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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI PAVAN KUMAR GADALE
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the order of ld. CIT(A), Mysore dated 29.01.2017 for Assessment Year 2012-13.
The grounds raised
by the assessee are as under. “1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The Hon'ble CIT[A] ought to have given the adequate opportunity to the appellant for effective representation. The opportunity said to have given was a pretext not real. Hence, Order of Hon'ble CIT[A] is much against the principles of natural justice and thus Order deserve to be quashed.
3. Without Prejudice to above, the Hon'ble CIT[A] was not justified in upholding the disallowance of Rs.51,88,933/- towards non-deduction of TDS on Interest on deposit collected from members without appreciating that the Provisions u/s 194A(3) is applicable prospectively vide para 42.5 of CBDT Circular 19/2015 as amended by Finance Act, 2015 and thus Order is without sanction of law and therefore additions deserves deletion.
4. The Hon'ble CIT[A] erred in upholding the disallowance of Page 2 of 12 Rs.6,80,318/- towards deduction u/s 36(1) (viia) without appreciating that the appellant satisfy all applicable limbs of section 36(1) (viia) and thus disallowance requires deletion.
5. The Hon'ble CIT[A] not justified in upholding the disallowance of Rs.12,08,550/- expended towards for conducting Annual General Meeting [AGM] without appreciating the fact that such conduct of AGM is statutorily mandated and further expenditure in connection with AGM is squarely covered u/s 37 of the Act. Hence, the impugned addition requires deletion.
6. The Hon'ble CIT[A] has grossly and seriously erred in sustaining the addition of Rs.3,31,000/- towards contribution to Gratuity fund without appreciating the fact such contributions are allowable u/s 37. Hence, the impugned addition requires deletion.
7. The Hon'ble CIT[A] has grossly and seriously erred in sustaining the addition of Rs.3,28,657/- towards remittance/earmarked of Employees PF collected on their behalf without appreciating the fact such remittance are not expenses at all and further guided by the PF Act read with KCS Act. Hence, impugned addition liable for deletion.
8. The Hon'ble CIT[A] has grossly and seriously erred in sustaining the addition of Rs.3,66,530/- towards remittance/earmarked of Employers contribution to PF without appreciating that such contributions are guided by the PF Act and read with the KCS Act and further such remittance are allowable u/s 37. Hence, the impugned addition liable for deletion.
9. The Hon'ble CIT[A] has grossly and seriously erred in sustaining the addition of Rs.5,26,172/- towards provisions/earmarked Interest on Employees PF without appreciating that such Interest provisions are guided by the PF Act and read with the KCS Act and further such expenses are allowable u/s 37. Hence, the impugned addition liable for deletion.
10. The Hon'ble CIT[A] has grossly erred in upholding the learned AO disallowance of Rs.85,000/- towards audit fee without appreciating that such expenses are allowable u/s 37 of the Income-tax Act and thus the impugned addition deserves deletion.
Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies liable to be charged to interest u/s.234- B and 234-C of the Act, which under the facts and in the circumstances of the appellant's case and the levy deserves to be cancelled.
For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered.”
Page 3 of 12 3. At the time of hearing, it was submitted by ld. AR of assessee that the assessee has already filed a synopsis in which the arguments of assessee regarding each ground is available and the appeal can be decided on the basis of such arguments in this synopsis. The ld. DR of revenue supported the orders of authorities below.
We have considered the rival submissions. We find that in the synopsis filed by the assessee, it is submitted that ground no. 1 is general and hence, no adjudication is called for. Regarding ground no. 2, it is submitted that this ground is not pressed. Accordingly, these two grounds are rejected as not pressed.
Regarding ground no. 3, it is submitted in the synopsis that this issue is covered in favour of the assessee by the judgment of Hon'ble Karnataka High Court rendered in the case of Pr.CIT Vs. The Bagalkot District Central Cooperative Bank Ltd. in of 2015 dated 16.12.2015. This judgment is available on pages 6 to 9 of the paper book. In this case, this was the issue under consideration of Hon'ble Karnataka High Court as to whether Co-operative Bank was required to deduct tax while paying interest to its members on time deposits u/s. 194A of the IT Act. The Hon'ble Karnataka High Court has reproduced the relevant portion of the circular issued by the Ministry of Finance, Govt. of India being Circular No. 19/2015 in F.No. 142/14/2015-TPL wherein it is specified that a co-operative bank is not required to deduct tax at source from interest on time deposits of its members paid or credited on or before 01.06.2015. In view of this Circular, the issue in dispute was decided by Hon'ble Karnataka High Court in that case in favour of the assessee. In the present case, the Assessment Year involved is 2012-13 and the issue involved in ground no. 3 is regarding disallowance of Rs. 51,88,933/- on this basis that no TDS was deducted by assessee out of interest payment on deposits collected from its members. Hence, in our considered opinion, this issue is squarely covered in favour of the assessee by the judgment of Hon'ble Karnataka High Court rendered in the case of Pr.CIT Vs. The Bagalkot District Central Cooperative Bank Ltd. (supra) in which the issue was decided by Hon'ble Karnataka High Court in Page 4 of 12 favour of the assessee in view of Circular No. 19/2015 issued by the Ministry of Finance, Govt. of India. Respectfully following this judgment of Hon'ble Karnataka High Court, we decide this issue in favour of the assessee. Accordingly, ground no. 3 is allowed.
Regarding ground no. 4 in respect of disallowance made by the AO of Rs. 6,80,318/- in respect of assessee’s claim for deduction u/s. 36(1) (viia), the ld. AR of assessee before us placed reliance on the Tribunal order rendered in the case of ACIT Vs. M/s. South Canara District Central Co-Op. Bank Ltd. in dated 09.03.2016. He submitted a copy of this Tribunal order and drawn our attention to para nos. 18 to 22 of this Tribunal order and pointed out that in that case also, the provision was created by assessee of NPA and similar assets and ld. CIT(A) has allowed the claim of the assessee for deduction u/s. 36(1)(viia) and such an order of ld. CIT(A) was upheld by the Tribunal. He submitted that in the present case also, as per para no. 6 on page no. 7 of the assessment order, the AO has reproduced the submission made by the assessee before him as per letter dated 23.02.2015 as per which it was submitted by assessee before the AO that for the present year ending on 31.03.2012, the assessee has made a provision for bad and doubtful debts of Rs. 8 Lakhs and the same provision was duly added back while calculating Gross Total Income and therefore, such provision should be considered for the purpose of allowing deduction u/s. 36(1) (viia) to the extent of Rs. 6,80,318/- because the provision made by the assessee for bad and doubtful debts is more than this amount because the provision is made of Rs. 8 Lakhs. The ld. DR of revenue supported the orders of authorities below.
We have considered the rival submissions. First of all, we reproduce paras 18 to 22 of the Tribunal order rendered in the case of ACIT Vs. M/s. South Canara District Central Co-Op. Bank Ltd. (supra). The same are as under. “18. Ground no.9.1 & 9.2 regarding disallowance of the claim of provision of Rs.2.5 Crores towards NPA. The AO was of the view that Explanation to sec.36(1)(vii) of the IT Act, provides that any bad debt or part thereof written off cannot include any provision for bad and doubtful debts. The provision for NPA under the RBI direction is Page 5 of 12 doubtful assets and accordingly, the AO disallowed the claim of the assessee.
On appeal, the CIT(A) has directed the AO to allow deduction u/s 36(1) (viia) after considering the provisions made by the assessee.
20. Before us, learned DR has submitted that provision for doubtful debts is not an allowable claim as held by the Hon'ble Supreme Court in the case of Southern Technologies Ltd. Vs JCIT (320 ITR 577).
21. On the other hand, learned AR has submitted that the AO has not considered the claim of assessee u/s 36(1) (viia) and therefore, this ground of the revenue's appeal is not arising from the order of the CIT(A).
Having considered the rival submissions as well as the relevant material on record, we find that the AO disallowed this claim of assessee as per Explanation to sec.36(1)(vii) whereas the CIT(A) directed the AO to allow the claim u/s 36(1)(viia) after verification in para-3.7(b) of the CIT(A)'s order. "3.7(b) The careful reading of the provisions of sec.36(1) (viia) the Co-op. banks are entitled for deduction of 7.5% of the total income provided assessee created a provision in the books of account. In the instant case, the assessee bank has created a provision of Rs.2,05,00,000/- towards provision for NPA and Standard Assets vide Schedule 22 of the financial statements. The assessee bank is also entitled for deduction of 10% of the aggregate advances given by the rural branches. Since the assessee bank has created a provision in the books of account and is entitled for deduction u/s 36(1)(viia) i.e. 7.5% of the total income and 10% of the aggregate advances given by the rural branches, I direct the AO to allow the deduction u/s 36(1)(viia) after considering the provision made by the assessee bank and as per the provisions of 36(1)(viia)". As it is manifest from the finding of the CIT(A) that the claim of the assessee was examined by the CIT(A) as per the provision of Sec.36(1)(viia) and accordingly, the AO was directed to allow the claim under the said provision after verification of the provisions made by the assessee and compliance of conditions provided u/s 36(1)(viia) of the IT Act, 1961. Accordingly, we do not find any reason to interfere with the impugned order of the CIT(A) on this issue and the AO is directed to consider and examine this claim u/s 36(1) (viia) of the Act, 1961.”
From the above paras reproduced from this Tribunal order, it is seen that in that case also, the assessee’s claim was u/s. 36(1) (viia). In that case also, provision was made by the assessee as provision for NPA and similar assets and under these facts, ld. CIT(A) has held that deduction claimed by the Page 6 of 12 assessee u/s. 36(1)(viia) is allowable and such an order of CIT(A) was approved by the Tribunal by holding that Tribunal does not find any reason to interfere with the impugned order of CIT(A). In that case, the AO was directed to consider and examine the claim u/s. 36(1) (viia) of IT Act. Respectfully following this Tribunal order, we hold that in the present case also, the AO should examine the issue afresh in the light of this Tribunal order. Accordingly, this ground of assessee is allowed for statistical purposes.
Regarding ground no. 5, the issue in dispute is regarding disallowance on various expenses of Rs. 12,08,550/- and in the synopsis filed by the assessee, it has been submitted that this issue is covered in favour of the assessee by the Tribunal order in assessee’s own case for Assessment Year 2010-11 in dated 01.03.2016, copy available on pages 44 to 49 of the paper book. The ld. DR of revenue supported the orders of authorities below.
We have considered the rival submissions. We reproduce para nos. 3 to 5 of this Tribunal order in assessee’s own case for Assessment Year 2010-11 for ready reference. These paras read as under. “3. Briefly the facts of the case are that the assessee is a Cooperative Bank registered under the provisions of Karnataka Cooperative Societies Act. It is engaged in the business of banking. The return of income for the assessment year 2010-11 was filed on 09-092010 declaring a total income of Rs.80,09,022/-. Against the said return of income, assessment was completed by the JCIT, Range-2, Mysore at a total income of Rs.98,15,500/- u/s 143(3) of the IT Act, 1961 vide order dated 28-03-20-13. While doing so, the AO made the following disallowances; a) Towards annual general meeting of Rs.10,75,651/- b) Towards gratuity provision of Rs.4,40,568/- c) Towards Employees provident fund of Rs.3,13,544/- d) Towards provision for audit fee of Rs.85,000/- 4. Being aggrieved by the disallowances made, the assessee preferred an appeal before the learned CIT(A), Mysore who vide impugned order confirmed the aforesaid disallowances. 5. Learned counsel for the assessee submitted that the expenses incurred are in connection with conducting annual general body meeting (AGM) and election to the Board of Directors. He submitted that an amount of Rs.14,390/- was incurred towards police force for Page 7 of 12 maintaining law and order. This amount was not paid in breach of any statutory provisions or against public policy, the same were paid as official fee. Similarly, the assessee also made payment to Election Officer an amount of Rs.55,200/- and Rs.52,000/-. Regarding disallowance of expenditure incurred towards annual general body meeting of Rs.1.00 lakhs. This is normal expenditure incurred at the time of annual general body meeting (AGM). Having accepted the genuineness of the expenditure, no disallowance can be made on ad hoc basis. Regarding contribution of gratuity provision of Rs.4,40,568/-, he submitted that the same is allowable in view of the decisions of the Co- ordinate Bench in the case of M/s Bilagi Pattaina Sahakari Bank in and also in the case of Shri Basaveshwar Sahakari Bank.”
11. As per this Tribunal order in assessee’s own case for Assessment Year 2010- 11, it is seen that the assessee had incurred expenditure of Rs. 10,75,651/- towards annual general meeting. In that year, out of this expense, disallowance was made to the extent of Rs. 1 Lakh. The tribunal held that these are normal expenditure incurred at the time of annual general meeting and hence, any disallowance made by the AO is not justified and the same was deleted. As per para no. 7 on page nos. 10 and 11 of the assessment order, it is noted by the AO that Rs. 15,84,228/- was incurred by assessee towards expenses on Annual General Meeting which included Rs. 21,050/- towards Memento and Rs. 11,87,500/- towards sweets. The AO held that these two expenses cannot be treated as spent only and exclusively for the purpose of business. In Assessment Year 2010-11, an amount of Rs. 10,75,651/- was incurred by the assessee towards Annual General Meeting expenses and out of that, disallowance was made of Rs. 1 lakh on adhoc basis which was treated by Tribunal only as normal expenditure incurred at the time of annual general meeting (AGM). Although the details of expenses incurred in that year is not available in the Tribunal order but this is held that expenses incurred for holding Annual General Meeting is normal expenditure, The order of CIT(A) in Assessment Year 2010-11 is available on pages 50 to 59 of the paper book and in this order, it is noted by CIT(A) that an amount of Rs. 9,38,407/- was spent towards sweets, refreshment etc. Hence it is seen that in that year also, major amount was incurred towards sweets and refreshments and in that year also, the AO made disallowance on two basis i.e. it is not relatable to the business and secondly the expenditure is Page 8 of 12 excessive. The ld. CIT(A) confirmed the disallowance of Rs. 1 lakh on adhoc basis out of Rs. 9,38,407/- and deleted the balance. When the assessee carried the matter in appeal before the Tribunal, the Tribunal deleted this disallowance confirmed by CIT(A). Hence, we find no difference in facts in present year and therefore respectfully following the Tribunal order in earlier year 2010-11, this disallowance in the present year is deleted and accordingly ground no. 5 of assessee’s appeal is allowed.
12. Regarding ground no. 6 i.e. in respect of disallowance of contribution to Gratuity fund of Rs. 3.31 Lakhs, reliance was placed on the Tribunal order in assessee’s own case for Assessment Year 2010-11 available on pages 44 to 49 of the paper book. In para 5 of this Tribunal order, it is noted by the Tribunal that regarding contribution of gratuity provision of Rs. 4,40,568/-, it was submitted by assessee before the Tribunal that the same is allowable in view of the decisions of the Co-ordinate Bench in the case of M/s. Bilagi Pattaina Sahakari Bank in and also in the case of Shri Basaveshwar Sahakari Bank. This issue was raised by the assessee as per ground no. 5 and in para 9 of this Tribunal order, it is held by the Tribunal that ground no. 5 is allowed although it is noted by the Tribunal in para 9 of the Tribunal order that ground no. 5 is regarding provision towards provident fund, which as per the grounds of appeal reproduced by the Tribunal on page no. 2 of the Tribunal order, ground no. 5 i.e. (e) is regarding addition of Rs. 4,40,568/- towards contribution to gratuity fund. As per ground no. 6 raised by the assessee before the Tribunal in that year, it was regarding contribution to provident fund and it was decided by the Tribunal as per para 10 of this Tribunal order and hence, in our considered opinion, para 9 of the order is containing the decision in that year towards disallowance of gratuity fund provision. Hence respectfully following this Tribunal order, in the present year also, we delete the disallowance of contribution to Gratuity fund of Rs. 3.31 Lakhs and accordingly ground no. 6 is allowed.
13. Ground no. 7 is regarding disallowance of employees contribution to PF of Rs. 3,28,657/-. On this issue also, it has been submitted in the synopsis that this issue is covered by the same Tribunal order in Assessment Year 2010- Page 9 of 12 11 available on pages 44 to 49 of the paper book. For ready reference, we reproduce para no. 10 of this Tribunal order in assessee’s own case for Assessment Year 2010-11. The same reads as under. “10. Ground no.6 regarding contribution to provident fund by virtue of overriding provisions contained in co-operative society registration Act, the provision is allowable as deduction u/s 37(1) of the IT Act, 1961. Accordingly, ground no.6 is allowed and regards the ground no.7 which challenges the levy of interest u/s 234A,234B & 234C of the IT Act, which is consequential in nature.”
14. From the above para of the Tribunal order in assessee’s own case for Assessment Year 2010-11, it is seen that in that year, the disallowance towards remittance of Employees PF was deleted by the Tribunal by holding as above in para no. 10 reproduced. No difference in facts could be pointed out by ld. DR of revenue and respectfully following this Tribunal order, we allow ground no. 7 of assessee’s appeal in present year.
15. Regarding ground nos. 8 and 9, this was submitted that this issue is covered in favour of the assessee by the judgment of Hon'ble Karnataka High Court rendered in the case of Chief Commissioner (Admn) and Another Vs. Karnataka Electricity Board reported in 197 ITR 48, copy available on pages 60 to 62 of the paper book. At this juncture, it was pointed out by the bench that on page no. 52 of this 197 ITR, it is noted by Hon'ble Karnataka High Court in that case that the provision was made by the assessee to meet its statutory obligation, since this statutory corporation is obliged to pay pension to its employees under the rules governing it and there is no dispute about this fact and based on this, it was held by Hon'ble Karnataka High Court in that case that the disallowance is not justified in respect of contribution made by the assessee company for the provident fund of employees although such contribution was made to a fund which was not recognized. The bench wanted to know about this factual aspect as to whether the present assessee is also having statutory obligation to pay pension to its employees under the rules governing it. In reply, it was submitted that the rules are not readily available and he submitted that this issue may be restored back to the file of CIT(A) for fresh decision in the light of this judgment of Hon'ble Karnataka High Court and if that is done, the assessee will produce all the relevant rules governing the assessee. In view of this, we feel it proper to first reproduce
Page 10 of 12 the relevant paras of this judgment of Hon'ble Karnataka High Court from page no. 62 of the paper book. “”It is obvious that, in the instant case, when contribution was made by the assessee-company for the provident fund amount of the employees even when there was no recognised fund in existence, it would be justifiable on the ground of commercial expediency, so as to keep their workers satisfied and thus this was a payment made for the purpose of earning the profits of the business by the assessee or in the course of earning profits of the business by the assessee.” In the instant case, the provision made by the assessee is to meet its statutory obligation, since this statutory corporation is obliged to pay pension to its employees under the rules governing it; there is no dispute about this fact. The concept of commercial expediency is not foreign to a statutory corporation like the instant assessee which is obliged to carry on a venture which any other commercial enterprise also can carry on. In these circumstances, we are of the opinion that there are no compelling reasons for us to differ from the earlier view stated in Karnataka State Warehousing Corporation's case and, accordingly, we accept the same.”
In the present case, this is admitted position of fact that as per para no. 9 of the assessment order, the assessee has not obtained / received recognition by the Chief Commissioner of Income-tax / Commissioner of Income-tax concerned as required vide Part-A of 4th Schedule to the IT Act which is compulsory as far as the recognized provident funds are concerned as mentioned vide section 36(1)(iv) of the IT Act. Hence this fact is similar in the present case and in the case of Chief Commissioner (Admn) and Another Vs. Karnataka Electricity Board (supra). But this aspect is not clear as to whether in the present case also, the assessee was obliged to pay pension to its employees under the rules governing it. Hence, we feel it proper to restore the matter back to the file of AO for fresh decision in the light of this judgment of Hon'ble Karnataka High Court after examining the facts of present case particularly the rules governing the present assessee. Accordingly, we set aside the order of ld. CIT(A) on this issue and restore the matter back to the file of AO for fresh decision in the light of above discussion after providing adequate opportunity of being heard to assessee. Accordingly, ground no. 8 is allowed for statistical purposes.
Regarding ground no. 9, it was submitted by ld. AR of assessee that on page no. 17 of the assessment order, the AO has noted that the assessee has claimed expenses towards “Interest Paid on Staff Provident Fund” to the extent of Rs. 5,26,172/- and for the same reason that the PF is not recognized PF, the AO disallowed such interest payment also. He submitted that in view of this judgment of Hon'ble Karnataka High Court, the interest payment on such PF contribution should also be allowed. In view of our decision regarding ground no. 8 of assessee’s appeal in respect of employees contribution to PF, by restoring back the matter to the file of AO for fresh decision in the light of this judgment of Hon'ble Karnataka High Court rendered in the case of Chief Commissioner (Admn) and Another Vs. Karnataka Electricity Board (supra), we feel it proper to restore back this matter also i.e. regarding disallowance of interest on PF of Rs. 5,26,172/- for simultaneous decision in the light of this decision of Hon'ble Karnataka High Court rendered in the case of Chief Commissioner (Admn) and Another Vs. Karnataka Electricity Board (supra). We order accordingly. Ground no. 9 is allowed for statistical purposes.
Regarding ground no. 10 in respect of disallowance of audit fees of Rs. 85,000/-, it was submitted by ld. AR of assessee in the synopsis that in Assessment Year 2010-11, the order of ld. CIT(A) is available on pages 50 to 59 of the paper book. In that year, it is held by ld. CIT(A) that the assessee is following mercantile system of accounting and therefore, the provision cannot be disallowed. It is also noted by ld. CIT(A) that if this expenditure is to be disallowed, then on payment basis, earlier audit fees should have been considered for allowance which is apparently not done. It was submitted that against this order of ld. CIT(A), the appeal was filed by the assessee before the Tribunal but no appeal was filed by the revenue before the Tribunal against this Tribunal order. Hence in view of rule of consistency, this disallowance should be deleted. The ld. DR of revenue supported the orders of authorities below.
Page 12 of 12 19. We have considered the rival submissions. We find that in para no. 10 of the assessment order on page no. 17, it is noted by the AO that the assessee has made provision for Audit Fees of Rs. 85,000/-. The AO has also noted that method followed by assessee is mercantile and, hence, the provision made is not allowable. We do not find any merit in this disallowance made by the AO because when the assessee is maintaining its accounts on mercantile systems, then the provision for Audit Fees is to be allowed in the present year. Hence, we delete this disallowance and accordingly ground no. 10 is allowed.
Ground no. 11 is regarding interest u/s. 234B and 234C of the IT Act. This ground is consequential and hence, so separate adjudication is called for. Ground no. 12 is general.
In the result, the appeal filed by the assessee is allowed in the terms indicated above. Order pronounced in the open court on the date mentioned on the caption page.