ACIT, BALASORE vs. M/S. THE BALASORE BHADRAK CENTRAL CO-OPERATIVE BANK LTD., BALASORE

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ITA 411/CTK/2015Status: DisposedITAT Cuttack11 August 2017AY 2011-126 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that provisions for standard assets are allowable for cooperative banks as per RBI guidelines and previous tribunal rulings. Regarding Section 14A, the Tribunal directed the AO to recalculate the disallowance using half percent of the average investment value.

What were the facts?

The revenue appealed against the deletion of disallowance for provisions for standard assets and NPA. The assessee appealed against the addition made under Section 14A for expenses incurred in earning tax-free dividend income.

What were the issues?

Whether provisions for standard assets made by a cooperative bank are deductible. Whether the disallowance under Section 14A was correctly calculated based on investment value.

Which sections of the Income-tax Act were involved?

Section 36(1)(vii),Section 14A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK

Before: S/SHRI N.S SAINI & PAVAN KUMAR GADALE

For Appellant: Shri Nihar Ranjan Biswal
For Respondent: Shri D.K.Pradhan DR
Hearing: 09/08

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. 411/CTK/2015 Assessment Year : 2011-12

ACIT, Balasore Circle, Vs. The Balasore Bhadrak Balasore Central Co.Op. Bank Ltd., O.T Road, Baleswar. PAN/GIR No.AAAAT 2620 G (Appellant) .. ( Respondent)

ITA No.422/CTK/2015 Assessment Year : 2011-12

The Balasore Bhadrak Vs. ACIT, Balasore Circle, Central Co.Op. Bank Ltd., Balasore O.T Road, Baleswar PAN/GIR No.AAAAT 2620 G (Appellant) .. ( Respondent)

Assessee by : Shri Nihar Ranjan Biswal, Revenue by : Shri D.K.Pradhan DR

Date of Hearing : 09/08/ 2017 Date of Pronouncement : 11 /08/ 2017

O R D E R Per N.S.Saini, AM These are cross appeals filed by the assessee and the revenue

against the order of the CIT(A)-Cuttack dated 20.7.2015 for the

assessment year 2011-12.

2.

In the revenue’s appeal, the grievance of the revenue is that the

CIT(A) was not justified in deleting the provisions for standard assets to

2 ITA No . 411/CT K/ 2015 ITA No. 422/CT K/ 2015 Asse ssment Year : 20 11- 12

the tune of Rs.35,18,790/- and provisions of NPA of Rs.2,38,93,834/-

ignoring the provisions of I.T.Act, 1961.

3.

The brief facts of the case are that the Assessing Officer found that

the assessee had deducted provision for standard assets amounting to

Rs.35,18,790/- and provisions of NPA of Rs.2,38,93,834/- in its profit

and loss account and claimed the same as expenses. The Assessing

Officer observed that under the provision of section 36(1)(vii) of the Act,

bad debt actually written off from the books of assessee is admissible for

deduction. But the provision made for standard asset is not deductible in

view of the decision of Hon’ble Supreme Court in the case of Southern

Technology Ltd vs JCIT (2010) 320 ITR 577 (SC).

4.

Before the CIT(A), the assessee submitted that the Assessing

Officer is unlawful in disallowing provision for standard asset which has

been credited in the books as per the mandatory guidelines of RBI for the

assessee bank and qualifies as a part of provision for bad and doubtful

debts. The assessee further submitted that in the case of Mayurbhanj

Central Co-operative Bank Limited for the assessment year 2008-09, the

Cuttack Bench of the Tribunal in ITA No.383/CTK/2012 dated 30.10.2012

decided that the provision for standard asset for co-operative bank should

be allowed. He placed reliance on the following part of the order of the

Tribunal:

” "In the case, the Standard Assets, provision allowed to be created as a percentage of the outstanding Loans & Advances is much less compared

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to that for the other types of Loans & Advances classified as substandard or loss Assets by the bank as per the guidelines of RBI. It is not a liability, much less a contingent or unaccrued one. It is only a provision for loss towards bad & doubtful debts, as per the prudential norms prescribed by RBI for the banks, which is mandatory in nature. In view thereof, the decision of Hon'ble Apex Court in the case of Indian Molasses & Co. V. CIT (Supra) which was on different set of facts is not applicable to the instant case of the assessee. We find that in the said case it has been held that provision for contingent or unaccrued labiality is not allowable as deduction. The learned AR of the assessee relied on the decision of lTAT, Amristar Bench in the case of DCIT v. The Gurdaspur Central Co-op Circle Pathankot Bank Ltd. in ITA No.99/ASR/2011/ dt. 07.05.2012 ( copy placed in the paper book ), wherein the Tribunal has upheld the order of the CIT(A) in deleting disallowance under the head "Provisions on Standard Assets". The relevant portion of that order in paragraph 4 is quoted hereunder:

"4. Before the Ld. CIT(A), the assessee submitted written submissions which are reproduced in CIT(A)'s order in para 5 on pages 8 & 9. The Ld. CIT(A) vide para 7 of his order deleted the addition observing that the AO had given no reasons for the disallowance of expense. Thereafter, the Ld. CIT(A) on the basis of submissions made before him by the Ld. Counsel for the assessee that the expense is debited notionally @ 0.1 % to 0.4% of such assets to maintain and retain all standard assets, as per Master Circular on Income Recognition Asset Classification, Provisioning and other related matters issued by the Bank of India. He further mentioned that u/s. 35A of the Banking Regulation Act, 1949, the Reserve Bank of India has been empowered to issue directions to all the banks as to regulate the banking business in the public interest or in the interest of banking policy. After discussing what has been submitted by the assessee before him, the Ld. CIT(A) observed that the assessee had no option but to claim the same and the claim, even if notional, exclusively laid out for the purpose of smooth running of banking business and there is no reason not to allow the same to the assessee. It is a statutory claim to allow the same to the assessee. It is a statutory claim allowable on the analogy of 30% deduction allowed in respect of income under the head house property, without making it necessary to shown the evidence of such expense having been actually incurred. The AO had failed to appreciate that section 36(l)(viia) is amended by the Finance Act, 2007 to include co-operative banks for the purpose of deduction under this section retrospectively from 1st April, 2007 and subsequent years. This amendment was brought to give relief to the Co-operative banks which have been withdrawn as a deduction under section 80 P. Referring to the Rule 6ABA, it was observed that deduction under section 36(l)(viia) is a notional deduction, which is within the limits of the said section. Accordingly, the Ld. CIT(A) deleted the addition."

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We find that the facts of the instant case being similar with that of The Gurdaspur Central Co-op Circle, Pathankot Bank Ltd. (Supra ) and following the decision of the IT AT, Amirtsar, it must be held that the learned CIT(A) is not justified in confirming the disallowance made under the head "Provisions on Standard Assets" and therefore, we direct the Assessing Officer to delete such disallowance and allow the claim of the assessee in this regard.”

5.

The CIT(A) following the order of the Tribunal accepted the appeal

of the assessee and deleted the addition.

6.

Ld D.R relied on the order of the Assessing Officer.

7.

In the above facts and circumstances of the case, we find that the

order of the CIT(A) is in consonance with the order of the Tribunal in the

case of Mayurbhanj Central Co-operative Bank for the assessment year

2008-09 (supra). Ld D.R. could not point out any distinguishing features

to not to follow the above quoted order of the Tribunal. 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 revenue is dismissed.

8.

In the result, appeal of the revenue is dismissed.

9.

In assessee’s appeal, the grievance of the assessee is that the

CIT(A) erred in adding Rs.7,11,462/- under section 14A r.w. 8D of the Act

being expenses incurred for earning tax free dividend income of

Rs.19,92,088/-.

10.

The Assessing Officer observed that the assessee has claimed

exemption of dividend income of Rs.19,92,088/-. The assessee has not

determined expenses incurred towards such earning of dividend. The

Assessing Officer further observed that this is a recurring issue and for

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the assessment year 2009-2010, addition made by the Assessing Officer

u/s14A of the Act was confirmed by the CIT(A), Cuttack. Therefore, the

Assessing Officer calculated the disallowable expenditure for earning the

above exempted income as per Rule 8D sub rule 2(iii) and disallowed

Rs.7,11,462/- u/s.14A of the Act.

11.

On appeal, the CIT(A) confirmed the action of the Assessing Officer.

12.

Before us, the only argument of the ld A.R. of the assessee is that

the Assessing Officer has calculated half percent of the value of

investment of Rs.7,11,46,000/- as on 1.4.2010 while working out the

disallowance u/s.14A of the Act. He submitted that the Assessing Officer

could have taken one-half percent of the average value of investment of

the assessee to arrive at the disallowance to be made u/s.14A of the Act.

13.

Ld D.R. on the other hand relied on the orders of the lower

authorities.

14.

After hearing the rival submission and perusing the orders of lower

authorities, we find that Rule 8D (2)(iii) provides that the expenditures in

relation to income which does not form part of the total income shall be

the aggregating of the following amounts namely;

i) ….. ii) …. iii) an amount equal to one-half percent of the average of the value of investment, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year.”

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A bare perusal of the above provision shows that as per Rule 8D(2)(iii)

one and half percent of the average value of investment has to be taken

for working out the disallowance u/s.14A of the Act. Hence, we find force

in the submission of ld A.R. of the assessee and, accordingly, set aside

the orders of lower authorities and direct the Assessing Officer to work

out the disallowance under Rule 8D r.w. 14A by taking one - half percent

of the average value of investment and allow the ground of appeal of the

assessee.

15.

In the result, appeal filed by the assessee is allowed.

Order pronounced in the open court on 11 /08/2017. Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 11/08/2017 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : /Assessee: The Balasore Bhadrak Central Co.Op. Bank Ltd., O.T Road, Baleswar 2. The Respondent./Revenue: ACIT, Balasore Circle, Balasore 3. The CIT(A)- Cuttack 4. Pr.CIT- Cuttack 5. DR, ITAT, Cuttack 6. Guard file. //True Copy//

BY ORDER,

SR.PRIVATE SECRETARY ITAT, Cuttack

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