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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
This appeal by the assessee is directed against the order of the Pr. CIT, Thrissur passed u/s. 263 of the Act dated 18/12/2018 and pertains to the assessment year 2015-16.
The assessee has raised the following grounds of appeal:
The order of the Principal Commissioner of Income Tax is against equity, law and justice.
2. The learned Principal Commissioner of Income Tax (PCIT) erred in revising the assessment u/s 263 of the Act, as the assessment made under section 143 (3) of the Act, for the year is neither erroneous nor prejudicial to the interests of the revenue.
3. The learned PCIT ought to have noticed that similar claims which were made on the basis of the interpretation of the term 'bad debts written consistently allowed in the assessments of prior years, relying on the decisions of Hon Apex Court in the case of Vijaya Bank vs. CIT ,reported in 323 ITR 166 (SC) clarifying that if an assessee debits an amount of doubtful debt to the profit and loss account and credits the asset account like sundry debtor's account, it would constitute a write off of an actual debt eligible for u/s 36(l)(vii) of the Act, and the learned PCIT has not bought on record any change on facts and law, and hence the assessment made during the year is neither erroneous nor prejudicial to the interests of the revenue.
4. The learned PCIT erred in not appreciating the facts held on records and interpreting the financial statements on record. The amount provisions debited to profit and loss account and reduced from advances is clearly stated in the Financial Statements for the year. The fact that the Profit and loss account is debited with Provision for Non-Performing Assets amounting to Rs.294,76,94,000/- is clear from amount debited to the Profit and Loss account under the head 'Provisions and Contingencies' (Page no.57 of the Annual Report) read with its breakup given in Page no 64 of Annual Report.
5. The Learned PCIT ought to have taken note of Page no 97 of the Annual Report in isolation, for concluding that that bad debts written off in the accounts amounts to Rs.173,69,10,000/- only, as the said note is only a statistical disclosure of the movements of NPA made as per the requirement of the Reserve Bank of India (RBI).
It is well settled law that statutory disclosures in the financial statements are not determinative of the tax treatment. In the light of the definition to the term "write-off of bad debts" for the purpose of section 36 (1) (vii) as explained by the Honorable Apex Court in the case of Vijaya Bank, the revenue cannot give a different meaning to it and the learned Principal Commissioner is duty bound to follow it.
For the above and other grounds to be adduced at the time of hearing it is prayed that the order passed by the learned Principal Commissioner of Income tax may be cancelled.
The facts of the case are that on verification of records, the Pr. CIT observed that the assessee debited an amount of Rs.294,76,94,000/- being provision for NPA included under provisions and contingencies in profit and loss account. While computing the loss returned, the same amount was claimed as bad debt written off 2 u/s.36(1)(vii) of the Act and the claim was allowed by the Assessing Officer vide order dated 07/12/2017. According to the Pr. CIT, the scrutiny of annual report of the bank revealed that the actual bad debt written off in accounts amounts to Rs.173,69,10,000/-only. The Pr. CIT observed that since the amount of Rs.294,76,94,000/-being provisions made in accounts for NPA was not allowable u/s. 36(1)(vii), allowance of deduction u/s.36 (1)(vii) resulted in excess allowance of loss to be carried forward to the tune of Rs.121,07,84,000/-having a potential tax effect of Rs.41,15,45,482/-. According to the Pr. CIT, as per explanation-1 to clause(vii) of section 36(1), any bad debt or part there-of written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. Hence, the Pr. CIT observed that the Assessing Officer had not examined the above issue which resulted in the said order being erroneous in so far as it is prejudicial to the interests of the revenue which has mandated revisionary proceedings under section 263 of the Act. Accordingly, he directed the Assessing Officer to modify the assessment order to the extent to allow the correct deduction u/s. 36(1)(vii) after giving reasonable opportunity of hearing to the assessee.
Against this, the assessee is in appeal before us.
We have heard the rival submissions and perused the record. In the present case, the issue is with regard to charging of Rs.294,76,94,000/- towards provision for NPA into the P&L account. According to the Pr. CIT, the assessee had written 3 off only Rs.1,73,69,10,000/- as bad and doubtful debts towards NPA and therefore, the assessee is entitled only to the extent bad and doubtful debts actually written off u/s. 36(1)(vii) of the Act. In our opinion, this contention of the CIT(A) is having no merit since this issue was considered by the Supreme Court in the case of Vijaya Bank vs. CIT and Another (323 ITR 166) wherein it was held as under:
“Section 36(1)(vii) of the Income Tax act, 1961, dealing with allowance of bad debts written off by the assessee, covers banking as well as non-banking assessees.
After April 1, 1989, a mere provision for bad debt will not be entitled to deduction under section 36(1)(vii). If an assessee debits an amount of doubtful debt to the profit and loss account and credits the assets account like sundry debtors account, that would constitute a write off of an actual debt. However, if an assessee debits provision for doubtful debts to the profit and loss account and makes a corresponding credit to the “current liabilities and provisions” on the liabilities side of the balance-sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after April 1, 1989.”i 5.1 Hence, we find no error in the order of the Assessing Officer dated 07/12/2017 so as to render it prejudicial to the interests o the revenue. Since the view taken by the Assessing Officer is supported by the Supreme Court in the case of Vijaya Bank vs. CIT and Another (supra), the Pr. CIT is not justified in invoking the provisions of section 263 of the I.T. Act on this issue. Hence, we quash the order of the Pr. CIT passed u/s. 263 of the I.T. Act.