Progressive Mercantile Co.Op. Bank Ltd., Ahmedabad V. The ACIT, Circle-2, Ahmedabad

ITA 902/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5966 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 15-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: S N DIVATIA
• Keywords: Capital asset converted into stock in trade; Depreciation
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE, SHRI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHRI S. S. GODARA, JUDICIAL MEMBER ITA NO. 902/AHD/2015 (AS SESSMENT YEAR: 2011-12) PROGRESSIVE MERCANTILE CO-OP. BANK LTD., 670-1, MH MARKET, STATION ROAD, AHMEDABAD -380002. APPELLANT VS. THE ACIT, CIRCLE-2, PRATYAKSH KAR BHAVAN, AMBAWADI, AHMEDABAD RESPONDENT PAN: AAAAP0688C /BY ASSESSEE : SHRI S. N. DIVATIA, A.R. /BY REVENUE : SHRI V. K. SINGH, SR. D.R. /DATE OF HEARING : 05.02.2018 /DATE OF PRONOUNCEMENT : 27.02.2018 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2011-12 ARISES AGAINST THE CIT(A)-10, AHMEDABADS ORDER DATED 24.02.2015, IN C ASE NO. CIT(A) -10/ACIT CIRCLE-1(2)/51/2014-15, UPHOLDING ASSESSING OFFICER S ACTION DISALLOWING / ADDING ITS INVESTMENT DEPRECIATION FUND, INTEREST ACCRUED ON NPAS AND GENERAL PROVISION ON FRAUDS AND RESERVES AMOUNTING TO RS.3,85,00,000/-, RS.21,58,875/- AND RS.10,50,000/-; RESPECTIVELY, IN PROCEEDINGS U/S. 1 43(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. ITA NO. 902/AHD/15 [PROGRESSIVE MERCANTILE CO-OP. B ANK LTD. VS. ACIT ] A.Y. 2011-12 - 2 - 2. WE COME TO FIRST ISSUE OF INVESTMENT DEPRECIATIO N FUND OF RS.3,85,00,000/-. THE CIT(A)S ORDER ELABORATELY DISCUSSES ENTIRE ISS UE VIS--VIS THE RELEVANT FACTS AS UNDER: 5.1 THE FIRST GROUND OF APPEAL IS AGAINST DISALLOW ANCE OF INVESTMENT DEPRECIATION FUND OF RS.3.85 CRORES. DURING THE ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT THE APPELLANT HAD DEBITED AN AMOUNT OF RS.3.85 CRORES UNDER THE HEAD 'INVESTMENT DEPRECIATION FUND' IN THE PROFIT AND LOSS ACCOUNT. THE AO OBSERV ED THAT THIS AMOUNT WAS A CONTINGENT LIABILITY THAT THE APPELLANT HAD CREATE D ON ACCOUNT OF ITS INVESTMENT WITH THE MADHUPURA MERCANTILE CO- OPERATIVE BANK LTD.(MM CB), THE AO HELD THAT UNDER THE ACT THERE WAS NO PROVISION FOR ALLOWING A CONTINGENT LIABILITY AS DEDUCTIBLE EXPENDITURE. THE AO OBSERVED THAT THIS M ATTER HAS BEEN CLARIFIED BY THE CBDT VIDE INSTRUCTION NO. 3/2010 DATED 23.03.2010 A ND INSTRUCTION NO. 17/2008 DATED 26.11.2008, RELYING ON THESE TWO INSTRUCTIONS , THE AO AFTER DETAILED DISCUSSION HELD THAT THE AMOUNT OF RS.3.85 CRORES C LAIMED UNDER THE HEAD 'INVESTMENT DEPRECIATION FUND' WAS NOT AN ALLOWABLE EXPENDITURE AND DISALLOWED THE SAME. DURING THE APPELLATE PROCEEDINGS THE APPELLANT SUBM ITTED THAT IT WAS A CO- OPERATIVE BANK AND THEY HAVE TO FOLLOW EACH AND EVE RY GUIDELINE ISSUED BY THE RBI. FOR THEIR INVESTMENT WITH THE MMCB, THE RBI HAD INS TRUCTED TO MAKE FULL PROVISION AGAINST THEIR EXPOSURE TO MMCB IN VIEW OF THE FACT THAT THE MMCB HAD GONE BANKRUPT. FOLLOWING THE INSTRUCTIONS OF THE RBI, TH E APPELLANT HAD MADE PROVISION OF RS.3.85 CRORES UNDER THE HEAD 'INVESTMENT DEPREC IATION FUND', THE APPELLANT SUBMITTED THAT SINCE THE PROVISION HAS BEEN MADE AS PER GUIDELINES OF THE RBI, THE SAME SHOULD BE ALLOWED. IN SUPPORT OF ITS CONTENTIO N, THE APPELLANT RELIED ON THE FOLLOWING JUDGMENTS: -HON'BLE ITAT, BANGALORE IN STATE BANK OF MYSORE VS . DCIT IN ITA NO.647/BANG.L2008 DATED 29.5.2009 -HON'OLE ITAT, AHMEDABAD IN THE KARNAVATI CO-OP BAN K LTD. VS. DCIT IN ITA NO.2939/AHD.L2010 - HON'BLE DELHI HIGH COURT IN CIT VS. VASISTH CHAY VYAPAR LTD. IN ITA 552/2005 -HON'BLE ITAT, AHMEDABAD IN SURAT NATIONAL CO-OP BA NK LTD. VS. ACIT IN ITA NO.3242/AHD 12010 THE RIVAL SUBMISSIONS HAVE BEEN CONSIDERED. THE APP ELLANT HAD MADE INVESTMENT OF RS.3.85 CRORES IN THE MMCB. THIS INVESTMENT FORMS P ART OF THE NON-SLR INVESTMENTS AND HAS BEEN CLASSIFIED AS INVESTMENT U NDER THE HEAD 'OTHERS AS PER REQUIREMENTS OF THE RBI. THE RBI VIDE ITS LETTER NO . UBO (AH) TFCUB.NO3367 /12.33.01/2010-11 DATED 2.12.2010 DIRECTED ALL URBA N CO-OPERATIVE BANKS HAVING EXPOSURE TO MMCB AS FOLLOWS: ' IT HAS BEEN DECIDED THAT ALL UCBS HAVING EXPOSURE T O MMCB SHOULD MAKE FULL PROVISION AGAINST THEIR EXPOSURE TO MMCB AS ON MARC H 31, 2011.' ITA NO. 902/AHD/15 [PROGRESSIVE MERCANTILE CO-OP. B ANK LTD. VS. ACIT ] A.Y. 2011-12 - 3 - SINCE THE APPELLANT HAS MADE INVESTMENT OF RS.3.85 CRORES IN MMCB, IT MADE A PROVISION OF RS.3.85 CRORES UNDER THE HEAD 'INVESTM ENT DEPRECIATION FUND'. FURTHER, THE APPELLANT DEBITED THIS EXPENDITURE TO THE PROFIT & LOSS ACCOUNT. APPARENTLY, THE RBI HAD ISSUED THESE GUIDELINES IN VIEW OF THE FACT THAT MN1CB WAS GOING BANKRUPT. THUS THE PROVISION WAS IN THE N ATURE OF CONTINGENT LIABILITY. UNDER THE INCOME TAX ACT, THERE IS NO PROVISION FOR CLAIMING A CONTINGENT LIABILITY' AS EXPENDITURE. SINCE THE BANKS ARE BOUND BY RBI GU IDELINES, THE CBDT HAS CLARIFIED THIS MATTER VIDE INSTRUCTION NO. 3/2010 D ATED 23.03.2010 AND INSTRUCTION NO. 17/2008 DATED 26.11.2008. VIDE INSTRUCTION NO. 3/2010 DATED 23.03.2010, CBDT HAS CLARIFIED AS FOLLOWS: 'IN CASES WHERE NO SALE OR SETTLEMENT HAS TAKEN PLA CE AND THE LOSS ON MARKED TO MARKET BASIS HAS RESULTED IN REDUCTION OF BOOK PROF ITS, SUCH NOTIONAL LOSS WOULD BE CONTINGENT IN NATURE AND CANNOT BE ALLOWED TO BE SE T OFF AGAINST TAXABLE INCOME THE SAME SHOULD THEREFORE BE ADDED BACK FOR THE PURPOSE OF COMPUTING TAXABLE INCOME OF THE ASSESSEE.' VIDE INSTRUCTION NO.17/2008 DATED 26.11.2008, THE C BDT HAS SPECIFICALLY CLARIFIED THE MATTER IN THE CONTEXT OF ASSESSMENT OF BANKS AS FOLLOWS: 'IN A RECENT REVIEW OF ASSESSMENT OF BANKS CARRIED OUT BY C&AG, IT HAS BEEN OBSERVED THAT WHILE COMPUTING THE INCOME OF BANKS U NDER THE HEAD. 'PROFIT AND GAINS OF BUSINESS & PROFESSION, DEDUCTIONS OF LARG E AMOUNTS UNDER DIFFERENT SECTIONS ARE BEING ALLOWED BY THE ASSESSING OFFICER S WITHOUT PROPER VERIFICATION, LEADING TO SUBSTANTIAL LOSS OF REVENUE. IT IS, THER EFORE, NECESSARY THAT ASSESSMENTS IN THE CASES OF BANKS ARE COMPLETED WITH DUE CARE AND AFTER PROPER VERIFICATION. IN PARTICULAR, DEDUCTIONS UNDER THE PROVISIONS REFERRE D TO BELOW SHOULD BE ALLOWED ONLY AFTER A THOROUGH EXAMINATION OF THE CLAIM ON F ACTS AND ON LAW AS PER THE PROVISIONS OF THE IT. ACT, 1961 . (IX) SECTION 37 OF THE ACT ENVISAGES THAT AN AMOUNT DEBITED IN THE P&L ACCOUNT IN RESPECT OF AN ACCRUED OR A1CERTAINED LIABILITY O NLY IS AN ADMISSIBLE DEDUCTION, WHILE ANY PROVISION IN RESPECT OF ANY UNASCERTAINED LIABILITY OR A LIABILITY WHICH HAS NOT ACCRUED, DO NOT QUALIFY FOR DEDUCTION HOWEV ER, IT HAS BEEN FOUND THAT BANKS ARE CLAIMING PROVISIONS ON DIFFERENT ACCOUNTS , PROBABLY UNDER THE RBI GUIDELINES (E 9 PROVISION FOR WAGE ARREARS FOR WHIC H NEGOTIATIONS ARE YET TO BE FINALIZED, PROVISION FOR STANDARD ASSET ETC...].A C ONTINGENT LIABILITY CANNOT CONSTITUTE DEDUCTIBLE EXPENDITURE FOR THE PURPOSES OF INCOME T AX ACT. THUS, PUTTING ASIDE OF MONEY WHICH MAY BECOME EXPENDITURE ON THE HAPPENING OF AN EVENT WOULD NORMALLY NOT CONSTITUTE AN ALLOWABLE EXPENDITURE UN DER THE INCOME TAX ACT THE AOS SHOULD VERIFY SUCH CLAIM AS TO WHETHER THESE AR E ADMISSIBLE AS PER THE INCOME TAX ACT'. FROM THE ABOVE IT IS AMPLY CLEAR THAT A CONTINGENT LIABILITY IS NOT AN ALLOWABLE EXPENDITURE. IT IS A FACT THAT THE INVESTMENT IN MM CB HAS NOT BEEN WRITTEN OFF IN THE BOOKS AND CLAIMED AS BAD DEBT. IT IS ONLY A PROVISI ON. THUS, THE AMOUNT OF RS.3.85 CRORES CLAIMED UNDER THE HEAD 'INVESTMENT DEPRECIAT ION FUND' AN DEBITED TO THE P&L A/C IS NOT AN ALLOWABLE EXPENDITURE. THE CASE LAWS RELIED ON BY THE APPELLANT ARE NOT AP PLICABLE IN THE PRESENT CASE AS THE FACTS ARE DIFFERENT. I AM INCLINED TO A GREE WITH THE AO THAT RATIO OF ITA NO. 902/AHD/15 [PROGRESSIVE MERCANTILE CO-OP. B ANK LTD. VS. ACIT ] A.Y. 2011-12 - 4 - JUDGMENT OF HON'BLE APEX COURT IN SOUTHERN TECHNOLO GIES LIMITED VS. JCIT 320 ITR 577(SC) IS SQUARELY APPLICABLE TO THE PRESENT C ASE. IT HAS BEEN HELD THAT RBI DIRECTIVES HAVE NOTHING TO DO WITH TAXABILITY OF TH E ENTITIES GOVERNED BY THOSE DIRECTIVES AND TAXABLE INCOME OF THE ASSESSEE IS RE QUIRED TO BE DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX AC T. IN VIEW OF DISCUSSION ABOVE, I HOLD THAT THE AO WAS JUSTIFIED IN DISALLOWING THE AMOUNT OF RS.3.85 CRORES CLAIMED AS DEDUCTION U NDER THE HEAD INVESTMENT DEPRECIATION FUND. ACCORDINGLY, THE ADDITION OF R S.3.85CRORES IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 3. HEARD RIVAL SUBMISSIONS REITERATING THEIR RESPEC TIVE STANDS. THERE IS NO DISPUTE THAT THE IMPUGNED CLAIM PERTAINS TO ASSESSE ES INVESTMENT ACCOUNT WITH M/S. MADHUPURA MERCANTILE CO-OPERATIVE BANK LTD. PAGE 4 1 OF THE PAPER BOOK CONTAINS THE MARKET REGULATOR/RBIS LETTER TO ALL PRIMARY CO -OPERATIVE BANKS IN GUJARAT STATE DATED 02.12.2010 THAT THESE BANKS SHOULD MAKE FULL PROVISION AGAINST THEIR EXPOSURE TO MMCB AS ON 31 ST MARCH, 2011. IT FURTHER EMERGES THAT THE SAID BA NK HAS ALSO GONE BANKRUPT. WE OBSERVE IN THESE CLINCHING FACTS THAT THE CONSERVATIVE PRINCIPLE OF BOOKING LOSSES AT FIRST SIGN ALL PROBABILITY AS PER HONBLE APEX COURTS JUDGMENT IN CHAINRUP SAMPATRAM V. CIT (1953) 24 ITR 481 (SC) AS RELIED UPON IN CO-ORDINATE BENCH DECISION IN DHEERAJ AMIN VS. ACIT ITA NO. 170 9/BANG/2013 DECIDED ON 30.06.2014 HOLDING TO THE FOLLOWING EFFECT WOULD BE SQUARELY ATTRACTED IN FACTS OF THE INSTANT CASE. WE DEEM IT APPROPRIATE TO REPROD UCE THE RELEVANT CO-ORDINATE BENCHS FINDINGS AS UNDER: 16. IN THE LANDMARK JUDGMENT OF CHAINRUP SAMPATRAM VS CIT [(1953) 24 ITR 481 (SC)], HONBLE SUPREME COURT HAS OBSERVED AS FOLLOWS: ..THE TRUE PURPOSE OF CREDITING THE VALUE OF UNSO LD STOCK IS TO BALANCE THE COST OF THOSE GOODS ENTERED ON THE OTHER SIDE OF TH E ACCOUNT AT THE TIME OF THEIR PURCHASE, SO THAT THE CANCELLING OUT OF THE ENTRIES RELATING TO THE SAME STOCK FROM BOTH SIDES OF THE ACCOUNT WOULD LEAVE ONLY THE TRAN SACTIONS ON WHICH THERE HAVE BEEN ACTUAL SALES IN THE COURSE OF THE YEAR SHOWING THE PROFIT OR LOSS ACTUALLY REALISED ON THE YEAR'S TRADING. AS POINTED OUT IN P ARAGRAPH 8 OF THE REPORT OF THE COMMITTEE ON FINANCIAL RISKS ATTACHING TO THE HOLDI NG OF TRADING STOCKS, 1919, 'AS THE ENTRY FOR STOCK WHICH APPEARS IN A TRADING ACCOUNT IS MERELY INTENDED TO CANCEL THE CHARGE FOR THE GOODS PURCHASED WHICH HAV E NOT BEEN SOLD, IT SHOULD NECESSARILY REPRESENT THE COST OF THE GOODS. IF IT IS MORE OR LESS THAN THE COST, THEN THE EFFECT IS TO STATE THE PROFIT ON THE GOODS WHIC H ACTUALLY HAVE BEEN SOLD AT THE INCORRECT FIGURE......FROM THIS RIGID DOCTRINE ONE EXCEPTION IS VERY GENERALLY RECOGNISED ON PRUDENTIAL GROUNDS AND IS NOW FULLY S ANCTIONED BY CUSTOM, VIZ., THE ADOPTION OF MARKET VALUE AT THE DATE OF MAKING UP ACCOUNTS, IF THAT VALUE IS LESS, THAN COST. IT IS OF COURSE AN ANTICIPATION OF THE LOSS THAT MAY BE MADE ON ITA NO. 902/AHD/15 [PROGRESSIVE MERCANTILE CO-OP. B ANK LTD. VS. ACIT ] A.Y. 2011-12 - 5 - THOSE GOODS IN THE FOLLOWING YEAR, AND MAY EVEN HAV E THE EFFECT, IF PRICES RISE AGAIN, OF ATTRIBUTING TO THE FOLLOWING YEAR'S RESUL TS A GREATER AMOUNT OF PROFIT THAN THE DIFFERENCE BETWEEN THE ACTUAL SALE PRICE A ND THE ACTUAL COST PRICE OF THE GOODS IN QUESTION.' (EXTRACTED IN PARAGRAPH 281 OF THE REPORT OF THE COMMITTEE ON THE TAXATION OF TRADING PROFITS PRESENTED TO BRI TISH PARLIAMENT IN APRIL, 1951). WHILE ANTICIPATED LOSS IS THUS TAKEN INTO AC COUNT, ANTICIPATED PROFIT IN THE SHAPE OF APPRECIATED VALUE OF THE CLOSING STOCK IS NOT BROUGHT INTO THE ACCOUNT, AS NO PRUDENT TRADER WOULD CARE TO SHOW INCREASED P ROFIT BEFORE ITS ACTUAL REALISATION. THIS IS THE THEORY UNDERLYING THE RULE THAT THE CLOSING STOCK IS TO BE VALUED AT COST OR MARKET PRICE WHICHEVER IS THE LOW ER, AND IT IS NOW GENERALLY ACCEPTED AS AN ESTABLISHED RULE OF COMMERCIAL PRACT ICE AND ACCOUNTANCY. AS PROFITS FOR INCOME-TAX PURPOSES ARE TO BE COMPUTED IN CONFORMITY WITH THE ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING, UNLES S OF COURSE, SUCH PRINCIPLES HAVE BEEN SUPERSEDED OR MODIFIED BY LEGISLATIVE ENA CTMENTS, UNREALISED PROFITS IN THE SHAPE OF APPRECIATED VALUE OF GOODS REMAINING U NSOLD AT THE END OF AN ACCOUNTING YEAR AND CARRIED OVER TO THE FOLLOWING Y EAR'S ACCOUNT IN A BUSINESS THAT IS CONTINUING ARE NOT BROUGHT INTO THE CHARGE AS A MATTER OF PRACTICE, THOUGH, AS ALREADY STATED, LOSS DUE TO A FALL IN PR ICE BELOW COST IS ALLOWED EVEN IF SUCH LOSS HAS NOT BEEN ACTUALLY REALISED. ( EMPHASIS, BY UNDERLINING, SUPPLIED BY US ) 17. THE PRINCIPLE IS THUS UNAMBIGUOUS. THE PRINCIPL ES OF CONSERVATISM, AND CONSIDERATIONS OF PRUDENCE, IN THE ACCOUNTING TREAT MENT REQUIRE THAT NO ANTICIPATED PROFITS BE TREATED AS INCOME UNTIL THE PROFITS ARE REALIZED, AND, AT THE SAME TIME, AN ANTICIPATED LOSS TO BE DEDUCTED FROM COMMERCIAL PRO FITS, AT THE FIRST SIGN OF ITS REASONABLE POSSIBILITY. ACCOUNTING STANDARD 2, WHIC H IS A MANDATORY ACCOUNTING STANDARD UNDER SECTION 145(2), ALSO STATES THAT INVENTORIES SHALL BE VALUED AT COST, OR NET REALISABLE VALUE, WHICHEVER IS LOWER. THERE MAY SEEM TO BE, AT FIRST SIGHT, AN ELEMENT OF DICHOTOMY IN THIS APPROACH INASMUCH A S ANTICIPATED LOSSES ARE TAKEN INTO ACCOUNT AND ANTICIPATORY PROFITS ARE IGNORED, BUT THAT IS THE IMPACT OF ACCOUNTING PRINCIPLES SANCTIONED BY THE STATUTE AND THE LAW LAID DOWN BY HONBLE SUPREME COURT. 4. WE THUS CONCLUDE THAT THE MOMENT M/S. MADHUPURA MERCANTILE CO-OPERATIVE BANK LTD. HAS GONE BANKRUPTS FORMED A VERY VALID RE ASON FOR THE ASSESSEE TO CLAIM THE CORRESPONDING INVESTMENT ACCOUNT PROVISION IN Q UESTION. WE ACCEPT ASSESSEES FIRST SUBSTANTIVE GROUND TO ALLOW ITS IMPUGNED INVE STMENT DEPRECIATION FUND CLAIM OF RS.3,85,00,000/- ALLOWABLE AS BUSINESS LOSS. 5. THE SECOND ISSUE BETWEEN THE PARTIES IS THAT OF CORRECTNESS OF BOTH THE LOWER AUTHORITIES ACTION ADDING ASSESSEES INTEREST ACCR UED ON NPAS OF RS.21,58,875/-. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HOLD TH AT THE IMPUGNED ACCRUED INTEREST ON NPAS HAS TO BE RECOGNIZED AS INCOME IN VIEW OF THE FACT THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG. WE FIND THE INSTANT ISSUE TO ITA NO. 902/AHD/15 [PROGRESSIVE MERCANTILE CO-OP. B ANK LTD. VS. ACIT ] A.Y. 2011-12 - 6 - BE NO MORE RES INTEGRA IN VIEW OF HONBLE JURISDICT IONAL HIGH COURTS RECENT JUDGMENT REPORTED AS PCIT VS. SHRI MAHILA SEVA SAHAKARI BANK LTD. (2017) 395 ITR 324 (GUJ) TAKES NOTE OF SECTION 5(C) OF THE BANK REGULATION A CT, 1949, CBDTS CIRCULAR DATED 09.10.1984 AS WELL AS RBIS D IRECTIONS TO HOLD THAT THE SAID COOPERATIVE BANK COULD NOT HAVE RECOGNIZED INC OME FROM NON PERFORMING ASSETS ON ACCRUAL BASIS BUT COULD HAVE BOOKED THE S AME ONLY AT THE TIME OF ACTUAL RECEIPTS. WE THEREFORE ACCEPT ASSESSEES SE COND SUBSTANTIVE GROUND AS WELL. 6. THIS LEAVES US WITH THE THIRD ISSUE OF DISALLOWA NCE OF RS.10,50,000/- CLAIMED AS GENERAL PROVISION AND RESERVE. THE CIT(A) DISCU SSES THE INSTANT ISSUE AS UNDER: 5.3 THIS GROUND OF APPEAL IS AGAINST DISALLOWANCE OF RS.10,50,000/- CLAIMED AS 'GENERAL PROVISION AND RESERVE'. THE AO OBSERVED THAT THE APPELLANT HAD CLAIMED RS.1 0,50,000/- AS 'GENERAL PROVISION AND RESERVE' AND DEBITED THE SAME TO THE PROFIT AND LOSS ACCOUNT. OUT OF THIS, RS.8,50,000/- WAS ON ACCOUNT OF 'RESERVE FOR FRAUD ACCOUNT' WHILE RS.2,00,000/- WAS ON ACCOUNT OF 'PROVISION FOR STAN DARD ASSETS'. THE AO DISALLOWED THE AMOUNT OF RS.10,50,000/- SINCE UNDER THE INCOME TAX ACT, 1961 THERE IS NO PROVISION TO CLAIM DEDUCTION FOR PROVIS IONS. DURING THE APPELLATE PROCEEDINGS THE APPELLANT SUBM ITTED THAT ONE EMPLOYEE HAD MADE A FRAUD. LEGAL ACTION HAS BEEN IN ITIATED AND POLICE COMPLAINT HAS BEEN LODGED. SUBSTANTIAL PART OF THE FRAUD HAS BEEN RECOVERED FROM HIM. THE UNRECOVERED AMOUNT OF RS.8,50,000/- HAS BEEN PUT U NDER THIS RESERVE. THE RIVAL SUBMISSIONS HAVE BEEN CONSIDERED. THERE I S NO SUBSTANCE IN THE CONTENTIONS OF THE APPELLANT AND THE SAME ARE DEVOI D OF MERIT. AS PER THE APPELLANT'S OWN SUBMISSION, THE COURT CASE IS GOING ON. ALSO, THE APPELLANT HAS RECOVERED SUBSTANTIAL PART FROM THE EMPLOYEE. IN TH IS SCENARIO, THE APPELLANT WOULD BE JUSTIFIED IN CREATING A RESERVE FOR THE UNRECOVE RED AMOUNT BUT THE SAME CANNOT BE CLAIMED AS DEDUCTION TILL IT HAS BEEN DECLARED U NRECOVERABLE AND HAS BEEN WRITTEN OFF AS BAD DEBT. AS HAS BEEN DISCUSSED IN D ETAIL IN PARA 5.1 ABOVE, UNDER THE ACT, THERE IS NO PROVISION FOR CLAIMING ANY RES ERVE OR PROVISION AS DEDUCTION. ACCORDINGLY, THE ADDITION OF RS.8,50,000/- IS CONFI RMED. FURTHER, THE APPELLANT SUBMITTED THAT RS.2,00,000/- WAS ON ACCOUNT OF PROVISION FOR STANDARD ASSETS WHICH IS AS PER RBI GUIDELINES. AS HAS BEEN DISCUSSED IN DETAIL IN PARA 5.1 ABOVE INCOME IS TO BE ASSESSED AS PER THE INCOME TAX ACT 1961 AND NOT AS PER RBI GUIDELINES. THE PU RPOSE OF RBI GUIDELINES IS VERY DIFFERENT. EVEN IF A RESERVE IS CREATED AS PE R GUIDELINES OF RBI, THE SAME CANNOT BE CLAIMED AS DEDUCTION IN THE PROFIT & LOSS ACCOUNT AS UNDER THE INCOME TAX ACT 1961 THERE IS NO PROVISION FOR CLAIMING ANY RESERVE OR PROVISION AS DEDUCTION. ACCORDINGLY, ADDITION OF RS.2,00,000/- IS CONFIRMED. ITA NO. 902/AHD/15 [PROGRESSIVE MERCANTILE CO-OP. B ANK LTD. VS. ACIT ] A.Y. 2011-12 - 7 - IN VIEW OF DISCUSSION ABOVE, ADDITION OF RS.10,50,0 00/- IS CONFIRMED. THIS GROUND IS DISMISSED. 7. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RI VAL SUBMISSIONS. IT EMERGES FROM ABOVE EXTRACTED FINDINGS THAT THE ASSESSEE HAD MADE THE IMPUGNED PROVISIONS ON ACCOUNT OF AN ALLEGED FRAUD INVOLVING RS.8.50LAC S ADDED BY ITS EMPLOYEE. LATTER PROVISION IS AS PER RBIS GUIDELINES REGARDING STAN DARD ASSETS. WE THEREFORE ADOPT OUR DETAILED REASONING QUA FIRST ISSUE HEREINABOVE TO CONCLUDE THAT THE TWO CORRESPONDING EVENTS OF THE ALLEGED FRAUD AND RBIS GUIDELINES FORMED SUFFICIENT BASIS FOR THE ASSESSEE BANK TO MAKE THE IMPUGNED PR OVISION. WE THEREFORE AGREE WITH ASSESSEES LAST SUBSTANTIVE GROUND AS WELL. 8. THIS ASSESSEES APPEAL IS ALLOWED. [PRONOUNCED IN THE OPEN COURT ON THIS T HE 27 TH DAY OF FEBRUARY, 2018.] SD/- SD/- ( PRAMOD KUMAR ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 27/02/2018 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 45 / GUARD FILE. BY ORDER / . // . /0