2016 (2) TMI 158 - AT - Income Tax

Revision u/s 263 - in the assessment order deduction u/s. 36(1)(viia) was allowed to the extent of ₹ 14,47,40,656/- as against restricting it to the extent of eligible amount of reserve for Non-performing assets or provisions for bad & doubtful debts shown in the Balance Sheet as on 31.03.2007 at ₹ 68,20,002 - claim of the Ld. A.R. was that the provisions made as per Section-36(1)(viia) has to be allowed though debited under different name such as Reserved for NPA account instead of debiting under the Head Provisions towards bad & doubtful debts - Held that - Following the order of our predecessors, we hereby direct the Ld. Assessing Officer to verify the claim of the assessee to be in accordance with the provisions of Section 36(1)(viia) of the Act and found to be correct, allow the same without giving importance to the nomenclature of the account under which head such claim towards provision for bad & doubtful debts is made. - Decided in favour of assessee for statistical purposes

Summary

Issues:
1. Jurisdiction of the Commissioner of Income Tax under Sec.263
2. Interpretation of provisions u/s.36(1)(viia) for deduction
3. Application of mind by the Assessing Officer
4. Compliance with provisions of the Act for deduction
5. Nomenclature of provisions for bad and doubtful debts

Issue 1: Jurisdiction of the Commissioner of Income Tax under Sec.263
The appeal was filed by the Assessee against the order of the Commissioner of Income Tax-8, Chennai under Sec.263 read with Sec.250 of the Act. The Commissioner held that the assessing officer had not applied his mind correctly, leading to an erroneous order prejudicial to the revenue. The Commissioner directed the assessing officer to set aside the assessment order dated 22.06.2012.

Issue 2: Interpretation of provisions u/s.36(1)(viia) for deduction
The Assessee claimed deduction u/s.36(1)(viia) of the Act, which was disputed by the Commissioner. The Assessee contended that the provisions made under different nomenclature like "Reserve for NPA" should be allowed as deduction under Section 36(1)(viia) irrespective of the name used. The Tribunal in a similar case held that the creation of reserve for NPA is equivalent to creating a provision for bad and doubtful debts, allowing the deduction.

Issue 3: Application of mind by the Assessing Officer
The Assessing Officer allowed the deduction u/s.36(1)(viia) to the Assessee to the extent of Rs. 14,47,40,656, which was challenged by the Commissioner. The Commissioner found a lack of application of mind by the Assessing Officer as the deduction was not restricted to the eligible amount of reserve for Non-performing assets or provisions for bad & doubtful debts shown in the Balance Sheet.

Issue 4: Compliance with provisions of the Act for deduction
The Assessee filed its return of income admitting a loss and claimed deduction u/s.36(1)(viia) of the Act. The revised return was also filed later. The case was taken up for scrutiny, and the assessment was completed. The Commissioner issued a show-cause notice under Sec.263, indicating that the assessment order was erroneous and prejudicial to revenue due to the incorrect allowance of deduction.

Issue 5: Nomenclature of provisions for bad and doubtful debts
The Assessee argued that the nomenclature used for provisions made, such as "Reserve for NPA," should not disentitle them from claiming deduction u/s.36(1)(viia) of the Act. The Tribunal in a previous case accepted the Assessee's contention that the purpose of creating a reserve for NPA is the same as creating a provision towards bad and doubtful debts, irrespective of the name used.

In conclusion, the Tribunal partly allowed the appeal, directing the Assessing Officer to verify the claim of the Assessee in accordance with the provisions of Section 36(1)(viia) and allow the deduction if found correct, regardless of the nomenclature used for the provisions made.