The Deputy Commissioner of Income Tax, Circle-2(1), Vijayawada V. The Krishna District Co-operative Central Bank Ltd, Machilipatnam

ITA 100/VIZ/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1343 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 09-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K SONOWALCIT
• Assessee Lawyers: K SIVA RAM KUMAR
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 37(1); 37; 12; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 301 & 302 /VIZ/ 201 7 ( / ASSESSMENT YEAR S : 20 11 - 20 12 AND 2012 - 13 ) ./ I .T.A.NO. 100 & 101 /VIZ/201 8 ( / ASSESSMENT YEAR S : 2013 - 2014 AND 2014 - 15 ) DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 2(1), VIJAYAWADA VS. M/S THE KRISHNA DISTRICT CO - OPERATIVE CENTRAL BANK LTD., YSR SAHAKAR BHAVAN JAGANNADHAPURAM MACHILIPATNAM [PAN : A ABTT0343E ] ( / APPELLANT) ( / RESPONDENT) CO NOS.70 & 71/VIZ/2017 (ARISING OUT OF I .T.A.NO. 301 & 302 /VIZ/201 7 ( / ASSESSMENT YEAR S : 2011 - 2012 AND 2012 - 13 ) CO NOS. 60 & 6 1/VIZ/201 8 (ARISING OUT OF I .T.A.NO. 100 & 101 /VIZ/201 8 ( / ASSESSMENT YEAR S : 2013 - 2014 AND 2014 - 15 ) M/S THE KRISHNA DISTRICT CO - OPERATIVE CENTRAL BANK LTD., YSR SAHAKAR BHAVAN JAGANNADHAPURAM MACHILIPATNAM [PAN : A ABTT0343E ] DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 2(1), VIJAYAWADA ( / APPELLANT) ( / RESPONDENT) / REVENUE BY : SRI D. K. SONOWAL,CIT DR / ASSESSEE BY : S RI K.SIVA RAM KUMAR, AR / DATE OF HEARING : 1 9 . 1 1 . 2018 / DATE OF PRONOUNCEMENT : 28 . 1 1 .2018 2 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THESE APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) [CIT(A)], VIJAYAWADA VIDE I.T.A. NO S . 106/CIT(A)/VJA/2015 - 16,105/CIT(A)/VJA/2015 - 16 DATED 29.12.2016 AND I.T.A.NOS.20/CIT(A)/VJA/2016 - 17, 266/CIT(A)/VJA/2016 - 17 DATED 01.02.2018. CROSS OBJECTIONS ARE FILED BY THE ASSESSEE SUPPORTING THE ORDER OF THE LD.CIT(A) FOR THE ASSESSMENT YEAR (A.Y.) 201 1 - 1 2 TO 2014 - 15. SINCE THE GROUNDS RAISED IN THE APPEALS ARE COMMON, THESE APPEALS ARE CLUBBED, HEARD TOGETHER AND A COMMON ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AS UNDER. 2. FOR THE ASSESSMENT YEAR 2011 - 12 , THE REVENUE FILED APPEAL ON TWO ISSUES. THE FIRST ISSUE IS RELATED TO THE WRITE OFF OF DEBTS UNDER THE DEBT WAIVER SCHEME FOR AN AMOUNT OF RS.1,49,74,780/ - . THE SECOND ISSUE IS RELATED TO THE WAIVER OF PENAL INTEREST AND OTHER INTERESTS AMOUNTING TO RS.2,39,84,671/ - AS EXPENDITURE U/S 31(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CA LLED AS ACT) AS PER SCHEMES ANNOUNCED BY THE APCOB AND KBCCB. THE FIRST ISSUE IS INVOLVED ONLY FOR THE A.Y.2011 - 12, WHEREAS THE 3 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM SECOND ISSUE WITH REGARD TO WAIVER OF PENAL INTEREST AND OTHER INTEREST AS PER THE SCHEME ANNOUNCED BY ACOB AND KDCCB IS INV OLVED FOR A.YS 2011 - 12, 2012 - 13, 2013 - 14 AND 2014 - 15. 3. FOR THE A.Y. 2011 - 12, THE ASSESSING OFFICER (AO) HAS FOUND THAT THE ASSESSEE CLAIMED THE DEDUCTION FOR A SUM OF RS.1,49,74,780/ - AS ITS SHARE FOR ADDITIONAL RELIEF FOR 25% OTS (ONE TIME SETTLEMENT SCHEME) OF 25% TOWARDS THE DEBT WAIVER SCHEME 2008(ADWDR S - 2008). AS PER THE AUDIT REPORT OF THE ASSESSEE HAS WRITTEN OFF THE SAID SUM UNDER THE AGRICULTURE DEBT WAVIER AND DEBT RELIEF SCHEME (ADWDRS) OF GOVT. OF INDIA - 2008. AS PER THE ADWDRS - 2008, OUT OF THE LOAN WAIVER, PRINCIPAL AND INTEREST UPTO THE DATE WOULD BE REIMBURSED BY GOVERNMENT IN CASE OF SMALL AND MARGINAL FARMERS, BUT THE SCHEME DOES NOT COVER THE PENAL INTEREST, OTHER CHARGES AND THE INTEREST MORE THAN THE CAPITAL. THE SCHEME IS APPLICABLE FOR LOANS DISBURSED UPTO 31.03.2007 AND OVERDUE AS O N 31.12.2007 AND UNPAID TILL 29.02.2008. THE AMOUNTS RESTRUCTURED AND RESCHEDULED BY THE BANKS IN 2004 AND 2006, WHETHER OVERDUE OR NOT ARE ALSO COVERED. AMOUNTS RESTRUCTURED IN THE NORMAL COURSE UPTO 31.03.2007 ARE ALSO COVERED. IN BRIEF, THE LOANS GIVE N UPTO FINANCIAL YEAR (F.Y.) 2006 - 07 AND PRIOR YEARS 4 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM ARE ELIGIBLE UNDER THE DEBT WAIVER SCHEME. THE AO ALSO OBSERVED FROM CLARIFICATION PROVIDED BY THE DEPARTMENT OF FINANCIAL SERVICES DATED 18.06.2008, PARA2(IX)(A) OF THE IMPLEMENTATION CIRCULAR 1/2008 TH AT THE LENDING INSTITUTIONS SHALL NEITHER CLAIM FROM THE CENTRAL GOVERNMENT NOR RECOVER FROM THE FORMER THE (I) INTEREST IN EXCESS OF CAPITAL, (II) UNPAID INTEREST (III) PENAL INTEREST (IV) LEGAL CHARGES (V) INSPECTION CHARGES AND (VI) MISCELLANEOUS CHARG ES AND ALL SUCH CHARGES WILL BE BORNE BY THE LENDING INSTITUTIONS. 3.1 AS PER PARA 2(VII) OF THE CITED CIRCULAR NO.1/2008 ISSUED BY THE DEPARTMENT OF FINANCIAL SERVICES, LOANS/ AMOUNTS ACTUALLY OR PRUDENTLY WRITTEN OFF BY THE LENDING INSTITUTIONS ARE NOT ELIGIBLE UNDER THE SCHEME. LENDING INSTITUTIONS SHALL NOT CHARGE ANY INTEREST ON THE ELIGIBLE AMOUNT AFTER 29.02.2008 SUBJECT TO CERTAIN CONDITIONS. 3.2 . THE BOARD OF THE ASSESSEE VIDE RESOLUTION DATED 23.09.2010 HAS RESOLVED TO GRANT ADDITIONAL RELIEF FO R OTHER FARMERS WHO REPAID 75% OF THE LOAN BY THE LOAN BY THE TIME OF THE ANNOUNCEMENT OF ADWDRS - 2008. 3.3 THE AO EXAMINED THE CIRCULAR OF RBI IN RPCD.CO.RF.BC NO.17/07.38.03/2008 - 09 DATED 30.07.2008 ON PRUDENTIAL NORMS ON INCOME RECOGNITION, ASSET CLASSI FICATION AND PROVISIONING AND CAPITAL 5 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM ADEQUACY AND OBSERVED THE FOLLOWING SALIENT FEATURES OR IMPORTANT ISSUES WHICH ARE APPLICABLE TO STATE COOPERATIVE BANKS AND DCCBS AS UNDER: AS PER CLAUSE 2.1 OF THE CIRCULAR, AS REGARDS THE SMALL AND MARGINAL FARMERS ELIGIBLE FOR DEBT WAIVER, THE AMOUNT ELIGIBLE FOR WAIVER, PENDING RECEIPT FROM THE GOVERNMENT OF INDIA, MAY BE TRANSFERRED BY THE BANKS TO A SEPARATE ACCOUNT NAMED 'AMOUNT RECEIVABLE FROM GOVERNMENT OF INDIA UNDER AGRICULTURAL DEBT WAIVER SCHEME 2008 AND T REATED AS PERFORMING ASSET. AS PER CLAUSE 2.6 OF THE CIRCULAR, ON RECEIPT OF THE FINAL INSTALMENT FROM THE GOVERNMENT, THE PROVISION MADE FOR LOSS IN PV TERMS MAY BE TRANSFERRED TO THE GENERAL RESERVES BELOW THE ONE. AS PER CLAUSE 3.3. OF THE CIRCULAR, THE ACCOUNTS SUBJECT TO DEBT RELIEF WOULD STAND CLASSIFIED AS STANDARD ASSETS AFTER RECEIPT OF THE AFORESAID UNDERTAKING FROM THE BORROWERS. ACCORDINGLY, SUCH ACCOUNTS WOULD ALSO ATTRACT THE PRUDENTIAL PROVISIONING AS APPLICABLE TO STANDA RD ASSETS. AS PER CLAUSE 3.5, THE PRUDENTIAL PROVISIONS HELD IN RESPECT OF THE NPA ACCOUNTS, FOR WHICH THE DEBT WAIVER HAS BEEN GRANTED, MAY BE RECKONED FOR MEETING THE PROVISIONS REQUIRED ON PV BASIS AS WELL AS FOR THE STANDARD ASSETS (PURSUANT TO CLASSIFICATION OF THESE LOANS AS STANDARD) AND SHORTFALL, IF ANY, MAY BE PROVIDED FOR, THUS, THE TOTAL PROVISIONS HELD WOULD COMPRISE THE PROVISIONS REQUIRED ON PV BASIS, PROVISION FOR STANDARD ASSETS AND EXCESS PRUDENT IAL PROVISIONS, IF ANY, TOWARDS NPA. CLAUSE 3.7 SPEAKS OF REVERSAL OF EXCESS PRUDENTIAL PROVISIONS. IN CASE THE AMOUNT OF THE PRUDENTIAL NPA PROVISIONS HELD ARE LARGER THAN THE AGGREGATE OF THE PROVISION REQUIRED O N PV (PRESENT VALUE) BASIS AND F OR THE STA NDARD ASSETS, SUCH EXCESS PRUDENTIAL PROVISION TO BE REVERSED TO P&L ACCOUNT WHEN THE ENTIRE OUTSTANDING OF THE BORROWER STANDS REPAID OR THE EXCESS PROVISION EXCEEDS THE AMOUNTS OUTSTANDING ON ACCOUNT OF REPAYMENT. CLAUSE 3.8 SPEAKS OF REVERSAL OF THE PRO VISIONS MADE ON PV BASIS. THE PROVISION MADE ON PV BASIS REPRESENTS A PERMANENT LOSS TO THE BANK ON ACCOUNT OF DELAYED RECEIPT OF CASH FLOWS AND HENCE, SHOULD NOT BE REVERSED TO THE P&L ACCOUNT. THE AMOUNT OF SUCH PROVISION SHOULD, THEREFORE, BE CARRIED TI LL THE ACCOUNT S FINALLY SETTLED AND AFTER RECEIPT OF THE GOVERNMENT'S CONTRIBUTION UNDER THE SCHEME, THE AMOUNT SHOULD BE REVERSED TO THE GENERAL RESERVES BELOW THE LINE. FROM THE ABOVE CIRCULAR THE AO FOUND, THAT THE PROVISION MADE FOR LOSS IN PRESENT VALUE (PV) IN TERMS, IN CASE OF ELIGIBLE AMOUNTS RECEIVABLE FROM GOVERNMENT OF INDIA HAS TO BE TRANSFERRED TO THE GENERAL RESERV ES BELOW THE LINE. THE AMOUNTS WE RE ALSO MAIN LY RELATED TO THE PERIOD DURING 6 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM WHICH THE INCOME OF THE ASSESSEE WAS DEDUCTED AS EXEMPT U/S 80P OF THE ACT. THE RBI MANDATES THAT THE LOSS OR EXPENDITURE, IF ANY ON ACCOUNT OF DEBT WAIVER OR RELIEF SHOULD BE CARRIED TO GENERAL RESERVES BELOW THE LINE BECAU SE IT IS A PERMANENT LOSS AND THE ASSESSEE DID NOT FOLLOW THE GUIDELINES OF THE RBI AND CHARGED THE EXPENDITURE ON WAIVER TO P&L ACCOUNT WHICH IS IN VIOLATION OF THE RBI GUIDELINES ON THE SCHEME. THE AO FURTHER OBSERVED IN THE BALANCE SHEET THAT THE ASS ESSEE HAS ENOUGH AMOUNTS IN PROVISION FOR STANDARD ASSETS, OVERDUE INTEREST AND BAD AND DOUBTFUL DEBTS WHICH ARE MAINTAINED BY HIM BELOW THE LINE FOR WRITING OFF THE AMOUNTS ON DEBT WAIVER. THE ASSESSEE ARGUED BEFORE THE AO THAT THE EXPENDITURE WAS ON ACC OUNT OF BUSINESS EXPEDIENCY BUT THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE SINCE THE AO DID NOT FOLLOW THE RBI GUIDELINES WHICH STIPULATE THAT THE EXPENDITURE IS TO BE TREATED AS PART OF STANDARD ASSETS OR NPAS. THEREFORE, HELD THAT THERE IS NO CASE FOR APPLICATION OF SECTION 37 (1) OF THE ACT. THE AO FURTHER OBSERVED THAT THE AMOUNTS WRITTEN OFF MAINLY RELATED TO THE PERIOD DURING WHICH THE INCOME OF THE ASSESSEE WAS EXEMPT U/S 80P OF THE ACT. ACCORDINGLY, THE AMOUNT OF RS.1,49,74,780/ - WAS AD DED BACK TO THE INCOME. 7 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) DELETED THE ADDITION HOLDING THAT THE EXPENDITURE IS ALLOW ABLE ON THE GROUND THAT THE WAIVERS WERE ACTUAL AND WRITTEN OFF IN THE BOOK S OF THE ASSESSEE. THE LD.CIT(A) FOLLOWED THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN THE CASE OF NIZAMABAD DISTRICT CO - OPERATIVE CENTRAL BANK LTD. VS. ITO, WD - 2, HYDERABAD IN I.T.A.NO.906/H/2009 - 10 DATED 10.12.2014. FOR THE SAKE OF CLARITY AND CONVENIENCE, WE EXTRACT RELEVANT PART OF THE ORDER OF THE LD.CIT(A) WHICH READS AS UNDER : 5 . 4. I HAVE PERUSED THE DETAILS RELATING TO ADWDRS, 2008 AND THE RELEVANT CIRCULAR OF RBI IN THIS REGARD. WHAT WAS WRITTEN OFF TO THE PROFIT & LOSS ACCOUNT WAS THE WAIVER IN E XCESS OF THE AMOUNT RECOVERABLE BY APPELLANT FROM THE GOVER NMENT OF INDIA AS PE R THE ADWDRS - 2008 SCHEME AND HENCE DISCUSSION OF AO, IN THE ASSESSMENT OR DER ON TH E NATURE OF THE AMOUNT RECOVERABL E FROM GOVT, OF INDIA AFTER WAIVER, HAS NO BEA RING ON THE CLAIM MADE BY THE APPELLANT BY DEBITING TO ITS PROFIT & LOSS ACCOUNT. IN MY VIEW, AS PER APPLICABLE STATUTORY PROVISIONS OF THE INCOME TAX ACT, THIS EXPENDIT URE IS ALLOWABLE ON THE GROUND THAT THE WAIVERS WERE ACTUAL AND WRITTEN OFF IN THE BOOK S OF THE APPELLANT, APPELLANTS CLAIM FOR DEDUCTION OF THE SAME IS IN ORDER. RELIANCE IS PLACED ON THE DECISION OF HONBLE ITAT, HYDERABAD IN THE CASE OF NIZAMABAD DISTRICT CO - OPERATIVE CENTRAL BANK LTD. VS. ITO, WD - 2, HYDERABAD IN ITA NO.906/H/2009 - 10 D ATED 10.12.2014. RELEVANT PARA 46 OF THE ORDER IS REPRODUCED BELOW : '46 . WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD ON PERUSAL OF THE AD W DR S SCHEME S 2008, A COPY OF WHICH IS AT PAGE 33 OF PAPER BOOK AND THE DIRECTION ISSUED BY THE AP STATE COOPERATIVE BANK, IT IS CLEAR THAT THE ASSESSEE HAS TO BEAR A SHARE IN THE RELIEF PACKA GE GIVEN TO PACS ON ACCOUNT OF L OSS INCURRED DUE TO WAIVER OF INTEREST TO SMA LL AND MARGINAL TANNERS. THE RE FORE, THE EXPENDITURE INCURRED IS NOT STRI CTLY IN THE NATURE OF BAD DEBT WRITTEN OFF BUT IN THE NATURE OF EXPENDITURE PROVIDED U/A37(1) OF THE ACT . ASSESSEE HAS NO 8 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM OTHER OPTION BUT TO INCUR THE EXPENDITURE AS PER THE DIRECTIV E OF THE GOVT . AS WELL AS APCOB. IN THE AFORESAID VIEW OF THE MAITE R, WE HOLD THAT THE AMOUNT OF RS. 3, 12,31,869 IS ALLOWABLE AS BUS INESS EXPENDITURE. SINCE THE LD. CIT(A) HAS ALR EADY ALLOWED EXPENDITURE TO THE EXTENT OF RS2,26 ,16,355, THE BALANCE AMOUNT O F RS. 86 , 15 , 14 5/ - IS DIRECTED TO BE ALLOWED. THIS GROUND IS ALLOWED 5. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REVENUE HAS FILED APPEAL BEFORE THE TRIBUNAL. DURING THE APPEAL HEARING, THE LD.DR ARGUED THAT THE ASSESSEE HAS NOT FOLLOWED THE GUIDELINE S OF THE RBI THAT THE LOSS OR EXPENDITURE ON ACCOUNT OF DEBT WAIVER, THE RELIEF SHOULD BE CARRIED TO THE GENERAL RESERVES BELOW THE LINE, BECAUSE IT IS A PERMANENT LOSS. THE ASSESSEES CLAIM THAT THE DEBT WAIVER IS A BUSINESS EXPENDITURE IS NOT ACCEPTABLE . THE LD.DR FURTHER SUBMITTED THAT THE RBI GUIDELINES STIPULATE THAT THE EXPENDITURE IS TO BE TREATED AS PART OF STANDARD ASSETS OR NPAS. IN WHICH CASE, THE PROVISIONS RELATING TO THE WRITE OFF OF BAD DEBT APPLY AND SECTION 37 (1) HAS NO APPLICATION. SINCE THE ASSESSEE FAILED TO CARRY FORWARD THE LOSS ON WRITE OFF TO THE GENERAL RESERVES BELOW THE LINE AS PRESCRIBED BY RBI AND THE AMOUNTS ARE MAINLY RELATED TO THE PERIOD DURING WHICH THE INCOME OF THE ASSESSEE WAS TAX EXEMPT, THE CLAIM OF THE ASSESSEE U/S 37(1) IS NOT ALLOWABLE AND ACCORDINGLY REQUESTED TO CONFIRM THE ADDITION MADE BY THE AO AND SET ASIDE THE ORDER OF THE LD.CIT(A). 9 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM 6. PER CONTRA, THE LD.AR SUBMITTED THAT THE APCOB FORMULATED A STATE - WIDE SCHEME FOR ADDITIONAL WAI VER TO PROVIDE RELIEF TO FARMERS APPLICABLE FOR ALL DCCBS IN THE STATE AND THE ASSESSEE ALSO IMPLEMENTED THE SCHEME. THE ADDITIONAL WAIVER AMOUNTS HAVE TO BE BORNE BY WAIVING BANKS AS PER RBI CIRCULAR NO.2009 - 10/137 - DT.31.08.07. THIS IS A REIMBURSEMENT OF PART LOAN WAIVER BY PACSS TO FARMER BORROWERS IN ADDITION TO THEIR ENTITLEMENT OF LOAN WAIVER AS PER ADWDRS - 2008 SCHEME . HENCE, ARGUED THAT THE INTEREST WAIVER IS ALLOWABLE BUSINESS EXPENDITURE U/S 37(1) OF THE ACT. THE LD.AR FURTHER SUBMITTED THAT THE IN TEREST WAS INCLUDED IN THE ASSESSEES INCOME AND THE RECOVERY PART WAS NEVER INCLUDED IN THE NPAS. 7. THE LD.AR FURTHER SUBMITTED THAT THE WAIVERS WERE ACTUAL AND WRITTEN OFF IN THE ASSESSEES BOOKS OF ACCOUNTS. THE ASSESSEE HAS ACTUALLY WRITTEN OFF THE ENTIRE AMOUNT IN THE BOOKS OF ACCOUNTS AND THE AMOUNT WAS NOT RECOVERABLE. THE ASSESSEE FURNISHED RESOLUTION OF BOARD NO.9 DATED 23.09.2010 AND THE GUIDELINES OF APCOB IN PAGE NO.70 OF THE PAPER BOOK. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL PLACED ON RECORD. AS PER THE ADWDRS - 2008 SCHEME, OUT OF THE LOAN WAIVER, PRINCIPAL AND INTEREST UPTO THE DATE WOULD BE REIMBURSED BY GOVERNMENT IN CASE OF 10 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM SMALL AND MARGINAL FARMERS BUT THE SCHEME DOES NOT COVER THE PENAL INTEREST, OTHER CHARGES AN D THE INTEREST MORE THAN THE CAPITAL. AS PER THE CLARIFICATION PROVIDED BY THE DEPARTMENT OF FINANCIAL SERVICES DATED 18/06/2008,PARA2(IX)(A) OF THE IMPLEMENTATION CIRCULAR 1/2008 THE LENDING INSTITUTIONS SHALL NEITHER CLAIM FROM THE CENTRAL GOVERNMENT NO R RECOVER FROM THE F A RMER THE EXCESS AMOUNT OVER ABOVE THE LOAN COV ERE D UNDER WAIVER SCHEME SUCH AS (I) INTEREST IN EXCESS OF CAPITAL, (II) UNPAID INTEREST (III) PENAL INTEREST (IV) LEG AL CHARGES (V) INSPECTION CHARGES AND (VI) MISCELLANEOUS CHARGES AND A LL SUCH CHARGES WILL BORNE BY THE LENDING INSTITUTIONS. THE BOARD OF THE ASSESSEE ALSO PASSED RESOLUTION DATED 23.09.2010 TO GRANT ADDITIONAL RELIEF FOR OTHER FARMERS WHO REPAID 75% OF THE LOAN BY THE TIME OF THE ANNOUNCEMENT OF ADWDRS - 2008. T HE LOSS IS P ERMANENT LOSS WHICH IN NOT DENIED BY THE AO. FROM THE DISCUSSION OF THE AO AND THE CIRCULARS FROM THE DEPARTMENT OF FINANCIAL SERVICES CITED (SUPRA) IT ESTABLISHED THAT THE ASSESSEE IS BARRED FROM CLAIMING THE LOSS EITHER FROM GOVERNMENT OR FROM THE FARMER . THEREFORE WHATEVER WRITTEN OFF IS LOSS BUT CANNOT BE HELD AS NPA OR THE STANDARD ASSET OR BAD DEBT . THOUGH THE RBI HAS DIRECTED THE ASSESSEE BANKING INSTITUTION TO TAKE THE LOSS TO THE GENERAL RESERVE IT IS IMPERATIVE ON ASSESSEE TO DEBIT THE EXPENDITURE UNDER 11 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM PROFIT & LOSS ACCOUNT SINCE IT IS A PERMANENT LOSS. THE LD.CIT(A) HAS GIVEN A FINDING THAT THE EXPENDITURE IS ALLOWABLE ON THE GROUND THAT THE WAIVERS ARE ACTUAL AND THE WRITTEN OFF IN THE BOOKS OF THE ASSESSEE IS NOT DISPUTED AND MERELY BECAUSE O F THE RBI GUIDELINE SUGGEST THE ASSESSEE TO TAKE IT TO THE GENERAL RESERVE, THE LOSS CANNOT BE TREATED AS RECOVERABLE IN FUTURE AND DISALLOW THE SAME SINCE IT IS NOT A CAPITAL LOSS. THEREFORE, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR CLAIMING THE LOSS AS A BUSINESS LO SS U/S 37(1) OF THE ACT AS ABOVE AND THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN THE CASE OF NIZAMABAD DISTRICT CO - OPERATIVE CENTRAL BANK LTD. VS. ITO, WD - 2, HYDERABAD IN ITA NO.906/H/2009 - 10 DATED 10.12.2014 IS SQUARELY APPLICABLE. HOWEV ER THE AO OBSERVED THAT THE EXPENDITURE MAINLY RELATED TO THE PERIOD IN WHICH THE INCOME OF THE ASSESSEE WAS EXEMPT U/S 80P OF THE ACT. BUT THE AO DID NOT GIVE SPECIFIC FINDING WITH REGARD TO THE AMOUNT OF LOSS WRITTEN OFF BY THE ASSESSEE WHICH WAS EXEM PTED U/S 80P OF THE ACT IN THE EARLIER YEARS. SIMILARLY, THOUGH PASSING REMARK WAS MADE BY THE AO WITH REGARD TO THE PROVISION OF CLAIM F OR B AD DEBTS AND NPA NO SPECIFIC FINDING WAS GIVEN BY THE AO/CIT(A) WITH REGARD TO THE ACTUAL CLAIM MADE BY THE ASSES S EE IN THE EARLIER YEARS. IN A NUT SHELL, THE ASSESSEE SHOULD NOT CLAIM DOUBLE DEDUCTION UNDER THE WAIVER SCHEME AS WELL AS THE EXEMPTION 12 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM OF THE INCOME OR BAD DEBT FOR THE SAME AMOUNT IN THE EARLIER YEARS. THEREFORE, THIS ISSUE NEEDS DETAILED VERIFICATION AT THE END OF THE AO, HENCE, WE REMIT THE MATTER BACK TO THE FILE OF THE AO TO ALLOW ADDITIONAL RELIEF OF 25% OTS AFTER VERIFYING WHETHER THE ASSESSEE HAS CLAIMED THE EXEMPTION OF THE SAME INCOME IN THE EARLIER YEAR OR MADE DOUBLE CLAIM IN THE EARLIER YE ARS WITH REGARD TO BAD DEBTS OR NPA AND DECIDE THE ISSUE AFRESH ON MERITS. THE AO SHOULD GIVE REASONABLE OPPORTUNITY TO THE ASSESSEE BEFORE DECIDING THE ISSUE AND THE ASSESSEE IS DIRECTED TO FURNISH THE DETAILS. ACCORDINGLY, THE APPEAL OF THE REVENUE ON T HIS GROUND IS REMITTED BACK TO THE FILE OF THE AO FOR FRESH CONSIDERATION AND THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 9. THE NEXT ISSUE IS RELATED TO THE WRITE OFF OF AMOUNTS UNDER THE SCHEMES ANNOUNCED BY THE APCOB AND KDCCB. THE AO FOUND THAT DURING THE F.Y., THE ASSESSEE HAS WRITTEN OFF THE FOLLOWING AMOUNTS IN ADDITION TO THE AMOUNTS WRITTEN OFF UNDER THE ADWDRS, 2008. T HE DETAILS OF EXPENSES CLAIMED BY THE ASSESSEE UNDER THE SCHEMES ANNOUNCED BY THE APCOB AND KDCCB FOR THE A.Y.2011 - 12 ARE AS UNDER: 13 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM DCCB SHARE OF 35%/60% OF THE PENAL INTEREST AND IOD WAIVED AS PER APCOB DEBT WAIVER SCHEME (RS.22,58,597) BANKS SHARE 50% O N THE INTEREST WAIVED ON OVERDUE FISH FEED LOANS (RS.1,20,47,905) DCCB SHARE OF 35% OF THE INTEREST WAIVED UNDER APCOB INTEREST RELIEF SCHEME (RS.96,78,169) THE ASSESSEE HAS CHARGED THE EXPENDITURE TO P&L A/C FOR THE RELEVANT A.YS. T HE DETAILS OF THE AGGREGATE EXPENDITURE CHARGED BY THE ASSESSEE FOR THE A.Y. 2011 - 12 TO 2014 - 15 UNDER THE SAME HEADS ARE AS UNDER: ASSESSMENT YEAR AMOUNT IN RS . 2011 - 12 2.39,84,671/ - 2012 - 13 1,41,69,117/ - 2013 - 14 1,92,43,019/ - 2014 - 15 1,30,51,270/ - 10 . APCOB HAS INTRODUCED ADDITIONAL WAIVER SCHEME TO PROVIDE RELIEF TO THE FARMERS APPLICABLE FOR ALL DCCBS AND THE ASSESSEE ALSO IMPLEMENTED THE SCHEME. AS PER THE SCHEME, THE FARMERS WHO ARE NOT COVERED UNDER THE ADWDRS - 2008, OVERDUE LOAN INSTALLMENTS ARE E LIGIBLE FOR WAIVER OF PENAL INTEREST ON SHORT TERM, MEDIUM TERM AND LONG TERM LOANS AND WAIVER OF INTEREST ON OVERDUE LOANS, LONG TERM AGRICULTURAL LOANS. SIMILARLY THE 14 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM ASSESSEE ALSO EXTENDED WAIVER SCHEME TO THE BORROWERS OF FISH FEED LOANS GIVEN BY PACS AND THE 50% OF THE INTEREST WAIVER TO BE BORNE BY THE PACS AND THE BALANCE TO BE BORNE BY THE ASSESSEE. APCOB HAS FORMULATED THE SCHEME WITH AN INTENTION TO BENEFIT THE FARMERS AND THE COOPERATIVE CREDIT INSTITUTIONS AT A DIFFERENT LEVELS TO MAXIMIZE CASH INFLOW BY WAY OF RECOVERIES, THEREBY REDUCING THE NPAS AND RESULTING PROVISIONS MADE AND TO REDUCE THE FURTHER REVISION IN RESPECT OF SUCH LOANS, THEREBY THE CREDIT SYSTEM WOULD REAP THE OVERALL BENEFITS OF REDUCTION OF OVERDUES AND NPAS. THE ASSESSING OFF ICER DISALLOWED THE EXPENDITURE STATING THAT THE ASSESSEE DID NOT FOLLOW THE GUIDELINES OF RBI IN METHOD OF ACCOUNTING TO TAKE SUCH LOSSES TO THE BALANCE SHEET IN THE GENERAL RESERVES OR TO TAKE SUCH AMOUNTS TO PROFIT AND LOSS ACCOUNT BELOW THE LINE. FURTH ER THE LD.AO OBSERVED THAT T HE ASSESSEE HAS BEEN MAKING THE PROVISION ON BAD AND DOUBTFUL DEBTS /NPA AND WHICH HAVE BEEN CLAIMED IN THE PROFIT AND LOSS ACCOUNTS AND WHICH WERE ALL OWED. ALL THE ABOVE AMOUNTS WRITTEN OFF ON ACCOUNT OF THE W AIVERS AND RELIEF SCHEMES, WAS ALREADY PROVIDED BY WAY OF PROVISIONS WHICH ARE PRESENT IN THE BALANCE SHEET OF THE ASSESSEES BANK. THE ASSESSEE HAD ENOUGH PROVISIONS FOR BAD DEBTS AND ITS RESERVES IN THE BALANCE SHEET TO COVER THESE WAIVERS AND RELIEF SCHEMES ANNOUNCED BY APCOB . T HEREFORE, 15 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM THE ASSESSEES ARGUMENT OF BUSINESS EXPEDIENCY WAS REJECTED BY THE AO ACCORDINGLY DISALLOWED THE CLAIM S MADE BY THE ASSESSEE AND ADDED BACK THE SUMS TO T HE TOTAL INCOME OF THE RESPECTIVE ASSESSMENT YEARS. 11. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) DELETED THE ADDITION MADE BY THE AO FOLLOWING HIS OWN ORDER OF THE EARLIER YEARS, AND THE DECISION OF NIZAMABAD DISTRICT COOPERATIVE CENTRAL BANK LTD (SUPRA) . THE LD.CIT(A) FOR THE A.YS 2013 - 14 AND 2014 - 15 ALSO FOLLOWED THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.120/121/VIZAG/2013 DATED 08/11/2017 AND ACCORDINGLY DELETED THE ADDITION. 12. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE REV ENUE IS IN APPEAL BEFORE THIS TRIBUNAL. THE LD.DR ARGUED THAT APCOB HAS PROMULGATED THE SCHEMES FOR WRITE OFF OF PENAL INTEREST ON IOD AND INTEREST ON OVERDUE FISH FEED LOANS AND INTEREST PART COVERED UNDER APCOB INTEREST RELIEF SCHEME. THE ASSESSEE HAS CH ARGED THE EXPENDITURE TO THE P&L A/C WHICH W AS DISALLOWED AND ADDED TO THE INCOME RETURNED. THE ASSESSEE HAD ENOUGH PROVISION S OF BAD AND DOUBTFUL DEBTS AND OTHER RESERVES TO COVER THE LOSS 16 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM ON ACCOUNT OF WAIVERS AND RELIEF SCHEMES. THE ASSESSEE ALSO DID N OT FOLLOW THE RBI GUIDELINES ON PRUDENTIAL NORMS ON INCOME RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING AND CAPITAL ADEQUACY WHICH IS IMPORTANT CIRCULAR TO IMPLEMENTATION OF THE SCHEME. THE ASSESSEE HAS VIOLATED THE RBI MANDATE, THAT THE LOSS ON EX PENDITURE ON ACCOUNT OF DEBT WAIVER RELIEF SHOULD BE CARRIED TO THE GENERAL RESERVE BELOW THE LINE BECAUSE IT IS A PERMANENT LOSS. ACCORDINGLY, THE LD.DR ARGUED THAT SINCE THE ASSESSEE HAS NOT FOLLOWED THE RBI GUIDELINES AND THE ASSESSEE HAD SUFFICIENT RES ERVES AND NPA, THE ADDITION MADE BY THE AO REQUIRED TO BE UPHELD AND THE ORDER OF THE LD.CIT(A) TO BE SET ASIDE. 13. PER CONTRA, THE LD.AR ARGUED THAT THE ASSESSEE HAS WRITTEN OFF DCCB SHARE OF 35%/60% ON PENAL INTEREST ON IOD AS PER APCOB SCHEME. THE APCOB HAS PROMULGATED THE SCHEME IN WHICH INTEREST DULY SHOWN AS INCOME IN THE EARLIER YEARS AS P&L A/C TO BE WRITTEN OFF. THE LD.AR ARGUED THAT THEY ARE PART OF PROFITS AND GAINS FROM BANKING DEPOSITS. THERE WAS NO AMOUNT OF WAIVER THAT IS REQUIRED TO BE SET OFF AGAINST EARLIER NPAS. THEREFORE, STATED THAT THE INTEREST WAIVER IS ALLOWABLE BUSINESS EXPENDITURE U/S 37(1) OF THE ACT AS IT WAS INCLUDED IN THE ASSESSEES INCOME AND THE 17 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM REQUIRED PRINCIPAL WAS NEVER INCLUDED IN THE NPA PROVISION AND THE AMOUNTS W ERE NEVER PART OF BAD AND DOUBTFUL DEBTS. WITH REGARD TO THE PENAL INTEREST AND IOD, THE LD.AR SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08 AND 2008 - 09 IN ITA NO.120 & 121/VIZ /2013 DATED 08.11.2017. 14. THE NEXT ISSUE IS BANKS SHARE OF 50% ON THE INTEREST WAIVED ON OVERDUE FISH FEED LOANS. THE PACSS IN THE DISTRICT GRANTED LOANS TO FISH FEED TRADERS AND SUCH LOANS WERE ORIGINALLY TREATED AS NON PRIORITY SECTOR LOANS AND RATE OF INTEREST WAS CHARGED AT 20% + 3% I.E. 23%. THE LOAN REPAYMENTS WERE TARDY. TO INCENTIVIZE REPAYMENTS AND TO IMPROVE LIQUIDITY, THE ASSESSEE COMPANY REDUCED 11% OF INTEREST ON WHICH REPAYMENT OF PRINCIPAL + 12% INTEREST FROM THE BORROWERS, DCCB REIMBURSED 11% TO EACH PACS, ON RECEIPT OF VALID CLAIMS FROM THEM. THE LD.AR ST ATED THAT APCOB GRANTED INTEREST RELIEF TO SUCH BORROWERS WHO ARE NOT BENEFITED BY THE ADWDRS - 2008, THOSE WHO REPAY THE OUTSTANDING LOAN ARE GIVEN INTEREST RELIEF AND RELIEF IS BORNE BY APCOB, DCCB, PACS. THE LD.AR ARGUED THAT THE AMOUNTS WRITTEN OFF WERE ACT U ALS AND WRITTEN OFF IN 18 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM THE BOOKS. THE LD.AR ALSO SUBMITTED THAT THAT ALL THE ISSUES ARE COVERED BY THE ORDER OF THIS TRIBUNAL IN ITA NO.120& 121/VIZ/2013 DATED 08.11.2017.HENCE NO INTERFERENCE IS CALLED FOR IN THE LD.CIT(A)S ORDER. 15. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS PLACED ON RECORD. IN THIS CASE, THE ASSESSEE HAS WRITTEN OFF PENAL INTEREST AND WAIVED THE IOD AS PER THE APCOB SCHEME. SIMILARLY, THE INTEREST IS ALSO WAIVED RELATING TO THE LOANS TO FISH FEED TRADERS. THE ASSESSEE ALSO SUBMITTED THAT WAIVER WAS NOT PART OF ANY EARLIER PROVISION OF NPA OR BAD DEBTS. 50% OF THE WAIVER WAS BORNE BY THE PACS AND 50% CLAIM PREFERRED BY THEM TO DCCB AND THE ASSESSEE TRANSFERRED THE AMOUNT TO THE PACS BY CREDITING TO THEIR ACCOUN TS. THE ASSESSEE SUBMITTED THAT ALL THESE SCHEMES ARE IDENTICAL TO THE FACTS OF THE ASSESSEES OWN CASE FOR THE A.Y. 2007 - 08 AND 2008 - 09 IN APPEAL NO.120&121/VIZ/2013, THIS TRIBUNAL HAS CONSIDERED THE ISSUE WITH REGARD TO THE WAIVER OF PENAL INTEREST AND I NTEREST ON OVERDUE LOANS AND HELD THAT THE EXPENDITURE IS ALLOWABLE EXPENDITURE TAKING SUPPORT FROM THE DECISION OF COORDINATE BENCH OF ITAT, HYDER A BAD IN NIZAMABAD DISTRICT COOPERATIVE CENTRAL BANK VS. ITO IN ITA NO.905/906 WHICH READS AS UND ER : 19 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM 22. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE HAS WAIVED THE INTEREST ON SHORT TERM AND LONG TERM LOANS GIVEN TO THE FARMERS. THIS IS EVIDENCED BY PAGE NO.28 OF PAPER BOOK SUBMITTED BEFORE US. AS PER THE SCHEME OF WAIVER 35% OF THE INTEREST RELATING TO WAIVER OF PENAL INTEREST AND INTEREST ON DEPOSITS (IOD) IS BORNE BY THE ASSESSEE. THERE IS NO DISPUTE THAT 35% OF THE SHARE WAS BORNE BY THE BANK RE LATING TO IOD AND PENAL INTEREST. THIS IS ON REPAYMENT OF THE LOANS COLLECTED ALONG WITH INTEREST. WAIVER OF OVER DUE INTEREST AND THE PENAL INTEREST IS AN INCENTIVE TO THE BORROWERS TO MAKE THEM TO REPAY THE LOAN GRANTED BY THE BANK. THERE IS NO DISPUT E REGARDING THE GENUINENESS OF THE WAIVER. THE LD. A.R. SUBMITTED THAT IT IS ON ACCOUNT OF REIMBURSEMENT GIVEN TO PACS ON COMPLETE REPAYMENT OF LOANS. THE SIMILAR ISSUE WAS CONSIDERED BY THE COORDINATE BENCH OF ITAT, HYD IN NIZAMABAD CO - OPERATIVE SOCIETY AND HELD THE SAME AS ALLOWABLE. FOR READY REFERENCE, WE EXTRACT THE RELEVANT PARAGRAPHS OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN NIZAMABAD DISTRICT CO - OPERATIVE CENTRAL BANK VS. ITO WARD - 2, ITQA NO.905 & 906/H/2013 WHICH READS AS UNDER: 1. WAIVERS OF P ENAL INTEREST AND IOD AS PER THE APCOB - CIRCULARS WERE EXPLAINED DURING THE ASSESSMENT. O UR LETTER DT. 24.12.2009 SHOWS OUR SUBMISSION ON THE ISSUE AND REFERENCE TO OUR EARLIER SUBMISSIONS VIDE OUR LETTER DT.15.9.2009. THE PROCEDURE OF WAIVER AMOUNTS PASS ED ON TO PACSS WAS ALSO EXPLAINED. A S PER THE APCOB CIRCULARS AND OUR OWN CIRCULARS TO PACSS , THE PACSS WERE TO COLLECT THE DUES OF LOANS AND INTEREST FROM SMALL AND MARGINAL - FARMER - BORROWERS AND THE BALANCE OF IOD AND PENAL INTEREST ARE BORNE BY CONCERNED PACS, CONCERNED DCCB AND APCOB IN THE RATIO OF 25%, 35% AND 40% RESPECTIVELY. I T WAS NOT OUT OF ANY EARLIER PROVISION AND LAID OUT WHOLLY AND EXCLUSIVELY FOR BUSINESS. 2. IT WAS HELD BY THE HON'BLE ITAT , HYDERABAD A BENCH IN THE CASE OF NIZAMABAD DIST. CO - OP CENTRAL BANK LTD VS. ITO,WARD - 2, HYD (ITA NOS. 905/H/13,906/H/13), THE SAME AMOUNT OF WAIVER WAS HELD AS ALLOWABLE U/S.37(1). 3. THE REIMBURSEMENT OF WAIVERS ON PENAL INTEREST AND IOD WERE EXPLAINED BY WAY OF CIRCULAR DT. 7.3.2006 (COPY OF THE CIRCULAR IN TELUGU IS FILED IN THE MATERIAL PAPER BOOK FOR AY:2007 - 08 AT PAGE NO. 28 AND ITS TRANSLATION IS ENCLOSED HEREIN AS PAGE NOS.61 - 63 , WHICH SHOWS THAT THE IMPUGNED WAIVER WAS IN FACT A REIMBURSEMENT TO PACSS BY DCCB AND APCOB. IT GOT CRYSTALLIZED AND QUAN TIFIED ONLY IN THE RELEVANT PREVIOUS YEAR AND HENCE THE RESPONDENT - ASSESSEE MADE THE CLAIM FOR DEDUCTION RIGHTLY IN THE RELEVANT PREVIOUS YEAR, WHICH WAS DULY ALLOWED BY THE LEARNED CIT - APPEALS. 4. THE LEARNED AO - APPELLANT'S OBJECTION AS TO THE NON - ALLO WABILITY OF THE IMPUGNED AMOUNT AS AN EXPENDITURE OF THE RELEVANT PREVIOUS YEAR AS THE 20 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM SAME RELATES TO EARLIER ASSESSMENT YEARS IS SUBMITTED AS NOT CORRECT, AS THE CONCEPT OF 'PRIOR PERIOD EXPENDITURE ' ENUNCIATED IN ACC.STD.5 OF ICAI DEFINES THE SAME AS ' EXPENDITURE INCURRED IN A PRECEDING YEAR BUT OMITTED TO BE RECORDED THEREIN', WHICH IS NOT THE CASE HERE. ALL WAIVERS OR WRITE - OFFS INVARIABLY RELATE TO EARLIER YEARS AND THEY CAN'T BE DISALLOWED ON THAT GROUND. 5. T HE NATURE OF THE EXPENDITURE WAS SUCH THAT THE SAME HAD TO BE INCURRED IN THE RELEVANT PREVIOUS YEAR ONLY ON FULFILMENT OF THE CONDITIONS LAID OUT IN THE SCHEME OF WAIVER. WE ENCLOSE A TRANSLATION OF OUR CIRCULAR NO. ADM /PENAL INTEREST/ 2005/06 DT.7.3.2006 WHICH POSTULATES THAT A PACS IS ENTITLED TO GET REIMBURSEMENT OF PENAL INTEREST AND IOD , ONLY ON ITS REALISATION OF THE OVERDUE LOANS FROM FARMERS IN FULL WITH PRINCIPAL AND INTEREST. AS THE SAID CONDITIONS WERE FULFILLED IN THE RELEVANT PREVIOUS YEAR, WE INCURRED THE EXPENDITURE ALSO IN THE SAME PREVIOUS YEAR, DEBITED THE SAME AND CLAIMED DEDUCTION, WHICH IS SUBMITTED AS APPROPRIATE. WE SUBMITTED THAT AS THE EXPENDITURE FOR R EIMBURSEMENT OF PENAL INTEREST H OD WAS LAID OUT /EXPENDED IRRETRIEVABLY DURING TH E RELEVANT PREVIOUS YEAR, THE SAME WAS CLAIMED AS EXPENDITURE IN THE PREVIOUS YEAR AND THE SAID CLAIM IS IN ACCORDANCE WITH THE LANGUAGE OF SEC. 37( 1). 6. THERE CAN'T BE AN INSISTENCE FOR CLAIM OF EXPENDITURE AT A DIFFERENT POINT OF TIME, BECAUSE WE SUBMIT THAT WE WERE INSTRUCTED BY APCOB TO IMPLEMENT A WAIVER SCHEME, THE EXPENDITURE WAS CLAIMED IN THE RELEVANT PREVIOUS YEAR ONLY WHEN WE IRRETRIEVABLY SPENT THE AMOUNT TOWARDS REIMBURSEMENT OF PENAL INTEREST AND IOD , IN PURSUANCE OF THE SCHEME AND ON FULFILMENT OF THE SCHEME CONDITIONS BY ELIGIBLE FARMER - BORROWERS (FOR A MOMENT, IF THE APCOB RESOLVES DIFFERENTLY, AS PER ANY MODIFICATION IN GOVT. INSTRUCTIONS ON WAIVER, CLAIM OF EXPENDITURE BY US ON MERE RESOLUTION WOULD HAVE BEEN UNFAIR AND WOULD HAVE BEEN WITHOUT ACTUAL INCURRENCE OF THE EXPENDITURE.) 7. WE RELY ON 'SAURASHTRA CEMENT & CHEMICALS INDUSTRIES LTD. VS. CIT'( 213 ITR 523 GUJ HC) ,WHEREIN IT WAS HELD THAT EVEN FOR AN ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, AN EXPENDITURE SHALL BE ALLOWED UNDER SEC.37(1) ON THE ACTUAL INCURRENCE OF THE EXPENDITURE ON ITS CRYSTALLIZATION . THIS DECISION WAS CITED BY US BEFORE THE LEARNED CIT(APPEALS) TOO. THOUGH THE SUBJECT EXPENDITURE DOES NOT FALL U/S 36(2) OR 36(1)(VIIA) OF THE ACT, UNDOUBTEDLY, THE SAME IS BUSINESS LOSS AND THE AGGREGATE AMOUNT OF OVERDUE INTEREST AND PENAL INTEREST AND THE NPA PROVISION DID NOT EXCEED THE LIMIT FOR ALLOWING THE DEDUCTION U/S 36(1)(VIIA) OR 36(1)(VII) OF THE ACT. SINCE THE EXPENDITURE IS GENUINE AND INCURRED IN THE ORDINARY COURSE OF BUSINESS, WE HOLD THAT THE IOD INTEREST AND THE PENAL INTEREST SHOULD BE ALLOWED AS BUSINESS 21 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM LOSS AND ACCORDINGLY THE APPEAL OF THE REVENUE IS DISMISSED AND THE ORDER OF THE LD. CIT(A) IS UPHELD. THE LD.CIT(A) ALSO DELETED THE ADDI TION PLACING RELIANCE ON THE DECISION OF NIZAMABAD DISTRICT COOPERATIVE CENTRAL BANK FOR THE A.YS 2011 - 12 AND 2013 - 14 AND FOR THE A.YS 20113 - 14 AND 2014 - 15 THE LD.CIT(A), VIJAYAWADA RELIED ON THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE SUPRA. IN THE INSTANT THE WAIVERS ARE ACTUAL AND WRITTEN OFF IN THE BOOKS OF ACCOUNTS WHICH FACT WAS ACCEPTED BY THE LD.CIT(A). THE CLAIM OF THE ASSESSEE WAS IN ALL CASES THE WAIVER OF INTEREST ON OVER DUE AND STICKY LOANS AND THE ASSESSEE SUBMITTED THAT SUCH INT EREST WAS NEVER CLAIMED AS EXPENDITURE IN THE EARLIER YEARS. THOUGH THERE WAS CHANGE IN THE NOMENCLATURE THE WAIVER AND WRITTEN OFF WAS INTEREST AND STATED TO BE ADMITTED AS INCOME IN THE EARLIER YEARS. THE ASSESSEE SUBMITTED THAT THERE WAS NO DOUBLE CLAI M MADE BY THE ASSESSEE. THE DEPARTMENT DID NOT BRING ANY EVIDENCE TO SHOW THAT THE ASSESSEE HAS MADE DOUBLE CLAIMS OF THE DEDUCTION. SINCE FACTS OF THE CASE ARE IDENTICAL TO THE ASSESSEES OWN CASE IN APPEAL NO.120&121/VIZ/2013 OF THIS TRIBUNAL RESPECTFU LLY FOLLOWING THE VIEW TAKEN BY THE COORDINATE BENCH OF THIS TRIBUNAL WE UPHOLD THE ORDER OF 22 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM THE LD.CIT(A) AND DISMISS THE APPEALS OF THE REVENUE ON THIS GROUNDS FOR THE A.YS 2011 - 12 TO 2014 - 15. 16. THE REVENUES APPEALS FOR THE A.Y. 2011 - 12 TO 2014 - 15 ARE DISMISSED. 1 7 . THE ASSESSEE FILED CROSS OBJECTIONS FOR THE A.Y.S 2011 - 12 TO 2014 - 15 IN CO NOS.70 &71/VIZ/2017 AND CO NOS.60& 61/VIZ/2018, HOWEVER, THE APPEALS ARE FILED BEYOND THE DUE DATE. THE ASSESSEE FILED CONDONATION PETITION STATING THAT THE ASS ESSEE COULD NOT PASS ON THE APPEAL PAPERS TO THE AUDITOR AS THEY WERE IN THE PROCESS OF STATUTORY AUDIT OF THE BANK AND THEY HAVE TO AUDIT 51 BRANCHES. THE ASSESSEE IS NOT AN INDIVIDUAL AND IT IS AN INSTITUTION AND THE REASON GIVEN BY THE ASSESSEE IS NOT A SUFFICIENT CAUSE FOR CONDONING THE DELAY. THEREFORE, THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED INLIMINI. 18. IN THE RESULT, THE APPEALS OF THE REVENUE FOR THE A.Y . 2011 - 12 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEALS FOR THE A.YS . 2012 - 13 TO 2014 - 15 ARE DISMISSED. THE CROSS OBJECTIONS OF THE ASSESSEE ARE ALSO DISMISSED INLIMINI. 23 I.T.A. NO S.301 & 302/VIZ/2017 AND 100 & 101/VIZ/2018 CO NOS. 70 & 71/VIZ/2017 AND 60 & 61/VIZ/2018 KRISHNA DISTRICT CO - OP CENTRAL BANK LTD., MACHILIPATNAM O RDER PRONOUNCED IN THE OPEN COURT ON 28 TH NOVEMBER , 201 8 . S D/ - S D/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 28 . 1 1 .2018 L.RAMA, SPS / COPY OF THE ORDER FORWARDED TO: - 1. / THE ASSESSEE M/S THE KRISHNA DISTRICT CO - OPERATIVE CENTRAL BANK LTD., YSR SAHAKAR BHAVAN, JAGANNADHAPURAM, MACHILIPATNAM 2 . / THE REVENUE - DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 2(1), VIJAYAWADA 3. THE PR.CIT, VIJAYAWADA 4. THE COMMISSIONER OF INCOME TAX (APPEALS) , VIJAYAWADA 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM