The Janalaxmi Co-Op Bank Ltd, Nashik V. Assistant Commissioner of Income tax, Nashik

ITA 622/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5019 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 14-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: IS DIRECTED AGAINS T PASSED
• Keywords: Bad and doubtful debts
• Section: 80P; 64; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO. 622/PUN/2017 / ASSESSMENT YEAR : 2013-14 THE JANALAXMI CO.OP BANK LTD., SAMRUDDHI, GADKARI CHOWK, NASHIK PAN : AAAAT3312K VS. ACIT, CIRCLE-1, NASHIK APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-1, NASHIK ON 03-02-2017 IN RELATION TO THE ASSESSMENT YEAR 2013-14. 2. FOLLOWING 4 GROUNDS HAVE BEEN RAISED IN THE APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED HONBLE CIT(A) IS WRONG IN CONFIRMING THE EXCESS PROVISION FOR BAD AND DOUBTFUL DEBTS RESERVE (BDDR) OF EARLIER YEARS OF RS.3,39,02,128/- WRITTEN BACK IS TAXABLE INCOME IRRESPECTIVE OF THE FACT THAT EVERY YEAR THE BDDR PROVISIONS WERE DISALLOWED FROM INCOME (ADDED TO TAXABLE INCOME). ASSESSEE BY SMT. DEEPA KHARE REVENUE BY SHRI SANJAY DESHMUKH DATE OF HEARING 12-10-2020 DATE OF PRONOUNCEMENT 13-10-2020 ITA NO.622/PUN/2017 THE JANALAXMI CO.OP BANK LTD., 2 2. THE HONBLE CIT(A) IS WRONG IN TREATING REVERSAL OF EXCESS PROVISION OF BDDR OF RS.3,39,02,128/- WRITTEN BAC K IS TAXABLE INCOME. SINCE APPELLANT CLAIMED DEDUCTION U/S.36(1)(VII) IN EARLIER YEARS. 3. THE HONBLE CIT(A) FAILED TO APPRECIATE THE FACT THAT DEDUCTIONS CLAIMED U/S.36(1)(VII) HAS NO WAY CONCERN WITH WRITTEN BACK OF EXCESS BDDR PROVISION AND THAT TO NON REDUCTION OF TAXABLE INCOME. 4. THE LEARNED INCOME TAX OFFICER AND THE HONBLE COMMISSIONER OF INCOME TAX APPEAL OUGHT TO HAVE CONSIDERED THAT NO DEDUCTION OR BENEFIT IS CLAIMED WHILE CREATING BDDR IN EVER YEAR AND THEREFORE WHEN IT IS WRITTEN BACK IT IS OUT OF THE AMBIT OF SETION 41 AND THEREFORE NO TAXABLE INCOME. 3. SUCCINCTLY, THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSE SSEE FILED THE RETURN DECLARING TOTAL INCOME AT A LOSS OF RS.6,93,4 08/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESS ING OFFICER (AO) OBSERVED THAT THE ASSESSEE HAD CREDITED PROFIT AND LOSS ACCOUNT WITH A SUM OF RS.2,10,39,032/- ON ACCOUNT OF BAD AND DOUBTFUL DEBTS RESERVE (BDDR) WRITTEN OFF. WHILE COMPUTING THE TOTAL INCOME, THE ASSESSEE REDUCED SUCH AMOUNT FROM THE NET PROFIT AS PER P&L ACCOUNT. ON BEING CALLED UPON TO EXPLAIN ITS STAND, THE ASSESSEE SUBMITTED THAT THERE WAS EXCESS PROVISION FOR EARLIER YEARS WRITTEN BACK TO THE TUNE OF RS.3,39,02,138/ - AND A FRESH PROVISION FOR BAD AND DOUBTFUL DEBTS MADE DURING THE YEAR WAS FOR RS.1,28,63,105/- GIVING A NET FIGURE OF RS.2,1 0,39,032/-, ITA NO.622/PUN/2017 THE JANALAXMI CO.OP BANK LTD., 3 WHICH WAS CREDITED AT NET TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE CLAIMED THAT SUCH AMOUNT SHOULD NOT BE ADDED IN THE COMPUTATION OF TOTAL INCOME BECAUSE NO DEDUCTION WAS CLAIMED AT THE TIME OF CREATION OF THE PROVISION IN EARLIER YEARS. NO T CONVINCED, THE AO MADE AN ADDITION OF RS.3,39,02,138/- TO THE TOTAL LOSS AS PER RETURN. SUCH ADDITION WAS PREMISED ON THE V IEW THAT ALBEIT THE ASSESSEE CREATED THE PROVISION FOR EARLIER YEAR S AND ADDED IT BACK TO THE TOTAL INCOME, BUT IT WAS ALSO ALLOWED DEDUCTIO N TO THE EXTENT OF 7.5% OF TOTAL INCOME U/S.36(1)(VIIA) OF THE IN COME- TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT). HE ALSO F OUND THAT PRIOR TO THE ASSESSMENT YEAR 2007-08, I.E. 2006-07 AND BEFORE , THE ASSESSEE WAS CLAIMING DEDUCTION IN RESPECT OF ENTIRE TOTA L INCOME U/S.80P OF THE ACT. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS THROUGH VIRTUAL COURT AND GONE THROUGH THE RELEVANT MATERIAL ON RECORD. AS CAN B E SEEN FROM THE GROUNDS REPRODUCED ABOVE THAT THE ONLY ISSUE RAIS ED IN THIS APPEAL IS AGAINST THE ADDITION OF RS.3,39,02,128/- MADE BY THE AO ON ACCOUNT OF BAD AND DOUBTFUL DEBTS RESERVE FOR EA RLIER YEAR WRITTEN BACK IN THIS YEAR IN THE BOOKS OF ACCOUNT. WE HAV E GONE THROUGH THE ASSESSEES PROFIT AND LOSS ACCOUNT, WHOSE CO PY IS ITA NO.622/PUN/2017 THE JANALAXMI CO.OP BANK LTD., 4 AVAILABLE AT PAGES 10 AND 11 OF THE PAPER BOOK. THE ASS ESSEE CREDITED A NET SUM OF RS.2,10,39,032 TO ITS PROFIT AND LOSS ACCOUNT WITH THE NARRATION BAD AND DOUBTFUL DEBTS RESERVE . THIS AMOUNT WAS COMPUTED BY REDUCING THE AMOUNT OF BDDR FOR THE YEAR AMOUNTING TO RS.1.28 CRORE CREATED IN THE BOOKS OF ACCOUNT ON THE BASIS OF RBI GUIDELINES FROM THE AMOUNT OF PROVISION OF EARLIER YEARS WRITTEN BACK TO THE TUNE OF RS.3.39 CRORE AND ODD . IN OTHER WORDS, THE ASSESSEE INSTEAD OF SHOWING SEPARATE CREDIT OF RS.3.39 CRORE AND A SEPARATE DEBIT OF RS.1.28 CRORE IN ITS PROFIT AN D LOSS ACCOUNT, SIMPLY CREDITED NET OF THE TWO AMOUNTS AT RS.2.1 0 CRORE. COPY OF COMPUTATION OF TOTAL INCOME HAS BEEN PLACED AT PAGE 3 OF THE PAPER BOOK, FROM WHICH IT CAN BE SEEN THAT THE STARTING P OINT OF THE COMPUTATION OF INCOME UNDER THE HEAD `PROFITS AND GAINS FROM BUSINESS OR PROFESSION IS NET PROFIT AS PER PROFIT AND LOSS ACCOUNT AT RS.1,60,02,879/-. THIS FIGURE MATCHES WITH THE AMOUNT O F NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT, WHICH EMBRACE S THE EFFECT OF NET BAD AND DOUBTFUL DEBTS RESERVE WRITTEN BACK AT RS.2.10 CRORE. THEREAFTER, THE ASSESSEE, IN THE COMPUTA TION OF TOTAL INCOME, REDUCED A SUM OF RS.2,30,53,804/- WITH THE NARR ATION INCOME CONSIDERED SEPARATELY . BREAK-UP OF THIS RS.2.30 CRORE IS AVAILABLE AT PAGE 4 OF THE PAPER BOOK, WHICH INCLUDES PROVIS ION FOR ITA NO.622/PUN/2017 THE JANALAXMI CO.OP BANK LTD., 5 BAD DEBTS AT RS.2,10,39,033/-, BEING, THE NET AMOUNT OF TH E PROVISION WRITTEN BACK. THOUGH THE NARRATION HAS BEEN GIVEN AS INCOME CONSIDERED SEPARATELY BUT, IN FACT, THERE IS NO SEPARATE DECLARATION OF NET INCOME IN THE COMPUTATION OF TOTAL INCOME ON THIS SCORE. IT, THEREFORE, EMERGES THAT THE ASSESSEE IN THE COMPUTATION OF TOTAL INCOME AT LOSS OF RS.6.93 LAKH STARTED WITH THE FIGURE OF NET PROFIT WHICH WAS INCLUSIVE OF RS.2.10 CRORE A ND REDUCED THE SAME AMOUNT. THE NET EFFECT OF THIS EXERCISE IS THAT THE ASSESSEE NEITHER CLAIMED ANY DEDUCTION ON ACCOUNT OF PRO VISION FOR BAD AND DOUBTFUL DEBTS MADE FOR THE YEAR NOR OFFERED A NY INCOME ON ACCOUNT OF WRITE BACK OF THE PROVISION FOR BAD AND DOU BTFUL DEBTS FOR THE EARLIER YEARS IN THE COMPUTATION OF TOTAL INCOME. THE CLAIM OF THE ASSESSEE IS THAT THE AMOUNT OF RS.3.39 CRORE WAS NOT INCLUDIBLE IN THE TOTAL INCOME BECAUSE NO DEDUCTION WAS CLAIMED IN THE EARLIER YEARS AT THE TIME OF CREATION OF SUCH BDDR INAS MUCH AS IT THOUGH DEBITED THE AMOUNT OF PROVISION FOR BDDR IN ITS PROF IT AND LOSS ACCOUNTS FOR EARLIER YEARS, BUT AT THE TIME OF COM PUTATION OF TOTAL INCOME, ADDED BACK SUCH AMOUNTS OF BDDR. 5. WE HAVE SEEN COPIES OF RETURNS FILED BY THE ASSESSE E FROM THE ASSESSMENT YEAR 2005-06 AT PAGE 57 ONWARDS OF THE P APER BOOK. IN THE COMPUTATION OF TOTAL INCOME FOR THE ASSESSMENT YEAR 2 006- ITA NO.622/PUN/2017 THE JANALAXMI CO.OP BANK LTD., 6 07, THE ASSESSEE ADDED BACK BDDR FOR THE YEAR AT RS.2,27,65,058/- TO THE NET PROFIT (LOSS) OF RS.1,05,83, 487/-. COMPUTATION OF TOTAL INCOME FOR THE ASSESSMENT YEAR 2007-08 IS AVAILABLE AT PAGE 60 OF THE PAPER BOOK. AGAIN, THERE IS N ET PROFIT (LOSS) AT RS.52,85,610/- AND THEREAFTER THERE IS AN ADDITION FOR BDDR FOR A SUM OF RS.2,55,49,255/-. SIMILARLY FOR THE ASSESSMENT YEAR 2008-09, THE COMPUTATION HAS BEEN PLACED AT PAGE 64 OF THE PAPER BOOK, WHICH SHOWS NET PROFIT (LOSS) AT RS.36,41,669/- TO WHICH BDDR AT RS.5,34,70,012/- HAS BEEN ADDED. SIMILAR IS THE POSITION FOR THE ASSESSMENT YEARS 20 09-10, 2010-11, 2011-12 AND 2012-13, WHOSE COMPUTATIONS HAVE BEEN PLACED ON RECORD. ON GOING THROUGH SUCH COMPUTATIONS O F TOTAL INCOME, IT IS MANIFESTED THAT THE ASSESSEE WAS CREATING BDDR FOR EARLIER YEARS AS PER THE RBI NORMS AND WAS SIMULTANEOUS LY ADDING BACK THE SAME IN COMPUTING THE TOTAL INCOME. TO PUT IT SIMPLY , THE NET EFFECT OF CREATING THE PROVISION AND THEN ADDING BACK IN THE COMPUTATION OF TOTAL INCOME IS THAT THERE WAS NO DEDUCTION CLAIME D BY THE ASSESSEE AT THE TIME OF CREATION OF PROVISION. ON CE THE ASSESSEE DID NOT TAKE ANY DEDUCTION IN THE COMPUTATION OF T OTAL INCOME ON ACCOUNT OF BDDR CREATED ON THE BASIS OF RBI NO RMS, ITS REVERSAL IN SUBSEQUENT YEARS, CANNOT CALL FOR ANY ADDITION. HERE, IT ITA NO.622/PUN/2017 THE JANALAXMI CO.OP BANK LTD., 7 IS RELEVANT TO MENTION THAT THE CLAIM OF DEDUCTION U/S 36(1)(V IIA) OF THE ACT IS SEPARATE AND INDEPENDENT OF SUCH PROVISION CR EATED OR REVERSED IN THE BOOKS OF ACCOUNT AS PER THE RBI NORMS. 6. THE AUTHORITIES BELOW HAVE ALSO TAKEN COGNIZANCE OF THE FACT THAT THE ASSESSEE CLAIMED DEDUCTION U/S.80P FOR FULL AMOUNT OF PROFIT FOR THE A.Y. 2006-07 AND EARLIER YEARS. HERE, IT IS WORTHWHILE TO MENTION THAT PRIOR TO AMENDMENT BY INSERTION OF SUB-SECTION (4) BY THE FINANCE ACT, 2006 W.E.F. A.Y. 2007-08 TO SECTION 80 P MAKING THE PROVISION U/S.80P AS NOT APPLICABLE TO ANY COOPERATIV E BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRI MARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK, THE CATEGORY IN WHICH THE ASSESSEE FALLS, THERE WAS ELIGIBILITY FO R DEDUCTION U/S.80P OF THE ACT FROM ITS INCOME. IT CAN BE SEEN FROM THE ASSESSEES RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07, BEING THE PERIOD, WHEN IT WAS ELIGIBLE FOR DEDUCTION U/S 80P OF THE ACT, THAT IT ADDED BACK BDDR AND THEREAFTER CLAIMED DEDUCTIO N U/S 80P ON THE FULL AMOUNT OF INCOME. AGAIN THE NET EFFECT OF THI S EXERCISE IS THAT THE CREATION OF BDDR IN THE BOOKS OF ACCOUN T BY MEANS OF DEBIT TO THE PROFIT AND LOSS ACCOUNT AND THEREAFTER ITS REVERSAL IN THE COMPUTATION OF TOTAL INCOME BEFORE THE CLAIM O F DEDUCTION U/S.80P IS THAT THE FULL AMOUNT OF NET PROFIT AVAILABLE FO R ITA NO.622/PUN/2017 THE JANALAXMI CO.OP BANK LTD., 8 THE BENEFIT U/S.80P WAS WITHOUT THE EFFECT OF BDDR. TO PUT IT SIMPLY, SUPPOSE NET PROFIT BEFORE BDDR FOR THE YEAR IS R S.300/-. ONCE BDDR OF RS.100/- FOR THE YEAR IS DEBITED, NET PROFIT GETS REDUCED TO RS.200/-. AGAIN AT THE TIME OF COMPUTATION OF TO TAL INCOME WITH THE ADDITION OF RS.100/- BACK TO RS.200/-, THE TO TAL OF PROFIT AGAIN COMES TO RS.300/-, WHICH IS AVAILABLE FOR DEDU CTION U/S.80P. THUS, EVEN WITHOUT TAKING ANY DEDUCTION OF BDDR, TH ERE WAS FULL DEDUCTION U/S.80P IN RESPECT OF ELIGIBLE INCOME ONLY. WITH THE INSERTION OF SUB-SECTION (4) TO SECTION 80P W.E.F. 01- 04- 2007, THE CLAIM FOR DEDUCTION U/S.80P HAS COME TO BE DENIED TO THE SOCIETIES LIKE THE ASSESSEE BUT WITH THE SIMULTANEOUS ONSET OF TH E BENEFIT OF DEDUCTION U/S.36(1)(VIIA) BY THE FINANCE ACT 2007 W.E.F. 01-04-2007. IRRESPECTIVE OF THE FACT WHETHER IT IS CASE OF THE PERIOD WHE N THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S.80P OR THEREAFTER W HEN THE BENEFIT OF SECTION 36(1)(VIIA) CAME TO BE CONFERRED, THE CREATION OF BDDR AND ITS SIMULTANEOUS ADDITION IN THE COMPUTATION OF TOTAL INCOME HAS MADE IT CLEAR THAT, IN FACT, NO DEDUCTION WAS CLA IMED BY THE ASSESSEE IN THIS REGARD. ONCE THE ASSESSEE DID NOT CLAI M ANY DEDUCTION IN RESPECT OF BDDR, THERE CAN BE NO QUESTION OF TAXING THE REVERSAL OF BDDR IN A SUBSEQUENT YEAR, AS HAS BEEN THE CASE ITA NO.622/PUN/2017 THE JANALAXMI CO.OP BANK LTD., 9 UNDER CONSIDERATION. WE, THEREFORE, OVERTURN THE IMPUGNE D ORDER ON THIS SCORE AND HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS.3,39,02,138/- TO THE TOTAL INCO ME. THE SAME IS DIRECTED TO BE DELETED. 7. THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND ABOUT THE NON- CHARGING OF INTEREST U/S.234B AND 234C. IT WAS STATED BY THE LD. AR TO BE AN ALTERNATE GROUND. IN VIEW OF OUR DECISION IN A LLOWING THE GROUNDS OF APPEAL ON THE MAIN ISSUE, THIS ADDITIONAL GROU ND HAS BECOME INFRUCTUOUS. 8. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH OCTOBER, 2020. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 13 TH OCTOBER, 2020 ITA NO.622/PUN/2017 THE JANALAXMI CO.OP BANK LTD., 10 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-1, NASHIK 4. 5. THE PR.CIT-1, NASHIK , , / DR B, ITAT, PUNE 6. / GUARD FILE / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 12-10-2020 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 13-10-2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. **