South Malabar Gramina Bank, Malappuram V. JtCIT, Calicut

ITA 662/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73905 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 30-01-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 22-10-2013
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR; LATHA V KUMAR
• Assessee Lawyers: B SURAJ KUMAR
• Keywords: Depreciation; Opportunity of being heard; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 662/COCH/2013 ASSESSMENT YEAR : 2010-11 SOUTH MALABAR GRAMIN BANK, SMGB TOWER, A.K. ROAD, MALAPPURAM-676 505. [PAN:AARFS 5208D] VS. THE JOINT COMMISSIONER OF INCOME-TAX, CIRCLE-2, KOZHIKODE. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI B. SURAJ KUMAR, FCA REVENUE BY SMT. LATHA V. KUMAR, JR. DR AND SHRI M. ANIL KUMAR, CIT(DR) DATE OF HEARING 30/01/2014 DATE OF PRONOUNCEMENT 07/03/2014 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 16- 07-2013 PASSED BY THE LD. CIT(A), KOZHIKODE AND IT RELATES TO THE ASSESSMENT YEAR 2010-11. 2. THE ASSESSEE HAS URGED THE FOLLOWING TWO ISSUES IN THIS APPEAL: (A) DISALLOWANCE OF DEPRECIATION ON INVESTMENTS CLA IMED BY THE ASSESSEE. (B) PARTIAL DISALLOWANCE OF DEDUCTION CLAIMED U/S. 36(1)(VIIA) OF THE ACT. I.T.A. NO. 662/COCH/2013 2 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE IS A CO- OPERATIVE SOCIETY ENGAGED IN BANKING BUSINESS. DURI NG THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED DEDUCTION OF RS . 8.92 CRORES UNDER THE HEAD DEPRECIATION ON INVESTMENTS. THE ASSESSING OFFIC ER NOTICED THAT THE ASSESSEE DID NOT DEBIT THE ABOVE SAID AMOUNT IN THE PROFIT A ND LOSS ACCOUNT, I.E., IT HAD CLAIMED DEDUCTION ONLY IN THE COMPUTATION OF INCOME MADE FOR THE PURPOSE OF INCOME TAX ACT. THE ASSESSEE SUBSTANTIATED ITS CL AIM BY PLACING RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F UNITED COMMERCIAL BANK VS. CIT (240 ITR 355). THE ASSESSING OFFICER NOTICED TH AT THE DECISION RENDERED BY HONBLE SUPREME COURT WAS RELATED TO THE ASSESSMENT YEAR 1982-83, DURING WHICH PERIOD THERE DID NOT EXIST ANY SPECIFIC GUIDE LINE ISSUED BY RBI WITH REGARD TO THE VALUATION OF INVESTMENTS. HOWEVER, FOR THE YEAR UNDER CONSIDERATION, THE RBI HAD ISSUED GUIDELINES FOR CLASSIFICATION AND VA LUATION OF INVESTMENTS MADE BY THE BANKS. THE AO NOTICED THAT THE ONE OF THE CONDI TIONS SPECIFIED IN THE GUIDE LINES WAS THAT THE AMOUNT PROVIDED FOR DEPRECIATIO N ON INVESTMENTS IS REQUIRED TO BE DEBITED TO THE PROFIT AND LOSS ACCOUNT. SINC E THE ASSESSEE DID NOT DEBIT THE AMOUNT PROVIDED FOR DEPRECIATION ON INVESTMENT S IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF RS. 8.92 CRORES MADE BY THE ASSESSEE. 4. THE ASSESSEE HAD ALSO CLAIMED DEDUCTION U/S. 36( 1)(VIIA) OF THE ACT AS UNDER: 10% ON AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES RS. 1,41,89,900/- 7.5% OF GROSS TOTAL INCOME RS. 1,50,13,904/- RS. 2,92,03,804/- =========== THE ASSESSING OFFICER ACCEPTED THE CLAIM OF RS. 1.4 1 CRORES RELATING TO 10% OF AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES. HOWEVER, IN RESPECT OF THE CLAIM OF 7.5% OF GROSS TOTAL INCOME, THE ASSESS ING OFFICER TOOK THE VIEW THAT I.T.A. NO. 662/COCH/2013 3 DEDUCTION SHOULD BE RESTRICTED TO INCOME GENERATED FROM RURAL BRANCHES ONLY. THE AO SO TOOK THE VIEW ON THE REASONING THAT THE D EDUCTION U/S 36(1)(VIIA) OF THE ACT IS PROVIDED IN THE ACT IN ORDER TO ENCOURAG E RURAL ADVANCES AND ALSO FOR MAKING PROVISION FOR BAD AND DOUBTFUL DEBTS IN RELA TION TO RURAL BRANCHES. IN THIS REGARD THE AO DREW SUPPORT FROM THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD VS. CIT (343 ITR 2 70)(SC). ACCORDINGLY, HE RESTRICTED THE DEDUCTION TO RS.86.87 LAKHS AS AGAIN ST THE CLAIM OF RS. 150.13 LAKHS MADE BY THE ASSESSEE. THE LD. CIT(A) UPHELD BOTH THE ADDITIONS AND HENCE THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 5. THE FIRST ISSUE RELATES TO THE CLAIM OF DED UCTION OF DEPRECIATION ON INVESTMENTS. IT IS AN ADMITTED FACT THAT THE ASSE SSEE DID NOT DEBIT THE SAID CLAIM IN ITS PROFIT AND LOSS ACCOUNT. ACCORDING TO LD A.R, THE ASSESSEE HAS BEEN MAKING SUCH KIND OF CLAIMS IN THE EARLIER YEARS ALS O, I.E., IT HAS BEEN MAKING SUCH CLAIMS WITHOUT DEBITING THE AMOUNT PROVIDED FOR DEP RECIATION ON INVESTMENTS TO THE PROFIT AND LOSS ACCOUNT. THE LD A.R ALSO FURNI SHED A COPY OF ORDER DATED 06.02.2013 PASSED BY LD CIT(A), KOZHIKODE IN THE HA NDS OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08 AND SUBMITTED THAT THE SIMI LAR DISALLOWANCE MADE IN THAT YEAR HAS SINCE BEEN ALLOWED BY LD CIT(A) AND T HE DEPARTMENT DID NOT PREFER ANY APPEAL AGAINST THE SAID ORDER. HE FURTHER PLAC ED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UNITED COMMERC IAL BANK (SUPRA) AND SUBMITTED THAT THE METHOD CONSISTENTLY FOLLOWED FOR INCOME TAX PURPOSES SHOULD NOT BE DISTURBED. THE LD COUNSEL ALSO SUBMITTED TH AT THE ASSESSEE HEREIN FALLS IN THE CATEGORY OF REGIONAL RURAL BANK (RRB) AND HEN CE THE GUIDELINES FOR CLASSIFICATION AND VALUATION OF INVESTMENTS BY BANK S ISSUED BY RBI IS NOT APPLICABLE TO IT. IN THIS REGARD, THE LD COUNSEL I NVITED OUR ATTENTION TO THE CIRCULAR NO. DBOD. NO. BP.BC.32/21.04.048/2000-2001 DATED OCTOBER 16, 2000, WHEREIN IT IS STATED THAT THE SAID CIRCULAR IS ISSU ED TO ALL COMMERCIAL BANKS (EXCLUDING RRBS AND LABS). ACCORDINGLY, HE SUBMITT ED THAT THE AO WAS NOT CORRECT IN PLACING RELIANCE ON THE CIRCULAR OF RBI, WHICH IS NOT APPLICABLE TO THE I.T.A. NO. 662/COCH/2013 4 ASSESSEE. ALTERNATIVELY, THE LD A.R SUBMITTED THAT THE DIRECTIONS ISSUED BY RBI HAS NOTHING TO DO WITH THE COMPUTATION OR TAXABILIT Y UNDER INCOME TAX ACT AND IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA BANK (2013)(356 ITR 549). 6. WE HAVE HEARD LD D.R ALSO ON THIS ISSUE. AC CORDING TO LD A.R, THE ASSESSING OFFICER HAS PLACED RELIANCE ON A CIRCULAR OF RBI, WHICH IS NOT APPLICABLE TO IT. FURTHER, ACCORDING TO LD A.R, THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE PRACTICE OF CLAIMING DEPRECIATION ON INVESTMEN TS IN THE COMPUTATION OF INCOME ONLY, WITHOUT PROVIDING FOR THE SAME IN ITS BOOKS OF ACCOUNTS. BY PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF UNITED COMMERCIAL BANK (SUPRA), THE LD A.R CONTENDED THAT THERE IS NO NECESSITY TO PROVIDE FOR THE AMOUNT IN THE BOOKS OF ACCOUNT AND IT CAN BE CLAIMED IN THE COMPUTATION OF INCOME ALONE. WE NOTICE THAT THE HO NBLE SUPREME COURT, IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA), HAD NOTICED THAT THE ASSESSEE HAS BEEN FOLLOWING THE DIFFERENT METHODS OF VALUATION FOR BO OK PURPOSES AND FOR INCOME TAX PURPOSES FOR THE PAST 30 YEARS AND THE SAME HAS BEEN ACCEPTED BY THE REVENUE IN THE PAST YEARS. UNDER THESE CIRCUMSTANC ES, THE HONBLE APEX COURT HAS EXPRESSED THE FOLLOWING VIEW:- IN OUR VIEW, AS STATED ABOVE, CONSISTENTLY FOR 30 YEARS, THE ASSESSEE WAS VALUING THE STOCK-IN-TRADE AT COST FOR THE PURPOSES OF STATUTORY BALANCE SHEET, AND FOR THE INCOME TAX RETURN, VALUATION WAS AT COST OR MARKET VALUE, WHICHEVER WAS LOWER. THAT PRACTICE WAS ACCE PTED BY THE DEPARTMENT AND THERE WAS NO JUSTIFIABLE REASON FOR NOT ACCEPTING THE SAME. PREPARATION OF THE BALANCE SHEET IN ACCORDAN CE WITH THE STATUTORY PROVISION WOULD NOT DISENTITLE THE ASSESSEE IN SUBM ITTING THE INCOME TAX RETURN ON THE REAL TAXABLE INCOME IN ACCORDANCE WIT H THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE CONSISTENTLY AND REGULARLY. THAT CANNOT BE DISCARDED BY THE DEPARTMENTAL AUTHORITIES ON THE GROUND THAT THE ASSESSEE WAS MAINTAINING THE BALANCE SHEET IN T HE STATUTORY FORM ON THE BASIS OF THE COST OF THE INVESTMENTS. IN SUCH CASES, THERE IS NO QUESTION OF FOLLOWING TWO DIFFERENT METHODS FOR VAL UING ITS STOCK-IN-TRADE (INVESTMENTS) BECAUSE THE BANK WAS REQUIRED TO PREP ARE THE BALANCE SHEET IN THE PRESCRIBED FORM AND IT HAD NO OPTION T O CHANGE IT. FOR THE PURPOSE OF INCOME TAX, AS STATED EARLIER, WHAT IS T O BE TAXED IS THE REAL I.T.A. NO. 662/COCH/2013 5 INCOME WHICH IS TO BE DEDUCED ON THE BASIS OF THE A CCOUNTING SYSTEM REGULARLY MAINTAINED BY THE ASSESSEE AND THAT WAS D ONE BY THE ASSESSEE IN THE PRESENT CASE. 7. IN THE INSTANT CASE, IT IS REQUIRED TO BE SE EN AS TO WHETHER THE METHOD ADOPTED BY THE ASSESSEE FOR VALUATION OF INVESTMENT S FOR INCOME TAX PURPOSES WAS CONSISTENTLY FOLLOWED BY THE ASSESSEE IN THE EA RLIER YEARS ALSO. THOUGH THE LD A.R FURNISHED A COPY OF ORDER OF LD CIT(A) RELAT ING TO THE ASSESSMENT YEAR 2007-08, YET THE ABOVE SAID QUESTION WAS NOT EXAMIN ED BY THE ASSESSING OFFICER. IF THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING A P ARTICULAR METHOD OF VALUATION OF INVESTMENTS OVER THE YEARS AND THE SAME HAS ALSO BEEN ACCEPTED BY THE DEPARTMENT ALSO, THEN AS PER THE DECISION RENDERED IN THE CASE OF UNITED COMMERCIAL BANK (SUPRA), THE TAX AUTHORITIES WERE N OT JUSTIFIED IN REJECTING THE SAID CLAIM DURING THE INSTANT YEAR. HOWEVER, AS ST ATED EARLIER, THIS ASPECT HAS NOT BEEN EXAMINED BY THE ASSESSING OFFICER. FURTHE R, SINCE THE ASSESSEE HAS BEEN CLAIMING DEDUCTION ONLY FOR INCOME TAX PURPOSE S (WITHOUT MAKING APPROPRIATE ENTRIES IN THE BOOKS OF ACCOUNT), THE A SSESSEE WOULD BE ENTITLED TO CLAIM DEDUCTION OF ONLY THE INCREMENTAL AMOUNT OF P ROVISION. BEFORE US, THE ASSESSEE HAS NOT FURNISHED ANY DETAILS TO SHOW THAT THE CLAIM OF RS.8.92 CRORES MADE BY IT REPRESENTS ONLY THE INCREMENTAL AMOUNT O F PROVISION FOR DEPRECIATION ON INVESTMENTS. HENCE, IN OUR VIEW, THIS ASPECT AL SO REQUIRES VERIFICATION AT THE END OF THE ASSESSING OFFICER. IN VIEW OF THE ABOVE , WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FI LE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH IN THE L IGHT OF DISCUSSIONS MADE SUPRA AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH TH E LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSE E. 8. THE NEXT ISSUE RELATES TO THE RESTRICTION OF CLAIM OF DEDUCTION U/S 36(1)(VIIA) OF THE ACT. SECTION 36(1)(VIIA) READS AS UNDER: I.T.A. NO. 662/COCH/2013 6 (VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOU BTFUL DEBTS MADE BY (A) A SCHEDULED BANK [NOT BEING A BANK INCORPORATE D BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON-SCHEDULED BAN K OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCI ETY OR A PRIMARY CO- OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK, AN AMOUNT NOT EXCEEDING SEVEN AND ONE-HALF PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING TEN PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED I N THE PRESCRIBED MANNER. A CAREFUL PERUSAL OF THE ABOVE SAID PROVISION WOULD SHOW THAT THE DEDUCTION ALLOWED UNDER THIS SECTION IS TWO-FOLD. (A) AN AMOUNT NOT EXCEEDING 7-1/2% OF THE TOTAL IN COME COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA. AND (B) AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE A VERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED I N THE PRESCRIBED MANNER. THE ASSESSING OFFICER HAD TAKEN THE VIEW THAT THE F IRST PART OF THE DEDUCTION OF 7-1/2% OF THE TOTAL INCOME SHALL BE COMPUTED ON THE INCOME GENERATED OUT OF THE RURAL ADVANCES. WE ARE UNABLE TO AGREE WITH T HE SAID VIEW SINCE IT IS VERY CLEAR FROM THE READING OF THE PROVISION THAT THE AM OUNT OF DEDUCTION SHALL BE @ 7-1/2% OF THE TOTAL INCOME . FURTHER, THE TERM TOTAL INCOME IS DEFINED U/S. 2(45) OF THE ACT AS UNDER: (45) TOTAL INCOME MEANS THE TOTAL AMOUNT OF INC OME REFERRED TO IN SECTION 5, COMPUTED IN THE MANNER LAID DOWN IN THI S ACT. IT IS A SETTLED PROPOSITION OF LAW THAT THE WORD(S) DEFINED UNDER THE ACT SHOULD BE ASSIGNED THE SAME MEANING AND HENCE NO OTHER MEANIN G CAN BE ASCRIBED TO IT. ACCORDINGLY, WHEN THE SECTION SPECIFICALLY STATES T HE AMOUNT OF DEDUCTION IS REQUIRED TO BE COMPUTED AT A FIGURE NOT EXCEEDING 7 -1/2% OF THE TOTAL INCOME, IN OUR VIEW, THE ASSESSING OFFICER WAS NOT JUSTIFIE D IN COMPUTING THE AMOUNT OF I.T.A. NO. 662/COCH/2013 7 DEDUCTION AT 7-1/2% OF THE INCOME GENERATED OUT OF THE RURAL ADVANCES. ACCORDINGLY, THE LD. CIT(A) WAS ALSO NOT JUSTIFIED IN CONFIRMING THE SAID ACTION OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE T HE ORDER OF THE LD. CIT(A) ON THE ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM AFTER VERIFYING WHETHER THE CLAIM SO MADE DOES NOT EXCEED AT 7-1/2% ON THE TOTAL INCOME OF THE ASSESSEE (BEFORE MAKING ANY DEDUCTION UNDER THI S CLAUSE AND CHAPTER VIA). 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 07-03- 2014. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: MARCH, 2014 GJ COPY TO: 1. SOUTH MALABAR GRAMIN BANK, SMGB TOWER, A.K. ROAD , MALAPPURAM-676 505. 2. THE JOINT COMMISSIONER OF INCOME-TAX, CIRCLE-2, KOZHIKODE. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOZHIKO DE. 4. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN