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Income Tax Appellate Tribunal, PATNA BENCH, PATNA VIRTUAL
Before: Dr. Manish Borad & Shri Sonjoy Sarma]
IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH, PATNA VIRTUAL HEARING AT KOLKATA [Before Dr. Manish Borad, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.A. No. 257/Pat/2019 Assessment Year : 2012-13 ACIT, Circle-1, Patna Vs. Bihar Kshetriya Gramin Bank [PAN: AABAB 3143 P] Appellant Respondent Date of Hearing 12.10.2022 Date of Pronouncement 08.12.2022 For the Assessee Shri Nishant Maitin, CA For the Revenue Shri Sanjay Mukherjee, CIT/DR
ORDER Per Shri Sonjoy Sarma, JM: This appeal filed by the revenue is directed against the order of ld. CIT(A), Bhagalpur dated 04.10.2019 relating to A.Y. 2012-13. The assessee has raised the following grounds of appeal:
“i. On the facts and in the circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs. 3.65 crores regarding disallowance of provisions of bad debts. ii. The ld. CIT(A) has erred in restricting the ad-hoc disallowance of Rs. 2 crores to 1 crore as the assessee has failed to furnish any documentary evidence to justify the increase in the expenditure claimed under various heads. iii. Any other grounds that may be urged at the time of hearing.” 2. The brief facts of the case culled out from the material available on record are as under:
The assessee is engaged in the business of banking and filed its return of income declaring at Nil. The case of the assessee was selected for scrutiny and thereafter assessment was framed u/s 143(3) / 144 of the Act vide order dated 30.03.2015. During the assessment proceeding, the AO introduced that the assessee had claimed
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purchase of computers worth Rs. 1,37,74,508/- but bills for an amount of Rs. 1,36,11,905/- could be filed and remaining amount of Rs. 1,62,603/- were not able to filed by the assessee. Similarly, in relation to furniture & fixtures, bills were not produced for an amount of Rs. 17,85,223/-. Accordingly, the ld. AO reduced the depreciation claimed by the assessee for reducing the bills were not supplied and total disallowance of Rs. 2,76,084/- was made and the same was added back to the income of the assessee before set off of losses. Thereafter, the ld. AO further observed that the assessee had claimed an amount of Rs. 3.65 crores towards provision for bad and doubtful debts. However, the AO observed that the deduction is governed by the provisions of section 36(1)(viia) of the Act and he held that the deduction @10% is allowable on the aggregate average advances of the rural branches computed as per Rule 6ABA of the IT Rules, 1962. The assessee furnished the chart of outstanding advances of the urban and rural branches as per which the total outstanding advances at the end of the year were at Rs. 569.34 crores of which the outstanding rural advances were at Rs. 507.89 crores. During the course of assessment proceedings, the ld. AR mentioned that the bank had only 6 urban branches and 165 rural branches. Further, the ld. AO during the course of assessment proceeding directed the assessee to provide the complete details of location of such rural branches and also provide calculation of aggregate average advances of such rural branch to be arrived at as per rule 6ABA. However, the ld. AO on the grounds that the assessee did not file the required details, he disallowed the complete deduction claimed by the assessee of Rs. 3.65 crores and added it back to the total income. The ld. AO during the assessment proceeding observed that the assessee made provision for gratuity for an amount of Rs. 5.25 crores and kept with BKGB Trust which was apparently not an approved gratuity fund. Accordingly, he disallowed the provision made towards gratuity of Rs. 5.25 crores while framing the assessment. Besides that the AO held that the assessee had claimed various expenses in profit & loss account and he found that no substantial increase in the claim of operating expenses. After the disallowance, total income before set off of losses was arrived at Rs. 32.83 crores as against income of
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Rs. 21.90 crores as arrived at by the assessee and the assessed income of Rs. 32,83,27,284/- was set off with the losses brought forward from A.Y. 2010-11 and the balance loss of Rs. 9,95,49,676/- was allowed to be carried forward.
Dissatisfied with the above order, assessee preferred an appeal before the ld. CIT(A) where the appeal of the assessee was partly allowed in respect of certain issues.
Aggrieved by the above order passed by the ld. CIT(A), revenue preferred this appeal.
Being aggrieved by the order of ld. CIT(A), revenue is in appeal before us placing grounds of appeal, ground no. 1 & 2. At the time of hearing, ld. DR contended that the order passed by ld. CIT(A) on this issue are bad in law, therefore, it should be rejected. On the other hand, ld. AR for the assessee vehemently contended that methodology of computation of AAA for the purpose of deduction u/s 36(1)(viia) is settled by various decisions of coordinate bench and view taken by the ld. CIT(A) is just and proper therefore, need not required to be interfered by this Tribunal any more.
We after hearing the rival submission of parties examine the issue in hand and perused the order passed by authorities below, the ld. AO while framing the assessment, as regards provisions of Rs. 3.65 lacs for bad and doubtful debts vide reply filed on 09.03.2015, the assessee has made the following contention:
“The provision for bad and doubtful debts has been made as to the provision of RBI norms and it is allowable u/s 36(1)(viia) not exceeding 7.5% of the total income or amount not exceeding 10% of aggregate advances allowable to rural branches of bank. The details calculation of above is given below: Particulars Amount % Allowable Amount Amount claimed Total income 157.91 Cr. 7.5% 11.84 Cr.
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Advance 569.34 Cr. 10.0% 56.93 Cr. 3.65 Cr.
However framing the assessment, the ld. AO viewed that the reply of the assessee has been carefully considered and due to following reasons, the claim of the assessee was disallowed:
“i. Details of amount i.e. location of the rural branches were not provided by the assessee. ii. Amount of aggregate average advances by each such rural branches as computed rule 6ABA of the Income Tax Rules, 1962 due to this above reasons, the AO disallowed the claim of the assessee.” However, at the time of hearing before the ld. CIT(A), the assessee submitted the branch-wise details of such aggregate average of advances and to this effect, assessee furnished the list of 165 rural branches along with the outstanding advances of each of the branches before the ld. CIT(A) and in this regard, the remand report, the ld. AO commented that the assessee filed the calculation for arriving at the aggregate average advances of these 165 rural branches calculated as per Rule 6ABA. However, the AO commented that nothing adverse was found in such computation. Therefore, the claim for deduction was properly explained by the AR to the AO and the AO did not find anything adverse. Accordingly, the provision made for bad debts of Rs. 3.65 crores was allowed by the ld. CIT(A) in his order.
Going through the aforesaid findings of the reasons recorded by the ld. CIT(A) in his order contended that a remand report was called from the AO in this regard, but the AO in his report commented that nothing adverse was found in such computation therefore, claim of the assessee was allowed, we did not find any merits in the contention of the revenue and we agree with the view taken by the ld. CIT(A) and accordingly this ground of appeal of revenue is dismissed.
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Regarding another issue, the ld. DR submitted that the order passed by the ld. CIT(A) has erred in restricting the adhoc disallowance of Rs. 2 crores to 1 crore as the assessee has completely failed to furnish the documentary evidence to justify the increase in expenditure claimed under various heads. However, the view taken by the ld. CIT(A) was not correct and hence the findings of the ld. CIT(A) is not proper. Therefore, the view taken by the ld. CIT(A) on this issue may be set aside. On the other hand, the ld. AR of the assessee submitted that the findings of the ld. CIT(A) is proper and justified and arrived at after considering the remand report of the AO dated 30.10.2018 placed before the ld. CIT(A). While framing the assessment order, the ld. AO in his order views that such operative expenses have been debited though there was no unreasonable increase in operative expenses as compared to earlier year but in the absence of details of increase of operative expenses, the verification of such expenses and their admissible view of various provisions i.e. section 40A, 43B, 40(a) could not be made. Therefore, he viewed that to cover any leakage of revenue, he disallowed the expenses of Rs. 2 crores and added the same to the total income of the assessee. However, the ld. CIT(A) while deciding this issue, he called for remand report from the AO in this regard and the ld. AO had submitted his report on 13.10.2018. In the remand report, the ld. AO compared the increase in expenses under some of the heads as compared to the immediate preceding year. In case of rent rate taxes, there was a huge increase by an amount of Rs. 54.03 lakhs. In the case of advertisement and publicity there is an increase of Rs. 5.11 crores and repairs and maintenance, there was a substantial increase from Rs. 11.06 lakhs to Rs. 2.37 crores implying an increase of Rs. 2.26 crores for the year under consideration. While considering the remand report, the ld. CIT(A) restricted the disallowance of Rs. 1 crores and relief was granted to the assessee. While deciding this issue, the ld. CIT(A) passed the order as under:
“Ground no. 5 & * are against the disallowance made of Rs. 2 crores. The AR pleaded that the tax audit reports contained the complete disclosures of compliance with the various sections of section 40A, 43B etc. and that all the
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inadmissible amounts had already been added back in the computation of income. He further drew attention to the observation made by the AO at page 8 of the assessment order that there is no unreasonable increase in operative expenses as compared to earlier year, and pleaded that such observation itself indicates that the claim of expenses is genuine and admissible. In the remand report the AO compared the increase in expenses under some or the heads, as compared to the immediate preceding year. In the case of rent, rate and taxes there is a huge increase by an amount of Rs.54.03 lakhs. In the case of advertisement and publicity there is an increase of Rs.5.11 lakhs. In the case of repairs and maintenance there is a substantial increase from Rs.11.06 lakhs to Rs.2.37 crores implying an increase of Rs.2.26 crores for the year under consideration. The increase in rent, rates, fuel, etc, appears to be justified since there will be an annual increase for the expenses failing under these heads. In the case of advertisement and publicity there is an increase in expenditure by Rs.5.11 lakhs but at the same time there is also an increases in revenues from Rs.115.17 crores, to Rs.151.18 crores which is a substantial jump. Thus, the increase in advertisement expanses appears justified. However in the case of repairs and maintenance the stupendous increase in the expenses is beyond any justification. While the expenses for the previous year are only at Rs.11.06 lakhs, the expenditure for the year is at Rs.2.37 crores. It is further seen that the NP for the year in percentage terms had slipped from 12.92% to 11.34%. Though the fall in NP cannot be attributed to operating expenses alone, nevertheless, an abnormal increase in any of the heads falling under the operating expense would have a bearing on the NP. From the substantial increase in the claim of expenses under repairs and maintenance, it also appears that a part of the expenditure may be for replacement of items, in which case it cannot be claimed as a revenue expenditure. While the case of the AR is that no adhoc disallowance could be made, it is evident from the financial statements that such huge increase in repairs and maintenance is not fully justifiable. Considering all these facts and circumstances, the AO is directed to restrict the disallowance to Rs. 1 crore, which would make up for the excessive and unreasonable expenditure claimed under any of the heads as also of any possibility of non compliance with any other provisions in the matters of claim of the operating expenses. Ground nos.5 8& 8 are partly allowed.” 9. From the above findings and perusing the order passed by the authorities below on this issue and remand report of the AO, we find that the ld. CIT(A) properly dealt this issue and reasons were also mentioned while passing this order. Moreover, he considered the report of the AO on this issue and reasons recorded to restrict the adhoc disallowance in case of assessee from Rs. 2 crores to 1 crores in his order.
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Accordingly, we did not find merits in the submission made by the ld. DR and there is no reason to interfere in the order passed by the ld. CIT(A) and this ground of appeal is also dismissed.
In the result, the appeal of the revenue is dismissed.
Order is pronounced in the open court on 08.12.2022
Sd/- Sd/-
(Manish Borad) (Sonjoy Sarma) Accountant Member Judicial Member Dated: 08.12.2022 Biswajit, Sr. PS Copy of the order forwarded to: 1. Appellant- ACIT, Circle-1, Patna. 2. Respondent – Bihar Kshetriya Gramin Bank, Bhagat Singh Chowk, Munger.
Ld. CIT 4. Ld. CIT(A) 5. Ld. DR