The Rohtak Central Coop Bank Ltd., ... vs Department Of Income Tax

ACIT, Rohtak Circle Vs. The Rohtak Central Coop Bank Ltd. Rohtak, Circle, Rohtak. Rohtak. (PAN AAAAT 8736 B)

(Appellant) (Respondent)

Appellant by : Sri S.K. Bansal, CA. Respondent by: Sh. B.R.R Kumar, Sr. D.R.

ORDER

PER SHRI GEORGE GEORGE K, JM:

1. This appeal, at the instance of the Department, is directed against the order of

the CIT(A) dated 30.03.2011. The relevant assessment year is 2007-08.

2. We shall dispose of the issues ground-wise as under:

3. The Ground No.1 raised in Revenue's appeal reads as follow:

"1. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred in law as well as on facts deleting the addition of Rs.45,01,255/-on account of accrued interest not credited to P&L account. The department is in appeal before the Hon'ble ITAT New Delhi in this case for Asstt. Year 2008-09 also."

3.1 The brief facts in relation to ground 1 are as follows. The AO added a

sum of Rs.45,01,255/-, for the reason that interest had accrued, but same was

not credited in the P&L a/c. The assessee's plea was that interest was not ITA No.2839/Del /2011 2

credited to the P&L a/c, since it pertains to NPA accounts. The reasoning of

AO for making the addition reads as follow:

(Para 11) "In view of the above, the interest receipts pertaining to the current year but not credited to the P&L account, amounting to Rs.4,04'99,884/-, is being brought to tax in this year itself. It would also be fair, on the other hand, to give relief in respect of the interest income of earlier years credited to the P&L account of the current year on actual realization basis amounting to Rs.3,59,98,629/-. This would also, as a natural corollary, require re-opening of the assessments of earlier years and taxing the accrued interest in the relevant year. However, such an exercise would be superfluous as in the years before the current year, the assessee enjoyed 100% deduction of its income under section 80P(2)(a)(i). Even if the cases were re-opened and the total income were re-assessed after including the interest income accrued in those years, the tax effect of such an exercise would be nil. It would serve the purpose of Revenue and would also be fair to the assessee if the difference of Rs.4,04,99,884/- and Rs.3,59,98,629/-is brought to tax in the current year. This would bring to tax the entire amount of interest accrued to the assessee till the end of the current year. If the assessee has shown any amount out of Rs.4,04,99,884/- as income in the subsequent years on cash basis, the assessee shall be entitled to claim relief from double taxation for such amounts by filing revised returns or application under section 154, as the case may be. Accordingly, an amount of Rs.45,01,255/- (Rs.4,04,99,884 - Rs.3,59,98,629/-) is added to the total income of the assessee as accrued interest not credited to P&L account.

(Addition: Rs.45,01,255/-)"

3.2 The CIT(A) deleted the addition, following his predecessor's order in

assessee's own case for AY 2008-09, the relevant finding of the CIT(A) reads

as follow:-

(Para 6.3) "Before me, the AR submitted that the issue was decided in favour of the appellant by my order in the appellant's own case for the AY 2008-09 in appeal no.403/RTK/2010-11 dated 09.03.2011. I find that the issue is squarely covered in favour of the appellant by the above mentioned appeal order and therefore on the same grounds, the addition is deleted and the ground of appeal is allowed."

3.3 The Revenue being aggrieved is in appeal before us. At the outset, Ld.

AR submitted that the issue in question is covered in favour of the assessee by ITA No.2839/Del /2011 3

the order of the Tribunal in the case of ACIT Vs. The Jhajjar Central Coop.

Bank Ltd. (ITA No.2486/2011 dated 31.10.2013). The Ld. DR was unable to

controvert the assertion of Ld. AR.

3.4. We have heard rival submissions and perused the material on record.

The issue in question is covered in favour of the assessee by the order of the

Tribunal in the case of ACIT Vs. The Jhajjar Central Coop. bank (supra). The

relevant finding of the Tribunal reads as follow:-

(Para 11) "Considering the above submission of the assessee which is well supported by RBI/NABARD circular dated 17.8.2002 vide para No. 3.1 clearly states that the policy of income recognition should be based on record of recovery and therefore unrealized income should not be taken into profit and loss account by State Co-op Bank / Central Co-op Banks and that the provisions of Section 43D of the Act are clear regarding the recognition of interest income on NPA. The Ld. CIT(A) in our view has thus rightly held that overdue interest not realized during the year and credited to suspense interest account cannot be taken to be the income of the assessee. Thus the Ld.CIT(A) has thus rightly deleted the addition in question. The same is upheld. There is no substance in the contention of the Ld. DR that the assessee was having no objection to this addition, since we find that it was an alternative submission of the assessee before the AO that "even if any addition is to be made of Rs.1,29,91,989/- then addition of Rs. 1,00,51,715/- is to be made on account of interest of earlier years credited during the year to P & L account". Even otherwise the AO is supposed to make just assessment based on the provisions of laws which can not be ignored since is agreeable to the proposed wrong addition. The ground No.3 is accordingly rejected."

