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TMI Blog2016 (4) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... required to be considered under Chapter VIA separately, the entire amount of ₹ 5,51,690/- is required to be added back and ₹ 1,50,000/- to be allowed as deduction. Since the assessee bank itself has added ₹ 3,00,000/- only in the computation memo, the Assessing Officer has added back the balance amount of ₹ 2,51,690/-. On appeal, the ld. CIT(A) confirmed the addition made by the Assessing Officer. Before us, the ld. Counsel for the assessee has submitted that the amount was actually paid for advertisement charges in the Souvenirs and treated it as donation and contended that the advertisement charges in souvenirs are deductible in view of the CBDT circular. If it is so, what prevented the assessee bank to claim the same under 'advertisement charges' rather than claiming it as 'donation'. The ld. Counsel for the assessee has not able to give any convincing reply to the specific query raised by the Bench. In view of the above, we find no infirmity in the order passed by the authorities below and accordingly, the ground raised by the assessee is dismissed. Disallowance u/s 36 - working out of allowable deduction - treatment to amount advanced by the rural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy, JM For the Petitioner : Shri G Sitaraman, CA For the Respondent : Shri Rajib Kumar Hota, CIT-DR ORDER Per Duvvuru RL Reddy, Judicial Member These cross appeals are directed against the separate orders of the ld. Commissioner of Income Tax (Appeals), Trichy for different assessment years as stated above. Since all the appeals pertain to same assessee and heard together, are being disposed of by this common order for the sake of convenience. First we shall take up common grounds raised by the assessee in its appeal for adjudication. Validity of reopening of assessment for the assessment years 2000-01, 2001-02, 2002-03 and 2004-05 in I.T.A. Nos. 1620, 1206, 1208 and 1209/Mds/2014: 2. Brief facts of the case are that the assessee is in the business of banking and filed its return of income for the assessment year 2000-01 on 28.11.2000 admitting a total income of ₹ 29,54,09,020/-. The return was processed under section 143(1) of the Income Tax Act, 1961 [ Act in short]. The regular scrutiny order under section 143(3) of the Act was passed on 28.03.2003 by assessing taxable income of the assessee at ₹ 51,87,90,020/-. Against the assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade for the reason that the expenditure claimed is not related to the accounting period in question and section 43B does not apply for the above reason. Under section 43B, if the assessee incurs a liability under certain expenditure such as bonus, interest, etc. during the accounting period and same is paid before filing of return, the same need to be allowed. However, in the instant case, the due date for 2nd instalment is May, 1997 and therefore the liability to pay is arising only in the next accounting period. Therefore, the Assessing Officer has disallowed the claim of the assessee towards the interest payable to SIDBI and NABARD at ₹ 2,23,55,384/- for the assessment year 1997-98. Except change of figures, the facts are similar for the assessment year 1998-99 and 2000-01. 8. On appeal, the ld. CIT(A) remitted the back to the Assessing Officer and directed to verify the sanction letters, agreements with the above organizations to find out whether the assessee has incurred the liability during the accounting period in question or not and allow the same as per law. 9. Aggrieved, the assessee is in appeal before the Tribunal and the ld. Counsel for the assessee has sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t installment was due on May 2004. The appellant bank claims it on mercantile basis and wants the deduction on the ground that they have accrued before the due dates prescribed by the Act. Even in mercantile system, the expenses claimed only the due dates. The due date is falling after the previous year. Therefore the amount has not become due. Hence the Assessing Officer has held that the amount payable for the next year cannot be reduced from the total income from the year under consideration 2004-05. Therefore this is added back following the decision of the Supreme Court in the case of ED Sasun Co Vs CIT 69 ITR 237. I do not find any reason to interfere in the decision of the Assessing Officer as the appellant cannot claim the expenditure related to assessment year 2005-06 in the year under consideration and therefore the claim of the appellant bank is rejected confirming the addition made by the Assessing Officer at ₹ 8,08,418. 20. Before us, the assessee argues that since it is following mercantile system of accounting, it is entitled for the deduction in hand as the liability to pay the interest had accrued and certain in the previous year relevant to the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of India and accordingly claimed the deduction. However, the Assessing Officer has not accepted the submissions of the assessee and held that none of the provisions of sections 32 to 43C of the Act provides for any deduction of lease equalization charges and accordingly disallowed ₹ 20,40,000/- and added to the returned income of the assessee. 14. On appeal, the ld. CIT(A), after considering the submissions of the assessee, confirmed the disallowance made by the Assessing Officer. 15. On being aggrieved, the assessee is in appeal before the Tribunal and the ld. Counsel for the assessee strongly relied on the decision in the case of CIT v. Virtual Soft Systems Ltd. 341 ITR 593 (Delhi) and also in the case of CIT v. Indian Railway Finance Corporation Ltd. 362 ITR 548 (Delhi) and submitted that the lease equalization charges should not be disallowed. 16. On the other hand, the ld. DR supported the orders of authorities below. 17. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The assessee has given its assets under lease for a period of six years and at the end of six years, the ownership of assets will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, if the depreciation claimed on the leased asset is less than the corresponding annual lease, P L account is debited by lease equalization charges equivalent to the difference amount. Consequently, the finance charges, which is the actual income from the leased transaction, is recognized as revenue and the difference between the depreciation and annual lease charge is debited or credited to the P L account so as to nullify the effect of such difference on the profit. The recovery of investment in the leased assets made in the relevant year is thus matched with the corresponding expenses claimed in the form of depreciation and the effect of higher or lower claim of depreciation, than the corresponding recovery of investment made in the leased assets is nullified. In the books of account, the leasing companies are entitled to claim the depreciation by following one of the various methods prescribed in the Companies Act and if such depreciation claimed is more or less than the corresponding annual lease charge representing recovery of investment in the leased asset over the lease term, the difference is adjusted in the form of lease equalization based on the rationale of matching c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taken into consideration and not the difference between the annual lease charge and depreciation claimed by the assessee in the books of account as per the Companies Act. We, therefore, restore this issue to the file of the A.O. for deciding the same afresh. The assessee is directed to furnish the working of lease equalization charges based on the figures of the depreciation on the leased assets allowed as per the income Tax Act which the A.O. shall verify and allow the claim of the assessee for deduction on account of lease equalization charges based on such verification in accordance with law. In the result, appeals of the assessee are treated as allowed for statistical purpose. 18. Respectfully following the above decision of the Mumbai Benches of the Tribunal, we remit the matter back to the Assessing Officer to verify and allow the claim of the assessee for deduction on account of lease equalization charges in accordance with law. Accordingly, the ground raised by the assessee is allowed for statistical purpose for all the assessment years under appeal. 19. The first ground raised in the appeal of the assessee for the assessment year 1997-98 relates to disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,19,408/- i.e. 50% of total expenses [Rs.1,22,686 + ₹ 1,16,129 = 2,38,815]. 21. The assessee carried the matter in appeal before the ld. CIT(A) and the ld. CIT(A) confirmed the addition made by the Assessing Officer. 22. On being aggrieved, the assessee is in appeal before the Tribunal. By relying on the order of the Tribunal in assessee's own case for the assessment year 1990-91, the ld. Counsel for the assessee has prayed that the disallowance may be deleted. 23. On the other hand, the ld. DR supported the orders of authorities below. 24. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The issue involved in this appeal is squarely covered by the consolidated order of the Tribunal in assessee's own case for the assessment years 1990-91 1991-92 in I.T.A. Nos. 1161 1162(Mds)/95 vide order dated 22.05.2003, wherein the Tribunal had held as under: 6. For the assessment year 1991-92 the claim is with regard to disallowance of 50% of deposit mobilisation expenses treating them as entertainment in nature. This issue has been come up before the Tribunal in the case of the assessee for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t furnished any details about the range of points considered while arriving at the liability and how many employees would really go for vacation and claim the said amount and how many employees wanted to simply encash the leave, etc. In the absence of the above particulars, the Assessing Officer has considered the same as contingent liability against the claim of the assessee as certain liability. It is a fact that leave salary is payable only when a person goes on leave and during the period of leave, the salary paid to him is known as leave salary. It cannot be ascertained with any certainty whether in a particular year, the employee would go on leave. It will depend upon the option of the employee. Unless the employee goes on leave, the assessee is not required to pay leave salary. The liability will only arise when a person goes on leave and it is only for that particular period he is on leave, the leave salary is payable. Therefore, it cannot be considered as certain liability. In the absence of various particulars called for by the Assessing Officer, we find that the provision created is not a certain liability and it is only a contingent liability and rightly disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase and sale securities, no part of expenditure can be said to have been incurred directly for earning tax free income. The ld. CIT(A) has observed that the ITAT, in assessee's own case, restricted this disallowance to the extent of 2% of such income and this has been accepted by the assessee bank itself even for the earlier years on this issue. Accordingly, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer under section 14A of the Act. Before us, the ld. Counsel for the assessee has reiterated the submissions as made before the lower authorities. Since the ld. CIT(A) has decided the above issue in view of the direction of the Coordinate Bench of the Tribunal in assessee's own case for the earlier assessment year, which was duly agreed upon by the assessee, we find no infirmity in the order passed by the ld. CIT(A). Accordingly, the ground raised by the assessee is dismissed. 32. No other ground has been raised in the appeal of the assessee for the assessment year 2001-02 in I.T.A. No. 1207/Mds/2014 and accordingly, the appeal filed by the assessee is dismissed. 33. The next issue raised in the appeal of the assessee for the assessment year 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Coordinate Bench of the Tribunal, in the case of DCIT v. City Union Bank Ltd. in I.T.A. No 935/Mds/2010 others, has observed and held as under: 48. Brief facts of the case are that the Assessing Officer made addition towards amortization expenses observing that amortization expenses was to be treated like interest on purchase of securities. Therefore, he held that the said amount was to be capitalized and added to the income of the assessee. 49. On appeal, the ld. CIT(A), following the decision of the Hon'ble Jurisdictional High Court in assessee's own case reported in 291 ITR 144 allowed the claim of the assessee. 50. At the time of hearing, the ld. DR fairly conceded that this issue is covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court reported in 291 ITR 144 (supra). The Hon'ble Madras High Court has held that the investments are made in accordance with the requirements of the Act wherein the market price charged from the value shown in the opening balance and at the end of the year, the same could be allowed as depreciation. Therefore, this ground of appeal of the Revenue is dismissed in all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of CIT v. The Karur Vysya Bank Ltd. in T.C.(A) No. 2139 of 2008 order dated 13.07.2009 and prayed that the same should be followed in the present case. 42. After hearing both sides, we have perused the order of the Hon'ble Jurisdictional High Court in the case of CIT v. The Karur Vysya Bank Ltd. (supra), wherein the Hon'ble High Court has held as under: 5. The third question of law raised by the Revenue is whether the Tribunal was right in holding that the loss on sale of security incurred by the assessee bank was allowable as revenue loss ignoring the fact that loss on sale of securities categorised as 'permanent assets' 'cannot be treated as business loss . As far as this question of law is concerned, here again, the question arises in respect of the sale made by the bank in respect of Government securities and if any loss is sustained by bank, such transfer would be treated as capital loss or revenue expenditure. Now applying the principle as enunciated in the ruling viz., (2005) 273 ITR 510 (Mad) (supra) , when once the Government securities have already been held as stock-in-trade, any further subsequent sale by the bank to either third party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in-trade, came up for consideration before this Court and this Court in the decision reported in (2005) 273 ITR 510 (Mad) (supra), by following the decision of the Hon'ble Supreme Court reported in (1999) 156 CTR (SC) 380 : (1999) 240 ITR 355 (SC) (supra), held that those Government securities, which are held by the banks are all stock-intrade, the security will not be of permanent nature, not a capital expenditure and whatever expenditure incurred in the purchase and the subsequent realisation will all be treated as revenue expenditure. That broad principle on the nature of Government securities has been held to be stock-in-trade and the question now arises in this case is whether the interest paid on charge of investments is allowable as revenue expenditure disregarding the principle that the interest paid on charge of investments categorised as 'permanent' is to be treated as capital expenditure and not as revenue expenditure. The Department's contention that the interest paid on charges of investments cannot be treated as revenue expenditure is not now available when the very Government securities itself is treated to be stock-in-trade as per the decision of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and being regulated by Reserve Bank of India, the assessee bank is not regulated by the National Housing Board. Further, it was opined that the banking companies have been taken out of the purview of the Indian Companies Act for regulation purposes and direction and guidelines issued by the RBI have precedence over the provisions of the Companies Act applicable to the Banking Companies. The banks are deemed to be banking companies and they may not be registered under the Companies Act. Since the clause (viii) to sub-section (1) of section 36 of the Act has been amended by Finance Act, 2006 w.e.f. 01.04.2007 and later substituted ibid w.e.f. 01.04.2008, the assessee is not eligible to claim the deduction for the assessment year 2004-05 and the claim of deduction has been wrongly allowed to the assessee in the earlier assessment order dated 29.12.2006 has been withdrawn, by relying on various decisions, the Assessing Officer has made the addition of ₹ 30,22,639/-. 48. On appeal, the ld. CIT(A), after considering the submissions of the assessee, confirmed the addition made by the Assessing Officer. 49. Before the Tribunal, the ld. Counsel for the assessee has submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is squarely covered in favour of the assessee by the decision of the Tribunal in assessee's own case in I.T.A. No. 1402/Mds/2014 dated 22.03.2013. 52. Both sides have been heard. It is a fact that the assessee sold jewellery pledged against loan taken by the customers and realized excess amounts on sale of such jewellery as compared to the amount lent and due to it as interest and the same was shown under other liabilities . Hon'ble Kerala High Court in the case of Catholic Syrian Bank ltd. v. Addl. CIT (supra) has held that any surplus cannot be treated as a liability when the assessee has no case that it is payable to anybody or it is a liability due from the assessee to any person. 53. Following the same analogy, we are of the opinion that the sale of surplus towards sale of jewellery found in the hands of the assessee cannot be treated as liability or provision for liability and it cannot be carried on for indefinite period, when there is no possibility of any one claiming any amount against this surplus. Therefore, the Assessing Officer has rightly held that the surplus belonged to the assessee and we find no infirmity in the order of the ld. CIT(A) confirming t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the grounds which in turn are vehemently opposed by the Revenue. 45. We have heard both parties and perused the assessment order as well as CIT(A)'s order. Admittedly, the entertainment expenses in question @ 95% stand accepted by both authorities below. In other words, the expenses stand accepted in part and disallowed @ 5% by the Assessing Officer and CIT(A) merely on presumption (supra). In our view, without any cogent material on record as relied upon the evidence by the authorities below, they have erred in disallowing the claim raised by the assessee merely on conjunctures and surmises. Therefore, following our reasoning qua 'other expenditure'(supra), ground raised by the assessee in assessment year 2004- 05 decided hereinabove, we accept the instant ground as well. 56. The DR could not controvert the above findings of the Tribunal in assessee's own case. Respectfully following the above decision of the Tribunal, we delete the addition made by the Assessing Officer and allow the ground raised by the assessee. 57. The first ground raised in the appeal of the assessee for the assessment year 2006-07 in I.T.A. No. 1621/Mds/2014 is with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 2006-07 [in I.T.A. No. 27/Mds/2014] is directed against the order passed under section 143(3) r.w.s. 263 of the Act, wherein the following grounds have been raised: 1. The CIT(A) erred in law and on the facts of the case in not considering the additional statement of facts and additional grounds of appeal relating to the applicability of section 115JB to the appellant. 2. The appellant submits that section 115JB is applicable only to the assessee company preparing the profit loss account and balance sheet in accordance with the schedule VI of the Companies Act and that it is preparing the profit loss account and balance sheet in accordance with Banking Companies Regulation Act and that therefore section 115JB is not be applicable to the appellant bank. 3. The appellant therefore, prays that it is not liable to pay tax under section 115JB of the Act. 59. Before the ld. CIT(A), the assessee has raised the following additional ground for consideration: The appellant submits that the provisions relating to tax on book profits are not applicable to banking companies and that, therefore, the profits, based on the normal provisions of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abilities of ₹ 2,44,19,929/-. Since the assessee bank could not come up with even a single case where such payment was made out of the stale draft account, the outstanding liabilities worked out at ₹ 20,19,246/- was disallowed and added to the total income of the assessee. On appeal, even before the ld. CIT(A), the assessee could furnish any case of such payment made out of the stale draft account, the disallowance made by the Assessing Officer was confirmed. 62. We have heard both sides and perused the materials on record. At the time of hearing, the ld. Counsel for the assessee has relied on the decision in the case of DCIT v. City Union Bank Ltd. in I.T.A. No 935/Mds/2010 others vide order dated 08.07.2011, wherein, the Tribunal, by following its own order in assessee's own case for the assessment years 2001-02 and 2002-03, decided the issue against the Revenue only on the ground that the decision of the Tribunal was not reversed by any higher forum. However, on similar facts and circumstances, the Hon'ble Kerala High Court in the case of Catholic Syrian Bank ltd. v. Addl. CIT [2012] 349 ITR 569, has observed and held as under: 2. The next question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. However, we make it clear that whenever the assessee has to make payment against the stale drafts at any time in future, the same has to be claimed as expenditure. With this observation, we dismiss the ground taken by the assessee. 64. The next grounds raised in the appeal of the assessee for the assessment year 2009-10 in I.T.A. No. 1622/Mds/2014 is with regard to surplus on sale of jewellery and appreciation in value of securities. At the time of hearing, the ld. Counsel for the assessee has not pressed both the issues and accordingly, both the issues raised in the grounds of appeal of the assessee are dismissed as not pressed. 65. The next issue raised in the appeal of the assessee for the assessment year 2009-10 in I.T.A. No. 1622/Mds/2014 is with regard to confirmation of addition made towards provision for bonus. addition made towards provision for bonus 66. The next ground raised in the appeal of the assessee for the assessment year 2009-10 in I.T.A. No. 1622/Mds/2014 is with regard to confirmation of addition made towards payment of donation. The assessee bank has debited to the profit and loss account an amount of ₹ 5,51,690/- towards donation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,67,44,676 18,90,00,959 31,84,23,312 Advance tax and TDS 15,12,23,703 16,34,87,500 19,15,41,688 20,55,74,359 Refund due 1,36,60,504 1,67,42,824 25,40,728 No refund 69. From the above, it is very clear that the TDS and advance tax paid is in excess of the tax payable by the assessee and moreover the assessee is due to get the refund over the excess payment of taxes for the assessment years 2000-01, 2001-02 and 2002-03. In view of the above, levy of interest under section 234B of the Act is not warranted. Accordingly we delete the interest levied by the Assessing Officer for the assessment years 2000-01, 2001-02 and 2002-03 and allow the ground raised by the assessee in the above assessment years. 70. However, for the assessment year 2004-05, though the TDS and advance tax and paid by the assessee is less than the tax payable by the assessee, while deciding the appeal of the assessee, the appeal of the assessee was partly allowed and. Accordingly, the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be levied on the reassessment completed under section 143(3) r.w.s. 147 of the Act. The Coordinate Bench of Tribunal in the case of K. Anji Reddy v. DCIT [2013] 35 taxmann.com 653 (Hyderabad-Trib.) has considered similar issue and the Tribunal has held that where the assessment has already been completed under section 143(3) of the Act and reassessment was done under section 147 of the Act , the same would not be held as regular assessment and thus the interest under section 234D of the Act could not be levied on the assessee in an assessment completed under section 143(3) r.w.s. 147 of the Act. Accordingly, keeping in view of the above decision of the Coordinate Bench of the Tribunal, we set aside the order of the ld. CIT(A) on this issue and delete the interest levied under section 234D of the Act for the assessment years 2000-01, 2001-02 and 2002-03 . 73. With regard to charging of interest under section 234D of the Act for the assessment year 2009-10 is concerned, the Assessing Officer has levied interest under section 234D of the Act while completing the assessment for the additions made by him. Since we have deleted/sustained some of the additions and the ground is conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 220(2) of the Act in terms of the above. The Assessing Officer is directed accordingly. The ground raised by the assessee for the assessment years 2001-02 and 2002-03 is allowed. 76. All the appeals filed by the Revenue for the assessment years 1997- 98, 1998-99, 2000-01, 2001-02, 2004-05, 2006-07, 2007-08 and 2008-09 are found to have been filed belatedly. The Revenue has filed petition for condonation of delay and the ld. DR has submitted that the jurisdictional Assessing Officer was deputed on Election Duty at Andhra Pradesh and therefore, the Department could not file the appeals in time for the assessment years1997-98, 1998-99, 2000-01 and 2001-02. For the assessment years 2004-05, 2006-07, 2007-08 and 2008-09, the ld. DR has submitted that the jurisdictional Assessing Officer was deputed to attend training at DTRTI, Chennai and was also deputed for search operation conducted by the Investigation Wing and also part of a survey operation conducted by the Department. It was, therefore, submitted that the delay in filing the appeals may be condoned and prayed that the appeals may be admitted for hearing. The ld. Counsel for the assessee has not objected to the submissions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/Mds/2013 order dated 28.06.2013 for the assessment years 2007- 08 and 2008-09, the Coordinate Bench of the Tribunal, by following assessee's own case for the assessment year 2005-06 in I.T.A. No. 612/Mds/2011, held that the software expenses incurred were in the nature of revenue expenditure. By taking consistent view, we hold that the software expenses incurred are in the nature of revenue expenditure. Therefore, we find no infirmity in the order of the ld. CIT(A). Accordingly, the ground raised by the Revenue in all the above assessment years is dismissed. 80. For the assessment year 2000-01 in I.T.A. No. 1735/Mds/2014, the ld. CIT(A) has set aside the issue of disallowance of software expenses to the Assessing Officer to decide afresh. Before us, the ld. DR has submitted that the ld. CIT(A) can only confirm, reduce, enhance or annul the assessment and not set aside the issue back to the Assessing Officer since the power of the ld. CIT(A) in setting aside the assessment and refer the case back to the Assessing Officer for making fresh assessment has been omitted by the Finance Act, 2001 w.e.f. 01.06.2001. 81. With regard to the issue of disallowance of software expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is allowed and accordingly, directed the assessing Officer to delete the addition made on this account. 84. We have heard both sides. The ld. CIT(A), by following the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank v. CIT (supra) decided the issue in favour of the assessee, wherein the Hon'ble Supreme Court has held as under: The question for our consideration is - whether on the facts and circumstances of the case, the assessee(s) is eligible for deduction of the bad and doubtful debts actually written off in view of Section 36(1)(vii) which limits the deduction allowable under the proviso to the excess over the credit balance made under clause (viia) of Section 36(1) of Income Tax Act, 1961 ( ITA for short)? 2. Under Section 36(1)(vii) of the ITA 1961, the tax payer carrying on business is entitled to a deduction, in the computation of taxable profits, of the amount of any debt which is established to have become a bad debt during the previous year, subject to certain conditions. However, a mere provision for bad and doubtful debt(s) is not allowed as a deduction in the computation of taxable profits. In order to promote rural ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to both the deduction, one under clause (vii) on the basis of actual write off and another, on the basis of clause (viia) in respect of a mere provision. Further, to prevent double deduction, the proviso to clause (vii) was inserted which says that in respect of bad debt(s) arising out of rural advances, the deduction on account of actual write off would be limited to the excess of the amount written off over the amount of the provision allowed under clause (viia). Thus, the proviso to clause (vii) stood introduced in order to protect the Revenue. It would be meaningless to invoke the said proviso where there is no threat of double deduction. In case of rural advances, which are covered by the provisions of clause (viia), there would be no such double deduction. The proviso limits its application to the case of a bank to which clause (viia) applies. Clause (viia) applies only to rural advances. This has been explained by the Circulars issued by CBDT. Thus, the proviso indicates that it is limited in its application to bad debt(s) arising out of rural advances of a bank. It follows that if the amount of bad debt(s) actually written off in the accounts of the bank represents only de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e advances made by rural branch of the bank during the year. By following the decision of the Coordinate Bench of the Tribunal in assessee's own case in I.T.A. No. 552 553/Mds/2009 for the assessment years 2001-02, 2002-03 dated 18.12.2009 decided the issue in favour of the assessee and directed the Assessing Officer to delete the addition made on this account. We have heard both sides, perused the materials on record and gone through the orders of authorities below. For the sake of clarity and to have better understanding over the issue, the entire facts with regard to the issue is reproduced for the assessment year 2004-05 in I.T.A. No. 245/Mds/2014. In the assessment order, the Assessing Officer has observed as under: 3. Allowable Deduction u/s 36(1)(viia): In the assessment order dated 29.12.2006, the AO disallowed the entire claim of deduction u/s 36(1)(viia), since the assessee did not provide details of provision created for bad and doubtful debts, proof of the population places where the rural branches are located, monthly average aggregate advances outstanding balances etc. The CIT(A) deleted the addition made by the AO based on the decision of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction has to be worked out on the average advance made by rural branch of the bank during the year. Deduction is available for the provision for bad and doubtful debt made in respect of incremental advances made by the rural branches during the year. In the assessment order, the AO in page no.18 and in para no.1 observed as under:- .The deductions are available only in respect of advances made by the rural branches in relevant year, as can be seen from the wording aggregate average advances made by a rural branches' used in this section and also the words the amount of advances made by each rural branch used in Rule 6 ABA The income is to be computed separately for each year after granting deduction. The specification of advance in this context pertains to advances containing the closing balance of the preceding year. Based on the above observation, the issue was decided as under.- 3.1. It is worth mentioning that the RBI provides for making provision for bad and doubtful debt which has become NPA as per the prudential norms prescribed by it. These norms direct banks to make provision in respect of secured advances to the extent of 20% of the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be worked out for each year, based on incremental advances given by the rural branches of the bank, from the income computed for each accounting year. 3.4. Any other interpretation of clause (viia)(a) (as adopted by the assessee bank) would result in absurdity. Thus allowing deduction for the same advance year after year on account of granting deduction under second limb of sub-clause (a) of clause (viia) of sub- section (1) of section 36 @ 10% of the average aggregate advances made by the rural branches which are outstanding at the end of the accounting year and at the same time allowing deduction for the provisions made for bad and doubtful debt would result in deduction which may be more than the amount lent by the rural branches of the bank. Needless to say, this was not the intention of the Legislature. The assessee has claimed deduction to the extent of ₹ 22,20,00,000/-. This has been worked out as under: On Rural advances (10% of aggregate average rural advances Rs.8,97,38,394 Non Rural advances (7.5 of Total Income) Rs.4,10,56,320 10% of Doubtful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal, the Tribunal vide its order dated 22.02.2013 remitted back the issue to the Assessing Officer to re-decide the issue in the light of observations made herein above and pass fresh order after affording adequate opportunity of hearing to the assessee. In the second round of litigation, after examining the details filed by the assessee with regard to the claim made by the assessee under section 36(1)(viia), the assessee bank was asked to clarify whether it exercise option (a) i.e. whether it claims deduction on doubtful debts as classified by the RBI or (b) 7.5% of Gross Total Income and 10% of aggregate average rural advances and the assessee bank stated that it claims as per option (b). Accordingly, the Assessing Officer has restricted the same as tabulated hereinabove after reworking the aggregate average rural advances. The Assessing Officer has recomputed the aggregate average rural advances by adopting only the incremental advances made during the year by the rural branches and also by excluding branches which were situated at places with population of more than 10,000 according to the latest Census. The Assessing Officer has also held that the provision for 'st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It may give advances from both branches with separate provision accounts for each. In the normal course of its business, an assessee bank is to maintain different accounts for the rural debts and for non-rural/urban debts. Maintenance of such separate accounts would not only be a matter of mere convenience but would be the requirement of accounting standards. - The bad debts written off in debts, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). - In case of rural advances which are covered by clause (viia), there would be no double deduction. The proviso, in its terms, limits its application to the case of a bank to which clause (viia) applies. Indisputably, clause (viia) applies only to rural advances. - If the amount of bad debt actually written off in the accounts of the bank represents only debt arising out of urban a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of rural debts. In view of the above decision and in view of the option exercised by the assessee that it can claims deduction on doubtful debts as per option (b) i.e. 7.5% of Gross Total Income and 10% of aggregate average rural advances, the Assessing Officer has rightly worked out the allowable deduction, which is less than that of the provision made by the assessee as doubtful debts, allowed the deduction of bad debts for all assessment years and remaining balance was brought to tax. Accordingly, we reverse the order of the ld. CIT(A) and confirm the addition made by the Assessing Officer for all the above assessment years. This ground of appeal of the Revenue is allowed. 94. The first ground raised in the appeal of the Revenue for the assessment year 1997-98 in I.T.A. No. 1364/Mds/2014 is with regard to deletion of addition made towards payment made to SEBI. The Assessing Officer disallowed ₹ 1,00,000/- towards registration fee by considering it as capital expenditure. By making the payment of fee to SEBI, the assessee bank is not getting any capital asset. It was the contention of the AR of the assessee that since the fee paid by the assessee is only a fe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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