2014 (1) TMI 1483 - AT - Income Tax

Disallownace of expenses on advertising, traveling, printing and stationery etc - Held that - These expenses though called provision, actually represents utilization of money and is pending verification/ classification by the Central Payment Unit of the Head Office of the assessee bank - The liability of Rs.82,56,319/- is not a contingent liability as made out by the Assessing Officer, but the liability actually incurred out of the imprest account - Deisallowance was deleted. Amount written off - Held that - The said expenditure is nothing but bad debts which has been written off in the books of accounts of the assessee and the same is allowable as a deduction u/s 36(1)(vii) of the Act - The wrong classification of the expenditure is immaterial and the same cannot change the nature of the expenditure - Decided against Revenue.

Issues Involved:
1. Allowability of Rs.82,56,319 as an expenditure.
2. Classification of Rs.30,36,603 and its allowability as a bad debt.
3. Legality of reopening the assessment under section 147 of the Income Tax Act, 1961.
4. Condonation of delay in filing the cross objection by the assessee.

Detailed Analysis:

1. Allowability of Rs.82,56,319 as an Expenditure:
The Revenue challenged the CIT (A)'s decision to allow Rs.82,56,319 as an expenditure. The CIT (A) found that this amount represented various expenses such as advertising, traveling, and stationery, which were incurred as per the bank's internal circular and were pending verification/classification by the Centralized Payment Unit (CPU). The Tribunal upheld the CIT (A)'s findings, stating that these expenses were not contingent liabilities but actual expenditures incurred out of the imprest account. Thus, the amount of Rs.82,56,319 was deemed an allowable expenditure.

2. Classification of Rs.30,36,603 and its Allowability as a Bad Debt:
The CIT (A) also allowed Rs.30,36,603 as a bad debt under section 36(1)(vii) of the Act, which the Assessing Officer had wrongly classified as provisions for branch expenses. The Tribunal affirmed this decision, noting that the amount was written off in the books of accounts and the wrong classification did not change the nature of the expenditure. Therefore, it was allowed as a deduction under section 36(1)(vii).

3. Legality of Reopening the Assessment under Section 147:
The assessee contested the reopening of the assessment, arguing it was based on a change of opinion and not on any new material. The CIT (A) dismissed this plea, stating there was no discussion on the issue in the original assessment order, and thus the reopening was valid. However, the Tribunal disagreed, noting that the Assessing Officer had already considered the provision for expenses during the original assessment and accepted the assessee's contentions. Since no new material had emerged, the Tribunal concluded that the reopening was indeed based on a mere change of opinion, which is not permissible under the law. Therefore, the reassessment was struck down as invalid.

4. Condonation of Delay in Filing the Cross Objection:
The assessee filed a petition to condone a 46-day delay in filing the cross objection, supported by an affidavit from the Deputy Head Taxation of the assessee bank. The Tribunal found the reasons for the delay satisfactory and deemed it fit to condone the delay, allowing the cross objection to be heard on merits.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decisions on the allowability of Rs.82,56,319 as an expenditure and Rs.30,36,603 as a bad debt. It also allowed the assessee's cross objection, ruling that the reopening of the assessment was invalid due to it being based on a change of opinion. The delay in filing the cross objection was condoned, and the reassessment was struck down.

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