Appeal allowed for standard assets deduction under section 36(1)(viia) - expenses remanded for verification.

The ITAT allowed the appeal, holding that the provision for standard assets is deductible under section 36(1)(viia). The matter regarding disallowance of member's gift expenses and Golden/Diamond Jubilee expenses was remanded to the CIT(A) for verification of genuineness. The ITAT ruled that no disallowance was warranted under section 14A of the Income Tax Act. The appeal was partly allowed for statistical purposes, with specific issues referred back to the CIT(A) for further examination.

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Issues Involved:
1. Disallowance of Rs. 40 lakhs on provision for standard assets.
2. Disallowance of Rs. 23.25 lakhs on account of member's gift expenses.
3. Disallowance of Rs. 51.6 lakhs for Golden/Diamond Jubilee expenses.
4. Disallowance under section 14A of the Income Tax Act.

Summary of Judgment:

Ground Number 1: Disallowance of Rs. 40 lakhs on provision for standard assets
The issue involved the disallowance by the Assessing Officer (AO) of Rs. 40 lakhs on the grounds that it pertained to provision for standard assets and not for bad and doubtful debts, thus not allowable under section 36(1)(viia) of the Income Tax Act. The AO relied on the decision of the Ahmedabad Tribunal in the case of Bharuch District Central Cooperative Bank. The CIT(A) upheld the AO's decision, citing the Supreme Court's judgment in Southern Technologies Ltd.

The ITAT, however, agreed with the assessee's contention that the provision for standard assets is allowable under section 36(1)(viia), citing various ITAT decisions, including ACIT Vs Jila Sahakari Kendriya Bank and Nawanshahr Central Cooperative Bank. The ITAT allowed the appeal, holding that the provision made by the assessee for standard assets is indeed deductible under section 36(1)(viia).

Ground Number 2: Disallowance of Rs. 23.25 lakhs on account of member's gift expenses
The AO and CIT(A) disallowed the expenses for gifts to members, arguing that the assessee had only made a provision and had not furnished documentary proof of the expenses. The assessee argued that the expenses were permitted by the Registrar of Cooperatives in Gujarat State and were incurred on items like cookware, clothes, and footwear.

Given that similar expenses were allowed in the preceding assessment year, the ITAT set aside the matter to the CIT(A) to verify the genuineness of the expenses and allowed the appeal for statistical purposes.

Ground Number 3: Disallowance of Rs. 51.6 lakhs for Golden/Diamond Jubilee expenses
The AO and CIT(A) disallowed these expenses, considering them bogus and not incurred for business purposes. The assessee argued that the expenses were for purchasing and distributing school bags to the children of members, aimed at enhancing the bank's image and motivating members.

The ITAT noted that the Department had questioned the genuineness of the expenses and the lack of supporting evidence. The matter was set aside to the CIT(A) to verify the genuineness and actual payment of these expenses, and the appeal was allowed for statistical purposes.

Ground Number 4: Disallowance under section 14A of the Act
The AO worked out a disallowance of Rs. 2,67,436 under section 14A read with Rule 8D, while the CIT(A) restricted it to Rs. 1,99,749, equivalent to the exempt dividend income earned. The assessee argued that its tax-free funds exceeded the average investment, citing the Supreme Court's decisions in South Indian Bank Ltd and UTI Bank Ltd, which held that investments would be presumed to be made out of the assessee's own funds if interest-free funds exceeded the investments.

The ITAT, following the Supreme Court's settled proposition, allowed the appeal, holding that no disallowance was warranted under section 14A in the given facts.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific issues being remanded to the CIT(A) for further verification. The ITAT pronounced the order in the open court on 26-07-2023.

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