2018 (10) TMI 276 - AT - Income Tax

Tribunal Upholds Income Tax Disallowance for Cooperative Bank

The Kanaka Mahalakshmi Cooperative Bank Ltd. Versus ACIT, Circle-1 (1), Visakhapatnam

The Tribunal dismissed the appeal, affirming the rectification under Section 154 as valid. It held that the assessee, a cooperative bank, was ineligible ... Claim of deduction u/s 35DD or alternatively u/s 32 - acquiring commercial rights - AO corrected the mistake u/s 154 by disallowing the deduction u/s 35DD - Held that:- Assessee company being an Indian company can only make a claim under section 35DD of the Act. The Income Tax Act, 1961 has defined what is an Indian company, as per section 2(26), Indian company means a company formed and registered under the companies Act 1956. The assessee is not an Indian Company and not registered under the Companies Act, 1956 it is only a Cooperative Bank, therefore, primfa-facie assessee is not eligible for claim of expenditure under section 35DD of the Act. The Assessing Officer by allowing claim of the assessee under section 35DD has committed a mistake apparent on record. AO has applied inapplicable provisions to the assessee’s case i.e. 35DD allowed the claim made by the assessee on face of it, there is a mistake apparent on record. Therefore, same can be rectified under section 154. CIT(A) by considering the entire facts and circumstances of the case, confirmed the rectification order passed by the Assessing Officer by holding that the order passed by AO is within the scope of section 154. CIT(A) correctly confirmed the order of the AO. Allowance of brought forward losses and unabsorbed depreciation - Held that:- The assessee has not filed any material to substantiate that the losses /unabsorbed depreciation of the amalgamation company ascertained as per provisions of section 72AB of the Act. Therefore, we find that the ld. CIT(A) rightly confirmed the order of the Assessing Officer by observing that the entitlement of allowance of such losses in the hands of the said bank (amalgamated bank) or its eligibility to be carried forward under the provisions of section 72 was not proved. Therefore, we find that the ld. CIT(A) rightly considered the issue and confirmed the order of the Assessing Officer. Liability undertaken by the assessee by paying over and above the asset value has to be considered as payment for acquiring commercial rights - Held that:- We find that the assessee has not paid any consideration to acquire the Palakollu Bank, the assessee has not shown any depreciation schedule in the amounts towards goodwill /commercial rights. Therefore, it cannot be considered that the assessee has acquired goodwill/commercial rights. Therefore, we find no infirmity in the order passed by the ld. CIT(A).- Decided against the assessee Issues Involved:1. Eligibility for deduction under Section 35DD of the Income Tax Act.2. Applicability of Section 154 for rectification of assessment order.3. Alternative claim for deduction under Section 32 of the Income Tax Act.4. Examination of Section 44DB in relation to Section 35DD.5. Consideration of goodwill/commercial rights for depreciation.Detailed Analysis:1. Eligibility for Deduction under Section 35DD of the Income Tax Act:The primary issue revolves around whether the assessee, a cooperative bank, is eligible for deduction under Section 35DD. The assessee claimed 1/5th of the cost of acquisition of Palakollu Cooperative Bank as expenditure under Section 35DD, amounting to Rs. 57,81,212/-. According to Section 35DD, only an Indian company can claim this deduction. The Assessing Officer disallowed the claim, noting that the assessee is not an Indian company but a cooperative bank registered under the A.P. State Mutually Aided Co-operative Society Act, 1995. The CIT(A) confirmed this disallowance, agreeing that the provisions of Section 35DD apply exclusively to Indian companies.2. Applicability of Section 154 for Rectification of Assessment Order:The assessee contended that the rectification order passed by the Assessing Officer under Section 154 was beyond the scope of the section. Section 154 allows rectification of mistakes apparent from the record. The Assessing Officer initially allowed the claim under Section 35DD, which was later identified as a mistake since the assessee is not an Indian company. The Tribunal upheld the rectification, stating that the Assessing Officer had committed a mistake apparent on record by applying inapplicable provisions. Therefore, the rectification under Section 154 was justified.3. Alternative Claim for Deduction under Section 32 of the Income Tax Act:The assessee alternatively sought deduction under Section 32 for depreciation on goodwill or commercial rights. The Departmental Representative argued that the assessee neither acquired goodwill nor any commercial rights, hence the claim under Section 32 was not considered. The Tribunal noted that the assessee did not show any amounts towards goodwill in the depreciation schedule and had not paid any consideration for acquiring Palakollu Bank. Consequently, the claim under Section 32 was dismissed.4. Examination of Section 44DB in Relation to Section 35DD:The assessee argued that under Section 44DB, it should be treated as a company for the purpose of Section 35DD. However, the Tribunal found that the assessee had not made any claim under Section 44DB. The CIT(A) observed that the allowance of brought forward losses and unabsorbed depreciation should be dealt with under specific provisions of the Income Tax Act, not RBI guidelines. The Tribunal agreed, noting that the entitlement of such losses in the hands of the amalgamated bank was not proven, thus confirming the disallowance by the Assessing Officer.5. Consideration of Goodwill/Commercial Rights for Depreciation:The assessee argued that the liability undertaken by paying over and above the asset value should be considered as payment for acquiring commercial rights. The CIT(A) found that the assessee did not pay any consideration for the acquisition and did not show any amounts towards goodwill in the depreciation schedule. The Tribunal upheld this finding, referencing a similar case where the excess price paid over the net asset value was considered goodwill. Since the assessee did not demonstrate any acquisition of goodwill or commercial rights, the claim for depreciation was denied.Conclusion:The Tribunal dismissed the appeal filed by the assessee, confirming that the rectification under Section 154 was within the scope, and the claims under Sections 35DD and 32 were not applicable. The Tribunal also found no merit in the arguments related to Section 44DB and the consideration of goodwill/commercial rights for depreciation. The decision emphasized the importance of adhering to specific provisions of the Income Tax Act over general guidelines or alternative interpretations.