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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & DR. MANISH BORAD, HON’BLE
आदेश /O R D E R
PER DR. MANISH BORAD, ACCOUNTANT MEMBER:
This appeal at the instance of assessee is directed against the order of Principal Commissioner of Income Tax, Madura-1, framed u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) dated 24.03.2022.
:-2-: ITA. No: 385/Chny/2022 2. When the case was called for hearing, none appeared on behalf of the assessee. Based on records, it shows that on the previous date of hearings i.e., 22.02.2023 & 22.03.2023, there was no representation on behalf of the assessee. Today also assessee failed to appear, even though notice have been issued through RPAD. Under these circumstances, we decide to adjudicate the appeal ex-parte qua the assessee on the basis of records placed before us as well as on considering the submissions of the ld. DR.
3. Though the assessee has raised many grounds of appeal, but the sole grievance is that ld. PCIT erred in assuming jurisdiction u/s. 263 of the Act and further, erred in treating the order of the Assessing Officer dated 11.12.2019 as erroneous and prejudicial to the interest of the revenue.
4. Facts in brief are that the assessee is a urban co- operative bank and for the assessment year 2017-18 declared income of Rs. 1,48,62,970/- in the return filed on 31.10.2017. The case was selected for limited scrutiny through CASS for the reasons “expenditure of personal nature”. After serving valid notice u/s. 143(2) and 142(1) of the Act, the assessment
:-3-: ITA. No: 385/Chny/2022 was completed on 11.12.2019 and returned income was accepted by the ld. AO and assessed accordingly.
Subsequently, ld. PCIT called for the assessment records and examined the claim made by the assessee towards provisions for bad and doubtful debts u/s. 36(1)(viia) of the Act and prima facie, observed that provisions created for standard assets amounting to Rs. 8,25,500/- does not qualify for deduction u/s. 36(1)(viia) of the Act. Accordingly, following show cause notice u/s. 263 of the Act was issued on 25.02.2022. The contents of the same are reproduced as under: “The examination of records for A.Y. 2017-18 revealed that you have filed your return of income electronically on 31/10/2017 admitting a total income of Rs.1,48,62,970/- Subsequently, the case was selected for Complete Scrutiny under CASS and the assessment was completed under section 143(3) of the I.T. Act, 1961 on 11/12/2019 by accepting the income returned. 2. On verification of the ITR filed for the A.Y.2017-18,it was found that you have claimed an amount of Rs.11,67,521/- towards provision for bad & doubtful debts u/s 36(1)(viia) which comprises of Provision for Standard Assets Rs.8,25,500/- and Provision for non-performing assets - Rs.3,42,021/-.Provision for Standard Assets amounting to Rs.8,25,500/- created is not against any debts which had become doubtful. Standard Assets are always standard assets. When the bank itself has treated such assets as recoverable, any provision made on such assets cannot be considered as a provision for bad and doubtful debts. As per the judgement pronounced in the case of Bharath Overseas :-4-: ITA. No: 385/Chny/2022 Bank Ltd Vs CIT (139 ITD 154) (Chennal Tribunal), the provision for standard assets could not be considered as provision for bad and doubtful debts, and hence could not be allowed as deduction u/s 36(1)(viia) of the Act. In view of the above, the provision created for Standard Assets amounting to Rs.8,25,500/- does not qualify for deduction u/s 36(1)(viia) of the Act. The assessing officer has failed to take cognizance of the above facts and allowed the deduction claimed u/s 36(1)(viia)of the Act.
During the scrutiny proceedings, the above aspect was not properly enquired into by the Assessing Officer. Without proper enquiry and non application of mind, the Assessing Officer had completed the assessment accepting the income returned. In view of the above, the assessment order passed by assessing officer under section 143(3) of the Income Tax Act 1961 on 11/12/2019 for the assessment year 2017-18 is held to be erroneous in so far as prejudicial to the interests of revenue. Hence, it is proposed to initiate proceedings u/s 263 of the Income tax Act 1961 for the reasons cited supra.
You are therefore given an opportunity on 09.03.2022 to show-cause why the assessment order should not be subject to proceedings under section 263 of the Income Tax Act, 1961 for the reasons discussed in the foregoing paras. You are requested to appear personally or through your Authorized Representative along with your written submissions and supporting documents, failing which, the case will be decided on merits without any further reference to you. If you do not wish to appear personally, you may also submit your written submissions along with supporting documents on or before 09.03.2022 eitherthrough e-mail or speed post.”
The assessee duly replied to the above show cause notice through e-proceedings on 18.03.2022, merely stating that the Assessing Officer has fully applied his mind during the course of assessment proceedings and allowed the claim of the assessee and thereby the aspect of neither non-application nor
:-5-: ITA. No: 385/Chny/2022 incorrect application of law not satisfy the requirement of the order being erroneous. However, the PCIT was not satisfied with the general submission and came to the conclusion that provisions created for standard assets amounting to Rs. 8,25,500/- does not qualify for deduction u/s. 36(1)(viia) of the Act, since standard assets are always standard assets and are performing assets and once, they are treated as non- performing asset, the income recognition stops. Learned PCIT accordingly held the order of the Assessing Officer dated 11.12.2019 as erroneous, in so far as prejudicial to the interest of the revenue, and directed the Assessing Officer to pass the assessment order after making necessary enquiries with regard to the issue referred in the show cause notice regarding provision created for standard assets.
The ld. Departmental Representative vehemently argued supporting order of the ld. PCIT.
We have heard ld. DR and perused the records placed before us. Issue regarding Assumption of jurisdiction u/s. 263 of the Act by ld. PCIT and holding assessment order dated 11.12.2019 framed u/s. 143(3) of the Act as erroneous and :-6-: ITA. No: 385/Chny/2022 prejudicial to the interest of the revenue is in challenge before us at the instance of assessee.
The only issue raised in the show cause notice u/s. 263 of the Act, by ld. PCIT is regarding the claim of expenditure in the form of provision for bad and doubtful debts u/s. 36(1)(viia) of the Act at Rs. 8,25,500/- made towards provisions for standard assets which is inter-alia, forming part of the total claim of Rs. 11,67,521/-. Ld. PCIT has observed that the provision for standard assets of Rs. 8,25,500/- is not allowable under the law. During the course of revisionary proceedings, the assessee has filed a reply but the same is general in nature, and there is no mention about the issue raised by the ld. PCIT about the alleged claim of provisions of Rs. 8,25,500/-. The assessment order is also silent on this issue and it is hardly running in six lines. Further, the assessee has failed to appear on the past occasions and no written submissions has been filed nor any paper book has been submitted, which could provide an insight about the information called by the Assessing Officer and the replied filed by the assessee. In lack of such information it cannot be looked into as to whether the Assessing Officer has made
:-7-: ITA. No: 385/Chny/2022 proper and adequate enquiry about the alleged claim of Rs. 8,25,500/-.
Though, in the assessment order it is mentioned that the case was selected for limited scrutiny, only for the purpose of examining “expenditure of personal nature”, however inthe first para of the impugned order, it is stated that the case was selected for complete scrutiny under CASS. In lack of necessary information at the behest of the assessee, it is presumed that the assessee’s case was selected for complete scrutiny. Since, ld. PCIT has observed that the assessment was completed after being selected for complete scrutiny then in our view, the claim of the assessee towards provision for standard asset at Rs. 8,25,500/- has not been examined by the Assessing Officer.
We therefore, under the given facts and circumstances of the case fail to find any inconsistency in the findings of the ld. PCIT setting aside the assessment order dated 11.12.2019 holding it to be erroneous and prejudicial to the interest of the revenue, as the ld. AO failed to conduct necessary enquiry and examine the claim of provision for standard assets amounting
:-8-: ITA. No: 385/Chny/2022 to Rs. 8,25,500/-. Thus, findings of ld. PCIT in the impugned order u/s. 263 of the Act are confirmed and all the grounds of appeal raised by the assessee are dismissed.