TMI Blog2023 (10) TMI 1380X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 - SUPREME COURT] categorically held that the power of the CIT(A) is co-terminus with that of the AO and enhancement can be made on any issue which was touched upon by the AO in the assessment order. According to Hon ble Supreme Court, the CIT(A) cannot go beyond the assessment record and discover a new source of income for enhancement. In the present case before CIT(A), the claim of deduction u/s. 36(1)(viia) of the Act was very much before the AO and he has gone into the claim of deduction and only the issue before CIT(A) is in connection with the correctness of proposal of enhancement of assessment order. We find that the CIT(A) has not adverted to new issue rather this issue is very much under discussion of AO and he has utilized his power of enhancement to correct the assessment order and enhance the income to the extent of claim of deduction u/s. 36(1)(viia) of the Act. The assessee has claimed more than what was provision created in the books of accounts. Hence, we confirm the enhancement and dismiss this issue of assessee s appeal. Claim of deduction u/s. 36(1)(viia) - CIT(A) held that the deduction cannot exceed the provision made for bad and doubtful debts in the books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount for which no provision for bad or doubtful debt have been created in the books of accounts of the assessee. Hence in our view, the nonassessment of an item of income chargeable to tax would warrant formation of requisite belief to initiate the proceedings within four years from the end of the relevant assessment year even yet where full disclosure was made and income chargeable to tax had escaped assessment from being included in the final assessment order in which taxable income was worked out. Hence according to us, this ground of the assessee does not succeed and hence, dismissed. Rectification u/s 154 to rectify the claim of deduction u/s. 36(1)(viia) - According to AO, deduction u/s. 36(1)(viia) of the Act is allowable only to the extent of claim made in the books of accounts i.e., provision for bad and doubtful debts made in the books of accounts and it cannot be claimed in the computation simpliciter - HELD THAT:- We noted that there is a lot of debate and it is highly debatable issue and it cannot be decided while acting u/s. 154 of the Act as there is a limitation in the provisions of section 154 of the Act that only the mistake apparent from record which can be recti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... os. 2 3:- 2. The Ld.CIT(A) erred in quashing the proceedings u/s. 147 without appreciating that the reopening does not fall within the 1st proviso of section 147, therefore not requiring the AO to establish failure on the part of assessee to fully and truly disclose the material and facts required for correct assessment of income. 3. The Ld.CIT(A) has erred in quashing the reassessment by holding that the reasons recorded by the AO do not indicate as to how and why there is an escapement of income and the reasons recorded do not have the required ingredients for invoking the jurisdiction u/s. 147. 4. Briefly stated facts are that the assessee is a co-operative bank and it files its return of income originally i.e. e-return for the relevant assessment year 2008-09 on 29.09.2008. This return of income was processed u/s. 143(1) of the Act. The assessee s case was selected for scrutiny assessment under CASS and accordingly notice u/s. 143(2) of the Act was issued on 17.08.2009. Accordingly, assessment was completed by the AO u/s. 143(3)(ii) of the Act vide order dated 28.12.2010. The AO made certain additions by making disallowance of inadmissible items and also recomputed the claim of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of deduction of Rs. 3,47,01,173/- towards release of provisions and non-statutory reserves. Another disallowance was made on account of deduction claimed u/s. 36(1)(viia) of the Act on account of non-creation of reserve and doubtful debts amounting to Rs. 9,78,37,443/-. Aggrieved, assessee preferred appeal before CIT(A). 5. The CIT(A) quashed the reopening by holding that the reopening is beyond four years and assessee s case falls under first proviso to section 147 of the Act as the original assessment was completed u/s 143(3) of the Act and Revenue could not show any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year 2008-09. Accordingly, the CIT(A) quashed the reopening by observing in para 3.2 as under:- 3.2. I have considered the matter. I have seen the reason recorded for reopening of assessment. In the original order u/s 143(3), the AO had already perused the accounts that were produced before him. He dealt at length on the assessee's claim of deduction u/s 36(1)(viia). Materials for him to form opinion regarding quantum of expenses allowable u/s 36(1) (vii) (a) were a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as escaped assessment. This should be coupled along with the requirement that there was a failure on the part of the assessee to disclose fully and truly of material facts necessary for the assessment. In the present case, for the AY 200809, a perusal o the reasons recorded shows that the neither fresh information was the possession of the AO nor the AO has recorded anywhere that the income of the assessee escaped assessment by the stating the reasons of failure on the parts of the assessee to disclose fully and truly of material facts necessary for his assessment for that AY. This being so, we are of the view that the re-opening by the AO upheld by the Ld.CIT(A) is unsustainable and the re-opening has been done only on the basis of a change of opinion, which is impermissible. In these circumstances, the reopening of the assessment is held to be bad in law and consequently quashed. Consequently, the Assessment Order u/s 143(3) dated 26.03.2015 stands quashed. As stated earlier, I have seen the reason recorded for reopening. I have also seen the relevant facts available in the record. Hon ble Tribunal had perused the facts of the case on this particular issue. Thereafter, an order w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this Section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under Sub-section (3) of Section 143 or this Section has been made for the relevant assessment year, no action shall be taken under this Section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. 16. This new Section has made a radical departure from the ori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of appeal:- VALIDITY OF THE USE OF POWEROF ENHANCEMENT US.251(2) 2. CIT(A) held that deduction u/s. 36(1)(viia) is available only to the extent of least of the following: a) Amount of provision for bad and doubtful debts debited in the books of accounts b) Amount as computed at 7.5% of total income plus 10% of aggregate average rural advances made by the assessee. The plain reading of Section 36(1)(viia) does not suggest such a comparative restriction. The assessing officer taking into consideration the Section has allowed the deduction without such comparative restriction. The CIT(A) appeals cannot use his powers of enhancement to deny or restrict a claim granted by the assessing officer. The CIT(A)'s powers of enhancement can be used to enhance the income from a source which is already the subject matter of an assessment. Restricting or denying a claim will not be within the ambit of enhancement powers of the CIT(A). 9. Brief facts are that the AO on perusal of audit report and income and expenditure statement of assessee for the year ending 31.03.2008 noted that the assessee has created reserves under various heads and other miscellaneous expenditure for an amount of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver bare reading of provision of section 36(1)(viia) of the Act does not indicate that the deduction is to be restricted as per the provisions made in the books of accounts. It was argued that even this is a new source for which CIT(A) want to make disallowance and CIT(A) is not empowered to discover new source for making disallowance under the powers of enhancement given to him. But, CIT(A) stated that the AO has considered this issue in the assessment order as regards to claim of deduction u/s. 36(1)(viia) of the Act but only dispute is quantum of deduction, which is very much part of the assessment order and hence, the CIT(A) has every power to enhance the very source of income which is examined by the AO. For this, the CIT(A) recorded this fact and his adjudication in para 4.4.2 as under:- 4.4.2. From a plain reading of the Act, it is clear that the CIT (A) has the power to confirm, reduce, enhance or annul the assessment. The only requirement is that before enhancing an assessment, the appellant has to be given a reasonable opportunity of representation against the proposed enhancement. In case of present assessee, after due consideration of facts in the record, it was felt th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much before the AO and he has gone into the claim of deduction and only the issue before CIT(A) is in connection with the correctness of proposal of enhancement of assessment order. We find that the CIT(A) has not adverted to new issue rather this issue is very much under discussion of AO and he has utilized his power of enhancement to correct the assessment order and enhance the income to the extent of claim of deduction u/s. 36(1)(viia) of the Act. The assessee has claimed more than what was provision created in the books of accounts. Hence, we confirm the enhancement and dismiss this issue of assessee s appeal. 12. The next issue in this appeal of assessee is as regards to the claim of deduction u/s. 36(1)(viia) of the Act, wherein the CIT(A) held that the deduction cannot exceed the provision made for bad and doubtful debts in the books of accounts. For this, the assessee has raised the following grounds:- INTERPRETATION OF SECTION 36(1)(viia) 3. The CIT(A) erred in holding that total deduction u/s. 36(1) (viia) cannot exceed the provision made for bad and doubtful debts. 4. The CIT(A) erred in holding that 7.5% of the total income must be computed after adjusting brought forwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,900/- the average rural advance is Rs. 16,05,94,500/-. Total of 7.5% profit and 10% of rural advance comes Rs. 16,81,31,057/-. But the provision is only Rs. 11,33,06,946/-. Hence, deduction u/s 36(1)(viia) is restricted to Rs. 11,33,06,946/-. There is an enhancement of Rs. 3,62,07,301/-. Aggrieved, assessee is now in appeal before the Tribunal. 14. We have heard rival contentions and gone through facts and circumstances of the case. We find that the facts are undisputed and the issue is covered bythe decision of Chennai Bench of ITAT in the case of Cuddalore District Central Co-operative Bank Ltd. in ITA No. 739/CHNY/2020 for Assessment Year 2009-10 which holds that the deduction u/s 36(1)(viia) of the Act is to be restricted to the extent of actual provision made in the books of accounts. In our view, the issue before ITAT, Chennai, A Bench in the case of Cuddalore District Central Co-operative Bank Ltd., supra, dealt with interpretation of section 36(1)(viia) of the Act, wherein it has been held by the Bench that deduction u/s. 36(1)(viia) cannot exceed the actual provisions made in the books of accounts. This decision follows decision rendered by another bench in the same asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icultural advances of Rs. 801.56 crores. Thereafter, the AO after examining the aforesaid details came to the conclusion that the claim of the assessee was allowable and he accordingly allowed the claim of the assessee u/s 36(1)(viia) of the Act. The said claim was in accordance with law and as provided in the provisions of Section 36(1)(viia) of the Act. 14.2 Moreover, before Tribunal the issue was revision proceedings u/s. 263 of the Act, initiated by the CIT. The case law of Southern Technologies Ltd., vs. JCIT, [2010] 320 ITR 577 (SC) has dealt with the issue as under:- Analysis of Section 36(1)(viia) Section 36(1)(vii) provides for a deduction in the computation of taxable profits for the debt established to be a bad debt. Section 36(1)(viia) provides for a deduction in respect of any provision for bad and doubtful debt made by a Scheduled Bank or Non- Scheduled Bank in relation to advances made by its rural branches, of a sum not exceeding a specified percentage of the aggregate average advances by such branches. Having regard to the increasing social commitment, Section 36(1)(viia) has been amended to provide that in respect of provision for bad and doubtful debt made by a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is a must for claiming such deduction. The Tribunal has rightly pointed out that this issue stands further clarified from the proviso to clause (vii) of Section 36(1) of the Act, which reads as under: Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause. 7. This also clearly shows that making of provision equal to the amount claimed as deduction in the account books is necessary for claiming deduction under Section 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year. 8. In the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... language employed in the section is clear and ambiguous. In the absence of any provision, the assessee is not entitled to deduction. However, the assessee is entitled to deduction to the extent provision is made in the accounts subject to the limit mentioned in section 36(1)(viia) of the Act. Hence, this issue is squarely covered by these two decisions of Hon ble High Court of Karnataka and Hon ble Punjab Haryana High Court and accordingly decided against the assessee. Therefore, this appeal of the assessee is dismissed. Assessee s Appeals in ITA Nos. 858, 854, 855 856/CHNY/2020, AYs 2009-10, 2010-11 2011-12 2012-13 15. The appeals by the assessee in ITA Nos.858, 854, 855 856/CHNY/2020 are arising out of common order of the Commissioner of Income Tax (Appeals), Puducherry in ITA No. 49,50,42,52/CIT(A)-PDY/2017-18 dated 31.08.2020. The assessments were framed by the DCIT, Villupuram Circle, Villupuram, for the assessment years 2009-10, 2010-11 2011-12 u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter the Act ) vide orders dated 26.03.2015, 12.03.2015 12.03.2015 respectively and for assessment year 2012-13 u/s. 143(3) vide order dated 12.03.2015. 16. The first common is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the facts of the case as noted by the CIT(A) and noted that the CIT(A)has adjudicated this issue vide para 5.4.2 5.4.3 as under:- 5.4.2. I have considered the matter In this case. notice u/s 148 dated 20.3.2014 was issued and served on assessee. In response to that, the assessee filed an application dated 17.04.2014 asking the AO to treat the return already filed on 28.09,2009 as return filed in response to notice u/s 148 of the Act. Subsequently, notices u/s 143(2) 142 (2) were issued and served on assessee. The notice u/s 143(2) was much within the period of six month from the end of the month in which assessee's letter asking for treatment of return filed earlier as return u/s 148 of the Act. It is rather surprising how assessee can take up this ground. Assessee did not file separate return in response to notice u/s 148 of the Act. The time period for issuing of notices has to be reckoned with from the date on which assessee's letter requesting for treatment of regular return as return in response to notice u/s 148 of the Act was received by the AO. 5.4.3. On this particular issue, the Hon'ble Tribunal, before setting aside the matter, had gone into the merit of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 2 to 9 :- 2. The CIT(A) erred in relying on the inaccuracy in respect of claiming Kacharapalayam Branch as rural branch, which has been set right by making disallowance in the original assessment proceedings to overcome the hurdle provided in terms of 1st proviso to Section 147, (i.e. failure to disclose fully and trully all material facts) 3. The CIT(A) erred in holding that sanction of higher officer is not required if notice was issued within a period of four years from the end of the assessment year. 4. The CIT(A) erred in rejecting the challenge to the re-opening also on the ground that it was not raised during the assessment proceedings. 5. The CIT(A) erred in relying also on the Order of this Hon'ble Tribunal in the 1st round of appeal to hold that re-opening is valid. This could not have been done when the entire matter was remitted back to the CIT(A) for de novo adjudication of all issues by the Hon'ble Madras High Court. 6. The CIT(A) erred in upholding the re-assessment and more particularly without appreciating the fact that the reason recorded by the assessing officer for initiating proceeding u/d. 147 did not survive in the assessment. 7. The Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year, I had taken a view, in consonance with order of Hon'ble Tribunal that the reopening was invalid in that particular year. The decision taken was also due to the reason that even the Hon'ble Tribunal went into the merit of reopening, for A.Y. 200809 and found it fit to quash the reopening proceeding. The reopening was hit by mischief of explanation to section 147 of the Act. But with regard to A.Yrs 2009-10 onwards, four years have not elapsed from the end of relevant assessment years on the dates on which notices u/s 148 of the Act were issued. Therefore, specific failure, of assessee like failing to furnish return or failure to disclose all material facts that were required for assessment of income need not come into play. Suffice it to say that the AO detected certain defects in the claim of seduction u/s 36(1) (viia) of the Act. Even if one goes by the fact, in the original assessment, the branch of the bank located at Kachirappalayam was claimed to be a rural branch. But the same was found to be an urban branch. Thus, material facts supplied by appellant were inaccurate for computation of income. Thus, reopening was justifiable on this score also. 5.3.5. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reopening clearly shows that there has been an error in the computation of the deduction u/s 36(1)(viia). Admittedly, the reopening for the purpose of restricting the allowance which has been granted in excess has resulted in income chargeable to tax escaping assessment. In view of the Explanation-1 and also Explanation -2 ( 2) to sec. 147, the re-opening has been done within four years from the end of the relevant A.Y, we are of the view that the re-opening is valid In view of the decision of the Hon'ble Tribunal also, which is binding on me, the reopening u/s 147 in this year and subsequent two years are held to be valid. Ground No. 3 is dismissed. Aggrieved, now assessee is in appeal before the Tribunal. 22. We have heard rival contentions and gone through facts and circumstances of the case. The ld.counsel for the assessee has not made serious arguments on this issue. Going through the facts, we noted that the AO detected that there is escapement of income in the claim of deduction u/s. 36(1)(viia) of the Act in regard to amount claimed by assessee is in excess of provision made in the books of accounts in regard to provision for bad and doubtful debts. Hence, the AO forme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 27,00,633/- forming part of the Non statutory reserve was added back under the heading Depreciation debited to P L A/c in the memo for computation of Income. 25. Briefly stated facts are that the assessee is a co-operative bank engaged in the business of banking. The AO during the course of assessment proceedings noticed from the accounts of the assessee for the year ended 31.03.2012 that the assessee has created non-statutory reserve of Rs. 41,61,359/- and adopted the same to profit loss account. According to AO, this is not allowable deduction as per Income-tax Act and the assessee has not added back the same to the net profit while computing its total income for income-tax purposes. Accordingly, this addition was made by the AO and as agreed by the bank vide order sheet noting dated 12.02.2015. Aggrieved, assessee preferred appeal before CIT(A). 26. At the outset, it is noticed that the CIT(A) has not adjudicated this issue and the assessee before AO agreed for this addition. Therefore, nothing survives for our adjudication and hence, the same is dismissed. Therefore, the appeal filed by the assessee in ITA No. 856/CHNY/2020 is dismissed. ITA No. 2645/CHNY/2019 27. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in the books of account instead of allowing the claim u/s. 36(1)(viia) as per the computation prescribed in that section. 31. Brief facts are that the assessee filed its return of income for the relevant assessment year 2014-15 on 27.09.2013. The original assessment was completed u/s. 143(3) of the Act vide order dated 19.12.2016. The assessee preferred appeal against the original assessment order before CIT(A)-13, Chennai, who vide its order in ITA No. 166/CIT(A)-13/AY2014-15 dated 18.07.2017 allowed relief to the assessee on this issue and directed the AO to allow deduction u/s. 36(1)(viia) r.w.s. 6ABA of the IT Rules. Accordingly, the AO vide order dated 08.09.2017 gave effect to the order of CIT(A)-13, Chennai. In the said order, the deduction u/s. 36(1)(viia) of the Act was allowed for Rs. 33,42,28,494/- instead of Rs. 20,00,18,732/- as claimed by the assessee in the return of income filed as well as in the provision made in the income and expenditure statement under the head provisions for bad and doubtful assets for the relevant assessment year. The mistake being apparent from records, a notice u/s. 154 of the Act dated 24.08.2018 was issued to the assessee. The AO afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the ratio of the Hon'ble SC quoted supra, the impugned appeal is therefore not maintainable and hence dismissed. Aggrieved, assessee is in appeal before the Tribunal. 33. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO wanted to rectify the claim of deduction u/s. 36(1)(viia) of the Act which was allowed by AO and consequently while giving effect to the order of CIT(A) dated 18.07.2017 at Rs. 33,42,28,494/- instead of Rs. 20,00,18,732/-. According to AO, deduction u/s. 36(1)(viia) of the Act is allowable only to the extent of claim made in the books of accounts i.e., provision for bad and doubtful debts made in the books of accounts and it cannot be claimed in the computation simpliciter. We noted that there is a lot of debate and it is highly debatable issue and it cannot be decided while acting u/s. 154 of the Act as there is a limitation in the provisions of section 154 of the Act that only the mistake apparent from record which can be rectified but where two views are possible or there is a debate available, it cannot be rectified u/s. 154 of the Act. Here is the case where the AO has allowed this claim while giv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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