DCIT, MORADABAD vs. M/S. PRATHMA BANK, MORADABAD

The Ld. Assessing Officer erred in law and on facts in not allowing opportunity to the assessee as requested in second last para of the reply dated 10/02/2014 quoted by the Ld AO in the assessment order itself on page 10 of the order.

That the ld Assessing Officer erred in law and on facts in initiating proceedings u/s 271(1)(c) when all the facts relevant for assessment have been disclosed and nothing has been concealed.

That the disallowance made by the ld Assessing Officer may kindly be deleted and income declared in the return may be accepted.”

Brief facts of the case shows that assessee is a banking company who filed return of income on 26/8/2011 declaring nil income. On perusal of the computation of income filed it was noted that assessee has claimed deduction under section 36 (1) (viia) of the income tax act of INR 1 283705000/– which is 10% of the aggregate rural advances of the bank though assessee has claimed INR 1 472000/– is provision for bad and doubtful debts in its profit and loss account. The learned assessing officer relying on the decision of the honourable Punjab and Haryana High Court in 272 ITR 54 in state Bank of Patiala vs Commissioner of income tax was of the view that assessee has claimed the deduction incorrectly. Therefore he questioned the quantum of deduction and held that it would be restricted to the amount of reserve created in the books of account. Accordingly he Page | 2 computed the total income of the assessee at INR 1 76832400/– against the nil income returned by the assessee. Assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned CIT – A who held that once a provision for bad and doubtful debt is made by a scheduled bank having rural branches, the assessee is entitled to deduction which is quantified not with respect to the amount provided for in the accounts, but with respect to a certain percentage of the total income and also certain percentage of the aggregate average advances made by the rural branches of the bank. He therefore held that it is a specific deduction given by the statute irrespective of the car quantum provided in the books of accounts by the assessee towards provision for bad and doubtful debts. With respect to the judicial conflict between the decision of the honourable Punjab and Haryana High Court, Carroll High Court he applied the ratio laid down by the honourable Supreme Court in 188 ITR 192 wherein it has held that if 2 reasonable constructions of a taxing provisions are possible, that construction which favours the assessee should be adopted. Accordingly he held that the appellant is entitled to claim deduction u/s 36 (1) (viia) of the income tax act at the rate of 10% on the aggregate average advances of rural branches. Therefore the learned assessing officer aggrieved with the order of the learned CIT – A has preferred this appeal.

The learned departmental representative payment is supported the order of the learned assessing officer and also extensively referred to the decision of the honourable Punjab and Haryana High Court which is in favour of the revenue.

The learned authorised representative submitted that issue is squarely covered in case of the assessee by the decision of the coordinate bench for assessment year 2010 – 11 per order dated 14/7/2017 and for assessment year 2012 – 13 power order of the coordinate bench dated 3/10/2018. He submitted that all these issues raised by the learned assessing officer are considered in those decisions and as issue is squarely covered in favour of the assessee by the decision of the earlier benches of the tribunal, the same is required to be followed. Even otherwise he submitted that the deduction provided under the income tax act u/s 36 (1) (viia) of the act does not provide any limit but it is a blanket deduction provided to the banks lending in rural market through its rural branches.

