THE UNITED WESTERN BANK LTD.,,SATARA vs. ADDITIONAL COMMISSIONER OF INCOME-TAX,, SATARA

The assessee is aggrieved with some of the additions confirmed by the learned CIT(A) and therefore has preferred this appeal by raising following grounds of appeal:-

The assessee is aggrieved on following grounds of appeal:-

The assessee has raised following grounds of appeal:

Coming to the facts of the case shows that the assessee is a United Western Bank Ltd.

The learned Assessing Officer made seven disallowances amounting to Rs. 10,33,48,354/- which are as under:-

Ground No. 1 of the appeal with respect to disallowance of expenditure of Rs. 72,956/- for prior period expenditure. The learned Assessing Officer noted that as per annexure- 17 of tax audit report a total expenditure of Rs. 16,15,010/- is expenditure relating to earlier years debited to the profit and loss account. On question, the assessee explained that these are the expenses related though earlier period however incurred during the year. The assessee submitted that as the liability to above sum has been crystallized during the previous year these are not in fact prior period expenditure but are expenditure allowable under section 28 of the Act for this year. The learned Assessing Officer rejected the contention of the assessee and held that as the assessee has not been able to prove that the liability for payment of the above expenditure arose during the year, he disallowed a sum of Rs.2,04,359/-. The assessee preferred the appeal before the learned CIT(A) who sustained the disallowance of Rs.44,563/- in respect of rent paid for the month of October, 2000 with respect to Indore Branch, the disallowance of Rs.37,124/- with respect to water charges, rent and electricity of Gwalior branch, of Rs.1 lacs with

The learned Authorised Representative submitted that identical issue arose in case of the assessee for Assessment Year 2001-02 wherein the co-ordinate Bench vide order dated 17th December, 2020 in vide Para No. 17 to 20 has deleted the disallowance.

The learned Departmental Representative supported the orders of the lower authorities.

On careful perusal of the order of the co-ordinate Bench for Assessment Year 2000-01, we find that the identical disallowance of Rs. 2,42,190/- confirmed by the learned CIT (A) was deleted. The co-ordinate Bench held that where the activities of the assessee are carried out through multiple branches situated at distant places naturally, there would be overflow of information. However, assessee is following mercantile system of accounting and as and when the expenditure are approved then the same are said to be incurred and for that year those claim are allowable. Naturally, though the expenses may relate to period of earlier year but when the liability to pay such sum is acknowledged during the year, the same is allowable. In the present case, Rs.44,563/- is with respect to rent, Rs.37,124/- is also of water charges and electricity and expenditure of Rs.1,112/- of different

The 2nd ground of appeal, with respect to the sustaining of disallowance of Rs. 7 lacs being 1/5th expenditure on stamp duty for increasing the authorized share capital of the assessee in Assessment Year 2011-12. In the computation of the total income assessee has claimed 1/5th of expenditure incurred on stamp duty and registration charges for increase in assessee bank’s authorised share capital under section 35D(2)(c)(iv) of the Act. The assessee submits that the claim of the assessee is based on the decision of Hon'ble Rajasthan High Court in the case of 199 ITR 151. The learned Assessing Officer considered the provision of section 35D of the Act and held that as the assessee bank is not

The learned Authorised Representative submitted that this issue is covered in favour of the assessee by the decision of the co-ordinate Bench in assessee’s own case for Assessment Year 2001-02. He specifically referred to paragraph No. 8-11 of the order. The learned Departmental Representative relied on the order of the lower authorities.

We have carefully considered the rival contentions and perused the orders of the lower authorities. Identical issue arose first in Assessment Year 2001-02 where the first appellate authority confirmed the disallowance made

Ground No.3 and 3A of the appeal is with respect to disallowance under section 14A of the Act. During the year assessee has claimed tax-free income of Rs.33,12,67,172/-. In the return of income as note no. 3 assessee has stated that no expenditure is incurred attributable to tax-free income, as the amount of investment made in those equity is less than the amount of share capital and free reserve of the assessee and therefore there cannot be any interest expenditure

The learned Authorised Representative submitted that for Assessment Year 2001-02, the matter was agitated before the co-ordinate Bench wherein as per Para No. 12 of the order the above disallowance was deleted. The learned Authorised Representative relied upon the orders of the lower authorities.

We have carefully considered the rival contentions and perused the orders of the lower authorities as well as orders of the co-ordinate Bench on identical issue for

Ground No. 4 is against the disallowance of Rs. 2,68,54,381/- made by Assessing Officer on account of bad debts. The facts shows that the assessee has claimed total bad debts written off of Rs.83,01,10,149/-, whereas balance in the provision u/s 36 (1) (viia) is of Rs.22,69,44,299/- and made a net claim of Rs.60,31,65,150/-. The learned Assessing Officer on the basis of the work found that assessee has gross bad debt of Rs. 83,01,10,149/- and the balance of the provision as on 31.03.2001 was Rs.9,49,87,381/-. The assessee has made the provision for current year of Rs.15,88,11,299/- resulting into balancing figure of gross bad debt of

The learned Authorised Representative submitted that there is no excess claim made by the assessee. He relied on the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. vs. CIT [2012] 18 taxmann.com 282 (SC) 342 ITR 270 and decision of the Hon'ble Gujarat High Court in the case of CIT vs. UTI Bank Ltd. [2013] 29 taxmann.com 79 (Gujarat). The learned Authorised Representative submitted that there is no excess claim made by the assessee.

The learned Departmental Representative vehemently supported the orders of lower authorities.

We have carefully considered the rival contentions and perused the orders of the lower authorities. According to

Ground No. 5 is with respect to disallowance of penalty levied of Rs. 5 lacs by Reserve Bank of India. The assessee has paid a penalty of Rs. 5 lacs levied by RBI as the assessee allowed to transfer of bank shares acquired by employee equity trust in excess of 5% stipulated for holding of any one entity. The Reserve Bank of India

The learned Authorised Representative contested that RBI is a regulatory authority and the penalty is not levied for infraction of any law or any criminal offence and therefore it is not disallowable. He also referred to several judicial precedents including in assessee’s own case where disallowance made of penalty levied by RBI is deleted. Before us, the assessee has relied upon the decision of co- ordinate Bench in the case of Bapunagar Mahalla Co- operative Bank Ltd. in dated 02.07.2015 and Hon'ble Bombay high Court in the case of Stock and Bond Trading Co. in ITA No.4117 of 2010 dated 14th October 2011 stating that the above payment is not prohibited by law and therefore it should be allowed.

The learned Departmental Representative vehemently supported the orders of the lower authorities.

We have carefully considered the rival contentions and perused the orders of lower authorities. Firstly, we have asked the assessee to produce the order of the Reserve bank of India for levy of penalty. The penalty was levied for the reason that assessee has allotted shares in excess

Now, we come to the filed against the order passed by the learned Commissioner of Income- tax Appeals-3, Pune dated 17.07.2007, wherein the appeal filed by the assessee against the order passed by the Dy. Commissioner of Income-tax, satara Circle, Satara passed under section 143(3) of the Act read with section 147 of the Income-tax Act, 1961 (hereinafter referred to as ‘Act’) was dismissed.

The learned CIT (A) upheld the reopening of the assessment as well as disallowance of Rs. 2,35,00,000/- claimed as expenditure by the assessee on account of ESOP.

The assessee filed its return of income that was assessed under section 143(3) of the Act on 30th November, 2004. After that, the notice under section 148 of the Act was issued on 20 February 2006 served on assessee on 1 March 2006.

The reason for reopening recorded by the learned Assessing Officer are as under:-

Assessee was questioned on the above reasons, assessee replied the same which was rejected and thereafter the addition of Rs.2,35,15,322/- was made to the total income of the assessee and assessment order under section 143(3)/ 250 read with section 147 of the Act was passed on 18th December, 2006.

The assessee challenged the same before the learned CIT (A) who confirmed the reopening of the assessment as well as on the merits of the case. Therefore, the assessee is in appeal before us.

The learned Authorised Representative submitted that reopening of the assessment has been made on mere change of opinion and in absence of any tangible material. He submitted that assessment records for Assessment Year 2001-02 was the only basis for reopening of the assessee, which was already there in the assessment

On the merits of the case he submitted that the assessee has introduced employee stock option plan scheme and a trust was created for that and interest free loan of Rs. 6 crores was given to Trust after obtaining approval from Reserve Bank of India. This limit was further enhanced to Rs. 20 crores. The Trust acquired 8.15% of the bank equity at the cost of Rs. 15,22,00,000/-. As the enhancement of limit from Rs 6 crores as well as the acquisition of shares by more than 5% was without obtaining the permission of the RBI, assessee was directed to unwind the above scheme and recover loan from the above Trust. The entire loan granted to the Trust was to be recalled by selling of the shares and making the provisions of loss in the balance sheet of the assessee based on the current market value of the shares as on 31.03.2001. Accordingly, the assessee made a provision of Rs. 7,42,64,353/-. For Assessment Year 2001-02, the above sum was disallowed. For this year i.e. Assessment Year 2002-03, the same was also disclosed in the annual report in notes to financial statements in schedule 18 that there would be a further write off of Rs. 2,35,00,000/- relating to employees stock option plan. This was so

The learned Departmental Representative supported the orders of the lower authorities.

We have carefully considered the rival contentions and perused the orders of the lower authorities. The first ground of appeal

With respect to the ground No. 2, as the issue has already been set aside by the co-ordinate bench in assessee’s own case for Assessment Year 2001-02 in dated 17th December, 2020 vide Para No. 3 to 8 of the order, Therefore, following those direction, we also set aside this ground of appeal back to the file of the learned Assessing Officer to decide it afresh. Accordingly, ground no. 2 of the appeal is allowed with above direction.

Accordingly, is partly allowed.

ITA no. 289/PN/2010 is with respect to levy of penalty under section 271(1)(c) of the Act for the Assessment Year 2002-03 levied by the learned Assessing Officer as well as confirmed by the learned CIT(A) under section 271(1)(c) of the Act of Rs. 83,94,975/- on the disallowance of Rs. 2,35,15,332/- on account of loss of sale of shares claim as bad debts per order under section 143(3) read with section 147 of the Act. The same order was also subject matter of appeal before us in ITA no. 1339/PN/2007. As the issue of disallowance on which penalty has been levied has been restored back to the file of learned Assessing Officer, issue of levy of penalty thereon is also set aside to the file of the learned

Accordingly, the appeal of the assessee is allowed for statistical purposes.

In the result, all the three appeals filed by the assessee are disposed of as above.