TMI Blog2022 (1) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... essed by Ld CIT(A) is not legally correct. Accordingly, we set aside the order passed by Ld CIT(A) with regard to his alternative decision, i.e., the view that the proviso to sec. 36(1)(vii) which requires adjustment of bad debts against provision allowed u/s 36(1)(viia) would apply to non-rural advances also. Accordingly, we direct the AO to delete the disallowance Applicability of provisions of sec. 115JB - case of the assessee is that clause (b) of sec.115JB(2) is made applicable to banking companies, since banking company is included in sec. 211 of the Companies Act - HELD THAT:- We notice that the provisions of sec.51 of the Act specifically states that only certain provisions of BR Act are applicable to Corresponding new bank . We noticed earlier that the Ld CIT(A) has proceeded to decide this issue by observing that all provisions of BR Act are applicable to the Company. We notice that the Ld CIT(A) did not consider the effect of provisions of sec.51 of the BR Act upon the assessee. Hence the decision taken by him under the impression that all the provisions of BR Act are applicable to the assessee is faulted one - CIT(A) should considered the effect of provisions of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He further held that the AO did not specify the section under which the TDS is liable to be deducted by the assessee. Accordingly he deleted the disallowance. We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has rendered his decision following the ratio of decision rendered by Hon ble Supreme Court in the case of Kotak Securities Ltd [ 2016 (3) TMI 1026 - SUPREME COURT ] and also the decision rendered by coordinate bench in the case of Corporation Bank [ 2015 (3) TMI 1360 - ITAT BANGALORE ] Hence we do not find any reason to interfere with his order passed on this issue. Whether the Provision for bad and doubtful debts is not liable to be added to net profit u/s 115JB? - Since the issue of applicability of sec.115JB to the assessee is restored to the file of Ld CIT(A) while considering the appeal of the assessee, we restore this issue also to the file of Ld CIT(A) - ITA No.1884/Bang/2018 And ITA No.236/PAN/2018 - - - Dated:- 27-12-2021 - Shri George George K., Judicial Member And Shri B.R. Baskaran, Accountant Member For the Appellant : Shri S. Ananthan, A.R. For the Respondent : Shri Pradeep Kumar, D.R. ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only. The PBDD relating to rural debts was ₹ 168.02 crores. Accordingly, the AO allowed deduction of ₹ 168.02 crores u/s 36(1)(viia)of the Act and disallowed the balance provision of ₹ 1308.28 claimed by the assessee. 5.1 The Ld CIT(A) noticed that an identical issue was examined in the assessee s own case in AY 2011-12 in ITA No.1264 1352 (Bang)/2013, wherein the Tribunal, following the decision rendered by another bench in the case of ING Vysya Bank Ltd (2014)(149 ITD 611) held as under:- ....The actual provision made in the books by the assessee on account of PBDD (irrespective of whether it is rural or non-rural) has to be seen. To the extent PBDD is so created, then subject to the permissible upper limits referred to ahove, the deduction has to be allowe to the assessee. The question of bifurcating the PBDD as one relating to rural advances and other advances (non-rural) advances does not arise for consideration. Further, the ITAT Bangalore has also held in the assessee s own case in ITA No.681, 709, 955 998 dated 13.06.2014 that the assessee is not entitled to deduction u/s 36(1)(viia) of the Act on an amount greater than the amount debited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed a sum of ₹ 1297.36 crores as bad debt u/s 36(1)(vii) of the Act. The AO noticed that the above said amount was included in Provisions and Contingencies account. The AO noticed that the above said amount consisted of following two items:- Provision for contingencies debited to P L a/c 47.63 crores Provisions for NPA - 1249.73 crores Total 1297.36 crores The AO expressed the view that the Provisions for NPA is only a provision created towards bad and doubtful debts and it cannot be considered to be actual write off. He then relied upon the decision rendered by Hon ble Supreme Court in the case of Southern Technologies vs. ACIT (352 ITR 577)(SC), wherein it was held that the mere making of provision for NPA cannot be considered as write off u/s 36(1)(vii) of the Act. He also relied upon the decision rendered by Hon ble Kerala High Court in the case of CIT vs. Hotel Ambassador (2002)(253 ITR 430)(Ker), wherein it was held that the deduction u/s 36(1)(vii) of the Act only if the assessee debits the same into the accounts as irrecoverable. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Gross Advances, the Prudential Write off at the HO level is reduced. In other words, the debts written off by the branches as well as by the HO are reduced from advances to that extent. 6.2 Accordingly, the Ld CIT(A) did not agree with the view expressed by AO. The observations made by Ld CIT(A) are extracted below:- 6.4.7 It was held by the Hon ble Supreme Court in the case of Vijaya Bank 323 ITR 166 that the prudential write off is an allowable deduction. 6.4.8 It is argued that as per section 36(1)(vii) the debts to be written off in the accounts of the assessee. The section 2(12A) of the Income tax Act, 1961 defines the terms Books or Books of Account in terms of an inclusive definition to include Ledgers, day books, cash books, account books and other books. Therefore, it is not legally correct to say that only Profit Loss Account can be termed as accounts of the assessee. In this case also, the bad debts are written off in the books of the bank which include ledger and other records. The write off is debited to ledger accounts. The write off is reduced from the gross advances in the Balance Sheet. Therefore, the condition that the debt should be written o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties on this issue and perused the record. We notice that the Ld CIT(A) has expressed the view that the provision allowed u/s 36(1)(viia) of the Act would cover bad debts pertaining to non-rural advances also. An identical issue has been examined by Hyderabad bench of ITAT in the case of State Bank of Hyderabad vs. DCIT (ITA No.450/Hyd/2015, ITA No.498 and 499/Hyd/2015 dated August 14, 2015), wherein the Tribunal has not accepted the above said view expressed by Ld CIT(A). The relevant observations made by the Tribunal are extracted below:- 19. We have considered the rival submissions and perused the materials on record as well as the orders of revenue authorities. As could be seen from the finding of AO as well as ld. CIT(A), only reason for which claim of deduction for ₹ 209,07,50,831 representing actual write off of bad debts relating to non-rural advances u/s 36(1)(vii) was denied is, assessee having already availed deduction u/s 36(1)(viia), it is not eligible to claim deduction u/s 36(1)(vii) as it will amount to double deduction. In our view, both AO as well as ld. CIT(A) have committed fundamental error by mixing up provisions of sections 36(1)(vii) and 36(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Revenue, in our opinion, was rightly rejected by the Special Bench of the Tribunal and it correctly held that the Board itself had recognized the position that a bank would be entitled to both the deductions. Further, it concluded that the proviso had been introduced to protect the Revenue, but it would be meaningless to invoke the same where there was no threat of double deduction. 27. As per this proviso to cl. (vii), the deduction on account of the actual write off of bad debts would be limited to excess of the amount written off over the amount of the provision which had already been allowed under cl. (viia). The proviso by and large protects the interests of the Revenue. In case of rural advances which are covered by cl. (viia), there would be no such double deduction. The proviso, in its terms, limits its application to the case of a bank to which cl. (viia) applies. Indisputably, cl. (viia)(a) applies only to rural advances. Concurring with the aforesaid majority view, Hon'ble CJI, S.H. Kapadia, as the then he was, held as under: 2. Under Section 36(1)(vii) of the ITA 1961, the tax payer carrying on business is entitled to a deduction, in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) refers only to rural advances. It says that there are no such words in the proviso which indicates that the proviso apply only to rural advances. We find no merit in the objection raised by the Revenue. Firstly, CBDT itself has recognized the position that a bank would be entitled to both the deduction, one under clause (vii) on the basis of actual write off and another, on the basis of clause (viia) in respect of a mere provision. Further, to prevent double deduction, the proviso to clause (vii) was inserted which says that in respect of bad debt(s) arising out of rural advances, the deduction on account of actual write off would be limited to the excess of the amount written off over the amount of the provision allowed under clause (viia). Thus, the proviso to clause (vii) stood introduced in order to protect the Revenue. It would be meaningless to invoke the said 1 proviso where there is no threat of double deduction. In case of rural advances, which are covered by the provisions of clause (viia), there would be no such double deduction. The proviso limits its application to the case of a bank to which clause (viia) applies. Clause (viia) applies only to rural advances. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B will not be applicable to it. The AO did not accept the said contentions and held that the provisions of sec.115JB shall apply to the assessee. Accordingly, he computed book profit u/s 115JB of the Act also. 7.1 Before Ld CIT(A) also, the assessee contended that the provisions of sec.115JB will not be applicable to it. It was submitted that the assessee falls under the category of corresponding new bank under BR Act. Accordingly it was contended before Ld CIT(A) by the assessee as under:- (a) banking company is defined under BR Act as a company which transacts business of banking. (b) Company is defined as a company as defined in section 3 of the Companies Act and includes a foreign company within the meaning of sec. 591 of that Act. (c) Since the assessee falls under the category of Act of corresponding new bank , it was contended that it cannot fall under the definition of banking Company . (d) Clause (b) of sec.115JB(2) is applicable to a banking company, but the assessee is not a banking company as per the definition given in BR Act. Accordingly, it was contended that the assessee is not liable u/s 115JB of the Act. 7.2 The Ld CIT(A), however, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before us, the Ld A.R reiterated that the provisions of sec.115JB will not apply to the assessee, since it is not formed under Companies Act. He placed his reliance on the decision rendered by Kolkata bench of Tribunal in the case of Damodar Valley Corporation (2017(8) TMI 1363). On the contrary, the Ld D.R supported the order passed by Ld CIT(A). 7.4 We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has expressed the view that the assessee would fall under clause (a) of sec.115JB(2). However the case of the assessee is that clause (b) of sec.115JB(2) is made applicable to banking companies, since banking company is included in sec. 211 of the Companies Act. However, it is the contention of the assessee that it is not a banking company , i.e., it is a corresponding new bank . 7.5 We notice that the provisions of sec.51 of the Act specifically states that only certain provisions of BR Act are applicable to Corresponding new bank . We noticed earlier that the Ld CIT(A) has proceeded to decide this issue by observing that all provisions of BR Act are applicable to the Company. We notice that the Ld CIT(A) did not consider the effect of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. 9.1 Before Ld CIT(A), the assessee contended that the AO has not recorded dissatisfaction on the disallowance made by the assessee. Accordingly it was contended that AO could not have invoked rule 8D of I T Rules. The Ld CIT(A) accepted the contentions of the assessee and observed that the assessee has voluntarily disallowed a sum of ₹ 9,24,123/-, which should have been examined by AO and he should have recorded dissatisfaction on it. Accordingly, the Ld CIT(A) deleted the disallowance accepting the above said legal contention. 9.2 We heard the parties and perused the record. It is not clear as to whether the assessee had voluntarily disallowed the sum of ₹ 9,24,123/- while filing return of income, since it is stated in the reply dated 28.01.2015 given by the assessee to the AO, which is extracted in paragraph 1.4 of the assessment order, that the assessee is aggregable for a disallowance of ₹ 9,24,123/- as mentioned in its submission dated 13.1.2015. In fact, the Ld CIT(A), at one point, records that the assessee contended that no expenditure was incurred to earn tax free income, but without prejudice to the above said contention, it agreed for a disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so noticed that the Bangalore bench of Tribunal has held in the case of Corporation Bank (ITA Nos.1264 1352 (Bang)/2013) that similar kind of payment made cannot be considered as Commission or Brokerage warranting deduction of tax at source u/s 194H of the Act. The Ld CIT(A) held that the above said decision shall apply to the facts of the present case also. He further held that the AO did not specify the section under which the TDS is liable to be deducted by the assessee. Accordingly he deleted the disallowance. 10.2 We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has rendered his decision following the ratio of decision rendered by Hon ble Supreme Court in the case of Kotak Securities Ltd (supra) and also the decision rendered by coordinate bench in the case of Corporation Bank (supra). Hence we do not find any reason to interfere with his order passed on this issue. 11. The last issue contested by the revenue relates to the relief granted in computing book profit u/s 115JB of the Act. Since the issue of applicability of sec.115JB to the assessee is restored to the file of Ld CIT(A) while considering the appeal of the assessee, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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