2016 (4) TMI 753 - AT - Income Tax

Revision u/s 263 - CIT(A) restricting claim u/s 36( 1)(viia)only for provision for rural debts and consequently disallowing claim for deduction of provision made of in accordance with the provision of sec 36( I )(viia) - whether deduction u/s.36(1)(vii) and 36(1)(viia) shall be in respect of both bad and doubtful debts irrespective of rural or urban debts? - Held that - The legislative intention of decision of Catholic Syrian Bank 2012 (2) TMI 262 - SUPREME COURT OF INDIA was to protect the rural farmers and also benefit given without actual write off in the actual Books of Accounts though the principle was considered in the earlier years and the Department has accepted and passed the order. On the decision of the allowability of Sec.36(1)(viia) we relied on the Co-ordinate decision of Lakshmi Vilas Bank 2016 (4) TMI 572 - ITAT CHENNAI the provision has been restricted to the extent of rural branches only. We confirm the findings of the Commissioner of Income Tax on the issue of rural branches following the Catholic Syrian Bank decision and uphold the order of the Commissioner of Income Tax - Decided against assessee

Issues Involved:
1. Invocation of revisionary powers under Section 263 of the Income Tax Act.
2. Restriction of deduction under Section 36(1)(viia) for rural debts.
3. Interpretation of Section 36(1)(viia) concerning both rural and non-rural debts.
4. Applicability of CBDT Circulars and Supreme Court decisions.
5. Validity of the assessment order and the jurisdiction of the Commissioner of Income Tax.
6. Double deduction for bad debts.

Detailed Analysis:

1. Invocation of Revisionary Powers under Section 263:
The Commissioner of Income Tax (CIT) invoked revisionary powers under Section 263 of the Income Tax Act, arguing that the Assessing Officer (AO) did not correctly interpret the Supreme Court's decision in the Catholic Syrian Bank case. The CIT contended that the AO's order was erroneous and prejudicial to the interests of the Revenue because it allowed deductions for non-rural debts, contrary to the provisions of Section 36(1)(viia).

2. Restriction of Deduction under Section 36(1)(viia) for Rural Debts:
The CIT restricted the deduction under Section 36(1)(viia) to Rs. 38.07 crores for rural debts, as opposed to the assessee's claim of Rs. 810.60 crores. The CIT argued that the deduction should be limited to the provision made for rural debts, as per the Supreme Court's decision in the Catholic Syrian Bank case and the Punjab & Haryana High Court's decision in the State Bank of Patiala case.

3. Interpretation of Section 36(1)(viia) Concerning Both Rural and Non-Rural Debts:
The assessee argued that Section 36(1)(viia) permits deductions for both 7.5% of gross total income and 10% of rural branch advances. The CIT, however, maintained that the deduction should be restricted to rural debts only, based on the legislative intent and the Supreme Court's decision. The CIT also noted that the assessee had been claiming double deductions for rural and non-rural debts, which was not permissible.

4. Applicability of CBDT Circulars and Supreme Court Decisions:
The assessee relied on CBDT Circular No. 464 and Circular No. 13 of 2014, which they argued supported their claim for deductions under Section 36(1)(viia). The CIT, however, referenced the Supreme Court's decision in the Catholic Syrian Bank case and other relevant judgments, asserting that the deduction should be limited to rural debts. The CIT also rejected the assessee's argument that the Supreme Court's decision was not applicable due to a clarificatory amendment to Section 36(1)(vii).

5. Validity of the Assessment Order and the Jurisdiction of the Commissioner of Income Tax:
The CIT found the AO's order to be erroneous and prejudicial to the Revenue's interests, justifying the invocation of revisionary powers under Section 263. The CIT cited the Supreme Court's decision in Malabar Industrial Co. Ltd vs. CIT, which allows the CIT to set aside an order if it was passed without examining relevant details and provisions of law.

6. Double Deduction for Bad Debts:
The CIT observed that the assessee had been claiming double deductions for bad debts by not setting off bad debts written off against the provisions made under Section 36(1)(vii). The CIT emphasized that both conditions under Sections 36(1)(viia) and 36(1)(vii) must be met, and there was no provision for allowing double deductions for the same bad debt.

Conclusion:
The Tribunal upheld the CIT's order, confirming that the deduction under Section 36(1)(viia) should be restricted to rural debts only, following the Supreme Court's decision in the Catholic Syrian Bank case. The Tribunal dismissed the assessee's appeals, affirming that the CIT's invocation of revisionary powers under Section 263 was justified and that the AO's order was erroneous and prejudicial to the Revenue's interests.

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