DCIT, Vellore V. The Little Kancheepuram Co operative Urban Bank Ltd., Kancheepuram

ITA 23/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1172 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 04-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: GURU BASHYAN
• Assessee Lawyers: A K VENUGOPAL
• Keywords: Depreciation; Bad and doubtful debts
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH CHENN AI BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI V.DURGA RAO, JUDICIAL MEMBER .. ITA NOS.23 & 24/MDS./2013 ASSESSMENT YEARS:2007-08 & 2009-10 & C.O. NOS.33 & 34/MDS./2013 ASSESSMENT YEARS:2007-08 & 2009-10 THE DY. COMMISSIONER OF INCOME TAX, CIRCLE I, VELLORE 632 001. VS. THE LITTLE KANCHEEPURAM CO OPERATIVE URBAN BANK LTD., NO.85,T.K.NAMBI STREET, KANCHEEPURAM 631 501. PAN AAAAT 0172 H (APPELLANT) (RESPONDENT/ CROSS OBJECTOR) APPELLANT BY : SHRI GURU BASHYAN JCIT D.R. RESPONDENT BY : SHRI A.K.VENUGOPAL, C.A. DATE OF HEARING : 14 .03.13 DATE OF PRONOUNCEMENT : 21. 03.13 O R D E R PER ABRAHAM P GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS BY REVENUE AND CROSS OBJECTIONS BY ASSESSEE DIRECTED AGAINST ORDERS DATED 28.09.12 OF CIT(A)-IX CHENNAI. GROUND TAKEN BY THE REVENUE IN ITS APPEA L ASSAILS ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 2 ALLOWING THE ASSESSEE, ADDITIONAL DEDUCTION FOR PRO VISIONS UNDER SECTION 36(1)(VII)(A) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) FOR THE IMPUGNED ASSESSMENT YEARS, WHEREAS AS SESSEE IN ITS CROSS OBJECTIONS IS AGGRIEVED THAT CIT(A) DID N OT CONSIDER ITS CLAIM REGARDING PROVISION FOR INVESTMENT DEPRECIAT ION RESERVE. 2. FACTS APROPOS ARE THAT ASSESSEE, A CO-OPERATIVE BANK, HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEARS ON 28.12.07 AND 29.09.09 DECLARING TOTAL INCOME OF ` 33,22,860/- AND ` 46,17,960/- RESPECTIVELY. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSESSING OFFICER THAT ASSESSEE HAD CLAIMED DEDUCTION TOWARDS CERTAIN PROVISIONS. SUCH CLAIMS APPEARING IN ITS PROFIT AND LOSS ACCOUNT WERE AS UN DER: FOR THE A.Y.2007-08 1 PROVISIONS FOR NSR (NON STATUTORY RESERVE) 24,571 2 PROVISIONS FOR NPA (NON PERFORMING ASSETS) 5,00,000 3 PROVISIONS FOR STANDARD ASSETS 74,000 4 PROVISIONS FOR INVESTMENT DEPRECIATION RESERVE 20,21,000 TOTAL 26,19 ,571 FOR THE A.Y.2009-10 1 PROVISIONS FOR NON STATUTORY RESERVE 8,28,362 2 PROVISIONS FOR INVESTMENT FLUCTUATION RESERVE 39,94,686 3 PROVISIONS FOR STANDARD ASSETS 87,232 4 PROVISIONS FOR INVESTMENT DEPRECIATION RESERVE 31,45,000 TOTAL 80,55 ,280 ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 3 WHEN THE ASSESSING OFFICER POINTED OUT THAT SUCH PR OVISIONS WERE NOT ELIGIBLE FOR DEDUCTION WHILE COMPUTING TOTAL IN COME, IT SEEMS THAT THE AUTHORISED REPRESENTATIVE OF ASSESSEE AGRE ED. THEREAFTER, DISALLOWANCES OF THE ABOVE AMOUNTS WERE MADE AND ASSESSMENTS WERE COMPLETED. HOWEVER, ASSESSING OFF ICER DID GIVE ASSESSEE DEDUCTION UNDER SECTION 36(1)(VII)(A) OF THE ACT AT 7.5% OF ITS TOTAL INCOME. 3. AGGRIEVED ASSESSEE MOVED IN APPEAL FOR BOTH THE YEARS. GROUND TAKEN BY THE ASSESSEE WAS THAT IT WAS ENTITL ED TO CLAIM PROVISIONS FOR A SUM OF 7.5% OF THE TOTAL INCOME AN D ALSO A SUM OF 10% OF THE AGGREGATE AVERAGE ADVANCES GIVEN BY I TS RURAL BRANCH UNDER SECTION 36(1)(VII)(A) OF THE ACT. AS PER ASSESSEE, IT HAD TWO BRANCHES, ONE AT KANCHEEPURAM TOWN AND O NE AT AYYEMPETTAI. THE BRANCH AT AYYEMPETTAI WAS A RURAL BRANCH. THEREFORE, AS PER ASSESSEE, IT WAS ENTITLED FOR DED UCTION OF THE FOLLOWING PROVISION UNDER SECTION 36(1)(VII)(A) OF THE ACT CALCULATED AS PER RULE 6ABA OF THE INCOME TAX RULE,1962:- FOR A.Y.2007-08: 7.5.% OF TOTAL INCOME 445682 10% AGGREGATE AVERAGE ADVANCES 2470154 TOTAL PROVISION ALLOWABLE 2915836 ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 4 FOR A.Y.2007-08: 7.5.% OF TOTAL INCOME 950493 10% AGGREGATE AVERAGE ADVANCES 5708134 TOTAL PROVISION ALLOWABLE 6658627 ARGUMENT OF THE ASSESSEE WAS THAT AYYEMPETTAI BRANC H WAS CLASSIFIED AS A RURAL BRANCH. RELIANCE WAS PLACE D ON THE CBDT CIRCULAR NO.17/2008 DATED 26.11.08. LD. CIT(A) ACC EPTED THE CONTENTIONS AND DIRECTED THE ASSESSING OFFICER TO A LLOW FURTHER REDUCTION OF 24,70,154/- FOR A.Y.2007-08 AND OF 5 7,08,134 FOR A.Y.2009-10 IN ADDITION TO WHAT WAS ALREADY ALLOWED UNDER SECTION 36(1)(VII)(A) OF THE ACT BY THE ASSESSING O FFICER. 4. NOW BEFORE US, D.R. STRONGLY ASSAILING THE ORDE R OF CIT(A) SUBMITTED THAT PROVISIONS MADE BY ASSESSEE WERE NOT FOR BAD AND DOUBTFUL DEBTS. PROVISIONS WERE FOR NON-STATUTORY RESERVE, NON- PERFORMING ASSETS, STANDARD ASSETS AND INVESTMENT D EPRECIATION RESERVE AND INVESTMENT FLUCTUATION RESERVE. AS PER LD. D.R., NONE OF THESE WERE PROVISION FOR BAD AND DOUBTFUL D EBTS. UNLESS AND UNTIL IT HAD MADE A PROVISION FOR BAD AND DOUBT FUL DEBTS, ASSESSEE COULD NOT MAKE A CLAIM UNDER SECTION 36(1) (VII)(A) OF THE ACT. ASSESSEE HAD NOT SATISFIED THIS CONDITION . AS PER LD. D.R., LD. CIT(A) FELT IN ERROR IN GIVING SUCH ALLO WANCES TO THE ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 5 ASSESSEE. FURTHER, AS PER THE LD. D.R., THE CLAIM OF THE ASSESSEE THAT AYYEMPETTAI BRANCH WAS A RURAL BRANCH, ENTITLE D FOR FURTHER DEDUCTION UNDER SECTION 36(1)(VII)(A) OF THE ACT, W AS NEVER PUT BEFORE THE ASSESSING OFFICER. THOUGH LD. CIT(A) HA D NOTED IN HIS ORDER THAT SUCH CLARIFICATION WAS GIVEN BY THE ASSE SSEE DURING THE TIME OF THE ASSESSMENT PROCEEDINGS, THIS WAS NOT BO RNE OUT OF RECORDS. RELIANCE WAS PLACED ON THE DECISION OF HO NBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA VS. CIT 272 ITR 54 AND THAT OF A CO-ORDINATE BENCH OF T RIBUNAL IN THE CASE OF BHARAT OVERSEAS BANK LTD. [2012] 139 IT D 154. LD. D.R. SUBMITTED THAT CBDT INSTRUCTION NO.17/08 DT.26 .11.08 WAS CLEAR IN THAT UNLESS AND UNTIL PROVISION FOR BAD A ND DOUBTFUL DEBTS WERE MADE IN THE ACCOUNTS, DEDUCTION COULD NOT BE A LLOWED UNDER SEC. 36(1)(VIIA) OF THE ACT. 5. PER CONTRA, LD. AUTHORISED REPRESENTATIVE OF AS SESSEE SUBMITTED THAT THE CBDT INSTRUCTION RELIED ON BY LD . D.R, CLEARLY MENTIONED AT SUB-CLAUSE(B) OF CLAUSE(III) THAT DED UCTION HAD TO BE ALLOWED TO THE ASSESSEE AT THE AMOUNT CALCULATED AS PER SECTION 36(1)(VIIA) OR THE AMOUNT OF PROVISION ACTUALLY DEB ITED IN THE BOOKS. FURTHER, ACCORDING TO HIM, JUST BECAUSE A D IFFERENT NOMENCLATURE IN THE ACCOUNTS WAS GIVEN TO THE PROV ISIONS IN THE ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 6 ACCOUNTS WOULD NOT BY ITSELF MEAN THAT SUCH PROVI SIONS WERE NOT FOR BAD AND DOUBTFUL DEBTS. PROVISION FOR NPA & ST ANDARD ASSETS, WAS NOTHING BUT PROVISIONS FOR BAD AND DOUBTFUL DEB TS. THE TERMINOLOGY USED IN THE ACCOUNTS DID NOT AFFECT THE SUBSTANCE OF THE CLAIM. FURTHER, ACCORDING TO LD. A.R, THE C IT(A) FAILED TO ADJUDICATE ON THE CLAIM OF ASSESSEE THAT PROVISION FOR INVESTMENT DEPRECIATION AND INVESTMENT FLUCTUATION RESERVE WER E ALLOWABLE ITEMS DEHORS SECTION 36(1)(VIIA) OF THE ACT. ACCOR DING TO HIM, CROSS OBJECTIONS OF THE ASSESSEE WAS ON THIS ASPECT . IF THE ASSESSEE WAS DENIED THE PROVISIONS CLAIMED BY IT FO R A REASON THAT THESE WERE NOT IN ACCORDANCE WITH SECTION 36(1 )(VIIA) OF THE ACT, THEN ITS CLAIM THAT SUCH PROVISIONS WERE FOR D IMINUTION IN VALUE OF INVESTMENTS HAD TO BE CONSIDERED. IN SUP PORT, RELIANCE WAS PLACED ON THE DECISION OF HONBLE JURISDICTIONA L HIGH COURT IN THE CASE OF CIT VS. CITY UNION BANK LTD. IN [2007] 291 ITR 0144 AND THAT OF CIT VS. KARUR VYSYA BANK LTD. IN [2005] 273 ITR 510. 6. IN REPLY D.R SUBMITTED THAT ASSESSEE HAVING ASS ENTED TO THE ADDITION BEFORE THE ASSESSING OFFICER COULD NOT PREFER A FRESH CLAIM AT THIS STAGE OF THE PROCEEDINGS. ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 7 7. WE HAVE PERUSED THE ORDERS OF THE LOWER AUTHORI TIES AND HEARD THE RIVAL CONTENTIONS. THERE IS NO DOUBT THAT ASSESSEE IS A CO-OPERATIVE BANK. SECTION 36(1)(VIIA) IS A PROVI SION FOR ALLOWANCE OF BAD AND DOUBTFUL DEBTS CLAIMED BY A S CHEDULED BANK OR CO-OPERATIVE BANK OTHER THAN PRIMARY AGRICU LTURAL CREDIT SOCIETY. THE SAID SECTION IS REPRODUCED HEREUNDER :- SEC.36(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLO WING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WI TH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 (VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOU BTFUL DEBTS MADE BY (A) A SCHEDULED BANK [NOT BEING [* * *] A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTS IDE INDIA] OR A NON-SCHEDULED BANK [OR A CO-OPERATIVE B ANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK], AN AMOUNT [NOT EXCEEDING SEVEN AND ONE-HALF PER CENT] OF THE TOTAL INCOME (COMPUTED BE FORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING [TEN] PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCH ES 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 O PTION, BE ALLOWED IN ANY OF THE RELEVANT ASSESSMENT YEARS, ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 8 DEDUCTION IN RESPECT OF ANY PROVISION MADE BY IT FO R ANY ASSETS CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS ASSETS IN ACCORDANCE WITH T HE GUIDELINES ISSUED BY IT IN THIS BEHALF, FOR AN AMOU NT NOT EXCEEDING FIVE PER CENT OF THE AMOUNT OF SUCH ASSET S SHOWN IN THE BOOKS OF ACCOUNT OF THE BANK ON THE LA ST DAY OF THE PREVIOUS YEAR:] [PROVIDED FURTHER THAT FOR THE RELEVANT ASSESSMENT YEARS COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2003 A ND ENDING BEFORE THE 1ST DAY OF APRIL, 2005, THE PROVI SIONS OF THE FIRST PROVISO SHALL HAVE EFFECT AS IF FOR TH E WORDS FIVE PER CENT, THE WORDS TEN PER CENT HAD BEEN SUBSTITUTED :] [PROVIDED ALSO THAT A SCHEDULED BANK OR A NON- SCHEDULED BANK REFERRED TO IN THIS SUB-CLAUSE SHALL , AT ITS OPTION, BE ALLOWED A FURTHER DEDUCTION IN EXCES S OF THE LIMITS SPECIFIED IN THE FOREGOING PROVISIONS, F OR AN AMOUNT NOT EXCEEDING THE INCOME DERIVED FROM REDEMPTION OF SECURITIES IN ACCORDANCE WITH A SCHEM E FRAMED BY THE CENTRAL GOVERNMENT: PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED UN DER THE THIRD PROVISO UNLESS SUCH INCOME HAS BEEN DISCLOSED IN THE RETURN OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION.] [EXPLANATION.FOR THE PURPOSES OF THIS SUB-CLAUSE, RELEVANT ASSESSMENT YEARS MEANS THE FIVE CONSECUTIVE ASSESSMENT YEARS COMMENCING ON OR AFTER ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 9 THE 1ST DAY OF APRIL, 2000 AND ENDING BEFORE THE 1S T DAY OF APRIL, 2005; ] A READING OF THE ABOVE CLEARLY SHOW THAT FOR AN ALL OWANCE TO BE GIVEN UNDER THAT SECTION, THERE HAS TO BE A PROVISI ON FOR FOR BAD AND DOUBTFUL DEBTS. IN THE CASE OF ASSESSEE, PROV ISION WHICH CAN BE TERMED AS PROVISION FOR BAD AND DOUBTFUL DEBTS ARE PROVISION FOR STANDARD ASSETS AND PROVISION FOR NON-PERFORMIN G ASSETS. SUCH PROVISION FOR A.Y. 2007-08, CAME TO ` 5,74,000/- AND FOR A.Y. 2009-10, CAME TO ` 87,232/-. THEREFORE, ASSESSEE CANNOT SAY THAT IT HAD TO BE GIVEN ANYTHING MORE THAN THES E AMOUNTS UNDER SEC. 36(1)(VIIA) OF THE ACT, WHATEVER BE THE MODE OF COMPUTATION PROVIDED UNDER THAT SECTION. A LOOK AT SUB CLAUSE(B) OF CLAUSE(C) AND CBDT INSTRUCTION NO.17/08 DATED 26 .11.08 WILL CLARIFY THE ISSUE FURTHER. THESE ARE REPRODUCED HE REUNDER:- (B) THE DEDUCTION FOR PROVISION FOR BAD AND DOUBTF UL DEBTS SHOULD BE RESTRICTED TO THE AMOUNT OF SUCH PROVISIO N ACTUALLY CREATED IN THE BOOKS OF THE ASSESSEE IN TH E RELEVANT YEAR OR THE AMOUNT CALCULATED AS PER PROVI SIONS OF SEC. 36(1)(VIIA), WHICHEVER IS LESS (C) FOR WORKING OUT THE AGGREGATE AVERAGE ADVANCES BY RURAL BRANCHES, THE ASSESSING OFFICER SHOULD VERIFY WHETHER THE BRANCH (ES) IN QUESTION ACTUALLY QUALIFY TO BE ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 10 CATEGORIZED AS RURAL BRANCHES AS PER THE DEFINITI ON IN EXPLANATION (IA) BELOW SEC. 36(1)(VIIA). THE AGGREGATE AVERAGE ADVANCES OF SUCH RURAL BRANCHES SHOULD THER EAFTER BE COMPUTED IN ACCORDANCE WITH RULE 6ABA OF IT RULE S, 1962. IT IS CLEAR THAT EITHER THE PROVISION FOR BAD AND D OUBTFUL DEBTS CREATED IN THE ACCOUNTS OR THE AMOUNT CALCULATED AS PER SEC. 36(1)(VIIA), WHICHEVER IS LESS ALONE COULD BE ALLOW ED. THEREFORE, THE MAXIMUM AMOUNT THAT COULD BE CONSIDERED FOR AN ALLOWANCE SEC. 36(1)(VIIA) IS ` 5,74,000/- FOR A.Y.2007-08 AND ` 87,232/- FOR A.Y. 2009-10. EVEN IF ACCEPT THE CLAIM OF REVE NUE, THAT ASSESSEE HAD NOT POINTED OUT TO THE A.O. THAT ITS B RANCH AT AYYEMPETTAI WAS A RURAL ONE, STILL IT CANNOT BE DI SPUTED THAT CLAIM SEC. 36(1)(VIIA) WAS AVAILABLE TO IT, IF ITS CLAIM IN THIS REGARD WERE TRUE. 8. NOW, COMING TO THE SUBMISSION OF THE ASSESSEE T HAT PROVISION FOR INVESTMENT DEPRECIATION RESERVE AND P ROVISION FOR INVESTMENT FLUCTUATION RESERVE, HAD TO BE ALLOWED TO IT, SINCE THERE WERE ONLY PROVISIONS FOR DIMINUTION IN VALUE OF INVESTMENT, NO DOUBT, THIS WAS NEVER PREFERRED BY THE ASSESSEE BEFORE THE ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 11 ASSESSING OFFICER. HOWEVER, IT IS ALSO NOTICED THA T ASSESSING OFFICER HAD NEVER VERIFIED THE CLAIM OF THE VARIOUS PROVISIONS MADE BY THE ASSESSEE IN THE PROPER PERSPECTIVE. A GLOBAL VIEW WAS TAKEN BY THE ASSESSING OFFICER THAT NO PROVISI ON PROVIDED IN THE P&L A/C WAS ELIGIBLE FOR DEDUCTION. ASSESSING OFFICER NEVER VERIFIED WHETHER SUCH PROVISIONS COULD BE ALLOWED C ONSIDERING THE NATURE OF EACH PROVISION VIS--VIS THE LAW IN RELAT ION TO SUCH PROVISIONS. WHEN A PROVISION REPRESENTED ACTUAL DIM INUTION IN VALUE OF ASSETS, IT HAD TO BE CONSIDERED IN THE PRO PER PERSPECTIVE. LEGITIMATE ALLOWANCE DUE TO AN ASSESSEE CANNOT BE D ENIED JUST FOR A REASON THAT ASSESSEES REPRESENTATIVE HAD AGR EED, OTHERWISE. 9. TAKING THE ENTIRE GAMUT OF FACTS AND CIRCUMSTA NCES, WE ARE OF THE OPINION THAT THE MATTER REQUIRES A FRESH VIS IT BY THE ASSESSING OFFICER. NO DOUBT, ASSESSEES CLAIM FOR PROVISION FOR NON STATUTORY RESERVE MAY NOT BE ALLOWABLE, SINCE T HESE WERE NOT AGAINST ANY ASCERTAINED LIABILITY. HOWEVER, WITH REGARD TO OTHER PROVISIONS WHETHER IT WAS WITHIN THE FOUR CORNERS O F SEC. 36(1)(VIIA) OR WHETHER ANY OF SUCH ITEM REPRESENTE D DIMINUTION IN VALUE OF INVESTMENTS, ALL NEED TO BE VERIFIED. ASSE SSEE HAS TO BE GIVEN AN OPPORTUNITY TO EXPLAIN. WE THEREFORE, SET ASIDE THE ORDER ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 12 OF THE AUTHORITIES BELOW AND REMIT THE ISSUES BACK TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERATION AFRESH IN ACCOR DANCE WITH LAW. 10. IN THE RESULT, APPEALS OF REVENUE AS WELL AS C ROSS OBJECTIONS OF ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 21 ST MARCH, 2013 AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED 21 ST MARCH, 2013 . K S SUNDARAM COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE ITA. 23 /24 /MDS/13 CO NO.33/34/MDS/13 13