ADARNIYA P.D. PATILSAHEB SAHAKARI BANK LTD,SATARA vs. ASSISTANT COMMISSIONER OF INCOME-TAX, SATARA CIRCLE, SATARA

This appeal by the assessee is against the order dated 22.01.2018 by the Commissioner of Income Tax (Appeals) – 13 for the assessment year 2014-15.

The only issue to be decided is as to whether the Commissioner of Income Tax (Appeals) is justified in confirming the addition made being excess of Bad and Doubtful Debts Recoverable (BDDR) in the facts and circumstances of the case.

The facts apparent from the record are that the assessee is a Co- operative Society engaged in the banking business. The assessee filed the return of income declaring a total income of Rs.1,15,70,280/- and in the scrutiny assessment, the Assessing Officer had determined the same at Rs.1,20,70,280/- inter-alia making addition on account of being excess provision of BDDR vide this order dated 31.10.2016 passed under Sec.143(3) of the Act. We note that the assessee had credited a sum of Rs.5,00,000/- as excess provision of BDDR credited before 31.03.2007 in its Profit and Loss account and accordingly, reduced the same in its computation of income. According to the Assessing Officer, the said amount of excess BDDR is taxable income and in the absence of submissions, he proceeded to add the same to the income of the assessee.

Before the Commissioner of Income Tax (Appeals), it was contended that during the assessment year 2006-07, the assessee used to make a provision of BDDR as per Reserve Bank of India (R.B.I) guidelines and also the income of the assessee exempt under Sec.80P(2)(a)(i) of the Act upto the same assessment year i.e., 2006-07. For the year under consideration, the assessee passed a journal entry debiting BDDR balance and creating the NPA provision. According to the assessee, it was just a book entry without having any effect on the taxable income for the year under consideration. It was contended that the order of Assessing Officer is incorrect as far as to the extent the addition of Rs. 5,00,000/- to the total income of the assessee, as it was recognized as income of the assessee during A.Y. 2006-07. According to the Commissioner of Income Tax (Appeals), any excess provision returned back during the year is to be logically assessed as income and the reversal is of an entry having an implication on the deduction allowed under Sec.80P(2)(a)(i) of the Act. We note that the Commissioner of Income Tax (Appeals) found the submissions of the assessee as not acceptable and proceeded to confirm the addition made on account of excess BDDR provision.

Before us, Shri M.K. Kulkarni, the Ld.A.R. reiterated the submissions as made before ld.CIT(A) and prayed to allow the sole ground.

Shri S.P. Walimbe, the ld.D.R. relied on the order of Commissioner of Income Tax (Appeals) and prayed to dismiss the ground raised by the assessee.

As discussed above and also emanating from the record that the assessee is a co-operative society indulged in the banking business. The assessee claimed to have its income exempt under Sec.80P(2)(a)(i) upto the assessment year 2006-07 and also creating a provision for bad debts in its accounts. We note that during the year under consideration, the assessee passed on journal entry debiting BDDR balance of Rs.3,03,50,000/- and reversed the excess provision of Rs.5,00,000/-. According to assessee, it was not a taxable income as it was made out of earlier years income which was already offered to taxation. However, the Commissioner of Income Tax (Appeals) was of the opinion that the assessee is also claiming its income as exempt income u/s 80P(2)(a)(i) of the Act upto 20.06.2007, therefore, the provision made as per RBI guidelines for BDDR attains no significance and it has to be treated as income being an excess provision in the year under consideration. In our opinion, as rightly pointed out by the learned Authorised Representative, the provision made under BDDR made out of earlier year’s income which was offered to tax in the earlier year. Therefore, we find force in the arguments of the Ld.A.R. when it was taxed in the earlier years, if the same is taxed in the current year it becomes double taxation. Therefore, when it was taxed in the earlier year, the addition made by the Assessing Officer as confirmed by the ld.CIT(A) is not justified and it is liable to be dismissed. Thus, in view of the discussions made herein above and facts and circumstances of the case, the order of ld.CIT(A) is not justified and is set aside. Thus, the sole ground raised by the assessee is allowed.

In the result, the appeal of the assessee is allowed.