ABHYUDAYA COOP BANK LTD,MUMBAI V. CIT (APPEALS)-1, MUMBAI

ITA 882/MUM/2024

AI Insights

The case involves Abhyudaya Coop Bank Ltd, which appealed against the order of the Principal Commissioner of Income Tax (PCIT), Mumbai-1, under section 263 of the Income Tax Act, 1961. The PCIT had issued a notice and subsequently an order claiming that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of the revenue. The issues raised by the PCIT included the excessive allowance of deductions for bad debts and depreciation on shifting of investments. The Tribunal examined whether the AO had conducted adequate inquiries and whether the deductions claimed were in accordance with the law. After a detailed examination of the submissions and relevant legal provisions, the Tribunal concluded that the PCIT's order was not sustainable and allowed the appeal of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 32928 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Other Referred Cases: Catholic Syrian Bank Ltd. Vs. CIT, Malabar Industrial Co. Ltd. Vs. CIT, Jamnadas T. Mehta Vs. ITO
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K.R. SUBHASH
• Assessee Lawyers: KESHAV BHUJLE
• Keywords: Set aside; Business income; Opportunity of being heard; Bad and doubtful debts; Depreciation; Audit objection; Revision of order
• Section: 147; 143(3); 142(1); 143(2); 263; 13; 14A; 2(A); 264

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) AND SHRI OMKARESHWAR CHIDARA (ACCOUNTANT MEMBER) I.T.A. No. 882/Mum/2024 Assessment Year: 2018-19 Abhyudaya Coop Bank Ltd Ground Floor, K.K. Tower, Abhyudaya Bank Lane, Off. Dr. Ambedkar Marg, Parel Village, Mumbai-400012 PAN: AAAAA0300L Vs. Pr. Commissioner Of Income Tax, Mumbai-1 3rd Floor, Room No. 330, Aayakar Bhavan, M.K. Road, Mumbai - 400020 (Appellant) (Respondent) Appellant by Shri. Keshav Bhujle Respondent by Dr. K.R. Subhash CIT D.R. Date of Hearing 28.01.2025 Date of Pronouncement 25.03.2025 ORDER Per: Smt. Beena Pillai, J.M.: The present appeal filed by the assessee arises out of order passed by PCIT, Mumbai-1 for assessment year 2018-19 on following grounds of appeal : “The following grounds of appeal are without prejudice to one another. 1. Notice u/s. 263 dated 02/03/2021 is illegal and invalid: 1.1 The learned Principal Commissioner of Income-tax erred in issuing the notice u/s. 263 of the Income-tax Act, 1961 dated 20/02/2023. 2 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd 1.2 The learned Principal Commissioner of Income-tax failed to appreciate that the said notice u/s. 263 dated 20/02/2023 is illegal and invalid being without authority in law and without jurisdiction. 1.3 The learned Principal Commissioner of Income-tax failed to appreciate that the assessment order dated 16/04/2021 is neither erroneous nor prejudicial to the interest of the revenue. 2. Order u/s. 263 dated 05/01/2024 is illegal and invalid. 2.1 The learned Principal Commissioner of Income-tax failed to appreciate that the notice u/s. 263 dated 20/02/2023 being illegal and invalid, the consequent order u/s. 263 dated 05/01/2024 is also illegal and invalid. 2.2 The learned Principal Commissioner of Income-tax failed to appreciate that the order u/s. 263 dated 05/01/2024 is illegal and invalid being without authority in law and without jurisdiction. 2.3 The learned Principal Commissioner of Income-tax failed to appreciate that the assessment order dated 16/04/2021 is neither erroneous nor prejudicial to the interest of the revenue. 2.4 The learned Principal Commissioner of Income-tax failed to appreciate that the two claims under consideration have been correctly allowed by the learned Assessing Officer. 3. The appellant craves leave to add, amend, alter and/or delete any of the grounds of appeal” Brief facts of the case are as under: 2. The assessee is scheduled bank engaged in banking services. It filed its return of income on 16/08/2018, declaring total income of Rs. 373,32,38,952/-. The case was selected for scrutiny and notice u/s. 143(2) and 142(1) was issued along with questioner. In response to the notice, the representative of the assessee appeared before the Ld.AO and filed requisite details through E-proceedings. The assessment order was passed accepting the returned income and making addition under section 14A of the Act in the hands of the assessee, vide order dated 16/04/2021. 2.2. Subsequently, Ld.PCIT, issued notice under section 263 of the Act. Scanned and reproduced herewith is the notice issued to the assessee: 3 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd 4 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd 5 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd 2.3 In response to the said notice, the representatives of assessee filed reply dated 23/02/2023 annexed at page 4-32 of the paper book. The assessee submitted as to why the notice u/s. 263 is not justified. The assessee explained as to why there is no error in the assessment order dated 16/04/2021 in allowing the two deductions. Assessee also filed reply dated 03/07/2023 placed at page 34-63 of the paper book. The Ld.PCIT required assessee to file the submissions afresh along with Certificate of the Chartered Accountant in respect of deduction of Rs. 8,65,35,469.23/- as per ICDS-VIII issued by CBDT. In response, the assessee vide submission dated 28/11/2023 placed at page 64-94 of the paper book along with the Certificate of the Chartered Accountant placed at page 93 of the paper book. 2.4 The Ld.PCIT, after considering the submissions passed order u/s 263 invoking the provisions of Explanation 2(a)&(c) and observing as under: “15. Though this case is not one of no enquiry, from the above findings of the Lordships of the Bombay High Court, post insertion of the Explanation 2 to Section 263 cases of inadequate enquiry by the AO would also come in the domain of revisionary proceedings u/s.263 by the Commissioner. Thus to conclude, in this case inadequate enquiry has been made and instruction no.17/2018 has not been followed. Excess allowance of deduction of Bad Debts without adequate verification specifically with reference to proviso to section 36(1)(vii) and 36(2)(v) and deduction of depreciation on shifting of investment allowed while computing business income without adequate enquiry and verification as per Board's instruction no. 17/2018 makes the order erroneous and prejudicial to the interest of Revenue. 16. Thus, it is observed that in the above highlighted issues have not been examined by the Assessing Officer at all and the assessment order has been passed without making requisite inquiries or verification which should have been made under the facts and circumstances of the case, thus rendering the assessment order erroneous and prejudicial to the interest of revenue. In view of the facts discussed above, and the 6 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd legal position discussed above, the Assessing Officer's failure in not conducting the requisite enquiries which were required to be made in this case the assessment order dated 16.04.2021, becomes erroneous in so far as it is prejudicial to the interests of the revenue. 17. Considering the facts of the case and, moreover, that both the conditions specified u/s 263 of the Act are satisfied in this case I am of the opinion that this is a fit case to invoke provisions of Explanation 2 to the section 263. Accordingly, the assessment order dated 16.04.2021 passed by the Assessing Officer u/s 143(3) r.พ.ร. 143(3A) & 143(3B) of the Act is set aside for the limited purpose, on the issue discussed above, to the file of the Assessing Officer with the directions to conduct requisite enquiries along the lines discussed above and frame the order of assessment accordingly. In the process, adequate opportunity of being heard should be accorded to the assessee to file submissions, details and to furnish their explanation. Order under section 263 of Income Tax Act, 1961 is passed accordingly.” Aggrieved, by the order of the Ld.PCIT, the assessee is in appeal before this Tribunal. 3. The Ld.AR submitted that during the assessment proceedings following notices were issued seeking details in respect of the two issues raked up by the Ld.PCIT in the proceedings initiated under section 263 of the Act. Notice u/s. 142(1) dated 19/03/2020 PaperBook 111 Pages 256 to 259 at 258 para 5. Any other amount allowable as deduction. Reply dated 26/06/2020 PaperBook II Pages 212 to 236. Para 5 Pages 215 to 223 at 223 para 5(XIII). Para 5(XIII) Deduction u/s. 36(1)(vii). Notice u/s. 142(1) dated 30/12/2020 PaperBook III Pages 260 to 264 at page 262 para 2 and 3. 2. Deduction u/s. 36(1) (viia). 3. Point No. 5(XIII) dated 26/06/2020. i.e. deduction u/s 36(1)(vii). Reply dated 12/01/2021 PaperBook II Pages 237 to 247 at pages 238 and 239. Page 238 para 2. Page 239 para 3. 7 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd 3.1 The Ld.AR submitted that, in the impugned order, the deduction allowed u/s.36(1)(vii) is reduced by Rs. 285,66,53,770.41/-, relying on the Proviso to section. He submitted that the Section 36(1)(vii) and (viia) provide for deduction in respect of bad debts. Bad debts written off in the books is allowable u/s. 36(1)(vii) to all assesses. Section 36(1)(viia) provides for deduction provision for bad & doubtful debts only to the eligible assesses. It is submitted that these are distinct and independent items of deductions and that any probable overlapping resulting in double deduction is taken care of by Proviso to section 36(1)vii). The Ld.AR submitted that the scope and limitations of Proviso to section 36(1)(vii) has been explained by the CBDT in its circulars. 3.2 The Ld.AR placed reliance on the decision of Hon’ble Supreme Court in case of Catholic Syrian Bank Ltd. Vs. CIT reported in (2012) 343 ITR 270. Hon'ble Supreme Court considered the CBDT circulars and explained the scope and limitations of Proviso to section 36(1)(vii) as under: \"The provisions of sections 36(1)(vii) and (vila) of the Income-tax Act, 1961, are distinct and independent items of deduction and operate in their respective fields. Bad debts written off, other than those for which provision is made under clause (viia), will be covered under the main part of section 36(1) (vii), while the proviso will operate in cases under clause (vila) to limit the deduction to the extent of difference between the debt or part thereof written off in the previous year and the credit balance in the provision for bad and doubtful debts account made under clause (vila). Thus, the proviso would not permit the benefit of double deduction, operating with reference to rural loans while under section 36(1)(vii). 8 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd Per S. H. KAPADIA C. J. I. (concurring): The provisions of clause (viia) of section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) are distinct and independent of the provisions of section 36(1)(vii) relating to allowance of the bad debt(s). In other words. scheduled commercial banks would continue to get the full benefit of the write off of the irrecoverable debt(s) under section 36(1) (vii) in addition to the benefit of deduction for the provision made for bad and doubtful debt(s) under section 36(1) (viia). Normally, a deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt(s). But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off. However, this may result in double allowance in the sense that in respect of the same rural advance the bank may get allowance on the basis of clause (vila) and also on the basis of actual write off under clause (vii). This situation is taken care of by the proviso to clause (vii) which limits the allowance on the basis of the actual write off to the excess, if any, of the write off over the amount standing to the credit of the account created under clause (viia). The CBDT itself has recognized the position that a bank would be entitled to both the deductions, one under clause (vii) on the basis of actual write off and another, on the basis of clause (viia) in respect of a mere provision. It would be meaningless to invoke the proviso where there is no threat of double deduction. In case of rural advances, which are covered by the provisions of clause (viia). there would be no such double deduction. The proviso limits its application to the case of a bank to which clause (viia) applies. Clause (viia) applies only to rural advances. This has been explained by circulars issued by the CBDT. Thus, the proviso is limited in its application to bad debt(s) arising out of rural advances of a bank. It follows that if the amount of bad debt(s) actually written off in the accounts of the bank represents only debt(s) arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii).\" 3.3 In respect of disallowance of Rs.8,65,35,469.23/- being depreciation on shift investment, the Ld.AR submitted that, notification No.87/2016 dated 29/09/2016 issued by CBDT as per Income Computation & Disclosure Standards (ICDS-VIII) are 9 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd applicable to the assessee and are binding on the Department from assessment year 2017-18 onwards. He submitted that, ICDS-VIII provide for computation and deduction of depreciation on shift investment. The assessee computed depreciation on shift investment of Rs.8,65,35,469.23/- and made the claim for deduction which was verified by the Ld.AO. He placed reliance on Notice dated 19/03/2020 at page 258 para 6, wherein a specific query was raised by the Ld.AO and the reply filed by the assessee in response, reply dated 26/06/2020 filed by the assessee placed at page 223-224 para 6(a). 3.4 The Ld.AR submitted that at the instance of Ld.PCIT, the assessee vide submission dated 28/11/2023, filed Certificate of the Chartered Accountant in respect of correctness of deduction of Rs.8,65,35,469.23/-, as per ICDS-VIII issued by CBDT. The Ld.AR submitted that, the Ld.PCIT referred to CBDT Instruction No.17/2008 dated 26/11/2008 in paragraph 6 of the order. He submitted that, the assessee complied with this CBDT Instruction. It was submitted that the deduction of depreciation on shift investment of Rs.8,65,35,469.23/- claimed and allowed by the Ld.AO is as per Income Computation & Disclosure Standards (ICDS-VIII) issued by CBDT Vide Notification No. 87/2016 dated 29/09/2016. The Ld.AR submitted that the Ld.AO considered both and allowed the deduction. The Ld.AR submitted that, deduction allowed as per Income Computation & Disclosure Standards (ICDS-VIII) issued by CBDT Vide Notification No. 87/2016 dated 29/09/2016 can not be denied or disallowed by referring to CBDT Instruction No. 17/2008 dated 26/11/2008. 10 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd 3.5 He thus submitted that based on above details and the decision the Ld.AO accepted assessee’s claim. The Ld.AR placed reliance on the observation of the Ld.PCIT in pare 15 of the impugned order to support his argument that 263 if bad in law as it does not satisfy the necessary ingredients envisaged under the act in the present facts of the case. 3.5 On the contrary, the Ld.DR relied on the orders passed by the Ld.PCIT. We have perused the submissions advanced by both sides in light of records placed before us. 4. The Ld.PCIT in the proceedings initiated under section 263 of the Act, raised following two issued which was allowed by the Ld.AO in the scrutiny assessment proceedings to be prejudicial in so far as erroneous in the interest of revenue: i) Proposal to reduce the deduction allowed u/s. 36(1)(vii) by Rs. 285,66,53,770.41, relying on the Proviso to section 36(1)(vii), on the ground that the credit balance available in Bad & Doubtful Debts Reserve in the Balance Sheet is Rs. 285,66,53,770.41. ii) Proposal to disallow Rs 8,65,35,469.23/- being depreciation on shift investment allowed as per Income Computation & Disclosure Standards (ICDS-VIII) issued by CBDT Vide Notification No. 87/2016 dated 29/09/2016 relying on CBDT Instruction No. 17/2008 dated 26/11/2008. At this juncture in is necessary to analyse if the Ld.AO has carried out necessary verification during the assessment proceedings. 4.1 In the present facts, the assessee's case was selected for complete scrutiny. During the Assessment proceedings the 11 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd Assessing Officer had called for various details and explanations by notice u/s. 142(1) dated 19/03/2020. 4.2 On perusal of the notices issued under section 142(1) and subsequent notices, it is noted that along with other details, Ld.AO called for explanation to support two specific claims of assessee, vide notice dated 19/03/2020 placed at page 258 para 5 and notice dated 30/12/2020 placed at page 262 para 2 & 3 of the paper book. The assessee furnished detailed note in respect of the issues sought to be verified by the Ld.AO vide reply dated 26/06/2020 placed at page 223 para 5(XIII) and reply dated 12/01/2021 placed at page 238, 239 para 2 in lieu of the notices 4.3 It is noted that, the assessee provided all the details and explanations by reply dated 26/06/2020. It is further noted that the Ld.AO further raised queries vide notice u/s 142(1) dated 30/12/2020 on these identical issued as he was not fully satisfied. The assessee filed reply dated 12/01/2021 provided the details and explanations. After considering all the details and explanations the Assessing Officer was fully satisfied with the said two claims and allowed the said claim. 4.4 In paragraph 15 of the order u/s.263, we note that, the Ld. PCIT categorically noted that the present case does not fall under the category of inadequate enquiry. Thereafter passing the impugned order u/s.263 by invoking Explanation 2(a) and (c) claiming the enquiry and verification was not adequate is not acceptable. Further in paragraph 10 and 15 of the impugned order, it is stated that, Instruction of the Board No.17/2018 12 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd dated 26/11/2018 has not been followed by the Ld.AO and that makes the assessment order erroneous and prejudicial to the interest of the Revenue for the purpose of section 263. We note that there is no CBDT instruction No. 17/2018 dated 26/11/2018 and nothing has been brought by the revenue inon record in respect of the same. The only relevant CBDT instruction is No. 17/2008 dated 26/11/2008. 4.5 It is noted that, the Ld.AO called for detailed explanation from the assessee on the two issues vide notices referred to in preceding paras, and upon satisfaction allowed the deduction by considering CBDT instruction is No. 17/2008 dated 26/11/2008 and Income Computation & Disclosure Standards (ICDS-VIII) issued by CBDT Vide Notification No.87/2016 dated 29/09/2016. Further, the Deduction allowed as per Income Computation & Disclosure Standards (ICDS-VIII) issued by CBDT Vide Notification No. 67/2016 dated 29/09/2016 cannot be denied by referring to CBDT Instruction No. 17/2008 dated 26/11/2008. 4.6 It is also noted that for the A. Y. 2017-18 similar deductions i.e. deduction u/s. 36(1)(vii) and depreciation as per ICDS-VIII were subject matters of scrutiny in the assessment proceedings u/s.143(3) and allowed in the original assessment. Copy of the assessment order is placed at page 209 of the paper book. The assessment was been reopened on a similar ground. In the show cause notice dated 11/10/2024 it has been clarified that the case was reopened u/s. 147 in view of audit objection. Admittedly, the assessment order does not specify the enquiries conducted by the Ld.AO however, multiple notices were issued by the Ld.AO to 13 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd enquire about both issues that is the subject matter of consideration in the 263 proceeding. Further from the details filed by the assessee in response, it is clear that the computation of the claim has been properly looked into by the Ld.AO. Therefore this cannot be treated to be a case of no enquiry or inadequate enquiry. 4.7 We now refer to the decision of Malabar Industrial Co. Ltd. Vs. CIT reported in (2000) 243 ITR 83 Hon’ble Supreme Court inter alia laid down that, the prerequisite for the exercise of jurisdiction by the CIT under section 263 is that, the order of the AO must be erroneous in so far as it is prejudicial to the interests of Revenue. The PCIT has to be satisfied of twin conditions, namely : (a) The order of the AO sought to be revised is erroneous, and (b) It is prejudicial to the interests of the Revenue. 4.8 If one of them is absent i.e; if the order of the AO is erroneous, but is not prejudicial to the revenue or if it is not erroneous, but is prejudicial to the interest of the revenue, recourse cannot be had to section 263(1) of the Act. It was further held that, the provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by the AO. 4.9. Further, in case of Jamnadas T. Mehta Vs. ITO reported in (2002) 257 ITR (AT) 90 (Pune) (TM), it was held that, the ambit of interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money to the treasury. The section is not enacted to get a sheer escapement of revenue which is taken care of in other provisions of the Act. 14 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd Prejudice that is contemplated under section 263 is the prejudice to the income-tax administration as a whole. Section 263 is to be invoked not as a jurisdictional corrective or as a review of a subordinate’s order in exercise of the supervisory power, but it is to be invoked and employed only for setting right distortions and prejudices to the revenue, which is a unique conception, which is to be understood in the context of and in the interests of the revenue administration. 4.10 We do not find any merit in the present proceedings initiated against the order u/s.143(3) on an issue that falls outside the scope of reasons recorded. We therefore of the opinion that the notice issued u/s. 263 dated 18.03.2024 is void- ab-initio as a consequence of which the order passed u/s. 263 dated 29.03.2024 has to be declared to be bad in law. Accordingly, the grounds raised by the assessee stands allowed. In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 25/03/2025 Sd/- Sd/- (OMKARESHWAR CHIDARA) (BEENA PILLAI) Accountant Member Judicial Member Mumbai: Dated: 25/03/2025 Poonam Mirashi, Stenographer Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. 15 ITA No.882/Mum/2024; A.Y. 2018-19 Abhyudaya Coop Bank Ltd True Copy By order (Asstt. Registrar) ITAT, Mumbai "