TMI Blog2018 (4) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... he findings given in the RBI Inspection Report. Accordingly, the Ground No. 1 raised by the assessee is allowed for statistical purposes. Disallowance in respect of investments lost in Treasury Office - Held that:- We find that a similar view has been taken in the case of CIT vs Bonanza Portfolio Ltd (2009 (8) TMI 636 - DELHI HIGH COURT), wherein the monies receivable from the client was treated as a debt and hence irrecoverability of the same is liable to be treated as a bad debt and write off of such bad debt would be squarely allowable as deduction. The similar is the situation in the facts of the present case. It is not in dispute that the WB Treasury was not able to trace the investments for quite a long time since 2001 and RBI accordingly having waited for considerable period of time had suggested the assessee to write off the same in its books, which in our considered opinion, would be a regular business loss. Disallowance of difference in value of deposits between Party Ledgers and the General Ledger - Held that:- During this year, pursuant to the suggestion made by the RBI in its Inspection Report and in order to bring the General ledger balance at par with the perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income Tax(Appeals)-XXX, Kolkata [in short the ld CIT(A)] in Appeal No.399/CIT(A)-XXX/Wd-46(4)/2010-11 dated 28.02.2013 against the order passed by the ITO, Ward-46(4), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 31.12.2010 for the Assessment Year 2008-09. Since identical facts are involved in both the appeals, they are taken up together and disposed off by this common order for the sake of convenience. ITA No. 1936/Kol/2013 Assessee Appeal 2. The first issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the disallowance of loss of ₹ 5,22,250/- in the facts and circumstances of the case. 2.1. The brief facts of this issue is that the assessee is a co-operative bank constituted under the West Bengal Cooperative Societies Act. It is governed by the regulations of the said statute with regard to banking societies and as a bank is further governed by the Banking Regulation Act, 1949 and the Reserve Bank of India Act. Besides its commitment to the rules framed under the Cooperative Societies Act to conduct itself and its business the way said rules require, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cr 5,22,250 The assessee after passing the aforesaid entry in its books claimed a sum of ₹ 5,22,250/- as deduction in its return of income. The ld AO held that the same is only provision made and hence not allowable as deduction. Accordingly, he disallowed the same in the assessment, which was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us on the following ground:- 1. For that the Ld. CIT(A) erred in confirming the addition of ₹ 522250/- failing to appreciate that the said sum represented allowable business loss under section 28, though shown in the accounts under the wrong nomenclature as provision for difference in Investment. 2.3. We have heard the rival submissions. The ld AR argued that the provision has been made by the assessee pursuant to the suggestion made in the RBI Inspection Report. The ld AR stated that since the accounts of the assessee are prescribed as per the format given in the Banking Regulation Act, 1949, and that the rules framed thereon would be governing the assessee also, and hence the assessee is duty bound to follow the norms prescribed by the RBI in its Inspection Report. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry:- P/L A/c Dr 7,53,997.80 To Provision for Deposit with Treasury Office Cr 7,53,997.80 The assessee after passing the aforesaid entry in its books claimed a sum of ₹ 7,53,998/- as deduction in its return of income. The ld AO held that the same is only provision made and hence not allowable as deduction. Accordingly, he disallowed the same in the assessment, which was upheld by the ld CITA. Aggrieved, the assessee is in appeal before us on the following ground:- 2. For that the Ld. CIT(Appeals) erred in confirming the addition of ₹ 753998/- failing to appreciate that the said sum represented allowable business loss under section 28, though shown in the accounts under the wrong nomenclature as provision for deposit with Treasury Office. 3.2. We have heard the rival submissions. The ld AR argued that the provision has been made by the assessee pursuant to the suggestion made in the RBI Inspection Report. The ld AR stated that the deposits were also by way of funds set apart as a security for providential measure requisite under the statutory regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of its client is as much a part of the debt as is the brokerage which is charged by the assessee on the transaction. The brokerage having been credited to the profit and loss account of the assessee, it is evident that a part of the debt is taken into account in computing the income of the assessee. The fact that the liability to pay the brokerage may arise, as contended by the Revenue, at a point in time anterior to the liability to pay the value of the shares transacted would not make any material difference to the position. Both constitute a part of the debt which arises from the very same transaction involving the sale or as the case may be purchase of shares. Since both form a component part of the debt, the requirements of Section 36(2)(i) are fulfilled where a part thereof is taken into account in computing the income of the assessee. Before concluding, we again take note of the fact that in paragraph 31 of its impugned decision the Tribunal has left the issue as regards the value of the shares which remain in the hands of the assessee which has to be adjusted against the amount receivable from the client to be determined before the regular Bench of the Tribunal follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epositors. There was neither the concept of Migration Audit to ensure the matching of General Ledger balance with the aggregate of the balances in the personal ledger accounts of the depositors. But the assessee bank is liable to pay the balance appearing in the pass book of every depositor which is the authenticated copy of his personal ledger account in the books of account. Moreover, the traditional manual accounting was in vogue before computerization was prone to clerical omission in the chain of entries to be made for transactions of deposits. This was also a contributory factor for the mismatch. The wrong lesser figure stood as it does in the general ledger for defects in accounting over the years in the long past before the computerization. Now under the computerized accounting, the whole chain is automated by accounting programme and is proof against such omission. The RBI Inspection report, however, figured the amount of shortfall at ₹ 51,06,472/- . The provision has been suggested to be made in the Inspection Report by making a charge on the profit and loss account of the year. The RBI had suggested to pass the following entry in the books of the assessee bank:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad further provided for the difference in liability of deposits payable by debiting its profit and loss account. This, in our considered opinion, is squarely allowable as deduction under the head income from business . We hold that they are not adhoc provisions made without any basis. Admittedly, the personal ledgers of depositors contained names and addresses of various depositors to whom the assessee is obligated to repay the deposits with interest on the date of maturity. Hence there is going to be physical outflow of money by the assessee in future. Hence it becomes an ascertained liability and is supported by proper scientific basis. In view of these observations, we hold that the assessee is indeed entitled for claim of deduction of ₹ 51,06,472/- in the assessment. Accordingly, the Ground No. 3 raised by the assessee is allowed. ITA No. 2153/Kol/2013 Revenue Appeal 5. The only issue to be decided in the revenue s appeal is as to whether the ld CITA was justified in addition made in the sum of ₹ 1,00,00,000/- towards excess provision written back under the head Reserve for NPA Account in the facts and circumstances of the case. 5.1. The brief fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings, on the grounds that the Reserve and subsequently credited in the profit and loss account was not income of the current year is being considered on merit. It is seen that though the amount in question has been taken and shown as income in profit and loss account of the current year it was an amount transferred out of Reserve of Profit of earlier year. This transfer of the amount from Reserve and shown as current profit therefore cannot be considered as income even though the same had been reflected in the profit and loss account by the Appellant. An amount cannot be considered as income merely because the same is being treated as profit merely because an entry had been made in the Accounts of an assessee. It is clear from the narrative of the profit and loss account that an amount had been credited in the profit and loss account out of the Reserve for NPA Account i.e. provision written back. The amount was therefore not in the nature of current profit but taken from the Reserve for NPA which had been credited in the earlier year. Therefore, any amount transferred to the Reserve Account in earlier years cannot be taken as current year s profit. Further that if any income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 64918588 Balance as on 31.3.2000 124419481 Add: Provision for NPA created in FY 00-01 by debit to profit and Loss account but no deduction claimed allowed in AY 2001- 02 1200000 Balance as on 31.3.2001 125619481 Add: Provision for NPA in FY 01-02 0 Balance as on 31.3.2002 125619481 Less: Provision for NPA written back in P L A/c for FY 2002- 03 83315118 Balance as on 31.3.2003 42304363 Less: Provision for NPA written back in P L A/c for FY 2003- 04 2481302 Balance as on 31.3.2004 39823061 Less: Provision for NPA written back in P L A/c for FY 2004- 05 6200387 Balance as on 31.3.2005 33622674 Less: Provision for NPA written back in P L A/c for FY 2005- 06 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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