Sant Sopankaka Sahakari Bank Ltd, Pune V. Income-tax Officer, Ward - 6(2), Pune

ITA 406/PUN/2022

AI Insights

The case involves Sant Sopankaka Sahakari Bank Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals), Pune-4, which itself stemmed from an assessment order under section 143(3) of the Income Tax Act, 1961. The primary issues in the appeal included the disallowance of deductions under section 36(1)(viia) and the disallowance of certain expenses categorized as advertisement and prior period expenses. The Tribunal's decision was influenced by previous rulings in similar cases and the specific circumstances surrounding the expenses claimed by the bank.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 134317 (ITAT-PUNE)
• Duration Of Justice: 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 09-01-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 23-05-2022
• Other Referred Cases: ITA No.251/PUN/2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRANTI KHOBRAGADE
• Keywords: Bad and doubtful debts
• Section: 143(3); 37(1); 143(2)

Judgement Text

आयकर अपीलीय अिधकरण “बी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “B” :: PUNE BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.406/PUN/2022 िनधाᭅरण वषᭅ / Assessment Year : 2011-12 Sant Sopankaka Sahakari Bank Limitd Saswad, 1039, Sopankaka Bhawan, Shjukrawar Peth, Tilak Road, Pune – 411002. PAN: AAAAS 5435 L V s The Income Tax Officer, Ward-6(2), Pune. Appellant / Assessee Respondent / Revenue Assessee by Shri Kishor Phadkhe – AR Revenue by Shri Kranti Khobragade – DR Date of hearing 10/01/2023 Date of pronouncement 20/03/2023 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Assessee is directed against the order of ld.Commissioner of Income Tax(Appeals), Pune-4 dated 20.04.2017 emanating from assessment order dated 04.03.2014 under section 143(3) of the I.T.Act, 1961 for the A.Y.2011-12. The Assessee has raised the following grounds of appeal: “1. The learned CIT(A)-4, Pune erred in law and on facts in upholding the disallowance of Rs. 24,30,157/- (being 7.50% of the total income) u/s 36(l)(viia) of the ITA, 1961 made by learned ITO, Ward 6(2), Pune (hereinafter referred to as the learned AO). ITA No.406/PUN/2022 Snt Sopankaka Sahakari Bank Ltd., [A] 2 2. The learned CIT(A)-4, Pune and the learned AO erred in law and on facts in holding that, provision of section 36(l)(viia) of the ITA, 1961 is applicable only if advances are made by rural branches of a Bank. The learned CIT(A)-4, Pune ought to have appreciated the fact that there are two components of deduction u/s 36(l)(viia) of the ITA, 1961. 3. The learned CIT(A)-4, Pune erred in law and on facts in upholding the disallowance of advertisement expenses of Rs. 97,510/-, made by the learned AO. The learned l-T Authorities ought to have appreciated that the said expenses are incurred for the purpose of business of appellant and therefore is an allowable expenditure. 4. The learned CIT(A)-4, Pune erred in law and on facts in upholding the disallowance of alleged prior period expenses of Rs. 2,54,092/-, made by the learned AO. The learned I- T Authorities ought to have appreciated that the said expenses crystalized during the year and therefore is an allowable expenditure. 5. The appellant craves leave to add / alter / modify / delete / amend all / any of the grounds of appeal.” 2. The brief facts of the case are that assessee is a Co-operative bank registered under the Maharashtra State Co-operative societies Act and Banking Regulation Act with RBI. The assessee filed return of income on 27.09.2011 declaring total income at Rs.3,45,67,137/-. The case was selected for scrutiny, accordingly a notice under section 143(2) of the Act was served on the assessee on 25.09.2012. ITA No.406/PUN/2022 Snt Sopankaka Sahakari Bank Ltd., [A] 3 The Assessing Officer(AO) disallowed the expenses as not admissible under section 37(1) of the Act and also disallowed assessee’s claim of deduction under section 36(1)(viia). Aggrieved by the order of the AO, the assessee filed appeal before the ld.CIT(A). 3. The ld.CIT(A) partly allowed the appeal of the assessee. Aggrieved by the same, the assessee filed appeal before this Tribunal. 4. We have heard both the parties and perused the records. Ground No.1 & 2 are related to deduction under section 36(1)(viia) of Rs.24,30,157/-. It is observed that this issue is covered in favour of the assessee by this Tribunals order in A.Y. 2012-13 and A.Y.2013-14. The ITAT Pune in ITA No.251/PUN/2016 for A.Y.2012-13 has held that assessee is entitled to claim deduction under section 36(1)(viia) of the Act. Since the facts are identical in the year under consideration, respectfully following the ITAT Pune’s decision(supra) in assessee’s own case, we hold that assessee is eligible for deduction under section 36(1)(viia) of the Act. Accordingly, Ground No.1 & 2 of the assessee are allowed. Ground No.3 Advertisement Expenses : ITA No.406/PUN/2022 Snt Sopankaka Sahakari Bank Ltd., [A] 4 5. The Assessing Officer(AO) has disallowed Rs.95,510/- spent by assessee for advertisement given in media for publishing birthday wishes to Founder of the Bank, Mr.Jagtap. The AO held that it was not wholly and exclusively for the purpose of business of the assessee. The assessee failed to submit any documentary evidence to prove that the impugned expenditure was incurred wholly & exclusively for the purpose of business of the assessee. The onus was on assessee. 5.1 The assessee failed to prove the same, hence, the disallowance of Rs.95,510/- made by the AO is upheld. Accordingly, Ground No.3 of the assessee is dismissed. Ground No.4, Prior Period Expenses : 6. The AO in the assessment order the AO has observed that following expenditure were debited in profit and loss account as prior period expenses. Sr.no. Particulars Amount 1. Adjusted profit as per Computation of Income before allowing deduction u/s.36 of the Act. 3,73,97,293 2. 7.5% of adjusted Profit before allowing any other deduction (17.5%) 28,04,797 3. Provision for Bad and Doubtful Debts 24,30,157 4. Amount available for deduction u/s 36(1)(viia) of the Act (lower of 2 or 3) 24,30,157 ITA No.406/PUN/2022 Snt Sopankaka Sahakari Bank Ltd., [A] 5 7. The AO has mentioned in the assessment order as under : “7.2 AR of the assessee was required to explain as to why such expenses should not be disallowed. The submission made is reproduced as under: The assessee bank is consistently following mercantile system of accounting. As per the mercantile system of accounting no doubt it is necessary to provide anticipated expenses in the year in which they are crystallized. In case of the above mentioned expenses relating to year 2006-07 it is already stated that said amount was paid as advance and kept in Suspense receivable account as the final bill was not received. However, during the year it was transferred to the respective expenditure account. Since, the final bills were not received in the opinion of the bank, the liability was not crystallized and hence expenses were not booked. Moreover, in case of expenses relating to the year 2009-10, the liability was crystallized in the year 2010-11 only, and hence booked in the current year. Hence, prima facie the assessee bank rejects the qualification of prior period with reference to the all above mentioned expenses as pointed out by the erstwhile auditor. It is well-settled that merely because an expense relates to a transaction of an earlier year, it does not become a liability payable in the earlier year, unless it can be said that the liability was determined and crystallised in that year on the basis of maintaining accounts on the mercantile method. In each case, where the accounts are maintained on the mercantile basis, it has to be found in respect of any claim, whether such liability was crystallized and quantified during the relevant previous year so as to be required to be adjusted in the books of account of that previous year. If my liability, though relating to the earlier year, depends upon making a ITA No.406/PUN/2022 Snt Sopankaka Sahakari Bank Ltd., [A] 6 payment and its acceptance by the assessee and such liability has been actually claimed and paid in the later years, it cannot he disallowed as a deduction merely on the basis the accounts are maintained on mercantile basis and is related to a transaction of the earlier year Assesses also gave a reference to the Accounting Standard II as prescribed u/s 145A of the Act and, requested that the disallowance of such prior period expenses should not be made. 7.3 The submission of the assessee has been considered but the same is not acceptable as the assessee is following the mercantile system of accounting. As per annexure “A” attached to the Tax Audit Report, method of accounting employed in the previous year is as under: Income/ Expenditure is generally accounted on accrual basis except in the following major cases: i. Interest received on advances is accounted on actual recovery of interest as stipulated by R.B.I. Guidelines. ii. Interest on matured deposits and dormant saving accounts. iii. Dividend on investment in shares. iv. Locker rent receivable. 7.4 The aforesaid prior period items do not fall in any of the exceptions to the generally mercantile system of accounting followed by the assessee. Thus, in the case of the assessee, such expenses which had not been provided for in the respective accounting year are not admissible deduction u/s 37(1) of the Act. As such, an amount of Rs.2,54,092/- is being disallowed and added to the total income.” 8. There is no dispute that the expenditure were pertaining to the year 2006. Therefore, we agree with the AO that these are prior ITA No.406/PUN/2022 Snt Sopankaka Sahakari Bank Ltd., [A] 7 period expenses and not allowable deduction under section 37(1) of the Act. Accordingly, ground no.4 of the assessee is dismissed. 9. Thus, in the result, appeal of the assessee is Partly Allowed. Order pronounced in the open Court on 20 th March, 2023. Sd/- Sd/- (S.S.GODARA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 20 th Mar, 2023/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “बी” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune.