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2016 (3) TMI 958 - ITAT KOLKATA

2016 (3) TMI 958 - ITAT KOLKATA - [2016] 46 ITR (Trib) 678 - Disallowance u/s 36(1)(vii) on account of bad debts written off relating to non-rural branches - Held that:- As decided in assessee's own case as a result of the amendment, the scheduled bank would be entitled to the deduction of the entire bad debt relating to advances made by the urban branches written off in the books and also the difference between the amount written off in the books relating to advances made by the rural branches .....

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e under clause (viia), the provisos will operate to limit the deduction to the extent of the difference between that part of debt written off in the previous year and the credit balance in the provision for the bad and doubtful debts accounts made under clause (viia). - Decided in favour of assessee - ITA No. 1802-1803/Kol/2009 - Dated:- 3-2-2016 - N. V. Vasusdevan, JM And Waseem Ahmed, AM For the Appellant : Shri B K Ghosh, FCA And Shri Pijush Dey, FCA For the Respondent : Shri G Mallikaujana, .....

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cided to take up both the appeals together and pass a consolidated order for the sake of convenience. First we take up ITA No.1803/Kol/2009 for A.Y.04-05 3. Assessee has raised following grounds:- "1. That the learned CIT(A) has erred in disallowing ₹ 311,17,10,637/- being the amount of claim for bad debts relating to non-rural branches claimed under section 36(1)(vii). 2. That the learned CIT(A) has erred in holding that the debts written off by the non-rural branches of the bank are .....

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on of special reserve under the said provision. 6. That the Learned CIT failed to appreciate the fact that bank is financial corporation and a public Company. 7. That the Learned CIT(A) has erred in confirming the addition of ₹ 9,68,139 being provision for intangible asset in computing "Book Profit" under section 115JB." 4. First of all, Ld. AR of assessee has not pressed for adjudcitation ground No. 7, hence, same is dismissed as not pressed. 5. The first and second ground .....

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g the course of assessment for the year under consideration the AO found that for the preceding assessment year i.e. 2003-04 the allowance towards the bad debts under section 36(1)(vii) was allowed by his predecessor only of that amount exceeding the reserve created under section 36(1)(viia) of the income tax act. The AO observed that for the assessment year under consideration the provisions of section 36(1)(viia) were applicable. Therefore the AO following the order of his predecessor for the .....

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egarded the claim of the assessee and upheld the action of the AO by observing as under: "I have gone through the submissions of the appellant and also perused the order of AO. The issue is recurring for the last few Asst. years. In my opinion the argument of the Ld.AR that intention of the legislature as explained in the CBDT circulars is, the debts written off by the Rural branches of the bank are only to be adjusted against the credit balance in the provision account is not the correct l .....

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ar when the section was allowing the provision made on total income. It includes all types of advances made by the Bank. If the intention of the legislature was only to allow provision made for rural advances, then this concession could not have been given. Under section 36(1)(vii) of the Act, deduction on account of bad debts which are written off as irrecoverable in the accounts of the assessee is admissible. However, this should be allowed only if the assessee had debited the amount of such d .....

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e provision allowed u/s 36(1)(viia). In my opinion, the assessee bank is entitled to deduction under clause (vii) only of the difference between the provision made under clause (viia) and the bad debts written off in the accounts, without making any distinction in respect of debts relating to urban advances or rural advances. In view of this the disallowance made by AO is according to the provisions of the act and is upheld. The grounds of appeal are dismissed. Regarding the claim of the appella .....

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AYs 2001-2002 and 2003-2004. The optional deduction has not been allowed for AYs 2001-2002 and 2003-2004. Since no deduction was allowed u/s. 36(1)(viia), the appellant submits that the same be allowed u/s 36(1)(vii). I have gone through the submissions of the app, and find no merit in the claim of the appellant. If the same were adjusted against the claim made 36(1)(viia) in the AY 2001-2002 and 2003-2004 then claim u/s 36(1)(vii) cannot be made by the ape now for this A.Y The appellant has no .....

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ction in respect of my provision made by it for any assets classified by the RBI as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five percent of the amount of such assets shown in the books of account of the bank on the last day of the previous year. Provided further that for the relevant assessment years commencing on or after the first day of April 2003 and ending before the 1st day of April 2005, the provisions of th .....

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e appellant is rejected." Being aggrieved by this order of Ld. CIT(A) Assessee preferred second appeal before us. Shri B.K.Ghosh and Shri Pijush Dey, both Ld. Authorized Representatives appearing on behalf of assessee and Shri G.Mallikaujana, Ld. Departmental Representative appearing on behalf of Revenue. 7. We have heard rival contentions of both the parties and perused the materials available on record. Before us the ld. AR submitted that the provision for doubtful debts as allowable unde .....

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ently relied on the order of Authorities below. 7.1 From the aforesaid discussion we find that the AO has disallowed the bad debts written off by holding that as per the proviso to section 36(1)(vii) bad debts relating to non-rural branches of the bank shall be allowed if such bad debts exceed the credit balance in provision for doubtful debts made under section 36(1)(viia) of the Act. However the assessee's claim is that provision for doubtful debts as allowable under section 36(1)(viia) is .....

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e have carefully considered the submissions of the learned Representatives of the parties and the orders of the authorities below. We have also gone through the cases cited by the Ld. AR of the assessee (supra). On consideration of the provisions of Section 36(1)(viia), as also Sec. 36(2)(v) and also considering the provisions of Section 36(1)(vii) of the Act, we find substance n the submissions of the Ld. AR of the assessee. Hon'ble Kerala High Court has held that the scope of the proviso t .....

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ances given from other branches. It was also held that as a result of the amendment, the scheduled bank would be entitled to the deduction of the entire bad debt relating to advances made by the urban branches written off in the books and also the difference between the amount written off in the books relating to advances made by the rural branches during the previous year relevant to the assessment year and credit balance in the provisions for bad and doubtful debt account relating to advances .....

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previous year and the credit balance in the provision for the bad and doubtful debts accounts made under clause (viia). Further, the Special Bench of the ITAT in the case of Catholic Syrian bank Ltd. (supra) has held that the debts actually written off which do not arise out of the rural advances are not affected by the proviso to clause (vii) and that only those bad debt which arises out of the rural advances are to be limited in accordance with the proviso. Considering the above decisions and .....

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y the common ground of assessee's appeal is allowed. 8. The third and fourth grounds relate to the common issue raised by the assessee in this appeal is that ld. CIT(A) erred in confirming the disallowances of ₹ 96.65 crores being 10% of doubtful and loss assets claimed under 1st and 2nd proviso to section 36(1)(viia) of the Act. 9. At the time of hearing before us, both the parties fairly conceded that both issues are covered against assessee in assessee's own case for A.Y 2003-04 .....

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s of Section 36(1)(viia) of the Act. We are of the considered view that the claim of 10% of doubtful assets and loss as provided in first proviso to Section 36(1) (viia)(a) of the Act as amended by the Finance Act, 2002 w.e.f. 1.4.2003 and applicable to the Assessment ear under consideration as an alternate claim and the additional deduction could not be allowed if the claim of the assessee under clause (a) of Section 36(1)(viia) has been allow. Since the Department has allowed the deduction to .....

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e are dismissed. 10. The fifth and sixth grounds relate to the common issue raised by the assessee in this appeal is that ld. CIT(A) erred in confirming the disallowances of ₹ 30 crores claimed u/s 36(1)(viii) of the Act for the creation of special reserve. 11. During the year the assessee has claimed the deduction of ₹ 30 crores in terms of the provisions provided u/s 36(1)(viii) of the Act by creating a special reserve for its long term finance business. This deduction is available .....

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ompany. However the AO has disallowed the same by holding that the nationalized banks are statutory bodies and not registered under the companies Act, therefore the assessee bank is not entitled for the deduction under section 36(1)(viii) of the Act. 12. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the action of AO by observing as under:- "I have gone through the submissions of the appellant and also the assessment order of A.O. The AO in his assessment order at p .....

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a company registered under the companies act. The submissions of the appellant with reference to "Guide to Companies Act" by A Ramaiya are not relevant here because the context mentioned there was with reference to "public servants", I uphold the disallowance made by the AO and the ground of Appeal is dismissed." Being aggrieved by this order of Ld. CIT(A) assessee preferred second appeal before us. 13. We have heard both the parties and perused the materials available .....

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we find that the assessee has claimed a deduction of ₹ 30 crores by virtue of Sec. 36(1)(viii) of the Act by creating a special reserve in the books of account. However, the AO found that the deduction as specified u/s 36(1)(viii) of the Act is applicable to a financial corporation which include public company or a Govt. company but not a statutory bodies therefore, the AO held that the bank is neither a govt. company or public company, consequently, the deduction was disallowed. Now let u .....

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than a primary agricultural credit society or a primary co-operative agricultural and rural development bank; (v) A housing finance company; and (vi) Any other financial corporation including a public company; (b) … …. (c) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act; From the aforesaid definition we find that the banking company has been .....

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ude'bank' also. The Memorandum explaining the amendment to Sec. 36(1)(viii) w.e.f.12.2008 has clearly stated as follows:- "The provision has also been restructured to provide for different categories of entities (which now also include co-operative banks) and their respective activities for eligibility of the deduction under the said clause. For claiming deduction under the said clause, (i) a financial corporation specified in Sec. 4A of the Companies Act or a financial corporation .....

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