9911796707
TMI Blog2022 (5) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... p; (Amount in Rs. lacs) A.Y. P1 P2 Total (P1 + P2) P3 P1A 2009-10 643.74 262.57 906.31 764.25 - 2013-14 514.00 381.23 895.23 1698.91 8.00 2014-15 442.82 755.44 1198.26 1899.66 12.15 P1 Provision for bad and doubtful debts P1A Provision against standard assets (forming part of P1) P2 Provision for overdue interest on NPA A/cs P3 Deduction eligible u/s. 36(1)(viia) The figures afore-tabulated are admitted. For each of the years under reference, the Assessing Officer (AO) disallowed the provision for bad and doubtful debts to the extent it related to standard assets. Inasmuch as the corresponding debts (assets), i.e., against which the provision is being claimed - which is as per the provisioning norms prescribed by the Reserve Bank of India (RBI), its' regulator, are 'standard assets' (i.e., debts considered good), the AO considered the provision there-against by the assessee as a contradiction in terms. In his view, it was not more than a provision for a contingent liability, inadmissible u/s. 37(1). The second disallowance by the AO is qua provision for interest (P2). The same, in his view, has no basis in law, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 36; (e) - (f) ... (g) "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P; (h) the expressions "deposit taking non-banking financial company", "non-banking financial company" and "systemically important non-deposit taking non- banking financial company" shall have the meanings respectively assigned to them in clauses (e), (f) and (g) of Explanation 4 to section 43B. (emphasis, by underlining & in italics, ours) Aggrieved, both the assessee and the Revenue are in appeal; the former by way of CO (for two out of the three years). 3. Before us, the Revenue's case qua both the disallowances made in assessment, since deleted by the first appellate authority, was the same as of the AO. The assessee's grievance is that the ld. CIT(A), though accepted its' additional ground, i.e., with reference to sec. 43D, had issued no finding qua sec. 36(1)(viia), i.e., the principal section under which the claim was pressed and, in its' view, admissible. 4. We have heard the parties, and perused the mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be prospective, i.e., AY 2017-18 onwards. The assessee, on the other hand, claims it to be retrospective, i.e., since the inception of the provision by Finance Act, 1991, w.e.f. 01/04/1991. We see no reason for the said retrospective operation, or even w.e.f. 01/04/1999, whereat the provision was substituted by Finance Act, 1999. Why, Shri Ganguly, the ld. counsel for the assessee, would during hearing himself state of a different treatment for cooperative banks in view of the exemption to their profits u/s. 80P. In fact, the same words stand inserted in s. 36(1)(viia) by Finance Act, 2007, w.e.f. 01/04/2007, the date from which s. 80P(4) stands inserted (again) on the statute, excluding cooperative banks, and which are not claimed as retrospective! There was no reference to the Memorandum Explaining the Provisions of the relevant Finance Bill; Budget Speech, etc. explaining the amendment, which would throw light thereon, by Sh. Ganguly. There was, further, no explanation by him as to why the said amendment by Finance Act, 2018 was made retrospective from 01/4/2017, i.e., AY 2017-18 onwards, as the provisions of Finance Act, 2018 would normally be applicable from 01/4/2019, i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders are sans any reference to this aspect of the matter. In fine, the claim is bizarre, and without reference to the legislative history of the provision, which stands amended retrospectively - so that there has been clearly due consideration of its retrospectivity, by FA, 2018; the provision itself, as well as the facts of the case. Reliance on sec. 43D, whichever way one may look at it, thus, does not therefore help the assessee's case. 4.3 The assessee next claims that inasmuch as the total provision (P1 + P2) made in accounts does not exceed that exigible u/s. 36(1)(viia) (P3), the claim is admissible u/s. 36(1)(viia) itself, as the provision for overdue interest is also in the nature of provision for bad and doubtful debts. This is stated on the basis that the interest, on debit to the borrowers' account, becomes part of the debt due therefrom. The argument, seemingly attractive, is found misconceived on scrutiny. It, rather, as we shall presently see, raises a serious issue. The unrealised interest on a NPA A/c, is, as per the accounting norms, to be debited not to the borrower (lendee)'s A/c, but to the 'Interest Receivable A/c', with a corresponding credit to the 'Overd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as claimed, indeed debited to the (NPA) borrowers' accounts, the provision for bad and doubtful assets would get enhanced to the extent made on the said amount. That is, there would be a 'double' provision in respect of this interest sum, firstly, at 100% thereof (as provision for overdue interest) and, then, inasmuch as the interest forms part of the principal debt, per the provisioning norms following the RBI guidelines. This is the serious consequence referred to hereinabove, as it results in provisioning against the said interest in excess of 100% thereof. We shall advert to this aspect, which impinges directly on the correct (amount of) claim in respect of provision for overdue interest, later. 4.4 On principle, we, nevertheless, consider the assessee's case as liable to be accepted. The reason is simple. The provision (for overdue interest) only seeks to de-recognize unrealised interest income on NPA A/cs falling under different categories of sub-standard assets, for which provision (for non-realization of value) at different rates stands provided (as per the provisioning norms by RBI) and accepted. Where, then, one may ask, is the question of interest arising on these accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5000 (provision in respect of interest, being unrealized and qua a NPA borrower) B. Receip of interest a) Bank A/c Dr. 1,000 To Interest Income Cr. 1,000 (interest realized during the period) b) Provision for overdue interest Dr. 1,000 To Borrower A/c Cr. 1000 (reversal of provision for unrealized interest on being realized) 4.5 With a view to therefore verify if the assessee has followed the correct accounting prescription, i.e., in effect, as where interest is accounted as income on receipt, reversing the provision for overdue interest (having been already credited for the entire unrealized interest, which stands also debited to the borrower's account) and the debtor (receivable) account, i.e., to the extent of receipt, as we understand to be the case (as depicted per the accounting entries afore-stated), the matter is, accepting the assessee's case in principle, restored to the file of the AO for the purpose. The AO shall confirm the same, with a view to ensure that there is no mismatch between what is being stated (by the assessee) and understood (by us), and which forms the basis of our decision, and what ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ample, from Rs. 2000 to Rs. 4000. This excess provision arising for the reason that unrealized interest on a doubtful asset stands accounted as income in the first place, would therefore need to be excluded. There could be a reverse case as well, as where an account is upgraded, reducing the provision now required in its respect. We understand all this to be no mean task, but the same has arisen directly as a result of, as it appears, a faulty accounting, inconsistent with the standard accounting prescription of not recognizing income on NPAs, so that the borrower account balance is not increased by this sum. The interest, though worked out, is kept in shadow accounts or in memoranda accounts. 4.6 The AO shall, upon due verification, decide in accordance with law, i.e., in conformity with what stands stated by us, per a speaking order, issuing clear and definite findings. We decide accordingly. 5. We may finally address the additional issue for AY 2009-10. The assessee challenges the re-assessment proceedings for this year on the ground of invalidity of the reasons recorded, which, as stated by Shri Ganguly, do not lead to any reason to believe escapement of income chargeable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant year, and on the basis of which reassessment stands initiated. Why, in the facts and circumstances of the instant case, the said verification in fact survives even the assessment/s, with we, at the second appellate stage, considering it proper to restore the matter back for the purpose. Rather, inasmuch as it may result in extra provision against overdue interest, as is apparently so on the basis of the admitted facts (i.e., the said reason read with the figures for this year in Table at para 2 of this order), the provision for overdue interest may have to be disallowed, so that the accounting treatment followed is not, as claimed, equivalent, i.e., in effect. We may though hasten to add that we are not pre-determining the issue, nor be construed as having issued any finding in the matter, but are only justifying the reason recorded on that basis, i.e., as being a genuine reason, held bona fide. The said Ground is thus a valid ground for reopening, even if no disallowance on that count finally materializes in assessment (Central Provinces Manganese Ore Co. Ltd. v. CIT [1991] 191 ITR 662 (SC)). In fact, in our view, the provision for overdue interest disallowed in ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
