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TMI Blog2022 (3) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... w. Rule 8D 64,59,79,000 2. Disallowance u/s 36(1)(viia) 936,90,65,332 3. Disallowance u/s 36(1)(va) 1008,00,06,232 4. Disallowance u/s 40(a)(ia) 87,91,40,567 5. Provision for wage revision 240,00,00,000 Total disallowance / addition 2337,41,91,131 3. The Assessing Officer also assessed tax payable u/s 115JB of the I.T.Act at Rs. 757,13,40,716 after making several additions to the book profits. 4. Aggrieved by the assessment order, the assessee preferred an appeal before the first appellate authority. The CIT(A) allowed the appeal of the assessee in respect of following issues:- Sl. No. Particulars Amount in Rs. 1. Disallowance u/s 14A r.w. Rule 8D 64,59,79,000 2. Disallowance u/s 40(a)(ia) 87,91,40,567 3. Provision for wage revision 240,00,00,000 5. The CIT(A), however, did not allow the grounds with regard to the assessee-bank on the following issues:- Sl. No. Particulars Amount in Rs. 1. Disallowance u/s 36(1)(viia) Party allowed 936,90,65,332 2. Disallowance u/s 36(1)(vii) 1008,00,06,232 6. The CIT(A) in relation to applicability of provisions of section 115JB of the Act, did not allow ground that section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputed as per Rule 6ABA of the Income-tax Rules, 1962. The Assessing Officer held that the deduction should be restricted to actual provision made in the books. However, the A.O. disallowed the entire deduction u/s 36(1)(viia) by holding that the sum is debited to the profit and loss account and for income tax computation, the same is added back as it is only a provision which is not an allowable deduction. 11.1 Aggrieved by the assessment order, the assessee-bank raised this issue before the first appellate authority. It was contended before the first appellate authority that - (i) there is no requirement in section 36(1)(viia) of the Act that provision should be in relation to rural advances, (ii) decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank relied on by the Assessing Officer was not relevant to the present case, as the Hon'ble Apex Court did not go into the matter of deduction u/s 36(1)(viia) of the Act. It was further contended that deduction has to be calculated as provided in section 36(1)(viia) of the Act and need not be restricted to the amount of provision created in the books. The CIT(A) relying on various judicial pronouncements, allowed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully covered by the judgment of Hon'ble Supreme Court in the case of Vijaya Bank 323 ITR 166. However, the CIT(A) vide his letter dated 06/03/2018 asked the assessee to explain why bad debts written off u/s 36(1)(vii) should not be first adjusted with the provision allowed u/s 36(1 )(viia) in respect of non-rural branches, keeping in view the Explanation 2 below Section 36(1)(vii), proviso Section 36(1)(vii) r.w.s 36(2)(v) r.w.s 36(1)(viia). The assessee-bank relying on the Hon'ble Supreme Court decision that Section 36(1)(viia) is applicable only to rural advances in the case of Catholic Syrian Bank, argued that since no deduction is allowed for non-rural debts u/s 36(1)(viia), the entire nonrural debts written off should be allowed as deduction u/s 36(1)(vii) without adjusting the same against the provision allowed u/s 36(1)(viia). It was contended that insertion of explanation 2 to Section 36(1)(vii) has not altered the proposition of law as it existed prior to introduction of explanation. Further it contended that since Section 36(1)(viia) applies only to rural debts, in the case of banks having rural branches, it is only rural debts which are to be adjusted against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has raised this issue before the Tribunal. The learned AR submitted that an identical issue was decided in favour of the assessee-bank by the Tribunal in assessee's own case for assessment year 2013-2014 (reported in 2022 (1) TMI 124 - ITAT Bangalore). 12.2 The learned DR strongly supported the orders of the Income Tax Authorities. 12.3 We have heard rival submissions and perused the material on record. We notice that the CIT(A) had expressed the view that provision allowed u/s 36(1)(viia) of the Act would apply to non-rural advances also. An identical issue has been examined by the Hyderabad Bench of the ITAT in the case of State Bank of Hyderabad v. DCIT in ITA No.450/Hyd/2015, ITA No.498 and 499/Hyd/2015 (order dated 14.08.2015) wherein the Tribunal had not accepted the above said view expressed by the CIT(A). The Bangalore Bench of the Tribunal in assessee's own case for assessment year 2013-2014 by following the Hyderabad Bench order of the Tribunal in the case of State Bank of Hyderabad (supra), had set aside the view expressed by the CIT(A) that proviso to section 36(1)(vii) which requires adjustment of bad debts against the provisions allowed u/s 36(1)(viia) would appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to rural advances was not claimed as deduction by assessee in terms with the proviso to section 36(1)(vii) as it has not exceeded the provision for bad and doubtful debts relating to rural advances created u/s 36(1)(viia). Both AO and ld. CIT(A) have misconstrued the statutory provisions while observing that proviso to section 36(1)(vii) would also apply in case of bad debts relating to non-rural advances. The Hon'ble Supreme Court in case of Catholic Syrian Bank Vs. CIT (supra) while analyzing provisions of section 36(1)(vii) and 36(1)(viia) have observed that section 36(1)(viia) applies only to rural advances. The observations made by Hon'ble Apex Court in this regard in paras 26 & 27 of the judgment is extracted hereunder for convenience. "26. The Special Bench of the Tribunal had rejected the contention of the Revenue that proviso to s. 36(1)(vii) applies to all banks and with reference to the circulars issued by the Board, held that a bank would be entitled to both deductions, one under cl. (vii) of s. 36(1) of the Act on the basis of actual write off and the other on the basis of cl. (viia) of s. 36(1) of the Act on the mere making of provision for bad debts. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(11(vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks continue to get the full benefit of the write off of the irrecoverable debt(s) under Section 36(1)(vii) in addition to the benefit of deduction for the provision made for bad and doubtful debt(s) under section 36(1)(viia). A reading of the Circulars issued by CBDT indicates that normally a deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt(s). No deduction is allowable in respect of a mere provision for bad and doubtful debt(s). But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off However, this may result in double allowance in the sense that in respect of same rural advance the bank may get allowance on the basis of clause (viia) and also on the basis of actual write off under clause (vii). This situation is taken care of by the proviso to clause (vii) which limits the allowance on the basis of the ITA No.1884/Bang/2018 & ITA No.236/PAN/2018 M/s. Canara Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, we rely upon the decision of the ITAT Mumbai in case of Bank of India Vs. Addl. CIT (supra). Even otherwise also, careful reading of explanation to section 36(1)(vii) would indicate that nowhere it suggests that the proviso to section 36(1)(vii) would apply in respect of bad debt written off relating to non-rural advances. In the aforesaid view of the matter, we hold that assessee would be eligible to avail deduction of an amount of Rs. 209.94 crore representing actual write off in the books of account of bad debts relating to nonrural/urban advances in terms with section 36(1)(vii), as proviso to the said section would not apply to non-rural advances. Accordingly, we delete the addition made by AO and confirmed by ld. CIT(A)." 6.5 Following the above said decision, we hold that the view expressed by Ld CIT(A) is not legally correct. Accordingly, we set aside the order passed by Ld CIT(A) with regard to his alternative decision, i.e., the view that the proviso to sec. 36(1)(vii) which requires adjustment of bad debts against provision allowed u/s 36(1)(viia) would apply to non-rural advances also. Accordingly, we direct the AO to delete the disallowance of Rs. 1258.47 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter was remitted back to the CIT(A). It was submitted by the learned AR that since the facts being identical, a similar view may be taken by the Tribunal for this assessment year also. 13.4 The learned DR was duly heard. 13.5 We have heard rival submissions and perused the material on record. The Tribunal in assessee's own case for assessment year 2013-2014 (supra) had restored the issue to the files of the CIT(A). The CIT(A) was directed to examine whether the assessee being a banking company would be liable for book profits u/s 115JB of the Act. The relevant finding of the Tribunal in assessee's own case, reads as follows:- "7.4 We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has expressed the view that the assessee would fall under clause (a) of sec.115JB(2). However the case of the assessee is that clause (b) of sec.115JB(2) is made applicable to banking companies, since banking company is included in sec. 211 of the Companies Act. However, it is the contention of the assessee that it is not a 'banking company", i.e., it is a "corresponding new bank". 7.5 We notice that the provisions of sec.51 of the Act specifically states that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PEAL (ITA NO.237/PAN/2018) 16. In Revenue's appeal, 10 grounds are raised. Ground 1 is general in nature, hence, the same is dismissed. The other grounds shall be adjudicated as under:- DISALLOWANCE U/S 14A OF THE ACT (GROUND 2 AND 3) 17. The assessee-bank had earned exempt income of Rs. 29,87,66,187. The assessee-bank while filing the return of income had disallowed an amount of Rs. 9,86,321 as expenditure relating to earning of tax exempt income. The A.O. by invoking the provisions of section 14A r.w.Rule 8D, disallowed a sum of Rs. 64,59,79,000. 17.1 Aggrieved, the assessee filed an appeal to the first appellate authority. The CIT(A) deleted the disallowance made u/s 14A of the Act. The CIT(A) held that the A.O. has failed to record dissatisfaction of correctness of claim by the assessee in making disallowance u/s 14A of the Act while filing the return of income. 17.2 Aggrieved by the order of the CIT(A), the Revenue has raised this issue before the Tribunal. The learned AR fairly submitted that on identical facts, the Tribunal in assessee's own case for assessment year 2013-2014 reported in 2022 (I) TMI 124-ITAT Bangalore (order dated 27.12.2021) had restored the matter to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court to contend that no disallowance u/s 14A is called for in the case of the assessee. The Ld CIT(A) should consider those decision and should take appropriate decision in accordance with law." 17.4 By following the co-ordinate Bench order of the Tribunal in assessee's own case, we restore the issue to the files of the CIT(A). The CIT(A) shall follow the directions of the Tribunal in assessee's own case for assessment year 2013- 2014 (supra) and shall take a decision after affording a reasonable opportunity of hearing to the assessee. It is ordered accordingly. 17.5 In the result, grounds 2 and 3 are allowed for statistical purposes. DISALLOWANCE U/S 40(a)(ia) OF THE ACT (GROUND 4 AND 5) 18. The brief facts in relation to the above ground are that the assessee-bank issues debit cards and credit cards to its customers. These cards are used by the customers in ATMs of several other banks for the purpose of withdrawal of money. All the ATM in the country are connected to National Payment Corporation of India (NPCI). Whenever the card is used in ATM of other banks, it charges fees for the same and the same is paid by the assessee. For the relevant assessment year, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g deduction of tax at source u/s 194H of the Act. The Ld CIT(A) held that the above said decision shall apply to the facts of the present case also. He further held that the AO did not specify the section under which the TDS is liable to be deducted by the assessee. Accordingly he deleted the disallowance. 10.2 We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has rendered his decision following the ratio of decision rendered by Hon'ble Supreme Court in the case of Kotak Securities Ltd (supra) and also the decision rendered by coordinate bench in the case of Corporation Bank (supra). Hence we do not find any reason to interfere with his order passed on this issue." 18.5 In view of the order of the Tribunal in assessee's own case, we confirm the CIT(A)'s order and delete the disallowance made by the A.O. by invoking the provisions of section 40(a)(ia) of the Act. 18.6 Hence, ground 4 and 5 of the Revenue's appeal is dismissed. DELETION OF PBDD FROM BOOK PROFITS (GROUNDS 6 AND 9) 19. In this ground, the Revenue challenges the relief granted by the CIT(A) while computing the book profit u/s 115JB of the Act. Since the issue of applicability ..... X X X X Extracts X X X X X X X X Extracts X X X X
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