The Catholic Syrian Bank Ltd, Thrissur v. The Additional Commissioner of Income Tax, Thrissur

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN JM AND SANJAY AR ORA AM I.T.A. NO. 10 /COCH/2009 ASSESSMENT YEAR : 2005-06 THE CATHOLIC SYRIAN BANK LTD. ST. MARYS COLLEGE ROAD THRISSUR-680 020. [PAN : AABCT 0024D] VS. THE ADDL. COMMISSIONER OF INCOME-TAX CIRCLE-1(1) THRISSUR. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) I.T.A. NO. 66 /COCH/2009 ASSESSMENT YEAR : 2005-06 ASSESSEE BY SRI JOSE POTTAKKARAN CA-AR REVENUE BY DR. BABU JOSEPH SR. DR O R D E R PER SANJAY ARORA AM: THESE ARE CROSS-APPEALS I.E. BY THE ASSESSEE AND THE REVENUE ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-V KOCHI ( CIT(A) FOR SHORT) DATED 14.10.2008 PASSED IN PURSUANCE TO THE ASSESSEES APPEAL AGAINS T ITS ASSESSMENT U/S. 143(3) OF THE INCOME- TAX ACT 1961 ('THE ACT' HEREINAFTER) VIDE ORDER DA TED 28.12.2007. BEING IN RELATION TO THE SAME YEAR RAISING COMMON ISSUES THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF VIDE COMMON CONSOLIDATED ORDER. I.T.A. 10/COCH/2009 (ASSESSEES APPEAL) THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1(1) THRISSUR. VS. THE CATHOLIC SYRIAN BANK LTD. ST. MARYS COLLEGE ROAD THRISSUR-680 020 (REVENUE-APPELLANT) (ASSESSEE- RESPONDENT) I.T.A. NO. 10 & 66/COCH/ 2009 2 2. THE ISSUE RAISED BY THE ASSESSEE A BANK IS IN RESPECT OF DISALLOWANCE OF PENSION PAID TO ITS RETIRED EMPLOYEES ( ` 310 LAKHS) CLAIMED U/S. 37(1) OF THE ACT. THE ASSE SSING OFFICERS (A.OS) OBJECTION THERE-TO WAS THAT THE ASSESSEE H AD ALREADY ESTABLISHED A PENSION FUND FOR THE PURPOSE AND TO WHICH REGULAR CONTRIBUTIONS WER E BEING CLAIMED AND ALLOWED U/S. 36(1)(IV) OF THE ACT. AN AMOUNT COULD BE CLAIMED A S A BUSINESS EXPENDITURE ONLY UNDER A SPECIFIC SECTION; SECTION 37(1) CLEARLY PROVIDING F OR EXPENDITURE WHICH IS NOT SPECIFICALLY COVERED UNDER SECTION 30 TO 36 OF THE ACT. ON FACT S IT WAS POINTED OUT BY HIM THAT THE AMOUNT AVAILABLE WITH THE PENSION FUND WAS MORE THA N THAT BEING CLAIMED BY THE ASSESSEE BY WAY OF DIRECT PAYMENT. HE RELIED ON SEVERAL DECISI ONS BOTH AS REGARDS THE LEGAL PROPOSITION AS RAISED BY HIM AS WELL AS IN RESPECT OF THE PENSI ON PAID THUS. THE LD. CIT(A) FOUND THAT THE TRIBUNAL HAD IN THE CASE OF SOUTH INDIAN BANK LTD . (IN I.T.A. NO. 359 & 360/COCH/2006 DATED 27.9.2007) REMITTED THE MATTER BACK TO THE FI LE OF THE AO TO CONSIDER AS TO HOW THE LIABILITY (WHICH STANDS CLAIMED AS ARISING BY VIRTU E OF A TRIPARTITE AGREEMENT BETWEEN THE ASSESSEE INDIAN BANKS ASSOCIATION AND THE EMPLOYE ES TRADE UNION) HAD ARISEN INSPITE OF THE FACT THAT THERE WAS A SUPERANNUATION FUND FOR T HE PURPOSE I.E. IN SHORT TO DETERMINE ITS COMMERCIAL EXPEDIENCY. THIS WAS IN VIEW OF THE AS SESSEES CLAIM AS A BUSINESS EXPENDITURE COMPUTING U/S. 37(1) AS WELL AS ITS RELIANCE ON THE DECISION IN THE CASE OF CIT VS. T. STANES & COMPANY LTD . 105 ITR 251 (MAD.) AFFIRMED BY THE SUPREME COUR T VIDE ITS DECISION REPORTED AT (1991) 188 ITR 237 (SC) WHICH HAD INFACT BEEN RELIED UPON BY BOTH THE PARTIES. THE MATTER WAS ACCORDINGLY RESTORED TO THE AO WITH LIKE DIRECTIONS. AGGRIEVED THE ASSESSEE IS IN APPEAL. 3. THE ASSESSEE DURING THE HEARING POINTED OUT T HE TRIBUNALS ORDER IN ITS OWN CASE FOR THE IMMEDIATELY PRECEDING YEAR (I.E. A.Y. 2004-05) (IN I.T.A. NO. 854/COCH/2007 DATED 6.8.2009) HOLDING IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION BY THE APEX COURT IN THE CASE OF T. STANES & CO. LTD . (SUPRA). WE OBSERVE THAT THE TRIBUNAL IN THE ASSE SSEES CASE FOR EARLIER YEARS (VIZ. AY 1999-00/ IN ITA NO. 26/COCH/ 2008 DATED 30/6/2009 AND AY 2000-01 (IN ITA NO. 345/COCH/2008 DATED 6/8/2009) HAD SIMI LARLY RESTORED THE MATTER BACK TO THE FILE OF THE AO FOR EXAMINING AND DETERMINING THE QU ESTION OF QUANTUM. THE LEGAL ISSUES SOUGHT TO BE RAISED BY THE AO NO LONGER OBTAIN I.E . IN VIEW OF THE CONSISTENT STAND TAKEN BY I.T.A. NO. 10 & 66/COCH/ 2009 3 THE TRIBUNAL IN THE MATTER SO THAT THE ASSESSEE IS ELIGIBLE I.E. IN PRINCIPLE FOR DEDUCTION QUA THE DIRECT PAYMENT OF PENSION U/S. 37(1) OF THE ACT . HOWEVER THE ASPECT OF THE COMMERCIAL EXPEDIENCY (ON THE PARAMETERS AS SETTLED BY THE APE X COURT) HAS ADMITTEDLY NOT BEEN EXAMINED BY THE AO AND WHICH IS A PERQUISITE FOR T HE ALLOWANCE OF A CLAIM U/S. 37(1) AND THE ONUS TO EXHIBIT WHICH IS ONLY ON THE ASSESSEE. IN THE FACTS OF THE CASE WE FIND IT AS ALL THE MORE RELEVANT AS THERE IS NO SUBSISTING EMPLOYER-EM PLOYEE RELATIONSHIP BETWEEN THE ASSESSEE AND ITS RETIRED EMPLOYEES. THERE IS NO ENUMERATION OF THE BASIC AND RELEVANT FACTS IN THE ASSESSMENT OR THE IMPUGNED ORDER WHICH WE FIND AS NOT MENTIONED EVEN IN THE ORDERS REFERRED TO FOR THE EARLIER YEARS. AS SUCH WE ARE UNABLE TO SEE ANY INFIRMITY IN THE IMPUGNED ORDER PASSED FOLLOWING THAT BY THE CO-ORDINATE BEN CH AND NEITHER HAS THE ASSESSEE BEEN ABLE TO SHOW US ANY. THE ORDER BY THE TRIBUNAL REFERRED TO BY THE ASSESSEE DISPOSES THE REVENUES APPEAL WHOSE CASE AS AFORE-NOTED STANDS DISMISSE D BY THE TRIBUNAL FINDING THE ALLOWANCE OF DEDUCTION U/S. 36(1)(IV) WHICH IS QUA THE CONTRIBUTION TO THE FUND AS NO BAR FOR THE CL AIM OF DEDUCTION U/S. 37(1). HOWEVER THAT THE SAME HAS T O BE ON ITS MERITS I.E. ON A STAND-ALONE BASIS IS UNEXCEPTIONAL AND WHICH WE UNDERSTAND TO BE THE IMPORT OF THE DECISION BY THE LD. CIT(A). THE AO SHALL AFFORD PROPER OPPORTUNITY OF H EARING TO THE ASSESSEE IN THE MATTER. WE DECIDE ACCORDINGLY. 4. THE NEXT DISALLOWANCE CONTESTED BY THE ASSESSEE IS FOR THE AMOUNT CLAIMED IN RESPECT OF LEASE EQUALIZATION CHARGES . THE ASSESSEE FOLLOWING THE METHOD OF ACCOUNTING RECOMMENDED BY THE INSTITUTE OF CHARTERED ACCOUNTAN TS OF INDIA THE REGULATORY AUTHORITY FOR THE ACCOUNTANCY PROFESSION IN INDIA FOR LEASE FINA NCING CHARGED ITS PROFIT AND LOSS ACCOUNT FOR THE YEAR WITH LEASE EQUALIZATION CHARGE FOR ` 2858/-. THE SAID METHOD OF ACCOUNTING IS BEING REGULARLY FOLLOWED AND FURTHER STANDS RECOG NISED BY RBI. THE REVENUE FINDS THE ASSESSEES CASE UNACCEPTABLE AS IT IS QUA DEPRECIATION ON LEASED ASSETS AND WHICH (DEPRECIATION) COULD BE ALLOWED ONLY AS PER THE PRO VISIONS OF THE ACT. THE ASSESSEE BEFORE US RELIED ON THE ORDER BY THE TRIBUNAL IN ITS OWN CASE FOR A.Y. 2000-01 (IN I.T.A. NO. 131/COCH/2008 DATED 6.8.2009) AND A.Y. 1999-2000 (I N I.T.A. NO. 919/COCH/2007 DATED 30.6.2009). THE SAME IT WAS FOUND IS NOT QUA DEPRECIATION CHARGE BUT ONLY PURPORTS TO ALLOCATE THE LEASE RENTAL BETWEEN THE CAPITAL RECOV ERY AND THE FINANCE INCOME. NOTICING I.T.A. NO. 10 & 66/COCH/ 2009 4 DIVERGENT VIEWS IT HELD IN FAVOUR OF THE ASSESSEE. UNDER THE CIRCUMSTANCES WE HAVE NO HESITATION IN FOLLOWING THE SAME AND FOR THE SAME R EASON/S AS FOUND BY THE TRIBUNAL ON EARLIER OCCASIONS. WE DECIDE ACCORDINGLY. 5.1 THE NEXT ISSUE RAISED BY THE ASSESSEE PERTAINS TO THE DISALLOWANCE IN RESPECT OF INTEREST ATTRIBUTABLE TO THE DIVIDEND INCOME WHICH IS EXEMPT U/SS. 10(34) AND 10(35) EFFECTED U/S. 14A OF THE ACT . THE ASSESSEE HAS A COMMON POOL OF INTEREST BEARI NG AND INTEREST FREE FUNDS INVESTED IN ITS BUSINESS. AS THERE WAS NO EVI DENCE TO EXHIBIT THAT ONLY THE INTEREST-FREE FUNDS HAVE FINANCED THE TAX-FREE INVESTMENT I.E. THAT YIELDING TAX-FREE INCOME/S; THE SAME WAS TAKEN AS FINANCED PROPORTIONATELY LEADING TO A DISALLOWANCE OF THE PROPORTIONATE INTEREST. HE RELIED ON THE DECISIONS IN THE CASE O F COFFEE CONSOLIDATED LTD. VS. STATE OF KARNATAKA (2000) 248 ITR 432 (SC); CIT VS. V.I. BABY & CO. 254 ITR 248 (KER.); K. SOMASUNDARAM & BROTHERS VS. CIT 238 ITR 939 (MAD.); CIT VS. H.R. SUGAR FACTORY PVT. LTD. 187 ITR 363 (ALL.) ETC. FOR THE PURPOSE BESIDES NOTICING OTHERS AS IN THE CASE OF 219 ITR 563 (SC) 257 ITR 91 (M.P.) AND 140 ITR 121 (AL L.). 5.2 IN APPEAL THE LD. CIT(A) WITH REFERENCE TO T HE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT PVT. LTD. 312 ITR (AT) 1 (MUM.) (SB) AS ALSO THE DECISION BY THE CO-ORDINATE BENCH IN THE CASE OF DHANALAKSHMI BANK LTD. VS. ACIT (IN I.T.A. NO. 949 AND 990/COCH/2004 DATED 28.7.200 6) HELD THAT THE PROVISIONS OF SECTION 14A(2) AND S. 14A(3) ARE ONLY MACHINERY PRO VISIONS AND THUS THESE ALONG WITH RULE 8D WOULD HAVE A RETROSPECTIVE APPLICATION VALIDATI NG THE ACTION OF THE AO. AGGRIEVED THE ASSESSEE IS IN APPEAL. 6.1 WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. THE ASSESSEES CASE IS THAT FIRSTLY IT HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE TAX-FREE DIVIDEND INCOME. AS SUCH SECTION 14A HAS NO APPLICATION. SECONDLY IT RELIES ON THE DECISION IN ITS CASE FOR A.Y. 2002-03 WHEREAT THE TRIBUNAL RELYING ON THE DECIS ION IN THE CASE OF DHANALAKSHMI BANK LTD. VS. ACIT (SUPRA) SET ASIDE THE DISALLOWANCE UNDER SECTION 14A. WE FIND THAT T HE TRIBUNAL IN THE ASSESSEES CASE FOR A.Y. 1999-2000 (IN I.T.A. N O. 919/COCH/207 AND 879/COCH/2004 I.T.A. NO. 10 & 66/COCH/ 2009 5 DATED 30.6.2009) REMITTED THE MATTER BACK TO THE FI LE OF THE AO FOR RE-COMPUTING THE DISALLOWANCE U/S. 14A IN ACCORDANCE WITH RULE 8D (I NTRODUCED BY INCOME TAX (5 TH AMENDMENT) RULES 2008 NOTING THAT THE SAME AS RET ROSPECTIVE AS HELD IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT PVT. LTD. (SUPRA). LIKEWISE FOR A.Y. 2003-04 (IN 854/COCH/2007 DATED 6.8.2009) THE DISALLOWANCE U/S . 14A STOOD CONFIRMED BY IT FOR THE SAME REASON. THE DIFFERENCE IN THE STAND BY THE TRIBUNAL IN THE MATT ER FOR DIFFERENT YEARS HAS BEEN WE OBSERVE PRIMARILY ON THE BASIS OF WHETHER SECTION 14A(2) (AND S. 14A(3)) READ WITH RULE 8D IS RETROSPECTIVE IN ITS OPERATION OR NOT. T HE ASSESSMENT ORDER FOR THE YEAR HAS BEEN PASSED ON 28.12.2007 I.E. PRIOR TO THE DATE (24.3 .2008) OF THE PRESCRIPTION OF THE RELEVANT RULE (R. 8D) WHICH IS ONLY TO GIVE EFFECT TO THE P ROVISIONS OF SECTION 14A(2) AND 14A(3). THE SAME THEREFORE COULD NOT POSSIBLY BE APPLIED PRIO R TO THAT DATE. AS SUCH THE QUESTION OF THE RETROSPECTIVITY OF THE SAID SECTIONS WHICH STAND B ROUGHT ON THE STATUTE BY FINANCE ACT 2006 (WITH EFFECT FROM 1.4.2007) [WHILE RENUMBERING SEC TION 14A (AS S. 14A(1))] DOES NOT ARISE AND HAS NO BEARING IN THE PRESENT CASE. THE AO HAS NEITHER APPLIED THE SAID SECTIONS OR THE SAID RULE NOR POSSIBLY COULD HAVING BEEN PRESCRIB ED ONLY LATER AND HIS ORDER IS DE HORS ANY REFERENCE THERE-TO. 6.2 THE FIRST QUESTION THAT NEEDS TO BE ADDRESSED THEREFORE IS WHETHER SECTION 14A COULD BE INVOKED IN THE ABSENCE OF R. 8D R/W SS. 14A (2) AND 14A(3) OF THE ACT. WE DO NOT SEE AS TO HOW THE ANSWER COULD BE IN THE NEGATIVE. IF THA T BE SO NO DISALLOWANCE COULD BE MADE U/S. 14A FOR THE ASSESSMENT YEARS 2002-03 AND 2006-07. THIS IS MORE SO AS SECTION 14A IS ADMITTEDLY DECLARATIVE OF THE LAW AS IT ALWAYS STOO D. NO DOUBT THE APEX COURT IN THE CASE OF RAJASTHAN WAREHOUSING CORPORATION VS. CIT (2000) 242 ITR 450 (SC) HAS SAID THAT THERE IS NOTHING TO MERIT AN ALLOCATION OF EXPENDITURE QUA TAXABLE AND TAX-FREE INCOMES ARISING OUT OF ONE INDIVIDUAL BUSINESS BUT THAT POSITION CAN NO LONGER BE SAID TO OBTAIN IN VIEW OF SECTION 14A. 6.3 THE NEXT QUESTION IS WHETHER IN THE ABSENCE O F THE PRESCRIBED STANDARD METHOD THE DISALLOWANCE U/S. 14A COULD OBTAIN. WE ARE AGAIN UNABLE TO SEE AS TO HOW IT COULD NOT BE. WHETHER THERE IS ANY INCOME NOT FORMING PART OF THE TAXABLE INCOME AND FURTHER WHETHER I.T.A. NO. 10 & 66/COCH/ 2009 6 ANY EXPENDITURE STANDS INCURRED IN RELATION TO THER E-TO ARE ESSENTIALLY MATTERS OF FACT AND NOT OF LAW. THE EXISTENCE OF THE TWO IS NECESSARY AND IF FOUND AS SO VALIDATE THE INVOCATION OF SECTION 14A. WHAT IS THE EXTENT OF EXPENDITURE THA T CAN BE SAID TO BE INCURRED IN RELATION TO THE TAX-EXEMPT INCOME IS AGAIN A MATTER OF FACT A ND WOULD BE DETERMINED AT THE END OF THE AO WHOSE POWERS IN THE MATTER ARE PLENARY THOUGH SUBJECT TO RULE OF REASONABILITY AND OBJECTIVITY. THE DECISION BY THE APEX COURT IN THE CASE OF COFFEE CONSOLIDATED LTD. VS. STATE OF KARNATAKA (SUPRA) RELIED UPON BY THE AO IS VERY RELEVANT IN THIS REGARD. IN THE FACTS OF THAT CASE THERE WAS MIXED INCOME I.E. TAXABLE AS WELL AS TAX-EXEMPT AND THE QUESTION AROSE AS TO THE ALLOCATION OF THE HEAD OFFICE (HO) EXPENS ES WHICH STOOD IN THE ABSENCE OF THE DETAILS ALLOCATED BY THE AO IN THE PROPORTION OF G ROSS RECEIPT. THE APEX COURT CONFIRMED THE SAME JUSTIFYING IT ON THE BASIS OF REASONABILITY I N FACE OF THE MATERIAL AVAILABLE WITH THE AO. IN THE FACTS OF THE PRESENT CASE THE ASSESSEE HAS EARNED DIVIDEND INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. QUITE APART FROM THE MANAGEMENT EXPENSES WHICH HAVE NOT BEEN ALLOCATED BY THE AO THE SAME R EQUIRES INVESTMENT OF FUNDS IN SECURITIES BEING SHARES IN COMPANIES AND UNITS OF MUTUAL FUNDS. THE ASSESSEE MAINTAINS THAT THE SAME ARE ONLY OUT OF NET-OWNED FUNDS. HOWEVER IT FURNISHES NO DETAILS IN SUPPORT OF ITS CLAIM(S). IT JUSTIFIES ITS STAND ON THE BASIS THAT THE TAX-FREE SECURITIES YIELD A LOWER RETURN WHICH WOULD NOT BE VIABLE ON THE BASIS OF INTEREST- BEARING CAPITAL. WE ARE UNABLE TO AGREE. FIRSTLY THE QUESTION IS ONE OF FACT. FURTHER THE AVERAGE COST OF FUNDS IS WHAT IS RELEVANT I.E. WHILE RECKONING THE VIABILITY OF ANY INVESTMENT. S ECONDLY TAX-FREE SECURITIES ARE REQUIRED TO BE PURCHASED BY A BANKING COMPANY TO MITIGATE ITS B USINESS RISK AS WELL AS TO COMPLY WITH THE STATUTORY GUIDELINES. THE ASSESSEE HAS NOT FUR NISHED ANY MATERIAL TO JUSTIFY THE INVESTMENT IN SHARES AND UNITS AS SELF-FINANCED IN THE ABSENCE OF WHICH THE CONSIDERATION OF THE SAME AS BEING FROM A COMMON POOL OF FUNDS AVAIL ABLE WITH THE ASSESSEE CANNOT BE FAULTED. THE DISALLOWANCE AS EFFECTED IS THUS JUSTIFIABLE UNDER THE CIRCUMSTANCES. WE DECIDE ACCORDINGLY. 6.4 THE RELIANCE ON THE DECISION IN THE CASE OF CIT VS. HERO CYCLES LTD. 31 DTR 301 (P&H) IS MIS-PLACED. THE SAME IS BASED ON THE FACT UAL FINDING BY THE TRIBUNAL THAT THE INVESTMENT IN THE RELEVANT SECURITIES STOOD FINANCE D BY THE ASSESSEE FROM ITS OWN/INTEREST-FREE CAPITAL SO THAT THE HONBLE COURT HELD THAT THE DI SALLOWANCE U/S. 14A COULD NOT BE A MATTER OF I.T.A. NO. 10 & 66/COCH/ 2009 7 PRESUMPTION AND WOULD NOT FOLLOW MERELY BECAUSE TH E ASSESSEE HAD A TAX-FREE INCOME. IN FACT THIS IS PRECISELY WHAT WE HAVE OBSERVED I.E. THAT FINANCING OF THE IMPUGNED INVESTMENTS CANNOT BE A MATTER OF PRESUMPTION BUT IS TO BE ESTABLISHED AS A MATTER OF FACT. IN THE FACTS OF THAT CASE THE INTEREST EXPENDITURE P ART OF WHICH WAS SOUGHT TO BE DISALLOWED U/S. 14A WAS LESS THAN THE INTEREST INCOME OF THE ASSES SEE-RESPONDENTS SINGLE UNIT I.E. THE ENTIRE INTEREST BEARING CAPITAL COULD BE SAID TO HAVE BEEN INVESTED TO YIELD INTEREST INCOME; THE ASSESSEE FURNISHING DETAILED FUND FLOW STATEMENT TO REFURBISH ITS STAND. THE SAID CASE THUS HAS NO APPLICATION IN THE FACTS OF THE PRESENT CASE . 7. THE LAST ISSUE RAISED PER THE ASSESSEES APPEAL IS IN RESPECT OF THE INCLUSION OF THE EXCESS CASH WITH THE ASSESSEE-BANK AS ON 31.3.2005 . THE CASH ACCOUNT IS CLOSED AT THE END OF EACH DAY BY EVERY BRANCH AFTER PHYSICAL VERIFICATIO N OF THE CASH BALANCE WITH IT. WHERE FOUND IN EXCESS I.E. VIS--VIS THE BALANCE AS PER THE C ASH-BOOK THE SAME IS BROUGHT IN BOOKS UNDER THE ACCOUNT HEAD SUSPENSE TO BE GIVEN TO THE CLA IMANT(S) ON PRODUCTION OF EVIDENCE I.E. OF HIS HAVING RECEIVED SHORT CASH AT THE TIME OF WITHD RAWAL (FROM THE BANK) OR ALTERNATIVELY GIVEN EXCESS CASH WHILE DEPOSITING CASH WITH IT. TH E BALANCE IN THE `SUSPENSE ACCOUNT AS AT THE YEAR END BEING AT ` 952434/- THE AO BROUGHT THE SAME TO TAX AT ` 9.52 LAKHS APPLYING THE DOCTRINE OF UNJUST ENRICHMENT [REFER: SHREE DIGVIJAY CEMENT MILLS LTD. VS. UNION OF INDIA (2002) 259 ITR 705 (SC)]. THE LD. CIT(A) IN APPEA L FOUND THAT THERE WERE NO CLAIMANTS AND THE BANK HAD NO DETAILS OF THE BREAK-UP OF THE CASH OSTENSIBLY BELONGING TO THE CUSTOMERS. AS SUCH THE SUSPENSE ACCOUNT COULD NOT BE SAID TO BE REPRESENTING THE BANKS ASCERTAINED LIABILITY. UNDER THE CIRCUMSTANCES TH E SAME COULD ONLY BE CONSIDERED AS THE ASSESSEES MISCELLANEOUS INCOME FINDING THE PRINCI PLE WITH REGARD TO OWNERSHIP AS LAID DOWN BY THE APEX COURT IN THE CASE OF SHREE DIGVIJAY CEMENT MILLS LTD. VS. UNION OF INDIA (SUPRA) AS APPLICABLE. AGGRIEVED THE ASSESSEE IS IN APPEAL . 8.1 WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THAT THE CASH UNDER REFERENCE REPRESENTS CASH IN EXCESS OF THAT DETERMI NED AS PER THE BOOKS OF ACCOUNT AND THAT THERE ARE NO CLAIMANTS THERE-FOR ARE ADMITTED FACT S. FURTHER THE ASSESSEES ACCOUNTS (FOR THE CURRRENT AS WELL AS THE EARLIER YEARS) BEING AUDITE D THE BOOK BALANCE IN RESPECT OF CASH HELD (I.E. APART FROM THE SUSPENSE ACCOUNT) CAN BE SAID TO REPRESENT CORRECT BALANCE THEREOF ON I.T.A. NO. 10 & 66/COCH/ 2009 8 THE BASIS OF THE TRANSACTIONS ENTERED INTO BY THE B ANK. THAT IS IT CAN BE REASONABLY PRESUMED TO BE A TRUE AND ACCURATE RECORD SO THAT THERE ARE NO UNRECORDED OR MIS-RECORDED TRANSACTIONS WHICH COULD ALSO RESULT IN A DIFFERENCE BETWEEN THE PHYSICAL AND BOOK BALANCE OF CASH-IN- HAND. AS SUCH THE EXCESS CASH WITH THE ASSESSEE CO ULD ONLY BE EXPLAINED ON THE BASIS OF AN ACTUAL MIS-MATCH OF THE PHYSICAL CASH WITH THAT REC ORDED QUA ITS TRANSACTIONS I.E. AN ACTUAL EXCESS CASH RECEIPT. IN FACT WE FIND THAT THE ASS ESSEE DOES NOT DENY THE SAME. ITS ONLY CLAIM IS THAT THE SAID EXCESS HAS ARISEN OVER THE 84 YEAR S OF ITS OPERATIONS I.E. SINCE INCEPTION; THAT BOOKED FOR THE CURRENT YEAR BEING AT ` 94 404/- ONLY. AS SUCH THE ENTIRE OF IT COULD NOT POSSIBLY BE ITS INCOME FOR THE YEAR; THE WORDS INC OME AND ASSESSMENT YEAR HAVING BEEN SPECIFICALLY DEFINED UNDER THE ACT. 8.2 WE HAVE GIVEN A CAREFUL CONSIDERATION TO TH E MATTER WHEREUPON WE ARE INCLINED TO BE IN AGREEMENT WITH THE REVENUE I.E. IN PRINCIPLE. THE AMOUNTS STAND RECEIVED BY THE BANK ONLY IN THE ORDINARY COURSE OF ITS DAY-TO-DAY ACTIV ITIES/REGULAR BUSINESS. THAT THERE ARE NO CLAIMS IN ITS RESPECT IS ALSO ADMITTED. HOW COULD THEREFORE IT COULD BE CONSIDERED AS AN EXISTING LIABILITY ? THE SAME CAN AT BEST BE A CONTINGENT LIABILITY O F THE BANK I.E. TO BE GIVEN TO THE CUSTOMER IN CASE HE IS ABLE TO SUBSTANTIATE HIS CLAIM. NO SUCH CLAIMS ARE OUTSTANDING AND WHICH WOULD IF SO ONLY LEAD TO A SEGREGATION OF THE AMOUNT SUBJECT TO SUCH CLAIM/S. THE OWNERSHIP OF THE BANK UNDER THE CIRCUMSTANCES C ANNOT BE DENIED. WE FIND THE PRINCIPLES ENUMERATED BY THE APEX COURT IN THE CASE OF SHREE DIGVIJAY CEMENT MILLS LTD. VS. UNION OF INDIA (SUPRA) RELIED UPON BY THE REVENUE AND CIT VS. T.V. SUNDARAM IYENGAR & SONS LTD. (1996) 222 ITR 344 (SC) AS APPLICABLE IN THE UNDIS PUTED FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEES CLAIM MADE WITH REFERENCE TO ITS ANNUAL ACCOUNTS DECLARING IT AS A LIABILITY WE FIND AS OF NO CONSEQUENCE IN VIEW OF THE FINDING OF THE SUSPENSE ACCOUNT REPRESENTING A NON-EXISTENT OR AT BEST A CONTINGENT LIABILITY OF THE BANK. SO HOWEVER WE FIND MERIT IN THE ASSESSEES CLAIM WITH REFERENCE TO THE QUANTUM. THE EXCESS CASH OR THE CREDIT BALANCE IN THE SUSPENSE A/C FINDS REFLECTION IN THE ASSESSEES ACCOUNTS FROM YEAR TO YEAR. THE FACTORS RESPONSIBLE FOR THE SAME OR THE FACTS AND CIRCUMSTANCE OF THE CASE IN ITS RESPECT REMAIN THE SAME AS FOR THE EARLIER YEARS. AS SUCH ONLY THE EXCESS ARISING DURING THE CURRENT YEAR WHICH STANDS CLAIMED AT ` 94 404/- THOUGH WE FIND NO FINDING BY THE AUTHORIT IES BELOW I.T.A. NO. 10 & 66/COCH/ 2009 9 IN ITS RESPECT COULD BE SAID TO BE THE ASSESSEES `INCOME FOR THE YEAR. WE MAY THOUGH BEFORE PARTING WITH THE MATTER CLARIFY THAT WE ARE NOT IN ANY MANNER THEREBY SUGGESTING THAT THE EXCESS CASH BECOMES THE ASSESSEES INCOME ON IT S RECEIPT AND THAT `TIME HAS NO FUNCTION IN THE MATTER SO THAT ONLY THE EXCESS CASH ARISING DURING THE CURRENT YEAR FALLS TO BE CONSIDERED AS THE INCOME OF THE YEAR. AT THE SAME T IME HOWEVER IT CANNOT BE OVER- EMPHASIZED THAT THE PROBABILITY OF THE PRODUCTION O F EVIDENCE TO CLAIM THE SAID CASH (BY A CUSTOMER) REDUCES DRASTICALLY WITH THE LAPSE OF TIM E. THAT IS IS HIGHEST WITHIN THE SHORT TIME OF THE TRANSACTION AND ALMOST NIL A FEW DAYS LATER . THIS IS AS ONCE THE CASH BUNDLE BEARING THE BANKS SEAL IS BROKEN IT IS NOT POSSIBLE TO CO NTEND BY A CUSTOMER THAT THE CASH RECEIVED BY HIM FROM THE BANK IS PHYSICALLY SHORT. SIMILARLY C LEARLY THE BANK HAS NO RECORD OR CLUE AS TO FROM WHOM OR WITH RESPECT TO WHICH TRANSACTION/S THE EXCESS CASH STANDS RECEIVED BY IT. IF THE BANK COULD IDENTIFY THE CASH BUNDLE/S BEARING T HE EXCESS `NOTE/S WITH A PARTICULAR TRANSACTION/S IT WOULD IMMEDIATELY NOTIFY THE CONC ERNED DEPOSITOR/PAYER OR EVEN CREDIT HIS ACCOUNT. AS SUCH IT CAN BE SAFELY ASSUMED THAT IF NO CLAIM STANDS LODGED QUA CASH FOUND EXCESS DURING THE YEAR UP TO ITS END OR EVEN UP TO THE DATE OF THE CLOSE OF THE ACCOUNTS FOR THAT YEAR NONE WOULD. CONSEQUENTLY THE PROPERTY IN TH E SAME CAN BE SAID TO HAVE PASSED PER FORCE THE CIRCUMSTANCES TO THE ASSESSEE-BANK WHICH IN ANY CASE TREATS IT AS PART OF ITS REGULAR CASH. FURTHER NEEDLESS TO ADD ANY CLAIM ARISING AND HONOURED IN FUTURE QUA CASH CONSIDERED AS INCOME FOR A YEAR WOULD QUALIFY FOR D EDUCTION FOR THAT YEAR. WE DECIDE ACCORDINGLY AND THE ASSESSEES RELEVANT GROUND(S) ARE DISMISSED. I.T.A. NO. 66/COCH/2009 (REVENUES APPEAL) . . 9.1 THE FIRST ISSUE IN THE REVENUES APPEAL IS THE DELETION OF A DISALLOWANCE IN THE SUM OF ` 29 62 88 373/- EFFECTED BY THE AO U/S. 36(1)(VII) I.E. TOWARD DEBTS WRITTEN OFF IN BOOKS AS IRRECOVERABLE IN THE COMPUTATION OF THE ASSESSEES TAXABLE INCO ME FOR THE YEAR ( REFER ASSESSEES GROUND NO. 2 BEFORE THE LD. CIT(A) ). THE REVENUES GROUND HOWEVER AGITATES THE DELETION IN THE SUM OF ` 8 68 96 796/- ONLY. THIS IS AS WE DISCERN FROM TH E ORDERS OF THE AUTHORITIES BELOW FOR THE REASON THAT THE ASSESSEE HAD MADE A CLAIM U/S. 36(1)(VII) OF THE ACT FOR ` 868.97 LAKHS ONLY ( REFER PARA 2 PG. 2 OF THE ASSESSMENT ORDER ). AS SUCH THE I.T.A. NO. 10 & 66/COCH/ 2009 10 DISALLOWANCE COULD BE EFFECTED ONLY TO THAT EXTENT AND THE REVENUES APPEAL LIMITING ITS GRIEVANCE TO THE LATTER AMOUNT APPEARS TO BE IN RE COGNITION OF THE ERROR COMMITTED BY THE AO. 9.2 COMING TO THE FACTS OF THE CASE THE ASSESSEES CLAIM STOOD DISALLOWED BY THE AO AS BEING A BANK AND FURTHER WHICH HAD CLAIMED AND BE EN ALLOWED DEDUCTION U/S. 36(1) (VIIA) I.E. QUA THE PROVISION FOR BAD AND DOUBTFUL DEBTS BOTH FOR THE PAST AS WELL AS FOR THE CURRENT YEAR (AT ` 2 66 27 755/-) IT COULD NOT SHOW AS TO HOW THE CLA IM U/S. 36(1)(VII) EXCEEDED THE CREDIT BALANCE OUTSTANDING IN THE PROVISION ACCOUNT THE BALANCE IN WHICH ACCOUNT AS AT THE RELEVANT YEAR-END (31.3.2005) WAS AT ` 8238.07 LAKHS. THAT IS THE ASSESSEES CLAIM FOR BA D DEBTS WRITTEN OFF AS IRRECOVERABLE (AT ` 2962.88 LACS) WAS WELL BELOW THE CREDIT BALANCE OUTSTANDING IN THE PROVISION ACCOUNT SO THAT THE C ONDITION OF PROVISO U/S. 36(1)(VII) WAS NOT MET FOR THE SAME TO BE ALLOWED. THE ASSESSEE HAD INFACT NOT DEBITED THE AMOUNT OF WRITE OFF TO THE PROVISION ACCOUNT AS APPARENT FROM THE FACT THAT THE CLOSING BALANCE (AT THE YEAR- END) MATCHED THE OPENING BALANCE FOR THE YEAR ( ` 7971.79 LAKHS) AND THE PROVISION FOR THE YEAR CREDITED TO THE ACCOUNT SO THAT THE CONDITION OF SECTION 36(2)(V) WAS ALSO NOT MET. THE ASSESSEES CASE WHICH FOUND FAVOUR WITH THE LD. CI T(A) SUBSEQUENTLY IS THAT WHILE THE PROVISION IS IN RESPECT OF ADVANCES BY ITS RURAL BR ANCHES THE WRITE OFF IS OF THE URBAN (NON RURAL) ADVANCES SO THAT THERE IS NO CORRESPONDENCE BETWEEN THE TWO CLAIMS WHICH ARE INDEPENDENT OF EACH OF OTHER. WHILE THE AO REJECTE D THE ASSESSEES CLAIM RELYING ON THE EXPRESS PROVISIONS OF THE ACT WHICH DID NOT PROVID E FOR ANY DISTINCTION BETWEEN THE TWO CLAIMS I.E. QUA THE NATURE OF THE ADVANCES AND FURTHER PROVIDE F OR A CO-RELATION INASMUCH AS THE CLAIM U/S. 36(1)(VII) IS MAINTAINABLE ONLY TO T HE EXTENT IT EXCEEDS THE PROVISION U/S. 36(1)(VIIA) DRAWING FURTHER SUPPORT FROM SECTION 3 6(2)(V) (WHICH PROVIDES FOR THE DEBIT OF THE WRITE OFF TO THE PROVISION ACCOUNT) THE LD. CI T(A) ALLOWED THE SAME ON THE BASIS OF THE DECISIONS BY THE JURISDICTIONAL HIGH COURT PRINCIP ALLY IN THE CASE OF SOUTH INDIAN BANK LTD. VS. CIT 262 ITR 579 (KER.) CITED BEFORE HIM. 10. BEFORE US THE CASE OF BOTH THE PARTIES REM AINED THE SAME. WE MAY FIRSTLY CLARIFY THAT EVEN THOUGH THE ASSESSEE MAY HAVE WRITTEN OFF DEBTS AS IRRECOVERABLE IN ITS ACCOUNTS FOR THE I.T.A. NO. 10 & 66/COCH/ 2009 11 YEAR AT ` 2962.88 LAKHS ITS CLAIM U/S. 36(1)(VII) IS ONLY FO R ` 868.97 LAKHS SO THAT THE DISALLOWANCE IF ANY COULD NOT EXCEED THE SAME. O N MERITS THE ASSESSEES CLAIM IS BASED ON THE DECISION IN THE CASE OF SOUTH INDIAN BANK LTD. VS. CIT (SUPRA). THE SAME STANDS OVER- RULED BY THE FULL BENCH JUDGEMENT ( IN ITA NO. 161 OF 2009 DATED 16/12/2009 COPY ON RECORD ). THE OBSERVATIONS AND THE STAND BY THE HONBLE C OURT PER ITS FULL BENCH (SUPRA) ENDORSE THE CLAIMS AND CONTENTIONS BY THE REVENUE P ER THE ASSESSMENT ORDER AS ALSO FOUND BY THE TRIBUNAL (COCHIN BENCH) IN ITS ORDER IN THE CASE OF THE FEDERAL BANK LTD. V. DY. CIT (IN ITA NOS. 710 & 718/COCH./2008 DATED 17/9/2010). WE THEREFORE HAVE NO HESITATION IN UPHOLDING THE SAME IN PRINCIPLE. HOWEVER AS THERE IS CONSIDERABLE AND UNEXPLAINED VARIATION BETWEEN THE PROVISION ACCOUNT AS DRAWN IN THE ASSESSMENT ORDER AND THAT PROVIDED BY THE ASSESSEE PE ITS `STATEMENT OF FACTS BEFOR E THE FIRST APPELLATE AUTHORITY WE ONLY CONSIDER IT FIT TO RESTORE THE MATTER BACK TO THE FILE OF THE AO WHO SHALL ALSO EXAMINE THE SATISFACTION OF THE CONDITION .OF SECTION 36(2)(V) (WHICH HE CLAIMS AS NOT MET TO NO FINDING BY THE LD. CIT(A)) TO COMPUTE THE ASSESSEES CLAIM U/S. 36(1)(VII) AS EXIGIBLE UNDER LAW AS FURTHER EXPLAINED BY THE HONBLE HIGH COURT PER ITS FULL BENCH DECISION IN THE CASE OF SOUTH INDIAN BANK LTD. (SUPRA) AND OF COURSE AFTER ALLOWING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE DECIDE ACCORDINGLY. 11. THE REVENUES SECOND GROUND IS QUA ALLOWANCE OF LOSS ON AMORTISATION OF PREMIUM ON PURCHASE OF CENTRAL GOVERNMENT SECURITIES AT ` 90953000/- . THE SAME STOOD PURCHASED BY THE ASSESSEE AT A PREMIUM WHICH STANDS AMORTISE D OVER THE LIFE (OR TERM) OF THE RELEVANT SECURITY(S) IN TERMS OF THE GUIDELINES ISSUED BY TH E RBI FOR STATING THE SAME IN THE ACCOUNTS. THE AO DISALLOWED THE SAME AS BEING A PART OF THE P URCHASE COST OF A PERMANENT CATEGORY INVESTMENT (BEING HELD ON HOLD TO MATURITY HTM BASIS) I.E. A `CAPITAL ASSET SO THAT ITS WRITE OFF REPRESENTS A CAPITAL LOSS I.E. A LOSS O F CAPITAL. THE LD. CIT(A) ALLOWED THE SAME FOLLOWING THE DECISION BY THE TRIBUNAL IN THE ASSES SEES OWN CASE FOR A.Y. 1996-97 IN I.T.A. NO. 106/COCH/2007. AGGRIEVED THE REVENUE IS IN APP EAL. 12. THE ASSESSEE BEFORE US PLACED RELIANCE ON THE DECISION IN ITS OWN CASE FOR AN EARLIER YEAR (IN I.T.A. NO. 345/COCH/2008 DATED 6.8.2009 FO R AY 2000-01). THE TRIBUNAL IN THAT I.T.A. NO. 10 & 66/COCH/ 2009 12 CASE FOLLOWING ITS EARLIER DECISION IN THE CASE OF SOUTH INDIAN BANK LTD . (IN ITA NO. 126/COCH./2004 DTD. 19/9/2005) WHERE THIS MATTER S TOOD EXAMINED BY IT IN DETAIL HELD IN THE ASSESSEES FAVOUR. NO CONTRARY DECISION OR DISTINCT IVE FEATURE HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. DR. THAT THE LOSS IS IN ACCORDANCE WITH THE RBI PRUDENTIAL NORMS (CIRCULAR NO. DBOD NO. BP.BC.11/21.4.141/2004-05 DATED 17.7.2004) AND IN PURSUANCE TO THE REGULARLY FOLLOWED METHOD OF ACCOUNTING IS ALSO NOT IN DISPUT E. ACCORDINGLY WE SEE NO REASON TO INTERFERE WITH THE IMPUGNED ORDER IN THE MATTER. WE DECIDE ACCORDINGLY DISMISSING THE REVENUES RELEVANT GROUND/S. 13. THE THIRD ISSUE PERTAINS TO THE `UNCLAIMED DEPO SITS AT 279 LAKHS. THE SAME WERE ADMITTEDLY RECEIVED BY THE ASSESSEE-BANK FROM THE P UBLIC IN THE REGULAR COURSE OF ITS BANKING BUSINESS. THE REVENUES STAND IS THAT ON ACCOUNT OF BEING UNCLAIMED FOR SEVERAL YEARS THE CHARACTER OF THE SAME STANDS CHANGED. EVEN THOUGH T HE ASSESSEE CONTINUES REFLECTING IT AS A LIABILITY IN ITS ACCOUNTS AND HAS NOT WRITTEN IT B ACK AS ITS INCOME IT IS FOR ALL PRACTICAL PURPOSES THE ASSESSEES OWN MONEY. APPLYING THE PRI NCIPLES ENUMERATED IN THE CASE OF CIT VS. T.V. SUNDERAM IYENGAR & SONS PVT. LTD (SUPRA) THE AO BROUGHT THE SAME TO TAX. THE MATTER WAS EXAMINED ON ITS LEGAL AND FACTUAL ASPECT S BY THE LD. CIT(A). THE DEPOSITS BY A BANKING COMPANY WERE COVERED BY SECTION 26 OF THE B ANKING REGULATION ACT 1949. AS PER THE SAME THE BANK HAS TO INTIMATE ALL SUCH ACCOUNT S TO BE CLASSIFIED SEPARATELY WHERE INOPERATIVE FOR 10 YEARS TO THE RBI WITHIN 30 DAYS OF THE END OF EACH CALENDAR YEAR. THE INTENTION BEHIND THE SAME IS TO ENABLE THE RBI TO C ONSIDER THE DATE FOR THE TRANSFER OF SUCH DEPOSITS TO THE GOVERNMENT. THERE IS THUS NO QUES TION OF THESE AMOUNTS BEING APPROPRIATED BY THE BANK AT ANY STAGE. SECTION 22 OF LIMITATION ACT 1963 PROVIDES FOR NO LIMITATION FOR HOLDING AND /OR CLAIMING DEPOSITS. THE LIMITATION IS ONLY WITH RESPECT TO THE RE-PAYMENT THEREOF I.E. WITHIN THREE YEARS OF THE CLAIM BY T HE DEPOSITOR OR THE PERSON CLAIMING THROUGH HIM. IN FACT THE LATEST INSTRUCTION BY THE RBI (C IRCULAR NO. RBI/2008-09/138 DBOD NO. LEG. BC.34/9.7.005/2008-09 DATED 22.8.2008) REQUIRE S THE BANKS TO PROVIDE INTEREST ON SUCH ACCOUNTS WHILE SEEKING OUT THE ACCOUNT HOLDERS PRO ACTIVELY. THE SAME THUS CONTINUE TO BE THE BANKS LIABILITY AT ALL TIMES. ON FACTS ON TH E BASIS OF SAMPLE DETAILS CALLED FOR BY THE LD. CIT(A) IT WAS FOUND BY HER THAT THE BANK HAD HONOU RED A CLAIM QUA FIXED DEPOSITS ELEVEN I.T.A. NO. 10 & 66/COCH/ 2009 13 (11) YEARS AFTER THE SAME HAD MATURED. THE SAME TH EREFORE DID NOT INURE TO THE ASSESSEE AT ANY TIME. THE DECISION IN THE CASE OF CIT VS. T.V. SUNDERAM IYENGAR & SONS PVT. LTD (SUPRA) WOULD NOT APPLY IN THE FACTS OF THE CASE AS NEITHER THERE HAS BEEN A WRITE BACK OF THE DEPOSIT NOR IS LIMITATION APPLICABLE THERETO. AGGRIEVED T HE REVENUE IS IN APPEAL. 14. BEFORE US LIKE CONTENTIONS STOOD RAISED BY EIT HER SIDE EACH RELYING ON THE ORDER OF THE AUTHORITY BELOW AS FAVOURABLE TO IT. THE ASSESSEE HAS IN ADDITION PLACED RELIANCE ON THE FOLLOWING DECISIONS; CIT VS. V.T. KUTTAPPU & SONS 96 ITR 327 (KER.); CIT VS. MOTOR AND GENERAL FINANCE LTD. 94 ITR 582 (DEL.); AND KOHINOOR MILLS CO. LTD. VS. CIT 49 ITR 578 (BOM.). 15. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. THE ASSESSEE CASE IS THAT THERE IS NO CESSATION OF LIABILITY WITH TIME SO THAT THE DECISION IN THE CASE OF CIT VS. T.V. SUNDERAM IYENGAR & SONS PVT. LTD. (SUPRA) WOULD NOT APPLY. FURTHER AS SOUGHT TO BE EMPHASIZED BY THE LD. AR INOPERATIVE DEPOSIT ACCOU NTS OUTSTANDING FOR THE PAST YEARS COULD NOT BE BROUGHT TO TAX FOR THE CURRENT YEAR DURING WHICH THERE HAS BEEN AN ACCRETION OF ` 28.12 LAKHS ONLY TO THE UNCLAIMED DEPOSIT ACCOUNT P ORTFOLIO; WHILE SOME CLAIMS STOOD SATISFIED RESULTING IN OUTSTANDING AS AT YEAR-END AT ` 27892582/-. WE FIND CONSIDERABLE MERIT IN THE ASSESSEES CLAIM. THE ONLY QUESTION TO BE S EEN IS THAT IF THERE HAS BEEN A CESSATION OF LIABILITY IN RESPECT OF THE IMPUGNED DEPOSITS OR NO T. IF THEY NO LONGER CONTINUE TO REPRESENT THE ASSESSEES LIABILITY I.E. AS AT THE YEAREND HAVING BEEN RECEIVED ONLY IN THE COURSE OF ITS BUSINESS THE SAME WOULD DEFINITELY REPRESENT A TRA DE SURPLUS OF THE ASSESSEE-BANK. HOWEVER WE FIND NO BASIS FOR THE REVENUE TO HOLD SO I.E. THAT THESE DO NOT CONSTITUTE THE ASSESSEES LIABILITY. THERE IS NO WRITE BACK IN THE ACCOUNTS. THE ACCOUNTING ENTRIES THOUGH NOT CONCLUSIVE OF THE MATTER ARE YET RELEVANT BEING P URPORTEDLY PASSED ONLY TO EXHIBIT THE TRUE AND FAIR STATE OF AFFAIRS OF THE REPORTING ENTITY. THE SAME THUS COULD BE IGNORED ONLY WHERE THEY ARE NOT IN CONFORMITY WITH THE SUBSTANCE OF TH E TRANSACTIONS THEY PURPORT TO REPRESENT AND THUS DO NOT REPRESENT OR DO NOT DO SO CORREC TLY OR ACCURATELY WHAT THEY PURPORT TO. IN THE INSTANT CASE THERE IS NO LIMITATION. THE BANKI NG REGULATION ACT PROVIDES FOR THE MECHANISM FOR REPORTING THE INFORMATION THEREON TO THE RBI WITH IT HAVING THE POWER TO I.T.A. NO. 10 & 66/COCH/ 2009 14 DIRECT THE BANKS TO TRANSFER THE SAME WHERE INOPER ATIVE FOR 10 YEARS TO THE ACCOUNT OF THE CENTRAL GOVERNMENT. THAT THE RBI HAS NOT DIRECTED SO AND THAT THE AMOUNTS AS WE OBSERVE CONTINUE TO OUTSTAND IN THE BOOKS OF THE ASSESSEE S INCE 1950 IS AN ALTOGETHER DIFFERENT MATTER. IN OTHER WORDS THE SAID DEPOSITS ARE UNDER LAW WIT HIN THE REGULATORY MECHANISM OF THE CENTRAL BANK WHICH PROVIDES FOR GUIDELINES IN ITS RESPECT TO THE BANKS FROM TIME TO TIME. ITS RECENT ADVISORY OF AUGUST 2008 (COPY ON RECORD) RE QUIRES THE BANKS TO REVIEW ITS ACCOUNTS ANNUALLY FOR THE SAME CLASSIFYING SUCH ACCOUNTS AS INOPERATIVE WHERE THERE ARE NO TRANSACTIONS DEBIT OR CREDIT FOR A PERIOD OF TW O YEARS WHILE BEING PUT ON ENQUIRY AND INITIATING STEPS TO LOCATE THE CUSTOMERS AND IN TH EIR ABSENCE OTHER CLAIMANTS ETC. ON ONE YEAR OF NO TRANSACTION. THE BANKS ARE ALSO REQUIRED TO P ROVIDE INTEREST ON THE DEPOSITS AT THE EXTANT RATE(S). IT HAS ALSO ADVISED CAUTION IN DEALING WI TH SUCH ACCOUNTS BEING PRONE TO FRAUDS ETC. ALBEIT WITHOUT PUTTING THE CUSTOMERS TO INCONVENIE NCE. THE BANK IS AN INCORPOREAL ENTITY A SEPARATE LEGAL PERSON WITH PERPETUAL EXISTENCE. UN DER THE CIRCUMSTANCES WE CANNOT SEE AS TO HOW THE UNCLAIMED INOPERATIVE DEPOSIT ACCOUNTS COU LD BE CONSIDERED AS NOT BEING THE BANKS LIABILITY. THE MATTER HAS BOTH FACTUAL AND LEGAL D IMENSIONS TO IT. IN A GIVEN CASE IT COULD BE THAT THERE ARE NO CLAIMS AS SAY WHETHER AN INDIVI DUAL DEPOSITOR DIES WITH NO KNOWN LEGAL HEIRS. IN SUCH A CASE SUBJECT TO LAW OF ESCHEAT IT COULD BE SAID TO REPRESENT THE ASSESSEE- BANKS MONEY ASSESSABLE AS INCOME U/S. 28(I) OR S AY WHERE AN INCORPORATED ENTITY BECOMES DEFUNCT WITH THE TIME LIMITATION FOR ITS RESTORATI ON HAVING EXPIRED. HOWEVER EVEN HERE UNLESS THE BANK CAN ASSUME PROPRIETARY RIGHTS OVER THE SAME AND FOR WHICH THE RELEVANT PROVISIONS OF THE APPLICABLE LAWS MAY HAVE TO BE EX AMINED IT CANNOT BE SAID THAT IT NO LONGER REPRESENTS A LIABILITY OF THE BANK WHICH MUST IN ORDER TO BE SO BE SATISFIED ON BOTH FACTUAL AND LEGAL COUNTS. THE REVENUE RELEVANT GROUND(S) I S DISMISSED. 16. THE FOURTH AND FINAL ISSUE IN THE REVENUES APP EAL IS IN RESPECT OF THE SURPLUS REALISED BY THE BANK ON THE SALE OF GOLD ORNAMENTS PLEDGED W ITH IT . THE ASSESSEE-BANK IS ADVANCING GOLD LOANS AGAINST PAWN OF JEWELLERY. WHEN THE BORR OWER IS UNABLE TO PAY THE LOAN THE BANK AUCTIONS THE GOLD PLEDGED TO LIQUIDATE ITS OUTSTAND ING. THE SURPLUS I.E. THE AMOUNT REALISED IN EXCESS OF THE BORROWERS LIABILITY IS MARKED AS OTHER LIABILITIES IN ITS BOOKS. WHILE THE ASSESSEE CLAIMS IT TO BE ONLY A LIABILITY THE REVE NUE CLAIMS IT TO BE ITS INCOME INASMUCH AS I.T.A. NO. 10 & 66/COCH/ 2009 15 THE BANK HAS RETAINED THE AMOUNT FOR WHICH CLAIMS A RE NOT FORTHCOMING IN VIEW OF THE DECISION BY THE APEX COURT IN THE CASE OF SHREE DIGVIJAY CEMENT MILLS LTD. V. UNION OF INDIA (SUPRA). THE LD. CIT(A) FOUND THAT IN A PARTICULAR CASE THE AMOUNT STOOD PAID TO THE BORROWER ON 20.4.2005 EVEN THOUGH THE AUCTION HAD TAKEN PLAC E AS EARLY AS 15.11.1990 I.E. ABOUT 15 YEARS EARLIER. THERE WAS NO CESSATION OF LIABILITY IN TERMS OF SECTION 41 AND THE DOCTRINE OF UNJUST ENRICHMENT AS EXPLAINED BY THE APEX COURT I N THE CASE OF SHREE DIGVIJAY CEMENT MILLS LTD. V. UNION OF INDIA (SUPRA) DID NOT APPLY IN THE FACTS AND CIRCUMSTAN CES OF THE CASE. 17. WE HAVE GIVEN OUR CAREFUL CONSIDERATION OF THE MATTER. THE BORROWERS HAVE NOT COME FORWARD FOR YEARS TO HONOUR THEIR DUES TO THE BANK AND/OR CLAIM THEIR GOLD BACK THE VALUE OF WHICH EXCEEDS THAT OF THEIR DUES TO THE BANK INCLU DING INTEREST TO DATE (OF REALIZATION). IN OTHER WORDS THE BORROWER-OWNERS OF THE GOLD ARE NO T TRACEABLE. IN FACT THE BANK WOULD HAVE PROCEEDED TO AUCTION THEIR VALUABLES ONLY AFTER DUE NOTICE TO THEM I.E. AT THE ADDRESS AS COMMUNICATED OR KNOWN TO IT AND ONLY AFTER WAITING SUFFICIENTLY LONG FOR THEIR RESPONSE; RATHER CONTEMPLATING SUCH STEPS FOR RECOVERY ONLY ON THERE BEING NO OPERATION IN THE ACCOUNT FOR A REASONABLY LONG TIME. THE EXCESS AMOUNT REAL ISED IS QUA GOLD HELD AS SECURITY BY THE BANK. THE SAME AS ITS ACCOUNTS AND THE UNDERLYING CONTRACT WOULD SHOW WITHOUT DOUBT BELONGS TO THE BORROWER CONCERNED OR ANYONE CLAMING UNDER HIM. THIS IS A MATTER OF FACT AND ADMITTED. AS SUCH REFERENCE TO THE KERALA MONE Y LENDERS ACT OR OTHER DECISIONS HOLDING SO WOULD NOT BE OF MUCH RELEVANCE. THE MOO T QUESTION HOWEVER IS: WHETHER THERE ARE ANY SUCH CLAIMS OR CLAIMANTS ? IF NOT AS IS THE CASE HOW COULD IT BE CONSIDERE D AS THE BANKS LIABILITY IMPLYING A REAL LIABILITY SO THA T THE IDENTIFICATION OF THE CLAIMANT IS NECESSARY. FOR ALL WE KNOW THE BORROWER/S MAY NOT EVEN BE AWARE OF THE BANK HAVING REALIZED ITS ASSET OR OF THE EXCESS. THE SURPLUS R EALISED IN THE COURSE OF ITS TRADE UNDER THE CIRCUMSTANCES INCLUDING OF LAPSE OF CONSIDERABLE T IME DEFINITELY ACQUIRES THE CHARACTER OF A TRADE RECEIPT. ONE MAY BE TEMPTED TO DRAW A PARALL EL WITH THE CASE OF THE `UNCLAIMED DEPOSITS WHICH WE HAVE HELD AS REPRESENTING THE B ANKS LIABILITY. HOWEVER THE SIMILARITY ONLY EXTENDS TO THE WORD UNCLAIMED QUALIFYING BOT H THE AMOUNTS. A BANK DEPOSIT IS NOT SUBJECT TO ANY LIMITATION UNDER LAW SO THAT THE CL AIM IN ITS RESPECT COULD BE LODGED AT ANY TIME. FURTHER THE SAME ARE SUBJECT TO THE REGULAT ORY MECHANISM OF THE RBI THE CENTRAL I.T.A. NO. 10 & 66/COCH/ 2009 16 BANK WITH THE GOVERNMENT HAVING THE POWER TO DIREC T TRANSFER OF SUCH DEPOSITS AS REMAIN UNCLAIMED FOR 10 YEARS TO IT. AS SUCH EVEN IF TH E DEPOSITOR DOES NOT COME FORWARD TO CLAIM THE AMOUNT OR IT IS NOT POSSIBLE TO REFUND THE AMOU NT TO HIM OR ON HIS BEHALF IT CANNOT BE SAID THAT THE AMOUNT HAS INURED TO THE ASSESSEE I.E. I T CONTINUES TO REPRESENT THE BANKS LEGAL LIABILITY. THE SAME HOWEVER CANNOT BE SAID OF TH E UNCLAIMED SURPLUS ON THE REALIZATION OF THE SECURITY HELD IN THE FORM OF GOLD. FIRSTLY THE SE ARE SUBJECT TO LIMITATION. FURTHER EVEN CONSIDERING THAT THE BANKS INTENTIONS ARE HONOURAB LE OF WHICH WE HAVE NO DOUBT THE AMOUNTS HAVE ADMITTEDLY REMAINED UNPAID FOR YEARS FOR REASONS SUCH AS DEATH IDENTITY OF THE BORROWER ETC. THE BANK HAS NOT STATED OF ANY DISPU TE CHARACTERISING ANY AMOUNT IN WHICH CASE IF SO THE DECISION SHALL HAVE TO AWAIT THE R ESOLUTION OF THE DISPUTE. UNDER THE CIRCUMSTANCES IT IS DIFFICULT TO SEE AS TO HOW THE AMOUNT/S HAVE NOT INURED TO THE BANK. THE NON-WRITE BACK OF THE SAME IN ACCOUNTS GIVEN THE A DMITTED AND UNDISPUTED FACTS AND CIRCUMSTANCES AND THE LEGAL POSITION IN THE MATTER IS OF NO MOMENT. THE PRINCIPLES ENUNCIATED IN THE DECISION IN THE CASE OF SHREE DIGVIJAY CEMENT MILLS LTD. V. UNION OF INDIA (SUPRA) AS WELL AS IN THE CASE OF CIT VS. T.V. S IYENGAR & SONS PVT. LTD. (SUPRA) WE FIND AS SQUARELY APPLICABLE TO THE INSTANT CASE. THE AMOUN TS IN BOTH THE CASES WERE REALISED IN THE COURSE OF THE ASSESSEES TRADE AND THOUGH NOT REPR ESENTING ITS MONIES BUT ONLY A LIABILITY WERE FOUND IN VIEW OF THE CHANGED CIRCUMSTANCES AN D LAPSE OF TIME AS LIABLE TO BE CONSIDERED AS ITS OWN INCOME AS IT HAD ACQUIRED TH E CHARACTER OF A TRADE RECEIPT/SURPLUS. WE FIND THE FACTS OF THE PRESENT CASE AS SATISFYING TH E OPERATING PARAMETERS OF THE SAID DECISIONS. THE DOCTRINE OF UNJUST ENRICHMENT OR THE QUESTION OF CESSATION OF LIABILITY U/S. 41 WOULD NOT ARISE IN THE FACTS OF THE CASE AND REFERENCE THERE TO IS WHOLLY UNWARRANTED. WHERE IS THE QUESTION OF AN `UNJUST ENRICHMENT ONE MAY ASK WH EN THERE ARE NO CLAIMANTS. HAD THERE BEEN SO THEY WOULD HAVE PREVENTED THE SALE OF GOLD OR IN ANY CASE LODGED A CLAIM FOR THE BALANCE SURPLUS. WE ARE CONSCIOUS AND ALIVE TO THE POSSIBILITY OF SOME AMOUNT BEING CLAIMED AND IN FACT PAID BY THE BANK OUT OF SUCH SURPLUS I.E. SUBSEQUENTLY. THIS IS AS LIMITATION THOUGH ESTOPPES THE CLAIMANT DOES NOT PREVENT THE RESPONDENT-BENEFICIARY FROM PAYING THE AMOUNT AS ` 2890/- PAID BY THE BANK ON 20.4.2005. THE BANK WH ERE IT WRITES BACK THE AMOUNT IN ACCOUNTS COULD BASED ON PAST EXPERIENCE CREATE A PROVISION QUA THE AMOUNT THAT COULD FIND A CLAIMANT DEBITING THE SAME WITH THE A MOUNT PAID. THE PROVISION WHICH WOULD I.T.A. NO. 10 & 66/COCH/ 2009 17 THUS REPRESENT AN ADMITTED LIABILITY I.E. AS LIK ELY TO MATERIALIZE WOULD THUS NOT FORM PART OF THE BANKS INCOME. FURTHER IN THE CASE OF NON- WRITE BACK THE AMOUNT IF ANY PAID OUT OF THE PAST CLAIMS WOULD AT BEING SHOWN AS SO QUALI FY FOR DEDUCTION AS A BUSINESS OUTGOING. THE DECISIONS BY THE APEX COURT IN THE CASE OF SINCLAIR MURRAY & CO. (P.) LTD. V. CIT (1974) 97 ITR 615 (SC) AND CHOWRINGHEE SALES BUREAU (P.) LTD. V. CIT (1973) 87 ITR 542 (SC) MAY BE REFERRED TO IN THIS REGARD WHEREIN THE HON BLE COURT WHILE HOLDING THE AMOUNT COLLECTED (THOUGH HELD IN A SEPARATE ACCOUNT) AS TH E ASSESSEES TRADE RECEIPT CLARIFIED THAT IT WOULD NONETHELESS QUALIFY FOR DEDUCTION FOR THE YEA R OF PAYMENT EVEN THOUGH THE ASSESSEE FOLLOWED THE MERCANTILE METHOD OF ACCOUNTING. WE DE CIDE ACCORDINGLY. 18. IN THE RESULT BOTH THE ASSESSEES AND THE R EVENUES APPEAL IS PARTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 11TH FEBRUARY 2011 GJ COPY TO: 1. CATHOLIC SYRIAN BANK LTD. ST. MARYS COLLEGE RO AD TRICHUR. 2. THE ASSTT./ADDL. COMMISSIONER OF INCOME-TAX.CIR CLE-1(1) TRICHUR. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-V KOCH I. 4. THE COMMISSIONER OF INCOME-TAX TRICHUR. 5. D.R./I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR)