M/s. Dhar Jila Sahkari & Gramin Vikas Bank ,, Dhar v. The D.C.I.T., Indore

ITA 212/IND/2010 | 2006-2007
Pronouncement Date: 25-01-2011 | Result: Allowed

Appeal Details

RSA Number 21222714 RSA 2010
Assessee PAN AAAAD0218L
Bench Indore
Appeal Number ITA 212/IND/2010
Duration Of Justice 9 month(s) 9 day(s)
Appellant M/s. Dhar Jila Sahkari & Gramin Vikas Bank ,, Dhar
Respondent The D.C.I.T., Indore
Appeal Type Income Tax Appeal
Pronouncement Date 25-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 25-01-2011
Date Of Final Hearing 16-12-2010
Next Hearing Date 16-12-2010
Assessment Year 2006-2007
Appeal Filed On 16-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C. SHARMA ACCOUNTANT MEMBER ITA NOS.211 & 212/IND/2010 A.Y. 2006-07 DHAR JILA SAHAKARI & GRAMIN VIKAS BANK KILA ROAD DHAR PAN AAAAD 0218 L APPELLANT VS. DCIT-CIRCLE-1(1) INDORE RESPONDENT APPELLANT BY: SHRI S.C. GOYAL ADV. RESPONDENT BY : K.K. SINGH CIT DR ORDER PER R.C. SHARMA A.M. THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE DIFFERENT ORDERS OF LD. CIT(A)-I INDORE DATED 4.1 .2010 AND 12.1.2010 RESPECTIVELY IN THE MATTER OF ORDER PAS SED BY THE ASSESSING OFFICER U/S 143(3) AND 271(1)(C) OF THE I NCOME-TAX ACT 1961. ITA NO.211/IND/2010 (AY: 2006-07) 2. IN THE QUANTUM APPEAL THE ASSESSEE HAS TAKEN TH E FOLLOWING GROUNDS :- -: 2: - 2 1. THAT THE ID. CIT(A) ERRED IN NOT ALLOWING THE APPLICATION FILED U/S 5 OF LIMITATION ACT TO CONDONE THE DELAY IN FILING THE APPEAL. 2. THAT THE ID. CIT(A) FURTHER ERRED IN NOT FOLLOWING THE DECISION OF HON. HIGH COURT OF MP IN THE CASE OF SERVITE SISTER SOCIETY BHOPAL VS. CIT BHOPAL 13 ITJ 131 (MP) WHILE DISMISSING THE CONDONATION APPLICATION FILED BY THE APPELLANT. 3. THAT THE ID. CIT(A) UTTERLY FAILED IN HIS DUTIES IN NOT CONSIDERING THE CONTENTION OF THE ASSESSEE GIVEN IN CONDONATION OF DELAY APPLICATION. 4. THAT THE ID. CIT(A) FURTHER ERRED IN NOT CONSIDERING THE FACTS OF THE CASE THAT EVEN INSPITE OF THE ADDITION FOR BAD AND DOUBTFUL DEBTS THE NET INCOME OF THE ASSESSEE IS A LOSS OF RS.41 84 650/-. THE LD. CIT(A) SHOULD HAVE ALLOWED THE APPEAL AS THERE IS NO LOSS OF REVENUE IF THE DELAY IS CONDONED. 5. THAT THE ID. AO AND CIT(A) ERRED IN ASSESSING THE NET LOSS OF RS.41 84 650/- AGAINST THE -: 3: - 3 RETURNED LOSS OF RS.1 13 91 968/- AND BROUGHT FORWARD LOSSES OF RS.3 52 40 219/-. 6. THAT THE ID. AO ERRED IN SELECTING THE CASE UNDER SCRUTINY. THE CASE HAS NOT BEEN SELECTED ACCORDING TO THE GUIDELINES OF CBDT. THAT THE STATUTORY NOTICES U/SS 143(2) AND 142(1) WERE NOT SERVED WITH IN THE PERIOD OF ONE YEAR FROM THE DATE OF FILING THE RETURN. 7. THAT THE ACTIONS OF LD. AO AND CIT(A) ARE ARBITRARY AND BAD IN LAW IN DISALLOWING A SUM OF RS.72 07 318/- BEING PROVISION FOR BAD AND DOUBTFUL DEBTS. THE PROVISION HAS BEEN MADE ACCORDING TO THE INSTRUCTIONS ISSUED BY RESERVE BANK OF INDIA NABARD & M.P. RAJYA SAHAKARI KRISHI & GRAMIN VIKAS BANK BHOPAL. 8. THAT THE LD. CIT(A) IGNORED THE COPIES OF THE CIRCULARS FILED BEFORE HIM REGARDING PROVISIONS FOR BAD AND DOUBTFUL DEBTS ISSUED BY NABARD RESERVE BANK AND M.P. RAJYA SAHAKARI & GRAMIN VIKAS BANK AS WELL AS OF HONBLE -: 4: - 4 CBDT. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUS ED. 4. FACTS IN BRIEF ARE THAT THE ASSESSEE IS A COOPERATI VE SOCIETY ENGAGED IN BANKING ACTIVITIES. FOR THE YEAR UNDER CONSIDERATION THE RETURN WAS FILED AT A LOSS OF RS . 1.13 CROES AND BROUGHT FORWARD LOSSES OF RS. 3.52 CRORES WHIC H WAS ASSESSED BY THE ASSESSING OFFICER AT A NET LOSS OF RS. 41.84 LAKHS. IN THE COURSE OF ASSESSMENT THE AO HAS DISA LLOWED THE ASSESSEES CLAIM FOR DEDUCTION OF PROVISION FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO RS. 72.07. THE ASSESSEE FILED APPEAL AGAINST THE SAID DISALLOWANCES WHICH WAS DI SMISSED BY THE LD. CIT(A) BY OBSERVING THAT INSTRUCTIONS OF RE SERVE BANK OF INDIA WITH REGARD TO MAKING PROVISION FOR DOUBTF UL DEBTS CANNOT SUPERCEDE/OVER-RULE THE PROVISIONS OF INCOM E-TAX ACT 1961 . THE LD. CIT(A) ALSO DISMISSED THE GROUND RAI SED WITH REGARD TO SERVICE OF NOTICE U/S 143(2) WITHIN THE T IME SPECIFIED. THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS ALSO THAT THE LD. CIT(A) HAS NOT CONSIDERED THE DELAY IN FILING THE APPEAL WHICH WAS DUE TO REASONABLE CAUSE. IN THIS REGARD WE FOUND THAT THERE WAS DELAY IN FILING THE APPEAL BEF ORE THE LD. -: 5: - 5 CIT(A) BY 192 DAYS. THE CONTENTION OF THE ASSESSEE WAS THAT THE PERSONS WHO WERE ENGAGED IN ACCOUNTING WORK WER E UNDER THE BONA FIDE BELIEF THAT SINCE THERE IS NO TAX DEM AND NO FURTHER ACTION IS NECESSARY WITH REGARD TO FILING O F APPEAL AND THE ISSUE WAS BROUGHT TO THE NOTICE OF COUNSEL ONLY ON RECEIPT OF PAPERS REGARDING LEVY OF PENALTY U/S 27(1)(C) OF THE INCOME- TAX ACT 1961. ACCORDINGLY IT WAS CLAIMED THAT DEL AY IN FILING THE APPEAL IS NEITHER MALA FIDE NOR WAS IN BAD INTE NTION. 5. WE HAD GONE THROUGH THE ORDERS OF THE AUTHORITIES B ELOW AND FOUND THAT IN ADDITION TO DEALING WITH THE ISSU E WITH REGARD TO DELAY IN FILING THE APPEAL THE LD. CIT(A ) HAS ALSO CONSIDERED THE ISSUES ON MERITS. HOWEVER THE ISSUE WITH REGARD TO SERVICE OF NOTICE U/S 143(2) WAS DECLINED BY THE LD. CIT(A) BY OBSERVING THAT THE ASSESSEE HAS NOT SPECI FIED THE DATE OF SERVICE OF NOTICE U/S 143(2) TO INDICATE TH AT IT WAS NOT SERVED WITHIN SPECIFIED TIME AND SINCE THE ASSESSEE IS UNABLE TO SPECIFY THE DATE HE DISMISSED THIS GROUND OF AS SESSEES APPEAL. EVEN BEFORE US NOTHING WAS SHOWN BY THE AS SESSEE TO INDICATE THAT THERE WAS NO SERVICE OR DELAY IN SER VICE OF NOTICE U/S 143(2). ACCORDINGLY WE CONFIRM THE ACTION OF T HE LOWER -: 6: - 6 AUTHORITIES IN THIS REGARD. 6. WITH REGARD TO DISALLOWANCE OF PROVISION FOR BAD AN D DOUBTFUL DEBTS THE ISSUE IS SQUARELY COVERED BY TH E DECISION OF I.T.A.T. SPECIAL BENCH IN THE CASE OF NEW INDIA IN DUSTRIES LIMITED 112 TTJ 917 WHICH WAS FURTHER CONFIRMED B Y THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHN OLOGIES LIMITED 320 ITR 577. IT WAS OBSERVED BY THE SPECIA L BENCH THAT PROVISION MADE FOR BAD AND DOUBTFUL DEBTS AS P ER INSTRUCTIONS OF RESERVE BANK OF INDIA IS TO JUST S AFEGUARD THE INTEREST OF INVESTORS WITH REGARD TO PROPER DISCLOS URE OF MATERIAL FACTS IN THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. HOWEVER THE ALLOWABILITY OF DEDUCTION OF BAD DEBTS UNDER THE INCOME TAX ACT IS GUIDED BY THE PROVISION S OF SECTION 36(1)(VII) OF THE INCOME-TAX ACT 1961 AND NOT BY THE INSTRUCTIONS GIVEN BY THE RESERVE BANK OF INDIA FOR MAKING THE PROVISION. SUCH INSTRUCTIONS ARE BEING GIVEN BY THE R. B. I. FOR PROPER CLASSIFICATION OF ADVANCES AND FOR SAFEGUARD ING THE INTEREST OF INVESTORS FOR PROPER DISCLOSURE OF MATE RIAL FACTS SUCH INSTRUCTIONS DO NOT SUPERCEDE THE PROVISIONS O F INCOME- TAX ACT 1961. PRECISE OBSERVATION OF SPECIAL BENCH WAS AS -: 7: - 7 UNDER :- THE RBI HAS FAVOURED A POLICY TO RESTRICT THE SHO RT TERM AND THE UNSECURED BORROWINGS OF THE NBFCS ON THE STRENGTH OF THEIR CREDIT RATING THE SIZE OF NE T OWNED FUNDS (NOF) AND THE ACTIVITIES OF THE COMPANIES. WHILE THE OVERALL BORROWING CAPACITY OF NBFCS WOULD BE RESTRICTED BY THE CAPITAL ADEQUACY REQUIREMENT MAXIMUM CEILING ON PUBLIC DEPOSITS WHICH AN NBFC CAN ACCEPT IS RELATED TO ITS RATING A ND LEVEL OF NOF. EVEN CL. 8 OF THE PRUDENTIAL NORMS REQUIRING NBFC TO MAKE A PROVISION FOR NPA REQUIRE D IT TO MAKE PROVISION EVEN FOR DOUBTFUL ASSETS AND EVEN SUB-STANDARD ASSETS THOUGH THE DEBT HAS NOT BECOME BAD. ALL THESE REQUIREMENTS WERE FOR THE LIMITED EXERCISE OF ARRIVING AT THE AMOUNT OF PROFI T WHICH CAN FORM PART OF NOF FOR THE PURPOSE OF COMPUTING ELIGIBLE AMOUNT OF DEPOSIT TO BE ACCEPTED . IN A WAY IT WAS SPECIAL ACT FOR THE PURPOSE OF RECOGNIZING THE INCOME AND COMPUTING NOF TO ARRIVE AT THE CAPITAL ADEQUACY AND ELIGIBILITY TO ACCEPT -: 8: - 8 DEPOSITS. HOWEVER UNDER THE INCOME-TAX ACT 1961 AS PER S. 36(1)(VII) ONLY THE BAD DEBT OR PART THER EOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUN TS IS ALLOWABLE AS DEDUCTION. THE INCOME-TAX ACT 1961 IS AN ACT RELATING TO CHARGE OF TAX ON THE INCOME O F A PERSON AS COMPUTED UNDER THE PROVISIONS OF THE INCOME-TAX ACT 1961. THUS BOTH THE ACTS I.E THE RBI ACT AND THE INCOME-TAX ACT 1961 OPERATE IN ALTOGETHER DIFFERENT FIELDS. THE RBI ACT IS A SPECI AL ACT IN RELATION TO COMPUTATION OF NOF OF NBFC WHEREAS INCOME-TAX ACT 1961 IS A SPECIAL ACT SO F AR AS COMPUTATION OF TAX LIABILITY OF A PERSON IN RESP ECT OF ITS INCOME COMPUTED UNDER THE PROVISIONS OF THE INCOME-TAX ACT 1961. THUS IT CANNOT BE SAID THAT THERE IS ANY INCONSISTENCY BETWEEN THE TWO ACTS SO AS TO HOLD THAT THE PROVISIONS OF RBI ACT SHALL HAV E EFFECT NOTWITHSTANDING ANYTHING CONTAINED IN THE IT ACT. THOUGH S. 45Q OF THE RBI ACT PROVIDES THAT PROVISIONS OF CHAPTER III-B OF THE RBI ACT SHALL HA VE EFFECT NOTWITHSTANDING ANYTHING INCONSISTENT -: 9: - 9 THEREWITH CONTAINED IN ANY OTHER LAW THERE IS NO INCONSISTENCY BETWEEN THE PROVISIONS OF RBI ACT OR THE PRUDENTIAL NORMS PRESCRIBED THEREUNDER AND THE PROVISIONS OF THE IT ACT. THEREFORE IT CANNOT BE H ELD THAT THE PROVISION MADE IN THE ACCOUNTS OF THE ASSESSEE IN RESPECT OF NPA SHALL BE TREATED AS SUFFICIENT COMPLIANCE WITH THE PROVISIONS OF S. 36(1)(VII) OF THE IT ACT SO AS TO ALLOW THE PROVISI ON FOR BAD AND DOUBTFUL DEBTS AS DEDUCTION PERMISSIBLE UNDER THE IT ACT. PRECISE OBSERVATION OF HON'BLE SUPREME COURT IN CAS E OF SOUTHERN TECHNOLOGIES LIMITED WAS AS UNDER :- RBI DIRECTIONS 1998 ARE MERELY DISCLOSURE NORMS O R NORMS REGARDING PRESENTATION OF NPA PROVISIONS IN THE BALANCE SHEET OF AN NBFC AND THEREFORE PROVISION FOR NPA IN TERMS OF RBI DIRECTIONS DOES N OT CONSTITUTE EXPENSE ON THE BASIS OF WHICH DEDUCTION CAN BE CLAIMED BY NBFC UNDER SECTION 36(1)(VII) OR UNDER SECTION 37(1) AND THE SAME HAS TO BE ADDED BACK TO THE TOTAL INCOME EVEN BY APPLYING THE THEOR Y -: 10: - 10 OF REAL INCOME. 7. RESPECTFULLY FOLLOWING THE DECISIONS OF I.T.A.T. SPECIAL BENCH AND THE HON'BLE SUPREME COURT AS STATED ABOVE THIS GROUND OF ASSESSEES APPEAL IS DISMISSED. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISMIS SED. ITA NO.212/IND/2010 (AY: 2006-07) THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APP EAL: 1. THAT THE ID. DCIT-1(1) INDORE ERRED IN IMPOSING THE PENALTY OF RS.22 50 000/- U/S 271(1)(C) OF THE IT ACT 1961. 2. THAT THE LD. CIT(A) ERRED IN CONFIRMING THE PENALTY IMPOSED BY LD. AO AMOUNTING TO RS.22 50 000/- INSPITE OF THE FACT THAT THE ASSESSEE NEITHER CONCEALED PARTICULARS OF HIS INCOME NOR FURNISHED INACCURATE PARTICULARS OF INCOME. 3. THAT THE LD. DCIT AND CIT(A) BOTH ARE ARBITRARY AND BAD IN LAW IN NOT CONSIDERING THE WRITTEN SUBMISSIONS FILED BEFORE THEM. -: 11: - 11 4. THAT THE LD. DCIT HAS BEEN ARBITRARY AND BAD IN LAW IN IMPOSING THE PENALTY WITHOUT OBTAINING THE PRIOR APPROVAL OF ADDL. CIT RANGE-1 INDORE. THE APPROVAL HAS BEEN OBTAINED ON THE SAME DAY AND THEREFORE IT CANNOT BE SAID TO BE THE PRIOR APPROVAL. 5. THAT BOTH THE AUTHORITIES BELOW WRONGLY HELD THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF HIS INCOME BY CLAIMING DEDUCTION ON A/C OF BAD AND DOUBTFUL DEBTS TO THE EXTENT OF RS.72 07 318/-. THE PROVISIONS OF BAD AND DOUBTFUL DEBTS HAVE BEEN MADE AS PER THE DIRECTIONS ISSUED BY RESERVE BANK NABADR & M.P. RAJYA SAHAKARI KRISHI & GRAMIN VIKAS BANK MARYADIT BHOPAL. 9. THIS APPEAL IS FILED AGAINST THE LEVY OF PENALTY U/ S 271(1)(C) OF THE INCOME-TAX ACT 1961 WITH REGARD TO DISALLOWANCE OF CLAIM OF DEDUCTION FOR BAD AND DOUB TFUL DEBTS. -: 12: - 12 MERE DISALLOWANCE OF PART OF ASSESSEES LEGAL CLAIM ON ACCOUNT OF BAD DEBTS WILL NOT ALTER THE BONA-FIDE OF SUCH L EGAL CLAIM OF THE ASSESSEE THEREFORE NO PENALTY U/S 271(1)(C) IS TO BE IMPOSED FOR SUCH DISALLOWANCE. HON'BLE SUPREME COU RT IN THE CASE OF RELIANCE PETRO PRODUCTS (P) LTD. 322 ITR 158 WHILE CONFIRMING THE ORDER OF HONBLE HIGH COURT DELETING THE PENALTY IMPOSED U/S 271(1)(C) FOR DENIAL OF ASSESSE ES CLAIM OF DEDUCTION OF INTEREST EXPENDITURE HAS CATEGORICALL Y OBSERVED THAT BY ANY STRETCH OF IMAGINATION MAKING AN INCO RRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. ACCORDINGLY IT WAS HELD THAT DECLIN E OF ASSESSEES CLAIM OF INTEREST AGAINST THE LOAN UTILI ZED FOR MAKING INVESTMENT IN TAX FREE SECURITIES WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS SO AS TO ATTRACT PENALTY U/S 271(1)(C) OF THE ACT. HON'BLE SUPREME COURT IN THIS CASE AFT ER CONSIDERING THE PROPOSITION OF LAW LAID DOWN IN THE CASE OF DILIP N.SHROFF 291 ITR 519 (SC) AND DHARMENDER TE XTILE PROCESSORS 306 ITR 277 (SC) HELD AS UNDER:- A MERE MAKING OF THE CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO -: 13: - 13 FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACCURATE PARTICULARS. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE THAT BY ITSELF WOULD NOT IN OUR OPINION ATTRACT THE PENALTY UNDER SECTION 271(1)(C). IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY ASSESSING OFFICER FOR ANY REASON THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)(C). THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. 10. IN VIEW OF THE ABOVE DECISION WE DO NOT FIND ANY M ERIT FOR LEVY OF PENALTY FOR DISALLOWANCE OF ASSESSEES CLAI M FOR BAD AND DOUBTFUL DEBTS WHICH WAS MADE AS PER INSTRUCTIONS AND CIRCULAR OF RESERVE BANK OF INDIA BUT WAS DISALLOWE D UNDER THE INCOME TAX PROVISIONS. UNDISPUTED FACT IS THAT THE ASSESSEE IS ALREADY HAVING HUGE LOSSES AND EVEN AFTER MAKING TH E -: 14: - 14 DISALLOWANCE THERE WAS STILL HEAVY LOSSES THEREFO RE THERE WAS NO MENS REA ON THE PART OF THE ASSESSEE TO EVADE TH E TAX LIABILITY. ALL THE PARTICULARS WITH REGARD TO OUTST ANDING DEBTS AND THE PROVISIONS MADE FOR BAD AND DOUBTFUL DEBTS ARE DULY DISCLOSED IN THE AUDITED ACCOUNTS FILED ALONGWITH R ETURN OF INCOME. THERE WAS MERE DISALLOWANCE OF SUCH PROVISI ON FOR BAD AND DOUBTFUL DEBTS UNDER THE SPECIFIC PROVISION S OF INCOME-TAX ACT 1961. KEEPING IN VIEW TOTALITY OF T HE FACTS AND CIRCUMSTANCES OF THE CASE IT IS NOT A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C) OF THE INCOME-TAX ACT 1961. 11. IN THE RESULT THIS APPEAL OF THE ASSESSEE IS ALL OWED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25 TH JANUARY 2011. CPU* 251