Asst. Commissioner of Income Tax, Circle- 1(1), Panaji V. M/s . Goa State Co-op. Co. Op. Bank Ltd., Panaji

ITA 221/PAN/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93450 (ITAT-PANAJI)
• Duration Of Justice: 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 11-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 27-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANGARI
• Assessee Lawyers: VENKATESH J SHENAI
• Keywords: Depreciation; Rule of consistency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI GEORGE MATHAN , HONBLE JUDICIAL MEMBER AND SHRI N.K. BILLAIYA , HONBLE ACCOUNTANT MEMBER ITA NO. 2 21 /PNJ/2014 (ASST. YEAR : 20 1 0 - 1 1 ) ACIT, CIRCLE - 1(1), PANAJI GOA. VS. M/S. THE GOA STATE CO OPERATIVE BANK LTD., GROUND FLOOR, SAHAKAR SANKUL, PATTO, PANAJI G OA. PAN NO. AAA A T 3364 R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VENKATESH J. SHENAI - CA DEPARTMENT BY : SHRI M.R. BANGARI - D.R. DATE OF HEARING : 11 / 0 6 /2015 . DATE OF PRONOUNCEMENT : 11 / 0 6 /201 5 . O R D E R PER N.K. BILLAIYA WITH THIS APPEAL, THE REVENUE HAS CHALLENGED THE CORRECTNESS OF THE ORDER OF THE LD. CIT(A), PANAJI, DAT E D 19/ 0 3/2 0 14 PERTAINING TO A.Y. 2010 - 11 . 2. THE SUBSTANTIVE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS UNDER : 2 ITA NO. 221/PNJ/2014 2 . THE LD. CIT(A) HAS ERRED IN DELETING ADDITION ON ACCOUNT OF PROVISION FOR STANDARD ASSET ON THE GROUND THAT STANDARD ASSETS IS DIMINUTION IN VALUE OF STOCK - IN - TRADE, WERE CBDT INSTRUCTION STATES THAT PROVISION CREATED BY BANKS ON DIFFERENT ACCOUNTS CANNOT CONSTITUTE DEDUCTIBLE EXPENDITURE FOR THE PURPOSE OF INCOME - TAX, HENCE PROVISION FOR STANDARD ASSET IS NOT ALLOWABLE FOR DEDUCTION U N DER I.T. ACT. 3. THE LD. CIT(A) HAS ERRED I N DELETING ADDITION ON ACCOUNT OF PROVISION FOR INVESTMENT DEPRECIATION RESERVE ON THE GROUND THAT IT IS DEDUCTIBLE EXPENDITURE, THE LOSS INCURRED BY THE BANK DUE TO FRAUD, EMBEZZ LEMENT OF FUNDS AT THE TIME OF INVESTMENT IN BONDS IS BEING WRITTEN OFF IN PH ASED MANNER OVER A PERIOD OF THREE YEARS FROM A.Y. 2008 - 09 TO 2010 - 11 , WHEN THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING CONSTANTLY OVER THE YEARS, WHERE EXPENDITURE TO BE ALLOWED IN THE YEAR WHEN LIABILITY GETS CRYSTALLIZED I.E. A.Y. 200 7 - 08 AS HELD BY THE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS PVT. LTD. 188 ITR 44. 3 . THE FIRST GRIEVANCE RELATES TO THE DELETION OF ADDITION ON ACCOUNT OF PROVISION FOR STANDARD ASSET . W HILE SC R U T INIZING THE RETURN OF INCOME , THE ASSESSING OFFICER NOTICED TH A T A SUM OF RS. 17,41,464/ - WAS DEBITED UNDER PROVISION FOR STANDARD ASSETS . CLARIFICATION WAS SOUGHT ON THE PROVISION CREATED UNDER THE STANDARD ASSETS . IT WAS EXPLAINED THAT STANDARD ASSET PROVISION HAS BEEN CREATED AS PER STATUTORY REQUIREMENT OF RBI. THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT IN VIEW OF THE INSTRUCTIONS ISSUED BY THE CBDT ON ASSESSMENT OF BANK, PROVISION CREATED BY THE BANKS ON DIFFERENT ACCOUNTS CANNOT CONSTITUTE DEDUCTIBLE EXPENDITURE 3 ITA NO. 221/PNJ/2014 FOR THE PURPOSES OF INCOME - TAX. THE ASSESSING OFFICER ADDED THE PROVISION OF RS. 17,41,464/ - TO THE RETURNED INCOME OF THE ASSESSEE. BEFORE THE LD. CIT(A), IT WAS EXPLAINED THAT THE RBIS MANDATORY DIRECTIONS ARE BINDING TO BE ADHERED TO BY THE ASSESSEE COOPERATIVE BANK & ACCOUNTS OF THE ASSESSEE BANK HAS TO BE MAINTAINED IN ACCORDANCE WITH THE RBI DIRECTION ISSUED UNDER THE BANKING REGULATION ACT, 1949 . RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. NAINITAL BANK LTD. (55 ITR 707) . AFTER CONSIDERING THE FACTS AND SUBMISSIONS AND THE DECISIONS RELIED UPON BY THE ASSESSEE, THE LD. CIT(A) OBSERVED THAT THE PROVISION FOR STANDARD ASSET IS THE DIMINUTION IN THE VALUE OF STOCK - IN - TRADE AND THE SAME IS ALLOWABLE U/S. 28(1) OF THE ACT. 4 . AGGRIEVED BY THIS, REVENUE IS BEFORE US. 5. LEARNED DR RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER. COUNSEL HAD NOTHING TO ADD TO THE FINDINGS OF THE LD. CIT(A). 6 . WE HAVE CAREFULLY GONE THROUGH THE ORDER S OF THE AUTHORITIES BELOW . THE ISSUE BEFORE US IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE 4 ITA NO. 221/PNJ/2014 SUPREME COURT IN THE CASE OF NAINITAL (SUPRA) , WHICH HAS BEEN FOLLOWED BY THE LD. CIT(A) . T HEREFORE, NO INTERFEREN CE IS CALLED FOR. FIRST GRIEVANCE IS DISMISSED. 7. THE SECOND GRIEVANCE RELATES TO THE DELETION OF ADDITION ON ACCOUNT OF LOSS INCURRED BY BANK DUE TO FRAUD . 8. THIS ISSUE HAS BEEN CONSIDERED BY THE ASSESSING OFFICER AT PARA 4 ON PAGE 3 OF HIS ORDER , WHEREIN THE ASSESSING OFFICER OBSERVED THAT RS. 35 C RORES IS BEING WRITTEN OFF IN A PHASED MANNER OVER A PERIOD OF THREE YEARS AS PER RBI DIRECTIONS FROM THE A.Y. 2008 - 09 TO 2010 - 11 . THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE PROVISION ON INVESTMENT DEPRECIATION S H O U L D N O T B E D I S A L L O W E D RESERVE SINCE IT IS A NOTIONAL LOSS AND IT HAS BEEN SPREAD OVER THREE YEARS . IT WAS EXPLAINED THAT THE PROVISIO N UNDER THIS HEAD IS ON ACCOUNT OF FRAUD INCURRED BY THE BANK ON INVESTMENT WITH IIBI BONDS AND NTBCL BONDS AND THIS IS AN ACTUAL LOSS OF RS. 35 C RORES INCURRED BY THE BANK ON TOTAL INVESTMENT OF RS. 55 CRORES . THIS EXPLANATION OF THE ASSESSEE WAS DISMISSED BY THE ASSESSING OFFICER HOLDING THAT SINCE THE ASSESSEE HAS NEVER INVESTED AT ALL, IT CANNOT BE TERMED AS BUSINESS LOSS, RATHER THIS IS A CA P ITAL LOSS TO THE BANK AND HENCE NOT ALLOWABLE. IT WAS BROUGHT TO THE NOTICE OF THE 5 ITA NO. 221/PNJ/2014 ASSESSING OFFICER THAT ALTHOUGH THE INVESTMENT PERTAINS TO F.Y. 2004 - 05, THE RBI HAS ALLOWED THE BANK TO MAKE A PROVISION F OR THE LOSS IN PHASED MANNER IN THREE FINANCIAL YEARS . ACCORDINGLY, THE ENTIRE PROVISION OF RS. 35 CRORES HAS BEEN CLAIMED BY THE BANK AS DEDUCTION IN F.Y S . 2007 - 08 , 2008 - 2009 & 2009 - 10 . THE ASSESSING OFFICER WAS OF THE OPINION THAT RBI GUIDELINES CANNOT OVERRIDE THE PROVISIONS OF THE ACT. DRAWING SUPPORT FROM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS PVT. LTD. (188 ITR 44 ), THE ASSESSING OFFICER REJECTED THE CLAIM OF DEDUCTION OF RS. 15.82 C RORES AND ADDED TO THE RETURNED INCOME OF THE ASSESSEE. THE ASSESSEE STRONGLY AGITATED THIS ISSUE BEFORE THE LD. CIT(A) AND REITERATED ITS CONTENTIONS. AFTER CONSIDERING THE FACTS IN ISSUE AND THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) OBSERVED THAT THERE HAS BEEN EMBEZZLEMENT OF BANK FUNDS . S HARES AND SECURITIES WHICH WERE NOT TRADED THROUGH ANY RECOGNIZED STOCK - EXCHANGE . THIS EMBEZZLEMENT OF FUNDS WERE DONE BY THE EMPLOYEES OF THE BANK IN CONNIVANCE WITH SOME BROKERS. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSING OFFICER HIMSELF HAS ACCEPTED THE LOSS FOR A.Y. 2008 - 09 & 2009 - 10. THEREFORE, THERE WAS NO REASON FOR TAKING DIFFERENT VIEW FOR THE YEAR UNDER CONSIDERATION. REGARDI NG THE YEAR , IN WHICH THE LOSS SHOULD HAVE BEEN CLAIMED , IF IT WAS CLAIMED IN A .Y. 2007 - 08, THE ASSESSEE WOULD SHOW A HUGE LOSS, 6 ITA NO. 221/PNJ/2014 WOULD NOT PAY ANY TAX AND INVESTOR AND DEPOSITOR SENTIMENTS WOULD BE SHATTERED WHICH WOULD, IN TURN, BE DETRIMENTAL TO CARRYING ON THE BUSINESS OF THE ASSESSEE BANK . THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW LOSS OF RS. 15.82 CRORES. 9. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 10. LEARNED DR COULD NOT ADD ANYTHING TO WHAT ASSESSING OFFICER HAS ALREADY MENTIONED IN HIS ASSESSMENT ORDER . COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY. 11. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT THERE WAS A N EMBEZZLEMENT/FRAUD BY THE EMPLOYEES OF THE BANK TO THE TUNE OF RS. 35 CRORES . IT IS ALSO AN UNDISPUTED FACT THAT RBI ASKED THE ASSESSEE TO WRITE OFF THE LOSS IN PHASED MANNER . IT IS ALSO AN UNDISPUTED FACT THAT LOSS ES WRITTEN OFF IN F.Y. 2007 - 08 & 2008 - 09 HAVE BEEN ACCEPTED BY THE ASSESSING OFFICER. THIS IS THE LAST YEAR OF THE WRITE OFF WHEREIN THE DISPUTE HAS ARISEN B REACHING THE RULE OF CONSISTENCY . UNDOUBTEDLY , THE LOSS ON ACCOUNT OF FRAUD SHOULD BE WRITTEN OFF IN THE YEAR OF DE TE CTION OF FRAUD. CONSIDERING THE PECULIARITY OF THE PRESENT CASE , IN THE LIGHT OF THE 7 ITA NO. 221/PNJ/2014 GUID E LINES OF THE RBI , W E AGREE WITH THE FINDINGS OF THE LD. CIT(A) AND DECLINE TO INTERFERE. THIS GRIEVANCE OF THE REVENUE IS ALSO DISMISSED. 12 IN THE RESULT, APPEA L FILED BY THE REVENUE IS DISMISSED. ( ORDER PRONOUNCED IN THE OPEN COURT ON 1 1 TH JUNE , 201 5 ). S D / - S D / - ( GEORGE MATHAN ) ( N.K. BILLA I YA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 1 1 T H JUNE , 201 5 . VR/ - COPY TO: 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE LD. CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI 8 ITA NO. 221/PNJ/2014 DATE INITIAL ORIGINAL DICTATION PAD IS ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 1 1 .06.2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 1 1 .06.2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 1 1 /06/2015 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 1 1 /06/2015 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 1 1 /06/2015 SR.PS 6. DATE OF PRONOUNCEMENT 1 1 /06/2015 SR.PS 7. FILE SENT TO THE BENCH CLERK /06/2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER