Income Tax Appellate Tribunal - Chennai
M/S Nazareth Urban Co-Operative Bank ... vs Dcit Circle 1, Tuticorin on 27 June, 2019
आयकर अपील य अ धकरण, 'बी' यायपीठ, चे नई।
IN THE INCOME TAX APPELLATE TRIBUNAL
'B' BENCH: CHENNAI
ी धु वु आर.एल. रे डी, या यक सद य एवं
ी एस. जयरामन, लेखा सद य के सम
BEFORE SHRI DUVVURU R.L. REDDY, JUDICIAL MEMBER AND
SHRI S. JAYARAMAN, ACCOUNTANT MEMBER
आयकर अपील सं./ITA Nos.513 & 514/Chny/2018
नधा!रण वष! /Assessment Years: 2013-14 & 2014-15
M/s.Nazareth Urban Co-operative- Vs. The Dy. Commissioner-
Bank Ltd., of Income Tax,
No.109, Margacious Road, Circle-1, Tuticorin.
Nazareth-628 617, Tuticorin.
[PAN: AACAN 4921 E]
(अपीलाथ$/Appellant) (%&यथ$/Respondent)
अपीलाथ$ क' ओर से/ Appellant by : None
%&यथ$ क' ओर से /Respondent by : Mr.Gurubashyam, JCIT
सुनवाई क' तार ख/Date of Hearing : 25.06.2019
घोषणा क' तार ख /Date of : 27.06.2019
Pronouncement
आदे श / O R D E R
PER SHRI S. JAYARAMAN, ACCOUNTANT MEMBER:
The assessee filed these appeals against the order of the Commissioner of Income Tax (Appeals)-1, Madurai, in ITA No.0054/2016-17 dated 29.11.2017 and in ITA No.286/2016-17 dated 15.11.2017 for the AYs 2013-14 & 2014-15 respectively.
ITA Nos.513 & 514/Chny/2018 :- 2 -:
2. M/s.Nazareth Urban Co-operative Bank Ltd., the assessee is engaged in banking business. While making the assessment for the AY 2013-14, the AO found that the assessee has not made any provision for bad and doubtful debts in its original return of income filed on 16.10.2014. However, in its revised return filed on 14.03.2016, the provision for bad and doubtful debts of Rs.70.00 lakhs was made. During the course of assessment proceedings, the representative confirmed vide a letter dated 21.12.2016 that the assessee filed original return of income without making provision for Non-Performing Asset (in short "NPA") since the provision already made in the earlier year is adequate.
Then by the advice of the auditor, the assessee filed the revised return by making a provision for NPA of Rs.70.00 lakhs and requested to consider the assessee's claim of deduction u/s.36(1)(viia). The AO, inter alia, held that the provision for bad and doubtful debts should necessarily be created during the year, in the absence, he refused the assessee's claim of deduction.
3. For the AY 2014-15 also, the assessee filed its original return on 06.10.2013, admitting a nil income on 14.03.2016. It filed a revised return claiming deduction u/s.36(1)(viia) of Rs.1,87,21,431/-, which is less than the provision for bad and doubtful debts of Rs.1,95,02,918/-. However, the assessee's bank restricted the claim of deduction u/s.36(1)(viia) to its gross total income of Rs.67,42872/-. During the course of the assessment proceedings, the representative of the assessee filed a letter dated 21.12.2016 confirming that the assessee filed original return without making the provision ITA Nos.513 & 514/Chny/2018 :- 3 -:
for NPA since the provision already made in the earlier year is adequate. Then by the advice of the auditor, the revised return was filed on 14.03.2016 by making provision for NPA of Rs.70.00 laksh and requested to consider the claim. The AO inter alia held that the bank have not created any provision for bad and doubtful debts before filing the original return. Before creating reserve for bad and doubtful debts the same should be got approved by the Directors / Member of the bank. As the assessee has not created any reserve for bad and doubtful debts in the original return of income, it is clear that, the bank has not created any reserve for bad and doubtful debts during the year. The fact is also evident from the statement of Break-up of the Details of income furnished in support of the original return of income which was signed by the Managing director and General Manager of the bank, wherein no such reserve (Rs.70,00,000/-) was created. These accounts of the bank were also audited by the charted accountant as required u/s.44AB of the IT Act 1961 and copy of form No.3GA & 3CD dated 24-09-2014 certified by the chartered accountant was also furnished. There is no omission or wrong statement in the original return of the income and as such the bank's claim of Rs.1,87,21,431/- (restricted to Rs.67,42,872/-) as deduction u/s.36(l)(viia) made in the revised return of income filed incorporating the reserves for bad and doubtful debts is not accepted. Accordingly, Rs.67,42,872/- claimed u/s.36(1)(viia) by the assessee was disallowed by the AO and added back to the return of income.
ITA Nos.513 & 514/Chny/2018 :- 4 -:
4. Aggrieved against those orders, the assessee filed appeals before the Ld.CIT(A). The Ld.CIT(A) relying on the decision of the Hon'ble High Court of Punjab & Haryana in the case of State Bank of Patiala v. CIT reported in 272 ITR 54 and also the decision of the co-ordinate Bench of this Tribunal in ITA No.1168/Chny/2016 dated 07.06.2017 for the AY 2008-09 in the case of M/s.The Salem Dt. Central Co.op. Bank Ltd. Vs. the DCIT, Cirlce-1, Salem, dismissed the assessee's appeals. Aggrieved against those orders, the assessee filed the above appeals before this Tribunal.
5. After three adjournments sought by the assessee on 25.07.2018, 12.11.2018 and 05.03.2019, the case was heard on 24.06.2019. For continuation of the argument i.e. for the reply of the assessee's counsel, the case was adjourned to 25.06.2019. Today, i.e. on 25.06.2019, the counsel of the assessee filed a letter pleading, inter alia, that he has to attend the hearing before the High Court and requested for an adjournment. Since, the plea made by the counsel is considered as dilatory one, it is rejected and the case was treated as heard. The Ld.DR invited our attention to the following portion of the order of the Ld.CIT(A), which is common for both the assessment years:
"5.2 It is an admitted fact that the assessee has not created any provision for Bad and doubtful debt during the FY relevant for the assessment year 2014-15. The claim of the assessee that the deduction should be allowed u/s.36(l)(viia) even though no provision for bad and doubtful debt is created in the books of account is not in accordance with law. The claim of the assessee should be considered in the light of the provision of section 36(l)(viia) of the IT Act read with the CBDT instruction No,17/2008 dated 26.11.2008 in which it is clearly stated as follows:
Quote:
'b) the deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee in the relevant year or the amount calculated as per the provisions of section 36(l)(viia), whichever is less."
ITA Nos.513 & 514/Chny/2018 :- 5 -:
Unquote:
5.3 Further, this view of the department has been upheld by the Hon'ble High Court of Punjab and Haryana in the case of State Bank of Patiala Vs. CIT 272 ITR 54, the relevant extract is as follows:
Quote:
"............it is necessary to make a provision for bad and doubtful debts in the account books in the same previous year in which such provision is claimed as deduction u/s.36(1)(viia). This means only to the extent the provision is made in the accounts of the year. Unquote:
5.3 Further, the Hon'ble jurisdictional ITAT A Bench in ITA No.1168/Mds/2016 in the case of M/s.Salem District Central Co-operative Bank Ltd., Vs DCIT, Circle-1, Salem which was passed by me denying the claim of deduction u/s 36(l)(viia) has upheld my order and dismissed the assessee's appeal. The facts and circumstances of the assessee are exactly the same as that of the case cited supra.
6. From the above, it is clearly seen that making a provision during the financial year relevant for the assessment year is sine-qua-non to claim deduction u/s 36(l)(viia) of the IT Act. From the records, it is clearly seen that the assessee bank has not made any such provision and hence they are-not eligible for any deduction u/s 36(l)(viia). Therefore, these grounds of appeal are dismissed".
and submitted that since the Ld.CIT(A) followed the decision of the Hon'ble High Court of Punjab & Haryana, referred to supra, and also the decision of the co-ordinate Bench of this Tribunal, referred to supra, the assessee's appeals may be dismissed.
6. We heard the rival submissions and gone through relevant material. It s clear from the decision of the Hon'ble High Court of Punjab & Haryana, supra, that making of provision equal to the amount claimed as deduction, in the account books is necessary for claiming deduction u/s.36(1)(viia). Since the assessee has not made any provision in the books of accounts, as admitted by the assessee before the AO by its letters dated 21.12.2016, in the respective assessment years, the assessee is not entitled for the impugned deductions ITA Nos.513 & 514/Chny/2018 :- 6 -:
for the respective assessment years. Further, the relevant portion of the order of the co-ordinate Bench of this Tribunal in the case of M/s.The Salem Dt. Central Co.Op Bank Ltd., Salem vs. The DCIT, Salem in ITA No.1168/Chny/Mds/2016 for the AY 2008-09 dated 07.06.2017, is extracted as under:
7.1 We heard the rival submissions and perused the material placed before us.
The assessee has debited a sum of Rs.7,72,84,858/- under the head NPA during the previous year relevant to the AY 2008-09 and claimed the deduction u/s.36(i)(vii)(a) for an amount of Rs.19,49,25,398/-. The Ld.Counsel argued that the assessee has already created the provision for NPA in the earlier years which remained unadjusted. Therefore, there is no need to create any fresh provision during the previous year relevant to the AY 2008-09.
8.0 In Income Tax, each year is an independent and the income has to be computed as per the system of accounting regularly followed by the assessee. Therefore, the deduction can be made by the assessee only on the basis of the expenditure debited to the Profit & Loss A/c from the previous year relevant to the AY under consideration. No expenditure which is not debited to the Profit & Loss A/c in the year under consideration is permissible for deduction. In the instant case, the assessee has not debited the expenditure relating to the provisions for bad and doubtful debts. Therefore, the deduction u/s.36(1)(viia) is permissible to the extent of the amount debited to the Profit & Loss A/c or as per the permissible limits specified u/s.36(1)(viia) whichever is less. The contention of the assessee that the reserves already created in the earlier years is available in the books of accounts which remained unadjusted is not an acceptable proposition and not as per the Income Tax Act. This view is clarified by the CBDT in Circular No.17/2008 which was relied upon by the Ld.CIT(A) in Para No.4.2 which is re-produced hereunder:
4.2. The Assessing Officer has restricted the claim of the assessee Bank to the amount of provision made for the relevant assessment year. This restriction should be considered in light of the provisions of Section 36(1)(viia) of the IT Act read with the CBDT instruction No.17/2008 dated 26.11.2006. In this Instruction it is clearly stated as follows:
QUOTE:
...............
(b) The deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually, created in the books of the assessee in the relevant year or the amount calculated as per provisions of section 36(1)(viia), whichever is less.
..................
UNQUOTE.
9.0 The Circular is very clear that the deduction is permissible only to the extent of provisions actually created in the books of accounts for the relevant Assessment Year. This view is supported by the decision of the Hon'ble Punjab & Haryana High Court cited supra. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is allowed. Ground Nos.6 - 12 of the assessee are dismissed.
7. Since the co-ordinate Bench of this Tribunal has applied the decision of the Hon'ble Punjab & Haryana High Court, cited supra, and dismissed the ITA Nos.513 & 514/Chny/2018 :- 7 -:
appeal in the above case, following the same, the appeals filed by the assessee are also dismissed.
8. In the result, the appeals filed by the assessee are dismissed.
Order pronounced in the Open Court on 27th June, 2019, in Chennai.
Sd/- Sd/-
(ध.ु व/
ु आर.एल. रे 0डी) (एस. जयरामन)
(DUVVURU R.L. REDDY) (S. JAYARAMAN)
या यक सद य/JUDICIAL MEMBER लेखा सद य /ACCOUNTANT MEMBER
चे नई/Chennai,
2दनांक/Dated: 27th June, 2019.
TLN
आदे श क' % त3ल4प अ5े4षत/Copy to:
1. अपीलाथ$/Appellant 4. आयकर आयु6त/CIT
2. %&यथ$/Respondent 5. 4वभागीय % त न ध/DR
3. आयकर आयु6त (अपील)/CIT(A) 6. गाड! फाईल/GF