THE DHARANGADHRA PEOPLE'S CO. OP. BANK LTD.,,DHRANGADHRA vs. THE DY. COMMR. INCOME TAX, SURENDRANAGAR CIRCLE,, SURENDRANAGAR

आयकर अपील�य अ�धकरण, राजकोट �यायपीठ, राजकोट । IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT �ी राजपाल यादव, �या�यक सद�य एवं �ी वसीम अहमद, लेखा सद�य के सम�। BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./I.T.A. Nos.130-131/Rjt/2017 (�नधा�रण वष� / Assessment Years: 2012-13 & 2013-14) बनाम/ The Dharangadhra People’s D.C.I.T, Co-op. Bank Ltd., Surendranagar Circle, Vs. Kalpvarksh, Mandvi Chowk, Surendranagar. Dhrangadhara, Surendranagar Circle, Surendranagar. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAAAT1192R (अपीलाथ� /Appellant) (��यथ� / Respondent) .. अपीलाथ� ओर से / Appellant by : Shri D.M. Rindani, A.R ��यथ� क� ओर से/Respondent by : Shri Anil Kumar, Sr. D.R सुनवाई क� तार�ख / Date of Hearing 20/09/2019 घोषणा क� तार�ख /Date of Pronouncement 18/12/2019 आदेश / O R D E R PER WASEEM AHMED ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the separate order of the Learned Commissioner of Income Tax (Appeals)-7, Ahmedabad [Ld. CIT(A) in short] of even dated 01/02/2017, arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 16/02/2015 & 27/11/2015 relevant to Assessment Years (A.Y.s) 2012-13 & 2013-14 respectively.

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 2 -

ITA No.130/Rjt/2017 for A.Y.2012-13.

The assessee has raised the following grounds of appeal:

The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 3 - assessee for the year under consideration had filed its return of income dated 31 August 2012 declaring an income of ₹ NIL. As such the assessee for the year under consideration has shown an income in the statement of income of ₹ 65,74,118.00 only which was set off against the brought forward losses amounting to ₹ 1,05,25,004.00 (the actual set off of the loss for ₹ 65,74,118.00 and the balance amount of ₹ 39,50,886.00 was carried forward).

3.1 Subsequently, the assessee revised its return of income under section 139(4) of the Act dated 20-03-2014 wherein business loss of ₹ 1,56,71,108.00 was claimed which resulted the loss for the current year at ₹ 90,96,990.00 and the same was carried forward to the subsequent year. The impugned loss was representing the FDR’s written off made with Madhavpura Mercantile Co-operative Bank Ltd. (in short MMCBL) which has gone into the liquidation. Accordingly the assessee also carried forward losses and the unabsorbed depreciation of the earlier years which was set off in the original return of income.

3.2 The assessee during the assessment proceedings claimed that the impugned loss was claimed in the year under consideration as per the letter written by RBI dated 10 April 2012.

3.3 However, the AO was dissatisfied with the claim of the assessee made in the revised return of income under section 139(4) of the Act dated 20 March 2014 for technical reasons as well as on merit.

3.4 As per the AO the impugned loss cannot be carried forward and set-off until and unless it has been determined in the return filed under section 139(3) of the Act as per the provisions of section 80 of the Act. Thus the AO on the technical count proposed not to allow the claim of the assessee.

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 4 -

3.5 The AO on merit observed certain facts as detailed under: i. The assessee has created an investment depreciation fund on account of such investments in MMCBL. The details of such fund stand as under:

Madhav-pura Mercantile Co-operative Bank Investment Depreciation Fund up to 31.03.2011 Date of deposit Source of above Amount of Total fund Closing balance in the above fund funds transferred to in this Fund i.e fund transferred this fund MMCB from the funds Investment as per para 2 Depreciation Fund 31.03.2011 Investment 11,71,000/- 51,00,000/- 51,00,000/- Depreciation reserve fund Bad and 39,29,000/- doubtful debt fund

Thereafter the assessee has further credited the above funds with the following sources up to 31.03.2012:- Madhav-pura Mercantile Co-operative Bank Investment Depreciation Fund up to 31.03.2012 Date of deposit Source of above Amount of Total fund Closing balance in the above fund funds transferred to in this Fund i.e fund transferred this fund MMCB from the funds Investment as per para 2 Depreciation Fund 11.10.2011 Bad and 40,00,000/- 91,00,000/- 91,00,000/- up doubtful debt to date fund 05.12.2011 Bad and 45,00,000/- 1,36,00,000/- 1,5671108/- up doubtful debt to date fund From profit and 20,71,108/- 1,56,71,108/- loss a/c

The AO on the basis of the above found that the provision for the loss on account of the FDR’s in MMCBL has already been sourced from the investment depreciation reserve fund/Bad and doubtful

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 5 - debt fund/profit and loss account. Accordingly he was of the view that further deduction in the return of income on account of impugned loss would lead to double deduction for the same business loss as discussed above. ii. The AO also noticed that the assessee has not furnished the nature of such loss and similarly there was no information about the financial year to which such loss relates. The auditor has also not specified about such loss in his report filed along with the return of income. Similarly there was no entry in the books of accounts for claiming the loss on account of such FDR’s maintained with MMCBL.

iii. The AO also noted that the amount to the extent of ₹ 1,24,29000.00 sourced from the bad and doubtful debt fund has already been allowed as deduction under section 36 (1)(viia) of the Act at the rate of 7.50% of the total income irrespective of the fact whether there was any actual claim or not. As such the amount sourced from the bad and doubtful debt fund shows that the assessee has already enjoyed the benefit by claiming the deduction and there is a credit balance at ₹ 3,98,84,000.00 as appearing in the balance sheet as on 31st March 2011.

iv. The fact of such loss about the recoverability of FDR’s from MMCBL was known to the assessee since many years and therefore there was no reason for claiming the deduction in the year under consideration. The letter written by the RBI was neither any circular, instruction, statutory order nor warning but it was an advisory letter after the statutory inspection of the assessee bank.

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 6 - v. The income from the FDR’s made with MMCBL was subject to tax under the head income from other sources under section 56 of the Act and therefore such business loss cannot be allowed as deduction under section 28, 36 and 37 of the Act which relates to the business and profession. In view of the above, the AO disallowed the claim of the assessee on account of the loss incurred on the FDR’s maintained with MMCBL for ₹ 1,56,71,108.00. Accordingly the loss of ₹ 90,96,990.00 as declared in the revised return of income was disallowed and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to the learned CIT (A).

4.1 The assessee on merit submitted that the FDR’s in MMCBL was made in its normal course of business. The interest income from such FDR’s in the past was offered to tax. The fixed deposits made with the MMCBL were representing the stock in trade for the assessee. As such the amount of interest income of the FDR’s made with MMCBL is akin to the loan and advances given to the customers. Therefore the same is eligible for deduction.

4.2 The assessee also submitted that it has not claimed any deduction by way of provision for bad and doubtful debts at the rate of 7.5% of the

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 7 - current year income as provided under section 36(1)(viia) of the Act in the past except for the assessment year 2008-09, 2010-11 and 2011-12 which is very nominal in comparison to the provision for bad and doubtful fund.

4.3 The assessee also claimed that such business loss on account of FDR’s made with MMCBL claimed in the year under consideration was as per the direction of the RBI which is binding on it.

4.4 The amount of provisions such as investment depreciation reserve fund, bad and doubtful debt fund were not allowed as deduction in the past. As such all these funds have suffered the tax in the earlier years. Therefore, the allegation of the AO that the assessee is getting double benefit by writing off the FDR’s with the MMCBL is based on wrong assumption of facts.

4.5 However, the learned CIT (A) disregarded the contention of the assessee by holding that a loss return under section 139(3) can be filed within the time allowed under section 139(1) of the Act. However, the assessee has not filed loss return within the time specified under section 139(1) of the Act despite the fact that it was in the knowledge of the assessee about the position of the FDR’s with the MMCBL. Accordingly, the learned CIT (A) held that the return filed under section 139(4) showing the loss cannot be accepted as a valid return. Accordingly the learned CIT (A) denied the claim of the assessee on technical count as discussed above.

4.6 Similarly, the learned CIT (A) also rejected the contention of the assessee on merit by observing as under: 4.2.4 Considering the issue raised on merits, the appellant has stated that it had placed deposits with the MMCB over the years, which was claimed as a loss by it during the year under consideration as per the directions/instructions of the RBI. Firstly, it is seen that the said letter of the RBI dated 10th April, 2012, is an 'advisory". Secondly, even going by the said letter, the appellant should have made

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 8 - the said provision for MMCB in the subsequent year, post receiving the communication from RBI, instead of filing a non est return of loss by filing a revised return.

4.2.5 Moreover, a perusal of the assessment order shows that the AO has observed that the appellant was already claiming the statutory deduction u/s 36(1) (viia) of the Act on account of bad and doubtful debts @ 7.50% of the total income every year. The appellant has in its submission, stated that it has claimed deduction u/s.36 for the AYs 2008-09,2010-11 and 2011-12 but that the same was very "nominal". The issue here is not whether the deduction was nominal or not. The issue is that the appellant was already taking the benefit of a statutory provision on account of its doubtful investments and then claiming the entire investment made in MMCB again as an 'inherent loss' was not justified. Further, the appellant has not explained its understanding of what an 'inherent loss' is. The investments in MMCB were made for the first time in 2000-01. As far back as 2004, the RBI had issued a circular on 21 July 2004 to the banks that had deposited money with the MM_CB to treat their deposits to the bank as non-performing assets and submit the particulars of their deposits to the Reserve Bank. The appellant has not given any details of the same or of any communication in respect of its deposits with MMCB, to the RBI. In fact, it has been stated that provision was made for MMCB only partially from 1.4.2011. Thus the explanation offered by the appellant for having claimed the amount of Rs.1,56,71,108/- as business loss in AY 2012-13, does not hold water.

4.2.6 In view of the discussion above, I am of the view that even on merits, the appellant's claim of loss is not allowable, and the AO was justified in not allowing the same and in making the impugned addition of Rs. 90,96,990/-. Grounds of appeal Nos 1 and 3 are dismissed.

Being aggrieved by the order of the learned CIT-A, the assessee is in appeal before us.

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 9 - deduction on account of FDR’s written off as discussed above. As per the learned AR, there was no denial under the provisions of section 139(3) of the Act to revise the return if any omission/error is discovered therein afterwards.

5.1 The learned AR also submitted that the losses on account of FDR’s written off were arising in the course of the business and therefore the same is eligible for deduction under section 28 of the Act.

5.2 The learned AR also claimed that the impugned loss was written off in the year under consideration as per the direction of the RBI. As such, such loss cannot be treated as prior period expenses/claim.

“59139. 60[(1) Every person 61,— XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (3) If any person who 81[***] has sustained a loss in any previous year under the head “Profits and gains of business or profession” or under the head “Capital gains” and claims that the loss or any part thereof should be carried forward under sub-

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 10 - section (1) of section 72, or sub-section (2) of section 73, or sub-section (1) 82[or sub-section (3)] of section 74, 83[or sub-section (3) of section 74A], he may furnish, within the time allowed under sub-section (1) 84[***], a return of loss in the prescribed form 85 and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return under sub-section (1).”

7.2 The above provision reveals that a return filed under section 139(3) of the Act is considered a return filed under section 139(1) of the Act and accordingly all the provisions of subsection (1) of 139 of the Act shall be applied to the return filed under section 139(3) of the Act. Thus there remains no ambiguity that a return filed under section 139(3) of the Act is considered a return filed under section 139(1) of the Act and accordingly we hold that the same can be revised under section 139(5) of the Act.

7.3 Similarly, we also note that there is no specific denial under section 80 of the Act that the return filed under section 139(3) of the Act, which is considered the return filed under section 139(1) of the Act, cannot be revised under section 139(5) of the Act. The relevant provisions of section 80 of the Act read as under: “Submission of return for losses. 80. Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed 27 [in accordance with the provisions of sub-section (3) of section 139], shall be carried forward and set off under sub- section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) 28 [or sub-section (3)] of section 74 29 [or sub-section (3) of section 74A].”

7.4 In view of the above we conclude that once a return filed under section 139(3) of the Act has been considered a return filed in the section 139(1) of the Act which implies that all the provisions of section 139 of the Act will be equally applicable. In holding so we find support and guidance

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 11 - from the judgment of Hon’ble High Court of Gujarat in the case of PCIT Vs. Babubhai Ramanbhai Patel reported in 249 taxman 470 wherein it was held as under:

“5. We may notice that under sub-section (1) of Section 139, every person whose income for the previous year exceeds the maximum amount not chargeable to tax, is required to file a return before the due date. Sub-section (3) of Section 139 provides that any person who has sustained a loss and claims that the loss should be carried forward would file a return of loss within the time prescribed under sub-section (1) and thereupon all the provisions of the Act shall apply as if it was a return under sub-section (1) of Section 139 of the Act. Under sub-section 4 of Section 139, a person who has not furnished a return within the time allowed under sub-section (1) may still furnish a return at any time before the end of the relevant assessment year or before the completion of the assessment whichever is earlier. Sub-section (5) of Section 139 provides that any person having furnished a return under sub-section (1) or sub-section (4) discovers any omission or a wrong statement therein, he may furnish a revised return any time before the expiry of one year from the end of relevant assessment year or before the completion of the assessment whichever is earlier.”

7.5 We also find support and guidance from the judgment of Hon’ble High Court of Madras in the case of CIT versus Periyar District Co-operative Milk Producers Union Ltd. reported in 266 ITR 705 wherein it was held as under: 7. A bare perusal of the aforesaid two provisions, more particularly the provision contained in section 139(3), makes it clear that a return of loss filed under section 139(3) may be filed within the time allowed under section 139(1). Once such a return is filed, all the provisions of the Income-tax Act shall apply as if such return has been filed under section 139(1). This position is clear from the expression ". . . all the provisions of this Act shall apply as if it were a return under sub-section (1)". In other words, a return filed under section 139(3) is deemed to be a return filed under section 139(1). The provision contained in section 139(3) makes it clear that all the provisions of this Act shall apply to such a return as if it were a return under section 139(1). In view of such a specific provision, there is no reason to exclude the applicability of section 139(5) to a return filed under section 139(3).

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 12 -

In view of the above we hold that the assessee cannot be denied the benefit of the loss to be allowed carried forward under the provisions of subsection 139(3) read with section 80 of the Act in a situation where the loss was claimed in the revised return of income. On this technical count, the assessee succeeds.

“8. We have given a thoughtful consideration to the orders of the authorities below. It is an undisputed fact that die investment in FDR with Madhavpura Co-operative Bank Ltd. amounting to Rs. 47,36,308/- was treated as eligible investment in the earlier years. It is also true that die Madhavpura Co-operative Bank Ltd. became sick and the RBI directed the assessee to write off die amount bad. It is equally true that the assessee was showing interest earned from fixed deposit with die Madhavpura Co-operative Bank Ltd. as its income in the past. In our considered opinion, since the investment was accepted as eligible investment and since the assessee was showing interest income from FDR with Madhavpura Co-operative Bank Ltd. in the past, die write off of die same has to be allowed as bad debts. We accordingly set aside die findings of the Id. CIT(A) and direct the A.O. to delete the addition of Rs. 47,36,308/-. Appeal filed by the Assessee is allowed.

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 13 -

8.1 We also note that the activity of the assessee for investing its money as FDR’s is a normal business activity despite the interest thereon is offered to tax under the head income from other sources. In holding so we find support and guidance from the judgment of Hon’ble Apex Court in the case of Bihar State Co-operative Bank Ltd. Vs. CIT reported in 39 ITR 114 wherein it was held as under: “The moneys laid out in the form of deposits would not cease to be a part of the circulating capital of the assessee nor would they cease to form part of its banking business. The returns flowing from them would form part of its profits from its business. In a commercial sense the directors of the company owed it to the bank to make investments which earned them interest instead of letting moneys lie idle. It could not be said that the funds of the bank which were not lent to borrowers but were laid out in the form of deposits in another bank to add to the profit instead of lying idle necessarily ceased to be a part of the stock-in-trade of the bank, or that the interest arising therefrom did not form part of its business profits. Under the bye- laws one of the objects of the appellant bank was to carry on the general business of banking and therefore, subject to the Co-operative Societies Act, it had to carry on its business in the manner that ordinary banks do.”

8.2 We also note that the investment written off by the insurance company was allowed as deduction treating the same as business loss. In this regard we find support and guidance from the order of Delhi ITAT in the case of DCIT Vs. Oriental General Insurance Company Ltd. reported in 92 TTJ 300 wherein it was held as under: “In the instant case, the entries made in the assessee’s books of account in that behalf were strictly in accordance with the guidelines issued by General Insurance Corporation. Those guidelines permitted the assessee to book a loss which had, for all practical purposes, been suffered on account of depreciation in value of investments beyond any reasonable hope of recovery. In such circumstances, the Guidelines permitted the insurance company to book the loss in the accounts rather than waiting for actual realization of loss on sale of investment. Thus, the amounts claimed by the assessee were to be understood as a loss on investments suffered by

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 14 - the assessee. Such ‘loss’ could neither be considered as ‘expenditure’ nor a ‘allowance’. Hence, the Assessing Officer erred in adding back the same in the computation of assessee’s income chargeable to tax.”

8.3 Indeed the above judgment was rendered in connection with the investment written off by the Insurance Company, but to our mind the principles laid down therein can be applied in the case on hand.

In view of the above and after considering the facts in totality, we hold that the impugned loss claimed by the assessee is allowable deduction under the head business and profession. Hence the ground of appeal of the assessee is allowed.

Aggrieved assessee preferred an appeal to the learned CIT (A).

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 15 - subject to the fulfilment of the conditions. As such there is a distinction between the exemption and the deduction.

11.1 However, the learned CIT (A) disregarded the contention of the assessee by observing as under:

Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 16 - assessee was entitled for the deduction under section 80P of the Act with respect to its income up to the assessment year 2006-07 and the impugned losses as discussed above pertain the earlier years i.e. 2005-06 and 2006-07 which were allowed be carried forward in the assessments framed under section 143(3) of the Act for the assessment years 2007-08, 2009-10 and 2010-11. The copies of the assessment orders are enclosed on pages 57 to 66 of the paper book. In our considered view, if any loss is not be allowed to be carried forward as discussed above, then the revenue has the power to deny the claim of the assessee in that very year only. If the revenue has omitted to do so, the remedy provided under the Act for the revenue to invoke the provisions of section 154 of the Act or 263 of the Act or 147 of the Act for that very assessment year as the case may be and depending upon the facts and circumstances. However, the Revenue has no remedy/power to disturb such claim of the assessee in any other assessment year.

14.1 It is also pertinent to note that there were several assessments carried out by the Revenue pertaining to the assessment years 2007-08, 2009-10 and 2010-11 but claim of the assessee was not disturbed in these assessment years. Thus the issue in the case on hand has reached the finality and the same cannot be disturbed until and unless there is a mechanism provided under the Act. Hence, we hold that claim for the brought forward losses for the earlier years cannot be denied to the assessee in the year under consideration. Thus the ground of appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed.

The assessee has raised the following grounds of appeal:

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 17 - 1. The learned Commissioner of Income-tax (Appeals)-7, Ahmedabad erred in confirming the action of assessing officer in not allowing set off of brought forward losses of Rs.16,47,122/- against the taxable income for the year and treating the same as excess.

ITA Nos.130-131/RJT/2017 A.Ys. 2012-13 & 2013-14 - 18 - issue keeping in mind the order of this tribunal as discussed above. Hence, the ground of appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed

This Order pronounced in Open Court on 18/12/2019

-Sd- -Sd- (राजपाल यादव) (वसीम अहमद) �या�यक सद�य लेखा सद�य (RAJPAL YADAV) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Dated 18/12/2019 manish