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2019 (2) TMI 2065
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....subject captioned above. 2. In this case the assessee 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....
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....-term finance for Industrial or agricultural development, Development of infrastructure facility in India, or Development of housing in India has been 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 c....
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....opening balance under section 36(1)(viia) Rs.564,81,45,059). The Bank's bad debt claims comprise of bad debts written off on retail and corporate portfolio. 1.2 The retail portfolio includes 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....
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....Vehicles Corporate Bad Debts 37,69,69,692 37,69,69,692 Vehicle / home 598,87,47,825 598,87,47,825 Credit Cards 1113,01,90,428 - Others 87,46,23,180 87,46.23,180 Total Bad Debts 1845,52,59,747 732,50,69,319 Less: Opening balance u/s.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 prov....
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.... Officer in the assessment order for AY 2000-01 in the case of erstwhile ICICI Limited has allocated 80% of the interest cost to certain streams of non-fund based income on the ground that those stream of income though not in the nature of finance business do involve a fund cost. We enclose the relevant extract of the assessment order for assessment year 2000-01 wherein your Honour would 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 e....
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.... interest paid to the bondholders unlike dividend income is not exempt as per provisions of the Act and the bondholders would have accordingly offered the same to income in their respective returns, disallowance of the said interest would result in double taxation of the same income. 4. We submit that in order to invoke provisions of section 263 the order sought to be revised should be both erroneous and prejudicial to the interest of the revenue. It has been held by Supreme Court in Malabar Industrial Co. 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 prej....
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....rrowed capital for business and profession. However, according to the Ld. CIT, AO has not examined whether the issue of perpetual bond qualifies as borrowing for the purpose of said section. The Ld. A.R. vehemently submitted that by directing the AO to make the assessment by making the disallowances on three accounts as stated hereinabove the Ld. CIT has exceeded his jurisdiction under section 263 of the Act while simultaneously setting aside of assessment order with that direction to AO to pass fresh assessment after giving opportunity to the assessee. 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 enqu....
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....e revisionary jurisdiction under section 263 to set aside the assessment /order passed by the AO on such issues. In view of these ratios laid down, the Ld. A.R. submitted that the revisionary jurisdiction exercised by the Ld. Pr. CIT under section 263 should be quashed as same is invalid and void ab-initio. 6. The Ld. D.R., on the other hand, heavily relied on the order of Ld. CIT by submitting that credit card business is not banking activity and therefore the bad debts allowed on account of irrecoverable credit card dues are not covered by the provision of section 36(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 fai....
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.... on the issues mentioned in the revisionary order after giving opportunity to the assessee and directed the AO to modify the assessment order to that extent. The relevant para from the CIT order is extracted below: "9. Accordingly, the assessment order is set aside and the Assessing Officer is directed to pass a fresh assessment order on the issues mentioned in this order after giving the assessee an opportunity of hearing. The assessment order will be modified by the AO to this extent." 8. It is clear from the order of Ld. CIT as reproduced above that Ld. CIT has given 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 fres....
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....order. The directions given by the Ld. CIT in para 7 of the impugned order are also contrary to the settled position of law. When the Ld. CIT directs the Assessing Officer to pass a fresh assessment order, the only proper course for the Commissioner was not to express any final opinion as regards to the controversial points. While taking such a view, we are fortified by the decision of Hon'ble Gujrat Hon'ble High Court in the case of Addl. CIT v Mukur Corporation (1978) 111 ITR 312 (Gujarat). It is also observed that in the concluding part of the order of the Commissioner he has issued 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 opport....