The Vellore District Central Co-op Bank Ltd., CHENNAI V. ACIT, Vellore

ITA 1217/CHNY/2015

• Counselvise Citation: 121721714 RSA 2015
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 10-12-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 21-05-2015
• Court: TRIBUNAL
• Department Lawyers: JAYARAM RAIPURACIT
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Bad and doubtful debts; Revised return
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1217 /MDS./2015 ( ! '! / ASSESSMENT YEAR :2007-08) THE VELLORE DISTRICT CENTRAL CO-OP BANK LTD., NO.1,ANNA SALAI, OFFICERS LANE, VELLORE 632 001. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I, VELLORE. PAN AAAT 0115 G ( / APPELLANT ) ( / RESPONDENT ) #$ % & / APPELLANT BY : MR.R.VIJAYARAGHAVAN,ADVOCATE '(#$ % & / RESPONDENT BY : MR.JAYARAM RAIPURA,CIT, D.R ) * % +, / DATE OF HEARING : 10.12.2015 -' % +, /DATE OF PRONOUNCEMENT : 11 .12.2015 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE ASSESSEE, AGGRIEVED B Y THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX-8, CHENNAI D ATED ITA NO.1217 /MDS/2015 2 25.03.2015 IN C.NO.865/10/CIT-8/15-15 PASSED UNDER SEC.263 READ WITH SECTION SEC. 250 OF THE ACT. 2. THE ASSESSEE HAS RAISED 13 ELABORATE GROUNDS IN ITS APPEAL AS FOLLOWS:- 1. THE ORDER OF COMMISSIONER OF INCOME TAX IS CONTR ARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX ERRED IN ASSUMING JURISDICTION U/S.263 OF THE ACT FOR THE REASON THAT ASSESSING OFFICER HAS A LLOWED DEDUCTION U/S.36(1)(VIIA) TO THE EXTENT OF RS.14,47,40,656/- AS AGAINST RESTRICTING IT TO THE EXTENT OF ELIGIBLE AMOUNT OF RESERVE FOR NPA OR PROVISION FOR BAD A DOUBTFUL DEBTS SHOWN IN THE BALANCE SHEET AS ON 31. 03.2007 AT RS.68,20,002/-. 3. THE COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT ASSESSEE HAD NOT CREATED THE NECESSARY RESERVE/PROVISION TOWARDS BAD AND DOUBTFUL DEBTS BEFORE MAKING ANY DEDUCTION U/S.36(1)(VIIA) OF THE ACT. 4. THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE APP RECIATED THAT ASSESSEE MADE PROVISION FOR BAD & DOUBTFUL DEBTS DURING THE PREVIOUS YEAR 2006-07 OF RS.18,62,76,751/- UNDER A DIFFERENT NOMENCLATURE WH ICH WILL NOT DISENTITLE THE ASSESSEE FROM CLAIMING DEDUCTION U/S.36(1)(VIIA ). 5. THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE APP RECIATED THAT THE ACCOUNTS WERE AUDITED BY COOPERATIVE AUDIT DEPT AND HENCE THEY HAVE CATEGORIZED THE ABOVE PROVISION FOR BAD AND DOUBTFU L DEBTS UNDER THE FOLLOWING HEADS FOR THEIR CLARITY INSTEAD OF CONSOL IDATED HEAD OF PROVISION FOR BAD A DOUBTFUL DEBTS. PROVISION FOR OVERDUE INTEREST : RS. 4,64,50,128/ - RESERVE FOR NPA : RS. 68,20,002/- RESERVE FOR LOAN TO PACB IMBALANCES : RS.13,30,06, 621/- 6. THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE APP RECIATED THAT THE PROVISION FOR OVERDUE INTEREST REPRESENTS INTEREST ON DOUBTFUL CATEGORY ADVANCES WHICH WAS UNREALIZED BUT TAKEN INTO ACCOUN T ON ACCRUAL BASIS. ITA NO.1217 /MDS/2015 3 HENCE PROVISION WAS MADE FOR OVERDUE INTEREST DOUBT FUL OF RECOVERY AND HENCE IS A PROVISION FOR BAD AND DOUBTFUL DEBT. 7. THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE APP RECIATED THAT RESERVE FOR NPA REPRESENTS PROVISION FOR BAD AND DOUBTFUL D EBTS WHERE HE INSTALLMENTS AND INTEREST REMAIN UNPAID/SERVICED FO R MORE THAN 90 DAYS. IT IS A PROVISION FOR BAD DEBT AND THE MERE NOMENCLATURE CANNOT DETERMINE THE CHAR TER OF THE ENTRIES. 8. THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE APP RECIATED THAT RESERVE FOR LOAN TO PACB IMBALANCES REPRESENTS PROVISION FO R BAD AND DOUBTFUL ADVANCES IN RESPECT OF LOAN MADE TO PRIMARY AGRICUL TURAL COOP BANKS WHICH REMAINED IRRECOVERABLE. 9. THE COMMISSIONER OF INCOME TAX ERRED IN SETTING ASIDE THE ASSESSMENT ORDER FOR FRESH CONSIDERATION BY FOLLOWING THE 263 ORDER DT 1103.2013 FOR THE EARLIER Y 2008-09 IN SPITE OF THE SAME BEING QUASH ED BY THE HONBLE TRIBUNAL VIDE ORDER IN ITA NO.914/MDS/2013 DT 17.07 .2013. 10. THE COMMISSIONER OF INCOME TAX ERRED IN NOT FOL LOWING THE ORDER OF THE TRIBUNAL FOR A Y 2008-09 IN ITA NO.914/MDS/2013 DT 17.07.2013 WHEREIN IT HAS BEEN HELD THAT CREATION OF RESERVE FOR NPA IS S AME AS CREATING PROVISION TOWARDS BAD AND DOUBTFUL DEBTS AND ASSESSEE BEING A NON-SCHEDULED BANK IS ENTITLED TO CLAIM BENEFIT OF PROVISIONS OF SEC 3 6(1) (VIIA) OF THE ACT. 11. THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE AP PRECIATED THAT WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HA D TAKEN ONE NEW WITH WHICH THE CIT DOES NOT AGREE IT CANNOT BE TREATED A S AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE, UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW. [CIT V MAX INDIA 295 ITR 2 82]. 12. THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE AP PRECIATED THAT SCRUTINY ASSESSMENT U/S.143(3) WAS COMPLETED AFTER CONSIDERI NG THE BOOKS OF ACCOUNTS, DETAILS PRODUCED AND REVISED RETURN OF IN COME WHEREIN ASSESSEE HAS RESTRICTED THE DEDUCTION U/S.36(1)(VIIA) TO 10% OF AVERAGE ADVANCES GRANTED BY ITS RURAL BRANCHES AS AGAINST GROSS ADVA NCES. HENCE THE ASSESSMENT ORDER CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 13. APPELLANT CRAVES LEAVE TO ADDUCE ADDITIONAL GRO UNDS AT THE TIME OF HEARING. ITA NO.1217 /MDS/2015 4 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A CO- OPERATIVE BANK, ENGAGED IN THE BUSINESS OF BAKING, FILED ITS OF RETURN OF INCOME ON 28.10.2007 ADMITTING ITS LOSS AT ` 17,81,64,980/- FOR A.Y 2007-08 AFTER CLAIMING DEDUCTION U/S.36(1)(VIIA) OF THE ACT @ 7.5% OF THE GROSS TOTAL INCOME AT ` 80,94,977/- AND @ 10% OF THE AVERAGE ADVANCES GRANTED BY ITS RURAL BRANCHES AT ` 27,88,15,938/-. SUBSEQUENTLY THE ASSESSEE FILED REVISED RETURN OF L OSS OF ` 3,26,40,337/- ON 24.08.2011.THEREAFTER, THE CASE WA S TAKEN UP FOR SCRUTINY AND THE ASSESSMENT U/S.143(3) R.W.S. 147 OF THE ACT WAS COMPLETED ON 22.06.2012 WHEREIN THE LD. ASSESSING O FFICER ALLOWED THE DEDUCTION U/S.36(1)(VIIA) OF THE ACT TO THE EXT ENT OF ` 14,47,40,656/-. SUBSEQUENTLY, THE LD.CIT HAD ISSUED SHOW-CAUSE NOTICE U/S.263 OF THE ACT ON 13.01.2015, THE RELEVA NT PORTION OF THE SAME IS EXTRACTED HEREIN BELOW FOR REFERENCE:- FOR THE ASSESSMENT YEAR 2007-08, YOU HAVE FILED YOU R RETURN OF INCOME ON 28/10/2007 ADMITTING TOTAL LOSS OF RS.17,81,64,980/ -.AND SUBSEQUENTLY FILED REVISED RETURN OF LOSS ON 24/08/2011 OF RS.3,26,40, 337/- THIS CASE WAS TAKEN UP FOR SCRUTINY AND AN ORDER US! 143(3) R.W.S .147 OF THE INCOME-TAX ACT 1961 DATED.22/0612012 WAS PASSED REDUCING THE L OSS TO RS.3,11,91 870/-. ITA NO.1217 /MDS/2015 5 2. THE BALANCE SHEET AS ON 31/03/2007 SHOWS THAT RE SERVE FOR NON- PERFORMING ASSETS OR PROVISION FOR BAD & DOUBTFUL A SSETS HAS BEEN MADE FOR RS.68,20,002/- HOWEVER IN THE ASSESSMENT ORDER DEDU CTION U/S 36(1)(VII)(A) WAS ALLOWED TO THE EXTENT OF RS.14,47 ,40,6561- AS AGAINST RESTRICTING IT TO THE EXTENT OF ELIGIBLE AMOUNT OF RS.68,20,002/- THIS INDICATES LACK OF APPLICATION OF MIND BY THE ASSESS ING OFFICER ON THIS ISSUE. 3. IN THE CIRCUMSTANCES, THE ORDER PASSED DATED 22/ 06/2012 IS HELD TO BE ERRONEOUS AND PREJUDICIAL TO REVENUE, AND THEREFORE IT IS PROPOSED TO RECTIFY THE SAME U/S 263 OF THE INCOME-TAX ACT, 1961 AS THE FACTS AND CIRCUMSTANCES OF THE CASE DEEM IT FIT. HENCE, YOUR ARE HEREBY GIVEN AN OPPORTUNITY TO FILE YOUR WRITTEN SUBMISSION/OBJECTI ONS OR PERSONALLY APPEAR BEFORE THE UNDER SIGNED THROUGH YOUR AUTHORIZED REP RESENTATIVE, IF ANY, ON THE ISSUE MENTIONED ABOVE ON 23/1/2015 AT 11.30 A.M . IN MY OFFICE AT THE ADDRESS GIVEN ABOVE, FOR THIS PURPOSE. IT WILL BE P RESUMED THAT THERE IS NO OBJECTION TO THE PROPOSED REVISION IF THERE IS NOT COMPLIANCE ON THE DATE OF HEARING, AND REVISION WILL BE EFFECTED. THEREAFTER THE LD. CIT PASSED ORDER U/S.263 OF THE ACT DIRECTING THE LD. ASSESSING OFFICER TO SET ASIDE THE ASSESSMENT O RDER DATED 22.06.2012, SINCE THE ORDER OF THE LD. ASSESSING OF FICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE FOR THE FOLLOWING REASONS:- IN THE ASSESSMENT ORDER DEDUCTION U/S.36(1)(VIIA) W AS ALLOWED TO THE EXTENT OF RS.14,47,40,656/- AS AGAINST RESTRICTING IT TO THE EXTENT OF ELIGIBLE AMOUNT OF RESERVE FOR NON-PERFORMING ASSETS OR PROV ISIONS FOR BAD & ITA NO.1217 /MDS/2015 6 DOUBTFUL DEBTS SHOWN IN THE BALANCE SHEET AS ON 31. 03.2007 AT RS.68,20,002 . 4. AT THE OUTSET, THE LD. AR SUBMITTED BEFORE US THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN THE CASE OF THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 REPORTED IN (2013) 145 ITD 0129(CHENNAI) IN THEIR FAVOUR WHEREIN IT HAS BEEN HELD THAT THE CREATION OF RESERVE FOR NPA IS SAME AS CREATING PROVISION TOWARDS BAD A ND DOUBTFUL DEBTS AND ASSESSEE BEING A NON-SCHEDULED BANK IS EN TITLED TO CLAIM BENEFIT OF PROVISIONS OF THE SECTION 36(1)(VIIA) OF THE ACT AND ACCORDINGLY RELIEF MAY BE GRANTED. THE LD. AR ALSO PRODUCED BEFORE US THE DECISION OF THE TRIBUNAL. THE LD. DR COULD NOT CONTROVERT TO THE SUBMISSIONS OF THE LD. AR. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIAL ON RECORD. BEFORE US, THE CLAIM OF THE LD. A.R. WAS THAT THE PROVISIONS MADE AS PER SECTION-36(1)(VIIA) HAS TO B E ALLOWED THOUGH DEBITED UNDER DIFFERENT NAME SUCH AS RESERVED FOR NPA ACCOUNT INSTEAD OF DEBITING UNDER THE HEAD PROVISIONS TOWARDS BAD & DOUBTFUL ITA NO.1217 /MDS/2015 7 DEBTS. IT WAS FURTHER SUBMITTED BY THE LD. A.R. THAT THE NOMENCLATURE UNDER WHICH THE HEAD THE PROVISION MADE IS NOT IMPO RTANT FOR THE PURPOSE OF CLAIMING DEDUCTION U/S.36(1)(VIIA) OF TH E ACT. THEREFORE, IT WAS ARGUED BY THE LD. A.R. THAT THE ORDER OF LD. CI T MAY BE MODIFIED TO THE EXTENT OF DIRECTING THE LD. ASSESSING OFFICE R TO VERIFY THE CLAIM MADE UNDER SECTION 36(1)(VIIA) OF THE ACT BY THE AS SESSEE AND IF FOUND TO COMPLY WITH THE PROVISIONS OF THE ACT, TH EN ALLOW THE SAME AS DEDUCTION WITHOUT GIVING IMPORTANCE TO THE HEAD UNDER WHICH SUCH PROVISION IS MADE. LD. D.R ALSO MAGNANIMOUSLY AGREE D FOR SUCH VERIFICATION. WE FIND MERIT IN THE CONTENTION OF TH E LD. A.R. ON THE EARLIER OCCASION, THE TRIBUNAL IN THE ASSESSEES OW N CASE CITED SUPRA HAD ACCEPTED THE ABOVE PRAYER OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW FOR REFEREN CE:- 8. NOW, THE SECOND QUESTION WHICH ARISES FOR DETER MINATION BEFORE US IS WHETHER THE ASSESSEE HAS CREATED ANY RESERVE/PROVIS ION FOR BAD AND DOUBTFUL DEBTS? THE AR HAS CONTENDED THAT THE ASSESSEE HAS CREATED PROVISIONS FOR BAD AND DOUBTFUL DEBTS UNDER THE NOMENCLATURE 'RESERVE FOR NPA'. THE TERMINOLOGY 'RESERVE FOR NPA' HAS BEEN USED BY THE ASSESSEE IN ACCORDANCE WITH THE RBI ITA NO.1217 /MDS/2015 8 DIRECTIONS. AS IS EVIDENT FROM THE ASSESSMENT ORDER , THE ASSESSEE HAS INDEED CREATED 'RESERVE FOR NPA'. FOR CLAIMING BENEFIT UND ER THE PROVISIONS OF SECTION 36(1)(VIIA)(A) THE CONDITIONS TO BE SATISFIED IS: T HAT PROVISION FOR BAD AND DOUBTFUL DEBTS SHOULD HAVE BEEN MADE BY THE BANK ELIGIBLE TO CLAIM SUCH DEDUCTION. CO- OPERATIVE BANKS DO NOT STRICTLY FOLLOW THE PROVISIO NS OF BANKING REGULATION ACT FOR THE PURPOSE OF MAINTAINING THEIR BOOKS OF ACCOUNT. IN OUR CONSIDERED OPINION, THE ASSESSEE HAS CREATED PROVISION FOR BAD AND DOUBTFUL DEBTS MAY BE UNDER DIFFERENT NOMENCLATURE. THIS WILL NOT DIS-ENTITLE T HE ASSESSEE FOR CLAIMING DEDUCTION UNDER THE PROVISIONS OF SECTION 36(1)(VII A)(A). THE PURPOSE FOR CREATION OF RESERVE FOR NPA IS SAME I.E., CREATING PROVISION TOWARDS BAD AND DOUBTFUL DEBTS. IN VIEW OF THE ABOVE, WE FIND THAT THE ASSESSMENT O RDER DATED 09-09-2010 IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST O F THE REVENUE. THE IMPUGNED ORDER OF CIT PASSED U/S. 263 IS SET ASIDE AND THE A PPEAL OF THE ASSESSEE IS ALLOWED. FOLLOWING THE ORDER OF OUR PREDECESSORS, WE HEREBY DIRECT THE LD. ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESS EE TO BE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(VII A) OF THE ACT AND FOUND TO BE CORRECT, ALLOW THE SAME WITHOUT GIVING IMPORTANCE TO THE ITA NO.1217 /MDS/2015 9 NOMENCLATURE OF THE ACCOUNT UNDER WHICH HEAD SUCH C LAIM TOWARDS PROVISION FOR BAD & DOUBTFUL DEBTS IS MADE. 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREINABOVE. ORDER PRONOUNCED ON THE 11 TH DECEMBER, 2015 AT CHENNAI. SD/- SD/- ( . . . ) ( N.R.S.GANESAN ) ( . '#$ %' ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 11 TH DECEMBER, 2015. K S SUNDARAM. % '+./ 0 /'+ /COPY TO: 1. #$ /APPELLANT 2. '(#$ /RESPONDENT 3. ) 1+ () /CIT(A) 4. ) 1+ /CIT 5. /4 '+5 /DR 6. 6! 7* /GF