TMI Blog2012 (5) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... sec. 36(1)(viia) of the Act. Hence the claim of quantum of new provision made by the assessee, needs verification at the end of the AO. If the assessee has created a new provision on a particular asset by fully reversing the opening balance of provision relating to that asset, then the net accretion should only be treated as new provision. The appeal of the revenue is allowed and the appeal of the assessee is partly allowed. - IT Appeal Nos. 323 & 433 (Coch.) of 2010 - - - Dated:- 23-3-2012 - N.R.S. Ganesan, B.R. Baskaran, JJ. Smt. Vijayaprabha for the Appellant. R. Rajasekharan for the Respondent. ORDER B.R. Baskaran, Accountant Member These Cross appeals are directed against the order dated 31.3.2010 passed by Ld CIT(A)-II, Kochi and they relate to the assessment year 2007-08. Since the issues urged by both the parties are arising out of common set of facts, these two appeals were heard together and are being disposed of by this common order, for the sake of convenience. 2. The issue urged by both the parties relate to the deduction of amount claimed under the head Provision for bad and doubtful debts u/s 36(1)(viia) of the Act. The dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore making any deduction under this clause and Chapter VI-A) and (b) 10% of the aggregate average advances made by the RURAL BRANCHES of such bank computed in the prescribed manner. 4.1 As per the return of income, the aggregate amount calculated as per (a) and (b) discussed above was claimed by the assessee at ₹ 35.49 crores. However the assessee had created provision for bad and doubtful debts only to the tune of ₹ 35.27 crores. Since the provision so created was less than the maximum allowable deduction, the assessee claimed ₹ 35.27 crores as deduction u/s 36(1)(viia) of the Act. However the AO took the view that the claim of 10% relating to the Rural Branches made by the assessee was not in accordance with the law, since the branches of the assessee do not fall in the category of Rural branches as defined in the Act. 4.2 The term rural branch is defined as under Explanation (ia) to sec. 36(1)(viia) of the Act as under:- rural branch 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of ₹ 7.35 crores. 5. The assessee challenged the assessment order before Ld CIT(A). With regard to the meaning of the word Place for the purpose of ascertaining the rural branches, the Ld CIT(A) agreed with the interpretation given by the assessee, by following the decision of the ITAT, Cochin bench in the case of Lord Krishna Bank in ITA No.54/C/2000 and also in the case of Federal Bank Ltd in ITA No.33(Coch) 2002. With regard to the quantification of Provision for bad and doubtful debts created by the assessee during the year under consideration, the Ld CIT(A) upheld the view of the AO. Aggrieved by the order of Ld CIT(A), both the parties are in appeal before us on the points decided against each of them. 6. With regard to the interpretation of the word Place for the purpose of ascertaining rural branches, it was submitted by Ld D.R that the orders passed by the ITAT, which were relied upon by the Ld CIT(A), have since been reversed by the Hon'ble Kerala High Court. The Ld D.R also placed before us the order dated 07-10-2010 passed by Hon'ble Kerala High Court in ITA No.234 of 2009 in the case of CIT v. Lord Krishna Bank Ltd. [2010] 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination of rural branch by submitting that the definition of rural branch given in sec. 36(1)(viia) shall not apply to the Co-operative banks and hence the order of 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. The section 36(1)(viia) opens with the words in respect of any provision for bad and doubtful debts made by --- ( a ) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank . Under the Explanation, rural branch is defined as under:- rural branch 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 previous year . The definition of rural branch given in the Explanation does not include a Co-operative Bank , though the Co-ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) of section 80P, the 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 have to refer the said Central Act in order to understand their respective meaning. We have also gone through the said Act. For understanding the meaning of non-scheduled bank we have to refer to clause (c) of section 5 of the Banking Regulation Act, 1949, which reads as under:- Sec. 5(c): banking company means any company which transacts the business of banking in India. For understanding the meaning of Co-operative Bank we have to refer to Part V of the Banking Regulations Act, 1949. The said Part V starts with section 56, which reads as under:- 56:- Act to apply to Co-operative societies subject to modifications:- The provisions of this Act, as in force for the time being, shall apply to, or in relation to cooperative societies as they apply to, or in relation to banking companies subject to the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or bad and doubtful debts debited to the Profit and Loss account, i.e., ₹ 7.35 crores (Rs.35.27 crores less ₹ 27.92 crores) should be treated as the provision for bad and doubtful debts, for the purpose of sec. 36(1)(viia) of the Act. The said view of the AO was upheld by Ld CIT(A). 9.1 Both the 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 of the assessee. The decision to create a Provision for bad and doubtful debts is taken on the basis of the quality of Advances and debts as are available at the end of a particular year. Similarly the decision to write back the provision or reverse the provision that were created in earlier years is taken on the basis of the recovery pattern of the Advances and debts , against which the provision was created in earlier years. Thus both the decisions are taken on the basis of different set of facts and hence both the decisions constitute independent decisions, which are not related to each other. Hence, we agree with the contention of the assessee that the provision for bad and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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