TaxTMI 
TaxTMI 
2024 (10) TMI 919
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....ess of Rural Infrastructure Development and Intuitional Development of the Co-operative Banks and the RRB's. The assessee is engaged in providing and regulating credit, providing grants, subsidiaries and other facilities for the promotion and development of agriculture small scale industries, cottage and village industry, rural infrastructure, handicrafts and other allied economics activities in rural areas with a view to promoting integrated rural development. The assessee filed the return of income for AY 2018-19 on 26.10.2018 declaring a total income of Rs. 3734,06,37,060/-. For AY 2019-20 the assessee filed the return of income on 31.10.2019 declaring a total income of Rs. 4947,65,30,250/-. The return for both the AYs were selected for scrutiny and the Assessing Officer (AO) completed the assessment under section 143(3) of the Act assessing the income of the assessee at Rs. 4538,86,46,740/- for AY 2018-19 and at Rs. 5680,60,07,760/- for AY 2019-20. 3. We will first consider the facts pertaining to AY 2018-19 for adjusication. For the said AY from the assessment records the PCIT noticed that the assessee has debited an amount of Rs. 186,13,11,000/- towards provision for sta....
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.....e. how assessee is eligible for deduction u/s 36(1)(viia) on standard assets as well. 11. The assessee's submissions are countered part wise. The First part is how the order is erroneous and prejudicial to the interests of the revenue. 12. Section 263 has been enacted to empower the PCIT to exercise power of revision and revise any order passed by the AO, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should erroneous and secondly, it should be prejudicial to the interest of the revenue. The order u/s 143(3) r.w.s 144B is erroneous as the AO has not made enquiries into the issue of claim of deduction u/s 36(1)(viia) on the standard assets. The AO has not specifically enquired into the allowability of the claim of the deduction on standard assets u/s 36(1)(viia) of the Act, therefore, there is lack of enquiry on this specific claim of the assessee. It is observed that the AO has passed the order u/s 143(3) r.w.s 144B on incorrect assumption of fact and law that the deduction u/s 36(1)(viia) is allowable on standard assets. Therefore, the order u/s 143(3) r.w.s 144B dated 25.9.2021 is erroneous to that extent. 13. As stated above, the o....
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.... judicial pronouncements, it is held that the order u/s 143(3) r.ws 1448 dated 25.9.2021 is erroneous so far as it is prejudicial to the interests of revenue. 17. With regard to the merits of the case, the assessee has taken a plea that the assessee company is a public financial institution in terms of section 4A of the companies Act, 1956(now section 2(72)) of the companies act, 2013 as per the notification dated 17.4.2002 and has stated that the RBI's master circular dated 1.7.2015 on "Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances" is applicable to it 18. With regard to the merits, the assessee has relied upon the following case laws a. Model Co-operative Bank Ltd Vs DCIT(ITA No. 5522/Mum/2017) b. ACIT Vs Jila Sahakari Kendriya Bank (2024)158 taxmann.com 40(Indore- Trib) c. Virudhunagar District central Co-operative Bank Ltd Vs PCIT(2023) 152 taxmann.com 61(Chennai- Tribunal) 19. The case laws relied upon by the assessee have been perused very carefully. The facts of the instant case are distinguishable from the facts of the cases that have been relied upon. The Model Co-operative Bank Ltd, Jila Sahakari Kendr....
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....on standard assets as well. Further, the proviso to clause(c) to subsection (vila) of section 36 clearly states that the deduction shall be allowable only on the assets that have been classified as doubtful or loss assets in accordance with the guidelines issued by RBI. Therefore, the proviso strengthens the view that the deduction on provision for standard asset is not allowable deduction. 22. Further, the RBI Master circular dated 1.7.2015, in para 5 titled as provisioning norms has classified the assets into Loss assets (Para 5.2), doubtful assets (Para 5.3), substandard assets (Para 5.4) and standard assets (Para 5.5). The para 5.5 of the Master Circular is reproduced herewith- 5.5 Standard assets (i) The provisioning requirements for all types of standard assets stands as below. Banks should make general provision for standard assets at the following rates for the funded outstanding on global loan portfolio basis: 1. Farm Credit to agricultural activities and Small and Micro Enterprises (SMEs) sectors at 0.25 per cent. 2. advances to Commercial Real Estate (CRE) Sector at 1.00 per cent; 3. advances to Commercial Real Estate - Residential Housing Sector (CRE-RH) at ....
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....owards standard assets as per the RBI Circular (supra) and that section 36(1)(viia) does not provide for any condition that the deduction under the said section should be claimed only towards non-performing assets. The ld. AR further submitted that the PCIT has erroneously held that the master direction non-banking financial company - systemically Important Non-Deposit taking company and deposit taking company (Reserve Bank) Directions, 2016 updated as on 17.02.2020 is applicable to the assessee. The ld. AR in this regard submitted that assessee is not a Non-Banking Financial Institution and therefore, the said directions are not applicable in assessee's case and that master circular dated 01.07.2015 on Prudential Norms and Income Recognition, Asset Clarification and Provisioning pertaining to advances is applicable in assessee's case. The ld. AR submitted that the assessee has made a provision as per the said Circular which is less than 5% of the total income of the assessee thereby complying with the conditions prescribed under section 36(1)(viia) of the Act. It is therefore, argued by the ld. AR that even on merits the assessee is eligible for deduction under section 36(....
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....ct of section 263 of the Act, which read as under :- "Revision of orders prejudicial to revenue. 263. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, [including,- **** 9. Thus, from close scrutiny of the provisions of section 263, it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under section 263 of the Act i.e., firstly, the order of the Assessing Officer is erroneous; and secondly, it is prejudicial to the interests of the revenue on account of error in the order of assessment. There is no dispute that u/s. 263 of the Act, the PCIT does have the power to set aside the assessment order and sen....