State Bank of Hyderabad, Hyderabad V. Addl.CIT., Range-3, Hyderabad, Hyderabad

ITA 86/HYD/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98503 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 19-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 20-01-2015
• Court: TRIBUNAL
• Department Lawyers: S V S S PRASAD
• Assessee Lawyers: MRS LALITHA RAMESWARAN
• 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 B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 86/HYD/2015 ASSESSMENT YEAR: 2010-11 STATE BANK OF HYDERABAD HYDERABAD [PAN: AADCS4009H] VS THE ADDL. COMMISSIONER OF INCOME TAX, RANGE-3, HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : MRS. LALITHA RAMESWARAN, AR FOR REVENUE : SHRI S.V.S.S. PRASAD, DR DATE OF HEARING : 19-08-2015 DATE OF PRONOUNCEMENT : 23-09-2015 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF COMMISSIONER OF INCOME TAX-III, HYDERABAD DATED 31- 01-2014 U/S. 263 OF THE INCOME TAX ACT, 1961 [ACT] FOR THE AY. 2010- 11. 2. ASSESSEE IS A SUBSIDIARY OF STATE BANK OF INDIA AND IS CARRYING ON THE BUSINESS OF BANKING. IT FILED ITS RETURN OF INC OME ON 24-09-2010 DECLARING INCOME OF RS. 1053,47,72,655/-. ASSESSMEN T U/S. 143(3) WAS COMPLETED BY ORDER DATED 18-02-2013 DETERMINING TOT AL INCOME AT RS 1792,35,42,999. LD. CIT-III CALLED FOR THE RECORDS AND RAISED SOME ISSUES, INTER ALIA, ONE BEING CLAIM OF DEDUCTION OF RS.75.03 CRORES I.T.A. NO. 86/HYD/2015 STATE BANK OF HYDERABAD :- 2 -: STATING THAT ALLOWANCE OF THIS AMOUNT HAS RESULTED IN DOUBLE DEDUCTION BOTH UNDER SECTION 36(1)(VII) AND 36(1)(VIIA) OF THE ACT. IT WAS SUBMITTED BY ASSESSEE BANK THAT CLAIM OF NON-RURAL DEBTS TO A N EXTENT OF RS 75.03 HAS NOT BEEN ADJUSTED AGAINST THE PROVISION ALLOWED UNDER SECTION 36(1)(VIIA) , SINCE THE PROVISION IS APPLICABLE ONLY TO RURAL ADV ANCES AND NOT TO NON-RURAL ADVANCES (URBAN ADVANCES). ASSESSE E RELIED 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 PR OVISO TO SECTION 36(1)(VII) CONTROLS ONLY RURAL DEBTS AND NOT NON-R URAL DEBTS. HOWEVER, LD. CIT , NEGATED THE STATEMENTS OF THE ASSESSEE BANK AND DI RECTED THE A.O. TO EXAMINE THE ISSUE AND RE-DO THE ASSESSMENT ACCORDINGLY, AFTER ANALYZING THE PROVISIONS OF SECTION 36(1)(VII) AND 36(1)(VIIA), AND 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, AS ASSESSEE HAS CON SENTED FOR ADJUSTING LOSSES ON SALE OF LAND AND BUILDING, ANOTHER ISSUE RAISED BY THE LD. CIT- III AQND LEVY OF INTEREST U/S 115P. THEREFORE, THE ISSUE IS CONFINED ONLY TO THE CLAIM OF BAD DEBT OF AN AMOUNT OF RS 75.03 CROR ES 3. IN ORDER TO APPRECIATE THIS ISSUE, IT IS NECESSA RY TO EXTRACT ORDER OF AO U/S. 143(3) DATED 18-02-2013 WHEREIN THE CLAIM O F PROVISION FOR BAD AND DOUBTFUL DEBTS WAS ANALYSED BY AO AS UNDER : 5. PROVISION FOR BAD AND DOUBTFUL DEBTS 5.1 UNDER THE EXISTING PROVISIONS U/S. 36(1)(VIIA ) OF THE INCOME TAX ACT, 1961, A PROVISION FOR BAD AND DOUBT FUL DEBTS MADE BY BANKS IS ALLOWED AS A DEDUCTION TO THE EXTE N T OF I.T.A. NO. 86/HYD/2015 STATE BANK OF HYDERABAD :- 3 -: (I) 7.5% FROM THE GROSS TOTAL INCOME AND (II) 10% OF AGGREGATE AVERAGE RURAL ADVANCES MADE B Y THEM. 5.2 THE ASSESSEE BANK HAS MADE THE FOLLOWING CLAI MS 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. 75,02,52,299 DEDUCTION U/S.36(1 )(VIIA) BAD AND DOUBTFUL DEBTS @ 7.5% OF TOTAL INCOME RS.117,62,12,350 RURAL BRANCH ADVANCES @10% OF THE AGGREGATE AVERAGE ADVANCES BASED ON CENSUS PUBLISHED IN 2011 RS.319,08,16,137 TOTAL RS.436,70,28,487 5.3. ASSESSEE WAS ASKED TO SHOW CAUSE HOW IT IS EL IGIBLE 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 ADVANCE S ONLY TO THE EXTENT OF RS.75.02 CRORE. WE ARE FORGOING RS .13.39 CRORES RURAL BAD DEBTS WRITTEN OFF. BANK'S CONTENTI ON 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 CLAI MED DEDUCTION IN RESPECT OF BAD DEBTS WRITTEN OFF AT NO N-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). 5.5. IN RESPECT OF DEDUCTION UNDER SECTION 36(I)(V II) IS CONCERNED THE ASSESSEE HAS WRITTEN OFF AN AMOUNT OF RS.88.41 CRORES IN ITS BOOKS OF ACCOUNT TOWARDS BAD DEBTS I.T.A. NO. 86/HYD/2015 STATE BANK OF HYDERABAD :- 4 -: INCLUDING RS.75.02 CRORES FOR NON RURAL ADVANCES. A S 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 PROV ISO TO CLAUSE (VII), WHICH MEANS THE BAD DEBTS ACTUALLY WR ITTEN OFF IN THE ACCOUNTS OF BANK REPRESENTING URBAN ADVANCES IS AN ALLOWABLE DEDUCTION. FOLLOWING THE SUPREME COURT JU DGMENT THE CLAIM UNDER SECTION 36(I)(VII) IS ALLOWED AT RS . 75,02,52,299. 5.6. REGARDING DEDUCTION UNDER SECTION 36(I)(VIIA) THE ASSESSEE HAS SUBMITTED THAT DEDUCTION U/S 36(I)(VI IA) HAS BEEN CLAIMED AT RS.436,70,28,487 RELYING UPON THE INTERPRETATION WHICH HAS BEEN UPHELD BY THE BANGALO RE 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 EV IDENT THAT ASSESSEE HAD MADE A PROVISION OF RS. 134.77 CRORES TOWARDS BAD AND DOUBTFUL DEBTS FAR ASST. YEAR 2010- 11. DEDUCTION U/S.36(1)(VIIA) IS ALLOWABLE, SUBJECT TO O THER CONDITION, PROVIDED, THE ASSESSEE MAKES A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNTS. ON THI S ISSUE, HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF STATE BANK OF PATIALA VS. CIT (272 ITR 54) HELD THAT IT I S NECESSARY TO MAKE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN T HE ACCOUNT BOOKS IN THE SAME PREVIOUS YEAR IN WHICH SU CH PROVISION IS CLAIMED AS DEDUCTION U/S.36(1)(VIIA). THIS MEANS ONLY TO THE EXTENT THE PROVISION IS MADE IN THE ACC OUNTS OF THE YEAR, DEDUCTION COULD BE ALLOWED. 5.8. SINCE PROVISION OF RS.137.52 CRORES ONLY HAS BEEN MADE FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACC OUNTS FOR THE YEAR ENDING 31.03.2011, DEDUCTION CLAIMED U /S. 36(1)(VIIA) I.E., THE CLAIM OF THE PROVISIONS FOR B AD AND DOUBTFUL DEBTS AND PROVISION FOR RURAL BRANCH ADVAN CES IS RESTRICTED TO RS. 137.52 CRORES AND THE BALANCE AMO UNT OF RS.299,18,28,487 (RS. 436,70,28,487 - RS.137,52,00,000) DISALLOWED AND ADDED TO INCOME RETURNED. ADDITION: RS. 299,18,28,487. 3.1 THUS, AS CAN BE SEEN, THE CONTENTION OF THE ASS ESSEE THAT IT HAS CLAIMED AN AMOUNT OF RS.75.03 CRORES OUT OF URBAN A DVANCES WAS EXAMINED BY THE AO AND ALLOWED AS SUCH AS VALID. A S SUBMITTED BEFORE THE AUTHORITIES, THE TOTAL BAD DEBTS WRITTEN OFF IN THE BOOKS OF ACCOUNTS I.T.A. NO. 86/HYD/2015 STATE BANK OF HYDERABAD :- 5 -: STANDS TO THE TUNE OF RS. 88.41 CRORES. AO ALLOWED RS.75.03 AS DEDUCTION U/S 36(1)(VII) BEING NON-RURAL ADVANCES W RITTEN OFF. BALANCE AMOUNT OF RS.13.39 CRORES PERTAINING TO RURAL ADVAN CES WAS NOT CLAIMED, AS THE SAME WAS COVERED BY THE PROVISO TO SECTION 3 6(1)(VII). WHAT ASSESSEE HAS CLAIMED IN THE BOOKS OF ACCOUNTS AND W HAT AO HAS ALLOWED IN THE ORDER U/S. 143(3) WAS THE BAD DEBT CLAIM OF NON-RURAL BRANCH ADVANCES UNDER SECTION 36(1)(VIIA) I.E.. BAD AND DO UBTFUL DEBTS AT 7.5% OF THE TOTAL INCOME AND 10% OF THE AGGREGATE RURAL ADV ANCES, SUBJECT TO THE PROVISION MADE IN BOOKS OF ACCOUNT. THEREFORE, AO H AS CORRECTLY ALLOWED THE AMOUNT OF RS.75.03 CRORES IN THE ORDER UNDER SE CTION 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 T HE CLAIM OF PROVISION UNDER SECTION 36(1)(VIIA) ON RURAL ADVANCES WITH TH AT OF ACTUAL BAD DEBT OF URBAN ADVANCES CLAIMED UNDER SECTION 36(1)(VII). SINCE THESE TOO STAND ON A DIFFERENT FOOTING AND AS HONBLE SUPREME COURT HAS ALREADY CLARIFIED THE ISSUE IN THE ABOVE SAID CASE OF CATHO LIC 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 ISSUE WAS ALREADY EXAMINED BY THE AO AND ALLOWED AND THIS ORD ER WAS SUBJECT MATTER OF APPEAL. CONSEQUENTLY, PRESENT OPINION BY THE LD. CIT-III WOULD BE CONSIDERED AS A CHANGE OF OPINION. 4. SIMILAR ISSUE WAS CONSIDERED BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR AY. 2011-12 IN ITA NO. 597/ HYD/2014 DT. 13- 08-2014, WHEREIN ALSO ON SIMILAR FACTS, IT WAS HELD THAT CIT CANNOT INVOKE THE JURISDICTION U/S. 263 IN THAT YEAR. BE THAT AS IT MAY, THE CONTENTION OF THE LD. CIT-III DOES NOT STAND TEST O F THE JUDICIAL PRINCIPLES AND ALSO ON FACTS. IN VIEW OF THIS, WE CANNOT UPHOL D THE DIRECTION GIVEN BY THE LD. CIT-III TO RE-EXAMINE THE ISSUE AS THE O RDER OF AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERESTS OF REVEN UE, TWIN CONDITIONS WHICH ARE REQUIRED TO BE SATISFIED FOR INVOKING THE POWERS U/S 263. THE I.T.A. NO. 86/HYD/2015 STATE BANK OF HYDERABAD :- 6 -: ORDER OF THE LD. CIT-III TO THAT EXTENT STANDS SET ASIDE. ASSESSEES GROUNDS ARE ALLOWED. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER, 2015 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 23 RD SEPTEMBER, 2015 TNMM COPY TO : 1. DEPUTY GENERAL MANAGER, STATE BANK OF HYDERABAD, FINANCE & ACCOUNTS DEPT., HYBANK TOWERS, HEAD OFFICE, GUNFO UNDRY, HYDERABAD. 2. THE ADDL. COMMISSIONER OF INCOME TAX, RANGE-3, INCOME TAX TOWERS, AC GUARDS, HYDERABAD. 3. CIT-III, HYDERABAD. 4. D.R. ITAT, HYDERABAD. 5. GUARD FILE.