BELLAD BAGEWADI URBAN SOUHARD SAHAKARI BANK NIYAMI V. THE COMMISSIONER OF INCOME TAX(APPEALS)

ITA/100168/2015

AI Insights

The case involves Bellad Bagewadi Urban Souhard Sahakari Bank Niyamit, the appellant, challenging the decision of the Income Tax Appellate Tribunal, Panaji, which confirmed the disallowance of a deduction for provision for bad debts on standard assets amounting to Rs.15,00,000. The deduction was initially denied by the Assessing Officer and upheld by the Commissioner of Income Tax (Appeals) on the grounds that the guidelines from the Reserve Bank of India were not binding on the income tax authorities. The High Court found that the Tribunal did not consider the mandatory nature of the RBI guidelines for banks to make a general provision of a minimum of 0.25% on standard assets, leading to the remand of the case for further examination with the opportunity for the assessee to present additional supporting documents.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 755199 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 29-01-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961, Karnataka Co-operative Societies Act, 1959, Banking Regulation Act, 1949
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: Y RAVIRAJ
• Assessee Lawyers: SANGRAM KULKARNI
• Keywords: Deduction Denial; Income Tax; Provision for bad debts; RBI guidelines; Standard assets
• Section: 143(3); 260A; 36(1)(viia)

Judgement Text

"IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 29TH DAY OF JANUARY, 2018 PRESENT THE HON’BLE MRS. JUSTICE S. SUJATHA AND THE HON’BLE MR. JUSTICE JOHN MICHAEL CUNHA I.T.A.NO.100168/2015 BETWEEN: BELLAD BAGEWADI URBAN SOUHARD SAHAKARI BANK NIYAMIT BAZAR ROAD, MRITYUNJAY CIRCLE BELLAD BAGEWADI, TQ: HUKKERI DISTRICT BELAGAVI REP BY ITS SR. MANAGER SHRI SUJEET MALLIKARJUN KATTI AGE: 45 YEARS, OCC: SERVICE R/O: BELLAD BAGEWADI, HUKERI BELAGAVI ... APPELLANT (BY SRI SANGRAM S KULKARNI, ADVOCATE) AND 1. THE COMMISSIONER OF INCOME TAX (APPEALS) KHIMJIBHAI COMMERCIAL COMPLEX OPP CIVIL HOSPITAL, BELAGAVI 2. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1, BELAGAVI ... RESPONDENTS (BY SRI Y V RAVIRAJ, ADVOCATE) THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED ABOVE, ALLOW THE APPEAL IN ENTIRETY AND SET ASIDE THE ORDER DATED 13.07.2015 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, PANAJI IN ITA NO.436/PNJ/2014. THIS APPEAL COMING ON FOR FINAL HEARING THIS DAY, S.SUJATHA J., DELIVERED THE FOLLOWING: : 2 : JUDGMENT This appeal is filed by the assessee under Section 260-A of the Income Tax Act, 1961 (‘the Act’ for short), challenging the order dated 13.07.2015 passed by the Income Tax Appellate Tribunal, Panaji (‘the Tribunal’, for short) in ITA No.436/PNJ/2014 relating to the assessment year 2011-12, whereby the appeal filed by the assessee is partly allowed, however, dismissing the claim of the assessee regarding the allowance of deduction for provision of bad debts. 2. The appellant-assessee is a Co-operative Bank running a business of banking and is registered under the provisions of the Karnataka Co-operative Societies Act, 1959 and is holding licence issued by the Reserve Bank of India vide Section 22(1) r/w Section 56(O) of the Banking Regulation Act, 1949. The appellant is regulated under the provisions of the Banking Regulation Act. The Assessing Officer- respondent No.1 completed the assessment relating to the assessment year 2011-12 under Section 143(3) of : 3 : the Act on 30.01.2014 determining the taxable income at Rs.1,80,22,090/-. While completing the assessment, the Assessing Officer made additions/disallowances towards provision for standard asset of Rs.15,00,000/- and also under other heads. On challenge being made by the assessee before the Commissioner of Income (Appeals), the 1st respondent partly allowed the appeal, however, confirmed the disallowance made by the Assessing Officer relating to the provision for bad debts (standard assets). Being aggrieved by the said judgment, the appellant preferred an appeal before the Tribunal. The Tribunal has confirmed the order passed by the Assessing Officer and the Commissioner of Income Tax (Appeals). Being aggrieved by the same, the assessee is in appeal raising the following substantial question of law: “Whether in the facts and circumstances of the case and in law, the authorities were justified in denying deduction for provision of bad debts made for standard assets of Rs.15,00,000/- during the assessment year 2011-12 under Section 36(1)(viia) of the Income : 4 : Tax Act, 1961 on the ground that the assessee has failed to furnish the details of deduction?” 3. Learned counsel Sri Sangram S.Kulkarni appearing for the appellant-assessee placing reliance on master circular of Income Recognition, Asset Classification, Provisioning and other related matters- UCB of the Reserve Bank of India, submits that it is mandatory for the banks to make a general provision of a minimum of 0.25% of standard assets from the year ended March 31, 2000, in terms of the norms for provisioning on loss and advances as well as provision of standard assets. In view of the guidelines issued by the Reserve Bank of India, the appellant has made a provision of a minimum of 0.25% of standard assets amounting to Rs.15,00,000/- and claimed deduction, the same has been denied by the Commissioner of Income Tax on the ground that the guidelines prescribed by the Reserve Bank of India is not binding on the income tax authorities, since the Act being a Code by itself the computation of income under the Act : 5 : requires to be made in terms of the provisions of the Act and not based on the norms and/or the procedure laid down by Reserve Bank of India. The same has been confirmed by the Tribunal without application of mind. 4. On the other hand, learned counsel Sri Y.V.Raviraj appearing for the Revenue submits that no material was placed before the Tribunal to substantiate the claim made by the assessee for deduction of provision for bad debts on standard assets of Rs.15,00,000/- under Section 36(1)(viia) of the Act. In the absence of any material, the Tribunal was justified in dismissing the claim of the assessee. 5. We have heard the learned counsel appearing for the parties and perused the material on record. 6. It is apparent from the material placed before us that the RBI guidelines prescribes the provision on standard assets from the year ended March : 6 : 31, 2000 directing the banks to make a general provision of a minimum of 0.25% on standard assets. 7. In our opinion, the decision rendered by the Commissioner of Income Tax is unjustifiable for the reason that assessee is bound by the guidelines issued by the Reserve Bank of India. Any contrary view taken by the Income Tax Authorities would disentitle the assessee from claiming deduction under Section 36(1)(viia) of the Act. In view of non-furnishing of the material documents in support of the claim before the Tribunal, it was left with no other option except to confirm the order of the Commissioner of Income Tax (Appeals). 8. Having regard to the nature and circumstances, we deem it appropriate to remand the matter to the Tribunal setting aside the impugned order with liberty to the assessee to place on record the material documents in support of its case for deduction towards provision for bad debts made for standard : 7 : assets of Rs.15,00,000/- relating to the assessment year 2011-12. 9. Accordingly, the appeal is allowed. The impugned order is set-aside and the matter is remanded to the Tribunal for fresh consideration. All rights and contentions of the parties are kept open. The Tribunal shall pass appropriate orders after providing an opportunity of hearing to the assessee in accordance with law as expeditiously as possible. (Sd/-) JUDGE (Sd/-) JUDGE CLK "