The Ratnakar Bank Ltd., Kolhapur V. Dy. CIT, Kolhapur

ITA 891/PUN/2012

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6912 (ITAT-PUNE)
• Duration Of Justice: 5 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 26-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 07-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIRUPAMA KOTRU
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Depreciation; Proportionate interest
• Section: 43B; 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURV EDI, AM . / ITA NO.891/PUN/2012 / ASSESSMENT YEAR : 2008-09 THE RATNAKAR BANK LTD., SHREE SHAHU MARKET YARD, KOLHAPUR PAN : AABCT3335M . / APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE-2, KOLHAPUR . / RESPONDENT / APPELLANT BY : SHRI SUNIL PATHAK / RESPONDENT BY : SMT. NIRUPAMA KOTRU,CIT-DR / DATE OF HEARING : 07.11.2017 / DATE OF PRONOUNCEMENT: 21.12.2017 / ORDER PER SUSHMA CHOWLA, JM: THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A), KOLHAPUR, DATED 06.03.2012 RELATING TO ASSESSMENT YEAR 2008-0 9 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (I N SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. DISALLOWANCE OF PROPORTIONATE EXPENDITURE U/S. 14A (RS.2,51,12,422/- ) 1.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF RS.2 , 51 , 12 , 422 / - ON ACCOUNT OF INTEREST U / S.14A OF THE INCOME TA X ACT , 1961. 1.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH ERE IS NO DIRECT NE X US B E TW E EN INTEREST BEARING BORROWINGS AND THE TAX FREE IN V ESTMENTS AND THAT THE AMOUNT INVESTED IN TAX FREE INVESTMENTS (AVERAGE RS . 32.98 CRO R ES) IS V ERY INSIGNIFICANT COMPARED TO THE INTEREST FREE FUNDS O F RS. 483 . 37 CRORES 2 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., (AVERAGE) AND THEREFORE IT CAN BE SAFELY SAID THAT THE INTEREST FREE FUNDS ARE AVAILABLE FOR INVESTMENT IN SECURITIES AND SHARES. WITHOUT PREJUDICE TO THE ABOVE, 1.4 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E AMOUNT O F DISALLOWANCE WORKED OUT BY THE AO IS EXCESSIVE BY RS.1,39 , 04,422 / - AS COMPARED TO THE DISALLOWANCE AS PER RULE 8D OF THE INCOME TAX RULES , 1962 , W HICH WORKS OUT TO RS.1,12,08 ,000/ -. THE DISALLOWANCE CONFIRMED B Y CIT(A) IS RS . 2 , 51,12 , 422 / -. 1.5 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E AO WHILE WORKING OUT THE DISALLOWANCE HAS WRONGLY CONSIDERED THE ENTIRE EXPE NDITURE DEBITED TO PROFIT & LOSS ACCOUNT TO ARRIVE AT PROPORTIONATE INTEREST FOR DISALLOWANCE U / S . 14A OF THE ACT. 1.6 THE DISALLOWANCE OF RS.2 , 51 , 12 , 422 / - MADE BY THE AO AND CONFIRMED B Y CIT (A) BE DELETED. DISALLOWANCE ON ACCOUNT OF EXCESS PENSION FUND (RS.3,69,00,000/- ) 2.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADD ITION OF RS.3,69,00.000/- ON ACCOUNT OF PENSION FUND MADE BY THE AO ON THE GR OUND THAT THE LIABILITY TOWARDS PENSION FUND IS NO LONGER NECESSARY TO THAT EXTENT. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE DEDUCTION IN RESPECT OF CONTRIBUTION TOWARDS PENSION FUND IS ALLOWABLE U/S. 43B ON PAYMENT BASIS AND THAT THE DEDUCTION ALREADY ALLOWED U/S.43B IN EARLI ER YEARS CANNOT BE WITHDRAWN IN THE SUBSEQUENT YEARS MERELY ON THE GROUND THAT T HE CONTRIBUTION TO THE PENSION FUND WAS FOUND TO BE EXCESS IN EARLIER YEAR S DUE TO CHANGE IN THE ACCOUNTING STANDARD IN INDIA. 2.3 THE LEARNED CIT(A) FA I LED TO APPRECIATE THAT IT IS NOT THE CASE THAT THE LIABILITY HAS CEASED TO BE IN EXISTENCE AND THAT IT IS MERELY A CASE OF EXCES S CONTRIBUTION TO THE PENSION FUND, WHICH IS ALLOWED AS DEDUCTION U / S.43B IN EARLIER YEARS , AND THAT THE EXCESS HAS RESULTED IN VIEW OF THE CHA NGED ACCOUNTING STANDARD . 2.4 THE ADDITION OF RS.3,69,00,000/- MADE TO THE T OTAL INCOME BY THE AO AND CONFIRMED BY CIT(A) BE DELETED. THE APPELLANT CRAVE S LEAVE TO, ADD TO, DELETE OR MODIFY ANY OF THE ABOVE MENTIONED GROUNDS. THE APPELLANT CRAVES LEAVE TO, ADD TO, DELETE OR MO DIFY ANY OF THE ABOVE MENTIONED GROUNDS. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IS AGAINS T THE DISALLOWANCE OF RS.2,51,12,422/- UNDER SECTION 14A OF THE ACT. 3 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., 4. THE SECOND ISSUE RAISED BY THE ASSESSEE IS AGAIN ST THE ADDITION OF RS.3.69 CRORES ON ACCOUNT OF PENSION FUND MADE ON T HE GROUND THAT THE LIABILITY TOWARDS THE PENSION FUND WAS NO LONGER NECESSARY. 5. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD FURNISHED THE RETURN OF INCOME DE CLARING TOTAL INCOME OF RS.25,99,57,174/-. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF BANKING. THE ASSESSING OFFICER FROM THE COMPUTATION OF INCOME AN D THE DETAILS OF INTEREST RECEIVED FILED ALONG WITH THE RETURN OF INCOME NOTE D THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD EARNED TAX FREE INCO ME OF RS.3,46,00,819/- FROM ITS INVESTMENTS. THE ASSESSEE WAS SHOW CAUSED AS T O WHY THE PROVISIONS OF SECTION 14A OF THE ACT SHOULD NOT BE APPLIED TO DIS ALLOW THE PROPORTIONATE INTEREST ON THE AFORESAID INVESTMENTS. THE ASSESSEE EXPLAIN ED THAT THE INVESTMENTS IN ASSETS EARNING TAX FREE INCOME WAS ON ACCOUNT OF SH ARES, PREFERENTIAL SHARES AND UNITS, TAX FREE BONDS AND MUTUAL FUNDS TOTALLIN G TO RS.51.96 CRORES AS ON 31-03-2008 AS AGAINST RS.13.99 CRORES AS ON 31-03-2 007. THE AVERAGE INVESTMENT WORKED OUT TO RS.32.98 CRORES. THE ASSE SSEE FURTHER EXPLAINED THAT IT HAD INTEREST FREE FUNDS IN THE FORM OF CAPITAL OF R S.104.72 CRORES AND FREE RESERVES OF RS.216.13 CRORES. FURTHER, NON-INTERES T LIABILITY WORKED OUT TO RS.269.69 CRORES AS ON 31-03-2008 TOTAL INTEREST FR EE FUNDS OF RS.590.54 CRORES. THE ASSESSEE ADMITTED THAT IT HAD INTEREST BEARING BORROWED FUNDS OF RS.895.17 CRORES. IT WAS EMPHASIZED BY THE ASSESSEE THAT THE AMOUNT INVESTED IN TAX FREE INVESTMENTS, I.E. THE AVERAGE OF RS.32.98 CRORES W AS VERY LESS AS COMPARED TO THE AVERAGE OF INTEREST FREE FUNDS OF RS.483.37 CRO RES AND IT CAN BE SAFELY SAID THAT THE INTEREST FREE FUNDS WERE AVAILABLE FOR INV ESTMENT IN SECURITIES AND SHARES. THE ASSESSEE THUS PLEADED THAT NO INTEREST EXPENDIT URE SHOULD BE DISALLOWED UNDER SECTION 14A OF THE ACT. THE ASSESSING OFFICE R APPLYING THE PROVISIONS OF RULE 8D WORKED OUT THE DISALLOWANCE UNDER SECTION 1 4A OF THE ACT AT RS.2.51 4 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., CRORES. THE ASSESSEE HAD ALREADY TAKEN INTO ACCOUN T DISALLOWANCE OF RS.99,57,000/- IN ITS COMPUTATION OF INCOME. THUS, THE BALANCE SUM OF RS.1.51 CRORES WAS ADDED TO THE TOTAL INCOME OF THE ASSESSE E. 6. THE CIT(A) OBSERVED THAT THE ASSESSEE HAD FAILED TO PROVE ITS CLAIM THAT INVESTMENT OF THE ASSESSEE BANK IN EARNING TAX FREE INCOME HAD ARISEN OUT OF INTEREST FREE FUNDS AVAILABLE, SINCE THE ASSESSEE H AS NOT POINTED OUT THAT THE INVESTMENTS WERE MADE FROM SUCH FUNDS. HE FURTHER OBSERVED THAT THE AVAILABILITY OF INTEREST FREE FUNDS ON THE BALANCE SHEET DATE DOES NOT ABSOLVE THE ASSESSEE FROM ITS ONUS OF PROVING ITS CASE. THE CI T(A) OBSERVED THAT THE PROVISIONS OF RULE 8D WERE TO BE APPLIED FOR WORKIN G OUT THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE AND ALSO OTHER EXPE NDITURE. ACCORDINGLY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS UPHE LD. 7. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF C IT(A). 8. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESS EE POINTED OUT THAT THE ASSESSING OFFICER IN PARA (II) HAS NOTED THE INVEST MENTS OF THE ASSESSEE WITH OPENING BALANCE OF RS.51.96 CRORES AND CLOSING BALA NCE OF RS.31.99 CRORES, WHICH AVERAGE TO RS.32.98 CRORES. OUR ATTENTION WA S DRAWN TO THE AVAILABILITY OF FUNDS AND IT WAS POINTED OUT THAT THE INTEREST FREE FUNDS WERE CLEARLY AVAILABLE WITH THE ASSESSEE AND HENCE NO DISALLOWANCE WAS TO BE MADE UNDER RULE 8D (II). IN THIS REGARD, HE PLACED RELIANCE ON THE DE CISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. VS. DCIT IN WR IT PETITION NO.1753 OF 2016, JUDGMENT DATED 25-02-2016. THE LD. AUTHORISED REPR ESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT NO DISALLOWANCE I S WARRANTED UNDER RULE 8D (III) OF THE ACT, WHICH WERE MADE AT RS.12.51 LAKHS BY THE AUTHORITIES BELOW. 5 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., 9. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE ON THE OTHER HAND PLACED RELIANCE ON THE ORDER OF THE CIT(A). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE WHICH IS RAISED BEFORE US IS IN RELATION TO T HE DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D OF THE RULES. THE AS SESSEE BANK HAD CERTAIN INVESTMENTS WHICH WERE EARNING TAX FREE INCOME. TH E CASE OF THE AUTHORITIES BELOW WAS THAT APPLYING PROVISIONS OF SECTION 14A O F THE ACT, DISALLOWANCE HAS TO BE MADE ON ACCOUNT OF BOTH THE INTEREST EXPENDITURE AND THE ADMINISTRATION EXPENSES, AS PER THE WORKING UNDER RULE 8D OF THE R ULES. THE CASE OF THE ASSESSEE ON THE OTHER HAND IS THAT IT HAD SUFFICIEN T INTEREST FREE FUNDS AVAILABLE BOTH AT THE START AND AT THE CLOSE OF THE YEAR AND IN CASE THE AVERAGE AVAILABILITY OF FUNDS WAS COMPARED WITH THE AVERAGE INVESTMENTS, THE INTEREST FREE FUNDS WERE MUCH MORE THAN THE INVESTMENTS MADE BY THE ASS ESSEE AND HENCE NO MERIT IN MAKING ANY DISALLOWANCE ON ACCOUNT OF INTE REST EXPENDITURE UNDER RULE 8D(II) OF THE ACT. 11. WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF HDFC BANK LTD. VS. DCIT IN WRIT PETITION NO.1753 OF 2016, JUDGMENT DATED 25-02-2016, HAD DECIDED THE ISSUE OF APPLICABILITY OF SECTION 14A O F THE ACT TO DISALLOW A PORTION OF INTEREST PAID ON BORROWED FUNDS IN RESPECT OF INVES TMENTS MADE IN TAX FREE SECURITIES, WHERE THE OWN FUNDS WERE IN EXCESS OF T HE INVESTMENTS MADE IN SECURITIES. THE HONBLE HIGH COURT NOTED THAT THE PETITIONER HAD SUFFICIENT INTEREST FREE FUNDS OF RS.2153 CRORES AS AGAINST WH ICH THE INVESTMENTS IN TAX FREE SECURITIES WAS ONLY RS.52.02 CRORES. THE HONBLE H IGH COURT HELD THAT WHERE INTEREST FREE FUNDS WERE AVAILABLE WITH AN ASSESSEE WHICH WERE MORE THAN THE INVESTMENTS MADE IN THE TAX FREE SECURITIES, THEN P RESUMPTION ARISES THAT THE INVESTMENTS WERE MADE FROM ITS INTEREST FREE FUNDS. IN THIS REGARD, REFERENCE WAS 6 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., MADE TO CIT VS. RELIANCE UTILITIES AND POWER LTD. 3 13 ITR 340 AND ALSO AN EARLIER DECISION IN THE CASE OF CIT VS. HDFC BANK L TD. 366 ITR 505 AND IT WAS HELD AS UNDER : 15. IT IS CLEAR THAT FOR THE FIRST TIME IN THE CAS E OF HDFC BANK LTD. (SUPRA) THAT THIS COURT TOOK A VIEW THAT THE PRESUMPTION WHICH H AS BEEN LAID DOWN IN RELIANCE UTILITIES AND POWER LTD. (SUPRA) WITH REGARD TO INV ESTMENT IN TAX FREE SECURITIES COMING OUT OF ASSESSEES OWN FUNDS IN CASE THE SAME ARE IN EXCESS OF THE INVESTMENTS MADE IN THE SECURITIES (NOTWITHSTANDING THE FACT THAT THE ASSESSEE CONCERNED MAY ALSO HAVE TAKEN SOME FUNDS ON INTERES T) APPLIES, WHEN APPLYING SECTION 14 OF THE ACT. THUS, THE DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) FOR THE FIRST TIME ON 23 RD JULY, 2014 HAS SETTLED THE ISSUE BY HOLDING THAT T HE TEST OF PRESUMPTION AS HELD BY THE COURT IN RELIANCE UTILIT IES AND POWER LTD. (SUPRA) WHILE CONSIDERING SECTION 36(1)(III) OF THE ACT WOU LD APPLY WHILE CONSIDERING THE APPLICATION OF SECTION 14A OF THE ACT. THE AFORESA ID DECISION OF THIS COURT IN HDFC BANK LTD. (SUPRA) ON THE ABOVE ISSUE HAS ALSO BEEN ACCEPTED BY THE REVENUE INASMUCH AS EVEN THOUGH THEY HAVE FILED AN APPEAL TO THE SUPREME COURT AGAINST THAT ORDER ON THE OTHER ISSUE THEREIN VIZ., BROKEN PERIOD INTEREST, NO APPEAL HAS BEEN PREFERRED BY THE REVENUE ON THE ISS UE OF INVOKING THE PRINCIPLES LAID DOWN IN RELIANCE UTILITIES AND POWER LTD. (SUP RA) IN ITS APPLICATION TO SECTION 14A OF THE ACT. THEREFORE, THE ISSUE WHICH AROSE F OR CONSIDERATION BEFORE THE TRIBUNAL HAD NOT BEEN DECIDED BY THIS COURT IN GODR EJ AND BOYCE MANUFACTURING CO. LTD. (SUPRA). IT AROSE AND WAS SO DECIDED FOR THE FIRST TIME BY THIS COURT IN HDFC BANK LTD. (SUPRA). THUS, THERE IS NO CONFLICT AS SOUGHT TO BE MADE OUT BY THE IMPUGNED ORDER. THUS, THE IMPUGNED ORDER HAS P ROCEEDED ON A FUNDAMENTALLY ERRONEOUS BASIS AS THE RATIO DECINDI OF THE ORDER IN GODREJ AND BOYCE MANUFACTURING CO. LTD. (SUPRA) HAD NOTHING TO DO WITH THE TEST OF PRESUMPTION CANVASSED BY THE PETITIONER BEFORE THE TRIBUNAL ON THE BASIS OF THE RATIO OF THE DECISION OF THIS COURT IN HDFC BANK LT D. (SUPRA). 12. APPLYING THE SAID PRINCIPLE LAID DOWN IN THE CA SE OF HDFC BANK LTD. VS. DCIT (SUPRA) WE HOLD THAT WHERE THE ASSESSEE IS POS SESSED OF INTEREST FREE FUNDS WHICH ARE SUFFICIENT TO MAKE THE INVESTMENT I N TAX FREE SECURITIES, THEN PRESUMPTION IS THAT THE SAID INVESTMENT HAS BEEN MA DE OUT OF INTEREST FREE FUNDS. APPLYING THE SAID PRINCIPLE TO THE FACTS OF THE CAS E, THE TOTAL INVESTMENT MADE BY THE ASSESSEE IS RS.51.96 CRORES AS ON 31-03-2008 AS AGAINST RS.13.99 CRORES AS ON 31-03-2007 WHEREIN THE AVERAGE WORKS OUT TO RS.3 2.98 CRORES. THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE ON ACCOUNT O F OWN CAPITAL OF RS.104.78 CRORES, ITSELF WERE SUFFICIENT TO TAKE CARE OF THE INVESTMENT IN INTEREST FREE 7 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., SECURITIES. IN ADDITION, THE ASSESSEE HAD INTEREST FREE RESERVES OF RS.216.13 CRORES AND NON-INTEREST LIABILITY OF RS.269.69 CROR ES WHICH TOTALS TO RS.590.54 CRORES AS ON 31-03-2008 AS AGAINST TOTAL INTEREST F REE FUNDS OF RS.376.21 CRORES AS ON 31-03-2007, I.E. THE AVERAGE INTEREST FREE FU NDS OF RS.483.37 CRORES. IN VIEW OF THE SAME, WE FIND NO MERIT IN THE AFORESAID DISALLOWANCE WORKED OUT ON ACCOUNT OF INTEREST ATTRIBUTABLE TO THE INVESTMENT IN INTEREST FREE SECURITIES MADE UNDER RULE 8D(II) OF THE RULES. ACCORDINGLY, WE DI RECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE UNDER SECTION 14A OF T HE ACT ON ACCOUNT OF INTEREST EXPENDITURE. FURTHER, THE ASSESSING OFFICER HAS AL SO MADE DISALLOWANCE UNDER RULE 8D(III) @ 0.5% OF THE AVERAGE INVESTMENTS IN S HARES AT RS.12,51,000/-. THE SAID DISALLOWANCE IS UPHELD IN THE HANDS OF THE ASS ESSEE. 13. NOW COMING TO THE SECOND ISSUE RAISED BY THE AS SESSEE, I.E. AGAINST THE DISALLOWANCE ON ACCOUNT OF EXCESS PENSION FUND. 14. BRIEFLY, THE FACTS RELATING TO THE ISSUE ARE TH AT THE ASSESSEE HAD DEBITED THE PROVISIONS AND CONTINGENCIES TO THE PROFIT AND LOSS ACCOUNT AMOUNTING TO RS.16,86,64,887/-. THE ASSESSEE HAD ADDED BACK PRO VISION AMOUNTING TO RS.12,83,94,102/- IN THE COMPUTATION OF INCOME. TH E ASSESSING OFFICER NOTED THAT THE BALANCE PROVISION OF RS.4,02,70,785/- HAD REMAINED TO BE ADDED BACK TO THE TOTAL INCOME. THE ASSESSEE WAS ASKED AS TO WHY THE SAID PROVISION SHOULD NOT BE DISALLOWED. THE ASSESSEE EXPLAINED THAT THE SAID SUM OF RS.4.02 CRORES WAS THE AMOUNT OF DEPRECIATION ON INVESTMENTS, THE DETAILS OF WHICH WERE ENCLOSED AS ANNEXURE- G. THE ASSESSEE IS NOT IN AP PEAL AGAINST THE SAME. 15. THE ASSESSEE HAD ALSO MADE AN ADDITION IN THE P ENSION FUND AMOUNTING TO RS.4.63 CRORES DURING THE YEAR. THE ASSESSING O FFICER NOTED THAT THE SAID SUM WAS NOT ADDED BACK TO THE TOTAL INCOME. THE ASSESS EE WAS ASKED TO EXPLAIN THE 8 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., SAME. IN RESPONSE, THE ASSESSEE POINTED OUT THAT A SUM OF RS.94 LAKHS OF PENSION FUND WAS DEBITED TO THE PROFIT AND LOSS ACC OUNT IN SCHEDULE-6 AS PAYMENT TO AND PROVISION FOR EMPLOYEES. HOWEVER, A S PER AS-15 REVISED, THE AMOUNT OF PENSION FUND WAS ASCERTAINED BY ACTUARIES AND THE AMOUNT OF PROVISION FOR PENSION FUND WAS DISALLOWED IN THE CO MPUTATION OF INCOME AT RS.94 LAKHS. THE ASSESSEE FURTHER CLARIFIED THAT EARLIER THE LIABILITY WAS CALCULATED ON AGGREGATE METHOD OF VALUATION WHICH CONSIDERED FULL PENSION LESS FUTURE CONTRIBUTION. HOWEVER, AS PER THE PROJECT UNIT CRE DIT METHOD, THE SERVICE RENDERED TILL DATE WAS TO BE CONSIDERED RES ULTING IN AVERAGE PENSION ACCRUAL OF 18% ONLY, RESULTING IN LOWER LIABILITY. THUS, IT RESULTED IN EXCESS FUND OF RS.4.63 CRORES WITH THE PENSION FUND AS ON 01-04-20 07. THE ASSESSEE THEN REFERRED TO THE ACTUAL LIABILITY/VALUATION FOR THE CURRENT YEAR 2007-08 AND POINTED OUT THAT AS PER THE SUGGESTION OF ACTUARIES, OPENIN G EXCESS FUND OF RS.4.63 CRORES PAID TO PENSION FUND WAS TRANSFERRED TO RESE RVES BY DEBITING PAYMENT IN ADVANCE TO PENSION FUND ACCOUNT. IT WAS FURTHER PO INTED OUT THAT LIABILITY FOR THE CURRENT YEAR WAS AT RS.2.05 CRORES, OUT OF WHICH RS .1.11 CRORES WAS ALREADY DEBITED TO THE PROFIT AND LOSS ACCOUNT AND PAID TO PENSION FUND, THE BALANCE UNPAID AMOUNT OF RS.0.94 CRORES WAS REQUIRED TO BE DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE SAME WOULD BE ADJUSTED AGAINST PAYMEN T IN ADVANCE TO PENSION FUND ACCOUNT AND THERE WOULD BE DEBIT BALANCE OF RS .3.69 CRORES IN THAT ACCOUNT. THE AO OBSERVED AS UNDER : I HAVE GONE THROUGH THE SUBMISSION MADE BY THE ASS ESSEE. THE ISSUE INVOLVED IS ABOUT EXCESS PENSION FUND BEING MADE AVAILABLE W ITH THE ASSESSEE DUE TO THE WORKING OF THE LIABILITY OF PAYMENT OF PENSION AS P ER ACTUARIAL VALUATION MADE BY THE ASSESSEE DURING THE YEAR. IN THIS REGARD IT IS NOTED THAT THE ASSESSEE HAS BEEN DEBITING IN THE BOOKS THE ESTIMATED LIABILITY OF PENSION UNDER THE PENSION FUND OVER PAST SEVERAL YEARS AND THIS CLAIM OF THE ASSESSEE WAS ALLOWED BY THE DEPARTMENT. HOWEVER IN THE CURRENT YEAR THE LIABIL ITY UNDER THE PENSION FUND HAS BEEN REDUCED ON THE BASIS OF ACTUARIAL VALUATION AN D THE SUBSEQUENT WORKING MADE BY THE ASSESSEE AS PER ABOVE. SINCE THE LIABI LITY HAS BEEN REDUCED THE ASSESSEE WAS REQUIRED TO OFFER THE EXCESS OF RS.4,6 3,000/- AS CLAIMED UNDER THIS HEAD IN EARLIER YEARS FOR THE PURPOSE OF TAXATION. HOWEVER FROM THE WORKING 9 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., SUBMITTED BY THE ASSESSEE AS ABOVE IT IS SEEN THAT THE ASSESSEE HAS ONLY OFFERED RS.94,00,000/- OUT OF THE TOTAL OF RS.4,63,00,000/- WHICH IT WAS LIABLE TO OFFER ON ACCOUNT OF EXCESS FUNDS AVAILABLE UNDER THE OF PENS ION PAYABLE. AS PER THE I.T. ACT ONES A DEDUCTION OF EXPENDITURE TOWARDS A LIABILITY IS ALLOWED AND SUBSEQUENTLY THE EXPENDITURE IS NO LONGER NECES SARY THE SAME NEEDS TO BE OFFERED FOR TAXATION. THE WORKING IS NOT CORRECT T O THE EXTENT THAT ONLY RS.94,00,000/- OF PROVISION IS ADDED BACK IN THE CO MPUTATION WHEREAS INFACT THE AMOUNT TO BE ADDED TO INCOME SHOULD HAVE BEEN RS.4, 63,00,000/-, I.E. THE ENTIRE AMOUNT OF PROVISION UNDER PENSION FUND WHICH IS NOT REQUIRED IN THE BOOKS. IN THE LIGHT OF THE ABOVE DISCUSSION EXCESS AMOUNT AVA ILABLE UNDER THE PENSION FUND NOT ADDED BY THE ASSESSEE IS ADDED TO THE INCOME OF THE ASSESSEE. THE TOTAL ADDITION ON THIS ACCOUNT COMES TO RS.3,69,000/- WHI CH IS TO BE ADDED BACK TO THE TOTAL INCOME AND BROUGHT TO TAX ACCORDINGLY. PENAL TY PROCEEDINGS U/S.271(1)(C) READ WITH EXPLANATION 1 OF THE INCOME ACT, 1961 ARE BEING INITIATED ON THIS ISSUE SEPARATELY. 16. BEFORE THE CIT(A) THE ASSESSEE POINTED OUT THAT THE CONTRIBUTION TO PENSION FUND WAS ALLOWED AS DEDUCTION UNDER SECTION 43B OF THE ACT IN EARLIER YEARS AND THE SAME COULD NOT BE WITHDRAWN MERELY ON THE GROUND THAT EXCESS CONTRIBUTION WAS MADE AND ALLOWED IN THE EARLIER PR EVIOUS YEAR. IT WAS EMPHASIZED BY THE ASSESSEE THAT IT WAS NOT A CASE W HERE LIABILITY HAD CEASED TO EXIST, BUT IT WAS MERELY A CASE WHERE EXCESS CONTRI BUTION WAS ALLOWED AS DEDUCTION IN EARLIER YEAR, HAD NOW BECOME AVAILABLE WITH THE ASSESSEE DUE TO CHANGE IN ACCOUNTING STANDARD AS-15. THE ASSESSEE RELIED ON THE PRINCIPLE OF CLAIMING OF DEDUCTION ON PAYMENT BASIS IRRESPECTIVE OF THE ACCOUNTING TREATMENT OF SUCH PAYMENT AS ADVANCE PAYMENT OR PRE-PAYMENT. THE CIT(A) OBSERVED THAT THE CONTRIBUTION MADE BY THE ASSESSEE TO THE S UPERANNUATION FUND WAS ALLOWED AS EXPENDITURE IN COMMERCIAL TERMS AS WELL AS UNDER THE INCOME-TAX ACT. THE ASSESSEE FOLLOWING THE AGGREGATE METHOD OF VALU ATION HAD DEBITED ITS ACCOUNT WITH CERTAIN SUM EVERY YEAR AS PAYMENT AND TO PROVISION FOR EMPLOYEES. HOWEVER, DURING THE ACCOUNTING PERIOD 2007-08, THER E WAS CHANGE IN AS-15 AND THE REVISED AS-15 STIPULATED THE CALCULATION OF EMP LOYEES LIABILITY TOWARDS PENSION ACCORDING TO THE PROJECT UNIT CREDIT METHOD . ACCORDINGLY, THERE WAS EXCESS CONTRIBUTION OF RS.4.63 CRORES TO THE SU PERANNUATION FUND IN EARLIER 10 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., YEARS. THE SAID AMOUNT WAS RECOGNISED AS AN ASSET. HOWEVER, SINCE THE AMOUNT WAS ALLOWED AS DEDUCTION IN EARLIER YEARS, T HE CIT(A) WAS OF THE VIEW THAT SUCH KIND OF CESSATION OF LIABILITIES WERE COV ERED UNDER THE PROVISIONS OF SECTION 41(1)(A) OF THE ACT. HE WAS OF THE VIEW TH AT THE WORD CESSATION IS TO BE UNDERSTOOD VIS-A-VIS THE SAID LIABILITY WHICH HAS C EASED BUT IT WAS ALLOWED AS A DEDUCTION IN THE PAST. HE UPHELD THE ORDER OF THE ASSESSING OFFICER IN BRINGING TO TAX THE SUM OF RS.3.69 CRORES WHICH WAS NET AMOUNT OF ASSET LYING IN RESERVE AFTER DISALLOWING RS.0.94 CRORES AND THE SAME WAS T O BE ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 17. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 18. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT THE TRUST WAS FLOATED AND TRUSTEES WERE NOMINATED FOR R ECOGNISING THE SUPERANNUATION FUND AS PER AS-15. HE FURTHER POINT ED OUT THAT WHATEVER WAS CONTRIBUTED BY THE ASSESSEE IN THE EARLIER YEARS CO ULD NOT BE TAKEN BACK BY IT. HE FURTHER POINTED OUT THAT AS PER THE ACTUARY CERT IFICATE THE CONTRIBUTIONS MADE BY THE ASSESSEE WERE MORE IN EARLIER YEARS THAN REQ UIRED AND THE EXCESS CONTRIBUTION WORKED OUT TO RS.4.63 CRORES. HE FURT HER POINTED THAT DURING THE YEAR UNDER CONSIDERATION THERE WAS A LIABILITY TO THE SU PERANNUATION FUND AT RS.94 LAKHS WHICH WAS NOT CLAIMED AS DEDUCTION SINCE A HI GHER DEDUCTION WAS CLAIMED IN THE EARLIER YEARS. REFERRING TO THE ORDER OF CI T(A), HE POINTED OUT THAT THE CIT(A) OBSERVED THAT THE SAME CEASED TO BE LIABILIT Y OF THE ASSESSEE AND HENCE THE SAME WAS TAXED UNDER SECTION 41(1) OF THE ACT. HE STRESSED THAT THE AMOUNT WHICH WAS LYING IN THE SUPERANNUATION FUND WAS THE PAYMENT IN ADVANCE TO THE PENSION FUND ACCOUNT WHICH COULD NOT BE WITHDRAWN B Y THE ASSESSEE. REFERRING TO THE PROVISIONS OF SECTION 43B OF THE ACT, HE POI NTED OUT THAT THE SAID SECTION ALLOWS DEDUCTION OF PAYMENT OF CERTAIN STATUTORY TA XES, DUES ETC. HOWEVER, 11 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., SECTION 41(1) OF THE ACT TALKS OF IT BEING INCOME W HERE THE LIABILITY HAS CEASED OR IT IS REMISSION OF LIABILITY. HE POINTED OUT THAT THERE IS NO SUCH REMISSION OF LIABILITY IN THE CASE OF THE ASSESSEE. FURTHER, IT IS NOT THE CASE OF CESSATION OF LIABILITY AS THE ASSESSEE WAS CONTRIBUTING TO THE S UPERANNUATION FUND AS PER THE RULES, WHICH WAS FOLLOWED IN THE LAST YEAR. HOWEVE R, THIS YEAR, THE LIABILITY WAS NOT CLAIMED AND TO THAT EXTENT THE ASSESSEE OFFERED THE INCOME. HE POINTED OUT THAT THE AO HAD ALSO INCLUDED ONLY THE BALANCE SUM OF RS.3.69 CRORES. THE RELIANCE OF THE CIT(A) ON SWAN MILLS LTD. VS. CIT ( 1995) 215 ITR 1 (BOM.) WAS HELD TO BE MISPLACED AS THE FACTS WERE DIFFERENT. HE POINTED OUT THAT IN THE SAID CASE THE ASSESSEE HAD NOT PAID LIABILITY AND HENCE NO QUESTION OF ANY ALLOWANCE UNDER THE ACT AND SO COURTS HELD THAT IT WAS CESSIO N OF LIABILITY. 19. IN THE FACTS OF THE PRESENT CASE, IT WAS POINTE D OUT BY THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE THAT THE SAID AMOUN T WAS TAKEN TO THE RESERVES. HE FURTHER PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CCIT VS. KESARIA TEA C OMPANY LTD. 254 ITR 434 (SC), JUDGMENT DATED 19-03-2002 WHEREIN THE PROPOSI TION WHICH HAS BEEN LAID DOWN IS THAT THERE IS NO CESSION OF LIABILITY WHERE THE ASSESSEE HAD WRITTEN OFF THE LIABILITY UNILATERALLY. THE LD. AUTHORISED REPRESEN TATIVE FOR THE ASSESSEE POINTED OUT THAT THE CASE OF THE ASSESSEE WAS NEITHER CESSA TION NOR REMISSION OF THE LIABILITY. 20. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE ON THE OTHER HAND PLACED STRONG RELIANCE ON THE ORDER OF CIT(A) WITH SPECIAL REFERENCE TO PARA 15 OF THE APPELLATE ORDER. 12 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., 21. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE SECOND ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE P ENSION FUND. THE ASSESSEE TILL 31-03-2007 WAS RECOGNISING THE LIABILITY TO THE EMP LOYEES PENSION FUND BY AGGREGATE METHOD OF VALUATION WHICH CONSIDERED FULL PENSION LESS CONTRIBUTIONS. HOWEVER, FROM THE ACCOUNTING YEAR 2007-08, IT BECAM E MANDATORY TO PROVIDE THE LIABILITY AS PER ACCOUNTING STANDARD AS-15 (REVISED ). THE BANKS ACTUARIES CALCULATED THE ACTUARIAL LIABILITY OF PENSION FOR T HE YEAR 2007-08 AS PER ACCOUNTING STANDARD AS-15 REVISED. THE POSITION AS ON 31-03-20 07 FOR PENSION LIABILITY AS PER REVISED AS-15 ACCOUNT PENSION FUND BALANCE, WAS AS UNDER : ACTUARIAL LIABILITY AS ON 31-03-2007 : RS.10.74 C RORE FUND BALANCE AS ON 31-03-2007 : RS.15.37 CRORE -------------------- EXCESS FUNDS WITH PENSION FUND : RS.04.63 CRORE -------------------- 22. AS PER THE PROJECT UNIT CREDIT METHOD, THE SERV ICES RENDERED TILL DATE TO BE CONSIDERED RESULTING IN THE AVERAGE PENSION ACCRUAL OF 18% ONLY, IN TURN RESULTING IN LOWER LIABILITY. ACCORDINGLY, THE SAME RESULTED IN EXCESS FUND OF RS.4.63 CRORES WITH THE PENSION FUND AS ON 01-04-2007. THE VALUER OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION ALSO WORKED OUT THE ACTUAR IAL LIABILITY/VALUATION FOR THE CURRENT YEAR 2007-08 WHICH READS AS UNDER : LIABILITY AS ON 31-03-2008 : 11.54 LESS-OPENING LIABILITY AS ON 31-03-2007 : 10.74 : 00.80 ADD-PAYMENT FROM PENSION FUND : TOWARDS ANNUITIES & COMMUTATION : 02.34 --------- 03.14 LESS-INCOME OF PENSION FUND 01.09 ------- TOTAL LIABILITY FOR 2007-08 : 02.05 LESS-ALREADY DEBITED TO P&L A/C AS MONTHLY CONTRIBUTION : 01.11 BALANCE TO BE DEBITED TO P&L A/C. : 00.94 13 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., 23. THE ASSESSEE AS PER THE SUGGESTION OF THE ACTUA RIES TRANSFERRED THE OPENING EXCESS FUND OF RS.4.63 CRORES PAID TO PENSI ON FUND TO RESERVES BY DEBITING PAYMENT IN ADVANCE TO PENSION FUND ACCOUN T. THE TOTAL LIABILITY FOR THE CURRENT YEAR WAS RS.2.05 CRORES; OUT OF WHICH R S.1.11 CRORES WAS ALREADY DEBITED TO THE PROFIT AND LOSS ACCOUNT AND PAID TO THE PENSION FUND. THE BALANCE UNPAID AMOUNT OF RS.0.94 CRORES WAS REQUIRE D TO BE DEBITED TO THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR. THE ASSES SEE DEBITED THE SAME TO THE PROFIT AND LOSS ACCOUNT AGAINST PAYMENT IN ADVANCE TO PENSION FUND ACCOUNT AND THE DEBIT BALANCE OF RS.3.69 CRORES WAS THERE I N THE SAID ACCOUNT. 24. THE ISSUE WHICH ARISES BEFORE US IS WHETHER THE SAID SUM OF RS.3.69 CRORES IS TO BE ASSESSED IN THE HANDS OF THE ASSESS EE BEING REMISSION OF LIABILITY. 25. THE ASSESSEE HAS ALSO FILED THE COPY OF THE TRU ST DEED ON RECORD WHICH WAS EXECUTED ON 22-04-1996 AS PER THE SAID TRUST DE ED, CLAUSE 9(B) WHICH IS PROVIDED AS UNDER : B. NO MONEY BELONGING TO THE FUND SHALL BE RECEIVA BLE BY THE EMPLOYER UNDER ANY CIRCUMSTANCES; NOR SHALL THE EMPLOYER HAV E ANY LIEN OR CHARGE ON THE FUND. 26. IN OTHER WORDS, ONCE THE AMOUNT IS CREDITED TO THE TRUST FUNDS, I.E. PENSION FUND OF THE EMPLOYEES, THEN IT IS CLEARLY P ROVIDED THAT THE SAME WOULD NOT UNDER ANY CIRCUMSTANCES BE RECEIVABLE BY THE AS SESSEE EMPLOYER NOR THE ASSESSEE WOULD HAVE LIEN/CHARGE ON THAT FUND. THE CLAUSE 7 THEREUNDER VERY CLEARLY PROVIDES THAT THE BENEFITS AVAILABLE TO A M EMBER/BENEFICIARY SHALL BE THOSE STIPULATED IN THE APPROVED REGULATIONS IN FOR CE FROM TIME TO TIME. THE PENSION AND OTHER BENEFITS GRANTED FROM THE FUND SH ALL BE PAYABLE ONLY IN INDIA AS PER CLAUSE 6 (B) OF THE SAID TRUST DEED. 14 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., 27. IN VIEW OF THE ABOVE SAID FACTS AND CIRCUMSTANC ES WHERE ANY AMOUNT WHICH HAD BEEN CONTRIBUTED BY THE ASSESSEE TO THE P ENSION FUND ON ACCOUNT OF METHOD OF VALUATION FOLLOWED REMAINS THE PROPERTY O F THE TRUST AND IN NO CIRCUMSTANCES CAN THE ASSESSEE HAVE ANY CHARGE OR L IEN OVER THE SAME. THE ASSESSEE WAS EARLIER FOLLOWING AGGREGATE METHOD OF VALUATION AND WAS TRANSFERRING THE FUNDS TO THE PENSION FUND. HOWEVE R, BECAUSE OF THE MANDATORY REQUIREMENT OF AS-15 (REVISED), THE ASSESSEE APPLIE D THE PROJECT UNIT CREDIT METHOD WHICH RESULTED IN EXCESS FUND OF RS.4.63 CRO RES WITH THE PENSION FUND AS ON 01-04-2007. SUCH CREATION OF EXCESS FUNDS WAS A S PER THE STATUTORY PROVISIONS WHICH BECAME APPLICABLE WITH EFFECT FROM THE ACCOUNTING YEAR 2007- 08. THE EXCESS FUNDS WERE TRANSFERRED TO THE ACCOU NT OF PAYMENT IN ADVANCE TO PENSION FUND ACCOUNT. IN OTHER WORDS, THE SAME WA S ADVANCE PAYMENT TO THE PENSION FUND BY THE ASSESSEE, MEANING THAT, TILL TH E SAME IS AVAILABLE TO THE ASSESSEE, THOUGH IT WOULD BE RECOGNISING ITS LIABIL ITY TO THE PENSION FUND FROM YEAR TO YEAR, BUT TILL THE PAYMENT AND ADVANCE IS U TILIZED, THE AMOUNT WHICH IS DUE FROM YEAR TO YEAR WOULD NOT BE PAID OR PROVIDED TO THE PENSION FUND BY THE ASSESSEE. IN OTHER WORDS, IT IS A CASE OF ADVANCE PAYMENT OF A FUND WHERE THE FUND HAS TO BE UTILIZED FOR THE BENEFIT OF THE EMPL OYEES AND NO PART OF IT COULD TRAVEL BACK TO THE ASSESSEE, EVEN THOUGH IT WAS NOT LIABLE TO DEPOSIT THE SAME AT THE RELEVANT POINT OF TIME BECAUSE OF THE REVISED A S-15. THE RECOGNITION OF THE SAID AMOUNT IN THE RESERVES ACCOUNT DOES NOT MEAN T HAT THERE IS ANY REMISSION OF LIABILITY BY THE ASSESSEE. THERE IS NO CESSATIO N OF LIABILITY ALSO SINCE THE ASSESSEE IS RECOGNISING THE LIABILITY EVEN FOR THE YEAR UNDER CONSIDERATION WHEREIN IT WORKED OUT ITS LIABILITY FOR THE YEAR AT RS.2.05 CRORES. THE ASSESSEE HAD ALSO DEPOSITED RS.1.11 CRORES WITH THE PENSION FUND AND THE BALANCE SUM OF RS.94 LAKHS WAS DEBITED TO THE PROFIT AND LOSS A CCOUNT. HOWEVER, ASSESSEE ADDED BACK THE SAME AMOUNT IN ITS COMPUTATION OF IN COME AS NO PAYMENT WAS 15 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., MADE ON ACCOUNT OF THE SAID LIABILITY BUT ADJUSTMEN T WAS MADE AGAINST PAYMENT IN ADVANCE TO PENSION FUND. AS AGAINST THE OPENING OF RS.4.63 CRORES THE DEBIT BALANCE AT THE CLOSE OF THE YEAR IN THE SAID ACCOUN T WORKED OUT TO RS.3.69 CRORES. THE ASSESSEE HAD NOT CLAIMED THIS YEARS LIABILITY TO THAT EXTENT AND OFFERED IT TO TAX. IN THE ABSENCE OF ANY CESSATION OR REMISSION OF THE SAID LIABILITY, THERE IS NO MERIT IN THE ORDERS OF THE AUTHORITIES BELOW IN BRI NGING THE SAME TO TAX. 28. FURTHER, THE PROVISIONS OF SECTION 41(1) OF THE ACT ARE NOT ATTRACTED. IN THIS REGARD, THE PROPOSITION LAID DOWN BY THE HONBLE SU PREME COURT IN THE CASE OF CCIT VS. KESARIA TEA CO. LTD. JUDGMENT DATED 19-03- 2002 (THREE JUDGES BENCH) IS SQUARELY APPLICABLE. IN THE FACTS OF THE CASE BEFORE THE HONBLE APEX COURT, THE ASSESSEE ON ITS OWN MOTION HAD WRITTEN BACK THE PROVISION MADE TOWARDS PURCHASE TAX LIABILITY IN THE EARLIER YEARS , IN ITS ACCOUNTS SINCE SALES-TAX DEPARTMENT WAS PURSUING THE CLAIM. THE ISSUE WHICH AROSE WAS WHETHER THIS UNILATERAL ACT ON THE PART OF THE ASSESSEE BY WAY O F WRITING OFF THE LIABILITY IN ITS ACCOUNT WOULD MEAN THAT THE LIABILITY HAD CEASED IN THE EYE OF LAW. THE HONBLE APEX COURT HELD THAT WHAT THE ASSESSEE HAS DONE IS NOT CONCLUSIVE AND THIS UNIVERSAL ACT OF WRITING OFF THE LIABILITY DOES NOT NECESSARILY MEAN THAT THE LIABILITY HAD CEASED IN THE EYE OF LAW AND HENCE THE PROVISIO NS OF SECTION 41(1) OF THE ACT CANNOT BE INVOKED IN THE INSTANT CASE. IT WAS CLAR IFIED BY THE APEX COURT THAT THE CONTROVERSY RELATED TO THE PERIOD ANTERIOR TO THE I NTRODUCTION OF EXPLANATION 1 TO SECTION 41(1) OF THE ACT. 29. BEFORE PARTING, WE MAY ALSO REFER TO THE DECISI ON RELIED UPON BY THE CIT(A) ON SWAN MILLS LTD. VS. CIT (SUPRA). IN THE FACTS O F THE CASE BEFORE THE HONBLE HIGH COURT, THE ASSESSEE WAS EARLIER MAINTAINING IT S ACCOUNT ON MERCANTILE SYSTEM AND HAD CLAIMED DEDUCTION ON CERTAIN AMOUNT ON ACCOUNT OF PROVISION FOR GRATUITY. THE ASSESSEE SWITCHED OVER TO CASH SYSTE M OF ACCOUNTING AND WROTE 16 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., BACK THE AMOUNT OF PROVISION FOR GRATUITY ALLOWED A S DEDUCTION IN THE EARLIER YEAR AND CREDITED THE SAME TO THE PROFIT AND LOSS ACCOUN T APPROPRIATION ACCOUNT. THE ISSUE WAS WHETHER THE SAME RESULTED IN CESSATION OF LIABILITY WITHIN THE MEANING OF SECTION 41(1) OF THE ACT. THE HONBLE BOMBAY HI GH COURT HELD THAT AFTER THE ASSESSEE SWITCHED OVER TO CASH SYSTEM OF ACCOUNTING AND WROTE BACK THE AMOUNT APPEARING IN ITS ACCOUNT AS PROVISION FOR GR ATUITY, THUS NO CONTINGENT LIABILITY REMAINED FOR GRATUITY IN THE ACCOUNTS OF THE ASSESSEE. THE AMOUNT WAS ALSO APPROPRIATED BY THE ASSESSEE TREATING AS ITS P ROFIT IN THE YEAR BY CREDITING IT TO THE PROFIT AND LOSS APPROPRIATION ACCOUNT. CONS EQUENTLY, NO LIABILITY EVEN CONTINGENCY REMAINED IN THE ACCOUNTS OF THE ASSESSE E ON ACCOUNT OF GRATUITY AND THE FACT OF WRITING OFF OF THE PROVISION RESULT ED IN CESSATION OF TRADING LIABILITY OF THE ASSESSEE. THEREFORE, SECTION 41(1) OF THE A CT WAS CLEARLY ATTRACTED. 30. HOWEVER, AS POINTED OUT IN THE PARAS HEREIN ABO VE, THE FACTS OF THE CASE ARE AT VARIANCE TO THE FACTS BEFORE THE HONBLE SUP REME COURT. THE ASSESSEE HAD NOT WRITTEN BACK THE AMOUNT DEBITED IN THE PENS ION FUND AND HAD NOT TREATED THE SAME AS PROFIT FOR THE YEAR. ON THE OTHER HAND , THE ASSESSEE CLAIMS IT TO BE AN ADVANCE PAYMENT TO THE PENSION FUND AND STILL RE COGNISED ITS LIABILITY TO THE SAME. THE ASSESSEE DURING THE YEAR UNDER CONSIDERA TION RECOGNISED THE LIABILITY TO THE PENSION FUND FOR THE ACCOUNTING PERIOD AND T HE AMOUNT WHICH WAS DUE TO BE PAID WAS THOUGH DEBITED TO THE PROFIT AND LOSS A CCOUNT BUT SINCE THE ASSESSEE HAD MADE ADVANCE PAYMENT TO THE PENSION FUND ON ACC OUNT OF ACCOUNTING PRINCIPLE RECOGNISED BY IT IN EARLIER YEARS, THE AM OUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT WAS REVERSED IN THE COMPUTATION OF INC OME AND WAS OFFERED TO TAX. IT IS REITERATED THAT IN THE FACTS OF THE CASE THE ASSESSEE IS LIABLE TO MAKE CONTRIBUTIONS TO THE PENSION FUND ON ACCOUNT OF ITS EMPLOYEES AND SINCE IT HAD ALREADY ACCOUNTED FOR EXCESS AMOUNT IN THE EARLIER YEARS WHICH IS NOW RECOGNISED AS AN ADVANCE PAYMENT DOES NOT MEAN THAT THERE IS 17 ITA NO.891/PUN/2012 THE RATNAKAR BANK LTD., REMISSION/CESSION OF LIABILITY OF THE ASSESSEE. WE FIND NO MERIT IN THE ORDER OF THE CIT(A) IN THIS REGARD AND THE SAME IS THUS REVERSED . THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.3.69 CRORES. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 31. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 21 ST DAY OF DECEMBER, 2017. SD/- SD/- (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 21 ST DECEMBER, 2017 . S S A A T T I I S S H H / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) , KOLHAPUR ; 4. THE C IT , KOLHAPUR 5. , , / DR B, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE