TaxTMI 
TaxTMI 
TaxTMI 
2019 (2) TMI 2065
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....e filed its Return of Income for A.Y. 2013-14 on 29.11.2013 declaring total income at Rs. 8582,23,14,680/-. Assessee filed revised return of income on 31.3.2015 declaring income at Rs. 8570,52,53.270/-. Subsequently, the case was selected for scrutiny under CASS. The assessment u/s 143(3) r.w.s. 144C(3) of the Act was completed on 23.1.2017 determining total income at Rs. 11924,75,81,4297- under normal provisions and Rs. 11035,78,82,068/-u/s 115JB of the Act.-. 3. On examination of records, it is observed that the assessment order dated 23.1.2017, passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue due to the following reasons:- (i) In statement-17 of computation- the assessee has shown bad debts of Rs.1113,01,90,428/- from credit card business as bad debts u/s 36(1)(vii) of the IT Act, 1961. Deduction cannot be claimed for bad debt unless: a. Such amount has been taken into account in computing the income in this previous year or an earlier previous year OR b. Represents money lent in the ordinary course of the business of banking or money lending The assessee is a banking company and credit card business is di....
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....een arrived at. Therefore, the working provided for calculation of special reserve u/s 36(1)(viii) is erroneous. Also, assessee has set off interest cost amounting to Rs.300,91,53.931/-against non-fund based income like Gains in Trading, commission etc. arbitrarily at 80% of Income from gains in trading to artificially increase income from finance business which in-tum has the effect of increasing the amount for special reserve. Therefore, the computation has rendered the assessment order dated 23.1.2017 erroneous and prejudicial to the interests of revenue. (iii) The assessee has raised an amount of Rs.3142,30,08,000/- as perpetual debt instruments. Perpetual bond is a bond with no maturity date and therefore, it should be treated as equity, not as debt Issuers pay coupons on perpetual bonds forever, and they do not have to redeem the principal. Perpetual bond cash flows are, therefore, those of a perpetuity. The examination of accounts did not reveal accounting for payment of coupons and it is highly likely that the coupon payments has been subsumed in the interest cost. However, Interest relating to perpetual bonds is not allowable as debit to P&L A/C. The accounting treat....
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.... bad debts written off in respect of vehicle loan, home loan and other loans given and also in respect of credit cards issued to customers. The deduction for write off of bad debts is allowed under section 36(1)(vii) of the Act. The section states the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee is to be allowed as deduction. 1.3 The Bank submits that the bad debts claimed have been written off as irrecoverable in the accounts of the assessee and fulfill all the conditions laid down under section 36(2} of the Act. These debts represent money lent in the ordinary course of business of the Bank which have turned bad and hence written off as per the system of write off followed by the Bank. 1.4 The Bank during the course of assessment proceedings had explained the claim made under section 36{1)(vii) of the Act vide letter dated August 12, 2016. The Assessing Officer after full scrutiny of the entire claim of bad debts has allowed the same for the aforesaid assessment year. 1.5 With respect to your Honour's contention that the amount of credit card write off of Rs.1113,01,90,428 does not qualify for deduction ....
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....36(1)(viia) 564,84,45,059 564,84,45,059 Bad Debts u/s 36(1)(vii) (A) 1280,68,14,688 167,66,24,260 Business Loss Discrepant Notes 1,43,52,282 1,43,52,282 Fraud Cases 6,99,69,319 6,99,69,319 Gain/Loss on sale/Disposal -Non Banking Assets (59,29,835) (59,29,835) Others 13,34,59,564 13,34,59,564 Credit Cards 0 1113,01,90,428 Total Business Loss (B) 21,18,60,330 1134,20,50,758 Total Bad Debts and Business Loss (A + B) 1301,86,75,018 1301,86,75,018 It is therefore incorrect to describe the credit card business as a payment service. In the case of credit cards, instead of the Bank lending money to the customer and the customer using the borrowed fund towards payment for purchases or services, the Bank directly discharges the liability of the customer to the vendor or service provider and allows the customer time to pay the said amount. 2. Deduction of Special Reserve claimed under section 36{1){viii) 2.1 The Bank has claimed a deduction under section 36(1}(viii) of the Act in the revised return of income amounting to ^710,78,15,170, the said working was revised during the course of assessment proceeding vide letter dated November 2....
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....d find that interest cost has been allocated by the Assessing Officer himself. We submit that this issue has been inquired into by the Assessing Officer also in the present year as is evident from para 15.1 of the assessment order dated January 23, 2017 and requires no further verification as the assessment is neither erroneous nor prejudicial to the interests of the revenue. 2.4 With regard to the percentage of long term finance worked out at 45.41% we submit that the same is not arbitrary. The Bank has arrived at the total income from finance after identifying the long term finance income which comprises of loans given for industrial or agricultural development, development of infrastructural facilities and development of housing in India and applying the ratio. The Assessing Officer has examined the Bank's claim for deduction in this year in para 15.1 and accepted the basis adopted for determining long term finance as in the previous years. The Assessing Officer has followed the basis adopted by him starting from AY 1996-97 onwards. Since the Assessing Officer after examining has taken a particular view on identical facts and supported by presumption that the same is erro....
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.... Ltd. vs. Commissioner of Income Tax (243 ITR 83 (SC), CIT v Max India 295 ITR 282, CIT V. Amitabh Bachhan 384 ITR 200 at 216, Para 21] that if one of the conditions is absent recourse cannot be had to section 263(1) of the Act. According to the Court the provisions cannot be invoked to correct each and every type of mistake or error. 5. We further submit that the issues with respect to bad debts allowed under section 36(1)(vii) and deduction under section 36(1)(viii) of the Act have been examined by the Assessing Officer during assessment proceedings and a possible view has been taken. The assessment order passed therefore cannot be treated as erroneous and prejudicial the interests of the Revenue. We reiterate that the order passed under section 143(3) r.w.s. 144C(3) is neither erroneous nor prejudicial and the proceedings under section 263 ought to be dropped." 4. The reply of the assessee did not find favour with the Ld. Pr. CIT and he directed the assessment to be revised on three issues namely vide order dated 29.12.2017; (i) credit card write off are not allowable under section 36(1) (2) (ii) working of deduction in respect of special reserve allowable under sec....
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....essee. The Ld. A.R. submitted that before exercising the revisionary jurisdiction the twin conditions have to be satisfied that the order of the AO has to be erroneous as well as prejudicial to the interest of the Revenue. The Ld. A.R. submitted that the provisions of section 263 does not postulate and provide for the passing of fresh assessment as per the findings of ld. CIT. In defence of his argument the Ld. A.R. relied on the decision of co-ordinate bench of the Tribunal in the case of M/s. Ved Prakash Contractors vs. CIT in ITA No.573/Chd/2013 A.Y. 2010-11. The Ld. A.R. submitted that in the present case it is not a case where no enquiry was conducted by the AO in the regular assessment proceedings and has applied his mind to the assessee's claim of bad debts as well as deduction of special reserve under section 36(1)(viii) by calling for the necessary details in respect of bad debts which were replied by the assessee vide reply dated 12.08.2016 para 1.5 which contains the tabulated statement and the detail break up of bad debts claimed. Thereafter, the AO allowed the bad debt claim of the assessee including amount irrecoverable on account of credit card after due consideratio....
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....(1)(vii) of the Act. Similarly, on the allocation of 80% of the interest to non fund based income the Ld. D.R. submitted that there is no basis for that though the same has been accepted in the earlier years would not be an estoppels not to correct the anomaly in the current year. The said allocation is arbitrary and whimsical and therefore has to be set aside as the same is erroneous and prejudicial to the interest of the Revenue. The ld. D.R. argued that the principle of res-judicata does not apply to the income tax proceeding. The Ld. D.R. submitted that the AO should have made inquiries which he has totally failed to do so. Similarly, on the issue of interest on perpetual debt instrument the Ld. D.R. submitted that the perpetual debt instrument are not being borrowed by the assessee and therefore interest paid on such instruments is not admissible under section 36(1)(iii) of the Act. The Ld. D.R. submitted that before allowing interest under section 36(1)(iii), the AO was under obligation whether the issue of perpetual bond qualifies as borrowing for the purpose of said section. The Ld. D.R. submitted that there is no obligation to refund or repayment which is must in the conce....
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.... a direction to the AO to pass the order in a specified manner by giving the assessee an opportunity of being heard before passing the order and clearly noted that assessment order will be modified to that extent. As per the provisions of section 263, the Ld. CIT has the power to examine the assessment order passed by the AO and if he is of the view that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue then the Ld. CIT may direct the AO to redo the assessment. However, section 263 does not contemplate setting aside an assessment order with a direction to pass the fresh assessment as per findings and directions of Ld. CIT. We are therefore of the considered view that the ld CIT has not exercised his revisionary jurisdiction as per the provisions of section 263 of the Act. The case of the assessee is supported by a decision of the co-ordinate bench of the Tribunal in the case of M/s. Dev Prakash Contractor vs. CIT in ITA No.573/Chd/2015 A.Y. 2010-11 vide order dated 03.11.2015. The relevant part of the order is reproduced below: "17. From the above, it is abundantly clear that CIT has exceeded its jurisdiction in virtually reassessing the case.....
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....ssued a direction to the Assessing officer to pass a fresh assessment order then he was not required to express any final verdict as regards the controversial points. In this case, the Commissioner has directed the Assessing officer to make the specific additions / disallowances, as mentioned in the impugned order. Therefore, the directions given to the Assessing officer to frame a fresh assessment order is bad in law as this is clearly a case in which the Ld. CIT has exceeded his jurisdiction in reassessing the case. Even the direction given by the CIT to the Assessing officer to provide an opportunity of being heard to the assessee is also of no consequence. 18. It is relevant to observe here that while deciding the appeal on merits we have concluded that the assessment order passed by the Assessing officer cannot be held to be erroneous and prejudicial to the interest of Revenue, therefore, the order passed u/s 263 of the Act is not maintainable. At the same time, we have also concluded that the impugned order is not tenable on the ground that the Ld. Commissioner has exceeded his jurisdiction in virtually reassessing the case instead of remanding the matter to the Assessing ....