THE JANALAXMI COOPERATIVE BANK LIMITED, NASHIK V. ACIT CIRCLE 1, NASHIK

ITA 54/PUN/2020

• Counselvise Citation: [NaN] 107 COUNSELVISE.COM (IT) 1962 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 16-01-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 80P; 64

Judgement Text

आयकर अपीऱीय अधिकरण “ए” न्यायपीठ प ु णे म ें । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपीऱ सं. / ITA No.54/PUN/2020 नििाारण वषा / Assessment Year : 2014-15 The Janalaxmi Co-Op. Bank Ltd., Samruddhi, Gadkari Chowk, Nashik – 422002 PAN : AAAAT3312K .......अऩीऱाथी / Appellant बिाम / V/s. ACIT, Circle – 1, Nashik ......प्रत्यथी / Respondent Assessee by : Smt. Deepa Khare Revenue by : Shri Naveen Gupta स ु नवाई की तारीख / Date of Hearing : 17-02-2022 घोषणा की तारीख / Date of Pronouncement : 03-03-2022 आदेश / ORDER PER S.S. VISWANETHRA RAVI, JM : This appeal by the assessee against the order dated 27-11-2019 passed by the Commissioner of Income Tax (Appeals)-1, Nashik [„CIT(A)‟] for assessment year 2014-15. 2. The assessee raised as many as 8 grounds of appeal amongst which the only issue emanates for our consideration is as to whether the CIT(A) is 2 ITA No.54/PUN/2020, A.Y. 2014-15 justified in confirming the addition of Rs.8,54,42,557/- on account of Bad and Doubtful Debts Reserve (BDDR) for earlier years written back in the year under consideration. 3. The facts of the case are that the assessee is a Co-operative Society conducts its banking business under the name and style of “The Janalaxmi Co-Op. Bank Ltd”. During the course of assessment proceeding, the AO noted that the assessee credited an amount of Rs.8,54,42,557/- to the profit and loss account on account of bad and doubtful debts reserve written off. The assessee submitted that there was excess provision for earlier year and made reversal of Rs.8,96,28,496/- with effect of Rs.41,85,939/- the net reversal of Rs.8,54,42,557/- in the year under consideration. It was contended that such amount should not be added in the computation of income as there was no deduction claimed at the time of creation of BDDR provision in the earlier year. The AO did not accept the contention of assessee and added the said amount to the total income of the assessee vide Para No. 4.1 of the assessment order. The assessee made detailed submissions before the CIT(A) and it has been held that there was no convincing explanation regarding the addition of Rs.8,54,42,557/- and confirmed the order of AO vide Para No. 5.3 of the impugned order by holding the assessee shown the same as income in the profit and loss account and entries were made to that effect in the books of account. The ld. AR reiterated the submissions made before the authorities below and placed reliance on the order of this Tribunal in assessee‟s own case in ITA No. 622/PUN/2017 for A.Y. 2013-14 and referred to Page No. 45 of the paper book. The ld. DR relied on the order of CIT(A). 3 ITA No.54/PUN/2020, A.Y. 2014-15 4. Having heard both the authorities and on perusal of record along with the order of this Tribunal in assessee‟s own case for A.Y. 2013-14. We note that the assessee shown net profit at Rs.6,73,27,193/- as evident from the revised statement of income at Page No. 28 of the paper book, wherein, we note that sum of Rs.8,54,42,557/- were added and the same amount were reversed, making it clear that the assessee did not claim any deduction on account of provision for bad and doubtful debts made for the year under consideration nor offered any income on account of write back of the provision for bad and doubtful debts for the earlier years in the computation of total income. As can be seen from the assessment order the details of disallowance of reversal provision for bad and doubtful debts reserves from A.Ys. 2004-05 to 2012-13 were reproduced wherein we note that the assessee started making provision for bad and doubtful debts from A.Ys. 2004-05 to 2014-15 to an extent of Rs.71,88,98,173/-. It is also noted that the assessee made net of reversal for A.Y. 2013-14 to an extent of Rs.2,10,39,033/- and Rs.8,54,42,557/- for the year under consideration making the total reversal for A.Ys. 2013-14 and 2014-15 to an extent of Rs.10,64,81,590/- (Rs.2,10,39,033/- + Rs.8,54,42,557/-). It is also seen the total provision available as on 31-03-2014 is Rs.61,24,16,583/-. 5. Further, as discussed above, the assessee has shown profits earned from the business and profession as net profit before the tax as per profit and loss account at Rs.6,73,27,193/- vide Page No. 28 of the paper book which is matching with the net profit figure in annual account as on 31- 03-2015 at Page No. 95 of the paper book, thereby, meaning the profit and loss account contains the net of bad and doubtful debts reserves written back at Rs.8,54,42,557/-. Therefore, in our opinion, it is clear that the assessee shown profit of Rs.6,73,27,193/- in the computation of total income as net profit which is inclusive of Rs.8,54,42,557/- and reversed 4 ITA No.54/PUN/2020, A.Y. 2014-15 the same amount, meaning thereby that the assessee claimed no deduction on account of provision for bad and doubtful debts made in the year under consideration nor offered any income on account of written back of the said provision for bad and doubtful debts for the earlier year in the computation of total income. Thus, when there is no deduction claimed in the computation of total income on account of BDDR and its reversal in subsequent year i.e. involving present A.Y. 2014-15 under consideration does not warrant any addition, meaning no tax on the reversal of BDDR in the subsequent year. A similar issue on same identical facts, the Co-ordinate Bench in assessee‟s own case in ITA No. 622/PUN/2017 for A.Y. 2013-14 vide order dated 13-10-2020, the relevant portion is reproduced here-in-below for ready reference : “4. We have heard the rival submissions through virtual court and gone through the relevant material on record. As can be seen from the grounds reproduced above that the only issue raised in this appeal is against the addition of Rs.3,39,02,128/- made by the AO on account of Bad and Doubtful Debts Reserve for earlier year written back in this year in the books of account. We have gone through the assessee’s Profit and loss account, whose copy is available at pages 10 and 11 of the paper book. The assessee credited a net sum of Rs.2,10,39,032 to its Profit and loss account with the narration “Bad and Doubtful Debts Reserve”. This amount was computed by reducing the amount of BDDR for the year amounting to Rs.1.28 crore created in the books of account on the basis of RBI guidelines from the amount of provision of earlier years written back to the tune of Rs.3.39 crore and odd. In other words, the assessee instead of showing separate credit of Rs.3.39 crore and a separate debit of Rs.1.28 crore in its Profit and loss account, simply credited net of the two amounts at Rs.2.10 crore. Copy of computation of total income has been placed at page 3 of the paper book, from which it can be seen that the starting point of the computation of income under the head `Profits and Gains from Business or Profession’ is Net Profit as per profit and loss account at Rs.1,60,02,879/-. This figure matches with the amount of net profit shown in the Profit and loss account, which embraces the effect of net Bad and Doubtful Debts Reserve written back at Rs.2.10 crore. Thereafter, the assessee, in the computation of total income, reduced a sum of Rs.2,30,53,804/- with the narration “Income considered separately”. Break-up of this Rs.2.30 crore is available at page 4 of the paper book, which includes provision for Bad Debts at Rs.2,10,39,033/-, being, the net amount of the provision written back. Though the narration has been given as “Income considered separately” but, in fact, there is no separate declaration of net income in the computation of total income on this score. It, therefore, emerges that the assessee in the computation of total income at loss of Rs.6.93 lakh started with the figure of Net Profit which was inclusive of Rs.2.10 crore and reduced the same amount. The net effect of this exercise is that the assessee neither claimed any deduction on account of provision for Bad and Doubtful Debts made for the year nor offered any income on account of write back of the provision for Bad and Doubtful Debts for the earlier years in the computation of total income. The claim of the assessee is that the amount of Rs.3.39 crore was not includible in the total 5 ITA No.54/PUN/2020, A.Y. 2014-15 income because no deduction was claimed in the earlier years at the time of creation of such BDDR inasmuch as it though debited the amount of provision for BDDR in its Profit and loss accounts for earlier years, but at the time of computation of total income, added back such amounts of BDDR. 5. We have seen copies of returns filed by the assessee from the assessment year 2005-06 at page 57 onwards of the paper book. In the Computation of total income for the assessment year 2006-07, the assessee added back BDDR for the year at Rs.2,27,65,058/- to the Net Profit (loss) of Rs.1,05,83,487/-. Computation of total income for the assessment year 2007-08 is available at page 60 of the paper book. Again, there is Net Profit (loss) at Rs.52,85,610/- and thereafter there is an addition for BDDR for a sum of Rs.2,55,49,255/-. Similarly for the assessment year 2008-09, the computation has been placed at page 64 of the paper book, which shows Net Profit (loss) at Rs.36,41,669/- to which BDDR at Rs.5,34,70,012/- has been added. Similar is the position for the assessment years 2009-10, 2010-11, 2011-12 and 2012-13, whose computations have been placed on record. On going through such computations of total income, it is manifested that the assessee was creating BDDR for earlier years as per the RBI norms and was simultaneously adding back the same in computing the total income. To put it simply, the net effect of creating the provision and then adding back in the computation of total income is that there was no deduction claimed by the assessee at the time of creation of provision. Once the assessee did not take any deduction in the computation of total income on account of BDDR created on the basis of RBI norms, its reversal in subsequent years, cannot call for any addition. Here, it is relevant to mention that the claim of deduction u/s 36(1)(viia) of the Act is separate and independent of such provision created or reversed in the books of account as per the RBI norms. 6. The authorities below have also taken cognizance of the fact that the assessee claimed deduction u/s.80P for full amount of profit for the A.Y. 2006-07 and earlier years. Here, it is worthwhile to mention that prior to amendment by insertion of sub-section (4) by the Finance Act, 2006 w.e.f. A.Y. 2007-08 to section 80P making the provision u/s.80P as not applicable to any Cooperative Bank other than a Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank, the category in which the assessee falls, there was eligibility for deduction u/s.80P of the Act from its income. It can be seen from the assessee’s return of income for the assessment year 2006-07, being the period, when it was eligible for deduction u/s 80P of the Act, that it added back BDDR and thereafter claimed deduction u/s 80P on the full amount of income. Again the net effect of this exercise is that the creation of BDDR in the books of account by means of debit to the Profit and loss account and thereafter its reversal in the computation of total income before the claim of deduction u/s.80P is that the full amount of net profit available for the benefit u/s.80P was without the effect of BDDR. To put it simply, suppose Net Profit before BDDR for the year is Rs.300/-. Once BDDR of Rs.100/- for the year is debited, net profit gets reduced to Rs.200/-. Again at the time of computation of total income with the addition of Rs.100/- back to Rs.200/-, the total of profit again comes to Rs.300/-, which is available for deduction u/s.80P. Thus, even without taking any deduction of BDDR, there was full deduction u/s.80P in respect of eligible income only. With the insertion of sub-section (4) to section 80P w.e.f. 01-04- 2007, the claim for deduction u/s.80P has come to be denied to the societies like the assessee but with the simultaneous onset of the benefit of deduction u/s.36(1)(viia) by the Finance Act 2007 w.e.f. 01-04-2007. Irrespective of the fact whether it is case of the period when the assessee was eligible for deduction u/s.80P or thereafter when the benefit of section 36(1)(viia) came to be conferred, the creation of BDDR and its simultaneous addition in the computation of total income has made it clear that, in fact, no deduction was claimed by the assessee in this regard. Once the assessee did not claim any deduction in respect of BDDR, there can be no question of 6 ITA No.54/PUN/2020, A.Y. 2014-15 taxing the reversal of BDDR in a subsequent year, as has been the case under consideration. We, therefore, overturn the impugned order on this score and hold that the ld. CIT(A) was not justified in upholding the addition of Rs.3,39,02,138/- to the total income. The same is directed to be deleted.” 6. In the light of the order of this Tribunal and discussion made by us in aforementioned paragraphs, the order of CIT(A) is not justified and the addition confirmed thereon on account of bad and doubtful debts reserves written back is deleted. Thus, the grounds raised by the assessee are allowed. 7. In the result, the appeal of assessee is allowed. Order pronounced in the open court on 03 rd March, 2022. Sd/- Sd/- (Dr. Dipak P. Ripote) (S.S. Viswanethra Ravi) ACCOUNTANT MEMBER JUDICIAL MEMBER ऩ ु णे / Pune; ददनाांक / Dated : 03 rd March, 2022. रवि आदेश की प्रनिलऱपप अग्रेपषि / Copy of the Order forwarded to : 1. अऩीऱाथी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The CIT(A)-1, Nashik 4. The Pr. CIT-1, Nashik 5. ववभागीय प्रतततनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, ऩ ु णे / DR, ITAT, “A” Bench, Pune. 6. गार्ड फ़ाइऱ / Guard File. //सत्यावऩत प्रतत// True Copy// आदेशान ु सार / BY ORDER, िररष्ठ विजी सविि / Sr. Private Secretary आयकर अपीलीय अविकरण ,पुणे / ITAT, Pune