TMI Blog2019 (2) TMI 2065X X X X Extracts X X X X X X X X Extracts X X X X ..... 263. The case of the assessee is supported by a decision of M/s. Dev Prakash Contractor [ 2015 (11) TMI 859 - ITAT CHANDIGARH] . Thus it is clear from the above that by setting aside the assessment order , the Ld. CIT has exceeded his jurisdiction by directing the AO to pass the order on the issues as raised by the Ld. CIT in the revisionary order passed especially by directing that the assessment order would be modified to that extent and as such the order u/s 263 of the act can not be sustained as the ld CIT has expressed final opinion and has left no scope for AO s verification of the controversial issues - Decided in favour of assessee. - ITA No.1027/M/2018 - - - Dated:- 19-2-2019 - SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI RAM LAL NEGI, JUDICIAL MEMBER For the Assessee : Ms. Aarti Vissanji, A.R. For the Revenue : Shri Awungshi Gimson, D.R. ORDER Per Rajesh Kumar, Accountant Member: The present appeal has been preferred by the assessee against the order dated 29.12.2017 of the Pr. Commissioner of Income Tax [hereinafter referred to as the Pr. CIT] relevant to assessment year 2013-14. 2. The facts in brief are that the assessment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Act 1949 - the card issuer (assessee in this case) earns a service fee and in not-so-regular cases when the cardholder defaults, a penal interest is charged on the cardholder for not honoring his promise to the card issuer. In view of the above - the bad debt claim of credit card business fails on both restrictions imposed in 36(2)(i) a. The credit card bad debts were never taken into account for computing income and b. This does not represent money lent in the ordinary course of business of banking Therefore, this amount does not qualify to be claimed u/s 36(1)(vii) of the IT Act, 1961. An amount of Rs.1113,01,90,428/- from credit card business has been allowed as bad debts which has rendered the assessment order dated 23.1.2017 erroneous and prejudicial to the interests of revenue. (ii) In statement 20 of computation- the assessee claimed an amount of Rs.710,78,15,170/- as Special Reserve, in the working of special reserve, the assessee has set off interest cost amounting to Rs.300,91,53,9317- against non-fund based income like Gains in Trading, commission etc. arbitrarily at 80% of Income from gains in trading. This has the effect of increasing inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues that may come to the notice of the undersigned during this proceeding. You or any duly authorized person can appear on 11.12.2017 at 04.00 P.M. in Room No.344 Aayakar Bhavan, M.K.Road, Mumbai-400020. Failure to comply will lead to the conclusion that you have nothing to offer and you are agreeable to the proposed action as deemed fit on the materials available on record or gathered during this proceeding. 3. The said show cause notice was replied by the assessee vide written submission dated 18.12.2017 which is reproduced as under: Please refer to the show cause notice dated November 29, 2017 issued under section 263 of the Income tax Act (the Act) for the above mentioned assessment year. As per the said notice, your Honour proposes to revise the assessment order passed by the Assistant Commissioner of Income-tax 2(3}{2), Mumbai (Assessing Officer) under section 143(3) read with section 144C(3) dated January 23, 2017 on the ground that it is erroneous and prejudicial to the interest of the revenue for the reasons stated therein. We give below our submission with respect to each of the issues in respect of which your Honour has issued the captioned notice. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g credit card business either independently or in tie-up arrangement with other card issuing banks can do so with approval of their Board and no prior approval of RBI is required. c. When credit cards issued by the Bank are used by a customer to pay for purchase of goods or services, the Bank makes the payment to the vendor on behalf of the customer which tantamounts to lending by the Bank to the customers. This facility enables the customers to repay the Bank in instalments. On delayed payments the Bank charges interest. In the event the Bank is unable to recover from the customer the amount it has paid on their behalf, it is compelled to write off such balances as irrecoverable and the write off of the same would qualify for a deduction under section 36(1)(vii) of the Act. 1.6 Without prejudice to the aforesaid we submit that if the claim of credit card write off does not qualify under section 36(1)(vii) of the Act the same ought to be allowed as a business loss as per provisions of section 28 of the Act. The fact that the Bank has written off the irrecoverable amount in respect of credit cards is not in dispute and thus the loss incurred must be allowed to the Bank e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the liability of the customer to the vendor or service provider and allows the customer time to pay the said amount. 2. Deduction of Special Reserve claimed under section 36{1){viii) 2.1 The Bank has claimed a deduction under section 36(1}(viii) of the Act in the revised return of income amounting to ^710,78,15,170, the said working was revised during the course of assessment proceeding vide letter dated November 22, 2016 to Rs.657,83,50,134. Section 36(1)(viii) of the Act provides that a banking company which is engaged in providing long term finance for industrial or agricultural development or development of infrastructure facility can get a deduction not exceeding twenty percent of its profits derived from such business of providing long term finance. The intention of the section is to encourage the industrial development and the capita! formation in the country by allowing a special deduction from the profits from term lending business viz. loans and advances extended for five or more years. 2.2 The Bank carries on a single indivisible business having a common pool of resources and overheads. The Bank does not maintain separate books of accounts of income fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plying the ratio. The Assessing Officer has examined the Bank's claim for deduction in this year in para 15.1 and accepted the basis adopted for determining long term finance as in the previous years. The Assessing Officer has followed the basis adopted by him starting from AY 1996-97 onwards. Since the Assessing Officer after examining has taken a particular view on identical facts and supported by presumption that the same is erroneous and prejudicial to the interests of the revenue. 3. Perpetual Debt Instruments (IPD1) 3.1 The Bank had issued Innovative Perpetual Debt Instruments (IPDl) which qualify as Tier I capital of Bank and are disclosed in Schedule 4 I (vi) - Borrowings in India. The details of said bonds are as under: Sr. No Series Allotment date Book Value Date of repayment Amount of repayment 1 DAG06RRB August 9, 2006 233,00,00,000 August 9, 2016 233,00,00,000 DJA07RB1 Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, Para 21] that if one of the conditions is absent recourse cannot be had to section 263(1) of the Act. According to the Court the provisions cannot be invoked to correct each and every type of mistake or error. 5. We further submit that the issues with respect to bad debts allowed under section 36(1)(vii) and deduction under section 36(1)(viii) of the Act have been examined by the Assessing Officer during assessment proceedings and a possible view has been taken. The assessment order passed therefore cannot be treated as erroneous and prejudicial the interests of the Revenue. We reiterate that the order passed under section 143(3) r.w.s. 144C(3) is neither erroneous nor prejudicial and the proceedings under section 263 ought to be dropped. 4. The reply of the assessee did not find favour with the Ld. Pr. CIT and he directed the assessment to be revised on three issues namely vide order dated 29.12.2017; (i) credit card write off are not allowable under section 36(1) (2) (ii) working of deduction in respect of special reserve allowable under section 36(1)(8) (iii) interests on perpetual point are not allowable. 5. The Ld. A.R. vehemently subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to be satisfied that the order of the AO has to be erroneous as well as prejudicial to the interest of the Revenue. The Ld. A.R. submitted that the provisions of section 263 does not postulate and provide for the passing of fresh assessment as per the findings of ld. CIT. In defence of his argument the Ld. A.R. relied on the decision of co-ordinate bench of the Tribunal in the case of M/s. Ved Prakash Contractors vs. CIT in ITA No.573/Chd/2013 A.Y. 2010-11. The Ld. A.R. submitted that in the present case it is not a case where no enquiry was conducted by the AO in the regular assessment proceedings and has applied his mind to the assessee s claim of bad debts as well as deduction of special reserve under section 36(1)(viii) by calling for the necessary details in respect of bad debts which were replied by the assessee vide reply dated 12.08.2016 para 1.5 which contains the tabulated statement and the detail break up of bad debts claimed. Thereafter, the AO allowed the bad debt claim of the assessee including amount irrecoverable on account of credit card after due consideration of the issues. Similarly the assessee has calculated the deduction for special reserve claimed under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. D.R. submitted that there is no basis for that though the same has been accepted in the earlier years would not be an estoppels not to correct the anomaly in the current year. The said allocation is arbitrary and whimsical and therefore has to be set aside as the same is erroneous and prejudicial to the interest of the Revenue. The ld. D.R. argued that the principle of res-judicata does not apply to the income tax proceeding. The Ld. D.R. submitted that the AO should have made inquiries which he has totally failed to do so. Similarly, on the issue of interest on perpetual debt instrument the Ld. D.R. submitted that the perpetual debt instrument are not being borrowed by the assessee and therefore interest paid on such instruments is not admissible under section 36(1)(iii) of the Act. The Ld. D.R. submitted that before allowing interest under section 36(1)(iii), the AO was under obligation whether the issue of perpetual bond qualifies as borrowing for the purpose of said section. The Ld. D.R. submitted that there is no obligation to refund or repayment which is must in the concept of borrowing and if thereis no obligation to refund the capital provided, then interest on suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pportunity of being heard before passing the order and clearly noted that assessment order will be modified to that extent. As per the provisions of section 263, the Ld. CIT has the power to examine the assessment order passed by the AO and if he is of the view that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue then the Ld. CIT may direct the AO to redo the assessment. However, section 263 does not contemplate setting aside an assessment order with a direction to pass the fresh assessment as per findings and directions of Ld. CIT. We are therefore of the considered view that the ld CIT has not exercised his revisionary jurisdiction as per the provisions of section 263 of the Act. The case of the assessee is supported by a decision of the co-ordinate bench of the Tribunal in the case of M/s. Dev Prakash Contractor vs. CIT in ITA No.573/Chd/2015 A.Y. 2010-11 vide order dated 03.11.2015. The relevant part of the order is reproduced below: 17. From the above, it is abundantly clear that CIT has exceeded its jurisdiction in virtually reassessing the case. It is true that the revisional authority itself has wide power to examine the case whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not required to express any final verdict as regards the controversial points. In this case, the Commissioner has directed the Assessing officer to make the specific additions / disallowances, as mentioned in the impugned order. Therefore, the directions given to the Assessing officer to frame a fresh assessment order is bad in law as this is clearly a case in which the Ld. CIT has exceeded his jurisdiction in reassessing the case. Even the direction given by the CIT to the Assessing officer to provide an opportunity of being heard to the assessee is also of no consequence. 18. It is relevant to observe here that while deciding the appeal on merits we have concluded that the assessment order passed by the Assessing officer cannot be held to be erroneous and prejudicial to the interest of Revenue, therefore, the order passed u/s 263 of the Act is not maintainable. At the same time, we have also concluded that the impugned order is not tenable on the ground that the Ld. Commissioner has exceeded his jurisdiction in virtually reassessing the case instead of remanding the matter to the Assessing officer for fresh assessment order without recording his final conclusion on the poin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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