sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
From the Courts »
 Aaishwarya Dying Mills Pvt. Ltd. vs The Deputy Commissioner Of Income Tax
 Chhattisgarh State Power Distribution Co Ltd vs Chhattisgarh State Electricity Regulatory Commission & Anr.
 A.P.State Electricity Board . & Ors. vs M/s Navabharat Ferro Alloys Ltd.
 CLC & Sons Pvt. Ltd vs. ACIT (ITAT Delhi) (Special Bench)
 Deepak Sales & Properties Pvt. Ltd vs. ACIT (ITAT Mumbai) (Special Bench)
 Alok Textile Industries Ltd vs. DCIT (Bombay High Court)
 Dulraj U. Jain vs. ACIT (Bombay High Court)
 Halcrow Group Ltd vs. ADIT (ITAT Delhi)
  Kudrat Sandhu vs. UOI (Supreme Court)
 Commissioner Of Income Tax (Exemptions) vs Bharati Vidyapeeth Chairman
 Chief Revenue Controlling Officer Cum Inspector General Of Registration, & Ors. vs P. Babu

March, 29th 2014


%                                          DECIDED ON: 04.03.2014

+                         ITA 314 & 315/2012

       CIT                                                ..... Appellant

                          Through: Mr. N.P. Sahni, Sr. Standing
                          Counsel with Mr. Nitin Gulati, Jr. Standing


       JAIN COOPERATIVE BANK LTD                        ..... Respondent

                          Through: Mr. Ved Jain, Advocate.


       1.     The Revenue claims to be aggrieved by the common
       order of the Income Tax Appellate Tribunal (ITAT) dated
       30.08.2011, allowing the assessee's appeal directed against the
       Commissioner (Appeals) order; as well as the Revenue's
       appeal. The question of law sought to be urged in this case is as
       to the correctness of the view expressed by the Tribunal with
       regard to the deletion of the sum of `28,75,204/- made by the
       Assessing Officer who had disallowed the claim for bad debts.

ITA 314 & 315/2012                                                 Page 1
       2.     The facts in brief are that the assessee, a Co-operative
       Bank in its return for AY 2007-08 claimed deduction to the tune
       of `77,73,715/- on account of deduction of reversal of NPA
       provision credited to the profit and loss account. The assessee is
       engaged in banking activities and had reversed NPA provisions.
       The assessee in the proceedings before the AO argued that the
       provision (for bad debts) was made due to its reflecting the
       NPA in terms of the Reserve Bank of India guidelines on bad
       debts and though such provision was made, there was no claim
       for deduction and, therefore, at the time of reversal, there can be
       no justification for adding it to the income. The assessee had
       submitted that it made a claim on account of bad debts and
       written off separately as per provisions of Section 36 (1) (vii a)
       read with Section 36 (2) of the Income Tax Act. The Assessing
       Officer rejected its claim expressing the opinion that whenever
       the bank actually writes off an amount, it would get a
       deduction. He also relied upon Section 41 (4) which stated that
       whenever a bad and doubtful debts is allowed for a previous or
       earlier years and gets recovered by the bank subsequently, the
       said amount should be taxed at the time of recovery.

       3.     The assessee carried the matter in appeal. The CIT (A)
       granted limited relief on the footing that the provision for NPA
       had been created by the assessee over the years and as on
       1.4.2006, the total provision shown was `6,61,34,167/- of
       which a reversal of the NPA of `77,73,715/- was made thus

ITA 314 & 315/2012                                                  Page 2
       leaving a balance of `5,83,60,482/- as on 31.3.2007. The sum
       of `77,73,715/- had been credited in the profit and loss account
       and subsequently reversed in the computation of income
       claiming it as deduction. The CIT (A) was of the opinion that
       the assessee had been creating provisions for NPA over the
       years and had claimed 100% deduction under Section 80-P (2)
       of the Act and had actually reduced its claim for NPA of
       `77,73,715/- out of the total of `6.61 Crores which meant that
       the assessee had been creating access provision for NPA.

       4.     The relevant findings of the ITAT in the impugned order
       are as follows: -

              "5. Now, coming to the appeal filed by the Revenue,
              the only issue for consideration relates to deleting the
              disallowance of Rs.28,75,204/- on account of bad debts.
              The facts relating to this ground of appeal are that the
              Assessing Officer during the course of assessment
              proceedings noted that the assessee had claimed
              deduction u/s 36 (1) (vii) of the Act in respect of bad
              debts of Rs.28,75,204/-. On a query raised by the
              Assessing Officer, it was submitted that the amount of
              Rs.28,75,204/- was written off under one time settlement
              scheme of RBI. This amount was not debited to the P&L
              A/c, but was debited to unrealized interest provisions.
              This deduction was claimed u/s 36 (1) (vii) of the Act.
              The Assessing officer, however, did not accept the
              explanation of the assessee. He observed that the
              assessee had accepted in his computation of income for
              assessment year 2007-08 that he had debited
              Rs.28,75,204/- to the provisions created in earlier years

ITA 314 & 315/2012                                                Page 3
              and has not debited the same to the P&L A/c. Therefore,
              it was clear that the provision which was created in
              earlier years were available for such debt. Hence,
              amount was not in excess of provisions for bad and
              doubtful debt created u/s 36 (1) (viia) of the Act. Further,
              the assessee had claimed deduction u/s 80P of the Act in
              earlier years by virtue of which the same income has not
              been taxed. As a pre income which has not been taxed in
              earlier years cannot be allowed to reduce the taxable
              income of the future years. The Assessing Officer,
              therefore, disallowed the claim for bad debts.

                     XXX                XXX                 XXX

              8.     We have heard both the parties and gone through
              the material available on record. There is no dispute
              about the fact that the assessee being a cooperative bank
              was engaged in money lending business. The income
              earned by the assessee was allowable as deduction u/s
              80P of the Act. There is no dispute about the fact that on
              account of one time settlement scheme introduced by the
              RBI, assessee had written off the amount of
              Rs.28,75,204/- and the account of the parties have been
              written off. U/s 36 (2) (i) of the Act, the deduction shall
              be allowed on account of bad debt unless as debt or part
              thereof has been taken into account in computing the
              income of the assessee of the previous year in which the
              amount of such debt or part thereof is written off or of an
              earlier previous year or represents money lent in the
              manner the course of business of banking for money
              lending which is carried on by the assessee. The assessee
              is engaged in the business of banking or money lending.
              This fact is not in dispute. The assessee has written off of
              the account of the parties on account of one time

ITA 314 & 315/2012                                                  Page 4
              settlement. The interest income earned has been included
              in the income of the earlier years which got exempt by
              virtue of deduction u/s 80P of the Act to which the
              assessee was eligible. Therefore, the interest income has
              been taken into account in computing the income of the

       5.     The Revenue contends that the RBI directives can at best
       be considered as prudential norms inapplicable to tax
       proceedings and that the assessee's claim that it had written off
       bad debts in terms of the onetime settlement (OTS) formulated
       by it is untenable. Reliance is placed upon the decision in
       Southern Technologies Ltd. v. JCIT, 320 ITR 577 (SC). It is
       also argued that the conditions spelt out in Section 36 (1) (viia)
       and Section 36 (2) were not satisfied as to result in entitlement
       for deduction. It is also argued that the assessee had claimed
       deduction under Section 80-P.       In these circumstances, the
       claim for deduction by way of set off in the current year
       through reversal of the NPA entry could not be allowed.

       6.     During the course of hearing, the assessee had relied
       upon the decision of this Court in Commissioner of Income Tax
       v. Mohan Meakin Ltd. (2012) 18 Taxman 47 (Del); CIT v. Lal
       Textile Finishing Mills (P) Ltd, 180 ITR 45 and Narayanan
       Chettiar Industries v. Income Tax Officer, 277 ITR 426. In all
       these decisions, the various High Courts including the Division
       Bench of this Court consistently ruled that provision for
       doubtful debts written back has to be seen in the context of

ITA 314 & 315/2012                                                 Page 5
       whether the provision had been allowed as deduction in order to
       determine the taxability at the later point of time of write back.
       In Mohan Meakin Ltd. matter (supra), this is what the Court
       stated: -

              "18. As regards the excess provision for doubtful debts
              amounting to Rs.17,133/- which has been written back,
              the finding of the CIT (A) that the provision was never
              allowed as a deduction in the earlier years. Since the
              finding that the provision was not allowed in the earlier
              year as a deduction is not under challenge, the amount
              cannot be added under Section 41 (1) when it is written
              back in the accounts. The decision of the Tribunal is

       Likewise in Lal Textile Finishing Mills' matter (supra), the
       Punjab and Haryana High Court observed as follows: -

              "The answer to the question posed is provided by the
              judgment of this court in Commissioner of Income-tax vs
              Haryana Co-operative Sugar Mills Ltd. (1985) 154 ITR
              751, where it was held that an amount can be brought to
              tax under section 41 (1) of the Act, if two conditions are
              satisfied, namely, that the amount has been allowed as
              deduction in some earlier year and that during the
              assessment year in question, the assessee had received
              the benefit representing the amount in question by way of
              cessation or remission of the liability in regard to the
              said amount.

              The pertinent point to note in the present case is that
              there is no finding nor indeed any material to show that
              this amount of Rs.48,610/- was ever allowed as a

ITA 314 & 315/2012                                                 Page 6
              deduction in any earlier assessment year. This being so,
              there can be no escape from the conclusion that the said
              amount cannot be brought to tax in terms of section 41
              (1) of the Act. The reference is, consequently, hereby
              answered in the affirmative, in favour of the assessee and
              against the Revenue."

       The Madras High Court in Narayanan Chettiar matter observed
       as under: -

              "As observed by the Supreme Court in Tirunelveli Motor
              Bus Service Co. P. Ltd. v. CIT [1970] 78 ITR 55, unless it
              is established that a deduction of liability was allowed
              while making the assessment in the earlier year, the
              addition as deemed profits under section 41 (1) in respect
              thereof would not be permissible."

       7.     In view of the clear statements of law, delineated in the
       preceding paragraph and having regard to the fact that in the
       previous years, the deduction was not allowed, this Court is
       satisfied that the condition precedent for application of Section
       36 (1) (viia) and 36 (2) on the one hand are applicable and the
       Section 41 (4) would not apply in the circumstances of the case.

       8.     With regard to the contention of the Revenue with respect
       to Section 80P, this Court is of the opinion that the said
       provision gives general relief to a class of assessees by way of
       mandatory deduction of certain categories of income.         The
       circumstance that the provision for bad debts was either added
       back or not added back would be irrelevant, since the deduction

ITA 314 & 315/2012                                                 Page 7
       is with reference to the income from the activities listed in
       Section 80P (2) which is part of the gross total income. In this
       view, this Court is fortified by the judgment of the Bombay
       High Court in Commissioner of Income Tax vs. Nagpur Zilla
       Krishi Audyogik Sahakari Sangh Ltd., (1994) 209 ITR 481
       (Bom) where it was held as follows: -

              "5. A close examination of the above provisions would
              reveal that treating the original intention at the time of
              purchase of commodities as the deciding factor is
              basically erroneous. Section 80P allows, in the
              computation of the total gross income of the society, a
              straight deduction in respect of certain types of income to
              the extent specified. Exempt incomes include (A) the
              whole of the amount of profits and gains attributable to
              the activities referred to in clauses (a) (i) to (vii) of sub-
              section (2), (B) limited amount of profits and gains
              derived from the business other than those specified at
              clauses (a) (i) to (b), which would include sales even to
              non-members. All this implies that the society is not
              disentitled from claiming exemption only because it
              carries on activities the income from which is not exempt.
              In that case, by the very nature of things, the purchase of
              the bulk of the commodities would be made for tapping
              the entire market inclusive of both members as well as
              non-members without separately earmarking the
              purchases for sale to members. The exercise of judging
              the original intention is thus futile. It is not at all

              The scheme is clear. All sales of specified commodities to
              members -irrespective of their proportion and quantum -
              would belong to the exempted category and all such sales
              to non-members - irrespective of their proportion and
              quantum - would belong to the non-exempted category.
              The Tribunal was thus in error in holding that the

ITA 314 & 315/2012                                                    Page 8
              original intention at the time of purchase of items was the
              deciding factor and not their ultimate disposal. The
              correct approach would be to grant exemption to the
              whole amount of profits and gains attributable only to
              actual sales of specified commodities to members,
              irrespective of the original intention at the time of
              6.     XXX                      XXX                 XXX

              Section 80A which is the first section in that Chapter
              mentions that in computing the total income of an
              assessee, there shall be allowed from his gross total
              income, in accordance with and subject to the provisions
              of this Chapter, the deductions specified in sections 80C
              to 80U. section 80B(5) gives the definition of the term
              "gross total income" as meaning the total income
              computed in accordance with the provisions of this Act,
              before making any deduction under this Chapter or under
              section 280-O. Sub-section (1) of section 80P provides
              that where the gross total income of an assessee includes
              any income mentioned in sub-section (2), the amount of
              profits and gains of business attributable to certain
              activities will have to be deducted in computing its total
              income. Quite obviously, the words "gross total income"
              referred to in section 80P(1) must be given the defined
              meaning which means total income computed in
              accordance with the provisions of the Act, but before
              making any deduction under Chapter VI-A or section
              280-O. Computation in accordance with the provisions of
              the Act must mean computation in accordance with
              section 29. It would be consistent and reasonable to hold
              that the expression "the amount of profits and gains"
              used in sub-section (2) of section 80P cannot be

ITA 314 & 315/2012                                                 Page 9
              understood in a different sense. The expression must
              mean income as computed under section 29."

       9.     In view of the above findings, this Court is of the opinion
       that no substantial question of law arises for consideration. The
       appeals are accordingly dismissed.

                                                S. RAVINDRA BHAT

                                                      R.V. EASWAR
MARCH 04, 2014

ITA 314 & 315/2012                                                Page 10
Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Company Overview

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions