Income Tax Appellate Tribunal - Bangalore
Additional Commissioner Of Income Tax, ... vs Canara Bank, Bangalore on 29 June, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER
M.P. No.113/Bang/2018
[in ITA No.1019/Bang/2015]
Assessment year : 2008-09
Canara Bank, Vs. The Joint Commissioner of
Head Office, 112, J.C. Road, Income Tax, LTU,
Bangalore - 560 002. Bangalore.
PAN: AAACC 6106G
APPLICANT RESPONDENT
M.P. No.116/Bang/2018
[in ITA No.1019/Bang/2015]
Assessment year : 2008-09
The Joint Commissioner of Vs. Canara Bank,
Income Tax, LTU, Head Office, 112, J.C. Road,
Bangalore. Bangalore - 560 002.
PAN: AAACC 6106G
APPLICANT RESPONDENT
Assessee by : Shri S. Ananthan, Advocate
Revenue by : Ms. Susan Thomas, Addl.CIT(DR)(ITAT), Bengaluru.
Date of hearing : 01.06.2018
Date of Pronouncement : 29.06.2018
MP Nos.113 & 116/Bang/2018
Page 2 of 10
ORDER
Per N.V. Vasudevan, Judicial Member
MP No. 113/Bang/18 is a miscellaneous application filed by the Assessee, while MP No.116/Bang/2018 is a miscellaneous application filed by the Revenue. Both these miscellaneous applications are filed u/s.254(2) of the Income Tax Act, 1961 (Act) on the allegation that there are apparent mistakes in the order of the Tribunal dated 24.10.2017 in so far as it relates to ITA No.1019/Bang/2015 relating to AY 2008-09 which needs to be rectified.
2. The Assessee in its MP has alleged that there are two mistakes apparent on the face of the order of the Tribunal which need to be rectified. The revenue in its application has alleged that there is one mistake apparent on the face of the order of the Tribunal, which needs to be rectified. One of the two mistakes pointed out in the order of the Tribunal by the Assessee in its MP and the only mistake pointed out in the order of the Tribunal by the Revenue in its MP are common. The common mistake pointed out by the Assessee and the revenue relates to decision of the Tribunal rendered on Ground No.4 raised by the Assessee in ITA No.1019/Bang/2015 which was not allowing deduction on account of provisions for bad and doubtful debts u/s.36(1)(vii) of the Act. The ground raised by the Assessee projected grievance of the Assessee in relation to not allowing deduction on account of provisions for Bad and Doubtful Debts. The Tribunal in paragraph 13 of its order at page-26 decided this issue by following the order of the Tribunal in Assessee's own case rendered in AY 2009-10 to 2011-12 in ITA No. 979/Bang/2013 (for AY 2009-10), ITA No.1493/Bang/2014 (for AY 2010-11) and ITA No.931/Bang/2016 (for AY 2011-12) order dated 15.9.2017 on identical MP Nos.113 & 116/Bang/2018 Page 3 of 10 issue. The Tribunal has reproduced paragraph 8.1 to 8.3 of order of the Tribunal in Assessee's own case rendered in AY 2009-10 to 2011-12 in ITA No. 979/Bang/2013 (for AY 2009-10), ITA No.1493/Bang/2014 (for AY 2010-11) and ITA No.931/Bang/2016 (for AY 2011-12) order dated 15.9.2017 on identical issue. Those paragraphs so reproduced by the Tribunal actually deal with the claim of the Assessee for deduction u/s.36(1)(viii) of the Act. The relevant and correct paragraphs of the Tribunals order in Assessee's own case rendered in AY 2009-10 to 2011- 12 in ITA No. 979/Bang/2013 (for AY 2009-10), ITA No.1493/Bang/2014 (for AY 2010-11) and ITA No.931/Bang/2016 (for AY 2011-12) order dated 15.9.2017 on identical issue of allowance of deduction u/s.36(1)(vii) were paragraphs 7 to 7.3 which paragraphs deal with allowance of deduction u/s.36(1)(vii) of the Act.
3. We have perused the orders of the Tribunal in Assessee's own case rendered in AY 2009-10 to 2011-12 in ITA No. 979/Bang/2013 (for AY 2009-10), ITA No.1493/Bang/2014 (for AY 2010-11) and ITA No.931/Bang/2016 (for AY 2011-12) order dated 15.9.2017 on identical issue and find the contention of the Assessee and the revenue in its MP to be correct. We therefore rectify the mistake apparent from the order of the Tribunal by deleting in paragraph-13 of the Tribunal's order dated 24.10.2017 and substituting the following paragraph-13 instead of the existing paragraph-13:-
"13. We have heard the learned Authorised Representative as well as learned Departmental representative and considered the relevant material on record. At the outset, we note that this issue was also considered by this Tribunal in Assessee's own case for the Assessment years 2009-10 to 2011-12 vide order dt.15.9.2017(supra) in paras 7 to 7.3 as under:
'7. Ground of appeal No.2 challenges the addition of Rs.543,00,00,000/- by disallowing the claim for bad MP Nos.113 & 116/Bang/2018 Page 4 of 10 debts written off. The Assessing Officer [AO] disallowed the claim by holding that credit balance available in the provision of for bad and doubtful debts in assessee's case is much more than the amount of bad debts actually written off and claimed u/s 36(1)(vii) of the Act. The AO also placed reliance on the full bench judgment of the Hon'ble Kerala High Court in the case of CIT vs. South Indian Bank Ltd (326 ITR 174).
7.1 In appeal before the CIT(A), the CIT(A) confirmed the addition by holding that it is only a provision made for NPA account in the books of account.
He further held that the assessee-bank had not complied with the conditions stipulated by the Hon'ble Apex Court in the case of Southern Technologies vs. Joint CIT (320 ITR 577).
7.2 We heard rival submissions and perused material on record. The conditions which are required to be complied with for allowance of bad debt are that the amount of bad debt should have formed part of income in earlier years and it should have been written off in the books of account. The contention of the CIT(A) is that the provision for bad debts was not actually written off and squared off from debtor's account in the books of account. What constitutes write off has been settled by the Hon'ble Apex Court in the case of Vijaya Bank vs. CIT (323 ITR
166). In the said case, the Hon'ble Apex Court held that reducing provision for bad debts from debtor's account in the balance sheet and debiting the provision for bad debts to P&L Account constitutes write off. The coordinate bench of the Tribunal in the case of Joint CIT vs. Vijaya Bank in ITA Nos.318 & 331/Bang/2014 dated 22/07/2016, to which both of us, are parties, after referring to the decision of the Hon'ble Apex Court in the case of T.R.F.Ltd. vs. CIT (323 ITR 397) and Vijaya Bank (supra) held as follows:
"9.2 We heard rival submissions and perused the material on record. The only ground on which the CIT(A) confirmed the addition made on account of bad debts is that debts have not been written off in the books of account. Similar issue had come up before the Hon'ble Supreme Court in the case of MP Nos.113 & 116/Bang/2018 Page 5 of 10 Vijaya Bank (supra) wherein the Hon'ble Supreme Court held that debiting P&L Account by provision for bad debts and reducing the same from the sundry debtors in the balance sheet amounts to write off. The relevant part of the judgment is extracted below:
"7. One point needs to be clarified. According to Shri Bishwajit Bhattacharya, learned Additional Solicitor General appearing for the Department, the view expressed by the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala (supra) was prior to the insertion of the Explanation vide Finance Act, 2001, with effect from 1-4-1989, hence, that law is no more a good law. According to the learned counsel, in view of the insertion of the said Explanation in section 36(1)(vii) with effect from 1-4- 1989, a mere debit of the impugned amount of bad debt to the profit and loss account would not amount to actual write off. According to him, the Explanation makes it very clear that there is a dichotomy between actual write off on the one hand and a provision for bad and doubtful debt on the other. He submitted that a mere debit to the profit and loss account would constitute a provision for bad and doubtful debt, it would not constitute actual write off and that was the very reason why the Explanation stood inserted. According to him, prior to Finance Act, 2001, many assessees used to take the benefit of deduction under section 36(1)(vii) of 1961 Act by merely debiting the impugned bad debt to the profit and loss account and, therefore, the Parliament stepped in by way of Explanation to say that mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. To this extent, we agree with the contentions of Shri Bhattacharya. However, as stated by the Tribunal, in the present case, besides debiting the profit and loss account and creating a provision for bad and doubtful debt, the assessee-bank had correspondingly/simultaneously obliterated the said provision from its accounts by MP Nos.113 & 116/Bang/2018 Page 6 of 10 reducing the corresponding amount from Loans and Advances/debtors on the asset side of the balance sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the balance sheet was shown as net of the provision "for impugned bad debt". In the judgment of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala (supra), a mere debit to the profit and loss account was sufficient to constitute actual write off whereas, after the Explanation, the assessee(s) is now required not only to debit the profit and loss account but simultaneously also reduce loans and advances or the debtors from the asset side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Court in its impugned judgment. In the circumstances, we hold, on the first question, that the assessee was entitled to the benefit of deduction under section 36(1)(vii) of 1961 Act as there was an actual write off by the assessee in its books, as indicated above.
8. Coming to the second question, we may reiterate that it is not in dispute that section 36(1)(vii) of 1961 Act applies both to Banking and Non-Banking businesses. The manner in which the write off is to be carried out has been explained hereinabove. It is important to note that the assessee-bank has not only been debiting the profit and loss account to the extent of the impugned bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the yearend, as stated hereinabove. In other words, the amount of loans and advances or the debtors at the year-end in the balance-sheet is shown as net of the provisions for impugned debt. However, what is being insisted upon by the Assessing Officer is that mere reduction of the amount of loans and advances or the debtors at the MP Nos.113 & 116/Bang/2018 Page 7 of 10 year-end would not suffice and, in the interest of transparency, it would be desirable for the assessee- bank to close each and every individual account of loans and advances or debtors as a pre-condition for claiming deduction under section 36(1)(vii) of 1961 Act. This view has been taken by the Assessing Officer because the Assessing Officer apprehended that the assessee-bank might be taking the benefit of deduction under section 36(1)(vii) of1961 Act, twice over. [See Order of CIT (A) at pages 66, 67 and 72 of the Paper Book, which refers to the apprehensions of the Assessing Officer]. In this context, it may be noted that there is no finding of the Assessing Officer that the assessee had unauthorisedly claimed the benefit of deduction under section 36(1)(vii), twice over. The Order of the Assessing Officer is based on an apprehension that, if the assessee fails to close each and every individual account of its debtor, it may result in assessee claiming deduction twice over. In this case, we are concerned with the interpretation of section 36(1)(vii) of 1961 Act. We cannot decide the matter on the basis of apprehensions/desirability. It is always open to the Assessing Officer to call for details of individual debtor's account if the Assessing Officer has reasonable grounds to believe that assessee has claimed deduction, twice over. In fact, that exercise has been undertaken in subsequent years. There is also a flipside to the argument of the Department. Assessee has instituted recovery suits in Courts against its debtors. If individual accounts are to be closed, then the debtor/defendant in each of those suits would rely upon the Bank statement and contend that no amount is due and payable in which event the suit would be dismissed." The assessee- bank had not produced any evidence that similar treatment was given in its books of account. Therefore, in the interests of justice, we remit this issue back to the file of the AO to allow the same as deduction after satisfying himself that provision for bad debts is debited to P&L account and reduced the MP Nos.113 & 116/Bang/2018 Page 8 of 10 same from sundry debtor's account in the balance sheet. "
7.3 The provisions of section 36(1)(vii) and 36(1)(viii) operate in different fields. Both are independent provisions as held by the Hon'ble Supreme Court in the case of Catholic Serian Bank Ltd. vs. CIT (343 ITR 270). Therefore, reliance placed by the AO on the decision in the case of full bench decision of the Hon'ble Kerala High Court in the case of South Indian Bank Ltd. (supra) which is reversed by the Hon'ble Apex Court in the case of Catholic Serian Bank Ltd. (supra) therefore, is misplaced and had no relevance to the facts of the case. Therefore, this issue requires remand to the AO for examining whether provision for bad debts is actually reduced from sundry debtors account in the balance-sheet and the provision for bad debts is debited to P&L Account. If these conditions are satisfied, we direct the AO to allow same as deduction."
4. The AO is directed to examine the issue as directed by the Tribunal in paragaraph 7.3 of its order referred to above in AY 2009-10 to 2011-12 and allow the claim of the Assessee if the conditions laid down by the Tribunal are satisfied. In the result, Ground No.4 is partly allowed for statistical purpose.
5. As far as the other mistake pointed out by the Assessee in its MP is concerned, the same relates to Gr.No.3 in Assessee's appeal ITA No.1019/Bang/2015 for AY 2008-09. The said ground dealt with the claim of the Assessee for deduction u/s.36(1)(viia) of the Act. The Tribunal decided the issue in paragraph-11 of its order as follows:-
"11. As regards the classification of rural branches the assessee has contended that during the relevant period the data of 2001 census was not published and the classification of the rural branches was made by the RBI based on the data of 1991 census. The Tribunal in the said decision for the assessment years 2009- 10 to 2011-12 also remitted this issue back to the file of the Assessing Officer to identify the rural branches which have MP Nos.113 & 116/Bang/2018 Page 9 of 10 population of less than 10,000 as per the last census and the aggregated average advances of such rural branches along should be considered for the purpose of deduction under Section 36(1)(viia) of the Act. Accordingly, in view of the fact that when the assessee has strongly contended that the data of 2001 census was not published at the relevant point and following the earlier order of the Tribunal, we remit this issue to the record of the Assessing Officer for verification and identifying the rural branches and then consider the deduction in respect of such rural branches."
6. In this MP the Assessee has pointed out that as far as AY 2008-09 is concerned, the census of 2001 was available and that has to be applied. The provisions of Sec.36(1)(viia) of the Act contemplates latest available census. It was submitted by the learned counsel for the Assessee that the submission of the learned counsel for the Assessee when the appeals was heard was that for AY 2006-07 & 2007-08 Census of 1991 alone has to be applied because for those years the latest census of 2001 was not available but for AY 2008-09 the Census of 2001 was available. The submission of the learned counsel for the Assessee has not been correctly recorded in the order of the Tribunal. The Assessee seeks suitable modification in the order.
7. We have considered the contention in the MP and the submission of the learned counsel for the Assessee and are of the view that since the issue of deduction u/s.36(1)(viia) of the Act was remanded by the Tribunal, the Assessee may point out these facts before the AO in the set aside proceedings and there may not be any necessity to amend the order of the Tribunal. If as per the statutory provisions of Sec.36(1)(viia) of the Act, latest available census has to be seen for deciding whether a branch is a rural branch or not, then that will be the deciding factor. There is nothing in the order of the Tribunal directing the AO to consider only the 1991 Census MP Nos.113 & 116/Bang/2018 Page 10 of 10 for AY 2008-09. The Assessee therefore need not have any apprehension in this regard.
8. With the above observations, we partly allow MP No. 113/Bang/2018 and allow MP No.116/Bang/2018.
Pronounced in the open court on this 29th day of June, 2018.
Sd/- Sd/-
( A.K. GARODIA ) ( N.V. VASUDEVAN)
Accountant Member Judicial Member
Bangalore,
Dated, the 29th June, 2018.
/ Desai Smurthy /
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.