TMI Blog2006 (2) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... 1996-97) 2. The first ground in the assessee's appeal is general and covered by subsequent grounds of appeal. Ground of appeal No. 2 is that the learned CIT (Appeals) erred in confirming the disallowance of expenditure of Rs. 11,59,82,000 claimed by the assessee in connection with the swapping of foreign currency fund for augmenting the rupee fund. During the course of hearing before us the learned counsel for the assessee pointed out that identical issue had arisen in the case of the assessee for assessment year 1995-96 and the ITAT, Delhi Bench "A", New Delhi by its order dated 31-5-2005 in ITA No. 1563 (Del.)/99 decided this issue in paragraph 17 in the following words:- "17. In the result, having regard to the aforesaid discussion, the claim of the assessee for allowance of expenditure of Rs. 67,06,33,245 incurred in connection with swapping of foreign currency funds for augmenting the rupee funds required by it for its business is to be allowed in the year of incurrence of the same i.e., during the current assessment year itself. The assessee succeeds on this ground." Respectfully following the aforesaid order of the Tribunal, we direct that the assessee be allowed dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act, 1997 w.e.f.1-4-1998only. The learned Assessing Officer held that by merely showing first the amount of Rs. 12,906.18 lakhs transferred to reserve under section 36(1)(viii) and then transferring Rs. 5,000 lakhs out of the same, the assessee could not override the substantial provision of law and the reality that only Rs. 7,906.18 lakhs was transferred to Special Reserve under section 36(1)(viii)- The learned Assessing Officer found that the amount of Rs. 5,000 lakhs had been directly shown under the head 'Provision for bad and doubtful loans'. The argument of the assessee that the provisions of section 41(4A) were introduced only w.e.f. 1-4-1998 was misplaced because it was not a case of utilization of reserve, but in fact a direct provision of Rs. 50 crores was created and only an amount of Rs. 79.0618 crores was created as Reserve under section 36(1)(viii). 5. Without prejudice, the learned Assessing Officer argued that even if it was held that reserve created under section 36(1)(viii) was Rs. 129.0618 crores, the question arose whether the assessee was entitled to withdraw the sum of Rs. 50 crores. The intention of the law that reserve under section 36(1)(viii) should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed deduction of that amount under the provisions of section 36(1)(viia)(c). As to the allowability of remaining amount of Rs. 151,92,70,453 the learned Assessing Officer held that there was provision of Rs. 27,150.23 lakhs after excluding the provision created by the assessee under section 36(1)(viia)(c). During the year, the assessee had transferred a sum of Rs. 50 crores from Special Reserve under section 36(1)(viii). In the preceding year also the assessee had transferred a sum of Rs. 175 crores in the similar manner. If the assessee's claim of deduction under section 36(1)(viii) on gross amount of Rs. 12,906.18 lakhs was to be allowed, the reserve of Rs. 50 crores and Rs. 175 crores in the preceding year remained. If the intention of the assessee to transfer Rs. 50 crores during the year and Rs. 175 crores in the preceding year was to utilize the transferred amount for bad and doubtful loan, the assessee had to utilize the said amount for bad debts actually written off during the year. Thus, assessee's claim of deduction on account of bad debt written off was required to be reduced by the sum of Rs. 225 crores as well as to the extent of provision under section 36(1)(viia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had also clarified that such special reserve could be utilized for the purpose for which it was created. The assessee placed reliance on CBDT Circular No. 763 dated18-2-1998para 21.3 in support of the contention that amendments were effective from assessment year 1998-99 only. The assessee also referred to the provision of reserve under sections 32A, 33AC, 80HHD and 80HHC and argued that wherever the Legislature so desired specific conditions had been laid down for utilization of special reserves created for specified purposes. As there was no condition prescribed for utilization of the special reserve under section 36(1)(viii) up to assessment year 1997-98, the assessee was entitled to utilize the amount of reserve for its business purposes. Furthermore, there was no provision for withdrawing the benefit granted in earlier years if the amount was withdrawn from reserve in a subsequent year. 9. The learned CIT (Appeals) held that in the absence of specific provision, the Assessing Officer could not withdraw the reserve created under section 36(1)(viia)(c) in the earlier years. Nothing prevented the Assessing Officer from considering such action as deemed fit in the respective ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. There was nothing in law to prevent the assessee from availing of deduction in relation to both the provisions. In support of this claim the learned AR placed reliance on the judgment of Hon'ble Rajasthan High Court in CIT v. Bank of Rajasthan (P.) Ltd. [2002] 255 ITR 599. 11. The learned DR argued that amendment to the provisions of section 36(1)(viii) and insertion of section 41(4A) by the Finance Act, 1997 was clarificatory. From these amendments it did not follow that the legal position prior to the amendment was different. These amendments only enacted the ordinary accountancy principles in relation to provision and reserve created for a special purpose. Both special reserve under section 36(1)(viii) and provision under section 36(1)(viia)(c) were created in the case of a financial institution to safeguard it against bad and doubtful loans. The assessee could not claim deduction on the basis of provision as well as on the basis of actual expenditure. The principles of accountancy required that where an amount is provided for expenditure, the expenditure actually incurred subsequently has to be set off against the amount already provided for. In support of her arguments, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the computation of income chargeable to tax this amount has been claimed as deduction under section 36(1)(viii). As to the "Provision for bad and doubtful loans" account to which the sum of Rs. 5,000 lakhs has been transferred by the assessee from special reserve account, the assessee had an opening balance of Rs. 25,012.14 lakhs. The assessee credited thereto not only the sum of Rs. 5,000 lakhs transferred from special reserve account but also the sum of Rs. 570 lakhs provided for under the provisions of section 36(1)(viia)(c) by way of an expenditure debited to profit loss account. The aggregate sum of Rs. 30,582.14 lakhs as at the end of the year on31-3-1996has been reduced by the assessee from outstanding loans amounting to Rs. 11,15,921.06 lakhs and only the net amount of Rs. 10,85,338.92 lakhs has been shown as loans outstanding as per Schedule V of the balance sheet. In addition to the sum of Rs. 30,582.14 lakhs adjusted to loans recoverable under the caption "Provision for bad and doubtful loans", the assessee has further written off outstanding loans by the sum of Rs. 18,624.61 lakhs being the aggregate amount of bad debts written off in the books of account of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it amounts to double deduction. On the other hand, we find that provisions of section 36(1)(viii) are in the nature of a special deduction conferred upon the assessee for having qualified for deduction as per the requirements of the provisions of section 36(1)(viii). There is nothing in the language of the provision of section 36(1)(viii) to suggest any relationship between bad debts written off by an assessee and the amount credited to special reserve. It is, thus, clear that it the assessee had not transferred the sum of Rs. 5,000 lakhs from Special Reserve Account to Provision for bad and doubtful loans account, the Assessing Officer would have no occasion to reduce the amount of bad debts actually written off by the assessee and debited to profit loss account. Merely because the assessee transferred the amount from one head in the balance sheet to another, the assessee's claim of deduction under section 36(1)(vii) should not be disturbed. After all what the assessee has done is mere book entry from one account to another. After a careful consideration of the arguments of both sides, we are of the view that the assessee should not be penalized merely on account of entries ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 36(2)(v) are some what ambivalent in this regard, but the proviso to section 36(1)(vii) is clear and unambiguous that the amount of deduction claimed under section 36(1)(vii) has to be limited to the amount by which bad debt actually written off during the year exceeds the credit balance in the provision for bad and doubtful loan account made under section 36(1)(viia). The proviso speaks of credit balance and not merely the amount of provision created during a particular assessment year. For this reason we do not see much assistance to the case of the assessee from the judgment of Hon'ble Rajasthan High Court in the case of Bank of Rajasthan relied upon by the learned AR of the assessee. The matter considered in that judgment is on altogether different basis. We, therefore, hold that the learned CIT (Appeals) was not justified in restricting the disallowance to the sum of Rs. 570 lakhs. According to the Assessing Officer the aggregate amounts of provision under section 36(1)(vii) availed of by the assessee amounted to Rs. 34,31,90,547. It is not immediately known to us as to what are the amounts of bad debt claimed by the assessee in those assessment years under the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment of Hon'ble Gujarat High Court and found that there was vast difference in the facts of the case. Whereas in the case before the Hon'ble Gujarat High Court the companies in question had already been liquidated, the assessee could not point out any company having already been liquidated. In the case of BIFR companies there was possibility of revival in due course of time. The learned CIT (Appeals), therefore, held that write off of the investments was not covered by the ratio of the decision of Hon'ble Gujarat High Court. 19. During the course of hearing before us the learned AR of the assessee reiterated the arguments as made before the authorities below. He also argued that treatment given by the assessee to the matter was in accordance with RBI guidelines. The learned DR argued that the assessee's claim of loss was not covered by any provisions of the Act. 20. We have carefully considered the rival submissions. During the course of assessment proceedings, we pointedly asked the learned AR of the assessee as to whether any of the shares has been held by the assessee as stock-in-trade, the learned AR fairly admitted that all these were investments that had been treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 1996-97, the learned Assessing Officer found that the decision has not been accepted by the assessee and the matter had been carried over in appeal before the learned CIT (Appeals). The learned Assessing Officer also found that just as in assessment year 1996-97 the assessee had separately claimed deduction under section 36(1)(vii) over and above the deductions claimed under section 36(1)(viia)(c) and section 36(1)(viii) of the Act. The learned Assessing Officer, therefore, reopened the assessment under section 143(3) already made on 23-1-1998, for assessment year 1995-96 after recording detailed reasons in writing, by way of issue of notice under section 148 on 19-7-1999 with a view to assess the income for assessment year 1995-96 that had escaped assessment. Thereafter the learned Assessing Officer completed assessment under section 143(3) read with section 147 on 29-2-2000 whereby the learned Assessing Officer made an addition of Rs. 187,34,50,934 to the income already assessed in the original assessment as revised by CIT (Appeals) order under section 250 in relation to the original assessment. This addition made by the learned Assessing Officer comprised of two amounts v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion on the part of the revenue to show that there was any failure or omission on the part of the assessee to disclose fully and truly all material facts necessary for assessment for assessment year 1995-96. The validity of reopening during the period of four years mainly hinges upon "escapement of income". 27. There is some substance in the contention of the assessee that a validly completed assessment under section 143(3) cannot be reopened under section 147 on mere change of opinion and that condition would apply even where the assessment is reopened within the period of four years from the end of the assessment year. However, as the learned DR has succinctly put, is there really any change of opinion? During the course of hearing before us we pointedly asked the learned AR of the assessee to point out any material to suggest that the question of reduction of assessee's claim of deduction under section 36(1)(vii) on account of the deduction claimed by the assessee under section 36(1)(viia)(c) and under section 36(1)(viii) was as a matter of fact considered by the Assessing Officer while completing the original assessment proceedings. The learned AR could not point out any comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formed an opinion on the basis of inferences or conclusions drawn from those material facts, he was later precluded from changing that opinion by way of resort to reassessment. There should, however, be something positive to show that there was in fact such formation of opinion at the original assessment stage. If initially no opinion was formed, the question of change therein could not be said to take place. Rather the Explanation added to section 34 made it clear that the mere production before the ITO of account books or other evidence from which material facts could with due diligence have been discovered by the ITO would not necessarily amount to disclosure within the meaning of that section. The Explanation thus plainly postulated appliance of mind by the ITO and formation of some opinion." In the case of Ess Ess Kay Engg. Co. P. Ltd. v. CIT [2001] 247 ITR 818, the similar plea was raised before Hon'ble Supreme Court. The Hon'ble Supreme Court pronounced the following judgment:- "This is a case of reopening. We have perused the documents. We find there was material on the basis of which the Income-tax Officer could proceed to reopen the case, it is not a case of mere cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is that no addition has been made of Rs. 76,82,99,000 in the assessment order under appeal. As to the p observations of the learned Assessing Officer about assessability for assessment year 1998-99, the assessee's grievance, if any, would arise only in relation to assessment order for assessment year 1998-99. We, therefore, reject assessee's ground of appeal No. 5 being merely academic and infructuous so far as the assessment year 1995-96 is concerned. 33. Ground of appeal No. 6 is directed against levy of interest under section 234-B. During the course of hearing before us the learned AR of the assessee submitted that this ground of appeal was only consequential. We, therefore, direct the Ld. Assessing Officer to re-compute interest chargeable under section 234B, if any, after giving effect to the present order of ours for assessment year 1995-96. ITA No. 1066 ( Del )/2002 (For A.Y. 1998-99) 34. Ground of appeal No. 1 in this appeal is general and covered by subsequent grounds of appeal. Ground of appeal No. 2 is directed against the order of the learned CIT (Appeals) that proportionate amount of Rs. 55,565,383 out of the expenditure incurred on issue of bonds in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. CIT [1984] 145 ITR 793 (Bom.). The assessee argued that as against full deduction under section 37, the assessee had claimed deduction of only 1/10th expenditure under section 35D and that course was advantageous to revenue. The learned DR relied upon the orders of authorities below. 38. We have carefully considered the rival submissions. We see no force in the arguments of the assessee relating to the applicability of the provisions of section 37(1) because share issue expenses incurred by the assessee represented an expenditure of capital nature, as held by Hon'ble Supreme Court in their judgment in the case of Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798. As to the assessee's claim of deduction under section 35D it is seen that the public issue of shares was made by the assessee during the previous year relevant to assessment year 1994-95. However, the assessee has not claimed any deduction under section 35D for that assessment year as well as subsequent assessment year and deduction has been claimed for the first time for assessment year 1998-99. Provisions of section 35D(1) are quite clear that the same apply in relation to either an expenditure incurred before the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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