Case Law Details

Case Name : Sadhana Sahakari Bank Ltd Vs ACIT (ITAT Pune)
Appeal Number : ITA Nos. 1204 to 1206/PUN/2017
Date of Judgement/Order : 16/03/2020
Related Assessment Year : 2011-12 to 2013-14
Courts : All ITAT (6785) ITAT Mumbai (1992)

Sadhana Sahakari Bank Ltd Vs ACIT (ITAT Pune)

The Assessing Officer disallowed  expense of Rs. 1,27,500 u/s 37(1) of Income Tax Act on finding that the said expenditure relates to some advertisements connected to demise / birthday greetings / congratulating some politicians, etc.

Ostensibly, the appellant has made  expenditure  of  Rs.1,27,500/- towards payment to daily newspaper for death news of G.P Pardhan, birth day greetings of Mr. Ajit Pawar and Mr. Sharad Pawar and congratulating Mr. Ajit Pawar. The appellant has not demonstrated that how this advertisement on print media is for attracting more customers specially when these persons are not related to the banks. Further, during the assessment proceedings the appellant could not prove business expediency of such expenditure. The contention of the appellant that expenditure is every nominal does not lead to conclusion that expenditure is allowable. Moreover, the appellant has admitted during the assessment proceedings that business expediency of such expenditure cannot be substantiated.

Thus, the expenditure incurred on the birthday / victory day celebration qua the erection of Flexies of the politicians, is not an allowable expenditure u/s 37 of the Act.

Banks without rural branches or advances are also entitled to deduction u/s 36(1)(viia) in respect of provision for bad and doubtful debts

The issue under consideration is that whether the provision under section 36(1)(viia) of the ITA, 1961 in respect of provision for bad and doubtful debts will be applicable even when there are no rural branches to the bank or not?

The issue raised in the present appeal stands fully covered by the decision of the Hon’ble High Court of Kerala (supra) though not the jurisdictional High Court, but the only decision available on the said issue squarely binds the Tribunal and hence, applying the said ratio, we hold that the assessee is entitled to the claim of deduction under section 36(1)(viia) of the Act to the extent of 7.5% of total income. The assessee co-operative bank do not have any rural branches, hence is not entitled to the second part claim of 10% of advances made by rural branches. The deduction  is allowable with a rider to satisfy the provisions of said section i.e. making a provision to that extent in the books of account. The issue which  is raised in the case of different co-operative banks stands decided in favour of assessee.”

From the above it is clear that the assessee without rural branches / advances, is entitled to deduction u/s 36(1)(viia) of the Act. Accordingly, ITAT is of the opinion, that the grounds raised by the assessee are allowable.

FULL TEXT OF THE ITAT JUDGEMENT

The captioned appeals filed by the assessee are directed against respective orders of Commissioner of Income Tax (Appeals)-7, Pune, dated 02.01.2017 and 30.03.2017 for the Assessment Years 2011-12 to 2013-14.

2. We shall take up the appeal of the assessee for the A.Y. 2011-12 first for reference to the facts and issues. Grounds raised by the assessee for this assessment year are extracted here as under :

ITA No.1204/PUN/2017 for A.Y. 2011-12

1. The ld AO erred in law and on facts and further learned CIT(A)-7 erred in confirming AO’s action for disallowing Rs.39,28,906/- u/s 36(1)(viia) of the ITA, 1961 in respect of provision for bad and doubtful debts.

2. The learned CIT(A)-7, and Ld. AO erred in law and on facts in not appreciating that while calculating disallowance u/s 36(1)(viia) i.e. 7.5% of total income, there is no requisite to have rural advances with the appellant bank. 

3. The learned CIT(A)-7 and Ld. AO erred in law and on facts in making disallowance of Rs.1,27,500/- u/s 37(1) of the ITA, 1961 on account of advertisement expenses. 

4. The learned CIT(A)-7 and Ld. AO erred in law and on facts in making disallowance of Rs.7,65,767/- u/s 14A of the ITA, 1961 without appreciating that all the investments were out of own funds only and hence provisions of section 14A are not

3. Grounds 1 and 2 relates to the applicability of interpretation of provisions of section 36(1)(viia) of the Act relating to the provision for bad and doubtful debts qua the rural branches / advances. The limited issue raised in these two grounds before us for adjudication relates to the allowability of the deduction of provision for bad and doubtful debts under the said clause (viia) when the assessee is not having any rural branches and therefore, no rural advances. The assessee claimed an amount of Rs.39,28,906/- as deductible amount. The Assessing Officer rejected the same on the ground that section 36(1)(viia) of the Act does not apply when the assessee does not have rural branches / rural advances. For this proposition, the Assessing Officer relied on the Hon’ble Supreme Court judgment in the case of Catholic Syrian Bank Ltd. Vs. CIT, reported in 343 ITR 270 (SC).

4. The CIT(A) vide the discussion in para 8.5 of his order approved AO’s order on this He not only relied on the Hon’ble Supreme Court‟s judgment in the case of Catholic Syrian Bank Ltd. Vs. CIT (supra) but also relied on CBDT Circular No.258, dated 14.06.1979 explaining the said amended provisions of said clause (viia). He also relied on the decision of Co- ordinate Bench of Tribunal in the case of Bhagni Nivedita Sahakari Bank Ltd. Vs. DCIT in ITA No.136/PN/2014, order dated 29.05.2015. In the process, both the authorities below rejected assessee‟s contention. The extent of allowable deduction under this clause (viia) is restricted to a sum of a percentage of total income of the assessee and also a percentage of the Rural advances of the bank. As per Assessing Officer, when there are no rural branches to the bank and therefore, no rural advances for A.Y. 2011-12, no amount of deduction is available to assessee under this clause (viia) of the Act.

5. Aggrieved with the said order of Assessing Officer and CIT(A), the assessee is in appeal before the Tribunal with the grounds raised

6. Before us, at the outset, ld. Counsel mentioned that it is a covered case by virtue of the order of Tribunal in the case of Bhagni Nivedita Sahakari Bank Ltd. Vs. DCIT reported in 174 ITD 303 for A.Ys. 2007-08 to 2012-13. This decision is dated 30.11.2018. The ld. Counsel fairly mentioned that two divergent decisions in his own case for different assessment years. According to him, the CIT(A) relied on earlier unfavourable decision (dated 29.05.2015). The CIT(A)‟s order is also earlier to the cited subsequent order of the Tribunal (favourable only) for the A.Ys. 2007-08 to 2012-13 (supra). On the applicability of the Hon‟ble Supreme Court judgment in the case of Catholic Syrian Bank Ltd. Vs. CIT (supra), Mr. Kishor Phadke, Ld. Counsel mentioned that the said judgment was delivered substantially in the context of clause (vii) of section 36(1) of the Act and not on section 36(1)(viia) of the Act. Referring to the said favourable decision of the Tribunal in the case of Bhagni Nivedita Sahakari Bank Ltd. Vs. DCIT (supra), dated 30.11.2018, the ld. Counsel brought our attention to the contents of paras 16, 24 and 27. Ld. Counsel submitted that the Tribunal has considered all these decisions and came to the conclusion that the assessee is entitled to the claim of deduction of provision for bad and doubtful debts even when there are no rural branches / rural advances to a bank like this. It is also mentioned in the  said order of Tribunal that to the extent of clause (vii), the assessee is entitled to claim the deduction of provision u/s 36(1)(viia) of the Act.

7. On the other hand, ld. DR laboured a lot to demonstrate that the Hon‟ble Supreme Court‟s judgment in the case of Catholic Syrian Bank Vs. CIT (supra) applies to the provisions of section clause (viia) of the Act also. He fairly mentioned that the cited decision of Tribunal in the case of Bhagni Nivedita Sahakari Bank Ltd. Vs. DCIT (supra), dated 30.11.2018 is subsequent in nature and was not available to the authorities below at the relevant time. Therefore, he heavily relied on the orders of Assessing Officer and CIT(A).

Decision of the Tribunal on clause (viia)

 8. We have heard both the parties. We find that Pune Bench of Tribunal in the case of Bhagni Nivedita Sahakari Bank Ltd. Vs. DCIT (supra) dated 30.11.2018 has decided the issue in favour of assessee. We find it relevant to extract the same as under:

“27. Then, analyzing the two decisions of Hon’ble Bombay High Court, it was held that where two interpretations are possible; one in favour of assessee must be adopted, in turn, relying on the decision of the Hon’ble Supreme Court in CIT Vs. Vegetable Products Ltd. (supra). It was also noted that there were various other High Courts which were not in favour of view taken in CIT Vs. Smt. Godavaridevi Saraf (supra). The Tribunal decided the issue in turn, relying on the ratio laid down by the Hon’ble High Court of Gauhati in Smt. Bandana Gogoi Vs. CIT & Anr. (2007) 289 ITR 28 (Gau) in the absence of any other decision of any High Court in other State. In view of the above said position of law, we are departing from the view taken by Pune Bench of Tribunal in assessee’s own case relating to assessment year 2010-11, wherein the order is dated 29.05.2015 but decision of the Hon’ble High Court of Kerala on the issue is dated 03.04.2014 was neither relied upon nor brought to the knowledge of Tribunal and the issue was decided against assessee. The issue raised in the present appeal stands fully covered by the decision of the Hon’ble High Court of Kerala (supra) though not the jurisdictional High Court, but the only decision available on the said issue squarely binds the Tribunal and hence, applying the said ratio, we hold that the assessee is entitled to the claim of deduction under section 36(1)(viia) of the Act to the extent of 7.5% of total income. The assessee co-operative bank do not have any rural branches, hence is not entitled to the second part claim of 10% of advances made by rural branches. The deduction  is allowable with a rider to satisfy the provisions of said section i.e. making a provision to that extent in the books of account. The first issue which  is raised in the case of different co-operative banks stands decided in favour of assessee.”

 9. From the above it is clear that the assessee without rural branches / advances, is entitled to deduction u/s 36(1)(viia) of the Act. Accordingly, we are of the opinion, that the grounds 1 and 2 raised by the assessee are allowable.

10. Ground 3 relates to disallowance of Rs.1,27,500/- on account of advertisement expenses.

11. The Assessing Officer disallowed the same u/s 37(1) of the Act on finding that the said expenditure relates to some advertisements connected to demise / birthday greetings / congratulating some politicians, etc. The said details are in para 6.1 of the order of CIT(A). On observing the same, CIT(A) was of the view that the said expenditure was incurred not for the purpose of business. Accordingly, the CIT(A) confirmed the addition as per discussion given in para 6.4 of his order.

12. On hearing both the sides on this issue, we find that the order of CIT(A) is fair and reasonable. For the sake of completeness, para 6.4 of the order of CIT(A) is extracted as under:-

“6.4 Ostensibly, the appellant has made  expenditure  of  Rs.1,27,500/- towards payment to daily newspaper for death news of G.P Pardhan, birth day greetings of Mr. Ajit Pawar and Mr. Sharad Pawar and congratulating Mr. Ajit Pawar. The appellant has not demonstrated that how this advertisement on print media is for attracting more customers specially when these persons are not related to the banks. Further, during the assessment proceedings the appellant could not prove business expediency of such expenditure. The contention of the appellant that expenditure is every nominal does not lead to conclusion that expenditure is allowable. Moreover, the appellant has admitted during the assessment proceedings that business expediency of such expenditure cannot be substantiated. In other words, the appellant has agreed for additions of Rs.1,27,500/-. Now at the appellate proceedings the appellant is contending the addition though agreed during the assessment proceedings.”

13. Thus, the expenditure incurred on the birthday / victory day celebration qua the erection of Flexies of the politicians, is not an allowable expenditure u/s 37 of the Act. In our considered opinion, the orders of the Assessing Officer / CIT(A) are fair and reasonable. They do not call for any interference. Accordingly, ground 3 of the assessee is

14. Ground 4 relates to the disallowance u/s 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 (hereinafter referred to as „the Rules‟). The Counsel submitted that the assessee earned dividend income which found part of the total income. On finding the same, disallowances were not made by the Assessing Officer as per provisions of the Act. The Assessing Officer was of the opinion that disallowance of Rs.7,65,767/- is required to be disallowed. It includes Rs.72,457/- under Rule 8D(2)(iii) of the Rules. On  this disallowance, ld. Counsel has no problem in offering the same. Considering the provisions of the Act / Rules, this part of disallowance is confirmed.

15. However, the above disallowance also includes sum of Rs.6,93,310/- disallowed by Assessing Officer under clause (2)(ii) of Rule 8D of the Rules. In this regard, ld. Counsel submitted before the Tribunal that the assessee is flushed with adequate interest free reserves which are actually spent for the purpose of investment in shares. Bringing our attention to para 9.7 of the order of CIT(A), where the details of interest free funds as well as details of total investments in shares are tabulated, according to the same, ld. Counsel mentioned that the assessee‟s investment of Rs.1,44,91,416/- is out of total interest free funds of Rs.36,17,46,271/-. Therefore, there is no diversion of interest free funds towards total investments in shares.

16. We heard both the parties. On the basic facts narrated above and relying on the binding judgment of Hon‟ble Bombay High Court in CIT Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom), we are of the opinion that ld. Counsel demonstrated the disallowance made by the Assessing Officer is uncalled for under Rule 8D(2)(ii) of the Rules. Accordingly, we direct the Assessing Officer to allow the same. Thus, ground 4 raised by assessee is partly allowed.

ITA No.1205/PUN/2017, A.Y. 2012-13 

17. The issue raised in grounds 1 and 2 is similar to the issue raised in grounds 1 and 2 in ITA No.1204/PUN/2017. Therefore, our decision in ITA No.1204/PUN/2017 shall apply mutatis mutandis to grounds 1 and 2 in this appeal also.

18. The issue raised in ground 3 is similar to the issue raised in ground 3 in ITA No.1204/PUN/2017. Therefore, our decision in ITA No.1204/PUN/2017 shall apply mutatis mutandis to ground 3 in this appeal also.

ITA No.1206/PUN/2017, A.Y. 2013-14

19. The issue raised in grounds 1 and 2 is similar to the issue raised in grounds 1 and 2 in ITA No.1204/PUN/2017. Therefore, our decision in ITA No.1204/PUN/2017 shall apply mutatis mutandis to grounds 1 and 2 in this appeal

20. The issue raised in ground 3 is similar to the issue raised in ground 3 in ITA No.1204/PUN/2017. Therefore, our decision in ITA No.1204/PUN/2017 shall apply mutatis mutandis to ground 3 in this appeal also.

21. In the result, all the three appeals of assessee are partly

Order pronounced in the open Court on 16th March, 2020.

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