Ernakulam District Co-op Bank Ltd, Cochin V. Dy.Director of Income Tax(Exemption), Cochin

ITA 343/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81356 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 13-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-07-2014
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: K GOPI
• Keywords: Bonafide belief; Earning of tax free income; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NOS. 342&343/COCH/2014 ASSESSMENT YEARS : 2008-09 & 2009-10 ERNAKULAM DISTRICT CO-OPERATIVE BANK LTD., HEAD OFFICE, KAKKANAD, ERNAKULAM,KOCHI-682 030. [PAN: AABAT 4386L] VS. JOINT DIRECTOR OF INCOME-TAX (OSD) (EXEMPTION), RANGE-4, ERNAKULAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI K. GOPI. CA REVENUE BY SHRI M. ANIL KUMAR, CIT(DR) DATE OF HEARING 13/10/2014 DATE OF PRONOUNCEMENT 14/11S/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE TWO APPEALS FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED PASSED BY THE LD CIT(A) FOR THE AY. 2. THE FIRST ISSUE IN GROUND NOS. 1&2 FOR OUR CONSI DERATION RELATE TO THE CLAIM MADE UNDER SECTION 36(1)(VIIA). 3. THE BRIEF FACTS AS NARRATED IN I.T.A. NO. 342/CO CH/2014 ARE THAT THE ASSESSEE IS A CO-OPERATIVE BANK FILED THE RETURN O F INCOME FOR ASSESSMENT YEAR 2008-09 ON 30-09-2008 DECLARING AN INCOME OF R S.1,68,68,864/-. THE I.T.A. NOS.342&343/COCH/2014 2 RETURN WAS REVISED ON 18-03-2009 DECLARING A TOTAL INCOME OF RS.1,53,69,816/-. THE ASSESSING OFFICER COMPLETED T HE ASSESSMENT VIDE HIS ORDER UNDER SECTION 143(3) OF THE I.T. ACT DATED 30 -12-2010 AT A TOTAL INCOME OF RS. 89,11,33,130/- BY MAKING ADDITIONS/DI SALLOWANCE IN RESPECT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS DEBITED TO P&L ACCOUNT UNDER SECTION 36(1)(VIIA) AND 36(1)(VIII) AND ADDITION UN DER SECTION 41(1) OF THE I.T. ACT. THE ASSESSING OFFICER OBSERVED THAT THE A SSESSEE-BANK HAS CLAIMED DEDUCTION UNDER SECTION 36(1)(VIIA) AMOUNTING TO RS .67,50,20,304/- IN RESPECT OF 42 BRANCHES IDENTIFIED AS RURAL BRANCHES CONSISTING OF THE FOLLOWING: PROVISION FOR OVERDUE INTEREST RS.12,95,53069/- PROVISION FOR UNRENEWED OVERDRAFT RS. 1,65,46,235/- PROVISION FOR NPA RS.35,39,21,000/- PROVISION FOR BAD DEBTS RS.17,50,00,000/- THE ASSESSING OFFICER HELD THAT THE PROVISIONS CRE ATED BY THE ASSESSE TOWARDS OVERDUE INTEREST, INTEREST ON UNRENEWED OVERDRAFT C ANNOT BE CONSIDERED AS PROVISION FOR BAD AND DOUBTFUL DEBTS OBSERVING AS F OLLOWING: PROVISION FOR OVERDUE INTEREST ON NPA IS NOT AT AL L A PROVISION MADE BY THE ASSESSEE FOR BAD AND DOUBTFUL DEBTS. IT IS ONLY A PROVISION CREATED IN RELATION TO INTEREST CREDITED TO THE P&L ACCOUNT AS REQUIRED BY THE CO-OP DEPARTMENT AUDITOR S. IT CANNOT, THEREFORE, BE REGARDED AS A PROVISION FOR A DEBT AND AS SUCH CANNOT BE ALLOWED AS A DEDUCTION UNDER SECT ION 36(1)(VIIA). DEDUCTION CLAIMED OF RS.12,95,53,068/ - IS DISALLOWED. I.T.A. NOS.342&343/COCH/2014 3 3.1 THE ASSESSING OFFICER HAS ALSO HELD THAT THE PROVISION FOR NPA IS ONLY A PROVISION AS PER RBI GUIDELINES AND CANNOT B E TREATED AS PROVISION FOR BAD AND DOUBTFUL DEBTS. ACCORDING TO THE ASSESSING OFFICER THOUGH THE BAD AND DOUBTFUL DEBTS IS NOT D EFINED IN THE SEC. 36(1) (VIIA), THE DEFINITION AS GIVEN IN RULE 6EB OF THE I.T. RULES IS APPLICABLE AND ACCORDINGLY A DEBT WHICH HAS REMAINE D NON PERFORMING FOR A PERIOD EXCEEDING TWO YEARS CAN ONL Y BE CATEGORIZED AS A DOUBTFUL DEBTS AND ALSO ALL NON PERFORMING ASS ET NEED NOT BECOME DOUBTFUL DEBTS. ACCORDING TO THE ASSESSING OFFICER A DEBT REMAINING NON-PERFORMING FOR A SHORT PERIOD CANNOT THEREFORE BE REGARDED AS BAD DEBT. ACCORDINGLY THE ASSESSING OF FICER ESTIMATED SUCH PROVISION OF RS.35,39,21,000/-. THUS THE ASSE SSING OFFICER COMPUTED THE PROVISION FOR BAD AND DOUBTFUL DEBTS E LIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VIIA) TO BE THE TOTAL OF RS.5,30,88,150 + 17,50,00,000,I.E., R.22,80,88,150/- AS AGAINST RS .67,50,20,304/- CLAIMED BY THE ASSESSEE. 3.2 THE ASSESSING OFFICER ALSO HELD THAT NONE OF T HE BRANCHES FALLS UNDER THE DEFINITION OF RURAL AREA AS PER EXPLANATI ON(IA) OF THE ABOVE SECTION AS ALL THESE BRANCHES HAVE RELIANCE ON THE DECISION OF KERALA HIGH COURT IN THE CASE OF LORD KRISHNA BRANCH VS. C IT (339 ITR 606) IN WHICH IT WAS HELD AS UNDER: I.T.A. NOS.342&343/COCH/2014 4 A RURAL BRANCH HAS TO BE ALWAYS IN RURAL AREAS AND THE PLACE REFERRED CAN EASILY BE TAKEN AS VILLAGE. SEVERAL W ARDS MAY COME WITHIN A VILLAGE, WHETHER IT BE IN CORPORATION, MUN ICIPALITY OR PANCHAYATS. THERE CAN BE NO VILLAGE IN A MUNICIPAL OR CORPORATION AREA WHERE THE POPULATION IS LESS THAN 10000. SO MU CH SO, RURAL BRANCHES ARE SUCH BRANCHES LOCATED IN A VILLAGE WHE RE THE POPULATION IN THE VILLAGE IS LESS THAN 10000. 3.3 THE ASSESSING OFFICER HAS HELD THAT IN VIEW OF THE ABOVE DECISION THE CONTENTION OF THE ASSESSEE THAT THE PO PULATION HAS TO BE RECKONED IN ALIGNMENT WITH THE WARDS IN WHICH THE B RANCH IS SITUATED CANNOT BE ACCEPTED. ACCORDINGLY, THE ASSESSING OFFI CER DID NOT CONSIDER THE ADVANCES MADE BY THE BRANCHES OF THE A SSESSEE IN COMPUTING THE AVERAGE RURAL ADVANCES FOR COMPUTING THE DEDUCTION UNDER SECTION 36(1)(VIIA) AND ALLOWED DEDUCTION ONL Y AT 7.5% OF THE GROSS TOTAL INCOME. 4 BEFORE THE CIT(A) THE LD. AR SUBMITTED THAT ALL T HE PROVISIONS CREATED TOWARDS ADVANCES DOUBTFUL OF RECOVERY (CONS ISTING OF PRINCIPAL AMOUNT OF ADVANCES GIVEN AND INTEREST TAK EN CREDIT IN THE P&L ACCOUNT AS INCOME) HAVE TO BE CONSIDERED AS PRO VISION FOR BAD AND DOUBTFUL DEBTS. DESCRIPTION OF THE ACCOUNTS GI VEN TO IDENTIFY VARIOUS TYPE OF ACCOUNTS TO COMPLY WITH INTERNAL GU IDELINES/INCOME HAS NO RELEVANCE IN THE INCOME TAX PROCEEDINGS. TH E LD. AR SUBMITTED THAT WHILE THE ASSESSING OFFICER HELD THA T THE PROVISION FOR OVERDUE INTEREST AND INTEREST ON UNRENEWED OVERDUE ARE NOT I.T.A. NOS.342&343/COCH/2014 5 PROVISIONS FOR BAD AND DOUBTFUL DEBTS, THE ASSSESSE E HAD CREATED THE PROVISION SINCE THE RECOVERY OF INTEREST WAS DOUBTF UL. IT WAS CONTENDED THAT BANKS INTEREST RECEIVABLE ON LOANS C ONSTITUTES DEBTS RECEIVABLE AND THAT THE PROVISION FOR NPA IS NOTHIN G BUT PROVISION FOR BAD AND DOUBTFUL DEBTS AS PROVISION FOR NPA. FOR T HIS, THE LD. AR RELIED ON THE DECISION OF VIJAYA BANK LTD. VS. CIT (323 ITR 163)(KAR.) AND SUPREME COURT IN THE CASE OF VIJAYA BANK LTD. V S. CIT (323 ITR 166) (SC). 4.1 THE LD. AR SUBMITTED THAT IT IS FOR THE MANAGEM ENT OF THE BANK TO DECIDE, BASED ON ALL PARAMETERS AND FACTS, AS TO WHICH OF THE DEBTS HAVE BECOME BAD AND DOUBTFUL AND IT IS NOT FO R THE ASSESSING OFFICER TO STATE THAT OUT OF THE AGGREGATE PROVISIO N CREATED ONLY TO CERTAIN EXTENT PROVISION CAN BE ALLOWED AS BAD AND DOUBTFUL DEBTS. THE LD. AR RELIED ON THE JUDGMENT OF THE KERALA HIG H COURT IN THE CASE OF KSIDC VS. CIT (281 ITR 413) WHEREIN IT WAS HELD THAT BAD DEBT MEANS CHANCES OF RECOVERY IS REMOTE AND IT NE ED NOT NECESSARILY BE UNRECOVERABLE. THE LD. AR FURTHER SUBMITTED THAT AS PER THE PROVISIONS OF SECTION 36(1)(VIIA) ALL TYPES OF PROVISIONS FOR BAD AND DOUBTFUL ADVANCES ARE CREATED AS PER THE RU LES AND REGULATIONS OF THE BANKS AS PER WHICH CERTAIN MINIM UM PROVISIONS OF BAD AND DOUBTFUL ADVANCES ARE MANDATORY. HOWEVER, PROVISION CAN I.T.A. NOS.342&343/COCH/2014 6 BE CREATED EVEN UPTO 100% OF THE ADVANCES WHICH HAV E BECOME BAD AND DOUBTFUL. 4.2 THE LD. AR ALSO SUBMITTED THAT THE DEFINITION O F RURAL BRANCH AS PER EXPLANATION (IA) TO SEC. 36(1)(VIIA) IS NOT A PPLICABLE TO IT SINCE IT IS A CO-OPERATIVE BANK. THE ASSESSEE SUBMITTED THAT THE SAID DEFINITION COVERS ONLY SCHEDULED AND NON-SCHEDULED BANK. ACCORDING TO THE LD. AR THE INTENTION OF THE LEGISLATURE IS T O PROMOTE BANKING BUSINESS IN RURAL AREAS. HOWEVER, SINCE SCHEDULED C OMMERCIAL BANKS OPERATES IN ALL AREAS OF THE SOCIETY, BOTH URBAN AS WELL AS RURAL, IT IS IMPORTANT THAT WHAT CONSTITUTES A RURAL BRANCH IN T HE CASE OF A SCHEDULED BANK IS CLEARLY DEFINED IN ORDER TO ENSUR E THAT THE OBJECT OF LEGISLATION IS ACHIEVED. AS REGARDS CO-OPERATIV E BANKS, ACCORDING TO THE LD. AR, THERE IS NO SUCH REQUIREMENT AS THE CO-OPERATIVE BANKS OPERATE LARGELY IN THE RURAL AREAS. THE LD. AR ALSO SUBMITTED THAT THE CO-OPERATIVE BANKS ARE SUBJECT TO THE ADMI NISTRATIVE CONTROL OF THE RURAL DEPARTMENT OF THE RESERVE BANK OF INDI A AND NATIONAL AGRICULTURAL AND RURAL DEVELOPMENT BOARD. THE LD. A R SUBMITTED THAT BY SPECIFICALLY EXCLUDING THE CO-OPERATIVE BAN KS FROM THE DEFINITION OF RURAL BRANCHES GIVEN IN SEC. 36(1)(VI IA), IT IS CLEAR THAT THE INTENTION OF THE LEGISLATURE IS TO EXTEND THE BENEFITS OF SEC. 36(1)(VIIA) TO ALL THE BRANCHES OF CO-OPERATIVE BAN KS. HOWEVER, FOR I.T.A. NOS.342&343/COCH/2014 7 THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 36( 1)(VIIA), THE LD. AR SUBMITTED THAT THE ASSESSEE HAS TAKEN ONLY THE B RANCHES IN THE RURAL AREAS AND HAS EXCLUDED THE BRANCHES SITUATED IN URBAN AREAS. 5. THE LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 6. THE CIT(A) RELIED ON THE ORDER OF THE COCHIN BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR A.Y. 2007-0 8 IN I.T.A. NO. 689/COCH/2010 DATED 12-10-2012 AND HELD THAT THE AS SESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VIIA ) OF THE ACT. BEING SO, THIS GROUND IS REJECTED IN BOTH THE APPEALS. 6.1 AS REGARDS THE PROVISION FOR NPA, OVERDUE INTE REST, UN-RENEWED OVERDRAFT BEING NOT ELIGIBLE TO BE TREATED AS PROVI SION FOR BAD AND DOUBTFUL DEBTS FOR THE PURPOSE OF DEDUCTION UNDER S ECTION 36(1)(VIIA), THE CIT(A) JUSTIFIED THE DECISION OF T HE AO BY RELYING ON THE ORDER OF THE COCHIN BENCH OF THE TRIBUNAL IN TH E CASE OF THE KANNUR DISTRICT CO-OPERATIVE BANK LTD. VS. ACIT IN I.T.A. NO. 323/COCH/2010 FOR A.Y. 2007-08 DATED 23-03-2012 WIT H THE FOLLOWING OBSERVATIONS: ON A CAREFUL PERUSAL OF RELEVANT PROVISIONS OF PAR T V OF THE BANKING REGULATION ACT, 1949, WE NOTICE THAT THE TE RM BANKING COMPANY ALSO INCLUDES A CO-OPERATIVE BAN K. THUS A CO-OPERATIVE BANK FALLS UNDER THE DEFINITION OF BANKING I.T.A. NOS.342&343/COCH/2014 8 COMPANY. FURTHER AS PER THE DEFINITION GIVEN IN E XPLANATION UNDER SECTION 36(1)(VIIA) OF THE INCOME TAX ACT, A BANKING COMPANY AS DEFINED IN SECTION 5(C) OF THE BANKING REGULATION ACT, WHICH IS NOT A SCHEDULED BANK IS CLASSIFIED AS A NON- SCHEDULED BANK. CONSEQUENTLY, A CO-OPERATIVE BANK , IN OUR VIEW, WOULD BE CLASSIFIED AS A NON-SCHEDULED BANK FOR THE PURPOSES OF SECTION 36(1)(VIIA) OF THE INCOME TAX A CT. ACCORDINGLY, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO UNDER SECTION 36(1)(VIIA) OF THE I.T. ACT. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 7 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE CORD. THIS ISSUE IS ALSO COVERED AGAINST THE ASSESSEE BY THE O RDER OF THE TRIBUNAL IN CASE OF THE KANNUR DISTRICT CO-OPERATIV E BANK VS. ACIT IN I.T.A. NO. 323/COCH/2010 FOR A.Y. 2007-08 DATED 23- 03-2012. BY FOLLOWING THE ABOVE TRIBUNAL ORDER, WE ARE INCLINED TO CONFIRM THE ORDER OF THE CIT(A) AND DECIDE THE ISSUE AGAINST TH E ASSESSEE. THIS GROUND OF THE ASSESSEE IS DISMISSED. 8. THE NEXT GROUND IS WITH REGARD TO ASSESSMENT OF RS.18,50,00,000/- UNDER SECTION 41(1)OF THE I.T. AC T IN I.T.A. NO. 342/COCH/2014. 9. THE BRIEF FACTS ARE THAT THE ASSESSEE HAD CREATE D RESERVED FOR BAD DEBTS, AMOUNTING TO RS.18,50,00,000/- IN EARLIE R YEARS. IT WAS CONTENDED THAT THE SAID AMOUNT WAS NOT CLAIMED/ALLO WED IN THE I.T.A. NOS.342&343/COCH/2014 9 RETURN OF INCOME IN EARLIER YEARS. IN THE A.Y. 2008 -09, THE ASSESSEE CREDITED THE SAME IN THE P&L ACCOUNT AND CLAIMED TH E SAME AS A DEDUCTION. THE AO DISALLOWED THE SAME ON THE GROUN D THAT THE ASSESSEE HAS ALREADY CLAIMED THE SAME UNDER SECTION 36(1)(VIIA) AS PROVISION FOR BAD DEBTS. 10. ON APPEAL, THE CIT(A) OBSERVED THAT SINCE TILL A.Y. 2006-07, THE ASSESSEE WAS ENJOYING 100% DEDUCTION UNDER SECT ION 80P ON ITS TOTAL INCOME, THE ASSESSEE WAS ALREADY PROVIDED BEN EFIT IN A.Y. 2007-08, WHEN INCOME OF RS.36,99,83,797/- COMPRISIN G OF RS.24,00,47,467/.TOWARDS BAD AND DOUBTFUL DEBTS, RS . 11,63,41,828/- TOWARDS OVERDUE INTEREST AND OF RS. 1,35,94,502/- ON ACCOUNT OF INTEREST ON UNRENEWED OVERDUE SHOWN IN A .Y. 2007-08 WAS ALLOWED TO BE EXCLUDED FROM TOTAL INCOME, AS TH IS AMOUNT WAS ALREADY INCLUDED IN EXEMPT INCOME OF A.Y. 2006-07. ACCORDING TO THE CIT(A), ONCE DEDUCTION UNDER SECTION 80P WAS ALLOWE D IN A.Y. 2006- 07 ON THE WHOLE INCOME OF RS.87,10,19,083/- WHICH I NCLUDED RESERVE FOR BAD AND DOUBTFUL DEBTS OF RS.37,50,47,467/-, TH EN ANY CARRY FORWARD OF ANY CLAIM FROM THAT YEAR DOES NOT ARISE. THE CIT(A) ALSO OBSERVED THAT GIVEN THE METHOD OF ACCOUNTING OF THE ASSESSEE, IN SPITE OF THE FACT THAT INCOME OF RS.36,99,83,797/- THAT WAS INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE IN A.Y. 2007-08 , THE SAME WAS ALLOWED TO BE EXCLUDED IN COMPUTATION OF INCOME AS RELATING TO A.Y. I.T.A. NOS.342&343/COCH/2014 10 2006-07. THE CIT(A) HELD THAT IF ASSESSEE CLAIMS T HE DEDUCTION OF RS. 18,50,00,000/- IN SUBSEQUENT YEAR, I.E., 2008-0 9, MAINTAINING THAT IT WAS NOT CLAIMED IN EARLIER YEARS, THEN THE CORRESPONDING INCOME OF RS. 36,99,83,797/- EXCLUDED FROM A.Y. 200 7-08 WOULD ALSO HAVE TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSE SSEE IN THIS YEAR. THE CIT(A) FURTHER OBSERVED THAT SINCE WITH EFFECT FROM A.Y. 2007- 08, ASSESSEE WAS NOT CLAIMING DEDUCTION UNDER SECTI ON 80P ALL THE PROVISIONS, DISALLOWANCES AND INCOME RELATING TO A. Y. 2006-07 WOULD HAVE TO BE RECKONED WITH, SPECIFICALLY WHEN ALL SUC H DEDUCTIONS ALREADY INCLUDED IN EXEMPT INCOME OF RS.87,10,19,08 3/- UNDER SECTION 80P THAT HAS BEEN ALLOWED IN A.Y. 2006-07, AND HENCE, THERE IS NO CASE FOR CARRY FORWARD OF ANY SUCH AMOUNT/PRO VISION IN A.Y. 2008-09. THE CIT(A) NOTICED THAT WHILE CLAIMING DE DUCTION OF RS. 68,50,20,304/- UNDER SECTION 36(1)(VIIA), THE ASSES SEE HAS INCLUDED SIMILAR AMOUNT OF RS.18,50,00,000/- AS PROVISION FO R BAD DEBT. FURTHER, IN THIS ASSESSMENT YEAR, IN ADDITION TO DE DUCTION OFRS.68,50,20,304/- THAT INCLUDED THIS AMOUNT, ANOT HER SAME AMOUNT OF RS.18,50,00,000/- WAS ALSO CLAIMED AS NOT TAXABL E AS THE SAME HAS BEEN CLAIMED TO HAVE BEEN OFFERED FOR TAX IN AS SESSMENT YEAR 2007-08 AND SUCH DEDUCTION WAS ALLOWED BY THE AO. UNDER THESE CIRCUMSTANCES, THE CIT(A) OBSERVED THAT THE ASSESSI NG OFFICER WAS RIGHT IN STATING THAT SIMILAR AMOUNT WAS ALREADY IN CLUDED IN THE I.T.A. NOS.342&343/COCH/2014 11 DEDUCTION CLAIMED UNDER SECTION 36(1)(VIIA)IN THIS ASSESSMENT YEAR. ACCORDINGLY, THE CIT(A) CONFIRMED THE ADDITION OF R S.18,50,00,000/-. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. AS POINTED OUT BY THE CIT(A), AN AMOUNT OF RS.18,50,00,000/- H AS ALREADY BEEN INCLUDED IN THE DEDUCTION CLAIMED BY THE ASSESSEE U /S. 36(1)(VIIA) OF THE I.T. ACT IN THE EARLIER YEAR AND ONCE AGAIN TO ALLO W DEDUCTION TOWARD THIS AMOUNT WOULD AMOUNT TO DOUBLE DEDUCTION WHICH IS NO T PERMISSIBLE UNDER THE ACT. IN VIEW OF THE ABOVE, WE ARE INCLINED TO CONFIRM THE ORDER OF THE LOWER AUTHORITIES ON THIS ISSUE. ACCORDINGLY, THIS GROUND IS DISMISSED IN I.T.A. NO. 342/COCH/2014. 12. AS REGARDS THE GROUND RELATING TO CLAIM OF D EDUCTION U/S. 36(1)(VIIA) IN I.T. A. NO. 343/COCH/2014, WE FIND THAT THE FACT S ARE IDENTICAL AS IN I.T.A. NO. 342/COCH/2014. IN VIEW OF THE FINDING IN I.T.A . NO. 342/COCH/2014, WE ARE INCLINED TO DISMISS THIS GROUND OF THE ASSESSEE IN I.T.A. NO. 342/COCH/2014.. I.T.A. NOS.342&343/COCH/2014 12 13. THE NEXT GROUND RELATES TO DISALLOWANCE OF INTE REST PAID TO WELFARE BOARDS U/S. 40(A)(IA) OF THE I.T. ACT IN I.T.A. NO. 343/COCH/2014.. 14. THE BRIEF FACTS OF THE CASE ARE THAT WHILE MAKI NG PAYMENTS, THE ASSESSING OFFICER NOTICED THAT TDS WAS NOT DEDUCTED ON THE PRESCRIBED RATE. WHILE MAKING THIS DISALLOWANCE, THE ASSESSING OFFIC ER OBSERVED THE FOLLOWING: THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON THE PAYMENTS MADE TO THE FOLLOWING CUSTOMERS: KERALA STATE CO-OPERATIVE EMPLOYEES PENSION FUND : 4690995 KERALA HEADLOAD WORKERS WELFARE BOARD :18470646 KERALA BUILDING AND OTHER CONSTRUCTION WORKERS WELFARE BOARD : 2854029 KERALA STATE CO-OPERATIVE EMPLOYEES WELFAR E FUND : 2864397 KERALA TODDY WORKERS WELFARE BOARD : 3212609 KERALA ABKARI WORKERS WELFARE FUND BOARD : 2305259 THE ASSESSING OFFICER REJECTED THE CONTENTION OF TH E ASSESSEE THAT THE ABOVE WELFARE BOARDS ARE CONSTITUTED UNDER VARIOUS ACTS O F THE STATE GOVERNMENT AND ARE HENCE COVERED BY THE NOTIFICATION NO. SO 34 89 DATED 22/10/1070 OF THE GOVERNMENT OF INDIA TO ANY CORPORATION ESTABLIS HED BY A CENTRAL OR STAT OR PROVINCIAL ACT. ACCORDING TO THE ASSESSING OFFI CER, THE BOARDS ARE NOT REGISTERED UNDER THE INCOME TAX ACT AND AS SUCH SEC TION 11 DOES NOT APPLY. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASS ESSEE HAS PAID INTEREST TO THESE ENTITIES WITHOUT DEDUCTION OF TAX AT SOURC E AND IN THE ABSENCE OF A I.T.A. NOS.342&343/COCH/2014 13 CERTIFICATE U/S. 197. THUS THE INTEREST PAYMENT OF RS. 3,43,97,935/- WAS DISALLOWED BY THE ASSESSING OFFICER U/S. 40A(IA) OF THE ACT. 15. ON APPEAL, THE CIT(A) OBSERVED THAT THE PROVISI ONS FOR DEDUCTION OF TAX ARE MANDATORY AND IT IS FOR THE REVENUE TO CHEC K WHETHER ON ANY STATE GOVERNMENT AUTHORITY TDS IS REQUIRED OR NOT. ACCOR DING TO THE CIT(A), ONLY WHEN A CERTIFICATE U/S. 197 IS ISSUED BY THE A SSESSING OFFICER, THAT THE TDS MAY NOT BE DEDUCTED IN MAKING THE PAYMENT TO AN Y CLASS OF ASSESSEES. ACCORDING TO THE CIT(A), THE ASSESSEES BONA FIDE B ELIEF THAT TDS IS NOT REQUIRED TO BE DEDUCTED BECAUSE THEY ARE GOVERNMENT UNDERTAKING AND DO NOT HAVE PAN IS MISPLACED AND IT DEFEATS THE WHOLE PURPOSE AND REQUIREMENT OF DEDUCTING TDS AT SOURCE. HENCE, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 40( A)(IA). AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 16. THE LD. AR SUBMITTED THAT THE ASSESSING OFFICER WAS NOT CORRECT IN DISALLOWING THE INTEREST PAID BY THE ASSESSEE AGGRE GATING TO RS.3,43,97,935/- TO CERTAIN WELFARE BOARDS CONSTITU TED BY VARIOUS ACTS OF THE STATE GOVERNMENT U/S. 40A(IA) OF THE ACT FOR VA RIOUS REASONS. ACCORDING TO THE LD. AR, THE AMOUNT INCLUDES AMOUNT ACTUALLY PAID DURING THE YEAR AND PROVISIONS OF SECTION 40(A)(IA) IS NOT APPLICABLE TO AMOUNTS ACTUALLY PAID. THE LD. AR PLACED RELIANCE ON THE J UDGMENT OF THE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES P. LTD. I.T.A. NOS.342&343/COCH/2014 14 17. THE LD. AR ALSO PLACED RELIANCE ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD. (327 ITR 323) WHEREIN IT WAS HELD THAT SINCE BOTH THE REVENUE AND THE ASSESS EE WERE UNDER THE BONAFIDE BELIEF FOR NEARLY A DECADE THAT TAX WAS NO T DEDUCTIBLE AT SOURCE, THEN NO FAULT CAN BE FOUND WITH THE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE IN THE ASSESSMENT YEAR IN QUESTION. 18. THE LD. AR ALSO SUBMITTED THAT WELFARE BOARDS H AVE BEEN IN EXISTENCE FOR A CONSIDERABLE PERIOD OF TIME AND ARE CONSTITUTED UNDER VARIOUS ACTS BY THE STATE GOVERNMENT AND ARE UNDER ITS DIRECT ADMINISTRATIVE CONTROL AND NONE OF THE SAID BOARDS HAVE BEEN ASSESSED TO TAX SINCE ITS INCEPTION AND EVEN DID NOT HAVE PAN. ACCORDING TO THE LD. AR THE BOARDS ARE CONSTITUTED BY THE STATE GOVERNMENT UNDER VARIOUS ACTS AND ARE NOT ASSESSABLE TO INCOME TAX AND ACCORDINGLY, I S EXEMPT FROM SECTION 194A AND NO TDS IS REQUIRED TO BE DEDUCTED ON THE P AYMENTS MADE TO THEM. THE LD. AR SUBMITTED THAT EVEN THOUGH SEC. 1 94A WAS INTRODUCED W.E.F. 1.4.1967, BOTH THE REVENUE AND THE ASSESSEE PROCEEDED ON THE BASIS THAT THESE BOARDS ARE NOT ASSESSABLE TO TAX AND SEC TION 194A WAS NOT APPLICABLE ON THE INTEREST PAID TO SUCH WELFARE BOA RDS AND ACCORDINGLY, NEITHER THE ASSESSEE HAS DEDUCTED TDS NOR THE REVEN UE HAS RAISED ANY OBJECTION OR INITIATED ANY PROCEEDINGS FOR NOT DEDU CTING TDS. THE LD. AR I.T.A. NOS.342&343/COCH/2014 15 SUBMITTED THAT IN THESE CIRCUMSTANCES, THE ASSESSEE IS NOT AT FAULT FOR NOT DEDUCTING THE TAX AT SOURCE AND CONSEQUENTLY, DISAL LOWANCE U/S. 40(A)(IA) CANNOT BE MADE IN THE ASSESSEES CASE. 18.1 THE LD. DR RELIED ON THE ORDER OF THE LOWER A UTHORITIES. 19. WE HAVE HEARD BOTH THE PARTIES. WE FIND A SIMIL AR ISSUE CAME UP FOR CONSIDERATION OF THE COCHIN BENCH OF TRIBUNAL IN TH E CASE OF KARIVELLOOR SERVICE CO-OPERATIVE BANK LTD. VS. ITO IN I.T.A. NO . 311/COCH/2012 VIDE ORDER DATED 22-03-2013 WHEREIN IT WAS HELD AS UNDER : 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EI THER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE CA SE OF KADACHIRA SERVICE CO-OPERATIVE BANK LTD. (SUPRA), THIS TRIBUNAL FOUND THAT THE TAXPAYERS WERE NOT CARRYING ON ANY BANKING ACTIVITY AND, THER EFORE, THEY ARE AGRICULTURAL COOPERATIVE SOCIETIES. IN VIEW OF THE SPECIFIC PROVISIONS EXEMPTING THE AGRICULTURAL CO-OPERATIVE SOCIETIES F ROM DEDUCTION OF TAX IN RESPECT OF AGRICULTURAL CO-OPERATIVE SOCIETIES THIS TRIBUNAL FOUND THAT SECTION 194A(3)(VIIA) IS NOT APPLICABLE TO AGRICULT URAL CO-OPERATIVE SOCIETIES. IN THIS CASE, IT APPEARS THAT THE TAXPAY ER WAS ACCEPTING DEPOSITS AND MAINTAINING SAVINGS BANK ACCOUNT AND CURRENT BA NK ACCOUNT. THE TAXPAYER IS PROVIDING CHEQUE FACILITIES TO ITS CUST OMERS. APART FROM THIS, THE TAXPAYER IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF CEMENT, HARDWARE, MEDICINE AND HOME APPLIANCES. THE LOAN AP PEARS TO HAVE BEEN GIVEN ON PLEDGING OF GOLD JEWELLERY AND MORTGAGE OF LAND. IN VIEW OF THE ADMITTED FACT THAT THE TAXPAYER IS MAINTAINING SAVI NGS ACCOUNT, CURRENT ACCOUNT AND PROVIDING CHEQUE FACILITY TO ITS CUSTOM ERS, IT IS OBVIOUS THAT THE TAXPAYER IS ENGAGED ITSELF IN THE BUSINESS OF B ANKING APART FROM OTHER TRADING ACTIVITIES. EXEMPTION U/S. 194A(3)(VIIA) IS APPLICABLE ONLY IN RESPECT OF AGRICULTURAL COOPERATIVE SOCIETIES. THE AGRICULTURAL COOPERATIVE BANKS ARE BOUND TO DEDUCT TAX. IN THIS CASE, ADMITT EDLY, THE TAX PAYER IS ENGAGED IN THE BANKING ACTIVITY AND MAINTAINING SAV INGS BANK ACCOUNT, CURRENT ACCOUNT AND PROVIDING CHEQUE FACILITY TO IT S CUSTOMERS. THEREFORE, THE TAXPAYER IS BOUND TO DEDUCT TAX IN RESPECT OF I NTEREST ON THE DEPOSITS. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE DECISION IN I.T.A. NOS.342&343/COCH/2014 16 THE CASE OF KADACHIRA SERVICE COOPERATIVE BANK LTD. (SUPRA) MAY NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. ACCORD INGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE CONFIRMED. 20. BEING SO, THIS ISSUE IS IDENTICAL AND THE FACT S ARE ALSO SIMILAR TO THE ONE CONSIDERED BY THIS BENCH OF THE TRIBUNAL IN THE EARLIER OCCASION, WE ARE INCLINED TO DECIDED THE ISSUE AGAINST THE ASSESSEE. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISSED IN I.T.A. NO. 343/COCH /2014. 21. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 14-11-2014 SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 14 TH NOVEMBER, 2014 GJ COPY TO: 1. ERNAKULAM DISTRICT CO-OPERATIVE BANK LTD., HEAD O FFICE, KAKKANAD, ERNAKULAM,KOCHI-682 030. 2. JOINT DIRECTOR OF INCOME-TAX (OSD) (EXEMPTION), R ANGE-4, ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN