2023 (8) TMI 764 - AT - Income Tax

Tribunal ruling on branch computerization, depreciation, and statutory payments

M/s. Jila Sahakari Kendriya-Bank Maryadit Versus The Assistant Commissioner – of Income Tax, Circle-3 (1), Raipur.

The Tribunal upheld the disallowance of Rs. 2,00,00,000 for computerization of branches, considering it a contingent liability. However, eligible ... Disallowance of provision for computerization of branches of the appellant - HELD THAT:- Admittedly, the assessee has created reserve for computerization of its operations which were manual earlier and has undoubtedly incurred an expenditure - It is also the fact that such expenditure was capitalized by the assessee. Since the expenditure made pertaining to computerization was in nature of capital expenditure, the eligible depreciation is available u/s.32 and the assessee is entitled to claim the same. The reserve created for incurring the expenditure in accordance with notifications issued under the Chhattisgarh Co-operative Societies Act, 1960, on account of computerization was in nature contingent liabilities which cannot be construed as actual expenditure and cannot be subject matter of deduction, even under the mercantile system of accounting. The observation of CIT(A) on this issue are worth agreed to. However, depreciation on expenditure actually incurred and capitalized will be allowed in accordance with the provisions of the Act. Therefore, we partly allow this ground of the assessee to reduce the addition made to the extent of eligible depreciation. Disallowance of provision for contribution/subscription to District Union - HELD THAT:- The understanding of the revenue authorities that the funds were in the control of the assessee cannot be accepted, on the contrary, the funds were set apart and kept for contributing according to the direction of the regulatory authorities. Therefore, the funds were not at all freely available in the hands of the assessee’s bank. Hence, respectfully following the ratio of decision of CIT v. M/s.Krishi Upaj Mandi Samiti [2013 (6) TMI 75 - MADHYA PRADESH HIGH COURT] we do not find any hesitation to hold that the contributions made in accordance with the binding by-laws of Regulatory Cooperative Society Act, which is in the nature of statutory liabilities of the assessee and the funds kept aside were never available to be used at its disposal. Decided in favour of assessee. Disallowance of depreciation - HELD THAT:- Admittedly, there was a mistake on the part of the assessee that the claim of the depreciation was made at a lower amount in the computation of income, which was noticed by the Ld.CIT(A) and has directed the AO to allow the same after due verifications applying the provisions of the Act. Assessee’s grievance is that till date, no effect was given by the AO even after the directions of the Ld.CIT(A). As the issue was raised before us. Since there was no infirmity pointed out in the order of the Ld.CIT(A), we do not find any divergent view on this issue. CIT(A), who has co-terminus with that of the AO, should have allowed the relief after factual verifications, may be by way of a remand report from AO, we restore this issue and direct the Ld AO to follow the direction of Ld CIT(A), which we are also having concurrence with. Ground of assessee is partly allowed for statistical purposes. Double disallowance on account of advance tax and TDS - HELD THAT:- Since the matter was referred back to the AO by the CIT(A) for verification and allowing appropriate relief to the assessee, whereas the Ld.CIT(A) who has powers co-terminus with the AO, was supposed to adjudicate the issue by verifying the facts by himself or by seeking Remand Report from the AO on the issue. However, as it is apparent from the facts available for us at the addition was made on account of double disallowance. Therefore, the assessee is entitled for the relief. Ground for assessee’s appeal is partly allowed for statistical purpose. Addition on account of reserve funds of interest from Apex Bank - HELD THAT:- The observation in the case of CIT v. M/s.Krishi Upaj Mandi Samiti [2013 (6) TMI 75 - MADHYA PRADESH HIGH COURT] wherein, it has been held that assessee’s interest incurred consists on such reserve fund, it was taxable and has rightly held by the Tribunal, in view of such findings of the Hon’ble Madhya Pradesh High Court. We are of inclined to accept that interest earned on such reserve funds are taxable in the hands of the assessee and therefore, there was no error in the order of the Ld.CIT(A) on this issue. Therefore, we sustained the addition. Decided against assessee. Addition representing provision for reserve fund to the extent of 5% - HELD THAT:- Admittedly, the funds transferred to statutory reserves in accordance with the provisions of Chhattisgarh Co-operative Societies Act, 1960, i.e. Regulatory Body for the assessee’s bank, which is mandatory for the assessee and after creation of such funds, the control thereof is fully transferred in the hands of Registrar and the assessee does not remain the beneficiary of the same. Respectfully following the judgement of Krishi Upaj Mandi Samiti Seon [2013 (6) TMI 75 - MADHYA PRADESH HIGH COURT] we are of the considered opinion that reserve funds so created for which amount is transferred under the statutory obligation over which the assessee loses control, diverted overriding title is eligible for deduction and therefore, the same does not form part of the assessee income, accordingly, we set aside the order of the Ld.CIT(A) and vacate the addition made by the AO on this count. Decided in favour of assessee. Issues Involved:1. Disallowance of Rs. 2,00,00,000/- for computerization of branches.2. Relief of Rs. 2,88,73,080/- for expenses incurred on computerization.3. Disallowance of Rs. 27,94,800/- for provision for contribution/subscription to District Union.4. Remanding of depreciation allowance of Rs. 1,14,40,207/-.5. Double disallowance of Rs. 1,52,40,896/- for advance tax and TDS.6. Addition of Rs. 2,98,14,297/- for reserve fund interest from Apex Bank.7. Addition of Rs. 2,84,55,735/- for reserve fund provision.Summary:1. Disallowance of Rs. 2,00,00,000/- for Computerization of Branches:The Tribunal upheld the CIT(A)'s decision, agreeing that the reserve created for computerization is a contingent liability and not an actual expenditure deductible under the mercantile system of accounting. However, the Tribunal allowed the eligible depreciation on the capitalized expenditure of Rs. 2,88,73,080/- incurred on computerization.2. Relief of Rs. 2,88,73,080/- for Expenses Incurred on Computerization:The Tribunal acknowledged the expenditure incurred on computerization but noted it was capitalized. Depreciation on this capitalized amount is allowable under Section 32 of the Income Tax Act.3. Disallowance of Rs. 27,94,800/- for Provision for Contribution/Subscription to District Union:The Tribunal reversed the CIT(A)'s decision, holding that the funds set apart for contribution to the District Union were statutory payments and not under the control of the assessee. The Tribunal relied on precedents, including the decision of the Hon'ble Madhya Pradesh High Court in CIT v. M/s. Krishi Upaj Mandi Samiti, to conclude that such contributions are deductible.4. Remanding of Depreciation Allowance of Rs. 1,14,40,207/-:The Tribunal noted that the CIT(A) directed the AO to verify and allow the correct depreciation. The Tribunal found no infirmity in this approach but directed the AO to follow the CIT(A)'s directions and allow the correct depreciation.5. Double Disallowance of Rs. 1,52,40,896/- for Advance Tax and TDS:The Tribunal agreed with the assessee that there was a double disallowance of advance tax and TDS. The Tribunal directed the AO to verify and allow the appropriate relief to the assessee, confirming that the double disallowance was not justified.6. Addition of Rs. 2,98,14,297/- for Reserve Fund Interest from Apex Bank:The Tribunal upheld the CIT(A)'s decision, agreeing that the interest earned on reserve funds is taxable. The Tribunal relied on the Hon'ble Madhya Pradesh High Court's decision in CIT v. M/s. Krishi Upaj Mandi Samiti, which held that such interest is taxable.7. Addition of Rs. 2,84,55,735/- for Reserve Fund Provision:The Tribunal reversed the CIT(A)'s decision, holding that the reserve fund created under statutory obligation does not form part of the assessee's income. The Tribunal relied on the Hon'ble Madhya Pradesh High Court's decision in Keshkal Co-operative Marketing Society Ltd. v. CIT, concluding that the statutory reserve fund is not under the control of the assessee and is thus deductible.Conclusion:The appeal filed by the assessee is partly allowed for statistical purposes, with specific directions for the AO to verify and allow appropriate relief as per the Tribunal's observations.