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Facts
The appellant, Kollam District Co-operative Bank Ltd., challenged the disallowances made by the Assessing Officer for AY 2017-18, which were largely confirmed by the CIT(A). The key disallowances pertained to excess provision for rural branches under Section 36(1)(viia), core banking expenditure due to TDS non-compliance under Section 40(a)(ia), and interest on OTS/NPA schemes under Section 36(1)(vii). The bank initially declared Rs. 16.14 crores income, which was assessed at Rs. 26.20 crores.
Held
The Tribunal dismissed all grounds of appeal. It upheld the disallowance under Section 36(1)(viia) as the branches in question exceeded the 10,000 population limit for rural classification. The disallowances for core banking expenditure under Section 40(a)(ia) and interest on OTS/NPA schemes under Section 36(1)(vii) were also confirmed due to the appellant's failure to comply with TDS provisions and other prescribed conditions, respectively.
Key Issues
The main issues concerned the correctness of disallowances for excess provisions related to non-rural branches under Section 36(1)(viia), core banking expenditure due to TDS default under Section 40(a)(ia), and interest on OTS/NPA schemes under Section 36(1)(vii).
Sections Cited
143(3), 36(1)(viia), 40(a)(ia), 48, 36(1)(vii)
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI PRAKASH CHAND YADAV, JM
Assessment Year: 2017-18 Kollam District Co-operative Bank Ltd. .......... Appellant Chinnakada, Kollam 691001 [PAN: AAAAT4088L] vs. The Income Tax Officer, Circle Kollam .......... Respondent Appellant by: ------- None ------- Respondent by: Shri Sanjit Kumar Das, CIT-DR Date of Hearing: 24.02.2025 Date of Pronouncement: 14.05.2025 O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)], dated 19.05.2023 for Assessment Year (AY) 2017-18.
Brief facts of the case are that the appellant is a district co- operative bank engaged in the business of accepting deposits from members and lending money to its members. The return of income for AY 2017-18 was filed on 01.11.2017 declaring total income at Rs. 16,14,89,500/-. Against the said return of income, the Kollam District Co-operative Bank Ltd. assessment was completed by the ACIT, Circle Kollam (hereinafter called "the AO") vide order dated 23.12.2019 passed u/s. 143(3) of the Act at a total income of Rs. 26,20,34,663/-. While doing so, the AO made the following disallowances/additions: -
i) Write off of security premium account of Rs. 36,18,587/- by holding that the investment does not constitute stock-in- trade. ii) Disallowance u/s. 36(1)(viia) of Rs. 1,07,70,312/- by holding that in respect of certain branches the population is more than 10,000 and, therefore, these branches cannot be classified as rural branches. iii) Disallowance expenditure of Rs. 34,22,758/- for failure of the assessee bank to deduct tax at source. iv) Disallowance of claim of deduction of interest on OTS Scheme or Rs. 8,27,33,506/- by holding that such interest was not debited o Profit & Loss A/c.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order deleted the addition made on account of write off of security premium account of Rs. 36,18,587/-. However, confirmed the excess provision u/s. 36(1)(viia) of the Act placing reliance on the decision of the Hon'ble High Court of Kerala in the case of CIT v. Lord Krishna Bank Ltd. 339 ITR 606. The CIT(A)
Kollam District Co-operative Bank Ltd. also confirmed the disallowance of expenditure on core banking expenditure u/s. 40(a)(ia) of the Act of Rs. 34,22,758/-. He also confirmed the disallowance of interest waived u/s. 48 of the Act of Rs. 8,27,33,506/-.
Being aggrieved, the appellant is in appeal before us in the present appeal.
We find that this appeal was called several time and despite due notice of service none appeared. Therefore, we proceed to dispose of the same on merits after hearing the learned CIT-DR.
The first ground of appeal challenges the disallowance of provision u/s. 36(1)(viia) of the Act. We have carefully perused the assessment order. The AO, after calling for information regarding rural branches, held that the branches mentioned in para 6 of the assessment order cannot be classified as rural branches as the population of such places exceed 10,000 as per the census of 2011. These factual findings of the AO were not disputed. The CIT(A) had rightly placing reliance on the decision of the Hon'ble Jurisdictional High Court in the case of Lord Krishna Bank (supra) upheld the addition. We do not find any reason to interfere with the order of the CIT(A). Accordingly we uphold the addition. Thus, grounds of appeal 1 & 2 are dismissed.
Grounds of appeal Nos. 3, 4 & 5 challenge the addition made on the expenditure incurred on core banking for failure of the Kollam District Co-operative Bank Ltd. assessee to comply with TDS provisions. The assessee challenges the addition, as the deductor filed the returns of income. It is pleaded that the provision of section 40(i)(a) has no application. This plea was neither raised before the learned CIT(A) nor laid any factual foundation in support of the above contention. Therefore, no relief can be granted merely based on the bald submission of the appellant. Thus ground Nos. 3, 4 & 5 stand dismissed.
8. Ground Nos. 6 &7 challenges the disallowance of interest on OTS scheme and NPA scheme. We have carefully perused the orders passed by the lower authorities and found that the appellant bank had failed to comply with the conditions prescribed u/s. 36(1)(vii) of the Act. Accordingly the disallowance made by the AO stands confirmed.
In the result, appeal filed by the assessee sands dismissed.
Order pronounced in the open court on 14th May, 2025.
Sd/- Sd/- (PRAKASH CHAND YADAV) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Cochin, Dated: 14th May, 2025 n.p.