The Akkialur Urban Co-op Bank LTd, Haveri V. Income Tax Officer, Ward-2, Haveri

ITA 2885/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2805 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 27-12-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: RAMASUBRAMANYAM
• Keywords: Bad and doubtful debts

Judgement Text

ITA.2885/BANG/2017 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'A', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T.A NO.2885/BANG/2017 (ASSESSMENT YEAR : 2012-13) THE AKKIALUR URBAN CO-OP BANK LTD, AKKIALUR, HANAGAL TALUK, HAVERI DISTRICT .. APPELLANT PAN : AAABT2417N V. INCOME-TAX OFFICER, WARD 2, HAVERI .. RESPONDENT ASSESSEE BY : SHRI. RAMASUBRAMANYAM, CA REVENUE BY : SHRI. VIKRAM SURYAVAMSHI, ADDL.CIT HEARD ON : 20.02.2019 PRONOUNCED ON : 28.02.2019 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE CIT (A), DAVANGERE, DT.28.09.2017, FOR THE ASSE SSMENT YEAR 2012-13. ITA.2885/BANG/2017 PAGE - 2 02. FOLLOWING GROUNDS ARE RAISED BY THE ASSESSEE ; 03. THE CIT (A) HAD DISALLOWED THE PROVISION FOR BA D AND DOUBTFUL DEBTS AND IN THIS REGARD THE CIT (A) IN PA RA 6 AND 6A OF HIS ORDER, HAD RECORDED AS UNDER : 6. AS REGARDS THE OTHER ISSUE, DISALLOWANCE OF PROV ISION MADE FOR BAD AND DOUBTFUL DEBTS U/S 36(1)(VIIA) IS CONTE STED. THE AO NOTICED THAT THE ASSESSEE HAD DEBITED RS.97,00,000/ - IN THE PROFIT & LOSS A/C TOWARDS BDDR. UPON VERIFICATION, THE AO FOUND THAT THE RESERVES FOR SUCH EXPENSES WAS NOT IN ACCORDANC E WITH SEC. 36(I)(VIIA) OF THE ACT AND ON REWORKING FOUND THAT THE ASSESSEE HAD CLAIMED EXCESS DEDUCTION OF RS.96,46,7 50/- AND DISALLOWED THE SAME. THE AO PROPOSED TO DISALLOW THE EXCESS CLAIM OF EXPENDITURE OF RS.96,46,750/- AND THE REPLY FILED B Y THE ASSESSEE WAS NOT ACCEPTABLE TO THE AO AND HE DISALL OWED THE EXCESS RESERVE DEBITED TO THE PROFIT & LOSS A/C AND BROUGHT IT TO TAX. 6A. I HAVE GONE THROUGH THE SUBMISSIONS MADE BEFORE ME IN THIS REGARD AND FIND THAT THE ASSESSEE'S CONTENTION S ARE NOT TENABLE BECAUSE WHAT IS DEBITED IN P&L ACCOUNT IS ONLY A PROVISION AND NOT A CRYSTALLISED LIABILITY. ANY PRO VISION IS TO BE ITA.2885/BANG/2017 PAGE - 3 ADDED BACK TO THE INCOME DECLARED, THEREFORE IT IS HELD THAT THE ENTIRE BDDR OF RS.97,00,000/DEBITED TO THE PROFIT & LOSS A/C IS TO BE DISALLOWED. THE AO IS DIRECTED TO VERIFY THE SAME AND ACCORDINGLY, BRING THE SAME TO TAX. THUS THE GROUN D FAILS. 04. THE LD. AR HAD SUBMITTED THAT THE ASSESSEE HAD OBTAINED LICENCE FROM RBI TO RUN THE BANKING BUSINESS. THE ASSESSEE FILED RETURN OF INCOME FOR A. Y. 2012-13 DECLARING LOSS O F RS.89,12,597/-. THE AO PASSED ORDER U/S.143(3) WHERE, IN PARA 5.2 T HE AO HAD RECORDED THAT THE ASSESSEE HAD NOT WRITTEN OFF THE DEBTS IN ITS BOOKS OF ACCOUNT AND THE ASSESSEE IS STILL SHOWING THE DE BTS AS BALANCE IN THE ASSETS OF THE BALANCE SHEET. FURTHER IT WAS PO INTED OUT BY THE AO THAT THE ASSESSEE HAD DEBITED THE PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE PROFIT AND LOSS ACCOUNT WHICH CLEARLY SHOWS THAT THE ASSESSEE HAD NOT WRITTEN OFF SUCH AMOUNTS IN ITS BO OKS OF ACCOUNT. ON THE BASIS OF THE ABOVE THE AO HAD DISALLOWED THE PROVISION FOR BAD AND DOUBTFUL DEBTS. BEFORE US THE LD. AR HAD RE LIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE MATTER OF VIJAYA BANK V. CIT [323 ITR166]. 05. ON THE OTHER HAND THE LD. DR HAD SUBMITTED THAT THERE IS NO ERROR IN THE ORDER PASSED BY THE LOWER AUTHORITIES AS THE ASSESSEE WAS NOT ABLE TO SATISFY THE CONDITIONS MENTIONED U/S.36 (1)(VIIA) OF THE ACT. 06. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. UNDOUBTEDLY THE AO AS BROUGHT ON RECORD THAT THE A SSESSEE HAS NOT WRITTEN OFF THE DEBTS IN THE BOOKS OF ACCOUNT AND T HE ASSESSEE IS STILL SHOWING THE BALANCE ON THE ASSETS SIDE OF THE BALAN CE SHEET. IN VIEW ITA.2885/BANG/2017 PAGE - 4 OF THE ABOVE AND IN VIEW OF THE PROVISIONS OF SECTI ON 36(1)(VIIA), WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE ASSESSEE AND THEREFORE THE SAME IS DISMISSED. 07. WE DRAW OUR STRONG SUPPORT FROM THE JUDGMENT CI TED BY THE ASSESSEE, AGAINST THE ASSESSEE, IN VIJAYA BANK [SUP RA], WHEREIN AT PARA 6 AND 7, HONBLE SUPREME COURT HELD AS UNDER : 6. THE FIRST QUESTION IS NO MORE RES INTEGRA. RECEN TLY, A DIVISION BENCH OF THIS COURT IN THE CASE OF SOUTHERN TECHNOL OGIES LTD. V. JOINT CIT REPORTED IN [2010] 320 ITR 577 , (IN WHICH ONE OF US S. H. KAPADIA J. WAS A PARTY) HAD AN OCCASION TO DEAL WITH THE FIRST QUESTION AND IT HAS BEEN ANSWERED, ACCORDINGLY, IN FAVOUR OF THE ASSESSEE, VIDE PARAGRAPH 25, WHICH READS AS UNDER ( PAGE 604) : 'PRIOR TO APRIL 1, 1989, THE LAW, AS IT THEN STOOD, TOOK THE VIEW THAT EVEN IN CASES IN WHICH THE ASSESSEE (S) MAKES ONLY A PROVISION IN ITS ACCOUNTS FOR BAD DEBTS AND INTERES T THEREON AND EVEN THOUGH THE AMOUNT IS NOT ACTUALLY WRITTEN OFF BY DEBITING THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND CREDITI NG THE AMOUNT TO THE ACCOUNT OF THE DEBTOR, THE ASSESSEE WAS STIL L ENTITLED TO DEDUCTION UNDER SECTION 36(1)(VII). (SEE CIT V. JWA LA PRASAD TIWARI [1953] 24 ITR 537 (BOM) AND VITHALDAS H. DHANJIBHAI BARDANWALA V. CIT [1981] 130 ITR 95 (GUJ)). SUCH STATE OF LAW PREVAILED UP TO AND INCLUDING THE ASSESSMENT YEAR 1 988-89. HOWEVER, BY INSERTION (WITH EFFECT FROM APRIL 1, 19 89) OF A NEW EXPLANATION IN SECTION 36(1)(VII), IT HAS BEEN CLAR IFIED THAT ANY BAD DEBT WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUN T OF THE ASSES SEE WILL NOT INCLUDE ANY PROVISION FOR BAD AND DOUB TFUL DEBT MADE IN THE ACCOUNTS OF THE ASSESSEE. THE SAID AMEN DMENT INDICATES THAT BEFORE APRIL 1, 1989, EVEN A PROVISI ON COULD BE TREATED AS A WRITE OFF. HOWEVER, AFTER APRIL 1, 198 9, A DISTINCT DICHOTOMY IS BROUGHT IN BY WAY OF THE SAID EXPLANAT ION TO SECTION 36(1)(VII). CONSEQUENTLY, AFTER APRIL 1, 1989, A ME RE PROVISION FOR BAD DEBT WOULD NOT BE ENTITLED TO DEDUCTION UND ER SECTION 36(1)(VII). TO UNDERSTAND THE ABOVE DICHOTOMY, ONE MUST UNDERSTAND 'HOW TO WRITE OFF'. IF AN ASSESSEE DEBIT S AN AMOUNT OF DOUBTFUL DEBT TO THE PROFIT AND LOSS ACCOUNT AND CR EDITS THE ASSET ACCOUNT LIKE SUNDRY DEBTOR'S ACCOUNT, IT WOULD CON STITUTE A WRITE OFF OF AN ACTUAL DEBT. HOWEVER, IF AN ASSESSEE DEBI TS 'PROVISION ITA.2885/BANG/2017 PAGE - 5 FOR DOUBTFUL DEBT' TO THE PROFIT AND LOSS ACCOUNT A ND MAKES A CORRESPONDING CREDIT TO THE 'CURRENT LIABILITIES AN D PROVISIONS' ON THE LIABILITIES SIDE OF THE BALANCE-SHEET, THEN IT WOULD CONSTITUTE A PROVISION FOR DOUBTFUL DEBT. IN THE LATTER CASE, TH E ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION AFTER APRIL 1, 1989.' 7. ONE POINT NEEDS TO BE CLARIFIED. ACCORDING TO SH RI BISHWAJIT BHATTACHARYA, THE LEARNED ADDITIONAL SOLICITOR GENE RAL APPEARING FOR THE DEPARTMENT, THE VIEW EXPRESSED BY THE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHANJIBHAI B ARDANWALA [1981] 130 ITR 95 WAS PRIOR TO THE INSERTION OF THE EXPLANATION VIDE THE FINANCE ACT, 2001, WITH EFFECT FROM APRIL 1, 1989, HENCE, THAT LAW IS NO MORE A GOOD LAW. ACCORDING TO THE LE ARNED COUNSEL, IN VIEW OF THE INSERTION OF THE SAID EXPLA NATION IN SECTION 36(1)(VII) WITH EFFECT FROM APRIL 1, 1989, A MERE DEBIT OF THE IMPUGNED AMOUNT OF BAD DEBT TO THE PROFIT AND L OSS ACCOUNT WOULD NOT AMOUNT TO ACTUAL WRITE OFF. ACCORDING TO HIM, THE EXPLANATION MAKES IT VERY CLEAR THAT THERE IS A DIC HOTOMY BETWEEN ACTUAL WRITE OFF ON THE ONE HAND AND A PROV ISION FOR BAD AND DOUBTFUL DEBT ON THE OTHER. HE SUBMITTED THAT A MERE DEBIT TO THE PROFIT AND LOSS ACCOUNT WOULD CONSTITUTE A PROV ISION FOR BAD AND DOUBTFUL DEBT, IT WOULD NOT CONSTITUTE ACTUAL W RITE OFF AND THAT WAS THE VERY REASON WHY THE EXPLANATION STOOD INSERTED. ACCORDING TO HIM, PRIOR TO THE FINANCE ACT, 2001, M ANY ASSESSEES USED TO TAKE THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII) OF THE 1961 ACT BY MERELY DEBITING THE IMPUGNED BAD DE BT TO THE PROFIT AND LOSS ACCOUNT AND, THEREFORE, PARLIAMENT STEPPED IN BY WAY OF EXPLANATION TO SAY THAT MERE REDUCTION OF PR OFITS BY DEBITING THE AMOUNT TO THE PROFIT AND LOSS ACCOUNT PER SE WOULD NOT CONSTITUTE ACTUAL WRITE OFF. TO THIS EXTENT, WE AGREE WITH THE CONTENTIONS OF SHRI BHATTACHARYA. HOWEVER, AS STATE D BY THE TRIBUNAL, IN THE PRESENT CASE, BESIDES DEBITING THE PROFIT AND LOSS ACCOUNT AND CREATING A PROVISION FOR BAD AND DOUBTF UL DEBT, THE ASSESSEE-BANK HAD CORRESPONDINGLY/SIMULTANEOUSLY OB LITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING TH E CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTOR S ON THE ASSETS SIDE OF THE BALANCE-SHEET AND, CONSEQUENTLY, AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR T HE DEBTORS ON THE ASSET SIDE OF THE BALANCE- SHEET WAS SHOWN AS N ET OF THE PROVISION 'FOR THE IMPUGNED BAD DEBT'. IN THE JUDGM ENT OF THE GUJARAT HIGH COURT IN THE CASE OF VITHALDAS H. DHAN JIBHAI BARDANWALA [1981] 130 ITR 95 , A MERE DEBIT TO THE PROFIT AND LOSS ACCOUNT WAS SUFFICIENT TO CONSTITUTE ACTUAL WR ITE OFF WHEREAS, ITA.2885/BANG/2017 PAGE - 6 AFTER THE EXPLANATION, THE ASSESSEE(S) IS NOW REQUI RED NOT ONLY TO DEBIT THE PROFIT AND LOSS ACCOUNT BUT SIMULTANEOUSL Y ALSO REDUCE LOANS AND ADVANCES OR THE DEBTORS FROM THE ASSETS S IDE OF THE BALANCE-SHEET TO THE EXTENT OF THE CORRESPONDING AM OUNT SO THAT, AT THE END OF THE YEAR, THE AMOUNT OF LOANS AND ADV ANCES/DEBTORS IS SHOWN AS NET OF THE PROVISIONS FOR THE IMPUGNED BAD DEBT. THIS ASPECT IS LOST SIGHT OF BY THE HIGH COURT IN ITS IM PUGNED JUDGMENT. IN THE CIRCUMSTANCES, WE HOLD, ON THE FIR ST QUESTION, THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF DE DUCTION UNDER SECTION 36(1)(VII) OF 1961 ACT AS THERE WAS AN ACTU AL WRITE OFF BY THE ASSESSEE IN ITS BOOKS, AS INDICATED ABOVE. FOR THE PURPOSES OF CLAIMING THE DEDUCTION THE ASSE SSEE SHOULD HAVE ACTUALLY WRITTEN OFF THE BAD DEBTS EXCEEDING THE TH RESHOLD LIMIT PRESCRIBED BY THE ACT. IN THE PRESENT CASE THE ASS ESSEE HAS ACTUALLY NOT WRITTEN OFF THE BAD DEBTS IN ITS BOOKS OF ACCOU NT AND HAD CONTINUED TO SHOW THE SAME ON THE ASSETS SIDE OF TH E BALANCE SHEET. THEREFORE THE ASSESSEE IS NOT ENTITLED TO ANY DEDU CTION U/S.36(1)(VIIA) OF THE ACT. WE HOLD ACCORDINGLY. 08. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DAY OF FEBRUARY, 2019. SD/- SD/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBE R BENGALURU DATED : 28.02.2019 MCN* ITA.2885/BANG/2017 PAGE - 7 COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.