TMI Blog2012 (3) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided. The assessee is assailing the decision of Ld CIT(A) in holding that the Provision for bad and doubtful debts created during the year should be netted off by the amount of provision created in earlier years and written back during the year and the amount of net provision so arrived at is only to be considered for the purpose of allowing deduction u/s 36(1)(viia) of the Act. 3. The facts relating to the issue are stated in brief. The assessee is a co-operative Bank. It enjoyed exemption u/s 80P of the Act in earlier years. During the year under consideration it was not entitled to deduction provided u/s 80P of the Act. Hence, it filed its return of income, which was revised a number of time, finally declaring a total loss of Rs.27.02 crores, after claiming deduction for Provision for bad and doubtful debts to the tune of Rs.35.27 crores. 4. Since the dispute is related to the deduction claimed u/s 36(1)(viia) of the Act, we feel it necessary to discuss the provisions of sec. 36(1)(viia) of the Act, which reads as under:- 36(1). The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service area of the concerned branch. However, the assessee interpreted the same as the panchayat ward , where the concerned branch is located. According to the interpretation made by the AO, none of the branches could be classified as a rural branch as the population of those places exceeded ten thousand. Hence, by following his interpretation, the AO did not allow deduction of 10% of the aggregate average advances made by the rural branches. Accordingly he restricted the deduction only to 7.5% of the total income. 4.3 In the books of account, the assessee had created a net provision for bad and doubtful debts to the tune of Rs.7.35 crores., i.e. it had created a new provision of Rs.35.27 crores and written back a sum of Rs.27.92 crores from the provision created in earlier years. The AO took the view that only the net provision of Rs.7.35 crores should be considered for the purposes of sec. 36(1)(viia) of the Act. It is pertinent to note that the deduction under the said section is allowable only to the extent of provision created, however subject to the maximum eligible amount computed in the manner provided in that section. According to the interpretation given by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a rural area or not is accepted, then probably even in Municipal areas there may be Wards with less than 10000 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 population as the basis for classification of rural Branches, that too, with reference to the last Census report, we feel the basic unit as available for identification of rural area in the Census Report can be legitimately adopted. So much so, we feel the above meaning of rural area contained in the Census Report wherein revenue village is treated as a unit of rural area, can be rightly adopted. So much so, place referred to in the above definition clause for the purpose of identifying the branch of a Bank as a rural Branch with reference to its location is the revenue village. Therefore, in our view, the finding of the Tribunal that place referred to in the definition is the Ward of a local authority like Panchayat or Municipality is incorrect and in our view, a rural Branch has to be always in rural areas and the place referred c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooperative Bank. Accordingly it is prayed that the matter requires re-examination at the end of AO. 7.2 We notice that the Ld A.R has taken this alternative plea, which is entirely a new one that too raised for the first time, without filing an additional ground along with a petition praying for its admission. This plea has not also been raised before the lower authorities. Hence, the alternative ground should not have been accepted normally. However, since the alternative plea of the assessee involves interpretation of the various provisions/clauses of the Act/other Central Act only, in the interest of natural justice, we proceed to address the alternative plea of the assessee in the coming paragraphs. 8. The Explanation below section 36(1)(viia) defines various terms. Some of the definitions, which are relevant to the issue under consideration, are extracted below:- non-scheduled bank means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank. scheduled bank means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t V of Banking Regulations 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 company . Further as per the definition given in Explanation under sec. 36(1)(viia) of the Income tax Act, a banking company as defined in sec. 5(c) of the Banking Regulation Act, which is not a scheduled bank, is classified as a non-scheduled bank . Consequently, a Co-operative bank, in our view, would be classified as a non-scheduled bank for the purpose of sec. 36(1)(viia) of the Act. 8.2 In view of the foregoing discussions, we are of the view that the decision rendered by Hon ble Jurisdictional Kerala High Court in the case of The Lord Krishna Bank Ltd., supra, shall apply to the assessee herein. Accordingly, we reject the alternative plea raised by the assessee. Thus, the appeal of the revenue stands allowed. 9. Now we shall take up the appeal of the assessee. In this appeal, the only issue urged by the assessee is whether the AO was justified in netting the provision made for bad and doubtful debts, i.e. netting of new provision made during the year under consideration and the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision as on 1.4.06 New Provision Provision reversed Person A 50,000 Nil 15000 - - Person B 60,000 6000 8000* 6000* Person C 70,000 14000 - - 10000 20,000 23,000 16,000 Net Provision 7,000 (* Additional Provision of Rs.2000/-. In this type of cases, netting off is required) In the above example, the new provision created appears to be Rs.23,000/-. However, the new provision actually created is only Rs.17,000/- (I.e. Person A Rs.10,000/- and Person-B Rs.2,000/-). Hence the claim of quantum of new provision made by the assessee, needs verification at the end of the AO. If the assessee has created a new provision on a particular asset by fully reversing the opening balance of provision relating to that asset, then the net accretion should only be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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