING OF TAX- FREE INCOME IN THE CONTEXT OF SECTION 14A OF THE AC T. THE HONBLE GUJARAT HIGH ITA NOS.1935 TO 1940/PN/2013 COURT FOLLOWING THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA) HELD T HAT SINCE THE INTEREST-FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE IN EXCESS OF THE INVESTMENTS WHICH YIELDED THE EXEMPT INCOME; THEREFORE, NO INTEREST C OULD BE DISALLOWED BY INVOKING SECTION 14A OF THE ACT. THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD. (SUPRA) WAS CONS IDERING A CASE WHERE THE ENTIRE FUNDS OF THE ASSESSEE WERE IN A COMMON HOTCH -POTCH AND THERE WAS NO SEGREGATION OF FUNDS IN RELATION TO ACTIVITY OF LON G TERM INVESTMENTS. NO SEPARATE POOL OF FUNDS WAS MAINTAINED BY THE ASSESS EE FOR ITS DIFFERENT ACTIVITIES, I.E. LONG TERM INVESTMENTS AND THE NORM AL BUSINESS ACTIVITIES. AS PER THE HONBLE BOMBAY HIGH COURT, IF THERE WERE FUNDS AVAILABLE, BOTH THE INTEREST-FREE AND INTEREST-BEARING, THEN A PRESUMPT ION WOULD ARISE THAT THE INVESTMENTS ARE MADE OUT OF INTEREST-FREE FUNDS GEN ERATED OR AVAILABLE WITH THE ASSESSEE, PROVIDED SUCH INTEREST-FREE FUNDS WER E SUFFICIENT TO COVER THE INVESTMENTS. THE AFORESAID PRESUMPTION LAID DOWN B Y THE HONBLE BOMBAY HIGH COURT HAS ALSO BEEN FOUND APPLICABLE BY THE HO NBLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. (SUPRA) IN THE CONTEXT OF APPLICATION OF SECTION 14A OF THE ACT. IN VIEW OF THE AFORESAID LEGAL POSITIO N, WE ARE INCLINED TO AFFIRM THE PLEA OF THE ASSESSEE IN-PRINCIPLE THAT IF THE INVES TMENTS WHICH HAVE YIELDED THE TAX-FREE INCOME ARE OUT OF INTEREST-FREE FUNDS GENE RATED OR AVAILABLE WITH IT THEN NO PART OF INTEREST EXPENDITURE CAN BE SAID TO HAVE BEEN INCURRED IN RELATION TO EARNING OF SUCH EXEMPT INCOME FOR THE P URPOSES OF SECTION 14A OF THE ACT. THE AFORESAID ASSERTION MADE BY THE ASSES SEE HAS NOT BEEN PUT TO ANY VERIFICATION BY THE CIT(A), BECAUSE THE CIT(A) REFUSED TO ENTERTAIN THE ADDITIONAL GROUND OF APPEAL. OSTENSIBLY, VERIFICAT ION OF THE AFORESAID PROPOSITION, REQUIRES A FACTUAL APPRECIATION, AND F OR THAT PURPOSE WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH DIRECTIONS TO VERIFY THE ASSERTIONS OF THE ASSESSEE AND THEREAFTER ALLOW APPROPRIATE RELIEF ON THIS COUNT. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL ITA NOS.1935 TO 1940/PN/2013 ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY OF BEIN G HEARD AND ONLY THEREAFTER HE SHALL PASS AN APPROPRIATE ORDER ON TH IS ISSUE AS PER LAW. 15. NOW, IN SO FAR AS THE OPERATING EXPENSES ALLOCA TED BY THE CIT(A) TOWARDS EARNING OF THE EXEMPT INCOME AMOUNTING TO R S.3,76,53,360/- ARE CONCERNED, THE SAME, IN OUR VIEW, DOES NOT REQUIRE ANY INTERFERENCE. ASSESSEE HAS ASSERTED BEFORE THE CIT(A) AS WELL AS BEFORE US THAT NOT MUCH ACTIVITY WAS PERFORMED IN RELATION TO THE EARNING O F THE EXEMPT INCOME HOWEVER THE ASSESSEE FURNISHED A WORKING BEFORE THE CIT(A) ACCORDING TO WHICH THE AMOUNT OF OPERATING EXPENSES ALLOCABLE TO THE EXEMPT INCOME WAS DETERMINED AS 3,76,53,360/-. IN OUR CONSIDERED OPI NION, THE STAND OF THE ASSESSEE THAT NO EXPENDITURE WAS ALLOCABLE TOWARDS THE EARNING OF EXEMPT INCOME IS A BALD ASSERTION; AND, THEREFORE THE CIT( A) MADE NO MISTAKE IN REJECTING IT AND CONSIDERING A PORTION OF OPERATING EXPENSES AS HAVING BEEN INCURRED TOWARDS EARNING OF EXEMPT INCOME. THE QUA NTIFICATION OF SUCH EXPENDITURE DONE BY THE ASSESSEE IS RS.3,76,53,360/ -, WHICH IS THE AMOUNT DISALLOWED BY THE CIT(A) U/S 14A OF THE ACT. WE FI ND NO REASON TO DISCARD THE WORKING WHICH THE ASSESSEE ITSELF FURNISHED AND ACC ORDINGLY IN SO FAR AS THE DISALLOWANCE OF RS.3,76,53,360/- U/S 14A OF THE ACT MADE BY THE CIT(A) IS CONCERNED, THE SAME IS HEREBY AFFIRMED. THUS, ASSE SSEE PARTLY SUCCEEDS ON GROUNDS OF APPEAL RELATING TO THE DISALLOWANCE U/S 14A OF THE ACT, AS MANIFESTED BY GROUND OF APPEAL NO.1 AND ADDITIONAL GROUND OF APPEAL NO.2. 16. THE ADDITIONAL GROUND OF APPEAL NO.1 RELATES TO ASSESSEES CLAIM OF EXEMPTION U/S 10(23G) OF THE ACT WITH RESPECT TO TH E INTEREST INCOME EARNED BY THE ASSESSEE FROM INFRASTRUCTURE ADVANCES. THE AFORESAID GROUND OF APPEAL HAS BEEN ADMITTED BY US IN THE EARLIER PARAG RAPHS. SINCE THE AFORESAID ISSUE WAS NOT BEFORE THE LOWER AUTHORITIES, WE DEEM IT FIT AND PROPER TO RESTORE IT TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL CONSIDER THE ASSESSEES CLAIM OF EXEMPTION U/S 10(23G) OF THE ACT ON ITS MERITS, HAVING REGARD TO THE FACTS ITA NOS.1935 TO 1940/PN/2013 AND CIRCUMSTANCES OF THE CASE. NEEDLESS TO SAY, TH E ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY TO PUT- FORTH ITS CLAIM, AND ONLY THEREAFTER, HE SHALL ADJUDICATE THE CLAIM OF THE AS SESSEE AS PER LAW. THUS, ASSESSEE SUCCEEDS ON ADDITIONAL GROUND OF APPEAL NO .1 FOR STATISTICAL PURPOSES. 17. THE ADDITIONAL GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS WITH REGARD TO THE DEDUCTION U/S 36(1)(VII) OF THE ACT A MOUNTING TO RS.60 CRORES IN RESPECT OF DEBTS WRITTEN-OFF BY NON-RURAL BRANCHES. THE SAID ADDITIONAL GROUND HAS ALSO BEEN ADMITTED BY US IN THE EARLIER PARAGRA PHS. THE CLAIM OF THE ASSESSEE IS THAT THE SAID ADDITIONAL GROUND IS ENTI RELY IN TUNE WITH THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA). ON THIS ASPECT ALSO, WE DEEM IT FIT AND PROPER TO RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WH O SHALL CONSIDER THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE JUDGEMENT OF THE H ONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA). HEREIN ALSO THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY T O PUT-FORTH ITS CLAIM AND ONLY THEREAFTER, HE SHALL ADJUDICATE THE CLAIM OF T HE ASSESSEE AS PER LAW. THUS, ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES ON ADDITIONAL GROUND OF APPEAL NO.3. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.637/PN/2007 FOR ASSESSMENT YEAR 2002-03 IS PARTLY ALLOWED. 19. NOW, WE MAY TAKE-UP THE APPEAL OF THE ASSESSEE IN ITA NO.638/PN/2007 FOR ASSESSMENT YEAR 2003-04, WHICH I S DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I , PUNE DATED 21.02.2007 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 31.0 1.2006 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE ACT. ITA NOS.1935 TO 1940/PN/2013 20. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING TWO GROUNDS OF APPEAL : 1. THE CIT(APPEAL) ERRED IN DISALLOWING AN AMOUNT OF RS.1,71,23,400/- BY HOLDING THAT THIS AMOUNT REPRES ENTING PART OF OPERATING EXPENSES IS TO BE DISALLOWED U/S 14A OF THE INCOME TAX ACT, 1961 AS PERTAINING TO INTEREST INCOME OF TAX FREE BONDS. 2. THE A.O. & CIT(A) ERRED IN DISALLOWING RS.4,41,9 8,263/-, OUT OF INTEREST PAID BY THE APPELLANT U/S 14A OF THE INCOM E TAX ACT, 1961 PERTAINING TO TAX FREE BOND. 21. APART THEREFORM, APPELLANT HAS RAISED THE TWO A DDITIONAL GROUNDS OF APPEAL, WHICH READ AS UNDER :- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN NOT DELETING THE ADDITION OF RS.3,20,53,250/- BEING THE EXPENSES INCURRED DURING THE YEAR BUT DEBITED IN THE BOOKS OF ACCOUNT IN THE SUBSEQUENT FINANCIAL YEAR. 1.1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) FAILED TO APPRECIATE THE FACT THAT THE APPELLANT HAD PROVED T HAT THE EXPENSES WERE INCURRED DURING THE CURRENT FINANCIAL YEAR THOUGH ACCOUNTED IN THE SUBSEQUENT FINANCIAL YEAR. 1.2 THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN REMITTING BACK THIS MATTER TO THE LEARNED ASSESSING OFFICER FOR FURTHER VERIFICATION WHILE THEIR ENTIRE RECORDS WER E PRODUCED BEFORE HIM. 1.3 WITHOUT PREJUDICE TO THE ABOVE, AND AS AN ALTE RNATE SUBMISSION, IT IS PRAYED THAT THIS AMOUNT MAY BE DI RECTED TO BE ALLOWED IN THE ASSESSMENT YEAR 2004-05. 2. THE LEARNED ASSESSING OFFICER BE DIRECTED TO ALLOW THE DEDUCTION OF RS.81 CRORE, BEING THE DEBTS WRITTEN OFF BY THE NON RURAL BRANCHES OF THE APPELLANT BANK. 22. IN SO FAR AS THE ADMISSION OF THE ADDITIONAL GR OUNDS OF APPEAL ARE CONCERNED, THE SAME DESERVE TO BE ADMITTED IN THE L IGHT OF OUR DISCUSSION IN PARA 9, WHEREBY ADDITIONAL GROUNDS WERE ADMITTED BY US FOR ASSESSMENT YEAR 2002-03. 23. AT THE TIME OF HEARING, IT WAS A COMMON POINT B ETWEEN THE PARTIES THAT IN SO FAR AS THE GROUNDS OF APPEAL NO.1 & 2 RELATIN G TO THE DISALLOWANCE U/S 14A OF THE ACT ARE CONCERNED, THE SAME ARE PARI-MAT ERIA TO THE GROUND OF APPEAL NO.1 AND ADDITIONAL GROUND OF APPEAL NO.2 DE CIDED IN THE APPEAL FOR THE ASSESSMENT YEAR 2002-03 IN EARLIER PARAGRAPHS. THE SAID GROUNDS OF ITA NOS.1935 TO 1940/PN/2013 APPEAL ARE DISPOSED OF IN THE LIGHT OF OUR DECISION IN ASSESSMENT YEAR 2002-03 IN EARLIER PARAGRAPHS. THE ASSESSING OFFICER IS DI RECTED TO APPLY OUR DECISION FOR ASSESSMENT YEAR 2002-03 MUTATIS-MUTANDIS IN THIS YEAR ALSO. THUS, ASSESSEE PARTLY SUCCEEDS IN GROUNDS OF APPEAL NO.1 & 2. 24. THE ADDITIONAL GROUND OF APPEAL NO.1 IS WITH RE GARD TO THE ASSESSEES CLAIM FOR THE DEDUCTION OF RS.3,20,53,250/- REPRESE NTING EXPENSES WHICH WERE INCURRED DURING THE PREVIOUS YEAR RELEVANT TO THE A SSESSMENT YEAR UNDER CONSIDERATION BUT WERE DEBITED IN THE ACCOUNT BOOKS OF THE SUBSEQUENT FINANCIAL YEAR. 25. IN THIS GROUND, THE RELEVANT FACTS ARE THAT IN THE REVISED RETURN OF INCOME, ASSESSEE CLAIMED A DEDUCTION FOR RS.3,20,53 ,250/-, WHICH ACCORDING TO IT, REPRESENTED EXPENSES INCURRED DURING THE PRE VIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION BUT WERE ACCOUN TED FOR IN THE BOOKS OF ACCOUNT OF THE NEXT YEAR. THE AFORESAID CLAIM OF T HE ASSESSEE WAS BASED ON A CERTIFICATE ISSUED BY THE TAX AUDITOR. ASSESSEE CL AIMED BEFORE THE ASSESSING OFFICER THAT THE CLAIM WAS ALLOWABLE IN THE INSTANT YEAR, BECAUSE THE EXPENDITURE CRYSTALLIZED DURING THE YEAR, IRRESPECT IVE OF THE PERIOD WHEN THE ENTRIES FOR THE SAME WERE MADE IN THE ACCOUNT BOOKS , IN VIEW OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. CO. LTD. VS. CIT, (1971) 82 ITR 363 (SC). THE ASSE SSING OFFICER, HOWEVER, DID NOT ACCEPT THE PLEAS OF THE ASSESSEE AND REJECTED T HE SAME. 26. THE ASSESSEE BACK CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), WHO HAS SUSTAINED THE DISALLOWANCE OF RS.11,90,793/- AN D FOR THE BALANCE OF RS.3,08,62,457/-, THE MATTER WAS SET-ASIDE TO THE F ILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS TO VERIFY THE CLAIMS OF THE ASSESSEE AND THEREAFTER ALLOW THE SAME AS PER LAW. NOT BEING SATISFIED WITH THE ORDER OF THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. ITA NOS.1935 TO 1940/PN/2013 27. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO NECESSITY FOR THE CIT(A) TO HAVE REMANDED TH E ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION BECAUSE THER E WAS NO DISPUTE THAT THE IMPUGNED EXPENDITURES HAVE BEEN INCURRED DURING THE YEAR UNDER CONSIDERATION. 28. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS DEFENDED THE ORDER OF THE CIT(A). 29. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. OUT OF THE TOTAL CLAIM OF THE ASSESSEE OF RS.3,20,53,250/-, THE CIT( A) HAS SUSTAINED THE ADDITION OF RS.11,90,793/- AND FOR THE BALANCE OF R S.3,08,62,457/- THE SAME HAS BEEN REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS AS PER THE DISCUSSION IN PARAS 5.3 TO 5. 5 OF THE IMPUGNED ORDER WHICH READ AS UNDER :- 5.3 AS REGARDS THE BALANCE AMOUNT OF RS.3,08,62,45 7/-, IT IS THE CLAIM OF THE APPELLANT THAT AN AMOUNT OF RS.2,78,36 ,907/- WAS DEBITED IN THE BOOKS OF ACCOUNTS RELATING TO PREVIOUS YEAR RELEVAN T TO A.Y.2003-04, BUT AUDITORS HAVE IDENTIFIED THESE EXPENSES AS RELATING TO A.Y.2002-03 AND THEREFORE THIS AMOUNT IS BEING CLAIMED DURING THE A SSESSMENT YEAR UNDER APPEAL. VIDE THIS OFFICE ORDER SHEET ENTRY DATED 13 .07.2006, THE APPELLANT WAS REQUIRED TO PROVE THAT THE AMOUNT OF RS.2,78,36,907 /- BECAME PAYABLE DURING THE ASSESSMENT YEAR UNDER APPEAL. THIS HAS NOT BEEN DONE. THE APPELLANT HAS REQUESTED FOR A DIRECTION TO BE ISSUED TO THE ASSES SING OFFICER BECAUSE ACCORDING THE APPELLANT THIS INVOLVES VOLUMINOUS DE TAILS. ACCORDINGLY, THE REQUEST OF THE APPELLANT IS ACCEDED TO AND THE LEAR NED ASSESSING OFFICER IS DIRECTED TO VERIFY THE CLAIM OF THE APPELLANT THAT AN AMOUNT OF RS.2,78,36,907/- REPRESENTS INTEREST ACCRUED ON DEPOSITS DURING THE PREVIOUS YEAR RELEVANT TO A.Y.2003-04, WHICH IS THE YEAR UNDER APPEAL. IF THI S CLAIM OF THE APPELLANT IS FOUND TO BE CORRECT, THE APPELLANT SHALL BE ALLOWED DEDUCTION OF RS.2,78,36,907/-. IF THE CLAIM OF THE APPELLANT IS FOUND TO BE PARTIALLY CORRECT, THE NECESSARY CONSEQUENCES SHALL FOLLOW. 5.4 AS REGARDS AMOUNT OF RS.28,85,494/-, THE BRANCH WISE DETAILS OF WHICH IS CONTAINED IN PARA 1 OF THE WRITTEN REPLY D ATED 20.02.2007, WHICH HAS BEEN REPRODUCED HERE-IN-BEFORE, IT IS THE CLAIM OF THE APPELLANT THAT THOUGH DECISION IS TAKEN IN EARLIER YEAR, THE ACTUAL PAYME NT IS MADE IN THE NEXT YEAR. THIS IS NOT PERMISSIBLE IN MERCANTILE SYSTEM OF ACC OUNTING BECAUSE THE APPELLANT CANNOT BE ALLOWED TO SHIFT TO CASH SYSTEM OF ACCOUNTING JUST BECAUSE SOME DISPUTE WAS PENDING. IT IS ESSENCE OF MERCANTI LE SYSTEM THAT AN EXPENDITURE HAS GOT TO BE PROVIDED FOR THE MOMENT I T BECOMES PAYABLE. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO VER IFY THE CLAIM OF THE APPELLANT WHICH WAS MADE DURING THE COURSE OF HEARING OF THIS APPEAL THOUGH THE ENTIRE ITA NOS.1935 TO 1940/PN/2013 AMOUNT OF RS.28,85,494/- BECAME PAYABLE DURING THE ASSESSMENT YEAR UNDER APPEAL. FOR THIS PURPOSE, HE SHALL SCRUTINIZE THE D ETAILS IN RESPECT OF ALL BRANCHES FOR WHICH THE RENT IS BEING CLAIMED TO SEE WHEN THE FINAL DECISION REGARDING INCREASE IN THE RENT WAS TAKEN. IF THE D ATES ON WHICH FINAL DECISION BY THE HEAD OFFICE WAS TAKEN REGARDING THE INCREASE FELL IN THE YEAR PRIOR TO THE ASSESSMENT YEAR UNDER APPEAL, SUCH EXPENDITURE SHAL L NOT BE ALLOWED TO THE APPELLANT BECAUSE APPELLANT IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE FACT THAT SUCH DECISION HAS BEEN COMMUNICATED TO BE BRACHES IN LATER YEAR SHALL NOT MAKE ANY DIFFERENCE IN THIS REGARD. THIS IS SO BECAUSE THE APPELLANT WAS OBLIGED TO MAKE PROVISION OF INCREASE IN EXPEND ITURE UNDER THE HEAD 'RENT' IN THE ASSESSMENT YEAR TO WHICH THESE RENTS RELATED . WHERE THIS WAS NOT DONE, A PROVISION WAS TO BE MADE IN THE ASSESSMENT YEAR I N WHICH DECISION REGARDING INCREASE OF RENT WAS TAKEN BY THE HEAD OF FICE. IF NEITHER HAS BEEN DONE, THE APPELLANT CANNOT BE ALLOWED THE DEDUCTION OF SUCH EXPENSES. THE ASSESSING OFFICER SHALL VERIFY THE CLAIM OF THE APP ELLANT AND GIVE CONSEQUENTIAL RELIEF, IF ANY THE APPELLANT OUT OF THE AMOUNT OF R S.28,85,494/-. 5.5 AS REGARDS THE AMOUNT OF RS.1,40,056/-, IT IS T HE CLAIM OF THE APPELLANT THAT THE ACTUAL PAYMENT IN RESPECT OF COM PUTER CHARGES & ELECTRICAL EXPENSES WERE MADE IN THE NEXT YEAR. THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE CLAIM OF THE APPELLANT THAT THE AMOUNT B ECOME PAYABLE DURING THE ASSESSMENT YEAR UNDER APPEAL. THE ASSESSING OFFICER SHALL VERIFY THE CLAIM OF THE APPELLANT AND GIVE CONSEQUENTIAL RELIEF IF ANY TO THE APPELLANT OUT OF THE AMOUNT OF RS.1,40,056/- IF THE AMOUNT IS FOUND AS P AYABLE DURING ASSESSMENT YEAR UNDER APPEAL. 30. AFTER CONSIDERING THE OBJECTION OF THE APPELLAN T BEFORE US WE FIND NO REASONS TO INTERFERE WITH THE MANNER IN WHICH THE C IT(A) HAS ADJUDICATED THE PLEA OF THE ASSESSEE. OSTENSIBLY, THE BURDEN TO SH OW THAT THE EXPENDITURE IN QUESTION HAS ACTUALLY CRYSTALLIZED DURING THIS YEAR IS ON THE ASSESSEE AND REQUIRES TO BE SUBSTANTIATED. THE DIRECTION OF THE CIT(A), IN OUR VIEW, PRIMARILY REVOLVE AROUND APPRECIATION OF THE FACTUAL ASPECTS OF THE MATTER, WHICH ARE QUITE FAIR AND PROPER. THE ASSESSING OFFICER IS DI RECTED TO CARRY OUT THE EXERCISE, AS DIRECTED BY THE CIT(A) AFTER CONSIDERI NG THE MATERIAL AND SUBMISSIONS PUT-FORTH BY THE ASSESSEE BEFORE HIM. ACCORDINGLY, WE HEREBY AFFIRM THE ACTION OF THE CIT(A) AND FIND NO MERIT T O INTERFERE WITH THE SAME. THUS, ON THIS GROUND, ASSESSEE FAILS. 31. THE ADDITIONAL GROUND OF APPEAL NO.2 RELATES TO ASSESSEES CLAIM FOR DEDUCTION U/S 36(1)(VII) OF THE ACT IN RESPECT OF D EBTS WRITTEN-OFF OF NON-RURAL BRANCHES WHICH STANDS ON SIMILAR FOOTING AS ADDITIO NAL GROUND OF APPEAL NO.3 CONSIDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YE AR 2002-03 IN THE EARLIER ITA NOS.1935 TO 1940/PN/2013 PARAGRAPHS. OUR DECISION IN THE SAID APPEAL WITH R ESPECT TO THE AFORESAID ISSUE, SHALL APPLY MUTATIS-MUTANDIS IN THIS APPEAL ALSO AND THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. THUS, ASSESSEE PA RTLY SUCCEEDS ON THIS GROUND. 32. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.638/PN/2007 FOR ASSESSMENT YEAR 2003-04 IS PARTLY ALLOWED. 33. NOW, WE MAY TAKE-UP THE APPEAL OF THE ASSESSEE IN ITA NO.967/PN/2008 FOR ASSESSMENT YEAR 2004-05, WHICH I S DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I , PUNE DATED 10.03.2008 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 28.1 2.2006 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE ACT. 34. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOL LOWING TWO GROUNDS OF APPEAL : 1. THE CIT (APPEAL) ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY RS.7,17,57,110/- AS EXPENSES TO BE DIS ALLOWED U/S 14A OF THE INCOME TAX ACT, 1961 AS PERTAINING TO INTEREST INCO ME OF TAX FREE BONDS. 2. THE CIT (APPEALS) ERRED IN DISALLOWING RS.2,57,3 5,946/- BEING EXPENSES INCURRED BUT NOT DEBITED IN THIS YEARS BO OK OF ACCOUNTS. THE ISSUE IS SQUARELY COVERED IN PUNE ITAT DECISION IN THE AS SESSEES OWN CASE FOR A.Y. 2000-01 AND A.Y. 1991-92. 3. THE CIT (APPEALS) ERRED IN ALLOWING DEPRECIATION OF RS.90,00,896/- ON ELECTRICAL MACHINERY, ETC. @ 15% INSTEAD OF @ 25%. 35. APART THEREFORM, APPELLANT HAS RAISED THE FOLLO WING ADDITIONAL GROUNDS OF APPEAL, WHICH READ AS UNDER :- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IT MAY PLEASE BE HELD THAT THE AMOUNT OF RS.4,30,01,225.00 BEING WRITE BACK (I.E. AMOUNT CREDITED TO PROFIT AND LOSS A/C) OF PROVISIO N FOR NON PERFORMING INVESTMENTS IS NOT LIABLE TO BE TAXED AS INCOME OF THE APPELLANT AND CONSEQUENTLY THE SAME MAY BE DIRECTED TO BE DELETED FROM THE NET TAXABLE INCOME OF THE APPELLANT. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, IT MA PLEASE BE HELD THAT INTEREST OF RS.8,48,79,501.00 R ECEIVED BY THE APPELLANT BANK QUALIFIES FOR EXEMPTION U/S 10(23G) OF THE I.T . ACT, 1961 AND THE SAID INCOME BE HELD AS EXEMPT FROM TAXATION. ITA NOS.1935 TO 1940/PN/2013 3. THE LEARNED ASSESSING OFFICER BE DIRECTED TO ALL OW A SUM OF RS.2,56,63,950/- VOLUNTARILY DISALLOWED BY THE APPE LLANT WHILE COMPUTING THE TOTAL INCOME. 4. THE LEARNED ASSESSING OFFICER BE DIRECTED TO ALL OW THE DEDUCTION OF RS.55 CRORE, BEING THE DEBTS WRITTEN O FF BY THE NON RURAL BRANCHES OF THE APPELLANT BANK. 36. IN SO FAR AS THE ADMISSION OF THE ADDITIONAL GR OUNDS OF APPEAL ARE CONCERNED, THE SAME DESERVE TO BE ADMITTED IN THE L IGHT OF OUR DISCUSSION IN PARA 9, WHEREBY ADDITIONAL GROUNDS WERE ADMITTED BY US FOR ASSESSMENT YEAR 2002-03. 37. AT THE TIME OF HEARING, IT WAS A COMMON POINT B ETWEEN THE PARTIES THAT IN SO FAR AS THE GROUND OF APPEAL NO.1 AND ADDITION AL GROUND OF APPEAL NO.3 RELATING TO THE DISALLOWANCE U/S 14A OF THE ACT ARE CONCERNED, THE SAME ARE PARI-MATERIA TO THE GROUND OF APPEAL NO.1 AND ADDIT IONAL GROUND OF APPEAL NO.2 DECIDED IN THE APPEAL FOR THE ASSESSMENT YEAR 2002-03 IN EARLIER PARAGRAPHS. THE SAID GROUNDS OF APPEAL ARE DISPOSE D OF IN THE LIGHT OF OUR DECISION IN ASSESSMENT YEAR 2002-03 IN EARLIER PARA GRAPHS. THE ASSESSING OFFICER IS DIRECTED TO APPLY OUR DECISION FOR ASSES SMENT YEAR 2002-03 MUTATIS- MUTANDIS IN THIS YEAR ALSO. THUS, ASSESSEE PARTLY SUCCEEDS IN GROUND OF APPEAL NO.1 AND ADDITIONAL GROUND OF APPEAL NO.3. 38. THE GROUND OF APPEAL NO.2 RAISED BY THE ASSESSE E IS WITH REGARD TO AN AMOUNT OF RS.2,57,35,946/-, WHICH AS PER THE ASSESS EE, REPRESENTS EXPENDITURE INCURRED DURING THE PREVIOUS YEAR RELEV ANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THOUGH THE AFORESAID AMOUNTS H AVE NOT BEEN DEBITED IN THE ACCOUNT BOOKS OF THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER AND THEREAFTER THE CIT(A) HAS DISALLOWED THE CLAIM ON T HE GROUND THAT ASSESSEE FAILED TO SUBSTANTIATE THAT SUCH EXPENSES HAVE BEC OME PAYABLE DURING THE YEAR UNDER CONSIDERATION. ITA NOS.1935 TO 1940/PN/2013 39. AT THE TIME OF HEARING, IT WAS A COMMON POINT B ETWEEN THE PARTIES THAT THE ISSUE INVOLVED IN THIS GROUND IS SIMILAR TO ADD ITIONAL GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE FOR ASSESSMENT YEAR 200 3-04. AS A CONSEQUENCE, WE DEEM IT FIT AND PROPER TO SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ASPECT AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL CARRY OUT THE VERIFICATION EXERCISE TO EXAMIN E AS TO WHETHER OR NOT SUCH EXPENDITURES HAVE ACTUALLY CRYSTALLIZED DURING THE YEAR. THE AFORESAID EXERCISE SHALL BE CARRIED OUT BY THE ASSESSING OFFI CER AFTER CONSIDERING THE MATERIAL AND SUBMISSIONS PUT-FORTH BY THE ASSESSEE BEFORE HIM AND ALSO KEEPING IN MIND THE DIRECTIONS OF THE CIT(A) FOR AS SESSMENT YEAR 2003-04, WHICH HAS BEEN AFFIRMED BY US IN ADDITIONAL GROUND OF APPEAL NO.1 IN THE APPEAL OF THE ASSESSEE IN ITA NO.638/PN/2007 (SUPRA ) FOR ASSESSMENT YEAR 2003-04 IN EARLIER PARAGRAPHS. THUS ON THIS ASPECT , ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 40. THE GROUND OF APPEAL NO.3 RAISED BY THE ASSESSE E IS WITH REGARD TO DEPRECIATION OF RS.90,00,896/-. IN THIS REGARD, BR IEF FACTS ARE THAT ASSESSEE HAD CLAIMED DEPRECIATION @ 25% IN RESPECT OF ELECTR ONIC EQUIPMENTS AND SAFE DEPOSIT VAULTS, ETC. GROUPING THE SAME UNDER THE HE AD PLANT & MACHINERY. AS PER THE ASSESSING OFFICER, SUCH EQUIPMENTS WERE IN THE NATURE OF FURNITURE AND FIXTURE WHICH WAS ENTITLED TO DEPRECIATION @ 15 %. ACCORDINGLY, THE ASSESSING OFFICER ALLOWED DEPRECIATION ON SUCH EQUI PMENT AT 15%, AS AGAINST 25% CLAIMED BY THE ASSESSEE, AND THE SAME RESULTED IN A DISALLOWANCE OF RS.90,10,896/-. THE CIT(A) HAS ALSO SUSTAINED THE ORDER OF THE ASSESSING OFFICER, AGAINST WHICH ASSESSEE IS IN APPEAL BEFORE US. 41. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE ASSETS IN QUESTION, NAMELY, SAFE DEPOSIT VAULTS, NO TE COUNTING MACHINES, ETC. WERE IN THE NATURE OF PLANT FOR THE ASSESSEE BANK CONSIDERING ITS FUNCTIONAL REQUIREMENTS AND THEREFORE ASSESSEE HAD CORRECTLY C LAIMED DEPRECIATION @ ITA NOS.1935 TO 1940/PN/2013 25%, WHICH WAS PRESCRIBED FOR PLANT & MACHINERY. IN SUPPORT OF THE ABOVE CONTENTION, RELIANCE HAS BEEN PLACED ON THE FOLLOWI NG JUDGEMENTS : (I) CIT VS. UNION BANK OF INDIA (1976) 102 ITR 270 (BOM); (II) CIT VS. CENTRAL BANK OF INDIA (1976) 103 ITR 196 (BOM); AND, (III) CIT VS. PUNJAB & SIND BANK LTD. (2000) 111 TAXMANN.COM 496 (DELHI). 42. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS RELIED UPON THE ORDER OF THE AUTHORITIES BELOW IN SUPPORT OF THE CASE OF THE REVENUE. 43. IN OUR CONSIDERED OPINION, THE ACTION OF THE AS SESSING OFFICER IS QUITE SUSPECT HAVING REGARD TO THE PARITY OF REASONING LA ID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CENTRAL BANK OF IN DIA (SUPRA) AS WELL AS HONBLE DELHI HIGH COURT IN THE CASE PUNJAB & SIND BANK LTD. (SUPRA). IN BOTH THE JUDGEMENTS, IT CLEARLY EMERGES THAT IN THE CASE OF A BANKING COMPANY, FOR ALLOWING DEPRECIATION IN RESPECT OF LOCKERS, COUNTE RS, STEEL EQUIPMENT, ELECTRICAL FITTINGS, ETC., THEIR FUNCTIONAL UTILITY HAS TO BE EVALUATED. AS PER THE HONBLE DELHI HIGH COURT, SAFE DEPOSITS WERE LIABLE TO BE TREATED AS PLANT BY A BANKING COMPANY. CONSIDERING THE PARITY OF REASO NING LAID DOWN IN THE AFORESAID JUDGEMENTS, IN OUR VIEW, THE ASSESSING OF FICER IS REQUIRED TO GO INTO THE ASPECT OF THE DEPRECIATION ALLOWABLE IN RELATIO N TO THE IMPUGNED ASSETS AFRESH. AT THE TIME OF HEARING, THE LEARNED COUNSE L FOR THE ASSESSEE SUBMITTED THAT IT WOULD SUFFICE, IF THE MATTER IS RESTORED BA CK TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER AND APPLY THE LEGAL POSITION ST ATED IN AFORESAID JUDGEMENTS, SO AS TO ARRIVE AT THE CORRECT DEPRECIATION ALLOWAB LE TO THE ASSESSEE. CONSIDERING THE AFORESAID, WE HEREBY SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO RE-WORK THE CLAIM O F THE DEPRECIATION ON THE IMPUGNED ASSETS IN THE LIGHT OF THE AFORESAID JUDGE MENTS. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A RE ASONABLE OPPORTUNITY TO PUT-FORTH ITS CLAIM AND THE ASSESSING OFFICER SHALL THEREAFTER ADJUDICATE THE ITA NOS.1935 TO 1940/PN/2013 CLAIM OF THE ASSESSEE AS PER LAW. THUS, ASSESSEE S UCCEEDS FOR STATISTICAL PURPOSES. 44. THE ADDITIONAL GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS TOWARDS EXCLUSION OF A SUM OF RS.4,30,01,225/- OUT OF THE TOTAL INCOME ON ACCOUNT OF WRITE BACK OF PROVISION FOR NON-PERFORMI NG INVESTMENTS. 45. THE RELEVANT FACTS IN THIS REGARD ARE THAT DURI NG ASSESSMENT PROCEEDINGS, ASSESSEE STATED THAT OUT OF THE PROVIS ION FOR NON-PERFORMING INVESTMENTS MADE IN EARLIER YEARS AND DISALLOWED, A N AMOUNT OF RS.4,30,01,225/- WAS RECOVERED DURING THE YEAR UNDE R CONSIDERATION. THE ASSESSEE ASSERTED THAT SUCH AMOUNTS BE REDUCED FROM THE TOTAL INCOME AS THE SAME WERE TAXED IN PAST. THE CIT(A) HAS NOTED THAT THE ASSESSING OFFICER REJECTED THE PLEA WITHOUT ANY DISCUSSION, BECAUSE T HIS CLAIM WAS NEITHER MADE IN THE ORIGINAL RETURN OF INCOME AND NOR IN THE REV ISED RETURN OF INCOME. THE AFORESAID CLAIM HAS BEEN DENIED BY THE CIT(A) ALSO ON THE GROUND THAT THE SAME WAS NOT MADE IN THE RETURNS OF INCOME FILED BE FORE THE ASSESSING OFFICER. 46. FACTUALLY SPEAKING, THE CLAIM HAS BEEN MADE BY THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE ASSESSI NG OFFICER. THE FACTUAL MATRIX OF THE CLAIM, AS NOTED BY THE CIT(A) IN PARA 8.1 OF HIS ORDER SHOWS THAT THE ASSESSEE HAD WRITTEN BACK A PROVISION OF RS.6,7 9,45,780/- BY WAY OF CREDIT TO PROFIT & LOSS ACCOUNT AND THUS OFFERED IT FOR TA XATION. THE SAID AMOUNT REPRESENTED EXCESS PROVISION MADE IN THE PAST ON AC COUNT OF FALL IN VALUE OF INVESTMENTS. THE ASSESSEE HAD OFFERED SUCH WRITE B ACK OF EXCESS PROVISION, ON THE STRENGTH THAT IN THE PAST YEARS THE PROVISIO N MADE WAS CLAIMED AS A DEDUCTION OUT OF TAXABLE INCOME. HOWEVER, IT WAS D URING THE IMPUGNED ASSESSMENT PROCEEDINGS, ASSESSEE FOUND THAT IN THE PAST YEAR OF 2001-02 DEDUCTION WAS NOT ALLOWED IN RESPECT OF SUCH PROVIS ION. OUT OF SUCH ITA NOS.1935 TO 1940/PN/2013 DISALLOWED PROVISION A SUM OF RS.4,30,01,225/- WAS RECOVERED, WHICH FORMED A PART OF THE EXCESS PROVISION OF RS.6,79,45,780/- OFFERED FOR TAX IN THIS YEAR. BECAUSE SUCH AMOUNT WAS NOT ALLOWED IN THE PAST AS A DEDUCTION, ASSESSEE CLAIMED THAT THE SUM OF RS.4,30,01,225/- BE NOT CON SIDERED AS AN AMOUNT EXIGIBLE TO INCOME TAX IN THIS YEAR. IN OUR VIEW, THE AFORESAID CLAIM COULD NOT HAVE BEEN FORESEEN BY THE ASSESSEE AT THE TIME OF F ILING OF THE RETURN OF INCOME AS IT HAS EMERGED OUT OF THE PAST ASSESSMENT S, WHEREIN CERTAIN ADDITIONS/DISALLOWANCES WERE MADE BY THE INCOME-TAX AUTHORITIES. THEREFORE, INSTEAD OF SHUTTING OUT SUCH A CLAIM MERELY BECAUSE OF ITS ABSENCE IN THE RETURN OF INCOME, THE INCOME-TAX AUTHORITIES OUGHT TO HAVE EXAMINED THE SAME ON ITS MERITS. AS A RESULT, WE THEREFORE DEEM IT F IT AND PROPER TO SET-ASIDE THE ORDER OF THE CIT(A) ON THIS ASPECT AND DIRECT THE A SSESSING OFFICER TO CONSIDER THE FACTUAL POSITION AND THEREAFTER ALLOW THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW. NEEDLESS TO MENTION HERE, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY TO PUT- FORTH ITS CLAIM AND THE ASSESSING OFFICER SHALL THEREAFTER ADJUDICATE THE C LAIM OF THE ASSESSEE AS PER LAW. THUS, ASSESSEE SUCCEEDS ON THIS GROUND FOR ST ATISTICAL PURPOSES. 47. THE ADDITIONAL GROUND OF APPEAL NO.2 IS WITH RE SPECT TO EXEMPTION U/S 10(23G) OF THE ACT IN RELATION TO THE INTEREST INCO ME EARNED BY THE ASSESSEE ON INFRASTRUCTURE ADVANCES, WHICH STANDS ON SIMILAR FOOTING AS ADDITIONAL GROUND OF APPEAL NO.1 CONSIDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 IN THE EARLIER PARAGRAPHS. OUR DECISI ON IN THE SAID APPEAL WITH RESPECT TO THE AFORESAID ISSUE, SHALL APPLY MUTATIS-MUTANDIS IN THIS APPEAL ALSO AND THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED. THUS, ASSESSEE PARTLY SUCCEEDS ON THIS GROUND ALSO. 48. THE ADDITIONAL GROUND OF APPEAL NO.4 RELATES TO ASSESSEES CLAIM FOR DEDUCTION U/S 36(1)(VII) OF THE ACT IN RESPECT OF D EBTS WRITTEN-OFF OF NON-RURAL BRANCHES WHICH STANDS ON SIMILAR FOOTING AS ADDITIO NAL GROUND OF APPEAL NO.3 ITA NOS.1935 TO 1940/PN/2013 CONSIDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YE AR 2002-03 IN THE EARLIER PARAGRAPHS. OUR DECISION IN THE SAID APPEAL WITH R ESPECT TO THE AFORESAID ISSUE, SHALL APPLY MUTATIS-MUTANDIS IN THIS APPEAL ALSO AND THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED. THUS, ASSESSEE PA RTLY SUCCEEDS ON THIS GROUND. 49. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.967/PN/2008 FOR ASSESSMENT YEAR 2004-05 IS PARTLY ALLOWED. 50. NOW, WE MAY TAKE-UP THE CROSS-APPEAL OF THE REV ENUE IN ITA NO.855/PN/2008 FOR ASSESSMENT YEAR 2004-05, WHICH I S DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I , PUNE DATED 10.03.2008 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 28.1 2.2006 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE ACT. 51. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLL OWING GROUND OF APPEAL :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE CIT (APPEAL) ERRED IN DIRECTING THE DELETION OF THE ADD ITION MADE ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON VALUE OF SECURITIES TRANSFERRED FROM AVAILABLE FOR SALE TO HELD TO MATURITY UPON VERIFICATION O F THIS ISSUE BY THE ASSESSING OFFICER. 52. AT THE TIME OF HEARING, IT WAS A COMMON POINT B ETWEEN THE PARTIES THAT ISSUE RAISED IN THE AFORESAID GROUND IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. BANK OF RAJASTHAN LTD. VIDE ITA NO.3238/MUM/2011 ORDER DATE D 09.09.2011 AND ALSO THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SRI SUBRAMANYESWARA COOPERATIVE BANK LTD. VS. ACIT VIDE ITA NO.488/BANG /2011 ORDER DATED 06.06.2012. NO DECISION TO THE CONTRARY HAS BEEN B ROUGHT OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THOUGH HE HAS SOUGHT T O OPPOSE THE CLAIM OF THE ASSESSEE. ITA NOS.1935 TO 1940/PN/2013 53. AFTER CONSIDERING THE RIVAL STANDS, WE FIND THA T THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF BANK OF RAJASTHAN LTD. (SUP RA) HAS CONSIDERED AN IDENTICAL ISSUE AND THE RELEVANT DISCUSSION MADE BY THE TRIBUNAL IS AS UNDER :- 9. THE AMORTIZED AMOUNT OF PREMIUM PAID FOR SECURI TIES HELD UNDER HTM CATEGORY AMOUNTING TO RS.11.77 CRORES WAS CLAIMED BY THE ASSESSEE AS DEDUCTION IN ITS COMPUTATION OF TOTAL I NCOME. THE SAME, HOWEVER, WAS DISALLOWED BY THE ASSESSING OFFICER HOLDING THA T THE EXPENDITURE INCURRED ON PREMIUM PAID FOR SECURITIES HELD UNDER HTM CATEG ORY WAS A CAPITAL EXPENDITURE NOT ALLOWABLE AS DEDUCTION. HE HELD THA T THE SAID SECURITIES WERE IN THE NATURE OF INVESTMENT AND NOT STOCK IN TRADE. ON APPEAL, THE LEARNED CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE A O ON THIS ISSUE. BESIDES RELYING ON HIS OWN ORDER IN ASSESSEE'S OWN CASE ON A SIMILAR ISSUE FOR THE EARLIER YEAR, THE LEARNED CIT(APPEALS) ALSO RELIED ON CBDT INSTRUCTION NO. 17/2008 DATED 26-11-2008 PUBLISHED IN 220 CTR (STAT UTE) PAGE 41. HE HELD THAT THE ASSESSEE COMPANY WAS BOUND TO CLASSIFY ITS INVESTMENT AS PER RBI GUIDELINES DATED 16-10-2010 AND AS PER THE SAID GUI DELINES, INVESTMENT CLASSIFIED UNDER HTM CATEGORY WAS REQUIRED TO BE CA RRIED AT ACQUISITION COST UNLESS IT WAS MORE THAN THE FACE VALUE. HE HELD THA T THE PREMIUM ON SUCH INVESTMENTS WAS ALSO REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. HE HELD THAT THE CLAIM OF THE ASSESSEE TH US WAS AS PER RBI GUIDELINES AND CBDT INSTRUCTION WHICH CLARIFIED THA T PREMIUM AMORTIZED OVER THE PERIOD REMAINING TO MATURITY WAS LIABLE TO BE A LLOWED AS DEDUCTION. 10. AT THE TIME OF HEARING BEFORE US, THE LEARNED R EPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS ALSO SQUAR ELY COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS ORDERS OF THE TRIBUNAL PASS ED IN ASSESSEE'S OWN CASE FOR EARLIER YEARS. COPIES OF THE SAID ORDERS A RE PLACED ON RECORD BEFORE US AND A PERUSAL OF THE SAME SHOWS THAT IN ONE OF S UCH ORDERS DATED 22ND DEC., 2010 PASSED IN ASSESSEE'S OWN CASE FOR ASSESS MENT YEARS 2002-03 TO 2006-07, THE COORDINATE BENCH OF THIS TRIBUNAL HAS DIRECTED THE AO TO ALLOW THE PREMIUM AMORTIZED BY THE ASSESSEE OVER THE PERI OD REMAINING TO MATURITY HOLDING THAT THE SAME WAS CLAIMED AS PER THE RELEVA NT RBI GUIDELINES AND EVEN THE CBDT HAS ISSUED INSTRUCTIONS TO ALLOW THE SAME. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TRIBUNAL IN ASSESSE E'S OWN CASE FOR EARLIER YEARS, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO . 3 OF THE REVENUE'S APPEAL. 54. IN BRIEF, THE FACTS ARE THAT ASSESSEE BANK HEL D CERTAIN SECURITIES UNDER THE HELD TO MATURITY CATEGORY AND IT CONSIDERED THE SAME AT ITS STOCK-IN-TRADE. ACCORDINGLY AT THE CLOSE OF THE YEAR, SUCH SECURITI ES WERE VALUED AT COST OR MARKET VALUE, WHICHEVER IS LOWER. WHILE CARRYING O UT THE AFORESAID VALUATION, THERE WAS A REDUCTION OF RS.1,16,13,954/- IN THE VA LUE OF THE SECURITIES SO HELD BECAUSE OF THE REDUCTION IN THE MARKET VALUE OF THE SE SECURITIES AS ON 31.03.2004 WHICH IS LAST DAY OF THE FINANCIAL YEAR UNDER CONSIDERATION. THE ITA NOS.1935 TO 1940/PN/2013 ASSESSING OFFICER DISALLOWED THE CLAIM. THE CIT(A) HAD ALLOWED THE CLAIM BY MAKING FOLLOWING DISCUSSION PARA 3.3 :- 3.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND PERUSED MATERIAL ON RECORD, IT IS AN UNDISPUTED FAC T THAT THE SECURITIES HELD UNDER 'HELD TO MATURITY' CATEGORY FORMS STOCK IN TR ADE OF THE APPELLANT. IT IS TRITE LAW THAT STOCK-IN-TRADE CAN BE VALUED ON COST OR MA RKET VALUE WHICHEVER IS LOWER. IN VIEW OF THIS, IF THE SECURITIES HELD UNDE R 'HELD TO MATURITY' CATEGORY IS IN ACCORDANCE WITH LAW. HOWEVER, TAKING INTO ACCOUNT T HE TOTALITY OF FACTS AND CIRCUMSTANCES IN THIS CASE, I AM OF THE CONSIDERED VIEW THAT THIS IS A FIT CASE FOR ISSUE OF DIRECTIONS TO THE ASSESSING OFFICER. ACCOR DINGLY, THE LEARNED ASSESSING OFFICER IS DIRECTED TO VERIFY THE CLAIM OF THE APPE LLANT THAT DEPRECIATION AT RS.1,16,13,994/- IS REDUCTION IN VALUE OF THE SECUR ITIES HELD UNDER THE CATEGORY 'HELD TO MATURITY' BECAUSE OF REDUCTION IN MARKET V ALUE OF THESE SECURITIES AS ON 31 ST MARCH 2004 WHICH IS THE LAST DAY OF THE PREVIOUS Y EAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IF IT IS FOUND THAT THE REDUCTION OF RS.1,16,13,994/- BY WAY OF DEPRECIATION IS BECAUSE OF REDUCTION IN MARKET VALUE OF SECURITIES AS ON THE LAST DAY OF THE RELEV ANT FINANCIAL YEAR, THE CLAIM OF THE APPELLANT SHALL BE ALLOWED AS ALLOWABLE DEDUCTI ON FOR THE PURPOSE OF COMPUTING TAXABLE PROFIT DURING THE ASSESSMENT YEAR UNDER APPEAL. WITH THIS DIRECTION, GROUND NO. 2 OF APPEAL IS DISPOSED OF. 55. IN VIEW OF THE AFORESAID PRECEDENT, THE DECISIO N OF THE CIT(A) IS HEREBY AFFIRMED AND THE REVENUE FAILS ON THIS GROUND. 56. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.855/PN/2008 FOR ASSESSMENT YEAR 2004-05 IS DISMISSED. 57. RESULTANTLY, WHEREAS THREE APPEALS OF THE ASSES SEE ARE PARTLY ALLOWED THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MAY, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 30 TH MAY, 2014 SUJEET ITA NOS.1935 TO 1940/PN/2013 COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE