Pusad Urban Co-Op Bank Ltd, PUSAD V. Asstt Commissioner of Income Tax, Wardha

ITA 119/NAG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3931 (ITAT-NAGPUR)
• Duration Of Justice: 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 11-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRAKASH MERE
• Assessee Lawyers: P N GANDHI
• Keywords: Bad and doubtful debts
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR E-BENCH, NAGPUR (THROUGH VIDEO CONFERENCE AT MUMBAI) BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO.18/NAG/2012 ASSESSMENT YEAR: 2007-2008 ASST. COMMISSIONER OF INCOME TAX, WARDHA CIRCLE, WARDHA. VS PUSAD URBAND CO-OP. BANK LTD. GUJRI CHOWK, PUSAD, YAVATMAL. PAN: AAATP 0864 C (APPELLANT) (RESPONDENT) I.T.A. NO.119/NAG/2012 ASSESSMENT YEAR: 2007-2008 PUSAD URBAND CO-OP. BANK LTD. TALAV LAY-OUT, PUSAD. PAN: AAATP 0864 C VS ASST. COMMISSIONER OF INCOME TAX, WARDHA CIRCLE, WARDHA. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.N. GANDHI REVENUE BY : SHRI PRAKASH MERE, JCIT DATE OF HEARING: 5.3.2013 DATE OF ORDER: 05.04.2013 O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. ONE APPEAL ITA NO.18/ NAG/2012 IS FILED BY THE REVENUE AND ITA NO.119/NAG/2012 IS FILED BY THE ASSESSEE. BOTH THE APPEALS ARE FILED AGAINST THE ORDER OF THE CIT (A)- II, NAGPUR DATED 24.10.2011. FOR THE SAKE OF CONVENIENCE, WE ARE ADJUDICATING BOTH T HE APPEALS IN THIS COMMON ORDER. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS. 2. FIRSTLY, WE SHALL TAKE UP REVENUES APPEAL ITA N O.18/NAG/2012, WHICH WAS FILED ON 30.1.2012 FOR THE ASSESSMENT YEAR 2007-08. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD CIT (A)-II, NAGPUR HAS ERRED IN GIVING PARTLY RELIEF IN DEDUCTI ON FOR BAD AND DOUBTFUL ADVANCES U/S 36(1)(VIIA) OF THE IT ACT, 1961. 2 2. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD CIT (A)-II, NAGPUR HAS ERRED IN GIVING RELIEF RS. 50,00,000/- W HICH IS CONTRARY TO THE DECISION OF THE HONBLE APEX COURT IN GOETZE (INDIA ) LTD. VS. CIT (283 ITR 323) (SC). 3. THE ONLY ISSUE THAT IS RAISED IN THE REVENUES A PPEALS RELATES TO ALLOWABILITY OF DEDUCTION ON ACCOUNT OF BAD & DOUBTFUL DEBTS U/S 36(1)(VIIA) OF THE ACT. IT IS SUBMITTED BEFORE US THAT THE ASSESSEES CLAIM IN TH IS REGARD IS FOR ALLOWING DEDUCTION ON THE AMOUNT OF RS. 74,14,783/-. BUT AGAINST THE S AME, AO ALLOWED THE SUM OF RS. 19 LACS ONLY. AO INVOKED THE PROVISIONS OF SECTION 36(1)(VIIA) AND HELD THAT THE SAID CLAUSE-(VIIA) IS APPLICABLE ONLY TILL THE AY 2004-0 5. CONSIDERING THE CONCESSION GIVEN BY THE ASSESSEE IN THE ORDER SHEET, AO PROPOSED TO MAKE ADDITION OF RS.74,14,783/-. WHEN THE ASSESSEE RELIED ON THE APPLICABILITY OF TH E APEX COURT JUDGMENT IN THE CASE OF GOETZE (INDIA) LTD VS. CIT REPORTED IN 283 ITR 3 23 (SC) IN CONNECTION WITH THE SAID CLAIM OF THE ASSESSEE FOR DEDUCTION IN RESPECT OF ADVANCES MADE TO THE RURAL BRACHES, AO DID NOT ENTERTAIN THE SAID CLAIM AND RE JECTED THE SAME. HE, HOWEVER, MENTIONED WITHOUT PREJUDICE THAT DEDUCTION CANNOT E XCEED RS. 50 LACS AS THE PROVISION ACTUALLY CREATED BY THE ASSESSEE IN THE B OOKS OF ACCOUNT. AGGRIEVED WITH THE SAME, ASSESSEE TOOK THE MATTER IN APPEAL BEFORE THE CIT (A) AND SUBMITTED THAT THE CLAIM FOR DEDUCTION SOUGHT BY THE ASSESSEE FALL S UNDER SUB-SECTION (1) OF SECTION 36 AND THE ASSESSEE IS ENTITLED TO 7.5% OF THE GROS S TOTAL INCOME OF THE ASSESSEE AND 10% OF THE RURAL ADVANCES. ACCORDINGLY, ASSESSE E IS ENTITLED FOR THE CLAIM OF DEDUCTION AMOUNT TO RS. 74,14,783/-. ASSESSEE RELI ED ON VARIOUS DECISIONS AS WELL AS THE CIRCULAR NO.14 (XL-35) DATED 11.4.1955, WHER EIN THE CBDT DIRECTED THE AO NOT TO TAKE ADVANTAGE OF IGNORANCE OF ASSESSEE AS T O HIS RIGHT. 4. ON CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSE SSEE, PARTLY ALLOWED THE GROUNDS RESTRICTING THE ALLOWANCE TO THE AMOUNT OF RS. 25 LACS FOR THE PROVISIONS CREATED IN THE BOOKS OF ACCOUNT. AGGRIEVED WITH TH E RELIEF GRANTED BY THE CIT (A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. SIMI LARLY, ON PART RELIEF GIVEN BY THE CIT (A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL VIDE GROUND NO.1 OF THE ASSESSEES APPEAL. 3 5. IN CONNECTION WITH THESE GROUNDS RAISED BY THE RE VENUE, LD COUNSEL MENTIONED THAT THE ISSUE CAN BE SENT TO THE FILES O F THE AO FOR APPLYING THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT FOR EX AMINING THE LIMITS PRESCRIBED IN THE SAID CLAUSE-(VIIA) AND ALLOW THE CLAIM OF THE ASSE SSEE. 6. ON THE OTHER HAND, LD DR MENTIONED THAT SO LONG AS THE LAW IS PROPERLY APPLIED, HE HAS NO OBJECTION FOR SUCH REMAND TO THE FILES OF THE AO. 7. WE HAVE HEARD BOTH THE PARTIES AND ALSO CONSIDER ED THE STAND OF THE PARTIES AND FIND THAT THERE IS NO DISPUTE ABOUT THE APPLICA BILITY OF THE SAID CLAUSE-(VIIA) AT THIS TIME. THE ONLY DISPUTE IS THE EXTENT OF ALLOW ABILITY WHICH WAS ALREADY PRESCRIBED IN THE PROVISIONS CITED ABOVE. THEREFORE, WE SET ASIDE THIS ISSUE TO THE FILES OF THE AO FOR FRESH ADJUDICATION WITH THE SPECIFIC DIRECTI ON THAT AO TO PROPERLY CALCULATE THE ALLOWABILITY OF DEDUCTION U/S 36(1)(VIIA) OF THE AC T TRULY IN CONFORMITY WITH THE LANGUAGE OF THE SAID SECTION. IT IS A WELL SETTLED PRINCIPLE THAT WHILE MAKING ASSESSMENT, IT IS THE DUTY OF THE AO TO GRANT ALL A LLOWABLE DEDUCTION AND DENYING ALL DISALLOWABLE CLAIMS OF THE ASSESSEE AND MAKE A JUDI CIOUS ASSESSMENT OF THE ASSESSEE. WE DIRECT ACCORDINGLY. GROUND NO.1 AND 2 RAISED IN THE REVENUES APPEAL ARE SET ASIDE . I.T.A. NO.119/NAG/2012 (AY: 2007-2008) 8. THIS APPEAL FILED BY THE ASSESSEE ON 11.4.2012 I S AGAINST THE ORDER OF CIT (A)- II, NAGPUR DATED 24.10.2011 FOR THE ASSESSMENT YEAR 2 007-2008. 9. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GRO UNDS WHICH READ AS UNDER: 1. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE , DEDUCTION U/S 36(1)(VIIA) OF THE ACT MAY KINDLY BE ALLOWED AS PER THE PROVISIONS OF THE ACT AND FULL DEDUCTION NEEDS TO BE ALLOWED. 2. BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE , ADDITION OF RS. 10,38,309/- ON ACCOUNT OF ACCRUED INTEREST OF NPA A DVANCES NEEDS TO BE DELETED. 3. INTEREST CHARGES U/S 234 B OF THE ACT BEING CONS EQUENTIAL IN NATURE NEEDS TO BE DELETED. 4 10. GROUND NO.1 RELATES TO THE ALLOWABILITY OF DEDU CTION U/S 36(1)(VIIA) AND THE SAME IS ALREADY ADJUDICATED WHILE DEALING WITH THE APPEAL OF THE REVENUE. ACCORDINGLY, EX CONSEQUENTI, GROUND NO.1 IS SET ASIDE . 11. GROUND NO.2 RELATES TO THE ADDITION OF RS. 10,3 8,309/- ON ACCOUNT OF ACCRUED INTEREST ON NPA ADVANCES . RELEVANT FACTS OF THIS ISSUE ARE THAT THE ASSESSE E WAS FOLLOWING CASH SYSTEM OF ACCOUNTING IN MATTERS OF L OANS, WHICH ARE CATEGORIZED AS NPA. IN OTHER WORDS, ASSESSEE CREDITS THE INTEREST RECEIVED TO P & L ACCOUNT, WHICH IS RELATABLE TO NPAS, WHEN THE SAID INTEREST WAS AC TUALLY RECEIVED. AO NOTICED THAT THE ASSESSEE IS NOT FOLLOWING HYBRID SYSTEM OF ACCO UNTING WHICH HAS BECOME MANDATORY BY VIRTUE OF PROVISIONS OF SECTION 145 OF THE ACT SINCE THE AY 1998-99. AO ALSO INVOKED THE PROVISIONS OF SECTION 43 AND RELIE D ON CERTAIN DECISIONS FOR TAXING THE SAID INTEREST TO THE NPAS ON ACCRUAL BASIS. TH E ADDITION ON THIS ACCOUNT WORKS OUT TO RS. 10,38,309/-. THE MATTER TRAVELLED TO TH E CIT (A). 12. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLA TE AUTHORITY, IT WAS SUBMITTED THAT THE INTEREST IN QUESTION WAS BEING ACCOUNTED B Y THE ASSESSEE ON CASH BASIS, THEREFORE, TAXING THE SAME ON ACCRUAL BASIS IS NOT CORRECT. ASSESSEE ARGUED BEFORE THE CIT (A) ABOUT THE REAL INCOME THEORY. ASSESSEE RELIED ON THE RBI GUIDELINES TO BANK TO THE EXTENT THAT THE INTEREST INCOME HAS TO BE CHARGED TO TAX ONLY IN THE YEAR OF RECEIPT IN RESPECT OF BAD AND DOUBTFUL DEBT S. ASSESSEE ATTEMPTED TO DISTINGUISH THE HONBLE SUPREME COURT JUDGMENT IN T HE CASE OF STATE BANK OF TRAVANCORE VS. CIT (158 ITR 102) STATING THAT THE S AID JUDGMENT DO NOT HOLD GOOD AFTER THE INSERTION OF SECTION 43D OF THE ACT. THE RE WAS A DISCUSSION ABOUT THE APPLICABILITY OF THE JUDGMENT OF HONBLE SUPREME CO URT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS JOINT COMMISSIONER OF INCOME-TA X (SC) REPORTED IN [2010] 320 ITR 577 AGAINST THE CLAIM OF THE ASSESSEE. IN THE P ROCESS, CIT (A) REJECTED THE ASSESSEES CLAIM THAT INTEREST DID NOT ACCRUE ON TH E NAPS. HE WAS ALSO OF THE OPINION THAT THE INTEREST HAS TO BE CHARGED TO TAX ONLY IN ACCORDANCE WITH THE PROVISIONS OF INCOME TAX ACT, NOT AS PER THE RBI GUID ELINES. FURTHER, CIT (A) IS OF THE OPINION THAT THE INCOME HAS TO BE BROUGHT TO TA X, UNLESS EXCLUDED BY ANY PROVISIONS OF THE ACT. IN THE PROCESS, HE RELIED ON THE JUDGMENT OF HONBLE SUPREME 5 COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS JOINT COMMISSIONER OF INCOME- TAX (SC) (SUPRA). 13. DURING THE E-COURT PROCEEDINGS BEFORE US, LD CO UNSEL REITERATED THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE LOWER A UTHORITIES. LD COUNSEL FURTHER MENTIONED THAT THE INTEREST UNDER CONSIDERATION REL ATES TO THE NPAS AND THE RECOVERY OF THE NPA ITSELF IS A PERIL, THEREFORE, T AXING THE INTEREST IS ONLY AN ACADEMIC EXERCISE AND AGAINST THE PRINCIPLES OF REAL INCOME THEORY. 14. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE CIT (A) AND MENTIONED THAT THE ORDERS OF THE REVENUE AUTHORITIES ARE ASSA ILED ON THE ISSUE OF TREATMENT GIVEN TO THE NPAS IN MAKING ASSESSMENTS. THE IMPUG NED ISSUE RELATED TO THE NAPS SHALL DEPEND ON THE TREATMENT OF THE NPAS IN MATTER S OF THE ASSESSMENT OF THE SAME. IT IS A SETTLED LAW THAT THE ASSESSMENT UNDE R THE INCOME TAX ACT HAS TO BE DONE AS PER THE SAID PROVISIONS OF THE ACT AND NOT BY THE GUIDELINES OF THE RBI OR RBI ACT. IT IS NOT CLEAR AS TO THE TREATMENT GIVEN T O THIS KIND OF ISSUES IN THE PAST AS THE ASSESSEE STARTED FOLLOWING CASH SYSTEM OF ACCOU NTING FROM THE AY 1997-1998. CONSISTENCY IS REQUIRED TO BE MAINTAINED, THEREFORE , WE ARE OF THE OPINION THAT THIS ISSUE SHOULD ALSO BE SET ASIDE TO THE FILES OF THE AO FOR CONSIDERING AND DECIDING THE ISSUE AFRESH AFTER TAKING INTO CONSIDERATION THE AV AILABLE LAW IN FORCE IN THIS REGARD. ACCORDINGLY, GROUND NO.2 IS SET ASIDE . 15. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF APRIL, 2013. SD/- SD/- (R.K. GUPTA) (D. KARUNAKAR A RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 05.04.2013 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 6 5. THE DR NAGPUR, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI