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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL,
Before: MANISH AGARWAL
O R D E R Per Bench ITA No.78 & 89/CTK/24 for A.Y & 89/CTK/24 for A.Ys.2014-15 & 2015 15 & 2015-16 Both the appeals filed by the revenue are directed Both the appeals filed by the revenue are directed Both the appeals filed by the revenue are directed against the order of the ld CIT(A), NFAC, Delhi dated of the ld CIT(A), NFAC, Delhi dated 4.1.2024 4.1.2024 in Appeal No. CIT(A),Cuttack/10359/2016 CIT(A),Cuttack/10359/2016-17 for the assessment year for the assessment year 2014-15 and order
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Assessment year: 2014-15 ITA No.84/.CTK/2024: Assessment Year: 2015-16 Assessment year: 2015-16 ITA No.62/CTK/2024: Assessment Year: 2017-18 ITA No.82/CTK/2024: Assessment Year: 2017-18 dated 13.2.2024 in Appeal No.CIT(A),Cuttack/10349/2017-18 for assessment year 2015-16.
In both the appeals, the revenue has challenged the deletion of addition made u/s.40(a)(ia) of the Act by the Assessing Officer for non- deduction of tax at source on the interest payments on time deposits.
The ld CIT(A) while deleting the disallowance has held that the amendment made in Section 194A(3) (v) of the Act was carried out w.e.f. 1.6.2015 through which the exemption provided for deduction of tax at source from the payments of interest was withdrawn and is prospective in nature, therefore, there is no violation by the assessee bank in making non- deduction of tax at source on the payments of interest.
Before us, ld CIT DR stated that vide circular No.9/2002 dated 11.9.2002, clause (v) of sub-section (3) of Section 194A was inserted, wherein, it was provided that the provision of section 194A are not applicable to the interest paid by the Co-operative society to member thereof from the requirement of TDS. However, since the assessee is a co- operative bank, therefore, this exemption is not applicable to it. He further stated that from 1.6.2015, this anomaly has been removed and it is clearly provided that the cooperative banks are not eligible for this exemption. He accordingly, submitted that the assessee bank has not deducted tax at source on the payment of interest paid to its depositors, therefore, the P a g e 2 | 13
Assessment year: 2014-15 ITA No.84/.CTK/2024: Assessment Year: 2015-16 Assessment year: 2015-16 ITA No.62/CTK/2024: Assessment Year: 2017-18 ITA No.82/CTK/2024: Assessment Year: 2017-18 Assessing Officer has rightly invoked the provisions of section 40(a)(ia) of the Act, which deserves to be upheld and the order of the ld CIT(A) be set aside on this issue.
Per contra, ld AR submitted that vide Finance Act, 2015 w.e.f 1.6.2015, the cooperative banks are excluded from exemption of deduction of tax in terms of section 194A(3) and the years under appeal are prior to that, therefore, the ld CIT(A) has rightly deleted the disallowance so made by the AO. He prayed for confirmation of the order of the ld CIT(A).
We have considered the rival submissions and perused the record of the case. It is seen that the assessee is a cooperative bank and was enjoying the exemption from payment of tax at source on interest paid on the deposits. However, vide Finance Act, 2015 w.e.f. 1.6.2015, same has been withdrawn and sub-clause (v) of sub-section (3) of Section 194A has been amended whereby it has been specifically inserted that the cooperative banks are not eligible for this exemption. Further, in the memorandum explaining the provisions, this issue has been dealt with and the relevant clause 42 of Finance Act 2015 relating to this has clarified the position that this amendment is applicable prospectively w.e.f. 1.6.2015. The relevant clause is reproduced as under:
“Rationalisation of provisions relating to deduction of tax on interest (other than interest on securities) Section 194A(1) read with section 194A(3)(i) of the Act provide for deduction of tax on interest (other than interest on securities) over a specified threshold, i.e. Rs.10,000 for interest payment by P a g e 3 | 13
Assessment year: 2014-15 ITA No.84/.CTK/2024: Assessment Year: 2015-16 Assessment year: 2015-16 ITA No.62/CTK/2024: Assessment Year: 2017-18 ITA No.82/CTK/2024: Assessment Year: 2017-18 banks, co-operative society engaged in banking business (co-operative bank) and post office and Rs.5,000 for payment of interest by other persons. Further, sub-section (3) of section 194A inter alia also provides for exemption from deduction of tax in respect of following interest payments by co-operative society: (i) Interest payment by a co-operative society to a member thereof or any other co-operative society. [Section 194A(3)(v) of the Act] (ii) Interest payments on deposits by a primary agricultural credit society or primary credit society or co-operative land mortgage bank or co- operative land development bank. [Section 194A(3)(viia)(a) of the Act] (iii) Interest payment on deposits other than time deposit by a co-operative society engaged in the business of banking other than those mentioned in section 194A(3)(viia)(a) of the Act. [Section 194A(3)(viia)(b) of the Act] Therefore, as per the provisions of section 194A(1) read with provisions of sections 194A(3)(i)(b) and 194A(3)(viia)(b), co-operative bank is required to deduct tax from interest payment on time deposits if the amount of such payment exceeds specified threshold of Rs.10,000/-. However, as the provisions of section 194A(3)(v) of the Act provide a general exemption from making tax deduction from payment of interest by all co-operative societies to its members, the co-operative banks tried to avail this exemption by making their depositors as members of different categories. This has led to dispute as to whether the co-operative banks, for which the specific provisions of tax deduction exist in the form of section 194A (1), section 194A(3)(i)(b) and section 194A(3)(viia)(b) of the Act, can take the benefit of general exemption provided to all co-operative societies from deduction of tax on payment of interest to members. The matter has been carried to judicial forums and in some cases a view has been taken that the provisions of section 194A(3)(viia)(b) of the Act makes no distinction between members and non-members of co-operative banks for the purposes of deduction of tax, hence, the co-operative banks are required to deduct tax on payment of interest on time deposit and cannot avoid the same by taking the plea of the general exemption provided under section 194A(3)(v) of the Act. This is because the specific provision of tax deduction provided under section 194A(3)(i)(b) and 194A(3)(viia)(b) of the Act for co-operative banks override the general exemption provided to all co-operative societies for non-deduction of tax from interest payment to members under section 194A(3)(v) of the Act. As there is no difference in the functioning of the co-operative banks and other commercial banks, the Finance Act, 2006 and Finance Act, 2007 amended the provisions of the Act to provide for co-operative banks a taxation regime which is similar to that for the other commercial banks. Therefore, there is no rationale for treating the co-operative banks differently from other commercial banks in the matter of deduction of tax and allowing them to avail the exemption meant for smaller credit co-operative societies formed for the benefit of small number of members. However, as mentioned earlier, a doubt has been created regarding the applicability of the specific provisions mandating deduction of tax from the payment of interest on time deposits by the co- operative banks to its members by claiming that general exemption provided is also applicable for payment of interest to member depositors. In P a g e 4 | 13
Assessment year: 2014-15 ITA No.84/.CTK/2024: Assessment Year: 2015-16 Assessment year: 2015-16 ITA No.62/CTK/2024: Assessment Year: 2017-18 ITA No.82/CTK/2024: Assessment Year: 2017-18 view of this, it is proposed to amend the provisions of the section 194A of the Act to expressly provide from the prospective date of 1st June, 2015 that the exemption provided from deduction of tax from payment of interest to members by a co-operative society under section 194A(3)(v) ) of the Act shall not apply to the payment of interest on time deposits by the co-operative banks to its members. ………..”
In view of these facts and looking to the intention of the legislature while making amendment to clause of section 194A, it is very much clear that the said amendment is prospective in nature and, therefore, is applicable w.e.f. 1.6.2015 and onwards and not applicable for the years under appeal and, therefore, the ld CIT(A) has rightly deleted the disallowance so made by the AO. Accordingly, we decline to interfere with the orders of the ld CIT(A), which are hereby upheld.
In the result, both the appeals of the revenue are dismissed.
ITA No.84/CTK/2024: Asst.year: 2015-16
This appeal filed by the revenue is directed against the order of the ld CIT(A), NFAC, Delhi dated 4.1.2024 in Appeal No.NFAC/2014- 15/10167052 for the assessment year 2015-16, in the matter of assessment under section 147 r.w.s 144b of the Act.
10 When the appeal was taken up for consideration, the learned Counsel for the assessee has brought to our notice the Circular No.17/2019 dated 08.08.2019, issued by the Central Board Direct Taxes, wherein, it is stipulated that appeal shall not be filed/pursued by the Department before
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Assessment year: 2014-15 ITA No.84/.CTK/2024: Assessment Year: 2015-16 Assessment year: 2015-16 ITA No.62/CTK/2024: Assessment Year: 2017-18 ITA No.82/CTK/2024: Assessment Year: 2017-18 the Tribunal in cases where the tax effect does not exceed (Rupees fifty lakhs). It is also submitted that the tax effect in this appeal is less than the threshold limit. Ld AR stated that the tax effect in this appeal is Rs.24,95,209/-. Ld Sr.DR also concedes that the tax effect in this appeal is below the threshold limited prescribed by the CBDT.
In the light of the aforesaid submissions made by the learned counsel for the assessee and the departmental representative, the present appeal filed by the revenue, wherein, the tax effect is said to be less than the monetary limit imposed, is dismissed.
In the result, appeal filed by the revenue is dismissed.
ITA No.62/CTK/2024 for A.Y. 2017-18.
This appeal filed by the revenue is directed against the order of the ld CIT(A), NFAC, Delhi dated 12.12.2023 in Appeal No.CIT(A), Cuttack/10691/2019-20 for the assessment year 2017-18, in the matter of assessment under section 143(3) of the Act.
In the grounds of appeal, the revenue has challenged the action of the ld CIT(A) in deleting the addition of Rs.2,53,96,000/- made by the Assessing Officer under the head “unexplained money” u/s.69A of the Act.
Brief facts of the case are that during the year under appeal, the assessee bank has accepted SBN currency of Rs.3,38,73,000/- as specified
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Assessment year: 2014-15 ITA No.84/.CTK/2024: Assessment Year: 2015-16 Assessment year: 2015-16 ITA No.62/CTK/2024: Assessment Year: 2017-18 ITA No.82/CTK/2024: Assessment Year: 2017-18 bank notes (SBN) during the period from 9.11.2016 to 30,.12.2016, out of which, a sum of Rs.2,53,96,000/- were received from the customers during the period from 15.11.2016 to 29.12.2016 i.e. the period where RBI has restricted the cooperative banks for accepting deposits in SBN, therefore, the AO was of the opinion that the said cash is unexplained money of appellant bank and made addition u/s.69A of the Act. On appeal, the ld CIT(A) allowed the appeal of the assessee by holding that the deposits of demonetized notes were collected by the assessee bank from its members and, therefore, same is not hit by the provisions of section 69A of the Act nor by Section 68 of the Act. The relevant paras of the ld CIT(A) are extracted as under:
“The assessee being a cooperative bank, accepted demonetized currency from its customers between 15.11.2016 to 29.11.2016. As per the AO, the assessee bank was not empowered to accept demonetized currency in view of the RBI circular. The AO made addition of Rs.2,53,96,000/- invoking the provisions of section 69A of the Act. Here, the AO has invoked wrong section for making the addition which is a curable defect. The addition as it has been made, should have been made under section 68 of the Act and I hereby examine the claim of the assessee with reference to section 68 of the act. Under the provisions of section 68 of the Act, the assessee’s liability is to explain the nature and sources of the money. In this case, since the demonetized currency has been received from customers of the assessee bank in ordinary course of banking business, the nature as well as sources of the above said deposits stand explained. The money deposited by the customers of the assessee bank are towards repayment of loans, deposits, etc. Accordingly, thus the assessee has discharged its responsibility u/s.68 of the Act. Further, the collections and deposits have been duly recorded in the books of account of the assessee bank and hence, there is no reason to treat the same as unexplained money of assessee. Merely, because P a g e 7 | 13
Assessment year: 2014-15 ITA No.84/.CTK/2024: Assessment Year: 2015-16 Assessment year: 2015-16 ITA No.62/CTK/2024: Assessment Year: 2017-18 ITA No.82/CTK/2024: Assessment Year: 2017-18 demonetized notes ceased to be legal tender, it does not mean that the amount collected by the assessee from its customers/members would become unexplained money of the assessee. it is to be noted that the Reserve bank of India issued a series of notifications with regard to the deposit of demonetized notes from 8.11.2016 onwards. The RBI, vide notification dated 14.11.2016 clarified that District Central Co-operative Banks can allow their existing customers to withdraw money from their accounts upto Rs.24,000/- per week. It further clarified that no exchange facility against demonetized notes or deposits of such notes should be entertained by them. Accordingly, I am of the view that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68 of the Act in the facts and circumstances of the case. In the case of Prathamika Krushi Pattina Sahakari Sangha Niyamitha Itag vs ITO, ITAT Bengalure ‘C’ Bench in (Asst.year 2017-18) has held as per follows: “6. In the instant case, there is no dispute with regard to the fact that sources for making deposit of Rs.36.36 lakhs by the assessee into its bank account are the money collected from its members. The AO is also not doubting that all the SBNs have been collected by the assessee from its members. Accordingly, following the above said decision, I hold that the addition made u/s.68 of the Act is not justified. The ld AR also submitted that the SBNs have been collected by the assessee prior to the appointed date 31.12.2016 i.e. only from 31.12.2016, the assessee is precluded from accepting SBNs from its members. In this view of the matter, the reasoning relating to contravention of rules of RBI also fails.
7. Accordingly, I set aside the order passed by ld CIT(A) on this issue and direct the AO to delete the impugned disallowance. In view of the facts and circumstances of the case and respectfully following the judgment of Hon’ble ITAT, the ground No.6 of the appellant is allowed and addition of Rs.2,53,96,000/- is deleted.”
Before us, ld CIT DR submitted that the assessee bank has accepted the SBN during the period from 15.11.2016 to 29.11.2016 though it was not empowered to accept the SBNs as per RBI guidelines. Thus, it is the money P a g e 8 | 13
Assessment year: 2014-15 ITA No.84/.CTK/2024: Assessment Year: 2015-16 Assessment year: 2015-16 ITA No.62/CTK/2024: Assessment Year: 2017-18 ITA No.82/CTK/2024: Assessment Year: 2017-18 of the bank, which was introduced in its books of account and the Assessing Officer by treating it as unexplained money, made the addition. He further submitted that the ld CIT(A) is wrong in holding that same is not unexplained money but could be added under section 68 of the Act without appreciating the nature of the deposits. He further submitted that the assessee bank was not authorized to allow the exchange facility against the specified bank notes during the period from 15.11.2016 to 29.11.2016 and, therefore, the entire deposits received during this period in demonetized currency is unexplained money and deserves to be added u/s.69A of the Act. He, therefore, prayed for reversal of the order of the ld CIT(A).
Per contra, ld AR relied on the order of the ld CIT(A) and submitted that the assessee has received the currency during the demonetized period in SBNs, which though against the RBI guidelines. However, the details of the depositors are duly available in the bank records from which it is clear that it is not the money of the assessee bank but deposits from the customers and, therefore, the ld CIT(A) has rightly deleted the addition. He prayed for confirmation of the order of the ld CIT(A).
We have considered the rival submissions and perused the record of the case. A perusal of the record, we find that the appellant is a bank and is maintained complete record of the deposits made by the customers, which includes the SBNs during the demonetized period. The customers, who are depositing the amount are having KYC information with the bank, P a g e 9 | 13
Assessment year: 2014-15 ITA No.84/.CTK/2024: Assessment Year: 2015-16 Assessment year: 2015-16 ITA No.62/CTK/2024: Assessment Year: 2017-18 ITA No.82/CTK/2024: Assessment Year: 2017-18 thus complete whereabouts of the customers as well as their addresses are available. In these circumstances, it could be held that the cash deposits by the customers is not the unexplained money of the bank more particularly when at the time of depositing the same, customers duly filled their details in the pay in slip and signed it, which are available in the bank record. In view of these facts, we are of the considered opinion that the cash accepted by the bank during the demonetized period, though in violation to the RBI guidelines but that cannot be held as unexplained money of the bank for the purpose of charging income tax and, therefore, the addition has rightly been deleted by the ld CIT(A), which is hereby confirmed.
In the result, appeal of the revenue stands dismissed.
ITA No.82/CTK/2024: A.Y. 2017-18
This appeal filed by the revenue is directed against the order of the ld CIT(A), NFA C, Delhi dated 12.12.2023 in Appeal No.NFAC/10282678 for the assessment year 2017-18, in the matter of assessment under section 147 r.w.s. 144 of the Act.
In this appeal, the revenue has challenged the deletion of addition of Rs.1,64,09,755/- made out of provision for gratuity.
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Assessment year: 2014-15 ITA No.84/.CTK/2024: Assessment Year: 2015-16 Assessment year: 2015-16 ITA No.62/CTK/2024: Assessment Year: 2017-18 ITA No.82/CTK/2024: Assessment Year: 2017-18
Before us, ld Sr DR submitted that the gratuity fund in which the assesse has made the contribution is not recognised and the amount was provided in the books of account and not paid during the year. He drew our attention to the provision of section 40A(7) (b) of the Act, which reads as under:
(b) Nothing in clause (a) shall apply in relation to any provision made by the assessee for the purpose of payment of a sum by way of any contribution towards an approved gratuity fund, or for the purpose of payment of any gratuity, that has become payable during the previous year.
Ld Sr DR submitted that if any provision is made, the same is not allowable in terms of section 40A(7) of the Act. He further placed reliance on the judgment of Hon’ble Madras High Court in the case of CIT vs. Loyal Textiles Ltd., 231 ITR573 (Mad).
Per contra, ld AR supported the order of the ld CIT(A) and submitted that the assessee has agreement with LIC of India for gratuity fund and has made the provision on the basis of actual valuation provided by the LIC, out of which, certain amounts which were paid during the year are allowed by the AO and the balance amounts payable for the provisions made is only disallowed. Since the gratuity fund is with LIC, therefore, the ld CIT(A) has rightly deleted the disallowance made by the Assessing Officer. He, accordingly prayed for confirmation of the order of the ld CIT(A).
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Assessment year: 2014-15 ITA No.84/.CTK/2024: Assessment Year: 2015-16 Assessment year: 2015-16 ITA No.62/CTK/2024: Assessment Year: 2017-18 ITA No.82/CTK/2024: Assessment Year: 2017-18
We have considered the rival submissions and perused the record of the case. We find that the assessee has agreement with LIC of India for gratuity fund. However, when specific question is put to ld AR with regard to the approval of gratuity fund, he was not sure whether any application was filed by the assessee bank and the approval on the same was accorded for or not by the department. In this view of the matter, we set aside the order of the ld CIT(A) and remit the matter to the file of the Assessing Officer to confirm whether the gratuity fund created by the assessee bank with LIC is approved by the department or whether any application is pending for granting of approval. If the same is approved or application is pending, the provision made for gratuity fund is to be allowed and if the same is not approved no amount of provision made is allowable to the assessee. Hence, this issue is restored to the file of the AO for verification as per the directions given hereinabove.
In the result, appeal of the Revenue stands partly allowed for statistical purposes .
Order dictated and pronounced in the open court on 19/06/2024.