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TMI Blog2014 (1) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee claimed deduction under section 36(1)(viia) of the Act in respect of provisions made for bad and doubtful advances in the following manner : (a) 7.5 percent of the gross total income before claiming deduction under section 36(1)(viia) of the Act ; and (b) 10 percent of the aggregate average advance made by the rural branches of the bank. The Assessing Officer, however, disallowed the claim relating to the advances made by the rural branches on the reasoning that the assessee does not have any rural branch. Accordingly, the Assessing Officer restricted the deduction to 7.5 per cent. of the gross total income. The assessee carried the matter in appeal before the learned Commissioner of Income-tax (Appeals) who, by following the decision of the hon'ble jurisdictional Kerala High Court in the case of CIT v. Lord Krishna Bank Ltd. [2011] 339 ITR 606 (Ker) confirmed the order of the Assessing Officer that the additional deduction of 10 per cent. shall be available only in respect of the advances made by the rural branches. However, before the learned Commissioner of Income-tax (Appeals), the assessee claimed that it is having rural branches numbering nine and hence it is eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the learned Commissioner of Income-tax (Appeals), have since been reversed by the hon'ble Kerala High Court. The learned Departmental representative also placed before us the order dated October 7, 2010 passed by the hon'ble Kerala High Court in ITA No. 234 of 2009 in the case of CIT v. Lord Krishna Bank Ltd. which is reported in [2011] 339 ITR 606 (Ker). The relevant observations made by the hon'ble jurisdictional Kerala High Court are extracted below, for the sake of convenience (page 609) : "In our view, the definition clause does not exclude the literal meaning of rural branch which necessarily excludes urban areas. If the assessee's case accepted by the Tribunal that population in a ward has to be reckoned for deciding as to whether the location of a panchayat is in a rural area or not is accepted, then probably even in municipal areas there may be wards with less than 10,000 population thereby answering the branch located in such Municipal area also as a rural branch. Going by the ordinary meaning of rural branch, we feel only branches of the bank located in rural areas are covered. When the Legislature adopts p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, 'rural branch' is defined as under : 'rural branch' means a branch of a scheduled bank or a nonscheduled 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 definition of "rural branch" given in the Explanation does not include a "co-operative bank", though the co-operative bank is included in section 36(1)(viia) of the Act. Accordingly, the learned authorised representative contended that the definition of "rural branch" does not cover a co-operative bank and hence the ordinary meaning given to the "rural branch" by the regulatory authorities should be taken into account. Accordingly the learned authorised representative contended that the decision of the hon'ble Kerala High Court in the case of Lord Krishna Bank Ltd. [2011] 339 ITR 606 (Ker) also does not apply to the assessee herein, since it is a co-operative bank. Accordingly it is prayed that the matter requires re-examination at the end of the Assessing Officer. 7.2. We notice that the learned authorised representative has taken this alternative plea, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 Regulation 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 co-operative societies as they apply to, or in relation to banking companies subject to the following modifications namely : Throughout this Act, unless the context otherwise, requires, References to a "banking company"' or "'the company" or "such company" shall be construed as references to a co-operative bank' In section (5), after clause (cc), the following clause shall be inserted, namely : (cci) 'co-operative bank' means a state Co-operative bank, a Central Co-operative bank and a Primary co-operative bank. On a careful perusal of the relevant provisions of Part V of the Banking Regulation Act, 1949, we notice that the term 'banking company' also includes a 'co-operative bank'. Thus a co-operative bank falls under the definition of "banking comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... created in the earlier years is taken on the basis of the recovery pattern of the advances and 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 doubtful debts newly created during the year under consideration should not be netted against the amount written back or reversed. However, there might be a situation that the provision created for a particular debt needs enhancement and in that situation, only the enhanced amount should be treated as the new provision for the purpose of section 36(1)(viia) of the Act. We shall explain this proposition with the following example. Name of debt/-advance Amount outstanding (Rs.) Provision as on April 1, 2006 (Rs.) New provision (Rs.) Provision reversed (Rs.) Person A 50,000 Nil 15,000 - Person B 60,000 6,000 8,000* 6,000* Person C 70,000 14,000 -- 10,000 20,000 23,000 16,000 Net provision 7,000 (*Additional provision of Rs. 2,000. In this type of cases, netting off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions created during the year under consideration alone can be considered for the purpose of provisions of section 36(1)(viia) of the Act. In the instant case, it appears that 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. The said action of the assessee would mean that 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. Having done so, if the assessee again creates provision on the very same advance or debt, the said action contradicts the stand already taken by the assessee by writing back the earlier provisions. Hence, in our view, only the net accretion to the provisions account made during the year under consideration, as explained in the case of Kannur District Co-operative Bank Ltd. [2013] 1 ITR (Trib)-OL 212 (Cochin) has to be considered 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. Hence, the tax authorities may also not be right in making blanket netting off of the am ..... X X X X Extracts X X X X X X X X Extracts X X X X
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