SIKAR KENDRIYA SAHKARI BANK LTD.., Sikar V. DCIT, Sikar

ITA 121/JPR/2012

• Counselvise Citation: 12123114 RSA 2012
• Duration Of Justice: 3 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-07-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 06-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS NEENA JEPH
• Assessee Lawyers: ANIL KAUSHIK; SANJIV AGARWAL
• Keywords: Business expenditure; Opportunity of being heard; Question of law; Bad and doubtful debts
• Section: 143(3); 37(1); 37

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM VK;DJ VIHY LA- @ ITA NO. 121/JP/2012 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2008-09 SIKAR KENDRIYA SAHKARI BANK LIMITED, H.O.- BASANT VIHAR, SIKAR. CUKE VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE- SIKAR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AAAAS 1601 G VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 132/JP/2012 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2008-09 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- SIKAR. CUKE VS. SIKAR KENDRIYA SAHKARI BANK LIMITED, H.O.- BASANT VIHAR, SIKAR. LFKK;H YS[KK LA-@THVKBZVKJ L A-@ PAN/GIR NO.: AAAAS 1601 G VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT FU/KZKFJRH DH VKSJ LS @ ASSESSEE BY : SHRI ANIL KAUSHIK & SHRI SANJIV AGARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : MRS. NEENA JEPH (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 06/01/2015 ?KKS'K .KK DH RKJH[ K @ DATE OF PRONOUNCEMENT : 27/03/2015 ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 2 VKNS'K @ ORDER PER: T.R. MEENA, A.M. THESE ARE CROSS APPEALS, ONE BY THE ASSESSEE AND AN OTHER BY THE REVENUE ARISE AGAINST THE ORDER DATED 01/11/2011 PA SSED BY THE LEARNED C.I.T.(A)-III, JAIPUR FOR THE A.Y. 2008-09. THE GROUNDS OF ASSESSEES APPEAL AS WELL AS THE REVENUE ARE AS UNDE R:- GROUNDS OF ITA NO. 121/JP/2012 1. THE LD. A.OS ORDER IS CONTRARY TO LAW AND THE FA CTS OF THE CASE. 2. THE ORDER OF THE LD. CIT APPEAL-III, JAIPUR DATED 01.11.2011 IS CONTRARY TO THE LAW AND THE FACTS OF THE CASE TO THE EXTENT IT UPHOLDS THE ORDER OF LD. ASSESSING OFFICER DCIT, CIRCLE SIKAR. 3. THE LEARNED ASSESSING OFFICERS WAS GROSSLY ERRED IN LAW AND ACTED ARBITRARILY WHILE DISALLOWING CLAIM FOR CONTRIBUTION OF MANAGERIAL SALARY FUND AMOUNTING TO RS. 10 LACS, MADE IN COMPLIANCE OF THE ORDER OF THE STATE GOVERNMENT OF RAJASTHAN UNDER RULE 26(B) OF THE PACS MANAGERS SELECTION, APPOINTMENT AND SERVICE RULES, 2003. THOUGH THE LD. A.O. DOES NOT DISPUTE THAT THE FUND IS A STATUTORY FUND YET HE DISALLOWS THE CONTRIBUTION MADE THERETO BY THE ASSESSEE BANK UNDER THE PLEA THAT CREATION OF FUND MAY BE LEGAL/STATUTORY REQUIREMENT OF THE ASSESSEE BUT THAT DOES NOT MEAN THAT IT AN EXPENDITURE INCURRED THAT SHOWS HIS BIAS. IN CASE OF CONTRIBUTI ON ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 3 TO BE MADE TO SUCH FUNDS (CREATED UNDER STATUTORY PROVISIONS) THE ASSESSEE IS NOT FREE TO MAKE OR NOT TO MAKE SUCH CONTRIBUTION OR HAVE A LIBERTY TO JUDGE I TS REASONABILITY, AS SUCH THE CONTRIBUTION IS NOTHING BUT A CHARGE ON THE INCOME OF THE ASSESSEE, AND IS AN ALLOWABLE BUSINESS EXPENDITURE BEING INCURRED TO RUN THE BUSINESS. HENCE THE ACTION OF THE LD. A.O. NEED S TO BE QUASHED. 4. THE LEARNED ASSESSING OFFICER WAS GROSSLY ERRED I N LAW AND ACTED ARBITRARILY WHILE DISALLOWING CLAIM FOR CONTRIBUTION OF PACS DEVELOPMENT FUND AMOUNTING TO RS. 820484/-, THE AMOUNT IS CONTRIBUTED BY THE ASSESSEE IN COMPLIANCE TO THE STATUTORY PROVISIONS OF REVISED PRIMARY AGRICULTURAL CREDIT COOPERATIVE SOCIETIES DEVELOPMENT FUND RULES, 2003 MADE BY THE CO-OPERATIVE DEPARTMENT, GOVERNMENT OF RAJASTHAN, AND THE ASSESSEE IS NOT INDEPENDENT FOR USING THE FUND, BEING A STATUTORY LIABILITY FOR IT, THUS THIS IS CHARGE ON THE INCOME OF THE ASSESSEE BANK AND NEED TO BE ALLOWED AS A BUSINESS EXPENDITURE. 5. THE LEARNED A.O. WAS GROSSLY ERRED IN LAW AND ACTED ARBITRARILY WHILE DISALLOWING CLAIM FOR CONTRIBUTION OF K.K. DEVELOPMENT FUND AMOUNTING TO RS. 150000/-, THE AMOUNT IS CONTRIBUTED BY THE ASSESSEE FOR THE WELFARE OF ITS EMPLOYEES THUS THIS IS CHARGE ON THE INCOME OF THE ASSESSEE BANK AND NEED TO BE ALLOWED AS BUSINESS EXPENDITURE. THE CONTENTION OF THE LD. A.O. THAT EXPLANATION FILED BY THE ASSESSEE IS NOT SATISFACTORY IS BIASED AND UNJUST AND NOT TENABLE A T ALL. ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 4 6. THE APPELLANT CRAVES LEAVE TO ADD TO OR AMEND THE AFORESAID GROUNDS BEFORE DISPOSAL OF THE APPEAL. GROUND OF ITA NO. 683/JP/2012 (I) THE CIT(A) HAS PASSED A PERVERSE ORDER IN DELETI NG THE DISALLOWANCE TO THE EXTENT OF RS. 12,80,355/- IN RESPECT OF PROVISION FOR DOUBTFUL DEBTS WITHOUT CONSIDERING DETAILED FACTS MENTIONED IN THE ASSESSMENT ORDER. (II) THE CIT(A) HAS PASSED A PERVERSE ORDER IN ACCEP TING THE CLAIM OF THE ASSESSEE UNDER SEC. 36(1)(VIIA) BY HOLDING THAT THE ADVERSE DECISION IN THE EARLIER YE ARS GIVEN BY CIT(A), ON THIS ISSUE, WERE INAPPLICABLE. (III) THE CIT(A) HAS PASSED A PERVERSE ORDER IN DELET ING THE DISALLOWANCE TO THE EXTENT OF RS. 15,35,000/- IN RESPECT OF PROVISION FOR CONTINGENT LIABILITY ON ACCOUNT OF EARNED LEAVE. (IV) THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND , WITHDRAW OR INSERT ANY GROUND OR GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. THE GROUND NOS. (I) AND (II) OF THE REVENUES APP EAL ARE AGAINST ALLOWING DEDUCTION AT RS. 12,80,315/- IN RESPECT OF PROVISION FOR DOUBTFUL DEBTS U/S 36(1)(VIIA) OF THE INCOME TAX ACT , 1961 (HEREINAFTER REFERRED AS THE ACT). THE LD. ASSESSING OFFICER OBSE RVED THAT THE ASSESSEE IS A CENTRAL COOPERATIVE BANK. IT FILED RE TURN ON 29/09/2008 DECLARING TOTAL INCOME OF RS. 2,51,46,865/-. THE CAS E WAS SCRUTINIZED U/S 143(3) OF THE ACT. THE ASSESSEE HAS MADE PROVISI ON U/S 36(1)(VIIA) OF THE ACT AND RULE 6ABA OF THE INCOME TAX RULES, 19 62 (IN SHORT THE ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 5 RULES) FOR BAD AND DOUBTFUL DEBT OF RS. 12,80,355/- . THE ASSESSING OFFICER GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE ON THE GROUND THAT THE ASSESSEE ALREADY HAD LARGE RESERVE IN THE BALANCE SHEET AND NO FURTHER PROVISION FOR BAD AND DOUBTFUL DEBT IS REQUIRED. FURTHER THE ASSESSEE HAS INCURRED HEAVY EXPENDITURE ON INSU RANCE WHICH COVERS THE RISK OF DEPOSITORS MONEY. AS PER DETAILS FILED ASSESSEE, IT HAS CLAIMED EXPENDITURE OF RS. 21,10,698/- ON ACCOUNT O F INSURANCE WHICH INCLUDES INSURANCE EXPENDITURE OF RS. 19,70,870/- P AID TO DICGC FOR INSURANCE OF DEPOSITS. ANY BAD DEBT IS TO BE COMPEN SATED BY THE INSURANCE AGENCY AS THE DEPOSITS WITH THE BANK ARE I NSURED FOR WHICH THE ASSESSEE HAD BEEN INCURRING HEAVY EXPENDITURE O N INSURANCE YEAR AFTER YEAR. AS PER THE BALANCE SHEET OF THE ASSESSE E AS ON 31/3/2007, THE CREDIT BALANCE IN BAD AND DOUBTFUL DEBTS RESERV E FOR NPA IS RS. 4.85 CORES AND BAD AND DOUBTFUL DEBTS RESERVE IS RS. 5.7 6 CRORES. SINCE THESE RESERVES ARE FOR SPECIFIC PURPOSE ANY LOSS ON ACCOUNT OF BAD AND DOUBTFUL DEBT IS TO BE MET OUT OF THESE SPECIFIC RE SERVES.. THE ASSESSEE HAD RESERVE OF 10.61 CRORES AT THE BEGINNING OF THE YEAR WHICH IS MORE THAN ASSETS CONSIDERED BAD AND DOUBTFUL BY THE BANK . IT FURTHER RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. CITY UNION BANK LTD. , WHO HAD GRANTED LEAVE ON REVENUES SPECIAL LEAVE ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 6 PETITION (CIVIL) NO(S). 24001/2007. THE QUESTION OF LAW REFERRED BY THE REVENUE BEING WHETHER BAD DEBTS IN RESPECT OF ADVA NCES MADE BY URBAN BRANCHES ARE ALLOWABLE ONLY ON THE BASIS OF AM OUNTS WRITTEN OFF WITHOUT TAKING INTO ACCOUNT THE BALANCE IN THE PROVI SION FOR BAD AND DOUBTFUL ACCOUNT? SECTION 36(1)(VIIA) OF THE ACT P ROVIDES FOR PROVISION FOR BAD AND DOUBTFUL DEBTS AND NOT SIMPLY FOR DEBTS . HE FURTHER HELD THAT IN THE CASE OF ASSESSEE, THERE ARE NO DEBTS WH ICH ARE DOUBTFUL OVER AND ABOVE THE PROVISION ALREADY MADE BY ASSESSEE. T HE ASSESSEE HAS NOT WRITTEN OFF ANY AMOUNT ON ACCOUNT OF BAD DEBT, T HE PROVISION OF CLAUSE 36(1)(VIIA) OF THE ACT ARE NOT APPLICABLE TO ASSESSEE FOR THE YEAR. SIMILAR DISALLOWANCE WAS ALSO MADE IN A.Y. 2007-08, T HEREFORE, HE DISALLOWED THE CLAIM OF BAD AND DOUBTFUL DEBT OF RS. 12,80,355/-. 3. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LEARNED CIT( A), WHO HAD ALLOWED THE APPEAL BY OBSERVING AS UNDER:- I HAVE CAREFULLY CONSIDERED THE RIVAL STANDS OF TH E A.O. AND THE LD. A.R., TOWARDS THE ISSUE UNDER CONSIDERATION. FROM THE IMPUGNED ORDER, IT CAN BE SEEN THE A.O. HAS TER MED THE PROVISION FOR DOUBTFUL DEBTS, AS CLAIMED U/S 36 (1)(VIIA) OF THE ACT, AS AN INADMISSIBLE CLAIM AS SUCH. WHILE HOLDING THE SAME, THE A.O. RELIED UPON THE FACT THAT APPELL ANT HAS ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 7 ALREADY HAVING RESERVES OF RS. 10.61 CRORES, WHICH I S MORE THAN THE QUANTUM OF PROVISION FOR DOUBTFUL DEBTS CL AIMED, THE APPELLANT HAS ALSO PAID INSURANCE PREMIUM OF RS . 21.10 LACS TOWARDS INSURANCE OF DEPOSIT AND ALSO THAT THE ASSESSEE HAS NOT WRITTEN OFF ANY AMOUNT, ON ACCOUNT OF BAD DEBTS IN ITS BOOKS OF ACCOUNT. IN HIS REMAND RE PORT DATED 23/08/2011, THE A.O. ALSO POINTED OUT THAT TH E SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE DEP ARTMENT BY THE THEN CIT(A), WHILE DECIDING THE APPELLANTS A PPEAL FOR A.Y. 2007-08 ALSO. HOWEVER, THE LD. AR OPPOSED T HE ABOVE CONTENTIONS OF THE A.O., WHILE STATING THAT T HE APPELLANT IS A CO-OPERATIVE BANK AND THE BENEFIT OF SEC. 36(1)(VIIA) IS EXTENDED TO THEM IN THE CURRENT YEAR ONLY, AS THE RELEVANT AMENDMENT WAS BROUGHT INTO EFFECT FROM 01/04/2007 ONLY. MOREOVER, IT IS ALSO ARGUED THAT T HE SEC. 36(1)(VIIA) DOES NOT STIPULATE ANY CONDITION TOWARDS WRITING OFF THE LOANS FOR MAKING SUCH CLAIM IN THIS REGARD. HE ALSO SUBMITTED THAT THE INSURANCE PAID BY THE APPELLANT WAS TOWARDS THE REPAYMENT OF DEPOSITS RECEIVED FROM ITS CLIENTS AND NOT TOWARDS THE LOANS ADVANCE BY THEM AS SUCH. A S FAR AS THE ISSUE OF HAVING SUBSTANTIAL RESERVE OF RS. 1 0.61 CRORES, AS POINTED OUT BY THE A.O., IT WAS STATED TH AT THERE IS A FUNDAMENTAL DIFFERENCE IN BETWEEN THE CONCEPT O F PROVISION AND RESERVE, IN ACCOUNTING TERMINOLOG Y AND THE SAME CANNOT BE EQUATED AS SUCH. ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 8 IN THE LIGHT OF THE ABOVE DELIBERATION, I FIND FOR CE IN THE ARGUMENTS OF THE LD. AR AS THE BENEFIT OF IMPUG NED SECTION HAS BEEN EXTENDED FROM THE CURRENT YEAR ONL Y, THEREFORE, THE ADVERSE DECISION GIVEN IN THE EARLIE R YEAR TOWARDS SUCH CLAIM OF THE APPELLANT U/S 36(1)(VIIA) IS NOT APPLICABLE IN THE CURRENT YEAR. EVEN THE THEN CIT(A )-111, VIDE HIS ORDER DATED 02/11/2010 FOR A.Y. 2007-08, H AS ALSO RECOGNIZED THE ABOVE ASPECT WHILE HOLDING THAT SINCE THE COOPERATIVE BANKS HAVE BEEN INCLUDED IN THE SEC. 36(1)(VIIA), W.E.F. 01/04/2007 ONLY, THEREFORE, THE BENEFIT OF THE ABOVE PROVISION WOULD BE AVAILABLE TO THE ASS ESSEE FROM A.Y. 2008-09 ONLY I.E. THE YEAR CONSIDERATION. MOREOVER, FROM THE PLAIN READING OF THE IMPUGNED SE CTION, IT IS QUITE CLEAR THAT TO CLAIM THE BENEFIT OF THE BAD DEBTS, THE ELIGIBLE BANK IS REQUIRED TO CREATE THE PROVISI ON FOR DOUBTFUL DEBTS, TO THE EXTENT AS PRESCRIBED THEREIN . IT DOES NOT STIPULATE ANY CONDITION OF WRITING OF SUCH DEBTS IN THE BOOKS OF ACCOUNTS OR CONDITION RELATED TO INSURED D EPOSITS OR HAVING RESERVES ETC. THE CARDINAL RULE OF INTERPR ETATION OF LAW SUGGESTS THAT WHEN THE MEANING OF THE WORDS/PHRAS E USED IN A STATUTE IS CLEAR AND UNAMBIGUOUS, THEN SU CH WORDS TO BE GIVEN ITS PLAIN AND GRAMMATICAL MEANING AND EFFECT OF THE SUCH LAW HAS TO BE GIVEN THE IN SUCH C ONTEXT ONLY. IN THE PRESENT CASE, IT IS FOUND THAT THE A.O . HAS RAISED SEVERAL ISSUES LIKE INSURANCE PAYMENT ACCUMU LATED RESERVES AND NON WRITING OFF LOANS ETC. I.R.O., THE ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 9 APPLICABILITY OF SEC. 36(1)(VIIA), THE ASPECTS WHIC H HAVE NOT BEEN INCORPORATIVE THEREIN, AS SUCH. IN VIEW OF THE SAME, I FIND THAT THE A.O. HAS RAISED EXTRANEOUS OR UNRELAT ED GROUNDS/JUSTIFICATION, AS STATED ABOVE, TO DISALLOW THE CLAIM OF THE APPELLANT MADE U/S 36(1)(VIIA) OF THE ACT. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES, IT IS HOLD THAT THE A.OS STAND IN THIS REGARD IS AGAINST THE SPRITE OF THE RELEVANT LAW; THEREFORE, THE SAME IS HEREBY REVE RSED. ACCORDINGLY, THE APPELLANTS CLAIM OF RS. 12,80,355 /- MADE U/S 36(1)(VIIA) IS ALLOWED. CONSEQUENTLY, THESE GROU NDS OF APPEAL ARE UPHELD. 4. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD D.R . VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND AR GUED THAT IN A.Y. 2007-08, THIS ADDITION WAS CONFIRMED BY THE LD CIT(A ). THE ISSUE IS IDENTICAL, THEREFORE, THE SAME MAY BE CONFIRMED. 5. AT THE OUTSET, THE LD. A.R. FOR THE ASSESSEE SUP PORTED THE ORDER OF THE LD CIT(A) AND ARGUED THAT IN ASSESSEES OWN CASE IN A.Y. 2007-08, THE HONBLE ITAT, JAIPUR BENCH, JAIPUR HAS CONSIDERE D THIS ISSUE. THE ASSESSEE HAS CLAIMED BAD AND DOUBTFUL DEBT OF RS. 6 0,08,932/- U/S 36(1)(VIIA) OF THE ACT, WHICH WAS CONFIRMED BY THE CI T(A). HOWEVER, DEDUCTION U/S 80P WAS NOT ALLOWED BY THE ASSESSING O FFICER. THEREFORE, THE SAME IS RESTORED BACK TO THE ASSESSING OFFICER TO CONSIDER THE ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 10 AMENDED PROVISION OF SECTION 36(1)(VIIA) OF THE ACT . IT IS FURTHER ARGUED THAT THESE PROVISIONS WERE MADE AS PER THE AMENDMENT MADE IN SECTION 36(1)(VIIA) OF THE ACT W.E.F. 01/4/2007, WHI CH IS SQUARELY APPLICABLE FOR THE YEAR UNDER CONSIDERATION. THEREFO RE, THE SAME MAY BE ALLOWED. THERE IS NO NECESSITY TO WRITE OFF THE AM OUNT IN THE BOOKS OF ACCOUNT, THEREFORE, THE SAME MAY BE ALLOWED. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. CI T(A) HAS CONSIDERED THIS ASPECT IN GREAT DETAIL AND ALSO EXAMINED THE L EGAL POSITION FOR A.Y. 2007-08 AS WELL AS A.Y. 2008-09, WHICH HAS NOT BEEN CONTROVERTED BY THE LD DR. SECTION 36(1)(VIIA) OF THE ACT PROVIDES THAT ANY PROVISION IN BAD AND DOUBTFUL DEBT MADE BY CENTRAL COOPERATIVE B ANK IS ALLOWED DEDUCTION NOT EXCEEDING SEVEN AND ONE HALF PERCENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS C LAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING TEN PERCENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. THEREFORE, WE UPHELD THE O RDER OF THE LD. CIT(A). ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 11 7. THE REVENUES THIRD GROUND OF APPEAL IS AGAINST D ELETING THE DISALLOWANCE OF RS. 15,35,000/- IN RESPECT OF PROVIS ION FOR CONTINGENT LIABILITY ON ACCOUNT OF EARNED LEAVE. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD MADE PROVISION OF RS. 15,35,000/- ON ACCOUNT OF CONTINGENT EXPENDITURE AND PL LEAVE DURING THE YEAR AND DEBITED THE SAME AMOUNT IN P&L ACCOUNT. THE ASSESSING OFFICER GA VE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE TO EXPLAIN HOW THIS PROVISION IS ADMISSIBLE AS DEDUCTION, WHICH WAS REPLIED BY THE ASS ESSEE AND SUBMITTED THAT THIS PROVISION IS FOR EARNED LEAVE O F EMPLOYEES, WHICH HAD ACCRUED DURING THE YEAR BUT PAYMENT WAS TO BE MA DE AFTERWARDS. HE FURTHER OBSERVED THAT A SIMILAR CLAIM OF RS. 15, 35,628/- WAS MADE BY THE ASSESSEE IN A.Y. 2007-08, WHICH HAS BEEN ADDE D BACK BY THE THEN A.O.. THE ISSUE IS SIMILAR TO A.Y. 2007-08. IT IS CLARIFIED BY THE ASSESSING OFFICER THAT THIS PROVISION HAD ACCUMULAT ED TO 80.71 LACS, THEREFORE, HE DISALLOWED THE PROVISION MADE BY THE A SSESSEE. 8. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A), WH O HAD ALLOWED THE APPEAL BY OBSERVING AS UNDER:- ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 12 I HAD GONE THROUGH THE REASONING OF THE A.O. FOR DISALLOWANCE OF THE ABOVE EXPENDITURE AND ALSO THE DEFENSE PUT FORTH BY THE LD. AR IN THIS REGARD. FRO M THE ASSESSMENT ORDER, IT IS EVIDENT THAT THE A.O. HAS DISALLOWED THE ABOVE PROVISION TOWARDS PL LIABILITY, EARNED BY THE EMPLOYEE DURING THE YEAR BUT NOT PAID, WHILE TERMING THE SAME AS CONTINGENT EXPENDITURE AND ALSO FOLLOWING THE STAND TAKEN IN THE EARLIER YEAR IN THI S REGARD. THE A.O. HAS ALSO MENTIONED THAT THE SIMILAR ISSUE H AS BEEN DECIDED IN THE FAVOUR OF THE DEPARTMENT BY THE THEN CIT(A)-III IN THE ASSESSMENT PROCEEDINGS OF A.Y. 200 7-08. HOWEVER, THE LD. AR STATED THAT THE PROVISION FOR PL EARNED BY THE EMPLOYEES HAS TO BE MADE AS SAME WOULD BE PAID THEM ON THE EVE OF THEIR RETIREMENT; THUS, IT AMOUNTS TO A REAL STATUTORY LIABILITY AS SUCH. HE A LSO DISPUTED THE A.OS CLAIMED THE SIMILAR ISSUE DECIDE D AGAINST THE APPELLANT IN THE APPEAL RELEVANT TO A.Y . 2007- 08. HE RATHER POINTED OUT THAT OUT OF SUCH CLAIMS O F RS. 15,35,628/- IN THE PREVIOUS YEAR, THEN CIT(A) HAS AL LOWED RS. 1`4,23,195/- WHILE EXCLUDING THE DOUBLE CLAIM O F SUCH ITEMS SEPARATELY ALSO IN THE P&L ACCOUNT. FROM THE ABOVE FACTS AND CIRCUMSTANCES, I TEND TO AGREE WITH THE CONTENTION OF THE LD. AR THAT THE CLA IM TOWARDS PROVISION OF PL EARNED BY THE EMPLOYEES IS A REAL AND STATUTORY LIABILITY, WHICH HAS ACCORDED IN THE C URRENT YEAR ONLY, BASED ON THE SERVICE RENDERED BY THE EMP LOYEE ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 13 IN THE RELEVANT YEAR ITSELF. ACCORDINGLY, IN THE LI GHT OF THE MERCANTILE ACCOUNTING SYSTEM, THE SAME HAS BEEN RIG HTLY CLAIMED IN THE CURRENT YEAR. MOREOVER, I ALSO AGREE WITH THE FINDINGS GIVEN BY MY LD. PREDECESSORS IN THE AP PEAL OF A.Y. 2007-08, ON THIS ACCOUNT, AS DISCUSSED ABOVE, WHEREIN SUCH LIABILITY WAS FOUND ADMISSIBLE IN APPELL ANTS CASE. ACCORDINGLY, THE A.OS DECISION IN THIS REGAR D ID REVERSED AND THE CLAIM OF THE APPELLANT OF RS. 15,3 5,000/- IS ALLOWED. CONSEQUENTLY, THIS GROUND OF APPEAL IS U PHELD. 9. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND ARGUED THAT THE PROVISION MADE BY THE ASSESSEE IS NOT ON ANY SCIENTIFIC BASIS, THEREF ORE, THE SAME MAY BE CONFIRMED. 10. AT THE OUTSET, THE LD A.R. FOR THE ASSESSEE REI TERATED THE ARGUMENTS MADE BEFORE THE LD CIT(A) AND OBJECTED TH E FINDINGS GIVEN BY HIM FOR A.Y. 2007-08. IT IS CLARIFIED THAT HE IN THE YEAR UNDER CONSIDERATION HAS VERIFIED THE ORDER OF HIS PREDECE SSOR FOR A.Y. 2007-08 AND CAME TO CONCLUSION THAT HE HAD ALLOWED THE APPEA L IN FAVOUR OF THE ASSESSEE. HE FURTHER SUBMITTED THAT THESE PROVISION S WERE CREATED ON THE BASIS OF SERVICE LEFT BY THE EMPLOYEE, WHICH WOUL D BE PAID ON THEIR RETIREMENT AND DATE CALCULATED ON THE BASIS OF SALA RY DRAWN LAST AT THE ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 14 TIME OF RETIREMENT, IRRESPECTIVE OF THE SALARIES DR AWN IN THE YEAR WHEN HE EARNED THE PL. ACCORDINGLY, THE LIABILITY FOR PA YMENT OF PL IS MADE ON THE BASIS OF SALARY DRAWN LAST AT THE END OF EACH FI NANCIAL YEAR, WHICH IS SCIENTIFIC METHOD. THEREFORE, THE SAME MAY BE ALLOWED . 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS STATUTORY LIABILITY OF THE ASSESSEE AS PER SERVICE RULES AT THE TIME OF RE TIREMENT, THE ASSESSEE HAS TO PAY EQUIVALENT TO 30 DAYS LEAVE EARNED BY AL L THE EMPLOYEES DURING THE YEAR TO DISCHARGE ITS STATUTORY OBLIGATI ON. THE LD. CIT(A) HAS THOROUGHLY EXAMINED THE STATUTORY LIABILITY PROVISI ONS, WHICH HAS NOT BEEN CONTROVERTED BY THE DR, THEREFORE, WE DO NOT FI ND ANY REASON TO INTERVENE IN THE ORDER OF THE LD. CIT(A). ACCORDINGL Y, WE DISMISS THIS GROUND OF THE REVENUES APPEAL. 12. NOW WE ARE TAKING THE ASSESSEES APPEAL GROUND NO . 1 AND 2, WHICH ARE RELATED TO OTHER REMAINING GROUNDS, THEREF ORE, NO SEPARATE FINDING IS GIVEN. 13. GROUND NO. 3 OF THE ASSESSEES APPEAL IS AGAINS T DISALLOWANCE CLAIMED FOR CONTRIBUTION TO MANAGERIAL SALARY FUND AMOUNTING TO RS. 10 ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 15 LACS MADE IN COMPLIANCE OF THE ORDER THE STATE GOVE RNMENT OF RAJASTHAN UNDER RULE 26(B) OF THE PACS MANAGERS SEL ECTION, APPOINTMENT AND SERVICE RULES, 2003. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DEBITED A SUM OF RS. 10 LACS ON ACCOUNT OF PROVISION FOR MANAGERIAL SALARY FUND. A SIMILAR CLA IM MADE BY THE ASSESSEE WAS DISALLOWED FOR A.Y. 2007-08 VIDE ORDER D ATED 13/11/2009 PASSED UNDER SECTION 143(3) OF THE ACT. THE ASSESSI NG OFFICER GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE , WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 03/08/2010 AND ST ATED THAT PROVISION WAS MADE WITHIN LIMITS AND AS PER RULE AND HENCE WERE FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. THE LD. ASSESSING OFFIC ER HELD THAT CREATION OF FUND MAY BE LEGAL/STATUTORY REQUIREMENT OF THE A SSESSEE BUT THAT DOES NOT MEAN THAT IT IS AN EXPENDITURE INCURRED OR ACCRUED, WHICH CAN BE DEDUCTED FROM TAXABLE INCOME OF ASSESSEE. AS PER THE BALANCE SHEET THE ACCUMULATED CREDIT BALANCE IN THIS PROVISION AC COUNT WAS MORE THAN RS. 1.19 CRORES. IN MANAGERIAL SALARY (SECURITY) FU ND, THERE WAS OPENING CREDIT BALANCE OF RS. 1.09 CRORES AS ON 01/ 4/2007 AND FURTHER AMOUNT OF RS. 10 LACS HAD BEEN CREDITED TO THIS FUN D BY CHARGING THIS AMOUNT TO P&L ACCOUNT. NO AMOUNT WAS DEBITED IN THE ACCOUNT DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS FAILE D TO EXPLAIN THAT ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 16 THIS EXPENDITURE HAS BEEN INCURRED WHOLLY AND EXCLU SIVELY FOR THE BUSINESS PURPOSES. SIMILAR ADDITION UNDER THE HEAD CONTRIBUTION TO PACS DEVELOPMENT FUND AT RS. 8,20,484/- AND RS. 1,50,000 /- FOR K.K. DEVELOPMENT FUND WAS ALSO DISALLOWED BY THE ASSESSIN G OFFICER. 14. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING O FFICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD CONFIRMED THE ADDITION BY OBSERVING AS UNDER:- I HAVE CAREFULLY EXAMINED THE FINDINGS OF THE A.O. AND THE COUNTER SUBMISSIONS MADE BY THE LD. AR VIZ. THE ISS UE UNDER CONSIDERATION. THE A.O. HAS DISALLOWED THE ABOVE CONTRIBUTIONS OF THE APPELLANTS IN DIFFERENT WELFAR E FUNDS ON THE GROUND THAT THEY WERE MADE VOLUNTARILY, OUT OF S WEET WILL OF THE APPELLANT AND THERE WAS NO LEGAL/STATUTORY RE QUIREMENT TO INCUR SUCH EXPENSES. FROM THE RECORDS, IT IS TRA NSPIRED THAT THE SIMILAR ISSUES HAVE BEEN DEALT WITH AND DECIDED BY ME LD. PREDECESSOR, WHILE DISPOSAL THE APPEAL FOR A.Y. 2007 -08 AND VIDE HIS ORDER DATED 02/11/2010 (APPEAL NO. 174/JP R/09- 10), HE GAVE HIS FINDINGS, IN THESE REGARDS, AS UND ER:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND SUBMISSIONS OF LD. AR. HOWEVER, ON PERUSAL OF THE R ELEVANT RECORDS, I FIND THAT THE APPELLANT HAS MADE A CONTR IBUTION OF RS. 10,00,000/- TO THE MANAGERIAL SALARY (SECURITY) FUND, WHICH WAS ONLY IN THE NATURE OF A PROVISIONAL FUND TO MEET ANY ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 17 DEFICIENCY IN THE PRIMARY SALARY FUND. FURTHER, I F IND THAT THE APPELLANT FAILED TO EXPLAIN/JUSTIFY BEFORE THE A.O. THE INCURRING/ACCRUAL OR ANY EXPENDITURE ON THAT ACCOUN T DURING THE YEAR. THEREFORE, I FIND THAT THE LD. A.O. WAS J USTIFIED IN DISALLOWING THE AFORESAID EXPENDITURE CLAIMED ON AC COUNT OF CONTRIBUTION TO A PROVISIONAL FUND. FURTHER, I AGRE E WITH THE REASONING OF THE LD. A.O. FOR MAKING THE DISALLOWAN CE OF RS. 6,99,653/- WHICH WAS CLAIMED AS CONTRIBUTION TO PAC S DEVELOPMENT FUND, AS NOTED IN PARA 5.2 ABOVE. IN AD DITION, IT IS OBSERVED THAT AS PER THE KARAMCHARI KALYAN YOJNA , THERE WAS NO COMPULSION ON THE PART OF THE APPELLANT TO M AKE ANY CONTRIBUTION. THEREFORE, I FIND THAT THE LD. A.O. W AS ALSO JUSTIFIED IN DISALLOWING THE CLAIM OF RS. 1,00,000/ - MADE BY THE APPELLANT ON ACCOUNT OF CONTRIBUTION TO K.K. FUND. ACCORDINGLY, THE IMPUGNED DISALLOWANCES MADE BY THE LD. A.O. ARE CONFIRMED. CONSEQUENTLY, THESE GROUNDS OF APPEAL AR E REJECTED. SINCE THE FACTS AND CIRCUMSTANCES OF THE CURRENT YE AR, I.R.O. THE ISSUES UNDER CONSIDERATIONS ARE IDENTICAL TO TH E A.Y. 2007- 08, THEREFORE, WHILE FOLLOWING THE RULE OF CONSISTEN CY, I ALSO UPHOLD THAT THE CONTRIBUTION TO MANAGERIAL FUND OF RS. 10,00,000/-, CONTRIBUTION TO P\ACS FUND OF RS. 8,20 ,484/- AND CONTRIBUTION OF K.K. FUND OF RS. 1,50,000/- ARE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PUR POSES, THEREFORE, THEY ARE NOT ADMISSIBLE EXPENDITURES U/S 37(1) OF THE ACT. IN VIEW OF THE SAME, THE A.OS STANDS IN TH ESE REGARDS ARE HEREBY AFFIRMED. CONSEQUENTLY, THESE GR OUNDS OF APPEAL ARE DISMISSED. ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 18 15. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. A.R. FOR THE ASSESSEE SUBMITTED THAT CONTRIBUTION BY THE ASSESSE E BANK TO MANAGERIAL SALARY FUND AMOUNTING TO RS. 10 LACS DUR ING THE YEAR WAS MADE UNDER STATUTORY/LEGAL OBLIGATION I.E. IN COMPL IANCE OF THE ORDER OF THE STATE GOVERNMENT OF RAJASTHAN UNDER RULE 26(B) OF PACS MANAGERS SELECTION, APPOINTMENT AND SERVICE RULES, 2003. THE LD. ASSESSING OFFICER HAD NOT DISPUTED STATUTORY FUND BUT DISALLO WED THE CONTRIBUTION MADE BY THE ASSESSEE BANK UNDER THE PLEA THAT CREAT ION OF FUND MAY BE LEGAL/STATUTORY REQUIREMENT OF THE ASSESSEE BUT THA T DOES NOT MEAN THAT IT IS AN EXPENDITURE INCURRED OR ACCRUED. THE AR FUR THER SUBMITTED THAT CONTRIBUTION IS NOTHING BUT A CHARGE ON INCOME OF T HE ASSESSEE AND ALLOWABLE DECISION. HE FURTHER ARGUED THAT THE ASSES SEE HAD MADE CONTRIBUTION TO PACS DEVELOPMENT FUND AMOUNTING TO RS. 8,20,484/- UNDER REVISED PRIMARY AGRICULTURAL CREDIT COOPERATI VE SOCIETIES DEVELOPMENT FUND RULES, 2003 MADE BY THE COOPERATI VE DEPARTMENT, GOVT. OF RAJASTHAN. THE LD ASSESSING OFFICER HAD DIS ALLOWED THIS CONTRIBUTION ON THE GROUND THAT IN A.Y. 2007-08 SIM ILAR ADDITIONS WERE MADE. HE FURTHER SUBMITTED THAT THIS CONTRIBUTION WA S MADE IN COMPLIANCE TO REVISED PRIMARY AGRICULTURAL CREDIT C OOPERATIVE SOCIETIES DEVELOPMENT FUND RULES, 2003 , WHICH IS ALLOWABLE U /S 36(1)(VIIA) OF ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 19 THE ACT. FURTHER REGARDING DISALLOWANCE OF CLAIM OF RS. 1.50 LACS CONTRIBUTION TO THE KK FUND AS PER THE SCHEME FRAME D BY THE BANK IN TERMS OF DIRECTION OF NABARD FOR THE WELFARE AND BEN EFIT OF EMPLOYEES AND ALSO TO CATER TO THE INTEREST TO ITS EMPLOYEE B Y THE ASSESSEE BANK TO BOOST THEIR MORAL AND FOR HAVING BETTER EMPLOYER EM PLOYEE RELATIONSHIP IN ORDER TO CARRY ON THE BUSINESS SMOOTHLY AND PROF ITABLY. THE LD CIT(A) CONFIRMED THE ADDITION ON THE GROUND THAT THERE WAS NO STATUTORY COMPULSION ON THE PART OF THE APPELLANT TO MAKE SUC H CONTRIBUTION. THOUGH THERE WAS NO STATUTORY COMPULSION TO DO SO BUT IT WAS FOR THE WELFARE OF THE EMPLOYEE AND TO CARRY ON BUSINESS SMO OTHLY. HE RELIED ON THE DECISION IN THE CASE OF CIT VS. NEW INDIA SUGA R MILLS LTD. (1994) 206 ITR 212 (CAL.), KRISHNA SAHAKARI SAHKAR KARKHANA LTD. VS. CIT (1998) 229 ITR 577 (BOM) AND AMRIT BANASPATI CO. LTD . VS. CIT (2000) 111 TAXMAN 186 (DELHI) MAG.) AND ARGUED THAT THE EXP ENDITURES CLAIMED UNDER THESE THREE HEADS ARE ALLOWABLE U/S 37 (1) OF THE ACT AS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PUR POSES. 16. THE LD. DR SUPPORTED THE ORDER OF THE LD CIT(A) A ND REITERATED THE FINDINGS GIVEN BY HIM ON THIS ISSUE AND PRAYED TO CONFIRM HIS ORDER. ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 20 17. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD CIT(A) HAS NOT APPRECIATED THE FACT THAT CONTRIBUTION TO THE MANAG ERIAL SALARY FUND AT RS. 10 LACS WAS MADE. THIS FUND WAS FOR MEETING THE DE FICIT IN PRIMARY SALARY FUND AS PER THE STATE GOVT. OF RAJASTHAN, UN DER RULE 26(B) OF THE PACS MANAGERS SELECTION, APPOINTMENT AND SERVICE RU LES, 2003, LIKEWISE CONTRIBUTION OF RS. 8,20,484/- UNDER PACS D EVELOPMENT FUND WAS PROVIDED UNDER REVISED PRIMARY AGRICULTURAL CRED IT COOPERATIVE SOCIETIES DEVELOPMENT FUND RULES, 2003 FOR TRAINI NG COST OF MANAGERS, WHICH WILL BE PAID FROM THE PACS DEVELOPMENT FUND. THE CONTRIBUTION TO KK FUND OF RS. 1,50,000/- WAS MADE BY THE ASSESSEE I N VIEW OF THE CLAIM FRAMED BY THE BANK IN TERMS OF DIRECTION OF N ABARD FOR THE WELFARE AND BENEFIT OF ITS EMPLOYEES TO CATER THE IN TEREST OF ITS EMPLOYEES BY THE ASSESSEE BANK TO BOOST THEIR MORAL AND HAVING BETTER EMPLOYER-EMPLOYEE RELATIONSHIP IN ORDER TO CARRY ON BUSINESS SMOOTHLY AND PROFITABLY. ALL THE EXPENSES CLAIMED UNDER THRE E HEADS WERE INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE S AND OBLIGATION CAST ON THE ASSESSEE UNDER THE VARIOUS ACTS FRAMED BY THE STATE GOVT. OR NABARD. THEREFORE, WE ARE OF THE CONSIDERED VIEW TH AT THE LD CIT(A) ITA 121 & 132/JP/2012_ SIKAR KENDRIYE SAHKARI BANK VS. DCIT 21 WAS NOT JUSTIFYING IN CONFIRMING THE ORDER OF THE AS SESSING OFFICER. ACCORDINGLY, WE ALLOW THE ASSESSEES APPEAL ON THIS G ROUND. 18. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/03/2015. SD/- SD/- VKJ-IH-RKSYKUH VH-VKJ-EHUK (R.P.TOLANI) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ @ JAIPUR FNUKAD @ DATED:- 27 TH MARCH, 2015 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SIKAR KENDRIYA SAHKARI BANK LIMITED, SIKAR. 2. IZR;FKHZ @ THE RESPONDENT- THE DCIT/ACIT, CIRCLE- SIKAR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 121 & 132/JP/2012) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR