THE FARRUKHABAD DISTRICT CO- OPERATIVE BANK LTD,FATEHAGARH vs. DCIT,CIRCLE-2,(1), FARRUKHABAD

IN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI SUNIL KUMAR SINGH, JUDICIAL MEMBER ITA No. 138/Agr/2014 Assessment Year: 2008-09

The Farrukhabad District Co- Vs. DCIT, Circle 2(1) operative Bank Ltd., Fatehgarh, Farrukhabad. Distt. Farrukhabad (UP). PAN : AACCT1561A (Appellant) (Respondent)

And ITA No. 75/Agr/2016 Assessment year : 2012-13 The Farrukhabad District Co- Vs. DCIT, Circle 2(1) operative Bank Ltd., Fatehgarh, Farrukhabad. Distt. Farrukhabad (UP). PAN : AABAT6602M (Appellant) (Respondent)

Assessee by Sh. Rajesh Malhotra, CA Department by Sh. Shailendra Srivastava, Sr. DR

Date of hearing 18.12.2025 Date of pronouncement 15.01.2026

ORDER PER : S. RIFAUR RAHMAN, ACCOUNTANT MEMBER:

ITA No. 138/Agr/2014 has been preferred by assessee against the order of learned CIT(Appeals), Muzaffarnagar dated 20.01.2014 u/s. 250 of the Income-tax Act, 1961 (“the Act” for short) for the assessment year 2008-09, whereas assessee has preferred ITA No. 75/Agr/2016 against

ITA No.138/Agr/2014 & 75/Agr/2016

the order of learned CIT(Appeals), Aligarh dated 08.02.2016 for the

assessment year 2012-13. For the sake of convenience, we first take up

the appeal for the assessment year 2008-09.

ITA No. 138/Agr/2014 (A.Y. 2008-09):

declaring nil income on 30.09.2009. The return was processed u/s.

143(1) of the Act. Subsequently, case was selected for scrutiny.

Accordingly, notices u/s. 143(2) and 142(1) were issued and served on

the assessee. In response, AR of the assessee submitted relevant

information as called for. Since, the assessee was taking several

adjournments and did not furnish further information in response to

various notices issued to the assessee, the Assessing Officer proceeded

to disallow the expenditure to the extent of Rs.1,91,56,179/-, i.e., 20% of

expenditure of Rs.9,57,80,898/- claimed by the assessee. Since, the

assessee has claimed loss of Rs.1,96,37,752/-, he determined the net

loss of Rs.4,81,572/-.

before learned CIT(A), Muzaffarnagar. After considering detailed

submissions of the assessee and also additional evidences filed by

assessee, a remand report was called from the Assessing Officer and

after considering the remand report, learned CIT(A) dismissed the 2 | P a g e

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grounds raised by the assessee with the observation that the assessee

produced books of account during remand proceedings, but it could not

justify non-production of the same during the assessment proceedings.

Thus, the Assessing Officer was fully justified in making the aforesaid

disallowance. Learned CIT(A) justified the findings of the Assessing

Officer for the reason that the assessment proceedings were due for

more than 16 months and 15 hearings were given. The assessee was

given sufficient opportunity. In absence of books of account, the

Assessing Officer was justified in making aforesaid disallowance in an ex

parte order.

proceedings, it was noticed that the assessee has debited profit and loss

account towards provision for overdue interest by an amount of

Rs.1,93,94,000/-. It was claimed that this interest is included in the

interest income on the credit side to the extent the interest income is not

actually received. It was claimed as deduction by way of this provision for

overdue interest. Learned CIT(A) observed that income has accrued,

hence to be taxed. It is not a bad debt, hence, a provision for bad debt

allowable to the banking company is not applicable for this amount, as it

is not part of the principal loan given but a part of interest income on the

same. Since the assessee did not produce books of account along with 3 | P a g e

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supporting bills/vouchers before the Assessing Officer in the assessment

proceedings and also during the appellate proceedings, the onus was

squarely on the assessee to produce such documents. Accordingly, he

proceeded to make the addition of Rs.1,93,94,000/- claimed at

expenditure side under the head provision for overdue interest. Since the

interest is included in the interest income on the credit side but to the

extent the interest income is not actually received, it is claimed as

deduction by way of this provision for overdue interest. Accordingly, he

enhanced the income of the assessee.

following grounds of appeal:

“1. That in absence of an order u/s 120(4)(b) of the Income Tax Act, 1961, the Addl. CIT, Range-1, Aligarh cannot act as an "Assessing Officer as defined u/s 2(7A) of the Income Tax Act, 1961, hence the impugned assessment order is void-ab-initio and liable to be quashed 2. That the learned CIT Appeal Muzaffarnagar has erred in law and on facts in upholding the addition vide order dt. 23/12/2010 passed by the A.O. u/s 144 of the Income Tax Act, 1961 which is all arbitrary and bad in law. 3. That the learned CIT Appeal Muzaffarnagar has erred in law and on facts in sustaining the disallowance of expenditure amounting to Rs. 1,91,56,179/- made by A. O. which is all arbitrary and based on presumptions thus legally not maintainable. 4. That the learned CIT Appeal Muzaffarnagar has erred in law and on facts in sustaining the disallowance made by A.O. on an arbitrary manner, at 20% of total expenditure of Rs. 9,57,80,898/- (as claimed), without any basis and based on

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ITA No.138/Agr/2014 & 75/Agr/2016

presumption thus, the disallowance is legally not sustainable in law. 5. That the learned CIT Appeal Muzaffarnagar has erred in law and on facts in upholding the fact that books of accounts are not maintained and thereby upholding the rejection of books of accounts u/s 145(3) of the Income Tax Act, 1961, without appreciating the fact that the appellant is a cooperative bank and maintains regular books of accounts in the course of business at all the branches and accounts are dully audited and the audit report was duly submitted along with the copy of ITR before the A.O. 6. That the learned CIT Appeal Muzaffarnagar has erred in law and on facts in enhancing the income of the appellant by Rs. 1,93,94,000/-, being expenditure claimed under the head "Provision for overdue interest" without issuing mandatory notice u/s 251(2) of the Income Tax Act, 1961 7. That the order of the learned CIT Appeal Muzaffarnagar dated 20.01.2014 is bad in law and against the principles of natural justice and equity. 8. The Assessment is without jurisdiction. 9. That any other relief as may be deemed fit in the case & Circumstances of the case be granted. Your humble appellant craves leave to add or amend any ground(s) on or before the date of hearing.”

notice page 4 of the first appellate order and submitted that learned

CIT(A) has called for remand report and the report was submitted by the

Assessing Officer. However, no remand report was shared with the

assessee and the learned CIT(A) has sustained the additions made by

the Assessing Officer with the observations that the books of account

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were not submitted by the assessee during the original assessment

proceedings. He objected to the above observations.

submitted that the provision created by the assessee is not towards non-

collection of interest, rather, it is a provision created against advances.

Therefore, he prayed that the enhancement made by the learned CIT(A)

is not justified. Further, he submitted that none of the remand report

collected from the Assessing Officer was shared with the assessee and

prayed that the enhancement made by the learned CIT(A) be deleted.

appellate order and submitted that the assessee has not produced the

books of accounts before the Assessing Officer and even during the

appellate proceedings along with supporting bills/vouchers. Therefore,

he supported the findings of the lower authorities.

following mercantile system and the interest due has to be declared as

income of the assessee. Same cannot be claimed as deduction for the

reason that it is not actually collected. Accordingly, he relied on the

findings of the lower authorities.

record. 6 | P a g e

ITA No.138/Agr/2014 & 75/Agr/2016

total expenditure claimed by the assessee for the reason that the

assessee has not responded nor represented the case before him. It has

also not produced any books of account, bills and vouchers. In appeal

before learned CIT(A), the assessee filed additional evidences and

based on the same, a remand report was called from the Assessing

Officer. It is submitted before us that the relevant remand report was

never shared with the assessee. Further, we observe that the learned

CIT(A) has dismissed the grounds raised by the assessee by observing

that the assessee has not submitted the books of account during the

original assessment proceedings. He equally overlooked the fact that

during the remand proceedings, assessee has filed relevant books of

account and additional evidences. It is not clear what was the finding in

the remand report, which was never shared with the assessee.

Considering the peculiar nature of facts available on record, in our

considered view, in order to punish the assessee for non-compliance, the

Assessing Officer cannot proceed to make adhoc disallowance. It is a

fact on record that the assessee is a District Cooperative Bank. It has to

follow the banking regulations and these are duly audited. Therefore, in

absence of findings in the remand report, the natural justice requires that

the same has to be shared with the other party. Since the revenue 7 | P a g e

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authorities proceeded to make adhoc disallowances, in our considered

view, the same is not justified. Accordingly, we are inclined to delete the

same and allow the grounds raised by the assessee.

interest, we observe that the learned CIT(A) has enhanced the addition

with the finding that the relevant interest is due and receivable. The

same cannot be claimed as provision for non-receipt of the relevant

interest. On the other hand, we observe that learned AR submitted that it

is the provision created for the principal as per Banking Regulation Act,

1949, not towards overdue interest. Since the above fact was not clearly

understood by the tax authorities as well as the same was not verified by

the tax authorities, this being the regular provision created by the

cooperative banks based on the Banking Regulation Act, we are inclined

to remit this issue back to the Assessing Officer to verify the relevant

provision and allow the same as per law. At the same time, we direct the

assessee to file relevant information and the relevant provision as per

banking law with supporting calculations to claim the same before the

Assessing Officer. It is needless to say that the Assessing Officer should

extend the benefit of being heard to the assessee during the

proceedings. In the result, ground No. 6 raised by the assessee is

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allowed for statistical purposes. Accordingly, appeal of the assessee is

partly allowed as per above directions.

ITA No. 75/Agr/2016 (A.Y. 2012-13):

the Assessing Officer has disallowed certain claim made by the

assessee u/s. 36(1)(viia) of the Act, overlooking the fact that the

assessee is allowed to claim 10% of average balances of loans and

advances. In this regard, it is prayed that the issue may be remitted back

to the Assessing Officer to verify the above mistake apparent on record.

Since the issue involved is regarding determination and calculation at the

end of Assessing Officer, we are inclined to remit this issue back to the

Assessing officer for the limited purpose to verify the calculations

submitted by the assessee in this regard. The assessee has submitted

the relevant details as under :

The Farrukhabad District Cooperative Bank Ltd., Fatehgarh Rural Branches 2011-12 Distt Branch Average Balance 10% of Column 3 Loan and Advance 1 2 3 4 Rajepur 64232831.62 6423283.16 Farrukhabad Jahanganj 25123681.99 2512368.20

Jalalabad 69544078.69 6954407.85 Kannauj Indergarh 31279894.42 3127989.44 Thathia 41095555.72 4109555.57 Manimau 33337001.03 3333700.10 Total 264613043.46 26461304.35 9 | P a g e

ITA No.138/Agr/2014 & 75/Agr/2016

Assessing Officer with the limited purpose of above calculation and allow

the deduction as per law. In the result, appeal is allowed for statistical

purposes.

for statistical purposes and the appeal for A.Y. 2012-13 is allowed for

statistical purposes.

Order pronounced in the open court on 15.01.2026.

Sd/- Sd/- (SUNIL KUMAR SINGH) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 15.01.2026 *aks/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, Agra

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