Shree Sharada Sahakari Bank Ltd., Pune V. Income-tax Officer,

ITA 665/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9312 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 11-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 665 /PUN/2015 / ASSESSMENT YEAR : 20 1 1 - 12 SHREE SHARADA SAHAKARI BANK LTD., 47/1, PARVATI PLAZA, TAWARE COLONY, PUNE 411009 PAN : AAAAS3916L ....... / APPELLANT / V S. INCOME TAX OFFICER, WARD 6(2), PUNE / RESPONDENT ASSESSEE BY : SHRI SUNIL GANOO REVENUE BY : S HRI ACHAL SHARMA / DATE OF HEARING : 21 - 06 - 2017 / DATE OF PRONOUNCEMENT : 23 - 0 6 - 2017 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 4, PUNE DATED 27 - 02 - 2015 FOR THE ASSESSMENT YEAR 201 1 - 12. 2. THE ASSESSEE IN APPEAL HAS RAISED TWO GROUNDS. THE SAME READ AS UNDER : 2 ITA NO . 665/PUN/2015, A.Y. 2011 - 12 1 . IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C. I. T.[A] HAS ERRED IN DISALLOWING THE DEDUCTION OF RS.25,73,676.00 CLAIMED BY THE APPELLANT BANK U/S 36[1][VIIA] OF THE I.T. ACT 1961. THE SAID DISALLOWANCE BEING PATENTLY ILLEGAL, BAD IN LAW, ARBITRARY, PERVERSE AND BEING DEVOID OF MERITS THE SAME MAY PLE ASE BE DELETED. 2 . IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C. I. T.[A] HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.16,16,263.00 MADE BY THE L EARNED ASSESSING OFFICER U/S 14 A OF THE I.T. ACT 1961. THE SAID DISALLOWANCE IS PATENT LY ILLEGAL, BAD IN LAW, ARBITRARY, PERVERSE AND DEVOID OF MERITS AND THE VARIOUS REASONS GIVEN BY THE LEARNED C.LT.[A] IN CONFIRMING THE SAID DISALLOWANCE BEING LEGALLY UNSUSTAINABLE THE IMPUGNED DISALLOWANCE MAY PLEASE BE DELETED. 3. THE BRIEF FA CTS OF THE CASE AS EMANATING FROM RECORDS ARE : THE ASSESSEE IS A CO - OPERATIVE BANK REGISTERED UNDER THE MAHARASHTRA STATE CO - OPERATIVE SOCIETIES ACT. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 30 - 09 - 2011 DECLARING TOTAL I NCOME OF RS.3,11,65,818/ - . DURING THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER INTER ALIA MADE ADDITIONS/DISALLOWANCES ON ACCOUNT OF : I . DEDUCTION U/S. 36(1)(VIIA) RS.25,73,676/ - . II . DISALLOWANCE U/S. 14A R.W. RULE 8D RS.16,16,263/ - . AGGRIEVED BY THE ASSESSMENT ORDER DATED 04 - 03 - 2014, THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) VIDE IMPUGNED ORDER PARTLY ACCEPTED THE APPEAL OF THE ASSESSEE. HOWEVER, THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER IN RESPECT OF AFORESAID TWO ITEMS WAS CONFIRMED BY THE FIRST APPELLATE AUTHORITY. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. SHRI SUNIL GANOO APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE CO MMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THE ADDITION U/S. 3 ITA NO . 665/PUN/2015, A.Y. 2011 - 12 36(1)(VIIA) PRIMARILY FOR THE REASON THAT NO PROVISION HAS BEEN MADE BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AS AGAINST THE DEDUCTION CLAIMED ON ACCOUNT OF PROVISIONS FOR DOUBTFUL DEBTS. T HE ACT DOES NOT MANDATE DEBITING OF P ROVISION FOR BAD AND DOUBTFUL DEBTS IN THE PROFIT AND LOSS ACCOUNTS BEFORE CLAIMING THE SAME AS DEDUCTION U/S. 36(1)(VIIA) OF THE ACT . THE LD. AR HOWEVER FAIRLY CONTENDED THAT SIMILAR ISSUE HAD COME BEFORE THE CO - ORD INATE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI MAHALAXMI CO - OP BANK LTD. VS. ITO IN ITA NO. 1658/PN/2011 FOR ASSESSMENT YEAR 2008 - 09 DECIDED ON 29 - 10 - 2013. THE CO - ORDINATE BENCH UPHELD THE ADDITION TO THE EXTENT PROVISION WAS NOT MADE IN THE BOOKS OF ACC OUNT. 4.1 IN RESPECT OF GROUND NO. 2 THE LD. AR SUBMITTED THAT COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION U/S. 14A R.W. RULE 8D OF THE ACT. THE ASSESSING OFFICER HAS MADE DISALLOWANCE U/S. 14A BY INVOKING C LAUSE (II) AND (III) OF RULE 8D(2). THE C LAUSE (II) DEALS WITH THE DISALLOWANCE OF INTEREST ON BORROWED FUNDS UTILIZED FOR MAKING INVESTMENTS. IN THE PRESENT CASE, OWN CAPITAL AND OTHER INTEREST FREE FUNDS OF THE ASSESSEE ARE MUCH MORE THAN THE INVESTMENTS MADE. THE L D. AR ASSERTED THAT WHERE OWN FUNDS AND NON - INTEREST BEARING FUNDS OF THE ASSESSEE ARE SUFFICIENT TO COVER THE INVESTMENTS , NO DISALLOWANCE U/S. 14A IS WARRANTED. IN SUPPORT OF HIS SUBMISSIONS THE LD. AR PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF HDFC BANK LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX AND ORS. REPORTED AS 383 ITR 529. 4.2 IN RESPECT OF DISALLOWANCE MADE UNDER C LAUSE (III) OF RULE 8D(2) THE LD. AR CONTENDED THAT THE ASSESSING OFFICER HAS NOT RECORDED SATISFA CTION IN TERMS OF SECTION 14A(2). FOR INVOKING EACH CLAUSE OF RULE 8D THE ASSESSING OFFICER HAS TO RECORD SATISFACTION AND SPECIFICALLY STATE THAT THE 4 ITA NO . 665/PUN/2015, A.Y. 2011 - 12 ASSESSEE HAS INCURRED EXPENDITURE ON EARNING INTEREST FREE INCOME. HOWEVER, NO SUCH SATISFACTION HAS BE EN RECORDED BY THE ASSESSING OFFICER. 5. ON THE OTHER HAND SHRI ACHAL SHARMA REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE ADDITION ON BOTH THE COUNTS. CONTROVERTING THE SUBMISSIONS MADE BY THE LD. AR IN RESPECT OF DISALLOWANCE MADE U/S. 14A R.W. RULE 8D , THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS RECORDED PROPER SATISFACTION FOR INVOKING THE PROVISIONS OF RULE 8D. THE ASSESSING OFFICER HAS MADE DETAILED DISCUSSION IN PARAS 6.1 TO 6.5. THE ASSESSING OFFICER HAS CONSIDERED ALL THE DECISIONS ON WHICH THE ASSESSEE HAS PLACED RELIANCE AND AFTER DISTINGUISHING THE SAME HAS MADE DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE ACT. 6 . W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESE NTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . WE HAVE ALSO CONSIDERED THE DECISIONS ON WHICH THE LD. AR OF THE ASSESSEE HAS PLACED RELIANCE. 7 . THE FIRST GROUND IN APPEAL IS AGAINST DISALLOWANCE OF DEDUCTION RS.25,73,676/ - CLAIMED U/S. 36(1)(VIIA) OF THE ACT. ADMITTEDLY, THE ASSESSEE HAS NOT CREATED P ROVISION FOR DOUBTFUL DEBTS IN THE BOOKS. WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED DISALLOWANCE U/S. 36(1)(VIIA) AFTER PLACING RELI ANCE ON CBDT INSTRUCTION NO. 17/2008 AND THE DECISION OF CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI MAHALAXMI CO - OP BANK LTD. VS. ITO (SUPRA). THE TRIBUNAL IN THE CASE OF SHRI MAHALAXMI CO - OP BANK LTD. VS. ITO (SUPRA) AFTER CONSIDERING THE DECI SION THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF 5 ITA NO . 665/PUN/2015, A.Y. 2011 - 12 STATE BANK OF PATIALA VS. COMMISSIONER OF INCOME TAX [272 ITR 54] CONCLUDED AS UNDER : 11. IN VIEW OF THE AFORESAID INTERPRETATION OF SECTION 36(1)(VIIA) OF THE ACT BY THE HONBLE PUNJAB & HARY ANA HIGH COURT, THE ORDERS OF THE LOWER AUTHORITIES DESERVE TO BE UPHELD INASMUCH AS THE ASSESSEE HAS NOT MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNT EQUAL TO THE AMOUNT OF DEDUCTION SOUGHT TO BE CLAIMED UNDER SECTION 36(1)(VIIA) OF THE ACT, AND THEREFORE, IN OUR VIEW, THE LOWER AUTHORITIES WERE JUSTIFIED IN RESTRICTING THE DEDUCTION TO RS.50,00,000/ - , BEING THE AMOUNT OF PROVISION ACTUALLY MADE IN THE BOOKS OF ACCOUNT. THUS, IN VIEW OF THE FACTS OF THE CASE AND DECISION OF THE CO - ORDINATE BENCH WE DO NOT FIND ANY MERIT IN THE SUBMISSIONS OF LD. AR OF THE ASSESSEE. SINCE, THE ASSESSEE HAS NOT MADE P ROVISION FOR DOUBTFUL DEBTS IN THE BOOKS , T HE ENTIRE AMOUNT CLAIMED BY THE ASSESSEE HAS BEEN RIGHTLY DISALLOWED BY THE AUTHORITIES BELOW. WE FIND NO INFIRMITY IN THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. THEREFORE, THE SAME ARE UPHELD AND THE GROUND NO. 1 RAISED BY THE ASSESSEE IS DISMISSED. 8 . T HE SECOND GROUND IN APPEAL BY THE ASSESSEE IS WITH RESPECT TO DISALLOWANCE U/S. 14A R.W. RULE 8D. DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.21,32,761/ - FROM LIQUID MUTUAL FUND S . THE ASSESSEE HAS CLAIMED THE SAID INCOME AS EXEMPT U/S. 10 OF THE ACT. ADMITTEDLY, THE ASSESSEE HAS NOT MADE ANY VOLUNTARY DISALLOWANCE U/S. 14A IN RESPECT OF TAX FREE INCOME EARNED. THE ASSESSING OFFICER HAS MADE DISALLOWANCE BY INVOKING THE PROVISIONS O F C LAUSE (II) AND (III) OF RULE 8D (2) . THE LD. AR ASSERTED THAT FOR MAKING INVESTMENT , THE ASSESSEE HAS UTILIZED OWN INTEREST FREE FUNDS. WE FIND THAT SIMILAR SUBMISSIONS WERE MADE BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW. THE COMMISSIONER OF INCOME TA X (APPEALS) REJECTED THE CONTENTION OF THE ASSESSEE AS THE ASSESSEE FAILED TO SHOW FROM FINANCIAL STATEMENT THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS TO 6 ITA NO . 665/PUN/2015, A.Y. 2011 - 12 COVER THE INVESTMENTS. THE ASSESSEE HAS FILED A COPY OF ANNUAL REPORT FOR THE FINANC IAL YEAR 2010 - 11 BEFORE THE TRIBUNAL TO SHOW THAT OWN FUNDS OF THE ASSESSEE ARE SUFFICIENT TO COVER THE INVESTMENTS AND BORROWED INTEREST BEARING FUNDS WERE NOT UTILIZED BY THE ASSESSEE FOR INVESTMENT PURPOSE. 9 . THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC BANK LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX AND ORS. (SUPRA) APPROVING THE DECISION RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX VS. RELIANCE UTILITIES AND POWER LTD. 313 ITR 340 (BOM) REITERATED THAT WHERE BOTH INTEREST FREE FU NDS AND INTEREST BEARING FUNDS ARE AVAILABLE AND THE INTEREST FREE FUNDS ARE MORE THAN THE INVESTMENTS MADE, THE PRESUMPTION IS THAT THE INVESTMENT IN THE TAX FREE SECURITIES WOULD HAVE BEEN MADE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. HENCE, NO DISALLOWANCE U/S. 14A IS TO BE MADE. IN VIEW OF THE FACTS OF THE CASE AND THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF HDFC BANK LTD. VS. DEPUTY COMMISSIONER OF INCOME TAX AND ORS. (SUPRA) WE DEEM IT APPROPRIATE TO REMIT THI S ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO ASCERTAIN THE AVAILABILITY OF INTEREST FREE FUNDS OF THE ASSESSEE FROM THE FINANCIAL RECORDS OF THE ASSESSEE COMPANY . IN CASE IT IS FOUND THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS DURING T HE RELEVANT PERIOD TO COVER THE INVESTMENTS , DISALLOWANCE MADE U/S. 14A R.W. RULE 8D(2)(II) SHOULD BE DELETED. 1 0 . THE DISALLOWANCE U/S. 14A HAS ALSO BEEN MADE BY INVOKING C LAUSE (III) TO RULE 8D(2). THE LD. AR OF THE ASSESSEE HAS CONTENDED THAT NO SAT ISFACTION HAS BEEN RECORDED BY THE ASSESSING OFFICER IN TERMS OF SECTION 14A(2) FOR INVOKING PROVISIONS OF C LAUSE (III) OF RULE 8D(2) . WE DO NOT FIND ANY MERIT IN THE SUBMISSIONS OF THE ASSESSEE. THE ASSESSING OFFICER HAS IN UNEQUIVOCAL TERMS HAS RECORDE D SATISFACTION FOR INVOKING THE PROVISIONS OF 7 ITA NO . 665/PUN/2015, A.Y. 2011 - 12 RULE 8D . RECORDING OF SATISFACTION FOR INVOKING DIFFERENT LIMBS OF RULE 8D IS NOT THE MANDATE. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF AUTHORITIES BELOW IN INVOKING THE PROVISIONS OF C LAUSE (III) OF RULE 8D(2). THE LD. AR OF THE ASSESSEE ALSO HAS NOT BEEN ABLE TO SUBSTANTIATE ANY ERROR IN THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING DISALLOWANCE MADE UNDER RULE 8D(2)(III). ACCORDINGLY, THE SAME IS UPHELD . ACCORDINGLY, THE GROUND N O. 2 RAISED IN THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 1 1 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE IN THE AFORESAID TERMS . ORDER PRONOUNCED ON FRIDAY, THE 23 RD DAY OF JUNE, 201 7 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 23 RD JUNE, 2017 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4 , PUNE 4. THE PR. CIT - 3 , PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / ASSISTANT REGISTRAR , , / ITAT, PUNE