DCIT 1(3), MUMBAI V. SARVODAYA CO-OP BANK LTD, MUMBAI

ITA 1214/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75801 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 25-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 10-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Recovery proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI . . , . . , BEFORE SHRI B R MITTAL, JM & SHRI B R BASKARAN , AM ./I.T.A. NO.1214/MUM/2011 ( ' ' ' ' ' '' ' / ASSESSMENT YEAR: 2007-08) THE DY COMMR OF INCOME TAX 1(3), MUMBAI / VS. SARVODAYA COOP BANK LTD 6-7 SHEETAL APTS S P S ROAD, BHANDUP(W) MUMBAI78 ./PAN :AAACT3936B ( % /APPELLANT ) ( &'% / RESPONDENT ) % ( / APPELLANT BY : SHRI SURENDRA KUMAR, DR &'% ( / RESPONDENT BY : SHRI M SUBRAMANIAN ( + /DATE OF HEARING : 25.02.2014 ( + / DATE OF PRONOUNCEMENT : 26 TH , FEB 2014 / O R D E R PER B R BASKARAN, AM : THE REVENUE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 29-11-2010 PASSED BY LD CIT(A)-2 MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2007-08. 2. THE ONLY ISSUE URGED IN THIS APPEAL RELATES TO T HE DISALLOWANCE OF PROVISION MADE FOR THE FRAUD COMMITTED BY AN EMPLOYEE. 3. THE FACTS RELATING THERETO ARE SET OUT IN BRIEF. THE ASSESSEE IS A CO- OPERATIVE BANK. DURING THE YEAR UNDER CONSIDERATIO N, THE ASSESSEE PROVIDED A SARVODAYA COOP BANK LTD 2 SUM OF RS.47.33 LAKHS TOWARDS THE LOSS OCCURRED ON ACCOUNT OF THE FRAUD COMMITTED BY AN EMPLOYEE. THE AO NOTICED THAT THE ASSESSEE HAD LODGED INSURANCE CLAIM FOR AN AMOUNT OF RS.67.86 LAKHS. F URTHER THE ASSESSEE HAD ALSO ATTACHED THE FLAT BELONGING TO THAT EMPLOYEE, THE M ARKET VALUE OF WHICH WAS ESTIMATED AT RS.15.00 LAKHS AT THE TIME OF ATTACHME NT. HENCE, THE AO TOOK THE VIEW THAT THE EXACT AMOUNT OF LOSS HAS NOT ATTAINED FINALITY, IN WHICH CASE THE IMPUGNED CLAIM MADE BY THE ASSESSEE HAS TO BE TREAT ED AS CONTINGENT LIABILITY. ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF RS.47.3 3 LAKHS MADE BY THE ASSESSEE. 4. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) DELETED THE DISALLOWANCE BY HOLDING THAT THE IMPUGNED PROVISION IS A REAL LIABI LITY AND NOT A CONTINGENT LIABILITY, SINCE THE FACT OF EMBEZZLEMENT IS NOT DISPUTED. TH E LD CIT(A) FURTHER HELD THAT THE INSURANCE CLAIM LODGED BY THE ASSESSEE AND THE ATTACHMENT MADE ON THE FLAT ARE RECOVERY PROCEEDINGS CANNOT BE TAKEN INTO ACCOU NT, SINCE, THE RESULT OF THE ABOVE SAID PROCEEDINGS IS UNCERTAIN. ACCORDINGLY, THE LD CIT(A) TOOK THE VIEW THAT THE IMPUGNED CLAIM OF RS.47.33 LAKHS IS ALLOWA BLE AS DEDUCTION AND ACCORDINGLY DELETED THE DISALLOWANCE MADE BY THE AO . AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL BEFORE US. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE FACT THAT THE EMBEZZLEMENT HAS TAKEN PLACE IN THE OFFICE OF THE A SSESSEE IS NOT DISPUTED BY THE DEPARTMENT. IT IS ALSO NOT DISPUTED THAT THE EMBEZ ZLEMENT HAS TAKEN PLACE DURING THE COURSE OF CARRYING ON THE BUSINESS OF THE ASSES SEE. THE ONLY APPREHENSION OF SARVODAYA COOP BANK LTD 3 THE AO IS THAT THERE IS POSSIBILITY OF RECOVERY OF AMOUNT, SINCE THE ASSESSEE HAD LODGED INSURANCE CLAIM AND FURTHER ATTACHED THE FLA T BELONGING TO THE EMPLOYEE. ACCORDINGLY, THE AO HAS TAKEN THE VIEW THAT THE EXA CT AMOUNT OF LOSS HAS NOT ATTAINED FINALITY, IN WHICH CASE, THE PROVISION MAD E BY THE ASSESSEE HAS TO BE TREATED AS CONTINGENT LIABILITY. 6. HOWEVER, AS POINTED OUT BY LD CIT(A), IN O UR VIEW ALSO, THE IMPUGNED PROVISION CANNOT BE CONSIDERED AS CONTINGENT LIABI LITY, SINCE THE FACT OF EMBEZZLEMENT IS ACCEPTED BY THE AO. THE ASSESSEE HAS PROVIDED FOR THE LOSS IN ITS BOOKS OF ACCOUNT, INSTEAD OF FULLY WRITING OFF THE SAME, APPARENTLY FOR THE REASON THAT IT IS PURSUING ALL THE REMEDIES TO RECO VER THE SAME. SINCE THE FACT OF EMBEZZLEMENT IS ACCEPTED, IN OUR VIEW, THE SAID PRO VISION HAS TO BE CONSIDERED AS A PROVISION MADE FOR TRADING LOSS AND HENCE, THE ASSESSEE SHOULD NOT BE DENIED THE BENEFIT OF DEDUCTION OF THE SAME. SINCE THE OU TCOME OF RECOVERY STEPS TAKEN BY THE ASSESSEE IS UNCERTAIN, IN OUR VIEW, LD CIT(A ) WAS RIGHT IN HOLDING THAT THE SAID RECOVERY PROCEEDINGS NEED NOT BE CONSIDERED. I T CANNOT BE DISPUTED THAT THE ASSESSEE IS REQUIRED TO OFFER THE AMOUNT, IF ANY, R ECOVERED AGAINST THE EMBEZZLED AMOUNT AS ITS INCOME U/S 41(1) OF THE ACT IN THE YE AR OF RECOVERY. HENCE, IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN GRANTING DEDUC TION OF RS.47.33 LAKHS PERTAINING TO THE PROVISION MADE TOWARDS EMBEZZLEME NT. ACCORDINGLY, WE CONFIRM HIS ORDER. SARVODAYA COOP BANK LTD 4 6. IN THE RESULT, THE APPEAL FILED BY THE REVEN UE IS DISMISSED. / ( / ( ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH FEB 2014 . ( 26TH FEB 2014 ( SD/- SD/- ( B R MITTAL ) ( B R BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 6 DATED 26 TH , FEB 2014 .../ RAJ , SR. PS ( &9 :9 ( &9 :9 ( &9 :9 ( &9 :9/ COPY OF THE ORDER FORWARDED TO : 1. % / THE APPELLANT 2. &'% / THE RESPONDENT. 3. ;() / THE CIT(A)- 4. ; / CIT 5. 9 &, , / DR, ITAT, MUMBAI 6. ' / GUARD FILE. / BY ORDER, '9 & //TRUE COPY// / // / ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI