The Asstt. Commissioner of Income-tax, Jalandhar V. Punjab Gramin Bank, Kapurthala

ITA 443/ASR/2011

• Counselvise Citation: 44320914 RSA 2011
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-06-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 03-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R L CHHANALIADR
• Assessee Lawyers: RANJAN SEHGAL
• Keywords: Business expenditure; Opportunity of being heard; Principle of natural justice; Additional evidence; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO. 443(ASR)/2011 ASSESSMENT YEAR:2008-09 PAN :AAALP0309F THE ASSTT. COMMR. OF INCOME-TAX, VS. PUNJAB GRAMIN BANK, CIRCLE-IV, JALANDHAR. JALANDHAR ROAD, KAPURTHALA . (APPELLANT) (RESPONDENT) APPELLANT BY:SH. R.L. CHHANALIA,DR RESPONDENT BY:SH. RANJAN SEHGAL, ADV. DATE OF HEARING:13/06/2012 DATE OF PRONOUNCEMENT:14/06/2012 ORDER PER BENCH ; THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER O F THE CIT(A), JALANDHAR, DATED 31.05.2011 FOR THE ASSESSMENT YEAR 2008-09. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING TH E ADDITION OF RS.36,75,000/- MADE BY THE A.O. BY DISALLOWING THE PROVISION FOR STANDARD ASSETS. 1(A) WHILE ALLOWING THE RELIEF OF RS.36,75,000/- LD . CIT(A) HAS FAILED TO APPRECIATE THAT THE AO HAS CLEARLY HELD T HAT OUT OF PROVISION OF RS.50,00,000/- ONLY RS.13,25,000/- WER E ON A/C OF 2 BAD AND DOUBTFUL DEBTS AND THE BALANCE AMOUNT OF RS.36,75,000/- WAS ON ACCOUNT OF STANDARD ASSETS AN D AS PER PROVISIONS OF SECTION 36(1)(VIIA) ONLY PROVISION FO R BAD AND DOUBTFUL DEBTS WAS ALLOWABLE AS DEDUCTION. 2. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) HA S FAILED TO APPRECIATE THAT IT WAS CONTINGENT LIABILITY AND WAS NOT ALLOWABLE AS BUSINESS EXPENDITURE. 3. THE APPELLANT REQUESTS FOR LEAVE TO ADD OR AMEND OR ALTER THE GROUNDS OF APPEAL BEFORE THE APPEAL IS HEARD AND DI SPOSED OF. 3. THE BRIEF FACTS AS PER AOS ORDER ARE REPRODUCED AS UNDER: DURING THE ASSESSMENT PROCEEDINGS IT WAS NOTICED T HAT THE ASSESSEE HAS CREATED AND MADE PROVISIONS FOR BAD AND DOUBTFU L DEBTS AT RS.50,00,000/- AND THE SAME WERE NOT FURTHER BIFURC ATED INTO BAD AND DOUBTFUL DEBTS AND STANDARD ASSET. THE ASSESSEE WAS ASKED VIDE ORDER SHEET ENTRY DATED 16.12.2010 TO FILE THE DETAILS OF STANDARD ASSETS PROVISIONS CREATED DURING THE YEAR AND SHOW CAUSE W HY THIS AMOUNT MAY NOT BE ADDED TO YOUR ASSESSABLE INCOME. THE ASSESSEE VIDE THIS LETTER DATED 28.12.2010 REPL IED AS UNDER: IN CONTINUATION OF OUR PREVIOUS REPLY DATED 13.12. 2010 AND IN RESPONSE TO FURTHER QUERIES PUTFORTH BY YOUR GOODSE LF TELEPHONICALLY, WE MAY SUBMIT THAT WE HAVE CREATED PROVISION FOR BAD & DOUBTFUL DEBTS AMOUNTING TO RS. 50 LACS D URING THE YEAR UNDER CONSIDERATION AND IT INCLUDES RS.36,75 L ACS AGAINST STANDARD ASSETS AND BALANCE AGAINST OTHER ASSETS. W E MAY ADD HERE THAT THE PROVISION FOR BAD & DOUBTFUL DEBTS IS AN ALLOWABLE EXPENSES U/S 36(1)(VIIA) OF INCOME TAX SU BJECT TO THE LIMITS THAT IS SHOULD NOT EXCEED 7.5% OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THAT CL AUSE AND CHAPTER VIA) AND 10% OF THE AGGREGATE AVERAGE ADVAN CES MADE BY THE RURAL BRANCHES COMPUTED IN THE PRESCRIB ED MANNER. SECTION 36(2)(V) FURTHER STATES THAT NO SUC H DEDUCTION SHALL BE ALLOWED UNLESS THE ASSESSEE HAS DEBITED TH E AMOUNT OF SUCH DEBT OR PART OF DEBT IN THE PREVIOUS YEAR TO T HE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THE C LAUSE. WE HAVE FULFILLED BOTH THE CONDITIONS MENTIONED ABOVE I.E. 3 PROVISION MADE FOR BAD & DOUBTFUL DEBTS IS WELL WI THIN PRESCRIBED LIMITS AND THE AMOUNT HAS BEEN ACTUALLY DEBITED TO THE PROVISION FOR BAD & DOUBTFUL LIMITS AND THE AMO UNT HAS BEEN ACTUALLY DEBITED TO THE PROVISION FOR BAD & DO UBTFUL DEBTS DURING THE YEAR. HENCE, IT IS A VERY MUCH ALLOWABLE DEDUCTION IN OUR CASE. AS REGARDS DECISION OF HONBLE SPECIAL BENCH OF ITA T, DELHI IN THE CASE OF NEW INDIA INDUSTRIES LTD. VS. ACIT 2007 , 18 SOT 51, IT WAS IN THE CASE OF A NON BANKING FINANCE COM PANY IN RESPECT OF DEDUCTION U/S 36(1)(VII) OF THE INCOME T AX ACT. WHEREAS OURS IS A BANK AND OUR CLAIM IS U/S 36(1)(V IIA) OF INCOME TAX ACT. IN PARA 12 AT PAGE 12 OF THE ORDER, IT HAS CLEARLY MENTIONED BY THE HONBLE SPECIAL BENCH THAT DEDUCTION U/S 36(1)(VIIA) OF INCOME TAX ACT IS MEANT FOR ENTI TIES SPECIFIED THEREIN ONLY AND NOT FOR OTHER ENTITIES. WE MAY FUR THER ADD HERE THAT INSTRUCTION NO.17/2008, DATED 26.11.2008 OF C. B.D.T. CLEARLY DIFFERENTIATE BETWEEN APPLICABILITY OF SECT ION 36(1)(VII) AND SECTION 36(1)(VIIA) OF THE INCOME TAX ACT IN CL AUSES (I) TO (IV) OF THE INSTRUCTIONS. IT HAS ONLY EXPLAINED TH E WAY IN WHICH LIMITS SPECIFIED IN SECTION 36(1)(VIIA) HAS TO BE C ALCULATED. NOWHERE IN THESE INSTRUCTIONS ANY QUESTION HAS BEEN RAISED ON THE ALLOWABILITY OF PROVISION MADE AGAINST STANDARD ASSETS. IT IS THEREFORE CRYSTAL CLEAR THAT PROVISION MADE BY THE BANK FOR BAD & DOUBTFUL DEBTS IS VERY MUCH FULFILLED IN OUR CASE . WE HOPE IT WILL SATISFY YOUR GOODSELF AND OUR ASSESSMENT WILL BE COMPLETED ON RETURNED INCOME. HOWEVER, AFTER CONSIDERING THE REPLY FILED BY THE A SSESSEE THE SAID PROVISION AMOUNTING TO RS.36,75,000/- IS BEING DISALLOWED IN THE LIGHT OF THE PROVISION OF SECTION 36(1)(VIIA) OF TH E INCOME TAX ACT, 1961 WHEREIN ONLY PROVISION IN CASE OF BAD AND DOUB TFUL DEBTS HAS BEEN MENTIONED AND IS ALLOWABLE. THE NATURE OF STAN DARD ASSETS AS PER RBI GUIDELINES ARE PERFORMING ASSETS AND THUS THEY ARE NOT BAD AND HENCE NOT COVERED IN 36(1)(VIIA). THE ASSESSEE HIMS ELF IN HIS REPLY DATED 28.12.2010 HAS DIFFERENTIATED THAT OUT OF RS. 50,00,000/- ONLY RS.13,25,000/- IS AGAINST BAD AND DOUBTFUL DEBTS AN D BALANCE OF RS.36,75,000/- IS AGAINST STANDARD ASSETS. ON THE O THER HAND THE PROVISION IN RESPECT OF STANDARD ASSETS REPRESENTS ONLY A CONTINGENT LIABILITY NOT ALLOWABLE AS BUSINESS EXPENSES. 4 THEREFORE, AN ADDITION OF RS.36,75,000/- IS MADE TO THE TOTAL INCOME OF THE ASSESSEE. 4. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED T HE EXPLANATION ESPECIALLY THE MEANING OF STANDARD, SUB-STANDARD AN D DOUBTFUL OR LOSS DEPENDING UPON THE NATURE OF ADVANCE AND VALUE OF S ECURITY AVAILABLE AGAINST SUCH LOAN, WHICH ARE THE GUIDELINES OF RESERVE BANK OF INDIA ( IN SHORT RBI) AND THE ASSESSEE HAS FOLLOWED THOSE GUIDELIN ES. THE ASSESSEE SUBMITTED THE EXPLANATION AVAILABLE AT LD. CIT(A)S ORDER AT PAGES 1 TO 7 IN PARAS 7. THE SAME WAS CONSIDERED AND ACCEPTED BY TH E LD. CIT(A) WHO ALLOWED THE CLAIM OF THE ASSESSEE AND DELETED THE A DDITION MADE BY THE AO. 5. BEFORE US, THE LD. DR, SH. R.L. CHHANLIA, FIRST OF ALL RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND THEREAFTER, HE A RGUED THAT THE GUIDELINES OF RBI WERE NOT PROVIDED BEFORE THE A.O. BUT BEFOR E THE LD. CIT(A). THE EXPLANATION PUT-FORTH BEFORE THE LD. CIT(A) WAS NO T AVAILABLE BEFORE THE AO. THE LD. CIT(A) SHOULD NOT HAVE DECIDED THE MAT TER WITHOUT ADMITTING THE SAME AS AN ADDITIONAL EVIDENCE AS PER INCOME TA X RULES, 1962 AND WITHOUT HAVING THE REMAND REPORT OF THE AO. MOREOVE R, AS PER SECTION 36(VIIA), THE DEDUCTION ALLOWABLE IS IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY THE BANK OR SOCIETY REFERRE D TO IN THAT SECTION. IT WAS ARGUED, FIRST OF ALL, IT HAS TO BE A PROVISION FOR BAD AND DOUBTFUL DEBTS, WHICH IN THE PRESENT CASE, THE ASSESSEE ITSELF HAS ADMITTED AT RS.13.25 LAKHS 5 THE PROVISION AGAINST STANDARD ASSETS FOR RS.36.75 LAKHS CANNOT BE SAID TO BE A PROVISION FOR BAD AND DOUBTFUL DEBT AND THERE FORE, ONCE IT IS NOT THE PROVISION OF BAD AND DOUBTFUL DEBTS, THERE IS NO QU ESTION OF APPLICATION OF LIMIT PRESCRIBED IN SECTION 36(1)(VIIA) OF THE ACT. THEREFORE, THE AO HAS RIGHTLY DISALLOWED RS.36.75 LAKHS CLAIMED BY THE A SSESSEE AS PROVISION FOR BAD & DOUBTFUL DEBTS. THE ORDER OF THE LD. CIT(A), THEREFORE, WAS PRAYED TO BE REVERSED. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE, SH. RANJAN SEHGAL, ADVOCATE, RELIED AT THE OUTSET ON THE ORDE R OF THE LD. CIT(A) AND ARGUED ON THE SAME LINES, AS SUBMITTED BEFORE THE L D. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE ARE CONVINCED WITH THE ARGUMENTS MADE BY THE LD. DR, SH. R.L. CHHANALIA THAT THE LD. CIT(A) IS NOT JUSTIFIED IN A CCEPTING THE EXPLANATION OF THE ASSESSEE WHICH WAS NOT MADE BEFORE THE A.O. THE SAME SHOULD HAVE EITHER BEEN ADMITTED UNDER RUE 46A OF THE I.T. RULE S, 1962 AND BY HAVING A REMAND REPORT FROM THE A.O. THE SAME HAS NOT BEEN D ONE BY THE LD. CIT(A). THEREFORE, THE ORDER OF THE LD. CIT(A), AT THE OUTSET, IS AGAINST THE PRINCIPLES OF NATURAL JUSTICE AND DESERVES TO BE RE VERSED. BUT IN THE INTEREST OF JUSTICE, THE MATTER IS SET ASIDE TO THE FILE OF THE A.O. WHO WILL EXAMINE THE CLAIM OF THE ASSESSEE AND FIND OUT WHETHER THE PROV ISIONS MADE FOR RS. 50 6 LAKHS IS A PROVISION FOR BAD AND DOUBTFUL DEBTS, FI RST AND IF SO THEREAFTER APPLY THE LIMIT AS PROVIDED UNDER CLAUSE (A) TO SE CTION 36(A)(VIIA). THE ISSUE SHOULD BE DECIDED AFRESH AS DIRECTED HEREINABOVE BU T BY AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSE. THUS, AL L THE GROUNDS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14TH JUNE, 2012 SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 14 TH JUNE, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:PUNJAB GRAMIN BANK, JALANDHAR ROAD, KA PURTHALA. 2. THE ACIT, CIR.IV, JALANDHAR. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.