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Facts
The assessee, Karnataka Bank Ltd., claimed a deduction under Section 36(1)(vii) of the Income Tax Act, 1961, for bad debts amounting to Rs. 31,81,22,183/- for the assessment year 2008-09. Initially, the CIT(A) allowed the claim, but on appeal by the department, the ITAT remanded the issue to the AO for verification of the amount written off in the books.
Held
The Tribunal held that the issue was remanded by the ITAT solely for verifying if the debts were written off in the books, not for determining double deduction. The AO, however, disallowed the claim on the grounds of double deduction, exceeding the ITAT's directions. The Tribunal also referred to the Supreme Court's decision in Catholic Syrian Bank Ltd. regarding non-rural debts.
Key Issues
Whether the Assessing Officer exceeded the scope of remand directions by disallowing the deduction on grounds of double deduction, instead of merely verifying the write-off in the books?
Sections Cited
36(1)(vii), 36(1)(viia)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI GEORGE GEORGE K. & SHRI CHANDRA POOJARI
ITA No.875/Bang/2023 Karnataka Bank Ltd., Mangaluru
IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
ITA No.875/Bang/2023 Assessment Year: 2008-09 Karnataka Bank Ltd. Near Mahaveer Circle Pumpwell Kankanady Vs. Mangaluru DCIT Karnataka 575 002 Mangalore PAN NO.AABCT5589K ASSESSEE RESPONDENT Assessee by : Sri Ananthan S. & Smt. Lalitha Rameswaran, A.Rs Revenue by : Ms. Neera Malhotra, D.R. Date of Hearing : 08.02.2024 Date of Pronouncement : 08.02.2024 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by assessee is directed against order of NFAC for the assessment year 2008-09 dated 27.9.2023. The assessee has raised following grounds of appeal: “1. The order of the learned Commissioner of Income tax (A) is bad is law and against the facts of the case. 2. The learned Commissioner of Income tax (A) erred in remanding the issue back to the AO for verification. 2.1. The learned Commissioner of Income tax, having observed in his order that all the details required to comply with the directions of ITAT has been furnished by the Assessee Bank, ought not have remanded back the issue again to AO for verification, instead of allowing the appeal in favor of the Assessee Bank. 2.2 The learned Commissioner of Income tax (A) erred in not deleting the disallowance made by the learned Assessing Officer.:
ITA No.875/Bang/2023 Karnataka Bank Ltd., Mangaluru Page 2 of 6 3. The learned Commissioner of Income tax (A) failed to appreciate the fact that the order of the learned Assessing Officer is beyond the directions given by the Hon'ble ITAT and as such, is not tenable. For the above said grounds, or any other grounds, that may be pressed at the time of hearing, the Appellant prays that the order of the learned Assessing Officer be set aside and the deduction as claimed by the Appellant Bank be allowed.” 2. Facts of the case are that the assessee is a Private Sector bank carrying on the business of banking. It filed its Return of Income for the impugned Assessment Year 2008-09 on 30/09/2008 declaring a total income of Rs.295.83 Crore under the normal provisions. During the relevant Assessment Year under appeal, an order u/s 143(3) was passed on 22-12-2010, wherein various disallowances were made and one of such disallowance relates to claim of deduction u/s 36(1)(vii) of the Income Tax Act, 1961 (in short “The Act”) amounting to Rs. 31,81,22,183/-. The Assessee Bank filed an appeal before the learned CIT (Appeals), who by his order dated 21-06-2011 allowed the issue in favour of the Assessee Bank. On further appeal before the ITAT filed by the Department, the matter was remitted to the AO by the Tribunal, for the limited purpose of verifying that the amount of claim u/s 36(1)(vii) of the Act should be limited to the extent of amount written off in the Books of account i.e., provision for bad debts debited to P & L account and reduced from sundry advances account in the light of the decision of the Hon'ble Supreme Court in the case of Canara Bank 68 taxmann.com 128. After the consideration of submission and details, AO noted that the assessee simultaneously claimed bad debts which was technically written off and such a claim would amount to be double deduction which is not provided under the law. 2.1 The ld. A.R. submitted that the Assessee bank had written off bad debts to the extent of Rs. 31,81,22,183/-, which includes rural debts written off by the rural branches of the Assessee Bank to the extent of Rs. 3,21,619/-. Therefore, the non-rural debts written off by the Assessee Bank amounted to Rs. 31,78,00,564/-. In the Return of
ITA No.875/Bang/2023 Karnataka Bank Ltd., Mangaluru Page 3 of 6 Income, instead of claiming the non-rural debts, the Assessee Bank by oversight claimed the entire amount of bad debts written off as deduction u/s 36(1)(vii) of the Act. However, during the remand proceedings, it had corrected this error vide its letter dated 25-05-2018. 2.2 He submitted that in the original Assessment proceedings, the claim of the Assessee Bank was disallowed vide para 3 of the Asst order by holding that the bad debt written off should be adjusted against the credit balance in the provision account. The entire issue discussed in the original Asst order are extracted in para 4 of the impugned order. In the appeal filed by the Assessee Bank before learned CIT(A), the disallowance was deleted. On further appeal by the Department, the ITAT remanded the issue by holding as follows:
"In the present case facts relating to this issue have not been brought out by the assessing officer. Therefore, we remand this issue back to the file of the assessing officer for the limited purpose of verifying that the amount of claim under section 36(1)(vii) should be limited to the amount written off in the books of account (*) i.e provision for bad debts debited to P and L account and reduced from sundry advances account. It may not be out of place to mention here that the provisions of section 36(1)(vii) are independent of each other and the Assessee is entitled to the deduction u/s 36(1)(vii) in addition to the amount of deduction for provision for bad and doubtful debts u/s 36(1)(viia) of the Act (*)." (* emphasis applied)
2.3 He further submitted that the issue was remand by the ITAT was only to verify whether the debts are written off in the books or not. The issue of adjusting the write off against the provision u/s 36(1)(viia) of the Act or whether allowing deduction u/s 36(1)(vii) of the Act would amount of double deduction was not part of the remand order.
2.4 He submitted that the learned Assessing Officer in the impugned order verified the details and disallowed the claim u/s 36(1)(vii) by holding that it amounts to double deduction as these debts have been allowed as deduction at the provision stage u/s 36(1)(viia) of the Act. In this process, he has traversed beyond the order of the ITAT.
ITA No.875/Bang/2023 Karnataka Bank Ltd., Mangaluru Page 4 of 6 2.5 He submitted that even on merits, this issue is decided in favour of the Assessee Bank by the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd vs CIT [2012] 343 ITR 270 (SC). The Apex Court clearly held that non rural debts need not be adjusted against the provision u/s 36(1)(viia) as no deduction is allowed for non rural debts. Aggrieved by the impugned order, the Assessee preferred an appeal before NFAC on 26/05/2021 on the following grounds:
The learned Assessing Officer erred in disallowing the deduction u/s 36(1)(vii) of Rs.31,78,00,564/- a. The learned Assessing Officer failed to appreciate the fact that the non-rural debts need not be adjusted against the provision u/s 36(1)(viia). 2. The order of the learned Assessing Officer is beyond the directions given by the Hon'ble ITAT and as such, is not tenable. 2.6 He submitted that NFAC vide its Order u/s 250 dated 27/09/2023,has disposed the appeal by remanding the issue back to AO for verification of the facts as per directions of ITAT, stating as follows:
"The Hon'ble ITAT has clearly stated that only the provision for bad and doubtful debts to the extent of reduction in sundry advances in the books has to be treated as written 'off u/s 36(1)(vii) of the Act. As pointed out above, the AO himself has admitted that the borrower- wise details of all bad debts accounts, which were written off, have already been furnished by the appellant on 25.05.2018, the AO is directed to verify these accounts as per the direction of the Hon'ble ITAT accordingly and allow the deduction u/s 36(1)(vii) to the extent of actual amount written off in the sundry advance accounts".
The contention of the ld. A.R. is that the Tribunal has remitted the issue to the file of ld. AO for limited purpose for verification of facts and decide the issue afresh after holding that assessee is entitled for deduction u/s 36(1)(vii) of the Act to the extent of amount written off in the books of accounts only i.e. provision for bad debts
ITA No.875/Bang/2023 Karnataka Bank Ltd., Mangaluru Page 5 of 6 debited to the P&L account and reduced from sundry advance accounts. However, ld. AO while framing the assessment has observed that assessee has been getting double benefit at the stage of making provision for bad and doubtful debts, which are claimed u/s 36(1)(vi)(a) of the Act and subsequently, the amounts are actually written off. The total credit balance in the provision for bad and doubtful debts is not exhausted before claiming any fresh bad debts, which is claimed to have been written off in the books. According to the ld. A.R., this finding of the ld. AO is misplaced as well as the finding of the ld. CIT(A) in directing the ld. AO to verify these accounts once again. 3. The ld. D.R. strongly relied on the order of the lower authorities. 4. We have heard the rival submissions and perused the materials available on record. On earlier occasion, the Tribunal has observed that assessee is entitled for deduction u/s 36(1)(vii) of the Act to the extent of amount written off in the books of accounts only i.e. provision for bad debts debited to P&L account and reduced from sundry advance account. However, while passing the order giving effect, the ld. AO said to be carried out detailed enquiry on merits. Against which, assessee went in appeal before NFAC, wherein NFAC has directed the ld. AO to verify these accounts as per the direction of Hon’ble ITAT and allow the deduction u/s 36(1)(vii) of the Act to the extent of actual amount written off in the sundry advance account. Now the contention of the ld. A.R. is that the above findings of the ld. AO as well as NFAC is bad in law. As such, both to be quashed. In our opinion, findings of the lower authorities may be not in order. However, it would not make the order of the lower authorities invalid. Being so, we once again direct the ld. AO to pass fresh order in conformity with the earlier direction of the Tribunal and decide accordingly.
ITA No.875/Bang/2023 Karnataka Bank Ltd., Mangaluru Page 6 of 6 5. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 8th Feb, 2024
Sd/- Sd/- (George George K.) (Chandra Poojari) Vice President Accountant Member Bangalore, Dated 8th Feb, 2024. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order
Asst. Registrar, ITAT, Bangalore.