Dy.CIT, Circle-1, Khammam Dist V. Bhadradri Cooperative Urban Bank Limited, Khammam

ITA 617/HYD/2013

• Counselvise Citation: 61722514 RSA 2013
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 30-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K HARITA
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Bad and doubtful debts

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.617 & 618/HYD/2013 ASSESSMENT YEARS 2009-2010 & 2010-2011 DCIT, CIRCLE-1 KHAMMAM VS. BHADRADRI COOPERATIVE URBAN BANK LTD. KHAMMAM PAN AAATB 4352Q (APPELLANT) (RESPONDENT) FOR REVENUE : MS. K. HARITA FOR ASSESSEE : MR. V. SIVAKUMAR DATE OF HEARING : 05.03.2014 DATE OF PRONOUNCEMENT : 21.03.2014 ORDER PER B.RAMAKOTAIAH, A.M. THESE APPEALS ARE FILED BY REVENUE AGAINST THE ORDER PASSED BY THE CIT(A), VIJAYAWADA DATED 26.02. 2013 FOR THE ASSESSMENT YEARS 2009-2010 AND 2010-2011. SINCE THE GROUNDS RAISED IN THE APPEALS ARE COMMON, THESE APP EALS ARE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THE SIN GLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE COMMON GROUND RAISED BY THE REVENUE IN BOTH THE ASSESSMENT YEARS ARE WITH RESPECT TO BAD A ND DOUBTFUL DEBTS AND DISALLOWANCE OF DEDUCTION ON PRO VISION FOR STANDARD ASSETS WHICH WAS CREATED AS PER RBI GUIDEL INES HOLDING THAT THE SAME IS NOT ALLOWABLE AS PER THE P ROVISIONS OF SECTION 36(1)(VIIA) OF THE I.T. ACT. 2 ITA.NO.617 & 618/HYD/2013 M/S. BHADRADRI COOP. URBAN BANK LTD. KHAMMAM 2.1. BRIEFLY STATED THE FACTS ARE THAT ASSESSEE IS A BANK, WHICH HAS BEEN REGISTERED UNDER COOPERATIVE SOCIETI ES ACT, 1912 IN THE YEAR 1929. THE NATURE OF BUSINESS OF TH E SOCIETY IS TO CARRY ON THE BUSINESS OF BANKING BY ACCEPTING DE POSITS AND PROVIDING CREDIT FACILITIES TO THE MEMBERS OF THE S OCIETY. THE BANK IS UNDER THE CONTROL OF THE RESERVE BANK OF IN DIA AND CARRIES ON ITS ACTIVITIES AS PER BANKING REGULATION S ACT, 1949 AND COOPERATIVE SOCIETIES ACT, 1912. 2.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT IS NOTICED THAT THE ASSESSEE BANK CLAIMED DEDUCTION UN DER SECTION 36(1)(VIIA) OF I.T. ACT, 1961, FOR AN AMOUN T OF RS.12,09,420/- FOR THE A.Y. 2009-10 AND RS.15,14,54 3/- FOR A.Y. 2010-11. THE ASSESSEE WAS ASKED TO FILE COPY O F THE ACCOUNT FOR PROVISION FOR BAD AND DOUBTFUL DEBTS FO R THE YEAR UNDER CONSIDERATION AND IN RESPONSE THERETO, ASSESS EE SUBMITTED THAT EVEN THOUGH IT HAS CREATED PROVISION UNDER RBI AND COOPERATIVE ACT, THEY HAVE CLAIMED ONLY 7.5% OF THE PROFITS TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VIIA) OF THE I.T. ACT, BEING LESS THAN THE PR OVISION CREATED BY THE BANK. HOWEVER, A.O. OBSERVED THAT AS ASSESSE E BANK DID NOT CREATE ANY FRESH PROVISION DURING THE YEAR TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS/PROVISIONS FOR NPA, ASSESSEE WAS NOT ENTITLED TO DEDUCTION UNDER SECTIO N 36(1)(VIIA) AND ACCORDINGLY, A.O. MADE THE ADDITION OF RS.12,09 ,420/- FOR THE A.Y. 2009-10 AND RS.15,14,543/- FOR THE A.Y. 20 10-11. 2.3. AGGRIEVED, ASSESSEE FILED APPEAL BEFORE THE C IT(A) CONTENDING INTER ALIA, THAT THE A.O. IS NOT JUSTIFI ED IN DISALLOWING THE ALLOWANCE U/S. 36(1)(VIIA) OF THE I .T. ACT WHICH 3 ITA.NO.617 & 618/HYD/2013 M/S. BHADRADRI COOP. URBAN BANK LTD. KHAMMAM WILL BE ALLOWED ON THE BASIS OF RESPECTIVE YEARS PR OFITS AND NOT RELATED TO ANY BOOK ENTRY FOR PROVISION FOR BAD AND DOUBTFUL DEBTS. THE LD. COUNSEL FURTHER CONTENDED THAT THE P ROVISION FOR BAD AND DOUBTFUL DEBTS WILL BE ALLOWED AS A PER CENTAGE OF TOTAL INCOME OF THAT PARTICULAR ASSESSMENT YEAR. FU RTHER, THE PROVISIONS OF THE SECTION DO NOT REQUIRE ACCUMULATI ON OR SUSTAIN THE PROVISION CLAIMED FOR BAD AND DOUBTFUL DEBTS. THE CRITERION FOR ALLOWING PROVISION FOR BAD AND DOUBTF UL DEBTS IS TOTAL INCOME OF THE ASSESSEE. AS SUCH, THE ALLOWABL E PROVISION FOR BAD AND DOUBTFUL DEBTS WILL BE COMPUTED AS A PE RCENTAGE OF TOTAL INCOME OF THE RELEVANT A.Y. AND NOT AS PER TH E BOOK ENTRIES. AS SUCH, MERE DISALLOWANCE OF THE CLAIM FO R PROVISION FOR BAD AND DOUBTFUL, IN THE PRESENCE OF TOTAL INCO ME IS NOT JUSTIFIED. LD. COUNSEL ALSO PROVIDED THE DETAILS OF PROVISION MADE IN BOOKS OF ACCOUNT AND JUSTIFIED THE CLAIM ON FACTS AS WELL. THE LEARNED CIT(A) EXAMINED THE ISSUE IN PARA 5(II) OF HIS ORDER AND ALLOWED THE CLAIM OF BAD AND DOUBT DEBTS OF THE ASSESSEE. THE RELEVANT OBSERVATIONS MADE BY THE CIT (A) ARE EXTRACTED HEREUNDER : 5(II). THIS RELATES TO PROVISION FOR BAD AND DOUBT FUL DEBTS (PBDD). IT IS SEEN FROM THE RECORDS THAT THE APPELL ANT HAS CREATED PBDD AS PER RBI NORMS AND ALSO ALLOCATED RE SERVE FOR BAD AND DOUBTFUL DEBTS AS PER THE BYE LAWS OF T HE SOCIETY FRAMED UNDER COOPERATIVE SOCIETIES ACT. IT IS OBSER VED THAT WHILE THE APPELLANT HAS CREATED PBDD AS PER RBI NOR MS, BUT IN THE COMPUTATION RESTRICTED THE SAME AT 7.5% OF T HE TOTAL INCOME AS PER THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE IT ACT, 1961, AMOUNTING TO RS.12,09,420/- WHICH WAS NO T ALLOWED BY THE A.O. STRANGELY, THE A.O. COMPARED TH E CLOSING BALANCES OF 31.03.20098 AND 31.03.2009 AT RS.2,50,5 60/- AND RS.1,84,845/- RESPECTIVELY AND CAME TO THE WRON G CONCLUSION THAT NO PROVISION WAS MADE FOR THE YEAR ENDING 31.03.2009, IGNORING THE PROCESS OF REVERSING THE C LOSING 4 ITA.NO.617 & 618/HYD/2013 M/S. BHADRADRI COOP. URBAN BANK LTD. KHAMMAM BALANCE OF PBDD AS ON BEGINNING OF THE NEXT FINANCI AL YEAR AND AFTER REALIZATIONS AND AT THE END OF THE YEAR A GAIN PBDD IS CREATED, WHICH MAY BE LESS, EQUAL OR MORE THAN T HE LAST YEARS PBDD, WHICH DEPENDS ON FACTS AND CIRCUMSTANC ES OF THAT YEAR. THUS, SINCE THE BASIS ON WHICH THE PBDD WAS NOT ALLOWED, WAS WRONG. THE A.O. IS DIRECTED TO DELETE THE ADDITION SO MADE BY HIM IN THE IMPUGNED ASSESSMENT ORDER. 3. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US A ND THE LEARNED DR RELIED ON THE ORDER OF THE A.O. AND THE LD. COUNSEL RELIED ON THE ORDER OF THE CIT(A). 4. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE W ITH REFERENCE TO THE ALLOWABILITY OF CLAIM UNDER SECTION 36(1)(VI IA). THE PROVISIONS OF SECTION 36(1)(VIIA) ARE AS UNDER : [(VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND D OUBTFUL DEBTS MADE BY (A) A SCHEDULED BANK [NOT BEING [* * *] A BANK INC ORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON - SCHEDULED BANK [OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATI VE 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 CL AUSE AND CHAPTER VIA) 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 MA NNER : [ 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, FOR AN AMOUNT NOT EXCEEDING FIVE PER CENT O F THE 5 ITA.NO.617 & 618/HYD/2013 M/S. BHADRADRI COOP. URBAN BANK LTD. KHAMMAM 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 A ND ENDING BEFORE THE 1ST DAY OF APRIL, 2005, THE PROVI SIONS OF THE FIRST PROVISO SHALL HAVE EFFECT AS IF FOR THE W ORDS 'FIVE PER CENT', THE WORDS 'TEN PER CENT' HAD BEEN SUBSTITUTE D :] [ PROVIDED ALSO THAT A SCHEDULED BANK OR A NON-SCHEDULED BANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS O PTION, BE ALLOWED A FURTHER DEDUCTION IN EXCESS OF THE LIMITS SPECIFIED IN THE FOREGOING PROVISIONS, FOR AN AMOUNT NOT EXCE EDING THE INCOME DERIVED FROM REDEMPTION OF SECURITIES IN ACC ORDANCE 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 PURPOSES OF THIS SUB-CLAUSE, 'RELEVANT ASSESSMENT YEARS' MEANS THE FIVE CONSECUTIVE ASSESS MENT YEARS COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2000 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2005;] 4.1. THE FIRST CONDITION FOR CONSIDERING THE DEDUC TION IS MAKING A PROVISION IN THE BOOKS OF ACCOUNT BY THE E LIGIBLE SCHEDULED BANK/NON SCHEDULED BANK OR COOPERATIVE BA NK. ASSESSEE DID MAKE A PROVISION AS PER THE PROVISIONS OF THE ACT WHICH IS MANDATORY (STATE BANK OF PATIALA VS. CIT 2 72 ITR 54). THE NEXT CONDITION TO EXAMINE IS WHETHER THE CLAIM IS NOT EXCEEDING 7.5% OF TOTAL INCOME (COMPUTED BEFORE MAK ING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER-VIA). THE F URTHER CONDITION IS ABOUT CLAIM OF 10% OF AGGREGATE AVERAG E ADVANCES MADE BY THE RURAL BRANCHES AND AS PER FIRST PROVISO , PROVISION WITH REFERENCE TO DOUBTFUL ASSETS OR LOSS ASSETS AC CORDING TO RBI GUIDELINES NOT EXCEEDING 5% OF SUCH ASSETS SHOW N IN THE 6 ITA.NO.617 & 618/HYD/2013 M/S. BHADRADRI COOP. URBAN BANK LTD. KHAMMAM BOOKS OF ACCOUNTS OF THE BANK ON THE LAST DAY OF TH E PREVIOUS YEAR. 4.2. THE ASSESSING OFFICER DID NOT ALLOW ON THE RE ASON THAT THE NET PROVISION CHARGED TO P & L ACCOUNT WAS ZERO. ASSESSEE WAS CREDITING THE PROVISION MADE IN THE EA RLIER YEAR TO THE P & L ACCOUNT AND MAKING FRESH PROVISION DEPEND ING ON THE BAD LOANS / ASSETS IDENTIFIED DURING THE YEAR. IT ALSO PROVIDES 0.4% OF THE STANDARD ASSETS AS PROVISION B ASED ON RBI GUIDELINES AND BANKS OWN POLICY. SINCE ASSESSEE CREATED FRESH PROVISION DURING THE YEAR TO THAT EXTENT, A.O S CONTENTION IS NOT CORRECT. WHAT IS TO BE EXAMINED IS, WHETHER ASSESSEE MADE THE PROVISION FOR BAD AND DOUBTFUL DEBTS AND I F SO, WHETHER THE CLAIM IS WITHIN THE PERMISSIBLE LIMITS UNDER SECTION 36(1)(VIIA). FOR A.Y. 2009-10 ASSESSEE MADE A PROVISION OF RS.13,43,022/- TOWARDS PROVISION FOR BAD AND DOU BTFUL DEBTS AND NPAS (RS.11,03,475/- + FURTHER RESERVE AS PER BYE LAWS OF A.P. COOPERATIVE SOCIETIES ACT RS.2,39,547/ -) OUT OF THIS AMOUNT, THE ENTITLEMENT UNDER 7.5% AS PER THE PROVISION AT RS.12,09,420/- WAS CLAIMED WHICH WAS ALLOWED BY THE LEARNED CIT(A). LIKEWISE, FOR A.Y. 2010-11 THE ASSE SSEE MADE A PROVISION OF RS.23,07,768/- (RS.15,57,768/- + RS.7, 50,000/- AND CLAIMED AMOUNT OF RS.15,14,543/- WHICH IS 7.5% OF THE TOTAL INCOME BEFORE ALLOWING THE DEDUCTIONS AS PER THE PROVISIONS. SINCE THE ORDER OF THE LEARNED CIT(A) I S AS PER THE PROVISIONS OF THE ACT, WE FIND NO INFIRMITY IN HIS ORDER AND ACCORDINGLY, WE CONFIRM THE SAME AND REJECT THE GRO UNDS OF THE REVENUE IN BOTH YEARS ON THIS ISSUE. 7 ITA.NO.617 & 618/HYD/2013 M/S. BHADRADRI COOP. URBAN BANK LTD. KHAMMAM 5. LEANED D.R. HOWEVER, WAS ALSO MAKING AN ARGUMENT THAT THE OTHER CONDITION UNDER SECTION 36( 1)(VIIA) I.E., THE AMOUNT SHOULD NOT EXCEED 10% OF THE AGGREGATE A VERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK AL SO COULD HAVE BEEN VERIFIED. AS SEEN FROM THE RECORD, ASSESS EE WAS NOT CLAIMING ANY PROVISION ON BEHALF OF ADVANCES MADE T O RURAL BRANCHES. THEREFORE, THERE IS NO NEED TO VERIFY THI S ASPECT OF THE CONDITIONS. THUS THE ARGUMENT IS REJECTED. 6. THE OTHER GROUND RAISED IN A.Y. 2009-10 (ITA.NO.617/HYD/2013) IS WITH RESPECT TO DELETING T HE ADDITION OF RS.3362/- TOWARDS LOCKER RENT. 7. BRIEFLY STATED, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE IS OFFERING LOCKER RENT ON CASH BASIS. THE DIFFERENCE OF RS.336 2/- RECEIVABLE HAS BEEN ADDED TO THE INCOME ON ACCOUNT OF LOCKER RENT. ON APPEAL, THE LEARNED CIT(A) OBSERVED THAT T HE LOCKER RENT IS RECEIVABLE, BUT NOT RECEIVED. SINCE THE ASS ESSEE HAS BEEN FOLLOWING THE CASH SYSTEM AS FAR AS THE LOCKER RENT IS CONCERNED, THE ACTION OF THE A.O. IN ASSESSING LOCK ER RENT RECEIVABLE IS NOT APPRECIATED AND ACCORDINGLY, THE LD. CIT(A) DIRECTED THE A.O. TO DELETE THE SAME. 8. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US A ND THE LEARNED D.R. RELIED ON THE ORDER OF THE A.O. AN D THE LEARNED COUNSEL RELIED ON THE ORDER OF THE CIT(A). 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND NO INFIRMITY IN THE ORDER OF THE CIT(A) AS THE CIT(A) HAS RIGHTLY 8 ITA.NO.617 & 618/HYD/2013 M/S. BHADRADRI COOP. URBAN BANK LTD. KHAMMAM OBSERVED THAT THE ASSESSEE IS FOLLOWING THE CASH SY STEM OF ACCOUNTING ON LOCKER RENTS CONSISTENTLY AND ALLOWED THE CLAIM. WE, THEREFORE, CONFIRM THE ORDER OF THE CIT(A) AND REJECT THE GROUND OF THE REVENUE ON THIS ISSUE. 10. IN THE RESULT, ITA.NO.617/HYD/2013 AND 618/HYD/2013 OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.03.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACOUNTANT MEMBER HYDERABAD, DATED 21 ST MARCH, 2014 VBP/- COPY TO : 1. DCIT, CIRCLE 1, KHAMMAM 2. BHADRADRI COOPERATIVE URBAN BANK LTD., RAJIV CHOWK, KHAMMAM 3. CIT(A), VIJAYAWADA. 4. CIT, VIJAYAWADA 5. D.R. ITAT, A BENCH, HYDERABAD.