DEUTSCHE BANK AG, MUMBAI V. DDIT (IT) RG 1(2), MUMBAI

ITA 8702/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100960 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 17-03-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 13-12-2010
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Bad and doubtful debts; Reason to believe
• Section: 143(3); 147; 148

Judgement Text

1 L IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI SANJAY GARG, JUDICIAL MEMBER I.T.A. NO.8702/M/2010 (AY: 2003 - 2004) DEUTSCHE BANK AG, BLOCK B 1, NIRON KNOWLEDGE PARK, WESTERN EXPRESS HIGHWAY, GOREGAON (E), MUMBAI - 63. / VS. DDIT (IT) RANGE 1(2), SCINDIA HOUSE, NAROTTAM MORARJEE MARG, BALLARD ESTATE, MUMBAI - 400 038. ./ PAN : AACD1390F ( / APPELLANT) .. ( / RESPONDENT ) I.T.A. NO.463/M/2011 (AY: 2003 - 2004) DDIT (IT) RANGE 1(2), SCINDIA HOUSE, NAROTTAM MORARJEE MARG, BALLARD ESTATE, MUMBAI - 400 038. / VS. DEUTSCHE BANK AG, BLOCK B 1, NIRON KNOWLEDGE PARK,WESTERN EXPRESS HIGHWAY, GOREGAON (E), MUMBAI - 63. ./ PAN : AACD1390F ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI P.J. PARDIWALLA & MR. NIRAJ SHETH / REVENUE BY : SHRI PANKAJ KUMAR, SR. AR / DATE OF HEARING : 19.8.2015 / DATE OF PRONOUNCEMENT : 3 1 .8.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS. THESE TWO APPEALS ARE FILED AGAINST THE ORDER OF THE CIT (A) - 10, MUMBAI DATED 7.10.2010 FOR THE ASSESSMENT YEAR 2003 - 2004. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE CONNECTED, T HEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, 2 HEARD COMBINEDLY AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. ITA NO.8702/M/2010 (BY ASSESSEE) 2. IN THIS APPEAL, ASSESSEE RAISED VARIOUS GROUNDS (19 GROUNDS IN TOTO) AND GROUND NO.1 RELATES TO THE LEGAL GROUND AND IS ON THE VALIDITY OF THE RE - ASSESSMENT PROCEEDINGS U/S 147 / 148 OF THE ACT. THE SAID LEGAL GROUND READS AS UNDER: 1. THE CIT (A) ERRED IN UPHOLDING TH E RE - OPENING UNDER 147 OF THE ACT. 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE, BEING A BANK, ENGAGED IN THE BUSINESS OF BANKING AND FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 3,59,50,85,948/ - WHICH IS SUBSEQUENTL Y REVISED AND THE TOTAL INCOME WAS DECLARED AT RS. 3,60,56,47,060/ - . INITIALLY, AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT ON 24.3.2006 AND THE ASSESSED INCOME WAS DETERMINED AT RS. 3,69,61,95,105/ - . SUBSEQUENTLY, AO ISSUED U/S NOTICE U/S 148 OF T HE ACT ON 28/3/2008 TO REOPEN THE ABOVE COMPLETED REGULAR ASSESSMENT, MADE U/S 143(3) OF THE ACT. AO RECORDED THE REASONS BEFORE ISSUE OF THE SAID NOTICE AND SAID REASONS RECORDED READ AS UNDER: - AS PER THE PROVISIONS CONTAINED IN SECTION 36(1)(VII) R. W.S 36(2)(V) OF THE INCOME TAX ACT, 1961, IN THE CASE OF BANKS, NO DEDUCTION TOWARDS BAD DEBTS SHALL BE ALLOWABLE UNLESS THE ASSESSEE HAS DEBITED THE AMOUNT OF SUCH DEBT IN THE PREVIOUS YEAR TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THE PROVISIONS OF SECTION 36(1)(VIIA). IN OTHER WORDS, WHERE THE AMOUNT OF BAD DEBT WRITTEN OFF DURING THE PREVIOUS YEAR EXCEEDS THE AMOUNT OF PROVISIONS ALLOWABLE U/S 36(1)(VIIA), NO SE PARATE DEDUCTION U/S 36(1)(VIIA) SHALL BE ALLOWED. RETURN FILED BY THE ASSESSEE FOR THE AY 2003 - 2004 WAS ASSESSED U/S 143(3) ON 24.3.2006. IN THE COMPUTATION OF INCOME, ASSESSEE WAS ALLOWED A DEDUCTION OF RS. 5,55,29,072/ - TOWARDS BAD DEBTS AFTER ADJUSTI NG THE OPENING BALANCE OF RS. 19,91,59,403/ - LYING IN THE PROVISION FOR DOUBTFUL DEBTS ACCOUNT. IT IS SEEN FROM THE ASSESSMENT ORDER THAT IN ADDITION TO BAD DEBTS AS CLAIMED IN THE RETURN , ASSESSEE WAS ALSO ALLOWED A FURTHER DEDUCTION OF RS. 19,45,45,927/ - AS PROVISION FOR DOUBTFUL DEBTS U/S 36(1)(VIIA). SINCE, THE ASSESSEE WAS ALLOWED BAD DEBTS AMOUNTING TO RS. 5,55,29,072/ - , THE PROVISION U/S 36(1)(VIIA) SHOULD HAVE BEEN ALLOWED ONLY T THE EXTENT OF BALANCE AMOUNT OF RS. 13,90,16,855/ - (RS. 19,45,45,927 RS. 5,55,29,072 ). THIS HAD RESULTED IN UNDER ASSESSMENT OF INCOME TO THE EXTENT OF RS. 5,55,29,072/ - INVOLVING SHORT LEVY OF TAX OF RS. 3,33,22,210/ - @ 40%. ACCORDINGLY, I HAVE REASON TO BELIEVE THAT INCOME TO THE EXTENT OF RS. 13,90,16,855/ - HAS ESCA PED ASSESSMENT FOR WHICH NOTICE U/S 148 IS ISSUED. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY R A I S I N G T H E L E G A L I S S U E R E L A T I N G T O T H E V A L I D I T Y O F R E - A S S E S S M E N T . 3 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE, CIT (A) DISMISSED THE APPEAL. PARAS 1.4 TO 1.4.3 OF THE IMPUGNED ORDER ARE RELEVANT IN THIS REGARD. AGGRIEVED WITH THE SAID DECISION OF THE CIT (A), ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL BY RAISING THE LEGAL GROUND CONTENDING THE VALID ITY OF THE RE - OPENING OF THE ASSESSMENT. 5. DURING THE PROCEEDINGS BEFORE US, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE READ OUT THE ABOVE STATED REASONS AND MENTIONED THAT AO MADE ERROR OF UNDERSTANDING THE PROVISIONS OF SECTION 36(1)(VII) AND 36(1)(VI IA) OF THE ACT. READING THE SECOND SENTENCE OF THE PARA 1 OF THE SAID REASONS, LD COUNSEL DEMONSTRATED THAT AO IS OF THE WRONG UNDERSTANDING OF LAW THAT THE DEDUCTION U/S 36(1)(VII) IS RESTRICTED TO THE PROVISION FOR BAD DEBTS. THE SAID SECTION IS EXTRAC TED AS FOLLOWS: - .......IN OTHER WORDS, WHERE THE AMOUNT OF BAD DEBT WRITTEN OFF DURING THE PREVIOUS YEAR EXCEEDS THE AMOUNT OF PROVISIONS ALLOWABLE U/S 36(1)(VIIA), NO SEPARATE DEDUCTION U /S 36(1)(VIIA) SHALL BE ALLOWED . 6. FURTHER, BRINGING OUR ATTENTION TO THE RELEVANT PROVISIONS OF THE ACT, LD COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE S A I D PROVISION SPEAKS OTHERWISE. HE READ OUT THE RELEVANT PROVISIONS AND THE SAME IS EXTRACTED AS UNDER: SEC. 36(1)(VII) : - SUBJECT TO THE PROVISIONS OF SUB - SECTION (2), THE AMOUNT OF [ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR]; [PROVIDED THAT IN THE CASE OF [AN ASSESSEE] TO WHICH CLAUSE (VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELATIN G TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE] 7. FROM THE ABOVE, LD COUNSEL FOR THE ASSESSEE EXP LAINED THAT AS PER THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, THE AMOUNT OF ANY BAD DEBT OR PART THEREOF IS ALLOWABLE SUBJECTED TO CERTAIN C O N D I T I O N S . HOWEVER, THE PROVISO SPECIFIES THAT, THE ASSESSEE BEING THE BANK, COVERED BY THE PROVISIONS OF CLAUSE - (VIIA) OF SECTION 36(1), THE AMOUNT OF ALLOWABLE DEDUCTION ON ACCOUNT OF BAD DEBTS / PART THEREOF IS LIMITED U/S 36(1)(VIIA) TO EXCESS OF THE CREDIT BALANCE OF THE PROVISIONS. THIS PROVISION OF PROVISO IS NOT PROPERLY UNDERSTOOD BY THE AO. THEREFO RE, THE RE - OPENING IS THE PRODUCT OF THE UNSUSTAINABLE UNDERSTANDING OF THE AO. 8. IN THIS REGARD, LD AR BROUGHT OUR ATTENTION TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AGROVET VS. DCIT [2010] 323 ITR 97 AND ANOTHER JUDGMENT OF THE SAME HIGH COURT IN THE CASE OF PRASHANT S. JOSHI & 4 DATTARAM SHRIDHAR BHOSALE VS. ITO AND ANOTHER [2010] 324 ITR 154 (BOM) AND SUBMITTED THAT THE RE - OPENING OF THE ASSESSMENT IS UNSUSTAINABLE IF THE SAME IS BASED ON UNSUSTAINABLE LA W. 9. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED ON RECORD. ON HEARING BOTH THE PARTIES, WE FIND M ERIT IN THE ARGUMENT OF THE LD COUNSEL FOR THE ASSESSEE AS PER THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, THE AMOUNT OF ANY BAD DEBT OR PART THEREOF IS ALLOWABLE SUBJECTED TO CERTAIN CONSIDERATION. HOWEVER, THE PROVISO SPECIFIES THAT, THE ASSESSEE B EING THE BANK, COVERED BY THE PROVISIONS OF CLAUSE - (VIIA) OF SECTION 36(1), THE AMOUNT OF ALLOWABLE DEDUCTION ON ACCOUNT OF BAD DEBTS / PART THEREOF IS LIMITED U/S 36(1)(VIIA) TO EXCESS OF THE CREDIT BALANCE OF THE PROVISIONS. FURTHER, THE RATIO LAID DOWN IN THE CASES OF GODREJ AGROVET (SUPRA) AND ANOTHER JUDGMENT OF THE SAME HIGH COURT IN THE CASE OF PRASHANT S. JOSHI & DATTARAM SHRIDHAR BHOSALE (SUPRA) ARE ALSO IN SUPPORT OF THE ASSESSEES CONTENTION THAT THE REOPENING OF THE ASSESSMENT IS UNSUSTAINABLE IF THE SAME IS BASED ON WRONG / UNSUSTAINABLE LAW. CONSIDERING THE ABOVE FACTUAL MATRIX OF THE CASE AS WELL AS THE SETTLED POSITION OF LAW ON THE ISSUE OF RE - OPENING OF THE ASSESSMENT, IN OUR OPINION, THE ASSESSEE SUCCEEDS IN THE LEGAL GROUND. ACCORDINGL Y, GROUND NO.1 RA ISED BY THE ASSESSEE IS ALLOWED . 11. CONSIDERING OUR DECISION ON THE LEGAL ISSUE INVOLVED IN GROUND NO.1, THE ADJUDICATION OF THE OTHER GROUNDS BECOMES ACADEMIC EXERCISE. ACCORDINGLY, GROUND NOS. 2 TO 19 RAISED BY THE ASSESSEE ARE DISMISS ED AS ACADEMIC. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . ITA NO.436/M/2011 (BY REVENUE) 13. THIS APPEAL FILED BY THE REVENUE ON 17.1.2011 IS AGAINST THE SAID ORDER OF THE CIT (A) - 10, MUMBAI. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD CIT (A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO SET - OFF OPENING PROVISIONS FOR BAD AND DOUBTFUL DEBTS IGNORING THE CLOSING CARRIED FORWARD BALANCE CONSIDERED BY THE ASSESSING OFFICER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WH ETHER THE LD CIT (A) WAS JUSTIFIED IN HOLDING THAT THE PROVISION OF SECTION 234D WAS APPLICABLE FROM AY 2004 - 2005, WHEN IT WAS DECLARED EFFECTIVE FROM 1.6.2003 AND DID NOT DEAL WITH COMPUTATION OF TOTAL INCOME OR THE RATE OF THE TAX THEREON, AND DEALT WITH ONLY 5 LIABILITY TO INTEREST ON REFUND ALLOWED U/S 143(1) FOUND TO HAVE BEEN ALLOWED IN EXCESS ON MAKING OF REGULAR ASSESSMENT. 14. CONSIDERING OUR DECISION GIVEN IN THE ABOVE PARAS OF THIS ORDER ON THE LEGAL ISSUE INVOLVED IN GROUND NO.1 OF THE ASSESSEE S APPEAL RELATING TO THE RE - OPENING OF THE ASSESSMENT, WHEREIN WE HAVE ALLOWED THE SAID GROUND, THE ADJUDICATION OF THE OTHER GROUNDS RAISED BY THE REVENUE BECOMES ACADEMIC EXERCISE. ACCORDINGLY, GROUND NOS.1 TO 2 RAISED BY THE REVENUE ARE DISMISSED AS AC ADEMIC. 15. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED I N THE OPEN COURT ON 3 1 S T AUGUST, 2015. S D / - S D / - (SANJAY GARG) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 3 1 .8 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI