STATE BANK OF INDIA, MUMBAI V. THE DY.C.I.T.-2, MUMBAI

ITA 3727/MUM/2007

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5077 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 19-09-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 14-05-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: K K VED
• Keywords: Bad and doubtful debts
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUM BAI . . , , BEFORE SHRI B. R. MITTAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NOS. 3726 & 3727/MUM/2007 ( / ASSESSMENT YEARS: 2003-04 & 2004-05) STATE BANK OF INDIA ACCOUNTS & COMPLIANCE DEPT. CORPORATE CENTRE, MADAM CAMA ROAD, MUMBAI-400 021 / VS. DY. CIT 2, MUMBAI ! ./' ./PAN/GIR NO. AAACS 8577 K ( !# /APPELLANT ) : ( $!# / RESPONDENT ) !# % / APPELLANT BY : SHRI GIRISH DAVE & SHRI K. K. VED $!# & % / RESPONDENT BY : SHRI S. D. SRIVASTAVA ' ()* & + / DATE OF HEARING : 19.09.2013 ,-. & + / DATE OF PRONOUNCEMENT : 20.11.2013 / / O R D E R PER SANJAY ARORA, A. M.: THESE ARE A SET OF TWO APPEALS BY THE ASSESSEE DIRE CTED AGAINST SEPARATE ORDERS BY THE COMMISSIONER OF INCOME TAX-2, MUMBAI (CIT FOR SHORT) OF EVEN DATE (14.03.2007), PASSED U/S.263 OF THE INCOME TAX ACT, 1961 (THE AC T HEREINAFTER) FOR TWO CONSECUTIVE ASSESSMENT YEARS (A.YS.) BEING A.Y. 2003-04 AND 200 4-05 QUA THE ASSESSEES ASSESSMENT U/S. 143(3) OF THE ACT FOR THE SAID YEARS. 2 ITA NOS. 3726 & 3727/MUM/2007 (A.YS. 2003-04 & 04-0 5) STATE BANK OF INDIA VS. DY. CIT 2. THE APPEAL RAISES THREE ISSUES, EACH OF WHICH WE SHALL TAKE UP IN SERIATIM. THOUGH THE ASSESSEE HAS RAISED AN OMNIBUS GROUND (GD. # 2) ; GD. 1 BEING GENERAL IN NATURE WARRANTING NO ADJUDICATION, CHALLENGING THE ASSUMPT ION OF JURISDICTION U/S. 263, THE SAME WOULD NECESSARILY HAVE TO BE EXAMINED WITH REFERENC E TO THE FACTS AND CIRCUMSTANCES OBTAINING FOR EACH OF THE THREE ISSUES UNDER REFERE NCE. 3. THE FIRST ISSUE, PRESSED VIDE GD. NOS.3 TO 8, RE LATES TO AN ALLEGED EXCESS DEDUCTION ON ACCOUNT OF BAD AND DOUBTFUL DEBTS WRITTEN OFF AS IRREVOCABLE UNDER SECTION 36 (1)(VII) OF THE ACT AT RS.13,68,77,55,849/- AND RS.11,73,97, 32,198/- FOR THE TWO CONSECUTIVE YEARS RESPECTIVELY. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 WE FIRSTLY OBSERVE THAT THERE COULD BE NO ARGUM ENT AGAINST INVOCATION OF SEC. 263 QUA THIS ASPECT INASMUCH AS THERE IS NO DISCUSSION IN I TS RESPECT IN THE ASSESSMENT ORDER NOR ANY MATERIAL ON RECORD INDICATING ITS CONSIDERA TION, SO THAT THERE HAS BEEN NO APPLICATION OF MIND BY THE ASSESSING OFFICER (A.O.) IN THE MATTER. THE PROPOSITION OF TWO POSSIBLE VIEWS PRECLUDING APPLICATION OF SEC. 263 W OULD APPLY ONLY WHERE A CONSCIOUS, INFORMED VIEW HAS BEEN FORMED BY THE A.O. FURTHER, THE SAME MUST BE ONE WHICH IS SUSTAINABLE IN LAW (REFER: MALABAR INDUSTRIAL CO. LTD. VS. CIT [2000] 243 ITR 83 (SC)). THE ASSESSEES RELIANCE ON THE DECISION IN CASE OF DY. CIT VS. CATHOLIC SYRIAN BANK LTD. BY THE SPECIAL BENCH OF THE TRIBUNAL ([2004] 88 IT D 185 (COCH)(SB)) AS WELL AS BY THE HONABLE KERALA HIGH COURT IN SOUTH INDIAN BANK LTD. VS. CIT [2003] 262 ITR 579 (KER), BESIDES OTHERS BY THE TRIBUNAL, WOULD BE OF NO MOMENT INASMUCH AS THE A.O. HAS HIMSELF TAKEN A STAND DIFFERENT FROM THAT ADVOCATED PER THE SAME (REFER PAGE 41 OF THE ASSESSMENT ORDER), EVEN AS WAS EMPHASIZED BY THE LD . AR HIMSELF DURING HEARING. THE ASPECT OF THE MATTER CONSIDERED BY THE A.O. IS AS T O WHETHER THE LIMITATION ON THE DEDUCTION UNDER SEC. 36(1)(VII), IN CASE OF AN ASSE SSEE TO WHOM SEC. 36(1) (VIIA) APPLIES, WOULD BE APPLICABLE ONLY IN RESPECT OF RURAL ADVANC ES AND NOT URBAN (NON-RURAL) ADVANCES. IN VIEW OF THE A.O. SEC. 36(1)(VIIA) IS APPLICABLE TO ADVANCES BOTH BY THE RURAL AS WELL AS 3 ITA NOS. 3726 & 3727/MUM/2007 (A.YS. 2003-04 & 04-0 5) STATE BANK OF INDIA VS. DY. CIT NON-RURAL BRANCHES OF THE ASSESSEE-BANK. THE DECISI ON IN THE CASE OF CIT VS. UTI BANK LTD . [2013] 212 TAXMAN 296 (GUJ) AND BY THE APEX COURT IN CATHOLIC SYRIAN BANK OF INDIA VS. CIT [2012] 343 ITR 270 (SC), AS ALSO OTHERS BY THE TRI BUNAL, ARE LATER DECISIONS, EVEN AS POINTED OUT BY THE BENCH DURING HEARING. EV EN THE DECISION BY THE FULL BENCH OF THE KERALA HIGH COURT IN SOUTH INDIA BANK LTD . [2010] 326 ITR 174 (KER)(FB) CONFIRMING THE AOS VIEW IS OF A LATER DATE (16.12.2009). 4.2 ON MERITS, THOUGH, WE ARE IN FULL AGREEMENT WIT H THE ASSESSEES CASE. SECTION 36(1)(VII), INCLUDING PROVISO AND EXPLANATION THERETO, WHEN READ WITH SEC. 36(1) (VIIA) AND SEC. 36(2)(V), AS THEY OUGHT TO BE, ARE CLEAR A ND UNAMBIGUOUS. THE PROVISION UNDER SEC. 36(1)(VIIA) HAS TO BE FIRST ADJUSTED, AND THE WRITE OFF OF THE DEBT (OR PART THEREOF) AS IRRECOVERABLE ONLY IN EXCESS OF THE SAME (PROVISION ) WOULD BE ALLOWED AS DEDUCTION BY DEBITING THE SAME TO THE SAID PROVISION ACCOUNT. ON LY THE PROVISION AS OUTSTANDING AT THE RELEVANT TIME HAS THUS TO BE TAKEN INTO ACCOUNT, AN D WHICH HAS INDEED BEEN (REFER STATEMENT OF ACCOUNT AT PARA 6, PAGE 7 OF THE IMPUG NED ORDER FOR A.Y. 2003-04). THE WRITE OFF UNDER SEC. 36(1)(VII) AND THE PROVISION U /S. 36(1)(VIIA) IS NOT TO BE SIMULTANEOUS, AS STATED BY THE LD.CIT. THE WRITE OFF COULD IN FAC T OCCUR DURING THE COURSE OF THE RELEVANT YEAR ITSELF. THE SAME, WHERE AND TO THE EXTENT EFFE CTED AS AT THE YEAR-END (AS FOR EXAMPLE AS ON 31/03/2003 FOR A.Y 2003-04 IN THE INSTANT CAS E) WOULD PRECEDE PROVISION UNDER SEC. 36(1)(VIIA) INASMUCH AS THE SAME IS AT A DEFINED PE RCENTAGE OF THE TOTAL INCOME AS DETERMINED PRIOR TO DEDUCTION QUA THE SAID PROVISION ITSELF AS WELL AS UNDER CHAPTER VI-A OF THE ACT. CLEARLY, THEREFORE, IF NO PROVISION UND ER SEC. 36(1)(VIIA) HAS BEEN MADE IN BOOKS DURING THE RELEVANT YEAR (AS IS THE CASE FOR THE YEARS UNDER CONSIDERATION), THE SET OFF OF THE WRITE OFF WOULD ONLY BE AGAINST THE BALA NCE STANDING TO THE CREDIT OF THE PROVISION ACCOUNT AS BROUGHT FORWARD FROM THE IMMED IATELY PRECEDING ACCOUNT, I.E., AS OUTSTANDING AT THE BEGINNING OF THE YEAR. THE CLAIM U/S. 36(1)(VIIA) WOULD THUS ORDINARILY REPRESENT ORDINARILY THE YEAR-END PROVISION FOR THA T YEAR (AS IS CLAIMED TO BE BY THE ASSESSEE IN THE INSTANT CASE - REFER WORKING CHART PROVIDED BY IT). 4 ITA NOS. 3726 & 3727/MUM/2007 (A.YS. 2003-04 & 04-0 5) STATE BANK OF INDIA VS. DY. CIT THE CONTROVERSY STANDS, AS OBSERVED BY THE HONABLE COURT IN UTI BANK LTD . (SUPRA), EXPLAINED AND RESOLVED BY THE CBDT VIDE IT S INSTRUCTION NO. 17/2008 DATED 26.11.2008, WHICH, WHERE BENEVOLENT, IT IS TRITE LA W, IS BINDING ON THE REVENUE. 4.3 IN THIS VIEW OF THE MATTER, WE FIND NO SUBSTANC E IN THE REVENUES CASE AND, ACCORDINGLY, SET ASIDE THE IMPUGNED ORDER ON THIS I SSUE. THE ASSESSE SUCCEEDS ON THE RELEVANT GROUNDS. 5. GROUNDS 9 AND 10, AGAIN, FOR BOTH THE YEARS, ARE IN RESPECT OF THE ALLEGED EXCESS DEDUCTION UNDER SEC. 36(1)(VIIA) IN THE SUM OF RS.4 4,02,31,257/- AND RS.32,93,14,650/- FOR THE TWO CONSECUTIVE YEARS UNDER REFERENCE RESPE CTIVELY. THE ISSUE, THUS, AGAIN INVOLVES A CORRECT COMPUTATION OF DEDUCTION U/S. 36 (1)(VII). THE BASIS OF THE REVENUES CLAIM IS THAT THE ASSESSEE WAS FOR THE IMMEDIATELY PRECEDING YEAR/S ALLOWED DEDUCTION U/S. 36(1)(VIIA) IN ASSESSMENT IN EXCESS BY THAT AMOUNT, I.E., WITH REFERENCE TO THE PROVISION MADE AND OUTSTANDING IN ACCOUNTS. THAT BEING THE CA SE, THE OPENING BALANCE FOR THE RELEVANT YEARS IS UNDERSTATED TO THAT EXTENT. SINCE THE PROVISION IS TO SET OFF AGAINST THE BAD DEBT WRITTEN OFF UNDER SEC. 36(1) (VII), AND ON LY THE EXCESS ALLOWED BY WAY OF DEBIT TO THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE STANDS AL LOWED DEDUCTION UNDER SEC. 36(1)(VII) IN EXCESS BY THE SAID AMOUNT FOR THE RELEVANT YEARS. 6. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 6.1 FIRSTLY, THERE IS AGAIN NO REFERENCE TO THIS AS PECT OF THE MATTER DURING THE ASSESSMENT PROCEEDINGS, SO THAT INVOCATION OF SEC. 263 IS VALID. ON MERITS, THE REVENUES ARGUMENT IS UNEXCEPTIONAL. WE HAVE ALREADY CLARIFIE D THAT THE PROVISION UNDER SEC. 36(1) (VIIA) IS TO BE FIRST ADJUSTED IN TERMS OF THE PROVISO TO S. 36(1)(VII) R/W S. 36(2)(V), AND THE BALANCE ALLOWED AS DEDUCTION U/S. 36(1)(VII). IN FA CT, THE ASSESSEE HAS ALSO PROVIDED A CHART (REFERRED TO EARLIER) WHEREBY THE DEDUCTION A LLOWED UNDER SEC. 36(1)(VIIA) FOR BOTH THE YEAR MATCHES WITH THE CLOSING BALANCE IN THE PR OVISION ACCOUNT, SO THAT THERE IS CONSISTENCY BETWEEN THE PROVISION MADE IN ACCOUNTS AND THAT ALLOWED AS DEDUCTION UNDER SEC. 36(1)(VIIA). THERE SHOULD THEREFORE BE NO SCOP E FOR DEDUCTION UNDER SEC. 36(1)(VII) 5 ITA NOS. 3726 & 3727/MUM/2007 (A.YS. 2003-04 & 04-0 5) STATE BANK OF INDIA VS. DY. CIT BEING ALLOWED IN EXCESS, AS CLAIMED BY THE LD. CIT. HOWEVER, WE OBSERVE SOME DIFFERENCE BETWEEN THE YEAR-END PROVISION UNDER SEC. 36(1)(VII A) AS MADE IN THE ACCOUNTS AND THE AMOUNT ALLOWED AS DEDUCTION THERE-UNDER (REFER THE AMOUNTS UNDER REFERENCE QUA THE FIRST ISSUE FOR BOTH THE YEARS AS WELL AS THE AMOUNT OF P ROVISION CREDITED IN ACCOUNTS). TO EXEMPLIFY, THE IMPUGNED DEDUCTION FOR A.Y. 2003-04 IS RS.1368.78 LACS, WHILE THE YEAR END PROVISION U/S.36(1)(VIIA) FOR THAT YEAR IS RS.1 335.84 LACS. 6.2 UNDER THE CIRCUMSTANCES, WITH NO SPECIFIC ARGUM ENT QUA THESE GROUNDS BEING MADE BEFORE US, WE ONLY CONSIDER IT FIT AND PROPER TO UP HOLD THE ORDER OF THE LD. CIT TO THE EXTENT OF THE ACTUAL DIFFERENCE, I.E., TO THE EXTEN T THE DEDUCTION U/S. 36(1)(VIIA) FOR THE PRECEDING YEAR/S STANDS ALLOWED IN EXCESS OF THE PR OVISION AS MADE AND OUTSTANDING IN ACCOUNTS AT THE RELEVANT TIME. THE ASSESSE, WHO IN FACT CLAIMS TO HAVE FOLLOWED THE PROPER COURSE AND, CONSEQUENTLY, OF NO SUCH DIFFERENCE, SH ALL PROVIDE THE NECESSARY DETAILS, I.E., QUA THE DEDUCTION UNDER SEC. 36(1)(VIIA) ACTUALLY CLAIM ED AND ALLOWED, AND THAT PROVIDED IN ACCOUNTS. THE A.O. SHALL DECIDE THE MATTER BY IS SUING DEFINITE FINDING/S OF FACT, AND ALLOW DEDUCTION U/S. 36(1)(VII) FOR BOTH THE YEARS ACCORDINGLY. FURTHER, THE DIFFERENCE, IF ANY, BETWEEN THE DEDUCTION ALLOWED U/S. 36(1)(VIIA) AND THAT BOOKED, MAY BE ADJUSTED IN BOOKS, GIVING PROPER NARRATION, SO AS TO AVOID ANY CONFUSION IN THE MATTER AS WELL AS FOR FUTURE REFERENCE. THE TERMS OF THE SET ASIDE SHALL ALSO TAKE INTO ACCOUNT THE ASSESSEES ALTERNATE CONTENTION, WHICH WOULD AGAIN SUBJECT TO FACTUAL FINDING/S, ONLY IN VIEW AND LIGHT OF WHICH THE MATTER COULD BE DECIDED. WE DECI DED ACCORDINGLY. 7. THE ONLY SURVIVING GROUND IS GROUND # 11 FOR A.Y 2003-04. THE SAME CONCERNS DEDUCTION UNDER SEC. 80-M, CLAIMED AT RS. 194.09 CR ORES IN RESPECT OF DIVIDEND RECEIVED, IN VIEW OF THE DIVIDEND DISTRIBUTED (AT RS. 47.35 C RS.). THE SAME STOOD RESTRICTED AND, THUS, ALLOWED AT RS 53.084 CRS. UPON NETTING THE EXPENSES RELATABLE THERETO; ONLY THE NET INCOME ON ACCOUNT OF DIVIDEND AS INCLUDED IN GROSS TOTAL INCOME BEING ELIGIBLE FOR DEDUCTION U/S. 80-M. IN THE VIEW OF LD. CIT, A PART OF THE DIVIDEND RECEIVED, ON WHICH DEDUCTION STANDS ALLOWED, FORMING PART OF PROFIT FO R THE YEAR, COULD BE SUBJECT TO 6 ITA NOS. 3726 & 3727/MUM/2007 (A.YS. 2003-04 & 04-0 5) STATE BANK OF INDIA VS. DY. CIT DISTRIBUTION OF THE DIVIDEND AND, THUS, ADDITIONAL INCOME TAX UNDER SEC.115-O (1). SECTION 115-O, WHICH IS A NON-OBSTANTE CLAUSE, PER SUB-SECTION (5) THEREOF, BARS ANY DEDU CTION UNDER ANY OTHER PROVISION OF THE ACT. ACCORDINGLY, THERE COULD POSSIBLY HAVE BEEN AN EXCESS ALLOWANCE OF DEDUCTION UNDER SEC. 80-M TO TH AT EXTENT. THE ASPECT HAVING NOT BEEN EXAMINED BY THE A.O. AT ALL, THE MATTER WAS REMITTE D BY HIM BACK TO THE FILE OF THE LATTER FOR CONSIDERATION AND DECISION AFTER PROPER EXAMINA TION. 8. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE FIND THE REVENUES CLAIM AS EXAGGERATED, AND AT CLEAR VARIAN CE WITH THE PROVISION OF LAW. THE INCOME BY WAY OF DIVIDEND, ON WHICH DEDUCTION STAND S ALLOWED (RS.53.08 CRORES), FORMS PART OF THE PROFIT OF THE CURRENT YEAR, I.E., F.Y. 2002-03. DEDUCTION IN ITS RESPECT STANDS ALLOWED ON ACCOUNT OF DIVIDEND PAID DURING THE CURR ENT YEAR (RS.447.35 CRORES). NO PART OF IT IS LIABLE TO BE TAXED U/S.115-O INASMUCH AS T HE SAME REFERS TO THE DIVIDEND PAID OR ALLOWED UPTO 31.03.2002. IN FACT, AS CLARIFIED BY T HE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ AGROVET LTD. VS. DY. CIT [2010] 323 ITR 97 (BOM), THERE IS NO CORRESPONDENC E BETWEEN DEDUCTION U/S. 80-M AND THE ADDITIONAL INCO ME TAX U/S.115-O. WE ACCORDINGLY SET ASIDE THE IMPUGNED ORDER OF THE LD. CIT ON THIS GROUND. 9. IN THE RESULT, THE ASSESSEES APPEALS ARE PARTLY ALLOWED. 0. 1 (230 & 4 / ) 5 & 67 ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMBER 20, 2013 SD/- SD/- (B. R. MITTAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' * MUMBAI; 8( DATED : 20.11.2013 ).(../ ROSHANI , SR. PS 7 ITA NOS. 3726 & 3727/MUM/2007 (A.YS. 2003-04 & 04-0 5) STATE BANK OF INDIA VS. DY. CIT !' # $%&' ('% / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $!# / THE RESPONDENT 3. ' 9 ( ) / THE CIT(A) 4. ' 9 / CIT - CONCERNED 5. <)=> $ (?2 , + ?2. , ' * / DR, ITAT, MUMBAI 6. >@3 A* / GUARD FILE !' ) / BY ORDER, */)+ (DY./ASSTT. REGISTRAR) , ' * / ITAT, MUMBAI