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2018 (9) TMI 533 - AT - Income TaxChallenging the validity of notice u/s 148 - Disallowance of provision for bad and doubtful debts u/s 36(1)(viia) - Disallowance of excess provision for non performing of assets - Disallowance of amortization of expenses for government securities - Held that - Crux of the submissions made by the Ld. Counsel for the assessee is that all the details in connection with the deduction claimed by the assessee u/s 36(1)(viia) were very much available with the Assessing Officer during the assessment u/s 143(3) of the Act and the assessments were concluded after examining the relevant details filed by the assessee. No new facts came up before the assessing authority and therefore the reopening was merely based on account of change of opinion. Relying on various judgments, it is contended that reopening of assessments for mere change of opinion are not valid. For assessment year 2008-09 the assessee duly filed return of income and assessment completed u/s 143(3) of the Act and has submitted all material facts necessary for the assessment. All these facts shows that the first proviso to section 147 is squarely applicable on the given facts for A. Y. 2008-09 and the reopening is beyond four years from the end of relevant assessment year and thus cannot be held to be valid. We therefore find force in the contentions of the Ld. Counsel for the issue of reopening raised for A. Y. 2008-09 and accordingly quash the reassessment proceedings u/s 147 for Assessment Year 2008- 09 and allow the relevant ground for assessment year 2008-09 in favour of the assessee. Assessee claimed deduction u/s 136(1)(viia) only in the computation of income and no such provision was actually made in the profit and loss account. It is true that the details of the deduction claim u/s 136(1)(viia) was available on record but the legal angle of examining this claim was not discussed at length during the course of assessment u/s 143(3). The claim of the assessee were based on certain judicial pronouncements which the Assessing Officer later on found to be favouring the revenue. This change of legality of the issue triggered the issuance of notice u/s 148 of the Act. It is not disputed that the notice issued u/s 148 of the Act for Assessment Year 2009-10 and 2010-11 are within the period of four years from the end of relevant assessment years. The reasons have duly been recorded and the need of issuance of notice was due to the alleged excess provisions claimed for provisions for bad and doubtful debts u/s 36(1)(viia). Disallowance of amortization of expenses for government securities - Held that - Both the lower authorities erred in confirming the addition and the assessee has rightly claimed the amortization of loss in the value of government securities and the same is liable to be treated as business expenditure. In the result this common issue is decided in favour of the assessee Disallowance of alleged excess provision for NPA - Held that - RBI guidelines are for the purpose of maintaining the balance sheet and financial statements for the stake holders so as to give true and fair view of the financials of the bank. Claiming of deduction for bad and doubtful debts as well as provision for bad and doubtful debts for the borrowers involved in Debt Relief Scheme, 2008 needs to be examined in the light of provisions of Income Tax Act applicable to the assessee. We find that the observations of AO are also not very clear and only the auditors remarks have been discussed and similarly Ld. CIT)(A) has also not given clear finding on this issue. In our considered view this issue needs to be set aside to the file of Ld. CIT(A) for fresh adjudication. Needless to mention that proper opportunity being heard to be provided to the assessee and also direct the assessee to bring necessary details for calculating the provisions of bad and doubtful debts as well as the details of over due debts from the borrowers involved in debt relief scheme of 2008 so that the issue can be decided on merit under the relevant provisions of law.
Issues Involved:
1. Disallowance of amortization of expenses on government securities. 2. Disallowance of claim u/s 36(1)(viia) of the Act. 3. Validity of notice u/s 148 and reassessment proceedings u/s 147. 4. Disallowance of provision for bad and doubtful debts u/s 36(1)(viia). 5. Disallowance of excess provision for non-performing assets. 6. Disallowance of amortization of expenses for government securities. Detailed Analysis: 1. Disallowance of Amortization of Expenses on Government Securities The assessee, a Regional Rural Co-operative Bank, claimed amortization of premium paid on government securities as per RBI guidelines. The AO disallowed this claim, treating the securities as capital assets to be valued at cost. The CIT(A) upheld the AO's decision. However, the Tribunal referred to various judgments, including the Gujarat High Court's decision in CIT vs. Rajkot Dist. Co-Op Bank Ltd, which allowed such amortization as business expenditure. Consequently, the Tribunal decided in favor of the assessee, allowing the amortization of premium on government securities as a deductible expense. 2. Disallowance of Claim u/s 36(1)(viia) The AO disallowed the assessee's claim for deduction u/s 36(1)(viia) on the grounds that the provision was not made in the profit and loss account but only claimed in the computation of income. This disallowance was upheld by the CIT(A). The Tribunal, relying on the Coordinate Bench's decision in the case of M/s. Narmada Malwa Grameen Bank, held that the deduction u/s 36(1)(viia) is allowable only to the extent of the provision made in the books of accounts. Thus, the Tribunal dismissed the assessee's appeal on this issue. 3. Validity of Notice u/s 148 and Reassessment Proceedings u/s 147 For AY 2008-09, the Tribunal found that the notice u/s 148 was issued beyond four years from the end of the relevant assessment year without any failure on the part of the assessee to disclose material facts. Therefore, the reassessment proceedings for AY 2008-09 were quashed. For AYs 2009-10 to 2011-12, the Tribunal held that the reopening was valid as it was within four years, and the reassessment was based on the excess provision claimed for bad and doubtful debts u/s 36(1)(viia). Thus, the Tribunal upheld the validity of the reassessment proceedings for these years. 4. Disallowance of Provision for Bad and Doubtful Debts u/s 36(1)(viia) The AO disallowed the provision for bad and doubtful debts claimed by the assessee, which was not debited to the profit and loss account but claimed in the computation of income. The CIT(A) upheld this disallowance. The Tribunal, following the decision in M/s. Narmada Malwa Grameen Bank, confirmed that the deduction is allowable only to the extent of the provision made in the books of accounts. Consequently, the Tribunal dismissed the assessee's appeal on this issue. 5. Disallowance of Excess Provision for Non-Performing Assets For AY 2009-10, the AO disallowed an excess provision for non-performing assets (NPA) amounting to ?613.39 lakhs, which was retained by the assessee for future adjustments. The CIT(A) confirmed this disallowance, treating it as a contingent liability. The Tribunal observed that the issue needs to be examined in light of the provisions of the Income Tax Act and set aside the matter to the CIT(A) for fresh adjudication, directing the assessee to provide necessary details for calculating the provisions for bad and doubtful debts. 6. Disallowance of Amortization of Expenses for Government Securities The AO disallowed the amortization of expenses for government securities for AY 2011-12 in the reassessment proceedings. The CIT(A) confirmed this disallowance. The Tribunal, following the Gujarat High Court's decision in CIT vs. Rajkot Dist. Co-Op Bank Ltd, allowed the amortization of premium on government securities as a deductible expense, thus deciding in favor of the assessee. Conclusion: - Appeals related to amortization of expenses on government securities were allowed. - Appeals related to the disallowance of claims u/s 36(1)(viia) were dismissed. - Reassessment proceedings for AY 2008-09 were quashed, while those for AYs 2009-10 to 2011-12 were upheld. - The issue of excess provision for NPAs was set aside for fresh adjudication. - The Tribunal's decisions were mixed, with some appeals allowed, some dismissed, and some partly allowed for statistical purposes.
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