The ACIT, Navsari Circle-1, Navsari V. South Gujarat Local Area Bank Ltd., Navsari

ITA 1441/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8685 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 18-03-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 11-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Reason to believe

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: DRAFTED ON: ITA NO.1441/AHD/2007 AND 1442/AHD/2007 ASSESSMENT YEAR : 2003-04 AND 2004-05 ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1, NAVSARI. VS. SOUTH GUJARAT LOCAL AREA BANK LTD. NANDINI COMPLEX, STATION ROAD, NAVSARI. PAN/GIR NO. : AAECS 8559 K (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI C.K.MISHRA D.R. RESPONDENT BY: SHRI S.N.SOPARKAR. A.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THESE ARE THE APPEALS FILED BY THE REVENUE AGAINS T THE SEPARATE ORDERS OF LEARNED CIT(APPEALS), VALSAD, BOTH DATED 7.12.2006. 2. THE FIRST COMMON GROUND OF APPEAL TAKEN IN BOTH THE APPEAL IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.65,75,6 64/- IN AY 2003-04 AND RS.87,24,738/- IN AY 2004-05 ON ACCOUNT OF ACCRUED INTEREST NOT CREDITED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE AO OBSE RVED THAT THE ASSESSEE BANK HAS NOT ACCOUNTED FOR INTEREST INCOME WHICH ACCRUED ON NON PERFORMING ASSETS EVEN THOUGH FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG ON THE GROUND THAT THE PRINCIPAL AMOUNT WAS DOUBTFUL OF RECOVERY AND THERE FORE WAS TREATED AS NPA. THEREFORE, THE AO ADDED ACCRUED INTEREST INCOME OF RS.65,75,664/- IN AY 2003- 04 AND RS.87,24,738/- IN AY 2004-05 TO THE INCOME O F THE ASSESSEE. IN APPEAL, THE CIT(A) DELETED THE ADDITION MADE BY THE AO OBSE RVING THAT THE BANK HAD NOT RECOGNIZED THE ACCRUED INTEREST ATTRIBUTABLE TO NON PERFORMING ASSETS BY FOLLOWING THE MANDATORY REQUIREMENTS OF RBIS GUIDELINES ON P RUDENTIAL NORMS ON INCOME ITA 1441&1442/AHD/2007 - 2 - RECOGNITION, ASSET CLASSIFICATION AND PROVISIONING PERTAINING TO THE ADVANCES. THE LD. CIT(A) FURTHER OBSERVED THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CITI BANK N.A. [208 ITR 930] HAS HELD THAT IN RESPECT OF INTEREST ON `PROBLEM LOANS', NO DEBIT/CREDIT ENTRIES BEING MADE AND CASH SYSTEM OF ACCOUNTING HAVING BEEN FOLLOWED BY ASSESSEE-BANK REGULARLY AND SYSTEMATICALLY ALL THROUGHOUT IN THE PAST AND ACCEPTED BY REVENUE AS P ROPER METHOD OF ACCOUNTING, SUCH INTEREST COULD NOT BE TAXED ON ACCRUAL BASIS. 4. THE LD. D.R. SUPPORTED THE ORDER OF THE AO AND T HE LD. A.R. RELIED ON THE ORDER OF THE CIT(A). 5. AFTER HEARING THE RIVAL SUBMISSIONS, WE FIND THA T THE LD. CIT(A) HAS DELETED THE ADDITION BY FOLLOWING THE DECISION OF H ON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CITI BANK N.A. [208 ITR 930]. T HE LD. D.R. COULD NOT POINT OUT ANY REASON AS TO WHY THE AFORESAID DECISI ON SHOULD NOT BE FOLLOWED IN THE INSTANT CASE. IN ABSENCE OF ANY SUCH MATERIAL W E DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). THE SAME IS CONFIRMED AND THE GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. 6. THE SECOND COMMON GROUND OF APPEAL TAKEN BY THE REVENUE IN BOTH THE APPEALS IS THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.13 LACS ON ACCOUNT UNEXPLAINED EXPEN DITURE IN THE AY 2003-04 AND RS.10 LACS IN THE AY 2004-05. 7. THE BRIEF FACTS OF THE CASE ARE THAT THE AO OB SERVED THAT IN AY 2003-04, THE OPERATING EXPENDITURE OF THE ASSESSEE INCREASED FROM 161.21 LACS TO RS.197.33 LACS AND THE INCOME HAD SUBSTANTIALLY DECREASED. HE NOTED THAT EXPENDITURE CLAIMED UNDER THE HEADS SUCH AS DEPRECATION, REPAIR S AND MAINTENANCE, PRINTING AND STATIONARY HAD GONE UP SUBSTANTIALLY. HE FURTHE R OBSERVED THAT THE ASSESSEE COULD NOT PRODUCE THE BILLS OF RS.86,730/- FOR MISC ELLANEOUS EXPENSES AND RS.52,286/- FOR REPAIRS AND MAINTENANCE. HE ALSO OB SERVED THAT BILLS IN RESPECT OF ITA 1441&1442/AHD/2007 - 3 - SOME EXPENDITURE WERE ON SELF PREPARED VOUCHERS. IN VIEW OF THE ABOVE, HE DISALLOWED RS.15 LACS ON ADHOC BASIS ON ACCOUNT OF QUANTUM REDUCTION IN BUSINESS, ABSENCE OF BILL AND FOR WANT OF VERIFIABL E BILLS. SIMILARLY, IN THE AY 2004-05, THE AO DISALLOWED RS.10 LACS ON ADHOC BASI S FOR WANT OF PROPER VERIFICATION OF VOUCHERS IN SCRUTINY THEREOF IN VIE W OF VOLUMINOUS UNVERIFIABLE NATURE OF EXPENDITURE. IN APPEAL, THE CIT(A) KEEPIN G IN VIEW THE FACT THAT THE ASSESSEE BANK WAS AMALGAMATED WITH BANK OF BARODA A ND OBSERVED THAT IN A BANK, THERE ARE VARIOUS CHEQUES AND CONTROLS OVER THE BAN KING OPERATIONS. HE FURTHER OBSERVED THAT THE AO NOTED THAT THE ASSESSEE COULD NOT PRODUCE BILLS OF RS.86,730/- IN RESPECT OF MISCELLANEOUS EXPENDITURE AND RS.52,286/- IN RESPECT OF REPAIRS AND MAINTENANCE. THE TOTAL OF WHICH COMES T O RS.1.39 LACS AGAINST WHICH IS A MEAGER AMOUNT AS COMPARED TO A TOTAL AMOUNT OF OPERATING EXPENDITURE. THE ASSESSEE WAS UNABLE TO PRODUCE SOME OF THE BILLS IN RESPECT OF SOME EXPENDITURE AND IN VIEW OF THAT DISALLOWANCE OF RS.2 LACS WAS R EASONABLE CONSIDERING THE TOTALITY OF THE FACTS. THEREFORE, HE DELETED THE DI SALLOWANCE OF RS.2 LACS AND SUSTAINED ADDITION OF RS.13 LACS. IN THE AY 2004- 05 THE LD. CIT(A) OBSERVED THAT THERE ARE VARIOUS CHEQUES AND CONTROL OVER THE BANKING OPERATIONS. THE AO HIMSELF HAS ADMITTED THAT DUE TO LARGE VOLUME OF VO UCHERS, IT WAS DIFFICULT TO HAVE CLOSE SCRUTINY OF ALL THE VOUCHERS/EXPENSES. HE FUR THER OBSERVED THAT THE AO COULD NOT POINT OUT ANY OF MISSING BILLS OR VOUCHERS OR A NY EXPENDITURE WHICH ARE NOT RELATED TO THE BUSINESS OF THE ASSESSEE BANK. NO EV IDENCES COULD BE PRODUCED BY THE AO IN SUPPORT OF HIS ACTIONS. THEREFORE, THE DI SALLOWANCE ON ADHOC BASIS OF RS.10 LACS WAS NOT JUSTIFIABLE. THEREFORE, HE DELET ED THE DISALLOWANCE OF RS.10 LACS. 8. THE LD. D.R. SUPPORTED THE ORDER OF THE AO AND T HE LD. A.R. RELIED ON THE ORDER OF THE CIT(A). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT IT IS NOT IN DISPUTE THAT THE AO HAD POINTED OUT ONLY TWO VOUCHERS OF RS .86,730/- AND RS.52,286/- COULD NOT BE PRODUCED BY THE ASSESSEE IN THE AY 200 3-04. FINDING THIS, THE AO ITA 1441&1442/AHD/2007 - 4 - DISALLOWED RS.15 LACS ON ADHOC BASIS. FURTHER IN AY 2004-05, THE AO DISALLOWED RS.10 LACS ON ADHOC BASIS. CONSIDERING THE FULL FAC TS OF THE CASE AS WELL AS THE FACT THAT THERE ARE VARIOUS CHEQUES AND CONTROLS ON THE BUSINESS OPERATIONS AND BILLS WERE MISPLACED DUE TO SHIFTING OF VOUCHERS BECAUSE OF AMALGAMATION OF THE ASSESSEE BANK WITH BANK OF BARODA, HE CONSIDERED FA IR TO RESTRICT THE DISALLOWANCE OF RS.2 LACS IN PLACE OF RS.15 LACS DISALLOWED BY T HE AO OUT OF OPERATION EXPENSES. SIMILARLY, FOR AY 2004-05, THE CIT(A) DEL ETED THE ENTIRE DISALLOWANCE FOR RS.10 LACS MADE BY THE AO ON ADHOC BASIS. THE L D. D.R. COULD NOT POINT OUT ANY ERROR OF THE CIT(A). ON THE ABOVE FACTS, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS CO NFIRMED AND THE GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. 10. THE THIRD COMMON GROUND OF APPEAL RELATES TO DI SALLOWANCE OF DEPRECIATION OF RS.2 LACS EACH IN BOTH THE YEARS UNDER CONSIDERA TION. 11 THE BRIEF FACTS ARE THAT THE AO OBSERVED THAT TH E ASSESSEE COULD NOT PRODUCE BILLS IN RESPECT OF ADDITION TO ASSETS AMOU NTING TO APPROXIMATELY RS.10 LACS AS BUSINESS OF THE BANK WAS SHUT DOWN DUE TO F INANCIAL CRISES. HE THEREFORE, DISALLOWED DEPRECIATION @ 20% AND DISALLOWED RS.2 L ACS EACH IN BOTH THE YEAR UNDER CONSIDERATION. IN APPEAL, THE LD. CIT(A) OBS ERVED THAT DUE TO MERGER OF THE BANK AND SHIFTING OF RECORDS , THERE MIGHT BE PRACT ICAL DIFFICULTY IN COMPILING THE RECORD. IT IS SEEM THAT DETAILS OF VARIOUS ASSETS H AVE BEEN GIVEN INCLUDING THE DESCRIPTION OF ASSETS AND AMOUNT. THE ASSESSEE HAS SUBMITTED AUDIT REPORT AND TAX AUDIT REPORT UNDER SECTION 44AB OF THE ACT WITH THE RETURN OF INCOME FILED AND THERE WAS REASON TO BELIEVE THAT THE AMOUNT OF ADDI TION TO FIXED ASSETS HAVE BEEN VERIFIED AND CERTIFIED BY THE AUDITORS. THE AO HAS NOT STATED THE EXACT AMOUNT OF MISSING BILLS IN THE ASSESSMENT ORDER AND HAS WORKE D OUT THE DISALLOWANCE OF APPROXIMATE VALUE WHICH IS NOT ACCEPTABLE IN LAW. T HEREFORE, THERE WAS NO REASON TO REJECT THE CLAIM OF DEPRECATION TO THE ASSESSEE ON ADHOC BASIS. ACCORDINGLY, HE DIRECTED THE AO TO DELETE THE DISALLOWANCE OF DEPRE CIATION IN BOTH THE YEARS UNDER APPEAL. ITA 1441&1442/AHD/2007 - 5 - 12. THE LD. D.R. SUPPORTED THE ORDER OF THE AO AND THE LD. A.R. RELIED ON THE ORDER OF THE CIT(A). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. THE AO OBSERVED THAT THE ASSESSEE COULD NOT PRODUCE THE BILLS OF ADDITION TO FIXED ASSETS OF APPROXIMATELY OF RS.10 LACS . THEREFORE HE DISALLOWED RS.2 LACS OUT OF THE DEPRECATION CLAIMED BY THE ASSESSEE IN EACH YEAR OF APPEAL BEFORE US. ON A PPEAL, THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING THAT THE ACCOUNT OF THE A SSESSEE WAS DULY AUDITED AND THE AUDITORS HAVE CERTIFIED THE AMOUNT OF DEPRECIAT ION ALLOWABLE TO THE ASSESSEE. THE AO COULD NOT POINT OUT THAT EXACT AMOUNT OF MIS SING BILLS IN RESPECT OF ADDITION TO FIXED ASSETS AND THE DISALLOWANCE WAS M ADE ON ESTIMATE BASIS WHICH IS NOT SUSTAINABLE. WE FIND THAT THE LD. D.R. COULD NO T POINT OUT THE SPECIFIC ADDITION TO FIXED ASSETS OF WHICH BILLS COULD NOT BE PRODUCE D BY THE ASSESSEE. THE AO HAS ALSO NOT BROUGHT ON RECORD THE SPECIFIC ITEMS OF WH ICH BILLS WERE NOT PRODUCED BEFORE HIM AND ALSO NOT EXAMINED THE CLAIM OF PROVI SION MADE BY THE ASSESSEE BY VERIFYING FROM THE PARTY TO WHOM PAYMENTS WERE MADE AND ALSO HAS NOT BROUGHT ON RECORD THE MODE OF PAYMENT BY WHICH PAYMENTS WER E MADE IN RESPECT OF ADDITION TO FIXED ASSETS. IN ABSENCE OF ANY SUCH MA TERIAL BROUGHT ON RECORD, IN OUR CONSIDERED OPINION, THE CIT(A) WAS JUSTIFIED IN DEL ETING THE ADDITION BY HOLDING THAT SUCH ADHOC DISALLOWANCE MADE BY THE AO IS NOT SUSTAINABLE. WE THEREFORE, DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 14. IN THE RESULT, THE APPEALS OF THE REVENUE ARE D ISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 26/03/2010. SD/- SD/- ( T.K. SHARMA ) ( N.S. SAINI ) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD; DATED 26/03/2010 PREPARED AND COMPARED BY : PARAS # ITA 1441&1442/AHD/2007 - 6 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD