Nasik Merchants Co.op. Bank Ltd., Nashik V. Assistant Commissioner of Income-tax,

ITA 567/PUN/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1143 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 28-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Opportunity of being heard; Bad and doubtful debts; Capital receipt

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , % BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.567/PN/2015 &( ( / ASSESSMENT YEAR : 2011-12 NASIK MERCHANTS CO-OP. BANK LTD., A16, INDUSTRIAL ESTATE, BABUBHAI RATHI CHOWK, SATPUR, NASIK 422007 PAN NO. AAAAT3324K . / APPELLANT V/S ACIT, CIRCLE-1, NASHIK . / RESPONDENT / ASSESSEE BY : SHRI PRAMOD SHINGTE / REVENUE BY : SHRI HITENDRA NINAWE / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19-02-2015 OF THE CIT(A)-I, NASHIK RELATING TO ASSE SSMENT YEAR 2011-12. 2. GROUND OF APPEAL NO.1 BY THE ASSESSEE READS AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LOWER AUTHORITIES HAVE ERRED IN MAKING ADDITION OF R S.20,53,972/- ON ACCOUNT OF INSUFFICIENT RESERVE FOR BAD AND DOUBTFUL DEBTS BY DISREGARDING APPELLANTS CONTENTION IN THIS REGARDS. / DATE OF HEARING :30.06.2016 / DATE OF PRONOUNCEMENT:08.08.2016 2 ITA NO.567/PN/2015 3. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMIT TED THAT THE ABOVE GROUND IS DECIDED AGAINST THE ASSESSEE BY TH E DECISION OF THE TRIBUNAL IN THE CASE OF MAHARASHTRA CO-OPERATIVE BAN K LTD. VS. ITO VIDE ITA NO.16/PN/2011 ORDER DATED 29-10-2013 FOR A.Y. 2008- 09. IN VIEW OF THE ABOVE SUBMISSION BY THE LD. COUNSEL FO R THE ASSESSEE, THE GROUND OF APPEAL NO.1 BY THE ASSESSEE IS DISMISSED. 4. GROUND OF APPEAL NO.2 BY THE ASSESSEE READS AS UNDER : 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LOWER AUTHORITIES HAVE ERRED IN MAKING ADDITION OF R S.1,20,71,112/- BEING ADDITION TOWARDS NPA WRITTEN OFF BY DISREGARDIN G APPELLANTS CONTENTION IN THIS REGARDS. 5. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A MULTI STATE SCHEDULED CO-OPERATIVE BANK ENGAGED IN THE BUSINE SS OF BANKING. IT FILED ITS RETURN OF INCOME ON 28-09-2011 DECLAR ING TOTAL INCOME OF RS.25,10,04,100/-. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS THE AO NOTED FROM THE COMPUTATION OF INCOME THAT THE ASSESSEE HAS REDUCED AN AMOUNT OF RS.1.20 CRORES FROM T HE TOTAL INCOME OFFERED TO TAX BY IT. HE OBSERVED FROM THE PROFIT A ND LOSS ACCOUNT FOR THE IMPUGNED ASSESSMENT YEAR THAT IN SCHED ULE NO.13 SHOWING OTHER INCOME, THE ASSESSEE HAS INCLUDED RS.1,20 ,91,112/- IN OTHER INCOME ON ACCOUNT OF WRITE OFF OF NPA ACCOUNT-PR INCIPAL RECOVER. HE, THEREFORE, ASKED THE ASSESSEE TO CLARIFY U NDER WHICH SECTION IT HAS BEEN CLAIMED. ACCORDING TO THE AO, THE BAN K IS ALLOWED TO DEDUCT 7.5% OF PROFIT AND 10% ON ADVANCES IN RU RAL BRANCHES AND NO SEPARATE DEDUCTION IS ALLOWABLE APART FRO M THIS. HE ALSO ASKED THE ASSESSEE TO EXPLAIN IN WHICH YEAR THIS AMOUNT WA S TREATED AS NPA AND HOW IN A.Y. 2011-12 IT IS TREATED AS RECOVERY. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSE E THE AO MADE ADDITION OF RS.1,20,71,112/- ON THE GROUND THAT THE A SSESSEE 3 ITA NO.567/PN/2015 HAS NOT COMPLIED TO THE PROVISIONS OF SECTION 36(1)(VIIA) R.W.S.3 6(2)(V) OF THE I.T. ACT. FURTHER, THE ASSESSEE HAS NOT CREATE D ANY PROVISION REGARDING THE NPA AND CLAIMED THE DEDUCTION OF RS.1,20,71,11 2/- AS NPA WRITTEN OFF-PRINCIPAL. THE NPA PRINCIPAL AMOUNT WRITTEN -OFF IS OFFERED TO INCOME IN THE SAME PREVIOUS YEAR. IT IS THE PR ACTICE OF THE BANKING COMPANY THAT DEPOSIT RECEIVED FROM THE PUBLIC IS G IVEN AS PRINCIPAL AMOUNT OF LOAN AND INTEREST RECEIVED ON THE PRINC IPAL LOAN AMOUNT IS PAID AS INTEREST ON DEPOSIT. THEREFORE, PRINCIPA L AMOUNT IS NEVER OFFERED AS INCOME IN ANY OF THE PREVIOUS YEAR. TH E AO ACCORDINGLY MADE ADDITION OF RS.1,20,71,112/- TO THE TOTAL IN COME OF THE ASSESSEE. 6. IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE AO BY OBSERVING AS UNDER : 9. DISALLOWANCE OF DEDUCTION CLAIMED ON ACCOUNT OF NPA WRITTEN OFF-PRINCIPAL RS.1,20,71,112/-. AS REGARDS ADDITION OF RS.1,20,17,112/- THAT THE APPELLANT HAS FIRST SHOWN AS O THER INCOME UNDER THE HEAD WRITTEN OFF FOR NPA ACCOUNTS RECOVER Y IN ITS BALANCE SHEET AS ON 31-03-2011 AND THEN REDUCING THE SAME IN I TS COMPUTATION OF INCOME UNDER THE HEAD NPA WRITTEN OFF-PRINCIPAL . I FIND FROM THE RECORDS THAT THE APPELLANT HAD CLAIMED DEDUCTION OF RS.8,50,00,000/- U/S. 36(1)(VIIA) IN A.Y. 2006-07 TOWARDS BAD AND DOUB TFUL DEBTS. THOUGH THE SAID CLAIM WAS DISALLOWED BY THE AO IN THE ASSESSMENT PROCEEDINGS FOR A.Y. 2006-07, THE APPELLANT HAD CLAI MED ENTIRE INCOME AS EXEMPT U/S.80P OF THE I.T. ACT, 1961. THE APPELLA NT HAD SHOWN THE NET TAXABLE INCOME AT RS. NIL FOR THE ASSESSMENT YEAR 20 06-07. THE AO HAD ALSO ASSESSED THE APPELLANTS INCOME AT RS. NIL AFTER ALLOWING HIM DEDUCTION U/S.80P ON RS.21,26,01,424/- WHICH INTERALI A INCLUDED PROVISION FOR BAD AND DOUBTFUL DEBTS RESERVE AMOUNTING TO RS.8,50,00,000/-. THE APPELLANT HAS NOW SHOWN RECOVER Y OF RS.1,20,71,112/- ON ACCOUNT OF WRITTEN OFF OF NPA A CCOUNT PRINCIPAL RECOVERY IN THE ASSESSMENT YEAR UNDER APPEAL. SINCE THE APPELLANT HAS ALREADY BEEN ALLOWED DEDUCTION ON ACCOUNT OF PROVISI ON FOR BAD AND DOUBTFUL DEBT AMOUNTING TO RS.8,50,00,000/- IN A.Y. 2006-07 BY WAY OF DEDUCTION OF ITS ENTIRE INCOME U/S.80P OF THE ACT, DE DUCTION OF RS.1,20,71,112/- AS CLAIMED BY THE APPELLANT IN ITS CO MPUTATION OF INCOME WILL AMOUNT TO DOUBLE DEDUCTION. THE APPELL ANT HAS STATED THAT IT HAS NOT CLAIMED SUCH DEDUCTION TOWARDS BAD AND DOU BTFUL DEBTS U/S.36(1)(VIIA) EITHER PRIOR TO ASSESSMENT YEAR 2006-07 OR AFTER THAT. IN VIEW OF THE ABOVE, I AM OF THE CONSIDERED OPINION TH AT NON-INCLUSION OF RS.1,20,71,112/- WHICH THE APPELLANT HAS RECOVERED OU T OF NPA ACCOUNT IN A.Y. 2011-12 WILL AMOUNT TO DOUBLE DEDUCTION AS T HE APPELLANT WAS ALREADY GIVEN DEDUCTION OF RS.8,50,00,000/- IN A.Y. 2006-07 BY WAY OF 4 ITA NO.567/PN/2015 ACCEPTING THE APPELLANTS CLAIM OF DEDUCTION U/S.80P. IN THE FACTS GIVEN ABOVE, I AM OF THE VIEW THAT THE AO WAS JUSTIFIED IN MAKING THE ADDITION OF RS.1,20,71,112/- ON ACCOUNT OF RECOVERY OF NPA AC COUNT IN THE ASSESSMENT YEAR UNDER APPEAL. THE SAME IS HEREBY CONFIRM ED. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE LD. COUNSEL FOR THE ASSESSEE FILED A WRITTEN SYNOPS IS WHICH READS AS UNDER : APPELLANT IS CO-OPERAT I VE BANK. UP TO AY. 2006-07 , APPELLANT WAS ENJOYING THE BENEFIT OF DEDUCTION U/S 80P(2)(A)(I) O F THE INCOME TAX ACT , 1961 DUE TO WHICH 100% PROFIT OF THE BANK WAS ALLOWE D AS DEDUCTION . FROM AY . 2007-08 , SUB - SECTION (4) TO SECTION 80P WAS INTRODUCED IN THE INCOME TAX ACT , 1961 AND ACCORDINGLY PROVISIONS OF SECTION80P(2)(A)(I) OF THE INCOME TAX ACT , 1961 WERE MADE INAPPLICABLE TO CO-OPERATIVE BANKS . ACCORDINGLY CERTAIN CONSEQUENTIAL AMENDMENTS WERE MAD E IN INCOME TAX ACT , TO BRING THE CO - OPERATIVE BANKS AT PAR WITH OTHER BANKS , ONE SUCH AMENDMENT WAS MADE IN SECTION 36(1)(VIIA) OF THE INCOME TAX ACT , 1961 , AND CO-OPERATIVE BANKS WAS ADDED AND BENEFIT OF MAKIN G THE PROVISION FOR BAD AND DOUBTFUL DEBTS WAS EXTENDED TO C O-OPERATIVE BANKS ALSO . IN VIEW OF THIS , THE FACT NEEDS TO BE NOTED THAT UP TO AY 2006-07 BAN K HAS MADE THE PROVISION FOR BAD AND DOUBTFUL DEBT AS PE R THE NORMS PRESCRIBED BY RESERVE BANK OF INDIA UNDER THE HEAD PR OVIS I ONS FOR NPA AND SINCE PROVISIONS OF SECTION 36(1)(VIIA) WAS NOT APPL ICABLE THEN, SUCH PROVISIONS WERE DISALLOWED IN CASE OF BANKS. HOWEVE R SINCE THE ENTIRE PROFIT WAS DEDUCTIBLE U/S 80P(2)(A)(I) , THERE WAS NO TAX IMPLICAT I ON. YOUR APPELLANT SOCIETY HAS ACCORDINGLY CREATED TWO SEP ARATE ACCOUNTS IDENTIFYING PROVISIONS MADE UP TO AY. 2006-07 UNDER T HE HEAD ' RESERVE FOR BDD ' AND ANOTHER PROVISION MADE FROM AY 2007-08 UNDER THE HEAD ' RESERVE FOR BDD-U/S 36 ' IT CAN BE VERIFIED ON PAGE NO . 10 OF PAPER BOOK. IN THE F . Y. 2009-10 AND 2010-11 , YOUR APPELLANT HAS MADE THE RECOVERY OUT OF THESE NPA ACCOUNT FOR WHICH PROVISIONS WERE MAD E PRIOR TO AY . 2006-07 THE DETAILS OF THE SAME ARE REFERRED AT PAGE NO . 3 OF PAPER BOOK. THESE AMOUNTS I.E . PRINCIPAL AS WELL AS INTEREST WERE INITIALLY CREDITED TO PROFIT AND LOSS A/C AND THE BREAK UP OF THE SAME CAN BE VERIFIED ON PAGE NO. 12 OF PAPER BOOK, WHEREIN UNDER SCHEDULE 12 UNDE R HEAD 'INTEREST EARNED- NPA WRITTEN OFF' RESPECTIVE SUMS REPRESENTING T HE INTEREST PORTION IS ADDED AND THERE IS NO DISPUTE, HOWEVER IN SC HEDULE 12 LINE 3 FROM BOTTOM UNDER HEAD 'WRITE OFF NPA A/C PRINCIPAL RECOVERY' HAS BEEN INCLUDED IN THE INCOME, AND IN THE COMPUTATION OF TOTAL INCOME THIS AMOUNT OF PRINCIPLE RECOVERY OF RS.1 ,20,71,112/- WAS EXCLUDED FROM THE TOTAL INCOME OF THE BANK FOR FOLLOWING REASONS; 5 ITA NO.567/PN/2015 A. SINCE THIS WAS RECOVERY OF PRINCIPAL AMOUNT OF LOA N SAME IS CAPITAL RECEIPT AND THEREFORE CANNOT BE BROUGHT T O TAX. B. THE NOTEWORTHY FACT IS THAT THESE AMOUNTS WERE RECOVERED FOR NPA A/C OF THOSE YEARS FOR WHICH PROVISION FOR BAD AND DOUBTFUL DEBT WAS NOT ALLOWABLE U/S 36(1)(VIIA) A ND THEREFORE NO SUCH SEPARATE DEDUCTION IS CLAIMED ON ACC OUNT OF WRITE OFF OF BAD DEBTS AND THEREFORE QUESTION OF SHOWI NG PRINCIPAL RECOVERY AS REVENUE RECEIPT DOES NOT ARISE. C. THE FACTS ALSO GETS HIGHLIGHTED IN THE ORDER OF LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) WHEREIN IN PARA 9 ON PAGE NO. 13, HE HAS REFERRED THE ASSESSMENT ORDER FOR A Y 2006- 07 (REFER PAGE NO. 81-82 OF PAPER BOOK) WHEREIN IT CAN BE SEEN THAT PROVISION FOR BDD WAS DISALLOWED AND THEREAFTER D EDUCTION U/S 80P(2)(A)(I) WAS ALLOWED. D. SIMILAR TYPE OF TREATMENT WAS GIVEN IN ACCOUNTS AN D COMPUTATION FOR AY. 201-11 AND NO ADDITION HAS BEEN MADE ON ACCOUNT OF SAME (REFER COPY OF ASSESSMENT ORDER FOR AY. 2010-11 ON PAGE NO. 56-80 OF PAPER BOOK). IN VIEW OF THE ABOVE SUBMISSION IT IS MOST HUMBLY SUBMIT TED BEFORE YOUR HONORS THAT AMOUNT OF RS.1,20,71,112/- CANNOT BE ADDED TO THE TOTAL INCOME AS THIS IS PRINCIPAL RECOVERY AND BEING C APITAL IN NATURE AND PERTAINING TO THE PERIOD PRIOR TO AY. 2006-07, SAME NEEDS TO BE DELETED. WE MOST HUMBLY ALSO BRING TO YOUR HONORS KIND ATTENTIO N THAT IN AY. 2012-13 AND AY. 2013-14 SIMILAR TYPE OF ADDITION HAS BEEN MADE IN THE ASSESSMENT ORDER BY FOLLOWING ORDER FOR A.Y. 2011-12 AN D MATTERS ARE PENDING BEFORE FIRST APPELLANT AUTHORITY. (COPY OF SU BSEQUENT ORDER ARE ATTACHED HEREWITH FOR REFERENCE). 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER H AND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE ASSESSEE IN THE INSTANT CASE HAS REDUCED AN AMOUNT OF RS.1.20 CRORES FROM THE T OTAL INCOME OFFERED TO TAX UNDER HEAD NPA WRITTEN OFF-PRINCIPAL. SIMILA RLY IN SCHEDULE NO.13, A COPY OF WHICH IS PLACED AT PAGE 12 OF THE PAPER BOOK, THE ASSESSEE HAS INCLUDED AN AMOUNT OF RS.1,20,71,11 2/- AS WRITE-OFF NPA ACCOUNT PRINCIPAL RECOVERY. WE FIND THE A O MADE ADDITION OF RS.1,20,71,112/- TO THE TOTAL INCOME OF THE ASSES SEE ON 6 ITA NO.567/PN/2015 THE GROUND THAT (1) THE ASSESSEE HAS NOT FOLLOWED THE PR OVISIONS OF SECTION 36(1)(VIIA) R.W.S.36(2)(V) AND (2) THE ASSESSEE HAS NOT CR EATED ANY PROVISION REGARDING THE NPA AND CLAIMED THE DEDUCTION OF RS.1,20,71,112/- AS NPA WRITTEN OFF-PRINCIPAL. FURTHER, ACC ORDING TO THE AO THE NPA PRINCIPAL WRITTEN OFF IS OFFERED TO INCOME IN THE SAME PREVIOUS YEAR. WE FIND IN APPEAL THE LD.CIT(A) UPHELD T HE ACTION OF THE AO. 11. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESS EE THAT ASSESSEE HAS CREATED 2 SEPARATE ACCOUNTS IDENTIFYING P ROVISIONS MADE UP TO A.Y. 2006-07 UNDER THE HEAD ' RESERVE FOR BDD ' AND ANOTHER PROVISION MADE FROM AY 2007-08 UNDER THE HEAD ' RESERVE FOR BDD-U/S 36 ' . IT IS THE ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT SIMILAR TYPE OF TREATMENT WAS GIVEN IN ACCOUNTS AND COMPUTATION FOR A.Y. 2010-11 AND NO ADDITION HAS BEEN MADE ON ACCOUNT OF THE SAME. FURTHER, ACCORDING TO THE LD. C OUNSEL FOR THE ASSESSEE THE AMOUNT OF RS.1,20,71,112/- CANNOT BE AD DED TO TOTAL INCOME AS THIS IS PRINCIPAL RECOVERY AND CAPITAL IN NAT URE AND PERTAINS TO THE PERIOD PRIOR TO A.Y. 2006-07. IN OUR OPIN ION, THE VARIOUS SUBMISSIONS MADE BY THE ASSESSEE IN THE WRITTEN SYNOPSIS WHICH HAS ALREADY BEEN REPRODUCED IN THE PRECEDING PARA GRAPHS, NEEDS VERIFICATION AT THE LEVEL OF THE AO. CONSIDERING TH E TOTALITY OF THE FACTS OF THE CASE AND IN THE INTEREST OF JUSTICE, WE D EEM IT PROPER TO RESTORE THE ISSUE BACK TO THE FILE OF THE AO WITH A D IRECTION TO ADJUDICATE THE SAME AFRESH AND IN ACCORDANCE WITH LAW AFT ER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. GROUND OF APPEAL NO.2 RAISED BY THE ASSESSE E IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 7 ITA NO.567/PN/2015 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 08-08-2016. SD/- SD/- (VIKAS AWASTHY) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE; ' DATED : 08 TH AUGUST, 2016. + ,&.! /!/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . THE CIT(A ) - I, NASHIK 4. 5. 6. THE CIT - I, NASHIK $ ''( , ( , / DR, ITAT, B PUNE; + / GUARD FILE. / BY ORDER, // TRUE COPY // // $ ' //TRUE -. ' ( / SR. PRIVATE SECRETARY ( , / ITAT, PUNE