Asstt. Commissioner of Income Tax-6, Kanpur V. M/s Lucknow Kshetriya Gramin Bank, Sitapur

ITA 582/LKW/2013

• Counselvise Citation: 58223714 RSA 2013
• Duration Of Justice: 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-04-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ALOK MITRA
• Keywords: Depreciation; Opportunity of being heard; Bad and doubtful debts

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.582/LKW/2013 ASSESSMENT YEAR:2007 - 08 A.C.I.T. - 6, KANPUR. VS. M/S LUCKNOW KSHETRIYA GRAMIN BANK, EYE HOSPITAL ROAD, SITAPUR. PAN:AAAAL1760H (APPELLANT) (RESPONDENT) APPELLANT BY SHRI ALOK MITRA, D.R. RESPONDENT BY NONE DATE OF HEARING 10/04/2014 DATE OF PRONOUNCEMENT 0 8 /05/2014 O R D E R PER A. K. GARODIA, A.M. THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT (A) - II, KANPUR DATED 13/03/2013 FOR ASSESSMENT YEAR 2007 - 2008. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. THE LEARNED. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWIN G THE RELIEF OF RS.75,45,000/ - ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS ON STANDARD ASSETS IN VIEW OF THE FACTS THAT THE STANDARD ASSETS ARE ALWAYS CONSIDERED RECOVERABLE AND IN FAILING TO APPRECIATE THAT WHEN THE BANK ITSELF HAS TREATED SUCH ASS ETS AS GOOD AND RECOVERABLE, ANY PROVISION MADE ON SUCH ASSETS CANNOT BE CONSIDERED AS A PROVISION FOR BAD AND DOUBTFUL DEBTS. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN ALLOWING THE RELIEF OF RS.8,19,18,000/ - IN VIEW OF THE FACTS THAT THE SECURIT IES IN QUESTION WERE HELD PURELY AS INVESTMENTS AND NOT FOR SALE FOR TRADING PURPOSES AND THE INCOME TAX LAW IS VERY CLEAR THAT THE INVESTMENTS ARE TO BE HELD AT THEIR BOOK VALUE EVEN IF SOME OTHER LAWS OR RULES REQUIRE THEM TO BE 2 MARKED TO MARKET; RELIANC E IN THIS REGARD IS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE SOUTHERN TECHNOLOGIES LTD. VS. JCIT(2010) 320 ITR 577 (SC). 3. THE ORDER OF THE CIT (A), KANPUR BEING ERRONEOUS, UNJUST AND BAD IN LAW BE VACATED AND THE ORDER OF THE AO B E RESTORED. 4. THAT THE APPELLANT CRAVES LEAVE TO MODIFY ANY OF THE GROUNDS OF APPEAL OR TAKE ADDITIONAL GROUND DURING THE PENDENCY OF THIS APPEAL. 3. NONE APPEARED ON BEHALF OF ASSESSEE INSPITE OF SERVICE OF NOTICE AND HENCE, WE PROCEED TO DECIDE T HIS APPEAL OF THE REVENU E EX - PARTE QUA THE ASSESSEE. 4. LEARNED D.R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF LEARNED D.R. REGARDING THE ISSUE RAISED BY THE REVENUE AS PER GROUND NO. 1, WE FIND THAT THE DISALL OWANCE WAS MADE BY THE ASSESSING OFFICER ON THE BASIS THAT AS PER THE ACT, THE PROVISION FOR BAD AND DOUBTFUL DEBTS AND ALSO FOR NON PERFORMING ASSETS IN CASE OF BANKING COMPANY IS ALLOWABLE BUT PROVISION AGAINST STANDARD ASSET IS NOT ALLOWABLE. THE ASSES SING OFFICER ASKED THE ASSESSEE TO EXPLAIN THIS POSITION VIDE ORDER SHEET ENTRY DATED 09/12/2009 AND 17/12/2009 AND FINALLY ON 18/12/2009 BUT THE ASSESSEE HAS SUBMITTED NOTHING ON THIS ISSUE. BEFORE LEARNED CIT(A), IT WAS SUBMITTED BY LEARNED A.R. THAT TH E ACT PROVIDES FOR DEDUCTION TO BANK FOR PROVISION MADE BY BANK FOR BAD AND DOUBTFUL DEBTS. ON THIS BASIS, THE CIT(A) HAS DELETED THIS DISALLOWANCE. IN THIS REGARD, WE FIND THAT THE PROVISION OF SECTION 36(1)(VIIA) ARE RELEVANT AND HENCE, THE SAME ARE R EPRODUCED HEREIN BELOW: (VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY - (A) A SCHEDULED BANK NOT BEING A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON - SCHEDULED BANK 3 OR A CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK, AN AMOUNT [NOT EXCEEDING SEVEN AND ONE - HALF PER CENT. OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI - A) AND AN AMOUNT NOT EXCEEDING TEN PER CENT. OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER : PROVIDED THAT A SCHEDULED BANK OR A NON - SCHEDULED BANK REFERRED TO IN THIS SUB - CLAUSE SHALL, AT ITS OPTION , BE ALLOWED IN ANY OF THE RELEVANT ASSESSMENT YEARS, DEDUCTION IN RESPECT OF ANY PROVISION MADE BY IT FOR ANY ASSETS CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS ASSETS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY IT IN THIS BEHALF, F OR AN AMOUNT NOT EXCEEDING FIVE PER CENT. OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOKS OF ACCOUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR : PROVIDED FURTHER THAT FOR THE RELEVANT ASSESSMENT YEARS COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2003 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2005, THE PROVISIONS OF THE FIRST PROVISO SHALL HAVE EFFECT AS IF FOR THE WORDS 'FIVE PER CENT.', THE WORDS 'TEN PER CENT.' HAD BEEN SUBSTITUTED : PROVIDED ALSO THAT A SCHEDULED BANK OR A NON - SCHEDULED BANK RE FERRED TO IN THIS SUB - CLAUSE SHALL, AT ITS OPTION, BE ALLOWED A FURTHER DEDUCTION IN EXCESS OF THE LIMITS SPECIFIED IN THE FOREGOING PROVISIONS, FOR AN AMOUNT NOT EXCEEDING THE INCOME DERIVED FROM REDEMPTION OF SECURITIES IN ACCORDANCE WITH A SCHEME FRAMED BY THE CENTRAL GOVERNMENT : PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED UNDER THE THIRD PROVISO UNLESS SUCH INCOME HAS BEEN DISCLOSED IN THE RETURN OF INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' : EXPLANATION. - FOR THE PURP OSES OF THIS SUB - CLAUSE, 'RELEVANT ASSESSMENT YEARS' MEANS THE FIVE CONSECUTIVE ASSESSMENT YEARS COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2000, AND ENDING BEFORE THE 1ST DAY OF APRIL, 2005 ; (B) A BANK, BEING A BANK INCORPORATED BY OR UNDER THE LAWS O F A COUNTRY OUTSIDE INDIA, AN AMOUNT NOT EXCEEDING FIVE PER CENT. 4 OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI - A) ; (C) A PUBLIC FINANCIAL INSTITUTION OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INV ESTMENT CORPORATION, AN AMOUNT NOT EXCEEDING FIVE PER CENT. OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI - A) : PROVIDED THAT A PUBLIC FINANCIAL INSTITUTION OR A STATE FINANCIAL CORPORATION OR A STATE INDUSTRIA L INVESTMENT CORPORATION REFERRED TO IN THIS SUB - CLAUSE SHALL, AT ITS OPTION, BE ALLOWED IN ANY OF THE TWO CONSECUTIVE ASSESSMENT YEARS COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2003 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2005, DEDUCTION IN RESPECT OF ANY PROVISION MADE BY IT FOR ANY ASSETS CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS ASSETS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY IT IN THIS BEHALF, OF AN AMOUNT NOT EXCEEDING TEN PER CENT. OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOKS OF ACCOUNT OF SUCH INSTITUTION OR CORPORATION, AS THE CASE MAY BE, ON THE LAST DAY OF THE PREVIOUS YEAR : EXPLANATION. - FOR THE PURPOSES OF THIS CLAUSE, - (I) 'NON - SCHEDULED BANK' MEANS A BANKING COMPANY AS DEFINED IN CLAUSE (C) OF SECTION 5 OF THE BANKING REGULATION ACT, 1949 (10 OF 1949), WHICH IS NOT A SCHEDULED BANK ; (IA) 'RURAL BRANCH' MEANS A BRANCH OF A SCHEDULED BANK [OR A NON - SCHEDULED BANK] SITUATED IN A PLACE WHICH HAS A POPULATION OF NOT MORE THAN TEN THOUSAND ACCORDING TO THE L AST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR ; (II) 'SCHEDULED BANK' MEANS THE STATE BANK OF INDIA CONSTITUTED UNDER THE STATE BANK OF INDIA ACT, 1955 (23 OF 1955), A SUBSIDIARY BANK AS D EFINED IN THE STATE BANK OF INDIA (SUBSIDIARY BANKS) ACT, 1959 (38 OF 1959), A CORRESPONDING NEW BANK CONSTITUTED UNDER SECTION 3 OF THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1970 (5 OF 1970), OR UNDER SECTION 3 OF THE BANKING C OMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1980 (40 OF 1980), OR ANY OTHER BANK BEING A BANK INCLUDED IN THE SECOND SCHEDULE TO THE RESERVE BANK OF INDIA ACT, 1934 (2 OF 1934) ; 5 (III) 'PUBLIC FINANCIAL INSTITUTION' SHALL HAVE THE MEANING AS SIGNED TO IT IN SECTION 4A OF THE COMPANIES ACT, 1956 (1 OF 1956) ; (IV) 'STATE FINANCIAL CORPORATION' MEANS A FINANCIAL CORPORATION ESTABLISHED UNDER SECTION 3 OR SECTION 3A OR AN INSTITUTION NOTIFIED UNDER SECTION 46 OF THE STATE FINANCIAL CORPORATIONS ACT, 1951 (63 OF 1951) ; (V) 'STATE INDUSTRIAL INVESTMENT CORPORATION' MEANS A GOVERNMENT COMPANY WITHIN THE MEANING OF SECTION 617 OF THE COMPANIES ACT, 1956 (1 OF 1956), ENGAGED IN THE BUSINESS OF PROVIDING LONG - TERM FINANCE FOR INDUSTRIAL PROJECTS AND ELIGIBLE FOR DEDUCTION UNDER CLAUSE (VIII) OF THIS SUB - SECTION ; (VI) 'CO - OPERATIVE BANK', 'PRIMARY AGRICULTURAL CREDIT SOCIETY' AND 'PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN TH E EXPLANATION TO SUB - SECTION (4) OF SECTION 80P. 5.1 FROM THE ABOVE PROVISION S , WE FIND THAT DEDUCTION IS ALLOWABLE IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY A BANK. IN THE PRESENT CASE, THIS PROVISION OF RS.75.45 LAC HAS BEEN MADE BY T HE ASSESSEE ON STANDARD ASSETS AND NOT ON BAD AND DOUBTFUL DEBT S AND THEREFORE, IN OUR CONSIDERED OPINION, THE ORDER OF CIT(A) ON THIS ISSUE IS NOT SUSTAINABLE IN THE FACTS OF THE PRESENT CASE. HENCE, WE REVERSE THE ORDER OF CIT(A) ON THIS ISSUE AND RESTORE THAT OF THE ASSESSING OFFICER. THIS GROUND OF REVENUE IS ALLOWED . 6. REGARDING GROUND NO. 2, WE FIND THAT CIT(A) HAS DECIDED THIS ISSUE ON PAGE NO. 11 AND 12 OF HIS ORDER ON THE BASIS OF CBDT INSTRUCTION NO. 17 OF 2008 DATED 26/11/2008. ON PAGE NO. 9 OF HIS ORDER , HE HAS REPRODUCED THE CONTENTS OF THIS INSTRUCTION NO. 17. WE FIND THAT IT IS PRESCRIBED IN THE INSTRUCTION THAT THE DEPRECIATION/APPRECIATION IS TO BE AGGREGATED SCRIPT - WISE AND ONLY NET DEPRECIATION, IF ANY, IS REQUIRED TO BE PROVIDED FOR IN THE ACCOUN TS. IN THE PRESENT CASE, NO FINDING IS GIVEN BY CIT(A) THAT THIS DEPRECIATION, CLAIMED BY THE ASSESSEE, HAS BEEN WORKED OUT SCRIPT - WISE. IN 6 THE ABSENCE OF THIS FINDING, THE ORDER OF CIT(A) IS NOT SUSTAINABLE. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A ) ON THIS ISSUE AND RESTORE THIS MATTER BACK TO HIS FILE FOR FRESH DECISION AFTER OBTAINING THE SCRIPT - WISE WORKING OF DEPRECIATION/APPRECIATION. HE IS ALSO TO FIND OUT AS TO WHETHER THIS INVESTMENT IS STOCK - IN - TRADE OR NOT BECAUSE AS PER THIS BOARDS INS TRUCTION NO. 17, DEPRECIATION IS ALLOWABLE IN RESPECT OF THOSE SCRIPTS, WHICH ARE FORMING STOCK - IN - TRADE OF THE BANK AND DEPRECIATION HAS TO BE AGGREGATED SCRIPT - WISE. AFTER OBTAINING SUCH DETAILS AND EVIDENCES FROM THE ASSESSEE, THE CIT(A) SHOULD DECIDE THIS ISSUE AFRESH AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO BOTH THE SIDES. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED IN THE TERMS INDICATED ABOVE. (ORDER WAS PRONOUNCED IN TH E OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 8 /05/2014. *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR