2021 (3) TMI 1357 - AT - Income Tax

Deduction towards Recovery of Bad Debts of Rural Branches - bad debts written-off relating to rural branches were not claimed as deduction in the earlier years since the credit balance in the provision for bad and doubtful debts relating to rural branches had always been more than the bad debts written off relating to rural branches - HELD THAT - Before us it is admitted position that similar issue arose before Tribunal in assessee s own case for AY 2008-09 2020 (2) TMI 1350 - ITAT MUMBAI wherein the matter was decided in assessee s favor subject to certain verification of by Ld. AO.Since issue is identical respectfully following the above decision this issue is principally decided in assessee s favor subject to verification by Ld. AO on similar lines. This ground stand allowed for statistical purposes. Disallowance u/s 40(a)(ia) - During survey on one of the branches of the assessee it was found that the assessee did not deduct TDS in certain cases where interest credited / paid exceeded basic exemption limit. The failure to do so would attract disallowance of interest expenditure u/s 40(a)(ia) - HELD THAT - It has been submitted before us that evidence to the satisfaction of Ld. AO for reasons of non-deduction tax such as Form 15G/15H etc. could not be furnished since considerable period of time had lapsed. The Ld. AR submitted that tax was automatically deducted by the systems and hence the chances of non-deduction without adequate reasons were remote. Upon due consideration of factual matrix the bench deem it fit to grant another opportunity to the assessee to furnish requisite evidences before Ld. AO in support of non-deduction of tax at source or alternatively prove applicability of second proviso to Sec. 40(a)(ia). This ground stand allowed for statistical purposes. Applicability of Sec.115JB to the assessee Bank - HELD THAT - We find that the issue of applicability of Section 115JB (prior to its amendment by virtue of Finance Act 2012) to Banking Company governed by the provisions of Banking Regulation Act 1949 is squarely covered in assessee s favor by the decision of Hon ble High Court of Bombay in assessee s own case for AY 2005-06 2019 (5) TMI 355 - BOMBAY HIGH COURT - A copy of the same is on record. The Ld. DR is unable to controvert the same. Therefore no fault could be found in the impugned order in this regard.

Summary

Issues Involved:
1. Reopening of Assessment
2. Recovery in respect of rural bad debts written off
3. Disallowance u/s 40(a)(ia)
4. Applicability of Section 115JB

Detailed Analysis:

Reopening of Assessment:
The assessee challenged the reopening of the assessment on the grounds that it was done after four years without any failure on their part to disclose necessary information. The reassessment was initiated based on information from the TDS Wing, revealing non-deduction of TDS in certain cases. The tribunal upheld the reopening, citing that specific tangible information indicated possible income escapement, thus justifying the reassessment. The tribunal referenced the Supreme Court's decision in Raymond Woollen Mills Ltd. v. ITO, stating that a prima-facie opinion of underassessment was sufficient to reopen the case.

Recovery of Bad Debts Written Off:
The assessee claimed a deduction for recovery of bad debts written off in rural branches, arguing that these were not previously claimed as deductions. The tribunal noted that banks are allowed a deduction under Section 36(1)(viia) for bad debts, creating a reserve to offset bad debts. Since the bad debts written off were allowed as deductions, the recovery of such amounts should be taxable under Section 41(4). The tribunal referenced a prior decision in the assessee's favor, subject to verification by the AO, and thus allowed the claim for statistical purposes.

Disallowance u/s 40(a)(ia):
The disallowance was based on the assessee's failure to deduct TDS on certain interest payments. The assessee argued that TDS was automatically deducted by the system, and non-deduction was due to specific reasons like exemption certificates. The tribunal granted the assessee another opportunity to furnish evidence supporting non-deduction or to prove the applicability of the second proviso to Section 40(a)(ia), allowing the claim for statistical purposes.

Applicability of Section 115JB:
The revenue contested the CIT(A)'s decision that Section 115JB was not applicable to the assessee bank. The tribunal upheld the CIT(A)'s decision, referencing the Bombay High Court's ruling in the assessee's favor for AY 2005-06, which stated that Section 115JB did not apply to banking companies governed by the Banking Regulation Act, 1949.

Conclusion:
The revenue's appeal was dismissed, and the assessee's appeal was partly allowed for statistical purposes. The tribunal's decision was pronounced on 03rd March 2021.