Samartha Sahakari Bank Ltd, Nashik V. Assistant Commissioner of Income tax, Nashik

ITA 873/PUN/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9751 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-08-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 10-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATISH C GROVER
• Keywords: Question of law; Bad and doubtful debts; Provision of bad debts; Set aside
• Section: 143(3); 201; 13; 22; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE BEFORE SHRI ANIL CHATURVEDI , ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY , J UDICIAL MEMBER . / ITA NO . 873 /PUN/201 7 / ASSESSMENT YEAR : 20 1 3 - 1 4 SHRI SAMARTHA SAHAKARI BANK LTD., 1, NAROSHANKAR, RAJEBAHADUR BUILDING, M.G. ROAD, NASHIK 422013 PAN : AAAAS3116Q ....... / APPELLANT / V/S. THE ASST. COMMISSIONER OF INCOME TAX , CIRCLE 1, NASHIK / RESPONDENT ASSESSEE BY : SHRI SANKET JOSHI REVENUE BY : SHRI SATISH C. GROVER / DATE OF HEARING : 06 - 0 1 - 20 20 / DATE OF PRONOUNCEMENT : 07 - 01 - 2020 / ORDER PER ANIL CHATURVEDI , A M : THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT(A) - 1 , NASHIK , DATED 3 0 .0 1 .2017, FOR THE ASSESSMENT YEAR 201 3 - 1 4 . 2 ITA NO. 873 /PUN/201 7 SAMARTHA SAHAKARI BANK LIMITED 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER : - THE ASSESSEE IS A CO - OPERATIVE BANK ENGAGED IN THE BUSINESS OF BANKING . THE ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 20 13 - 14 ON 25 . 09 .20 13 DECLARING TOTAL INCOME AT RS. 2 , 98,18,427 / - . THE CASE WAS TAKEN UP FOR SCRUTINY AND T HEREAFTER, ASSESSMENT WAS FRAMED U/S 143(3) OF T HE INCOME - TAX ACT , 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE ORDER DATED 2 7 .0 1 .201 6 AND THE TOTAL INCOME WAS DETERMINED AT RS.3, 22 , 87 , 37 0/ - . AGGRIEVED BY THE ORDER OF ASSESSING OFFICER , ASSESSEE CARRIED THE MATTER BEFORE LD.CIT(A), WHO VIDE ORDER D ATED 30 . 01 .201 7 (IN APPEAL NO. NSK/ CIT(A) - 1/686 / 2015 - 16 ,) GRANTED PARTIAL RELIEF TO THE ASSESSEE . AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS : ON FACTS AND IN LAW, 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE U/S 36( 1 )(VIIA) OF RS.20,46,467/ - IN RESPECT OF PROVISION FOR BAD DEBTS CLAIMED BY THE ASSESSEE. 2] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT FOR THE PURPOSES OF CLAIMING DEDUCTION U/S 36( 1 )(VIIA), THERE IS NO REQUIREMENT THAT THE PROVISION FOR BAD DEBTS SHOULD ACTUALLY BE MADE IN THE BOOKS OF THE ASSESSEE BANK AND HENCE, THE ENTIRE DEDUCTION CLAIMED BY THE ASSESSEE BANK COMPUTED AS PER THE FORMULA PRESCRIBED U/S 36( 1 )(VIIA) SHOULD HAVE BEEN ALLOWED TO THE ASSES SEE. WITHOUT PREJUDICE TO GROUND NO.2, IT IS SUBMITTED AS UNDER - 3] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PROVISION MADE AGAINST STANDARD ASSETS AS PER THE RBI GUIDELINES CANNOT BE CONSIDERED AS PROVISION FOR BAD AND DOUBTFUL DEBTS FOR THE PURPOS ES OF CLAIMING DEDUCTION U/S 36( 1 )(VIIA) AND HENCE, THE DEDUCTION U/S 36( 1 )(VIIA) IS TO BE RESTRICTED ONLY TO THE EXTENT OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN RESPECT OF ADVANCES CLASSIFIED AS NPAS. 4] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE PROVISION AGAINST STANDARD ASSETS WAS MADE BY THE ASSESSEE BANK IN VIEW OF THE RBI MASTER CIRCULAR NO.UBD.BPD (PCB) MC NO.3/09.14.000/2012 - 13 DATED 02.07.2012 WHICH HAS TO BE MANDATORILY FOLLOWED BY THE BANKS AND AS PER THE RBI NORMS, THE SAID P ROVISION IS ALSO IN THE NATURE OF PROVISION MADE TOWARDS DOUBTFUL DEBTS AND HENCE, THE SAID PROVISION SHOULD HAVE BEEN CONSIDERED AS PART AND PARCEL OF PROVISION FOR BAD 3 ITA NO. 873 /PUN/201 7 SAMARTHA SAHAKARI BANK LIMITED AND DOUBTFUL DEBTS FOR THE PURPOSES OF ALLOWING DEDUCTION U/S 36( 1 )(VIIA) OF THE ACT. 5] THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT IN THE BANKING BUSINESS, EVERY ADVANCE CARRIES SOME AMOUNT OF RISK OF NON - RECOVERY AND THIS FACT HAS BEEN SPECIFICALLY ACKNOWLEDGED BY THE RBI AND HENCE, CONSIDERING THE QUANTUM OF RISK OF NON - RECOVERY INVOLVED IN EACH TYPE OF ADVANCE, THE RBI HAS PRESCRIBED DIFFERENT RATES AT WHICH PROVISION HAS TO BE MADE AGAINST EACH TYPE O F ADVANCE AND THEREFORE, THE PROVISION FOR STANDARD ASSETS MADE @ 0 . 40 % OF THE STANDARD ADVANCES IN ACCORDANCE WITH THE MANDATORY RBI GUIDELINES MUST HAVE BEEN CONSIDERED AS PART AND PARCEL O F THE PROVISION FOR BAD AND DOUBTFUL DEBTS FOR THE PURPOSES OF SECTION 36( 1 )(VIIA) OF THE ACT. 6 ] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 36( 1 )(VIIA) ARE BENEFICIAL PROVISIONS INTRODUCED WITH THE INTENTION OF PROMOTING BANKING SECTOR AND HENCE, CONSIDERING THE NATURE OF RISK OF NON - RECOVERY INVOLVED IN THE BANKING BUSINESS, THE SAID PROVISIONS SHOULD BE INTERPRETED LIBERALLY SO AS TO PROMOTE THE OB J ECT BEHI ND ENACTMENT OF SECTION 36( 1 )(VIIA) AND THEREFORE EVEN THE PROVISION MADE AGAINST STANDARD ASSETS AS PER THE MANDATE O F RBI SHOULD BE CONSIDERED AS PART AND PARCEL OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS FOR THE PURPOSES OF COMPUTING DEDUCTION U/S 36( 1 )(VIIA) OF THE ACT. 7 ] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE U/S 36( 1 )(VII) OF RS.3,25,476/ - WITHOUT APPRECIATING THAT THE SAID DISALLOWANCE WAS NOT WARRANTED ON FACTS AND IN LAW. 3. BEFORE US AT THE OUTSET, LD. AR SUBMITTED THAT THE ASSESSEE DOES NOT WISH TO PRESS GROUND NOS.2 AND 7 AND FURTHER THE OTHER GROUNDS RAISED ARE ON THE ISSUE OF DEDUCTION U/S 36(1)(VIIA) OF THE ACT. IN VIEW OF THE AFORESAID SUBMISSIONS OF LD. AR, GROUND NOS .2 AND 7 ARE DISMISSED AS NOT PRESSED. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED PROVISION OF RS.24,17,467/ - IN RESPECT OF PROVISION CREATED FOR BAD AND DOUBTFUL DEBTS U/S 36(1)(VIIA) OF TH E ACT, WHICH INCLUDED A PROVISION IN RESPECT OF STANDARD ASSETS AMOUNTED TO RS.21 LACS. THE ASSESSING OFFICER WAS OF THE VIEW THAT DEDUCTION U/S 36(1)(VIIA) OF THE ACT IS NOT ALLOWABLE WITH RESPECT TO THE PROVISION IN RESPECT OF STANDARD ASSETS AS ACCORDI NG TO HIM, IT WAS GOOD AND RECOVERABLE 4 ITA NO. 873 /PUN/201 7 SAMARTHA SAHAKARI BANK LIMITED AND PROVISION MADE ON SUCH ASSETS CANNOT BE CONSIDERED TO BE A PROVISION FOR BAD AND DOUBTFUL DEBTS. HE ACCORDINGLY, ALLOWED ONLY THE PROVISION MADE WITH RESPECT TO THE DEBTS OTHER THAN STANDARD ASSETS AND ACCORDINGL Y MADE DISALLOWANCE OF RS.20,46,467/ - . AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A), WHO UPHELD THE ORDER OF ASSESSING OFFICER. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. BEFORE US T HE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND FURTHER SUBMITTED THAT THE ASSESSEE IS GOVERNED BY THE GUIDELINES ISSUED BY RESERVE BANK OF INDIA (RBI) AND RBI HAS ISSUED MASTER CIRCULAR DATED 02.07.2012 MANDATING THE NORMS FOR PROVISIONING OF LOANS AND ADVANCES MADE BY BANKS AND THE PROVISION MADE BY THE ASSESSEE IS AS PER THE MANDATE OF THE MASTER CIRCULAR ISSUED BY RBI AND IT IS TO BE CONSIDERED AS PR OVISION FOR BAD AND DOUBTFUL DEBTS FOR THE PURPOSE OF SECTION 36(1)(VIIA) OF THE ACT. HE FURTHER SUBMITTED THAT ON IDENTICAL FACTS, THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF BELLAD BAGEWADI URBAN SOUHARD SAHAKARI BANK NIYAMIT VS. CIT & ANR. IN I. T.A. NO.100168/2015, JUDGMENT DATED 29.01.2018 HAS HELD THAT EVEN THE PROVISION MADE BY CO - OPERATING BANKS AGAINST THE STANDARD ASSETS AS PER THE RBI MASTER CIRCULAR HAVE TO BE CONSIDERED AS PROVISION FOR BAD AND DOUBTFUL DEBTS FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S 36(1)(VIIA) OF THE ACT. IN SUPPORT OF HIS AFORESAID CONTENTION, HE ALSO PLACED ON RECORD A COPY OF THE AFORESAID DECISION. HE THUS, SUBMITTED THAT THE ASSESSEE BE GRANTED DEDUCTION. 5 ITA NO. 873 /PUN/201 7 SAMARTHA SAHAKARI BANK LIMITED 6. THE L D. DR ON THE OTHER HAND SUPPORTED THE ORDER S OF ASSESSING OFFICER AND CIT(A) . 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT APPEAL IS WITH RESPECT TO THE PROVISION MADE FOR BAD DEBTS FOR STANDARD ASSETS. WE FIND THAT THE AMOUNT WAS DISALLOWED B Y THE ASSESSING OFFICER AND CIT(A) AS THEY WERE VIEW OF THAT THE PROVISION MADE FOR STANDARD ASSETS IS NOT ALLOWABLE AS DEDUCTION FOR PROVISION OF BAD AND DOUBTFUL DEBTS. WE FIND THAT AN IDENTICAL ISSUE AROSE BEFORE THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF BELLAD BAGEWADI URBAN SOUHARD SAHAKARI BANK NIYAMIT VS. CIT & ANR. (SUPRA), WHEREIN SUBSTANTIAL QUESTION OF LAW BEFORE THE HONBLE HIGH COURT WAS AS UNDER: - WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE AUTHORITIES WERE JU STIFIED IN DENYING DEDUCTION FOR PROVISION OF BAD DEBTS MADE FOR STANDARD ASSETS OF RS.15,00,000/ - DURING THE ASSESSMENT YEAR 2011 - 12 UNDER SECTION 36(1)(VIIA) OF THE INCOME TAX ACT, 1961 ON THE GROUND THAT THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS OF DEDUCTION? 8. THEREAFTER, THE HONBLE HIGH COURT HELD AS UNDER: - 5. WE HAVE HEARD THE LEARNED COUNSEL APPEARING FOR THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 6. IT IS APPARENT FROM THE MATERIAL PLACED BEFORE US THAT THE RBI GUIDELINES PRESCRIBES THE PROVISION ON STANDARD ASSETS FROM THE YEAR ENDED MARCH 31, 2000 DIRECTING THE BANKS TO MAKE A GENERAL PROVISION OF A MINIMUM OF 0.25% ON STANDARD ASSETS. 7. IN OUR OPINION, THE DECISION RENDERED BY THE COMMISSIONER OF INCOME TAX IS UNJUSTIFIABLE FOR THE REASON THAT ASSESSEE IS BOUND BY THE GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA. ANY CONTRARY VIEW TAKEN BY THE INCOME TAX AUTHORITIES WOULD DISENTITLE THE ASSESSEE FROM CLAIMING DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT. IN VIEW OF NON - FURN ISHING OF THE MATERIAL DOCUMENTS IN SUPPORT OF THE CLAIM BEFORE THE TRIBUNAL, IT WAS LEFT WITH NO OTHER OPTION EXCEPT TO CONFIRM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 9. BEFORE US, THE REVENUE HAS NOT PLACED ANY CONTRARY BINDING DECISION IN ITS SUPPORT NOR HAS PLACED ANY MATERIAL ON RECORD TO DEMONSTRATE THAT THE DECISION OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF BELLAD 6 ITA NO. 873 /PUN/201 7 SAMARTHA SAHAKARI BANK LIMITED BAGEWADI URBAN SOUHARD SAHAKARI BANK NIYAMIT VS. CIT & ANR. (SUPRA) HAS BEEN SET ASIDE / OVERRULED / STAYED BY HIGHER JUDICIAL FORUM. WE THEREFORE, FOLLOWING THE DECISION OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF BELLAD BAGEWADI URBAN SOUHARD SAHAKARI BANK NIYAMIT VS. CIT & ANR. (SUPRA) AND FOR SIMILAR REASONS HOLD THAT T HE ASSESSEE IS ELIGIBLE FOR DEDUCTION AND WE THUS, DIRECT THE ASSESSING OFFICER. IN VIEW OF THE AFORESAID, THE GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED . 10 . IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 7 TH DAY OF JANUARY , 20 20 . SD/ - SD/ - PARTHA SARATHI CHAUDHURY ANIL CHATURVEDI JUDICIAL MEMBER ACCOUNTANT MEMBER / PUNE; / DATED : 7 TH JANUARY , 20 20 GCVSR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 1 , NASHIK 4. / THE PR. CIT - 1 , NASHIK 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // // TRUE COPY// / SR. PRIVATE SECRETARY , / ITAT, PUNE