3.5. In view of the coordinate Bench order of the Tribunal in the case of CIT Vs.

The Jhajjar Central Coop. (supra), which is identical to the facts of the instant case,

we reject the Ground No.1 raised by the Revenue. It is ordered accordingly.

4. Ground No.2, raised read as follows:-

"2. The Ld. CIT(A) has erred in law as well as on facts in deleting the addition of Rs.542759/- on account of disallowances of expenses. The department is in appeal before the Hon'ble ITAT New Delhi this case for Asstt. Year 2008- 09 also."

ITA No.2839/Del /2011 4 4.1. Briefly stated the facts in relation to the above ground are as follows. The

Assessing Officer had disallowed the expenses of Rs.5,42,759/- on the ground that

they do not pertain to the year under consideration. The relevant portion of the

Assessing Officer's observation while making the disallowance reads as follow:-

(Para 15) "An amount of Rs.542759/- has been paid by the bank on account of telephone, electricity tax and insurance, audit fee, law charges, water charges etc. either in advance or to period prior to the year under consideration. The assessee was asked to show cause as to why this amount may not be added to the total income of the bank as these expenditures do not pertain to the year under consideration. The assessee has replied that the payments could be made only after the management passed these expenditure. The reply of the assessee has been considered. It may be pointed out that under the mercantile system of accounting, all foreseeable expenses must, be provided for in the year of their accrual. The assessee should have been made provisions for these expenses in the year of their accrual. Passing of an expense by the management is an internal administrative matter of the assessee institution. Nothing prevented the assessee from creating provisions for such expense in the relevant year itself rather than claiming than in the year of accrual payment. Accordingly, the' expenses of Rs.5,42,759/- are held as prepaid or paid in advance i.e. expenses not pertaining to the current period and disallowed in the computation of total income of the assessee for the year under consideration.

(Addition: Rs.5,42,759/-)"

4.2 On further appeal, the CIT(A) deleted the addition by observing as under:- (Para 8.3) "I have considered the issue and the submissions made by the AR.

As pointed out by the AR, most of the payments pertain to March 2006 payment for which would become due in April 2006. Further, payment of arrears also became due in the year under consideration. The claim, therefore, requires to be allowed. In view of the above the addition made by the AO is deleted and the ground of appeal is allowed."

4.3 The Revenue being aggrieved is in appeal before us.

4.4 The Ld. DR supported the order of the assessment. On the other hand, Ld. AR

reiterated the submissions made before the Income Tax Authorities. ITA No.2839/Del /2011 5

4.5 We have heard rival submissions and perused the material on record. The

expenditure which are disallowed as prior period were expenses relatable to month

of March, 2006 for which the payments were made in the month of April, 2006.

These expenses become due only after the management examines the expenses and

authorizes the payment of the same. Therefore, these expenditures become due in

the current assessment year and same is to be allowed as deduction. Hence, the

order of CIT(A) is correct and no interference is called for.

4.6 In the result, the ground no.2 raised by the Revenue is rejected.

5. The ground No.3 raised read as follow:-

"3. On the facts and in the circumstances of the case, the Ld.CIT(A) has erred deleting the addition of Rs.777838/-on account of suspense individual and societies. The department is in appeal before the Hon'ble ITAT New Delhi this case for Asstt. Year 2008-09 also."

5.1 The relevant findings of the AO in making the addition reads as follow:-

(Para 16) "The special audit has pointed out that bank had shown Rs.48,25,788/- as suspense individuals and society in the liability side. This amount relates to the suspense payable to societies and suspense payable to individuals. 'When confronted the assessee replied that there is an addition of Rs.7,77,838/- only in society sundries and Rs.l,52,816/- withdrawal in individual suspense during the year under consideration. Thus, Rs.6,25,022/- i.e. the difference of Rs.7,77,838/- and Rs.l,52,816/- to be' added. The reply of the assessee has been considered. The contention of the assessee to the extent that the addition during the year under consideration in suspense payable to societies i.e. excluding the opening balance be added is admissible. But it is not admissible that withdrawal of Rs.l,52,816/- in individual suspense is to be set off against the suspense payable to societies during the current year as this amount of withdrawal of Rs.l,52,816/-' in individual suspense be met out from the opening liability shown under the same head. Accordingly, an addition of Rs.7,77,838/- is to be made to the total income of the assessee for the year under consideration."

ITA No.2839/Del /2011 6 5.2 On appeal before the First Appellate Authority, CIT(A) deleted the addition.

The CIT(A) followed his predecessor's order in assessee's own case for AY 2008-

09.

5.3 The Revenue being aggrieved is in appeal before us. At the very outset, the

Ld. AR submitted that issue in question is decided in favour of the assessee by the

order of the Tribunal in assessee's own case for AY 2008-09 in ITA No.

2485/Del/2011 dated 22.07.2011. Ld. DR was unable to controvert the submissions

of the ld. AR.

5.4 We have heard rival submissions and perused the material on record. The

issue in question is squarely covered by the order of the Tribunal in the assessee's

own case for AY 2008-09 (supra). The relevant finding of the coordinate Bench of

the Tribunal reads as follows:-

(Para 8) "We have carefully considered the submissions of the ld. Sr. DR. We have carefully gone through the assessment order and the order passed by the ld. CIT (Appeals). Right from the opening it as been the contention of the assessee that the amount outstanding in the accounts represents the amount of deposits made by the persons, who intended to open new accounts with the assessee bank and until all the formalities are completed and accounts of the assessee is opened, the said amount was lying in the said account. In case of non-opening of the account, the amount was to be refunded back to the respective depositors. These contentions of the assessee have not been controverted either by the assessing officer or the ld. CIT (Appeals) and there is no material on record to show that such contentions of the assessee are incorrect. If the amount deposited in the said account belong to the various depositors, who intended to open the bank account with the assessee, then the said amount cannot attain the character of 'income' in the hands of the assessee unless it is shown that the said amount has become the income of the assessee. If the said amount does not belong to the assessee and the assessee has utilized the same until the said amount is refunded back, no notional interest can be added to that amount as either the assessee has to pay interest if the said amount is credited to the saving account or the amount itself has to be refunded back in case the account is not opened. There is no question of assessing any notional interest on the said amount.

ITA No.2839/Del /2011 7 Therefore, we find no fault or infirmity in the findings recorded by the ld. CIT (Appeals) vide which the impugned addition and interest thereon is deleted, we decline to interfere. The appeal filed by the Revenue, being de void of merit, is being dismissed."

5.5 The fact of this case is identical to the facts considered by the Tribunal in

assessee's own case for AY 2008-09. Therefore, following the order of the Tribunal

in the case cited supra, we reject the Ground No.3 raised by the Revenue. It is

ordered accordingly.

Ground No.4

6. In this ground, the Revenue is aggrieved by the order of CIT(A) in deleting

the addition of Rs.2,12,600/- out of the total addition of Rs.12,78,047/- made by the

AO. The AO made the addition of Rs.12,78,047/- by invoking the provision of

Section 40(a)(ia) of the Act, since assessee had not deducted tax at source in respect

of certain interest payment made by it. The relevant observation of the AO in

making the disallowance reads as follows:-

(Para 5) "It was pointed out by the auditor at page no.5 of Audit Report u/s 142(2A) under the head TDS that amounts of Rs.55,81,567/-, Rs.7,07,0751- & Rs.1,66,3001- have been paid/credited by the bank on account of interest (exceeding Rs.5,000/- per person), hiring of security services and legal charges respectively without deduction of tax at source. The assessee was show caused as to why these payments not be disallowed u/s 40(a) (ia). In its reply, the assessee has contended that for a part of the payments made without TDS, it had obtained form I5G and I5H from the payees and so such amounts for which these forms have been obtained may not be disallowed. The assessee has also submitted the proof of deposits of form I5G and 15H in the office of the Commissioner of Income Tax, Rohtak. Copies of Form I5G and I5H have also been submitted during the assessment. These documents are placed on record. However, in case of the following payments neither TDS was deducted nor Form I5G and 15H were obtained/submitted:

1. All Employee Association : Rs.26,916/-

ITA No.2839/Del /2011 8 2. Diploma Engg. Welfare Association : Rs.76,961/-

3. Diploma Engg. Association : Rs.29,375/-

4. Warden MDU : Rs.2,12,600/-

Total Rs.3,45,852/-

Further, Forms I5G & 15H, was not made available for a total amount of Rs.58,820/-. The assessee has conceded that these Forms could not be traced i.e. they are missing.

Further payments of Rs.7,07,075/- and Rs.l,66,300/- are also to be added in the income of the assess bank for the year under consideration as assessee itself has admitted that no tax was deducted in that year and TDS on these payments were deducted and deposited in the year 2009-10, hence the assessee is entitled to claim allowance of these expenditure in the year 2009- 10 i.e. the year in which tax deducted and deposited on these payments. In view of the above discussions addition of Rs.12,78,047/-(Rs.3,45,852/- Rs.58,820/- + Rs.7,07,075/- + Rs.1,66,300/-) is made to the total income of the assessee under provisions of section 40(a)(ia) (Addition: Rs.12,78,047/-)"

6.1 The CIT(A), out of the total disallowance of Rs.12,78,047/- deleted the

addition of Rs.2,12,600/- for the reason interest payments were to education

institutions whose income is exempt u/s 10(23C) of the Act.

6.2 The Ld. DR relied on the order of the AO. On the other hand, Ld. AR

reiterated the submissions made before the Income Tax Authorities.

6.3 We have heard rival submissions and perused the material on record. The

interest payment of Rs.2,12,600/- is to an education institution, whose income is

exempt u/s 10(23C) of the Act. Therefore, as per Circular No.4/2002 no TDS is

required to be made on such interest payment. Hence, we uphold the order of the

CIT(A) and dismissed the Ground No.4 raised in Revenue's appeal. It is ordered

accordingly.

ITA No.2839/Del /2011 9 Ground No.5

7. The AO made an addition of Rs.3,09,152/- on account of printing and

stationary supplied to branches by the head office. The relevant observation of the

AO in making the addition reads as follows:-

Para 4 "It has been pointed out by the auditors that the assessee bank purchases/ prints the stationery at head office level and shows it as stock of stationery in the balance sheet. After receiving the requirement from branches, the head office delivers the stationery to branches and reduces the stock of stationery. The branches issue stationery to the customers and charge for this and credit the printing and stationery head as incidental charges. The balance amount after deducting incidental charges are treated as expenses whereas the same are available physically with the branches as closing stock at the end of the year.

This closing stock not utilized during the year should invariably be shown in the closing stock of stationery with branches whereas the same has been charged against the profit of the year. No stock register is maintained. All this shows that the bank treated closing stock with branches as expenses and, moreover, incidental charges are not credited properly. Further, incidental charges are about 10 times of the cost of the stationary issued to the customers. This results in inaccurate calculation of stock at the end of the year as the closing stock is arrived at by reducing the incidental charges from the amount of stationery received from head office. Instead, the cost of stationery issued to the customers should have been reduced to work out the correct amount of closing stock.

The assessee bank, when confronted, contended that most of the stationery is for self use of the branches which include Books, General Ledgers, Loan Ledgers etc. Incidental charges are charged only from current account holders and not against cheque books and Pass books. If this is true, then it is wrong on the part of the assessee bank to reduce the incidental charges received from customers on account of stationery from the value of closing stock. The same is in the nature of income and should have been taken into account for the computation of assessee's total income. In this back ground an amount of Rs.1,15,534/- is added to the total income of the assessee as receipts from sale of bank stationery not credited to P&L A/c. Likewise processing charges of Rs.18,250/- charged from the customers is also being added back.

It is true that stationery issued to branches include items for self consumption as contended by the assessee. However, it is also true that the whole of the stationery issued by Head Office was not consumed by the branches. The closing stock of stationery with branches is over and above ITA No.2839/Del /2011 10

the closing stock reflected by the Head Office in its Balance Sheet. Keeping in view the facts narrated by assessee in his reply, an amount of Rs.l,75,368/- (i.e. 50% of Rs.3,50,736 received from Head Office) is added to the income of the assessee bank as under valuation of closing stock.

(Addition: Rs.1,15,534+18250+ 1,75,368 = 3,09,152)"

7.1 The CIT(A) deleted the addition. The relevant finding of the CIT(A) reads as

follow:-

(Para 11.3) "I have considered the issue and the submissions made by the AR. The net amount charged to P&L a/c under this head is only Rs.2,37,966/- and closing stock of Rs.4,47,310/- has already been shown. The AO worked out the said disallowances without appreciating the facts properly. In view of the above, the addition made by the AO is deleted and the ground of appeal is allowed."

7.2 We have heard rival submissions and perused the material on record. The

Revenue has not been able to controvert the finding of the CIT(A) by placing on

record any material/documents, therefore, the findings of the CIT(A) are upheld and

Ground No.5 raised in Revenue's appeal is rejected. It is ordered accordingly.

8. In the result, appeal of the Revenue is dismissed.

The decision was pronounced in the open Court on 13th February, 2015.

Sd/- Sd/- (S.V. MEHROTRA) (GEORGE GEORGE K.) Accountant Member Judicial Member

Dated: 13th February, 2015. Aks/- Copy forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi