TaxTMI 
TaxTMI 
2017 (3) TMI 1819
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....essed are dismissed. 3. Appeal for assessment year 2007-08 is first taken up for disposal. 4. The assessee, a co-operative bank, headquartered in Tiruchirapalli, had filed return of income originally on 12.11.2007 admitting NIL income. The assessment was completed under Section 143(3) of the Income-tax Act, 1961 (in short 'the Act') accepting the NIL income determined by the assessee. Thereafter the said assessment was set aside by CIT, Trichy, invoking his power under Section 263 of the Act. In the fresh assessment proceedings, assessee claimed exemption from tax on the basis of principle of mutuality. However, the Assessing Officer was not impressed. He completed the assessment disallowing the claim of ex-gratia payment made by the assessee to its employees, and the claim for deduction for provision for bad debts in excess of what according to him was not in line with Section 36(1)(viia) of the Act. 5. Aggrieved, assessee moved in appeal before the CIT(Appeals). The CIT(Appeals), during the appellate proceedings, noted that assessee had not accounted for accrued income on non-performing assets. As per the Ld. CIT(Appeals), assessee was not a scheduled bank and Se....
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.... debt was concerned, the Ld. A.R. submitted that the assessee was unable to work out such provision in accordance with Section 36(1)(viia) of the Act due to paucity of time. According to him, the Ld. CIT(Appeals) himself had pointed out that if assessee was able to show the provision to have been made in accordance with Section 36(1)(viia) of the Act, to that extent the claim could be considered. As per the Ld. A.R., if assessee was granted one more chance, it would correctly work out the average aggregate rural advance and the claim under Section 36(1)(viia) of the Act. 10. Insofar as payment of ex-gratia was concerned, Ld. A.R. submitted that this was paid to employees who were not covered under the Payment Bonus Act and was necessarily incurred for the purpose of business and to maintain cordial relationship with the employees. 11. Per contra, the Ld. Departmental Representative supported the order of the CIT(Appeals). 12. We have perused the orders and heard the rival contentions. Insofar as interest accrued on NPA is concerned, we are of the opinion that the assessee was bound to follow classification of NPA in accordance with prudential norms prescribed by Reserve Ba....
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.... [1999] 4 SCC 599. 8. Learned counsel for respondent submits that the learned Tribunal has rightly dismissed the appeals of the Revenue by confirming the order passed by the Commissioner of Income-tax (Appeals). There is no substantial question of law involved in these appeals and, thus, all the appeals are liable to be dismissed. 9. The Income-tax Appellate Tribunal has referred the case of Vasisth Chay Vyapar Ltd. [2011] 330 ITR 440 (Delhi). In this case, the Revenue relied upon the decision of the hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra). The learned Income-tax Appellate Tribunal has reproduced the observations made by the Delhi High Court while referring the said case of Southern Technologies Ltd. (supra). The assessee herein being a co-operative bank also governed by the Reserve Bank of India and thus the directions with regard to the prudential norms issued by the Reserve Bank of India are equally applicable to the co-operative banks. The hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) held that the provisions of section 45Q of the Reserve Bank of India Act has an overriding effect vis-a-vis income recogniti....
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.... light of these instructions. Therefore, up to the assessment year 1978-79, the Central Board of Direct Taxes's Circular of October 6, 1952 would be applicable; while from the assessment year 1979-80, the Central Board of Direct Taxes's Circular of October 9, 1984 is made applicable. In the present case, the assessment was made on the basis of the Central Board of Direct Taxes's Circular on October 9,1984, since the assessment pertains to the assessment year 1981-82 to which the Circular of October 9, 1984, is applicable . . . If, the Board has considered it necessary to lay down a general test for deciding what is a doubtful debt, and directed that all Income-tax Officer's should treat such amounts as not forming part of the income of the assessee until realized, this direction by way of a circular cannot be considered as travelling beyond the powers of the Board under section 119 of the Income-tax Act. Such a circular is binding under section 119. The Circular of October 9, 1984, therefore, provides a test for recognising whether a claim for interest can be treated as a doubtful claim unlikely to be recovered or not. The test provided by the said circular is to se....
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....ated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to section 145 of the Income-tax Act or illegal in any form. It is meant for a uniform administration of law by all the Income-tax authorities in a specific situation and, therefore, validly issued under section 119 of the Income-tax Act. As such, the circular would be binding on the department . . . The relevant circulars of Central Board of Direct Taxes cannot be ignored. The question is not whether a circular can override or detract from the provisions of the Act ; the question is whether the circular seeks to mitigate the rigour of a particular section for the benefit of the asses see in certain specified circumstances. So long as such a circular is in force it would be binding on the departmental authorities in view of the provisions of section 119 to ensure a uniform and proper administration and application of the Income-tax Act." 11. The learned counsel for the respondent has placed reliance in a case of Mercantile Bank Ltd. v. CIT reported in [2006] 283 ITR 84 (SC) ; [2006] 5 SCC 221, where similar question was raised before the apex court. The question was ....
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....with regard to disallowance of provision for bad and doubtful debts and remit the issue back to A.O. to consider afresh in accordance with law. Assessee is directed to furnish the information called for by the Assessing Officer with regard to average aggregate rural advances of its rural branches correctly. 15. Ground no.3 is allowed for statistical purposes. 16. Coming to the claim of ex-gratia payment, it is not disputed that these payments were made to the employees of the assessee, who were not covered by payment of bonus under Bonus Act. It is also not the case of the Revenue that the employees of the assessee, who were paid the ex-gratia, were shareholders or persons entitled for share of profits or dividend. This being the case, in our opinion, such ex-gratia to employees who were not covered under the payment of Bonus Act, could not be considered as paid for a purpose which was not wholly for the purpose of assessee's business. Section 36(1)(ii) of the Act has no applicability to payments made to employees who were not eligible for share of profits or dividend. 17. Ground No.10 stands allowed. 18. In the result, assessee's appeal for assessment year 2007-08 is p....