2015 (7) TMI 472 - AT - Income Tax

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 assessee supports the CIT (A) s order. It also submits section 68 does not apply since the impugned transactions have not taken place in the relevant previous year. We are of the opinion that once the assessee has been able to prove the 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. - 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 position. We observe in these facts that the impugned disallowance amounts to double deduction of TDS as per a coordinate Bench decision reported as the Karnavati Coop. Bank Ltd. vs. DCIT. 2011 (11) TMI 367 - ITAT AHMEDABAD . The Revenue does not highlight any distinction on facts or law therein. We affirm the CIT (A) s findings under challenge. - Decided against revenue. Disallowance of capital expenditure - Held that - The assessee is a tenant in a rented premises. It incurred the impugned 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 impugned sums in carrying out necessary repair and maintenance 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. 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 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.- Decided against revenue. Addition on account of interest accrued on NPA - CIT(A)deleted addition - Held that - The CIT (A) has given a finding 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 - KERALA High Court holds that an important test in such a case is as to whether the penalty for non compliance entails compensatory or penal consequences. And also that if any criminal liability or prosecution is provided, a levy is penal in nature. Section 46 r.w.s. 47A(1)(b) of the Banking Regulation law does not stipulate any such criminal liability. We follow the aforestated case law in these facts and direct the assessing authority to allow the assessee s claim of ₹ 5 lacs as revenue expenditure. - Decided in favour of assessee.

Summary

Issues Involved:

1. Addition of Rs. 45 lacs as unexplained cash deposits under Section 68.
2. Disallowance under Section 40(a)(ia) for reimbursement of clearing house charges and service tax.
3. Disallowance of capital expenditure of Rs. 5,80,000/-.
4. Disallowance of Rs. 90,000/- for petrol, telephone, and consultancy allowances.
5. Addition of Rs. 5,03,380/- for interest accrued on NPA.
6. Disallowance of RBI penalty of Rs. 5 lacs as business expenditure.

Detailed Analysis:

1. Addition of Rs. 45 lacs as unexplained cash deposits under Section 68:

The Revenue's appeal sought to restore the addition of Rs. 45 lacs as unexplained cash deposits under Section 68. The assessee had opened 250 FDR accounts of Rs. 18,000 each, and the Reserve Bank of India had imposed a penalty of Rs. 5 lacs for violation of KYC norms. The Assessing Officer treated these FDRs as unexplained cash deposits. However, the CIT (A) deleted the addition, noting that the source of the deposits was explained as being transferred from the account of Radhe Finance, which had received funds from Nilkanth Enterprise. The Tribunal affirmed the CIT (A)'s findings, concluding that the source of the deposits was satisfactorily explained, and therefore, the addition under Section 68 could not be sustained.

2. Disallowance under Section 40(a)(ia) for reimbursement of clearing house charges and service tax:

The Revenue challenged the deletion of disallowance of Rs. 1,94,473/- for clearing house charges and Rs. 56,556/- for service tax. The CIT (A) accepted the assessee's argument that these were reimbursements to Ahmedabad District Co-op. Bank, which had already deducted TDS on the payments. The Tribunal upheld the CIT (A)'s decision, noting that further TDS deduction on the same amount would result in double deduction.

3. Disallowance of capital expenditure of Rs. 5,80,000/-:

The Revenue's third ground involved the restriction of disallowance of capital expenditure from Rs. 5,80,000/- to Rs. 4,15,000/-, while the assessee sought to delete the remaining disallowance. The CIT (A) had partly accepted the assessee's claim, treating Rs. 1,65,000/- as revenue expenditure and the remaining Rs. 4,15,000/- as capital expenditure. The Tribunal found that the expenses were for necessary repairs and maintenance without creating any new structure or increasing the capacity of the existing structure. Thus, the entire expenditure of Rs. 5,80,000/- was allowed as revenue expenditure.

4. Disallowance of Rs. 90,000/- for petrol, telephone, and consultancy allowances:

The Revenue contested the deletion of disallowance of Rs. 90,000/- paid to Shri Kanubhai B. Kothia under Section 40A(2)(b). The CIT (A) noted that these allowances had been consistently reimbursed in past years and were for services rendered. The Tribunal upheld the CIT (A)'s decision, emphasizing consistency and the absence of any excessive or unreasonable payment.

5. Addition of Rs. 5,03,380/- for interest accrued on NPA:

The Revenue sought to restore the addition of Rs. 5,03,380/- for interest accrued on NPA accounts. The CIT (A) found that the interest income had already been included in the assessee's P&L account. The Tribunal affirmed this finding, noting that the Revenue failed to dispute the inclusion of the interest income.

6. Disallowance of RBI penalty of Rs. 5 lacs as business expenditure:

The assessee's cross objection challenged the disallowance of the RBI penalty of Rs. 5 lacs as business expenditure. The CIT (A) and the Assessing Officer had treated the penalty as non-deductible being penal in nature. However, the Tribunal referred to the Kerala High Court's decision in CIT v/s. Catholic Syrian Bank, which distinguished between compensatory and penal consequences. Since the penalty under Section 47A(1)(b) of the Banking Regulation Act did not entail criminal liability, the Tribunal directed the assessing authority to allow the penalty as revenue expenditure.

Conclusion:

The Revenue's appeal was dismissed, and the assessee's cross objection was allowed. The Tribunal upheld the CIT (A)'s decisions on all issues, affirming the explanations provided by the assessee and rejecting the Revenue's grounds for appeal.