ACIT, TRICHY vs. THE KARUR VYSYA BANK LTD., KARUR

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

Both the assessee and Revenue have filed the appeals

against the respective orders of the Commissioner of Income Tax

2 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

(Appeals), Tiruchirapalli, dated 25.03.2013 and pertain to

assessment years 2003-04 and 2005-06. Since common issues

arise for consideration in all these appeals, we heard these appeals

together and disposing of the same by this common order.

No.1496/Mds/2013 and I.T.A. No.1527/Mds/2013 belatedly by 10

days and 15 days respectively. The Revenue has filed petitions for

condonation of delay. We have heard the Ld. Departmental

Representative and Ld.counsel for the assessee. We find that there

was sufficient cause for not filing these appeals before the

stipulated time. Therefore, we condone the delay and admit the

appeals.

2003-04 in I.T.A. No.1340/Mds/2013.

expenditure incurred by the assessee in issuing right issues.

of expenses incurred to increase authorized capital out of which,

3 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

`42,94,844/- pertain to right issue expenses and the balance of

`50,000/- pertain to listing fees paid to Security Exchange Board of

India for listing bonus and right issues. According to the Ld. counsel, this amount of `50,000/- was paid to Security Exchange

Board of India which is the statutory authority as per the Government stipulation. The Ld.counsel very fairly submitted that expenditure incurred by the assessee for increasing authorized capital to the extent of `43,44,844/- has to be disallowed in view of

judgment of Apex Court in Brook Bond India Ltd. v. CIT (1997) 225

ITR 798. However, the list fee has to be allowed in view of the judgment of Madras High Court in the assessee's own case in Tax Case Appeal No.2139 of 2008.

`42,94,844/- pertains to increasing the authorized capital.

Therefore, this amount of `42,94,844/- cannot be allowed as

expenditure in view of the judgment of Apex Court in Brook Bond India Ltd. (supra). Accordingly, the order of the lower authority is confirmed to the extent of `42,94,844/-. However, the balance of

4 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

`50,000/- pertaining to listing fee paid to the Security Exchange

Board of India, we have carefully gone through the judgment of

Madras High Court in the assessee's own case in T.C. No.2139 of

2008 dated 13.07.2009, a copy of which is available at page 24 of

the paper-book. In the case before Madras High Court, the issue

arose for consideration is payment of subscription fees paid to

Securities Exchange Board of India to carry on the business of

merchant banking by the assessee-bank. The Madras High Court

found that the bank was carrying on merchant banking business,

therefore, requires to pay authorisation fee to SEBI. Accordingly,

the High Court found that the expenses incurred by the assessee

was only to facilitate the carrying on of existing business of the

assessee. Hence, the expenditure is revenue in nature. In the case

before us, the payment was made towards listing fee towards bonus

and right issues. It is not very clear whether the fee paid by the

assessee is for carrying on the merchant banking business.

Therefore, this Tribunal is of the considered opinion that the matter

needs to be reconsidered by the Assessing Officer and find out

whether the listing fee is for carrying on merchant banking business

by the assessee or it is for listing of the right issues for increasing

the share capital. Accordingly, the orders of the lower authorities

5 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

are set side and the disallowance of `50,000/- towards listing fee is

remitted back to the file of the Assessing Officer. The Assessing

Officer shall re-examine the matter and find out whether the listing fee of `50,000/- is for the purpose of carrying on merchant banking

business of the assessee or otherwise and thereafter decide the

issue in accordance with law after considering the judgment of

Madras High Court referred above, after giving a reasonable

opportunity to the assessee.

paid directly to the retired employees.

submitted that this issue was considered by this Tribunal in the

assessee's own case for the assessment years 2001-02, 2004-05

and 2006-07 in I.T.A. Nos.902, 903, 904 and 907/Mds/2010, etc.

dated 17.01.2013. This Tribunal in fact referred back the matter to

the file of the Assessing Officer for reconsideration. This Tribunal

found that the provisions of Section 37(1) of the Income-tax Act,

1961 (in short 'the Act') was not considered by the lower authorities.

Accordingly, the matter was remitted back for reconsideration. The

6 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

Ld.counsel submitted that the issue raised for the year under

consideration was also similar, therefore, the matter may be

remitted back to the file of the Assessing Officer.

Representative also. The Ld. D.R. very fairly submitted that this

Tribunal in the assessee's own case, after considering the decision

of Cochin Bench of this Tribunal in The Catholic Syrian Bank Ltd. v.

Addl. CIT in I.T.A. No.10/Coch/2009 dated 11.02.2011 and

06.07.2011 remitted back the matter to the file of the Assessing

Officer to consider the matter in the light of Section 37(1) of the Act.

perused the relevant material available on record. the assessee

has paid directly to the pension fund of retired employees. The

Assessing Officer disallowed the claim of the assessee on the

ground that the payment of pension has to be routed through Group

Insurance Scheme of LIC as provided in Rule 89 of Income-tax

Rules, 1962. In fact, the Association of Public Sector Scheduled

Banks approached CBDT in the year 1998 with the request to

permit them to maintain their own fund for payment of pension. The

request of the public sector scheduled banks was turned down by

7 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

the CBDT in August, 2003. Therefore, the CIT(Appeals) rejected

the claim of the assessee. Now the assessee claims that the

expenditure has to be allowed under Section 37(1) of the Act. In the

earlier year, this Tribunal after considering the order of the Cochin

Bench remitted back the issue to the file of the Assessing Officer for

reconsideration. When the assessee has actually paid funds

directly to the pension fund, this Tribunal is of the considered

opinion that the claim of the assessee has to be examined under

Section 37(1) of the Act as directed by the Tribunal in the earlier

year. Accordingly, as directed by this Tribunal in the assessee's

own case for assessment year 2001-02, 2004-05 and 2006-07, the

claim of the assessee has to be re-examined under Section 37(1) of

the Act. Accordingly, the orders of the lower authorities are set

aside and the disallowance made by the Assessing Officer towards

pension payment is remitted back to the file of the Assessing

Officer. the Assessing Officer shall reconsider the issue afresh as

directed by the Tribunal for assessment year 2001-02, 2004-05 and

2006-06 in the light of the provisions of Section 37(1) of the Act and

thereafter decide the issue in accordance with law, after giving a

reasonable opportunity to the assessee.

8 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

interest paid at the time of purchase of securities.

assessee on the ground that securities are stock-in-trade by referring to the judgment of Madras High Court in Tamil Nadu Mercantile Bank Ltd. According to the Ld. counsel, the Assessing Officer initially disallowed `92,96,31,764/- in the order dated

27.03.2006. By way of rectification order, the Assessing Officer gave relief to the extent of `67,97,07,529/-. The issue arises for

consideration before this Tribunal only to the balance amount of `24,99,24,235/-. According to the Ld. counsel, in the assessee's

own case, the Madras High Court in T.C. No.2139 of 2008 by

judgment dated 13.07.2009, found that such expenditure is revenue in nature. A copy of the judgment is available at page 24 of the paper-book.

9 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

Officer by placing reliance on the judgment of Apex Court in Vijaya

Bank in 187 ITR 541, disallowed the claim of the assessee.

perused the relevant material available on record. The payment of

interest for purchase of securities was subject matter of discussion

by the Madras High Court in the assessee's own case. The Madras

High Court found that the expenses incurred or interest paid on

purchase of shares was only revenue expenditure and not capital

expenditure. The Madras High Court placed its reliance on the

judgment of Apex Court in United Commercial Bank v. CIT (1999)

240 ITR 355 and found that interest paid by the assessee will not be

capital expenditure. In view of this judgment of Madras High Court,

this Tribunal is of the considered opinion that both the authorities

are not justified in disallowing the claim of the assessee.

accordingly, the orders of the authorities below are set aside and

disallowance made by the Assessing Officer as confirmed by the

CIT(Appeals) is deleted.

due to non-delivery of UTI Master Gain 92 and UTI Master Shares.

10 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

submitted that the loss suffered by the assessee due to non-deliver

of UTI Master Gain 92. The loss was due to non-delivery. The

assessee was not in a position to make name transfer in the books

of UTI. Loss of stock in transit is a business loss. Therefore, it is an

allowable expenditure. The Madras High Court in the assessee's

own case allowed the claim of the assessee on identical

circumstances. The Ld.counsel further submitted that the Revenue

accepted all securities as stock-in-trade in the assessment year

2011-12, therefore, the loss has to be allowed as revenue

expenditure.

Departmental Representative, submitted that the loss of stock in

transit has to be treated as capital expenditure, therefore, the

Assessing Officer has rightly disallowed the claim of the assessee.

perused the relevant material available on record. The loss

occurred due to non delivery of UTI Master gain 92 bond. The loss

of sale of securities was allowed as business loss in the assessee's

own case by the Madras High Court in T.C. No.2139 of 2008. It is

11 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

not in dispute that the securities are classified as stock-in-trade.

Therefore, the loss in transit has to be allowed as revenue loss.

Therefore, this Tribunal is unable to uphold the order of the lower

authority. Accordingly, the orders of the authorities below are set

aside and the disallowance made by the Assessing Officer is

deleted.

assessee to the auditors and advocates.

submitted that the Assessing Officer disallowed the fees paid to

auditors and advocates for non-production of vouchers. According

to the Ld. counsel, the assessee-scheduled bank is having 214

Branches across the country. The statutory audits are conducted

every year by well-known Chartered Accountants. The fees were

actually paid. According to the Ld. counsel, the concurrent and

revenue audit were also done by outside auditors. Some of the

Branches which paid fees was shifted to other locations. Therefore,

according to the Ld. counsel, the assessee-bank could not produce

the vouchers for payment of fees. Even though 60% of vouchers

were collected and produced before the Assessing Officer, the

12 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

remaining vouchers could not be produced. According to the Ld.

counsel, after considering the volume of the business transaction of

the assessee and number of Branches spread across the country,

the claim of the assessee may be allowed.

Departmental Representative, submitted that for the purpose of

allowing the claim of the assessee as expenditure, the assessee

has to substantiate the payment made to the auditors. Merely

because the assessee is having 214 Branches across the country

and some of the Branches were shifted to other locations, that

cannot be a reason to allow the claim of the assessee without

verification. The Ld. D.R. very fairly submitted that if the payment of

fees to the auditors and advocates are established by producing

necessary material, then the Department may not have any

hesitation in allowing the claim of the assessee.

perused the relevant material available on record. the assessee

claims that payments were made to auditors and advocates towards

professional fees. The assessee expressed its inability to produce

all the vouchers on the ground that it has 214 Branches located at

13 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

various parts of the country and some of the Branches were shifted

to other locations. This Tribunal is of the considered opinion that for

the purpose of claiming expenditure, the assessee has to establish

the payments of fees to the auditors and advocates before the

Assessing Officer. Merely because the assessee entered into huge

volume of transactions and having numerous Branches across the

country, that cannot be a reason to allow the claim of the assessee

when the payments cannot be substantiated by producing

necessary material. Therefore, giving one more opportunity to the

assessee for producing necessary material for payment of fees to

auditors and advocates would not prejudice the interest of Revenue

in any case. Accordingly, the orders of the authorities below are set

aside and the disallowance made by the Assessing Officer towards

payments made auditors and advocates is remitted back to the file

of the Assessing Officer. The Assessing Officer shall also examine

whether the fees paid to advocates are recovered from customers

or not? The Assessing Officer shall re-examine the issue afresh on

the basis of material that may be produced by the assessee and

thereafter decide the same in accordance with law, after giving a

reasonable opportunity to the assessee.

14 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

15 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

addition made was of `3,30,62,439/-. Since the assessee was

following mercantile system of accounting, according to the Ld.

counsel, the interest received in advance was offered in the

subsequent year for taxation. In case the addition is confirmed, the

income offered by the assessee in the subsequent year has to be

deleted.

Departmental Representative, submitted that the assessee received

income in certain bills in advance. Referring to Section 5(1)(a) of

the Act, the Ld. D.R. submitted that the total income of the assessee

was inclusive of income from all source, which was received or is

deemed to be received in India in such year by the assessee or on

behalf of the assessee. In this case, the assessee in fact physically

received the income during the year under consideration. Only by

way of accounting entry, the assessee declared the same in the

subsequent year. There was no liability for repayment of amount at

any point of time. Therefore, according to the Ld. D.R., the advance

received has to be treated as income of the assessee during the

year under consideration.

16 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

perused the relevant material available on record. In certain types

of bills purchased and discounted, the assessee in fact received

interest in advance. Such a receipt of income/interest on purchase

and discount may not be required to be repaid by the assessee at

any point of time. In other words, there was no liability for the

assessee for payment in the subsequent year or at any point of

time. Therefore, as rightly submitted by the Ld. D.R., when the

assessee has physically received the amount towards income in

advance and there was no liability for repayment, this Tribunal is of

the considered opinion that the same has to be treated as income of

the assessee. The matter would stand differently in case there was

liability for repayment of money received in advance. Since such a

liability for repayment of money has not been established by the

assessee before this Tribunal, this Tribunal do not find any reason

to interfere with the order of the lower authority and accordingly, the

same is confirmed. Since the amount received in advance is

treated as income in the year in which it was received, the

Assessing Officer shall exclude such income in case it was offered

in the subsequent year as claimed by the assessee.

17 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

authorities are confirmed.

unpaid expenses.

submitted that the unpaid expenses are ascertained liability for the

services rendered and enjoyed by the assessee. According to the

Ld. counsel, the building rent, electricity bills, telephone bills, courier

and postage charges, audit fee are due for the month of March, in

respect of services enjoyed by the assessee during the year under

consideration. The liability to pay is also is also certain and

crystalized. Since the assessee is following mercantile system of

accounting, according to the Ld. counsel, the expenses relating to

particular year, which was debited in the books, has to be allowed.

Since the liability has incurred during the year under consideration,

according to the Ld. counsel, the same has to be allowed during the

year under consideration.

Departmental Representative, submitted that the assessee has

18 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

shown a sum of `1,85,49,609.63 under the head “Unpaid

Expenses” where provisions made for expenses such as building

rent, electricity, telephone, audit fee, postage charges, etc. The

actual charges payable would be known on later date on receipt of

bills. Therefore, according to the Ld. D.R., the estimation made by

the assessee cannot be allowed during the year under

consideration. According to the Ld. D.R., the unpaid expenses are

only a provision and it is not accrued liability to the assessee,

therefore, the same cannot be allowed as expenditure while

computing the taxable income.

perused the relevant material available on record. It is not in dispute

that the assessee was following mercantile system of accounting.

Therefore, the accrued liability has to be allowed as expenditure

while computing taxable income. The rent for the building,

electricity bills, telephone bills, courier and postage charges, audit

fee, etc. the services were rendered during the financial year under

consideration. Probably, the assessee would not have paid the

same during the year under consideration. However, as rightly

submitted by the Ld.counsel for the assessee, there is accrued

19 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

liability for payment. Since there is a liability for the services

enjoyed by the assessee during the year under consideration, the

same has to be allowed as expenditure while computing taxable

income irrespective of the fact that the payment is actually made or

not. In other words, in the mercantile system of accounting, the

liability for payment towards services enjoyed by the assessee

during the year under consideration is an allowable expenditure.

Therefore, both the authorities below are not justified in disallowing

the claim of the assessee. Accordingly, the orders of the authorities

below are set aside and the addition made by the Assessing Officer

is deleted.

gratia payment.

submitted that the Assessing Officer disallowed a sum of `3,12,97,665/- towards ex-gratia amount paid to the employees of

the bank. The Board of Directors of the assessee-bank, after

analysing the performance of each and every employee, decided to

grant incentive. The incentive paid was claimed as ex-gratia

payment to the bank employees while computing taxable income.

20 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

The Assessing Officer disallowed the claim of the assessee on the

ground that the incentive paid to the bank employees deemed to be

distribution of profit to the employees. According to the Ld. counsel,

in the assessee's own case, this Tribunal for the assessment year

2006-07, allowed the claim of the assessee in M.P.

No.205/Mds/2013 dated 10.01.02014, a copy of which is available

at page 281 of the paper-book. The Madras High Court in CIT v.

Lakshmi Vilas Bank in Tax Case Appeal No.897 of 2013 by

judgment dated 16.04.2014, a copy of which is available at page

284 of the paper-book, found that the ex-gratia payment has to be

allowed as revenue expenditure. Therefore, according to the Ld.

counsel, the CIT(Appeals) is not justified in confirming the

disallowance made by the Assessing Officer.

Departmental Representative, submitted that the assessee, in fact,

distributed profits to the employees, therefore, it is an application of

profit, hence, it cannot be allowed as revenue expenditure.

perused the relevant material available on record. We have

carefully gone through the order of this Tribunal in the assessee's

21 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

own case for assessment year 2006-07. This Tribunal held that ex-

gratia amount paid to the employees amounts to allowable

expenditure. In fact, this Tribunal placed its reliance on the

judgment of Calcutta High Court in CIT v. National Engineering

Industries Ltd. (1994) 208 ITR 1002.

High Court in Lakshmi Vilas Bank (supra). The Madras High Court

found that the ex-gratia payment made to the employees in the form

of incentive is a business expenditure. Therefore, it has to be

allowed under Section 37 of the Act. In view of this judgment of

Madras High Court in Lakshmi Vilas Bank (supra), this Tribunal is of

the considered opinion that the ex-gratia payment is in the nature of

business expenditure. Therefore, it has to be allowed while

computing taxable income. Accordingly, the orders of the lower

authorities are set aside and the addition made by the Assessing Officer to the extent of `3,12,97,665/- towards ex-gratia payment

made to the employees of the bank is deleted.

earning the exempted income.

22 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

submitted that the investment made in the shares are stock-in-trade

of the assessee. Once, the assessee treated the investment in the

bonds and shares as stock-in-trade, there cannot be any

disallowance in respect of expenditure incurred by the assessee.

According to the Ld. counsel, the Assessing Officer disallowed 10%

of tax-free income. This Tribunal consistently disallowing 2% of the

expenditure wherever expenditure was incurred for investment. In

this case, it is nobody’s case that the assessee treated shares and

securities as investment. In fact, according to the Ld. counsel, the

investment made by the assessee has to be classified as stock-in-

trade, therefore, there cannot be any disallowance even at 2%.

Departmental Representative, submitted that the assessee earned tax-free income to the extent of `7,94,20,205/-. According to the Ld.

D.R., Section 14A of the Act was introduced by Finance Act, 2002.

It is not the case of the assessee that no expenditure was incurred.

In the absence of any details of expenditure for making investment

in stocks and securities, the Assessing Officer has rightly treated

10% of tax-free income as expenditure.

23 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

perused the relevant material available on record. It is not in

dispute that the assessee is a scheduled bank engaged in the

business of merchant banking. Therefore, investment made in

shares and securities has to be classified as stock-in-trade. Once

the investment was classified as stock-in-trade, this Tribunal is of

the considered opinion that the expenditure incurred by the

assessee has to be allowed while computing taxable income. The

dividend income, which was exempted from taxation, was invested

in the business of the assessee. Therefore, merely because the

assessee has received dividend income incidentally in business

activity that cannot be a reason to disallow any part of expenditure

incurred by the assessee. Therefore, this Tribunal is unable to

uphold the orders of the authorities below. Accordingly, the orders

of the authorities below are set aside and the addition made by the

Assessing Officer is deleted.

and publicity.

24 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

submitted that the assessee has incurred an expenditure of `3,75,69,047/- towards advertisement and publicity. The assessee

was able to produce vouchers to the extent of `2,45,39,333/-. In

fact, the assessee-bank was incorporated in the year 1916. The

assessee has now 214 Branches across the country apart from

administrative and Divisional Office. The Assessing Officer

disallowed the claim of the assessee for want of vouchers.

Branches and voluminous vouchers, the same cannot be collected

from various Branches. According to the Ld. counsel, it is common

practice to exhibit banners in the places where more people would

assemble during the festival time. By placing banners, the bank

was able to exhibit and promote the schemes of financial products.

Therefore, according to the Ld. counsel, the expenditure incurred by

the assessee by exhibiting banners during festival season where

large number of people would assemble, is a business expenditure,

therefore, the Assessing Officer is not justified in disallowing the

claim of the assessee.

25 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

Representative, submitted that merely because there was large

voluminous transactions and vouchers, the assessee cannot claim

any expenditure without producing vouchers for examination. The

assessee may at its discretion display any number of banners at

any number of places for promoting its business, however, there

should be some evidence for the expenditure incurred. By

considering the number of vouchers and volume of transaction, the

expenditure claimed by the assessee cannot be allowed.

perused the relevant material available on record. In fact, the

Revenue has no objection for allowing the claim of the assessee

towards advertisement and publicity. However, the assessee has to

establish the actual expenditure incurred for advertisement and

publicity. As rightly submitted by the Ld. D.R., merely because

there are volumes of vouchers and Branches are shifted from one

place to another, that cannot be the reason to claim exemption

without producing vouchers. When the assessee claims

expenditure while computing taxable income, it is the responsibility

of the assessee-bank, a public limited company in which public has

26 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

substantial interest, to produce necessary vouchers before the

Assessing Officer for establishing the payment. If the payments are

not established, this Tribunal is of the considered opinion that the

assessee cannot claim the same as expenditure incurred for the

purpose of business. Therefore, the actual payment needs to be

verified. Therefore, one more opportunity needs to be given to the

assessee for producing necessary vouchers before the Assessing

Officer. Accordingly, the orders of the authorities below are set

aside and the addition made by the Assessing Officer towards

publicity and advertisement expenses are remitted back to the file of

the Assessing Officer. The Assessing Officer shall re-examine the

matter afresh in the light of the material that may be produced by

the assessee and thereafter decide the issue afresh in accordance

with law, after giving a reasonable opportunity to the assessee.

leased assets.

submitted that the assessee claimed depreciation on 18 assets

leased to various persons. In fact, the Assessing Officer allowed

depreciation on 16 assets. The dispute was only with regard to two

27 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

assets. According to the Ld. counsel, for the assessment year

1999-2000, this Tribunal in the assessee's own case in I.T.A.

No.902/Mds/2010, allowed the depreciation.

Departmental Representative, submitted that the assessee claimed

before the Assessing Officer that depreciation has to be allowed in

respect of 18 assets said to be leased out. Even though the

Assessing Officer disallowed the claim of the assessee by an order

under Section 154 dated 12.06.2013, the CIT(Appeals) allowed

depreciation on the leased assets in respect of 16 items to the extent of `18,26,230/-. However, in respect of two items, namely,

the assets leased to M/s Rajender Steels and M/s Aruna Textiles

and Exports Ltd., the depreciation was disallowed. According to the

Ld. D.R., it is for the assessee to establish that the assets were

owned by the assessee and the same were leased out in the course

of its business activity.

perused the relevant material available on record. Admittedly, 18

assets were said to be leased out. Out of which, there was no

dispute with respect to 16 assets. The claim of depreciation now

28 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

only relates to two disputed assets. It is not known the nature of

assets leased out by the assessee. It is also not known when the

assets were purchased by the assessee. For the purpose of

claiming depreciation, first the assessee has to establish that it

owned the assets and used in the business of leasing in the course

of its business activity. The lease agreement was also not

produced by the assessee before this Tribunal. Therefore, this

Tribunal is of the considered opinion that the matter needs to be re-

examined by the Assessing Officer. Accordingly, the orders of the

authorities below are set aside and the issue regarding disputed two

items of asset is remitted back to the file of the Assessing Officer.

The Assessing Officer shall re-examine the matter afresh and bring

on record when the assets were purchased by the assessee and

whether it was leased out in the course of business activity and

thereafter decide the same in accordance with law, after giving a

reasonable opportunity to the assessee.

tax-free income under Section 80M of the Act.

Departmental Representative. It is not in dispute that the

29 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

investment made by the assessee in shares and securities has to

be classified as stock-in-trade. Once the investment was classified

as stock-in-trade, all the expenditure incurred by the assessee has

to be allowed without any restriction. Therefore, this Tribunal is

unable to uphold the orders of the authorities below. Accordingly,

the orders of both the authorities below are set aside and the

disallowance made by the Assessing Officer is deleted.

towards other expenses.

submitted that some expenses were incurred by the assessee at

various Branches. The vouchers were spread across all the

Branches and also Administrative Office and Divisional Offices. In

fact, the assessee requested for some time for production of

vouchers before the Assessing Officer. In the meantime, the

addition was made. According to the Ld. counsel, since the

vouchers were spread across various Branches of the assessee,

the same has to be collected and produced before the Assessing

Officer. The bank is having various statutory controls, therefore,

according to the Ld. counsel, the expenditure incurred by the

30 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

assessee are genuine expenditure, hence, the Assessing Officer is

not justified in disallowing the claim of the assessee.

Departmental Representative, submitted that in fact, the Assessing

Officer requested the assessee to produce all the details and

vouchers and supporting material to claim the expenditure. Since

no such materials were filed, according to the Ld. D.R., the

Assessing Officer disallowed the claim of the assessee and the

CIT(Appeals) has rightly confirmed the addition.

perused the relevant material available on record. The expenses

were said to be incurred by the assessee at various Branches.

Irrespective of the nature of expenditure, when the assessee claims

such expenditure as deduction while computing taxable income, it is

for the assessee to produce some material to substantiate the

expenditure and the purpose for which it was incurred. In the

absence of any material, the assessee cannot blame the Assessing

Officer for disallowance. Since the assessee claims that the

materials were spread across various Branches, this Tribunal is of

the considered opinion that giving one more opportunity to produce

31 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

necessary material before the Assessing Officer would not prejudice

any cause to the interests of the revenue. Accordingly, the orders of the authorities below are set aside and the disallowance of `27,11,945/- is remitted back to the file of the Assessing Officer.

The Assessing Officer shall re-examine the issue afresh after considering the material that may be produced by the assessee and

thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee.

inadmissible deduction. This Tribunal in the assessee's own case allowed the Pooja expenses as revenue expenditure by order dated 17.01.2013. The Ld.counsel further submitted that the Madras High

Court in CIT v. Aruna Sugars Ltd. (132 ITR 718) has also allowed the claim of the assessee.

Departmental Representative, submitted that if the assessee

32 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

incurred the expenditure in the course of its business activity, it has

to be allowed as deduction while computing taxable income. But,

the assessee could not produce any material for incurring the

expenditure so as to claim the same. A mere claim that the assessee has incurred `5,49,911/- as Pooja expenses cannot be

allowed unless some material is produced to substantiate the

expenditure incurred by the assessee. The Ld. D.R. further

submitted that he would not have any objection if the matter is

remitted back to the file of the Assessing Officer in case the

assessee could produce some material before the Assessing

Officer.

perused the relevant material available on record. As rightly

submitted by the Ld. D.R., if the assessee incurred expenditure for

Pooja in the course of its normal business activity, the same has to

be allowed while computing taxable income. However, the

assessee has to produce some material to substantiate the

expenditure incurred. The Assessing Officer disallowed the claim of

the assessee since no material was produced before him.

Therefore, this Tribunal is of the considered opinion that giving one

33 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

more opportunity to produce necessary material before the

Assessing Officer would not prejudice the interests of the revenue.

Accordingly, the orders of both the authorities below are set aside

and the disallowance of Pooja expenditure to the extent of `5,49,911/- is remitted back to the file of the Assessing Officer. the

Assessing Officer shall re-examine the matter afresh in the light of

the material that may be produced by the assessee and thereafter

decide the same afresh in accordance with law, after giving a

reasonable opportunity to the assessee.

submitted that the assessee claimed miscellaneous expenditure

towards presents. However, the same was disallowed by the

Assessing Officer. According to the Ld. counsel, this Tribunal in the

assessee's own case allowed similar expenditure in I.T.A.

No.930/Mds/2011 for assessment year 2004-05 by an order dated

17.01.2013.

34 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

Departmental Representative, submitted that the nature of presents/

gifts is not known. It is also not known who were the recipients of

presents and gifts. In the absence of any material, according to the

Ld. D.R., the CIT(Appeals) has rightly confirmed the addition.

According to the Ld. D.R., the assessee has to establish that certain

expenditure was incurred for offering gifts in the course of its

business activity. In the absence of any material, the claim of the

assessee cannot be allowed.

perused the relevant material available on record. According to the

Ld. counsel for the assessee, the claim of the assessee was

allowed for assessment year 2004-05. These are all factual aspects

which have to be examined by bringing material on record for each

year. Merely because the claim of the assessee was allowed for

assessment year 2004-05 that does not mean that each and every

year such claim has to be allowed without verification. The

Assessing Officer has to satisfy himself that assessee, in fact,

incurred the expenditure in the course of its business activity.

Therefore, this Tribunal is of the considered opinion that the

35 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

assessee has to produce details of presents / gifts and the purpose

for which it was given and the details of recipients. In the absence

of such details, this Tribunal is of the considered opinion that the

matter needs to re-examined by the Assessing Officer. In other

words, giving one more opportunity to the assessee to produce

necessary material would not cause any prejudice to the interests of

Revenue. Accordingly, the orders of the authorities below are set

aside and the disallowance made by the Assessing Officer to the extent of `4,45,425/- is remitted back to the file of the Assessing

Officer. The Assessing Officer shall re-examine the material that

may be filed by the assessee and decide the issue afresh in

accordance with law, after giving a reasonable opportunity to the

assessee.

No.1496/Mds/2013, the first issue arises for consideration is rural

debt written off by the assessee and claimed deduction under

Section 36(1)(vii) of the Act.

written off under Section 36(1)(vii) of the Act. The accounts written

36 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

off as bad debt and claimed deduction under Section 36(1)(vii) of

the Act do not find place in the list of accounts for which the

provision has been made under Section 36(1)(viia) of the Act.

According to the Ld. D.R., the assessee made claim for deduction

both under Section 36(1)(vii) and 36(1)(viia) of the Act. However,

the bank cannot claim deduction for a particular debt under both the

sections. The Ld. D.R. further submitted that the assessee has also

claimed deduction under Section 36(1)(viia) of the Act to the extent of `8,94,11,100/-. Referring to Rule 6ABA of Income-tax Rules,

1962, the Ld. D.R. submitted that the amounts of advances made

by each rural Branch as outstanding at the end of the last day of

each month comprised in the previous year shall be aggregated

separately. The Revenue is placing much importance to the word

“advances made”. However, the assessee is taking advantage of

the word “as outstanding”. According to the Ld. D.R., the amounts

of advances made shall be aggregated separately at the last day of

each month comprised in the previous year. Therefore, according

to the Ld. D.R., the CIT(Appeals) is not justified in allowing the claim

of the assessee.

37 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

the assessee, submitted that Rule 6ABA makes it very clear that the

amounts of advances made by each rural Branch as outstanding at

the end of the last day of each month. Therefore, the Revenue

cannot ignore the word “as outstanding” at the end of the last day of

each month comprised in the previous year. The CIT(Appeals) after

taking into consideration of the provisions of Section 36(1)(vii) and

36(1)(viia) of the Act, found that they are distinct and independent

for claim of deduction. The Ld.counsel further submitted that the

bad debt actually written off in the books of account represents only

the debt arising out of rural advance, therefore, the CIT(Appeals)

has rightly allowed the claim of the assessee under Section

36(1)(vii) and 36(1)(viia) of the Act by placing reliance on the

judgment of Apex Court in Catholic Syrian Bank Ltd. v. CIT (2012)

343 ITR 270.

perused the relevant material available on record. The Ld.

Departmental Representative is placing his reliance on the word

“advances made” in Rule 6ABA of Income-tax Rules, 1962.

However, the Ld.counsel for the assessee is placing reliance on the

38 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

word “as outstanding” at the end of the last day of each month. This

Tribunal is of the considered opinion that Rule 6ABA has to be read

harmoniously by taking into consideration the entire language of the

rule. Therefore, when the amounts of advances were made by

each rural Branch and it was outstanding at the end of last day of

each month has to be considered separately. This was actually

taken by the CIT(Appeals). As rightly observed by the

CIT(Appeals), provisions of Section 36(1)(vii) and 36(1)(viia) of the

Act are distinct and independent for claim of deduction and both of

them operate in different field. The bad debt written off for which

provision was made under 36(1)(vii) of the Act will be covered under

main part of Section 36(1)(vii) of the Act. First proviso will operate

in cases under clause 36(1)(viia) of the Act to limit the extent of

different bad debts or part thereof written off in the previous year

and carried forward balance in the provision of bad and doubtful

debts made under clause 36(1)(viia) of the Act. Therefore, the

proviso, as rightly observed by the CIT(Appeals), would not permit

double deduction with reference to rural loans.

Apex Court in Catholic Syrian Bank Ltd. (supra), found that

39 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

scheduled banks continue to get the benefit of write off of

irrecoverable debts under Section 36(1)(vii) of the Act in order to get

benefit of deduction for the provision for bad and doubtful debts

under Section 36(1)(viia) of the Act. This Tribunal is of the

considered opinion that the CIT(Appeals) has rightly allowed the

claim of the assessee by placing reliance on the judgment of Apex

Court. Therefore, this Tribunal do not find any reason to interfere

with the order of the lower authority and accordingly the same is

confirmed.

category of securities as investment of capital nature.

submitted that the bank has to maintain the portfolio of securities in

three categories, viz. (i) Held to Maturity (HTM); (ii) Available for

Sale (AFS); and (iii) Held for Trading (HFT). Therefore, the

investment in HTM category of securities has to be treated as

investment which is of capital nature. The Ld. D.R. very fairly

submitted that the Madras High Court found that investment in

securities and shares has to be treated as stock-in-trade, therefore,

this issue is covered in favour of assessee.

40 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

the assessee also. According to him, the Madras High Court found

that the investment made by the assessee in shares and securities

has to be classified as stock-in-trade. The CBDT also instructed its

officers to treat all the investments in shares and securities as

stock-in-trade.

perused the relevant material available on record. There are three

categories of securities. Irrespective of nature of securities, as

rightly submitted by the Ld. D.R., the Madras High Court held that it

has to be classified as stock-in-trade. Therefore, this Tribunal do

not find any reason to interfere with the order of the lower authority

and accordingly the same is confirmed.

respect of HFT and AFS categories of securities.

very fairly submitted that the brokerage paid for Held for Trading

(HFT) and Available for Sale (AFS) has to be allowed in view of

judgment of Madras High Court.

41 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

the assessee, also. According to the Ld. counsel, brokerage was

paid in the course of acquiring the securities. Irrespective of

category of securities, according to the Ld. counsel, the same has to

be classified as stock-in-trade, therefore, the expenditure has to be

allowed.

perused the relevant material available on record. As rightly

submitted by the Ld. D.R., the issue is covered in favour of the

assessee by the judgment of Madras High Court. The brokerage

paid by the assessee irrespective of categories of securities has

to be allowed as expenditure. Therefore, this Tribunal do not find

any reason to interfere with the order of the lower authority and

accordingly the same is confirmed.

balances for more than three years.

submitted that there are unclaimed amounts with the assessee-

bank continuously for more than three years. The Revenue has

42 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

taken the same as income as per the provisions of Income-tax Act.

However, the assessee claims that it cannot be treated as income

under the provisions of RBI Act. According to the Ld. D.R., Income-

tax Act, being a special enactment will prevail over the provisions of

RBI Act, therefore, it has to be treated as income of the assessee.

the assessee, submitted that provisions of Section 43D of the Act

provides for preparation of statement as per provisions of RBI Act,

hence, the assessee prepares the statement as per provisions of

RBI Act as provided in Section 43D of the Act. The statement

prepared by the assessee in accordance with provisions of Section

43D of the Act, hence the same has to be allowed.

perused the relevant material available on record. We have also

carefully gone through the provisions of Section 43D of the Act.

Section 43D of the Act provides for preparation of bad or doubtful

debt as per the guidelines issued by Reserve Bank of India. It is not

in dispute that bad and doubtful debts are classified as per the

guidelines issued by Reserve Bank of India. Since Section 43D of

the Act provides for application of guidelines issued by Reserve

43 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

Bank of India, this Tribunal is of the considered opinion that the

assessee cannot be found fault for preparing the bad and doubtful

debts as per the guidelines issued by the Reserve Bank of India.

The matter would stand differently in case Section 43D of the Act

does not provide for such direction as per Reserve Bank of India

guidelines. Since the Income-tax Act, more particularly Section

43D, specifies provision for preparation of bad and doubtful debts

as per guidelines issued by Reserve Bank of India, this Tribunal do

not find any reason to interfere with the order of the lower authority

and accordingly the same is confirmed.

the Assessing Officer towards office building.

submitted that the CIT(Appeals) deleted the addition made to the

office building on the basis of additional evidence filed by the

assessee without calling for remand report. Therefore, according to

the Ld. D.R., the matter may be remitted back to the file of the

Assessing Officer for reconsideration.

the assessee, submitted that there is no addition to the building or

construction of any new building. It is an expenditure incurred during

44 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

the course of business activity in respect of the building, therefore, it

is a revenue expenditure.

perused the relevant material available on record. The ground of

appeal is with reference to addition made to office building. Now,

the Ld.counsel for the assessee claims that there was no

construction of any new building. Therefore, the exact nature of

expenditure has to be verified. Moreover, the CIT(Appeals) allowed

the claim of the assessee without affording any opportunity to the

Assessing Officer. Therefore, the orders of the authorities below

are set aside and the addition made by the Assessing Officer is

remitted back to the file of the Assessing Officer. The Assessing

Officer shall re-examine and bring on record the nature of

expenditure and thereafter decide the issue afresh in accordance

with law, after giving a reasonable opportunity to the assessee.

year 2005-06.

notice under Section 143(2) of the Act.

45 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

submitted that the assessee filed return of income on 05.09.2009.

The time limit expired for issue of notice under Section 143(2) of the

Act on 30.03.2010. In fact, the notice was issued only on

13.10.2010 after expiry of time limit provided under Section 142 of

the Act. Therefore, according to the Ld. counsel, the consequential

order passed by the Assessing Officer is not valid. On a query from

the Bench, when the assessee appeared before the Assessing

Officer and participated in the assessment proceedings, can the

assessee now raise such a kind of claim before this Tribunal in view

of Section 292BB of the Act? The Ld.counsel submitted that he can

very well raise the claim before this Tribunal in view of judgment of

Madras High Court in CIT v. Gitsons Engineering Co. (2015) 370

ITR 87. Therefore, according to the Ld. counsel, the entire addition

made by the Assessing Officer cannot stand in the eye of law.

Departmental Representative, submitted that no doubt, notice under

Section 143(2) of the Act was not issued within the time frame.

However, the assessee has participated without any objection.

Moreover, this ground was not raised before the Assessing Officer

46 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

or CIT(Appeals) and raised first time before this Tribunal.

Therefore, in view of Section 292BB of the Act, the assessee cannot

raise this issue before this Tribunal. The Ld. D.R. further submitted

that the Madras High Court even though framed a question of law,

there was no discussion in the order about Section 292BB of the

Act. Therefore, according to the Ld. D.R., the judgment of Madras

High Court in Gitsons Engineering Co. (supra) is not applicable to

the facts of the case.

perused the relevant material available on record. It is not in

dispute that notice under Section 143(2) of the Act was not issued

within the time frame. The Madras High Court found that issue of

notice under Section 143(2) of the Act within the time limit

prescribed is mandatory and it is not a procedural requirement. We

have also carefully gone through the provisions of Section 292BB of

the Act. A question was framed by the Madras High Court in

Gitsons Engineering Co. (supra). The Madras High Court found

that a non-service of notice under Section 143(2) of the Act was not

an issue before the Assessing Officer. The issue was raised before

the Tribunal for the first time. The Madras High Court found that the

47 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

legal plea raised by the assessee goes into root of the matter,

therefore, the assessee is entitled to raise this issue before the

Tribunal. In view of this judgment of Madras High Court, this

Tribunal is of the considered opinion that even though non-issue of

notice under Section 143(2) of the Act was not raised before the

Assessing Officer or CIT(Appeals), this being a legal issue can be

raised before this Tribunal. Therefore, by respectfully following the

judgment of Madras High Court, this Tribunal is of the considered

opinion that the consequential order passed by the Assessing

Officer cannot stand in the eye of law. Accordingly, the orders of

the authorities below are set aside and the addition made by the

Assessing Officer is deleted.

adjudicate the appeal of the Revenue in I.T.A. No.1527/Mds/2013.

allowed for statistical purposes. I.T.A. No.1341/Mds/2013 is

allowed and I.T.A. No.1527/Mds/2013 is dismissed.

48 I.T.A. Nos.1340 & 1341/Mds/13 I.T.A. Nos. 1496 & 27/Mds/13

Order pronounced on 27th April, 2017 at Chennai.

sd/- sd/- (अ�ाहम पी.जॉज�) (एन.आर.एस. गणेशन) (Abraham P. George) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 27th April, 2017.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. �नधा�रती /Assessee 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT, 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.