State Bank of Hyderabad, Hyderabad V. Commissioner of Income Tax-III, Hyderabad

ITA 597/HYD/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82235 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 02-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Keywords: Bad and doubtful debts; Difference of opinion; Change of opinion
• Section: 143(3); 6; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.597/HYD/2014 ASSESSMENT YEAR 2011-2012 STATE BANK OF HYDERABAD HYDERABAD 500 001 PAN AADCS-4009-H VS. COMMISSIONER OF INCOME TAX-III, HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE MR. S. ANANTHAN FOR REVENUE MR. P. SOMASEKHAR REDDY DATE OF HEARING 22.07.2014 DATE OF PRONOUNCEMENT 13.08.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDERS OF CIT-III, HYDERABAD UNDER SECTION 263 OF T HE I.T. ACT, 1961 FOR THE ASSESSMENT YEAR 2011-2012. 2. ASSESSEE IS A SUBSIDIARY OF STATE BANK OF INDIA AND IS CARRYING ON THE BUSINESS OF BANKING. IT FILED IT S RETURN OF INCOME ON 26.09.2011 DECLARING INCOME OF RS. 887.32 CRORES. ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED BY OR DER DATED 14.03.2013 DETERMINING TOTAL INCOME OF RS.155 1.18 CRORES. LD. CIT-III CALLED FOR THE RECORDS AND RAIS ED AN ISSUE, INTER ALIA, ON CLAIMING DEDUCTION OF RS.170.23 CRORES STATING THAT ALLOWANCE OF THIS AMOUNT HAS RESULTED IN DOUBL E DEDUCTION BOTH UNDER SECTION 36(1)(VII) AND 36(1)(V IIA) OF THE 2 ITA.NO.597/HYD/2014 STATE BANK OF HYDERABAD, HYDERABAD. ACT. IT WAS SUBMITTED BY ASSESSEE BANK THAT CLAIM O F NON-RURAL DEBTS TO AN EXTENT OF RS.170.23 CRORES HAS NOT BEEN ADJUSTED AGAINST THE PROVISION ALLOWED UNDER SECTION 36(1)(V IIA) , SINCE THE PROVISION IS APPLICABLE ONLY TO RURAL ADVANCES AND NOT TO NON-RURAL ADVANCES (URBAN ADVANCES). ASSESSEE RELIE D ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CA THOLIC SYRIAN BANK VS. CIT 343 ITR 270(SC) WHEREIN IT WAS HELD THAT PROVISO TO SECTION 36(1)(VII) CONTROLS ONLY RURAL D EBTS AND NOT NON-RURAL DEBTS. HOWEVER, LD. CIT , NEGATED THE STATEMENTS OF THE ASSESSEE BANK AND DIRECTED THE A.O. TO EXAMINE THE ISSUE AND RE-DO THE ASSESSMENT ACCORDINGLY, AFTER ANALYZI NG THE PROVISIONS OF SECTION 36(1)(VII) AND 36(1)(VIIA), A ND BY DISTINGUISHING THE CASE OF CATHOLIC SYRIAN BANK VS. CIT (SUPRA) AND OTHER JUDGMENTS IN THE ORDER UNDER SECTION 263. 2.1 ASSESSEE IS QUESTIONING THIS ISSUE EVEN THO UGH PROCEEDINGS UNDER SECTION 263 ARE NOT CHALLENGED, A S ASSESSEE HAS CONSENTED FOR ADJUSTING LOSSES ON SALE OF LAND AND BUILDING, ANOTHER ISSUE RAISED BY THE LD. CIT-III. THEREFORE, THE ISSUE IS CONFINED ONLY TO THE CLAIM OF BAD DEBT OF AN AMOUNT OF RS.170,23,17,810. 3. IN ORDER TO APPRECIATE THIS ISSUE, IT IS NECESSARY TO EXTRACT ORDER OF A.O. UNDER SECTION 143(3) DATED 1 4.03.2013 WHEREIN THE CLAIM OF PROVISION FOR BAD AND DOUBTFUL DEBTS WAS ANALYSED BY A.O. AS UNDER : 5. PROVISION FOR BAD AND DOUBTFUL DEBTS 5.1 UNDER THE EXISTING PROVISIONS U/S. 36(L)(VIIA ) OF THE INCOME TAX ACT, 1961, A PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY BANKS IS ALLOWED AS A DEDUCTION TO THE EXTEN T OF 3 ITA.NO.597/HYD/2014 STATE BANK OF HYDERABAD, HYDERABAD. (I) 7.5% FROM THE GROSS TOTAL INCOME AND (II) 10% OF AGGREGATE AVERAGE RURAL ADVANCES MADE BY THEM. 5.2 THE ASSESSEE BANK HAS MADE THE FOLLOWING CLAIMS TOWARDS BAD AND DOUBTFUL DEBTS. UNDER SECTION U/S.36(I)(VII) BAD DEBTS WRITTEN OF U/S.36(I)(VII) IN RESPECT OF NON RURAL BRANCH ADVANCES RS.170,23,17,810 DEDUCTION U/S.36(1 )(VIIA) BAD AND DOUBTFUL DEBTS @ 7.5% OF TOTAL INCOME RS.111,76,65,5734 RURAL BRANCH ADVANCES @10% OF THE AGGREGATE AVERAGE ADVANCES BASED ON CENSUS PUBLISHED IN 2011 RS.415,12,88,486 TOTAL RS.526,89,54,059 5.3. ASSESSEE WAS ASKED TO SHOW CAUSE HOW IT IS ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 36(I)(VII ) AND 36(1) (VIIA). 5.4. IN RESPONSE, ASSESSEE SUBMITTED THAT IT ' WE HAVE CLAIMED BAD DEBTS WRITTEN OFF FOR NON RURAL ADVANCES ONLY TO THE EXTENT OF RS.170.23 CRORE. WE ARE FORGOING RS.16.52 CRORES RURAL BAD DEBTS WRITTEN OFF. BANK'S CONTENTION IS RURAL BAD DEBTS WRITTEN OFF IS SET OFF FROM CLAIM MADE UNDER SECTION 36(1)(VIIA). THE RECENT SUPREME COURT JUDGMENT (CATHOLIC SYRIAN BANK VS CIT) UPHELD OUR STAND. ACCORDINGLY, WE HAVE CLAIMED DEDUCTION IN RESPECT OF BAD DEBTS WRITTEN OF AT NON-RURAL BRANCHES (IE., URBAN BRANCHES) UNDER 36(I)(VII) AND THE AMOUNT OF BAD DEBTS WRITTEN OFF AT RURAL BRANCHES IS BEING NETTED OF! FROM THE AMOUNT UNDER SECTION 3 6 (I)(VIIA). 4 ITA.NO.597/HYD/2014 STATE BANK OF HYDERABAD, HYDERABAD. PROVISION FOR BAD & DOUBTFUL DEBTS PROVIDED IN BOOKS - RS.405.72 CRORES' 5.5. IN RESPECT OF DEDUCTION UNDER SECTION 36(I)(V II) IS CONCERNED THE ASSESSEE HAS WRITTEN OFF AN AMOUNT OF RS.186.75 CRORES IN ITS BOOKS OF ACCOUNT(PAGE-93 OF ANNUAL ACCOUNTS) TOWARDS BAD DEBTS INCLUDING RS.170.23 CRORES FOR NON RURAL ADVANCES: AS PER SUPREME COURT DECISION IN THE CASE OF M/ S CATHOLIC SYRIAN BANK VS CIT, THE AMOUNT WRITTEN OFF IN THE BOOKS OF ACCOUNT IS NOT CONTROLLED OR LIMITED IN ANY WAY BY THE PROVISO TO CLAUSE (VII), WHICH MEANS THE BAD DEBTS ACTUALLY WRITTEN OFF IN THE ACCOUNTS OF BANK REPRESENTING URBAN ADVANCES IS AN ALLOWABLE DEDUCTION. FOLLOWING THE SUPREME COURT JUDGMENT THE CLAIM UNDER SECTION 36(I)(VII) IS ALLOWED AT RS 170,23,17,810. 5.6. REGARDING DEDUCTION UNDER SECTION 36(I)(VIIA) THE ASSESSEE HAS SUBMITTED DURING THE COURSE OF HEARING THAT DEDUCTION U/S 36(I)(VIIA) HAS BEEN CLAIMED AT RS.526,89,54,059 RELYING UPON THE INTERPRETATION WHICH HAS BEEN UPHELD BY THE BANGALORE BENCH OF INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF SYNDICATE BANK VS DCIT ( 2001) 78 ITD 103. 5.7. FROM THE SUBMISSION OF THE ASSESSEE, IT IS EVIDENT THAT ASSESSEE HAD MADE A PROVISION OF RS. 405.72 CRORES TOWARDS BAD AND DOUBTFUL DEBTS FAR ASST. YEAR 2011-12. DEDUCTION U/ S.36(1)(VIIA) IS ALLOWABLE, SUBJECT TO OTHER CONDITION, PROVIDED, TH E ASSESSEE MAKES A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNTS. ON THIS ISSUE, HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF STATE BANK OF PATIALA VS. CIT (272 ITR 54) HELD THAT IT IS NECESSARY TO MAKE A PROVISION FOR BAD AN D DOUBTFUL DEBTS IN THE ACCOUNT BOOKS IN THE SAME PREVIOUS YEAR IN WHICH SUCH PROVISION IS CLAIMED AS DEDUCTION U/S.36(1)(VIIA). THIS MEANS ONLY TO THE EXTENT THE PROVISION IS MADE IN THE ACCOUNTS OF THE YEAR, DEDUCTION COULD BE ALLOWED. 5.8. SINCE PROVISION OF RS.405.72 CRARES ONLY HAS BEEN MADE FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNTS FOR THE YEAR ENDING 3L.03.2011, 5 ITA.NO.597/HYD/2014 STATE BANK OF HYDERABAD, HYDERABAD. DEDUCTION CLAIMED U/S. 36(1)(VIIA) I.E., THE CLAIM OF THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS AND PROVISION FOR RURAL BRANCH ADVANCES IS RESTRICTED T O RS. 405.72 CRORES AND THE BALANCE AMOUNT OF RS.121,17,54,059 (RS. 526,89,54,059- RS.405,72,00,000) DISALLOWED AND ADDED TO INCOME RETURNED. ADDITION: RS. 121,17,54,059. 3.1 THUS, AS CAN BE SEEN, THE CONTENTION OF THE ASSESSEE THAT IT HAS CLAIMED AN AMOUNT OF RS.170.23 CRORES OUT OF URBAN ADVANCES WAS EXAMINED BY THE A.O. AND ALLOWED AS SUCH IS VALID. AS SUBMITTED BEFORE THE AUTHORITI ES, THE TOTAL BAD DEBTS WRITTEN OFF IN THE BOOKS OF ACCOUNTS STAN DS TO THE TUNE OF RS.186.75 CRORES. AO ALLOWED RS.170.23 CROR ES AS DEDUCTION U/S 36(1)(VII) BEING NON-RURAL ADVANCES W RITTEN OFF. BALANCE AMOUNT OF RS.16.52 CRORES PERTAINING TO RUR AL ADVANCES WAS NOT CLAIMED, AS THE SAME WAS COVERED B Y THE PROVISO TO SECTION 36(1)(VII). WHAT ASSESSEE HAS CL AIMED IN THE BOOKS OF ACCOUNTS AND WHAT A.O. HAS ALLOWED IN THE ORDER UNDER SECTION 143(3) WAS THE BAD DEBT CLAIM OF NON- RURAL BRANCH ADVANCES UNDER SECTION 36(1)(VIIA) IE. BAD A ND DOUBTFUL DEBTS AT 7.5% OF THE TOTAL INCOME AND 10% OF THE AG GREGATE RURAL ADVANCES, SUBJECT TO THE PROVISION MADE IN BO OKS OF ACCOUNT. THEREFORE, A.O. HAS CORRECTLY ALLOWED THE AMOUNT OF RS.526.89 CRORES IN THE ORDER UNDER SECTION 143(3). THERE WAS NO DOUBLE DEDUCTION AS CONTENDED BY THE LD . CIT . MOREOVER, WE ARE OF THE OPINION THAT LD. CIT-III GOT CONFUSED WITH THE CLAIM OF PROVISION UNDER SECTION 36(1)(VIIA) ON RUR AL ADVANCES WITH THAT OF ACTUAL BAD DEBT OF URBAN ADVANCES CLAI MED UNDER SECTION 36(1)(VII). SINCE THESE TOO STAND ON A DIFF ERENT FOOTING AND AS HONBLE SUPREME COURT HAS ALREADY CLARIFIED THE ISSUE IN THE ABOVE SAID CASE OF CATHOLIC SYRIAN BANK VS. CIT 343 ITR 270 (SC), WE DO NOT SEE ANY REASON FOR THE LD. CIT- III TO INVOKE THE POWERS UNDER SECTION 263 ON THE ISSUE. MOREOVER , THIS 6 ITA.NO.597/HYD/2014 STATE BANK OF HYDERABAD, HYDERABAD. ISSUE WAS ALREADY EXAMINED BY THE A.O. AND ALLOWED AND THIS ORDER WAS SUBJECT MATTER OF APPEAL. CONSEQUENTLY, P RESENT OPINION BY THE LD. CIT-III WOULD BE CONSIDERED AS A CHANGE OF OPINION. BE THAT AS IT MAY, THE CONTENTION OF THE L D. CIT-III DOES NOT STAND TEST OF THE JUDICIAL PRINCIPLES AND ALSO ON FACTS. IN VIEW OF THIS, WE CANNOT UPHOLD THE DIRECTION GIV EN BY THE LD. CIT-III TO RE-EXAMINE THE ISSUE AS THE ORDER OF AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF REVEN UE, TWIN CONDITIONS WHICH ARE REQUIRED TO BE SATISFIED FOR I NVOKING THE POWERS U/S 263. THE ORDER OF THE LD. CIT-III TO THA T EXTENT STANDS SET ASIDE. ASSESSEES GROUNDS ARE ALLOWED. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 13.08.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 13 TH AUGUST, 2014 VBP/- COPY TO 1. DEPUTY GENERAL MANAGER, STATE BANK OF HYDERABAD, FINANCE & ACCOUNTS DEPT., HYBANK TOWERS, HEAD OFFICE, GUNFOUNDRY, HYDERABAD 500 001. 2. ADDL.COMMISSIONER OF INCOME TAX, RANGE-3, INCOME TAX TOWERS, A.C. GUARDS, HYDERABAD. 3. CIT-III, HYDERABAD 4. DCIT, CIRCLE 3(2), HYDERABAD 5. D.R. A BENCH, ITAT, HYDERABAD.