Income Tax Appellate Tribunal - Jaipur
State Bank Of Bikaner & Jaipur vs Deputy Commissioner Of Income Tax on 29 October, 1998
Equivalent citations: (1999)65TTJ(JP)480
ORDER
R.K. Gupta, J.M.:
These are three appeals by assessee against the order of the Commissioner (Appeals). These appeals pertain to asst. yrs. 1989-90, 1991-92 and 1992-93. Since all the three appeals relate to one assessee, they are disposed of by this consolidated order.
2. Ground No. 3 of asst. yrs. 1991-92 and 1992-93 are similar which is against confirmation of disallowance of claim of the appellant regarding bad debt which assessee has claimed under section 36(1)(vii). This ground for both the years, we will take first for disposal.
3. Brief facts regarding this issue are that assessee claimed bad debt amounting to Rs. 22,96,07,906 and Rs. 23,26,40,735 relating to asst. yrs. 199192 and 1992-93 under section 36(1)(vii), respectively. During the assessment year 1991-92 the assessee originally claimed bad debt amounting to Rs. 22,81,00,485. Later on this claim was raised to Rs. 22,96,07,907 vide letter dated 30th Jan., 1992- The assessee was required to explain that bad debts actually written off during the year out of the sums already allowed as deduction in the preceding years under section 36(1)(vii) and 36(1)(viia). The appellant was also required to specify the basis for making the provisions for bad and doubtful debts. The intention of the assessee was also invited for allowing deduction under section 36(1)(viia) instead of s. 36(1)(vii) as it seemed to the assessing officer from the account that the bad debts had been actually written off during the year. It was explained that the irrecoverable portion of debts determined on the basis of the procedure prescribed was written off by debiting the P&L a/c and crediting the provision for bad and doubtful debts. It was also further submitted that by making such entries in the accounts, the assessee had made full compliance of the provisions of s. 36(1)(vii) and was entitled for deduction under that section. It was also explained that debiting bad debt entries in P&L a/c tentamounted to 1 write off'. The reliance was also placed on the decision of the Tribunal in assessee's own case for asst. yrs. 1977-78 & 1979-80. The explanation given by assessee was not to the satisfaction of the assessing officer. He was of the view that the decision of the Tribunal relied upon by the assessee was for the years when the provisions of new cls. (viia) of s. 36(1) were not inserted by the Finance Act. It was also observed by the assessing officer that the Tribunal had not given any specified finding regarding the accounting entries and that it had issued directions to the assessing officer to examine the position regarding the disputed debt at the beginning of the year and the changes that took place during the relevant accounting period which prompted the assessee to conclude that the same had become bad.
It was also observed by the assessing officer that assessee had not written off the bad debts in the accounts of the debtors (loanees) and that it violated the guidelines issued by the Reserve Bank of India (RBI) in this regard. The assessing officer dealt with the provisions of the cls. (vii) and (viia) of s. 36(1) on pp. 9 and 10 of the assessment order for assessment year 1991-92. It was held by the assessing officer that cl. (viia) was inserted specifically to cover the cases of banks and to allow them benefit of deduction even when they merely creates provisions for bad and doubtful debts. The assessing officer disallowed the claim of the assessee of bad and doubtful debts claimed under section 36(1)(vii). However, the assessing officer allowed a deduction of Rs. 2,62,12,441 under the cl. (viia). This deduction was not claimed by the assessee because assessee has claimed the deduction under cl. (vii) of s. 36(1).
4. The assessee disputed the findings of the assessing officer before the Commissioner (Appeals) and it was vehemently argued that both the clauses i.e. (vii) and (viia) of s. 36(1) are independent and, therefore, the assessee was free to take the advantage of any one and he rightly claimed the deduction under section 36(1)(vii). Therefore, there was no reason to disallow the claim of the assessee.
The reliance was placed on Vithal Das H. Dhanahai Bardanwala v. CIT (1981) 21 CTR (Guj) 190 : (1981) 130 ITR 95 (Guj), CIT/CEPT v. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom), Sarangpur Cotton Mfg. Co. Ltd. v. CIT (1982) 31 CTR (Guj) 247 : (1983) 143 ITR 166, (Guj), and CIT v. Srionayaga Pictures (1986) 54 CTR (Mad) 182 : (1986) 161 1TR 65 (Mad). The reliance was also placed on Circular of Board dated 14-9-1979, to show that the deductions under the said two clauses were distinct and independent of each other. The detailed submissions regarding the claim were also submitted before the Commissioner (Appeals). After considering the details filed by the assessee and other materials on record, the Commissioner (Appeals) was of the view that assessee is not entitled to claim the deduction under section 36(1)(vii). It was only eligible under section 36(1)(viia) but no such 'I am was made by assessee under section 36(1)(viia). Therefore, the deduction allowed by the assessing officer were curtailed by the Commissioner (Appeals). While disallowing the claim of the assessee, the Commissioner (Appeals) has discussed in great details in his order from pp. 11 to 53. While discussing in detail the Commissioner (Appeals) has also given his finding that no written off was done by the assessee as the amounts are shown in the name of the respective parties to whom the loans were advanced by the assessee. The appeal for assessment year 1992-93 was also rejected by the Commissioner (Appeals) by following the decision for assessment year 1991-92 on this issue.
5. Now the assessee is in appeal here before us for both the years regarding this issue.
6. Shri Dinesh Vyas, Shri B.C. Bhandari and Shri P.K. Kashwal appeared on behalf of the assessee and Shri N.S. Dayam the Senior departmental Representative appeared on behalf of the department. The detailed submissions and arguments were put forth by both the parties. The reliance was placed on various decisions of the various High Courts of the country. The reliance was also placed on various decisions of apex Court.
7. We have heard the rival submissions and considered the material placed here before us. We have also perused the order of the authorities below and various case law as relied upon by both the parties. Before stepping in further, we would like to mention the, respective provisions of law of s. 36(1)(vii) and 36(1)(viia) hereunder :
36(1)(vii)-subject to the provisions of sub-section (2), the amount of (any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year.
36(1)(viia)in respect of any provision for bad and doubtful debts made by
(a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank, an amount not exceeding five per cent of ' the total income (computed before making any deduction under this clause and Chapter (VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner;
(b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter (VIA);
(c) a public financial institution or a State Financial Corporation or a State Industrial Investment Corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A).
Now we will see the Board's Circular dated 14-6-1979. Para 13.3 of the circular which says as under .
"13.3. It may be relevant to mention that the provisions of new clause (viia) of s. 36(1) relating to the deduction on account of provisions for bad and doubtful debts is distinct and independent of the provisions of s. 36(1)(vii) relating to allowance of the bad debts. In other words, the scheduled commercial banks would continue to get the full benefit of the write off of the irrecoverable debts under section 36(1)(vii) in addition to the benefit of deduction of the provision for bad and doubtful debts under section 36(1)(viia). "
The Board's Circular dated 12-6-1987, para 17.1 to para 17.4 which says as under :
'1985 : The present proviso to the clause was inserted by the Finance Act, 1985 with effect from 1-5-1985. The scope and effect of the amendment was explained by the Board in the following circular :
'Deduction in respect of provisions made by banking companies for bad and doubtful debts.
17.1. Sec 36(1)(vii) of the Income Tax Act provides for a deduction in the computation of taxable profit of the amount of any debt or part thereof which is established to have become a bad debt in the previous year. This allowance is subject to the fulfilment of the conditions specified in sub-section (2) of s. 36.
17.2. Sec. 36(1)(viia) of the Income Tax Act provides for a deduction in respect of any provision for bad and doubtful debts made by a scheduled bank or a non scheduled bank in relation to advances made by its rural branches, of any amount not exceeding one and a half per cent of the aggregate average advances made by such branches.
17.3. Having regard to the increasing social commitments of banks, s. 36(1)(viia) has been amended to provide that in respect of any provision for bad and doubtful debts made by a scheduled bank (not being a bank approved by the Central Government for the purposes of s. 36(1)(viia) or a bank incorporated by or under the laws of a country outside India) or a non-scheduled bank, an amount not exceeding ten per cent of the total income (computed before making any deduction under the proposed new provision) or two per cent of the aggregate averages advances made by rural branches of such banks, whichever is higher, shall be allowed as a deduction in computing the taxable profits.
17.4. Sec. 36(1)(vii) of the Act has also been amended to provide that in the case of a bank to which s. 36(1)(viia) applies, the amount of bad and doubtful debts, shall be debited to the provision for bad and doubtful debts account and that the deduction admissible under section 36(1)(vii) shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account."
While going through the provisions of law of s. 36(1)(vii) and 36(1)(viia) and Board's circulars dated 14-6-1979, and 12-6-1987, we noted that the meaning of both the clauses i.e. 36(1)(vii) and 36(1)(viia) are separate and they are distinct and independent. There is no dispute that assessee had claimed the disallowance under section 36(1)(vii) and not under section 36(1)(viia). The Board itself clarified the position that both the clauses are distinct and independent: It clearly shows that the assessee can claim the deduction in any of the clauses or in both the clauses because both the clauses are distinct and independent. Therefore, there is no bar on assessee to claim the deduction under both the clauses or under any one of them which suits to the assessee.
8. The legal position is also clear in case of C.S. Mathur v. Central Board of Direct Taxes (1998) 99 Taxman 142 (Del) wherein the Hon'ble Delhi High Court has observed as under :
In view of the Supreme Court's decision in the cases of CIT v. Indian Engg. & Commercial Corpn. (P) Ltd. (1993) 112 CTR (SC) 56 : (1993) 201 ITR 723 (Sd) and CCE v. Indian Petro Chemicals 1997 (11) SCC 318, the petitioner was correct in his submission that if his case was covered by ss. 80-0 and 8ORRA, both, then too he would be legitimately entitled to the benefit of that provision of the tax law which enabled a larger benefit to him.
