Dy, CIT, Circle -2(1), Tirupathi V. M/s Sri Vijaya Durga Finance Pvt. Ltd., Kadapa

ITA 1403/HYD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7620 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 11-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: N O N E
• Keywords: Bad and doubtful debts
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1403/HYD/2012 ASSESSMENT YEAR 2004-2005 DCIT CIRCLE - 2(1) TIRUPATI VS. M/S. SRI VIJAYA DU RGA FINANACE (P) LTD. KADAPA PAN AADCS 1467M (APPELLANT) (RESPONDENT) FOR REVENUE : MR. SOLGY JOSE T. KOTTARAM FOR ASSESSEE : NO N E DATE OF HEARING : 12.08.2014 DATE OF PRONOUNCEMENT : 20.08.2014 ORDER PER SAKTIJIT DEY, J.M. THIS APPEAL OF THE DEPARTMENT IS DIRECTED AGAINST THE ORDER DATED 10.10.2011 OF THE CIT(A) GUNTUR PER TAINING TO THE ASSESSMENT YEAR 2004-05. WHEN THE APPEAL WAS C ALLED FOR HEARING, NONE APPEARED FOR THE ASSESSEE. AS SEEN F ROM THE RECORD, ON EARLIER OCCASIONS ALSO, NO ONE APPEARED ON BEHALF OF THE ASSESSEE, THOUGH THE POSTAL ACKNOWLEDGEMENT KEP T ON RECORD INDICATE THAT A NOTICE ISSUED EARLIER WAS SE RVED ON THE ASSESSEE BUT SUBSEQUENT ENTRIES IN THE ORDER SHEET SHOW THAT LD. D.R. WAS REQUESTED TO SERVE NOTICE ON THE ASSES SEE. IN THE AFORESAID CIRCUMSTANCES, WE ARE CONSTRAINED TO DISP OSE OF THE APPEAL EX-PARTE QUA THE ASSESSEE AFTER HEARING THE LD. D.R. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS BOTH IN LA W AND FACTS OF THE CASE. 2. THE RELIANCE PLACED BY THE LD. CIT(A) ON DECISION O F THE APEX COURT IN THE CASE OF VIJAYA BANK VS. CIT, REPO RTED IN (2010) 323 ITR 166 (SC) IS MISPLACED AND ERRONEOUS AS THE SAID DECISION DEALT WITH WRITTEN OFF OF BAD DEB TS. WHEREAS THE ISSUE IN THE PRESENT CASE IS THE DEDUCT IBILITY 2 ITA.NO.1403/HYD/2012 M/S. SRI VIJAYA DURGA FINANCE (P) LTD., KADAPA OF PROVISION FOR NON PERFORMING ASSETS IN THE HANDS OF NBFCS. 3. THE LD. CIT(A) ERRED IN NOT DIFFERENTIATING BETWEEN BAD DEBTS WRITTEN OFF AND PROVISION FOR NON-PERFORMING ASSETS. 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 2. BRIEFLY THE FACTS ARE, THE ASSESSEE IS A NON-BAN KING FINANCE COMPANY (NBFC) REGISTERED WITH THE RESERVE BANK OF INDIA. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSES SEE FILED ITS RETURN OF INCOME ON 1.11.2004 DECLARING TOTAL I NCOME OF RS.30,97,785/-. SUBSEQUENTLY, ON THE BASIS OF OBJE CTION RAISED BY AUDIT PARTY IN RESPECT OF ALLOWABILITY OF CLAIM OF DEDUCTION OF RS.12,96,932/- TOWARDS PROVISION OF NPAS (NON-PERFO RMING ASSETS), THE ASSESSING OFFICER RE-OPENED THE ASSESS MENT U/S 147 OF THE ACT BY ISSUING A NOTICE U/S 148 OF THE A CT ON 24.3.2010. DURING THE RE-ASSESSMENT PROCEEDING, TH E ASSESSEE APPEARING BEFORE THE ASSESSING OFFICER STATED THAT THE SAID PROVISION WAS MADE AS PER THE RBI GUIDELINES, SO AS TO OBSERVE THE NON-BANKING FINANCIAL COMPANYS PRUDENTIAL NORM S AND AS PER ACCOUNTING STANDARDS NOTIFIED BY THE CENTRAL GO VERNMENT IN PURSUANCE TO SECTION 145(2) OF THE ACT. THE ASS ESSING OFFICER HOWEVER, DID NOT ACCEPT THE CLAIM OF THE ASSESSEE B Y OBSERVING THAT THE INCOME OF THE ASSESSEE HAS TO BE COMPUTED STRICTLY IN TERMS OF THE PROVISIONS OF INCOME-TAX ACT. BY RELY ING UPON THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF M/ S. SOUTHERN TECHNOLOGIES LIMITED VS. JCIT (320 ITR 577 ), THE ASSESSING OFFICER HELD THAT THE PROVISIONS FOR NPAS OF RS.12,96,932/- CANNOT BE ALLOWED AS A DEDUCTION AND ACCORDINGLY ADDED IT TO THE INCOME OF THE ASSESSEE. 3. BEING AGGRIEVED OF SUCH ADDITION MADE BY THE A.O ., ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE C IT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DIRECTE D THE 3 ITA.NO.1403/HYD/2012 M/S. SRI VIJAYA DURGA FINANCE (P) LTD., KADAPA ASSESSING OFFICER TO VERIFY THE ISSUE AGAIN WITH TH E FOLLOWING OBSERVATIONS: 4.2.2. IN THE CONTEXT OF THE IMPUGNED ISSUE, THERE ARE TWO APEX COURTS DECISIONS WHICH ARE IMPORTANT FOR US TO LOOK INTO FOR ADJUDICATION. ONE IS THE CASE OF SOU THERN TECHNOLOGIES LIMITED VS. JOINT CIT, REPORTED IN (20 10) 320 ITR 57 (SC) HOLDING THAT THE NATURE OF EXPENDITURE UNDER THE INCOME TAX ACT CANNOT BE CONCLUSIVELY DETERMINED IN THE MANER IN WHICH ACCOUNTS ARE PRESENTED IN TERMS OF THE DIR ECTION OF THE RESERVE BANK OF INDIA. THUS, THERE WAS CONFUSION A ND MANY A TIME REVENUE TOOK THE VIEW THAT THE PROVISION FOR N PAS AS DETERMINED BY FOLLOWING THE NORMS LAID DOWN BY THE RBI ARE NOT ALLOWABLE AS PER THE PROVISIONS OF SECTION 36(1)(VI I) OF THE ACT. ANOTHER CASE OF THE APEX COURT IS THE CASE OF VIJAY A BANK VS. CIT, REPORTED IN (2010) 323 ITR 166 (SC), WHEREIN T HE ISSUE WAS AGAIN CONSIDERED TO HOLD THAT THE PROVISION UNDER S ECTION 36(1)(VII) COVERED THE CASE OF BANKING AS WELL AS N ON BANKING APPELLANTS. IT IS CLARIFIED NOW THAT AFTER INSERTI ON OF EXPLANATION TO SECTION 36(1)(VII), THE APPELLANT IS REQUIRED NO T ONLY TO DEBIT THE PROFIT AND LOSS ACCOUNT BUT SIMULTANEOUSLY ALSO REDUCE LOANS AND ADVANCES OR THE DEBTS FROM THE ASSETS SIDE OF T HE BALANCE SHEET TO THE EXTENT OF THE CORRESPONDING AMOUNTS SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AND ADVANCES/D EBTORS IS SHOWN AS NET OF THE PROVISIONS FOR THE IMPUGNED BAD DEBT. 4.2.3 WITH THE EXISTING INFORMATION, IT IS NOT CLE AR WHETHER THE APPELLANT HAS MADE NECESSARY ADJUSTMENTS IN ITS BOOKS OF ACCOUNT. HENCE, THE A.O. IS DIRECTED TO LOOK INTO THIS ISSUE, VIZ., APART FROM DEBITING THE PROFIT AND LOSS ACCOUNT TO THE EXTENT OF THE IMPUGNED BAD BEBT, IT MUST SIMULTANEOUSLY SHOW THE REDUCTION IN THE AMOUNT OF LOANS AND ADVANCES OR TH E DEBTORS AT THE YEAR END ON THE ASSET SIDE OF THE BALANCE SHEET SO THAT THE BALANCE SHEET SHOWS THE NET OF THE PROVISIONS FOR T HE BAD DEBT. 4. WE HAVE HEARD THE LD. D.R. AND PERUSED THE ORDER S OF THE DEPARTMENTAL AUTHORITIES. THE CONTENTION OF T HE LD. D.R. BASICALLY IS, THE CIT(A) HAS NO JURISDICTION UNDER THE ACT TO SET ASIDE THE ISSUE TO THE ASSESSING OFFICER. THOUGH W E ACCEPT THE SUBMISSIONS OF THE LD. D.R. THAT CIT(A) DOES NOT HA VE THE POWER TO SET ASIDE THE ISSUE BACK TO THE FILE OF TH E ASSESSING OFFICER, HOWEVER, IN OUR VIEW, THE CIT(A) WAS CORRE CT IN OBSERVING THAT IT NEEDS TO BE VERIFIED WHETHER THE ASSESSEE APART FROM DEBITING THE PROFIT & LOSS ACCOUNT TO TH E EXTENT OF 4 ITA.NO.1403/HYD/2012 M/S. SRI VIJAYA DURGA FINANCE (P) LTD., KADAPA THE PROVISION OF BAD DEBT HAS ALSO CORRESPONDINGLY AND SIMULTANEOUSLY REDUCED THE AMOUNT OF LOANS AND ADVANCES/DEBTORS AT THE YEAR END ON THE ASSET SIDE OF THE BALANCE SHEET SO THAT THE BALANCE SHEET SHOWS NET O F THE PROVISIONS OF BAD DEBT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO VERIFY THIS ASPECT, KEEPING IN VIEW THE PROVISIONS CONTAINED U/S 36(1)(VII) AS WELL AS THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF SOUTHERN TECHNOLOG IES LTD. VS. JCIT 320 ITR 577 AND VIJAYA BANK VS. CIT 323 IT R 166. THE A.O. MUST AFFORD A REASONABLE OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE BEFORE DECIDING THE ISSUE. 5. IN THE RESULT, DEPARTMENTS APPEAL IS CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH AUGUST , 2014. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATE 20 TH AUGUST, 2014 VG/SPS COPY TO : 1. THE DCIT, CIRCLE-2(1), TIRUPATI. 2. M/S. SRI VIJAYA DURGA FINANCE PVT. LTD., 8/325B, 2 ND FLOOR, ALMOSPET, KADAPA. 3. THE CIT(A), GUNTUR. 4. THE CIT, TIRUPATI 5. D.R. ITAT, B BENCH, HYDERABAD.