Allahabad Bank, Kolkata V. DCIT, Circle - 6(1), Kolkata, Kolkata

ITA 980/KOL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2564 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 11-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K GHOSH
• Keywords: Business income; Rule of consistency; Cost of acquisition; Rule 8D
• Section: 143(3); 14A; 115JB

Judgement Text

I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ) & SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO.980/KOL/2018 ASSESSMENT YEAR: 2012-2013 ALLAHABAD BANK,.................................... ......................................APPELLANT 2, NETAJI SUBHAS ROAD, KOLKATA-700 001 [PAN: AACCA 8464 F] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,............. ...............RESPONDENT CIRCLE-6(1), KOLKATA, P-7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, KOLKATA-700 069 & I.T.A. NO.1009/KOL/2018 ASSESSMENT YEAR: 2012-2013 DEPUTY COMMISSIONER OF INCOME TAX,............. ...............APPELLANT CIRCLE-6(1), KOLKATA, P-7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, KOLKATA-700 069 -VS.- ALLAHABAD BANK,.................................... ......................................RESPONDENT 2, NETAJI SUBHAS ROAD, KOLKATA-700 001 [PAN: AACCA 8464 F] APPEARANCES BY: SHRI B.K. GHOSH, FCA & SHRI PIJUSH DEY, FCA, FOR TH E ASSESSEE SHRI A.K. NAYAK, CIT, D.R., FOR THE DEPARTMENT DATE OF CONCLUDING THE HEARING : JUNE 10, 2019 DATE OF PRONOUNCING THE ORDER : JUNE 19, 2019 O R D E R PER SHRI P.M. JAGTAP, VICE-PRESIDENT (KOLKATA ZONE) :- THESE TWO APPEALS, ONE FILED BY THE REVENUE BEING ITA NO. 1009/KOL/2018 AND THE OTHER FILED BY THE ASSESSEE B EING ITA NO. 980/KOL/2018 ARE CROSS APPEALS, WHICH ARE DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-3, KOLKATA DATED 13.03.2018. I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 2 2. IN GROUND NO. 1 OF ITS APPEAL, THE REVENUE HAS C HALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION OF RS.61.26 CRORES MADE BY THE ASSESSING OFFICER ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID FOR PURCHASE OF SECURITIES. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF BANKING. THE RETURN OF INCOME FOR T HE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 27.09.2012 DECLARI NG TOTAL INCOME OF RS.423,93,73,750/-. IN THE PROFIT & LOSS ACCOUNT FI LED ALONG WITH THE SAID RETURN, A SUM OF RS.61.26 CRORES WAS DEDUCTED BY TH E ASSESSEE FROM INTEREST EARNED AS AMORTIZATION OF PREMIUM PAID FOR PURCHASE OF SECURITIES. IN THIS REGARD, IT WAS EXPLAINED ON BEH ALF OF THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT THE AMORTIZATION OF PREMIUM AMOUNTING TO RS.61.26 CRORES FOR PURCHASE OF HTM CATEGORIES O F SECURITIES WAS NOT CONSIDERED IN THE AMOUNT OF PURCHASE AS DEBITED IN THE INVESTMENT TRADING ACCOUNT AND THE SAME WAS CHARGED TO THE PRO FIT & LOSS ACCOUNT AS PER THE RBI GUIDELINES BY ADJUSTING IT AGAINST T HE INTEREST EARNED. IT WAS SUBMITTED THAT THIS EXPENDITURE ACTUALLY REPRES ENTED THE PREMIUM AMOUNT PAID OVER AND ABOVE THE VALUE OF HTM CATEGOR IES OF SECURITIES AND IT WAS AMORTIZED OVER THE MATURITY PERIOD OF THE SE CURITIES. ACCORDING TO THE ASSESSING OFFICER, EVEN THOUGH THIS EXPENDITURE WAS ALLOWED AS PER THE MASTER CIRCULAR OF RBI, THERE WAS NO PROVISION IN THE INCOME TAX ACT TO ALLOW SUCH EXPENDITURE TO BE AMORTIZED OVER THE MATURITY PERIOD OF THE SECURITIES. HE ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF THE SAID EXPENDITURE AND MA DE AN ADDITION OF RS.61.26 CRORES TO THE TOTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE AN ORDER DATED 18.02.2015. 4. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER O N ACCOUNT OF ITS CLAIM FOR DEDUCTION TOWARDS AMORTIZATION OF PREMIUM PAID FOR PURCHASE OF SECURITIES WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 3 LD. CIT(APPEALS) AND BY FOLLOWING THE DECISION OF T HE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR THE EARLIER YEARS, THE LD. CIT(APPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. ALTHOUGH THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THIS IS SUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIB UNAL PASSED IN ASSESSEES OWN CASE FOR THE EARLIER YEARS INCLUDING THAT FOR A.Y. 2008-09, THE LD. D.R. HAS POINTED OUT THAT THE SIMILAR DEDUC TION CLAIMED BY THE ASSESSEE WAS ALLOWED BY THE TRIBUNAL AFTER HAVING F OUND THAT THE RELEVANT SECURITIES WERE HELD BY THE ASSESSEE AS STOCK-IN-T RADE. HE HAS SUBMITTED THAT NO SUCH FINDING, HOWEVER, IS RECORDED EITHER B Y THE ASSESSING OFFICER OR BY THE LD. CIT(APPEALS) IN THEIR RESPECTIVE ORDE RS PASSED FOR THE YEAR UNDER CONSIDERATION. BY RELYING ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF PUNJAB & SIND BANK VS.- CIT ( 211 TAXMAN 194) HE HAS CONTENDED THAT THE DETERMINATION OF NATURE AND CHARACTER OF THE RELEVANT SECURITIES IS VITAL FOR DECIDING THIS ISSU E AND THE MATTER MAY, THEREFORE, BE SENT BACK TO THE ASSESSING OFFICER FO R DETERMINING THE SAME. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , HAS RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F UNITED COMMERCIAL BANK VS. CIT (240 ITR 355) TO CONTEND THAT THERE I S NO DISTINCTION BETWEEN THE SECURITIES HELD AS STOCK-IN-TRADE OR IN VESTMENT IN THE CASE OF BANK AND THE SAME IS NOT RELEVANT FOR DECIDING THE ISSUE UNDER CONSIDERATION. IT IS, HOWEVER, OBSERVED THAT THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE WAS CONSIDERED BY THE HONBLE DELHI HIGH COURT WHILE DECIDING THE CASE OF PUNJAB & SIND BANK (SUPRA). IN THE SAID CASE, THE ASSESSEE HAD CLAIMED AMORTIZATION OF EXPE NSES INCURRED IN RESPECT OF PREMIUM PAID BY THE ASSESSEE FOR PURCHAS E OF SECURITIES AND THE SAME WAS DISALLOWED ON THE GROUND THAT THE SECU RITIES WERE HELD AS INVESTMENT. THE STAND TAKEN BY THE REVENUE WAS THAT WHEN THE SECURITIES I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 4 HELD AS INVESTMENT WERE TO BE TRANSFERRED, THE PROF IT AND LOSS ARISING THEREFROM WOULD BE COMPLETED AFTER TAKING INTO ACCO UNT THE COST OF ACQUISITION. THIS STAND WAS ACCEPTED BY THE TRIBUNA L AND THE QUESTION THAT AROSE FOR CONSIDERATION OF THE HONBLE DELHI H IGH COURT WAS WHETHER THE TRIBUNAL WAS CORRECT IN NOT ALLOWING THE DEDUCT ION ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID TOWARDS PURCHASE OF SE CURITIES, SHOWN AS PERMANENT INVESTMENTS, SPREAD OVER THE REMAINING PE RIOD OF SECURITIES, PARTICULARLY WHEN THE INCOME AND INTEREST FROM SUCH SECURITIES WAS ASSESSED AS BUSINESS INCOME? WHILE DECIDING THIS Q UESTION, HONBLE DELHI HIGH COURT HELD THAT THE DETERMINATION OF NATURE AN D CHARACTER OF THE RELEVANT SECURITIES WAS RELEVANT IN THIS CONTEXT AN D THE FINAL OUTCOME OF THE ISSUE WOULD DEPEND UPON SUCH DETERMINATION. HON BLE DELHI HIGH COURT ACCORDINGLY REMANDED THE MATTER BACK TO THE A SSESSING OFFICER FOR DETERMINING THE NATURE AND CHARACTER OF THE RELEVAN T SECURITIES AND DECIDE THE ISSUE DEPENDING UPON SUCH DETERMINATION. IT IS ALSO OBSERVED THAT THE CBDT INSTRUCTION NO. 17/2008 ISSUED ON 26. 11.2008 RELIED UPON BY THE LD. D.R. RECOGNIZES THE SIGNIFICANCE OF THIS DISTINCTION MADE BETWEEN THE SECURITIES HELD AS STOCK-IN-TRADE AND I NVESTMENT ON THE BASIS OF RBI GUIDELINES DATED 16.10.2000. KEEPING IN VIEW THE SAID INSTRUCTION ISSUED BY THE CBDT AS WELL AS THE DECISION OF THE H ONBLE DELHI HIGH COURT IN THE CASE OF PUNJAB & SIND BANK (SUPRA), WE ARE O F THE VIEW THAT THIS MATTER SHOULD GO BACK TO THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH AFTER DETERMINING THE NATURE AND CHARACTER O F THE RELEVANT SECURITIES HELD BY THE ASSESSEE AND EVEN THE LD. CO UNSEL FOR THE ASSESSEE HAS FINALLY AGREED WITH THE SAME. WE ACCORDINGLY SE T ASIDE THE IMPUGNED ORDER BY THE LD. CIT(APPEALS) ON THIS ISSUE AND RES TORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER. GROUND NO. 1 OF THE REVENUES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURP OSES. 6. GROUNDS NO. 2, 4 & 5 RAISED IN THE REVENUES APP EAL ARE INTER-LINKED AND THE SAME READ AS UNDER:- I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 5 (2) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE ADD ITION MADE BY AO IN RESPECT PROVISIONS UNDER SECTION 14A AS WELL AS IN COMPUTATION OF BOOK PROFIT U/S 115JB OF THE I.T. ACT, 1961. (4) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN LAW IN HOLDING THAT PRO VISIONS OF SECTION 115JB OF THE I.T. ACT, 1961 ARE NOT APPL ICABLE IN CASE OF THE BANKING COMPANIES. (5) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, LD. CIT(A) ERRED IN LAW IN DELETING THE ADDITIONS M ADE BY AO IN THE PROVISIONS OF SECTION 115JB OF THE I.T. A CT, 1961 WHICH ARE RIGHTLY APPLICABLE IN CASE OF THE BANKING COMPANIES. 7. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES, THE COMMON ISSUE INVOLVED IN GROUNDS NO. 4 & 5 AND PARTLY IN G ROUND NO. 2 OF THE REVENUES APPEAL RELATING TO THE ADDITIONS MADE WHI LE COMPUTING THE BOOK PROFIT OF THE ASSESSEE AS PER SECTION 115JB OF THE ACT IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE VARIOUS DE CISIONS OF THE TRIBUNAL INCLUDING THE DECISION OF THE COORDINATE BENCH OF T HIS TRIBUNAL IN THE CASE OF UCO BANK (156 ITD 146), WHEREIN IT WAS HELD THAT THE PROVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPLICABLE TO T HE ASSESSEE, WHICH IS A BANKING COMPANY AND THE AMENDMENT BROUGHT IN SECTIO N 115JB READ WITH EXPLANATION 3 THERETO BY THE FINANCE ACT, 2012 MAKI NG SECTION 115JB APPLICABLE EVEN TO THE BANKING COMPANIES, IS APPLIC ABLE ONLY PROSPECTIVELY FROM ASSESSMENT YEAR 2013-14. RESPECT FULLY FOLLOWING THE SAID DECISION OF THE COORDINATE BENCH OF THIS TRIBU NAL, WE UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) GIVING RELIE F TO THE ASSESSEE ON THIS ISSUE. 8. AS REGARDS THE ADDITION MADE BY THE ASSESSING OF FICER ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A BY APPLYING RULE 8D WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE AS PER THE NORMAL PROV ISIONS OF THE ACT, IT IS OBSERVED THAT THE DISALLOWANCE OF RS.23,35,740/- WA S OFFERED BY THE I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 6 ASSESSEE UNDER SECTION 14A IN THE COMPUTATION OF TO TAL INCOME ON ACCOUNT OF EXPENSES INCURRED IN RELATION TO THE EXEMPT INCO ME EARNED DURING THE YEAR UNDER CONSIDERATION AMOUNTING TO RS.21.36 CROR ES. THE BASIS OF THE DISALLOWANCE SO OFFERED WAS ALSO EXPLAINED BY THE A SSESSEE BY FURNISHING THE RELEVANT WORKING. THE ASSESSING OFFICER, HOWEVE R, DID NOT FIND THE SAME TO BE ACCEPTABLE AND BY APPLYING RULE 8D OF TH E INCOME TAX RULES, 1962, HE WORKED OUT THE DISALLOWANCE TO BE MADE UND ER SECTION 14A AT RS.363.13 CRORES. 9. ON APPEAL, THE LD. CIT(APPEALS) DELETED THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THE TRIBUNAL RENDERED IN ASSESSEES OWN CASE FOR THE EARLIER YEA RS, I.E. A.Y. 2008-09 AND 2009-10, WHEREIN IT WAS HELD THAT THE ASSESSING OFFICER COULD NOT INVOKE RULE 8D WITHOUT RECORDING THE SATISFACTION A S ENVISAGED IN SUB- SECTION (2) OF SECTION 14A. IT WAS HELD BY THE TRIB UNAL THAT WHEN THE ASSESSEE-BANK HAD OFFERED A SUM OF RS.23,35,740/- A S SUO MOTU DISALLOWANCE UNDER SECTION 14A AND THE BASIS OF CAL CULATING SUCH DISALLOWANCE WAS ALSO PROVIDED TO THE ASSESSING OFF ICER, THE ASSESSING OFFICER WAS REQUIRED TO RECORD HIS SATISFACTION THA T THE DISALLOWANCE OFFERED BY THE ASSESSING OFFICER UNDER SECTION 14A WAS NOT CORRECT BY POINTING OUT SPECIFIC DEFICIENCY. IT WAS HELD THAT SINCE NO SUCH SATISFACTION WAS RECORDED BY THE ASSESSING OFFICER, IT WAS NOT PERMISSIBLE TO HIM TO INVOKE RULE 8D AND MAKE A FURTHER DISALLO WANCE UNDER SECTION 14A. IT IS OBSERVED THAT THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATION AS WELL AS ALL THE MATERIAL FACTS REL EVANT THERETO ARE SIMILAR TO A.YS. 2008-09 AND 2009-10, INASMUCH AS, NO PROPE R SATISFACTION UNDER SECTION 14A(2) WAS RECORDED BY THE ASSESSING OFFICE R IN THE ASSESSMENT ORDER PASSED FOR THE YEAR UNDER CONSIDERATION ABOUT THE DISALLOWANCE SUO MOTU OFFERED BY THE ASSESSEE BEING INCORRECT BY POI NTING OUT ANY DEFICIENCY. WE, THEREFORE, RESPECTFULLY FOLLOW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL RENDERED IN ASSES SEES OWN CASE ON THIS ISSUE FOR A.YS. 2008-09 AND 2009-10 AND UPHOLD THE IMPUGNED ORDER OF I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 7 THE LD. CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A BY APPLYING RULE 8D. GROU NDS NO. 2, 4 & 5 OF THE REVENUES APPEAL ARE ACCORDINGLY DISMISSED. 10. IN GROUND NO. 3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE ADDITION MADE BY THE A SSESSING OFFICER ON ACCOUNT OF INCOME FROM HOUSE PROPERTY. IN THE RETUR N OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION, A LOSS WAS SHOWN BY T HE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ON PERUSAL OF TH E RELEVANT DETAILS, THE ASSESSING OFFICER FOUND THAT THE RENTAL INCOME RECEIVED BY THE ASSESSEE FROM THE HOUSE PROPERTIES OWNED BY IT WAS VERY LOW AND IN SOME CASES IT WAS EVEN NIL. HE ALSO NOTED THAT THE ANNUA L VALUE OF THE PROPERTIES OWNED BY THE ASSESSEE WAS DETERMINED IN THE IMMEDIATELY PRECEDING YEARS ON ESTIMATION BASIS BY TAKING INTO CONSIDERATION THE AVERAGE RATES OF RENT AT WHICH SUCH PROPERTIES COUL D BE LET OUT. HE ACCORDINGLY CONSIDERED THE ESTIMATION OF DEEMED REN T MADE FOR THE IMMEDIATELY PRECEDING YEAR, I.E. A.Y. 2011-12 AND D ETERMINED THE ANNUAL VALUE OF THE PROPERTIES OF THE ASSESSEE FOR THE YEA R UNDER CONSIDERATION BY INCREASING THE SAME BY 5%. AFTER ALLOWING DEDUCT IONS TO THE ANNUAL VALUE SO DETERMINED ON ACCOUNT OF MUNICIPAL TAXES A ND UNDER SECTION 24(A) OF THE ACT, THE INCOME CHARGEABLE TO TAX IN T HE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM HOUSE PROPERTY WAS DET ERMINED BY THE ASSESSING OFFICER AT RS.56,73,916/-. ON APPEAL, THE LD. CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO DETERMINE THE INC OME OF THE ASSESSEE FROM HOUSE PROPERTIES BY TAKING THE ANNUAL VALUE ON THE BASIS OF MUNICIPAL VALUATION. 11. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE, THE LD. D.R. HAS RELI ED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. - SATYA COMPANY LIMITED (75 TAXMAN 193), WHEREIN IT WAS HELD IN PAR AGRAPH NO. 12 OF THE I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 8 ORDER THAT WHEN THE MUNICIPAL VALUATION OF THE PROP ERTY IN QUESTION ITSELF IS AVAILABLE AND SUCH VALUATION HAS NOT BEEN DISPUT ED, THE SAME SHOULD BE ADOPTED AS THE ANNUAL VALUE OF THE PROPERTY AFTER A DDING 1/9 TH THERETO. KEEPING IN VIEW THIS DECISION OF THE HONBLE JURISD ICTIONAL HIGH COURT, THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO AGREED FOR TH E ADOPTION OF THE SAME METHOD TO DETERMINE THE ANNUAL VALUE OF THE ASSESSE ES PROPERTIES. WE ACCORDINGLY MODIFY THE IMPUGNED ORDER OF THE LD. CI T(APPEALS) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DETERMINE THE ANNUAL VALUE OF THE ASSESSEES PROPERTIES BY ADOPTING THE MUNICIPAL VALUATION AFTER ADDING 1/9 TH THERETO. GROUND NO. 3 OF THE REVENUES APPEAL IS T HUS PARTLY ALLOWED. 12. NOW WE TAKE UP THE ASSESSEES APPEAL BEING ITA NO. 980/KOL/2018 , WHICH INVOLVES A SOLITARY ISSUE RELATING TO THE DISALLOWANCE OF RS.62,69,78,740/- MADE BY THE ASSES SING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF ASS ESSEES CLAIM FOR DEDUCTION UNDER SECTION 36(1)(VIII) OF THE INCOME T AX ACT, 1961. 13. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDE R CONSIDERATION, A DEDUCTION OF RS.198.49 CRORES WAS CLAIMED BY THE AS SESSEE UNDER SECTION 36(1)(VIII) BEING 20% OF ITS PROFIT OF THE ELIGIBLE BUSINESS OF PROVIDING LONG-TERM FINANCE. WHILE DETERMINING THE SAID PROFI T, THE OPERATING EXPENSES WERE APPORTIONED BY THE ASSESSEE IN THE RA TIO OF ELIGIBLE BUSINESS TO TOTAL BUSINESS BY TAKING INTO CONSIDERA TION THE DEPOSITS, BORROWINGS AND ADVANCES. THE SAID APPORTIONMENT WAS DONE AS UNDER:- PARTICULARS AMOUNT (RS.) OPERATING EXPENSE AS PER PROFIT & LOSS ACCOUNT (DOMESTIC) 2691,38,87,410 TOTAL BUSINESS OF THE BANK (ADVANCES + DEPOSITS) 270738,17,90,301 BALANCE OF LONG-TERM LENDING OUTSTANDING 36407,49,27,134 OPERATING EXPENSES APPORTIONED TO INCOME FROM LONG-TERM LENDING 2691,38,87,410 X 36407,49,27,134 2,70,738,17,90,301 361,92,42,632 I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 9 THE BASIS ADOPTED BY THE ASSESSEE FOR APPORTIONMENT OF THE TOTAL OPERATING EXPENSES WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER. ACCORDING TO HIM, THE ASSESSEE WHILE APPORTIONING T HE OPERATING EXPENSES HAD CONSIDERED THE NON-PERFORMING ASSETS ALSO FROM WHICH NO INCOME WAS RECOGNIZED. HE HELD THAT WHEN NO INCOME WAS RECOGNI ZED FROM THE NON- PERFORMING ASSETS, THE OPERATING EXPENSES WERE NOT REQUIRED TO BE APPORTIONED TO SUCH NON-EXISTENT INCOME AND, THEREF ORE, THE METHOD ADOPTED BY THE ASSESSEE WAS NOT CORRECT. HE HELD TH AT IT WAS PRUDENT TO APPORTION THE OPERATING EXPENSES IN THE RATIO OF TU RNOVER ESPECIALLY IN THE CASE OF BANK. ACCORDINGLY HE APPORTIONED THE OP ERATING EXPENSES IN THE RATIO OF INTEREST EARNED ON LONG-TERM LENDING T O TOTAL INTEREST INCOME EARNED AND WORKED OUT THE OPERATING EXPENSES APPORT IONABLE TO INCOME FROM LONG-TERM EARNING AT RS.675,41,36,332/- AS AGA INST RS.361,92,42,632/- WORKED OUT BY THE ASSESSEE. THE PROFIT OF THE ELIGIBLE BUSINESS OF LONG-TERM FINANCE ACCORDINGLY WAS RE-CO MPUTED BY THE ASSESSING OFFICER AT RS.678,96,54,842/- AND THE CLA IM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 36(1)(VIII) WAS RESTRICTED BY HIM TO RS.135,79,30,968/- THEREBY MAKING A DISALLOWANCE OF RS.62,69,78,740/- ON THIS ISSUE. 14. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ITS CLAIM FOR DEDUCTION UNDER SECTION 36(1)(VIII) WAS C HALLENGED BY THE ASSESSEE AND THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE BEFOR E THE LD. CIT(APPEALS):- THE APPELLANT BANK'S CONTENTION IS THAT OPERATING EXPENSES ARE TO BE APPORTIONED IN THE RATIO OF ELIGIBLE BUSI NESS (I.E. BUSINESS OF PROVIDING LONG TERM FINANCE) TO TOTAL B USINESS OF THE BANK (I.E. AGGREGATE OF ADVANCE AND DEPOSITS). OPERATING EXPENSES OF THE BANK REPRESENTS VARIOUS INDIRECT EX PENSES I.E. COMMON EXPENSES INCURRED BY THE BANK. SUCH EXPENSES ARE INCURRED BY THE APPELLANT BANK IN RELATION TO THE E NTIRE BUSINESS CARRIED ON BY THE BANK I.E. GRANTING OF LO ANS AND ADVANCES AND ACCEPTANCE OF VARIOUS DEPOSITS. AS OPE RATING EXPENSES ARE INCURRED IN RELATION TO THE TOTAL BUSI NESS OF THE BANK, A PART OF SUCH EXPENSE IS DEFINITELY ATTRIBUT ABLE TO I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 10 NON-PERFORMING ASSETS OF THE BANK. THE BANK HAS TO MANAGE BOTH PERFORMING ASSETS AND NON-PERFORMING ASSETS. K EEPING THIS FACT IN MIND OPERATING EXPENSES ATTRIBUTABLE T O LONG TERM LENDING IS TO BE WORKED OUT BY CONSIDERING THE TOTAL BUSINESS OF THE BANK. ACCORDING TO THE LEARNED ASSESSING OFFICER, LOANS A ND ADVANCES OF THE APPELLANT BANK ARE CLASSIFIED INTO PERFORMING & NON-PERFORMING ASSETS. INTEREST INCOME FROM PERFORMING ASSET IS ONLY RECOGNIZED WHEREAS INTERES T ON NON- PERFORMING ASSET IS RECOGNIZED ON RECEIPT BASIS. BE CAUSE OF THIS REASON THE LEARNED ASSESSING OFFICER HAS THOUG HT IT PRUDENT THAT OPERATING EXPENSES ARE TO BE APPORTION ED IN THE RATIO OF INTEREST ON LONG TERM LENDING TO TOTAL INT EREST INCOME. THE LEARNED ASSESSING OFFICER HAS FAILED TO APPRECI ATE THE BASIC FACT THAT OPERATING EXPENSES ARE INCURRED NOT ONLY FOR MANAGING PERFORMING ASSETS BUT ALSO FOR MANAGING AL L ASSETS AND DEPOSITS ACCEPTED BY THE APPELLANT BANK. IF THE FORMULA APPLIED BY THE LEARNED ASSESSING OFFICER FOR APPORT IONING OPERATING EXPENSES IS ACCEPTED, IT GIVES A DISTORTE D RESULT. SUCH FORMULA IMPLIES THAT THE BANK INCURRED OPERATI NG EXPENSES IN RELATION 10 PERFORMING ASSETS ONLY WHIC H IS NOT FACTUALLY CORRECT. NO SPECIFIC FORMULA HAS BEEN PRE SCRIBED IN SECTION 36(1)(VIII). THE BASIS OF APPORTIONING OPER ATING EXPENSES AS ADOPTED BY THE APPELLANT BANK IS BEING FOLLOWED CONSISTENTLY AND SUCH BASIS HAS BEEN ACCEPTED BY TH E REVENUE CONSISTENTLY TILL ASSESSMENT YEAR 2010-11. THERE IS NO REASON TO DEVIATE FROM THE RULE OF CONSISTENCY. THE LD. CIT(APPEALS) DID NOT FIND MERIT IN THE SUBM ISSIONS MADE ON BEHALF OF THE ASSESSEE ON THIS ISSUE. ACCORDING TO HIM, TH E BASIS FOLLOWED BY THE ASSESSING OFFICER FOR APPORTIONMENT OF OPERATING EX PENSES WAS MORE REASONABLE ESPECIALLY IN THE CASE OF BANK AS THE VO LUME OF BUSINESS OF ANY BANK WAS CONSIDERED ON THE BASIS OF INTEREST INCOME EARNED. HE ACCORDINGLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE. 15. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE BASIS ADOPTED BY THE ASSESSEE IN APPORTIONING THE OPERATING EXPEN SES IN THE RATIO OF ELIGIBLE BUSINESS OF PROVIDING LONG-TERM FINANCE TO TOTAL BUSINESS OF THE BANK AFTER TAKING INTO CONSIDERATION THE AGGREGATE OF ADVANCES AND I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 11 DEPOSITS IS MORE FAIR AND REASONABLE. HE CONTENDED THAT THE OPERATING EXPENSES INCURRED BY THE ASSESSEE-BANK ARE IN RELAT ION TO ITS ENTIRE BUSINESS OF GRANTING OF LOANS AND ADVANCES AND ACCE PTANCE OF VARIOUS DEPOSITS AND THAT ALSO INCLUDE THE NON-PERFORMING A SSETS. HE CONTENDED THAT THE BANK HAS TO MANAGE BOTH PERFORMING AND NON -PERFORMING ASSETS AND THE ASSESSING OFFICER AS WELL AS THE LD. CIT(AP PEALS) FAILED TO APPRECIATE THIS VITAL ASPECT. HE CONTENDED THAT THE FORMULA ADOPTED BY THE AUTHORITIES BELOW FOR APPORTIONMENT OF THE OPER ATING EXPENSES IMPLIES THAT THE BANK INCURRED OPERATING EXPENSES I N RELATION TO PERFORMING ASSETS ONLY AND SINCE IT IS NOT FACTUALL Y CORRECT, THE BASIS ADOPTED BY THEM HAS GIVEN DISTORTED RESULT. HE ALSO CONTENDED THAT THE SAME BASIS AS ADOPTED BY THE ASSESSEE FOR APPORTION MENT OF OPERATING EXPENSES IN THE YEAR UNDER CONSIDERATION WAS ADOPTE D BY IT EVEN IN THE EARLIER YEARS AND THE SAME WAS CONSISTENTLY ALLOWED BY THE REVENUE TILL ASSESSMENT YEAR 2010-11. BY RELYING ON THE RULE OF CONSISTENCY, HE CONTENDED THAT THE DISALLOWANCE MADE BY THE ASSESSI NG OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF ASS ESSEES CLAIM FOR DEDUCTION UNDER SECTION 36(1)(VIII) THUS IS NOT SUS TAINABLE. 16. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF THE ASSESSING OFFICER AS WELL AS THAT OF THE LD. CIT(APPEALS) IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE AND CONTENDED THAT THE BASIS ADO PTED BY THEM TO APPORTION THE OPERATING EXPENSES IS MORE FAIR AND R EASONABLE ESPECIALLY IN CASE OF BANKING COMPANY. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT THE APPORTIONMENT OF OPERATING EXPENSES MADE BY THE ASS ESSEE IN THE RATIO OF ELIGIBLE BUSINESS TO TOTAL BUSINESS BY TAKING INTO CONSIDERATION THE ADVANCES AND DEPOSITS WHILE DETERMINING THE PROFIT OF THE ELIGIBLE BUSINESS OF LONG-TERM FINANCE ELIGIBLE FOR DEDUCTIO N UNDER SECTION 36(1)(VIII) WAS NOT ACCEPTED BY THE AUTHORITIES BEL OW MAINLY ON THE GROUND THAT THE SAID BASIS ADOPTED BY THE ASSESSEE HAD ALSO TAKEN INTO I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 12 CONSIDERATION THE NON-PERFORMING ASSETS FROM WHICH NO INCOME WAS RECOGNIZED. ACCORDING TO THEM, WHEN NO INCOME WAS R ECOGNIZED FROM THE NON-PERFORMING ASSETS, THERE WAS NO JUSTIFICATION T O APPORTION OPERATING EXPENSES BY TAKING INTO CONSIDERATION THE NON-PERFO RMING ASSETS WHICH DID NOT YIELD ANY INCOME. AS RIGHTLY CONTENDED ON B EHALF OF THE ASSESSEE IN THIS REGARD BEFORE THE LD. CIT(APPEALS) AS WELL AS BEFORE US, THE OPERATING EXPENSES WERE REQUIRED TO BE INCURRED BY THE ASSESSEE IN RELATION TO ITS TOTAL BANKING BUSINESS AND THE NON- PERFORMING ASSETS DEFINITELY FORMED PART OF SUCH BUSINESS. THE ASSESS EE-BANK WAS REQUIRED TO MANAGE BOTH PERFORMING AS WELL AS NON-PERFORMING ASSETS AND THE OPERATING EXPENSES INCURRED BY IT THUS WERE ATTRIBU TABLE TO NON- PERFORMING ASSETS ALSO. IT APPEARS THAT THIS VITAL ASPECT WAS NOT APPRECIATED BY THE AUTHORITIES BELOW IN PROPER PERS PECTIVE AND AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, THE BASIS ADOPTED BY THEM FOR APPORTIONING THE OPERATING EXPENSES WITHOUT PRO PER APPRECIATION OF THE VITAL POSITION RESULTED IN A DISTORTED PICTURE. KEEPING IN VIEW ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE BASIS ADOPTED BY THE ASSESSEE FOR THE APPORTIONMENT OF OP ERATING EXPENSES WAS MORE FAIR AND REASONABLE AND SINCE THE SAME FOLLOWE D CONSISTENTLY BY THE ASSESSEE IN THE EARLIER YEARS WAS ACCEPTED BY THE R EVENUE TILL ASSESSMENT YEAR 2010-11, WE HOLD ZTHAT THE DISALLOWANCE MADE B Y THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON TH IS ISSUE BY DEVIATING FROM THE STAND CONSISTENTLY TAKEN IN THE EARLIER YE AR IS NOT SUSTAINABLE. WE, THEREFORE, DELETE THE SAID DISALLOWANCE AND ALL OW THE APPEAL OF THE ASSESSEE. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED, WHILE THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 19, 2019 . SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAG TAP) JUDICIAL MEMBER V ICE-PRESIDENT (KZ) KOLKATA, THE 19 TH DAY OF JUNE, 2019 I.T.A . NOS. 980/KOL/2018, 1009/KOL/2018 ASSESSMENT YEAR: 20 12-2013 ALLAHABAD BANK 13 COPIES TO : (1) ALLAHABAD BANK, 2, NETAJI SUBHAS ROAD, KOLKATA-700 001 (2) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6(1), KOLKATA, P-7, CHOWRINGHEE SQUARE, AAYAKAR BHAWAN, KOLKATA-700 069 (3) COMMISSIONER OF INCOME TAX (APPEALS)-3, KOLKA TA, (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.