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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Annapurna Gupta & Shri Siddhartha Nautiyal
आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:- This assessee’s appeal for A.Y. 2012-13, arises from order of the ld. CIT (A), Jamnagar dated 28-12-2017, in proceedings under section 250 of the Income Tax Act, 1961; in short “the Act”.
The assessee has taken the following grounds of appeal:-
“1. The Commissioner of Income-tax (Appeals), Jamnagar erred in confirming the action of assessing officer in making addition of Rs. 40,00,000/- by disallowance of provision on standard assets.
Page No 2 Amrelli Jilla Madhyasth Sahkari Bank Ltd. vs. ACIT
2. The Commissioner of Income-tax (Appeals), Jamnagar erred in confirming the action of assessing officer in making addition of Rs. 23,25,000/- by disallowance of members' gift expenses.
The Commissioner of Income-tax (Appeals), Jamnagar erred in confirming the action of assessing officer in making addition of Rs. 51,67,000/- by disallowance of golden jubilee incentive expenses. 4. The Commissioner of Income-tax (Appeals), Jamnagar erred in confirming the action of assessing office in making disallowance upto Rs. 1,99,749/- u/s 14A of the Act. The appellant craves leave to add, amend, alter and withdraw any ground of appeal anytime up to the hearing of this appeal.”
Ground number 1: disallowance of ₹ 40 lakhs on provision for standard assets 3. The issue for consideration with respect to this ground of appeal is that during the course of assessment, the AO disallowed the sum of ₹ 40 lakhs on the ground that it pertains to provision for standard assets and not for bad and doubtful debts and since deduction under section 36(1)(viia) of the Act can be allowed only in respect of provisions which are made for bad and doubtful debts, same is liable to be disallowed. The AO held that since the assessee has not credited the said amount to bad debt account but has credited the same to provision against standard assets, deduction is not allowable to the assessee under section 36(1)(viia) of the Act by relying on the decision of Ahmedabad Tribunal in the case of Bharuch district Central Cooperative Bank
59. SOT 150. In appeal, Ld. CIT(Appeals) dismissed the appeal of the assessee by relying on the decision of Supreme Court in the case of Southern Technologies Ltd 320 ITR 577.
Page No 3 Amrelli Jilla Madhyasth Sahkari Bank Ltd. vs. ACIT
Before us, the counsel for the assessee submitted that deduction was claimed by the assessee as per NPA guidelines of RBI. Further, it was submitted that section 36(1)(viia) of the Act makes no distinction between provision for bad assets and provision for standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and claim of the assessee does not fall in the Proviso to section 36(1)(viia) of the Act. He further relied on the decision of officer Tribunal in the case of Nawanshahr Central Cooperative Bank in ITA number 61/Asr/2017. In response, DR placed reliance on the observations made by the Ld. CIT(Appeals) and assessing officer in their respective orders.
We have heard the rival contentions and perused the material on record. We are of inclined to agree with the contentions put forth by the counsel for the assessee on this issue. In the case of ACIT Vs Jila Sahakari Kendriya Bank (ITAT Indore) in ITA Number 455/Ind/2018, the ITAT held that provision for Standard Assets are allowable under Section 36(1)(viia) of Income Tax Act. While passing the order, ITAT made the following observations:
We have considered the rival contentions raised by both sides and perused the material held on record in the light of section 36(1)(viia) and the judicial decisions cited above. After a careful consideration, we observe that it has been loudly held in all of the decisions cited above that the provision made by a banking company in respect of standard assets, as per RBI guidelines, is very much allowed as deduction u/s 36(1)(viia). Ld. DR is not able to point out any contrary Page No 4 Amrelli Jilla Madhyasth Sahkari Bank Ltd. vs. ACIT
decision on this issue. We extract below the decision of ITAT Indore Bench itself in Vikramaditya Nagarik Sahakari Bank Vs. ACIT (supra): “6. We have heard the rival contentions and perused the material placed on record. The sole grievance of the assessee revolves around the disallowance of Rs. 2 lacs confirmed by both the lower authorities relating to provision for contingency of standard assets claimed by the assessee u/s 36(1)(viia) of the Act. Before proceeding further we would like to reproduce the provision of section 36(1)(viia) of the Act as under :- “Other deductions. M/s Jila Sahakari Kendriya Bank Khargone Assessment year 2014-15 Page 5 of 18 36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 xxxx xxxx xxxx (viia) in respect of any provision for bad and doubtful debts made by – (a) a scheduled bank [not being a bank incorporated by or under the laws of a country outside India] or a non- scheduled bank or a cooperative bank other than a primary agricultural credit society or a primary co- operative agricultural and rural development bank, an amount not exceeding 99[seven and one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : Provided that a Page No 5 Amrelli Jilla Madhyasth Sahkari Bank Ltd. vs. ACIT scheduled bank or a non-scheduled bank referred to in this sub- clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year: Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five per cent", the words "ten per cent" had been substituted: Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government: Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains of business or profession." Explanation. For the purposes of this sub-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000 and ending before the 1st day of April, 2005.
Page No 6 Amrelli Jilla Madhyasth Sahkari Bank Ltd. vs. ACIT
On perusal of the above provision and in the given facts of the case, wherein the assessee, which is a cooperative bank carrying on banking business, we find that the assessee is eligible to claim provision for bad and doubtful debts to the extent of 7.5% of the total income before making any deduction under this clause and under Chapter VIA. Further in the profit and loss account except for the alleged provision for Rs. 2 lacs, no other provision for bad and doubtful debts has been claimed. We find force in the contention M/s Jila Sahakari Kendriya Bank Khargone Assessment year 2014-15 Page 6 of 18 of the learned counsel for the assessee that the phrase contingency provision for standard assets is basically a provision for bad and doubtful debts only which is in general a regular feature of the banking business. It is also pertinent to mention that even though the assessee was eligible to claim much higher amount as an expenditure of provision for bad and doubtful debts, it only claimed Rs. 2 lacs. We, therefore, in the facts and circumstances of the case, are of the opinion that in the instant appeal the contingency provision for standard assets is basically in the nature of bad and doubtful debts only and the assessee has rightly claimed the expenditure u/s 36(1)(viia) of the Act. We, therefore, allow the sole ground raised by the assessee.”
Thus, the impugned issue is settled in favour of assessee by various decisions of ITAT Benches including the co-ordinate bench of ITAT, Indore. Respectfully following the same, we too Page No 7 Amrelli Jilla Madhyasth Sahkari Bank Ltd. vs. ACIT
hold that the provision made by assessee qua standard assets is allowable u/s 36(1)(viia) and therefore the Ld. CIT(A) has rightly deleted the disallowance made by AO.
The ITAT in the case of Nagaur Urban Co-operative Bank Ltd. Vs. ACIT, also held that the “provision for standard assets” was held to be a provision for bad debts allowable u/s 36(1)(viia).
7. The Amritsar ITAT in the case of Nawanshahr Central Cooperative Bank Ltd, made the following observations, while deciding this issue in favour of the assessee:
From the above provisions it can be seen that deduction u/s 36(1) (viia) of the Act is allowed in respect of provisions for bad and doubtful debts. This section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub- section (1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1) (vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of average advances. The deduction of the provisions is Page No 8 Amrelli Jilla Madhyasth Sahkari Bank Ltd. vs. ACIT neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1) (viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) of the Act. The Ld. CIT(A) has passed a Assessment Year: 2013-14 very exhaustive and speaking order and we do not find any infirmity in the same.
Respectfully following the view of various Tribunals as given above, we too hold that the provision made by assessee qua standard assets is allowable u/s 36(1)(viia) of the Act.
9. In the result ground number 1 of the assessee’s appeal is allowed. Ground number 2: disallowance of ₹ 23.25 lakhs on account of member’s gift expenses 10. The brief facts in relation to this ground of appeal are that the AO and Ld. CIT(Appeals) disallowed the aforesaid expenses by holding that the assessee had only made provision for gifts to members of the bank and hence it is not allowable as business expenditure.
11. Before us, the counsel for the assessee submitted that the assessee as a bank is permitted by its regulator, being the Registrar of Cooperatives in Gujarat State to give gifts to members up to certain amount. Further, the Page No 9 Amrelli Jilla Madhyasth Sahkari Bank Ltd. vs. ACIT expenditures was incurred on such items such as cookware, clothes and footwear which were purchased and gifted to members. The counsel for the assessee submitted that every year the bank makes a provision at year end and it follows mercantile system of counting and hence, it becomes an allowable expenditure for this year itself. The counsel for the assessee further submitted that in immediately preceding assessment year 2011-12, similar disallowances made by the AO has been allowed by the Ld. CIT(Appeals). A copy of order passed by Ld. CIT(Appeals) for assessment year 2011-12 has been submitted for our records. Further, the counsel for the assessee placed reliance on the decision of Rajkot Tribunal in the case of Amreli Sahakari Bank Ltd. in in which it was held that expenditure incurred on welfare activities for its members is for the prosperity of the cooperative Bank and hence allowable under section 37 of the Act. In response, the Ld. DR placed reliance on the observations made by the Ld. CIT(Appeals) and assessing officer in their respective orders.
We have heard the rival contentions and perused the material on record. From the contents of the order passed by Ld. CIT(Appeals) we observe that the deduction was disallowed also on the basis that the assessee did not furnish any documentary proof in support of the genuineness of the aforesaid expenses of ₹ 23.25 lakhs. The AO and Ld. CIT(Appeals) have given a specific finding that the assessee failed to provide any details and evidence in respect of claim of expenses of ₹ 23.25 lakhs. Further, Ld. CIT(Appeals) observed that the assessee has submitted two different invoices in support of its claim of expenses amounting to ₹ 23.25 lakhs.
Page No 10 Amrelli Jilla Madhyasth Sahkari Bank Ltd. vs. ACIT Accordingly, Ld. CIT(Appeals) held that assessee has failed to submit genuine invoices in respect of the above expenses of ₹ 23.25 lakhs.
However, looking into the fact that similar expenses have been allowed in the immediately preceding assessment year, in the interest of justice, the matter is being set aside to the file of Ld. CIT(Appeals) to check the veracity/genuineness of expenses incurred for gifts amounting to ₹ 23.25 lakhs to its members and the assessee may also give supporting evidence in support of genuineness of the claim.
In the result ground number 2 of the assessee’s appeal is allowed for statistical purposes.
Ground number 3: disallowance is 51.6 lakhs for Golden/Diamond Jubilee expenses 15. The brief facts in relation to this ground of appeal are that the assessing officer and Ld. CIT(Appeals) disallowed the said expenses as bogus and not incurred for the purpose of business.
Before us, the counsel for the assessee submitted that the said expenses were incurred towards purchase and distribution of school bags, which were gifted to the children of the members of assessee cooperative society. The counsel for the assessee submitted that the expenses were incurred to enhance good image of the assessee amongst members in the community and to keep the members and customers motivated and to appreciate their business with the bank.
Page No 11 Amrelli Jilla Madhyasth Sahkari Bank Ltd. vs. ACIT
We observe that the Department has made a specific allegation that the assessee has not been able to establish the genuineness of the expenses and the fact that these expenses had in fact been incurred at all. Ld. CIT(Appeals) in the appellate order has made a specific noting that statement of account is not supported by any records and evidences. Accordingly, in the interest of justice, the matter is being set aside to the file of Ld. CIT(Appeals) to check the veracity/genuineness of expenses incurred for diamond jubilee expenses amounting to ₹ 51.6 lakhs to its members and the assessee may also give supporting evidence in support of genuineness of the claim, with proof of actual payment having been made.
In the result, ground number 3 of the assessee’s appeal is allowed for statistical purposes.
Ground number 4: disallowance under section 14A of the Act 19. The brief facts in relation to this ground of appeal are that the AO held that the assessee had earned a dividend income of ₹ 1,99,749/- and accordingly, worked out the disallowance under section 14A read with Rule 8D amounting to ₹ 2,67,436/-.
The Ld. CIT(Appeals) restricted the said disallowance to ₹ 1,99,749/- 20. to exempt dividend income earned.
Before us, the counsel for the assessee submitted that it’s tax free funds were to the tune of ₹ 33.38 crores as compared to the average investment of ₹ 80.19 lakhs. Accordingly, in view of the decision rendered by the Hon'ble High Court Supreme Court in the case of South Indian Bank Page No 12 Amrelli Jilla Madhyasth Sahkari Bank Ltd. vs. ACIT Ltd 438 ITR 1, no disallowance is called for in the instant set of facts. In response, the Ld. DR relied on the observations made by Ld. CIT(Appeals) in the appellate order.
We have heard the rival contentions and perused the material on record. In the case of South Indian Bank Ltd. 438 ITR 1 (SC), the Hon'ble Supreme Court held that where interest free funds available with assessee- banks exceeded their investments in tax-free securities; investments would be presumed to be made out of assessee's own funds and proportionate disallowance was not warranted under section 14A on ground that separate accounts were not maintained by assessee for investments and other expenditure incurred for earning tax-free income. In the case of UTI Bank Ltd.142 taxmann.com 136 (SC), the Hon'ble Supreme Court held that where interest free funds available with assessee exceeded their investments in tax-free securities, investments would be presumed to be made out of assessee's own funds and proportionate disallowance was not warranted under section 14A.
In view of the settled proposition on this issue, ground number 4 of the assessee’s appeal is allowed.
In the combined result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 26-07-2023