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आदेश/Order Per Bench:
The captioned appeals for assessment years 2013-14, 2014-15 & 2015-16 have been preferred by the assessee against the common
ITA Nos. 503 to 505/Chd/2019 & 803/Chd/2019- Haryana State Coop Apex Bank Ltd.,Panchkula 2 order dated 4.2.2019 and appeal for assessment year 2016-17 has been
preferred against the order dated 18.3.2019 of the Commissioner of
Income Tax(A), Panchkula [hereinafter referred to as ‘CIT(A)’]
Since identical issues have been raised in the aforesaid appeals,
they were heard together and are being disposed of by this common and
consolidated order. The common grounds, as have been taken in ITA No.503/Chd/2019 reads as under:-
That the order of the Ld. CIT(A) is defective in law & facts of the case.
2 That the Ld. CIT(A)is not justified in upholding the addition made by the Ld. Assessing Officer of Rs. 2,40,00,000/- on account of provision for standard assets. The addition is uncalled for and deserves to be deleted.
That the Ld. CIT(A) is not justified in upholding the addition made by the Assessing Officer of Rs. 3,58,69,954/- on account of interest charges on Agricultural Credit Stabilization Fund. The addition is uncalled for and deserves to be deleted.
That any other ground may be kindly be allowed to be taken, at the time of hearing in the interest of equity & natural justice.
Ground Nos. 1 & 4 : These grounds are general in nature and do 3.
not require any specific adjudication.
Ground Nos 2 & 3: At the outset, both the Ld. representatives of 4.
the parties have submitted that the facts and issues involved in both
ITA Nos. 503 to 505/Chd/2019 & 803/Chd/2019- Haryana State Coop Apex Bank Ltd.,Panchkula 3 appeals are squarely covered by the earlier order of the Tribunal in the
own case of the assessee for assessment years 2010-11 & 2011-12
decided vide order dated 5.6.2018 passed in ITA Nos. 1157 &
1158/Chd/2014.
We find that the issue raised in the captioned appeals i.e vide
ground No. 2, relating to the upholding of addition on account of excess
provisioning of standard asset is similar to that of ground No.2 taken in
ITA No. 1157/Chd/2014, whereas, the issue relating to interest charges
on Agricultural Credit Stabilization Fund vide ground No. 3 of the
captioned appeals is identical to that of ground Nos. 1 in ITA
No.1157/Chd/2014. The Coordinate Chandigarh Bench of the Tribunal,
under identical facts and circumstances, in the own case of the assessee,
for earlier assessment years i.e. assessment year 2010-11 & 2011-12,
has decided the issues vide consolidated order dated 5.6.2018.
As far as the issue relating to interest on Agricultural Credit
Stabilization Fund is concerned, the relevant part of the order of the
Tribunal dated 5.6.2018 on the said issue is reproduced as under:-
“6. We have heard the rival contentions and have also gone through the records. The Ld. Counsel for the assessee has submitted that the Agricultural Credit Stabilization Fund was created in pursuance to the instructions issued by the Department of Co-operation, Ministry of Agriculture vide file No. K11011/24/17-Credit dated 15.7.1972 and by Reserve Bank of India dated 8.10.1971 wherein it was recommended that in order ensure uninterrupted flow of long term development, finance for agriculture in the area affected by natural
ITA Nos. 503 to 505/Chd/2019 & 803/Chd/2019- Haryana State Coop Apex Bank Ltd.,Panchkula 4 calamities like flood, drought, etc., the possibility of introducing stabilization arrangements in the long term co-operative credit structure also should be examined. Accordingly, it was decided to start building stabilization fund by Mortgage / Development banks at various levels. As per the instructions, 15% of the net profits are required to be appropriated from the net profits of the concerned bank and further interest @ 3% on the opening balance of the fund is also required to be credited to the fund in each respective financial year. The said fund is created and maintained to deal with the natural calamities in the agricultural sector. As per the instructions, till the usage of the funds, the unutilized funds shall be invested in the government or trustee securities. The Ld. counsel has also submitted that as per the NABARD guidelines, the said Agricultural Credit Stabilization Fund is neither a part of free reserves out of which the bank can declare the dividend nor it is a part of lendable resources which the bank can lend out of available fund. That during the financial years 2009-10 and 2010-11, the assessee invested the entire amount of agriculture stabilization fund and Rs. 109.07 crores in the government securities for the period ending 31.3.2011. That the usage of the Agricultural Credit Stabilization Fund had been proposed to be made by converting the short term loans into the medium term loans in the event of natural calamity. That based on the request, the State co-operative Apex bank sanctioned the proposal given by the District Co-operative banks by converting the short term loans in to medium term loans to enable the farmers to repay their loan over a period of time.
The Ld. Counsel has further submitted that in terms of the RBI Circular No. ACD.Plan.1060/PR.26(Gen|) - 71/72 dated 8.10.1971 under Rule 4D, the Central Cooperative and Apex banks shall pay to the fund an interest @ 3% per annum on the amounts of credit of fund at the commencement of the year. He has further submitted that, thus, in all the instructions, the appropriation at the time of creation of fund and further provisioning of interest during the year @ 3% per annum
ITA Nos. 503 to 505/Chd/2019 & 803/Chd/2019- Haryana State Coop Apex Bank Ltd.,Panchkula 5 are two different things. The appropriation was made only out of profits whereas the provisioning of interest made in each year on the opening balance of the Agriculture Credit Stabilization Fund was an expense which was to be incurred irrespective of the fact whether the assessee made profits or not. It was further stated that in the assessment year 2010-11, when the assessee incurred the loss, there was no provision of the appropriation of the agricultural stabilization fund whereas the assessee provided the interest of Rs. 3,22,00,879/-. The Ld. counsel has further relied upon the decision of the Tribunal in the case of ‘ITO Vs. M/s Haryana State Co-op Agri. & Rural Dev. Bank Ltd., Panchkula’ ITA Nos. 228 & 241/Chd/2011 order dated 28.4.2011 and has stated that the issue is squarely covered in favour of the assessee by the above decision of the Tribunal. The Ld. Counsel has further relied on -
a) CIT Vs. Orissa Industries Ltd 91993) 203 ITR 0449 dated 8.2.1993 – Orissa High Court. - It was concluded that the production & maintenance bonus over and above maximal allowable u/s 36(1)(iii) or facts having been found not being bonus as such but incentive wages same allowable u/s 37(1) of the Income-tax Act, 1961.
b) The Karnataka State Co-op Apex Bank Ltd Vs. DCIT, Banglore dated 29.2.2016 – ITAT, Banglore Bench – wherein the only controversy is whether the amount spent out of above funds is an expenditure laid out “wholly and exclusively for the purpose of business” u/s 37 of the Income- tax Act, 1961. It was concluded that the said expenditure was a statutory obligation to spend money for the above purposes as the provision of the Karnataka Co-operative Societies Act stipulates that certain percentage of profits should be spent towards the specified purpose which is wholly and exclusively for the purpose of business and we direct the Assessing officer to allow the amount as deduction u/s 37(1) of the
ITA Nos. 503 to 505/Chd/2019 & 803/Chd/2019- Haryana State Coop Apex Bank Ltd.,Panchkula 6 Act while computing income of the assessee co- operative bank.
The Ld. Counsel, therefore, summed up his submissions as under:- - That the fund has been created to deal with the position arising out of the natural calamities like flood, drought etc.
- That the fund cannot be used for any other purposes like free reserve or any other lendable resources by assessee.
- Till its usage or occurring of eventuality as mentioned above the fund will be invested only in government securities or trustee securities.
- That the creation and maintenance of land is a socio-economic need of the institution will be utilized only for the business purposes.
- That the charge of interest and the appropriation of profits are two different things which should not be clubbed together. As the interest is to be provided even in the year when the assessee does not earn any profit and whereas the creation of fund will be done only when the assessee earns the profits which is evident from assessment year 2010-11.
The Ld. DR, on the other hand, has relied on the findings of the lower authorities and has submitted that the said fund lying with the assessee though had a specific purpose, but the amount of interest apportioned on the funds cannot be said to be allowable expenditure spent for business purposes. The amount was further invested by the assessee in the government securities and, hence, the assessee had not parted with the funds as a ‘business expenditure’.
ITA Nos. 503 to 505/Chd/2019 & 803/Chd/2019- Haryana State Coop Apex Bank Ltd.,Panchkula 7 10. We have considered the rival submissions. Admittedly, there are two components of contribution of the Agricultural Credit Stabilization Fund (‘ACSF’) which the assessee is required to create and maintained as per the Government’s statuary instructions / guidelines. The first part is the 15% appropriation out of the profits and the second part is the interest @ 3% on the opening balance of the fund.
So far as the appropriation of the 15% on the profits towards the funds is concerned, the assessee has not claimed the same as deduction. The dispute is regarding the claim on the interest amount credited to the funds. The main contention of the Ld. Counsel for the assessee is that the said credit of interest was not out of apportionment of the profits. That even if, the assessee runs into losses, still the assessee is required to credit 3% of the interest on the opening balance of the fund. The Ld. Counsel has referred to the instructions of the Government of India dated 15.7.1972 (supra) to state that so far as the credit out of the profits is concerned the words used “appropriation” of 15% of the net profits” whereas regarding the second part of contribution, the words used are ‘credit of interest of 3% per annum’ has been used. He, therefore, has submitted that the second part i.e. credit of interest to the fund is an admissible expenditure u/s 36(1)(iii) of the Act.
We, however, are not convinced by the above submission of the Ld. Counsel of the assessee. Though, the Agricultural Credit Stabilization Fund was required to be created and maintained as per the government instructions / guidelines, however, the fund contributed remained with the assessee’s bank which the assessee invested in government securities and earned income thereupon . It is not a payment of amount to a third party. Even the income received from further investment of the fund does not go to any third party but to the assessee only. The contribution to the said fund is not an outgo of the assessee that can be termed as expenditure. The Ld. CIT(A) has rightly referred to the definition of ‘interest’ that is a sum paid
ITA Nos. 503 to 505/Chd/2019 & 803/Chd/2019- Haryana State Coop Apex Bank Ltd.,Panchkula 8 or charged for the use of money or for borrowing money or such a sum expressed as a percentage of money borrowed to be paid over a given period. The Ld. CIT(A) has rightly pointed out that even as per the provisions of section 36(1)(iii) of the Act, the deduction is allowable on the interest on borrowed capital. However, in the instant case, the assessee has not claimed interest on any such borrowed capital. The fund, in question, was created to be used by the assessee itself in peculiar circumstances. Though, the fund had two components, one is out of appropriation of profits @ 15% and the other is interest @ 3% on the opening balance of the fund, however, the fact is that the said amount credited by the assessee towards the Agricultural Credit Stabilization Fund is not parted with by the assessee. As pointed out in the relevant notification, as also claimed by the assessee, the fund is used in the case of need to convert the short term crop loans in the case of natural calamity into ‘term loan’. Whenever, the assessee has to incur such an expenditure from the fund maintained by it, that it can of course be claimed as deduction. However, mere contrition to the fund maintained and retained by the assessee, which is further invested by the assessee, government securities and the income is also earned by the assessee on such investments, cannot be claimed as expenditure.
So far as the reliance of the Ld. Counsel for the assessee on the decision of the Coordinate Bench of the Tribunal in ‘ITO Vs. M/s Haryana State Co-op Agri. & Rural Dev. Bank Ltd., Panchkula’ ITA Nos. 228 & 241/Chd/2011 order dated 28.4.2011 is concerned, we agree with the findings of the CIT(A) that the only point taken into consideration by the ITAT while upholding the order of the CIT(A) in that case was that contribution towards the funds @ 3% on the opening balance of the fund is not from the appropriation of profits. However, the fact that the fund so created and maintained is retained by the assessee itself and is used and invested by the assessee itself, though as per the relevant guidelines / instructions has been missing in the said decision of the ITAT in the case of ‘M/s M/s Haryana State Cooperative Agricultural and
ITA Nos. 503 to 505/Chd/2019 & 803/Chd/2019- Haryana State Coop Apex Bank Ltd.,Panchkula 9 Rural Development Bank, Panchkula’(supra). The said distinguishing facts have neither been brought to the knowledge of the Tribunal nor the same has been considered or discussed in the above referred to decision of the Tribunal. However, the issue is squarely covered by the direct decision of the Pune Bench of the Tribunal in the case of ‘Solapur District Central Coop Bank Ltd’ [2014] 52 taxman.com 358. The facts and issues involved in other case laws relied upon by the assessee are different, hence, they are not relevant for the purpose of adjudication of this case. The mere contribution to the fund, in our view, cannot be claimed as expenditure for the purpose of business. The assessee no doubt can claim the expenditure when such fund or part of such fund is expended as per the prescribed procedure, instructions or guidelines. The reliance in this respect can also be placed on the decision of the ITAT Bangalore Bench in the case of ‘Karnataka State Co-operative Apex Bank Ltd.’ Vs. DCIT [2017] 83 taxmann.com 327 (Banglore-Trib) and of ITAT Hyderabad Bench in the case of A.P Mahesh Co-op Urban Bank Ltd v DCIT [2015] 55 taxmann.com 429 (Hyderabad –Trib).
In view of the above, we do not find any infirmity in the order of the CIT(A) on this issue and uphold the same.
In view of the findings arrived at in the aforesaid case, the order
of the CIT(A) on this issue is upheld.
So far as the issue raised vide ground No.2 relating to
provisioning of disallowance on account of excess provisioning of
standard assets is cornered, the relevant findings arrived at by the
Tribunal for the earlier assessment years i.e. 2010-11 and 2011-12 vide
order dated 5.6.2018 are as under:-
ITA Nos. 503 to 505/Chd/2019 & 803/Chd/2019- Haryana State Coop Apex Bank Ltd.,Panchkula 10 “16. We have heard the rival submissions. As per the provisions of the Income Tax Act, generally the deduction of expenditure actually incurred solely for the business purposes are allowed, however, the provision for an expenditure is allowed as a special measure in the case of expected expenditure / losses that are likely to occur in such circumstances and, hence, deduction as a provision of said expenditure is allowed even before the expenditure is actually incurred. However, such provisions is required to be squared off at the end of the year when the actual expenditure is incurred by the assessee against the provision is allowed. If the actual expenditure is less than the provision made of the estimating amount, it is to be added to the income of the assessee and if the actual expenditure is more than the provision made for, the assessee certainly can claim the balance expended amount. However, all these adjustments are subject to the provisions made in the next assessment year. Under the circumstances, if the provisions made as per RBI guidelines in earlier years is more than the provision of expenditure for which the assessee is entitled to make in the relevant assessment year under consideration, then the assessee cannot claim the benefit of perpetuity of the excess provision made. That at the end of the year is required to be squared off and, hence, the excess provisioning made by the assessee is required to be added to the income of the assessee. However, the contention of the assessee that while considering the provisions allowable to the assessee on the allowable standard assets, the lower authorities have not considered the figures of lost assets, we are of the view, that this requires to be examined at the end of the Assessing officer. We, therefore, direct the Assessing officer to consider the expenditure / provision for expenditure / loss on the standard assets / sub-standard assets and loss assets and then to decide, if any, disallowance is attracted for
ITA Nos. 503 to 505/Chd/2019 & 803/Chd/2019- Haryana State Coop Apex Bank Ltd.,Panchkula 11 excess provisioning in accordance with law. This ground of appeal is treated as partly allowed.
Since identical issues raised in the captioned appeals i.e. ITA
No.503 to 505/Chd/2019, have already been decided by the Tribunal in
the own case of the assessee for earlier assessment years, hence, for the
sake of consistency, both the issues being squarely covered by the
decision of the Tribunal dated 5.6.29018, are decided accordingly.
As a result, Ground No.1 raised in the aforesaid appeals, is
dismissed, whereas, ground No.2 of the appeals stands partly allowed.
ITA No. 803/Chd/2019:
In this appeal the assessee has raised the following grounds:-
That the order of the Ld. CIT(A) is defective in law & facts of the case.
2 That the Ld. CIT(A)is not justified in upholding the addition made by the Ld. Assessing Officer of Rs. 4,25,79,412/- on account of interest charged on Agricultural Credit Stabilization Fund. The addition is uncalled for and deserves to be deleted.
That any other ground may be kindly be allowed to be taken, at the time of hearing in the interest of equity & natural justice.
Ground Nos 1 & 3: These grounds are general in nature and do 9.
not require any specific adjudication.
ITA Nos. 503 to 505/Chd/2019 & 803/Chd/2019- Haryana State Coop Apex Bank Ltd.,Panchkula 12 Ground No.2 : The sole issue raised by the assessee vide ground 10. No.2 is on account of interest charged on Agricultural Credit
Stabilization Fund. In view of our findings given above in respect of ground No.3 raised in ITA No. 503 to 505/Chd/2019, this ground of the assessee stands partly allowed.
In view of the above, all the appeals of the assessee are treated as partly allowed.
Order pronounced in the Open Court on 28.11.2019.
Sd/- Sd/- (अ�नपूणा� गु�ता / ANNAPURNA GUPTA) (संजय गग� / SANJAY GARG) लेखा सद�य/ Accountant Member �या�यक सद�य/ Judicial Member Dated : 28.11.2019 “आर.के.” आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File
आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar