M/s Elamgulam Service Co-op Bank Ltd, Kottayam V. The ITO, Kottayam

ITA 51/COCH/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1655 (ITAT-COCHIN)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 26-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 19-01-2015
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts; Corroborative evidences
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH C OCHIN BEFORE S/SHRI B.P. JAIN, AM AND GEORGE GEOR GE K., JM I.T.A. NO.51 /COCH/2015 ASSESSMENT YEAR : 2007-08 ELAMGULAM SERVICE COOPERATIVE BANK LTD. (NO.3576), KOORALI P.O., ELAMGULAM, KOTTAYAM-686 552. PAN: AAABE 0073B] VS. THE INCOME TAX OFFICER, WARD-1, KOTTAYAM. (ASSESSEE -APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY SHRI PRASANTH SRINIVAS, CA REVENUE BY SHRI K.P. GOPAKUMAR, SR. DR DATE OF HEARING 26/10/2015 DATE OF PRONOUNCEMENT 27/10/2015 O R D E R PER B.P.JAIN, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF TH E ORDER OF THE LD. CIT(A)-IV, KOCHI DATED 21/10/2014 FOR THE ASSESSMENT YEAR 2007 -08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROU NDS OF APPEAL: 1. THE ORDER IN APPEAL IS WRONG IN LAW AND ON FAC TS SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE APPELLANT. 2. ON THE BASIS OF DETAILS FURNISHED BY THE APPE LLANT, THE LEARNED CIT(A) SHOULD HAVE HELD THAT THE APPELLANT IS A PRIMARY A GRICULTURAL CREDIT SOCIETY AND SHOULD HAVE ALLOWED IT DEDUCTION U/S. 80P IN FULL. I.T.A. NO51./COCH/2015 2 3. THE LEARNED CIT(A) SHOULD HAVE ALLOWED THE A PPELLANTS SUBMISSION THAT SINCE PROVISION FOR BAD DEBTS CREATED IN EARLIER Y EARS WAS NOT CLAIMED AS BUSINESS EXPENDITURE IN THE YEAR OF CREATION, THE REVERSAL OF A PORTION THEREOF NOW SHOULD NOT BE TREATED AS BUSINESS EXPENDITURE. HE SHOULD HAVE FOLLOWED THE DECISION OF CHENNAI BENCH OF ITAT IN DY .CIT V S. MADURAI DISTRICT CENTRAL CO-OPERATIVE BANK LTD. (I.T.A. NOS. 1511, 1512,171 4 AND 1716/MDS OF 2014) REPORTED IN (2014) 51 TAXMANN.COM 194. THEREIN, ON IDENTICAL FACTS, CHENNAI ITAT HELD THAT AMOUNT TRANSFERRED FROM PROVISION F OR BAD DEBTS CREATED IN EARLIER YEARS, WHICH WAS NOT CLAIMED AS DEDUCTION IN THE YEAR OF CREATION, COULD NOT BE TREATED AS FORMING PART OF THE APPELL ANTS TAXABLE INCOME. 4. THE LEARNED CIT(A) SHOULD HAVE CONSIDERED THE MATTER OF LOSSES BROUGHT FORWARD FROM EARLIER YEARS AND DIRECTED THE AO TO ALLOW SET OFF THEREOF; 5. FOR THE ABOVE AND OTHER GROUNDS, POINTS AND ARGUMENTS THAT MAY BE PRESENTED BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, IT IS SUBMITTED THAT THE APPEAL MAY BE ALLOWED. 3. GROUND NOS. 1 & 5 ARE GENERAL IN NATURE AND DO N OT REQUIRE ADJUDICATION. AS REGARDS GROUND NO. 2, THE BRIEF FACTS OF THE CASE A S EMANATING FROM THE ORDER OF THE ASSESSING OFFICER ARE REPRODUCED HEREIN BELOW FOR T HE SAKE OF CONVENIENCE: 4.1 IN THIS OFFICE LETTER DATED 22.09.2011, THE A SSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE INCOME ATTRIBUTABLE TO ACTIVI TIES OTHER THAN PROVIDING FINANCIAL ACCOMMODATION TO MEMBERS FOR AGRICULTURAL PURPOSES OR PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES, OR MARKETIN G OF CROPS, SHOULD NOT BE HELD TO BE NOT ELIGIBLE FOR DEDUCTION U/S. 80P(2). IT WAS ALSO REQUESTED THAT BIFURCATION OF INCOME DERIVED ON LOANS ADVANCED TO AGRICULTURISTS AND OTHERS BE FILED TO ASCERTAIN THE EXTENT OF INCOME ELIGIBLE FOR DEDUCTION U/S. 80P(2). 4.2 IN THE CONTEXT OF ELIGIBILITY FOR DEDUCTION U /S. 80P(2) IN VIEW OF PART-IV OF THE BANKING REGULATION ACT VIS--VIS THE CONDITION SPECIFIED IN EXPLANATION (B) TO SECTION 80P(4), THE ASSESSEE VEHEMENTLY ARGUED I N ITS LETTER DATED 15.09.2011 THAT THE ASSESSEE IS A COOPERATIVE SOCIE TY REGISTERED UNDER THE COOPERATIVE SOCIETIES ACT, 1969 AS A PRIMARY AGRICU LTURAL CREDIT SOCIETY; THE WORD BANK SUFFIXED TO ITS NAME DOES NOT MEAN THAT IT IS A BANK COVERED UNDER THE BANKING REGULATION ACT. IN THIS CONNECTI ON, IT WAS ALSO POINTED OUT THAT IN A CASE BETWEEN ELAMGULAM SERVICE COOPERATIVE BANK LTD. AND VARKEY I.T.A. NO51./COCH/2015 3 GEORGE & OTHERS IN WP NO. 2036 OF 2006, THE HONBLE HIGH COURT OF KERALA HAD HELD IN THEIR JUDGMENT DATED 13.02.2007 THAT TH E ASSESSEE-SOCIETY IS NOT A BANK AS DEFINED UNDER THE BANKING REGULATION ACT. A COPY OF THE CITED JUDGMENT HAS BEEN FILED ON RECORD. THE OBJECTS OF T HE SOCIETY ARE ALSO PLEADED TO BE OF PROVIDING FINANCIAL AID TO ITS MEM BERS FOR AGRICULTURAL OR ALLIED PURPOSES FOR AGRICULTURAL ACTIVITIES. IT IS ALSO CONTENDED THAT THE SOCIETY IS FUNCTIONING UNDER THE DIRECT CONTROL OF THE REGI STRAR OF COOPERATIVE SOCIETIES AND LIKE IN COMMERCIAL AND URBAN BANKS RB I HAS NO POWERS TO REGULATE ITS ACTIVITIES OR TO GIVE DIRECTIONS. THER EFORE, IT WAS URGED THAT THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY W HICH IS ELIGIBLE FOR DEDUCTION U/S. 80P(2) AND PROVISIONS OF SECTION 80P(4) ARE NO T APPLICABLE IN THE INSTANT CASE. THE ASSESSEE HAS ALSO DENIED TO HAVE GIVEN AN Y LOAN TO OTHER COOPERATIVE SOCIETIES. 4.3 THE ASSESSEES ARGUMENTS AS DETAILED ABOVE H AVE BEEN CAREFULLY CONSIDERED. THE ASSESSEE IS A COOPERATIVE SOCIETY REGISTERED UNDER THE COOPERATIVE SOCIETIES ACT AND THE PROVISIONS OF BAN KING REGULATION ACT OR RBI GUIDELINES ARE NOT APPLICABLE IN ITS CASE. IN A WRI T PETITION FILED BY THE ASSESSEE SOCIETY CLAIMING LIEN OVER OTHER LOANS OR ADVANCES OTHER THAN THE COLLATERAL SECURITIES, THE HONBLE DIVISION BENCH O F THE KERALA HIGH COURT S OBSERVED THAT THE LIEN APPLICABLE TO THE BANKS CANN OT BE CLAIMED STRICTLY BY THE AGRICULTURAL OR PRIMARY CREDIT SOCIETIES AS IT IS NOT A BANK AS DEFINED UNDER THE BANKING REGULATION ACT. THEREFORE, SUBJECT TO SATISFACTION OF PROVISIONS OF SECTION 80P(1), IF THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED IN SUB- SECTION (2) OF SECTION 80P, THE ASSESSEE SHALL BE E LIGIBLE FOR DEDUCTION IN COMPUTING THE TOTAL INCOME. 5.1 IN ADDITION TO CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, THE ASSESSEE CARRIED ON THE FOLLOWING OTHER ACTIVITIES. (I) TRADING IN CONSUMABLE ITEMS (GROSS PROFIT RS.4 9,898) (II) MISC. ACTIVITIES (GROSS INCOME RS.5,62,237/-* ) (III)GDCS (COMMISSION RS.1,29,000) (*THIS INCLUDES VARIOUS ITEMS LIKE R.F. INTEREST, DEPOSIT INTEREST, CHITTY INTEREST, INTEREST ON OD TO STAFF, RENT, MISC. INCO ME, CHITTY DIVIDEND, COST OF FORM, COMMISSION, NOTICE CHARGES, ADMISSION FEES, I NSURANCE CHARGES, CHITTY FOREMAN COMMISSION AND MDS BONUS) 4. THE ASSESSING OFFICERS FINDING IN PARA 6.1 AND 6.2 WITH REGARD TO THE ISSUE IN HAND IS ALSO REPRODUCED HEREINBELOW: I.T.A. NO51./COCH/2015 4 6.1 AS PER DETAILS FILED IN RESPECT OF DIFFERENT T YPE OF LOANS, IT IS SEEN THAT THE MINIMUM RATE OF INTEREST ON LOAN WAS 12% P.A. AND T HE MAXIMUM AT 20% P.A. THOUGH THE ASSESSEE CLAIMED THAT ALL THESE LO ANS WERE GRANTED MAINLY FOR AGRICULTURAL PURPOSES, NO SUPPORTING EVIDENCE T O PROVE THAT ALL SUCH LOANS WERE TO BONA FIDE AGRICULTURISTS HAS BEEN ADDUCED. THE EXORBITANT RATE OF 20% INTEREST IS A CLEAR INDICATION OF NON-AGRICULTU RAL LOANS. THOUGH THE LOANS ARE PAID TO ITS MEMBERS, THE PURPOSE OF LOAN COULD NOT BE PROVED TO BE FOR AGRICULTURAL PURPOSES. THOUGH THE PRIMARY AGRICULT URAL CREDIT SOCIETIES PROVED TO BE FOR AGRICULTURAL PURPOSES. THOUGH THE PRIMAR Y AGRICULTURAL CREDIT SOCIETIES ARE FORMED FOR THE PURPOSE OF PROVIDING F INANCE TO FARMERS, THERE ARE NON-AGRICULTURAL LOANS, LIKE GOLD LOANS GIVEN T O NOMINAL AND ASSOCIATE MEMBERS WHO ARE NON-AGRICULTURISTS. THERE IS ONLY A SMALL PORTION OF TOTAL LOANS REPRESENT STRICTLY AGRICULTURAL LOANS. WHERE AS, THE GOVERNMENT AGENCIES LIKE NABARD GIVE LOAN TO THE PRIMARY AGRIC ULTURAL SOCIETIES AT HEAVILY SUBSIDIZED INTEREST RATE. IT IS ALSO A PRACTICE TO CARRY OUT CHITTY BUSINESS (MDS ETC.) WHERE NOMINAL MEMBERS CAN ALSO SUBSCRIBE TO C HITTY. 6.2 IN THE ASSESSEES CASE, IT IS OBSERVED THAT MAJORITY OF LOANS GIVEN WERE TO NON-AGRICULTURISTS. ON GOLD LOAN, VEHICLE LOAN E TC. THE RATE OF INTEREST WAS 15% WHILE IT WAS 20% ON HUNDI LOANS, CASH CREDIT AC COUNTS ETC. THEREFORE, THE LOANS BEING THE LOWEST INTEREST RATE OF 12% ARE ACCEPTED TO BE AGRICULTURAL LOANS. TOTAL INTEREST RECEIVED ON SUC H LOANS COMES TO RS.33,42,942/- OUT OF THE TOTAL INTEREST RECEIPTS O F 149,84,254/-. THE NET PROFIT ATTRIBUTABLE TO INTEREST ON AGRICULTURAL LOA N IS ESTIMATED @12% WHICH IS ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I). THIS CO MES TO RS.4,01,153/-. 5. THE LD. CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 6. THE LD. COUNSEL FOR THE ASSESSEE ARGUED TH AT THE ASSESSING OFFICER TOOK AN ARBITRARY VIEW THAT ONLY 12% OF THE TOTAL LOANS (I.E. THOSE LOANS HAVING INTEREST RATES NOT EXCEEDING 12%) GIVEN BY THE ASSE SSEE WERE FOR AGRICULTURAL PURPOSES. THE ASSESSING OFFICER OBSERVED THAT INTER EST RATES ON CERTAIN LOANS WERE 12-20% AND SOLELY BASED ON THIS AND WITHOUT AN ALYZING THE FACTS OF THE CASE CAME TO A CONCLUSION THAT SUCH LOANS WERE NOT GIVEN FOR AGRICULTURAL PURPOSES. THEREAFTER, THE ASSESSING OFFICER CURTAI LED THE ASSESSEES CLAIM U/S. I.T.A. NO51./COCH/2015 5 80P TO 12% OF WHAT WAS ORIGINALLY CLAIMED. IT WAS SUBMITTED THAT THE FINDING OF THE ASSESSING OFFICER, WHICH WAS UPHELD BY THE LD. CIT(A), WAS NOT CORRECT BECAUSE THE CONCLUSIONS WERE REACHED ON AN ESTIMATE D BASIS WITHOUT ANALYZING THE ACTUAL FACTS. THE LD. COUNSEL FOR THE ASSESS EE INVITED ATTENTION TO THE BALANCE SHEET AS AT 31/03/2007. OUT OF WHICH, LOANS TOTALING RS.487,99 LAKHS WERE DIRECT AGRICULTURAL LOANS (SHORT TERM AGRICULT URAL LOAN RS. 13.76 LAKHS + MEDIUM TERM AGRICULTURAL LOANS RS.474.23 LAKHS). T HAT IS TO SAY, 52.56% OF TOTAL LOANS WERE GIVEN TO MEMBERS FOR AGRICULTURAL PURPOSES. BESIDES, ELAMGULAM IS A VERY SMALL VILLAGE AND MOST OF THE BO RROWERS WERE AGRICULTURISTS AND HENCE A MAJOR PORTION OF OTHER LOANS WERE ALSO FOR PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES OF THE MEMBERS. IN VIEW O F THE ABOVE, IT WAS SUBMITTED THAT THE ASSESSING OFFICER SHOULD HAVE APPRECIATED THE FACTUAL POSITION THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE WAS GIVING FINAN CIAL ACCOMMODATION TO MEMBERS FOR AGRICULTURAL AND PURPOSES CONNECTED WIT H AGRICULTURAL ACTIVITIES AND THE ASSESSING OFFICER SHOULD HAVE TREATED THE ASSES SEE AS A PACS AND ALLOWED DEDUCTION U/S. 80P OF THE INCOME TAX ACT, 1961. 7. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE R OF BOTH THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE FACTS OF THE CASE. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE IS CARRYING ON ACTIVITIES OTHER I.T.A. NO51./COCH/2015 6 THAN AGRICULTURAL LIKE TRADING IN CONSUMABLE ITEMS, MISC. ACTIVITIES LIKE R.F. INTEREST, DEPOSIT INTEREST, CHITTY INTEREST, RENT, DIVIDEND, COMMISSION ETC. THOUGH THE CLAIM OF THE ASSESSEE IS THAT THE LOANS WERE PROVIDED MAINLY FOR AGRICULTURAL PURPOSES, BUT THE ASSESSEE HAS NOT PRO DUCED ANY SUPPORTING EVIDENCE TO PROVE THAT SUCH LOANS WERE GIVEN TO BON A FIDE AGRICULTURISTS. THE EXORBITANT RATE OF 20% INTEREST IS A CLEAR INDICATI ON OF PROVIDING NON-AGRICULTURAL LOANS TO NON-AGRICULTURISTS AS OBSERVED BY THE ASSE SSING OFFICER. NO EVIDENCE TO PROVE THAT THE PURPOSE OF LOAN WAS FOR AGRICULTURAL ACTIVITIES HAS BEEN PLACED ON RECORD EITHER BEFORE THE AUTHORITIES BELOW OR EVEN BEFORE US. IT HAS BEEN OBSERVED THAT THERE ARE NON-AGRICULTURAL LOANS LIKE GOLD LOANS GIVEN TO NOMINAL AND ASSOCIATE MEMBERS WHO ARE NON-AGRICULTURISTS AN D THERE IS ONLY A SMALL PORTION OF THE TOTAL LOANS WHICH STRICTLY REPRESENT AGRICULTURAL LOANS. ON GOLD LOAN, VEHICLE LOAN ETC., THE RATE OF INTEREST WAS 15% WHI LE IT WAS 20% ON HUNDI LOANS, CASH CREDIT ACCOUNTS ETC. THE ASSESSING OFFICER, ON AN ESTIMATE BASIS, TREATED THE LOANS BEARING LOWEST RATE OF INTEREST OF 12% TO BE AGRICULTURAL LOANS. ACCORDINGLY, OUT OF THE TOTAL INTEREST RECEIVED AMO UNTING TO RS.149,84,254/-, THE PROFIT ATTRIBUTABLE TO INTEREST ON AGRICULTURAL LOA NS COMES TO RS.33,42,942/- AND THE NET PROFIT ATTRIBUTABLE TO INTEREST ON AGRICULT URAL LOANS WAS ESTIMATED AT THE RATE OF 12% ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I ) OF THE ACT. WHICH COMES TO RS.4,07,153/-. THE ARGUMENTS MADE BY THE LD. COUNS EL FOR THE ASSESSEE ARE WITHOUT THE HELP OF DOCUMENTARY EVIDENCE AND HE HAS NOT MET THE OBJECTIONS OF I.T.A. NO51./COCH/2015 7 THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT PLA CED ON RECORD SUPPORTING EVIDENCE TO PROVE THAT THE LOANS WERE GIVEN FOR AGR ICULTURAL PURPOSES. 9. THE PROVISIONS OF SEC. 80P(4) DOES NOT AP PLY TO ANY CO-OPERATIVE BANK OTHER THAN PRIMARY AGRICULTURAL CREDIT SOCIETY OR P RIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. IN FACT, THE ASSESSEE HAS NOT PLACED ON RECORD DOCUMENTARY EVIDENCE TO PROVE THAT THE LO ANS WERE GIVEN TO BONA FIDE AGRICULTURISTS AND THEREFORE, IN SUCH CIRCUMSTANCES AND FACTS OF THE CASE, AT THIS STAGE, IT IS PRE-MATURE FOR THE ASSESSING OFFICER T O DECIDE THE ISSUE AND THAT TOO, ON AN ESTIMATE BASIS AND WORK OUT THE DISALLOWANCE. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO VERIFY AND EXAMINE WHETHER T HE LOANS WERE GIVEN TO THE BONA FIDE AGRICULTURISTS OR NOT. THE ASSESSEE IS A LSO DIRECTED TO COOPERATE IN THE PROCEEDINGS BEFORE THE ASSESSING OFFICER. ACCORDING LY, THE MATTER IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE DE NOVO AS PER THE DIRECTIONS GIVEN HEREIN ABOVE. THUS, GROUND NO. 2 IS ALLOWED FOR STATISTICAL PURPOSES. 10. WITH REGARD TO GROUND NO. 3 RELATING TO TRAN SFER OF THE AMOUNT FOR PROVISION OF BAD AND DOUBTFUL DEBTS CREATED IN EARL IER YEARS WHICH WAS CLAIMED AS DEDUCTION IN THE YEAR OF CREATION, THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT THAT IN THE PROFIT AND LOSS ACCOUN TS PREPARED BY THE CO-OPERATIVE SOCIETIES IN ACCORDANCE WITH THEIR GOVERNING LAW, E VERY YEAR CERTAIN AMOUNTS WILL I.T.A. NO51./COCH/2015 8 BE TRANSFERRED TO RESERVES (I.E. PROVISION) BY DEBI TING PROFIT AND LOSS ACCOUNT AND CREDITING THE CONCERNED PROVISION ACCOUNT. THESE ITEMS DEBITED IN THE PROFIT AND LOSS ACCOUNT ARE NOT ALLOWABLE IN COMPUTING BUSINES S INCOME UNDER THE INCOME TAX ACT, 1961 AND HENCE THEY WERE ADDED BACK EVERY YEAR IN THE INCOME TAX COMPUTATION. SIMILARLY, EVERY YEAR THERE WILL AL SO BE TRANSFERS FROM RESERVES CREATED IN EARLIER YEARS, WHICH WERE NOT CLAIMED AS DEDUCTION IN THE YEAR OF CREATION. SINCE TRANSFER TO RESERVES IS NOT ALLOWE D AS DEDUCTION, TRANSFER FROM RESERVES CANNOT BE TREATED AS INCOME. THIS POSITIO N WAS UPHELD BY CHENNAI BENCH OF ITAT IN DY.CIT VS. MADURAI DISTRICT CENTRA L CO-OPERATIVE BANK LTD. REPORTED IN (2014) 51 TAXMANN.COM 194. THE LD. CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THIS BEING THE CASE, THE ASSESSING OFFICER SHOULD HAVE COMPUTED THE GROSS TOTAL INCOME OF THE ASSESSEE AS SHOWN IN THE TABLE BELOW INSTEAD OF COMPUTING IT AT RS.77,93,263 (I.E.. NET PROFIT AS P ER P&L A/C + RS.76,59,150+DEPRECIATION RS.1,34,113). COMPUTATION OF GROSS TOTAL INCOME NET PROFIT AS PER P&L A/C 76,59,150 ADD: AMOUNTS DEBITED TO P&L A/C NOT DEDUCTIBLE TRANSFER TO RESERVE FOR DEFICIT STOCK TRANSFER TO RESERVE FOR UNREALIZED INTERES T TRANSFER TO RESERVE FOR BAD AND DOUBTFUL ASSETS TRANSFER TO DEPRECIATION RESERVE 1,790 16,05,75,327 1,07,08,519 1,34,114 17,14,19,750 17,90,78,900 LESS: AMOUNTS CREDITED IN P&L A/C NOT CHARGEABLE A S INCOME TRANSFER FROM RESERVE FOR DEFICIT STOCK TRANSFER FROM RESERVE FOR UNREALIZED INTE REST TRANSFER FROM RESERVE FOR BAD AND DOUBTFU L ASSETS. 580 16,02,92,080 *1,90,67,325 17,93,59,986 LOSS(RS.) 2,81,086 I.T.A. NO51./COCH/2015 9 BASED ON THE ABOVE COMPUTATION, IT WAS SUBMITTED TH AT IF THE ASSESSING OFFICER COMPUTED THE INCOME AS ABOVE, WHICH IS APPROVED BY THE CHENNAI ITAT, THEN THE NET RESULT WOULD HAVE BEEN A LOSS OF RS.2,81,08 6 INSTEAD OF INCOME OF RS.77,93,263 COMPUTED BY THE ASSESSING OFFICER. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND P ERUSED THE FACTS OF THE CASE. AS A MATTER OF FACT, THERE IS NO DECISION MADE BY T HE ASSESSING OFFICER IN THIS REGARD. THE ISSUE WAS RAISED ONLY BEFORE THE LD. C IT(A) WHO HAS ALSO NOT DECIDED THE ISSUE IN THE RIGHT SPIRIT AT PGS. 9, 10 AND 11 OF HIS ORDER. IT IS AN UNDISPUTED FACT THAT THE APPROPRIATION OF PROFIT IS NOT AN EXPENDITURE AND SIMILARLY, THE REVERSAL OF THE SAME IS NOT AN INCOM E. THE LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE DECISION OF THE ITAT, CH ENNAI BENCH IN THE CASE OF DY.CIT VS. MADURAI DISTRICT CENTRAL CO-OPERATIVE BA NK LTD. (SUPRA). IN THIS REGARD, PARA 10 OF THE SAID DECISION IS REPRODUCED HEREINBELOW FOR THE SAKE OF CONVENIENCE: 10. THEREFORE, IT IS TO BE SEEN THAT AT THE FIRST INSTANCE WHEN THE AMOUNTS WERE TRANSFERRED TO RESERVE AS WELL AS AT THE SECON D INSTANCE WHEN SUCH AMOUNTS ARE TAKEN OUT OF THE RESERVES AND BROUGHT B ACK TO THE PROFIT AND LOSS ACCOUNT, THE TRANSFERS WERE ONLY IN THE NATURE OF A PPROPRIATION. THE EARLIER APPROPRIATION ENTRY OF TRANSFERRING A PORTION OF TH E PROFIT TO THE RESERVES IS REVERSED BY PASSING A SUBSEQUENT APPROPRIATION ENTR Y OF TRANSFERRING THE AMOUNTS FROM THE RESERVES TO THE PROFIT AND LOSS AC COUNT. THUS, APPROPRIATION ENTRIES AN TRANSFERS OF FUNDS DO NOT AFFECT THE COM PUTATION OF TAXABLE INCOME OF THE ASSESSEE BANK EITHER AT THE TIME OF FIRST AP PROPRIATION OR AT THE TIME OF SECOND APPROPRIATION. THEREFORE, THE VIEW TAKEN BY THE LOWER AUTHORITIES THAT THE CREDITS FOUND IN THE PROFIT AND LOSS ACCOUNT, A S A RESULT OF REVERSAL OF THE RESERVES IS IN THE NATURE OF TAXABLE INCOME, IS NOT CORRECT. IT IS NOT SUSTAINABLE IN LAW. IN THAT WAY, THE LOWER AUTHORITIES ARE PRO POSING TO TAX AN AMOUNT, I.T.A. NO51./COCH/2015 10 WHICH HAS ALREADY BEEN SUFFERED TAX. IT RESULTS IN DOUBLE TAXATION, WHICH IS NOT PERMISSIBLE IN LAW. 12. THEREFORE, IN OUR OPINION, THE MATTER IS TO BE DECIDED AFRESH AFTER CONSIDERING THE DECISION OF THE ITAT, CHENNAI BENCH IN THE CASE OF DY.CIT VS. MADURAI DISTRICT CENTRAL CO-OPERATIVE BANK LTD. (SU PRA) AND THE SUBMISSION OF THE ASSESSEE REPRODUCED HEREIN ABOVE. ACCORDINGLY, GROUND NO. 3 OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NO. 4 IS WITH REGARD TO DISALLOWANC E OF SET OFF CARRY FORWARD LOSSES OF THE EARLIER YEARS. THE LD. COUNSEL FOR T HE ASSESSEE ARGUED THAT THE ASSESSEE HAS FILED APPLICATION U/S. 154 OF THE INCO ME TAX ACT, 1961 WHICH IS AVAILABLE AT ANNEXURE 4 IN WHICH RELIEF HAS ALREADY BEEN GIVEN TO THE ASSESSEE AND THEREFORE, THE SAID GROUND BECOMES INFRUCTUOUS. ACCORDINGLY, GROUND NO. 4 IS TREATED AS INFRUCTUOUS. 14. IN THE RESULT, THE APPEAL FILED BY THE ASS ESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COUR T ON 27-10-2015. SD/- SD/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 27TH OCTOBER, 2015 GJ I.T.A. NO51./COCH/2015 11 COPY TO: 1. ELAMGULAM SERVICE COOPERATIVE BANK LTD. (NO.3576) , KOORALI P.O., ELAMGULAM, KOTTAYAM-686 552. 2. THE INCOME TAX OFFICER, WARD-1, KOTTAYAM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-IV, KOCH I 4. THE COMMISSIONER OF INCOME-TAX, KOTTAYAM. 5. D.R., I.T.A.T.,COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COC HIN