Assistant Commissioner of Income-tax, V. Col. R.D. Nikam Sainik Sahakari bank Ltd., Satara

ITA 2073/PUN/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 93735 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 10-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 29-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO.2073/PN/2013 ASSESSMENT YEAR : 2009-10 THE ASSTT. COMMISSIONER OF INCOME TAX, SATARA CIRCLE, SATARA. . APPELLANT VS. COL. R.D. NIKAM SAINIK SAHAKARI BANK LTD., CHH. SHIVAJI MAHARAJ CIRCLE, POWAI NAKA, SATARA. PAN : AABAS2355J . RESPONDENT ASSESSEE BY : SHRI M. K. KULKARNI DEPARTMENT BY : SHRI RAJESH DAMOR DATE OF HEARING : 07-05-2015 DATE OF PRONOUNCEMENT : 20-05-2015 ORDER PER SUSHMA CHOWLA, JM : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE ORD ER OF CIT(A)-III, PUNE DATED 18.09.2013 RELATING TO ASSESSMENT YEAR 2009-1 0 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THE ORDER OF THE COMMISSIONER OF INCOME-TAX (AP PEALS) IS CONTRARY TO THE LAW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2. WHETHER THE CIT(A) ERRED IN ALLOWING BAD DEBTS O F THE PERIOD PRIOR TO 01.04.2007, WHEN THE ENTIRE INCOME OF BANKING BUSIN ESS WAS ALLOWED AS DEDUCTION, IN THE YEAR WHEN THE BANKING BUSINESS IN COME OF A CO-OPERATIVE BANK IS TAXABLE AND DEDUCTION OF THE PROVISIONS FOR BAD DEBTS IS ALSO ALLOWED U/S 36(1)(VIIA) OF THE ACT? 3. WHETHER THE CIT(A) ERRED IN APPLYING THE RATIO O F APEX COURT DECISION RENDERED IN RESPECT OF A BANK NOT BEING A CO-OPERAT IVE BANK TO THE FACTS OF THE ASSESSEE BEING A CO-OPERATIVE BANK? 4. WHETHER THE CIT(A) ERRED IN APPLYING THE RATIO O F APEX COURT LAID DOWN WITH REFERENCE TO THE ASSESSMENT YEAR PRIOR TO 01.0 4.2007 TO THE FACTS OF THE ASSESSEE'S CASE FOR ASSESSMENT YEAR AFTER 01.04.200 7? 5. FOR THESE AND SUCH OTHER REASONS AS MAY BE URGED AT THE TIME OF THE HEARING, THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) MAY BE VACATED ITA NO.2073/PN/2013 2 AND THAT OF THE ASSESSING OFFICER BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF APPELL ATE PROCEEDINGS BEFORE THE HONBLE ITAT. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS A GAINST THE DELETION OF ADDITION MADE IN LINE WITH THE PROVISIONS OF SECTIO N 36(1)(VII) OF THE ACT. 4. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE SOCIETY WAS ENGAGED IN THE BANKING BUSINESS. FOR THE YEAR UNDER CONSIDERA TION, ASSESSEE HAD CLAIMED SUM OF RS.18,53,814/- ON ACCOUNT OF BAD DEBTS WRITT EN-OFF. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO S UBMIT AN EXPLANATION AS TO WHY THE BAD DEBTS WRITTEN-OFF SHOULD NOT BE DISA LLOWED. IN REPLY, THE CLAIM OF THE ASSESSEE WAS THAT THE BAD DEBTS WRITTEN-OFF WER E VERY OLD LOANS AND WERE NOT RECOVERABLE. IT WAS FURTHER EXPLAINED THAT THE PRO VISION TOWARDS BAD DEBTS WHICH WERE WRITTEN-OFF WAS MADE AGAINST THESE LOANS IN TH E EARLIER YEARS WHEN THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT WAS NO T APPLICABLE. HOWEVER, AFTER INSERTION OF THE SAID PROVISIONS BEING APPLICABLE T O THE CO-OPERATIVE BANKS W.E.F. 01.04.2007, THE AMOUNT OF BAD DEBTS WRITTEN-OFF WAS CLAIMED AS BUSINESS EXPENDITURE IN THE YEAR OF WRITE-OFF. THE ASSESSIN G OFFICER REJECTED THE CLAIM OF THE ASSESSEE AS THE PROVISIONS FOR RESERVES ON ACCO UNT OF BAD DEBTS WAS ALREADY ALLOWED IN THE HANDS OF THE ASSESSEE IN THE EARLIER ASSESSMENT YEARS AND ACCORDINGLY THE SAID BAD DEBTS WRITTEN-OFF COULD NO T BE ALLOWED AS A DEDUCTION/EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE SHOULD HAVE REDUCED THE SAID AMOUNT OF BAD DEBTS WRITTEN-O FF FROM SUCH RESERVES CREATED BY IT IN THE EARLIER YEARS AND ACCORDINGLY AN ADDITION OF RS.18,53,814/- WAS MADE IN THE HANDS OF THE ASSESSEE. 5. DURING THE APPELLATE PROCEEDINGS, THE CIT(A) ASK ED THE ASSESSEE TO FURNISH EVIDENCES THAT THE WRITE-OFF OF THE BAD DEB TS SATISFIED THE CRITERIA LAID DOWN UNDER THE PROVISIONS OF SECTION 36(1)(VII) R.W .S. 36(2) OF THE ACT AND ALSO TO ITA NO.2073/PN/2013 3 FURNISH THE COPIES OF THE BALANCE SHEET, AUDITED AC COUNT AND COMPUTATION OF INCOME FOR THE EARLIER FIVE YEARS. IN REPLY, THE A SSESSEE SUBMITTED THE COPIES OF BALANCE SHEET FOR THE EARLIER YEARS AND IT WAS POIN TED OUT THAT THE PROVISION TOWARDS BAD DEBTS WHICH WERE WRITTEN-OFF WAS MADE A GAINST THOSE LOANS IN EARLIER YEARS WHEN PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT WERE NOT APPLICABLE. THE PLEA OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT THE SAME WAS NOT CLAIMED AS DEDUCTION IN THE EARLIER YEARS AND HENCE THE SAME W AS ALLOWABLE AS DEDUCTION IN THE YEAR UNDER CONSIDERATION UNDER SECTION 36(1)(VI I) OF THE ACT. IT WAS FURTHER EXPLAINED BY THE ASSESSEE THAT THE INCOME OF THE CO -OPERATIVE BANK WAS EXEMPT UNDER SECTION 80P(2)(A)(I) OF THE ACT UPTO ASSESSME NT YEAR 2006-07 AND THERE WAS NO NECESSITY TO CREATE RESERVES IN THE EARLIER YEARS AND HENCE THE CONCLUSION OF THE ASSESSING OFFICER IN THIS REGARD WAS NOT CORRECT. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE SINCE THE SAID BA D DEBTS HAD BEEN WRITTEN-OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT. THE CIT( A) ALSO HELD THAT THE SAID DEDUCTION OF RS.18,53,814/- COULD NOT BE DENIED TO THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTI ON 36(1)(VIIA) OF THE ACT FOR THE EARLIER YEARS. 6. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF TH E CIT(A). 7. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE POINTED OUT THAT WHERE THE ASSESSEE HAD EARLIER CLAIMED THE DEDUCTIO N UNDER SECTION 36(1)(VIIA) OF THE ACT, THEN THE DEDUCTION ON ACCOUNT OF BAD DE BTS WRITTEN-OFF IS NOT TO BE ALLOWED TO THE ASSESSEE. RELIANCE IN THIS REGARD P LACED UPON THE ORDER OF THE ASSESSING OFFICER. 8. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESS EE PLACING RELIANCE ON THE ORDER OF THE CIT(A) POINTED OUT THAT THE CIT(A) DURING THE APPELLATE PROCEEDINGS HAD VERIFIED THE BOOK RESULTS SHOWN BY THE ASSESSEE FOR PRECEDING ITA NO.2073/PN/2013 4 FEW YEARS SINCE AMENDMENT IN THE PROVISIONS WERE IN TRODUCED BY THE FINANCE ACT, 2007 ITSELF. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE LIMITED ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO THE CLAIM OF BAD DEBTS WRITTEN- OFF BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AMOUNTI NG TO RS.18,53,814/-. THE CLAIM OF THE ASSESSEE WAS THAT IN VIEW OF THE PROVI SIONS OF SECTION 36(1)(VIIA) OF THE ACT BEING APPLICABLE TO THE CO-OPERATIVE BANKS W.E.F. 01.04.2007 WHERE IT HAD NOT CREATED ANY PROVISION TOWARDS THE BAD DEBTS AGA INST THE LOANS IN THE EARLIER YEARS NOR ANY PROVISION FOR BAD DEBTS WAS CLAIMED A S DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT FOR ASSESSMENT YEARS 2007-08 AND 2008-09, THE WRITE-OFF OF THE BAD DEBTS WAS CORRECTLY MADE UNDER SECTION 36(1 )(VII) OF THE ACT. WE FIND THAT THE CIT(A) HAD CONSIDERED THE EVIDENCE FILED B Y THE ASSESSEE VIS--VIS THE WRITE-OFF OF THE BAD DEBTS SATISFIED THE CONDITIONS LAID DOWN IN SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT. THE NECESSARY EVIDENCE WA S FILED BEFORE THE CIT(A) WHICH WAS CONSIDERED BY HIM AND IT WAS OBSERVED AS UNDER :- 6.2 I HAVE CONSIDERED THE SUBMISSION MADE ON BEHAL F OF THE APPELLANT. THE FINANCE ACT, 2007 INTRODUCED W.E.F. 01.04.2007 ALLO WED CO-OPERATIVE BANKS OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK TO MAKE PRO VISION FOR THE BAD AND DOUBTFUL DEBTS OF AN AMOUNT UPTO 7.5% OF THE TOTAL INCOME COMPUTED BEFORE CHAPTER VIA DEDUCTIONS AND DEDUCTION UNDER THIS CLA USE PLUS AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE OF THE AVERAGE ADVAN CES MADE BY RURAL BRANCHES OF SUCH BANK. SINCE THE APPELLANT IS ENTI TLED TO BOTH THE DEDUCTIONS NAMELY SEC. 36(1)(VII) AND SEC. 36(1)(VIIA), THE AS SESSING OFFICER HAS HELD THAT SINCE THE APPELLANT HAD ALREADY CLAIMED THE PROVISI ON FOR RESERVES ON ACCOUNT OF BAD AND DOUBT DEBTS IN THE EARLIER ASSESSMENT YEARS , THE BAD DEBTS HAD TO BE REDUCED FROM THE RESERVES CREATED BY IT AND NOT CLA IMED AS AN EXPENDITURE IN THE P & L ACCOUNT. ACCORDING TO HIM, THE PROVISO TO SE C. 36(1)(VII) LIMITED THE WRITE OFF OF BAD DEBTS TO THE EXTENT IT EXCEEDED THE CRED IT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS MADE UNDER SECTION 36(1)(VII A). I HAVE EXAMINED THE STANDS OF THE ASSESSING OFFICER WITH REGARD TO THE PROVISION OF LAW AS ENUNCIATED BY THE HONBLE SUPREME COURT IN CATHOLIC SYRIAN BAN K LTD. REPORTED IN 343 ITR 270. THE SUPREME COURT HELD THEREIN THAT THE BENEF IT OF WRITE OFF OF BAD DEBTS UNDER SECTION 36(1)(VII) IS AN ADDITION TO THE BENE FIT OF PROVISION MADE FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VIIA) AND BOTH O PERATE IN SEPARATE FIELDS. THE DEDUCTION IN RESPECT OF PROVISIONS FOR BAD AND DOUB T DEBTS IS ALLOWED, IRRESPECTIVE OF ANY ACTUAL WRITE OFF. THE APPELLAN T HAS CREATED PROVISION FOR BAD AND DOUBTFUL DEBTS DESERVED AMOUNTING TO RS.55,44,7 93/- FOR THE YEAR ENDED ITA NO.2073/PN/2013 5 31.03.2007 AND RS.79,07,000/- FOR THE YEAR ENDED 31 .03.2008. THE BDDR (BAD AND DOUBT DEBT RESERVE) IN THE BALANCE SHEET AS ON 31.03.2008 THUS STOOD AT RS.4,00,00,000/-. IN THE COMPUTATION OF INCOME, TH E APPELLANT CLAIMED RS.21,81,431/- FOR YEAR ENDED 31.03.2007 AND RS.29, 61,319/- FOR THE YEAR ENDED 31.03.2008 UNDER THE PROVISION OF SEC. 36(1)(VIIA). THE ASSESSING OFFICER HAS NOT CHALLENGED THAT THE BAD DEBTS CLAIMED HAVE NOT ACTU ALLY WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE APPELLANT DURI NG THE YEAR. THEREFORE, KEEP IN VIEW OF THE SUPREME COURT DECISION, CITED SUPRA, TH E WRITE OFF OF THE BAD DEBTS OF RS.18,53,814/- IS ALLOWABLE AND THE SAME CANNOT BE DENIED ON THE GROUND THAT THE APPELLANT HAS CLAIMED DEDUCTION UNDER SECTION 3 6(1)(VIIA) FOR THE EARLIER YEARS. GROUND NO.3 IS THUS ALLOWED. 10. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REV ENUE HAS FAILED TO CONTROVERT THE FINDINGS OF THE CIT(A) THAT AFTER IN SERTION WAS MADE BY THE FINANCE ACT, 2007 W.E.F. 01.04.2007, UNDER WHICH CO-OPERATI VE BANKS WERE ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT, WHETHER THE ASSESSEE WAS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 36 (1)(VII) OF THE ACT VIS--VIS SUCH BAD AND DOUBTFUL DEBTS. THE HONBLE SUPREME COURT IN CATHOLIC SYRIAN BANK LTD. VS. CIT, 343 ITR 270 (SC) HAD LAID DOWN THAT THE BENEFIT OF WRITE-OFF OF BAD DEBTS UNDER SECTION 36(1)(VII) OF THE ACT WAS IN AD DITION TO THE BENEFIT OF PROVISION MADE FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1) (VIIA) OF THE ACT AND BOTH THE SECTIONS OPERATE IN SEPARATE FIELDS. THE ASSESSEE HAD CREATED THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS.55,44,793/- FOR THE YEAR ENDING 31.03.2007 AND RS.79,07,000/- FOR THE YEAR ENDING 3 1.03.2008, THE TOTAL BAD AND DOUBTFUL DEBTS RESERVE CREDITED IN THE BALANCE SHEE T AS ON 31.03.2008 WAS AT RS.4,00,00,000/-. IN THE COMPUTATION OF INCOME FOR THE YEAR ENDING 31.03.2007, THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.21,81,431/ - AND FOR THE YEAR ENDING 31.03.2008 DEDUCTION OF RS.29,61,319/- UNDER THE PR OVISIONS OF SECTION 36(1)(VIIA) OF THE ACT. HOWEVER, THE ASSESSEE, DUR ING THE YEAR UNDER CONSIDERATION, HAD CLAIMED WRITE-OFF OF BAD DEBTS O F RS.18,53,814/- WHICH SATISFIED THE CONDITION LAID DOWN UNDER SECTION 36( 1)(VII) R.W.S. 36(2) OF THE ACT. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMS TANCES, WE UPHOLD THE FINDINGS OF THE CIT(A) IN ALLOWING THE CLAIM OF DEDUCTION OF BAD DEBTS WRITTEN-OFF BY THE ITA NO.2073/PN/2013 6 ASSESSEE IN ITS BOOKS OF ACCOUNT AND THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED ON THIS 20 TH DAY OF MAY, 2015. SD/- SD/- (R.K. PANDA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 20 TH MAY, 2015 SUJEET COPY OF THE ORDER IS FORWARDED TO: - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-III, PUNE; 4) THE CIT-III, PUNE; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// ASSISTANT REGISTRAR I.T.A.T., PUNE