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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI. CHANDRA POOJARI & SMT. BEENA PILLAI
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against order dated 02/11/2017 passed by the Ld. CIT(A)-7, Bangalore for assessment year 2012-13 on following grounds of appeal: “1. The order of the authorities below in so far as it is against the appellant is opposed to law, facts, equity, weight of evidence, probabilities and circumstances of the case.
2. The learned authorities below are not justified in determining the income at Rs.1,62,23,353/- (after giving effect to the relief given by Hon'ble CIT(A)) as against the returned income of Rs. 51,35,160/- on the facts and circumstances of the case. The Hon'ble Commissioner of Page 2 of Income Tax passed an order on 27.10.2017 by partially allowing the appeal filed by the appellant.
3. The learned authorities below erred in disallowing a sum of Rs. 25,000/- being donation paid by the appellant as a part of Corporate Social Responsibility. The learned authorities below failed to appreciate the fact that the donations made are in the nature of business expense are a part of the bye laws of the appellant. The same being in the nature of business deserves to be allowed in full. We wish to rely on the judgment of the jurisdictional high, court in the case of Mysore Kirloskar V/s CIT 166 ITR 836 and CIT v/s International Instruments Pvt Ltd 144 ITR 936.
4. The learned authorities below, erred in disallowing a sum of Rs. 81,583/- being the amounts contributed towards Co-Operative Education Fund to be contributed to the federation which is a compulsory contribution to be made as per the statute. The learned authorities below failed to appreciate the fact that the expenditure is incurred in relation to the business carried out by the appellant. We wish to rely on the judgement of the jurisdictional high court in the case of Pandavapura Sahakara Sakkare Karkhane Ltd 174 ITR 475.
5. Without prejudice we wish to state that the expenditure in relation to the Co-operative Education Fund is in the nature of Staff Welfare and hence deserves to be allowed in full. The learned authorities below failed to appreciate the fact that the expense incurred are expenses for the benefit of the employees and hence the expenditure incurred hay to be fully allowed u/s 37 of the Income Tax Act, 1961.
6. The learned authorities below, erred in disallowing a sum of Rs. 58,500/- being the amount utilised from member welfare fund. The learned authorities below failed to appreciate the fact that the expense incurred are expenses for the benefit of the members and hence the expenditure incurred has to be fully allowed u/s 37 of the Income Tax Act, 1961.
7. The Authorities below failed to appreciate that the Members are the only customers of the Bank and that being so the question of disallowing any expenditure Page 3 of Members of the bank pares the character of business promotion and hence cannot be disallowed.
8. The learned authorities below, erred in disallowing a sum of Rs.1,08,93,110/- being provision on rural advances. The learned authorities below failed to appreciate the fact that as per provisions of Sec 36(1)(viia) of the Income Tax, the Co-operative Bank is entitled to a deduce on in relation to provision of bad and doubtful debts to the extent of 10% of the aggregate average advances made by the rural branches and as such the appellant had computed the provision in the prescribed manner. We wish to rely on the judgement in the case of Syndicate Bank vs. DCIT, (2000) Bangalore ITAT.
The learned authorities below failed to appreciate the fact that provisions of taxes are to be independently applied without linking the same to the financials prepared under the respective law. The learned authorizes are not justified in denying a benefit merely because it is not provided in the books of accounts.
The appellant craves, leave to add, alter, amend, substitute, change, delete any of the grounds of appeal
11. For the above and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeals may be allowed and justice rendered.”
2. Brief facts of the case are as under: 2.1 The Assessee is a cooperative bank and filed it return of income on 30/09/2012 declaring total income of ₹ 51, 65, 160/-. The case was selected for scrutiny and notice under section 143 (2) and 143 (1) was issued in response to which details were filed by the representative of the assessee. During the assessment proceedings to Ld.AO after considering various submissions of the assessee, passed assessment order by making following additions: Returned Income 51,65,160 Add: 1 Amortization of Premium 1,93,880 2 Donation disallowed 25,000 Co-operative Education 3 81,583 Fund Page 4 of 4 Member Welfare Fund 58,500 5 Provision on Rural Advance 1,08,93,110 Total 1,64,17,233 2.2 Aggrieved by the additions made, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) after going through various submissions, partly allowed the appeal by allowing the amortisation of premium paid for government securities. The other issues alleged by assessee were dismissed. Aggrieved by the order of the Ld. CIT(A), assessee is on appeal before this Tribunal.
3. At the outset, the Ld.AR submitted that, Additional ground is raised before this Tribunal vide application dated 18/09/2021. He submitted that the assessee do not wish to contest this issue at this stage. Considering the submissions of the Ld.AR, we dismiss the additional ground these assessee has not pressed.
4. It is submitted that, Ground No.1-2 are general in nature and therefore do not require adjudications.
5. Ground number 3 is in respect of this allowance of donation of ₹ 25,000 paid by the assessee as a part of corporate social responsibility. The Ld.AR submitted that, the donations were in the nature of business expenses, as a part of bylaws of the assessee, and the same is an allowable expenditure for year under consideration. 5.1 On the contrary, the Ld.DR submitted that, the authorities below have recorded a finding that no details supporting the donations having paid has been were submitted. 5.2 In reply the Ld.AR submitted that, the 80G certificate was filed which has not been considered by the authorities below.
Page 5 of 5.3 We have perused the submissions advanced by both sides in light of records placed before us. 5.4 In our view this issue needs to be considered by the learnt new in the light of the 80G certificate filed by assessee and to allow the claim in accordance with law. Accordingly this ground raised by assessee stands allowed for statistical purposes.
6. Ground number 4 is raised by assessee against disallowance of ₹ 81,583/-, being amount contributed towards cooperative education fund which is a compulsory contribution made as per the statute. 6.1 In Ground number 5 assessee is challenging the disallowance of expenditure incurred in relation to staff welfare amounting to ₹ 58,500. 6.2 Ground number 6-7 is connected to ground number 4-5. 6.3 At the outset the Ld.AR submitted that, the said amount is contributed towards cooperative education fund is used to provide financial assistance for education and upgradation of knowledge of the employees and management. 6.4 He further submitted that the amount expended towards members of welfare fund is utilised to provide special welfare measures assistance to the members in real distress, misfortunes like prolonged sickness etc., which is one of the objects of the scheme. It is submitted that, the contribution do not constitute any element of personal expenditure, and therefore, not a capital expenditure as there is no enduring benefit out of the said expenditure.
Page 6 of 6.5 It is submitted that the expenditures are incurred for the welfare of the members, and any contingencies met by its members. The Ld.AR submitted that the structure of cooperative societies such that the business is dependent on its members and therefore the amount spent for its members are in the nature of business promotion expenses that are allowable under section 37 of the act. He placed reliance on the decision of Hon’ble Karnataka High Court in case of CIT vs Pandavapura Sahakara Sakkare Karkhane Ltd., reported in (1988) 174 ITR 75 6.6 On the contrary the law and we are pleased lines and orders passed by authorities below. We have perused the pages advance for both sides in light of records placed before us. 6.7 In the decision relied by the Ld.AR of Hon’ble Karnataka High Court, we note that, the expenditure incurred as per section 57 (4) (a) of the societies act which does not exceed 1 ½% of the net profit is a statutory requirement and therefore has been hailed to be an allowable deduction. The revenue is no disputing such contributions that needs to be made by assessee. The only contention of the revenue is that the same has to be made after offering the profits for taxation. In our understanding the Ld.AO has not considered the submissions of the assessee that the contributions are made out of the net profits as submitted by assessee before the Ld. CIT(A) in para 7. 6.8 We are therefore of the view that the expenditure deserves to be allowed as claimed by the assessee. Accordingly ground no. 4-7 stands allowed.
7. Ground No.8 is regarding the disallowance of provisions on rural advances. 7.1 It is submitted that the assessee is entitled to claim as reduction in respect of any provision for bad and doubtful debts made on account of average aggregate advances made by rural branches of such bank. The Ld.AR submitted that section 36 (1) (viia) of the act provides that the deduction shall not exceed 7.5% of the total income (computed before making any deduction under this clause and chapter 6 a of the act) and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank. He submitted that assessee being a cooperative bank worked out the deduction at 10% of the rural advances and claim the same in the return of income. The Ld.AR referred to the section 36 (1) (viia) of the Act that reads as under: “Whether the learned AO is justified in arriving at a conclusion that the provisions on rural advance will be allowed only to the extent of the amount debited to the Income and Expenditure account. A. We wish to state that the as per the provisions of Sec 36(1)(viia) of the Income Tax the Co-operative Bank shall be allowed deduction in relation to provision to bad and doubtful debts. The provision is reproduced below, in respect of any provision for bad and doubtful debts made by— "(a) a scheduled bank [not being a bunk incorporated by or under the laws of a country outside India] or a non- scheduled bank [or a co-operative bank other than a primary agricultural credit society or a primary co- operative agricultural and rural development bunk], an amount [not exceeding seven and one half 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:………………….”
Page 8 of 7.2 It is submitted that the assessee therefore claimed an amount of Rs.1,20,01,172/-, being fixed percentage of the aggregate rural advances irrespective of the provision made of Rs.25,00,000/-. 7.3 The Ld.AR submitted that revenue disallowed the same stating that as per the provision, the deduction are allowed to the extent of the provision made. In support, the Ld.AR relied on decision of coordinate bench of this Tribunal in case of Syndicate Bank versus DCIT reported in (2001) 78 ITD 103. 7.4 On the contrary, the Ld.DR relied on orders passed by authorities below. We have perused submissions advanced by both sides in light of records placed before us. 7.5 We note that bank claimed some of Rs.1,20,01,172/- in the return of income being 10% of the rural advances however debited a sum of ₹ 25 lakhs in its books of account. The Ld.AR restricted the deduction only to the extent of ₹ 25 lakhs being the provision for doubtful debts made. We have perused the relevant observation by the coordinate bench in case of Syndicate Bank (supra) that is as under: “1. Syndicate Bank vs. DCIT, (2000) Bangalore ITAT The relevant extracts of the judgment is reproduced below, "The learned Commissioner has also acted under the misconception that deduction under Clause (viia) is related to the actual amount of provision made by the assesse for bad and doubtful debts. The true meanina of the clause, as indicated earlier. is that once a provision for bad and doubtful _debts is made by a scheduled bank having rural branches, the assesse is entitled to a deduction which is quantified not with respect to the amount provided for in the accounts, but with respect to a certain percentage of the total income and also a certain percentage of the Aggregate average a6vaiices made by the rural branches of the bank. In other words, this is a specific deduction given by the statute irrespective of the quantum provided Page 9 of by the assesse in its accounts towards provision for bad and doubtful debts."” 7.6 We also note that this view of this Tribunal is been upheld by Hon’ble Karnataka High Court in case of CIT vs Vijaya Bank Ltd by order dated 21/10/2014. Subsequently, Hon’ble Karnataka High Court in case of CIT vs Davengare District Central Cooperative Bank Ltd reported (2021) 123 taxman.com 37 has followed the view by observing as under: “5. With regard to the second substantial question of law, learned counsel for the revenue submitted that the assessee had claimed the benefit under Section 36(1)(viia) of the Act and the assessee has to first set off the bad debt written off against the provision made under Section 36(1)(viia) of the Act. It is further submitted that if actual write off is in excess of provision made under Section 36(1)(viia) of the Act, then as per proviso to Section 36(1)(vii), actual write off in excess of provision of Section 36(1)(viia) would alone be allowed under Section 36(1)(vii). It is also argued that allowing the provision under Section 36(1)(viia) of the Act and on actual write off under Section 36(1)(vii) of the Act would amount to double deduction and the same is in contravention of the law laid down by the Supreme Court in CATHOLIC SYRIAN BANK LTD. VS. CIT (SC) 343 ITR 270. It is further submitted that the principle laid down in the aforesaid decision has not been taken note of by the tribunal and therefore, the matter requires re consideration. It is also urged that reliance placed on decision of this court in COMMISSIONER OF INCOME-TAX VS. CANFIN HOMES LTD., 347 ITR 382 is of no assistance to the assessee as in the aforesaid decision, the effect of Section 36(1)(viia) of the Act has not been considered.
On the other hand, learned counsel for the assessee submitted that tribunal was justified in holding that accounting interest income on non performing asset on cash basis by the assessee though it was following mercantile system of accounting was correct since, once a particular asset is shown to be a non performing asset then the assumption is that it is not yielding any revenue and therefore, the question of showing that revenue and paying tax would not arise. In support of aforesaid submissions, reliance has been placed on decisions in 'UCO BANK VS. CIT', 237 ITR 889 SC, 'CIT VS. CANFIN Page 10 of HOMES LTD.', 347 ITR 382 (KAR), CIT VS. THE URBAN CO-OPERATIVE BANK IN (KAR), CIT VIS THE URBAN CO- OPERATIVE BANK IN SLP NO.1066/2015 (SC) and 'UCO BANK VS. CIT', 360 ITR 567 (KOL).
We have considered the submissions made by learned counsel for the parties and have perused the record. In the course of assessment proceedings, it was noticed that assessee had debited Rs.1.5 Crores as provision for non performing asset but in the income computation sheet the same has not been added. The assessee was given an opportunity to explain why non performing asset provision has not added back to the total income, in the income computation sheet and again deduction 7.5% under Section 36(1)(viia) has not been claimed. The assessee thereupon submitted that a provision has been made as per the norms of the Reserve Bank of India and the details of non performing assets as well as provisions made were provided. The Commissioner of Income Tax (Appeals) held that deduction for provision for bad and doubtful debt is allowed under Section 36(1)(viia) of the Act in the light of the decision of the Supreme Court in UCO Bank Ltd. supra. The tribunal in its order dated 10.10.2014 inter alia has held that though the assessee has used the nomenclature as provision for non performing assets but in pith and substance, the provision has been created for bad and doubtful debts and in doing so the assessee has followed the guidelines framed by Reserve Bank of India. The tribunal has therefore, affirmed the finding recorded by the Commissioner of Income Tax (Appeals).
This court in Canfin Homes Ltd. supra after taking note of Section 145 of the Act has held that once a particular asset is shown as non performing asset then the assumption that it is not yielding any revenue. When an asset is not yielding any revenue, the question of showing that revenue and paying tax would not arise. The contentions, which are sought to be raised by learned counsel for the revenue do not arise for consideration in the context of substantial question of law, which has been framed by this court. The concurrent findings have been recorded by the Commissioner of Income Tax (Appeals) as well as tribunal in this regard, which cannot be termed as perverse. In view of preceding analysis, the second substantial question of law is answered against the revenue and in Page 11 of favour of the assessee. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed.” 7.7 Respectfully following the above view, we hold that, the assessee is eligible for deduction in respect of bad and doubtful debts quantified. Accordingly this ground raised by assessee stands allowed. In the result appeal filed by assessee stands allowed. Order pronounced in open court on 25th May, 2022.