The Kangra Central Co-operative Bank Limited, Kangra V. DCIT, Kangra

ITA 918/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63892 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 15-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: ANOOP KUMAR SHARMA
• Keywords: Gift; Principle of natural justice; Bad and doubtful debts; Corroborative evidences

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI H.L. KARWA, VP AND SHRI T.R. SOOD, AM ITA NO. 918/CHD/2011 ASSESSMENT YEAR: 2007-08 THE KANGRA CENTRAL V D.C.I.T. COOPERATIVE BANK LTD. CIRCLE PALAMPUR DHARAMSALA DISTT. KANGRA KANGRA AAAJT 0749 B (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ANOOP KUMAR SHARMA RESPONDENT BY: SHRI N.K. SAINI DATE OF HEARING: 27.08.2012 DATE OF PRONOUNCEMENT: 29.08.2012 ORDER PER T.R. SOOD, A.M IN THIS APPEAL THE ASSESSEE HAS RAISED VARIOUS GROU NDS OUT OF WHICH GROUND NO. 1 WAS NOT PRESSED BEFORE US, THEREFORE, THE SAME IS DISMISSED AS NOT PRESSED. OTHER GROUNDS READ AS UNDER:- 2 DISALLOWANCE ON EXCESS NPA PROVISION RS. 5,61,4 0,000/-. THE LD. CIT(A) SHIMLA ERRED IN LAW IN CONFIRMING TH E ORDER OF ASSESSING OFFICER ON ACCOUNT OF EXCESS PROVISION ON BAD AND DOUBTFUL DEBTS. 3. ADDITIONS ON ACCOUNT OF DEEMED PROPORTIONATE IN TEREST PERTAINING TO INVESTMENT IN NON-BANKING INSTITUTION AND NON-SL R FDS, IN EXCESS OF PRESCRIBED LIMITS, RS. 1,95,12,000/-. THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) AND THE ASSESSING OFFICER IS CONTRARY TO THE PROVISIONS OF LAW AND AGAINST AL L CANNONS OF NATURAL JUSTICE AND IS ALSO CONTRARY TO FACTS, MATERIAL AN D EVIDENCE EXISTING ON RECORDS. 4. DISALLOWANCE OF EXPENDITURE BY ASSESSING OFFICER AND ENHANCED/DELETED DISALLOWANCE BY LD. CIT(A): DIWALI GIFTS RS. 1613767.00 ENTERTAINMENT EXPENSES RS. 36455.00 GENERAL CHARGES RS. 246900.00 THE ORDER PASSED BY THE LD. CIT(A) AND THE ASSESSIN G OFFICER IS CONTRARY TO THE PROVISIONS OF LAW AND IS ALSO CONTRARY TO FA CTS, MATERIAL AND EVIDENCE EXISTING ON RECORDS. 2 2. GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAS CLAIMED PROVISION FOR NPA AT RS. 6.40 CRORES. DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT AS PER PARA 39 OF THE AUDIT REPORT THE PROVISION AS PER RBI NORM REQUIRED WAS ONLY 26.14 LAKHS ON ST ANDARD ASSETS AND RS. 52.45 LAKHS FOR OTHER THAN STANDARD ASSETS WHEREAS THE PROVISIONS MADE WAS ON HIGHER SIDE. IN RESPONSE TO THIS QUERY IT WAS E XPLAINED THAT THE PROVISIONS FOR NPA ON INVESTMENTS HAS NOT BEEN INCLUDED IN THE ABO VE SAID PROVISION AND THE ASSESSEE FILED GUIDELINES ISSUED BY RBI/NABARD. IT SEEMS THAT THE ASSESSING OFFICER HAS DECIDED THE ISSUE WITHOUT CONSIDERING T HIS REPLY AND WITHOUT REFERRING TO THE GUIDELINES ISSUED BY THE RBI / NABARD. EVEN THE LD. CIT(A) HAS NOT DEALT WITH THIS ISSUE THEREFORE, IN OUR OPINIO N, THE MATTER REQUIRES RE- EXAMINATION. ACCORDINGLY WE SET ASIDE THE ORDER O F THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER AND DI RECT HIM TO RE-EXAM THE ISSUE AND PASS A SPEAKING ORDER. THE ASSESSING OFFICER M UST LOOK INTO THE GUIDELINES ISSUED BY THE RBI/NABARD IN RESPECT OF THE PROVISI ON FOR NON PERFORMING THE ASSETS WHICH WOULD MAINLY CONSIST OF VARIOUS GOVERN MENT SECURITIES. 3. GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT AS PER PARA 24 OF AUDIT REPORT THE ASSESSEE HAD INVESTED AN AMOUNT IN EXCESS OF 10% OF THE DEPOSITS IN NON SLR INSTRUMENTS IN VIOLATION OF RBI GUIDELINES DATED 16.10.1994. IN RESPONSE TO THE QUERY IT WAS STATED AS UNDER:- IN REPLY TO PARA 7 OF THE SAID LETTER, IT IS SUBMI TTED THAT THE AUDITORS HAVE WRONGLY WRITTEN THAT THE BANK HAS MADE EXCESS INVES TMENTS IN NON-SLR PSU BONDS. THE BANK IS ALLOWED TO INVEST, IN NON S LR PSU BONDS, UPTO 10% OF ITS DEPOSITS AS AT THE LAST DATE OF THE PREV IOUS FINANCIAL YEAR. THE BANKS DEPOSITS AS ON 31.3.2006 WERE RS. 22,87,3 9,05,116.66 (PAGE 17 OF THE SAID AUDIT REPORT) AND THE BANKS INVESTME NT IN NON SLR PSU BONDS AS ON 31.3.2007 WERE RS. 198.074 CRORES. THE BANKS INVESTMENT IN NON SLR, PSU BONDS WAS WELL WITHIN THE LIMITS PR ESCRIBED BY THE RBI/NABARD, RBI LETTER NO. RPCD, C.O. RF. BC. 26/07 .02.03/2005-06 DATED 4.8.2005 CLARIFYING THIS IS ENCLOSED ANNEXURE D. 4. AFTER EXAMINING THE REPLY THE ASSESSING OFFICER WAS OF THE VIEW THAT AS PER RBI CIRCULAR THE ASSESSEE COULD HAVE MADE INVES TMENT IN SLR PSU BONDS ONLY UPTO 185.32 CRORES WHEREAS THE ACTUAL INVESTME NT IS 198.04 CRORES. 3 HENCE THE EXCESS INVESTMENT WAS TO THE EXTENT OF RS . 12.72 CRORES. THEREFORE, HE HELD THAT INTEREST INCURRED ON THIS INVESTMENT IN VIOLATION OF RBI RULES IS NOT ALLOWABLE AND ACCORDINGLY HE DISALLOW ED THE INTEREST AMOUNTING TO RS. 19512000/-. 5. BOTH THE PARTIES WERE HEARD IN DETAIL AND WE FIN D FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE THAT THE ASSESSING OFFICER HAS MADE WRONG REFERENCE TO THE PREVIOUS YEAR. IN THE NORMAL PARLANCE PREVIOUS YEAR WOULD MEAN EARLIER YEAR WHEREAS UNDER THE INCO ME-TAX ACT, 1961, PREVIOUS YEAR WOULD MEAN THE YEAR FOR WHICH ASSESSM ENT IS BEING FRAMED. THEREFORE, RBI GUIDELINES SHOULD HAVE BEEN READ AC CORDINGLY . THESE FACTS HAVE NOT BEEN CONSIDERED BY THE LD. CIT(A). THEREF ORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO RECONSIDER THE ISSUE AFTER UNDERSTANDING VARIOUS INSTRUCTIONS AND ISSUES AND T HEN PASS A SPEAKING ORDER. 6. GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAD INCURRED CERTAIN EXPENSES ON ENTERTAINMENT AND GIFT S ETC. WHICH WERE EXCESSIVE AS PER AUDIT REPORT. IN RESPONSE THE DETAILED REPL IES WERE SUBMITTED. HOWEVER, THE ASSESSING OFFICER HELD THAT THESE EXPENSES ARE EXCESSIVE AND DISALLOWED THE EXPENDITURE ON DIWALI GIFTS AMOUNTING TO RS. 36 2,610/- AND ENTERTAINMENT AMOUNTING TO RS. 361,500/- AND OTHER EXPENSES AMOUN TING TO RS. 538,419/-. 7. ON APPEAL THE LD. CIT(A) ENHANCED THE DISALLOWAN CE IN RESPECT OF DIWALI EXPENSES BECAUSE THE LIMIT WAS PRESCRIBED BY THE DI RECTORATE OF COOPERATION (HP) AT 0.5% OF ITS NET PROFITS. SIMILARLY LD. CIT (A) ENHANCED THE DISALLOWANCE ON ACCOUNT OF GENERAL CHARGES. HOWEVER, HE DELETE D THE DISALLOWANCE IN RESPECT OF OTHER EXPENSES VIDE PARA 6.4 WHICH IS A S UNDER:- AS FAR AS ADHOC DISALLOWANCE OF EXPENDITURE ON NON BANKING ACTIVITIES IS CONCERNED, THE DIRECTIONS OF DIRECTORATE OF COOPERA TION (HP) DATED 29.8.1995 WERE AS UNDER:- 1 NO SOCIETY SHALL SPEND MORE THAN A MAXIMUM OF 0.5 % OF ITS NET PROFITS, AFTER DEDUCTION OF STATUTORY FUNDS ON ALL GIFTS GIVEN BY IT. 2 NET PROFIT OF THE SOCIETY FOR THIS PURPOSE IS RES TRICTED TO RS. 4 CRORES. 4 3 NO GIFT TO AN INDIVIDUAL SHOULD EXCEED RS. 1500 D URING ANY YEAR SUBJECT TO 10% INCREASE ANNUALLY. THE DETAIL OF THESE EXPENSE AS PER PARA 49 OF AUDIT REPORT IS AS UNDER:- 1 2 3 4 5 PARTICULARS AMOUNT (RS) PERMISSIBLE EXP DISALLOWED BY THE A.O DISALLOWED BY THE CIT(A) (2-3) DIWALI GIFTS RS. 18,13,767/- RS. 2,00,000/- RS. 3,6 2,610/- RS. 16,13,767/- ENTERTAINMENT RS. 22,92,000/- LIMIT PRESCRIBED AS PER DEPOSITS RS. 3,61,500/- @ 5% OF ENTERTAINMENT RS. 36,455/- ACTUAL SURPLUS OVER LIMIT PRESCRIBED GENERAL CHARGES RS. 49,38,000/- -- & GENERAL CHARGES RS. 2,46,900/- OTHER EXPENSES RS. 1,07,68,380/- -- RS. 5,38,419/- NIL TOTAL RS. 12,62,529/- RS. 18,97,122/- 8. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT AS FAR AS DIWALI EXPENSES ARE CONCERNED THE LIMIT WAS WITH REFERENCE TO EXPENSES INCURRED IN RESPECT OF THE DIRECTIONS. DIWALI EXPENSES CONSISTE D OF VARIOUS GIFTS AND INCENTIVES PAID TO THE STAFF WITH REFERENCE TO THEI R PERFORMANCES. HE POINTED OUT THAT AS FAR AS ENTERTAINMENT AND GENERAL EXPENSES W ERE COMPARABLE TO THE EXPENSES IN THE EARLIER YEARS, THEREFORE, NO DISAL LOWANCE WAS POSSIBLE. THE GENERAL EXPENSES CONSIST MAINLY OF ADVERTISEMENT, T AXI CHARGES, TELEPHONE CHARGES ETC. AND SHOULD NOT HAVE BEEN DISALLOWED. 9. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE R ELIED ON THE ORDER OF THE LD. CIT(A). 10. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY A ND FIND EVEN THIS ISSUE HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER AN D THE LD. CIT(A) PROPERLY. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER FOR RECONSIDERATION OF THE ISSUE IN THE LIGHT OF THE REPLY OF THE ASSESSEE AND FURTHER MATERIAL WHICH MA Y BE GATHERED. THE ASSESSEE IS AT LIBERTY TO FURNISH SUFFICIENT REPLY AND SUPPORTING EVIDENCE FOR JUSTIFICATION OF THE EXPENSES. 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 29.08.2012 SD/- SD/- (H.L. KARWA) (T.R. SOOD) VICE PRESIDENT ACCOUNTANT MEM BER DATED: 29 .08.2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/ THE DR 5