Shri. R. Krishna, Bangalore V. DCIT, Bangalore

ITSSA 19/BANG/2008

• Counselvise Citation: [2010] 124 COUNSELVISE.COM (IT) 9325 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 16-04-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-03-2010
• Assessment Year: misc
• Appeal Filed On: 13-03-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K P KUMAR SMT SWATHI S PATIL
• Keywords: Depreciation; Search and seizure; Deemed to accrue or arise in india; Bad and doubtful debts; Difference of opinion; Change of opinion
• Section: 6

Judgement Text

ITA.1282,1283,1284/B/07;19/B/08 PAGE - 1 IN THE INCOME-TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B' BEFORE SHRI. K. P. T. THANGAL, VICE PRESIDENT AND SHRI. A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER I.T.A.NOS.1282, 1283 & 1284/BANG/2007 (ASSESSMENT YEARS : 2000-01, 2000-01 & 2001 -02) SYNDICATE BANK, MANIPAL .. APPELLANT V. ASST.COMMISSIONER OF INCOME TAX, CIRCLE -1, UDUPI .. RESPONDENT I.T.A.NO.19/BANG/2008 (ASSESSMENT YEAR : 2001-02) (BY THE REVENUE) APPELLANT BY : SHRI. K. P. KUMAR RESPONDENT BY : SMT. SWATHI S. PATIL O R D E R PER K. P. T. THANGAL, VICE PRESIDENT : THESE ARE THREE APPEALS BY THE ASSESSEE FOR TWO AS SESSMENT YEARS 2000-01 AND 2001-02 AND ONE CROSS APPEAL BY THE REVENUE FOR THE ASSESSMENT YEAR 2001-02. SINCE SOME COMMON ISS UES ARE INVOLVED IN THESE APPEALS, THEY ARE COMBINED AND A CONSOLIDATED ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. ITA.1282,1283,1284/B/07;19/B/08 PAGE - 2 ITA NO.1282/BANG/2000-01 - BY THE ASSESSEE : 2. GROUND NOS.1 TO 4 BY THE ASSESSEE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) IN SUSTAINING THE EST IMATION OF INCOME U/S.14A TO THE EXTENT OF 5% WHILE COMPUTING THE TOTAL INCOME UNDER THE CONVENTIONAL METHOD AS WELL AS IN ARRIVIN G AT BOOK PROFIT UNDER SECTION 115JA. THE ASSESSEE FILED THE RETURN OF INCOME ON 28.11.2000 FOR THE YEAR UNDER CONSIDERATION DECLARI NG TOTAL INCOME AT RS.2,63,249/-. ASSESSEE ALSO DISCLOSED RS.206,92,6 2,033/- AS BOOK PROFIT U/S.115JA. INCOME WAS PROCESSED U/S.143(1) ON 28.3.2002 WHICH RESULTED IN REFUND OF RS.10,62,37,619/- INCLU DING INTEREST U/S.244A OF RS.1,98,65,560/-. THE CASE WAS SELECTE D FOR SCRUTINY. 3. THE ASSESSEE HAS SHOWN DEEMED INCOME OF RS.4,10, 87,807/- OUT OF WHICH ASSESSEE FURTHER CLAIMED A SUM OF RS.4 ,07,16,057/- AS EXEMPTED INCOME. THE ASSESSING OFFICER NOTICED THA T THE ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE IN RESPECT OF TH E CLAIM OF EXEMPTED INCOME. THE ASSESSING OFFICER HELD U/S.14 A THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME IS NOT AN ADMISSIBLE DEDUCTION. SINCE EXEMPTED DIVIDEND DOES NOT FORM PART OF THE INCOME, ASSESSEE SHOULD HAVE DISALLOWED PROPORTIONATE EXPENSES REQUIRED U/S.14A. IN THE ABSENCE OF DETAILS, HE MADE AN ESTIMATED DISALLOWANCE OF 5% OF THE DIVIDEND ITA.1282,1283,1284/B/07;19/B/08 PAGE - 3 WHICH AMOUNTED TO RS.20,38,002/-. AGGRIEVED BY THE ABOVE ORDER ASSESSEE APPROACHED THE FIRST APPELLATE AUTHORITY. 4. BEFORE THE COMMISSIONER OF INCOME-TAX(A) THE ASS ESSEE CONTENDED THAT NO DISALLOWANCE COULD BE MADE ON EST IMATE BASIS IN THE CASE OF AN ASSESSEE CARRYING ON INDIVISIBLE BUS INESS AS IN THE CASE OF THE ASSESSEE. IN SUPPORT OF THE ABOVE, ASSESSEE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN RAJASTHAN STATE WAREHOUSING CORPORATION V. COMMISSIONER OF INCOME-T AX (2000) 242 ITR 450. IT WAS FURTHER SUBMITTED THAT THE SECTION WAS AMENDED W.E.F 2007-08 BY INSERTING SUB-SECTIONS 2 AND 3 TO THE SE CTION. THE AMENDED SECTION AUTHORIZES THE ASSESSING OFFICER TO DETERMINE THE AMOUNT INCURRED IN RELATION TO EARNING EXEMPTED INC OME IN ACCORDANCE WITH THE METHOD AS MAY BE PRESCRIBED. P RIOR TO THE INSERTION OF SUB-SECTIONS 2 AND 3, THE ASSESSING OF FICER HAD NO AUTHORITY TO ARTIFICIALLY ALLOCATE ANY EXPENDITURE. IN SUPPORT OF THE ABOVE, THE ASSESSEE RELIED ON THE DECISION OF THE T RIBUNAL IN THE CASE OF THE DHANALAKSHMI BANK LTD., V. ACIT (12 SOT 625 (2007) (COCH) AND THE ORIENTAL BANK OF COMMERCE V. DCIT IN ITA NO.4469/DEL/2003. THE COMMISSIONER OF INCOME-TAX(A ) HELD THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS WITH REG ARD TO THE SOURCE OF INVESTMENT IN SHARES, TAX FREE BONDS ETC., IN THE ABSENCE OF ANY ITA.1282,1283,1284/B/07;19/B/08 PAGE - 4 DETAILS, HE JUSTIFIED THE ASSESSING OFFICER'S ESTIM ATION ON THE LOGIC THAT IT IS A MATTER OF COMMON KNOWLEDGE THAT THE IN TEREST PAID ON VARIOUS DEPOSITS CONSTITUTED A MAJOR EXPENDITURE IN THE CASE OF BANKS. HE FURTHER HELD THAT 'NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME' U/S.14A WHICH IS WIDE ENOUGH TO INCLUDE THE POWER IN RELAT ION TO ESTIMATION IN REGARD TO DISALLOWANCE OF EXPENDITURE EVEN IN TH E CASE OF AN ASSESSEE WHO DOES MULTIPLE ACTIVITIES. IN SUPPORT OF THE ABOVE, HE RELIED ON THE DECISION OF THE ITAT, BANGALORE BENCH IN THE CASE OF CANARA BANK AND UPHELD THE ORDER OF THE ASSESSING O FFICER. THE ASSESSEE IS IN APPEAL. 5. CONSIDERING THE RIVAL SUBMISSIONS AND GOING THRO UGH THE DECISION OF THE HON'BLE SUPREME COURT, RELIED BY TH E ASSESSEE IN THE CASE OF RAJASTHAN STATE WAREHOUSING CORPORATION (SU PRA), WE ARE OF THE VIEW THAT THE CLAIM OF THE ASSESSEE IS TO BE AL LOWED. IN THIS CASE THE HON'BLE SUPREME COURT HELD THAT IF THE BUSINESS OF AN ASSESSEE IS IN THE NATURE OF INDIVISIBLE, THEN EXPENDITURE CANN OT BE DISALLOWED. THIS WAS A CASE WHEREIN THE HON'BLE RAJASTHAN HIGH COURT DISALLOWED A PART OF THE INCOME OF THE STATE GOVERNMENT UNDERT AKING CONSISTING OF INTEREST INCOME, INCOME FROM LETTING OUT OF WARE HO USES AND ADMINISTRATION CHARGES FOR PROCUREMENT OF FOODGRAIN S WHILE WORKING ITA.1282,1283,1284/B/07;19/B/08 PAGE - 5 FOR FOOD CORPORATION OF INDIA AS WELL AS FOR THE ST ATE GOVERNMENT. THE ITO DISALLOWED ONLY SUCH PORTION OF THE EXPENDI TURE AS COULD BE ALLOCATED TO THE TAXABLE INCOME AND DISALLOWED THE REST OF THE INCOME WHICH WAS REFERABLE TO NON-TAXABLE INCOME WHICH WAS EXEMPTED U/S.10(29). THE COMMISSIONER OF INCOME-TAX(A) ACCE PTED THE ASSESSEE'S CLAIM AND ALLOWED THE ENTIRE EXPENDITURE . THE TRIBUNAL REVERSED THE ORDER OF THE FIRST APPELLATE AUTHORITY WHICH WAS CONFIRMED BY THE HON'BLE HIGH COURT. THIS ORDER WA S REVERSED BY THE HON'BLE SUPREME COURT HOLDING 'IN VIEW OF THE FACT THAT A PERUSAL OF THE QUESTION ITSELF DISCLOSES THAT INCOME FROM VARI OUS VENTURES IS EARNED IN THE COURSE OF ONE INDIVISIBLE BUSINESS, T HE IMPUGNED ORDER UPHOLDING THE APPORTIONMENT OF THE EXPENDITURE AND ALLOWING DEDUCTION OF ONLY THAT PROPORTION OF IT WHICH IS RE FERABLE TO TAXABLE INCOME, IS UNSUSTAINABLE.' THIS DECISION APPLIED IN THE INSTANT CASE, PARTICULARLY IN VIEW OF THE SUBSEQUENT INSERTION OF SUB-SECTION 2, W.E.F. 2007, WHICH WERE INTRODUCED BY THE FINANCE A CT, 2006. SUB- SECTION 2 EMPOWERS THE ASSESSING OFFICER, HAVING RE GARD TO THE ACCOUNTS OF THE ASSESSEE, IF HE IS NOT SATISFIED WI TH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDI TURE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL EX PENDITURE UNDER THIS ACT TO DETERMINE AND TO DISALLOW IN ACCORDANC E WITH THE METHODS THAT MAY BE PRESCRIBED. AS CONTEMPLATED UNDER SUB- SECTION 2 OF ITA.1282,1283,1284/B/07;19/B/08 PAGE - 6 SECTION 14A, THE METHOD FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME W AS INSERTED BY THE INCOME-TAX (5TH AMENDMENT) RULES, 2008 W.E.F.24.3.2 008. THIS MEANS PRIOR TO THIS, THERE WAS NO BASIS TO MAKE THE DISALLOWANCE ON ESTIMATE BASIS. APPEAL BY THE ASSESSEE ON THIS ISS UE (GROUND NOS.1 TO 4) IS THUS ALLOWED. 6. COMING TO GROUND NO.5, IT IS AGAINST THE ORDER O F COMMISSIONER OF INCOME-TAX(A) IN REGARD TO INTEREST ON ZERO COUP ON BONDS BEING PURELY NOTIONAL INCOME, OUGHT TO BE EXCLUDED FROM B OOK PROFIT FOR THE PURPOSES OF COMPUTATION OF MAT. THE LEARNED COUNSE L FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE DECISION OF T HE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 1998-99 WHEREIN ON EXACTLY IDENTICAL ISSUE THE CLAIM OF THE ASSESSEE W AS ALLOWED BY RELYING UPON THE CBDT CIRCULAR F. NO.225/56/94-ITA. II, DT. (SIC) MARCH, 1994 WHEREIN THE POSITION IN RESPECT OF ZERO COUPON BONDS AND TAXABILITY OF INTEREST THEREON WAS CLARIFIED. FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 1998-99, WE ALLOW THE CLAIM OF THE ASSESSEE FO R THE YEAR UNDER CONSIDERATION AS WELL. ITA.1282,1283,1284/B/07;19/B/08 PAGE - 7 7. COMING TO GROUND NOS.6 AND 7 WHICH READ AS UNDER : '6. THAT THE COMMISSIONER OF INCOME-TAX(A) ERRED IN SUSTAINING ADDITION TO THE PROFIT UNDER THE PROFIT AND LOSS ACCOUNT, THE PROVISIONS FOR RENT ON EXPIRED LEASEHO LD PREMISES AND FOR RENT PAYABLE. 7. THAT THE TWO PROVISIONS REPRESENTING AMOUNTS SET ASIDE FOR ASCERTAINED LIABILITIES. EXPLANATION (C) TO SECTION 115JA(2) HAD NO APPLICATION AND HENCE THE SUBJECT ADDITIONS ARE UNSUSTAINABLE.' THE LEARNED COUNSEL SUBMITTED THAT THE HIGH POWER C OMMITTEE HAD NOT GIVEN PERMISSION TO PURSUE THE MATTER BEFORE THE TR IBUNAL. HENCE THESE GROUNDS ARE DISMISSED AS SUCH. 8. GROUND NOS.8 & 9 IS AGAINST THE ORDER OF THE COM MISSIONER OF INCOME-TAX(A) IN SUSTAINING THE ADDITIONS TO THE PR OFITS IN THE PROFIT AND LOSS ACCOUNT WITH REGARD TO THE PROVISIONS FOR (A) DOUBTFUL DEBTS (B) STANDARD ASSETS (C) DEPRECIATION ON SECURITIES (D) FLOATING RATE NOTES (FRN FOR SHORT) OF LONDON BRANCH (E) DICGC LO ANS (F) SUIT FIELD ACCOUNTS AND (G) OTHERS. ACCORDING TO THE AS SESSEE, THE COMMISSIONER OF INCOME-TAX(A) SHOULD HAVE APPRECIAT ED THAT EACH OF THE SEVEN PROVISIONS AS ABOVE DID NOT RELATE TO ANY LIABILITY BUT REPRESENTED DIMINUTION/EROSION IN VALUE OF ASSETS A ND AS SUCH EXPLANATION (C) TO SECTION 115JA(2) HAD NO APPLICAT ION AS SUCH ITA.1282,1283,1284/B/07;19/B/08 PAGE - 8 WHATSOEVER. WHILE FRAMING THE ASSESSMENT ORDER T HE ASSESSEE WAS CALLED TO EXPLAIN VARIOUS EXPENDITURES INCLUDING PR OVISION FOR DOUBTFUL DEBTS OF RS.8,29,57,084/-; CONTINGENT PROV ISION FOR STANDARD ASSETS OF RS.29,55,03,000/-, PROVISION FOR DEPRECIA TION ON SECURITIES OF RS.25 LAKHS, PROVISION FOR FRN OF LONDON BRANCH OF RS.1,69,00,000/- PROVISION FOR DICGC LOANS OF RS.1, 02,00,000/- AND PROVISION FOR SUIT FILED ACCOUNT OF RS.41,45,367/- WHICH WAS ALSO CONTINGENT. THE ASSESSING OFFICER HELD THAT SINCE THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, EXPENSES RELATING ONLY TO A PARTICULAR YEAR HAS TO BE CLAIMED AND WHATEVER EX PENSES THAT ARE ADMISSIBLE FOR A DEDUCTION OF INCOME-TAX FOR THE PU RPOSE HAS TO BE CLAIMED IN THE COMPUTATION OF INCOME FOR THE YEAR I TSELF AND, THEREFORE, HE DISALLOWED THE PROVISIONAL CLAIMS. A GGRIEVED BY THE ABOVE ASSESSEE APPROACHED THE FIRST APPELLATE AUTHO RITY. 9. IT WAS SUBMITTED BEFORE THE COMMISSIONER OF INCO ME-TAX(A) WITH REGARD TO PROVISION FOR DOUBTFUL DEBTS THAT AS PER THE RBI GUIDELINES, THE ADVANCES MADE BY THE BANK HAD TO BE CLASSIFIED INTO FOUR CATEGORIES, VIZ., STANDARD ASSETS, SUB-STANDAR D ASSETS, DOUBTFUL ASSETS AND LOSS ASSETS AND PROVISIONING IS DONE IN RESPECT OF NON- PERFORMING ASSETS (NPA FOR SHORT) AS PER PRUDENTIAL NORMS APPLICABLE FROM YEAR TO YEAR. COMING TO PROVISION FOR DEPRECI ATION ON SECURITIES, ITA.1282,1283,1284/B/07;19/B/08 PAGE - 9 IT WAS STATED THAT INCOME RECOGNITION NORMS ARE TO BE APPLIED IN THE CASE OF INVESTMENTS WHENEVER SUCH INVESTMENTS ARE C LASSIFIED AS NPA. ACCORDINGLY, THE ASSESSEE PROVIDED TOWARDS IN VESTMENT IN UNITS, THE IMPUGNED AMOUNT. COMING TO THE FRN OF L ONDON BRANCH IT WAS SUBMITTED THAT IT WAS PARTICULARLY OUT OF TH E INVESTMENT AT LONDON BRANCH. INVESTMENTS WERE HELD ON MATURITY. FRNS WERE CONSISTENTLY BEING VALUED AT COST AS REPORTED IN SC HEDULE 18 OF SIGNIFICANT ACCOUNTING POLICIES OF THE BANK. COMIN G TO DICGS CLAIMS, IT WAS SUBMITTED THAT MANY OF THE CLAIMS WE RE PENDING FOR SETTLEMENT WHILE MAKING PROVISION FOR NPAS BALANCES IN DICGC COVERED ACCOUNTS ARE REDUCED FROM NPAS. TO TAKE CA RE OF THE REMOTE CHANCE OF REJECTION OF THE CLAIM FOR SETTLEMENT BY DICGS AN ADHOC PROVISION WAS MADE AT THE INSTANCE OF STATUTORY CEN TRAL AUDITORS. COMING TO THE SUIT FILED ACCOUNT PROVISION, THIS WA S MADE AGAINST CONTINGENT CLAIMS BY THE CUSTOMERS/EMPLOYEES. IT W AS FURTHER SUBMITTED THAT SINCE THE ASSESSEE IS FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING EXPENSES RELATING TO A PARTICULAR YEAR H AS TO BE CLAIMED IN THAT YEAR ITSELF. SINCE THESE ARE ONLY PROVISIONS, THEY ARE NOT ALLOWABLE AS DEDUCTION IN COMPUTING INCOME FOR THE PURPOSE OF SECTION 115JA. AGGRIEVED BY THE ABOVE ORDER ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. ITA.1282,1283,1284/B/07;19/B/08 PAGE - 10 10. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ITEM NOS.1 TO 5 SINCE PERTAINING TO DIMINUTION IN VALUE OF ASS ETS AND NOT TO ANY LIABILITY, IT IS NOT UNASCERTAINED. HENCE, EXPLANA TION (C) TO SECTION 115JA IS NOT APPLICABLE. THE ISSUE IS COVERED BY T HE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF COMMISSIONER O F INCOME-TAX V. HCL COMNET SYSTEMS AND SERVICES LTD., (2008) 305 IT R 409 AND ALSO ORDER OF THE TRIBUNAL DT.8.8.2009 IN ITA NOS.8 64 & 865/B/2007 IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 1990-91 AND 1998-99. THE TRIBUNAL THEREIN FOLLOWED THE DECISION OF THE H ON'BLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA SILK MARKETING BOARD V. JCIT, RENDERED ON 13.12.2007 IN ITA NO.504 OF 2003. IN RESPECT OF ITEMS NO.6 AND 7 IT WAS SUBMITTED THAT THESE ARE PROVISIO NS FOR MEETING ASCERTAINED LIABILITIES AND, THEREFORE ARE NOT TO B E ADDED BACK RESORTING TO EXPLANATION (C) TO SECTION 115JA. IT WAS SUBMIT TED THAT THE REVENUE AUTHORITIES HAD DECIDED THE ISSUE AGAINST T HE ASSESSEE MERELY LOOKING TO THE CAPTION TO THE ACCOUNT, VIZ., 'PROVI SION', WHEREAS IT IS ACTUALLY NOT SO. 11. IN REPLY TO THE ABOVE, THE LEARNED DR SUBMITTED THAT AS PER EXPLANATION (C) TO SECTION 115JA, THE AMOUNT SET AS IDE FOR PROVISIONS MADE FOR MEETING LIABILITIES OTHER THAN THE ASCERTA INED LIABILITIES ARE TO BE ADDED BACK TO THE NET PROFIT AS SHOWN IN THE PRO FIT AND LOSS ITA.1282,1283,1284/B/07;19/B/08 PAGE - 11 ACCOUNT. HE FURTHER SUBMITTED THAT ITEM NOS.3 TO 7 ARE ROUND FIGURES AND THEY ARE CONTINGENT UPON HAPPENING OF CERTAIN E VENTS. THE PROVISIONS MADE ARE NOT ASCERTAINED SO AS TO MEET T HE FUTURE LIABILITIES. THOUGH THEY RELATE TO ASSETS, THEY ARE IN THE NATUR E OF CONTINGENT FUTURE LIABILITIES PROVIDED FOR. FOR EG., ITEM NO. 4 RELATES TO PROVISION FOR FLOATING RATE NOTES OF LONDON BRANCH AMOUNTING TO RS.1,69,00,000/-. THIS IS CONTINGENT ON THE RATE O F INTEREST GOING UP OR DOWN AS THE CASE MAY BE, WHICH CANNOT BE ASCERTA INED WITH ANY REASONABLE ACCURACY AT THE TIME OF PREPARING THE AC COUNTS OF THE ASSESSEE. HENCE, IT IS CONTINGENT ON THE HAPPENING OF ANY EVENT WHICH ADVERSELY AFFECT THE VALUE OF THE INVESTMENT. SIMI LARLY IS THE CASE OF OTHER ITEMS I.E., ITEM NOS.3, 5, 6 AND 7. THE CASE LAWS RELIED BY THE ASSESSEE'S COUNSEL ARE NOT APPLICABLE, HE SUBMITTED . 12. IN THE CASE REPORTED IN 305 ITR 409 - HCL COMNE T SYSTEMS (SUPRA), THE HON'BLE SUPREME COURT HELD AS UNDER : 'THE PROVISION FOR BAD AND DOUBTFUL DEBTS CAN BE AD DED BACK TO THE NET PROFIT ONLY IF ITEM (C) STANDS ATTR ACTED. ITEM (C) DEALS WITH AMOUNT(S) SET ASIDE AS PROVISION MAD E FOR MEETING LIABILITIES, OTHER THAN ASCERTAINED LIABILI TIES. THE ASSESSEE'S CASE WOULD, THEREFORE, FALL WITHIN THE A MBIT OF ITEM (C) ONLY IF THE AMOUNT IS SET ASIDE AS PROVISI ON ; THE PROVISION IS MADE FOR MEETING A LIABILITY; AND THE PROVISION SHOULD BE FOR OTHER THAN AN ASCERTAINED LIABILITY, I.E., IT ITA.1282,1283,1284/B/07;19/B/08 PAGE - 12 SHOULD BE FOR AN UNASCERTAINED LIABILITY. IN OTHER WORDS, ALL THE INGREDIENTS SHOULD BE SATISFIED TO ATTRACT ITEM OF THE EXPLANATION TO SECTION 115JA. IN OUR VIEW, ITEM (C ) IS NOT ATTRACTED. THERE ARE TWO TYPES OF 'DEBT'. A DEBT PAYABLE BY THE ASSESSEE IS DIFFERENT FROM A DEBT RECEIVABLE BY THE ASSESSEE. A DEBT IS PAYABLE BY THE ASSESSEE WHERE THE ASSESSEE HAS TO PAY THE AMOUNT TO OTHERS WHEREAS TH E DEBT RECEIVABLE BY THE ASSESSEE IS AN AMOUNT WHICH THE A SSESSEE HAS TO RECEIVE FROM OTHERS. IN THE PRESENT CASE, T HE 'DEBT' UNDER CONSIDERATION IS A 'DEBT RECEIVABLE' BY THE A SSESSEE. THE PROVISION FOR BAD AND DOUBTFUL DEBT, THEREFORE, IS MADE TO COVER UP THE PROBABLE DIMINUTION IN THE VALUE OF THE ASSET, I.E., DEBT WHICH IS AN AMOUNT RECEIVABLE BY THE ASSESSEE. THEREFORE, SUCH A PROVISION CANNOT BE SA ID TO BE A PROVISION FOR A LIABILITY, BECAUSE EVEN IF A DEBT IS NOT RECOVERABLE NO LIABILITY COULD BE FASTENED UPON THE ASSESSEE. IN THE PRESENT CASE, THE DEBT IS THE AMO UNT RECEIVABLE BY THE ASSESSEE AND NOT ANY LIABILITY PA YABLE BY THE ASSESSEE AND, THEREFORE, ANY PROVISION MADE TOW ARDS IRRECOVERABILITY OF THE DEBT CANNOT BE SAID TO BE A PROVISION FOR LIABILITY. THEREFORE, IN OUR VIEW, ITEM (C) OF EXPLANATION IS NOT ATTRACTED TO THE FACTS OF THE PRESENT CASE. IN THE CIRCUMSTANCES, THE ASSESSING OFFICER WAS NOT JUSTIF IED IN ADDING BACK THE PROVISION FOR DOUBTFUL DEBTS OF RS.92,15,187 UNDER CLAUSE (C) OF THE EXPLANATION TO SECTION 115JA OF THE 1961 ACT.' THE CASE OF THE ASSESSEE IS THAT ITEM NOS.3 TO 7 AR E PROVISIONS PERTAINING OR COVERING DIMINUTION OR EROSION IN THE VALUE OF ASSETS ITA.1282,1283,1284/B/07;19/B/08 PAGE - 13 AND, THEREFORE, THIS DECISION APPLIES, WHEREAS ACCO RDING TO THE REVENUE, THESE ARE CONTINGENT ON HAPPENING OF CERTA IN EVENTS. PROVISIONS MADE ARE NOT ASCERTAINED IN PRESENTEE. FOR EXAMPLE, THE LEARNED DR SUBMITTED THAT ITEM NO.4 RELATES TO PROV ISIONS FOR FLOATING RATE NOTES OF LONDON BRANCH WHICH IS CONTINGENT ON THE RATE OF INTEREST GOING UP OR DOWN AS THE CASE MAY BE AND, THEREFORE, IT IS NOT ASCERTAINED WITH REASONABLE ACCURACY AT THE TIME OF PREPARING THE ACCOUNTS. WE ARE AFRAID THIS CONTENTION OF THE DEP ARTMENT IS TO BE REJECTED PARTICULARLY IN VIEW OF THE DECISION OF TH E SUPREME COURT CITED HEREINABOVE. THE SAME LOGIC APPLIES TO THE S UIT FILED ACCOUNTS AND OTHERS AMOUNTING TO RS.5,75,312/-. WE FIND THA T THIS GROUND IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL IN ASS ESSEE'S OWN CASE IN ITA NO550/BANG/2006 (SUPRA). APPEAL BY THE ASSESSE E ON THIS GROUND STANDS REJECTED. 13. COMING TO GROUND NO.10 WHICH IS AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX(A) IN SUSTAINING THE EST IMATION AT 5% OF THE EXEMPTED INCOME AS DISALLOWABLE U/S.14A WHILE A RRIVING AT THE BOOK PROFIT U/S.115JA. THE CONTENDING PARTIES CONC EDED THAT THIS ISSUE IS CONSEQUENTIAL TO GROUND NO.1 ABOVE. SINCE WE HAVE ALLOWED GROUND NO.1, CONSEQUENTIALLY, GROUND NO.10 BY THE A SSESSEE ALSO STANDS ALLOWED. ITA.1282,1283,1284/B/07;19/B/08 PAGE - 14 14. IN THE RESULT APPEAL BY THE ASSESSEE IN ITA NO. 1282/BANG/2007 IS ALLOWED. ITA NO.1283/BANG/2007-BY THE ASSESSEE -ASSESSMENT Y EAR 2000-01: 15. THE ONLY EFFECTIVE GROUND URGED BY THE ASSESSEE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) IN UPHOL DING THE JURISDICTION OF THE ASSESSING OFFICER IN REOPENING THE ASSESSEE WHICH, ACCORDING TO THE ASSESSEE IS MERE CHANGE OF OPINION . WITHOUT PREJUDICE TO THE ABOVE, IT IS ALSO THE CASE OF THE ASSESSEE THAT THE COMMISSIONER OF INCOME-TAX(A) OUGHT TO HAVE NOTED T HAT THE ASSESSEE'S ACTION IN REVERSING UNREALIZED INTEREST UP TO THE DATE OF IDENTIFICATION OF NPAS IS A METHOD REGULARLY FOLLOW ED YEAR AFTER YEAR BASED ON RBI'S GUIDELINES WHICH IN FACT, WAS ACCEP TED BY THE REVENUE IN EARLIER YEARS. THE LEARNED COUNSEL FOR THE ASSE SSEE OBJECTED TO THE REOPENING ON THE GROUND THAT IT S MERE CHANGE OF OP INION AS THERE WAS NO CHANGE IN LAW OR FACTS SUBSEQUENT TO THE COMPLET ION OF THE ASSESSMENT AT THE ORIGINAL STAGE. FOR THE ABOVE PR OPOSITION, ASSESSEE RELIED ON THE DECISION OF THE HON'BLE MADRAS HIGH C OURT IN THE CASE OF APOLLO HOSPITALS ENTERPRISES LTD., V. ACIT (2006) 2 87 ITR 25 AND ALSO THE DECISION OF THE DELHI HIGH COURT IN THE CA SE OF JINDAL PHOTO FILMS REPORTED IN 235 ITR 170 (SIC). HOWEVER, THE ASSESSING OFFICER'S ORDER WAS CONFIRMED BY THE COMMISSIONER O F INCOME-TAX(A) ITA.1282,1283,1284/B/07;19/B/08 PAGE - 15 HOLDING THAT AS PER THE AMENDED PROVISIONS TO SECTI ON 147, THE ASSESSING OFFICER WAS JUSTIFIED IN REOPENING THE AS SESSMENT U/S.147 BY ISSUING NOTICE U/S.148. THIS DECISION RELIED BY THE ASSESSEE, IT WAS HELD BY THE COMMISSIONER OF INCOME-TAX(A) WERE NOT APPLICABLE TO THE CASE OF THE ASSESSEE SINCE IT DEALT WITH PRE-AM ENDED PROVISIONS. 16. ON MERIT, THE ASSESSING OFFICER NOTICED THAT TH E ASSESSEE'S CLAIM FOR REVERSAL OF INTEREST CREDITED TO ITS INCO ME IN THE EARLIER YEARS ON ACCOUNT OF DEBTS BECOMING NPA AND REDUCING CURRE NT YEAR'S INCOME IS NOT IN ACCORDANCE WITH RBI GUIDELINES AND ALSO WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(VII ) OF THE ACT. SINCE THE ASSESSEE HAD ONLY REVERSED THE INTEREST DEBITED TO DEBT ACCOUNT AND CREDITED TO INCOME ACCOUNT, THE INCOME TO THE EXTEN T OF RS.6,43,22,862/- WAS PROPOSED TO BE TREATED AS ESCA PED INCOME BY THE ASSESSING OFFICER. THE ASSESSEE VIDE ITS LETTER DT .15.12.04 OBJECTED TO THE ABOVE PROPOSAL. IT WAS CONTENDED THEREIN THAT THE ASSESSEE HAD REVERSED THE AMOUNT OF RS.6,43,22,862/- TO THE INTE REST HEAD, BEING THE INTEREST ON THE NEW NPAS IDENTIFIED DURING THE CURR ENT FINANCIAL YEAR AND INTEREST NOT RECOVERED PERTAINING TO THE IMMEDI ATE PRECEDING YEAR. IT WAS FURTHER SUBMITTED THE METHOD HAS BEEN CONSIS TENTLY FOLLOWED BY THE ASSESSEE IN TERMS OF RBI GUIDELINES ON INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING REQUIREMENT W HICH CAME INTO ITA.1282,1283,1284/B/07;19/B/08 PAGE - 16 EXISTENCE COMMENCING FROM THE FINANCIAL YEAR ENDED ON 31.3.1983. AS PER THE GUIDELINES, BANKS CAN EITHER PROVIDE FOR UNRECOVERED PORTION OF INTEREST ON NPAS IDENTIFIED FOR THE FIRS T TIME DURING THE FINANCIAL YEAR PERTAINING TO THE IMMEDIATELY PAST Y EAR OR REVERSE THE INTEREST DURING THE RELEVANT FINANCIAL YEAR. THE A SSESSEE ADOPTED THE SECOND OPTION AND THIS WAS BEING FOLLOWED CONSISTEN TLY WHICH HAD ALSO BEEN ACCEPTED BY THE ASSESSING OFFICER ALWAYS IN THE PAST. ASSESSEE FURTHER SUBMITTED IN CASE IF THE REVENUE W ANTS TO TAKE A DIFFERENT STAND AND REVERSE THE EARLIER YEAR ENDING 31.3.1999, OF THE IMPUGNED AMOUNT BY ADDING THE SAME TO THE TAXABLE I NCOME, THE ASSESSEE SUBMITTED THAT THE ABOVE AMOUNT SHOULD BE TREATED AS THE CLAIM U/S.36(1)(VII) AS BAD DEBTS WRITTEN OFF. THE ASSESSEE'S CLAIM WAS REJECTED BY THE ASSESSING OFFICER AS ALSO BY TH E COMMISSIONER OF INCOME-TAX(A) FOLLOWING HIS EARLIER ORDER FOR THE A SSESSMENT YEAR 2001-02 DT.8.10.2007. THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE FIRST APPELLATE AUTHORITY. 17. AS AGAINST THIS, THE LEARNED DR SUBMITTED THIS ADDITION WAS UPHELD BY THE COMMISSIONER OF INCOME-TAX(A) FOR THE ASSESSMENT YEAR 2001-02. FOR ALLOWING THIS THE CLAIM OF THE AS SESSEE FOR DEDUCTION U/S.36(1)(VII) OF THE INCOME TAX ACT, 196 1 IS THAT THE DEBT WAS PART OF THE DEBT TO BE WRITTEN OFF AS IRRECOVER ABLE IN THE ACCOUNTS ITA.1282,1283,1284/B/07;19/B/08 PAGE - 17 OF THE ASSESSEE FOR THE PREVIOUS YEAR. AS AGAINST THIS, ASSESSEE HAS ONLY REVERSED THE ENTRIES WHICH DOES NOT AMOUNT TO WRITE OFF OF BAD DEBTS IN THE BOOKS OF ACCOUNT. THIS WILL CONTINUE IN THE BOOKS OF ACCOUNT, BUT UNDER A DIFFERENT HEAD. THE REVERSAL OF ENTRIES CLAIMED TO BE UNDER THE RBI GUIDELINES DOES NOT EXEMPT THE SAM E UNDER THE INCOME-TAX ACT. THE ASSESSEE BANK IS BOUND TO TAKE ALL NECESSARY STEPS TO RECOVER, INCLUDING LITIGATION. ONLY IN TH E CASE OF COMPLETE FAILURE BANK WILL WRITE OFF THE DEBTS EVENTUALLY AN D IT CANNOT BE CLAIMED NOW AS THIS IS PREMATURE. 18. HEARING THE RIVAL SUBMISSIONS, WE ARE OF THE VI EW THAT APPEAL OF THE ASSESSEE IS TO BE ALLOWED. THE ASSESSEE IS BOU ND TO FOLLOW THE RBI GUIDELINES AND SECONDLY THE SAME METHOD OF ACCO UNT WAS BEING FOLLOWED BY THE ASSESSEE CONSISTENTLY WHICH WAS ALW AYS ACCEPTED BY THE REVENUE. SINCE THE ASSESSEE IS BOUND TO FOLLOW AND HAS ONLY FOLLOWED THE RBI GUIDELINES, THE REVERSAL OF THE EN TRY CANNOT BE FAULTED WITH. WE HOLD ACCORDINGLY. 19. IN THE RESULT, APPEAL BY THE ASSESSEE STANDS AL LOWED. ITA.1282,1283,1284/B/07;19/B/08 PAGE - 18 ITA NO.1284/BANG/2007-BY THE ASSESSEE -ASSESSMENT Y EAR 2001-02: 20. GROUND NOS.1 TO 3 BY THE ASSESSEE IS AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX(A) IN SUSTAINING THE DIS ALLOWANCE OF CLAIM OF REVERSAL OF UNREALIZED INTEREST ON NPAS. WE HAVE DECIDED THIS ISSUE IN ASSESSEE'S FAVOUR WHILE DEALING WITH APPEAL NOS.1282 & 1283/BANG/2007, FOR THE ASSESSMENT YEAR 2000-01 AS ABOVE. IT IS THE CASE OF THE ASSESSEE THAT ASSESSEE FOLLOWED THE RBI GUIDELINES AND MADE SIMILAR REVERSALS IN THE PAST WHICH WAS CONSIS TENTLY ACCEPTED BY THE REVENUE AND IT WAS FIRST TIME REJECTED FOR THE ASSESSMENT YEAR 2000-01. SINCE WE HAVE ALREADY ALLOWED THE CLAIM O F THE ASSESSEE, THE GROUND NOS.1 TO 3 BY THE ASSESSEE IS ALLOWED. 21. COMING TO GROUND NOS.4 TO 7, IT IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) IN SUSTAINING THE ASS ESSMENT ORDER VIDE WHICH THE ESTIMATION OF 5% OF THE EXPENSES WAS DISALLOWED U/S.14A WHILE COMPUTING THE BOOK PROFIT U/S.15JA. THIS CLAIM HAS ALSO BEEN ALLOWED WHILE DEALING WITH APPEAL NO.ITA.NO.1282/BANG/2007 AS ABOVE. FOLLOWING THE S AME, THIS ISSUE RAISED BY THE ASSESSEE STANDS ALLOWED. 22. COMING TO GROUND NOS.8 AND 9, IT READS AS UNDER : ITA.1282,1283,1284/B/07;19/B/08 PAGE - 19 '8. THAT THE COMMISSIONER OF INCOME-TAX(A) ERRED IN SUSTAINING ADDITIONS TO THE PROFIT AS PER THE PROFI T & LOSS ACCOUNT THE AMOUNTS OF PROVISIONS FOR (A) WEALTH-TA X (B) DEPRECIATION ON INVESTMENTS (C) BAD AND DOUBTFUL DE BTS (D) CLAIMS AND SUITS AGAINST BANKS (E) STANDARD ASSETS (F) FRAUDS AND (G) CASH LOSS FOR BURGLARY. 9. THAT THE COMMISSIONER OF INCOME-TAX(A) OUGHT TO HAVE APPRECIATED THAT EACH OF THE ABOVE SEVEN PROVI SIONS DID NOT RELATE TO ANY LIABILITY BUT REPRESENTED DIMINUT ION/EROSION IN VALUES OF ASSETS AND AS SUCH EXPLANATION (C) TO SECTION 115JB(2) HAD NO APPLICATION WHATEVER TO JUSTIFY ADD ITION.' SIMILAR ISSUE HAS BEEN DECIDED FOR THE ASSESSMENT Y EAR 2000-01 AS ABOVE. FOLLOWING THE SAME, WE ALLOW THE GROUND NOS .8 AND 9 OF THE ASSESSEE. 23. COMING TO THE NEXT GROUND WHICH IS GROUND NO.10 , IT IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) SUST AINING THE ESTIMATION OF 5% OF INCOME AS DISALLOWABLE U/S.14A WHILE ARRIVING AT BOOK PROFIT U/S.15JB. THIS GROUND IS SIMILAR TO GR OUND NO.10 TAKEN BY THE ASSESSEE FOR ASSESSMENT YEAR 2000-01, BEING CON SEQUENTIAL TO GROUND NO.1. IT IS SO FOR THE YEAR UNDER CONSIDERA TION AS WELL. THE ASSESSING OFFICER MAY GIVE CONSEQUENTIAL RELIEF ACC ORDINGLY. ITA.1282,1283,1284/B/07;19/B/08 PAGE - 20 24. COMING TO GROUND NO.11, IT IS AGAINST REFUSING TO CONSIDER ADDITIONAL GROUND ON LEVY OF INTEREST U/S.234D. WE DIRECT THE ASSESSING OFFICER TO GIVE CONSEQUENTIAL RELIEF WHIL E GIVING EFFECT TO THE OUR ORDER. 25. IN THE RESULT, APPEAL FOR ASSESSMENT YEAR 2001- 02 IS ALLOWED. ITA NO.19/BANG/2008-BY THE REVENUE -ASSESSMENT YEAR 2001-02: 26. COMING TO THE APPEAL BY THE REVENUE, THE ONLY E FFECTIVE ISSUE RAISED IN GROUND NOS.2, 3, 4 AND 5 ARE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A) IN DELETING THE INTER EST ON ZERO COUPON BONDS AMOUNTING TO RS.9,15,02,861/-, FROM TH E BOOK PROFIT COMPUTED U/S.115 JA, FOLLOWING THE ORDER OF THE TRI BUNAL DT.8.6.2005, FOR THE ASSESSMENT YEAR 1998-99. THE CASE OF THE R EVENUE IS THAT THE REVENUE IS IN FURTHER APPEAL BEFORE THE HON'BLE HIG H COURT. SUFFICE TO SAY THAT PENDENCY OF THE APPEAL BEFORE THE HON'BLE HIGH COURT ALONE IS NOT SUFFICIENT TO TAKE A CONTRARY VIEW. THEREFO RE, THIS GROUND BY THE REVENUE IS LIABLE TO BE REJECTED AND IT IS REJECTED . 27. IN THE RESULT, APPEAL BY THE REVENUE FAILS AND IT IS DISMISSED. ITA.1282,1283,1284/B/07;19/B/08 PAGE - 21 28. IN THE RESULT, APPEALS BY THE ASSESSEE IN ITA N OS.1282, 1283, 1284/BANG/2007 ARE ALLOWED AND THE APPEAL BY THE RE VENUE IN ITA NO.19/BANG/2008 IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 9TH DAY OF OCTOBER, 2009. SD/- SD/- (A. MOHAN ALANKAMONY) (K. P. T. THANGAL) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE DATED : 9TH OCTOBER, 2009 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, NEW DELHI 7. GF, ITAT, BANGALORE