NUTAN NAGRIK SAHAKARI BANK LIMITED,AHMEDABAD vs. THE PR. CIT, AHMEDABAD-1, AHMEDABAD

This appeal has been filed by the Assessee against the order passed by the Ld. Principal Commissioner of Income Tax, (in short “Ld. PCIT”), Ahmedabad-1 vide order dated 12.03.2025 passed for A.Y. 2020-21.

The Assessee has taken the following grounds of appeal:-

The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

Before us the Counsel for the assessee submitted that the present revision under section 263 has been wrongly invoked on both issues raised by the Principal CIT. The Counsel for the assessee submitted the chronology of the case by stating that the assessee had filed its return of Nutan Nagarik Sahakari Bank Ltd. vs. PCIT Asst.Year –2020-21 - 4– income on 29.06.2021 declaring ₹17.15 crores, followed by filing of the tax audit report in Form 3CA and 3CD on 16.07.2021. The assessment was completed under section 143(3) of the Act at the same income, and throughout the assessment proceedings the Assessing Officer had issued notices under sections 143(2) and 142(1), to which detailed replies were filed, all of which are placed in the paper book. The counsel submitted that the first issue relates to the deduction claimed under section 36(1)(viia) of the Act. He argued that the assessee had correctly worked out the deduction of ₹1,59,95,136/- being 8.5% of the “total income” of ₹18.81 crores, which included income under both the business head and the capital gains head. He stated that the term “total income” is defined in section 2(45) and is used in Chapter IV for computing the deduction, and therefore, the assessee’s claim was correctly made. He further pointed out that this very issue was examined during the original assessment, as the computation was disclosed in Schedule BP of the ITR, and the Assessing Officer had specifically issued notices under sections 143(2) and 142(1) asking for justification of the claim. Detailed replies were filed and examined, and therefore, this is not a case of lack of enquiry. In support, the counsel relied on judicial decisions to submit that once an issue has been examined, revision under section 263 cannot be exercised merely because the Principal CIT holds a different view. The Counsel for the assessee also relied on decisions of the Surat and Bangalore Benches of the Tribunal in support of the interpretation that deduction under section 36(1)(viia) may be computed on total income, including capital gains. The counsel then addressed the second allegation relating to disallowance under section 14A. He submitted that although the assessee had exempt income in the form of interest on tax-free bonds, the investment portfolio clearly showed which investments actually yielded such income, and Nutan Nagarik Sahakari Bank Ltd. vs. PCIT Asst.Year –2020-21 - 5– therefore only those investments should be considered for any possible disallowance. He stated that as per the assessee’s own working, the maximum reasonable disallowance could be around ₹3.55 lakhs, being 1% of the average value of investments that actually earned exempt income. The Counsel for the assessee submitted that the Principal CIT’s conclusion that disallowance of ₹35.98 crores was required is completely absurd and contrary to law. He relied on the decisions in Atul Ltd. (162 taxmann.com 862), Reliance Power Ltd. (159 taxmann.com 1626) and Cricket Club of India Ltd. (165 taxmann.com 376), which hold that only income-yielding investments can be considered for Rule 8D(2)(iii) purposes. Finally, the counsel submitted that even if the Tribunal finds some justification for revising the assessment on the second issue regarding section 14A, the revision on the first issue relating to section 36(1)(viia) must be quashed because the Assessing Officer had already examined the deduction during the original assessment.

We have heard the rival contentions and perused the material on record. The first issue for consideration before us is whether deduction u/s 36(1)(viia) of the Act is applicable to “total income” including capital gains or whether the deduction is only restricted to “total income” under the head “Profits and Gains of Business or Profession”. Section 36(1)(viia) of the Act allows certain banks to claim a deduction for the provision they create for bad and doubtful debts. In simple terms, this section gives specified banks such as scheduled banks, non-scheduled banks (other than foreign banks), and cooperative banks a special benefit by permitting them to set aside a percentage of their business income as a deduction to cover possible future loan losses. The deduction is not linked to actual write-off of loans but is allowed on the basis of a provision created in the books. The section allows a deduction of up to 7.5% of the bank’s “total income”

We note that section 36(1)(viia) of the Act reads as under:

On careful consideration of the rival submissions and the material available on record, we find that the controversy raised in revision under section 263 primarily relates to the interpretation of section 36(1)(viia) of the Act and the question whether the deduction allowable thereunder is to be computed with reference to the “total income” of the assessee as Nutan Nagarik Sahakari Bank Ltd. vs. PCIT Asst.Year –2020-21 - 7– defined in section 2(45) of the Act, or whether the deduction is restricted only to income under the head “Profits and Gains of Business or Profession.” The language of section 36(1)(viia) is explicit and unambiguous, as it permits a deduction “not exceeding seven and one-half per cent of the total income (computed before making any deduction under this clause and Chapter VIA).” The phrase “total income,” when read with section 2(45) and section 5, refers to the total amount of income from whatever source derived, computed in accordance with the provisions of the Act. The Statute does not carve out any exception excluding capital gains or income under any other head for the limited purpose of computing this deduction. Therefore, when the law itself employs the expression “total income” without qualification, it is impermissible to read into the statute any limitation that the Legislature has consciously omitted.

It is well settled that when the language of the statute is clear, plain, and unambiguous, it must be applied as it stands, and no interpretation can be imported to give it a meaning different from what is expressed. The Hon’ble Supreme Court in CIT v. Tara Agencies (292 ITR 444) has held that where the words of a statute are clear, they must be given effect to regardless of consequences. Similarly, in Orissa State Warehousing Corporation v. CIT (237 ITR 589), the Court held that the language employed by the Legislature must be given its plain meaning and that courts cannot read something into the provision which is not there. The same principle was reiterated in Ajmera Housing Corporation v. CIT (326 ITR 642), in which the Supreme Court held that in tax statutes particularly, there is no room for intendment when the provision contains clear and unambiguous language. Further, the decision of the Constitution Bench in CIT v. Anjum M.H. Ghaswala (252 ITR 1) reinforces the Nutan Nagarik Sahakari Bank Ltd. vs. PCIT Asst.Year –2020-21 - 8– principle that where the statute contains mandatory language, neither the tax authorities nor appellate forums can dilute or modify the statutory prescription. These judicial precedents make it abundantly clear that plain statutory language must prevail over any interpretative attempt.

Applying these principles to the present case, we find that the Assessing Officer had allowed the deduction by computing the eligible amount with reference to the assessee’s total income including capital gains, which is in strict conformity with the express language of section 36(1)(viia). The Principal CIT’s conclusion that the deduction must be restricted only to business income is based on an interpretation that finds no support in the Statute. The section does not state that the deduction is to be computed with reference only to income assessable under the head “Profits and Gains of Business or Profession,” and importing such a limitation is not permissible. Once the statute prescribes computation with reference to “total income” before deductions under this clause and Chapter VI-A, the computation must necessarily be made on that basis alone. We therefore hold that there was no error in the assessment order on this issue, and the Assessing Officer had taken a plausible and legally sustainable view after due enquiry. Accordingly, the revisionary order passed by the Principal CIT under section 263, insofar as it relates to the direction to recompute the deduction under section 36(1)(viia) by restricting it only to business income, cannot be sustained in law. The assessee’s appeal on this issue is allowed and the order of the Principal CIT to that extent is set aside.

On the second issue, from the case records, it is evident that the issue regarding claim of deduction section 14A of the Act was not examined by the Assessing Officer during the course of assessment proceedings. Therefore, on this issue we find no infirmity in the order of Principal CIT so as to call for any interference.

In the result, the appeal of the assessee is partly allowed. This Order pronounced in Open Court on 27/11/2025