IDBI BANK LTD, MUMBAI V. CIT LTU, MUMBAI

ITA 3775/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9743 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 24-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 143(3); 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI P K BANSAL, VICE PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.3775 /MUM/2017 (ASSESSMENT YEAR: 2012-13) M/S. IDBI BANK LTD. VS. C.I.T. L T U IDBI TOWER, WTC COMPLEX 7 TH FLOOR, TAXATION CELL CUFF PARADE, MUMBAI 400005 29 TH FLOOR , CENTRE - 1 WTC COMPLEX, CUFF PARADE MIMBAI 400005 PAN AA BCI8842G APPELLANT RESPONDENT APPELLANT BY: SHRI SATISH MODY RESPONDENT BY: SHRI RAKESH RANJAN DATE OF HEARING: 06.09.2017 DATE OF PRONOUNCEMENT: 11.09.2017 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 (LTU), MUMBAI DATED 27.03.2017 FOR A.Y. 2012-13 UND ER SECTION 263 OF THE INCOME TAX ACT. 2. GROUND NO. 1, SINCE NOT PRESSES, STANDS DISMISSED A S NOT PRESSED. NOW THERE REMAIN THREE GROUNDS FOR OUR ADJUDICATION . THESE GROUND READ AS UNDER: - 2. DISALLOWANCE OF EXPENDITURE SECTION 40(A)(IA): 2.1 THE LEARNED CIT WAS IN ERROR ON FACTS AS WELL A S IN LAW IN DIRECTING DISALLOWANCE UNDER SECTION 40(A)(IA) IGNO RING THE WELL SETTLED POSITION OF ALLOWABILITY OF OUTSTANDING EXPENSES UN DER THE MERCANTILE SYSTEM OF ACCOUNTING AS LAID DOWN BY THE SUPREME CO URT IN CIT VS. A. KRISHNASWAMI MUDALIAR 53 ITR 122 (SC). 2.2 THE LEARNED CIT IN DIRECTING THE DISALLOWANCE I GNORED LARGE NUMBER OF JUDICIAL DECISIONS RELIED UPON BY THE ASS ESSEE INCLUDING THE DECISION IN ASSESSEE'S OWN CASE ON THE SAME ISSUE I N IDBI V ITO 107 ITD 45 (MUM). ITA NO. 3775/MUM/2017 M/S. IDBI BANK LTD. 2 2.3 THE LEARNED CIT TOOK THE VIEW CONTRARY TO CBDT CIRCULAR NO. 288 DATED 22.12.1980 AND CIRCULAR NO. 03/2010 DATED 02. 03.2010 EXPLAINING THE SCOPE OF THE EXPLANATION INSERTED IN CERTAIN SECTIONS (SECTION 199,193,194A,194C) DEALING WITH TDS CLARIF YING THAT NO TDS IS TO BE MADE UNLESS A CONSTRUCTIVE CREDIT IS GIVEN TO THE DEDUCTEE. 3. DISALLOWANCE OF EXPENDITURE-SECTION 36(1)(VIIA): 3.1 THE LEARNED CIT WAS IN ERROR IN APPLYING THE EX PLANATION TO SECTION 36(1)(VII) AND DIRECTING DISALLOWANCE OF NO N-RURAL BAD DEBT TO THE EXTENT OF PROVISION FOR BAD AND DOUBTFUL DEBTS IN DISREGARD OF THE SUPREME COURT DECISION IN CATHOLIC SYRIAN BANK LTD. , VS COMMISSIONER OF INCOME TAX, THRISSUR [343 ITR 270 ( SC)] HOLDING SUCH PROVISION TO BE IN RESPECT OF RURAL DEBTS ONLY. 3.2 THE LEARNED CIT WAS IN ERROR IN HOLDING THAT TH E EXPLANATION TO SECTION 36(1)(VII) INSERTED BY THE FINANCE ACT 2013 HAS RETROSPECTIVE APPLICATION AND IS APPLICABLE TO THE YEAR UNDER REV ISION IGNORING THE SPECIFIC MENTION IN THE ACT MAKING IT OPERATIVE W.E .F 1.4.2014 I.E A.Y 2014-15. 3.3 THE LEARNED CIT IN HOLDING THE EXPLANATION RETR OSPECTIVE IN NATURE WENT CONTRARY TO THE EXPLANATORY CIRCULAR ISSUED BY THE CBDT CLARIFYING THAT THE EXPLANATION WILL COME INTO EFFE CT FROM 1.4.2014. 4. INITIATION OF PENALTY U/S 271(1)(C): THE LEARNED CIT, IN THE FACTS OF THE CASE AND JUDIC IAL POSITION IN REGARD THERETO WAS NOT JUSTIFIED IN DIRECTING INITI ATION OF PENALTY AS THERE WAS NO CONCEALMENT OF INCOME BY THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE S UBMITTED THE RETURN OF INCOME ON 26.09.2012 DISCLOSING A TOTAL INCOME O F RS.3122,07,44,638/- AS PER THE NORMAL PROVISIONS OF THE INCOME TAX ACT. THE BOOK PROFIT UNDER SECTION 115JB WERE COMPUTED AT RS.3694,52,39,137/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) AT A TOTAL INCOM E OF RS.3313,47,80,150/- UNDER THE NORMAL PROVISIONS OF THE I.T. ACT WHILE THE BOOKS PROFIT WAS COMPUTED UNDER SECTION 115JB AT RS .3884,77,25,409/-. THE CIT CALLED FOR THE RECORDS OF ASSESSMENT AND NO TED THAT THE ASSESSEE HAS NOT DEDUCTED ANY TAX IN RESPECT OF PROVISION FO R EXPENSES OF RS.58,25,41,577/- FOR WHICH BILLS WERE NOT REQUIRED . THE AO ALLOWED THE SAID EXPENDITURE WHILE THE SAID EXPENDITURE, IN THE OPINION OF THE CIT, WAS IN THE NATURE OF CONTINGENT LIABILITY. ULTIMATE LY THE CIT WAS OF THE VIEW THAT SINCE THE ASSESSEE FAILED TO DEDUCT TDS T HE AO SHOULD HAVE DISALLOWED THE SAID EXPENDITURE UNDER SECTION 40(A) (IA) OF THE I.T. ACT. IT ITA NO. 3775/MUM/2017 M/S. IDBI BANK LTD. 3 WAS FURTHER NOTICED BY THE CIT THAT THE AO ALLOWED DEDUCTION ON BAD DEBTS IN RESPECT OF NON RURAL BRANCHES TO THE EXTENT OF R S.319,43,40,862/-. THE OPENING BALANCE FOR BAD AND DOUBTFUL DEBTS CREATED IN RESPECT OF ADVANCES MADE BY RURAL BRANCHES WAS ONLY RS.103,68,55,666/- DURING THE IMMEDIATELY PRECEDING FINANCIAL YEAR. ACCORDING TO THE CIT THIS WAS REQUIRED TO BE UTILISED FOR ADJUSTING NON RURAL BAD DEBTS. HE WAS OF THE VIEW THAT THIS RESULTED IN IRREGULAR SET OFF OF BAD DEBTS OF RS.103,68,55,666/-. THE CIT, THEREFORE, ISSUED NOTI CE TO THE ASSESSEE UNDER SECTION 263 DATED 11.11.2016. ULTIMATELY THE CIT TOOK THE VIEW THAT THE ORDER PASSED BY THE AO WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE AND ACCORDINGLY DIRECTED THE AO TO DISALLOW THE PROVISIONS FOR EXPENSES OF RS.58,25,41,577/- BY INV OKING PROVISIONS OF SECTION 40(A)(IA). SIMILARLY IN RESPECT OF SET OFF OF BAD DEBTS THE CIT DIRECTED THE AO TO SET OFF THE OPENING BALANCE FOR BAD AND D OUBTFUL DEBTS CREATED IN RESPECT OF ADVANCE MADE BY NON RURAL BRANCHES AMOUN TING TO RS.103,68,55,666/-. THE CIT FURTHER DIRECTED THE AO TO INITIATE PENALTY UNDER SECTION 271(1)(C) OF THE I.T. ACT FOR FURNISH ING INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE. THE ASSESSEE HAS CHALLEN GED ALL THE THREE DIRECTIONS GIVEN BY THE CIT BY WAY OF GROUND NOS. 2 , 3 & 4 BEFORE US. 4. SO FAR AS GROUND NO. 2 IS CONCERNED THE LEARNED A.R . BEFORE US VEHEMENTLY CONTENDED THAT THE PROVISIONS FOR THE EX PENDITURE AMOUNTING TO RS.58,25,41,577/- REPRESENTS THE LIABILITY CRYST ALLISED DURING THE YEAR AND THEREFORE NO DISALLOWANCE CAN BE MADE ON THE BA SIS THAT THE ASSESSEE HAD NOT MADE DEFAULT UNDER SECTION 40(A)(IA). OUR A TTENTION WAS DRAWN TOWARDS SECTION 40(A)(IA) ESPECIALLY THE PROVISO 1 THERETO WHICH PROVIDES THAT IN CASE THE ASSESSEE THE ASSESSEE DEDUCTED TDS AND PAID THE SAME BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME , NO DISALLOWANCE CAN BE MADE. THE LEARNED A.R. BEFORE US SUBMITTED THE DETA ILS OF ALL THE EXPENSES ALONGWITH DETAILS OF THE TAX DEDUCTED AND THE PROOF FOR PAYMENT OF TDS. FROM THE DETAILS FILED BEFORE US IT IS APPARENT THA T THE ASSESSEE HAD PAID THE TAX DEDUCTED OUT OF THE SUM OF RS.58,25,41,577/ - BEFORE THE DUE DATE FOR FILING THE RETURN. ITA NO. 3775/MUM/2017 M/S. IDBI BANK LTD. 4 5. ON THE OTHER HAND THE LEARNED D.R. VEHEMENTLY CONTE NDED THAT LET THIS ISSUE BE SENT TO THE AO TO VERIFY WHETHER THE ASSESSEE HAS DULY DEDUCTED THE TDS AND PAID BEFORE FILING OF THE RETU RN. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND APPREC IATED THE EVIDENCES FILED BY THE ASSESSEE. FORM THE EVIDENCES FILED BY THE ASSESSEE IT IS APPARENT THAT THE ASSESSEE HAD DEDUCTED TAX ON T HE SUM OF RS.58,25,41,577/- AND PAID IT BEFORE THE DUE DATE F OR FILING THE RETURN BUT SINCE THESE EVIDENCES WERE NOT BEFORE THE AO, WE TH EREFORE IN THE INTEREST OF JUSTICE AND FAIR PLAY TO BOTH THE PARTIES DIRECT THE AO TO VERIFY WHETHER THE ASSESSEE HAS DULY DEDUCTED THE TAX ON THE SUM O F RS.58,25,41,577/- AND PAID THE SAME BEFORE THE DUE DATE FOR FILING OF THE RETURN. THE ASSESSEE IS DIRECTED TO FURNISH ALL THESE EVIDENCES BEFORE T HE AO. IN CASE THE AO FINDS THAT THE ASSESSEE HAD DULY DEDUCTED TDS AND P AID THE SAME BEFORE FILING OF THE RETURN NO DISALLOWANCE SHOULD BE MADE IN THE INCOME OF THE ASSESSEE. IN CASE THE AO FEELS THAT THE ASSESSEE HA S PARTLY COMMITTED DEFAULT UNDER SECTION 40(A)(IA) THE AO SHOULD RESTR ICT THE DISALLOWANCE TO THAT EXTENT ONLY. THUS, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 7. THE NEXT GROUND RELATES TO THE SET OFF OF OPENING B ALANCE OF DOUBTFUL DEBTS CREATED IN RESPECT OF ADVANCES MADE BY THE RU RAL BRANCHES AMOUNTING TO 103,68,55,666/- . WE HAVE HEARD THE RI VAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE HAVE GONE THROUGH THE PROVISIONS OF SECTION 36(I)(VII) AS WELL AS PROVISIONS OF SECTION 36(1)(VIIA). WE NOTED THAT BOTH THE PROVISIONS HAVE BEEN ELABORATELY INTERPRET ED BY THE HON'BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK L TD. VS. CIT 343 ITR 270 WHEREIN THE HON'BLE SUPREME COURT HELD THAT THE PROVISIONS AS ENVISAGED UNDER SECTION 36(1)(VIIA) IS MEANT FOR RU RAL BRANCHES ONLY. WE ALSO NOTED THAT BY FINANCE ACT 2013 W.E.F. 1 ST APRIL, 2014. THE SAID EXPLANATION READ AS UNDER: - EXPLANATION 1.FOR THE PURPOSES OF THIS CLAUSE, AN Y BAD DEBT OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFU L DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE; ITA NO. 3775/MUM/2017 M/S. IDBI BANK LTD. 5 EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY CLARIFIED THAT FOR THE PURPOSES OF THE PROVISO TO CLAUSE (VII) OF THIS SUB-SECTION AND CLAUSE (V) OF SUB-SECTION (2), THE ACCOUNT REFERRED TO THEREIN SHALL BE ONLY ONE ACCOUNT IN RESPECT OF PROVISION FOR BAD AN D DOUBTFUL DEBTS UNDER CLAUSE (VIIA) AND SUCH ACCOUNT SHALL RELATE T O ALL TYPES OF ADVANCES, INCLUDING ADVANCES MADE BY RURAL BRANCHES ; 8. THE LEARNED D.R. BEFORE US VEHEMENTLY CONTENDED TH AT SINCE THE EXPLANATION IS CLARIFICATORY IN NATURE WILL APPLY R ETROSPECTIVELY WHILE THE LEARNED A.R. BEFORE US RELIED ON THE FOLLOWING DECI SIONS: - (I) BANK OF INDIA VS. ADDL.CIT ITA NO. 1498/MUM/2011, ITAT MUMBAI (II) BANK OF INDIA VS. ACIT ITA NO. 2966/MUM/2014, ITA T MUMBAI 9. WE HAVE GONE THROUGH BOTH THESE DECISIONS. WE NOTED THAT IN THIS REGARD G BENCH OF THIS TRIBUNAL IN THE CASE OF BA NK OF INDIA IN ITA NO. 1498/MUM/2013 IN PARA 207 HELD AS UNDER : - 2.7 AS REGARDS THE INTRODUCTION OF EXPLANATION 2 VIDE FINANCE ACT 2013, IT HAS BEEN MADE CLEAR IN THE FINANCE ACT ITS ELF THAT THE SAID EXPLANATION WILL BE EFFECTIVE W.E.F 01.04.2014 AND, THEREFORE, IN OUR VIEW THE SAME IS NOT BANK OF INDIA, 6 APPLICABLE FO R THE YEAR UNDER CONSIDERATION. FOLLOWING THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. V. CIT AS WELL AS THE DECISION OF HYDERABAD BENCHES OF THIS TRIBUNAL IN THE CASE OF S TATE BANK OF HYDERABAD VS. DCIT (SUPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO ALLOW THE CLAIM IN TH E LIGHT OF THE DECISION OF HONBLE SUPREME COURT. SIMILARLY, WE NOTED THAT B BENCH OF THIS TRIBUNAL IN THE CASE OF BANK OF INDIA VS. ACIT IN ITA NO. 2966/MUM/2014 VIDE ORDER DATED 13.07.2016 TOOK THE SAME VIEW FOLLOWING THE DECISION OF THE HO N'BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. CIT 343 I TR 270. NO CONTRARY DECISION WAS BROUGHT TO OUR KNOWLEDGE. IN VIEW OF T HIS FACT WE SET ASIDE THE ORDER OF THE CIT AND DIRECT THE AO NOT TO MAKE ANY DISALLOWANCE ON SETTING OFF OF OPENING BALANCE FOR BAD AND DOUBTFUL DEBTS C REATED IN RESPECT OF ADVANCED MADE BY RURAL BRANCHES AMOUNTING TO RS.103 ,68,55,666/-. EVEN OTHERWISE SINCE THE ASSESSMENT RELATED TO A.Y. 2012 -13 AND THE RETURN HAS BEEN FILED ON 26.09.2012, WHEN THE AMENDMENT HAS NO T BEEN BROUGHT INTO SECTION 36(1)(VII) BY INSERTING EXPLANATION 2 DUE T O APPLICABILITY OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CA THOLIC SYRIAN BANK LTD. ITA NO. 3775/MUM/2017 M/S. IDBI BANK LTD. 6 VS. CIT 343 ITR 270 THE VIEW TAKEN BY THE AO WILL B E POSSIBLE VIEW AND THEREFORE THE VIEW TAKEN BY THE AO COULD HAVE REGAR DED TO BE ONE SUSTAINABLE IN LAW. PROCEEDINGS UNDER SECTION 263 O N THIS ISSUE CANNOT BE INVOKED. THUS, THIS GROUND STANDS ALLOWED. 10. THE NEXT GROUND RELATES TO THE DIRECTION FOR INITIA TING PENALTY UNDER SECTION 271(1)(C) OF THE I.T. ACT. AFTER HEARING TH E RIVAL SUBMISSIONS AND GOING THROUGH THE ORDERS OF THE TAX AUTHORITIES BEL OW WE ARE OF THE VIEW THAT IT IS A CASE WHERE IT CANNOT BE SAID THAT THE ASSESSEE HAS SUBMITTED INACCURATE PARTICULARS OF ITS INCOME. THE ONUS, IN OUR OPINION, IS ON THE REVENUE TO PROVE THAT THE ASSESSEE HAS FURNISHED IN ACCURATE PARTICULARS OF INCOME. NO SUCH EVIDENCE OR MATERIAL, EVEN THOUGH T HE LEARNED D.R. HAS VEHEMENTLY ARGUED, HAS BEEN BROUGHT TO OUR KNOWLEDG E. WE, THEREFORE, REVERSE THIS DIRECTION OF THE CIT. THUS THIS GROUND ALSO STANDS ALLOWED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER, 2017. SD/ - SD / - (PAWAN SINGH) (P.K. BANSAL) JUDICIAL MEMBER VICE PRESIDENT MUMBAI, DATED: 11 TH SEPTEMBER, 2017 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (LTU), MUMBAI 4. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.