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2019 (10) TMI 256 - AT - Income TaxRevision u/s 263 - deduction towards Provision for bad and doubtful debts - whether requisite specific enquiry has been conducted by the AO on the area where the Pr. Commissioner of Income Tax passed order u/s 263? - HELD THAT - In the first part of computation at 7.5% of total income, the assessee computed the base amount at ₹ 23.11 Crore. In computation of the base amount, the assessee did not reduce the amount of depreciation of ₹ 1,34,12,388/-, which was rightly detected by the ld. CIT. It goes without saying that the deduction at 7.5% is on the total income, which obviously cannot be computed by ignoring the amount of depreciation. In other words, the assessee computed the amount at 7.5% of total income without reducing the amount of depreciation, which CIT rightly took note of. To this extent, the assessment order is found to be erroneous and prejudicial to the interest of the Revenue. When we view both the parts of the deduction u/s.36(1)(viia) of the Act in totality, it transpires that even though the assessment order was erroneous in accepting the computation at 7.5% of the income without reducing the amount of depreciation, but on entirety, the assessment order on this issue cannot be construed as prejudicial to the interest of the Revenue because the total amount of deduction u/s 36(1)(viia) is only ₹ 3.29 Crore, which is well much short of the correct qualifying amount at more than ₹ 21 Crore. That being the position, the assessment order albeit erroneous and prejudicial to the interest of the Revenue at the first part of calculation of qualifying amount at 7.5% on total income, but ceases to be prejudicial to the interest of the revenue on the overall question of granting deduction u/s 36(1)(viia) of the Act because the total amount of deduction, even after correcting the first part of the qualifying amount, remains at the same level at which it was claimed and allowed at ₹ 3,29,84,041/-. We, therefore, refuse to accept the validity of the exercise of revisionary power on this issue. Provision for NPA interest - HELD THAT - We find that the action of the ld. CIT is lacking on this score as well. Firstly, the Assessing Officer conducted enquiry in this regard as is evident from the correspondence between the assessee and the AO, whose copies have been placed before the Tribunal. It is not as if the Assessing Officer did not enquire the issue of NPA interest. To this extent, the finding recorded by the ld. CIT is not correct. Legal position on the taxability of NPA interest, which has been dealt with by the Hon‟ble Bombay High Court in Commissioner of Income Tax Vs. CIT vs. Deogiri Nagari Sahakari Bank Ltd, 2015 (1) TMI 1218 - BOMBAY HIGH COURT holding that NPA interest should be charged to tax on receipt basis only. As the amount of NPA interest recovered by the assessee during the year was credited to P L account at ₹ 1.71 crore and odd, no infirmity can be found in the view canvassed by the assessee as accepted by the AO on this issue. As the amount of ₹ 1.86 Crore of NPA interest accrued but not realized, the same was not rightly credited to the P L account. We, therefore, hold that the CIT was not justified in treating the assessment order erroneous and prejudicial to the interest of the Revenue on this score as well. Commissioner of Income Tax could not have assumed revisionary jurisdiction u/s.263 of the Act as per law. - Decided in favour of assessee.
Issues Involved:
1. Validity of the revisionary jurisdiction assumed by the Pr. Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961. 2. Enquiry conducted by the Assessing Officer on the issues raised by the Pr. Commissioner of Income Tax. 3. Deduction under Section 36(1)(viia) of the Income Tax Act. 4. Provision for NPA (Non-Performing Assets) interest. Detailed Analysis: 1. Validity of the Revisionary Jurisdiction: The assessee challenged the validity of the revisionary jurisdiction assumed by the Pr. Commissioner of Income Tax under Section 263 of the Income Tax Act, 1961. The assessee contended that the Assessing Officer (AO) had conducted the necessary and specific enquiry on the issues where the Pr. Commissioner of Income Tax passed the order under Section 263. The Tribunal observed that the Pr. Commissioner of Income Tax must provide reasons to justify the exercise of revisionary power, which must show that the assessment order was erroneous and prejudicial to the interest of the Revenue. The Tribunal concluded that the Pr. Commissioner of Income Tax did not conduct a specific enquiry or provide reasons that led to the conclusion that the assessment order was erroneous and prejudicial to the Revenue. 2. Enquiry Conducted by the Assessing Officer: The Tribunal noted that the AO had conducted specific enquiries through a questionnaire, and the assessee had furnished detailed replies. The Tribunal found that the relevant documents, including the letter dated 17.11.2015, were on record, contrary to the Pr. Commissioner of Income Tax's statement. The Tribunal directed the Ld. DR to verify from the records whether the necessary enquiry was conducted by the AO on the issues of the claim of deduction under Section 36(1)(viia) and provision for NPA interest. The Tribunal concluded that the AO had indeed conducted the necessary enquiries, and the Pr. Commissioner of Income Tax's statement that the letter dated 17.11.2015 was not on record was incorrect. 3. Deduction under Section 36(1)(viia): The Tribunal examined the deduction claimed by the assessee under Section 36(1)(viia) of the Income Tax Act, which provides for deduction of provision for bad and doubtful debts in two parts: 7.5% of the total income and 10% of the aggregate average advances made by the rural branches. The Tribunal found that the assessee computed the deduction correctly, and even though the AO did not reduce the amount of depreciation while computing the base amount for the 7.5% deduction, the total qualifying amount of deduction was more than ?21 crore. Since the assessee claimed only ?3.29 crore, the assessment order was not prejudicial to the interest of the Revenue. Therefore, the Tribunal refused to accept the validity of the exercise of revisionary power on this issue. 4. Provision for NPA Interest: The Pr. Commissioner of Income Tax held that the AO did not enquire into the provision for NPA interest before allowing it. The Tribunal found that the AO had conducted an enquiry regarding the NPA interest, and the assessee had provided the necessary information. On merits, the Tribunal noted that the sum of ?1.86 crore was the amount of NPA interest not credited during the year, which was correctly not credited to the P&L account. The Tribunal referred to the Hon’ble Bombay High Court's decision in Commissioner of Income Tax Vs. Deogiri Nagari Sahakari Bank Ltd, which held that NPA interest should be taxed on a receipt basis. Therefore, the Tribunal concluded that the Pr. Commissioner of Income Tax was not justified in treating the assessment order as erroneous and prejudicial to the interest of the Revenue on this issue. Conclusion: The Tribunal quashed the orders passed by the Pr. Commissioner of Income Tax under Section 263 for both assessment years 2013-14 and 2014-15, allowing the appeals of the assessee. The Tribunal found that the AO had conducted the necessary enquiries, and the assessment orders were neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal emphasized that the Pr. Commissioner of Income Tax could not assume revisionary jurisdiction under Section 263 merely based on a difference of opinion or insufficient enquiry.
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