2018 (8) TMI 2027 - AT - Income Tax

Deduction claimed u/s 36(l)(viia) i.e. 10% of the rural advances - Rural limits would be eligible for deduction @10% under section 36(1)(viia) and the Branches mentioned below falling under Urban Areas as per the Census Department and hence not eligible for deduction @ 10% under section 36(1)(viia) - HELD THAT - Assessing Officer has mislead himself by taking out the rural branches that are falling within 8Km from municipal limit and town planning scheme from the eligible deduction. Census Report misinterpreted in relation to the definition of the Rural Branch to that extent. The provisions of the Income Tax Act, 1961 have to be read strictly and nothing which is not intended nor mentioned could be read or intrapolated. While the section clearly mentions with explanation as to what a scheduled bank is and what a rural branch of a schedule bank means and the Hon ble High Court has defined as to what a Rural Branch means in relation to the place in which the Branch is situated any attempt to expand the definition bringing into the explanation given with regard to any other section which is not relevant even for harmonious interpretation of the Act cannot be accepted. Hence keeping in view the provisions of the Act facts on the record and as the rural branches namely Daria Khuda Ali Sher Kaimbwala Delhi Jounti Block N.Delhi Bamnoli Chandi Mandir Dadu Majra Bahadurgarh and Sarangpur have been found to be situated in the Rural Areas / Villages wherein the population is less than 10, 000 as required under section 36(1)(viia) read with Explanation (ia) below sub clause (viia) to Section 36 of the Income Tax Act, 1961 the disallowance made by the Assessing Officer in relation to these Branches is hereby ordered to be deleted. The branches namely Kasauli Palampur Sankhol Kot Fatta Raipur Rani Nurpur Kangra Nalagarh Nalagarh(ADB) Jandiala Mustafabad Ghagga Begowal Mehatpur cheema Shekhpura Gardhiwala Badni Kalan Hadiyala Dhillwan Nagrota Bhagwan and Chachhrauli being the branches situated in the urban areas are not eligible for deduction @ 10% of aggregate advances. - Appeals of the assessee are partly allowed.

Issues Involved:
1. Jurisdiction of notice under section 148.
2. Non-disposal of objections to notice under section 148.
3. Denial of natural justice due to lack of proper opportunity.
4. Discrepancy in assessed income versus returned income.
5. Disallowance of deduction under section 36(1)(viia).
6. Charging of interest under section 234D.
7. Overall legality and factual correctness of the order.

Detailed Analysis:

1. Jurisdiction of Notice under Section 148:
The assessee contended that the notice issued under section 148 was without jurisdiction. However, this issue was not pressed by the assessee for adjudication for both assessment years 1999-2000 and 2000-01. Therefore, no adjudication was required on this issue.

2. Non-disposal of Objections to Notice under Section 148:
The assessee argued that the assessment was completed without disposing of the objections filed against the notice under section 148. This ground was also not pressed by the assessee for both assessment years, and thus, no adjudication was required.

3. Denial of Natural Justice Due to Lack of Proper Opportunity:
The assessee claimed that the assessment was completed without affording proper opportunity, thereby denying natural justice. This ground was not specifically addressed in the judgment, indicating that it was not a focal point of the tribunal's decision.

4. Discrepancy in Assessed Income versus Returned Income:
The assessee contested the discrepancy between the income assessed and the income returned in response to the notice under section 148. The tribunal did not specifically address this issue, focusing instead on the disallowance of deductions and the interpretation of rural branches.

5. Disallowance of Deduction under Section 36(1)(viia):
The primary issue adjudicated was the disallowance of the deduction claimed under section 36(1)(viia). The assessee claimed deductions for bad and doubtful debts and rural advances. The Assessing Officer disallowed the deduction for certain branches, arguing they were situated in urban areas or had populations exceeding 10,000. The tribunal examined the statutory provisions and relevant facts, concluding that branches in places with populations under 10,000, as per the last preceding census, qualified as rural branches. The tribunal referenced the Kerala High Court's decision in The Lord Krishna Bank Ltd. case, which clarified that "place" referred to revenue villages, not wards of municipalities. Consequently, the tribunal allowed the deduction for branches situated in rural areas and disallowed it for those in urban areas.

6. Charging of Interest under Section 234D:
The assessee challenged the charging of interest under section 234D. The tribunal did not provide a detailed analysis or ruling on this issue, implying it was not a primary focus of the decision.

7. Overall Legality and Factual Correctness of the Order:
The assessee reserved the right to challenge the overall legality and factual correctness of the order. The tribunal's decision primarily focused on the interpretation of rural branches for deductions under section 36(1)(viia), affirming the disallowance for urban branches and allowing it for rural branches.

Conclusion:
The tribunal partly allowed the appeals, affirming the deduction for branches situated in rural areas with populations under 10,000, as per the last preceding census, and disallowing it for branches in urban areas. The decision emphasized strict adherence to statutory provisions and relevant judicial interpretations.

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