Bharat Overseas Bank Ltd., CHENNAI V. CIT-I (i/c), CHENNAI

ITA 1191/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64131 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 30-05-2012
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SHUKLA
• Keywords: Bad and doubtful debts
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 1191/MDS/2012 (ASSESSMENT YEAR : 2007-08) M/S BHARAT OVERSEAS BANK LTD. (NOW MERGED WITH INDIAN OVERSEAS BANK), INDIAN OVERSEAS BANK, ACCOUNTS DEPARTMENT, 762, ANNA SALAI, CHENNAI - 600 002. PAN : AAACB1374M (APPELLANT) V. THE COMMISSIONER OF INCOME TAX, CHENNAI-I, CHENNAI - 600 034. (RESPONDENT) APPELLANT BY : SHRI C. NARESH, CA RESPONDENT BY : SMT. ANUPAMA SHUKLA, CIT DATE OF HEARING : 28.08.2012 DATE OF PRONOUNCEMENT : 28.08.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, IT ASSAILS AN ORDER DATED 28.3.2012 UNDER SECTION 263 OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') PASSED BY COMMISSIONER OF INCOME TAX, CHENNAI-I, CH ENNAI, FOR THE IMPUGNED ASSESSMENT YEAR. AS PER THE ASSESSEE, SEC TION 36(1)(VIIA) 2 I.T.A. NO. 1191/MDS/12 ALLOWED DEDUCTION OF ANY AMOUNT CHARGED AS PROVISI ON FOR BAD AND DOUBTFUL DEBTS, ONCE SUCH PROVISION WAS MADE IN CO MPLIANCE WITH THE REGULATIONS OF REGULATORY AUTHORITY. AS PER THE AS SESSEE, IF THE PROVISION MADE TOWARDS STANDARD ASSETS WERE ALSO CONSIDERED, THE TOTAL PROVISIONS FOR BAD AND DOUBTFUL DEBTS MADE EXCEEDED THE PERCENTAGE MENTIONED IN SECTION 36(1)(VIIA) OF THE ACT AND THE REFORE, CIT ERRED IN COMING TO A CONCLUSION THAT THE ORDER OF ASSESSING OFFICER WAS ERRONEOUS INSOFAR AS IT WAS PREJUDICIAL TO THE INTE RESTS OF REVENUE. 2. FACTS APROPOS ARE THAT ASSESSEE, A PUBLIC SECTOR BANK, HAD FILED ITS RETURN FOR IMPUGNED ASSESSMENT YEAR DECLARING INCOM E OF ` 51,28,68,844/-. WHILE COMPLETING ASSESSMENT UNDER SECTION 143(3) OF THE ACT, ASSESSING OFFICER ALLOWED DEDUCTION UNDER SECTION 36(1)(VIIA) AT 7.5% OF GROSS TOTAL INCOME AND A FURTHER SUM OF 10% OF RURAL ADVANCES. THIS ASSESSMENT WAS LATER REVISED TO GIVE EFFECT TO THE ORDER OF CIT(APPEALS) ON ASSESSEES APPEAL, WHICH RESULTED I N GROSS TOTAL INCOME COMING DOWN TO ` 26,91,50,893/-. DEDUCTION ALLOWED UNDER SECTION 36(1)(VIIA) ALSO PROPORTIONATELY WENT DOWN. THEREA FTER, CIT INITIATED PROCEEDINGS UNDER SECTION 263 OF THE ACT, FOR ACCOR DING TO HIM, THE ACTUAL PROVISION FOR BAD AND DOUBTFUL DEBTS AS PER BOOKS WERE ONLY ` 4,01,44,027/-, AND A HIGHER CLAIM WAS ALLOWED UNDER SECTION 36(1)(VIIA) OF THE ACT. ASSESSEE HAD MADE PROVISION OF ` 2,23,00,000/- FOR STANDARD 3 I.T.A. NO. 1191/MDS/12 ASSETS AND CLAIMED THIS ALSO AS PROVISION FOR BAD A ND DOUBTFUL DEBTS. AS PER THE CIT, THE PROVISION FOR STANDARD ASSETS COUL D NOT BE CONSIDERED AS PROVISION FOR BAD AND DOUBTFUL DEBTS, WHICH COUL D BE ALLOWED UNDER SECTION 36(1)(VIIA) OF THE ACT. THUS, ACCORDING TO THE CIT, DEDUCTION OF ` 8,46,72,461- ALLOWED IN ORIGINAL ASSESSMENT UNDER S ECTION 36(1)(VIIA), WHICH WAS LATER SCALED DOWN TO ` 5,38,05,015/- IN THE ORDER SUBSEQUENT TO CIT(APPEALS) DIRECTIONS, WAS INCORRECT. ACCORDI NG TO HIM, ASSESSEE HAVING ACTUALLY MADE A PROVISION OF ` 4,01,44,027/- ONLY FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS, THE CLAIM UNDER SECTIO N 36(1)(VIIA) HAD TO BE LIMITED TO SUCH AMOUNT. ASSESSING OFFICER HAVING G IVEN A DEDUCTION OF ` 5,38,05,015/-, SUCH ORDER WAS ERRONEOUS AND PREJUDI CIAL TO THE INTERESTS OF REVENUE. 3. TO THE NOTICE ISSUED ON THE ABOVE LINES, REPLY O F THE ASSESSEE WAS THAT PROVISIONS WERE MADE BY IT IN ACCORDANCE WITH SECTION 36(1)(VIIA) OF THE ACT. AS PER THE ASSESSEE, THE ACTUAL PROVISION FOR BAD AND DOUBTFUL DEBTS CAME TO ` 6,24,44,027/-. THIS AMOUNT WAS ARRIVED AT BY AGGREGATING THE PROVISION FOR BAD AND DOUBTFUL DEBT S OF ` 4,01,44,027/- WITH PROVISION OF ` 2.23 CRORES ON STANDARD ASSETS. HENCE, ACCORDING TO IT, THE PROVISION OF ` 5,38,05,015/- ALLOWED BY THE A.O. IN THE ASSESSMEN T WAS BELOW THE AMOUNT ` 6,24,44,027/-, AND THERE WAS NEITHER ERROR IN THE ORDER OF THE ASSESSING OFFICER NOR ANY PREJUDICE CA USED TO THE REVENUE. 4 I.T.A. NO. 1191/MDS/12 RELIANCE WAS PLACED ON THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF SYNDICATE BANK V. CIT (78 ITD 103). AR GUMENT OF THE ASSESSEE WAS THAT WHEN ASSESSING OFFICER HAD TAKEN A VIEW WHICH WAS POSSIBLE IN LAW, PROVISIONS OF SECTION 263 COULD NO T BE INVOKED. IN ANY CASE, AS PER THE ASSESSEE, ANY PROVISION MADE FOR B AD AND DOUBTFUL DEBTS WAS ALLOWABLE UNDER SECTION 36(1)(VIIA) OF TH E ACT AND THE ACT DID NOT PROVIDE FOR ANY RESTRICTION BASED ON ACTUAL PRO VISION MADE IN THE BOOKS. AGAIN, AS PER THE ASSESSEE, PROVISION MADE FOR STANDARD ASSETS WAS ALSO A PROVISION FOR BAD AND DOUBTFUL DEBTS, TH OUGH THE ASSETS WERE OF STANDARD NATURE. SUCH PROVISION WAS MADE AS PER RBI STIPULATION FOR TAKING CARE OF THE RISK INVOLVED IN RECOVERY OF THE ADVANCES BASED ON THE ELEMENT OF RISK OF POSSIBLE DEFAULT EVEN IN STANDAR D ADVANCES. 4. HOWEVER, THE CIT WAS NOT IMPRESSED. ACCORDING T O HIM, THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN T HE CASE OF SYNDICATE BANK (SUPRA) STOOD OVERRULED BY THE DECISION OF HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PAT IALA V. CIT (2005) 272 ITR 54. FURTHER, ACCORDING TO HIM, PROVISION F OR STANDARD ASSETS COULD NOT BE CONSIDERED AS PROVISION FOR BAD AND DO UBTFUL DEBTS. ASSESSING OFFICER HAD ALSO NOT CONSIDERED INSTRUCTI ON NO.17/2008 DATED 26.11.2008 OF CBDT WHERE IT WAS CLEARLY SPECIFIED T HAT THE DEDUCTION ALLOWED FOR BAD AND DOUBTFUL DEBTS SHOULD BE RESTRI CTED TO THE AMOUNT 5 I.T.A. NO. 1191/MDS/12 ACTUALLY PROVIDED IN THE BOOKS FOR THE RELEVANT YEA R. AS PER THE CIT, ASSESSING OFFICER HAD FAILED TO EXAMINE THE CORRECT AND RELEVANT FACTS BEFORE ALLOWING THE CLAIM OF ASSESSEE UNDER SECTION 36(1)(VIIA) OF THE ACT AND SUCH FAILURE HAD RESULTED IN ASSESSMENT ORD ER BEING ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. HE, T HEREFORE, SET ASIDE THE ORDER OF ASSESSING OFFICER AND DIRECTED HIM TO EXAM INE ALL RELEVANT FACTS AND PASS A FRESH ORDER IN ACCORDANCE WITH LAW. 5. NOW BEFORE US, LEARNED A.R., STRONGLY ASSAILING THE ORDER OF CIT, SUBMITTED THAT PROVISION FOR STANDARD ASSETS WAS AL SO A PROVISION FOR BAD AND DOUBTFUL DEBTS, SINCE SUCH PROVISION WAS MADE I N ACCORDANCE WITH THE PRUDENTIAL NORMS OF RBI. ACCORDING TO HIM, 10% OF STANDARD ASSETS WAS MANDATORILY REQUIRED TO BE PROVIDED FOR, AND IF THIS WAS ALSO TAKEN INTO CONSIDERATION, CLAIM OF ASSESSEE UNDER SECTION 36(1)(VIIA) WAS WELL WITHIN THE PARAMETERS LAID DOWN UNDER THE SAID SECT ION. FURTHER, ACCORDING TO HIM, CIT HAD ONLY CONSIDERED THE PROVI SION MADE DURING THE YEAR, WHEREAS, THE PROVISION STANDING AT THE BEGINN ING OF THE YEAR ALONE STOOD AT 22.5 CRORES. ACCORDING TO HIM, PROVISION MADE FOR THE PREVIOUS YEAR ALONE WAS NOT RELEVANT, BUT OTHER TOTAL OF THE PROVISIONS CREATED HAD TO BE CONSIDERED WHILE APPLYING SECTION 36(1)(VIIA) OF THE ACT. ASSESSING OFFICER HAD TAKEN A LAWFUL VIEW AND THERE FORE, CIT COULD NOT SUBSTITUTE HIS VIEW WITH THAT OF ASSESSING OFFICER. THE ORDER OF A.O. WAS 6 I.T.A. NO. 1191/MDS/12 NOT AT ALL ERRONEOUS. A.O. HAD CONSIDERED THE CLAI M OF THE ASSESSEE UNDER SECTION 36(1)(VIIA) AND ACCEPTED SUCH CLAIM. THEREFORE, ACCORDING TO HIM, THE ORDER OF CIT WAS LIABLE TO BE QUASHED. 6. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDER OF CIT(APPEALS). 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE ORIGINAL CLAIM, WHICH WAS ALLOWED BY THE ASSESS ING OFFICER UNDER SECTION 36(1)(VIIA) OF THE ACT, WAS AS FOLLOWS:- 7.5% OF GROSS TOTAL INCOME : ` 5,74,07,362 10% OF RURAL ADVANCES ( ` 27,26,50,990/ - ) : ` 2,72,65,099 ` 8, 46 , 72 , 46 1 THEREAFTER, ASSESSEE HAD MOVED IN APPEAL AGAINST SO ME OF THE ADDITIONS MADE BY THE ASSESSING OFFICER ON OTHER IS SUES AND PURSUANT TO THE RELIEF GRANTED IN SUCH APPEAL, THE GROSS TOTAL INCOME WHICH EARLIER STOOD AT ` 76,54,31,493/- CAME DOWN TO ` 35,38,65,546/-. AS A RESULT OF THE REDUCTION IN GROSS TOTAL INCOME, DEDUCTION UNDE R SECTION 36(1)(VIIA) WAS ALSO SCALED DOWN FROM ` 5,74,07,362/- TO ` 2,65,39,916/-. THIS SUM WHEN AGGREGATED WITH 10% OF RURAL ADVANCES COMING T O ` 2,72,65,099/-, RESULTED IN THE SUM OF ` 5,38,05,015/- BEING EVENTUALLY ALLOWED AS DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT. IN THE BOOKS OF THE ASSESSEE, ACTUAL PROVISION FOR BAD AND DOUBTFUL DEB TS WAS ONLY ` 4,01,44,027/-. ASSESSEE HAD ALSO MADE A PROVISION OF ` 2.23 CRORES ON 7 I.T.A. NO. 1191/MDS/12 ITS STANDARD ASSETS. IF THE PROVISION FOR BAD AND DOUBTFUL DEBTS ALONE WAS CONSIDERED, THEN THE TOTAL ALLOWANCE UNDER SECT ION 36(1)(VIIA) WAS IN EXCESS OF SUCH PROVISION. HOWEVER, IF THE PROVI SION FOR STANDARD ASSETS WAS ALSO CONSIDERED AS PROVISION FOR BAD AND DOUBTFUL DEBTS, THEN THE TOTAL PROVISION COULD GO UP TO ` 6,24,44,027/-. THEN OF COURSE, ASSESSEES CLAIM AS FINALLY ALLOWED WAS WELL WITHIN THE LIMITS SPECIFIED UNDER SECTION 36(1)(VIIA) OF THE ACT. AT THIS JUNC TURE, A LOOK AT SECTION 36(1)(VIIA) IS NECESSARY AND THIS IS REPRODUCED HER EUNDER, FOR BREVITY:- 36(1)(VIIA) A SCHEDULED BANK [NOT BEING A BANK INCOR PORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON -SCHEDULED BANK [OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICU LTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK], AN AMOUNT [NOT EXCEEDING SEVEN AND ONE-HALF P ER CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING [TEN] PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. IT IS CLEAR FROM THE ABOVE THAT IT IS NOT A STANDAR D ALLOWANCE WHICH IS GIVEN, BUT, THE ALLOWANCE IS SUBJECT TO THE ACTUAL PROVISION MADE BY THE ASSESSEE, WHICH IN NO CASE SHALL EXCEED 7.5% OF THE GROSS TOTAL INCOME. THEREFORE, THE ARGUMENT OF THE ASSESSEE THAT WHATEV ER THE PROVISION IT HAD ACTUALLY MADE IN ITS BOOKS, A PROVISION OF 7.5% OF THE GROSS TOTAL INCOME HAD TO BE ALLOWED, IS NOT IN ACCORDANCE WITH LAW. NOW CONSIDERING THE SECOND ASPECT, WHETHER PROVISION FO R STANDARD ASSETS COULD BE CONSIDERED AS PROVISION FOR BAD AND DOUBTF UL DEBTS, ADMITTEDLY 8 I.T.A. NO. 1191/MDS/12 A PROVISION ON STANDARD ASSETS IS NOT AGAINST ANY D EBTS WHICH HAD BECOME DOUBTFUL. STANDARD ASSETS ARE ALWAYS CONSID ERED RECOVERABLE, IN THE SENSE, BANK HAS NO DOUBT OF RECOVERABILITY. WHEN THE BANK ITSELF HAS TREATED SUCH ASSETS AS GOOD AND RECOVERABLE, AN Y PROVISION MADE ON SUCH ASSETS CANNOT BE CONSIDERED AS A PROVISION FOR BAD AND DOUBTFUL DEBTS. THE DEBT ITSELF BEING GOOD, A PROVISION MAD E ON GOOD DEBT CANNOT BE CONSIDERED AS A PROVISION FOR BAD AND DOU BTFUL DEBTS. MAY BE, THE RBI HAS MADE A REGULATION FOR 10% PROVISION FOR STANDARD ASSETS ALSO A PRUDENTIAL NORM. THIS CAN HOWEVER BE CONSID ERED AS A MEASURE PRESCRIBED IN ABUNDANT CAUTION, TO DEAL WITH A SITU ATION WHERE BANKS ARE NOT TO SUFFER SHOCK OF SUDDEN DELINQUENCY THAT COUL D HAPPEN IN FUTURE. THERE IS ALWAYS A POSSIBILITY THAT AN ASSET, WHICH IS FULLY RECOVERABLE, MAY NOT BE SO AT FUTURE DATE. NEVERTHELESS, POSSIB ILITY OF HAPPENING OF SUCH A CONTINGENCY CANNOT BE A SUFFICIENT REASON TO CONSIDER A PROVISION MADE ON STANDARD ASSETS ALSO AS A PROVI SION FOR BAD AND DOUBTFUL DEBTS. THEREFORE, CLAIM OF THE ASSESSEE T HAT PROVISION FOR STANDARD ASSETS ALSO HAS TO BE CONSIDERED FOR APPLY ING THE CONDITION SET OUT UNDER SECTION 36(1)(VIIA) IS NOT IN ACCORDANCE WITH LAW. IF THE PROVISION FOR STANDARD ASSETS IS NOT CONSIDERED AS PROVISION FOR BAD AND DOUBTFUL DEBTS, THE ACTUAL PROVISION FOR BAD AND DO UBTFUL DEBTS MADE BY THE ASSESSEE IN ITS BOOKS ` 4,01,44,027/- FALL MUCH BELOW THE SUM OF ` 5,38,05,015/- ALLOWED BY THE ASSESSING OFFICER. IN ANY CASE, A LOOK INTO 9 I.T.A. NO. 1191/MDS/12 THE ORIGINAL ASSESSMENT ORDER CLEARLY SHOW THAT BUT FOR THE DEDUCTION ALLOWED TO THE ASSESSEE AS CLAIMED BY IT IN ITS RET URN, THERE WAS NO DISCUSSION AS TO HOW SECTION 36(1)(VIIA) WAS APPLIE D AND WHETHER THE LIMITS WERE CORRECTED WORKED OUT. ADMITTEDLY, NO Q UESTION WAS ASKED TO THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEE DINGS ALSO WITH REGARD TO THE CLAIM MADE BY IT UNDER SECTION 36(1)( VIIA), INSOFAR AS IT CONCERNS THE QUANTUM OF SUCH CLAIM. THIS OBVIOUSLY SHOW THAT THERE WAS NO APPLICATION OF MIND BY THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT. ASSESSING OFFICER HAD NOT COME TO ANY CONCLUSION AT ALL HAVING NOT CONSIDERED THE CLAIM IN THE LIGHT OF THE CONDITIONS SET OUT IN SECTION 36(1)(VIIA) OF THE ACT. WE CANNOT SAY THAT HE HAD TAKEN A VIEW WHICH WAS IN ACCORDANCE WITH LAW. IT IS NOT A CASE WHERE THE ASSESSING OFFICER HAD ADOPTED ONE OF THE COURSES POSSIBLE IN LAW. OF COURSE, A CRYPTIC ORDER OF THE ASSESSING OFFICER BY ITSELF MA Y NOT SHOW THAT THERE WAS NO THOUGHT GIVEN BY HIM ON A CLAIM OF THE ASSES SEE. HOWEVER, HERE THERE WAS NO ENQUIRY MADE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS. THEREFORE, THE ORDER WHICH WAS SILENT ON THE CLAIM MADE BY THE ASSESSEE, AND ALLOWING SUCH CLAIM, WITHOUT A NY DISCUSSION, WILL DEFINITELY RENDER IT ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF REVENUE. AS HELD BY HON'BLE APEX COURT IN THE CASE OF MALABA R INDUSTRIAL CO. LTD. V. CIT (243 ITR 83), PREJUDICIAL TO THE INTERESTS OF THE REVENUE IS A TERM OF WIDE IMPORT AND NOT CONFINED TO LOSS OF TAX . AN ORDER WITHOUT 10 I.T.A. NO. 1191/MDS/12 APPLICATION OF MIND IS DEFINITELY PREJUDICIAL TO TH E INTERESTS OF THE REVENUE. WE ARE IN AGREEMENT WITH LD. CIT THAT THE ORDER OF ASSESSING OFFICER WAS ERRONEOUS INSOFAR AS IT WAS PREJUDICIAL TO THE INTE RESTS OF REVENUE. NO INTERFERENCE IS REQUIRED. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS D ISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON TUESDAY, T HE 28 TH OF AUGUST, 2012, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 28 TH AUGUST, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT, CHENNAI-I, CHENNAI (4) D.R. (5) GUARD FILE