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Facts
The assessee, an urban co-operative bank, filed its return for AY 2017-18 declaring a total income of Rs.96,10,290/-. The AO made additions for a provision release and disallowed 5% of other expenditures. The CIT(A) confirmed the AO's order.
Held
The Tribunal held that the provision released was not an income item but a reduction from earlier provisions and thus erred in its addition. The Tribunal also found the disallowance of 5% of other expenditure to be adhoc without cogent reason.
Key Issues
Whether the provision released is an income and whether the disallowance of 5% of other expenditure was justified without cogent reasons.
Sections Cited
143(3), 37(1)
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K, HON’BLE & SHRI S. R. RAGHUNATHA, HON’BLE
आदेश/ O R D E R
PER S. R. RAGHUNATHA, AM:
This appeal filed by the assessee is directed against the order passed by the learned Addl/Joint Commissioner of Income Tax (Appeals)-8, Delhi, for the assessment year 2017-18, vide order dated 15.10.2024.
The assessee has raised the following grounds of appeal: 1.The order of the Commissioner of Income Tax (Appeals) [CIT (A)] is against the law, the facts and circumstances of the case and the principles of equity and natural justice. 2.The CIT(A) erred in dismissing the appeal without adjudicating on the merits of case and thereby violated the principles of equity and natural justice.
:-2-: ITA. No: 3178/Chny/2024
3.The CIT(A) ought to have appreciated that the assessing officer has erred in determining the total income of the Appellant at Rs. 99,01,740/- . The CIT(A) ought to have considered the submissions submitted by the Appellant for the other expenditures. 4.The CIT(A) ought to have appreciated that the assessing officer had erred by adding a sum of Rs.1,36,235/- towards the provision release made during the FY 2016-17. The CIT(A) ought to have appreciated that such provision was already disallowed by the appellant during the previous year relevant to the AY 2016-17 and hence the disallowance made by the assessing officer resulting in double addition is required to be deleted. 5.The CIT(A) erred in upholding the disallowing premium in respect of government securities without appreciating that 1/10th of the premium was allowable. The CIT(A) ought to have appreciated that the appellant had already disallowed the entire premium in A Y 2016-17. 6.The Assessing Officer erred by adding a sum of Rs.1,52,210/- towards 5% on other expenditures that includes various types of expenditure. The details towards the same were furnished and the CIT(A) failed to consider the same and upheld the Assessing Officers order. 7.The CIT(A) ought to have appreciated the fact that the assessing officer without considering the nature and the type of expenditure estimated a 5% on the total expenditure incurred. 8.The CIT(A) erred in not appreciating the fact that the Appellant though had submitted the relevant documentary evidence for supporting the income/ expenditures claimed.
The brief facts of the case are that the assessee is a urban co- operative bank and filed its return of income for the A.Y.2017-18 on 12.10.2017 by declaring a total income of Rs.96,10,290/-. The case was selected for complete scrutiny under CASS and issued statutory notices to the assessee. On perusal of documents and submissions made by the assessee, the AO found that the assessee has claimed a deduction from its income of Rs.1,39,235/- on account of “Provision released” which has been credited Profit and Loss account
:-3-: ITA. No: 3178/Chny/2024 without any supporting documents and added back to the total income of the assessee by passing an order u/s.143(3) of the Act dated 19.12.2019. Apart from that the AO has disallowed 5% of the “Other Expenditure” of Rs.30,44,217/- in the absence of entire bills and vouchers of such expenditure amounting to Rs.1,52,210/- and added to the total income. Aggrieved by the order of the AO, the assessee preferred an appeal before the Ld.CIT(A), NFAC, Delhi.
Before the Ld.CIT(A) the assessee submitted that the following amounts have been claimed as deductions in the total income: 1. The premium on Government Securities (1/10th) Rs.1,950/- 2. The premium on Government Securities (1/10th) Rs.1,050/- 3. The provision released on standard provision Rs.1,25,632/- 4. The provision released on NPA provision Rs.10,603/- 4.1 Firstly, the premium on Government Securities of Rs.1,950/- and 1,050/- has been claimed as other deductions u/s.37(1) of the Act as 1/10th of the premium paid, where the entire premium paid have been disallowed in the respective A.Y’s from the total income. Further, the assessee has submitted that the standard provision of Rs.1,25,632/- and NPA provision of Rs.10,603/- have been creditied to the P&L Account on account of excess provision available in the Balance Sheet which was never claimed as a expenditure under the Act from the total income in the earlier assessment years. Thereby
:-4-: ITA. No: 3178/Chny/2024 the assessee submitted that the AO has erred in disallowing the above deduction made in the computation of total income and prayed for deleting the same.
4.2 The assessee also stated that the other expenditure claimed of Rs.30,44,217/- is on account of various administrative expenses spent under 17 ledger accounts like car expenses, auto expenses, security expenses, data entry, repairs, water, newspaper etc.During the assessment proceedings the assessee had filed the entire ledger break up of all the expenditure along with sample vouchers in support of such expenditure. Therefore, the AO has erred in disallowing the 5% of other expenditure in spite of providing the documents and the ledger and hence prayed for deleting the same. However, after considering the submissions made by the assessee the Ld. CIT(A) was pleased to confirm the AO’s order. Aggrieved by the order of the Ld.CIT(A) the assessee is before us.
The Ld.AR for the assessee assailing the action of the Ld.CIT(A) stated that the Ld.CIT(A) has not considered any details which have been submitted by the assessee and confirmed the order of AO. The Ld. AR reiterated the submissions in respect of provision released on standard provision and NPA provision of Rs.1,25,632/- and Rs.10,603/- respectively is deducted in the :-5-: ITA. No: 3178/Chny/2024 computation of income which has been credited to the P&L Account out of the provisions made in the earlier years. In support of that the Ld. AR filed paper book consisting of 44 pages and brought to our attention to the audited financials of the assessee as on 31st March 2016, AY 2016-17 (page no.8 and 9 of paper book) along with the computation of total income (page no.5 to 7 of paper book) wherein the assessee has not claimed the same as deductable expenditure, when the standard provision and NPA provision of Rs.16,58,753/- was debited to the P&L account. Further, the Ld. AR took us through the financials of AY 2017-18 (page no.4 of paper book) and shown that the provision released credited to P&L account is not an item of income but reduced from the provisions shown under current liabilities in the Balance Sheet carried from the previous year. Therefore, the Ld.AR stated that the AO and that of Ld.CIT(A) have erred in adding the provisions released as income of the assessee and hence prayed for deleting the same.
5.1 On the issue of disallowance of 5% of other expenditure debited to P&L account, the Ld.AR took us through the audited financials along with the ledger extracts of such expenditure (page no.22 to 44 of paper book) and stated that these ledger accounts have already been submitted before the lower authorities including
:-6-: ITA. No: 3178/Chny/2024 the sample vouchers (page no.10 to 21 of paper book) for the same. Further, the Ld.AR stated that the books of accounts of the assessee is audited and the same have been submitted to the co- operative department of the State Government, Reserve Bank of India and also to the Income Tax Department. Thereby, disallowing expenditure on an adhoc basis without any cogent reason is not acceptable and hence prayed for deleting the same.
Per contra, the Ld.DR supported orders of lower authorities.
We have heard the rival contensions perused the material available on record and gone through the orders of lower authorities. Admittedly the assessee is a Urban Co-Operative Bank and its books have been duly audited and the return of income for the AY.2017-18 has been filed by admitting a total income of Rs.96,10,290/-.In the assessment proceedings the AO has made an addition of Rs.1,39,235/- on account of provision released and disallowed an expenditure of Rs.1,52,210/- from other expenditure at 5%. The same has been confirmed by the Ld. CIT(A), NFAC in his order dated 15.10.2024.
:-7-: ITA. No: 3178/Chny/2024 7.1 On perusal of submissions, we note that the assessee has created a provision in the AY.2016-17 to the tune of Rs.16,58,753/- and the same has been added back to the total income in the computation of total income without claiming the provision as an expenditure (page no.5 to 9 of paper book). Further, during the AY.2017-18 the assessee has released the provision to the tune of Rs.1,25,632/- and Rs.10,603/- by crediting the same to the P&L account by reducing from the provision created in the earlier AY.2016-17 (page no.1 to 4 of paper book). Therefore, we are of the considered view that the AO and that of Ld.CIT(A) have erred in making an addition of Rs.1,39,235/- and hence we hereby set aside the order of the Ld.CIT(A) and delete the addition.
7.2 In respect of disallowance of expenditure of Rs.1,52,210/- the assessee has submitted the entire 17 ledger extracts of all the heads like car expenses, auto expenses, security expenses, data entry, repairs, water, newspaper etc. along with the sample vouchers (page no.10 to 44 of paper book). We note that the books of accounts of the assessee is audited and the same have been submitted to various statutory authorities. Further, the AO and that of Ld.CIT(A) have disallowed the expenditure on adhoc basis at 5% without any cogent reason or identifying any defects. In the present
:-8-: ITA. No: 3178/Chny/2024 facts and circumstances of the case we do not agree with the lower authorities in disallowing the expenditure on adhoc basis and hence we set aside the order of Ld. CIT(A) by directing the AO to delete the same by allowing the grounds of appeal filed by the assessee.
In the result the appeal of the assessee is allowed.