2012 (11) TMI 139 - AT - Income Tax

Invoking of Sec 115JB, 263 of the Act - banking company - CIT, under 263 notice, proposed to make addition on account of provision for bad and doubtful debts and provision for depreciation on investments and thus proposed to revise the assessment on that score. - Held that - Provisions of sec.115JB are not applicable to the assessee being a banking company - invoking of sec.263 is not correct and accordingly quash the action u/s 263 of the Act - In the result, the assessee s appeal is allowed

Summary

Issues:
1. Applicability of sec.115JB to a banking company.
2. Jurisdiction under sec.263 for setting aside the assessment order.
3. Addition on account of provisions for bad and doubtful debts and depreciation on investments.

Applicability of sec.115JB to a banking company:
The appeal pertains to the assessment year 2005-06 where the assessee, a banking company, filed a return of income declaring 'nil' income under normal provisions and a specific amount under sec.115JB of the Income-tax Act, 1961. The Commissioner of Income-tax (LTU) proposed to revise the assessment under sec.263 by adding provisions for bad and doubtful debts and depreciation on investments to the income computed under sec.115JB. The assessee contended that sec.115JB is not applicable to banking companies, citing decisions of ITAT and High Courts. However, the CIT held that banks are considered companies under the Act and directed the AO to recompute profits under sec.115JB by including the provisions. The ITAT, after considering various decisions, held in favor of the assessee, stating that sec.115JB is not applicable to banking companies, thereby quashing the action under sec.263.

Jurisdiction under sec.263 for setting aside the assessment order:
The assessee challenged the invocation of sec.263 by the Commissioner to set aside the assessment order. The CIT had directed the AO to make additions based on provisions for bad and doubtful debts and depreciation on investments. The assessee argued that banks prepare accounts under the Banking Regulation Act, not the Companies Act, making sec.115JB inapplicable. The ITAT, after reviewing relevant decisions, concluded that sec.115JB does not apply to banking companies, thereby rejecting the jurisdiction under sec.263 and allowing the assessee's appeal.

Addition on account of provisions for bad and doubtful debts and depreciation on investments:
The CIT directed the AO to add provisions for bad and doubtful debts and depreciation on investments to the income computed under sec.115JB. The assessee contended that sec.115JB is not applicable to banking companies. The ITAT considered precedents and held that sec.115JB does not apply to banking companies, thus rejecting the addition of these provisions. The appeal was allowed in favor of the assessee.

In conclusion, the ITAT ruled in favor of the assessee, holding that sec.115JB is not applicable to banking companies, thereby rejecting the jurisdiction under sec.263 and disallowing the addition of provisions for bad and doubtful debts and depreciation on investments to the income computed under sec.115JB for the assessment year 2005-06.