2017 (5) TMI 706 - AT - Income Tax

Revision u/s 263 - disallowance of provision for standard assets holding that such provision is not allowable as provision for bad debt allowable under section 36(1)(viia) - Held that - As referring to a copy of a letter by the Principal Commissioner of Income-tax-1, Jodhpur it is absolutely clear that the very basis of order under section 263 of the Act is the assessment order which was not available in the file. That therefore the order under section 263 of the Act passed by the learned Commissioner of Income-tax cannot sustain in law and at the very outset the said order becomes invalid because of the fact that the order of the Assessing Officer whether it is erroneous or prejudicial to the interests of the Revenue has not been determined in this case in the very absence of the assessment order. Furthermore the issue with regard to the allowability of the provision for standard assets is covered by the decision of co-ordinate Bench of the Income-tax Appellate Tribunal, Jodhpur in the case of Nagaur Urban Co-operative Bank Ltd. v. Asst. CIT 2013 (11) TMI 1696 - ITAT JODHPUR and is in favour of the assessee wherein held The terminology Reserve for NPA has been used by the assessee in accordance with the RBI directions. As is evident from the assessment order the assessee has indeed created Reserve for NPA . For claiming the benefit under the provisions of section 36(1)(viia)(a) the conditions to be satisfied is ; that the provision for bad and doubtful debts should have been made by the bank eligible to claim such deduction. Co-operative banks do not strictly follow the provisions of the Banking Regulation Act for the purpose of maintaining their books of account. In our considered opinion, the assessee has created provisions for bad and doubtful debts may be under different nomenclature. This will not disentitle the assessee for claiming deduction under the provisions of section36(1)(viia)(a). The purpose of creation of reserve for NPA is same i.e., creating provision towards bad and doubtful debts. In view of the above, we find that the assessment order is neither erroneous nor prejudicial to the interests of the Revenue - Decided in favour of assessee

Summary

Issues involved:
1. Maintainability of the order passed by the Commissioner of Income-tax under section 263 of the Act.
2. Allowability of provision for standard assets to the assessee.

Issue 1: Maintainability of the order under section 263:
The appeal by the assessee challenges the order of the Commissioner of Income-tax under section 263 of the Act. The crux of the matter lies in whether the said order is sustainable. The basis of the order under section 263 was the assessment order, which was not available in the file. This absence renders the order invalid as the determination of whether the Assessing Officer's order was erroneous or prejudicial to the Revenue's interests could not be made. The lack of the assessment order undermines the validity of the Commissioner's order under section 263.

Issue 2: Allowability of provision for standard assets:
The dispute also revolves around the allowability of the provision for standard assets amounting to ?5,44,000 to the assessee. The assessee, a cooperative society engaged in banking activities, had its income assessed at ?63,44,299. The Commissioner's order directed disallowance of the provision for standard assets, holding it as not allowable under section 36(1)(viia) for bad debts. However, the assessee contended that a co-ordinate Bench of the Income-tax Appellate Tribunal in a similar case had ruled in favor of the assessee regarding provisions for bad and doubtful debts. The Tribunal referred to the case of Vellore District Central Co-operative Bank Ltd. v. CIT and held that the provision for standard assets was allowable. Consequently, the Tribunal quashed the Commissioner's order under section 263, allowing the appeal filed by the assessee.

In conclusion, the Tribunal's decision favored the assessee on both issues, ruling the Commissioner's order under section 263 invalid due to the absence of the assessment order and allowing the provision for standard assets based on precedent and the RBI guidelines.