2018 (3) TMI 1034 - AT - Income Tax

Validity of order u/s 154 - Disallowance of NPA Provisions and Other Reserves - das per assessee the total provision made by the assessee up to 31.03.2007 amounting to ₹ 15.35 crore and the provision for the year assessment year 2007-2008 being only ₹ 2.13 crore was well within the permissible limit and hence allowable - Held that - We noticed that the objections raised by the assessee are to be examined in detail after referring to the balance sheet and other records furnished by the assessee. The A.O. had conveniently ignored the objections of the assessee and passed the rectification order. The only obvious and patent mistake that are apparent from record can only be rectified u/s 154 of the I.T.Act. In the instant case, the mistakes, if at all, that was sought to be rectified u/s 154, can be done only after detailed examination of the books of account, balance sheet and profit and loss account of the assessee and such detail examination cannot be made while passing order u/s 154 of the I.T.Act. Hence, we are of the view that the CIT(A) has correctly quashed the order u/s 154 passed by the Assessing Officer. - Decided against revenue

Summary

Issues:
1. Disallowance of NPA provisions and other reserves.
2. Validity of the order passed under section 154 of the Income-tax Act.

Analysis:

Issue 1: Disallowance of NPA provisions and other reserves
The case involved an appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals) concerning the disallowance of NPA provisions and other reserves amounting to Rs. 2,60,85,652 for the assessment year 2007-2008. The Assessing Officer had added back these amounts to the total income of the Co-operative Bank, stating that they were inadmissible under the Income-tax Act. The bank contended that the provisions were made in accordance with section 36(1)(viia) of the Act, which allows a provision for bad and doubtful debts not exceeding 10% of the aggregate value of advances made by rural branches. The bank argued that the provisions were within the permissible limit. However, the Assessing Officer rejected these contentions and passed an order under section 154 to rectify the assessment. The CIT(A) quashed the rectification order, emphasizing that the issues raised required detailed examination and did not constitute obvious mistakes under section 154. The Tribunal upheld the CIT(A)'s decision, noting that the objections raised by the bank were not adequately considered by the Assessing Officer, and detailed examination of the bank's records was necessary to determine the admissibility of the provisions. Therefore, the disallowance of NPA provisions and other reserves was deemed unjustified, and the appeal by the Revenue was dismissed.

Issue 2: Validity of the order passed under section 154
The second issue revolved around the validity of the order passed under section 154 of the Income-tax Act by the Assessing Officer. The CIT(A) found that the rectification order lacked reasoning and failed to specify the alleged mistake. Citing the Supreme Court's decision in T.S. Balaram, ITO vs. Volkart Brothers, the CIT(A) emphasized that a mistake apparent on the face of the record must be obvious and patent, which was not the case here. The Tribunal concurred with the CIT(A)'s reasoning, stating that the rectification sought by the Assessing Officer required a detailed examination of the bank's financial records, which could not be done under section 154. As a result, the order passed under section 154 was deemed unsustainable and subsequently canceled. The Tribunal held that the rectification order did not meet the criteria of a mistake apparent from the records, and therefore, the CIT(A)'s decision to quash the order was upheld.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to quash the order passed under section 154 and rejecting the disallowance of NPA provisions and other reserves made by the Assessing Officer.