Bharat Overseas Bank Ltd. v. Commissioner of Incometax

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The Tax Publishers2013 TaxPub(DT) 0174 (Chen-Trib) : (2012) 139 ITD 0154 : (2013) 152 TTJ 0546 : (2013) 082 DTR 0373 INCOME TAX ACT, 1961 --Business deduction under section 36(1)(viia)--Bad-debts Provision on standard assets whether, could be considered as a provision for bad and doubtful debts--assessing officer had allowed the deduction under section 36(1)(viia) claimed by assessee-public sector bank. Commissioner initiated proceedings under section 263, as the actual provision for bad and doubtful debts as per books was less and a higher claim was allowed under section 36(1)(viia) by including provision for standard assets with provision for bad and doubtful debts, therefore, he set aside the order of assessing officer. *Held:* Rightly so as when the bank itself has treated such assets as good and recoverable, any provision made on such assets cannot be considered as a provision for bad and doubtful debts. It was also found from the original assessment order that for the deduction allowed to the assessee as claimed by it in its return, there was no discussion as to how section 36(1)(viia) was applied and whether the limits were correctly worked out. Admittedly, no question was asked to the assessee during the course of assessment proceedings also with regard to the claim made by it under section 36(1)(viia), insofar as the quantum of such claim was concerned. More so, there was enquiry made during the course of assessment proceedings, therefore, the order will definitely render it erroneous and prejudicial to the interests of revenue. Income Tax Act, 1961 Section 36(1)(viia) Income Tax Act, 1961 Section 263 In The Itat, Chennai c Bench Abraham P. George, A.m. & Vikas Awasthy, J.m. Bharat Overseas Bank Ltd. v. CIT ITA No. 1191 (Mds) of 2012 A.Y. 2007-08 28 August, 2012 In favour of revenue. Section 36(1)(viia), read with section 263, of the Income Tax Act, 1961 - Bad debts, provision for in case of banks - Standard assets Appellant by : C. Naresh Respondent by : Anupama Shukla ORDER *Abraham P. George, A.M.* In this appeal filed by the assessee, it assails an order dated 28-3-2012 under section 263 of Income Tax Act, 1961 (in short the Act) passed by Commissioner of Income Tax, Chennai-I, Chennai, for the impugned assessment year. As per the assessee, section 36(1)(viia) allowed deduction of any amount charged as provision for bad and doubtful debts, once such provision was made in compliance with the regulations of regulatory authority. As per the assessee, if the provision made towards standard assets were also considered, the total provisions for bad and doubtful debts made exceeded the percentage mentioned in section 36(1)(viia) of the Act and therefore, Commissioner erred in coming to a conclusion that the order of assessing officer was erroneous insofar as it was prejudicial to the interests of Revenue. 2. Facts apropos are that assessee, a public sector bank, had filed its return for impugned assessment year declaring income of Rs. 51,28,68,844. While completing assessment under section 143(3) of the Act, assessing officer allowed deduction under section 36(1)(viia) at 7.5% of gross total income and a further sum of 10% of rural advances. This assessment was later revised to give effect to the order of Commissioner (Appeals) on assessees appeal, which resulted in gross total income coming down to Rs. 26,91,50,893. Deduction allowed under section 36(1)(viia) also proportionately went down. Thereafter, Commissioner initiated proceedings under section 263 of the Act, for according to him, the actual provision for bad and doubtful debts as per books were only Rs. 4,01,44,027, and a higher claim was allowed under section 36(1)(viia) of the Act. Assessee had made provision of Rs. 2,23,00,000 for standard assets and claimed this also as provision for bad and doubtful debts. As per the Commissioner, the provision for standard assets could not be considered as provision for bad and doubtful debts, which could be allowed under section 36(1)(viia) of the Act. Thus, according to the Commissioner, deduction of Rs. 8,46,72,461- allowed in original assessment under section 36(1)(viia), which was later scaled down to Rs. 5,38,05,015 in the order subsequent to Commissioner(Appeals) directions, was incorrect. According to him, assessee having actually made a provision of Rs. 4,01,44,027 only for bad and doubtful debts in its books, the claim under section 36(1)(viia) had to be limited to such amount. assessing officer having given a deduction of Rs. 5,38,05,015, such order was erroneous and prejudicial to the interests of Revenue. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0174 (Chen-Trib) : (2012) 139 ITD 0154 : (2013) 152 TTJ 0546 : (2013) 082 DTR 0373

INCOME TAX ACT, 1961

--Business deduction under section 36(1)(viia)--Bad-debts Provision on standard assets whether, could be considered as a provision for bad and doubtful debts--assessing officer had allowed the deduction under section 36(1)(viia) claimed by assessee-public sector bank. Commissioner initiated proceedings under section 263, as the actual provision for bad and doubtful debts as per books was less and a higher claim was allowed under section 36(1)(viia) by including provision for standard assets with provision for bad and doubtful debts, therefore, he set aside the order of assessing officer. Held: Rightly so as when the bank itself has treated such assets as good and recoverable, any provision made on such assets cannot be considered as a provision for bad and doubtful debts. It was also found from the original assessment order that for the deduction allowed to the assessee as claimed by it in its return, there was no discussion as to how section 36(1)(viia) was applied and whether the limits were correctly worked out. Admittedly, no question was asked to the assessee during the course of assessment proceedings also with regard to the claim made by it under section 36(1)(viia), insofar as the quantum of such claim was concerned. More so, there was enquiry made during the course of assessment proceedings, therefore, the order will definitely render it erroneous and prejudicial to the interests of revenue.

Income Tax Act, 1961 Section 36(1)(viia)

Income Tax Act, 1961 Section 263

In The Itat, Chennai c Bench

Abraham P. George, A.m. & Vikas Awasthy, J.m.

Bharat Overseas Bank Ltd. v. CIT

ITA No. 1191 (Mds) of 2012

A.Y. 2007-08

28 August, 2012

In favour of revenue.

Section 36(1)(viia), read with section 263, of the Income Tax Act, 1961 - Bad debts, provision for in case of banks - Standard assets

Appellant by : C. Naresh

Respondent by : Anupama Shukla

ORDER

Abraham P. George, A.M.

In this appeal filed by the assessee, it assails an order dated 28-3-2012 under section 263 of Income Tax Act, 1961 (in short the Act) passed by Commissioner of Income Tax, Chennai-I, Chennai, for the impugned assessment year. As per the assessee, section 36(1)(viia) allowed deduction of any amount charged as provision for bad and doubtful debts, once such provision was made in compliance with the regulations of regulatory authority. As per the assessee, if the provision made towards standard assets were also considered, the total provisions for bad and doubtful debts made exceeded the percentage mentioned in section 36(1)(viia) of the Act and therefore, Commissioner erred in coming to a conclusion that the order of assessing officer was erroneous insofar as it was prejudicial to the interests of Revenue.

2. Facts apropos are that assessee, a public sector bank, had filed its return for impugned assessment year declaring income of Rs. 51,28,68,844. While completing assessment under section 143(3) of the Act, assessing officer allowed deduction under section 36(1)(viia) at 7.5% of gross total income and a further sum of 10% of rural advances. This assessment was later revised to give effect to the order of Commissioner (Appeals) on assessees appeal, which resulted in gross total income coming down to Rs. 26,91,50,893. Deduction allowed under section 36(1)(viia) also proportionately went down. Thereafter, Commissioner initiated proceedings under section 263 of the Act, for according to him, the actual provision for bad and doubtful debts as per books were only Rs. 4,01,44,027, and a higher claim was allowed under section 36(1)(viia) of the Act. Assessee had made provision of Rs. 2,23,00,000 for standard assets and claimed this also as provision for bad and doubtful debts. As per the Commissioner, the provision for standard assets could not be considered as provision for bad and doubtful debts, which could be allowed under section 36(1)(viia) of the Act. Thus, according to the Commissioner, deduction of Rs. 8,46,72,461- allowed in original assessment under section 36(1)(viia), which was later scaled down to Rs. 5,38,05,015 in the order subsequent to Commissioner(Appeals) directions, was incorrect. According to him, assessee having actually made a provision of Rs. 4,01,44,027 only for bad and doubtful debts in its books, the claim under section 36(1)(viia) had to be limited to such amount. assessing officer having given a deduction of Rs. 5,38,05,015, such order was erroneous and prejudicial to the interests of Revenue.