DCIT,Circle-6, Kolkata, Kolkata v. UCO Bank, Kolkata

ITA 1281/KOL/2012 | 2008-2009
Pronouncement Date: 05-10-2016

Appeal Details

RSA Number 128123514 RSA 2012
Assessee PAN AAACU3561B
Bench Kolkata
Appeal Number ITA 1281/KOL/2012
Duration Of Justice 4 year(s) 29 day(s)
Appellant DCIT,Circle-6, Kolkata, Kolkata
Respondent UCO Bank, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 05-10-2016
Appeal Filed By Department
Bench Allotted C
Tribunal Order Date 05-10-2016
Date Of Final Hearing 25-08-2016
Next Hearing Date 25-08-2016
Assessment Year 2008-2009
Appeal Filed On 06-09-2012
Judgment Text
1 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA [BEFORE SHRI M. BALAGANESH AM & SHRI S.S. VISWANE THRA RAVI JM] I.T.A NOS. 1202/KOL/2012 ASSESSMENT YEAR: 2008-09 UCO BANK (PAN: AAACU3561B) VS. DEPUTY COMMISS IONER OF INCOME-TAX CIRCLE-6 KOLKATA. ( APPELLANT ) ( RESPONDENT ) & I.T.A NOS. 1281/KOL/2012 ASSESSMENT YEAR: 2008-09 DEPUTY COMMISSIONER OF INCOME-TAX VS. UCO BA NK CIRCLE-6 KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 25.08.2016 DATE OF PRONOUNCEMENT: 05.10.2016 FOR THE ASSESSEE: S/SHRI D.S.DAMLE & AKKAL DUDH WEWALA FCA FOR THE REVENUE: SHRI G. MALLIKARJUNA CIT DR ORDER PER SHRI M. BALAGANESH AM: BOTH THESE APPEALS BY ASSESSEE AND REVENUE ARE ARIS ING OUT OF COMMON ORDER OF CIT(A)-VI KOLKATA VIDE APPEAL NO. 103/VI/CIR-6/10- 11/KOL DATED 11.06.2012. ASSESSMENT WAS FRAMED BY DCIT CIRCLE-6 KOLKATA U/S. 143(3) A ND 115WE(3) OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2008-09 VIDE HIS ORDER DATED 31.12.2010. FOR THE SAKE OF BREVITY WE DISPOSE OF BOTH THE APP EALS BY THIS CONSOLIDATED ORDER. 2. DISALLOWANCE OF PROVISION FOR BAD AND DOUBTFUL DEBTS CLAIMED U/S 36(1)(VIIA) OF THE ACT IN EXCESS OF PRO VISIONS CREATED IN THE BOOKS RS. 162 56 86 471/- THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBS ERVED THAT THE ASSESSEE HAD ACTUALLY WRITTEN OFF RS. 306 03 64 654/- AS BAD AND DOUBTFUL DEBTS COMPRISING OF RURAL AND NON-RURAL ADVANCES. THE ASSESSEE ALSO CLAIMED PROVISION OF R S. 532 63 60 653/- U/S 36(1)(VIIA) OF THE ACT. OUT OF THESE AMOUNTS OF RS. 532 63 60 653/- AN AMOUNT OF RS. 370 06 74 182/- HAD 2 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 BEEN DEBITED AS A PROVISION IN THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF PROVISION OF BAD AND DOUBTFUL DEBTS OF RURAL AND NON-RURAL MIXED. OUT O F THE PROVISIONS OF RS. 370 06 74 182/- AN AMOUNT OF RS. 27.06 CRORES PERTAINED TO RURAL BR ANCHES WHICH HAS BEEN WRITTEN OFF IN THE ACCOUNTS. THIS AMOUNT OF RS. 27.06 CRORES HAS NOT BEEN CLAIMED SEPARATELY AS BAD AND DOUBTFUL DEBTS WRITTEN OFF DUE TO THE SAME BEING DE DUCTED OUT OF THE PROVISIONS FOR RURAL BRANCHES. THE ASSESSEE CLAIMED A PROVISION OF RS. 5 32.63 CRORES IN THE COMPUTATION OF INCOME AGAINST THE PROVISION FOR BAD AND DOUBTFUL D EBTS OF RS. 370.06 CRORES DEBITED IN THE PROFIT AND LOSS ACCOUNT. THEREFORE THE LD AO FOUN D THAT THERE IS AN ADDITIONAL PROVISION DEDUCTION CLAIMED BY THE ASSESSEE IN THE COMPUTATIO N OF INCOME AMOUNTING TO RS.162 56 86 471/-. THIS WAS ALSO CONFIRMED BY THE LD CITA IN FIRST APPEAL. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUND:- 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(APPEALS) WAS GROSSLY UNJUSTIFIED IN UPHOLDING THE DISALLOWANCE FOR PROVI SION FOR BAD & DOUBTFUL DEBTS AMOUNTING TO RS. 162 56 86 471/- ON THE GROUND THAT THE DEDUCTIO N UNDER SECTION 36(1)(VIIA) NEEDS TO BE RESTRICTED TO ACTUAL PROVISION MADE IN THE BOOKS. 2.1. THE LD AR ARGUED THAT THIS ISSUE PERTAINS TO CLAIM OF DEDUCTION TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS AS PER THE PROVISIONS OF SEC TION 36(1)(VIIA) OF THE ACT IN EXCESS OF PROVISION CREATED IN THE BOOKS. HE ARGUED THAT TH E INTENTION OF THE LEGISLATURE WHILE INSERTING PROVISION U/S 36(1)(VIIA) OF THE ACT AND ITS SCOPE HAS TO BE UNDERSTOOD. IT WAS ARGUED THAT FROM THE PROVISIONS OF SECTION 36(1)(VI IA) OF THE ACT IT IS EVIDENT THAT FOR A SCHEDULED BANK IN ORDER TO CLAIM DEDUCTION THE ESS ENTIAL PRE-REQUISITE IS THE PROVISION FOR BAD AND DOUBTFUL DEBTS MUST BE CREATED IN RESPECT O F ADVANCES GIVEN IN ITS BOOKS OF ACCOUNTS. THUS ON CREATION OF SUCH PROVISION THE ASSESSEE IS AUTOMATICALLY ENTITLED TO SUCH DEDUCTION I.E AGGREGATE OF 7.5 % OF TOTAL INCOME AN D 10% OF AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES. ACCORDING TO LEARNED A R THUS IF A PROVISION FOR BAD AND DOUBTFUL DEBTS IS MADE BY A SCHEDULED BANK HAVING R URAL BRANCHES THE ASSESSEE IS ENTITLED TO A DEDUCTION WHICH SHOULD NOT BE RESTRICTED TO THE P ROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNTS BUT IS TO BE ALLOWED AT THE RATE OF 7.5% OF TOTAL INCOME AND 10% OF AGGREGATE RURAL ADVANCES MADE BY THE ASSESSEE. IT WAS ARGUE D FURTHER THAT SUCH PROVISION HAS BEEN INSERTED SO AS TO PROMOTE RURAL BANKING. IT WAS AR GUED THAT THE LEGISLATURE HAS PROVIDED THAT EXTENT OF DEDUCTION WHICH IT DEEMS FIT IRRESPECTIVE OF WHETHER THE CORRESPONDING PROVISION 3 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 HAS BEEN MADE IN THE BOOKS OR NOT. IN RESPONSE TO THIS THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 2.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HOLD THAT THERE CANNOT BE ANY QUESTI ON OF CONSIDERING CLAIM FOR ANY DEDUCTION U/S 36(1)(VIIA) OF THE ACT IF THERE IS NO PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY THE ASSESSEE BANK BECAUSE THE CLAUSE (VIIA) STARTS WITH THE PHRASE IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY . NO DOUBT THAT THE DEDUCTION IS TO BE RESTRICTED TO 7.5% OF TOTAL INCOME AND 10% OF AGGREGATE RURAL ADV ANCES BUT THE RESULT OF THE SUCH WORKINGS CANNOT BE ALLOWED IN EXCESS OF THE PROVISI ON CHARGED TO PROFIT AND LOSS ACCOUNT FOR THE YEAR. WE FIND THAT THE ISSUE IS SQUARELY COVE RED AGAINST THE ASSESSEE BY THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE O F STATE BANK OF PATIALA VS CIT REPORTED IN (2005) 272 ITR 54 (P&H) (SUPRA) WHEREIN IT WAS HELD AS UNDER:- A BARE PERUSAL OF THE ABOVE SHOWS THAT THE DEDUCTI ON ALLOWABLE UNDER THE ABOVE PROVISIONS IS IN RESPECT OF THE PROVISION MADE THEREFORE MAKI NG OF A PROVISION FOR BAD AND DOUBTFUL DEBT EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS A MUST FOR CLAIMING SUCH DEDUCTION THE TRIBUNAL HAS RIGHTLY POINTED OUT THAT THIS ISSUE ST ANDS FURTHER CLARIFIED FROM THE PROVISO TO CLAUSE (VII) OF SECTION 36(1) OF THE ACT WHICH REA DS AS UNDER: 'PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH CLAUSE (VIIA) APPLIES THE AMOUNT OF THE DEDUCTION RELATING TO ANY SUCH DEBT OR PART THE REOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CRED IT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE' THIS ALSO CLEARLY SHOWS THAT MAKING OF PROVISION EQ UAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE ACCOUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTI ON UNDER SECTION 36(1) (VIIA) OF THE ACT THE TRIBUNAL HAS DISTINGUISHED VARIOUS AUTHORITIES RELIED UPON BY THE ASSESSEE WHEREIN DEDUCTIONS HAD BEEN ALLOWED UNDER VARIOUS PROVISION S WHICH ALSO REQUIRED CREATION OF RESERVE AFTER THE ASSESSEE HAD CREATED SUCH RESERVE IN THE ACCOUNT BOOKS BEFORE THE COMPLETION OF THE ASSESSMENT IT HAS BEEN CORRECTLY POINTED OUT THAT I N ALL THOSE CASES RESERVES/PROVISIONS HAD BEEN MADE IN THE BOOKS OF ACCOUNT OF THE SAME ASSES SMENT YEAR AND NOT OF THE SUBSEQUENT ASSESSMENT YEAR. IN THE PRESENT CASE THE ASSESSEE HAS NOT MADE ANY PROVISION IN THE BOOKS OF ACCOUNT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IE 1985-86 B Y MAKING SUPPLEMENTARY ENTRIES AND BY REVISING ITS BALANCE-SHEET THE PROVISION HAS BEEN M ADE IN THE BOOKS OF ACCOUNT OF THE SUBSEQUENT YEAR. WE ARE THEREFORE SATISFIED THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT SINCE THE ASSESSEE HAD MADE A PROVISION OF RS 1 19 36 000 FOR BAD AND DOUB TFUL DEBTS ITS CLAIM FOR DEDUCTION UNDER SECTION 36(1) (VIIA) OF THE ACT HAD TO BE RESTRICTE D TO THAT AMOUNT ONLY SINCE THE LANGUAGE OF THE STATUTE IS CLEAR AND IS NOT CAPABLE OF ANY OTHE R INTERPRETATION WE ARE SATISFIED THAT NO SUBSTANTIAL QUESTION OF LAW ARISES IN THIS APPEAL F OR CONSIDERATION BY THIS COURT. THE APPEAL IS ACCORDINGLY DISMISSED NO COSTS. 4 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 RESPECTFULLY FOLLOWING THE DECISION CITED SUPRA TH E GROUND NO.1 RAISED BY THE ASSESSEE IS DISMISSED. 3. DISALLOWANCE U/S 14A OF THE ACT THE LD AO OBSERVED THAT THE ASSESSEE EARNED DIVIDEN D INCOME FROM SHARES AMOUTNIGN TO RS. 3 58 25 045/- . IN THE COMPUTATION OF INCOM E FILED BY THE ASSESSEE NO EXPENDITURE WAS DISALLOWED U/S 14A OF THE ACT RELATABLE TO EARN ING OF EXEMPT INCOME. ACCORDINGLY THE LD AO INVOKED THE PROVISIONS OF RULE 8D AND WORKED OUT THE DISALLOWANCE U/S 14A OF THE ACT TO THE TUNE OF RS. 22 83 24 845/- IN THE ASSESS MENT. THE LD CITA HELD THAT THE INVESTMENTS WERE HELD AS STOCK IN TRADE BY THE ASSE SSEE AND THE HONBLE APEX COURT IN ASSESSEES OWN CASE REPORTED IN 240 ITR 355 (SC) HA D HELD THAT THE INVESTMENTS HELD BY THE ASSESSEE ARE TO BE HELD AS STOCK IN TRADE. MOREOVE R ALL THESE INVESTMENTS WERE STATUTORILY REQUIRED TO BE MAINTAINED AS PER THE POLICY OF RBI ON SOCIO-ECONOMIC CONSIDERATIONS. THE BANK HAS TO MAKE THESE INVESTMENTS AS A LEGAL NECES SITY ALTHOUGH MANY OF THEM MAY NOT BE REMUNERATIVE IN TERMS OF RETURNS. THEREFORE HE HE LD THAT THE INVESTMENTS HELD FOR STOCK IN TRADE IS MEANT ONLY FOR THE PURPOSE OF BUSINESS OF ASSESSEE BANK. ACCORDINGLY HE HELD THAT THE PROVISIONS OF RULE 8D(2)(II) OF THE RULES FOR D ISALLOWANCE OF INTEREST SHOULD NOT BE INVOKED IN THE ASSESSEES CASE. ONLY THE ADMINIST RATIVE EXPENSES ARE TO BE DISALLOWED IN TERMS OF RULE 8D(2)(III) AT 0.5% OF AVERAGE VALUE O F INVESTMENTS. AGGRIEVED BOTH THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFOR E US ON THE FOLLOWING GROUND:- ASSESSEES GROUNDS OF APPEAL: 2. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(APPEALS) WAS GROSSLY UNJUSTIFIED IN LAW AND ON FACTS IN UPHOLDING DISALL OWANCE OF RS.1 73 01 418/- BY INVOKING RULE 8D(2)(III) OF THE I T RULES WITHOUT ESTABLISHING AN Y PROXIMATE CAUSE BETWEEN THE EXPENDITURE INCURRED AND EARNING OF TAX FREE INCOME. 3. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD. CIT(APPEALS) GROSSLY ERRED IN CONSIDERING THE SHARES & SECURITIES HELD AS 'STOCK- IN-TRADE' TO BE 'INVESTMENT' FOR THE PURPOSES OF COMPUTING DISALLOWANCE UNDER SEC 14A READ WITH R ULE 8D(2)(III). 4. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE DISALLOWANCE MADE U/S 14A BE DELETED AND/OR REDUCED. REVENUES GROUNDS OF APPEAL 5 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) ERRED IN LAW IN DELETING THE DISALLOWANCE COMPUTED UNDER 14A READ WITH RULE 8D(2 )(II) BOTH UNDER THE NORMAL COMPUTATIONAL PROVISIONS AS WELL AS BOOK PROFIT ULS .115JB OF THE INCOME TAX ACT 1961. 3.1. THE LD AR ARGUED THAT THE HONBLE APEX COURT IN THE ASSESSEES OWN CASE REPOR TED IN 240 ITR 355 (SC) HAD HELD THAT THE INVESTMENTS HELD BY ASSESSEE BANK ARE TO BE CONSTRUED AS STOCK IN TRADE. ACCORDINGLY THE ASSESSEE BECOMES A DEALER IN SHARES WHERE EVEN THE COST OF PURCHASE OF SHARES AND EVERY EXPENSES INCURRED THER EON WOULD HAVE DIRECT NEXUS TO TRADING OF SHARES. IF THE PROVISIONS OF RULE 8D ARE TO BE APPLIED THEN THE ENTIRE EXPENDITURE INCURRED WOULD HAVE TO BE DISALLOWED WHICH RESULTS IN AN ABSURDITY. IN THIS REGARD THE LD AR PLACED RELIANCE ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF DCIT VS GULSHAN INVESTMENT CO. LTD REPORTED IN (2013) 31 TAXMANN.CO M 113 (KOLKATA TRIB) WHEREIN IT WAS HELD THAT DISALLOWANCE UNDER RULE 8D OF THE RULES W ILL BE RESTRICTED TO DIRECT EXPENDITURE ONLY. FURTHER IT WAS HELD THAT RULE 8D(2)(II) AND RULE 8D(2)(III) OF THE RULES CAN BE APPLIED IN SITUATIONS WHERE THE SHARES ARE HELD AS INVESTMENTS AND IT DOES NOT APPLY WHERE SHARES ARE HELD AS STOCK IN TRADE. WITHOUT PREJU DICE TO THE AFORESAID ARGUMENTS HE STATED THAT IN ANY CASE ONLY DIVIDEND BEARING INVESTMENTS SHOULD BE CONSIDERED FOR WORKING OUT THE DISALLOWANCE IF ANY U/S 14A READ WITH RULE 8D FOR WHICH HE PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF R.E.I.AGRO LTD VS DCIT REPORTED IN (2013) 144 ITD 141 (KOL TRIB) . 3.2. IN RESPONSE TO THIS THE LD DR ARGUED THAT T HE PROVISIONS OF SECTION 14A OF THE ACT ARE INDEED APPLICABLE TO STOCK IN TRADE AND PLACED RELI ANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS TEENLOK ADVISORY SERVICES (P) LTD REPORTED IN (2016) 159 ITD 991 (KOLKATA TRIB) WHICH IN TURN PLACED RELIANCE ON THE THIRD MEMBER DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF D.H. SECURITIES (P) LTD VS DCIT REPORTED IN (2014) 146 ITD 1 (MUMBAI TRIB ) (TM ) . HE ARGUED THAT THE SAID THIRD MEMBER DECISION IN TURN PLACED RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DHANUKA & SONS VS CIT REPORTED IN 339 ITR 319 (CAL) . HE ALSO ARGUED THAT THE SAID THIRD MEMBER DECISION HAD ALREADY CONSIDERED THE DECISION OF THIS TRIBUNAL IN THE CASE OF GULSHAN INVESTMENT SUPRA WHILE RENDERING ITS DECISION. HE A LSO ARGUED THAT THE PROVISIONS OF RULE 8D USES THE EXPRESSION VALUE OF INVESTMENTS AND NOT HELD AS INVESTMENT AND THIS FINE DISTINCTION HAS ALREADY BEEN CONSIDERED AND UPHELD BY THE SPECIAL BENCH OF MUMBAI 6 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 TRIBUNAL IN THE CASE OF ITO VS DAGA CAPITAL MANAGEM ENT (P) LTD REPORTED IN 117 ITD 169 (MUM) (SB) . 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE FAC TS STATED HEREINABOVE REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITERATED FO R THE SAKE OF BREVITY. THE DIVIDEND RECEIVED BY THE ASSESSEE IS EXEMPT FROM TAX AS PER SECTION 10 OF THE ACT. THE LAW DOES NOT DIFFERENTIATE WHETHER THE SAID DIVIDEND IS RECEIVED FROM INVESTMENTS HELD AS INVESTMENTS OR INVESTMENTS HELD AS STOCK IN TRADE. IN BOTH THE SC ENARIOS THE DIVIDEND RECEIVED THEREON IS EXEMPT FROM TAX. IT IS NOT IN DISPUTE THAT THE ASS ESSEE BANK IS IN RECEIPT OF BOTH TAXABLE AS WELL AS EXEMPT INCOME. WE FIND THAT THE INTENTION B EHIND THE INTRODUCTION OF PROVISIONS OF SECTION 14A OF THE ACT IN THE STATUTE WAS ONLY TO C URB THE PRACTICE OF ASSESSEE CLAIMING DEDUCTION TOWARDS EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME FROM THE TAXABLE INCOME AND THEREBY REDUCING THE TAXABLE PROFIT. IN THE INSTANT CASE THE ASSESSEE HAD NOT MADE ANY DISALLOWANCE U/S 14A OF THE ACT IN ITS RET URN OF INCOME. THE LD AO RESORTED TO MAKE DISALLOWANCE U/S 14A OF THE ACT BY APPLYING TH E COMPUTATION MECHANISM PROVIDED IN RULE 8D OF THE RULES. SINCE THE INVESTMENTS OF TH E ASSESSEE WERE HELD AS STOCK IN TRADE BY THE ASSESSEE BANK IT WAS ARGUED THAT THE PROVISION S OF RULE 8D CANNOT BE MADE APPLICABLE AS THE COMPUTATION MECHANISM ITSELF FAILS THEREIN. HOWEVER WE FIND FROM THE WORDINGS OF RULE 8D IT ONLY USES THE EXPRESSION VALUE OF INVE STMENTS AND NOT HELD AS INVESTMENTS. HENCE WE HOLD THAT THE INVESTMENTS EVEN THOUGH HELD AS STOCK IN TRADE WOULD STILL FALL UNDER THE COMPUTATION MECHANISM PROVIDED IN RULE 8D OF TH E RULES. 3.3.1. NOW THE LAW IS ALSO CLEAR THAT THE SAID PROV ISIONS OF SECTION 14A OF THE ACT ARE APPLICABLE WITH RETROSPECTIVE EFFECT FROM 1.4.1962 ONWARDS. THE PROVISIONS OF RULE 8D IS APPLICABLE ONLY FROM ASST YEAR 2008-09 ONWARDS. HO WEVER WE HOLD THAT THE APPLICATION OF RULE 8D FOR THE PURPOSE OF DISALLOWANCE IS NOT AUTO MATIC AND SHOULD BE USED AS A LAST RESORT IF THE DETERMINATION OF DISALLOWANCE COULD NOT BE M ADE BY THE LD AO IN TERMS OF SECTION 14A OF THE ACT. FOR THE SAKE OF CONVENIENCE TH E PROVISIONS OF SECTION 14A OF THE ACT ARE REPRODUCED BELOW:- SECTION 14A - EXPENDITURE INCURRED IN RELATION TO I NCOME NOT INCLUDIBLE IN TOTAL INCOME 7 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 (1) FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDE R THIS CHAPTER NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCR IBED IF THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSE SSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURR ED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PAS S AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTH ERWISE INCREASING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154 FOR AN Y ASSESSMENT YEAR BEGINNING ON OR BEFORE THE 1 ST DAY OF APRIL 2001. 3.3.2. WE ARE AWARE THAT THE COMPUTATION MECHANISM PROVIDED IN RULE 8D WOULD SOMETIMES RESULT IN ABSURDITY IN TERMS OF DISALLOWANCE FIGURE COMPUTED THEREON. IT MIGHT RESULT IN THE DISALLOWANCE FIGURE EXCEEDING EVEN THE TOTAL EXPEND ITURE CLAIMED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. THESE TYPE OF SITUATIONS MAY PREDOMINANTLY ARISE IN THE CASE OF INVESTMENT COMPANIES WHERE THE VALUE OF INVESTMENT S WOULD BE VERY HUGE. IN OUR CONSIDERED OPINION THE LEGISLATURE IN ITS WISDOM IN ORDER TO PREVENT SUCH A SITUATION HAD PROVIDED FOR COMPUTATION MECHANISM IN TERMS OF SECT ION 14A OF THE ACT ITSELF BY PROVIDING POWERS TO THE LD AO FOR COMPUTING THE DIS ALLOWANCE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. IN OUR CONSIDERED OPINI ON THE LEGISLATURE IN ITS WISDOM HAD DULY ADDRESSED THE ABSURDITY BY CONFERRING POWERS ON T HE ASSESSING OFFICER TO DETERMINE THE DISALLOWANCE ON ITS OWN BY SOME RATIONAL METHOD W ITHOUT RESORTING TO RULE 8D. IN SUCH A CASE WE HOLD THAT THE EXPRESSION SHALL USED IN S ECTION 14A(2) OF THE ACT HAD TO BE READ AS MAY IN ORDER TO GIVE FULL WEIGHTAGE TO THE PROVIS IONS OF THE ACT TAKING INTO ACCOUNT THE INTENTION BEHIND INTRODUCTION OF PROVISIONS OF SECT ION 14A OF THE ACT AND TO ADDRESS THE ABSURD SITUATION. IT IS WELL SETTLED THAT THE RULE S CANNOT OVERRIDE THE ACT AND IS ONLY A SUBORDINATE PIECE OF LEGISLATION. IN THE INSTANT C ASE BEFORE US THE ASSESSEE BANK HAD NOT FURNISHED ANY WORKINGS OF DISALLOWANCE U/S 14A OF T HE ACT USING SOME RATIONAL METHOD 8 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 BEFORE THE LD AO OR BEFORE THE LD CITA. NO WORKING IS FURNISHED EVEN BEFORE US. IN THESE CIRCUMSTANCES THERE IS NOTHING WRONG IN RESORTING TO COMPUTATION MECHANISM PROVIDED IN RULE 8D AS A LAST RESORT. 3.3.3. IT IS NOW WELL SETTLED BY THE DECISION OF TH E THIRD MEMBER OF MUMBAI TRIBUNAL IN THE CASE OF D.H.SECURITIES (P) LTD VS DCIT REPORTED IN (2014) 146 ITD 1 (MUMBAI TRIB ) (TM ) THAT PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES ARE APPLICABLE EVEN FOR STOCK IN TRADE. IT IS ALSO WELL SETTLED THAT T HE THIRD MEMBER DECISION IS EQUIVALENT TO SPECIAL BENCH DECISION AND HENCE HAS GOT A BINDING PRECEDENT ON ALL CO-ORDINATE BENCHES OF TRIBUNALS. THIS THIRD MEMBER DECISION PLACED RELIA NCE ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS V S CIT REPORTED IN 339 ITR 319 (CAL) BY STATING THAT THE PRINCIPLES LAID DOWN THEREON WO ULD BE APPLICABLE. WE FIND THAT THE ASSESSEE PLACED HEAVY RELIANCE ON THE DECISION OF T HE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2009-10 WHERE IN IT WAS HELD THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE FOR INVES TMENTS HELD AS STOCK IN TRADE. WE FIND THAT THE DECISION OF THE THIRD MEMBER OF MUMBAI TRI BUNAL SUPRA WAS NOT CONSIDERED WHILE DECIDING THE APPEAL FOR THE ASST YEAR 2009-10. ACC ORDINGLY WE HOLD THAT THE SAME NEED NOT BE FOLLOWED BY US NOW. WE ARE ALSO AWARE THAT THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF CIT V. INDIA ADVANTAGE SECURITIES LTD IN ITA NO. 67 11/MUM/2011 DATED 14-9- 2012 HAD HELD THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE FOR STOCK IN TRADE. IT WAS ALSO ARGUED THAT THE APPEAL PREFERRE D BY THE REVENUE AGAINST THIS TRIBUNAL DECISION BEFORE THE HONBLE BOMBAY HIGH COURT HAS B EEN DISMISSED BY THE HIGH COURT. BUT THE DECISION OF HONBLE JURISDICTIONAL HIGH COU RT WHICH HAS BEEN CONSIDERED IN THE THIRD MEMBER DECISION WOULD ACT AS A BINDING PRECED ENT FOR THIS TRIBUNAL. HENCE WE HOLD THAT THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D WOULD BE APPLICABLE FOR INVESTMENTS HELD AS STOCK IN TRADE. WE HOLD THAT SINCE THE INVESTMENTS IN THE INSTANT CASE WERE HELD AS STOCK IN TRADE AND MORE SO WHEN THE IN VESTMENTS WERE MADE IN ORDER TO COMPLY WITH THE STATUTORY LIQUIDITY RATIO PRESCRIBED BY RB I MANDATING THE ASSESSEE BANK TO INVEST IN CERTAIN GOVERNMENT SECURITIES AND BONDS AND IN VIE W OF THE FACT THAT THE ASSESSEE IS HAVING SUFFICIENT OWN FUNDS WE HOLD THAT THE BORROWED FUN DS WERE NOT UTILIZED FOR THE PURPOSE OF MAKING INVESTMENTS. THE LD CITA HAD ALSO GIVEN A CA TEGORICAL FINDING THAT THE BORROWED FUNDS WERE UTILIZED ONLY FOR THE PURPOSE OF BUSINES S. HENCE THE PROVISIONS OF RULE 9 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 8D(2)(II) CANNOT BE INVOKED IN THE INSTANT CASE AS RIGHTLY HELD BY THE LD CITA. HOWEVER THE PROVISIONS OF RULE 8D(2)(III) WHEREIN 0.5% OF A VERAGE VALUE OF INVESTMENTS HAD TO BE CONSIDERED FOR DISALLOWANCE U/S 14A OF THE ACT IS T O BE MADE. WE FIND THAT THE LD CITA HAD ONLY GIVEN DIRECTION TO THE LD AO TO WORK OUT THE D ISALLOWANCE IN TERMS OF RULE 8D(2)(III). WE FIND THAT THE SIMILAR ISSUE HAS BEEN ADDRESSED B Y THE CO-ORDINATE BENCH OF THIS TRIBUNAL RECENTLY IN THE CASE OF DCIT VS TEENLOK ADVISORY SERVICES (P) LTD REPORTED IN (2016) 159 ITD 991 (KOLKATA TRIBUNAL) WHEREIN ALL THESE ASPECTS AND CASE LAWS HAVE BEEN CONSIDERED IN DETAIL AND IT WAS HELD THAT THE PROVISIONS OF SECTI ON 14A OF THE ACT ARE APPLICABLE FOR SHARES HELD AS STOCK IN TRADE. HOWEVER WE FIND LOT OF FORCE IN THE ALTERNATIVE A RGUMENTS OF THE LD AR THAT ONLY DIVIDEND BEARING INVESTMENTS WHICH WERE HELD AS STOCK IN TRA DE SHOULD BE CONSIDERED FOR THE PURPOSE OF WORKING OUT THE DISALLOWANCE IN TERMS OF RULE 8D (2)(III). WE FIND THAT THE RELIANCE PLACED IN THIS REGARD ON THE CO-ORDINATE BENCH DECI SION OF THIS TRIBUNAL IN THE CASE OF R.E.I.AGRO LTD VS DCIT REPORTED IN 144 ITD 141 (KOL KATA TRIB) IN THIS REGARD IS WELL FOUNDED. WE DIRECT THE LD AO ACCORDINGLY TO RECOMP UTE THE DISALLOWANCE U/S 14A OF THE ACT IN TERMS OF RULE 8D(2)(III) BY CONSIDERING ONLY THE INVESTMENTS WHICH YIELDED DIVIDENDS. ACCORDINGLY GROUND NOS. 2 3 & 4 RAIS ED BY THE ASSESSEE ARE PARTLY ALLOWED AS DIRECTED ABOVE AND GROUND NO. 1 RAISED BY THE REVEN UE ARE DISMISSED. 4. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL OF THE ASSESSEE IS AS TO WHETHER THE LD CITA IS JUSTIFIED IN UPHOLDING THE DISALLOWANCE MAD E BY THE LD AO TOWARDS PROVISION FOR LEAVE ENCASHMENT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD AO OBSERVED THAT THE ASSESSEE HAD CLAIMED PROVISION FOR LEAVE ENCASHMENT AMOUNTING TO RS. 26 26 00 000/- AS DEDUCTION AND ALSO CLAIMED THAT THE SAME IS NOT REQUIRED TO BE DISALLO WED U/S 43B OF THE ACT IN VIEW OF THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD VS UNION OF INDIA REPORTED IN 292 ITR 470 (CAL). THE LD AO OB SERVED THAT THE ASSESSEE HAD ACTUALLY PAID LEAVE ENCASHMENT TO THE TUNE OF RS. 86 94 828/ - BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME AND FURTHER SUM OF RS. 3 52 83 477/- WAS PAID BEFORE THE END OF THE PREVIOUS YEAR. ACCORDINGLY HE GRANTED DEDUCTION FOR BOTH TH ESE SUMS AND DISALLOWED THE PROVISION 10 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 AMOUNT U/S 43B OF THE ACT IN VIEW OF THE FACT THAT THE HONBLE SUPREME COURT HAD PASSED AN INTERIM ORDER PENDING DISPOSAL OF THE MAIN CIVIL AP PEAL THAT THE ASSESSEE SHALL PAY THE TAX ON THE PROVISION FOR LEAVE ENCASHMENT AS IF SECTION 43 B(F) OF THE ACT IS PRESENT IN THE STATUTE. THIS WAS ALSO CONFIRMED BY THE LD CITA. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 5. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(APPEALS) WAS GROSSLY UNJUSTIFIED IN DISALLOWING PROVISION FOR LE AVE ENCASHMENT AMOUNTING TO RS. 25 39 05 172/- UNDER SECTION 43B OF THE I.T. ACT 1 961. 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. AT THE OUTSET IT IS NOTICED THAT TH E ASSESSEE HAS CLAIMED RS. 26 26 00 000/- FOR AY 2008-09 ON ACCOUNT PROVISION FOR LEAVE ENCASHMEN T ON ACCRUAL BASIS. LD. COUNSEL FOR THE ASSESSEE STATED THAT THE DEDUCTION ON ACCOUNT O F PROVISION OF LEAVE ENCASHMENT WAS MADE ON THE BASIS OF THE JUDGMENT OF HON'BLE JURISD ICTIONAL HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD. VS. UNION OF INDIA (2007) 292 ITR 4 70 (CAL) BUT HE FAIRLY CONCEDED THAT SUBSEQUENTLY HON'BLE SUPREME COURT HAS STAYED THIS JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT VIDE ORDER 08-05-2009 BY FOLLOWING OBSER VATIONS:- PENDING HEARING AND FINAL DISPOSAL OF THE CIVIL AP PEALS DEPARTMENT IS RESTRAINED FROM RECOVERING PENALTY AND INTEREST WHICH HAS ACCRUED T ILL DATE. IT IS MADE CLEAR THAT AS FAR AS THE OUTSTANDING INTEREST DEMAND AS OF DATE IS CONCERNED IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THAT AMOUNT IN CASE CIVIL APPEAL OF THE DEP ARTMENT IS ALLOWED. WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD D URING THE PENDENCY OF THIS CIVIL APPEAL PAY TAX AS IF SECTION 43B(F) IS ON THE STATUE BOOK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM IN ITS RETURNS. IN VIEW OF THE ABOVE LD. COUNSEL FOR THE ASSESSEE FAIRLY STATED THAT LET HON'BLE SUPREME COURT DECIDE THE ISSUE AND BY THAT TIME THE MATTER CAN BE REMITTED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION IN TERM OF THE DECISION OF HON'B LE SUPREME COURT. ON THIS LD. CIT DR HAS NOT OBJECTED TO THE SAME. ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO AWAIT THE DECISION OF HON'BLE SUPREME COURT AND DEC IDE THE ISSUE ACCORDINGLY. THIS ISSUE OF ASSESSEES APPEAL IS REMITTED BACK TO THE FILE OF A O AND ALLOWED FOR STATISTICAL PURPOSES. 5. THE OTHER GROUNDS (I.E. GROUND NOS. 6 TO 10 RAI SED BY THE ASSESSEE ARE WITH REGARD TO APPLICABILITY OF PROVISIONS OF SECTION 115JB OF THE ACT FOR THE ASSESSEE BANK AND DISPUTES IN MAKING CERTAIN ADJUSTMENTS CONTEMPLATED THEREON. SIMILARLY THE REVENUE HAD RAISED OTHER 11 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 GROUNDS (I.E GROUND NOS. 2 TO 5) WITH REGARD TO CER TAIN ADJUSTMENTS TO BE MADE IN THE COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT. 5.1. WE FIND THAT THIS ISSUE HAS BEEN DEALT IN DET AIL BY SEVERAL DECISIONS OF THIS TRIBUNAL AND OTHER TRIBUNALS WHEREIN IT HAD BEEN CATEGORICAL LY HELD THAT THE PROVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPLICABLE TO AN ASSESSEE UNLESS IT IS REGISTERED AS A COMPANY UNDER THE COMPANIES ACT 1956 AND PREPARES ITS FINANCIAL STATEMENTS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 211 AND PART II AND PART III OF SCHEDULE VI OF THE COMPANIES ACT 1956. WE PLACE RELIANCE ON THE RECENT DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF UCO BANK VS DCIT REPORTED IN (2015) 64 TAXMANN.COM 51 (KOLKATA TRIB) DATED 27.11.2015 (ASSESSEES OWN CASE) IN THIS REGARD. IN THE SAID DECISION IT WAS ALSO HELD THAT THE AMENDMENT BROUGHT IN BY THE FINANCE ACT 2012 IN SECTION 115JB OF THE ACT IS APPLICABLE ONLY FROM ASST YEAR 2013-14 ONWARDS AND NOT EARLIER . RESPECTFULLY FOLLOWING THE SAID JUDICIAL PRECEDENT WE HOLD THAT THE PROVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEE BANK FOR THE YEAR UNDER APPEAL. HEN CE THE GROUND NOS. 6 & 7 RAISED BY THE ASSESSEE ARE ALLOWED. 5.1.1. WITH REGARD TO THE GROUNDS RAISED BY THE ASS ESSEE VIDE GROUND NOS. 8 TO 10 AND GROUND NOS. 2 TO 5 RAISED BY THE REVENUE REGARDING ADJUSTMENTS TO BE MADE IN THE COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT W E HAVE ALREADY HELD THAT THE PROVISIONS OF SECTION 115JB OF THE ACT ARE NOT APPLICABLE TO T HE ASSESSEE BANK FOR THE YEAR UNDER APPEAL. HENCE THE ADJUDICATION OF THESE GROUNDS BE COMES ACADEMIC AND ACCORDINGLY THE GROUND NOS. 8 9 & 10 RAISED BY THE ASSESSEE ARE A LLOWED AND GROUND NOS. 2 3 4 & 5 RAISED BY THE REVENUE ARE DISMISSED. 6. WE FIND THAT THE ASSESSEE HAD RAISED A SEPARATE GROUND SEEKING DIRECTION TO LD AO TO RECOMPUTED THE SET OFF AND CARRY FORWARD OF THE UNA BSORBED BUSINESS LOSSES AND DEPRECIATION BROUGHT FORWARD FROM EARLIER YEARS. WE FIND THAT T HIS ISSUE IS CONSEQUENTIAL IN NATURE AND ALSO DIRECT THE LD AO TO RECOMPUTE THE BROUGHT FORW ARD BUSINESS AND DEPRECIATION LOSS FROM EARLIER YEARS AND GIVE A CLEAR FINDING IN THE GIVIN G EFFECT ORDER REGARDING THE SAME. ACCORDINGLY THE GROUND NO. 11 RAISED BY THE ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSES. 12 ITA NO. 1202&1281/KOL/2012 UCO BANK AY 2008-09 7. THE GROUND NO. 12 RAISED BY THE ASSESSEE IS WIT H REGARD TO CHARGING OF INTEREST U/S 234B AND 234 D OF THE ACT WHICH ARE ONLY CONSEQUENT IAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 8. THE GROUND NO. 13 RAISED BY THE ASSESSEE AND GR OUND NO. 6 RAISED BY THE REVENUE ARE GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJU DICATION. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IN IT A NO. 1202/KOL/2012 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVE NUE IN ITA NO. 1281/KOL/2012 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05.10.2016 SD/- SD/- (S.S. VISWANETHRA RAVI) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 5 TH OCTOBER 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT UCO BANK 10 B.T.M. SARANI KOLKATA-70 0 001. 2 RESPONDENT DCIT CIRCLE-6 KOLKATA. 3 . THE CIT(A) KOLKATA 4. 5. CIT KOLKATA DR KOLKATA BENCHES KOLKATA / TRUE COPY BY ORDER ASSTT. REGISTRAR .