DCIT 1(3)(2), MUMBAI V. MALAD SAHAKARI BANK LTD, MUMBAI

ITA 813/MUM/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2358 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 06-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABDUL HAKEEM
• Keywords: Bad and doubtful debts; Revised return; Provision of bad debts
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI , JM ITA NO. 813/MUM/2015 ( ASSESSMENT YEAR : 2011 - 12 ) THE DY. COMMISSIONER OF INCOME TAX - 1(3)(2) ROOM NO.564, AAYAKAR BHAWAN, M.K. ROAD MUMBAI - 40 0 020 VS. THE MALAD SAHAKARI BANK LTD., 6, SUJATA, 1 ST FLOOR RANI SATI MARG, MALAD (E) MUMBAI 400 097 PAN/GIR NO. AAAAT0320R ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY MS. AARTI SATHE REVENUE BY SHRI ABDUL HAKEEM DATE OF HEARING 27 / 12 /201 8 DA TE OF PRONOUNCEMENT 08 / 03 /201 9 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY REVENUE AGAINST THE ORDER OF CIT(A) - 2, MUMBAI DATED 05/11/2014 FOR A.Y. 2011 - 12 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT, 1961. 2. FOL LOWING GROUNDS HAVE BEEN TAKEN BY THE REVENUE: - I. 'WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED IN DELETING DISALLOWANCE OF RS.1,45,76,192/ - BEING BAD DEBT WRITTEN OFF IGNORING THE FACT THAT PROVI SO TO SECTION 36(L)(VII) WAS ATTRACTED TO THE FACTS OF THE CASE, ASSESSEE BEING ELIGIBLE TO DEDUCTION UNDER SECTION 36(L)(VIIA) OF THE ACT?' II. 'WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) OUGHT TO HAVE CONFIRMED THE DISALLOWANCE OF RS. 1,45,76,1 92/ - AS DEDUCTION FOR BAD DEBT CAN BE ALLOWED UNDER SECTION THE MALAD SAHAKARI BANK LTD., 2 36(L)(VII) ONLY IF BAD DEBTS WRITTEN OFF EXCEEDS CREDIT BALANCE IN THE PROVISION ACCOUNT CREATED U/S 36(L)VIIA) OF THE I.T. ACT.' T HE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR WITHDRAW THE AFORESAID GROUNDS OF APPEAL. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS A CO - OPERATIVE BANK, E - FILED ITS RETURN OF INCOME ON 24.09.2011 FOR A.Y.2011 - 12 DE CLARING A LOSS OF RS. 72,68,639/ - SUBSEQUENTLY, THE A SSESSEE E - FILED REVISED RETURN OF INCOME ON 27.09.2011 DECLARING LOSS AT RS. 72,68,639/ - . AN ASSESSMENT ORDER U/S. 143(3) OF THE INCOME - TAX ACT, 1961 WAS PASSED ON 24.01.2014 AND THE TOTAL INCOME WA S DETERMINED AT RS.1,53,63,410/ - UNDER NORMAL PROVISIONS OF THE ACT. IN THE ASSESSMENT ORDER, THE FOLLOWING ADDITIONS/DISALLOWANCES WERE MADE: (I) CLAIM OF BAD DEBT S WRITTEN OFF : RS. 1,45,76,192/ - (II) 5% OF DOUBTFUL AN D LOSS ASSETS : RS. 56,87,250/ - (III) DISALLOWANCE U/S. 14A R.W. RU LE 8D : RS. 23,68,607/ - 4. AGAINST THE ABOVE ADDITION ASSESSEE APPROACHED TO THE CIT(A). BY THE IMPUGNED ORDER, CIT(A) DELETED ADDITION OF RS.1,35,07,547.56 U/S.36(1)(VII) IN RESPECT OF BAD DEBTS WRITTEN OFF U/S.36(1)(VII), AND AMOUNTING TO RS. 10,68,644 / - U/S.36(1)(VIIA) OF THE ACT . AGAINST THIS DELETION, REVENUE IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT ADDITION MADE ON ACCOUNT OF BAD DEBTS WRITTEN OFF CLAIMED U/S.36(1)(VII) DELETED BY CIT(A) AFTER HAVING FOLLOWING OBSERVATION: - THE MALAD SAHAKARI BANK LTD., 3 4.1. THE FACTS OF THE CASE, THE STAND TAKEN BY THE A.O. IN THE ASSESSMENT ORDER AND THE CONTENTIONS RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE OF THE APPE LLANT COMPANY DURING THE APPELLATE PROCEEDINGS AS WELL AS THE WRITTEN SUBMISSIONS MADE ARE CONSIDERED. THE AO IN THE ASSESSMENT ORDER HAS REFERRED TO THE CREDIT BALANCES IN THE BDDR A/C. HOWEVER, AS EXPLAINED BY THE APPELLANT, THE SAID BALANCES REPRESENT T HE PROVISIONS MADE, IN ACCORDANCE WITH THE RBI GUIDELINES AND THEY DO NOT REPRESENT THE PROVISIONS CREATED U/S. 36(L)(VIIA) OF THE ACT. THE AO HAS WRONGLY CONSIDERED THE PROVISIONS CREATED, AS PER THE RBI GUIDELINES, AS PROVISIONS CREATED U/S. 36(L)(VIIA) OF THE ACT AND ON THAT BASIS DISALLOWED THE CLAIM U/S. 36(L)(VII) OF THE ACT. 4.2. THE LD. AR OF THE APPELLANT HAS FURNISHED THE DATA WITH REGARD TO THE PROVISIONS ALLOWED U/S. 36(L)(VIIA) AND BAD DEBTS ALLOWABLE AS A DEDUCTION U/S. 36(L)(VII) OF THE ACT IN RESPECT OF THE AY 2007 - 08 TO 2011 - 12. IT IS EVIDENT FROM THE FACTS OF THE CASE THAT THE APPELLANT HAS ZERO CREDIT BALANCE IN THE PROVISION ACCOUNT CREATED U/S. 36(L)(VIIA) OF THE ACT. DURING THE YEAR THE APPELLANT HAS CREATED A PROVISION OF RS. 10,68,6 44/ - U/S. 36(L)(VIIA) OF THE ACT. IT IS NOT IN DISPUTE THAT THE QUANTUM OF BAD DEBTS WRITTEN OFF IN THE P&L A/C. IS RS. 1,45,76,192/ - IN RESPECT OF THE RELEVANT PREVIOUS YEAR. SINCE THE PROVISION OF RS. 10,68,644/ - IS CREATED IN ACCORDANCE WITH THE SECTION U/S.36(L)(VIIA) OF THE ACT, THE SAME IS ADMISSIBLE AS A DEDUCTION. HOWEVER, THE BAD DEBTS WRITTEN OFF U/S. 36(L)(VII) OF THE ACT HAVE TO BE ALLOWED ONLY TO THE EXTENT IT EXCEEDS THE PROVISION U/S, 36(L)(VIIA) OF THE ACT. \ ACCORDINGLY, THE APPELLANT IS EN TITLED TO A FURTHER DEDUCTION OF RS. : 1,35,07,5487 - U/S. 36(L)(VII) OF THE ACT. AO IS HEREBY DIRECTED TO ALLOW THE DEDUCTIONS OF RS. 10,68,644/ - AND RS. 1,35,07,548/ - U/S. 36(L)(VIIA) AND 36(L)(VII) OF THE ACT RESPECTIVELY. 6. FROM THE RECORD WE FOUND THAT THE LD ASSESSING O FFICER DISALLOWED THE CLAIM OF B AD DEBTS OF RS. 1,45,76,192/ - STATING THAT THE ASSESSEE BANK HAS NULLIFIED THE EFFECT OF WRITING OFF OF B AD DEBTS BY WRITING BACK OF THE DEBT & THEREFORE, IN REALITY THE A SSESSEE HAS NO T WRITTEN ANY BA D DEBTS IN ITS BOOKS OF ACCOUNTS AS REQUIRED UNDER INCOME TAX ACT 196 1 . THE AO FURTHER MENTIONED THAT THE BAD DEBTS DEDUCTION CAN BE CLAIMED U/S THE MALAD SAHAKARI BANK LTD., 4 36( 1 )(VII) IF BAD DEBTS WRITTEN OFF EXCE EDS THE AMOUNT OF PROVISION OF BAD & D OUBTFUL DEBTS, AND IN THIS CASE T HE ASSESSEE IS HAVING SUFFICIENT BALANCE IN THE PROVISION OF B AD & D OUBTFUL DEBTS AND HENCE DEDUCTION U/S 36(L) (VII) WAS NOT ALLOWED . WE FIND THAT AO HAS WRONGLY APPRECIATED THE FACTS IN SO FAR AS ASSESSEE BAN K HAS WRITTEN BACK RESERVE FOR BAD & D OUBTFUL D EBTS OUT OF THE CREDIT BALANCE OF OTHER R ESERVE FOR B AD & D OUBTFUL DEBTS WHICH HAS BEEN CREATED AS PER THE RBI GUIDELI NES APART FROM THE RESERVE FOR B AD & D OUBTFUL DEBTS CREATED U/S 