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2022 (9) TMI 577 - AT - Income TaxDisallowance u/s 36(1)(vii)(a) - provision for bad and doubtful debt - provision made against the standard loan (contingent liability) - Eligibility of deduction to Co-operative Banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank - AO restricted the allowance u/s 36(1)(vii)(a) of the Act to 7.5% (Income + Provision) and disallowed excess provision - HELD THAT:- Bare perusal of provisions of section 36(1)(viia) will reveal that Cooperative Banks other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank shall be eligible and entitled for claiming deduction u/s 36(1)(viia)(a) so far as first limb is concerned to the tune of seven and half percentile of total income. Deduction claimed @ 10% of aggregate average advanced made by the rural branch assessee, is too disallowed - So far as second limb of section 36(1)(viia) (a) is concerned, the deduction allowed is 10% of aggregate average advances made by the Rural Branches of such bank computed in the prescribed manner, as is stipulated in section 36(1)(viia)(a) of the 1961 Act. While including 'Co-operative Bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank' in section 36(1)(viia)(a) effective from 1-4-2007, law makers have brought eligible Co-operative Banks to be entitled for deduction under first limb, and while referring to 'such bank' in the second limb, in our considered view by literal reading and interpretation, eligible Co-operative Banks shall also be entitled to claim deduction under second limb. As the use of the term 'such bank' in the second limb of section 36(1)(viia)(a), will relate back to the banks as specified in the first limb which, inter-alia, will include eligible Co-operative Banks. In Explanation to section 36(1)(viia), it is provided that rural branches means a branch of a scheduled bank or a non-scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year. The inclusion of Co-operative Bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank were brought within the ambit of section 36(1)(viia) by way of inserting in sub-clause (a) to clause (viia) to sub-section (1) to section 36 by Finance Act, 2007 w.e.f. 1-4-2007, but there was no corresponding amendment in Explanation to section 36(1)(viia), and Co-operative Banks are not included here for ascertaining the manner to identify Rural Branches of Co-operative Bank. Section 36(1)(viia)(a) stipulates that the deduction under second limb towards aggregate average advances made by Rural Branches of such bank shall be computed in prescribed manner. Thus, the matter is remitted back to the file of the AO for fresh adjudication, as is directed by us in this order. The evidences/explanations submitted by assessee in its defence shall be admitted by AO, and adjudicated by AO on merits in accordance with law. We order accordingly.
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