TMI Blog2014 (1) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of provisions of section 36(1)(viia) of the Act - the assessee has credited the entire amount of balance available in the "provision for bad and doubtful debts" account to the profit and loss account - all the debts on which the provisions were created in the earlier years have become quality assets, meaning thereby the provision is no longer required on those debts - only the net accretion to the provisions account for the purpose of section 36(1)(viia) of the Act - The net accretion has to be ascertained by analysing the quality of each asset – decided partly in favour of Assessee. - I.T.A. No. 75/Coch/2011 - - - Dated:- 8-5-2013 - S/SHRI N.R.S.GANESAN AND B.R.BASKARAN, JJ. For the Appellant : Shri P.Harikrishnaunnny Shri V.Sathyanarayanan, CAs For the Respondent : Smt. S. Vijayaprabha, Jr. DR Order B. R. Baskaran (Accountant Member).- The appeal of the assessee is directed against the order dated December 15, 2010 passed by the learned Commissioner of Income-tax (Appeals)-V, Kochi and it relates to the assessment year 2007-08. 2. The following two issues are urged by the assessee : (a) Restricting the deduction of expenses c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned Commissioner of Income-tax (Appeals) accepted the view of the Assessing Officer and accordingly held that the assessee is entitled to deduction under section 36(1)(viia) only to the extent of Rs.88,48,877, i.e., the amount equivalent to the net provision created by the assessee during the year under consideration. Aggrieved by the deci- sion of the learned Commissioner of Income-tax (Appeals), the assessee has filed this appeal before us. 4. At the time of hearing, both the parties agreed that the issue relating to the definition of "rural branch" has been decided by the hon'ble jurisdictional High Court in the case of Lord Krishna Bank Ltd. [2011] 339 ITR 606 (Ker). Learned counsel for the assessee took an alternative plea that the definition of "rural branch" given under section 36(1)(viia) shall not apply to co-operative banks and hence, the decision of the hon'ble jurisdictional High Court (referred supra) shall not apply to the assessee herein. We notice that identical issues were considered by this Bench in the case of Kannur District Co-operative Bank Ltd. v. Asst. CIT [2013] 1 ITR (Trib)OL 212 (Cochin) in I.T.A. Nos. 323 and 433/Coch/2010 and the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, whether it be in corporation, municipality or panchayats. There can be no village in a municipal or corporation area where the population is less than 10,000. So much so, rural branches are such of the branches located in a village where the population in the village as a unit is less than 10, 000. We, therefore, allow the appeal on this issue by reversing the order of the Tribunal and by restoring the assessment.' By respectfully following the decision of the jurisdictional High Court, we set aside the order of the learned Commissioner of Income-tax (Appeals) on this issue and restore that of the Assessing Officer. 7. Before us, the learned authorised representative took an alternative plea with regard to the issue of determination of 'rural branch' by submitting that the definition of 'rural branch' given in section 36(1)(viia) shall not apply to the co-operative banks and hence the order of the hon'ble jurisdictional High Court shall not apply to the assessee herein. 7.1. In order to understand this alternative plea, it is necessary to explain the relevant provisions. Section 36(1)(viia) opens with the words in respect of any provision for bad and doubtful debts made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the second schedule to the Reserve Bank of India Act, 1934 (2 of 1934). (vi) 'co-operative bank' , 'primary agricultural credit society' and 'primary co-operative agricultural and rural development bank' shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P. In the Explanation to sub-section (4) of section 80P, co-operative bank is defined as under : 'Co-operative bank' and 'primary agricultural credit society' shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949). 8.1. Since the definition of 'non-scheduled bank' and 'co-operative bank' refer to the Banking Regulation Act, 1949, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sst. CIT [2013] 1 ITR (Trib)OL 212 (Cochin), we are inclined to follow the same decision on this issue. Accordingly, we confirm the decision reached by the learned Commissioner of Income-tax (Appeals) on this issue. 7. The next issue contested by the assessee relates to the netting of provisions for bad and doubtful debts. As stated earlier, the tax authorities have taken the view that the amount of "provision for bad and doubtful debts" debited to the profit and loss account and the amount credited to the profit and loss account by writing back the opening balance amount in the account of "provision for bad and doubtful debts" should be netted off in order to arrive at the amount of provision for bad and doubtful debts actually created by the assessee. An identical issue was considered by this Bench in the case of Kannur District Co-operative Bank Ltd. [2013] 1 ITR (Trib)-OL 212 (Cochin) and this Tribunal has expressed the following view on this matter (page 221) : "9.1. Both parties have failed to furnish the break up details or the modalities followed for creating the 'provision for bad and doubtful debts'. Prima facie, in our view, there is merit in the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the assessee did not analyse the quality of each debt, in respect of which the provision was created in the earlier years. The learned Departmental representative submitted that the assessee was enjoying exemption under section 80P of the Act up to the assessment year 2006-07 and the year under consideration is the first year in which the assessee was liable to pay tax. Hence, the assessee has simply credited the entire balance available in the account "provision for bad and doubtful debts" to the profit and loss account and again created the provision for all the debts (including new as well as old debts) in order show that the provision was created for the first time, so that it could claim deduction of higher amount under section 36(1)(viia) of the Act. Accordingly, the learned Departmental representative submitted that the deduction, if any, should be restricted to the new provision created during the year under consideration only. 9. When a specific query was posed by the Bench to learned counsel for the assessee as to whether the assessee did carry out the exercise of analysing the quality of each debt on which the provision was created in the earlier years befor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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