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Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
Before: SHRI GEORGE MATHAN & SHRI MANISH AGARWAL
(िनधा�रण वष� / Assessment Year : 2015-2016) ACIT, Circle-1(1), Sambalpur Vs The Koraput Central Cooperative Bank Limited, Jeypore, Dabbuguda, Koraput PAN No. : AAAAT 2619 K AND Cross Objection No.05/CTK/2024 (िनधा�रण वष� / Assessment Year : 2015-2016) The Koraput Central Cooperative Vs ACIT, Circle-1(1), Sambalpur Bank Limited, Jeypore, Dabbuguda, Koraput PAN No. : AAAAT 2619 K (अपीलाथ� /Appellant) .. (��यथ� / Respondent) िनधा�रती क� ओर से /Assessee by : Shri Rohit Kumar Singhania, CA राज�व क� ओर से /Revenue by : Dr. Abani Kanta Nayak, CIT-DR सुनवाई क� तारीख / Date of Hearing : 11/11/2024 घोषणा क� तारीख/Date of Pronouncement : 11/11/2024 आदेश / O R D E R Per Bench : This is an appeal filed by the revenue against the order of the ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, dated 17.05.2024, passed in appeal No.NFAC/2014-15/10211783 vide DIN & Order No.ITBA/NFAC/S/250/2024-25/1064953497(1) for the assessment year 2015-2016. The assessee has also filed cross objection.
The revenue in its appeal has raised the following grounds :- 1) Whether on the facts and circumstances of the case and in law, the Ld CIT(A) is justified in modifying the computation by allowing the deduction of Rs 15,42,35,031/- u/s 36(1)(viia) of the Act without appreciating the fact that the assessee has claimed deduction u/s 36(1)(visa) of the Act of Rs.5,82,04,860/- only while filing its Return of Income and accordingly deduction u/s 36(1)(viia) of the Act should be restricted to the actual claim of the assessee or as per the definition of "Provision of Bad & Doubtful Debts"
CO No.05/CTK/2024 2) Whether on the facts and circumstances of the case and in law, the Ld CIT(A) is justified in considering that Provision for Imbalance partakes the character of provision for bad and doubtful debts and therefore same is considered for the purpose of computing the deduction u/s 36(1) (viia) of the Act without appreciating the fact that the assessee has neither fumished any documentary evidences justifying the nature and purpose of such expenditure for treating the same as "bad & doubtful debts" during the course of assessment proceeding nor during the course of appeal proceeding 3) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in taking the Provision for Infrastructure Development of Rs 1,12,90,000/- suo-moto for computing the deduction of Rs. 15,42,35,031/- u/s 36(1)(viia) of the Act without appreciating the fact that the assessee had itself not considered the said Provision for computing the deduction 36(1)(viia) of the Act while submitting its revised computation during the course of appeal proceeding Further, the Ld CIT(A) has not discussed any basis for treating the same as Provision for taking in computation for allowability of deduction u/s 36(1)(viia) of the Act. 4) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in taking the Provision for Infrastructure Development of Rs. 1,12,90,000/- for computing the deduction of Rs. 15,42,35,031/- u/s 36(1)(viia) of the Act without appreciating the fact that the Ld. CIT(A) has itself observed that the expenditure of Rs. 1,12,90,000/- claimed under the head Provision for Infrastructure Development is not allowable as a Revenue Expenditure and accordingly dismiss the appeal of the 5) The appellant craves to leave to add, alter, amend one or more grounds of appeal before the appeal is heard.
3. The assessee in its cross objections has raised the following objections:-
1. That the Ld.CIT(A) has correctly computed the deductions available to the assessee bank u/s 36(1)(viia) as per the provisions contained in the Income tax Act
2. That the Ld.CIT(A) has correctly interpreted that the Provision of Imbalance is nothing but a Provision for NPA
3. That the assesee bank has created the Provision for Infrastructure development of the branches and so an allowable expenditure as per provisions contained in section 37(1)
CO No.05/CTK/2024 4. That the assessee bank craves leave to add, amend, modify delete, alter, withdraw all or any of the grounds of appeal 4. Brief facts of the case are that the assessee is a cooperative bank and filed its return of income on 29.09.2015 declaring total income of Rs.1,45,49,630/-. The assessment was completed u/s.143(3) of the Act vide order dated 31.10.2017 wherein the AO has accepted the income declared by the assessee. Thereafter the ld. Pr.CIT initiated the proceedings u/s.263 of the Act and in terms of order dated 28.04.2020 held the assessment order as erroneous as well as prejudicial to the interest of revenue and directed the AO to decide the issue of allowability of provision of bad and doubtful debts de novo as per law. In compliance, the AO has passed the impugned order dated 29.09.2021 u/s.143(3) of the Act, wherein provision for overdue interest, NPA, standard assets, imbalances and infrastructure development of branch claimed by the assessee at Rs.20,46,40,041/- was restricted to Rs.7,11,13,640/- by disallowing the provisions made against imbalances Rs.12,22,36,401/- and provision for infrastructure development of branch of Rs.1,12,90,000/- . Against the said disallowance the assessee preferred appeal before the ld. CIT(A), who allowed part relief to the assessee and allowed the provisions of bad & doubtful debts at Rs.15,42,35,031/- as against Rs.7,11,13,640/- allowed by the AO based on the calculation done in terms of the provisions of Section 36(1)(viia) of the Act and by including provision for imbalances and provision for infrastructure development of branch as part of eligible provisions u/s.36(1)(viia) of the Act. Against the CO No.05/CTK/2024 said order, the department is in appeal before us. In cross objection, the assessee has supported the order of the ld. CIT(A) and further challenged the action of the ld. CIT(A) in not allowing the provision for infrastructure development as revenue expenses u/s.37(1) of the Act.
During the course of hearing the ld. CIT-DR vehemently supported the order of the AO and submitted that the assessee has claimed expenditure towards the provisions against imbalances which is not allowable u/s.36(1)(viia) of the Act as it is not made for bad and doubtful debts. He further submitted that during the course of assessment proceedings the assessee has failed to justify the claim of provisions against imbalances and provisions for infrastructure of development branch and further failed to justify as to how these provisions are covered u/s.36(1)(viia) of the Act. Ld. CIT-DR submitted that provision for imbalances is nothing but the amount which is utilized/misused by PACS out of the funds provided by the assessee bank and could not be held as bad debts. He further submitted that the assessee has not challenged the order of ld. Pr.CIT passed u/s.263 of the Act, wherein at page 2 in para 4 the ld. Pr.CIT in specific term had observed that the claim of Rs.13,35,26,401/- on account of provisions against imbalances and provisions for infrastructure development branch should not be allowed and be added back to the total income of the assessee. According to ld. DR, once the ld. Pr.CIT has taken this view, the ld. CIT(A) is barred to take a different view as ld. Pr.CIT is a higher authority and in the order u/s.263 of the Act, the Pr.CIT has directed the AO to modify the order on CO No.05/CTK/2024 the issue of provisions of bad debts to disallow the same to the extent of Rs.13,35,26,401/- as observed in para 4 at page 2 of the order reproduced above. Therefore, any further relief allowed by the ld. CIT(A) is against the hierarchy and, thus, the same deserves to be reversed.
With regard to the provision for infrastructure development of branch, ld. CIT-DR submitted that it is not at all related to the advances given by the assessee bank and the said provision is made in terms of the guidelines of the NABARD according to which the cooperative-cum- banking sector has to provide proper infrastructure facilities at the branches of the bank, and, therefore, the same is not allowable u/s.36(1)(viia) of the Act. He, therefore, prayed for the restoration of the disallowance made by the AO.
On the other hand, ld. AR supported the order of the ld. CIT(A) and stated that the provisions against imbalances is nothing but the provisions towards bad and doubtful debts made out of the advances given to PACS. Ld. AR further submitted that it represents the amount which was not paid by the PACS out of the recovery made by them and has been utilized for their own administrative expenses. Since the assessee is earning interest on such advances made to the PACS, any bad debts out of the principal /interest due amount is eligible for provision for bad and doubtful debts in terms of Section 36(1)(viia) of the Act and the ld. CIT(A) has rightly included the same in the total amount eligible for provisions for bad & doubtful debts as computed in terms of Section 36(1)(viia) of the Act.
CO No.05/CTK/2024 8. In regard to the provision for infrastructure development of branch, ld. AR submitted that it has been made in terms of the guidelines of NABARD which are applicable to all the credit cooperative banks and, therefore, the provision has rightly been considered for the gross amount of provisions for bad and doubtful debts by the ld. CIT(A). He, therefore, prayed for the confirmation of the order of the ld. CIT(A) in this regard. Alternatively he submitted that the same be allowed as revenue expenditure u/s.37(1) of the Act.
We have considered the rival submissions and perused the material available on record. It is seen that the ld. Pr.CIT while holding the assessment order passed u/s.143(3) of the Act as erroneous and prejudicial to the interest of revenue has set aside the order for limited purpose on particular issue of allowability of provisions for bad and doubtful debts as computed u/s.36(1)(viia) of the Act and further observed that this issue is set aside de novo as per law. The relevant observations as made by the ld. Pr.CIT in para 8 of the order are reproduced as under:- 8. Thus, having regards to the facts and circumstances of the case, I, hereby deem it fit and proper to set aside the assessment order, being erroneous & prejudicial to the interest of revenue for the limited purpose on this particular issue for modification after considering the said issue de novo as per law. However, it goes without saying that while doing so the assessee must be given sufficient opportunity to represent his case.
As the ld. Pr.CIT has directed the AO to modify the assessment order on the issue of provision for bad & doubtful debts after considering the said issue de novo as per law, thus, we are not accepting the argument of the ld. CIT-DR that the ld. CIT(A) cannot interfere in the CO No.05/CTK/2024 directions given by the ld. Pr.CIT in the order passed u/s.263 of the Act. Further the ld. CIT(A) is a quasi judicial authority and its independence cannot be limited by virtue of the hierarchy position in the departmental internal set up otherwise this will end up the confidence of tax payer in appellate system.
Coming to the merits of the issue, we find that though the nomenclature of the expenses as claimed by the assessee is “provision against imbalances”, however when we looked into the real nature of the provision, we find that this provision is created against the advances given to the PACS and fully covered under the provisions of Section 36(1)(viia) of the Act. The assessee has filed Appendix II in the paper book pages 22 & 23 according to which how the amount of provision worked out is reflected. From the perusal of the said chart it is seen that the assessee bank has made advances to PACS against which the said PACS has given advances to its members and there was a difference between amounts advanced by the assessee to the PACS and subsequent advances given by this PACS to its members which has been titled as imbalance. Since immediate source of repayment in the hands of PACS of the amount borrowed from the assessee is out of loans given to its member which were not sufficient, therefore, the assessee bank is of the opinion that the difference amount could be its bad debts in future. Accordingly a sum equal to this imbalance amount has been provided for in the shape of provisions for imbalance in the books of accounts. The relevant chart is reproduced hereinunder :-
As is evident from the above charts, the amount of provision made during the year is calculated on the basis of the differences between the CO No.05/CTK/2024 amount advanced to PACS and their outstanding against members including interest as reduced by the provision made, therefore, this amount is clearly worked out as ascertained future bad debt for which the necessary provisions has been made in the books of accounts. In the case of Balasore Bhadrak Central Cooperative Bank Limited, passed in dated 21.10.2024, this Bench of the Tribunal held that such provision for imbalance could not be part of the provisions allowable u/s.36(1)(viia) of the Act for the reason that in that case no such working was made by the assessee and a lumpsum provision was made, therefore, we are of the opinion that it was a lumpsum contingent provision made to meet out the future liability is not eligible for provision u/s.36(1)(viia) of the Act. However, in the present case, as observed above, the assessee bank has been able to demonstrate the mode and manner in which the amount of provision is calculated, therefore, it is an ascertained amount of doubtful debts for which the provision has been made. Thus, this amount of provision is eligible for deduction u/s.36(1)(viia) of the Act, subject to maximum ceiling of the amount as computed u/s.36(1)(viiaa) of the Act i.e. total ceiling of Rs.15,42,35,031/- as calculated the ld. CIT(A) in the table given in page 13 of the appellate order. Therefore, we find no infirmity in the order of the ld. CIT(A) on this issue.
With regard to the other issue of provision for infrastructure development, we find that this provision is made against the future CO No.05/CTK/2024 expenses to be incurred by the cooperative bank for betterment of its infrastructure facilities at various branches and is an unascertained liability having no direct connection with advances made. This amount cannot be held as provision for bad and doubts debts and accordingly we differ on this issue from the order of the ld. CIT(A) and direct the AO to exclude this amount from the eligible amount of provisions for bad and doubtful debts as computed u/s.36(1)(viia) of the Act.
With regard to the argument of the ld. AR that the provision of infrastructure development should be allowed as allowable expenses u/s.37(1) of the Act, we are in agreement with the observations made by the ld. CIT(A) in this regard. This amount is a provision against the future liability of infrastructure development and is a contingent liability and is not ascertained provision. Against this provision, the amount actually paid will be allowed u/s.37(1) of the Act. Therefore, we uphold the observations of the ld. CIT(A) that any unascertained provision should not be allowed as deduction u/s.37(1) of the Act. In view of the above discussion, all the grounds of appeal
of the revenue are partly allowed.
15. With regard to the cross objection filed by the assessee in respect of not accepting the claim of the assessee by the ld. CIT(A) that the provision for infrastructure development of the branches is allowable expenditure as per the provisions contained in Section 37(1) of the Act, we have already uphold the above observations of the ld. CIT(A) while deciding the appeal of the revenue. Thus, all the cross objections of the assessee are hereby dismissed.