The Dy.Commissioner of Income-tax, Jalandhar V. M/s Punjab Gramin Bank, Kapurthala

ITA 134/ASR/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0665 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 04-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A N MISRA
• Assessee Lawyers: RANJAN SEHGAL
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (CAMP AT JA LANDHAR ) BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO.134(ASR)/2015 ASSESSMENT YEAR: 2008-09 DY. CIT, CIRCLE-IV, JALANDHAR. VS. M/S. PUNJAB GRAMIN BANK, JALANDHAR ROAD, KAPURTHAL. PAN: AAALP0309F (APPELLANT) (RESPONDENT) APPELLANT BY: SH. A.N.MISRA (DR) RESPONDENT BY: SH. RANJAN SEHGAL (CA) DATE OF HEARING: 20.06. 2016 DATE OF PRONOUNCEMENT: 22.06.2016 ORDER PER T. S. KAPOOR (AM): THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORDE R OF LEARNED CIT(A), JALANDHAR, DATED 19.12.2014 FOR ASST. YEAR: 2008-09. 2. THE ONLY ISSUE RAISED BY REVENUE IS THE ACTION O F LEARNED CIT(A), BY WHICH HE HAD ALLOWED THE RELIEF OF RS.36,75,000/- W HICH THE ASSESSING OFFICER DISALLOWED ON ACCOUNT OF CLAIM OF ASSESSEE FOR PROVISION OF BAD AND DOUBTFUL DEBTS ON STANDARD ASSETS. 3. THE BRIEF FACTS OF THE CASE AS NOTED IN THE ASSE SSMENT ORDER ARE THAT THE ASSESSEE IS A BANKING COMPANY AND IT HAS B EEN INCORPORATED IN INDIA AND IS SPONSORED BY PUNJAB NATIONAL BANK. THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PR OCEEDINGS THE ITA NO.13 4(ASR)/2015 ASST. YEAR: 2008-09 2 ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD MADE A PROVISION OF RS. 50 LACS FOR BAD AND DOUBTFUL DEBTS. THE ASSESSING OFFI CER OBSERVED THAT OUT OF TOTAL PROVISIONS OF RS. 50 LACS, RS.36,75 LACS R ELATED TO PROVISION ON STANDARD ASSETS OF THE ASSESSEE AND THEREFORE HE MA DE AN ADDITION OF RS.36,75,000/- ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS ON STANDARD ASSETS. THE ADDITION WAS EARLIER DELETED B Y CIT(A) AND ON APPEAL BY THE DEPARTMENT TO THE ITAT, THE HONBLE TRIBUNAL HAD SET ASIDE THE ISSUE TO THE OFFICE OF ASSESSING OFFICER FOR READJU DICATION VIDE ITS ORDER DATED 14.06.2012 BY HOLDING AS UNDER: 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE FACTS OF THE CASE. WE ARE CONVINCED WITH THE ARGUMENTS MADE BY T HE LD. DR, SH. R.L. CHAANALIA THAT THE LD. CIT(A) IS NOT JUSTIFIED IN A CCEPTING THE EXPLANATION OF THE ASSESSEE WHICH WAS NOT MADE BEFORE THE A.O. THE SAME SHOULD HAVE EITHER BEEN ADMITTED UNDER RULE 46A OF THE I.T . RULES, 1962 AND BY HAVING A REMAND REPORT FROM THE A.O. THE SAME HAS N OT BEEN DONE BY THE LD. CIT(A). THEREFORE, THE ORDER OF THE LD. CIT(A), AT THE OUTSET, IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND DESERVES TO B E REVERSED. BUT IN THE INTEREST OF JUSTICE, THE MATTER IS SET ASIDE TO THE FILE OF THE A.O. WHO WILL EXAMINE THE CLAIM OF THE ASSESSEE AND FIND OUT WHET HER THE PROVISIONS MADE FOR RS.50 LAKHS IS PROVISION FOR BAD AND DOUBT FUL, DEBTS, FIRST AND IF SO THEREAFTER APPLY THE LIMIT AS PROVIDED UNDER CLA USE (A) TO SECTION 36(A) (VIIA). THE ISSUE SHOULD BE DECIDED AFRESH AS DIREC TED HEREINABOVE BUT BY AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. THUS, ALL THE GROUNDS OF THE ASSESSEE ARE ALLOWED FOR STATIST ICAL PURPOSES. THE ASSESSING OFFICER IN VIEW OF ITAT ORDER PASSED A FRESH ORDER AND AGAIN MADE ADDITION OF RS.36,75,000/- BY HOLDING AS UNDER: NO DOUBT, THE CLAIM FOR DEDUCTION OF PROVISION FO R BAD & DOUBTFUL DEBTS IN RESPECT OF BAD DEBTORS IS CORRECTION MADE U/S 36(1)(VIIA), BUT CLAIM FOR DEDUCTION IN RESPECT OF STANDARD ASSETS IS MISPLACED. THEREFORE, SUCH PROVISION OF RS.36,75,000.00 WAS CORRECTLY DISALLOWED ITA NO.13 4(ASR)/2015 ASST. YEAR: 2008-09 3 4. AGGRIEVED THE ASSESSEE AGAIN FILED APPEAL BEFORE THE LEARNED CIT(A) AND LEARNED CIT(A) AGAIN ALLOWED RELIEF TO THE ASSE SSEE. 5. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 6. THE LEARNED DR, AT THE OUTSET, SUBMITTED THAT LE ARNED CIT(A) HAS WRONGLY ALLOWED RELIEF TO THE ASSESSEE AS THE PROVI SIONS FOR BAD AND DOUBTFUL DEBTS WAS ON STANDARD ASSETS AND AS PER TH E PROVISO TO SECTION 36(1)(VIIA) ONLY THE PROVISIONS FOR BAD AND DOUBTFU L DEBTS WAS ALLOWABLE. THE LEARNED DR SUBMITTED THAT PROVISO TO CLAUSE-A O F SECTION 36(1)(VIIA) OF THE INCOME TAX ACT STATES THAT RELEVANT ASST. YEARS MEANS THE ASST. YEARS:2001-02 TO 2005-06 WHEREAS ASSESSEES CLAIM W AS FOR ASST. YEAR: 2008-09. IT WAS ARGUED THAT THE CASE OF THE ASSESSE E WAS HIT BY PROVISO TO SECTION 36(1)(VIIA) AND THEREFORE, LEARNED CIT(A ) HAS WRONGLY ALLOWED RELIEF TO THE ASSESSEE. 7. THE LEARNED AR SUBMITTED THAT THE CASE OF THE AS SESSEE DID NOT FALL INTO THE PROVISO TO SECTION 36(1)(VIIA), BUT IT WAS COVERED BY THE MAIN PROVISO OF SECTION 36(1)(VIIA), THEREFORE, LEARNED CIT(A) HAS RIGHTLY ALLOWED RELIEF TO THE ASSESSEE. 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAD CREATED A PROVISION OF RS.50,00,000/- WHICH INCLUDED A SUM OF RS.13,25,000 /- AS PROVISIONS FOR BAD AND DOUBTFUL DEBTS AND THE BALANCE AMOUNT O F RS.36,75,000/- WAS PROVISION AGAINST STANDARD ASSETS AND THE ENTIR E AMOUNT WAS ITA NO.13 4(ASR)/2015 ASST. YEAR: 2008-09 4 CLAIMED AS DEDUCTION UNDER SECTION 36(1)(VIIA) OF T HE ACT. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE PROVISIONS MADE BY THE ASSESSEE AGAINST STANDARD ASSETS WAS A CONTINGENT LIABILITY AND WHICH WAS NOT ALLOWABLE AS BUSINESS EXPENDITURE. THE LD. CIT(A), HOWEVER, ALLOWED RELIEF TO THE ASSESSEE BY HOLDING THAT THE CLAIM OF THE AS SESSEE FALL INTO THE MAIN PROVISIONS OF SECTION 36(1)(VIIA). TO RESOLVE THE DISPUTE IT IS IMPORTANT TO VISIT THE PROVISIONS OF SECTION 36(1)( VIIA) OF THE ACT AND WHICH FOR THE SAKE OF CONVENIENCE ARE REPRODUCED BE LOW. 36(1)(VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY (A)A SCHEDULED BANK [NOT BEING A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON-SCHEDULED BANK OR A CO-OPER ATIVE BANK OUTSIDE INDIA] OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELO PMENT BANK, AN AMOUNT NOT EXCEEDING SEVEN AND ONE-HALF PERCENT OF THE TOTAL I NCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI-A) A ND AN AMOUNT NOT EXCEEDING TEN PERCENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. PROVIDED THAT A SCHEDULED BANK OR A NON-SCHEDULED BANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION, BE ALLOWED IN ANY OF THE RELEVANT ASSESSMENT YEARS DEDUCTION IN RESPECT OF ANY PROVISION MADE BY IT FOR ANY ASSETS CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS ASSETS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY IT IN THIS BEHALF, FOR AN AMOU NT NOT EXCEEDING FIVE PERCENT OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOKS OF ACC OUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR: PROVIDED FURTHER THAT FOR THE RELEVANT ASSESSMENT Y EARS COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL,2003 AND ENDING BEFORE THE 1 ST DAY OF APRIL, 2005, THE PROVISIONS OF THE FIRST PROVISO SHALL HAVE EFFECT A S IF FOR THE WORDS FIVE PERCENT, THE WORDS TEN PERCENT HAD BEEN SUBSTITUTED: PROVIDED ALSO THAT A SCHEDULED BANK OR A NON-SCHEDU LED BANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION, BE ALLOWED A FURTH ER DEDUCTION IN EXCESS OF THE LIMITS SPECIFIED IN THE FOREGOING PROVISIONS, FOR A N AMOUNT NOT EXCEEDING THE INCOME DERIVED FROM REDEMPTION OF SECURITIES IN ACC ORDANCE WITH A SCHEME FRAMED BY THE CENTRAL GOVERNMENT: PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED UN DER THE THIRD PROVISO UNLESS SUCH INCOME HAS BEEN DISCLOSED IN THE RETURN OF INC OME UNDER THE HEAD PROFITS AND GAINS BUSINESS OR PROFESSION. ITA NO.13 4(ASR)/2015 ASST. YEAR: 2008-09 5 FROM THE ABOVE PROVISIONS IT CAN BE SEEN THAT DEDUC TION U/S 36(1)(VIIA) OF THE ACT IS ALLOWED IN RESPECT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS THIS SECTION DOES NOT DIFFERENTIATE BETWEEN PROVISI ON ON BAD ASSETS AND PROVISION ON STANDARD ASSETS. THIS DEDUCTION EXCLUS IVELY ALLOWS DEDUCTION IN RESPECT OF PROVISION FOR BAD AND DOUBT FUL DEBTS TO THE EXTENT MENTIONED IN THE VARIOUS CLAUSES OF SUB-SECTION(1) OF SECTION 36 OF THE ACT. THE DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT IS ALLOWED ONLY IN RESPECT OF CERTAIN SPECIFIC CATEGORIES OF ASSESSEE MENTIONED IN THE CLAUSE LIKE BANKS, FINANCIAL INSTITUTIONS, ETC. WHO ARE IN BUSINESS OF LENDING MONEY. IT IS NOT ALLOWED EVEN TO NON-BANKING FINANC IAL INSTITUTIONS SINCE THEY ARE NOT INCLUDED IN THIS CLAUSE. IT IS SEEN TH AT THOUGH SECTION 36(1)(VII) STATES THAT DEDUCTION FOR PROVISION IS A LLOWABLE IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS, THE COMPUTATI ON OF SUCH DEDUCTION IS MADE WITH REFERENCE TO TOTAL INCOME OF THE SPECI FIED BANKS BASED UPON QUANTUM OF AVERAGE ADVANCES. THE DEDUCTION OF THE PROVISIONS IS NEITHER LIMITED TO THE QUANTUM OF BAD DEBTS IN THE BOOKS NOR IS COMPUTED WITH REFERENCE TO THE QUANTUM OF STANDARD ASSETS. THE DEDUCTION IN THIS CLAUSE REFERS TO ALLOWABLE PROVIS IONS OF ANTICIPATED DEFAULT ON THE LOANS AND ADVANCES MADE IN RESPECT O F TOTAL ASSETS INCLUDING STANDARD ASSETS AND THE CLAIM OF THE ASSE SSEE DOES NOT FALL INTO THE PROVISO TO SECTION 36(1)(VIIA) AS THE PROVISO D EALS WITH FURTHER DEDUCTION FOR PROVISIONS ON BAD AND DOUBTFUL DEBTS. THE CLAIM OF THE ASSESSEE IS COVERED IN THE MAIN PROVISIONS OF SECTI ON 36(1)(VIIA) OF THE ITA NO.13 4(ASR)/2015 ASST. YEAR: 2008-09 6 ACT. THE LEARNED CIT(A) HAS PASSED A VERY EXHAUSTIV E AND SPEAKING ORDER AND WE DO NOT FIND ANY INFIRMITY IN THE SAME. 9. IN VIEW OF THE ABOVE, THE APPEAL FILED BY REVEN UE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE, 2016. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22.06.2016. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER