MUNCIPAL CO OP BANK LTD,MUMBAI vs. DCIT (OSD) 1(1), MUMBAI

Grounds of appeal taken by the assessee are as under : “Being aggrieved by the order of the ld.CIT(A) the appellant begs to prefer the present appeal on the following grounds : i) Delete the disallowance of Rs.14,15,836.00 with respect to expenditure incurred on repair and maintenance; ii) Delete the addition of Rs.44,72,579.00 on account of Unclaimed credit balances;

The issue raised in the grounds of appeal no.1 is against the confirmation of addition of Rs.14,15,836/- by the ld.CIT(A) in respect of repairs and maintenance disallowed by the AO.

Brief facts of the case are that the assessee is a Co-operative Bank and has taken on lease premises on various locations for the purposes of carrying out its business through its branches and the assessee incurred expenditures to repair and maintain these premises for making these premises suitable for business and no new assets have been created by incurring said expenses. The AO found during the course of assessment proceedings that the assessee has expended Rs.45,69,240/- on account of repairs and renovation pertaining to furniture and fixtures and building out of which an amount of Rs.31,53,404/- have been capitalised spent on furniture and fixtures which were duly capitalised and Rs.14,15,836/- spent on buildings and other works has been claimed as a revenue expenditure. According to the AO, the said expenses were incurred on the demolition and construction of wall, construction of new plumbing work, construction telephonic operator cabin, construction of new water supply pipes, telephonic networks etc, which was of the capital nature and accordingly he disallowed and added the same to the total income of the assessee and allowed

In the appeal proceedings, the ld.CIT(A) dismissed the appeal of the assessee by holding that the details submitted during the appellate proceedings could not be prove that the expenses were of revenue in nature but it was capital in nature.

We have heard the rival contentions and perused the material placed before us including the orders of authorities below. We find that the assessee is a cooperative bank carrying its business on different places for which it has taken various premises at different locations which were repaired and renovated in order to run the business smoothly and incurred expenditures for demolition and construction of wall, construction of new plumbing work, construction telephonic operator cabin, construction of new water supply pipes, telephonic maintenance etc and accordingly assessee claimed said expenditures as revenue expenditures on the ground that no new asset was created. In our opinion, the ld.CIT(A) is not correct, in view of the facts that the premises in which the repairs and maintenance were carried out by the assessee were taken on rent and it would be against the basic principle of accountancy and provision of law to treat the said expenditures incurred on repairing and maintenance as capital nature. We,

In ground no.2, the assessee raised the issue of confirming the addition of Rs.44,72,579/- on account of unclaimed credit balances by the ld.CIT(A) as made by the AO.

A perusal of page 18 of the paper book reveals that the assessee has received unpaid insurance claim, recoveries from surety and excess recovery. The AO disallowed the same and added to the total income of the assessee by holding that the balances appearing in various account as stated below are slow moving accounts : S.No. Account head Amount Amount Amount outstanding outstanding paid till 31.3.2006 31.3.2007 date: In Rs. In Rs. In Rs. 1 Unpaid insurance claim 9,71,100 10,65,444 33,379 2 Recoveries from surety 12,72,893 12,09,394 42,328 3 excess recovery. 23,08,205 21,97,741 1,48,609

We find merit in the arguments of the ld.AR that the said advances were revenue nature which are appearing in the balance sheet of the assessee. That the amounts were received in one year and adjusted in the subsequent years and therefore the action of the AO in adding the same to the total income of the assessee by stating the same as unclaimed credit balances is not correct. The Action of the AO making addition and confirmed by the ld.CIT(A) by holding that 5 balances in these slow moving accounts were to be treated as income. The ld. AR submitted before us that the said amounts were to be adjusted in the subsequent years and were actually adjusted and therefore should not be added to the total income of the assessee. In our opinion, this matter requires fresh verification at the end of the AO and therefore the same is being remanded to the file of the AO decide the issue as per facts and law. But if these balances are adjusted in subsequent years, the AO is directed not to make any addition on this score in the set aside assessment. In the result, this ground is allowed for statistical purposes.

The issue raised in the third ground of assessee’s appeal is against the confirmation of Rs.23,14,000/- by the ld.CIT(A) as made by the AO in respect of disallowances of claim of advances written off under the head computer expenses, as non recoverable which were given for development for software. The AO disallowed and added the same by observing that the assessee has given advances for development of software which was capital asset and loss on account of advance would be a capital loss and moreover the assessee also did not make any effort to recover the same and hence the same was not allowable.

In the appellate proceedings, the ld.CIT(A) also dismissed the appeal of the assessee by observing and holding as under : “6.4 Having considered the AO’s order as well as the appellant’s submission, I find that the said payment of Rs.23,14,000/- was made by the appellant company for implementation of modernization of the appellant bank i.e. computerisation so that 3 entire banking operation of 6 the appellant bank change from manual to compute the entire banking operation of the appellant bank change from manual to computer based. However I do not find any justification in the appellant's claim of allowance of deduction in absence of any satisfactory explanation from appellant bank. It is also not adduced by the appellant bank that what was the exercise or efforts were undertaken by the appellant bank, while selecting the vendor for such major work which was going to change the face of the appellant bank towards its customer. No proof or any evidence adduce that what efforts have been taken by the appellant bank for getting work carried out. Whether the bank has exercise in ascertaining this fact prior to giving the contract to such vendor that whether the said vendor was competent enough to execute such important technical work. In absence of any such documentation, the claim of the appellant is completely appears to be made without substance or any basis of documentation, which is merely having base of having claim made of 'Bad Advance' or bad debt. Even this claim is also not sustainable as the appellant's own act suggests that the appellant has filed arbitration towards the said amount before the arbitrator, which is evident from the Annexure VI of the appellant submission. In these all facts and submission available on record, I consider it proper and appropriate to hold that the A.O. 's action was completely justified and correct, while making the aforesaid addition. Accordingly appellant’s this ground of appeal

Therefore, we are not in agreement with the observations and decision taken by the ld.CIT(A) on this issue that the advances given for the development of the computer software is capital in nature and required to be disallowed in the computation of business income. In view of these legal position and facts as emerged from the record, we set aside the order of the ld. CIT(A) allow the ground taken by the assessee.

In the result, the appeal of the assessee is partly allowed for statistical purposes.