STATE BANK OF INDIA,MUMBAI vs. PRINCIPAL COMMISSIONER OF INCOME TAX-2, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G”, MUMBAI BEFORE SHRI PAWAN SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA No. 1093/Mum/2018 Assessment Year: 1997-98 & ITA No. 1094/Mum/2018 Assessment Year: 1998-99 State Bank of India Principal Commissioner of Financial Reporting and Vs. Income Tax-2, Mumbai. Taxation Department, 3rd Floor , Corporate Centre, Madam Cama Road, Nariman Point, Mumbai-400021 PAN No. AAACS8577K Appellant Respondent

Assessee by : Mr. Percy J. Pardiwalla & Mr. Nitesh Joshi, ARs Revenue by : Mr. B.B. Rajendra Prasad Mr. Choudhary Arunkumar Singh, DRs Last Date of Hearing : 05/07/2019 Date of pronouncement : 30/09/2019

ORDER PER N.K. PRADHAN, AM The captioned appeals filed by the assessee are directed against the order u/s 263 of the Income Tax Act 1961, (the ‘Act’) passed by the Principal Commissioner of Income Tax-2 (hereinafter ‘Pr.CIT’). As

State Bank of India 2 ITA Nos. 1093 & 1094/Mum/2018

common issues are involved, we are proceeding to dispose them off through a consolidated order for the sake of convenience. Facts being identical, we begin with the assessment year (AY) 1997-98. 2. The grounds of appeal filed by the assessee read as under:

Without prejudice, the Ld. PCIT erred in not appreciating that no proceedings can be initiated u/s 263 in case of an inadequate enquiry.

State Bank of India 3 ITA Nos. 1093 & 1094/Mum/2018

State Bank of India 4 ITA Nos. 1093 & 1094/Mum/2018

with first proviso of section 36(1)(vii) of the Act. In response to a show cause notice dated 23.01.2018 issued by the AO to explain the above, the assessee filed a reply before the Pr. CIT. The assessee submitted that it has debited Rs.833,30,47,694/- to the profit and loss account (P&L account) and the said amount was reduced from loans and advances in the balance sheet and accordingly claimed deduction in respect of bad debts u/s 36(1)(vii) of the Act. In this regard reliance was placed on the decision in Vijaya Bank v. CIT [2010] 90 Taxman 257 (SC), CIT v Tainwala Chemicals & Plastics India Ltd 34 taxmann.com 159(Bombay High Court), CIT v Vodafone Essar Gujarat ltd 85 taxmann.com 32 (Gujarat High Court), CIT v. Newanagar Co-operative Bank Ltd. 54 taxmann.com 28 (Gujarat High Court), CIT v. Amrutanjan Finance Ltd 15 taxmann.com 392 (Madras High Court), KEC International Ltd. v. DCIT 33 taxmann.com 243 (Mumbai ITAT), Arrow Coated Products Ltd. v. ACIT 22 taxmann.com 31 (Mumbai ITAT), JCIT v. Dena Bank 20 taxmann.com 278 (Mumbai ITAT). It was also submitted before the Pr. CIT that section 36(2)(v) only applies in respect of debt or part of debt in relation to advances made by an assessee to which clause 36(1)(viia) applies and in the present case, the assessee has not made any claim u/s 36(1)(viia) and hence provisions of section 36(2)(v) are not applicable. It was further explained to the Pr. CIT that the intention of introduction of section 36(2)(v) and first proviso to section 36(1)(vii) was only to check that no double deduction is claimed by the assessee, in case a deduction is already claimed u/s 36(1)(viia). In other words, it was stated that when

State Bank of India 5 ITA Nos. 1093 & 1094/Mum/2018

a deduction is claimed once u/s 36(1)(viia) at the time of provision, the same amount should not be allowed as deduction again u/s 36(1)(vii) at the time of actual write off. In this regard, reference was made to the decision in Catholic Syrian Bank Ltd. v. CIT 343 ITR 270 (SC). Further, it was stated that the AO in AYs 2011-12 to 2015-16 has examined and allowed deduction u/s 36(1)(vii). Further, the assessee submitted before the Pr. CIT that the AO vide order sheet entry dated 15.02.2017 had asked it to explain various issues on which the Tribunal has restored the file back and the assessee vide its letter dated 22.02.2017 submitted a reply which was considered while passing the order. It was clarified that the detailed submissions made regarding deduction u/s 36(1)(vii) are as per Annexure-3 of the said order. Thus it is stated that the AO made necessary inquiries and after considering the facts, documents on record and submission made by the assessee, allowed the claim. Further, it was stated that to the best of knowledge of the assessee, there is no adverse decision of Supreme Court/High Court/Tribunal on allowability of deduction u/s 36(1)(vii) reversing the law laid down by the Supreme Court in the Vijaya Bank’s case. Thus it was stated before the Pr. CIT that the order passed by the AO is neither erroneous nor prejudicial to the interests of revenue. However, the Pr. CIT was not convinced with the above reply of the assessee for the reason that the deduction u/s 36(1)(vii) is not absolute and subject to the conditions prescribed in the section itself. Referring to the decision in the case of Vijaya Bank (supra), the Pr. CIT

State Bank of India 6 ITA Nos. 1093 & 1094/Mum/2018

observed that the said decision was confined to the provisions of section 36(1)(vii). Further, it is observed by him that the decision in Vijaya Bank (supra) has not considered the applicability of clause (viia) of section 36(1), clause (v) of section 36(2) and proviso to clause (vii) of section 36(1). The Pr. CIT further observed from records that the assessee itself had claimed deduction under clause (viia) of section 36(1) in the return of income. However, later on during the appellate proceedings, the claim under clause (vii) was made as an additional ground. Therefore, he held that the applicability of clause (viia) in assessee’s case is not in dispute and otherwise also, in view of the provision of clause (viia), the assessee being a Scheduled Bank is covered under that clause. Therefore, the Pr. CIT held that the AO was required to allow deduction under clause (vii) of section 36(1) after obtaining the required details and only the amount by which bad debts written off exceeds the credit balance in the provision for bad and doubtful debt accounts made under clause (viia). Further, he observed from the records that the assessee had neither furnished the aforesaid details nor furnished the computation of deduction under clause (vii) in accordance with the proviso to that clause and therefore, the allowance of deduction under clause (vii) without obtaining the requisite details and without computing the eligible amount of deduction in accordance with the proviso to clause (vii) and clause (v) of section 36(2) has rendered the order passed by the AO erroneous and prejudicial to the interest of revenue. In response to the submission of the assessee regarding applicability of section 263

State Bank of India 7 ITA Nos. 1093 & 1094/Mum/2018

of the Act, the Pr. CIT observed that as per clause (a) to Explanation to section 263 (amended by Finance Act, 2015 w.e.f. 01.06.2015), an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interests of revenue, if the order is passed without making inquiries or verification, which should have been made. As per him, in the instant case, the AO has passed the order, without making inquiries and verification which were required in view of the provisions of law and therefore, it is a fit case for invoking section 263 of the Act. With the above reasons, the Pr. CIT set aside the order dated 27.03.2017 passed by the AO and directed him to allow deduction under clause (vii) of section 36(1) after obtaining the required details and only the amount by which bad debts written off exceeds the credit balance in the provision for bad and doubtful debts account made under clause (viia) should be allowed as deduction subject to the debit of bad debts to provision account in accordance with clause (v) of section 36(2) of the Act. 4. Before us, the Ld. counsels for the appellant submit that in its annual accounts for the financial year (FY) ending 31.03.1997, the assessee debited an amount of Rs.833,30,47,694/- to its P&L account as provision for bad and doubtful debts and the same amount was admittedly also reduced from the loans and advances as appearing in the balance sheet and the net amount of such loans and advances was reflected in the balance sheet. Referring to the decision in Vijaya Bank

