The Little Kancheepuram Co-op Urban Ltd., Kancheepuram V. ACIT, Vellore

ITA 655/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8557 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-07-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 18-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVASJCIT
• Assessee Lawyers: A K VENUGOPAL
• Keywords: Capital asset; Depreciation; Bad and doubtful debts
• Section: 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , .. ' #$, & '( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NOS.654 & 655/MDS/2016 * +* / ASSESSMENT YEARS : 2008-09 & 2011-12 M/S THE LITTLE KANCHEEPURAM CO-OP. URBAN LTD., C/O SHRI A.K. VENUGOPAL, CHARTERED ACCOUNTANT, NO.10, THIRUPAKKUDAL STREET, KANCHEEPURAM 631 501. PAN : AAATO 1272 H V. THE ASSISTANT COMMISSIONER OF INCOME TAX, KANCHEEPURAM 631 501. (-./ APPELLANT) (/0-./ RESPONDENT) -. 1 2 / APPELLANT BY : SHRI A.K. VENUGOPAL, CA /0-. 1 2 / RESPONDENT BY : SHRI SHIVA SRINIVAS, JCIT ' 1 3& / DATE OF HEARING : 28.07.2016 45+ 1 3& / DATE OF PRONOUNCEMENT : 09.09.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AGA INST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 13, CHENNAI, DATED 4.12.2015 AND PERTAIN TO ASSESSM ENT YEARS 2008-09 AND 2011-12. SINCE COMMON ISSUE ARISES IN BOTH THE 2 I.T.A. NOS.654 & 655/MDS/16 APPEALS, WE HEARD BOTH THE APPEALS TOGETHER AND DIS POSING OF THE SAME BY THIS COMMON ORDER. 2. SHRI A.K. VENUGOPAL, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERATION IS DEDUCTION OF PROVISION FOR STANDARD ASSETS BY EQUAT ING WITH THE PROVISION FOR BAD AND DOUBTFUL ASSETS UNDER SECTION 36(1)(VIIA) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). ACC ORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE IS A CO-OPERATIVE URBA N BANK HAVING TWO BRANCHES AT KANCHEEPURAM TOWN AND AYYAMPETTAI V ILLAGE APART FROM HEAD OFFICE. THE ASSESSEE CLAIMED DEDUCTION U NDER SECTION 36(1)(VIIA) OF THE ACT IN RESPECT OF THE PROVISION MADE. HOWEVER, THE ASSESSING OFFICER WITHOUT ANY DISCUSSION RESTRICTED THE CLAIM TO 7.5% OF THE TOTAL INCOME. ACCORDING TO THE LD. REP RESENTATIVE, THE ENTIRE PROVISION HAS TO BE ALLOWED AS BAD AND DOUBT FUL DEBTS WHILE COMPUTING TAXABLE INCOME. SINCE THE ASSESSING OFFI CER HAS NOT DISCUSSED ANYTHING IN THE LIGHT OF THE PROVISIONS O F LAW, ACCORDING TO THE LD. REPRESENTATIVE, THE CIT(APPEALS) OUGHT TO H AVE ALLOWED THE CLAIM OF THE ASSESSEE. 3. ON THE CONTRARY, SHRI SHIVA SRINIVAS, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT UNDER SECTION 36(1)( VIIA) OF THE ACT, 3 I.T.A. NOS.654 & 655/MDS/16 PROVISION TO BE MADE FOR BAD AND DOUBTFUL DEBTS SHA LL NOT EXCEED 7.5% OF THE TOTAL INCOME. IN THIS CASE, ACCORDING TO THE LD. D.R., THE ASSESSEE MADE A PROVISION EXCEEDING 7.5%, THEREFORE , THE ASSESSING OFFICER HAS RIGHTLY RESTRICTED THE CLAIM TO THE EXTENT OF 7.5%. HENCE, ACCORDING TO THE LD. D.R., THE CIT(AP PEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICE R. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. A BARE READING OF ASSESSMENT ORDER SHOWS THAT THE ASSESSING OFFICER H AS NOT DISCUSSED ANYTHING IN THE ASSESSMENT ORDER. THE AS SESSING OFFICER HAS SIMPLY RESTRICTED THE CLAIM OF THE ASSESSEE TO 7.5% OF THE TOTAL INCOME. WE HAVE CAREFULLY GONE THROUGH THE PROVISI ONS OF SECTION 36(1)(VIIA) OF THE ACT. SECTION 36(1)(VIIA) OF THE ACT VERY CLEARLY SAYS THAT PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY A SCHEDULED BANK OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICUL TURAL CREDIT SOCIETY, AN AMOUNT NOT EXCEEDING 7.5% OF TOTAL INCO ME AND 10% OF AGGREGATE AVERAGE ADVANCE MADE BY RURAL BRANCH OF S UCH BANK, COMPUTED IN THE PRESCRIBED MANNER, CAN BE ALLOWED W HILE COMPUTING THE TOTAL INCOME. IN THE CASE BEFORE US, THE ASSESSING OFFICER ADMITTEDLY RESTRICTED THE CLAIM TO 7.5%. B UT, HE HAS NOT 4 I.T.A. NOS.654 & 655/MDS/16 CONSIDERED THE AGGREGATE AVERAGE ADVANCE MADE BY TH E RURAL BRANCHES OF THE ASSESSEE. SINCE THE ASSESSING OFFI CER HAS NOT CONSIDERED THE AGGREGATE AVERAGE ADVANCE MADE BY TH E RURAL BRANCHES AND THE CIT(APPEALS) ALSO HAS NOT DISCUSSE D ANYTHING ABOUT THE AGGREGATE AVERAGE ADVANCES MADE BY THE AS SESSEE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF THE AUTHO RITIES BELOW ARE SET ASIDE AND THE ISSUE WITH REGARD TO CLAIM OF DED UCTION UNDER SECTION 36(1)(VIIA) OF THE ACT IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REC ONSIDER THE ISSUE IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE O PPORTUNITY TO THE ASSESSEE. 5. THE NEXT GROUND OF APPEAL IS WITH REGARD TO PROV ISION FOR INVESTMENT DEPRECIATION RESERVE. 6. SHRI A.K. VENUGOPAL, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE CLAIMED PROVI SION FOR INVESTMENT DEPRECIATION RESERVE. THE ASSESSING OFF ICER WITHOUT CONSIDERING THE CLAIM OF THE ASSESSEE DISALLOWED TH E SAME. THE CIT(APPEALS) FOUND THAT PROVISION FOR INVESTMENT DE PRECIATION RESERVE MADE IN THE ACCOUNTS ARE NOT ELIGIBLE FOR D EPRECIATION. 5 I.T.A. NOS.654 & 655/MDS/16 ACCORDING TO THE LD. REPRESENTATIVE, INVESTMENT DEP RECIATION RESERVE IS NOTHING BUT A PROVISION FOR DIMINUTION I N THE VALUE OF INVESTMENT, THEREFORE, THE SAME IS ALLOWABLE UNDER SECTION 28 OF THE ACT. THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT WHEN THE INVESTMENT WAS MADE AS REQUIRED BY STATUTORY PROVIS ION AND THE MARKET PRICE FLUCTUATES, THE OPENING BALANCE AT THE END OF THE YEAR HAS TO BE ALLOWED AS DEPRECIATION. REFERRING TO TH E RESERVE BANK OF INDIA CIRCULAR, THE LD. REPRESENTATIVE SUBMITTED THAT ALL THE NON- SCHEDULED URBAN CO-OPERATIVE BANKS SHOULD HOLD THEI R ENTIRE SLR ONLY IN GOVERNMENT SECURITIES, THEREFORE, THE DIMIN UTION IN THE VALUE OF INVESTMENTS HAS TO BE ALLOWED UNDER SECTION 28 O F THE ACT WHILE COMPUTING THE TAXABLE INCOME. 7. ON THE CONTRARY, SHRI SHIVA SRINIVAS, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE IS TRAD ING IN INVESTMENTS, THEREFORE, NOT ELIGIBLE FOR DEPRECIATI ON. THE DEPRECIATION, AT THE BEST, MAY BE ALLOWED ONLY ON I NVESTMENTS AND NOT ON THE TRADING ASSET. THE ACTUAL EXPENDITURE I NCURRED BY THE ASSESSEE HAS TO BE ALLOWED WHILE COMPUTING TAXABLE INCOME. HOWEVER, ACCORDING TO THE LD. D.R., THE PROVISIONS ARE NOT ELIGIBLE FOR DEDUCTION. THE PROVISION AND RESERVE, ACCORDIN G TO THE LD. D.R., 6 I.T.A. NOS.654 & 655/MDS/16 ARE REQUIRED TO BE ADDED BACK TO THE NET PROFIT AND DEDUCTION, IF ANY, HAS TO BE ALLOWED ONLY UNDER SECTION 36(1)(VIIA) OF THE ACT. THEREFORE, ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE PROVISION MADE FOR INVESTMEN T DEPRECIATION RESERVE AND THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER THE INVESTMENT DEPRECIATION RESERVE COULD BE ALLOWED WHILE COMPUTING THE TAXABL E INCOME? THE ASSESSEE CLAIMS THAT IT IS A DIMINUTION IN THE VALU E OF INVESTMENT. THE INVESTMENT, ACCORDING TO THE LD. REPRESENTATIVE OF THE ASSESSEE, WAS MADE ON THE BASIS OF CIRCULAR OF THE RESERVE BANK OF INDIA. THESE INVESTMENTS WERE, ACCORDING TO THE LD . REPRESENTATIVE, MADE ONLY FOR EQUITY PURPOSE AND SHOULD NOT BE TREA TED AS CAPITAL ASSET. THE CIT(APPEALS) FOUND THAT PROVISION MADE FOR INVESTMENT DEPRECIATION RESERVE CANNOT BE ALLOWED WHILE COMPUT ING THE TAXABLE INCOME. REFERRING TO THE JUDGMENT OF MADRAS HIGH C OURT IN CIT V. CITY UNION BANK LTD. (2007) 291ITR 144, THE CIT(APP EALS) FOUND 7 I.T.A. NOS.654 & 655/MDS/16 THAT THIS JUDGMENT OF MADRAS HIGH COURT IS NOT APPL ICABLE TO THE CASE OF THE ASSESSEE. 9. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF M ADRAS HIGH COURT IN CITY UNION BANK LTD. (SUPRA). IN THE CASE BEFORE THE MADRAS HIGH COURT, THE ASSESSEE-BANK MADE INVESTMEN T AS REQUIRED BY THE STATUTORY PROVISION. WHEN THE MARK ET PRICE OF THE INVESTMENT FLUCTUATED FROM THE VALUE SHOWN IN THE O PENING BALANCE AT THE END OF THE YEAR, THE HIGH COURT FOUND THAT T HIS CAN BE ALLOWED AS DEPRECIATION. IN THE CASE BEFORE US, THE ASSESS EE CLAIMS THAT THE INVESTMENT WAS MADE AS REQUIRED BY THE STATUTORY PR OVISION. BUT, THE REVENUE CONTENDS THAT THE INVESTMENT WAS MADE I N THE COURSE OF TRADING, THEREFORE, FOR THE PURPOSE OF APPLYING THE JUDGMENT OF MADRAS HIGH COURT, IT HAS TO BE ASCERTAINED WHETHER THE INVESTMENT WAS MADE AS PER THE STATUTORY REQUIREMENT AND GUIDE LINES FRAMED BY RESERVE BANK OF INDIA OR IT WAS MADE IN THE COUR SE OF TRADING ACTIVITY. IF THE INVESTMENT WAS MADE AS REQUIRED B Y THE STATUTORY PROVISION, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE JUDGMENT OF MADRAS HIGH COURT IN CITY UNION BANK LT D. (SUPRA) IS SQUARELY APPLICABLE. SINCE THE FACTS NEED TO BE AS CERTAINED, THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND T HE MATTER IS 8 I.T.A. NOS.654 & 655/MDS/16 REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE ISSUE IN THE LIGHT OF THE MATERIAL THAT MAY BE FILED BY THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN THE LIGHT OF THE JUDGMENT OF MADRAS HIGH COURT IN CITY UNION BANK LTD. (SUPRA). 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 9 TH SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 9 TH SEPTEMBER, 2016. KRI. 1 /3#8 98+3 /COPY TO: 1. -. /APPELLANT 2. /0-. /RESPONDENT 3. ' :3 () /CIT(A)-13, CHENNAI 4. PRINCIPAL CIT-8, CHENNAI-34 5. 8; /3 /DR 6. * < /GF.