TaxTMI 
TaxTMI 
2022 (5) TMI 224
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....ls of the claims are as under: (Amount in Rs. lacs) A.Y. P1 P2 Total (P1 + P2) P3 P1A 2009-10 643.74 262.57 906.31 764.25 - 2013-14 514.00 381.23 895.23 1698.91 8.00 2014-15 442.82 755.44 1198.26 1899.66 12.15 P1 Provision for bad and doubtful debts P1A Provision against standard assets (forming part of P1) P2 Provision for overdue interest on NPA A/cs P3 Deduction eligible u/s. 36(1)(viia) The figures afore-tabulated are admitted. For each of the years under reference, the Assessing Officer (AO) disallowed the provision for bad and doubtful debts to the extent it related to standard assets. Inasmuch as the corresponding debts (assets), i.e., against which the provision is being claimed - which is as per the provisioning norms prescribed by the Reserve Bank of India (RBI), its' regulator, are 'standard assets' (i.e., debts considered good), the AO considered the provision there-against by the assessee as a contradiction in terms. In his view, it was not more than a provision for a contingent liability, inadmissible u/s. 37(1). The....
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....- (a) - (c)..... (d) "scheduled bank" shall have the meaning assigned to it in clause (ii) of the Explanation to clause (viia) of sub-section (1) of section 36; (e) - (f) ... (g) "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P; (h) the expressions "deposit taking non-banking financial company", "non-banking financial company" and "systemically important non-deposit taking non- banking financial company" shall have the meanings respectively assigned to them in clauses (e), (f) and (g) of Explanation 4 to section 43B. (emphasis, by underlining & in italics, ours) Aggrieved, both the assessee and the Revenue are in appeal; the former by way of CO (for two out of the three years). 3. Before us, the Revenue's case qua both the disallowances made in assessment, since deleted by the first appellate authority, was the same as of the AO. The assessee's grievance is that the ld. CIT(A), though accepted its' additional ground, i.e., with reference to s....
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....ation of the amendment by Finance Act, 2018, only which would make the said provision applicable to the assessee for the relevant years. This is precisely the Revenue's grievance, claiming the amendment to be prospective, i.e., AY 2017-18 onwards. The assessee, on the other hand, claims it to be retrospective, i.e., since the inception of the provision by Finance Act, 1991, w.e.f. 01/04/1991. We see no reason for the said retrospective operation, or even w.e.f. 01/04/1999, whereat the provision was substituted by Finance Act, 1999. Why, Shri Ganguly, the ld. counsel for the assessee, would during hearing himself state of a different treatment for cooperative banks in view of the exemption to their profits u/s. 80P. In fact, the same words stand inserted in s. 36(1)(viia) by Finance Act, 2007, w.e.f. 01/04/2007, the date from which s. 80P(4) stands inserted (again) on the statute, excluding cooperative banks, and which are not claimed as retrospective! There was no reference to the Memorandum Explaining the Provisions of the relevant Finance Bill; Budget Speech, etc. explaining the amendment, which would throw light thereon, by Sh. Ganguly. There was, further, no explanation by him ....
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....he year/s in which it stands recognized as income by crediting the same to its' P&L A/c. This would also meet the assessee's reliance on some decisions by Hon'ble Courts, referred to by ld. CIT(A), whose orders are sans any reference to this aspect of the matter. In fine, the claim is bizarre, and without reference to the legislative history of the provision, which stands amended retrospectively - so that there has been clearly due consideration of its retrospectivity, by FA, 2018; the provision itself, as well as the facts of the case. Reliance on sec. 43D, whichever way one may look at it, thus, does not therefore help the assessee's case. 4.3 The assessee next claims that inasmuch as the total provision (P1 + P2) made in accounts does not exceed that exigible u/s. 36(1)(viia) (P3), the claim is admissible u/s. 36(1)(viia) itself, as the provision for overdue interest is also in the nature of provision for bad and doubtful debts. This is stated on the basis that the interest, on debit to the borrowers' account, becomes part of the debt due therefrom. The argument, seemingly attractive, is found misconceived on scrutiny. It, rather, as we shall presently see, raises a seriou....
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....e assessee cannot for that reason fall back on sec. 36(1)(viia), which in fact is its' main plank, as explained by Shri Ganguly, and the subject matter of its' COs. It, in fact, gives rise to the question that if the overdue interest is, as claimed, indeed debited to the (NPA) borrowers' accounts, the provision for bad and doubtful assets would get enhanced to the extent made on the said amount. That is, there would be a 'double' provision in respect of this interest sum, firstly, at 100% thereof (as provision for overdue interest) and, then, inasmuch as the interest forms part of the principal debt, per the provisioning norms following the RBI guidelines. This is the serious consequence referred to hereinabove, as it results in provisioning against the said interest in excess of 100% thereof. We shall advert to this aspect, which impinges directly on the correct (amount of) claim in respect of provision for overdue interest, later. 4.4 On principle, we, nevertheless, consider the assessee's case as liable to be accepted. The reason is simple. The provision (for overdue interest) only seeks to de-recognize unrealised interest income on NPA A/cs falling under different categories....
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....c Cr. 5000 (charge of interest in account of the borrower - classified as NPA, for a period, which would in turn be credited to the P&L A/c for the said period) b) P & L A/c Dr. 5000 To Provision for overdue interest Cr. 5000 (provision in respect of interest, being unrealized and qua a NPA borrower) B. Receip of interest a) Bank A/c Dr. 1,000 To Interest Income Cr. 1,000 (interest realized during the period) b) Provision for overdue interest Dr. 1,000 To Borrower A/c Cr. 1000 (reversal of provision for unrealized interest on being realized) 4.5 With a view to therefore verify if the assessee has followed the correct accounting prescription, i.e., in effect, as where interest is accounted as income on receipt, reversing the provision for overdue interest (having been already credited for the entire unrealized interest, which stands also debited to the borrower's account) and the debtor (receivable) account, i.e., to the extent of receipt, as we understand to be the case (as depicted per the accounting entries afore-stated), the....
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.... continues to obtain and, in fact, increased (as at the relevant year-end) due to re-categorization of the corresponding asset, as, say, from a 'doubtful asset' to a 'loss asset', qualifying for provision @ 100%, increasing the provision (on this unrealized interest) as at the year-end, going by the same example, from Rs. 2000 to Rs. 4000. This excess provision arising for the reason that unrealized interest on a doubtful asset stands accounted as income in the first place, would therefore need to be excluded. There could be a reverse case as well, as where an account is upgraded, reducing the provision now required in its respect. We understand all this to be no mean task, but the same has arisen directly as a result of, as it appears, a faulty accounting, inconsistent with the standard accounting prescription of not recognizing income on NPAs, so that the borrower account balance is not increased by this sum. The interest, though worked out, is kept in shadow accounts or in memoranda accounts. 4.6 The AO shall, upon due verification, decide in accordance with law, i.e., in conformity with what stands stated by us, per a speaking order, issuing clear and definite findings. We d....