The theory of implied repeal advanced by the Revenue had to be accepted with a caution. The inference of implied repeal cannot be drawn as it is to be necessarily spelled out. And certainly there is no express repeal of s. 80RRA, even partially.
The Parliament was well aware of the two provisions in the statute book. It was also aware of the law laid down by the High Court and the Supreme Court in the case of Aditya V. Birla (supra), Nothing prevented the Parliament from making a specific provision of repeal so as to get rid of the situation created in the field of law by the decision of the Supreme Court in Aditya V. Birla (supra). It cannot be said that the amendment introduced in s. 80-0 by the Finance (No. 2) Act, 1991, is so inconsistent with the provisions of s. 80RRA as to rebut the presumption against implied repeal. It cannot be said that s. 80-0 has either impliedly repeated s. 80RRA or the former has an overriding effect on the later provision to the extent to which it confers a similar benefit on the assessee like the petitioner. The theory of extending and conferring on the assessee the higher of the two benefits spelled out by the two provisions would apply. The petition was, therefore, allowed. Impugned order refusing the grant of approval under section 80RRA was to be quashed and set aside."
The decision of the Hon'ble Delhi High Court was pronounced by the Hon'ble Judges after considering the ratio of the decision of the apex Court and legal view in very clear that assessee is entitled to benefit of that provision of the tax laws which enabled a larger benefit to him. In the present case the assessee claimed deduction under section 36(1)(vii) as this clause was more beneficial to the assessee as compared to clause 36(1)(viia). As we have already stated that the provisions are very clear and there is no bar to claim the deduction under any of the clauses out of the two clauses as above. We have also seen other case law and also considered the arguments of both sides and after perusing the various case law, we find that the assessee's claim is allowable as the claim was rightly claimed.
9. One of the most leading commentator i.e. Kanga and Palkiwala has also discussed this aspect in the Commentry of Kanga & Palkiwala at p. 4 of Vol. I of 8th Edn., wherein it is mentioned that "the sections in the Act do not overlap one another., each section deals only with the matter specified therein and goes no further, and each section completely covers the matter with which it deals. As far as possible the Act should be construed in such a way as to reconcile the various provisions to unravel apparent conflict into harmony, bearing in mind that a general provision cannot derogate from a special provision regarding a certain class of cases. If a case appears to be governed by either of the two provisions, it is clearly the right of the assessee to claim that he should be assessed under that one which leaves him with a lighter burden. If the assessee's income falls under two exempting sections, he is entitled to rely on both sections unless they are expressly or by necessary implication made mutually exclusive, and he may claim exemption under either of them even if he does not fulfil the conditions of the other." These observations further finds support by various case laws such as CIT v. Saran Singh Ramsingh (1946) 14 ITR 152 (Lah), Ram Rakhamal & Sons Ltd. v. CIT (1937) 5 ITR 137 (Lah), CIT v. Bosotto (1940) 8 ITR 41 (Mad) and JK. Thakkar v. CIT (1955) 27 ITR 658 (Bom). Therefore, we are of the considered view that the assessee is entitled to deduction claimed under section 36(1)(vii).
10. Now we will see the dispute regarding writing off of the bad and doubtful advances from the respective accounts. Regarding this, we would like to mention here that there was an amendment in the statute with effect from 1-4-1989, and by Circular No. 551, dated 23-1-1990 ((1990) 82 CTR (St) 325 : (1990) 183 ITR (S0 71 the Board has clarified the position which is stated in para 6.6 of the circular which is reproduced here as under :
"6.6 Amendments to ss. 36(1)(vii) and 36(2) to rationalise proivisions regarding -Allowability of bad debts.-The old provisions of cl. (vii) of sub-section (1) r/w sub-section (2) of the section laid down conditions necessary for allowability of bad debt. It was provided that the debt must be established to have become bad in the previous year. This led to enormous litigation on the question of allowability of bad debt in a particular year, because the bad debt was not necessarily allowed by the assessing officer in the year in which the same had been written off on the ground that the debt was not established to have become bad in that year. In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and also to rationalise the provisions, the Amending Act, 1987 has amended cl. (vii) of sub-section (1) and cl. (i) of sub-section (2) of the section to provide that the claim for the bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee."
By going through the clarification given by Board, we find that assessee can claim the deduction on account of bad and doubtful advances and whenever they will be recovered, it will be added in the year when the same is received back. This is important to note here that during this year the assessee has added about Rs. 1 crore for the purpose of taxation because the same was recovered from the respective parties which were earlier claimed deduction on account of bad and doubtful advances. Therefore, now it is something meaningless that they have really written off from the respective account or not. However, we noted that assessee claimed this deduction after fulfilling all the conditions of the provisions of law. A copy of submissions filed before the Commissioner (Appeals) is placed in the paper book No. 2 and whereby it is very much clear that assessee has fulfilled all the formalities for claiming bad and doubtful advances. We also noted that there is a procedure for claiming such deductions and there is a strict scrutiny by the Management and Board of Directors of the Bank and, therefore, it is not possible that assessee has not fulfilled or complied with the requirements of the provisions or of the procedures.
11. In case of Sarangpur Cotton Mfg. Co. Ltd. v. CIT (supra) and in case of Vithal Das H. Dhanji Bhai Bardanwalla (supra) the Hon'ble Gujarat High court has held that once the assessee has posted entries in the P&L A/c and corresponding entries are posted in the bad debt reserve account, that would be sufficient compliance with the provisions of the statutory requirement for writing off as irrecoverable the concerned debt in the books of the assessee. We have also seen other case law wherein similar finding has been given and the claim of the assessee has been allowed.
12. In the case of State Bank of India v. LAC (1985) 23 TTJ (Cal) 492 : (1985) 13 ITD 550 (Cal), the Tribunal in para 10.5 has observed as under :
"10.5. There is no statutory method of 'write off' indicated in the Act. The concept of 'write off' has, therefore, to be understood in the sense of commercial accountancy and, according to it, the amount of a debt is debited to the P&L a/c. The corresponding credit can be given to the debtor's account or to any other account, say, to reserve for bad and doubtful accounts. In the present case, the corresponding credit regarding 'write off', as noted earlier, has been given to reserve for bad and doubtful debts account which in turn is deducted from the debtor's account before taking the final figure of the debtor's account to the balance sheet of the bank. The aforesaid procedure of write off has met with judicial approval as will be clear from the facts and the ratio of the following cases : Vithaldas H. Dhanlibhai Bardanwala v. CIT (1981) 21 CTR (Guj) 190: (1981) 130 ITR 95 (Guj), CIT v. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom) and Sarangpur Cotton Mfg. Co. Ltd. v. CIT (1982) 31 CTR (Guj) 247 (1983) 143 ITR 166 (Guj.)".
We find that the bank as per procedure adopted has written off the irrecoverable portion of debts by making provision by debiting to P&L a/c and crediting the same to provisions for bad and doubtful debts account. The only deficiency or discrepancy which can be pointed out i.e., that an entry in the name of respective parties is standing in the books of account. We find, that the entry appearing in the books of account is with a purpose that if the entry is squared up by writing off the bad and doubtful advances from the respective account of the parties then it will be difficult for assessee to manage the affairs and to take legal action against that party. If one has to initiate proceedings against any one then there should be an evidence and in showing an entry in the books of account, it indicates that some amount is outstanding as recoverable from some one. Therefore, we do not find any weight in the contention of the department that the advances has not become bad as they were not written off from the respective account of the parties. Therefore, also the claim of the assessee is allowable and accordingly we allow this ground of the assessee.
13. Ground No. 1 in all the three appeals is common which is against the sustenance of addition on account of interest on security/debentures on accrual basis.
Brief facts of the case are that appellant in its books of account has shown income from interest on Government and other trust securities and interest on debentures. The interest and dividend income had been accounted for in the books of account by the appellant on accrual basis. This is also not in dispute that the interest income was accounted for and taken into books of account by the appellant on accrual basis following the mercantile system of accounting.
However, in computation, the assessee has shown lesser income as he had reduced its income by the amount which was not accrued during the year. Secs. 18 to 21 were deleted from statute w.e.f, 1-4-1989 and in view of the same. The assessing officer issued a show-cause notice that why the income which is reduced by the assessee while computing its income should not be treated as the income of the year as this has already been accrued. A detailed reply was filed and it was stated that there is no impact on assessee on account of deletion of ss. 18 to 21 from the Statute because now the income from interest on securities, etc. arepart of income from business or profession and, therefore, there is no material change on statute for computing the income. The assessee was also required to explain that why the income should not be computed as per s. 145. In response to query, it was explained that s. 145 is a machinery section and chargeable income is explained by ss. 4 and 5 of the statute. Therefore, the method of assessee for computing the income is correct. The assessing officer was not satisfied and he rejected the claim of the assessee and enhanced the income of the assessee by disallowing the claim of the assessee which was on account of non-accrual of the income. It was agitated before the Commissioner (Appeals) and the same submissions were submitted before the Commissioner (Appeals). The reliance was placed on various case law.
14. After consideration the material on record and considering the ratio of various case law, the Commissioner (Appeals) was in agreement with the finding of the assessing officer. Therefore, for the reasons given by the assessing officer the order of the assessing officer was confirmed by the Commissioner (Appeals) on this point.
15. Now the assessee is in appeal here before us for all the three years on this point.
16. Shri Dinesh Vyas, Advocate, who mainly argued the appeal on behalf of the assessee, strongly submitted that the authorities below were not correct in disallowing the claim of the assessee. It was submitted that s. 5 is a charging section and there was no amendment in the charging section. He further submitted that s. 145 cannot and does not enlarge the scope of charging s. 5 as s. 145 is a machinery section. It was further submitted that there is no impact on assessee on account of removing the ss. 18 to 21 from the statute from assessment year 1989-90 because there is no change in the charging s. 5. On this point the reliance was placed on a decision of Supreme Court in case of E.D. Sassoon & Co. Ltd. & Ors. v. CIT reported in (1954) 26 ITR 27 (SC). Reliance was also placed on Kedar Nath Jute Mtg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC), N. Selva-ralulu Chetty & Co. (India) v. CIT (1965) 56 ITR 29 (Mad), Sutlej Cotton Mills Ltd. v. CIT 1978 CTR (SC) 155 : (1979) 116 ITR 1 (SC), Seth Pusha Lal Mansinsghka (P) Ltd. v. CIT (1967) 66 ITR 159 (SQ), Bhogilal Laherchand v. CIT (1955) 28 ITR 919 (Bom) and CIT v. Canara Bank (1991) 100 CTR (Kar) 207 (1992) 195 ITR 66 (Kar). It was further submitted that in past the claim of the assessee was never denied and the method adopted by the assessee is a consistent method and the position during the years under consideration are same. It was further stated that in fact department wants to prepone the taxability which is not permissible in law. It was further stated that even otherwise there is no loss of revenue because the assessee himself has shown the income in subsequent years. A copy of order passed by Commissioner (Appeals), Mumbai was filed. However, the learned counsel for the assessee fairly conceded that order of the Commissioner (Appeals) is not binding on the Bench. However, it is important to mention because the order of Commissioner (Appeals), Mumbai, is passed after considering the various case law pronounced by the apex Court as well as other High Courts of the country. The reliance was also placed on Dy. CIT v. Nagarjuna Investment Trust Ltd. (1998) 62 TTJ (Hyd) (SB) 33 : (1998) 65 ITD 17 (Hyd) (SB) wherein the scope of s. 145 is well explained.
17. On the other hand, the learned departmental Representative strongly placed reliance on the decision of the Commissioner (Appeals). It was further stated that the income was rightly computed by the assessing officer by adopting the provisions of s. 145 and on this point reliance was placed on Morvi Industries Ltd. v. = 1974 CTR (SC) 149.. (1971) 82 ITR 835 (SQ) and CIT v. Moon Mills Ltd. (1966) 59 ITR 574 (SC).
18. In counter reply the learned counsel submitted that the facts of the case in 1974 CTR (SC) 149 : (1971) 82 1TR 835 (SQ) (supra) is distinguishable and the ratio of the decision in (1966) 59 1TR 574 (SQ) (supra) is helping to the case of the assessee.
19. We have heard the rival submissions and considered them carefully. We have also perused the material on which our attention was drawn. We find that a copy of written submissions filed before the Commissioner (Appeals) is placed on paper book from pp. 1 to 17. After perusing the written submissions, we find that assessee has explained in detail. Some portions of the reply which were filed before the assessing officer and again before the Commissioner (Appeals) is reproduced here as under .
'It is relevant to mention here that interest on securities is not accrued on day to day basis and the assessee Bank does not have any right or claim over the interest on such securities till it becomes due. It may also be mentioned here that at the time of issue of a particular security, the terms of the issue specifically provide when the interest will become due. Generally the interest on securities becomes due on six monthly basis. Thus the income from interest on securities becomes the income of the bank only when it becomes due. It is submitted that the bank becomes entitled for the interest only during those days which are specified at the time of issue of those securities and the bank cannot claim nor it becomes entitled to the interest earlier than those specified dates.
It may be relevant to mention that if the Bank sells the securities prior to the due date, the holder of the security would be entitled to the interest for the entire period and the issuing authority will make the payment of interest to the holder of the security. In that case the Bank shah have no right or claim whatsoever for the interest of the broken period.
For this reason the interest of a period which has not become due cannot be considered as income. However, for the accounting purpose, as stated hereinabove, because of the requirements of the Banking Regulation Act, the interest on securities is provided on accrual basis. In fact such adjustment entry is in the nature of 'price of expectancy of interest' and is nothing but a notional entry and cannot be treated as income for the purpose of Income Tax Act, 196 1. "
After considering the reply and the order of the authorities below, we are of the view that the position of the claim is very clear. The assessee accounted for the receipts which were received or accrued till the date of ending of the year on which the assessee closed its books of accounts. Only those receivable receipts were not taken into account because their accrual date was after the close of the accounting year. Therefore, it seems that assessee has rightly taken into account those very receipts. In our considered view the omission of ss. 13 to 21 do not come in the way of the claim of the assessee because these sections are not charging sections. Charging section is s. 5 in which the chargeability of income is explained. There is no charge in s. 5. Therefore, the income has to be computed as per the provisions of s. 5 and then s. 28 to 41C because from assessment year 1989-90 the interest on securities and debentures is now treated as income from business and profession as the case may be. Applicability of s. 145 is well explained by the Special Bench of the Hyderabad Bench of the Tribunal in case of Dy. CIT v. Nagarjuna Investment Trust Ltd. (supra) wherein it was held that:
"(i) That the provisions of s. 145 cannot override s. 5. If an income has neither accrued nor received within the meaning of s. 5, whatever s. 145 may say, such income cannot be charged to tax even though a book keeping entry has been made recognising such hypothetical income which in law and on fact did not really accrue or arise or received in previous year. Sec. 145 determines the mode of computing the taxable income. It does not affect the range of taxable income or the ambit of taxation. The computation provisions cannot enlarge or restrict the content of taxable income. The range of taxable income or ambit of taxation is to be determined in accordance with the charging provisions.
(ii) The proviso to s. 145(1) does not merely confer a discretionary power upon the assessing officer but also imposes a statutory duty on him to examine in every case whether income, profits and gains chargeable to tax in the relevant year, could properly be deduced from the method of accounting followed by the assessee.
For tax purposes, the accrual or receipt of income in the relevant previous year, in the instant case, will have to be determined in consonance with the ambit of taxable income as per s. 5 on the basis of a careful scrutiny of the terms of contract for hire-purchase and lease agreements regardless of the method of accounting followed by the assessee for recognition of such income in its books of account."
In the instant case also the assessee accounted for the receipts in its books of account as per direction of RBI and while computing the income the assessee reduced the receipts which were not really received or receivable during the accounting year. Under s. 145 the assessee's regular method of accounting determines the mode of computing the taxable income but it does not determine or even effect the range of taxable income or the ambit of taxation. The provision for computation of income contained in this section cannot derrogate from the provisions of charging section. In other words, the charge on income accruing or received in India, imposed by s. 5 cannot be avoided by any method of accounting. Similar issue was before the Hon'ble Karnataka High Court. The Hon'ble Karnataka High Court in case of CIT v. Canara Bank (supra) held that :
"That, in the case of interest on securities, the income fructifies to the assessee only when the securities yield interest and, only in such a situation is s. 18 attracted. In the instant case, the interest could be claimed by the assessee only by 31st March, or at any rate subsequent to the date of accrual stated in the accounts of the assessee for the purpose of its accounting. The Tribunal was right in law in deleting the addition of Rs. 12,16,33,177 which was interest relatable to the period ending on 31-12-1981, but which was payable after 31-12-1981. No question of law arose from the order of the Tribunal.
Therefore, we find that the claim of the assessee is an allowable claim.
20. In case of CIT v. Shooffi Vallablidas & Co. (1962) 46 ITR 144 (SC), the Hon'ble Supreme Court has held that If income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about a "hypothetical income", which does not materialise. "
21. In case of E.D. Sassoon & Co. Ltd. & Ors. v. CIT (supra), the Hon'ble Supreme Court has held that :
"Unless and until the assessee acquires a right to receive income, the income cannot be said to have been accrued to him."
In the present case the assessee has not acquired the right to receive the income. For example, if assessee sells its stock-in-trade which is in the shape of Government securities, etc. then he is not entitled to receive the interest which is receivable on due date and due date comes after the close of the accounting year. Therefore, the contention of the assessee is bona fide and in our considered view as we have already stated that assessee deserves to succeed.
22. In case of Kedarnath Jute Mfg. Co. Ltd. (supra) the Hon'ble Supreme Court has held that :
"Whether the assessee is entitled to a particular deduction or not will depend upon the provisions of law relating thereto and not on the view which the assessee might take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter."
23. In case of Seth Pushalal Mansinghka (P) Ltd. v. C1T (supra), the Hon'bie Supreme Court has observed that the words "accrue" and "arise~' do not mean actual receipt of the profits or gains. Both these words are used in contradistinction to the word "receive" and indicate a right to receive. If the assessee acquires a right to receive the income, the income can be said to accrue to him, though it may be received later, on its being ascertained. "
24. After considering the ratio of these valuable decisions, we find that these all supports the case of assessee. We have also considered the ratio of the decision in 1974 CTR (SC) 149: (1971) 82 1TR 363 (SC) and (1966) 59 1TR 574 (SC) (supra). After reading the ratio of these decisions, we do not find that the claim of the assessee is not allowable claim. The facts of these cases were different and the facts of the instant case are different. The claim of the assessee is very plain as we have already said that the assessee has not attained the right to receive the receipts which were receivable on a date which falls after the date of close of the accounting year. We have also noted that assessee has himself shown those receipts in its P&L a/c in subsequent years. Therefore, also, we find that there is no loss of revenue at all and the method adopted by the assessee is a consistent method. Therefore, this ground of the assessee for all the three years is allowed.
25. Ground No. 2 in ITA No. 5/JP/1992 is against the sustenance of addition under section 32AB wherein the Commissioner (Appeals) has held that a sum of Rs. 6,66,798 and Rs. 3,90,512 were not utilised for purchase of computers and, therefore, deduction under section 32AB was not available on the said amounts.
26. Brief facts on this point are that during the year under consideration the appellant- assessee had claimed under section 32AB to the tune of Rs. 5,61,51,566. Out of the total claim made, an amount of Rs. 77,61,702 was claimed to have been utilised for computers. On perusal of the details of these expenses, the assessing officer found that a sum of Rs. 6,66,798 were spent on site preparation and Rs. 3,90,512 were spent on other misc. items for installation of computers. In view of the assessing officer the deduction under section 32AB was not available to the assessee on these two amounts because s. 32AB says that the deduction was allowed for any amount utilised during the previous year for the purchase of new machinery or plant. Therefore, in view of these provisions the assessing officer declined the deduction under section 32AB. The Commissioner (Appeals) also confirmed the action of the assessing officer.
27. At the time of hearing here before us, the learned counsel of the assessee argued that the department has picked up the installation expenses and those very expenses were disallowed for the purpose of deduction under section 32AB otherwise major expenses made by the assessee on installation of computers, etc. were allowed. It was argued that computers were fitted in a plant and, therefore, the expense made on preparation of site plan has to be allowed for the purpose of s. 32AB. Reliance was placed on Inspecting Assistant Commissioner v. Kakkar Complex Steels (P) Ltd. (1983) 6 lTD 174 (Asr), Addl. CIT v. Madras Cement Ltd. 1977 CTR (Mad) 5 (1977) 110 ITR 21 (Mad) and CIT v. Pure Ice Cream Co. (1981) 129 ITR 394 (Del).
28. On the other hand the learned departmental Representative strongly relied on the order of the authorities below.
29. After considering the material available on record, we find that the assessee deserves to succeed because there is no dispute that assessee had purchased computers and they were installed at a place which was prepared for installation of computers. The department has allowed the deduction under section 32AB of the amount which was spent on power system, air conditioners, computers, advance ledger for posting, but they only picked the amount for disallowing the claim which was spent on site preparation and others. In our considered view, these expenses were made for installation of computers. Therefore, they should be treated as expenses on plant and machinery and the expenses should have also considered for the purpose of deduction under section 32AB,
30. In the case of Addl. CIT v. Madras Cement Ltd. (supra), the Hon'ble Madras High Court has held that "the dictionary meaning of the word "plant" comprehends buildings employed in carrying on trade or other industrial business and hence the special reinforced concrete foundation for the purpose of locating or installing the rotary kiln in the assessee's factory would come within the scope of the expression "planC and would be entitled to depreciation and development rebate.
31. In another case (1981) 129 ITR 394 (Del) (supra) the Hon'ble Delhi High Court has held :
"That the construction of the cold storage room was an essential part of the machinery without which the machinery could not effectively work and ice cream could not be produced. So far as the expenditure incurred on cold storage room, platform for machinery, observation tower and cooling tower were concerned, the expenditure was incurred towards the installation of plant and machinery and development rebate and depreciation at the rate of 15 per cent as applicable to plant and machinery was allowable on these items."
32. In case of MC v. Kakkar Complex Steels (P) Ltd. (supra), Arnritsar Bench of the Tribunal has held that "The expenditure incurred on the structures built for its crane and the transformer was to be treated as part of cost of machinery. Alternatively, the constructions could be treated as 'Plant'. In either view, investment allowance would be admissible on the impugned expenditure."
33. After perusing these valuable decisions, we find that all these decisions supports the case of the assessee. In the instant case the assessee prepared site for installation of computers and the computers were fitted on that very site. Therefore, in our considered view these expenses are also allowable for the purpose of deduction under section 32AB. The other expenses which were spent for the purpose of installation of these very computers are also allowable for the deduction under section 32AB. The department should have considered the totality of the circumstances and then they should have decided the issue. In the present case the department adopted the method of choose and pick and then allowed the claim of the assessee accordingly. They have not considered the totality of circumstances. The totality of circumstances is that the assessee spent the amount for preparing the site which was used for installation of computers. Therefore, in our considered view the assessee is entitled for the claim under section 32AB and we allow this ground of the assessee accordingly.
34. Ground No. 3 in ITR No. 5/Jp/1992 is against the confirmation of disallowance of Rs. 8,796 made under r. 613 of the IT Rules. The assessing officer made disallowance of Rs. 8,796 on the basis of audit report. The Commissioner (Appeals) confirmed the order of the assessing officer. Here, before us, the learned authorised representative of the assessee stated that this deduction is allowable deduction as this is not covered by r. 6B because these expenses are not in nature of entertainment as they were spent on presentation items to the directors of the assesseecompany. It was further stated that the similar issue has been decided by the Tribunal of Jaipur Bench in case of Mangalam Cement Ltd. v. Dy. CIT (1992) 43 lTD 292 (Jp).
35. On the other hand, the learned departmental Representative placed reliance on the order of the authorities below.
36. After considering the material on record, we find that similar issue was decided by the Tribunal in case of Mangalam Cement Ltd. v. Dy. CIT (supra) wherein it was held that "presentations were obviously given to persons by way of goodwill or to ensure smoothness and facility in dealings and in that sense of the term such expenditure was expedient in the interest of assessee's business and could be said to have been laid out or expended wholly and exclusively for the purposes of assessee's business without amounting to entertainment expenditure." The dispute is similar in the present case. Therefore, for the same reasoning as given in the case of Mangalam Cement Ltd. (supra), we allow this ground of the assessee.
37. There is no other ground in ITA No. 5/Jp/1992. Therefore, this appeal is accordingly disposed of. Now we will take up other grounds in other two appeals in ITA Nos. 1060 and 1061/2/1994.
38. Ground No. 2 in both these appeals are against the sustenance of disallowance of expenses under section 37(4). These expenses were made by the assessee on guest house maintained by the assessee. The Commissioner (Appeals) confirmed the disallowances.
39. At the time of hearing, the learned counsel of the assessee submitted that this issue has been decided by various High Courts of the country and the decision is in favour of the assessee. It was further submitted that this bench of the Tribunal in ITA Nos. 1319 and 1320, dated 17-3-1994, has decided this in favour of the assessee and Hon'ble Rajasthan High Court also decided the issue in favour of the assessee. The decision is reported in Mangal Chand Tubes (P) Ltd. v. CIT (1994) 122 CTR (Raj) 207: (1994) 208 ITR 729 (Raj). Other citations of the cases on which reliance was placed by the authorised representative are CIT v. Chase Bright Steels Ltd. (1989) 75 CTR (Bom) 60 (1989) 177 ITR 124 (Bom), CIT v. A.V. Thomas & Co. Ltd. (1997) 142 CTR (Ker) 364 . (1997) 225 ITR 29 (Ker), Assam Carbon Products Ltd. v. CIT (1997) 140 CTR (Gau) 30 : (1997) 224 ITR 57 (Gau), CIT v. Ahemdabad Mfg. & Calico Printing Co. Ltd. (1992) 105 CTR (Guj) 322 : (1992) 197 ITR 538 (Guj) and Mahindra & Mahindra Ltd. v. Dy. CIT (1997) 58 TTJ (Mum) 567 (TM).- (1997) 61 ITD 129 (Bom) (TM) and Hindustan Lever Ltd. v. L4C (1996) 56 TTJ (Bom) 598: (1996) 58 ITD 555 (Bom). It was further stated that these deductions are allowable as per ss. 30 to 32 of the Act. Therefore, the claim is allowable under respective sections.
40. On the other hand, the learned departmental Representative strongly relied on the order of the authorities below. It was further stated that there is a specific provision in the law and specific provisions will prevail upon the general provisions of law. Therefore, there is no defect in the order of the authorities below.
41. We have considered the rival submissions and also perused the material on record. We find that similar issue came up before the Tribunal and the same was allowed in favour of the assessee.
In case of CIT v. Chase Bright Steel Ltd. (supra) the Hon'ble Bombay High Court has held that the expenditure on rent in respect of guest House was allowable under section 30 and the expenses on repairs and polishing of the furniture In the guest house were allowable under section 31. They could not be disallowed under the provisions of s. 37(3).
In case of CIT v. Ahemdabad Mfg. and Calico Printing Co. Ltd. (supra), the Hon'ble Gujarat High Court has held that :
"The assessee was, admittedly, a tenant of the premises described as residential accommodation in the nature of guest house and employees of the assessee stayed there for temporary periods. The assessee would be entitled to deduction of rent paid by him for such premises under sub-cl. (i) of cl. (a) of s. 30. It would also be entitled to deduction of the cost of repairs to such premises. It was the case of the assessee that an expenditure of Rs. 19,200 has been incurred in paying rent for the said premises described as guest house and Rs. 539 for water connection. Both these items of expenditure would be covered by s. 30(a)(i). The assessee not having claimed deduction under section 37(1), the question of disallowing any part of the said expenditure under section 37(4) did not arise. In other words, the expenditure could not be disallowed under section 37(4). "
In case of Hindustan Lever Ltd. v. Inspecting Assistant Commissioner (supra), the Bombay Bench of the Tribunal has taken a similar view as taken by the Honble Bombay High Court and Gujarat High Court in cases discussed above. While going through these decisions, we find that assessee is entitled for deduction as claimed. However, total break-up is not available here before us. Therefore, the matter is restored back to the file of the assessing officer to verify the claim under specific head i.e., rent, repair and depreciation and then allow the claim accordingly. The assessing officer is directed to call the assessee to explain the details and after verifying those details and in view of the decision cited above, the assessing officer is directed to allow the claim of the assessee accordingly.
42. Ground No. 4 in both the appeals is against the enhancement of the income. The income was enhanced by Commissioner (Appeals) in view of the claim of the assessee under section 36(1)(vii) and deduction under section 36(1)(viia) was not allowed which were allowed by the assessing officer. Therefore, the income of the assessee was enhanced by the Commissioner (Appeals).
43. We have already decided ground No. 3 which was in regard to deduction under section 36(1)(vii), in favour of the assessee. Therefore, this ground has become infructuous now and accordingly this ground needs no adjudication. Therefore, ground in both the appeals is accordingly disposed of.
44. Ground No. 5 which is in regard to interest. This ground is consequential and the consequential relief be granted to the assessee accordingly.
45. In the result, the appeal of the assessee for assessment year 1989-90 i.e. ITA No. 5/Jp/1992 is allowed and appeals for asst. yrs. 1990-91 and 1992-93 are partly allowed.