ACIT, New Delhi V. M/s. Jain Co-op Bank Ltd., New Delhi

ITA 1607/DEL/2011

• Counselvise Citation: 160720114 RSA 2011
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 01-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MONGA
• Assessee Lawyers: SL GUPTA
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO.1007/DEL./2011 (ASSESSMENT YEAR : 2007-08) JAIN COOP. BANK LTD., VS. ACIT, CIRCLE 30(1), 510, NEW DELHI HOUSE, NEW DELHI. 27, BARAKHAMBA ROAD, NEW DELHI. (PAN/GIR NO.AAAAJ0060A) AND ITA NO.1607/DEL./2011 (ASSESSMENT YEAR : 2007-08) ACIT, CIRCLE 30(1), VS. JAIN COOP. BANK LTD., NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.L. GUPTA, A.R. REVENUE BY : SHRI A.K. MONGA, SR.DR ORDER PER K.D. RANJAN: AM THESE CROSS APPEALS BY THE ASSESSEE AND REVENUE FO R ASSESSMENT YEAR 2006-07 ARISE OUT OF ORDER OF CIT(A)-XXV, NEW DELHI. THE G ROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE REPRODUCED AS UNDER: 1. THAT THE IMPUGNED ORDER U/S 250(6) OF THE I.T. ACT, 1961 DATED 24.01.2011 PASSED BY THE CIT(A)-XXV, NEW DELHI IS BAD IN LAW A ND AGAINST THE FACTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A)-XXV, NEW DELHI HAS ERRED IN UPHOLDING THE ASSESSMENT ORDER U/S 143 (3) DATED 31.12.2009 FOR THE YEAR 2007-08 PASSED BY THE ACIT, CIRCLE 30( 1), NEW DELHI IN DISALLOWANCE OF DEDUCTION OF RS.77,73,715/- ON ACCO UNT OF REVERSAL OF NPA PROVISIONS CREDITED TO THE PROFIT & LOSS ACCOUN T. 2 ITA NO.1007/DEL./2011 AND ITA NO.1607/DEL./2011 2. THE ONLY ISSUE FOR CONSIDERATION IN ASSESSEES A PPEAL RELATES TO CONFIRMING THE ADDITION OF RS.77,73,715/- ON ACCOUNT OF REVERSAL O F NPA PROVISIONS CREDITED TO P&L A/C. THE FACTS OF THE CASE STATED IN BRIEF THAT TH E ASSESSEE DERIVES INCOME FROM BANKING. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER FOUND THAT THE ASSESSEE HAD REVERSED NPA PROVISIONS OF RS.77,73,71 5/-. ON A QUERY RAISED BY THE ASSESSING OFFICER, IT WAS SUBMITTED BY THE ASSESSEE THAT THE SAID PROVISION WAS MADE ON ACCOUNT OF NON PERFORMING ASSETS AS PER RBI GUIDELI NES ON BAD LOANS. WHILE MAKING THE PROVISIONS, THERE WAS NO ACTUAL EXPENDITURE, AND, T HEREFORE, AT THE TIME OF REVERSAL OF PROVISIONS THERE WAS NO ACTUAL INCOME. IT WAS ALS O SUBMITTED THAT ASSESSEE HAD MADE CLAIM ON ACCOUNT OF BAD DEBTS WRITTEN OFF SEPARATEL Y AS PER PROVISIONS OF SECTION 36(1)(VIIA) READ WITH SECTION 36(2) OF THE ACT. TH IS CONTENTION OF THE ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER ON THE GROUND THA T THE LEGISLATIVE INTENT BEHIND THE INTRODUCTION OF SECTION 36(1)(VIIA) IS THAT NPAS AR E GENERAL FEATURE IN THE BANKING SECTOR AND THEN GET DEDUCTION IN THE YEAR IN WHICH THEY HA VE CONSIDERED ANY ASSET AS NPA WITHOUT PREJUDICE TO THE CLAIM OF THE WRITE OFF BY THE BANK TO THE ACCOUNT OF THE CUSTOMER. THEREFORE, WHENEVER THE BANK ACTUALLY WR ITES OFF AN AMOUNT WHICH HAD CONSIDERED AS NPA, IT GETS VALID DEDUCTION. SIMILA RLY, THE LEGISLATURE INTRODUCED SECTION 41(4) WHICH CLARIFIES THE LEGISLATIVE INTENT THAT W HENEVER A BAD AND DOUBTFUL DEBT FOR WHICH DEDUCTION HAD BEEN ALLOWED IN EARLIER YEARS, GOT RECOVERED BY THE BANK SUBSEQUENTLY, THE SAME SHOULD BE TAXED IN THE YEAR OF RECOVERY. THE ASSESSING OFFICER ALSO NOTED THAT IN CASE WHERE AN ALLOWANCE/DEDUCTIO N HAS BEEN MADE IN EARLIER YEAR WITH RESPECT TO THE EXPENDITURE INCURRED BY THE ASSESSEE AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR THE SAID ALLOWANCE FOR DEDUCTION GETS REDUCED DUE TO EXCESS PROVISION MADE BY THE ASSESSEE, THE EXCESS PROVISION GETS TAXES IN THE YE AR OF RECOVERY. IN THE CASE OF THE ASSESSEE, IF DEDUCTION U/S 80P WOULD NOT HAVE BEEN AVAILABLE, THE ASSESSEE WOULD HAVE CLAIMED DEDUCTION U/S 36(1)(VIIA) OF THE ACT. FURT HER, THE ASSESSEE HAS CLAIMED THE DEDUCTION U/S 80P OF THE ACT AND HENCE THE AMOUNT W AS NOT OFFERED FOR TAX IN THE EARLIER YEARS. ACCORDINGLY, THE INCOME WAS NOT GETTING TAX ES TWICE. THE ASSESSING OFFICER, THEREFORE, ADDED THE AMOUNT OF RS.77,73,715/-. 3 ITA NO.1007/DEL./2011 AND ITA NO.1607/DEL./2011 3. ON APPEAL, IT WAS SUBMITTED THAT ASSESSEE WAS CR EATING PROVISIONS OF NPA OVER THE YEARS AND THE SAME WAS ADDED IN THE COMPUTATION OF INCOME, BUT THE ASSESSEE HAD ULTIMATELY CLAIMED THE FULL DEDUCTION U/S 80P(2) OF THE ACT. THE PROVISIONS FOR NPA HAS BEEN CREATED BY THE ASSESSEE OVER THE YEARS AND AS ON 1.4.2006, THE TOTAL PROVISION FOR NPA WAS OF RS.6,61,34,167/-, OUT OF WHICH ASSESSEE HAD REVERSED THE PROVISIONS FOR NPA OF RS.77,73,715/- AND THERE WAS BALANCE NPA PROVISI ONS OF RS.5,83,60,452/- AS ON 31.3.2007. THE ASSESSEE HAD CREDITED THE AMOUNT OF RS.77,73,715/- IN THE P& L A/C AND HAD SUBSEQUENTLY REVERSED THE ENTRY IN THE COMPUTAT ION OF INCOME BY CLAIMING IT AS A DEDUCTION. THE CIT(A) IN VIEW OF ABOVE FACTS NOTED THAT IT WA S NOT DISPUTED BY THE ASSESSEE THAT IT HAD BEEN CREATING PROVISIONS FOR N PA OVER THE YEARS. THE ASSESSEE HAD CLAIMED 100% DEDUCTION U/S 80P(2) OF THE ACT. THE ASSESSEE HAD ACTUALLY REDUCED ITS CLAIM OF NPA BY RS.77,73,715/- OUT OF THE TOTAL PRO VISION OF RS.6,61,34,167/- AND THERE WAS BALANCE PROVISION FOR NPA OF RS.5,83,60,452/- W HICH IN FACT WOULD MEAN THAT THE ASSESSEE HAD BEEN CREATING EXCESS PROVISION FOR NPA I.E. MORE THAN WHAT WAS REQUIRED. IT WOULD ALSO MEAN THAT ACTUAL REQUIREMENT OF PROVISIO NS OF NPA OF THE ASSESSEE WAS ONLY RS.5,83,60,482/- ONLY AND FOR THIS REASON, THE ASSE SSEE HAD REDUCED PROVISIONS FOR NPA OF RS.77,73,715/-. HE ALSO OBSERVED THAT THE PROVISIO NS FOR NPA HAD NOT SUFFERED TAX IN THE PAST. IN VIEW OF THESE FACTS, LD CIT(A) REJECTED T HE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER PASSED BY THE ASSESSING OFFICER . 4. WE HAVE HEARD BOTH THE PARTIES. THE LD.AR OF TH E ASSESSEE SUBMITTED THAT UP TO ASSESSMENT YEAR 2006-07, THE ASSESSEE BEING A COOPE RATIVE BANK WAS ELIGIBLE FOR DEDUCTION U/S 80P(2) OF THE ACT. THE ASSESSEE HAD BEEN CREATING NPAS AS PER GUIDELINES OF THE RBI. SINCE PROVISIONS FOR NPA WAS NOT ELIGI BLE FOR DEDUCTION, THE ASSESSEE WHILE COMPUTING TOTAL INCOME OF EARLIER YEARS HAD ADDED T HE AMOUNT OF NPA IN THE INCOME AND HAD CLAIMED DEDUCTION IN RESPECT OF ENTIRE INCOME U /S 80P OF THE ACT. FROM THESE FACTS, IT IS CLEAR THAT THE ASSESSEE HAD NOT CLAIMED DEDUCTIO N ON ACCOUNT OF PROVISIONS IN EARLIER YEARS. THEREFORE, REVERSAL OF THE NPA BY CREDITING THE AMOUNT OUT OF NPA PROVISIONS WOULD NOT CONSTITUTE INCOME LIABLE TO BE TAXED. IN VIEW OF ABOVE FACTS, IN OUR CONSIDERED OPINION, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIR MING THE ADDITION ON ACCOUNT OF REVERSAL 4 ITA NO.1007/DEL./2011 AND ITA NO.1607/DEL./2011 OF PROVISIONS IN RESPECT OF NON-PERFORMING ASSETS C REDITED TO THE P& L A/C. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADD ITION. 5. NOW, COMING TO THE APPEAL FILED BY THE REVENUE, THE ONLY ISSUE FOR CONSIDERATION RELATES TO DELETING THE DISALLOWANCE OF RS.28,75,20 4/- ON ACCOUNT OF BAD DEBTS. THE FACTS RELATING TO THIS GROUND OF APPEAL ARE THAT THE ASSE SSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 36(1)(VII) OF THE ACT IN RESPECT OF BAD DEBTS OF RS.28,75,204/-. ON A QUERY RAISED BY THE ASSESSING OFFICER, IT WAS SUBMITTED THAT THE AMOUNT OF RS.28, 75,204/- WAS WRITTEN OFF UNDER ONE TIME SETTLEMENT SCHEME OF RBI. THIS AMOUNT WAS NOT DEBITED TO THE P&L A/C, BUT WAS DEBITED TO UNREALIZED INTEREST PROVISIONS. THIS DE DUCTION WAS CLAIMED U/S 36(1)(VII) OF THE ACT. THE ASSESSING OFFICER, HOWEVER, DID NOT A CCEPT THE EXPLANATION OF THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE HAD ACCEPTED IN HIS C OMPUTATION OF INCOME FOR ASSESSMENT YEAR 2007-08 THAT HE HAD DEBITED RS.28,75,204/- TO THE PROVISIONS CREATED IN EARLIER YEARS AND HAS NOT DEBITED THE SAME TO THE P&L A/C. THERE FORE, IT WAS CLEAR THAT THE PROVISION WHICH WAS CREATED IN EARLIER YEARS WERE AVAILABLE F OR SUCH DEBT. HENCE, AMOUNT WAS NOT IN EXCESS OF PROVISIONS FOR BAD AND DOUBTFUL DEBT C REATED U/S 36(1)(VIIA) OF THE ACT. FURTHER, THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80P OF THE ACT IN EARLIER YEARS BY VIRTUE OF WHICH THE SAME INCOME HAS NOT BEEN TAXED. AS A PRE INCOME WHICH HAS NOT BEEN TAXED IN EARLIER YEARS CANNOT BE ALLOWED TO REDUCE THE TA XABLE INCOME OF THE FUTURE YEARS. THE ASSESSING OFFICER, THEREFORE, DISALLOWED THE CLAIM FOR BAD DEBTS. 6. BEFORE THE CIT (APPEALS), IT WAS SUBMITTED THAT ASSESSEE HAD NOT CLAIMED PROVISIONS OF BAD DEBT AS THE ENTIRE INCOME OF THE ASSESSEE WAS EXEMPT U/S 80P OF THE ACT. IT WAS ALSO SUBMITTED THAT ALTHOUGH THE A MOUNT OF BAD DEBT HAS NOT BEEN DEBITED TO P & L ACCOUNT, THE SAME HAD BEEN CLAIMED AS DEDUCTION UNDER SECTION 36(1)(VII) OF THE ACT, AND THE SAME WAS ALLOWABLE A S PER THE EXISTING PROVISIONS OF BAD DEBT. IT WAS ALSO SUBMITTED THAT AMOUNT HAS BE EN ACTUALLY TREATED AS BAD DEBT AND THE ACCOUNTS OF THE DEBTORS HAS BEEN ACTUALLY WRITT EN OFF. THE CIT (APPEALS) ON CONSIDERATION OF THESE FACTS, CAME TO THE CONCLUSIO N THAT SINCE THE AMOUNT HAS 5 ITA NO.1007/DEL./2011 AND ITA NO.1607/DEL./2011 BEEN ACTUALLY WRITTEN OFF, THE ASSESSING OFFICER WA S NOT JUSTIFIED IN MAKING THE ADDITION. 7. BEFORE US, THE LD.SR.DR SUPPORTED THE ORDER OF T HE ASSESSING OFFICER. ON THE OTHER HAND, LD.AR OF THE ASSESSEE SUPPORTED THE ORD ER OF THE CIT (APPEALS). 8. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSE E BEING A COOPERATIVE BANK WAS ENGAGED IN MONEY LENDING BUSINESS. THE INCOME EARNED BY TH E ASSESSEE WAS ALLOWABLE AS DEDUCTION U/S 80P OF THE ACT. THERE IS NO DISPUTE ABOUT THE FACT THAT ON ACCOUNT OF ONE TIME SETTLEMENT SCHEME INTRODUCED BY THE RBI, ASSES SEE HAD WRITTEN OFF THE AMOUNT OF RS.28,75,204/- AND THE ACCOUNT OF THE PARTIES HAVE BEEN WRITTEN OFF. U/S 36(2)(I) OF THE ACT, THE DEDUCTION SHALL BE ALLOWED ON ACCOUNT OF B AD DEBT UNLESS AS DEBT OR PART THERE OF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR OR REPRESENTS MONEY LENT IN THE MANNER THE COU RSE OF BUSINESS OF BANKING FOR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE. THE A SSESSEE IS ENGAGED IN THE BUSINESS OF BANKING OR MONEY LENDING. THIS FACT IS NOT IN DISP UTE. THE ASSESSEE HAS WRITTEN OFF OF THE ACCOUNT OF THE PARTIES ON ACCOUNT OF ONE TIME SETTL EMENT. THE INTEREST INCOME EARNED HAS BEEN INCLUDED IN THE INCOME OF THE EARLIER YEARS WH ICH GOT EXEMPT BY VIRTUE OF DEDUCTION U/S 80P OF THE ACT TO WHICH THE ASSESSEE WAS ELIGIB LE. THEREFORE, THE INTEREST INCOME HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. 9. IN VIEW OF THESE FACTS, SINCE THE CONDITIONS OF SECTION 36(1)(VII) READ WITH SECTION 36(2)(I) OF THE ACT SATISFIED IN THE CASE OF THE AS SESSEE, THE ASSESSEE WILL BE ELIGIBLE FOR DEDUCTION U/S 36(I)(VII) ON ACCOUNT OF BAD DEBTS. THEREFORE, IN OUR CONSIDERED OPINION, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION O N ACCOUNT OF BAD DEBTS. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 6 ITA NO.1007/DEL./2011 AND ITA NO.1607/DEL./2011 11. TO SUM UP THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON : 30 TH AUGUST, 2011 . SD/- SD/- [R.P. TOLANI] [K.D. RANJAN] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 30 TH AUG., 2011 . SKB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A)-XXV, NEW DELHI. 5. CIT( ITAT) BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES