Standard Asset Provision Write-Back Can't Be Taxed Twice If Already Accounted For: Mumbai ITAT Remands Issue

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has remanded to the Assessing Officer (AO) the issue of taxability of a ₹3.14 crore write-back of general provision for standard assets, observing that if the assessee had already accounted for the amount in its profit and loss account and neutralised its effect while computing taxable income, it could not be brought to tax again.

A bench of Judicial Member Beena Pillai and Accountant Member Arun Khodpia partly allowed the appeal filed by KBC Bank Naamloze Vennootschap for statistical purposes.

The tribunal observed, “Prima facie it seems that the assessee has added such amount in the P & L account in the income of the assessee (by showing it in negative under the expenses) and the same amount is being reduced while making the computation, therefore, the effect of same would be Nil. Accordingly, it cannot be brought to tax again.”

The assessee, a foreign banking company, challenged additions made pursuant to reassessment proceedings for the Assessment Year 2016-17. Among other issues, it challenged the addition of ₹3.14 crore towards reversal of general provision for standard assets under the normal provisions of the Income Tax Act and a separate addition of ₹1.04 crore towards provision for forfeiture of security while computing book profits under Section 115JB.

At the outset, however, the assessee did not press its challenge to the validity of the reassessment proceedings.

Before the tribunal, the bank submitted that the provision for standard assets had never been claimed as a deduction in the years in which it was created. It argued that the subsequent write-back therefore could not be treated as taxable income.

According to it, the write-back had been reflected as a negative expense in the profit and loss account, thereby increasing its income, and was correspondingly reduced while computing taxable income because no deduction had been claimed when the provision was originally created.

The revenue, on the other hand, supported the orders passed by the Assessing Officer and the Dispute Resolution Panel.

Examining the record, the tribunal noted that the provision write-back had been reflected as a negative expense in the profit and loss account, thereby increasing the assessee's income.

It further noted that the same amount had been reduced while computing taxable income. The Tribunal observed that if this factual position was correct, the effect of the two adjustments would be nil and the amount could not be brought to tax again.

Since the assessee's financial information was not fully available before it, the Tribunal restored the issue to the Assessing Officer for verification of the factual aspects and to decide the claim in accordance with the facts on record.

The tribunal also considered the addition of ₹1.04 crore towards provision for forfeiture of security while computing book profits under Section 115JB.

The assessee contended that it had already added back the amount suo motu while computing book profits and that the Assessing Officer had effectively added it a second time.

Accepting the contention, the bench observed, “We find that the assessee has already suo moto added back the aforesaid amount to its income while computing the book profit u/s 115JB of the Act, the same cannot be added twice. The AO thus is directed to delete this disallowance after factual verifications.”

The tribunal restored the issue relating to TDS credit of ₹2.05 crore to the Assessing Officer for fresh verification and adjudication. It also restored the issues concerning refund computation, levy of interest under Sections 234B and 234C, and penalty proceedings, observing that they were consequential in nature and premature for consideration at that stage.

Accordingly, the tribunal partly allowed the appeal for statistical purposes and remanded the disputed issues to the Assessing Officer for fresh verification and adjudication.

For Assessee: Ketan Ved and Shri Abdulkadir Jawadwala

For Revenue: Krishna Kumar, Sr. DR