M/s. Nazareth Urban Co-op. Bank Ltd., Tuticorin V. DCIT, Tuticorin

ITA 2328/CHNY/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4318 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 11-08-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AR SREENIVASAN
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A BENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.2328/CHNY/2016 ( [ [ / ASSESSMENT YEAR: 2012-13) M/S. NAZARETH URBAN CO-OPERATIVE BANK LTD., NO.109, MARGACIOUS ROAD, NAZARETH 628 617. VS THE DCIT, CIRCLE I, TUITCORIN PAN: AACCN0734F ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : NONE / RESPONDENT BY : SHRI A.R. SREENIVASAN, JCIT /DATE OF HEARING : 24.12.2018 /DATE OF PRONOUNCEMENT : 08.02.2019 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-1, MADURAI, DATED 11.05.2016 IN ITA NO.0115/2015-16 FOR THE ASSESSMENT YEAR 2012-13 PASSED U/S. 250(6) R.W.S. 143(3) OF THE ACT. AT THE TIME OF HEARING THE LD.AR WAS NOT PRESENT BEFORE THE BENCH, HOWEVER ON PERUSING THE FILE AND THE SUBMISSION OF THE LD.DR THE BENCH DECIDED TO HEAR THE APPEAL EX-PARTE ON MERITS. 2 ITA NO.2328/CHNY/2016 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEAL HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD.AO WHO HAD DENIED THE CLAIM OF DEDUCTION U/S.36(1)(VII)(A) OF THE ACT TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS.24,87,120/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO- OPERATIVE BANK WITH LIMITED LIABILITY ENGAGED IN BANKING ACTIVITY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 ON 27.03.2013 DECLARING NIL INCOME. SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED ON 13.08.2013. FINALLY ASSESSMENT ORDER WAS PASSED U/S.143(3) OF THE ACT ON 26.03.2015 WHEREIN THE LD.AO DENIED THE CLAIM OF DEDUCTION U/S.36(1)(VII)(A) OF THE ACT TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS.56,68,264/- BECAUSE THE ASSESSEE HAD NOT CREATED THE PROVISION IN ITS BOOKS OF ACCOUNTS. WHILE DOING SO, THE LD.AO OBSERVED AS FOLLOWS:- A CLEAR READING OF SEC.36(1)(VII)(A) WOULD SHOW THAT DEDUCTION U/S36(1)(VII)(A) IS ALLOWED ONLY IN RESPECT OF ANY PROVISION FOR BAD & DOUBTFUL DEBTS. IT IS EVIDENT THAT IN ORDER TO AVAIL DEDUCTION U/S 36(1 )(VII)(A), A PROVISION SHOULD NECESSARILY BE CREATED DURING THE YEAR. ON PERUSAL OF THE STATEMENT NO3 ENCLOSED ALONG WITH LETTER DATED 09.03.20 IS, THE ABOVE-AMOUNT OF RS.2,02,72,918 WAS SHOWN AS EXISTING PROVISION AT THE BEGINNING OF THE YEAR AND NO PROVISION WAS CREATED IN THE YEAR THERE IS NO SCOPE FOR DEDUCTION U/S36( I )(VII)(A).WHEN THERE-IS NO 3 ITA NO.2328/CHNY/2016 PROVISION CREATED IN THE CURRENT YEAR, THE ASSESSEE'S CLAIM OF DEDUCTION CANNOT BE ALLOWED. 4. ON APPEAL, THE LD.CIT(A) CONCURRED WITH THE VIEW OF THE LD.AO AND UPHELD HIS ORDER. THE RELEVANT PORTION OF THE ORDER IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 3.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE REPRESENTATIVE. ADMITTEDLY, THE APPELLANT CLAIMED DEDUCTION U/S.36(1 )(VIIA) AT RS.1,86,15,522/- BUT THE SAME WAS RESTRICTED TO THE EXTENT OF GROSS TOTAL INCOME AT RS.56,68,264/-. FURTHER, IT IS AN ADMITTED FACT THAT THE APPELLANT DID NOT CREATE ANY RESERVE DURING THIS YEAR. IN FACT OUT THE RESERVE AVAILABLE AT THE BEGINNING OF THE YEAR, THE APPELLANT RELEASED RS.16,40,000/- AND THE RESERVE WAS REDUCED TO RS.2,02,72,918/- AT THE END OF THE YEAR. I CONCUR WITH THE ASSESSING OFFICER THAT FOR THE PURPOSE OF CLAIMING DEDUCTION U/S.36(1 )(VIIA) THE APPELLANT HAS TO CREATE RESERVE DURING THIS YEAR. THE EARLIER RESERVE COULD HAVE BEEN CREATED FOR DIFFERENT PURPOSES AND HENCE UNLESS THE RESERVE IS CREATED DURING THIS YEAR NO DEDUCTION CAN BE ALLOWED. I, THEREFORE, CONFIRM THE ACTION OF THE ASSESSING OFFICER AND DISMISS THE APPEAL. 5. ON PERUSING THE ORDERS OF THE LD.REVENUE AUTHORITIES, IT IS CRYSTAL CLEAR THAT THE ASSESSEE HAS NOT CREATED PROVISION IN ITS BOOKS OF ACCOUNTS FOR THE AMOUNT CLAIMED AS DEDUCTION U/S.36(1)(VII)(A) OF THE ACT. IT IS PERTINENT TO MENTION THAT UNLESS PROVISION FOR DOUBTFUL DEBTS IS CREATED IN THE BOOKS OF ACCOUNTS BY PASSING APPROPRIATE ENTRIES TOWARDS THE AMOUNT CLAIMED AS DEDUCTION U/S.36(1)(VII)(A) OF THE ACT THERE WILL NOT BE ANY CONTROL FOR FURTHER COMPLIANCE OF THE PROVISIONS OF THE ACT. NEEDLESS TO MENTION THAT WHEN THE ASSESSEE REALIZES THAT CERTAIN ADVANCES HAS ACTUALLY BECOME BAD DURING THE ASSESSMENT YEAR THEN THE SAME HAS TO BE WRITTEN OFF AGAINST THE PROVISION CREATED AND ACCUMULATED IN THE BOOKS OF ACCOUNTS AND 4 ITA NO.2328/CHNY/2016 WHEN SUCH AMOUNT EXCEEDS THE ACCUMULATED PROVISION ONLY THE AMOUNT IN EXCESS OF THE ACCUMULATE PROVISION CAN BE CHARGED TO THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT ASSESSMENT YEAR AND CLAIMED AS DEDUCTION. THEREFORE THE ACT HAS SPECIFICALLY PROVIDED FOR CLAIMING THE BENEFIT OF SECTION 36(1)(VII)(A) OF THE ACT, THE PROVISION FOR BAD AND DOUBTFUL DEBT SHOULD BE RECORDED IN THE BOOKS OF ACCOUNTS. THE PROVISIONS OF SECTION 36(1)(VII)(A) OF THE ACT IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 36 (1) [(VIIA) [IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY- (A) A SCHEDULED BANK [NOT BEING A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NONSCHEDULED BANK [OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK], AN AMOUNT NOT EXCEEDING 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 AGGREGATE 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 CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS ASSETS 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:] FOR THE ABOVE STATED REASONS, WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF THE LD.REVENUE AUTHORITIES. ACCORDINGLY THEIR ORDERS ARE HEREBY CONFIRMED IN THE CASE OF THE ASSESSEE. 5 ITA NO.2328/CHNY/2016 6. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON THE 8 TH FEBRUARY, 2019 AT CHENNAI. SD/- SD/- /CHENNAI, /DATED 8 TH FEBRUARY, 2019 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( ) /CIT(A) 4. /CIT 5. /DR 6. [ /GF ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER