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TMI Blog2023 (1) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... embers, only after approval of accounts and director s report, the return of income is filed. Thus, appropriation made by the assessee bank for bad and doubtful debts is nothing but providing for bad and doubtful debts from the profit and loss accounts. After introduction of section 36(1)(viia) by the finance Act, 1979, with effect from April 1,1980, Circular No. 258, dated June 14, 1979, was issued by the Central Board of Direct Taxes to clarify the application of the new provisions. The provisions were introduced in order to promote rural banking and assist scheduled commercial banks in making adequate provision from their current profits for risks in relation to their rural advances. The deductions were to be limited as specified in the section. The circular mentions that the provisions of new clause (viia) of section 36(1), relating to the deduction on account of provisions for bad and doubtful debts, is distinct and independent of the provisions of section 36(l)(vii) relating to allowance of deduction of the bad debts. Scheduled commercial banks would continue to get the benefit of the write off of the irrecoverable debts under section 36(1)(vii) in addition to the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debt reserve provision, holding that the assessee co-operative bank falls under the category of non-scheduled bank and eligible for above deduction without appreciating the Explanation (ia) below section 36(1)(viia) of the Act. It has also been held by Ld. CIT(A) that rest while in the annual report as a proposed appropriation subject to approval in general body meeting of the members and as such disclosure and treatment is as per norms and practice followed by all cooperative banks as governed by State cooperative act. So far as objection of assessing officer is that in the profit and loss accounts of the year no such provision is made by the assesse, is concerned, we find that Hon'ble Supreme Court in Kedarnath Jute Manufacturing Company Vs CIT held that nomenclature or treatment in the books of accounts is not decisive or conclusive for a particular deduction otherwise allowable under the law. 1.1 The Ld. CIT(A) failed in interpreting the statute in the entirety, section 36(1)(viia) enshrines the three categories of banks namely Schedule Bank, Non-Schedule Bank and Co-operative Bank for deduction of bad and doubtful debts @ 7.5% of the total income computing before m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation (ia) to Section 36(1) of the Act covers only branch of a scheduled bank situated at a specified place. Such fact is not examined by the assessing officer. The Assessing Officer rightly restricted only 7.5% of total gross income. Though, the assessee contended that they are non-scheduled bank and therefore 10% of advances of rural bank would be eligible for deduction. The ld. CIT-DR and ld. Sr.DR for the revenue submit that the language of Section 36(1) clearly prescribed that any provision for bad and doubtful debts made by a scheduled bank not being a bank incorporated by or under the law of a country outside India or a non-scheduled bank or a cooperative bank other than a primary agriculture credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and half per cent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. Thus, the assessee cannot claim 10% of rural branch as a provision for every year. The ld. CIT-DR submits that the Pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Kerala High Court in Kannur district Co-operative Bank Limited Vs CIT (2014) 365 ITR 343 (Kerala). The explanations and submissions of the assessee was not accepted by the assessing officer by taking view that the case law relied by the assessee is not of the jurisdictional High Court. The assessing officer also held that for the purpose of this section, the legislature has placed co-operative bank as a different category bank than schedule bank. The assessing officer held that the assessee made a provision of bad and doubtful debt of Rs. 5.00 Crore and in the computation of income the assessee further claimed and amount of Rs. 1.66 Crore on account of Statutory bad debts reserve provision made @ 15% of net profit. In the profit and loss account year no such provision of statutory bad debts reserve provision is made. The assessing officer concluded that allowable deduction under this section is calculated on the basis of provision for bad and doubtful debts in the profit loss account, which is Rs. 5.00 Crore. However, the assessing officer allowed deduction of Rs. 1.75 Crore being 7.5% of Gross total income before claiming deduction under section 36(1)(viia), against total c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible for deduction of 10% both as co-operative bank and also as non-schedule bank which include co-operative bank and thus covered by section 36(1)(viia) read with definition of rural branch given in Explanation thereto. We find that that ld CIT(A) after considering the submission of the assessee held that both the issue raised by the assessee is decided by Tribunal in favour of the assessee. The ld CIT(A) quoted the relevant part of decision of Tribunal in his order. On careful perusal of grounds of appeal and the assessment order, we find that the grounds of appeal raised by the revenue are covered by the decision of Tribunal in assessee s own case for A.Y. 2009-10 to 2012-13 and 2014-15 (supra). We find that while considering the detail and exhaustive submissions of the parties, the combination of this Bench in appeal for A.Y. 2009-10 to 2012-13 and 2014-15 (supra) has passed the following order: 23. Ground No. 2 of the appeal relates to deleting the disallowance of deduction of Rs. 7.500 crores provision for bad and doubtful debts under Section 36(1)(viia) against the advances of rural branches. The ld. AR of the assessee submits that the assessing officer not allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a view that the definition of rural branch in explanation (ia) does not cover co- operative banks. The legislature has placed cooperative bank as a different category than non-scheduled bank. Accordingly, deduction of provision for bad and doubtful debts with respect to advance of rural branch is not allowable to the assessee-bank. As recorded above, before the ld. CIT(A), the assessee filed detailed written submission. We find that the ld. CIT(A) on appreciation of submission of assessee and considering the decision of Kannur District Co-operative Bank (supra) held that under Banking Regulation Act, 1949, The banking company also includes Cooperative Bank and further held that as per definition of Non-scheduled Bank given in the explanation under Section 37(1)(viia) a banking company as defined in Section (c) of Banking Regulation Act, which is not a scheduled bank is classified as Non-scheduled bank and it was held by Tribunal that consequently a cooperative bank would be classified as non-scheduled bank for the purpose of Section 36(1)(viia), thus, cooperative bank will get deduction of 10% only of rural branch advance which are defined under that Act. The decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that the order of ld. CIT(A) is based on proper appreciation of amended provision of Section 36(1)(viia) which we affirm. 28.So far as objection of ld. CIT-DR and his reliance on the decision of Indore Bench in Jhabua Dhar Khatriya Gramin bank (supra) is concerned, we find that the ratio of finding of Tribunal is not applicable on the facts of the present case. In the said case the Tribunal relied on the earlier case law in Narmada Malwa Gramin Bank Vs ACIT (ITA No. 162/Ind/2011 dated 16.04.2013), wherein the issue was restored to the file of assessing officer to re-computing the claim of deduction to the extent of amount written off in the books of accounts. Thus, the finding in the said decision is not at all applicable on the facts of his case. In the result, the ground No. 2 of appeal raised by the Revenue is dismissed. 29.In the result, the appeal of the revenue is dismissed. 30.Now adverting to the sole ground of appeal raised by assessee against sustaining the disallowance to the extent of Rs. 1.067 crore under Section 36(1)(viia). The ld. AR of the assessee submits that assessee claimed deduction of statutory bad debts reserve created during the year at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. AR relied on the decision of Hon ble Supreme Court in Radhasoami Satsang Vs CIT (1992) 193 ITR 321 (SC). 31.On the other hand, the ld. CIT-DR for the Revenue supported the order of ld. CIT(A). The ld CIT-DR for the revenue further submits that the assessing officer clearly held that no provision in the profit and loss account has been made by the assessee. 32. We have considered the rival submissions of both the parties and have gone through the orders of the authorities below. The Assessing Officer disallowed the claim of deduction under Section 36(1)(viia) by taking a view that the definition of rural branch in explanation (ia) does not cover cooperative banks. It was recorded by assessing officer while disallowing such claim that the legislature has placed cooperative bank as a different category than non-scheduled bank. Accordingly, deduction of provision for bad and doubtful debts with respect to advance of rural branch is not allowable to the assessee-bank. As recorded in the facts of revenue s appeal the assessing officer disallowed the whole of claim of deduction of section 36(1)(viia). However, on appeal the ld CIT(A) allowed part relief to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the State of Gujarat, which earned profit from its transactions, shall maintain a bad debts reserve funds. As per sub-section (2) of section 67A, every year, the society shall carry at least 15% of the net profit to the debts reserve funds. All such funds shall be certified by the certified auditors and the expenses incurred in recovering the same shall first be written off as per section 67A(3). It is settled position under law that co-operative banks are primarily a co-operative society. We also noted that the financial statement of the assessee is not only subject to the statutory audit but also subject to the approval of the Registrar of Co-operative society. Thus, considering the aforesaid factual and in view of the statutory provision in the State Cooperative Act, the assessee is also allowed deduction of Rs. 1.067 Crore, which in line with the provisions of section 67A of Gujarat Co-operative Society Act. 35. So far as objection of assessing officer is that in the profit and loss accounts of the year no such provision is made by the assessee, is concerned, we find that Hon ble Supreme Court in Kedar Nath Jute Manufacturing Company Vs CIT (supra) held that nomenclatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to allowance of the bad debts. After introduction of section 36(1)(viia) by the finance Act, 1979, with effect from April 1,1980, Circular No. 258, dated June 14, 1979, was issued by the Central Board of Direct Taxes to clarify the application of the new provisions. The provisions were introduced in order to promote rural banking and assist scheduled commercial banks in making adequate provision from their current profits for risks in relation to their rural advances. The deductions were to be limited as specified in the section. The circular mentions that the provisions of new clause (viia) of section 36(1), relating to the deduction on account of provisions for bad and doubtful debts, is distinct and independent of the provisions of section 36(l)(vii) relating to allowance of deduction of the bad debts. In other words, scheduled commercial banks would continue to get the benefit of the write off of the irrecoverable debts under section 36(1)(vii) in addition to the benefit of deduction of the provision for bad and doubtful debts under section 36(1)(viia). 12. We may retreat that while considering the similar issues in assessees own case for earlier year, which is followed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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