The Jalore Central Co-operative Bank Ltd., JODHPUR V. ACIT, BARMER

ITA 39/JODH/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78201 (ITAT-JODHPUR)
• Duration Of Justice: 2 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 21-05-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 19-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: U C JAIN; GAUTHAN BAID
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL: JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO.39/JODH/2012 (A.Y. 2008-09) THE JALORE CENTRAL CO-OPERATIVE VS. ACIT, CIRCLE, BANK LTD., C/O SHRI U.C. JAIN, ADV., BARMER. SHATRUNJAY HARI SINGH NAGAR, PALI ROAD, JODHPUR. PAN NO. AAAAT 2537 Q (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI U.C. JAIN & SHRI GAUTHAN BAID. DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 21/05/2014. DATE OF PRONOUNCEMENT : 09/06/2014. O R D E R PER HARI OM MARATHA, J.M THIS IS AN APPEAL BY THE ASSESSEE FOR A.Y. 2008-09 DIRECTED AGAINST THE ORDER DATED 16/11/2011 OF LD. CIT(A), JODHPUR. 2 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A CENTRAL CO-OPERATIVE BANK, WHICH IS CARRYING ON THE BUSINESS OF CORPORATIVE BANKING. FOR A.Y. 2008-09, THE ASSESSE E FILED RETURN OF INCOME [ROI] ON 9.4.2009 DECLARING TOTAL INCOME OF RS. 3,02,40,890/-. IT WAS NOTICED THAT THE ASSESSEE HAS CLAIMED THE FOLLO WING AMOUNTS IN THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD PROVISIONS AS UNDER: BAD AND DOUBTFUL DEBTS RS. 5601000 BUILDING FUND RS. 2000000 GRATUITY RS. 700000 MANAGER SALARY SECURITY RS. 6067000 WITHOUT ANY DESCRIPTION RS. 9678000 THE A.O. WAS OF THE OPINION THAT THESE PROVISIONS A RE NOT ALLOWABLE. ACCORDINGLY, HE SOUGHT EXPLANATION FROM THE ASSESSE E. AFTER VERIFICATION, THE CLAIM OF BAD AND DOUBTFUL DEBTS WAS ALLOWED BY THE A.O. IT WAS NOTICED THAT THE CLAIM OF BUILDING FUNDS OF RS. 20 LAKHS HAD ALREADY BEEN DISALLOWED BY THE ASSESSEE IN THE COMPUTATION OF IN COME FILED IN THE RETURN OF INCOME [ROI]. CLAIM OF GRATUITY TO THE T UNE OF RS. 7 LAKHS WAS ALSO FOUND TO BE ALLOWABLE. HOWEVER, THE CLAIM REG ARDING MANAGER SALARY SECURITY OF RS. 60,67,000/- AND RS. 96,78,000/- WHI CH HAS BEEN DEBITED WITHOUT DESCRIPTION AS THE PROVISIONS WERE DISALLOW ED AND ADDED TO THE 3 INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE WE NT IN APPEAL AND THE LD. CIT(A) HAS ALSO NOT FOUND FAVOUR WITH THE ASSES SEE AND HAS DISMISSED ITS APPEAL. NOW THE ASSESSEE IS FURTHER AGGRIEVED AND HAS FILED SECOND APPEAL BY RAISING THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, LD. CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO FOR RS. 60,67,000/- BEING FUND SET APART FOR THE SE CURITY OF THE SALARY OF THE MANAGERS OF THE PRIMARY AGRICULTU RAL SOCIETIES WITHOUT APPRECIATING THE FACT THAT THE FU ND WAS SET APART IN COMPLIANCE TO THE DIRECTION OF REGISTR AR OF CO- OPERATIVE SOCIETY, RAJASTHAN. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) ERRED IN BLINDLY FOLLOWING THE APPELLATE ORD ER OF LD. CIT(A) IN APPEAL NO. 330/2009-10 WHILE UPHOLDING TH E ADDITION OF RS. 60,67,000/- FOR FUND SET APART FOR THE SECURITY OF THE SALARY OF THE MANAGERS OF THE PRIMA RY AGRICULTURAL SOCIETIES. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) ERRED IN NOT RECORDING ANY FINDING FOR THE D ETAILS SUBMISSIONS OF THE ASSESSEE REGARDING INCORRECT FAC TUAL FINDING RECORDED IN THE APPELLATE ORDER OF LD. CIT( A) IN APPEAL NO. 330/2009-10. SUCH NON-CONSIDERATION OF THE 4 EXPLANATION SHOWS THAT THE ADDITION FOR RS. 60,67,0 00/- SUSTAINED WITHOUT ANY APPLICATION OF MIND. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 20,0 0,000/- MADE BY THE LD. AO FOR THE PROVISION FOR THE ARREAR OF THE SALARY. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) ERRED IN NOT ALLOWING THE CLAIM OF ARREAR O F SALARY FROM 01/01/2004 TO 31/03/2008 AMOUNTED TO RS. 71,39,285/- AS AN EXPENSE FOR THE YEAR UNDER CONSIDERATION. 6. WITHOUT PREJUDICE TO ABOVE AND IN THE ALTERNATIVE:- A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) OUGHT TO MADE SPECIFIC DIRECTION FOR ALLOWING THE WHOLE PAYMENT OF ARREAR OF SALARY IN T HE YEAR OF ACTUAL PAYMENT PARTICULARLY WHEN THE ADDITI ON OF RS. 20,00,000/- ON PROVISION BASIS DISALLOWED AN D ALSO REJECTING SUBMISSION OF THE APPELLANT TO ALLOW THE ARREAR OF SALARY FROM 01/01/2004 TO 31/03/2008 AMOUNTED TO RS. 71,39,285/-. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) ERRED IN NOT DECIDING THE ADDITIONAL GROUND OF APPEAL RAISED DURING THE PENDENCY OF THE APPEAL THA T ON 5 THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. AO OUGHT TO ALLOW RS. 10.50 LACS BEING THE ACTUAL PAYMENT OF GRATUITY AS AGAINST THE PROVI SION OF RS. 7.50 LACS MADE BY THE ASSESSEE SINCE THE SAME WAS DISALLOWED IN EARLIER YEAR ON PROVISION BASIS U/S 4 0A(7). 8. THAT THE PETITIONER MAY KINDLY BE PERMITTED TO R AISE ANY ADDITIONAL OR ALTERNATIVE GROUND AT OR BEFORE THE T IME OF HEARING. 9. THAT THE APPELLANT PRAYS FOR JUSTICE. 3. AN ADDITIONAL GROUND WAS ALSO RAISED AND WHICH W AS FOUND TO BE LEGAL GROUND FOR WHICH NO FURTHER INVESTIGATION OF FACTS WAS REQUIRED AND AFTER HEARING THE LD. D.R., WE HAVE ALLOWED THIS AD DITIONAL GROUND TO BE RAISED WHICH READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ARREAR OF SALARY AMOUNTING TO RS. 40 LAKHS PROVIDED IN THE YEAR UNDER CONSIDERATION FOR THE EARLIER YEARS MAY KINDL Y BE ALLOWED AS BUSINESS EXPENDITURE FOR THE YEAR UNDER CONSIDERATION. THE PROVISION FOR ARREAR OF SALARY WAS MADE IN THE YEAR UNDER CONSIDERATION AS THE AMOUNT WAS R EASONABLY ESTIMATED IN THE YEAR UNDER CONSIDERATION. 6 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY PERUSED THE ENTIRE MATERIAL ON RECORD. IT WAS ARGUED BY SHRI U .C. JAIN, THE LD. SR, ADVOCATE THAT GROUND NOS. 1, 2 AND 3 STAND COVERED BY THE TRIBUNAL ORDER RENDERED IN ASSESSEES OWN CASE FOR A.Y. 2007 -08 IN ITA NO. 240/JU/2011 VIDE ORDER DATED 24.4.2011 IN WHICH SIM ILAR DISALLOWANCE WAS MADE WHICH WAS ALLOWED BY THE APPELLATE TRIBUNA L. COPY OF THIS TRIBUNAL ORDER HAS BEEN PLACE ON RECORD FOR YOUR PE RUSAL AND IS ENCLOSED AT PAGES 104 TO 114 OF THE PAPER BOOK. THIS FACT C OULD NOT BE DENIED OR REPELLED BY THE LD. D.R. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE HAVE FOUND THAT SIMILAR DISALLOWANCE IN ASSESSEES OWN CASE [SUPRA] REGARDI NG AMOUNT CONTRIBUTED TO SALARY SECURITY FOUND CREATED UNDER THE STATUTO RY DIRECTIONS WAS ALLOWED BY THE TRIBUNAL IN THE FAVOUR OF THE ASSESS EE AND ORDERED THE DELETION OF THE SAME FROM ASSESSEES HANDS AS UNDER : 2.5 AFTER CONSIDERING RIVAL SUBMISSIONS WE ARE OF THE CONSIDERED OPINION THAT THE LIABILITY TO PAY IN RES PECT OF SALARY SETTLEMENT ACTUALLY ACCRUES AT THE VERY POIN T OF TIME WHEN ITS ACCEPTANCE IS RECEIVED FROM THE REGISTRAR. THIS LIABILITY WOULD NOT ARISE AT THE TIME OF EXECUTION OF AGREEMENT, SAY IN THE MONTH OF MAY, 2003, AS IT WAS SUBJECT TO APPROVAL BY THE REGISTRAR. THE ASSESSEE-BANK WAS NOT 7 CONSIDERED THE PROVISION / LIABILITY BELONGING TO T HE PRIOR PERIOD. THE AUDITORS HAVE ALSO NOT CONSIDERED THIS PROVISION AS SUCH. THIS ISSUE SEEMS TO BE COVERED BY THE DECI SION OF THE HONBLE APEX COURT RENDERED IN THE CASE OF NONSUCH TEA ESTATE LTD. VS CIT 98 ITR 189 (SC). IN THIS CASE IT HAS BEEN HELD THAT WHERE ANY PAYMENT IS SUBJECT TO APPROVAL, THE LIABILITY TO PAY CRYSTALLIZES IN THE YEAR OF APPROV AL. SIMILAR VIEW HAS BEEN TAKEN BY HONBLE GUJARAT HIGH COURT I N THE CASE OF SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES L TD. 213 ITR 523 (GUJ). THUS, ALTHOUGH THE LIABILITY PERTAIN S TO EARLIER YEARS (FROM JANUARY, 1999 TILL DECEMBER, 2003) IT C ANNOT BE SAID THAT IT PERTAINS TO THE EARLIER YEARS BECAUSE THE LIABILITY WAS APPROVED BY THE REGISTRAR DURING THIS YEAR ACCORDINGLY, BY RESPECTFULLY FOLLOWING THIS TRIBUNA L ORDER, WE ALLOW GROUND NOS. 1, 2 AND 3 WHICH ARE IN RESPECT OF ONE ISSUE AND DELETE THE IMPUGNED ADDITION. 6. IT WAS SUBMITTED BY THE LD. A.R. THAT GROUND NOS . 4, 5 AND 6 AND ADDITIONAL GROUND ARE IN RESPECT OF ONE COMMON GROU ND. 7. FACTS OF THIS ISSUE ARE THAT DURING THE YEAR THE ASSESSEE BANK MADE PROVISION OF RS. 60 LAKHS IN THE PROFIT AND LOSS AC COUNT FOR ARREARS OF SALARY TO BE CALCULATED FROM 1.1.2004 BECAUSE THE E XACT AMOUNT OF ARREAR TO BE PAID UPTO 31.3.2008 WAS NOT ASCERTAINED, PROV ISION FOR THE LUMPSUM 8 ESTIMATED AMOUNT WAS MADE. ARREARS OF SALARY WAS M ADE IN THE MONTH OF JANUARY 2009 AND THE YEAR-WISE BREAK-UP OF ARREAR O F SALARY IS STATED TO BE AS UNDER: S.NO. YEAR AMOUNT 1 2003 - 04 2,61,868 2 2004 - 05 11,70,678 3 2005 - 06 15,05,617 4. 2006 - 07 19,42,187 5 2007 - 08 22,58,935 6 2008 - 09 22,04,804 TOTAL 93,44,089 ACCORDING TO THIS ASSESSEE, THIS PROVISION IS ALLOW ABLE AS DEDUCTION BECAUSE THE ASSESSEE HAS BEEN MAINTAINING ITS BOOKS OF ACCOUNT ON MERCANTILE SYSTEM OF ACCOUNTING. THE LD. A.R, WHI LE ARGUING FOR THE ALLOWABILITY OF THIS PROVISION SUBMITTED THAT IN A CCOUNTING PROVISIONS, LIABILITIES, PRESENT OBLIGATION AND POSSIBLE OBLIGA TION HAVE BEEN DEFINED IN ACCOUNTING STANDARD- [AS] 29 BY MENTIONING THAT PR OVISION IS A LIABILITY WHICH CAN BE MEASURED ONLY BY USING A SUBSTANTIAL D EGREE OF ESTIMATION. HE HAS ALSO REFERRED TO THE MEANING OF PRESENT OBLI GATION AND POSSIBLE OBLIGATION. HE HAS FURTHER STATED THAT AS-29 ISSUE D BY THE ICAI MANDATE TO RECOGNIZE A PROVISION IN THE BOOKS OF ACCOUNT W HEN A PROVISION FULFILLS THE FOLLOWING CONDITIONS: 9 (A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT. (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES EMBODYI NG ECONOMIC BENEFITS WILL BE REQUIRED TO SETTLE THE OB LIGATION; AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION 8. ACCORDING TO THE LD. A.R., ALL THE THREE CONDITI ONS STATED ABOVE ARE FOUND SATISFIED IN THIS CASE OF THE ASSESSEE AND TH E PROVISION FOR RS. 60 LAKHS FOR ARREARS OF SALARY HAS TO BE ALLOWED. AS THESE WERE RECOGNIZED AND THEIR QUANTIFICATION HAS BEEN REASONABLY ESTIMA TED. FOR THIS PURPOSE, THE LD. A.R. HAS INVITED OUR ATTENTION TOW ARDS THE DECISION OF THE HON'BLE SUPREME COURT RENDERED IN THE CASE OF R OTORK CONTROLS INDIA P. LTD VS. CIT REPORTED IN 314 ITR 62 [SC], C OPY OF WHICH IS ENCLOSED IN THE PAPER BOOK AT PAGES 65 TO 82 AND ON WHICH THE A.O. HAS ALSO PLACED RELIANCE THAT THE PROVISIO N MADE BY A COMPANY IS ALLOWABLE U/S 37(1) AND THE HON'BLE APEX COURT HAS LAID DOWN A TEST FOR ALLOWABILITY IN THE ABOVE ORDE R. WITH REFERENCE TO THIS JUDGMENT, IT WAS ARGUED THAT THE PROVISION FOR SALARY MADE BECAUSE ARREAR HAS TO BE MADE AND WHEN EXACT 10 AMOUNT OF ARREAR IS NOT KNOWN, IT HAS TO BE QUANTIF IED IN A LUMPSUM MANNER THAT THIS PROVISION HAS BEEN MADE DU RING THE YEAR AFTER DECISION WAS TAKEN DURING THE YEAR. ACC ORDING TO HIM, ARREARS TILL THE END OF THE F.Y. 2008 IS RS. 7 1,39,285/- AND THE ASSESSEE HAS MADE PROVISION OF RS. 60 LAKHS ON LY. THEREFORE, ACCORDING TO HIM, THIS PROVISION IS ALLO WABLE. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE HON 'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHARAT HEAVY ELEC TRICALS LTD. 352 ITR 88 [DEL], COPY OF WHICH IS ENCLOSED AT PAGE S 83 TO 96 OF THE PAPER BOOK. 9. IN ALTERNATIVE, IT HAS BEEN ARGUED THAT IN CASE THIS PROVISION IS NOT ALLOWED IN THIS YEAR, DIRECTION MAY BE GIVEN THAT I T MAY BE ALLOWED IN THE YEAR OF ACTUAL PAYMENT WHICH IS A.Y. 2009-10. 10. ON THE OTHER HAND, THE LD. D.R. HAS SUPPORTED A ND DEFENDED THE ORDER OF THE LD. CIT(A). 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CA REFULLY PERUSED THE ENTIRE MATERIAL ON RECORD IN THE LIGHT OF OBTAINING FACTS OF THIS CASE AS WELL AS THE ORAL AND WRITTEN SUBMISSIONS MADE BY TH E PARTIES. WE HAVE 11 FOUND FORCE IN THE SUBMISSIONS OF THE LD. D.R. THAT LIABILITY IN QUESTION WAS NOT CRYSTALLIZED DURING THE YEAR. AT THE SAME TIME, WE ALSO FIND FORCE IN THE SUBMISSIONS OF THE LD. A.R. THAT IN VI EW OF THE FACT THAT THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM OF AC COUNTING AND THE SYSTEM OF ACCOUNTING AS APPROVED BY AS-29 ISSUED BY THE ICAI. THIS PROVISION CAN ALSO BE ALLOWED. RELIANCE HAS BEEN P LACED BY THE CIT ON THE DECISION OF ROTORK CONTROLS [SUPRA] WHICH WAS A LSO RELIED ON BY THE A.O. THEREFORE, IN THE GIVEN FACTS AND CIRCUMSTANC ES OF THE CASE, WE WOULD LIKE TO RESTORE THE ENTIRE ISSUE TO THE FILE OF THE A.O. THEREFORE, WE DO THE SAME AND RESTORE THE ISSUE TO THE FILE OF THE A.O. WITH THE DIRECTION THAT HE SHALL DECIDE THIS ISSUE AFRESH BY CONSIDERING EACH AND EVERY ASPECT OF THE ARGUMENTS RAISED ON BEHALF OF T HE ASSESSEE AND AFTER TAKING INTO CONSIDERATION VARIOUS ASPECTS OF THE IS SUE. ACCORDINGLY, WE ALLOW GROUND NOS. 4,5 AND 6 AND ADDITIONAL GROUND R AISED FOR STATISTICAL PURPOSE. 12. GROUND NO. 7 HAS NOT BEEN PRESSED. THEREFORE, THE SAME STANDS DISMISSED. 12 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE COURT ON 09 TH JUNE, 2014). SD/- SD/- (N.K.SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 09 TH JUNE, 2014. VL / COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.