M/s District Co-operative Central Bank Limited , Bidar V. Assistant Commissioner of Income Tax Circle-1 , Gulbarga

ITA 185/BANG/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2761 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 25-03-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 01-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R PREMI
• Assessee Lawyers: S V RAVISHANKAR
• Keywords: Reopening of assessment; Bad and doubtful debts; Difference of opinion; Reason to believe; Change of opinion; Set aside
• Section: 143(3); 13; 22; 148

Judgement Text

ITA NO.185/BANG/2019 DISTRICT CO-OPERATIVE CENTRAL BANK LTD., BIDAR IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO. 185/BANG/2019 ASSESSMENT YEAR: 2012 13 DISTRICT CO-OPERATIVE CENTRAL BANK LTD. NEAR BASAVESHWAR CIRCLE HYDERABAD ROAD BIDAR PAN NO : AAAAD0760F VS. ACIT CIRCLE-1 GULBARGA APPELLANT RESPONDENT APPELLANT BY : SHRI S.V. RAVISHANKAR, A.R. RESPONDENT BY : SMT. R. PREMI, D.R. DATE OF HEARING : 25.03.2021 DATE OF PRONOUNCEMENT : 22.06.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 26.11.2018 PASSED BY LD. CIT(A) KALABURUGI, AND IT RELATES TO THE ASSESSMENT YEAR 2012-13. THE ASSESSEE HAS, INTER-A LIA, CHALLENGED THE VALIDITY OF REOPENING OF ASSESSMENT. 2. THE FACTS RELATING TO THE ABOVE SAID LEGAL ISSUE ARE STATED IN BRIEF. THE ASSESSEE HEREIN IS A COOPERATIVE BANK. THE ORIGINAL ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS PAS SED U/S 143(3) OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] ON 16.3.2015. ITA NO.185/BANG/2019 DISTRICT CO-OPERATIVE CENTRAL BANK LTD., BIDAR PAGE 2 OF 8 SUBSEQUENTLY, THE A.O. REOPENED THE ASSESSMENT BY I SSUING NOTICE U/S 148 OF THE ACT ON 9.3.2016. THE REASONS FOR RE OPENING ARE RECORDED AS UNDER: IN THE RETURN OF INCOME FILED THE ASSESSEE CLAIMED DEDUCTION OF RS.2,50,00,000/- U/S 36(1)(VIIA). HOWEVER, THE ASS ESSEE DEBITED ONLY RS.2,00,00,000/- TO THE PROFIT AND LOSS ACCOUNT TOW ARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. THE ASSESSEE CONSIDERED PROVISION FOR STANDARD ASSETS OF RS.50,00,000/- ALSO FOR CLAIMING DEDUCTION U/S 36(1 )(VIIA) WHICH IS NOT ALLOWABLE. HENCE THE DEDUCTION WAS EXCESS CLAIMED BY RS.50,00,000/-. THEREFORE, I HAVE REASON TO BELIEVE THAT THE INCOME CHARGEABLE TO TAX TO THE EXTENT OF RS.50,00,000/- HAS ESCAPED ASSESSMENT WIT HIN THE MEANING OF SECTION 147. 3. THE ASSESSEE CONTESTED BEFORE A.O. THAT THE REOP ENING OF ASSESSMENT WAS NOT VALID. HOWEVER THE CONTENTIONS OF THE ASSESSEE WERE REJECTED BY THE AO. THE LD. CIT(A) ALSO CONFIR MED THE VALIDITY OF REOPENING OF ASSESSMENT. 4. THE LD. A.R. SUBMITTED THAT THE A.O. HAS COMPLET ED THE ORIGINAL ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT BY CAL LING FOR VARIOUS DETAILS. THE LD. A.R. SUBMITTED THAT THE A.O. HAS ISSUED A NOTICE ON 12.2.2015 TO THE ASSESSEE DURING THE COURSE OF ORIG INAL ASSESSMENT PROCEEDINGS ASKING THE ASSESSEE TO FURNISH INFORMAT ION ON VARIOUS CLAIMS MADE BY THE ASSESSEE IN THE RETURN OF INCOME . THE QUERY NO.19 RAISED IN THE ABOVE SAID NOTICE READS AS UNDE R. DETAILS OF SUSPENSE LIABILITY, SUNDRY LIABILITY, C OST MANAGEMENT DUES AND PROVISION FOR STANDARD ASSETS SHOWN IN THE BALANCE SHEET. THE LD A.R SUBMITTED THAT THE AO HAS ASKED A SPECIF IC QUERY IN RESPECT OF PROVISION FOR STANDARD ASSET. HE SUBM ITTED THAT THE ITA NO.185/BANG/2019 DISTRICT CO-OPERATIVE CENTRAL BANK LTD., BIDAR PAGE 3 OF 8 ASSESSEE HAS ALSO FURNISHED ALL THE INFORMATION CAL LED FOR BY THE A.O. ACCORDINGLY, THE A.O. HAS COMPLETED THE ORIGINAL AS SESSMENT ACCEPTING THE EXPLANATIONS AND INFORMATION FURNISHE D BY THE ASSESSEE. 5. THE LD. A.R. FURTHER SUBMITTED THAT THE A.O., IN THE REASONS FOR REOPENING, HAS STATED THAT THE ASSESSEE HAS DEBITED ONLY RS.2.00 CRORES TO THE PROFIT & LOSS ACCOUNT TOWARDS PROVISI ON FOR BAD AND DOUBTFUL DEBTS, WHILE IT HAS CLAIMED DEDUCTION OF R S.2.50 CRORES U/S 36(1)(VIIA) OF THE ACT. THE LD. A.R. SUBMITTED THA T THE ABOVE SAID OBSERVATION OF THE A.O. IS NOT CORRECT AND IS CONTR ARY TO THE FACTS AVAILABLE ON RECORD. HE SUBMITTED THAT THE ASSESSE E HAS DEBITED THE PROFIT & LOSS ACCOUNT WITH A PROVISION OF RS.2.50 C RORES ONLY. IN SUPPORT OF THE SAME, THE LD. A.R. INVITED OUR ATTEN TION TO THE PAGE NOS.21 & 36 OF THE PAPER BOOK. PAGE NO.21 IS THE P ROFIT & LOSS ACCOUNT, WHEREIN A SUM OF RS.6.30 CRORES IS DEBITED TOWARDS PROVISION FOR NPA AND OTHERS. PAGE NO.36 CONTAIN S DETAILS OF RS.6.30 CRORES, WHICH SHOWS THAT THE PROVISION MADE FOR NPA IS RS.2.50 CRORES AND IT IS REPORTED AS UNDER:- PROVISION FOR NPA:- 1. PROVISION FOR DOUBTFUL DEBTS - RS.2,00,00,000 2. PROVISION FOR STANDARD ASSETS - RS. 50,00,000 ------------------- RS.2,50,00,000 ============= ACCORDINGLY, THE LD. A.R. SUBMITTED THAT THE ASSESS EE HAS DEBITED THE PROFIT & LOSS ACCOUNT WITH RS.2.50 CRORES ONLY AND THE SAME AMOUNT HAS BEEN CLAIMED AS DEDUCTION U/S 36(1)(VIIA) OF TH E ACT TOWARDS PROVISION FOR BAD & DOUBTS DEBTS. THE LD A.R SUBMI TTED THAT THE AO HAS TAKEN THE VIEW THAT THE AMOUNT OF RS.50,00,000/ -, BEING THE PROVISION CREATED FOR STANDARD ASSETS CANNOT BE CLA IMED AS ITA NO.185/BANG/2019 DISTRICT CO-OPERATIVE CENTRAL BANK LTD., BIDAR PAGE 4 OF 8 PROVISION FOR BAD AND DOUBTFUL DEBTS U/S 36(1)(VI IA) OF THE ACT. HE SUBMITTED THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS AN ESTIMATE MADE ON THE BASIS OF PAST EXPERIENCES IN R ESPECT OF BAD DEBTS AND THE SAME IS CREATED IN RESPECT OF ALL ITS OUTSTANDING DEBTS. FURTHER, THE PROVISIONS OF SEC.36(1)(VIIA) NOWHERE MANDATE THAT THE PROVISION SHOULD BE CREATED ONLY IN RESPECT OF DOU BTFUL DEBTS. THE LD. A.R. SUBMITTED THAT THE AO HAS EXAMINED ALL THE SE DETAILS DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND H AS ALLOWED THE CLAIM OF THE ASSESSEE. HENCE, THE A.O. HAS REOPENE D THE ASSESSMENT ON ACCOUNT OF CHANGE OF OPINION THAT THE PROVISION FOR STANDARD ASSETS IS NOT ALLOWABLE U/S 36(1)(VIIA) OF THE ACT. ACCORDINGLY, HE SUBMITTED THAT REOPENING IS BAD IN LAW. IN THIS RE GARD, THE LD. A.R. PLACED HIS RELIANCE ON THE DECISION RENDERED BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. KELVINATOR IN DIA LTD. (256 ITR 1), WHEREIN IT WAS HELD THAT REOPENING OF ASSESSMEN T ON MERE CHANGE OF OPINION IS UNCONSTITUTIONAL. 6. THE LD. D.R. ON THE CONTRARY, SUBMITTED THAT THE DEDUCTION IS ALLOWED U/S 36(1)(VIIA) OF THE ACT ONLY IN RESPECT OF PROVISION MADE FOR BAD & DOUBTFUL DEBTS. HOWEVER, THE ASSESSEE HAS MA DE PROVISION OF RS.50 LAKHS FOR STANDARD ASSETS, I.E., THE DEBTS WH ICH ARE NOT BAD & DOUBTFUL. HENCE THE PROVISION MADE ON STANDARD AS SETS IS NOT ALLOWABLE U/S 36(1)(VIIA) OF THE ACT. IN THIS CASE , THE ASSESSEE HAS CLAIMED THE DEDUCTION UNDER THE ABOVE SAID SECTION ON THE PROVISION MADE ON STANDARD ASSETS AND THE SAME HAS RESULTED I N ESCAPEMENT OF INCOME. THE LD. D.R. ACCORDINGLY SUBMITTED THAT THE REOPENING OF ASSESSMENT CANNOT BE CALLED TO BE ON ACCOUNT OF MER E CHANGE OF OPINION. HENCE REOPENING IS VALID. THE LD. D.R. R ELIED ON THE FOLLOWING CASE LAWS IN SUPPORT OF HER SUBMISSIONS: ITA NO.185/BANG/2019 DISTRICT CO-OPERATIVE CENTRAL BANK LTD., BIDAR PAGE 5 OF 8 A) COSMOS CO-OPERATIVE BANK LTD. VS. DCIT (2014) 45 TAXMANN.COM 13 (PUNE) B) THE BEED DISTRICT CENTRAL CO-OPERATIVE BANK LTD. VS. ACIT (ITA NO.1108 & 1109/PN/2011 DATED 31.12.2015) 7. IN THE REJOINDER, THE LD. AR SUBMITTED THAT SECT ION 36(1)(VIIA) OF THE ACT ALLOWS DEDUCTION FOR PROVISION MADE FOR BA D & DOUBTFUL DEBTS, WHILE SEC. 36(1)(VII) ALLOWS DEDUCTION OF A CTUAL BAD DEBTS. THE DEDUCTION U/S 36(1)(VIA) ALLOWS DEDUCTION TOWARDS G ENERAL PROVISION MADE FOR EXPECTED BAD DEBTS THAT MAY ARISE IN FUTUR E ON THE AGGREGATE AMOUNT OF OUTSTANDING ADVANCES. SECTION 36(1)(VIA) NOWHERE STATES THAT THE PROVISION SHOULD BE MADE ON DOUBTFUL DEBTS ALONE. HENCE, IT IS NOT REQUIRED TO DISTINGUISH THE OUTSTANDING BALANCES OF RECEIVABLES INTO GOOD DEBTS AND BAD & DOUBTFUL DEBTS FOR THE PURPOSE OF SECTION 36(1)(VIIA) OF THE ACT. HE SUBMITTED THAT THE A.O. HAS ACCEPTED THE CLAIM OF THE ASSESSEE IN THE ORIGINAL ASSESSMENT PROCEEDINGS AND HENCE, THE REOPENING OF ASSESSMENT IS ON ACCOUNT OF CHANGE OF OPINION ONLY. HE FURTHER S UBMITTED THAT THE DECISION RELIED ON BY THE LD. D.R. DOES NOT RELATE TO THE CLAIM MADE U/S 36(1)(VIIA) OF THE ACT. 8. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE R ECORD. WE NOTICE THAT THE A.O. HAS CALLED FOR DETAILS OF PROV ISION MADE FOR STANDARD ASSETS DURING THE COURSE OF ORIGINAL ASSES SMENT PROCEEDINGS. AFTER CONSIDERING THE DETAILS THE A.O . HAS ACCEPTED THE CLAIM MADE U/S 36(1)(VIIA) OF THE ACT. THERE IS NO DISPUTE ON THESE FACTS. 9. FROM THE REASONS RECORDED BY THE AO FOR REOPENIN G OF ASSESSMENT, WE NOTICE THAT THE A.O. HAS EXPRESSED T HE VIEW THAT THE ITA NO.185/BANG/2019 DISTRICT CO-OPERATIVE CENTRAL BANK LTD., BIDAR PAGE 6 OF 8 PROVISION FOR STANDARD ASSETS CANNOT BE CLAIMED U /S 36(1)(VIA) OF THE ACT. THE PROVISIONS OF 36(1)(VIIA) OF THE ACT READ AS UNDER:- ( VIIA ) IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DE BTS MADE BY ( A ) A SCHEDULED BANK [NOT BEING A BANK INCORPORATED B Y OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA OR A NON-SCHEDU LED BANK OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICUL TURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK], AN AMOUNT NOT EXCEEDING 42 [ EIGHT AND ONE-HALF PER CENT ] OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING TEN PER CENT OF THE AGG REGATE 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 CLASSIFI ED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS AS SETS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY IT IN THIS BEHALF, FOR AN AMOUNT NOT EXCEEDING FIVE PER CENT OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOKS OF ACCOUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR: A PLAIN READING OF THE ABOVE SAID PROVISION WOULD S HOW THAT THE DEDUCTION U/S 36(1)(VIIA) OF THE ACT IS ALLOWED IN RESPECT OF PROVISIONS FOR BAD & DOUBTFUL DEBTS MADE BY SPECIFIED BANKS, S UBJECT TO THE LIMITS PRESCRIBED IN THE SECTION. THE TERM PROVIS ION FOR BAD & DOUBTFUL DEBTS HAS NOT BEEN DEFINED UNDER THE ACT AND HENCE, THE MEANING GIVEN TO IT IN ACCOUNTING PARLANCE NEEDS TO BE CONSIDERED HERE. UNDER THE ACCOUNTING PARLANCE, A PROVISION F OR BAD & DOUBTFUL DEBTS REPRESENTS THE AMOUNT APPROPRIATED IN THE ACC OUNTS FOR EXPECTED BAD DEBTS. ACCORDINGLY, WHILE MAKING PR OVISION FOR BAD & DOUBTFUL DEBTS, A RELIABLE ESTIMATE IS MADE TOWARDS EXPECTED BAD DEBTS OUT OF THE AGGREGATE AMOUNTS OF RECEIVABLES A ND FOR THAT ITA NO.185/BANG/2019 DISTRICT CO-OPERATIVE CENTRAL BANK LTD., BIDAR PAGE 7 OF 8 PURPOSE NO DISTINCTION SHALL BE MADE BETWEEN DOUBTS DEBTS AND GOOD DEBTS, SINCE A BUSINESS MAN WOULD ALWAYS TAKE FULL EFFORTS TO COLLECT DEBTS FULLY. 10. THE LD. D.R. PLACED HER RELIANCE ON THE DECISIO N RENDERED BY PUNE BENCHES OF TRIBUNAL IN THE CASE OF COSMOS CO-O PERATIVE BANK LTD. (SUPRA). WE NOTICE THAT THE TRIBUNAL HAS REND ERED ITS DECISION IN THE ABOVE SAID CASE IN THE CONTEXT OF SECTION 36 (1)(VII) OF THE ACT, WHICH DEALS WITH THE DEDUCTION OF BAD DEBTS ACTUALL Y WRITTEN OFF IN THE BOOKS OF ACCOUNTS. WE NOTICE THAT THE DECISION RENDERED IN THE CASE OF COSMOS COOPERATIVE BANK LTD. (SUPRA) WAS FO LLOWED IN THE CASE OF THE BEED DISTRICT CENTRAL CO-OPERATIVE BANK LTD. (SUPRA). IN THE INSTANT CASE, WE ARE CONCERNED WITH THE CLAIM M ADE U/S 36(1)(VIIA) OF THE ACT AND HENCE, THE ABOVE SAID TW O DECISIONS WOULD NOT SUPPORT THE CASE OF THE A.O. 11. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE A.O., HAVING ALLOWED THE CLAIM OF THE ASSESSEE IN T HE ORIGINAL ASSESSMENT PROCEEDINGS, HAS REOPENED THE ASSESSMENT ON MERE CHANGE OF OPINION. FURTHER, THE VIEW EXPRESSED THE AO ON THE DEDUCTION AVAILABLE U/S 36(1)(VIA) IS ALSO, IN OUR OPINION, NOT A CORRECT VIEW THE HONBLE DELHI HIGH COURT IN THE CASE OF KELVINATOR OF INDIA LTD. (SUPRA) HAS HELD THAT THE REOPENING OF ASSESSM ENT UPON MERE CHANGE OF OPINION IS NOT VALID IN LAW. ACCORDINGLY , WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CONTENTION OF THE ASSESS EE THAT REOPENING OF ASSESSMENT IS NOT VALID. ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE AND HOLD THAT THE REOPE NING IS BAD IN LAW. ACCORDINGLY, WE QUASH THE IMPUGNED ORDERS PASSED BY THE TAX AUTHORITIES. ITA NO.185/BANG/2019 DISTRICT CO-OPERATIVE CENTRAL BANK LTD., BIDAR PAGE 8 OF 8 12. SINCE WE HAVE QUASHED THE ASSESSMENT ORDER ON T HE LEGAL ISSUE, THE ISSUES URGED ON MERIT WOULD BECOME ACADE MIC IN NATURE, HENCE WE DECLINE TO ADJUDICATE THEM. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 22 ND JUNE, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.