Priyadarshani Urban Co Operative Bank Ltd., Osmanabad V. DCIT, Circle-3, Nanded

ITA 371/PUN/2013

• Counselvise Citation: 37124514 RSA 2013
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 06-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 371/PN/2013 (ASSTT.YEAR : 2007-08) PRIYADARSHANI URBAN CO-OP BANK LTD., BARSHI-PARLI ROAD, KALAMB, DIST : OSMANABAD .. APPELLANT PAN NO. AAAAP6105G VS. DCIT, CIRCLE-3, NANDED .. RESPONDENT ASSESSEE BY : SHRI SUNIL GANOO REVENUE BY : SRI S.P. WALIMBE DATE OF HEARING : 09-01-2014 DATE OF PRONOUNCEMENT : 15-01-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 06-11-2012 OF THE CIT(A), AURANGABAD RELATING TO AS SESSMENT YEAR 2007-08. 2. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS U NDER : 1) ON THE FACTS & CIRCUMSTANCES OF THE CASE & IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING ADDITION OF RS.7, 23,015 /- ON ACCOUNT OF INTEREST RECEIVABLE ON NPA ACCOUNTS IGNORI NG METHOD OF ACCOUNTING REGULARLY EMPLOYED FOR CREDIT OF THE SAME TO P & L ACCOUNT AS AND WHEN SAME IS ACTUALLY RECEIVED AND HENCE THE SAME ADDITION MAY PLEASE BE DELETED. (GROUND IS SQUARELY COVERED BY HON ITAT PUNE DECISI ON DATED 31/08/2012 IN OSMANABAD JANTA SAHAKARI BANK L TD ITA NO 795/PN/2011) NOTE:- THE LEARNED ASSESSING OFFICER HAS WRONGLY MENTION ED SAME AS INTEREST ON RESERVE FUNDS INVESTMENT BUT IT IS CLE AR FROM FINANCIAL STATEMENTS OF BANK THAT IT IS INTEREST R ECEIVABLE ON NPA ACCOUNTS. 2 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE IS A COOPERATIVE SOCIETY REGISTERED U/S.9(1) OF MAHARASHTRA COOPERAT IVE SOCIETIES ACT, 1960. THE ASSESSEE FILED RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 31-10-2007 DECLARING INCOME OF RS.6,23,750/ -. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFI CER OBSERVED FROM THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET FILED BY THE ASSESSEE THAT THE BANK HAS NOT EARMARKED THE RESERVE FUND INVESTM ENTS SEPARATELY AND THE SAME IS REFLECTED UNDER THE HEAD INVESTMENTS ON THE ASSET SIDE OF THE BALANCE SHEET. FROM THE VERIFICATION OF RESERV E FUND ACCOUNT APPEARING IN THE LIABILITY SIDE OF THE BALANCE SHEE T UNDER THE HEAD RESERVES AND SURPLUS, HE NOTED THAT INTEREST RECE IVED/ACCRUED OF RS.7,23,015/- ON RESERVE FUND INVESTMENTS IS DIRECT LY CREDITED TO RESERVE FUND ACCOUNT INSTEAD OF ROUTING THROUGH PROFIT AND LOSS ACCOUNT BY CREDITING SAME TO INTEREST RECEIVED ON INVESTMENT A CCOUNT AND RS.41,516/- DIRECTLY CREDITED TO BUILDING FUND. AC CORDING TO THE ASSESSING OFFICER, SAME BEING REVENUE RECEIPTS IS L IABLE TO BE TREATED AS INCOME. HE ACCORDINGLY MADE ADDITION OF RS.7,64,53 1/- (RS.7,23,015/- + RS.41,516/-). 4. BEFORE CIT(A) THE ASSESSEE CHALLENGED THE ADDITI ON MADE BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSING OFFICER HAS INCORRECTLY MADE ADDITION TOWARDS INTEREST ACCRUED/ RECEIVED ON NPA ACCOUNT. HOWEVER, THE CIT(A) WAS NOT SATISFIED WIT H THE ARGUMENTS ADVANCED BY THE ASSESSEE AND UPHELD THE ADDITION MA DE BY THE ASSESSING OFFICER BY HOLDING AS UNDER : 3 5. GROUND NO.1 IS IN RESPECT OF ADDITION OF RS.7,23,0 15/- ON ACCOUNT OF INTEREST ON NPA ACCOUNTS. ON PERUSAL OF THE ASSESSMENT ORDER, IT HAS BEEN NOTICED THAT THE A.O. HAS MADE ADDITION OF RS.7, 64,531/- ON ACCOUNT OF INTEREST ACCRUED RS.7,23,015/- AND RECEIVED RS.41,5 16/- ON INVESTMENT ACCOUNTS WHEREAS AS PER GROUNDS OF APPEAL AND STATEMENT OF FACTS, THE APPELLANT HAS CLAIMED THAT THE A.O. IS NOT JUSTIFIED IN MAKING ADDITION OF RS.7,23,015/- TOWARDS INTEREST ON NPA ACCOUNT. THE A PPELLANT HAS NOT MENTIONED ANYTHING IN HIS GROUNDS OF APPEAL OR STATEME NT OF FACTS THAT THE A.O. HAS INCORRECTLY MADE ADDITION TOWARDS INTERE ST ACCRUED/RECEIVED ON INVESTMENT AND HAS NOT PROVED THAT THE ADDITION MA DE BY THE A.O. IS TOWARDS INTEREST ON NPA ACCOUNT. IN VIEW OF THE FACT THAT NO SUCH ADDITION HAS BEEN MADE BY THE A.O. IN THE ASSESSMENT O RDER, GROUND NO.1 APPEARS TO BE IRRELEVANT AND HENCE DISMISSED. 4.1 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 5. THE LD. COUNSEL FOR THE ASSESSEE REFERRING TO TH E STATEMENT OF FACTS SUBMITTED THAT THE ASSESSEE HAS CLEARLY MENTIONED I N THE STATEMENT OF FACTS THAT THE INTEREST WAS ON ACCOUNT OF NPA ACCOU NTS WHEREAS THE ASSESSING OFFICER HAS INCORRECTLY MADE ADDITION TOW ARDS INVESTMENT ACCRUED/RECEIVED. HE SUBMITTED THAT THE ISSUE STAN DS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF OSMANABAD JANATA SAHAKARI BANK LTD. VIDE ITA NO.795/PN/2011. THEREFORE, THE ADDITION MADE BY TH E ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) SHOULD BE DELETED. 5.1 IN HIS ALTERNATE CONTENTION, HE SUBMITTED THAT IN THE INTEREST OF JUSTICE, THE MATTER MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO ADJUDICATE THE ISSUE AFRESH SIN CE THE ADDITION MADE BY HIM IS ON ACCOUNT OF FACTUAL ERROR. 6. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 4 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. IN THE INSTANT CASE, WE FIND THE ASSESSING OFFICER MADE ADDITION ON ACCOUNT OF INTER EST ACCRUED/RECEIVED ON INVESTMENT WHEREAS IT IS THE CASE OF THE ASSESSE E THAT SUCH INTEREST WAS ON ACCOUNT OF NPA ACCOUNT. WE FIND THE CIT(A) UPHE LD THE ADDITION MADE BY THE ASSESSING OFFICER ON THE GROUND THAT TH E ASSESSEE HAS NOT MENTIONED ANYTHING IN THE GROUNDS OF APPEAL OR STAT EMENT OF FACTS THAT THE ASSESSING OFFICER HAS INCORRECTLY MADE ADDITION TOWARDS INTEREST ACCRUED/RECEIVED ON INVESTMENT AND HAS NOT PROVED T HAT THE ADDITION MADE BY THE ASSESSING OFFICER IS TOWARDS INTEREST O N NPA ACCOUNT. WE FIND FROM THE STATEMENT OF FACTS FILED ALONG WITH T HE APPEAL MEMO THAT THE ASSESSEE HAS MENTIONED IN THE STATEMENT OF FACT S THAT SUCH INTEREST WAS TOWARDS INTEREST ON NPA ACCOUNT. IN VIEW OF TH E ABOVE CIRCUMSTANCES AND IN THE INTEREST OF JUSTICE, WE DE EM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO VERIFY FROM THE RECORDS REGARDING THE NATURE OF INTEREST A ND DECIDE THE ISSUE AFRESH AS PER LAW. NEEDLESS TO SAY THE ASSESSING O FFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOL D AND DIRECT ACCORDINGLY. ACCORDINGLY, GROUND OF APPEAL NO.1 BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS U NDER : 2) THE LEARNED CIT(A) ERRED IN CONFIRMING ADDITION OF RS.35,804/- U/S.14A ON ACCOUNT OF PROPORTIONATE EXPE NSES FOR EARNING EXEMPT INCOME AND THE SAME ADDITION MAY PLEA SE BE DELETED. 5 8.1 AFTER HEARING BOTH THE SIDES, WE FIND THE ASSES SEE RECEIVED DIVIDEND OF RS.1,04,567/- ON INVESTMENTS AND CLAIME D THE SAME AS EXEMPT INCOME. THE ASSESSING OFFICER APPLYING THE PROVISIONS OF SECTION 14A R.W.RULE 8D DISALLOWED PROPORTIONATE EX PENDITURE OF RS.35,804/-. 9. BEFORE CIT(A) IT WAS SUBMITTED THAT THE RBI HAS ALLOWED TO INVEST IDLE BALANCE WITH BANK IN UTI MUTUAL FUNDS AND HENC E DISALLOWANCE U/S.14A IS NOT APPLICABLE. HOWEVER, THE LD.CIT(A) REJECTED THE ABOVE CONTENTION OF THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER BY HOLDING AS UNDER : 6.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND RIVAL CONTENTIONS. THE CONTENTION OF THE APPELLANT THAT THE RBI HAS PERMITTED THE BANK TO INVEST IN UTI MUTUAL FUND AND HENCE THE DISALLOWANCE IS NOT JUSTIFIED IS APPARENTLY INCORRECT. IN VIEW OF THE PR OVISIONS OF SECTION 14A, THE DISALLOWANCE OF PROPORTIONATE EXPENSES TO EARN TH E EXEMPT INCOME IS JUSTIFIED. THE ADDITION OF RS.35,804/- IS, THEREFORE, CONFIRMED. GROUND NO.2 STANDS DISMISSED. 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND IN T HE INSTANT CASE THE ASSESSING OFFICER APPLYING THE PROVISIONS OF SECTIO N 14A R.W. RULE 8D DISALLOWED AN AMOUNT OF RS.35,804/- ON ACCOUNT OF T AX FREE DIVIDEND INCOME OF RS.1,04,567/-. THE ASSESSMENT YEAR INVO LVED IN THE INSTANT CASE IS 2007-08, THEREFORE, PROVISIONS OF RULE 8D A RE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE IN VIEW OF THE DECISI ON OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE M ANUFACTURING CO. REPORTED IN 328 ITR 81 (BOM.) HOWEVER, SOME REASO NABLE DISALLOWANCE 6 HAS TO BE MADE TOWARDS EXPENSES INCURRED FOR EARNIN G THE EXEMPTED DIVIDEND OF RS.1,04,567/- ON ACCOUNT OF INVESTMENT OF IDLE FUNDS WITH UTI MUTUAL FUND. THEREFORE, CONSIDERING THE TOTALI TY OF THE FACTS OF THE CASE, DISALLOWANCE OF RS.10,000/- ON ESTIMATE, IN O UR OPINION, WILL MEET THE ENDS OF JUSTICE. WE HOLD AND DIRECT ACCORDINGLY . GROUND OF APPEAL NO.2 BY THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 15-01-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE, DATED : 15 TH JANUARY 2014 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A), AURANGABAD 4. THE CIT, AURANGABAD 5. D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE