The Gujarat State Co.Op.Bank Ltd.., Ahmedabad V. The Dy.CIT.,Circle-2, Ahmedabad

ITA 490/AHD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0249 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 20-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 23-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D P GUPTA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

I.T.A. NO. 490 /AHD/201 2 ASSESSMENT YEAR: 200 8 - 09 PAG E 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND S S GODARA JM ] I.T.A. NO. 490 /AHD/201 2 ASSESSMENT YEAR: 20 0 8 - 09 THE GUJARAT STATE CO - OP BANK LIMITED ............. ... .. APP ELLANT SAHAKAR BHAVAN, RELIEF ROA D, AHMEDABAD 380 001. [PAN: AA AAT 9774 T ] VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE - 2 , AHMEDABAD. . . . RESPONDENT APPEARANCES BY: S .N. SOPARKAR FOR THE APPELLANT D.P. GUPTA FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 20.07.2 016 DATE OF PRONOUNC ING THE ORDER : 19 .10.2016 O R D E R PER PRAMOD KUMAR , AM : 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 25 TH JANUARY, 2012 PASSED BY THE LEARNED CIT(A), IN THE MATTER OF ASSESSMENT UND ER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER), FOR THE ASSESSMENT YEAR 200 8 - 09 2. GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS : - 1 ) ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, YOUR APPELLANT MOST RESPECTFULLY SUBMITS THAT L D . ASSESSING OFFICER HAS ERRED IN LAW IN DISALLOWING CLAIM OF BAD DEBTS OF RS.11,72,22,554/ - AND HON BLE CI T(A) HAS FURTHER ERRED IN LAW IN CONTINUING SUCH DISALLOWANCE THE CLAIM OF BAD DEBTS OF RS.11,72,22,554/ - WITHOUT APPRECIATING THE FULL FACTS, AN D DETAILS SUBMITTED ON RECORD A ND EXPLAINED DURING THE COURSE OF HEARING, THAT THE BORROWERS A/CS I.T.A. NO. 490 /AHD/201 2 ASSESSMENT YEAR: 200 8 - 09 PAG E 2 OF 6 ARE CREDITED BY DEBITING THE BAD & DOUBTFUL DEBTS RESERVE A/C, AND NO AMOUNTS REMAIN OUTSTANDING RECEIVABLE IN THE BORROWERS A/C. 2) YOUR APPELLANT MOST RESPE CTFULLY SUBMITS THAT LD. ASSESSING OFFICER HAS ERRED IN LAW IN MAKING ADDITION OF RS.10 CRORES IN RESPECT OF EXCESS PROVISION OF INTEREST PAYABLE WRITTEN BACK , WHICH WERE ALREADY DISALLOWED AND ADDED IN STATEMENT OF TOTAL INCOME IN A.Y. 2004 - 05 RS.8 CRORES AND IN A.Y. 1998 - 99 RS.2 CRORES AND HON BLE CIT ( A ) HAS FURTHER ERRED IN LAW IN CONTINUING SUCH ADDITION OF RS.10 CRORES, WITHOUT APPRECIATING THE FULL FACTS, AND DETAILS SUBMITTED ON RECORD AND EXPLAINED DURING THE COURSE OF HEARING. 3. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIAL FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE BEFORE US IS ENGAGED IN BANKING BUSINESS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION FOR BAD DEBTS, AMOU NTING TO RS.11,72,22,554/ - . IN THE STATEMENT OF COMPUTATION OF INCOME, IT WAS ST AT ED BY THE ASSESSEE THAT OUT OF TOTAL BAD DEBTS OF RS.15,35,10,531/ - , AN AMOUNT OF RS.3, 62,87,977/ - WAS ALREADY CLAIMED , AND THE BALANCE RS.11,72,22,554/ - BE ALLOWED NOW. HO WEVER, THE ASSESSING OFFICER DID NO T ALLOW THE SAME ON THE GROUND THAT THE A MOUNT HAS NOT BEEN WRITTEN OFF AND THAT THE BAD DEBT IS NOT ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT. A S REGARDS THE ADDITION OF RS.10 C R ORES ON ACCOUNT OF EXCESS PROVISION WRIT TEN BACK, IT WAS MADE BY THE ASSESSING OFFICER WITH HIS RATHER CRYPTIC OBSERVATIONS AS FOLLOWS : - 5. EXCESS PROVISION WRITTEN BACK : - THE ASSESSEE HAS REDUCED RS.10,00,00,000/ - (RS. TE N CRORES) FROM ITS PROFITS IN THE STATEMENT OF INCOME CLAIMING THAT EX CESS PROVISION HAD BEEN MADE IN THE PRECEDING YEARS. THE METHODOLOGY OF SUCH ABRUPT A ND ARBITRARY REDUCTION OF INCOME IS ILLOGICAL TO T HE C ORE. THE MERCANTILE SYSTEM OF ACCOUNTING C A LLS FOR THE DETERMINATION OF PROFIT ON DUE BASIS . ALSO, EACH YEAR OF AC COUNT IS DISTINCT FOR DETERMINATION OF PROFIT UNDER THE TAXATION LAWS. SIMPLY BECAUSE THERE WAS AN EXCESS PROVISIONS MADE IN ANY PREC E DING Y E AR, THE PROFIT OF THE CURRENT YEAR CANNOT BE REDUCED . HENCE, THE WRITE BACK BECOMES IRRELEVANT FOR THE COMPUTATIO N OF INCOME FOR THIS YEAR. THE WRITE BACK IS DENIED AND THE IMPUGNED A MOUNT OF RS.10,00,00,000/ - IS ADDED BACK TO THE RETURNED INCOME. I.T.A. NO. 490 /AHD/201 2 ASSESSMENT YEAR: 200 8 - 09 PAG E 3 OF 6 4. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT ( A ) BUT WITHOUT ANY SUCCESS. LEARNED CIT ( A ) U PHELD THE ACTION OF THE ASSESSING OFFICER, AND OBSERVED, INTER ALIA, A S FOLLOWS : - 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANT S SUBMISSION. IT IS NOT IN DISPUTE THAT APPELLANT DID NOT WRITE - OFF BAD DEBTS IN THE P&L ACCOUN T. THE BAD DEBTS WERE DEBITED TO BAD DEBT S RESERVE ACCOUNT WHICH IS NOTHING BUT PROVISION FOR BAD DEBTS ACCOUNT. ASSESSING O FFICER DISALLOWED THE CLAIM ON THE GROUND THAT THE AMOUNT WAS NOT WRITTEN - OFF IN THE P&L ACCOUNT BUT ADJUSTED AGAINST PROVISION FO R BAD DEBTS. THIS MEANS APPELLANT HAD SUBSTANTIAL CREDIT BALANCE IN PROVISION FOR BAD AND DOUBTFUL DEBT ACCOUNT AND AS SUCH THE BAD DEBTS DID NOT EXCEED THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT. THE PROVISO TO SECTION 36(1) (V II) DOES NOT ALLOW BAD DEBTS IF IT DOES NOT EXCEED THE CREDIT BALANCE OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT. THE RELEVANT PROVISION IS QUOTED BELOW - PROV I DED THAT IN THE CASE OF [AN ASSESSEE] TO WHICH CLAUSE ( VIIA ) APPLIES, THE AMOUNT OF THE DEDUCTION RELATING TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE I N THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE.] IT IS NOT IN DISPUTE THAT APPEL LANT IS A CO - OPERATIVE BANK TO WHICH CLAUSE (VIIA) IS APPLICABLE AND THEREFORE BAD DEBTS CAN BE ALLOWED ONLY IF THE SAME EXCEEDS THE CREDIT BALANCE OF PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT. SINCE APPELLANT HAS DEBITED THE BAD DEBTS RESERVE ACCOUNT B Y THE AMOUNT OF BAD DEBTS, THE SAME DID NOT EXCEED THE CREDIT BALANCE AND THEREFORE THE BAD DEBTS ARE NOT ALLOWABLE. THEREFORE APART FROM THE ARGUMENTS TAKEN BY THE ASSESSING OFFICER IN NOT ALLOWING THE CLAIM OF BAD DEBTS, APPELLANT'S CLAIM OF BAD D EBTS I S NOT ALLOWABLE EVEN AS PER THIS PROVISION. ACCORDINGLY THE DISALLOWANCE MADE BY THE AO IS CONFIRMED. 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE; ASSESSMENT ORDER AND APPELLANT'S SUBMISSION. ASSESSING OFFICER DID NOT ALLOW THE REDUCTION OF INTEREST PRO VISION REVERSED BY THE APPELLANT ON THE GROUND THAT THE SAME IS REVENUE IN NATURE AND CESSATION OF LIABILITY. APPELLANT SUBMITTED THAT IT DID NOT CLAIM THE INTEREST EXPENSES IN THE RELEVANT Y EARS AND THEREFORE REVERSAL OF UNCLAIMED EXPENSES CANNOT BE TAXA BLE. IT IS NOT IN DISPUTE THAT TILL ASSESSMENT YEAR 2006 - 07, APPELLANT'S INCOME FROM BUSINESS OF BANKING WAS EXEMPT UNDER SECTION 80 P AND TH EREFORE CLAIMING THAT SUCH INTEREST WAS ADDED IN THE COMPUTATION IS REALLY NOT RELEVANT. IT IS NOT IN DISPUTE THAT THE INTEREST EXPENSES CLAIMED IN P &L ACCOUNT OF THE RESPECTIVE YEARS AND THEREFORE IT IS PRESUMED TH AT PROFIT OF THOSE YEARS WERE REDUCED BY THE INTEREST AMOUNT. SINCE APP E LLANT S INCOME FROM BANKING BUSINESS WAS EXEMPT IN THESE YEARS, IT IS IMMATERIAL WH ETHER INTEREST CLAIMED IN P&L ACCOUNT IS ADDED I.T.A. NO. 490 /AHD/201 2 ASSESSMENT YEAR: 200 8 - 09 PAG E 4 OF 6 IN COMPUTATION AND AG A IN CLAIMED AS DEDUCTION. CONSIDERING THESE FACTS, R E VE R SAL OF INTEREST EXPENS E S IS INCOME UNDER SECTION 41(1) OF I NCOME TAX A CT. ACCORDINGLY THE ADDITION MADE BY THE ASSESSING OFFICER I S CONFIRMED. 5. THE A SSESSEE IS NOT SATISFIED A ND IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 7. WE FIND THAT SO FAR AS THE ACTION OF DECLINING DEDUCTION OF RS.11,72,22,554/ - IS CONCERNED, IT IS BASE D ON AN ERRONEOUS READING OF HON BLE SUPREME COURT S JUDGEMENT IN THE CASE OF TRF LIMITED VS. CIT [(2010) 323 ITR 397 (SC)]. WHAT THIS DECISION HOLDS IS THAT IT IS NO T NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT , IN FACT , HAS BECOME BAD AND THAT IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF THE ASSESSEE . THE REQUIREMENT FOR WRITE OFF BY DEBIT TO PROFIT AND LOSS ACCOUNT IN THE YEAR OF CLAIM DOES NOT EXIST. IN THE PRESENT CASE, THE DEBT HAS BEEN WRITTEN OFF IN THE SENSE THAT ACCOUNT OF THE DEBTOR IS SQUARED UP BY CREDITING THE DEBTOR AND DEBITING THE BAD DEBT RESERVE ACCOUNT . THIS ACCOUNTING TREATMENT, IN OUR CONSIDERED VIEW, DOES AMOUNT TO ACTUAL WRIT OFF OF THE DEBIT. HOWEVER, SINCE THIS ENTRY DOES NOT TOU C H UPON THE PROFIT AND LOSS ACCOUNT AT THIS STAGE DIRECTLY, THE AUTHORITIES BELOW H AVE DECL INED TO TREAT IT AS A WRITE OFF OF T HE DEBTS. WHAT IS OVERLOOKED IN THE PROCESS IS THAT PROVISION, WHICH IS PARTIALLY SQUARED UP IN THIS YEAR TO THE CREDIT OF THE DEBTOR, WAS CREATED IN EARLIER YEARS TO THE DEBIT OF PROFIT AND LOSS ACCOUNT BUT ADDED BACK AS PROVISION IS NOT TAX DEDUCTIBLE. AS REGARDS THE LEARNED CIT(A) S REFERENCE TO PROVISO TO SECTION 36(1)(VII), WHICH, IN TURNS, REFERS TO SECTION 36(1)(VIIA), TO PROVISIONS MADE UNDER SECTION 36(1)(VIIA) WHICH ADMITTEDLY IS NOT THE C A SE HERE. IN VIEW OF THESE DISCUSSIONS, A S ALSO BEARING IN MIND ENTIRETY OF I.T.A. NO. 490 /AHD/201 2 ASSESSMENT YEAR: 200 8 - 09 PAG E 5 OF 6 THE CASE, THE GRIEVANCE O F THE ASSESSEE MUST BE UPHELD. ACCORDINGLY , DISALLOWANCE OF DEDUCTION FOR BA D DEBTS, AMOUNTING TO RS.11,72,22,554/ - , IS DELETED . 8. GROUND NO.1 IS THUS ALLOWED. 9. AS REGARD THE ADDITION OF RS.10 CRORES, ON ACCOUNT OF PROVISION WRITTEN BACK, WE HAVE NOTED THAT THE LEANED CIT ( A ) HAS JUSTIFIED THE S A ME BY OBSERVING THAT CONSIDERING THESE FACTS, REVERSAL OF INTEREST EXPENSE IS INCOME UNDER SECTION 41(1) OF INCOME TAX ACT BUT THEN SECTION 41(1) COMES INTO PLAY ONLY WHEN AN ALLOWANCE OR DEDUCTION HAS BEEN MA DE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE A SS E SSEE. IN THE CASE BEFORE US, THE PROVISION WAS NEVER CLAIMED A S DEDUCTION AS IT WAS ADDED BACK IN THE COMPUTATION OF INCOME. CLEARLY, SECTION 41(1 ) HAS N O APPLICATION IN THE MA T TER. WHEN PROVISION WAS NEVER CLAIMED A S DEDUCTION , THERE CANNOT BE ANY OCCASION TO BRING TO TAX REVERSAL OF SUCH A PROVISION. THE ENTIRE EXERCISE OF CREATING THIS PROVISION, AND REVERSING THE SAME PARTLY OR FULLY, IS COM PLETELY TAX NEUTRAL. THE FACT THAT INCOME WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P , EVEN IF THAT BE SO, IS WHOLLY IRRELEVANT IN THIS CONTEXT. IN VIEW OF THESE DISCUSSIONS, WE UPHOLD THE GRIEVANCE OF THE ASSESSEE. ACCORDINGLY, THIS ADDITION OF RS.10 CRORES ALSO STANDS DELETED. 10. GROUND NO.2 IS ALSO ALLOWED. 11 IN THE RESULT, THE APPEAL IS ALLOWED . PRONOUNCED IN THE OPEN COURT TODAY ON 19 TH DAY OF OCTOBER , 2016. SD/ - SD/ - S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 19 TH DAY OF OCTOBER , 2016. I.T.A. NO. 490 /AHD/201 2 ASSESSMENT YEAR: 200 8 - 09 PAG E 6 OF 6 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE T RIBUNAL AHMEDABAD BENCHES, AHMEDABAD