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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 28/11/2024 Date of Order – 12/12/2024
O R D E R PER K.M. ROY, A.M.
The captioned appeal by the assessee is against the impugned order dated 02/09/2020, passed by the learned Commissioner of Income Tax (Appeals)–1, Nagpur, [“learned CIT(A)”], for the assessment year 2011–12.
The assessee has raised following grounds:–
“1. The learned Commissioner of Income Tax (Appeals) erred in rejecting the claim at ` 3,28,70,000, of deduction in the computation of income in respect of reversal of NPA (Bad Debts) provision credited to Profit & Loss Account. 2. That the order is in law and against the fact of the case. 3. Appellant craves for leave to take any other grounds of appeal either before or at the hearing of appeal.”
2 The Buldhana District Central Co–operative Bank Ltd. ITA no.125/Nag./2020 3. Fact in Brief :- The assessee is a Co-operative Bank engaged in the business of banking, filed its return of income on 19/09/2011, declaring total income at ` nil, and showing the current year’s loss to be carried forward at ` (-) 9,17,22,792, including unabsorbed depreciation of ` 32,80,263. The return of income was processed under section 143(1) of the Income Tax Act, 1961 ("the Act") on 11/01/2012 and selected for scrutiny. The assessment was completed on a total loss of ` (–) 2,44,14,471, by making addition of ` 2,91,38,000, on account of deduction of excess overdue provision ` 41,42,952, on account of bad debt written-off and of ` 3,28,70,000, on account of excess non–performing assets (NPA) provision. Being aggrieved the Revenue preferred the appeal and the said Revenue’s appeal was dismissed. Similarly there was overdue provision on account of reversal of NPA bad debts provision credited to Profit & Loss Account.
In the earlier year, NPA provision was debited to Profit & Loss Account and it was not allowed in the assessment order. Now it is found that the NPA provision is made in the earlier year was excess and, therefore, the excess provision is reversed and credited to Profit & Loss Account. Now in the computation of income, the assessee has reduced this amount of ` 3,28,70,000, from the income, which has also been disallowed in the assessment order. This amounts to double assessment. Such a claim was also there in the assessment year 2007-08 and the same has been allowed by Commissioner of Income Tax (Appeals) and the Revenue has not filed appeal before the Tribunal. The claim was accepted in first appeal.
3 The Buldhana District Central Co–operative Bank Ltd. ITA no.125/Nag./2020 5. The return of income for the assessment year 2008-09 was filed on 29/09/2008, claiming loss at ` 5,01,70,769, which includes depreciation at ` 21,51,907. In the return of income, this loss was claimed as carried forward. The return of income for the assessment year 2008-09 was accepted under section 143(1) of the Act.
The return of income for the assessment year 2009–10 was filed on 20/09/2009, claiming loss at ` (–)2,61,43,904, which includes depreciation at ` 19,03,368. In this return of income, brought forward loss for the assessment year 2008–09 2008-09 was shown and claimed at ` 5,01,70,769, and also claimed loss carried forward for the assessment year 2008-09 and 2009-10.
The return of income for the assessment year 2010–11 was filed on 11/10/2010, claiming loss at ` (–) 31,52,20,169, which includes depreciation at ` 21,22,803. In this return of income, brought forward loss for the assessment year 2008–09 is claimed at ` 5,01,70,769, and for the assessment year 2009-10 at ` 2,61,43,904, and also claimed carried forward loss for the assessment year 2008-09, 2009-10 and 2010-11. The income for the assessment year 2010-11 is assessed at ` 5,10,96,410, and the same is pending before the first appellate authority. Being aggrieved the assessee preferred appeal before the learned CIT(A).
Before the learned CIT(A), the assessee made following submissions, which were also reproduced by the learned CIT(A) in its order vide Page–7, 8 & 10, 13 & 14.
4 The Buldhana District Central Co–operative Bank Ltd. ITA no.125/Nag./2020
“Page-7 & 8 2. Grounds No. 2 & 3 : An amount of Rs. 32870000/- has been credited to profit and loss account as excess NPA provision reverted. Appellant submits that in the earlier years NPA provision i.e. provision for bad and doubtful debts in respect of NPA accounts was debited to profit and loss account and it was added in assessment in the income. Upto A.Y. 2006-07 Co-Op. Banks were not allowed provision for Bad and Doubtful Debts NPA Account. From A.Y. 2007-08 the same is allowable @ 7.5% of the assessed income. In the current year the return of income is showing loss and in assessment order loss is determined. A similar situation was there in A.Y. 2007-08 and assessee had claimed deduction but it was not allowed in assessment and in first appeal the learned Commissioner of Income Tax (Appeals)-1 allowed the same in appeal no. CIT(A)-1/561/09-10 dt. 16/11/2011, vide para o. 13.1 which reads as under. “13.1 As regard of the amount relating on account of recovery to bad and doubtful debts at Rs. 3,71,26,000/- this relates to reversal of NPA Provision. It is necessary to note that bad and doubtful debts in the case of cooperative banks upto AY 2006-07 no claim u/s. 36(1)(viia) admissible. Consequently no provision for NPA was admissible as a deduction up to AY 2006-07. The disallowance for AY. 2006-07 was of Rs. 28,57,40,000/- has been sustained vide order no. CIT(A)-1/484/08-09 dt. 20.07.2011. When amount that has been recovered out of a deduction allowed as bad debit is brought to tax the rational is that the claim made in the earlier year has gone to reducing the income of the said year. In the appellant’s case provision of bad and doubtfully could not have been allowed as :: deduction in earlier years as per statutory provisions. AO. In the assessment order at para-8 as also pointed out that these amounts have not been written off in the books of the books of the assessee and they were mere provision. Thus provision for bad and doubtful debts made by the assessee was not deductible and was not eligible as a deduction for the earlier years. I am of the considered view that reversal of such a provision would not given rise to any income that can be brought to tax in the current year as such reversal provision of NPA would merely result in diminution of liability and would not give rise to any real income. Relief to the extent of Rs. 3,71,26,000/- is allowed. These grounds are partly allowed. Copy of the order enclosed for ready reference” In the current assessment year Bad and Doubtful Debt Reserve NPA the account is as under:– Particulars Amount Opening Credit Balance 1265125000 Less : Amount credit to P&L A/c. by 32870000 debiting to this account Closing credit Balance 1232255000 Thus from the above it is clear that bad debt provision has been reverted to profit and loss account from Bad and Doubtful Debts Reserve Account. In the earlier year bad and doubtful Debts Reserved Amount debited to the P & L Account has been added to the income and thereafter the claim has been allowed u/s. 36(1)(viia) as may be permissible under the Income Tax Act. In view of the above facts the claim may kindly be allowed.
5 The Buldhana District Central Co–operative Bank Ltd. ITA no.125/Nag./2020 Page-10 Grounds No. 2 & 3 : In respect of Reversal of excess NPA provision i.e. provision for Bad and Doubtful Debts, it is submitted that in the earlier assessment years NPA provision for bad and doubtful debts was not allowed upto A.Y. 2006-07. From A.Y. 07-08 provision for Bad and doubtful debts has become allowable under section 36(1)(viia) @ 7.5% of the Net Income and 10% of Average Rural Advances. The assessee has made reversal of the NPA Provision for Bad and Doubtful Debts. This issue was in A.Y. 07-08 also and Hon. CIT(A) has allowed the same. Copy of the appeal order was submitted in our earlier submission paper book at page no. 05 to 12 particulars on page no. 11 para no. 13.1. No second appeal was filed by the Department. At Page-13 & 14 Grounds No.2 & 3: In respect of Reversal of excess NPA provision i.e. provision for Bad and Doubtful Debts, it is submitted that in the earlier assessment years NPA provision for bad and doubtful debts was not allowed upto A.Y. 2006-07. From A.Y. 07-08 provision for Bad and doubtful debts has become allowable under section 36(1)9viia) @ 7.5% of the Net Income and 10% of Average Rural Advances. The assessee has made reversal of the NPA Provision for Bad and Doubtful Debts. This issue was in A.Y. 07-08 also and Hon. CIT(A) has allowed the same. Copy of the appeal order was submitted in our earlier submission paper book at page no. 05 to 12 particulars on page no. 11 para no.13.1. No second appeal was filed by the Department. “As regard of the amount relating on account of recovery to bad and doubtful debts at Rs. 3,71,26,000/- this relates to reversal of NPA Provision. It is necessary to note that bad and doubtful debts in the case of cooperative banks upto AY 2006-07 no claim u/s. 36(1)(viia) admissible. Consequently no provision for NPA was admissible as a deduction up to AY 2006-07. The disallowance for AY. 2006-07 was of Rs. 28,57,40,000/- has been sustained vide order no. CIT(A)-1/484/08-09 dt. 20.07.2011. When amount that has been recovered out of a deduction allowed as bad debit is brought to tax the rational is that the claim made in the earlier year has gone to reducing the income of the said year. In the appellant’s case provision of bad and doubtfully could not have been allowed as :: deduction in earlier years as per statutory provisions. AO. In the assessment order at para-8 as also pointed out that these amounts have not been written off in the books of the books of the assessee and they were mere provision. Thus provision for bad and doubtful debts made by the assessee was not deductible and was not eligible as a deduction for the earlier years. I am of the considered view that reversal of such a provision would not given rise to any income that can be brought to tax in the current year as such reversal provision of NPA would merely result in diminution of liability and would not give rise to any real income. Relief to the extent of Rs.3,71,26,000/- is allowed. These grounds are partly allowed. In view of the above finding by the learned CIT(A)-1 the case of the assessee squarely covered by the above finding. The claim may kindly be allowed.”
The learned CIT(A) rejected the claim of assessee on account of provision of bad and doubtful debts and held that the assessee was not 6 The Buldhana District Central Co–operative Bank Ltd. ITA no.125/Nag./2020 eligible as a deduction in earlier years, the reversal of such a provision would not given rise to any income that can be brought to tax in the year of such reversal of provisions of NPA. The observations of the learned CIT(A) is reproduced herein below:–
“5.7.2 The order of Ld. CIT(Appeals) has been carefully considered. The main point to be highlighted in this order is that for the relevant AY i.e. AY 2007-08, the observations made by the Ld. CIT(Appeals) were squarely applicable. This fact has even been highlighted by the Hon'ble ITAT vide order dt. 13/03/2014 in for AY 2007-08 in the appellant's own case. However, there has been a major change after from AY 2007-08 as a deduction u/s 36(1) (viia) became available to co-operative banks due to the amendment introduced through Finance Act, 2007, w.e.f 01/04/2007. It can be clearly observed that the underlying factor leading to the decision of the Ld. CIT(Appeals) allowing the reversal of NPA provision as a deduction is the factual finding that because of the statutory provisions till AY 2006-07, no provision for NPA was admissible to the appellant. Therefore, from a provision of bad and doubtful debts which was not deductible and was not eligible as a deduction in earlier years, the reversal of such a provision would not give rise to any income that can be brought to tax in the year of such reversal of provisions of NPA. 5.7.3 However, from AY 2007-08 onwards, deduction for provision for bad and doubtful debts u/s 36(1)(viia) is not only available but has also been availed by the appellant. Therefore, the claim of the appellant that the order of the Ld. CIT(Appeals) for AY 2007-08 goes in support of its claim of deduction of this amount of Rs.32870000/- does not hold good as the appellant has himself mentioned that it has been allowed deduction on provisions for bad and doubtful debts u/s 36(1)(viia) at the applicable percentages. Therefore, the stand of the AO is upheld. Accordingly Ground No. 2 and stand dismissed.”
The learned Counsel for the assessee strongly objected the contents of the order passed by the learned CIT(A), who dealt with the issues at Para- 5.7.2 & 5.7.3, Page-25 & 26 his order, which is reproduced below:–
“5.7.2 The order of Ld. CIT (Appeals) has been carefully considered. The main point to be highlighted in this order is that for the relevant AY i.e. AY 2007-08, the observations made by the Ld. CIT (Appeals) were squarely applicable. This fact has even been highlighted by the Hon’ble ITAT vide order dt. 13/03/2014 in for AY 2007-08 in the appellant’s own case. However, there has been a major change after from AY 2007-08 as a deduction u/s. 36(1)(viia) became available to co-operative banks due to the amendment introduced through Finance Act, 2007, w.e.f. 01/04/2007. It can be clearly observed that the underlying factor leading to the decision of the Ld.
7 The Buldhana District Central Co–operative Bank Ltd. ITA no.125/Nag./2020 CIT(Appeals) allowing the reversal of NPA provision as a deduction is the factual finding that because of the statutory provisions till AY 2006-07, no provision for NPA was admissible to the appellant. Therefore, from a provision of bad and doubtful debts which was not deductible and was not eligible as a deduction in earlier years, the reversal of such a provision would not give rise to any income that can be brought to tax in the year of such reversal of provisions of NPA. 5.7.3 However, from AY 2007-08 onwards, deduction for provision for bad and doubtful debts u/s. 36(1)(viia) is not only available but has also been availed by the appellant. Therefore, the claim of the appellant that the order of the Ld. CIT(Appeals) for AY 2007-08 goes in support of its claim of deduction of this amount of Rs. 32870000/- does not hold good as the appellant has himself mentioned that it has been allowed deduction on provisions for bad and doubtful debts u/s. 36(1)(viia) at the applicable percentage. Therefore, the stand of the AO is upheld. Accordingly Ground No. 2 and 3 stand dismissed.”
The learned counsel for the assessee further relied on the order of learned CIT(A)–1, Nagpur, dated 16/11/2011, passed for the assessment year 2007-08, in which the learned CIT(A) allowed the claim of the assessee by making following observations:–
“As regard of the amount relating on account of recovery to bad and doubtful debts at Rs. 3,71,26,000/- this relates to reversal of NPA Provision. It is necessary to note that bad and doubtful debts in the case of cooperative banks upto AY 2006-07 no claim u/s. 36(1)(viia) admissible. Consequently no provision for NPA was admissible as a deduction up to AY 2006-07. The disallowance for AY. 2006-07 was of Rs. 28,57,40,000/- has been sustained vide order no. CIT(A)-1/484/08-09 dt. 20.07.2011. When amount that has been recovered out of a deduction allowed as bad debit is brought to tax the rational is that the claim made in the earlier year has gone to reducing the income of the said year. In the appellant’s case provision of bad and doubtfully could not have been allowed as :: deduction in earlier years as per statutory provisions. AO. In the assessment order at para-8 as also pointed out that these amounts have not been written off in the books of the books of the assessee and they were mere provision. Thus provision for bad and doubtful debts made by the assessee was not deductible and was not eligible as a deduction for the earlier years. I am of the considered view that reversal of such a provision would not given rise to any income that can be brought to tax in the current year as such reversal provision of NPA would merely result in diminution of liability and would not give rise to any real income. Relief to the extent of Rs. 3,71,26,000/- is allowed. These grounds are partly allowed.”
Further, the learned counsel for the assessee stated and demonstrated as per Paper Book filed by the assessee. The learned Counsel assessee stated
8 The Buldhana District Central Co–operative Bank Ltd. ITA no.125/Nag./2020 that in the assessment year 2008-09, provision with respect of NPA bad debts were added at ` 13,73,60,026, which is in accordance with computation of income a copy of which is placed at Page-2 of the Paper Book and loss of ` (-) 5,01,70,769, has been accepted by the Revenue. Similarly, in the assessment year 2009-10, bad and doubtful debts reserved were added at ` 2,06,47,000, as per computation of income for the assessment year 2009-10. Copy of computation of income is placed at Page-6 of the Paper Book. Similarly in the assessment year 2010-11 also, provision for bad and doubtful debts, etc., were added at ` 25,69,73,000, from which provision for bad and doubtful debt was at ` 24,68,91,000, and copy of computation is placed at Page-8 & 16 of the Paper Book. Similarly in the assessment year 2011-12, as per computation of income which is placed at Page-11 & 12 of the Paper book, the same was reduced, as per shown in the computation of income at Page- 12 of Paper Book. Even provision for NPA credited to Profit & Loss Account of ` 3,28,70,000, was taken as income to be excluded as it was not allowed as expenditure. The assessee has also submitted details of the same which is placed at Page-14 of the Paper Book Part-II, and also reproduced below:–
“Bank needs to do NPA provision according to RBI Guidelines as on 31.03.2011 NPA Loan Outstanding of categorisation of NPA was as follows: Sr. As per RBI IRAC No. Particulars NPA Loan Norms Provision needed 1. Sub Standard Loan 10% 838.65 83.87 2. 3 To 4 Year 20% 301.36 60.26 3. 4 To 6 Year 30% 174.51 52.33 4. Above 6 year 100% 5931.71 5931.71 5. Unsecured Loan 100% 3378.05 3378.05 6. Loss Assets 100% 2816.33 2816.33 Total 13440.61 12322.55
9 The Buldhana District Central Co–operative Bank Ltd. ITA no.125/Nag./2020 As per above chart, Bank made provision of Rs. 12651.25 lakhs and bank need provision of Rs.12322.55 lakhs hence there was extra provision Rs. 328.70 Lakh As per banks note, this extra provision of Rs. 328.70 Lakh is debited to Provision account and credited to Profit & Loss ac on dt. 31/03/2011.”
The learned Counsel for the assessee, while concluding his arguments, submitted that in view of the above factual position, the addition be deleted, as it will to double taxation.
The learned Departmental Representative strongly relied on the order of Assessing Officer and supported to the order passed by the CIT(A). He submitted that the concurrent findings of the Assessing Officer and the learned CIT(A) need not be disturbed.
We have meticulously gone through the orders of the authorities below. The learned CIT(A) had misdirected himself by ignoring the orders of the predecessor–in–office. It is crystal clear that excess deduction claimed in the financial statements was substantially higher than the corresponding write back. So, again taxing the same would lead to double taxation which cannot be countenanced by any means. The learned CIT(A) had made an artificial distinction for not abiding by the order of his predecessor–in–office which was already riding the field. He conveniently ignored the background and underlying facts of the write back of provisions and had sustained the addition in a flippant manner thereby creating a travesty of jurisprudence. He had gone astray and could not controvert that excess provision disallowable under section 36(1)(viia) has only been written back. It is a mere accounting entry which does not generate crystallization of real income. In view of the 10 The Buldhana District Central Co–operative Bank Ltd. ITA no.125/Nag./2020 admitted factual position explained above, the claim of the assessee is an allowable claim and the above entire write back provision of ` 3,28,70,000, is hereby directed to be deleted. Accordingly, the order of the learned CIT(A) is hereby set aside by allowing all the grounds raised by the assessee. The assessee is accordingly entitled to relief of ` 3,28,70,000.
In the result, appeal filed by the assessee is allowed. Order pronounced in the open Court on 12/12/2024
Sd/- Sd/- V. DURGA RAO K.M. ROY ACCOUNTANT MEMBER JUDICIAL MEMBER