A.C.I.T Cir - 46,kolkata, Kolkata V. The Bantra Co - Operative Bank Ltd, Howrah

ITA 2153/KOL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1201 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 18-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S DASGUPTA
• Keywords: Question of law
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : KOLKATA [BEFORE HONBLE SHRI M.BALAGANESH, AM & HONBLE S HRI S.S.VISWANETHRA RAVI, JM] I.T.A NO. 1936 /KOL/2 013 ASSESSMENT YEAR : 2008-0 9 THE BANTRA CO-OPERATIVE BANK LTD. -VS- ITO, WARD-46(4), KOLKATA. [PAN: AABCT 2605 G] (APPELLANT) (RESPONDENT) I.T.A NO. 2153 /KOL/2 013 ASSESSMENT YEAR : 2008-0 9 ITO, WARD-46(4), KOLKATA. -VS- THE BANTRA CO-OPERATIVE BANK LTD. [PAN: AABCT 2605 G] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI D. S. DAMLE, FCA SHRI AKKAL DUDHWEWALA, FCA FOR THE RESPONDENT : SHRI S. DASGUPTA, AD DL. CIT(DR) DATE OF HEARING : 06.03.2018 DATE OF PRONOUNCEMENT : 28.03.2018 ORDER PER M.BALAGANESH, AM 1. THESE CROSS APPEALS BY THE ASSESSEE AS WELL AS THE REVENUE ARISE OUT OF THE COMMON ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-XXX, KOLKATA [IN SHORT THE LD CIT(A)] IN APPEAL NO.399/C IT(A)-XXX/WD-46(4)/2010-11 DATED 28.02.2013 AGAINST THE ORDER PASSED BY THE I TO, WARD-46(4), KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE 2 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 2 ACT) DATED 31.12.2010 FOR THE ASSESSMENT YEAR 200 8-09. SINCE IDENTICAL FACTS ARE INVOLVED IN BOTH THE APPEALS, THEY ARE TAKEN UP TOG ETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 1936/KOL/2013 ASSESSEE APPEAL 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF LOSS OF RS 5,22,25 0/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE IS A CO-OPERATIVE BANK CONSTITUTED UNDER THE WEST BENGAL COOPERATIVE SOCIETIES ACT. I T IS GOVERNED BY THE REGULATIONS OF THE SAID STATUTE WITH REGARD TO BANKING SOCIETIES A ND AS A BANK IS FURTHER GOVERNED BY THE BANKING REGULATION ACT, 1949 AND THE RESERVE BANK O F INDIA ACT. BESIDES ITS COMMITMENT TO THE RULES FRAMED UNDER THE COOPERATIV E SOCIETIES ACT TO CONDUCT ITSELF AND ITS BUSINESS THE WAY SAID RULES REQUIRE, IT HAS ALSO TO OBEY EVERY DIRECTION THAT THE RESERVE BANK THINKS FIT TO ISSUE FOR PRUDENTIAL BAN KING OPERATIONS WITHOUT JEOPARDY OF THE PUBLIC TRANSACTING WITH IT. IT HAS TO EXHIBIT ITS AFFAIRS OF BUSINESS IN ITS ACCOUNT AS PER THE RESERVE BANK COMMANDS. THE ACCOUNTS ARE PREPAR ED IN ACCORDANCE WITH THE FORMAT PRESCRIBED BY THE RESERVE BANK OF INDIA AND ITS ACC OUNTS AND DECISIONS ARE DULY SUBJECTED TO INSPECTION BY RBI. THE ASSESSEE IS M ANDATED TO GIVE EFFECT TO THE IMPACT IN ITS ACCOUNTS BASED ON THE OUTCOME OF THE INSPEC TION REPORT OF RBI . 2.2. THE ASSESSEE HELD CERTAIN INVESTMENTS IN GOVER NMENT SECURITIES IN ORDER TO MAINTAIN THE MANDATORY STATUTORY CASH RESERVE RATIO UNDER THE BANKING REGULATION ACT, 1949. THE ASSESSEE HAS TO SET APART A SPECIFIC PAR T OF ITS FUND BY WAY OF DEPOSITS FROM ITS CLIENTS AND CONSERVED IN ACQUISITION OF THE APP ROVED SECURITIES FOR THE PROTECTION OF THE INTEREST OF THE DEPOSITORS. THE BUSINESS OF THE BANK CONSISTS ESSENTIALLY IN MONEY 3 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 3 LENDING . IT ACCEPTS DEPOSITS ON INTEREST FROM THE MEMBERS OF THE PUBLIC REPOSING FAITH IN THE SOUND BANKING POLICY BEING PURSUED BY THE BANK AND THE BANK IN TURN LENDS OUT OF ACCUMULATION OF DEPOSITS TO OTHER PARTIES, THE REMA INDER AFTER INVESTMENTS IN SECURITIES WITH ALL CAUTION AT HIGHER RATE OF INTEREST, I.E HI GHER THAN THE INTEREST RATE PAID BY THE BANK FOR THE DEPOSITS. THEREFORE, THE MONEYS SET A PART IN THE FORM OF APPROVED SECURITIES, INVARIABLY REQUIRED FOR CARRYING ON THE BUSINESS UNDER THE REGULATORY STATUTES IS ITS TRADING ASSETS. THE ASSESSEE EXHIBITED IN ITS INVESTMENT IN GOVERNMENT SECURITIES AND OTHER SECURITIES ACQUIRED BY IT ON PREMIUM , TH E FACE VALUE AS WELL AS THE PREMIUM IN THE THINKING THAT THE FACE VALUE AND THE PREMIUM CO MBINED WOULD REFLECT THE REAL VALUE OF SECURITIES. THE RBI OBJECTED TO THIS AS, ACCORDI NG TO IT, THE PREMIUM SHALL NOT FORM PART OF THE INVESTMENT. ACCORDINGLY, IN THE RBI INS PECTION REPORT, IT WAS REPORTED THAT THE VALUE OF INVESTMENT SHOULD BE LESSER SUM THAN W HAT HAS BEEN FIGURED OUT BY THE ASSESSEE IN THE ACCOUNTS. THUS THE RBI REQUIRED TH E INVESTMENT VALUE TO DECREASE BY THE PREMIUM. IT WAS PLEADED THAT THE RBI IN ITS INSPEC TION REPORT HAD SUGGESTED THE FOLLOWING ACCOUNTING ENTRY TO BE PASSED IN THE ACCO UNTS OF THE ASSESSEE:- P/L A/C DR 5,22,250 TO DIFF. IN INVESTMENT IN GOVT SEC. CR 5,22,250 THE ASSESSEE AFTER PASSING THE AFORESAID ENTRY IN I TS BOOKS CLAIMED A SUM OF RS 5,22,250/- AS DEDUCTION IN ITS RETURN OF INCOME. THE LD AO HELD THAT THE SAME IS ONLY PROVISION MADE AND HENCE NOT ALLOWABLE AS DEDUCTION . ACCORDINGLY, HE DISALLOWED THE SAME IN THE ASSESSMENT, WHICH WAS UPHELD BY THE LD CITA. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 1. FOR THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADD ITION OF RS. 522250/- FAILING TO APPRECIATE THAT THE SAID SUM REPRESENTED ALLOWABLE BUSINESS LOSS UNDER SECTION 28, THOUGH SHOWN IN THE ACCOUNTS UNDE R THE WRONG NOMENCLATURE AS PROVISION FOR DIFFERENCE IN INVESTM ENT. 4 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 4 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD AR ARGUED THAT THE PROVISION HAS BEEN MADE BY THE ASSESSEE PURSUANT TO THE SUGGESTION MAD E IN THE RBI INSPECTION REPORT. THE LD AR STATED THAT SINCE THE ACCOUNTS OF THE ASS ESSEE ARE PRESCRIBED AS PER THE FORMAT GIVEN IN THE BANKING REGULATION ACT, 1949, AND THAT THE RULES FRAMED THEREON WOULD BE GOVERNING THE ASSESSEE ALSO, AND HENCE THE ASSESSEE IS DUTY BOUND TO FOLLOW THE NORMS PRESCRIBED BY THE RBI IN ITS INSPECTION REPORT. HE STATED THAT THIS SUM OF RS 5,22,250/- REPRESENTS INVESTMENTS HELD BY THE ASSESSEE AS STOC K IN TRADE WITH RBI AND THAT CERTAIN BALANCE TO THE TUNE OF RS 5,22,250/- WAS NOT REFLEC TED IN PHYSICAL FORM IN THE RECORDS OF RBI, AND ACCORDINGLY RBI HAD SUGGESTED TO PASS THE AFORESAID ENTRY IN THE BOOKS OF ASSESSEE TILL THE DIFFERENCE IS SOUGHT TO BE FOUND OUT BY THE RBI. HE FURTHER STATED THAT THE ASSESSEE HAD EFFECTIVELY WRITTEN OFF THE PORTIO N OF INVESTMENTS TO THE TUNE OF RS 5,22,250/- IN ITS BOOKS. HE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD REPORTED IN 366 ITR 505 (BOM). WE FIND THAT THE ASSESSEE HAD FURNISHED ONLY THE JOURNAL EN TRY STATED TO BE SUGGESTED BY THE RBI AND HAD PROMISED TO SUBMIT THE INSPECTION REPORT AF TER THE HEARING. WE FIND THAT THE SAID RBI INSPECTION REPORT WAS NOT FURNISHED TO US TO UNDERSTAND THE REAL INTENT BEHIND RBI SUGGESTING THE PROVISION TO BE MADE IN THE SUM OF RS 5,22,250/-. IN THESE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT AND APPROPRIATE, IN T HE INTEREST OF JUSTICE AND FAIRPLAY, TO REMAND THIS ISSUE TO THE FILE OF THE LD AO TO DECID E THIS ISSUE AFRESH IN THE LIGHT OF RBI INSPECTION REPORT. IF IT IS FOUND THAT THE RBI INS PECTION REPORT HAD SUGGESTED THE ASSESSEE TO REMOVE THIS PORTION OF INVESTMENT OF RS 5,22,250/- EITHER IN THE FORM OF PROVISION / WRITE OFF, THEN THE SAME BECOMES A TRAD ING LOSS AS THE INVESTMENTS WERE HELD AS STOCK IN TRADE BY THE ASSESSEE. HENCE THE DECI SION IS TO BE TAKEN BASED ON THE FINDINGS GIVEN IN THE RBI INSPECTION REPORT. ACCORDINGLY, THE GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 5 3. THE NEXT GROUND TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS 7,53, 998/- IN RESPECT OF INVESTMENTS LOST IN TREASURY OFFICE IN THE FACTS AND CIRCUMSTANCES OF T HE CASE. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE HAD MAINTAINED CERTAIN INVESTMENTS WITH WEST BENGAL TREASURY OFFICE AS ASSESSEE BEING A STATE CO-OPERATIVE BANK. CERTAIN INVESTMENTS TO THE TUNE OF RS 7,53,998/- WERE NOT T RACEABLE IN THE RECORDS OF WB TREASURY OFFICE. THE RBI HAD SUGGESTED IN ITS REP ORT THAT THIS DIFFERENCE OF RS 7.54 LACS WAS NOT TRACEABLE BY THE TREASURY OFFICIALS AN D ACCORDINGLY HAD SUGGESTED TO MAKE A PROVISION IN ITS BOOKS BY PASSING THE FOLLOWING ENT RY:- P/L A/C DR 7,53,997.80 TO PROVISION FOR DEPOSIT WITH TREASURY OFFICE CR 7,53,997.80 THE ASSESSEE AFTER PASSING THE AFORESAID ENTRY IN I TS BOOKS CLAIMED A SUM OF RS 7,53,998/- AS DEDUCTION IN ITS RETURN OF INCOME. THE LD AO HELD THAT THE SAME IS ONLY PROVISION MADE AND HENCE NOT ALLOWABLE AS DEDUCTION . ACCORDINGLY, HE DISALLOWED THE SAME IN THE ASSESSMENT, WHICH WAS UPHELD BY THE LD CITA. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 2. FOR THAT THE LD. CIT(APPEALS) ERRED IN CONFIRMING T HE ADDITION OF RS. 753998/- FAILING TO APPRECIATE THAT THE SAID SUM RE PRESENTED ALLOWABLE BUSINESS LOSS UNDER SECTION 28, THOUGH SHOWN IN THE ACCOUNTS UNDER THE WRONG NOMENCLATURE AS PROVISION FOR DEPOSIT WITH TR EASURY OFFICE. 3.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD AR ARGUED THAT THE PROVISION HAS BEEN MADE BY THE ASSESSEE PURSUANT TO THE SUGGESTION MAD E IN THE RBI INSPECTION REPORT. THE LD AR STATED THAT THE DEPOSITS WERE ALSO BY WAY OF FUNDS SET APART AS A SECURITY FOR PROVIDENTIAL MEASURE REQUISITE UNDER THE STATUTORY REGULATION FOR PROTECTION OF THE 6 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 6 INTEREST OF ITS DEPOSITORS. BUT WHEN EVENTUALLY TH E ASSESSEE RECALLED THE DEPOSITS ON MATURITY, THE TREASURY DECLINED TO MEET ITS COMMITM ENT AS THE DEPOSITS WERE REPORTEDLY NOT TRACEABLE AT ITS END. THERE HAS BEEN PROTRACTE D CORRESPONDENCE WITH THE TREASURY FOR RESTITUTION OF THE DEPOSITS BUT WITHOUT AVAIL. ON THESE FACTS, THE RBI IN ITS INSPECTION REPORT REQUIRED THE ASSESSEE TO WRITE OFF THE DEPOS IT FOR A TRUE REFLECTION OF ITS INCOME AND NET WORTH AS SHORTFALL IN PROVISION. THE LD AR ARGUED THAT THERE WAS NO CHOICE FOR THE ASSESSEE IN NOT WRITING OFF THE DEPOSIT BY DEBIT TO PROFIT AND LOSS ACCOUNT. HE STATED THAT THIS DEPOSIT IS ALSO PART OF THE ASSESS EES CIRCULATING CAPITAL AND THE LOSS IS REVENUE LOSS AND HENCE ALLOWABLE U/S 28 OF THE ACT. THE LD AR ALSO STATED THAT THE ASSESSEE BANK SHIFTED ITS ACCOUNTING SOFTWARE TO CO RE BANKING SOLUTION (CBS) WHICH IS THE REGULAR SOFTWARE MAINTAINED FOR ALL BANKS IN IN DIA . IN CBS , UNLESS THE ASSESSEE IS HAVING DISTINCTIVE NUMBERS OF DEPOSIT CERTIFICATES, FOLIO NUMBERS OF INVESTMENT CERTIFICATES ETC, THE SAME CANNOT BE ENTERED INTO C BS AT THE TIME OF MIGRATION FROM EXISTING SOFTWARE TO CBS. HE ALSO STATED THAT DUR ING THE ASST YEAR 2017-18 , WB TREASURY WAS ABLE TO TRACE THE SAID INVESTMENTS AND REPAID TO ASSESSEE WITH INTEREST WHICH WAS OFFERED TO TAX BY THE ASSESSEE IN ASST YE AR 2017-18, WHICH MAY BE DIRECTED TO BE VERIFIED BY THE LD AO. WE FIND THAT THE ASSE SSEE HAS BEEN OFFERING THE INTEREST INCOME ON THESE INVESTMENTS AS INCOME UNDER THE HEA D INCOME FROM BUSINESS IN THE PAST. THESE INVESTMENTS WERE MAINTAINED BY THE ASS ESSEE IN THE REGULAR COURSE OF ITS BUSINESS AND MORE SO THE ASSESSEE BEING A STATE CO- OPERATIVE BANK IS REQUIRED TO MAINTAIN CERTAIN MANDATORY DEPOSITS WITH WB TREASUR Y OFFICE. THE ASSESSEE BASED ON THE SUGGESTION GIVEN IN THE RBI INSPECTION REPORT A ND IN VIEW OF THE FACT THAT WB TREASURY OFFICE WAS NOT ABLE TO TRACE CERTAIN INVES TMENTS HELD BY THE ASSESSEE WITH THEM , DECIDED TO WRITE OFF THE SAME TO THE TUNE OF RS 7 ,53,998/- IN ITS BOOKS OF ACCOUNTS AND CLAIMED THE SAME AS DEDUCTION. THIS LOSS WOULD BE R EGULAR BUSINESS LOSS ALLOWABLE U/S 28 OF THE ACT. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SHREYAS S MORAKHIA REPORTED IN 342 ITR 285 (BOM) HAD HELD AS UNDER:- 14. THE VALUE OF THE SHARES TRANSACTED BY THE ASSESSEE AS A STOCK BROKER ON BEHALF OF ITS CLIENT IS AS MUCH A PART OF THE DEBT AS IS THE BROK ERAGE WHICH IS CHARGED BY THE ASSESSEE 7 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 7 ON THE TRANSACTION. THE BROKERAGE HAVING BEEN CREDI TED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE, IT IS EVIDENT THAT A PART OF THE DEBT IS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THE FACT THAT THE LIABILITY TO PAY THE BROKERAGE MAY ARISE, AS CONTENDED BY THE REVENUE, AT A POINT IN TIME ANTERI OR TO THE LIABILITY TO PAY THE VALUE OF THE SHARES TRANSACTED WOULD NOT MAKE ANY MATERIAL D IFFERENCE TO THE POSITION. BOTH CONSTITUTE A PART OF THE DEBT WHICH ARISES FROM THE VERY SAME TRANSACTION INVOLVING THE SALE OR AS THE CASE MAY BE PURCHASE OF SHARES. SINC E BOTH FORM A COMPONENT PART OF THE DEBT, THE REQUIREMENTS OF SECTION 36(2)(I) ARE FULF ILLED WHERE A PART THEREOF IS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. BE FORE CONCLUDING, WE AGAIN TAKE NOTE OF THE FACT THAT IN PARAGRAPH 31 OF ITS IMPUGNED DE CISION THE TRIBUNAL HAS LEFT THE ISSUE AS REGARDS THE VALUE OF THE SHARES WHICH REMAIN IN THE HANDS OF THE ASSESSEE WHICH HAS TO BE ADJUSTED AGAINST THE AMOUNT RECEIVABLE FROM T HE CLIENT TO BE DETERMINED BEFORE THE REGULAR BENCH OF THE TRIBUNAL FOLLOWING THE VIEW OF THE SPECIAL BENCH. THE VIEW WHICH HAS BEEN TAKEN BY THE SPECIAL BENCH IS, WITH RESPEC T, IN ACCORDANCE WITH LAW. WE ACCORDINGLY DISPOSE OF THE APPEAL BY ANSWERING THE QUESTION OF LAW AS FORMULATED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. THERE SH ALL BE NO ORDER AS TO COSTS. 3.2.1. WE FIND THAT A SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS BONANZA PORTFOLIO LTD REPORTED I N 320 ITR 178 (DEL) , WHEREIN THE MONIES RECEIVABLE FROM THE CLIENT WAS TREATED AS A DEBT AND HENCE IRRECOVERABILITY OF THE SAME IS LIABLE TO BE TREATED AS A BAD DEBT AND WRIT E OFF OF SUCH BAD DEBT WOULD BE SQUARELY ALLOWABLE AS DEDUCTION. THE SIMILAR IS TH E SITUATION IN THE FACTS OF THE PRESENT CASE. IT IS NOT IN DISPUTE THAT THE WB TREASURY WA S NOT ABLE TO TRACE THE INVESTMENTS FOR QUITE A LONG TIME SINCE 2001 AND RBI ACCORDINGLY HA VING WAITED FOR CONSIDERABLE PERIOD OF TIME HAD SUGGESTED THE ASSESSEE TO WRITE OFF THE SAME IN ITS BOOKS, WHICH IN OUR CONSIDERED OPINION, WOULD BE A REGULAR BUSINESS LOS S IN THE LIGHT OF AFORESAID DECISIONS OF HONBLE BOMBAY AND DELHI HIGH COURT. ACCORDINGLY, THE GROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED. 4. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS 51,06,472/- BEI NG THE DIFFERENCE IN VALUE OF DEPOSITS BETWEEN PARTY LEDGERS AND THE GENERAL LEDG ER , IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 8 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 8 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE AGGR EGATE OF BALANCES IN THE PASS BOOKS OF THE DEPOSITORS AND THE AGGREGATE APPEARING IN THE GENER AL LEDGER OF THE BANK AFTER INTRODUCTION OF THE COMPUTERIZED ACCOUNTING RESULTE D IN A MISMATCH TO THE TUNE OF RS 51,06,472/-. THE AGGREGATE OF THE DEPOSITS EXHIBI TED BY THE PASS BOOKS WAS A LARGER SUM THAN THE AGGREGATE IN THE GENERAL LEDGER ACCOUN T FOR THE CUSTOMERS DEPOSITS. THE EXCESS OF THE DEPOSITS IN THE PASS BOOKS OF THE CUS TOMERS OVER THE AGGREGATE OF THE BANKS GENERAL LEDGER WAS TO THE EXTENT OF A SUM OF RS 62.75 LACS. THE ASSESSEE STATED THAT THE COMPUTERIZATION OF THE ACCOUNTS COULD NOT BE INTRODUCED BY THE BANK AT ONE GO AND HAD TO BE DONE PART BYPART IN A PHASED MANNER W ITH LIMITED MANPOWER AND EQUIPMENT. THEREFORE, THE GENERAL LEDGER FOR DEPOS ITORS COULD NOT BE UPDATED FOR A TALLY WITH THE AGGREGATE OF THE BALANCES IN THE PERSONAL LEDGERS OF THE DEPOSITORS. THERE WAS NEITHER THE CONCEPT OF MIGRATION AUDIT TO ENSURE THE MATCHING OF GENERAL LEDGER BALANCE WITH THE AGGREGATE OF THE BALANCES IN THE P ERSONAL LEDGER ACCOUNTS OF THE DEPOSITORS. BUT THE ASSESSEE BANK IS LIABLE TO PAY THE BALANCE APPEARING IN THE PASS BOOK OF EVERY DEPOSITOR WHICH IS THE AUTHENTICATED COPY OF HIS PERSONAL LEDGER ACCOUNT IN THE BOOKS OF ACCOUNT. MOREOVER, THE TRADITIONAL MANUAL ACCOUNTING WAS IN VOGUE BEFORE COMPUTERIZATION WAS PRONE TO CLERICAL OMISSION IN T HE CHAIN OF ENTRIES TO BE MADE FOR TRANSACTIONS OF DEPOSITS. THIS WAS ALSO A CONTRIBU TORY FACTOR FOR THE MISMATCH. THE WRONG LESSER FIGURE STOOD AS IT DOES IN THE GENERAL LEDGER FOR DEFECTS IN ACCOUNTING OVER THE YEARS IN THE LONG PAST BEFORE THE COMPUTERIZATI ON. NOW UNDER THE COMPUTERIZED ACCOUNTING, THE WHOLE CHAIN IS AUTOMATED BY ACCOUNT ING PROGRAMME AND IS PROOF AGAINST SUCH OMISSION. THE RBI INSPECTION REPORT, HOWEVER, FIGURED THE AMOUNT OF SHORTFALL AT RS 51,06,472/- . THE PROVISION HAS BEEN SUGGESTED TO BE MADE IN THE INSPECTION REPORT BY MAKING A CHARGE ON THE PROFIT AND LOSS ACCOUNT O F THE YEAR. THE RBI HAD SUGGESTED TO PASS THE FOLLOWING ENTRY IN THE BOOKS OF THE ASS ESSEE BANK:- P/L A/C DR 51,06,471.91 TO PROVISION FOR DIFF. IN GL PL A/C CR 51,06,47 1.91 9 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 9 THE ASSESSEE AFTER PASSING THE AFORESAID ENTRY IN I TS BOOKS CLAIMED A SUM OF RS 51,06,472/- AS DEDUCTION IN ITS RETURN OF INCOME. THE LD AO HELD THAT THE SAME IS ONLY PROVISION MADE AND HENCE NOT ALLOWABLE AS DEDUCTION . ACCORDINGLY, HE DISALLOWED THE SAME IN THE ASSESSMENT, WHICH WAS UPHELD BY THE LD CITA. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 3. FOR THAT THE LD. CIT(APPEALS) ERRED IN CONFIRMING T HE ADDITION OF RS. 51,06,472/- FAILING TO APPRECIATE THAT THE SAID SUM REPRESENTED ALLOWABLE BUSINESS LOSS UNDER SECTION 28 READ WITH SECTION 29 , THOUGH SHOWN IN THE ACCOUNTS UNDER THE WRONG NOMENCLATURE AS PROVISION FOR DIFFERENCE WITH GL & PL (GENERAL LEDGER & PERSONAL LEDGER). 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD AR ARGUED THAT THOUGH IT IS CATEGORIZED AS PROVISION MADE BY THE ASSESSEE PURSU ANT TO THE SUGGESTION MADE IN THE RBI INSPECTION REPORT , IT IS EFFECTIVELY A WRITE O FF OF THE CIRCULATING ASSETS AS REVENUE LOSS , IN AS MUCH AS, THE PERSONAL LEDGERS OF VARIO US DEPOSITORS WHICH CONTAINS THE NAME AND ADDRESSES OF DEPOSITORS THEREON ARE DULY IDENTI FIABLE AND THAT IT IS SHOWING EXCESS BALANCE OF VALUE OF DEPOSITS WHEN COMPARED TO THAT REFLECTED IN THE GENERAL LEDGER ACCOUNT. HENCE THIS SHORTFALL IN LIABILITY OF AMO UNTS PAYABLE TO DEPOSITORS NEED TO BE PROVIDED IN THE BOOKS OF ASSESSEE BANK AS ADMITTEDL Y THE PERSONAL LEDGER BALANCES WERE FOUND TO BE CORRECT AS THEY ARE SUPPORTED BY PROPER NAMES AND ADDRESSES. ACCORDINGLY, THE RBI IN ITS INSPECTION REPORT HAD SUGGESTED TO C REATE THIS LIABILITY BY INCREASING THE BALANCE OF DEPOSITS IN THE GENERAL LEDGER BY CORRES PONDING DEBIT TO THE PROFIT AND LOSS ACCOUNT. THE LOGIC FOR DEBITING THE PROFIT AND LOS S ACCOUNT IS WELL EXPLAINED IN AS MUCH AS GENERAL LEDGER BALANCE WAS SHORT , MEANING THERE BY, IN THE PAST WHEN MANUAL ACCOUNTS WERE MAINTAINED, THE ASSESSEE HAD OMITTED TO PROVIDE FOR CERTAIN INTEREST ON DEPOSITS IN ITS GENERAL LEDGER, THEREBY REPORTING M ORE PROFIT IN EARLIER YEARS. DURING THIS YEAR, PURSUANT TO THE SUGGESTION MADE BY THE R BI IN ITS INSPECTION REPORT AND IN ORDER TO BRING THE GENERAL LEDGER BALANCE AT PAR WI TH THE PERSONAL LEDGERS OF DEPOSITORS , THE ASSESSEE HAD FURTHER PROVIDED FOR THE DIFFERENC E IN LIABILITY OF DEPOSITS PAYABLE BY 10 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 10 DEBITING ITS PROFIT AND LOSS ACCOUNT. THIS, IN OUR CONSIDERED OPINION, IS SQUARELY ALLOWABLE AS DEDUCTION UNDER THE HEAD INCOME FROM BUSINESS. WE HOLD THAT THEY ARE NOT ADHOC PROVISIONS MADE WITHOUT ANY BASIS. ADMITT EDLY, THE PERSONAL LEDGERS OF DEPOSITORS CONTAINED NAMES AND ADDRESSES OF VARIOUS DEPOSITORS TO WHOM THE ASSESSEE IS OBLIGATED TO REPAY THE DEPOSITS WITH INTEREST ON TH E DATE OF MATURITY. HENCE THERE IS GOING TO BE PHYSICAL OUTFLOW OF MONEY BY THE ASSESS EE IN FUTURE. HENCE IT BECOMES AN ASCERTAINED LIABILITY AND IS SUPPORTED BY PROPER SC IENTIFIC BASIS. IN VIEW OF THESE OBSERVATIONS, WE HOLD THAT THE ASSESSEE IS INDEED E NTITLED FOR CLAIM OF DEDUCTION OF RS 51,06,472/- IN THE ASSESSMENT. ACCORDINGLY, THE GROUND NO. 3 RAISED BY THE ASSESSE E IS ALLOWED. ITA NO. 2153/KOL/2013 REVENUE APPEAL 5. THE ONLY ISSUE TO BE DECIDED IN THE REVENUES AP PEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN ADDITION MADE IN THE SUM OF RS 1,00,00 ,000/- TOWARDS EXCESS PROVISION WRITTEN BACK UNDER THE HEAD RESERVE FOR NPA ACCOU NT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 5.1. THE BRIEF FACTS OF THE CASE IS THAT THE ASSESS EE TRANSFERRED FROM THE RESERVE CREATED OUT OF PROFIT IN THE PAST YEARS TO ITS PROFIT AND L OSS ACCOUNT FOR THE YEAR TO THE TUNE OF RS 1,00,00,000/- . THIS RESULTED IN REFLECTION OF HIG HER PROFIT FOR THE YEAR UNDER APPEAL. THE ASSESSEE SHOWED IT AS EXCESS PROVISION WRITTEN BACK IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSEE OFFERED THE SAME AS INCOME IN THE RETU RN OF INCOME AND DID NOT OBJECT TO THE SAME AT THE TIME OF ASSESSMENT PROCEEDINGS AND HENCE THERE WAS NO OCCASION FOR THE LD AO TO DISCUSS ABOUT THE SAME IN THE ASSESSMENT O RDER. THE RBI OBJECTED TO THIS ACCOUNTING TREATMENT AND STATED IT IS WRONG ACCOUNT ING AND DISTORTS TRUTH BY PRESENTING A WRONG PICTURE OF PROFIT. IT WAS STATED THAT THE RES ERVE BEING ACCUMULATED PAST PROFIT, CAN BE TURNED INTO SHARE CAPITAL BY ISSUING BONUS SHARE S OR CAN BE USED FOR DISTRIBUTION AS 11 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 11 DIVIDEND. TO TREAT THE PAST PROFIT TRANSFERRED TO RESERVE AS CURRENT PROFIT IS WRONG ACCOUNTING. THE FACT OF WRONG ACCOUNTING BY THE A SSESSEE WAS ACCEPTED BEFORE THE RBI BY THE ASSESSEE AND ALSO BEFORE THE LD CITA. ACCO RDINGLY, IT WAS PLEADED THAT THE LD AO OUGHT TO HAVE ELIMINATED IT FROM THE PROFIT AND LOSS ACCOUNT AT THE VERY OUTSET OF THE COMPUTATION AS NO ASSESSMENT CAN BE BASED ON UNREAL INCOME. THE FACT THAT THE RBI SPECIFIES A PARTICULAR ITEM IN THE PROFIT AND LOSS ACCOUNT TO BE INCORRECT MEANS THAT THE SAME IS LIABLE TO BE CORRECTED FOR PROPER INCOME AN D ASSET-LIABILITY RECOGNITION. 5.2. THE LD CITA GAVE RELIEF TO THE ASSESSEE BY OBS ERVING AS UNDER:- 1.2. THE SUBMISSIONS OF THE APPELLANT AND THE CAS E LAWS RELIED UPON IN SUPPORT OF THE SAME HAVE BEEN CONSIDERED. IN RESPECT OF THE ABOVE GROUNDS TAKEN BY THE APPELLANT IT IS SEEN THAT THE AMOUNT OF RS. 1,00,00,000/- HAS BEEN WRITT EN BACK ON ACCOUNT OF EXCESS PROVISIONS MADE UNDER THE HEAD NPA RESERVE ACCOUNT IN THE EARLIER YEAR. IT IS SEEN THAT ALTHOUGH THE CLAIM FOR ALLOWING THIS AMOUNT HAS BEEN MADE FOR TH E FIRST TIME IN APPEAL, THE APPELLANT HAS GIVEN JUSTIFICATION FOR MAKING THE CLAIM IN APPEAL. IN VIEW OF THE DECISIONS IN GOETZE (INDIA) LTD. VS. CIT, 284 ITR 323 AND NTPC LTD. VS. CIT OF THE HON'BLE SUPREME COURT IT IS CLEAR THAT THE APPELLATE AUTHORITY CAN CONSIDER THE CLAIM NOT MADE IN ASSESSMENT PROCEEDINGS, AND RAISED ONLY IN APPEAL CAN BE CONSIDERED. THEREFORE, THE CL AIM WHICH HAS BEEN MADE SUBSEQUENT TO THE ASSESSMENT PROCEEDINGS, ON THE GROUNDS THAT THE RES ERVE AND SUBSEQUENTLY CREDITED IN THE PROFIT AND LOSS ACCOUNT WAS NOT INCOME OF THE CURRE NT YEAR IS BEING CONSIDERED ON MERIT. IT IS SEEN THAT THOUGH THE AMOUNT IN QUESTION HAS BEEN TA KEN AND SHOWN AS INCOME IN PROFIT AND LOSS ACCOUNT OF THE CURRENT YEAR IT WAS AN AMOUNT TRANSF ERRED OUT OF RESERVE OF PROFIT OF EARLIER YEAR. THIS TRANSFER OF THE AMOUNT FROM RESERVE AND SHOWN AS CURRENT PROFIT THEREFORE CANNOT BE CONSIDERED AS INCOME EVEN THOUGH THE SAME HAD BEEN REFLECTED IN THE PROFIT AND LOSS ACCOUNT BY THE APPELLANT. AN AMOUNT CANNOT BE CONSIDERED AS IN COME MERELY BECAUSE THE SAME IS BEING TREATED AS PROFIT MERELY BECAUSE AN ENTRY HAD BEEN MADE IN THE ACCOUNTS OF AN ASSESSEE. IT IS CLEAR FROM THE NARRATIVE OF THE PROFIT AND LOSS ACC OUNT THAT AN AMOUNT HAD BEEN CREDITED IN THE PROFIT AND LOSS ACCOUNT OUT OF THE RESERVE FOR NPA ACCOUNT I.E. PROVISION WRITTEN BACK. THE AMOUNT WAS THEREFORE NOT IN THE NATURE OF CURRENT PROFIT BUT TAKEN FROM THE RESERVE FOR NPA WHICH HAD BEEN CREDITED IN THE EARLIER YEAR. THEREF ORE, ANY AMOUNT TRANSFERRED TO THE RESERVE ACCOUNT IN EARLIER YEARS CANNOT BE TAKEN AS CURRENT YEARS PROFIT. FURTHER THAT IF ANY INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE ANY TAX AND THAT IF AN INCOME HAS NOT MATERIALIZED, THEN MERELY AN ENTRY MADE ABOUT OF HYPOTHETICAL INCOME B Y FOLLOWING BOOK-KEEPING METHOD, THE LIABILITY TO TAX CANNOT BE ATTRACTED. THIS VIEW HAS BEEN UPHELD IN THE CASE OF CIT VS. GODHRA ELECTRICITY CO. 225 ITR 746 (S C). THEREFORE, IT IS HELD THAT THIS AMOUNT CANNOT BE CONSIDERED AS INCOME IN THE CURRENT YEAR MERELY BECAUSE SUCH A N ENTRY HAD BEEN MADE IN THE ACCOUNT. THE TAXABILITY OF SUCH AN AMOUNT IS DETERMINED BY ITS B ASIC NATURE WHICH IS TO BE SEEN AND NOT HOW THE AMOUNT HAS BEEN TREATED IN THE ACCOUNTS. IT IS CLEAR FROM THE FACTS THAT THE AMOUNT WAS ONLY TRANSFERRED FROM NPA RESERVE ACCOUNT IN THE CURRENT YEAR AND WAS NOT IN ANY WAY IN THE 12 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 12 NATURE OF INCOME OF THE APPELLANT IN THE CURRENT YE AR. THEREFORE, THE AO IS DIRECTED TO ALLOW THIS CLAIM OF THE APPELLANT, THESE GROUNDS OF APPEA L ARE ACCORDINGLY ALLOWED. 5.3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A)- XXX,KOLKATA ERRED IN DIRECTING NOT TO TREAT THE EXC ESS PROVISION WRITTEN BACK AMOUNTING TO RS. 1,00,00,000/- UNDER THE HEAD RESE RVE FOR NPA ACCOUNT AS INCOME. 2. THAT WITHOUT TAKING INTO ACCOUNT THE DETAILS OF CREATION OF RESERVE FOR NPA ACCOUNT THE LD. CIT(A)-XXX, KOLKATA ERRED IN DIREC TING NOT TO TREAT THE EXCESS PROVISION WRITTEN BACK AMOUNTING TO RS. 1,00 ,00,000/- UNDER THE HEAD RESERVE FOR NPA ACCOUNT AS INCOME. 3. THAT THE ORDER OF LD. CIT(A)-XXX, KOLKATA IS CONTRA RY TO LAW AND FACTS OF THE CASE. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER AND/O R AMEND, MODIFY, SUBSTITUTE, ALL OR ANY OF THE GROUNDS OF APPEAL DUR ING THE COURSE OF HEARING. 5.4. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND T HAT THE ASSESSEE HAD CREATED RESERVE FOR NPA OUT OF ITS PROFIT AND LOSS APPROP RIATION ACCOUNT (I.E BELOW THE LINE ITEM) IN THE PAST UPTO 31.3.2001 AND HAD SUBSEQUENT LY WRITTEN BACK THE SAME INTO PROFIT AND LOSS ACCOUNT AS EXCESS PROVISION WRITTEN BACK C OMMENCING FROM 31.3.2003 TO 31.3.2008 AS UNDER:- OPENING CREDIT BALANCE IN PROVISION FOR NPA A/C AS ON 1.4.99 59500893 ADD: PROVISION FOR NPA CREATED IN FY 99-00 BY DEBIT TO PROFIT AND LOSS ACCOUNT BUT NO DEDUCTION CLAIMED & ALLOWED IN AY 2000- 01 64918588 BALANCE AS ON 31.3.2000 124419481 ADD: PROVISION FOR NPA CREATED IN FY 00-01 BY DEBIT TO PROFIT AND LOSS ACCOUNT BUT NO DEDUCTION CLAIMED & ALLOWED IN AY 2001- 02 1200000 13 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 13 BALANCE AS ON 31.3.2001 125619481 ADD: PROVISION FOR NPA IN FY 01-02 0 BALANCE AS ON 31.3.2002 125619481 LESS: PROVISION FOR NPA WRITTEN BACK IN P&L A/C FOR FY 2002- 03 83315118 BALANCE AS ON 31.3.2003 42304363 LESS: PROVISION FOR NPA WRITTEN BACK IN P&L A/C FOR FY 2003- 04 2481302 BALANCE AS ON 31.3.2004 39823061 LESS: PROVISION FOR NPA WRITTEN BACK IN P&L A/C FOR FY 2004- 05 6200387 BALANCE AS ON 31.3.2005 33622674 LESS: PROVISION FOR NPA WRITTEN BACK IN P&L A/C FOR FY 2005- 06 0 BALANCE AS ON 31.3.2006 33622674 LESS: PROVISION FOR NPA WRITTEN BACK IN P&L A/C FOR FY 2006- 07 8004000 BALANCE AS ON 31.3.2007 25618674 LESS: PROVISION FOR NPA WRITTEN BACK IN P&L A/C FOR FY 2007- 08 10000000 BALANCE AS ON 31.3.2008 15618674 FROM THE ABOVE TABLE, IT IS EVIDENT THAT WHEN THE R ESERVE FOR NPA IS CREATED OUT OF PROFIT AND LOSS APPROPRIATION ACCOUNT IN THE PAST, THE ASS ESSEE HAD NOT CLAIMED THE SAME AS DEDUCTION IN THE PAST I.E ASST YEARS 2000-01 & 2001 -02. WHEN THE SAID RESERVE FOR NPA IS WITHDRAWN AS NO LONGER REQUIRED AND CREDITED TO PROFIT AND LOSS ACCOUNT, THE SAME WOULD NOT TAKE THE CHARACTER OF INCOME AS IT W OULD ALSO BE CREDITED ONLY IN PROFIT AND LOSS APPROPRIATION ACCOUNT. WE FIND THAT THE R BI HAD CONSIDERED THE ACCOUNTING ERROR COMMITTED BY THE ASSESSEE IN AS MUCH AS THE A SSESSEE HAD CREDITED THE AMOUNT 14 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 14 WITHDRAWN FROM RESERVE FOR NPA TO PROFIT AND LOSS ACCOUNT ( I.E ABOVE THE LINE) INSTEAD OF PROFIT AND LOSS APPROPRIATION ACCOUNT. IT WAS STATED THAT SIMILAR WRITE BACK OF RESERVE FOR NPA TO PROFIT AND LOSS ACCOUNT HAD NO T BEEN TREATED AS INCOME IN THE HANDS OF THE ASSESSEE IN ASST YEARS 2003-04, 2004-05, 200 5-06 AND 2006-07. WE HOLD THAT MERELY BECAUSE THE ASSESSEE ERRONEOUSLY HAD CREDITE D THIS SUM OF RS 1,00,00,000/- IN ITS PROFIT AND LOSS ACCOUNT, THE SAME WOULD NOT ASSUME THE CHARACTER OF INCOME U/S 4 OF THE ACT FOR CONSEQUENTIAL TAXATION THEREON. IN ANY CASE , THE SAME IS NOT EMANATING OUT OF CURRENT YEAR PROFIT . IT ONLY REPRESENTS ACCUMULAT ED PROFITS OF THE PAST WRITTEN BACK TO PROFIT AND LOSS ACCOUNT OF THE YEAR. WE HOLD THAT T HESE FACTS HAD BEEN DULY APPRECIATED BY THE LD CITA IN MAKING THE AFORESAID OBSERVATIONS AND ACCORDINGLY DO NOT FIND ANY INFIRMITY IN HIS ORDER. ACCORDINGLY, THE GROUNDS RA ISED BY THE REVENUE ARE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 28.03.2018 SD/- SD/- [S.S. VISWANETHRA RAVI] [ M.BAL AGANESH ] JUDICIAL MEMBER ACCOUNTANT MEM BER DATED : 28.03.2018 SB, SR. PS 15 ITA NO.1936&2153/KOL/2013 THE BANTRA CO-OPERATIVE BANK LTD. A.YR. 2008-09 15 COPY OF THE ORDER FORWARDED TO: 1. THE BANTRA CO-OPERATIVE BANK LTD., 10, NARASINGH A DUTTA ROAD, KADAMTALA, HOWRAH-711101. 2. ITO, WARD-46(4), KOLKATA, 3, GOVT. PLACE(WEST), KOLKATA-700001. 3..C.I.T.- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S