DCIT, Circle-9(1), Hyd, Hyderabad V. Deccan Grameena Bank, Hyd, Hyderabad

ITA 889/HYD/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6400 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-05-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 01-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R B NAIK
• Assessee Lawyers: T UMAKANTH
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Additional depreciation; Question of law; Bad and doubtful debts; Revised return; Capital expenditure
• Section: 43B; 143(3); 139

Judgement Text

ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 1 OF 22 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.MADHAVI DEVI, JUDICIAL MEMBER & SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.936/HYD/2015 (ASSESSMENT YEAR: 2011-12) M/S. DECCAN GRAMEENA BANK (PRESENTLY TELANGANA GRAMEENA BANK) HYDERABAD PAN: AAAAD 3893 M VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 9(1) HYDERABAD (APPELLANT) (RESPONDENT) ITA NO.889/HYD/2015 (A.Y 2011-12) DY. COMMISSIONER OF INCOME TAX, CIRCLE 9(1) HYDERABAD VS M/S. DECCAN GRAME ENA BANK (PRESENTLY TELANGANA GRAMEENA BANK) HYDERABAD PAN: AAAAD 3893 M (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI T. UMAKANTH FOR REVENUE : SHRI R.B. NAIK, DR DATE OF HEARING : 0 5.5.2016 DATE OF PRONOUNCEMENT : 03 . 8 .2016 O R D E R PER SMT. P. MADHAVI DEVI, J.M. BOTH ARE CROSS APPEALS FOR THE A.Y 2011-12. ITA NO.936/HYD/2015 ASSESSEES APPEAL 2. IN THIS APPEAL, WE FIND THAT THE ONLY GRIEVANCE OF THE ASSESSEE IS AGAINST THE ORDER OF THE CIT (A) CONFIR MING THE DISALLOWANCE OF THE CLAIM OF PROVISION FOR LEAVE E NCASHMENT, ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 2 OF 22 EVEN THOUGH THE PROVISION WAS BASED ON ACTUARIAN VA LUATION AND THE PAYMENT HAS ALSO BEEN MADE DURING THE A.Y 2010- 11 AND 2011-12 BEFORE THE DUE DATE AS APPLICABLE FOR FURNI SHING RETURN OF THE INCOME UNDER SUB-SECTION (1) TO SECTION 139 OF THE I.T. ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A REGIONAL RURAL BANK PROMOTED BY THE STATE BANK GROUP AND IS ENGAGED IN THE ACTIVITY OF BANKING. IT HAD COME INTO EXISTENCE ON 24.03.2006 DUE TO AMALGAMATION OF FOUR REGIONAL RURAL BANKS IN PUBLIC INTEREST. THE ASSESSEE FILED ITS RETURN OF INCOME F OR THE A.Y 2011- 12 ON 28.09.2011 DECLARING AN INCOME OF RS.58,57,38 ,328. SUBSEQUENTLY, A REVISED RETURN WAS FILED ON 18.08.2 012 DECLARING A LOSS OF RS.40,01,93,427. DURING THE ASSESSMENT PR OCEEDINGS U/S 143(3) OF THE I.T. ACT, THE AO CALLED FOR VARIO US INFORMATION AND VERIFIED THE DETAILS FILED BY THE ASSESSEE. SHE FOUND THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.1,56,26,423 TO THE P&L A/C UNDER THE HEAD PROVISIONS AND CONTINGENCIES T OWARDS PROVISION FOR LEAVE ENCASHMENT. ACCORDING TO THE AO, AS PER THE IT ACT, 1961, ONLY SPECIFIC PROVISIONS ARE ALLOWABL E AS DEDUCTIONS THAT TOO ON FULFILMNT OF LAID DOWN CONDITION. SHE T HEREFORE, HELD THAT THE PROVISION FOR LEAVE ENCASHMENT CANNOT BE A LLOWED AND ACCORDINGLY DISALLOWED THE SAME AND BROUGHT IT TO T AX. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WH O, AFTER VERIFYING THE WORKING GIVEN BY THE ASSESSEE AGREED THAT IT APPEARS TO BE AN ASCERTAINED LIABILITY, BUT CONFIRMED THE S AID DISALLOWANCE BY CONSIDERING THE PROVISION OF SECTIO N 43B(F) AND FOLLOWING THE DECISION OF THE HON'BLE KERALA HIGH C OURT IN THE CASE OF SOUTH INDIA BANK LTD V. CIT (45 TAXMANN.COM 428) WHICH IN TURN HAS CONSIDERED THE STAY GRANTED BY TH E APEX COURT ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 3 OF 22 OF THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF EXCIDE INDUSTRIES (SUPRA) TO CONFIRM THE DISALLOWAN CE. AGAINST THIS CONFIRMATION OF THE DISALLOWANCE, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LEARNED COUNSEL FOR THE ASSESSEE, WHILE REIT ERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, SUBM ITTED THAT THE PROVISION FOR LEAVE ENCASHMENT IS MADE ON THE B ASIS OF ACTUARIAL VALUATION AND THEREFORE, IT IS NOT A CONT INGENT PROVISION. IT WAS ALSO SUBMITTED THAT THE PAYMENT WAS MADE DUR ING THE A.Y 2010-11 AND 2011-12 BEFORE THE RESPECTIVE DUE DATES AS APPLICABLE FOR FURNISHING THE RETURNS OF INCOME U/S 139(1) OF THE I.T. ACT AND THEREFORE, IT IS CLEAR THAT IT IS AN A SCERTAINED LIABILITY AND NEED TO BE ALLOWED AS A DEDUCTION. HE PLACED RE LIANCE UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CA SE OF BHARAT EARTH MOVERS VS. CIT, 245 ITR 428. HE ALSO SUBMITTE D THAT THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CA SE OF SOUTH INDIA BANK LTD (SUPRA) IS NOT APPLICABLE TO THE FAC TS OF THE CASE BEFORE US. THUS, ACCORDING TO HIM, THE PROVISION FO R LEAVE ENCASHMENT MADE ON ACTUARIAL VALUATION, IS AN ALLOW ABLE DEDUCTION. 5. THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE ASSESSEES CONTENTION OF M AKING THE PROVISION FOR ACTUARIAL VALUATION AND ALSO PAYMENT OF LEAVE ENCASHMENT DURING THE A.Y 2010-11 AND 2011-12 HAS N OT BEEN ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 4 OF 22 VERIFIED BY ANY OF THE AUTHORITIES BELOW. THE DISAL LOWANCE HAS BEEN MADE ON THE BASIS OF THE HON'BLE KERALA HIGH C OURT DECISION IN THE CASE OF SOUTH INDIAN BANK (SUPRA). WE FIND THAT VIDE THE FINANCE ACT OF 2001, CLAUSE (F) WAS INSERT ED IN SECTION 43B OF THE ACT W.E.F. 01.04.2002. THE SAME WAS CHAL LENGED IN THE CASE OF EXIDE INDUSTRIES AND THE DIVISION BENCH OF THE HONBLE CALCUTTA HIGH COURT HELD THE SAME TO BE ULTRAVIRES THE ACT IN THE ABSENCE OF DISCLOSURE OF THE OBJECTS AND BEING INCO NSISTENT WITH THE BASIC INTENT OF SECTION 43B. THEREAFTER, THE DE PARTMENT HAS FILED AN SLP AGAINST THE DECISION OF THE HONBLE CA LCUTTA HIGH COURT AND WHILE ADMITTING THE SLP, THE HONBLE SUPR EME COURT, STAYED THE JUDGMENT OF THE HONBLE CALCUTTA HIGH CO URT UNTIL FURTHER ORDERS AND FURTHER OBSERVED THAT THE ASSESS EES, DURING THE PENDENCY OF THE CIVIL APPEAL, WOULD PAY TAX AS IF SECTION 43B(F) IS ON THE STATUTE BOOK, BUT AT THE SAME TIME , IT WOULD BE ENTITLED TO MAKE CLAIM IN ITS RETURN OF INCOME. KEE PING ALL THESE DEVELOPMENTS IN VIEW, THE COORDINATE BENCH OF THIS TRIBUNAL AT KOLKATA IN THE CASE OF BLA INDUSTRIES IN ITA.NO.143 4/KOL/2012 VIDE ORDERS DATED 16.01.2015 HAS RESTORED SIMILAR I SSUE TO THE FILE OF THE A.O. WITH A DIRECTION TO AWAIT THE FINA L DECISION OF THE HONBLE SUPREME COURT ON THE ISSUE AND THEN TO DECI DE THE ISSUE ACCORDINGLY. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, THIS ISSUE IN THE CASE OF THE ASSESSEE HEREIN IS ALSO REMANDED TO THE FILE OF THE A.O. WITH SIMILAR DIRECTIONS. GROUND NO.4 OF TH E ASSESSEE IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 5 OF 22 ITA NO.889/HYD/2015 REVENUES APPEAL 7. AS REGARDS THE REVENUES APPEAL, GROUNDS 1 & 7 A RE GENERAL IN NATURE AND AS REGARDS GROUNDS 2 & 3, THE BRIEF FACTS ARE AS FOLLOWS. DURING THE ASSESSMENT PROCEEDINGS U /S 143(3) FOR THE RELEVANT A.Y, THE AO OBSERVED THAT THE ASSESSEE HAD FILED A REVISED RETURN OF INCOME ON 18.08.2012 IN WHICH THE ASSESSEE CLAIMED DEDUCTION OF RS.96,51,25,000 FROM THE PROFI TS AS DEPRECIATION ON INVESTMENTS CONSIDERED AS STOCK-IN- TRADE. THE AO OBSERVED THAT THERE WAS NO SUCH CLAIM IN THE ORI GINAL RETURN OF INCOME OR IN THE BOOKS OF ACCOUNTS AND THAT THE ASSESSEE CLAIMED DEPRECIATION OF RS.2,57,30,374 ONLY, IN BOT H THE ORIGINAL RETURN OF INCOME AND ALSO IN THE BOOKS OF ACCOUNTS. THUS, ACCORDING TO HER, WHEN THERE IS NO CHANGE IN THE CL AIM OF DEPRECIATION IN THE RETURNS OF INCOME, THERE IS NO BASIS FOR THE ASSESSEE TO CLAIM ADDITIONAL DEPRECIATION AT THE BE LATED STAGE AND THAT TOO AFTER FINALIZATION OF ACCOUNTS. THEREFORE, ASSESSEE WAS ASKED TO SUBSTANTIATE ITS CLAIM DURING THE COURSE O F ASSESSMENT PROCEEDINGS. ASSESSEE SUBMITTED A LETTER DATED 16.1 2.2013 STATING THAT THE BANKS INVEST IN SECURITIES FOR THE PURPOSE OF TRADE, IRRESPECTIVE OF THE PERIOD OF HOLDING SUCH S ECURITIES AND AS PER THE BANKING ACT, 1932, THE BANKS HAVE TO KEEP T HE SECURITIES UNDER THE HEAD INVESTMENT, BUT THAT DOES NOT MEAN THAT THEY ARE INVESTMENTS. IT WAS SUBMITTED THAT THE SECURITI ES ARE ALWAYS TREATED AS STOCK-IN-TRADE BUT NOT AS PERMANENT INVE STMENT AS IS SHOWN IN OTHER COMPANIES. IT WAS SUBMITTED THAT SIN CE THE INVESTMENT IS TREATED AS STOCK-IN-TRADE, THE FALL IN VALUE OF THE SECURITIES FROM OPENING BALANCE TO THE CLOSING BALA NCE IS CLAIMED AS DEPRECIATION AND IS NOWHERE CONCERNED WITH THE D EPRECIATION ON FIXED ASSETS. IT WAS SUBMITTED THAT, INADVERTENT LY, THIS CLAIM ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 6 OF 22 WAS NOT MADE AT THE TIME OF FILING OF THE ORIGINAL RETURN AND THEREFORE WAS MADE BY FILING A REVISED RETURN. THE AO, WAS HOWEVER, NOT CONVINCED WITH THE CONTENTION OF THE A SSESSEE AND HELD THAT THE ASSESSEE HAS NOT PRODUCED THE WORKING OF HOW THE DEPRECIATION HAS BEEN ARRIVED AT EXCEPT STATING THA T IT IS THE DIFFERENCE BETWEEN THE OPENING AND CLOSING BALANCES OF THE SECURITIES. AFTER GOING THROUGH SCHEDULE-8 I.E. IN VESTMENTS OF THE ANNUAL REPORT, SHE OBSERVED THAT IN FACT THERE IS NO DECREASE IN THE VALUE OF THE SECURITIES, BUT THERE IS ONLY A N INCREASE IN THE SECURITIES, AND NOWHERE IN THE ANNUAL REPORT OR THE AUDIT REPORTS OR IN THE BOOKS OF ACCOUNTS, IS THERE A MENTION OF THE SO-CALLED DEPRECIATION ON INVESTMENTS TREATED AS STOCK-IN-TRA DE OF RS.96,51,25,000/-. IN VIEW OF THE SAME, THE AO DISA LLOWED THE CLAIM OF DEPRECIATION AND BROUGHT IT TO TAX. AGGRIE VED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A), WH O ALLOWED THE SAME BY FOLLOWING THE DECISION OF THE ITAT IN THE C ASE OF STATE BANK OF HYDERABAD VS. DCIT IN ITA NO.1232/HYD/2013 AND ALSO THE DECISION OF THE HON'BLE KERALA HIGH COURT IN TH E CASE OF CIT VS. NEDUNGADI BANK LTD (264 ITR 545) AND ALSO T RIBUNALS ORDER IN THE ASSESSEES OWN CASE FOR THE A.Y 2010-1 1 IN ITA NO.1742/HYD/2014 DATED 25.03.2015 WHEREIN THE ASSES SEES CONTENTION THAT THE GOVERNMENT SECURITIES ARE HELD AS STOCK-IN- TRADE AND ALSO THAT THE DIFFERENCE BETWEEN THE OPE NING AND CLOSING VALUES OF THE SECURITIES HAS TO BE ALLOWED AS DEPRECIATION HAS BEEN ACCEPTED. AGAINST THE RELIEF GRANTED BY TH E CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 8. THE LEARNED DR, WHILE SUPPORTING THE ORDER OF TH E AO, SUBMITTED THAT THE BANKS PURCHASE SECURITIES ALONG WITH INTEREST ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 7 OF 22 AND WHEN THEY SELL THE SECURITIES, THE INTEREST INC OME DERIVED ON THE SECURITIES IS NOT CREDITED TO THE P&L A/C AND T HE INCOME IS NOT OFFERED TO TAX. HE SUBMITTED WHEN THE SECURITIE S ARE SOLD BY THE ASSESSEE, THEY ARE SOLD AT THE FACE VALUE OF TH E SECURITIES PLUS THE INTEREST THEREON AND THEREFORE, THERE IS ONLY A PPRECIATION OF THE ASSET AND THERE IS NO DEPRECIATION. THUS, ACCOR DING TO HIM, THERE IS NO CAUSE FOR DECREASING THE VALUE OF THE S ECURITIES WHICH HAS BEEN TERMED AS DEPRECIATION BY THE BANKS. THUS, ACCORDING TO HIM, THE SAME IS NOT ALLOWABLE. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE HON'BLE KERALA HIGH COURT IN THE CASE OF NEDUNGADI BANK, RE PORTED IN 264 ITR 545 WHEREIN IT WAS HELD THAT THE SECURITIES PURCHASED TO MEET STATUTORY LIQUIDITY REQUIREMENT ARE TREATED AS STOCK-IN-TRADE OF BUSINESS AND THE NOTIONAL LOSS ON ACCOUNT OF REV ALUATION OF SECURITIES IS DEDUCTIBLE FROM THE BUSINESS INCOME. HE ALSO PLACED RELIANCE UPON THE DECISION OF JURISDICTIONAL HIGH C OURT IN THE CASE OF SBH REPORTED IN 151 ITR 703 WHERE, AFTER TA KING NOTE OF THE PROVISIONS OF SECTION 24 OF THE BANKING REGULAT IONS ACT REQUIRING EVERY BANKING COMPANY IN INDIA TO MAINTAI N, EITHER IN CASH OR IN THE SHAPE OF GOLD OR IN THE SHAPE OF UNE NCUMBERED SECURITIES, IT WAS HELD THAT ANY INCOME ARISING FRO M SUCH SECURITIES IS CLOSELY CONNECTED WITH THE BANKING BU SINESS AND IS BUSINESS INCOME. THUS, ACCORDING TO HIM, GOVT. SECU RITIES PURCHASED BY THE ASSESSEE TO MAINTAIN THE LIQUIDITY AS PER SECTION 24 OF THE BANKING REGULATIONS ACT, HAVE TO BE TREATED AS STOCK-IN-TRADE AND THE NOTIONAL LOSS ON THE REVALUA TION OF THE ASSETS IS TO BE ALLOWED AS DEPRECIATION. HE ALSO PL ACED RELIANCE ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 8 OF 22 UPON THE DECISION OF THE COORDINATE BENCHES OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER A.YS WHICH HAVE ALSO BEEN UPHELD BY THE HON'BLE JURISDICTIONAL HIGH COURT. 10. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE FIRST DECISION ON SUCH TRA NSACTION IS OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SBH (C ITED SUPRA) WHEREIN AFTER TAKING NOTE OF SECTION 24 OF THE BANK ING REGULATIONS ACT, THE HON'BLE HIGH COURT CONSIDERED AT LENGTH THE NATURE OF THE INVESTMENT IN GOVT. SECURITIES AND TH E NATURE OF THE ASSET AND HAS HELD THAT THE INCOME FROM SUCH AN ASSET IS NOT CAPITAL GAIN BUT IS BUSINESS INCOME. THE HON'BLE KE RALA HIGH COURT HAS THEREFORE, IN THE CASE OF NEDUNGADI BANK (SUPRA) HAS DEALT WITH THE VERY SAME ISSUE AS BEFORE US AND AFT ER CONSIDERING THE VARIOUS JUDICIAL PRECEDENTS ON THE ISSUES INVOL VED THEREIN HAS HELD AS UNDER: HERE, IT MUST BE NOTED THAT THE ASSESSING AUTHORITY HAD IN FACT REOPENED THE ASSESSMENT ON THE BASIS OF THE DECISIO N OF THE SUPREME COURT IN VIJAYA BANK LTD. V, COMMISSIONER O F INCOME TAX (ADDL.) ((1991) 187 ITR 541). IN THAT CASE, THE QUESTION WHICH AROSE FOR CONSIDERATION WAS AS TO WHETHER A S UM OF RS. 58,568/- REPRESENTING INTEREST ACCRUED ON SECURITIE S TAKEN BY THE ASSESSEE BANK FROM THE JAYALAKSHMI BANK LTD. AN D ANOTHER SUM OF RS. 11,630/- REPRESENTING INTEREST ACCRUED U PTO THE DATE OF PURCHASE IN THE CASE OF SECURITIES PURCHASED BY THE ASSESSEE- BANK FROM THE OPEN MARKET ARE ADMISSIBLE AS DEDUCTI ON UNDER THE PROVISIONS OF SECTIONS 19 , 20 AND 37 OF THE ACT. IN THAT CONTEXT, THE SUPREME COURT RELIED ON A DECISION OF THE COURT OF APPEAL CIT V. PITCHER ((1949) 31 TC 314, 332 (CA)) WHERE IT WAS OBSERVED THAT OUTLAY ON PURCHASE OF AN INCOME BEARI NG ASSET IS IN THE NATURE OF CAPITAL ASSET. THE SUPREME COURT O BSERVED IN VIJAYA BANK'S CASE THAT THE PRICE PAID FOR THE SECU RITIES WAS DETERMINED WITH REFERENCE TO THEIR ACTUAL VALUE AS WELL AS THE INTEREST WHICH HAD ACCRUED ON THEM TILL DATE OF PUR CHASE, THAT WHATEVER WAS THE CONSIDERATION WHICH PROMPTED THE A SSESSEE TO PURCHASE THE SECURITIES, THE PRICE PAID FOR THEM WAS IN THE ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 9 OF 22 NATURE OF A CAPITAL OUTLAY AND NO PART OF IT CAN BE SET OFF AS EXPENDITURE AGAINST INCOME ACCRUING ON THOSE SECURI TIES. HERE, IT MUST BE NOTED THAT THE SUPREME COURT HAS NOT AT ALL CONSIDERED THE QUESTION WITH REGARD TO THE CHARACTE R OF SECURITIES FROM WHICH INTEREST INCOME IS EARNED. NO CONTENTION IS SEEN TAKEN BY ANY OF THE PARTIES THAT THE SECURI TIES INVOLVED IN THE SAID CASE REPRESENTED STOCK-IN-TRADE. HENCE THE DECISION RENDERED IN THE SAID CASE CANNOT BE TAKEN AS AN AUT HORITY FOR THE POSITION THAT THE SECURITIES HELD BY THE ASSESS EE IN THE PRESENT CASE IN COMPLIANCE WITH THE PROVISIONS OF T HE BANKING REGULATION ACT IS TO BE HELD AS A CAPITAL INVESTMENT. AS WE HAVE ALREADY NOTED, THIS COURT AND THE SUPREME COURT HAV E CLEARLY TAKEN THE VIEW THAT THE GOVERNMENT SECURITIES ACQUI RED BY THE ASSESSEE BANK IN COMPLIANCE WITH THE PROVISIONS OF THE BANKING REGULATION ACT HAS TO BE TREATED AS STOCK-IN-TRADE OF THE BUSINESS OF THE BANK. IN FACT, THE CENTRAL BOARD OF DIRECT TAXES IN THE CIRCULAR EXTRACTED ABOVE HAS TAKEN THE VERY SAME VIEW WHICH, ACCORDING TO US, IS CONSISTENT WITH THE VIEW TAKEN IN THE DECISIONS OF THE COURT AND OF THE SUPREME COURT DIS CUSSED ABOVE. HERE, IT MUST BE NOTED THAT TILL THE DECISIO N OF THE SUPREME COURT IN VIJAYA BANK'S CASE (187 ITR 541) T HE ASSESSING AUTHORITY HAS BEEN TAKING THE CONSISTENT VIEW THAT THE ASSESSEES ARE ENTITLED TO DEPRECIATION ON ACCOUNT O F THE NOTIONAL LOSS SUFFERED BY THEM ON REVALUATION OF THE SECURIT IES. IN FACT, IN ALL THE REASSESSMENT CASES, THE ASSESSING AUTHORITY HAD ORIGINALLY GRANTED DEDUCTION BY WAY OF DEPRECIATION OF THE NOTIONAL LOSS INCURRED BY THE ASSESSEE AND THE ONLY REASON FOR DENYING THE SAID RELIEF TO THE ASSESSEE, IS THE DEC ISION OF THE SUPREME COURT IN VIJAYA BANK'S CASE. VIJAYA BANK'S CASE, AS WE HAVE ALREADY NOTED, DOES NOT LAY DOWN ANY CLEAR PRO POSITION THAT THE SECURITIES HELD BY A BANK CANNOT BE CONSID ERED AS STOCK-IN-TRADE OF THE BUSINESS OF THE BANK. FOR ALL THESE REASONS, WE ARE OF THE VIEW THAT THE INCOME TAX APPELLATE TRIBUNAL HAS RIGHTLY HELD THAT THE SECURI TIES HELD BY THE ASSESSEE BANK IN ALL THESE CASES ARE THE STOCK- IN-TRADE OF THE BUSINESS OF THE ASSESSEE BANKS AND THE NOTIONAL LOS S SUFFERED ON ACCOUNT OF THE REVALUATION OF THE SAID SECURITIES A T THE CLOSE OF THE YEAR IS AN ALLOWABLE DEDUCTION IN THE COMPUTATI ON OF THE PROFITS OF THE APPELLANT. THIS DISPOSES OF THE FIRS T TWO QUESTIONS MENTIONED IN PARA 10 ABOVE. 11. RESPECTFULLY FOLLOWING THE ABOVE, THE CIT (A) H AS GRANTED RELIEF TO THE ASSESSEE AND THEREFORE, WE SEE NO REA SON TO INTERFERE WITH THE SAME. ACCORDINGLY, THIS GROUND RAISED BY T HE REVENUE IS DISMISSED. ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 10 OF 22 12. AS REGARDS GROUND NO.4, WE FIND THAT IT IS AGAI NST THE ORDER OF THE CIT (A) ALLOWING THE CLAIM OF PROVISIONS FOR BAD AND DOUBTFUL DEBT, DESPITE THE FACT THAT SECTION 36(2)( V) MANDATES THAT THE PROVISIONS CAN BE ALLOWED ONLY WHEN THE AM OUNT IS CREDITED TO THE BAD AND DOUBTFUL DEBT A/C IN THE BO OKS OF THE ASSESSEE. THE BRIEF FACTS ARE AS UNDER. THE ASSESSE E HAD CLAIMED A DEDUCTION OF RS.4,90,11,393 IN THE COMPUTATION OF INCOME TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBT U/S 36( 1)(VIIA) OF THE ACT. ON PERUSAL OF THE RETURN OF INCOME AND THE FIN ANCIAL STATEMENTS, THE AO OBSERVED THAT THE ASSESSEE HAS N OT MADE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS O F ACCOUNT AND FURTHER THAT BOTH IN THE ORIGINAL RETURN OF INCOME AND IN THE REVISED RETURN OF INCOME, THE PROVISIONS FOR BAD AN D DOUBTFUL DEBTS HAS BEEN MENTIONED AS NIL. HE OBSERVED THAT SECTION 36(2) SPECIFIES CERTAIN CONDITIONS TO BE FULFILLED FOR EL IGIBILITY TO CLAIM DEDUCTION U/S 36(1) OF THE ACT AND AS PER PROVISO T O SUB SECTION 4 OF SECTION 36(1) IN THE CASE OF A BANK TO WHICH C LAUSE 7(A) APPLIES, THE AMOUNT OF DEDUCTION RELATING TO ANY SU CH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHIC H SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROV ISION OF BAD AND DOUBTFUL ACCOUNT MADE UNDER CLAUSE (VIIA) OF TH E ACT. HE ALSO OBSERVED THAT THE DEDUCTION ALLOWABLE UNDER CLAUSE 7 IS SUBJECT TO THE PROVISIONS OF SECTION 36(2) AND CLAUSE 5 OF SUB-SECTION 2 OF SECTION 36 PROVIDES THAT NO DEDUCTION SHALL BE ALLO WED UNLESS THE BANK HAS DEBITED THE AMOUNT OF SUCH DEBT OR PART OF THE DEBT IN THAT PREVIOUS YEAR TO THE PROVISION FOR BAD AND DOU BTFUL DEBTS A/C MADE UNDER THE CLAUSE. SINCE THE ASSESSEE ADMIT TED THAT IT HAS NOT MADE ANY PROVISIONS IN ITS BOOKS OF ACCOUNT S TOWARDS ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 11 OF 22 THE PROVISIONS OF RURAL BAD AND DOUBTFUL DEBTS, BUT HAS WRONGLY CLAIMED RS.4,19,11,393 AS DEDUCTION, THE AO DISALLO WED THE SAME AND ADDED IT TO THE INCOME OF THE ASSESSEE. AG GRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO ALLOWED THE SAME BY FOLLOWING THE DECISION OF THE ITAT IN ASSES SEES OWN CASE FOR THE A.Y 2010-11 IN ITA NO.1742 OF 2014 DATED 25 .03.2015. THE LEARNED DR SUPPORTED THE ORDER OF THE AO, WHILE THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT (A). 13. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT SIMILAR ISSUE HAD ARISEN IN TH E CASE OF A.P. GRAMEEN BANK IN ITA NOS.713 & 714/HYD/2015 FOR THE A.YS 2007-08 & 2008-09 AND THIS TRIBUNAL VIDE ORDER DATE D 14.06.2016 HAS HELD THAT THE DEDUCTION U/S 36(1)(VI I)(A) CAN BE ALLOWED ONLY TO THE EXTENT THE PROVISIONS FOR BAD AND DOUBTFUL DEBT HAS BEEN MADE IN THE BOOKS OF ACCOUNTS. TO COM E TO THIS CONCLUSION, THE BENCH HAS FOLLOWED THE DECISION OF THE HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF STATE BANK OF PATIALA REPORTED IN 272 ITR 54. FURTHER, THE COORDI NATE BENCH OF THIS TRIBUNAL IN THE CASE OF CIT VS. ANDHRA BANK IN ITA NO.715 OF 2012 FOR THE A.Y 2007-08 (TO WHICH ONE OF US THE JM IS THE SIGNATORY) HAS FOLLOWED THE DECISION OF THE STATE B ANK OF PATIALA AND HAS DISMISSED THE ASSESSEES APPEAL. FOR THE SA KE OF READY REFERENCE, THE RELEVANT PORTION OF THE ORDER OF THI S TRIBUNAL IN ITA NO.610/HYD/2013, DATED 12.08.2015 IS REPRODUCED HER EUNDER: 6. ON A REFERENCE TO THE PROVISIONS OF SECTION 36( L) (VIIA) OF THE ACT, IT IS VERY MUCH CLEAR THAT FOR CLAIMING DEDUCTION UNDER THE SAID PROVISION, ASSESSEE HAS TO CREATE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN IT S BOOKS OF ACCOUNT. THEREFORE, CONTENTION OF ID. AR THAT TH ERE IS NO ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 12 OF 22 NEED FOR MAKING ANY PROVISION FOR BAD AND DOUBTFUL DEBTS FOR CLAIMING DEDUCTION U/S 36(1)(VIIA) IS NOT ACCEPTABLE. THE HON 'BLE P & H HIGH COURT IN CASE O F STATE BANK OF PATIALA VS. CIT (SUPRA) WHILE EXAMINI NG THE PROVISIONS OF SECTION 36( L)(VIIA) HELD THAT FOR CL AIMING DEDUCTION UNDER THE SAID PROVISION, ASSESSEE BANK H AS TO MAKE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS OF ACCOUNT AND DEDUCTION U/S 36( L)(VIIA) IN RESPEC T OF RURAL ADVANCES CAN ONLY BE ALLOWED TO THE EXTENT OF THE PROVISION MADE. THE COORDINATE BENCH IN ASSESSEE'S OWN CASE FOR AY 2010-11 IN ITA NO. 51/HYD/2015 DATED 10/04/2015, WHILE DEALING WITH IDENTICAL ISSUE, HAS HELD AS UNDER: 'IT IS OBSERVED THAT THE ASSESSEE IN THE PRESENT CA SE, BEING ELIGIBLE BANK, IS ENTITLED TO CLAIM DEDUCTION AS PE R THE MAIN PROVISION CONTAINED IN CLAUSE (A) OF S.36(1) (VIIA) , IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS TO THE EXTENT OF AN AMOUNT NOT EXCEEDING 7.5% OF THE TOTAL INCOME 'COMP UTED BEFORE MAKING ANY DEDUCTION UNDER S.36(1) (VIIA) AN D CHAPTER VIA' AND AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCH ES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. A PERU SAL OF THE IMPUGNED ORDER OF THE LEARNED CLT(A) HOWEVER, S HOWS THAT IT WAS STATED BY THE ASSESSEE BEFORE THE LEARN ED CLT(A) THAT NO PROVISION WAS MADE TOWARDS AVERAGE RURAL AD VANCES. IF IT IS SO, IT IS NOT CLEAR AS TO WHAT IS THE BASI S ON WHICH THE PROVISION OF RS.22.40 CRORES (RS.5.38 CRORES IN RES PECT OF URBAN ADVANCES AND RS. 17.02 CRORES IN RESPECT OF R URAL ADVANCES) WAS MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. MOREOVER, ALL THESE FACTS AND FIGURE S WERE FURNISHED BY THE ASSESSEE BEFORE THE LEARNED CLT(A) FOR THE FIRST TIME AND THE ASSESSING OFFICER THEREFORE, DID NOT HAVE ANY OPPORTUNITY TO VERIFY THE SAME. THE CLAIM OF TH E ASSESSEE OF HAVING ADJUSTED THE AMOUNT OF RS.22.24 CRORES TO WARDS BAD DEBTS WRITTEN OFF DURING THE YEAR UNDER CONSIDERATI ON AGAINST THE OPENING BALANCE OF THE PROVISION OF RS.40.13 CR ORES WAS ALSO MADE BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE LEARNED CIT(A), AND THE ASSESSING OFFICER DID NOT HAVE ANY OPPORTUNITY TO VERIFY THE SAME. HAVING REGARD TO AL L THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT IT WOULD BE FAIR AND PROPER AND IN THE INTERESTS OF JU STICE TO RESTORE THE ISSUE RELATING TO THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER S.36(1) (VIIA) TO THE FILE OF THE ASSESSING O FFICER FOR ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 13 OF 22 DECIDING THE SAME AFRESH, IN ACCORDANCE WITH THE PR OVISION OF S.36(1)(VIIA) AFTER GIVING PROPER AND SUFFICIENT OP PORTUNITY OF HEARING TO THE ASSESSEE AND AFTER VERIFYING ALL THE RELEVANT FACTS AND FIGURES. WE ORDER ACCORDINGLY. THIS APPEA L OF THE REVENUE IS ACCORDINGLY TREATED AS ALLOWED FOR STATI STICAL PURPOSES.' 14. IN THE CASE BEFORE US, SINCE IT IS ADMITTED THA T THE ASSESSEE HAS NOT MADE ANY PROVISIONS FOR BAD AND DOUBTFUL DE BTS, THE SAME IS NOT ALLOWABLE U/S 36(1)(VII)(A) OF THE ACT. THE REVENUES GROUND OF APPEAL IS ACCORDINGLY ALLOWED. 15. AS REGARDS GROUND NO.5, THE BRIEF FACTS ARE THA T THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.1,91,04,804 AS BROKEN PERIOD INTEREST PAID ON PURCHASE OF SECURITIES. THE AO VERIFIED THE DETAILS OF THE BROKEN PERIOD INTEREST FURNISH ED BY THE ASSESSEE VIDE LETTER DATED 16.12.2013. THE ASSESSEE JUSTIFIED THE CLAIM STATING THAT TO MAINTAIN STATUTORY LIQUIDITY RATIO (SLR), BANKS HAVE TO PURCHASE OR SELL GOVERNMENT SECURITIE S ON MANY OCCASIONS AND FOR THIS PURPOSE, THE ASSESSEE HAS TO PURCHASE THE SECURITIES IN THE INTERVENING PERIOD I.E. AFTER ITS COMMENCEMENT, FROM THE OPEN MARKET. IT WAS SUBMITTED IN CASE OF S UCH SECURITIES, THE PURCHASE PRICE WILL INCLUDE NOT ONL Y THE TRADED VALUE BUT ALSO THE INTEREST FOR THE PERIOD STARTING FROM THE COMMENCEMENT OF THE DATE OF THE SECURITY UP TO THE DATE OF PURCHASE. IT WAS SUBMITTED THAT THE PROPORTIONATE I NTEREST PERTAINING TO THE ABOVE INTERVENING PERIOD IS KNOWN AS BROKEN PERIOD INTEREST AND THEREFORE, THE PURCHASE VALUE O F THE SECURITIES PURCHASED BY THE BANK INCLUDE INTEREST ACCRUED TILL THE DATE OF PURCHASE AND THEREFORE HAS TO BE ALLOWED AS REVENUE ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 14 OF 22 EXPENDITURE. AO HOWEVER, BY PLACING THE RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT, 187 ITR 541 HAS DISALLOWED THE CLAIM BY HOLDING THA T THE INVESTMENT IN GOVERNMENT SECURITIES IS CAPITAL OUTL AY AND THEREFORE, THE BROKEN PERIOD INTEREST ALSO IS IN THE NATURE OF CAPITAL EXPENDITURE. ON APPEAL, THE CIT (A) ALLOWED THE SAME BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSES SEES OWN CASE FOR A.Y 2010-11 WHEREIN THE INVESTMENTS IN SECURIT IES WERE CONSIDERED AS STOCK-IN-TRADE. AGAINST THE RELIEF GR ANTED, THE REVENUE IS IN APPEAL BEFORE US. 16. THE LEARNED DR RELIED UPON THE ASSESSMENT ORDER , WHILE THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDER OF THE CIT (A) AND ALSO VARIOUS PRECEDENTS ON THE ISSUE. 17. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE CIT (A) HAS FOLLOWED THE D ECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE S OWN CASE FOR THE A.Y 2010-11 TO ALLOW THE ASSESSEES CLAIM. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PARA IS REPRODUCED HE REUNDER: 6.2 I HAVE GONE THROUGH THE ASSESSMENT ORDER, WRIT TEN SUBMISSIONS OF THE APPELLANT AND CASE LAWS RELIED THEREON. I FIND THAT A SIMILAR ISSUE WAS DECIDED BY THE HON'BLE JURISDICTIONAL ITAT IN THE CASE OF THE APPE LLANT FOR THE ASSESSMENT YEAR 2010-11 VIDE ITA NO.1742/HYD/2014 DATED 25TH MARCH, 2015. THE RELEVANT PORTION OF THE ORDER IS AS UNDER: '13. THE ID CIT (A) PERUSED THE SUBMISSIONS OF THE ASSESSEE AND THE ORDER OF THE AO. THE CIT (A) HELD AS FOLLOWS: 'AS COULD BE SEEN FROM THE FACTS OF THE CASE, THE I NTEREST CLAIMED ON PURCHASE OF SECURITY WERE HELD AS STOCK IN TRADE BY THE ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 15 OF 22 APPELLANT BANK, AND THE AO HAS RELIED ON THE DECISI ON OF SUPREME COURT IN THE CASE OF VIJAYA BANK LTD VS. CIT (SUPRA ), WHEREIN THE INVESTMENTS IN SECURITIES WERE CONSIDERED AS CAPITA L INVESTMENTS AND AS SUCH THE INTEREST ON SUCH ACQUISITION WAS TR EATED AS DISALLOWABLE EXPENSES. HOWEVER, IN THIS CASE, THE I NVESTMENTS IN SECURITIES WERE TREATED AS STOCK IN TRADE, WHICH WA S NOT DISPUTED BY THE AO, EITHER. FURTHER, VIDE THE DECISIONS BY V ARIOUS HIGH COURTS AND SUPREME COURT, SUBSEQUENT TO THE DECISIO N OF VIJAYA BANK CASE (SUPRA), HAVE HELD THAT INTEREST FOR BROK EN PERIOD SHOULD BE TREATED AS PART OF PURCHASE PRICE AND DISTINGUIS HED THE DECISION OF APEX COURT IN THE CASE OF VIJAYA BANK, WHERE NO DISTINCTION WAS MADE WITH REGARD TO THE CHARACTER OF SECURITIES . IN THE CASE OF AP GRAMEENA VIKAS BANK, THE HON 'BLE ITAT, HYDERABA D, VIDE ITS ORDER DT. 13.03.2014 IN ITA NO. 610JHYD.J2013, HAS UPHELD SUCH CLAIMS BY BANK'. 14. RESPECTFULLY FOLLOWING THE ORDER OF THE HON'BLE ITAT, IN THE CASE OF A.P GRAMEENA VIKAS BANK, THE LEARNED CIT (A ) WAS OF THE CONSIDERED OPINION THAT THE BROKEN PERIOD INTER EST ON ACQUISITION OF SECURITIES HELD AS STOCK IN TRADE, I S MUCH ALLOWABLE EXPENSE AND AS SUCH THE DISALLOWANCE OF RS.373,12,4 44/- MADE BY THE AO WAS HELD TO BE UNSUSTAINABLE BY THE CIT (A). THIS GROUND OF APPEAL IS TREATED AS ALLOWED BY THE CIT (A). FURTHER, WHILE ADJUDICATING THE GROUNDS 2 & 3 ABOVE , BY FOLLOWING THE JUDGMENT OF THE HON'BLE KERALA HIGH C OURT IN THE CASE OF NEDUNGADI BANK (SUPRA), WE HAVE HELD THE GO VT. SECURITIES PURCHASED BY THE ASSESSEE IN COMPLIANCE WITH THE REGULATIONS OF THE BANKING REGULATION ACT AS STOCK -IN-TRADE. THEREFORE, THE BROKEN PERIOD INTEREST ON SUCH SEC URITIES IS ALSO BUSINESS EXPENDITURE. SINCE THE CIT (A) HAS FOLLOWE D THE DECISION IN THE ASSESSEES OWN CASE, WE DO NOT FIND ANY REAS ON TO INTERFERE WITH THE SAME. THE REVENUE GROUND NO.5 IS ACCORDING LY REJECTED. 18. THE LAST ISSUE IN THIS APPEAL IS GROUND NO.6 WH ICH IS AGAINST THE ORDER OF THE CIT (A) ALLOWING THE PROVI SION OF PAYMENT ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 16 OF 22 MADE TO SBI LIFE CAP ASSURANCE, EVEN THOUGH THE SAI D SCHEME DOES NOT APPEAR TO HAVE BEEN RECOGNIZED UNDER THE I NCOME TAX ACT AND THOUGH THE PAYMENT IS IN VIOLATION OF SECTI ON 40A(7) BECAUSE IT IS NOT INCURRED ON ACTUAL PAYMENT TO ANY OF THE EMPLOYEES DURING THE YEAR. DURING THE APPELLATE PRO CEEDINGS BEFORE THE CIT (A), THE ASSESSEE SUBMITTED THAT IT HAS PAID AN AMOUNT OF RS.1,45,78,018 TO SBI LIFE POLICY TOWARDS GROUP GRATUITY FUND, BUT THE SAME WAS WRONGLY SHOWN IN IN SURANCE ACCOUNT. THE CIT (A) PERUSED THE DETAILS FURNISHED BY THE ASSESSEE AND HELD THAT THIS AMOUNT HAS BEEN PAID TO SBI LIFE INSURANCE TOWARDS SBI LIFE CAP ASSURED GRATUITY SCH EME AND THEREFORE, IS AN ALLOWABLE EXPENDITURE. AGAINST THE RELIEF GRANTED BY THE CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 19. HAVING REGARD TO THE RIVAL CONTENTIONS, WE FIND THAT THE CIT (A) HAS VERIFIED THE DETAILS OF THE PROVISIONS MADE FOR GRATUITY AND FOUND THAT THE PAYMENT IS TOWARDS THE AMOUNT PAID T O THE SBI LIFE POLICY TOWARDS GROUP GRATUITY. SIMILAR ISSUE H AD ARISEN BEFORE US IN THE CASE OF A.P. GRAMEENA VIKAS BANK F OR THE A.Y 2008-09 IN ITA NO.713 & 714/HYD/2015 AND THE COORDI NATE BENCH IN ITS DECISION TO WHICH BOTH OF US ARE SIGNA TORIES HAS HELD AS UNDER: 5.1 HENCE, WE FIND THAT IN THE EARLIER YEAR, DISALLOWANCE WAS DELETED BY FOLLOWING THE DECISION IN THE CASE OF SREE KAMAKHYA TEA CO.(P) LTD. (SUPRA). NOW, COMING TO THE FACTS OF THE CASE FOR THE RELEVA NT ASSESSMENT YEAR, THE GROUND ON WHICH A.O. HAS DISALLOWED THE CLAIM OF THE ASSESSEE IS THAT THE PAYMENT IS NOT ROUTED THROUGH THE APPROVED GRATUITY FUND AS IS EVIDENT FROM THE RECITALS IN THE SHOW CA USE NOTICE DATED 03.01.2014 REPRODUCED BY THE A. O. IN ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 17 OF 22 PARA 3.1 OF HIS ORDER. ACCORDING TO THE A. 0, THE REQUIREMENT OF CLAUSE (B) OF SECTION 40A(7) TO ALLO W THE DEDUCTION OF PAYMENT OF GRATUITY FUND IS THAT THE CONTRIBUTION SHOULD BE TO AN APPROVED GRATUITY FUND , WHICH IN TURN IS EMPOWERED TO UTILIZE IT TO CONTRIB UTE TO THE GROUP GRATUITY SCHEME ENTERED INTO WITH THE LIC OF INDIA OR ANY OTHER INSURER AS DEFINED IN CLAUSE (28 BB) OF SECTION 2 OF THE LT. ACT. IN THE CASE BEFORE US, SBI LIFE IS THE OTHER INSURER AS DEFINED IN CLAUSE (28B B) OF SECTION 2 OF THE LT. ACT AND THE ASSESSEE ADMITTEDL Y HAS MADE THE PAYMENT DIRECTLY TO SBI LIFE WHICH IS REGISTERED WITH IRDA. ADMITTEDLY, THE ASSESSEE OBTAINED THE APPROVAL OF THE CONCERNED AUTHORITY FO R THE GRATUITY FUND W.E.F. 21.03.2011 VIDE ORDERS DAT ED 23.06.2014. THUS, FOR THE RELEVANT ASSESSMENT YEAR, THE GRATUITY FUND OF THE ASSESSEE WAS NOT AN APPROV ED GRATUITY FUND. THE ASSESSEE HAD MADE PAYMENT TO SBI LIFE DIRECTLY AND SBI LIFE HAS ALSO ACCEPTED THE SA ME. WHETHER ASSESSEE CAN MAKE THE CONTRIBUTION TO GROUP GRATUITY SCHEME DIRECTLY IS THE QUESTION BEFORE US. WE FIND THAT SIMILAR QUESTION HAD ARISEN BEFORE THE HO N'BLE APEX COURT IN THE CASE OF CIT VS. MY S. TEXTOOL CO. LTD., IN CIVIL APPEAL NO.447 OF 2003 AND THE HON'BLE COUR T VIDE ITS DECISION DATED 09.09.2009 HAS HELD AS UNDE R : THIS APPEAL, BY SPECIAL LEAVE IS DIRECTED AGAINST THE JUDGMENT, DATED 4TH FEBRUARY, 2002, RENDERED BY THE HIGH COURT OF JUDICATURE AT MADRAS, IN TAX CASE NO. 267 OF 1989. BY THE IMPUGNED JUDGMENT, THE HIGH COURT HAS ANSWERED THE QUESTION OF LAW, REFERRED TO IT BY THE INCOME TAX APPELLATE TRIBUNAL, MADRAS BENCH (FOR SHORT, 'THE TRIBUNAL') UNDER SECTION 256(1) OF THE INCOME TAX ACT, 1961, (FOR SHORT, 'THE ACT') AT THE INSTANCE OF THE REVENUE. THE QUESTION OF LAW, SO REFERRED, WAS AS FOLLOWS: ' ... WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL IS RIGHT IN ALLOWING THE DEDUCTION OF RS.55,84,754/- BEING THE PAYMENT MADE BY THE ASSESSEE COMPANY DIRECTLY TO LIFE INSURANCE CORPORATION TOWARDS GROUP GRATUITY FUND UNDER SECTION 36 (1)V) OF THE INCOME TAX ACT, 1961?' ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 18 OF 22 MATERIAL FACTS RELEVANT FOR THE PURPOSE OF THE PRES ENT APPEAL MAY BE STATED THUS: FOR THE ASSESSMENT YEAR, 1983-84, FOR WHICH THE RELEVANT PREVIOUS YEAR ENDED ON 30TH APRIL, 1982, T HE ASSESSEE CLAIMED A DEDUCTION OF RS.92,06,978/- AS CONTRIBUTION/ PROVISION TOWARDS THE APPROVED GRATUI TY FUND. AS PER THE BREAKUP OF THE SAID AMOUNT, AN AMOUNT OF RS. 5, 84, 754/- WAS PAID AS ANNUAL PREMIUM TO THE LIFE INSURANCE CORPORATION ('LIC' FO R SHORT); A SUM OF RS. 50,00,000/ - WAS PAID TO THE L IC AS INITIAL CONTRIBUTION IN THE GROUP LIFE ASSURANCE SCHEME FRAMED BY THE LIC FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AND THE REMAINING AMOUNT OF RS. 36,22,224/-WAS SHOWN AS PROVISION FOR INITIA L CONTRIBUTION. IT IS COMMON GROUND THAT ASSESSEE COMPANY'S GRATUITY FUND, VIZ., THE TEXTOOL COMPANY LTD. EMPLOYEES GROUP GRATUITY FUND WAS APPROVED BY THE COMMISSIONER OF INCOME TAX, COIMBATORE, W.E.F 25TH FEBRUARY, 1983. WHILE COMPLETING ASSESSMENT, THE ASSESSING OFFICER ALLOWED A DEDUCTION OF RS.36,22,224/-UNDER SECTION 40A(7) OF THE ACT. HOWEVER, DEDUCTION FOR THE BALANCE AMOUNT WAS DISALLOWED ON THE GROUND THAT PAYMENT TOWARDS THE GRATUITY FUND WAS MADE BY THE ASSESSEE DIRECTLY TO THE LIC AND NOT TO AN APPROVED GRATUITY FUND AND, THEREFORE, IT WAS NOT ALLOWABLE UNDER SECTION 36(L) (V) OF THE ACT. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL TO T HE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OBSERVED THAT THE INITIAL PAYMENT OF R S. 50, 00, 000/ - AND THE ANNUAL PREMIUM OF RS. 5, 57, 943/ - WAS MADE BY THE ASSESSEE DIRECTLY TO THE LIC INSTEAD OF AS A CONTRIBUTION TOWARDS THE APPROVED GRATUITY FUND; THE LIC HAD ACCEPTED THE SAID PAYMEN T ON BEHALF OF THE GROUP LIFE ASSURANCE SCHEME FOR TH E EXCLUSIVE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE UNDER THE POLICY ISSUED BY IT. UPON PERUSAL OF THE ORIGINAL MASTER POLICY ISSUED BY THE LIC, THE COMMISSIONER RECORDED HIS SATISFACTION THAT THE INI TIAL CONTRIBUTION AS WELL AS ANNUAL PREMIUM HAD BEEN CREDITED BY THE LIC TO THE GROUP LIFE ASSURANCE ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 19 OF 22 SCHEME ON BEHALF OF THE TEXTOOL COMPANY LTD. EMPLOYEES GROUP GRATUITY FUND ONLY, MEANING THEREBY THAT THE INSURANCE POLICY HAD BEEN TAKEN IN THE NAM E OF THE APPROVED GRATUITY FUND ONLY; THIS FUND WAS SHOWN AS THE PAYEE IN THE POLICY; VIDE ITS LETTER D ATED 20TH NOVEMBER, 1985) ADDRESSED TO THE LA. C: THE ASSESSEE HAD CONFIRMED THAT IN THE SUBSEQUENT ASSESSMENT YEARS, THEY HAD CONTRIBUTED FUNDS TO THE EMPLOYEES GROUP GRATUITY FUND AND THE TRUSTEES IN TURN HAD MADE PAYMENT TO THE LIC IN RESPECT OF THE TEXTOOL CO. LTD.; EMPLOYEES GROUP GRATUITY ASSURANC E SCHEME UNDER THE SAID POLICY AND IT WAS ONLY THE INITIAL PAYMENT AND FIRST ANNUAL PREMIUM HAD BEEN MADE DIRECTLY TO THE LIC AGAINST THE SAID POLICY. T HE COMMISSIONER WAS THUS, CONVINCED THAT BY MAKING PAYMENT OF THE AMOUNTS IN QUESTION DIRECTLY TO THE LIC, THE ASSESSEE HAD NOT VIOLATED ANY OF THE CONDITIONS STIPULATED IN SECTION 36(1)(V) OF THE ACT. ACCORDIN GLY, THE COMMISSIONER CAME TO THE CONCLUSION THAT SINCE, ON THE FACTS OF THE CASE, THE OBJECTIVE OF THE FUND WAS ACHIEVED, A NARROW INTERPRETATION OF THE PROVISION WOULD BE STRAINING THE LANGUAGE OF SECTION 36(1)(V) OF THE ACT SO AS TO DENY THE DEDUCTION CLAIMED BY THE ASSESSEE. CONSEQUENTLY, THE COMMISSIONER ALLOWED TH E SAID AMOUNT OF RS.58,84, 754/- AS DEDUCTION FOR THE RELEVANT ASSESSMENT YEAR. BEING DISSATISFIED WITH THE VIEW TAKEN BY THE COMMISSIONER, THE REVENUE TOOK THE MATTER IN FURTHE R APPEAL TO THE TRIBUNAL. RELYING ON ITS EARLIER DECI SION IN THE CASE OF JANAMBIKAI MILLS LTD, THE TRIBUNAL DISMISSED THE APPEAL. AS STATED ABOVE, BY THE IMPUGNED ORDER, THE AFORE EXTRACTED QUESTION, REFERRED AT THE INSTANCE OF THE REVENUE, HAS BEEN ANSWERED BY THE HIGH COURT IN FAVOUR OF THE ASSESSEE. WHILE ANSWERING THE QUESTIO N, THE HIGH COURT HAS OBSERVED AS FOLLOWS: 'IN OUR OPINION, THE COMMISSIONER OF INCOME TAX (APPEALS) AS WELL AS THE TRIBUNAL HAVE CORRECTLY HE LD ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 20 OF 22 THAT MERELY BECAUSE THE PAYMENTS WERE MADE DIRECTLY TO THE LIC, THE COMPANY COULD NOT BE DENIED THE BEN EFIT UNDER SECTION 36(1)(V) AND THE AMOUNT HAD TO BE CREDITED IN FAVOUR OF THE ASSESSEE. BOTH THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL HAVE CORRECTLY READ THE LAW AND HAVE CORRECTLY RELIED UP ON THE AFOREMENTIONED SUPREME COURT JUDGMENT. IN OUR OPINION, SINCE THE FINDING OF FACT IS THAT ALL THE PAYMENTS MADE WERE ONLY TOWARDS THE GROUP GRATUITY FUND, THERE WOULD BE NO QUESTION OF FINDING OTHERWI SE. LEARNED COUNSEL APPEARING ON BEHALF OF THE REVENUE HAS SUBMITTED BEFORE US THAT THE PROVISIONS OF SECT ION 36(1)(V) OF THE ACT HAVE TO BE CONSTRUED STRICTLY A ND FOR CLAIMING DEDUCTION, CONDITIONS LAID DOWN IN SECTION 36(1)(V) OF THE ACT MUST BE FULFILLED. IT IS URGED THAT SINCE DURING THE RELEVANT PREVIOUS YEAR THE CONTRIB UTION BY THE ASSESSEE TOWARDS THE GRATUITY FUND WAS NOT I N AN APPROVED GRATUITY FUND THE HIGH COURT WAS NOT JUSTIFIED IN AFFIRMING THE VIEW TAKEN BY THE COMMISSIONER AS ALSO BY THE TRIBUNAL WHILE ANSWERIN G THE REFERENCE IN FAVOUR OF THE ASSESSEE. HOWEVER, O N A QUERY BY US AS TO WHETHER THE CONTRIBUTION MADE BY THE ASSESSEE IN THE APPROVED GRATUITY FUND CREDITED BY THE LIC FOR THE EMPLOYEES OF THE ASSESSEE AND ULTIMATEL Y THE ENTIRE AMOUNT DEPOSITED WITH THE LIC CAME BACK TO THE FUND CREATED BY THE ASSESSEE FOR THE BENEFIT OF ITS EMPLOYEES AND APPROVED BY THE COMMISSIONER W.E.F 25TH FEBRUARY, 1983, OR NOT, LEARNED COUNSEL IS NOT IN A POSITION TO MAKE A CATEGORICAL STATEMENT IN THAT BE HALF. HAVING CONSIDERED THE MATTER IN THE LIGHT OF THE BACKGROUND FACTS, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN THE APPEAL. TRUE THAT A FISCAL STATUTE IS TO BE CONSTRUED STRICTLY AND NOTHING SHOULD BE ADDED OR SUBTRACTED TO THE LANGUAGE EMPLOYED IN THE SECTION, YET A STRICT CONSTRUCTION OF A PROVISION DOES NOT RULE OUT THE APPLICATION OF THE PRINCIPLES OF REASONABLE CONSTRU CTION TO GIVE EFFECT TO THE PURPOSE AND INTENTION OF ANY PARTICULAR PROVISION OF THE ACT. (SEE: SHRI SAJJAN MILLS LTD. VS. COMMISSIONER OF INCOME TAX, MP. & ANR. (1985) 156 ITR 585). FROM A BARE READING OF SECTION ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 21 OF 22 36(1)(V) OF THE ACT, IT IS MANIFEST THAT THE REAL I NTENTION BEHIND THE PROVISION IS THAT THE EMPLOYER SHOULD NO T HAVE ANY CONTROL OVER THE FUNDS OF THE IRREVOCABLE TRUST CREATED EXCLUSIVELY FOR THE BENEFIT OF THE EMPLOYEE S. IN THE INSTANT CASE, IT IS EVIDENT FROM THE FINDINGS RECORDED BY THE COMMISSIONER AND AFFIRMED BY THE TRIBUNAL THAT THE ASSESSEE HAD ABSOLUTELY NO CONTRO L OVER THE FUND CREATED BY THE LIE FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AND FURTHER ALL THE CONTRIBUTION MADE BY THE ASSESSEE IN THE SAID FUND ULTIMATELY CAME BACK TO THE TEXTOOL EMPLOYEES GRATU ITY FUND, APPROVED BY THE COMMISSIONER WITH EFFECT FROM THE FOLLOWING PREVIOUS YEAR. THUS, THE CONDITIONS STIPULATED IN SECTION 36(1)(V) OF THE ACT WERE SATI SFIED. HAVING REGARD TO THE FACTS FOUND BY THE COMMISSIONE R AND AFFIRMED BY THE TRIBUNAL, NO FAULT CAN BE FOUND WITH THE OPINION EXPRESSED BY THE HIGH COURT, WARRANTING OUR INTERFERENCE. 6. IN OUR OPINION, THE ASSESSEE'S CASE FOR THE RELE VANT ASSESSMENT YEAR IS SIMILAR TO THE ABOVE CASE. RESPECTFULLY FOLLOWING THE SAME, ASSESSEE'S APPEAL IS ALLOWED. 20. RESPECTFULLY FOLLOWING THE SAME, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). THIS GR OUND OF APPEAL IS REJECTED. 21. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES, WHILE THE REVENUES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD AUGUST, 2016. S D/ - S D/ - (S.RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 3 RD AUGUST, 2016. ITA NOS 936 AND 889 OF 2015 DECCAN GRAMEENA BANK HY DERABAD PAGE 22 OF 22 VNODAN/SPS COPY TO: 1. M/S. MURTHY & KANTH, CAS, FLAT NO.113, SOVERIGN SHE LTERS, LAKADIKAPUL, HYDERABAD 500004 2. DY. COMMISSIONER OF INCOME TAX, CIRCLE 9(1), HYDERA BAD 3. CIT(A) VII, HYDERABAD 4. CIT VII HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER