Northern Railway Primary cooperative Bank Ltd., Lucknow V. The Asstt. Commissioner of Income Tax-II, Lucknow

ITA 763/LKW/2011

• Counselvise Citation: 76323714 RSA 2011
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 18-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 29-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Assessee Lawyers: K R RASTOGI
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI. A. K. GARODIA , ACCOUNTANT MEMBER ITA NO. 763/LKW/2011 ASSESSMENT YEAR: 2007 - 08 NORTHERN RAILWAY PRIMARY COOPERATIVE BANK LTD. 19A, VIDHAN SABHA MARG LUCKNOW V. ACIT RANGE II LUCKNOW PAN: AAALN0029L (APP ELL ANT) (RESPONDENT) APP ELL ANT BY: SHRI. K. R. RASTOGI, C.A. RESPONDENT BY: SHRI. ALOK MITRA, D.R. DATE OF HEARING: 18 0 7 2014 DATE OF PRONOUNCEMENT: 21 0 8 2014 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA, ON THE FOLLOWING GROUNDS: - 1 . THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) I, LUCKNOW (HERE IN AFTER CALLED CIT) HAS ERRED ON FACTS & IN LAW IN CONFIRMING DISALLOWANCE OF RS.200000.00 BEING DIRECTORS ALLOWANCES PAID TO DIRECTORS RELATING TO BUSINESS. 2 . THE LEARNED CIT HAS ERRED ON FACTS & IN LAW IN CONFIRMATION OF DISALLOWANCE RS. 11000000.00 MADE ON ESTIMATED BASIS BY LEARNED AO REPRE SENTING PAYMENT OF INTEREST TO DEPOSITORS & PAYMENT TO CONTRACTORS FOR FAILURE TO COMPLY WITH PERMISSION OF CHAPTER XVII B OF INCOME TAX ACT 1961 IN THE PRESENT CASE. 3 . THE LEARNED CIT HAS ERRED ON FACTS & IN LAW IN CONFIRMING DISALLOWANCE OF RS.324002.00 BE ING 30% OF TOTAL ELECTION PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 2 - : EXPENSES INCURRED AMOUNTING TO RS.1080008.35 IN THE PRESENT CASE. 4 . THE LEARNED CIT HAS ERRED ON FACTS & IN LAW IN CONFIRMING DISALLOWANCE OF RS.11868000.00 IN RESPECT OF AMOUNT INVESTED WITH CITY COOPERATIVE BANK, ON THE BASIS OF C OMMENT IN AUDITOR'S REPORT ALLEGING THAT NO RESERVE WAS TO BE CREATED TO INCREASE THE PROFIT IGNORING THE FACT THAT BANK HAS LENT THE AMOUNT IN ITS NATURAL COURSE OF BANKING BUSINESS. 5 . THE LEARNED CIT HAS ERRED ON FACTS & IN LAW IN CONFIRMING OF CHARGING OF INTEREST U/S 234 B OF IT ACT 1961 IN THE PRESENT CASE. 6 . THE LEARNED CIT DID NOT ALLOW PROPER OR SUFFICIENT OPPORTUNITY FOR MAKING COMPLIANCE TO REQUIREMENT BEFORE HIM IN THE PRESENT CASE. 2 . APROPOS GROUND NO.1, IT IS NOTICED THAT THE ASSESSING OFFICER HAS M ADE DISALLOWANCE OF RS.2 LAKHS BEING DIRECTORS ALLOWANCE PAID TO THE DIRECTORS ON THE BASIS OF THE AUDITORS REPORT , IN WHICH THE AUDITOR HAS MADE DISALLOWANCE IN THE LIGHT OF PROVISIONS OF SECTION 40(B)/40(BA) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CAL LED IN SHORT THE ACT'). 3 . ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), BUT DID NOT FIND FAVOUR WITH HIM. 4 . NOW THE ASSESSEE IS BEFORE US AND HAS SUBMITTED THAT THE AUDITOR HAS MADE DISALLOWANCE BY INVOKING THE WRONG PROVISIONS OF THE ACT. PROVISIONS O F SECTION 40(B)/40(BA) ARE APPLICABLE IN THE CASE OF A FIRM AND AOP OR BODY OF INDIVIDUALS (OTHER THAN A COMPANY OR A CO - OPERATIVE SOCIETY OR A SOCIETY ) . BUT IN THE INSTANT CASE, THE ASSESSEE IS A CO - OPERATIVE BANK LTD. AND REGISTERED UNDER THE SOCIETIES ACT. THEREFORE, ON THE BASIS OF THE OBSERVATION OF THE AUDITOR, THE DIRECTORS ALLOWANCE CANNOT BE DISALLOWED. 5 . THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 3 - : 6 . HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORI TIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT ON THE BASIS OF THE AUDITORS REPORT , THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF PAYMENT OF RS.2 LAKHS AS DIRECTOR S ALLOWANCE. IN THE AUDITORS REPORT, DISALLOWANCE WAS MADE HAVING INVOKED THE PROVISIONS OF SECTION 40(B)/40(BA), WHEREAS THESE PROVISIONS ARE APPLICABLE IN THE CASE OF A FIRM AND AOP OR BODY OF INDIVIDUALS OTHER THAN A COMPANY OR A CO - OPERATIVE SOCIETY. IN THE INSTANT CASE, THE ASSESSEE IS A CO - OPERATIVE BANK LTD. REGISTERED UNDER THE SOCIETIES ACT. THEREFORE, APPARENTLY THESE TWO PROVISIONS ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. THE ASSESSING OFFICER THOUGH WAS REQUIRED TO EXAMINE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE LEGAL PROVISIONS OF THE ACT, BUT HE HAS MADE DISALLOWANCE RELYING UPON THE AUDITORS REPORT. APPARENTLY, THE OBSERVATION OF THE AUDITOR APPEARS TO BE IN CONTRAVENTION WITH THE PROVISIONS OF SECTION 40(B)/40(BA) OF THE ACT. THEREFORE, THE ASSESSING OFFICER WAS REQUIRED TO EXAMINE THE CLAIM OF THE A SSESSEE ON MERIT ALSO, BUT IT WAS NO T DONE AND THE CLAIM WAS DISALLOWED ON THE BASIS OF THE AUDITORS REPORT. IT IS SETTLED POSITION OF LAW THAT THE ASSESSING OFFICER IS REQUIRED TO ASSESS THE INCOME AS PER LAW IN THE RIGHT HANDS. ON PERUSAL OF THE AUDIT ORS REPORT, IT APPEARS THAT THE OBJECTION RAISED BY THE AUDITOR IN THIS REGARD IS NOT IN ACCORDANCE WITH LAW AND THE DISALLOWANCE WAS MAD E SOLELY ON THE BASIS OF THE AUDITORS OBJECTIONS . W E ARE , THEREFORE, OF THE VIEW THAT THIS ISSUE REQUIRES TO BE RE - A DJUDICATED BY THE ASSESSING OFFICER IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE ACT AND ALSO THE DETAILS OF PAYMENTS PREPARED BY THE ASSESSEE AND FILED BEFORE US. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) IN THIS REGARD AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO RE - EXAMINE THE ISSUE IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE ACT AND ALSO EVIDENCE FILED BY THE ASSESSEE WITH REGARD TO THE PAYMENT OF DIRECTORS ALLOWANCE. PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 4 - : 7 . APROPOS GROUND NO.2, THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE - BANK HAS PAID INTEREST OF RS.12,56,09,476/ - TO ITS CUSTOMERS. BESIDES , TH E PAYMENT S TO CONTRACTORS FOR CIVIL WORK, SERVICES, ETC. HAVE ALSO NOT BEEN SUBJECTED TO DEDUCTION OF TAX AT SOURCE ON THE PRESCRIBED RATES. T HE ASSESSING OFFICER ACCORDINGLY MADE DISALLOWANCE OF RS.1.10 CRORES ON ACCOUNT OF NON - DEDUCTION OF TDS. 8 . BEFORE THE LD. CIT(A), ASSESSEE HAS CONCEDED THE DISALLOWANCE OF RS.10 LAKHS IN RELATI O N TO PAYMENT TO CUSTOMERS /SERVICES AND IT WAS SUBMITTED THAT DIS ALLOWANCE OF RS.10 LAKHS WAS ALSO A PART OF TOTAL DISALLOWANCE OF RS.1.10 CRORES, THEREFORE, THE ISSUE OF DISALLOWANCE OF RS.1 CRORE IS TO BE EXAMINED, AS IT WAS INTEREST PAID TO THE CUSTOMERS. IT WAS ALSO CONTENDED BEFORE THE LD. CIT(A) THAT INTEREST PAI D TO SEVERAL CUSTOMERS WAS LESS THAN RS.10,000/ - , THEREFORE, TDS WAS NOT DEDUCTED THEREON. AS REGARDS INTEREST ON FIXED DEPOSITS, IT WAS ALSO SUBMITTED THAT EITHER THE DEPOSITORS HAVE FURNISHED DECLARATION IN FORM NO.15G/15H FOR NON - DEDUCTION OF TAX OR TH E INTEREST PAID TO EACH INDIVIDUAL DID NOT EXCEED RS.10,000/ - . BEFORE THE LD. CIT(A), THE DETAILS OF PAYMENTS MADE TO CONTRACTORS/SERVICES , WERE CLAIMED TO HAVE BEEN FURNISHED BEFORE HIM, BUT AR E NOT FILED BEFORE US AND THE LD. CIT(A) ACCORDINGLY CONFIRME D DISALLOWANCE. 9 . NOW THE ASSESSEE IS BEFORE THE TRIBUNAL AND DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT DISALLOWANCE OF RS.1 CRORE HAS BEEN MADE UNDER SECTION 40(A)(IA) OF THE ACT WITH REGARD TO THE FAILU RE BY THE ASSESSEE - BANK FOR NON - DEDUCTION OF TDS ON ESTIMATE BASIS. THE ASSESSEE IS A PRIMARY CO - OPERATIVE BANK AND NOT REQUIRED TO DEDUCT TDS AS PER PROVISIONS OF SECTION 194A OF THE ACT. AS PER SUB - SECTION (3) OF SECTION 194A OF THE ACT, TDS WAS NOT RE QUIRED TO BE DEDUCTED ON SUCH INCOME CREDITED OR PAID BY A CO - OPERATIVE SOCIETY TO A MEMBER THEREOF OR TO ANY OTHER CO - OPERATIVE SOCIETY. SINCE INTEREST WAS PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 5 - : PAID OR CREDITED TO THE MEMBER OF THE CO - OPERATIVE SOCIETY BY THE ASSESSEE , TDS WAS NOT REQUIRED T O BE DEDUCTED. 10 . WITHOUT PREJUDICE TO THE ABOVE SUBMISSION, IT WAS FURTHER CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE AMOUNT OF INTEREST PAID TO EACH CUSTOMER WAS LESS THAN RS.10,000/ - , THEREFORE, TDS WAS NOT REQUIRED TO BE DEDUCTED AS PER CLAU SE (1)(A) OF SUB - SECTION (3) OF SECTION 194A OF THE ACT. WITH REGARD TO PAYMENT TO OTHER DEPOSITORS, IT WAS CONTENDED THAT THEY HAVE FURNISHED FORM NO.15F/15H. THOUGH IT WAS CONTENDED THAT THE DETAILS WERE FILED BEFORE THE LOWER AUTHORITIES, BUT IT WAS N OT FILED BEFORE US. 11 . THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). 12 . HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES, WE FIND THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.1.10 CRORES PAID AS INT EREST, HAVING NOTED THAT TDS WAS NOT DEDUCTED ON THE PAYMENTS IN THE LIGHT OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, WHICH WAS LATER ON CONFIRMED BY THE LD. CIT(A). BEFORE US , A DISPUTE WAS RAISED WITH REGARD TO THE DISALLOWANCE OF RS.1 CRORE PAI D AS INTEREST TO ITS CUSTOMERS ON SB ACC OUNTS AND ON DIFFERENT DEPOSITS, SINCE THE DISALLOWANCE OF RS.10 LAKHS WAS ACCEPTED BY THE ASSESSEE BEFORE THE LD. CIT(A). WITH R E GARD TO DISALLOWANCE OF RS.1 CRORE, IT IS SUBMITTED BEFORE US THAT THE ASSESSEE IS A CO - OPERATIVE SOCIETY AND INTEREST WAS PAID TO ITS MEMBERS , THAT TOO BELOW THE PRESCRIBED LIMIT OF RS.10,000/ - FOR WHICH TDS WAS NOT REQUIRED TO BE DEDUCTED. BUT BEFORE THE LOWER AUTHORITIES DETAILS WERE NOT FURNISHED BY THE ASSESSEE. HE HAS ALSO PLACED R ELIANCE UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF ACIT VS. VISAKHAPATNAM COOPERATIVE BANK LTD., 47 SOT 295 IN SUPPORT OF HIS CONTENTION THAT IF THE CO - OPERATIVE SOCIETY MAKES PAYMENT OF INTEREST ON DEPOSITS RECEIVED FROM ITS MEMBERS ONLY AND IT WAS NOT REQUIRED TO DEDUCT TDS IN VIEW OF THE PROVISIONS OF SECTION 194A(3)(V) OF THE ACT. PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 6 - : THIS ASPECT WAS NOT EXAMINED BY THE LD. CIT(A) WHILE CONFIRMING THE DISALLOWANCE OF RS.1 CRORE THOUGH THE ASSESSEE HAS CONTENDED THAT INTEREST WAS PAID ONLY TO THE MEMBERS OF THE ASSESSEE - SOCIETY IN THE LIGHT OF THE FACT THAT NO OTHER PERSON EXCEPT THE MEMBERS OF THE SOCIETY CAN OPEN AN ACCOUNT WITH THE ASSESSEE - BANK. SINCE THIS ASPECT CANNOT BE EXAMINED IN THE ABSENCE OF RELEVANT INFORMATION, WE ARE OF THE VIEW THAT THIS ISSUE REQUIRES A PROPER ADJUDICATION BY THE ASSESSING OFFICER. WE ACCORDINGLY SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO RE - ADJUDICATE THE ISSUE IN THE LIGHT OF PROVISIONS OF SECTI ON 194A(3)(V) OF THE ACT AND ALSO AMOUNT OF PAYMENT OF INTEREST , FOR WHICH WHETHER THE ASSESSEE WAS REQUIRED TO DEDUCT TDS OR NOT. ACCORDINGLY, THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RE - ADJUDICATION. 13 . APROPOS GROUND NO.3, IT IS NOT ICED THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF 30% OF ELECTION EXPENSES, HAVING NOTED THAT THE EXPENDITURES WERE INCURRED FOR THE PERIOD 26.6.2006 TO 26.3.2007. THE ASSESSING OFFICER HAS ALSO OBSERVED THAT THE ELECTION EXPENSES CAN ONLY BE ALLOW ED FROM THE DECLARATION OF ELECTION PROCESS TILL DECLARATION OF RESULTS WHICH IS OF NOT MORE THAN 30 - 40 DAYS. HE ACCORDINGLY MADE DISALLOWANCE OF 30% OF THE TOTAL CLAIM OF ELECTION EXPENSES WHICH WAS CONFIRMED BY THE LD. CIT(A), AS THE ASSESSEE COULD NOT PLACE THE DETAILS OF EXPENDITURES INCURRED FOR ELECTION PURPOSE. 14 . NOW THE ASSESSEE IS BEFORE US WITH THE SUBMISSION THAT THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DEFECT IN THE MAINTENANCE OF ELECTION DETAILS AND THE ACCOUNTS BUT HAS MADE DISAL LOWANCE ON AD HOC BASIS. DURING THE COURSE OF HEARING, IT WAS CONFRONTED TO THE LD. COUNSEL FOR THE ASSESSEE AS TO HOW THE ELECTION EXPENSES CAN BE INCURRED FOR A PERIOD OF ALMOST NINE MONTHS? I N RESPONSE THERETO , IT WAS CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 7 - : ELECTORAL COLLEGE COMPRISE OF MEMBERS OF FIVE BRANCHES OF THE BANK. SINCE THE BRANCHES ARE SPREAD UP IN THE ENTIRE STATE, IT TOOK TIME FOR COMPLETING THE ELECTORAL COLLEGE . THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE IS NOT S UPPORTED BY ANY EVIDENCE. IN THE ABSENCE OF EVIDENCE IN THIS REGARD, WE ARE UNABLE TO ACCEPT THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. WE, THEREFORE, FIND OURSELVES IN AGREEMENT WITH THE ORDERS OF THE LOWER AUTHORITIES WHERE THEY HAVE CONSIDERE D THE ELECTION EXPENSES AT HIGHER SIDE AND MADE A REASONABLE DISALLOWANCE. ACCORDINGLY WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE . 15 . APROPOS GROUND NO.5, IT IS NOTICED THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.1,18,16,000/ - WHICH HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD INVESTMENT DEPRECIATION RESERVE FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2006 - 07. 16 . DURING THE COURSE OF HEARING, OUR ATTENTION WAS INVITED TO THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2008 - 09 I N THE ASSESSEES OWN CASE, IN WHICH A SIMILAR ISSUE WAS EXAMINED BY THE TRIBUNAL IN THE LIGHT OF RBI GUIDELINES AND VARIOUS JUDICIAL PRONOUNCEMENTS AND HAS FINALLY CONCLUDED THAT THE CLAIM RAISED BY THE ASSESSEE IS NOT IN ACCORDANCE WITH LAW AND THE LD. CI T(A) IS JUSTIFIED IN DISALLOWING THE SAME. THE LD. D.R. FURTHER CONTENDED THAT IN THE LIGHT OF THE AFORESAID ORDER OF THE TRIBUNAL, THE DISALLOWANCE DESERVES TO BE CONFIRMED. 17 . THE LD. COUNSEL FOR THE ASSESSEE HAS REITERATED HIS CONTENTIONS AS RAISED BY THE ASSESSEE BEFORE THE LD. CIT(A). 18 . HAVING CAREFULLY EXAMINED THE ORDER S OF THE LOWER AUTHORITIES IN THIS REGARD AND THE TRIBUNALS ORDER, WE FIND THAT THIS ISSUE HAS ALREADY BEEN EXAMINED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008 - 09 IN I.T.A. NO.20/LKW/2012 IN THE LIGHT OF RBI GUIDELINES AND VARIOUS JUDICIAL PRONOUNCEMENTS AND HAS FINALLY CONFIRMED THE DISALLOWANCE. PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 8 - : THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: - 13. HAVING HEARD THE RI VAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF RECORD, WE FIND THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE FOLLOWING HIS EARLIER ORDER FOR ASSESSMENT YEAR 2006 - 07, WHICH WAS LATER ON UPHELD BY THE LD. CIT(A) AND FOLLOWING THE SAME THE LD. CIT(A) HAS AL SO CONFIRMED THE DISALLOWANCE. DURING THE COURSE OF HEARING OF THE APPEAL, A SPECIFIC QUERY WAS RAISED FROM THE LD. COUNSEL FOR THE ASSESSEE AS TO WHAT HAS HAPPENED WITH REGARD TO THE DISALLOWANCE MADE IN ASSESSMENT YEARS 2006 - 07 AND 2007 - 08, BUT THE LD. COUNSEL FOR THE ASSESSEE COULD NOT FURNISH A SPECIFIC REPLY. ON A CAREFUL PERUSAL OF RECORD, WE FIND THAT THE ASSESSEE HAS MADE REFERENCE TO THE RESOLUTION AND THE LETTER WRITTEN BY THE RBI IN SEPTEMBER, 2003 APPEARING AT PAGE 10 OF THE COMPILATION OF THE ASSESSEE, ACCORDING TO WHICH THE ASSESSEE WAS ADVISED TO MAKE NECESSARY PROVISIONS FOR `5.88 CRORES DURING THE CURRENT FINANCIAL YEAR AND IF IT IS NOT POSSIBLE IN ONE YEAR, IT MAY BE DONE IN TWO OR THREE YEARS. THIS ADVISE WAS RECEIVED IN THE MONTH OF SE PTEMBER, 2003, THEREFORE, THE ASSESSEE COULD HAVE MADE PROVISION PURSUANT TO THE DIRECTION OF THE RBI DURING THE FINANCIAL YEAR 2003 - 04 RELEVANT TO THE ASSESSMENT YEAR 2004 - 05. IF THE PROVISION OF THE ENTIRE AMOUNT IS NOT POSSIBLE IN THE CURRENT FINANCIAL YEAR, IT COULD HAVE BEEN DONE IN 2 OR 3 YEARS I.E. IN ASSESSMENT YEARS 2005 - 06 AND 2006 - 07, BUT NOTHING HAS BEEN PLACED BEFORE US AS TO HOW THE ASSESSEE HAS ACTED AS PER ADVISE OF THE RBI IN ASSESSMENT YEARS 2004 - 05; 2005 - 06 AND 2006 - 07. IN ANY CASE, THE LOWER AUTHORITIES HAVE MADE REFERENCE TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN EARLIER YEARS I.E. ASSESSMENT YEAR 2006 - 07 AND 2007 - 08 WHICH WAS LATER ON UPHELD BY THE LD. CIT(A). BUT NOTHING HAS BEEN PLACED BEFORE US AS TO WHAT HAS HAPPENED T HEREAFTER. WHETHER THE LD. CIT(A)S ORDER HAS ATTAINED FINALITY OR IT WAS CHALLENGED IN THE APPELLATE COURT. IF THE AFORESAID LETTER OF THE RBI IS PROPERLY READ, WE WOULD FIND THAT THE ASSESSEE WAS ADVISED TO MAKE PROVISIONS OF A SUM OF `5.88 CRORES WHIC H WAS INVESTED IN CITY CO - OPERATIVE BANK AND HAS BECOME IRRECOVERABLE IN PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 9 - : THE CURRENT FINANCIAL YEAR. IF THE ENTIRE AMOUNT CANNOT BE ADJUSTED IN ONE YEAR, PROVISION CAN BE MADE FOR TWO OR THREE YEARS. EVEN IF WE TAKE MAXIMUM TIME GIVEN BY THE RBI I.E. THRE E YEARS, THE PROVISION COULD HAVE BEEN MADE DURING THE ASSESSMENT YEARS 2004 - 05; 2005 - 06 AND 2006 - 07 AND NOT IN THE IMPUGNED ASSESSMENT YEAR 2008 - 09. 14. SO FAR AS THE JUDGMENTS REFERRED TO BY THE ASSESSEE ARE CONCERNED, WE HAVE CAREFULLY EXAMINED THEM A ND FIND THAT THROUGH THESE JUDGMENTS IT HAS BEEN HELD THAT THE RBI ACT IS A SPECIAL ACT APPLICABLE ONLY TO SPECIAL CLASS OF ASSESSEES AS IT WAS INCORPORATED FOR A SPECIFIC PURPOSE AND SECTION 45Q OF THE RBI ACT CATEGORICALLY STATES THAT CHAPTER III - B SHALL OVERRIDE ALL THE INTENTS AND PURPOSES AND ANYTHING INCONSISTENT WITH ANY OTHER ACT FOR THE TIME BEING IN FORCE OR ANY INSTRUMENT HAVING EFFECT BY VIRTUE OF ANY SUCH LAW SHALL FADE INTO OBLIVION ON ACCOUNT OF THAT FACT. IT WAS ALSO HELD THAT THE DIRECTION S ISSUED BY THE RBI BY VIRTUE OF POWERS VESTED IN IT BY SECTION 45JA WHICH IS TO BE EXERCISED IN PUBLIC INTEREST OR TO REGULATE THE FINANCIAL SYSTEM OF THE COUNTRY TO ITS ADVANTAGE OR TO PREVENT THE AFFAIRS OF ANY NBFC BEING CONDUCTED IN MANNER DETRIMENTAL TO THE INTEREST OF THE DEPOSITORS OR IN A MANNER PREJUDICIAL TO THE INTEREST OF THE NBFC ARE BINDING ON THE CONCERNED AUTHORITIES. 15. SIMILAR VIEW WAS ALSO EXPRESSED BY THE HON'BLE UTTARANCHAL HIGH COURT IN THE CASE OF CIT VS. NAINITAL BANK LIMITED (SUPR A) BY HOLDING THAT THE RBI ACT, 1934 WAS INCORPORATED FOR SPECIFIC PURPOSE AND SECTION 45Q CATEGORICALLY BRINGS OUT THE INTENTION OF THE LEGISLATURE INASMUCH AS IT STATES THAT CHAPTER III - B SHALL OVERRIDE OTHER PROVISIONS. 16. IN THE CASE OF CIT VS. THE LO RD KRISHNA BANK LTD. (SUPRA), THE HON'BLE KERALA HIGH COURT HAS HELD THAT THE RBI BEING THE APEX BODY ISSUING GUIDELINES TO THE BANKS FOR VALUATION OF UNQUOTED GOVERNMENT SECURITIES, ITS GUIDELINES ARE THE RATIONAL BASIS WHICH ASSESSEE WAS BOUND TO ADOPT. 17. IN THE LIGHT OF THE AFORESAID VARIOUS JUDICIAL PRONOUNCEMENTS, THERE IS NO CONTROVERSY WITH REGARD TO THE OVERRIDING EFFECT OF THE PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 10 - : GUIDELINES ISSUED BY THE RBI OVER THE PROVISIONS OF THE INCOME - TAX ACT. BUT IN THE INSTANT CASE, WE HAVE TO EXAMINE CARE FULLY AS TO WHAT GUIDELINES HAVE BEEN ISSUED TO THE ASSESSEE BY THE RBI FOR MAKING PROVISIONS OF INVESTMENT MADE IN THE CITY COOPERATIVE BANK WHICH HAS BECOME IRRECOVERABLE. IN THIS REGARD, A LETTER DATED 6 TH SEPTEMBER, 2003 WRITTEN BY THE RBI TO THE ASSE SSEE IS VERY CRUCIAL DOCUMENT TO RESOLVE THE PRESENT CONTROVERSY AS TO WHETHER PROVISION WAS MADE BY THE ASSESSEE AS PER THE DIRECTIONS/ ADVICE/ GUIDELINES OF THE RBI. THIS LETTER IS APPEARING AT PAGE 10 OF THE COMPILATION OF THE ASSESSEE AND ON ITS CAREF UL PERUSAL, IT APPEARS THAT THE ASSESSEE HAS SOUGHT ADVICE/GUIDELINES FROM THE RBI VIDE ITS LETTER DATED 8 TH AUGUST 2003 WITH REGARD TO THE INVESTMENT MADE WITH THE CITY COOPERATIVE BANK LIMITED, LUCKNOW WHICH HAS BECOME IRRECOVERABLE AND THE RBI HAS ADVIS ED THE ASSESSEE VIDE LETTER DATED 6 TH SEPTEMBER, 2003 TO MAKE NECESSARY PROVISION OF THE ENTIRE AMOUNT OF `5.88 CRORES AND IF THE PROVISION OF ENTIRE AMOUNT OF `5.88 CRORES IS NOT POSSIBLE IN ONE YEAR, IT SHOULD BE ENSURED THAT THE PROVISION BE MADE WITHIN TWO OR THREE YEARS. THE CONTENTS OF THE LETTER ARE IN HINDI AND ARE REPRODUCED AS UNDER FOR THE SAKE OF REFERENCE: - / / / 2003 8 2003 [ [ [ [ . 5 . 88 [ [ 3 [ . . 1965 PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 11 - : 18. THIS LETTER WAS WRITTEN BY THE RBI TO THE ASSESSEE IN SEPTEMBER, 20 03, THEREFORE, AS PER ADVICE OF THE RBI, THE ASSESSEE WAS REQUIRED TO MAKE PROVISION OF THE ENTIRE INVESTMENT OF `5.88 CRORES WHICH HAS BECOME IRRECOVERABLE, WITHIN THE CURRENT FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2004 - 05. IF PROVISION OF THE EN TIRE AMOUNT IS NOT POSSIBLE WITHIN ONE YEAR, IT SHOULD ENSURE THAT IT IS DONE WITHIN TWO OR THREE YEARS, MEANING THEREBY AT THE MOST PROVISION OF THE ENTIRE AMOUNT SHOULD HAVE BEEN DONE WITHIN THE FINANCIAL YEARS RELEVANT TO THE ASSESSMENT YEARS 2004 - 05, 2 005 - 06 AND 2006 - 07 AND NOT THEREAFTER. BUT IN THE INSTANT CASE PROVISION WAS MADE IN THE ASSESSMENT YEAR 2008 - 09, FOR WHICH NO DIRECTION/ADVICE WAS EVER ISSUED BY THE RBI. 19. ON PERUSAL OF THE ORDER OF THE LD. CIT(A), IT APPEARS THAT THE LD. CIT(A) HAS C ONFIRMED THE DISALLOWANCE FOLLOWING THE DISALLOWANCE MADE IN ASSESSMENT YEARS 2006 - 07 AND 2007 - 08 AND NOTHING HAS BEEN PLACED ON RECORD AS TO WHAT HAS HAPPENED TO THE SAID DISALLOWANCE. WHETHER IT WAS CHALLENGED BEFORE THE APPELLATE AUTHORITIES OR IT WAS ACCEPTED BY THE ASSESSEE. IN ANY CASE, AS PER ADVICE OF THE RBI PROVISION OF THE AFORESAID INVESTMENT AMOUNT OF `5.88 CRORES IS POSSIBLE DURING THE FIRST THREE YEARS I.E. FINANCIAL YEARS RELEVANT TO THE ASSESSMENT YEARS 2004 - 05, 2005 - 06 AND 2006 - 07 AND TH EREAFTER ITS PROVISION CANNOT BE ALLOWED WITHOUT ANY FURTHER INSTRUCTION OF THE RBI. THE ASSESSEE HAS CLAIMED PROVISION OF `1 ,17,60,000 DURING THE IMPUGNED ASSESSMENT YEAR WITHOUT ANY ADVICE OF THE RBI AGAINST THE PROVISIONS OF THE INCOME - TAX ACT. THEREFORE, WE ARE OF THE VIEW THAT THE CLAIM RAISED BY THE ASSESSEE IS NOT IN ACCORDANCE WITH THE LAW AND THE LD. CIT(A) IS JUSTIFIE D IN DISALLOWING THE SAME. WE ACCORDINGLY FIND NO MERIT IN THE ARGUMENTS OF THE ASSESSEE AND CONFIRM THE ORDER OF THE LD. CIT(A). 19 . SINCE THE TRIBUNAL HAS TAKEN A PARTICULAR VIEW IN A SIMILAR SET OF FACTS, WE FIND NO REASON TO TAKE A CONTRARY VIEW ON THIS ISSUE. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 12 - : 20 . GROUND NO.5 IS CONSEQUENTIAL IN NATURE AND DOES NOT REQUIRE ANY INDEPENDENT ADJUDICATION. 21 . GROUND NO.6 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY INDEPENDENT ADJUDICATION. 22 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21.8.2014. SD/ - SD/ - [ A. K. GARODIA ] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 21 ST AUGUST , 2014 JJ: 3107 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ )