MODEL CO-OP.BANK LIMITED, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX 1(3)(2), MUMBAI

ITA 5522/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7467 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 31-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Assessee Lawyers: DR RAJENDRAKUMAR JAIN
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI RAVISH SOOD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5522/MUM/2017 ASSESSMENT YEAR: 2014 - 1 5 MODEL CO - OP BANK LTD., 14 - B, VATSA HOUSE, JANMABHOOMI MARG, MUMBAI - 400023. VS. DCIT - 1(3)(2), AAYAKARBHAVAN, M.K. ROAD, MUMBAI - 400020. PAN NO. AAAAT0085B APPELLANT RESPONDENT ASSESSEE BY : DR. RAJENDRA KUMAR JAIN, AR REVENUE BY : MR. D.G. PANSARI, DR DATE OF HEARING : 16 /07/2019 DATE OF PRONOUNCEMENT : 24/07/2019 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE . THE RELEVANT ASSESSMENT YEAR IS 2014 - 1 5 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF T HE COMMISSIONER OF INCOME TAX - 3 , MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME TAX ACT 1961, (THE ACT). MODEL CO - OP BANK LTD. ITA NO. 5522/MUM/2017 2 2. THE GROUND OF APPEAL FILED BY THE ASSESSEE READ S AS UNDER: 1. THE LD. CIT(A) ERRED IN LAW AND FACTS IN DISALLOWING DEDUCTION OF RS.8,86,815/ - AS CLAIMED U/S 36(1)(VIIA) FOR PROVISION OF STANDARD ASSETS AS PER THE CIRCULAR OF RBI. THIS PROVISION BEING AS PER LAW MAY BE ALLOWED. 2. THE CIT(A) HAS NOT CONSIDERED EVIDENCE SUBMITTED ON RECORD. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE, A CO - OPERATIVE BANK FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2013 - 14 ON 25.11.2014 DECLARING TOTAL INCOME AT RS.8,49,37,390/ - . IN COMPUTING THE INCOME FROM BUSINESS THE ASSESSEE HAS REDUCED AN AMOUNT OF RS.80,29,815/ - , THE BREAK UP BEING AS UNDER: (I) DEDUCTION OF EXPENSES DISALLOWED U/S 40(I)(A) NOW CLAIMED ON PAYMENT BA S IS RS.11,43,000 (II) DEDUCTION U/S 36(1)(VIIA) RS.68,86,815 RS. 80,29,815 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) NOTICED THAT THE PROVISION FOR DOUBTFUL DEBTS CREATED BY THE ASSESSEE IS ONLY RS.60,00,000/ - AND ACCORDINGLY, THE DEDUCTION U/S 36(1)(VIIA) IS REQUIRED TO BE RESTRICTED TO RS.60,00,000/ - . THUS THE AO DISALLOWED THE E XCESS CLAIM OF DEDUCTION OF RS.8,86,815/ - . IN APPEAL, THE LD. CIT(A) AGREED WITH THE REASONS GIVEN BY THE AO AND CONFIRMED THE ABOVE DISALLOWANCE. MODEL CO - OP BANK LTD. ITA NO. 5522/MUM/2017 3 4. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT SECTION 36(1)(VIIA ) DOES NOT DIFFERENTIATE BETWEEN PROVISION ON BAD ASSETS AND PROVISION ON STANDARD ASSETS AND THE DEDUCTION REFERS TO ALLOWABLE PROVISIONS OF ANTICIPATED DEFAULT ON THE LOANS AND ADVANCES MADE IN RESPECT OF TOTAL ASSETS INCLUDING STANDARD ASSETS. IT IS STA TED THAT THE PROVISION MADE FOR STANDARD ASSETS IS ALSO A PART OF PROVISION OF DOUBTFUL DEBTS U/S 36(1)(VIIA) OF THE ACT AND THE ESSENTIAL INGREDIENTS FOR ALLOWING THE DEDUCTION UNDER THE SAID SECTION ARE (I) THERE MUST BE PROVISION MADE FOR DOUBTFUL DEBTS , (II) THIS PROVISION MUST BE DEBITED TO P&L ACCOUNT AND THE DEDUCTION WILL NOT EXCEED 7.5% OF THE PROFIT SHOWN IN THE P&L ACCOUNT DURING THAT YEAR. THE LD. COUNSEL FURTHER SUBMITS THAT THE BANKS ARE GOVERNED BY THE BANKING REGULATION ACT AND HENCE THE N OMENCLATURE OF THE PROVISION HAVE TO BE GIVEN AS PER THE DIRECTION OF THE RBI CIRCULAR. IT IS STATED THAT THE ASSESSEE HAS CREATED A PROVISION FOR BAD AND DOUBTFUL DEBTS WHICH MAY BE UNDER DIFFERENT NOMENCLATURE BUT THIS WILL NOT DISENTITLE THE ASSESSEE FO R CLAIMING DEDUCTION UNDER PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT. IN THIS REGARD, RELIANCE IS PLACED BY HIM ON THE ORDER BY (I) ITAT AMRITSAR BENCH IN THE CASE OF NAWANSHAHR CENTRAL CO - OP. BANK LTD. DATED 3 RD JAN. 2018, (II) JODHPUR ITAT IN THE CASE OF NAGPUR URBAN CO - OPERATIVE BANK LTD ., (III) ITAT CHENNAI A BENCH IN THE CASE OF VELLORE DISTRICT CENTRAL CO - OPERATIVE BANK LTD . AND (IV) ITAT AMRITSAR IN PUNJAB GRAMIN BANK . ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). MODEL CO - OP BANK LTD. ITA NO. 5522/MUM/2017 4 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. IN THE CASE OF NAWANSHAHR CENTRAL CO - OP. BANK LTD . (SUPRA), THE TRIBUNAL HAS HELD : FROM THE ABOVE PROVISIONS IT CAN BE SEEN THAT DEDUCTION U/S 36(1) (VIIA) OF THE ACT IS ALLOWED IN RESPECT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS. THIS SECTION DOES NOT DIFFERENTIATE BETWEEN PROVISION ON BAD ASSETS AND PROVISION ON STANDARD ASSETS. THIS DEDUCTION EXCLUSIVELY ALLOWS DEDUCTION IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEB TS TO THE EXTENT MENTIONED IN THE VARIOUS CLAUSES OF SUB - SECTION (1) OF SECTION 36 OF THE ACT. THE DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT IS ALLOWED ONLY IN RESPECT OF CERTAIN SPECIFIC CATEGORIES OF ASSESSEE MENTIONED IN THE CLAUSE LIKE BANKS, FINA NCIAL INSTITUTIONS, ETC. WHO ARE IN BUSINESS OF LENDING MONEY. IT IS NOT ALLOWED EVEN TO NON - BANKING FINANCIAL INSTITUTIONS SINCE THEY ARE NOT INCLUDED IN THIS CLAUSE. IT IS SEEN THAT THOUGH SECTION 36(1) (VII) STATES THAT DEDUCTION FOR PROVISION IS ALLOWA BLE IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS, THE COMPUTATION OF SUCH DEDUCTION IS MADE WITH REFERENCE TO TOTAL INCOME OF THE SPECIFIED BANKS BASED UPON QUANTUM OF AVERAGE ADVANCES. THE DEDUCTION OF THE PROVISIONS IS NEITHER LIMITED TO THE QUANTU M OF BAD DEBTS IN THE BOOKS NOR IS COMPUTED WITH REFERENCE TO THE QUANTUM OF STANDARD ASSETS. THE DEDUCTION IN THIS CLAUSE REFERS TO ALLOWABLE PROVISIONS OF ANTICIPATED DEFAULT ON THE LOANS AND ADVANCES MADE IN RESPECT OF TOTAL ASSETS INCLUDING STANDARD AS SETS AND THE CLAIM OF THE ASSESSEE DOES NOT FALL INTO THE PROVISO TO SECTION 36(1) (VIIA) AS THE PROVISO DEALS WITH FURTHER DEDUCTION FOR PROVISIONS ON BAD AND DOUBTFUL DEBTS. THE CLAIM OF THE ASSESSEE IS COVERED IN THE MAIN PROVISIONS OF SECTION 36(1)(VII A) OF THE ACT. SIMILAR IS THE DECISION IN M/S PUNJAB GRAMIN BANK (SUPRA). 5.1 IN VELLORE DISTRICT CENTRAL CO - OPERATIVE BANK LTD . (SUPRA), IT IS HELD BY THE TRIBUNAL THAT DOUBTFUL DEBTS MAY BE UNDER DIFFERENT MODEL CO - OP BANK LTD. ITA NO. 5522/MUM/2017 5 NOMENCLATURE AND THIS WILL NOT DISENTITLE THE ASSESSEE FOR CLAIMING DEDUCTION UNDER THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT. 5.2 FACTS BEING IDENTICAL, WE FOLLOW THE ABOVE ORDERS OF THE TRIBUNAL AND DELETE THE DISALLOWANCE OF RS.8,86,815/ - MADE BY THE AO. 6. IN THE RESULT, THE APPEAL IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/07/2019. SD/ - SD/ - ( RAVISH SOOD ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 24/07/2019 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI