TaxTMI 
TaxTMI 
2024 (9) TMI 721
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....bmits that the Assessing Officer as well as the Commissioner of Income Tax (Appeals)-1 erred in not giving effect to the Hon'ble ITAT directions in ITA No. 1481/h/2013 & 88/H/2014 dated 9-10-2014. 2. Your Appellant submits that the Assessing Officer not given effect to the CIT(A) - III, order in ITA No. 0257/Addl.CIT,R-2/CIT(A)-III/2011-12, dated 16-08-2013 and the Hon'ble ITAT directions in ITA No. 1481/h/2013 & 88/H/2014 dated 9-10-2014, consequentially the Consequential order dated 31-3-2016, is bad in law. 3. Your appellant submits that the amounts written off as debts have been confirmed by the predecessor's order, CIT(A)-III, and the amounts have been actually written off in the books as bad debts, the Assessing Officer as well as CIT(A)-I ought to have verified as per the ITAT directions, whether provisions of section 36(viia) r.w.s 36(2)(v) have been complied with effect from 1-4-2007 and allow the bad debts written off. 4. Your Appellant submits that the Assessing Officer having not filed an appeal against CIT(A)-III finding that the amount of Rs. 173,15,46,253/-, written off under the Agricultural Debt Waiver and Debt Relief Scheme, 2008 (ADWDRS) are debts....
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....amount written off ought to be allowed as deduction under section 36(1)(vii) of the Act." 4. Ld. AR submitted that additional ground so filed are admissible in view of judgment rendered by the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC). The prayer for admission of additional ground noted above which are not in memorandum of appeal are being admitted for adjudication in terms of Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963 owing to the fact that objections raised in additional ground are legal in nature for which relevant facts are stated to be emanating from the existing records. 5. Facts of the case, in brief are that, the assessee is a Scheduled State Cooperative Bank for the State of Andhra Pradesh. The assessee is committed to agricultural and rural development through the Cooperatives. The cooperative credit system in Andhra Pradesh with the assessee at its apex level is a federal system consisting of a family of 13 affiliated District Cooperative Central Banks (DCCBS), which in turn, have 386 Branches and 1959 Primary Agricultural Cooperative Societies (PACS) through which, developmental agricultural cre....
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....These amounts represent amounts advanced to DCCB's during normal course of business of banking and accrued interest. It is the practice of APCOB to recognize interest on advances on accrual basis and credit to the revenue account every year. The account with DCCB is a running account. Therefore the entire amount written off under waiver scheme is a portion of the amount recoverable from the DCCB. Therefore, it is purely a debt written off in the books. APCOB also submits that they were charging interest from DCCB's by calculating on daily product basis at the rate mutually agreed upon. Therefore it is submitted that all amounts released to DCCB's including the farmer loans have been subjected to interest and the same have been recognized as income in the past. Therefore, the entire write off of the amounts under the debt relief scheme including the other interest and incidental charges if any squarely covered by the provision of section 36(vii) as bad debts. It is submitted that provisions of section 36(1)(viia) are applicable to APCOB only from 01.04.2007. The Hon'ble Income Tax Appellate Tribunal, A-Bench, Hyderabad, vide their order dated 9/10/2014 in ITA no.....
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....ssing Officer has to satisfy himself about the fulfillment of the conditions stipulated in Section 36(1)(viia) and Section 36(2)(v). On the own admission of the assessee, APCOB has never made any provision under the said Section in the books of accounts till date. In the computation of the income for the A.YS.2007-08 & 2008-09 APCOB has made an adjustment for the provision U/s. 36(1)(viia). Therefore, there is violation of provision of Section 36(1)(viia). The assessee cannot claim that the conditions stipulated U/s. 36(1)(viia) are fulfilled without creating any provision in the books of account. It cannot be said that the condition are fulfilled by reducing the amount in the computation of income statement without creating any provision in the books of account. This view is also supported by various judicial pronouncements. As per Section 36(2) (v) no deduction for Bad Debt or part thereof can be allowed where such debt or part of debt relates to advances made by an assessee to which clause-(viia) of sub- section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad ....
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....ons of the appellant have been carefully considered. The issue before me, is whether Rs.1,73,15,46,253/- written off under the Scheme of ADWDRS should be allowed u/s.36(2)(v) r.w.s.36(1)(viia). It is no doubt that under ADWDRS, the appellant's loans to marginal farmers were written off and the same was reimbursed by the Government. The appellant submitted before me, that the reimbursement by the Government of India through NABARD, are as follows: S. No. Date Remarks Amount (In Rs.) 1 17.10.2008 1st Instalment 4,30,20,89,938 2 29.10.2008 2nd Instalment 88,000 3 03.11.2008 3rd Instalment 2,35,44,75,000 Total A.Y. 2009-10 6,65,66,52,938 4 19.06.2009 4th Instalment 1,44,49,45,000 5 29.06.2009 5th Instalment 5,51,05,55,000 6 07.10.2009 6th Instalment 4,18,27,38,000 7 22.01.2010 7th Instalment 1,59,92,300 8 26.02.2010 8th Instalment 27,79,000 Total A.Y. 2010-11 11,15,70,09,300 Grand Total 17,81,36,62,238 Hence, for AY 2009-10, Amount received is Rs.6,65,66,52,938/- AY 2010-11, Amount received is Rs.11,15,70,09,300/- As seen from the audited Annual Reports, Rs.1,73,15,46,253/- has been Idebited to P&L account under the head 'Opera....
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....Further write off generally carried out against accumulated provisions made for such loans which go bad. recovered, the provisions made for those, flow back into profit & loss account of the Bank. The Government reimbursements are actually a sort of collection of recoveries. Hence, whatever received by the Bank under "Agricultural Debt Waiver and Debt Relief Scheme" has to flow into the Profit & Loss account. In this particular case, the appellant has received Rs.6,65,66,52,938/- for the AY 2009-10. Neither appellant has brought in this amount of subsidy/ reimbursement into the Profit and loss account nor has accounted the write off against this. The claim of the appellant that loans given to marginal farmers has become bad and were part of the scheme of ADWDRS, it does not qualifies as bad debts as per Income Tax purposes. As this are part of NPAs which has been recovered under the Scheme of ADWDRS. Hence, this cannot be termed as Irrecoverable Bad debts. To conclude, the appellant has not made provision for the waiver of part of loans under the scheme of ADWDRS nor has brought into the reimbursement received from the Government of India through NABARD during the relevant Financ....
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....ssing Officer." 6.2 Feeling aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The Ld.AR submitted that the assessee had not claimed any deduction on account of provision for bad and doubtful debt u/s 36(1)(viia) of the Act. Instead the assessee had write off the debt of Rs.173,15,46,253/- in its books of account and claimed the deduction u/s 36(1)(vii) of the Act. Further, the Ld. AR submits that Section 36(1)(vii) and 36(1)(viia) are independent provisions. The only connection between these two sections are that the same amount cannot be allowed as a deduction twice merely because they are overlapping to some extent. The deduction on account of doubtful debts are allowed to all the assessee under section 36(1)(vii) on the basis of actual write off in the books of accounts. However the deduction on account of doubtful debts are allowed to banks on the basis of provision made under section 36(1)(viia), even if there is no actual write off have been made in the books of accounts. Section 36(2)(v) put a restriction for deduction u/s 36(1)(vii) up to the deduction already allowed under section 36(1)(viia) on the basis of provisions, so that there cannot be a....
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.... the amount of such debt or part thereof in the previous year to the provision made for that purpose. 18 ....... 19 ...... 20 ....... 21 ....... 22 ....... 23 ....... 24 ...... 25. The language of Section 36(1)(vii) of the Act is unambiguous and does not admit of two interpretations. It applies to all banks, commercial or rural, scheduled or unscheduled. It gives a benefit to the assessee to claim a deduction on any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year. This benefit is subject only to Section 36(2) of the Act. It is obligatory upon the assessee to prove to the assessing officer that the case satisfies the ingredients of Section 36(1)(vii) on the one hand and that it satisfies the requirements stated in Section 36(2) of the Act on the other. The proviso to Section 36(1)(vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case of the assessee is one which falls squarely under Section 36(1)(viia) of the Act. We may also notice that the explanation to Section 36(1)(vii), introduced by the Finance Act, 2001, has to be examined ....
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.... records in the light of submissions made by the either side. For the purpose of better understanding of the case it is necessary to go through the relevant section i.e.36(1)(vii), 36(1)(viia) and 36(2)(v), which are to the following effect : "Other deductions. 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (vii) subject to the provisions of sub-section (2), the amount of [any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year]: [Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause.] [Explanation.-For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee;] [(viia) [ in....
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....n under this clause and Chapter VIA);] [(c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) :] [Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, of an amount not exceeding ten per cent of the amount of such assets shown in the books of account of such institution or corporation, as the case may be, on the last day of the previous year.] Explanation.-For the purposes of this clause,- [(i) "non-scheduled bank" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of....
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....e between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made; (iii) any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)], but the 42[Assessing] Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year; (iv) where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year [(being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year)] and the [Assessing] Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply; [(v) where such debt or part of debt relates to advances made by....
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....ech Ltd., Ghaziabad vs Ito (Supra), the additional ground raised by the assessee is admitted. Having admitted the additional ground raised by the assessee, which is relating to entitlement of the assessee u/s 36(1)(vii) of the Act to claim deduction on account of the bad debts actually written off in their books of account, since this issue has been raised before us for the first time and has not been considered by the lower authorities, therefore we deem it appropriate to remand back the matter to the file of the Ld. AO with the direction to examine afresh the issue in accordance with law after affording opportunity to the assessee. The assessee is also directed to prove that they have complied all the requirement of the law for claiming the deduction on account of the bad debts actually written off in their books of account 6.9 In the result, the first issue of the assesee is allowed for statistical purpose. 7. The Second issue of the assessee relates to addition of Rs.5,11,09,716/- towards profit on sale of investment. The brief facts with regard to this ground are that, the assessee had wrongly credited to the profit and loss account Rs. 5,11,09,716/- on account of profit on ....
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....e re- revised computation of income in which the profit on sale of investments of Rs.5,11,09,716/- was excluded. The assessee has claimed that they had excluded Profit on sale of investments of Rs.5,11,09,716/- from the taxable income since the same does not part of the taxable income. The appellant raised this issue firstly before the CIT(A), Hyderabad. The appellant submitted that it relates to the calculation mistake made by the Assessing Officer in including investment depreciation reserve and capital receipt on sale of investments in the total income of the bank. The CIT(A), Hyderabad directed the Assessing Officer to verify the claim and to remove any amount of reserve which does not form part of the total income as per law. The Hon'ble ITAT restored the issue to the Assessing Officer directing him to decide the same afresh, in assessee's own case for the AY 2008-09. 10.2 During the consequential proceedings, the assessee company submitted that mistakenly while submitting the return of Income for A.Y.2009-10, Rs.5,11,09,716/- had included as Profit on sale of Investments as 'Income from Business'. But there was no income from sale of investments for the assessee, du....
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....ring the consequential order dated 31.03.2016, the Assessing Officer said that the Tribunal has not given any direction, hence the claim of the appellant was rejected. In the appeal No. ITA: No.1481/Hyd/2013 & ITA No.88/Hyd/2014 dated 09.10.2014, this issue is In Ground No.8 raised by the appellant and the Tribunal give directions as follows: "Accordingly, the issue involved in ground no.8 of the assessee's appeal is restored to the file of the Assessing Officer for deciding the same afresh, as per the same directions as given by the Tribunal in assessee's own case for assessment year 2008-09." The Assessing officer has followed the findings of the earlier Assessing Officer and disallowed the claim. Before me, the issue is not whether there was a mistake in the computation of income as submitted by the appellant. This income has already been taxed by the Assessing Officer and when opportunity was given to the appellant, after being set aside by the Hon'ble ITAT, the appellant did not submit any information during the two consequential order proceedings. That is to say, the appellant was given an opportunity and was not availed by the appellant. Before me, the appell....
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.... as per the information submitted. Hence before me, no further information regarding the sale has been given. Even if, the contention of the appellant s accepted that no profits has been there, this has not been brought out as per the NABARD guidelines dated 27.06.2008. Hence, for this Financial ear the mistake happened in the annual accounts in which this has been pointed out by the NABARD's letter dated 27.06.2008. In this background, the contention of the appellant cannot be accepted. -Ground Dismissed" 7.2 Feeling aggrieved with the order of Ld. CIT(A), the assessee is in appeal before us. The Ld.AR submitted that the assessee had wrongly credited to the profit and loss account Rs. 5,11,09,716/- on account of profit on sale of investment. However during the assessment proceedings the assessee filed the revised computation of income by deleting the said amount of Rs. 5,11,09,716/- and requested the Ld. AO to correct the mistake. But the Ld. AO completed the assessment without considering the request of the assessee and giving effect to the revised computation . Therefore the Ld. AR requested the bench to restore the issue to the file of the Ld. AO so that the assessee can ....
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....ue was restored by the Tribunal to the file of the Assessing Officer in assessee's own case for the A.Y. 2008-09 for the deciding the same afresh. Accordingly the Tribunal directed the Assessing Officer to decide the same afresh as per the same directions as given by the Tribunal in assessee's own case for the A.Y. 2008-09. As seen from the order of the Tribunal the observations of the Tribunal on this issue are as under: "In our opinion, the above additional evidence go to the root of the matter in deciding the issue whether the investment made by the assessee form part of SLR and/or whether the investment is current investment or long term investment. Being so, it is appropriate to remit the issue back to the file of the AO for fresh consideration to decide the diminishing in the value of investment is to be allowed or not. Accordingly, we remit the entire issue back to the file of the AO for considering the issue do novo". As seen from the P & L A/c the assessee debited an amount of Rs.7,05,18,382/- towards investment depreciation reserve fund. The assessee stated that the investments were the P&L A/c the assessee debited an amount of Rs. 7,05,18,382/8 valued on mark....
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....e CIT(A), the deduction claimed for the A.Y. 2009-10 amounting to Rs. 7,05,18,382/- is not treated as allowable". 8.1 Feeling aggrieved by the order passed by Ld. AO, the assessee filed appeal before the Ld. CIT(A) who dismissed the claim of the assessee as per his observation under para No. 11 of his order, which is reproduced as under: "11. Ground No.8: Disallowance of Rs.7,05,18,382/- Investment Depreciation Reserve 11.1 The assessee has claimed that they had debited Rs.7,05,18,382/- in the profit and loss account towards Investments Depreciation Reserve Fund. The assessee submitted that while passing original assessment order, the Assessing Officer has not consider the re-revised computation of income in which the investment depreciation reserve of Rs.7,05,38,382/- was excluded. The assessee has raised this issue firstly before the CIT(A), Hyderabad. The CIT(A), Hyderabad directed the Assessing Officer to verify the claim and to remove any amount of reserve which does not form part of the total income as per law. 09.10.2014 restored the issue to the Assessing Officer directing him to decide the same afresh, as per the directions given by the Tribunal in assessee's own ....
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....ment in the case of Southern Technologies Ltd. Vs. JCIT(320 ITR 577). - The assessee, if required by the prudential norms can make a provision for diminished value as part of appropriation but it cannot equate the investment in bonds to the stock in trade for claiming the diminished value as expenditure. - The claim of depreciation was disallowed by the Assessing Officer for the AY 2008-09. In view of the above, the Assessing officer disallowed the deduction claimed for the AY 2009-10 amounting to Rs.7,05,18,382/-. 11.3 Before me, the appellant submitted that the investments is in non-SLR securities were valued on market to market basis as per guidelines of NABARD, and if the market value of the securities was below the book value, depreciation was provided for the same. The appellant submitted that this is not issue relating to prudential disclosure but accounting of current investments at the time closure of every year. It is cardinal principle of accounting that current assets are to be valued at cost or market/realizable value, whichever is lower. All losses and expenses are to be recognised whereas any unrealised gains/Incomes should not be recognised. The appellant su....
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....ies already invested Extent of unlisted securities 1 PSU 218,60,60,000 218,60,60,000 - - 22,90,60,000 2 FI (Shares) 3,3347,914 1,88,58,926 - 1,88,58,926 1,88,58,926 3 Total 221,94,07,914 220,49,18,926 - 1,88,58,926 24,79,18,926 4 Provision held towards depreciation 37,11,75,325 - - - - 5 Net 184,82,32,589 - -- - - Appellant has submitted that referred investments are Non-SLR Investments, hence they are to be given depreciation. The RBI issued a circular Master Circular on Investments by Primary (Urban) Co-operative Banks-2015/30UBD. BPD(PCB). MC.No.12/16.20.000/2014-15, wherein the banking institutions have to classify Investments for SLR and Non-SLR Investments. The entire investment portfolio of the banks (including SLR securities and non-SLR securities) should be classified under three categories viz., 'Held to Maturity', 'Available for Sale' and 'Held for Trading'. However, in the balance sheet, the investments will continue to be disclosed as per the existing six classifications viz., a) government securities, b) other approved securities, c) shares, d) debentures and bonds, e) subsidiaries/joint ventures and f) oth....
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.... MADE BY DEBITING P&L AS ON 31.03.2009 7,05,38,382 TOTAL PROVISION VAILABLE IN THE RESERVE AS ON 31.03.2009 37,11,75,325 To conclude the contention of the appellant is not accepted because of the following reasons: a) The appellant has not differentiated investments of SLR investments into the three categories. It is not known whether the above mentioned investments (Non- SLR investments) are HTM or AFS. b) Secondly, the working of the depreciation has not been given before me. It is pertinent to note that the working was asked by the Assessing Officer before passing the consequential orders also. Even during that time, the appellant did not submit the details. c) The Non-SLR investments are not statutory requirement as per banking rules. The bank can make investments beyond the SLR requirements. However, referred issue is for Non-SLR investments. As the appellant has treated these investments as Stock-in-trade, the question of depreciation does not arise. d) Thirdly, in the case of ACIT Vs. Vijaya Bank in ITA No.253/Bang/2007 Dt.24.01.2008, it is held that the securities held under the category of HTM as stock in trade, then such securities can....
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....he light of submissions made by the either side. As submitted by the Ld. AR the investment on which depreciation has been claimed by the assessee, have been treated as current assets by the assessee. However under the provisions of the Act, depreciation is allowed only on fixed assets and no depreciation is allowed on current assets. Hence we are of the concerned opinion that no depreciation will be allowable to the assessee on the investment treated as current assets. We here by make it clear that, neither we have decided the nature of the investment, whether it is current or otherwise, nor it was an issue before us to decide the nature of the investments. We have only decided on the issue whether the assessee is eligible to claim depreciation on the investments, which the assessee has shown as current assets. Accordingly, on this count, this issue of the assessee is dismissed . 8.5 However it is also the contention of the assessee that the investment are in the nature of non SLR and has been shown under the current assets. He further contended that the investment are stock in trade for the bank and therefore as per the accepted accounting principle, the value of the investment w....