Dy.CIT, Circle-2(3), Hyderabad V. The A.P.Mahesh Co-operative Urban Bank Limited, Hyderabad

ITA 1624/HYD/2013

• Counselvise Citation: 162422514 RSA 2013
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2014
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 28-11-2013
• Court: TRIBUNAL
• Department Lawyers: B RAMA KRISHNA
• Assessee Lawyers: B SATYANARAYANA MURTHY
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1624/HYD/2013 (ASSESSMENT YEAR 2007 - 08) DY. COMMISSIONER OF INCOME - TAX CIRCLE 2(3), HYDERABAD V/S. M/S. A.P. MAHESH CO - OPERATIVE URBAN BANK LTD., HYDERABAD ( PAN - AABAT 4652 K ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.RAMAKRISHNA DR RESPONDENT BY : SHRI B. SATYANARAYANA MURTHY DATE OF HEARING 01 . 12 .2014 DATE OF PRONOUNCEMENT 03.12.2014 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) IV HYDERABAD, WHE R EBY HE DELETED THE DISALLOWANCE OF RS.1,42,43, 0 00 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BAD DEBTS WRITTEN OFF CLAIMED BY THE ASSESSEE AS DEDUCTION UNDER S.36(1)(VII) OF THE AC T. 2. THE ASSESSEE IN THE PRESENT CA S E IS A BANKING COMPANY AND CORPORATE AGENCY FOR L I FE INSURANCE. TH E RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FIL E D BY IT ON 16.10.2007 DECLARING TOTAL INCOME OF RS .4,29,68,159. IN THE ASSESSMENT ORIGI NALLY COMPLETED UNDER S.143(3) VIDE ORDER DATED 30.12.2009, THE TOTAL IN C OM E O F THE ASSESSEE WAS DETERMIN E D BY THE ASSESSING OFFICER AT R S .5,64,57,870. THE ASSESSMENT WAS SUBSEQUENTLY REOPENED BY THE ASSESSING OFFICER BY ISSUING NOTICE UNDER S.148 ON 25.2. 2010. I N RESPONSE TO THE SAID NOTICE, THE RETURN OF INCOM E I TA NO. 1624/HYD/2013 M/S. A.P. MAHESH CO - OPERATIVE URBAN BANK LTD., HYDERABAD 2 WAS FILED BY THE ASSESSEE ON 30.4.2012, DECLARING THE SAME INCOME AS RETURNED ORIGINALLY. DURING TH E COU R SE OF RE - ASSESSMENT PROCEEDINGS, THE CLAIM O F TH E ASSESSEE FOR DEDUCTION OF R.1,42,43,000 TOW A RDS BAD DEBTS WRITTEN OFF UNDER S.36(1)(VII) WAS EXAMINED BY THE ASSESSING OFFICER. IN THIS REGARD, HE FOUND THAT A SUM OF R S .34,84,342 BEING 7.5% OF THE TOTAL INCOME WAS CL A IM E D BY THE ASSESSEE AS DEDUCTION UNDER S.36(1)(VIIA) AND THE SAME WAS EN HANCED TO RS.45,77,841 (BEIN G 7.5% OF T H E ASSESSED INCOME) IN THE ASSESSMENT COMPLETED UN D ER S.143(3). ACCOR D ING TO THE ASSESSING OFFICER . CLAUSE (VIIIA) THUS WAS APPLICABLE IN THE C A SE OF THE ASSESSEE AND AS PER THE PROVISO TO S.36(1)(VII), THE AMOUNT O F DEDUCTION RELATING TO ANY SUCH DEBT OR PART THEREOF WAS LIMI T ED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDED THE CREDIT BALANCE IN THE P ROVISION FOR B AD AND D OU B TFUL D EBTS A CCOUNT MADE UNDER THAT CLAUSE . S I NCE THE CR E DIT BALANCE IN TH E PROVISION FOR BAD A N D DOU B TFUL DEBTS AVAILABLE WITH THE ASSESSEE WAS TO THE TUNE OF RS.8,95,17,159, THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTION ON ACCOUNT OF BAD DEBTS AMOUNTING TO R S .1,42,43,000 AS CLAMED UNDER S.36(1)(V II). ACCORDIN G LY, TH E CLAIM O F THE ASSESSEE FOR SUCH DEDUC T ION WAS DISALLOWED BY HIM IN THE ASSESSMENT COMPLETED UNDER S.143(3) READ WITH S.147 VIDE O R DER DATED 25.3.201 3 . 3. AGAIN S T THE ORDER PASSED BY THE ASSESSING OFFICER UNDER S.143(3) READ WITH S.147, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(A). DURIN G TH E COU R SE OF APP ELLATE PROCEEDINGS, I T WAS BROUGHT TO THE NO T I C E OF TH E LEARNED CIT(A) THAT THE ASSESSEE WAS ENJOYING DEDUCTION UNDER S .80P OF THE ACT UPTO ASSESSMENT YEAR 2 006 - 07 AND IT THEREFORE NEVER CLAIMED DEDUCTION UNDER S.36(1)(VII A ) . IT WAS ALSO POIN TE D OUT THAT THE P R O VIS ION S O F S.36(1)(VII A ) WERE MADE APPLICABLE TO THE COOPERATIVE BANKS ONLY I TA NO. 1624/HYD/2013 M/S. A.P. MAHESH CO - OPERATIVE URBAN BANK LTD., HYDERABAD 3 FROM ASSESSMENT YEAR 2007 - 08 AND TH ERE FORE, ONLY TH E AMOUNT OF PROVISION CREATED IN ASSESSMENT YEAR 2007 - 0 8 SHOULD B E TAKEN INTO ACCOUNT WHILE ALLOWING THE CLAIM O F THE ASSESSEE FOR DEDUCTION UN D ER S.36(1)(VII). THE LEARNED CIT(A) FOUND MERIT IN THE SUBMISSION OF THE ASSESSEE AND ALLOWED THE CLAIM O F TH E ASSESSEE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF UNDER S.36(1)(VII) , SUBJECT TO APPLICABILITY OF S.36(1)(VIIA) IN THE CURRENT YEAR FOR THE FOLLO W IN G REASONS GIVEN IN PARAGRAPH 4.2 AND 4.3 OF HIS IMPUGN E D ORDER. 4.2 I HAVE SEEN CAREFULLY THE FACTS AND EVIDENCE AND I HAVE ALSO GONE THROUGH THE RELEVANT SECTIONS OF TH E INCOM E TAX ACT. I FIND THAT THE S.36(1)(VIIA) WAS MADE APPLICABLE TO A COOPERATIVE BANK BY THE FINANCE AC T 2007 WITH EFFE C T FROM 01.04.2007. PRIOR, TO THIS, DEDUCTION THI S SUBSE CT ION WAS NOT AV A I LA B L E TO A COOPERATIVE BANK LIKE THE APPELLANT . THE PROVISO TO SUBSECTION S.36(1)(VII) IS REPRODUCED BELOW: - PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH CLAUSE (VIIIA) APPLIES, THE AMOUNT OF DEDUCTION RELATING TO ANY SUCH DEBT OR PART THEREOF SHALL BE L IMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. (EMPHASIS PROVIDED) 4.3 A PLAIN READING OF THE ABOVE PRO VI SO CLEARLY STATES THE SCHEME OF THI NGS VIS - - VIS THE SE DEDUCTIONS. FIRST OF ALL, THE APPELLANT HAS TO MAKE A PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER S.36(1)(VIIA) . IN THE CURRENT CA S E, THE APPELLANT COULD NO T HAVE MADE ANY P R O VI SION UNDER THIS CLAUSE PRIOR TO 01.04.2007. T HE ISSUE IS N O T THAT OF A P R O V ISION FOR BAD AND DOUBTFUL DEBTS, SUCH A PROVISION COULD HAVE BEEN CREATED BY ANY ASSESSEE AT ANY TIME. HOW E VER, THE APPELLANT COULD NOT HAVE CREATED SUCH A P R O V ISION UN D ER THE AFOREMENTIONED CL A USE PRIOR TO THIS DATE. THEREF O RE, ANY EARLIER PROVISION CANNO T B E STATED TO BE A P R OVI S ION CRE AT ED UNDER (VIIA) REFERRED TO SUPRA. HAD THE AF O REMENTION E D PROVISION B E EN APPLICABLE TO TH E APPELLANT IN EARL IER ASSESSMENT YEAR, THE DE C ISION OF TH E ASSESSING OFFICER WOULD BE CORRECT IN TAKING INT O ACCOUNT THE ACCUMULATED PROVISION. HOWE V ER, IN TH E CURRENT CA S E SINCE THE APPELLANT COULD NO T HAVE CRE AT ED ANY SUCH P ROVISION S IN THE EARLIER YEARS, THE ASSESSING OFFICER CANNO T CANCEL THE BAD DEBTS WITH THE PROVISION NOT CREATED UNDER THIS SECTION. IN VIEW OF THE I TA NO. 1624/HYD/2013 M/S. A.P. MAHESH CO - OPERATIVE URBAN BANK LTD., HYDERABAD 4 SPECIFIC LEGAL I S SUE DISCUSSED ABO V E, I HOL D THAT THE BAD DEBTS ARE ALLOWABLE TO THE APPELLANT SUBJECT TO APPLICABILITY OF S.36(1)(VIIA) IN THE CURRENT YEAR. THE ADDITION ON THIS ACCOUNT IS ORDERED TO B E DELETED. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(A), R E VENUE HAS PREFERRED THIS APPE A L BEFORE THE TRIBUNAL . 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS UNDER S.36(1)(VII) WA S ALLOWED BY THE LEARNED CIT(A) BY THE IMPU G N E D ORDER WITHOUT TAKING INTO CON S I D ERATION THAT THE SAID WRITE OFF IS NO T PERMI SSIBL E UNDER S.36(2) ( V ) AND WITHOUT A PPRECIATING THE POSITION THAT THE OPERATION OF S.36(1)(VII) IS SUBJECT TO THE P R OVI S ION OF S.36(2). AS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE ASSESSEE BANK IN THE PRESENT CA S E DOES NO T HAVE ANY RURAL BRANCHES AND THEREFORE, CLAUSE ( V ) OF SUB - SEC T ION (2) OF S.36 IS NO T APPLICABLE IN THIS CA S E. SIMILARLY CLAUSE ( I ) OF SUB - SECTION ( 2) OF S.36 RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IS NO T APPLICABLE IN THE CA S E OF THE ASSESSEE AS THE RELE VANT DEBT S CLAIMED AS BAD , DEDUCTION UNDER S.36(1)(VII) UN D OUBTEDLY REPRESENTED THE MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF BAN K IN G CARRIED ON BY THE ASSESSEE. W E, THER E FORE, FIND NO MERIT IN TH E CON T ENTIONS RAISED BY THE LEARNED DEPARTMENTAL REP RESENTATIVE RELYING ON THE RELEVANT PROVI SI ON S OF S .36(2) AND REJECTING THE SAME, WE UPHOLD THE IMP UGN ED ORDER OF THE LEARNED CIT(A), ALLO W IN G THE CL A IM O F TH E ASSESSEE FO R DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF UN D ER S.36(1)(VII) , BY HOL D IN G THAT THE P R O V I SI ON S OF S.36(1)(VII A ) ARE APPLI C ABL E IN TH E CA S E OF THE ASSESSEE ONLY IN THE Y E AR UNDER CONSIDERATION . I TA NO. 1624/HYD/2013 M/S. A.P. MAHESH CO - OPERATIVE URBAN BANK LTD., HYDERABAD 5 5 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 2 ND DE CEMBER, 2014 SD/ - SD/ - ( ASHA VIJAYARAGHAVAN) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 3 RD DECEMBER, 2014 COPY FORWARDED TO: 1. M/S. A.P. MAHESH CO - OPERATIVE URBAN BANK LTD., 5 - 3 - 989, SHERZA ESTATE, NIZAMASHAHI ROAD, OSMANGUNJ, HYDERABAD 2 . DY. COMMISSIONER OF INCOME - TAX CIRCLE 2(3), HYDERABAD 3. COMMISSIONER OF INCOME - TAX(APPEALS) III, HYDERABAD 4. 5. COMMISSIONER OF INCOME - TAX II, HYDERABAD DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S