2023 (7) TMI 784 - AT - Income Tax

Revision u/s 263 by CIT - deduction u/s 36(1)(viia) - Provision for bad debts - HELD THAT - AO framed the assessment pursuant to the directions of the Tribunal wherein it was held that the use of the word any before the words provision for bad and doubtful debts would indicate that nomenclature under which the provision is made, may not be a critical factor in determining the allowance. Once a provision, under whatever name, is debited in the profit and loss account, then it is can be allowed, provided it is within the limits specified. None of the lower authorities had carefully gone into nature of the debits. It was for the assessee to show that these were indeed provisions for bad and doubtful debts. Accordingly, the matter was restored back to AO for fresh adjudication. Pursuant to the same, Ld. AO has accepted both the provisions as provisions made u/s 36(1)(viia) and re-work the deduction. CIT has opined that provision against standard asset could not be considered as provision u/s 36(1)(viia) - Regarding reserve for short provision for waiver of loans, it was held that the government could not be held to be doubtful debtor and therefore, the provision so made could not be considered as provision u/s 36(1)(viia). So far as the provision against standard asset is concerned, we find that the assessee is classifying the debt asset as per RBI mandate and making provisions against the same at specified rates. The assessee is required to make general provision against standard asset also since there would always be an inherent risk of even standard debts going bad in future. It could also be seen that Ld. Pr. CIT has referred to contrary decisions of Tribunal and accordingly, it could be said that the issue was a debatable one. The debatable issues, in our considered opinion, could not be subjected to revision. When Ld. AO has adopted one of the possible views which is not contrary to any law, the revision of the same could not be held to be justified. Therefore, the impugned order, to that extent, stands quashed for all the years under consideration. Reserve for short provision for waiver of loans - We concur that government could not be held to be doubtful debtor and therefore, the provision so made could not be considered as provision u/s 36(1)(viia). Even as per assessee s submissions, this provision has been reversed in subsequent year and offered to tax. The Ld. AO has failed to consider this aspect and therefore, the revision of the order, to that extent, is upheld. Our observations, as above, shall not be construed as an expression on the merits of the case and the assessee is free to substantiate his claim, to that extent. The impugned order stand modified accordingly. The appeal stand partly allowed. Reserve for DCB difference - same was considered by Ld. AO as provision for the purpose of computation u/s 36(1)(viia) - This amount represents fraudulent transactions done by certain staff members. This is stated to be a recoverable amount and not bad debt of loans and advances disbursed to the customers. CIT observed that the same do not qualify for deduction u/s 36(1)(viia). From the stated facts itself, we prima face concur that the provision so made could not be considered as provision for bad debts u/s 36(1)(viia). Therefore, the revision of the order, to that extent, is to be upheld. AO is directed to carry out the directions given in impugned order and re-adjudicate. The assessee is free to agitate the issue. The appeal stand partly allowed.

Issues Involved:
1. Validity of revisional jurisdiction under Section 263.
2. Deduction under Section 36(1)(viia) for provisions against standard assets.
3. Deduction under Section 36(1)(viia) for reserve for short provision waiver of loans.
4. Deduction under Section 36(1)(viia) for reserve for DCB difference.

Summary of Judgment:

1. Validity of Revisional Jurisdiction under Section 263:
The assessee challenged the validity of the revisional jurisdiction exercised by the Principal Commissioner of Income-Tax (PCIT) under Section 263 for different assessment years. The Tribunal noted that the grounds raised by the assessee were common for all years, and adjudication in one year would apply to others. The Tribunal condoned a delay of 28 days in filing the appeals and admitted them for adjudication on merits.

2. Deduction under Section 36(1)(viia) for Provisions Against Standard Assets:
The Tribunal observed that the Assessing Officer (AO) had framed the assessment pursuant to the Tribunal's earlier directions, which stated that the nomenclature under which the provision is made may not be a critical factor in determining the allowance. The AO had considered RBI guidelines and accepted the provision for standard assets for deduction under Section 36(1)(viia). However, the PCIT held that the provision for standard assets was not against any debt that had become doubtful and thus did not qualify under Section 36(1)(viia). The Tribunal found that the issue was debatable and could not be subjected to revision. Hence, the impugned order was quashed to the extent of the provision for standard assets for all years under consideration.

3. Deduction under Section 36(1)(viia) for Reserve for Short Provision Waiver of Loans:
The PCIT held that the reserve for short provision waiver of loans, created to account for the shortfall in reimbursement from the Government of Tamil Nadu, could not be considered as a provision for doubtful debts. The Tribunal concurred with the PCIT's view, noting that the government could not be treated as a doubtful debtor. The AO had failed to consider this aspect, and therefore, the revision of the order to this extent was upheld. The Tribunal allowed the assessee to substantiate its claim during reassessment.

4. Deduction under Section 36(1)(viia) for Reserve for DCB Difference:
For Assessment Year (AY) 2011-12, the PCIT sought revision to examine the reserve for DCB difference, which the AO had considered for deduction under Section 36(1)(viia). The PCIT observed that the amount represented fraudulent transactions and was recoverable, not qualifying as bad debts. The Tribunal agreed with the PCIT and upheld the revision of the order to this extent, directing the AO to re-adjudicate the issue.

Conclusion:
- The appeal for AY 2010-11 was allowed.
- The appeal for AY 2017-18 was dismissed.
- The appeals for AYs 2009-10, 2011-12, 2012-13, and 2014-15 were partly allowed, quashing the impugned orders to the extent of provisions for standard assets and upholding the revision for reserve for short provision waiver of loans and DCB difference.

Order pronounced on 12th May, 2023.

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