Income Tax Appellate Tribunal - Pune
Sindhudurg Dist. Central Co-Op Bank ... vs Assessee on 16 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER
AND SHRI G.S. PANNU, ACCOUNTANT MEMBER
ITA No. 617/PN/11
(Asstt. Year: 2007-08)
The Sindhudurg Dist. Central Co-op Bank Ltd., .. Appellant
Sindhudurg Nagari, Tal . Kudal,
Dist. Sindhudurg
Vs.
Income-tax Officer, .. Respondent
Wd. 2(4) Kudal
Appellant by : Shri S.P. Joshi/P S Phadnis/Sushant Phadnis
Respondent by : Shri S K Singh
Date of hearing : 16.01.2012
Date of pronouncement : 02.03.2012
ORDER
PER G.S. PANNU, A.M.:
This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals), Kolhapur dated 13.12.2010 which, in turn, has arisen from order dated 30.12.2009 passed by the Assessing Officer, under section 143(3) of the Income-tax Act, 1961 (in short "the Act), pertaining to the assessment year 2007-08.
2. The first Ground of appeal raised by the assessee is against the action of the Commissioner of Income-tax(Appeals) in upholding an addition of Rs 1,07,57,609/- made by the Assessing Officer on account of an ex-gratia payment to employees.
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3. In brief the facts are that the assessee is a co-operative society engaged in the business of banking and providing credit facilities to its members. In the course of assessment proceedings, it was noticed that the assessee had, inter alia, claimed deduction of a sum of Rs 1,07,57,609/- under section 43B of the Act on account of ex- gratia payment to its employees. Such deduction was claimed in the computation of total income annexed with the return of income whereas no provision for such an expenditure was contained in the financial statements for the year under consideration, although the assessee was following mercantile system of accounting. As per the Assessing Officer, the said expenditure was not crystallized during the previous year relevant to the assessment year under consideration and, therefore, the same was not allowable as a deduction. On being show-caused, the assessee explained during the assessment proceedings that the expenditure on ex-gratia payment to the employees of Rs 1,07,57,609/- crystallized in the previous year relevant to the assessment year under consideration and for this purpose, reference was made to Resolution No. 55 passed by the Board of Directors of the assessee bank on 13.3.2007. It was explained that the actual payment towards the liability was made on 18.10.2007. Accordingly, it was contended that that the liability having crystallized before the end of the previous year relevant to the assessment year under consideration and the same having been paid before filing of the return of income, the deduction for such expenditure was rightly claimed as per section 43B of the Act.
4. The aforesaid claim of the assessee has since been disallowed by the Assessing Officer. As per the Assessing Officer, there was no justifiable reason for not having made a provision in the account books before the end of the year; that in respect of a similar claim with regard to the liability towards bonus payment of Rs 12,10,997/-, the appellant had made a provision in the 3 account books duly following the principles of mercantile system of accounting. As per the Assessing Officer, there was no justification for the assessee not having made the impugned provision in a similar manner and in fact, as per the Assessing Officer the claim was an afterthought. Secondly, as per the Assessing Officer, the impugned payment was not covered under the provisions of section 43B of the Act, but was to be considered in terms of section 37(1) of the Act. According to the Assessing Officer even under section 37(1) of the Act, the same was not deductible since the liability had not crystallized during the previous year relevant to the assessment year under consideration and therefore such expenditure cannot be considered to have been laid out or expended wholly and exclusively for the purposes of the business or profession during the year under consideration. For all the above reasons, the Assessing Officer did not allow the deduction claimed by the assessee of Rs 1,07,57,609/- on account of ex-gratia payment made to employees. The assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals).
5. In appeal before the Commissioner of Income-tax (Appeals), the assessee primarily reiterated the submissions made before the Assessing Officer. As per the assessee, payment was made in terms of the Resolution No 55 passed by the board of Directors of the Bank on 13.3.2007 and the same having been paid before the due date of filing of the return, it was allowable in terms of section 43B of the Act. The assessee also submitted that such payment was covered under section 43B of the Act and was an allowable deduction, even though no provision for such expenditure had been made in the account books for the year ending 31.3.2007. The assessee also justified the crystallization of such liability before 31.3.2007 on the basis of the Board Resolution No. 55 passed on 13.3.2007.
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6. As per the Commissioner of Income-tax (Appeals), the liability could not be said to have been accrued during the year under consideration inasmuch as no provision was made for such expenditure in the account books for the year ended on 31.3.2007. As per the Commissioner of Income-tax (Appeals), other than the purported Board Resolution, the assessee had not filed any corroborative evidence like Minutes of the discussion with the Employees' union or correspondence with Sindhudurga Zilla Madhyavarthi Karmachari Sanghatana, Kudal as was the case with regard to a similar Resolution dated 17.7.2006 pertaining to the earlier financial year of 2005-06. As per the Commissioner of Income-tax (Appeals) for the earlier financial year 2005-06, assessee had passed a detailed Resolution on 17.7.2006, i.e. after the close of the relevant financial year based on correspondence and discussion with the Employees' union and considering all these, deduction thereof was allowed by the Assessing Officer in the preceding year. As per the Commissioner of Income-tax (Appeals), the Resolution No 55 appeared to be "only an afterthought" and, therefore, no credence could be given to such Resolution. Therefore, as per the Commissioner of Income-tax (Appeals), assessee was not entitled to deduct the amount of Rs 1,07,57,609/- representing ex- gratia payment while computing its income for the assessment year under consideration either under section 36(1)(ii) read with section 43B or under section 37(1) of the Act, and accordingly the disallowance made by the Assessing Officer has been sustained.
7. Before us, learned Counsel for the assessee submitted that the Commissioner of Income-tax (Appeals) was not justified in deciding the issue on the briefness of the Resolution passed for the financial year under consideration as compared to the Resolution passed on an earlier occasion for the preceding financial year of 2005-06. The learned Counsel pointed out that the assessee bank passed the Resolution No 55 dated 13.3.2007 accepting 5 the liability to pay bonus and or ex-gratia to the staff and other employees before the Ganesh Chaturthi festival of the year 2007. Though the Resolution was brief, it referred to the detailed Resolution of the earlier year and has recorded that the Bonus/ex-gratia be paid at the same rates as per the earlier year, i.e. financial year 2005-06. Therefore, according to him, the Resolution cannot be considered as an afterthought on mere suspicion. In this connection, reference has been made to page Nos 73 to 112 of Paper Book No 2 wherein a photocopy of the relevant pages of the Minute Book has been placed to show that the Resolution was passed in the normal course and before the next Resolution contained in the Minute Book dated 19.5.2007.
8. In support of his submission that on passing of the Resolution on 13.3.2007, the liability crystallized during the year ending 31.3.2007. a reference has been made to the decision of the Tribunal in the case Shri Doodhganga Vedganga SSK Ltd. v. DCIT in ITA No 392/PN/97 dated 10.02.2006, a copy of which has been placed in the Paper Book No. 1.
9. With regard to the plea of the Revenue that the absence of an entry in the account books towards provision for ex-gratia, the learned Counsel pointed out that the non-existence of the entries in the account books are not determinative of the allowability of a claim as laid down by the Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. v. CIT 82 ITR 363 (SC). In the course of the hearing, the learned Counsel also relied upon the judgment of the Hon'ble Bombay High Court in the case of Addl. CIT v. Buckau Wolf New Engineering Works Ltd. 46 CTR 200 (Bom). The learned Counsel accordingly contended that the expenditure in question duly accrued before 31.3.2007 on the basis of the Board Resolution No 55 dated 13.3.2007 and the same having been paid before the filing of the return of income, was not only allowable under section 43B of the Act, but in the alternative, it was also allowable under section 37(1) of the Act since payment of ex-gratia to 6 employees is an admissible deduction covered under section 37(1) of the Act and in this connection, reliance was placed on the judgment of the Hon'ble Calcutta High Court in the case of CIT v. National Engineering Industries Ltd. 208 ITR 1002 (Cal).
10. On the other hand, the learned CIT- Departmental Representative, justified the disallowance made by the lower authorities on the ground that assessee had failed to establish with cogent evidence that the liability in question had accrued during the previous year relevant to the assessment year under consideration. The learned Departmental Representative also pointed out that even if it is presumed that Resolution No 55 was actually passed on 13.3.2007, as claimed by the assessee, there is no reason to show as to why the assessee did not act in pursuance to such Resolution by making a suitable provision in the account books for the year ending 31.3.2007. Therefore, according to the learned Departmental Representative, the action of the assessee in not making a provision for such liability in the books of account for the year ending 31.3.2007 would demonstrate that such liability had not accrued. With regard to the reliance placed by the assessee on the judgment of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. (supra), the learned Departmental Representative submitted that the same cannot be applied in the present case as the issue relates to a contractual liability as against the case of a statutory liability dealt with by the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. (supra). It was, therefore, contended that the lower authorities were justified in making the impugned disallowance.
11. We have carefully considered the rival submissions. After having considered the fact-situation of the case as emerging from the orders of the lower authorities as well as the material on record, the crux of the controversy revolves around as to whether the liability on account of ex-gratia payment to 7 employees of Rs 1,07,57,609/- can be said to have accrued or crystallized during the previous year relevant to the assessment year under consideration. In this connection, it would be relevant to notice that assessee had claimed deduction for the sum of Rs 1,07,57,609/- in the computation of income annexed with the return of income, and no provision for such an amount was made in the financial statements prepared on the basis of the account books for the year ending 31.3.2007, relevant to the assessment year under consideration. The claim of the assessee that the liability had indeed crystallized and accrued before the close of the year is fundamentally based on the Resolution passed by its Board of Directors on 13.3.2007. The claim of the assessee that the liability has crystallized and accrued before 31.3.2007 is assailed by the Revenue on two points. Firstly, the purported Board Resolution dated 13.3.2007 has been doubted; and, secondly, the non-existence of the relevant entries in the account books for the year ending 31.3.2007 towards such liability.
12. In so far as the second objection of the Revenue is concerned, the argument of the Revenue is that the assessee is maintaining its account books on a mercantile basis and, therefore, the liability towards ex-gratia payment to employees pertaining to the year under consideration ought to have been provided in the account books pertaining to the year under consideration. The contra-proposition of the assessee that the non-existence of entries in the account books is not determinative of the question, which is based on the judgment of the Hon'ble Supreme Court in the case of Kedernath Jute Mfg. Co. (supra) is sought to be distinguished on the ground that the Hon'ble Supreme Court was dealing with a issue of a statutory liability. In our considered opinion, the question that assessee had not made an entry in its account books for such liability, even though it was following a mercantile system of accounting, cannot be fatal and ipso facto determinative of the 8 issue as to whether such liability had crystallized during the year under consideration or not. The effort by the Revenue to distinguish the proposition laid down by the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. (supra), in our view, is unfounded as is apparent from the observations of the Hon'ble Bombay High Court in the case of Backau Wolf New Engineering Works Ltd (supra) which has been rendered in the background of somewhat similar arguments of the Revenue. The Hon'ble Bombay High Court observed that "It is true that in the above decision, the Supreme Court was considering the statutory liability for payment of sales tax, but the observations to be found at page 367 would seem to apply to all types of liabilities and not only to tax liability". Following the aforesaid understanding ascribed to the Hon'ble Supreme Court judgment, as propounded by the Hon'ble Bombay High Court, it follows that the proposition in the case of Kedarnath Jute Mfg. Co (supra) would apply to the liability in question also. Notably, as per the Hon'ble Supreme Court whether the assessee is entitled to a particular deduction or not will depend on the applicable legal provision and not on the view which the assessee might take of his rights and nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. In this view of the matter, we therefore find no substance in the said objection raised by the Revenue.
13. In so far as first objection raised by the Revenue is concerned, herein also, we find that the approach of the Revenue is guided more by suspicion than substance. As per the Revenue, the Board Resolution no 55 is an afterthought and the same is doubted on the ground that it has been passed in brief words as compared to a similar Board resolution passed on 17.7.2006 pertaining to the liability of bonus/ex-gratia of the earlier year. The Board Resolution No 55 dated 13.3.2007 and the Resolution passed on an earlier occasion for the preceding year No 20 dated 17.7.2006 has been reproduced 9 by the Commissioner of Income-tax (Appeals) in para 2.3.1 of the impugned order. For the sake of brevity, we are not reproducing the two Resolutions in this order. We have perused the same. The case set-up by the Revenue is that the Resolution passed on 17.7.2006 for the FY 2005-06 is quite detailed whereas the relevant Resolution dated 13.3.2007 for the instant year simply states that the Bank has "decided to pay the amount of bonus/ex-gratia" as per a detailed discussion in the matter. As per the Revenue, the 'detailed discussion' has not been elaborated either in the Resolution or even in the course of the assessment proceedings before the Assessing Officer. Under these circumstances, it is contended that no credence be given to the Resolution dated 13.3.2007 as it is self-serving and an afterthought.
14. In this background, we have carefully considered the rival stands. Firstly, the plea of the Revenue articulated before us that the assessee did not act in pursuance to such Resolution, in our view, is clearly unfounded. In fact, it is nobody's case that the assessee has not paid the amount in question. The material on record clearly shows the fact-situation, which is not disputed by the Revenue, that the amounts have been actually paid by the assessee, albeit before the filing of the return. Therefore, the plea of the Revenue that the Resolution has not been acted upon by the assessee merely because there is no entry for the provision in the account books, cannot stand inasmuch as the amounts have been actually paid, albeit, after the close of the year, and such payments are in terms of the said Resolution. Further-more, the absence of a detailed narration of the discussions of the Board Meeting in the Resolution cannot ipso facto lead to the disregarding of the same. No doubt, in the Resolution passed on 17.7.2006 pertaining to the liability for the preceding financial year there is a detailed narration with regard to the discussion/correspondence with the Employees' union, etc. However, it is also to be kept in mind that in the instant year the Resolution dated 13.3.2007 10 adopts the liability to pay ex-gratia on similar rates as paid by the assessee for the preceding financial year. In-fact, the reference to the bonus/ex-gratia paid in the preceding financial year of 2005-06 is clearly noted in the Resolution dated 13.3.2007 and thereafter, it has been resolved that the bonus/ex-gratia be paid at the same rates in the instant year also. Under these circumstances, in the absence of any other corroborative evidence led by the Revenue, we find that the Board Resolution No 55 dated 13.3.2007 has been merely disbelieved by the Revenue authorities without demonstrating any falsity in the same. Therefore, in so far as the briefness of the Board Resolution No 55 dated 13.3.2007 is concerned, we do not find any merit in the objections raised by the Revenue.
15. The only other aspect to be seen as to whether the Board Resolution No 55 dated 13.3.2007 can be said to have crystallized the liability for ex- gratia payment to the employees. In our considered opinion, the adoption of the Resolution No 55 by the Board of Directors of the assessee bank on 13.3.2007 invests the assessee with the liability to pay ex-gratia to its employees. The said Resolution having been adopted prior to the close of the previous year relevant to the assessment year under consideration, in our view, implies that the liability towards ex-gratia towards employees crystallized and accrued during the previous year relevant to the assessment year under consideration itself.
16. For the aforesaid reasons, we therefore, deem it fit and proper to set aside the order of the Commissioner of Income-tax (Appeals) and direct the Assessing Officer to delete the impugned addition. Thus, on this aspect, assessee succeeds, as above.
17 Ground No. 2 relates to the addition of Rs 40,58,000/- being payments towards Gratuity Fund. The disallowance was made by the Assessing Officer 11 for the reason that there was no separate provision made for payment of gratuity and the assessee could only produce copies of the application made for approval of Gratuity Fund and not approval order. It was also pointed out that the impugned amount was debited by the assessee to 'Rent, Rates, Taxes'.
18. In appeal before the Commissioner of Income-tax (Appeals), it was contended by the assessee that it maintained a group gratuity fund with LIC of India, and that LIC raised a demand for Rs 40,85,871/- as renewal premium on the basis of actuarial valuation. It was further stated that the assessee had made an application for approval before the Commissioner of Income-tax on 31.5.1995 alongwith the Deed of Variation which was still pending. The plea of the assessee was that even a provision made on a scientific basis on account of gratuity is an allowable deduction as it represented a real liability. According to the assessee, it had not only set up a Trust but also had applied for approval in time and accordingly provided for liability of gratuity as demand by the LIC and also paid the premium towards gratuity on 26.4.2007. The assessee accordingly submitted that such payment having been made before the due date of filing of return and was liable to be allowed as a deduction under section 43B of the Act. It was thus urged that the addition made on account of Gratuity was not justified and may be deleted.
19. The Commissioner of Income-tax (Appeals) considered the detailed submissions of the assessee and found no substance therein. According to him, in the absence of approval from the Commissioner of income-tax, the Gratuity Fund could not be treated as approved gratuity fund and, therefore, the provision made towards such unapproved gratuity fund could not be allowed as a deduction under section 40A(7) of the Act. He accordingly affirmed the addition made by the Assessing Officer. Against such order of the 12 Commissioner of Income-tax (Appeals), assessee is in further appeal before us.
20. At the outset, the learned Counsel for the assessee submitted that the Commissioner of Income-tax, Kolhapur vide order dated 15.11.2011 has since granted approval to the Gratuity Fund of the assessee w.e.f. 25.4.1995, copy of which is placed on record, and, therefore, the assessee would be satisfied if the issue is sent back to the Assessing officer with directions to adjudicate the issue afresh in the light of the approval granted by the Commissioner of Income-tax and as per law. To this prayer of the assessee, the learned Departmental Representative has not raised any objection.
21. In view of the above admitted position, we set aside the order of the Commissioner of Income-tax (Appeals) on this aspect and restore the issue to the file of the Assessing Officer with a direction to adjudicate the issue afresh in the light of the approval granted by the Commissioner of Income-tax and as per law. Needless to mention, the Assessing Officer shall afford a reasonable opportunity of being heard to the assessee and thereafter decide the issue according to law. The assessee succeeds on this Ground for statistical purposes.
22. The next Ground relates to the addition of Rs 1,17,405/- made on account of unclaimed creditors. During the course of assessment, the Assessing Officer found that there was a surplus of Rs 1,17,405/- arising out of gold auctions etc., carried out by the assessee. The claim set-up by the assessee before the Assessing Officer was that the auction was done in accordance with the guidelines of the Reserve Bank of India. The Assessing Officer did not accept the submission of the assessee and disallowed the claim of the assessee for the reason that the assessee failed to produce any relevant details. During the appellate proceedings before the Commissioner of 13 Income-tax (Appeals), it was clarified by the assessee that assessee had given loans against old mortgaged assets and some of the loans remained unpaid, which forced the appellant bank to sell off the gold in auctions which was taken as security against loan and the auction proceeds were credited to the loan account and the surplus/excess was credited to the concerned parties account under the head 'credit to reserve fund', which was liable to be refunded to the respective borrower/customer. Accordingly, it was contended that such amount due was in the form of a liability of the assessee and not income by way of surplus from auction. The Commissioner of Income-tax (Appeals), however, dis-agreed with the submissions of the assessee and held that the surplus was received by the assessee in the course of its carrying on of the business of advancing loans and therefore, any surplus arising out of such action, which was not claimed by the borrowers, was incidental to the business of the assessee and taxable as business income under section 28 of the Act. He accordingly upheld the addition of Rs 1,17,405/- for the reason that the unclaimed surplus arising out of the auction of the gold taken as security from the borrowers was business income of the assessee. Aggrieved by this order of the Commissioner of Income-tax (Appeals), assessee is in further appeal before us.
23. Before us, learned Counsel for the assessee submitted that the amount of Rs 1,17,405/- represented unclaimed creditors reserve fund for which the assessee had a liability to pay to the creditors as and when they asked for the money. The learned Counsel pointed out that the assessee had sold off by wayof auction gold which was kept as security for the loans taken by various people who were not repaying the loans. The amount realized by the assessee over and above the amount due from the creditors was kept in the unclaimed creditors reserve found and it is pointed out that out of the same, assessee has paid 23,076/- in the subsequent year.
14The learned counsel pointed out that in any case the balance of unclaimed creditors fund of Rs 94,329/-, i.e. (Rs 1,17,405/- minus Rs 23,076/-) was a part of a sum of Rs 14,25,276/- offered for taxation in the assessment year 2009-10. It was submitted that after waiting for a reasonable period the unclaimed balances, including balance in the unclaimed creditors reserve fund has been offered by the assessee itself as income in the assessment year 200-9 10 and therefore no addition in this year is maintainable.
24. On the other hand, the learned Departmental Representative appearing for the Revenue has justified the addition made by pointing out that the excess sale proceeds of the securities sold was earned in the course of business and, therefore, the amounts have been rightly taxed.
25. We have carefully considered the rival submissions. The amount in question is a balance lying in the account - unclaimed creditors reserve fund. The Assessing Officer added the same as an income on the ground that the assessee was unable to produce any details regarding the same. Before the Commissioner of Income-tax (Appeals), assessee submitted that assessee had advanced loans against mortgage of gold and in some cases the loans remained unpaid. In such cases of non-payment, assessee sold off the pledged gold and the auction proceeds realized in excess of the amounts due was credited to the impugned reserve fund. The claim of the assessee is that the said amount is liable to be refunded to respective borrowers/customers and in that regard it has been asserted that a sum of Rs 27,076/- has been refunded in the subsequent financial year. It is also the plea of the assessee that after waiting for a reasonable period the entire balance lying in the impugned reserve fund has been offered for taxation in assessment year 2009-2010 as a part of Rs 14,25,376/-, details of which are stated to have been placed in the Paper Book - 2 at pages 124 to 131. It is pointed out that the sum of Rs 14,25,376/- includes the amount of Rs 94,329/- remaining 15 unpaid out of Rs 1,17,405/-. On this aspect, we are inclined to uphold the plea of the assessee that the impugned amount is not liable to be assessed as income in the year under consideration. However, the plea of the assessee of having offered the requisite sum for taxation in the assessment year 2009-10 is liable to be verified by the Assessing Officer. In case it is found that the unclaimed balance remaining out of Rs 1,17,405/- has been offered for taxation in the assessment year 2009-10 no addition shall be maintainable in this year. If the Assessing Officer is not satisfied, then he shall be at liberty to take a view as per law. Needless to mention, while carrying out this exercise, the Assessing Officer shall give a reasonable opportunity to the assessee for presenting its case and then decide the issue as per law. Thus, on this Ground assessee succeeds for statistical purposes.
26. The next Ground is with regard to the addition of Rs 14,00,000/- on account of contingent provision for standard assets. The Assessing Officer disallowed the provision on the ground that such liability was of unascertained nature and a contingent liability. In appeal before the Commissioner of Income-tax (Appeals), it was submitted by the assessee that the stated provision was made for standard assets as per the guidelines issued by the RBI vide Circulars dated 9.4.1999, 2.12.1999 and 10.5.2000 and that such directions of the RBI were binding on the assessee as held by the Hon'ble Uttaranchal High Court in the case of CIT v. Nainital Bank Ltd. 309 ITR 335 (Uttaranchal). The Commissioner of Income-tax (Appeals) rejected the submissions of the assessee. According to him, the submission of the assessee was not legally sustainable and the issue in appeal stood covered by the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Jt. CIT 320 ITR 577 (SC). He further held that as the amount claimed was not for an ascertained liability, it could not be allowed under section 37 of the Act. The Commissioner of Income-tax (Appeals) 16 accordingly affirmed the action of the Assessing Officer against which the assessee is in further appeal before us.
27. Before us, learned Counsel for the assessee submitted that the claim in question is on account of a provision made for standard assets as per the prevailing RBI guidelines. The learned Counsel pointed out that in terms of the guidelines, the assessee bank had prepared a statement of standard assets, sub-standard assets, etc. and made a provision in the books of account. It was submitted that the directions of RBI in the form of prudential norms was mandatory and, therefore, the provisions made in pursuance of the same constituted an allowable expenditure. In this regard, reliance was placed on the judgment of the Hon'ble Uttaranchal High Court in the case of Nainital Bank Ltd. (supra) wherein the binding nature of the RBI guidelines have been appreciated and the provision created on that basis was found to be allowable expenditure.
28. On the other hand, learned Departmental Representative pointed out that the Commissioner of Income-tax (Appeals) made no mistake in disallowing the impugned claim following the subsequent judgment of the Hon'ble Supreme Court in the case of Southern Technologies Ltd (supra).
29. We have carefully considered the rival submissions. In our view, the Commissioner of Income-tax (Appeals) has correctly appreciated the position and sustained the disallowance following the judgment of the Hon'ble Supreme Court the case of Southern Technologies Ltd. (supra). The Hon'ble Supreme Court has clearly pointed out that claim for deduction of an expenditure is liable to be governed by the provisions of the Act and not merely on account of the RBI guidelines. In our view, the ratio of the judgment of the Hon'ble Supreme Court the case of Southern Technologies Ltd. (supra) clearly applies to the present case and the claim of the assessee has been 17 rightly rejected by the lower authorities. Thus, on this Ground, assessee has to fail.
30. The next Ground relates to an addition of Rs 15,00,000/- on account of Gat Sachiv salaries. The Assessing Officer disallowed the expenditure of Rs 15,00,000/- by observing that no such salary has been debited to the Profit & Loss account, but was debited to Gat Sachiv Salary Deficit Payable Account appearing under current/other liabilities. Before the Commissioner of Income- tax (Appeals), the assessee explained that Gat Sachivs were persons who assisted the bank for recovery of customer overdues, and salaries were paid to them as per the directions of the State Government and duly authorized by Board Resolution of the assessee bank. It was further claimed that the impugned expenditure was incurred for the purpose of business and was incurred during the year under appeal and as such, the said expenditure was allowable. The Commissioner of Income-tax (Appeals) affirmed the addition made by the Assessing Officer. According to him, the assessee was silent on the issue raised by the Assessing Officer that the amount was not debited to the Profit & Loss Account but to the Gat Sachiv Salary Deficit account, where there was opening balance of Rs 25 lakhs. Being aggrieved, assessee is in further appeal before us.
31. Before us, leaned Counsel for the assessee has furnished a written Note explaining the factual aspects of the claim, which is as under:
"The Gat Sachivs are from Zilla cadre of secretaries. They are in the employment of Zilla Sahakari Dekhrekh Society. The income of this management society is from the contribution of Rs @ 1.75% outstanding agricultural loans given to various Vikas co- op. Societies at village level by the Dist. Central Co-op. bank. A single Gat Sachiv is entrusted with the work of 2 or 3 village Vikas societies and looks after the documentation of the loans to be obtained by the Vikas Societies from the Dist. Central Bank and disbursement thereof to the Members of the Vikas society and also sees that the loans are repaid by the Members to the Vikas Societies and in turn, the loans are timely repaid by the societies to the bank. Thus, the work by the Gat Sachivs indirectly benefits the bank in recoveries of its loans. The State Department of co-operation has issued a circular directing the Zilla Central Co-op. Bank to bear the deficit between the income of the Dekahrekh Society and the salaries paid to the Gat Sachivs (operative and Textile Dept's circular with English translation enclosed at pages 64 to 69 of Paper Book 1) and copy of the Rules of Dekharekh Society with 18 translation of the relevant Rule are placed at pages 143 to 146 of paper book no. 2). Details of provisions made in earlier years are placed at page 147 of the Paper Book No. 2. A copy of the Govt. of Maharashtra - Agri. & Co-operation Department's Notification prescribing contribution @ 1.75% of the outstanding agricultural loans is placed at pages 148 to 151 of Paper Book 2 (see para 9(ii)). The amount of Rs 15,00,000/- was demanded by the Dekharekh society as per its demand letter dated 7.4.2006 (copy enclosed at pages 152 to 153 of the Paper Book No. 2). On receipt of this demand, the assessee accepted the liability to pay the demanded sum of Rs 15 lakh by passing a Resolution No 31 dated 17.7.2006. (copy with English translation of the Resolution placed at pages 70 to 72 of Paper Bok No.1). It would be apparent from the Resolution that the liability to pay this amount was accepted during the FY 2006-07 and hence the liability accrued in that FY relevant to AY 2007-08. The amount was paid on 25.7.2006. For this proposition, reliance is placed on the ITAT, Pune's decision in the case of Dudhganga Vedganga SSK Ltd - copy placed at page 5 to 12 of Paper Book No. 1 - see para 7 to 9 of the order). It would be also apparent that the provision of Rs 25 lacs available as on 1.4.2006 was for liabilities of years earlier to FY 2006-07. The liability of Rs 15,00,000/- accrued in FY 2006-07 and therefore, though it may have been paid by debit to the earlier available provision, it is legally an expenditure of the FY 2006-07 and hence may be allowed as admissible deduction for assessment year 2007-08."
32. In sum and substance, the plea of the assessee is that the sum of Rs 15,00,000/- be allowed a deduction on accrual basis independent of the earlier available provision. As per the assessee, when the earlier provision of Rs 25 lakhs is found to be not required or in excess, the recourse is to disallow a particular claim in respective year, but not to disallow the claim of Rs 15 lakhs which pertains to the current assessment year.
33. On the other hand, the learned Departmental Representative defended the action of the lower authorities by placing reliance on the respective orders.
34. We have carefully considered the rival sub missions. Having regard to the factual matrix, in principle, no fault can be found with the claim of the assessee for deduction on account of salaries to Gat Sachivs. So, however, the allowability of the sum of Rs 15 lakhs in question has a different angle. The Revenue has pointed out that the assessee has the balance lying in the provision of Rs 25 lakhs on account of Gat Sachiv salaries, which is brought forward from preceding years. In the current year, when a demand of Rs 15 lakh has been raised against the assessee, the assessee accepted the same and debited it to the provision already made in the books of account in earlier years. The expenditure of Rs 15 lakhs was thus not claimed in the Profit & 19 Loss account and the same has been claimed for the purposes of Income-tax only in the computation of income annexed to the return of income. As per the assessee, the claim of Rs 15 lakhs should be allowed as such, independent of the provision of Rs 25 lakhs available. In our view, the claim of the assessee is quite mis-placed, inasmuch as there is no assertion by the assessee at any stage that the provision of Rs 25 lakhs created in the preceding years was distinct or different from the demand of Rs 15 lakhs now raised against the assessee by Dekharekh Society. Therefore, in the absence of any material to clarify the aforesaid position, we find ourselves in agreement with the authorities below that the claim of the assessee is not justified. The assessee thus fails on this Ground.
35. The only other Ground pressed by the learned Counsel relates to charging of interest under section 234A and 234B being consequential, no decision is required.
37. In the result, appeal of the assessee is partly allowed.
Decision pronounced in the open Court on 2 nd day of March, 2012.
Sd/- Sd/-
(I C SUDHIR) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune, Dated 2 nd March, 2012
B
Copy to:-
1) The Sindhudurg Dist. Central Co-op Bank Ltd, Kudal
2) ITO Wd 2(4) Kudal
3) The CIT (A), Kolhapur
4 The CIT-II Kolhapur
5) DR, "A" Bench, I.T.A.T., Pune.
6) Guard File
True copy By Order
Sr. PS, ITAT Pune
20