TMI Blog2023 (5) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... only the fresh advances made during the month, or the outstanding loans at the end of each month, should be considered? - HELD THAT:- We notice that the Hon ble Karnataka High Court in the case of CIT, LTU v. Canara Bank [ 2023 (1) TMI 243 - KARNATAKA HIGH COURT] held that amounts of advances as outstanding at the last day of each month would be a fluctuating figure depending on the outstanding as increased or reduced respectively by advances made and repayments received. The assessee might provided for bad and doubtful debts but the deduction would only be allowed at the percentage of aggregate average advance, computation of which is prescribed by rule 6ABA. We find from the amended direction made by the Tribunal that such direction is in terms of rule 6ABA. The ITO has made the computation of aggregate monthly advances taking loans and advances made during only the previous year relevant to assessment year 2009-10 as confirmed by CIT(A). The Tribunal amended such direction, in our view, correctly applying the rule. Applicability of the provisions of section 115JB to the Appellant Bank - HELD THAT:- As decided in assessee own case [ 2022 (3) TMI 134 - ITAT BANGALORE] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egular provisions of the Act and Rs.986,79,76,772 under the MAT provisions.. The return was processed u/s. 143(1) on 5.7.2012 granting refund of Rs.368,88,85,120. Subsequently assessee filed a revised return on 27.11.2012 admitting income of Rs.230,26,47,624 under regular computation after set off of brought forward losses of Rs.289,41,70,061 and current year loss under other sources of Rs.1,14,94,402. MAT income declared is Rs.406,47,28,293. The case was under scrutiny and assessment u/s. 143(3) was made on 22.2.2013 determining total income at Rs.1349,88,63,070 under regular provisions and at Rs.1848,74,25,223 under u/s. 115JB. 5. During the course of scrutiny proceedings for AY 2016-17, it was noted that the assessee bank had been regularly claiming depreciation on consolidated value of land building including vacant land also at the rate applicable for building. Notice u/s. 148 was issued on 29.3.2018 on the ground that assessee was claiming excess depreciation. The assessee furnished return of income electronically on 21.8.2018 wherein the claim of depreciation was reduced to the extent of Rs.50,25,197. Assessment was completed u/s. 143(3) r.w.s. 147 of the Act on 31.12.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debts. The write off of bad debts is by way of executive decision, much after the finalization of books of accounts and holding of AGM which indicates that the claim of bad debt is only an afterthought for reducing the tax liability of the assessee. 8. The AO further noted that the assessee did not charge the amount of bad debts written off to the provision for bad and doubtful debts account, even though there was a sufficient credit balance available in the provisions created for the very purpose. The AO relied on the first proviso to section 36(1)(vii) which expressly states that the claim of bad debt written off shall be admissible, only to the extent the same exceeds the credit balance in provisions for bad and doubtful debts. Further Explanation 2 below section 36(1)(vii) makes it amply clear that there shall be only one account of provision for bad and doubtful dets, against which all claims of bad debts actually written off during the year shall be first set off, without any distinction between rural advances and other advances. Thus, only the excess amount of bad debts written off, remaining after such set off, is admissible as deduction u/s. 36(1)(vii). 9. On appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12) 343 ITR 270 (SC) Vatika Township P. Ltd. (2014) 367 ITR 466 (SC) State Bank of Hyderabad (2015) 8 TMI 836 (Hyd. Trib) IDBI Bank Ltd. (2017) 9 TMI 1289 (Mum. Trib_ Oriental Bank of Commerce (2017) 11 TMI 1589 (Del Trib.) 12. It was submitted that the assessee had claimed only a sum of Rs.413,94,00, 446 as deduction u/s. 36(1)(vii) whereas the AO has disallowed an amount of Rs.462,79,56,763, the excess of Rs.48,85,56,317 is the bad debts written off relating to rural branches which is debited to the provisions account and not claimed as deduction. Therefore the disallowance to the extent of Rs.48,85,56,317 is required to be deleted. 13. It was further submitted that any subsequent recovery made in the loan accounts which are written off either at the HO or the branch level are credited to P L account and shown as income and offered to tax u/s. 41(1) of the Act in the year of recovery. Any recovery made in a loan account which is not written off is credited to that loan account only and not to P L account. However, recovery made in an account which is written off is credited to P L account. Thus, the very fact that recovery is credited to the P L account shows th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axmann.com 149 dated AUGUST 9, 2021 in SLP LEAVE (C) NO.7351 OF 2021, against the judgement of the Hon ble jurisdictional High Court, therefore, the issue should be decided in favour of the revenue. 18. We have heard the rival submissions and perused the materials on record. We notice that the from the judgments quoted by the assessee (supra) in its own case, the issue has been decided in favour of the assessee as under:- 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 nonrural 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) whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debts written off relating to nonrural/ urban advances. The balance amount of bad debts relating 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this proposition, 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 nonrural 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failed to appreciate the fact that the deduction u/s 36(1)(viia) has to be allowed on the basis of the calculation as provided in the section and not with reference to the amount of provision made in the books of account. 4.7. The disallowance made by the learned Assessing Officer and upheld by the learned CIT(A) is based on surmises and conjunctures. 21. During the assessment proceedings for AY 2011-12, the AO noted that the assessee bank has claimed a sum of Rs.901,62,96,929 as deduction in respect of provision made for bad and doubtful debts u/s. 36(1)(viia) of the Act. 10% of the Aggregate Average Advances [AAA] of the rural branches was computed at Rs.810,96,43,882. The AO noticed certain discrepancies in the computation of AAA and issued questionnaire u/s. 142(1) in respect of the same as under:- Details of AAA of rural branches in accordance with provisions of rule 6ABA branch wise. Basis of classification of rural branches along with details of population as per latest census. Complete details of rural ranches (postal address and classification by RBI). Specific details of rural branches so classified, falling within the ambit of urban agglomeration, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rural branch. It was further stated that the AO s reliance on the Hon ble Kerala High Court judgment in the case of Lord Krishna Bank was not applicable to the facts of assessee s case since in that case the term place was contended to be the ward of a local authority like panchayat or municipality which was rejected by the High Court and it was held that a revenue village has to be considered and not a ward. The assessee has considered village / panchayat/town and therefore that decision was not applicable to the assessee s case. As per rule 6ABA, it was submitted that assessee has computed the AAA by considering the outstanding advances of each rural branch at the end of the last day of each month separately and divided the resultant figure by number of months comprised therein. There was no stipulation in the rule that only the fresh advances during the month should be considered. Reliance was placed on the following decisions:- Canara Bank, 60 ITR (Trib) 1 (ITAT Bang.) Nizambad Dist. Cooperative Central Bank Ltd. 2014 (12) TMI 562 ITAT Hyderabad DCIT v. Madurai Dist. Central Co-op. Bank Ltd. [2014] 51 taxmann.com 194 (Chennai Trib.) DCIT v. Union Bank Ltd. in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettled position of law that beneficial provisions should be interpreted liberally so that the intended benefits can be passed on to the eligible assessee. 27. The CIT(Appeals) observed that the moot point for adjudication is whether for computing the aggregate average advances made by rural branches, as per Rule 6ABA, only the fresh advances made during the month, or the outstanding loans at the end of each month, should be considered. The CIT(A) held as follows:- 11.3 On a plain reading of the rule 6ABA, it is noted that the computation prescribed therein envisages a three step process. The first two steps provide the method of computing average advance made by a particular rural branch. First, the advances made by each rural branch, as outstanding at month end, have to be aggregated. Second, average of this aggregated sum has to be taken over the period of months for which the advances have been outstanding. This average figure shall be the amount of average advance made by that particular rural branch. In the third step, the average advances of all rural branches (computed separately for each rural branch) have to be aggregates and that total figure shall be the aggregate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law as applicable on such facts, I find that the action of AO in restricting the claim of deduction in respect of provision made for bad and doubtful debts under section 36(1)(viia), by considering only the fresh advances made by the rural branches for computing the aggregate average advances is in accordance with the method prescribed under Rule 6ABA, hence sustained. In this regard, the jurisdictional Assessing Officer (JAO) is also directed to consider the effect of jurisdictional High Court ruling in the appellants own case, as mentioned above, and re-compute, if found necessary, the admissible quantum of deduction in respect of the provisions made by the appellant bank towards bad and doubtful debts under section 36(1)(viia) in that light. The JAO shall provide a reasonable opportunity to the appellant to adduce the supporting evidence in support of its claim. These grounds of appeal are therefore partly allowed. 28. Aggrieved, the assessee is in appeal before the Tribunal. 29. The ld. AR reiterated the submissions made before the lower authorities and relied on the decision of the Karnataka High Court in the case of Canara Bank in ITA No.207 208 of 2019, order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate that only incremental advances has to be considered and nothing can be read into it as has been done by the authorities below. It was submitted that this issue has been considered and decided in favour of the assessee by the co-ordinate bench of this Tribunal in the case of Canara Bank v. JCIT (2017) 60 ITR (Trib) 1 [ITAT (Bang)] 10. It is further held that the said decision has been followed in Vijaya Bank case. The manner in which the computation has been made has been given in the case of Vijaya Bank Case. Order passed by the Tribunal in Canara Bank's case followed in Vijaya Bank case has attained finality and the Revenue has not challenged the said order. Further, the High Court of Calcutta, while considering an identical situation as recorded thus, Mr. Khaitan, learned senior Advocate appeared on behalf of the assessee and submitted that the computation to be made as prescribed by rule 6ABA is for the purpose of fixing the limit of the deduction available under section 36(1)( viia ). Clauses ( a ) and ( b ) in rule 6ABA cannot be given the restricted interpretation. The amounts of advances as outstanding at the last day of each month would be a fluctua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. He noted that the provisions of Section 115JB were amended vide Finance Act 2012 to inter-alia provide that in the case of companies, which are not required to prepare their profit and loss account in accordance with schedule VI of the Companies Act, 1956 (e.g. banking, insurance, electricity companies), the profit and loss account prepared in accordance with their Regulatory Acts shall be taken as basis for computation of book profit, for the purpose of MAT liability. Further, Explanation 3 was inserted below section 115JB to clarify that every such company, for assessment year beginning on or before 01.04.2012, shall have an option to prepare its profit and loss account in accordance with schedule VI of the Companies Act, 1956, or in accordance with its Regulatory Act. In this regard, AO has analysed the Explanatory Memorandum to the Finance Bill, 2012 and held that the aforesaid Explanation only clarified the position of existing law, and therefore applied retrospectively, on the appellant bank. AO has also relied on section 11 of Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 which provides that every corresponding new bank shall be deemed to be an I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... takings) Act, 1970. Section 11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, provides that for the purposes of the Income-tax Act, 1961, every corresponding new bank shall be deemed to be Indian company and a company in which public is substantially interested. On a conjoint reading of these provisions, it is evident that the appellant bank is an Indian company, and therefore liable to pay MAT on its book profits for the year under consideration as per section 115JB. In this regard, it is also noted that the appellant bank, in the original as well as revised return of income, has itself paid taxes on book profits as computed under the provisions of section 115JB. 39. The CIT(A) relied on the decision in the case of Bank of India Vs ACIT (2020) (122 taxmann.com 247 (Mumbai - Trib.), wherein the ITAT, Mumbai has upheld that a bank would be treated as a company for purposes of Income-tax Act, and thus provisions of section 115JB would clearly apply to the assessee bank. He further noted that there is a divergence of opinion on this issue among Courts and various benches of the Tribunal. In view thereof, Hon'ble Supreme Court has admitted the SLP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that only certain provisions of BR Act are applicable to Corresponding new bank . We noticed earlier that the Ld CIT(A) has proceeded to decide this issue by observing that all provisions of BR Act are applicable to the Company. We notice that the Ld CIT(A) did not consider the effect of provisions of sec.51 of the BR Act upon the assessee. Hence the decision taken by him under the impression that all the provisions of BR Act are applicable to the assessee is faulted one. In our view the Ld CIT(A) should considered the effect of provisions of sec. 51 of BR Act and accordingly he should have appreciated the contentions of the assessee on the definition of banking company , provisions of sec.211(2) of the Companies Act etc. Since these aspects go to the root of the issue, in our view, this issue needs to be examined at the end of Ld CIT(A) afresh. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to his file for examining it afresh. 13.6 In view of the co-ordinate Bench order of the Tribunal in assessee s own case for assessment year 2013- 2014, we restore this issue to the files of the CIT(A). The CIT(A) shall follow the directions con ..... 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