M/S NAZARETH URBAN CO OPERATIVE BANK LTD, TUTICORIN V. DCIT CIRCLE 1, TUTICORIN

ITA 513/CHNY/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9336 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 13-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts; Revised return

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . . , . , BEFORE SHRI DUVVURU R.L. REDDY, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NOS.513 & 514/CHNY/2018 ! ! /ASSESSMENT YEARS: 2013-14 & 2014-15 M/S.NAZARETH URBAN CO-OPERATIVE- BANK LTD., NO.109, MARGACIOUS ROAD, NAZARETH-628 617, TUTICORIN. VS. THE DY. COMMISSIONER- OF INCOME TAX, CIRCLE-1, TUTICORIN. [PAN: AACAN 4921 E] ( $ /APPELLANT) ( %&$ /RESPONDENT) $ ' / APPELLANT BY : NONE %&$ ' /RESPONDENT BY : MR.GURUBASHYAM, JCIT ' /DATE OF HEARING : 25.06.2019 ' /DATE OF PRONOUNCEMENT : 27.06.2019 / O R D E R PER SHRI S. JAYARAMAN, ACCOUNTANT MEMBER : THE ASSESSEE FILED THESE APPEALS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, MADURAI, IN ITA NO.0054/ 2016-17 DATED 29.11.2017 AND IN ITA NO.286/2016-17 DATED 15.11.20 17 FOR THE AYS 2013-14 & 2014-15 RESPECTIVELY. ITA NOS.513 & 514/CHNY/2018 :- 2 -: 2. M/S.NAZARETH URBAN CO-OPERATIVE BANK LTD., THE ASSESSEE IS ENGAGED IN BANKING BUSINESS. WHILE MAKING THE ASSESSMENT FO R THE AY 2013-14, THE AO FOUND THAT THE ASSESSEE HAS NOT MADE ANY PROVISI ON FOR BAD AND DOUBTFUL DEBTS IN ITS ORIGINAL RETURN OF INCOME FILED ON 16. 10.2014. HOWEVER, IN ITS REVISED RETURN FILED ON 14.03.2016, THE PROVISION F OR BAD AND DOUBTFUL DEBTS OF RS.70.00 LAKHS WAS MADE. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE REPRESENTATIVE CONFIRMED VIDE A LETTER DATED 21.12. 2016 THAT THE ASSESSEE FILED ORIGINAL RETURN OF INCOME WITHOUT MAKING PROVISION FOR NON-PERFORMING ASSET (IN SHORT NPA) SINCE THE PROVISION ALREADY MADE IN TH E EARLIER YEAR IS ADEQUATE. THEN BY THE ADVICE OF THE AUDITOR, THE ASSESSEE FIL ED THE REVISED RETURN BY MAKING A PROVISION FOR NPA OF RS.70.00 LAKHS AND RE QUESTED TO CONSIDER THE ASSESSEES CLAIM OF DEDUCTION U/S.36(1)(VIIA). THE AO, INTER ALIA, HELD THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS SHOULD NECESSA RILY BE CREATED DURING THE YEAR, IN THE ABSENCE, HE REFUSED THE ASSESSEES CLA IM OF DEDUCTION. 3. FOR THE AY 2014-15 ALSO, THE ASSESSEE FILED ITS ORIGINAL RETURN ON 06.10.2013, ADMITTING A NIL INCOME ON 14.03.2016. IT FILED A REVISED RETURN CLAIMING DEDUCTION U/S.36(1)(VIIA) OF RS.1,87,21,43 1/-, WHICH IS LESS THAN THE PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS.1,95,02, 918/-. HOWEVER, THE ASSESSEES BANK RESTRICTED THE CLAIM OF DEDUCTION U /S.36(1)(VIIA) TO ITS GROSS TOTAL INCOME OF RS.67,42872/-. DURING THE COURSE O F THE ASSESSMENT PROCEEDINGS, THE REPRESENTATIVE OF THE ASSESSEE FIL ED A LETTER DATED 21.12.2016 CONFIRMING THAT THE ASSESSEE FILED ORIGINAL RETURN WITHOUT MAKING THE PROVISION ITA NOS.513 & 514/CHNY/2018 :- 3 -: FOR NPA SINCE THE PROVISION ALREADY MADE IN THE EAR LIER YEAR IS ADEQUATE. THEN BY THE ADVICE OF THE AUDITOR, THE REVISED RETU RN WAS FILED ON 14.03.2016 BY MAKING PROVISION FOR NPA OF RS.70.00 LAKSH AND R EQUESTED TO CONSIDER THE CLAIM. THE AO INTER ALIA HELD THAT THE BANK HAVE N OT CREATED ANY PROVISION FOR BAD AND DOUBTFUL DEBTS BEFORE FILING THE ORIGINAL R ETURN. BEFORE CREATING RESERVE FOR BAD AND DOUBTFUL DEBTS THE SAME SHOULD BE GOT A PPROVED BY THE DIRECTORS / MEMBER OF THE BANK. AS THE ASSESSEE HAS NOT CREATED ANY RESERVE FOR BAD AND DOUBTFUL DEBTS IN THE ORIGINAL RETURN OF INCOME, IT IS CLEAR THAT, THE BANK HAS NOT CREATED ANY RESERVE FOR BAD AND DOUBTFUL DEBTS DURI NG THE YEAR. THE FACT IS ALSO EVIDENT FROM THE STATEMENT OF BREAK-UP OF THE DETAILS OF INCOME FURNISHED IN SUPPORT OF THE ORIGINAL RETURN OF INCOME WHICH W AS SIGNED BY THE MANAGING DIRECTOR AND GENERAL MANAGER OF THE BANK, WHEREIN N O SUCH RESERVE (RS.70,00,000/-) WAS CREATED. THESE ACCOUNTS OF THE BANK WERE ALSO AUDITED BY THE CHARTED ACCOUNTANT AS REQUIRED U/S.44AB OF T HE IT ACT 1961 AND COPY OF FORM NO.3GA & 3CD DATED 24-09-2014 CERTIFIED BY THE CHARTERED ACCOUNTANT WAS ALSO FURNISHED. THERE IS NO OMISSION OR WRONG STATEMENT IN THE ORIGINAL RETURN OF THE INCOME AND AS SUCH THE BANK'S CLAIM O F RS.1,87,21,431/- (RESTRICTED TO RS.67,42,872/-) AS DEDUCTION U/S.36( L)(VIIA) MADE IN THE REVISED RETURN OF INCOME FILED INCORPORATING THE RESERVES F OR BAD AND DOUBTFUL DEBTS IS NOT ACCEPTED. ACCORDINGLY, RS.67,42,872/- CLAIMED U/S.36(1)(VIIA) BY THE ASSESSEE WAS DISALLOWED BY THE AO AND ADDED BACK TO THE RETURN OF INCOME. ITA NOS.513 & 514/CHNY/2018 :- 4 -: 4. AGGRIEVED AGAINST THOSE ORDERS, THE ASSESSEE FIL ED APPEALS BEFORE THE LD.CIT(A). THE LD.CIT(A) RELYING ON THE DECISION O F THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF STATE BANK OF PATIA LA V. CIT REPORTED IN 272 ITR 54 AND ALSO THE DECISION OF THE CO-ORDINATE BEN CH OF THIS TRIBUNAL IN ITA NO.1168/CHNY/2016 DATED 07.06.2017 FOR THE AY 2008- 09 IN THE CASE OF M/S.THE SALEM DT. CENTRAL CO.OP. BANK LTD. VS. THE DCIT, CIRLCE-1, SALEM, DISMISSED THE ASSESSEES APPEALS. AGGRIEVED AGAIN ST THOSE ORDERS, THE ASSESSEE FILED THE ABOVE APPEALS BEFORE THIS TRIBUN AL. 5. AFTER THREE ADJOURNMENTS SOUGHT BY THE ASSESSEE ON 25.07.2018, 12.11.2018 AND 05.03.2019, THE CASE WAS HEARD ON 24 .06.2019. FOR CONTINUATION OF THE ARGUMENT I.E. FOR THE REPLY OF THE ASSESSEES COUNSEL, THE CASE WAS ADJOURNED TO 25.06.2019. TODAY, I.E. ON 2 5.06.2019, THE COUNSEL OF THE ASSESSEE FILED A LETTER PLEADING, INTER ALIA, T HAT HE HAS TO ATTEND THE HEARING BEFORE THE HIGH COURT AND REQUESTED FOR AN ADJOURNM ENT. SINCE, THE PLEA MADE BY THE COUNSEL IS CONSIDERED AS DILATORY ONE, IT IS REJECTED AND THE CASE WAS TREATED AS HEARD. THE LD.DR INVITED OUR ATTENTI ON TO THE FOLLOWING PORTION OF THE ORDER OF THE LD.CIT(A), WHICH IS COMMON FOR BOTH THE ASSESSMENT YEARS: 5.2 IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS N OT CREATED ANY PROVISION FOR BAD AND DOUBTFUL DEBT DURING THE FY RELEVANT FOR THE ASSESSMENT YEAR 2014-15. THE CLAIM OF THE ASSESSEE THAT THE DEDUCTION SHOULD BE ALLOWED U /S.36(L)(VIIA) EVEN THOUGH NO PROVISION FOR BAD AND DOUBTFUL DEBT IS CREATED IN THE BOOKS OF AC COUNT IS NOT IN ACCORDANCE WITH LAW. THE CLAIM OF THE ASSESSEE SHOULD BE CONSIDERED IN THE LIGHT OF THE PROVISION OF SECTION 36(L)(VIIA) OF THE IT ACT READ WITH TH E CBDT INSTRUCTION NO,17/2008 DATED 26.11.2008 IN WHICH IT IS CLEARLY STATED AS FOLLOWS: QUOTE: 'B) THE DEDUCTION FOR PROVISION FOR BAD AND DOUBTFU L DEBTS SHOULD BE RESTRICTED TO THE AMOUNT OF SUCH PROVISION ACTUALLY CREATED IN THE BOOKS OF THE ASSESSEE IN THE RELEVANT YEAR OR THE AMOUNT CALCULATED AS PER THE PROVISIONS OF SECTION 36(L)(VIIA), WHICHEVER IS LESS.' ITA NOS.513 & 514/CHNY/2018 :- 5 -: UNQUOTE: 5.3 FURTHER, THIS VIEW OF THE DEPARTMENT HAS BEEN UPHELD BY THE HONBLE HIGH COURT OF PUNJAB AND HARYANA IN THE CASE OF STATE BANK OF PAT IALA VS. CIT 272 ITR 54, THE RELEVANT EXTRACT IS AS FOLLOWS: QUOTE: IT IS NECESSARY TO MAKE A PROVISION FOR BAD AN D DOUBTFUL DEBTS IN THE ACCOUNT BOOKS IN THE SAME PREVIOUS YEAR IN WHICH SUCH PROVISION I S CLAIMED AS DEDUCTION U/S.36(1)(VIIA). THIS MEANS ONLY TO THE EXTENT THE PROVISION IS MADE IN T HE ACCOUNTS OF THE YEAR. UNQUOTE: 5.3 FURTHER, THE HON'BLE JURISDICTIONAL ITAT A BENC H IN ITA NO.1168/MDS/2016 IN THE CASE OF M/S.SALEM DISTRICT CENTRAL CO-OPERATIVE BANK LTD., VS DCIT, CIRCLE-1, SALEM WHICH WAS PASSED BY ME DENYING THE CLAIM OF DEDUCTION U/S 36( L)(VIIA) HAS UPHELD MY ORDER AND DISMISSED THE ASSESSEE'S APPEAL. THE FACTS AND CIRC UMSTANCES OF THE ASSESSEE ARE EXACTLY THE SAME AS THAT OF THE CASE CITED SUPRA. 6. FROM THE ABOVE, IT IS CLEARLY SEEN THAT MAKING A PROVISION DURING THE FINANCIAL YEAR RELEVANT FOR THE ASSESSMENT YEAR IS SINE-QUA-NON TO CLAIM DEDUCTION U/S 36(L)(VIIA) OF THE IT ACT. FROM THE RECORDS, IT IS CLEARLY SEEN THAT THE ASSESSEE BANK HAS NOT MADE ANY SUCH PROVISION AND HENCE THEY ARE-NOT ELIGIBLE FOR ANY D EDUCTION U/S 36(L)(VIIA). THEREFORE, THESE GROUNDS OF APPEAL ARE DISMISSED. AND SUBMITTED THAT SINCE THE LD.CIT(A) FOLLOWED THE DECISION OF THE HONBLE HIGH COURT OF PUNJAB & HARYANA, REFERRED TO SUPRA, AND ALSO THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL, REFERRED TO SUPRA, THE ASSESSEES APPEALS MAY BE DISMISSED. 6. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. IT S CLEAR FROM THE DECISION OF THE HONBLE HIGH COURT O F PUNJAB & HARYANA, SUPRA, THAT MAKING OF PROVISION EQUAL TO THE AMOUNT CLAIM ED AS DEDUCTION, IN THE ACCOUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTION U /S.36(1)(VIIA). SINCE THE ASSESSEE HAS NOT MADE ANY PROVISION IN THE BOOKS OF ACCOUNTS, AS ADMITTED BY THE ASSESSEE BEFORE THE AO BY ITS LETTERS DATED 21 .12.2016, IN THE RESPECTIVE ASSESSMENT YEARS, THE ASSESSEE IS NOT ENTITLED FOR THE IMPUGNED DEDUCTIONS ITA NOS.513 & 514/CHNY/2018 :- 6 -: FOR THE RESPECTIVE ASSESSMENT YEARS. FURTHER, THE RELEVANT PORTION OF THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CA SE OF M/S.THE SALEM DT. CENTRAL CO.OP BANK LTD., SALEM VS. THE DCIT, SALEM IN ITA NO.1168/CHNY/MDS/2016 FOR THE AY 2008-09 DATED 07.0 6.2017, IS EXTRACTED AS UNDER: 7.1 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE ASSESSEE HAS DEBITED A SUM OF RS.7,72,84,858/- UNDER THE HEAD NPA DURING THE PREVIOUS YEAR RELEVANT TO THE AY 2008-09 AND CL AIMED THE DEDUCTION U/S.36(I)(VII)(A) FOR AN AMOUNT OF RS.19,49,25,398/-. THE LD.COUNSEL ARGUED THAT THE ASSESSEE HAS ALREADY CREATED THE PROVISION FOR NPA IN THE EARLIER YEARS WHICH REMAINED UNADJUSTED. THEREFORE, THERE IS NO NEED TO CREATE ANY FRESH PROVISION DURI NG THE PREVIOUS YEAR RELEVANT TO THE AY 2008-09. 8.0 IN INCOME TAX, EACH YEAR IS AN INDEPENDENT AND THE INCOME HAS TO BE COMPUTED AS PER THE SYSTEM OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE. THEREFORE, THE DEDUCTION CAN BE MADE BY THE ASSESSEE ONLY ON THE BASIS OF TH E EXPENDITURE DEBITED TO THE PROFIT & LOSS A/C FROM THE PREVIOUS YEAR RELEVANT TO THE AY U NDER CONSIDERATION. NO EXPENDITURE WHICH IS NOT DEBITED TO THE PROFIT & LOSS A/C IN THE YEAR UNDER CONSIDERATION IS PERMISSIBLE FOR DEDUCTION. IN THE INSTANT CASE, THE ASSESSEE HAS NOT DEBITED THE EXPENDITURE RELATING TO THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS. THER EFORE, THE DEDUCTION U/S.36(1)(VIIA) IS PERMISSIBLE TO THE EXTENT OF THE AMOUNT DEBITED TO THE PROFIT & LOSS A/C OR AS PER THE PERMISSIBLE LIMITS SPECIFIED U/S.36(1)(VIIA) WHICHEVER IS LESS. THE CONTENTION OF THE ASSESSEE THAT THE RESERVES ALREADY CREATED IN THE E ARLIER YEARS IS AVAILABLE IN THE BOOKS OF ACCOUNTS WHICH REMAINED UNADJUSTED IS NOT AN ACCEPT ABLE PROPOSITION AND NOT AS PER THE INCOME TAX ACT. THIS VIEW IS CLARIFIED BY THE CBDT IN CIRCULAR NO.17/2008 WHICH WAS RELIED UPON BY THE LD.CIT(A) IN PARA NO.4.2 WHICH IS RE-PR ODUCED HEREUNDER: 4.2. THE ASSESSING OFFICER HAS RESTRICTED THE CLAIM OF THE ASSESSEE BANK TO THE AMOUNT OF PROVISION MA DE FOR THE RELEVANT ASSESSMENT YEAR. THIS RESTRICTION SHOULD BE CONSIDE RED IN LIGHT OF THE PROVISIONS OF SECTION 36(1)(VII A) OF THE IT ACT READ WITH THE CBDT INSTRUCTION NO.17/2008 DATED 26.11.2006. IN THIS INSTRUCTION IT IS CLEARLY STATE D AS FOLLOWS: QUOTE: (B) THE DEDUCTION FOR PROVISION FOR BAD AND DOUBTFU L DEBTS SHOULD BE RESTRICTED TO THE AMOUNT OF SUCH PROVISION ACTUALLY, CREATED IN THE BOOKS OF THE ASSESSEE IN THE RELEVAN T YEAR OR THE AMOUNT CALCULATED AS PER PROVISIONS O F SECTION 36(1)(VIIA), WHICHEVER IS LESS. UNQUOTE. 9.0 THE CIRCULAR IS VERY CLEAR THAT THE DEDUCTION IS P ERMISSIBLE ONLY TO THE EXTENT OF PROVISIONS ACTUALLY CREATED IN THE BOOKS OF ACCOUNT S FOR THE RELEVANT ASSESSMENT YEAR. THIS VIEW IS SUPPORTED BY THE DECISION OF THE HONBLE PU NJAB & HARYANA HIGH COURT CITED SUPRA. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD.CIT(A) AND THE SAME IS ALLOWED. GROUND NOS.6 12 OF THE ASSESSEE ARE DIS MISSED. 7. SINCE THE CO-ORDINATE BENCH OF THIS TRIBUNAL HAS APPLIED THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT, CITED SUPR A, AND DISMISSED THE ITA NOS.513 & 514/CHNY/2018 :- 7 -: APPEAL IN THE ABOVE CASE, FOLLOWING THE SAME, THE A PPEALS FILED BY THE ASSESSEE ARE ALSO DISMISSED. 8. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH JUNE, 2019, IN CHENNAI. SD/- SD/- ( . / . . 0 ) (DUVVURU R.L. REDDY) /JUDICIAL MEMBER ( . ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, 2 /DATED: 27 TH JUNE, 2019. TLN ' % 34 54 /COPY TO: 1. $ /APPELLANT 4. 6 /CIT 2. %&$ /RESPONDENT 5. 4 % /DR 3. 6 ( )/CIT(A) 6. ! /GF