INDUSTRIAL INVESTMENT BANK OF INDIA LTD.,KOLKATA vs. DCIT, CIR-6, KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A”, BENCH KOLKATA BEFORE SHRI N.V.VASUDEVAN JM, & DR. A.L.SAINI, AM आयकर अपील सं./ITA No.1416/Kol/2014 (�नधा�रण वष� / Assessment Year :2004-2005) Industrial Investment Bank Vs. DCIT, Circle-6, Kolkata, of India Limited, Aayakar Bhawan, P-7, 19, Netaji Subhas Road, Chowringhee Square, Kolkata-700001 Kolkata-700001 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AABCI 0324 D .. (अपीलाथ� /Appellant) (��यथ� / Respondent) राज�व क� ओर से /Revenue by : Shri Sanjay Bhattacharya,FCA �नधा�रती क� ओर से /Assessee by : Shri R.K.Kureel, JCIT सुनवाई क� तार�ख / Date of Hearing : 28/02/2017 घोषणा क� तार�ख/Date of Pronouncement 05/04/2017 आदेश / O R D E R Per Dr. Arjun Lal Saini, AM: ` The captioned appeal filed by the Assessee, pertaining to assessment year 2004-2005, is directed against the order passed by the ld. Commissioner of Income Tax (Appeals)-VI, Kolkata, in Appeal No.343/08-09/CIT(A)-VI/Cir-6/Kol, dated 29.04.2014, which in turn arises out of an order passed by the AO u/s.143(3) of the Income Tax Act 1961, (hereinafter referred to as the ‘Act’), dated 17.11.2006. 2. Brief facts of the case qua the assessee are that the assessee is a public sector undertaking Bank and its operations are solely in the segment of non-banking financial intermediation services. The assessee being a financial institution, its activities are subject to guidelines issued by the Reserve Bank of India for banking companies. During the financial year under consideration, the assessee company written off a sum of Rs.1,42,48,266/- on account of debts as irrecoverable. The assessee is

2 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd.

an organization to which the provisions of Section 36(1)(viia) is applicable.

In assessee’s case an order u/s.143(3) was passed on dated 17.11.2006.

Later on, it was found by the AO that there had been certain mistakes,

which were apparent from the record and needs to be rectified. The issue

of rectification was allowance of provision of Section 36(1)(viia)(c). While

rectifying the mistake the Assessing Officer observed as under:

“ In the assessment order the provision had been allowed before working out of total income as per the Act. The section provides that 5% of total income as worked out, before giving credit of deduction under clause 36(1)(viia)(c) and any deduction under Chapter-VIA of the Act, is to be allowed as deduction. Total income of the assessee for the year should have been worked out after adjustment of brought forward of loss, whereas in the order deduction had been allowed before such adjustment. This is a mistake apparent from record. In the written statement the AR opposed the proposed rectification, arguing that total income for the year is to be taken as per sec.2(45) read with sec.5 of the Act, whereas income from various heads of income of the year is to be clubbed and there is no scope of adjustment of brought forward loss of other years as per the definition. The assessee’s AR argument is not accepted. Sec.2(45) provides that total income means the total amount of income referred to in sec.5 computed in the manner laid down in this Act. Current year’s income from a particular source/head of income is finally determined only after proper aggregation of income and set off of loss as per Chapter-VI of the Act. Therefore, adjustment of brought forward loss precedes the determination of total income.”

filed an appeal before the CIT(A), who has confirmed the order passed by

the AO observing the followings :-

3 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd.

deduction under this clause and chapter VI-A)" shall be allowed as deduction. Thus, the deduction allowable is 5% of total income computed before the above deduction and deductions under Chapter VI-A. The term 'total income' has been defined under section 2(45) of the IT.Act, 1961 which states that:-

" "total income" means the total amount of income referred to in section 5 computed in the manner laid down in this Act. "

Section 5, in turn, clarifies that scope of total income extends to all the income accruing, arising or deemed to be accrued or arisen or received or deemed to be received during the year. Since section 2(45) of the Act states that total income should be computed in the manner laid down in the Act, one has to follow the provisions of the Act for computation of income under various heads. The provision regarding carry forward and set off of business loss is prescribed under section 72 of the Act. Chapter VI-A, specifying various deductions from gross total income, consists of section 80A to 80VV (now deleted). The Chapter VI-A comes after section 72 relating to set off or brought forward business losses. In other words, total income is arrived at after reducing deduction under Chapter VI-A from gross total income which is worked out after considering set off of brought forward business losses. Therefore, the term 'total income' refers to income after allowance of brought forward losses. The contention of the appellant that for purpose of finding true scope of total income, one should consider only the income and expenses relating to the concerned year, therefore, does not appear to be correct. Once the term 'total income' has been defined under the LT. Act, one has to take the meaning of the term as given in the said definition. The position is further clarified by the fact that the provision of section 36(1)(viia)(c) of the IT Act, 1961, reference is made to the total income computed before making any deduction under the said clause and Chapter VI-A. It clearly means that other than the aforesaid deductions, effect to all the provisions of the Act is to be duly given. Reference to Chapter VI-A is also significant for the reason that Chapter VIA comes after section 72 and deduction under Chapter VIA is allowed after setting off of brought forward losses under the scheme of the Act. The appellant has, without citing any authority, tried to interpret the meaning of the term 'total income' as per its own convenience. However, it is well settled that once the meaning of the words used in the statute is clear and unambiguous, question of making any different interpretation does not arise. This has been affirmed in a number of decisions such in the cases of Paul Vijayakumar & others vs. Union of India & another 151 ITR 48 (Kar), Sheshayee Paper & Boards Ltd. vs. DCIT 272 ITR 165 (Mad) etc. The apex court has also held in its decision in the case of IPCA Laboratory Ltd. vs. DCIT 266 ITR 521 (SC), that if there is no ambiguity in the provisions of the Act, the same could not be interpreted to confer benefit to the assessee.

4 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd. 6. So far as the appellant's contention, that the issue is debatable is concerned, I find no force in the submission made in that regard either. As mentioned earlier, the provisions of the Act clearly define the term 'total income' and therefore, it is not open to have an alternate interpretation of the term. An issue can be called debatable only if there is more than one plausible view, tenable in law, on the point. This is not the situation in the appellant's case. Considering the above position, the contention made by the appellant cannot be accepted. 7. In the view of the above discussion, all the grounds are rejected. As a result, the appeal is dismissed.

appeal before us and has taken the following grounds of appeal :-

the deduction u/s.36(1)(viia)(c) in relation to provision for bad and doubtful

debts, total income should be considered before setting off of brought

forward loss. The Ld. CIT(A) has erred in confirming the action of the AO

in withdrawing the deduction earlier allowed through an order of

rectification u/s.154 of the Act. The Ld. AR submitted that the issue under

consideration is debatable in nature, therefore, rectification order passed

5 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd. u/s.154 does not have any force i.e the issue under consideration of total

income for the purpose of deduction u/s.36(1)(viia)(c) of the Act is

debatable in nature, therefore, rectification order passed u/s.154 had

been bad in law. The Ld. AR for the assessee had vehemently submitted

before us that to determine the income the provision for bad debts should

be allowed first and thereafter the carry forward loss should be adjusted.

To support his plea, ld. AR drew our attention towards the provisions of

Section 2(45) of the Income Tax Act, 1961, which reads as under :-

“Total income” means the total amount of income referred in Section 5, computed in the manner laid down in this Act.”

Ld. AR for the assessee also drew our attention towards the provisions of

Section 5-Scope of total income, which reads as under:

“5. Scope of total income (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year: Therefore, after going through Section 2(45) along with Section 5 of I.T.

Act, one can draw the conclusion that to determine the total income the

provisions for bad debts should be allowed first and thereafter the carry

forward losses should be adjusted. Apart from this, ld. AR for the

assessee has drew our attention towards the provisions of Section

36(1)(viia)(c) of the Act, which reads as under :-

6 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd. “Section 36(1)(viia)(c) :- (c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) :] [Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, of an amount not exceeding ten per cent of the amount of such assets shown in the books of account of such institution or corporation, as the case may be, on the last day of the previous year.]

The Ld. AR for the assessee submitted that as per clause ( c) of Section

36(1)(viia) of the Act, the financial institution may make a provision for

doubtful debts not exceeding 5% of the total income. The ld AR submitted

before us that to determine “total income”, the provision for bad debts

should be allowed first and then after the carried forward (CF) losses

should be adjusted. The Ld. AR for the assessee also submitted that

sub-proviso of clause ( c) of Section 36(1)(viia) of the Act, gives an option

to the assessee that assessee may claim in two consecutive assessment

years commencing on or after the 1st day of April, 2003 and ending

before the 1st day of April, 2005, deduction in respect of any provision

made by it for any assets classified by the Reserve Bank of India as

doubtful assets or loss assets in accordance with the guidelines issued by

the RBI i.e. the assessee may claim 10% of the amount of such assets

shown in the books of account as provision for doubtful debts. The Ld. AR

7 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd. has requested the bench that the assessee has expressed his desire to

compute and claim the provision for doubtful debts as per proviso of

clause (c ) of Section 36(1)(viia) of the Act, which entitles the assessee to

claim the deduction @10% in respect of provision for doubtful debts, and,

therefore, the assessee can lawfully claim it. But the assessee has not

claimed the deduction of provision for doubtful debts @10% in its return of

income filed by it, therefore, the AO could not allow the deduction @10%.

The Ld. AR further pointed out that assessee’s appeal under

consideration is for assessment year 2004-05 and, therefore, he is eligible

to claim the benefit of the said proviso of clause (c ) of Section 36(1)(viia)

of the Act. Therefore, ld. AR for the assessee has requested the bench to

consider the additional argument of the assessee that the claim does fall

under the proviso of clause (c ) of Section 36(1)(viia) of the Act, where

10% provision is allowed, in any of two consecutive assessment years

commencing on or after the 1st day of April, 2003 and ending before the

1st day of April, 2005. The Ld. AR for the assessee also submitted before

us that merely because the assessee has not claimed in its return of

income, the benefit of 10% of provision for bad and doubtful debts, does

not mean that the assessee is not entitled to claim under the Act.

Therefore, the assessee requested an additional ground of appeal to

consider the request of the assessee sympathetically because the

assessee is entitled to claim benefit of higher deduction @10% as

explained above. Therefore, ld. AR for the assessee requested the Bench

to remit the case back to the file of AO with the direction that AO should

8 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd.

allow 10% provision for doubtful debts as per the provisions of the Act

explained above.

AO, which we have already noted in our earlier para and is not being

repeated for the sake of brevity.

Investment Bank of India Ltd. In computing its total income it is entitled

to deduction on account of provision for bad and doubtful debts at the

rates specified in Sec.36(1)(viia)( c) of the Income Tax Act, 1961 (Act) i.e.,

an amount not exceeding 5% of the total income (computed before

making any deduction under clause Sec.36(1)(viia)( c) of the Act.

In the order of assessment u/s.143(3) of the Act dated 17.11.2006 for AY 04-05, the Assessing Officer (AO) computed deduction u/s.36(1)(viia) ( c) of the Act as follows: Loss as per computation annexed with the return Rs. 89,72,68,736 Less: Disallowance as discussed:- a. On account of bad debts written off Rs. 1,42,48,266 b. On account of provision on bad debts written back Rs.124,69,89,000 c. U/s.14A – as discussed Rs. 34,33,000 d. On account of depreciation Rs. 8,300 Rs. 46,74,09,830 Less: Provision allowed u/s.36(1)(viia) ( c) -restricted to 5% of total income Rs. 2,33,70,492 Rs. 42,40,39,338 Less: Business Loss brought forward Rs.42,40,39,338 Total Income Nil The AO later on noticed that the computation of deduction

u/s.36(1)(viia)(c) of the Act done by him in the as aforesaid in the order of

assessment dated 17.11.2006 was erroneous, because deduction to be

allowed said section was 5% of total income before making deduction

9 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd. under clause (c) of Sec.36(1)(viia) of the Act. The brought forward loss of

the Assessee was more than Rs.46,74,09,830 and as per Sec.72 of the

Act, the brought forward loss had to be set off to arrive at the total income.

If brought forward loss is so set off than the total income would be nil and

consequently the deduction allowable u/s.36(1)(viia) (c ) would also be nil

and not Rs.2,33,70,492 as allowed by the AO in the order of Assessment.

The AO therefore issued a notice u/s.154 of the Act to rectify the

aforesaid apparent error in the order of assessment.

The plea of the Assessee before AO and CIT(A) was (a) that total income

as mentioned in Sec.36(1)(viia) (c ) of the Act was to be construed as

refer to real income of the Assessee under various heads without set off

of brought forward loss and (b) the issue in any event was debatable.

Both the AO and the CIT(A) rejected the said contention holding that there

was no debatable issue and that the expression “total income” as defined

in the Act means income computed after setting off losses as required

u/s.72 of the Act.

In this appeal against the order of the CIT(A), the learned counsel for the

Assessee apart from reiterating submissions made before the revenue

authorities also submitted that under the proviso to Sec.36(1)(viia) (c) the

Assessee was at its option and in the alternative to the deduction

mentioned in Sec.36(1)(viia)(c ) of the Act entitled to in AY 2003-04 and

2004-05 a deduction in respect of any provision made by it for any assets

classified by the Reserve Bank of India as doubtful assets or loss assets

in accordance with the guidelines issued by it in this behalf, of an amount

10 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd.

not exceeding ten per cent of the amount of such assets shown in the

books of account of such institution or corporation, as the case may be,

on the last day of the previous year. It was his prayer that all the details

to claim deduction under the proviso are already available on record and

the order of CIT(A) should be set aside and the issue should be

remanded to the AO with a direction to the Assessee to file the details of

the claims under the proviso referred to above and the AO should be

directed to look into the claim of the Assessee and allow the same in

accordance with law. The learned DR relied on the order of the CIT(A)

and opposed the prayer of the learned counsel for Assessee to remand

the issue to the AO for fresh consideration of the claim under the proviso

to sec.36(1)(viia)(c ) of the Act.

The relevant statutory provisions reads as follows:

“Other deductions. 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- ( viia) in respect of any provision for bad and doubtful debts made by— (a)……. (b)…… ( c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) : Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets

11 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd. or loss assets in accordance with the guidelines issued by it in this behalf, of an amount not exceeding ten per cent of the amount of such assets shown in the books of account of such institution or corporation, as the case may be, on the last day of the previous year.” Clause( c) to Sec.36(1)(viiia) was Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1992 and the proviso to Clause ( c) to Sec.36(1)(viia) was Inserted by the Finance Act, 2002, w.e.f. 1-4-2003. 9. We are of the view that the claim of the Assessee for non

applicability of the provisions of Sec.72 of the Act in the context of

allowing deduction u/s.36(1)(viia)( c) of the Act deserves to be rejected.

Sec. 4 of the Act creates charge of income-tax and it provides that where

any Central Act enacts that income tax shall be charged for any

assessment year at any rate or rates, income-tax at that rate or those

rates shall be charged for that year in accordance with, and subject to the

provisions (including provisions for the levy of additional income-tax) of

this Act in respect of the total income of the previous year of every

person. The charge of tax is thus on total income. Sec. 2 (45) defines total

income to mean total amount of income referred to in Sec.5, computed in

the manner laid down in this Act. Chapter-II of the Act, from section 4 to 9

deal with Basis of Charge. Chapter-III of the Act, deals with income which

do not form part of total income and are contained in Sect. 10 to 13-B of

the Act. Chapter IV deals with the computation of total income. Firstly

income is categorized under various heads of income. This is laid down in

Section 14 of the Act, which lays down that save as otherwise provided by

this Act, all income shall, for the purposes of charge of income-tax and

computation of total income, be classified under the following heads of

12 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd. income – Salaries, income from house property, profits and gains of

business or profession, capital gains, income from other sources. Chapter

V then brings income of other persons, which are to be included in the

total income of an Assessee and this is contained in section 60 to 65 of

the Act. Chapter-VI (containing sec. 66 to 80) then lays down provisions

regarding aggregation of income and set off or carry forward of loss. It is

thus clear that carried forward loss has to be deducted to arrive at the

total income. Sec.36(1)(viia) ( c) of the Act uses the expression “total

income” and therefore total income as understood and defined in the Act

has to be adopted. We do not think that the issue is debatable as

contended by the learned counsel for the Assessee. An issue to become

debatable should have a possibility of another view on the plain language

of the statutory provisions referred to above, we do not think there can be

any dispute or debate on the proposition that effect to Sec.72 has to be

given before allowing deduction u/s.36(1)(viia) ( c) of the Act.

concerned, we are of the view that the claim for deduction under the

provisio to Sec.36(1)(viia)( c) of the act, though made for the first time

before the Tribunal, deserves examination. After all the purpose of tax

proceedings is to determine the correct tax liability in accordance with law.

If an option is available to an Assessee to claim deduction

u/s.36(1)(viia)(c) proviso of the Act, then that option when exercised at

any stage of the proceedings should be examined and if found correct

allowed. The fact that the Assessee did not make a claim before the

13 ITA No.1416/Kol/2014 Industrial Investment Bank Of India Ltd. revenue authorities cannot stand in the way. The tax liability of a taxpayer

has to be determined in accordance with law and cannot arise by reason

of default. We therefore set aside the order of the CIT(A) and remand the

issue to the AO. The Assessee will put forth its claim for deduction in the

alternative under the proviso to Sec.36(1)(viia) ( c) of the Act and the AO will consider the same in accordance with law.

purposes.

Order pronounced in the open court on this 05/04/2017.

Sd/- Sd/- (N.V.VASUDEVAN) (DR. A.L.SAINI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक Dated 05/04/2017 �काश �म�ा/Prakash Mishra,Sr.PS. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant- Industrial Investment Bank Of India Ltd. 2. ��यथ� / The Respondent.-DCIT, Cir-6, Kolkata 3. आयकर आयु�त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु�त / CIT आदेशानुसार/ �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. BY ORDER, 6. गाड� फाईल / Guard file. स�या�पत ��त //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपील�य अ�धकरण, कोलकाता / ITAT, Kolkata