TaxTMI 
TaxTMI 
2018 (4) TMI 86
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.... in upholding the disallowance of loss of Rs. 5,22,250/- in the facts and circumstances of the case. 2.1. The brief facts of this issue is that the assessee is a co-operative bank constituted under the West Bengal Cooperative Societies Act. It is governed by the regulations of the said statute with regard to banking societies and as a bank is further governed by the Banking Regulation Act, 1949 and the Reserve Bank of India Act. Besides its commitment to the rules framed under the Cooperative Societies Act to conduct itself and its business the way said rules require, it has also to obey every direction that the Reserve Bank thinks fit to issue for prudential banking operations without jeopardy of the public transacting with it. It has to exhibit its affairs of business in its account as per the Reserve Bank commands. The accounts are prepared in accordance with the format prescribed by the Reserve Bank of India and its accounts and decisions are duly subjected to inspection by RBI. The assessee is mandated to give effect to the impact in its accounts based on the outcome of the Inspection Report of RBI . 2.2. The assessee held certain investments in Government Securities in orde....
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....ve heard the rival submissions. The ld AR argued that the provision has been made by the assessee pursuant to the suggestion made in the RBI Inspection Report. The ld AR stated that since the accounts of the assessee are prescribed as per the format given in the Banking Regulation Act, 1949, and that the rules framed thereon would be governing the assessee also, and hence the assessee is duty bound to follow the norms prescribed by the RBI in its Inspection Report. He stated that this sum of Rs. 5,22,250/- represents investments held by the assessee as stock in trade with RBI and that certain balance to the tune of Rs. 5,22,250/- was not reflected in physical form in the records of RBI, and accordingly RBI had suggested to pass the aforesaid entry in the books of assessee till the difference is sought to be found out by the RBI. He further stated that the assessee had effectively written off the portion of investments to the tune of Rs. 5,22,250/- in its books. He also placed reliance on the decision of Hon'ble Bombay High Court in the case of HDFC Bank Ltd reported in 366 ITR 505 (Bom). We find that the assessee had furnished only the journal entry stated to be suggested by the RB....
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....ry Office. 3.2. We have heard the rival submissions. The ld AR argued that the provision has been made by the assessee pursuant to the suggestion made in the RBI Inspection Report. The ld AR stated that the deposits were also by way of funds set apart as a security for providential measure requisite under the statutory regulation for protection of the interest of its depositors. But when eventually the assessee recalled the deposits on maturity, the treasury declined to meet its commitment as the deposits were reportedly not traceable at its end. There has been protracted correspondence with the treasury for restitution of the deposits but without avail. On these facts, the RBI in its Inspection Report required the assessee to write off the deposit for a true reflection of its income and net worth as 'Shortfall in Provision'. The ld AR argued that there was no choice for the assessee in not writing off the deposit by debit to profit and loss account. He stated that this deposit is also part of the assessee's circulating capital and the loss is revenue loss and hence allowable u/s 28 of the Act. The ld AR also stated that the assessee bank shifted its accounting software to Core B....
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....uding, we again take note of the fact that in paragraph 31 of its impugned decision the Tribunal has left the issue as regards the value of the shares which remain in the hands of the assessee which has to be adjusted against the amount receivable from the client to be determined before the regular Bench of the Tribunal following the view of the Special Bench. The view which has been taken by the Special Bench is, with respect, in accordance with law. We accordingly dispose of the appeal by answering the question of law as formulated in the affirmative and in favour of the assessee. There shall be no order as to costs. 3.2.1. We find that a similar view has been taken by the Hon'ble Delhi High Court in the case of CIT vs Bonanza Portfolio Ltd reported in 320 ITR 178 (Del), wherein the monies receivable from the client was treated as a debt and hence irrecoverability of the same is liable to be treated as a bad debt and write off of such bad debt would be squarely allowable as deduction. The similar is the situation in the facts of the present case. It is not in dispute that the WB Treasury was not able to trace the investments for quite a long time since 2001 and RBI accordingly ....
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....e RBI Inspection report, however, figured the amount of shortfall at Rs. 51,06,472/- . The provision has been suggested to be made in the Inspection Report by making a charge on the profit and loss account of the year. The RBI had suggested to pass the following entry in the books of the assessee bank:- P/L A/c Dr 51,06,471.91 To Provision for Diff. in GL PL A/c Cr 51,06,471.91 The assessee after passing the aforesaid entry in its books claimed a sum of Rs. 51,06,472/- as deduction in its return of income. The ld AO held that the same is only provision made and hence not allowable as deduction. Accordingly, he disallowed the same in the assessment, which was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us on the following ground:- 3. For that the Ld. CIT(Appeals) erred in confirming the addition of Rs. 51,06,472/- failing to appreciate that the said sum represented allowable business loss under section 28 read with section 29, though shown in the accounts under the wrong nomenclature as provision for difference with GL & PL (General Ledger & Personal Ledger). 4.2. We have heard the rival submissions. The ld AR argued that though it is cate....
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....tion made in the sum of Rs. 1,00,00,000/- towards excess provision written back under the head ' Reserve for NPA Account' in the facts and circumstances of the case. 5.1. The brief facts of the case is that the assessee transferred from the reserve created out of profit in the past years to its profit and loss account for the year to the tune of Rs. 1,00,00,000/- . This resulted in reflection of higher profit for the year under appeal. The assessee showed it as excess provision written back in its profit and loss account. The assessee offered the same as income in the return of income and did not object to the same at the time of assessment proceedings and hence there was no occasion for the ld AO to discuss about the same in the assessment order. The RBI objected to this accounting treatment and stated it is wrong accounting and distorts truth by presenting a wrong picture of profit. It was stated that the reserve being accumulated past profit, can be turned into share capital by issuing bonus shares or can be used for distribution as dividend. To treat the past profit transferred to reserve as current profit is wrong accounting. The fact of wrong accounting by the assessee was a....
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....redited in the earlier year. Therefore, any amount transferred to the Reserve Account in earlier years cannot be taken as current year's profit. Further that if any income does not result at all, there cannot be any tax and that if an income has not materialized, then merely an entry made about of hypothetical income by following Book-keeping method, the liability to tax cannot be attracted. This view has been upheld in the case of CIT vs. Godhra Electricity Co. 225 ITR 746 (S C). Therefore, it is held that this amount cannot be considered as income in the current year merely because such an entry had been made in the Account. The taxability of such an amount is determined by its basic nature which is to be seen and not how the amount has been treated in the Accounts. It is clear from the facts that the amount was only transferred from NPA Reserve Account in the current year and was not in any way in the nature of income of the Appellant in the current year. Therefore, the AO is directed to allow this claim of the Appellant, these Grounds of appeal are accordingly allowed." 5.3. Aggrieved, the revenue is in appeal before us on the following grounds:- 1. That on the facts and ci....