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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI G.D. AGRAWAL & SHRI MAHAVIR SINGH
1 ITA-169/Nag/2017
IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR
BEFORE SHRI G.D. AGRAWAL, PRESIDENT AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER I.T.A. No.169/Nag/2017 Assessment Year : 2012-13
The Khamgaon Urban Co-op Vs. Principal CIT-1, Bank Limited, Nagpur. “Dhanawardhini”, Shriram Shalikram Plots, Khamgaon. PAN : AAAAT5049D. (Appellant) (Respondent)
Appellant by : Shri Kapil Hirani, CA. Respondent by : Shri R.K. Baral, Senior DR.
Date of hearing : 05.03.2018 Date of pronouncement : 05.03.2018
O R D E R PER BENCH :
This appeal by the assessee is arising out of the revision order of Principal Commissioner of Income Tax, Nagpur-1 under Section 263 of the Income-tax Act, 1961 (hereinafter ‘the Act’) dated 6th March, 2017. Assessment was framed by the ACIT, Akola Circle, Akola under Section 143(3) of the Act for assessment year 2012-13 vide his order dated 13th February, 2015.
The only issue in this appeal of the assessee is against the revision order of CIT passed under Section 263 of the Act revising the assessment order for the reason that the loss claimed by the assessee on account of fraud and misappropriation by the employees is not allowable. For this, the assessee has raised following five grounds :-
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“1. The notice issued u/s 263 and the order passed u/s 263 are illegal as the same are not in conformity to the basic requirement of Section 263.
Without prejudice to above, the notice and proceedings u/s 263 are invalid as the order passed by AO u/s 143(3) was neither erroneous nor prejudicial to the interest of revenue.
The ld.AO having examined the claim of the appellant of Rs.6,07,000/- and after considering the submissions allowed the claim, the view of the AO cannot be held to be erroneous and is not amenable to be revised u/s 263.
The Pr. Commissioner of Income Tax-1 grossly erred in holding that the amount of Rs.6,07,000/- representing loss on account of fraud and misappropriation is a prior period loss and thus not allowable for the current year ignoring the fact that the loss came to light during the RBI inspection and the same was immediately provided for. The loss thus cannot be considered to be a prior period expense and deserves to be allowed in the interest of natural justice. Without prejudice even if the loss is considered prior period, the loss still ought to be allowed as the same is genuine and also wholly & exclusively for the purpose of the business of the appellant.
The Pr. Commissioner of Income Tax-1 further grossly erred in disallowing the claim of Rs.6,07,000/- representing loss on account of fraud and misappropriation by the employee of the appellant bank, by treating it as a mere provision which is contrary to the accepted accounting principles and the disallowance so made thus is illegal. The appellant having provided for the loss in its books of accounts, the issue of whether the same is credited to a provision account or the debtor account is inconsequential to the claim of the appellant. The disallowance so made is thus illegal and the claim of the appellant deserves to be allowed as per law.”
3 ITA-169/Nag/2017
Briefly stated, facts are that the assessee is a cooperative bank carrying on the business of banking. Original assessment was completed by the Assessing Officer u/s 143(3) of the Act vide order dated 13th February, 2015. Subsequently, assessee received show cause notice u/s 263 of the Act proposing revision by CIT and the relevant paragraph of the show cause notice reads as under:-
“It was noticed from the P & L a/c of the assessee for the financial year 2011-12 that the assessee had debited an amount of Rs.70,10,000/- and Rs.6,07,000/- on account of provisions for ‘Depreciation in investment’ and for ‘Misappropriation’ respectively. These provisions are not ascertained liabilities, hence are not allowable deductions and should have been disallowed and added back to the total taxable income.”
The assessee, in response to the above show cause notice, filed reply objecting to the revisionary proceedings and accordingly, the CIT has not passed any order in respect to the item of depreciation in investment of `70.10 lakhs and accepted the contentions of the assessee. However, the CIT with respect to the amount of `6.07 lakhs towards provision for misappropriation proposed the order that the Assessing Officer was erroneous so as to prejudicial to the interest of the Revenue for allowing this amount. Aggrieved, assessee preferred appeal before Tribunal.
We have heard rival contentions and gone through the facts and circumstances of the case. The facts are that the assessee is a scheduled cooperative bank registered under The Multi State Cooperative Society Act, 2002 and also governed by The Banking Regulation Act, 1949. The assessee is engaged in the business of banking since inception and had been regularly filing return of income. The books of account of the assessee are duly maintained and audited
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as per the provisions of The Maharashtra Cooperative Society Act, 1960 and also complying with the regulations prescribed under The Banking Regulation Act, 1949. Assessee’s books of account are duly audited under the provisions of Section 44AB of the Act. Learned counsel for the assessee before us stated that all the details as desired by the Assessing Officer were furnished during assessment proceedings from time to time and assessment was framed u/s 143(3) vide order dated 13th February, 2015. With respect to the amount of `6.07 lakhs towards provision for misappropriation, the assessee filed reply during assessment proceedings that the assessee booked this loss of `6.07 lakhs caused by misappropriation by employees of the assessee bank and accordingly, the same has been provided for in the books of account. The assessee filed copy of RBI report giving the details of the said fraud along with the fact that the fraud has been proved and employees have been found guilty. Accordingly, it was claimed that the loss caused to the bank on account of said fraud has rightly been provided in the books of account of the assessee in accordance with the accepted accounting principles, RBI guidelines as well as Banking Regulation Act. Learned counsel for the assessee before us stated that once the Assessing Officer has examined the claim of the assessee with respect to the amount of `6.07 lakhs towards provision for misappropriation and after considering the submissions allowed the claim, the Assessing Officer cannot be held to be erroneous and is not amenable to be revised u/s 263 of the Act. Learned counsel for the assessee relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. Max India Ltd. – (2007) 213 CTR 266 (SC). We find that the fact is that the Assessing Officer has duly considered the submissions made by the assessee with respect to the amount of `6.07 lakhs towards provision for misappropriation and allowed the claim of the assessee after applying his mind and once the Assessing Officer has applied his mind and allowed the claim, he has taken one of the possible two
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views, therefore, the view of the Assessing Officer cannot be held to be erroneous and is not amenable u/s 263 of the Act under revisionary powers. Accordingly, the revision proceedings by the CIT are quashed.
In the result, the appeal of the assessee is allowed. Decision pronounced in the open Court on 05.03.2018.
Sd/- Sd/- (G.D. AGRAWAL) (MAHAVIR SINGH) PRESIDENT JUDICIAL MEMBER
Dated : 05.03.2018 VK.
Copy of the order forwarded to :
The Appellant 2. The Respondent 3. Concerned CIT 4. The CIT(A) 5. D.R. Assistant Registrar