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2012 (9) TMI 756 - AT - Income TaxAddition u/s 68 in respect of deposit accepted by the assessee - Revenue contended that assessee not produced the details namely, address of the depositor or any particulars of the depositor - co-operative society carrying on banking business for its members - Held that - In the present case, assessee is a Society carrying on the Banking business to its own members and the business is carried on with certain set of guidelines and procedures. It is operating through 23 branches and each of the branches is headed by a Branch Manager and other staff. Deposits were accepted by staff along with the application at the counters. To the extent of the maintenance of the records is concerned, it is already seen that a systematic record was maintained by the assessee with regard to the transactions by the Bank. It has accepted all the documents as required under KYC norms. From the above facts it is proved that the assesses has proved the identity of the depositor. When the Society is having members of 63,000, one cannot come to a conclusion that the bank does not have furnished identity and proof of depositor by verifying few numbers. Being so, amounts in the accounts maintained by the assessee are deposits of the customers and/or not under the control of the assessee, and therefore, provisions of S. 68 are not applicable to the Bank. Further, Society/Bank not required to go for detailed verification of address/whereabouts of the customers and therefore, addition u/s 68 cannot be made merely because the address of the customers are incomplete. CIT(A) rightly deleted the addition - Decided in favor of assessee Deduction u/s 80P(2)(a)(i) - denial - Held that - It is the fact that certain activities carried on by the assessee not complying with the requirements of the principles of Cooperative Society, more so, the assessee also engaged in the activity of bill discounting, providing accommodation cheques by taking cash from the member, being so, for the AY 2006-07 the claim of the assessee u/s 80P(2)(a)(i) cannot be allowed. For AY 2007-08 & 2008-09, it is observed that Society is carrying on the Banking business and for all practical purpose it acts like a co-op bank. It is governed by the Banking Regulations Act. Therefore the Society being a co-op bank providing banking facilities to members is not eligible to claim the deduction u/s 80P(2)(i)(a) after the introduction of sub-section (4) to section 80P, hence entitled for deduction u/s 80P(2)(a)(i) for AY 2007-08 & 2008-09 - Decided in favor of Revenue. Dis-allowance of advertisement expenditure u/s 40a(i)(a) for no deduction of TDS - Held that - Section 40(a)(ia) of the Act is applicable only to the expenditure which is payable on 31st March of every year and cannot be invoked to disallow the amounts which are already been paid during the previous year, without deducting tax at sources. see Merilyn Shipping & Transports (2012 (4) TMI 290 - ITAT VISAKHAPATNAM). Accordingly, this issue set aside to the file of the assessing officer for reconsideration. Interest on account of interest receivable on the loans advanced which are pending recovery for more than 6 months - assessee contesting direction of CIT(A) to AO for verification of claim - Held that - CIT(A) was justified in issuing directions to verify the nature of interest whether it is on non performing assets or not and decide thereupon, since Supreme Court in the case of UCO Bank v. CIT 1999 (5) TMI 3 - SUPREME COURT held that interest credited to the suspense account and NPAs is to be excluded from the income - Appeal of assessee dismissed
Issues Involved:
1. Deletion of addition made under Section 68 of the Income Tax Act. 2. Allowability of deduction under Section 80P(2)(a)(i) of the Income Tax Act. 3. Disallowance of advertisement expenditure under Section 40(a)(ia) for non-deduction of TDS. 4. Verification of interest on Non-Performing Assets (NPAs). Detailed Analysis: 1. Deletion of Addition Made Under Section 68 of the Income Tax Act: The primary issue was whether the deposits accepted by the assessee, a cooperative society engaged in banking, should be treated as unexplained income under Section 68. The Assessing Officer (AO) treated these deposits as income because the assessee did not furnish adequate details about the depositors. However, the CIT(A) deleted the addition, stating that the society maintained systematic records and complied with the Know Your Customer (KYC) norms. The CIT(A) noted that the society's operations were transparent, regularly audited, and inspected by government authorities. The Tribunal upheld the CIT(A)'s decision, emphasizing that the cooperative society acted with due diligence and the onus to prove the credit was met by maintaining systematic records. The Tribunal referenced various judicial decisions, including those from the ITAT Pune Bench and the Gujarat High Court, supporting the view that the onus on the assessee was limited to maintaining systematic records. 2. Allowability of Deduction Under Section 80P(2)(a)(i) of the Income Tax Act: The issue was whether the assessee, a cooperative society providing credit facilities to its members, was eligible for deduction under Section 80P(2)(a)(i). For the assessment year 2006-07, the Tribunal found that certain activities of the assessee did not comply with cooperative principles, such as bill discounting and providing accommodation cheques. Therefore, the deduction was disallowed for that year. For the assessment years 2007-08 and 2008-09, the Tribunal noted the amendment brought by Finance Act 2006, which barred cooperative banks from claiming this deduction. Since the society operated like a bank, it was not eligible for the deduction post-amendment. The Tribunal upheld the CIT(A)'s decision to disallow the deduction for all three assessment years. 3. Disallowance of Advertisement Expenditure Under Section 40(a)(ia) for Non-Deduction of TDS: The assessee contested the disallowance of Rs. 5,93,756/- for advertisement expenditure due to non-deduction of TDS. The CIT(A) upheld the disallowance, noting that the assessee did not furnish details for TDS deduction. The Tribunal directed the AO to reconsider the issue in light of the Special Bench decision in the case of M/s Merilyn Shipping & Transports, which held that Section 40(a)(ia) applies only to amounts payable as of 31st March and not to amounts already paid. 4. Verification of Interest on Non-Performing Assets (NPAs): The assessee claimed an interest of Rs. 1,26,29,963/- on loans pending recovery for more than six months, arguing that it should be excluded from income based on the Supreme Court's judgment in UCO Bank v. CIT. The CIT(A) directed the AO to verify whether the interest was on NPAs and decide accordingly. The Tribunal found no infirmity in this direction and upheld the CIT(A)'s order. Conclusion: The Tribunal upheld the CIT(A)'s deletion of the addition under Section 68, disallowed the deduction under Section 80P(2)(a)(i) for the relevant assessment years, directed reconsideration of the disallowance under Section 40(a)(ia), and confirmed the CIT(A)'s direction for verification of interest on NPAs. The appeals were partly allowed or dismissed accordingly.
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