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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI ABY T. VARKEY & MS. PADMAVATHY S.
1 ITA 923/Mum/2023 Union Bank of India IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI
BEFORE SHRI ABY T. VARKEY (JUDICIAL MEMBER) AND MS. PADMAVATHY S. (ACCOUNTANT MEMBER)
I.T.A. No.923/Mum/2023 (Assessment year 2009-10) M/s Union Bank of India vs Deputy Commissioner of Income Tax Union Bank Bhavan Circle-(LTU) 2, Mumbai 239, Vidhan Bhavan Marg Nariman Point, Mumbai-400 021 PAN : AAACU0564G APPELLANT RESPONDENT
Assessee represented by Shri C Naresh Department represented by Shri Ankush Kapoor CIT DR
Date of hearing 14-06-2023 Date of pronouncement 26-06-2023
O R D E R PER : MS PADMAVATHY S. (AM)
This appeal is against the order of the Commissioner of Income-tax (Appeals) (National Faceless Appeal Centre) (NFAC) [hereinafter ‘Ld.CIT(A)'] dated 25/01/2023 for the assessment year 2009-10. The assessee raised the following grounds of appeal:-
“On jurisdiction 1. On the facts and in the circumstances of the case and in law, the Id.CIT(A), NFAC has erred not granting opportunity to the Appellant Bank to present the case through video conferencing as specified under faceless appeal scheme, 2020 provided u/s. 250(6B) of the Income Tax Act, 1961 ("the Act")
2 ITA 923/Mum/2023 Union Bank of India On Merits ' . 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirm! the order of AO in restricting the deduction u/s 36(l)(viia) to the extent of provision for h and doubtful debts made during the year overlooking the specific directions of Hon'ble IT to follow the decision of Hon'ble ITAT Ahmedabad in the case of Sarvodaya Sahakari Bank where it was held that deduction should be allowed to the extent of provision made a available in the books of account, whether made in the current previous year or in 1 preceding previous years 2.1 Without prejudice to above, the Id. CIT(A) erred in not confirming the action of AO in i considering the provision made for standard assets and restructured assets as provision bad and doubtful debts.
The assessee bank, in the return of income had claimed deduction under section 36(1)(viia) which was restricted by the Assessing Officer to the extent of the provisions made by the assessee for the year under consideration. The assessee filed appeal before the CIT(A), who upheld the order of the Assessing Officer. The assessee preferred further appeal before the Tribunal and the Tribunal vide order dated 17/12/2015 had held that – “15. Grievance raised vide ground No. 5 have been decided against the assessee and in favour of the Revenue by the Tribunal in assessee’s own case in ITA Nos. 4678 & 4842/M/2013 for A.Y. 2008-09. The Tribunal has considered this issue at para-21 on page-10 of its order and at para-23 the Tribunal held as under:
“Since the decision rendered by the Tribunal in A.Y. 2005- 06 is a later decision and since the Tribunal has followed the decision rendered by Hon’ble Punjab & Haryana High Court, we are inclined to follow the same. Accordingly, we set aside the order of the Ld. CIT(A) on this issue and restore that of the AO. “
However, before us, the Ld. Counsel for the assessee placed the decision of the Tribunal Ahmedabad Bench in the case of DCIT Vs Sarvodaya Sahakari Bank Ltd. in ITA No. 779 (Ahd) of 2011. It is the say of the Ld. Counsel that this issue need to be decided afresh in the light of the findings of the Tribunal Ahmedabad Bench. We find force in the contention of the Ld. Counsel. We accordingly set aside the issue to the file of the AO. The AO is directed to decide the issue afresh in the light of the decision of the Tribunal, Ahmedabad Bench in
3 ITA 923/Mum/2023 Union Bank of India
the case of Sarvodaya Sahakari Bank Ltd (supra). This ground is treated as allowed for statistical purpose.”
In the remand proceedings, the Assessing Officer passed an order giving effect dated 22.12.2017 to the Tribunal's order where he had computed the amount allowable under section 36(1)(viia) as below:-
Particulars Amount Amount (Rs.) (Rs.) Income as per order u/s 154 of the Act dated 1592,35,59,106/- 16.6.2017 Add : Chapter VI-A deductions 13,58,49,246/- Add : Deduction u/s 36(1)(viia) 555,29,90,155/- Less: Relief allowed by ITAT Disallowance u/s 14A 47,38,66,147 Deduction u/s 36(1)(viii) 250,35,00,000/- Rs.416,98,00,000/- less Rs.166,63,00,000/-
(Relief allowed by CIT(A) 297,73,66,147/- Less: Deduction u/s 36(1)(viia) 10% of avg.rural advances 680,51,50,209/- 7.5% of Gross Total Income 139,76,27,427/- 820,27,77,636/- 555,29,90,156/- Restricted to provision of Rs.555,29,90,156/- (excluding provision made for standard assets as per order dated 18.03.2015) Gross Income 1308,20,42,205/- Less : Deduction under Chapter VIA u/s 80G 3,38,81,500/- u/s 80LA 10,19,67,746/- 13,58,49,246/- Total Income 1294,61,92,959/- Total Income (rounded off) 1294,61,92,960/-
In the order giving effect the Assessing Officer has excluded the provision made for standard assets and accordingly restricted the amount allowable to Rs.555,29,90,156/-. The CIT(A), on further appeal relied on the decision of Visakhapatnam Bench of the Tribunal in the case of ACIT vs Chaitainya Godavari
4 ITA 923/Mum/2023 Union Bank of India Grameena Bank reported in (2018) 94 taxman.com 400 (Visakhapatnam – Trib) and upheld the amount disallowed by the Assessing Officer for the same reason that the provision made towards standard assets cannot be considered for deduction under section 36(1)(viia). Aggrieved, the assessee is in appeal before the Tribunal.
The Ld.AR submitted that in the order giving effect, the Assessing Officer has not complied with the directions of the Tribunal since the issue was remanded with a specific direction to consider the issue in the light of decision of the Ahmedabad Tribunal in the case of DCIT vs Sarvodaya Sahakari Bank Ltd (2014) 48 Taxmann.com 82 (Ahmedabad-Tib) where it has been held that –
We have heard the Departmental Representative. The relevant provision of section 36(1)(viia) reads as under: '(viia) in respect of any provision for bad and doubtful debts made by - (a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than 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 clause and Chapter VI-A) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner: Explanation: - In this clause, (vi) "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P ;' The Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala v. CIT [2005] 272 ITR 54/143 Taxman 196 has held as under:
5 ITA 923/Mum/2023 Union Bank of India "A bare perusal of section 36(1)(viia) as applicable to assessment year 1985-86 shows that the deduction allowable under section 36(1)(viia) is in respect of the provision made. Therefore, making of a provision for bad and doubtful debt equal to the amount mentioned in the said section is a must for claiming such deduction." 12. We find that Hon'ble Punjab & Haryana High Court has laid emphasis on the words 'any provision for bad and doubtful debt made by' to hold that charging of provision in the profit and loss account is mandatory. Therefore, let us examine the wordings of the section 36(1)(vii) and 36(1)(viia):
(a) Section 36(1)(vii) - Bad-debts written-off (b) Section 36(1)(viia) - Provision for Bad and Doubtful Debts Provision of section 36(1)(vii) reads as under: (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; Provision of section 36(1)(viia) reads as under: (viia) in respect of any provision for bad and doubtful debts made by - (a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than 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 clause and Chapter VI-A) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner; 13. Thus, a reading of the above provisions will show that the distinction is very clear that the provision is required to be made but need not be in the same previous year for which the deduction u/s. 36(1)(viia) is claimed, since the words 'in the accounts for the previous year' does not appear in the said section, whereas, it specifically appears in relation to the deduction u/s. 36(1)(vii). Thus, it is clear that it is the intention of the legislature that the provision should be made specifically for this purpose but did not however require that the provision needs to be made only in the relevant previous year as could be clearly seen on comparative reading of section 36(1)(vii) and 36(1)(viia).
6 ITA 923/Mum/2023 Union Bank of India 14. Further, where the intention of the legislature was requiring the debit in the profit and loss account it has been specifically provided in the section as will be seen from a reading of section 33AC which reads as under: "Reserves for shipping business: - (1) In the case of an assessee, being a Government company or a public company formed and registered in India with the main object of carrying on the business of operation of ships, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount not exceeding fifty per cent of profits derived from the business of operation of ships (computed under the head "Profits and gains of business or profession" and before making any deduction under this section), as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account, to be utilized in the manner laid down in sub-section (2):" Contradictory to this reserve, in the case of reserve u/s. 36(1)(viii), there is no requirement that the same should be created in the same previous year in which deduction is to be allowed. The relevant provision reads as under: "(viii) in respect of any special reserve created by a financial corporation which is engaged in providing long-term finance for industrial or agricultural development in India or by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes, an amount not exceeding forty per cent of the total income (computed before making any deduction under this clause and Chapter VIA) carried to such reserve account:" Therefore, it is seen that whereas 'provision for bad and doubtful debts' u/s. 36(1)(viia) can be claimed in respect of provision made in any preceding previous year subject to the limitations made therein, the deduction for actual bad debts can be claimed only in the previous year in which it was actually written off in the books of account. Similarly, the reserve created u/s. 36(1)(viii) can be claimed in respect of provisions made in any preceding previous year, the reserve created u/s. 33AC is allowable in the previous year in which the reserve was actually created in the books of account. Hence, in our considered view, the legislature, whenever it intended that there should be debit in the profit and loss account or an entry in the books of account in the relevant previous year, it specifically mentioned its intention in the section itself with specific words.
7 ITA 923/Mum/2023 Union Bank of India 15. In the case of State Bank of Patiala (supra) the Hon'ble Punjab & Haryana High Court observed that as the bank was creating exact amount of provision as per section 36(1)(viia) of the Income Tax Act, 1961, in the particular year under appeal, there was no sufficient provision. The Hon'ble High Court held as under: "In the present case, the assessee has not made any provision in the books of account for the assessment year under consideration, i.e., 1985-86, by making supplementary entries and by revising its balance-sheet. The provision has been made in the books of account of the subsequent year." Further, it was observed by the Hon'ble Punjab & Haryana High Court that additional provision was created only subsequently. Therefore, the judgment of the Hon'ble Punjab & Haryana High Court holds good for that particular circumstance of the case. Hence, in our considered opinion, it is clear that the provisions for bad and doubtful debts should be allowed u/s. 36(1)(viia), to the extent of provision made and available in the books of account, whether made in the current previous year or in the preceding previous years as we find that none of the lower authorities i.e. either Assessing Officer or the Commissioner of Income Tax (Appeals) has examined the issue under consideration from this angle and as the entire facts are not available for us to adjudicate the issue, we, in the interest of substantial justice, set aside the orders of the lower authorities and remand the matter back to the file of the Assessing Officer for adjudication of the issue afresh as per law in the light of the discussions made hereinabove. Needless to mention that the Assessing Officer shall allow reasonable and proper opportunity of hearing to the assessee before adjudicating the issue afresh. Thus, this ground of appeal of the Revenue is allowed for statistical purposes.
The ld AR accordingly submitted that as per the directions of the Hon'ble Tribunal the Assessing Officer ought to have examined only the fact whether there is sufficient provision available in the books of accounts of the assessee irrespective of whether made in the current previous year or in the preceding previous years while deciding the amount allowable u/s. 36(1)(viia). The Ld.AR in this regard drew our attention to the financials of the assessee wherein the provision for bad and doubtful debts stood at Rs.1549 crores as on 31/03/2009 and therefore the Assessing Officer should have allowed the entire amount of
8 ITA 923/Mum/2023 Union Bank of India Rs.820.28 crores claimed by the assessee. The ld AR further submitted that the Assessing Officer has travelled beyond the directions of the Hon'ble Tribunal in the remand proceedings to analyse the provision made for bad and doubtful debts and held that the provision made against standard assets cannot be considered to be provision made for bad and doubtful assets restricting the deduction accordingly. The ld AR also submitted that the Assessing Officer as well as the CIT(A) in original proceedings have not questioned this issue and has restricted the deduction u/s.36(1)(viiia) merely for the reason that the provision made during the year under consideration only should be considered for the purpose of allowability of the deduction. It is therefore the argument of the ld AR that the Assessing Officer did not follow the directions of the Hon'ble Tribunal and the order thus passed should be quashed.
The Ld.DR, on the other hand, supported the order of the lower authority.
We heard the parties and perused the material on record. The assessee has in the first round of appeal contended the issue of restricting the deduction allowable under section 36(1)(viia) to the provision made during the previous year on the ground that the earlier year decision in assessee's own case (AY 2005-06) in which the decision of the Punjab and Haryana High Court in the case of State Bank of Patiala v. CIT [2005] 272 ITR 54/143 Taxman 196 has been followed cannot be applied since the said decision has been distinguished by the Ahmadabad Bench of the Tribunal in the case of Sarvodaya Sahakari Bank Ltd (supra) where the Hon'ble Tribunal has held that the deduction under section 36(1)(viia) should be allowed to the extent the provision for bad and doubtful debts available in the books of accounts irrespective of whether the provision is
9 ITA 923/Mum/2023 Union Bank of India made in the current previous year or in the preceding previous years. Therefore the assessee had prayed that the issue needs to be examined in the light of the decision of the Ahmadabad Bench of the Tribunal in the case of Sarvodaya Sahakari Bank Ltd (supra). Accordingly the issue for the year under consideration was remanded by the Hon'ble Tribunal to the assessing officer with a direction to consider the issue of amount allowable under section 36(1)(viia) in the light of the above decision of the Ahmadabad Tribunal.
We notice that the lower authorities while considering the issue afresh in the remanded proceedings restricted the deduction on the ground that the amount of provision made towards bad and doubtful debts in the books of accounts for the purpose of section 36(1)(viia) should exclude the provision made towards standard assets. The ld DR while relying on the order of the CIT(A) submitted that the provision made on standard assets cannot be considered as provision made for bad and doubtful debts since the assessee itself has classified the asset as good and recoverable i.e. standard asset. The ld DR also drew our attention to the decision relied on by the CIT(A) in the case of ACIT vs Chaitanya Godavari Grameena Bank (2018) 93 Taxmann.com 400 (Vishakapatnam-Trib) where the issue of provision made towards bad and doubtful debts against various class of assets is discussed in detail to hold that the provision made against standard assets cannot be considered as provision made towards bad and doubtful assets for the purpose of deduction u/s.36(1)(viia). Be that as may be, in the given case the Hon'ble Tribunal has given a direction to the Assessing Officer to consider the issue afresh in the light of the decision of Ahmadabad Bench of the Tribunal in the case of Sarvodaya Sahakari Bank Ltd (supra) whereby the Assessing Officer is required to look into the total provision towards bad and doubtful debts as per the books of
10 ITA 923/Mum/2023 Union Bank of India accounts of the assessee irrespective whether the provision is made in the current year or previous year and allow the claim u/s.36(1)(viia) accordingly. However we notice that the Assessing Officer in the order giving effect has not discussed anything in this regard but has proceeded to restrict the claim based on a different ground. We notice that the revenue had not taken any action against the directions of the Tribunal as per the original order, and therefore the directions have crystallized which means that the Assessing Officer has no alternate course except to follow the directions. Accordingly, the Assessing Officer in the remand proceedings ought to have verified the availability of sufficiency of provisions as per the books of accounts of the assessee and allow the claim u/s.36(1)(viia). As has been pointed out by the ld AR, the assessee is carrying a provision of Rs.1549 crores as on 31/03/2009 and the claim made during the year under consideration is Rs.820.28 crores. Therefore respectfully following the decision of the Ahmadabad Bench of the Tribunal in the case of Sarvodaya Sahakari Bank Ltd (supra), we are of the view that no disallowance is warranted since the assessee is having sufficient provision towards bad and doubtful debts in the books of accounts and delete the disallowance made by restricting the amount claimed as a deduction u/s.36(1)(viia) of the Act by the Assessing Officer in this regard.
In result the appeal of the assessee is allowed.
Order pronounced in the open court on 26/06/2023.
Sd/- sd/- (ABY T. VARKEY) (PADMAVATHY S) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 26th June, 2023 Pavanan
11 ITA 923/Mum/2023 Union Bank of India
�ितिलिप अ�ेिषत �ितिलिप अ�ेिषतCopy of the Order forwarded to : �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत अपीलाथ�/The Appellant , 1. �ितवादी/ The Respondent. 2. आयकर आयु� CIT 3. िवभागीय �ितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, 4. Mumbai गाड� फाइल/Guard file. 6. BY ORDER, //True Copy// Asstt. Registrar / Senior Private Secretary ITAT, Mumbai