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2015 (10) TMI 1611 - ITAT PANAJI

2015 (10) TMI 1611 - ITAT PANAJI - TMI - Addition on account of provision for standard asset - whether Standard Assets is diminution in value of stock-in-trade, were CBDT instruction states that provision created by Banks on different accounts cannot constitute deductible expenditure for the purpose of Income-tax, hence provision for standard asset is not allowable for deduction under I.T. Act? - CIT(A) deleted the addition - Held that:- The issue before us is squarely covered in favour of the a .....

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sputed fact is that there was an embezzlement/fraud by the employees of the bank to the tune of ₹ 35 crores. It is also an undisputed fact that RBI asked the assessee to write off the loss in phased manner. It is also an undisputed fact that losses written off in F.Y. 2007-08 & 2008-09 have been accepted by the Assessing Officer. This is the last year of the write off wherein the dispute has arisen breaching the rule of consistency. Undoubtedly, the loss on account of fraud should be writt .....

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he order of the Ld. CIT(A), Panaji, dated 19/03/2014 pertaining to A.Y. 2010-11. 2. The substantive grounds of appeal raised by the Revenue read as under: "2. The Ld. CIT(A) has erred in deleting addition on account of provision for standard asset on the ground that Standard Assets is diminution in value of stock-in-trade, were CBDT instruction states that provision created by Banks on different accounts cannot constitute deductible expenditure for the purpose of Income-tax, hence provision .....

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y over the years, where expenditure to be allowed in the year when liability gets crystallized i.e. A.Y. 2007-08 as held by the Supreme Court in the case of CIT Vs. British Paints Pvt. Ltd. 188 ITR 44." 3. The first grievance relates to the deletion of addition on account of provision for standard asset. While scrutinizing the return of income, the Assessing Officer noticed that a sum of ₹ 17,41,464/- was debited under provision for standard assets. Clarification was sought on the pro .....

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the Ld. CIT(A), it was explained that the RBI s mandatory directions are binding to be adhered to by the assessee cooperative bank & accounts of the assessee bank has to be maintained in accordance with the RBI direction issued under the Banking Regulation Act, 1949. Reliance was placed on the decision of the Hon ble Supreme Court in the case of CIT Vs. Nainital Bank Ltd. (55 ITR 707). After considering the facts and submissions and the decisions relied upon by the assessee, the Ld. CIT(A) o .....

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on bleSupreme Court in the case of Nainital (supra), which has been followed by the Ld. CIT(A). Therefore, no interference is called for. First grievance is dismissed. 7. The second grievance relates to the deletion of addition on account of loss incurred by bank due to fraud. 8. This issue has been considered by the Assessing Officer at para 4 on page 3 of his order, wherein the Assessing Officer observed that ₹ 35 crores is being written off in a phased manner over a period of three year .....

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lanation of the assessee was dismissed by the Assessing Officer holding that since the assessee has never invested at all, it cannot be termed as business loss, rather this is a capital loss to the bank and hence not allowable. It was brought to the notice of theAssessing Officer that although the investment pertains to F.Y. 2004-05, the RBI has allowed the bank to make a provision for the loss in phased manner in three financial years. Accordingly, the entire provision of ₹ 35 Crores has .....

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d reiterated its contentions. After considering the facts in issue and the submissions of the assessee, the Ld. CIT(A) observed that there has been embezzlement of bank funds. Shares and securities which were not traded through any recognized stock-exchange. This embezzlement of funds were done by the employees of the bank in connivance with some brokers. The Ld. CIT(A) further observed that the Assessing Officer himself has accepted the loss for A.Y. 2008-09 & 2009-10. Therefore, there was .....

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