COONOOR COOPERATIVE URBANK BANK LIMITED,COONOOR vs. DCIT,, OOTY

(िनधा�रणवष� / Assessment Year: 2014-2015) Coonoor Co-operative Urban Bank Vs. The Deputy Commissioner of Limited, Income Tax, No.15, Mount Road, Circle I, Coonoor. Ooty. [PAN: AAAAC 0793M] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/ Appellant by : Miss N.V. Lakshmi, Advocate ��यथ� क� ओर से /Respondent by : Shri. ARV Srinivasan, IRS, Addl. CIT. सुनवाई क� तार�ख/Date of Hearing : 20.06.2024 घोषणा क� तार�ख /Date of Pronouncement : 27.08.2024 आदेश / O R D E R PER MANU KUMAR GIRI (Judicial Member)

This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in order No.ITBA/NFAC/S/250/2022-23/1046838131 (1) dated 03.11.2022. The assessment was framed by the Deputy Commissioner of Income Tax, Circle I, Ooty for the assessment year 2014-15 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 05.12.2016.

2. Assessee has raised the following grounds of appeal:- ‘’(i) Disallowance in respect of deduction of income tax paid under P & L account Rs.1369131(-) 481059 =888072. (ii) Disallowance of Rs.201600/- bonus / ex-gratia paid to the employees for want of bills/ vouchers. (iii) Disallowance of Rs.2,46,500/- payment towards security charges to security service provider for non-deduction of TDS at applicable rate. (iv) Disallowance of Rs.48,76,149/- being contribution unrecognized staff provident fund by employee. (v) Disallowance u/s.40 (a)(ia) of Rs.4,82,97,933/- interest paid on various deposits for want of Tax Deduction at source on ground of applicability of Section 194A (1)’’.

3. Brief facts of the case are that the assessee is a member Co-Operative Society carrying on Banking Business registered under the Tamil Co-Operative Societies Act 1988 with paid up capital of Rs.2,31,54,685 and also obtained license from the RBI to carry on the business of Banking as an urban Bank governed by the Banking Regulation Act, 1949. Further, the assessee is in the business of banking from 26.07.1916 having registered under the Co-Operative Societies Act 1912. Assessee has a branch at Arvankadu and has 5037 Class "A" members and 6616 Class "B" Members. For the AY 2014-15 assessee have e-filed the ITR with CPC on 29.09.2014 returning a total Income of Rs. 48,04,630 and have paid a tax of Rs. 18,39,167 and eligible for a refund of Rs.3,34,550. The Return was not processed u/s 143(1) of the Income Tax Act, 1961 (in short ‘’the Act’’). Assessee have filed a rectification petition u/s 154 of the Act with the AO for challan Correction and same was duly processed. Subsequently notice u/s 143(2) of the Act was received on 28.08.2015 for limited Scrutiny followed by notice U/s 142(1). The r case was selected under CASS to ascertain the reason for large increase in sundry creditors etc., and assessee have submitted detailed submission on this matter on 30.05.2016. The CASS was converted into complete scrutiny during the course of hearing. During the course of hearing before the ld. Assessing Officer, the assessee submitted the details called for and the proceedings are exhausted. However, the ld. Assessing Officer made the following disallowances/ additions. (i) The learned AO added a sum of Rs. 13,69,131 as IT paid and charged to P&L account and arrived the sum of Rs. 13,69,131 by adding the Advance Tax of Rs. 12,00,000 and excess provisions for IT of Rs.1,69,131 [Rs.8,25,336 minus Rs. 6,56,205]. (ii) The learned AO disallowed a sum of Rs.2,01,600 paid for ex-gratia/bonus paid to employees for want of bills (iii) The learned AO disallowed a sum of Rs.2,46,500 paid for security charges U/s.40(a)(ia) of the Act on the plea that TDS was not deducted. Further the AO disallowed Rs.43,76,149 being contribution made towards Employer and Employee contribution to PF. Reference was made to section 36(i) (iv) and concluded that the contribution were to an un recognized PF (iv) The learned AO disallowed Rs.4,82,97,933 being interest paid to members of the Bank on various deposits by invoking provisions of Section 194A, 194A(3)(v), 194A(3)(vila)(b) and 194A(3) (i) (b) and disallowed the same on the ground that tax was not deducted at source. The ld. Assessing Officer made a total addition of Rs.5,50,90,931/-. Aggrieved, assessee preferred an appeal before the ld. CIT(A), who uphold the order of ld. Assessing Officer. Assessee is in further appeal before us. Groundwise disposal of appeal is as under:-

4. At the time of hearing before us, ld. Counsel for the assessee has not pressed ground with regard to disallowance in respect of deduction of income tax paid under P & L account Rs.1369131(-) 481059 =888072/-. Hence, this ground is dismissed as not pressed.

Disallowance of Rs.2,01,600/- bonus / ex-gratia paid to the employees for 5. want of bills/ vouchers. During the course of assessment proceedings, the ld. Assessing Officer made addition of Rs.2,01,600/- on account of payment to bank employees towards ex- gratia/bonus and in the absence of bills/vouchers. The ld. CIT(A) held as under:-

‘’7.3 I have perused the matter and it is noticed from the assessment order, the Assessing Officer was asked the appellant to provide proof in the form of bills/invoices supporting the actual payment of ex- gratia/bonus to employee. The appellant has submitted the copy of the relevant ledger account but no proof regarding such payment despite given sufficient opportunity to appellant at the time of assessment proceedings as well as appellate proceedings to furnish the necessary details/documentary evidences in support of his case but the appellant has failed to produce any supporting material in this regard. 7.4 In view of the above and on the basis of the detailed findings and reasons given by the AO in his assessment order, which have not been explained by the appellant and no evidence to the contrary has been submitted either at the stage of assessment or appeal, the addition made by the Assessing Officer amounting to Rs 2,01,600/- is hereby confirmed and Ground No. 2 is dismissed’’. 5.1 Aggrieved, assessee preferred an appeal before us. Before us, the assessee filed petition for admission of additional evidence, which runs into 1-68 pages which consists of bank statement as proof for payment of ex-gratia/bonus. To meet the end of justice, we admit the petition for additional evidence and therefore we set aside this issue back to the file of the ld. Assessing Officer to look into this issue afresh after considering the additional evidence. The ld. Assessing Officer is also entitled to ask for further evidence, if any. Accordingly, this issue is allowed for statistical purpose.

During the course of assessment proceedings, the assessee bank was 6.1 required to provide proof of deduction of tax at source on ‘’security services’’ of Rs.2,46,500/-paid during the year. The ld. Assessing Officer in the absence of copy of declaration by the recipient and copy of ITR of recipient, disallowed the charges paid for security service u/s.40(a)(ia) of the Act. Aggrieved, assessee preferred an appeal before the ld.CIT(A).

6.2 On appeal, ld. CIT(A) upheld as under:- 6.3 I have perused the matter and it is seen from the assessment order, the disallowance made by the AO u/s 40(a)(ia) is held to be mandatory as per IT Act and therefore the action is held to be correct. The amendment made by Finance Act, 2014 shall not apply to AY 2014- 15 but from AY 2015-16 onwards. This ground of appeal is thus dismissed.

Aggrieved, assessee preferred an appeal before us.

6.3 Before us, the ld. Counsel for the assessee submitted that the assessee deducted and remitted the TDS (2% of Rs.2,46,500/- i.e Rs.4,980/-) on 11.01.2017. Therefore, in the light of above contention, we direct the ld. Assessing Officer to verify the factum of tax deduction at source on charges paid for security services and allow the same accordingly. Accordingly, this issue is allowed for statistical purpose.

7. Disallowance of Rs.48,76,149/- being contribution unrecognized staff provident fund by employee. During assessment proceedings, the assessee was called upon to provide a chart showing employer’s and employee’s contribution towards provident fund alongwith due dates and actual date of payment. The ld. CIT(A) while upheld the view of ld. Assessing Officer held as under:- ‘’9.4 I have perused the matter. For claiming the contribution towards provident fund, the contributions have to be made to a recognized provident fund. The appellant could not provide any details or evidence in respect of establishing that the fund to which it contributed was a recognized one as required under the provisions of the Act. In view of the above, the addition made by the AO under the head employee contribution towards provident fund amounting to Rs 43,76,149/- is hereby confirmed. Ground No. 4 is hereby dismissed’’.

7.1 Before us, the assessee has raised the following grounds of appeal:- ‘’VI. The assesse pray for dismissing the disallowance on the following grounds: a. The management of Provident Fund contributions were done according to Tamil Nadu cooperative Act and by-laws of the bank established since 1935. b. The Provident fund Account was maintained as separate investment with District Central Cooperative Bank. c. The accounts are being audited by cooperative auditors every year. d. The income tax department has not raised this issue except for the AY 2014-15. e. Though the number of employees is less than 20, at present, the assesse permitted to open account with Provident Fund Commissioner office and has taken steps to transfer the funds to Provident fund Commissioner once the account is opened’’. We have heard the rival submissions and judgment cited at bar. We find that this issue requires revisit by the Ld. Assessing Officer in the light of judgment of Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd vs. CIT, 143 Taxmann.com 178. While adjudicating this issue the ld. Assessing Officer may also consider the applicability of the judgment of Hon’ble Jurisdictional High Court of Madras in the case of CIT vs. V.O. Chidambaranar Port Trust, (2019) 108

8. Disallowance u/s.40 (a)(ia) of Rs.4,82,97,933/- interest paid on various deposits for want of Tax Deduction at source on ground of applicability of Section 194A (1)’’. During the assessment proceedings, ld. Assessing Officer observed that the assessee has paid ‘’interest on deposits and borrowings’ of Rs. 4,57,26,109/- . The assessee was asked to provide the list of members alongwith details of amount of payment made to each one of them during financial year 2013-2014. Assessee also categorically asked to provide the list of members to whom interest was paid, partly wise breakup of interest paid etc., Before the ld. ld. Assessing Officer, the assessee was not able to provide such details. The ld. CIT(A) also upheld the findings of the ld. Assessing Officer as under:- ‘’10.7 In view of the above facts and circumstances of the case and on the basis of the detailed findings and reasons given by the ld. Assessing Officer in his assessment order, which have not been explained by the appellant and no evidence to the contrary has been submitted either at the stage of assessment or appeal. Without a list of persons/members to whom interest was paid, it could not be ascertained whether it was paid actually. to members. Despite giving sufficient opportunities, the appellant' bank was not able to provide such basic details. Further, such details were being called for to verify whether tax was deducted at source on payments of interest of above Rs. 10,000/- to non-members. In absence of such details, it is evident that the appellant's bank did not deduct any tax at source on such payments. 10.8 Hence, in view of the discussion above regarding requirement to deduct tax at source on interest payments on time deposits and in view of the absence of details and inability of the bank to prove that the expenditure was actually incurred, the addition made by the Assessing Officer amounting to Rs 4,82,97,933/- is hereby confirmed and Ground No. 5 is dismissed’’.

8.1 Before us, the Ld Counsel for the assessee has referred additional evidence viz, party wise breakup of interest expenses and prayed for admission of additional evidence as per Rule 29 of the Income Tax Rules, 1962. Per contra, the ld. Addl. CIT-DR objected to the admission of the petition for additional evidence.

8.2 We have heard the rival submissions. In order to meet the ends of justice, we accept the argument of the ld. Counsel and accept the additional evidence filed. Therefore we set aside this issue back to the file of the ld. Assessing Officer to look into this issue afresh after considering the additional evidence. The ld. Assessing Officer is also entitled to ask for further evidence, if any. Accordingly, this issue is allowed for statistical purpose.