The Alwar Central Cooperative , Alwar vs Department Of Income Tax

1 ITA No. 434/JP/2012 ACIT, Circle- 2 vs. The Alwar Central Cooperative Bank Ltd. Alwar

IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR

(BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA)

ITA No. 434/JP/2012 Assessment year: 2008-09 PAN : AABAT 4891 Q

The ACIT vs. The Alwar Central Cooperative Bank Ltd. Circle- 4 Hope Circus Alwar Alwar (Appellant) (Respondent)

Assessee by : Shri P.C. Parwal, C.A. Department by: Mrs. Neena Jeph, JCIT

Date of Hearing: 09-12-2014 Date of Pronouncement: 09 -01-2015

ORDER PER R.P. TOLANI, JM

This is an appeal filed by the Revenue against the order of the ld.

CIT(A), Alwar dated 14-12-2012 wherein following grounds are raised:

''1. That the ld. CIT(A) has erred in law as well as on the facts and circumstances of the case in restricting disallowance / addition to Rs. 1294/- out of total addition of Rs. 30,00,000/- on account of disallowance of the provision of the provision of NAP.

2. That the ld. CIT(A) has erred in law as well as on facts and circumstances of the case in deleting the disallowances / addition of Rs. 2600/-on account of gift paid to the employee. 2 ITA No. 434/JP/2012 ACIT, Circle- 2 vs. The Alwar Central Cooperative Bank Ltd. Alwar

3. That the ld. CIT(A) has erred in law as well as on facts and circumstances of the case in deleting the disallowances/ addition of Rs. 3,28,401/- on account of expenses of incentive paid.''

2.1 In support of revenue appeal, ld. DR relied on the order of the AO.

3.1 Apropos Ground No. 1, the ld. Counsel for the assessee contends that

the AO while making the disallowance in respect of NPA was under

mistaken impression that its claim pertained to allowance of writing off bad

debts u/s36(1)(vii). While doing so, it was not appreciated that Section

assessee being a bank its claim was not u/s 36(1)(vii) the same was a claim

u/s 36(1)(viia). The ld. CIT(A) after correctly appreciating the legal position

allowed the claim of the assessee by following observations.

''4.3 I have perused he assessment order as well as submission made by the A.R. It appears that the ld. AO had the provision of Section 36(1)(vii) at the back of her mind while considering the disallowance of deduction in respect of provision for bad debt and doubtful debts u/s 36(1)(viia). Section 36(1)(vii) reads - ''Subject to the provisions of sub-section 2, the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year...''

The assessee has claimed deduction in respect of provision for bad and doubtful debts u/s 36(1)(viia) and not for bad debt or part thereof, u/s 36(1)(vii). Further, the assessee had claimed deduction of provision for bad and doubtful debts only w.r.t. 7.5% of total income and not with reference to 10% of aggregate average advances made by the rural branches. Therefore, the AO was not correct in holding that the assessee has failed to prove that these 3 ITA No. 434/JP/2012 ACIT, Circle- 2 vs. The Alwar Central Cooperative Bank Ltd. Alwar

advances were actually made by rural branches and that the provisions of Section 36(2) have not been fulfilled.

The assessee has made a provision of Rs. 30 lacs whereas the allowable deduction at 7.5% of total income computed before making any deduction under this clause [36(1)(viia)] and under Chapter VI-A, is only Rs. 29,98,706/-. Therefore, the deduction is to be limite4d to Rs. 29,98,706/-. The AO is directed to allow deduction u/s 36(1)(viia) of Rs. 29,98,706/- against the claim of Rs. 30 lacs made by the appellant. As a result, the addition is restricted to Rs. 1294/-''

4.1 Apropos second ground, the ld. AR contends that amount was paid as

incentive to the workers which has been wrongly assumed by the AO as gift.

The ld. CIT (A) after due consideration of facts and real nature of payments

deleted the same by following observations.

''6.3 I have perused the assessment order as well as submission made by the A.R. I am inclined to agree with submission of the A.R. that the above said expenses relate to assessee's business expense. The addition of Rs. 2600/- being gift to employees on retirement and prize distribution expenses is hereby deleted.

5.1 Apropos Ground No. 3, the impugned amount was paid ex-gratia to

the assessee's management to employees according to their work in

conformity with general policy of the bank. The ld. CIT(A) verified the facts

and found that expenses were duly vouched, accounted for and in

conformity with the general policy of the bank being incentive to inspire the

workers by following observations.

4 ITA No. 434/JP/2012

ACIT, Circle- 2 vs. The Alwar Central Cooperative Bank Ltd. Alwar

7.2 The A.R. contended that the cooperative bank as its generally policy pays some amount as incentive to its employees as token of appreciation of their services rendered to the bank sincerely. The payment of Rs. 3,28,401/- has been made to the employees by way of incentive to inspire them to put their services more sincerity and diligently. The entire expenses is fully vouched and it is an ex-gratia pay to employees according to the decision taken by the Managing Director of the Bank. The counsel has submitted a copy of account of the incentive to the staff from its ledger account which shows that the payment has made during Nov. 2007 to Dec. 2007.''

6.1 We have heard the rival contentions and perused the materials

available on record. Apropos revenue ground No. 1, Section 36(1)(vii) is

subject to provisions of sub-section 2 which the AO failed to appreciate and

mistakenly treated the assessee's claim as for bad debts. The ld. CIT(A) has

correctly applied the legal position and correctly allowed the claim of the

assessee 36(1)(viia) wherein we find no infirmity in his order and the same

is upheld.

7.1 Apropos Ground No. 2 of the Revenue, the amount being in the nature

of incentive has been wrongly treated as gift by the AO. We find no

infirmity in the order of the ld. CIT(A) on this issue which is upheld.

8.1 Apropos Ground No. 3 of the Revenue, the AO was of the view that

the expenses do not relate to banking business and was added to the income

of the assessee. The ld. CIT(A) after verification of record found that the

amount in question was given by way of incentive to the employees for 5 ITA No. 434/JP/2012 ACIT, Circle- 2 vs. The Alwar Central Cooperative Bank Ltd. Alwar

performing the duties with more sincerity and diligently during the course

of the banking business .In our considered view, the expenditure incurred by

the assessee bank on its employees is attributable to banking business. Thus

we find no infirmity in the order of the ld. CIT(A) which is upheld on this

issue.

9.0 In the result, the appeal of the revenue is dismissed.

The order is pronounced in the open Court on 09-01-2015

Sd/- Sd/-

(T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Jaipur Dated: 9th JAN 2015 *Mishra Copy forwarded to:- 1.The ACIT, Circle- 2, Alwar

2. The Alwar Central Cooperative Bank Ltd. Alwar

3. The ld. CIT(A)

4. The ld. CIT By Order

5..The ld. DR

6.The Guard File (IT No. 434/JP/2012)

AR ITAT, Jaipur