Tribunal rules in favor of assessee on investment losses & value difference, dismisses revenue's appeal on excess provision.

The Tribunal allowed the assessee's appeal for statistical purposes regarding the disallowance of a loss of Rs. 5,22,250. It also ruled in favor of the assessee on the disallowance of Rs. 7,53,998 for investments lost in the Treasury Office and the disallowance of Rs. 51,06,472 due to a difference in value of deposits. The Tribunal dismissed the revenue's appeal on the addition of Rs. 1,00,00,000 towards excess provision written back under the 'Reserve for NPA Account'. The order was pronounced on 28.03.2018.

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Issues Involved:
1. Disallowance of loss of Rs. 5,22,250.
2. Disallowance of Rs. 7,53,998 for investments lost in Treasury Office.
3. Disallowance of Rs. 51,06,472 due to difference in value of deposits between Party Ledgers and the General Ledger.
4. Addition of Rs. 1,00,00,000 towards excess provision written back under the 'Reserve for NPA Account'.

Issue-wise Detailed Analysis:

1. Disallowance of loss of Rs. 5,22,250:
The first issue is whether the CIT(A) was justified in upholding the disallowance of a loss of Rs. 5,22,250. The assessee, a cooperative bank, had to follow the RBI's regulations, which included maintaining investments in Government Securities to meet the statutory cash reserve ratio. The RBI's inspection report suggested that the value of these investments should be decreased by the premium, leading to an accounting entry that resulted in a claimed deduction of Rs. 5,22,250. The AO disallowed this, considering it a provision, not an actual loss. The Tribunal found that the RBI Inspection Report was not furnished to understand the RBI's intent behind the provision. Therefore, the issue was remanded to the AO to decide based on the findings in the RBI Inspection Report. The ground was allowed for statistical purposes.

2. Disallowance of Rs. 7,53,998 for investments lost in Treasury Office:
The second issue is whether the CIT(A) was justified in upholding the disallowance of Rs. 7,53,998 for investments lost in the Treasury Office. The assessee maintained certain investments with the West Bengal Treasury Office, which were not traceable. The RBI suggested writing off this amount in the books. The AO disallowed the deduction, considering it a provision. The Tribunal noted that the investments were part of the assessee's circulating capital and that the loss was a revenue loss, allowable under Section 28 of the Act. The Tribunal allowed the ground, considering it a regular business loss.

3. Disallowance of Rs. 51,06,472 due to difference in value of deposits between Party Ledgers and the General Ledger:
The third issue is whether the CIT(A) was justified in upholding the disallowance of Rs. 51,06,472 due to a mismatch between the aggregate balances in depositors' passbooks and the bank's General Ledger. The RBI's inspection report suggested creating a provision for this difference. The AO disallowed the deduction, considering it a provision. The Tribunal observed that the personal ledgers of depositors were correct and supported by proper names and addresses, making the shortfall an ascertained liability. The Tribunal allowed the deduction, considering it a write-off of circulating assets as a revenue loss.

4. Addition of Rs. 1,00,00,000 towards excess provision written back under the 'Reserve for NPA Account':
The fourth issue is whether the CIT(A) was justified in allowing the claim of Rs. 1,00,00,000 written back from the 'Reserve for NPA Account' as not being income. The assessee had transferred this amount from the reserve created out of past profits to the current year's profit and loss account. The RBI objected to this accounting treatment, stating it distorted the true profit picture. The CIT(A) allowed the claim, noting that the amount transferred from the reserve was not current profit. The Tribunal upheld the CIT(A)'s decision, stating that the amount did not constitute income merely because it was shown in the profit and loss account. The grounds raised by the revenue were dismissed.

Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes on the first issue, allowed the second and third issues in favor of the assessee, and dismissed the revenue's appeal on the fourth issue. The order was pronounced on 28.03.2018.

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