The Salem District Central Co-op. Bank Ltd., Salem V. DCIT, Salem

ITA 1168/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4356 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 29-04-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: T VASUDEVAN
• Keywords: Audit objection; Bad and doubtful debts; Difference of opinion; Change of opinion
• Section: 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , !.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.1168/MDS/2016 * * /ASSESSMENT YEAR: 2008-09 M/S.THE SALEM DT. CENTRAL CO.OP. BANK LTD., NO.65-A, CHERRY ROAD, SALEM-636 001. VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-1, SALEM. [PAN: AA FFT 4136 K ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.T.VASUDEVAN, ADV. ./- 0 /RESPONDENT BY : MR.PATHLAVATH PEERYA, CIT 0 /DATE OF HEARING : 10.04.2017 0 /DATE OF PRONOUNCEMENT : 07.06.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 17.03.2016 OF COMMISSIONER OF INCOME TAX (APPEALS), SALEM, IN ITA NO. 11/2014-15 FOR THE AY 2008-09. ITA NO.1168/MDS/2016 :- 2 -: 2.0 GROUND NOS.1 TO 5 ARE RELATED TO THE RE-OPENING OF ASSESSMENT U/S.147 OF IT ACT. THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTA L INCOME OF RS.NIL ON 30.09.2008 AND SUBSEQUENTLY REVISED THE RETURN O F INCOME WAS FILED AND ADMITTING THE TOTAL INCOME OF RS.7,81,94,570/- ON 31.03.2010. THE ASSESSMENT WAS COMPLETED ACCEPTING THE REVISED RETU RN OF INCOME ON 28.12.2010. SUBSEQUENTLY, THE ASSESSMENT WAS RE-OPE NED U/S.147 THE ACT TO EXAMINE THE CLAIM OF DEDUCTION U/S.36(I)(VII)(A) . THE AO RE-OPENED THE ASSESSMENT AS PER THE REASONS RECORDED IN PAGE NO.2 OF THE ASSESSMENT ORDER AS UNDER: IT WAS OBSERVED FROM PROFIT AND LOSS ACCOUNT FOR TH E YEAR ENDED 31.03.2008 RELEVANT TO A.Y.2008-09 THAT PROVISION FOR BAD DEBTS WAS MADE I N THE PROFIT AND LOSS ACCOUNT TO THE EXTENT OF RS.8,74,58,800/- AS NPA PROVISIONS. HOWEV ER, DEDUCTION U/S.36(I)(VII)(A) WAS CLAIMED AND ALLOWED AS FOLLOWS: 7.5% ON RS.27,31,17,971/- RS. 2,04,83,998 10% OF RURAL BRANCH ADVANCE RS.17,44,41,400 TOTAL CLAIM ALLOWED RS.19,49,35,398 THE ABOVE CLAIM OF RS.19,49,25,398/- FOR A.Y.2008-0 9 SHOULD HAVE BEEN RESTRICTED TO THE EXTENT OF PROVISIONS MADE IN THE PROFIT AND LOSS AC COUNT U/S.36(I)(VII)(A) FOR A.Y.2008-09. IT WAS SEEN FROM DETAILS OF AGGREGATE AVERAGE ADVAN CE IN RESPECT OF RURAL & BRANCHES FILED BY ASSESSEE THAT A SUM OF RS.1,59,15,76,966/- WAS S HOWN AS AGGREGTE AVERAGE ADVANCE 10% OF AGGREGATE AVERAGE U/S.36(I)(VII)(A) WAS WORKED O UT BY ASSESSEE AT RS.I5,91,57,697/- WHEREAS IN THE COMPUTATION OF INC OME A SUM OF RS.17,44,41,400/- WAS CLAIMED AND WAS ALLOWED. THIS RESULTED IN EXCESS ALLOWANCE OF DEDUCTION IN R ESPECT OF RURAL BRANCH U/S.36(I)(VII)(A) BY RS.1,52,83,703/- FOR A.Y.2008-09. 3.0 AGGRIEVED BY THE ORDER OF THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) UPHELD T HE ISSUE OF NOTICE U/S.148 PLACING RELIANCE ON THE HONBLE SUPREME COU RT JUDGMENT IN THE CASE OF CIT V. RAMAN & CO., 67 ITR 11. ITA NO.1168/MDS/2016 :- 3 -: 4.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSES SEE FILED APPEAL BEFORE THIS TRIBUNAL. APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT THE ASSESSMENT IS RE-OPENED TO EXAMINE DEDUCTION U/S.36(1)(VIIA) WHIC H WAS ALREADY CONSIDERED BY THE AO IN ORIGINAL ASSESSMENT. THE L D.DR FURTHER SUBMITTED THAT RE-OPENING WAS MADE CONSEQUENT TO AUDIT OBJECT ION. THE AO HAS CONSIDERED THE ISSUE IN THE ORIGINAL ASSESSMENT MAD E U/S.143(3) DATED 28.12.2010 AND GIVE A CATEGORICAL FINDING WITH REGA RD TO THE DEDUCTION U/S.36(1)(VIIA). THE AO CANNOT RE-OPEN THE ASSESSM ENT ON THE SAME REASON WHICH WAS ALREADY CONSIDERED BY HIM IN THE A SSESSMENT ORDER ORIGINALLY PASSED. THE ISSUE WITH REGARD TO THE PRO VISIONS FOR BAD AND DOUBTFULNESS CLAIMED U/S.36(1)(VIIA) WAS EXAMINED B Y THE AO AND THE CONSEQUENT AUDIT OBJECTION WOULD AMOUNT TO INTERPR ETATION OF LAW. THE AUDIT PARTY IS BARRED FROM INTERPRETATION OF LAW AS PER THE SETTLED CASE LAWS. THEREFORE, LD. COUNSEL VEHEMENTLY OPPOSED TH AT THE ISSUE OF NOTICE U/S.148 IS MERE CHANGE OF OPINION REQUIRED TO BE QU ASHED. ON THE OTHER HAND, THE LD.DR ARGUED THAT THOUGH THE AO DISCUSSED IN THE ASSESSMENT ORDER REGARDING THE DEDUCTION U/S.36(1)(VIIA) HE HA S NOT VERIFIED THE QUANTUM OF DEDUCTION AND SIMPLY ACCEPTED THE REVISE D RETURN OF INCOME. AS PER THE PROVISIONS OF THE IT ACT, THE ASSESSEE I S ALLOWED 7 % OF THE PROFIT ON 10% AGRICULTURAL ADVANCES AS A DEDUCTION U/S.36(1)(VIIA) PROVIDED THE PROVISIONS IS MADE DURING THE PREVIOUS YEAR RELEVANT TO THE AY. THIS ASPECT OF MAKING THE NPA PROVISION DURING THE PREVIOUS YEAR WAS ITA NO.1168/MDS/2016 :- 4 -: NOT EXAMINED BY THE AO WHICH WAS BROUGHT TO THE NOT ICE OF THE AO BY THE AUDIT. THE ISSUE IS SETTLED BY THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF THE 237 ITR 13, WHEREIN THE HONBLE SUPREME COURT HELD THAT ON THE BASIS OF THE FACTUAL ERROR POINTED BY THE AUDIT PARTY IT IS PERMISSIBLE TO REOPEN THE ASSESSMENT UNDER THE LAW. ACCORDIN GLY, THE LD.DR ARGUED THAT THERE WAS NO ERROR IN THE ISSUE OF NOTICE U/S. 148 AND THE SAME SHOULD BE UPHELD. 5.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE ASSESSEE HAS FILED RETURN OF INCOME IN THE ASS ESSMENT YEAR UNDER CONSIDERATION IS 2008-09 AND THE RE-OPENING W AS MADE BY ISSUE OF NOTICE U/S.148 ON 18.03.2013 WITHIN THE FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. IN THE ASSESSMENT, THE A SSESSEE CLAIMED DEDUCTION OF RS.19,49,35,398/- AS AGAINST THE NPA P ROVISIONS MADE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR A MOUNTING TO RS.7,72,84,858/-. THIS ISSUE HAS NOT BEEN EXAMINED BY THE AO IN THE ORIGINAL ASSESSMENT MADE U/S.143(3) DATED 28.12.201 0. THE FACT REGARDING NOT MAKING THE PROVISION U/S.36(1)(VIIA) WAS BROUGHT TO THE NOTICE OF THE AO BY AUDIT PARTY OF THE INCOME TAX D EPARTMENT AND CONSEQUENT TO THE AUDIT OBJECTION, THE AO RE-OPENED THE ASSESSMENT BY ISSUE OF NOTICE U/S.148. THE ASSESSEE HAS MADE THE PROVISION FOR RS.7,72,84,858/- AND CLAIMED THE DEDUCTION OF RS.19 ,49,25,398/- WHICH IS ITA NO.1168/MDS/2016 :- 5 -: PATENTLY APPEARS TO BE INCORRECT. THIS FACTUAL POS ITION HAS NOT BEEN CONSIDERED BY THE AO AT THE TIME OF ASSESSMENT. AS RIGHTLY RELIED UPON BY THE LD.DR ON THE HONBLE SUPREME COURT JUDGMENT IN THE CASE OF 237 ITR 30 RE-OPENING OF THE CASE ON THE BASIS OF FACTUAL E RROR POINTED OUT BY THE AUDIT PARTY IS PERMISSIBLE UNDER LAW. WHAT IS BROU GHT TO THE NOTICE OF THE AO BY THE AUDIT PARTY WAS THE FACTUAL ERROR AND IT IS A FACT THAT THE ASSESSEE HAD CLAIMED THE DEDUCTION OF RS.19,49,25,3 98/- AGAINST THE PROVISIONS MADE BY UNDER NPA FOR RS.7,72,84,858/- A ND THERE WAS PRIMA FACIE CASE FOR UNDER ASSESSMENT TO THE EXTENT OF RS .11.76 CR. THEREFORE, WE DO NOT FIND ANY ERROR IN THE RE-OPENING OF ASSES SMENT AND UPHOLD THE ISSUE OF NOTICE U/S.148 BY THE AO. THE LD.CIT(A) A LSO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T V. RAMAN & CO 67 ITR 11 AND WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE GROUND OF THE APPEAL OF THE ASSESSEE ON THIS ISSUE. 6.0 GROUND NO.6-12 ARE WITH REGARD TO THE ADDITION MAD E BY THE AO U/S.36(1)(VIIA). THE AO FOUND DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2008-09, THAT THE ASSESSEE HAS CREATED NPA PROVISIONS OF RS. 7,72,84,858/- AND CLAIMED THE DEDUCTION OF RS.19,49,35,398/- IN RESPE CT OF THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS. THEREFORE, THE AO DISALLOW ED THE EXCESS CLAIM OF RS.11,76,40,540/- AND COMPLETED THE RE-ASSESSMENT. THE LD.CIT(A) ITA NO.1168/MDS/2016 :- 6 -: CONFIRMED THE ADDITION MADE BY THE AO AND HENCE THE ASSESSEE IS ON APPEAL BEFORE US. 7.0 APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT THE ASSESSEE HAS ALREADY MADE THE PROVISION IN THE EARLIER YEARS WHI CH WAS UNADJUSTED AND BROUGHT FORWARD IN THE BOOKS. THE ASSESSEE NEED N OT CREATE PROVISION YEAR AFTER YEAR. THE INTENTION OF THE LEGISLATURE WAS TO ALLOW THE DEDUCTION FROM THE PROVISIONS CREATED DURING THE YE AR AND ACCUMULATED PROVISIONS REMAINED UNADJUSTED AND THERE IS NO NEED TO CREATE THE PROVISION EVERY YEAR TO CLAIM THE DEDUCTION U/S.36( 1)(VIIA). THE LD.COUNSEL CONTENDED THAT SINCE THE ASSESSEE HAS CL AIMED THE DEDUCTION U/S.36(1)(VIIA) FROM THE EXISTING NPA PROVISIONS WH ICH WAS BROUGHT FORWARD, THERE IS NO CASE FOR MAKING ANY ADDITION B Y THE AO. ON THE OTHER HAND, THE LD.DR ARGUED THAT IN THE INCOME TAX PROCE EDINGS OF EACH YEAR ARE INDEPENDENT AND THE INCOME HAS TO BE COMPUTED I N ACCORDANCE WITH THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE F OR EVERY YEAR INDEPENDENTLY. THE BROUGHT FORWARD AND SPILL OVER P ROVISIONS CANNOT BE CONSIDERED FOR COMPUTING THE INCOME OF THE YEAR UND ER CONSIDERATION UNLESS AND OTHERWISE PROVIDED IN THE INCOME TAX ACT . EVEN IN SEC.36(1)(VIIA), THE WORDS USED IS IN RESPECT OF AN Y PROVISION FOR BAD AND DOUBTFULNESS DEBTS MADE BY THE ASSESSEE WHICH INDIC ATES THAT THE PROVISIONS SHOULD BE MADE IN THE YEAR UNDER CONSIDE RATION. THE LD.DR FURTHER STATED THAT BOTH THE AO AND THE LD.CIT(A) R ELIED ON THE DECISION OF PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATAIALA V. ITA NO.1168/MDS/2016 :- 7 -: CIT 272 ITR 54 WHICH IS CORRECT RELIANCE AND ARGUED THAT SINCE THE DISALLOWANCE WAS MADE CORRECTLY, NO INTERFERENCE IS CALLED FOR IN THE LOWER AUTHORITIES ORDERS. ON THE OTHER HAND, IN THE REJO INDER, THE LD.COUNSEL ARGUED THAT THE PLACING RELIANCE BY THE LD.CIT(A) A S WELL AS AO IN PUNJAB AND HARYANA HIGH COURT DECISION IS ON DIFFERENT FAC TS WHICH IS DISTINGUISHABLE. 7.1 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE ASSESSEE HAS DEBITED A SUM OF RS.7,72,84,858/- UNDER THE HEAD NPA DURING THE PREVIOUS YEAR RELEVANT TO THE AY 200 8-09 AND CLAIMED THE DEDUCTION U/S.36(I)(VII)(A) FOR AN AMOUNT OF RS.19, 49,25,398/-. THE LD.COUNSEL ARGUED THAT THE ASSESSEE HAS ALREADY CRE ATED THE PROVISION FOR NPA IN THE EARLIER YEARS WHICH REMAINED UNADJUSTED. THEREFORE, THERE IS NO NEED TO CREATE ANY FRESH PROVISION DURING THE PR EVIOUS YEAR RELEVANT TO THE AY 2008-09. 8.0 IN INCOME TAX, EACH YEAR IS AN INDEPENDENT AND THE INCOME HAS TO BE COMPUTED AS PER THE SYSTEM OF ACCOUNTING REGULAR LY FOLLOWED BY THE ASSESSEE. THEREFORE, THE DEDUCTION CAN BE MADE BY T HE ASSESSEE ONLY ON THE BASIS OF THE EXPENDITURE DEBITED TO THE PROFIT & LOSS A/C FROM THE PREVIOUS YEAR RELEVANT TO THE AY UNDER CONSIDERATIO N. NO EXPENDITURE WHICH IS NOT DEBITED TO THE PROFIT & LOSS A/C IN TH E YEAR UNDER ITA NO.1168/MDS/2016 :- 8 -: CONSIDERATION IS PERMISSIBLE FOR DEDUCTION. IN TH E INSTANT CASE, THE ASSESSEE HAS NOT DEBITED THE EXPENDITURE RELATING T O THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS. THEREFORE, THE DEDUCTION U/S.3 6(1)(VIIA) IS PERMISSIBLE TO THE EXTENT OF THE AMOUNT DEBITED TO THE PROFIT & LOSS A/C OR AS PER THE PERMISSIBLE LIMITS SPECIFIED U/S.36(1)(V IIA) WHICHEVER IS LESS. THE CONTENTION OF THE ASSESSEE THAT THE RESERVES AL READY CREATED IN THE EARLIER YEARS IS AVAILABLE IN THE BOOKS OF ACCOUNT S WHICH REMAINED UNADJUSTED IS NOT AN ACCEPTABLE PROPOSITION AND NOT AS PER THE INCOME TAX ACT. THIS VIEW IS CLARIFIED BY THE CBDT IN CIR CULAR NO.17/2008 WHICH WAS RELIED UPON BY THE LD.CIT(A) IN PARA NO.4.2 WHI CH IS RE-PRODUCED HEREUNDER: 4.2. THE ASSESSING OFFICER HAS RESTRICTED THE CLAIM OF THE ASSESSEE BANK TO THE AMOUNT OF PROVISION MADE FOR THE RELEVANT ASSESSMENT YEAR. TH IS RESTRICTION SHOULD BE CONSIDERED IN LIGHT OF THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE IT ACT READ WITH THE CBDT INSTRUCTION NO.17/2008 DATED 26.11.2006. IN THIS INSTRUCTION IT IS CLEARLY STATE D AS FOLLOWS: QUOTE: (B) THE DEDUCTION FOR PROVISION FOR BAD AND DOUBTFUL DEBTS SHOULD BE RESTRICTED TO THE AMOUNT OF SUCH PROVISION ACTUALLY, CREATED IN THE B OOKS OF THE ASSESSEE IN THE RELEVANT YEAR OR THE AMOUNT CALCULATED AS PER PROVISIONS OF SECTI ON 36(1)(VIIA), WHICHEVER IS LESS. UNQUOTE. 9.0 THE CIRCULAR IS VERY CLEAR THAT THE DEDUCTION IS P ERMISSIBLE ONLY TO THE EXTENT OF PROVISIONS ACTUALLY CREATED IN THE BO OKS OF ACCOUNTS FOR THE RELEVANT ASSESSMENT YEAR. THIS VIEW IS SUPPORTED B Y THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT CITED SUPRA. T HEREFORE, WE DO NOT ITA NO.1168/MDS/2016 :- 9 -: FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) AN D THE SAME IS ALLOWED. GROUND NOS.6 12 OF THE ASSESSEE ARE DISMISSED. 10.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH JUNE, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 7 TH JUNE, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF