Tamilnadu State Apex Co-operative Bank Ltd., CHENNAI V. ACIT, CHENNAI

ITA 948/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73623 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2014
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 09-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 10-05-2013
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Assessee Lawyers: R VISWANATHAN
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 948/MDS/2013 ASSESSMENT YEAR : 2009-10 M/S. TAMILNADU STATE APEX CO-OPERATIVE BANK LTD., NEW NO.4, OLD NO.233, TNSC BANK BUILDING, NSC BOSE ROAD, CHENNAI 600 001. [PAN: AAAAT 4483 D] (APPELLANT) VS ASST. COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE-IX CHENNAI 600 006 (RESPONDENT) APPELLANT BY : SHRI R. VISWANATHAN, FCA RESPONDENT BY : SHRI T.N. BETGERI, JCIT DATE OF HEARING : 09-01-2014 DATE OF PRONOUNCEMENT : 21-01-2014 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-IX, CHEN NAI DATED 28-01-2013 RELEVANT TO THE ASSESSMENT YEAR (AY) 200 9-10. I.T.A. NO. 948/MDS/2013 2 2. THE ASSESSEE IS A CO-OPERATIVE BANK. IN THE COU RSE OF CARRYING BANKING BUSINESS, THE ASSESSEE IS PROVIDIN G CREDIT FACILITIES TO ITS CUSTOMERS. THE ASSESSEE FILED IT S RETURN OF INCOME FOR THE AY.2009-10 ON 30-09-2009 DECLARING ITS INCO ME AS ` 31,08,26,750/-. THE CASE OF THE ASSESSEE WAS SELEC TED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE INCOME TAX A CT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) WAS ISSUED TO THE A SSESSEE. IN ITS BOOKS OF ACCOUNT, THE ASSESSEE HAD MADE PROVISION FOR NON- PERFORMING ASSETS IN ACCORDANCE WITH SECTION 36(1) (VIIA). THE ASSESSING OFFICER DIS-ALLOWED THE SAME ON THE GROUN D THAT THE ASSESSEE HAS NOT MADE ANY PROVISION FOR BAD AND DOU BTFUL DEBTS AND THUS, IS NOT ENTITLED TO THE PROVISION MADE U/S .36(1)(VIIA) OF THE ACT, AS CLAIMED. AGGRIEVED AGAINST THE ASSESSMENT ORDER DATED 23-12 -2011, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APP EALS). THE CIT(APPEALS) UPHELD THE FINDINGS OF THE ASSESSING O FFICER AND DISMISSED THE APPEAL OF THE ASSESSEE. 3. SHRI R. VISWANATHAN, FCA, APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION CLAIMED U/S. 36(1)(VIIA), AS THE SECTION SPECIFICAL LY GRANTS RELIEF TO THE BANKING COMPANIES. THE ASSESSEE HAD MADE PROVI SION TO THE I.T.A. NO. 948/MDS/2013 3 TUNE OF ` 2,27,31,658/- IN THE BOOKS OF ACCOUNT TOWARDS NON- PERFORMING ASSETS (NPA). THE ASSESSING OFFICER AS WELL AS THE CIT(APPEALS) HAS ERRED IN NOT CONSIDERING THE SAME. THE LD.AR FURTHER SUBMITTED THAT ALTHOUGH THE AMOUNT OF NON-P ERFORMING ASSETS IS MUCH HIGHER BUT THE ASSESSEE HAS CLAIMED DEDUCTION OF ` 2,52,02,169/- WHICH IS 7.5% OF THE GROSS TOTAL INCO ME IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(VII A). THE LD.AR CONTENDED THAT THE AUTHORITIES BELOW HAVE ERRED IN COMING TO THE CONCLUSION THAT THE ASSESSEE HAS NOT CREATED ANY PR OVISION FOR DOUBTFUL DEBTS. THE PROVISION FOR DOUBTFUL DEBTS A ND THE PROVISION FOR NON-PERFORMING ASSETS ARE ONE AND THE SAME. TH E PROVISION WAS CREATED AND CLASSIFIED AS PER THE DIRECTIONS/GU IDELINES ISSUED BY NABARD AND RESERVE BANK OF INDIA. DISALLOWANCE CANNOT BE MADE MERELY ON THE CHANGE IN NOMENCLATURE. 4. ON THE OTHER HAND, SHRI T.N. BETGERI, REPRESENTI NG THE DEPARTMENT VEHEMENTLY OPPOSED THE ARGUMENTS RAISED BY THE LD.AR OF THE ASSESSEE. THE LD.DR SUPPORTING THE OR DER OF THE CIT(APPEALS) PRAYED FOR THE DISMISSAL OF THE APPEAL OF THE ASSESSEE. THE LD.DR CONTENDED THAT THE ASSESSEE HA S CREATED PROVISION IN GENERAL. SPECIFIC NON-PERFORMING ACCO UNTS HAVE NOT BEEN IDENTIFIED BY THE ASSESSEE. TO SUPPORT HIS CO NTENTIONS, THE I.T.A. NO. 948/MDS/2013 4 LD.DR RELIED ON THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF KOTAKKAL CO-OPERATIVE URBAN BANK LTD., VS. ITO REPORTED AS 142 ITD 123 (COCHIN). 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ORDER REFERRED TO BY THE LD.DR. IT IS A WELL SETTLED LAW THAT UNLESS PROVISION IS C REATED FOR BAD AND DOUBTFUL DEBTS, BY BANKING COMPANIES OR CO-OPERATIV E BANKS, BENEFIT OF SECTION 36(1)(VIIA) CANNOT BE CLAIMED. THE PROVISIONS OF SECTION 36(1)(VIIA) ARE RE-PRODUCED HEREIN BELOW: S.36(1) THE DEDUCTIONS PROVIDED FOR THE FOLLOWING C LAUSES THEREIN, IN COMPUTING SHALL BE ALLOWED IN RESPECT O F THE MATTERS DEALT WITH THE INCOME REFERRED TO IN SECTIO N 28. (VIIA) [ IN RESPECT OF ANY PROVISION FOR BAD AND DO UBTFUL DEBTS MADE BY (A) A SCHEDULED BANK [NOT BEING 73[* * *] A BANK IN CORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NONSCHEDULED BANK [OR A CO-OPERATIVE BANK OTHER THA N A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO -OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK], AN AMOUNT [NOT EXCEEDING SEVEN AND ONE-HALF PER CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CL AUSE AND I.T.A. NO. 948/MDS/2013 5 CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING 76[TEN] PE R CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BR ANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER : [PROVIDED THAT A SCHEDULED BANK OR A NON-SCHEDULED BANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION , BE ALLOWED IN ANY OF THE RELEVANT ASSESSMENT YEARS, DEDUCTION IN RESPECT OF ANY PROVISION MADE BY IT FOR ANY ASSETS CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS AS SETS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY IT IN THIS BEHALF, FOR AN AMOUNT NOT EXCEEDING FIVE PER CENT OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOKS OF ACCOUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR:] A PERUSAL OF THE ABOVE PROVISIONS OF SECTION 36(1)( VIIA) MAKES IT CLEAR THAT ANY SCHEDULE BANK OR NON-SCHEDULED BANK INCORPORATED AS PER THE INDIAN LAWS OR THE CO-OPERATIVE BANK SHA LL BE ALLOWED DEDUCTION IN RESPECT OF ANY PROVISION FOR BAD AND D OUBTFUL DEBTS MADE BY IT OF AN AMOUNT: I. NOT EXCEEDING 7.5% OF THE TOTAL INCOME BEFORE COMPUTING ANY DEDUCTION UNDER CHAPTER-VIA; AND II. NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BANKS OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. I.T.A. NO. 948/MDS/2013 6 6. IN THE PRESENT CASE, THE ASSESSEE HAS ADMITTEDLY MADE PROVISION FOR NON-PERFORMING ASSETS (NPA) IN RESPEC T OF ITS URBAN BRANCHES. THE ASSESSEE HAS DEBITED ` 2.52 CRORES (APPROXIMATELY) (I.E., 7.5% OF THE GROSS TOTAL INCO ME) IN P&L A/C CREATING PROVISION FOR NON-PERFORMING ASSETS IN ACC ORDANCE WITH THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT. THE REVENUE HAS DISPUTED THE DEDUCTION CLAIMED FOR THE REASON, THAT THE ASSESSEE HAS NOT CREATED PROVISION FOR BAD AND DOUBTFUL DEBT S. IN CASE OF BANKING COMPANIES, THE ACCOUNTS ARE MADE IN ACCORDA NCE WITH THE RBI GUIDELINES AND THE BANKING REGULATION ACT, 1949. ALTHOUGH THE ASSESSEE HAS NAMED THE PROVISION AS P ROVISION FOR NPA, BUT IN PITH AND SUBSTANCE THE PROVISION HAS B EEN CREATED FOR BAD AND DOUBTFUL DEBTS. THE TAXONOMY OF THE PROV ISION HAS BEEN DONE BY THE ASSESSEE TO KEEP IT IN LINE WITH T HE RBI AND NABARD GUIDELINES. THE LD.DR HAS RELIED ON THE ORDER OF TRIBUNAL IN TH E CASE OF KOTAKKAL CO-OPERATIVE URBAN BANK LTD., VS. ITO (SUPRA). THE FACTS OF THE CASE ARE DISTINGUISHABLE FROM THE CASE IN HAND. IN THE SAID CASE, THE ASSESSEE HAD NOT MADE ANY PROVISION AS ENVISAGED IN SECTION 36(1)(VIIA), WHEREAS, IN THE INSTANT CAS E, THE ASSESSEE HAD ALREADY MADE PROVISION THOUGH WITH A DIFFERENT NOMENCLATURE. I.T.A. NO. 948/MDS/2013 7 WE ARE SATISFIED THAT THE ASSESSEE HAS MADE PROVISI ON AND CLAIMED DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF SECTION 36(1)(VIIA). THE ASSESSEE IS ENTITLED TO THE BENEF IT OF SAME. THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL OF THE A SSESSEE IS ALLOWED. ORDER PRONOUNCED ON TUESDAY, THE 21 ST JANUARY, 2014 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VIK AS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 21 ST JANUARY, 2014 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR