M/s. Nagaur Urban Co-Operative Bank Ltd., JODHPUR V. ACIT, NAGAUR

ITA 240/JODH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70327 (ITAT-JODHPUR)
• Duration Of Justice: 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-11-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 18-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: U C JAIN
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH, JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ITA NO.240/JODH/2013 ASSESSMENT YEAR: 2009-10 M/S NAGAUR URBAN CO-OPERATIVE VS. ASSTT. COM MISSIONER OF INCOME TAX, BANK LIMITED, CIRCLE NAGAUR. C/O. SHRI U.C. JAIN, ADVOCATE, SHATRUNJAY, HARI SINGH NAGAR, PALI ROAD, JODHPUR. (PAN: AAAAN 7788 B). (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI U.C. JAIN RESPONDENT BY : SHRI N.A. JOSHI, D.R. DATE OF HEARING : 18.11.2013 DATE OF PRONOUNCEMENT : 29.11.2013 ORDER PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE CO-OPERATIVE BANK, FOR THE ASSESSMENT YEAR 2009-10 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) , JODHPUR DATED 04.02.2013. 2. THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS A PPEAL : 1) THE ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE ORDER PASSED BY THE LD. CIT(A) IS BAD IN LAW AND BAD ON F ACT. 2 ITA NO.240/JODH/2013 A.Y. 2009-10 2) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS.108177 9/- BEING PROVISION FOR STANDARD ASSETS RS.68000/-, PROVISION FOR NPA R S.5,80,900/- AND PROVISION FOR IMPAIRED ASSETS RS.432879/- HOLDING T HAT PROVISION MADE IN ACCORDANCE WITH THE RBI GUIDELINES ARE NOT PROVI SION FOR DOUBTFUL DEBTS. THE SAME MAY KINDLY BE DELETED. 3) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS.19 ,57,916/- BEING PROVISION FOR INVESTMENT DEPRECIATION RESERVE WITHO UT ASSIGNING ANY REASON FOR THE SAME. THE SAME MAY KINDLY BE DELETE D. 4) THAT THE PETITIONER MAY KINDLY BE PERMITTED TO R AISE ANY ADDITIONAL AND/OR ALTERNATIVE GROUND AT OR BEFORE T HE HEARING OF APPEAL. 5) THE PETITIONER PRAYS FOR JUSTICE & RELIEF. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS. GROUND NOS .(1), (4) & (5) ARE FORMAL IN NATURE AND NO ADJUDICATION OF THEM IS REQUIRED. 4. THE FACTS APROPOS GROUND NOS.2 & 3 OF THIS REVEN UES APPEAL ARE THAT THE A.O. OBSERVED THAT THE ASSESSEE IN ITS P&L ACCOUNT HAS DEBITED THE FOLLOWING PROVISIONS:- I) PROVISION FOR STANDARD ASSET RS. 68,000/- II) PROVISION FOR NPA RS.5,80,900/- III) PROVISION FOR IMPAIRED ASSET RS.4,32,879/- IV) PROVISION FOR INVESTMENT DEPRECIATION RESERVE RS.19,57,916/- 5. THE ASSESSEE IS A CO-OPERATIVE BANK ELIGIBLE FOR DEDUCTION U/S.36(1)(VIIA) OF THE INCOME TAX ACT, 1961, THE A CT FOR SHORT. WHEN AN 3 ITA NO.240/JODH/2013 A.Y. 2009-10 EXPLANATION WAS SOUGHT FROM THE ASSESSEE BANK, IT W AS SUBMITTED THAT THESE EXPENSES HAVE BEEN INCURRED AS PER THE GUIDELINES O F THE RBI AND IN TERMS OF THE BANKING REGULATION ACT, 1949. BUT THE A.O. WAS NOT SATISFIED AND MADE THE ADDITION OF THESE PROVISIONS. 6. IN FIRST APPEAL ALSO, THE ASSESSEE WAS NOT SUCCE SSFUL IN GETTING ANY RELIEF. THE ASSESSEE IS FURTHER AGGRIEVED. 7. BEFORE US, BOTH THE PARTIES HAVE REITERATED THEI R EARLIER STAND. THE LD. CIT(A) HAS GIVEN THE FOLLOWING REASONS TO DENY THE IMPUGNED CLAIM OF THE ASSESSEE :- 5.4. I FURTHER FIND THAT THE DEDUCTION U/S 36(1 )(VIIA) IS ALLOWABLE IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY A CO- OPERATIVE BANK, AN AMOUNT NOT EXCEEDING SEVEN AND H ALF PERCENT OF THE TOTAL INCOME COMPUTED BEFORE MAKING ANY DEDUCTION U NDER THIS CLAUSE AND CHAPTER VIA AND AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. ON ANALYSIS OF THE PROVISION , IT CAN BE SAID THAT THE FIRST CONDITION TO BECOME ELIGIBLE FOR DEDUCTIO N IS THAT THERE SHOULD BE A PROVISION FOR BAD AND DOUBTFUL DEBTS WHEREAS , IN THE APPELLANT'S CASE, THE APPELLANT HAS MADE PROVISION FOR NON PER FORMING ASSET' (NPA) AND IT CANNOT BE SAID THAT IT WAS A PROVISION FOR BAD AND DOUBTFUL DEBTS. CLASSIFICATION OF ASSETS IN ACCORDANCE TO RB I GUIDELINES FOR PRUDENTIAL NORMS BY THE BANK IS FOR THE PURPOSE OF SHOWING SOUND AND GOOD ASSETS IN THE BALANCE SHEET AND IT IS NOT REQU IRED TO BE DEBITED TO THE P&L ACCOUNT, IT CAN THEREFORE, BE SAID THAT MAK ING OF PROVISION OF NON- PERFORMING ASSETS AND DEBITING THE SAME TO THE P&L ACCOUNT WOULD NOT AMOUNT MAKING PROVISION FOR BAD AND DOUBTFUL DE BTS AS MENTIONED IN THE PROVISION OF SEC.36(1)(VIIA). HAD THE MEANING O F EXPRESSION OF WORDS 4 ITA NO.240/JODH/2013 A.Y. 2009-10 PROVISION FOR BAD AND DOUBTFUL DEBTS WITH NON PE RFORMING ASSETS ARE SAME, THE PARLIAMENT WOULD HAVE NOT ALLOWED A D EDUCTION UNDER FIRST PROVISO TO SECTION 36(1)(VIIA) TO SCHEDULE BANK OR NON SCHEDULE BANK IN RESPECT OF ANY PROVISION FOR MADE FOR ANY ASSETS CL ASSIFIED FOR THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS AS SETS IN ACCORDANCE WITH THE GUIDELINES. IT CLEARLY SHOWS THAT MEANING AND PURPOSE OF EXPRESSION PROVISION FOR BAD AND DOUBTFUL DEBTS IS DIFFERENT TO ALLOWABILITY OF DEDUCTION UNDER THE FIRST PROVISO T O SEC. 36(1)(VIIA) AND BOTH PLAY ROLE AT DIFFERENT FIELDS. THE HON'BLE MA DRAS HIGH COURT IN CASE OF SUNDRAM FINANCE LTD. VS. ACIT, REPORTED IN 318 ITR 452 HELD THAT PROVISION FOR NON PERFORMING ASSETS CONSIDERED AS IRRECOVERABLE IS NEITHER ALLOWABLE AS BUSINESS EXPENDITURE IN VIEW O F EXPLANATION TO SECTION 36(1)(VIIA) NOR ALLOWABLE AS BUSINESS LOSS. IN THIS REGARD, THE APPELLANT'S SUBMISSION THAT THIS DECISION WAS DELIV ERED IN CASE OF NON BANKING FINANCE CO., WHEREAS, THE APPELLANT IS BANK ING COMPANY AND ELIGIBLE FOR DEDUCTION U/S 36(1)(VIIA) IS NOT ACCEP TABLE IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN CASE OF SO UTHERN TECHNOLOGIES LTD, VS. JCIT, REPORTED IN 320 ITR 577 WHICH STATES THAT THERE IS DEVIATION BETWEEN RBI DIRECTIONS, 1998 AND COMPANIE S ACT IN PRESENTATION OF FINANCIAL STATEMENT, RECOGNIZATION OF THE INCOME AND PARTICULARLY IN CREATING A PROVISION FOR ALL NPAS S UMMARILY AS AGAINST CREATING A PROVISION ONLY WHEN THE DEBT IS DOUBTFUL OF RECOVERY UNDER THE NORMS OF THE ACCOUNTING STANDARD ISSUED BY THE ICAI . THUS, IT CAN BE SAID THAT THE PROVISION FOR NPA IS NOT EQUAL TO PRO VISION FOR BAD AND DOUBTFUL DEBTS. THE PROVISION FOR BAD AND DOUBTFUL DEBTS MEANS THE DEBT IS EITHER BECOME BAD OR ITS RECOVERY IS DOUBTFUL, W HEREAS, CLASSIFICATION OF NPA AS PER RBI GUIDELINES MEANS THAT RECOVER OF PRINCIPLE AND INTEREST COULD NOT MAKE IN THE PARTICULAR PERIOD FR OM THE PARTY AND THAT DOES NOT MEAN AS PER THE ACCOUNTING STANDARD ISSUED BY THE ICAI, IT BECAME EITHER BAD OR RECOVERY IS DOUBTFUL. THE APPE LLANT HAS RELIED THE DECISION OF THE HON'BLE, SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA P. LTD. WHERE IT WAS HELD THAT THE PROVISION MADE BY THE COMPANY IS ALLOWABLE U/S 37(1). THE DECISION RELIED IS DIST INGUISHABLE ON FACTS. THE FACTS OF THE CITED ARE RELATED TO THE PROVISION . HOWEVER, IN THE INSTANT CASE, THE FACTS ARE RELATED TO NPA. OTHER C ASES RELIED BY THE APPELLANT ARE ALSO NOT APPLICABLE TO THE FACTS OF T HE PRESENT CASE. FURTHER THE IMPAIRED ASSETS AND INVESTMENT DEPRECIATION RES ERVE ARE ALSO IN NATURE OF PROVISION AND WHICH NOT ASCERTAINED LIABI LITIES. ON THIS GROUND ITSELF, THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION SINCE THE ABOVE PROVISIONS ARE NOT IN ACCORDANCE WITH SEC.36(1)(VII A). THE APPELLANT'S 5 ITA NO.240/JODH/2013 A.Y. 2009-10 CONTENTION IN THIS REGARD IS REJECTED. THE GROUNDS RAISED BY THE APPELLANT ARE DISMISSED. 8. IT WAS ARGUED BY THE LD. AUTHORIZED REPRESENTATI VE THAT GROUND NO.2 STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF THE TRIBUNAL. AN EXCERPT WITH REFERENCE TO THE PAPER BOOK REFERRING THE RELEVANT PORTIONS OF ORDERS AND THE DECISIONS RELIED ON TO SUPPORT HIS CONTENTI ON HAS BEEN PREPARED BY THE LD. AUTHORIZED REPRESENTATIVE WHICH IS AS UNDER :- G.A. NO.2 AO ORDER PAGE 1 - 2 CIT(A) ORDER 1 - 7 PB PAGE 2 - 7 (WS CIT(A)), 20 - 21 (CBDT INSTRUCTIO N NO.17/2008) DECISION RELIED ON 1. THE VELLORE DISTRICT CENTRAL COOPERATIVE BANK LT D. VS. CIT [ITAT CHENNAI BENCH ITA NO.914/MDS/2013 DATED 17/07/201 3] [PB PAGE 22 32 (31 32) G.A. NO.3 AO ORDER PAGE 1 - 2 CIT(A) ORDER 4 - 5 PARA 5.2.2 (DISCUSSION ONLY NO C ONCLUSION FINDING) PB 7 - 11 (WS CIT(A)), 20 - 21 (CBDT INSTRUCTION NO .17/2008) DECISION RELIED ON 1. M/S KRISHNA GRAMIN BANK VS. ADDL. CIT IN ITA NO. 146/BANG/2011 DATED 15/06/2012 [PB PAGE 33 - 42 (39-42)] 9. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATI VE HAS SUPPORTED THE FINDING OF THE LD. CIT(A). 6 ITA NO.240/JODH/2013 A.Y. 2009-10 10. AFTER CIRCUMSPECTING THE ENTIRE RECORDS VIS--V IS THE ORAL SUBMISSIONS, WE ARE OF THE CONSIDERED OPINION THAT GROUND NO.2 S TANDS COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER OF ITAT, CHENNAI BENCH AS DISCU SSED IN THE ABOVE EXCERPT. WE HAVE GONE THROUGH THE COPY OF THE TRIBUNAL ORDER REFERRED ABOVE AND ARE CONVINCED THAT THIS GROUND STANDS COVERED IN FAVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL (SUPRA) IS REP RODUCED AS UNDER :- 8. NOW THE SECOND QUESTION WHICH ARISES FOR DETERM INATION BEFORE US IS WHETHER THE ASSESSEE HAS CREATED ANY R ESERVE/PROVISION FOR BAD AND DOUBTFUL DEBTS? THE AR HAS CONTENDED THAT THE ASSESSEE HAS CREATED PROVISIONS FOR BAD AND DOUBTFUL DEBTS UNDER THE NOMENCLATURE RESE RVE FOR NPA. THE TERMINOLOGY RESERVE FOR NPA HAS BEEN USED BY THE ASSESSEE IN ACCORDANCE WITH THE RBI DIRECTIONS. AS IS EVIDENT FROM THE ASSESSMENT ORDER, THE ASSESSEE HAS INDEED CREATED RESERVE FOR NPA. FOR CLAIMING BENEFIT UNDER THE PROVISIONS OF SECTION 36(1)(VIIA) (A) THE CONDITIONS TO BE SATISFIED IS: THAT PROVISION FOR BAD AND DOUBTFUL D EBTS SHOULD HAVE BEEN MADE BY THE BANK ELIGIBLE TO CLAIM SUCH DEDUCTION. CO-OPERATIVE BANKS DO NOT STRICTLY FOLLOW THE PROVISIONS OF BANKING RE GULATION ACT FOR THE PURPOSE OF MAINTAINING THEIR BOOKS OF ACCOUNTS. IN OUR CONSIDERED OPINION, THE ASSESSEE HAS CREATED PROVISIONS FOR BA D AND DOUBTFUL DEBTS MAY BE UNDER DIFFERENT NOMENCLATURE. THIS WILL NOT DIS-ENTITLE THE ASSESSEE FOR CLAIMING DEDUCTION UNDER THE PROVISION S OF SECTION 36(1)(VIIA(A). THE PURPOSE FOR CREATION OF RESERVE FOR NPA IS SAME I.E., CREATING PROVISION TOWARDS BAD AND DOUBTFUL DEBTS. IN VIEW OF THE ABOVE, WE FIND THAT THE ASSESSMENT O RDER DATED 09.09.2010 IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE IMPUGNED ORDER OF CIT PASSED U/S. 263 IS SET ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 7 ITA NO.240/JODH/2013 A.Y. 2009-10 11. THEREFORE, BY RESPECTFULLY FOLLOWING THE RATIO DECIDENDI OF THE ABOVE TRIBUNAL ORDER WE ALLOW GROUND NO.(2) OF THIS APPEA L IN FAVOUR OF THE ASSESSEE. THESE PROVISIONS WHICH ARE IN LINE WITH THE RBI GUI DELINES BECOME ALLOWABLE. 12. THE FACTS APROPOS GROUND NO.(3) ARE THAT THE A. O. HAS DISALLOWED THE PROVISION FOR INVESTMENT DEPRECIATION RESERVE FOR R S.19,57,916/- MERELY BECAUSE THE SAME IS A PROVISION AND NOT AN ACTUAL EXPENDITU RE. THE ASSESSEE BANK MADE NON-SLR TRADE INVESTMENT IN THESE MUTUAL FUND FOR R S.40,00,000/-. THE MARKET VALUE OF THE INVESTMENT IN THE MUTUAL FUND GOT REDU CED THAN THE COST VALUE AND AS PER THE ACCOUNTING STANDARD, THEREFORE, LOSS ON THE MUTUAL FUND WAS PROVIDED IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR AMOUNTING TO RS. 19,57,916/-. 13. THE CASE OF THE ASSESSEE BANK IS THAT THE PROVI SION FOR LOSS ON INVESTMENT IS AN ALLOWABLE DEDUCTION AS THE INVESTM ENT WAS A TRADE INVESTMENT AND THE SAME HAS TO BE VALUED AT EACH BALANCE SHEET DAT E AND ANY INCOME OR LOSS ARISES DUE TO VALUATION OF SUCH SECURITIES IS REQUIRED TO BE RECOGNIZED AS INCOME OR EXPENSES IN THE P&L ACCOUNT AND IS ALSO TAXABLE AS INCOME IF VALUATION INCREASES. THE LD. DEPARTMENTAL REPRESENTATIVE HAS RELIED ON T HE ORDER OF LD. CIT(A). 8 ITA NO.240/JODH/2013 A.Y. 2009-10 14. AFTER CONSIDERING RIVAL STANDS, WE ARE OF THE C ONSIDERED OPINION THAT IF VALUATION DECREASES THE LOSS BECOMES ALLOWABLE EXPE NDITURE WITH THE PARITY OF REASONING WHEREBY ANY INCOME OR LOSS ARISES DUE TO THE VALUATION OF SUCH SECURITIES IT IS REQUIRED TO BE RECOGNIZED AS INCOME OR EXPENS ES IN THE P&L ACCOUNT AND BECOME TAXABLE AS INCOME. THE DECISION OF HONBLE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. VS. CIT (2009) 314 ITR 62 (S.C.) WHICH SAYS THAT EXPENDITURE WHICH IS OTHERWISE ALLOWABLE CANNOT BE DENIED MERELY BECAUSE THE EXPENDITURE WAS NOT AN ACTUAL EXPENDITURE AND IS ON LY A PROVISION. IT IS SEEN THAT THE PROVISION WAS MADE AS PER THE ACCOUNTING STANDA RD AS WELL AS PER THE RBI GUIDELINES. THE CBDTS INSTRUCTION NO.17/2008 DATE D 26.11.2008 HELPS THE CASE OF THE ASSESSEE. WE REPRODUCE THIS INSTRUCTION AS UND ER :- AS PER RBI GUIDELINES DATED 16 TH OCTOBER, 2000, THE INVESTMENT PORTFOLIO OF THE BANKS IS REQUIRED TO BE CLASSIFIED UNDER THREE CATEGORIES VIZ. HELD TO MATURITY (HTM), HELD FOR TRADING (HFT) AND AVAILABLE FOR SALE (AFS). INVESTMENTS CLASSIFIED UNDER HTM CATEG ORY NEED NOT BE MARKED TO MARKET AND ARE CARRIED AT ACQUISITION COS T UNLESS THESE ARE MORE THAN THE FACE VALUE, IN WHICH CASE THE PREMIUM SHOULD BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. I N THE CASE OF HFT AND AFS SECURITIES FORMING STOCK-IN-TRADE OF THE BA NK, THE DEPRECIATION/APPRECIATION IS TO BE AGGREGATED SCRIP -WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FO R IN THE ACCOUNTS. THE LATEST GUIDELINES OF THE RBI MAY BE REFERRED TO FOR ALLOWING ANY SUCH CLAIMS. 15. SIMILARLY THE DECISION OF HONBLE BOMBAY HIGH C OURT RENDERED IN THE CASE OF CIT VS. BANK OF BARODA, 262 ITR 334 (BOMBAY ), IN WHICH DEPRECIATION IN 9 ITA NO.240/JODH/2013 A.Y. 2009-10 VALUE OF INVESTMENT HELD BY A BANK WHEN THE LOSS DE BITED TO P&L ACCOUNT WAS REFLECTED AS A PROVISION FOR LIABILITY IN THE BALAN CE SHEET AND THE SHARES AND SECURITIES WERE VALUED AT COST ON THE ASSETS SIDE. THEREFORE, IN VIEW OF THE ABOVE LEGAL POSITION, THIS CLAIM OF RS.19,57,916/- BECOME S ALLOWABLE. WE ORDER TO ALLOW THE SAME. RESULTANTLY, GROUND NO.(3) STANDS ALLOWE D. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE BANK IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 29.11.2013) SD/- SD/- (N.K. SAINI) (HARI OM MARATHA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29 TH NOVEMBER, 2013 PBN/* COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT (APPEALS) CONCERNED 4. CIT CONCERNED 5. D.R., ITAT, JODHPUR BENCH, JODHPUR 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME-TAX APPELLATE T RIBUNAL, JODHPUR