Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
आयकर अपीलीय अिधकरण “ए” �ायपीठ पुणेम�। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “A” :: PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकरअपीलसं. / ITA No.794/PUN/2019 िनधा�रणवष� / Assessment Year : 2012-13 Col R D Nikam SainikSahakari The Asst. Commissioner of Bank Ltd., Vs Income Tax, Satara Circle, Chh. Shivaji Maharaj Circle, Satara. Powai Naka, Satara – 415001. PAN: AABAS 2355 J Appellant/ Assessee Respondent /Revenue Assessee by Miss Renuka Ghatge – CA Revenue by Shri Ramnath P Murkunde – DR Date of hearing 13/09/2022 Date of pronouncement 06/12/2022 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Assessee isdirected against the order of ld.Commissioner of Income Tax(Appeals)-4, Pune dated 28.02.2019 for the A.Y. 2012-13 under section 250of the Income Tax Act, 1961(in short “the Act”). The Assessee has raised the following grounds of appeal in form number 36 of appeal memo: “1. The learned assessing office is not justified in adding the Liabilities and Capital receipts credited to General Reserve totaling to Rs.6,73,807/- to the total income and addition should be deleted.
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
The learned assessing office erred in disallowing the amount provision on standard assets of Rs.12,48,358/- claimed as deduction u/s 36(1)(viia) and the addition should be deleted. 3. The learned assessing officer erred in adding the amount of Rs.33,840/- on account of alleged difference in interest amount merely on the basis of figures mentioned in Form 26AS and the same should be deleted. 4. The appellant craves leave to add, amend or delete any of the above grounds of appeal.” 1.1 The assessee raised modified grounds of appeal as under : “3.1 The Ld. CIT (A) erred in passing an ex-parte order and dismissing the appeal of the appellant on the ground that the appellant was not interested in pursuing the appeal, the said action of the Ld. CIT (A) is not justified in law and on facts. The assessee could not present its case before the Ld. CIT(A) owning to certain reasons beyond control. It is therefore prayed that on the basis of merits of the case, the assessee be provided with another fair and reasonable opportunity of being heard. 3.2. The Ld. CIT (A) erred in confirming the action of Ld. Assessing officer (A.O.) in making addition of Rs.6,73,807/- directly credited to Reserve Fund account. The Ld. A.O. has failed to verify the fact that by such credit no real income accrues to the assessee being the nature of receipt is capital receipt and not a revenue receipt. Hence, the addition is uncalled for and the addition be deleted. 3.3. The Ld. CIT (A) erred in confirming the action of Ld. A.O. by disallowing the provision made for Standard assets of Rs.12,48,358/- as per RBI Guidelines u/s 36 (l)(viia) of the Income Tax Act. The disallowance being contrary to jurisdictional 1TAT Pune Bench Judgment, and made on an ex-parte basis was not justified on facts and in law, be deleted. 3.5 The Ld. CIT (A) erred in confirming the action of Ld. A.O. in making addition of the amount of Rs.33,840/- on the ground that the interest receipts reflected in Form 26 AS were more than the interest receipts declared by the assessee in the return of income and thereby taxing the difference as income of the assessee withoutappreciating that the said addition made by the Ld. AO was not justified on facts and in law.
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
3.6 That the appellant craves leave to add to, alter, amend, modify, substitute, delete and /or rescind all or any of the grounds of appeal on or before the final necessity, so arises.” The Ld.AR requested us to only consider the modified grounds of appeal for adjudication. ( there is no ground number 3.4) 2. Brief facts of the case are that appellant is a Co-operative Society engaged in the Banking business. The appellant filed its original return of income for the Assessment year 2012-2013 on 28/09/2012 under acknowledgment No. 500412080280912 declaring total income of Rs.4,23,92,420/-. The case was assessed u/s 143(3) of the IT Act by assessment order dated 21/11/2014 by the Asstt. Commissioner of Income Tax, Satara Circle, Satara .
Following additions were made:- Sr. No. Particulars Amount (Rs.) 1. The amount directly credited to Reserve Fund (Para 6,73,807/- Disallowance of provision for Standard assets (Para 2. 12,48,358/- 5.2) 3. Undisclosed Interest on FDRs from UCO Bank 33,840/- Total 19,56,005/- 3. Aggrieved by the said addition, the assessee filed appeal before the ld.CIT(A). The ld.CIT(A) confirmed the additions.
Aggrieved by the order of the ld.CIT(A), the assessee filed appeal before this Tribunal.
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
The ld.Authorised Representative(ld.AR) of the assessee submitted paper book and written submission. The written submissions of the ld.AR is reproduced here as under, ground wise: “5.2 AR’s SUBMISSION: - The assessee is a co-operative bank carrying on the business of banking. Entrance fees and share transfer fee is collected from the shareholders at the time of application of shares. No person shall be considered as a shareholder until he has paid the prescribed entrance fee and premiums, if any, fixed per share on the allotment of the share. The entrance fee was collected on the new shares issued as a result of increasing the share capital. The sum of Rs. 2,61,400/- realized as entrance fees can by no means represent a revenue receipt as expenses in question have been incurred for the purpose of raising capital and cannot in any manner be said to be the result of any trading activity or banking activities of the assessee, as such, it would only be capital expenditure and an addition to the capital assets of the bank which should be credited to the reserve fund of the bank.
6.2 AR’s SUBMISSION:- (i) The Ld. A.O. has failed to take into account the fact that the assessee has created a provision for bad and doubtful debts, but under a different nomenclature “Provision for Standard Assets”. The purpose of making the provision for standard assets is only to provide security against loss that may be caused by the advances turning bad, which is same for making the provision under the head Provision for Bad & Doubtful Debt. Merely using a different nomenclature does not disentitle the assessee for claiming deduction under the provisions of Sec. 36 (1) (vii-a) of the Income Tax Act, 1961. (ii) The similar facts and circumstances were present in the case of The Nashik Road Deolali Vyapari Sahakari Bank Ltd Vs. Assistant Commissioner of Income Tax, IT A No. 312/PUN/2016, wherein Pune Bench of IT AT held that “even though provision under standard assets made and no separate deduction was claimed, the assessee is entitled to claim deduction u/s. 36(l)(vii a) of the Act in respect of different nomenclature was given to the provision made for standard assets. We are of the opinion, there is no dispute with regard to provision made under standard assets, to claim a deduction u/s. 36(l)(vii a) of the Act requires creation of provision as a mandatory pre-condition for claiming deduction under statute. Therefore, when the assessee has not claimed separate deduction on standard assets, in our opinion, the assessee is entitled to claim deduction u/s. 36(l)(vii a) of the Act to the extent
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
as the provision made under standard assets.” (iii) For the A.Y. 2013-2014 in case of appellant bank, provision for standard assets is allowed before CIT (A) -10, Pune. It is worthwhile to mention the observations of IT AT Chennai bench in the case of The Vellore Dist. Central Cooperative Bank Ltd. Vs. The Commissioner of Income Tax, Chennai -VIII (2013) 37 taxmann.com 247 wherein it was held that merely using different nomenclature will not dis-entitle the assessee for claiming deduction under the provisions of Sec. 36(l)(viia). The purpose of creation of reserve for NPA is same, i.e., creating provision towards bad and doubtful debts. (iv) The brief facts of the case are that the assessee was a cooperative bank and as per Id. A.O. the assessee had not created reserve/provision towards bad and doubtful debts before making any deduction u/s 36(l)(viia) of the Income Tax Act, 1961. However, the nomenclature given to such a Reserve/provision was different and the ?ame is shown as Reserve for NPA.The terminology “Reserve for NPA” has been used by the assessee in accordance With the RBI directions. As is evident from the assessment order, the assessee has "deed created “Reserve for NPA”. For claiming benefit under the provisions of Section 36(l)(vii-a), the condition to be satisfied is that provision for bad and doubtful debts should have been made by the bank eligible to claim such deduction. Cooperative banks do not strictly follow the provisions of the Banking Regulation Act for the purpose of maintaining the books of account. The assessee has created provision for bad and doubtful debts, may be under different nomenclature. This will not disentitle the assessee for claiming deduction under the provisions of Sec. 36(l)(vii-a) of the Act. The purpose for creation of Reserve for NPA is same, i.e., creating provision towards bad and doubtful debt. [Para 8]. 7.2 AR’s SUBMISSION: - The appellant bank had been maintaining its accounts in a consistent method and has correctly accounted for interest received on investment on accrual basis and claimed TDS on the basis of Form No. 16A received from the deductor. But the learned Assessing Officer proceeded to add sum of Rs. 33,840/- on the account of alleged difference in the interest account, without verifying any evidence other than entries in Form 26AS.” 6. Per contra, the ld.Departmental Representative(ld.DR) for the Revenue relied on the orders of the Lower Authorities.
We have heard both the parties and perused the records.
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
7.1 At the outset the Ld.AR submitted that the Assessee will not like to press for the Ground number 3.1 of modified grounds. Accordingly, the modified ground number 3.1 is dismissed as not pressed.
Modified Ground number 3.2 regarding addition of Rs.6,73,807/-: 8. During the assessment proceedings the AO observed that following amounts have been directly credited to various reserves funds without routing through the Profit and Loss account.
Particulars Rs. Old balance of DD payable, sundry creditors, 94,607 unclaimed deposits, share amounts, etc W/off Nominal Member share 3,15,000 Entrance fee 2,61,400 Share transfer Fee 2800 Unclaimed dividend 2,33,136 The AO asked the assessee to explain why the said amounts shall not be taxed.
8.1 The AO made additions. The relevant part of the assessment order is as under : “Submission of the assessee is well considered. The contention of the assessee is not accepted as the nature of receipts clearly shows that the amounts received represent revenue receipts being non- refundable in nature and these are required to be charged to the P & L A/c. Even the 'Nominal Members Shares' do not have the nature, and benefits like dividend or interest on share amount as they have in the case of 'members share'. 'Nominal Members
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
Shares' have the nature of fee received from nominal members and thus these are also revenue receipts and hence income of the bank. In respect of unclaimed dividend, the explanation of the assessee is accepted as the dividends were to be paid out of profit after tax and through P & L Appropriation account. Since, the assesee has steady paid tax on this amount; no double addition is required to be made. . In respect of rest of the amounts, since the assessee has not offered these receipts as income for taxation and the same have been directly credited to reserves of the bank instead of crediting in the Profit & Loss account, the total amount of Rs. 6,73,807/- is added to the total income of the assessee for A.Y. 2012-13 - considering the same as income of the assessee for the year”
8.2 Aggrieved by the assessment order the assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) has not discussed anything about the merits of the impugned additions and confirmed it.
8.3 Before us the Ld.AR submitted as under : “The assessee is a co-operative bank carrying on the business of banking. Entrance fees and share transfer fee is collected from the shareholders at the time of application of shares. No person shall be considered as a shareholder until he has paid the prescribed entrance fee and premiums, if any, fixed per share on the allotment of the share. The entrance fee was collected on the new shares issued as a result of increasing the share capital. The sum of Rs. 2,61,400/- realized as entrance fees can by no means represent a revenue receipt as expenses in question have been incurred for the purpose of raising capital and cannot in any manner be said to be the result of any trading activity or banking activities of the assessee, as such, it would only be capital expenditure and an addition to the capital assets of the bank which should be credited to the reserve fund of the bank.”
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
8.4 The Ld.DR relied on the orders of the AO.
8.5 The Ld.AR submitted that she will not like to press for the entrance fee and share transfer fee issue. Accordingly, we are not adjudicating on the said issue. The assessee has w/off liability for unclaimed dividend, Sundry Creditors, DD payable. Dividend is not an expense in the P&L account of the company but it is distribution of the profit. When a company does not distribute profit in the form of dividend, the entire profit is credited to the reserve shown in Balance sheet. Therefore, the unclaimed dividend is not a revenue receipt. Hon’ble ITAT Pune Bench in the case of Bhagini Nivedita Sahakari Bank Ltd.v/s DCIT[2018] 100 taxmann.com 375 (Pune - Trib.) has held as under : Quote, “32. Now, coming to ground of appeal No.4, wherein the issue is against addition on account of unclaimeddividend. The said issue also stands covered by the ratio laid down by the Hon'ble Bombay High Court in Deogiri Nagari Sahakari Bank Ltd. (supra), wherein it was held that unclaimed dividend amounts to excess provision for dividend made by the assessee on an earlier occasion, which has been reversed by the assessee in the year under consideration and transferred to reserve account. The Hon'ble Bombay High Court further held that where the provision for dividend made earlier was not charged on profits but it was appropriation profits available post taxation, then there is no merit in the taxability of unclaimed dividend. Following the same parity of reasoning, we hold that the issue in the present appeal is squarely covered by the ratio laid down by the Hon'ble Bombay
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
High Court and consequently, we delete the addition of Rs.71,302/-. The ground of appeal No.4 raised by assessee is thus, allowed. ” Unquote.
8.6 Hence the Assessee has rightly credited it to reserve directly. Respectfully following the ITAT Pune Bench (supra) the AO is directed to delete the said addition of Rs.2,33,136/- made on account of unclaimed dividend.
8.7 The unclaimed deposits, Share Anamat were not routed through Income Expenditure Account. These amounts were initially also not part of the Income Expenditure account of the assessee. Hence, on w/off these amounts will not become income of the assessee. Hence the AO is directed to delete the addition of Rs.94,607/-.
8.8 Accordingly, the ground number 3.2 of the appellant assessee is partly allowed.
Ground Number 3.3 provision made for standard asset Rs.12,48,358/-: 9. The assessee had made provision for Contingent Reserve on Standard Assets as per the guidelines of RBI. The same was claimed as deduction u/s 36(1)(viia) of the Act. The AO disallowed it on the ground that these does not carry more than normal risk attached to the business and such asset is not NPA.
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
9.1 The Ld.CIT(A) has merely reproduced the relevant part of the assessment order and then stated as under : “In the light of the above mentioned, I have no reason to disagree with the assessment order passed by the AO. Therefore, grounds of appeal no.1,2,3 are hereby dismissed.”
Thus, the CIT(A) had not applied mind at all to the issue.
9.2 It is observed from the submission of the assessee before the AO which is part of the paper book (page 39-41), that the assessee had made provision of Rs.50,00,000 towards bad and doubtful debts and Rs.15,00,000/- towards Standard Assets. Out of this Rs.65,00,000/- the assessee had already disallowed Rs.2,51,642/- in the computation of Income. Thus the effective provision for bad and doubtful debts comes to Rs.62,48,358/-(65,00,000- 2,51,642). The assessee explained that this amount i.e. Rs.62,48,358/- is 7.5% of the profit before deduction under chapter VIA.
9.3 The ITAT Chennai in the case of The Vellore Dist. Central Co- Operative Bank Ltd Vs. CIT 37taxmann.com247 has held as under : Quote, “To answer these questions, we have to first examine the provisions of the Act. The relevant extract of the provisions of section 36(1)(viia)(a) are reproduced herein below: "Section. 36 (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— (i)** ** ** (viia) [in respect of any provision for bad and doubtful debts made by- (a) a scheduled bank not being a bank incorporated by or under the laws
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
of a country outside India or a non-scheduled bank [or a co- operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : Provided that a scheduled bank or a non-scheduled bank referred to in this sub- clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year: ** ** **" A perusal of the provisions of Section 36(1)(viia), clearly show that the benefit of deduction under sub-clause(a) is available to scheduled banks, non-scheduled banks and co-operative banks. The Explanation (ia) to clause (viia) defines 'Rural Branch'. The relevant extract of the same is as under: "Explanation—for the purposes of this clause,— (i)** ** ** (ia) "rural branch" means a branch of a scheduled bank or a non-scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year;" 7. The ld. CIT has held that the benefit of Section 36(1)(viia)(a) is available only to Scheduled and NonScheduled Banks, co-operative banks are not entitled for the same. Here it becomes important to understand the concept of Scheduled and Non-Scheduled Banks. The Banking Regulation Act, 1949 defines 'banking company' in Section 5(c) as: "'Banking company' means any company which transacts the business of banking in India." In the instant case, it is an admitted fact that the assessee is carrying on banking activities. Thus, the assessee falls within the definition of Section 5(c) of Banking Regulation Act. The
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
Reserve Bank of India (RBI) Act, 1934 defines 'Scheduled Bank' in Section 2(e) as: "'Scheduled Bank' means a bank included in the second schedule." Hence, the Scheduled Banks in India are those banks, which are included in the second schedule of RBI Act. The RBI includes only those banks in second schedule which satisfy the criteria laid down in section 42(6)(a) of the Act. Thus, all other companies which are carrying on banking business and fall within the ambit of Section 5(c) of the Banking Regulation Act but are not included in the second schedule of RBI Act are non-Scheduled Banks. In view of the above, we are of the considered opinion that the assessee is a Non-Scheduled Bank and is thus entitled to claim benefit of provisions of Section 36(1)(viia)(a) of the Act. Our view is further fortified by the VARSHA decision of 'Jaipur Bench' of the Tribunal in the case of Jaipur Central Co-operative Bank Ltd. (supra). 8. Now, the second question which arises for determination before us is whether the assessee has created any reserve/provision for bad and doubtful debts? The AR has contended that the assessee has created provisions for bad and doubtful debts under the nomenclature 'Reserve for NPA'. The terminology 'Reserve for NPA' has been used by the assessee in accordance with the RBI directions. As is evident from the assessment order, the assessee has indeed created 'Reserve for NPA'. For claiming benefit under the provisions of Section 36(1)(viia)(a) the conditions to be satisfied is: that provision for bad and doubtful debts should have been made by the bank eligible to claim such deduction. Cooperative Banks do not strictly follow the provisions of Banking Regulation Act for the purpose of maintaining their Books of Account. In our considered opinion, the assessee has created provision for bad and doubtful debts may be under different nomenclature. This will not dis-entitle the assessee for claiming deduction under the provisions of Section 36(1)(viia)(a). The purpose for creation of reserve for NPA is same i.e., creating provision towards bad and doubtful debts. ” Unquote
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
9.4 The facts in the present case and that in the case of The Vellore Dist. Central Co-Operative Bank Ltd (supra) are identical. The assessee has made provision of 7.5% as per section 36(1)(vii) . Therefore, respectfully following the decision of ITAT Chennai(supra) we direct the AO to delete the addition of Rs.12,48,358/-. Accordingly, assessee’s Ground Number 3.3 is allowed.
Ground Number 3.5: 10. The AO has added the difference between interest offered by assessee and the amount reflected in 26AS. The assessee claimed that assessee had offered interest on Accrual basis as per form no.16A. The assessee submitted the AO has not verified properly. As per the AO the UCO Bank has paid interest on FDR to assessee of Rs.6,90,628/- but the assessee had shown in the books only Rs.6,56,788/-. During the assessment proceedings the assessee submitted before the AO that assessee had accounted for interest on accrual basis and claimed TDS on the basis of Form 16A issued by UCO Bank.
10.1 We have considered the submission of both the parties. We are of the opinion that if the assessee had claimed credit for TDS amount only on the basis of Form 16A and accordingly offered the amount for taxation, then there is no reason for the AO to make the addition.
ITA No.794/PUN/2019for A.Y. 2012-13 Col R D Nikam Sainik Sahakari Bank Ltd., [A]
Therefore, we remit the issue to the AO for verification and decide the issue as per our above directions. Accordingly this ground of the assessee is allowed for statistical purpose.
Thus, the appeal of the Assessee is Partly Allowed. Order pronounced in the open Court on 6th December, 2022.
Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 6th December, 2022/ SGR* आदेशक��ितिलिपअ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. िवभागीय�ितिनिध, आयकर अपीलीय अिधकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड�फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.