THE BALASORE BHADRAK CENTRAL CO-OPERATIVE BANK LTD,BALASORE vs. JCIT, BALASORE

1 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND PAVAN KUMAR GADALE, JUDICIAL MEMBER

ITA No.417/CTK/2013 Assessment Year : 2009-2010

The Balasore Bhadrak Vs. JCIT, Balasore Range, Central Co-op.Bank Ltd., Balasore O.T.Road, Balasore. PAN/GIR No.AAAAT 2620 G (Appellant) .. ( Respondent)

Assessee by : Written submission Revenue by : Shri D.K.Pradhan, DR

Date of Hearing : 05/10/ 2017 Date of Pronouncement : 05/10/ 2017

O R D E R Per N.S.Saini, AM This is an appeal filed by the assessee against the order of the

CIT(A)- Cuttack dated 15.4.2013 for the assessment year 2009-2010.

is that the CIT(A) was not justified in not allowing deduction u/s. 80 P(4)

of the Act to the assessee.

“The learned A/Rs of the appellant in the written submission filed during the course of appellate proceeding stated that the appellant is a Co-operative Society registered under the Orissa Co-operative Societies Act,1962 and comes under the definition of' Co-operative Society' u/s.2(9) of the I.T.Act. A copy of the Bye-laws of the society was filed. It was submitted that as per clause-3 of the Bye- laws, the principal object of the appellant-society is to provide credit

2 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 facilities for agricultural and rural development. It was submitted that fin view of the above the assessee-society comes under the definition of 'Primary Cooperative Agricultural and Rural Development Bank' as defined under the Explanation to section 80P(4) and therefore the restrictions mentioned in section 80P(4) does not apply to the appellant.

Reasons for the Decision

8.1 Let me start with the decisions relied on by the learned A/R. In the case of the appellant for the AY 2008-09 (ITA No.590/CTK/2012) the issue before the Hon'ble Tribunal was the order u/s.263 of the Act passed by the Commissioner of Income- tax, Cuttack. It was held by the Tribunal that 'the issue for consideration u/s.80P(4) was already before the Assessing Officer for consideration afresh directed by the Tribunal on an earlier occasion. In view of the matter, we quash the impugned order of the learned CIT by allowing the appeal of the assessee.' It is thus clear that the order of the Hon'ble Tribunal in 2012 for the AY 2008- 09 is not applicable to the present appeal.

The learned A/R also relied on the decision in the case of ACIT v. Palhawas Primary Agriculture Co-operative Society Ltd. (2012) 23 taxmann.com 318 (Delhi). In that case the assessee was a registered agriculture co-operative society carrying out banking activities like borrowing, raising or taking up money and lending or advancing money for purpose of agriculture, sale and purchase of seeds and fertilizer etc. In the present case the appellant is a Central Co-operative Bank Ltd. registered as Co-operative Society under the Orissa Co-operative Societies Act, 1962. Therefore the case of the appellant is distinguishable from the above case relied on by the learned A/R.

8.2 Let me go through the Bye-laws of the appellant and read its objects. The same is extracted below.

"The objects of the Central Bank shall be:

(i) To raise funds for financing Co-operative Societies registered or deemed to be so registered under the Act and duly affiliated to it, individuals and other body corporate enrolled as nominal and associate members of the Bank subject to the provisions of the Orissa Cooperative Societies Act, Rules framed and orders issued there under and these bye-laws.

3 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 (ii) To develop, assist and co-ordinate the work of the affiliated societies and secure for them financial help whenever necessary arrange for their supervision and inspection,

(iii) To organise co-operative societies for the promotion of thrift, self-help and mutual and among agriculturists and other persons for promotion of economic interest of the members in accordance with co-operative principles.

(iv) To organize Self Help Groups and to promote Micro finance among the economical poor’s directly or through affiliated PACS and LAMPCS.

(v) To develop and strengthen Cooperative Movement in the District of Balasore & Bhadrak.

(vi) To provide training facilities to its own employees and employees/directors/members of affiliated Societies and Self Help Groups and to establish training centre for the purpose.

(vii) To arrange for supply for printing stationeries, books, forms, registers iron chest etc. as required by the affiliated Societies.

(viii) To carry on general business of Banking as defined in the Banking Regulation Act.

(ix) To carry on soliciting or procuring insurance business both for life an non-life as referral agent to boost non-fund business of the Bank.

(x) To carry on Treasury business for profitable investment of Bank's fund.

(xi) To undertake such other work as will promote the cause of co-operation and to do all such things as may be necessary or desirable for the accomplishment of the aforesaid objects.

(xii) To regulate the activities of employees of its affiliated Credit Societies.

4 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 (xiii) To undertake any other business that will be required for financial growth of the Central Bank in the context of changing scenario in Banking Sector.

8.3 The appellant in the present case is a Central Co-operative Bank. This is evident in its objects delineated above. Sub-section (4) of section 80P has been inserted by the Finance Act,2006 w.e.f. 1 April, 2007. It provides that the provisions of the said section all not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. It also defines ->e expressions "co- operative bank", "primary agricultural credit society" and "primary cooperative agricultural and rural development bank".

8.4 The legislation ....

Section 80P '(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.

Explanation: For the purpose of this sub-section -

(a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) “primary co-operative agricultural and rural development bank” means a society having its area of operation confined to a taluk and the principal object of which is to provide for long term credit for agricultural and rural development activities.”

The Circular Circular No.14/2006 dated 18.12.2006 explains the above provisions:

"22. Withdrawal of tax benefits available to certain co- operative banks

22.1 Section 80P, inter alia, provides for a deduction from the total income of the Co-operative societies engaged in the business of banking or providing credit facilities to its members, or business of a cottage industry, or of marketing of agricultural produce of its members, or processing, without the aid of power, of the agricultural produce of its members, etc.

5 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 22.2 The co-operative banks are functioning at par with other commercial banks, which do not enjoy any U-x benefit. Therefore, section 80P has been amended and a new sub-section (4) has been inserted to provide that the provisions of the said section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The expressions 'co-operative bank', 'primary agricultural credit society' and 'primary co-operative agricultural and rural development bank' have also been defined to lend clarity to them.

22.3 Further, a new sub-clause (yiia) has been inserted in clause (24) of section 2 to provide that the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members shall be included in the definition of 'income'." 8.4 Provisions relating to concessions are ordinarily expected to be rigidly interpreted as held in CIT v. Anakapalli Co-operative Marketing Society Ltd.(2000) 245 ITR 610 (AP): and Vol v. Wood Papers Ltd. AIR 1991 SC 2049.

8.5 A similar issue arose before the Hon'ble 1TAT, Cuttack Bench, Cuttack in the case of Cuttack Central Co-op. Bank Ltd. v. ACIT, Circle-2(2), Cuttack (ITA No.l82/CTK/2012) for the AY 2009-10. The grounds of appeal filed by the appellant relating to deduction u/s.80P(2)(a)(i) r.w.s. 80P(4) dismissed by the C1T(A) has been upheld by the Hon'ble Tribunal.

8.6 In view of the foregoing reasons, there is no merit in the above additional ground filed by the appellant and the same is rejected.”

contended that the CIT(A) has followed the order of the Cuttack Bench of

the Tribunal in the case of Cuttack Central Co-operative Bank Ltd vs ACIT

in ITA No.182CTK/2012, wherein, the benefit under section 80P(4) has

been denied, while dismissing the ground of appeal of the assessee. It is

the contention of the assessee that the appeal u/s.260A was pending

before the Hon’ble Jurisdictional High Court against the order on the legal

6 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 issue of exemption u/s. 80P(4) of the Act and, therefore, the CIT(A) was

not justified in dismissing the ground of appeal of the assessee.

submitted that the argument of the assessee cannot be accepted that

since the appeal was pending before the Hon’ble Jurisdictional High Court

against the order of the Tribunal in the case of Cuttack Central Co-op.

Bank (supra), therefore, the CIT(A) is not justified in following the same

and dismissing the ground of appeal of the assessee as no material has

been brought on record to show that the operation of the order of the

Tribunal in the case of Cuttack Central Co-op. Bank (supra) has been

stayed by Hon’ble High Court.

submission of ld D.R. we find that exemption u/s. 80P(4) of the Act was

denied to the assessee by the CIT(A) by following the order of this Bench

of the Tribunal in the case of Cuttack Central Co.Op. Bank (supra). The

contention of the assessee is that since the appeal against the said order

was pending, therefore, the CIT(A) is not justified in dismissing the

ground of appeal of the assessee. We find that no material has been

brought on record by the assessee to show that the operation of the order

of the Tribunal in the case of Cuttack Central Co-op. Bank (supra) has

been stayed by Hon’ble High Court. Further, no distinguishing features

could be pointed out in the order of the Tribunal in the case of Cuttack

7 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 Central Co.op. Bank (supra) so as to not to follow the said order in the

case of the assessee. Therefore, we do not find any good reason to

interfere with the order of the CIT(A), which is hereby confirmed and

grounds of appeal of the assessee are dismissed.

the CIT(A) was not justified in not allowing deduction for bonus payment

u/s.36(1)(ii) of the Act.

that the assessee has deducted Rs.20,35,960/- from total income towards

payments made for bonus etc from distribution of profit. He observed

that the bonus paid out of profits distributed to shareholders/members

and employees is not a charge to profit but is an appropriation of profit

between shareholders/members and employees. Before the Assessing

officer, the assessee admitted that bonus of Rs.20,35,960/- was paid to

employees out of allocable profit and the expenditure has not been

charged to profit and loss account. The Assessing Officer observed that

the bonus paid out of allocable profit is not covered by any provision

under Chapter VIA. In view of above, the Assessing Officer disallowed the

claim of the assessee.

of profit and debited to the revenue and surplus account in the books of

8 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 the assessee and is to be allowed as deduction u/s.43B of the Act. It was

also submitted that bonus was paid before filing the return of income

u/s.139(1) of the Act.

that bonus of Rs.20,35,960/- was paid to employees out of allocable

profit and the expenditure has not been charged to profit and loss

account. Bonus paid out of allocable profit is not a deduction to be made

in computing total income under chapter VIA.

it had not claimed any deduction for bonus payment in earlier previous

year i.e. F.Y. 2007-08. It has been paid during this financial year and is a

genuine allowable expenditure and it can be allowed u/s.37 of the Act.

authorities.

of ld D.R. and perusing the orders of lower authorities, we find that the

undisputed facts of the case are that the bonus of Rs.20,35,960/- was

paid to employees out of allocable profit and the same was not debited in

the profit and loss account. The Assessing Officer as well as the CIT(A)

has not allowed the claim for deduction to the assessee on the ground

9 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 that bonus paid out of allocable profit is not a deduction to be made in

computing total income of the assessee. The contention of the assessee

is that same can be allowed u/s.37 of the Act as no deduction for the

same is claimed in the earlier previous year 2007-08. We find that no

material has been brought on record by the assessee to show that how

payment of bonus made out of allocable surplus was an allowable

deduction to the assessee. Therefore, we find no good reason to interfere

with the order of the CIT(A), which is hereby confirmed and ground of

appeal of the assessee is dismissed.

the CIT(A) has not discussed the provisions u/s.36(1)(viia) and 36(1)(viii)

for NPA as well as reserves as applicable to co-operative bank with

reference to newly introduced provisions from 1.4.2007 and 1.4.2008,

respectively.

in the profit and loss account, the assessee has debited the following

provisions:

Provision for standard assets - Rs. 1,65,371.39

Provision for NPA - Rs.2,43,94,237.74

Total: Rs.2,45,59,609.13

assessee-bank are situated in District / Sub-Division / Block Headquarters

10 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 and, therefore, the provision of section 36(viia)(a) is not applicable in its

case. He further found that in the case of the assessee, provision for

standard assets and NPA debited in P & L A/c. has been credited to

current liabilities and provision on the liability side of the Balance Sheet.

He also referred to the judgment of the Hon'ble Supreme Court in the

case of Southern Technologies Ltd. v. JCIT, [2010] 320 ITR 577 (SC)

and M/s.Vijaya Bank v. CIT. 323 ITR 166 (SC) and in view of the

ratio laid down in the above judgments, he added back Rs.2,45,59,609.13

to the income of the assessee.

verification of the assessee’s written submission filed during the course of

assessment proceeding and also wrongly interpreting the decision of the

Hon'ble Supreme Court in the case of Southern Technologies Ltd.. and

Vijaya Bank (supra), the Assessing Officer has disallowed the claim of

provision for standard assets and NPA amounting to Rs.2,45,59,609/-. It

was further submitted that as per provision of section 36(l1) (viia)(a),

deduction towards provision for bad & doubtful debts is to be allowed to

the assessee being a Non-Scheduled Bank. To support the contention,

reliance was placed on the observation of the Hon'ble Supreme Court in

Catholic Syrian Bank Ltd. v. CIT 343 ITR 270 (SC). Reliance was

placed on the order of this Bench of the Tribunal in the case of

Mayurbhanj Central Co-operative Bank Ltd. v. ACIT, Balasore (ITA

No.385/CTK/2012 dated 30.10.2012).

11 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0

under:

“ I asked the Secretary of the appellant-bank vide my office letter No.2095 dated 26.02.2013 to file on 14.3.2013 a reply, if any, on the query extracted below:

" You may also refer to the calculation of provision for bad and doubtful debts made by you at page-124 of your written submission. As per section 36(l)(viia) a rural branch means a branch of a scheduled bank situated in a place with a population not exceeding 10,000 according to the last preceding census It has been found by picking up a random sample the population of Remuna (28,958) Baliapal (45,000), Soro (27794), Jaleswar(1,31,867), Nilgiri (14,745) and Basudevpur (29,998). In view of the above, you may recalculate the provision for bad & doubtful debts by taking into account the population of the 28 branches according to the last preceding census."

The learned A/Rs of the appellant filed a written submission on 14.3.2013 and stated that a revised calculation of provision for bad & doubtful debts by excluding advances of 9 branches where the population strength of that place is likely to exceed 10,000 has been made. A copy of the revised calculation was filed before me. During the course of appellate proceeding on 14.3.2013, I requested the learned A/R to file the population figure of remaining 19 branches within a week. This is a part of the order sheet entry dated 14.3.2013. There was no compliance to my above query.

Reasons for the Decision

4.3 During the course of appellate proceeding, it was clarified by the learned A/R that provision for standard assets (Rs.1,65,731/-) and provision for NPA (Rs.2,43,94,237/-) has been debited in the P & L A/c. and credited to the current liabilities and provision on liability side of the Balance Sheet. This is a part of the order sheet entry dated 14.3.2013. This is also evident from the P&L A/c and the Balance Sheet of the appellant.

Section 36(l)(vii) of the Act, dealing with allowance of bad debts written off by the assessee covers banking as well as non-banking assessees. Hon'ble Supreme Court in the case of Vijaya Bank v. CIT (2010) 323 ITR 166 (SC) held:

12 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 "After April 1, 1989, a mere provision for bad debt will not be entitled to deduction u/s.36(l)(vii). If an assessee debits an amount of doubtful debt to the profit and loss account and credits the assets account like sundry debtors account, that would constitute a write off of an actual debt. However, if an assessee debits prevision for doubtful debt to the Profit & Loss Account and makes a corresponding credit to the 'current liabilities and provisions' on the liabilities side of the Balance Sheet, then it would constitute a-provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after April, 1989."

In Southern Technologies Ltd vs JCIT (2010) 320 ITR 577 (SC), it has been observed by the Hon’ble Supreme Court that provision for non-performing assets in terms of the directions of Reserve Bank of India does not constitute exposes on the basis of which deduction can be claimed u/s.36(l)(vii) of the Act. It was also clarified that Reserve Bank disclosure norms have nothing to do with the computation of taxable income under the Income-tax Act. The decision in Southern Technologies Ltd. v. JCIT has been followed in Vijaya Bank vs CIT.

Under Article 141 of the Constitution, 'The law declared by the Supreme Court shall be binding on all Courts within the territory of India'. It has been clarified in Poothundu v. Ag ITO, 221 1TR 557 CSC) that if the Supreme Court has construed the meaning of a section, then any decision to the contrary given by any other authority must be held to be erroneous and such error must be treated as an error apparent on the record.

4.4 The learned A/Rs of the appellant filed a written submission during the course of appellate proceeding enclosing therein a computation sheet of 'provision for bad & doubtful debts as per section 36(l)(viii)(a). They had given a list containing 28 rural branches of the assessee-bank. As mentioned here-in-above under the head 'A Query', I informed the appellant vide my office letter No.2095 dated 26.02.2013 that out of the above 28 rural branches, the correct position is population of Remuna (28,958), Baliapal (45,000), Soro (27,794), Jaleswar (1,31,867), Nilgiri (14,745) and Basudevpur (29,998). During the course of appellate proceeding on 14.3.2013,1 requested the learned A/R to file the population figure of remaining 19 branches within a week. This is a part of the order sheet entry dated 14.3.2013. There was no compliance to my above query.

Allocation of the Burden of Proof

13 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0

That the onus shifted to the assessee is supported by the following judgments:

(i) Seshasayee Bros Ltd. v. C1T 42 ITR 568 (Mad.) (ii) CIT v. Calcutta Agency Ltd. 19 ITR 191 (SC) (iii) Nund & Samont Co. (P) Ltd. v. CIT 78 ITR 268 (SC) (iv) CIT v. Calcutta Agency 19 ITR 191 (SC) (v) United Steel vs Culling to 9 ITR Suppl 20, 35 (HL) (vi) Gopinath vs CIT, 6ITRr 243 (Lah HC) (vii) Hotz v. CIT 21ITR149 (Punj-HC)

The Hon'ble Supreme Court held in A.Raghavamma v. A. Chenchamma AIR 1964 SC 136 that such a shifting of onus is to be seen in the evaluation of evidence.

The Hon'ble Court need not accept a tax payer's self-serving testimony when the tax payer fails to present corroborative evidence. It has been held so in Beam v. Commissioner, T.C.Memo. 1990-304 citing Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).

1 find that the appellant failed to carry its burden of proof. In view of the above the case of the appellant is distinguishable from Catholic Syrian Bank Ltd. v. CIT and Mayurbhanj Central Co- operative Bank Ltd. v. ACIT, Balasore.

1 have examined the issue. The case of the appellant does not fall under the purview of section 36(1)(viia). This section was introduced by the Finance Act, 1979 w.e.f. April 1, 1980 in order to promote rural banking and assist scheduled commercial banks in making adequate provision from their current profits for risks in relation to their rural advances. Circular No.258 dated 14.6.1979: (1981) 131 ITR St. 88 states the following:

"13.2 In order to promote rural banking and assist the scheduled commercial banks in making adequate provisions from their current profits to provide for risks in relation to their rural advances, the Finance Act, 1979 has inserted a new clause (viia) in sub-section (1) of section 36 to provide for a deduction, in the computation of the taxable profits of all scheduled commercial banks, in respect of provisions made by them for baa and doubtful debts relating to advance made by rural branches computed in the manner to be prescribed by rules in the Income-tax Rules,1962. For this purpose, a ''rural branch" means a branch of a scheduled bank situated in a

14 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 place with a population not exceeding 10,000 according to the last preceding census of which the relevant figures have been published before the first day of the previous year."

In view of the above reasons, the AO is directed to disallow the provision for NPA of Rs.2,43,94,237/- in place of Rs.2,45,59,609/-“

CIT(A) failed to discuss newly introduced amendment to section

36(1)(viia) w.e.f 1.4.2007 and 1.4.2008.

CIT(A) could be pointed out by the assessee and hence, we find no good

reason to interfere with the order of the CIT(A), which is hereby

confirmed and ground of appeal of the assessee is dismissed.

Order pronounced in the open court on 05 /10/2017.

Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 05 /10/2017 B.K.Parida, SPS

15 ITA No .417/ CTK/ 2013 Asse ssment Year : 20 09- 201 0 Copy of the Order forwarded to : 1. The Appellant : The Balasore Bhadrak Central Co-op.Bank Ltd., O.T.Road, Balasore 2. The Respondent. JCIT, Balasore Range, Balasore 3. The CIT(A)-Cuttack 4. Pr.CIT- Cuttack BY ORDER, 5. DR, ITAT, Cuttack 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack