TMI Blog2022 (1) TMI 1220X X X X Extracts X X X X X X X X Extracts X X X X ..... with section 36(1)(vii), as proviso to the said section would not apply to non-rural advances. Accordingly, we delete the addition made by AO and confirmed by ld. CIT(A). Applicability of sec.115JB - HELD THAT:- Following the decision rendered by the co-ordinate bench of this Tribunal in the case of M/s Canara Bank [ 2022 (1) TMI 124 - ITAT BANGALORE] we set aside the order passed by the Ld. CIT(A) on this issue and restore the same to his file for deciding it afresh in accordance with law. Addition made to book profit as per sec. 115JB - whether amount debited to Profit and Loss account under the head Provision for funded interest term loan and Provision for others are liable to be added to net profit u/s 115JB - Since the issue regarding applicability or otherwise of sec.115JB is restored to the file of Ld CIT(A), this issue is also restored to the file of Ld CIT(A) for examining it afresh. Addition u/s 14A r.w.r. 8D - HELD THAT:- As held in the case of Vireet Investment [ 2017 (6) TMI 1124 - ITAT DELHI] that only those investments, which has yielded dividend income should be considered for computing average value of investments. Before us, the Ld A.R also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome under the normal provisions of the Act. Aggrieved by the order of the AO, assessee filed appeal challenging the assessment order before the CIT(A) which was partly allowed. The assessee has now filed appeals before us against the order passed by the CIT(A). 3. The grounds raised by the assessee give rise to following issues: - (i) Disallowance u/s 36(1)(vii) of the Act (ii) Applicability of provisions of sec. 115JB of the Act (iii) Specific additions to book profit as per sec. 115JB of the Act 4. The grounds raised by the Revenue give rise to the following issues:- (i) Disallowance u/s 14A of the Act (ii) Disallowance u/s 40a(ia) of the Act (iii) Disallowance u/s 36(1)(viia) of the Act 5. We shall first take up the appeal filed by the assessee. The first issue contested by the assessee relates to the disallowance of bad debts amounting to ₹ 707.83 crores pertaining to non-rural bad debts claimed u/s 36(1)(vii) of the Act. The assessee had debited the rural bad debts amounting to ₹ 82.87 lakhs against the Provision for Bad and Doubtful Debts (PBDD) allowed u/s 36(1)(viia) of the Act. However the assessee did not debit the bad debts of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proviso to sec. 36(1)(vii) read with sec. 36(1)(viia) of the Act. Before Ld CIT(A), the assessee submitted that the provision allowed u/s 36(1)(via) of the Act is related to rural debts only and hence, only rural debts written off as bad should be adjusted against the provision allowed u/s 36(1)(via) of the Act. However, the Ld CIT(A) expressed the view that the PBDD allowed u/s 36(1)(viia) of the Act is applicable to both Rural and non-Rural debts. Accordingly, he held that the entire amount of bad debts written off (both rural and nonrural) should be first adjusted against the provision allowed u/s 36(1)(viia) of the Act and only the excess should be allowed as deduction. He expressed the view that the decision by Hon ble Supreme Court in the case of Catholic Syrian Bank (2012)(343 ITR 270)(SC) was rendered under the assumption that the banks would maintain separate PBDD a/c in respect of rural branches and nonrural branches and therefore it is possible to distinguish PBDD as one in respect of rural branches and non-rural branches. The Ld CIT(A) expressed the view that the claim of the bank that the provisions of sec. 36(1)(viia) are distinct and independent of sec. 36(1)(vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 36(1)(viia). In other words, proviso to section 36(1)(vii) applies to write off of bad debts relating to rural advances to the extent it exceeds the provision made u/s 36(1)(viia). If we examine the facts of the present case in the context of aforesaid statutory provision, it will be evident that assessee, though, has written off in the books of account an amount of ₹ 210.74 crore, but, in the computation of total income, the actual deduction claimed u/s 36(1)(vii) is ₹ 209.08 crore representing bad debts written off relating to non-rural/urban advances. The balance amount of bad debts relating to rural advances was not claimed as deduction by assessee in terms with the proviso to section 36(1)(vii) as it has not exceeded the provision for bad and doubtful debts relating to rural advances created u/s 36(1)(viia). Both AO and ld. CIT(A) have misconstrued the statutory provisions while observing that proviso to section 36(1)(vii) would also apply in case of bad debts relating to non-rural advances. The Hon'ble Supreme Court in case of Catholic Syrian Bank Vs. CIT (supra) while analyzing provisions of section 36(1)(vii) and 36(1)(viia) have observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrent profits to provide for risks in relation to their rural advances, the Finance Act, inserted clause (viia) in subsection (1) of Section 36 to provide for a deduction, in the computation of taxable profits of all scheduled commercial banks, in respect of provisions made by them for bad and doubtful debts relating to advances made by their rural branches. The deduction is limited to a specified percentage of the aggregate average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962. Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(11(vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks continue to get the full benefit of the write off of the irrecoverable debt(s) under Section 36(1)(vii) in addition to the benefit of deduction for the provision made for bad and doubtful debt(s) under section 36(1)(viia). A reading of the Circulars issued by CBDT indicates that normally a deduction for bad debt(s) can be allowed only if the debt is written off in the boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proviso to clause (vii). Thus, considered in light of principle laid down as referred to above, when the proviso to section 36(1)(vii) applies to bad debts written off relating to rural advances, the same cannot be applied for disallowing deduction claimed on account of write off of bad and doubtful debts relating to nonrural/ urban advances. As far as application of explanation to section 36(1)(vii) is concerned, we agree with the ld. AR that its operation will be prospective and will not apply to the impugned AY. For this proposition, we rely upon the decision of the ITAT Mumbai in case of Bank of India Vs. Addl. CIT (supra). Even otherwise also, careful reading of explanation to section 36(1)(vii) would indicate that nowhere it suggests that the proviso to section 36(1)(vii) would apply in respect of bad debt written off relating to non-rural advances. In the aforesaid view of the matter, we hold that assessee would be eligible to avail deduction of an amount of ₹ 209.94 crore representing actual write off in the books of account of bad debts relating to non-rural/urban advances in terms with section 36(1)(vii), as proviso to the said section would not apply to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, did not accept the above said contentions. The view expressed by Ld CIT(A) has been summarised below:- (a) Sec. 115JB(1) is the charging section and it overrides all other provisions of the Act. It provides that the provisions of this section are applicable in case of every company . It does not carve out any exception. (b) Sec. 2(17) defines the word company . According to this section company means any Indian Company. (c) Explanatory Note to Finance Act, 2012 has explained that Minimum Alternative Tax (MAT provisions u/s 115JB) shall apply to a banking company. (d) Assessee is a company as per the deeming provisions of sec.11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, which reads as under:- 11. Corresponding new bank deemed to be an Indian Company:- For the purposes of the Income tax Act 1961 (43 of 1961), every corresponding new bank shall be deemed to be an Indian Company and a company in which public are substantially interested. (e) The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(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. In our view the Ld CIT(A) should considered the effect of provisions of sec. 51 of BR Act and accordingly he should have appreciated the contentions of the assessee on the definition of banking company , provisions of sec.211(2) of the Companies Act etc. Since these aspects go to the root of the issue, in our view, this issue needs to be examined at the end of Ld CIT(A) afresh. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to his file for examining it afresh. 6.4 We have heard both the parties and perused the materials on record. Following the decision rendered by the co-ordinate bench of this Tribunal in the case of M/s Canara Bank cited supra, we set aside the order passed by the Ld. CIT(A) on this issue and restore the same to his file for deciding it afresh in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance holding that the AO has not recorded dissatisfaction. 8.3 We heard the parties on this issue and perused the record. A perusal of the observations made by the AO on this issue in the assessment order would show that the AO was not satisfied with the claim of the assessee, even though he has not expressly mentioned so. In our view, his dissatisfaction is discernible from the assessment order. However, the AO has not made any specific observation over the disallowance of ₹ 2.74 crores made by the assessee out of administrative expenses. Further, it is the claim of the assessee that the interest free funds available with the assessee is more than the value of investments and hence interest disallowance is not called for as per the decision rendered by the jurisdictional Hon ble Karnataka High Court in the case of Micro Labs (383 ITR 490)(Kar). This aspect has also not been examined by the AO. Further, it has been held in the case of Vireet Investment (165 ITD 27) by Delhi Special bench that only those investments, which has yielded dividend income should be considered for computing average value of investments. Before us, the Ld A.R also relied on certain decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the ITAT, Bangalore benches in the case of Corporation Bank (ITA No.1264 1352 (B) 2013) relating to AY 2011-12 has decided this issue in favour of the assessee following the decision rendered by another co-ordinate bench in the case of ING Vysya Bank Ltd (2014)(149 ITD 611). The co-ordinate benches have expressed view that What has to be seen by the AO is as to whether PBDD is created (irrespective of whether it is in respect of rural or non-rural advances) by debiting the Profit Loss a/c. To the extent PBDD is created, the assessee is entitled to deduction subject to upper limit of deduction laid down in Sec.36(1)(viia) of the Act. Accordingly, following the above said decision, the Ld CIT(A) held that the assessee is entitled for deduction u/s 36(1)(viia) of the Act and accordingly directed the AO to allow deduction as per the decision of ITAT. 10.2 We heard the parties and perused the record. We notice that the Ld CIT(A) has rendered his decision on this issue following the decision rendered by co-ordinate bench of ITAT on an identical issue. Accordingly, we do not find any reason to interfere with the decision rendered by Ld CIT(A) on this issue. 11. In the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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