TaxTMI 
TaxTMI 
2017 (6) TMI 822
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....0. Consequent to survey, the case was reopened u/s 147 and notice u/s 148 was issued and served. In response to notice u/s 148, assessee filed a revised return of income on 21/04/2010 in which assessee withdrew the deduction u/s 80P and admitted loss of Rs. 12,97,11,438/-. During the course of reassessment proceedings, AO noticed that there were some deficiencies and discrepancies in the books of account maintained. The case was subjected to special audit u/s 142(2A) by the AO. Based on the special audit findings, assessment was completed determining the income at Rs. 8,97,31,422. 4. Aggrieved with the above order, assessee preferred an appeal before the CIT(A). Based on the submissions made by the assessee, CIT(A) has allowed the claims of the assessee u/s 36(1)(viia), interest on NPAs and outstanding liability of dividend. 5. Aggrieved with the above order, revenue is in appeal before us. 6. The revenue has raised eight grounds of appeal. Ground Nos. 1 & 8 are general in nature, hence, need no adjudication. 7. Ground Nos. 2, 3 & 4 are relating to deduction u/s 36(1)(viia). The facts relating to this issue are, AO observed that assessee is a cooperative society, runnin....
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....e issued by the RBI." 9. Considering the submissions of the assessee, CIT(A) has allowed the ground raised by the assessee by making following observations: 5.5 I have gone through the assessment order, submissions of the appellant and the relevant provisions of Banking Regulation Act. As the appellant was formed as cooperative society, the activities of society are regulated and supervised by State Registrars of Co-operative Societies and as it is functioning as cooperative bank, the activities are governed by Reserve Bank also. The Registrars of Co-operative Societies of the States exercise powers under the respective Co-operative Societies Act of the States in regard to incorporation, registration, management, amalgamation, reconstruction or liquidation. The banking related functions, such as issue of license to start new banks / branches, matters relating to interest rates, loan policies, investments, prudential exposure norms etc. are regulated and supervised by the Reserve Bank of India under the provisions of the Banking Regulation Act, 1949(AACS). According to part V Banking Regulations Act, the provisions of Banking Regulation Act would apply to the cooperative....
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....g in cl.(b) of sub section (1) shall be deemed to prohibit a cooperative society carrying on business as a cooperative bank at the commencement of the Banking Laws Act 1965 (23 of 1965) or a cooperative bank which has come into existence as a result of the division of any other cooperative societies carrying on business as a cooperative bank, or the amalgamation of two or more cooperative societies carrying on banking business at the time commencement of the banking laws (applicable to cooperative societies ) Act, 1965 or at any time thereafter; or a primary bank which becomes a primary cooperative bank after such commencement from carrying on banking business until it is granted a license in pursuance of this section or is, by a notice in writing, notified by the Reserve Bank of India that the license cannot be granted to it", 5.8 From the reading of sec.22, it is clear that once a cooperative society carrying on the business makes an application, it can continue to do banking business unless it is prohibited to carryon the business of banking. Therefore, the assessing officer is not justified in mentioning that without license the appellant cannot carryon business of ban....
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....e claim of deduction under section 36(1)(viia), which reads as under: "in respect of any provision for bad and doubtful debts made by- (a) a scheduled bank [not being [* * *] a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank [or a cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank] an amount [not exceeding seven and one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] percent of the aggregate average advances made by the rural branches of such bank computed In the prescribed manner. 6.1 Therefore, the AO is directed to allow the claim of 36(1)(viia) made at Rs. 4,24,65,201/- to the appellant and accordingly the ground No. 2 is allowed in favour of the appellant. 10. Aggrieved with the above order, revenue is in appeal before us. 11. Ld. DR submitted that CIT(A) allowed the assessee's claim of deduction u/s 36(1)(viia), for which claim was made by the assessee for the first time in the return filed in response to notice u/s 148. He furth....
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....uently it has continued to be considered as coop. Society in Banking business. To claim deduction u/s 36(1)(viia), as per the provisions, assessee has to create provision for bad and doubtful debts in its books of account, even though, it is eligible to claim deduction u/s 36(1)(viia), which was upheld by various high courts and in particular, coordinate bench of this Tribunal. AR submitted that since assessee has incurred loss during this AY, it could not claim deduction u/s 36(1)(viia). However, we have noticed that assessee has claimed 36(1)(viia) deduction @ 10% on rural advances in its computation of income and carried forward the loss from business. We find that information of provision for bad and doubtful debts are not placed on record before us. Therefore, it is appropriate to remit the matter back to the file of AO with a direction to find out whether assessee has created any provision for bad and doubtful debts and if so, following the judicial pronouncements, he is directed to allow deduction u/s 36(1)(viia) to the extent assessee has created provision for bad and doubtful debts in its books of account. Accordingly, grounds are allowed for statistical purposes. 13.1 ....
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.... Bank Ltd., [2014] 52 Taxmann.com 258 (Pune Trib.) 6. CIT Vs. Shri Basaveshwara Sahakari Bank, [2016] 74 Taxmann.com 21 (kar.) 7. Dapoli Urban Coop Bank Ltd., ITA Nos. 367 & 484/PN/2014, order dated 24/04/2014. 8. Uco Bank Vs. CIT, [1999] 104 Taxman 547 (SC) 18. Considered the rival submissions and perused the material facts on record as well as the cases cited by ld. AR. The issue is squarely covered against the department and in favour of the assessee in the aforesaid mentioned cases. In the case of DCIT Vs. The Gandhi Coop Urban Bank Ltd., (supra), the Vizag Bench of ITAT, on similar issue, observed as under: "6. We have heard both the parties and perused the materials available on record. The assessee is a co-operative bank, regularly following mixed system of accounting, wherein it is following cash system for recognizing interest on loans and advances and mercantile system of accounting for other expenditures. As stated by the A.R., the assessee is bound to follow the guidelines issued by the RBI for income recognition, asset classification and provisioning. Therefore, the assessee following the guidelines issued by the RBI did not recog....
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....o NPA advances in its total income. The Hon'ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd (Supra) has held that the interest on NPA assets cannot be said to have accrued to the assessee. In this regard, the following observations of Hon'ble Delhi High Court in the above cited case are relevant: "What to talk of interest, even the principle amount itself had become doubtful to recover. In this scenario it was legitimate move to infer that interest income thereupon has not "accrued". The said decision of the Hon'ble Delhi High Court is equally applicable to the issue in our hands. Accordingly we do not find any infirmity with the decision of the learned CIT (A) in holding that the interest income relatable on NPA advances did not accrue to the assessee. Accordingly we uphold his order. " 8. An identical issue came up for consideration before the ITAT Pune Bench in the case of Vaidyanath Urban Co-op. Bank Ltd. Vs. CIT in ITA No,413/PN/2014 dated 31.3.2015, wherein the ITAT under similar set of facts held as under: "10. Turning to the facts of the case before us, the assessee herein is a cooperative bank and it is not in dis....
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....ues, but only when it is realised. A mixed method of accounting is thus followed by the assessee-bank. This method of accounting adopted by the assessee is in accordance with accounting practice. Up to the asst. yr. 1978-79, the CBDT's circular of 6th Oct., 1952 would be applicable; while from the asst. yr. 1979-80, the CBDT's circular of 9th Oct., 1984 is made applicable. In the present case, the assessment was made on the basis of the CBDT's circular of 9th oct; 1984, since the assessment pertains to asst. yr. 1981-82 to which the circular of 9th Oct., 1984, is applicable. Under sub-so (2) of S. 119, without prejudice to the generality of the Board's power set out in sub-s. (1), a specific power is given to the Board for the purpose of proper and efficient management of the work of assessment and collection of revenue to issue from time to time general or special orders in respect of any class of incomes or class of cases setting forth directions or instructions, not being prejudicial to assessees, as the guidelines, principles or procedures to be followed in the work relating to assessment. Such instructions may be by way of relaxation of any of the provisions of....
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....ng the decision of the Vizag bench in that case, we direct the AO to delete the addition made towards interest on NPAs. Accordingly, this ground is allowed in all the AYs under consideration. 19. As regards ground No. 6 relating to long outstanding liability of dividend payable, AO observed that in Schedule - XVI of the balance sheet, assessee is carrying a liability of Rs. 5,27,149/- towards dividend payable. On a query, assessee explained vide letter dated 20/09/2010 that dividend declared by the bank about 10 years ago is still payable to members of the Bank because the members are not traceable. Considering the above fact, the AO treated the above liability as ceased to exist and, therefore, the same was treated as income and brought to tax in the AY under consideration. 20. On appeal before the CIT(A), the CIT(A) based on the submissions of the assessee held that dividend is appropriation and it is not a charge on P&L A/c, therefore, subjecting the amount of dividend payable to tax leads to double taxation. Accordingly, he deleted the addition made by the AO on this count. 21. Aggrieved by the order of CIT(A), the revenue is in appeal before us. 22. Considering the....