2014 (12) TMI 507 - AT - Income Tax

Tribunal Decision on Provisions for Debts & Interest Deduction

Bhind District Co-operative Bank Ltd., Versus ACIT., Range-2,

The Tribunal upheld the partial allowance of provisions for doubtful debts and sundry debtors, emphasizing that the provisions were anticipatory and not ... Miscellaneous application – Permissibility of review - Held that:- The guidelines of RBI binding on the bank and it is stated that the mistake apparent on record may be rectified and order may be amended - Section 254(2) provides that the Tribunal may with a view to rectify any mistake apparent from record amend any order passed by it under subsection (1) and shall make such amendment - the Tribunal has no power to review their own orders passed on merits – relying upon CIT vs. Anamika Builders Pvt. Ltd. [2001 (5) TMI 39 - CALCUTTA High Court] - the Tribunal should not change its view already taken in the matter - the mistake must be so obvious that it can be easily corrected to wit any arithmetical mistake, wrong quotation of section etc. and not on debatable issues - the Tribunal has no power to review their own orders already passed on merits - There could not be any reconsideration of facts while exercising jurisdiction u/s. 254(2) of the IT Act - Since the appeal of the assessee has been decided on merits, considering the material and evidences on record in the light of submissions of the parties, therefore, review of the judgment is not permissible – Decided against assessee. Issues Involved:1. Disallowance of provision for doubtful debts and sundry debtors.2. Disallowance of provision for penal interest.3. Applicability of RBI guidelines versus Income Tax Act provisions.4. Tribunal's power to review its own orders under Section 254(2) of the IT Act.Detailed Analysis:1. Disallowance of Provision for Doubtful Debts and Sundry Debtors:The assessee, a banking institution, made provisions for doubtful debts and sundry debtors in its profit and loss account. According to the Income Tax Act, only provisions made for accrued or known liabilities qualify for deduction. The assessee provided a working of the amount of provisions admissible under Section 36(1)(viia) of the IT Act, which was partially allowed by the CIT(A). The Tribunal upheld this decision, noting that the provisions made were on an anticipation basis and not for actual liabilities accrued during the year.2. Disallowance of Provision for Penal Interest:The assessee claimed a deduction for a provision of Rs. 1.94 crores for penal interest, which was not actually received. The CIT(A) and the Tribunal both disallowed this claim, stating that the provision was shown as a 'reserve' and not written off as a bad debt in the books of accounts. The Tribunal emphasized that any amount not written off as bad debt and not covered by Section 36(1)(viia) is not admissible as a deduction. The Tribunal also noted that the RBI guidelines, which the assessee relied upon, do not override the provisions of the Income Tax Act.3. Applicability of RBI Guidelines versus Income Tax Act Provisions:The assessee argued that the RBI guidelines, which mandated the accounting of accrued interest on NPAs, should allow for the deduction of the penal interest provision. However, the Tribunal held that RBI guidelines are for administrative purposes and do not affect the computation of taxable income under the Income Tax Act. The Tribunal cited the Supreme Court's decision in Southern Technologies Ltd. vs. JCIT, which stated that provisions for non-performing assets made under RBI norms are not deductible under Section 36(1)(vii) or (viia) of the IT Act.4. Tribunal's Power to Review Its Own Orders Under Section 254(2) of the IT Act:The assessee filed a miscellaneous application seeking rectification of the Tribunal's order, arguing that the Tribunal did not consider the RBI guidelines and misapplied the decision in Southern Technologies Ltd. The Tribunal dismissed the application, reiterating that it has no power to review its own orders on merits. The Tribunal cited several High Court decisions to support this stance, emphasizing that any rectification must be for obvious mistakes and not for debatable issues. The Tribunal concluded that the appeal had been decided on merits, and no apparent mistake was present in the original order.Conclusion:The Tribunal's judgment dismissed the assessee's claims for deductions on provisions for penal interest, aligning with the provisions of the Income Tax Act over RBI guidelines. The Tribunal also reinforced its limited power to rectify orders, emphasizing that it cannot review decisions on merits under Section 254(2) of the IT Act.