We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case the issue squarely covered by the decision of the coordinate bench in case of the assessee for assessment year 2012 – 13 in ITA number 5273/del/2015 dated 3/10/2018 which followed the decision of the coordinate bench in assessee’s own case for assessment year 2010 – 11 in ITA number 4090/del/2013 dated 14//7/2017 and dismiss the appeal of the revenue. The coordinate bench held as under:- “5. Ld. DR relied upon the order of the AO. On the other hand Ld. AR relied on the order of the Ld. CIT(A) and he submitted that the order of the Ld. CIT(A) is right and he submitted that the Ld. CIT(A) has done good reasoned order therefore it should not be disturbed. He further submitted that the Hon’ble Coordinate bench of the Delhi Tribunal has allowed the appeal of the assessee in for the asstt. Year 2010-11 vide order dated 14.7.2017 on the same issue and therefore deduction u/s 36(1)(viia) has been 6 correctly allowed by the ld. CIT(A). Assessee has submitted the paper book containing 68 pages. The findings recorded by the Tribunal in the aforesaid order read as under : “20. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, the assessee claimed deduction u/s 36(1)(viia) of the Act at 10% of the average agricultural advances made by its rural branches. The said claim was disallowed by the AO. However, the ld. CIT(A) allowed the claim by following the ratio laid down by the Hon’ble Supreme Court in the case of Southern Technologies Ltd. Vs JCIT 320 ITR 577 (supra) wherein it has been held as under: “Section 36(1)(viia) provides for a deduction in respect of any provision for bad and doubtful debt made by a scheduled bank or non-scheduled bank in relation to advances made by its rural branches, of a sum not exceeding a specified percentage of the aggregate average advances by such branches. Having regard to the increasing social commitment, section 36(1)(viia) has been amended to provide that in respect of provision for bad and doubtful debt made by a scheduled bank or a non- scheduled bank, an amount not exceeding a specified per cent, of the total income or a specified per cent, of the aggregate average advances made by rural branches, whichever is higher, shall be allowed as deduction in computing the taxable profits.”

It is also an admitted fact that for the preceding year on an identical issue the ld. CIT invoked the provisions of Section 263 of the Act and this Bench of the Tribunal having same combination, set aside the said order in assessee’s own case as reported in (2016) 52 ITR (Trib.) 454 (supra) and observed in para 18 of the order dated 25.04.2016 as under: “18. In the present case, the assessee had given the break-up of each branch (copies of which are placed at pages 15 to 28). In the instant case, the assessee in its computation of revised total income/loss (copy of which is placed at page 1 7 of the assessee’s paper book) clearly mentioned that deduction under section 36(1)(viia) of the Act was claimed at 10 per cent of average agricultural advances of Rs.801.56 crores. Thereafter, the Assessing Officer after examining the aforesaid details came to the conclusion that the claim of the assessee was allowable and he accordingly allowed the claim of the assessee under section 36(1)(viia) of the Act. The said claim was in accordance with law and as provided in the provisions of section 36(1)(viia) of the Act.”

On a similar issue, the Hon’ble Supreme Court in the case of Catholic Syrian Bank Ltd. Vs CIT 343 ITR 270 (supra) held as under: “The clear legislative intent of the provisions and unambiguous language of the circulars with reference to the amendments to section 36 of the Act is that the deduction on account of provisions for bad and doubtful debts under section 36(1)(viia) is distinct and independent of the provisions of section 36(1)(vii) relating to allowance of the bad debts. After introduction of section 36(1)(viia) by the finance Act, 1979, with effect from April 1,1980, Circular No. 258, dated June 14, 1979, was issued by the Central Board of Direct Taxes to clarify the application of the new provisions. The provisions were introduced in order to promote rural banking and assist scheduled commercial banks in making adequate provision from their current profits for risks in relation to their rural advances. The deductions were to be limited as specified in the section. The circular mentions that the provisions of new clause (viia) of section 36(1), relating to the deduction on account of provisions for bad and doubtful debts, is distinct and independent of the provisions of section 36(l)(vii) relating to allowance of deduction of the bad debts. In other words, scheduled commercial banks would continue to get the benefit of the write off of the irrecoverable debts under section 36(1)(vii) in addition to the benefit of deduction of the provision for bad and doubtful debts under section 36(1)(viia).”

In the present case, the AO himself admitted in the assessment order at page no. 3 that the assessee had claimed deduction u/s 36(1)(viia) of the Act at Rs.105,69,80,000/- which is 10% of the aggregate rural advances of the bank. The aforesaid claim was allowable to the assessee 8 as per the ratio laid down by the Hon’ble Supreme court in the aforesaid referred to cases of Southern Technologies Ltd. Vs JCIT 320 ITR 577 and