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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI KUL BHARAT & SHRI O. P. MEENA
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 1 of 12
IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI O. P. MEENA, ACCOUNTANT MEMBER I.T.A. No. 1059 & CO.88/AHD/2015: Assessment Year: 2011-12 1. Addl. CIT Range, Bharuch Vs. 1. Baroda Gujarat Gramin Bank, 2. Baroda Gujarat Gramin Bank, Sky Line Building, 2nd floor Sky Line Building, 2nd floor Near Near Sheetal Guest House Sheetal Guest House Bharuch Bharuch PAN: AABTB0390F PAN: AABTB0390F 2. Addl. CIT Range- Bharuch Appellant Respondent
I.T.A.No. 228 & 229/SRT/2018: assessment year 2012-13 & 13-14 Assistant Commissioner of Vs Baroda Gujarat Gramin Bank, Sky Line Income Tax, Circle- 1 . Building, 2nd floor Near Sheetal Guest Bharuch House Bharuch PAN: AABTB0390F Appellant Respondent
Assessee by Shri B. P. K. Panda, Sr. D.R. Revenue by Shri Mukund Rao, CA Date of hearing 21.02.2019 Date of pronouncement 25.02.2019
ORDER PER O. P. MEENA, AM 1. These are three appeals by the Revenue which are directed against the three separate orders of learned Commissioner of Income tax (Appeals)-3 Vadodara (in short “the CIT (A)”) dated 28.01.2015, 19.12.2017 and 19.12.2017 respectively pertaining to Assessment Year 2011-12, 2012-13 and 2013-14 respectively and Cross Objection by the assessee for the assessment year 2011-12. First we will take up the I.T. No.1059/Ahd/2015/AY 11-12 of which finding would mutatis mutandis apply to A.Y. 12-13 & 13-14.
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 2 of 12
Ground No. 1 states that Ld. CIT(A) erred in deleting the disallowance of Rs. 84, 20, 118/-out of as revenue expenditure of Rs. 79, 64, 580 on implementation of Core Banking Solutions (CBS) and depreciation of Rs. 25, 60, 568 disregarding the fact the assessee has derived and enduring benefit, through these expenses. Therefore, same are to be amortised for 5 years after allowing 1/5th of the expenditure as deduction. 3. The AO has disallowed the depreciation claim of Rs. 25, 60, 568 related to core banking solutions and further disallowed the claim of deduction of revenue expenditure amounting to Rs. 79, 64, 580 in respect of the core banking solutions implementation. These facts have been discussed by the AO at page number 2 to 5 of the assessment order. The AO was of the opinion that expenses of CBS have resulted in the benefit of enduring nature and therefore, the amortised the amount of Rs.1,05,25, 148 (79,64,580+25,60,568) over a period of 5 years and allowed deduction of 1/5th of total expenditure i.e. Rs. 21, 05, 030, which resulted in at total addition of Rs. 84, 24, 118 of the total income of the assessee. 4. Being, aggrieved the assessee has filed an appeal before the Ld. CIT(A). The Ld. CIT (A) observed that it is not clear as to under which provisions of the section, the AO has amortised the total expenditure and allowed 1/5th of the total amount as deduction. From the details submitted by the appellant. It is seen that the appellant had implemented core
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 3 of 12
banking solutions in 134 branches during the year. This fact is corroborated by the annual report of the bank filed during the course of appellate proceedings. The appellant has also informed that core-banking solution was implemented by the bank of Baroda and major bills for the expenses of capital nature were not received by the appellant during the year. From the details submitted by the appellant, it was seen that the capital expenditure on which the depreciation has been claimed by the appellant relate mainly to consultancy charges and pilot project expenses incurred for implementation of core banking solution. The expenses will qualify as computerization/software expenses and the appellant was justified in claiming depreciation at the rate of 60% (the rate prescribed for depreciation on computer and software) in respect of these expenses because CBS had been implemented in this year. Accordingly, the AO was directed to allow the depreciation at the rate of 60% in respect of capital expenditure amounting to Rs.42, 47, 613 as claimed by the appellant. So far the claim of revenue expenditure amounting to Rs. 79, 64, 580, is concerned, this expenditure consist lease line rent expenses amounting to Rs.49, 85, 220 paid to BSNL, earthing repaircharges amounting to Rs. 2,10,426, is structure cabling repair charges amounting to Rs.18,74, 527. Signature conversion charges of Rs.86,164 and annual charges for the links between various branches debited by the bank of Baroda in respect
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 4 of 12
of payment to Rail tel at Rs.8,05,243 . From the details furnished by the assessee, it is seen that expenses amounting Rs. 49, 85, 220 paid to BSNL and annual charges for link between various branches debited by bank of Baroda in the aspect of payment for Rail Tel at Rs. 8, 05, 243 are charges of recurring nature and therefore these are liable to be allowed as a revenue expenditure. Similarly, signature conversion charges of Rs.86, 164 do not give rise to any asset and they are incurred for a routine work of the appellant. They are also to be allowed as a revenue expenditure. However, earthing repair charges amounting to Rs.2, 10,426 and structure cabling repair charges amounting to Rs. 18, 77, 527 have resulted in enhancement of the capacity of the existing infrastructure and they provide a long-term benefit of the appellant. Accordingly, the AO was directed to capitalize this expenditure and allowed depreciation applicable to furniture and fixtures in the respect of them. Thus, this ground of appeal is partly allowed. 5. Being, aggrieved the revenue has filed this appeal before this Tribunal. The learned Department representative placing reliance on the findings of the assessment order submitted that the AO has rightly held that expenditure incurred is capital in nature. Hence, his findings may be upheld.
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 5 of 12
On the other hand, the learned Counsel for the assessee supported the order of the Ld. CIT(A). 7. We have heard the rival submissions and perused the material on record. It is seen that the government of India had instructed the bank to implement the core banking which was a project for linking all bank accounts of individual customer to central server which in turn was linked to severs of bank of Baroda and RBI. CBS facilitated all India banking and real-time banking for all bank account holders. Therefore, the expenditure incurred was in respect of computerization of the bank branches and networking with the regional offices, and sponsoring banks and RBI. Thus, the capital expenditure involved in CBS would fall under the head of computer including peripheral and software and therefore eligible for depreciation at the rate of 60% as per the rate prescribed under the IT Act. Therefore, the findings of the Ld. CIT (A) are upheld. We further find that the expenditure relating to Lease line rent expenses and earthings repairing charges, structure cabling repair charges, conversion charges and annual charges for the links between various branches debited by the bank of Baroda in respect of payment to Rail Tel are of recurring nature and therefore, these are liable to be allowed as revenue expenditure. In view of these facts, we do not find any infirmity in the order of the learned
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 6 of 12
CIT(A). Hence, the same is upheld. In view of these facts, this ground of appeal of the revenue is therefore dismissed. 8. Ground No.2 states that Ld. CIT(A) erred in deleting the disallowance of Rs.25, 00, 000 being deduction claimed under section 36 (1) (viia) of the Act was provision for NPA which is not admissible to the assessee which is set up as per Rural Bank Act, 1976. 9. Brief facts are that the assessee has claimed deduction for provision for NPA amounting to is 25 lakhs claimed by the assessee under section 36 (1) (viia) of the Act. However, the AO has disallowed the same on the ground that the assessee is a Rural Development Bank which is not eligible for deduction under section 36(1)(viia) of the Act. 10. Being, aggrieved the assessee has filed an appeal before CIT(A). The Ld. CIT(A) observed that vide notification dated 12.09.2005. The Government of India has Notified the Appellant to be a regional bank under the Regional Rural Bank Act,1976. As per the provisions of the Regional Rural Bank Act,1976. The appellant is deemed a Co-Operative Bank. The appellant has also been notified, as scheduled Bank vide Notification No. RPCD.CO.RRB No. 3230/03.05.100/2008-09 dated 22.09.2008. Thus, the appellant is a scheduled bank. Looking to the activities of the appellant, it cannot be categorized as a Primary Co-Operative Agricultural and Rural Development Bank, as defined in Explanation 4 to section 80P
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 7 of 12
of the Act. Therefore, presumption of the AO that the Appellant is a Rural Development Bank is without any basis and the Appellant is tot eligible for deduction of Provision for Bad and Doubtful Debts to the extent of 7.5% of total income as the provisions of Section 36 (1) (viia) of the Act. The provisions made by the appellant is much less than 7.5% of the total income, therefore, the appellant is entitled to deduction in respect of provision of Rs. 25 lakhs under section 36 (1) (viia) of the Act. In view of this, the AO was directed to allow deduction of Rs. 25 lakhs to the appellant under section 36(1)(viia) of the Act. 11. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The ld. Sr. D.R. has placed reliance on the order of the AO. 12. Per contra, the learned counsel for the assessee supported the order of Ld. CIT (A). 13. We have heard the rival submissions and perused the relevant material on record. We find that the assessee bank has been notified, as scheduled Bank vide Notification No. R.PCD.CO.RRB No. 3230/ 03.05.100/ 2008-09 dated 22.09.2008. Therefore, the assessee is a scheduled bank and looking to the activities of the assessee, it cannot be categorized as a Primary Co-Operative Agricultural and Rural Development Bank, as defined in Explanation 4 to section 80P of the Act. Therefore, we are of the considered opinion that the findings of the AO that
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 8 of 12
the assessee a Rural Development Bank has no legs to stand. We find that the provisions made by the assessee are much less than 7.5% of the total income, therefore, the assessee is entitled to deduction in respect of provision of Rs. 25 lakhs under section 36 (1) (viia) of the Act. In view of this matter, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. This ground of appeal of the revenue is dismissed. 14. Ground No. 3 states that Ld. CIT (A) erred in deleting disallowance of Rs. 59,66,630 being provision for theft/ embezzlement, which is, not crystallized loss during the given period of time. 15. The assessee has made provisions towards theft and burglary amounting to Rs. 59,66,630. This provision was made by the assessee for fraud detected in one of the branches and debited to Profit & Loss Account. This claim of deduction was disallowed by the AO because in his opinion, the amount of loss has not been crystallized during the year under consideration and it was an estimate liability. 16. Being aggrieved, the assessee filed an appeal before the ld. CIT (A). It was submitted that that there was major fraud detected in Saputara Branch of the assessee bank involving branch managers, employees and customers. The primary investigation revealed the fraud was to the extent of Rs. 1,32,20,000 out of which bank internal assessment showed that an amount of Rs. 59,66,630 was non recoverable and a provision was made
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 9 of 12
for same in the books of accounts. The assessee has also filed copy of FIR with Police. The assessee has also placed reliance in the case of CIT v. National Bank 55 ITR 707 (SC) , Dandekar Machine Works v. CIT 202 ITR 161 (Bombay) and others. In view of these facts and circumstances, the CIT (A) observed that the assessee has lodged a FIR with Police Department on 24.06.2010 and a complaint with CBI on 31.12.2010. The amount mentioned in the FIR was at Rs.1,32,20,000 whereas the amount mentioned with complaint with CBI was at Rs.2,34,70,728. As against this, actual provision made by the appellant is Rs.59,66,630 only. This shows that provision is made after due diligence by the bank. The provision has been debited to Profit & Loss Account of the appellant. On similar set of facts, in the case of DCIT v. ING Vysya Bank Ltd. 42 taxmann.com 303 (Bangalore-Trib), the claim of the loss was allowed by the tribunal. Therefore, following the aforesaid decision, the CIT (A) has deleted the disallowance of provision made by the assessee. 17. Being aggrieved, the Revenue has filed this appeal before the Tribunal. The ld. D.R. has heavily relied on the order of the AO. 18. Au contraire, the learned counsel for the assessee supported the order of the Ld. CIT (A). 19. We have heard the rival submissions and perused the relevant material on record. We find that the fraud was duly detected in Saputara
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 10 of 12
Branch of the assessee bank. This fact is evident from the FIR Lodged with Police Department and CBI. The amount mentioned in these FIRs is much higher than the provisions made by the assessee Bank. Further, the amount of Rs. 59,66,630 has been debited in Profit & Loss Account. Therefore, the loss, which was non recoverable by the assessee Bank was duly allowed by the Ld. CIT (A). In view of this matter, we do not find any infirmity in the order of CIT (A), accordingly, same is upheld. This ground is dismissed. 20. In the result, the appeal of the Revenue for A.Y. 11-12 is dismissed. Cross Objection No.88/Ahd/2015/A.Y. 2011-12 by the assessee: 21. The assessee has filed Cross Objection in support of above deletion of addition / disallowance by the Ld. CIT (A). Since, we have upheld the order of CIT (A) therefore; this Cross Objection becomes infructuous and stands withdrawn by the assessee. Therefore, it is treated as dismissed. I.T.A.No. 228/SRT/2018 A.Y. 2012-13 by th Revenue: 22. The Revenue has raised three grounds of appeal in which Ground no. 1 is related to deleting the disallowance of depreciation claimed due to implementation of CBS, Ground No. 2 relates to deleting disallowance made on account of deduction under section 36(1)(viia) of the Act and Ground No. 3 relates to deleting disallowance of provision for theft and burglary under section 37 of the Act.
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 11 of 12
We have heard the rival submissions and perused the relevant material on record. Both parties have agreed that grounds of appeal raised for the assessment year 2012-13 are identical to grounds of appeal raised in assessment year 2011-12 except figures and quantum. Since, we have given our findings for the assessment year 2011-12, which would mutatis mutandis apply to this appeal and grounds of appeal. Therefore, following same reasoning, these three grounds of appeal raised by the Revenue are therefore, dismissed. 24. In the result, the appeal of the Revenue for A.Y.2012-13 is dismissed. I.T.A.No. 228/SRT/2018 A.Y. 2012-13: By the Revenue: 25. The Revenue has raised two grounds of appeal in which Ground no. 1 is related to deleting the disallowance of depreciation claimed due to implementation of CBS, Ground No. 2 relates to deleting disallowance made on account of deduction under section 36(1)(viia) of the Act. 26. We have heard the rival submissions and perused the relevant material on record. Both parties have agreed that grounds of appeal raised for the assessment year 2013-14 are identical to grounds of appeal of assessment year 2011-12 except figures and quantum. Since we have given our findings for the assessment year 2011-12, which would mutatis mutandis apply to this appeal and grounds of appeal. Therefore, following
ACIT - Bharuch v. Baroda Gujarat Gramin Bank v. /I.T.A. No. 1059& CO88/Ahd/2015/A.Y.11-12 &I.T.A.No. 228&229/2018/A.Y. 12-13 &13-14 Page 12 of 12
same reasoning, these two grounds of appeal raised by the Revenue are therefore, dismissed. 27. In the result, the appeal of the Revenue for the assessment year 2013-14 is dismissed. 28. In the result, the appeal of the Revenue is dismissed for the assessment year 2011-12, 2012-13 and 2013-14 in I.T.A.No. 1059/Ahd/2015, I.T.A.No. 228/SRT/2018 and I.T.A.No. 229/Ahd/2018 respectively and Cross Objection No. 88/Ahd/2015 for A.Y. 2011-12 filed by the assessee is also dismissed. 29. The order pronounced in the open Court on 25.02.2019.
Sd/- Sd/- (KUL BHARAT) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 25th February, 2019/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat