2021 (6) TMI 288 - AT - Income Tax

ITAT Mumbai: Excess provision of BDDR not taxable to prevent double taxation

Adarniya P.D. Patilsaheb Sahakari Bank Ltd. Versus The Asst. Commissioner of Income Tax, Satara Circle, Satara.

The ITAT Mumbai held that the excess provision of Bad and Doubtful Debts Recoverable (BDDR), derived from income already taxed in earlier years, should ... Exemption u/s 80P - Addition made being excess of Bad and Doubtful Debts Recoverable (BDDR) - HELD THAT:- Assessee claimed to have its income exempt u/s 80P(2)(a)(i) upto the assessment year 2006-07 and also creating a provision for bad debts in its accounts. We note that during the year under consideration, the assessee passed on journal entry debiting BDDR balance of ₹ 3,03,50,000/- and reversed the excess provision of ₹ 5,00,000/-. According to assessee, it was not a taxable income as it was made out of earlier years income which was already offered to taxation. However, the CIT (A) was of the opinion that the assessee is also claiming its income as exempt income u/s 80P(2)(a)(i) of the Act upto 20.06.2007, therefore, the provision made as per RBI guidelines for BDDR attains no significance and it has to be treated as income being an excess provision in the year under consideration. As rightly pointed out by AR, the provision made under BDDR made out of earlier year’s income which was offered to tax in the earlier year. Therefore, we find force in the arguments of the Ld.A.R. when it was taxed in the earlier years, if the same is taxed in the current year it becomes double taxation. When it was taxed in the earlier year, the addition made by the Assessing Officer as confirmed by the ld.CIT(A) is not justified and it is liable to be dismissed.The order of ld.CIT(A) is not justified and is set aside. Thus, the sole ground raised by the assessee is allowed. Issues:Whether the Commissioner of Income Tax (Appeals) was justified in confirming the addition made being excess of Bad and Doubtful Debts Recoverable (BDDR) in the case.Analysis:The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2014-15, specifically challenging the addition made due to excess provision of Bad and Doubtful Debts Recoverable (BDDR). The assessee, a Co-operative Society engaged in banking, had declared a total income in its return. During scrutiny assessment, the Assessing Officer added an amount as excess provision of BDDR to the income of the assessee, which was credited before 31.03.2007. The Assessing Officer considered this excess BDDR as taxable income. Before the Commissioner of Income Tax (Appeals), the assessee contended that the provision was made in accordance with RBI guidelines and had no effect on taxable income for the current year. The Commissioner of Income Tax (Appeals) found the submissions of the assessee unacceptable and confirmed the addition made on account of excess BDDR provision.The assessee argued that the excess provision was made out of earlier years' income that was already taxed, thus subjecting it to taxation again would result in double taxation. The ITAT Mumbai, comprising Shri Inturi Rama Rao, AM, and Shri S. S. Viswanethra Ravi, JM, noted that the provision under BDDR was from income taxed in earlier years and should not be taxed again in the current year. Therefore, they found the addition made by the Assessing Officer, as confirmed by the Commissioner of Income Tax (Appeals), unjustified. Consequently, the ITAT allowed the sole ground raised by the assessee and set aside the order of the Commissioner of Income Tax (Appeals), ultimately allowing the appeal of the assessee.In conclusion, the ITAT Mumbai held that the excess provision of BDDR, which was made from income already taxed in earlier years, should not be subject to taxation again in the current year to avoid double taxation. The ITAT found the Commissioner of Income Tax (Appeals) unjustified in confirming the addition and allowed the appeal of the assessee.