M/S. HOUSING & URBAN DEVELOPMENT CORPORATION LTD.,NEW DELHI vs. ADDL. CIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘C’: NEW DELHI BEFORE H.S. SIDHU, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER Sl. No. ITA Nos. Assessment Years 1. 4303/Del/2009 2004-05 2. 1166/Del/2012 2005-06 3. 1167/Del/2012 2006-07 4. 1168/Del/2012 2007-08 5. 3365/Del/2013 2008-09 6. 3366/Del/2013 2009-10 Housing and Urban Development Vs. DCIT/Addl. CIT, Circle-12(1), Corporation Ltd. (HUDCO), New Delhi Hudco Bhawan, Lodhi Road, New Delhi (PAN: AAACH0632A) (Appellant) (Respondent)

And ITA Nos. 1561 & 1562/Del/2012 Assessment Years: 2006-07 & 2007-08 ACIT, Circle-12(1), New Delhi Vs. Housing and Urban Development Corporation Ltd. (HUDCO), Hudco Bhawan, Lodhi Road, New Delhi (PAN: AAACH0632A) (Appellant) (Respondent)

Appellant by S/sh. Ankur Goel & Suyash Sinha, Advocates Respondent by Sh. A.K. Saroha, CIT (DR) Date of hearing 10.12.2015 Date of pronouncement 09.02.2016

2 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. ORDER PER O.P. KANT, A.M.: These appeals of the assessee and the cross appeals of the Revenue are in respect of different appellate orders passed by learned Commissioner of Income Tax (Appeals) for assessment years 2004-05 to 2009-10. 2. Most of the grounds raised in the appeals for different assessment years are identical to the grounds raised in assessment year 2005-06, thus both the parties agreed that the decision in this appeal will apply mutatis mutandis on the identical grounds raised in other assessment years. Accordingly, all the appeals are heard together and disposed by a consolidated order. First we take up the appeal no. 1166/Del/2012 for assessment year 2005-06 as the lead case. ITA No. 1166/Del/2012 for AY 2005-06 3. The grounds of appeal raised in the instant appeal are as under: 1) The learned Commissioner of Income Tax(Appeals) has erred in fact and in law by not deleting the addition made by learned Assessing Officer an amount of Rs. 15,75,000/- being administrative charges on Andrews Ganj Project. 2) The learned Commissioner of Income Tax(A) has erred in fact and in law by not deleting the addition made by learned Assessing Officer an amount of Rs. 65,00,000/- being prior period expenditure. 3) The learned Commissioner of Income Tax(Appeals) has erred in fact and in law by not deleting the addition made by Learned Assessing Officer an amount of Rs. 30,20,512/- being depreciation on estimated increase in cost of properties. 4) The learned Commissioner of Income Tax(Appeals) has erred in fact and in law by not deleting the addition made by learned Assessing Officer an amount of Rs. 3,07,77,527/- being financial charges written off. 5) The learned Commissioner of Income Tax(Appeals) has erred in fact and in law by not deleting the addition made by Learned Assessing Officer an amount of Rs. 3,27,500/- being disallowance u/s 14A of the Act.

3 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. 6) The learned Commissioner of Income Tax(Appeals) has erred in fact and in law by not deleting the addition made by learned Assessing Officer an amount of Rs. 27,06,74,237/- being revenue de-recognition in the accounts. 7) The learned Commissioner of Income Tax(Appeals) has erred in fact and in law by not deleting the addition made by learned Assessing Officer an amount of Rs. 4,30,19,888/- being income on account of wrong appropriation. 8) The learned Commissioner of Income Tax(Appeals) has erred in fact and in law by not deleting the addition made by learned Assessing Officer an amount of Rs. 1.25 Crores on account of Change in method of Accounting. 9) The learned Commissioner of Income Tax(Appeals) has not considered the submission that the mistakes were found after filing of the original return and these mistakes are covered u/s 139(5) of the act. 10) That the appellant craves to add, delete or modify any grounds of appeal at time of hearing. 4. The facts in brief are that the assessee company is a public sector undertaking engaged primarily in providing long term finance for construction of houses for residential purposes or undertake housing and urban development programmes in the country. For the year under consideration, the assessee company filed its return of income declaring total income of Rs. 496,24,42,636/- on 28.10.2005 ,which was processed under Section 143(1) of the Income-tax Act, 1961 (for short “the Act”) and the case was selected for scrutiny through notice dated 07.08.2006 issued under Section 143(2) of the Act. Subsequently, the assessee filed a revised return of income on 27.10.2006 declaring income of Rs. 491,12,38,624/-. The assessment was completed by making various additions against which the assessee filed an appeal before the ld. Commissioner of Income Tax (Appeals). Aggrieved by the decision of the ld. Commissioner of

4 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. Income Tax (Appeals) on various grounds raised, the assessee is in appeals before us.

5 In ground no. 1, the assessee challenged the addition made by the ld. Assessing Officer amounting to Rs. 15,75,000/- and upheld by the ld. Commissioner of Income Tax (Appeals) in respect of administrative charges on ‘Andrews Ganj Project’ executed by the assessee for the Ministry of Urban Development, Government of India. The ld. Assessing Officer noticed from Schedule J of the balance-sheet that in the year under consideration, work of Rs. 10.5 crores was executed by the assessee in respect of the ‘Andrew Ganj Project’ and as per the terms of the allotment of project, the assessee was to be reimbursed the cost of the project, interest on the funds utilized on the project and 1.5% of the project cost as administrative charges but no income from administrative charges was shown by the assessee, in the year under consideration . The ld. Assessing Officer further noticed that in assessment year 2001-02, the assessee reversed the administrative charges stating that after completion of the commercial portion of the complex, no further administrative charges were payable to the assessee by the Ministry of Urban Development. According to the ld. Assessing Officer, the administrative charges were intended to cover overhead expenses in relation to the entire project done and not restricted to the commercial projects only. Following the stand taken by the ld. Assessing Officer in assessment year 2002-03 and 2003-04, he added

5 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. administrative charges at the rate of 1.5 percent. of the project cost of Rs. 10.5 crores amounting to Rs. 15.75 lakhs to the income of the assessee. The learned Commissioner of Income Tax (Appeals) following the decision of ld. Commissioner of Income Tax (Appeals) in assessment year 2004-05, upheld the addition of Rs. 15.75 lakhs. 5.1 Before us, the learned Authorized Representative ( in short ‘AR) submitted that this issue travelled to the Hon’ble High Court in assessment year 2002-03 and the Hon’ble High Court in judgement dated 27.10.2014 in ITA No. 339/2004, decided the issue in favour of the assessee. He further submitted that as there was no accrual of income, the Government of India had not agreed to pay any overhead expenses or administrative charges at the rate of 1.5 percent. in respect of residential quarters at ‘Andrews Ganj Complex’, New Delhi. The ld AR further submitted that the issue being duly covered in favour of the assessee, the addition made by the Assessing Officer be deleted. 5.2 The learned Commissioner of Income-tax (Departmental Representative) [ in short ‘CIT(DR)’], on the other hand, requested to restore the matter to the ld. Assessing Officer for verification whether any such payment was granted to the assessee by the Ministry of Urban Development. 5.3 We have heard the rival submissions and perused the material on record. The assessee had undertaken construction of the Andrew Ganj Project awarded to it by the Ministry of Urban Development, Govt. of India. The project included a community centre and general pool residential flats. The ld. Assessing Officer

6 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. in assessment year 2002-03 held that the assessee was entitled to overhead charges at the rate of 1.5 percent. not only in respect of cost of construction of the community centre but also on the cost of construction of residential flats, but according to the assessee, the overhead administrative charges were limited to the Community Centre and thus after completion of Community Centre no administrative charges were credited. We have noted that the issue in dispute in assessment year 2002-03 has travelled upto the Hon’ble High Court. The relevant paragraphs i.e. 8 to 11 of the aforesaid judgement are reproduced as under: “8. In light of the aforesaid submissions and noting the minutes of the meeting, while issuing notice on 11th July, 2014, we had asked the counsel for the Revenue to verify the factual position and inform the Court whether the assessee had at any time received administrative expenses @ 1.5% in relation to the residential quarters from the Government of India. We had also recorded the submission of the assessee that the assessee never received 1.5% as administrative expenses for construction of the residential quarters. 9. During the hearing today, learned counsel for the respondent-Revenue has filed before us a letter dated 25th September, 2014 of the Assessing Officer, accepting and admitting that on verification it has been ascertained that overhead charges were leviable by the assessee only in respect of Andrews Ganj community centre and not on the development of residential flats at the Andrews Ganj Project. The said letter has been kept on record. 10. Normally, we would have remanded the case to the Tribunal for fresh decision in the light of the minutes of meeting held on 7th September, 1995, but in view of the facts now elucidated and accepted by the Revenue, we are not inclined to pass an order or remit. It would be a formality. It is an accepted position that the appellant-assesee had never received 1.5% administrative expenses in respect of the residential quarters in Andrews Ganj project. Clearly, therefore, the stand of the appellant-assessee that the notes of the meeting held on 7th September, 1995 related to the development of community centre complex at Andres Ganj, New Delhi and not to residential quarters is correct. The aforesaid

7 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. document has been misread. There was no accrual of income in case the Government of India had not agreed to pay any overhead expenses or administrative charges @ 1.5% in respect of residential quarters at Andrews Ganj Complex, New Delhi. 11. The question of law is accordingly answered in favor of the appellant- assessee and against the Revenue. Addition of Rs. 35,57,615/- is deleted. The appeal is disposed of. In facts of the case, there is no order as to costs.” 5.4 During the year under consideration, the assessee has executed work of Rs. 10.50 crores in respect of ‘Andew Ganj project’, but there are no specific findings of authorities below that the work executed was related to community centre or towards residential project. If the work executed is not in respect of Community Centre, then addition cannot be sustained following the judgment of the Hon’ble High Court in the case of assessee itself in ITA No. 339/2014, dated 27th October, 2014. Accordingly, in the interest of natural justice, we feel appropriate to restore the matter to the file of the ld Assessing officer for verification of the fact as to whether the work executed during the year on the ‘Andew Ganj project’ included any work towards Community Centre and if the answer is negative, no addition is warranted on the issue in dispute. Thus, we allow this ground of appeal for statistical purpose. 6. In ground no. 2, the assessee has challenged the disallowance of prior period expenditure of Rs. 65 lakhs made by the ld. Assessing Officer and confirmed by the ld. Commissioner of Income Tax (Appeals). The ld. Assessing Officer held that the assessee was following mercantile system of accounting and no evidence that the said expenses crystallized in the year under

8 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. consideration was submitted, therefore, he disallowed the said prior period expenses. Before, the ld. Commissioner of Income Tax (Appeals), the assessee submitted the details of the expenses under various heads, like, salary & allowance (Rs.7.0 lakhs), repair and maintenance (Rs. 9.0 lakhs), publicity (Rs. 1.0 lakh), interest on drawings (Rs.42.0 lakhs), Reset charges (Rs. 1.0 lakh) and other expenses (Rs. 5.0 lakhs). Further, the assessee submitted that it had also accounted for prior period income of Rs. 712 lakhs, and thus, the assessee has offered net prior period income of Rs. 647 lakhs. However, the ld CIT(A) following the finding of the ld. CIT(A) in assessment year 2004-05, sustained the disallowance. 6.1 Before us, the ld. AR submitted that on the identical issue in the case of assessee for assessment year 2002-03, the Tribunal has restored the matter to the file of Assessing Officer for verification whether those expenses crystallized in the year under consideration. 6.2 The ld. CIT (DR), on the other hand, relying on the order of the ld CIT(A) submitted that the assessee failed to establish whether those expenses actually accrued or crystallized in the year under consideration. 6.3 We have heard the rival submissions and perused the material on record. This issue is squarely covered by the decision of the Tribunal in the case of the assessee itself in ITA No. 686/Del/2006 for assessment year 2002-03, wherein the Tribunal has held as under:

9 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. “10. We have carefully considered the submission of both the sides and perused the material placed before us. It is a settled law that when the assessee is following mercantile system of accounting, the prior period expenses can be allowed in the subsequent year in which such expenses have crystallized. However, we find that none of the lower authorities had examined this aspect. In fact, the assessee has also not given complete details of the prior period expenses and has not explained how such expenses have crystallized during the accounting year relevant to the assessment year under consideration. In view of the above, we set aside the orders of lower authorities on this point and restore the matter to the file of the Assessing Officer. We direct the assessee to furnish complete details of prior period expenses of Rs. 1,45,000/- and also explain how the same have crystallized during the accounting year relevant to assessment year under appeal. Thereafter, the Assessing Officer will examine the issue afresh in accordance with law and will pass a speaking order thereon.” 6.4 Respectfully, following the above decision, we restore the matter to the file of the Assessing Officer and direct the assessee to furnish complete details of prior period expenses of Rs. 65 lakhs and explain the crystallization of the expenses in the year under consideration. The Assessing Officer is directed to examine the issue afresh in accordance with law and pass speaking order thereon. Accordingly, this ground of appeal is allowed for statistical purposes. 7. In ground no. 3, the assessee has challenged the disallowance of depreciation of Rs. 30,20,512/- on estimated increase in cost of properties on account of stamp duty. The ld. Assessing Officer observed that the estimated cost at the rate of ten percent towards stamp duty/ registration charges in respect of the properties where lease/sub-lease was yet to be executed, was included in the cost of properties and depreciation on the said estimated cost was claimed by the assessee. The ld. Assessing Officer held that estimated increase in the value of the asset on account of stamp duty/registration charges not paid by the

10 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. assessee, was a notional sum and not part of actual cost and therefore, he disallowed the claim of Rs. 30,20,512/-, following the stand of the Revenue in earlier years. Before the ld. Commissioner of Income Tax (Appeals), the assessee submitted that the said claim was made in accordance with the advice of the C & AG Auditors and the practice was started from FY 2001-02 when a provision of Rs. 510.12 lacs was made for 32 properties valuing Rs. 5101.21 lacs for which lease deeds were yet to be executed. Further, the assessee submitted before the ld. CIT(A) that the company was making payment of such liability in subsequent years. The ld. CIT(A) following the decision of the ld. CIT(A) in assessment year 2004-05, sustained the disallowance. 7.1 Before us, the ld. AR submitted that the liability of the stamp duty being an ascertained liability, it was duly allowable in the year under consideration. He further relied on the judgment of the decision of Hon’ble Supreme Court in the case of Rotork Controls India (P.) Ltd. Vs. Commissioner of Income Tax (2009) 314 ITR 62 (SC) and submitted that all the three elements mentioned in the said judgement, which constitute recognition of a provisional liability, were present in the case of the assessee. 7.2 On the other hand, ld. CIT (DR) relying on the findings of the ld. CIT(A) submitted that the charges on which the depreciation has been claimed are in the nature of cost of improvement to the property and should be considered for depreciation at the time of payment only.

11 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. 7.3 We have heard the rival submissions and perused the material on record. The assessee has placed reliance on the judgment of Rotork Controls India (P.) Ltd. Vs. Commissioner of Income Tax (supra). In that case the assessee made a provision on account of warranty claims likely to arise on the sales effected by the assessee and to cover up that expenditure. The claim was allowed by the Hon’ble Court following matching concept of income and expenditure, according to which, if revenue is recognized , the cost incurred to earn that revenue including warranty costs has to be fully accounted for. The obligation of provision in that case was as a result of past events of claims. In the case of present assessee, the estimation is not as result of any past historical events. Thus, according to us the ratio of the said judgements is not applicable to the facts of the assessee. In the case of the assessee, claim of depreciation on the value of properties has been duly allowed by the ld. Assessing Officer, however, he has only denied depreciation on stamp duty and registration charges in respect of these properties, which have not been registered during the year. To address the controversy, it is important to refer the relevant provision of the Act. The depreciation is governed by the provisions of section 32 of the Act, which reads as under:

“32. (1) In respect of depreciation of— (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998,

12 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed— (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed” …………………………………………………………………………………………………………………………………………………….” 7.4 In the facts of the case, the immovable properties owned by the assessee constitute a block of asset and the assessee is entitled to claim depreciation on written down of the block of asset at the rate prescribed in Income-tax Rules. Thus to compute the depreciation three things should be identified. The first is the Block of Asset, second, the written down value of Block of Asset and third the rate of depreciation. In the present case, there is no dispute as to the rate of depreciation. Further, the block of assets has been defined in section 2(11) of the Act as group of assets falling within a class of assets in respect of which same percentage of depreciation is prescribed, and thus there is no dispute as what is block of assets in case of Immovable properties, because any property purchased during the year will get added to the block and property sold will be eliminated from the block. Now, the only issue of dispute left in the case of the assessee is what should be the written down value of the block of asset of immovable properties and whether the stamp duty and registration charges estimated at the rate of ten percent. is part of written down value of the block of asset. The written down value has been defined in section 43(6) of the Act as under:

13 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. “43(6) "written down value" means— (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under any executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force:” ……………………………………………………………………………………………………” 7.5 Further, the actual cost has been defined in section 43(1) of the Act as under:

“43. In sections 28 to 41 and in this section, unless the context otherwise requires— (1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority:” 7.6 Thus, the dispute finally left with us for determination is whether estimated stamp duty or registration not paid during the year can be part of actual cost or not. The ordinary dictionary meaning of the word “actual” is ‘existing in fact’ or ‘fact as opposed to imaginary or past state of things’. The dictionary meaning of the word cost is what is laid out or suffered to obtain anything. The Hon’ble High Court of Bombay in the case of Habib Hussain Vs. CIT reported in 48 ITR 859 and the Hon’ble High Court of Calcutta in the case of CIT Vs Lothian Jute Mills Co Ltd reported in 66 ITR 630 has defined the actual cost to the assessee as what the assessee has in fact, expended, or laid out for the purpose of acquiring the asset. In the facts of the case the actual cost of the properties acquired on the basis of agreements can’t include the stamp duty

14 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. or registration charges estimated at the rate of ten percent as same have not been expended or laid out during the year, accordingly, no depreciation on estimated stamp duty or registration charges can be allowed. In case of properties acquired on agreement, the assessee has treated its transfer as completed and the cost till the transfer of property is the actual cost for the purpose of block of assets. If the assessee incurs any cost subsequent to the completion of transfer of property, whether it is for stamp duty or registration charges, it will be an addition to the asset when actually incurred. The stamp duty and registration charges are levied according to the rates prevalent at time of registration, and when that event will happen is not certain in the case of the assessee and thus claiming depreciation on the basis of prior estimate of cost to the asset is not justified. 7.7 Further, ld. CIT(DR) stated that identical disallowances were made by the ld. AO in AY 2002-03 and 2003-04 and same were confirmed by the ld CIT(A) but the issue was not challenged by the assessee before the Tribunal in those years, and thus the rule of consistency requires that the assessee should not have challenged the issue in current year, once it has accepted the position in earlier years. 7.8 In view of above discussion, we uphold the disallowance of claim of the depreciation on estimated stamp duty or registration. Accordingly, the ground of the appeal is dismissed. 8. In ground no. 4, the assessee has challenged the disallowance of financial charges written off of Rs. 3,07,77,527/-, claimed in the computation of income.

15 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. According to ld. Assessing Officer the expenses were towards issue of bonds, debentures, term loans etc., and therefore he held the expenses as capital in nature being for the purpose of extension of business of the assessee, in view of the judgment of the Hon’ble Supreme Court in the case of Brooke Bond India Vs. Commissioner of Income Tax, (1997) 225 ITR 798, and therefore not allowable. Before the learned Commissioner of Income Tax (Appeals), the assessee claimed that it was a non-banking financial institution engaged in providing long term finances for housing projects and urban development and for this purpose, the assessee raised funds by way of issue of bonds, debenture, deposits, loans in advance from various sources and agencies. However, learned Commissioner of Income Tax (Appeals) following the decision of learned Commissioner of Income Tax (Appeals) in assessment year 2004-05 sustained disallowance of Rs. 3,07,77,527/- as under: “I have gone through the assessment order and the written submission of the appellant and the case law cited. The ITAT for the A/Y 1996-97, set aside the issue to the file of AO with a direction to examine whether assessee’s case is covered by the provision of Section 35D or not. If the case is not covered by section 35D of the Act, the claim can be examined under Section 37 of the Act. The AO will examine the case afresh and decide the issue as per law after affording the assessee an opportunity of being heard. Refer page no.9 of ITAT order dated 31.08.2007. However, for assessment year 2004-05 the CIT, Appeal-XII, in appeal No. 71/07-08 dated 15.07.2009 has held “ while making the said disallowance Assessing Officer has observed that funds raised by the assessee are of fixed tenure and therefore the assessee amortized the expenditure for raising the funds over the tenure of the funds raised by it on pro-rata basis in its books of accounts. The assessee received benefit on the expenditure incurred by it over the tenure of loans/bonds and therefore the expenditure also should be spread over the tenure of loans/bonds. He then proceeded to make the said disallowance observing that:

16 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. The claim of finance charges made by the assessee amounting to Rs. 20,25,06,417/- is hereby disallowed. However, the amortized part of these expenses, which was claimed by the assessee itself in its books of accounts amounting to Rs. 15,67,86,815/- is allowed to the assessee. The excess deduction claimed by the assessee amounting to Rs. 4,57,19,602/- is hereby disallowed and added to the income of the assessee.” In view of the order of the CIT(A) for assessment year 2004-05 and findings of the Assessing Officer, I sustain the disallowance of Rs. 3,07,77,527/-. Appeal on this ground is dismissed. 8.1 The ld. AR submitted that the issue in dispute was restored back to the ld Assessing Officer by the Tribunal for assessment years 2002-03 and 2003-04. The learned CIT(DR), on the other hand, relied on the order of the lower authorities. 8.2 We have heard the rival submissions and perused the material available on record. Consistent with the view taken in paragraph 16 the order of the Tribunal for assessment year 2002-03 in ITA No. 686/Del/2006 and paragraph 10 of the order for assessment year 2003-04 in ITA No. 687/Del/2006 in the assessee’s own case, we restore the matter to the file of Assessing Officer for fresh adjudication in accordance with law. In the result, this ground of appeal is allowed for statistical purposes. 9. Ground no. 5 is regarding the issue of disallowance of Rs. 3,27,500/- under Section 14A of the Act. The ld. Assessing Officer observed that the dividend income of Rs. 13,10,000/- was claimed as exempt by the assessee, however, no expenses corresponding of the same was disallowed by the assessee under Section 14A of the Act. The explanation of the assessee was that no

17 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. expenses were incurred actually for earning the income, was not accepted by the ld. Assessing Officer and he disallowed 25% of the dividend income of Rs. 13,10,000/-, which amounts to Rs. 3,27,500/-. The learned Commissioner of Income Tax (Appeals) following the decision of ld CIT(A) in assessment year 2004-05 in the assessee’s own case, sustained the addition. 9.1 The ld. AR submitted that in assessment years 2004-05 and 2005-06, no dissatisfaction as to the correctness of the claim of the assessee was recorded by the ld. Assessing Officer and therefore, ad-hoc disallowance of twenty five percent of the expenses by the ld. Assessing Officer was not justified. He further submitted that the issue in assessment years 2002-03 and 2003-04 has been restored to the Assessing Officer by the Tribunal following the decision of Jurisdictional High Court in the case of Maxopp Investment Ltd. and Ors. Vs. Commissioner of Income Tax, 347 ITR 272. 9.2 The ld. CIT (DR), on the other hand, submitted that it was not possible to earn the exempt income without incurring any expenses and, therefore, dissatisfaction was implied when the Assessing Officer made the disallowance. He further submitted that even for years prior to assessment year 2008-09 also, Rule 8D can be a guiding principle for disallowance of the expenses under Section 14A of the Act. 9.3 We have heard the rival submissions and perused the material on record. The ld Assessing Officer asked the assessee to provide details of the expenses incurred for earning the dividend income and the assessee submitted that no

18 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. expenditure was incurred for earning the said dividend income. Thereafter, he recorded that submission of the assessee was not acceptable. In our opinion, thus, the recording of the said finding is a clear manifestation that the ld Assessing Officer was dissatisfied with the correctness of the claim of the assessee. The relevant finding of the ld Assessing officer is reproduced as under: “From a plain reading of the section it is amply clear that section 14A covers all cases relating to income which is not part of total income i.e. tax free income. To attract the provisions to section 14A, the only condition that needs to be fulfilled is that the income should be exempt. So long as the income thereon is tax-free, the expenditure cannot be allowed as a deduction in the computation of income of the assessee. Therefore, any expenditure for earning exempt income is not allowable under Section 14A. In view of the above, the assessee was asked to give details of expenses incurred by it for earning the dividend income. The assessee has submitted that no expenditure has been incurred by it for earning the same. The submission of the assessee is not acceptable. There are always some expenses related to earning an income. Even the decision of keeping an investment for long period is taken after due deliberation and opinion of the management at the higher level. Further, the assessee is raising borrowed funds for its business and maintaining the investment portfolio on which the dividend is earned has its own cost. Therefore, the expenses on earning exempt income would include interest and administrative expense. Since, there is no segregation of expenses related to investment/earning of exempt income, the expenditure relating to earning the exempt income is estimated at 25% of the exempt income. In this regard, reliance is placed on the decision of the Hon’ble Supreme Court in the case of United General Trust Pvt. Ltd. (1993) 200 ITR 488. Here, 25% of dividend income of Rs. 13,10,000/- is disallowed under Section 14A and is added to the declared income. Since the assessee has filed incorrect particular of its income, penalty proceedings under Section 271(1)(c) have been initiated separately. (Addition of Rs. 3,27,500)

19 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. 9.4 Once, the condition of dissatisfaction is fulfilled; the issue left before us is to decide the quantum of disallowance. We have seen that in assessment years 2002-03 and 2003-04 the matter has been restored to the ld. Assessing Officer by the Tribunal following the decision of Jurisdictional High Court in the case of Maxopp Investment Ltd. and Ors. Vs. Commissioner of Income Tax (supra). Accordingly for the year under consideration also, we restore the matter to the file of the Assessing Officer for adjudication with the direction to decide the issue in view of the judgement of Jurisdictional High Court in the case of Maxopp Investment Ltd. and Ors. Vs. Commissioner of Income Tax(supra). Accordingly, this ground of appeal is allowed for statistical purposes. 10. Ground no. 6 relates to disallowance of Rs. 27,06,74,237/- being revenue de-recognition of the interest corresponding to bad and doubtful debts called as non-performing assets (NPAs) in banking terminology, by the Assessing Officer. The assessee claimed deduction of interest of Rs. 54,13,48,468/-, accrued on classified non-performing assets (NPAs), according to the guidelines of National Housing Banks issued with effect from 31.03.2005 . In the said guidelines, the debts or loan in respect of which interest has not been received beyond a period of more than 90 days, was held as non-performing assets, whereas according to the ld Assessing Officer in view of Section 43D r.w.r. 6EB of the Income Tax Rules, 1962, where interest in respect of a debt or loan was due for more than 6 months, that loan was to treated as non performing asset (NPA) and interest corresponding to such NPA was only to be considered for

20 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. deduction for non-recognition of the interest income. The Assessing Officer held that NPA was to be classified as per Rule 6EB of the Rules and not as per the amended guidelines of the National Housing Banks, which were made effective from 31.03.2005. Further in the absence of any detailed working given by the assessee, he allowed 50% of the revenue de-recognition of Rs. 54,13,48,468/- and balance amount of Rs. 27,06,74,234/- was disallowed and added back to the income of the assessee. The ld. Commissioner of Income Tax (Appeals) agreed with the findings of the ld. Assessing Officer, therefore, he sustained the addition. 10.1 The ld. AR submitted that the interest on non-performing assets was recognized by the assessee following the recent guidelines of the National Housing Banks made effective from 31.03.2005. Though, the Rule 6EB of the Rules has been made on the basis of guidelines of the National Housing Banks only, but the Rule 6EB was not amended, despite the renewed guidelines issued by the National Housing Banks with effect from 31.03.2005. He further submitted that in assessment year in consideration i.e.2005-06, the Assessing Officer has disallowed 50% of deduction claimed by the assessee against such interest de-recognized, which was confirmed by the ld. Commissioner of Income Tax(Appeals). He further submitted that in assessment years 2006-07 and 2007- 08, the Assessing Officer has disallowed 100% of deduction claimed against interest de-recognized, however, the ld Commissioner of Income Tax (Appeals) has restricted the disallowance to 50% and in assessment years 2008-09 and

21 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. 2009-10, the Assessing Officer made 100% disallowance on such interest de- recognized and the Commissioner of Income Tax (Appeals) has also upheld the entire disallowance made by the Assessing Officer. 10.2 The ld. AR further submitted that this was not a case where the interest was not recognized, or not credited but it was claimed as deduction as per the guidelines of the National Housing Banks. Further, he submitted that the assessee was following consistent method of accounting and something which is not accrued cannot be brought to the tax by the tax authorities. He further submitted that Rule 6EB has been framed as per the old guidelines of the National Housing Banks, where interest in respect of NPAs more than 180 days, was to be de-recognized. Though, the National Housing Banks has issued new guidelines for de-recognizing the interest from NPAs for more than 90 days, however, no corresponding amendment has been carried out by the Central Board of Direct Taxes (CBDT) in Rule 6EB of the I.T. Rules. He further submitted that this being a beneficial provision, the assessee should have been allowed deduction. He further submitted that section 43D of the Act itself says that the Rule have to be made as per the National Housing Banks Guidelines and therefore, the claim of the deduction by the assessee was in order. He further relied in the case of Commissioner of Income Tax Vs. Canfin Homes Ltd., 374 ITR 382, which has been further followed in the decision of Hon’ble Karnataka High Court in the case of Commissioner of Income Tax Vs. Urban Cooperative Bank Ltd. in ITA No. 471 of 2013, decided on 30th June, 2014. The ld. AR

22 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. further submitted that without prejudice to the above, disallowance should not be made on ad-hoc basis and it should have been made after proper analysis of the account of the assessee. 10.3 On the other hand, ld. CIT(DR) submitted that the assessee had not approached the CBDT for amendment of Rules as also the assessee did not cooperate with the Assessing Officer in furnishing the details. 10.4 We have heard rival submissions and perused the material on record. In this regard, it is important to reproduce the relevant part of the section 43D of the Act as under:

“43D. Notwithstanding anything to the contrary contained in any other provision of this Act,— (a) in the case of a public financial institution or a scheduled bank or a State financial corporation or a State industrial investment corporation, the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts; (b) in the case of a public company, the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the National Housing Bank in relation to such debts, shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or the State financial corporation or the State industrial investment corporation or the public company to its profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier.” 10.5 On perusal of the clause (b) of the section we notice that the assessee was having an option of recognizing the interest income on accrual or cash basis from prescribed category of nonperforming assets (bad and doubtful debt). This category was prescribed by the CBDT in rules 6EB of the Income-tax Rules,

23 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. having regards to the guidelines issued by the National Housing bank in relation to such debts. Till assessment year the 2004-05, the debts or loan where interest was not received for a period more than 180 days used to be treated as prescribed category of assets under Rule 6EB of the Rules, as per guidelines of NHB. But with effect from AY 2005-06, the NHB revised its norms of period of days to 90 but the period as per Rule 6EB remained un-amended to 180 days. Further, we find that the judgment of the Hon’ble Karnataka High Court in the case of Canfin Homes Ltd. (supra) was in respect of assessment year 1996-97, which was prior to the introduction of Rule 6EB, but, in subsequent decision in the case of Urban Cooperative Bank Ltd. (supra), the Hon’ble Karnataka High Court has upheld the judgment of Canfins Homes Ltd (supra). But we find that in the judgement of Urban Cooperative Bank Ltd limited question was whether the interest from NPAs should be assessed on accrual or cash basis and Hon’ble Court has upheld that it should assessed on cash basis. But in present case is whether the interest corresponding to NPAs where interest is not received for a period beyond period of 90 days or NPAs where interest is not received for a period beyond period of 180 days should be assessed on cash basis. Thus the ratio of the cited judgments is not applicable over the facts of the present case. The issue in dispute has been discussed at length by the Tribunal Mumbai Bench on 9th February,2011 in the case of GIC Housing Finance Ltd Vs Addl CIT in ITA No. ITA NO.1874/MUM/2010(A.Y. 2006-07) the relevant findings of which are as under:

24 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. “15. The legislature having laid down the broad principles of its policy in Sec.43D(b) of the Act, has left the details to be supplied by the rule making authority. What is delegated to the rule making authority is the power to determine, the debts which can be considered as bad and doubtful, interest income on which can be considered as not having accrued, to an Assessee following mercantile system of accounting. In doing so, the rule making authority has been directed to have regard to the guidelines issued by the NHB in relation to such debts. Section 43D of the Act, does not mandate the rule making authority to follow the guidelines issued by the NBH in relation to bad and doubtful debts. In exercise of such power the rule making authority has enacted Rule 6EB of the Rules. The rule so enacted originally was in conformity with the guidelines issued by NHB. The guidelines were revised by NHB in the year 2004 but the rule making authority did not think it fit to revise the rules to be in conformity with the revised guidelines. In our view it cannot be said that the guidelines of the NHB as and when they are revised have to be treated by implication incorporated in Rule 6EB of the Rules. NHB is not the rule making authority for the purposes of Sec.43D of the Act. The discretion is left to the rule making authority to follow or not follow the guidelines of NHB as and when they are revised. The purpose of classification of debts as bad and doubtful by the NHB and the purpose of not recognising interest income for the purposes of the Act, are different. The considerations that weigh with the relevant authorities are also different. Therefore it cannot be said that the rule making authority under the Act has to automatically follow the guidelines of NHB as they exist from time to time. In that view of the matter, we cannot agree with the submission of the learned counsel for the Assessee, that the guidelines issued by the NHB, has to be read as part of Sec.43D of the Act. We cannot also agree that the expression “Having regard to” used in Sec.43D of the Act, means that the rule making authority should amend the rules as and when the guidelines of NHB are revised or that we have to read the guidelines of NHB as part of Sec.43D of the Act. 16. We have also considered the decisions relied upon by the learned counsel for the Assessee. In the case of Dellhi Farming and Construction (P) Ltd.(supra) and RajeshKumar and others (supra), the expression “having regard to” was considered to have a broader meaning because of the discretion inherently necessary in discharge of the power. In fact the decisions seem to suggest that the rule making authority in the present case, need not be bound by the guidelines of NHB and can take into other considerations while prescribing, what are the criteria for determining what are bad and doubtful debts for the purpose of Sec.43D of the Act. The decision in the case Bombay State Transport Corporation (supra) is a case where there was conflict between the rules and the Act and as

25 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. rightly submitted by the learned D.R. that decision is not of any assistance to the plea of the Assessee before us. 17. The next aspect which needs to be considered is as to whether on the facts and circumstances of the case even de hors Sec.43D can it be said that no income accrued to the Assessee and can it be said that by applying the real income theory the interest income in question cannot be brought to tax. In this regard at the outset we have to bear in mind that accrual under the mercantile system of accounting depends on the legal right to receive and the inability of the debtor to make payment will have no effect on the legal right of the creditor to receive. In State Bank of Travancore (Supra), the Hon’ble Supreme Court had to deal with accrual of income in the context of interest on bad or doubtful debts in the case of Banks. The facts were that the assessee which was a subsidiary of the State Bank of India maintained accounts on mercantile system making entries on accrual basis. It adopted the calendar year as its previous year and the calendar years 1964, 1965 and 1966 for which assessment years 1965-66, 1966-67 and 1967-68 were the relevant A.Y. In the course of its banking business, the assessee charged interest on advances considered doubtful of recovery, otherwise called sticky advances, by debiting the concerned parties but instead of carrying it to its profit and loss account credited the same to a separate account styled "Interest Suspense Account" as the principal amounts of these sticky advances themselves had become, not bad or irrecoverable but extremely doubtful of recovery. However, in its returns, the assessee disclosed such interest separately and claimed that the same was not taxable in its hands as income for the concerned years. The Hon’ble supreme Court on the taxability of interest income on accrual basis held as follows: “1) It is the income which has really accrued or arisen to the assessee that is taxable. Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. (2) The concept of real income would apply where there has been a surrender of income which in theory may have accrued but in the reality of the situation, no income had resulted because the income did not really accrue. (3) Where a debt has become bad, deduction in compliance with the provisions of the Act should be claimed and allowed. (4) Where the Act applies, the concept of real income should not be so read as to defeat the provisions of the Act. (5) If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessee. (6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not. (7) Mere improbability of recovery, where the conduct of the assessee is unequivocal, cannot be treated as evidence of the fact that income has not resulted or accrued to the assessee. After

26 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. debiting the debtor's account and not reversing that entry-but taking the interest merely in suspense account cannot be such evidence to show that no real income has accrued to the assessee or been treated as such by the assessee. (8) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well- recognised limits. We were invited to abandon legal fundamentalism. With a problem like the present one, it is better to adhere to the basic fundamentals of the law with clarity and consistency than to be carried away by common cliches. The concept of real income certainly is a well- accepted one and must be applied in appropriate cases but with circumspection and must not be called in aid to defeat the fundamental principles of the law of income-tax as developed.” 18. The Hon’ble Supreme Court in its later judgement in the case of UCO Bank (supra) however did not agree with the aforesaid view because one of the Circular of CBDT had been overlooked while rendering the aforesaid decision. The question before the Hon’ble Court was as to whether interest on a loan whose recovery is doubtful and which has not been recovered by the assessee-bank for the last three years but has been kept in a suspense account and has not been brought to the profit and loss account of the assessee, can be included in the income of the assessee for the assessment year 1981-82. The Central Board of Direct Taxes had issued Circular No. 41 (V-6) D of 1952, dated October 6, 1952. The circular, inter alia, stated that "interest accruing to a money-lender on loans entered in the suspense account because of the extreme unlikelihood of their being recovered need not be included in the assessee's taxable income if the Income-tax Officer is satisfied that there is really little probability of the loans being repaid. It was considered desirable to extend this principle to banks which, instead of transferring the doubtful debts to a suspense account, credit the interest on such debts to that account provided the Income-tax Officer is satisfied that recovery is practically improbable." This circular was in force till June 20, 1978, when the Central Board of Direct Taxes issued a circular dated June 20, 1978, withdrawing with immediate effect the earlier circular of October 6, 1952. The reason for the withdrawal of the circular of 1952 was the decision of the Kerala High Court in State Bank of Travancore v. CIT [1977] 110 ITR 336 wherein a view was expressed that in such cases income would accrue under mercantile system of accounting. The Central Board of Direct Taxes, however, issued another circular of October 9, 1984, under which the Central Board of Direct Taxes decided that "interest in respect of doubtful debts credited to suspense account by the banking companies will be subjected to tax but interest charged in an account where there has been no recovery for three consecutive accounting years will not be subjected to tax in the

27 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. fourth year and onwards. However, if there is any recovery in the fourth year or later the actual amount recovered only will be subjected to tax in the respective years. This procedure was to apply to the assessment year 1979-80 and onwards. The Board's Instruction No. 1186, dated June 20, 1978, was modified to this extent". The same circular further clarified that up to the assessment year 1978-79 the taxability of interest on doubtful debts credited to suspense account will be decided in the light of the Board's earlier circular dated October 6, 1952, as the said circular was withdrawn only in June, 1978. The new procedure under the circular of October 9, 1984, will be applicable for and from the assessment year 1979- 80. The Hon’ble Supreme Court held as follows: “Section 119(1) of the Income-tax Act, 1961, provides that, "the Central Board of Direct Taxes may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board. Provided that no such orders, instructions or directions shall be issued (a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner ; or (b) so as to interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions". Under sub-section (2) of section 119, without prejudice to the generality of the Board's power set out in sub-section (1), a specific power is given to the Board for the purpose of proper and efficient management of the work of assessment and collection of revenue to issue from time to time general or special orders in respect of any class of incomes or class of cases, setting forth directions or instructions, not being prejudicial to assessees, as to the guidelines, principles or procedures to be followed in the work relating to assessment. Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Income-tax Act which are binding on the authorities in the administration of the Act. Under section 119(2)(a), however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases which can be properly categorised as belonging to a class, can thus

28 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. be given the benefit of relaxation of law by issuing circulars binding on the taxing authorities. The question whether interest earned, on what have come to be known as "sticky" loans, can be considered as income or not until actual realisation, is a question which may arise before several Income-tax Officers exercising jurisdiction in different parts of the country. Under the accounting practice, interest which is transferred to the suspense account and not brought to the profit and loss account of the company is not treated as income. The question whether in a given case such "accrual" of interest is doubtful or not, may also be problematic. If, therefore, the Board has considered it necessary to lay down a general test for deciding what is a doubtful debt, and directed that all Income-tax Officers should treat such amounts as not forming part of the income of the assessee until realised, this direction by way of a circular cannot be considered as travelling beyond the powers of the Board under section 119 of the Income-tax Act. Such a circular is binding under section 119. The circular of October 9, 1984, therefore, provides a test for recognising whether a claim for interest can be treated as a doubtful claim unlikely to be recovered or not. The test provided by the said circular is to see whether, at the end of three years, the amount of interest has, in fact, been recovered by the bank or not. If it is not recovered for a period of three years, then in the fourth year and onwards the claim for interest has to be treated as a doubtful claim which need not be included in the income of the assessee until it is actually recovered.” 19. On the decision of the Hon’ble S.C. in the case of State Bank of Travancore (supra), the Court held as follows “The first decision is the majority judgment in State Bank of Travancore v. CIT [1986] 158 ITR 102, decided by a Bench of three judges of this court by a majority of two to one. This judgment directly deals with interest on "sticky advances" which have been debited to the customer but taken to the interest suspense account by a banking company. The majority judgment has referred to the circular of October 6, 1952, and its withdrawal by the second circular of June 20, 1978. The majority appears to have proceeded on the basis that by the second circular of June 20, 1978, the Central Board had directed that interest in the suspense account on "sticky" advances should be includible in the taxable income of the assessee and all pending cases should be disposed of keeping these instructions in view. The subsequent circular of October 9, 1984, by which, from the assessment year 1979-80 the banking companies were given the benefit of the circular of October 9, 1984, does not appear to have been pointed out to the court. What was submitted before the court was, that since such interest had been allowed to be exempted for more than half a century, the practice had transformed

29 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. itself into law and this position should not have been deviated from. Negativing this contention, the court said that the question of how far the concept of real income enters into the question of taxability in the facts and circumstances of the case, and how far and to what extent the concept of real income should intermingle with the accrual of income, will have to be judged "in the light of the provisions of the Act, the principles of accountancy recognised and followed, and feasibility". The court said that the earlier circulars being executive in character cannot alter the provisions of the Act. These were in the nature of concessions which could always be prospectively withdrawn. The court also observed that the circulars cannot detract from the Act. The decision of the Constitution Bench of this court in Navnit Lal (C.) Javeri v. K.K. Sen, AAC [1965] 56 ITR 198, or the subsequent decision in K.P. Varghese v. ITO [1981] 131 ITR 597 (SC), also do not appear to have been pointed out to the court. Since the later circular of October 9, 1984, was not pointed out to the court, the court naturally proceeded on the assumption that the benefit granted under the earlier circular was no longer available to the assessee and those circulars could not be resorted to for the purpose of overcoming the provisions of the Act. Interestingly, the concurring judgment of the second judge has not dealt with this question at all but has decided the matter on the basis of other provisions of law. The said circulars under section 119 of the Income-tax Act were not placed before the court in the correct perspective because the later circular continuing certain benefits to the assessees was overlooked and the withdrawn circular was looked upon as in conflict with law. Such circulars, however, are not meant for contradicting or nullifying any provision of the statute. They are meant for ensuring proper administration of the statute, they are designed to mitigate the rigours of the application of a particular provision of the statute in certain situations by applying a beneficial interpretation to the provision in question so as to benefit the assessee and make the application of the fiscal provision, in the present case, in consonance with the concept of income and in particular, notional income as also the treatment of such notional income under accounting practice. In the premises the majority decision in the State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC), cannot be looked upon as laying down that a circular which is properly issued under section 119 of the Income-tax Act for proper administration of the Act and for relieving the rigour of too literal a construction of the law for the benefit of the assessee in certain situations would not be binding on the departmental authorities. This would be contrary to the ratio laid down by the Bench of five judges in Navnit Lal (C.) Javeri v. K.K. Sen [1965] 56 ITR 198 (SC).” 20. We agree with the submissions of the learned D.R. that the decision of the Hon’ble Supreme Court in the case of UCO Bank

30 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. (supra) does not obliterate the ratio of the very same Hon’ble Court in the case of State of Bank of Travancore (supra) but only modifies the same in so far as a later circular which is benevolent had not been brought to the Hon’ble Courts notice. In that view of the matter, we agree with the submission of the learned D.R. that real income theory would be relevant but would have no application so as to defeat the provisions of the Act. In our view provisions of Sec.43D lay down the limits upto which interest income of bad and doubtful debts in the case of public companies need not be recognised as income, in a case where Assessee follows mercantile system of accounting. By implication it also lays down that any claim that interest income as not having accrued over and above the limits laid down by the Rules, should not be accepted. The claim of the Assessee in our view is therefore contrary to the provisions of Sec.43D and the claim of the Assessee based on real income theory and there being no real accrual of income cannot be accepted. 21. That leaves us with the decision of the Hon’ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd. (supra) and the Hon’ble Madras High Court in the case of Elgi Finance Ltd. (supra). In the case of Vasisth Chay Vyapar Ltd.(supra), the Assessee was a non-banking finance company bound by the provisions of the Reserve Bank of India Act, 1934. In compliance with the Directions issued by the RBI under the RBI Act, 1934, it did not recognise interest on intercorporate deposit as income. The Hon’ble Delhi High Court held that interest income does not accrue and the action of the Assessee was correct. To the same effect is the decision of the Hon’ble Madras High Court in the case of Elgi Finance Ltd. (supra). The Hon’ble Delhi High Court considered the decision of the Hon’ble Supreme Court in the case of Southern Technologies Ltd. (supra) and explained that the case decided by the Hon’ble Supreme Court involved a case where provision on account of Non-Performing assets was claimed as a deduction, which was held by the Court to be not allowable. The Hon’ble Court found that a deduction claimed under the Act had to satisfy the conditions laid down under the Act and prudential norms of RBI will not override the provisions of the Act. But when it comes to “income recognition” prudential norms will be relevant. As rightly contended by the learned D.R. the issue before the Hon’ble Delhi High Court was not in relation to provisions of Sec.43D and therefore the ratio laid down by the Hon’ble Supreme Court in the case of Southern Technologies Ltd. (supra) would apply. The Hon’ble Delhi High Court was dealing with a case where there was a conflict between theory of “income recognition” and prudential norms of the RBI. In the present case, we are concerned with the provisions of Sec.43D vis-à-vis the guidelines of NHB regarding bad and doubtful debts. The Hon’ble Supreme Court in the case of Southern Technologies Ltd. (supra) had to deal with deduction on account of claim for deduction on account of provision for Non-Performing Assets in terms of RBI directions issued under

31 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. the RBI Act, 1934. The Hon’ble Court found that under Explanation to Sec.36(1)(vii) of the Act, provision for doubtful debt was kept out of the ambit of bad debt written off. It was further held that under the Act, tax is on “real Income” i.e., profits arrived at on commercial principles subject to the provisions of the Act. Real profits can be arrived at only by making the permissible deductions. Since the provision for bad debt was not a permissible deduction under the Act, the same was held to be not allowable. The “real income” referred to by the Hon’ble Supreme Court in its judgment in para-35 to 39 is in the context of profits arrived at on commercial principles subject to the provisions of the Act. The provisions of Sec.43D lay down the limits upto which interest income of bad and doubtful debts in the case of public companies need not be recognised as income, in a case where Assessee follows mercantile system of accounting. By implication it also lays down that any claim that interest income as not having accrued over and above the limits laid down by the Rules, should not be accepted. The claim of the Assessee in our view is therefore contrary to the provisions of Sec.43D and cannot therefore the claim of the Assessee based on real income theory and there being no real accrual of income cannot be accepted. Thus the decision of the Hon’ble Delhi High Court and the Madras High Court will not be applicable to the facts of the present case. Rather the decision of the Hon’ble Supreme Court in the case of Southern Technologies (supra) alone will apply. We therefore reject the contention raised on behalf of the learned counsel for the Assessee. For the reasons stated above, we uphold the order of CIT(A) and dismiss the appeal by the Assessee.

10.6 The above decision has been further followed by the Tribunal in the case of that assessee for AY 2007-08 and AY 2008-09 in ITA No I.T.A. No.5295/Mum/2010 and I.T.A. No.7590/Mum/2010 respectively. 10.7 The issue in present case is identical to the case cited above and thus we uphold the finding of the ld CIT(A) that the assessee is entitled to deduction as per Rule 6EB of the IT Rules only, but we have seen that the computation was not provided by the assessee during assessment , the ld Assessing Officer computed the disallowance on estimate basis only, thus , we restore the matter to

32 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. the ld Assessing officer to compute the deduction strictly as per Rule 6EB of IT Rules and allow the deduction accordingly. The ground of the assessee is allowed for statistical purpose only. 11. Ground no. 7 is in respect of addition made by the Assessing Officer of Rs. 4,30,19,888/- being the income on account of wrong appropriation. The ld. Assessing Officer observed that in some cases recovery of loans appropriated was based on the details provided by the other agencies. According to the ld. Assessing Officer, the assessee has first appropriated principal in these defaulting accounts rather than the interest as against the normal accounting policy followed by the assessee. The assessee submitted that the appropriation against normal policy would have no effect on the income as ultimately the accounts have been settled and waiver, if any, has been taken place in the books of account. However, the ld. Assessing Officer was of the view that the treatment of capital loss i.e. loss of principle and loss of interest are the issues having different ramifications and the assessee had not shown any loss on capital but loss adjusted against the interest amount. Further, the ld. Assessing Officer observed that the assessee, in case of short receipt, has treated the loss as loss of interest and not of capital which was against the recovery of appropriation policy of adjusting the amounts first towards interest and then towards principal. The ld. Assessing Officer further held that had the proper appropriation policy been followed, the average annual income by way of interest, which would have been offered for taxation before the write off, would

33 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. have been Rs. 4,30,19,888/- and accordingly he made the addition of this amount. The learned Commissioner of Income Tax (Appeals) following the reasoning of the Assessing Officer, did not interfere in the addition made by the Assessing Officer. 11.1 Before us, the learned Authorized Representative submitted that the loan in question were made to the Government Institution and were restructured from time to time. Further, he submitted that it was a commercial decision of the assessee whether the receipt from the customer has to be adjusted first against the principal or the interest and the Revenue cannot sit on the judgment. He further submitted that this was otherwise revenue neutral exercise that provisions for bad debt in respect of the principal amount is also allowable to the assessee under Section 36(1)(viia) of the Act. He further relied on the judgment in the case of S.A. Builders Ltd. Vs. Commissioner of Income Tax, (2007) AIR 482; Commissioner of Income Tax Vs. EKL Appliances Ltd. 345 ITR 241 and Commissioner of Income Tax Vs. B. Dalmia Cement Ltd., 254 ITR 377. 11.2 On the other hand, the learned CIT (DR) submitted that the dispute arose due to the treatment of recovery amount by the agencies. He further submitted that the assessee had not made any claim of bad debts under Section 36(1)(viiia) of the Act in respect of the principal written off. He further relied on the order of the lower authorities. 11.3 We have heard the rival submissions and perused the material on record. In the case of B. Dalmia Cements Ltd. (supra) the Hon’ble Court has held that

34 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. reasonableness of expenditure has to judged from the point of view of the businessman and not the Revenue. Further, in the case of EKL Appliances (supra), the Hon’ble Court has held that the Tax department cannot dictate to the taxpayer whether or not to incur expenditure. In the case of S A Builders Ltd (supra) also the Hon’ble Suprme Court affirming the view in the case of B Dalmia Cements Ltd (supra) held that the IT authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act and they must not look at the matter from their own viewpoint but that of a prudent businessman. We fully endorse the above view of the Hon’ble Courts. The appropriation of recovery against interest or principal will depends upon the agreement between the party either at the time of disbursement of loan or at the time of one time settlement of dues. If the parties agreed to appropriate the recovery first towards principal, then it has to be adjusted accordingly and Revenue can’t direct to adjust such recovery otherwise. Further, as submitted by the ld AR without prejudice that in the case of the assessee, if accepting Revenue’s argument recovery is adjusted first towards interest and then whatever remaining principal debt will qualify for bad debt as provisions of section 36(1)(vii) of the Act and entire exercise will be revenue neutral. In any case there is no bar on appellate authorities to entertain the claim of the assessee on the merit even in absence of revised return of income as held by the Hon’ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT, 284 ITR 323 (SC). Thus, we find force in the contention of the ld AR that entire exercise of

35 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. adjustment of recovery against the interest income or principal debt is a revenue neutral exercise. In view of above discussion, we uphold that in the case of the assessee no addition can be sustained towards appropriation of recovery from defaulting accounts. Accordingly, the ground of the assessee is allowed. 12 The ground no. 8 is in respect of addition of Rs. 1.25 crores on account of change in the method of accounting in booking of expenditure related to forward contract. The Assessing Officer observed that the assessee was spreading the expenses related to forward contact of foreign exchange over the period of the transaction but in the year under consideration the assessee charged entire expenses of the forward contract transaction . It was explained by the assessee that this change on accounting policy was done in compliance of the guidance note of the Institute of Chartered Accountants of India (ICAI). However, in subsequent year, the assessee again reverted to the old accounting policy and it was explained that it was done due a clarification issued by the ICAI in an article in the Economics Times of India. The ld Assessing officer was of the view that expenses was to be allowed as per regular accounting followed by the assessee and accrual and matching concept of income, therefore, he made an addition of Rs. 1.25 crores on account of change of accounting. 12.1 Before the Commissioner of Income Tax (Appeals) the assessee submitted that the changes in the accounting policy was made in order to comply with the clarification issued by the ICAI, however, subsequently observed that the clarification was not applicable to the company, the company

36 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. itself reverted back to its original accounting for the expenses on this count in the year of maturity of the contract from the year 2006-07, however, the learned Commissioner of Income Tax (Appeals) was not convinced with the arguments of the assessee and concurred with the findings of the Assessing Officer and sustained the addition. 12.2 Learned Authorized Representative submitted that in the financial year 2003-04 as per the accounting standard, the expenditure arising out of the contract was to be spread over the period of contract, whereas in assessment year 2004-05, the expenditure was claimed at the time of closing of the contract and from the year 2006-07 onward again the assessee adopted the spread over of the expenditure over a period of the contract. The learned Authorized Representative submitted that the Assessing Officer has not properly appreciated the article published in the Economics Times of India and the assessee has followed the guidelines issued by the ICAA at the relevant point of time. 12.3 On the other hand, the learned CIT (DR) submitted that notional loss was only disallowed and as per section 145(3) of the Act the assessee was not allowed to make change in the method of accounting followed regularly. 12.4 We have heard the rival submission and perused the materials on record. The assessee claimed the higher expenses in the year under consideration due to incorrect interpretation of the guidelines of the ICAI. As per the matching concept of income and expenditure, the assessee was required to spread the expenditure over the contract period and the same practice the assessee was

37 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. following prior to the year under consideration. In the year under consideration, the assessee changed the method of charging of expenditure due to incorrect understanding of the guidelines of the ICAI, and in view of subsequent clarification , again in subsequent year, the assessee resorted to the old practice of spreading of expenses over the period of contract. The income has to be accrued as per the provisions of the Income-tax Act and there was no change of provisions in this regard for the year under consideration, and thus the action of the assessee in reducing the income by Rs. 1.25 crores was not justified. In our opinion, the ld CIT(A) has rightly sustained the disallowance and no further interference is required on this issue, Hence we uphold the findings of the ld CIT(A). The ground of the appeal is dismissed accordingly. 13. Ground no. 9 is in respect of not considering the mistakes or omissions in the revised return of income filed by the assessee. The assessee filed the revised return of income on account of mistakes in item mentioned in para 14 of the assessment order. The Assessing Officer was of the view that those items were not in the nature of mistakes and omissions and therefore, the conditions of Section 139(5) were not applicable and therefore he did not give any cognizance to the revised return of income. The Commissioner of Income Tax (Appeals) also confirmed the action of the Assessing Officer. 13.1 Learned Authorized Representative submitted that the original return was in time and therefore, the assessee was entitled to revise the return under Section 139(5) of the Act. He further submitted that the revision was on account of

38 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. certain expenses or revenue crystallizing the relevant year. He further submitted that this was only revenue in nature. If the assessee is not allowed certain income or expenses in the current year, then he would be entitled for the same for another year. He further relied on the decision of the ITAT, Mumbai in the case of Lok Housing & Construction Ltd. Vs. Asstt. Commissioner of Income Tax, (2012) 27 taxmann.com 15 (Mumbai Trib.) and the decision of Gujarat High Court in the case of Commissioner of Income Tax Vs. Gujarat Industrial Development Corporation, (2013) 32 taxmann.com 255 (Gujarat). 13.2 On the other hand, the learned CIT (DR) submitted that there was no omission or mistake in the original return and the said changes were not fulfilling the requirement of omission and that was due to change of opinion, he further distinguished the judgment relied upon by the learned Authorized Representative of the assessee. 13.3 We have heard the rival submissions of the parties and perused the material on record. In the cases of Lok Housing & Construction Ltd. Vs. Asstt. Commissioner of Income Tax, (supra) cited, the assessee found that the sale transactions were reversed and after becoming aware that declaration of income as made by the assessee in original return turned out to be a wrong statement, it revised the return, which found valid by the Tribunal. In the case of Commissioner of Income Tax Vs. Gujarat Industrial Development Corporation, due to cancellation of Sales tax Deferment Scheme, no income was receivable by the assessee and accordingly , it revised its return which held valid by the

39 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. Tribunal and approved by the Hon’ble High Court. But in the case of the

assessee the facts are clear from the findings of the lower authorities In the case

of Golden Insulation & Engg. Ltd Vs CIT reported in 305 ITR 427, the Hon’ble

High Court of Delhi has held that change in method of accounting can’t be a

reason for filing revised return. The relevant part of the judgement is reproduced

as under:

40 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. 12. Insofar as the decision in K.G. Khosla & Co. (P) Ltd. (supra) is concerned, this Court concluded that there was no question of law that had arisen because of the change in the method of valuation of the opening stock as well as the closing stock. Again, this was not a case concerning a revised return having been filed by the assessee. 13. Insofar as the decision in CIT vs. Carborandum Universal Ltd. (1984) 39 CTR (Mad) 272 : (1984) 149 ITR 759 (Mad) is concerned, that was a case where a revised return was filed, but the Madras High Court does not appear to have considered the effect of s. 139(5) of the Act. 14. Insofar as the present case is concerned, we find that the provision of s. 139(5) of the Act clearly sets out the two conditions under which the revised return can be filed and none of these are applicable to the facts of the assessee’s case. It is for this reason that the revised return showing the changed calculation of the closing stock ought not to have been accepted by the AO. The only reason for the change in the method of valuation of the closing stock was, as explained by the assessee, that is, the method adopted did not reflect the correct state of affairs. The result of change in the method of valuation was that the assessee showed a loss of Rs. 4,01,290 which is an increase from the original loss shown as Rs. 3,00,369. This was clearly not a legally valid reason nor was it bona fide. In the facts of the present case, the change was not justified or legally permissible. 15. Under these circumstances, we answer the question referred to us in the affirmative, in favour of the Revenue and against the assessee. 13.4 Further, in the case of Deepnarayan Nagu & CO. Vs CIT reported in 157 ITR 037,the Hon’ble High Court of Madhya Pradesh has held that a Revised return filed merely to rewrite the accounts on the basis of a method other than one which was actually followed during the relevant accounting year not valid.

We have noticed that in the case of the assessee the facts whether the change in income or expenditure was on account of change in method of accounting or otherwise is not clear from the facts brought on record by the lower authorities, and thus, we feel it appropriate to restore the matter back to the file of the ld Assessing Officer and decide the issue in accordance to the law. The ground of the appeal is accordingly allowed for statistical purpose.

41 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. 14. In the result, the appeal of the assessee is allowed for statistical purposes. ITA No. 4303/Del/2009, AY 2004-05 14.1 Ground no. 1 is in respect of disallowance of interest payable to the Government by treating the same as notional expenses. Learned Authorized Representative submitted that the issue was covered in the assessee’s own case by the order of the ITAT, Delhi Bench passed for assessment year 2000-01. 14.1 Learned CIT (DR), on the other hand, submitted that the fact needs to be ascertained whether the interest was actually paid in the subsequent year or not. 14.2 We have heard the rival submissions and perused the material on record. The relevant para of the decisions of the ITAT, Delhi Bench in the assessee’s own case passed for the assessment year 2000-01 is reproduced as under: “4.1 In so far as the question whether the assessee was a debtor of the Government of India for an amount lying as balance in surplus funds account is concerned, it has already been held that the assessee is a debtor to the Government to the extent of credit in the account. It also transpires from the correspondence that the assessee may become liable to pay interest, possibly based upon the rate of interest offered by State Bank of Indian on the deposits for the period of 180 to 365 days. However, no final decision about the rate of interest has been taken by the Government of India. A unilateral offer to pay the interest as above, does not lead to fastening of a fixed and ascertained liability on the assessee. The assessee is following mercantile system of accounting and in any case, being a company, it is obliged to follow the aforesaid system as per the Companies Act. Therefore, the question before us is whether, in terms of correspondence between the assessee and the Ministry dated 09.06.1998 and 08.09.1998, the liability of interest has accrued? The letter of the Ministry states in the first place that it agreed with the proposal of the assessee, which means that it agreed with the stipulation of interest @ 7.5% p.a. Therefore, this agreement was qualified to be purely provision and subject to a final decision on the project and the rate of interest.

42 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. Although, we are unable to find any direct decision in this matter, we find that under the mercantile system of accounting, a liability which has definitely arisen cannot be regarded as a contingent liability merely because it is to be discharged at a future date and the cost of discharging it is not definite. In the case of Calcutta Company Ltd. Vs. Commissioner of Income Tax, (1959) 37 ITR 1, the facts of the case were that the assessee bought land and sold them in plot which to be made fit for building purposes. At the time of purchase, the purchaser paid a portion of the purchase price and undertook to pay the balance amount in installment. In the relevant accounting year, the assessee received cash of Rs. 29,392/- as sale price, but in accordance with mercantile system of accounting, a sum of Rs. 43,692/- was credited to the books as sale price. At the same time, a debit was made of Rs. 24,809/- towards expenditure for development to be undertaken although no expenditure was incurred in that year. The Hon’ble Court pointed out that the liability to incur expenditure on development of land has been incurred by the assessee as it formed part and parcel of the sale agreement. Therefore, the difficulty in estimating the expenditure would not convert this liability into a contingent liability. If the revenue was not satisfied with the estimate of liability entered by the assessee in the books, it could have estimated the liability on a reasonable basis. However, the whole of the amount could not have been disallowed simply because the liability was to be discharged at a future date and its exact amount was not known. We find that the correspondence between the assessee and the Government of India does lead to fastening of interest liability on the assessee in respect of surplus funds account. This was tentatively agreed by the Ministry also. This liability cannot be said to be unascertained liability simply because the Ministry was also to take a final view on the project and the interest rate at a future date. Thus, while the Assessing Officer could have estimated the liability on the basis of the correspondence, he could not have disallowed the whole of the liability. From the correspondence between the assessee and the Government, it is clear that the assessee had offered to pay interest @ 7.5%. Therefore, the liability is not going to be lower than the liability to be computed by the assessee in the books of account. Even if it is so happens, then, the excess provision made could be brought to tax u/s 41(1) in the year in which the rate is finally fixed. Coming to the decisions relied upon by the revenue, we tend to agree with the learned counsel that the ratio of the decision in the case of Madhav Prasad Jatia (supra) is not applicable because in that case the loan was taken for the purpose of making a donation. In the case of Bazpur Cooperative Sugar Ltd. (supra), there was no stipulation regarding return of money to the members as the amount was to be utilized for converting partly paid-up shares into fully paid up shares and, therefore, the amount was taken not be loan. Such is not the case here, the reason is

43 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. that the correspondent between the assessee and the Ministry clearly shows that the surplus money is payable to the Ministry of demand or it is to be utilized as per directions of the Ministry. Further, the Ministry has provisionally agreed with the interest rate of 7.5% offered by the assessee. Therefore, we are of the view that the assessee was entitled to deduct the interest in computing the income. Thus, this ground is allowed for both the years. 14.3 Respectfully following the above decision, we allow this ground of the assessee. 15. The rest of the grounds i.e. ground no. 2 to 6 raised in this appeal are similar to the ground no. 1 to 5 raised in ITA Nos. 1166/Del/2012 which have been decided in the foregoing paragraphs, and thus all these ground are also decided accordingly. 16. Accordingly, this appeal is allowed for statistical purposes ITA No. 1167/Del/2012 for AY: 2006-07 17. Grounds no. 1 to 4, 6 and 7 raised by the assessee in ITA No. 1167/Del/2012 are identical to grounds no. 1 to 4, 6 and 7 raised by the assessee in ITA No.1166/Del/2012 for assessment year 2005-06 except change of amount, and thus following our findings in forgoing paragraphs of ITA No.1166/Del/2012, we decide the grounds No. 1 to 4, 6 and 7 of the appeal of the assessee accordingly. 18. In grounds No. 5 of appeal, the assessee has raised disallowance of expenses under section 14A of the Act. The ld. AR in his submission raised that the expenses disallowed were not reasonable and thus requested to restore the matter to the ld. AO relying on the judgement of the Hon’ble Jurisdictional High

44 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. Court in the case of Maxopp Investment Ltd. (supra). The ld. CIT(DR), on the other hand, relying on the order of lower authorities submitted that the disallowance made by the AO was most reasonable. 18.1 We have heard the rival submissions and perused the material on record. The issue in dispute in the year under consideration is identical to AY 2005-06 in ITA No. 1166/Del/2012 except that in the year under consideration the assessee has not raised the issue of non recording of dissatisfaction by the ld AO under section 14A(2) of the Act. Thus the issue in dispute is duly covered by the ground No. 5 decided in ITA No. 1166/Del/2012 for Assessment Year 2005-06, we accordingly, following our finding in relevant paragraphs, restore the matter to the ld. AO for determination of issue in dispute in accordance to the judgment of Maxopp investment Ltd. (supra). 19. Accordingly, the appeal is allowed for statistical purposes. ITA No. 1168/Del/2012 for AY : 2007-08 20. Grounds no. 1 to 4, 6 and 7 raised by the assessee in ITA No. 1168/Del/2012 are identical to grounds no. 1 to 4, 6 and 7 raised by the assessee in ITA No.1166/Del/2012 for assessment year 2005-06 except change of amount, and thus following our findings in forgoing paragraphs of ITA No.1166/Del/2012, we decide the grounds No. 1 to 4, 6 and 7 of the appeal of the assessee accordingly. 21. In grounds No. 5 of appeal, the assessee has raised disallowance of expenses under section 14A of the Act. The issue in dispute being identical to

45 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. the issue raised in ground No. 5 of the appeal of the assessee in ITA No. 1167/Del/2012 for AY 2006-07, it was heard alongwith that ground, and thus, we decide accordingly and restore the matter back to the ld AO for determination of disallowance in accordance with the law laid down by the Hon’ble High Court in the case of Maxoop Investments Ltd.(supra). ITA No. 3365/Del/2013, AY : 2008-09 22. Grounds no. 1 to 3 raised by the assessee in ITA No. 3365/Del/2013 are identical to grounds no. 1 to 3 raised by the assessee in ITA No.1166/Del/2012 except change of amount, and thus following our findings in forgoing paragraphs of ITA No.1166/Del/2012, we decide the grounds No. 1 to 3 of the appeal of the assessee accordingly. Similarly, grounds no. 5 & 6 raised by the assessee in ITA No. 3365/Del/2013 are identical to grounds no. 6 & 7 raised by the assessee in ITA No.1166/Del/2012 except change of amount, and thus following our findings in forgoing paragraphs of ITA No.1166/Del/2012, we decide the grounds No. 5 & 6 of the appeal of the assessee accordingly, 23. The ground no. 4 raised is in respect of disallowance under section 14A of the Act. The ld AO invoking Rule 8D of the IT Rules computed the disallowance of Rs. 53,80,730/- against the exempt income of Rs. 1,72,000/-. The Ld. CIT(A) upheld the disallowance made by the ld AO. Before us the ld AR submitted that the issue may be decided in view of the findings of the Hon’ble Jurisdictional High Court in the case of Joint Investments Pvt. Ltd Vs CIT in ITA No. 117/2015 wherein the Hon’ble Court has held that the portion of

46 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. expenditure disallowed cannot swallow the entire tax exempt income. Alternatively, the learned AR pleaded that the assessee invested its own funds in investments earning exempted income and thus question of interest disallowance corresponding to borrowed capital did not arise in the case of the assessee. Further, the relying on the judgement of Hon’ble Bombay High Court in the case Godrej Agrovet in ITA No. 934 of 2011 and other decisions of the Tribunal, the ld AR submitted that the disallowance if at all is to be made under section 14A of the Act, then same may be restricted to 2percent. of the exempted income. The Ld CIT DR on the other hand relied on the orders of the lower authorities. We have heard the rival submissions and perused the material on record. We are of considered opinion that the application of Rule 8D of the IT Rules from AY 2008-09 has been upheld by the Hon’ble jurisdictional High Court in the case of Maxopp Investment Ltd. (supra) subject to recording of dissatisfaction by the AO regarding correctness of the claim of the assessee. Further, in the judgment in the case of Joint Investment Pvt. Ltd. Vs. CIT (supra), the Hon’ble jurisdictional High Court has held as under: “9. In the present case, the AO has not firstly disclosed why the appellant/assessee’s claim for attributing Rs. 2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee’s claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs. 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing

47 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. expenditure “incurred by the assessee in relation to the tax exempt income”. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. 10. For the above reasons, the impugned order of the ITAT is set aside. The question of law is answered in favour of the assessee. Consequently, order of the AO is set aside. The initiation of penalty proceedings also is set aside. The matter is remitted to the AO for fresh consideration in accordance with the above directions. The appeal is partly allowed.” 23.1 The ratio of above judgment is squarely applicable to the facts of the case in hand and thus respectfully following the judgment in the case of Joint Commissioner Pvt. Ltd. (supra), we restrict the disallowance upto the exempt income earned. The ground of the appeal is partly allowed. 24. Accordingly, the appeal is partly allowed for statistical purposes. ITA Nos. 3366/Del/2013 for AY 2009-10 25. Grounds no. 1 to 3 raised by the assessee in ITA No. 3366/Del/2013 are identical to grounds no. 1 to 3 raised by the assessee in ITA No.1166/Del/2012, except change of amount, and thus following our findings in forgoing paragraphs of ITA No.1166/Del/2012, we decide the grounds No. 1 to 3 of the appeal of the assessee accordingly. Similarly, grounds no. 5 & 6 raised by the assessee in ITA No. 3366/Del/2013 are identical to grounds no. 6 & 7 raised by the assessee in ITA No.1166/Del/2012 except change of amount, and thus following our findings in forgoing paragraphs of ITA No.1166/Del/2012, we decide the grounds No. 5 & 6 of the appeal of the assessee accordingly. 26. The ground no. 4 raised is in respect of disallowance under Section 14A of the Act. The facts and circumstances in the year under consideration

48 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. are identical to the facts and circumstances in the assessment year 2008-09 and thus following the findings in ITA No. 3365/Del/2013 for assessment year 2008-09, we decide the issue accordingly. 27. The ground no. 7 raised by the assessee is in respect of the mismatch in tax deducted at source (TDS) claimed by the assessee and the credit for the same allowed by the Assessing Officer. The Commissioner of Income Tax(Appeals) has not given any finding in his order on this issue. The learned Authorized Representative submitted for allowing the credit claimed by the assessee, whereas the learned CIT (DR) fairly accepted that the credit may be allowed subject to verification by the Assessing Officer. 27.1 We have heard the rival submissions and perused the material on record. As the issues is of the verification, whether the income corresponding to the tax deducted were shown in the return of income then the Assessing Officer is bound to allow the TDS credit claimed by the assessee, therefore, we restore the matter to the file of Assessing Officer for verification of the claim of the assessee in accordance with law. Needless to say, that the assessee will be given opportunity of hearing. 28. In ground no. 8, the assessee submitted that the benefit of Incremental Special Reserve had been allowed on additions/disallowances. The learned Authorized Representative submitted that the claim of deduction under Section 36(1)(viiia) of the Act would also increase in account of the addition

49 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. made by the authorities. He further submitted that the Commissioner of Income Tax (Appeals) has not given any findings on this issue. 28.1 On the other hand, the learned CIT (DR) submitted that no claim was made before the Assessing Officer by the assessee and, therefore, the assessee is not entitled for enhanced deduction. 28.2 We have heard the rival submissions and perused the material on record. If the claim of the assessee has been finally settled, then the assessee deserve for the enhanced deduction. Therefore, in the interest of justice, we restore the matter to the Assessing Officer to allow the enhanced deduction in accordance with law. ITA Nos. 1561 & 1562/Del/2012 for AY 2006-07 and AY 2007-08. 29. These appeals have been filed by the Revenue. In both the appeals, sole ground is raised, which is identical, except change of amount. The ground of appeal in ITA No. 1561/Del/2012, is reproduced as under: “1. Whether Learned Commissioner of Income Tax(Appeals) was correct of facts and circumstances of the case and in law in deleting the addition of Rs. 5,54,00,000/- out of addition of Rs. 11,08,00,000/- made by the Assessing Officer on account of Revenue de-recognition in accounts.” 30. Since the aforesaid issue has already been decided and allowed for statistical purposes in ground no. 6 of ITA No.1166/Del/2012 for assessment year 2005-06, following the findings in relevant paragraphs, we allow the ground for statistical purpose in both the appeal of the Revenue accordingly. 31. In the result, both the appeals filed by the Revenue are allowed for statistical purpose.

50 ITA Nos. 4303/Del/2009; 1166 to1168/Del/2012; 3365 & 3366/Del/2013; 1561 & 1562/Del/2012 Housing & Urban Development Corp. Ltd. 32. In the result, the appeals filed by the assessee in ITA No. 4303/Del/2009; ITA Nos. 1166, 1167 & 1168/Del/2012; and ITA Nos. 3365 & 3366/Del/2013 are partly allowed for statistical purposes and the appeals filed by the Revenue in ITA Nos. 1561 & 1562/Del/2012 are allowed for statistical purposes. The decision is pronounced in the open court on 9th February, 2016.

Sd/- Sd/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 9th February, 2016. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi