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TMI Blog2020 (10) TMI 1011X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act, assessee has filed detailed submissions before the Assessing Officer and the Assessing Officer has considered the submissions even though he has not discussed it in his order under Section 143(3) -material submitted before us clearly indicate that assessee has made elaborate submissions on this issue and the Assessing Officer has satisfied himself that assessee is eligible to claim deduction under Section 36(1)(vii) and 36(1)(viia) and, therefore, in our considered view, ld. PCIT cannot form another view on the same issue in which the Assessing Officer has already satisfied himself and passed an order which clearly indicates that the Assessing Officer has verified and investigated the matter in detail. Even in this issue, the provisions of Section 263 of the Act cannot be invoked. With regard to the third issue raised in the show cause notice, i.e. disallowance under Rule 8D which was not considered in computing the book profits, we notice that the ld. PCIT himself dropped this issue and has not directed any revision to the Assessing Officer. Issues raised in the show cause notice issued under Section 263 of the Act do not survive. Therefore, in our considered view, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pricing issue, therefore, we rejected the submissions of ld. DR and proceeded to hear the appeal. 3. The brief facts of the case are that assessee filed its return of income for assessment year 2014-15 dated 27.03.2018, declaring total loss of ₹ 2187,39,64,977/- and book profit of ₹ 2673,16,90,715/-. The assessee filed revised return of income on 29.03.2016, revising the total income to Rs.(-) 2167,65,72,076/- and book profit to ₹ 3082,62,82,624/-. The assessment under Section 143(3) of the Act was completed on 29.03.2016. 4. On examination of records by ld. PCIT, he observed that the order passed by the Assessing Officer was erroneous insofar as it is prejudicial to the interests of the Revenue and required revision. Accordingly, a show cause notice was issued on 09.03.2018 and the reasons recorded for revision was sent along with the show cause notice, which for the sake of clarity is reproduced below. "(i) It is observed that while computing book profit, the reduction of ₹ 813,47,01,960/-has been claimed towards 'Profit of foreign Branches'. It is further observed that in the P & L A/c, the assessee has debited an amount of ₹ 5693,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for bad and doubtful debts under clause (viia) of sub-section (1) of section 36 and such account relates to all types of advances, including advances made by rural branches. Therefore, in the case of the assessee section 36(1)(viia) applies without any distinction between rural advances and other advances. The CBDT, vide instruction no. 17/2008 dated 26.11.2008 had clarified that while considering the claim of bad debt under section 36(1)(vii), the credit balance for this purpose will be the opening credit balance i.e. the balance brought forward as on 1st April of the relevant accounting year. In view of the above provisions, it is observed that during AY 2013-14, the deduction of ₹ 2039,27,67,628/- was allowed on account of provision for bad debt u/s 36(1)(viia) and accordingly the assessee had opening credit balance of the like amount in the accounts of provision for bad and doubtful debt made u/s 36(1)(viia) of the Act. Hence, the bad debt written off during AY 2015-16 in excess of opening credit balance of ₹ 2039,27,67,628/- was only allowable u/s 36(1)(vii) of the Act. Thus, the actual deduction allowable u/s 36(1)(vii) works out to ₹ 1759,01,09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions and ld. PCIT summarised the submissions made by the assessee, which is reproduced below :- "I. The order passed u/s. 143(3) dated 29-Mar-2016 by the learned DCIT-2(1)(1) is sought to be revised as the same is considered erroneous, in so far as it is prejudicial to the interests of the revenue, on the following matters: a. Adjustments for computation of book profit u/s. 115JB b. Disallowance u/s. 14A in accordance with method prescribed under Rule 8D c. Deduction of bad debts written off u/s. 36(1)(vii). II. An appeal was preferred before the Hon'ble CIT (Appeals) [bearing Appeal No. CIT(A)-4/IT- 139/DCIT-2(1)/2016-17] against the order passed u/s. 143(3) dated 29-Mar-2016 on various matters including, inter alia, matters relating to items 'a' and 'b' above - applicability of provisions of Section 115JB to the case of the Assessee Bank, adjustments for computation of book profit u/s. 115JB and disallowance u/s. 14A. The said appeal was disposed off by the Hon'ble CIT (Appeals) vide order u/s. 250 dated 21-June-2017. The Hon'ble CIT (Appeals) held that the provisions of Section 115JB of the Act do not apply to the case of the Assessee Bank for the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) read with Section 36(2)(v) of the Act and the Explanation inserted vide Finance Act 2013 in Section 36(1)(vii), only one account in respect of PBDD should be maintained relating to all types of advances, including advances made by rural branches, and the bad debts written off relating to all such types of advances should be debited to such PBDD account maintained u/s. 36(1)(viia) in order to be eligible to claim deduction of such write off u/s. 36(1)(vii). Accordingly, the bad debts written off relating to all types of advances amounting to ₹ 4,550.50 crores was debited to the PBDD account maintained u/s. 36(1)(viia) for AY 2013-14. In view of the above, the PBDD account u/s. 36(1)(viia) was prepared as under: FY AY Opening Balance Claim u/s. 36(1)(viia) Bad Debts written off Closing Balance 2012-13 2013-14 123.12 2,039.28 4,550.50 (2,388.11) 2013-14 2014-15 (2,388.11) iii. As can be observed, the opening balance as on 1-April-2013in the PBDD account maintained u/s. 36(1)(viia)is a debit balance of ₹ 2388.11 crore. The PBDD account maintained u/s. 36(1)(viia)does not have credit balance as on 1-April-2013. Hence, no amount is reduced from the bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign branches and ₹ 143.76 crores on account of provisions as computed in the show cause notice dated 09.03.2018 are concerned, the ld. PCIT in his order has not considered and decided these matters. Therefore, the power of revision can be exercised on these matters. Further, he observed that the provision of ₹ 143.47 crores was required to be added back in the computation of book profits in view of clause (c) of Explanation 1 to Section 115JB of the Act. Similarly, exclusion of the profit of foreign branches from the computation of book profits is not in accordance with the law as the items mentioned in the said section can only be excluded in the computation of book profits. Failure to follow the correct position of law and failure to make aforesaid two additions have rendered the assessment order erroneous insofar as it is prejudicial to the interests of the Revenue. D) The next issue relates to allowance of bad debts under clause (vii) of Sub-section (1) of Section 36 of the Act. As per the applicable provisions of law for the assessment year under consideration, the proviso to Section 36(1)(vii) requires maintenance of Provision for Bad and Doubtful Debts (in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eous and prejudicial to the interests of the Revenue. 9. Further, the ld. PCIT observed that during the course of revisionary proceedings, on further examination of assessment records, he observed that the reason for selection of the case in scrutiny was 'large international transactions and large specific domestic transactions'. As per the CBDT Circular in force, the case was required to be referred to the Transfer Pricing Officer (TPO) under Section 92CA of the Act for computation of arm's length price in relation to the said international transactions and specified domestic transactions. He observed that no such reference was made by the Assessing Officer and the assessment order was passed on 29.03.2016. A new show cause notice was issued to the assessee on 23.03.2018 wherein it was informed to the assessee that reference to TPO by the Assessing Officer in accordance with the CBDT Circular was mandatory for the Assessing Officer and non-reference to TPO amounted to making an assessment without proper inquiry and investigation as required by law, which was also warranted in the facts of this case. It was informed that even on this ground also the assessment order is erroneous i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdictional Assessing Officer. Thus, if the reason or one of the reasons for selection of a case for scrutiny is a transfer pricing parameter, then, the case has to be mandatorily referred to the TPO by the Assessing Officer after obtaining the approval of the jurisdictional PCIT/CIT. The aforesaid instruction was binding on the Assessing Officer. Since the basis of selection of the case under CASS was international transactions and specified domestic transactions, it was mandatory for the Assessing Officer to refer the above transactions to the TPO, which was not done. The reference was very necessary as only the TPO was empowered to determine the arm's length price after due inquiry and verification and after giving opportunity of hearing to the assessee in respect of international transactions and specified domestic transactions and completion of assessment without making such reference has rendered the assessment order erroneous insofar as it is prejudicial to the interests of the Revenue. The ld. PCIT by referring to the case laws of Ranbaxy Laboratories Ltd.dated 18.11.2011 in ITA No. 504/2008 of Hon'ble Delhi High Court and the judgment in the case of Malabar Industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suming without accepting that Your Honours is of the view that the order passed u/s. 263 dated March 27, 2018 is valid, then on the facts and in the circumstances of the case and in law: Ground no. 2-A: The Hon'ble PCIT has erred in considering the claim made u/s. 36(1)(viia) in AY 2013-14 as the opening credit balance of Provision for Bad and Doubtful Debts ('PBDD') account maintained u/s. 36(1)(viia) for the year under appeal and accordingly, directing the learned Assessing Officer ("A.O.") to disallow bad debts written off of ₹ 2039,27,67,628 u/s. 36(1)(vii) of the Act. The Appellant Bank prays that the learned A.O. be directed to allow bad debts written off of ₹ 2039,27,67,628 u/s. 36(1)(vii) of the Act and reduce the total income accordingly. Ground no. 2-B: The Hon'ble PCIT has erred in directing the learned A.O. to make various adjustments while computing book profit u/s. 115JB without appreciating that the Hon'ble CIT(Appeals), vide order u/s. 250 dated June 21, 2017, has held that the provisions of Sec. 115JB are not applicable to the case of the Appellant Bank for the year under appeal. The Appellant Bank prays that the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. (iii) The Hon'ble PCIT has erred in directing the learned A.O. to add back Provision for NPAs and Restructured Assets aggregating to ₹ 4331,09,09,314 while computing book profit u/s. 115JB without appreciating that the same does not constitute a provision made for meeting unascertained liabilities as per clause (c) of Explanation 1 to Sec. 115JB. The Appellant Bank prays that the learned A.O. be directed to delete the addition of Provision for NPAs and Restructured Assets aggregating to ₹ 4331,09,09,314 and reduce the book profit u/s. 115JB accordingly. (iv) The Hon'ble PCIT has erred in directing the learned A.O. to add back Provision for Country Risk of ₹ 33,78,00,000 while computing book profit u/s. 115JB without appreciating that the same does not constitute a provision made for meeting unascertained liabilities as per clause (c) of Explanation 1 to Sec. 115JB. The Appellant Bank prays that the learned A.O. be directed to delete the addition of Provision for Country Risk of ₹ 33,78,00,000 and reduce the book profit u/s. 115JB accordingly. (v) The Hon'ble PCIT has erred in directing the learned A.O. to add back Provisions for Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nationalised bank, was agitated before the ld. CIT(A) and ld. CIT(A) in his order dated 21.06.2017 held that the provisions of Section 115JB of the Act did not apply to the assessee. A copy of the order is placed on record in the paper book. He submitted that the assessment order as far as computation of income under Section 115JB of the Act is merged with the order of ld. CIT(A) and hence cannot be the subject matter of proceedings under Section 263 of the Act. He placed relied on the decision in the case of Oil India Ltd., [2019] 103 taxmann.com 339 (Gauhati) and Kochi Refineries, [2019] 101 taxmann.com 95 (Bombay), copy whereof is placed on record in the paper book. 18. With regard to the issue of deduction under Section 36(1)(vii) of the Act, he submitted that the issue was examined by the Assessing Officer at the time of original assessment under Section 143(3) of the Act. He brought to our notice, pages 48 to 50 of the paper book as per which it is evident that full details of the claim were furnished by the assessee in the note forming part of the return of income and that during the assessment proceedings, the Assessing Officer asked the assessee to file a detailed note j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is no such provision in the Income Tax Act which deems the deduction allowed under Section 36(1)(viia) of the Act for the preceding assessment year as opening credit balance. He submitted that assessee has computed the opening credit balance by considering the deduction allowed under Section 36(1)(viia) of the Act and bad debts written off in each of the assessment years in which the said section became applicable to it and accordingly arrived at the balance in the provision account. Since the bad debts written off was in excess of the deduction allowed under Section 36(1)(viia) of the Act, there was a debit balance of ₹ 2388.11 crores. Since there was no opening credit balance, but only a debit balance of ₹ 2388.11 crores, the opening credit balance was considered as Nil and the entire amount was written off correctly and allowed in the order under Section 143(3) of the Act. 21. He further submitted that without prejudice to the above submissions, even considering the credit balance of ₹ 123.12 crores as per the assessment order for assessment year 2013-14, the opening credit balance for assessment year 2014-15 was only debit balance of ₹ 2388. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agitated by the assessee before the ld. CIT(A) and the ld. CIT(A) has already passed an order on 21.06.2017 in favour of the assessee that the provisions of Section 115JB of the Act does not apply to the assessee. Now, in the show cause notice, similar issue was raised by ld. PCIT and passed an order on 27.03.2018, therefore, in our considered view, ld. PCIT cannot invoke the provisions of Section 263 of the Act in this matter. With regard to issue of deduction claimed under Section 36(1)(vii) and 36(1)(viia) of the Act, assessee has filed detailed submissions before the Assessing Officer and the Assessing Officer has considered the submissions even though he has not discussed it in his order under Section 143(3) of the Act. The material submitted before us clearly indicate that assessee has made elaborate submissions on this issue and the Assessing Officer has satisfied himself that assessee is eligible to claim deduction under Section 36(1)(vii) and 36(1)(viia) of the Act and, therefore, in our considered view, ld. PCIT cannot form another view on the same issue in which the Assessing Officer has already satisfied himself and passed an order which clearly indicates that the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Associated Enterprises or Related Parties are carried out at prevailing market prices / arms length price without any scope of shifting of profits. ii. The Assessee Bank has complied with all the Transfer Pricing provisions and submitted the Transfer Pricing Report as required u/s. 92E for AY 2014-15. The same was submitted before the learned DCIT 2(1)(1) during the scrutiny assessment proceedings. After due consideration of the said Report, the background, facts and circumstances of the Bank as discussed above and the provisions of the Act, the learned DCIT 2(1)(1) assessed the international transactions and specified domestic transactions reported by the Bank at arm's length and did not consider it necessary or expedient to refer the case to the Transfer Pricing Officer. The assessment order was passed after making an informed decision and was therefore, not erroneous and prejudicial to the interests of the Revenue." 26. In our considered view, even though ld. PCIT came across the issue of reference to the TPO during the review proceedings under Section 263 of the Act after serving the show cause notice for initiating the revision proceedings and however, the ld. PCIT ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that the Revenue Department created specialized cell to deal with the complicated and complex issues arising out of transfer pricing mechanism, the assessment by this special officer (TPO) is an additional assessment of 'ALP' of international transactions and it can be assessed separately without disturbing the regular assessment carried out by Assessing Officer under Section 143(3) of the Act. Therefore, we are retaining the directions of ld. PCIT in his order relevant only to reference to TPO with a further direction to the Assessing Officer to refer the case to TPO and any adjustment recommended by the TPO alone may be assessed separately and merge the same in the draft assessment order if there is any adjustment to be made, it may be assessed to tax as per law. 29. We notice that ld. AR referred to the decision of Hon'ble Bombay High Court in the case of Maharashtra Hybrid Seeds Co. Ltd. (supra) wherein it has been held that the Tribunal had set-aside the revisionary order finding that while issuing notice under Section 263 of the Act, Commissioner had referred to only one ground that deduction under Section 80-IA of the Act had been wrongly allowed, however, final ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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