36(L)(VIIA). SINCE THE ASSESSEE IS A CO - OPERATIVE BANK TO WHOM THE BENEFIT OF THE PROVISION OF SEC 36(L)(VIIA) WAS EXTENDED BY FINANCE ACT 2007 I.E. FROM AY 2007 - 08 WHICH DEAFLY MEANS THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM BENEFIT UNDER THE PROVISION OF SEC 36(L)(VIIA) PRIOR TO AY 2007 - 08. THUS IN RESPECT OF R ESERVE FOR B AD & D OUBTFUL DEBTS CREDITED IN THE PROFIT & LOSS ACCOUNT, THE APPELLANT HAS NOT CLAIMED ANY BENEFIT AS PER THE IN COME TAX ACT IN EARLIER YEARS. A S PER NORMAL ACCOUNTING PROCEDURE WHENEVER THERE ARE ACTUAL BAD DEBTS WRITTEN OFF IN THE BOOKS OF ACCOUNTS EQUIV ALENT AMOUNT HAS TO BE TRANSFERRED FROM THE PROVISION WHICH HAS BEEN CREATED ON YEAR TO YEAR BASIS AS PER RBI GUIDELINES. OWING TO THIS, THE ASSESSEE HAS BEEN TRANSFERRED EQUIVALENT AMOUNT WRITTEN OFF AS BAD DEBTS FROM THE PROVISION ACCOUNT CREATED EARLIER . ACCORDINGLY THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE & BALANCE SHEET CONSISTS OF B AD DEBTS - WRITTEN OFF ON DEBIT SIDE & BAD D EBTS PROVISION WRITTEN BACK ON CREDIT SIDE. THE STARTING POINT OF THE COMPUTATION OF TOTAL INCOME IS THE NET PROFIT WHICH IS AS SESSED AF TER THE MALAD SAHAKARI BANK LTD., 5 CONSIDERING BAD DEBTS WRITTEN OFF& BAD DEBTS PROVISION WRITTEN BACK WHICH DEPICTS THAT THE BAD DEBTS WRITTEN OFF HAS NOT BEEN CONSIDERED. ACCORDINGLY BAD DEBTS HAS BEEN SEPARATELY CLAIMED IN THE COMPUTATION OF TOTAL INCOME AS PER THE PROVISION OF SEC 36(1) (VII) OF THE INCOME TAX ACT. THERE HAS BEEN BAD DEBTS WRITTEN OFF DURING THE YEAR EVEN THE LD ASSESSING OFFICER HAS NOT DENIED THIS FACT. SINCE BAD DEBTS HAS BEEN WRITTEN OFF DURING THE YEAR, THE APPELLANT SHALL GET THE DEDUCTION AS PER THE P ROVISIONS OF SEC 36(1) (VII) OF THE INCOME TAX ACT. 7. SINCE THE BAD DEBTS WRITTEN OFF IS ALLOWABLE AS DEDUCTION U/S.36(1)(VII) TO THE EXTENT IT EXCEEDS CREDIT BALANCE IN THE PROVISION OF BAD AND DOUBTFUL DEBTS, THE ASSESSEE BANK IS ELIGIBLE FOR DEDUCTION OF RS.1,35,07,547.56/ - U/S. 36(1)(VII) OF THE IT ACT AND OF RS.10,68,644/ - U/W. 36(1)(VII) OF THE ACT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. IN VIEW OF THIS FACTUAL POSITION, CIT(A) HAS CORRECTLY HEL D THAT ASSESSEE IS ENTITLED TO DEDUCTION OF RS.1 ,35,07,548/ - U/S.36(1)(VII) AND OF RS.10,68,644/ - U/S.36(1)(VIIA) OF THE IT ACT. A DETAILED FINDING SO RECORDED BY CIT(A) ARE AS PER MATERIAL ON RECORD, WHICH HAS NOT BEEN CONTROVERTED BY LD. DR BY BRINGING ANY POSITIVE MATERIAL ON RECORD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A) FOR HOLDING THAT ASSESSEE IS ENTITLED FOR DEDUCTION OF RS.1,35,07,548/ - U/S.36(1)(VII) OF THE IT ACT. THE MALAD SAHAKARI BANK LTD., 6 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED BY LISTING THE RESULT ON THE NOTICE BOARD OF THE BENCH UNDER RULE 34(4) OF THE APPELLATE TRIBUNAL RULES, 1963. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 08 / 03 /201 9 SD/ - ( RAM LAL NEGI ) SD/ - (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 08 / 03 /201 9 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//