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TMI Blog2014 (1) TMI 1597X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case the Ld CIT(A) has erred in deleting the addition of Rs. 6,62,19,260/- made by AO on account of expenditure by invoking the provisions of section 40A(2)(b) of the IT. Act. on the basis of findings of special auditors in their audit report under section 142(2A) of IT. Act, 1961. 4. On the facts and circumstances of the case the Ld. CAT(A) has erred in deleting the addition of Rs. 48,15,804/- out of total disallowance of Rs. 55,01,261/- made by AO on account of disallowance out of expenses as capital in nature on the basis of findings of special auditors in their audit report under section 142(2A) of IT Act, 1961. 5. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs. 44,05,688/- made by AO on account of treatment of expenses relating to antivirus software in the nature of the prepaid expenses on the basis of findings of special auditors in their audit report under section 142(2A) of I.T. Act, 1961. 6. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs. 66,81,102/- made by AO on account of excessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of Rs. 6,91,230/- made by AO on account of expenses related to associate concerns debited in the books of the assessee company on the basis of findings of special auditors in their audit report under section 142(2A) of IT. Act, 1961. 14. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs. 81,91,044/- made by AO on account of advertisement expenses on the basis of findings of special auditors in their audit report under section 142(2A) of IT. Act, 1961. 15. On the facts and circumstances of the case the Ld. CIT(A) has erred in directing the AO to allow an additional relief of Rs. 21,86,37,443/- to assessee on account of payment made to BCCI. 16. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs. 11,86,24,109/- made by AO on account of interest on securities relating to pre-acquisition period of findings of special auditors in their audit report under section 142(2A) of I.T. Act, 1961. 17. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 1(a) That the Ld. CIT(A) has erred in law and on the facts and circumstances of the case in confirming the disallowance u/s 14A of the Act to the extent of Rs. 2,19,74,418/- 1(b) That the Ld. CIT(A) has failed to appreciate that expenditure incurred by the appellant for investment yielding income exempt from tax was made for meeting of statutory obligation and therefore, no disallowance u/s 14A of the Act was called for. 1(c) That the Ld. C1T(A) has failed to appreciate that appellant has voluntarily disallowed direct expenses relatable to earning of exempt from tax and therefore, there was no justification in invoking provisions of Rule 8D(2) of the Income Tax Rules 1962 and disallowing Rs. 2,19,74,418/- u/s 14A of the Act. 1(d) That the Ld. CIT(A) has failed to appreciate that no disallowance was called for u/s 14A as the appellant had returned loss in place of income and provisions 14A are only applicable for making disallowance out of income chargeable to tax. 1(e) That in any view of the matter and on facts and circumstances of the case, the Ld. CIT(A) is not j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on facts and circumstances of the case, the Ld. CIT(A) has erred in law in setting aside addition u/s 40a(ia) made by the AO to the extent of Rs. 150,38,35,341/- which is beyond of his power conferred u/s 251 of the Act and further, directing the AO to get checked from the TDS Wing the quantification of the disallowance. 4(c) That without prejudice, the Ld. CIT(A) has erred in law and on facts and circumstances of the case in confirming the addition of Rs. 150,38,35,341/- on a protective bases when the substantial amount of interest stood paid during the course of relevant previous year and was not outstanding on 31st March, 2009 to be paid and as much provisions of section 40(ia) were not applicable on the fact of the case to the extent of the quantum of interest paid. 4(d) That the Ld. C1T(A) has erred in law and on the facts and circumstances of the case in confirming on a protective basis disallowance u/s 40a(ia) made on an estimate basis which is contrary to the provisions of section 40a(ia) of the Act and not tenable in law. 4(e) That in any view of the matter, the Ld. CIT(A) to erred in law in up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m small depositors, which are collected through a battery of agents spread over the rural areas. Deposits are collected under various schemes like daily deposits, term deposits, recurring deposits, small deposits etc. It filed its return of income for this AY declaring total loss at Rs. 9,99,48,394/-. Subsequently, a revised return was filed on 28.03.2011 showing revised loss at Rs. 10,45,98,718/-.The case was selected for the scrutiny, necessary notices of hearing were issued. 2.1. According to AO assessee was asked for compliance of various information on different dates, however proper compliance was not made and assessee replies are claimed to be evasive. AO observed that assessee had a tendency to file irrelevant and voluminous details in order to be evasive. It may be mentioned that these allegations are vehemently denied by the assessee before CIT(A) and before us as well. 2.2. According to AO the assessee's accounts were very voluminous, complex and difficult to interpret, therefore it was not possible for him to determine the true and correct taxable income of the assessee. In view of alleged complexity of the accounts and in the interest of the revenue, AO deemed it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of depreciation in UPS as discussed above in para No. 6 66,81,102 7 Excess claim of depreciation in Printers as discussed above in para No. 7 72,99,852 8. Disallowance of deposits under section 68 as discussed above in Para No. 8 1855,58,99,424 9. Disallowance of interest debited to profit and loss account as discussed above in para no. 9 467,96,79,775 10. Addition under section 41(1) as discussed above in para no. 10 15,26,12,293 11. Disallowance of expenses relating to associate concerns debited in profit and loss account as discussed above in para no. 11 6,91,230 12. Disallowance of advertisement expenses as discussed above in para No. 12 81,91,044 13. Addition of Pre Acquisition Interest reduced from the interest income as discussed above in Para No. 13 11,86,24,109 14. Disallowance of prior period expenses as discussed above in Para No. 14 8,11,830 15. Disallowance of balances written off as discussed above in Para No. 15 70,13,750 16 Disallowance of provision for diminution in investment as discussed above in Para No. 16 4,626,500 17 Disallowance unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orked on @7.81 % paid to average of opening and closing deposits was proposed to be disallowed. On SA's observations AO issued a show cause notice. 4.1A Assessee replied that this disallowance comprised of- (i) Rs. 2,56,331/- being amount due from Sahara Estate-Hospitality ("SEH"), where the assessee is a member of the AOP ; (ii) Rs. 87,680/- due from Sahara Life Insurance Co. Ltd. ("SLICL"), being amount of electricity recoverable on the let out premises the assessee; (iii) Remaining Rs. 3,41,37,068/- consisted of: (a) Sale proceeds of Rs. 3,28,34,832/- receivable from Ambey Valley Limited (AVI.) on account of sale of assessee land; and (b) amount of outstanding lease rental from AVL. 4.2. Assessee filed explanation and raised various pleas to demonstrate that the assessee had surplus interest free funds out of which such advances were made and these out standings were also backed by business- expediency, which did not find favour with AO and the disallowance was made. 4.3. Aggrieved ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - CIT v. South India Corpn. (Agencies) Ltd. 293 ITR 237 (Mad.). (iii) Besides, it was demonstrated from accounts that, in any case, the appellant had overall interest free surplus funds available in the form of share capital; reserves and surplus to the tune of Rs. 1670.47 crores. The advance funds being less and there being no nexus between the borrowed funds and the alleged non-business advances, there is no justification in presuming that the advances were out of borrowed funds only and to disallow notional interest thereon. For this proposition assessee relied on the landmark judgment in the case of CIT v. Bombay Samachar Ltd. 74 ITR 723 (Bom.) which has been approved impliedly in Madhav Prasad Jatia 118 ITR 200 (SC). Further reliance was placed on Regal Theatre vs. CIT 225 ITR 205 (SC); CIT v. Centuary Flour Mills Ltd. 334 ITR 377 (Mad.); Radio Khaitan Ltd. 274 ITR 354 (All.). (iv) Assessee further submitted that as per R.B.I. guidelines for Residuary Non-Banking Companies Directions, 1987 the entire mobilised deposits were to be invested in the approved securities. The interest which has been paid on the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eivables outstanding from Ambey Valley Ltd., being lease charges of property amounting to Rs. l1,05,232/- and sale proceeds of appellants land amounting to Rs. 3,17,29,600/- pending remittance. The appellant's claim that these amounts have already been accounted for and income from lease rent and on sale of land offered to tax is not disputed. Besides, the appellant owed payment liabilities to associate concerns for inter unit transactions totalling Rs.l8,59,88,129/- for which no interest expenditure is claimed. All these receivables / payables are related to associate concerns and are in the nature of routine business transactions. Sale of land and amount receivable on that account, or lease rental receivable, from Ambey Valley cannot be said to be not for business purposes as the business of the appellant includes leasing out of and investment in property. In any case, these amounts are receivables and not advances given. The revenue has itself accepted receivables from two of the associate concerns of the appellant at Rs. 3,44,011/-. Reasons given by AO for overlooking other similar transactions (receivables) are not very cogent. Assessed another argument that it had suffici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee contends that CIT(A), deleted the aforesaid disallowance by factually observing and verifying the record and holding that assessee demonstrated business expediency and also more aggregated playability of amounts to sister concerns than receivables from the sister concerns. There was consistent practice amongst the group companies not to pay / charge interest on the mutual outstanding balances as the transactions were frequent and business oriented. In any case assessee in this year is rather a beneficial in these terms, as it has received over all more interest free funds. 6.1 Thus major item comprised in the amount of Rs. 3,41,37,068 is a sum of Rs. 3,28,34,832 outstanding against Ambey Valley Ltd. Out of the aforesaid, Rs. 11,05,232/- represented receivable lease charges , balance amount of Rs. 3,17,29,600 represented sale proceeds of assessee's land sold by AVL on its behalf which payment was in trust for the appellant. 6.2 Ld. CIT(A) has held the advances to be backed by business expediency by elaborate reasons: (a) Disallowance out of interest paid on borrowed funds can be sustained only if there is nexus between funds borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on such payable and receivables is not charged as it results in its benefit. It is a clear demonstration of business prudence. It is trite law that while ascertaining the acumen of business prudence, revenue cannot review such purely business decisions. (e) Besides, assessee has large investible interest free funds in the form of share capital and reserves & surplus to the tune of Rs. 1670.47 crores. In the absence of any nexus established by the Revenue between borrowed funds, on the one hand, and amounts due by the sister concerns, on the other, it is to be regarded that the amounts due from the sister concerns were advanced out of interest free funds only. 6.3 An alternative legal argument is made to the effect that entire amount of borrowed funds had to be invested by the appellant in the 'directed' investments and interest thereon is fully allowable as deduction under section 36(l )(iii) of the Act. For this proposition also, the order of the CIT(A) deleting the disallowance deserves to be upheld. 6.4. Ld. counsel countered the argument of ld DR, that comments were not called from AO is misplaced. It is pleaded that all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,66,907 have not been disclosed by the assessee. Justification was asked as to how following transactions were at prevailing market rates in terms of section 40A(2)(b): (i) A sum of Rs. 10,000 has been excessively paid to Sahara India Commercial Corporation (SICC) for 1000 liters of diesel by paying @ Rs. 46.36 instead of prevailing rate of Rs. 36.35. (ii) A sum of Rs. 20,32,08,118 has been paid on account of rent and Rs. 6,72,94,604 as utility charges by the assessee co. to M/s Sahara India on account of rentals and utility charges of 1500 branches of para banking division which was excessive and unreasonable. (iii) A sum of Rs. 92,466 paid on account of travelling expenses toward lease rentals of vehicles taken on hire to M/s Sahara India, was also sought to be justified u/s 40A(2)(b). 8.2 Apropos point no i), assessee offered to tax an amount of Rs. 10,000/-. Qua utility charges, ii) the impugned premises belonged to Sahara India which was being shared by assessee. AO had alleged that, assessee was comparing the utility charges received for a particular property at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed assets, CIT(A) found no merit in the adverse inference. Apropos market comparison of utility charges, CIT(A) found merit in the assessee's explanation that the facilities and assets used are part of the regularly maintained, audited and accepted books of account, Department has been allowing related depreciation and expenditure, in relation to these assets and utilities year after year. CIT(A) held that, comparison of full infrastructure installed premises with bare premises by AO was not correct. Sec. 40(A)(2b) mandates a comparison based on same set of facilities and not of incomparable. It was held that AO has not been able to make out a case in this behalf these additions were deleted. Aggrieved revenue is before us. 9. Ld DR contends that ld. CIT(A) has not taken into consideration the fact that during the financial year 2008-09 relevant to A.Y. 2009-10, the business activity of M/s Sahara India had not come to an end. As in the past, M/s Sahara India was working as agent on behalf of the assessee company and other associate concerns. During the year, M/s Sahara India had mobilized deposits of Rs. 536.68 Crore on behalf of the assessee company which is marginally l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and also a detailed chart showing comparison which are placed on paper book in support of these averments. It is pleaded that ld. CIT(A) deleted the disallowance mainly holding that: i. AO's adverse inference on there being no register of fixed assets is not based on any requirement in law, or as per accountancy practice or convention. ii. AO was not correct in holding that assessee has not proved the reasonableness of the amount by giving details of the assets / utilities, their segregation or market comparison. It is undisputed that these assets have been regularly disclosed in the books and the department itself has been allowing depreciation, or expenditure, in relation to these assets and utilities. iii. AO has not discharged his onus by bringing on record any independent evidence of service charges payable in comparable uncontrolled transaction, before seeking to disallow deduction by invoking section 40A(2) of the Act. 10.2. Ld. counsel contends that same assessing officer has taken contradictory positions. In the case of M/s Sahara India, the AO increased the rental income received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 784/- as capitalisation of repairs to building and Rs.l0,14,477/- as capitalisation of UPS purchased. AO held that the expenses of Rs. 44,86,784/- relating to work carried out in office was not to be allowed as revenue expenditure, as part of similar work in same building was capitalized. Assessee explained that same vendor carried out work in two different premises and not same premise. While revenue expenditure was claimed in respect of works executed at 'Sahara India Tower, 7 Kaporthala Complex;', capital expenditure was claimed for construction of new structures, partitions, rolling shutters, etc., at 'Sahara India Bhawan, 1 Kapoorthala Complex. Both buildings being located in Aliganj, Lucknow' and vendor having raised a common voucher, created confusion at the AO's end. The relevant revenue expenditure was claimed on repair to another building where no new asset of enduring nature was created. CIT(A) agreed with assessee's explanation. 12.4 Apropos replacement of UPS. Ld. CIT(A) agreed with the AO's stand to the extent that UPS are additions to assets the written down value of block of assets was to be reduced by the depreciated value of old equipm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In first appeal CIT(A) held that the expenditure on any custom-made software for a large business establishment is recurring revenue expenditure for maintenance of information and computing systems. Attrition in custom-made anti-virus software is high and every year upgrades are to be made at equal cost or nominally lesser amounts. The expenditure incurred was held to be allowable revenue in nature. 17. Ld. DR relied on the AO's order. 18. Ld. counsel for the assessee contends that the CIT(A) allowed deduction for the entire expenditure on the ground drat in this era of fast moving technology, there is high risk of obsolesce and, therefore, one time expenditure incurred on anti-virus software should be allowed as deduction in the year of purchase itself. The expenditure on purchase of software licenses upgrades has been held to be allowable expenditure by the Delhi High Court in the cases of CIT v. Asahi India Safety Glass Ltd. 346 ITR 329; and CIT v. Amway India Enterprises 346 ITR 341. 18.1. There is no concept of deferred revenue expenditure under the Act thus even if any part of the revenue expenditure results in benefit in the subsequent period, the same will be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eplies were given. AO also held that assessee was not cooperative in the assessment proceedings, as requisite information was not furnished in the desired soft copy format, identity of depositors and the proof about their genuineness was being not produced; notices served on them remained largely uncomplied with. AO has mentioned these facts in his order in details; they are not reproduced for the sake of brevity. 21.2 Gist of AO's observations is summarized as under: i. During the year under consideration deposits under 35 different schemes under 'Daily deposit scheme', 'Monthly deposit scheme' and 'Fixed deposit schemes'. The details in respect of the deposits as given in Schedule-3 are given below: Detail of Deposits (As per the Balance Sheet): Amount in Rs. Opening Balance (including interest accrued) 180,556,912,832.00 (+) Deposits collected during the year 53,016,855,498.00 Total 233,573,768,330.00 (+) Interest Accrued during the year 12,075,786,321.00, Total 245,649,554,651.00 (-) Deposits repaid = (79,681,860,771.00) (-) Interest paid during the year (9,246,378,475.00) Total 156,721,315,405.00 (-) Amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the tax implications under sec 269SS and 269T of the Income Tax Act, 1961 was difficult. 21.3 Assessee contended before SA that deposit ledgers are part of books of account and as per definition of books of account under section 2(12A) of the Income Tax Act it means books of account in printed form. Therefore, calling for the soft copy of appears to be beyond jurisdiction as you have been appointed as special auditors to conduct the audit under section 142(2A) of the Income Tax Act. It was reminded to SA that already printouts of deposit ledgers of more than 50 branches were submitted and printouts of remaining branches shall be submitted whenever SA required for the audit. Out of total 69 branches SA could check hard copies of only 53 branches. 21.4 In the course of assessment proceedings, AO again demanded soft copy holding a view that if the soft copies were not made available it was not possible to comment on the tax audit report particulars of loans and advances. From hard copies of 69 branches called by SA, only 53 branches could be checked due to non-availability of soft copy. It was observed that from hard copies that many accounts appeared with same name and addr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D. no. date, amount, name of the Bank, Branch and bank account no. (3) evidence in support of source of such deposits (4) assessment particulars if assessed viz- your PAN, Ward/Circle, (5) copy of IT Return, Balance Sheet, etc. for A.Y. 2009-10. (6) S.No., distinctive No. of certificate in respect of said deposit, if any, have been received. 21.9 According to AO out of 1126 summons only 197 depositors replied; out of which 154 asked for adjournment, 346 summons returned back, due to incomplete address, 78 summons returned as the person was not present there, 5 summons have been refused to be accepted, 2 summons were issued to person who have died, 3 summons were not accepted as there are many persons with the same name at the given address, 21 summons returned as the depositor had left the available address due to shifting and the remaining 474 summons were not replied. Summary of branch wise summons and response for the same is also tabulated by AO in his order. The fate of summons is stated by AO as under;- (i) In replies received in many cases same l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pportunity to explain why an addition u/s 68 should not be made in respect of new deposits on "estimate basis" based upon the results of the Sample verification and distinguishing facts: Distinguishing Facts: Facts of the Previous Assessment years Facts of the Current Assessment year Mobilization of the deposits is Under the schemes approved by RBI and in accordance with RNBC (RBI) Directions, 1987. The deposits are monitored and supervised by RBI The RBI has required the assessee to maintain proper KYC norms for the deposits taken during the year under consideration after 01.04.2006 and the RBI has also required that whatever KYC norms are incomplete for the previous periods in respect of deposits accepted before 01.04.2006, the same shall be completed when the deposits mature. However, KYC norms does not 'require to have the proof regarding the creditworthiness of the depositors. On test check of the data of deposits. It was found that PAN of the depositors have not been given and in large number of cases the address are not complete. The fact of incomplete address have been established on sample verification. The major portion of the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eing scheme wise, is made without appreciating the realties. (b) every depositor particularly rural area does not have PAN allotted, non-mentioning of PAN cannot be held as assessee's default. Complete details with reference to the identity of the persons, their KYC and verifications prescribed by RBI for RNBFC's have been followed which is explicitly accepted by special auditors in their report. Not even, a single deposit account has been left in which details have not been submitted. Qua repayments pointed out by AO, they are made by cheques; documents of the identity proof of the persons were also submitted with reference to their identity. (c) As per RBI Regulations, the deposit ledgers maintained do not require mentioning of PAN no. of the depositor and the mode of collection of the deposit. Assessee filed a categorical reply stating that as per RBI norms in respect of KYC, there is no requirement of mentioning PAN and the mode of repayment in the depositor ledge. (d) For every depositor asked by AO, it had provided proof of identity of the and his complete address on the basis of record main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; "On a test basis, we have verified the KYC norms for the deposits taken during the year under consideration and apart from minor address corrections; we have found the same to be in order. Thus the learned assessing officer may not draw any adverse inference on the same." 21.13 Any entity which is in the business of mobilization of deposit, be it a banking company or be it a co-operative or be it a Post Office or RNBFC, is not expected to insist for demonstrative proof of creditworthiness from the depositor lest he funs away to some Other bank. That is to promote small savings, no such norms are prescribed by RBI regulations for banking industry in India. 21.14. Apropos the issue of summons, assessee replied that AO's analysis about outcome of 1126 summons does not tally with the remarks in explanation column. The correct position based on the remarks given in the list of 1126 summons issued works out as follows:- - seven persons names have been repeated in the list supplied - In case of Shri P.V.M. Reddy at Sl. No. 713 whose name is not traceable neither address is traceable so as to enable us to explain to whom the summo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) who have refused to accept the summon. Once a persons has refused to accept the summon, his identity and genuineness stands impliedly established meaning thereby that the persons is existing and, therefore, also no adverse inference should be called for. 21.21. As regards 2 summons on dead persons, the fact that these persons are accepted as dead, their identity and genuineness of these persons stand fully justified and ho adverse view be taken in the matter on this count. 21.22 As regards 3 persons (correct figure 1 persons) who have not accepted the summons as there are many persons with the same name on the same address, it cannot be presumed that the persons are non-existing and calls for no adverse view. 21.23 As regards 21 summons (correct figure 15 persons) returned with the remarks that the depositor is not available at the address, it is to be appreciated that there are number of persons who might have changed their addresses over a period of time and, therefore, no adverse view in this respect is called for. 21.24 As regards 474 summons (correct figure 512) which are served and for which reply has not been received signifies that the identity and genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osits. 21.30 Further the deposits in question were obtained by the assessee through the services of its main agent in the earlier years M/s. Sahara India who, in turn, had a team of field workers of lacs of persons through whom deposit were being procured from wide spread areas mainly rural. The field workers were in touch with the agent and assessee, complete details of KYC norms of the field workers and their identity etc. were available with the assessee and the field workers on the other hand were directly in touch with the depositors. 21.31 Since 2011, no deposit is being mobilized by the assessee company and, therefore, there are no commission agents/field workers on roll of the assessee company. In these circumstances, if a depositor whose deposit has matured does not reply, it does not lead to any adverse inference because assessee has no direct control over the depositor any more. The assessee company does not possess any legal force or authority so as to enforce the attendance of the depositor or reply to the summon issued. 21.32 As regards the depositors who have not replied to notices, the matter was placed before the Board of the assessee company, which following RB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee case on these aspects. After introduction of KYC norms, there should not be any doubt left in relation to the identity and genuineness of the deposits and repayments. Thus compliance of provisions of sec. 68 as propounded by various Judicial decisions on banking industry, these requirements stand fulfilled. Appreciating all the relevant factors and judicial precedents, appellate authorities have deleted such additions in various earlier years. Some facts rather strengthened by KYC norms and RBI watch exist in this year. Thus the facts of creditworthiness of the depositor are same and strengthened by introduction of KYC norms. It was claimed that this Compliance by assessee constitutes reasonable discharge of primary onus under sec. 68. Thus facts and circumstances about these deposits were claimed to be same with earlier years. 21.36 Major portion of the deposits are under recurring schemes coming from earlier years, a fact accepted by appellate authorities, consequently their genuineness cannot be challenged again year after year. 21.37 Another distinguishing fact mentioned by AO, about assessee's pending wit petitions challenging the orders for special audit passed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) AO is vested with a judicious discretion to hold any deposit as explained or otherwise which is evident by use of words 'may' and not 'shall' by the legislature. Thus AO has to judicially examine issues in the light of explanation furnished by the assessee and considering all relevant facts. 21.41 The section in clear terms provides that AO's power of verification to be qua a specific cash credit, which clear means each person and cash credit. AO has no power to go beyond the express wordings of this deeming provision. By no stretch of imagination, AO has power to adopt an ad hoc method to change its estimate every year and adopt 35% of all the fresh deposits in the current year, majority of which are recurring deposits from earlier year, as unexplained cash credits u/s 68. This estimated ad hoc addition is untenable contrary to the specific mandate of deeming fiction of sec. 68 and without any enabling provision in this behalf. 21.42 Catena of judicial precedents hold that the routine yardsticks of ingredients of sec. 68 are not be applied to banking industry and compliance of KYC norms is reasonable discharge of primary onus. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s during appeal proceedings 1 Books of accounts as defined u/s 2(12A)/2(22A) of the Income Tax Act, 1961 (the Act) r.w.s. 2(1)(t) of the Information Technology Act, 2000 were requisitioned but not produced by appellant. Appellant's defence that books of accounts as defined under the Act alone is to be considered, is not acceptable as electronic record cannot be said to be not covered within the definition of books of account. 2. Sample verification/test check method is valid and can be applied to the universe of deposits. While the method may be valid, adverse inference that deposits are unexplained cannot be generalized. Any such adversarial conclusion has to be drawn only on the basis of facts and not on assumption as it will lead to penal consequences including prosecution under the Act. 3. No satisfactory explanation- (i) only two depositors accepted that they had deposited through account payee cheques; (i) There is no requirement under the any law to make deposits in cheque only-banks, post-offices, etc., accept cash deposits - these queries raised futile in such cases; (ii) summons returned back due to incomplete address; (ii) many add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rthiness of depositors has no significance. 8. Onus of assessee not discharged. General onus to produce documents in electronic form not discharged, case-specific documents were produced and thus onus was discharged. 9. Defects in documents produced (Para-8.3.13 of assessment order. The defects noted were found to be either incorrect or not material to be matter in issue; as under: (a) applicant and introducer are same - this is possible if the agent is himself the depositor; (b) introducer signature not present - applicant identified by photograph,, address and signature or thumb impression; introducer signature found on second/ subsequent page; (c) applicant signature not present - thumb impression & KYC documents present; (d) left thumb impression of applicant/introducer not present - applicants being ladies, right thumb impression was taken; introducer's signature present in first/second/subsequent pages; (e) name and code of collector not present - introducer and collector being the same person, name mentioned in the introducer column; (f) nominee signature not prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /summons were returned back with the postal remark 'incomplete address'. Records produced before me show that actually there were 352 such cases (and not 361 cases) out of which only 5 cases were live, i.e. deposits had not matured, and in all the remaining 347 cases the deposits had already matured. In 234 cases the payments had been made by cheques. In the remaining 113 cases payments had been made by cash and in all the cases the payments were below Rs. 20,000. It was found that in all the cases KYC norms prescribed by the RBI had been followed, as also observed by the special auditor. C. The revenue further pointed out that 78 persons (correct figure is found to be 71 as claimed by appellant) were not found by the postal authorities. Records produced before me show that all were matured deposit cases. In 48 cases the payments had been made by cheques. In the remaining 23 cases payments had been made by cash and in all the cases the payments were below Rs. 20,000/-. It was found that in all the cases KYC norms prescribed by the RBI had been followed, as also observed by the special auditor. D. In respect of other catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee for four times each for 30 days each, in February, March, April & May 2012. 22.2 The direction for special audit u/s 142(2A) was issued on 23.12.2012, despite repeated reminders from AOs office as well as by the auditors, the assessee did not provide the books of account, necessary records, information's to the special auditors to ensure timely commencement of the work of audit. The special audit in the case of the assessee for the A.Y.- 2009-10 concluded on 15th June'2012 and two copies of the special audit report were furnished to the assessee by the auditors on 15.06.2012. On completion of the special audit, special audit reports consisting of seven volumes were submitted by the assessee company on 19.06.2012. 2. Reasons to estimate the addition u/s 68: 22.3 Assessee refused to provide software copy of the ledger accounts to SA by contending that providing soft copy was not covered in the definition of books of account under the IT Act 1961, complicated the situation. The stand taken by the assessee is untenable in law on following propositions: (a) As per section 2(12A) of the IT Act 1961, the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f verification of identity/genuineness/creditworthiness or violation of section 269SS/269T or violation of 40A(3) aspects are highlighted in the assessment order. The information provided in these ledgers pertaining to violation of section 269SS & 269T as details were maintained neither branch-wise nor in alphabetical order nor scheme-wise. It was not possible to carry out any useful analysis of the data or conduct proper investigation for the purpose of a proper assessment. Therefore, AO rejected the books of account and framed the assessment to the best of his judgment including estimation of 35% unexplained cash credits. AO has mentioned the deficiencies is compliances including as under:- a. same name with same address are appearing repeatedly No. of times in the case of large number of depositors with different account numbers under the same scheme which indicated that clubbing of accounts in case of a single depositor have not been, b. PAN of the depositors have not been given c. In large number of cases the address are not complete d. In case of repayments, account no, are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) In many case Replies we received after 5-10 days from the date given in the summons. (v) In number of cases details as required in the summons have not been furnished and instead request for adjournment have been made. (vi) In number of cases Adjournment has been allowed for 7 days and communications in this regard were resent through FAX on the numbers through which adjournment petitions were received. In several cases, it could not be sent because the FAX No. belonging to PCO. Examples of such cases showing above observations were also cited in the show-cause dt. 26.07.2012. 22.11 AO observed that it was clear that summoned depositors came in touch with the assessee and got the FAX No. of his office, which transpires that the assessee put in its best efforts in delaying the process of verification by way of instigating the depositors to file adjournment petitions. In two cases it has been observed that creditors have denied of having made any, investment in assessee-company. In almost all the cases selected on sample basis, the depositors have failed to provide the necessary documentary evidence to satisfy the three basic ing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or is a key requirement of the KYC norms and all the banks today maintain the entire list of accounts belonging to a particular depositor. In these circumstances it cannot be said that KYC norms have been correctly followed by the assessee, which not only talk about the identity but also talks about the proof of residence 22.16 The factual matrix of the arguments is summarized by ld. CIT (DR) as under:- 1. The assessee either do not wish that the information be furnished or wants to avoid certain information from coming to the notice of revenue authorities. 2. Only 69 hard copies of branches out of more than 1500 branches was provided to the special auditor and the data in soft copies was always denied and not provided. The act of not furnishing the soft copies clearly proves that though the information was ready but the same is being avoided, obviously for some deliberate reasons best known to the assessee. 3. In spite of granting repeated opportunities to discharge the onus under section 68, the assessee has failed to discharge its onus to explain the credits in its books stated to be the deposit colle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icizing and finding faults with the Assessing Officer. Ld. CIT(A) has a responsibility on his shoulders to not only correct the mistakes committed by the Assessing Officer but also has the power to strengthen his findings recorded by the AO and if need be, to go for enhancement of assessment. 22.20 Reliance is placed on observations of Hon'ble Delhi high court in the case of Nova Promoters and Finleas (P) Ltd. 342 ITR 167 for the observation. "The Commissioner of Income-tax (Appeals) has observed that if summons had been served it would mean that the parties were present at the addresses and even if they were not found by the inspector at the addresses furnished by the assessee, it was for the Assessing Officer to have made enquiries from the post officer regarding the whereabouts of the addressees. We do not think that there was, in this case, any such duty can on the Assessing Officer. It is rather unfortunate that the assessee seems to have sent the Assessing Officer on a vain chase. " 22.21 The Hon'ble Apex Court in the case of Jute Corporation of India Ltd. has held that the AAC has all plenary power which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not take inquiries to logical end and did not adopt any systematic approach to collect and confront the adverse material with the assessee-company. Whereas, in the year under consideration the AO has carried out detailed investigation in at least 1118 cases and result of enquiry was duly communicated to the assessee before taxing 35% of the fresh deposits. (g) While disposing of ITA. No. 747/All/2000, no relief was granted to the assessee-company and the Hon'ble ITAT upheld the decision of the CIT(A) where in directions for further inquiries were given by him. (h) AO in assessment year 1996-97, brought to tax the 100% deposits including opening balance of deposits as unexplained which was not in. keeping with the additions of 15%, 20% and 50% made by the revenue in earlier years. However, in the year under consideration only 35% of the fresh deposits have been brought to tax which is consistent with the approach of the department in the earlier years, as assessee succeeded on the arguments in A.Y. 1996-97 that the same deposits could not be brought to tax twice. (i) In the assessment year 1996-97, lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of account and admittedly amounts of deposit are there. " 22.24 Adverting to cases relied on by the assessee viz 1. CIT v. Divine Leasing & Finance Ltd. ( 299 ITR 268 ) 2. CIT v. Oasis Hospitalities P. Ltd. ( 333 ITR 119) 3. CIT v. Value Capital Services (P) Ltd. ( 307 ITR 334 ) 4. Assessee's Own case ITA No. 747/All./2000, A.Y. 1996-97 5. Assessee's Own case ITA No. 304/Luck/2001, A.Y. 1996-97 6. CIT v. Kinetic Capital Finance Ltd. (354 ITR 296) 7. CIT v. Citizen Urban Co-op Bank Ltd. (336 ITR 62) 8. ACIT v. Citizen Urban Co-op Bank Ltd. (120 ITD 513) 9. CIT v. Pragati Co-operative Bank Ltd. (278 ITR 170) 10. DCIT v. Dhanlakshmi Bank Ltd. (76 TTJ 439) 11. Citizen Co-op. Society v. ACIT (ITA No. 1003/IIyd/2011) 22.25 Ld DR pleads that the cases at serial nos. 1 to 4 deal with the nature of primary onus on assessee in the case of application of share capital. Other judgments were not rendered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed claim to follow KYC norms and by their compliance the primary onus qua the identity, creditworthiness and genuineness of deposits is claimed to be discharged. However even KYC information of individual depositors is not ascertainable from the details obtained in the prescribed format furnished by lessee. These deficiencies have been discussed in detail by the AO at Para 8.1.10 (Page 50) and at Paras 8.3.12 to 8.3.13 (Pages 97 to 113) to the effect that the KYC norms prescribed by the RBI for the Banks are not fulfilled from the format devised by the assessee. 22.31 Assessee admits that it is difficult to club together the deposits obtained in the name of a particular depositor for various reasons; thus the conditions based on KYC norms in this behalf are not satisfied. Assessee has filed a paper book containing a trail of documents pertaining to the procedure followed for opening a new account under KYC norms on 9.08.2012, few days before the passing of impugned assessment order on 16.08.2012. It was not humanly possible for the AO to scrutinize such a voluminous record with in a period of seven days. Therefore, to this extent it should be held that AO could not verify th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are material to the issue have not been disputed. The status of earlier litigation history is demonstrated as under: A.Y. 1994-1995 15% of opening balance of deposits & 30% of deposits collected during the year are treated as income of the appellant. A.Y. 1995-1996 15% of opening balance of deposits & 30% of deposits collected during the year are treated as income of the appellant. A.Y1996-1997 100% deposits collected are treated as unexplained A.Y. 1997-1998 100% deposits collected are treated as unexplained A.Y. 1998-1999 100% deposits collected are treated as unexplained AY. 1999-2000 35% deposits collected are treated as unexplained AY. 2000-2001 35% deposits collected are treated as unexplained A.Y.2001-2002 35% deposits collected are treated as unexplained A.Y. 2002-2003 35% deposits collected are treated as unexplained A.Y. 20 03-2004 35% deposits collected are treated as unexplained A.Y. 2004-2005 35% depots collected are treated as unexplained 23.1 Consequent to action u/s 263 of the Income Tax Act orders for the A.Y. 1994-95 and 1995-96 were set aside, in the second innings the Assessing Officer treated the entire deposits collected by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no consistency in the approach of the Department. v. The schemes are run by the assessee under the direct supervision of Reserve Bank of India, accounts are audited by the Tax Auditors, Statutory Auditors and Special Auditors. Even in writ petitions the investigation is called for. The assessee has filed the copy of judgment of Hon'ble Delhi High Court dated 12th May, 2000 in the case of Mr. B.S. Sehgal v. Governor of R.B.I. consequent to a PIL the allegations of irregularities were made against Sahara Groups of Companies also. Although the allegations were regarding utilization of funds, but it has been observed at page 1613 of the paper book that Sahara India Financial Corporation was inspected by R.B.I. and the allegations were not found correct, no merit is found against the allegations made in PIL against Sahara group. By this judgment name of Sahara Groups of company was deleted from the array of parties by the Hon'ble High Court. This reflects the scrutiny of the affairs of the assessee by different agencies from time to time. vi. A.O. asked the assessee to produce the depositors having deposit of Rs. 20.000/- or m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; x. The Bench found force in the argument of the assess counsel that if the Revenue Suspects genuineness of the deposits it would have been proper to instruct the assessee to stop payment till the depositors appeared before the A.O. and satisfied him. As a consequence, the Board of directors of the assessee also passed a resolution putting a lien on the repayment of deposits which are unpaid as on date. 23.4 After making such observations which has been summarized above ITAT held that: i. In view of the above facts and circumstances and also considering the past history of its case it is clear that primary onus cast on the assesssee in terms of nature of business read with sec. 68 has been duly discharged. ii. The allegations of non-cooperation are based on wrong adverse inferences, which are contrary to material available on record and proceedings and can not be applied to assesssee's case. Besides assessee being RNBFC having complied with KYC norms and RBI regulations: it cannot be held that despite this compliance addition under provisions of Section 68 of the Income Tax Act in relation to the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In other words, what the law mandates is only furnishing printouts of the electronically stored data Instead of furnishing such data electronically. Reference, in this regard, may be made to the decision of the Delhi Bench of the Tribunal In the assesses own case for assessment years 1999-2000 to 2000-03 wherein the Tribunal while deleting levy of penalty under section 272A(1)(c) of the Act, held as under: "7 We have carefully considered relevant facts and arguments advanced. It is not in dispute that the information called for was filed. The information called for was filed by filing printout of the computer record. Penalty u/s 272A(l)(c) is attracted if any person to whom a summon is issued to give evidence or books of account or other documents omits to produce books of account or documents. However, in the present case, the assessee has not omitted to produce the books of account or documents. The word 'document' as defined in section 2(22AA) includes an electronic record. The definition 'is not an inclusive definition so as to restrict the meaning of the word 'document' as only an electronic record will be considered as a documen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er issued summons to 1126 depositors. The status of response received/not received is summarized as under: (a) Out of 1126 summons, 229 depositors had replied (out of those 133 had requested for adjournment .,46 had accepted having made deposit in cash and 2 accepted having made payment by account payee cheques). (b) 361 summons were returned back due to incomplete address. (c) 80 persons were not found at the given address. (d) 5 persons had refused the summons. (e) 2 were reported dead. (f) In 3 cases, there were many persons by the same name on the said address and, therefore, the summons were returned. (g) In 22 cases, persons had left the place. (h) In 424 cases no response had been received till date. 23.12.Though assessee explained the full implication of results of the summons, ignoring the same and making guesswork assessing officer held that the deposit accounts accepted by the assessee on which SA and RBI had no issue at all, as non-genuine by 35% of the new deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has, discharged its primary burden under section 68 of the Act or not. The peculiar business model of the assessee's RNBFC for acceptance of deposits, is as under: Procedure for accepting deposit & making maturity payments:- I. In case of FDR(s): At the stage of acceptance of deposits 1. Agent approaches the depositors. 2. Gets account opening form filled & collected money. KYC documents are collected from all the depositors and in case, amount of deposit exceeds Rs. 50,000, PAN of respective depositor is also obtained. 3. Submitted the filled forms in the branch office and money so collected. 4. Branch issues receipt and certificate of FDR after opening of the account which is given to depositor. 5. Commission on deposit received calculated at day-end and credited in Field worker ledger. 6. Field worker can, thereafter, withdraw his commission as per his requirement. 7. Credit for interest in the accounts of depositors on year to year basis. At t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; c. Submits the account opening form and amount of first instalment at branch. d. Branch issues receipt of money so collected and pass book. e. Thereafter, account is allotted to collector of that area who collects instalments on daily collection sheet, deposits the same at the branch and branch issues a collector receipt to collector for total amount deposited by him. f. At the end of the fortnight, branch issues a consolidated depository receipt to depositor for total deposit received in that fortnight and also updates pass book of depositor. g. Mtial commission calculated after receiving 25 instalments and credited in Field worker ledger. h. Field worker can withdraw his commission as per his requirement. At the stage of premature withdrawal/maturity: 1. Depositor at the time of last instalment or thereafter submits application at branch for maturity payment. 2. Advice for maturity payment is issued by Registered Office to Branch Office. 3. The inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (h) Copy of the relevant extracts of the bank statement of assessee-company showing the payment made to the depositor (refer pg 56 of PB filed on 01.10.2013). (i) Copy of the TDS certificate issued to the depositor in respect of the tax deducted at source from the payment of interest, wherever applicable (refer pg 77-80 of PB filed on 01.10.2013). (j) Copy of the statement showing commission due to the agent on the above depositor's account (refer pg 57 of PB filed on 01.10.2013). (k) Copy of the TDS certificate issued by assessee-company to the above commission agent showing that tax was duly deducted on the amount paid to collector(s) as commission (refer pg 58-66 of PB filed on 01.10.2013). 23.16 It is contended that before accepting any particular deposit from the depositor, the assessee has to mandatorily follow several important steps. Assessee being a registered RNBFC, several checks and controls have been put in place in the system. They by necessary implication are inbuilt in the above process of acceptance of the deposit(s). Assessee is one of the biggest small de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and made no adverse comments and/or reported any discrepancy, vis-a-vis the genuineness of the activity of collection and repayment of deposits. 23.20 In several cases, depositors filed Form 15G/15H requiring the assessee for non-deduction of tax at source from the interest due. The assessee has duly submitted relevant returns as mandated in section 197 A of the Act read with Rule 29C of the Income-tax Rules, 1962, on monthly basis to the concerned CIT. There has never been any adverse remarks by the department about the correctness of such prescribed TDS related returns. 23.21 In many cases, the depositors had indicated their PAN in the application form and tax was deducted at source out of interest paid to some of the depositors wherever interest paid exceeded the minimum amount as prescribed in section 194A of the Act. In cases where repayment of deposit along with interest exceeded Rs. 20,000/-, the payment was made by accounts payee cheques except in certain unavoidable circumstances, which demonstrates that the identity of the depositors had been established. Evidences regarding genuineness of the transactions: 23.22 RBI regulations and conditions about collection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the Tribunal decision is as under: "26. We have heard the parties and have perused the material on record. The facts are not in dispute. The issue is as to whether the provision of section 68 of the Act are applicable and whether it has rightly been applied to the assessee-bank The learned CIT(A), while deleting the addition made, has observed that the assessee's case was subject to rules laid down under the Banking Regulation Act, as also the regulations of the RBI; that all the banking operations are under audit and report in this regard goes to the RBI; that, therefore, the case of the assessee-bank could not be put at par with the cases of other persons, since the bank does not have any control in respect of the amounts credited in its accounts; that the bank is to maintain accounts of its customers, which accounts can be operated only by those customers and the bank does not have any control over the. amounts in the accounts. While holding in favour the assessee, the learned CIT(A) has duly taken into consideration the provisions under section 68 of the Act, which are explicit 27. As per section 68 of the Act., wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68 of the Act are not applicable to the bank as they are in the cases of the other assessees. Still further, under section 35 of the Banking Regulation Act, 1949, a banking company is subject to periodical inspections and audit by the RBI and in case any default is found, the bank is liable for heavy monetary penalty, besides cancellation of its license. This is not the case with other assessees. A bank, under the RBI guidelines, in order to maintain confidentiality in respect of the information collected by a bank relating to its customers, such information is not to be divulged to outsiders. There is no such obligation with other assessees. 28. Despite the RBI guidelines providing maintenance of secrecy with regard to the information regarding the customers of the bank, the assessee furnished to the Assessing Officer whatever information it had in its possession. The addresses of the accountholders, as mentioned in the bank ledgers, as also the addresses of the introducers of the accounts were funished to the. Assessing Officer. Now if the addresses of the customers of the assessee-bank were found to be incomplete, this cannot form the basis for making t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the fact that deposits were made by third parties, viz., customers of the bank. It is nobody's case that the deposits were made either by the directors of the assessee-bank or any of the relatives of the directors. As to what would be the scope of the inquiry and the degree of proof that would be required in such circumstances, is not required to be dealt with in the fact situation of the present case. The opinion expressed by the Patna High Court has been impliedly approved by the Apex Court in the case of CIT v. Orissa Corporation (P.) Ltd. '[1986] 159 ITR 782 (SC) when it is stated that, once the assessee had given the names and addresses of the alleged creditors and it was in the knowledge of the Revenue that the said creditors were income-tax assessees, if the Revenue did not make any effort to pursue the so-called alleged creditors, the assessee could not do anything further and the assessee had discharged the burden that lay on the assessee. It was for the Revenue to examine the source of 'income of the alleged creditors to find out their creditworthiness. 16. The finding by the Tribunal that the assessee-bank cannot have any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount. In no occasion it has directly paid the deposits directly to the depositor. In the present case the assessee Society is subjected to rules laid down by multi-state Co-operative society Act and Rules. The society books of account are subjected to audit by the regulatory bodies even year. Therefore, the assessee cannot be equated with other normal business concerns. Since the assessee has no control over the deposits as it is the property- of the depositors and the Society required to pay on demand. 'The customers usually go the bank for making deposit to earn better interest. The customers will go the banks where they get more interest. There is no dispute in these assessment years the assessee has been carrying out the Banking business. Whether or not the business is carried out with or without permission, it is bound by the Banking Regulations Act, 1949. The deposits and loans are just buying and sailing activity for the assessee. The amounts maintained at the customers account is not in the control of the society as it is required to pay the deposits on demand. In the present case what is required to be done before accepting the deposit is to take proper proof of addr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee could be taxed as assesses undisclosed income under section 68 of the Act, the Revenue had to discharge further burden of proving that the amount found credited in the books of the assessee actually emanated from the coffers of the assessee. In the absence of the Department leading evidence to prove the aforesaid, the onus that shifted to Revenue could not be considered to have been discharged so as to justify the addition under section 68 of the Act. - It is further pleaded that ingredients of sec 68 i.e. identity, genuineness and creditworthiness have been applied by courts depending on the nature of business, regulatory norms and practical aspects. 23.29. Hon'ble Delhi High Court in the case of CIT v. Divine Leasing & Finance Ltd. 299 ITR 268 laid down various parameters for discharge of primary onus: "16. In this analysis, a distillation of the precedents yields the following propositions of law in the context of section 68 of the Income-tax Act. The assessee has to prima facie prove (1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely: whether it has been transmitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based ad hoc addition made by the assessing officer holding the 35% of the deposits mobilized during the year, as unexplained cash credit, is not sustainable in the eyes of law. This proposition is supported by the decision of the Hor'ble Delhi High Court in the case of CIT v. Kinetic Capital Finance Ltd, 354 ITR 296. (e) Reliance is also placed on the decision of Hon'ble ITAT in appellant own case of A.Y. 1996-97 dated 22.07.2005 wherein similar decision of CIT(A) deleting addition u/s 68 on account of unexplained deposit, has been upheld. 23.31 Case, laws cited by ld. DR are distinguished and it is contended that Nova promotions is a case of share capital of private company and not, RNBFC. Besides, Lovely Exports (SC) (supra) has been impliedly followed there. 24. We have heard the rival contentions and perused the material available on record, and proceed to decide the issues in following order: (i) Whether assessed filing of hard Copies or the printouts of the record asked to be produced in soft copy is sufficient compliance to the requirements of SA and AO's notices under the Income Tax Act ? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) assessee reiterated the pleadings and on consideration thereof by detailed observations CIT(A) held that the conclusions arrived at by AO in this behalf were without any basis. After considering all the facts and circumstances we uphold the findings of CIT(A) that the conclusions and adverse inference drawn by AO on this issue was not justified. (iv) Whether facts and circumstances or assesses case are similar to earlier years and ITAT judgments in assesses own case or to be followed? -Assessee has a long history of litigation with department on various issues including sec 68, the same is tabled above. AO has made a chart contending that there are distinguishing features in earlier years. CIT(A) has referred to all these issues and by objective findings in a tabulated chart held that facts and circumstances of the earlier and currents years are by and large the same. Assessee continues to RNBFC under the same regulatory regime of RBL business model and the pattern of collecting deposits remain practically same. Rather in this year the Board of Directors and auditors were appointed as suggested by the RBI Thus assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of primary onus. It is to be appreciated that majority of the deposits are recurring deposits coming from earlier years. Besides assessee has about 3 crore of depositors belonging small income group people who may not be very educated and a big net work of field agents spread over various rural and other areas, many of them may also not be very literate. It has not been disputed that possible deficiencies in KYC compliance has been noted by the Board and as suggested by RBI, lien has been put on such accounts and not to repay unless these KYC deficiencies are made good. Under these facts and circumstances expecting the substantial rural and agro based citizenry to possess PAN card and drawing adverse-inference therefrom is not justified in these facts and circumstances. We have already held that earlier ITAT orders in assesses own case are to be respectfully followed. In view thereof it is to be held that assessee's Business is akin to banking business and the discharge of primary onus by the assess has to be on the same lines that of banking industry. A catena of judgments has been already referred in this behalf. In consideration of overall facts and circumstances, histor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- and 7.80%. The increased provision of interest was made on the resolution of reconstituted Board of directors and Audit Committee's suggestions. They suggested and resolved to make the interest provision based on behaviour pattern of the deposit on a mercantile basis. The provision amounted to change of rate of interest which at best is nothing but change in calculation of an accounting estimate for which there was no requirement of making a disclosure in the notes to accounts. Schedule 15 clause (b) of the financial statements were significant policies are mentioned refers to allowable accounting estimates under accepted accounting policies. Deposit schemes up to 31st March 2008, were mainly of recurring nature and the provision of accrued interest liability thereon was estimated earlier at the minimum interest rate payable on maturity of a fully compliant deposit. Fully compliant of deposits were eligible for some rebates, However many of the deposits were not fully complied by the depositors and rate of interest payability was decided at the time of repayment. Additional interest, if any payable, for full maturity account was accounted in the year of maturity. &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould have made such provision year after year, as the interest liability was always a known liability. AO held that, there was a clear departure from the notified Prudence basis of accounting, which has been wrongly termed as "a change in accounting estimates," 25.4 AO thus held that it was not a change in accounting estimate as it amounted to change in accounting policy in the name of behavioural pattern of the deposits. Even if it is held as a change in the accounting estimate then also as per the CBDT notification mentioned above the assessee was required to disclose all material facts impacting financial statements, which it has not done. 25.5 Assessee's contention that the interest provision creates a revenue neutral position was rejected holding each assessment year to be a separate and independent from other years and correct income of each year was to be calculated on the similar lines, details of the same are tabulated by AO in his order. It was held that because of the change in accounting policy the assessee has excessively provided Rs. 467,96,79,775/- (being 3% of average of opening and closing deposits). Amount was disallowed as change in Mercantile System of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has been on a lower side. The endeavour of RBI and its audit would be ensure a safer state of financial affairs from the point of view of depositor protection, which could have resulted in higher provisioning for interest than the real interest expenditure. Referring to assessees stand that there is no change in the accounting policy and it was simply a case of change of rate of accrual in accounting estimate, CIT(A) agreed with it. It was held that mere is no change in accounting policy, but only a change in estimate within the existing policy. 25.8 Despite this finding, CIT(A), however was of the view that as per paragraph 11 of the CBDT Notification No. SO 69(E), dated 25-1-1996, any change in accounting estimate was also to be disclosed and quantified in the final accounts which is not done. He also held that for change in method of accounting in income tax law (section 145), only requirements is that the method should be regularly followed, and any such change in the method of accounting or accounting estimate also was required to be incorporated in the statement to the final accounts (AS-I & AS-II notified vide Notification No. SO 69(E), dated 25-1-1996). After adverting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow the interest actually paid by the appellant at Rs. 924,63,78,475/- during the previous year. The ground was accordingly disposed by confirming Rs. 282,94,07,846/- and giving relief of Rs. 185,02,71,929/- to assessee. Aggrieved both parties are before us. 26. Ld CIT(DR) contends that despite holding it to be change in accounting estimate due to non-compliance with CBDT notification, finally CIT(A) modified the estimate of provision of interest made by the assessee as well as by AO. Out of total claim of interest of Rs. 1207,57,86,321/-, assessees claim to the extent of actual payment of Rs. 924,63,78,475/- is allowed, resulting into relief of Rs. 185,02,71,929; which is challenged by the revenue. On the other hand, tire assessee is contesting the disallowance of Rs. 282,94,07,846/- confirmed by the CIT(A). 26.1 Asessee's case is - firstly there has been no change in accounting policy during the year and it has continued to follow mercantile system of accounting as in the past. Only accounting estimates have been changed to preside for rate of interest interest in line with the directives of the RBI, auditors and board of directors. Secondly, ever, if there is a change in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not correct - inasmuch as they are not based on the factual matrix of the present case. Whether there has been any change in accounting policy or estimate is to be ascertained on the basis of facts and relevant material on record. It emerges that assessee has not cooperated in the assessment proceedings and relevant information and records were properly not made available. Therefore, the claim of the assessee and the findings recoded by the CIT(A) are to be viewed in the background of non-cooperation. One of the objectives for bringing in the change in accounting policy/accounting estimates is claimed to present more realistic and correct position of deposit accounts as mandated by the Reserve Bank of India and its appointees. There is no evidence to suggest that the Reserve Bank of India or its nominee directors or the auditors issued any such directions to the appellant company. Even the additional evidence do not contain any such directions. The provisioning of interest on the basis of behavioural pattern of individual accounts is also not as per the established history of the individual depositor's accounts, the submissions made before CIT(A) also do not reflect such fact. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the pan of the appellant-company to provide for the interest liability for the earlier years as no such decision was taken by the Board of Directors nor any direction to this effect was given by the RBI. 26.8 Besides seeking approval of the nominee directors and statutory auditors appointed by the RBI is one issue and bringing about changes in accounting estimates is entirely different issue. Therefore, in the absence of any evidence, the claim of the appellant-company that the necessary change had to be brought about in line with the directions of the RBI is factually incorrect. The change is unilateral act of the appellant, aimed at artificially reducing profits and consequent tax liability. 26.9 CBDT notification no. SO 69(E), dated 25-4-1996, direction in paragraph-11 lays down that any change in the accounting estimate is also to be disclosed and quantified in the final accounts. Not following the CBDT notification, or doing anything contrary to the notification, is bound to attract adverse decision. Assessee's contention that ITAT, Delhi has upheld the view that interest expenditure provided in its accounts was correct (ITAT order dated 12.10.2003 in ITA Nos. 67/Luck/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ohibitory order dated 04.06.2008 debarring the appellant from accepting further deposits and repay them on maturity. The said order was modified by the RBI vide their letter dated 17.06.2008 to the extent that the appellant was allowed to accept deposits up to 30.06.2011 and thereafter, wind down the activities completely by 30.06.2015. RBI further directed the appellant to appoint statutory auditors from the panel of auditors approved by the RBI and also directed to induct 50% of the directors nominated by the RBI on the Board of Directors. In compliance of these RBI directions, appellant appointed M/s G.D. Apte & Co., Chartered Accountants and M/s. Kalyaniwalla & Mistry, Chartered Accountants as joint special statutory auditors for the previous year ended 31.03.2009. Mr. H.N. Sinor, Mr. A.K.D. Jadhav and Mr. T.N. Manoharan were appointed as independent directors on the Board. The audit committee was directed to be chaired by Mr. T.N. Manoharan, nominated by the RBI. 27.3 The new statutory auditors subsequent to their appointment undertook detailed examination of accounting policy adopted, including the method of providing interest. According to the newly appointed statutory audi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time instead of following the consistent mercantile method, he has allowed the interest on cash basis, which results in making the system hybrid. which is not permitted by sec. 145. Having upheld the principle, entire interest liability ought to have been allowed as a natural consequence. 27.6 It is submitted that in this case, the appellant has merely changed its accounting estimates with respect to provision of rate of interest on deposits. Assuming for the sake of argument that such a change is to be regarded as change in accounting policy. Then also it is to be accepted in view of the statutory right that an assessee is entitled to change the method of accounting if the same is bona fide and the changed method is consistently followed thereafter. Reliance is made to the decision of Hon'ble Calcutta High Court in the case of Snow White Food Products Co. Ltd. v. CIT: 141 ITR 861: "All that the section lays down that if an lessee regularly employ a method of accounting his income should be computed 'in accordance therewith. Tire section, in us terms, does not require any enquiry into the bona fides of the assessee in following a regular method. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmended change in the method of accounting to reflect true and fair view of income in this year, by changing the base rate of interest. 27.8 As per the Accounting Standard-1 ('AS-1') on "Disclosure of Accounting Policies" issued by the Institute of Chartered Accountants of India the major consideration governing the selection and application of accounting policy(ies) are: a Prudence In view of the uncertainty attached to future events, profits are not " anticipated but recognised only when realised though not necessarily in cash. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information, b. Substance over Form The accounting treatment and presentation in financial statements of transactions and events should be governed by their substance and not merely by the legal form. c. Materiality ' Financial statements should disclose all "material" items, i.e. item the knowledge of which might inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 03.2015, it would be impossible to ensure that the changed method would be regularly followed. (c) Assessee did not place on record the note submitted by Mr. R.S. Dubey, Executive Director (Finance, Account and Taxation), as directed by the Board, to see the overall impact on the financial position of the company, by preparing two sets of balance sheet -one, as per established practice and the other by making provisioning of interest as advised by the statutory auditors of the company, so that appropriate decision could be taken in the next Audit Committee meeting. 27.13 It is submitted that assessee has placed on record various documents in support of the submission that the change in the method of accounting was made by the appellant pursuant to the suggestion made By the new independent statutory auditors appointed during the relevant previous year including: - Copy of prohibitory order passed by RBI restraining the appellant company to carry on present business (pages 2365-2366 of the paper book). - Copy of extracts of the minutes of meeting of the Audit committee of the appellant held on 03.02.2009- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange, the assessee undertakes to follow the changed method till the time of its existence. 27.18 It has been pleaded by revenue that the Board had only authorized the change for only the last quarter of the relevant previous year 2008-09. It shall be noted that provision of interest is always made at the end of the year and not on quarter-to-quarter basis. It is not the case of revenue that for three quarters, already provision was made for. Therefore, the approval by the board signifies proviso of interest for the entire previous year 2008-09, relevant to AY 2009-10. 27.19 Apropos the issue, whether arrears of interest of earlier years could be allowed in this year pursuant to the change, it is submitted that once the changed basis of accounting for interest was adopted, as a natural consequence assessee has to recalculate interest payable on deposits as on 31.03.2009. Once the change in the method was bona fide, allowance of short provision of interest for the earlier years is fait accompli to such change. It is to be borne in mind the assessee was not in good light with RBI, to prove its credentials it was necessary to abide with RBI directives which included their nominee au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olevel, is revenue neutral, given that interest payable on deposits is allowable in one year or the other. Assessee in appeals in several earlier years, in that case the claim being otherwise genuine ITAT to ensure a proper assessment has to issue directions to allow the corresponding interest in the respective year. This will result in reducing taxable income of earlier years, thus making the entire exercise revenue neutral at macro level. A useful reference can be made to observations of Hon'ble Bombay High Court in the case of CIT v. Nagri Mills Co. Ltd. : 33 ITR 681 (Bom.) @pg684 as uder:- "We have often, wondered why the Income-tax authorities, in a matter such as this where the deduction is obviously a permissible deduction under the Income-tax Act, raise disputes as to the year in which the deduction should be allowed. The question as to the year in which a deduction is allowable may be material when the rate of tax chargeable on the assessee in two different years is different; but in the case of income of a company, tax is attracted at a uniform rate, and whether the deduction in respect of bonus was granted in the assessment year 1952-53 or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned. The question, therefore, is only with regard to the year of deduction and it is a pity that all of us have to expend so much time and energy only to determine the year of taxability of the amount. " 27.26 In view of the aforesaid, it is contended that the change in the basis for providing for interest needs to be approved and provision of interest made by the assessee be allowed. 28. We have heard the rival contentions and perused the material available on record. It has been contended by the department that while deciding this issue the assessee's non-cooperation in the proceedings shall be kept in mind. In our view, the issue of provision of interest and accounting estimate are issue of principle and not of verification of facts. The quantification and disallowance has been worked by AO and CIT(A), which establishes that relevant facts were on record. To decide whether it is a change of method of accounting or interest estimate is based on interpretation of sec. 145, reasons for change and applying the findings is a question of interpretation. Thus we are unable to accept this contention that alleged non-cooperation has any role to decide this issue and adverse infe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive effect on outstanding balances depending on circumstances. Thus change in rate of accrual of interest cannot tantamount to change in method of accounting. This is how no interest is provided in respect of sticky loans and there cannot be fetter in assessees business acumen to increase or decrease the rate of accrued interest at the closing of the year. It is not envisaged by the accounting standards sec. 145 or other income tax provisions to treat every change in rate of interest upward or downward as change in system of accounting. Thus change in rate of interest has been rightly held by CIT(A) to be a change in estimate. 28.3 This view is supported by Hon'ble Delhi high court in Whirlpool India (supra) judgment where change in provision of warranty is allowed retrospectively, the facts of Whirlpool judgment are at parity with assessees case. In the assessee's case change is not a unilateral act of the assessee but a commercial decision taken on the recommendations and concurrence of regulatory stake holders. Apropos the disclosure in accounts we are unable to agree with AO that in case of change of rate of estimate also it ought to have been specifically mentioned i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions on account of sec. 41(1) Rs. 13,10,627.49/- 29.1 SA and AO proposed cessation of liabilities u/s 41(1) as under: a. In 21 cases amounting to Rs. 13,10,627/- excess assessee though wrote off provisions pertaining to expenditure accounts and credited to the profit and loss account. However same was reduced in the computation of income. Accordingly assessee was asked as to why the above amount of Rs. 13,10,627.19/- should not be added to the total income of the assessee in accordance with provisions of section 41(1). 29.2 Assessee replied that item no. 5 depreciation, i.e. Rs. 1,07,631/- is allowable at the prescribed rates hence its write back cannot be subjected to tax Items No. 12, i.e. Pension Fund amounting to Rs. 38,806/- and Sl. No. 2, i.e. bonus to staff amounting to Rs. 39/- is being claimed on payment basis only. If these three items are reduced from the figure of Rs. 13,10,627/-, the balance comes to Rs. 11,64,150/-. Out of this a sum of Rs. 11,51,878/-stands already surrendered by the assessee in the return for the A.Y. 2008-09 on account of excessive provision made, it cannot be taxed again in this year. The remaining balance of Rs. 12, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reflected in the respective accounts. 29.8 As regards the second item, i.e. commission payable, these amount represented commission payable to the field-force which was paid in the subsequent period. It is known liability and acknowledged by the assessee. The auditors have themselves pointed out that major portion of the provision stands already paid by May, 2010.Consequently there was no justification in adding it u/s 41(1). The third item, i.e. rent payable, is also an. acknowledged liability its deferment of cannot lead to invoking the provisions of section 41(l).As long as the liability is acknowledged, it is allowable time limit is not relevant for provisions of section 41(1). 29.9 AO held this reply also to be unsatisfactory and added the amounts under section 41(1). 29.10 Aggrieved assessee preferred 1st appeal. CIT(A) verified the material available on record and was of the view that AO had not referred to his own records, before adding these amounts as cessation of business liabilities u/s 41(1). Assessee's reply on each item was held to be satisfactory. It was held that there was no cessation of business liability except Rs. 12,272/- surrendered by it. Resulting i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not be attracted. Assessing Officer added the amounts under section 41(1) holding that appellant has not provided any correspondence to prove the dispute of the liabilities. 33.2 Aggrieved assessee preferred 1st appeal and put forth its explanation. CIT(A) placed reliance on Hon'ble Delhi High Court in the case of Commissioner of Income Tax v. Shri Vardhman Overseas Limited 343 ITR 408 holding that: "the assessee had not unilaterally written back the accounts of the sundry creditors in its Profit & Loss Account. The liability was shown in the balance sheet as on 31.03.2002. The assessee being a limited company, this amounted to acknowledging the debt in favour of the creditors for purposes of section 18 of the Limitation Act, 1963. The assessee's liability to the creditors, thus subsisted and did not cease nor was it remitted by the creditors. The liability was enforceable in a court of law. The amount was not assessable under section 41(1)." 33.3 Further reliance was placed on the following judgments for similar view has been proposition:- - CIT v. Jaipur Jewellers (Exports) 187 Taxman 169 (Del.) &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was explained that a sum of Rs. 10,86,82,931/-represented cheques issued but not presented which was credited in the separate account on 31.03.2009. To make bank reconciliation statement more clear, the entries of outstanding cheques were credited to a separate account so that accounts as on 31.03.2009 reflect a true and fair view of the position. These entries were reversed on 01.04.2009 by debiting to such account, i.e. cheques issued but not presented and once again they merged with the respective bank account on which the cheque was issued. Thus by only transferring the entry of cheques issued but not presented and crediting them to a separate account does not tantamount to any cessation of a liability, more so as on the next 1st of April, the same has been reversed. Besides these are acknowledged debts which do not entail to provisions of section 4 1(1). 37.3 As regards the second item, i.e. outstanding commission payable, to the field-force used for collection of deposits. Assessee follows mercantile system of accounting and consequent thereof the commission was being credited in the account after due deduction of TDS where applicable. AO however made an addition of Rs. 4,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases their address is mentioned as c/o Sahara Parwar. There is no entity in the group by the name of Sahara India Pariwar. In public perception group concerns are commonly known as Pariwar. Many times vendor make the bills in this name, however the fact remains that these services are used by the assessee. Two bills of Rs. 16,044/- and Rs. 71,318/- drawn by M/s Sahara Global and the same relates to travelling expenses incurred by assessee's employee and the bill is debited in its books. Assessee also filed a chart setting out the reasons in respect of each item of listed expenditure to demonstrate that this expenditure are relatable to its employees along with their employee code no. and copy of form no. 16 issued to them. 41.2 AO however disallowed this expenditure as not incurred for assessee. 41.3 In first appeal CIT(A) held that expenses claimed are actually incurred on appellant's employees, explanation about exigencies which lead to use name of Sahara India in the bills was accepted and addition was deleted. Aggrieved revenue is before us. 42. Ld CIT(DR) relied on the order of AO. 42.1 Assessee's counsel in reply contends that ld CIT(A) after verification h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights to other concern as at that time negotiations for takeover of M/s Sahara Airlines Limited by M/s Jet Airways were in progress. B.C.C.I. acceded to the request to allow SAL to assign the right to any group concern. Pursuant thereto SAL assigned this right to assessee to carry on and continue the agreement. It was apprehended that R.B.I. intervention may result in curtailing of assessees business, therefore, it approached M/s Sahara India Commercial Corporation Limited (SICCL) which at that time, was the major business concern of the group. It was engaged in the business of development of infrastructure projects of Ambey Valley City, with Sahara City Homes and other housing projects through various other group concerns. Maximum brand value of Sahara Logo on Indian Cricket Team was useful for benefit of SICCL, consequently an agreement was entered into between M/s Sahara India Financial Corporation Limited the assessee company and SICCL on 20.02.2006. It was agreed that 10% of the payment to BCCI would be borne by assessee and balance 90% will be borne by SICCL. This agreement is valid from 20.02.2006 onwards and was also applicable during the relevant previous year. There was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the five/six entities belonging to the Sahara Group, including the appellant firm, which according to the AO is not established. It is a well-known fact that in advertisements of Sahara Group what is projected is the brand Sahara Pariwar". This is supposed to advance the commercial interest of the group as a whole. It is not the case that any company specific advertisements is charged under this head. Therefore, the group had apportioned 1/6th of such expenditure to its following six concerns, viz. (i) Sahara India, (ii) Sahara India Mutual Benefit Co. Ltd., (iii) 'Sahara India Airlines Ltd, (iv) Sahara India Mass Communication appellant), (v) Sahara India Housing Ltd. (later known as SICCL) and (vi) Sahara India Financial Corp Ltd. (SIFCL). This was in accordance with revenue's assessment order dated 23.04.1999 for AY 1996-97 in the case of SIFCL. Following the revenue's above order, the group has been apportioning the expenditure under this head equally among these six entities. After the takeover and merger of Sahara India Airlines Ltd. with Jetlite, this expenditure is now being apportioned equally (1/5th each) among the remaining five entities of the group, includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld. 47. We have heard the rival contentions and perused the material available on record. In our considered view AO was not correct in comparing BCCI fee with neon sigh advertisement. Both modes are entirely deferent and extent of one mode of expenditure cannot be applied to other on surmises and conjectures. CIT(A) has given detailed and justifiable reasons to allow them. Besides his orders for earlier years have been accepted by the department, there exist no new facts or circumstances to take another view. In view thereof this ground of the revenue is dismissed. 48. Ground no. 15 -Disallowance of sponsorship payment made to BCCI 48.1 Ld. DR argued that as per grounds of appeal raised before the ld. CIT(A), the appellant has not agitated the issue of additional expenditure on sponsorship of Indian National Cricket team. Therefore, ld. CIT(A) should not have granted additional relief of Rs. 21,86,37,443/-. Assessee has also admitted that the relief granted by the ld. CIT(A) is as a consequential relief due to associate companies appellate order. In the absence of a specific ground in assessee's appeal, CIT(A) has erred in providing additional relief. 48.2 Ld. Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich detailed reasoning was offered. Explanation regarding CBDT circular and AS-13 was filed. 49.3 AO held that though CIT (Appeals) has deleted similar disallowance in earlier years but department has not accepted this decision and further appeals on this issue are pending. In this case reliance is placed on the judgment of the Hon'ble Supreme Court in the case of C.K. Gangadharan v. CIT [2008] 304 ITR 61, holding "that the department has not preferred an appeal in one case would not operate as a bar for the department to prefer an appeal in another case where there is just cause for doing so or it is in the public interest to do so for a pronouncement by higher court when divergent views are expressed by the Tribunals or the High Courts. Thus the claim in this regard was disallowed, adding a sum of Rs. 11,86,24,108.95 to income of the assessee. 49.4 In first appeal, CIT(A) referred to his order dated 15 03.2013 in the case of Sahara India Life Insurance Corporation Ltd. (SILICL) in Appeal No.340/11-12 for AY 2004-05, holding as under: "6.2 I have considered the assessment order and the submissions made. The judgment of Hon'ble Supreme Court cit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing system followed by the appellant. These securities are purchased on cum-interest basis i.e. cost plus interest due, which is unpaid till the date of purchase. The interest subsequently received thereon is credited to interest a/c, like wise interest paid in advance to seller is debited to interest a/c. In other words supposing assessee purchases these securities "on minus interest basis" in that case it will have to pay only the cost and subsequent interest due will be handed over and become income of the seller. On same analogy the amount paid for transaction, includes actual cost of security plus the interest receivable thereon which can be calculated, as securities are fix interest bearing. Thus both components are worked out separately and do not become consolidated price merely because they are paid under the same agreement. By this established commercial practice, assessee pays the seller amount receivable as interest on such securities in advance, it retains the character of advance interest paid simplicitor and does not assume the nature of component of cost of security. It is a widely used practice in this trade. This advance interest is on revenue a/c to be earned the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid thus contains these two elements. After acquisition assessee on matching principle debits the cost of security to investment a/c and interest component to interest a/c, the due interest when received is credit to interest a/c. The whole issue has arisen as AO failed to appreciate the nuances of components of amount paid for transfer of securities. Instead of appreciating two distinct components both have been held to be attribute to cost, which in our view is not correct. In consideration of entirety of facts and circumstances we find that CIT(A)s order is based on correct appreciation of facts and application of judicial precedent. Therefore, no interference is called for. Revenue ground is dismissed. 53. Ground no. 17 (mistakenly typed as 18)- Disallowance of Expenditure in relation to Prior Period Expenses: 53.1 Brief facts are: AO found that in 5 cases amounting to Rs. 13,54,009/-the expenses pertain to prior period, assessee was requested to justify it. Assessee in its reply contended that: (i) first item is a bill of Voltas Ltd. being maintenance charges for the period 01.03.2008 to 31.03.2008. The invoice was received in this year, after veri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; - Rs. 7,02,500 55.1 Apropos Voltas bill assessee received bill of Rs. 1,22,192 during the "relevant previous year relating to the period 1.3.2008 to 31.8.2008, i.e., for a period of six months. The assessing officer on proportionate basis disallowed Rs. 20,365 for the period 1.3.2008 to 31.3.2008, on the ground that the same related to the preceding year. 55.2 The second bill represents expenditure on travelling which was undertaken between 28.3.2008 to 31.3.2008. The bill was raised by the travel agent in the relevant previous year for the period 28.3.2008 to 06.04.2008. AO disallowed the entire amount of Rs. 51,135 on the ground that the travel was undertaken in the preceding year, the expenditure pertained to that year. 55.3 Apropos M/s Credence Analytics, it is raised by the vendor in this year on completion of Phase III of the implementation as Software and customization charges, in July, 2008. The assessing officer, however, treated the same as prior period expenditure solely on the basis that the bill contains reference of agreement dated 07.11.2004 and approval dated 05.11.2007. 55.4 The CIT (Appeals) deleted the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such investments is a part of its business activities. In pursuance of business it invested Rs. 5 crore on 10th May 1997 in 19%. Non-Convertible Debentures of GBPL due for redemption on 7th July 2002. The Debentures were secured by pari passu first charge on company's fixed assets. GBPL regularly serviced the interest upto 7th October 2000 but defaulted thereafter. GBPL became a sick industry and was registered with BIFR on 24-11-2006. In this bleak scenario assessee entered into a One Time Settlement (OTS) according to which GBPL agreed to pay an amount of Rs. 3.50 crores in five equal yearly instalments. It once again defaulted in making the payment as per the terms of the OTS and paid only a sum of Rs. 69,86,250/- as against the due amount of Rs. 1,28,62,500/- upto April 2008. GBPL once again requested to settle the dues by paying an additional amount of Rs. 2.10 crores towards the full and final settlement. Assessee agreed on the condition that the same shall be paid on or before 31st July 2008, which paid Rs. 2.10 crores on 31st July 2008 consequently remaining Rs. 70,13,750/- was proposed for are write off. 57.3 Board of Directors approved the proposal of write off a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in course of business as a RNBC, the investments held by the appellant were in the nature of stock-in-trade. Besides, it is only in this year the amount finally became bad and is written off. The decision of the CIT(Appeals) being in accordance with law does not warrant any interference. 59. We have heard the rival contentions and perused the material available on record. The first question to be decided is whether investment of Rs. 5 crs. In GBPL was trade investment or advance or not? As per the facts on record, assessee offered the interest as business income. As a RNBC it has to carry on the business of investment in RBI approved investments. This fact has not been disputed by AO, in these facts and circumstances CIT(A) is right in holding it to be business investment. Any loss of business investment or stock is allowable as write off or loss. Besides, reliance on Hon'ble Supreme Court in the case of TRF Ltd. (supra) is justified. It is clear that it is in this year only the advance is finally treated as bad and written off, therefore, it is eligible to be allowed in this year. This ground of the revenue is dismissed. 60. Ground no. 19: Disallowance of provision for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SA, AO and assessee. Thus market value and consequent entries made by the assessee were correct i.e. decrease in the value of business investments which is an allowable business expenditure u/s. 28 or u/s. 37(1). In any case, revenue was adequately protected by the write back of increase in value up to cost-level, and booking of income at sale minus cost on disposal of the asset. Aggrieved, revenue is before us. 61. Ld. CIT(DR) relied on the order of AO. 62. Ld. Counsel for the assessee submits that as part of its business, the appellant holds investments in various securities, which are, in the nature of stock-in-trade and are consistently valued at lower of cost or market value. The AO disallowed the provision for diminution in the value of current investment on the ground that since the appellant had treated all income earned from investments as business income, there was no question of allowing deduction for provision of diminution. 62.1 On appeal, it was submitted before the CIT (Appeals) that the appellant being a RNBC has to make "directed" investment in Government securities, mutual funds, FDRs as per the prescribed limits. In terms of the mandatory Reserve Bank of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stat.) - American Express International Banking Corp. v. CIT 258 ITR 601 62.4 The order passed by the CIT (Appeals) being in accordance with the laws, mandatory prudential directions of the RBI and applicable accounting standard, in consonance with deserves to be upheld. 63. We have heard the rival contentions and perused the material available on record. It emerges that these investments were held as stock-in- trade and either ways the income thereon i.e. profits from the investment or disposal thereof, are accounted for as business income. Assessee follows this method consistently. Looking at the entirety of facts and circumstances of the case, we are of the opinion that diminution in the value of business investments is an allowable business expenditure u/s 28 or u/s 37(1), it is not a case of write off of bad debt as tried to be compared by AO with GBPL. CIT(A) is right in holding that in any case, revenues interest is protected by the write back of increase in value up to cost-level, and booking of income at sale minus cost on disposal. Reliance placed on CIT v. State Bank of Patiala and American Express International Banking Corporation is justifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any work pursuant to any contract and is not covered u/s 194C. It was opined by legal advisors also that no contractual services were rendered by Bloomberg, therefore, there is no TDS liability, no disallowance u/s 40(a)(ia) was called for. 64.5 Apropos payments made to M/s. Sahara Hospitality Ltd.(HPL) for arranging meetings and conferences, a sum of to Rs. 88,312,71/- (wrongly mentioned as Rs. 8,77,797,51/- by SA) reference was made to three bills. The charges are mainly for room rent or business centre use etc., no contract has been entered into between the assessee and HPL. This expenditure is incurred at prevailing rates and not under any contract. 64.6 Payment of Rs. 2,07,337/- to M/s. Amby valley Ltd. Represents charges for rooms and fooding etc., paid by assessee as a regular customers and not under any contract. Payment of regular lodging and boarding are not liable for TDS. Consequently section 40(a)(ia) is not attracted. 64.7 AO however did not agree with the assessee and by detailed observations (they are not reproduced for brevity as they have been dealt by ld. CIT(A) held that these payments are covered by section 40(a)(ia) due to non deduction of TDS. Thus the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion shall be deleted. The exercise shall be completed within a period of six months, i.e. by 30.09.2013. The balance disallowance of Rs. 11,11,192/- (Rs.9,03,855/- + Rs. 2,07337/-) was deleted. Aggrieved revenue is before us. 65. Ld. CIT(DR) contends that the assessee has not maintained systematic records to aggregate interest payable and payment to a individual depositors. In the absence of such records it is not possible to club together the interest payment to individual persons. Further, the assessee company has failed to cooperate with the AO/ SA and the soft copy of ledger accounts were not supplied. In view of such non-compliance, there is no justification for sustaining the disallowance on protective basis. 65.1 The claim of the assessee-company is factually incorrect and not tenable in law. The submissions made by assessee before CIT(A) militates against the assessee's own claim. It is to be appreciated that unless the tax payer maintains a systematic record of the aggregate deposits and amount of interest payable to a particular creditor, it is difficult to verify compliance of TDS provisions. Assessee itself admits that out of 3 crore accounts, only 23 lakh accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) disallowance of Rs. 1,50,38,35,341/-; (Qua interest to depositors) (b) disallowance of Rs. 11,11,192/- (Rs. 9,03,855 M/s Bloomberg -Rs.2,07,337AVL) 66.1 Ld. CIT(Appeals) after verification held that payment to M/s Bloomberg was for subscription to data base which was in the nature of purchase of services not liable for TDS. Payments made to M/s. AVL is on account of booking of rooms and conference halls from time to time as regular guests/customers, not by way of contract. Therefore, there is no TDS liability. For TDS verification, assessee has no objection to extension of 6 months from last due date and assures cooperation. 67. We have heard the rival contentions and perused the material available on record. Apropos the issue about Bloomberg, amby Valley and SHL it has been verified and findings of fact have been given by ld. CIT(A), that these payments are for purchase of services, hospitality or arrangement thereof; paid as a regular customer in normal course and not by any contract. These facts have not been materially rebutted by the department in view thereof we uphold the order of CIT(A) qua these payments. 67.1 Apr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed for a shorter extension. After hearing both the parties and in the interest of substantial justice, department was orally allowed a further extension of 6 months as prayed i.e. from 30-9-2013, protective addition cannot be upheld, the matter is therefore, restored back to AO, if department fails to carry out the exercise in this extended time i.e. up to 31-3-2014, order of ld. CIT(A) will become final requiring no interference. If AO comes in possession of any specific information then the issue shall be decided accordingly keeping in mind that CIT(A) has already given a finding that estimated disallowance u/s 40a(ia) cannot be made, after giving the assessee an adequate opportunity of being heard. This grounds of the revenue and assessee in this behalf are accordingly partly allowed. 68. Ground no. 21:Additions of interest earned on non-performing assets not recognized as income: 68.1 On SA's objection, AO was of the opinion that a sum of Rs. 1,72,63,565/- being interest earned on the non-performing assets as classified by the assessee and a sum of Rs. 80,80,207/- being overdue interest earned on the non-per-forming assets was not provided by assessee on the pretext that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and on their request for principal along with interest of Rs. 65.00 lacs was rescheduled for a period 63 months. The company paid instalments up to 1st April 1998 and defaulted, thereafter company incurred huge losses and was declared a 'Sick Industrial Company' under the provisions of sick industrial Companies (Special Provision) Act, 1985 (SICA). Assessee filed a case under section 138 of Negotiable Instrument Act, 1881 & the same is due for cross examination. Total outstanding principal as on 31-3-2009 was Rs. 3,37,64,082/- and a provision of Rs. l,68,82,041/- was made as per prudential norms of RBI. 68.6 As regards. 15% Garware Nylon Ltd., an amount of Rs. 15,22,500/-was invested in them 15% debentures, it incurred huge losses and networth was substantially eroded, subsequently it was also registered with BIFR. They have not paid any amount from last few years. The total outstanding Principal as on 31st March 2009 was Rs. 15,22,500/- and a provision of Rs. 15,22,500/- was made as par prudential norms of RBI. 68.7 In light of the above facts and circumstances, assessee claimed that these assets have turned as NPA, as per the Prudential Norms guidelines of the R.B.I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r profits but project a more realistic picture by provisioning for NPAs and also not recognizing incomes on such assets. Hon'ble Delhi High Court judgment in CIT v. Vasisth Chay Vaapar Ltd. 330 ITR 440 (Del), where following the 'real income theory' proposed in Southern Technologies Ltd. (supra) it is held that: "The dispute before the Apex Court centered around deductibility of provision for NPA. After analyzing the provisions of the RBI Act, their Lordships of the Apex Court observed that insofar as the permissible deductions or exclusions under the Act are concerned, the same are admissible only if such deductions/exclusions satisfy the relevant conditions stipulated therefor under the Act. To that extent, it was observed that the Prudential Norms do not override the provisions of the Act. However, the Apex Court made a distinction with regard to "Income Recognition" and held that income had to be recognized in terms of the Prudential Norms, even though the same deviated from mercantile system of accounting and/or section 45 of the Income-tax Act. It can be said, therefore, that the Apex Coutt approved the 'real income' theory which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Chartered Accountants of India, the premier accounting body in the country. Further, section 211 of the Companies Act, 1956 requires that the financial statements of companies should be prepared in compliance with the Accounting Standards. Further, sub-section (2) of section 145 of the Act mandates that an assessee shall be required to follow the accounting standards that may be notified by the Central Government. Vide Notification No. SO 69(E) dated 25.1.1996, the Central Government has, for purposes of section 145(2) of the Act, notified Accounting Standard-I relating to "Disclosure of Accounting Policies". 70.3 Para 16 of Accounting Standard-I relating to "Disclosure of Accounting Policies" provides that the accounting policy adopted by an assessees should be such so as to represent a true and fair view of the state of affairs of the business of the assessee. Para 17 of the said Accounting Standard further provides that selection and application of accounting policy must be governed, inter alia, by "prudence" meaning "in view of the uncertainty attached to future events, profits are not anticipated but recognized only when realised though not necessarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome and held that notwithstanding that an assessee may be following the mercantile system of accounting, the assessee could only be taxed on real income and not any notional/hypothetical/illusory income. Further reliance is placed on Hon'ble Supreme court judgments in the case of CIT v. Shoorji Vallabhdas and Co: 46 ITR 144; CIT v. A. Raman And Co.: 67 ITR 11; Godhra Electricity Co Ltd. v CIT: 225 ITR 746 ;UCO Bank v CIT: 237 ITR 889. 70.8 Section 45Q of the Reserve Bank of India Act, 1934, which provides as follows: "Chapter IIIB to override other laws. 45 Q. The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. " 70.9 Thus, by virtue of section 45Q of the RBI Act, 1934, the provisions of Chapter IIIB of the said Act shall override the provisions of all other Acts, including the Income-tax Act, 1961. In terms of the Prudential Norms (issued by the RBI in exercise of the powers available under Chapter IIIB of the RBI Act), interest or any other charge on NPA shall be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mity in the order of CIT(A) on this issue. This ground of the revenue is dismissed. 72. Ground no. 22:Rs. 2 Crores - diminution in the value of investment 72.1 In ground no. 22, the revenue is challenging the relief of granted by the ld. CIT(A). In our considered view, issue is similar to ground no 19. Same arguments and contentions are raised by both the parties. Issue being contended to be similar, following our order on ground no. 19, this ground of the revenue is dismissed. 73. Ground no. 23:Disallowance of expenditure on stationery 73.1 On SA's objection, AO observed that qua the opening stock of stationery Rs. 92,51,945 assessee has not shown any closing stock . It is not possible that the entire stationery purchased on 31/03/2009 for Rs. 1,25 ,45,009/- cannot be consumed on the same day. 73.2 Assessee submitted that stationery items are being purchased for the purpose of its own consumption and not for any resale. Entries for purchase of stationery items of Rs. 1,25,45,009/- contains a list of various earlier bills which are included therein. The aggregate amount includes several bills for supply, of stationery made in January, February and beginning of March. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ths, stationery is a consumable revenue expenditure. Dispensing with closing stock inventory was for efficiency and exercise was revenue neutral. We uphold his order, revenue ground is dismissed. 77. In the result revenue appeal is partly allowed. Assessee's appeal: 78. Ground nos. 1(a) to 1(e): Disallowance under section 14A : 78.1 On SA reporting AO was of the view that assessee had offered only disallowance of Rs. 26,646/- of expenses in terms of sec. 14A(2) r/w rule 8D. It owns deposits earning tax free income, claimed to acquired out of share capital and reserves. Consequently a show cause notice was issued as to why a proper disallowance should not be made. 78.2 The assessee submitted that a plain reading of sec. 14A and rule 8D prescribes that owner to determine such expenditure incurred by referring to method prescribed, can only be exercised if and only if the AO having regard to the accounts of the assessee, is not satisfied with the correctness of its claim. It has already offered a disallowance of Rs. 26,646/-under section 14A the working of which has been given in the ax audit report itself. No satisfaction has been recorded by AO that it is not a correct work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed specific reply, AO has not established any nexus to the effect that any borrowed funds were used for their acquisition. The working of disallowance adopted by AO was incorrect as the correct working resulted in disallowance of Rs. 216,51,917/- only as against proposed Rs. 96,53,24,600/-. All these facts and working were submitted before the AO by the appellant along with reply dated 23.07.2012. 78.7 Ld. AO took an adverse view by erroneously holding that the onus lies on the assessee to prove that the investment in interest bearing securities was made out of its surplus non interest bearing funds. Issue of onus is other way round, if AO was not satisfied then it was his onus to prove that assessee's claim was wrong. It is well settled law that there can be no disallowance under section 14A on presumption only, reliance was placed on the judgments of the Delhi ITAT in the cases of:- - Minda Investments Ltd. v. D.C.I.T, 52 DTR (Trib.) (Del.) - CIT. v. Metalman Auto Pvt. Ltd. 336 ITR 434 (P & H) - CIT v. Hero Cycles Ltd.323 ITR 518 78.8 On another material aspect ld. AO has not given, any finding wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein but none of the definition which has been mentioned herein above speaks of a situation of computation of a loss. 78.12 Assessee returned a loss of Rs. 10,45,98,718/- in the revised return filed by it. Since income returned was a loss there was no justification in invoking the provisions of section 14A. Word "loss" has not been defined under the Income Tax Act nor it can be equated with income. The word loss has a separate connotation and transpires from the Income Tax Act itself in as much as under section 271(1)(c) Explanation-4 for the purpose of definition of the expression "the amount of tax sought to be evaded" the reference to loss declared has been given and any deduction to the loss declared or its conversion into income has to be considered for finding out difference which will tantamount to concealed income. Provisions of section 14A are applicable for making disallowance out of income, there being loss in assessee's case, no disallowance under section 14A can be made. 78.13. According to RBI guidelines assessee invested in US 64 Units consequent to great share market crash by govts. intervention, on a mandatory basis, large unit holders of US 64 were allotted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n tax free bonds has been made out of funds of the share-holders of the assessee. " 78.17 Mumbai ITAT in the case of Bunge Agri Business (India) (P) Ltd. 64 DTR (Mum) (Trib.) 201, held that if funds are available for both interest free and interest bearing income, then right presumption can be drawn that interest free funds are first used for tax free investment and no disallowance of interest should be made section 14A. 78.18 In following cases it has been held that if there no nexus is established between borrowed funds and non-business advances and if the assessee has sufficient net owned funds, no disallowance of interest can be made: - Regal Theatre v. CIT 225 ITR 205 (Del.) - CIT v. Radico Khaitan Ltd. 274 ITR 354 (All.) 78.18A Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. 313 ITR 340 has held in the last paragraph as follows :- "If there be interest free funds available to the assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from interest free funds available. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds that yield tax free incomes. Therefore, it cannot be concluded that amount invested in assets generating exempt income is from share capital and reserves, or that there is no nexus between interest bearing funds and such investments. In any case, this claim of the appellant has not been established. Fourthly, the fact that the returned income of the appellant for this AY is a loss will have no bearing on working out the expenditure relating to exempt income under Rule 8D for the reason that 'income' includes 'loss', or negative income, that may get reduced or enhanced impacting the tax leviable on the appellant. In the circumstances, I hold that the expenditure in relation to exempt income of the appellant shall be determined in accordance with Rule 8D. I also find that the special auditor, the AO and the appellant have worked out different figures, pointing to the fact that there is difference of opinion on the issue. With these observations, the expenditure under Rule 8D is worked out in the subsequent Para. 7.3 The amounts to be taken into consideration as pre balance-sheet of the appellant are (i) interest paid on deposits at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of addition, but that is only due change in existing figures and not on account of any enhancement of income. The addition made by the revenue is upheld and revised marginally upward as above. The ground of appeal is dismissed. 79. Ld counsel for the assessee Shri Ajay Vora contends that, on on facts and in law 14A disallowance as confirmed by the ld. CIT(A), is not sustainable: i. It has not been disputed that assessee is maintaining an exclusive investment division, for which separate books of account are maintained. While filing the return of income, suo moto it offered an amount of Rs. 26,646 under section 14A calculated on the basis of proportionate expenditure of investment division, as relatable to earning of tax free income. No other expenditure is incurred in relation to earning of exempt income. Legal positions for applicability of section 14 A read with Rule 8D is summarized as under;- (a) Section 14A requires disallowance of expenditure incurred in relation to exempt income. The said section requires consideration of actual expenditure only for the purpose of disallowance and not any noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A of the I.T. Act. As regards the application of Rule 8D for assessment year 2008-09, the Court observed as under: "29. Sub-section (2) of Section 14A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, 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 income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t suo-moto disallowance offered in the return of income under section 14A of the Act is incorrect or insufficient. No cogent reasons has been cited and AO has not been able to point out as to how according to him, actual expenditure incurred in relation to the exempt income was more than the suo-moto disallowance of Rs. 26,646 made by the appellant. Thus statutory onus cast by statute has not been discharged by AO. 79.2 Circular No. 14/2006 dated 28th December 2006, containing Explanatory notes on provisions of Finance Act, 2006, explains the legislative intent behind insertion of the aforesaid provisions as under- 11. Method for allocating, expenditure in relation to exempt income 11.1 Section 14A of the Income-tax Act, 1961, provides that for the purposes of computing the total income under Chapter-IV of the said Act, 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 the Income-tax Act. In the existing provisions of section 14A, however, no method of computing the expenditure incurred in relation to income which does not form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of interest expenditure under section 14A of the Act have repeatedly held that in the absence of any finding of dissatisfaction and cogent material to hold that interest expenditure related directly or indirectly to the exempt income, no part of interest expenditure could be disallowed. - CIT v. Hero Cycles: 323 ITR518 (P&H) - CIT v. Metalman Auto P. Ltd, 336 ITR 434 (P&H) - CIT v. Reliance Utilities & PowerLtd.:313 ITR 340 (Bom.) - CIT v. K. Raheja Corporation Ltd.: ITA No. 1260/2009 (Bom.) - Dishman Pharmaceuticals &Chemicals Ltd. v. Dy. CIT: 45 SOT 37 (Ahd.) (URO) - Minda Investments Ltd. v. Dy. CIT: 138 TTJ 240 (Del) - ACIT v. Champion Commercial Co Ltd. ITA No. 644/ Kol ./2012(Kol.) - Eimco Elecon (India) Ltd. v. Addl. CIT: [2013] 33 taxmann.com 476 (Ahd.) - Dy. CIT v. Jammu & Kashmir Bank Ltd.: 142 ITD 553 (Asr.). 79.6 In view of the above, it is only the common interest expenditure, incurred on borrowed funds, not directly attributable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds were used in the investment in securities yielding tax free income. It has been held that such investment should be presumed to have come out of owned funds and not out of borrowed money. Reliance is placed on Woolcombers of India Ltd v. CIT: 134 ITR 219 (Cal); Alkali & Chemical Corporation of India Ltd v. CIT (Cal): 161 ITR 820 impliedly approved in 220 ITR 627 @ 632. (b) The CIT(A), therefore, erred in allocating indirect interest expenditure to the extent of Rs. 2,04,19,938. Further ½% of average value of assets yielding exempt income qualified by the CIT(A) at Rs. 15,27,835 in terms of Rules 8(2)(iii) is uncalled for considering that the investments made by the appellant are "directed investments" in terms of RNBC Directives, 1987 issued by RBI and there is no substantial movement in the portfolio / there are infrequent transactions of purchase and sale. (c) Without prejudice to the above, it is contended that the disallowance made at Rs. 2,16,51,917 (enhanced by CIT(A) at Rs. 2,19,47,772) is much above the tax free income of Rs. 68,37,583 earned by the appellant during the relevant year. It is submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO have been sustained by him. 80.3 The decision of the learned CIT(A) is keeping in line with the facts of the case and the statutory provisions of IT Act and IT Rules. In fact, the learned CIT(A) could have gone for enhancement in this case on the basis of observation by the CIT(A) in Para 7.3 of his order that the investment in shares as on 31.03.2009 and 31.03.2008 was Rs. 149,98,54,208/- and of Rs. 164,93,57,517/- respectively. Therefore, the value of average investment yielding tax free income should have been taken at Rs. 157,46,05,586 as against which he has taken the average value of assets yielding exempt income at Rs. 30,55,66,900/-only. 80.4 Further, there is no merit in the argument of the appellant company that during the year under consideration it had earned exempt income of Rs, 68,37,583/- and the disallowance should have been restricted to the extent of exempt income. The Hon'ble special Bench of ITAT, Delhi has, in the case of Cheminvest Ltd. v. ITO 121 ITD 318(Delhi), held that expenditure in relation to exempt income is to be disallowed u/s 14A even when no exempted income is earned during the year. 80.5 The claim of the appellant is devoid of merit, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as investments and not as stock in trade. As submitted earlier, only average investment of Rs. 30,55,66,900 has been taken into consideration by the AO and CIT(A) for disallowance u/s 14A of the IT Act, 1961. Therefore, the ratio laid down in the aforesaid cases does not apply to the facts of the assessee's case . 81. We have heard the rival contentions and perused the material available on record. It has not been disputed that the administration, expenses and books of account of investment division are separately carried out and maintained by the assessee. No infirmity has been found by the department in this behalf. One of the main issue is on whom lies the onus to establish nexus of available funds with free and taxable income. Similarly courts have held that a finding in objective terms about assessee working being unsatisfactory is to be recorded by AO in the order. Chandigarh Bench of the Tribunal in the case of ACIT v. Punjab State Co-op. & Marketing Federation Ltd. (ITA No. 548/Chd/2011) has held that in any case the disallowance u/s 14A cannot exceed tax free income of the assessee. If mechanical method of rule 8D is applied, it leads to manifestly absurd results in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount is brought to tax in this year, the corresponding amounts would have to be reduced from the income of earlier years and it cannot be taxed twice. However, he held that it is trite that income is taxable in the right year when accrues or arises. Therefore, the correct amount of interest income on FDRs accruing to the appellant should be taxed in this year. So far as double taxation of excess amounts in earlier years is concerned, the appellant has already submitted year-wise details to the revenue and has several alternative remedies, such as rectification u/s 154 or revision u/s 264 which may be pursued by it. Therefore the action of the AO was upheld and assessee's ground of appeal is dismissed. 85.3 Aggrieved assessee is an appeal, ld counsel contends that it is undisputed that interest on these FDRs has been accounted and offered to tax j in earlier years. Assessee is liable to tax at uniform rate, thus there is no occasion of any loss to the revenue. Besides the appeals of earlier years are also pending, it is not the case of revenue that they want to tax the same income twice. In this background in any case appellate authorities will be pleased to either delete the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgments the addition is deleted, this ground of the assessee is allowed. 88. Ground no.6 -Bank of Baroda entry not offered by the assessee: 88.1 On special auditor's indication AO asked the assessee to explain that while verifying Form 16A it is found the assessee has not offered income of Rs. 82,83,607.77/- in the books as per the 26AS available. A sum of Rs. 22,29,675/- being TDS deducted has also not been claimed on the above income. The details of the same are as under: Particulars/Section Amount as per details enclosed in the letters: TDS claimed as per details enclosed in the letter 193 3501179.00 793368.00 194A 4512301.77 1403465.00 194C 55000 1246 194D 79190 17594 194H 110937 11427 194.1 25000 2575 Total (Rs.) 8283607.77 2229675.00 88.2 The assessee offered following comments were offered: (1) At SI. No. 48 a sum of Rs. 7,93,368/- has been reported where deductor is Mahindra & Mahindra and the relatable income to this TDS is Rs. 35,01,179/ The said amount also finds place at Sl. No. 47 of the list meaning thereby that it is loaded in the list at two places. As regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company as downloaded, a copy of which is enclosed herewith. (4) As regards Sl No.619 to 622, TDS Certificates were not made available to us by the bank although relatable income sands offered for assessment. Now, we have obtained TDS certificates and, therefore, it is proved that credit thereof may kindly be allowed which amount of TDS totals to Rs. 1,323/-. The income relatable thereto is verifiable in the details of interest accrued on bank deposits which has been filed before your honour (Enclosed T.D.S. Certificate as Annexure-26). (5) As regards Sl No. 90, income from FDR of PNB stand offered to tax in F.Y.2007-08 and T.D.S. thereon also stands claimed in F.Y. 2007-08 because the income relate to F.Y. 2007-08 only (Enclosed is relevant portion of return of A. Y. 2008-09 Annexure-27). (6) As regards Sl. No. 717 to 721; Indusind Bank limited the observation of auditor are totally incorrect in as much as the income stands offered and T.D.S Certificate stands claimed in F.Y. 2008-09 relevant to year under assessment and T.D.S Certificate is made at SI. No. 374 to 378 in Return of Income. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; As regards Sl. No: 66, Bank of Rajasthan Limited the claim of TDS of Rs. 119/- has not been made because TDS certificate is not available with us. However total income from Bank of Rajasthan Limited stands offered to to and it is requested that the claim of T.D.S be allowed to us. (12) As regards. Sl. No. 462 to 473, 475 to 486 and 488 to 499 Bank of Baroda, it has been apprehended that Bank of Baroda had deducted certain TDS / bank, charges etc. due to which assessee could not account for income of Rs. 20,31,750/-. Assessee is offering the same to tax with the request TDS deducted thereon Rs. 418,541/- and Rs. 41,854/- may also be allowed to the assessee. Bank has not provided these certificate to us. We have also written a letter to the bank for providing TDS Certificate (Copy of which is enclosed as Annexure-33). As regards Sl. No.500 to 501, Bank of Baroda the income mentioned appears incorrect also we could not find out detail of TDS of Rs. 5,69,571/- (13) As regards, Sl. No. 786, ICICI Bank Limited the TDS certificate is not avai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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