Ita/74/2014 Of The Commissioiner Of Income Tax v. M/S.kerala State Industrial Development Corporation Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI FRIDAY, THE 05TH DAY OF APRIL 2019 / 15TH CHAITHRA, 1941 ITA.No.69 OF 2014 AGAINST THE JUDGMENT IN ITA 354/COCH/2013 DATED 06-11-2013 OFI.T.A.TRIBUNAL, COCHIN BENCH APPELLANT/APPELLANT/ASSESSEE: M/S. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD.KESTON ROAD, KOWDIAR, THIRUVANANTHAPURAM - 695 003 REPRESENTED BY V.R.USHA, ASSISTANT GENERAL MANAGER (LEGAL). BY ADVS.SRI.T.M.SREEDHARAN (SR.)SMT.DIVYA RAVINDRANSRI.V.P.NARAYANANSRI.M.B.PRAJITHSRI.RAMESH CHERIAN JOHN RESPONDENT/RESPONDENT/REVENUE: THE COMMISSIONER OF INCOME TAX, KOWDIAR, THIRUVANANTHAPURAM - 695 003. R1 BY SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)R1 BY ADV. SRI.P.K.R.MENONSR.COUNSEL GOITAXESR1 BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX OTHER PRESENT: SRI. JOSE JOSEPH, SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON05.04.2019, ALONG WITH ITA.74/2014, ITA.22/2019, ITA.23/2019,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI FRIDAY, THE 05TH DAY OF APRIL 2019 / 15TH CHAITHRA, 1941 ITA.No.74 OF 2014 AGAINST THE ORDER/JUDGMENT IN ITA 354/COCH/2013 DATED 06-11-2013OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/RESPONDENT: THE COMMISSIOINER OF INCOME TAX,THIRUVANANTHAPURAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT: M/S.KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD.,KESTON ROAD, KOWDIAR, THIRUVANANTHAPURAM. R1 BY ADV. SMT.DIVYA RAVINDRAN R1 BY ADV. SRI.V.P.NARAYANAN R1 BY ADV. SRI.T.M.SREEDHARAN SR. R1 BY ADV. SRI.RAMESH CHERIAN JOHN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON05.04.2019, ALONG WITH ITA.69/2014, ITA.22/2019, ITA.23/2019,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI FRIDAY, THE 05TH DAY OF APRIL 2019 / 15TH CHAITHRA, 1941 ITA.No.22 OF 2019 AGAINST THE ORDER/JUDGMENT IN ITA 91/COCH/2014 DATED 02-05-2014OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT/ASSESSEE: M/S. KERALA STATE INDUSTRIAL DEVLEOPMENT CORPORATION LTD.KESTON ROAD, KOWDIAR, THIRUVANANTHAPURAM-695003, REPRESENTED BY SMT.V.R. USHA, ASSISTANT GENERAL MANAGER (LEGAL). KESTON ROAD, KOWDIAR, THIRUVANANTHAPURAM-695003, BY ADVS.SRI.T.M.SREEDHARAN (SR.)SRI.V.P.NARAYANANSMT.DIVYA RAVINDRAN RESPONDENT/RESPONDENT/REVENUE: THE COMMISSIONER OF INCOME TAXAAYAKAR BHAVAN, KOWDIAR, THIRUVANANTHAPURAM-695003. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON05.04.2019, ALONG WITH ITA.69/2014, ITA.74/2014, ITA.23/2019,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI FRIDAY, THE 05TH DAY OF APRIL 2019 / 15TH CHAITHRA, 1941 ITA.No.23 OF 2019 AGAINST THE ORDER/JUDGMENT IN ITA 90/COCH/2014 DATED 02-05-2014OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT/ASSESSEE: M/S. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD.KESTON ROAD, KOWDIAR, THIRUVANANTHAPURAM-695003, REPRESENTED BY SMT.V.R.USHA, ASSISTANT GENERAL MANAGER (LEGAL). KESTON ROAD, KOWDIAR, THIRUVANANTHAPURAM-695003, BY ADVS.SRI.T.M.SREEDHARAN (SR.)SMT.DIVYA RAVINDRANSRI.V.P.NARAYANAN RESPONDENT/RESPONDENT/REVENUE: THE COMMISSIONER OF INCOME TAXAAYAKAR BHAVAN, KOWDIAR, THIRUVANANTHAPURAM-695003. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON05.04.2019, ALONG WITH ITA.69/2014, ITA.74/2014, ITA.22/2019,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.K. ABDUL REHIM, J. &R. NARAYANA PISHARADI , J. ITA.No.23 OF 2019 AGAINST THE ORDER/JUDGMENT IN ITA 90/COCH/2014 DATED 02-05-2014OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT/ASSESSEE: M/S. KERALA STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD.KESTON ROAD, KOWDIAR, THIRUVANANTHAPURAM-695003, REPRESENTED BY SMT.V.R.USHA, ASSISTANT GENERAL MANAGER (LEGAL). KESTON ROAD, KOWDIAR, THIRUVANANTHAPURAM-695003, BY ADVS.SRI.T.M.SREEDHARAN (SR.)SMT.DIVYA RAVINDRANSRI.V.P.NARAYANAN RESPONDENT/RESPONDENT/REVENUE: THE COMMISSIONER OF INCOME TAXAAYAKAR BHAVAN, KOWDIAR, THIRUVANANTHAPURAM-695003. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON05.04.2019, ALONG WITH ITA.69/2014, ITA.74/2014, ITA.22/2019,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.K. ABDUL REHIM, J. &R. NARAYANA PISHARADI , J. ------------------------------------------------- I.T.A Nos.69 , 74 OF 2014, 22 & 23 OF 2019------------------------------------------------- DATED THIS THE 5[th] DAY OF APRIL, 2019 'C.R.' Abdul Rehim, J: J U D G M E N T The assessee, M/s. Kerala State Industrial DevelopmentCorporation Ltd., is an undertaking fully owned by the State ofKerala. The appellants in I.T. Appeal Nos.69/2014 & 74/2014 arethe assessee and the Commissioner of Income Tax, respectively.Challenge in both these appeals are against the same order ofthe Income Tax Appellate Tribunal, Cochin Bench in I.T.A.No.354/COCH/2013, dated 06-11-2013. I.T. Appeals 22/2019and 23/2019 are filed by the assessee against a common orderpassed by the same Tribunal in I.T.A. Nos.90 & 91/COCH/2014,dated 02-05-2014. Substantial question of law raised in all thethree appeals filed by the assessee is whether the disallowancemade with respect to the expenditure incurred in relation toincome derived out of the investments of the assessee during therelevant assessment years, by invoking Section 14A of theIncome Tax Act read with Rule 8D of the Income Tax Rule, is ITA Nos 69, 74/2014, 22 & 23/2019-6- sustainable or not. In other words, whether the dis-allowanceneed to be limited only with respect to investments upon whichthe assessee had actually derived dividend, is the questionraised. The substantial question of law raised in I.T.A.No.74/2014, filed by the Commissioner of Income Tax is, whetherthe demand shown as debit from the 'special reserve' createdunder Section 36 (1) (viii) of the Income Tax Act, as provision tobe maintained with respect to 'bad and doubtful debts', can beconsidered as withdrawal from the 'special reserve', withrespect to which the assessee is not eligible to get exemptionunder Section 41 (4A) of the Income Tax Act. 2.Section 14A of the Income Tax Act, 1961 ('the Act' forshort) provides that, for the purpose of computing total incomeunder Chapter IV of the Act, no deduction shall be allowed withrespect to expenditure incurred in relation to income which doesnot form part of the total income under the Act. Section 10 of theAct under Chapter III provides about the income which do notform part of the total income. Sub-section (34) of Section 10provides that, any income derived by way of dividend referred toin Section 115-O shall not from part of the total income. There isno dispute that the income derived as dividend out of theinvestments made by the assessee is exempted from the purview ITA Nos 69, 74/2014, 22 & 23/2019-7- 2.Section 14A of the Income Tax Act, 1961 ('the Act' forshort) provides that, for the purpose of computing total incomeunder Chapter IV of the Act, no deduction shall be allowed withrespect to expenditure incurred in relation to income which doesnot form part of the total income under the Act. Section 10 of theAct under Chapter III provides about the income which do notform part of the total income. Sub-section (34) of Section 10provides that, any income derived by way of dividend referred toin Section 115-O shall not from part of the total income. There isno dispute that the income derived as dividend out of theinvestments made by the assessee is exempted from the purview ITA Nos 69, 74/2014, 22 & 23/2019-7- of total income, by virtue of Section 10 (34). Question arising is,whether the assessee can claim that no expenditure wasincurred in deriving the dividend, which will not form part of thetotal income. In other words, is it permissible to make anydisallowance from the total expenditure in the above respect.Rule 8D of the Income Tax Rules, 1962 ('the Rules' for short)provides the method for determining the amount of expenditureincurred with respect to the income which do not form part ofthe total income. Sub-clause (b) of Rule 8D provides that, if theclaim made by the assessee is that no expenditure is incurred inrelation to the income which does not form part of the totalincome under the Act, with respect to the previous year, theAssessing Officer shall determine the amount of expenditure inrelation to such income in accordance with the provisions of Sub-Rule (2) of Rule 8D. Sub-Rule (2) of Rule 8D provides the methodof calculation of the expenditure with respect to income whichdoes not form part of the total income. Sub-clause (iii) of Rule 8D(2), which as stood at the time of the relevant assessment year, isreproduced below; “Section 8D (2) (iii).- An amount equal to one-half percent of the average ofthe value of investment, income from which does not orshall not form part of the total income as appearing in the balance sheet of the assessee, on the first day and the lastday of the previous year.” 3.While computing the average value of the investmentfor the purpose of Rule 8D (2) (iii), whether the total investmentsof the assessee made in between the first and the last day of theprevious year need to be reckoned; or whether thoseinvestments with respect to which any dividend is actuallyderived alone need to be computed. In this respect the wordingsof the above said provisions assumes importance. One-halfpercent of average of the value of investment as appearing in thebalance sheet of the assessee on the first day and the last day ofthe previous year, with respect to the investment, income ofwhich does not form part of the total income, need to becomputed as the deemed expenditure. Learned Counselappearing for the appellant / assessee contended that, whilecomputing average of the value of the investment, only thoseinvestments from which dividend was actually derived, whichshall not form part of the total income, alone need to bereckoned, is the contention. 4. Per contra, Standing Counsel for Government of India(Taxes), appearing for the revenue contended that, it is theaverage of the value of the total investment during the previous ITA Nos 69, 74/2014, 22 & 23/2019-9- year, appearing in the balance sheet as on the first day and thelast day, has to be reckoned for computing the deemedexpenditure. 4. Per contra, Standing Counsel for Government of India(Taxes), appearing for the revenue contended that, it is theaverage of the value of the total investment during the previous ITA Nos 69, 74/2014, 22 & 23/2019-9- year, appearing in the balance sheet as on the first day and thelast day, has to be reckoned for computing the deemedexpenditure. 5.On the facts of the case, while finalising theassessments, the Assessing Officer computed half percentage ofaverage value of the total investments, income from which doesnot or shall not form part of the total income, and disallowed thesame from the expenditure claimed. In the appeal filed by theassessee, the Commissioner of Income Tax (Appeals),Thiruvananthapuram upheld the assessment, by relying on adecision of the Bombay High Court in Goodrej & boyceeManufacturing Company Ltd., Mumbai v. DCIT. Aggrievedby the said order, the assessee filed second appeal before theTribunal. The Tribunal while considering the issue hadconfirmed the manner of computation made based on theaverage value of the investments made during the previous yearsrelevant to the assessment years concerned. Observation wasthat, as per Rule 8D(2)(iii),average value of the entireinvestments, income from which does not or shall not form partof the total income, is required to be reckoned for the purpose ofcomputation of the expenditure. It was interpreted that, averageof the value of the entire investment made in shares is required ITA Nos 69, 74/2014, 22 & 23/2019-10- to be considered for computation of the one half percentage.With respect to the assessment years 2009-10 and 2010-11, theTribunal in I.T.A Nos.90 and 91 of 2014, followed the earlierdecision rendered by the Tribunal, which is as mentioned above. 6.Contention of the appellant/assessee is mainly basedon the interpretation of Rule 8D(2)(iii). According to learnedcounsel for the appellant, the wording, “income from which doesnot or shall not form part of the total income”, which is insertedafter the wording “an amount equal to one-half percent of theaverage of the value of investment”, with a 'comma' inserted inbetween, would clearly indicate that the average of the value ofthe investment, which need to be computed, stands qualified bythe subsequent wordings “income from which does not or shallnot form part of the total income”. Therefore the average of thevalue of investment from which any income has been derivedduring the relevant year, which does not form part of the totalincome, alone can be reckoned for computing the one-halfpercent, is the contention. 7.But on a plain reading of Sub Clause (iii) of Rule 8D(2),it would be clear that, the method of calculation intended is, tocompute average of the value of the investments, as appearing inthe balance sheet as on the first and as on the last day of the ITA Nos 69, 74/2014, 22 & 23/2019-11- 7.But on a plain reading of Sub Clause (iii) of Rule 8D(2),it would be clear that, the method of calculation intended is, tocompute average of the value of the investments, as appearing inthe balance sheet as on the first and as on the last day of the ITA Nos 69, 74/2014, 22 & 23/2019-11- year concerned is to be taken. The investment reflected in thebalance sheet as on the opening of the financial year and theinvestment reflected in the balance sheet as on the closing of thefinancial year has to be reckoned. The average of the value ofthe investment reflected on both these days has to be adoptedfor the purpose of computing one-half percent, towards theexpenditure. The wording, “income from which does not or shallnot form part of the total income”, is inserted only for thepurpose of clarifying that, the average of the value of theinvestments, with respect to which the income derived shall notform part of the total income, need to be computed. Thewording cannot in any manner be construed as intended orreflected to confine it with respect to investments from whichany income was actually derived during the financial year. Rule8D(2)(iii) would apply in a case were the assessee claims that noexpenditure was incurred in relation to the income derived,which does not form part of the total income. Therefore it is aprovision enabling the Assessing Officer to compute a deemedfigure, as the expenditure incurred with respect to the dividendearned, which does not form part of the total income. When thestatute provides such a method of computation of the deemedexpenditure, it cannot be contended that, it should be calculated ITA Nos 69, 74/2014, 22 & 23/2019-12- on the basis of those investments from which dividend wasactually derived. It is pertinent to note that, the statue does notprovide that the computation need to be made based only on thevalue of investment in which any dividend has been derived.Since the computation is to be made based on average of thevalue of the investments, it does not provide that theinvestments can be segregated into, and the non-profit derivinginvestments can be excluded for the purpose of computingaverage of the value as appearing in the balance sheet, on theopening and closing day of the year concerned. With respect to aparticular investment, there may be profit derived during anypart of a financial year. The very same investment will becomenon-profit deriving during some other period within the samefinancial year itself. It is because of this, the legislature hasprovided a particular methodology for computing one-halfpercentage of the average of the value of the investmentsreflected in the balance sheet, as on the date of commencementand as on the date of closing of the the financial year. Hence theinterpretation of the provision as canvased by theappellant/assessee cannot be accepted. 8.Learned Standing Counsel appearing for the revenuehad drawn our attention to a decision of the Honourable 8.Learned Standing Counsel appearing for the revenuehad drawn our attention to a decision of the Honourable Supreme Court in Max-opp investment Ltd., v. Commissionerof Income Tax: (2018)402 ITR 640 (SC). While interpretingthe provisions contained in Section 14A of the Act, it is held that,the dominant purpose for which the investment in shares madeby an assessee may not be relevant. Whether the investmentwas made in order to gain control of the investee company, doesnot appear to be a relevant factor in determining the issue withrespect to the expenditure incurred for getting the income,which is not includable in the total income. When such dividendincome is remaining non-taxable, if any expenditure is incurredon earning the dividend, that much of the expenditure has to bedisallowed and cannot be treated as business expenditure.Therefore it was observed, the word “in relation to the income”finding place in Section 14A has to be interpreted as expenditureincurred in relation to the income which is not forming part ofthe total income. Therefore it is held that, the principle ofapportionment of expenses comes into play, as that is theprinciple which engraved in Section 14A of the Act. 9. In the case at hand, question is with respect tocomputation of the deemed expenditure as provided under Rule8D(2)(iii). When the assessee claims that no expenditure hasbeen incurred in relation to the income derived, which does not form part of the total income, there is no question of anyapportionment being made for the purpose of computing thedeemed expenditure to be disallowed, in between average of thevalue of investments, in between the investments with respect towhich any income is derived and no income is derived. Themethod of calculation of the deemed expenditure provided isbased on the average of the value of the total investmentreflected in the balance sheet, as on the first and last day of theyear, the income from which shall not form part of the totalincome. The Rule provides the specific method to take theaverage of the value of the total investment, as reflected in thebalance sheet as on the first and as on the last day of thefinancial year. Therefore, the dictum contained in the abovecited decision can be co-related to the issue involved herein. 10.Learned counsel for the assessee placed reliance on adecision of this court inLakshadweep DevelopmentCorporation Limited V. Additional Commissioner of IncomeTax and another (2019) 411 ITR 213 (KER) (FB), in order tosupport the contention that, with respect to interpretation of anyfiscal statute if there exists any doubt, construction which ismost beneficial to the assessee should be adopted, even if itresults in obtaining an advantage to the assesee. It is also pointed out that, the said ruling had emphasisd that, the rule ofstrict interpretation has to be followed in taxing statutes. Thesaid ruling was also pressed into service to canvass the positionthat, if there is any defect in the phraseology used by thelegislature, courts cannot aid the legislature's defective phrasingof an Act or add, amend, or by construction make up, thedeficiencies which are left in the Act. It is held that, where thelanguage of a statute is clear and unambiguous, there is no roomfor application of, either the doctrine of "casus omissus" or ofpressing into service of any external aid. But in the case athand, as already observed, we do not find any ambiguity ordoubt in the plain language of Rule 8D (2) (iii), warranting anyinterpretation by the court. So also we do not feel that thereoccurred any omission on the part of the legislature which needto be supplied into the Rule in question. As already observed,the language used by the legislature does not give room for anyinterpretation other than what was observed as in the foregoingparagraphs. 11. Under the above mention circumstances, we find thatthe question of law raised need to be answered in favour of therevenue and against the assessee. Consequently all the threeappeals filed by the assessee fail in merit and they are liable to be dismissed. 12.Question raised in ITA No.74/2014, filed by the CITneed to be dealt with separately. Chapter IV of the Income TaxAct deals with the computation of the total income. Thededuction allowable in computation of the total income isenumerated under different sections within the said Chapter.Section 28 under the said Chapter deals with computation of'profits and gains of business or profession' Section 36 providesabout other deduction allowable with respect to computation ofthe income referred to in Section 28. Sub-clause (viii) of Section36 (1) allows deduction in respect of any 'special reserve'created and maintained by a specific entity, to the extent of anamount not exceeding twenty percent of the profits derived fromeligible business computed under the head “profits and gains ofbusiness or profession”, which is carried to such reserveaccount. Section 41 (4A) of the Act provides that, where adeduction has been allowed in respect of any special reservecreated and maintained under clause (viii) of Section 36(1), anyamount subsequently withdrawn from such special reserve shallbe deemed to be profits and gains of business or profession andaccordingly be chargeable to income tax as income of theprevious year in which such amount is withdrawn. On the facts of the case at hand, with respect to the assessment year 2008-2009 the assessee was eligible for deduction of special reservecreated under 36(1)(viii). But the Assessing Officer found that,the assessee in its annual account has reduced the specialreserve created, as loans and advances to the tune ofRs.53,96,19,451/-. The assessee was asked to explain as to whythe amount shown as deduction from the special reserve shallnot be disallowed. It was replied that, the assessee had to makea provision for 'bad and doubtful debts' as per the norms andguidelines issued by the IDBI. By the said norms the assesseewas permitted to take into account the available special reservecreated under section 36 (1)(viii) also for the purpose of meetingthe provision for bad and doubtful debts, as per the guidelines ofIDBI. Therefore it was explained that, in the annual accounts,the above said amount was shown as reduction from the loansand advances as well as from the special reserve, only as acontra entry. It is pointed out that, the special reserve accountunder section 36(1)(viii) was maintained intact. Therefore theassessee had fully complied with the condition with respect tocreating and maintaining of the special reserve. But theAssessing Officer took the stand that the explanation offeredwith respect to transfer of the amount from the special reserve ITA Nos 69, 74/2014, 22 & 23/2019-18- account, as in compliance with the guidelines of IDBI for thepurpose of making the provision with respect of 'bad anddoubtful debts', is not acceptable. It was found that the assesseehad failed to keep the money in the special reserve account fromnot being withdrawn and therefore the amount in question needto be added to the total income under section 41 (4A) of the Act. ITA Nos 69, 74/2014, 22 & 23/2019-18- account, as in compliance with the guidelines of IDBI for thepurpose of making the provision with respect of 'bad anddoubtful debts', is not acceptable. It was found that the assesseehad failed to keep the money in the special reserve account fromnot being withdrawn and therefore the amount in question needto be added to the total income under section 41 (4A) of the Act. 13.The first appellate authority has not accepted thecontentions of the assessee, that no amount has been withdrawnfrom the special reserve and the adjustment was made only forthe purpose of presentation in the balance sheet in schedule II,with respect to the amounts of loans and advances, which isshown only as a contra entry as reduced from the specialreserves. It was held that, the assessee had made only anunsuccessful attempt to give an impression that there was nowithdrawal from the special reserve. It was also held that, suchan attempt made in the balance sheet cannot in any mannerprevent the applicability of section 41 (4A). Hence, theassessment made in this regard was upheld. In the secondappeal filed by the assessee before the Tribunal, it was foundthat, the question boils down to whether the action of theassessee in considering the amount available in special reservefor the purpose of making provision for 'bad and doubtful debts', would amount to utilisation of the special reserve or not. TheTribunal took the view that the provisions contained in Section41(4A) would not apply as long as the assessee maintains thespecial reserve account, in his books of accounts. It is foundthat, the method of presentation made in the balance sheet doesnot matter for the purpose of Section 36(1)(viii), read withSection 41(4A) of the Act. It was held that the assessee hasshown no debit in the special reserve account and hence theassessee has not utilised any amount available in the reserveaccount, as presumed by the tax authorities. Hence the Tribunalfound that, there is no reason to invoke Section 41(4A), based onthe balance sheet, wherein only an adjustment has been done bythe assessee for the purpose of presenting it to the shareholdersand the regulator. Therefore the addition made in this regardwas set aside. The revenue is challenging the said finding. Thequestion of law raised is as to whether the assessment made byinvoking Section 41 (4A) was legal and whether the Tribunal wasright in interfering with it. 14. Section 36(1)(viii) allows deduction with respect to thespecial reserve created and maintained, to the extent of anamount not exceeding twenty percent of the profit derived fromeligible business, subject to the restriction that the aggregate of the amounts carried to such reserve account from time to timeshall not exceed twice the amounts of the paid up share capitaland of the general reserves of the specified entity. But section41(4A) puts up a restriction from withdrawing any amount fromsuch special reserve. It provides that, in respect of any specialreserve created and maintained under section 36(1)(viii), withrespect to which a deduction has been allowed, any amountsubsequently withdrawn from such special reserve shall betreated as profits and gains out of business, which is chargeableto income tax, taking it as income of the previous year in whichsuch amount is withdrawn. Therefore the question mooted fordecision is as to whether the assessee had withdrawn anyamount from the special reserve created and maintained, duringthe relevant year. 15.Contention of learned counsel for the assessee is that,the special reserve created under section 36(1)(viii) wasmaintained as such and the provision with respect to 'bad anddoubtful debt' was shown in the balance sheet only for thepurpose of complying with the mandatory requirementscontained in the guidelines issued by the IDBI. Therefore thereis no withdrawal effected from the special reserve created andmaintained under section 36(1)(viii). Per contra, learned standing counsel for the revenue pointed out that, correspondingdeductions in the account of loans and advances was shown inthe balance sheet, which would clearly indicate that thereoccurred a deduction out of the special reserve maintained.Controverting the said contention, learned counsel for theassessee replied that, for attracting Section 41(4A) there shouldbe an actual withdrawal from the special reserve created. Asthere is no withdrawal effected by the assessee, the contra entrymade in the balance sheet, cannot be taken as a physicalwithdrawal from the special reserve created, in order to attractsection 41(4A). 16.Section 41 (4A) provides that where a deduction hasbeen allowed in respect of any special reserve created andmaintained under sub-section 36 (1) (viii), any amountsubsequently withdrawn from such special reserve shall bedeemed to be profits and gains of business or profession andaccordingly be chargeable to income tax, as the income of theprevious year in which such amount is withdrawn. Therefore it isclear that, in order to attract Section 41 (4A) there should be asubsequent withdrawal from the special reserve created. Hencethe question to be considered is whether there occurred asubsequent withdrawal from the special reserve created. The Tribunal had considered the nature of the provision made for'bad and doubtful debts'. It is a provision made in order tocomply with the guidelines issued by the IDBI. The Tribunalreferred to the said guidelines and found that, according to theguidelines, an amount available in the special reserve accountunder Section 36 (1) (viii) of the Act is admissible for thepurpose of the provision created. The Tribunal observed that,going by the guidelines, the assessee can take into considerationof the amount available in the special reserve account, whiledetermining the amount of provision. Factually it is admittedthat, in the books of accounts kept by the assessee with respectto the special reserve, there is no withdrawal or deduction made.The Tribunal noticed the Circular of IDBI which permitted theassessee to create special reserve under Section 36 (1) (viii) ofthe Act and the cumulative balance available as special reserveis made admissible for the provision to be created for assetsclassified as doubtful or loss. The first Appellate Authorityobserved that, it is deemed to be taken that, there occurred atransfer of funds from the special reserve account to theprovision for bad and doubtful debts. According to the firstAppellate Authority, the assessee had made only an attempt togive an impression that there was no withdrawal from the special reserve ledger account. The Tribunal found that creationof provision for bad and doubtful debts, by utilizing the amountavailable in the said reserve account, as permitted by the IDBI,does not mean that the assessee had actually withdrawn thespecial reserve account. Therefore it is held that Section 41 (4A)cannot be applied. special reserve ledger account. The Tribunal found that creationof provision for bad and doubtful debts, by utilizing the amountavailable in the said reserve account, as permitted by the IDBI,does not mean that the assessee had actually withdrawn thespecial reserve account. Therefore it is held that Section 41 (4A)cannot be applied. 17.While considering the issue, we take note of the factthat there occurred no actual withdrawal in the special reserveaccount. But there occurred only creation of a provision for badand doubtful debts, by utilizing the special reserve, as permittedin the circular of the IDBI. Hence the finding that the contraentries made in the balance sheet would reveal with respect to asubsequent withdrawal made, cannot be sustained. We do notthink that there exist any question of law to be decidd whenthere is a specific finding on the facts, rendered by the Tribunalto the effect that there occurred no withdrawal from the specialreserve account. 18.Learned Standing Counsel for the revenue had placedreliance on the decisions of the hon'ble Supreme Court inSouthern Technologies Limited V. Joint Commissionerof Income tax (2010)320 ITR 577(SC) and Vijaya Bank V.Commissioner of Income Tax and another (2010) 323 ITR ITA Nos 69, 74/2014, 22 & 23/2019 166 (SC). We notice that the issue decided therein pertains tocreation of provision under Section 36 (1) (vii) and not withrespect to the question regarding withdrawal of special reservecoming within the ambit and scope of Section 41 (4A). Sincethere exists a factual finding that there was no subsequentwithdrawal of the special reserve created, the assessment madeby invoking Section 41 (4A) need to be held as legallyunsustainable. Hence the question raised in this regard need tobe answered in favour of the assessee and against the revenue.Consequently the appeal filed by the revenue fails and is liable tobe dismissed. In the result all the above appeals are hereby dismissed. Sd/-C.K.ABDUL REHIMJUDGE Lsn/KAS/AMG Sd/-R. NARAYANA PISHARADIJUDGE APPENDIX OF ITA 69/2014 APPELLANT'S ANNEXURES: ANNEXURE ATRUE COPY OF THE ASSESSMENT ORDER ALONG WITH DEMANDNOTICE DATED 28-12-2010 ISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), THIRUVANANTHAPURAMNOTICE DATED 28-12-2010 ISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1), THIRUVANANTHAPURAM ANNEXURE BTRUE COPY OF THE APPELLATE ORDER NO.ITA No.65-T/2010-AA DATED 27-03-2013 ISSUED BY THE RESPONDENTT/2010-AA DATED 27-03-2013 ISSUED BY THE RESPONDENT ANNEXURE CTRUE COPY OF THE APPELLATE ORDER DATED 06-11-2013 IN ITA No.354/COCH/2013 OF THE ITAT, COCHIN BENCHIN ITA No.354/COCH/2013 OF THE ITAT, COCHIN BENCH APPENDIX OF ITA 74/2014 APPELLANT'S ANNEXURES: ANNEXURE ATRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S143 (3) DATED 28-12-2010.143 (3) DATED 28-12-2010. ANNEXURE BTRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 27-03-2013. INCOME TAX (APPEALS) DATED 27-03-2013. ANNEXURE CCERTIFIED COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 06-11-2013.APPELLATE TRIBUNAL DATED 06-11-2013. APPENDIX OF ITA 22/2019 APPELLANT'S ANNEXURES: ANNEXURE ATRUE COPY OF ASSESSMENT ORDER ALONG WITH DEMAND NOTICE DATED 18.3.2013 ISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), THIRUVANANTHAPURAM.NOTICE DATED 18.3.2013 ISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), THIRUVANANTHAPURAM. ANNEXURE BTRUE COPY OF THE APPELLATE ORDER NO.ITA NO.15/TVM/13-14 DATED 16.01.2014 PASSED BY THE COMMISSIONER OF INCOME TAX(APPEALS), THIRUVANANTHAPURAM.NO.15/TVM/13-14 DATED 16.01.2014 PASSED BY THE COMMISSIONER OF INCOME TAX(APPEALS), THIRUVANANTHAPURAM. ANNEXURE CTRUE COPY OF THE COMMON ORDER OF THE APPELLATE TRIBUNAL DATED 2.5.2014 IN I.T.NSO. 90 AND 91 COCH/2014.TRIBUNAL DATED 2.5.2014 IN I.T.NSO. 90 AND 91 COCH/2014. APPENDIX OF ITA 23/2019 APPELLANT'S ANNEXURES: APPELLANT'S ANNEXURES: ANNEXURE ATRUE COPY OF ASSESSMENT ORDER ALONG WITH DEMAND NOTICE DATED 18.3.2013 ISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), THIRUVANANTHAPURAM.NOTICE DATED 18.3.2013 ISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), THIRUVANANTHAPURAM. ANNEXURE BTRUE COPY OF THE APPELLATE ORDER NO.ITA NO.15/TVM/13-14 DATED 16.01.2014 PASSED BY THE COMMISSIONER OF INCOME TAX(APPEALS), THIRUVANANTHAPURAM.NO.15/TVM/13-14 DATED 16.01.2014 PASSED BY THE COMMISSIONER OF INCOME TAX(APPEALS), THIRUVANANTHAPURAM. ANNEXURE CTRUE COPY OF THE COMMON ORDER OF THE APPELLATE TRIBUNAL DATED 2.5.2014 IN I.T.NSO. 90 AND 91 COCH/2014.TRIBUNAL DATED 2.5.2014 IN I.T.NSO. 90 AND 91 COCH/2014. APPENDIX OF ITA 23/2019 APPELLANT'S ANNEXURES: ANNEXURE ATRUE COPY OF THE ASSESSMENT ORDER DATED 3.3.2014 ISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX,THIRUVANANTHAPURAMISSUED BY THE ASSISTANT COMMISSIONER OF INCOME TAX,THIRUVANANTHAPURAM ANNEXURE BTRUE COPY OF THE APPELLATE ORDER DATED 16.1.2014 INITA NO.53/TVM/11-12 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS), THIRUVANANTHAPURAMITA NO.53/TVM/11-12 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS), THIRUVANANTHAPURAM ANNEXURE CTRUE COPY OF THE APPELLATE TRIBUNAL'S COMMON ORDER DATED 2.5.2014 IN ITA.90 AND 91/COCH/2014 PASSED BYTHE ITAT, COCHIN BENCH, COCHINDATED 2.5.2014 IN ITA.90 AND 91/COCH/2014 PASSED BYTHE ITAT, COCHIN BENCH, COCHIN