ACIT, Davangere V. M/s Davanagere District Central Co-operative Bank Limited, Chitradurga

ITA 889/BANG/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7041 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 12-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI
• Keywords: Question of law; Bad and doubtful debts
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER I.T.A. NO. 889 /BANG/201 2 (ASSESSMENT YEAR : 200 7 - 08 ) ASST. COMMISSIONER OF INCOME TAX, CIRCLE 1, DAVANGERE. VS. M/S. DAVANGERE DISTRICT CENTRAL CO - OPERATIVE BANK LIMITED, D.C. OFFICE CIRCLE, CHITRADURGA - 577 501 PAN AAATD 6617N APPELLANT RESPONDENT. APPELLANT BY : SHRI FARHAT HUSSAIN QURESHI, CIT (D.R) RESPONDENT BY : S MT. SHEETAL BORKAR, ADVOCATE. DA TE OF H EARING : 05.08.2014 . DATE OF P RONOUNCEMENT : 10.10 . 201 4 . O R D E R PER SHRI JASON P. BOAZ, A.M. : THIS APPEA L BY REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS), HUBLI DT.29.12.2011 FOR ASSESSMENT YEAR 2007 - 08. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : - 2.1 THE ASSESSEE IS A DISTRICT CENTRAL CO - OPERATIVE BANK, C ONTROLLED BY THE APEX BANK OF GOVT. OF KARNATAKA, AND IS ENGAGED IN PROVIDING LOANS TO PRIMARY AGRICULTURAL CO - OP. SOCIETIES (PACS S) AT SUBSIDISED RATES. FOR ASSESSMENT YEAR 2007 - 08, THE ASSESSEE FILED ITS RETURN OF INCOME ON 2.11.2007 DECLARING TOTAL IN COME OF RS.1,64,86,170. THE CASE WAS 2 ITA NO. 889 /BANG/ 20 1 2 SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ( HEREINAFTER REFERRED TO AS 'THE ACT') DT.23.12.2009, WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.9,5 9,42,620, AS AGAINST THE RETURNED INCOME OF RS.1,64,86,170 IN VIEW OF THE FOLLOWING ADDITIONS / DISALLOWANCES THERETO : - I. ADDITION TO INTEREST INCOME : RS.6,99,73,139. II. PROVISION FOR NPA : RS.1,50,00,000. III. PROVISION FOR AUDIT COST : RS.4,00,000 . IV. DISALLOWANCE U/S.40(A)(IA) OF THE ACT : RS.17,38, 322 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESSMENT YEAR 2007 - 08 DT.23.12.2009, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APPEALS), HUBLI. THE LEARNED CIT (APPEALS) VIDE ORDER DT.29.12 .2011 DISPOSED OFF THE ASSESSEE'S APPEAL ALLOWING THE ASSESSEE PARTIAL RELIEF, DELETING THE AFORESAID ADDITIONS / DISALLOWANCES, EVEN WHILE GIVING CERTAIN DIRECTIONS TO THE ASSESSING OFFICER IN RESPECT OF SOME OF THE ISSUES. 3. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), HUBLI DT.29.12.2011 FOR ASSESSMENT YEAR 2007 - 08, REVENUE HAS PREFERRED THIS APPEAL BEFORE TRIBUNAL RAISING THE FOLLOWING GROUNDS : - 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), HUBLI, IS BAD IN LAW. 2. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), HUBLI, IS OPPOSED TO LAW AND NOT ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE CIT (APPEALS), HUBLI, ERRED IN REMITTING THE ADDITION OF RS.6,99,73,139 MADE ON ACCOUNT OF ACCRUED INTEREST ON LOANS AND ADVANCE S, TO THE A.O. TO RE - VERIFY THE BOOKS AND AFTER GIVING AN OPPORTUNITY TO THE ASSESSEE AND RE - DETERMINE THE AMOUNT OF INTEREST. 4. THE CIT (APPEALS) HAS TRAVELED BEYOND THE POWERS VESTED IN HIM BY THE I.T. ACT, IN GIVING THE ABOVE DIRECTION. 3 ITA NO. 889 /BANG/ 20 1 2 5. THE CIT (APPEALS), HUBLI, HAS NOT APPRECIATED THE AMENDMENT TO SECTION 145 MADE WITH EFFECT FROM 1.4.1997 AND ITS IMPLICATION IN ASSESSING THE ACCRUED INTEREST ON LOANS AND ADVANCES. 6. THE CIT (APPEALS), HUBLI, ERRED IN ALLOWING THE PROVISION FOR NPA OF RS.1, 50,00,000. 7. THE CIT (APPEALS), HUBLI IGNORED THE MANDATORY REQUIREMENT OF RBI GUIDELINES ACCORDING TO WHICH THE BANKS OUGHT TO COMPLY WITH AND FOLLOW MERCANTILE SYSTEM OF ACCOUNTING. 8. THE LEARNED CIT (APPEALS) ERRED IN ALLOWING THE PROVISION O F RS.4,00,000 MADE FOR AUDIT FEES. 9. THE LEARNED CIT (APPEALS) TRAVELLED BEYOND THE POWERS VESTED IN HIM BY THE IT ACT, IN REMITTING THE ISSUE OF TDS BACK TO THE A.O. WITH A DIRECTION TO CALL FOR DETAILS OF TDS PAYMENTS MADE AFTER THE COMPLETION OF AS SESSMENT. 10. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED UPON AT THE TIME OF HEARING, IT IS HUMBLY PRAYED THAT THE ORDER OF THE CIT (APPEALS), HUBLI, MAY PLEASE BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 11. THE APPELLANT CRAVES L EAVE TO ADD, ALTER, AMEND OR DELETE ANY OTHER GROUNDS ON OR BEFORE THE HEARING OF APPEALS. 4. GROUNDS RAISED AT S.NOS.1, 2, 10 AND 11 ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5. ADDITION TO INTEREST INCOME : RS .6,99,73,139 . 5.1 THE GROUNDS RAISED AT S.NOS.3 TO 5 RELATE TO THE ISSUE OF INTEREST INCOME. IN THESE GROUNDS, REVENUE IS AGGRIEVED BY THE ORDER OF THE LEARNED CIT (APPEALS) IN DELETI NG THE ADDITIONS MADE ON ACCOUNT OF ACCRUED INTEREST ON LOANS AND AD VANCES WITHOUT APPRECIATING THAT AFTER THE AMENDMENT TO SECTION 145 OF THE ACT W.E.F. 1.4.1997, BANKS ARE REQUIRED TO FOLLOW THE MERCANTILE SYSTEM OF ACCOUNTING. REVENUE HAS ALSO RAISED THE ISSUE THAT THE LEARNED CIT (APPEALS) CANNOT REMAND THE ISSUE IN Q UESTION BACK TO THE ASSESSING OFFICER AND BY DOING SO, THE LEARNED CIT (APPEALS) HAS TRAVELLED BEYOND THE POWERS VESTED IN HIM UNDER THE ACT. 4 ITA NO. 889 /BANG/ 20 1 2 5.2 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS FOLLOWING THE HYBRID SYSTEM OF ACCOUNTING, WHICH IS IN CONTRAVENTION OF THE PROVISIONS OF SECTION 145 OF THE ACT. AS PER THE ASSESSING OFFICER, IN TERMS OF SECTION 145 OF THE ACT, THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION SHALL BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS ACCOUNTING FOR THE INTEREST ON RECEIPT BASIS AND OTHERS ON ACCRUAL BASIS. IN SU PPORT OF HIS VIEW, THE ASSESSING OFFICER PLACED RELIANCE ON THE DECISION OF THE ITAT, CHENNAI IN THE CASE OF JCIT V INDIA EQUIPMENT LEASING LTD. (2008) 296 ITR (AT) 177. IN THAT VIEW OF THE MATTER, THE ASSESSING OFFICER HELD THAT INTEREST WHICH IS ACCRU ED ON LOANS AND ADVANCES IS TO BE TREATED AS INCOME FOR THE RELEVANT ASSESSMENT YEAR AND ACCORDINGLY BROUGHT THE AMOUNT OF RS.6,99,73,139 TO TAX IN THE ASSESSEE'S HANDS. 5.3.1 ON APPEAL BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE SUBMITTED THAT BEI NG BOUND BY RBI GUIDELINES IN THIS REGARD, IT HAS BEEN RECOGNISING THE INTEREST RECEIVABLE ON LOANS AND ADVANCES WHICH ARE DOUBTFUL (NON - PERFORMING ASSETS) ON RECEIPT BASIS. ACCORDING TO THE ASSESSEE, AS PER SECTION 145 OF THE ACT, ONLY THE REAL INCOME AN D NOT THE NOTIONAL INCOME IS TO BE CONSIDERED FOR TAXATION. IN SUPPORT OF THIS PROPOSITION, THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON'BLE APEX COURT IN UCO BANK LTD. V CIT 237 ITR 829 (SC). 5 ITA NO. 889 /BANG/ 20 1 2 5.3.2 THE ASSESSEE ALSO MADE SUBMISSIONS BEF ORE THE LEARNED CIT (APPEALS) TO THE EFFECT THAT THE ASSESSING OFFICER ERRED IN ARRIVING AT THE QUANTUM OF ADDITION DUE TO THE FOLLOWING : - (I) THE INTEREST HAS BEEN COMPUTED ON THE CLOSING BALANCE OF ADVANCES, THEREBY COMPUTING THE INTEREST AS IF THE WHO LE OF THE ADVANCES APPEARING IN THE BALANCE SHEET AS ON 31.3.2007 WERE ADVANCED ON 1.4.2006, WHEREAS THE LOANS WERE SPREAD OVER THE ENTIRE YEAR. (II) THE ASSESSING OFFICER HAS NOT CONSIDERED THE OPENING BALANCES OF THE ADVANCES WITH THE ASSESSEE. (III) THE ASSESSING OFFICER HAS MADE A DOUBLE ADDITION, BY THE ADDITION OF INTEREST ON NPA S ON LIABILITY SIDE OF BALANCE SHEET. (IV) THE ASSESSING OFFICER HAS NOT CONSIDERED THE INTEREST SHARING MECHANISM WHEREBY THE EFFECTIVE RATE OF INTEREST ON THE ADVA NCES WAS ONLY 7.5% AS AGAINST 9% ADOPTED BY THE ASSESSING OFFICER. THE LEARNED CIT (APPEALS), AGREEING WITH THE ASSESSEE'S CONTENTION THAT THE ISSUE IS COVERED BY THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF UCO BANK LTD. (SUPRA), ALLOWED TH E ASSESSEE S APPEAL ON THIS ISSUE. THE LEARNED CIT (APPEALS) ALSO DIRECTED THE ASSESSING OFFICER TO CORRECTLY WORK OUT THE OPENING AND CLOSING BALANCES AFTER AFFORDING REASONABLE OPPORTUNITY TO THE ASSESSEE AND AFTER VERIFYING THE BOOKS OF ACCOUNT TO WORK OUT THE CORRECT INTEREST INCOME. 5.4 REVENUE IS AGGRIEVED BY THE ORDER OF THE LEARNED CIT (APPEALS) ON THIS ISSUE. THE LEARNED DEPARTMENTAL REPRESENTATIVE PLACING STRONG SUPPORT ON THE ORDER OF ASSESSMENT, 6 ITA NO. 889 /BANG/ 20 1 2 SUBMITTED THAT THE ASSESSEE HAS TO FOLLOW THE PROVISIONS OF SECTION 145 OF THE ACT FOR THE PURPOSES OF COMPUTATION OF INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. IT WAS SUBMITTED THAT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145 OF THE ACT, THE ASSESSEE IS REQUIRED TO FOLLOW EITHER THE CAS H SYSTEM OR MERCANTILE SYSTEM OF ACCOUNTING, BUT CANNOT FOLLOW THE HYBRID SYSTEM OF ACCOUNTING. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE RBI GUIDELINES RELIED ON BY THE ASSESSEE HAVING NOTHING TO DO WITH THE ACCOUNTING SYSTEM FOR RECOGNI SING TAXABLE INCOME AS PER THE INCOME TAX ACT, 1961 AS THEY OPERATE IN DIFFERENT FIELDS. 5.5 PER CONTRA, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUPPORTED THE ORDER OF THE LEARNED CIT (APPEALS) AND PLACED RELIANCE ON THE FOLLOWING JUDIC IAL PRONOUNCEMENTS : - (I) CIT V URBAN CO - OP. BANK LTD. [ ITA NO.471 OF 2013 (KAR. HIGH COURT) ] DT.30.6.2014. (II) SHIVA SAHAKARI BANK NIYAMITHA (ITA NO.257/BANG/2007) OF ITAT, BANGALORE. 5.6.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CO NSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISIONS PLACED RELIANCE UPON. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS IN THE BUSINESS OF BANKING AND IS GOVERNED BY THE BANKING REGULATION S ACT, 1949 . THE QUESTION FOR CONSIDERATION BEFORE US IS WHETHER THE INTEREST ACCRUED ON NPAS , WHICH ARE DOUBTFUL OF BEING RECOVERED, SHOULD BE RECOGNISED AS INCOME ON ACCRUAL BASIS OR ON RECEIPT BASIS. WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF URBAN CO - OPER ATIVE BANK LTD. (SUPRA). IN THAT CASE, THE QUESTION 7 ITA NO. 889 /BANG/ 20 1 2 OF LAW BEFORE THE HON'BLE HIGH COURT WAS WHETHER THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE INCOME FROM NON - PERFORMING ASSETS SHOULD BE ASSESSED ON CASH BASIS AND NOT ON MERCANTILE BASIS, DESPITE THE A SSESSEE'S MAINTAINING MERCANTILE SYSTEM OF ACCOUNTING ? THE HON'BLE C OURT AT PARA 3 OF ITS ORDER OBSERVED AS UNDER : - 3. THE SAID QUESTION HAS BEEN ANSWERED BY THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, BANGALORE VS. CANFI N HOMES LIMITED [(2011) 201 TAXMAN 273/13 TAXMANN.COM 43 (KARNATAKA)] AT PARAGRAPH 8, WHICH READS AS UNDER : - 8. THEREFORE, IT IS CLEAR, IF AN ASSESSEE ADOPTS MERCANTILE SYSTEM OF ACCOUNTING AND IN HIS ACCOUNTS HE SHOWS A PARTICULAR INCOME AS ACCRUING, W HETHER THAT AMOUNT IS REALLY ACCRUED OR NOT IS LIABLE TO BRING THE SAID INCOME TO TAX. HIS ACCOUNTS SHOULD REFLECT TRUE AND CORRECT STATEMENT OF AFFAIRS. MERELY BECAUSE THE SAID AMOUNT ACCRUED WAS NOT REALISED IMMEDIATELY CANNOT BE A GROUND TO AVOID PAYME NT OF TAX. BUT, IF IN HIS ACCOUNT IT IS CLEARLY STATED THOUGH A PARTICULAR INCOME IS DUE TO HIM BUT IT IS NOT POSSIBLE TO RECOVER THE SAME, THEN IT CAN N OT SAID TO HAVE BEEN ACCRUED AND THE SAID AMOUNT CANNOT BE BROUGHT TO TAX. IN THE INSTANT CASE WE ARE CONCERNED WITH A NON - PERFORMING ASSET. AS THE DEFINITION OF NON - PERFORMING ASSET SHOWS AN ASSET BECOMES NON - PERFORMING WHEN IT CEASES TO YIELD INCOME. NON - PERFORMING ASSET IS AN ASSET IN RESPECT OF WHICH INTEREST HAS REMAINED UNPAID AND HAS BECOME PAST DUE. ONCE A PARTICULAR ASSET IS SHOWN TO BE A NON - PERFORMING ASSET, THEN THE ASSUMPTION IS IT IS NOT YIELDING ANY REVENUE. WHEN IT IS NOT YIELDING ANY REVENUE, THE QUESTION OF SHOWING THAT REVENUE AND PAYING TAX WOULD NOT ARISE. AS IS CLEAR FROM THE POL ICY GUIDELINES ISSUED BY THE NATIONAL HOUSING BANK, THE INCOME FROM NON - PERFORMING ASSET SHOULD BE RECOGNIZED ONLY WHEN IT IS ACTUALLY RECEIVED. THAT IS WHAT, THE TRIBUNAL HELD IN THE INSTANT CASE. THEREFORE, THE CONTENTION OF THE REVENUE THAT IN RESPECT OF NON - PERFORMING ASSETS EVEN THOUGH IT DOES NOT YIELD ANY INCOME AS THE ASSESSEE HAS ADOPTED A MERCANTILE SYSTEM OF ACCOUNTING, HE HAS TO PAY TAX ON THE REVENUE WHICH HAS ACCRUED NOTIONALLY IS WITHOUT ANY BASIS. IN THAT VIEW OF THE MATER, THE SECOND SUB STANTIAL QUESTION FRAME IS ANSWERED AGAINST, THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 5.6.2 WE FIND THAT THE FACTS OF THE CASE ON HAND BEFORE US AND THE QUESTION OF LAW RAISED IN THE ABOVE REFERRED CASE ARE IDENTICAL AND THEREFORE RESPECTFULLY FOL LOWING THE DECISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF URBAN CO - OPERATIVE BANK 8 ITA NO. 889 /BANG/ 20 1 2 LTD. (SUPRA), WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. CONSEQUENTLY, GROUNDS RAISED BY REVENUE AT S.NOS.3 AND 5 ARE DISMISSED. 5.7 AS REGARDS THE C ONTENTION RAISED BY REVENUE THAT THE LEARNED CIT (APPEALS) HAS TRAVELLED BEYOND THE POWERS VESTED IN HIM UNDER THE I.T. ACT, 1961, BY REMITTING THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER, WE DO NOT CONCUR WITH THE CONTENTION OF REVENUE. AS PER AN APPRECIATION OF THE MATERIAL ON RECORD, WE FIND THAT THE LEARNED CIT (APPEALS) HAS RENDERED A FINDING THAT THE INTEREST INCOME SHOULD BE ALLOWED IN THE LIGHT OF THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF UCO BANK LTD. IN 237 ITR 889. IN THIS L IGHT OF THIS FINDING, THE LEARNED CIT (APPEALS) HAS RENDERED A DECISION ON THE SUBSTANTIVE ISSUE RAISED IN THE GROUNDS OF APPEAL. IT APPEARS THAT SINCE THE ASSESSEE ALSO POINTED OUT CERTAIN MISTAKES IN THE COMPUTATION OF INTEREST, THE LEARNED CIT (APPEAL S) HAS DIRECTED THE ASSESSING OFFICER TO COMPUTE THE QUANTUM OF INTEREST TO BE ALLOWED CORRECTLY, BY CONSIDERING THE SUBMISSIONS PUT FORTH BY THE ASSESSEE IN THIS REGARD. THIS DIRECTION OF THE LEARNED CIT (APPEALS) CANNOT BE CONSTRUED AS REMITTING BACK TH E SUBSTANTIVE ISSUE TO THE ASSESSING OFFICER, AS HE HAS ONLY DIRECTED THE ASSESSING OFFICER TO COMPUTE THE QUANTUM CORRECTLY. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS) IN THIS REGARD. CONSEQUENTLY, GROUND NO.4 RAISED BY REVENUE IS DISMISSED. 6. PROVISION FOR NON - PERFORMING ASSETS ( NPA ) 6.1 THE GROUNDS RAISED AT S.NO.6 & 7 PERTAIN TO THE ISSUE OF PROVISION FOR NPAS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED TH AT THE ASSESSEE HAD 9 ITA NO. 889 /BANG/ 20 1 2 DEBITED AN AMOUNT OF RS.1,50, 00, 000 AS PROVISION FOR NPAS. IT IS THE CLAIM AND CONTENTION OF THE ASSESSEE THAT SUCH A PROVISION IS MANDATED AS PER THE PRUDENTIAL NORMS OF RBI AND HENCE IS AN ALLOWABLE DEDUCTION U/S.36(1)(V I IA) OF THE A CT. THE ASSESSING OFFICER, HOWEVER, DID NOT AGREE WITH THIS CONTENTION OF THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, SUCH A PROVISION IS LIABLE TO BE ADDED TO THE INCOME AND IF AT ALL ANY DEDUCTION IS TO BE CLAIMED, THE ASSESSEE HAS TO CLAIM IT AS BAD AND DOUBTFUL DEBTS. 6.2 ON APPEAL, THE LEARNED CIT (APPEALS), RELYING ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF UCO BANK LTD. (SUPRA), DELETED THE ADDITION AND ALLOWED THE ASSESSEE'S APPEAL ON THIS ISSUE. WHILE DOING SO, THE LEARNED CIT (APPEALS) HAS EXTRACTED A RECITAL FROM THE ABOVE CITED DECISION OF THE HON'BLE APEX COURT, WHICH IS AS UNDER : - IF, THEREFORE THE BOARD HAS CONSIDERED IT NECESSARY TO LAY DOWN A GENERAL TEST FOR DECIDING WHAT IS A DOUBTFUL DEBT, AND DIRECTED THA T ALL INCOME TAX OFFICERS SHOULD TREAT SUCH AMOUNTS AS NOT FORMING PART OF THE INCOME OF THE ASSESSEE UNTIL REALISED . 6.3.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECI SIONS CITED AND RELIED ON. THE ISSUE RAISED IS WITH REFERENCE TO THE ASSESSEE'S CLAIM FOR DEDUCTION UNDER THE HEAD PROVISION FOR NPAS . THE ASSESSING OFFICER DID NOT ALLOW THE ASSESSEE'S CLAIM FOR THE REASON THAT IT WAS NOT WRITTEN OFF IN THE BOOKS OF A CCOUNT, AS IS REQUIRED BY SECTION 36(1)(VIIA) OF THE ACT. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE CONTENDED THAT THE PROVISION FOR NPAS WAS MADE AS PER THE RBI S GUIDELINES, WHICH ARE BINDING ON THE ASSESSEE AND THEREFORE IT SHOULD BE ALLOWE D AS A DEDUCTION UNDER THE ACT. IT WAS SUBMITTED THAT PROVISION FOR NPAS 10 ITA NO. 889 /BANG/ 20 1 2 IS MADE ONLY WHEN RECOVERY IS DIFFICULT OR MAY NOT BE POSSIBLE AND THEREFORE THE SAME SHOULD BE ALLOWED AS DEDUCTION. 6.3.2 SECTION 36(1)(VIIA) OF THE ACT PROVIDES FOR ALLOWANCE OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS. ALTHOUGH THE ASSESSEE HAS USED THE NOMENCLATURE FOR THE PROVISION AS PROVISION FOR NPAS , BUT IN PITH AND SUBSTANCE THE PROVISION HAS BEEN CREA TED FOR BAD AND DOUBTFUL DEBTS AND IN DOING SO, THE ASSESSEE HAS FOLLOWED THE RBI GUIDELINES. IN THE LIGHT OF THE ABOVE DISCUSSIONS OF THIS ISSUE AND THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF UCO BANK LTD. (SUPRA), WE CONCUR WITH AND DO NOT FIND IT NECESSARY TO INTERFERE WITH THE DECISION OF THE LEARNED C IT (APPEALS) IN ALLOWING THE ASSESSEE'S CLAIM OF DEDUCTION ON ACCOUNT OF PROVISION FOR NPA. CONSEQUENTLY THE GROUNDS RAISED AT S.NOS.6 & 7 ARE DISMISSED. 7. PROVISION FOR AUDIT COST . 7.1 THE GROUND RAISED AT S.NO.8 , CHALLENGES THE ACTION OF THE OR DER OF THE LEARNED CIT (APPEALS) IN ALLOWING THE PROVISION FOR AUDIT FEES AMOUNTING TO RS.4,00,000. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.4 LAKHS ON ACCOUNT OF PROVISION FOR A UDIT COST. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEE'S CLAIM AS HE WAS OF THE VIEW THAT ONLY THE ACTUAL COST PAID DURING THE YEAR UNDER CONSIDERATION IS TO BE ALLOWED AND THE PROVISION MADE WAS DISALLOWED. ON APPEAL, THE LEARNED CIT (APPEALS) AL LOWED THE DEDUCTION CLAIMED ON ACCOUNT OF PROVISION FOR AUDIT FEES, HOLDING IT TO BE AS PER THE PREVAILING PRACTICE AND ACCOUNTING PRINCIPLES. 11 ITA NO. 889 /BANG/ 20 1 2 7.2 WE HAVE HEARD BOTH THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR REVENUE AND THE LEARNED AUTHORISED REPRESE NTATIVE OF THE ASSESSEE AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IT IS NOT DISPUTED THAT THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND IS BOOKING EXPENDITURE ON ACCRUAL BASIS. THE PROVISION FOR AUDIT FEES HAS BEEN MADE AS PER THE RULES SPECIFIED FOR THIS PURPOSE; I.E. AS PER THE DIRECTIONS OF THE DEPUTY DIRECTOR OF CO - OPERATIVE AUDIT UNDER RULE 441 OF THE KARNATAKA CIVIL SERVICE RULES. IN VIEW OF THE FACT THAT THE ASSESSEE IS MANDATED TO MAKE THE PAYMENT AS PER THE RULES, THE LIABILITY OF THE ASSESSEE HAS GOT CRYSTALLISED. IT IS SETTLED PRINCIPLE THAT ONCE A LIABILITY IS CRYSTALLISED, IT IS LIABLE TO BE PROVIDED FOR EVEN IF THE ACTUAL PAYMENT IS MADE LATER. IN VIEW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE ORD ER OF THE LEARNED CIT (APPEALS) IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. CONSEQUENTLY, GROUND AT S.NO.8 RAISED BY REVENUE IS DISMISSED. 8. DISALLOWANCE U/S.40(A)(IA) OF THE ACT FOR NON - DEDUCTION OF TAX AT SOURCE. 8.1 THE GROU ND RAISED AT S.NO.9 , IS WITH RESPECT TO THE ACTION OF THE LEARNED CIT (APPEALS) IN REMITTING THE ISSUE OF TDS BACK TO THE FILE OF THE ASSESSING OFFICER, WITH A DIRECTION TO CALL FOR DETAILS OF TDS PAYMENTS MADE AFTER THE COMPLETION OF ASSESSMENT. 8.2 I N THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD NOT DEDUCTED TDS FROM CERTAIN PAYMENTS MADE TOWARDS COMPUTER CONSULTANCY, HIRED VEHICLES, BUILDING RENT AND PIGMY COMMISSION, AND THEREFORE DISALLOWED THEM BY INVO KING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 12 ITA NO. 889 /BANG/ 20 1 2 8.3 ON APPEAL, THE ASSESSEE SUBMITTED THAT IT HAD ALREADY PAID TDS ON BUILDING RENT PAYMENTS. THE LEARNED CIT (APPEALS) HELD THAT SINCE THE ASSESSEE HAS ALREADY PAID THE TDS ON BUILDING RENT, ANY FU RTHER DEDUCTION WOULD AMOUNT TO DOUBLE DEDUCTION AND DIRECTED THE ASSESSING OFFICER TO VERIFY THE DETAILS OF TDS PAYMENTS AND TO CHARGE APPLICABLE INTEREST. 8.4 IN SUPPORT OF THE GROUNDS RAISED, THE LEARNED DEPARTMENTAL REPRESENTATIVE ASSAILED THE DECI SION OF THE LEARNED CIT (APPEALS) IN DIRECTING THE ASSESSING OFFICER TO CALL FOR DETAILS OF TDS PAYMENTS MADE AFTER THE COMPLETION OF ASSESSMENT AS BEING BEYOND THE POWER VESTED IN HIM UNDER THE ACT. 8.5 WE HAVE HEARD BOTH THE LEARNED DEPARTMENTAL REP RESENTATIVE FOR REVENUE AND THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE AND HAVE PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. WHILE IT IS SEEN FROM THE RECORD THAT THE ASSESSING OFFICER S DISALLOWANCE U/S.40(A)(IA) OF THE ACT WAS FOR NON - DEDUCTION OF TDS FROM FOU R ITEMS, NAMELY, BUILDING RENT, COMPUTER CONSULTANCY, HIRED VEHICLES AND PIGMY COMMISSION, THE LEARNED CIT (APPEALS) HAS DIRECTED THE ASSESSING OFFICER TO EXAMINE AND VERIFY THE TDS PAYMENTS RELATED TO ONLY ONE ITEM OF EXPENDI TURE I.E. BUILDING RENT PAYMENTS. THIS DIRECTION TOO HAS BEEN MADE BECAUSE THE ASSESSEE CLAIMED THAT TDS HAS BEEN MADE ON BUILDING RENTAL PAYMENTS AND THE DISALLOWANCE THEREOF AMOUNTS TO DOUBLE DEDUCTION. IN THIS FACTUAL MATIX, IT APPEARS THAT ALL THE LE ARNED CIT (APPEALS) HAS DIRECTED THE ASSESSING OFFICER TO DO IS TO EXAMINE THE ASSESSEE'S CLAIM WHETHER TDS HAS BEEN PAID ON BUILDING RENTAL PAYMENTS ONLY. THIS ACTION OF THE LEARNED CIT (APPEALS), IN OUR CONSIDERED 13 ITA NO. 889 /BANG/ 20 1 2 VIEW, CANNOT BE CONSTRUED AS IF THE LEA RNED CIT (APPEALS) HAS REMITTED THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. IN THIS VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS). CONSEQUENTLY, GROUND NO.9 RAISED BY REVENUE IS DIS MISSED. 9. IN THE RESULT, REVENUE S APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCT., 201 4 . SD/ - SD/ - ( N.V. VASUDEVAN ) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR , ITAT, BANGALORE