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TMI Blog2019 (12) TMI 1202X X X X Extracts X X X X X X X X Extracts X X X X ..... d 25.10.2015 (in appeal No.PN/CIT(A)-2/DCIT Cir.5/PN/605/2014-15) granted partial relief to the assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us and has raised the following grounds : "1. The learned CIT(A)-2, Pune erred in law and on facts in upholding the disallowance of Rs. 35,22,475/- (being 7.50% of the total income) u/s 36(1)(viia) of the ITA, 1961 made by learned DCIT, Circle 5, Pune (hereinafter referred to as the learned AO). 2. The learned CIT(A)-2 and the learned AO erred in law and on facts in holding that, provision of section 36(1)(viia) of the ITA, 1961 is applicable only if advances are made by rural branches of a Bank. Learned CIT(A)-2 ought to have appreciated the fact that there are two components of deduction u/s 36(1)(viia) of the ITA, 1961." 3. Both the grounds being inter-connected are considered together. 4. During the course of assessment proceedings AO noticed that assessee had claimed deduction of Rs. 35,22,475/- u/s 36(1)(viia) of the Act. AO noticed that assessee was not having any rural advances and hence, the assessee was not eligible for deduction u/s 36(1)(viia) of the Act. He after relying on the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relying on the decision of Hon'ble Kerala High Court in the case of The Kodungallur Town Co-Op. Bank Ltd. Vs. ACIT in ITA No. 37 of 2013 vide judgment dated 03.04.2014 and the amended provisions of the Act, the issue was considered and the assessee was held to be entitled to the aforesaid claim of deduction u/s. 36(1)(viia) of the Act. The findings of Tribunal are in para 14 to 27, which reads as under : "14. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is against claim of deduction under section 36(1)(viia) of the Act. Under the said section, deduction is allowable on account of provision for bad and doubtful debts. In other words, deduction could be claimed in respect of bad and doubtful debts subject to the terms and conditions which are provided in the Act itself. Explanation to section 36 of the Act defines the terms used in sub-clause (a) of clause (vii), wherein it was defined as non-scheduled banks, rural branches, co-operative banks and scheduled banks. The assessee before us is a co-operative bank. In the initial years, co-operative banks were entitled to the benefit of deduction under section 80P of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upto 2 percent of the aggregate average advances made by such branches and a further deduction upto 5 percent of their total income in respect of provision for bad and doubtful debts. In other words, the Circular very clearly provided that two types of deductions have to be allowed to scheduled or nonscheduled banks i.e. in case they had rural branches, then deduction of 2% of aggregate average advances was to be allowed and in addition to that deduction upto 5% of their total income in respect of provision for bad and doubtful debts was to be allowed. The second part of deduction was also made available to foreign banks, which admittedly would never have rural branches in India. In such scenario, the intent of the Legislature was to provide deduction to the scheduled or non-scheduled banks; first on account of rural advances and second on account of total income other than the rural advances and two different types of deductions were provided. It may be clarified herein itself that the Circular which is dated 18.07.1986 was in respect of scheduled or non-scheduled banks and extending to the foreign banks but the Co-operative banks were not included at that relevant point for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in sub clause (a) of clause (viia). The provision is a beneficial one. No doubt, plain reading of main section 36(1) (viia)(a) and Explanation under said section present certain difficulties, but situation is not without possibilities. The object and intention of the legislature is to be understood by harmonious construction of the provisions. The policy was to include cooperative banks as well, as they could not take shelter under section 80P of the Income Tax Act any more. By restricting the scope of the provisions, the very purpose of inclusion of cooperative bank would be lost. Sub clause (a) consists of two types of deduction. One refers to deduction of an amount not exceeding 7.5% of the total income (computed before making any deduction under this clause and chapter VIA). Section one refers to deduction of an amount not exceeding10% of the aggregate average advances made by rule branches of such bank while computing in the prescribed manner. So far as benefit of 7.5% of the total income, there is no condition that it should be in respect of any rural branch. All types of banks described under sub claque (a) of clause (viia) are entitled to seek deduction of an amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly noted the fact that for availing the benefit of 7.5% of total income, there is no condition that it should be in respect of any rural branches. It has further observed that all types of banks described under sub-clause (a) of clause (viia) are entitled to seek deduction of an amount not exceeding 7.5% of total income and only condition is that there should be provision for bad and doubtful debts in the books of account. The second linked issue which was considered was whether co-operative bank in respect of having rural branches was entitled to have the benefit of second part of section 36(1)(viia)(a) of the Act. The Hon'ble High Court clearly held that reading the definition of non-scheduled bank along with meaning of rural branch under Explanation to section 36(1) of the Act clearly indicate that cooperative bank also falls under the category of non-scheduled bank for the purpose of said section. It further goes on to hold that reading the entire section along with Explanation would mean two kinds of deductions referred to in section would be allowed to all those banks only if they satisfy the terms and conditions referred to in the provision. Since the assessee bank in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble Apex Court was examining the issue if there would be double deduction of actual bad debts written off under clause (vii) and deduction in respect of rural advances provided under the second part of clause (viia). The Hon'ble Apex Court has not held that the first part of clause (viia) providing for deduction of 7.5% of the total income applies only to rural advances." (underline provided by us for emphasis) 20. Then, reference was made to the decision of jurisdictional High Court i.e. Hon'ble High Court of Kerala in The Kodungallur Town Co-Op. Bank Ltd. Vs. ACIT (supra), judgment dated 03.04.2014 and it was held that invoking of jurisdiction by the Commissioner was held to be not justified, relying on the ratio laid down by the Apex Court in Catholic Syrian Bank Ltd., which is dated 17.02.2012. 21. The Bangalore Bench of Tribunal in DCIT Vs. ING Vysya Bank Ltd. (2014) 149 ITD 611 (Bangalore) vide its order dated 25.10.2013 had held vide para 32 that the object of substitution of clause (viia) as explained in para 5 of CBDT Circular No.464, dated 18.07.1986 was to give separate deduction. The first was in respect of rural advances and second for provision for bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid ratio laid down by the jurisdictional High Court in the case of CIT Vs. Smt. Godavaridevi Saraf (supra) and held as under:- "11. Let us now take a look at the Hon'ble jurisdictional High Court's judgment in the case of Godavari Devi Saraf (supra). In this case, question before. Their Lordships was as follows: "Whether, an the facts and circumstances of the case, and in view of decision in the case of A.M. Sali Maricar 90 ITR 116, the penalty imposed on the assessee under Section 140A(3) was legal?" 12. The specific question before. Their Lordships was whether the Tribunal, while sitting in Bombay, was justified in following the Madras High Court decision holding the relevant section as unconstitutional Hon'ble High Court concluded as follows: "It should not be overlooked that Income Tax Act is an all India statute, and if a Tribunal in Madras has to proceed on the footing that Section 140A(3) was non existent, the order of penalty under that section cannot be imposed by any authority under the Act. Until a contrary decision is given by any other competent High Court, which is binding on the Tribunal in the State of Bombay (as it then was), it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in other State. In view of the above said position of law, we are departing from the view taken by Pune Bench of Tribunal in assessee's own case relating to assessment year 2010-11, wherein the order is dated 29.05.2015 but decision of the Hon'ble High Court of Kerala on the issue is dated 03.04.2014 was neither relied upon nor brought to the knowledge of Tribunal and the issue was decided against assessee. The issue raised in the present appeal stands fully covered by the decision of the Hon'ble High Court of Kerala (supra) though not the jurisdictional High Court, but the only decision available on the said issue squarely binds the Tribunal and hence, applying the said ratio, we hold that the assessee is entitled to the claim of deduction under section 36(1)(viia) of the Act to the extent of 7.5% of total income. The assessee co-operative bank do not have any rural branches, hence is not entitled to the second part claim of 10% of advances made by rural branches. The deduction is allowable with a rider to satisfy the provisions of said section i.e. making a provision to that extent in the books of account. The first issue which is raised in the case of different co-operative bank ..... X X X X Extracts X X X X X X X X Extracts X X X X
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