BAJAJ HOUSING FINANCE LIMITED,PUNE vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX-3, PUNE, PUNE

Ground I: Challenging the validity of revision proceedings under section 263 of the Act

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]

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.

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:

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’.

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.

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.

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.

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.

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] [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.

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 ITA No.36/IND/2017 for A.Y.2013-14 has held as under :

1 ITAT Mumbai Bench in the case of Kotak Mahindra Bank Limited Vs. ACIT in ITA Nos.3267 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.”

2 And also 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 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.”

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).

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 juri iction under section 263 of the Act. In this case, AO had not carried out proper enquiries on the impugned issue.

We have heard both the parties and perused the records. The issue involved is whether ld.Pr.CIT had rightly invoked juri iction under section 263 of the Act.

1 It is observed that different benches of ITAT have taken different views on the issue of allowability under section 36(1)(viia) deduction

2 Before we discuss the case further, we will like to mentions the relevant case laws on this issue.

3 The Hon’ble Supreme Court in the case of CIT Vs. Amitabh Bachchan, 384 ITR 200(SC) observed as under :

4 The Hon’ble Madras High Court in the case of CIT Vs. Mepco Industries Ltd. 294 ITR 121 (Madras) held as under :

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

6 Thus, the principal of the law emanating from the above decision of the Hon’ble Supreme Court, the Hon’ble Juri ictional 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 juri iction 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.

In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 26th February, 2024. (S.S.GODARA) ACCOUNTANT MEMBER पुणे / Pune; "दनांक / Dated : 26th Feb, 2024/ SGR* आदेशक""ितिलिपअ"ेिषत / Copy of the Order forwarded to : अपीलाथ" / The Appellant.

The Pr. CIT, concerned. िवभागीय"ितिनिध, आयकर अपीलीय अिधकरण, “ए” ब"च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड"फ़ाइल / Guard File. 6. 10 Bajaj Housing Finance Limited [A]