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Facts
The assessee, Kokan Mercantile Co-op Bank Ltd., filed appeals against the orders of the CIT(A) for AY 2012-13 and 2013-14. For AY 2012-13, the reopening of assessment was challenged, and a disallowance of Rs. 55,00,000/- under Section 36(1)(viia) was disputed. For AY 2013-14, similar grounds were raised, along with a disallowance of Rs. 25,01,789/- as bad debts.
Held
The Tribunal held that the assessee was entitled to the claim of Rs. 54,00,000/- under Section 36(1)(viii) for AY 2012-13, allowing the appeal on this ground. For AY 2013-14, the assessee had accepted the mistake regarding the bad debt write-off during the assessment proceedings, and the CIT(A) had correctly upheld the disallowance. Therefore, the grounds related to reopening became academic, and the appeal was dismissed.
Key Issues
The main issues were the validity of the reassessment proceedings initiated under Section 147 and the allowability of deductions claimed under Section 36(1)(viia) and 36(1)(viii) for provisions for bad and doubtful debts.
Sections Cited
147, 148, 143(3), 36(1)(viia), 36(1)(viii)
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Before: SHRI PAVAN KUMAR GADALE & SMT RENU JAUHRI
आदेश / O R D E R PER RENU JAUHRI [A.M.] :- These appeals are filed by the assessee against the orders of the Learned Commissioner of Income-tax (Appeals), Mumbai-32/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] dated29.12.2023 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for Assessment Years [A.Y.] 2012-13 & 2013-14.
The assessee has raised following grounds of appeal for AY 2012-13:
1. On the facts and in law, the mandatory conditions in Section 147 of the Act which are jurisdictional requirements, not fulfilled and hence, the re- assessment proceedings initiated by the Ld. Assessing Officer and consequently issuance of the impugned Notice under Section 148 of the Act are bad in law and void-ab-initio.
1. 2. On the facts and in law, the proviso to Section 147 of the Act, 1961 is squarely applicable in facts and law to the Appellant's case and hence reasons recorded by Ld. Assessing Officer is erroneous and not sustainable in eye of law, as original assessment for the A.Y. 2012-13 has been completed under Section 143(3) of the Act and burden is cast upon the Assessing Officer to prove how there was failure to disclose truly and fully material facts to complete the original assessment.
3. On the facts and in law, there is no valid assumption of jurisdiction by the Ld. Assessing Officer as no new "tangible material" has come into possession of the Ld. Assessing Officer which is the basic legal requirement for the formation of the bonafide belief as contemplated in Section 147 of the Income Tax Act as held by the Hon'ble Supreme Court in the case of CIT v/s. Kelvinator India Ltd. - 320 ITR 561.
4. On the facts and in law, the Ld. Assessing Officer has initiated the re- assessment proceedings which amounts to review to reopen completed assessment on re-examination of existing assessment record of the Appellant when after in-depth enquiry on all important legal & factual aspects original assessment was completed under Section 143(3) of the Act. Hence, re- assessment proceedings are based merely on change of opinion and the same is bad in law, void ab initio and ought to be quashed.
5. On the facts and in law, in the course of original assessment proceedings for the A.Y.2012-13, the Appellant has disclosed all the material facts fully and hence, by virtue of first proviso to Section 147 of the Income Tax Act, as there is no failure of the Appellant to disclose all the primary facts, as held by the Hon'ble Supreme Court in the case of the CIT V/s. Calcutta Discount Company-41 ITR 191, the Notice issued by the Ld. Assessing Officer under Section 148 is bad in law, illegal and without assumption of jurisdiction and the same ought to be quashed.
6. On the facts and in law, the Ld. Assessing Officer's reason for re- opening of the assessment is based on change of opinion, which is impermissible in law.
7. On the facts and in law, Ld. Assessing Officer erred in making disallowance under Section 36(1)(viia) of the Act of Rs. 55,00,000/- which is allowable deduction to the Appellant bank.” Page 2 of 9
3. The first six grounds relate to re-opening of the assessment and ground no.7 pertains to disallowance of Rs. 55,00,000/- claimed u/s 36(1)(viia) of the Act.
4. The brief facts of the case are that the assessee filed return declaring income of Rs. 6,46,81,390/- on 28.09.2012 and the assessment was completed u/s 143(3) of the Act on 23.03.2015 at an income of Rs. 6,52,91,460/-. Thereafter, it was noticed that the assessee had debited an amount of Rs. 55,00,000/- as reserve for standard assets in the P&L account but the same was not added back to the income. Accordingly, the case was reopened and a notice u/s 148 was issued. The AO proceeded to disallow the claim on account of reserve for standard asset on the ground that the same is not in accordance with the law. The assessment was completed u/s 143(3)r.w.s 147 of the Act. at an income of Rs. 7,07,91,460/-. The Ld. CIT(A) dismissed the assessee’s appeal vide order dated 29.12.2023.
Before us, Ld. AR has pointed out that the deduction was claimed in respect of reserve for standard assets u/s 36(1)(viii) as per the RBI circular dated 02.07.2012 and is therefore allowable. Relevant provisions of section 36(1)(viii) are reproduced as under: “36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- . Page 3 of 9 . . . . . . . (viii) in respect of any special reserve created a maintained by a specified entity, an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head Profits and gains of business or profession" (before making any deduction under this clause) carried to such reserve account:
Provided that where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paidup share capital and of the general reserves of the specified entity, no allowance under this clause shall be made in respect of such excess.”
Ld. AR was directed to furnish the calculation and the computation u/s 36(1)(viii) of the Act. As per the computation sheet filed, it is seen that the reserve for standard asset for the year ending 31.12.2012 is Rs.55,00,000/- which together with the reserve credited in the previous year of Rs.71,11,000/- comes to total of Rs.1,26,11,000/-. The same is well within the limit prescribed u/s 36(1)(viii) i.e. amount not exceeding 20% of profits,subject to the overall limit of twice of amount of paid-up share capital. The computation sheet filed by the assessee is as under:
Sr No. Particulars Amount 1. Profit as per computation (A.Υ. 2012-13) Rs. 6,46,81,394/- 2. 20% there of [allowable as per section Rs. 1,29,36,279/- 36(1)(viii)] 3. Total paid up capital (Rs. 8,70,01,830/ x 2 = 17,40,03,660/- 17,40,03,660/-) 4. Amount claimed under Section 36(1)(viii) As Rs. 55,00,000/- reserve for Standard Asset as per RBI Circular Page 4 of 9 dated 02.07.2012 5. Reserve for Standard Asset for year ending 31st Rs. 71,11,000/- March 2011 6. Reserve for Standard Asset for year ending 31st Rs. 1,26,11,000/- March 2012 After careful consideration of rival submissions and material available before us, we hold that the assessee is entitled to claim of Rs. 54,00,000/- u/s 36(1)(viii) of the Act. The assessee’s appeal on this ground is allowed.
As the assessee’s appeal has been allowed on merits, the rest of the grounds related to reopening thus become academic in nature and are not adjudicated.
In the result, the appeal of the assessee is allowed. for AY 2013-14 9. The grounds of appeal
have been filed by the assessee for AY 2013-14 are as under:
1. On the facts and in law, the mandatory conditions in Section 147 of the Act which are jurisdictional requirements, not fulfilled and hence, the re- assessment proceedings initiated by the Ld. Assessing Officer and consequently issuance of the impugned Notice under Section 148 of the Act are bad in law and void-ab-initio.
2. On the facts and in law, the proviso to Section 147 of the Act, 1961 is squarely applicable in facts and law to the Appellant's case and hence reasons recorded by Ld. Assessing Officer is erroneous and not sustainable in eye of law, as original assessment for the A.Y. 2013-14 has been completed under Section 143(3) of the Act and burden is cast upon the Assessing Officer to prove how there was failure to disclose truly and fully material facts to complete the original assessment.
3. On the facts and in law, there is no valid assumption of jurisdiction by the Ld. Assessing Officer as no new "tangible material" has come into possession of the Ld. Assessing Officer which is the basic legal requirement for the formation of the bonafide belief as contemplated in Page 5 of 9 Section 147 of the Income Tax Act as held by the Hon'ble Supreme Court in the case of CIT v/s. Kelvinator India Ltd. - 320 ITR 561.
4. On the facts and in law, the' Ld. Assessing Officer has initiated the re- assessment proceedings which amounts to review to reopen completed assessment on re-examination of existing assessment record of the Appellant when after in-depth enquiry on all important legal & factual aspects original assessment was completed under Section 143(3) of the Act. Hence, re-assessment proceedings are based merely on change of opinion and the same is bad in law, void ab initio and ought to be quashed.
5. On the facts and in law, in the course of original assessment proceedings for the A.Y.2013-14, the Appellant has disclosed all the material facts fully and hence, by virtue of first proviso to Section 147 of the Income Tax Act, as there is no failure of the Appellant to disclose all the primary facts, as held by the Hon'ble Supreme Court in the case of the CIT V/s. Calcutta Discount Company-41 ITR 191, the Notice issued by the Ld. Assessing Officer under Section 148 is bad in law, illegal and without assumption of jurisdiction and the same ought to be quashed.
6. On the facts and in law, the Ld. Assessing Officer's reason for re- opening of the assessment is based on change of opinion, which is impermissible in law.
7. On the facts and in law, Ld. Assessing Officer erred in making disallowance under Section 36(1)(viia) of the Act of Rs. 25,01,789/- which is allowable deduction to the Appellant bank.”
The appeal has been filed after a delay of 40 days. The assessee has filed an affidavit explaining the reasons of delay. The counsel of the assessee was hospitalized and eventually passed away due to which the filing of appeal was delayed by 40 days. Considering the facts and circumstances explained by the assessee, we hereby condone the delay. In grounds No. 1 to 6, the assessee has agitated the reopening of the assessment. The only ground related to merits is regarding disallowance u/s 36(1)(viia) of Rs. 25,01,789/-.
Brief facts of the case are that the assessee filed its return for AY 2013- 14 declaring total income of Rs. 7,90,87,590/- on 28.09.2013. The assessment was completed u/s 143(3) of the Act at an income of Rs. 7,93,19,090/-vide order dated 17.03.2016. Thereafter, the case was reopened by issuing a notice u/s 148 of the Act on 14.03.2019. The assessee filed its return of income in response to the notice u/s 148 of the Act on 24.06.2019. The assessee being a co-operative bank was eligible for deduction u/s 36(1)(viia) on account of provision for bad debts. The same had been claimed and allowed at Rs. 64,12,507/-. It was noticed that the assessee has further claimed Rs. 25,01,789/- as bad debts over and above provision of bad debts claimed and allowed. Since the assessee had made an incorrect claim of Rs. 25,01,789/- in the computation of income, proceedings u/s 147 were initiated by the AO vide notice u/s 142(1) dated 09.08.2019, the assessee was required to explain as to why the bad debt written off claimed at Rs. 25,01,789/- should not be added back to the total income.
The assessee vide his reply dated 29.10.2019 to the notice submitted that it was a mistake apparent, and therefore, requested to the AO to rectify the assessment. Accordingly, the AO proceeded to disallow the bad debt return of claim at Rs. 25,01,789/-.
The assessee, thereafter, filed an appeal before Ld. CIT(A) challenging the reopening of the assessment as well as the disallowance of claim of bad debts. Page 7 of 9
The Ld. CIT(A) in his order has dealt with the grounds challenging the reopening of the assessment as well as merits of the case and dismissed the appeal. Relevant portion of the order is reproduced below:- “6. Grounds No.1, 2, 3 and 4: These grounds of appeal raised by the appellant relate to the addition of Rs.25,01,789/- made in the Assessment Order and disallowance of deduction claimed in ROI. As seen from record, the appellant had debited Rs. 25,01,789/- to the P&L 'Account and the same was reduced from the reserve fund of 'provisions for bad and doubtful debts in the Balance Sheet. The appellant had also credited identical amount as 'provisions for bad and doubtful debts written back', which were virtually not written back. This was not added back to the income by the appellant during the year. The appellant was confronted with this and asked to clarify the same by the AO, to which it responded by accepting the mistake that- 'This is a mistake apparent and we request your goodself to kindly rectify the assessment.' The AO, after examining the response of the appellant, concluded as below - ....the assessee has debited the bad debt at Rs.25,01,789/- and at the same time it has credited identical amount of Rs.25,01,789/- as amount written back. This shows that the assessee has virtually not written of any bad debts in the books of account. Further the actual bad debts if any needs to be reduced from the reserve fund of "provisions for bad & doubtful debt" and no separate deduction for bad debts is allowable to u/s 36(1)(vii) to the assessee being a banking company which is eligible for deduction u/s 36(1) (viia).... As the assessee has agreed for the addition of impugned amount of Rs.25,01,789/- for taxation, the bad debts written off so claimed Rs. 25,01,789/-is disallowed and the same is added to the total income." 6.1. I do not find any anomaly in this action of the AO. The appellant during appellate proceedings has brought nothing on record against the merits of this addition made. It has instead raised additional legal grounds against the reopening of the case. The appellant had accepted the mistake and agreed to the addition made during assessment proceedings. It is not clear as to why the addition is being contested in appeal thereafter. Nothing has been brought on record to explain/substantiate the same. I therefore find no reason to interfere with the finding of and addition made by the AO on this issue.”
We have heard the rival submissions and perused the orders of the lower authorities. We find that the Ld. CIT(A) has adequately dealt with all the grounds and we find no reason to interfere with the decision of the Ld. CIT(A).