The Lakshmi Vilas Bank Ltd., Karur V. Additional CIT, Trichy

ITA 548/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5199 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TAPAS KUMAR DUTTA
• Assessee Lawyers: G SITARAMAN
• Keywords: Capital asset; Bad and doubtful debts; Revenue expenditure
• Section: 143(3); 6; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH C : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO. 548/MDS/2010 ASSESSMENT YEAR : 2005-06 THE LAKSHMI VILAS BANK LTD SALEM ROAD KATHAPARAI KARUR VS THE ADDL. CIT RANGE-I TIRUCHIRAPALLI [PAN AAACT4291P ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI G.SITARAMAN RESPONDENT BY : SHRI TAPAS KUMAR DUTTA O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE, FOR ASSESSMENT YE AR 2005-06, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT, TIRUCHIR APPALLI, DATED 31.3.2010, WHICH HAS BEEN PASSED U/S 263 OF THE ACT . 2. THE FACTS LEADING TO THIS APPEAL ARE THAT THE AS SESSMENT ORDER IN THIS CASE FOR ASSESSMENT YEAR 2005-06, WAS COMPL ETED U/S 143(3) ON 27.12.007. THE ASSESSING OFFICER HAS MADE ADDIT IONS TO THE TUNE OF RS. 114,91,87,270/- . THE LD. CIT NOTICED THAT T HE ASSESSMENT WAS COMPLETED WITHOUT MAKING MEANINGFUL ENQUIRIES IN A CASUAL MANNER. ITA 548/10 :- 2 -: THE LD. CIT OBSERVED THE FOLLOWING DEFICIENCIES IN THE ASSESSMENT ORDER: (I) THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 59,68,46,701/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF U/S 46(1)(VII) EVEN WHEN THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT WAS RS. 117.90 CRORES. THE ASSESSING OFFICER HAS ALLOWED EXPENDITURE OF RS. 39,10,46,701/- WHICH ACCORDING TO THE LD. CIT IS AGAINST THE EXPRESS PROVISIONS OF THE INCOME- TAX ACT, 1961. (II) THE ASSESSING OFFICER HAS TREATED THE ENTIRE INVESTMENT IN SECURITIES HELD BY THE BANK AS CAPITAL IN NATURE EVEN WHEN THE HON'BLE MADRAS HIGH COURT IN THE CASE OF ASSESSEE ITSELF FOR ASSESSMENT YEARS 1985-86 AND 1986-87 HAS HELD THAT WHETHER INVESTMENT IN SECURITIES CONSTITUTE STOCK-IN-TRADE OR A CAPITAL ASSET, IS A QUESTION OF FACT WHICH NEED TO BE DECIDED ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. (III) THE LD. CIT NOTICED THAT THE ASSESSING OFFICER HAS NOT DISALLOWED THE CLAIM OF THE ASSESSEE FOR AMORTIZATION TO THE EXTENT OF RS. 7,06,70,610/-. THE AMORTIZATION IS CLAIMED BY THE ASSESSEE WHEN THE HTM SECURITIES WERE ACQUIRED AT THE COST WHICH IS HIGHER THAN THE FACE VALUE OF THE SECURITIES. SINCE THE INVESTMENT IN HTM CATEGORY OF SECURITIES IS CAPITAL IN NATURE, THESE ARE REQUIRED TO BE VALUED AT COST IN BOOKS OF ACCOUNT. AS THE ASSESSING OFFICER HAS ALLOWED DEDUCTION WITHOUT CAUSING ANY MEANINGFUL AND RELEVANT ENQUIRIES AS WARRANTED BY THE FACTS AND CIRCUMSTANCES OF THE CASE. (IV) THE ASSESSING OFFICER HAS ALLOWED EXPENDITURE INCURRED FOR PURCHASE OF SOFTWARE WITHOUT CALLING FOR ANY DETAILS AND WITHOUT EXAMINING WHAT WAS THE NATURE OF THE SOFTWARE, HOW IT WAS TO BE USED AND HOW IT IS REVENUE EXPENDITURE. ITA 548/10 :- 3 -: (V) THE ASSESSEE HAD TREATED NON-PERFORMANCE ASSETS (NPAS) AS BAD DEBTS. THE RULES FRAMED BY THE RBI FOR NPAS AND REQUIREMENT OF BAD AND DOUBTFUL DEBTS AS PER RULE 6EA ARE NOT THE SAMETHING. BUT THE ASSESSING OFFICER DID NOT BRING TO TAX THE INCOME ON ACCRUAL BASIS WITH REGARD TO NPAS WHICH ARE MORE TAN 90 DAYS OLD BUT ARE LESS THAN 180 DAYS OLD. IN THE ABSENCE OF ANY PROOF REGARDING THE AGE OF NPAS, THE ASSESSING OFFICER HAS ALLOWED DEDUCTION U/S 36(1)(VIIA)(A) TO THE FULLEST EXTENT WHILE ASSUMING THAT NPAS ARE BAD AND DOUBTFUL DEBTS UNDER THE INCOME-TAX ACT, 1961 AND BOTH ARE INTERCHANGEABLE TERMS. 3. ON THE ABOVE MENTIONED REASONS, THE LD. CIT ISSU ED A NOTICE U/S 263 OF THE ACT TO THE ASSESSEE ASKING HIM AS TO WHY THE ASSESSMENT FRAMED BY THE ASSESSING OFFICER SHOULD NOT BE SET ASIDE. THE ASSESSEE SUBMITTED WRITTEN SUBMISSION DATED 23. 3.2010. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD . CIT HAS SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO PASS FRESH ASSESSMENT ORDER IN THE LIGHT OF THE PROVISIONS OF THE ACT, CASE LAW S AND CIRCULARS AND INSTRUCTION OF THE BOARD. NOW THE ASSESSEE IS IN A PPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE P ERUSED THE MATERIAL AVAILABLE ON RECORD. IN FACT, GROUND NO. 1 OF THE APPEAL WOULD MAKE IT CLEAR THAT AS TO ON WHAT REASONS, THE ASSESSMENT ORDER IN QUESTION HAS BEEN SET ASIDE, THEREFORE, WE EXTRA CT HEREIN BELOW GROUND NO.1 : ITA 548/10 :- 4 -: 1. THE COMMISSIONER OF INCOME-TAX (APPEALS) ER RED IN LAW AND ON THE FACTS OF THE CASE IN SETTING ASIDE THE O RDER DATED 27.12.2007 PASSED U/S 143(3) OF THE ACT ON THE FOLL OWING GROUNDS: (I) DEDUCTION U/S 36(1)(VII) HAS BEEN GRANTED WITHOUT CONSIDERING THE CREDIT BALANCE IN THE PROVISION U/S 36(1)(VIIA). (II) WHILE DISALLOWING THE FALL IN THE MARKET VALUE OF GOVERNMENT SECURITIES, THE ASSESSING OFFICER HAS NOT CONSIDERED THE VARIOUS CIRCULARS OF RBI REGARDING THE CLASSIFICATION OF ITS GOVERNMENT SECURITIES. (III) LOSS ON SALE OF GOVERNMENT SECURITIES HAS NOT BEEN DISALLOWED. (IV) AMORTIZATION EXPENSES HAS NOT BEEN DISALLOWED. (V) SOFTWARE EXPENDITURE, ENTERTAINMENT EXPENDITURE AND PAYMENT TO SEBI HAD BEEN ALLOWED WITHOUT PROPER ENQUIRY. (VI) INTEREST ON NPA HAS NOT BEEN CONSIDERED AND ADDED. 5. THE LD.AR HAS SUBMITTED HIS ARGUMENTS IN RESPECT O F EACH AND EVERY POINT TAKEN IN THIS APPEAL FOR REVISING THE A SSESSMENT ORDER. BEFORE GIVING OUR FINDING, IT WOULD BE PROPER TO EX PLAIN THE SCHEME OF REVISION. IT IS TRITE THAT AN ORDER CAN BE REVISED ONLY AND O NLY IF TWIN CONDITIONS OF ERROR IN THE ORDER AND PREJUDICE C AUSED TO THE REVENUE CO-EXIST. 6. THE SUBJECT OF REVISION UNDER SECTION 263 HAS BEE N VASTLY EXAMINED AND ANALYSED BY VARIOUS COURTS INCLUDING T HE HONBLE APEX ITA 548/10 :- 5 -: COURT. THE REVISIONAL POWER CONFERRED ON THE CIT V IDE SECTION 263 IS OF VIDE AMPLITUDE. IT ENABLES THE CIT TO CALL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. IT EMPOWE RS THE CIT TO MAKE OR CAUSE TO BE MADE SUCH AN ENQUIRY AS HE DEEM S NECESSARY IN ORDER TO FIND OUT IF ANY ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF T HE REVENUE. THE ONLY LIMITATION ON HIS POWERS IS THAT HE MUST HAVE SOME MATERIAL(S) WHICH WOULD ENABLE HIM TO FORM A PRIMA FACIE OPINION THAT THE ORDER PASSED BY THE OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJ UDICIAL TO THE INTEREST OF THE REVENUE. ONCE HE COMES TO THE ABOVE CONCLUSION S ON THE BASIS OF THE MATERIAL THAT THE ORDER OF THE ASSESSING OFFI CER IS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE, T HE CIT IS EMPOWERED TO PASS AN ORDER AS THE CIRCUMSTANCES OF THE CASE M AY WARRANT. HE MAY PASS AN ORDER ENHANCING THE ASSESSMENT OR HE MA Y MODIFY THE ASSESSMENT. HE IS ALSO EMPOWERED TO CANCEL THE ASS ESSMENT AND DIRECT TO FRAME A FRESH ASSESSMENT. HE IS EMPOWERE D TO TAKE RECOURSE TO ANY OF THE THREE COURSES INDICATED IN SECTION 26 3. SO, IT IS CLEAR THAT THE CIT DOES NOT HAVE UNFETTERED AND UNCHEQURED DIS CRETION TO REVISE AN ORDER. THE CIT IS REQUIRED TO EXERCISE REVISION AL POWER WITHIN THE BOUNDS OF THE LAW AND HAS TO SATISFY THE NEED OF FA IRNESS IN ADMINISTRATIVE ACTION AND FAIR PLAY WITH DUE RESPEC T TO THE PRINCIPLE OF AUDI ALTERAM PARTEM AS ENVISAGED IN THE CONSTITUTIO N OF INDIA AS WELL ITA 548/10 :- 6 -: IN SECTION 263. AS ORDER CAN BE TREATED AS ERRONE OUS IF IT WAS PASSED IN UTTER IGNORANCE OR IN VIOLATION OF ANY LAW; OR P ASSED WITHOUT TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS OR BY TAK ING INTO CONSIDERATION IRRELEVANT FACTS. THE PREJUDICE THAT IT CONTEMPL ATED UNDER SECTION 263 IS THE PREJUDICE TO THE INCOME TAX ADMINISTRATION A S A WHOLE. THE REVISION HAS TO BE DONE FOR THE PURPOSE OF SETTING RIGHT DISTORTIONS AND PREJUDICES CAUSED TO THE REVENUE IN THE ABOVE CONTE XT. THE FUNDAMENTAL PRINCIPLES WHICH EMERGE FROM THE SEVERA L CASES REGARDING THE POWERS OF THE CIT UNDER SECTION 263 MAY BE SUMM ARIZED BELOW: (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDE R OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF THE REVENUE. BOTH THE CONDITIONS MUS T BE FULFILLED. (II) SECTION 263 CANNOT BE INVOKED TO CORRECT EAC H AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS, THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORR ECT APPLICATION OF LAW WILL SUFFICE FOR THE REQUIREME NT OR ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORD ER. ITA 548/10 :- 7 -: (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IF THE ASSESSING OF FICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LA W OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW UNDER WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOU S ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFIC ER IS UNSUSTAINABLE UNDER THE LAW. (VI) IF WHILE MAKING THE ASSESSMENT, THE ASSE SSING OFFICER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME, THE CIT, WHILE EXERCISING HI S POWER UNDER SECTION 263, IS NOT PERMITTED TO SUBSTI TUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIM ATED BY THE ASSESSING OFFICER. (VII) THE ASSESSING OFFICER EXERCISE QUASI-JUDICIA L POWER VESTED IN HIM AND IF HE EXERCISE SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AS A CONCLUSION, SU CH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER SECTION 263, MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. ITA 548/10 :- 8 -: (IX) IF THE ASSESSING OFFICER HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BE A LETTER IN WRITING AND THE ASSESSIN G OFFICER ALLOWED THE CLAIM ON BEING SATISFIED WITH T HE EXPLANATION OF THE ASSESSEE, THE DECISION OF THE ASSESSING OFFICER CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 7. NOW, REVERTING TO THE FACTS OF THIS CASE, IT WAS FO UND THAT THE ISSUE RAISED VIDE GROUND NO.1 (I) REGARDING DEDUC TION U/S 36(1)(VII) OF THE ACT STANDS COVERED BY THE ORDER OF THE TRIB UNAL, IN FAVOUR OF THE ASSESSEE PASSED IN I.T.A.NO. 1161/MDS/1995 FOR ASSESSMENT YEAR 1990-91, ORDER DATED 22.5.2003. THE DEPARTMENT COU LD NOT CONTROVERT THIS FACT AND WE HAVE ALSO FOUND IT TO B E CORRECT. THEREFORE, GROUND NO.1(I) DOES NOT STAND TO BE MAD E A BASIS FOR REVISION. 8. GROUND NO.1(II) RELATING TO THE VALUE OF GOVERNMENT SECURITIES ALSO STANDS COVERED IN FAVOUR OF THE ASSESSEE BY TH E ORDER OF THE TRIBUNAL (SUPRA). THIS WILL ALSO NOT SURVIVE FOR M AKING REVISION. 9. GROUND NOS.1(III),(IV) & (V) RELATING TO GOVERNMENT SECURITIES, AMORTIZATION EXPENSES, SOFTWARE EXPENSES ETC STAND COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE MADR AS HIGH COURT ITA 548/10 :- 9 -: RENDERED IN ASSESSEES OWN CASE IN TAX CASE APPEAL NO.2139 OF 2008 [COPY OF THE ORDER PLACED AT PAGES 30 TO 34 OF THE PAPER BOOK]. 10. WE HAVE GONE THROUGH THE FACTS OF THE CASE AS WELL AS THE DECISION OF HON'BLE MADRAS HIGH COURT (SUPRA) AND F OUND THAT THE DECISION TAKEN BY THE ASSESSING OFFICER IS CORRECTL Y IN ACCORDANCE WITH AND COMMENSURATE WITH THE FINDINGS GIVEN IN THE HIG H COURTS DECISION. THEREFORE, THESE POINTS CANNOT BE MADE THE BASIS FO R REVISING THE ASSESSMENT ORDER. 11. WITH REGARD TO THE OTHER EXPENSES OTHER THAN SUNDRY EXPENDITURE, THE ASSESSING OFFICER HAS APPLIED HIS MIND AND HAS TAKEN ONE OF THE POSSIBLE VIEWS ON THIS ISSUE. IN EARLIE R YEARS, THE ASSESSING OFFICER HAS ALLOWED THE EXPENDITURE WHICH IS EVIDEN T FROM THE DOCUMENT PLACED AT PAGE 29 OF THE PAPER BOOK. HENC E, THE OTHER EXPENSES ARE ALSO CORRECTLY ALLOWED BY THE ASSESSIN G OFFICER AND THERE IS NO ERROR IN THE ASSESSMENT ORDER IN SO FAR AS I T IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 12. GROUND NO.1(VI) REGARDING THE ISSUE OF INTEREST ON NPA WHICH HAS NOT BEEN CONSIDERED AND ADDED. SECTION 45D ITSE LF IS CLEAR ON THIS SUBJECT BECAUSE IN CASE OF FINANCIAL COMPANIES, INT EREST HAS TO BE CHARGED ON RECEIPT BASIS. THEREFORE, ALL POINTS WH ICH HAVE BEEN MADE THE BASIS FOR REVISING AND COMING TO THE CONCLUSION THAT THE ORDER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF REVENUE, ITA 548/10 :- 10 - : CANNOT SURVIVE IN THE EYES OF LAW IN VIEW OF OUR FO REGOING DISCUSSION. ALL THESE POINTS TAKEN TO REVISE THE ASSESSMENT ORD ER DO NOT FULFILL THE TWIN CONDITIONS INDIVIDUALLY. HENCE, THE ASSESSMEN T ORDER IN THE GIVEN CASE CANNOT BE REVISED ON THE BASIS OF THE GROUNDS STATED ABOVE AND WHICH DO NOT MAKE THE ASSESSMENT ORDER ERRONEOUS AN D ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE. HENCE , WE SET ASIDE THE ORDER OF THE LD. CIT PASSED U/S 263 OF THE ACT AND ALLOW THE APPEAL OF THE ASSESSEE, UPHOLDING THE ASSESSMENT ORDER. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAN DS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6.5.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 6 TH MAY, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR