Income Tax Appellate Tribunal - Pune
Janata Sahakari Bank Ltd.,, Pune vs Dcit, Circle 11(1), Pune on 2 February, 2017
आयकर अपील
य अ धकरण "बी" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, PUNE
ी आर. के. पांडा, लेखा सद य, एवं ी #वकास अव थी, या%यक सद य के सम& ।
BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No. 831/PUN/2013
%नधा(रण वष( / Assessment Year : 2008-09
Janata Sahakari Bank Ltd.,
1444, Shukrawar Peth,
Pune - 411002
PAN : AAAJJ0073G
.......अपीलाथ / Appellant
बनाम/Vs.
DCIT, Circle - 11(1),
Pune
......
यथ / Respondent
आयकर अपील सं. / ITA No. 1215/PUN/2013
%नधा(रण वष( / Assessment Year : 2008-09
The Asstt. Commissioner of Income Tax,
Circle -11(1), Pune
.......अपीलाथ / Appellant
बनाम/Vs.
M/s. Janata Sahakari Bank Ltd.,
1444, Bajirao Road, Shukrawar Peth,
Pune - 411002
PAN : AAAJJ0073G
......
यथ / Respondent
Assessee by : Shri Nikhil Pathak
Revenue by : Shri T. Bhaskar Reddy
सन
ु वाई क तार ख / Date of Hearing : 05-01-2017
घोषणा क तार ख / Date of Pronouncement : 02-02-2017
2
ITA Nos. 831 & 1215/PUN/2013
आदे श / ORDER
PER VIKAS AWASTHY, JM :
These cross appeals by the assessee and the Revenue are directed against the order of Commissioner of Income Tax (Appeals)-I, Pune dated 19-03-2013 for the assessment year 2008-09.
2. The brief facts of the case as emanating from records are: The assessee is a Co-operative Bank. The assessee filed its return of income for the assessment year 2008-09 on 31-09-2008 declaring loss of `57,63,63,864/-. Thereafter, the assessee filed revised return of income on 31-10-2009 declaring loss of `61,80,38,716/-. The case of assessee was selected for scrutiny through CASS. Accordingly, first notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") was issued to the assessee on 30-09-2009. During the impugned assessment year the assessee claimed depreciation of `2,90,38,695/- on investment made in Govt. Securities held under HTM category. The assessee claimed expenditure to the tune of `77,75,96,444/- on account of bad and doubtful advance reserve written back. The Assessing Officer disallowed both the above claims of the assessee.
Aggrieved by the assessment order dated 27-12-2010, the assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) accepted the contentions of the assessee with respect to bad and doubtful advance reserve written back and rejected the contentions of the assessee in respect of amortization of premium on investment made in Govt. Securities held to maturity. Against the findings of 3 ITA Nos. 831 & 1215/PUN/2013 Commissioner of Income Tax (Appeals), both, the assessee and the Revenue are in appeal before the Tribunal.
ITA No. 831/PUN/2013
3. Shri Nikhil Pathak appearing on behalf of the assessee submitted that the Commissioner of Income Tax (Appeals) has erred in upholding disallowance in respect of investment in Govt. Securities held under HTM category. The ld. AR submitted that similar issue had come up for adjudication before the Tribunal in assessee's own case in ITA No. 21/PN/2014 for the assessment year 2005-06 and ITA Nos. 522 & 523/PN/2013 for assessment years 2007-08 and 2009-10, respectively. The Tribunal after considering the decision rendered in the case of Addl. Commissioner of Income Tax Vs. Bank of Maharashtra in ITA No. 1505/PN/2008 for assessment year 2005-06 decided on 17-09-2014 remitted the issue back to the file of Assessing Officer to verify the claim of assessee and thereafter allow the deduction in line with the directions given in the aforesaid case. The ld. AR furnished a copy of the order of Tribunal dated 25-02-2015 in assessee's own case common for the assessment years 2005-06, 2007-08 and 2009-10.
4. On the other hand Shri T. Bhaskar Reddy representing the Department vehemently supported the findings of Commissioner of Income Tax (Appeals) in confirming the addition in respect of depreciation claimed by the assessee on investment in securities. However, the ld. DR fairly admitted that the issue raised by the assessee in appeal has been adjudicated by the Tribunal in assessee's own case in the earlier assessment years.
5. Both sides heard. Orders of the authorities below perused. The only issue in appeal by the assessee is against disallowance of 4 ITA Nos. 831 & 1215/PUN/2013 depreciation of `2,90,38,695/- on investment in Govt. Securities held to maturity. We find that this issue has been considered by the Co- ordinate Bench of the Tribunal in assessee's own case in ITA No. 21/PN/2014 for assessment year 2005-06 (supra) and the cross appeal filed by the Department in ITA No. 235/PN/2014 for assessment year 2005-06. Similar disallowance was made in the assessment years 2007-08 and 2009-10. The assessee in ITA Nos. 522 & 523/PN/2013 for the assessment years 2007-08 and 2009-10 has assailed the findings of Commissioner of Income Tax (Appeals) by raising similar grounds as are raised in the present appeal. The Co-ordinate Bench after placing reliance on the decision rendered in the case of Addl. Commissioner of Income Tax Vs. Bank of Maharashtra (supra) held as under :
"42. The issue raised before us is identical to the issue before the Tribunal in ACIT Vs. Bank of Maharashtra (supra) and following the same parity of reasoning, we hold that the change in method of accounting adopted by the assessee for valuing its HTM securities at lower of cost or market price is a bonafide change and the assessee is entitled to the claim of depreciation on value of HTM securities. The loss arising on account of AFS and HFT securities have already been accepted by the Assessing Officer. Consequently, we direct the Assessing Officer to allow the claim arising on account of depreciation on value of HTM securities. However, the change in method of valuation in HTM securities and its effect on the computation of income would be verified by the Assessing Officer. Accordingly, we direct the Assessing Officer to consider the plea of the assessee and re-work the income in line with the observations of Tribunal in the case of ACIT Vs. Bank of Maharashtra (supra) vide para 24, which reads as under:-
"24. In-principle, we have already upheld the stand of the assessee to value the stock of its investments / securities at lower of cost or market value. By application of such method of valuation of its stock of securities / investments in assessment year 2005-06 assessee claimed deduction for a loss of Rs.359,24,58,508/-. The effect of the change in method of valuation on the computation of income for the purposes of income tax is a matter of factual appreciation, which is liable to be verified by the Assessing Officer appropriately. For the aforesaid purpose, we therefore direct the Assessing Officer to consider the stand of the assessee stated aforesaid and thereafter re-work the income of the assessee accordingly.5
ITA Nos. 831 & 1215/PUN/2013 Needless to mention, the assessee shall provide necessary workings to the Assessing Officer, including the Investment Trading Account and / or such other workings which would enable the Assessing Officer to re- work the income of the assessee in accordance with our decision in the earlier paragraphs. The Assessing Officer shall allow the assessee an appropriate opportunity of being heard and thereafter re-work the computation of income as per law and keeping in mind the aforesaid directions. Thus, on Ground of Appeal No.1 assessee succeeds."
43. In view of the directions of the Tribunal in the case of ACIT Vs. Bank of Maharashtra (supra), in order to give the effect of the change in the method of valuation on the computation of income, the Assessing Officer is directed to verify the claim of the assessee after considering the factual aspects and compute the deduction in line with the directions of the Tribunal in the case of ACIT Vs. Bank of Maharashtra (supra). Reasonable opportunity of hearing in this regard shall be afforded to the assessee. The grounds of appeal raised by the assessee are thus, allowed for statistical purposes."
Both the sides have admitted that the issue in the present appeal is similar to the one raised in appeal before the Tribunal for assessment years 2007-08 and 2008-09. The Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. reported as 366 ITR 505 has upheld the view of Tribunal in allowing amortization of premium on securities held under HTM category. We deem it appropriate to remit the issue back to the file of Assessing Officer for fresh adjudication in line with the judgment of Hon'ble Bombay High Court in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. (supra) and the decision of Co-ordinate Bench in assessee's own case for assessment years 2008-09 and 2009-10 (supra). Accordingly, the appeal of the assessee is allowed for statistical purpose. ITA No. 1215/PUN/2013
6. The Department has assailed the findings of Commissioner of Income Tax (Appeals) by raising following grounds in appeal :
1. "The order of the learned Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumstances of the case.6
ITA Nos. 831 & 1215/PUN/2013
2. The learned Commissioner of Income-tax (Appeals) grossly erred in holding that the bad debts of Rs.76,76,97,831/- (forming part of the disallowance of Rs.77,75,96,444/- made in the assessment) claimed by the assessee is to be allowed as deduction u/s. 36(1)(vii) of the Income- tax Act, 1961.
3. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the assessee had not proved on the basis of any evidence that the impugned debts or part thereof had been taken into account in computing the income of any previous year(s), which is a condition preceded as per the provisions of section 36(2)(i) for allowing deduction u/s.36(1)(vii).
4. The learned Commissioner of Income-tax (Appeals) grossly erred in failing to appreciate that the mere creation of a provision for bad debts does not by itself amount to fulfilment of the condition prescribed in section 36(2)(i).
5. The learned Commissioner of Income-tax (Appeals) ought to have appreciated that the burden of proving compliances with the provisions of section 36(2)(i) was on the assessee who had not discharged the said burden in any manner.
6. For these and such other grounds as may be urged at the time of the hearing, the order of the learned Commissioner of Income-tax(Appeals) may be vacated and that of the Assessing officer be restored.
7. The appellant craves leave to add, amend, alter or delete any of the above grounds of appeal during the course of the appellate proceedings before the Hon'ble Tribunal."
7. The ld. DR submitted that the Commissioner of Income Tax (Appeals) has erred in accepting the claim of the assessee with respect to provision for bad debts written back to profit and loss accounts u/s. 36(1)(vii) of the Act. The ld. DR contended that the assessee is a Co- operative Bank. The provision of section 36(1)(vii a) squarely applies to the Co-operative Banks. The assessee has not followed the mandatory provisions for writing off of provisions for bad debts. Before claiming benefit of section 36(1)(vii a), in the first instance the assessee has to create specific provision for bad and doubtful debts. Thereafter, the bad debts are allowable to the extent of 7 ½ % of the total income 7 ITA Nos. 831 & 1215/PUN/2013 before making any deduction under Chapter VI A. The assessee has not complied with the mandatory provisions of section 36(1)(vii a) of the Act. The assessee has created general provision and has written back the same to profit and loss accounts in the name of Bad and Doubtful debts. The assessee has not created specific provisions as envisaged u/s. 36(1)(vii a) of the Act. Therefore, the claim of assessee towards provisions for bad debts written off is not allowable. The ld. DR vehemently supported the order of Assessing Officer and prayed for reversing the findings of Commissioner of Income Tax (Appeals) on this issue.
8. On the other hand, the ld. AR vehemently supporting the order of Commissioner of Income Tax (Appeals) on the issue of allowability of writing back of bad debts reserve submitted that the assessee was enjoying the benefit of section 80P till the time it was amended by insertion of sub-section (4) by the Finance Act 2006 w.e.f. 01-04-2007. Assessment year 2008-09 is the first year of claim of 'Provision for Bad and Doubtful debts' by assessee. The assessee claimed deduction to the tune of `77.75 crores on account of bad debts in assessment year 2008-09. From assessment years 1985-86 to 2007-08 the assessee suo-moto made provision for bad and doubtful debts in respect of amounts not recovered. The opening balance of provisions for bad and doubtful debts as on 31-03-2007 is `1,86,76,16,006/-. The assessee did not claim any provisions for doubtful debts in the earlier assessment years. The assessee has complied with all the conditions laid down u/s. 36(1)(vii) r.w.s. 36(2) of the Act. The Assessing Officer has not allowed deduction u/s. 36(1)(vii a) to the assessee in any of the earlier assessment years. The ld. AR in support of his submissions placed reliance on the decision of Pune Bench of the Tribunal in the case of M/s. Bora Agro Foods Vs. Addl. Commissioner of Income Tax in 8 ITA Nos. 831 & 1215/PUN/2013 ITA No. 1882/PN/2013 for the assessment year 2010-11 decided on 10-04-2015 and the decision of Hon'ble Supreme Court of India in the case of TRF Ltd. Vs. Commissioner of Income Tax reported as 323 ITR 397 (SC).
9. Controverting the submissions made by ld. AR, the ld. DR submitted that the assessee has never claimed deduction u/s. 36(1)(vii)(a) of the Act in the earlier assessment years, therefore, there was no question of allowing or disallowing the said claim of assessee by the Assessing Officer.
10. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The Assessing Officer disallowed writing off of bad and doubtful debts reserve primarily on five counts:
i. The assessee has not furnished supporting documentary evidence for the financial years 1985-86 to 2001-02, therefore it is not possible to verify whether the provision was indeed added back in the computation of income in the said years.
ii. The assessee has furnished copy of two Board Resolutions i.e. Resolution No. 506 dated 15-01-2008 and Resolution No. 384 dated 05-11-2007 for writing off of bad debts. The amount involved in the aforesaid resolution is `63,44,88,144/-. However, no supporting evidence has been furnished to show that the conditions set out in the said Board Resolutions are complied with.
iii. The Board Resolutions furnished by the assessee does not give absolute authority to the assessee to write off. There is rider to recover the amount in future, if possible.9
ITA Nos. 831 & 1215/PUN/2013 iv. One of the loan written off was restructured which cannot be treated as written off.
v. Even if it is assumed that the assessee has created a provision in earlier years, by virtue of deduction claimed u/s. 80P of the Act, the same has been nullified.
11. The Commissioner of Income Tax (Appeals) has reversed the findings of Assessing Officer with respect to disallowance of 'Bad Debts provisions written back to Profit and Loss Account'. During the First Appellate proceedings the assessee furnished necessary document to show that necessary compliances were made in pursuance to Board Resolutions. The Commissioner of Income Tax (Appeals) sought remand report from the Assessing Officer on the documents furnished by the assessee. The Commissioner of Income Tax (Appeals) after considering the submissions of the assessee, documents on record and the remand report from the Assessing Officer held that the Assessing Officer has erred in making the addition and has failed to examine the documents already on record.
12. The Commissioner of Income Tax (Appeals) has given a categoric finding that the material available on record suggest that the assessee had created suo-moto provision for bad and doubtful debts in the past more than 20 years. The assessee had furnished a chart giving the details of the amount credited to the provision for bad and doubtful debts, write back of excess provision for bad and doubtful debts, amounts created to the provision for bad and doubtful debts by way of recovery of bad debts and actual bad debts written off by the assessee during the period relevant to the assessment years 1985-86 to 2008-
09. The Commissioner of Income Tax (Appeals) has further observed that the opening balance in the provision for bad and doubtful debts as 10 ITA Nos. 831 & 1215/PUN/2013 on 31-03-2007 stood at `1,86,76,16,006/-. An amount of `95,22,106/- was added to the provision during the year and the amount written back from the provision and credited to the profit and loss accounts is `76,76,97,831/-, which is the amount under dispute. Thus, the closing balance in the provision for bad and doubtful debts as on 31-03-2008 was `1,10,94,40,281/-. Thus, the contention of the revenue that no specific provision was created by the assessee is against the documents on record. The Commissioner of Income Tax (Appeals) has made reference to Annexure 4 attached with statement of total income. A breakup of the same has been reproduced by the Commissioner of Income Tax (Appeals) in para 4.4.3 and 4.4.4 of the impugned order. The Commissioner of Income Tax (Appeals) has observed that the Assessing Officer has completely overlooked Annexure 4 while dealing with the issue during the assessment proceedings. A perusal of the Annexure 4 shows that the amount written off during the year was `76,79,59,796/-.
13. A further perusal of the impugned order shows that the assessee had filed necessary documents to show that the conditions laid down by the Board of Directors while allowing the written off of bad debts were duly complied with. The ledger accounts of each individual account holder/company whose outstanding loan amount have been written off during the relevant period were filed before the Assessing Officer during the remand proceedings. The Assessing Officer in remand report instead of verifying the same has reiterated his objection that the Board Resolutions have not granted absolute mandate to write off the bad debts to the assessee, and has laid a condition that the bank has right to recover the amount in future, if possible. The Revenue has not brought on record any material to show that the assessee has in fact recovered any of the amounts written off in 11 ITA Nos. 831 & 1215/PUN/2013 subsequent assessment years or the accounts declared as bad debts were actual live or being capable of being realized. The Hon'ble Supreme Court of India in the case of TRF Ltd. Vs. Commissioner of Income Tax (supra) has held that after amendment of section 36(1)(vii) w.e.f. April 1, 1989 for claiming deduction in relation to bad debts, it is not necessary for the assessee to establish that debt in fact has become irrecoverable. The deduction is allowable if bad debts are written off as irrecoverable in the account of the assessee.
14. One of the objection raised by the revenue against writing off of bad debts reserve is that the income of the assessee was exempt up to assessment year 2006-07 on account of deduction u/s. 80P of the Act. As is evident from the impugned order the assessee had suo-moto created a provision for bad and doubtful debts since 1985-86 on regular basis. While computing the income the assessee claimed entire amount as exempt u/s. 80P up to assessment year 2006-07. Merely because the assessee had claimed the benefit of deduction u/s. 80P it cannot be inferred that the benefit of section 36(1)(vii) is not available to the assessee in the subsequent years when the assessee is not eligible to claim deduction u/s. 80P of the Act. The Revenue has not placed on record any material to show that the provision created by the assessee on account of bad and doubtful debts during the period when the assessee was eligible to claim deduction u/s. 80P was in any manner appropriated.
15. The ld. DR while making his submissions has raised ground that the assessee has not complied with the provisions of section 36(1)(vii a) of the Act while writing off of bad and doubtful provision. We find that this argument was never raised either during the assessment proceedings or during the First Appellate proceedings. Even in the 12 ITA Nos. 831 & 1215/PUN/2013 grounds filed before the Tribunal there is no such issue. Therefore, we do not find any merit in the submissions of the ld. DR.
16. The Commissioner of Income Tax (Appeals) by giving a well reasoned and detailed findings has rightly deleted the addition with respect to written off of bad and doubtful debts reserve. We concur with the view of Commissioner of Income Tax (Appeals) on this issue and dismiss the appeal of Revenue.
17. In the result, the appeal of the assessee is allowed for statistical purpose and the appeal of the Revenue is dismissed.
Order pronounced on Thursday, the 02nd day of February, 2017.
Sd/- Sd/-
(आर. के. पांडा / R.K. Panda) (!वकास अव"थी / Vikas Awasthy)
लेखा सद"य / ACCOUNTANT MEMBER $या%यक सद"य / JUDICIAL MEMBER
पुणे / Pune; &दनांक / Dated : 02nd February, 2017
RK
आदे श क+ ,%त.ल#प अ/े#षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. आयकर आय' ु त (अपील) / The CIT(A)-I, Pune
4. आयकर आय' ु त / The CIT-I, Pune
5. !वभागीय %त%न,ध, आयकर अपील य अ,धकरण, "बी" ब/च, पण ु े / DR, ITAT, "B" Bench, Pune.
6. गाड1 फ़ाइल / Guard File.
//स या!पत %त // True Copy// आदे शानुसार / BY ORDER, सहायक पंजीकार / Assistant Registrar, आयकर अपील य अ,धकरण, पुणे / ITAT, Pune