THE COMMISSIONER OF INCOME TAX vs M/S. SYNDICATE BANK

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

ON THE 4TH DAY OF DECEMBER, 2018

BEFORE

THE HON'BLE MR. JUSTICE RAVI MALIMATH

AND

THE HON’BLE MR.JUSTICE K.NATARAJAN

INCOME TAX APPEAL NO.164 OF 2009

BETWEEN:

THE COMMISSIONER OF INCOME TAX C R BUILDING ATTAVARA MANGALURU

THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1, UDUPI ... APPELLANTS

(BY SRI:K V ARAVIND, ADVOCATE)

AND:

M/S. SYNDICATE BANK CENTRAL ACCOUNTS DEPARTMENT TAX CELL, MANIPAL 576 104 ... RESPONDENT

(BY SRI:K.P.KUMAR, SENIOR COUNSEL FOR M/S KING AND PARTRIDGE)

2 THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961 ARISING OUT OF THE ORDER DATED 31.10.2008 PASSED IN INCOME TAX APPEAL NO.550/BANG/2006, FOR THE ASSESSMENT YEAR 1999-2000 PRAYING THIS HON’BLE COURT TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPEALLATE TRIBUNAL IN INCOME TAX APPEAL NO.550/BANG/2006, DATED 31.10.2008 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, UDUPI, IN THE INTEREST OF JUSTICE AND EQUITY.

*****

THIS INCOME TAX APPEAL COMING ON FOR HEARING THIS DAY, RAVI MALIMATH J., DELIVERED THE FOLLOWING:

JUDGMENT

The assessee is a Banking company. For the assessment year 1999-2000, the assessee filed a return of income declaring a total income of Rs.45,06,163/- under Section-143(3) of the Income tax Act (for short ‘I.T. Act’). The income under Section-115JA of the I.T. Act was shown as Rs.24,35,14,910/-. The assessee claimed a sum of Rs.15 Crores as provision for ‘Non-performing Assets’

3 covered under the policy with Deposit Insurance and Credit Guarantee Corporation. The Assessing Officer re-computed the income under Section-115JA and added back the said amount of Rs.15 crores. On an appeal being filed before the Commissioner of Income Tax (Appeals), the appeal was dismissed. The same was challenged before the Tribunal. The Tribunal by following the earlier order in the assessee’s own previous case, directed the Assessing Officer to allow the provision as deduction, in computing the book profit under Section 115JA of the Act. Aggrieved by the same, the revenue has filed this appeal.

By the order dated 14.12.2010, the appeal was admitted to consider the following substantial question of law: “Whether the Tribunal was correct in holding that the provision of Rs.15 crores representing loss of assets which had not been actually written off cannot be added back when computing the book profits under Section 115JA of the Act when such a

4 provision cannot be allowed as per Section 36(1)(vii) read with Section 36(2) of the Act?”

The learned Counsel for the appellant contends that the Hon’ble Supreme Court in the case of COMMISSIONER OF INCOME TAX Vs. HCL COMNET SYSTEMS & SERVICES LTD., reported in (2008) 219 CTR (SC) 222, held that any provision made towards irrecoverability of the debt, cannot be said to be a provision for liability. Therefore, item (c) of the Explanation to Section 115JA, is not attracted to the case therein. It was held that the Assessing Officer was not justified in adding back the provision for doubtful debts. Subsequent to the order of the Hon’ble Supreme Court, an amendment was brought about to the Explanation of Section 115JA wherein clause (g) was added, which reads as follows: “(g) the amount or amounts set aside as provision for diminution in the value of any asset,…”

The same fell for consideration before this Court in the case of COMMISSIONER OF INCOME TAX Vs. YOKOGAWA INDIA LTD., reported in [2012] 17 TAXMANN.COM 15 (KAR). Therein, the judgment of the Apex Court in the case of VIJAYA BANK Vs. COMMISSIONER OF INCOME TAX reported in [2010] 323 ITR 166 was considered, wherein the Apex Court considered the Explanation with regard to Item(c) of the Explanation of Section 115JA of the Act. It was held that a mere debit to the profit and loss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the explanation stood inserted. That prior to the Finance Act, 2001, the assessee would take the benefit of a deduction under Section 36(1)(vii) of the Act by merely debiting the impugned bad debt to the profit and loss account and, therefore, the explanation was added on to state that a mere reduction of profits by debiting the amount to the profit and loss account per se, would not constitute an

6 actual write off. However, it was clarified that, besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet. Consequent to the explanation, the assessees are now required, not only to debit the profit and loss account but, simultaneously also reduce the loans and advances from the assets side. Therefore, it was held that, if the bad debt or doubtful debt is reduced from the loans and advances of the debtors from the assets side of the balance sheet, the Explanation to Section 115 JA or JB is not at all attracted.

In the subsequent judgment of this Court in the case of COMMISSIONER OF INCOME TAX, MANGALURU Vs. SYNDICATE BANK SYNDICATE HOUSE reported in [2015] 54 TAXMANN.COM 292 (KARNATAKA), while following the earlier order in the assessee’s own case, the

7 matter was remanded to the First Appellate Authority, with a direction to the authority to look into the records and to record a finding as to whether the bad and doubtful debts are reduced from the loans and advances of the debtors from the assets side of the balance sheet.

Under these circumstances, the learned Counsel for the revenue contends that since the said issue requires to be ascertained from the concerned authority, the said judgment may be followed, as the said judgment pertains to the assessee’s own case itself.

The learned Senior Counsel appearing for the respondent’s Counsel does not dispute the said proposition.

Under these circumstances, in view of the fact that the said issue has to be ascertained by the authority, we do not find it necessary that the said substantial question of law raised requires to be answered. Therefore, the matter stands remitted to the Commissioner of Income

8 Tax (Appeals), with a direction to look into the records and to record a finding as to whether the bad and doubtful debts are reduced from the loan and advances of the debtors from the assets side of the balance sheet and thereafter, to re-compute the income under Section 115JA of the Act. The contention of the assessee if raised with regard to the applicability of Section 115JA of the Act, is kept open for adjudication before the Commissioner of Income Tax (Appeals).

Consequently, the appeal is disposed off.

Sd/-

Sd/- JUDGE

JUDGE

*bgn/-

THE COMMISSIONER OF INCOME TAX vs. M/S. SYNDICATE BANK