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TMI Blog2024 (10) TMI 919X X X X Extracts X X X X X X X X Extracts X X X X ..... iew upon verifying the details available on record. On the contention of the PCIT that the AO has not specifically enquired into the allowability of the claim of the deduction on standard assets u/s 36(1)(viia) we notice that the AO has raised a specific query on the same and the assessee has filed the relevant reply for the same. Therefore, it cannot be stated that the AO has not made enquiry into the issue of allowability of the claim of the deduction on standard assets u/s 36(1)(viia). Assessee has no control over the way an assessment order is drafted and generally, the issues which are accepted do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/ disallowances are made. In our considered view the error envisaged by section 263 of the Act should actually be an error either of fact or of law and in the given case the PCIT has not brought anything on record to show that the deduction claimed by the assessee has been erroneously claimed under the law or any material to show that there been an error in the order that is prejudicial to the interest of the revenue. As in the case of Mal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The PCIT further noticed that similar claim is made for an amount of Rs. 43,04,00,658/- for AY 2019-20. PCIT was of the view that the deduction under section 36(1)(vii) is towards provision for bad and doubtful debts and since in assessee's case the provision made is towards standard assets the same could not be claimed as deduction under section 36(1)(viia). The PCIT invoked the provisions of section 263 stating that the AO failed to make specific enquiries on this issue and accordingly issued a show-cause notice to the assessee. The assessee submitted that during the course of assessment, the AO has raised specific query regarding the provision for bad and doubtful debits and that the AO based on the relevant details submitted by the assessee allowed the deduction. The assessee relied on various judicial pronouncements with regard to the order of the AO not being erroneous and prejudicial to the interest of the revenue where the AO has taken a plausible view after considering the submissions of the assessee. The assessee further submitted that the provision is made by the assessee as per the RBI Master Circular dated 01.07.2015 at 0.4%. The assessee further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the interest of the revenue. The phrase prejudicial to the interests of the Revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy Co. v. S.P. Jain [(1957) 31 ITR 872 (Cal)), the High Court of Karnataka in CIT v. T. Narayana Pai ((1975) 98 ITR 422 (Kant)), the High Court of Bombay in CIT v. Gabriel India Ltd. [(1993) 203 ITR 108 (Bom)) and the High Court of Gujarat in CIT v. Minalben S. Parikh [(1995) 215 ITR 81 (Guj)) treated loss of tax as prejudicial to the interests of the Revenue. The High Court of Madras in Venkatakrishna Rice Co. v. CIT [(1987) 163 ITR 129 (Mad)] interpreting prejudicial to the interests of the Revenue . The High Court held: In this context, (it must) be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be sorne. grievous error in the order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6(1)(viia) (a) whereas the assessee is a Public Financial Institution and the applicable section is 36(1)(viia) (c) of the Act. The RBI circular for co-operative banks are different from the circular issued for the Public Financial Institution and Banks. Therefore, the case laws relied upon are not applicable to the facts of the case. 20. For the AY 2018-19, the assessee had as per books of accounts debited Rs. 184,50,00,000/- as provision for standard assets. This provision for standard assets is fully included in the deduction of Rs. 186,13,11,000/- allowed u/s 36(1)(viia) which is otherwise not allowable in view of relevant clauses of section 36(1)(viia). 21. It is observed the assessee has claimed deduction u/s 36(1)(viia)(c). The section 36(1)(viia)(c) is reproduced herewith- 36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28- (viia) in respect of any provision for bad and doubtful debts made by- (c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther loans and advances not included in (a) (b) and (c) above at 0.40 per cent (ii) The provisions on standard assets should not be reckoned for arriving at net NPAs. (iii) The provisions towards Standard Assets need not be netted from gross advances but shown separately as 'Contingent Provisions against Standard Assets' under 'Other Liabilities and Provisions Others' in Schedule 5 of the balance sheet. The RBI Circular in Para 5.5 (iii) clearly states that the provisions towards standard assets should be shown separately as Contingent Provisions . Therefore, in combined reading of the proviso to clause (c) to section 36(1)(viia) clearly shows that the deduction is allowable for the provision on doubtful and loss asset and the provision for the standard asset is only contingent in nature. Therefore, it is not allowable as per the provisions of the Act. 23. Therefore, considering the facts, the order u/s 143(3) r.w.s 144B dated 25.9.2021 for the AY 2018-19 is set aside as it is erroneous and prejudicial to the interests of revenue and the AO is directed to conduct the enquiries into the allowability of deduction u/s 36(1) (viia)(c) on the standard assets and pass the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the interest of the revenue on this count. 6. The ld. DR on the other hand argued that the provisions of section 263 are invoked by the PCIT for the reason that the AO has not conducted full enquiry towards a deduction claimed by the assessee under section 36(1)(viia). The ld. DR further submitted that the AO called for details pertaining to the claim and the assessee has furnished the details without providing any further details as to why the deduction is allowable. The ld. DR also submitted that the AO has allowed the claim without examining the details furnished by the assessee and therefore, the PCIT has correctly invoked the provisions of section 263 on the ground that AO has not properly made enquiries. 7. We heard the parties and perused the material available on record. The assessee has made a provision as per the RBI Circular dated 01.07.2015 and has claimed the same as deduction under section 36(1)(viia) of the Act. The AO during the course of assessment called for details pertaining to the claim and the assessee submitted the relevant details. The AO while completing the assessment did not make any disallowance towards the same based on the details submitted by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in doing so, the PCIT must have some material which would enable to form a prima facie opinion that the order passed by the AO is erroneous, insofar as it is prejudicial to the interests of the Revenue. The reason of the PCIT for holding the AO's order to be erroneous is that the AO has allowed the deduction under section 36(1)(viia) of the Act. There is no dispute that the assessee has made the provision as per the Master Cirular of RBI and that the provision is made towards standard assets. The PCIT is of the view that section 36 starts with in respect of any provision for bad and doubtful debts and therefore, the deduction is allowable only for the bad and doubtful debts, whereas, the assessee has claimed the deduction on standard assets as well. During the course of hearing the ld AR presented case laws where it has been held that deduction under section 36(1)(viia) is allowable for the entire provision made as per RBI circular including the provision towards standard assets. The ld DR also fairly submitted that the allowability of the deduction as claimed by the assessee is a debatable issue. In this regard it is relevant quote the following observations of the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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