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2023 (3) TMI 852 - AT - Income TaxReopening of assessment proceedings by issuance of notice u/s 148 - reasons to believe - treating the status as A.O.P. - HELD THAT - As return of the assessee was processed u/s 143(1), there was specific information of amalgamation of erstwhile five Rural Banks with the assessee bank. Proper reasons were recorded before selecting the case for scrutiny. Based on this specific information, reopening was initiated which, in our view is valid. CIT(A) has rightly held the re-assessment proceedings as valid. Hence, no interference is called for. Accordingly, Ground Nos. 1, 2 3, raised by the assessee are dismissed. Status as AOP - Whether AO was wrong in treating the status as A.O.P.? - HELD THAT - We fail to find no merit in this ground because in the assessment order also the ld. AO has mentioned the status as Regional Rural Bank and since no other submissions were made on this ground before us, we fail to find any merit in this ground raised by the assessee and the same is accordingly dismissed. Disallowance of carry forward loss/set off of brought forward losses - whether the assessee is eligible to claim brought forward/set off of the accumulated losses of the five rural banks? - HELD THAT - Case of the assessee falls u/s 72AA of the Act since it is a banking company doing the business of banking and the amalgamation of the five rural banks has been brought into force under the directions of Central Government vide the notification and since the quantum of loss is not in dispute and also the assessee company having filed the return before the due date prescribed u/s 139(1) AO erred in not allowing the claim of accumulated brought forward loss of the five rural banks which were merged with the assessee bank during the Financial Year 2006-07 and, therefore, the assessee has rightly claimed the set off of brought forward losses to in the income tax return furnished for Assessment Year 2007-08. Accordingly, Ground No. 5, raised by the assessee is allowed. Disallowance of provision for fraud - HELD THAT - AO without mentioning any reason and doubting the type of expenditure has observed that out of total expenditure for the year 1/5th is to be disallowed - This finding of the AO has been affirmed by the ld. CIT(A), which we fail to find merit since the same is merely an ad hoc disallowance without giving any reason for the said disallowance and ignoring the fact that this is a regular feature of the assessee bank to make provision for fraud and the actual expenditure incurred are cleared from the balance appearing in the account of provision for fraud. Thus, this finding of the ld. CIT(A) is set aside and the ground raised by the assessee is allowed. Accordingly, Ground No. 6 is allowed. Disallowance on payment of gratuity - Both the lower authorities have denied the claim stating that the assessee has not made any payment - HELD THAT - No merit in this finding since the payment of gratuity is an ascertained liability and it has been held time and again and also clarified that the Central Board of Direct Taxes (CBDT) that provisions for payment of gratuity that has become payable during the previous year is allowable. Our view is further fortified by the decision of this Tribunal in the case of DCIT, CIR-I, KOLKATA, Kolkata v. M/s Reliance Jute Mills International Ltd 2017 (3) TMI 1914 - ITAT KOLKATA - Accordingly, Ground No. 7 raised by the assessee is allowed. Disallowance of expenditure for provision of contingencies - HELD THAT - This being an adhoc disallowance and ignoring the fact that banking companies are required to make provisions for true and fair financials of the bank, ought to be allowed as an expenditure. Hence, we set aside the findings of the ld. CIT(A) on this issue and allow this ground. Accordingly, Ground No.8 of the assessee is allowed. Disallowance of expenditure treated as penalty in nature - HELD THAT - We, however, for lack of information about the nature of penalty and whether it does not fall under explanation (1) to Section 37 of the Act, confirm the disallowance and dismiss the ground raised by the assessee. Accordingly, Ground No. 9 raised by the assessee is dismissed.
Issues Involved:
1. Validity of reopening assessment proceedings. 2. Treatment of the assessee's status. 3. Disallowance of carry forward loss/set off of brought forward losses. 4. Disallowance of provision for fraud. 5. Disallowance of provision for gratuity. 6. Disallowance of provision for contingencies. 7. Disallowance of expenses treated as penalty. Summary: 1. Validity of Reopening Assessment Proceedings: The Tribunal upheld the reopening of assessment proceedings under section 148 of the Income Tax Act, 1961, based on specific information about the amalgamation of five banks with the assessee bank. The Tribunal found that proper reasons were recorded before selecting the case for scrutiny, and thus, the reassessment proceedings were valid. Accordingly, the grounds challenging the reopening were dismissed. 2. Treatment of the Assessee's Status: The Tribunal dismissed the ground challenging the treatment of the assessee's status as an Association of Persons (A.O.P.), noting that the assessment order mentioned the status as a Regional Rural Bank, and no further submissions were made on this ground. 3. Disallowance of Carry Forward Loss/Set Off of Brought Forward Losses: The Tribunal allowed the assessee's claim for the set off of brought forward losses amounting to Rs.352,68,36,000/- for AY 2007-08 and Rs.205,51,01,000/- for AY 2008-09. It held that the case of the assessee falls under section 72AA of the Act, as the amalgamation of the five rural banks was brought into force under the directions of the Central Government, and the quantum of loss was not in dispute. 4. Disallowance of Provision for Fraud: The Tribunal found the disallowance of provision for fraud to be ad hoc and without merit. It noted that the provision for fraud is a regular feature for the assessee bank, and actual expenditures are cleared from this provision. Thus, the disallowance was deleted for both AY 2007-08 and AY 2008-09. 5. Disallowance of Provision for Gratuity: The Tribunal allowed the provision for gratuity of Rs.99,00,000/- for AY 2007-08, stating that it is an ascertained liability and allowable as per the Central Board of Direct Taxes (CBDT) guidelines and relevant case law. 6. Disallowance of Provision for Contingencies: The Tribunal set aside the disallowance of Rs.6,000/- for AY 2007-08 and Rs.4,000/- for AY 2008-09, noting that such provisions are required for true and fair financials of the bank and should be allowed as an expenditure. 7. Disallowance of Expenses Treated as Penalty: The Tribunal confirmed the disallowance of Rs.5,000/- for AY 2007-08 and Rs.49,000/- for AY 2008-09, due to the lack of information about the nature of the penalty and whether it falls under explanation (1) to Section 37 of the Act. Conclusion: The appeals for both assessment years were partly allowed, with the Tribunal granting relief on several grounds while upholding the disallowances on others.
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