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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: HON’BLE SHRI V. DURGA RAO & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2008-09 arises out of the order of learned Commissioner of Income Tax (Appeals), Salem [CIT(A)] dated 17.03.2016 in the matter of an assessment framed by Ld. Assessing Officer (AO) u/s 143(3) r.w.s. 147 of the Act on 30.03.2014. The grounds taken by the assessee read as under:
The order of the Commissioner of Income-tax (Appeals) dismissing the appeal on jurisdiction u/s.147 and on merits of the case is contrary to law, erroneous and unsustainable on the facts of the case. I.Reopening of Assessment: 2. The CIT(A) erred in upholding the reopening of assessment under sec.147 of the Act. 3. The CIT(A) failed to appreciate that the reopening was based on only change of opinion by the officer since the identical issue of disallowance u/s.36(l)(viia) was considered by the officer in assessment u/s.143(3) wherein the claim for deduction was restricted and hence the reopening for the same reason is untenable in law. 4. The CIT(A) further failed to appreciate that there was no reason to believe that income had escaped assessment and in the absence of any fresh material pointing to failure on the part of assessee to disclose particulars of income, the reopening is not in accordance with law and needs to be annulled. 5. The CIT(A) further failed to appreciate that reopening based on audit objection is untenable in law and would not give the jurisdiction to reopen the assessment. II Disallowance under sec.36(l)(viia): 6. The CIT(A) erred in confirming the disallowance of the claim for deduction under sec.36(1)(viia) of the Act. 7. The CIT(A) failed to appreciate that the mandate of the provision was to give the benefit of deduction for the advances made by rural branches of the bank subject to the extent of provision made and available in the books and the assessee having exhibited that provision available in bad and doubtful debts account far exceeds the claim, the disallowance was unjustified on facts of case. 8. The CIT(A) further failed to appreciate that for allowance of the claim, the contemplation in the statute is that provision is available and the narrow interpretation that provision should be made in the year of claim would scuttle the benefit provided by the legislature to the banks engaged in providing rural advances and hence the disallowance was unjustified and unsustainable in law 9. The CIT(A), even otherwise, further failed to appreciate that considering the movement of NPA, wherein there was release of reserves in the year adjusted towards provision for bad and doubtful debts and hence provision was made to the extent of claim and thus factually also there was no case for disallowance under sec.36(l)(viia) of the Act. 10. The CIT(A) was not justified in relying on the decision of Punjab & Haryana High Court to reject the claim as it does not apply on facts, since in that case the Bank made the claim for deduction on the ground of provision to be made in the later years. 11. The CIT(A) ought to have directed the officer to compute the interest chargeable under sec.234B in accordance with law by restricting it to the date of regular assessment under sec.143(3) of the Act. 12. The CIT(A), in any event, ought to have considered the contentions in the proper perspective and held the reopening of assessment was bad in law and also allowed the claim for deduction u/s.36(l)(viia) and thus allowed the appeal.
As evident, the sole subject matter of appeal is computation of deduction of provision for bad and doubtful debts u/s 36(1)(viia). The assessee has also assailed the validity of reassessment proceedings. 2. The Ld. AR assailed the validity of reassessment proceedings and also contested the additions as sustained in the impugned order with respect to provision for bad and doubtful debts u/s 36(1)(viia). It was submitted that provision was made but the same as netted-off. In support, Ld. AR placed on record financial statements of various eyars and computations to demonstrate the creation of provision u/s 36(1)(viia). The Ld. Sr. DR, on the other hand, controverted the arguments of Ld. AR and submitted that the deduction was to be restricted only to the extent of provision made in the books of accounts. The written submissions have been filed which have duly been considered. Having heard rival submissions and after going the order of lower authorities, our adjudication to the subject matter of appeal would be as under. Assessment Proceedings 3.1 The assessee was assessed u/s 143(3) on 30.12.2010 wherein the deduction claimed u/s 36(1)(viia) for Rs.1199.35 Lacs was restricted to Rs.946.77 Lacs. However, the case was reopened vide notice u/s 148 on 18.03.2013 which is within 4 years from the end of relevant assessment year. 3.2 The reasons to reopen the assessment was the allegation of Ld. AO that that assessee exhibited Rs.7,36,218/- towards reserve for non- performing investments / bad debts but it claimed deduction u/s 36(1)(viia) for Rs.946.77 Lacs. Such deduction could be allowed only to the extent of provisions made in the profit & Loss Account. Since there
was excess allowance, an opinion of escapement of income was formed by Ld. AO. 3.3 The assessee refuted the allegations of Ld. AO and submitted that the provisions do not warrant creation of reserve in the relevant previous year. The claim was accepted in the regular assessment proceedings which was a plausible view. The reopening was on mere change of opinion. The Ld. AO opined that the examination in the regular assessment proceedings was restricted to claim of deduction u/s 36(1)(viia) with reference to the rural branches of the assessee and adequacy of provision was not examined. Accordingly, the proceedings were valid in terms of Explanation 2(c) to Sec.147 which, inter-alia, provide that the case of excess relief would amount to escapement of income. Therefore, the reopening was held to be valid. 3.4 On merits, the assessee submitted that provision required to be created as per RBI norms were Rs.1134.13 Lacs which include provision of non-performing assets (NPA) for Rs.1126.77 Lacs and additional provision of Rs.7.36 Lacs towards non-performing investments. As on 31.03.2007, the assessee had Bad-Debts provision of Rs.168.36 Crores in the Balance Sheet whereas the requirement under RBI norm was only Rs.97.52 Crores. Hence, the excess provision of Rs.70.84 Crores was to be released which was released as on 31.03.2008 along with a provision of Rs.96.60 Lacs towards recovery of bad-debts. The aggregate release came to Rs.71.80 Crores and after netting-off the provision of Rs.11.26 Crores which was required to be created during the year, the balance amount of Rs.60.54 Crores was released during this year. Thus, in addition to provision of Rs.7.36 Lacs, the amount of Rs.11.26 Crores was also to be taken as provision for bad-debts as made during the year.
3.5 However, Ld. AO held that the RBI directions were only in the context of presentation of NPA in the Balance Sheet and nothing to do with the computation of taxable income. Finally, relying upon the decision of Hon’ble Punjab & Haryana High Court in State Bank of Patiala V/s CIT (272 ITR 54), Ld. AO held that the deduction is to be restricted only to the extent of actual provision made in the books of accounts. Accordingly, the deduction was restricted to the extent of Rs.7.36 Lacs. Appellate Prcoeedings 4. The assessee preferred further appeal and assailed the validity of assessment proceedings. However, not convinced, Ld. CIT(A), relying upon the decision of Hon’ble Supreme Court in CIT V/s A. Raman & Co. (67 ITR 11), held that source of information to reopen the assessment may be assessment record itself. Therefore, the legal ground assailing the reassessment proceedings were dismissed. The stand of Ld. AO, on merits, was also confirmed, inter-alia, by relying upon the decision of Hon’ble High Court of Punjab & Haryana in State Bank of Patiala V/s CIT (272 ITR 54). Aggrieved, the assessee is in further appeal before us.
Our findings and Adjudication 5. We find that there could be no quarrel on the porposition that to claim dedcution of provision of bad and doubtful assets u/s 36(1)(viia), the assessee must make a provision thereof in the Books of Accounts. Unless the provision is create, no deduction is allowable to the assessee. This proposition find support from the decision of Hon’ble High Court of Madras in Cuddalore District Central Cooperative Bank Ltd. V/s DCIT (130 Taxmann.com 239; 14/06/2021). The Hon’ble
Court, after considering the decision of Hon’ble Supreme Court in Catholic Syrian Bank Ltd. V/s CIT (18 Taxmann.com 282), held as under: - 19. In the present case, the respondent has stated clearly that the provision for bad and doubtful debts is under section 36 (1) (viia). Unless amount of bad and doubtful debts is debited to the provision for bad and doubtful debts account and the deduction admissible u/s.36 (1) (vii) is limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account. The language and intention of the legislature is clear and unambiguous and therefore the mistake in this case is apparent from record and thus issue of notice under section 154 is within the ambit of section 154 of the Income-tax Act, and it is a mistake apparent from record. Finally, the writ petition filed by the assessee against rectification notice u/s 154 was dismissed. 6. Similarly, the Hon’ble High Court of Karnataka in CIT V/s Syndicate Bank (120 Taxmann.com 258; 24.01.2020), considering the decision of Hon’ble Supreme Court in Catholic Syrian Bank Ltd. V/s CIT (18 Taxmann.com 282), decided the issue in revenue’s favor as under:- 7. Explanatory notes on provisions contained in Circular No. 346 dated 30-1-1982 deals with object of deductions made in respect of payments to associations and doubtful debts under section 36 (1)(viia) of the Act. The relevant extract reads as under:- 17.3 As non-scheduled commercial banks are also engaged in providing rural credit and promoting rural banking, the Finance Act has amended clause (viia) of sub-section 36 of the IT Act to extend the provision relating to deduction in respect of provisions made by scheduled commercial banks for bad and doubtful debts relating to advances by rural branches to non- scheduled commercial banks as well. For this purpose, the expression "non- scheduled Bank" means a banking company as defined incl. (c) of S.5 of the Banking Regulation Act, 1949 but which is not a scheduled bank. 8. Thus, a conjoint reading of provision contained in section 36(1)(viia) and explanatory note dated 30-6-1982 it is evident that deduction provided in section 36(1)(viia) shall be allowed in respect of the matters dealt therein in computing the income. The condition precedent for claiming deduction under section 36(1)(viia) of the Act is that a provision for bad and doubtful debt should be made in the accounts of the assessee. The aforesaid section mentions the maximum amount for which such a provision should be made. If a provision is made in excess of the limits prescribed under the section, the assessee would not be entitled to deduction of the excess amount. Once a provision is made and the amount of deduction is within the
limit prescribed under the Act, the assessee would be entitled to deduction of the amount for which provision is made in the books of accounts. 9. The language employed in section 36(1)(viia) of the Act is clear and unambiguous. It is well established Rule of interpretation stated by LORD CAIRNS that "if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of law the case might otherwise appear to be. It is equally well settled legal proposition that "in a taxing act once has to look merely as what is said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." [SEE: CIT v. Kasturi & Sons Ltd. [1999] 103 Taxman 342/237 ITR 24 (SC) and Mahim Patram (P.) Ltd. v. Union of India 2008 taxmann.com 1074 (SC)] [See: Principles of statutory interpretation, justice G.P. Singh, 14th edition, page 879]. Therefore, the question of going into intention or object behind the provision viz., section 36(1) (viia) of the Act does not arise. 10. The submission that even in the absence of any provision, the assessee is entitled to deduction cannot be accepted. The assessee is entitled to deduction to the extent provision made in the accounts subject to limit mentioned in section 36(viia) of the Act. 11. So far as decision in Catholic Syrian Bank is concerned, from perusal of para 16, it is evident that aforesaid decision is an authority for the proposition that section 36(1)(vii) and 36(1)(viia) are independent provisions and from perusal of para 23 and 24 of the decision, it is axiomatic that Supreme Court has taken note of statement of objections and reasons for the Finance Act, 1986 and has held that amendments were intended to encourage rural advances and making of provision for bad debts in relation to such rural branches. The Supreme Court in aforesaid decision negatived the contention that grant benefits under 36(1)(vii) and 36(1)(viia) of the Act, amounts to double deduction and in para 41 has concluded that bad bebts, written off in debts other than those for which provisions is made under section 36(1)(viia) of the Act will be covered under main part or section 36(1)(vii) of the Act. Thus, the aforesaid decision is also an authority for the proposition that section 36(1)(viia) of the Act, permits deduction in respect of provision made by the bank in respect of bad and doubtful debts. Therefore, aforesaid decision is of no assistance in the fact situation of the cases to the assessee.
The Hon’ble Court thus held that the condition precedent for claiming deduction under section 36(1)(viia) of the Act is that a provision for bad and doubtful debt should be made in the accounts of the assessee. The aforesaid section mentions the maximum amount for which such a provision should be made. If a provision is made in excess of the limits prescribed under the section, the assessee would not be entitled to deduction of the excess amount. Once a provision is made and the
amount of deduction is within the limit prescribed under the Act, the assessee would be entitled to deduction of the amount for which provision is made in the books of accounts. Further, the submission that even in the absence of any provision, the assessee is entitled to deduction cannot be accepted. The assessee is entitled to deduction to the extent provision made in the accounts subject to limit mentioned in section 36(viia) of the Act. 7. The decision of Hon’ble Punjab & Haryana High Court in State Bank of Patiala V/s CIT (272 ITR 54) is also on the similar lines wherein Hon’ble Court has held as under: - 5. Section 36(1)(viia) of the Act as applicable to the assessment year 1985-86, reads as under : "in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of clause (viiia) or a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank, an amount not exceeding ten per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) or an amount not exceeding two per cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher." 6. A bare perusal of the above shows that the deduction allowable under the above provisions is in respect of the provision made. Therefore, making of a provision for bad and doubtful debt equal to the amount mentioned in this section is a must for claiming such deduction. The Tribunal has rightly pointed out that this issue stands further clarified from the proviso to clause (vii) of section 36(1) of the Act, which reads as under: "Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause." 7. This also clearly shows that making of provision equal to the amount claimed as deduction in the account books is necessary for claiming deduction under section 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year. 8. 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. 9. We are, therefore, satisfied that the Tribunal was right in holding that since the assessee had made a provision of Rs. 1,19,36,000 for bad and doubtful debts, its claim for deduction under section 36(1)(viia) of the Act had to be restricted to that amount only. Since the language of the statute is clear and is not capable of any other interpretation, we are satisfied that no substantial question of law arises in this appeal for consideration by this court. 10. The appeal is, accordingly, dismissed. No costs.
Similar is the decision of Chennai Tribunal in M/s Nazareth Urban Co-operative Bank Ltd. V/s DCIT (ITA Nos.513 & 514/Chny/2018 dated 27.06.2019) as well as the decision in ACIT V/s Cuddalore District Central Co-operative Bank Ltd. (ITA No.1921/Chny/2018; 09.04.2021). 9. The submissions of Ld. AR are that the assessee has created provision in the books of accounts by way of netting-off of release of provision as credited to the Profit & Loss Account. It is the submission of Ld. AR that as on 31.03.2007, the assessee had Bad-Debts provision of Rs.168.36 Crores in the Balance Sheet whereas the requirement under RBI norm was only Rs.97.52 Crores. Hence, the excess provision of Rs.70.84 Crores was to be released which was released as on 31.03.2008 along with a provision of Rs.96.60 Lacs towards recovery of bad-debts. The aggregate release came to Rs.71.80 Crores and after netting-off the provision of Rs.11.26 Crores which was required to be created during the year, the balance amount of Rs.60.54 Crores was released during this year by way of credit to Profit & Loss Account. The Ld. AR also submitted that after netting of the amounts, the provision as on 31.03.2008 is Rs.93.90 Crores. The consolidated chart of provision made and claim made u/s 36(1)(viia), as placed before us, is as under: -
Balance of provision available after Opening Statutory adjusting Balance of eligibility of release and provision deduction for Net Release of Closing Balance Actual deduction available in the the year as provision thro’ of provision in provision availed u/s. books as on per P&L a/c during the books as on made as per 36(1)(viia) from sec.36(1)(viia) the year movement of the opening i.e. 10% of 01.04. NPA and 31.03… provision as on Assessm Aggregate Gross release claimed as 01.04.2006 ent Average Rural of provision to deduction u/s. Branch (Col.2-3) be made 36(1)(viia) advances and based on (Col. 8=2-3-6) Year 7.50% of actual Gross Income recovery of ^ [Not to apply NPAs for AY.07-08 in the absence of release of (Col. 3+6) provision] 1 2 3 4 5 6 7 8
2007-08 168,36,37,329 70,84,06,971* 168,36,37,329 16,11,55,233 2,40,01,714 73,24,08,685* ^165,96,35,615
2008-09 168,36,37,329 60,53,95,899 # 107,82,41,430 11,37,37,352 11,26,76,796 Due for # AY.07-08 – Rs. 94,15,62,920 70,84,06,971
Due for AY.08-09 – Rs. 96,65,724 2009-10 107,82,41,430 1,21,54,606 106,60,86,824 25,79,74,005 5,12,67,313 6,34,21,919 87,81,41,001 2010-11 106,60,86,824 27,21,06,395 79,39,80,429 13,48,24,500 3,84,27,883 31,05,34,275 56,76,06,723 2011-12 79,39,80,429 4,68,97,395 74,70,83,034 24,05,90,587 7,68,59,574 12,37,56,969 44,38,49,754 2012-13 74,70,83,034 -- 74,70,83,034 36,77,40,100 31,91,296 10,69,21,229 44,06,58,458 2013-14 74,70,83,034 -- 74,70,83,034 45,40,86,108 3,43,67,496 8,22,41,565 40,62,90,962
*for want of administrative orders from Director of Co-operative Audit, release could not be effect and was done in the AY 2008-09 #The net release of provision is arrived at after reducing the actual provision made against the gross release of provision to be made. Provision made for Non Performing Asset (NPA) As extracted from the Final Accounts
Opening Provision as on 01.04.2007 : Rs. 168,36,37,329 - @ P.29 of P.B
[Add] Current year Provision made : Rs. 11,26,76,796 ---------------------------- Total provision 31.03.2008 : Rs. 179,63,14,125
Provision for NPA released this year : Rs. 71,80,72,695
[To be credited in P & L] ----------------------------- Actual provision available as on 31.3.08 : Rs. 107,82,41,430 - @ P.29 of P.B
In Profit & Loss account: Provision for NPA released this year : Rs. 71,80,72,695 [not credited in P & L] Current year Provision made [not debited to P & L] : Rs. 11,26,76,796 ---------------------------- Net provision released and credited : Rs. 60,53,95,899- @ P.41 of P.B. ----------------------------
From the tabulation as above, it appears that the assessee is following peculiar method of accounting wherein instead of creating separate provision; the assessee is netting-off the same from excess provision of earlier year and crediting the net amount to Profit & Loss Account. Finding some strength in the aforesaid plea of Ld. AR, we set aside the impugned order, on this issue and restore the matter back to the file of Ld. AO to appreciate the accounting methodology being followed by the assessee and re-appreciate the claim of the assessee in the light of aforesaid facts. The Ld. AO is directed to re-adjudicate the issue afresh with a direction to the assessee to substantiate its case. The corresponding grounds thus raised, in this regard, stand allowed for statistical purposes. 10. So far as the legal grounds are concerned, we find that the reopening has been done within 4 years from the end of relevant assessment year. It was found that excess relief was granted to the assessee in regular assessment prcoeedings. As rightly held by Ld. AO, this issue which form subject matter of reassessment prcoeedings,
remained to be considered by Ld. AO during regular assessment proceedings and the issue of ceration of provision was never a subject matter of consideration of Ld. AO in the original assessment proceedings. Subsequent to regular assessment proceedings, the Ld. AO noted that the assessee had made a provision of Rs.7.36 Lacs only and therefore, the dedcution was to be restricted to that extent only. Accrodingly, a belief was formed that the income escaped assessemnt. In such a case, the Explanation 2(C) to Section 147 was squarely applicable which provide a deeming fiction that the income would be deemed to have escaped assessment where the assessment was made but the income was subject to excessive relief and excessive allowance was computed. Therefore, we do not find much susbatnce in the legal grounds taken by the assessee and the same stands dismissed. 11. The appeal stand partly allowed for statistcial purposes to the extent indicated in the order. Order pronounced on 13th July, 2022.
Sd/- Sd/- (V. DURGA RAO) (MANOJ KUMAR AGGARWAL) �ाियक सद3 /JUDICIAL MEMBER लेखा सद3 / ACCOUNTANT MEMBER चे6ई / Chennai; िदनांक / Dated : 13-07-2022 EDN/- आदेश की Wितिलिप अ7ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF