Appeal Details
Counselvise Citation
[2013] 120 COUNSELVISE.COM (IT) 0895 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 7 month(s) 23 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
31-01-2013
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
A
Assessment Year
2002-2003
Appeal Filed On
07-06-2010
Judgement Text
IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO. 900/MDS/2010 ASSESSMENT YEAR: 2002-03 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I, TIRUCHIRAPALLI 620 001. VS. THE KARUR VYSYA BANK LTD., ERODE ROAD, KARUR 639 002. [PAN:AAACT3373J] (APPELLANT) (RESPONDENT) I.T.A. NOS. 905 & 906/MDS/2010 ASSESSMENT YEAR: 2002-03 THE KARUR VYSYA BANK LTD., ERODE ROAD, KARUR 639 002. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I, TIRUCHIRAPALLI 620 001. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADDL.CIT RESPONDENT BY : SHRI N. QUADIR HOSEYN DATE OF HEARING : 04 . 01 .201 3 DATE OF PRONOUNCEMENT : 30.01.2013 ORDER PER BENCH THESE THREE APPEALS I.E. I.T.A. NO. 900/MDS/2010 F ILED BY THE REVENUE AND I.T.A. NOS. 905 AND 906/MDS/2010 FILED AT THE BEHES T OF THE ASSESSEE, ARISE FROM A COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (A PPEALS), TIRUCHIRAPPALLI DATED 23.03.2010 IN ITA NO. 310/07-08 & 254/04-05 F OR THE ASSESSMENT YEAR 2002-03 IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 2 1961 [IN SHORT THE ACT]. THE APPEALS PERTAIN TO S AME ASSESSMENT YEAR. SO THEY ARE BEING ADJUDICATED UPON TOGETHER. WE CLARIFY THA T THE ASSESSING OFFICER HAD PASSED ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT ON 18.08.2004 MAKING SOME ADDITIONS. THE ASSESSEE CHALLENGED THOS E ADDITIONS BEFORE THE CIT(A) IN ITA NO. 254/04-05. SIMILARLY, THE ASSESSI NG OFFICER PASSED ANOTHER ORDER UNDER SECTION 143(3) R.W.S. 147 ON 31.12.2007 . THE ASSESSEE PREFERRED ANOTHER APPEAL NO. ITA NO. 310/07-08 BY CHALLENGING THE ADDITIONS MADE THEREIN. SINCE, THE CIT(A) VIDE COMMON ORDER HAS DECIDED BOT H THE ABOVE APPEALS AND DELETED SOME OF THE ADDITIONS MADE BY THE ASSESSING OFFICER; THEREFORE, ON THE ONE HAND, THE REVENUE HAS FILED [I.T.A. NO. 900/MDS /2010] CHALLENGING THE COMMON ORDER PASSED BY THE CIT(A); ON THE OTHER, TH E ASSESSEE HAS PREFERRED TO FILE TWO APPEALS [I.T.A. NOS. 906 & 905/MDS/2010] A GAINST THE ORDER PASSED BY THE CIT(A) IN ITA NOS. 254/04-05 AND 310/07-08 RESP ECTIVELY. 2. BRIEF FACTS COMMON TO ALL CASES ARE THAT THE AS SESSEE; WHO IS BANKING COMPANY, HAD FILED ITS RETURN ON 29.12.2002 FOR T HE ASSESSMENT YEAR 2002-03 AND DECLARED INCOME OF ` .107,99,72,662/-, WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER, THE ASSESSING OFFI CER COMPLETED SCRUTINY ASSESSMENT ON 18.08.2004 COMPUTING TOTAL INCOME OF ` .135,25,30,353/-. IN THE SAID ASSESSMENT ORDER, HE HAD MADE FOLLOWING ADDITI ONS: S.NO. ISSUES AMOUNT 1. BAD DEBTS DISALLOWANCE RS. 18,75,59,964 2. DEPRECIATION ON LEASED ASSETS RS. 37,39,878 3. SOFTWARE EXPENSES RS. 32,85,681 I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 3 4. SUBSCRIPTION TO SEBI RS. 2,50,000 5. CASH IN EXCESS RS. 57,040 6. SURPLUS FROM JEWEL AUCTION RS. 43,223 7. FILLING FEES RS. 15,00,000 8. APPRECIATION IN THE MARKET VALUE OF SECURITIES. RS. 9,06,33,758 AS STATED HEREINABOVE, THE ASSESSEE PREFERRED APPE AL NO. 254/04-05 BEFORE THE CIT(A). 3. AS THE PAPER BOOK REVEALS; ON 19.01.2006, THE A SSESSING OFFICER FORMED AN OPINION THAT THE ASSESSEE HAD INCLUDED VALUE OF AN AMOUNT OF ` .3,53,36,010/- OF A BUILDING IN MUMBAI IN COMPUTING DEPRECIATION A ND IT HAD NOT OFFERED ANY INTEREST ACCRUED ON SECURITIES FOR TAXATION. THEREF ORE, THE ASSESSING OFFICER ISSUED REOPENING NOTICE UNDER SECTION 148 OF THE A CT. IN RESPONSE TO REOPENING NOTICE, THE ASSESSEE CHOSE TO FILE ANOTHER RETURN . THIS TIME, IT DISCLOSED INCOME OF ` .116,88,68,080/-. THE ASSESSING OFFICER, THEREAFTER COMPLETED REASSESSMENT VIDE ORDER DATED 29.12.2006 MAKING FOLLOWING ADDITI ONS:- (A) EXCESS DEPRECIATION ALLEGED TO HAVE BEEN CLAIME D BY THE ASSESSEE OF ` .35,33,598/-. (B) INTEREST ACCRUED ON SECURITIES AND NOT OFFERED BY THE ASSESSEE AS INCOME OF ` .3,92,56,342/-. IN THIS MANNER, THE ASSESSEES TOTAL INCOME STOOD COMPUTED TO ` .139,31,80,796/-. 4. SUBSEQUENTLY, THE ASSESSING OFFICER ONCE AGAIN FORMED AN OPINION BASED ON REASONS TO BELIEVE THAT THE ASSESSEE HAD MADE CE RTAIN INCORRECT CLAIMS IN THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 4 RETURN, WHICH READ AS FOLLOWS: 1. THE ASSESSEE HAS NOT DISALLOWED OR ALLOCATED A NY EXPENDITURE FOR EARNING TAX FREE INCOME SUCH AS DIVIDEND & MUTUAL F UND, (RS.35,46,50,048) INTEREST FREE BOND U/S 10(15) (RS 10,49,20,412) AND INFRASTRUCTURE BOND U/S 10 (23 G) (RS.1,60,00,000). 2. THE ASSESSEE HAS PAID THE PENSION (RS.1,84,09,8 24) DIRECTLY TO THE EMPLOYEES AND SAME HAS BEEN CLAIMED AS A DEDUCTION. 3. EXGRATIA PAYMENT (RS.2,59,89,589) WHICH IS CLAI MED AS DEDUCTION IS TO BE DISALLOWED AS IT HAS NOT BEEN INCURRED OUT OF ANY BUSINESS NECESSITY. 4. PROVISION FOR FRAUD (RS.78,31,000) HAS NOT BEEN ADDED BACK AS IT A REPRESENTS PROVISION ONLY. 5. IT APPEARS THAT ENCASHMENT OF PRIVILEGE LEAVE ( RS.83,74,662) IS TO BE ALLOWED ON ACTUAL PAYMENT BASIS, NO DETAILS HAVE BE EN FURNISHED HENCE REQUIRED TO BE DISALLOWED . 6. AMORTIZATION OF THE INVESTMENT (RS.5,93,233) CL AIMED IN THE P & L ACCOUNT RELATING TO SECURITIES OF HTM CATEGORY IS T O BE DISALLOWED AS THE INVESTMENTS ARE CAPITAL IN NATURE. AND ALSO THE BRO KERAGE PAYMENT (RS.27,43,150) IS TO BE DISALLOWED AS THE SAME IS C APITAL IN NATURE 7. THE CLAIM OF THE SOFT WARE EXPENSES OF RS.76,18 ,996 IS CAPITAL NATURE AND ASSESSEE HAS DEBITED TO PROFIT AND LOSS ACCOUNT . 8. THE ASSESSEE HAS CLAIMED BROKERAGE OF RS. 27,43 ,150 PAID WHILE PURCHASING SECURITIES NEED TO-BE CAPITALIZED. 9. UNCLAIMED BALANCE OF RS.1,01,45,432 PERTAINING TO THIS YEAR IS TO BE THIS YEAR HAS NOT BROUGHT TO TAX. ACCORDINGLY, ANOTHER REOPENING NOTICE STOOD ISSUED TO THE ASSESSEE ON 30.03.2007. PER ASSESSMENT ORDER DATED 31.12.2007, THE ASSESSEE SOUGHT REASONS FOR REOPENING FROM THE ASSESSING OFFICER. I T IS REVEALED FROM THE SHORT PAPER BOOK FILED BY THE ASSESSEE THAT ON 11.04.2007 , THE ASSESSEES DEPUTY GENERAL MANAGER MADE A REQUEST TO THE ASSESSING OFF ICER TO SUPPLY THE REASONS I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 5 OF REOPENING. IN THE SAID CORRESPONDENCE, THE ASSES SEE INTIMATED THE ASSESSING OFFICER THAT THE PURPOSE OF SEEKING REASONS IN SUPP ORT OF REOPENING WAS TO ENABLE IT TO RAISE OBJECTIONS. THE LETTER DATED 11. 04.2007, WHICH IS AVAILABLE ON RECORD READS AS FOLLOWS: REF: AFMD/23/2007-08 DATED 11/04/2007. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, RANGE I, 4, WILLIAMS ROAD, TIRUCHIRAPALLI - 620 001. SIR, REF: NOTICE U/S 148 DATED 30/03/2007 ASSESSMENT YEAR 2002-03 KINDLY REFER THE CAPTIONED NOTICE THAT WAS RECEIVED BY US ON 30103/2007 REQUIRING US TO FILE A RETURN OF INCOME FOR ASST. Y EAR 2002-03. WE HAD ALREADY FILED A RETURN OF INCOME IN ACCORDAN CE WITH THE PROVISIONS OF SECTION 139( 1) ON 29/10/2002. SUBSEQUENTLY THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE U/S 148 DATED 19/01/2006 REQUIRING THE BANK TO FILE A RETURN OF I NCOME. A RETURN OF INCOME WAS FILED ON 22-09-2006 PURSUANT TO THE SAID NOTICE INCORPORATING THE FOLLOWING TWO CHANGES- 1) DEPRECIATION ON BUILDING 2) DEPRECIATION ON INVESTMENTS. WE ENCLOSE A COPY OF THE ACKNOWLEDGEMENT FOR FILING THE RETURNS FOR YOUR READY REFERENCE. THE ASSESSMENT U/S 143(3) R.W.S 147 WAS COMPLETED O N 29/12/2006 AGAINST WHICH AN APPEAL HAS BEEN PREFERRED BY THE BANK BEFO RE COMMISSIONER OF INCOME TAX (APPEALS), TIRUCHIRAPALLI. THE APPEAL WA S FILED ON 01/02/2007 AND IS YET TO BE DISPOSED OFF. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 6 UNDER THESE CIRCUMSTANCES, THE ASSESSMENT HAS BEEN REOPENED BY YOUR GOODSELF BY ISSUING A NOTICE U/S 148 DATED 30103/20 07 REQUIRING US TO FURNISH A RETURN OF INCOME. WE REQUEST YOU TO KINDLY ISSUE US A COPY OF THE REA SONS RECORDED, IF ANY, FOR ISSUANCE OF NOTICE U/S 148 TO ENABLE US TO RAISE OU R OBJECTIONS. YOURS FAITHFULLY, SD/- (A.S. VASUDEVAN) DEPUTY GENERAL MANAGER IN PURSUANCE TO THE SAID LETTER, ON 30.07.2009 THE ASSESSING OFFICER SUPPLIED THE ASSESSEE COPY OF THE REASONS WHICH ARE REPRODUCED HEREUNDER: SUB: IT ASSESSMENT. ASSESSMENT YEAR 2002-03 REASONS FOR REOPENING THE ASSESSMENT.- FURNISHED - REGARDING. REF: YOUR LETTER DT. 11-4-2007. PLEASE REFER TO THE LETTER CITED IN THAT LETTER THE ASSESSEE HAS REQUESTED THE REASONS FOR REOPENING THE ASSESSMENT. THE SAME IS F URNISHED AS UNDER. 1. THE EXPENDITURE, INCURRED WHILE EARNING THE EXEM PTED INCOME SUCH AS DIVIDEND & MUTUAL FUND (RS.35,46,50,048) INTEREST F REE BOND U/S 10(15) (RS 10,49,20,412) AND INFRASTRUCTURE BOND U/S 10 (23 G) (RS.1,60,00,000) IS TO BE DISALLOWED. 2. PAYMENT OF PENSION (RS.1,84,09,824) DIRECTLY WH ICH WAS CLAIMED AS DEDUCTION IS TO BE DISALLOWED. 3 EXGRATIA PAYMENT (RS.2,59,89,589) WHICH IS CLAIM ED AS DEDUCTION IS TO BE DISALLOWED AS IT HAS NOT BEEN INCURRED OUT OF ANY BUSINESS NECESSITY. 4. PROVISION FOR FRAUD (RS.78,31,000) IS TO BE ADD ED, AS THIS REPRESENTS PROVISION ONLY. 5. ENCASHMENT OF PRIVILEGE LEAVE (RS.83,74,662) IS TO BE ALLOWED ON ACTUAL PAYMENT BASIS, NO DETAILS HAVE BEEN FURNISHE D HENCE REQUIRED TO BE DISALLOWED. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 7 6. AMORTISATION - INVESTMENT (RS.5,93,233) CLAIMED IN THE P & L ACCOUNT RELATING TO SECURITIES OF HTM CATEGORY IS TO BE DIS ALLOWED AS THE INVESTMENTS ARE CAPITAL IN NATURE. 7. CLAIM OF SOFT WARE EXPENSES (RS.76,18,996) IS T O BE DISALLOWED AS THE SAME IS OF CAPITAL IN NATURE. 8. CLAIM OF BROKERAGE PAYMENT (RS.27,43,150) IS TO BE DISALLOWED AS THE SAME IS CAPITAL IN NATURE. 9. UNCLAIMED BALANCE (RS.1 ,01,45,432) PERTAINING TO THIS YEAR IS TO BE BROUGHT TO TAX. SD/- (B.YADAGIRI) ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I, TRICHY . THEREAFTER, THE ASSESSING OFFICER ISSUED NOTICE TO THE ASSESSEE UNDER SECTION 143(2) OF THE ACT AND COMPLETED REASSESSMENT VIDE ORDER DATED 31.12.2007 COMPUTING THE ASSESSEES INCOME AS ` .143,52,00,695/- IN VIEW OF THE FOLLOWING ADDITIONS: S.NO. ISSUES AMOUNT 1. EXPENSES OF EARNING TAX FREE INCOME RS. 95,11,409 2. PENSION PAYMENT RS. 1,84,09,824 3. AMORTIZATION EXPENSES RS. 5,93,233 4. BROKERAGE RS. 27,43,150 5 .. SOFTWARE EXPENSES RS. 24,28,566 6. POOJA EXPENSES. RS. 3,99,858 7. UNCLAIMED BALANCE RS. 1,01,45,432 AS IT STANDS HEREINABOVE CLARIFIED, THE ASSESSEE FI LED APPEAL NO. 310/07-08 BEFORE THE CIT(A). WE NOTICE THAT VIDE THE IMPUGNED ORDER, THE CIT(A) HAS PARTLY ACCEPTED BOTH APPEALS. IN OTHER WORDS, IN ITA NO. 2 54/04-05, THE ASSESSEES CONTENTION CHALLENGING ADDITION OF BAD DEBTS, SEBI SUBSCRIPTION FEE, CASH EXCESS, I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 8 SURPLUS FROM JEWELLERY AUCTION, ETC. STAND ACCEPTED AND ITS PLEA OF DEPRECIATION ON LEASED ASSETS HAD BEEN PARTLY ALLOWED. IN ADDITI ON TO THIS, THE CIT(A) HAS CONFIRMED THE ADDITION OF SOFTWARE EXPENSES, FILING FEES ETC. SIMILARLY IN ITA NO. 310/07-08, THE CIT(A) HAS CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER REGARDING ADDITION PERTAINING TO DISALLOWANCE OF EX PENDITURE IN EARNING TAX FREE INCOME I.E. EXEMPT INCOME @ 2%, PENSION PAYMENT MAD E DIRECTLY BY THE ASSESSEE TO ITS PENSIONERS, SOFTWARE EXPENSES AND P OOJA EXPENDITURE. FURTHER, IN THE ABOVE SAID APPEAL, THE CIT(A) HAS ALSO GRANTED RELIEF TO THE ASSESSEE QUA INTEREST ON SECURITIES , UNCLAIMED BALANCES, DEPREC IATION ON LEASED ASSETS [IN PART], CASH EXCESS, SURPLUS FROM JEWELLERY AUCTION. IN THIS BACKDROP OF FACTS, BOTH PARTIES ARE AGGRIEV ED AND IN APPEAL BEFORE US. 5. IN I.T.A. NO. 900/MDS/2010, THE REVENUES GRIEV ANCES READ AS FOLLOWS: 1. THE ORDER OF THE C.I.T.(APPEALS) IS CONTRARY TO LAW, FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE C.I.T.(APPEALS) FAILED TO APPRECIATE THAT R BI IS A REGULATOR OF BANKS AND CAN (NAY, IS REQUIRED TO) GIVE DIRECTIONS TO TH E BANKS WITH REGARD TO SLR REQUIREMENTS, CASH RESERVE RATIO AND THE MANNER IN WHICH THE ACCOUNTS ARE TO BE KEPT BY THE BANKS. PURSUANT TO THE POWERS GIVEN BY THE BANKING REGULATIONS ACT, THE RBI HAD ASKED THE BANKS TO MAINTAIN THE PORTFOL IO OF THE SECURITIES IN THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), AVAILABLE F OR SALE (AFS) AND HELD FOR TRADING (HFT). IT IMPLIES THAT INVESTMENT IN HTM CA TEGORY OF SECURITIES IS TO BE TREATED AS 'INVESTMENT' OF CAPITAL NATURE. WITH A V IEW TO MEET THE LEGAL REQUIREMENT OF SLR AS PER BANKING REGULATIONS ACT, THE RBI HAS DIRECTED THE BANKS THAT THE SECURITIES HELD AS HTM CATEGORY ARE INTENDED TO BE HELD AS INVESTMENT AND SHOWN IN THE BOOKS OF ACCOUNTS AT COST; WHILE THE SECURIT IES OF HFT & AFS CATEGORIES ARE TREATED AS STOCK-IN-TRADE. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 9 2.1 THE C.I.T.(APPEALS) ERRED IN DELETING THE DISA LLOWANCE OF BROKERAGE WITHOUT APPRECIATING THAT SECURITIES IN THE HTM CATEGORY WO ULD BE INVESTMENT OF CAPITAL NATURE. THE C.I.T.(APPEALS) OUGHT TO HAVE RESTRICTE D THE RELIEF FOR THE BROKERAGE PAID IN RESPECT OF AFS & HFT CATEGORY OF SECURITIES . 3. THE C.I.T.(APPEALS) ERRED IN DELETING THE DISALL OWANCE OF BAD DEBTS TO THE EXTENT OF RS.18,75,59,964/-. 3.1 THE C.I.T.(APPEALS) FAILED TO NOTE THAT UNDER PROVISO TO CLAUSE (VII) OF SUB- SECTION (1) OF SECTION 36, ONLY BAD DEBTS WRITTEN O FF WHICH ARE OVER AND ABOVE THE CREDIT BALANCE AVAILABLE IN THE PROVISION FOR BAD A ND DOUBTFUL DEBTS ACCOUNT WOULD BE ELIGIBLE FOR DEDUCTION. THE C.I.T.(APPEALS) OUGH T TO HAVE CON FINNED THE ADDITION MADE BY THE A.O. 4. THE C.I.T.(APPEALS) ERRED IN DELETING THE ADDIT ION WITH REGARD TO UNCLAIMED BALANCES. THE C.I.T.(APPEALS) FAILED TO FOLLOW THE RATIO OF DECISION OF APEX COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS. 222 ITR 3 44 (SC). THE BALANCES LYING UNCLAIMED WITH THE BANK FOR MORE THAN 3 YEARS OUGHT TO HAVE BEEN CONFIRMED BY THE C.I.T.(APPEALS) AS THESE ARE TO BE TREATED AS INCOM E IN THE LIGHT OF THE ABOVE REFERRED DECISION. 5. THE C.I.T.(APPEALS) ERRED IN ALLOWING THE DEPRE CIATION ON LEASED OUT ASSETS. 5.1 THE C.I.T.(APPEALS) FAILED TO OBSERVE THAT THE ASSESSEE HAD FAILED TO PRODUCE ANY EVIDENCE TO PROVE THAT ASSETS ALLEGED TO HAVE B EEN LEASED TO ERODE RANE TEXTILE PROCESSORS I & II AND SRI SARVESH COTTON 1\1 ILLS L TD. I, II & III EVER EXISTED. 5.2 THE C.I.T.(APPEALS) OUGHT TO HAVE APPRECIATED THE FACT THAT IF THERE IS NO ASSET IN EXISTENCE, THEN WHERE IS THE QUESTION OF U SER OF THE ASSET AND CONSEQUENTLY ALLOWING THE DEPRECIATION ON THE SAME ASSET. THE C. I.T.(APPEALS) OUGHT TO HAVE CONFIRMED THE ORDER OF THE A.O. TO THE EXTENT OF AL LOWING DEPRECIATION ON ASSET ALLEGEDLY LEASED TO ERODE RANE TEXTILE PROCESSORS I & II AND SRI SARVESH COTTON MILLS LTD. I, II & III. 6. THE C.I.T.(APPEALS) ERRED IN DELETING THE ADDIT ION OF CASH EXCESS OF RS.57,040/-. 6.1 THE C.I.T.(APPEALS) FAILED TO OBSERVE THAT ONL Y THE INCREMENTAL VALUE WAS ADDED IN THE ASSESSMENT ORDER. 7. THE C.I.T.(APPEALS) ERRED IN DELETING THE ADDIT ION OF SURPLUS AMOUNT OF RS.43,233/- RECEIVED FROM JEWELLERY AUCTION. 7.1 THE C.I.T.(APPEALS) FAILED TO FOLLOW THE RATIO OF DECISION OF APEX COURT IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS. 222 ITR 3 44 (SC). THE SURPLUS ARISING FROM SALE OF JEWELS AND LYING UNCLAIMED WITH THE BA NK FOR MORE THAN 3 YEARS OUGHT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 10 TO HAVE BEEN CONFIRMED BY THE C.I.T.(APPEALS) AS SU CH SURPLUS OUGHT TO BE TREATED AS INCOME IN THE LIGHT OF THE ABOVE REFERRED DECISI ON. 8. FOR THESE AND OTHER REASONS THAT MAY BE ADDUCED AT THE TIME OF HEARING, THE ORDER OF THE C.I.T.(APPEALS) MAY BE CANCELLED AND T HAT OF THE ASSESSING OFFICER BE RESTORED. WHEREAS, IN I.T.A. NO. 905/MDS/2010, THE ASSESSEES GROUNDS READ AS FOLLOWS: I (I) THE LEARNED COMMISSIONER OF INCOME TAX OF A PPEAL TRICHY FAILED TO SEE THAT THE APPELLANT DID NOT INCUR ANY EXPENDITURE IN EARN ING THE TAX FREE INCOME. THE ESTIMATED DISALLOWANCE @ 2% OF THE TAX FREE INCOME IS NOT CORRECT AS PER THE DECISION OF MANY APPELLATE AUTHORITIES. (II) THE LEARNED COMMISSIONER OF INCOME TAX OF APP EAL TRICHY FAILED TO SEE THAT THE ASSESSING OFFICER HAD NOT PROVED ANY EXPENDITUR E DIRECTLY RELATED TO THE TAX FREE INCOME IN THE CASE OF THE APPELLANT. II (I) PENSION PAYMENTS TO BANK EMPLOYEES WAS ONE OF THE ISSUE IN BI PARTITE SETTLEMENT. PENSION PAYMENT STARTS AFTER EMPLOYEES RETIRED FROM ACTIVE SERVICE. THE PENSION FUND WAS REGISTERED AT THE OFFICE OF CHIEF COMMISSIONER OF INCOME TAX, CHENNAI. AGREEMENT SIGNED BY ALL THE PARTIES (IE) B ANK, EMPLOYEES & IBA IN JANUARY 1998. CBDT WAS REQUESTED TO GRANT EXEMPTION FROM RULE 89. THE EXEMPTION WAS GIVEN TO NATIONALIZED BANKS IN 1996. THE APPLICATION FILED BY THE PRIVATE SECTOR BANKS WERE KEPT PENDING BY CBDT UP T O AUGUST 2003. IN AUGUST 2003 THE CBDT REFUSED TO GIVE EXEMPTION TO RULE 89. THE APPELLANT BANK PURCHASED ANNUITY FROM OCTOBER 2003. (II) SINCE EXEMPTION APPLICATION WAS PENDING UP TO AUGUST 2003, THE BANK STARTED PAYING PENSION DIRECTLY TO PENSIONERS. (III) PENSION SCHEME IS APPLICABLE TO ALL EMPLOYEE S SERVING AS ON THAT DATE AND THOSE WHO RETIRED ON OR AFTER 01-01-1986. AS PER TH E SETTLEMENT WITH IBA, PENSION IS TO BE PAID TO RETIRED EMPLOYEES FROM 01-11-1993. IB A THROUGH ITS LETTER DATED 02- 01-1998 INFORMED GOVERNMENT'S DECISION TO DELETE ST RIKE CLAUSE IN THE AGREEMENT. AFTER THIS DATE ONLY PENSION AGREEMENT TOOK EFFECTI VE FORM AND ACCEPTABLE TO ALL BANK EMPLOYEES. WHEN THE GOVERNMENT OF INDIA DECIDED IN PRINCIPLE T O GIVE EMPLOYEES OF BANKS AN OPTION TO PREFER PENSION PAYMENT, IBA REQU ESTED THE MEMBER BANKS TO FORM A FUND AND GET IT REGISTERED WITH THE CHIEF CO MMISSIONER OF INCOME TAX. ACCORDINGLY IN 1995 THE RULES AND REGULATIONS OF TH E FUND WERE PREPARED AND THE CCIT GAVE HIS APPROVAL TO THE FUND. THE APPELLANT HAS GOT A SELF MANAGED PROVIDENT FUND . SO THE IBA ON BEHALF OF THE MEMBERS FILED AN APPLICATION TO GRANT EXEMPT ION FROM RULE 89 (I.E.,) THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 11 INDIVIDUAL BANKS CAN MAINTAIN THE FUND & PAY PENSIO N TO EMPLOYEES WITHOUT INVESTING IN LIC AS PER RULE 89. THE CBDT GAVE EXEMPTION TO RILLE 89 IN 1996 TO THE NATIONALIZED BANKS ONLY. SO PRIVATE SECTOR BANKS THROUGH ITS ASSOCIATI ON ONCE AGAIN REQUESTED CBDT TO GIVE EXEMPTION TO RULE 89 TO PRIVATE SECTOR BANK S ALSO. THIS PETITION BY PRIVATE SECTOR BANKS ASSOCIATION WAS NOT REJECTED IMMEDIATE LY BY THE CBDT. CBDT ONLY ON 13TH AUGUST 2003 REFUSED EXEMPTION FROM RULE 89 TO THE PRIVATE SECTOR BANKS AND IT WAS COMMUNICATED BY THE BANK'S ASSOCIATION T HROUGH ITS LETTER DATED 03-09- 2003. SO THE APPELLANT BANK PURCHASED ANNUITY FROM LIC FROM OCTOBER 2003. DURING THIS PENDENCY PERIOD, I.E. FROM 1998 THE PRI VATE SECTOR BANKS PAID PENSION DIRECTLY TO THE PENSIONERS. IN OTHER WORDS, THE APPELLANT BANK AS SOON AS THE PETITION REJECTED, ACTED ACCORDING TO LAW AND P URCHASED ANNUITY FROM LIC. SO, LIC ANNUITY CANNOT BE PURCHASED FOR PAST LIABIL ITY (I.E.) FROM 1993 TO 1998. PAST LIABILITY IS TO BE PAID BY BANK DIRECTLY . THESE WERE WELL AND ELABORATELY DISCUSSED BY THE TH EN CIT (APPEALS) IN THE APPEAL ORDER DT 31-03-2005 FOR THE A Y 1998-99. (IV) PROVISION FOR PENSION LIABILITY IS MADE AS PER ACTUARY VALUATIONS. (V) SINCE EMPLOYEES GAVE NOTICE FOR STRIKE, TO MAIN TAIN INDUSTRIAL PEACE, THE PENSION PAID BY BANK DIRECTLY TO PENSIONERS. (VI) IF PENSION FUND PAYS PENSION DIRECTLY TO PENS IONERS WITHOUT PURCHASING ANNUITY IT IS VIOLATION. BUT, PENSION WAS PAID BY B ANK DIRECTLY. THIS IS ACTUAL PAYMENT. SO THERE IS NO VIOLATION. (VII) THIS PENSION PAYMENT WAS MADE WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF BUSINESS. PAYING PENSION TO EMPLOYEES IS EXPENDITUR E FOR BUSINESS PURPOSES. THE RETIRED EMPLOYEES ARE ALSO EQUAL TO EXISTING EMPLOY EES. THEY ARE ALSO ASSOCIATE MEMBERS OF THE UNION/ASSOCIATION. THE PAYMENT WAS N OT MADE FOR PERSONAL OR PRIVATE PURPOSES. ON THESE GROUNDS THE CIT(A) HAD ERRED IN DISALLOWIN G THE CLAIM WITH THE RULING THAT THE PENSION PAYMENTS WERE NOT MADE TO A NY APPROVED PENSION FUND. III. (I) THE COMMISSIONER OF INCOME TAX OF APPEAL, TRICHY FAILED TO SEE THAT SOFTWARE EXPENSES ARE OF REVENUE EXPENDITURE AS PER INCOME TAX APPELLATE TRIBUNAL ORDER DATED 14-07-2006(ITA NO. 1 137/MDS/2003 FOR A Y 94-95). (II) THE LIFE OF THE SOFTWARE CANNOT BE DETERMINED . THE SOFTWARE CAN ALSO BECOME OBSOLETE AT ANY TIME. IT IS ONLY PROGRAM/INS TRUCTIONS WRITTEN BY PROGRAMMERS IN COMPUTER LANGUAGE. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 12 IV. THE LEARNED COMMISSIONER OF INCOME TAX APPEALS, TRICHY, HAS ERRED IN DISALLOWING POOJA EXPENSES, WHICH IS COMMONLY UNDER TAKEN IN ALL BUSINESS CONCERNS AS A STAFF WELFARE MEASURE, EVEN AFTER POI NTING OUT HIGH COURT JUDGMENTS. SIMILARLY, IN I.T.A. NO. 906/MDS/2010, THE FOLLOWIN G ARE THE ASSESSEES PLEADINGS: I (I) THE LEARNED COMMISSIONER OF INCOME TAX OF A PPEAL TRICHY FAILED TO SEE THAT THE LEASE AGREEMENT OF TWO LESSEE, VIZ, M/S RAJENDER STEELS LTD AND M/S ARUNA TEXTILES & EXPORTS LTD ARE GENUINE. DEPRECIATION CL AIMED BY THE APPELLANT REGARDING THE TWO ITEMS WERE REMITTED BACK TO THE A SSESSING OFFER BY THE COMMISSIONER OF INCOME TAX OF APPEAL FOR A Y 96-97. THE TRANSACTIONS WERE GENUINE. (II) IN THE CASE OF M/S RAJENDER STEELS LTD, KANPUR DUE TO MISMANAGEMENT OF BUSINESS AFFAIRS BY THE LES SEE THE PROJECTS FAILED AFTER TWO YEARS FROM THE DATE OF LOAN. (III) THE OTHER BANKS WERE ALSO ADVANCED MONEY TO T HE LESSEE UNDER DIFFERENT SCHEME. (IV) PURCHASE RECEIPTS ARE AVAILABLE. INSURANCE DO NE AND BANK OFFICIALS VERIFIED THE EXISTENCE OF MACHINERY AND ALL CERTIFICATES WER E PRODUCED TO ASSESSING OFFICER AND THE CASE IS NOT YET OPENED BY ASSESSING OFFICER FOR A Y 96-97 AND SUBSEQUENT YEARS. IN THE CASE OF M/S. ARUNA TEXTILES AND EXPORTS LTD ., (V) VALUATION OF MACHINERY WAS DONE BY AN EMINENT V ALUER. THE AMOUNT VALUED BY SITRA WAS EQUAL TO THE PREVIOUS VALUER. (VI) BANK OFFICIALS VERIFIED THE EXISTENCE OF MACHI NERY. INSURANCE COMPANIES INSURED THE MACHINERIES. WITHOUT VERIFYING ALL THESE FACTS, CONCLUSION OF TH E C I T (APPEALS) THAT THE APPELLANT FAILED TO ESTABLISH EXISTENCE OF THESE AS SETS IS WRONG AND MISLEADING. II (I) THE COMMISSIONER OF INCOME TAX OF APPEAL, T RICHY FAILED TO SEE THAT SOFTWARE EXPENSES ARE OF REVENUE EXPENDITURE AS PER INCOME TAX APPELLATE TRIBUNAL ORDER DATED 14-07-2006(ITA NO. 1137/MDS/2003 FOR A Y 94-95). (II) THE LIFE OF THE SOFTWARE CANNOT BE DETERMINED . THE SOFTWARE CAN ALSO BECOME OBSOLETE AT ANY TIME. IT IS ONLY PROGRAM/INS TRUCTIONS WRITTEN BY PROGRAMMERS IN COMPUTER LANGUAGE. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 13 III. CIT(APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS. 15,00,000/- ON ACCOUNT OF EXPENSES INCURRED TO INCREASE AUTHORIZED CAPITAL , WHICH IS ONE OF THE FUNDAMENTAL COMPONENT OF BUSINESS. THIS AMOUNT IS P AID TO GOVERNMENT STATUTORY AUTHORITIES (SEBI) AS PER GOVERNMENT STIPULATION AN D SO ALLOWABLE AS EXPENDITURE. 6. IN THE COURSE OF HEARING, WE NOTICE THAT IN I.T .A. NO. 905/MDS/2010, THE ASSESSEE HAS FILED A PETITION DATED 04.05.2012 SEEK ING LEAVE OF THE TRIBUNAL TO RAISE FOLLOWING ADDITIONAL GROUNDS SO AS TO CHALLEN GE THE VALIDITY OF REOPENING AS UNDER: 1. THE REOPENING OF ASSESSMENT AND CONSEQUENT REA SSESSMENT WAS UNSUSTAINABLE IN LAW. 2. THE ASSESSMENT, HAVING BEEN COMPLETED U/S 143(3 ) ON 18.08.2004, THE REASSESSMENT DONE ON 31.12.2007. PURSUANT TO NOTICE U/S 148 ON 30.03.2007, ON THE BASIS OF VERY SAME MATERIAL AMOUNTED TO CHANGE OF O PINION WHICH WAS UNSUSTAINABLE IN LAW AS WELL AS ON THE FACTS OF THE CASE. 3. THE COMMISSIONER OF INCOME TAX, IN THE ABSENCE OF ANY FINDING BY THE ASSESSING OFFICER AS TO CONCEALMENT OF PARTICULARS AND IN ANY VIEW OF THE MATTER, OUGHT TO HAVE CANCELLED THE REASSESSMENT. 7. BEFORE US, ON BEHALF OF THE ASSESSEE, IT HAS BE EN VEHEMENTLY ARGUED THAT THE ASSESSEES PETITION DATED 04.05.2012 SEEKING PE RMISSION TO RAISE ADDITIONAL GROUND DESERVES TO BE ACCEPTED BEING PURELY LEGAL I N NATURE. IT HAS ALSO BEEN STATED THAT BECAUSE OF INADVERTENCE, THE GROUND COU LD NOT BE RAISED BEFORE THE ASSESSING OFFICER AS WELL AS CIT(A). THE AR HAS CIT ED CASE LAW OF NATIONAL THERMAL POWER CO. LTD. V. CIT 229 ITR 383 (SC) AND S.KUMAR TYRE MANUFACTURING CO. LTD. V. CIT 344 ITR 581 (MP) AND PRAYED FOR ACCEPTANCE OF THE PETITION IN THE INTEREST OF SUBSTANTIAL JUSTICE . I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 14 8. OPPOSING THE PLEA OF THE ASSESSEE, THE REVENUE HAS ARGUED THAT AT THIS BELATED STAGE, THE ASSESSEES PLEA IS NOT LIABLE TO BE ENTERTAINED BEING HIGHLY BELATED ONE. IN SUPPORT, THE DR HAS ALSO RELIED ON THE CASE LAW OF NTPC V. CIT (SUPRA) AND G.K.N. DRIVESHAFTS (INDIA) LTD. V. ITO & OTHERS [259 ITR 19] (SC). 9. WE HAVE HEARD RIVAL CONTENTIONS AND ALSO PERUSE D THE SHORT PAPER BOOK FILED BY THE ASSESSEE AS WELL AS CASE LAW CITED. UN DISPUTED FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER HAD ISSUED REOPENING NOT ICE ON 30.03.2007 (SUPRA) AFTER FINALIZING SCRUTINY ASSESSMENT UNDER SECTIO N 143(3) ON 18.08.2007. WE ALSO NOTICE THAT FROM THE VERY BEGINNING, THE ASSES SEE WAS VERY WELL AWARE OF ITS RIGHT TO RAISE OBJECTIONS OPPOSING THE REOPENING IN QUESTION. THIS IS THE PRECISE REASON IT CHOSE TO ASK FOR REASONS FROM THE ASSESSI NG OFFICER ON 11.04.2007 SPECIFICALLY STATING THEREIN THAT IT INTENDED TO RA ISE OBJECTIONS (SUPRA). THEREAFTER, THE ASSESSING OFFICER PROVIDED COPY OF REASONS ON 3 0.07.2007 AND PASSED ASSESSMENT ORDER ON 31.12.2007 IS AFTER A PERIOD OF FIVE MONTHS. WE FIND FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER WAS VERY MUCH CONSCIOUS OF THE FACT THAT THE ASSESSEE HAD SOUGHT REASONS WHICH STO OD PROVIDED. IT IS NOT THE ASSESSEES CASE THAT IT WAS NOT ADEQUATELY HEARD BY THE ASSESSING OFFICER. EVEN IN APPEAL PREFERRED AGAINST THE ASSESSMENT ORDER, W E NOTICE FROM FORM NO. 35 THAT NO SUCH GROUND IS FORTHCOMING. THIS POSITION C ONTINUED EVEN BEFORE THE CIT(A) AS WELL, WHEREIN THE ASSESSEE DID NOT CONTEN D THAT THE REOPENING IS BAD IN LAW BEING MERELY A CHANGE OF OPINION. FURTHER, AGAI NST THE ORDER OF THE CIT(A), I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 15 THE ASSESSEE PREFERRED ITS APPEALS IN JUNE, 2010. D URING THE PENDENCY OF THESE APPEALS, ONLY ON 04.05.2012 IT HAS PREFERRED TO FIL E THE PETITION IN HAND SEEKING LEAVE TO RAISE ADDITIONAL PLEA. THIS IN OUR CONSIDE RED OPINION IS A HIGHLY BELATED PLEA, WHICH CAN BE DESERVINGLY CALLED AS HOPELESSLY TIME BARRED. NO DOUBT, THE ASSESSEE HAS ALSO CITED CASE LAW IN SUPPORT (SUPRA) THAT THE ADDITIONAL PLEA IN QUESTION CAN BE ENTERTAINED, BUT, IN OUR CONSIDERED OPINION, THE SAID CASE LAW LAYS DOWN GENERAL PREPOSITION, WHICH WE ALSO SUBSCR IBE THAT THAT A LEGAL PLEA CAN BE ENTERTAINED AT ANY STAGE OF THE LIS IN QUESTION. WE ALSO FIND THAT IN CASE LAW OF NATIONAL THERMAL POWER CO. LTD. (SUPRA), WHILE DEAL ING WITH THIS VERY ISSUE, THE HONBLE APEX COURT HAS HELD AS UNDER: UNDER SECTION 254 OF THE INCOME-TAX ACT, THE APPEL LATE TRIBUNAL MAY, AFTER GIVING BOTH THE PARTIES TO THE APPEAL AN OPPO RTUNITY OF BEING HEARD, PASS SUCH ORDERS THEREON AS IT THINKS FIT. THE POWER OF THE T RIBUNAL IN DEALING WITH APPEALS IS THUS EXPRESSED IN THE WIDEST POSSIBLE TERMS. THE PU RPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TAXING AUTHORITIES IS TO ASS ESS CORRECTLY THE TAX LIABILITY OF AN ASSESSEE IN ACCORDANCE WITH LAW. IF, FOR EXAMPLE , AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE T HE TRIBUNAL, IT IS FOUND THAT A NON-TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUCTIO N IS DENIED, WE DO NOT SEE ANY REASON WHY THE ASSESSEE SHOULD BE PREVENTED FROM RA ISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE RELEVAN T FACTS ARE ON RECORD IN RESPECT OF THAT ITEM. WE DO NOT SEE ANY REASON TO RESTRICT THE POWER OF THE TRIBUNAL UNDER SECTION 254 ONLY TO DECIDE THE GROUNDS WHICH ARISE FROM THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS). BOTH THE ASSE SSEE AS WELL AS THE DEPARTMENT HAVE A RIGHT TO FILE AN APPEAL/CROSS OBJ ECTIONS BEFORE THE TRIBUNAL. WE FAIL TO SEE WHY THE TRIBUNAL SHOULD BE PREVENTED FR OM CONSIDERING QUESTIONS OF LAW ARISING IN ASSESSMENT PROCEEDINGS ALTHOUGH NOT RAIS ED EARLIER. IN THE CASE OF JUTE CORPORATION OF INDIA LTD. V. CI T [1991] 187 ITR 688, THIS COURT, WHILE DEALING WITH THE POWERS OF THE AP PELLATE ASSISTANT COMMISSIONER OBSERVED THAT AN APPELLATE AUTHORITY HAS ALL THE PO WERS WHICH THE ORIGINAL AUTHORITY MAY HAVE IN DECIDING THE QUESTION BEFORE IT SUBJECT TO THE RESTRICTIONS OR LIMITATIONS, IF ANY, PRESCRIBED BY THE STATUTORY PROVISIONS. IN THE ABSENCE OF ANY STATUTORY PROVISION, THE APPELLATE AUTHORITY IS VESTED WITH A LL THE PLENARY POWERS WHICH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. THERE IS NO GOOD REASON TO JUSTIFY CURTAILMENT OF THE POWER OF THE APPELLATE ASSISTANT COMMISSIONER IN ENTERTAINING I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 16 AN ADDITIONAL GROUND RAISED BY THE ASSESSEE IN SEEK ING MODIFICATION OF THE ORDER OF ASSESSMENT PASSED BY THE INCOME-TAX OFFICER. THIS C OURT FURTHER OBSERVED THAT THERE MAY BE SEVERAL FACTORS JUSTIFYING THE RAISING OF A NEW PLEA IN AN APPEAL AND EACH CASE HAS TO BE CONSIDERED ON ITS OWN FACTS. THE APP ELLATE ASSISTANT COMMISSIONER MUST BE SATISFIED THAT THE GROUND RAISED WAS BONA F IDE AND THAT THE SAME COULD NOT HAVE BEEN RAISED EARLIER FOR GOOD REASONS. THE APPE LLATE ASSISTANT COMMISSIONER SHOULD EXERCISE HIS DISCRETION IN PERMITTING OR NOT PERMITTING THE ASSESSEE TO RAISE AN ADDITIONAL GROUND IN ACCORDANCE WITH LAW AND REA SON. THE SAME OBSERVATIONS WOULD APPLY TO APPEALS BEFORE THE TRIBUNAL ALSO. THE VIEW THAT THE TRIBUNAL IS CONFINED ONLY TO ISSU ES ARISING OUT OF THE APPEAL BEFORE THE COMMISSIONER OF INCOME-TAX (APPEA LS) TAKES TOO NARROW A VIEW OF THE POWERS OF THE APPELLATE TRIBUNAL (VIDE, E.G. , CIT V. ANAND PRASAD [1981] 128 ITR 388 (DELHI), CIT V. KARAMCHAND PREMCHAND P. LTD. [1969] 74 ITR 254 (GUJ) AND CIT V. CELLULOSE PRODUCTS OF INDIA LTD. [ 1985] 151 ITR 499 (GUJ) [FBI). UNDOUBTEDLY, THE TRIBUNAL WILL HAVE THE DISCRETION TO ALLOW OR NOT ALLOW A NEW GROUND TO BE RAISED. BUT WHERE THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER A QUESTION OF LAW ARISING FROM THE FACTS WHICH ARE ON RECORD I N THE ASSESSMENT PROCEEDINGS WE FAIL TO SEE WHY SUCH A QUESTION SHOULD NOT BE ALLOW ED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTION IN ORDER TO COR RECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. THE REFRAINED QUESTION, THEREFORE, IS ANSWERED IN T HE AFFIRMATIVE, I.E., THE TRIBUNAL HAS JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH ARISES FROM THE FACTS AS FOUND BY THE AUTHORITIES BELOW AND HAVING A BEAR ING ON THE TAX LIABILITY OF THE ASSESSEE. WE REMAND THE PROCEEDINGS TO THE TRIBUNAL FOR CONSIDERATION OF THE NEW GROUNDS RAISED BY THE ASSESSEE ON THE MERITS. TAKING CUE FROM THE SAME, WE SEE THAT THE ASSESSEE HAS NOT SHOWN ITS BONAFIDES AND GOOD REASONS IN NOT RAISING THE PLEA IN ASSESSMENT AND LOWER APPELLATE PROCEEDINGS. 10. FURTHER, WE ARE WELL AWARE OF THE LAW THAT THE PURPOSE OF RAISING OBJECTIONS TO THE REOPENING UNDER THE PROVISIONS OF INCOME TAX ACT IS TO REBUT THE OPINION OF THE ASSESSING OFFICER THAT ANY INCOME IN QUESTION H AS ESCAPED ASSESSMENT. IT IS ALSO NOTICED THAT VARIOUS COURTS AS WELL AS THE TR IBUNAL HAVE BEEN HOLDING FROM TIME TO TIME THAT IN CASE THE ASSESSING OFFICER FAI LS TO SUPPLY THE REASONS FOR I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 17 REOPENING AND PROCEEDS WITH THE ASSESSMENT, THE ORD ER PASSED IS BAD IN THE EYES OF LAW. IN THIS REGARD, WE FIND THAT THE COORD INATE BENCH OF BANGALORE ITAT IN THE CASE OF SYNOPSIS INTERNATIONAL LIMITED VS. D DIT IN I.T.A. NO. 549/BANG/2011 DECIDED ON 10.12.2012 HAS HELD AS UND ER: 4.1.5 FROM THE DISCUSSION IN PARAS 4.1.1 TO 4.1.4 OF THIS ORDER (SUPRA), IT IS CLEAR THAT THE SETTLED PROPOSITION OF LAW, AS LAID DOWN B Y THE HONBLE APEX COURT, HONBLE HIGH COURT OF MUMBAI AND AS FOLLOWED BY THE TWO DECISIONS OF THE COORDINATE BENCHES OF THE TRIBUNAL (ALL CITED SUPRA ), IS THAT THE REASONS AS RECORDED BY THE ASSESSING OFFICER ARE REQUIRED TO BE FURNISH ED TO THE ASSESSEE WITHIN REASONABLE TIME OF THEIR BEING RECORDED AND CERTAIN LY PRIOR TO THE COMPLETION OF ASSESSMENT. IN THE INSTANT CASE, THE UNDISPUTABLE F ACTS ON RECORD ESTABLISH BEYOND DOUBT THAT THE REASONS RECORDED FOR INITIATION OF P ROCEEDINGS UNDER SECTION 147/148 OF THE ACT WERE NEVER FURNISHED TO THE ASSESSEE BY THE ASSESSING OFFICER BEFORE COMPLETION OF THE ASSESSMENT PROCEEDINGS ON 29/12/2 008, 33 MONTHS AFTER THE REQUEST WAS MADE BY THE ASSESSEE BY LETTER DATED 16 /4/2007. THE SUBSEQUENT FURNISHING OF THE REASONS RECORDED TO THE ASSESSEE BY THE LEARNED CIT(A) BY LETTER DATED 28/1/2010 DOES NOT ACHIEVE ANY PURPOSE OR MIT IGATE THE ILLEGALITY OF THE ACTION OF DEPRIVING THE ASSESSEE ITS RIGHT TO RAISE OBJECTIONS AGAINST THE INITIATION OF PROCEEDINGS UNDER SECTION 147/148 OF THE ACT. IN TH IS VIEW OF THE MATTER, WE HOLD THAT THE ORDER OF ASSESSMENT PASSED UNDER SECTION 1 43(3) RWS 148 OF THE ACT DATED 29/12/2008 FOR THE ASSESSMENT YEAR 2005-06 WITHOUT THE ASSESSING OFFICER FURNISHING THE RECORDED REASONS FOR INITIATION OF P ROCEEDINGS UNDER SECTION 147/148 OF THE ACT TO THE ASSESSEE WITHIN REASONABLE TIME A ND PRIOR TO THE COMPLETION OF THE ASSESSMENT PROCEEDINGS, RENDERS THIS ORDER OF ASSES SMENT INVALID AND UNSUSTAINABLE IN LAW. THE LEGAL PICTURE AS IT COMES OUT OF THE ABOVE CAS E LAW IS THAT THE OBJECTIONS SOUGHT TO BE RAISED BY THE ASSESSEE ARE A VALUABLE RIGHT, WHICH, IF DENIED, MAY RENDER THE ENTIRE REASSESSMENT PROCESS INVALID. CONVERSELY, WE HOLD THAT IN CASE, IT IS FOUND FROM THE COGENT EVID ENCE THAT THE ASSESSEE WAS VERY WELL AWARE OF ITS RIGHT TO RAISE OBJECTIONS SINCE T HE VERY BEGINNING AND IT HAD NOT PREFERRED TO EXERCISE THE SAME, IT IS NOT ENTITLED TO SEEK LEAVE FOR CHALLENGING THE LEGALITY OF REOPENING AND MORE SO, IN THE SECOND AP PEAL BEFORE US. HENCE, WE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 18 ARE OF THE VIEW THAT THE PETITION DATED 04.05.2012 PREFERRED BY THE ASSESSEE DOES NOT DESERVE ACCEPTANCE. ACCORDINGLY, IT IS REJECTED . 11. NOW, WE COME TO I.T.A. NO. 900/MDS/2010. IT HA S BEEN SUBMITTED ON BEHALF OF THE REVENUE THAT THE APPEAL COMPRISES OF GROUNDS NO. 2 TO 7. THE DR HAS CLARIFIED THAT ALL THESE GROUNDS STAND ARGUED B Y THE REVENUE IN ITS APPEAL NO. 897/MDS/2010 FOR THE ASSESSMENT YEAR 1999-2000, WHICH WERE HEARD ON 19.12.2012. IN THE LIGHT THEREOF, HE HAS STATED THA T THE SAME ORDER AS IT COMES OUT IN THE SAID CASE BE ALSO BE PASSED IN THE INSTA NT APPEAL. THOSE SUBMISSIONS OF THE REVENUE HAVE NOT BEEN REBUTTED BY THE ASSESS EE AS WELL. 12. AFTER CONSIDERING THE SUBMISSIONS OF THE REVEN UE, WE NOTICE THAT WE HAVE HEARD APPEAL (SUPRA) FILED BY THE REVENUE ABOVE SAI D ON 19.12.2012 [WHICH HAS BEEN DECIDED VIDE ORDER DATED 17.01.2013]. AFTER PE RUSING THE SAME, WE FIND THAT THE REVENUE HAD RAISED GROUND NO. 5 IN THE SAID APP EAL IDENTICAL TO GROUND NO. 2 AND 2.1 IN THE INSTANT CASE AND WE HAVE RESTORED IT TO THE FILE OF THE ASSESSING OFFICER. THE RELEVANT FINDINGS ARE REPRODUCED AS UN DER: 45. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH PARTI ES AND ALSO PERUSED ASSESSMENT ORDER AS WELL AS ORDER OF THE CIT(A) ALO NG WITH CASE LAW CITED. IT TRANSPIRES THAT THE ASSESSING AUTHORITY HAD HELD TH AT ASSESSEES CLAIM OF INTEREST PAID ON SECURITIES AS CAPITAL EXPENDITURE. IN APPEA L BEFORE THE CIT(A), THE ASSESSEE RELIED ON THE ORDER OF THE ITAT CHENNAI IN PRECEDIN G YEARS AS WELL AS THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN ASSESSEES OWN CASE. AT THE SAME TIME, WE ALSO FIND THAT THE CRUCIAL FACTUAL ASPECT OF THE IS SUE IN QUESTION HAVE NOWHERE BEEN ADVERTED TO THE CIT(A). IN THE OPERATIVE PART OF TH E CIT(A) THAT IT HAS BEEN SIMPLY OBSERVED THAT IN ASSESSEES CASE THE HONBLE HIGH C OURT AS WELL AS THE COORDINATE BENCHES OF THE ITAT HAVE DECIDED THE ISSUE IN ASSES SEES FAVOUR. THIS IN OUR OPINION, IS NOTHING BUT SKETCHY FINDING OF THE CIT( A). AT THE SAME TIME, WE CANNOT LOSE SIGHT OF THE FACT THAT WE HAVE REMITTED GROUND NO. III BACK TO THE ASSESSING OFFICER. IN THOSE CIRCUMSTANCES, IN ORDER TO AVOID MULTIPLICITY OF PROCEEDINGS OF SAME YEAR BEFORE THE ASSESSING OFFICER IN ASSESSEE S APPEAL AND CIT(A) IN I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 19 REVENUES APPEAL, WE FIND IT APPROPRIATE THAT THE I SSUE DESERVES TO BE REDECIDED BY THE ASSESSING OFFICER BY WAY OF A DETAILED ORDER IN ACCORDANCE WITH LAW AFTER ACCORDING OPPORTUNITY OF HEARING TO THE ASSESSEE. W E ALSO MAKE IT CLEAR THAT WE HAVE NOT EXPRESSED ANY OPINION ON MERITS OF THE ISS UE. THEREFORE, THE ASSESSING OFFICER WOULD BE AT LIBERTY TO EXAMINE THE ISSUE AF RESH IN THE LIGHT OF JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT ABOVE SAID AS WELL AS VARIOUS ORDERS OF COORDINATE BENCH OF ITAT, CHENNAI IN EARLIER ASSESS MENT YEARS AND THE CASE LAW OF CIT VS. ING VYSYA BANK LTD. (SUPRA). THE ASSESSEE W OULD ALSO BE ENTITLED TO PLACE RELIANCE ON ANY OTHER CASE LAW, IF SO ADVISED. THE GROUND IS THEREFORE, RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER. 13. SIMILARLY, GROUND NO. 3 IN THE INSTANT CASE PE RTAINING TO BAD DEBTS, THE REVENUES ARGUMENT QUA ASSESSMENT YEAR 1999-2000 [G ROUND NO. 6 AND 6.1] STANDS ACCEPTED FOR STATISTICAL PURPOSE AND THE REL EVANT PORTION OF THE ORDER READS AS UNDER: 49. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH PA RTIES AS WELL AS FINDINGS OF THE ASSESSING OFFICER, CIT(A) AND ALSO GONE THROUGH THE CASE LAW CITED BY THE REVENUE. IN PRINCIPLE, THE REVENUE IS NOT EVEN DISPUTING THAT THE ASSESSEE IS ENTITLED FOR WRITING OFF DEBTS UNDER RE LEVANT PROVISIONS OF THE ACT. ITS SUBMISSION IS FOR THE PURPOSE OF VERIFIC ATION SO AS TO AVOID DOUBLE DEDUCTION, THE ASSESSING OFFICER BE DIRECTED TO REV ERIFY ASSESSEES CLAIM IN VIEW OF THE FOLLOWING FINDINGS OF THE ABOVE SAID CA SE READ AS UNDER: 41. TO CONCLUDE, WE HOLD THAT THE PROVISIONS OF S ECTIONS 36(1)(VII) AND 36(1)(VIIA) OF THE ACT ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTION AND OPERATE IN THEIR RESPECTIVE FIELDS. THE BAD DEBTS W RITTEN OFF IN DEBTS, OTHER THAN THOSE FOR WHICH THE PROVISION IS MADE UNDER CL AUSE (VIIA), WILL BE COVERED UNDER THE MAIN PART OF SECTION 36(1)(VII), WHILE THE PROVISO WILL OPERATE IN CASES UNDER CLAUSE (VIIA) TO LIMIT DEDUC TION TO THE EXTENT OF DIFFERENCE BETWEEN THE DEBT OR PART THEREOF WRITTEN OFF IN THE PREVIOUS YEAR AND CREDIT BALANCE IN THE PROVISION FOR BAD AND DOU BTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA). THE PROVISO TO SECTION 36 (1)(VII) WILL RELATE TO CASES COVERED UNDER SECTION 36(1)(VIIA) AND HAS TO BE READ WITH SECTION 36(2)(V) OF THE ACT. THUS, THE PROVISO WOULD NOT PE RMIT BENEFIT OF DOUBLE DEDUCTION, OPERATING WITH REFERENCE TO RURAL LOANS WHILE UNDER SECTION 36(1)(VII), THE ASSESSEE WOULD BE ENTITLED TO GENER AL DEDUCTION UPON AN ACCOUNT HAVING BECOME BAD DEBT AND BEING WRITTEN OF F AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THIS, OBVIOUSLY, WOULD BE SUBJECT TO SATISFACTION OF THE REQUIREMENTS CONTEMP LATED UNDER SECTION 36(2). 42. CONSEQUENTLY, WHILE ANSWERING THE QUESTION IN FAVOUR OF THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 20 ASSESSEE, WE ALLOW THE APPEALS OF THE ASSESSEES AND DISMISS THE APPEALS PREFERRED BY THE REVENUE. FURTHER, WE DIRECT THAT A LL MATTERS BE REMANDED TO THE ASSESSING OFFICER FOR COMPUTATION IN ACCORDA NCE WITH LAW, IN LIGHT OF THE LAW ENUNCIATED IN THIS JUDGMENT. TAKING CUE FROM THE ABOVE SAID OBSERVATIONS OF THE HONBLE SUPREME COURT, WE ARE OF THE VIEW THAT IN THE INSTANT CASE, NONETH ELESS THE ASSESSEE IS ENTITLED TO WRITE OFF THE DEBTS. AT THE SAME TIME AND IN THE LIGHT OF THE HONBLE SUPREME COURTS OBSERVATIONS, WE ALSO FEEL THAT WHI LE WRITING OFF THE BAD DEBTS, THE CONCERNED ASSESSEE IS NOT ENTITLED TO DO UBLE DEDUCTION. IT IS ALSO NOTICED THAT EVEN THE HONBLE SUPREME COURT HAS REM ITTED THE MATTER BACK TO THE ASSESSING OFFICER WITH SPECIFIC DIRECTIONS. IN VIEW THEREOF AND MORE SO, SINCE WE HAVE RESTORED PRECEDING ISSUE BACK TO THE ASSESSING OFFICER, WE ALSO DEEM IT PROPER TO RESTORE THE GROUND BACK TO THE AS SESSING OFFICER, WHO SHALL PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW BY TAK ING INTO CONSIDERATION THE JUDGMENT OF THE HONBLE SUPREME COURT ABOVE SAI D. IN THE LIGHT THEREOF, WE ACCEPT BOTH THE GROUNDS I. E. GROUND 2, 2.1, 3 AND 3.1 IN REVENUES APPEAL FOR STATISTICAL PURPOSE AND REMIT THE SAME BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE AFRESH IN THE LIGHT OF OUR OBSERVATIONS IN I.T.A. NO. 897/MDS/2010 (SUPRA). 14. SO FAR AS GROUNDS NO.4 AND 7 OF REVENUE ARE CO NCERNED, BOTH THE PARTIES BEFORE US HAVE BEEN FAIR ENOUGH TO CLARIFY THAT ISS UES QUA UNCLAIMED BALANCES, UNCLAIMED STALE DRAFTS AND UNCLAIMED SURPLUS JEWELL ERY AUCTIONS ARE PARI MATERIA TO THOSE DECIDED IN I.T.A. NO. 899/MDS/2010 FOR THE ASSESSMENT YEAR 2001-02 VIDE ORDER DATED 17.01.2013 (SUPRA). WHILE UPHOLDIN G CIT(A)S ORDER DELETED THE DISALLOWANCE ON ACCOUNT OF SURPLUS AMOUNT RECEIVED FROM JEWELLERY AUCTION, WE HAVE HELD AS UNDER: 63. FACTS APROPOS ARE THAT IN ITS PROFIT AND LOSS ACCOUNT, THE ASSESSEE HAD RAISED A CLAIM OF ` .1,62,971/- AS EXPENSES, WHICH HAD BEEN RECEIVED FR OM AUCTION OF JEWELLERY. ITS EXPLANATION BEFORE THE AS SESSING OFFICER WAS THAT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 21 WHEN ANY BALANCE IS LEFT IN AUCTION, THE SAME HAS T O BE PAID TO THE BORROWERS CONCERNED. THE ASSESSING OFFICER DID NOT AGREE TO T HE ASSESSEES CONTENTION; IN WHOSE OPINION, IF ANY BORROWER DID NOT TURN UP T O COLLECT THE SURPLUS AMOUNT IN QUESTION, THE SAME HAD TO BE RETAINED IN SUSPENSE ACCOUNT BEING A LIABILITY. ACCORDINGLY, HE FOLLOWED ASSESSMENT ORDE RS OF EARLIER ASSESSMENT YEARS AND MADE ADDITION IN ASSESSEES TOTAL INCOME. IN ASSESSEES APPEAL, THE CIT(A) HAS DELETED THE A DDITION BY HOLDING AS UNDER: 6.3 RESPECTFULLY FOLLOWING DECISION OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL IN THIS REGARD THE ASSESSING OFFICER IS DI RECTED TO DELETE THE ADDITION ON SURPLUS FROM JEWELLERY AUCTION ` .1,62,971/-. 64. THE DR REPRESENTING REVENUE HAS ASSAILED CIT(A ) FINDINGS BY REITERATING THE GROUNDS RAISED IN APPEAL AS WELL AS CASE LAW OF TV IYENGAR & SONS 222 ITR 344. WHEREAS, THE ASSESSEE HAS CHOSEN TO RELY ON THE FINDINGS OF THE CIT(A) BY DRAWING SUPPORT FROM ORDER OF CHEN NAI ITAT IN I.T.A. NO. 739/MDS/2009 TITLED AS CITY UNION BANK VS. ACIT DEC IDED ON 13.11.2009 AND ORDERS PASSED IN PRECEDING ASSESSMENT YEAR IN A SSESSEES CASES. 65. WE HAVE CONSIDERED THE RIVAL CONTENTION AT LEN GTH AND PERUSED THE RELEVANT FINDINGS AS WELL AS CASE LAW CITED. THE FA CTS ARE NOT DISPUTED I.E. THE ASSESSEE HAD SHOWN SURPLUS AMOUNT RECEIVED FROM THE AUCTION OF JEWELLERY WHICH HAD CLAIMED TO BE RETURNABLE TO THE CONCERNED BORROWERS WHICH IS DISPUTED BY THE REVENUE. WE FIND THAT IN THE CASE L AW OF CITY UNION BANK LTD. (SUPRA); THE COORDINATE BENCH, AFTER CONSIDERI NG CASE LAW OF TV SUNDARAM IYENGAR AND SONS (SUPRA) HAD DECIDED THE I SSUE OF SURPLUS ARISING FROM STALE DRAFTS AS UNDER: 2. THE SOLE ISSUE RAISED IN THIS APPEAL IS REGARD ING CONFIRMATION OF AN ADDITION OF RS.49.19 LAKHS, WHICH THE ASSESSEE-BANK HAS CLAIMED AS AN OUTSTANDING LIABILITY. THE ASSESSING OFFICER HAS TREATED IT AS INCOME OF THE ASSESSEE DUE TO EFFLUX OF TIME BEYOND WHICH NO LEGA L CLAIM IS MAINTAINABLE. THE BANK HAS BEEN SHOWING THIS AMOUNT AS DUE TOWARDS S TALE DRAFTS AS A LIABILITY BOTH IN THE AUDITED BALANCE SHEET AND IN THE STATUT ORY RETURNS SENT TO RBI AND IT MAINTAINS CASH RESERVE RATIO AT SPECIFIED RATE IN C URRENT ACCOUNT WITH THE RBI FOR SUCH LIABILITY. FROM THE YEARWISE DETAILS FURN ISHED, THE ASSESSING OFFICER FOUND THAT A SUM OF RS. 49,19,662/- HAD BEEN CREDIT ED UNDER OUTSTANDING LIABILITIES TOWARDS STALE DRAFTS FOR THE ASSESSMENT YEAR 1996-97 AND AS ON 1.4.2000 ALSO THE SAME FIGURE HAS BEEN SHOWN WHICH IS KEPT UNDER SUSPENSE ACCOUNT FOR MORE THAN THREE YEARS SINCE 31.3.1997 F OR PAYMENT OF STALE DRAFTS . IT IS A FACT THAT THIS AMOUNT WAS RECEIVED IN THE C OURSE OF BANKING ACTIVITIES. THE ASSESSING OFFICER OPINED THAT WHEN THE DRAFTS I SSUED REMAINED UNPAID FOR MORE THAN 3 YEARS, THE LIMITATION PERIOD FOR CLAIM OF PAYMENTS OF THE SAME I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 22 REPRESENTED BY THE DRAFTS WOULD APPLY. ACCORDINGLY , HE TREATED THIS AMOUNT AS THE ASSET OF THE ASSESSEE FROM THE DAY AFTER THE EN D OF THE PREVIOUS YEAR DURING WHICH THE DRAFTS WERE ISSUED. THE ASSESSING OFFICE R HAS MADE THIS ADDITION AND THE LD. CIT(A) HAS CONFIRMED THE SAME IN THE LIGHT OF THE HON'BLE SUPREME COURT DECISION IN THE CASE OF CIT VS T.V. SUNDARAM IYENGAR AND SONS LTD, 222 ITR 344. 3. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE F ACTS, EVIDENCES AND THE LEGAL POSITION RELATABLE TO THE IMPUGNED ISSUE. IT IS TRUE THAT THIS LIABILITY HAS OCCURRED DUE TO ORDINARY BUSINESS (TRADING) TRA NSACTIONS OF THE ASSESSEE- BANK. THE DECISION OF THE HON'BLE APEX COURT (SUPR A) IS ON ENTIRELY DIFFERENT FACTS. IN THAT CASE, IT WAS HELD THAT IN OTHER W ORDS, THE PRINCIPLE APPEARS TO BE THAT IF ANY AMOUNT IS RECEIVED IN THE COURSE OF TRADING TRANSACTION, EVEN THOUGH IT IS NOT TAXABLE IN THE YEAR OF DEPOSIT AS BEING OF REVENUE CHARACTER, THE AMOUNT CHANGES ITS CHARACTER WHEN THE AMOUNT BECOME S THE ASSESSEES OWN MONEY BECAUSE OF LIMITATION OR BY ANY OTHER STATUTO RY OR CONTRACTUAL RIGHT. WHEN SUCH A THING HAPPENS, COMMON-SENSE DEMANDS THA T THE AMOUNT SHOULD BE TREATED AS INCOME OF THE ASSESSEE. 4. THE ABOVE RATIO WAS RENDERED ON ACCOUNT OF FACT S OF THAT CASE WHERE THE ITO FOUND THAT FOR THE ASSESSMENT YEARS 1982-83 AND 1983-84, THE ASSESSEE HAD TRANSFERRED AN AMOUNT OF RS. 17,381 TO THE PROF IT & LOSS ACCOUNT OF THE COMPANY DURING THE ACCOUNTING PERIOD ENDED ON MARCH 31,1982 (ASSESSMENT YEAR 1982-83) AND AN AMOUNT OF RS.38,975 DURING THE ACCOUNTING PERIOD ENDED ON MARCH 31, 1983 (ASSESSMENT YEAR 1983-84). BUT T HESE AMOUNTS WERE NOT INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. THE SUMS WERE STATED TO BE CREDIT BALANCES STANDING IN FAVOUR OF THE CUSTOMERS OF THE COMPANY. SINCE THESE BALANCES WERE NOT CLAIMED BY THE CUSTOMERS, THE AMO UNTS WERE TRANSFERRED BY THE ASSESSEE TO THE PROFIT & LOSS ACCOUNT. THE ITO WAS OF THE VIEW THAT BECAUSE THE SURPLUS HAD ARISEN AS A RESULT OF TRADE TRANSACTIONS, THE AMOUNT HAD THE CHARACTER OF INCOME AND HAD TO BE ADDED AS INCOME OF THE ASSESSEE FOR THE PURPOSE OF INCOME-TAX ASSESSMENT. THE ADDITION S WERE DELETED BY THE LD. CIT(A) AND THIS WAS UPHELD BY THE TRIBUNAL. BUT TH E FACTS OF THIS CASE ARE DIFFERENT BECAUSE IN BANKING BUSINESS RBI GUIDELIN ES ARE TO BE FOLLOWED AND THAT BY, SIMPLICITOR, EFFLUX OF TIME, SAY BEYOND 3 YEARS, ORDINARY LIMITATION WOULD NOT APPLY AS THE ASSESSEE HAS BEEN SHOWING CU MULATIVE TOTAL LIABILITY AT THE RELEVANT PERIOD. IN THIS CASE, AFTER DETAILING PERIOD TOTAL OUTSTANDING AMOUNT HAS BEEN SHOWN IN THE ANNEXURE ATTACHED TO T HE ASSESSMENT ORDER. ACTUALLY, ITEMS ARE COMING IN AND GOING OUT OF THIS ACCOUNT EVERY NOW AND THEN THROUGHOUT THE YEAR, AND IT IS TREATED LIKE A CURRE NT ACCOUNT OPERATED UPON REGULARLY DOING IN THE COURSE OF BUSINESS. GIVEN T HE NATURE OF TRANSACTIONS, THE ENCASHMENT OF DRAFTS AFTER REVALIDATION THEREOF, IS A REGULAR FEATURE. RATHER THE COMMON-SENSE DEMANDS THAT SUCH DRAFTS CANNOT BE TRE ATED AS UNCLAIMABLE BECAUSE TIME-BARRED, GIVEN THE NATURE OF BANKING TR ANSACTIONS. DRAFTS ISSUED, BECOMING STALE IS NOT AN UNCOMMON FACTOR RATHER IT IS A USUAL AND COMMON FEATURE IN ALL BANKS. UNLESS THE DRAFTS AMOUNT BEC OMES, IN FACT, UNCLAIMABLE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 23 WHICH CAN BE BY VIRTUE OF MULTIFARIOUS FACTS AVAILA BLE AND NOT BY GUESS WORK, THIS AMOUNT CANNOT BE TREATED AS BANKS INCOME. TH ERE IS NO SUCH LAW WHICH CAN CONVERT SUCH A LIABILITY INTO THE INCOME/ASSET OF THE ASSESSEE-BANK AFTER THE LAPSE OF PARTICULAR TIME LAG. THE DECISION OF THE HON'BLE SUPREME COURT (CITED SUPRA) IS, OTHERWISE HELPFUL TO THE CLAIM OF THE ASSESSEE. THE ASSESSING OFFICER HAS NOT GIVEN ANY CLEAR CUT FINDING AS TO H OW THE AMOUNT HAS BECOME UNCLAIMABLE. HENCE, WE SET ASIDE THE IMPUGNED FIND ING AND DELETE THE ENTIRE ADDITION. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. WE ALSO NOTICE THAT IN ASSESSEES OWN CASE IN I.T.A . NOS. 1051 AND 1139/MDS/2003 FOR THE ASSESSMENT YEAR 1987-88 AND 1 989-90, THE SAME ISSUE HAD ARISEN BEFORE THE COORDINATE BENCH DECIDE D ON 14.07.2006 WHICH WAS ACCEPTED IN ASSESSEES FAVOUR BY HOLDING AS FOL LOWS:- 10. ANOTHER ISSUE RAISED PERTAINS TO TREATMENT OF SURPLUS IN AUCTION OF JEWELLERY (I.T.A. NOS. 1054 & 1139/MDS/03). 10.1 THE ISSUE RAISED IN THIS REGARD READS AS UNDER : THE CIT(A) HAS FAILED TO NOTE THAT SURPLUS AMOUNT WAS HELD BY THE ASSESSEE BANK BECAUSE OF NON-LOCATION OF CUSTOMERS TO WHOM THE SURPLUS AMOUNT WAS PAYABLE AND THEY WERE IN THE NAT URE OF FORFEITED MONEY BY THE CUSTOMERS WHICH REMAINED UNDISTURBED A ND NO CLAIM FROM THE CUSTOMERS WAS MADE. FURTHER, THE SURPLUS A MOUNT ON JEWEL AUCTION WAS LYING WITH THE ASSESSEE BANK FOR BEING CIRCULATED IN THE BUSINESS WHICH EARNED INCOME.' 10.2 ON THIS ISSUE, THE ASSESSEE'S CLAIM IS THAT T HE AMOUNT IS STILL LYING WITH THE ASSESSEE AS THE PLEDGERS OF THE JEWELLERY TO WHOM THE BALANCE FROM OUT OF THE AUCTION MONEY OVER AND ABOVE THE LOAN DU ES RIGHTFULLY BELONG HAD NOT CLAIMED THE SAME FOR SOME REASON OR OTHER. HOWE VER, THE ASSESSEE CONTINUES TO BE LIABLE TO THE PLEDGERS IN RESPECT O F SUCH BALANCE AMOUNT AND TILL THE BALANCE IS GIVEN TO THE PARTY, THE ASSESSE E BANK ACTS AS AN AGENT AND IT IS UNDER LIABILITY TO SETTLE THE ACCOUNTS. 10.3 CONSIDERING THE ISSUE, WE FIND THAT THE CLAIM OF THE ASSESSEE IS JUSTIFIABLE AS THE SURPLUS MONEY REALISED ON ACCOUN T OF THE AUCTION OVER AND ABOVE THE LOAN DUES DOES BELONG TO THE CUSTOMERS. H ENCE, WE UPHOLD THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) ON THIS ISSUE AND DECIDE THE ISSUE AGAINST THE REVENUE. 66. ALTHOUGH THE REVENUE HAS RELIED ON THE CASE LA W OF HONBLE SUPREME COURT (SUPRA), BUT IT IS NOTICED THAT IN THE ORDER OF THE COORDINATE BENCH, THE SAME WAS DEALT WITH AND THE REVENUES CONTENTION CO ULD NOT CONVINCE THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 24 TRIBUNAL. THEREFORE, IN OUR OPINION, SINCE THE LA W OF HONBLE SUPREME COURT IS NOT APPLICABLE QUA THE PECULIAR FACTS OF T HE CASE AND THE SAME VERY ISSUE HAS ATTAINED FINALITY IN VIEW OF THE FACT THA T THE REVENUE HAS NOT CHALLENGED THE ABOVE FINDINGS, WE HOLD THAT THE CIT (A) HAS RIGHTLY DELETED THE ADDITION ARISING FROM SURPLUS OF JEWELLERY AUCT ION. IN VIEW OF THE ABOVE FINDINGS IN I.T.A. NO. 899/MDS /2010 (SUPRA), GROUNDS NO. 4 AND 7 PERTAINING TO UNCLAIMED BALANCES AND SURPLUS FROM JEWELLERY AUCTION CONTAIN SAME ISSUES IN PRINCIPLE BECAUSE IN BOTH CA SES, THE ASSESSEE HAS RETAINED THE UNCLAIMED BALANCES AND SURPLUS FROM JE WELLERY AUCTION WHICH HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. 14. SO FAR AS REVENUES GROUNDS NO. 5 AND 6 PERTAI NING TO DEPRECIATION ON LEASED OUT ASSETS AND ADDITION OF CASH EXCESS ARE C ONCERNED, WE HAVE UPHELD CIT(A)S ORDER WHILE DECIDING SIMILAR ISSUES IN GRO UNDS NO.3 AND 4 IN I.T.A. NO. 897/MDS/2010 (SUPRA) AND RELEVANT FINDINGS ARE REPR ODUCED HEREUNDER: GROUND NO. 3 (REVENUES APPEAL) 34. FACTS RELEVANT TO THIS GROUND ARE THAT IN THE ASSESSMENT, CASH EXCESS OF ` .1,87,375/- HAD BEEN OMITTED BY THE ASSESSEE FROM B EING CONSIDERED FOR DISALLOWANCE IN THE MEMO OF ADJUSTMENT. THE EXPLANA TION OF THE ASSESSEE WAS THAT THE SAME HAD BEEN SHOWN AS CASH IN EXCESS AND NO IDENTIFICATION HAD BEEN MADE SINCE IT PERTAINED TO REMITTANCE BY CONST ITUENTS IN EXCESS SHOWN AS LIABILITY TO BE RETURNED TO REMITTER ON PRODUCTI ON OF PROOF OF EXCESS PAYMENT. THE ASSESSING OFFICER WAS NOT CONVINCED AN D THEREFORE, IN THE ASSESSMENT VIDE ORDER DATED 31.03.2005, HE DISALLOW ED THE CASH EXCESS OF ` .83,701/- BY HOLDING THAT ON THE BASIS OF CASH EXCE SS AS ON 31.03.1996, AN AMOUNT OF ` .1,03,674/- STOOD TRANSFERRED TO MISCELLANEOUS ACCO UNT. 35. IN APPEAL PREFERRED BY THE ASSESSEE, THE CIT(A ) HAS DELETED THE ADDITION BY HOLDING THAT SINCE CASH EXCESS IS BEING OFFERED TO TAX IN FOURTH YEAR, THE DISALLOWANCE WAS NOT CALLED FOR. 36. THE DR REPRESENTING THE REVENUE HAS VEHEMENTLY ARGUED THAT THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 25 CIT(A) HAS WRONGLY DELETED THE ADDITION WHICH WAS D ESERVINGLY MADE BY THE ASSESSING OFFICER. THE CONTENTIONS OF THE REVENUE, HAVE BEEN OPPOSED BY THE THE ASSESSEE ON THE GROUND THAT THE CIT(A) HAS RIGH TLY DELETED THE ADDITION. 37. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE GROUND AND ALSO GONE THROUGH THE RELEVANT FINDINGS OF THE ASSESSING OFFICER AS WELL AS CIT(A). ADMITTEDLY, THE ASSESSING OFFICER HAS GRANT ED BENEFIT OF ` .1,03,674/- OUT OF ` .1,87,375/- TO THE ASSESSEE WHICH HAD BEEN TRANSFER RED TO MISCELLANEOUS INCOME ACCOUNT OF THE ASSESSEE AS ON 31.03.1996. ON THE SAME ANALOGY, THE CIT(A) HAS OBSERVED THAT THE CASH EXCE SS IS OFFERED TO TAX IN FOURTH YEAR, THEREFORE, THE ADDITION IN QUESTION ST ANDS DELETED. AFTER GIVING OUR THOUGHTFUL CONSIDERATION, WE ARE ALSO OF THE VI EW THAT SINCE THE ASSESSING OFFICER HIMSELF HAD ALLOWED THE CASH EXCESS AS ON 3 1.03.1996, IN VIEW OF THE SAID FINDINGS ONLY, THE CIT(A) HAS PROCEEDED TO DEL ETE THE ADDITION. THE FACTUAL POSITION AS IT EMANATES FROM THE ORDERS OF THE LOWER AUTHORITIES IS THAT THE ASSESSEE OFFERS CASH EXCESS ONCE IN EVERY FOURT H YEAR, THEREFORE, WE SEE NO REASON TO AFFIRM THE DISALLOWANCE IN QUESTION BE CAUSE THE FOUR YEAR TIME PERIOD INCLUDES THE IMPUGNED ASSESSMENT YEAR AS WEL L. ACCORDINGLY, WE HOLD THAT THE CIT(A) HAS RIGHTLY DELETED THE ADDITION. THIS GROUND STANDS DECIDED AGAINST THE REVENUE. GROUND NO. 4 [REVENUES APPEAL] 38. IN THE ENCLOSURES FILED WITH THE RETURN, THE A SSESSEE HAS PREFERRED TO MAKE A PROVISION FOR AN AMOUNT OF ` .75,83,177/- RE DEPRECIATION ON INVESTMENT. THE ASSESSING OFFICER HAD PASSED INITIA L ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT ON 27.03.2002 (SUPRA). IN THE SAID ORDER, HE HAD DISALLOWED ASSESSEES ABOVE SAID CLAIM BY HOLDING T HAT ANY PROVISION OF DEPRECIATION MADE DURING THE RELEVANT ACCOUNTING YE AR HAD TO BE DISALLOWED AND ADDED BACK IN ASSESSEES INCOME. THEREFORE, HE RELIED ON ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1998-99 I.E. PRECEDIN G ASSESSMENT YEAR AND DISALLOWED THE PROVISION. IN APPEAL, THE CIT(A) HAS DELETED THE ADDITION BY HOLDING AS FOLLOWS: 2.3 AS PER APPELLANTS SUBMISSION THIS AMOUNT IS A LREADY OFFERED BY THE APPELLANT. SO THIS ADDITION IS NOT CALLED FOR. HOWE VER, THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE SAME AND DELETE THE ADDIT ION. 39. IN SUPPORT OF THE GROUND RAISED, IT HAS BEEN S UBMITTED BY THE DR REPRESENTING THE REVENUE THAT THE CIT(A) HAS WRONGL Y DELETED THE ADDITION. ACCORDINGLY, HE PRAYED FOR ITS RESTORATION BY ACCEP TING THE GROUND IN FAVOUR OF THE REVENUE. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 26 40. ON THE OTHER HAND, THE AR HAS STATED BEFORE US THAT THE ASSESSING OFFICER HIMSELF VIDE RECTIFICATION ORDER UNDER SECT ION 154 OF THE ACT DATED 03.07.2003 HAS RECTIFIED THE ASSESSMENT ORDER DATED 27.03.2002 BY HOLDING THAT THE DISALLOWANCE IN QUESTION IS NOT PROPER SIN CE IT AMOUNTED TO CONSIDER THE SAME VERY INCOME TWICE. ACCORDINGLY HE PRAYED F OR REJECTION OF THE GROUND. 41. WE HAVE GONE THROUGH THE ASSESSMENT ORDER QUA THIS ISSUE DATED 27.03.2002, RECTIFICATION ORDER DATED 03.07.2003 UN DER SECTION 154 OF THE ACT WHICH IS AVAILABLE IN THE PAPER BOOK AS WELL AS CIT(A)S ORDER. IT TRANSPIRES FROM THE RECTIFICATION ORDER THAT THE AS SESSING OFFICER HAD MADE DISALLOWANCE. LATER ON, HE HIMSELF HELD THAT THE SA ME AMOUNT COULD NOT BE TREATED TWICE. WE DEEM IT APPROPRIATE TO REPRODUCE THE RECTIFICATION ORDER WHICH READS AS UNDER: G.I.NO. 101CT16 DATED 03.07.2003 AAACT3373J SUB: INCOME TAX ASSESSMENT - ASSESSMENT YEAR 1999-2 000 - M/ S THE KARUR VYSYA BANK LIMITED, ERODE ROAD, KARUR - R EVISION OF - REGARDING. ORDER U/S 154: IN THE ASSESSMENT COMPLETED U/S143 (3) ON 27.03.200 2, FOR THE ASSESSMENT YEAR 1999-2000, THE FOLLOWING ADDITION/D ISALLOWANCE HAS BEEN MADE. A) RS.98,22,000/- RELATING TO INTEREST U/S 244A GRA NTED IN THE ASSESSMENT YEAR 1997-98 HAS BEEN ADOPTED AS INCOME IN THE ASSESSMENT. B) RS.75,83,177/- HAS BEEN DISALLOWED IN THE ASSESS MENT TAKING IT A PROVISION FOR DEPRECIATION ON INVESTMENT. THE ASSESSEE BANK IN ITS LETTER HAS STATED THAT THE INTEREST OF RS.98,22,000/- GRANTED U/S 244A HAS BEEN WITHDRAWN IN THE SCRUTINY ASSESSMENT COMPLETED FOR THE ASSESSMENT YEAR 1997-9 8 AND THAT THIS INTEREST INCOME TAKEN FOR ADDITION IN THE ASSESSMENT FOR 199 9-2000 IS NOT CORRECT. FURTHER IT HAS STATED THAT THE AMOUNT OF RS.75,83,1 77/- HAS BEEN ALREADY OFFERED AS INCOME IN THE BOOKS OF ACCOUNT AND THE N ET PROFIT SHOWN AT RS.37,03,92,219/- IN PAGE NUMBER III OF THE INCOME STATEMENTS INCLUDES THIS AMOUNT OF RS.75,83,177/-. THEREFORE FROM THE TOTAL PROVISIONS OF RS.25,37,00,000/- THIS AMOUNT OF RS.75,83,177/- HAS BEEN REDUCED AND THE AMOUNT OF RS.24,61,16,823/- HAS BEEN ADDED WITH NET PROFIT. THEREFORE THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 27 DISALLOWANCE MADE AT RS. 75,83,177/- IS NOT CORRECT BECAUSE IT AMOUNTS TO INCOME CONSIDERED TWICE. THE ASSESSEE'S CONTENTIONS HAVE BEEN CONSIDERED CAR EFULLY. SINCE THE REFUND INCLUDING INTEREST U/S 244 A RS.98,22,000/- HAS ALREADY BEEN WITHDRAWN WHILE COMPLETING THE SCRUTINY ASSESSMENT FOR 1997-98 THE ADDITION MADE TOWARDS THE INTEREST INCOME IN THE AS SESSMENT FOR 1999-2000 IS NOT IN ORDER. THE EXAMINATION OF STATEMENTS SHOW THAT THE AMOUNT OF RS.75,83177/- HAS BEEN OFFERED IN THE BOOKS OF ACCO UNT AS INCOME. THE DISALLOWANCE MADE TOWARDS THIS AMOUNT IN THE ASSESS MENT FOR 1999-2000 IS THEREFORE NOT IN ORDER. AS THESE ARE MISTAKES APPAR ENT FROM THE RECORDS THE ASSESSMENT FOR 1999-2000 IS NOW REVISED U/S 154 AS UNDER. TAKING CUE FROM THE SAME, WE OBSERVE THAT SINCE THE ASSESSING OFFICER HIMSELF HAS HELD THE DISALLOWANCE TO BE INAPPROPRIA TE BY RECTIFYING THE ASSESSMENT ORDER, THERE IS NO LOCUS STANDI ON THE P ART OF THE REVENUE TO RAISE THE INSTANT GROUND. HENCE, WE REJECT THIS GROUND AG ITATED BY THE REVENUE. ACCORDINGLY, QUA GROUNDS NO. 4 AND 7 RAISED BY THE REVENUE, THE ORDER OF THE CIT(A) IS AFFIRMED. IN THE LIGHT OF OUR FINDINGS, W E PARTLY ALLOW REVENUES APPEAL FOR STATISTICAL PURPOSE. 15. NOW, WE COME TO I.T.A. NO. 905/MDS/2010 FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2002-03. IN THIS APPEAL, THE ASSESS EE HAS STATED THAT 4 SUBSTANTIVE GROUNDS HAVE BEEN RAISED WHICH RELATE T O DISALLOWANCE OF EXPENDITURE @ 2% BY THE CIT(A); DEDUCTION OF AMOUNT FOR PENSION DIRECTLY PAID TO ITS PENSIONERS; SOFTWARE EXPENSES AND POOJA EXPE NSES. IT HAS BEEN POINTED OUT THAT THESE GROUNDS EXCEPT GROUND NO. III ARE CO VERED BY OUR FINDINGS IN ASSESSEES APPEALS IN I.T.A. NO. 902/MDS/2010 FOR T HE ASSESSMENT YEAR 1999- 2000 AND I.T.A. NO. 930/MDS/2011 FOR THE ASSESSMENT YEAR 2004-05. THE REVENUE HAS OPPOSED THE SUBMISSIONS ONLY QUA GROUND NO. 3. . I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 28 16. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO T HE GROUND RAISED, WE FIND THAT SIMILAR GROUND WAS RAISED BY THE ASSESSEE IN I.T.A. NO. 902/MDS/2010 FOR THE ASSESSMENT YEAR 1999-2000 AND WE HAVE UPHELD CIT(A) S FINDING PERTAINING TO DISALLOWANCE @ 2% OF THE EXEMPT INCOME, WHICH ARE R EPRODUCED HEREUNDER: 11. WE HAVE CONSIDERED THE ARGUMENTS OF BOTH PART IES AND ALSO GONE THROUGH THE ORDERS OF ASSESSING OFFICER AS WELL AS CIT(A). IT IS EVIDENT THAT IN THE ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD RAISED THE CLAIM OF EXEMPT INCOME (SUPRA) WITHOUT ATTRIBUTING ANY EXPENDITURE WHICH WAS DETERMINED BY THE ASSESSING OFFICER BY FOLLOWING APPORTIONMENT FO RMULA. IN APPEAL, THE CIT(A) HAS PREFERRED TO DISALLOW THE EXPENDITURE AT RATE OF 2% BY FOLLOWING REASONABLE COMPUTATION METHOD. WE NOTICE THAT IN EA RLIER ASSESSMENT YEARS (SUPRA), THE COORDINATE BENCH OF CHENNAI ITAT IN I. T.A. NOS. 1597, 1598, 1599/MDS/2005 DECIDED ON 27.05.2009 ON SIMILAR ISSU E HAD DIRECTED THE ASSESSING OFFICER TO PROCEED AS UNDER: 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSID ERED THE FACTS AND MATERIAL ON RECORD. THE LEARNED DR RELIED ON THE DE CISION OF SPECIAL BENCH OF THE ITAT, MUMBAI BENCH IN THE CASE OF INCOME TAX OFFICER V. DAGA CAPITAL MANAGEMENT PVT. LTD. (2009) 312 ITR (AT) 1( MUMBAI)(SB) WHEREBY THE TRIBUNAL HELD THAT RULE 8 IS TO BE FOLL OWED IN DISALLOWING SUCH EXPENSES AND THE SAID RULE IS RETROSPECTIVE. HENCE, HE SUBMITTED THAT THE MATTER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER TO FOLLOW THE RATIO LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN T HE ABOVE CITED ORDER. WE FIND FORCE IN THE CONTENTION OF THE LEARNED D.R. TH AT THE POINT AT ISSUE IS NOW GOVERNED BY THE DECISION OF THE SPECIAL BENCH OF TH E TRIBUNAL CITED SUPRA AND HENCE, WE RESTORE THIS ISSUE BACK TO THE FILE O F THE ASSESSING OFFICER WITH A DIRECTION TO FOLLOW THE DECISION OF THE SPECIAL B ENCH CITED SUPRA AND DECIDE THE ISSUE AFRESH ACCORDING TO LAW, OF COURSE , AFTER GIVING EFFECTIVE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE ASS ESSEE IS ALSO DIRECTED TO COOPERATE WITH THE ASSESSING OFFICER BY PROVIDING N ECESSARY DETAILS THAT WOULD BE REQUIRED FOR DECIDING THE ISSUE. THUS, BOT H THE ASSESSEE AND THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSE ON THIS GROUND FOR ALL THE THREE ASSESSMENT YEARS UNDER CONSIDERATION. AGAINST THE ABOVE ORDER PASSED BY THE COORDINATE BE NCH, THE ASSESSEES APPEALS ARE PENDING BEFORE HONBLE HIGH COURT. IT HAS ALSO CAME TO OUR NOTICE THAT RECENTLY, THE HONBLE JURISDICTI ONAL HIGH COURT HAS BEEN PLEASED TO HOLD THAT DISALLOWANCE OF EXPENDITURE IN EARNING EXEMPT INCOME @ 2% BASED ON ESTIMATION IS REASONABLE. THE OPERATI VE PART OF THE JUDGMENT IN TAX CASE (APPEAL) NO. 2621 OF 2006 TITLED AS M/S . SIMPSON AND CO. LTD. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 29 VS. DCIT DECIDED ON 15.10.2012 READS AS UNDER:- THIS TAX CASE (APPEAL), FILED AT THE INSTANCE OF T HE ASSESSEE AS AGAINST THE ORDER OF THE INCOME TAX APPELLATE TRIBU NAL FOR THE ASSESSMENT YEAR 2001-02, WAS ADMITTED ON THE FOLLOWING SUBSTAN TIAL QUESTIONS OF LAW: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE ESTIMAT ED DISALLOWANCE OF 2% OF THE EXPENDITURE, AS BEING INCIDENTAL TO EA RNING DIVIDEND INCOME, UNDER SECTION 14-A OF THE ACT ALTHOUGH NO A CTUAL EXPENDITURE WAS INCURRED? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL WAS JUSTIFIED IN NOT APPRECIATING THAT AS PER SECTION 14- A ONLY THAT ACTUAL EXPENDITURE INCURRED IN RELATION O INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME SHALL BE DISALLO WED? 2. LEARNED COUNSEL APPEARING FOR THE ASSESSEE AS W ELL AS LEARNED STANDING COUNSEL APPEARING FOR REVENUE SUBMITS THAT THE ISSUE INVOLVED IN THIS TAX CASE (APPEAL) IS COVERED BY A DECISION OF THIS COURT DATED 08.08.2012 IN T.C.(A) NO. 2287 OF 2006 IN THE CASE OF M/S. EID PARRY (INDIA) LIMITED V. THE JOINT COMMISSIONER OF INCOME TAX, WHEREIN THIS COURT POINTED OUT THAT IN THE ABSENCE OF ANY MATERI ALS REGARDING INCURRING OF EXPENDITURE, THE TRIBUNAL WAS JUSTIFIED IN CONFI RMING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE DEDUC TION OF 2% MANAGERIAL EXPENSES HAD TO BE MADE WHILE CALCULATIN G DEDUCTION UNDER SECTION 80 M. THUS BEING PURE QUESTION OF FACT, THE RE BEING NO OTHER MATERIAL IN SUPPORT OF THE CLAIM MADE. THE ORDER OF THE TRIBUNAL WAS CONFIRMED. 3. APPLYING THE REASONING GIVEN IN THE ABOVE-SAID DECISION TO THE CASE ON HAND, WHEN THE TRIBUNAL POINTED OUT THAT THE ASS ESSEE HAD NOT FURNISHED THE DETAILS OF EXPENDITURE INCIDENTAL TO THE EARNIN G OF DIVIDEND INCOME, ESTIMATION WAS MADE ON THE EXPENDITURE ATTRIBUTABLE TO DIVIDEND INCOME AT 2% OF THE GROSS TOTAL INCOME. ACCORDINGLY, THIS TAX CASE (APPEAL) STANDS DISMISSED. NO COSTS. IN THE LIGHT OF OBSERVATIONS OF HONBLE HIGH COURT, WE ALSO HOLD THAT THE CIT(A) HAS RIGHTLY DISALLOWED EXPENDITURE IN EARNIN G EXEMPT INCOME @ 2%. SO, THE GROUND STANDS REJECTED. SINCE NO DISTINGUISHING FEATURES HAVE BEEN POINTED BY THE ASSESSEE, WE UPHOLD THE ORDER OF THE CIT(A) AND REJECT GROUND NO. 1 IN THE INSTANT APPEAL. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 30 17. SO FAR AS GROUND NO. 2 IN ASSESSEES APPEAL IS CONCERNED, THE SAME RELATES TO THE DISALLOWANCE OF AMOUNT WHICH WAS PAI D BY THE ASSESSEE DIRECTLY TO THE PENSIONERS. IT HAS COME TO OUR NOTICE THAT IN I .T.A. NO. 902/MDS/2010 (SUPRA), WE HAVE CONSIDERED THE ISSUE AS HEREUNDER: 18. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, PER USED THE RELEVANT FINDINGS BY THE ASSESSING OFFICER AS WELL AS CIT(A) AND ALSO HAVE GONE THROUGH THE CASE LAW CITED BY THE ASSESSEE (SUPRA). ADMITTED FACTS PERTAINING TO THE GROUND ARE THAT THE ASSESSEE HAD MADE DIRECT PAYMENT TO ITS PENSIONERS. WITH EFFECT FROM OCTOBER, 2003, IT HAD PURCHASED ANNUITY FROM LIC OF INDIA WHICH IS ALSO AVAILABLE ON RECORD AT P AGE 33 IN THE PAPER BOOK CONTAINING DIVISION CODE NO. 076 AND RECEIPT NO. 11 88 DATED 31.10.2003. IT ALSO EMERGES THAT THE PRIVATE SECTOR BANKING COMPAN IES ALIKE ASSESSEE HAD APPROACHED CBDT PRAYING FOR EXEMPTION FROM COMPLIAN CE WITH RULE 89 OF INCOME TAX RULES, WHICH WAS REJECTED ON 13.08.2003. IN OCTOBER, 2003, THE ASSESSEE HAD PURCHASED ANNUITY IN COMPLIANCE WITH R ULE 89 WHICH HAS NOWHERE BEEN DISPUTED BY THE REVENUE. IN THE LIGHT THEREOF, THE CLAIM OF THE ASSESSEE IS THAT THE PAYMENT IN QUESTION IS ALLOWAB LE AS BUSINESS EXPENSES UNDER SECTION 37 OF THE ACT WHICH IS CONTESTED BY THE REVENUE. WE FIND THAT THE COORDINATE BENCH OF COCHIN ITAT IN I.T.A. NO. 10/COCH/2009 (SUPRA) HAS ALSO DEALT WITH THIS VERY ISSUE AND RES TORED THE SAME BACK TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION AFTER TAK ING INTO ACCOUNT THE RELEVANT PROVISIONS I.E. SECTION 37(1) OF THE ACT . THE RELEVANT OBSERVATIONS READ AS UNDER: 2. THE ISSUE RAISED BY THE ASSESSEE, A BANK, IS I N RESPECT OF DISALLOWANCE OF PENSION PAID TO ITS RETIRED EMPLOYE ES (`310 LAKHS) CLAIMED U/S. 37(1) OF THE ACT. THE ASSESSING OFFICERS (A. OS) OBJECTION THERE-TO WAS THAT THE ASSESSEE HAD ALREADY ESTABLISHED A PENSIO N FUND FOR THE PURPOSE, AND TO WHICH REGULAR CONTRIBUTIONS WERE BEING CLAIM ED AND ALLOWED U/S. 36(1)(IV) OF THE ACT. AN AMOUNT COULD BE CLAIMED A S A BUSINESS EXPENDITURE ONLY UNDER A SPECIFIC SECTION; SECTION 37(1) CLEARL Y PROVIDING FOR EXPENDITURE WHICH IS NOT SPECIFICALLY COVERED UNDER SECTION 30 TO 36 OF THE ACT. ON FACTS, IT WAS POINTED OUT BY HIM THAT THE AMOUNT AVAILABLE WITH THE PENSION FUND WAS MORE THAN THAT BEING CLAIMED BY TH E ASSESSEE BY WAY OF DIRECT PAYMENT. HE RELIED ON SEVERAL DECISIONS, BO TH AS REGARDS THE LEGAL PROPOSITION AS RAISED BY HIM AS WELL AS IN RESPECT OF THE PENSION PAID THUS. THE LD. CIT(A) FOUND THAT THE TRIBUNAL HAD IN THE C ASE OF SOUTH INDIAN BANK LTD. (IN I.T.A. NO. 359 & 360/COCH/2006 DATED 27.9.2007) REMITTED THE MATTER BACK TO THE FILE OF THE AO TO CONSIDER A S TO HOW THE LIABILITY (WHICH STANDS CLAIMED AS ARISING BY VIRTUE OF A TRI PARTITE AGREEMENT BETWEEN THE ASSESSEE, INDIAN BANKS ASSOCIATION AND THE EMP LOYEES TRADE UNION) I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 31 HAD ARISEN INSPITE OF THE FACT THAT THERE WAS A SUP ERANNUATION FUND FOR THE PURPOSE, I.E., IN SHORT, TO DETERMINE ITS COMMERCIA L EXPEDIENCY. THIS WAS, IN VIEW OF THE ASSESSEES CLAIM AS A BUSINESS EXPENDIT URE COMPUTING U/S. 37(1) AS WELL AS ITS RELIANCE ON THE DECISION IN THE CASE OF CIT VS. T. STANES & COMPANY LTD., 105 ITR 251 (MAD.), AFFIRMED BY THE S UPREME COURT VIDE ITS DECISION REPORTED AT (1991) 188 ITR 237 (SC) WHICH HAD, INFACT, BEEN RELIED UPON BY BOTH THE PARTIES. THE MATTER WAS ACCORDINGL Y RESTORED TO THE AO WITH LIKE DIRECTIONS. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 3. THE ASSESSEE DURING THE HEARING POINTED OUT THE TRIBUNALS ORDER IN ITS OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR (I .E., A.Y. 2004-05) (IN I.T.A. NO. 854/COCH/2007 DATED 6.8.2009) HOLDING IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION BY THE APEX COURT IN THE CA SE OF T. STANES & CO. LTD. (SUPRA). WE OBSERVE THAT THE TRIBUNAL IN THE ASSESS EES CASE FOR EARLIER YEARS (VIZ. AY 1999-00/ IN ITA NO. 26/COCH/2008 DATED 30/ 6/2009 AND AY 2000- 01 (IN ITA NO. 345/COCH/2008 DATED 6/8/2009) HAD, S IMILARLY, RESTORED THE MATTER BACK TO THE FILE OF THE AO FOR EXAMINING AND DETERMINING THE QUESTION OF QUANTUM. THE LEGAL ISSUES SOUGHT TO BE RAISED BY THE AO NO LONGER OBTAIN, I.E., IN VIEW OF THE CONSISTENT STAN D TAKEN BY THE TRIBUNAL IN THE MATTER, SO THAT THE ASSESSEE IS ELIGIBLE, I.E., IN PRINCIPLE, FOR DEDUCTION QUA THE DIRECT PAYMENT OF PENSION U/S. 37(1) OF THE ACT. HOWEVER, THE ASPECT OF THE COMMERCIAL EXPEDIENCY (ON THE PARAMET ERS AS SETTLED BY THE APEX COURT) HAS ADMITTEDLY NOT BEEN EXAMINED BY THE AO, AND WHICH IS A PERQUISITE FOR THE ALLOWANCE OF A CLAIM U/S. 37(1), AND THE ONUS TO EXHIBIT WHICH IS ONLY ON THE ASSESSEE. IN THE FACTS OF THE CASE, WE FIND IT AS ALL THE MORE RELEVANT AS THERE IS NO SUBSISTING EMPLOYER-EM PLOYEE RELATIONSHIP BETWEEN THE ASSESSEE AND ITS RETIRED EMPLOYEES. THE RE IS NO ENUMERATION OF THE BASIC AND RELEVANT FACTS IN THE ASSESSMENT OR T HE IMPUGNED ORDER, WHICH WE FIND AS NOT MENTIONED EVEN IN THE ORDERS REFERRE D TO FOR THE EARLIER YEARS. AS SUCH, WE ARE UNABLE TO SEE ANY INFIRMITY IN THE IMPUGNED ORDER, PASSED FOLLOWING THAT BY THE CO-ORDINATE BENCH, AND NEITHE R HAS THE ASSESSEE BEEN ABLE TO SHOW US ANY. THE ORDER BY THE TRIBUNAL REF ERRED TO BY THE ASSESSEE DISPOSES THE REVENUES APPEAL, WHOSE CASE, AS AFORE -NOTED, STANDS DISMISSED BY THE TRIBUNAL, FINDING THE ALLOWANCE OF DEDUCTION U/S. 36(1)(IV), WHICH IS QUA THE CONTRIBUTION TO THE FUND, AS NO BA R FOR THE CLAIM OF DEDUCTION U/S. 37(1). HOWEVER, THAT THE SAME HAS T O BE ON ITS MERITS, I.E., ON A STAND-ALONE BASIS, IS UNEXCEPTIONAL, AND WHICH WE UNDERSTAND TO BE THE IMPORT OF THE DECISION BY THE LD. CIT(A). THE AO SH ALL AFFORD PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE IN THE MATTE R. WE DECIDE ACCORDINGLY. AFTER PERUSING THE ABOVE OBSERVATIONS, WE ARE OF TH E VIEW THAT IN THE INSTANT CASE AS WELL, THE VITAL ASPECT OF APPLICATION OF TH E LEGAL PRINCIPLE OF COMMERCIAL EXPEDIENCE UNDER SECTION 37(1) OF THE ACT HAS ESCAPED THE CONSIDERATION OF THE ASSESSING OFFICER AS WELL AS C IT(A). HENCE, WE OBSERVE THAT THE AO IN THIS CASE SHALL PASS A FRESH ORDER I N ACCORDANCE WITH LAW BY I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 32 TAKING INTO CONSIDERATION THE ABOVE CASE LAW AFTER AFFORDING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. SINCE WE HAVE RESTORED THE ISSUE RAISED BY THE ASSE SSEE IN I.T.A. NO. 902/MDS/2010 (SUPRA) BACK TO THE FILE OF THE ASSESS ING OFFICER, WE ALSO RESTORE GROUND NO. 2 TO THE ASSESSING OFFICER WHO SHALL PAS S A FRESH ORDER IN ACCORDANCE WITH LAW BY TAKING INTO CONSIDERATION THE ABOVE FIN DINGS AND CASE LAW AFTER AFFORDING ADEQUATE OPPORTUNITY OR HEARING TO THE AS SESSEE. 18. THE NEXT GROUND RELATES TO SOFTWARE EXPENDITUR E. WE FIND THAT SAME ISSUE HAS ALSO BEEN RAISED IN ASSESSEES OTHER APPEAL IN I.T.A. NO. 906/MDS/2010. SO, WE SHALL TAKE UP THIS GROUND WITH GROUND NO. II IN ABOVE CASE. 19. THIS LEAVES US WITH POOJA EXPENSES. IT IS EVID ENT FROM THE ORDER DATED 17.01.2013 IN CONNECTED CASES(SUPRA) QUA ASSESSMEN T YEAR 2004-05 IN I.T.A. NO.930/MDS/2011, WE HAVE ACCEPTED ASSESSEES CONTEN TION THAT POOJA EXPENSES ARE ALLOWABLE AS THEY HAVE BEEN HELD TO BE FOR THE WELFARE OF THE STAFF MEMBERS. OUR FINDINGS IN THE SAID APPEAL READ AS UNDER: 82. WE HAVE HEARD BOTH PARTIES AND ALSO PERUSED T HE FINDINGS OF THE ASSESSING OFFICER, CIT(A) AS WELL AS CASE LAW CITED . WE NOTICE THAT ON FACTS THERE IS NO DISPUTE THAT THE ASSESSEE HAD INCURRED EXPENDITURE IN PERFORMING POOJAS IN QUESTION. THE ASSESSEE HAS ALSO STATED TH AT PERFORMING POOJA GIVES PEACE OF MIND TO ITS EMPLOYEES AND INCREASES WORK E FFICIENCY. WE NOTICE THAT IN SIMILAR CLAIM, THE HONBLE JURISDICTIONAL HIGH C OURT (SUPRA) WHILE ACCEPTING THE ISSUE CONCERNED IN ASSESSEES FAVOUR HAS HELD AS UNDER: THE COMMISSIONER OF INCOME-TAX, TAMIL NADU-III, MA DRAS, HAS APPLIED FOR A DIRECTION TO THE TRIBUNAL IN EACH OF THESE TWO PETITIONS FOR REFERENCE OF THE FOLLOWING QUESTION: I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 33 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL WAS RIGHT IN HOLDING THAT THE EX PENSES INCURRED BY THE ASSESSEE TOWARDS POOJA AND BAKSHISH SHOULD BE A LLOWED AS BUSINESS EXPENSES OR WELFARE EXPENSES OF THE STAFF ? ' THE FACTS ARE IN A SHORT COMPASS. THE ASSESSMENT YE ARS UNDER CONSIDERATION ARE 1968-69 AND 1969-70. THE ASSESSEE CLAIMED RS. 1,751 AND RS. 3,250 AS MISCELLANEOUS EXPENSES. THES E HAD BEEN CLASSIFIED AS POOJA EXPENSES AND ALSO EXPENSES FOR BAKSHISH AND PRESENTATION. THE ITO DISALLOWED THE CLAIM AND THE SAID DISALLOWANCE WAS CONFIRMED BY THE AAC ON APPEAL. ON FURTHER APPE AL, THE INCOME- TAX APPELLATE TRIBUNAL ALLOWED THE APPEALS IN PART. IN PARA. 12 OF ITS ORDER, THE TRIBUNAL POINTED OUT THAT THESE EXPENSES WERE INCURRED FOR THE POOJAS, ETC., PERFORMED BY THE WORKERS AND THAT THEY SHOULD FORM PART OF THE WELFARE EXPENSES. IT ALSO POINTED OUT T HAT, SIMILARLY, EXPENSES ON BAKSHISH AND PRESENTATION WERE FOUND TO HAVE BEEN INCURRED IN RESPECT OF THE WORKERS ALONE. HENCE, TH E TRIBUNAL DID NOT FIND ANY REASON FOR THE DISALLOWANCE OF THESE CLAIM S. IT IS THIS CONCLUSION OF THE TRIBUNAL THAT IS NOW SOUGHT TO BE QUESTIONED. HAVING REGARD TO THE FINDING OF THE TRIBUNAL THAT T HESE EXPENSES HAVE BEEN INCURRED ONLY IN RESPECT OF THE WORKERS, IT IS CLEAR THAT THE EXPENSES HAVE BEEN RIGHTLY HELD TO BE ONES INCURRED FOR THE WELFARE OF THE WORKERS. THE CONCLUSION OF THE TRIBU NAL IS BASED ON THE PARTICULAR FACTS AND, THEREFORE, NO QUESTION OF LAW ARISES OUT OF THE ORDER OF THE TRIBUNAL. THE PETITIONS ARE, ACCORDING LY, DISMISSED WITH COSTS. COUNSEL'S FEE RS. 250 (RUPEES TWO HUNDRED AN D FIFTY ONLY), ONE SET. IN THE LIGHT THEREOF, WE ARE OF THE VIEW THAT THE C IT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE. KEEPING IN VIEW THE OB SERVATIONS AFORESAID, WE ACCEPT ASSESSEES GROUND AND DELETE THE DISALLOWANC E ON ACCOUNT OF POOJA EXPENSES. ACCORDINGLY, WE ALLOW THE INSTANT GROUND AS WELL IN ASSESSEES APPEAL. CONSEQUENTLY, I.T.A. NO. 905/MDS/2010 STANDS PARTLY ACCEPTED. 20. I.T.A. NO. 906/MDS/2010: IN THIS APPEAL, THE A SSESSEE HAS RAISED THREE SUBSTANTIVE GROUNDS I.E. DEPRECIATION ON LEASED OUT ASSETS, SOFTWARE EXPENSES I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 34 AND EXPENSES TO INCREASE AUTHORIZED CAPITAL. IT HAS BEEN FAIRLY SUBMITTED BY THE AR OF THE ASSESSEE THAT OUR FINDINGS IN I.T.A. NO. 897/MDS/2010 (SUPRA) COVER GROUND OF DEPRECIATION. IT IS EVIDENT THAT OUR FIND INGS IN THE ABOVE SAID READ AS UNDER: 13. WE HAVE CONSIDERED RIVAL CONTENTIONS AT LENGT H AND PERUSED THE RELEVANT FINDINGS. THE ISSUE IN HAND IS THAT THE AS SESSEE HAD CLAIMED FOR DEPRECIATION ON LEASED OUT ASSETS WHICH HAS BEEN DE NIED BY THE ASSESSING OFFICER BY FOLLOWING ASSESSMENT ORDER OF ASSESSMENT YEAR 1996-97. THE IMPUGNED ASSESSMENT YEAR BEFORE US IS 1999-2000. ON A QUERY BEING PUT UP BY THE BENCH, BOTH PARTIES HAVE INFORMED US THAT FI RST ASSESSMENT YEAR FOR THE PURPOSE OF DEPRECIATION OF LEASED OUT ASSET IS 1996 -97 AND ALSO STATED THAT IN THE SAID ASSESSMENT YEAR, THE ASSESSMENT UNDER SECT ION 143(3) OF THE ACT WAS COMPLETED ON 09.03.1999, WHEREIN THE SAME VERY CLAIM HAD BEEN DISALLOWED. IN ASSESSEES APPEAL PREFERRED BEFORE T HE CIT(A), THE ISSUE STOOD RESTORED BACK TO THE ASSESSING OFFICER FOR RECONSID ERATION VIDE APPELLATE ORDER DATED 31.03.2005. AS POINTED OUT BY THE AR, T HE ASSESSING OFFICER THEREAFTER RE-DECIDED THE ISSUE VIDE ORDER DATED 22 .12.2010 UPHOLDING ASSESSEES CLAIM OF DEPRECIATION IN CASE OF ERODE R ANE TEXTILES PROCESSORS I & II AND SRI SARVESH COTTON MILLS LTD. I, II AN D III (SUPRA) AND DISALLOWED CLAIM OF DEPRECIATION IN CASES OF RAJENDER STEELS L TD. AND M/S ARUNA TEXTILES. THOUGH HE HAS SUBMITTED THAT THE ASSESSEE S APPEALS ARE ALSO PENDING BEFORE THE CIT(A) QUA ASSESSMENT YEAR 1996- 97 AGAINST THE ORDER DATED 20.12.2010 (SUPRA) AND THEREFORE, WE SHOULD R ESTORE THE MATTER BACK TO THE ASSESSING OFFICER, WE FAIL TO AGREE WITH THE SA ID CONTENTION. IN OUR VIEW, MERELY BECAUSE FOR THE FIRST YEAR FOR THE PURPOSE O F CLAIMING DEPRECIATION IS 1996-97 REGARDING WHICH ASSESSEES APPEALS ARE PEND ING BEFORE CIT(A), IT ITSELF CANNOT A GROUND TO RESTORE THE ISSUE BACK TO THE ASSESSING OFFICER. WE ALSO DEEM IT PROPER TO OBSERVE THAT IN CASE THE ASS ESSEE IS HELD ENTITLED FOR THE RELIEF OF DEPRECIATION IN QUESTION IN FIRST ASS ESSMENT YEAR, IT WOULD GET THE SAME RELIEF IN SUBSEQUENT YEARS. HENCE, FOR THE PUR POSE OF DECIDING THIS GROUND, WE SEE NO REASON TO INTERFERE WITH CIT(A)S ORDER. SIMILARLY, SO FAR AS REVENUES CONTENTIONS ARE CONC ERNED, WE HOLD THAT SINCE THE ASSESSEE HAS BEEN HELD ENTITLED FOR THE UNITS IN QUESTION FOR THE ASSESSMENT YEAR 1996-97, WE SEE NO REASON AS TO WHY IT IS NOT ENTITLED FOR THE SAME VERY ASSETS IN THE IMPUGNED ASSESSMENT YEAR. T HE ARGUMENT RAISED BY THE REVENUE THAT THE ASSESSEE LED NO EVIDENCE OR MA TERIAL TO PROVE ITS CASE ALSO DOES NOT INSPIRE ANY CONFIDENCE AS THERE IS NO COGENT MATERIAL PLACED BEFORE US TO ACCEPT THE REVENUES CONTENTION THAT T HE ASSESSEE IS NOT ENTITLED I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 35 FOR THE RELIEF GRANTED BY THE CIT(A). HENCE, WE REJECT THE REVENUES CONTENTION AS WELL. 14. TO SUM UP, GROUNDS NO. II IN ASSESSEES AS WEL L AS GROUND NO. 2 IN REVENUES APPEAL STAND REJECTED. ACCORDINGLY, WE REJECT THE GROUND RAISED IN THE INS TANT APPEAL BY THE ASSESSEE. 21. GROUND NO. II IN THE INSTANT APPEAL PERTAINS T O SOFTWARE EXPENSES. SO, WE ALSO TAKE UP GROUND NO. 3 IN I.T.A. NO. 905/MDS/201 0 (SUPRA) AND IN THE INSTANT APPEAL. 22. BRIEF BACKDROP OF THESE GROUNDS ARE THAT IN TH E ASSESSMENT FINALIZED ON 18.08.2004 (SUPRA), THE ASSESSEE HAD CLAIMED AN AMO UNT OF ` .76,18,996/- IN ITS P & L ACCOUNT AS SOFTWARE EXPENSES. ITS PLEA IN SUP PORT THEREOF WAS THAT IT HAD INCURRED THE EXPENSES TO REPLACE THE EARLIER SOFTWA RE BY ITS OWN SOFTWARE SYSTEM IN VARIOUS STAGES AND THE SAME WAS IN THE NATURE OF REVENUE EXPENDITURE. IN THE ASSESSMENT ORDER DATED 18.08.2004, THE ASSESSING OF FICER HELD THAT SINCE THE EXPENDITURE WAS VERY HIGH, IT WAS CAPITAL IN NATU RE. ACCORDINGLY, AFTER TAKING INTO CONSIDERATION WRITTEN DOWN VALUE FOR THE PURPOSE OF DEPRECIATION, HE MADE ADDITION OF ` .32,85,681/-. SIMILARLY, FROM THE REASSESSMENT ORDE R DATED 31.12.2007, WE NOTICE THAT THE ASSESSING OFFICER RE -EXAMINED THE ISSUE AND HELD THAT THE ASSESSEE HAD SHOWN TO HAVE DEBITED TOTAL A MOUNT OF ` .76,18,996/- UNDER THIS HEAD WHICH WAS HELD TO BE CAPITAL IN NATURE AN D DISALLOWED TOTAL AMOUNT OF ` .57,14,247/- [INCLUDING AMOUNT OF ` .32,85,681/-] ALREADY ADDED IN 18.08.2004 ORDER. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 36 23. THE FACTUAL POSITION WHICH EMANATES IS THAT IN BOTH APPEALS PERTAINING TO SAME ASSESSMENT YEAR, THE SOFTWARE EXPENDITURE INCU RRED IS FOR THE SAME PURPOSE I.E. REPLACEMENT OF SOFTWARE WHICH ALREADY STOOD INSTALLED. WE NOTICE THAT IN THE ASSESSMENT ORDER, WITHOUT REBUTTING THE REPLACEMENT PLEA OF THE ASSESSEE, THE ASSESSING OFFICER HAS SIMPLY TREATED THE EXPENDITURE AS CAPITAL IN NATURE. WE ARE UNABLE TO CONCUR WITH THE SAID COURS E ADOPTED BY THE LOWER AUTHORITIES. WE MAY ADD HERE THAT THE REVENUE NOWHE RE REBUTS THE REPLACEMENT PLEA OF THE ASSESSEE ON THE BASIS OF ANY MATERIAL THAT THE SOFTWARE IN QUESTION GAVE ANY ENDURING BENEFIT TO THE ASSESS EE OR IT INCREASED THE CAPACITY. HENCE, WE ACCEPT THE ASSESSEES PLEA IN B OTH APPEALS I.T.A. NOS. 905/MDS/2010 AND 906/MDS/2010 AND DELETE THE ADDITI ON. 24. NOW WE COME TO GROUND NO. III RAISED BY THE AS SESSEE ON ACCOUNT OF EXPENSES INCURRED TO INTRODUCE AUTHORIZED CAPITAL W HICH HAVE BEEN DISALLOWED BY THE ASSESSING OFFICER AS WELL AS CIT(A). QUA THIS A SPECT, WE NOTICE THAT THE IN I.T.A. NO. 902/MDS/2010 (SUPRA), THE ASSESSEE HAD R AISED THE SAME VERY GROUND, AND OUR FINDINGS READ AS FOLLOWS: 27. RIVAL CONTENTIONS OF THE PARTIES HAVE BEEN HEA RD. WE HAVE ALSO PERUSED THE FINDINGS OF THE ASSESSING OFFICER AS WE LL AS CIT(A). UNDISPUTEDLY, THE EXPLANATION TENDERED BY THE ASSES SEE IN SUPPORT OF THE CLAIM IS THAT IT HAD PAID THE SUM IN QUESTION TO TH E REGISTRAR OF COMPANIES SO AS TO INCREASE ITS AUTHORIZED CAPITAL. THE ISSUE BE TWEEN PARTIES IS ABOUT THE NATURE OF EXPENDITURE I.E. PER ASSESSEE, IT IS REVE NUE EXPENDITURE AND PER REVENUE IT IS CAPITAL EXPENDITURE. WE NOTICE THAT T HE HONBLE SUPREME COURT IN THE ABOVE CITED CASE (SUPRA) ALSO DEALT WITH THI S QUESTION AS TO WHETHER THE EXPENDITURE DIRECTLY RELATED TO EXPANSION OF ITS CA PITAL BASE IS REVENUE OR I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 37 CAPITAL IN NATURE. IN THE SAID CASE, THEIR LORDSHIP S TURNED DOWN ASSESSEES ARGUMENT AND HELD AS UNDER: WE FIND THAT THIS MATTER HAS COME UP FOR CONSIDERA TION BEFORE THIS COURT IN PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPOR ATION LTD. V. CIT [1997] 225 ITR 792 (TAX REFERENCE NO. 1 OF 1990, DE CIDED ON DECEMBER 4, 1996). IN THAT CASE, THE QUESTION UNDER CONSIDERATI ON WAS WHETHER AN AMOUNT OF RS. 1,50,000 PAID TO THE REGISTRAR OF COM PANIES AS FILING FEE FOR ENHANCEMENT OF CAPITAL WAS NOT REVENUE EXPENDITURE. THE COURT HAS TAKEN NOTE OF THE DECISIONS OF THE MADRAS, ANDHRA PRADESH , KARNATAKA AND KERALA HIGH COURTS TO WHICH REFERENCE HAS BEEN MADE BY DR. PAL AS WELL AS THE JUDGMENT UNDER CHALLENGE IN THIS APPEAL AND THE JUDGMENT OF THE HIGH COURTS TAKING THE SAME VIEW AS THAT TAKEN IN THE IM PUGNED JUDGMENT. THIS COURT HAS ALSO TAKEN NOTE OF THE DECISIONS IN EMPIR E JUTE CO. LTD.'S CASE [1980] 124 ITR 1 (SC) AS WELL AS INDIA CEMENTS LTD. 'S CASE [1966] 60 ITR 52 (SC). WHILE HOLDING THAT THE AMOUNT OF RS. 1,50, 000 PAID TO THE REGISTRAR OF COMPANIES AS FILING FEE FOR ENHANCEMENT OF THE C APITAL WAS NOT REVENUE EXPENDITURE, THIS COURT HAS SAID : ' WE DO NOT CONSIDER IT NECESSARY TO EXAMINE ALL TH E DECISIONS IN EXTENSO BECAUSE WE ARE OF THE OPINION THAT THE FEE PAID TO THE REGISTRAR FOR EXPANSION OF THE CAPITAL BASE OF THE COMPANY WAS DIRECTLY RELATED TO THE CAPITAL EXPENDITURE INCURRE D BY THE COMPANY AND ALTHOUGH INCIDENTALLY THAT WOULD CERTAINLY HELP IN THE BUSINESS OF THE COMPANY AND MAY ALSO HELP IN PROFIT-MAKING, IT STILL RETAINS THE CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EX PENDITURE WAS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BA SE OF THE COMPANY. WE ARE, THEREFORE, OF THE OPINION THAT THE VIEW TAK EN BY THE DIFFERENT HIGH COURTS IN FAVOUR OF THE REVENUE IN THIS BEHALF IS THE PREFERABLE VIEW AS COMPARED TO THE VIEW BASED ON THE DECISION OF THE MADRAS HIGH COURT IN KISENCHAND CHELLARAM'S CASE [1981] 13 0 ITR 385. ' THIS DECISION THUS COVERS THE QUESTION THAT FALLS F OR CONSIDERATION IN THIS APPEAL. DR. PAL HAS, HOWEVER, SUBMITTED THAT THIS DECISION DOES NOT COVER A CASE, LIKE THE PRESENT CASE, WHERE THE OBJECT OF EN HANCEMENT OF THE CAPITAL WAS TO HAVE MORE WORKING FUNDS FOR THE ASSESSEE TO CARRY ON ITS BUSINESS AND TO EARN MORE PROFIT AND THAT IN SUCH A CASE THE EXPENDITURE THAT IS INCURRED IN CONNECTION WITH ISSUING OF SHARES TO IN CREASE THE CAPITAL HAS TO BE TREATED AS REVENUE EXPENDITURE. IN THIS CONNECTI ON, DR. PAL HAS INVITED OUR ATTENTION TO THE SUBMISSIONS THAT WERE URGED BY LEARNED COUNSEL FOR THE ASSESSEE BEFORE THE APPELLATE ASSISTANT COMMISSIONE R AS WELL AS BEFORE THE TRIBUNAL. IT IS NO DOUBT TRUE THAT BEFORE THE APPEL LATE ASSISTANT COMMISSIONER AS WELL AS BEFORE THE TRIBUNAL IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT THE INCREASE IN THE CAPITAL WAS T O MEET THE NEED FOR I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 38 WORKING FUNDS FOR THE ASSESSEE-COMPANY. BUT THE STA TEMENT OF CASE SENT BY THE TRIBUNAL DOES NOT INDICATE THAT A FINDING WAS R ECORDED TO THE EFFECT THAT THE EXPANSION OF THE CAPITAL WAS UNDERTAKEN BY THE ASSESSEE IN ORDER TO MEET THE NEED FOR MORE WORKING FUNDS FOR THE ASSESSEE. W E, THEREFORE, CANNOT PROCEED ON THE BASIS THAT THE EXPANSION OF THE CAPI TAL WAS UNDERTAKEN BY THE ASSESSEE FOR THE PURPOSE OF MEETING THE NEED FOR WO RKING FUNDS FOR THE ASSESSEE TO CARRY ON ITS BUSINESS. IN ANY EVENT, TH E ABOVE QUOTED OBSERVATIONS OF THIS COURT IN PUNJAB STATE INDUSTRI AL DEVELOPMENT CORPORATION LTD.'S CASE [1997] 225 ITR 792 CLEARLY INDICATE THAT THOUGH THE INCREASE IN THE CAPITAL RESULTS IN EXPANSION OF THE CAPITAL BASE OF THE COMPANY AND INCIDENTALLY THAT WOULD HELP IN THE BUS INESS OF THE COMPANY AND MAY ALSO HELP IN THE PROFIT-MAKING, THE EXPENSE S INCURRED IN THAT CONNECTION STILL RETAIN THE CHARACTER OF A CAPITAL EXPENDITURE SINCE THE EXPENDITURE IS DIRECTLY RELATED TO THE EXPANSION OF THE CAPITAL BASE OF THE COMPANY. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERIT IN THE APPEAL AND IT IS ACCORDINGLY DISMISSED. NO ORDER AS TO COSTS. TAKING CUE FROM THE SAME, WE FIND THAT IN THE INSTA NT CASE AS WELL, THE ASSESSEE HAD MADE THE PAYMENT TO THE REGISTRAR OF C OMPANIES TO EMBROADEN ITS CAPITAL BASE. IN THE OBSERVATIONS ABOVE SAID, T HEIR LORDSHIPS HAVE REFERRED TO THE CASE LAW OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. V. CIT [1997] 225 ITR 792 (SC). IN THE SAID CA SE, THE ISSUE BETWEEN THE PARTIES WAS SAME AS BEFORE US. HENCE, IN THE LIGHT THEREOF, WE ARE ALSO OF THE VIEW THAT THE PAYMENT IN QUESTION MADE BY THE ASSES SEE TO THE REGISTRAR OF COMPANIES IS AN INSTANCE OF INCURRING CAPITAL EXPEN DITURE. HENCE, WE SEE NO REASON TO UPSET THE FINDINGS OF THE CIT(A). 28. THE GROUND IS THEREFORE, DECIDED AGAINST THE A SSESSEE. IN VIEW OF THE ABOVE, WE SEE NO REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(A) FOR THE IMPUGNED ASSESSMENT YEAR 2002-03 ALS O. CONSEQUENTLY, WE REJECT THE GROUND RAISED BY THE ASSESSEE. 25. ACCORDINGLY, I.T.A. NO. 906/MDS/2010 FILED BY THE ASSESSEE IS PARTLY ACCEPTED. 26. TO SUM UP, REVENUES APPEAL NO. 900/MDS/2010 I S PARTLY ACCEPTED FOR I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. . 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 900, 905 & 906/M/10 39 STATISTICAL PURPOSES, WHEREAS, ASSESSEES APPEALS I N I.T.A. NOS. 905/MDS/2010 AND 906/MDS/2010 ARE PARTLY ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 30 TH OF JANUARY, 2013 AT CHENNAI. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER CHENNAI, DATED, THE 30.01.2013. VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.
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