The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) granted relief to Karur Vysya Bank by allowing deduction under section 36(1)(viii) of the Income Tax Act, 1961 as the reserve was created out of profit for the year 2013-2014, resulting in the deletion of the addition.
The facts with regard to the impugned dispute are that, the appellant has claimed a deduction of Rs. 30, 00,00,000 under Section 36(1)(viii) of the Income Tax Act. The appellant M/s. Karur Vysya Bank Ltd, had not transferred any amount to a Special Reserve as required under that Section during the financial year 2013-14. However, it had transferred the said amount during the financial year 2014-15 from out of the general reserve
The Assessing Officer has disallowed the claim, mainly on account of the fact that the amount was not transferred to the special reserve during the financial year 2013-14. The Assessing Officer has also observed that the decision of the coordinate bench of the tribunal in the assessee’s case has not been accepted by the department. On appeal, the CIT (A) upheld the disallowance
Mr. Anandhan, CA representing the assessee submitted that this issue was squarely covered in favour of the assessee by the decision of ITAT in assessee’s own case for the assessment year 2009-10 in ITAT where the issue has been restored back to the AO to decide the issue afresh in accordance with law keeping in view of the ratio laid down by the ITAT in the case of ACIT vs Corporation Bank. He also relied on the decision of the Punjab & Haryana High Court in the case of CIT v Punjab State Industrial Development Corporation. Alternatively further, submitted that the amount transferred to Statutory and other reserves should be treated as transfer to Special Reserve.
Mr. Nilay Baran Som representing the revenue on the other hand supporting the order of the Assessing Officer and CIT (A) submitted that, in order to claim deduction under Section 36(1)(viii), it was imperative that the creation of reserve should be out of the total income of the relevant previous year for which deduction was claimed.
The bench found that the assessee had earned a profit of Rs. 429.59 Cr during the previous year 2013-14. It had transferred an amount of Rs. 157 Cr to Revenue & Other Reserves. During the Financial Year 2014-15, from out of the Revenue Reserve, the appellant transferred an amount of Rs. 30 Cr to Special Reserve. From these facts it can be seen that the assessee has transferred Rs. 30 Cr to Special Reserve from the profits of the previous year 2013-14 and therefore was eligible to claim the deduction under Section 36(1)(viii) of the Income Tax Act.
Therefore, respectfully following the decision of the coordinate bench of the ITAT in assessee’s own case, The two member bench of the tribunal comprising V. Durga Rao (Judicial member) and Manjunatha G (Accountant member) held that the assessee was entitled to the deduction under Section 36(1)(viii) as the reserve was created out of the profits for the year 2013-14 and delete the addition made by the AO. This ground of the assessee’s appeal was allowed.
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