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2015 (9) TMI 1351 - ITAT LUCKNOW

2015 (9) TMI 1351 - ITAT LUCKNOW - TMI - Revision u/s 263 - Claim of deduction in accordance with the provision of section 36 (1)(viia) - Held that:- Now a settled position of law that if the assessment order is passed by the A.O. without enquiry or without application of mind, the assessment order is erroneous and prejudicial to the interest of the revenue and in that situation; the CIT gets the jurisdiction to pass revisionary order u/s 263. Learned CIT has observed that it would be factually .....

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that the AO has allowed deduction of ₹ 2.84 Crores claimed by the assessee in the revised return of income as business loss and as per written submissions of the learned AR of the assessee as reproduced above, the assessee has not debited the same in the Profit & Loss Account but the same was partly out of Statutory Reserves and partly out of Opening Credit balance of Profit & Loss Account. Generally business loss is adjusted against profit of the present year and Capital Loss is adjusted .....

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to the assessee. No infirmity in the impugned order of the CIT and hence, we decline to interfere therein - Decided against assessee. - ITA No.321/LKW/2013 - Dated:- 31-8-2015 - SHRI SUNIL KUMAR YADAV AND SHRI A.K. GARODIA, JJ. For The Appellant : Shri R. C. Jain, FCA For The Respondent : Shri O. P. Meena, CIT DR ORDER PER A. K. GARODIA, A.M. This is assessee s appeal directed against the order of Learned CIT I Lucknow Dated 11.03.2013 for A.Y. 2008 09 passed by him u/s 263. 2. The assessee has .....

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roneous and prejudicial to the interest of revenue due to following reasons. i. No copy of revised balance sheet and profit & loss account was called for by the assessing officer. ii. The assessing officer did not examine the claim of deduction in accordance with the provision of section 36 (1)(viia) of the I.T. Act, 1961. iii. According to learned CIT, as per provision of section 36 (1)(viia) of the I.T. Act, 1961 in the case of the bank the amount of deduction shall be limited to the amoun .....

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fficer. Not required as discussed in para 11, 12 and 15 below. 2. The assessing officer did not examine the claim of deduction in accordance with the provision of section 36 (1)(viia) of the I.T. Act, 1961 Section 36 (l)(viia) of the I.T. Act, 1961 is not applicable as i. it is a case of claim of business loss and not bad debts as envisaged in section 36 (1) (viia). ii. Further the assessee is not a bank as envisaged in section 36 (1) (viia). There are numerous case laws on this issue and refere .....

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has been clarified in para 9 and 10 below. 4. The amount of ₹ 2,84,00,000/- should have been adjusted against the statutory reserve. During the financial year 2007-08 relevant to AY 2008-09, adjustment of ₹ 2,84,00,000/- has been done to the extent of ₹ 2,04,85,015.95 out of Statutory reserve and the remaining 7 balancing amount of ₹ 79,14,984.05 was adjusted out of the opening credit balance of Profit & loss A/c F.Y.2005-06 and 2006-07. 3. The order of learned CIT i .....

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o the case of the assessee as these are applicable to advances made by a bank as envisaged in section 36 (l)(viia) in the normal course of operation of banking business. At the cost of the repetition it is submitted that the claim of ₹ 2,84,00,000/- is not covered by the provisions of section 36 (1)(viia) of the I.T. Act, 1961 as it is not bad and doubtful debts as envisaged in this section but it is a business loss occasioned in the course of carrying on its business of banking. 6. Furthe .....

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rief. As explained above the assessee Primary cooperative bank takes deposits mainly from its members and it can give loans only to its members. The nature of banking business activities carried on by the assessee is such that the assessee bank has to keep its funds in other banks so that it earns sufficient income to pay interest on members deposits because loans and advances can be given only to members and deposits are much more than advances. The assessee bank can keep its surplus fund in de .....

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w of the loss The Reserve Bank of India had restrained the assessee bank from declaring any dividend. However, the situation was explained by the Registrar of the Cooperative Society to the Reserve Bank of India vide letter dated 23.07.2007 placed on pages 41 and 42 of the paper book. Subject to certain restrictions the Reserve Bank of India vide letter dated 20.09.2007 permitted the assessee bank for dividend distribution for F.Y. 2006-07 provided it should not exceed 10%. 9. It may be stated h .....

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in section 36 (1)(viia) of the l. T. Act, 1961. 11. The learned CIT-1 states that no copy of revised balance sheet and profit & loss account was called for by the assessing officer. This finding is also wholly erroneous. The learned CIT-1 failed to appreciate that the assessee prepares its accounts as per the format prescribed under the Banking Companies Act, 1949. 12. The adjustment of ₹ 2,84.00,000/- was done in the financial statements and hence the question of revised financial st .....

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ng amount of ₹ 79,14,984.05 was adjusted out of the opening credit balance of Profit & loss A/c F.Y.2005-06 and 2006-07. 13. It is mandatory for the assessee to create every year the statutory reserve out of its profits as explained in point 7 above. The purpose of the statutory reserve is to ensure that enough funds are set aside for contingencies like unforeseen losses etc. Reference may kindly be made to rule 167 of the U.P. Cooperative Societies Rules, 1968 placed on page 34 of the .....

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9,14,984.05 has been adjusted from these balances. 15. The reserve created out of Profit & Loss Account and Balances of Profit & Loss Account would be reflected in the Balance Sheet only and hence the adjustment carried out by the assessee as described above are out of Profit & Loss Account of the assessee and the question of preparing the revised Profit & Loss Account for the year does not arise as the assessee cannot do it under the Banking Companies Act and as described above .....

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