DCIT, Trichy V. The Lakshmi Vilas Bank Ltd., Karur

ITA 135/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6338 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 1994-1995
• Appeal Filed On: 17-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PAVUNA SUNDARI
• Assessee Lawyers: G SEETHARAMANC A
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NO. 135/MDS/2017 / ASSESSMENT YEAR : 1994-95 DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1), TRICHY 620 001. VS. M/S. THE LAKSHMI VILAS BANK LTD., REGD. OFFICE, KATHAPARAJ, KARUR. [PAN: AAACT 4291P] ( / APPELLANT) ( / RESPONDENT) %& / APPELLANT BY : MS.PAVUNASUNDARI, JCIT )*%& / RESPONDENT BY : SHRI G. SEETHARAMAN, CA & /DATE OF HEARING : 30.05.2017 & /DATE OF PRONOUNCEMENT : 28.08.2017 /O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, TIRUCHIRAPA LLI, IN ITA NO. 686/2006- 07/CIT(A)-1/TRY, DATED 17.11.2016. :-2-: I.T.A. N0. 135/MDS/2017 2. IN THE ASSESSMENT MADE FOR THE ASSESSMENT YEAR 1 994-95, THE ASSESSING OFFICER DISALLOWED RS. 75,77,756/- U/S. 14A AND RS. 2,34,80,675/- U/S. 36(1)(VII). AGGRIEVED AGAINST THIS ORDER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE CIT(A) RELYING ON THIS TRIBU NAL ORDER IN ITA NO. 1404/MDS/2012 FOR ASSESSMENT YEAR 2004-05 DATED 22. 03.2013, IN THE ASSESSEES CASE , RESTRICTED THE DISALLOWANCE AT TH E RATE OF 2% ON THE EXEMPT INCOME. ON THE DISALLOWANCE UNDER THE HEAD BAD DE BTS WRITTEN OFF, THE CIT(A) AFTER EXAMINING THE DETAILS FILED BY THE ASS ESSEE IN ANNEXURE-A, DIRECTED THE AO TO DELETE THAT ADDITION. AGGRIEVED, THE REVENUE HAS FILED THIS APPEAL, INTER ALIA, WITH THE FOLLOWING GROUNDS OF APPEAL: 2. THE LEARNED CIT (A) HAS ERRED IN ESTIMATING THE DISALLOWANCE @ 2% OF EXEMPT INCOME AND THUS ALLOWIN G MAJOR RELIEF OF RS.74,26,200/- WITHOUT CONSIDERING THE AVERAGE C OST OF DEPOSITS AND THEREBY ARRIVING AT DISALLOWANCE BY WORKING OUT THE AVERAGE INTEREST COST OF THE INVESTMENTS MADE FOR EARNING T HE TAX-FREE INCOME AS THE ASSESSEE HAS NOT FURNISHED SEPARATE ACCOUNTS FOR THE EXPENDITURE INCURRED TOWARDS INTEREST PAID ON FUNDS BORROWED. 3. THE LEARNED CIT (A) HAS ERRED IN ALLOWING THE CL AIM OF THE ASSESSEE WITHOUT CONSIDERING THE FACT THAT THE HON' BLE HIGH COURT OF KERALA IN THE CASE OF CIT VS DHANALAKSHMI BANK LTD. [2010] 344 ITR 259 HAS OBSERVED THAT IN THE EVENT OF THE ASSESSEE NOT BEING ABLE TO ESTABLISH ACCURATELY THE INTEREST EXPENDED ON EARNI NG TAX FREE INCOME, THE AO COULD FOLLOW THE FOLLOWING FORMULA: TOTAL INTEREST LIABILITY X TAX FREE INCOME TOTAL INCOME :-3-: I.T.A. N0. 135/MDS/2017 4. THE LEARNED CIT (A) HAS ERRED IN ALLOWING THE CL AIM OF THE ASSESSEE TOWARDS BAD DEBTS WRITTEN OFF OF RS.2,34,8 0,375/- U/S 36(1 )(VII) HOLDING THAT THE PROVISION EARLIER CREATED T OWARDS BAD AND DOUBTFUL DEBTS WAS REDUCED FROM THE TOTAL BAD DEBTS WRITTEN OFF AND ONLY THE RESULTANT BALANCE WAS CLAIMED IN THE STATE MENT OF INCOME. THE CIT(A) OUGHT TO HAVE SEEN THAT THE PROVISO CLAU SE OF 36(1)(VII) STATES THAT THE AMOUNT OF DEDUCTION RELATING TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUC H DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. 5. THE LEARNED CIT (A) HAS ERRED IN HOLDING THAT FO R RECKONING OF CREDIT BALANCE AVAILABLE UNDER PROVISION FOR BAD & DOUBTFUL DEBTS FOR THE PURPOSE OF COMPUTING THE DEDUCTION ALLOWABL E U/S 36(1)(VII), OPENING BALANCE OF THE ABOVE PROVISION ALONE IS TO BE TAKEN THUS EXCLUDING THE PROVISION CREATED DURING THE YEAR. 6. THE LEARNED CIT (A) HAS ERRED IN HOLDING THAT TH E BAD DEBTS CLAIMED U/S 36(1)(VII) IS ONLY A NET FIGURE, AFTER ADJUSTMENT TOWARDS THE 'CREDIT BALANCE' OF EARLIER YEAR AVAILABLE UNDE R PROVISIONS FOR BAD & DOUBTFUL DEBTS CREATED U/S 36(1)(VIIA) AND HENCE IS ALLOWABLE. 3. WE HEARD THERIVAL SUBMISSIONS AND GONE THROUGH T HE ORDERS. ON THE ISSUE OF DISALLOWANCE U/S 14A, THE CIT (A) RELIED O N THIS TRIBUNAL DECISION IN THE ASSESSEES CASE FOR AY 2004-05 IN ITA NO. 1404/ MDS/2012 DATED 22.03.2013 THE RELEVANT PORTION OF THE ORDER IS EXT RACTED AS UNDER : 6.1 .. PARA 16: WE HAVE HEARD BOTH PARTIES QUA THE ISSUE INVOLVED AND PERUSED THE FACTS EMANATING THE ORDERS OF THE :-4-: I.T.A. N0. 135/MDS/2017 ASSESSING OFFICER AND CIT(A). THE BROADER ISSUE SO UGHT TO BE RAISED BY BOTH PARTIES IS AS TO WHETHER THE CIT(A) HAS RIGHTLY TAKEN THE DISALLOWANCE OF EXPENDITURE FOR EARNING T AX FREE INCOME @ 2% OR NOT. IN THIS REGARD, AS RIGHTLY POI NTED OUT BY THE REVENUE, THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. SIMSPON AND CO. LTD VS. DCIT (SUPRA) ITSELF HAS HELD THAT SUCH AN ADDITION @ 2% IS NOT UNREASONABLE. FO LLOWING THIS, WE UPHOLD CIT(A)S ORDER AND REJECT THE GROUN DS. 6.2 REFERRING TO THE ABOVE ORDER, THE LEARNED A.R. SUBMITTED THAT THE TRIBUNALS FINDINGS IN THIS REGARD HAS BEEN ACCEPTE D BOTH BY THE DEPARTMENT AS WELL AS THE ASSESSEE AND THEREFORE TH E APPELLANT WOULD HAVE NO OBJECTION IF DISALLOWANCE IS RESTRICTED TO 2% OF SUCH TAX FREE/EXEMPT INCOME. FROM THE ABOVE, IT IS CLEAR THAT THIS TRIBUNAL FOLL OWING THE JURISDICTIONAL HIGH COURT DECISION HELD THAT DISALLOWANCE OF 2% OF THE EXEMPT INCOME COULD BE CONSIDERED AS REASONABLE EXPENDITURE FOR EARNING TH E EXEMPT/TAX FREE INCOME IN THE ASSESSEES CASE ITSELF. JUDICIAL DISCIPLINE DEMANDS CONSISTENCY AND HENCE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A). THUS, THE REVENUES GROUNDS OF APPEAL ON THIS ISSUE FAIL. 4. ON THE ISSUE OF DISALLOWANCE U/S. 36(I)(VII) THE RELEVANT PORTION OF THE CIT(A) ORDER IS EXTRACTED AS UNDER: 7.2 BEFORE ME, THE LEARNED A.R. HAS SUBMITTED THAT IN ITS COMPUTATION OF INCOME, THE APPELLANT HAD CLAIMED RS . 2,34,80,675/- TOWARDS BAD DEBTS WRITTEN OFF. IN ADDITION, IT W AS FURTHER SUBMITTED THAT COMPLETE DETAILS OF SUCH BAD DEBT WRITTEN OFF HAD BEEN SUBMITTED :-5-: I.T.A. N0. 135/MDS/2017 ALONG WITH RETURN OF INCOME VIDE AN ATTACHMENT MENT IONED AS STATEMENT: 15 (ANNEXURE A). A COPY OF THE SA ME HAS BEEN FILED DURING THE APPELLATE PROCEEDINGS AND IT IS FOUND TH AT ALL THESE BAD DEBTS WRITTEN OFF DURING THE YEAR PERTAINED TO NON-RURAL BRANCHES. A SEPARATE STATEMENT :15A (ANNEXURE-B) CONTAINING DETAILS OF BAD DEBTS RELATING TO RURAL BRANCHES AMOUNTING TO RS. 12,48,544/- HAD ALSO BEEN ATTACHED BUT THE SAME WAS NOT CLAIMED AS A DEDUCTION IN THE STATEMENT OF INCOME AS SUCH BAD DEBTS PERTAINING TO RURAL BRANC HES, WERE LESS THAN THE PROVISION CREATED U/S 36(I)(VIIA) OF THE I.T. A CT. ONLY BAD DEBTS PERTAINING TO NON-RURAL BRANCHES WERE CLAIMED, THAT TOO, AFTER DEDUCTING THE OPENING BALANCE OF PROVISION CREATED IN THE EAR LIER YEAR. IN SUPPORT OF THE SAME, MY ATTENTION WAS DRAWN TO STATEMENT: 15, WHEREIN THE TOTAL BAD DEBTS WRITTEN OFF WAS COMPUTED AT RS. 2,7 9,60,669/-, OUT OF WHICH PROVISION CREATED IN THE EARLIER YEAR OF RS. 38,80,294/- WAS REDUCED AND ONLY RS. 2,34,80,375/- WAS CLAIMED IN T HE STATEMENT OF INCOME. THIS GOES TO SHOW THAT THERE HAS BEEN NO DOUBLE DEDUCTION AS ALLEGED BY THE ASSESSING OFFICER. THE ASSESSING OF FICER WAS OF THE OPINION THAT SOME OF THE BAD DEBTS WRITTEN OFF WO ULD BE PART OF THE PROVISION CREATED FOR BAD AND DOUBTFUL DEBTS. BU T, SUCH MISGIVING OR DOUBT IN THE MIND OF THE ASSESSING OFFICER WOULD HA VE BEEN CLEARED, HAD HE ACTUALLY EXAMINED THE ABOVE STATEMENT:15 IN DE TAIL. HE WOULD HAVE FOUND THAT THE PROVISION EARLIER CREATED TOWARDS BA D AND DOUBTFUL DEBTS HAD BEEN REDUCED FROM THE TOTAL BAD DEBTS WRITTEN O FF AND ONLY THE RESULTANT BALANCE HAS BEEN CLAIMED IN THE STATEMENT OF INCOME. THEREFORE, THE CLAIM OF BAD DEBT WRITTEN OFF BY THE ASSESSEE TO THE EXTENT OF RS. 2,34,80,375/- IS IN ORDER. HENCE, TH E ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME. CONSEQUENTLY, GROUND N O. 7 IS ALLOWED. WE FIND FROM THE ANNEXURE-A, TITLED AS DETAILS FOR BAD DEBTS WRITTEN OFF (NON-RURAL BRANCHES) THAT THE ASSESSEE HAS FURNISHE D THE DETAILS OF BAD DEBT WRITTEN OFF FROM VARIOUS PERSONS FROM 35 NON-RURAL BRANCHES AS UNDER: :-6-: I.T.A. N0. 135/MDS/2017 BAD DEBTS WRITTEN OFF 27225737.00 ADD: INTEREST SUSPENSE W/OFF VIDE DETAILS GIVEN (ST ATT.13) 134932.00 ----------------- 27360669.00 LESS: PROVISION CLAIMED LAST YEAR 3880294.00 ----------------- 23480375.00 THUS, IT IS CLEAR THAT THE ASSESSEE HAS REDUCED THE PROVISIONS EARLIER CREATED TOWARDS BAD AND DOUBTFUL DEBT AND ONLY THE RESULTANT BALANCE HAS BEEN CLAIMED IN THE STATEMENT OF INCOME. HENCE, TH E ORDER OF THE CIT(A) DOES NOT REQUIRE ANY INTERFERENCE. THUS, THE REVEN UES GROUNDS OF APPEAL ON THIS ISSUE FAIL. 5. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED ON MONDAY, THE 28 TH DAY OF AUGUST, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) !' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 28 TH AUGUST, 2017 JPV &)1232 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2) /DR 6. 7 /GF