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Income Tax Appellate Tribunal, PUNE BENCHES “A” :: PUNE
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the assessee against the order under section 263 of the Income Tax Act, 1961, passed by ld.Principal Commissioner of Income Tax, Pune-3 on 14.03.2023. In this case, assessment order was passed on 26.02.2021. The assessee has raised the following grounds of appeal :
1. Ground I: Challenging the validity of revision proceedings under section 263 of the Act 1.1. The learned PCIT failed to appreciate that the assessment order passed by the Assistant Commissioner of Income Tax, Circle 8, Pune (hereinafter referred to as learned AO) under section 143(3) of the Act Bajaj Housing Finance Limited [A] was neither erroneous nor prejudicial to the interest of the revenue and thus, the order under section 263 of the Act is without jurisdiction and bad-in- law. 1.2. The learned PCIT erred in initiating the proceedings under section 263 of the Act without appreciating that the learned AO during the course of original assessment proceedings had made necessary enquiry and verification, before allowing the claim made by the Appellant under section 36(1 )(viia) of the Act. 1.3. The learned PCIT ought to have appreciated that the proceedings under section 263 of the Act cannot be initiated on interpretational issues based on mere difference in opinion from the position adopted by the learned AO. Ground 2: Challenging the deduction claimed under section 2. 36(1)(viia) of the Act on standard assets: 2.1. The learned PCIT erred in holding that deduction under section 36(1)(viia) of the Act is not allowable on provision made for standard assets on the premise that the said provision allows deduction only for provision made for ‘bad or doubtful debts’. 2.2. The learned PCIT ought to have appreciated that the term ‘bad and doubtful assets’ is not defined under the provisions of section 36(1)(viia) of the Act and the same should be interpreted in general parlance and considering the facts of the present case. 2.3. The learned PCIT ought to have appreciated that provision made on ‘standard assets’ as per the RBI directive at a normative rate of 0.4% is considering the probability of such assets turning bad and doubtful in future, as demonstrated basis the facts of the case and hence, falls within the scope of section 36(1 )(viia) of the Act. 2.4. The learned PCIT failed to consider the fact that though the Appellant has made the provision for standard assets of Rs.15 crores but the receivable which became doubtful later in subsequent years was more than? 34 crores, which substantiates that part of the standard assets were doubtful and hence, falls within the purview of section 36(1 )(viia) of the Act. 2.5. The learned PCIT failed to consider various favourable decisions relied upon by the Appellant including the decision of Amritsar Tribunal in case of Punjab Gramin Bank (ITA No. 134/ASR/2015) dated 22 June 2015 and Surat Tribunal in case of Surat Co-operative Bank Limited (ITA No. 16/AHD/2015) dated 17 May 2022, which are squarely applicable to the facts of the present case.
2 Bajaj Housing Finance Limited [A] The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal
, at any time before or at, the time of hearing of the appeal, so as to enable the Hon’ble Tribunal to decide this appeal according to law. Brief facts of the case : The assessee is a Non-Banking Financial Company (NBFC), 2. registered under the Companies Act, 1956 and stated to be engaged in the business of providing housing loans and loans for purchase, construction & renovation of homes/commercial spaces etc. Assessee filed its return of income for the A.Y.2018-19 on 29.03.2019, declaring total income of Rs.37,01,62,310/-, which was processed u/s. 143(1) of the I.T. Act. Subsequently, the case was selected for complete scrutiny to examine the issues of Claim of any other amount allowable as deduction in Schedule BP, Refund claim, Expenses incurred for earning exempt income and Share capital/other capital. The Assessment Order was passed on 26.02.2021. Subsequently, the assessment record was called for by ld.Pr.CIT and examined in this case. On examination, it was seen that the assessee had debited an amount of Rs.14,99,96,000/- as provision for standard assets in its books, out of which Rs.1,85,34,347/- was claimed as deduction u/s.36(1)(viia) of the I.T. Act. The said deduction claimed by the assessee was allowed
3. Bajaj Housing Finance Limited [A] by the AO while completing the assessment. Ld.Pr.CIT observed that Section 36(1)(viia) of the Income Tax Act provides that against any provision for bad and doubtful debts made by a non- banking financial company, an amount not exceeding 5% of the total income (computed before making any deduction under the relevant clauses of this section and Chapter VIA shall be allowed as deduction. Further, Section 36(2)(v) provides that no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made there-under. However, the provisions of bad and doubtful debts for the purpose of Section 36(1)(viia) does not include provision for standard assets. It was, thus, found that the AO, while computing the total income, had allowed excess deduction to the assessee, without making proper inquiries into the nature of the claim, making the assessment order passed by the AO, prima facie, as erroneous and prejudicial to the interest of the revenue.
2.1 The ld.Pr.CIT discussed that “Standard Asset” has been defined to be an asset in respect of which there is no perceivable threat of default in repayment and which does not disclose any problem in recovery. The ld.Pr.CIT also observed that “the Chennai Bench of the 4 Bajaj Housing Finance Limited [A] ITAT in the case of Bharat Overseas Bank Ltd., vs. CIT as reported [2012] 26 taxmann.com 330 (Chennai), held that standard assets are always considered recoverable and any provision made on such assets cannot be considered as a provision for bad and doubtful debts and upheld the revisionary proceedings initiated by the PCIT u/s.263 of the Act”. The ld.Pr.CIT held that assessment order was erroneous and prejudicial to the interest of the Revenue. The ld.Pr.CIT set-aside the assessment order to the Assessing Officer(AO) for limited purpose of examining issue of bad and doubtful assets and allowability under section 36(1)(viia) of the Act.
Submission of ld.AR : 3. The ld.Authorised Representative(ld.AR) of the assessee submitted that assessee’s case was selected for complete scrutiny. During the assessment proceedings, the AO had called for the details of standard assets. Assessee had submitted all the details to the AO. The ld.AR invited our attention to the page no.201 to 220 of the paper book which was copy of notice and assessee’s reply. Ld.AR hence submitted that AO had arrived at the conclusion after studying the details. The ld.AR also submitted that there are two views on this issue. ITAT Indore Bench in the case of Vikramaditya NagrikSahkari Bank Maryadit Vs. ACIT in for A.Y.2013-14 has held as under :
5 Bajaj Housing Finance Limited [A] “7…………………. We, therefore, in the facts and circumstances of the case, are of the opinion that in the instant appeal the contingency provision for standard assets is basically in the nature of bad and doubtful debts only and the assessee has rightly claimed the expenditure u/s 36(1)(viia) of the Act. We, therefore, allow the sole ground raised by the assessee.
3.1 ITAT Mumbai Bench in the case of Kotak Mahindra Bank Limited Vs. ACIT in to 3269/MUM/2019 has held as under : “9…………. Therefore, following the decision of the co-ordinate bench, we direct the Assessing Officer to allow the claim of deduction of the assessee under section 36(1)(viia) in respect of standard assets.”
3.2 And also ITAT Amritsar Bench in the case of Dy.CIT Vs. M/s.Punjab Gamin Bank in for A.Y.2008-09 has held in favour of assessee as under: “8………..The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(l)(viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(l)(viia) of the Act. The learned CIT(A) has passed a very exhaustive and speaking order and we do not find any infirmity in the same.”
6 Bajaj Housing Finance Limited [A]
The ld.AR also submitted that however ITAT Chennai has decided the impugned issue in favour Revenue. Thus, ld.AR submitted that two views are possible on this issue. The AO has adopted after studying the case, one of the possible views. Hence, the Assessment Order is not erroneous and prejudicial to the interest of the Revenue. The ld.AR relied on the decision of the Hon’ble Supreme Court in Malabar Industrial Company Vs. CIT [2000] 243 ITR 83 (SC).
Submission of ld.DR: 5. The ld.Departmental Representative(ld.DR) for the Revenue relied on the order of ld.Pr.CIT. The ld.DR submitted that as per section 263 even if AO has carried out inadequate enquiries, the ld.Pr.CIT has power to invoke the jurisdiction under section 263 of the Act. In this case, AO had not carried out proper enquiries on the impugned issue.
Findings &Analysis : 6. We have heard both the parties and perused the records. The issue involved is whether ld.Pr.CIT had rightly invoked jurisdiction under section 263 of the Act.
6.1 It is observed that different benches of ITAT have taken different views on the issue of allowability under section 36(1)(viia) deduction 7 Bajaj Housing Finance Limited [A] for provision for standard assets. The ITAT Indore Bench in the case of Vikramaditya Nagrik Sahkari Bank Maryadit Vs. ACIT in (supra), ITAT Mumbai Bench in the case of Kotak Mahindra Bank Limited Vs. ACIT in ITA Nos.3267 to 3269/MUM/2019(supra) and ITAT Amritsar Bench in the case of Dy.CIT Vs. M/s.Punjab Gamin Bank in ITA No.134/ASR/2015 for A.Y.2008-09(supra), had held that deduction under section 36(1)(viia) is allowable for provision for standard assets which is basically in the nature of bad & doubtful debts.
6.2 Before we discuss the case further, we will like to mentions the relevant case laws on this issue.
6.3 The Hon’ble Supreme Court in the case of CIT Vs. Amitabh Bachchan, 384 ITR 200(SC) observed as under : “21. There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from.”
6.4 The Hon’ble Madras High Court in the case of CIT Vs. Mepco Industries Ltd. 294 ITR 121 (Madras) held as under :
8 Bajaj Housing Finance Limited [A] Quote, “8. Therefore, on the facts of the case, when two views are possible and it is not the case of the Revenue that the view taken by the Assessing Officer is not permissible in law, the CIT is not justified in invoking the jurisdiction under section 263 of the Act. ” Unquote.
6.5 The Hon’ble Bombay High Court in the case of CIT Vs. Future Corporate Resources Ltd in IT Appeal No.1275 of 2017 vide order dated September 29, 2021 held as under : Quote ,“ 7. In the order of PCIT it is stated "in paragraph 4.3 of the assessment order, the Assessing Officer has recorded that from the details submitted by the assessee and the explanation given by him, it was observed that assessee had regular business connection with the company in which investment had been made and also there was business income to the assessee from the same. Therefore, interest expense debited by the assessee has not been considered for the calculation of disallowance under section 14A because the same has been incurred for the purpose of business." The PCIT therefore agrees that the Assessing Officer has recorded from the details submitted by respondent and the explanation given by respondent that the assessee had regular business connection with the company in which investment has been made and also there was a business income to the assessee from the same. He notes that the Assessing Officer, therefore did not consider the calculation of disallowance under section 14A the interest expense debited by the assessee because the same has been incurred for the purpose of business. The PCIT though was unhappy with the view of the Assessing Officer, the PCIT himself does not say why it should have been considered for the calculation of disallowance under section 14A. Even if one assumes that he has, after reading of the order expressed his views, but still the position is two views therefore were possible. Therefore, if one of the two 9 Bajaj Housing Finance Limited [A] possible views was taken by the Assessing Officer, the PCIT could not have exercised his powers under section 263 of the Act. 8.” Unquote.
6.6 Thus, the principal of the law emanating from the above decision of the Hon’ble Supreme Court, the Hon’ble Jurisdictional High Court, the Hon’ble Bombay High Court is that when two views are legally possible and AO adopts one view the Assessment Order cannot be said to be erroneous for the CIT to invoke jurisdiction u/s 263. In this case, applying the above principle of law, it is held that assessment order is not erroneous and prejudicial to the interest of the revenue and hence the order under section 263 is bad in law. Accordingly, appeal of the assessee is allowed.