2016 (7) TMI 1413 - AT - Income Tax

Revision u/s 263 - as per CIT-A section 36(1)(viia)(a) applies only to rural advances and since the assessee s bank was not having any rural branch, deduction allowed u/s 36(1)(viia)(a) was not in order - Held that - The judgment of the Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd (2012 (2) TMI 262 - SUPREME COURT OF INDIA) relied by the CIT while invoking his revisionary jurisdiction does not apply to the facts of the present case. The CBDT in Clause 5 of its Circular No.464 dated July 18, 1986 referred to by the Hon ble Apex Court in Catholic Syrian Bank s case makes it very clear that the two deductions provided in clause (viia)(a), viz. 7.5% of the total income (computed before making any deduction under this clause and Chapter VIA) and 10% of the aggregate average advances made by the rural branches are distinct and independent. The intention of the legislature was to give the benefit of deduction of 7.5% of the total income to the scheduled, non-scheduled and co-operative banks under clause (viia) while a similar benefit of deduction of a specified percentage of the total income was extended to the foreign banks and public financial institutions under clauses (viia) (b) and (viia)(c) respectively, apart from the benefit available to them under clause (vii). The proposal to deny the benefit of the first part of clause (viia)(a) to the assessee linking it to rural advances would therefore subvert the legislative intent. - Decided in favour of assessee.

Summary

Issues involved:
1. Revision of assessment order u/s 263 of the IT Act regarding deduction claimed by a cooperative bank under section 36(1)(viia)(a) for provision of bad and doubtful debts.

Detailed Analysis:
1. The appeal was against the CIT's order under section 263 of the IT Act, challenging the deduction allowed by the AO for bad and doubtful debts claimed by the assessee cooperative bank. The CIT contended that the deduction was erroneous as the bank did not have rural branches, as required by section 36(1)(viia)(a).

2. The CIT issued a notice proposing to revise the assessment order, citing a judgment of the Hon'ble Apex Court in a different case. The CIT argued that the deduction allowed was not in order as it applied only to rural advances, which the cooperative bank did not have. The CIT set aside the assessment order and directed the AO to re-examine the deduction issue.

3. The assessee objected to the revision, arguing that the deduction was valid under the law. The CIT rejected the objections and maintained the revision, leading to the appeal before the ITAT COCHIN.

4. During the appeal, the ITAT analyzed the legal provisions and previous judgments. The ITAT noted that the Hon'ble Apex Court's judgment relied upon by the CIT did not apply to the present case involving a cooperative bank. The ITAT highlighted the legislative intent behind including cooperative banks under section 36(1)(viia)(a) and clarified that the deduction was not limited to rural advances.

5. The ITAT also referred to a judgment of the jurisdictional High Court in a similar case involving a cooperative bank. The High Court's decision supported the assessee's position, emphasizing that cooperative banks were entitled to the deduction under section 36(1)(viia)(a) without any restriction related to rural branches.

6. Based on the legal analysis and precedents, the ITAT concluded that the CIT was not justified in invoking revisionary jurisdiction under section 263. Therefore, the ITAT set aside the CIT's order and allowed the appeal filed by the assessee cooperative bank.

7. The ITAT pronounced the order in favor of the assessee on July 18, 2016, highlighting the correct interpretation of the law regarding deductions for bad and doubtful debts claimed by cooperative banks under section 36(1)(viia)(a).