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2015 (7) TMI 472 - ITAT AHMEDABAD

2015 (7) TMI 472 - ITAT AHMEDABAD - TMI - Unexplained cash deposits / credits addition u/s 68 - CIT(A) deleted the addition - Held that:- Assessee is a financial institution registered under the Gujarat Cooperative Societies Act has explained source of the impugned deposits of ₹ 45 lacs. Rather source of the source as well. The Revenue reiterates the Assessing Officer’s findings. It does not rebut the CIT (A)’s findings that the impugned deposits have come from the official liquidator. The .....

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enue’s first substantive ground fails. - Decided against revenue.

Disallowance u/s 40(a)(ia) on reimbursement of clearing house charges paid to the Ahmedabad Dist. Cooperative Bank and corresponding service tax - CIT(A) deleted disallowance - Held that:- The assessee has reimbursed the impugned expenses towards MICR processing centre and its recipient institution i.e. the Ahmedabad District Co-op. Bank has already deducted TDS thereupon. The Revenue does not dispute this factual posit .....

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ned expenditure on the above stated items. The lower authorities treat the same as capital expenditure by holding that the expenditure in question has brought new assets into existence. We find no increase in the relevant space area nor construction of a new structure forthcoming from the case file. The Revenue fails to prove that the assessee has demolished any existing structure altogether and erected a new one. The assessee appears to have got removed/ partly demolished the same and spent the .....

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its relevant bill on cement, flooring and a truck of sand. The Revenue’s objection in assessment order (supra) stands rectified. The assessee’s claim of ₹ 5,80,000/- is allowed as revenue expenditure. - Decided against revenue.

Disallowance of petrol allowance, telephone allowance and consultancy service charges paid to Shri Kanubhai B. Kothia husband of the assessee’s chairperson Smt. Lilaben u/s 40A (2) (b) - CIT(A) deleted addition - Held that:- The Revenue has not been able .....

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of fact that the assessee has already included the very interest income of ₹ 5,04,000/- in its interest income and P & L account. Annexure “A” to this effect also forms part of the lower appellate order. The Revenue has not been able to dispute contents thereof. We affirm the CIT (A)’s findings in these circumstances - Decided against revenue.

Disallowing RBI penalty as expenditure - Held that:- The hon’ble Kerala high court in CIT v/s. Catholic Syrian Bank [2002 (11) TMI 17 - .....

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expenditure. - Decided in favour of assessee. - I.T.A. No.2423/Ahd/2010,C.O. No.269/Ahd./2010 - Dated:- 3-7-2015 - Shri Pramod Kumar and S.S. Godara , JJ. For the Petitioner : Shri Dinesh Singh, Sr. D.R. For the Respondent : Shri M.J. Shah, A.R. ORDER PER S.S. GODARA JUDICIAL MEMBER: This Revenue s appeal and assessee s cross objection for A.Y.2007-08, arise from order of CIT(A)-XVI, Ahmedabad dated 28.5.2010, passed in case No.CIT(A)/XVI/DCIT.Cir.11/270/2009- 10, in proceedings u/s.143(3) of th .....

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377; 5,30,000 + ₹ 50,000/- totaling to ₹ 5,80,000/- to ₹ 4,15,000/-, deleting addition of ₹ 90,000/- i.e. petrol allowance of ₹ 24,000/-, telephone allowance of ₹ 30,000/- and consulting charges of ₹ 36,000/- and the last one being addition of ₹ 5,03,380/- on account of interest accrued on NPA, as made by the Assessing Officer in a regular assessment framed on 29-12-2009. The assessee s pleadings in its cross objection raise two substantive grounds .....

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have heard both the sides and gone through the case file. 4. The Revenue s first ground seeks to restore unexplained cash deposits / credits addition of ₹ 45 lacs u/s. 68 of the Act. The assessee had opened 250 FDR accounts of ₹ 18,000/- each in F.Y. 2005-06 relevant to A.Y. 2006-07. The Reserve Bank of India imposed penalty of ₹ 5 lacs on it alleging violation of KYC norms qua the same. The Assessing Officer accordingly observed that the said accounts had been opened without .....

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tion of ₹ 45 lacs u/s. 68 of the I. T. Act. This issue has been discussed by the Assessing Officer at para 5 of the assessment order. The Assessing Officer observed that the appellant bank has opened the bank account of 250 parties without obtaining their proof of address, photo identity etc. In these 250 bank accounts total amount of ₹ 45 lacs was transferred. According to the Assessing Officer since the bank has not followed the necessary instructions of the RBI while opening these .....

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e onus cast u/s. 68 of the I T Act by giving name , address and PAN of .the depositors and also by producing them, the amount of ₹ 45 lacs deposited in their accounts was treated as cash credit u/s. 68 of the Act. The AR brought to my notice the copy of the resolution passed in the meeting of the Board of Directors held on 27-1-2006 which is placed at page No 28 of the Paper book. As per this resolution No.3 the Board of Directors offered their comments as under :- i) The cheque of ₹ .....

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ers and even in such cases the extent of limits and the need thereof were subjected through scrutiny. In this case a cheque of an amount of ₹ 53.50 lacs issued by Hon'ble Gujarat High Court presented in HVC on 11- 11-2006, eventhough the amount was credited in .the beneficiary account after due realization. After clear proceeds of the cheque, allowed transfer of this amount on the same day of credit into the account of M/s. Radhe Finance. iii) On 6-11-2005 the amount has been transferr .....

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ve Bank of India in all respect and ensure that there should not be any violation !n any banking operational area." 5.1 A copy of bank account of Radhe Finance with the appellant bank has been placed, at page No 49 to 56 of the paper book. As per which, in account No 1497 of Radhe Finance, a cheque of ₹ 53,50,0007-was credited on 11-11-2005 which was transferred from the account of Nilkanth Enterprises. On 15-11-2005 from this account of Radhe Finance 250 cheques of ₹ 18,000/- e .....

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ent unexplained credit in the hands of the appellant bank. 5.2 Whereas, the case of the AR is that no fresh fund has been deposited in the fixed deposit account holder. The entry in their account of ₹ 18,0007- each is made by way of transfer entry from the account of Radhe Finance, therefore the question of treating the amount of ₹ 45 lacs u/s. 68 does not arise. Reliance was also placed on the decision of A P High Court at 246 ITR 283. 5.3 I have considered the submissions of the AR .....

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77; 5 lac was imposed by the R'BI on the appellant bank). In other words, the source of credit of ₹ 18,000/- each in the 250 accounts is explained out of the transfer entry from the account of Radhe Finance. Once the source of the deposit in the account of the 250 depositors is properly explained, there is no question of invoking the provisions of section 68 even though all the 250 parties may not be genuine. Because what is to be seen in this case is whether the amount credited in the .....

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d to such 250 depositors. In any case the amount of ₹ 45 lacs deposited in the accounts of 250 depositors is properly explained as transfer entry from the account of Radhe Finance. Therefore the addition made u/s. 68 in the hands of the appellant bank cannot be sustained. The AO is directed to delete the addition of ₹ 45 lacs. 6. Heard both sides. Records perused. It is evident that the assessee; a financial institution registered under the Gujarat Cooperative Societies Act has expla .....

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source of the source along with the fact that the depositors are its regular customers, it has satisfactorily explained identity along with necessary conditions of genuineness and creditworthiness thereof. We affirm the CIT (A) s findings in these facts. The Revenue s first substantive ground fails. 7. The revenue s second substantive ground seeks to restore section 40(a)(ia) disallowance/addition of ₹ 1,94,473/- on reimbursement of clearing house charges paid to the Ahmedabad Dist. Cooper .....

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d District Co.Op. Bank (ADC Bank) u/s. 40(a)(ia) of the I T Act. This issue has been discussed by the AO at para 6 of the asstt order. Briefly the facts are that the appellant bank is not a member of clearing house. The.cheques of the bank are cleared by the clearing house though Ahmedabad Dist Co Bank (ADC). The clearing house in Ahmedabad is managed by Bank of Baroda. For the services rendered by Bank of Baroda, the member banks are supposed to pay for services, to the Bank of Baroda. The paym .....

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es and ₹ 56,5227- service tax thereon. According to the Assessing Officer the amount of ₹ 1,94,4737- & ₹ 56,5527- are liable for further TDS and since the appellant bank has not made any payment of TDS, he disallowed these two amounts of ₹ 1,94,4737- and ₹ 56,5227- u/s. 40(a)(ia). On the other hand the case of the appellant is that the clearing house expenses has been incurred by ADC Bank on behalf of the appellant. While making payment to the Bank of Baroda (ma .....

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f R. 1,94,473/- ₹ 56,522/- u/s. 40(a)(ia) of the Act. . 6.1. I have considered the submissions of the AR. The AR was asked to state as to whether ADC Bank is claiming the same amount which is paid by the ADC Bank to the Bank of Baroda for clearing house expenses or some additional amount is charged by the ADC Bank for the services rendered by them on behalf of the appellant bank. The appellant vide its letter dt 24-5-2010 filed a letter from ADC certifying that "We have reimbursed the .....

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ch reimbursement is not further subject to TDS. The Assessing Officer was not therefore justified in disallowing the amount of ₹ 1.94,473/- + 56,222 u/s. 40(a)(ia) of the Act. . 9. We have heard rival contentions and gone through the relevant findings. It has come on record that the assessee has reimbursed the impugned expenses towards MICR processing centre and its recipient institution i.e. the Ahmedabad District Co-op. Bank has already deducted TDS thereupon. The Revenue does not disput .....

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ce of capital expenditure from ₹ 5,80,000/- to ₹ 4,15,000/-. The assessee s second substantive ground in its cross objection seeks to delete this remaining part of the disallowance as well. It had debited repair and renovation expenses amounting to ₹ 5,30,000/- in the name of M/s. Saurashtra Construction Co. The Assessing Officer opined that the latter bill was nowhere submitted in the course of scrutiny. The former sum of ₹ 5,30,000/- was described as ₹ 30,000/- sp .....

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andlord. The rent agreement and other details were filed in support. 11. The case file reveals that all the above stated assertions could not impress upon the Assessing Officer. He observed that the impugned expenditure was meant for bringing into the existence assets of enduring nature which could not be treated as revenue expenditure. He held that the impugned charges were not for supply of material, but paid for a turnkey contract for execution of the job of construction of a new storey with .....

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is issue is discussed by the Assessing Officer in para 7 of the asstt. order. The bank is situated at the rented premises w.e.f. 1-1- 1999. During the year under consideration, the assessee bank incurred substantial expenditures towards the repairs and renovation total amounting to ₹ 5,30,000/- issued in the name of Saurashtra Construction Co and another ₹ 50,000/- withdrawn on 30-3-2007. According to the Assessing Officer, the copy of the bill in respect of ₹ 50,000/- was not .....

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me as not being revenue expenditure. On the other hand, the case of the appellant is that the premises are rented premises and the repairs undertaken by the appellant has not resulted into any benefit to the appellant because at the time of surrender of the premises to the landlord, no asset would remain with the appellant but would be handed over to the owner of the building. It was therefore argued that since no enduring benefit has accrued to the appellant, in view of the judgement of Hon' .....

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the loft was neither for extension nor for addition to the premises. The assessee was putting the available office / space to its optimum use for accommodating a large staff of 30 members which would result in greater efficiency by improvement of the working conditions. By constructing the loft, the assessee did not bring into existing an asset of a permanent nature because, on the surrender of the lease, the option of the lessor of the premises in which the improvements were made was either to .....

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use No 6, "there is a legal obligation to vacate the premises in the same condition when it was taken. Over and above, under any circumstances, if in. the said premises any colour or repairing or any correction, renovation as per the needs of the tenant is to be carried out by the tenant at his own cost. Thus as per this agreement, the repair expenses is required to be incurred by the tenant and therefore the expenditure is in the nature of revenue only." 7.2 I have considered the subm .....

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cost .... 5500 sq ft @ ₹ 20/- = 1.20 lacs. ii. As the rented premises is very old in Age, flooring tiles were also cracked / broken hence such tiles were removed and fresh tiles were fitted - approx cost .... 1900 sq ft @ ₹ 90/- = 1.71 lacs. iii. Also load bearing beams were damaged due to its old age and earthquake, the same was get repaired by removing broken parts. Approx cost.... 1200 sq ft @ ₹ 140/- = 1.68 lacs iv. Colour works in the said premises - approx cost ... 5,500 .....

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red on repairs by a tenant would not be allowed u/s. 30(a)(i) of the I T act. For the sake of convenience section 30 is reproduced as under:- " 30. In respect of rent, rates, taxes, repairs and insurance for premises used for the purpose of the business or profession, the following deductions shall be allowed - (a) Where the premises are occupied by the assessee- (i) As a tenant, the rent paid for such premises, and further if he has undertaken to bear the cost of repairs to the premises, t .....

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t paid on account of current repairs referred to in sub clause (ii) of clause (a), shall not include any expenditure in the nature of capital expenditure." In other words, if a tenant incurs a capital expenditure in the repairs of business premises, then w.e.f. A Y 2004-05 onwards such repairs would not be .allowable expenditure in view of the introduction of Explanation to this section by Finance Act, 2003. The case laws cited by the appellant are relating to prior to A Y 2003-04. Such dec .....

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expenses of ₹ 4.15 lacs at the same rate which is applicable to an office premises 13. We have heard both the parties and gone through the relevant findings. The former portion of the impugned disallowance involves a sum of ₹ 5,30,000/- as restricted to ₹ 3,65,000/-. The relevant facts and figures already stand narrated in the preceeding paragraph. The assessee is a tenant in a rented premises. It incurred the impugned expenditure on the above stated items. The lower authoriti .....

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e by way of fixing new beams, re-plastering of ceiling etc. We hold in these circumstances that once no new structure has come up nor is there any increase in capacity of the already existing structure, the impugned claim is to be treated as revenue expenditure only. We reject the Revenue s third ground and accept the assessee s corresponding plea in its cross objection. The balance amount is of ₹ 50,000/-. Page No.102A contains its relevant bill on cement, flooring and a truck of sand. Th .....

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essing Officer involved section 40A (2) (b) and made the impugned disallowance. 15. The CIT (A) has reversed the Assessing Officer s action as given below:- 8. Next ground is regarding disallowance of telephone and petrol expenses of ₹ 54,000/- and consultancy expenses of ₹ 36,000/- u/s. 40A(2)(b) of the Act. This issue is discussed by the Assessing Officer at para-8 of the assessment order. The Assessing |Officer held that Shri Kanubhai Kothia, husband of chairperson of the bank Mrs .....

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other co-operative bank. He has experience in managing loan disbursement and legal matters as well as routine banking operations. The above submission of the AR before the Assessing Officer did not find favour. Because as per Assessing Officer, the appellant bank has incurred expenditure of ₹ 21,64,554/- on pay and allowances to its employees. Since A.Y. 2007-08 is the first assessment year where deduction u/s. 80P is not allowable, the Assessing Officer held that the consultancy services .....

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ure of telephone and petrol allowance is reimbursement of expenses or services rendered by the appellant to the bank. Such allowance are consistently given to the relative and this allowance has been actually allowed to the bank in the past. The appellant also submitted that in past Shri Kanubhai has been reimbursed the amounts for telephone ₹ 12,000/- and conveyance expenses ₹ 1,12,000/- in F.Y. 2004-05. In F.Y. 2005-06 conveyance ₹ 12,000/- telephone expenses ₹ 12,000/- .....

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d the nature of services. Nor his case is that such payments are excessive or unreasonable to bring the same under the purview of section 40A(2). 8.1. I have considered the submissions of the appellant. Looking into the fact that the appellant has paid salary to the tune of ₹ 21,64,554/- and tat Shri Kanubhai has been reimbursed with the telephone allowance and petrol allowance since past years and he has been rendering consultancy services to the bank from the past many years and in fact, .....

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anced by both the parties. The Revenue has not been able to controvert the CIT (A) s crucial finding that the very expenditure is being accepted in preceding assessment years as paid to the same recipient. Nor does it point out any exception in facts and circumstances involved there. We adopt consistency in these facts and uphold the CIT (A) s action. The Revenue s corresponding ground is declined. 17. The Revenue s fifth and last ground seeks to restore addition ₹ 5,03,380/- on account of .....

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how cause notice to the appellant in this regard. The assessee vide his letter dated 29-12-2009 submitted before the Assessing Officer as under :- With reference, to the information called by your honour vide letter No. DGIT. Cir-ll/143(3)/BMC/09-10 dt 24-12- 2009, received by our bank on 28-12-2009, your honour is requested - that the amount reflects at point No. 8 on balance side of the balance sheet under the head "Overdue Interest Reserve" is the amount of accrued interest on NPA a .....

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rest not treated as income during all financial years." 9.1 The Assessing Officer was not satisfied with this reply of the assessee and made addition of ₹ 5,03,380/- on the ground that the appellant has not furnished the copy of interest account showing booking of income of accrued interest on NPA accounts. The case of the AR is that the proforma for classification of assets and provision made against NPA Assets as on 31-3-2007 ( which is enclosed as page No 113 in the paper book), a .....

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assumption that the interest income of ₹ 5,03,380/- is not included from the NPA assets. It was therefore pleaded that the addition made by the Assessing Officer is without any basis. 9.2 I have considered the submissions. For the sake of convenience the proforma appearing at page No 113 of the paper book in respect of classification of asset and provision made against non performing asset as on 31-3-2007 is enclosed as Annexure-1 to this order. From this proforma I find that the interest .....

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e has already included the very interest income of ₹ 5,04,000/- in its interest income and P & L account. Annexure A to this effect also forms part of the lower appellate order. The Revenue has not been able to dispute contents thereof. We affirm the CIT (A) s findings in these circumstances and reject the Revenue s ground. The Revenue s appeal ITA No.2423/Ahd/2010 is dismissed. 19. This leaves us with the assessee s cross objection raising two substantive grounds challenging the lower .....

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