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IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " C " BENCH, AHMEDABAD
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BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER And
SHRI KUL BHARAT, JUDICIAL MEMBER
./I.T.A.No.2701/Ahd/2010
( [ [ / Assessment Year : 2007-08)
The Saurashtra Co- / The Dy.CIT
op.Bank Ltd. Vs. Ahmedabad
Opp. Bhidhanjan
Hanuman,Nikol Road
Bapunagar,Ahmedabad
. / . / PAN/GIR No. : AAATT 5544J
( /Appellant) .. (× / Respondent)
/ Appellant by : Shri S.N.Soparkar
× /Respondent by : Shri J.P. Jhangid, Sr.DR
/ Date of Hearing : 28/10/2013
/Date of Pronouncement : 15/11/2013
/ O R D E R
PER SHRI KUL BHARAT, JUDICIAL MEMBER :
This appeal by the Assessee is directed against the order of the
Ld.Commissioner of Income Tax(Appeals)-XVI, Ahmedabad (`CIT(A)'
for short) dated 12/08/2010 pertaining to Assessment Year (AY) 2007-
08. The Assessee has raised the following grounds of appeal:-
The learned CIT(A) has erred in:
1. Upholding the disallowance of Rs.31,063/- paid for printing of
annual reports of the Bank u/s.40(a)(ia), though the same is not
liable for TDS u/s.194C.
2. Upholding the disallowance of Rs.1,15,551/- reimbursed to the
Reserve Bank of India through The Ahmedabad District Co-
operative Bank Ltd. for MICR and other cheque processing charges
ITA No.2701/Ahd/2010
The Saurashtra Co-op.Bank Ltd. vs. Dy.CIT
Asst.Year 2007-08
-2-
u/s.40(a)(ia), though tax on the said reimbursements has been
deducted by the Reserve Bank of India while making payment to
Bank of Baroda who has done the processing work.
3. Upholding the estimated addition for accrued interest on the NPA
accounts of Rs.46,19,002/- (Rs.25,61,722/- on opening balance of
NPA accounts which has accrued during earlier previous years and
Rs.20,57,280/- for the previous year), though no interest has
accrued to the Bank.
4. Upholding the interest u/s.234B.
The appellant reserves rights to add, alter, modify or drop any of the
grounds of appeal.
2. Briefly stated facts are that the case of the assessee was picked up
for scrutiny assessment and the assessment u/s.143(3) of the Income Tax
Act,1961 (hereinafter referred to as "the Act") was framed vide order
dated 30.12.2009, thereby the Assessing Officer(AO) made disallowance
u/s.40(1)(ia) of the Act of Rs.31,063/-, disallowance of Rs.1,15,551/-
u/s.40(a)(ia) for non-deduction of tax and made addition on account of
interest accrued but not offered to tax of Rs.46,19, 002/-. Against this,
the assessee filed an appeal before the ld.CIT(A), who after considering
the submissions of the assessee, dismissed the appeal.
3. The first ground is against the disallowance of expenditure
amounting to Rs.31,063/- u/s.40(a)(ia) of the Act for non-deduction of
tax in respect of the payment made for printing of Annual Report of the
Bank. The ld.counsel for the assessee submitted that this issue is
squarely covered in favour assessee by the decision of the Hon'ble
Coordinate Bench of Delhi rendered in the case of Dy.CIT vs. Eastern
Medikit Ltd. reported at (2012) 19 taxmann.com 286 (Delhi).
ITA No.2701/Ahd/2010
The Saurashtra Co-op.Bank Ltd. vs. Dy.CIT
Asst.Year 2007-08
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3.1. On the contrary, Sr.DR supported the orders of the authorities below
and submitted that there is no infirmity in the order of the authorities
below as the assessee was required to deduct the tax but assessee had not
deducted the tax.
4. We have heard the rival submissions, perused the material
available on record and gone through the orders of the authorities below.
We find that the Hon'ble Coordinate Bench in the case of Dy.CIT vs.
Eastern Medikit Ltd.(supra) has decided this issue by observing as
under:-
"14. We have considered the facts of the case and submissions made
before us. The facts are that payments have been made to two parties
for preparation of diaries, catalogues and folders as per requirement of
the assessee. No material was supplied as specifically stated before the
ld. CIT(Appeals). The revenue has not brought any material on record
to dispute this fact. Therefore, the manufacturing and supplying does
not amount to a works contract. The AO has also referred to
Notification no. 275/51/2009-IT(B) dated 07.10.2009, which points out
that the provisions contained in section 194C have been amended by
Finance Bill, 2009, with effect from 01.10.2009 with a view to include
within the ambit of "work" the manufacturing or supplying a product
according to requirement or specification of a customer by using
material purchased from such customer. However, in respect of the
work-contract mentioned in clause (iv)(e) of the Explanation, tax shall
be deducted at source on the invoice value excluding the value of the
material, if such value is mentioned separately in the invoice; or on the
whole of the invoice, if the value of material is not mentioned separately
in the invoice. Obviously, this provision comes into force in respect of
works contract executed on or after 01.10.2009. This amendment is not
applicable to the proceedings of assessment year 2007-08, which are
being decided. Therefore, it is held that the expenditure was not in
respect of a works contract, therefore, the assessee was not obliged to
deduct tax at source. In other words, the amount involved in the
payment could not have been disallowed u/s 40(a)(ia). Thus, this
ground is also dismissed."
ITA No.2701/Ahd/2010
The Saurashtra Co-op.Bank Ltd. vs. Dy.CIT
Asst.Year 2007-08
-4-
4.1. In this case also, the assessee has made payment for printing of
Annual Report. Therefore, following the decision of Hon'ble Coordinate
Bench, we decide this issue in favour of assessee and direct the AO to
delete the addition made on account of disallowance of expenditure
u/s.40(a)(ia) of the Act. This ground of the assessee's appeal is allowed.
5. The second ground is against the disallowance of expenditure of
Rs.1,15,551/-made u/s.40(a)(ia) of the Act on account of non-deduction
of the tax. The ld.counsel for the assessee submitted that this
expenditure was nothing but reimbursement. He submitted that clearing
of the MICR and other cheques or instruments is being done by the
Reserve Bank of India. The appellant Bank is not a member of the
Clearing House. The appellant is therefore a sub-member of The
Ahmedabad Dist.Co-op.Bank Ltd., Ahmedabad. The appellant Bank
sends MICR and other cheques or instruments to The Ahmedabad
Dist.Co-op.Bank Ltd. which in turn sends the same to Bank of Baroda
on behalf of the Reserve Bank of India. The Reserve Bank of India pays
the processing charges to Bank of Baroda and deducts tax at source on
the total payments made on behalf of all the Banks. The Reserve Bank of
India recovers proportionate processing charges from respective banks.
He submitted that the issue is squarely covered by the decision of the
Hon'ble Coordinate Bench of Ahmedabad rendered in the case of
Karnavati Co-op.Bank Ltd. vs. Dy.CIT reported at (2012) 132 ITD 486
(Ahd.).
5.1. On the contrary, ld.Sr.DR strongly supported the orders of the
authorities below.
ITA No.2701/Ahd/2010
The Saurashtra Co-op.Bank Ltd. vs. Dy.CIT
Asst.Year 2007-08
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6. We have heard the rival submissions, perused the material
available on record and gone through the orders of the authorities below.
We find that the similar issue was before the Hon'ble Coordinate Bench,
wherein the Hon'ble Tribunal has held as under:-
"HELD-I
The assessee was only a sub-member of the clearing house. It has
availed the services of MICR clearing from a member of the clearing
house, namely, B. As far as the legal position of deduction of tax at
source is concerned, there is no dispute that tax is required to be
deducted from MICR charges. Since B was directly dealing with the
clearing house, it had deducted the tax at source on payment of MICR
charges to the clearing house. Consequent thereupon, the assessee was
required to reimburse the MICR charges to B. The said reimbursement
charges were inclusive of tax deducted at source as well. In
confirmation thereto, B had also issued a letter to the assessee.
[Para 6]
From the said letter, it is clear that as far as the payment by the
assessee was concerned, it was nothing but in the nature of
reimbursement of bank charges. Since the MICR charges were merely
reimbursed by the assessee, the latter was not required to deduct the tax
at source on payment of reimbursement. Otherwise also, it would
tantamount to double deduction of tax at source on the same payment of
MICR bank charges. In the result, the lower authorities were wrong in
disallowing the claim of reimbursement of charges. [Para 6.1]"
6.1. Respectfully following the aforesaid decision of the Hon'ble
Coordinate Bench, we are not inclined to take a different view than taken
by the Tribunal, this issue is decided in favour of the assessee and the AO
is directed to delete the addition. Thus, this ground of the assessee is
allowed.
7. The third ground is against the confirmation of addition of
Rs.46,19,002/- being the estimated addition for accrual of interest on
NPA accounts. The ld.counsel for the assessee submitted that the
ITA No.2701/Ahd/2010
The Saurashtra Co-op.Bank Ltd. vs. Dy.CIT
Asst.Year 2007-08
-6-
authorities below have grossly erred in making the addition. He
submitted that the decision of the authorities below is contrary to the
various judicial pronouncements. He placed reliance on the decision of
Hon'ble Gujarat High Court rendered in the case of CIT vs. Urjit
Investments Ltd. in Income Tax Reference No.107 of 1995, dated
13/07/2006 and also the decision of the Hon'ble Coordinate Bench
rendered in the case of Karnavati Co-op.Bank Ltd. vs. Dy.CIT reported
at (2012) 134 ITD 486 (Ahd.).
7.1. On the contrary, ld.Sr.DR supported the orders of the authorities
below.
8. We have heard the rival submissions, perused the material
available on record and gone through the orders of the authorities below.
We find that the ld.CIT(A) has decided this issue vide paragraph No.4.3
of his order as under:-
"4.3. I have considered the submissions made by the appellant and
observations made by the AO. The appellant also relied on decision of
Gujarat High Court in the case of Urjit Investments Pvt.Ltd. ITR
No.107 of 1995, dated 13-7-2006 where after considering the decision
of Hon'ble Supreme Court it is stated that if the recovery of principal
amount is doubtful then interest would not accrue and it should not be
charged hypothetical interest income. This decision is not applicable
because in that case the loans were sticky whereas in the case of the
appellant, it is treating loans whose two installments are not received as
NPA. Such loans cannot be called sticky or bad. The appellant being
co-operative bank is not covered by the provisions of IT Act applicable
to Schedules Banks. The decision of UCO Bank & Gothara Electricity
are therefore not applicable. Hence the action of the AO is correct.
The ground of appeal is dismissed."
ITA No.2701/Ahd/2010
The Saurashtra Co-op.Bank Ltd. vs. Dy.CIT
Asst.Year 2007-08
-7-
8.1 In our considered view, the decision of the ld.CIT(A) is contrary to
the ratio laid down by the Hon'ble Jurisdictional High Court rendered in
the case of CIT vs. Urjit Investments Pvt.Ltd.(supra). We find that the
Hon'ble Jurisdictional High Court in the said case followed the decision
of Hon'ble Apex Court rendered in the case of Godhra Electricity
Co.Ltd. vs. CIT reported at (1997) 225 ITR 746(SC) and the decision of
Hon'ble Allahabad High Court rendered in the case of CIT vs. Abbas
Wazir (P.) Ltd. reported at (2005) 274 ITR 448 (All.) and held as under:-
"9. From these two judgements, it would clearly appear that in the
given set of facts and by not applying the principles in their generality,
the income, which is receivable but not received and which is accrued
in a given case, may not be deemed to be an income. If the assessee in
his wisdom comes to the conclusion that it would be useless to carry
forward the amount of debt and also make entry relating to interest
income, then, it would be an act of prudence on his part. Simply
because, for a particular year, the Income Tax Officer does not allow
that deletion or deduction, it would not mean that for the later year, the
assessee cannot prove the fact that he had not received any income on
the said bad debt.
10. It is also to be noted that the finding in relation to the bad debt is a
finding based on appreciation of facts. The Tribunal has recorded a
finding that in view of the submissions made by the assessee, the debtor
is traceless and despite their efforts, it became impossible for the
assessee to recover the debts, therefore, the assessee was obliged to
write off the debts as bad debts. If the finding of fact is that the debt
had become bad debt, then, income on bad debt cannot be presumed.
11. In view of the discussion aforesaid, we answer the question referred
to us by saying that the Appellate Tribunal was right in law and on facts
in canceling the disallowance of present amounting to Rs.78,840/- even
when the Income Tax Officer had found that the debt itself had not
become bad. We must observe that the Tribunal has given cogent
reasons to hold that the debt had become bad. The reference is
answered against the Revenue and in favour of the assessee."
ITA No.2701/Ahd/2010
The Saurashtra Co-op.Bank Ltd. vs. Dy.CIT
Asst.Year 2007-08
-8-
8.1. Respectfully following the aforesaid decision of the Hon'ble
Jurisdictional High Court, we therefore allow this ground of the
assessee's appeal.
9. The fourth ground is against charging of interest u/s.234B of the
Act. The ground being consequential in nature does not require any
separate adjudication, the same is rejected as such.
10. In the result, the appeal of the assessee is partly allowed.
Order pronounced in Court on the date mentioned hereinabove at caption page
Sd/- Sd/-
(..) ( )
Û
( N.S. SAINI ) ( KUL BHARAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 15/ 11 /2013
.., .../T.C. NAIR, Sr. PS
/
Copy of the Order forwarded to :
1. / The Appellant
2. × / The Respondent.
3. / Concerned CIT
4. () / The CIT(A)-XVI, Ahmedabad
5. , , / DR, ITAT, Ahmedabad
6. [ / Guard file.
/ BY ORDER,
× //True Copy//
/ (Dy./Asstt.Registrar)
/
, / ITAT, Ahmedabad
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