Income Tax Appellate Tribunal - Ahmedabad
Shree Mahuva Nagrik Sahakari Bank Ltd., ... vs The Acit, Circle-2,, Bhavnagar on 15 July, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "SMC" BENCH
(Conducted Through Virtual Court)
Before: Shri Amarjit Singh, Accountant Member
And Ms. Madhumita Roy, Judicial Member
ITA No. 159/Ahd/2016
Assessment Year 2012-13
Shree Mahuva Nagrik The ACIT,
Sahakari Bank Ltd., Circle-2,
Mahua Vs Bhavnagar
PAN: AABAM1326K (Respondent)
(Appellant)
Revenue by: Dr. Shyam Prasad, Sr. D.R.
Assessee by: Shri Deepak Rindani, A.R.
Date of hearing : 07-06-2021
Date of pronouncement : 15-07-2021
आदे श/ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee's appeal for A.Y. 2012-13, arises from order of the CIT(A)-6, Ahmedabad dated 30-11-2015, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
2. The solitary ground of appeal of the assessee is directed against the order of ld. CIT(A)-6 Ahmedabad in confirming the action of the Assessing I.T.A No. 159/Ahd/2016 A.Y. 2012-13 Page No 2 Shree Mahuva Nagrik Sahakari Bank Ltd. vs. ACIT Officer in disallowing Rs. 25,59,000/- being deduction from income by way of reversal of amount shown as income in past.
3. The fact in brief is that return of income declaring income of Rs. 21,07,70/- was filed on 28th Sep, 2012. The case was subject to scrutiny assessment and notice u/s. 143(2) of the Act was issued on 7th August, 2013. During the course of assessment on perusal of schedule 20 under miscellaneous income, the Assessing Officer noticed that assessee has shown premium received on government security of Rs. -25,59,000/-. On query, the assessee explained that it had purchased government securities on discount as under:-
Year Discount amount
2006-07 2,37,000/-
2008-09 4,95,000/-
2009-10 18,27,000/-
---------------
25,59,000/-
The discount was credited to the profit and loss account in the respective years as cited above against the discount amount. It was further submitted by the assessee that subsequently auditor of the Reserve Bank of India has audited the accounts of the bank and instructed the bank to reverse the aforesaid mentioned entries. The Assessing Officer has not accepted the submission of the assessee and he was of the view that the aforesaid entries were not allowable as deduction in the profit and loss account since the assessee had not incurred any expenditure during the year under I.T.A No. 159/Ahd/2016 A.Y. 2012-13 Page No 3 Shree Mahuva Nagrik Sahakari Bank Ltd. vs. ACIT consideration. Therefore, the claim of deduction 25,59,000/- was disallowed and added to the total income of the assessee.
4. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee reiterating the reasoning and facts reported by the Assessing Officer.
5. During the course of appellate proceedings before us, the ld. counsel has referred paper book comprising the detail and document furnished during the course of assessment and appellate proceedings before the lower authorities. The ld. counsel has referred page no. 17 to 18 of the paper book pertaining to the audit report of the Reserve Bank of India regarding statutory inspection of the assessee company u/s. 35 of the Banking Regulation Act 1949 as on 31st March, 2012. As per para 4.3 of the audit report the bank was advised to reverse the discount amount in the balance sheet for the current year and ensured to follow correct accounting practice in future. The ld. counsel has also contended that discount amount was not actually the income of the assessee company which was artificially shown as income and RBI has correctly directed the bank to reverse the said entries during the current year. The ld. counsel has also placed reliance on section 35A of the Banking Regulation Act, 1949 and judicial pronouncement in the case of Uco Bank 240 ITR 355(SC). On the other hand, the ld. Departmental Representative has supported the order of lower authorities.
6. Heard both the sides and perused the material on record. During the year the assessee has shown negative figure of Rs. 25,59,000/- as premium I.T.A No. 159/Ahd/2016 A.Y. 2012-13 Page No 4 Shree Mahuva Nagrik Sahakari Bank Ltd. vs. ACIT on government security in profit and loss account pertaining to assessment year 2007-08, 2009-10 and 2010-11 shown as income earlier in respective year. The assessee has reversed the aforesaid entries of discount/premium as per the instruction of RBI auditor to show the investment at cost. We have gone through the audit report of the RBI placed in the paper book. As per the audit report, the audit of the assessee company was conducted in the financial year pertaining to the assessment year under consideration between August, 01 and 12th August, 2011. In para 4.3 of the audit report the bank was directed to reverse the discount amount in the balance sheet otherwise the same resulted in inflating the book value of government securities and incorrectly increase the profit of the bank. The relevant instruction made by audit report of the RBI is reproduced as under:-
"During the period 2009-10 to 2010-11 bank had purchased Government Securities on discount of Rs. 19.04 lakh. The bank had shown these securities on face value in his books instead of shown the same on purchase value or book value and discount amount credited in P & L Account as income which resulted in inflating the books value of Government Securities and incorrectly increase the profit of the bank. The bank is advised to reverse the discount amount in the balance sheet for the current year and ensure to follow correct accounting practice in future."
We have also gone through the Banking Regulation Act 1949. The Act gives the Reserve Bank of India power to license the banks, supervise the appointment of board and management, regulate the operations of banks, laid down instructions or audit, control, moratorium, mergers and liquidation, issue directives in the interest of public good and on banking policy, and imposes penalties. Section 35 of the Banking Regulation Act 1949 empowers the Reserve Bank of India to do an inspection of any banking company and its books of accounts. Under section 35A of the Banking Regulation Act, the Reserve Bank of India can give direction to the I.T.A No. 159/Ahd/2016 A.Y. 2012-13 Page No 5 Shree Mahuva Nagrik Sahakari Bank Ltd. vs. ACIT bank and the banking company shall be bound to comply with such directions. Section 29 of the Banking Regulation Act, 1949, interalia provides that at the expiration of each calendar year every banking company incorporated in India in respect of all the business transacted by it shall prepare a balance sheet and P & L Account with reference to that year in the forms set out in the third schedule or as near thereto as circumstances admit. After taking into consideration the provision of section 29 and 35A of the Banking Regulation Act, showing of investment in the Government securities at purchase value or book value by reversing the entries by the assessee bank on the direction of the RBI is found to be justified. In accordance with the aforesaid provisions the assessee bank is required to maintain balance sheet statutorily and real income to be disclosed. The lower authorities have failed to demonstrate infirmity in the action of the assessee for making compliance with the direction of the RBI in accordance with the Provision of the Banking Regulation Act. Therefore, we do not find any merit in the decision of ld. CIT(A) and the claim of the deduction is allowed. Therefore, the appeal of the assessee is allowed.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 15-07-2021 Sd/- Sd/-
(MADHUMITA ROY) (AMARJIT SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad : Dated 15/07/2021
I.T.A No. 159/Ahd/2016 A.Y. 2012-13 Page No 6
Shree Mahuva Nagrik Sahakari Bank Ltd. vs. ACIT
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण,
अहमदाबाद