2022 (4) TMI 1057 - AT - Income Tax

Revision u/s 263 - Reopening of assessment u/s 147 - bad debts claim u/s. 36(1)(vii) - HELD THAT - As relying on THE CITY COOPERATIVE BANK LTD. 2017 (9) TMI 1982 - ITAT MUMBAI we are inclined to allow the claim of the assessee. Moreover, the assessment was originally assessed u/s. 143(3) of the Act and subsequently reopened to examine the same issue. After verification, the Assessing Officer has accepted the contention of the assessee. Once again Ld. Pr.CIT raised the same issue and directs the Assessing Officer to verify the same once again after giving opportunity of being heard to the assessee. Pr.CIT cannot impose his views on the issue which was verified twice and respective Assessing Officer s has taken their view. Considering the sequence of events in our view Ld. Pr.CIT has no jurisdiction to interfere with the completed proceedings otherwise, there is no end to the assessment proceedings. Therefore, the revision order passed u/s.263 is accordingly, set aside. Grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Validity of the notice issued under section 263 of the Income-tax Act, 1961.
2. Legitimacy of the order passed under section 263 of the Income-tax Act, 1961.
3. Allowability of the deduction claimed under section 36(1)(vii) of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of the Notice Issued Under Section 263:
The assessee contended that the notice issued under section 263 dated 02/03/2021 was illegal and invalid, asserting that the assessment order dated 26/12/2018 was neither erroneous nor prejudicial to the interest of the revenue. The assessee argued that the deduction of ?14,83,13,270/- under section 36(1)(vii) was allowed in the assessment order dated 31/01/2014, not in the reassessment order dated 26/12/2018, making the notice under section 263 barred by limitation. The assessee also relied on the decision of the ITAT in the case of City Cooperative Bank Ltd., which supported their claim.

2. Legitimacy of the Order Passed Under Section 263:
The Principal Commissioner of Income Tax (Pr.CIT) rejected the assessee's submissions, stating that the bad debts were written off during A.Y.2011-12, many years after availing the benefit of the provision for bad and doubtful debts reserve under section 36(1)(viia). The Pr.CIT argued that there was no provision in the Act to adjust the opening balance created under section 36(1)(viia) only if the debts were classified after the application of section 36(1)(viia). The Pr.CIT also noted that prior to 01.04.2006, co-operative banks were fully exempt from tax under section 80P, and hence, the bad debts should be considered in the year of write-off, not the year of classification as bad. The Pr.CIT directed the Assessing Officer to add the amount of ?14,83,13,270/- claimed as bad debts under section 36(1)(vii) and complete the reassessment after giving the assessee an opportunity of hearing.

3. Allowability of the Deduction Claimed Under Section 36(1)(vii):
The tribunal considered the rival submissions and noted that the issue was already covered by the decision of the Coordinate Bench in the case of City Cooperative Bank Ltd. v. ITO. The tribunal observed that the assessee had written off bad debts amounting to ?92,45,827/- during the year, which were not related to the provisions claimed in earlier assessment years. The tribunal held that provisions standing in the account of a co-operative bank prior to 01.04.2006 would not come under the ambit of section 36(1)(viia) and bad debts written off for which a provision was created before 01.04.2006 would be entitled to deduction under section 36(1)(viia) if the conditions under section 36(2) were satisfied.

The tribunal also noted that the assessment was originally completed under section 143(3) and subsequently reopened to examine the same issue. After verification, the Assessing Officer accepted the assessee's contention. The tribunal held that the Pr.CIT could not impose his views on an issue that was verified twice by the Assessing Officers. Therefore, the tribunal set aside the revision order passed under section 263, allowing the grounds raised by the assessee.

Conclusion:
The tribunal allowed the appeal filed by the assessee, setting aside the revision order passed under section 263 and upholding the allowability of the deduction claimed under section 36(1)(vii). The tribunal emphasized that the Pr.CIT had no jurisdiction to interfere with the completed proceedings, as the issue had already been verified and accepted by the Assessing Officers.