The Karnataka State Co-Op Apex Bank Ltd., V. JCIT,

ITA 713/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8569 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 09-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts; Revised return
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI NARENDRA KUMAR CHOUDHRY, JUDICIAL MEMBER ITA NOS.713 & 714(BANG) 2013 (ASSESSMENT YEARS : 2008-09 & 2009-10) THE KARNATAKA STATE CO-OPERATIVE APEX BANK LIMITED, UTHUNGA,. NO.1, PMK ROAD, CHAMARAJPET, BANGALORE-560 018 PAN NO.AABAT0269J APPELLANT VS THE JOINT COMMISSIONER OF INCOME-TAX, RANGE-3, BANGALORE RESPONDENT ASSESSEE REPRESENTED BY : SHRI L.BHARATH, CA REVENUE REPRESENTED BY : SMT NEERA MALHOT RA, CIT-II DATE OF HEARING : 09-03-2016 DATE OF PRONOUNCEMENT : 1 8-03-2016 O R D E R PER SHRI NARENDRA KUMAR CHOUDHRY, JM: THESE ARE APPEALS FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDERS PASSED BY THE CIT(A)-II, BANGALORE DATED 27- 03-2013 FOR THE ASSESSMENT YEARS : 2008-09 & 2009-10 RESPECTIVELY. 2. IN ITA NO.713-2013, THE ASSESSEE RAISED THE FOLLOW ING GROUNDS ; 1. THE ORDER OF THE LEARNED APPELLATE AUTHORITY IS BAD IN LAW. 2. THE LD. APPELLATE AUTHORITY ERRED IN CONFORMING THE ACTION OF THE LEARNED AO IN NOT CONSIDERING THE ASSESEES CLAIM TOWARDS CONTRIBUTIONS/ ITA NOS.713 & 714(BANG)/2013 2 ASSISTANCE/ GRANTS GIVEN TO PACS AND DCCB DEVELOPMENT BANK AMOUNTING TO RS.6,13,74,622/-. 3. THE LD. APPELLATE AUTHORITY ERRED IN CONFIRMING THE ACTION OF THE LD.AO IN NOT CONSIDERING THE ASSESSEES CLAIM FOR PAYMENT TOWARDS FARMERS WELFARE FUND AMOUNTING TO RS.56,29,564/-. 4. THE LD.APPELLATE AUTHORITY ERRED IN CONFIRMING ACTION OF LD.AO IN NOT CONSIDERING THE ASSESSEES CLAIM FOR PAYMENT TOWARDS RURAL FARMERS SOCIO- ECONOMIC DEVELOPMENT FUND AMOUNTING TORS.20,54,564/-. 5. THE LAA ERRED IN NOT FOLLOWING THE DIRECTIONS ISSUED BY THE HONBLE ITAT VIDE ITS ORDER DATED ITA NO.264/BANG/2012 DATED 28-02-2013. IN ITA NO.714(B)/2013 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS; 1. THE ORDER OF THE LEARNED APPELLATE AUTHORITY IS BAD IN LAW. 2. THE LD. APPELLATE AUTHORITY ERRED IN CONFIRMING THE ACTION OF THE LEARNED AO IN NOT CONSIDERING THE ASSESSEES CLAIM TOWARDS THE PAYMENT MADE TO COMMON GOOD FUND AMOUNTING TO RS.10,00,000/-. 3. THE LD. APPELLATE AUTHORITY ERRED IN CONFIRMING THE ACTION OF THE LD.AO IN NOT CONSIDERING THE ASSESSEES CLAIM TOWARDS FARMERS WELFARE FUND AMOUNTING TO RS.39,63,000/- ITA NOS.713 & 714(BANG)/2013 3 4. THE LD.APPELLATE AUTHORITY ERRED IN CONFIRMING ACTION OF LD.AO IN NOT CONSIDERING THE ASSESSEES CLAIM TOWARDS RURAL FARMERS SOCIO-ECONOMIC DEVELOPMENT FUND AMOUNTING TO RS.11.10,000/-. 5. THE LAA ERRED IN NOT CONFIRMING THE ACTION OF TH E LAO IN NOT CONSIDERING THE ASSESEES CLAIM TOWARDS CLUB SUBSCRIPTION AMOUNTING TO RS.6,00,000/- AS PRIOR PERIOD SUBSCRIPTION. 6. THE LD. APPELLATE AUTHORITY ERRED IN CONFIRMING THE ACTION OF THE LAO IN NOT CONSIDERING THE ASSESSEES CLAIM TOWARDS MT SCHEMATIC GOVT. GUARANTEE COMMISSION. AMOUNTING TO RS.5,70,00,000/- AS PRIOR PERIOD SUBSCRIPTION. 3. BRIEFLY THE FACTS OF THE CASE ARE AS UNDER; IN ITA NO.713-2013 THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN B ANKING ACTIVITY FILED ITS RETURN OF INCOME FOR THE ASSESSM ENT YEAR 2008- 09 ON 30-09-2008, DECLARING TOTAL INCOME OF RS.26,8 3,47,360/- AND ON 10-03-2010 IT FILED REVISED RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.27,60,63,810/- THE CASE WAS SELE CTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S143(3) OF THE IT ACT, BY DETERMINING THE TOTAL INCOME AT RS.35,32,83 ,640/-. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE CIT(A), WHO DISMISSED THE ASSE SSEES APPEAL. THE ASSESSEE CONTESTED THE DISMISSAL OF ITS APPEAL BEFORE THE HONBLE ITAT, BANGALORE VIDE ITS ORDER IN ITA ITA NOS.713 & 714(BANG)/2013 4 NO.264/BANG/2012 DATED 28-02-2013, THE HONBLE ITAT , ALLOWED THE CLAIM OF ASSESSEE FOR DEDUCTION OF ITS CONTRIBUTION TO THE CO-OPERATIVE EDUCATION FUND. FURTHER, HONBLE ITAT IN THE SAME ORDER DIRECTED THE LEARNED CIT(A) TO RESTORE T HE MATTER FOR ADJUDICATION AFRESH ASSESSEES CLAIM FOR DEDUCTION OF ITS CONTRIBUTIONS QUA (I) PACS/DCCB DEVELOPMENT/COMMON GOOD FUND (II) FARMERS WELFARE FUND AND (III) RURAL FARMERS SOCIO-ECONOMIC DEVELOPMENT FUND. THE LEARNED CIT(A) RELYING UPON THE ORDER PASSED BY HER PREDECESSOR LEARNED ( CIT(A) ) AS WELL AS GIVING H ER OWN REASONS, DISALLOWED THE AFORESAID DEDUCTIONS MAINLY ON THE G ROUNDS THAT THERE HAS BEEN NO SCIENTIFIC APPLICATION OF THE REL EVANT CLAUSES OF THE BYE LAWS AS A RESULT, THE NET PROFIT HAS GOT DISTORTED AND EVEN OTHERWISE ANY EXPENDITURE BORNE ON SUCH APPLIC ATION MAY BE ALLOWABLE AS EXPENDITURE BUT NOT THE APPLICATION OF INCOME ITSELF. IN ITA NO.714(B)/2013 IN THIS CASE, THE GROUNDS NO.1 TO 4 BEFORE THE LEAR NED CIT(A) WERE ALMOST SIMILAR TO THE APPEAL NO.713(B)/ 2013. HOWEVER, TWO GROUNDS WERE SEPARATE WHICH ARE REPROD UCED HEREIN BELOW; 1. ITA NOS.713 & 714(BANG)/2013 5 2. 3 4... 5. THE APPELLANTS CLAIM TOWARDS CLUB SUBSCRIPTION AMOUNTING TO RS.6.00 LAKHS AS PRIOR PERIOD SUBSCRIPTION 6 APPELLANTS CLAIM TOWARDS MT SCHEMATIC GOVT. GUARANTEE COMMISSION AMOUNTING TO RS.5,70,00,000/- AS PRIOR PERIOD SUBSCRIPTION THE LEARNED CIT(A) PARTLY ALLOWED THE APPEAL HOWEVER, DISALLOWED THE GROUNDS QUA I. PACS/DCCB DEVELOPMENT/COMMON GOOD FUND. II. FARMERS WELFARE FUND AND III. RURAL FARMERS SOCIO-ECONOMIC DEVELOPMENT FUND IV. THE APPELLANTS CLAIM TOWARDS CLUB SUBSCRIPTION AMOUNTING TO RS.6.00 LAKHS AS PRIOR PERIOD SUBSCRIPTION V. APPELLANTS CLAIM TOWARDS MT SCHEMATIC GOVT. GUARANTEE COMMISSION AMOUNTING TO RS.5,70,00,000/- AS PRIOR PERIOD SUBSCRIPTION. 4. FEELING AGGRIEVED BY THE ORDERS OF THE LEARNED CIT( A), THE APPELLANT PREFERRED THE INSTANT APPEALS ON THE GROU NDS MENTIONED ABOVE. 5. BEFORE US, THE LEARNED AR SUBMITTED THAT THE SAID AMOUNTS CLAIMED HAVE BEEN SPENT OUT OF RESERVES CRE ATED AS AUTHORIZED BY ITS BYE LAWS AND TO MEET THE STATUTOR Y LIABILITIES OF THE ASSESSEE AND THEREFORE, THE SAME ARE TOWARDS TH E BUSINESS, STATUTORY AND SOCIAL OBJECTIVES OF THE ASSESSEE. TH E AR ALSO ITA NOS.713 & 714(BANG)/2013 6 SUBMITTED THAT THE ASSESSEES BYE LAWS ARE PERMITTI NG THE AFORESAID CONTRIBUTIONS AND THE DISTRIBUTION OF PRO FITS PROVIDED IN THE BYE LAWS ENVISAGES SETTING APART 25% OF THE NET PROFIT TO BE CARRIED FORWARD TO THE RESERVE FUND, CONTRIBUTIO N OF 15% TO THE AGRICULTURAL CREDIT STABILIZATION FUND, CONTRIB UTION OF 15% TOWARDS BAD AND DOUBTFUL DEBTS RESERVE FUND, 2% TO THE INVESTMENT FLUCTUATION FUND AND CONTRIBUTION OF 10% OUT OF THE REMAINING AMOUNT TOWARDS BUILDING FUND, 15% TO THE SPECIAL ASSISTANCE FUND TO THE MEMBER BANKS, AND 5% TO THE FARMER WELFARE FUND. THE LEARNED DR DRAWN OUR ATTENTION TO THE ORDER PASSED BY THE LEARNED CIT(A) AND ARGUED THAT THE SAID AMOU NTS AS CLAIMED BY THE ASSESSEE MAY BE ALLOWED TO BE DEDUCT ED AS PER BYE LAWS OF THE ASSESSEE , BUT NOT ACCORDING TO THE INCOME-TAX ACT AND EVEN OTHERWISE BYE LAWS HAVING NO BINDING E FFECT AND THEREFORE, DISALLOWANCE MADE BY THE AO ARE IN ORDER AND ARE TO BE UPHELD. EVEN OTHERWISE, THE LEARNED AR SUBMITTED THAT HONBLE ITAT, BANGALORE ITSELF IN ITS OWN CASE TITLED AS THE KARNATAKA STATE CO-OPERATIVE APEX BANK LIMITED VS THE JOINT COMMISSIONER OF INCOME-TAX, RANGE-3, BANGALORE, ITA NO.1372/BANG/2014 IN RESPECT OF ASSESSMENT YEAR 200 7-08 VIDE ORDER DATED 29-02-2016 DECIDED THE ISSUES PER TAINING TO ITA NOS.713 & 714(BANG)/2013 7 COMMON GOOD FUND, SPECIAL ASSISTANCE FUND AND PAYME NTS TO PACS/ DCCB FUND IN FAVOUR OF THE ASSESSEE ALLOWED A S DEDUCTIONS MEANING THEREBY, THE COMMON GROUNDS IN B OTH THE APPEALS SUCH AS ; I. PACS/DCCB DEVELOPMENT/COMMON GOOD FUND. II. .. III. RURAL FARMERS SOCIO-ECONOMIC DEVELOPMENT FUND ARE COMMON, RESPECTFULLY FOLLOWING THE AFORESAID JU DGMENT RENDERED BY CO-ORDINATE BENCH, THE SAID GROUNDS STA NDS ALLOWED IN FAVOUR OF THE ASSESSEE NOW COMING TO THE FARMERS WELFARE FUND IT IS SUBMITTED BY THE LEARNED AR THAT ACCORDING TO THE RULES, GOVERNING THE RURAL FARMERS DEVELOPING FUND, FARMER WELFARE FUND IS IDENTIFIED IN A FUND CALLED RURAL F ARMERS SOCIO- ECONOMIC DEVELOPMENT FUND AND THE SAME IS ALSO SIMI LAR TO THE COMMON FUND AND RURAL FARMERS SOCIO-ECONOMIC DEVELO PMENT FUND. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE ARGUMENTS ADVANCED BY BOTH THE PARTIES AND ORDERS, DOCUMENTS ON RECORD AND THE FACTS AND CIRCUMSTANCES OF THE CA SE AND WE ARE OF THE CONSIDERED OPINION, THAT NOMENCLATURE DO ES NOT AFFECT THE SUBSTANCE OF THE HEAD UNDER WHICH THE MATTER F ALLS, THEREFORE, WE DO NOT HAVE ANY HESITATION TO HOLD TH AT FARMER WELFARE FUND AND RURAL FARMERS SOCIO-ECONOMIC DEVEL OPMENT ITA NOS.713 & 714(BANG)/2013 8 FUND ARE ALIKE SAME. HENCE, THE ADDITION CLAIMED B Y THE APPELLANT UNDER THE HEAD OF FARMER WELFARE FUND IN BOTH THE APPEALS ARE ALLOWED TO BE DEDUCTED. 6. WITH REGARD TO THE APPELLANTS CLAIM TOWARDS CLUB SUBSCRIPTION AMOUNTING TO RS.6.00 LAKHS AS PRIOR PERIOD SUBSCRIP TION, THE APPELLANT SUBMITTED THAT IT HAS PAID RS.6.00 LAKH I N ADVANCE TO THE CENTURY CLUB TOWARDS INSTITUTION MEMBERSHIP ON THE REQUEST OF THE CLUB TO RENEW THE CLUB MEMBERSHIP F EES AND THE ADVANCE PAID AS CURRENT ASSETS REFLECTED IN THE BA LANCE SHEET. IT IS THE POLICY OF THE CLUB AFTER RECEIVING THE IN STITUTION MEMBERSHIP FEES, HAS TO PASS A RESOLUTION AND APPRO VE THE INSTITUTION OF MEMBERSHIP FEES AND AFTER APPROVAL O F THE CLUB WHICH GOT CRYSTALLIZED DURING THE YEAR, THE APPELLA NT DEBITED INSTITUTION MEMBERSHIP FEES TO THE P&L ACCOUNT WHIC H IS ALLOWABLE U/S 37 OF THE IT ACT, 1961. IT IS FURTHE R SUBMITTED THAT THE LEARNED CIT(A) WRONGLY DISALLOWED THE SAID AMOUNT ON THE GROUND THAT IT IS A CLEAR PRIOR PERIOD EXPENDIT URE RELATES TO THE YEAR ENDED 31 ST MARCH, 2008 AS HAS BEEN PAID ON 26 TH MAY, 2006 AND FURTHER HELD THAT IT IS A MOOT QUESTION AS TO WHETHER THIS CONTRIBUTION HAS ANYTHING TO DO WITH THE APPEL LANTS OBJECTS OR BUSINESS OR WHETHER THE APPELLANT BELONGS TO THE COMITY OF THE MEMBERS OF THE CENTURY CLUB. THE APPELLANT ALSO RELIED UPON FOLLOWING JUDGMENTS IN ITS FAVOUR: A. CIT VS NAGRI MILLS B. ACIT VS INDIAN FARMER FERTILIZER C. URBAN IMPROVEMENT CO.(P) LTD.VS ACIT WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE SUBMISSIONS OF THE PARTIES, AS THE AMOUNT AS PAID O N 26-05- 2016,BUT CLAIMED AS DEDUCTION IN THE FINANCIAL YEAR 2009-10. ITA NOS.713 & 714(BANG)/2013 9 DURING THE COURSE OF HEARING, WE HAVE SPECIFICALLY ASKED WHETHER ANY EVIDENCE WAS FURNISHED TO ESTABLISH THA T THE EXPENDITURE WAS CRYSTALLIZED DURING THE YEAR. LEAR NED COUNSEL AGREED TO FURNISH THE SAME TO THE AO. CONSEQUENTLY , THE ISSUE OF VERIFICATION OF EXPENDITURE HAVING BEEN CRYSTALL IZED DURING THE YEAR IS SENT TO THE LEARNED AO TO EXAMINE AND DETER MINE WHETHER THE EXPENDITURE CAN BE ALLOWED DURING THIS YEAR. 7. WITH REGARD TO THE APPELLANTS CLAIM TOWARDS MT SCHEMATIC GOVT. GUARANTEE COMMISSION AMOUNTING TO RS.5,70,00,000/- AS PRIOR PERIOD SUBSCRIPTION, IT I S SUBMITTED BY THE LEARNED AR ACCORDING TO THE KARNATAKA CEILING O N GOVERNMENT GUARANTEE AT 1999, AN AMOUNT EQUAL TO 1 % OF THE GUARANTEE AMOUNT IS LIABLE TO BE PAID AS GUARANTEE COMMISSION TO THE STATE GOVERNMENT AND APPELLANT HAD APPLIED F OR WAIVER OF COMMISSION AND IN ANTICIPATION OF THE SAME THAT THE GOVERNMENT WILL WAIVE THE COMMISSION ON ACCOUNT OF THE REASON THAT THE APPELLANT BANK HAD BEEN WORKING WITH THE B ACKWARD SECTION OF THE SOCIETY, THE APPELLANT HAS NOT MADE ANY PROVISION IN THE BOOKS OF ACCOUNT FOR THE PERIOD 2002-03 TO 2 005-06 AND 2006-07. HOWEVER, THE APPELLANT CLAIM WAS REJECTED AND THE GUARANTEE COMMISSION PAYABLE TO THE GOVERNMENT GOT CRYSTALLIZED DURING THE FINANCIAL YEAR 2008-09 AND THE BANK PROVIDED THE GUARANTEE COMMISSION AFTER APPLICATION WAS REJECTED. SINCE THE AMOUNT OF GUARANTEE COMMISSION PAYABLE TO THE GOVERNMENT WAS UNDER NEGOTIATION AND NOT YET CR YSTALLIZED IN THE EARLIER YEAR, THE SAME CANNOT BE TREATED AS PRIOR PERIOD ITEM. THEREFORE, GUARANTEE COMMISSION PAYABLE HAS T O BE ALLOWED AS DEDUCTION. THE LEARNED DR RELIED UPON THE ORDERS PASSED BY TH E AUTHORITIES BELOW. ITA NOS.713 & 714(BANG)/2013 10 WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE RIVA L SUBMISSIONS OF THE PARTIES AS IT WAS HELD BY THE LE ARNED CIT(A) THAT THE APPELLANT REASONS BEST KNOWN TO THEM HAD N EITHER PAID THE GUARANTEE AMOUNT NOR MADE PROVISION FOR THE SAM E AND FAILED TO DO ITS DUTY TO FOLLOW THE ESTABLISHED GOV ERNMENT RULES AND CLAIMING THIS EXPENDITURE NOW THE YEAR ENDED 31 ST MARCH, 2009 WHEN THEIR PETITION HAD BEEN REJECTED AND THEY HAVE BEEN ASKED TO PAY THE AMOUNT. IT WAS FURTHER HELD THAT S INCE THE APPELLANT HAS NOT FOLLOWED THE SPECIFIED RULES AND WANTED SPECIAL CONCESSION FROM THE GOVERNMENT THEREFORE, T HE EXPENSES CANNOT BE ALLOWED IN THIS PARTICULAR YEAR AS IT BEL ONGS TO THE PRIOR PERIOD. THERE ARE TWO ISSUES TO BE EXAMINED; WHETHER THE GUARANTEE COMMISSION ACCRUED IN THE RESPECTIVE YEAR OR ACCRUED DURING THE YEAR AFTER RE JECTION OF THE CLAIM BY THE GOVERNMENT. THE HONBLE SUPREME COURT HAS LAID DOWN CERTAIN PRINCIPLES IN THE CASE OF CIT VS SARAB HAI PVT. LTD 307 ITR 89(SC), WHICH ARE REQUIRED TO BE EXAMINED I N ADDITION TO THE OTHER PRINCIPLES ON THE ISSUE OF THE ACCRUAL OF INCOME/WAIVER OF CLAIM, NOT ONLY IF THE AMOUNT IS S TATUTORILY PAYABLE, PROVISION OF SEC.43B OF THE IT ACT, MAY AL SO BE APPLICABLE WHICH MAKES THE CLAIM IN EARLIER YEARS N OT ALLOWABLE, BUT ALLOWABLE ONLY IN THE YEAR OF PAYMENT. THESE A SPECTS HAVE NOT BEEN EXAMINED BY THE AO AT ALL. THUS, THE APPELLANTS CLAIM TOWARDS CLUB SUBSCRIPTION AMOUNTING TO RS.6.00 LAKHS AS PRIOR PERIOD SUBSCRIP TION AND APPELLANTS CLAIM TOWARDS MT SCHEMATIC GOVT. GUARAN TEE COMMISSION AMOUNTING TO RS.5,70,00,000/- AS PRIOR P ERIOD SUBSCRIPTION ARE REMITTED TO THE FILE OF THE LEARNE D AO FOR TO EXAMINATION AFRESH. ITA NOS.713 & 714(BANG)/2013 11 IN THE RESULT, THE ASSESSEES APPEAL IN ITA NO.713( BANG) 2013 IS ALLOWED AND APPEAL IN ITA NO.714(B)/2013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 18-03-2016 SD/- SD/- (BOMMARAJU RAMAKOTAIAH) ACCOUNTANT MEMBER (NARENDRA KUMAR CHOUDHURY) JUDICIAL MEMBER BANGALORE: D A T E D : 18-03-2016 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER, AR, ITAT, BANGALORE