ANDHRA PRADESH STATE FINANCIAL CORPORATION,HYDERABAD V. DCIT., CIRCLE1(1), HYDERABAD

ITA 1019/HYD/2024

AI Insights

The case revolves around the dispute concerning the computation of eligible profits for the deduction under section 36(1)(viii) of the Income Tax Act, 1961, by the Andhra Pradesh State Financial Corporation for the assessment year 2017-18. The Assessing Officer initially excluded certain other incomes from the computation, leading to a reduced deduction claim. The CIT(A) partially allowed the appeal by including some incomes but upheld the exclusion of others. The Tribunal, referencing previous consistent decisions and the nature of the incomes, ruled in favor of the assessee, directing the inclusion of all contested incomes in the computation of eligible profits.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 29028 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2017-2018
• Other Referred Cases: ITA No.2069/Hyd/2017
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.BALAKRISHNA
• Assessee Lawyers: E.S. RANGANATH
• Keywords: Set aside; Bad and doubtful debts; Corroborative evidences

Judgement Text

" आयकर अपीलीय अधिकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘A’ Bench, Hyderabad Before Shri Vijay Pal Rao, Vice President and Shri Manjunatha G., Accountant Member आ.अपी.सं /ITA No.1019/Hyd/2024 (निर्धारण वर्ा/Assessment Year: 2017-18) Andhra Pradesh State Financial Corporation Hyderabad [PAN : AABCA9106B] Vs. Deputy Commissioner of Income Tax Circle-1(1) Hyderabad (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri E.S.Ranganath, AR रधजस् व द्वधरध/Revenue by: Shri B.Bala Krishna, CIT-DR सुिवधई की तधरीख/Date of Hearing: 08/01/2025 घोर्णध की तधरीख/Date of Pronouncement: 24/01/2025 आदेश / ORDER PER. MANJUNATHA G., A.M: This appeal filed by the assessee is directed against the order dated 13.08.2024 of the learned Commissioner of Income Tax (Appeals) [Ld.CIT(A)], National Faceless Appeal Centre, Delhi, pertaining to A.Y.2017-18. 2. The brief facts of the case are that the assessee company filed its return of income for the A.Y.2017-18 on 31.10.2017, admitting total income of Rs.48,60,36,700/-. During the course of assessment proceedings, the Assessing Officer noticed that 2 the assessee claimed deduction u/s 36(1)(viii) of the Income tax Act, 1961 (“the Act”) for an amount of Rs.59,88,65,076/-, being 20% of profits derived from the business of providing long term finance. The Assessing Officer called upon the assessee to file its relevant computation with supporting evidences. In response, the assessee has filed computation of eligible profit derived from providing long term finance to eligible business. The Assessing Officer after considering the relevant submissions of the assessee observed that while computing eligible profit from the business of providing long-term finance, the assessee has considered other income of Rs.47,51,57,000/-, which is not eligible for the purpose of computing the deduction and therefore, excluded other income and recomputed the eligible profit of Rs.10,97,26,210 u/s 36(1)(viii) of the Act and computed 20% deduction at Rs.58,81,325/-. Since there is difference of Rs.9,29,65,230/- [Rs.9,88,46,555/- (-) Rs.58,81,325/-], the excess claim of deduction has been disallowed and added back to the total income. 3. Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A). Before the Ld.CIT(A), the assessee submitted that the Assessing Officer is erred in recomputing the deduction u/s 36(1)(viii) of the Act, by excluding other income, even though the other income like bad debts written off recovered, service charges, upfront fee / commitment charges and premium on pre mature closure of accounts is part of main business activity of providing long term finance, which is eligible for deduction u/s 36(1)(viii) of the Act. The Ld.CIT(A), after considering the relevant submissions of the assessee and also 3 taking note of details submitted by the assessee, allowed partial relief, where he has included recovery from bad debts written off of Rs.29,53,96,026/- for the purpose of computing eligible profit, however, upheld the exclusion of Rs.10,30,66,332/- being service charges, upfront fee, sale of forms and premium on premature closure of accounts, on the ground that the assessee could not bring anything on record, to prove that the said income is part of main business activity of providing long term finance to eligible business. Therefore, directed the Assessing Officer to recompute the eligible deduction u/s 36(1)(viii) by including amount of recovery from bad debts written off and excluding service charges, upfront fee and sale of forms and premium on premature closure of accounts. 4. Aggrieved by the order of the Ld.CIT(A), the assessee is now in appeal before the Tribunal. 5. The learned counsel for the assessee submitted that the Ld.CIT(A) is erred in sustaining the additions made towards disallowance of deduction claimed u/s 36(1)(viii) of the Act, by excluding other income, which is part of main business activity of the assessee. The learned counsel for the assessee referring to Schedule of other income submitted that, if we go by the nature of incomes like bad debts written off recovered, service charges, upfront fee, commitment charges and premium on pre-mature closure of accounts are incidental and part of main business activity of providing long term finance to eligible businesses. The assessee right from the beginning is following the method of computation of eligible profit by including the above incomes 4 and the same has been accepted by the department. Although the Assessing Officer has disallowed the deduction by excluding the said incomes for the A.Y.2012-13, but the Ld.CIT(A) has allowed relief to the assessee. The Revenue has challenged the finding of the Ld.CIT(A) before the Tribunal and the Tribunal dismissed the appeal filed by the Revenue and upheld the findings of the Ld.CIT(A). From the above, it is very clear that the Assessing Officer is following inconsistent approach for different assessment years, even though there is no change in the facts, in so far as computation of deduction u/s 36(1)(viii) of the Act. Therefore, he submitted that the additions made by the Assessing Officer and sustained by the Ld.CIT(A) should be deleted. 6. The Ld.CIT-DR on the other hand, supporting the order of the Ld.CIT(A), submitted that the Assessing Officer has disallowed the entire other income reported by the assessee. The Ld.CIT(A) has allowed relief on other income being recovery of bad debts written off and the Revenue has accepted the finding of the Ld.CIT(A). In so far as other incomes like sale of application forms, upfront fee / commitment charges, service charges and premium on pre mature closure of accounts reported under other income is not proved with relevant evidences that the said income is part of main business activity of providing long term finance to eligible business, which is evident from the findings of the Ld.CIT(A). Therefore, there is no error in the findings of the Ld.CIT(A) in upholding the disallowance of deduction u/s 36(1)(viii) in so far as exclusion of other income is concerned. However, if at all, the claim of the 5 assessee is correct, then the matter may be remitted back to the Assessing Officer for verification of the facts, in light of any evidences that may be filed by the assessee. 7. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. The provisions of section 36(1)(viii) deals with deduction of 20% of profit derived from eligible business of providing long term finance. As per the said provisions, in respect of any special reserve created and maintained by a specified entity, an amount not exceeding 20% of the profits derived from eligible business computed under the head ‘profits and gain of business or profession’ (before making any deduction under this clause) carried to such reserve account is allowed as deduction. In the present case, the assessee, being a State Financial Corporation is an eligible assessee and engaged in the business of providing long term finance to eligible business. In fact, the Assessing Officer and the Ld.CIT(A) never disputed the fact that the assessee is entitled for deduction u/s 36(1)(viii) of the Act. The dispute is only with regard to computation of eligible deduction. The assessee has computed the deduction u/s 36(1)(viii) of the Act by including other income, being collection from bad debts written off recovered, service charges, upfront fee / commitment charges, sale of application forms and premium on pre-mature closure of accounts and computed the eligible profit for the purpose of computing deduction u/s 36(1)(viii) of the Act. The Assessing Officer excluded the total income reported under other income on the ground that other income does not form part of main business activity of providing long term finance to 6 eligible business. The Ld.CIT(A) allowed relief in respect of income reported under the head ‘other income’ being recovery from bad debts written off account. In so far as service charges, upfront fee, sale of forms and premium on pre mature closure of accounts, the Ld.CIT(A) upheld the reasons given by the Assessing Officer for exclusion from the eligible profit on the ground that no evidence has been filed to prove that the said income is derived from the main business activity of providing long term finance to eligible business. 8. We have gone through the relevant evidences filed by the assessee, including financial statements for the year under consideration and on going through the schedule of other income, we find that the assessee has reported income from sale of application forms, service charges, upfront fee / commitment charges and premium on pre-mature closure of accounts under the head ‘other income’. Although the assessee reported the said income under other income, but going by the nature of income, there is no dispute whatsoever with regard to nature of income derived by the assessee that the said income forms part of main business activity of the assessee in providing long term finance to eligible business. Income from sale of forms is received by the assessee from eligible undertakings, who apply for loans from the assessee company. Similarly, the assessee receives service charges from all borrowers. Likewise, the assessee has received upfront fee and also received premium on pre-mature closure of accounts, wherever, the borrowers have closed their accounts before the tenure of loan accounts. Once, the borrowers accounts are eligible accounts for the purpose of provisions u/s 7 36(1)(viii) of the Act, then, in our considered view any income received from the said borrowers account, including income from sale of application forms, service charges, upfront fee and income on account of premium on pre-mature closure of accounts also partakes the nature of income derived from providing long term finance to eligible business. Therefore, we are of the considered view that the Assessing Officer / Ld.CIT(A) erred in excluding other income for the purpose of computing eligible profit in terms of section 36(1)(viii) of the Act. 9. Further, the assessee claims that it is following similar method for computing eligible profits for the purpose of section 36(1)(viii) of the Act for earlier assessment years. The assessee further claimed that the Assessing Officer has disallowed other income for earlier financial years also and the same has been challenged by the assessee before the Ld.CIT(A) and the Ld.CIT(A) allowed the claim of the assessee for the A.Y.2009-10. The Revenue has challenged the order of the Ld.CIT(A) before the Tribunal and the ITAT Hyderabad Benches in ITA No.2069/Hyd/2017 has affirmed the reasons given by the Ld.CIT(A) in allowing relief to the assessee for computing eligible profit u/s 36(1)(viii) of the Act. We find that the Ld.CIT(A) has allowed relief to the assessee in respect of disallowance of deduction claimed u/s 36(1)(vii) by including other income like service charges, sale of forms, upfront fee and premium on premature closure of accounts and the ITAT has confirmed the order passed by the Ld.CIT(A). From the above, it is very clear that the matter attained finality at the level of Tribunal for the earlier assessment years. Therefore, we are of the considered 8 view that once the issue has been decided by the Tribunal in favour of the assessee, then, unless there is change in facts for the impugned assessment years, the Ld.CIT(A) ought to have followed the decision of ITAT and allowed relief to the assessee. Since the Ld.CIT(A) has taken a different view on the issue even though there is no change in the facts for the present assessment year, in our considered view, the reasons given by the Ld.CIT(A) to sustain the additions made by the Assessing Officer towards disallowance of deduction claimed u/s 36(1)(viii) of the Act cannot be upheld. 10. In view of this matter and considering the facts and circumstances, we are of the considered view that the Ld.CIT(A) erred in upholding the reasons given by the Assessing Officer to recompute the deduction claimed u/s 36(1)(viii) of the Act towards profit derived from eligible business of providing long term finance. Thus, we set aside the order of the Ld.CIT(A) and direct the Assessing Officer to delete the additions made towards disallowance of deduction claimed u/s 36(1)(viii) of the Act. 11. In the result, appeal filed by the assessee is allowed. Order pronounced in the Open Court on 24th January, 2025. Sd/- Sd/- (VIJAY PAL RAO) VICE PRESIDENT (MANJUNATHA G.) ACCOUNTANT MEMBER Hyderabad, Dated 24th January, 2025 L.Rama, SPS 9 Copy to: S.No Addresses 1 M/s Andhra Pradesh State Financial Corporation, 5-9- 194, Chirag Ali Lane, Abids, Hyderabad 2 The DCIT, Circle-1(1),IT Towers, AC Guard, Hyderabad 3 The Pr.CIT, Hyderabad 4 The DR, ITAT Hyderabad Benches 5 Guard File By Order "