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2022 (6) TMI 1346 - AT - Income TaxDeduction u/s 36(1)(viia) - deduction of provision for bad and doubtful debts against the advances of rural branches - 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 - assessee is a District Co-Op Bank and as such engaged in the business of banking activities, having various branch including rural branch - HELD THAT:- As it is a settled position in the law that explanation to Section 36(1)(viia) includes ‘rural branch’ of ‘cooperative banks’ as per the decision KANNUR DISTRICT CO-OPERATIVE BANK LTD. [2014 (8) TMI 635 - KERALA HIGH COURT] - We find merit in the submission of ld. AR of the assessee. We find that Section 36(1)(viia) was amended vide Finance Act, 2007 and after amendment the benefit of deduction under Section 36(1)(viia) which was available to a scheduled and non-scheduled 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 Further rest while deduction available to such eligible cooperative banks under Section 80P stood withdrawn by Finance Act, 2006 w.e.f. 01/04/2007.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 the facts of the present case. In the said case the Tribunal relied on the earlier case law in Narmada Malwa Gramin Bank 2012 (3) TMI 619 - ITAT INDORE 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. Deduction on account of diminution of value of Government securities - shifting of investment from HTM category to AFS category - 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 - whether change in valuation as a result of reclassification/shifting is allowable? and/or whether only change in market price during the current year is allowable or entire difference between book value and market price as on 31/03/2009 is allowable? - CIT-A deleted the addition - HELD THAT:- 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. 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 if such theory of AO is accepted then assessee would lose all the loss relating to earlier depreciation and which cannot be said to be just or fair, if the assessee has claimed the loss on account of diminution of securities for the first time and genuineness and correctness of such losses are not doubtful then such case is the claim of loss is allowable. CIT(A) held that there is no requirement of separate disclosure of HTM category and ASF category and as per the RBI’s Master Circular, the investment 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 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 which in line with the provisions of section 67A of Gujarat Co-operative Society 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 assessee, is concerned, we find that in Kedar Nath Jute Manufacturing Company 1971 (8) TMI 10 - SUPREME COURT held that nomenclature or treatment in the books of accounts in not decisive or conclusive for a particular deduction otherwise allowable under the law. In the result, the ground of appeal raised by the assessee is allowed.
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