Ita/100015/2014 Of The Commissioner Of Income Tax v. Karnataka Vikas Grameen Bank

IN THE HIGH COURT OF KARNATAKA|DHARWAD BENCH DATEKED THIS THE [th]DAY OF NOVEMBER, 2017. PRESENT THE HON’BLE MRS. JUSTICE S.SUJATHA AND THE HON’BLE Dr. JUSTICE H. B. PRABHAKARA SASTRY INCOME TAX APPEAL No.100015/2014 BETWEEN 1]THE COMMISSIONER OF INCOME TAX, C.R. BUILDING, NAVANAGAR, HUBLI. «|THE Asst. COMMISSIONER OF INCOME TAX, CIRCLE 2(1),| HUBLI. ... APPBLLANTS (BY SRI.Y.V. RAVIRAJ, ADV.) AND: 1.|KARNATAKA VIKAS GRAMEEN BANK, HEAD OFFICE, BELGAUM ROAD, DHARWAIT) _. RESPONDENT (BY SRI. A. SHANKAR AND SHASHANK HEGDE, ADVS.) THIS APPBKRAL IS FILED UNDER SBCTION JO0OA OF TINCOME TAX ACT, 1961 AGAINST THE ORDER PASSED IN ITA.NO.227/BANG/2012, ON THE FILE OF THE INCOME TAXAPPELLATE TRIBUNAL, BANGALORE BENCH ‘°C’, THE APPEALKFILED BY THE ASSEHESSHEE FOR THE ASSESSMENT YREAR 2O0IS DISMISSED. THIS APPKAL COMING ON FOR ADMISSIONTHIS DAY,S SUJATHAJ.,DELIVERED THE FOLLOWING: JUDGMENT This appeal is filed by the Revenue under Section260A of the Income Tax Act, 1961 (for short, ‘the Act’)challenging the order of the Income Tax AppellateTribunal, Bengaluru Bench “C” (for short, ‘the ITAT’) inITA No.227/Bang/2012, dated 28.11.2013. a2The respondent-assessee is a regional rural bankengaged in the business of banking and also makinginvestment in Government and other securities. For the!assessment year 2008-09, the assessee filed its return ofThe assessment proceedings were taken up by theassessing authority by issuing notice under Section 143(2).read with Section 129 of the Act on 27.08.2010, which|came to be concluded by making various additions to thereturned income and demand was made accordingly. —Among the various additions made by the assessing income declaring a total income of Rs.93,22,72,000/-. | authority, two additions are the subject matter of thisappeal. — 3.On the additions made by the assessing authority,the assessee preferred an appeal before the Commissionerof Income Tax (Appeals) (for short, “‘CIT(A)’), which came tobe allowed deleting the additions made by the assessingauthority. On further appeal before the ITAT, the order ofthe CIT(A) was confirmed. Being aggrieved, the Revenue isin appeal raising the following substantial questions oflaw: 1.Whether on the facts and circumstances of the|case and in law the Tribunal was justified in|allowing the claim of deduction made by the|assessee at Rs.19,62,04,357/- under Section|31(1) (vi a) of the Income Tax Act, 1961?case and in law the Tribunal was justified in|allowing the claim of deduction made by the|assessee at Rs.19,62,04,357/- under Section|31(1) (vi a) of the Income Tax Act, 1961? 2)Whether on the facts and circumstances of the|case the Tribunal was justified in allowing the|excess claim of deduction made by the assessee|under Section 31(1) (vit) of the Income Tax Act)1961 at Rs.6,74,91,000/- without properly|appreciating explanation “h” to Section 36(1)(viit) of the Income Tax Act, 1961?case the Tribunal was justified in allowing the|excess claim of deduction made by the assessee|under Section 31(1) (vit) of the Income Tax Act)1961 at Rs.6,74,91,000/- without properly|appreciating explanation “h” to Section 36(1)(viit) of the Income Tax Act, 1961? 4.sri. Y.V. Raviraj, learned counsel appearing for the| Revenue would submit that during the assessment 2)Whether on the facts and circumstances of the|case the Tribunal was justified in allowing the|excess claim of deduction made by the assessee|under Section 31(1) (vit) of the Income Tax Act)1961 at Rs.6,74,91,000/- without properly|appreciating explanation “h” to Section 36(1)(viit) of the Income Tax Act, 1961?case the Tribunal was justified in allowing the|excess claim of deduction made by the assessee|under Section 31(1) (vit) of the Income Tax Act)1961 at Rs.6,74,91,000/- without properly|appreciating explanation “h” to Section 36(1)(viit) of the Income Tax Act, 1961? 4.sri. Y.V. Raviraj, learned counsel appearing for the| Revenue would submit that during the assessment proceedings, assessee had claimed deduction undersection 36(1)(viia) towards ‘Provision for bad and doubtfuldebts’ amounting to Rs.19,62,03,357/-. It was furtherobserved that the assessee had also claimed deduction|under section 36(1)(vii) of the Act at Rs.2,47,52,075/-. —The assessing authority considering the provisions underprovisions of Section 36(1)(vii) relating to bad and doubtfuldebts to be written oft as irrecoverable and also'considering the provisions of Section 306(1)(viia) andsection 36(2)(v) of the Act came to the conclusion thatwhile considering the claim for bad and doubtful debtsunder Section 36(1)(vil), only such amount of bad debtswritten off as exceeds the credit balance available in the|provisions for bad and doubtful debt account createdunder Section 36(1)(viia) of the Act should be allowed as.deduction. This aspect of the matter was not appreciatedby the CIT(A) as well as ITAT. It was further contended that as regards excessdeduction claimed under section 36(1)(vili) has to be computed for Long Term Eligible Advances at Rs.4560Crores as seen from the annual report for the financialyear 2007-08 and not at Rs.1055.01 crores as claimed bythe assessee, the same was not properly appreciated bythe CIT(A) as well as ITAT, which deserves to beconsidered by this Court. | 5.orl. A. Shankar and Shashank Hegde, learnedcounsel appearing for the assessee inviting the attention ofthis Court to the orders of the CIT(A) as well as ITAT.submits that both the facts finding authorities havecarefully examined these issues. The finding was given bythe CIT(A) that the appellant has not debited bad debtwritten off under Section 306(1)(vii) in the books norclaimed deduction in the return of income but reduced|from opening provision for bad and doubtful debts. Thiswas appreciated and confirmed by the ITAT. As regardsthe eligible advances, it was further contended that theassessing authority has wrongly considered the advances. at Rs.496.53 crores based on aging analysis as on31.03.2008, what was required to be considered was thatthe advances given for a period of more than five yearsmay be outstanding for a period for less than five years ason 31.03.2008, due to repayment being made inaccordancewithTerms|andloansandadvances.Misunderstanding of the facts has resulted in miscarriageof justice, the same has been analysed by the CIT(A) andITAT in considering the eligible advances amount ofRs.1055.01 Crores and not Rs.456 Crores as adopted bythe Assessing Officer, which do not call tor anyinterference by this Court. 6.Heard the learned counsel for the parties andperused the material on record. T As regards the question relating to the bad anddoubtful debts, it is clear that the assessee has not)claimed any deduction in the return of income, writing oftbad debts under Section 36(1)(vili) of the Act. It is the reduction made from opening provision for bad and.doubtful debts. Both the appellate facts finding|authorities i.e. CIT(A) as well as ITAT have recorded thisfinding. In view of the aforesaid, the arguments of learnedcounsel for the Revenue do not merit any consideration. 6.Heard the learned counsel for the parties andperused the material on record. T As regards the question relating to the bad anddoubtful debts, it is clear that the assessee has not)claimed any deduction in the return of income, writing oftbad debts under Section 36(1)(vili) of the Act. It is the reduction made from opening provision for bad and.doubtful debts. Both the appellate facts finding|authorities i.e. CIT(A) as well as ITAT have recorded thisfinding. In view of the aforesaid, the arguments of learnedcounsel for the Revenue do not merit any consideration. 8.section 36(1)(vili) provides|in respect of specialreserve created and maintained by a specified entity, an|amount not exceeding twenty percent of the profits derived|from|eligible advances> computed under the head “Profitsand gains of business or profession” (before making any|deduction under this clause) carried to such reserved)account. QOAs regards eligible advances, it is worth to refer to|section 36(1)(vili), Explanation (b) which defines, “eligibleadvances” means,/i) in respect of the specified entityreferred to in sub-clause(t) or sub-clause(u) or sub-clause(ilt)|or sub-clause(iv) of clause (a), the business of providing|long term finance- for A) industrial or agricultural development; B) development of infrastructure facility in|India; or C) development of housing in Ind1a;/. 10,‘Long term finance’ is defined under clause-(h) ofexplanation to Section 36 (1) (viii) of the Act , which reads_thus: “long term finance” means any loan or advance|where the terms under which moneys are loaned oradvanced provide for repayment along with theinterest thereof during a period of not less than fiveyears” 11.A reading of these provisions makes it clear that anyloans or advances where the terms under which moneys.are loaned or advanced during a period not less than fiveyears Shall be considered as ‘eligible advances’. 12)The assessing officer appears to have misunderstoodthis total eligible advances based on the aging analysis notconsidering the actual advances given for a period of morethan five years. The appellate fact finding authorities haveset-aside the findings of the assessing authority afteranalyzing the material on record and held that it is not anamount loaned or advanced reflected in the aging analysis aiter certain repayment made during the period of morethan five years, but it should be actual amount or loans.advanced and bearing interest which have to be repaidduring the period of more than five years shall be theeligible advances and accordingly accepted the eligibleadvances at Rs.1055.01 crores allowable for deduction|under Section 36(1)(vili) of the Act. The said finding donot call for any interference by this Court. — 13,Accordingly, the substantial questions of law areanswered in favour of the assessee and against theRevenue. The appeal stands dismissed. _ Sd/-JUDGE| Sd/-JUDGE JTR