2024 (12) TMI 71 - AT - Income Tax

Disallowance of carried forward loss and unabsorbed depreciation u/s 72AB due to merger - HELD THAT - We note that after taking into account the factual aspect of assessee s case under consideration, we note that the assessee has fulfilled the conditions mentioned u/s 72AB of the Act and hence, the assessee is eligible to claim set-off of accumulated loss and un-absorbed depreciation. AO has erred in interpreting the provisions to the effect that the claim could be made only after completion of the mandatory period referred to in sub section (2) of Section 72AB of the Act. The AO is therefore, directed to allow the claim of set off of carry forward losses and unabsorbed depreciation allowance of the predecessor entity in the hands of the appellant to the extent it is allowable in the hands of the predecessor entity as per records, in accordance with the provisions of Section 72BA of the Act. Decided in favour of assessee. Disallowance u/s 36(1)(viia) as assessee not having any rural branches and thus no rural advances - HELD THAT - As decided in 2022 (12) TMI 1544 - ITAT RAJKOT in assessee's case, wherein the Tribunal passed order to allow assessee's claim under section 36(1) (viia), what is to be seen by Assessing Officer is as to whether provision for bad and doubtful debts is created, irrespective of whether it is in respect of rural or non-rural advances by debiting profit and loss account and, to extent provision for doubtful debts so created, assessee is entitled for deduction subject to upper limit of deduction laid down in said section. In the case of Kodungallur Town Co-op Bank Ltd. 2016 (7) TMI 1413 - ITAT COCHIN a Cooperative Bank is entitled to claim deduction of bad debts provided in first part of clause (viia) (a) of section 36(1) being 7.5 per cent of total income and same cannot be denied linking it to rural advances. Appeal of the Revenue is dismissed.

Summary

Issues Involved:

1. Disallowance of carry forward loss and unabsorbed depreciation under Section 72AB due to merger.
2. Disallowance of deduction under Section 36(1)(viia) due to absence of rural branches.

Detailed Analysis:

Issue 1: Disallowance of Carry Forward Loss and Unabsorbed Depreciation under Section 72AB

The primary issue concerns the disallowance of carry forward loss and unabsorbed depreciation amounting to Rs. 3,78,55,225/- under Section 72AB of the Income Tax Act, 1961, following the merger of Satabdi Mahila Shakti Bank Limited with the assessee bank. The assessing officer disallowed the claim on the grounds that the assessee did not fulfill the conditions stipulated under Section 72AB(2), which require the successor bank to hold at least three-fourths of the book value of the fixed assets of the predecessor bank continuously for a minimum period of five years immediately succeeding the date of business reorganization. Additionally, the business of the predecessor bank must continue for a minimum of five years from the date of reorganization.

The assessee contended that it had complied with the provisions of Section 72AB, asserting that the business of the predecessor bank was ongoing. The CIT(A) accepted the assessee's argument, noting that the primary condition for claiming the set-off of accumulated loss and unabsorbed depreciation is that these should have been allowable in the hands of the predecessor bank as per the provisions of the Act. The CIT(A) further clarified that any non-compliance with the conditions during the mandatory period is addressed under sub-section (6) of Section 72AB, which would deem the set-off allowed in any previous year to be income chargeable to tax if conditions are not met. The CIT(A) directed the assessing officer to allow the claim, as the predecessor bank was entitled to such set-off.

The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee had fulfilled the conditions under Section 72AB and was eligible to claim the set-off. The Tribunal found no error in the CIT(A)'s interpretation and concluded that the order of the CIT(A) should be upheld, dismissing the Revenue's appeal on this ground.

Issue 2: Disallowance of Deduction under Section 36(1)(viia)

The second issue pertains to the disallowance of a deduction under Section 36(1)(viia) amounting to Rs. 32,17,825/-. The assessing officer disallowed the claim on the basis that the deduction under this section is specifically for banks with rural branches, which the assessee did not have. The assessee argued that following the amendment by the Finance Act, 2013, the deduction of 7.5% is allowable to all advances, including rural advances, irrespective of whether the bank has any rural branches.

The CIT(A) agreed with the assessee, noting that the amendment clarified that the deduction under Section 36(1)(viia) is applicable to all banks, regardless of the presence of rural branches. The CIT(A) also referenced the assessee's own case in previous assessment years, where similar disallowances were deleted, and the department's appeals were dismissed by the ITAT.

The Tribunal confirmed the CIT(A)'s decision, citing the ITAT's prior ruling in the assessee's case and other judicial precedents, which established that the benefit of Section 36(1)(viia) is available irrespective of whether the provision is created in respect of rural advances, subject to the prescribed limit. The Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the Revenue's appeal on this ground as well.

Conclusion:

The appeal of the Revenue was dismissed in its entirety, with the Tribunal upholding the CIT(A)'s decisions on both issues. The order was pronounced in the open court on 17-09-2024.