LATUR DISTRICT CENTRAL CO-OP BNAK LTD,,LATUR vs. PR. COMMISSIONER OF INCOME-TAX -2,, AURANGABAD

At the outset, we notice that out of the two appeals, one appeal (ITA No.165/PUN/2019) is time barred by 239 days. The assessee has filed an affidavit along with condonation of delay petition. We have gone through the condonation petition as well as the affidavit and have found that reasons specified therein are justified and that the delay cannot be attributed to the deliberate conduct of the assessee neither through intention nor through action. The reasons for delay in filing the appeal late were beyond the control of the assessee and even the Ld. DR stated that he has no objection, if the delay is condoned. In view of the matter, we condone the delay and proceed to hear the appeal on merits.

These two cases were heard together. Since facts common, issues are similar, these appeals are being disposed of vide this consolidated order. For the sake of convenience, we would first take up ITA No.165/PUN/2019 as lead case for adjudication.

In this appeal, the assessee is challenging the validity of the revisionary jurisdiction assumed by the Pr. Commissioner of Income Tax u/s.263 of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) and the contentions of the assessee are that the requisite specific enquiry has been conducted by

The brief facts in this case are that the assessee is a Co-operative Bank and engaged in the business of lending and borrowing and providing banking facility to the account holders and has maintained the books of account on mercantile basis. The assessee bank filed its return of income electronically for the assessment year 2013-14 on 25.09.2013 declaring total income at Rs.18,47,42,320/-. The case was selected for scrutiny, accordingly, order u/s.143(3) of the Act was passed on 24.11.2015 assessing total income at Rs.18,47,42,320/-.

The contentions of the Ld. AR is that once necessary and specific enquiry has been conducted by the Assessing Officer then on those same issues, the Pr. Commissioner of Income Tax cannot pass order u/s.263 of the Act saying the assessment order to be erroneous so as to be prejudicial to the interest of the Revenue. That is so because even after enquiry conducted by the Assessing Officer if the Pr. Commissioner of Income Tax passes order u/s.263 of the Act on those same issues it is nothing but difference of opinion which order therefore, cannot be said to be erroneous so as to be prejudicial to the interest of the Revenue. The Ld. AR invited our attention at Pages 18 to 20 of the paper book wherein specific question was asked by the Assessing Officer and at Pages 23 to 24, the reply was filed by the assessee.

Per contra, the Ld. DR placed strong reliance on the finding of the Ld. Pr. Commissioner of Income Tax as appearing in the order passed u/s.263 of the Act. The Ld. DR specifically pointed out at Para 4.1.2 of the order of the Ld. Pr. Commissioner of Income Tax wherein it has been mentioned that though the assessee claimed that the issue was enquired into by the Assessing Officer the letter dated 17.11.2015 claimed by the assessee is not on record.

We observe that on one hand, the Ld. AR of the assessee demonstrated before the Court that specific questions have been asked by the Assessing Officer and reply of the assessee filed thereon is placed in the paper book filed before us. However, contention of the Ld. DR that there is nothing on record to show that the Assessing Officer has conducted necessary enquiry and that further, statement in the order of the Ld. Pr. Commissioner of Income Tax

That in respect of the aforesaid, the Ld. DR furnished a letter dated 27.09.2019 from ACIT, Latur and annexed there with the copy of letter dated 17.11.2015 given by the assessee in reply to the query made by the Assessing Officer which is placed on record. Therefore, it is absolutely clear that the observations of the Ld. Pr. Commissioner of Income Tax at Para 4.1.2 of his

That on perusal of these documents, it is crystal clear that the relevant enquiries were conducted through questionnaire by the Assessing Officer to which the assessee had furnished detailed reply. This fact is even sanctified by the submissions of the Ld. DR stating the letter dated 17.11.2015 as disputed by the Pr. Commissioner of Income Tax that this letter was already on record. We further observe that in the order of the Ld. Pr. Commissioner of Income Tax in order to ascertain whether the assessment order of the Assessing Officer was erroneous so as to be prejudicial to the interest of the Revenue, there has been no specific enquiry conducted or there is no exercise of thought culminating into reasons to show that he has arrived at a satisfaction regarding the assessment order to be erroneous so as to be prejudicial to the interest of the Revenue.

It is pertinent to mention that the ld. CIT can exercise revisionary power u/s.263 of the Act on finding the assessment order erroneous and prejudicial to the interest of the Revenue. Simply because the Assessing Officer did conduct enquiry during the course of assessment proceedings would not automatically lend credence to the authenticity of the assessment order making it immune from revision, if it turns out that the AO decided the issue wrongly in favour of the assessee. Such a situation would render the assessment order erroneous and prejudicial to the interest of the Revenue, thereby clothing the CIT to invoke the revisionary power u/s 263 of the Act.

Adverting to the facts of the present case, we find that the ld. CIT found the assessment order lacking to the extent of allowing deduction towards Provision for bad and doubtful debts to the tune of Rs.3,29,84,041/-. In his opinion, the deduction ought to have been granted for a sum of Rs.1,63,28,977/-, being, 7.5% of Rs.21,77,19,687/-.

At this stage, it is relevant to mention that section 36(1)(viia) of the Act, at the material time, provided for deduction of provision for bad and doubtful debts in two parts, viz., (i) 7.5% of the total income of the assessee and (ii) 10% of the aggregate average advances made by the rural branches of the assessee. The assessee computed deduction in such two parts as has been reproduced on page No.3 of the impugned order. The first component i.e. 7.5% of total income was determined at Rs.1.73 crore and second component i.e. 10% of the aggregate average advances made by the rural branches of the assessee, was determined at Rs.20.05 crore, thereby making the maximum qualifying amount of deduction at Rs.21.78 crore. As against this, the assessee actually claimed deduction only to the extent of the Provision on bad and doubtful debts at Rs.3.29 Crore.

In the first part of computation at 7.5% of total income, the assessee computed the base amount at Rs.23.11 Crore. In computation of the base amount, the assessee did not reduce the amount of depreciation of Rs.1,34,12,388/-, which was rightly detected by the ld. CIT. It goes without saying that the deduction at 7.5% is on the total income, which obviously cannot be computed by ignoring the amount of depreciation. In other words, the assessee computed the amount at 7.5% of total income without reducing

In so far as the second part of the qualifying amount of deduction, namely, 10% of the aggregate average rural advances is concerned, it is seen that the assessee stated the same before the ld. CIT, as has been reproduced on page 3 of the impugned order, but the ld. CIT did not adversely comment on it. In this regard, the ld. DR submitted that the assessee claimed deduction on the entire balance of advances made by the rural branches, which also included the advances made in the preceding years. This is how, he tried to support the impugned order.

Without delving into whether the DR can support the order of the CIT on an issue, which has not been dealt with by the latter, we find that the Hon‟ble Calcutta High Court in the case of Pr. Commissioner of Income Tax Vs. Uttarbanga Kshetriya Gramin Bank in G.A. No. 291 of 2016 ITAT No.76 of 2016 vide its judgment dated 07.05.2018 has dealt with the question as to whether the Tribunal erred in allowing deduction u/s.36(1)(viia) of the Act for the rural advances made for all previous years leading to multiple deductions in every assessment year by misinterpreting the Rule 6ABA of the I.T. Rules, 1962. Answering the question in negative, the Hon‟ble High Court upheld the view taken by the Tribunal in overturning the computation of aggregate of monthly rural advances made by the rural branches during the year only. The net effect of this judgment renders the claim of the assessee correct as against the argument of the ld. DR that it should be restricted only to the rural advances made during the year alone. From this categorical finding of

If we adopt the qualifying amount of Rs.20.05 Crore, being, the second part of the deduction along with the first part of the deduction at 7.5% of the total income correctly computed, namely, after reducing the amount of depreciation, still the total qualifying amount of deduction is more than Rs.21 Crore. As against this, the assessee claimed deduction towards provision for bad and doubtful debts only at Rs.3.29 Crore. When we view both the parts of the deduction u/s.36(1)(viia) of the Act in totality, it transpires that even though the assessment order was erroneous in accepting the computation at 7.5% of the income without reducing the amount of depreciation, but on entirety, the assessment order on this issue cannot be construed as prejudicial to the interest of the Revenue because the total amount of deduction u/s 36(1)(viia) is only Rs.3.29 Crore, which is well much short of the correct qualifying amount at more than Rs.21 Crore. That being the position, the assessment order albeit erroneous and prejudicial to the interest of the Revenue at the first part of calculation of qualifying amount at 7.5% on total income, but ceases to be prejudicial to the interest of the revenue on the overall question of granting deduction u/s 36(1)(viia) of the Act because the total amount of deduction, even after correcting the first part of the qualifying amount, remains at the same level at which it was claimed and allowed at Rs.3,29,84,041/-. We, therefore, refuse to accept the validity of the exercise of revisionary power on this issue.

The second point which has been taken out by the ld. CIT for holding the assessment order to be erroneous and prejudicial to the interest of the Revenue is provision for NPA interest. The ld. CIT held that this issue was not enquired into by the Assessing Officer before allowing the provision for NPA interest of Rs.13,51,37,126/- shown in the Balance Sheet and Rs.1,86,66,695/- debited to the P & L account on account of NPA interest during the year. Due to this lack of enquiry, the ld. CIT opined the assessment order to be erroneous and prejudicial to the interest of the Revenue.

Having heard both the sides and perused the relevant material available on record, we find that the action of the ld. CIT is lacking on this score as well. Firstly, the Assessing Officer conducted enquiry in this regard as is evident from the correspondence between the assessee and the AO, whose copies have been placed before the Tribunal. It is not as if the Assessing Officer did not enquire the issue of NPA interest. To this extent, the finding recorded by the ld. CIT is not correct.

On merits, it is seen that the ld. CIT has held that the Assessing Officer did not examine that the assessee debited Rs.1,86,66,695/- in P & L account on account of NPA interest. In principle, the question of NPA interest arises in the context of recognizing income and not claiming deduction. The factual position is that the sum of Rs.1.86 Crore is the amount of NPA interest which was not credited during the year as is evident from page 5 of the impugned order. The opening balance of the NPA interest stood at Rs.15.50 Crore. The assessee recovered the NPA interest amounting to Rs.1,71,40,806/- and credited the same to the P & L account. The amount of Rs.1.86 Crore is an

The Hon‟ble Delhi high Court in the case of Commissioner of Income Tax Vs. Vikas Polymers (supra.) has categorically opined that “while exercising power u/s.263, the Commissioner must give reasons to justify such exercise of revisionary powers by him to reopen a concluded assessment and exercise of power being quasi-judicial in nature, reasons must be such as to show that enhancement or modification of assessment or cancellation of assessment or directions issued for a fresh assessment were called for and must irresistibly lead to conclusion that order of Assessing Officer was not only erroneous but was also prejudicial to the interest of the revenue”.

In the result, appeal of the assessee in ITA No.165/PUN/2019 is allowed.

Both the parties agreed that the facts and circumstances of this case are identical except the amounts. Since all other facts, arguments of the parties are same and similar, the same ruling as in ITA No.165/PUN/2019 shall apply mutatis-mutandis to ITA No.628/PUN/2019. Therefore, in this case also, we quash the 263 order passed by the Ld. Pr. Commissioner of Income Tax and allow the appeal of the assessee.

In the result, appeal of the assessee in ITA No.628/PUN/2019 is allowed.

In the combined result, both appeals of the assessee for the assessment years 2013-14 and 2014-15 are allowed.