Uma Co.Op.Bank Ltd., Baroda V. The ACIT.,Circle-1(2), Baroda

ITA 714/AHD/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 9426 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 10-01-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 27-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DIPAK R SHAH
• Keywords: Capital asset; Business expenditure; Bad and doubtful debts
• Section: 14A; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD . . , , BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A NO. 714/AHD/2012 ( / ASSESSMENT YEAR : 2008-09 ) UMA CO-OP. BANK LTD. JAY COMPLEX, NIZAMPURA, BARODA - 390002 / VS. THE ASSTT. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2(2), BARODA. ./ ./ PAN/GIR NO. : AAAAU 0216 B ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI DIPAK R. SHAH, A.R. / RESPONDENT BY : SHRI DHARMVIR D. YADAV, SR. D.R. / DATE OF HEARING 10/01/2017 / DATE OF PRONOUNCEMENT 13/01/2017 / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)- II, BARODA, DATED 13/01/2012 FOR THE ASSESSMENT YEAR (AY) 2008-09 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: (I). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED ON LAW IN CONFIRMING THE DISALLOWANCE OF RS.3148484/-. THE LD.CIT(A) ERRED IN CONFIRMING BELIEF THAT THE LOSS ON SALE OF GOVT. SECURITY IS NOT ALLOWABLE UNDER INCOME TAX ACT, 1961 UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES 1962. THE LOSS BEING BUSINESS LOSS IT IS ALLOWABLE AS REVENUE LOSS. FURTHER DISALLOWANCE U/S.14A. (II). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED ON LAW IN CONFIRMING THE DISALLOWANCE OF RS.4000000/-THE LEARNED CIT(A) HAS ERRED IN CONFIRMING A BELIEF THAT LOSS ON INVESTMENT IN FIXED DEPOSIT WITH MADHAVPURA CO.OP BANK IS NOT ITA NO.IT APPEAL NO.714/AHD/2012 UMA CO-OP. BANK LTD. VS. ASSTT. COMMISSIONER OF INCOME TAX. ASST.YEAR 2008-09 - 2 - ALLOWABLE AS BUSINESS EXPENSES U/S.36 OR SECTION 37 OF IT ACT, 196. THE LOSS ON INVESTMENT DEBITED TO PROFIT AND LOSS APPROPRIATION ACCOUNT. IT IS ALLOWABLE EXPENDITURE. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE HAS DECLARED AN INCOME OF RS.1,26,51,370/- FOR THE ASSESSMENT YEAR END IN REFERENCE. THE ASSESSEE DURING THE YEAR END IN REFERENCE HAS CLAIMED A DEDUCTION OF RS.6,29,705/- ON ACCOUNT OF CREATION OF PROVISION RESERVE FOR BAD DEBTS. THEREFORE, ASSESSEE WAS ASKED A EXPLAIN THE JUSTIFICATION FOR ALLOWABILITY OF THESE EXPENSES. THE ASSESSEE HAS NOT SUBMITTED ANY EXPLANATION FOR THE SAME AND FINALLY DEDUCTION CLAIMED AMOUNTING TO RS.6,83,057/- WAS DISALLOWED AS DEDUCTION AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 3. DURING THE YEAR THE ASSESSEE HAS CLAIMED A LOSS AMOUNTING TO RS.4,68,527/- ON ACCOUNT OF PREMIUM ON DICGC & LOSS ON SALE OF GOVERNMENT OF INDIA SECURITIES AMOUNTING TO RS.26,79,975/-. IT WAS ALSO NOTICED THAT ASSESSEE (BANK) HAS PURCHASED SECURITIES UNDER CAPITAL ACCOUNT AT A PRICE INCLUSIVE OF ANY ACCRUED INTEREST; THE ENTIRE PURCHASE CONSIDERATION IS IN THE NATURE OF CAPITAL OUTLAY. THEREFORE, ANY INTEREST ELEMENTS INCLUDING IN PURCHASE CONSIDERATION IS NOT ALLOWABLE AS EXPENDITURE AGAINST INCOME OF THESE SECURITIES. 4. IN CASES WHERE AN ASSESSEE BANK PURCHASE SECURITIES UNDER CAPITAL ACCOUNT AT PRICE INCLUSIVE OF ANY INTEREST, THE ENTIRE PURCHASE CONSIDERATION IS IN THE NATURE OF CAPITAL OUTLAY. THEREFORE, ANY INTEREST ELEMENT INCLUDED IN THE PURCHASE CONSIDERATION IS NOT ALLOWABLE AS EXPENDITURE AGAINST INCOME ACCRUING ON THOSE SECURITIES AND AO ALSO ITA NO.IT APPEAL NO.714/AHD/2012 UMA CO-OP. BANK LTD. VS. ASSTT. COMMISSIONER OF INCOME TAX. ASST.YEAR 2008-09 - 3 - HOLD THAT AS PER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME- TAX RULES, 1962, PROVIDES THAT FOR THE PURPOSE OF COMPUTING TOTAL INCOME UNDER THE ACT, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THEREFORE, EXPENDITURE CANNOT BE ALLOWED AS DEDUCTION. 5. FURTHER HELD THAT ASSESSEE HAS NOT PLACED ANY EVIDENCE TO SUPPORT ITS CLAIM AND TO SHOW THAT HIS CONTENTION IS CORRECT AND HE IS ENTITLED FOR THE ABOVE CLAIMED EXPENSES. IN THE BACKGROUND OF ABOVE DISCUSSION AND THERE BEING NO EVIDENCE TO PROVE THAT THE ASSESSEE IS ENTITLED FOR THE CLAIM DEDUCTIONS, THE EXPENSES CLAIMED ON ACCOUNT OF LOSS ON SALE OF SECURITIES AND DICGC PREMIUM ADDED TO THE INCOME. 6. THE ASSESSEE HAS CLAIMED LOSS OF INVESTMENT MADE WITH MMCB BANK AND WAS WRITTEN OFF AN AMOUNT OF RS.40,00,000/- IN ITS PROFIT & LOSS ACCOUNT. HOWEVER, AS APPARENT FROM THE ACCOUNTS, THE ASSESSEE HAS NOT WRITTEN OFF THE SAME IN THE ACCOUNTS/BOOKS. 7. THE SECTION 36(1)(VII) OF THE ACT, PROVIDES THAT DEDUCTION ON ACCOUNT OF BAD DEBTS WHICH ARE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE ARE ADMISSIBLE ONLY IF THE ASSESSEE HAD DEBITED THE AMOUNTS OF SUCH DEBTS TO THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS ACCOUNTS U/S. 36(1)(VIIA) OF THE ACT, AS REQUIRED BY SECTION 36(2)(V) OF THE ACT. THE ACCOUNT OF THE ASSESSEE DO NOT REFLECT THAT ANY SUCH AMOUNT HAVE BEEN WRITTEN OFF. MOREOVER THE ASSESSEE HAS NOT PLACED ANY GROUND & ITA NO.IT APPEAL NO.714/AHD/2012 UMA CO-OP. BANK LTD. VS. ASSTT. COMMISSIONER OF INCOME TAX. ASST.YEAR 2008-09 - 4 - EVIDENCE UNDER WHICH THE EXPENSES CLAIMED ON THIS ACCOUNT IN THE PROFIT & LOSS ACCOUNT SHOULD BE ALLOWED TO HIM. IN VIEW OF THE FACT THAT THERE BEING NO EVIDENCE TO SHOW THAT THE AMOUNT CLAIMED AS DEDUCTION HAS ACTUALLY BEEN WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE THEREFORE THE EXPENSES CLAIMED ON THIS ACCOUNT CANNOT BE ACCEPTED AND THUS REJECTED. THIS AMOUNT IS ADDED BACK TO THE INCOME OF THE ASSESSEE. FINALLY, AO ASSESSED TOTAL INCOME OF RS.2,04,82,911/-. 8. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A), WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 9. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGNED ORDER AND HEARD LD.A.R. AND D.R. RELIED ON THE ORDER OF THE A.O. WHEREAS LD.A.R. HAS CITED A JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE MATTER OF LAKSHMI VILAS BANK LTD. VS. COMMISSION OF INCOME-TAX(APPEAL) [2006] 154 TAXMAN 301 (MAD.), IN THIS CASE ASSESSEE-BANK WAS CARRYING ON BANKING BUSINESS AND WAS DEALING IN PURCHASE AND SALE OF GOVERNMENT SECURITIES FOR THE ASSESSMENT YEAR 1985-86 AND 1986-87, THE ASSESSEE- BANK WAS HOLDING GOVERNMENT SECURITIES AS STOCK-IN-TRADE. THE MARKET VALUE OF THE SECURITIES WAS LESS THAN THE COST OF SECURITIES. WHILE COMPUTING THE TAXABLE INCOME, THE FALL IN THE MARKET VALUE OF THE SECURITIES WAS CLAIMED AS A DEDUCTION BY THE ASSESSEE, WHICH WAS NOT ALLOWED BY THE ASSESSING OFFICER. ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. ON REVENUES APPEAL, THE TRIBUNAL HELD THAT THE GOVERNMENT SECURITIES WERE HELD BY THE ASSESSEE AS INVESTMENTS/CAPITAL ASSETS AND, THEREFORE, THE ASSESSEE WAS NOT ENTITLED TO CLAIM DEDUCTION ON ITA NO.IT APPEAL NO.714/AHD/2012 UMA CO-OP. BANK LTD. VS. ASSTT. COMMISSIONER OF INCOME TAX. ASST.YEAR 2008-09 - 5 - LOSS SUFFERED ON ACCOUNT OF FALL IN MARKET VALUE OF THE GOVERNMENT SECURITIES. IN APPEAL, HONBLE HIGH COURT ALLOWED THE CLAIM OF THE BANK. THEREFORE, RESPECTFULLY FOLLOWING THE HIGH COURT JUDGMENT, WE ALLOW GROUND NO.1 IN FAVOUR OF THE ASSESSEE. 10. SO FAR, GROUND NO.2 IS CONCERNED, WE SEND IT BACK TO THE FILE OF THE A.O., WHO WILL CALCULATE THE ALTERNATIVE CLAIM OF THE ASSESSEE AS PER SECTION 28(IV) OF INCOME-TAX ACT AND WILL GIVE EFFECT OF THE SAME TO THE ASSESSEE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 13/01/2017 SD/- SD/- . . ( ) ( ) ( N.K. BILLAIYA) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 13/01/2017 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)-II, BARODA. 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD TRUE COPY