2013 (8) TMI 981 - AT - Income Tax

Summary

Issues Involved:
1. Restriction of deduction u/s 36(1)(viia) to the extent of provision made in the profit and loss account.
2. Applicability of CBDT Instruction No.17/2008 over Circular No.702/1995.
3. Interpretation of section 36(1)(viia) in light of the Supreme Court decision in the case of Catholic Syrian Bank Ltd. vs. CIT.

Summary:

Issue 1: Restriction of Deduction u/s 36(1)(viia)
The assessee, a Cooperative Bank, claimed a deduction u/s 36(1)(viia) of Rs. 77,62,589, but the Assessing Officer restricted it to Rs. 6,50,000, the amount actually provided for in the books. The CIT(A) upheld this restriction, referencing Instruction No.17/2008, which mandates that the deduction for provision for bad and doubtful debts should be limited to the amount actually created in the books or the amount calculated as per section 36(1)(viia), whichever is less.

Issue 2: Applicability of CBDT Instruction No.17/2008
The CIT(A) noted that Instruction No.17/2008 prevails over Circular No.702/1995 and is binding on all officers within the jurisdiction of CBDT. The CIT(A) suggested that if the assessee is aggrieved by such circular, the proper course would be a Writ Petition before the High Court.

Issue 3: Interpretation of Section 36(1)(viia)
The assessee argued that the deduction should be based on a certain percentage of the total income and aggregate average advances made by rural branches, as per the decision of the ITAT Bangalore Bench in the case of Syndicate Bank. The assessee also cited the Supreme Court decision in Catholic Syrian Bank Ltd. vs. CIT, which held that clauses (vii) and (viia) of section 36 are distinct and independent. The Supreme Court emphasized that the legislative intent was to encourage rural advances and that the provisions should be interpreted to serve this legislative object.

Judgment:
The Tribunal noted that the decision in Catholic Syrian Bank Ltd. was not available to the Assessing Officer or CIT(A) at the time of their orders. Therefore, the Tribunal restored the issue to the file of the Assessing Officer for fresh adjudication in light of the Supreme Court decision and in accordance with the law, after giving due opportunity to the assessee. The appeals for both assessment years 2007-08 and 2008-09 were allowed for statistical purposes.

Conclusion:
The Tribunal directed the Assessing Officer to re-evaluate the assessee's claim for deduction u/s 36(1)(viia) considering the Supreme Court's interpretation in the Catholic Syrian Bank Ltd. case, ensuring the legislative intent of encouraging rural advances is upheld.