The Karur Vysya Bank Ltd., Karur V. Additional CIT, Trichy

ITA 931/CHNY/2011

AI Insights

The case involves a series of appeals by The Karur Vysya Bank Ltd. against the orders of the Assistant Commissioner of Income Tax, Company Circle I, Tiruchirapalli, concerning various assessment years. The primary issues revolved around the disallowance of expenses related to earning tax-free income, the depreciation claimed on leased assets, and the treatment of pension payments under the Income Tax Act. The Tribunal examined the legal and factual basis of each issue, considering previous judgments and the specific circumstances of the bank's operations. The Tribunal's decision aimed to balance the application of tax laws with the practical realities of the banking business, ensuring that the assessments were fair and justified.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302606 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2013
• Appeal Filed By: Assessee
• Order Result: PartlyAllowedAllowed
• Bench Allotted: A
• Next Hearing Date: 04-06-2023
• Assessment Year: 2006-2007
• Appeal Filed On: 19-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APPELLANT COMPANY; SHAJI P. JACOB
• Assessee Lawyers: WAY OF DIRECT PAYMENT. HE
• Keywords: Gift; Revision of order; Depreciation; Business expenditure; Rectification of order; Earning of tax free income; Bad and doubtful debts; Difference of opinion; Change of opinion; Revenue expenditure; Capital expenditure; Set aside
• Section: 148; 37; 154; 143(3); 244A; 14A; 260A; 37(1); 143(1); 250; 251

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. Nos. 902, 903, 904 and 907/Mds/2010 & 929, 930 and 931/Mds/2011 Assessment Years: 1999-2000, 2000-01, 01-02 and 05-06 & 2001-02, 04-05 and 06-07 The Karur Vysya Bank Ltd., Erode Road, Karur 639 002. [PAN:AAACT3373J] Vs. The Assistant Commissioner of Income Tax, Company Circle I, Tiruchirapalli 620 001. (Appellant) (Respondent) I.T.A. Nos. 897, 898, 899 and 901/Mds/2010 & 1069, 1070 and 1071/Mds/2011 Assessment Years: 1999-2000, 2000-01, 01-02 and 05-06 & 2001-02, 04-05 and 06-07 The Assistant Commissioner of Income Tax, Company Circle I, Tiruchirapalli 620 001. Vs. The Karur Vysya Bank Ltd., Erode Road, Karur 639 002. (Appellant) (Respondent) Appellant by : Shri N. Quadir Hoseyn Respondent by : Shri Shaji P. Jacob, Addl.CIT Date of Hearing : 19.12.2012 Date of pronouncement : 17.01.2013 ORDER PER BENCH I.T.A. No. 902/Mds/2010 & I.T.A. No. 897/Mds/2010 [A.Y. 1999-2000] These cross appeals by the assessee and the Revenue respectively; emanate from the order of the Commissioner of Income Tax (Appeals,) Tiruchirappalli dated 23.03.2010 in ITA No. 358/05-06 & 140/02-03, for the ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 2 assessment year 1999-2000, in proceedings under section 143(3) r.w.s. 147 of the Income Tax Act 1961 [in short the “Act”]. 2. The assessee has raised the following grounds of appeal: I (i) The learned Commissioner of Income tax of Appeal Trichy failed to see that the appellant did not incur any expenditure in earning 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 Appeal Trichy failed to see that the Assessing Officer had not proved any expenditure directly related to the tax free income in the case of the appellant. II (i) The learned Commissioner of Income tax of Appeal 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 claimed by the appellant regarding the two items were remitted back to the assessing 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 lessee the projects failed after two years from the date of loan. (iii) The other banks were also advanced money to the lessee under different scheme. (iv) Purchase receipts are available. Insurance done and Bank Officials verified the existence of Machinery and all certificates were produced to Assessing Officer and the remitted back case is not yet opened by Assessing Officer for A Y 96-97 and subsequent years. (v) Valuation of machinery was done by an eminent valuer. The amount valued by SITRA was equal to the previous valuer. (vi) Bank officials verified the existence of machinery. Insurance companies insured the machineries. (vii) The learned CIT (Appeals) did not go through the facts of the case but came to a conclusion that the appellant failed to establish the existence of these assets. This is not correct. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 3 (For the Asst Year 1996-97, the then CIT (Appeals) remitted some issues to assessing officer, including depreciation on leased assets of M/s Rajender Steels Ltd and M/s Aruna Textiles & Exports Ltd.) III (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) Bank, 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 to 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 employees serving as on that date and those who retired on or after 01-01-1986. As per the settlement with IBA, pension is to be paid to retired employees from 01-11-1993. IBA through its letter dated 02- 01-1998 informed Government's decision to delete strike clause in the agreement. After this date only Pension agreement took effective form and acceptable to all Bank employees. When the Government of India decided in principle to give employees of Banks an option to prefer pension payment, IBA requested the member Banks to form a fund and get it registered with the Chief Commissioner of Income Tax. Accordingly in 1995 the rules and regulations of the 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 exemption from Rule 89 (i.e.,) the individual Banks can maintain the fund & pay pension to employees without investing in LIC as per Rule 89. The CBDT gave exemption to Rule 89 in 1996 to the Nationalized Banks only. So Private Sector Banks through its Association once again requested CBDT to give exemption to Rule 89 to Private Sector Banks also. This petition by Private Sector Banks Association was not rejected immediately by the CBDT. CBDT only on 13 th August 2003 refused exemption from Rule 89 to the Private Sector Banks and it was communicated by the Bank's Association through 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 Private 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 purchased Annuity from LIC. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 4 So, LIC Annuity cannot be purchased for past liability (i.e.) from 1993 to 1998. Past liability is to be paid by Bank directly. These were well and elaborately discussed by the then 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 maintain Industrial peace, the pension paid by Bank directly to pensioners. (vi) If pension fund pays pension directly to pensioners without purchasing Annuity it is violation. But, Pension was paid by Bank directly. This is actual payment. So there is no violation. (vii) This pension payment was made wholly and exclusively for the purpose of business. Paying pension to employees is expenditure for business purposes. The retired employees are also equal to existing employees. They are also Associate members of the Union Association. The payment was not made for personal or private purposes. On these grounds the CIT(A) had erred in disallowing the claim with the ruling that the pension payments were not made to any approved pension fund. IV (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.1137/Mds/2003 for A Y 94-95). (ii) The life of the software cannot be determined. The software can become also Obsolete at any time. It is only programme/instruction written by programmers in computer language. V. CIT(Appeals) erred in confirming disallowance of `. 2,40,000/- on account of expenses incurred to increase authorized capital , which is one of the fundamental component of business. This amount is paid to Government Statutory authorities (SEBI) as per Government stipulation and so allowable as expenditure. VI (i) The wages of Bank employees are determined by the Bi-partite settlement. As per 6 th the Bye partite settlement ended on 31-10-1997. So from 1-11-1997 Salary to be paid as per the 7 th Bye partite settlement. The talks were in progress and on 11.03.99 MOU was signal by the parties. For assessment year 1999 - 2000 relevant financial year is from 01.04.1998 to 31.03.1999. The increase in wage revision was certain; the liability was ascertained. (ii) Wage revision is not a contingent liability in this case. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 5 (iii) The actual wage revision was more or less equal to provision made. (iv) The case laws cited by the appellant were not considered by the Commissioner of Income tax (Appeal). (v) Impact of wage revision was provided during the year under consideration. This will reveal correct profit/loss of the concern. (vi) The case law cited by Assessing officer is irrelevant. The CIT(Appeals) thus erred in disallowing the claim for provision for wage revision.” In the same tune, the grievance of the Revenue has been pleaded by way of following grounds: 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) erred in allowing the depreciation on leased out assets. 2.1 The C.I.T.(Appeals) failed to observe that the assessee had failed to produce any evidence to prove that assets alleged to have been leased to Erode Rane Textile Processors I & II and Sri Sarvesh Cotton Mills Ltd. I, II & III ever existed. 2.2 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 user 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 allowing depreciation on asset allegedly leased to Erode Rane Textile Processors I & II and Sri Sarvesh Cotton Mills Ltd. I, II & III. 3. The C.I.T.(Appeals) erred in deleting the addition of cash excess of `.83,701/-. 3.1 The C.I.T.(Appeals) failed to observe that only the incremental value was added in the assessment. 4. The C.I.T.(Appeals) has erred in deleting the disallowance of depreciation in the value of investment of `.75,83, 177/-. 4.1 The C.I.T.(Appeals) failed to appreciate that RBI is a regulator of banks and can (nay, is required to) give directions to the 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 portfolio of the securities in two categories viz. Permanent and Current. With a view to meet the legal requirement of SLR as per Banking Regulations Act, the RBI has directed the Banks that the securities held ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 6 as Permanent category are intended to be held as investment and shown in the books of accounts at cost; while the securities of Current category are treated as stock-in-trade. It is these Current securities which alone could be valued at the end of the accounting year at cost or market value. It implies that investment in Permanent of securities is to be treated as "investment” of capital nature. The C.I.T.(Appeals), therefore, ought to have confirmed the disallowance for diminution in value in respect of Permanent category of securities. The C.I.T.(Appeals) erred in treating the entire portfolio of securities as stock-in-trade and consequently, deleted the additions made on account of disallowance of depreciation in value of portfolio of these securities shown as "investments' in books. 5. The C.I.T.(Appeals) has erred in allowing the interest claimed on purchase of securities as revenue expenditure. The C.I.T.(Appeals) failed to observe that interest paid on purchase of Permanent category of securities will be capital expenditure and not revenue expenditure. The C.I.T.(Appeals) erred in treating entire investment in securities as stock-in-trade, overlooking the fact that only Current category of securities would alone, qualify for treatment as stock-in-trade. 5.1 The C.I.T.(Appeals) failed to observe that broken period interest paid at the time of purchase of securities would be part of 'cost’ of securities. The C.I.T.(Appeals), therefore, ought to have confirmed the broken period interest paid towards securities (Current category treated as stock-in-trade) lying unsold as closing stock. The C.I.T.(Appeals) failed to note the understatement in value of the closing stock to the extent of broken period interest paid for purchase of Current securities (treated as stock-in-trade) lying unsold as closing stock . 6. The C.I.T.(Appeals) erred in deleting the disallowance of bad debts to the extent of `.9,38,735/-. 6.1 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 off which are over and above the credit balance available in the provision for bad and doubtful debts account would be eligible for deduction. The C.I.T.(Appeals) ought to have confirmed the addition made by the A.O. 7. 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 that of the Assessing Officer be restored.” 3. In addition to this, the assessee has raised additional grounds challenging the legality of reopening under section 148 vide notice dt. 20.06.2003 by terming it as mere change of opinion. During the course of hearing, the AR has conceded that he does not wish to press the above additional grounds. He has also made ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 7 an endorsement in the paper book. Therefore, we treat the additional grounds as not pressed. 4. Brief facts of the case are that the assessee; a banking company, had filed its ‘return’ on 30.12.1999 declaring income of `.35,85,17,700/- which was processed by the Assessing Officer under section 143(1) of the “Act”. Thereafter, the Assessing Officer completed scrutiny assessment on 27.03.2002 making following additions:- (a) `.98,22,000/- relating to interest under section 244A of the “Act” granted in the assessment year 1997-98 which was treated as income in the assessment. (b) `.75,83,177/- disallowed in the assessment by taking it as provision for depreciation on investments. 5. On 20.06.2003, the Assessing Officer issued reopening notice under section 148 of the “Act” to the assessee for reopening the assessment finalized hereinabove. In response, on 17.11.2004, the assessee filed ‘return’. This time, the amount of income read as `.35,58,17,700/- [same as declared on 30.12.1999]. 6. In reassessment proceedings, the Assessing Officer passed assessment order dated 31.03.2005 and made additions. In this background of facts, we proceed to deal with the respective pleadings of the parties. Ground No. I [assessee’s appeal] 7. Backdrop of this ground is that in the assessment proceedings, the assessee had claimed following receipts as ‘exempt’ income:- ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 8 (a) Income from tax free bonds `. 11,38,33,647/- (b) Income from infrastructure bonds `. 1,62,36208/- (c) Dividend income `. 1,28,64,702/- Total `. 14,29,34,557/- The Assessing Officer, after noticing the assessee’s above treatment of ‘exempt’ income recorded a finding in the assessment order that in earlier assessment years, proportionate expenses relating to tax free bonds had been disallowed, which stood deleted in appeal by the CIT(A) and Revenue’s appeal was pending in the ITAT, Chennai. Therefore, he proceeded to make disallowance qua exempt income by following apportionment formula. Accordingly he disallowed an amount of `.9,32,78,656/- by holding that some expenses are always incurred to earn ‘exempt’ income and it was not possible to say that specified item of expenditure related to earning of a particular income and rest for earning the other income. 8. In appeal preferred by the assessee, the CIT(A) has restricted the disallowance made by the Assessing Officer to 2% only on tax free bonds by holding as under: “3.3 The Assessing Officer is directed to restrict the disallowance in this regard to 2% only on Tax Free Bond reasonably as some expenditure element is definitely involved in earning this tax free bond.” 9. Reiterating the pleadings in ground above said, the assessee has submitted before us that since there was no expenditure incurred for earning exempt income, the Assessing Officer as well as CIT(A) have erred in following apportionment formula and reasonable computation @ 2% respectively. It has ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 9 also been stated that in the earlier assessment years, i.e. assessment years 1996-97, 97-98 and 98-99, the Coordinate Bench of ITAT; while dealing with the appeals filed by the Revenue against CIT(A)’s order (supra) had directed the Assessing Officer to apply the Special Bench decision of ITAT Mumbai in ITO vs. Daga Capital Management Pvt. Ltd. [2009] 312 ITR (AT) 1 by holding that Rule 8D of the I.T. Rules would apply retrospectively. It is the contention advanced by the AR that the assessee preferred 3 separate appeals under section 260A of the “Act” before Hon’ble Jurisdictional High Court i.e. T.C.(A) Nos. 509 to 511/2010 which have been admitted on 16.03.2010. In the light thereof, his submission is that the ground be restored back to the file of the Assessing Officer to await the decision of Hon’ble Jurisdictional High Court. 10. Opposing the arguments of the assessee, the submissions raised by the Revenue mainly revolve around supporting the order of the CIT(A). However, regarding the issue of pendency of assessee’s appeal before the Hon’ble Jurisdictional High Court, the DR has not controverted the submission raised by the assessee. 11. We have considered the arguments of both parties 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 formula. In appeal, the CIT(A) has preferred to disallow the expenditure at rate of 2% by following reasonable ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 10 computation method. We notice that in earlier 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 issue had directed the Assessing Officer to proceed as under: “10. We have heard the rival submissions and considered the facts and material on record. The learned DR relied on the decision 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 followed 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 the above cited order. We find force in the contention of the learned D.R. that the point at issue is now governed by the decision of the Special Bench of the Tribunal cited supra and hence, we restore this issue back to the file of the Assessing Officer with a direction to follow the decision of the Special Bench cited supra and decide the issue afresh according to law, of course, after giving effective opportunity of being heard to the assessee. The assessee is also directed to cooperate with the Assessing Officer by providing necessary details that would be required for deciding the issue. Thus, both 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 Bench, the assessee’s appeals are pending before Hon’ble High Court. It has also came to our notice that recently, the Hon’ble Jurisdictional High Court has been pleased to hold that disallowance of expenditure in earning exempt income @ 2% based on estimation is reasonable. The operative part of the judgment in Tax Case (Appeal) No. 2621 of 2006 titled as M/s. Simpson and Co. Ltd. vs. DCIT decided on 15.10.2012 reads as under:- “This Tax Case (Appeal), filed at the instance of the assessee as against the order of the Income Tax Appellate Tribunal for the assessment year 2001-02, was admitted on the following substantial questions of law: “1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in upholding the estimated disallowance of 2% of ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 11 the expenditure, as being incidental to earning dividend income, under section 14-A of the Act although no actual expenditure was incurred? 2. Whether on the facts and in the circumstances of 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 disallowed?” 2. Learned counsel appearing for the assessee as well 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 materials regarding incurring of expenditure, the Tribunal was justified in confirming the order of the Commissioner of Income Tax (Appeals) that the deduction of 2% managerial expenses had to be made while calculating deduction under Section 80 M. Thus being pure question of fact, there 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 assessee had not furnished the details of expenditure incidental to the earning 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 Hon’ble High Court, we also hold that the CIT(A) has rightly disallowed expenditure in earning exempt income @ 2%. So, the ground stands rejected. Ground No. II & 2 (common) in assessee’s appeal as well as Revenue’s appeal: 12. Facts pertaining to this ground are that in the assessment proceedings, the assessee had claimed depreciation on leased assets as `.16,72,395/-. Vide assessment order, the Assessing Officer disallowed `.1,35,69,436/- after placing reliance on assessment order for the assessment year 1996-97. In assessee’s appeal, the CIT(A) has dealt with the issue as under: “4.3 As the Assessing Officer has allowed the depreciation in the last two cases ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 12 in the appellant’s case. Accordingly disallowance made by the Assessing Officer on depreciation in the case of Erode Rane Textile Processor I & II and Sri Sarvesh Cotton Mills Ltd. I, II & III are allowed. However, in the case of Rajendra Steels Ltd. and Aruna Textile disallowance made by the Assessing Officer are confirmed due to failure of the appellant to establish existence of these assets.” Therefore, both parties are aggrieved against partial confirmation of the CIT(A). Both ld. Representatives have reiterated their respective pleadings and prayed for acceptance of their respective grounds. 13. We have considered rival contentions at length and perused the relevant findings. The issue in hand is that the assessee had claimed for depreciation on leased out assets which has been denied 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 first 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 section 143(3) of the “Act” was completed on 09.03.1999, wherein the same very claim had been disallowed. In assessee’s appeal preferred before the CIT(A), the issue stood restored back to the Assessing Officer for reconsideration vide appellate order dated 31.03.2005. As pointed out by the AR, the Assessing Officer thereafter re-decided the issue vide order dated 22.12.2010 upholding assessee’s claim of depreciation in case of Erode Rane Textiles – Processors – I & II and Sri Sarvesh Cotton Mills Ltd. I, II and III (supra) and disallowed claim of depreciation in cases of Rajender Steels Ltd. and M/s Aruna Textiles. Though he has submitted that the assessee’s appeals are also ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 13 pending before the CIT(A) qua assessment year 1996-97 against the order dated 20.12.2010 (supra) and therefore, we should restore the matter back to the Assessing Officer, we fail to agree with the said contention. In our view, merely because for the first year for the purpose of claiming depreciation is 1996-97 regarding which assessee’s appeals are pending 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 assessee is held entitled for the relief of depreciation in question in first assessment year, it would get the same relief in subsequent years. Hence, for the purpose of deciding this ground, we see no reason to interfere with CIT(A)’s order. Similarly, so far as Revenue’s contentions are concerned, 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. The argument raised by the Revenue that the assessee led no evidence or material to prove its case also does not inspire any confidence as there is no cogent material placed before us to accept the Revenue’s contention that the assessee is not entitled for the relief granted by the CIT(A). Hence, we reject the Revenue’s contention as well. 14. To sum up, grounds No. II in assessee’s as well as ground No. 2 in Revenue’s appeal stand rejected. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 14 Ground No. III [assessee’s appeal] 15. Facts apropos this ground are that in the assessment proceedings, the assessee had raised a claim of `.3,43,51,768/- with the explanation that the said amount had been paid directly in pension fund of its retired employees. In Assessing Officer’s opinion since the assessee had not made the payment to any approved pension fund in compliance of Rule 89 of Income Tax Rules, he disallowed assessee’s claim which has been confirmed in appeal as well by the CIT(A). 16. In support of the ground, the AR on behalf of the assessee has reiterated the pleading raised in the ground and also cited the decisions of Coordinate Bench of Cochin ITAT in the case of The Catholic Syrian Bank Ltd. v. Addl. CIT decided on 11.02.2011 and 06.07.2011 and prayed for acceptance of ground. 17. On the other hand, the Revenue’s argument mainly relies on the order of the CIT(A) and findings contained therein in view of Rule 89 of Income Tax Rules. 18. We have considered the rival contentions, perused 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 page 33 in the paper book containing Division Code No. 076 and Receipt No. 1188 dated 31.10.2003. It also emerges that the private sector ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 15 banking companies alike assessee had approached CBDT praying for exemption from compliance 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 Rule 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 allowable 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 restored the same back to the Assessing Officer for fresh consideration after taking 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 in respect of disallowance of pension paid to its retired employees (`310 lakhs) claimed u/s. 37(1) of the Act. The Assessing Officer’s (A.O’s) objection there-to was that the assessee had already established a pension fund for the purpose, and to which regular contributions were being claimed and allowed u/s. 36(1)(iv) of the Act. An amount could be claimed as a business expenditure only under a specific section; section 37(1) clearly 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 the assessee by way of direct payment. He relied on several decisions, both 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 case 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 as to how the liability (which stands claimed as arising by virtue of a tripartite agreement between the assessee, Indian Banks’ Association and the Employees’ Trade Union) had arisen inspite of the fact that there was a superannuation fund for the purpose, i.e., in short, to determine its commercial expediency. This was, in view of the assessee’s claim as a business expenditure 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 supreme court vide its decision reported at (1991) 188 ITR 237 (SC) which had, infact, been relied upon by both the parties. The matter was accordingly restored to the AO with like directions. Aggrieved, the assessee is in appeal. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 16 3. The assessee during the hearing pointed out the tribunal’s 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 case of T. Stanes & Co. Ltd. (supra). We observe that the tribunal in the assessee’s 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, similarly, 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 stand 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 parameters 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-employee relationship between the assessee and its retired employees. There is no enumeration of the basic and relevant facts in the assessment or the impugned order, which we find as not mentioned even in the orders referred 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 neither has the assessee been able to show us any. The order by the tribunal referred to by the assessee disposes the Revenue’s 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 bar for the claim of deduction u/s. 37(1). However, that the same has to 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 shall afford proper opportunity of hearing to the assessee in the matter. We decide accordingly.” After perusing the above observations, we are of the view that in the instant case as well, the vital aspect of application of the legal principle of ‘commercial expedience’ under section 37(1) of the Act has escaped the consideration of the Assessing Officer as well as CIT(A). Hence, we observe that the AO in this case shall pass a fresh order in accordance with law by taking into consideration the above case law after affording adequate opportunity of hearing to the assessee. Consequently, the ground is treated as allowed for statistical purpose. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 17 Ground No. IV 19. Facts apropos are that in the assessment proceedings, the assessee had claimed an amount of `.21,42,122/- as cost of software purchase expenditure. In the assessment order, the Assessing Officer treated it as ‘capital’ in nature and also held that the assessee would be entitled for depreciation @ 25%. In appeal, the CIT(A) has also confirmed Assessing Officer’s finding. Therefore, the assessee is in appeal. 20. The AR representing the assessee has submitted before us that the Assessing Officer as well as CIT(A) have erred in treating the assessee’s claim of software expenses, which is revenue in nature, as capital expenditure. He has also placed reliance on the following case law to buttress his submissions:- [2012] 346 ITR 341 (Delhi) – CIT vs. Amway India Enterprises. [2012] 346 ITR 57 (P&H) – CCIT vs. O.K. Play India Ltd. [2012] 346 ITR 349 (Bom) – CIT vs. Kotak Securities Ltd. [2006] 282 ITR 379 (Mad) – CIT vs. Southern Roadways Ltd. and prayed for acceptance of the ground. 21. Opposing the submissions advanced by the assessee, the Revenue has stated that the CIT(A) has rightly treated assessee’s software expenses as capital expenditure. 22. We have perused the relevant findings of the Assessing Officer as well as CIT(A). As we notice from the assessment order, the assessee’s claim raised before the Assessing Officer was that it had purchased software and the expenses incurred were ‘revenue’ in nature. It did not prefer to tender any ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 18 explanation about the details of the software and its usage. In our opinion, merely by nomenclature, an expenditure cannot be termed as either revenue or capital expenditure. The concerned claimant has to prove by leading cogent evidence that the software in issue does not give any enduring benefit. In this case, no such explanation of the assessee is forthcoming. It is also not the assessee’s case that it had not been afforded adequate opportunity of hearing by the Assessing Officer or CIT(A) so as to prove the software’s use and utility by leading cogent evidence. Hence, we are unable to concur with assessee’s claim on the premise that purchase of software by the assessee is necessarily liable to be termed as revenue expenditure. Although the AR has taken pains to refer the above said case law, but as already observed hereinabove, on facts itself the assessee’s case has failed to convince us for want of details of expenses. Therefore, the judgment of various Hon’ble Courts (supra) are not applicable in this case. Accordingly, we confirm the findings of the CIT(A). 23. The ground stands decided against the assessee and in favour of the Revenue. Ground No. V 24. In assessment proceedings, the assessee had claimed an amount of `.2.40 lakhs as filing fees in its profit and loss account. Its contention before the Assessing Officer was that the same had been paid to the Registrar of Companies for the purpose of increasing its authorized capital. We find that the ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 19 Assessing Officer as well as CIT(A) have treated it as ‘capital expenditure’ and disallowed assessee’s claim. Therefore, the assessee is aggrieved. 25. Before us, the AR has submitted that the amount in question had been paid to a statutory authority i.e. Registrar of Companies exercising jurisdiction under “Companies Act”, therefore, assessee’s claim is allowable as ‘revenue expenditure’. 26. On the other hand, the DR has forcefully argued that assessee’s claim is not allowable as revenue expenditure as held by the CIT(A); more so, in view of the Hon’ble Supreme Court’s judgment reported as [1997] 225 ITR 798 Brooke Bond India Ltd. v. CIT. 27. Rival contentions of the parties have been heard. We have also perused the findings of the Assessing Officer as well as CIT(A). Undisputedly, the explanation tendered by the assessee in support of the claim is that it had paid the sum in question to the Registrar of Companies so as to increase its authorized capital. The issue between parties is about the nature of expenditure i.e. per assessee, it is revenue expenditure and per Revenue it is capital expenditure. We notice that the Hon’ble Supreme Court in the above cited case (supra) also dealt with this question as to whether the expenditure directly related to expansion of its capital base is revenue or capital in nature. In the said case, their Lordships turned down assessee’s argument and held as under: “We find that this matter has come up for consideration before this court in Punjab State Industrial Development Corporation Ltd. v. CIT [1997] 225 ITR 792 (Tax Reference No. 1 of 1990, decided on December 4, 1996). In that case, the ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 20 question under consideration was whether an amount of Rs. 1,50,000 paid to the Registrar of Companies 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 impugned judgment. This court has also taken note of the decisions in Empire 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 capital was not revenue expenditure, this court has said : " We do not consider it necessary to examine all the 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 incurred 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 expenditure was directly related to the expansion of the capital base of the company. We are, therefore, of the opinion that the view taken 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] 130 ITR 385. " This decision thus covers the question that falls for 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 enhancement 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 increase the capital has to be treated as revenue expenditure. In this connection, Dr. Pal has invited our attention to the submissions that were urged by learned counsel for the assessee before the Appellate Assistant Commissioner as well as before the Tribunal. It is no doubt true that before the Appellate Assistant Commissioner as well as before the Tribunal it was submitted on behalf of the assessee that the increase in the capital was to meet the need for working funds for the assessee-company. But the statement of case sent by the Tribunal does not indicate that a finding was recorded 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. We, therefore, cannot proceed on the basis that the expansion of the capital was undertaken by the assessee for the purpose of meeting the need for working funds for the assessee to carry on its business. In any event, the above quoted observations of this court in Punjab State Industrial 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 business of the company and may also help in the ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 21 profit-making, the expenses 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 instant case as well, the assessee had made the payment to the Registrar of Companies to embroaden its capital base. In the observations above said, their Lordships have referred to the case law of Punjab State Industrial Development Corporation Ltd. v. CIT [1997] 225 ITR 792 (SC). In the said case, 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 assessee to the Registrar of Companies is an instance of incurring capital expenditure. Hence, we see no reason to upset the findings of the CIT(A). 28. The ground is therefore, decided against the assessee. Ground No. VI 29. In the assessment proceedings, the Assessing Officer had noticed Schedule 16 of Profit and Loss account, wherein the assessee had raised claim of `.3,5155,372/- as arrears of wages on account of pay revision of its employees. After examining assessee’s explanation, the Assessing Officer arrived at following conclusions:- 1) The VI Bipartite settlement between bank employees Association/ Federation and ended on 31.10.97, negotiations were started during the financial year 1998-99 to fix new scales of pay and allowances for VII ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 22 Bipartite Settlement. 2) Memorandum of understanding was signed between the employee’s organization and Indian Bank Association on 11.03.99. 3) New Scale of pay effected from 01.11.97 onwards. 4) Finally settlements were reached on 14.12.99 for officers and on 27.3.2000 for workmen to give effect to revised scales of pay etc. for the period from 01.04.98 and 01.11.97 respectively. Accordingly, the Assessing Officer held that the liability was contingent one instead of being called an ascertained liability. Therefore, in the assessment order, he disallowed assessee’s claim. In appeal, the CIT(A) has also upheld Assessing Officer’s finding by observing as follows: “11.3 From the facts of the case it is seen that the appellant has claimed this wage revision as a provision only. Accordingly, the Assessing Officer has rightly disallowed the same. The order of the Assessing Officer needs no interference hence confirmed. However, to meet the end of the justice the appellant is entitled for this claim on the basis of actual payment.” Therefore, the assessee has raised the instant ground. 30. On behalf of the assessee it has been vehemently argued that the Assessing Officer as well as the CIT(A) in the instant case have wrongly rejected the assessee’s claim of making provision for pay revision of its employees despite the fact that the liability in question stood duly ascertained. In support of the submissions, case law reported as [2000] 245 ITR 428 (SC) of Bharat Earth Movers vs. CIT has also been referred. 31. In response, the submissions of the Revenue are that the CIT(A) has rightly rejected assessee’s contention regarding liability in question. In addition to ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 23 this, the DR has also placed reliance of Coordinate Bench decision of ITAT, Chennai in I.T.A. No. 1866/Mds/2006 decided on 02.06.2008 titled as ACIT vs. Indian Overseas Bank and prayed for upholding CIT(A)’s findings. 32. We have heard rival contentions advanced by both parties and also perused the relevant findings of the Assessing Officer as well as CIT(A). We have also gone through case law cited. The assessee is a banking company and the impugned assessment year is 1999-2000. The relevant accounting period is 01.04.1998 to 31.03.1999. As it transpires from the assessment order, some negotiations had taken place between the banks association and employees organizations regarding hike in wages. On 14.12.1999 and 27.03.2000, the wages of officers and workmen respectively were revised in pursuance to VII Bipartite settlement. It is therefore, clear that the decision to enhance the wages was only arrived in the month of December, 1999 and March, 2000 i.e. not in the accounting period of the impugned assessment year. The case of the assessee is that since the MoU between the workers and banks was settled on 11.03.1999 [in the accounting period], the liability stood ascertained. We are unable to accept this argument advanced by the assessee. We notice from the case law cited by the Revenue in the case of Indian Overseas Bank (supra), this very issue had arisen i.e. the liability in furtherance to MoU dated 11.03.1999 and VII Bipartite settlement. In the said case, the Coordinate Bench after examining the issue in detail had decided that consequent liability was not an ascertained liability. The relevant observations of the Coordinate Bench are reproduced herein below: ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 24 “12. The next issue relates to the question whether the Commissioner (Appeals) was correct in computing the book profit under section 115JA of the Act by disallowing the provision for wage revision, provision for severance pay and estimated expenditure under section 14A of the Act. 13. In regard to wage revision we have heard the rival submissions. The assessee made a claim of Rs.25 crores towards the ad hoc provision mad for wage revision. The Assessing Officer disallowed the same treating it as contingent liability. 14. The learned counsel for the assessee placed before us a Memorandum of Understanding dated 11-3-1999. It is stated in the said Memorandum that the United Forum of Bank Unions agreed to withdraw the strike call and other forms of agitations with immediate effect. At the earliest possible opportunity formal negotiations with the workmen unions and officers' associations shall be undertaken on a mutually agreed date. The Seventh Bipartite Settlement took place at a later date. The learned counsel for the assessee argued that the provision was made consequent upon the bipartite settlement entered into during the relevant accounting period. When a provision had been made on the estimated basis in the accounts, the same should be allowed as deduction from profits of the year. In regard to the liability to pay the arrears as well as the additional wages arisen to the assessee during this year on the basis of the Memorandum the exact quantification was not available and as such an adhoc provision was made. The overall load was limited to 12.25% of the wage bill. 15. The learned departmental representative submitted that the provision was made only on estimated basis in an adhoc manner. Quantification was done in the next accounting period. The assessee was not in a position to ascertain the liability during the relevant accounting period. As such the provision cannot be construed to be an ascertained liability within the meaning of section 115JA of the Act. It was further stated that contractual liability crystallises only when the settlement is made. For this proposition reliance was placed on the decisions of the Hon'ble jurisdictional High Court rendered in the case of Tamil Nadu Small Industries Development Corporation Ltd. vs CIT, 242 ITR 122 and in the case of CIT vs. Seshasayee Industries Ltd., 242 ITR 691. 16. In the case of Alembic Chemical Works Ltd. vs. DCIT, 266 ITR 47(Guj.) it was held that in the case of the assessee following the mercantile system of accounting a liability is said to be properly incurred when the dispute between the parties is amicably settled or finally adjudicated, where the liability in question is not a statutory liability. 17. In the present case we find that the liability in question cannot be construed to be a statutory liability. It can only be termed as a contractual liability, as it emanates out of a contract. The memorandum of understanding is only a prelude to the contract. Actually the contract was entered into in the subsequent year on the ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 25 basis of the memorandum of understanding. Therefore, in our opinion the liability did not crystallise in the year under consideration. It can be allowed only consequent upon its crystallisation within the framework of law. Subject to this remark we uphold the impugned order on this count.” Although the assessee has also cited case law of Bharat Earth Movers (supra), but in our opinion, since the issue before the Hon’ble Apex Court was as to whether the amount already set apart to meet liability on account of leave encashment of the employees could held to be ascertained liability. In the said case, the guidelines regarding leaves in question already existed in the relevant accounting period. Therefore, their Lordships had allowed the claim of the assessee which is not the factual position in the instant case. Consequently; and more so, in view of the fact that the issue pertaining to same very bipartite settlement and pay revision in respect of similar undertaking alike the assessee has been decided in favour of the Revenue, we subscribe to the same observations of the Coordinate bench and hold that the liability on account of pay revision as claimed by the assessee is not ascertained one. Hence, we affirm the finding of the CIT(A). Accordingly, the ground is decided against the assessee. I.T.A. No. 897/Mds/2010 [Revenue’s appeal] Ground No. 2 (Revenue’s appeal) 33. We have already dealt with this ground while dealing with ground No. II filed by the assessee and affirmed the findings of the CIT(A). Therefore, No separate adjudication is made. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 26 Ground No. 3 (Revenue’s 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 being considered for disallowance in the memo of adjustment. The explanation 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 constituents in excess shown as liability to be returned to remitter on production of proof of excess payment. The Assessing Officer was not convinced and therefore, in the assessment vide order dated 31.03.2005, he disallowed the cash excess of `.83,701/- by holding that on the basis of cash excess as on 31.03.1996, an amount of `.1,03,674/- stood transferred to miscellaneous account. 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 CIT(A) has wrongly deleted the addition which was deservingly 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 rightly 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 granted benefit of `.1,03,674/- out of `.1,87,375/- to the assessee which had been transferred to miscellaneous ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 27 income account of the assessee as on 31.03.1996. On the same analogy, the CIT(A) has observed that the cash excess is offered to tax in fourth year, therefore, the addition in question stands deleted. After giving our thoughtful consideration, we are also of the view that since the Assessing Officer himself had allowed the cash excess as on 31.03.1996, in view of the said findings only, the CIT(A) has proceeded to delete 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 fourth year, therefore, we see no reason to affirm the disallowance in question because the four year time period includes the impugned assessment year as well. Accordingly, we hold that the CIT(A) has rightly deleted the addition. This ground stands decided against the Revenue. Ground No. 4 [Revenue’s appeal] 38. In the enclosures filed with the return, the assessee has preferred to make a provision for an amount of `.75,83,177/- re depreciation on investment. The Assessing Officer had passed initial assessment order under section 143(3) of the “Act” on 27.03.2002 (supra). In the said order, he had disallowed assessee’s above said claim by holding that any provision of deprciation made during the relevant accounting year had to be disallowed and added back in assessee’s income. Therefore, he relied on assessment order for the assessment year 1998- 99 i.e. preceding assessment year and disallowed the provision. In appeal, the CIT(A) has deleted the addition by holding as follows: ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 28 “2.3 As per appellant’s submission this amount is already offered by the appellant. So this addition is not called for. However, the Assessing Officer is directed to verify the same and delete the addition.” 39. In support of the ground raised, it has been submitted by the DR representing the Revenue that the CIT(A) has wrongly deleted the addition. Accordingly, he prayed for its restoration by accepting the ground in favour of the Revenue. 40. On the other hand, the AR has stated before us that the Assessing Officer himself vide rectification order under section 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 since it amounted to consider the same very income twice. Accordingly he prayed for 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 under 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 Assessing Officer had made disallowance. Later on, he himself held that the same 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 1999-2000 - M/ s The Karur Vysya Bank Limited, Erode Road, Karur - Revision of - Regarding. ORDER U/S 154: In the assessment completed u/s143 (3) on 27.03.2002, for the assessment year 1999-2000, the following addition/disallowance has been made. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 29 a) Rs.98,22,000/- relating to Interest u/s 244A granted in the assessment year 1997-98 has been adopted as income in the assessment. b) Rs.75,83,177/- has been disallowed in the assessment 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 1997-98 and that this Interest Income taken for addition in the assessment for 1999-2000 is not correct. Further it has stated that the amount of Rs.75,83,177/- has been already offered as income in the books of account and the net 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 disallowance made at Rs. 75,83,177/- is not correct because it amounts to income considered twice. The assessee's contentions have been considered carefully. 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 assessment 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 account as income. The disallowance made towards this amount in the assessment for 1999-2000 is therefore not in order. As these are mistakes apparent 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 inappropriate by rectifying the assessment order, there is no locus standi on the part of the Revenue to raise the instant ground. Hence, we reject this ground agitated by the Revenue. Ground No. 5.1 42. Factual matrix of this ground is that in the assessment proceedings, the assessee had raised a claim of `.51,20,619/- qua interest amount paid on securities as ‘revenue expenditure’. In support thereof, its explanation was that the securities in question had been held as stock-in-trade and offered as ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 30 business profit/loss. The Assessing Officer did not agree to assessee’s submissions. Therefore, in the assessment order, he placed reliance on the Hon’ble Supreme Court’s judgment in the case of Vijaya Bank vs. CIT (Additional) [187 ITR 541] and Hon’ble Madhya Pradesh High Court judgment in the case of Madhya Pradesh State Cooperative Bank Ltd. 218 ITR 438) as well as the assessment order passed in assessee’s own case for the assessment year 1995-96, wherein the issue had been decided against the assessee and disallowed the amount in question by adding it in assessee’s total income. In appeal preferred by the assessee, the CIT(A) has accepted assessee’s argument by holding as follows: “1.3 Respectfully following Madras High Court decision on the appellant’s own case (273 ITR 510) and order of the Income Tax Appellate Tribunal, Chennai the above addition is deleted.” 43. In support of the ground raised, the DR representing Revenue has vehemently argued that the CIT(A) has wrongly accepted assessee’s claim. He also produced copy of Hon’ble Madras High Court judgment relied upon by the CIT(A) reported as 273 ITR 510 and submitted that in the said case, there are no finding by the Hon’ble Jurisdictional High Court in assessee’s favour since the Revenue had itself conceded the issue. He further contended qua the issue of stock in trade, there are no finding by the CIT(A). To buttress his argument, he also placed reliance on [2012] 24 taxmann.com 51 (Kar.) CIT vs. ING Vysya Bank Ltd. and argued that the CIT(A) has wrongly accepted assessee’s claim. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 31 44. Per contra, the submissions of the AR that the CIT(A) has rightly deleted the addition made by the Assessing Officer. In this manner, he supported the findings of the CIT(A). 45. We have heard rival contentions of both parties and also perused assessment order as well as order of the CIT(A) along with case law cited. It transpires that the assessing authority had held that assessee’s claim of interest paid on securities as capital expenditure. In appeal before the CIT(A), the assessee relied on the order of the ITAT Chennai in preceding years as well as the judgment of the Hon’ble Madras High Court in assessee’s own case. At the same time, we also find that the crucial factual aspect of the issue in question have nowhere been adverted to the CIT(A). In the operative part of the CIT(A) that it has been simply observed that in assessee’s case the Hon’ble High Court as well as the Coordinate Benches of the ITAT have decided the issue in assessee’s 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 Revenue’s appeal, we find it appropriate that the issue 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. We also make it clear that we have not expressed any opinion on merits of the issue. Therefore, the Assessing Officer would be at liberty to ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 32 examine the issue afresh in the light of judgment of the Hon’ble Jurisdictional High Court above said as well as various orders of Coordinate Bench of ITAT, Chennai in earlier assessment years and the case law of CIT vs. ING Vysya Bank Ltd. (supra). The assessee would 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. Ground No. 6 46. Background of this issue is that in the assessment proceedings, the assessee raised a claim of `.12,19,401/- in the shape of bad debts by writing it off under section 37(1)(vii) of the “Act”. The Assessing Officer did not accept assessee’s claim on the ground that since the said amount did not exceed the credit balance in the provisions for bad and doubtful debts under section 37(1) of the “Act” of `.8.74 crores, the assessee was not entitled for the said deduction. Accordingly, he worked out that an amount of `.2,80,666/- out of above said amount of `.12,91,401/- had already been added back in the memo of income statement and the balance amount written off was within the credit balance of the said account. Therefore, by placing reliance on the assessment order of previous years, the Assessing Officer made disallowance of balance amount of `.9,38,735/- by treating it assessee’s income. In appeal, the same stands deleted by the CIT(A) on the basis of following findings: “9.3 Respectfully following the decision of the Hon’ble Jurisdictional High Court in the appellant’s own case in TCA No. 665/04 order dated 09.03.2009, the above additions are not called for and hence deleted.” ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 33 Therefore, the Revenue has raised the instant ground. 47. By reiterating the pleadings raised in the grounds, the DR representing the Revenue has argued that the CIT(A) has wrongly deleted the amount of bad debts disallowed by the Assessing Officer. It has been further argued that even if the assessee’s contention is accepted, still the matter is to be restored back to the Assessing Officer to verify that the assessee has not succeeded in getting double deduction i.e. under section 36(1)(vii) as well as 36(1)(viia). In this regard, he has placed reliance on the latest judgment of the Hon’ble Supreme Court reported as [2012] 343 ITR 270 Catholic Syrian Bank Ltd. v. CIT and prayed that the issue be restored back to the file of the Assessing Officer. 48. Opposing the Revenue’s argument, it has been argued at the behest of the assessee that the CIT(A) has rightly deleted the disallowance made by the Assessing Officer and a prayer has been made to uphold the same. 49. We have considered the submissions of both parties 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 relevant provisions of the “Act”. Its submission is for the purpose of verification so as to avoid double deduction, the Assessing Officer be directed to reverify assessee’s claim in view of the following findings of the above said case read as under: “41. To conclude, we hold that the provisions of Sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 34 their respective fields. The bad debts written off in debts, other than those for which the provision is made under clause (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 deduction 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 doubtful 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 permit benefit of double deduction, operating with reference to rural loans while under Section 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year. This, obviously, would be subject to satisfaction of the requirements contemplated under Section 36(2). 42. Consequently, while answering the question in favour of the assessee, we allow the appeals of the assessees and dismiss the appeals preferred by the Revenue. Further, we direct that all matters be remanded to the assessing officer for computation in accordance with law, in light of the law enunciated in this judgment.” Taking cue from the above said observations of the Hon’ble Supreme Court, we are of the view that in the instant case, nonetheless the assessee is entitled to write off the debts. At the same time and in the light of the Hon’ble Supreme Court’s observations, we also feel that while writing off the bad debts, the concerned assessee is not entitled to double deduction. It is also noticed that even the Hon’ble Supreme Court has remitted 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 Assessing Officer, who shall pass a speaking order in accordance with law by taking into consideration the judgment of the Hon’ble Supreme Court above said. 50. Consequently, I.T.A. No. 902/Mds/2010 and 897/Mds/2010 stand partly ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 35 allowed for statistical purpose. I.T.A. No. 903/Mds/2010 [by assessee] & 898/Mds/2010 [by Revenue] for the Assessment Year 2000-01 51. These cross appeals by the assessee and the Revenue respectively challenge correctness of the order of the CIT(A), Tiruchirappalli dated 23.03.2010 in ITA No. 44/03-04 for the assessment year 2000-01, in proceedings under section 143(3) of the Income Tax Act 1961 [in short the “Act”]. 52. The assessee has pleaded following grounds:- “I (i) The learned Commissioner of Income tax of Appeal Trichy failed to see that the appellant did not incur any expenditure in earning the tax free income. The estimated disallowance @ 2% of the tax free income is not correct as per the decision of many appellate authorities. I (ii) The learned Commissioner of Income tax of Appeal Trichy failed to see that the Assessing Officer had not proved any expenditure directly related to the tax free income in the case of the appellant. II (i) The learned Commissioner of Income tax of Appeal Trichy failed to see that the lease agreement of two lessee, viz, M/s Rajender Steels Ltd and M/s Arona Textiles & Exports Ltd are genuine. Depreciation claimed by the appellant regarding the two items were remitted back to the assessing 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 lessee the projects failed after two years from the date of loan. (iii) The other banks were also advanced money to the lessee under different Scheme. (iv) Purchase receipts are available. Insurance done and Bank Officials verified the existence of Machinery and all certificates were 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., ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 36 (v) Valuation of machinery was done by an eminent valuer. The amount valued by SITRA was equal to the previous valuer. (vi) Bank officials verified the existence of machinery. Insurance companies insured the machineries. Without verifying all these facts, conclusion of the C I T (Appeals) that the Appellant failed to establish existence of these assets is wrong and misleading. III (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) Bank, 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 to 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 employees serving as on that date and those who retired on or after 01-01-1986. As per the settlement with IBA, pension is to be paid to retired employees from 01-11-1993. IBA through its letter dated 02- 01-1998 informed Government's decision to delete strike clause in the agreement. After this date only Pension agreement took effective form and acceptable to all Bank employees. When the Government of India decided in principle to give employees of Banks an option to prefer pension payment, IBA requested the member Banks to form a fund and get it registered with the Chief Commissioner of Income Tax. Accordingly in 1995 the rules and regulations of the 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 exemption from Rule. 89 .(i.e.,) the individual Banks can maintain the fund & pay pension to employees without investing in LIC as per Rule 89. The CBDT gave exemption to Rule 89 in 1996 to the Nationalized Banks only. So Private Sector Banks through its Association once again requested CBDT to give exemption to Rule 89 to Private Sector Banks also. This petition by Private Sector Banks Association was not rejected immediately 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 through its letter dated 03-09- 2003. So the appellant Bank purchased annuity from LIC from October 2003. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 37 During this pendency period, i.e. from 1998 the Private 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 purchased Annuity from LIC. So, LIC Annuity cannot be purchased for past liability (i.e.) from 1993 to 1998. Past liability is to be paid by Bank directly. These were well and elaborately discussed by the then 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 maintain Industrial peace, the pension paid by Bank directly to pensioners. (vi) If pension fund pays pension directly to pensioners without purchasing Annuity it is violation. But, Pension was paid by Bank directly. This is actual payment. So there is no violation. (vii) This pension payment was made wholly and exclusively for the purpose of business. Paying pension to employees is expenditure for business purposes. The retired employees are also equal to existing employees. They are also Associate members of the Union/Association. The payment was not made for personal or private purposes. On these grounds the CIT(A) had erred in disallowing the claim with the ruling that the pension payments were not made to any approved pension fund. IV (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. 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/instructions written by programmers in computer language.” Whereas, the pleadings of the Revenue read as under: I.T.A. No. 898/Mds/2010 [Revenue’s appeal] “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) erred in allowing the depreciation on leased out assets. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 38 2.1 The C.I.T.(Appeals) failed to observe that the assessee had failed to produce any evidence to prove that assets alleged to have been leased to Erode Rane Textile Processors I & II and Sri Sarvesh Cotton Mills Ltd. I, II & III ever existed. 2.2 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 user 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 allowing depreciation on asset allegedly -leased to Erode Rane Textile Processors I & II and Sri Sarvesh Cotton Mills Ltd. I, II & III. 3. The CIT(Appeals) erred in deleting the addition of cash excess of `.9,161/-. 3.1 The C.I.T.(Appeals) failed to observe that only the incremental value was added in the assessment. 4. The C.I.T.(Appeals) has erred in allowing the interest claimed on purchase of securities as revenue expenditure. The C.I.T.(Appeals) failed to appreciate that RBI is a regulator of banks and can (nay, is required to) give directions to the 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 portfolio of the securities in three categories viz. Held To Maturity (HTM), Available For Sale (AFS) and Held For Trading (HFT). With a view 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 securities of HFT & AFS categories are treated as stock-in-trade. It implies that investment in HTM category of securities is to be treated as "investment” of capital nature. The C.I.T.(Appeals) failed to observe that interest paid on purchase of HTM category of securities will be capital expenditure and not revenue expenditure. The C.I.T.(Appeals) erred in treating entire investment in securities as stock-in-trade, overlooking the fact that only AFS & HFT category of securities would alone qualify for treatment as stock-in-trade. 4.1 The C.I.T.(Appeals) failed to observe that broken period interest paid at the time of purchase of securities would be part of 'cost' of securities. The C.I.T.(Appeals), therefore, ought to have confirmed the broken period interest paid towards securities (AFS & HFT categories treated as stock-in-trade) lying unsold as closing stock. The C.I.T.(Appeals) failed to note the understatement in value of the closing stock to the extent of broken period interest paid for purchase of AFS & HFT securities ( treated as stock-in-trade) lying unsold as closing stock. 5. 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 that of the Assessing Officer be restored.” ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 39 53. By referring to the grounds raised herein above, both the representatives have fairly conceded that the grounds involved in these appeals are covered by our findings the identical issues in I.T.A. Nos. 902/Mds/2010 and 897/Mds/2010 decided hereinabove. 54. We have considered the fair submissions advanced by both parties. It is evident that in assessee’s appeal, four substantive grounds have been raised i.e. disallowance qua exempt income, depreciation on leased assets, applicability of Rule 89 with reference to direct payment made by the assessee to its pensioners and software expenses. It is noticed that in connecting appeal No. 902/Mds/2010 (supra), we have accepted assessee’s plea of payment made directly to its pensioners albeit for statistical purpose. We find that the situation is not different in the instant case. Accordingly in the light of our findings hereinabove, we restore ground No. III of I.T.A. No. 903/Mds/2010 to Assessing Officer to decide the same along with the identical issue in I.T.A. No. 902/Mds/2010 pertaining to the assessment year 1999-2000. 55. Qua ground Nos. I, II and IV, we affirm the findings of the CIT(A). 56. Coming to Revenue’s appeal. It transpires that there are total three substantive grounds raised in the appeal i.e. depreciation on leased out assets, cash excess and interest on purchase of securities. We find that in connected case in I.T.A. No. 897/Mds/2010 decided hereinabove, we have confirmed the findings of CIT(A) qua ground Nos. 2 and 3 in the instant appeal. Qua ground No. 4 i.e. interest on purchase of securities, we have restored the matter back to the ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 40 file of the Assessing Officer for decision afresh in accordance with law. Therefore, for impugned assessment year also, we restore ground No. 4 only back to the Assessing Officer. 57. Consequently, both appeals stand partly allowed for statistical purpose. I.T.A. No. 904/Mds/2010 [by assessee] & 899/Mds/2010 [by Revenue] for the Assessment Year 2001-02 58. These cross appeals at the behest of the assessee and the Revenue respectively, emanate from the order of the CIT(A), Tiruchirappalli dated 23.03.2010 in ITA No. 53/04-05 for the assessment year 2001-02, in proceedings under section 143(3) of the Income Tax Act 1961 [in short the “Act”]. 59. The following grounds have been raised by the assessee:- I.T.A. No. 904/Mds/2010 “(i) The learned Commissioner of Income tax of Appeal 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 claimed by the appellant regarding the two items were remitted back to the assessing offer by the Commissioner of Income tax of Appeal for A Y 96-97. The transactions were genuine. (ii) In the case of Mls Rajender Steels Ltd, Kanpur, due to mismanagement of business affairs by the lessee the projects failed after two years from the date of loan. (iii) The othe r banks were also advanced money to the lessee under different Scheme. (iv) Purchase receipts are available. Insurance done and Bank Officials verified the existence of Machinery and all certificates were 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, ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 41 (v) Valuation of machinery was done by an eminent valuer. The amount valued by SITRA was equal to the previous valuer. (vi) Bank officials verified the existence of machinery. Insurance companies insured the machineries. Without verifying all these facts, conclusion of the C I T (Appeals) that the Appellant failed to establ ish existence of these assets is wrong and misleading. II (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. 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/instructions written by programmers in computer language.” At the same time, the Revenue has also pleaded as under: I.T.A. No. 899/Mds/2010 “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) erred in deleting the disallowance of bad debts to the extent of `.15,91,3 7,244/-. 2.1 The C.I.T.(Appeals) failed to note that under proviso to clause (vii) of sub- section (l) of section 36, only bad debts written off which are over and above the credit balance available in the provision for bad and doubtful debts account would be eligible for deduction. The C.I.T.(Appeals) ought to have confirmed the addition made by the A.O. 3. The CIT(Appeals) erred in allowing the depreciation on leased out assets. 3.1 The C.I.T.(Appeals) failed to observe that the assessee had failed to produce any evidence to prove that assets alleged to have been leased to Erode Rane Textile Processors I & II and Sri Sarvesh Cotton Mills Ltd. I, II & III ever existed. 3.2 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 user 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 allowing depreciation on asset allegedly leased to Erode Rane Textile Processors I & II and Sri Sarvesh Cotton Mills Ltd. I, II & III. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 42 4. The CIT(Appeals) erred in deleting the addition of cash excess of `.55,983/-. 4.1 The C.I.T.(Appeals) failed to observe that only the incremental value was added in the assessment. 5. The C.I.T.(Appeals) erred in deleting the addition of surplus amount of `.1,62,971/- received from jewellery auction. 5.1 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 344 (SC). The surplus arising from sale of jewels and lying unclaimed with the bank for more than 3 years ought to have been confirmed by the C.I.T.(Appeals) as this surplus ought to be treated as income in the light of the above referred decision. 6. 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 that of the Assessing Officer be restored.” 60. By referring to the grounds reproduced hereinabove, both representatives are unanimous in their respective submissions that our findings in I.T.A. Nos. 902/Mds/2010 and 897/Mds/2010 decided hereinabove for the assessment year 1999-2000 squarely cover all except ground No. 5 in Revenue’s appeal I.T.A. No. 899/Mds/2010. 61. After giving our thoughtful consideration to the fair submissions made by both parties, we find that the same is liable to be accepted. It is noticed that in assessee’s appeal No. I.T.A. No. 904/Mds/2010, only two substantive grounds have been raised i.e. depreciation on leased assets and software expenditure. In. I.T.A. no. 902/Mds/2010 decided hereinabove for the assessment year 1999- 2000, we have confirmed the findings of the CIT(A) qua both the grievances raised by the assessee. Following the same reasoning, we also affirm the findings of the CIT(A) in the instant case. 62. Now we proceed in Revenue’s appeal I.T.A. No. 899/Mds/2010. In this ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 43 appeal substantive pleas of the Revenue are contained in ground No. 2, 3, 4 and 5 i.e. disallowance of bad debts, depreciation of leased out assets, cash excess and addition of surplus amount of `.1,62,971/- received from jewellery auction. In view of our findings in Revenue’s appeal I.T.A. No. 897/Mds/2010 for the assessment year 1999-2000, it is clear that we have restored the issue of bad debts back to the Assessing Officer, whereas qua the issues of depreciation of leased out assets and cash excess, the findings of the CIT(A) stand affirmed. In the impugned assessment year, since the Revenue has not pointed out any distinguishing features, we confirm the findings of the CIT(A) qua ground No. 3 and 4 as well and restore ground No. 2 back to the Assessing Officer. This leaves us with ground No. 5 i.e. issue regarding addition of surplus amount received by the assessee from jewellery auction. 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 from auction of jewellery. Its explanation before the Assessing Officer was that when any balance is left in auction, the same has to be paid to the borrowers concerned. The Assessing Officer did not agree to the assessee’s contention; in whose opinion, if any borrower did not turn up to collect the surplus amount in question, the same had to be retained in suspense account being a liability. Accordingly, he followed assessment orders of earlier assessment years and made addition in assessee’s total income. In assessee’s appeal, the CIT(A) has deleted the addition by holding as ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 44 under: “6.3 Respectfully following decision of the Hon’ble Income tax Appellate Tribunal in this regard the Assessing Officer is directed 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 Chennai ITAT in I.T.A. No. 739/Mds/2009 titled as City Union Bank vs. ACIT decided on 13.11.2009 and orders passed in preceding assessment year in assessee’s cases. 65. We have considered the rival contention at length and perused the relevant findings as well as case law cited. The facts 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 law of City Union Bank Ltd. (supra); the Coordinate Bench, after considering case law of TV Sundaram Iyengar and Sons (supra) had decided the issue of surplus arising from ‘stale drafts’ as under: “2. The sole issue raised in this appeal is regarding 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 legal claim is maintainable. The Bank has been showing this amount as due towards ‘stale drafts’ as a liability both in the audited Balance Sheet and in the statutory returns sent to RBI and it maintains cash reserve ratio at specified rate in current account with the RBI for such liability. From the yearwise details furnished, the Assessing Officer found that a sum of Rs. 49,19,662/- had been credited 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 for payment of stale drafts . It is a fact that this amount was received in the course of banking activities. The Assessing Officer ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 45 opined that when the drafts issued remained unpaid for more than 3 years, the limitation period for claim of payments of the same represented by the drafts would apply. Accordingly, he treated this amount as the asset of the assessee from the day after the end of the previous year during which the drafts were issued. The Assessing Officer 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 facts, evidences and the legal position relatable to the impugned issue. It is true that this liability has occurred due to ordinary business (trading) transactions of the assessee-Bank. The decision of the Hon'ble Apex Court (supra) is on entirely different facts. In that case, it was held that “...In other words, 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 becomes the assessee’s own money because of limitation or by any other statutory or contractual right. When such a thing happens, common-sense demands that the amount should be treated as income of the assessee.” 4. The above ratio was rendered on account of facts 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 Profit & 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 these amounts were not included in te 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 amounts 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 additions were deleted by the ld. CIT(A) and this was upheld by the Tribunal. But the facts of this case are different because in banking business RBI guidelines 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 cumulative total liability at the relevant period. In this case, after detailing period total outstanding amount has been shown in the Annexure attached to the 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 current account operated upon regularly doing in the course of business. Given the nature of transactions, the encashment of drafts after revalidation thereof, is a regular feature. Rather the common-sense demands that such drafts cannot be treated as unclaimable because time-barred, given the nature of banking transactions. Drafts issued, becoming stale is not an uncommon factor rather it is a usual and common feature in all banks. Unless the drafts amount becomes, in fact, unclaimable which can be by virtue of multifarious facts available and not by guess work, this amount cannot be treated as bank’s income. There is no such law which can convert such a liability into the income/asset of the assessee-bank after ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 46 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 how the amount has become unclaimable. Hence, we set aside the impugned finding and delete the entire addition. 5. In the result, the appeal of the assessee stands allowed.” We also notice that in assessee’s own case in I.T.A. Nos. 1051 and 1139/Mds/2003 for the assessment year 1987-88 and 1989-90, the same issue had arisen before the Coordinate Bench decided on 14.07.2006 which was accepted in assessee’s favour by holding as follows:- “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 nature of forfeited money by the customers which remained undisturbed and no claim from the customers was made. Further, the surplus amount 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 the 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 dues rightfully belong had not claimed the same for some reason or other. However, the assessee continues to be liable to the pledgers in respect of such balance amount and till the balance is given to the party, the assessee 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 account of the auction over and above the loan dues does belong to the customers. Hence, we uphold the orders of the learned Commissioner of Income Tax (Appeals) on this issue and decide the issue against the Revenue.” 66. Although the Revenue has relied on the case law of Hon’ble Supreme Court (supra), but it is noticed that in the order of the Coordinate Bench, the ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 47 same was dealt with and the Revenue’s contention could not convince the “Tribunal”. Therefore, in our opinion, since the law of Hon’ble Supreme Court is not applicable qua the peculiar facts of the case and the same very issue has attained finality in view of the fact that the Revenue has not challenged the above findings, we hold that the CIT(A) has rightly deleted the addition arising from surplus of jewellery auction. 67. Consequently, I.T.A. No. 904/Mds/2010 filed by the assessee is dismissed and I.T.A. No. 899/Mds/2010 filed by the Revenue stands partly allowed for statistical purpose. I.T.A. Nos. 929/Mds/2011 [by assessee] & 1069/Mds/2011 [by Revenue] These cross appeals by the assessee and the Revenue respectively, arise from the common order of the Commissioner of Income Tax (Appeals,) Tiruchirappalli dated 30.03.2011 in ITA No. 393/09-10, for the assessment year 2001-02; in proceedings under section 143(3) r.w.s. 263 of the Income Tax Act 1961 [in short the “Act”]. 68 The following grounds have been raised by the assessee: “1. The order of Commissioner of Income Tax (A) Tiruchirapalli in so far as it is against the Appellant, is contrary to law, erroneous, and unsustainable on the facts of the case. 2. The learned Commissioner of Income Tax (A) Tiruchirapalli has erred in treating 2% of the income from tax free bonds as estimated expenses in earning tax free interest. 2.1 Your appellant, a banking company which is controlled by Reserve Bank of India, has got interest free funds such as capital, Reserves & Current account deposits. The appellant has not incurred any expenditure by way of interest on tax free investment. Your appellant being a banking company ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 48 having more than 300 branches had not incurred any collection charges for realizing tax free income. Your appellant did not employ any additional person to look after tax free investment. 2.2 The profit earned by taxable bonds & taxable investments were not pulled down by the investments in tax free bonds, since the appellant has more interest free funds. 2.3 Your appellant did not take loan from others for investing in tax free bonds. 2.4 Under the above circumstances the maximum administrative expenses will not be more than `.l lakh. Therefore the estimated disallowance of 2% on income from tax free bonds may kindly be restricted to `.l lakh. 3. The learned Commissioner of Income Tax (A) has erred in treating 2% of Dividend income as estimated expenses on earning dividend income. 3.1 Your appellant a banking company had not incurred any expenditure by way of interest for purchasing shares and Mutual funds. Your appellant had not incurred any collection charges. Your appellant did not employ additional person to look after investments in shares & mutual funds. 3.2 The profit earned by taxable bonds & other taxable investments were not pulled down by investments in shares & mutual funds since the appellant has more interest free funds. 3.3 Your appellant did not take / borrow loan from others for investing in shares & mutual funds. 3.4 Under the above circumstances the maximum Administrative expenses will not be more than `.l lakh. Therefore the estimated disallowance of 2% on dividend income may kindly be restricted to `.l lakh. 4. The Commissioner of Income Tax (Appeals) has erred in treating ex gratia payment to employees as appropriation of profit and not towards contractual liability. 4.1 The Commissioner of Income Tax ( Appeals) is not correct in stating that ex-gratia payment to employees is merely an appropriation of profit and has no co-relation with the alleged incentive to its employees. The learned Commissioner of Income Tax (Appeals) may be correct if incentive /gift is given to share holders of a company or members of an association. 4.2 Ex-gratia is paid to all employees recognizing their joint effort in earning more profit for appellant company. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 49 4.3 Payment of Bonus Act insists minimum Bonus to be paid to employees who are paid a lesser salary. 4.4 The ex-gratia paid to employees, made the employees to work hard and earn more profit to company. The profit for 2007-08 increased to Rs.196,00,11,010/- from `.40,24,94,416 in 2001-02. 4.5 Ex-gratia paid to employees is taxable in the hands of respective employees. Your appellant bank while deducting tax on salary, deducts tax including ex-gratia received by employees. 4.6 The learned Commissioner of Income Tax (Appeals) has failed to apply the decision given by High Court in the following cases. (1) Maina Ore Transport (P) Ltd Vs Commissioner of Income Tax (2008) 175 Taxman 494 (Bombay) (2) Commissioner of Income Tax Vs Lakshmi Mills (MAD) (1999). 248 ITR 81 (3) Commissioner of Income Tax Vs Sivanantha Mills (MAD) (1985) 156 ITR 629. (4) Commissioner of Income Tax Vs National Engineering Industries Ltd (1994)208 ITR 1002 Calcutta. (5) Commissioner of Income Tax Vs Assam Frontier Tea Limited (2001) 117 Taxman 369 Gujarat. 5. The Commissioner of Income Tax (A) Tiruchirapalli, while deciding the allowability of direct payments made by the appellant Bank to the pensioners, had erred in concluding that the payments are not made through annuity purchase & hence the payments are in violation of Rule 89. 5.1 For paying pension to the employees an organization should purchase Annuity from LIC as per Rule 89. Many banks have got self managed recognized provident fund & gratuity fund. So the banks wanted to have self managed pension fund also. On application by IBA to the CBDT, for giving exemption to Rule 89 to all banks, CBDT permitted the nationalized banks alone to have self managed pension fund. Therefore, once again the private sector Banks Association had requested CBDT to grant Exemption for them also. 5.2 This petition was pending before CBDT. Since the pension was payable from 1993 the appellant bank in order to avoid strike by employees and to have a harmonious relationship paid the pension directly without resorting to purchase of Annuity. 5.3 The CBDT in August 2003 intimated its inability to grant exemption to private sector Banks. The Karur Vysya Bank employees' pension fund started from September 2003 to purchased Annuity from LIC as per Rule 89 ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 50 in the case of employees retired. The fund is purchasing Annuity from LIC as and when an employee retires. 5.4 Your appellant paid pension directly to employees when the petition was Pending before CBDT. 5.5 Since exemption was given to Rule 89 for Nationalized Banks, Private sector Banks Association also applied for exemption. As a member of private sector Bank, the appellant did not purchase Annuity while the petition was pending for disposal by CBDT. So, the contention of the Assessing Officer that the writ filed by the appellant Bank before Honourable Chennai High Court was dismissed, is wholly erroneous and wrong. (Page 24 of the order). The writ is still pending. 5.6 Rule 89 reads as under: Rule 89: For the purpose of providing the annuities for the beneficiaries, the trustees shall, (i) enter into a scheme of insurance with the Life Insurance Corporation established under the Life Insurance Corporation Act 1956(3) of 1956, or any other insurer as defied in clause (28BB) of Section 2 of the Income Tax Act, 1961, or (ii) accumulate the contribution in respect of each beneficiary and purchase an annuity from the said Life Insurance Corporation of India or any other insurer at the time of the retirement or death of each employee or on his becoming incapacitated prior to retirement. The above rule clearly directs and explains the dos and don'ts of the trustees. It refers to future events of retirement, death, incapacitation etc. In the case of appellant, payment is made by Bank (not by the trustees) to those who had already retired from the services. After CBDT denial, the Bank had entrusted the work of pension payment to the trustees, who had purchased annuity and fulfilled the norms of Rule 89. For the Asst Year 2001-02, the Commissioner of Income tax after full study and hearing with the appellant accepted our views and given a direction u/s144A that the payments made by the Bank to the retired employees, pending disposal of application by CBDT is an expenditure incurred wholly and exclusively for business development and allowed the same U/S 37(1). The assessment was reopened by issue of notice u1s 148 and fresh re assessment order was passed on 29-12-2006. But in this order Dt 29-12-2006 also, no additions were made on this front. 6. For the reasons stated in the grounds of appeal and arguments that may be adduced at the time hearing your appellant requests that the additions may kindly be deleted.” ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 51 69. The Revenue’s grievance in appeal has been pleaded as under: “1. The order of the CIT(A) is contrary to law, facts and in the circumstances of the case and relied upon cases which are not applicable to facts of the case. 2. The CIT(A) has erred in deleting the disallowances of depreciation in the value of investment of `.20,79,27,343. 2.1 The CIT(A) failed to appreciate that RBI is a regulator of banks and can give directions to the 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 portfolio of the securities in three categories viz. Held To Maturity (HTM), Available For Sale (AFS) and Held For Trading (HFT). With a view 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 till maturity and are to be shown in the books of accounts at cost; while the securities AFS & HFT categories are treated as stock-in-trade. It is these securities (AFS & HFT) which alone could be valued at the end of the accounting year at cost or market value. It implies that investment in HMT category of securities is to be treated as "investments" of capital nature. The CIT(A), therefore, ought to have confirmed the disallowances for diminution in value in respect of HTM category of securities. The CIT(A) erred in treating the entire portfolio of securities as stock- in - trade and consequently, deleted the additions made on account of disallowance of depreciation in value of portfolio of these securities shown as 'investments' in books. 2.2 The CIT(A) erred in allowing claim of assessee in facts and circumstances of the case in respect of depreciation in securities, totally ignoring the fact that there was no depreciation at all, if computed in accordance with RBI Guidelines and instructions of the CBDT. 2.3 The CIT(A) failed to consider the fact that this argument has not been taken up before and therefore ratio of decision of the assessee bank for earlier year is not applicable to the facts of the case. 3. The CIT(A) has erred in allowing the interest claimed on purchase of securities as revenue expenditure. The CIT(A) failed to observe that interest paid on purchase of HTM category of securities will be capital expenditure and not revenue expenditure and therefore broken period interest paid for HTM category of securities lying unsold at the end of the year ought to have been confirmed by the CIT(A). ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 52 3.1 The CIT(A) also erred in treating entire investment in securities as stock-in- trade, overlooking the fact only AFS & HFT category of securities would alone qualify for treatment as stock-in-trade. The CIT(A) failed to observe that broken period interest paid at the time of purchase of securities would be part of 'cost' of securities. The CIT(A), therefore, ought to have confirmed the broken period interest paid towards securities (AFS & HFT categories treated as stock-in-trade) lying unsold as closing stock. The CIT(A) failed to note the understatement in value of the closing stock to the extent of broken period interest paid for purchase of AFS & HFT securities( treated as stock-in-trade) lying unsold as closing stock. 3.2 The CIT(A) failed to consider the fact that this argument has not been taken up before and therefore ratio of decision of the assessee bank for earlier year is not applicable to the facts of the case. 4. The CIT(A) erred in deleting of the disallowance of amortization expenses of `.1,68,15,534/. 4.1 The CIT(A) failed to observe that the premium paid over and above the face value of the HTM category of securities above the cost of the securities. 4.2 The CIT(A) erred in treating amortization as part of depreciation ignoring the fact that it is actually allowing of deduction by spreading the premium paid over and above the face value of the HTM category of the security over a period of maturity of securities concerned. 4.3 The CIT(A) has failed to appreciate the ratio of the decision of the Supreme Court in the case of Southern Technologies Ltd that RBI guide line cannot override the provisions of Income Tax Act. 5. The CIT(A) erred in deleting the addition with regard to unclaimed balances. The CIT(A) failed to follow the ratio of decision of Apex Court in the case. T.V. Sundaram Iyengar & Sons.222 ITR 344(SC). The balance lying unclaimed with the bank for more than 3 years ought to have been confirmed by the CIT(A) as these are to be treated as income in the light of the above referred decision. 6. The CIT(A) erred in facts and circumstances of the case in deleting contrived loss on sale of mutual fund which was "arranged" solely for reducing incidence of tax without appreciating that sec 94(7) was merely clarifactory in nature. This colorful device of arranging loss on sale of mutual fund was hit by ratio of Apex Court decision of Mc Dowell & Co Ltd 154 ITR 148(SC) and Play World Electronics (P) Ltd.184 ITR 308(SC).The CIT(A) ought to have confirmed the order of the Assessing Officer following the ratio of decision of the Apex Court. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 53 6.1 The CIT(A) erred in allowing the entire claim of loss on sale of Kothari Pioneer Prima -fund without appreciating that assessee Bank did not consider in its computation dividend received to the extent of `.3,88,19,875/- only because same was reinvested. Without conceeding that view taken by CIT(A) as regards applicability of sec.94(7) is correct, yet this loss of `.3,88,19,875/-has been allowed by CIT(A) in excess of what is loss on sale of Mutual Fund Units as per basic accounting practices. The CIT(A) ought to have confirmed the addition made by the Assessing Officer at least to the extent of `. 3,88,19,875/- purely on accounting basis itself. 7. The CIT(A) erred in interpreting the 2nd limb of section 36(I)(viia). The CIT(A)allowed deduction on the total Average outstanding rural advances made by the bank at the end of the accounting year without restricting the deduction to the incremental advance made during the year. The CIT(A) failed to appreciate the fact that income for each year is required to be computed separately as each accounting year is a separate unit for assessment purpose and· therefore deduction was available only on incremental rural advance during the year and not total outstanding at the end of the accounting year. 8. For these and other reasons that may be adduced at the time of hearing, the order of the CIT(A) may be cancelled and that of the assessing officer be restored.” 70. Facts relevant to the case are that on 29.10.2001, the assessee had filed its ‘return’ for the assessment year 2001-02 declaring income of `.40,24,94,460/- and the Assessing Officer completed assessment under section 143(3) of the “Act” vide assessment order dated 29.03.2004 determining assessee’s total taxable income as `.56,34,40,300/-. On 26.12.2005, the Assessing Officer issued reassessment notice under section 148 of the “Act for the reason that assessee’s income relating to interest on securities had been offered not on accrual basis but on due basis resulting in its escapement from being taxed. Thereafter, the Assessing Officer completed reassessment on 29.12.2006. This time he computed the assessee’s total income as `.58,91,81,588/-. We find from the record that the CIT, Trichy, subsequently formed an opinion that the assessment ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 54 order passed in the assessee’s case suffered from ‘error causing prejudice to the interest of the Revenue’. Hence, he directed the Assessing Officer to make afresh assessment under section 263 of the “Act”. In proceedings consequent thereto, the Assessing Officer completed assessment vide order dated 31.12.2009 making the following additions: ADDITIONS `. 1. Depreciation on securities 20,79,27,343 2. Broken period interest 8,68,50,136 3. Amortization expenditure 1,68,15,534 4. Expenditure relating to tax free income 77,34,828 5. Exgratia payment 2,52,75,324 6. Unclaimed Balance 12,28,614 7. Direct pension payment 1,70,22,649 8. Loss on mutual fund 8,77,49,442 Total additions 45,06,03,870 71. Aggrieved, the assessee preferred appeal before the CIT(A) which has been partly accepted. It is in this background of the fact that both parties are aggrieved and before us. 72. The DR representing Revenue has strongly assailed CIT(A)’s order and submitted that the addition above said made by the Assessing Office have been wrongly deleted in part. Therefore, he prayed for restoration of additions. 73. Opposing Revenue, it has been submitted by the AR that in this case, the order dated 30.03.2009 (supra) passed by the CIT, Trichy exercising jurisdiction under section 263 of the “Act” has been nullified by the Coordinate Bench of ITAT, Chennai in I.T.A. No. 825/Mds/2009 decided on 03.06.2011. In the light thereof, he has stated that the very foundation of the assessment order in ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 55 question does not exist. He also produced copy of aforesaid order. 74. We have considered the facts and circumstances of the case in detail. Undisputedly the order of the CIT(A) has partly confirmed various additions (supra) made by the Assessing Officer, who had passed the order in furtherance to directions of CIT, Trichy vide order dated 30.03.2009 under section 263 of the “Act”. It has come on record that the said revision order has been annulled by the Coordinate Bench (supra), wherein one of us [N.S. Saini, A.M.] was Member of the Bench. The operative portion of the order reads as under: “8. We find that the provisions of section 263(2) of the Act reads as under: “No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.” 9. Thus, in our considered opinion, the order which has been sought to be revised u/s 263 of the Act is barred by limitation after expiry of two years period from the end of the F.Y. in which the relevant order was passed. The contention of the ld. D.R. is that the order passed by the Assessing Officer u/s 143(3) merges with the order passed by the Assessing Officer u/s 147 and the entire assessment is open to the Assessing Officer once reassessment proceedings are initiated. In our considered view, the above contention of the ld. D.R. is not correct. Hon'ble Supreme Court in the case of CIT Vs. Sun Engineering Works reported in 198 ITR 297 [SC] has held as under: “In proceedings u/s 147 of the Act, the ITO may bring to charge items of income which had escaped assessment other than or in addition to the item or items which led to the issuance of a notice u/s 148 and where re assessment is made u/s 147 in respect of income which had escaped tax, the ITO’s jurisdiction is confined only to such income which has escaped tax or has been under assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings.” 10. Thus it is settled position of law that jurisdiction of the Assessing Officer u/s 147 of the Act is limited to the escaped income and not other issues which are beyond his jurisdiction. Further, it is also settled position of law that the order of the lower authorities merges with the order of the higher authority, and that too, ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 56 only to the extent of issues which were considered by the higher authorities. The order of the statutory authority does not merge with subsequent order passed by the very same authority because the statutory authority is not empowered to revise its own order or order of his predecessor. In that case, order which remains in force is the original order read with or subsequent order. In our considered opinion, the issue of escaped income that is `.2,70,96,093/-, subject matter of proceedings u/s 148 only arises out of the reassessment order dated 29.12.2006 in the instant case and the other issues have attained finality vide order dated 29.3.2004 passed u/s 143(3) of the Act and do not arise out of the order dated 29.12.2006. Thus, if there was an error in the original order which was prejudicial to the interest of the Revenue, then time limit for revising u/s 263 will be counted from the date of original assessment order. Only when there was some error which was prejudicial to the interest of the Revenue which was considered in reassessment proceedings can be revised u/s 263 by counting the period of limitation from the date of reassessment order. Our above view finds support from the decision of the Hon'ble Supreme Court in the case of CIT Vs. Alagendran Finance Ltd [2007] 293 ITR 1[SC], decision of Hon'ble Bombay High Court in the case of Ashoka Buildcon Ltd Vs. ACIT [2010] 325 ITR 574 [Bom] and decision of Madras High Court in the case of CIT Vs. Shriram Engineering Construction Co. Ltd [2011] 330 ITR 568 [Mad]. 11. The contention of the ld. D.R. that the issue of allowance of provision for bad debts u/s 36(1)(viia) was considered and decided in reassessment order dated 29.12.2006 as because the figure of deduction was changed from Rs. 11,11,36,989/- to `. 11,24,91,794/- is also not acceptable because we find that the said issue was not a subject matter of section 147 proceedings and the Assessing Officer never took a fresh decision in respect of the same in reassessment order. In the reassessment order, only because of increase in total income, the Assessing Officer revised the figure in accordance with his decision taken in the original order dated 29.3.2004. In the original order dated 29.3.2004, the Assessing Officer held that the assessee was eligible for deduction u/s 36(1)(viia) of the Act subject to maximum of 5% of total income. As in the reassessment order after including escaped income of `. 2,70,96,093/- in the total income of the assessee, the income of the assessee consequently increased and therefore, the Assessing Officer modified the figure of deduction allowable u/s 36(1)(viia) from `.11,11,36,984/- to Rs. 11,24,91,794/- in accordance with his decision taken in the original assessment order. No material was brought on record by the ld. D.R. to show that a new error was found by the ld. CIT in the reassessment order dated 29.12.2006 which was not there in the original order of assessment dated 29.3.2004. As it is found that all the issues in respect of which impugned order u/s 263 was passed by the CIT on 30.3.2009 were relating to the original order of assessment dated 29.3.2004, in our considered opinion, the order dated 30.3.2009 passed u/s 263 is barred by limitation in view of provisions of sub-section (2) of section 263 of the Act and consequently bad in law. We, therefore, set aside the order of the ld. CIT(A) passed u/s 263 of the Act on 30.3.2009 and allow the appeal of the assessee. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 57 12. In the result, the appeal filed by the assessee stands allowed.” After going through relevant portion of the order (supra), we are of the view that since the revision order under section 263 dated 30.03.2009 passed by the CIT, Trichy itself does not exist, the order of the CIT(A) and that of the Assessing Officer have no legs to stand. Therefore, we hold that both these appeals have become infructuous as the additions in question made by the Assessing Officer no more hold ground. 75. As a sequel, both appeals have become infructuous. I.T.A. Nos. 930/Mds/2011[ by assessee] & 1070/Mds/2011[by Revenue] 76. These cross appeals by the assessee and the Revenue respectively; challenge the order of the Commissioner of Income Tax(A), Tiruchirappalli, dated 30.03.2011 in ITA No. 664/06-07 for the assessment year 2004-05, in proceedings under section 143(3) of the Income Tax Act 1961 [in short the “Act”]. 77. The assessee has raised the following grounds:- 1. The order of Commissioner of Income Tax (A) Tiruchirapalli in so far as it is against the Appellant, is contrary to law, erroneous, and unsustainable on the facts of the case. 2. The learned Commissioner of Income Tax (A) Tiruchirapalli has erred in treating 2% of the income from tax free bonds as estimated expenses in earning tax free interest. 2.1 Your appellant, a banking company which is controlled by Reserve Bank of India, has got interest free funds such as capital, Reserves & Current account deposits . The appellant has not incurred any expenditure by way of interest on tax free investment. Your appellant being a banking company having more than 300 branches had not incurred any collection charges for realizing tax free income. Your appellant did not employ any additional person to look after tax free investment. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 58 2.2 The profit earned by taxable bonds & taxable investments were not pulled down by the investments in tax free bonds, since the appellant has more interest free funds. 2.3 Your appellant did not take loan from others for investing in tax free bonds. 2.4 Under the above circumstances the maximum administrative expenses will not be more than `.l lakh. Therefore the estimated disallowance of 2% on income from tax free bonds may kindly be restricted to `.l lakh. 3. The Commissioner of Income Tax (A) Tiruchirapalli, while deciding the allowability of direct payments made by the appellant Bank to the pensioners, had erred in concluding that the payments are not made through annuity purchase & hence the payments are in violation of Rule 89. 3.1 For paying pension to the employees an organization should purchase Annuity from LIC as per Rule 89. Many banks have got self managed recognized provident fund & gratuity fund. So the banks wanted to have self managed pension fund also. On application by IBA to the CBDT, for giving exemption to Rule 89 to all banks, CBDT permitted the nationalized banks alone to have self managed pension fund. Therefore, once again the private sector Banks Association had requested CBDT to grant Exemption for them also. 3.2 This petition was pending before CBDT. Since the pension was payable from 1993 the appellant bank in order to avoid strike by employees and to have a harmonious relationship paid the pension directly without resorting to purchase of Annuity. 3.3 The CBDT in August 2003 intimated its inability to grant exemption to private sector Banks. The Karur Vysya Bank employees' pension fund started from September 2003 to purchased Annuity from LIC as per Rule 89 in the case of employees retired. The fund is purchasing Annuity from LIC as and when an employee retires. 3.4 Your appellant paid pension directly to employees when the petition was Pending before CBDT. 3.5 Since exemption was given to Rule 89 for Nationalized Banks, Private sector Banks Association also applied for exemption. As a member of private sector Bank, the appellant did not purchase Annuity while the petition was pending for disposal by CBDT. So, the contention of the Assessing Officer that when all other scheduled banks could follow the procedure laid down in Rule 89, the assessee's act of resisting the import of Rue 89 is not justified, is wholly erroneous and wrong. (page 18 of the order) 3.6 Rule 89 reads as under: ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 59 Rule 89. For the purpose of providing the annuities for the beneficiaries, the trustees shall, (i) enter into a scheme of insurance with the Life Insurance Corporation established under the Life Insurance Corporation Act 1956(3) of 1956, or any other insurer as defined in clause (28BB) of Section 2 of the Income Tax Act, 1961, or (ii) accumulate the contribution in respect of each beneficiary and purchase an annuity from the said Life Insurance Corporation of India or any other insurer at the time of the retirement or death of each employee or on his becoming incapacitated prior to retirement. The above rule clearly directs and explains the dos and don'ts of the trustees. It refers to future events of retirement, death, incapacitation etc. In the case of appellant, payment is made by Bank (not by the trustees) to those who had already retired from the services. After CBDT denial, the Bank had entrusted the work of pension payment to the trustees, who had purchased annuity and fulfilled the norms of Rule 89. For the Asst Year 2001-02, the Commissioner of Income tax after full study and hearing with the appellant accepted our views and given a direction u/s144A that the payments made by the Bank to the retired employees, pending disposal of application by CBDT is an expenditure incurred wholly and exclusively for business development and allowed the same U/S 37(1). 4. The observation of Commissioner of Income Tax (A) that Pooja performed by Bank is not relating to banking business is not correct. 4.1 Conducting pooja gives peace of mind to employees in the midst of tension; increases concentration power of employees; develops unity among employees, These increases the output of employees resulting benefit for the organization. 4.2 The Commissioner of Income Tax (A) failed to apply High Court orders in the case of (a) Commissioner of Income Tax TN, III Vs Aruna Sugars Ltd[132 ITR 718]. (b) Atlas Cycle Industries Limited Vs Commissioner of Income Tax.(1982) [134 ITR 458] (c) Brijramandas & Sons Vs Commissioner of Income Tax [142 ITR 509]. 5. The learned Commissioner of Income Tax (A) has erred in treating 2% of Dividend income as estimated expenses on earning dividend income. 5.1 Your appellant a banking company had not incurred any expenditure by way of interest for purchasing shares and Mutual funds. Your appellant had not incurred any collection charges. Your appellant did not employ additional person to look after investments in shares & mutual funds. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 60 5.2 The profit earned by taxable bonds & other taxable investments were not pulled down by investments in shares & mutual funds since the appellant has more interest free funds. 5.3 Your appellant did not take / borrow loan from others for investing in shares & mutual funds. 5.4 Under the above circumstances the maximum Administrative expenses will not be more than `.l lakh. Therefore the estimated disallowance of 2% on dividend income may kindly be restricted to `.l lakh. 6. The Commissioner of Income Tax (A) has erred in disallowing entire amount of presents given by the appellant. 6.1 It is a practice to give small memento / gifts to VIPs, participating in special occasions like branch opening, branch shifting, customers meet, and special meetings organized by banks to fulfil its social commitment. 6.2 The presents given at such occasions will develop good relationship between existing customers, and would be customers and Bank. 6.3 The image of the Bank will increase & more business will be done. 6.4 Your appellant himself has disallowed 20% of present and added the same to the income in the memo. 7. For the reasons stated in the grounds of appeal and arguments that may be adduced at the time hearing your appellant requests that the additions may kindly be deleted.” Similarly, the Revenue’s grounds read as under: “1. The order of the CIT(A) is contrary to law, facts and in the circumstances of the case and relied upon cases which are not applicable to facts of the case. 2. The CIT(A) has erred in deleting the disallowances of depreciation in the value of investment of `.3 ,81,18,863. 2.1 The CIT(A) failed to appreciate that RBI is a regulator of banks and can give directions to the 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 portfolio of the securities in three categories viz. Held To Maturity (HTM), Available For Sale (AFS) and Held For Trading (HFT). With a view 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 ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 61 till maturity and are to be shown in the books of accounts at cost; while the securities AFS & HFT categories are treated as stock- in -trade. It is these securities (AFS & HFT) which alone could be valued at the end of the accounting year at cost or market value. It implies that investment in HMT category of securities is to be treated as "investments" of capital nature. The CIT(A), therefore, ought to have confirmed the disallowances for diminution in value in respect of HTM category of securities. The CIT(A) erred in treating the entire portfolio of securities as stock-in - trade and consequently, deleted the additions made on account of disallowance of depreciation in value of portfolio of these securities shown as 'investments' in books. 3. The CIT(A) has erred in allowing the interest claimed on purchase of securities as revenue expenditure. The CIT(A) failed to observe that interest paid on purchase of HTM category of securities will be capital expenditure and not revenue expenditure and therefore broken period interest paid for HTM category of securities lying unsold at the end of the year ought to have been confirmed by the CIT(A). 3.1 The CIT(A) also erred in treating entire investment in securities as stock-in- trade, overlooking the fact only AFS & HFT category of securities would alone qualify for treatment as stock-in-trade. The CIT(A) failed to observe that broken period interest paid at the time of purchase of securities would be part of 'cost' of securities. The CIT(A), therefore, ought to have confirmed the broken period interest paid towards securities (AFS & HFT categories treated as stock-in-trade) lying unsold as closing stock. The CIT(A) failed to note the understatement in value of the closing stock to the extent of broken period interest paid for purchase of AFS & HFT securities( treated as stock-in-trade) lying unsold as closing stock. 3.2 The CIT(A) failed to consider the fact that this argument has not been taken up before and therefore ratio of decision of the assessee bank for earlier year is not applicable to the facts of the case. 4. The CIT(A) erred in deleting the disallowance of brokerage without appreciating that securities in the HTM category would be investment of capital nature. The CIT(A) ought to have restricted the relief for the brokerage paid in respect of AFS & HFT category of securities. 5. The CIT(A) erred in deleting the disallowance of bad debts to the extent of `.17,26,60,231. 5.1 The CIT(A) failed to note that under proviso to clause(vii) of sub-section(l) of section 36, only bad debts written off which are over and above the credit balance available in the provision for bad and doubtful debts account would be eligible for deduction. The CIT(A) ought to have confirmed the addition made by the AO. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 62 6 The CIT(A) erred in deleting the addition with regard to unclaimed balances. The CIT(A) failed to follow the ratio of decision of Apex Court in the case. T.V. Sundaram Iyengar & Sons.222 ITR 344(SC). The balance lying unclaimed with the bank for more than 3 years ought to have been confirmed by the CIT(A) as these are to be treated as income in the light of the above referred decision. 7. For these and other reasons that may be adduced at the time of hearing, the order of the CIT(A) may be cancelled and that of the assessing officer be restored.” 78. Coming to assessee’s appeal, the AR representing assessee has pointed out that grounds No. 2 and 5 in this appeal pertain to disallowance made by the CIT(A) @ 2% under section 14A qua income from tax free bonds and dividend. He has submitted that the ground in hand is identical to that raised in I.T.A. No. 902/Mds/2010. Similarly qua ground No. 3 which relates to the issue of applicability of Rule 89 qua allowability of direct payments made by the assessee to its pensioners, the AR has clarified that the said issue also stands adjudicated in I.T.A. No. 902/Mds/2010. After considering the submissions made by the AR, we are of the opinion that since we have already adjudicated upon grounds No. 2 &5 and 3 raised in the instant appeal in I.T.A. No. 902/Mds/2010 filed by the assessee decided hereinabove, we pass the same order in the instant case i.e., grounds No. 2 and 5 are rejected and ground No. 3 stands remitted back to the Assessing Officer. this leaves us with grounds No. 4 and 6 raised in the instant appeal which pertain to pooja expenses and expenditure incurred by the assessee under the head ‘presents’ made by the assessee for promotion of business. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 63 79. Regarding ground No. 4, the relevant facts are that in the assessment proceedings, the assessee had debited an amount of `.4,31,358/- as pooja expenses. The Assessing Officer rejected assessee’s claim in the assessment vide order dated 29.12.2006 by terming it as inadmissible deduction, which has also been confirmed by the CIT(A). 80. Challenging the CIT(A)’s order confirming the disallowance of pooja expenses, the assessee has reiterated the submissions raised in the ground and also placed reliance on the case law reported [1981] 132 ITR 718 CIT vs. Aruna Sugars Ltd. (Mad) and prayed for acceptance of the ground. 81. Opposing this, the Revenue states that the CIT(A) has rightly confirmed the disallowance. 82. We have heard both parties and also perused the 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 that performing pooja gives peace of mind to its employees and increases work efficiency. We notice that in similar claim, the Hon’ble Jurisdictional High Court (supra) while accepting the issue concerned in assessee’s favour has held as under: “The Commissioner of Income-tax, Tamil Nadu-III, Madras, has applied for a direction to the Tribunal in each of these two petitions for reference of the following question: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the expenses incurred by the ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 64 assessee towards pooja and bakshish should be allowed as business expenses or welfare expenses of the staff ? " The facts are in a short compass. The assessment years under consideration are 1968-69 and 1969-70. The assessee claimed Rs. 1,751 and Rs. 3,250 as miscellaneous expenses. These 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 appeal, 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 that, similarly, expenses on bakshish and presentation were found to have been incurred in respect of the workers alone. Hence, the Tribunal did not find any reason for the disallowance of these claims. It is this conclusion of the Tribunal that is now sought to be questioned. Having regard to the finding of the Tribunal that these 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 Tribunal is based on the particular facts and, therefore, no question of law arises out of the order of the Tribunal. The petitions are, accordingly, dismissed with costs. Counsel's fee Rs. 250 (Rupees two hundred and fifty only), one set.” In the light thereof, we are of the view that the CIT(A) has erred in confirming the disallowance. Keeping in view the observations aforesaid, we accept assessee’s ground and delete the disallowance on account of pooja expenses. 83. Coming to ground No. 6. In the assessment proceedings, the assessee had claimed that it had incurred business expenditure for developing business by gifting small mementos and gifts on special occasions. Before the Assessing Officer, the assessee submitted that it had itself disallowed 20% of the expenses. In the assessment order, the Assessing Officer held that there is no proof of ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 65 incurring expenditure for business purposes. The said disallowance also stands confirmed by the CIT(A). 84. The assessee has argued before us that for promoting its business, it incurred the above said expenditure which is allowable in law as per the judgment of Hon’ble Calcutta High Court as reported [2012] 344 ITR 442 (Cal) Duncans Tea Ltd. v. CIT. 85. Contesting this, the DR representing the Revenue strongly supported the CIT(A)’s order. 86. We have heard rival contention and also perused the impugned findings of the Assessing Officer and CIT(A) as well as case law cited. It is noticed that the assessee’s claim is mainly confined to making ‘presents’ etc. on special occasion and festivals for which it itself had disallowed 20%. It is found that the Hon’ble Calcutta High Court while dealing with such issue allowed assessee’s claim regarding deduction under the said head by observing as under: “We have considered the submissions and gone through the citations noted above and it appears that the authorities had understood the commercial expediency for incurring the expenses on account of the assessee’s business otherwise fifty per cent of the expenditure would not have been allowed. Therefore, we think that the ratio decided in these two decisions of the Hon’ble Apex Court has been followed practically though not expressly mentioned therein. When we find that business expediency has been accepted by the authority concerned but the question is to what extent the deduction should be allowed viz. whether deduction should be allowed wholly or partially as has been decided by the assessing officer and the Learned Tribunal. It appears that the Learned Tribunal while reversing the judgment and order of the Commissioner of Income Tax (Appeal) and restoring that of ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 66 assessing officer followed the earlier decision of the Tribunal which had affirmed the decision of the Commissioner of Income Tax (Appeal) on the question of disallowance of expenditure. Dr. Pal has rightly pointed out that on earlier occasion for the assessment year 1988-89 the assessee company could not establish by producing evidence that the gift articles were purchased or the same we re utilised for the purpose of promotion and growth of the business. Therefore, the judgment based on fact earlier should not be a binding precedent to be followed by the Learned Tribunal. We find considerable force in the submission that reason for disallowance of fifty per cent on earlier occasion was not established by adducing cogent evidence that there has been purchase of the gift articles and the same were utilised for promotion and growth of business so as to bring the deduction under the head of business expenditure. In view of the aforesaid factual position it cannot be said that the facts and circumstances in the subsequent year is similar to that of the earlier year. Admittedly as correctly pointed out by Dr. Pal the evidence were produced before all the authorities and indeed Commissioner of Income Tax (Appeal) very carefully and elaborately dealt with the aspect of the evidence and found that there has been sufficient proof that the gift articles were purchased and the same were sent to depots of the appellant at various places and the depot registers are maintained. Payments to the supplier were made by account payee cheque or otherwise. If this evidence is considered then it is established beyond doubt that gift articles were purchased, and there has been no evidence that the same could not be utilized. Moreover, all the authorities in principle accepted that the same must have been utilized indeed what else could be done about the gift articles a part from utilising the same? Under those circumstances we think that the assessee has been able to prove the case with preponderance of probability if not beyond reasonable doubt that the gift articles as mentioned in the return were purchased and the same were utilized for promotion and growth of the business, we think that the Learned Tribunal was not justified in upsetting the judgment and order of the Commissioner of Income Tax (Appeal) following the earlier precedent of the Learned Tribunal. We, accordingly are of the view that the judgment and order of the Learned Tribunal is not sustainable and the same is set aside. Consequently, the judgment and order of the Commissioner of Income Tax (Appeal) is restored.” ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 67 Taking cue from the same and more so, in view of the fact that there is no issue between parties on facts, we hold that the assessee is entitled for the relief in question. 87. Consequently, assessee’s appeal in I.T.A. no. 930/Mds/2011 stands partly allowed. 88. In I.T.A. No. 1070/Mds/2011, it has been pointed by the Revenue that all grounds raised hereinabove stand argued in I.T.A. No. 897/Mds/2010 for the assessment year 1999-2000. The said submission has also not been opposed by the assessee. Accordingly, we find that the Revenue has raised only 4 substantive grounds i.e. grounds No. 2 to 5 pertain to disallowance of the depreciation in the value of investment, interest claimed on purchase of securities, disallowance of brokerage by CIT(A) and bad debts. Since the parties are not at variance that these grounds have been adjudicated hereinabove in I.T.A. No. 897/Mds/2010 (supra), we restore grounds No. 3, 4 and 5 to the Assessing Officer and reject ground No. 2. 89. Accordingly, Revenue’s appeal stands partly allowed for statistical purpose. I.T.A. Nos. 907/Mds/2010 [by assessee] & 901/Mds/2010 [by Revenue] 90. These cross appeals by the assessee and the Revenue respectively; challenge the order of the Commissioner of Income Tax(A), Tiruchirappalli, dated 23.03.2010 in ITA No. 311/07-08 for the assessment year 2005-06, in proceedings under section 143(3) of the Income Tax Act 1961 [in short the “Act”]. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 68 91. The assessee has raised the following grounds: “I (i) The learned Commissioner of Income tax of Appeal Trichy failed to see that the appellant did not incur any expenditure in earning 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 Appeal Trichy failed to see that the Assessing Officer had not proved any expenditure directly related to the tax free income in the case of the appellant . II (i) The learned Commissioner of Income tax of Appeal Trichy failed to see that the appellant did not incur any expenditure in earning the tax free income of dividends. The estimated disallowance @ 2% of the tax free income/dividend is not correct as per the decision of many appellate authorities . (ii) The learned Commissioner of Income tax of Appeal Trichy failed to see that the Assessing Officer had not proved any expenditure directly related to the tax free income in the case of the appellant. III. The learned Commissioner of Income tax appeals, Trichy, has erred in disallowing Pooja expenses, which is commonly undertaken in all business concerns as a staff welfare measure , even after pointing out High court judgments.” Whereas, the grievances of Revenue read as under: “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) has erred in deleting the disallowance of depreciation in the value of investment of `.31,83,87,854/-. 2.1 The C.I.T.(Appeals) failed to appreciate that RBI is a regulator of banks and can (nay, is required to) give directions to the 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 portfolio of the securities in three categories viz. Held To Maturity (HTM), Available For Sale (AFS) and Held For Trading (HFT). With a view 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 till maturity and are to be shown in the books of accounts at cost; while the securities of HFT & AFS categories are treated as stock-in-trade. It is these securities (AFS & HFT) which alone could be valued at the end of the accounting year at cost or market value. It implies that investment in HTM category of securities is to be treated as "investment" of capital nature. The ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 69 C.I.T.(Appeals), therefore, ought to have confirmed the disallowance for diminution in value in respect of HTM category of securities. The C.I.T.(Appeals) erred in treating the entire portfolio of securities as stock-in-trade and consequently, deleted the additions made on account of disallowance of depreciation in value of portfolio of these securities shown as 'investments' in books. 3. The C.I.T.(Appeals) has erred in allowing the interest claimed on purchase of securities as revenue expenditure. The C.I.T. (Appeals) failed to observe that interest paid on purchase of HTM category of securities will be capital expenditure and not revenue expenditure. The C.I.T. (Appeals) erred in treating entire investment in securities as stock-in-trade, overlooking the fact that only AFS & HFT category of securities would alone qualify for treatment as stock-in-trade. 3.1 The C.I.T.(Appeals) failed to observe that broken period interest paid at the time of purchase of securities would be part of 'cost' of securities. The C.I.T.(Appeals), therefore, ought to have confirmed the broken period interest paid towards securities (AFS & HFT categories treated as stock-in-trade) lying unsold as closing stock. The C.I.T.(Appeals) failed to note the understatement in value of the closing stock to the extent of broken period interest paid for purchase of AFS & HFT securities ( treated as stock-in-trade) lying unsold as closing stock. 4. The C.I.T.(Appeals) erred in deleting the disallowance of brokerage without appreciating that securities in the HTM category would be investment of capital nature. The C.I.T.(Appeals) ought to have restricted the relief for the brokerage paid in respect of AFS & HFT category of securities. 5. The C.I.T.(Appeals) erred in deleting the disallowance of bad debts to the extent of `.7,30,92,275/-. 5.1 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 off which are over and above the credit balance available in the provision for bad and doubtful debts account would be eligible for deduction. The C.I.T.(Appeals) ought to have con finned the addition made by the A.O. 6. The C.I.T.(Appeals) erred in deleting the addition 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 344 (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 income in the light of the above referred decision. 7. 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 that of the Assessing Officer be restored. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 70 92. By referring to the grounds, both the representatives have shown unanimity that the issues in hand are no more res integra as the same stand adjudicated in appeals decided hereinabove. 93. We have considered the fair submissions and also perused he respective pleadings of parties. It transpires that in assessee’s appeal I.T.A. No. 907/Mds/2010, three grounds have been raised. Grounds No. I and II pertain to disallowance of expenditure @ 2% qua exempt income. Similarly, ground No. III pertains to disallowance of pooja expenses. 94. We find that in I.T.A. No. 902/Mds/2010 filed by the assessee for the assessment year 1999-2000, we have confirmed the disallowance made by the CIT(A) @ 2% qua exempt income. Therefore, ground No. I and II are rejected. 95. Qua ground No. III of pooja expenditure, it is noticed that in I.T.A. No. 930/Mds/2011 filed by the assessee for the assessment year 2004-05, we have deleted the disallowance. In the light thereof, we accept assessee’s ground in hand and delete the disallowance. 96. Consequently, assessee’s appeal in I.T.A. No. 907/Mds/2010 stands partly allowed. 97. Now, we come to Revenue’s appeal in I.T.A. No. 901/Mds/2011. In this appeal, the Revenue has raised five substantive grounds i.e. grounds No. 2 to 6 regarding disallowance of depreciation in the value of investment, interest claim on purchase of securities, disallowance of brokerage, bad debts and unclaimed ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 71 balances. It is seen that in I.T.A. No. 897/Mds/2010 (supra) decided hereinabove, we have rejected Revenue’s contention qua disallowance of depreciation in value of investment. At the same time, in the said appeal, qua the interest claimed on purchase of securities and brokerage as well as bad debts, we have restored the matter back to the Assessing Officer. Therefore, grounds No. 3 to 5 of the instant appeal also stand remitted back to the Assessing Officer. 98. Ground No. 6 in the instant appeal pertaining to unclaimed balances for which disallowance was made by the Assessing Officer, but deleted by the CIT(A). We take note of the fact that in I.T.A. No. 899/Mds/2010 (supra), we have decided this very issue in favour of the assessee and against the Revenue. In the light thereof, this ground is decided against the Revenue. 99. Consequently, I.T.A. No. 901/Mds/2010 stands partly allowed for statistical purpose. I.T.A. Nos. 931/Mds/2011 [by assessee] & 1071/Mds/2011 [by Revenue] 100. These cross appeals by the assessee and Revenue respectively; challenge correctness of the order of the Commissioner of Income Tax(A), Tiruchirappalli, dated 30.03.2011 in ITA No. 379/08-09 for the assessment year 2006-07, in proceedings under section 143(3) of the Income Tax Act 1961 [in short the “Act”]. 101. In I.T.A. No. 931/Mds/2011, the following grounds have been raised for our consideration: ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 72 “1. The order of Commissioner of Income Tax (A) Tiruchirapalli in so far as it is against the Appellant, is contrary to law, erroneous, and unsustainable on the facts of the case. 2. The learned Commissioner of Income Tax (A) Tiruchirapalli has erred in treating 2% of the income from tax free bonds as estimated expenses in earning tax free interest. 2.1 Your appellant, a banking company which is controlled by Reserve Bank of India, has got interest free funds such as capital, Reserves & Current account deposits . The appellant has not incurred any expenditure by way of interest on tax free investment. Your appellant being a banking company having more than 300 branches had not incurred any collection charges for realizing tax free income. Your appellant did not employ any additional person to look after tax free investment. 2.2 The profit earned by taxable bonds & taxable investments were not pulled down by the investments in tax free bonds, since the appellant has more interest free funds. 2.3 Your appellant did not take loan from others for investing in tax free bonds. 2.4 Under the above circumstances the maximum administrative expenses will not be more than `.l lakh. Therefore the estimated disallowance of 2% on income from tax free bonds may kindly be restricted to `.l lakh. 3. The learned Commissioner of Income Tax (A) has erred in treating 2% of Dividend income as estimated expenses on earning dividend income. 3.1 Your appellant a banking company had not incurred any expenditure by way of interest for purchasing shares and Mutual funds. Your appellant had not incurred any collection charges. Your appellant did not employ additional person to look after investments in shares & mutual funds. 3.2 The profit earned by taxable bonds & other taxable .investments were not pulled down by investments in shares & mutual funds since the appellant has more interest free funds. 3.3 Your appellant did not take / borrow loan from others for investing in shares & mutual funds. 3.4 Under the above circumstances the maximum Administrative expenses will not be more than `.l lakh. Therefore the estimated disallowance of 2% on dividend income may kindly be restricted to `.l lakh. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 73 4. The observation of Commissioner of Income Tax (A) that Pooja performed by Bank is not relating to banking business is not correct. 4.1 Conducting pooja gives peace of mind to employees in the midst of tension; increases concentration power of employees; develops unity among employees, These increases the out put of employees resulting benefit for the organization. 4.2 The Commissioner of Income Tax (A) failed to apply High Court orders in the case of (a) Commissioner of Income Tax 1N III Vs Aruna Sugars Ltd[132 ITR 718]. (b) Atlas Cycle Industries Limited Vs Commissioner of Income Tax .(1982) [134 ITR 458] (c) Brijramandas & Sons Vs Commissioner of Income Tax [142 ITR 509]. 5. The Commissioner of Income Tax (Appeals) has erred in treating ex gratia payment to employees as appropriation of profit and not towards contractual liability. 5.1 The Commissioner of Income Tax ( Appeals) is not correct in stating that ex-gratia payment to employees is merely an appropriation of profit and has no co- relation with the alleged incentive to its employees. The learned Commissioner of Income Tax (Appeals) may be correct if incentive/gift is given to share holders of a company or members of an association. 5.2 Ex-gratia is paid to all employees recognizing their joint effort in earning more profit for appellant company. 5.3 Payment of Bonus Act insists minimum Bonus to be paid to employees who are paid a lesser salary. 5.4 The ex-gratia paid to employees, made the employees to work hard and earn more profit to company. The profit for 2007-08 increased to `.196,00,11,010/- from `.40,24,94,416 in 2001-02. 5.5 Ex-gratia paid to employees is taxable in the hands of respective employees. Your appellant bank while deducting tax on salary, deducts tax including ex-gratia received by employees. 5.6 The learned Commissioner of Income Tax (Appeals) has failed to apply the decision given by High Court in the following cases. (1) Maina Ore Transport (P) Ltd Vs Commissioner Of Income Tax (2008) 175 Taxman 494 (Bombay) (2) Commissioner of Income Tax Vs Lakshmi Mills (MAD) (1999). 248 ITR 81 (3) Commissioner of Income Tax Vs Sivanantha Mills (MAD) (1985) 156 ITR 629. (4) Commissioner of Income Tax Vs National Engineering Industries Ltd (1994)208 ITR 1002 Calcutta. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 74 (5) Commissioner of Income Tax Vs Assam Frontier Tea Limited (2001) 117 Taxman 369 Gujarat. 6. For the reasons stated in the grounds of appeal and arguments that may be adduced at the time hearing your appellant requests that the additions may kindly be deleted.” Similarly, the Revenue has pleaded its grievance as under: “1. The order of the CIT(A) is contrary to law, facts and in the circumstances of the case and relied upon cases which are not applicable to the facts of the case. 2. The CIT(A) has erred in deleting the disallowances of depreciation in the value of investment of `.42,92,57,263. 2.1 The CIT(A) failed to appreciate that RBI is a regulator of banks and can give directions to the 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 portfolio of the securities in three categories viz. Held To Maturity (HTM), Available For Sale (APS) and Held For Trading (HFT). With a view 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 till maturity and are to be shown in the books of accounts at cost; while the securities AFS & HFT categories are treated as stock- in -trade. It is these securities (APS & HFT) which alone could be valued at the end of the accounting year at cost or market value. It implies that investment in Hrv1T category of securities is to be treated as "investments" of capital nature. The CIT(A), therefore, ought to have confirmed the disallowances for diminution in value in respect of HTM category of securities. The CIT(A) erred in treating the entire portfolio of securities as stock- in - trade and consequently, deleted the additions made on account of disallowance of depreciation in value of portfolio of these securities shown as 'investments' in books. 3. The CIT(A) has erred in allowing the interest claimed on purchase of securities as revenue expenditure. The CIT(A) failed to observe that interest paid on purchase of HTM category of securities will be capital expenditure and not revenue expenditure and therefore broken period interest paid for HTM category of securities lying unsold at the end of the year ought to have been confirmed by the CIT(A). 3.1 The CIT(A) also erred in treating entire investment in securities as stock-in- trade, overlooking the fact only AFS & HFT category of securities would alone qualify for treatment as stock-in-trade. The CITCA) failed to observe that broken period interest paid at the time of purchase of securities would be part of 'cost' of securities. The CIT(A), therefore, ought to have confirmed the broken period ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 75 interest paid towards securities (AFS & HFT categories treated as stock-in-trade) lying unsold as closing stock. The CIT(A) failed to note the understatement in value of the closing stock to the extent of broken period interest paid for purchase of AFS & HFT securities( treated as stock-in-trade) lying unsold as closing stock. 3.2 The CIT(A) failed to consider the fact that this argument has not been taken up before and therefore ratio of decision of the assessee bank for earlier year is not applicable to the facts of the case. 4. The CIT(A) erred in deleting the disallowance of brokerage without appreciating that securities in the HTM category would be investment of capital nature. The CIT(A) ought to have restricted the relief for the brokerage paid in respect of AFS & HFT category of securities. 5. The CIT(A) erred in deleting the addition with regard to unclaimed balances. The CIT(A) failed to follow the ratio of decision of Apex Court in the case T.V. Sundaram Iyengar & Sons 222 ITR 344(SC). The balance lying unclaimed with the bank for more than 3 years ought to have been confirmed by the CIT(A) as these 'are to be treated as income in the light of the above referred decision. 6. The CIT{A) erred in deleting of the disallowance of amortization expenses of `.22,51,01,585. 6.1 The CIT{A) failed to observe that the premium paid over and above the face value of the HTM category of securities above the cost of the securities. 6.2 The CIT{A) erred in treating amortization as part of depreciation ignoring the fact that it is actually allowing of deduction by spreading the premium paid over and above the face value of the HTM category of the security over a period of maturity of securities concerned. 6.3 The CIT{A) has failed to appreciate the ratio of the decision of the Supreme Court in the case of Southern Technologies Ltd that RBI guide line cannot override the provisions of Income Tax Act. 7. For these and other reasons that may be adduced at the time of hearing, the order of the CIT(A) may be cancelled and that of the assessing officer be restored.” 102. In the course of hearing, both parties have submitted that all grounds raised in assessee’s as well as Revenue’s appeal stand adjudicated hereinabove except ground No. 5 in assessee’s appeal and ground No. 6 in Revenue’s appeal. ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 76 103. We have considered the fair submissions of both representatives. We find that in assessee’s appeal in total four substantive grounds have been raised. Grounds No. 2 and 3 pertaining to disallowance made by the Assessing Officer and CIT(A) @ 2% of exempt income which we have already upheld in I.T.A. No. 902/Mds/2010 (supra) filed by the assessee decided hereinabove. Ground No. 4 pertains to pooja expenses disallowed by the Assessing Officer and CIT(A). We have already deleted this disallowance in part while adjudicating I.T.A. No. 930/Mds/2011(supra). Accordingly, this ground stands partly accepted. 104. This leaves us ground No. 5 only. In the assessment proceedings, the assessee had claimed ex-gratia payments of `.4,13,43,888/- in its profit and loss account as its ex-gratia payment. The Assessing Officer disallowed the said claim by terming it as appropriations of profit instead of contractual liability. In appeal, the CIT(A) has also affirmed the findings of the Assessing Officer. 105. Challenging the confirmation of the disallowance in question by the CIT(A), the assessee has vehemently argued that its contention is liable to be accepted and the claim in question is to be is to be allowed. On the other hand, the Revenue placed reliance on the CIT(A)’s order and prayed for its confirmation. 106. We have heard both parties and also perused the respective findings arrived at by both the lower authorities. Admitted relevant facts are that the assessee claims that the payment in question is made for earning more profit. This, in our opinion is nothing but bonus which is only in appropriations of profit. Hence, we see no reason to interfere in the findings of the CIT(A). ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 77 107. Consequently, I.T.A. No. 931/Mds/2011 filed by the assessee stands partly allowed. 108. In I.T.A. No. 1071/Mds/2011, the Revenue has raised total five substantive grounds. Ground No. 2 relates to disallowance of depreciation in the value of investments which we have already decided in favour of the assessee in I.T.A. No. 897/Mds/2010 (supra). Similarly, we notice in the said appeal that we have restored the issue pertaining to interest claimed on purchase of securities back to the Assessing Officer. In the light thereof, ground No. 3 in the appeal also stands remitted back to the CIT(A). Ground No. 4 pleaded by the Revenue is about disallowance of brokerage which also stands restored to the Assessing Officer in I.T.A. No. 897/Mds/2010 (supra) for the assessment year 1999-2000 decided hereinabove. So far as ground No. 5 is concerned, it is with regard to unclaimed balance regarding which disallowance was made by the Assessing Officer, but deleted by the CIT(A). We have already upheld CIT(A)’s order in I.T.A. No. 1070/Mds/2011. So, we see no reason to interfere. 109. This leaves us with ground No. 6 raised by the Revenue challenging disallowance of amortization of expense of `.22,51,01,585/-. 110. Facts relevant to this ground are that in assessment proceedings, the Assessing Officer noticed that in its profit and loss account, the assessee had debited a sum of `.22,51,01,585/-. In the assessment order, the Assessing Officer held that since the amount related to securities held to maturity category, ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 78 which are carried at acquisition cost and liable to be treated as a capital asset giving rise to capital expenditure. Accordingly the assessee’s claim was disallowed. In appeal, the CIT(A) has accepted assessee’s contention as follows: “13.3. Following the decision in the appellant’s own case reported in 273 ITR 510, amortization claim being part of total depreciation, it should be allowed. Hence, the Assessing Officer is directed to allow the same.” 111. The Revenue has submitted before us that the CIT(A) has wrongly deleted the disallowance. In addition to this, the DR has also pointed out that in I.T.A. No. 897/Mds/2010 (supra) as well, the CIT(A) had placed reliance on the case law of 273 ITR 510. So, he stated that the same order be passed here as well. 112. Opposing this, the AR representing the assessee has strongly supported CIT(A)’s order by stating that the disallowance in question pertaining to amortization expenses has been rightly deleted. 113. We have heard rival contentions and also perused the relevant findings as well as case law referred to by the Revenue. The assessee has claimed amortized expenditure which was treated as capital expenditure by the Revenue. In appeal, the CIT(A) has placed reliance on the judgment of the Hon’ble Jurisdictional High Court (supra) and deleted the same. We notice that in I.T.A. No. 897/Mds/2010 (supra) decided hereinabove, the CIT(A) had placed reliance on the same very case law and we have restored the ground back to the Assessing Officer for adjudication afresh. In the light thereof and with a view to maintain consistency, we deem it appropriate that this ground is liable to be restored back to the file of Assessing Officer who shall decide afresh in ITA Nos. 902 ITA Nos. 902ITA Nos. 902 ITA Nos. 902- -- -904,907,929 904,907,929904,907,929 904,907,929- -- -931,897 931,897931,897 931,897- -- -899,901,1069 899,901,1069899,901,1069 899,901,1069- -- -1071,etc. 1071,etc.1071,etc. 1071,etc. 79 accordance with law after affording opportunity of hearing to the assessee. 114. Consequently, I.T.A. No. 1071/Mds/2011 filed by the Revenue stands partly allowed for statistical purpose. 115. Accordingly, assessee’s appeals in I.T.A. Nos. 902/Mds/2010 (AY: 1999- 2000), 903/Mds/2010 (AY 2000-01) are partly allowed for statistical purpose; 904/Mds/2010 (AY 2001-02) is dismissed; 929/Mds/2011 (AY: 2001-02) is dismissed as infructuous; and 930/Mds/2011 (AY: 2004-05), 907/Mds/2010 (AY: 2005-06) and 931/Mds/2011(AY: 2006-07) are partly allowed. Whereas, Revenue’s appeals in I.T.A. Nos. 897/Mds/2010 (AY: 1999-2000), 898/Mds/2010 (AY: 2000-01) and 899/Mds/2010 (AY: 2001-02) are partly allowed for statistical purposes; 1069/Mds/2011 (AY 2001-02) is dismissed as infructuous; 1070/Mds/2011 (AY: 2004-05), 901/Mds/2010 (AY: 2005-06) and 1071/Mds/2011 (AY: 2006-07) are partly allowed for statistical purposes. Order pronounced on Thursday, the 17 th of January, 2013 at Chennai. Sd/- Sd/- (N.S. SAINI) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER Chennai, Dated, the 17.01.2013 Vm/- To: The assessee//A.O./CIT(A)/CIT/D.R.