RAJDHANI NAGAR SAHKARI BANK LTD,LUCKNOW V. DY.CIT RANGE-6, LUCKNOW

ITA 142/LKW/2024

AI Insights

The case involves Rajdhani Nagar Sahkari Bank Ltd., which appealed against the orders of the CIT(A) for the assessment years 2012-13 and 2013-14. The primary issues revolved around the disallowance of deductions related to the fall in value of government securities, provisions made for NPAs, and the treatment of employees' contributions to provident funds. The Tribunal examined the submissions, relevant CBDT instructions, and various judicial precedents to arrive at its decision, which included restoring certain matters back to the AO for further verification and computation.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 313131 (ITAT-LUCKNOW)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Other Referred Cases: CIT vs. Public Educational Society, Raj Rani Gulati vs. CIT, Jai Parabolic Springs Ltd. vs. CIT, Gurudwara Godri Sahib Baba Farid Society vs. DCIT (Exemption), ACIT, Circle-1, Devangere vs. M/s. Davangere District Central Co-op Bank Limited, PCIT vs. Sarvanasarvaratnam Trading and Manufacturing Pvt. Ltd., J&K Bank Limited vs. ACIT
• Laws Referred To: Income Tax Act, 1961, CBDT Instruction No. 17 dated 26.11.2008, FIMMDA Guidelines, RBI Guidelines dated 16.10.2000
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJEEV KRISHNA SHARMA; ADDL
• Assessee Lawyers: K. R. RASTOGI; SHUBHAM
• Keywords: Revised return; Question of law; Bad and doubtful debts; Depreciation; Cost of acquisition; Principle of natural justice; TDS; Rectification of order; Notional interest; FORM 26AS
• Section: 28; 37(1)

Judgement Text

"1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW ‘A’ BENCH, LUCKNOW BEFORE SH. KUL BHARAT, VICE PRESIDENT AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA Nos.142, 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd., Sardari Khera, Lucknow- 226005 vs. The Deputy Commissioner of Income Tax, Range-6, Lucknow-266005 PAN:AAAAR1269D (Appellant) (Respondent) Assessee by: Sh. K.R. Rastogi, C.A. & Sh. Shubham Rastogi, C.A. Revenue by: Sh. Sanjeev Krishna Sharma, Addl CIT (DR) Date of hearing: 28.04.2025 Date of pronouncement: 30.04.2025 O R D E R PER BENCH.: These appeals have been filed by the assessee for the assessment years 2012-13 and 2013-14 against the orders of the ld. CIT(A) dated 2/02/2024. As both these cases were heard together, for the sake of convenience, they are being taken up for disposal by way of a common order. ITA No.142/Lkw/2014 A.Y. 2012-13 “1. The Ld. C. I. T. (A), NFAC erred on facts and in law in upholding the addition of Rs. 21,60,433/ being fall in value of Government Securities rightly computed as per FIMMDA Guidelines of the RBI and as per CBDT Instruction No. 17 dated 26.11.2008. 2. The Ld. C.I.T. (A), NFAC erred on facts and in law in upholding the disallowance of loss of Rs. 3113000/ suffered by bank through fraudulently withdrawal from S. B. Account and claimed as Business Loss. Further, the same is allowable as per CBDT Circular No. 35-D(XLVII-20)- [File No. 10 8/48/65-1T(A-O)] dated 24.11.1965. fraud ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 2 3. The Ld. C. I. T. (A), NFAC, erred on facts and in law in upholding the rejection of deduction u/s 36(1) (viia) and 36(1) (viii) as Provision for NPA Rs. 81,73,424/- has been made in the accounts as per Rules. 4. That the addition of Rs. 41,73,577/- as Employees Contribution u/s 36(1)(v)(a) also includes Employer Contribution which had already been deposited with LIC of India and no disallowance has been made in this regard. The correct amount of Employees Contribution as debited in the P & L Account is only Rs.24,65,264/ which is verifiable from record hence disallowance to the extent of Rs. 17,08,313/- is wrongly upheld. 5. The Ld. Lower Authorities failed to appreciate that after obtaining registration with Provident Fund Commissioner Lucknow on 29.11.2016 funds of Employees Contribution has been transferred to Provident Fund Commissioners Lucknow. 6. The addition made are highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon.” 2. The facts of the case are that the assessee filed a return of income on 29.09.2012 declaring a total income of Rs.67,80,170/-. During the course of assessment, the ld. AO observed from the audit report that the bank had not deposited employers’ contribution and contribution received from employees with a registered Provident Fund Trust as per the Government Employees Provident Fund and Misc. Provisions Act, 1952. It was pointed out in the audit report that the bank was retaining employees’ contribution with itself and depositing employers’ contribution with Life Insurance Corporation under the group superannuation scheme. The fact was further mentioned in significant accounting policies and notes on accounts (Schedule 18) at Para 5(d) under the head, “staff benefits”. The assessee was required to explain the same. In response, it was submitted that during the relevant financial year, the employees contribution was to the extent of Rs.41,73,577/-. It was submitted that the assessee had deposited the employees contribution with the Life Insurance Corporation of India (LIC) an autonomous body set up by an Act of Parliament. It was further submitted that the investment made in LIC was done with the consent of management of Rajdhani Nagar Sahkari Bank Limited and an amount of Rs.32,86,337/- was remitted to LIC vide letter dated ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 3 26.11.2012. The ld. AO noted that the assessee had not filed any evidence regarding the deposit of employees contribution and therefore, since the same had not been deposited by the assessee into any recognized Provident Fund, hence, in the light of the provisions of section 2(24)(x) r.w.s. 36(1)(va), the entire contribution made by the employees during the relevant year was disallowed and added to the total income of the assessee. In the profit and loss account, the assessee had claimed an expense of Rs.1,34,46,857/- under the head, “provisions and contingencies”. These consisted of, “provisions for non-performing assets” amounting to Rs.81,73,424/-, “provision for Government securities” amounting to Rs.21,60,433/- and “provision against S/B claim (fraud)” amounting to Rs.31,13,000/- respectively. The assessee was asked to show cause as to why these provisions may not be disallowed. In response, it was submitted that the provision for NPA had been made on those loan accounts which do not perform as an asset i.e. no interest income was earned during the year on those loan accounts, and bank capital was also dumped. As per RBI norms, provisions were required to be made on those NPA accounts. With regard to provision for Government Securities claimed at Rs.21,60,433/-, it was submitted that an amount of Rs.21,60,433/- had been debited to profit and loss account in the name of provision for Government securities. However, it was actually the amortization of premium paid on the investment, as they were purchased at a price more than its face value. Therefore, the premium paid had to be amortized over a period of the “Held to Maturity (HTM)” investment. It was submitted that as per CBDT, “Instruction No.17” dated 26.11.2008 para no. (vii), it had been stated; “(vii) as per RBI guidelines dated 16.10.2000, the investment portfolio of the banks is required to be classified under three categories viz., Held to Maturity (HTM), Held for Trading (HFT) and Available for Sale (AFS). Investments classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case, the premium should be amortized over the period remaining to maturity”. It was, therefore, submitted that as per the RBI Master Circular, these ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 4 securities were categorized under HTM carried at acquisition cost. Since, they had been purchased at more than face value, the premium was required to be amortized over the period remaining to maturity and the amortized amount was to be debited to profit and loss account. Therefore, the claim was justified. With regard to the provision against S/B claim (fraud) of Rs.31,13,000/-, it was submitted that there was a claim made by a customer for fraudulent withdrawal of a sum of Rs.31,13,000/- from her bank account, FIR had been lodged by the customer and since the customer’s claim was being processed, hence provision, on this account had been made by the bank. 3. The ld. AO considered all the submissions made by the assessee but did not agree with any of them. He pointed out that provision was not an allowable deduction in the profit and loss account. In his view, provision for NPA of loan accounts on contingency basis was not an allowable deduction. Furthermore, he held that investments in Government Securities were the bank assets and provision made for it was not an allowable deduction in the profit and loss account. He also held that the provision against the claim of fraud was not allowable in view of the fact that an FIR had been filed and the employees concerned had been suspended and as and when they were convicted, they would be personally liable for the payment of the fraud amount. Furthermore, from the details filed, the ld. AO observed that the fraud amount was insured from United India Fire and General Insurance Company Limited, Lucknow. Therefore, in view of the above, provisions and contingencies amounting to Rs.1,34,46,857/- debited in the profit and loss account by the assessee was disallowed and added to the returned income. 4. Aggrieved by the said addition, the assessee went in appeal to the ld. CIT(A). Before the ld. CIT(A), it was submitted that due to a mistake, the assessee had not claimed statutory deduction under section 36(1)(viia) and 36(1)(viii) of the I.T. Act. However, it had made provisions for NPA of Rs.81,73,424/- and debited the same in ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 5 the profit and loss account. The same was required for claiming the statutory deduction under section 36(1)(viia) and 36(1)(viii) of the Income Tax Act. It was submitted that the mistake for not claiming the specific deduction in the return was unintentional and only due to lack of proper knowledge. Reliance was placed on Circular No.14 (XL-35) of 1955 dated 11.04.1955 to state that officers of the Department must not take advantage of the ignorance of the assessee as to his rights and it was one of the duties to assist them in every reasonable way particularly in the matter of claiming and securing reliefs and the officers should guide a tax payer where the proceedings and other particulars indicate that some refund or relief was due to them. The said Circular had been followed by the Hon’ble Allahabad High Court in the case of CIT vs. Public Educational Society reported in 318 ITR 323. The same had also been considered by the Hon’ble Allahabad High Court in the case of Raj Rani Gulati vs. CIT 346 ITR 543 wherein the Hon’ble Court had held that the judgment of the Goetze (India) Ltd., deals with the power of the ld. AO only and does not affect the power of the appellate authorities to entertain the claim for deduction otherwise then by filing of revised return. Reliance was also placed on the judgment of the Hon’ble Delhi High Court in the case of Jai Parabolic Springs Ltd., 306 ITR 42 (Del). Accordingly, it was prayed that the statutory deduction under section 36(1)(viia) and 36(1)(viii) may kindly be allowed. Perusal of the order of the ld. CIT(A) does not reveal that the ld. CIT(A) had decided this issue. After recording the submissions of the assessee, he proceeded to decide the issue of disallowance of Rs.48,28,730/- under the provisions of section 2(24)(x) r.w.s. 36(1)(va) despite the fact that, as per the grounds of appeal reproduced in his appeal order, the same was not a ground of appeal that was preferred in the said appeal. With regard to the addition of Rs.21,60,433/- on the being fall in the value of securities, the assessee submitted before the ld. CIT(A) that the sum was actually the amortization of premium paid on the investment as they were purchased at a price more than the face value and the matter was covered by CBDT Instruction No.17 dated 26.11.2008 ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 6 which was quoted in the submissions. It was further prayed that RBI Act, 1934 was incorporated for a specific purpose and section 45Q categorically brings out the intention of the legislature inasmuch as it states that Chapter IIIB shall override other provisions and therefore, valuation of securities on the basis of RBI Guidelines was correct. The assessee placed reliance on the decision of the Hon’ble Uttrakhand High Court in the case of CIT vs. Nainital Bank Limited and the decision of the Hon’ble Bombay High Court in the case of CIT vs. HDFC, Limited 368 ITR 377. However, the ld. CIT (A) was not impressed with the submissions of the assessee and after going through the AO’s observation he dismissed this ground of appeal without elaborating upon the reasons thereof. On the issue of disallowance of Rs. 31,13,300/- on the S/B claim (fraud), it was submitted that the bank had suffered a loss through fraudulent withdrawal of funds from savings bank a/c no. 3899 at Sujanpura, Alambagh Branch and the name of the account holder was Ms. Simmi Dhawan. In this regard, an FIR had been filed and loss had been debited in the profit and loss account therefore, it may be allowed. The ld. CIT(A) merely reproduced the orders of the ld. AO and dismissed this ground of appeal. In this manner, the appeal of the assessee came to be dismissed. 5. Aggrieved with the said dismissal, the assessee is in appeal before us. Shri. K. R. Rastogi, CA and Sh. Shubham Rastogi, C.A. (hereinafter referred to as the ‘ld. ARs’) submitted that the provision for Government Securities, were actually an amortization of premium paid on the investment as they were purchased at a price more than its face value. Therefore, the premium paid had to be amortized over the period Held to Maturity (HTM) investment. The ld. ARs quoted from CBDT Instruction No. 17 dated 26.11.2008 and pointed out that the said instructions of the CBDT had been followed in the case of CIT and Other vs. Vysya Bank Limited 186 DTR Page 193 (Karnataka) wherein it had been held that where the assessee maintains the accounts in terms of RBI Regulations, the assessee was entitled to ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 7 deductions and the deductions could not be denied by the authorities under the pretext that it was showing as investment in the balance-sheet. Reliance was again placed on the case of CIT vs. Nainital Bank Limited 390 ITR 335 (Uttaranchal) and CIT vs. HDFC Bank Limited 366 ITR 370 (Bombay). Accordingly, it was prayed that the disallowance was not called for. On the issue of disallowance of Rs.31,13,300/- on account of provision against S/B claim (fraud), it was prayed that the bank had already suffered the loss on account of fraudulent withdrawals from the said savings bank account and an FIR had been filed. Furthermore, reliance was placed on CBDT Circular No.35-D(xlvii-20) (File No.10/48/65-IT) A-0) dated 24.11.1965 in which reference was invited to instructions on the above subject in Board’s Circular No.25 of 1939 and Circular No.13 of 1944, wherein it was clarified that losses arising due to embezzlement of employees or due to negligence of employees should be allowed if the loss took place in the normal course of business and the amount involved was necessarily kept for the purposes of business in the place from which it was lost. The Circular stated that since the above Circulars had been issued, the Hon’ble Supreme Court had further considered the matter and laid down the law in the cases of Badridas Daga vs. CIT (1958) 34 ITR 10 and Associated Banking Corporation India Limited vs. CIT (1965) 56 ITR 1. In the case of Badridas Daga (supra) the Hon’ble Supreme Court had affirmed the view that loss resulting from embezzlement by an employee or the agent of a business was admissible as deduction under section 10(1) of the 1922 Act (corresponding to section 28 of the 1961 Act). In the second case, the decision stated that loss must have deemed to have arisen when the employer comes to know about it and realizes that the amounts embezzlement cannot be recovered. In the light of the aforesaid decisions, it was submitted that the legal position was that embezzlement by employees should be treated as incidental to business and this loss should be allowed as deduction in the year in which it is discovered. Reliance was also placed on the decision of the Hon’ble ITAT Chandigarh ‘A’ Bench in the case of Gurudwara Godri Sahib Baba Farid Society vs. DCIT (Exemption) 154 taxman.com ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 8 503 and the decision of the Hon’ble ITAT Bangalore Bench in the case of ACIT, Circle- 1, Devangere vs. M/s. Davangere District Central Co-op Bank Limited in ITA No. 1403/Bang/2019. The ld. AR also placed reliance on the decisions of the Hon’ble High Court of Madras in the case of PCIT vs. Sarvanasarvaratnam Trading and Manufacturing Pvt. Ltd. (2019) 104 taxman.com 291 (Madras) and the decision of Hon’ble High Court of Jammu and Kashmir in the case of J&K Bank Limited vs. ACIT (2017) 85 taxman.com 309. On the issue of allowing deduction under section 36(1)(viia) of the I.T. Act, 1961 it was prayed that due to a mistake they had not claimed the statutory deduction under section 36(1)(viia) of the I.T. Act, 1961, in respect of any provision for bad and doubtful debts made by the Bank. It was submitted that they had made the provisions in this regard as per section 36(1)(viia) for NPA of Rs.81,73,424/- and debited the same in the profit and loss account under the head, “Provisions and Contingencies Schedule 17” but not claimed the statutory deduction under section 36(1)(viia), due to lack of proper knowledge and the same was unintentional. Our attention was invited to Circular No.14(xl-35) of 1955 dated 11.04.1955 which enjoined upon the AO’s not to take the advantage of the assessee’s ignorance. It was further submitted that the said Circular had been followed by the Hon’ble Allahabad High Court in the case of CIT vs. Public Educational Society 318 ITR 223 and it was further submitted that the powers of the appellate authorities were not constrained by the judgment of Goetze (India) Ltd., as held by the Hon’ble Allahabad High Court in the case of Smt. Raj Rani Gulati vs. CIT reported in 346 ITR 543. Accordingly, it was prayed that the statutory deduction under section 36(1)(viia) in respect of any provision for bad and doubtful debts may kindly be allowed to the assessee and a computation with regard to the same were submitted before us. With regard to the addition of Rs.41,73,570/- as employees contribution under section 36(1)(va) of the Income Tax Act, 1961. It was submitted that the said ground had not been raised before the ld. CIT(A). However, it was submitted that the same may kindly be accepted as the facts were verifiable from record. It was ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 9 submitted that the ld. AO had made the addition on the basis of a submission that employee contribution of Rs.41,73,577/- had not been deposited on time. However, it was submitted that the actual amount of employees contribution was only Rs.24,65,264/-. In view of the above, excess disallowance to the extent of Rs.17,08,313/- had been made. The assessee submitted the details of employer and employees contribution showing opening balance as on 1.04.2011 and closing balance as shown in the balance-sheet. Other necessary papers were also filed and it was prayed that the matter could kindly be sent back to the ld. AO for verification and allowance. 5. On the other hand, Sh. Sanjeev Krishna Sharma, Addl CIT DR (hereinafter referred to as the ‘ld. Addl CIT DR) submitted that the assessee had claimed certain provisions in its account and provisions were contingent liabilities which were not allowable. Accordingly, the ld. AO was justified in disallowing the provisions created by the assessee. With regard to the provisioning on account of S/B claim (fraud) of Rs.31,13,000/-, the ld. Addl CIT DR drew our attention to the fact that the employees who had committed the embezzlement had been identified and would be responsible for reimbursing the amount to the bank. Furthermore, the bank had also taken an insurance policy and therefore, there was no loss to the bank on this account. With regard to the claim under section 36(1)(va) and the claim under section 36(1)(viia) and 36(1)(viii), the ld. Addl CIT DR had no objection to the matter being sent back to the ld. AO for re-computing the allowances / disallowances in accordance with the provisions of law. With regard to the orders of the ld. CIT(A) wherein the ld. CIT(A) had not passed speaking orders with regard to the disallowances sustained by him, the ld. Addl CIT DR submitted that if the Bench so desired, the matter could be sent back to the ld. CIT(A) for passing of speaking orders. 6. We have duly considered the facts and circumstances of the case. The first ground of appeal before us pertains to the addition of Rs.21,60,433/- being the fall in ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 10 the value of Government Securities computed as per FIMMDA guidelines of the RBI and as CBDT Instruction No.17 dated 26.11.2008. We observe that though the aforesaid expenditure had been classified as a provision for securities, it was actually an amortization of expenses over the period remaining to maturity in respect of investments that were held to maturity and that this was as per the RBI Guidelines dated 16.10.2000 and CBDT Instruction No. 17 dated 26.11.2008 para no. (vii). We have also observed that the Hon’ble Karnataka High Court in the case of CIT vs. ING Vysya Bank Limited (2020) 186 DTR 193 (Karnataka) have considered the issue of whether the Tribunal committed an error of law in allowing the claim of the assessee on the issue of amortization of investment, “Held to Maturity” without appreciating the fact that though the same was done as per RBI Guidelines, yet the same was not an allowable expenditure under section 37(1) of the Act. Answering the said question of law, the Hon’ble High Court had held that the aforesaid substantial questions of law is squarely covered by Instruction No.17 of 2008 dated 26.11.2008 issued by the CBDT / RBI and is covered by clause (vii) provided therein. The Hon’ble High Court has also pointed out that the decision of the Hon’ble Supreme Court in the case of Southern Technologies Limited vs. JCIT (2010) 228 CTR (SC) 440 had been considered by a Division Bench of the Karnataka High Court in the case of Karnataka Bank Limited vs. ACIT (2013) 263 CTR (Kar) 299 and it had been held that where the assessee maintained the accounts in terms of RBI Regulations, the assessee was entitled to the deductions and it cannot be denied by the authorities under the pretext that it was showing as investment in the balance-sheet. We also observe that the Hon’ble Karnataka High Court in the case of Karnataka Bank Limited (2013) 356 549 has held that financial institutions like banks are expected to maintain accounts in terms of the RBI Act and its regulations. They do not deal with the permissible deductions or inclusion under the Income Tax Act. For the purpose of the Income Tax Act, if the assessee had consistently been treating the value of investments for more than two decade as stock and trade and claiming depreciation, it was not to the ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 11 authorities to disallow the said depreciation on the grounds that in the balance-sheet, it is shown as investments in terms of the RBI Regulations. Therefore, in view of the above, it is quite clear that the decision of the ld. AO to disallow the said amortization on account of the fact that the investment has been shown as banks assets and on the misconception that these were a contingent liability are not maintainable in view of the aforesaid instructions and case laws. Accordingly, Ground No.1 of the appeal is allowed. 7. With regard to Ground No. 2 i.e. disallowance of the loss of Rs.31,30,000/- suffered by the bank through fraudulent withdrawal from S/B account and claimed as business loss, it is seen that the same is clearly allowable in terms of the CBDT Circular No. 35-D(xlvii-20)-(File No.10/48/65-IT(A-0) dated 24.11.1965. We further note that said Circular has been considered by the ITAT Chandigarh ‘A’ Bench in the case of Gurudwara Godri Sahib Baba Farid Society vs. DCIT (Exemption) (2023) 154 taxman.com 503 (Chd-Trib) wherein the Tribunal has held that where an embezzlement of funds of employees had occurred during the course of day to day carrying out charitable activities by the assessee trust, and there was no doubt about the fact of embezzlement, the same was allowable as a revenue loss. We further observe that the Hon’ble ITAT Bangalore ‘A’ Bench in the case of ACIT, Circle-1, Devangere vs. M/s. Davangere District Central Co-op Bank Limited in ITA No. 1403/Bang/2019 has also studied the aforesaid Circular and held that from perusal of clause (i) of the same, it is clear that loss due to embezzlement by employees should be treated as a loss incidental to business and that the deduction is to be allowed as a deduction in the year in which the embezzlement was discovered. Accordingly, the decision of the ld. AO to deny the benefit only because it had been entered into the accounts under the nomenclature, “provision against S/B claim (fraud) is not maintainable because the loss has actually occurred and it has been debited to the profit and loss account. Therefore, it is not a contingent liability. ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 12 Furthermore, the fact that the employees have been identified and prosecuted and that recovery may ultimately be made from them or the fact that the assessee has insured its deposits with an insurance agency, cannot, in our opinion, stand in the way of allowing expenditure, because as and when the amount is recovered either from the employees or from the insurance company, it would be offered by the Bank as income in terms of the principles of accounting. Ground No. 2 is, therefore, allowed and the addition is deleted. 8. The next ground relates to upholding the rejection of deduction under section 36(1)(viia) and 36(1)(viii) as provision for NPA of Rs.81,73,424/-. It is observed that the ld. AO has disallowed the provision on account of his belief that provision for NPA of loan accounts on contingency basis is not an allowable deduction and the ld. CIT(A) had not decided the issue in his assessment order preferring rather to decide an issue that was not appeal before him i.e. the disallowance on account of delay in deposit of employees contribution to provident fund under section 2(24)(x) r.w.s. 36(1)(va). It is observed that the assessee had not claimed this deduction in its return of income, even though it had provided for the same in its accounts. The assessee has prayed that the mistake in not claiming the specific deduction in the return was unintentional and only due to a lack of knowledge but the deduction is statutorily allowable to it and the claim had been made later before the ld. CIT(A) and the ld. CIT(A) had not decided the issue that was raised before him. We, further observe that the ld. CIT(A) or the Appellate Tribunal is not bound by the judgment of the Hon’ble Supreme Court in the case of Goetze (India) Ltd., 284 ITR 323, where the Hon’ble Supreme Court has held that it is necessary for the assessee to revise its return for raising any new claim which has not been claimed in the original claim of return. The Hon’ble Bombay High Court in the case of M/s Pruthvi Brokers Limited in ITA No. 3908/2010 has held that the judgment in the case of Goetze (India) Ltd., (supra) is confined to the powers of the ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 13 ld. AO and does not impinge upon the powers of the appellate authorities to entertain claims not made before the ld. AO. In doing so, the Hon’ble Bombay High Court has relied upon the judgment of the Hon’ble Supreme Court in the case of NTPC Limited vs. CIT (1997) 7 SCC 489. We further observed that the issue has also been considered by the Hon’ble jurisdictional High Court in the case of Raj Rani Gulati vs. CIT 346 ITR 543 (All) in which the Hon’ble High Court has while considering the judgment of the Hon’ble Supreme Court in the case of Goetze (India) Ltd., has held that it is clear that the Hon’ble Apex Court has only discussed the powers of the ld. AO but made no comment regarding the power of the ITAT and therefore, the said ratio of that case is not applicable to matters raised before the ITAT. We also observe that the Hon’ble Delhi High Court in the case of Jai Parabolic Springs 306 ITR 212 (Del) has held that the ITAT could consider a claim not made in the return of income. We observe that as per section 36(1)(viia) any provision for bad and doubtful debts made by a scheduled bank or non-scheduled or cooperative bank of an amount not exceeding eight and a half percent of the total income computed before making any deduction under this clause and Chapter VIA and an advance not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in a prescribed manner, would be allowed as a deduction subject to certain provisos. It is further observed that it is only with respect to the third proviso that a restriction is provided that no deduction shall be allowed for deduction in excess of limits specified in previous provisions unless the income had been disclosed in the return of income under the head profits and gains in business or profession. It is further observed that as per section 36(1)(viii), a deduction is allowable to the extent of 20% of profits derived from eligible business for any special reserve created and maintained by a specified entity subject to certain provisos and among specified entities are banking companies and cooperative banks. In these circumstances, since the deduction is legally allowable to the assessee in terms of section 36(1)(viia) and 36(1)(viii), the ld. CIT(A) ought to have considered the prayer of the assessee and ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 14 decided the issue rather than side stepping it. We, therefore, hold that in principle the said deductions are allowable to the assessee company and we restore the matter back to the file of the ld. AO to determine and compute the extent of admissible deductions in accordance with the provisions of the Act. Ground No. 3 is accordingly allowed for statistical purposes. 9. Ground No.4 which is with regard to the addition of Rs.41,73,507/- under section 36(1)(va). This was not a ground of appeal preferred before the ld. CIT(A). However, the ld. CIT(A) proceeded to decide the issue even though no arguments had been preferred before him in this regard. Furthermore, we see that he confirmed addition to the extent of Rs.48,28,730/- which was in excess of the disallowance made by the ld. AO. Therefore, even though perusal of subsequent years orders show, that the ld. CIT(A) in his carelessness actually reproduced a paragraph in this order that pertain to a subsequent assessment year, since the order has the effect of enhancing the disallowance and since the ld. DRs have not been able to bring on record any rectification order that may subsequently have been passed by the Revenue in this regard. We deem it fit to entertain this ground of appeal by the assessee. The assessee has submitted that an excess disallowance has been made, because the correct amount of employees contribution is only Rs.24,65,264/-, which is verifiable from the record and therefore, disallowance to the extent of Rs.17,08,313/- was unjustified. As this is a matter of enquiry, we restore this matter back to the file of the ld. AO with a direction to examine what was the amount of employees contribution under section 36(1)(va) which had not been deposited before the due date as per the relevant act and to restrict disallowance to that extent. Ground No. 4 is allowed for statistical purposes. 10. Ground No. 5 is rendered infructuous in view of the fact that we have already restored the matter back to the file of the ld. AO and it is accordingly, dismissed as such. ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 15 11. Ground No. 6 is general in nature. No evidences have been produced before us regarding lack of opportunity given by the ld. AO and therefore, the ground of appeal is hereby dismissed. 12. In the result, the appeal is partly allowed. ITA No.143/Lkw/2014 A.Y. 2013-14 “1. The Ld. C.I.T. (A), NFAC erred on facts and in law in not decided the Additional Grounds of Appeal submitted on 12.03.2019 before CIT (A)-II, Lucknow, through e- filing on 14.08.2020in compliance to notice u/s 250 of I. T. Act and on 05.08.2020 vide 14.08.2020 vide e-filing acknowledgement no. 14082013383386 and in compliance to Notice dated 25.12.2020 on 19.01.2021 vide e-filing acknowledgement no. 19012113848184. Copy of Additional Grounds are enclosed as per Annexure-A. Thus the non-adjudicating the additional Grounds is contrary to the Provisions of Law. WITHOUT PREJUDICE TO ABOVE 2. The Ld. C.I.T. (A), NFAC erred on facts and in law in upholding the incorrect loss Rs. 7,74,229/- solely on the basis of feeding error in Return inspite of the fact in the Return in Schedule Part-A-P & L A/c Net Loss Rs. 7185130/- has been shown. Further, in Schedule-BP \"Computation of Income from Business or Profession\" after allowing Depreciation as per Income Tax Rules, Net Business Loss Rs.71,64,727/-has been shown for which submissions were made on 14.08.2020 vide e-filing acknowledgement no. 14082013383386 and on 19.01.2021 vide acknowledgement no. 19012113848184. 3. That the addition of Rs. 48,28,730/- as Employees Contribution u/s 36(1)(v)(a) also includes Employer Contribution which had already been deposited with LIC of India and no disallowance has been made in this regard. The correct amount of Employees Contribution as debited in the P & L Account is only Rs.28,61,534/ which is verifiable from record hence disallowance to the extent of Rs. 12,38,897/ is wrongly upheld. 4. The Ld. Lower Authorities failed to appreciate that after obtaining registration with Provident Fund Commissioner Lucknow on 29.11.2016 funds of Employees Contribution has been transferred to Provident Fund Commissioner Lucknow. 5. The Ld. C.I.T. (A) erred on facts and in law in upholding the disallowance of deduction under section 36(1) (viia) and 36(1)(viii) as Assessee has made provisions for NPA in books of accounts. 6. The Ld. C.I.T. (A) erred on facts and in law in upholding the addition of Rs. 6,59,216/- shown as Liability for Income Tax Return treating it as cessation of ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 16 liability without appreciating that it is a contra entry being shown under the head \"Other Assets\". Further, no addition can be made in this regard as it is below line provision and cannot be held as Income of the Assessee. 7. The Ld. C.I.T. (A) erred on facts and in law in upholding the addition being difference of Rs. 2,70,760/- (Rs.17,91,405 (as per insight portal) Rs. 1520645-00 [as per Income tax return]) as Interest Income from Allahabad Bank solely on the basis of incorrect amount shown as information as per insight portal inspite of the fact as per 26AS, assessee has received Interest of Rs. 15,20,645/-and TDS of Rs. 1,52,067/- has been deducted. Thus without confronting the incorrect income shown in insight portal, the addition is contrary to the Provisions of Law. 8. The addition upheld are highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon.” 13. The facts of the case are that during the course of assessment, the ld. AO noticed that employees contribution made during the year to the extent of Rs.48,28,730/- had not been deposited in accordance with the provisions in this regard into a recognized provident fund within the time period permitted. Therefore, in the light of the provisions of section 2(24)(x) r.w.s. 36(1)(va), the ld. AO disallowed the entire contribution made by the employees during the relevant year and added the same back to the total income of the assessee. Furthermore, on perusal of financial statements, the ld. AO observed that the assessee had made provisions on account of non-performing assets to the tune of Rs.1,32,29,583/-. The ld. AO required the assessee to explain why this provision may not be disallowed and added back to the returned income. In response, it was submitted that the provision had been made in respect of NPAs as per the guidelines issued by the RBI. The ld. AO did not find the explanation to be justified. He opined that guidelines issued by the RBI were intended to ensure that banks classify their assets according to prudential norms so that realistic picture of net worth is reflected in the balance sheet. Lost assets are to be written off and if write off is not feasible, they have to be provided for @ 100%. Doubtful and sub-standard assets are provided for at rates ranging from 10 to 50%. The ld. AO opined that this classification did not mean that the debts had become bad ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 17 or irrecoverable. He, therefore, held that such accounting entries were not necessarily deductible in computing the taxable income of an assessee. He placed reliance for this proposition on the judgment of the Hon’ble Karnataka High Court in Nota Industries Limited (229 ITR 137). In that case, the Court had observed that all liabilities which a businessman might provide for in his books following prudential norms are not necessarily tax deductible. Under the Income Tax Act, it was only a liability in present that was allowable against a liability in future. Therefore, the ld. AO made a disallowance of Rs.1,32,29,583/- in this regard. Going through the financial statements further, the ld. AO observed that the assessee had shown income tax refundable at Rs.6,59,216/- as a liability. When asked to explain the same, the assessee explained that this tax pertained to a very long period ago and no records of tax deduction from the concerning tax deductor were available. Therefore, this amount needed to be written off and a provision on the liability side had been made. Since, the assessee had submitted the above explanation, the ld. AO held that the liability was not a genuine liability and the same was therefore, added back to the returned income. Furthermore, on perusal of the individual transaction statement on the ITD systems, it was noticed that the assessee has deducted total TDS at Rs.5,83,744/- under section 194 of the Income Tax Act. But in its return of income it has shown less TDS by Rs.27,077/- made by the Allahabad Bank and therefore, it also had shown lesser receipts to the extent of Rs.2,70,760/-. The assessee was asked to explain why the amount of interest determined against the TDS not shown may not be added to the income returned. In response, it was submitted that the TDS made by the Allahabad Bank had been duly accounted for. But the breakup was not provided. Therefore, the ld. AO concluded that the income to the extent of Rs.2,70,760/- had not been shown and therefore, he added it back to the returned income. Besides this, the ld. AO makes some other additions also, which are not the subject matter of this appeal. ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 18 14. Aggrieved by the additions made by the ld. AO, the assessee went in appeal before the ld. CIT(A). On the issue of disallowance of Rs.1,32,29,583/- as provision for NPA, the ld. CIT(A) quoted from the order of the ld. AO and stated that neither in the assessment stage nor in the course of appeal proceedings was the assessee able to bring any cogent material to prove beyond doubt that the amount of Rs. 1,32,29,583/- was ascertained liability of the asessee and therefore allowable. He pointed out that the ld. AO had disallowed the same as the assessee was unable to bring any material to prove that it had actually incurred NPA and no unascertained liability in the form of provision was created by the assessee. Therefore, he held that there was no infirmity in the order of the ld. AO in adding the said amount for violation of respective income tax law. Accordingly, he upheld the addition. 15. With regard to the addition of Rs.6,59,216/- on account of liability for income tax refundable by treating it as a cessation of liability, the ld. CIT(A) held that in Schedule 5 (other liabilities and provisions) as well as in Schedule 11 (other assets), the amount of Rs.6,59,216/- exist in both AYs 2012-13 and 2013-14. He submitted that since the assessee was unable to bring details of supporting documents as to how they have shown liability by way of income tax refundable under head, “other liabilities” to match the same amount by making another entry head, “other assets”, he found no infirmity in the order of the ld. AO as in his opinion, the assessee was unable to establish the genuineness of liability made in its account. Accordingly, the he held that the addition made under this head was justified and he confirmed the addition of Rs.6,59,216/-. 16. With regard to the addition of Rs. 2,70,760/-, the ld. CIT(A) considered the submissions of the assessee which was based upon the figures reflected in Form No. 26AS where interest from the bank had been shown at Rs.15,20,645/- and TDS of Rs. 1,52,067/- had been deducted and also the fact the transaction statement available in ITD system was an incorrect information - since no TDS of Rs. 27,077/- had been ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 19 deducted and no interest of Rs.2,70,760/- had been received from Allahabad Bank. However, the ld. CIT(A) did not accept the submissions made by the assessee as the amount of TDS reflected in the OLTAS data available in the ITD exceeded the amount of TDS reflected in the return of the assessee. Accordingly, he upheld the addition of Rs. 2,70,760/- made on this account, but he directed the ld. AO to also allow the credit for TDS on this account while computing the tax liability. 17. The assessee is aggrieved at these disallowances and has accordingly come before us. Sh. K.R. Rastogi and Sh. Shubham Rastogi, C.As. (hereinafter referred to as the ld. AR) appearing on behalf of the assessee submitted that the assessee had submitted an additional ground of appeal before the ld. CIT(A) through the e-filing portal in compliance to his notice under section 250 of the I.T. Act on 14.08.2021 and again on 19.01.2021. In that additional ground, it had been pointed out that the ld. DCIT, Range-6 had erred in considering the returned loss at Rs.7,74,229/- despite the fact that in the return in Schedule B.P., “computation of income from business or profession” a loss of Rs.71,64,727/- had been fed and this was also the figure contained in the audited balance-sheet on the basis of which the assessment was made. It was submitted that the filing of return had been entrusted to the auditor who had committed a mistake at the time of feeding in the return, but since the ld. AO had gone through the accounts and also the books the accounts and the said figure was at variance with the figure of loss stated in computation of income from business and profession in Schedule B.P, the correct loss of Rs. 71,64,727/- should have been allowed. However, the ld. AO had not done so and when the assessee went in appeal to the ld. CIT(A), the ld. CIT(A) had not taken any cognizance on this ground. It was, therefore, submitted that the matter may kindly be restored to the file of the ld. AO to determine the correct loss and allow the same. 18. With regard to ground nos. 3 and 4 relating to the addition of Rs. 48,28,730/- , which had been confirmed by the ld. CIT(A) on account of employees contribution to ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 20 provident fund under section 36(1)(va), it was submitted that the actual figure of employees contribution that was debited in the P&L account was only Rs.28,61,534/- and therefore, disallowance to the extent of Rs. 12,38,897/- was excessive. It was conceded that the matter had not been raised before the ld. CIT(A) due to oversight but in view of the fact that disallowance could only be made according to law, it was prayed that the matter may kindly be considered by the Tribunal and remanded back to the ld. AO for verification. 19. With regard to Ground No. 5 i.e. the disallowance of deduction under section 36(1)(viia) and 36(1)(viii), it was again conceded that due to a mistake, the assessee had not claimed the statutory deduction under section 36(1)(viia) in respect of any provision for bad and doubtful debts even though the same was allowable to it. However, it had made the provision in this regard as per section 36(1)(viia) for NPA of Rs. 1,32,29,583/- and debited the same to its profit and loss account under the head (“provisions and contingencies” schedule-17). It was submitted that the mistake for not claiming the specific deduction in the return under section 36(1)(viia) was unintentional and only due to lack of proper knowledge. The assessee placed reliance on the departmental Circular No. 14 (xl-35) of 1955 and further pointed out that the said Circular had been followed by the Hon’ble Allahabad High Court in the case of CIT vs. Public Educational Society 318 ITR 223. It was further prayed that in the case of Raj Rani Gulati vs. CIT 346 ITR 543, the Hon’ble Court had held that tribunal was at liberty to consider fresh grounds and was not bound by the judgment of Hon’ble Supreme Court in the case of Goetze (India) Ltd., which only dealt with the power of the ld. AO. Assessee placed further reliance on the judgment of Hon’ble Delhi High Court in Jai Parabolic Springs Ltd., (supra) and prayed that deduction of Rs.4,53,334/- may kindly be allowed to it under section 36(1)(viia). 20. With regard to the addition of Rs. 6,59,216/- on account of income tax liability, it was submitted that the same was not a liability but a contra entry. There ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 21 was an asset which was shown in Schedule 11 under the head, “other assets” in the sub head, “income tax – TDS refundable”, the said refund belong to an earlier year and had already been received in an earlier year. However, due to an incorrect contra entry in the earlier year, receiving of income tax return of Rs.6,59,216/- had been shown in liability side under the head, “other liabilities and provisions” on the one hand and income tax TDS refundable in the asset side under the head, “Schedule-11 (other asset). Since the said amount was a contra entry of an earlier year, therefore, it could not be treated as a cessation of liability under section 41 of the Act and accordingly relief was prayed for on this count. 21. On the ground of addition of Rs. 2,70,760/- as notional interest income, the assessee submitted that it had received no such interest and no such TDS had been deducted in support of the same, it submitted Form No. 26AS where the figures reflected in its return were there and it prayed that the matter could be sent back to the AO to verify the same with Allahabad Bank to demonstrate that the assessee had not concealed any income on this account. 22. On the other hand, Sh. Sanjeev Krishna Sharma, appearing on behalf of the Revenue submitted that the assessee was raising new grounds every time and, it had been assessed on the basis of the return that it had filed and these additions had been sustained because of ambiguous replies filed before the ld. CIT(A). Accordingly, it was prayed that the additions deserved to be confirmed. However, if the Court in its wisdom decided to send the matter back, it was prayed that the matter may be sent to the ld. AO for thorough verification before accepting any claim of the assessee. 23. We have duly considered the facts and circumstances of the case. It is fairly evident that the assessee had raised an additional ground of appeal before the ld. CIT(A) through e-filing on the portal on 14.08.2020 and again on 19.01.2021. However, the ld. CIT(A) does not seem to have taken any cognizance of these ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 22 additional grounds of appeal. This is clearly a mistake. The ld. CIT(A) was well within his rights to reject the additional ground but only by way of a reasoned order. Since, the same had been filed, it could not be ignored. Accordingly, after considering the facts cited, we restore the matter of computation of loss to the file of the ld. AO who may verify the facts from the returns and the accounts of the assessee and thereafter allow the loss as per the provisions of law. Ground Nos. 1 and 2 are accordingly allowed. 24. With regard to the addition of Rs. 48,28,730/- made on account of delay in employees contribution, the assessee has now submitted before us that the figures that was supplied before the ld. AO and the ld. CIT(A) pertained to not only the employees contribution but also the employers contribution, for which the disallowance was not warranted because of the extended time period available for the deposit of the same. The actual amount of employees contribution was only Rs. 28,61,534/- which was verifiable from the record and hence an excess disallowance had been made. After considering this ground, we observe that the assessee can only be visited with a disallowance as per law, irrespective of any mistake it may have made in submission before the ld. AO or the ld. CIT(A). Therefore, we restore the issue back to the file of the ld. AO to verify the amount of employees contribution that was not paid before the due date and to sustain the disallowance to that extent. Ground No.3 is allowed for statistical purposes. The matter having being restored to the file of the ld. AO, ground no. 4 is infructuous and dismissed as such. 25. With regard to ground no. 5, we observe that the assessee as per law is entitled to deduction under section 36(1)(viia) and 36(1)(viii) and it has already made a provision for the same in its books. The same has been disallowed only because it is a provision, ignoring the provisions of law as contained in section 36(1)(viia) and 36(1)(viii). The ld. CIT(A) does not appear to have considered this and instead denied the deduction on account of his belief that proof was required to ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 23 be furnished. Since, this is not in accordance with the extant provisions of section 36(1)(viia) and 36(1)(viii), we restore this matter to the file of the ld. AO to allow the deduction as per the relevant provisions of law. Ground No. 5 is therefore, allowed for statistical purposes. 26. Ground No.6 pertains to an addition of Rs. 6,59,216/- on account of disallowance of liability in the income tax return. As the assessee has explained, it is in fact not a liability but a contra entry made to offset, the expected refund that was earlier shown under the head, “other assets” with a view to writing it off. That being the case, disallowance is not called for. Ground No. 6 is accordingly allowed. 27. With regard to ground no. 7, it is observed that the assessee has denied that it ever earned the amount of interest that is reflected in the Insight Portal and it has furnished the Form 26AS in support of the same. We believe the matter requires verification with the concerned deductor and therefore, for the same, we restore the matter back to the file of the ld. AO for reconsideration after inquiry. Ground No. 7 is therefore, allowed for statistical purposes. 28. Ground no. 8 is general and does not require a decision. 29. Accordingly, the assessee’s appeal in ITA No.143/LKW/2024 is partly allowed. 30. In the result, both the appeals in ITA Nos. 142 & 143/LKW/2024 are partly allowed. Order pronounced on 30.04.2025 in the open Court. Sd/- Sd/- [KUL BHARAT] [NIKHIL CHOUDHARY] VICE PRESIDENT ACCOUNTANT MEMBER DATED: 30/04/2025 Sh ITA Nos.142 & 143/Lkw/2024 A.Ys. 2012-13 & 2013-14 Rajdhani Nagar Sahkari Bank Ltd. 24 Copy forwarded to: 1. Appellant – 2. Respondent – 3. CITDR , ITAT, 4. CIT, 5. The CIT(A) By order Sr. P.S. "