THE CITY COOPERTAVIE BANK LTD, MUMBAI V. ITO 1(3)(3), MUMBAI

ITA 2884/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9704 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 14-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Depreciation; Additional evidence; Bad and doubtful debts; Corroborative evidences; Provision of bad debts
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'B' BENCH, MUMBAI BEFORE SHRI P K BANSAL, VICE PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.2884 /MUM/2015 (ASSESSMENT YEAR: 2010-11) THE CITY COOPERATIVE BANK LTD. VS. INCOME TAX OFFICER - 1(3)(3) 1ST FLOOR, PADMAVARTI DARSHAN N.M. JOSHI MARG, LOWER PAREL MUMBAI 400013 AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN AADAT0569K APPELLANT RESPONDENT APPELLANT BY: SHRI KIRAN MEHTA RESPONDENT BY: SHRI SUMAN KUMAR DATE OF HEARING: 12.09.2017 DATE OF PRONOUNCEMENT: 12.09.2017 O R D E R PER P.K. BANSAL, VICE PRESIDENT THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-3, MUMBAI DATED 02.03.2015 FOR A.Y. 2010-11 BY TAKING THE FOLLOWING GROUNDS: - ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE AS SESSING OFFICER ERRED IN 1. DISALLOWING BAD DEBTS WRITTEN OFF RS. 92,45,52 5/- FULLY. 2. DISALLOWING RS. 10,19,667/- BEING EXCESS CLAIM O F DEPRECIATION ON ACCOUNT OF WANT OF PROOF FOR ADDITI ONS DURING THE YEAR AND RE-CATEGORIZATION OF THE ADDITI ONS TOWARDS COMPUTERS, AND ELECTRICAL UNDER FURNITURE A ND FIXTURES. 3. DISALLOWING EXCESS CARRY FORWARD OF WRITTE N DOWN VALUE OF FIXED ASSETS AS ON 31 ST MARCH 2010 AFFECTING AMOUNT OF ALLOWABLE DEPRECIATION FOR SUBSEQUENT ASSESSMENT YE AR 2011-12 ONWARDS. 4. DISALLOWING RS. 6,397/- U/S 14A OF THE INCOME TAX ACT 1961, IN SPITE SUBMISSION OF COPY OF THE APPELLATE ORDER IN ITA NO. 2884/MUM/2015 THE CITY COOPERATIVE BANK LTD. 2 CASE YOUR APPELLANTS FOR EARLIER ASSESSMENT YEAR ST ATING THERE IN THAT PROVISIONS OF SECTION 14A ARE NOT APP LICABLE TO YOUR APPELLANTS. 5. NOT COMPUTING DEDUCTION U/S 36(1) (VIIA) OF TH E INCOME TAX ACT 1961, AS PER PROVISION OF LAW I.E. 7.5% OF THE TOTAL INCOME BEFORE DEDUCTION AVAILABLE UNDER CHAPTER 41 A. 2. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF BAD DEB TS WRITTEN OFF AMOUNTING TO ` 92,45,525/-. THE BRIEF FACTS OF THIS GROUND ARE THA T THE AO DISALLOWED ASSESSEES CLAIM IN RESPECT OF BAD DEBTS WRITTEN OFF AMOUNTING TO ` 92,45,525/- ON THE GROUND THAT THERE WAS A CREDIT B ALANCE OF ` 5,27,59,900/- AS ON 31.03.2009 IN THE RESERVE FOR P ROVISION OF BAD DEBTS. THE AO WAS OF THE VIEW THAT THE PROVISIONS OF SECTI ON 36(1)(VII) R.W.S. 36|(1)(VIIA), A CLAIM OF BAD DEBTS CAN ONLY BE ALLO WED IF THE SAME IS IN EXCESS OF THE PROVISION FOR BAD DEBTS. THE AO, THER EFORE, DISALLOWED THE SAID CLAIM. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE ASSESSEE CLAIMED THAT THE ASSESSEE WAS NOT HAVING ANY RURAL BRANCHES AND THEREFORE THERE WERE NO RURAL ADVANCES. ALL THE ADVANCES WRIT TEN OFF WERE URBAN ADVANCES. THE ADVANCES WRITTEN OFF DURING THE YEAR BECOME IRRECOVERABLE AS CERTIFIED BY THE SPECIAL RECOVERY OFFICER. IT WA S ALSO CONTENDED THAT EVEN CONSIDERING THE PROVISO TO SECTION 36(1)(VII) THE T OTAL PROVISION CLAIMED UNDER SECTION 36(1)(VIIA) FOR A.Y. 2007-08 TO 2009- 10 WAS ` 11,78,730/-. THEREFORE, THE DEDUCTION SHOULD BE ` 80,67,097. IT WAS FURTHER SUBMITTED THAT THERE WAS NO DOUBLE DEDUCTION. THE CIT(A) DID NOT AGREE WITH THE ASSESSEE AS HE WAS OF THE VIEW THAT THE ASSESSEE HA S CREATED TOTAL PROVISION OF BAD DEBTS AMOUNTING TO ` 92,45,827/- FROM A.Y. 2001-02 TO 2009-10 AND THE ASSESSEE WAS CLAIMING THE SAID PROV ISION AS AN ALLOWABLE PROVISION AND THE SAME HAS REGULARLY BEEN ALLOWED I N THE ASSESSMENT ORDERS. THEREFORE, THE CIT(A) DISMISSED THE GROUND OF THE ASSESSEE BY OBSERVING THAT THE SAME CANNOT NOW BE ALLOWED UNDER SECTION 36(1)(VII). 3. WE HAVE GONE THROUGH THE SUBMISSIONS MADE BY BOTH T HE PARTIES. WE NOTED FROM THE CHART AVAILABLE ON PAGE 15 OF THE PAPER BOOK SHOWING THE STATEMENT OF PARTY-WISE BAD DEBTS WRITTEN OFF A ND THE PROVISION EXISTED AS ON 31.03.2006 THAT THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS IN RESPECT ITA NO. 2884/MUM/2015 THE CITY COOPERATIVE BANK LTD. 3 OF 31 PARTIES AMOUNTING TO ` 94,45,827/- DURING THE IMPUGNED ASSESSMENT YEAR WHILE THE PROVISIONS AS ON 31.03.2006 WAS TO T HE EXTENT OF ` 83,39,432.57. THE ASSESSEE HAS MADE PROVISION FOR A SSESSMENT YEARS 2007-08, 2008-09 AND 2009-10 AT ` 7,96,787/-, ` 5,029/- AND ` 2,75,628/- RESPECTIVELY. IT IS A FACT THAT UP TO A.Y. 2006-07 THE INCOME FROM BANKING BUSINESS WAS FULLY ALLOWED IN THE CASE OF THE ASSES SEE UNDER SECTION 80P OF THE INCOME TAX ACT. SUBSEQUENTLY BY FINANCE ACT, 20 06 BY INSERTION OF SUB-SECTION (4) IN SECTION 80P THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTION UNDER SECTION 80P FROM A.Y. 2007-08. THE DEDUCTION UNDER SECTION 36(1)(VII) IS AVAILABLE IN RESPECT OF BAD DEBTS WRI TTEN OFF SUBJECT TO THE FULFILMENT OF THE CONDITIONS SPECIFIED UNDER SECTIO N 36(2). SECTION 36(1)(VIIA) PROVIDES FOR THE TREATMENT OF PROVISION S FOR BAD AND DOUBTFUL DEBTS OF AN AMOUNT NOT EXCEEDING 7.5% OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND C HAPTER VIA) AND AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE A DVANCES MADE BY THE RURAL BRANCHES OF SUCH BANKS. THE PROVISIONS OF SEC TION 36(1)(VII) AND SECTION 36(1)(VIIA) ARE DISTINCT AND INDEPENDENT. T HE PROVISIONS OF SECTION 36(1)(VIIA) ARE APPLICABLE W.E.F. A.Y. 2007-08 TO C OOPERATIVE BANK ALSO. THEREFORE ANY PROVISION ALLOWED IN A.Y. 2007-08 ONW ARDS IN THE CASE OF A COOPERATIVE BANK UNDER CLAUSE (VIIA) WILL BE HIT BY THIS AMENDMENT BUT A PROVISION STANDING IN THE ACCOUNT OF A COOPERATIVE BANK PRIOR TO 01.04.2006 WILL NOT COME IN THE AMBIT OF SECTION 36 (1)(VIIA) AND IN OUR OPINION IF ANY BAD DEBTS WRITTEN OFF FOR WHICH A PR OVISION HAS BEEN CREATED PRIOR TO 01.04.2006 WILL BE ENTITLED FOR DEDUCTION UNDER SECTION 36(1)(VIIA) IF THE CONDITIONS STIPULATED UNDER SECTION 36(2) ARE S ATISFIED. FROM THE CHART AS APPEARING ON PAGE 15 IT IS APPARENT THAT THE ASS ESSEE HAD WRITTEN OFF THE BAD DEBTS AMOUNTING TO ` 92,45,827/- DURING THE YEAR. IT IS NOT RELATED TO THE PROVISIONS IN RESPECT OF WHICH THE ASSESSEE HAS CLAIMED DEDUCTION IN THE EARLIER ASSESSMENT YEAR. WE, THEREFORE, SET ASI DE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DELETE THE SAID ADDITION. THUS, T HIS GROUND STANDS ALLOWED. ITA NO. 2884/MUM/2015 THE CITY COOPERATIVE BANK LTD. 4 4. GROUND NOS. 2 & 3 RELATE TO THE DISALLOWANCE OF ` 10,19,667/- BEING EXCESS CLAIM OF DEPRECIATION ON ACCOUNT OF WANT OF PROOF FOR ADDITIONS DURING THE YEAR. AFTER HEARING THE RIVAL SUBMISSIONS AND G OING THROUGH THE ORDERS OF THE TAX AUTHORITIES BELOW WE NOTED THAT THE AO D ISALLOWED DEPRECIATION ON ADDITION OF CERTAIN FIXED ASSETS ON THE GROUND THAT SUPPORTING EVIDENCES IN THE FORM OF BILLS, ETC. WERE NOT FILED BY THE ASSES SEE. THE AO NOTED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON ADDITION OF FI XED ASSETS OF ` L11,37,818/- AT ` 1,18,151/-. HE, THEREFORE DISALLOWED THE SAME. WE N OTED THAT THE ASSESSEE HAS FILED COPIES OF THE BILLS AND VOUCHERS BEFORE THE CIT(A) BY MAKING AN APPLICATION DATED 19.01.2015 UNDER RUL E 16A BUT THE CIT(A) DID NOT ACCEPT THE ADDITIONAL EVIDENCES. WE, THEREF ORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH PARTIES SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE D IRECTION THAT THE ASSESSEE SHALL FILE COPIES OF THESE BILLS AND EVIDENCES PERT AINING TO THE ADDITION TO FIXED ASSETS IN RESPECT OF WHICH DEPRECIATION HAS B EEN DISALLOWED BEFORE THE AO. THE AO SHALL, AFTER VERIFYING THE GENUINENESS O F PURCHASES, ALLOW DEPRECIATION TO THE ASSESSEE. IN CASE THE ASSESSEE IS NOT ABLE TO FILE THE DIRECT EVIDENCES THE AO IS DIRECTED TO VERIFY THE I NDIRECT EVIDENCES IN THE FORM OF CONFIRMATION OF PURCHASES, ETC. THUS, BOTH THESE GROUNDS ARE ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NO. 4, SINCE NOT PRESSED, DISMISSED AS NOT P RESSED. 6. GROUND NO. 5 RELATES TO THE CLAIM OF DEDUCTION BY T HE ASSESSEE UNDER SECTION 36(1)(VIIA) AS PER THE PROVISIONS OF INCOME TAX LAW, I.E. 7.5% OF THE TOTAL INCOME BEFORE DEDUCTION TO BE ALLOWED UNDER C HAPTER VIA OF THE INCOME TAX ACT. WE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITI ES BELOW. IT IS NOT DENIED THAT THE ASSESSEE IS A COOPERATIVE BANK, THEREFORE IN VIEW OF PROVISIONS OF SECTION 36(1)(VIIA), IN OUR OPINION, THE ASSESSEE S HALL BE ENTITLED FOR THE DEDUCTION @7.5% OF THE TOTAL INCOME (COMPUTED BEFOR E MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER 6A) AND AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MAD E BY RURAL BRANCHES OF SUCH BANKS COMPUTED IN THE PRESCRIBED MANNER IN RESPECT OF ANY ITA NO. 2884/MUM/2015 THE CITY COOPERATIVE BANK LTD. 5 PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY THE AS SESSEE. WE ACCORDINGLY DIRECT THE AO TO ALLOW THE DEDUCTION TO THE ASSESSE E IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY THE AS SESSEE DURING THE YEAR IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)( VIIA). THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER, 2017. SD/ - SD/ - (PAWAN SINGH) (P.K. BANSAL) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 14 TH SEPTEMBER, 2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) -3, MUMBAI 4. THE CIT - 1, MUMBAI 5. THE DR, B BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.