DCIT, BHILWARA V. M/s. Bhilwara Urban Co-operative Bank Ltd., BHILWARA

ITA 248/JODH/2013

• Counselvise Citation: 24823314 RSA 2013
• Duration Of Justice: 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-11-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 26-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: GAUTAM MUTHA
• Keywords: Business expenditure; Bonafide belief; Difference of opinion
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NO.248/JODH/2013 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME TAX, VS. M/S. BHILWARA U RBAN CO- CIRCLE, BHILWARA. OPERATIVE BANK LIMITED, NAGORI GARDEN, BHILWARA. (PAN: AAAKB 9938 Q). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.A. JOSHI, D.R. RESPONDENT BY : SHRI P.C. PARWAL & SHRI GAUTAM MUTHA DATE OF HEARING : 21.11.2013 DATE OF PRONOUNCEMENT : 28.11.2013 ORDER PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2009 -10 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), AJMER DATED 22.02.2013. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A CO-OPERATIVE SOCIETY WHICH CARRYING ON BUSINESS OF BANKING AND F OLLOWS MERCANTILE SYSTEM OF ACCOUNTING. FOR A.Y. 2009-10, THE SOCIETY FILED IT S RETURN OF INCOME ON 29.09.2009 2 ITA NO.248/JODH/2013 A.Y. 2009-10 DECLARING TOTAL INCOME OF RS.1,16,34,569/-. THE AS SESSEE CO-OPERATIVE BANK IS GOVERNED BY RBI AND RAJASTHAN CO-OPERATIVE SOCIETY ACT. DURING THE YEAR, THE ASSESSEE CLAIMED A SUM OF RS.7,20,911/- ON ACCOUNT OF AMORTIZATION OF PREMIUM UNDER THE HEAD OTHER EXPENSES IN THE P&L ACCOUNT. AS PER THE A.O. THE PREMIUM PAID ON GOVERNMENT SECURITIES HAS TO BE TREATED AS CAPITAL IN NATURE AND NOT REVENUE IN NATURE. ACCORDINGLY, HE DISALLOWED EXPENSES OF RS.7,20,911/-. THE LD. CIT(A) HAS DELETED THIS ADDITION BY RELYING ON CBDT INSTRU CTION NO.17/2008 DATED 26.11.2008 AND THE DECISION OF THE HONBLE MUMBAI B ENCH OF ITAT IN THE CASE OF ACIT VS. BANK OF RAJASTHAN LIMITED. THE REVENUE IS NOW AGGRIEVED. 3. WE HAVE HEARD BOTH THE SIDES AND CAREFULLY PERUS ED THE ENTIRE RECORDS. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE HAVE FOUND THA T AS PER THE GUIDELINES OF THE RBI, EVERY BANK IS REQUIRED TO MAINTAIN IN INDIA AT THE CLOSE OF BUSINESS EVERY DAY A MINIMUM PROPORTION OF THEIR NET DEMAND AND TIME L IABILITIES AS LIQUID ASSETS IN THE FORM OF CASH, GOLD AND UNENCUMBERED APPROVED SE CURITIES WHICH IS KNOWN AS STATUTORY LIQUIDITY RATIO (SLR). THE SLR RATE RELE VANT TO THE YEAR UNDER CONSIDERATION IS 25% OF ITS DEMAND AND TIME LIABILI TIES. TO FULFILL THE ABOVE REQUIREMENT OF MAINTAINING SLR, THE ASSESSEE BANK P URCHASES GOVERNMENT SECURITIES OF FIXED INTEREST RATE FROM TIME TO TIME AT THE PREVAILING MARKET RATE. THESE SECURITIES ARE FOR A FIXED PERIOD AND THE RAT E OF INTEREST IS ALSO FOUND TO BE 3 ITA NO.248/JODH/2013 A.Y. 2009-10 FIXED. THE ASSESSEE RECEIVES INTEREST AT A FIXED RATE TILL THE DATE OF MATURITY WHICH IS CREDITED IN THE P&L ACCOUNT OF THE BANK. AT THE TIME OF MATURITY THE BANK RECEIVES THE FACE VALUE OF SECURITIES. WHEN MARKET VALUE OF PURCHASE IS HIGHER THAN THE FACE VALUE THEN THE AMOUNT PAID OVER AND ABOVE THE FACE VALUE IS TREATED AS PREMIUM. THE RBI ISSUED CIRCULARS/GUIDELINES REGAR DING THE INCOME RECOGNITION AND ASSET CLASSIFICATION REGULARLY. AS PER THE RBI GUIDELINES DATED16.10.2000 BANKS ARE REQUIRED TO CLASSIFY ITS INVESTMENTS UNDE R THREE CATEGORIES I.E. (1) HELD TO MATURITY (HTM) (2) AVAILABLE FOR SALE AND (3) HELD FOR TRADING. THE CBDT INSTRUCTION NO.17/2008 DATED 26.11.2008 (ENCLOSED A T PAPER BOOK PAGE NOS.3 4) HAS ISSUED A CHECK LIST FOR DEDUCTIONS IN CASE OF A SSESSMENT OF BANKS, WHERE AS PER PARA (VII) IT HAS BEEN DIRECTED TO ALLOW THE DEDUCT ION IN RESPECT OF PREMIUM OVER AND ABOVE REMAINING PERIOD OF MATURITY. THE HONBL E MUMBAI BENCH OF ITAT IN THE CASE OF ACIT VS. BANK OF RAJASTHAN LIMITED HAS CONSIDERED THE SIMILAR ISSUE AND HAS HELD THAT SINCE THE CLAIM OF THE ASSESSEE W AS AS PER THE RBI GUIDELINES AND CBDT HAD ALSO ISSUED DIRECTIONS TO ALLOW PREMIUM TO BE AMORTIZED OVER REMAINING PERIOD TILL THE DATE OF MATURITY, THE A.O. IS DIREC TED TO ALLOW THE CLAIM OF THE ASSESSEE. WE HAVE NOT FOUND ANY FAULT IN THE ABOVE FINDING OF THE LD. CIT(A). ACCORDINGLY, WE CONFIRM THE SAME. 4 ITA NO.248/JODH/2013 A.Y. 2009-10 4. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE D ISALLOWANCE MADE BY THE A.O. OF RS.2,93,532/- ON ACCOUNT OF MEMBER INSURANC E PREMIUM WITHOUT APPRECIATING THE FACTS OF THE CASE. 5. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSES SEE HAD CLAIMED A SUM OF RS.2,93,532/- IN THE P&L ACCOUNT ON ACCOUNT OF INSU RANCE PREMIUM PAID FOR ITS MEMBERS/SHARE HOLDERS. THE A.O. FOUND THAT THE MEM BERS INSURANCE IS NOT AS A RESULT OF ANY GUIDELINES ISSUED BY RBI. HE ALSO OB SERVED THAT THE BANK IS A SEPARATE ENTITY FROM ITS SHARE HOLDERS AND THE CHEQ UES OF CLAIMS RECEIVED IN THE NAME OF DECEASED FAMILY MEMBERS WERE NOT BEING CRED ITED IN ASSESSEES BANK ACCOUNT. ACCORDINGLY, HE DISALLOWED EXPENDITURE OF RS.2,93,532/- AND HAS NOT TREATED THE SAME AS BUSINESS EXPENDITURE. 6. AS AGAINST THE ABOVE, THE LD. CIT(A) HAS DELETED THE IMPUGNED ADDITION. THE LD. CIT(A) HAS, HOWEVER, DELETED THIS ADDITION ON T HE PREMISE THAT THE ASSESSEE HAS SHOWN THE INCOME FROM BANKING BUSINESS AND INSURANC E WAS FOR INCREASING THE NUMBER OF MEMBERS/SHARE HOLDERS OF THE BANK. BEFOR E US, SIMILAR ARGUMENTS WERE MADE. 5 ITA NO.248/JODH/2013 A.Y. 2009-10 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, IN THE LIGHT OF THE OBTAINING FACTS OF THE CASE, IT IS FOUND THAT THE MAIN OBJECT OF THE A SSESSEE SOCIETY IS TO ENCOURAGE THRIFT, SELF HELP AND CO-OPERATION AMONG MEMBERS. TO ACHIEVE THESE OBJECTIVES, THE ASSESSEE SOCIETY LAUNCHED A SCHEME OF GROUP ACCIDEN TAL INSURANCE IN THE YEAR 2004- 05. WE HAVE NOTICED THAT THE ASSESSEE BANK HAS DEC IDED TO CONTINUE THIS INSURANCE POLICY WHEREBY THE MEMBER IS INSURED FOR AN AMOUNT OF RS.1,00,000/- EACH AND FOR SUCH INSURANCE PREMIUM OF RS.2,93,532/- WAS PAID. FOR THE YEAR UNDER CONSIDERATION, THERE WERE 3 ACCIDENTAL DEATHS AGAIN ST WHICH RS.1,00,000/- EACH WAS RECEIVED FROM THE INSURANCE COMPANY AND THE SAME WA S CREDITED IN THE BANK ACCOUNT OF THE DECEASED OF THESE PERSONS WITH THE A SSESSEE, WHICH IN TURN WAS UTILIZED EITHER IN MAKING THE FDRS WITH THE BANK OR ADJUSTED AGAINST THEIR TERM LOAN. THIS INSURANCE CLAIM SO RECEIVED BY THE MEMB ERS RESULTED IN INCREASE OF DEPOSIT OF THE BANK OR THE RECOVERY OF THE LOAN GIV EN BY THE BANK. THEREFORE, THE INSURANCE PREMIUM SO PAID IS IN COMMERCIAL EXPEDIEN CY AND HAS TO BE ALLOWED AS AN EXPENDITURE. IN THE CASE OF CIT VS. ORACLE INDI A (P) LTD., 199 TAXMAN 181 (DEL) IT WAS HELD THAT IT IS SETTLED LAW THAT IT IS NOT OPEN TO THE DEPARTMENT TO ADOPT A SUBJECTIVE STANDARD OF REASONABLENESS AND DISALLO W A PART OF BUSINESS EXPENDITURE AS BEING UNREASONABLY LARGE, OR DECIDE WHAT TYPE OF EXPENDITURE THE ASSESSEE SHOULD INCUR AND IN WHAT MANNER. THE A.O. CAN CONF INE HIMSELF TO DECIDE PROFITS 6 ITA NO.248/JODH/2013 A.Y. 2009-10 AND GAINS OF BUSINESS OR PROFESSION. THEREFORE, IN OUR CONSIDERED OPINION, THE LD. CIT(A) HAS CORRECTLY DELETED THE ABOVE ADDITION. 8. IN GROUND NO.3, THE A.O. HAS DISALLOWED RS.15,68 2/- ON ACCOUNT OF REPAIR AND MAINTENANCE. DURING THE YEAR THE ASSESSEE CLAI MED RS.33,947/- AS AMC CHARGES OF REPAIRS & MAINTENANCE OF MACHINERY, UPS SYSTEMS ETC. THE A.O. HAS OBSERVED THAT OUT OF AMC CHARGES, RS.5,077/- RELATE D TO F.Y. 2009-10 AND RS.10,605/- RELATED TO F.Y. 2007-08. THEREFORE, HE DISALLOWED THE SAME AS NOT PERTAINING TO THE YEAR UNDER CONSIDERATION. THUS, HE DELETED THE IMPUGNED ADDITION. THE ENTIRE EXPENDITURE IS ALLOWABLE IRRE SPECTIVE OF THE FACT THAT THE PERIOD OF AMC EXPENSES IS EVEN AFTER CLOSING OF THE YEAR. SIMILAR AMC PAYMENTS WERE ALLOWED IN A.Y. 2008-09 WHICH WAS CLAIMED IN THAT Y EAR AND ALLOWED AS DEDUCTION EVEN THOUGH PERIOD OF AMC WAS EXTENDED UPTO THE YEA R UNDER CONSIDERATION. ACCORDINGLY, DISALLOWANCE OF RS.15,682/- IS NOT IN ORDER AND HENCE THE SAME HAS BEEN CORRECTLY DELETED BY THE CIT(A). 9. THE FACTS APROPOS GROUND NO.4 OF APPEAL ARE PERT AINING TO DELETION OF ADDITION MADE BY THE A.O. ON ACCOUNT OF UNEXPLAINED INCREASE IN THE SHARE CAPITAL OF RS.5,50,000/- & RS.1,25,000/- IN THE NAME OF SMT . UMA SHARMA AND WELLCURE PATHLAB & DIAGNOSTICS RESPECTIVELY ARE THAT DURING THE YEAR THE ASSESSEE HAD 7 ITA NO.248/JODH/2013 A.Y. 2009-10 RECEIVED FRESH SHARE CAPITAL OF RS.69,95,800/- FROM 410 MEMBERS. THE A.O. WANTED CONFIRMATION ETC. FROM THE APPLICANTS WHO HA D APPLIED FOR CAPITAL SHARE MORE THAN RS.1,00,000/-. THE ASSESSEE FURNISHED RE QUIRED DETAILS BY PRODUCING REQUISITE PROOF IN RESPECT OF SUCH 5 PERSONS. OUT OF 5 PERSONS, IT WAS OBSERVED BY THE A.O. THAT SMT. UMA SHARMA AND WELLCURE PATHLAB & DIAGNOSTICS HAD NOT FILED THEIR RETURNS OF INCOME FOR THE RELEVANT A.Y. THE A.O. RECORDED THEIR STATEMENTS WHO HAVE CONFIRMED THEIR INVESTMENTS IN THE SHARE C APITAL OF THE ASSESSEE. HE WAS NOT SATISFIED ABOUT THE CREDITWORTHINESS AND GENUIN ENESS OF THESE PARTIES, THEREFORE, HE ADDED RS.6,75,000/- BECAUSE THEY HAVE NOT FILED THEIR RESPECTIVE RETURNS OF INCOME FOR THE YEAR. HOWEVER, IN APPEAL, THE CIT(A ) HAS DELETED THIS ADDITION. NOW THE REVENUE IS IN APPEAL. 10. AFTER HEARING BOTH THE SIDES, WE FIND THAT IN C ASE OF SMT. UMA SHARMA WHO INVESTED RS.5,50,000/- IN THE SHARE CAPITAL OF THE ASSESSEE COMPANY, HER PAN WAS PRODUCED AND HER STATEMENT WAS RECORDED. SHE HAS A CCEPTED HAVING MADE THE ABOVE INVESTMENT. SIMILAR IS THE CASE OF WELLCURE PATHLAB & DIAGNOSTICS WHO INVESTED RS.1,25,000/- TOWARDS SHARE CAPITAL OF THE ASSESSEE COMPANY. THE LAW IN RESPECT OF SHARE APPLICATION STANDS SETTLED. WHEN THE ASSESSEE PROVES THE IDENTITY AND THE FACTUM OF SHARE APPLICATION, NO FURTHER PRO OF IS REQUIRED FROM ASSESSEES SIDE. SUCH CAPITAL INVESTMENT CANNOT BE ADDED IN T HE HANDS OF THE ASSESSEE 8 ITA NO.248/JODH/2013 A.Y. 2009-10 COMPANY BECAUSE THE ASSESSEE HAS FULFILLED THE REQU ISITE CONDITIONS. THE LD. CIT(A) HAS CORRECTLY MADE THE IMPUGNED DELETION. A CCORDINGLY, GROUND NO.4 OF THE REVENUES APPEAL STANDS DISMISSED. 11. GROUND NO.5 RELATES TO THE DELETION OF DISALLOW ANCE MADE OF RS.1,66,577/- BY THE A.O. THE FACTS OF THIS ISSUE ARE THAT THE ASSE SSEE PAID RS.2,08,221/- AS MICR CHEQUE CLEARING CHARGES ON WHICH TDS WAS DEDUCTED A T THE RATE OF 2%. THE A.O. HAS OBSERVED THAT TAX IS DEDUCTIBLE UNDER SECTION 1 94J OF THE ACT @ 10% AS THE NATURE OF PAYMENT IS A FEES FOR PROFESSIONAL AND TE CHNICAL SERVICE. THEREFORE, HE HAS MADE PROPORTIONATE DISALLOWANCE OF RS.1,66,577/ - UNDER THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. ON THE CONTRARY, THE LD. CIT(A) HAS DELETED THIS ADDITION BY RELYING ON THE DECISION OF MERILYN SHIP PING & TRANSPORTS VS. ACIT, 136 ITD 23 (VISAKHAPATNAM) (S.B.) WHEREIN IT HAS BE EN HELD THAT SECTION 40(A)(IA) IS APPLICABLE ONLY TO THE AMOUNTS OF EXPENDITURE WH ICH ARE PAYABLE AS ON 31 ST MARCH OF EVERY YEAR AND CANNOT BE INVOKED TO DISALL OW EXPENDITURE WHICH HAVE BEEN FULLY PAID DURING THE PREVIOUS YEAR WITHOUT DE DUCTION OF TDS. THE ASSESSEE HAD ALSO PLEADED THAT IT WAS UNDER THE BONAFIDE BEL IEF THAT TAX IS DEDUCTABLE ON MICR CHEQUE CLEARING CHARGES @ 2% AND, THEREFORE, D ISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT IS NOT CALLED FOR. THIS ISSUE WAS NOT DEALT WITH BY THE LD CIT(A). 9 ITA NO.248/JODH/2013 A.Y. 2009-10 12. BEFORE US, BOTH THE PARTIES HAVE REITERATED THE IR OWN SUBMISSIONS. AFTER CONSIDERING THEM, WE FIND THAT THE ASSESSEE HAS BEE N REGULARLY DEDUCTING THE TAX AT SOURCE ON MICR CHEQUE CLEARING CHARGES UNDER SECTIO N 194C OF THE ACT. THERE IS NO DISPUTE BETWEEN THE PARTIES ABOUT THIS FACT. WH EN THE ASSESSEE HAS DEDUCTED TAX AT THE RATE OF 2% BY CONSIDERING IT AS A PAYMENT TO WARDS CARRYING OUT THE WORK AS AGAINST 10% PAYMENT BY THE A.O. AFTER CONSIDERING I T AS A PAYMENT TOWARDS TECHNICAL SERVICES FOR WHICH THERE SEEMS TO BE HONE ST DIFFERENCE OF OPINION. THEREFORE, DISALLOWANCE UNDER SECTION 40(A)(IA) IS NOT CALLED FOR. WE MAY REFER TO THE DECISION OF CIT VS. S.K. TEKRIWAL (2013) 90 DTR 26 (CAL) (HIGH COURT) AND THAT OF HERO MOTO CORP. LTD. VS. ACIT, 91 DTR 1 (DE LHI) (TRIBUNAL) WHICH SUPPORTS THE BONAFIDE BELIEF PARTICULARLY WHEN THE ASSESSEE HAS BEEN TAKING PARTICULAR COURSE OF ACTION IN DEDUCTING TDS. ACCO RDINGLY, WE DO NOT FIND ANY FALLACY IN THIS FINDING OF LD. CIT(A) AS WELL. 13. IN THE RESULT, APPEAL OF THE REVENUE STANDS DIS MISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 28.11.2013) SD/- SD/- (N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28 TH NOVEMBER, 2013 10 ITA NO.248/JODH/2013 A.Y. 2009-10 PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, JODHPUR BENCH, JODHPUR 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, JODHPUR