United Bank of India, Kolkata v. ACIT, LTU - 1, Kolkata, Kolkata

ITA 75/KOL/2018 | 2012-2013
Pronouncement Date: 28-02-2020 | Result: Partly Allowed

Appeal Details

RSA Number 7523514 RSA 2018
Assessee PAN AAACU5624P
Bench Kolkata
Appeal Number ITA 75/KOL/2018
Duration Of Justice 2 year(s) 1 month(s) 15 day(s)
Appellant United Bank of India, Kolkata
Respondent ACIT, LTU - 1, Kolkata, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2020
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 28-02-2020
Last Hearing Date 19-02-2020
First Hearing Date 24-02-2020
Assessment Year 2012-2013
Appeal Filed On 12-01-2018
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH KOLKATA BEFORE SHRI S. S. GODARA JM & DR. A. L. SAINI AM /I.T.A NO.75/KOL/2018 ( [ [ / ASSESSMENT YEAR: 2012-13) UNITED BANK OF INDIA 16 OLD COURT HOUSE STREET KOL-1. VS. ACIT LTU-1 KOLKATA. ./ ./PAN/GIR NO.: AAACU5624P (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI SOUMITRA CHOUDHURY ADVOCATE RESPONDENT BY : SHRI VIJAY SHANKAR CIT / DATE OF HEARING : 24/02/2020 /DATE OF PRONOUNCEMENT : 28/02/2020 / O R D E R PER SHRI S. S. GODARA: THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2012-13 ARISES AGAINST THE COMMISSIONER OF INCOME TAX - 23 KOLKATAS ORDER DATED 08.06.2017 PASSED IN CASE NO.06/CIT(A)-23/L.T.U-1/16-17 INVOLVING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT). HEARD SHRI SOUMITRA CHOUDHURY LEARNED AUTHORIZED REPRESENTATIVE FOR ASSESSEE AND SHRI VIJAY SHANKAR CIT-DR APPEARING AT THE REVENUES BEHEST. 2. THE ASSESSEES FIRST SUBSTANTIVE GRIEVANCE CHALLENGES CORRECTNESS OF BOTH THE LOWER AUTHORITIES ACTION DISALLOWING CLUB ENTRANCE FEES OF RS.97 794/- IN THE COURSE OF ASSESSMENT AFFIRMED IN THE LOWER IN THE LOWER APPELLATE PROCEEDINGS. THE ASSESSEE HEREIN IS ADMITTEDLY A BANK WHICH CLAIMED THE IMPUGNED EXPENDITURE AS AN ALLOWABLE DEDUCTION UNDER REVENUE HEAD. THE ASSESSING OFFICERS ASSESSMENT ORDER DATED 25.02.2015 HELD THE SAME TO BE CAPITAL EXPENDITURE THAN REVENUE IN NATURE. THE CIT(A) HAS CONFIRMED THE IMPUGNED DISALLOWANCE. I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 2 3. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RIVAL PLEADINGS. WE NOTICE THAT HONBLE DELHI HIGH COURTS JUDGMENT IN CIT VS. SAMTEL COLOUR LIMITED ITA 1152/2008 DATED 30.01.2009 HOLDS THAT SUCH AN ADMISSION FEE EXPENDITURE INCURRED FOR CORPORATE MEMBERSHIP IS VERY MUCH ALLOWABLE AS REVENUE EXPENDITURE. THERE IS NO DISTINCTION OF FACTS PINPOINTED FROM THE REVENUE SIDE. WE THUS HOLD THAT BOTH THE LEARNED LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN DISALLOWING THE IMPUGNED PAYMENTS AS CAPITAL EXPENDITURE. THE SAME STANDS DELETED. 4. NEXT COMES THE ASSESSEES SECOND SUBSTANTIVE GRIEVANCE THAT THE ASSESSING OFFICER AS WELL AS CIT(A) HAVE ERRED IN DISALLOWING ITS SECTION 35D DEDUCTION OF RS.34 29 200/- REGARDING SHARE ISSUE EXPENDITURE. LEARNED CIT-DR INVITED OUR ATTENTION TO BOTH THE LOWER AUTHORITIES ACTION INVOKING THE IMPUGNED DISALLOWANCE MORE PARTICULARLY THE CIT(A)S FINDINGS IN PAGE 4 OF LOWER APPELLATE ORDER REFERRING TO HONBLE APEX COURTS DECISION IN BROOKE BOND INDIA LTD. 91 TAXMAN 26 (SC) [(1997) 225 ITR 798] THAT SUCH AN EXPENDITURE UNDER THE HEAD SHARE ISSUE EXPENSES IS OF CAPITAL IN NATURE. COMING TO SECTION 35D MR. SANKAR CONTENDED THAT THE IMPUGNED AMORTIZATION IS ALLOWABLE ONLY FOR PRE-OPERATIVE EXPENSES. WE FIND NO MERIT IN REVENUES INSTANT STAND SINCE SECTION 35D(1)(II) MAKES IT CLEAR THAT SUCH AN EXPENDITURE IS ALLOWABLE NOT ONLY THAT PERTAINING TO BEFORE THE COMMENCEMENT HIS BUSINESS BUT ALSO AFTER THE COMMENCEMENT OF HIS BUSINESS IN CONNECTION WITH EXTENSION OF HIS UNDERTAKING OR IN CONNECTION WITH ITS SETTING UP OF A NEW UNIT. 5. WE FURTHER NOTE THAT THIS TRIBUNALS RECENT DECISION IN IT(SS) NO.77/KOL/2016 DATED 23.12.19 DCIT VS. M/S MBL INFRASTRUCTURE LTD. HAS HELD SIMILAR SHARE ISSUE EXPENSES AS ELIGIBLE FOR SECTION 35D AMORTIZATION AS UNDER: 8. COMING TO REVENUES APPEALS ITA NO.77&78/KOL/2016 WE NOTICE THAT REVENUES IDENTICAL FIRST SUBSTANTIVE GRIEVANCE IN BOTH OF ITS APPEALS SEEKS TO REVERSE CIT(A)S ACTION DELETING SECTION 35D AMORTIZATION OF EXPENSES DISALLOWANCE OF RS.1 12 60 000/- IN THE TWO IMPUGNED ASSESSMENT YEARS. WE THUS TREAT THE FORMER ASSESSMENT YEAR 2010-11 AS THE LEAD ASSESSMENT YEAR FOR ADJUDICATION OF THE INSTANT ISSUE. 9. A PERUSAL OF THE CASE FILE SUGGESTS THAT THE ASSESSEES AUDITED ACCOUNTS OF THE RELEVANT FINANCIAL YEAR 2009-10 AND ITS PROSPECTUS RELATING TO PUBLIC OFFERING AS WELL I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 3 WORKING OF THE IMPUGNED EXPENSES FROM PART OF RECORDS IN PAGES 36 TO 55 75 & 76; RESPECTIVELY. THE ASSESSEE COMPANY ENGAGED IN CIVIL CONSTRUCTION BUSINESS HAD SOUGHT FOR THE IMPUGNED AMORTIZATION U/S 35D(2)(C)(IV) OF THE ACT REGARDING ITS IPO. IT STATED THAT ALTHOUGH THE EXPENDITURE ELIGIBLE FOR AMORTIZATION IN ISSUE STOOD AT RS.5 96 58 485/- OUT OF WHICH 5% OF THE PROJECT COST CAME TO RS.1 12 60 000/- ONLY. THE ASSESSING OFFICER REJECTED THE IMPUGNED CLAIM ON TWO COUNTS. HE FIRST OF ALL OBSERVED THAT SINCE THE ASSESSEE STOOD INCORPORATED WAY BACK ON 25.08.1995 AND IT HAD BEEN CARRYING OUT ITS BUSINESS ACTIVITIES IT COULD NOT BE SAID THAT THIS EXPENDITURE WAS PRIOR TO COMMENCEMENT OF THE BUSINESS. AND THAT THIS EXPENDITURE PERTAINED TO IPO ONLY AND THEREFORE IT CARRIED IMPRINT OF CAPITAL EXPENDITURE AS WELL. THE ASSESSING OFFICER THEN DEALT WITH ASSESSEES PLEA THAT CAPITAL RAISED THROUGH IPO HAS HELPED IN ACHIEVING THE GROWTH AND THUS IT WAS AN INSTANCE OF EXTENSION OF UNDERTAKING ONLY. THE ASSESSING OFFICER DID NOT AGREE TO THE FOREGOING EXPLANATION. HE CAME TO ASSESSEES DETAILS THAT THE GROSS RECEIPTS HAD GONE UP 55.67% BY RAISING SHARE CAPITAL THAN 26.21% IN THE IMMEDIATE SUCCEEDING ASSESSMENT YEAR EVEN THOUGH NO SUCH CAPITAL HAD BEEN RAISED. ALL THIS MADE HIM TO HOLD THAT THE ASSESSEES CAPITAL DID NOT HAVE ANY DIRECT IMPACT ON THE GROSS RECEIPTS. HE FINALLY CONCLUDED THAT THE ASSESSEES IMPUGNED CLAIM RELATING TO ITS IPO DID NOT QUALIFY SECTION 35D AMORTIZATION SINCE IT NEITHER PERTAINED TO TIME PERIOD PRIOR TO COMMENCEMENT OF BUSINESS NOR IN CONNECTION WITH EXTENSION OF UNDERTAKING OR SETTING UP OF A NEW UNIT. HE THEREFORE DISALLOWED THE ASSESSEES SECTION 35D AMORTIZATION CLAIM AMOUNTING TO RS.112 60 00 000/-. 10. THE CIT(A) HAS DELETED THE IMPUGNED DISALLOWANCE AS UNDER: I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 4 11. LEARNED CIT-DR VEHEMENTLY CONTENDS DURING THE COURSE OF HEARING THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE IMPUGNED SECTION 35D DISALLOWANCE. HE REITERATED THE ASSESSING OFFICERS TWIN REASONS THAT THE ASSESSEES IPO EXPENSES NEITHER PERTAINED TO TIME PERIOD PRIOR TO COMMENCEMENT OF BUSINESS NOR THEY INDICATE ANY EXTENSION OR SETTING UP OF A NEW UNIT. CASE LAW (2006) 6 SOT 200 (CHENNAI) ASHOK LEYLAND LTD. VS ACIT (2011) 8 ITR (T) 639 (BANGALORE) MEDREICH LTD. VS. DCIT AND (2014) 29 ITR (T) 134 INTER ALIA HOLDING THAT ONLY THESE SPECIFIED HEADS OF EXPENSES PRESCRIBED U/S 35D COULD BE AMORTIZED WHOSE ALL SUPPORTIVE DETAILS ARE ON RECORD. LEARNED CIT-DR ACCORDINGLY PRESSES FOR RESTORING THE ASSESSING OFFICERS ACTION DISALLOWING THE IMPUGNED SECTION 35D AMORTIZATION CLAIM. 12. LEARNED AUTHORIZED REPRESENTATIVE STRONGLY SUPPORTS THE CIT(A)S FOREGOING DETAILED DISCUSSION. HE SUBMITS THAT THE ASSESSEES FIXED ASSETS ALONG WITH PLANT AND MACHINERY FIGURES IN FINANCIAL YEAR 2009-10 HAD OPENING WRITTEN DOWN VALUE (WDV) OF 59.66 CRORES AND 58.74 CRORES WHICH SAW INCREASE OF RS.27.20 CRORES AND 27 CRORES; I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 5 RESPECTIVELY. HIS CASE THEREFORE IS THAT THESE FIGURES SUFFICIENTLY INDICATE A SUBSTANTIAL EXPANSION OF ASSESSEES UNDERTAKING. MR. TULSIYAN THEN DRAWS OUR ATTENTION TO ASSESSEES INCREASE IN TURNOVER AS WELL INVOLVING CORRESPONDING FIGURES OF RS.505.84 CRORES IN 2009 RISING TO 628.88 CRORES IN FINANCIAL YEAR 2009-10 RELEVANT TO IMPUGNED ASSESSMENT YEAR. HE THUS CLARIFIES THE EFFECT OF ASSESSEES IPO IN QUESTION INVOLVING RAISING OF FUNDS HAVING COME INTO PLAY IN RELEVANT PREVIOUS YEAR ONLY. MR. TULSIYAN ALSO REFERS TO ASSESSEES INVESTMENTS COMPILED IN ITEMS NO.1 TO 8 SUGGESTING THAT THE CORRESPONDING PROJECTS ARE OTHERWISE ELIGIBLE FOR SECTION 80IA DEDUCTION AS WELL. 13. NEXT COMES THE ASSESSEES DETAILED PAPER BOOK PAGE 7 IN LATTER ASSESSMENT YEAR 2011-12 INDICATING 98.99 PER CENT INCREASE IN TURNOVER IN ASSESSMENT YEAR 2009-10 (SUPRA). MR. TULSIYAN TOOK US TO ASSESSEES OBJECTS OF SHARE CAPITAL AS WELL AND SUBMITS THAT THE FUNDS RAISED RELATED TO INVESTMENT IN CAPITAL EQUIPMENT ONLY AS PER PAGE 24 OF THE PAPER BOOK. 14. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS IN SUPPORT OF AND AGAINST THE CIT(A)S ACTION DELETING IMPUGNED SECTION 35D AMORTISATION DISALLOWANCE. THERE CAN HARDLY BE ANY DISPUTE THAT THIS STATUTORY PROVISION PRESCRIBES AMORTISATION OF CAPITAL EXPENDITURE RELATING TO SPECIFIED ITEMS ONLY U/S 35D WHICH HAVE BEEN INCURRED; BEFORE THE COMMENCEMENT OF BUSINESS OR AFTER THE COMMENCEMENT OF HIS BUSINESS IN CONNECTION WITH THE EXTENSION OF ITS UNDERTAKING OR IN CONNECTION WITH HIS SETTING UP A NEW INDUSTRIAL UNIT PROVIDED IN SUB-SECTION 2(I) AND (II) OF SECTION 35D; RESPECTIVELY. WE FIND THAT THERE IS NO REBUTTAL COMING FROM THE REVENUE SIDE ABOUT THE PURPOSE OF ASSESSEES CAPITAL RAISED AS MEANT FOR INVESTMENT IN CAPITAL EQUIPMENTS WORKING CAPITAL REQUIREMENT GENERAL CORPORATE PURPOSES FOLLOWED BY ISSUE EXPENSES ONLY. THIS TRIBUNALS RECENT DECISION IN ACIT VS. WEST GUJARAT EXPRESSWAY LTD. (2015) 154 ITD 103 (MUMBAI-TRIB) ALLOWS SIMILAR INSTANCE OF EXPENSES OF AUTHORIZED SHARE CAPITAL AS AMORTIZABLE FALLING UNDER EXTENSION OF THE UNDERTAKING ONLY. LEARNED COORDINATE BENCH HAS ALSO CONSIDERED EID PARRY (INDIA) LTD. VS. DCIT 256 CTR 104 (MADRAS). WE CONCLUDE IN THE FOREGOING FACTUAL AND LEGAL POSITION THAT THE ASSESSEES CASE COMES U/S 35D(2)(II) SINCE IN CONNECTION WITH EXTENSION OF ITS UNDERTAKING ONLY AS EVIDENT FROM ASSESSEES FOREGOING FACTUAL DETAILS. THE CIT(A)S IDENTICAL FINDINGS UNDER CHALLENGE DELETING IMPUGNED IDENTICAL SECTION 35D DISALLOWANCE OF RS.120 00 000/- IN BOTH THESE ASSESSMENT YEARS ARE UPHELD THEREFORE. WE ADOPT THE ABOVE DETAILED REASONING MUTATIS MUTANDIS AND ACCEPT THE ASSESSEES CONTENTION SEEKING IMPUGNED AMORTIZATION. 6. LEARNED CIT-DR AT THIS STAGE INVITED OUR ATTENTION TO PARA 5 IN THE ASSESSMENT ORDER THAT THE ASSESSEE DID NOT IDENTIFY THE SHARE ISSUE EXPENSES. HE FAILS TO DISPUTE THAT THE ASSESSEES IMPUGNED EXPENSE HAVE ALREADY BEEN RECORDED IN THE BOOKS OF ACCOUNTS FORMING PART OF RECORDS. WE THUS ALLOW THE ASSESSEES INSTANT SECOND SUBSTANTIVE GROUND AS WELL. 7. THE ASSESSEES THIRD SUBSTANTIVE GROUND SEEKS TO REVERSE BOTH THE LOWER AUTHORITIES ACTION INVOKING SECTION 40(A)(IA) DISALLOWANCE OF RS.1 58 21 235/- OF VARIOUS EXPENSES IN THE RELEVANT PREVIOUS YEAR WITHOUT DEDUCTING TDS THEREOF. ITS I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 6 ONLY CASE BEFORE US IS THAT SECTION 40(A)(IA) 2 ND PROVISO INSERTED IN THE ACT VIDE FINANCE ACT 2012 W.E.F. 01.04.2013 MAKES IT CLEAR THAT THE IMPUGNED DISALLOWANCE DOES NOT APPLY IN CASE AN ASSESSEE IS NOT IN DEFAULT U/S 201(1) FIRST PROVISO OF THE ACT IF THE PAYEES CONCERNED STAND ASSESSED. MR. CHOUDHURY QUOTES HONBLE APEX COURTS DECISION IN (2018) 302 CTR 201(SC) HOLDING CIT VS. CALCUTTA EXPORT COMPANY SIMILAR FIRST PROVISO TO SECTION 40(A)(IA) AS A CURATIVE ONE HAVING RETROSPECTIVE EFFECT. THE LEGISLATURE HAD MADE THE SAID AMENDMENT VIDE VIDE FINANCE ACT 2010 W.E.F 01.04.2010 WHICH HAS BEEN RETROSPECTIVELY APPLICABLE W.E.F. 01.04.2005. HONBLE JURISDICTIONAL HIGH COURT IN PCIT VS. TIRUPATI CONSTRUCTION ALSO HOLDS THE IMPUGNED 2 ND PROVISO TO SECTION 40(A)(IA) AS CARRYING RETROSPECTIVE EFFECT ON SAME LINES. 8. LEARNED CIT-DRS CASE IN LIGHT OF THE IMPUGNED DISALLOWANCE MADE IN BOTH THE LOWER PROCEEDINGS IS THAT THE ASSESSEE OUGHT TO HAVE FILED CORRESPONDING DETAILS OF ITS PAYEES HAVING ASSESSED QUA THE IMPUGNED PAYMENTS BEFORE THE LOWER AUTHORITIES. HE FAILS TO DISPUTE THE FOREGOING LEGAL PROPOSITION HAVING BEEN RECENTLY SETTLED BY THEIR LORDSHIPS OF HONBLE APEX COURT. WE WISH TO CLARIFY HERE THAT HONBLE KERALA HIGH COURT IN THOMAS GEORGE MUTHOOT VS. CIT (2016) 6 ITR 229 (KERALA) HAD HELD THE VERY PROVISO AS HAVING PROSPECTIVE OPERATION ONLY. WE NOTE IN THIS BACKDROP THAT THE ASSESSEES OMISSION IF ANY IN NOT FILING THE NECESSARY DETAILS OF ITS PAYEES IS NOT FATAL TO ITS CAUSE IN VIEW OF THE LEGAL DEVELOPMENTS QUA INTERPRETATION OF THE ABOVE-STATED AMENDED PROVISO INVOLVING DIVERGENT VIEWS FROM VARIOUS HIGH COURTS. WE THUS ACCEPT THE ASSESSEES INSTANT THIRD SUBSTANTIVE GRIEVANCE FOR STATISTICAL PURPOSES AND LEAVE IT OPEN FOR THE ASSESSING OFFICER TO CARRY OUT THE NECESSARY FACTUAL VERIFICATION AS PER LAW. THIS SUBSTANTIVE GROUND IS TAKEN AS ACCEPTED FOR STATISTICAL PURPOSES. 9. NEXT COMES CORRECTNESS OF BOTH THE LOWER AUTHORITIES ACTION INVOKING ADMINISTRATIVE EXPENSES DISALLOWANCE OF RS.1.64 CRORES U/S 14A R.W.R 8D(2)(III) QUA ASSESSEES EXEMPT INCOME OF RS.193 60 00522/-. SUFFICE TO SAY IT TRANSPIRES AT THE OUTSET THAT THIS TRIBUNALS COORDINATE BENCH IN ASSESSEES CASE ITSELF FOR I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 7 ASSESSMENT YEAR 2010-11 HOLDS THAT THE IMPUGNED DISALLOWANCE DOES NOT APPLY IN ITS CASE AS UNDER: 13. GROUND NO. 5 RAISED BY THE ASSESSEE RELATES TO DISALLOWANCE U/S 14A AMOUNTING TO RS. 1. 58 CRORES. 14.WHEN THIS APPEAL WAS CALLED OUT FOR HEARING LEARNED COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE ORDER DATED 19.11.2018 PASSED BY THE DIVISION BENCH OF DELHI TRIBUNAL IN THE CASE OF NICE BOMBAY TRANSPORT (P) LTD IN ITA NO.1331/DEL/2012FOR THE ASSESSMENT YEAR 2008-09 WHEREBY THE ISSUE RELATING TO SECTION 14A READ WITH RULE 8D IN RESPECT OF SHARES HELD IN STOCKHAS BEEN DISCUSSED AND ADJUDICATED IN FAVOUR OF ASSESSEE. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PRESENT ISSUE IS SQUARELY COVERED BY THE AFORESAID ORDER OF THE TRIBUNAL A COPY OF WHICH WAS ALSO PLACED BEFORE THE BENCH. 15. LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 16.WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE DIVISION BENCH OF ITAT NEW DELHI VIDE ORDER DATED 19.11.2018. IN THIS ORDER THE TRIBUNAL HAS INTER ALIA OBSERVED AS FOLLOWS: 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS AND PERUSED THE RECORDS. THERE IS NO DENIAL OF THE ASSERTIONS BY THE ASSESSEE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN SHARE AND ALL THE SHARES ARE HELD BY THE ASSESSEE COMPANY AS PART OF ITS STOCK-IN-TRADE AND NOT AS AN INVESTMENT AS IS EVIDENCED BY THE BALANCE SHEET OF THE COMPANY. HOWEVER LD. AO RECORDED THAT A PROFIT MAKING COMPANY PAYS DIVIDEND TO ITS SHAREHOLDERS WHO HAVE INVESTED SOME MONEY TO ITS SHARES WHETHER THE SHAREHOLDER IS A TRADER OF SHARE OR NOT. LD. AO FURTHER NOTED THAT THE ASSESSEE COMPANY HAS PURCHASED UNITS FROM THE MUTUAL FUNDS UNDER THE DIVIDEND REINVESTMENT PLAN AND EARNED DAY TO DAY DIVIDEND IN THE SHAPE OF UNITS AND VALUE OF THE PURCHASE ACCOUNT HAD INCREASED BY SUCH UNITS AND THE MOTIVE OF THE ASSESSEE COMPANY IS CLEAR TO EARN THE DIVIDEND INCOME. LD. AO FURTHER OBSERVED THAT FOR A TRADER OF SHARES TWO TYPES OF GAINS ARE AVAILABLE SIMULTANEOUSLY. FIRSTLY EARNING PROFIT FROM THE SETTLING OF SHARES AT HIGHER PRICES FROM ITS COST PRICE AND SECONDLY IS THE DIVIDEND INCOME AND WITHOUT MAKING INVESTMENTS THE ASSESSEE COULD NOT HAVE EARNED DIVIDEND INCOME. 7. THUS AS PER LD. AO THE INVESTMENTS AND DIVIDEND ARE INTEGRAL PART OF FINANCIAL TRANSACTIONS AND THEY ARE INSEPARABLE. ONE CANNOT CLAIM THAT INVESTMENT IN SHARES IS MADE ONLY FOR EARNING TRADING BENEFITS OR FOR HAVING DIVIDEND INCOME ONLY BECAUSE BOTH THE GAINS ARE EXISTING SIMULTANEOUSLY. LD. AO FURTHER NOTED THAT IN THE SAME WAY THE EXPENDITURE INCURRED BY WAY OF INTEREST ON THE MONEY TAKEN ON LOAN FOR INVESTMENT/PURCHASE OF SHARES CANNOT BE SEGREGATED AS THE EXPENDITURE INCURRED EXCLUSIVELY FOR INVESTMENT/PURCHASE OF SHARES. ACTUALLY THE EXPENDITURE HAS BEEN INCURRED FOR HAVING BOTH THE BENEFITS. THUS IT IS AMPLY CLEAR THAT THE EXPENDITURE INCURRED BY WAY OF PAYMENT OF INTEREST HAS DIRECT LINK WITH THE DIVIDEND INCOME AND HENCE DISALLOWANCE AS PER SECTION 14A OF THE I.T. ACT. 8. ASSESSEE PLACED RELIANCE ON THE DECISION REPORTED IN THE CASE OF VORA FINANCIAL SERVICES (P). LTD. VS. ACIT MUMBAI BY THE ITAT MUMBAI BENCH (2018) 96 COM 88 (MUM-TRIB) WHEREIN IT WAS HELD THAT WHERE A MAJOR PORTION OF DIVIDEND INCOME HAD BEEN RECEIVED AS SHARES HELD AS STOCK-IN-TRADE IT CANNOT BE APPROPRIATE TO APPLY THE PROVISIONS OF RULE 8D. IT IS FURTHER ARGUED BY THE LD. AUTHERIZED REPRESENTATIVE THAT WHATEVER THE EXPENSES THAT ARE DEBITED TO THE PROFIT AND LOSS ACCOUNT ARE THE BUSINESS EXPENSES RELATING TO TRADING OF THE SHARES AND NOT ADDITIONAL EXPENSE WHATSOEVER MADE. 9. FURTHER RELIANCE IS PLACED ON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. SMT. LEENA RAMACHANDRAN (2010) 235 CTR 512 (KER.) FOR THE PRINCIPLE THAT THE I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 8 ASSESSEE WOULD BE ENTITLED TO DEDUCTION OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT ON BORROWED FUNDS UTILIZED FOR THE ACQUISITION OF SHARES WHEN THE SHARES HELD AS STOCK-IN-TRADE WHICH ARISE IF THE ASSESSEE IS ENGAGED IN THE TRADING OF SHARES. 10. IN FACT THIS QUESTION HAD FALLEN FOR CONSIDERATION IN THE CASE OF MAXOPP INVESTMENT LTD VERSUS CIT (2018) 91 TAXMAN.COM 154 (SC) WHEREIN THE HONBLE APEX COURT CONSIDERED TWO CASES WHEREIN THE QUESTION OF APPORTIONMENT OF EXPENDITURE HAD ARISEN AND PREDOMINANT INTENT OF INVESTMENT IN SHARES WAS PLEADED THOUGH AN DIFFERENT FACTS ON THE GROUND THAT THE OBJECTIVE OF INVESTING IN SHARES WAS NOT TO THE DIVIDEND INCOME BUT TO EITHER RETAIN CONTROLLING INTEREST OVER THE COMPANY IN WHICH THE INVESTMENT WAS MADE OR TO EARN THE PROFIT FROM TRADING IN SHARES. THE QUESTION WAS WHETHER THE DISALLOWANCE UNDER SECTION 14 A OF THE ACT COULD BE INVOKED IN THE CASES WHERE EXEMPT INCOME WAS EARNED FROM SHARES HELD AS TRADING ASSETS OR STOCK IN TRADE. THE FIRST CASE RELATES TO MAXOPP INVESTMENT LTD AND THE SECOND CASE RELATES TO THE CASE OF STATE BANK OF PATIALA. IN THE CASE OF MAXOPP INVESTMENT LTD THE ASSESSEE COMPANY IS IN THE BUSINESS OF FINANCE INVESTMENT AND WAS DEALING IN SHARES AND SECURITIES; THAT THEY HELD THE SHARES AND SECURITIES PARTLY AS INVESTMENTS ON THE CAPITAL ACCOUNT AND PARTLY AS TRADING ASSETS FOR THE PURPOSE OF ACQUIRING AND RETAINING CONTROL OVER ITS GROUP COMPANIES PRIMARILY MAX INDIA LTD.; AND THAT THE PROFITS RESULTING ON THE SALE OF SHARES HELD AS TRADING ASSETS WERE DULY OFFERED TO TAX AS BUSINESS INCOME OF THE ASSESSEE. IN THE CASE OF STATE BANK OF PATIALA THE ASSESSEE THE EXEMPT INCOME IN THE FORM OF DIVIDEND WAS EARNED BY THE BANK FROM SECURITIES HELD BY AN STOCK IN TRADE. 11. THE HONBLE SUPREME COURT WAS CONSIDERING THE QUESTION THAT HAS ARISEN UNDER VARIED CIRCUMSTANCES WHERE THE SHARES/STOCKS WERE PURCHASED OF A COMPANY FOR THE PURPOSE OF GAINING CONTROL OVER THE SAID COMPANY OR AS STOCK IN TRADE THOUGH INCIDENTALLY INCOME IS ALSO GENERATED IN THE FORM OF DIVIDENDS AS WELL. 12. IT WAS ARGUED BEFORE THE HONBLE APEX COURT THAT THOUGH INCIDENTALLY INCOME WAS ALSO GENERATED IN THE FORM OF DIVIDENDS THE DOMINANT INTENTION FOR PURCHASING THE SHARES WAS NOT TO EARN THE DIVIDEND INCOME BUT TO ACQUIRE AND RETAIN THE CONTROLLING THE BUSINESS IN THE COMPANY IN WHICH SHARES WERE INVESTED OR FOR THE PURPOSE OF TRADING IN THE SHARES AS BUSINESS ACTIVITY. 13. AFTER CONSIDERING THE ENTIRE CASE LAW ON THIS ASPECT IN THE LIGHT OF THE PECULIAR FACTS INVOLVED IN BOTH THE MATTERS THE HONBLE APEX COURT VIDE PARAGRAPH NO. 39 AND 40 HELD AS FOLLOWS:- 39) IN THOSE CASES WHERE SHARES ARE HELD AS STOCK-IN-TRADE THE MAIN PURPOSE IS TO TRADE IN THOSE SHARES AND EARN PROFITS THEREFROM. HOWEVER WE ARE NOT CONCERNED WITH THOSE PROFITS WHICH WOULD NATURALLY BE TREATED AS INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION. WHAT HAPPENS IS THAT IN THE PROCESS WHEN THE SHARES ARE HELD AS STOCK-IN- TRADE CERTAIN DIVIDEND IS ALSO EARNED THOUGH INCIDENTALLY WHICH IS ALSO AN INCOME. HOWEVER BY VIRTUE OF SECTION 10 (34) OF THE ACT THIS DIVIDEND INCOME IS NOT TO BE INCLUDED IN THE TOTAL INCOME AND IS EXEMPT FROM TAX. THIS TRIGGERS THE APPLICABILITY OF SECTION 14A OF THE ACT WHICH IS BASED ON THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE INCOME AS HELD IN WALFORT SHARE AND STOCK BROKERS P LTD. CASE. THEREFORE TO THAT EXTENT DEPENDING UPON THE FACTS OF EACH CASE THE EXPENDITURE INCURRED IN ACQUIRING THOSE SHARES WILL HAVE TO BE APPORTIONED. 40) WE NOTE FROM THE FACTS IN THE STATE BANK OF PATIALA CASES THAT THE AO WHILE PASSING THE ASSESSMENT ORDER HAD ALREADY RESTRICTED THE DISALLOWANCE TO THE AMOUNT WHICH WAS CLAIMED AS EXEMPT INCOME BY APPLYING THE FORMULA CONTAINED IN RULE 8D OF THE RULES AND HOLDING THAT SECTION 14A OF THE ACT WOULD BE APPLICABLE. IN SPITE OF THIS EXERCISE OF APPORTIONMENT OF EXPENDITURE CARRIED OUT BY THE AO CIT(A) DISALLOWED THE ENTIRE DEDUCTION OF THAT VIEW OF THE CIT(A) WAS CLEARLY UNTENABLE AND RIGHTLY SET ASIDE BY THE ITAT. THEREFORE ON FACTS THE PUNJAB AND HARYANA HIGH COURT HAS ARRIVED AT A CORRECT CONCLUSION BY AFFIRMING THE VIEW OF THE ITAT I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 9 THOUGH WE ARE NOT SUBSCRIBING TO THE THEORY OF DOMINANT INTENTION APPLIED BY THE HIGH COURT. IT IS TO BE KEPT IN MIND THAT IN THOSE CASES WHERE SHARES ARE HELD AS STOCK-IN-TRADE IT BECOMES A BUSINESS ACTIVITY OF THE ASSESSEE TO DEAL IN THOSE SHARES AS A BUSINESS PROPOSITION. WHETHER DIVIDEND IS EARNED OR NOT BECOMES IMMATERIAL. IN FACT IT WOULD BE A QUIRK OF FATE THAT WHEN THE INVESTEE COMPANY DECLARED DIVIDEND THOSE SHARES ARE HELD BY THE ASSESSEE THOUGH THE ASSESSEE HAS TO ULTIMATELY TRADE THOSE SHARES BY SELLING THEM TO EARN PROFITS. THE SITUATION HERE IS THEREFORE DIFFERENT FROM THE CASE LIKE MAXOPP INVESTMENT LTD. WHERE THE ASSESSEE WOULD CONTINUE TO HOLD THOSE SHARES AS IT WANTS TO RETAIN CONTROL OVER THE INVESTEE COMPANY. IN THAT CASE WHENEVER DIVIDEND IS DECLARED BY THE INVESTEE COMPANY THAT WOULD NECESSARILY BE EARNED BY THE ASSESSEE AND THE ASSESSEE ALONE. THEREFORE EVEN AT THE TIME OF INVESTING INTO THOSE SHARES THE ASSESSEE KNOWS THAT IT MAY GENERATE DIVIDEND INCOME AS WELL AND AS AND WHEN SUCH DIVIDEND INCOME IS GENERATED THAT WOULD BE EARNED BY THE ASSESSEE. IN CONTRAST WHERE THE SHARES ARE HELD AS STOCK-IN-TRADE THIS MAY NOT BE NECESSARILY A SITUATION. THE MAIN PURPOSE IS TO LIQUIDATE THOSE SHARES WHENEVER THE SHARE PRICE GOES UP IN ORDER TO EARN PROFITS. IN THE RESULT THE APPEALS FILED BY THE REVENUE CHALLENGING THE JUDGMENT OF THE PUNJAB AND HARYANA HIGH COURT IN STATE BANK OF PATIALA ALSO FAIL THOUGH LAW IN THIS RESPECT HAS BEEN CLARIFIED HEREINABOVE. 14. IT IS THEREFORE CLEAR FROM THE ABOVE OBSERVATIONS OF THE HONBLE APEX COURT THAT DEPENDING UPON THE FACTS OF EACH CASE THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES WILL HAVE TO BE APPORTIONED. HONBLE APEX COURT HELD THAT THE TRIBUNAL AND THE HONBLE HIGH COURT OF PUNJAB AND HARYANA ARRIVED AT A CORRECT CONCLUSION BY SETTING ASIDE THE DISALLOWANCE UNDER SECTION 14 A OF THE ACT IN RESPECT OF THE DIVIDEND EARNED ON THE SHARES HELD AS STOCK IN TRADE BECAUSE SUCH SHARES WERE HELD DURING THE BUSINESS ACTIVITY OF THE ASSESSEE AND IT IS ONLY BY A QUIRK OF FATE THAT WHEN THE INVESTEE COMPANY DECLARED DIVIDEND THOSE SHARES WERE HELD BY THE ASSESSEE THOUGH THE ASSESSEE HAS TO ULTIMATELY TRADE THOSE SHARES BY SELLING THEM TO EARN PROFITS. 15. HONBLE APEX COURT MADE A CLEAR DISTINCTION OF THIS CASE FROM THE CASE OF MAXOPP INVESTMENT LTD WERE THE ASSESSEE KNEW THAT WHENEVER DIVIDEND WOULD BE DECLARED BY THE INVESTEE COMPANY SUCH DIVIDEND WOULD NECESSARILY BE EARNED BY THE ASSESSEE AND ASSESSEE ALONE AND IT WOULD BE IN THE COMMON KNOWLEDGE OF THE ASSESSEE THAT SUCH SHARES WOULD GENERATE DIVIDEND INCOME AS WELL AS AND WHEN SUCH DIVIDEND INCOME IS GENERATED THAT WOULD BE EARNED BY THE ASSESSEE HONBLE APEX COURT IN UNEQUIVOCAL TERMS HELD THAT IN CONTRAST WHERE THE SHARES ARE HELD AS STOCK IN TRADE THIS MAY NOT BE NECESSARILY A SITUATION AND THE MAIN PURPOSE WAS TO LIQUIDATE THOSE SHARES WHENEVER THE SHARE PRICE GOES UP IN ORDER TO EARN PROFITS. IN THE WORDS OF THE HONBLE APEX COURT THE SITUATION HERE IS THEREFORE DIFFERENT FROM THE CASE LIKE MAXOPP INVESTMENT LTD. WHERE THE ASSESSEE WOULD CONTINUE TO HOLD THOSE SHARES AS IT WANTS TO RETAIN CONTROL OVER THE INVESTEE COMPANY. 16. HONBLE APEX COURT THEREFORE WHILE REJECTING THE THEORY OF DOMINANT PURPOSE IN MAKING INVESTMENT IN SHARES- WHETHER IT WAS TO ACQUIRE AND RETAIN CONTROLLING INTEREST IN THE OTHER COMPANY OR TO MAKE PROFITS OUT OF THE TRADING ACTIVITY IN SUCH SHARES CLEARLY MADE A CLEAR DISTINCTION BETWEEN THE DIVIDEND EARNED IN RESPECT OF THE SHARES WHICH WERE ACQUIRED BY THE ASSESSEE IN THEIR EXERCISE TO ACQUIRE AND RETAIN THE CONTROLLING INTEREST IN THE INVESTEE COMPANY AND THE SHARES THAT WERE PURCHASED FOR THE PURPOSE OF LIQUIDATING THOSE SHARES WHENEVER THE SHARE PRICE GOES UP IN ORDER TO EARN. IT IS THEREFORE CLEAR THAT THOUGH NOT THE DOMINANT PURPOSE OF ACQUIRING THE SHARES IS A RELEVANT FOR THE PURPOSE OF INVOKING THE PROVISIONS UNDER SECTION 14 A OF THE ACT THE SHARES HELD AS STOCK IN TRADE STAND ON A DIFFERENT PEDESTAL IN RELATION TO THE SHARES THAT WERE ACQUIRED WITH AN INTENTION TO ACQUIRE AND RETAIN THE CONTROLLING INTEREST IN THE INVESTEE COMPANY. 17. IN THE CIRCUMSTANCES AND RESPECTFULLY FOLLOWING THE AFORESAID BINDING PRECEDENT WE ARE OF THE CONSIDERED OPINION THAT APPLICATION OF RULE 8D TO THE FACTS OF THE CASE IS NOT CORRECT HENCE THE ADDITION ON THIS ACCOUNT IS HEREBY DIRECTED TO BE DELETED. I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 10 WE NOTE THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE BY THE JUDGMENT OF CO- ORDINATE BENCH OF ITAT NEW DELHI IN THE CASE OF NICE BOMBAY TRANSPORT PVT. LTD. (SUPRA) THEREFORE RESPECTFULLY FOLLOWING THE JUDGMENT OF CO-ORDINATE BENCH WE DELETE THE ADDITION OF RS. 1.58 CRORES. 10. WE THUS CONCLUDE IN LIGHT OF THE ABOVE-EXTRACTED DETAILED DISCUSSION THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW INVOKING THE IMPUGNED DISALLOWANCE IN CASE OF AN ASSESSEES SHARES HELD AS STOCK-IN-TRADE. THE ASSESSEES INSTANT FOURTH SUBSTANTIVE GRIEVANCE IS ACCEPTED. 11. THE ASSESSEES NEXT SUBSTANTIVE GROUND SEEKS TO REVERSE BOTH THE LOWER AUTHORITIES ACTION DISALLOWING ITS INTEREST CLAIM U/S 36(1)(VIII) OF THE ACT AMOUNTING TO RS.14 55 65 230/- AFTER CHANGING ALLOCATION OF OPERATIVE EXPENSES FROM ASSET TO TURNOVER BASIS. WE NOTICE QUA THE INSTANT ISSUE AS WELL THAT THIS TRIBUNALS COORDINATE BENCHS DECISION IN ALLAHABAD BANK VS. DCIT ITA NO.980&1009/KOL/2018 19.06.2019 HAS REVERSED THE REVENUES IDENTICAL STAND AS UNDER: 12. NOW WE TAKE UP THE ASSESSEES APPEAL BEING ITA NO. 980/KOL/2018 WHICH INVOLVES A SOLITARY ISSUE RELATING TO THE DISALLOWANCE OF RS.62 69 78 740/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 36(1)(VIII) OF THE INCOME TAX ACT 1961. 13. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION A DEDUCTION OF RS.198.49 CRORES WAS CLAIMED BY THE ASSESSEE UNDER SECTION 36(1)(VIII) BEING 20% OF ITS PROFIT OF THE ELIGIBLE BUSINESS OF PROVIDING LONG-TERM FINANCE. WHILE DETERMINING THE SAID PROFIT THE OPERATING EXPENSES WERE APPORTIONED BY THE ASSESSEE IN THE RATIO OF ELIGIBLE BUSINESS TO TOTAL BUSINESS BY TAKING INTO CONSIDERATION THE DEPOSITS BORROWINGS AND ADVANCES. THE SAID APPORTIONMENT WAS DONE AS UNDER:- PARTICULARS AMOUNT (RS.) OPERATING EXPENSE AS PER PROFIT & LOSS ACCOUNT (DOMESTIC) 2691 38 87 410 TOTAL BUSINESS OF THE BANK (ADVANCES + DEPOSITS) 270738 17 90 301 BALANCE OF LONG-TERM LENDING OUTSTANDING 36407 49 27 134 OPERATING EXPENSES APPORTIONED TO INCOME FROM LONG-TERM LENDING 2691 38 87 410 X 36407 49 27 134 2 70 738 17 90 301 361 92 42 632 I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 11 THE BASIS ADOPTED BY THE ASSESSEE FOR APPORTIONMENT OF THE TOTAL OPERATING EXPENSES WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER. ACCORDING TO HIM THE ASSESSEE WHILE APPORTIONING THE OPERATING EXPENSES HAD CONSIDERED THE NON-PERFORMING ASSETS ALSO FROM WHICH NO INCOME WAS RECOGNIZED. HE HELD THAT WHEN NO INCOME WAS RECOGNIZED FROM THE NON- PERFORMING ASSETS THE OPERATING EXPENSES WERE NOT REQUIRED TO BE APPORTIONED TO SUCH NON-EXISTENT INCOME AND THEREFORE THE METHOD ADOPTED BY THE ASSESSEE WAS NOT CORRECT. HE HELD THAT IT WAS PRUDENT TO APPORTION THE OPERATING EXPENSES IN THE RATIO OF TURNOVER ESPECIALLY IN THE CASE OF BANK. ACCORDINGLY HE APPORTIONED THE OPERATING EXPENSES IN THE RATIO OF INTEREST EARNED ON LONG-TERM LENDING TO TOTAL INTEREST INCOME EARNED AND WORKED OUT THE OPERATING EXPENSES APPORTIONABLE TO INCOME FROM LONG-TERM EARNING AT RS.675 41 36 332/- AS AGAINST RS.361 92 42 632/- WORKED OUT BY THE ASSESSEE. THE PROFIT OF THE ELIGIBLE BUSINESS OF LONG-TERM FINANCE ACCORDINGLY WAS RE-COMPUTED BY THE ASSESSING OFFICER AT RS.678 96 54 842/- AND THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 36(1)(VIII) WAS RESTRICTED BY HIM TO RS.135 79 30 968/- THEREBY MAKING A DISALLOWANCE OF RS.62 69 78 740/- ON THIS ISSUE. 14. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ITS CLAIM FOR DEDUCTION UNDER SECTION 36(1)(VIII) WAS CHALLENGED BY THE ASSESSEE AND THE FOLLOWING SUBMISSIONS WERE MADE ON BEHALF OF THE ASSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE BEFORE THE LD. CIT(APPEALS):- THE APPELLANT BANK'S CONTENTION IS THAT OPERATING EXPENSES ARE TO BE APPORTIONED IN THE RATIO OF ELIGIBLE BUSINESS (I.E. BUSINESS OF PROVIDING LONG TERM FINANCE) TO TOTAL BUSINESS OF THE BANK (I.E. AGGREGATE OF ADVANCE AND DEPOSITS). OPERATING EXPENSES OF THE BANK REPRESENTS VARIOUS INDIRECT EXPENSES I.E. COMMON EXPENSES INCURRED BY THE BANK. SUCH EXPENSES ARE INCURRED BY THE APPELLANT BANK IN RELATION TO THE ENTIRE BUSINESS CARRIED ON BY THE BANK I.E. GRANTING OF LOANS AND ADVANCES AND ACCEPTANCE OF VARIOUS DEPOSITS. AS OPERATING EXPENSES ARE INCURRED IN RELATION TO THE TOTAL BUSINESS OF THE BANK A PART OF SUCH EXPENSE IS DEFINITELY ATTRIBUTABLE TO NON-PERFORMING ASSETS OF THE BANK. THE BANK HAS TO MANAGE BOTH PERFORMING ASSETS AND NON-PERFORMING ASSETS. KEEPING THIS FACT IN MIND OPERATING EXPENSES ATTRIBUTABLE TO LONG TERM LENDING IS TO BE WORKED OUT BY CONSIDERING THE TOTAL BUSINESS OF THE BANK. ACCORDING TO THE LEARNED ASSESSING OFFICER LOANS AND ADVANCES OF THE APPELLANT BANK ARE CLASSIFIED INTO PERFORMING & NON- PERFORMING ASSETS. INTEREST INCOME FROM PERFORMING ASSET IS ONLY RECOGNIZED WHEREAS INTEREST ON NON-PERFORMING ASSET IS RECOGNIZED ON RECEIPT BASIS. BECAUSE OF THIS REASON THE LEARNED ASSESSING OFFICER HAS THOUGHT IT PRUDENT THAT OPERATING EXPENSES ARE TO BE APPORTIONED IN THE RATIO OF INTEREST ON LONG TERM LENDING TO TOTAL INTEREST INCOME. THE LEARNED ASSESSING OFFICER HAS FAILED TO APPRECIATE THE BASIC FACT THAT OPERATING EXPENSES ARE INCURRED NOT ONLY FOR MANAGING PERFORMING ASSETS BUT ALSO FOR MANAGING ALL ASSETS AND DEPOSITS ACCEPTED BY THE APPELLANT BANK. IF THE FORMULA APPLIED BY THE LEARNED ASSESSING OFFICER FOR APPORTIONING OPERATING EXPENSES IS I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 12 ACCEPTED IT GIVES A DISTORTED RESULT. SUCH FORMULA IMPLIES THAT THE BANK INCURRED OPERATING EXPENSES IN RELATION 10 PERFORMING ASSETS ONLY WHICH IS NOT FACTUALLY CORRECT. NO SPECIFIC FORMULA HAS BEEN PRESCRIBED IN SECTION 36(1)(VIII). THE BASIS OF APPORTIONING OPERATING EXPENSES AS ADOPTED BY THE APPELLANT BANK IS BEING FOLLOWED CONSISTENTLY AND SUCH BASIS HAS BEEN ACCEPTED BY THE REVENUE CONSISTENTLY TILL ASSESSMENT YEAR 2010-11. THERE IS NO REASON TO DEVIATE FROM THE RULE OF CONSISTENCY. THE LD. CIT(APPEALS) DID NOT FIND MERIT IN THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE ON THIS ISSUE. ACCORDING TO HIM THE BASIS FOLLOWED BY THE ASSESSING OFFICER FOR APPORTIONMENT OF OPERATING EXPENSES WAS MORE REASONABLE ESPECIALLY IN THE CASE OF BANK AS THE VOLUME OF BUSINESS OF ANY BANK WAS CONSIDERED ON THE BASIS OF INTEREST INCOME EARNED. HE ACCORDINGLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ISSUE. 15. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE BASIS ADOPTED BY THE ASSESSEE IN APPORTIONING THE OPERATING EXPENSES IN THE RATIO OF ELIGIBLE BUSINESS OF PROVIDING LONG-TERM FINANCE TO TOTAL BUSINESS OF THE BANK AFTER TAKING INTO CONSIDERATION THE AGGREGATE OF ADVANCES AND DEPOSITS IS MORE FAIR AND REASONABLE. HE CONTENDED THAT THE OPERATING EXPENSES INCURRED BY THE ASSESSEE-BANK ARE IN RELATION TO ITS ENTIRE BUSINESS OF GRANTING OF LOANS AND ADVANCES AND ACCEPTANCE OF VARIOUS DEPOSITS AND THAT ALSO INCLUDE THE NON-PERFORMING ASSETS. HE CONTENDED THAT THE BANK HAS TO MANAGE BOTH PERFORMING AND NON-PERFORMING ASSETS AND THE ASSESSING OFFICER AS WELL AS THE LD. CIT(APPEALS) FAILED TO APPRECIATE THIS VITAL ASPECT. HE CONTENDED THAT THE FORMULA ADOPTED BY THE AUTHORITIES BELOW FOR APPORTIONMENT OF THE OPERATING EXPENSES IMPLIES THAT THE BANK INCURRED OPERATING EXPENSES IN RELATION TO PERFORMING ASSETS ONLY AND SINCE IT IS NOT FACTUALLY CORRECT THE BASIS ADOPTED BY THEM HAS GIVEN DISTORTED RESULT. HE ALSO CONTENDED THAT THE SAME BASIS AS ADOPTED BY THE ASSESSEE FOR APPORTIONMENT OF OPERATING EXPENSES IN THE YEAR UNDER CONSIDERATION WAS ADOPTED BY IT EVEN IN THE EARLIER YEARS AND THE SAME WAS CONSISTENTLY ALLOWED BY THE REVENUE TILL ASSESSMENT YEAR 2010-11. BY RELYING ON THE RULE OF CONSISTENCY HE CONTENDED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 36(1)(VIII) THUS IS NOT SUSTAINABLE. 16. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF THE ASSESSING OFFICER AS WELL AS THAT OF THE LD. CIT(APPEALS) IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE AND CONTENDED THAT THE BASIS ADOPTED BY THEM TO APPORTION THE OPERATING EXPENSES IS MORE FAIR AND REASONABLE ESPECIALLY IN CASE OF BANKING COMPANY. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE APPORTIONMENT OF OPERATING EXPENSES MADE BY THE ASSESSEE IN THE RATIO OF ELIGIBLE BUSINESS TO TOTAL BUSINESS BY TAKING INTO CONSIDERATION THE ADVANCES AND DEPOSITS WHILE DETERMINING THE PROFIT OF THE ELIGIBLE BUSINESS OF LONG-TERM FINANCE ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VIII) WAS NOT ACCEPTED BY THE AUTHORITIES BELOW MAINLY ON THE GROUND THAT THE SAID BASIS ADOPTED BY THE ASSESSEE HAD ALSO TAKEN INTO CONSIDERATION THE NON- I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 13 PERFORMING ASSETS FROM WHICH NO INCOME WAS RECOGNIZED. ACCORDING TO THEM WHEN NO INCOME WAS RECOGNIZED FROM THE NON-PERFORMING ASSETS THERE WAS NO JUSTIFICATION TO APPORTION OPERATING EXPENSES BY TAKING INTO CONSIDERATION THE NON-PERFORMING ASSETS WHICH DID NOT YIELD ANY INCOME. AS RIGHTLY CONTENDED ON BEHALF OF THE ASSESSEE IN THIS REGARD BEFORE THE LD. CIT(APPEALS) AS WELL AS BEFORE US THE OPERATING EXPENSES WERE REQUIRED TO BE INCURRED BY THE ASSESSEE IN RELATION TO ITS TOTAL BANKING BUSINESS AND THE NON-PERFORMING ASSETS DEFINITELY FORMED PART OF SUCH BUSINESS. THE ASSESSEE-BANK WAS REQUIRED TO MANAGE BOTH PERFORMING AS WELL AS NON- PERFORMING ASSETS AND THE OPERATING EXPENSES INCURRED BY IT THUS WERE ATTRIBUTABLE TO NON-PERFORMING ASSETS ALSO. IT APPEARS THAT THIS VITAL ASPECT WAS NOT APPRECIATED BY THE AUTHORITIES BELOW IN PROPER PERSPECTIVE AND AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THE BASIS ADOPTED BY THEM FOR APPORTIONING THE OPERATING EXPENSES WITHOUT PROPER APPRECIATION OF THE VITAL POSITION RESULTED IN A DISTORTED PICTURE. KEEPING IN VIEW ALL THESE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE VIEW THAT THE BASIS ADOPTED BY THE ASSESSEE FOR THE APPORTIONMENT OF OPERATING EXPENSES WAS MORE FAIR AND REASONABLE AND SINCE THE SAME FOLLOWED CONSISTENTLY BY THE ASSESSEE IN THE EARLIER YEARS WAS ACCEPTED BY THE REVENUE TILL ASSESSMENT YEAR 2010-11 WE HOLD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) ON THIS ISSUE BY DEVIATING FROM THE STAND CONSISTENTLY TAKEN IN THE EARLIER YEAR IS NOT SUSTAINABLE. WE THEREFORE DELETE THE SAID DISALLOWANCE AND ALLOW THE APPEAL OF THE ASSESSEE. 12. WE ADOPT THE ABOVE-EXTRACTED DETAILED REASONING MUTATIS MUTANDIS TO CONCLUDE THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN CHANGING ASSESSEES ALLOCATION FROM ASSET TO TURNOVER BASIS THEREBY INCLUDING EVEN THE NON-PERFORMING ASSETS AS WELL. THE IMPUGNED SECTION 36(1)(VIII) DISALLOWANCE IS DIRECTED TO BE DELETED THEREFORE. 13. LASTLY COMES THE ASSESSEES PROVISION FOR FRAUD AND DACOITY AMOUNTING TO RS.137 92 000/- DISALLOWED IN BOTH THE LOWER AUTHORITIES. THE ASSESSEES ONLY CASE IS THAT SINCE THE IMPUGNED PROVISION HAS FOLLOWED REASONABLE PRUDENCE AFTER TAKING INTO ACCOUNT ALL FRAUD AND DACOITY CASES AND THEREFORE ALLOWABLE AS PER THE HONBLE APEX COURTS LANDMARK DECISION IN CHAINRUP SAMPATRAM VS. CIT (1953) 24 ITR 481(SC) THE SAME OUGHT TO HAVE BEEN ALLOWED AS A DEDUCTION. MR. CHOUDHURY FURTHER INFORMS THAT THE ASSESSEES INCOME REALIZED FROM THE CORRESPONDING CUSTOMERS AS WELL AS INSURANCE SUMS TO THIS EFFECT HAVE ALSO BEEN DECLARED IN THE YEAR(S) OF ACTUAL RECEIPT. LEARNED CIT-DR IS FAIR ENOUGH IN SUBMITTING THAT ALL THESE ASPECTS REQUIRES ASSESSING OFFICERS FACTUAL VERIFICATION. WE THEREFORE I.T.A NO.75/KOL/2018 UNITED BANK OF INDIA PAGE | 14 RESTORE THE INSTANT ISSUE BACK TO THE ASSESSING OFFICER FOR CARRYING OUT NECESSARY FACTUAL VERIFICATION. 14. THIS ASSESSEES APPEAL IS PARTLY ALLOWED IN ABOVE TERMS. ORDER IS PRONOUNCED IN THE OPEN COURT ON 28.02.2020. SD/- ( A. L. SAINI ) SD/- (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER /KOLKATA; / DATE: 28/02/2020 RS / COPY OF THE ORDER FORWARDED TO : TRUE COPY BY ORDER ASSISTANT REGISTRAR I.T.A.T KOLKATA BENCHES KOLKATA . 1. THE APPELLANT - UNITED BANK OF INDIA 2. THE RESPONDENT- ACIT LTU-1 KOLKATA. 3. ( ) / THE CIT(A) KOLKATA [SENT THROUGH EMAIL] 4. / CIT 5. / DR ITAT KOLKATA [SENT THROUGH EMAIL] 6. [ / GUARD FILE.