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TMI Blog2022 (6) TMI 1346X X X X Extracts X X X X X X X X Extracts X X X X ..... bank is sought to be extended to a co-operative banks other than primary agricultural credit society or a primary cooperative agriculture and rural development bank w.e.f. 01/04/2007. Further rest while deduction available to such eligible cooperative banks under Section 80P stood withdrawn by Finance Act, 2006 w.e.f. 01/04/2007. Thus, there was an amendment by way of Finance Act, 2007 to Section 36(1)(viia) w.e.f 01/04/2007 wherein cooperative bank other than primary agricultural credit society or a primary cooperative agriculture and rural development bank, were brought under the provision of Section 36(1)(viia) for claiming deduction in respect of provisions made for bad and doubtful debts. Thus, in view of aforesaid factual discussion and the legal view taken by the Kerela High Court in Kannur District Cooperative Bank (supra), we find that the order of ld. CIT(A) is based on proper appreciation of amended provision of Section 36(1)(viia) which we affirm. So far as objection of CIT-DR and his reliance on the decision of Indore Bench in Jhabua Dhar Khatriya Gramin bank [ 2018 (9) TMI 533 - ITAT INDORE] we find that the ratio of finding of Tribunal is not applicable on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment should continue to be classified in Govt. Securities, shares Bond of PSU and others. The categorization in the case of assessee has been done separately as per RBI s requirement and held that assessee is eligible for claim of deduction under diminution in the value investment shifted from HTM category to ASF category. See STATE BANK OF MYSORE VERSUS DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12(3), BANGALORE [ 2009 (5) TMI 610 - ITAT BANGALORE] wherein claim of the assessee towards provision of depreciation on account of transfer of securities from AFS Category to HTM Category is allowed - Decided against revenue. Disallowance of claim of deduction u/s 36(1)(viia) by taking a view that the definition of rural branch in explanation (ia) does not cover cooperative banks - HELD THAT:- We find that merit in the submissions of the ld AR for the assessee and find that as per section 67A of Gujarat Cooperative Society Act, every society, working 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 reserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this year would apply for all other years under appeal before us. The assessee in its appeal in ITA No.1542/AHD/2021 (AY2009-10) has raised the following grounds of appeal:- 1. The CIT(Appeals) erred in not allowing deduction of Rs.1,06,73,0092/- u/s 36(1)(viia) of the Income Tax Act, 1961 in respect of the provision made for bad and doubtful debts in accordance with the provision of the Gujarat Cooperative Societies Act,1961 read with the consequential provision in the bye-laws of the assessee. 2. The revenue in its cross appeal for AY 2009-10 in ITA No. 1542/Ahd/2016 has raised following grounds of appeal; 1. On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in deleting the disallowance of Rs.5,86,30,000/- made on account of diminution of value of securities, without appreciating the fact that this change in categorisation from HTM category to current category, is not reflected separately by the assessee in its Balance Sheet as on 31.03.2009. 1.1 The Ld. CIT(A) erred in allowing the claim of deduction on account of diminution of value of securities on the basis of Hon'ble Supreme Court's judgment in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justification and working for the above claim. In response the assessee has submitted the calculation as under Gross Total income before claiming deduction U/s36(1)(viia) 10,20,63,748 7.5% 76,54,781 Avg. Aggregate Rural Advances 20,05,106,000 10% of above 20,05,10,600 Total deduction allowable 20,81,65,381 1) NPA provision debited to P L a/c 75,000,000 2) Statutory bad debts provision made @15% of net profit 10,673,003 TOTAL 85,673,003 Deduction u/s 36(1)(viia) claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed back to the income of assessee. 5. The Assessing Officer further noted that in the computation of income, the assessee claimed deduction of Rs.5.863 crores on account of diminution of Government Securities. The assessee in the note attached with the computation of income, claimed such deduction on the basis of decision of Hon'ble Apex Court in the case of United Commercial Bank (UCO Bank) vs. CIT 240 ITR 355 (SC). The assessee was issued show cause notice to justify such deduction. The assessee filed its reply to the said show cause notice. In the reply, it was submitted that such deduction is claimed for the first time on the basis of judgment of Hon'ble Apex Court in UCO Bank (supra). It was further claimed that assessee-co-operative bank has shifted its investment in Government Securities held in Held to Maturity (for short to as HTM ) category into current category for the first time vide Resolution dated 18.10.2008. The assessee also stated that as per Master Circular on Investment by Primary (Urban) Co-operative Banks, the banks may shift investment to / from Held to Maturity category with the approval of Board of Directors once a year. Such shifting will n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee purchased the securities in 2003 and 2004, which is after the date of judgment. The reasoning in the decision of Apex Court was that the assessee was consistently following system of accounting from last past 30 years, which has been accepted by department. The assessing officer held that the assessee has claimed such deduction for the first time though such decision of Hon'ble Apex Court in UCO Bank (supra) was delivered much before purchased of securities, thus, case law relied by assessee is not applicable in the facts of the present case. On the aforesaid reasoning, the Assessing Officer disallowed the diminution of value of Govt. securities of Rs.5.865 crores. 6. Aggrieved by the disallowance of diminution as well as on deduction under section 36(1)(viia), the assessee filed appeal before the Ld. CIT(A). On the disallowance of diminution of valueon investment of Rs.5.863 crores, the assessee made similar submission as submitted before the Assessing Officer. In addition to assessee furnished the details of securities; consisting date of purchase, fixed value, book value, market value and difference in the following manner:- Particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ventory held under AFS category. A claim cannot be disallowed just it was made for the first time only things is to be verified is whether the claim is genuine and within the four corners of law. The Assessing Officer held that if the assessee has regularly followed the method of value of investment under the available for sale category in that case, loss if allowable, would be only Rs.11.58 lacs. The Assessing Officer has not appreciated the fact in a proper perspective. The entire GOI securities were held HTM category which was only in the current year the assessee transferred some of the securities to AFS category in fact assessee was followed method classification as per RBI s Master Circular dated 01.07.2008. The securities was held under the available for sale category has been consistently valued at market value/rate and only the incremental profit/loss has been offered/claimed in the return of income. 8. On the submission of assessee, Ld. CIT(A) required remand report from the Assessing Officer. The Assessing Officer furnished remand report with letter dated 21.05.2015, wherein he has written that before deciding the matter, the decision of Ahmedabad Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Mysore vs. DCIT (2009) 33 SOT 7 (Bang- Trib.) re-classification or loss was calculated in the middle of the year and was allowed. It was submitted that in the remand report, Assessing Officer failed to comment any of the point raised in the written statement. Thus, the Assessing Officer has no defence under the disallowance. 10. The Ld. CIT(A) after considering the contents of assessment order, submission of assessee, remand report of Assessing Officer and further rejoinder and explanation furnished by the assessee held that assessee is eligible for claim of deduction of Rs.5.863 crores on account of diminution of value on Government securities on the basis of judgment of Hon'ble Apex Court in the case of United Commercial Bank (supra). On the observation of assessing officer that such deduction is claimed for the first time on the basis of judgment, the ld CIT(A) noted that the assessee s claim that shifting of securities was done for the first time during the year and there was no such shifting in earlier years and thus there was no consequential effect and that similar method was followed in subsequent assessment years and loss of Rs.1.18 crores was claimed in assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certified working showing the premium amount and book value separately which was furnished by assessee in the following manner:- Provision for Bad Doubtful Debts: Allowable Deduction u/s 36(1)(viia) AY 2009-10 Claim for change in category of investments i.e. from HTM to AFS Sr. No. Govt. Security Type Purchase price Market value as on 31.03.2009 Diminution in value of investments 58,630,000 1 6.17% Bond maturing in 2023 202,560,000 173,700,000 28,860,000 2 605% Bond maturing in 2019 253,400,000 231,975,000 21,425,000 3 6.01 Bond maturing in 2028 49,000,000 40,655,000 8,345,000 Total (Rs) 504,960,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank. The assessee submitted that once the Assessing Officer allowed deduction of 7.5% of total income of deduction under section 36(1)(viia), then it is not a dispute that this provision is applicable to the assessee. The Assessing Officer admitted one limb of this section, so far as it relates to deduction to 7.5% of total income. The Assessing Officer admitted that ceiling of 7.5% is applicable to it in that case, other limb of section being 10% aggregate average rural advances is also applicable to the assessee, because the word used in the section and such the definition of schedule bank in clause (ii) of explanation to said clause (viia) includes schedule co-operative bank within the definition. The intention of legislature is very clear to provide deduction on account of provision of bad and doubtful debt to the co-operative bank and for giving effect to the said object, the amendment was made in section 36(1)(viia) so as to include co-operative bank. If the interpretation adopted by Assessing Officer is taken, it would be clearly against the legislative intent. Any interpretation which defeats the object with which the provision is to be avoided. The interpretation ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee s own case for A.Y. 2008-09. Thus, granted partial relief to the assessee to the extent of Rs.7.500 crores and upheld the disallowance to the extent of Rs. 1.067 crore. 15. Aggrieved by the order of ld CIT(A), both the parties have filed appeal raising the grievances as per their respective grounds of appeal. The assessee in its appeal has challenged the disallowance of deduction under Section 36(1)(viia) to the extent of Rs. 1.067 crore only being, 15% statutory transferred to bed debts reserve. On the other hand, the Revenue has challenged the order of ld. CIT(A) in granting relief on the deduction of diminution of Rs. 5.365 crore and allowing deduction under Section 36(1)(viia) to the extent of 7.500 crores. 16. We have heard the submissions of the learned Commissioner of Income- tax/ departmental representative (CIT-DR) for the revenue and the learned authorised representative (ld AR) for the assessee and have gone through the orders of the lower authorities carefully. Ground No. 1 of the revenue s appeal relates to disallowance of diminution of value of Govt. Securities. The ld. AR of the assessee submits that during the financial year, the assessee for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e method of valuing the security of AFS category as market value in all subsequent years and claiming loss or offering consequential gain. The assessee submitted that in assessment year 2010-11, there was further diminution and assessee claimed loss of Rs. 1.94 crores in assessment year 2010-11 there was depreciation and gain of Rs. 26.90 lakhs and was offered to tax, in assessment year 2012-13 there was diminution and loss of Rs. 1.189 crores was claimed, in assessment year 2013-14 there was appreciation and gain of Rs.2.38 crores was offered to tax. In all aforesaid subsequent years, such loss was allowed and such gains were tax under section 143(3) of the Act. The ld AR for the assessee submits that the return of income computation under treatment was furnished before the lower authorities. To support his submission, the ld. AR for the assessee relied upon the decision of Bangalore Tribunal in the case of State Bank of Mysore vs. DCIT (2009) 33 SOT 7 (Bang- Trib), DCIT Vs Karur Vysya Bank (2005) 273 ITR 510 ( Madras), CIT Vs Nedungadi Bank Ltd (2004) 264 ITR 454 (Kerala), Karnataka bank Vs ACIT (2013) 356 ITR 549 (Karnataka) and United Commercial Bank Vs CIT ( 1999)(240 ITR 355- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there was no such shifting in earlier years and thus there was no consequential effect and that similar method was followed in subsequent assessment years and loss of Rs.1.18 crores was claimed in assessment year 2011-12 and was allowed. As recorded above, before ld CIT(A) the assessee retreated the similar submissions and also relied on certain case laws. The Ld. CIT(A) held that there is no bar to change the classification in the middle of the year, the classification can be changed only on approval of Board of Directors approved such classification, as has been done in the middle of the year, then claim of loss on account of diminution of value in Govt. securities has no connection availability of deduction. Even if change would have been done in the beginning of the year it could change on 31.03.2009 and the amount of claim would still remain same. On the objection of Assessing Officer that for allowance of claim of deduction is that has assessee regularly followed the method of diminution of value investment under AFS category. The ld CIT(A) held that in case loss as available to assessee would be only Rs.51.17 lakhs for the year under fluctuation and not Rs.5.86 crores and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'held for maturity' as stock-in-trade. If there is appreciation in the market value as compared to the market value at the opening of the year and such appreciation is also accounted for. It is not claiming depreciation only for the years, when the value has gone down. If that had been the case, the assessee would not have accounted for any appreciation in 3rd, 4th and 5th year. The method by which the assessee bank is valuing securities is in accordance with the accounting principles by treating such securities as stock-in-trade. Moreover, the revenue itself is treating the profit on maturity of such security as business income and, therefore, such securities cannot be treated as capital assets. 16. Special Bench, Delhi in the case of New India Insurance v. ACIT [2007] 18 SOT 51 = (2007-TIOL-389-ITAT-DEL-SB) had an occasion to consider the binding nature of RBI Guidelines. The Special Bench held that RBI Guidelines in respect of provision for NPA are not binding in the computation of income under the Income-tax Act. Income is to be assessed as per the provision of the Income-tax Act. The Madras High Court in the case of Tamilnadu Power Infrastructure Development Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) subsidiaries/joint ventures, and (f) other (CP Mutual Fund Units, etc.). (ii) Banks should decide the category of the investment at the time of acquisition and the decision should be recorded on the investment proposals. 2.3 Shifting among categories : (i) Banks may shift investments to/from Held to maturity category with the approval of the Board of Directors once a year. Such shifting will normally be allowed at the beginning of the accounting year. No further shifting to/from this category will be allowed during the remaining part of that accounting year. 7.5 In view of the clear cut guidelines of the RBI and respectfully following the findings of the Hon'ble Tribunal referred supra, the claim of the assessee towards provision of depreciation of Rs. 127,21,17,913 on account of transfer of securities from AFS Category to HTM Category is allowed. It is ordered accordingly. 22. Considering the aforesaid factual and legal discussions, we do not find any infirmity or illegality in the order passed by ld CIT(A), which we affirm. In the result, ground No. 1 of appeal raised by the revenue is dismissed. 23. Ground No. 2 of the appeal relates to de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4/2013. 26. We have considered the rival submissions of the parties and have gone through the orders of the authorities below carefully. 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 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 consequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for claiming deduction in respect of provisions made for bad and doubtful debts. Thus, in view of aforesaid factual discussion and the legal view taken by the Kerela High Court in Kannur District Cooperative Bank (supra), we find 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) in his order. Thus, on the principle of consistency, this claim is to be allowed. Since the parties have allowed the position to be sustained by not challenging the order on that issue. To support his submission, 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perative banks as governed by the State Cooperative Act. We find that merit in the submissions of the ld AR for the assessee and find that as per section 67A of Gujarat Cooperative Society Act, every society, working 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 Co-operative 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee being a Cooperative Bank did not find its place in the Explanation (ia) below section 36(1)(viia) of the Act, rendering the findings of Ld. CIT(A) erroneous and misleading. 41. We find that the revenue has raised similar grounds of appeal as raised in appeal for AY 2009-10, which we have dismissed by affirming the order of ld CIT(A), therefore following the principle of consistency the grounds of appeal of revenue for AY 2010-11 is also dismissed with similar observation. 42. In the result, the appeal of the revenue is dismissed. ITA No. 1544/Ahd/2016 for AY 2011-12 by assessee. 43. The assessee has raised following grounds of appeal. 1. The C.I.T.(Appeals) erred in not allowing deduction of Rs. 1,70,03,421/- u/s. 36(1)(viia) of the Income Tax Act, 1961in respect of the provision made for bad and doubtful debts in accordance with the provision of the Gujarat Cooperative Societies Act, 1961 read with the consequential provision in the bye-laws of the assessee. 44. We find that the assessee has raised similar grounds of appeal as raised in appeal for AY 2009-10, which we have allowed, therefore following the principle of consistency the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delines towards Statutory Bad Debt Reserve Provision i.e. 15 percent of profits ,on the ground that no such provision has been made in the profit and loss account for the year under the appeal. Your Appellant submits that total claim made by appellant is of Rs.4,05,21,853/-of which provision of Rs. 2,35,00,000/- have been made by the appellant in profit and loss account while balance Rs. 1,70,21,853/- have been apportioned by the appellant from profits of the year under appeal towards Statutory Bad Debts Reserve i.e. 15% of net profits as per RBI guidelines. The same appears in the financial statements as a proposed appropriation requiring approval in General Meeting of Members. As per the norms and procedures applicable to co-operative banks and as per the practice followed by all the Co-Operative banks the appropriation is disclosed in the audited financial statements and the director's report which are approved by the General Meeting. Thus, the amount being an actual appropriation out of profits and it is required to be considered for allowing deduction u/s36(1)(viia) of the Act. 50. We find that the assessee has raised similar grounds of appeal as raised in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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