2024 (6) TMI 872 - AT - Income Tax

Rectification pf mistake u/s 154 - Disallowance of provisions of bad debts u/s 36(1)(viia) preferred in computation sheet without having been provided for in the P/L A/c. - assessee is a co-operative bank - HELD THAT - Adverting to the first contention of the assessee that since the assessee has not pointed out and the mistake regarding claim of assessee for provision of bad debts which was not recorded in the books of assessee is not apparent from the assessment order, therefore, the addition cannot be made under the provisions of section 154. CIT(A) had also made the observations on this issue that the rectification u/s 154 can only be made when glaring mistake of law has been committed in the order which is apparent from the record. On a thoughtful consideration of the facts of the present case, since the issue under deliberation was pertaining to provision for bad and doubtful debts and the claim of assessee in the computation sheet without recording the provision in the books of account was also under the same head thus has a nexus with the issue raised in application u/s 154, and also apparent on the face of the computation of total income, therefore, in our considered opinion the rectification requested by the assessee, which was very much connected to the claim of the assessee for provision for bad and doubtful debts without having been making a provision in the books of accounts, which was allowed earlier whereas the same is not permissible under the provisions of Act. Accordingly, the fact regarding assessee s ineligible claim was a glaring and apparent mistake patent on the face of records, which was correctly undertaken by the Ld. AO and rectified under the provision of Section 154. Regarding the observation of Ld. CIT(A) that similar deduction was allowed by the Ld. AO in himself in the subsequent AY 2014-15, therefore, the claim of assessee should be allowed in the year under consideration also. On perusal of the order of Ld. CIT(A) and relevant documents, it is transpired that during the AY 2014-15, the provision for bad and doubtful debts of the assessee was increased from 14 crores to 17 crores and such amounts were duly accounted for in the books of the assessee. Nothing is emanated from such observation that the assessee had claimed any deduction under the provisions of Section 36(1)(viia) for an amount which is not recorded in the books of accounts. Considering such facts, the contentions of the assessee that similar deduction was allowed by Ld. AO in the ensuing years is found to be under false impression and contrary to the facts. It is also transpired from the submissions of the Ld. AR that as per the provisions of Companies Act, the Balance Sheet should ensure full disclosure for reserves and provisions. Regarding a particular bank, it is also noted that the share holders and other employees have imposed pressure for greater transparency, it is further stated that secret reserve accounting would mislead financial reports, users and precipitate economic efficiencies which were not in the common interest. Be that as it may, from the aforesaid Banking Regulations pursued before us, nothing concrete is cropped-up to support the contention of the Ld. AR that even if a provision is not made in the books of accounts by the assessee bank, its claim u/s 36(1)(viia) has to be allowed under the provisions of Income Tax Act. In view of the aforesaid finding of the tribunal in assessee s own case 2018 (6) TMI 1851 - ITAT RAIPUR .in absence of any objection or contrary material or finding brought on record by either the assessee or by the revenue, we find it appropriate to remit the matter back to the file of Ld. AO to allow the deduction to the extent of actual provision for bad debts made by the assessee bank in its books of accounts for the relevant AY - Appeal of the revenue is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 8,10,72,135/- made by AO on account of provisions of bad debts u/s 36(1)(viia).
2. Whether proper opportunity was given to the assessee before the disallowance.
3. Legality of the rectification order u/s 154.

Summary:

Issue 1: Deletion of Disallowance u/s 36(1)(viia)
The department contested the deletion of Rs. 8,10,72,135/- disallowance by the AO, arguing it was claimed in the computation sheet without being provided for in the P/L A/c. The assessee, a co-operative bank, had claimed this deduction under section 36(1)(viia) in its computation of total income. The Ld. CIT(A) deleted the disallowance, noting the claim was accepted in subsequent years and the AO had already considered the admissibility of the deduction in the original assessment order. The Tribunal found that the provision for bad debts must be recorded in the books of accounts to be allowable under the Act, referencing a previous ITAT decision in the assessee's own case.

Issue 2: Opportunity to Assessee
The department argued that the Ld. CIT(A) erroneously concluded that the assessee was not given a proper opportunity to be heard before the disallowance. The Tribunal noted that reasonable opportunities were afforded to the assessee, as substantiated by the order sheet.

Issue 3: Legality of Rectification u/s 154
The Tribunal examined whether the rectification u/s 154 was justified. The Ld. CIT(A) held that the rectification was beyond the mandate of law and not sustainable. However, the Tribunal found that the AO correctly identified a glaring and apparent mistake in the assessee's claim, which was patent on the face of the records. The Tribunal concluded that the rectification was justified as the issue was connected to the claim of provision for bad debts, which was not permissible without being recorded in the books of accounts.

Conclusion:
The Tribunal remitted the matter back to the AO to allow the deduction to the extent of the actual provision for bad debts made in the books of accounts for the relevant AY, ensuring the assessee is given a reasonable opportunity of being heard. The appeal was partly allowed for statistical purposes.