State Bank of India 8 ITA Nos. 1093 & 1094/Mum/2018

(supra), it is stated that such treatment in the accounts is to be regarded as ‘write off’ which would qualify for deduction u/s 36(1)(vii) of the Act. It is further stated that the assessee filed its return of income for the AY 1997-98 and since the decision in Vijaya Bank (supra) was not available at that point of time, it added back the amount of provision for bad and doubtful debts of Rs.833,30,47,694/- and claimed a deduction of Rs.689,37,71,787/- u/s 36(1)(viia) of the Act while computing its income under the head “profits and gains of business”. It is argued that one of the factors to be taken into consideration for determining the quantum of deduction to be allowed u/s 36(1)(viia) is the total income computed before making any deduction under the said clause and Chapter VI-A of the Act and accordingly, in the notes to the said computation of income, it was urged that the amount of such deduction may change based on total income as finally determined. The Ld. counsels submit that the return of income of the assessee for the AY 1997-98 was selected for scrutiny and an assessment order was passed, wherein the AO allowed a deduction of Rs.706,29,84,022/- u/s 36(1)(viia) of the Act. In the computation of the assessment order, the AO started with the net profit as per the return of income, meaning thereby, the profits as already increased by the amount of provision for bad and doubtful debts of Rs.833,30,47,694/- and therefore, it is explained that at that stage, the assessee was allowed deduction u/s 36(1)(viia) of the Act and no deduction was claimed or allowed u/s 36(1)(vii) of the Act.

State Bank of India 9 ITA Nos. 1093 & 1094/Mum/2018

It is further stated that in the return of income for AY 2011-12, relying on the decision in Vijaya Bank (supra), delivered on 25.04.2010, the assessee claimed deduction for the entire amount of provision towards bad and doubtful debts as write off of bad debts in terms of section 36(1)(vii) of the Act and consequently, no deduction was claimed u/s 36(1)(viia) of the Act. It is explained that the said position was accepted by the AO in the assessment order passed for AY 2011-12. Similar claims made by the assessee for AYs 2012-13 to 2015-16 were accepted by the AO in the assessment orders passed for the respective years. Further, it is stated by the Ld. counsels that since in the case of Vijaya Bank (supra), it is held that the treatment as given by the assessee in its annual account would qualify as a write off of bad debts eligible for deduction u/s 36(1)(vii), the assessee had raised an additional ground before the Tribunal in its pending appeal for AY 1996-97, claiming a deduction for the entire provision under that section. The Tribunal by its order dated 26.07.2013 admitted the additional ground as filed by the assessee and by its order dated 03.01.2014 passed on a miscellaneous application clarified that the AO should consider the assessee’s claim considering the said decision. It is stated that the AO passed an order giving effect to the Tribunal’s order for AY 1996-97 inter alia withdrawing the assessee’s claim for deduction u/s 36(1)(viia) and instead allowing its claim for deduction for the entire amount of provision for bad and doubtful debts u/s 36(1)(vii) of the Act . Thus it is stated that the judgment of the Hon’ble Supreme Court in the case of

State Bank of India 10 ITA Nos. 1093 & 1094/Mum/2018

Vijaya Bank (supra) is applicable to the assessee’s case and thereby it is entitled to a deduction u/s 36(1)(vii) of the Act in respect of the provision made in the accounts and for the assessment year 1996-97 i.e. the immediate preceding assessment, the assessee has been granted a deduction u/s 36(1)(vii) and not u/s 36(1)(viia) and since such deduction was of the entire amount of provision for bad and doubtful debts, there was no provision created for the purposes of section 36(1)(viia) which required any adjustment against the actual write off for the year under consideration. It is further explained that aggrieved by the order of the CIT(A) for the year under consideration i.e. AY 1997-98, the assessee filed an appeal before the Tribunal. Therein, it raised an additional ground claiming deduction for provision towards bad and doubtful debts as write off of bad debts u/s 36(1)(vii) of the Act, relying on the decision in Vijaya Bank (supra). The Tribunal admitted the additional ground relying upon its order in assessee’s own case for AY 1996-97, wherein a similar additional ground was raised and remitted the ground to the AO after considering the decision relied upon by the assessee. The AO passed an order giving effect to the Tribunal’s order for the year under consideration. In this order, following the decision in Vijaya Bank (supra), the assessment order passed by him for AYs 2011-12 to 2014- 15 and the order giving effect to the Tribunal’s order passed by him for AY 1996-97, he allowed a deduction for the entire amount of provision towards bad and doubtful debts of Rs.833,30,47,694/- as a write off of bad debts u/s 36(1)(vii) of the Act. Consequently, he withdrew the

State Bank of India 11 ITA Nos. 1093 & 1094/Mum/2018

deduction of Rs.706,29,84,022/- as earlier allowed by him u/s 36(1)(viia) of the Act. The Ld. counsels submit that the Pr. CIT, without any basis has held that the compliance of the condition in section 36(2)(v) of the Act has not been fulfilled and the assessee has been allowed an excess deduction of Rs.127,00,63,672/-. It is argued that the Pr. CIT failed to appreciate that the amount of Rs.706,29,84,022/- has not been allowed as a deduction u/s 36(1)(viia) of the Act and therefore, such amount could not be reduced as per the first proviso below section 36(1)(vii) and section 36(2)(v) of the Act. Further, it is explained that in any event, assuming without admitting the deduction u/s 36(1)(viia) of the Act had been allowed in respect of Rs.706,29,84,022/-, there was no bar in the Act for allowing a deduction of excess of the write off over provision as per the statutory provisions. The Ld. counsels submit that the Pr. CIT failed to appreciate that when no deduction has been claimed u/s 36(1)(viia) of the Act, the aforesaid provisions would have no application and consequently there was no obligation on the assessee to furnish the said documents before the AO. It is stated by the Ld. counsels that the AO passed his order giving effect to the PCIT’s revision order and withdrew the deduction allowed u/s 36(1)(vii). However, the AO allowed a deduction u/s 36(1)(viia) of the Act. The assessee filed an appeal before the CIT(A) against the order passed by the AO. It is stated that the CIT(A) enhanced the assessment

State Bank of India 12 ITA Nos. 1093 & 1094/Mum/2018

order passed holding that the assessee is also not entitled to deduction u/s 36(1)(viia) of the Act. The Ld. counsels state that the assessee is in the process of filing an appeal against the said order before the Tribunal. It is thus summarized that as presently standing, the assessee has neither got any deduction u/s 36(1)(vii) nor u/s 36(1)(viia) of the Act. The Ld. counsels argue that alternatively the order dated 27.03.2017 passed by the AO, giving effect to the Tribunal’s order dated 29.04.2016, in the least, discloses that on the issue sought to be revised on which two views are possible and therefore, based on the judgment of the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT 243 ITR 83 (SC), no revisionary jurisdiction will lie where the AO has taken a possible view. It is explained that even on merits of the matter, the assessee is entitled to deduction of the said amount u/s 36(1)(vii) of the Act, as the conditions required to be complied with as per the decision in Vijaya Bank (supra) are fulfilled in its case. Alternatively, it is argued that assuming without admitting that deduction u/s 36(1)(viia) is to be allowed to the extent of Rs.706,29,84,022/-, then excess provision of Rs.127,00,63,672/- [being Rs.833,30,47,694/- minus Rs.706,29,84,022/- ] fulfils the conditions in the first proviso below section 36(1)(vii) and section 36(2)(v) of the Act and hence, should qualify for deduction u/s 36(1)(vii) of the Act. 5. Per contra, the Ld. Departmental Representatives (DRs) submit that deduction u/s 36(1)(vii) is not absolute and is subject to the

State Bank of India 13 ITA Nos. 1093 & 1094/Mum/2018

conditions laid down in that section. It is argued by them that the decision in the case of Vijaya Bank (supra) is confined to the provisions of section 36(1)(vii) of the Act and in the said decision the scope and applicability of clause (viia) of section 36(1), clause (v) of section 36(2) and proviso to clause (vii) of section 36(1) have not been examined or considered. The Ld. DRs argue that the deduction on account of bad debt written off u/s 36(1)(vii) is limited to the amount by which such debt exceeds the credit balance in the provision for bad and doubtful debts account made under clause (viia). It is pointed out by them that clause (v) of section 36(2) provides that in case of assessee covered under clause (viia), no deduction shall be allowed unless the assessee has debited the amount to the provision for bad and doubtful debts account made under clause (viia). Thus it is stated that deduction on account of bad debts written off, as in the present case, should be allowed only when the assessee has debited the amount of such debts to the provision for bad and doubtful debts account u/s 36(1)(viia) of the Act, as required by section 36(2)(v) of the Act. Referring to the decision in Catholic Syrian Bank Ltd. (supra), the Ld. DRs argue that the case is covered under clause (viia), the proviso to clause (vii) of section 36(1) and clause (v) of section 36(2) are applicable. Thus the Ld. DRs submit that the Pr. CIT has rightly directed the AO to allow deduction under clause (vii) of sub-section 36(1), after obtaining the required details and only the amount by which bad debts written off exceeds the credit balance in the provision for bad and doubtful debts accounts made under clause (viia) should be allowed as deduction subject to the debit

State Bank of India 14 ITA Nos. 1093 & 1094/Mum/2018

of bad debts to provision account in accordance with the clause (v) of sub-section 36(2). With the above submissions, the Ld. DRs argue that the order passed by the Pr. CIT be confirmed. 6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. The Finance Act, 1997 made amendment w.r.e.f. 01.04.1992 in the proviso to section 36(1)(vii) as also the substitution (w.r.e.f. 01.04.1992) of section 36(2)(v) has been necessitated in order to bring the provisions regarding allowance of bad debt of the financial institutions and corporations to which section 36(1)(viia) is applicable at par with the provisions regarding allowance of bad debts of the banks to which section 36(1)(viia) is applicable. These amendments are operative retrospectively for and from AY 1992-93. It may be mentioned here that by an amendment of section 36(1)(viia) by the Finance (No. 2) Act, 1991, the applicability of the provisions of section 36(1)(viia) has been expanded, for and from AY 1992-93, to public financial institutions, state financial corporations and state industrial investment corporations. The scope and effect of the aforesaid amendments have been elaborated by the CBDT Circular No. 763 dated 18.02.1998. As per it, clause (vii) of sub-section (1) of section 36 of the Act, provides for a deduction of the amount of any debt or part thereof which is written off

State Bank of India 15 ITA Nos. 1093 & 1094/Mum/2018

as irrecoverable in the accounts of an assessee in the previous year. Clause (viia) of the same section provides for a deduction in respect of any provision for bad and doubtful debts made by a bank. To preclude the possibility of a double deduction of the same amount being claimed in the case of a bank, a proviso was added to clause (vii) by the Finance Act, 1985 and it was provided that in the case of a bank to which clause (viia) applies, 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 of bad and doubtful debts account made under that clause. Simultaneously, clause (v) was added to sub-section (2) of section 36 which provided that no deduction for bad debt shall be allowed unless the bank has debited the amount of such debt or part thereof in that previous year to the provision for bad and doubtful debts account made under clause (viia) of sub-section (1). We are of the considered view that the above provisions of the Act are applicable to the present case. At this juncture we turn to the case- laws infra. 6.1 In the case of Vijaya Bank (supra), for the AYs 1993-94 and 1994- 95, the AO disallowed the amount which the assessee-bank had reduced from loans and advances or debtors on the ground that the impugned bad debts had not been written off in an appropriate manner as required under the accounting principles. According to him, write off of each and every individual account under the head ‘loans and advances’ or debtors was a condition precedent for claiming deduction u/s

State Bank of India 16 ITA Nos. 1093 & 1094/Mum/2018

36(1)(vii). On appeal, the CIT(A) held that it was not necessary for the purpose of writing off of bad debts to pass corresponding entries in the individual account of each and every debtor; and that it would be sufficient if the debit entries were made in the P&L account and corresponding credit was made in the ‘bad debt reserve account’. On the revenue’s appeal, the Tribunal affirmed the view taken by the CIT(A). However, that view was not accepted by the High Court which held that in view of the insertion of the Explanation to section 36(1)(vii) vide the Finance Act, 2001 w.e.f. 01.04.1989, merely creation of a provision did not amount to actual write off of bad debts. On appeal by the assessee-bank, the Supreme Court held that where assessee-bank had written off impugned bad debts in its books by way of a debit to P&L account, simultaneously reducing corresponding amount from loans and advances to debtors depicted on the asset side in balance sheet at close of the year, assessee was entitled to deduction u/s 36(1)(vii) and for that purpose, it was not necessary for it to close individual account of each of its debtors in its books. 6.2 In Catholic Syrian Bank Ltd. (supra), the assessee bank was having a provision of Rs. 15,01,29,990 for bad and doubtful debts under section 36(1)(viia). It claimed the amount of Rs. 12,65,95,770 as deduction on account of bad debts. The AO held that, since the bad debts did not exceed the credit balance in the provision for bad and doubtful debts account and also, the requirements of clause (v) of sub-section (2) of section 36 were not satisfied, the assessee's claim for deduction of bad debts written off from the account books was to be disallowed. On

State Bank of India 17 ITA Nos. 1093 & 1094/Mum/2018

appeal, the Commissioner (Appeals) held that since the entire bad debts written off by the bank under section 36(1)(vii) were pertaining to urban branches only and not to the provision made for rural branches u/s 36(1)(viia), it was entitled to the deduction of the full claimed amount. The Tribunal, relying upon the judgment of the jurisdictional High Court in the case of South Indian Bank Ltd. v. CIT [2003] 262 ITR 579, dismissed the appeal of the revenue. On further appeal, the High Court expressed the view that the judgment of that Court in the case of South Indian Bank Ltd. (supra) was not a correct exposition of law. While dissenting there from, the Bench directed the matter to be placed before a Full Bench of the High Court. The Full Bench of the High Court held that so far as banks to which clause (viia) applies are concerned, they are entitled to claim deduction of provision under sub-clause (viia ), but at the same time when bad debt written off is also claimed as deduction under clause (vii), the same will be allowed as a deduction only to the extent it is in excess of the provision created and allowed as a deduction under clause (viia). On appeal to the Supreme Court, the assessee contended that the view taken by the Full Bench of the Kerala High Court could not be sustained in law as there are distinct and different items of account that are maintained by the bank in the normal course of its business and it is not permissible to interchange these items in accordance with the settled standards of accountancy or even in law and, as such, the claim of doubtful and bad debts could not have been added back to taxable

State Bank of India 18 ITA Nos. 1093 & 1094/Mum/2018

income as it was an additional liability of the bank being shown as an independent item.

The Hon’ble Supreme Court held :

“To conclude, the provisions of sections 36(1)(vii) and 36(1)(viia ) are distinct and independent items of deduction and operate in their respective fields. The bad debts written off in accounts, other than those for which the provision is made under clause (viia), will be covered under the main part of section 36(1)(vii), while the proviso to section 36(1)(vii) will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia ). The proviso to section 36(1)(vii) will relate to cases covered under section 36(1)(viia) and has to be read with section 36(2)(v). Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans while under section 36(1)(vii ), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in the accounts of the assessee for the previous year. This, obviously, would be subject to satisfaction of the requirements contemplated under section 36(2).” 6.3 In Dy. CIT v. Karnataka Bank Ltd. (2012) 210 Taxman 265 (SC), it is held that in case of Scheduled Bank, deduction u/s 36(1)(vii) is allowable independently and irrespective of provision for bad and doubtful debts created by it in relation to advances made by its rural branches, subject to limitation that an amounts should not be deducted twice u/s 36(1)(vii) and 36(1)(viia) simultaneously.

State Bank of India 19 ITA Nos. 1093 & 1094/Mum/2018

In CIT v. Bank of Rajasthan Ltd. (2002) 124 Taxman 781 (Raj), it is held that both the clauses i.e. (vii) and (viia) of section 36(1) are separate and they are distinct and independent; it is open for an assessee to claim benefit of the provision which enables it to have a larger benefit. 6.4 In the instant case, the said amount of Rs.833,30,47,694/- has been debited to the P&L account and also stands reduced from the loans and advances as appearing on the asset side of the balance sheet. Thus it falls under the principles laid down in Vijaya Bank (supra). The assessee-bank filed its return of income for the AY 1997-98 and since the decision in Vijaya Bank (supra) was not available at that point of time, it added back the amount of provision for bad and doubtful debts of Rs.833,30,47,694/- and claimed a deduction of Rs.689,37,71,787/- u/s 36(1)(viia) of the Act, while computing its income under the head “Profits and gains of business”. In the return of income filed for the AY 2011-12, relying on the decision in Vijaya Bank (supra), delivered on 25.04.2010, the assessee has claimed deduction for the entire amount of provision towards bad and doubtful debts as a write off of bad debts u/s 36(1)(vii) of the Act. Consequently, it did not claim deduction u/s 36(1)(viia) of the Act. The said provision was accepted by the AO in the assessment order passed by him for the AY 2011-12. Similar claims made by the assessee for AYs 2012-13 to 2015-16 were accepted by the AO in the assessment orders passed for the respective years.

State Bank of India 20 ITA Nos. 1093 & 1094/Mum/2018

6.5 The assessee filed an application before the AO requesting him to give effect to the Tribunal’s order dated 29.04.2016 for the AY 1997-98. In the said letter, it gave detailed submission on why its case is covered by the principle laid down in Vijaya Bank (supra), which was followed by the AO in assessee’s own case while passing the assessment order for AYs 2011-12 to 2014-15 and also for AY 1996-97. The AO passed an order allowing a deduction for the entire amount of provision towards bad and doubtful debts of Rs.833,30,47,694/- as a write off of bad debts u/s 36(1)(vii) of the Act. 6.6 In CIT v. Max India Ltd., [2007] 295 ITR 282 (SC), the Hon’ble Supreme Court referring to its own decision in Malabar Industrial Co. Ltd (supra) has ruled thus: “At this stage we may clarify that under paragraph 10 of the judgment in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 this court has taken the view that the phrase “prejudicial to the interests of the Revenue” under section 263 has to be read in conjunction with the expression “erroneous” order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. According to the learned Additional Solicitor General, on an interpretation of the provision of section 80HHC(3) as it then stood the view taken by the Assessing Officer was unsustainable in law and therefore the Commissioner

State Bank of India 21 ITA Nos. 1093 & 1094/Mum/2018

was right in invoking section 263 of the Income-tax Act. In this connection, he has further submitted that in fact the 2005 amendment which is clarificatory and retrospective in nature itself indicates that the view taken by the Assessing Officer at the relevant time was unsustainable in law. We find no merit in the said contentions. Firstly, it is not in dispute that when the order of the Commissioner was passed there were two views on the word “profits” in that section. The problem with section 80HHC is that it has been amended eleven times. Different views existed on the day when the Commissioner passed the above order. Moreover, the mechanics of the section have become so complicated over the years that two views were inherently possible. Therefore, subsequent amendment in 2005 even though retrospective will not attract the provision of section 263 particularly when as stated above we have to take into account the position of law as it stood on the date when the Commissioner passed the order dated March 5, 1997, in purported exercise of his powers under section 263 of the Income-tax Act.” [Underlining is ours] In CIT v. Greenworld Corporation (2009) 181 Taxman 111 (SC), it is held that the power to exercise suo motu revision in terms of section 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein, viz. (1) the order is erroneous and (2) by virtue of the order being erroneous, prejudice has been caused to the interest of revenue, exists. Thus an order of assessment passed by an ITO should not be interfered with only because another view is possible.

Similarly, in CIT v. Gokuldas Exports (2011) 333 ITR 214 (Karn), it is held that if in given facts and circumstances of the case, two views are

State Bank of India 22 ITA Nos. 1093 & 1094/Mum/2018

possible and one view has been adopted by the AO, then that view alone would not be sufficient to exercise powers u/s 263 by the Commissioner. 6.7 As delineated hereinabove, in given facts and circumstances of the present case, two views are possible and one view has been adopted by the AO. That view alone would not be sufficient to exercise powers u/s 263 by the Commissioner. 7. Respectfully following the ratio laid down in Max India Ltd (supra), Greenworld Corporation (supra) and Gokuldas Exports (supra), we set aside the order u/s 263 passed by the Pr. CIT for AY 1997-98. Facts being identical, our decision for the AY 1997-98 applies mutatis mutandis to AY 1998-99. 8. In the result, the appeals filed by the assessee are allowed. Order pronounced in the open court on 30/09/2019. Sd/- Sd/- (PAWAN SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 30/09/2019 Rahul Sharma Sr. PS

State Bank of India 23 ITA Nos. 1093 & 1094/Mum/2018

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai