Farrukhabad District Cooperative Bank Ltd Vs DCIT (ITAT Agra)
Adhoc 20% Expense Disallowance Deleted for Cooperative Bank; Provision for Overdue Interest Remanded and Section 36(1)(viia) Deduction Restored – ITAT Agra
The Agra Bench of the ITAT partly allowed the appeals of a District Cooperative Bank for AYs 2008-09 and 2012-13, granting major relief by deleting arbitrary disallowances and remanding technical issues for fresh verification.
For AY 2008-09, the Assessing Officer had made an adhoc disallowance of 20% of total expenditure (₹1.91 crore) on the ground of non-production of books and further enhanced income by ₹1.93 crore towards “provision for overdue interest”. The CIT(A) sustained both.
The Tribunal held that:
- The assessee being a cooperative bank with audited accounts, could not be penalised by arbitrary disallowance merely for non-appearance,
- During remand proceedings, books and additional evidence were produced, but the remand report was never shared with the assessee, violating principles of natural justice, and
- Adhoc disallowance without defects in books is unsustainable.
Accordingly, the ITAT deleted the entire 20% expenditure disallowance of ₹1.91 crore.
On the issue of provision for overdue interest (₹1.93 crore), the Tribunal found that it was unclear whether the provision related to interest income or statutory banking provision for advances. Since the matter was not properly examined, it remanded the issue to the AO for fresh verification in accordance with the Banking Regulation Act.
For AY 2012-13, the Tribunal noted that deduction under section 36(1)(viia) was wrongly curtailed by the AO by ignoring the statutory allowance of 10% of average rural advances (table on page 9). The issue was remanded to the AO for correct computation and grant of deduction.
Thus:
