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IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 9TH DAY OF FEBRUARY, 2018
PRESENT
THE HON’BLE MRS. JUSTICE S. SUJATHA
AND
THE HON’BLE MR. JUSTICE JOHN MICHAEL CUNHA
I.T.A.No.100028/2014 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, SEDAM ROAD, GULBARGA.
THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-I, BELLARY.
…APPELLANTS (BY SRI.Y.V.RAVIRAJ, ADV.)
AND:
M/S.PRAGATHI GRAMINA BANK, (AMALGAMATED BANK OF TUNGABHADRA GRAMEENA BANK), HEAD OFFICE, SANGANAKAL ROAD, GANDHINAGAR, BELLARY. …RESPONDENT
(BY SRI.H.R.KAMBIYAVAR FOR SRI S.PARTHASARATHI, ADVS.)
THIS APPEAL IS FILED UNDER SECTION 260-A OF THE INCOME-TAX ACT, 1961 AGAINST ORDER PASSED IN ITA.NO.228/Bang/2012 DTD:10.01.2014 ON THE FILE OF THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH 'A' BANGALORE, APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2008-09 IS DISMISSED.
THIS APPEAL COMING ON FOR FINAL HEARING, THE SAME HAVING BEEN HEARD AND RESERVED ON 29.01.2018, THIS DAY, S.SUJATHA J., DELIVERED THE FOLLOWING:
: 2 : JUDGMENT This appeal is filed by the Revenue under Section 260-A of the Income Tax Act, 1961 (fort short, ‘the Tribunal’) Bangalore Bench ‘A’: Bangalore (ITA Nos.228/Bang/2012) relating to the Assessment Year 2007-08, raising the following substantial question of law: “Whether on the facts and in circumstances of the case, the Tribunal is right in law in confirming the order of Commissioner of Income Tax (Appeal) in allowing the assessee’s claim for written back of excess provision for bad and doubtful debts?”
The assessee-respondent is a Rural Regional Bank, governed by Banking Regulation Act, 1949. The Assessment was concluded under Section 143(3) of the Act by the assessing authority making certain additions to the return of income filed. Additions relating to the excess provision of bad and doubtful debts of Rs.8,17,83,534/- is the issue involved in this appeal. The assessment order passed adding back an amount of
: 3 : Rs.8,17,83,534/- to the total income disallowing the deduction of excess provision of bad and doubtful debts was challenged before the Commissioner of Income Tax(Appeals) (for short, ‘CIT(A)’) and the same came to be allowed. Being aggrieved by the same, the Revenue preferred an appeal before the Tribunal. The Tribunal dismissed the appeal. Hence, this appeal by the Revenue.
Learned counsel Sri.Y.V. Raviraj, appearing for the appellant/Revenue would contend that the Tribunal has grossly erred in not appreciating the case of the assessee-respondent, provision of bad debts has been allowed as expenditure, while computing the gross total income, in the earlier previous years and therefore, the excess provision written during the subsequent assessment year amounts to income within the meaning of Section 41(1) of the Act.
Learned counsel Sri. H.R. Kambiyavar, appearing for the respondent-assessee submitted that the assessee
: 4 : is entitled to deduction with respect to provision made for bad and doubtful debts in accordance with the provision of Section 36(1)(viia) of the Act. The assessing officer has taxed the write back of provision for bad and doubtful debts, which was never allowed as deduction in the relevant previous year, as such Section 41(1) of the Act is not applicable. The amount of provision of bad and doubtful debts written back in this year cannot be treated as income, if no deduction in respect of the same was allowed in earlier year under Section 36(1)(viia) of the Act.
We have given our anxious consideration to the arguments advanced by the learned counsel appearing for the respective parties and perused the material on record.
The Tribunal being last fact finding authority has categorically held that the excess provision of Rs.8,17,83,534/- for bad and doubtful debts existed in the books was written back by the assessee; however, it
: 5 : is not the case of the revenue that the excess provision written back in the profit and loss account had also been allowed as deduction in the past assessment of total income of the assessee. With these factual findings, what can be inferred is that no material was placed on record to establish the fact that the excess provision of Rs.8,17,83,534/- was allowed as deduction in the past total assessment of the assessee.
It is not in dispute that Section 36(1)(viia) of the Act contemplates that a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent of the total income computed before making any deduction under this clause and Chapter VIA and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner, any
: 6 : provision, for bad and doubtful debts can be made during the relevant assessment year. Section 41 of the Act provides for profits chargeable to tax. Section 41(1) of the Act contemplates that where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit according to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not.
: 7 : 8. A conjoint reading of these provisions contemplates that if an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability and the same is written back in the books of accounts, the said written back expenditure, loss or trading liability shall be eligible to levy of tax as income. The burden lies on the Revenue to prove that the provision for bad and doubtful debts written back was allowed as expenditure reducing profit in the profits and loss account for the previous year. It is the case of the assessee that as per RBI guidelines for provisioning of bad and doubtful debts, in terms of Section 36(1)(viia) of the Act, provision was made. The same being excess, was written back in the books of accounts. Recovery if any from such written of accounts is being offered to tax on yearly basis under the head “Miscellaneous income” by the bank.
The appellate authority as well as the Tribunal placing reliance on the decision of the ITAT, Delhi Bench in the case of Bank of Tokyo Vs. JCIT (125
: 8 : TTJ (Del ‘B’ – Trib) 655 and considering the fact that the Revenue has not established that the excess provision written back in the profit and loss account was allowed as deduction in the previous years has given a finding against the Revenue. We do not find any infirmity or irregularity in such finding. Accordingly, we answer the substantial question of law in favour of the assessee and against the Revenue.
In the result, appeal stands rejected.
Sd/- JUDGE Sd/- JUDGE
JTR