TAMILNADU STATE APEX CO-OPERATIVE BANK LTD.,CHENNAI vs. ACIT, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

These two appeals filed by the assessee are directed

against common order of Commissioner of Income Tax (Appeals)

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VII, Chennai dated 03.6.2014 for the above assessment years passed

u/s.143(3) r.w.s. 147 and 250 of the Income Tax Act, 1961 (herein

after referred to as ‘the Act’). Since the issue in these two appeals is

common in nature, hence these appeals are combined, heard together,

and disposed of by a common order for the sake of convenience.

‘’2. The Learned Commissioner of Income Tax (Appeals) erred in dismissing the appeal without distinguishing the ratios relied by the Appellant laid in the decision of Catholic Syrian Bank vs CIT decided by Supreme court reported in 18 taxmann.com 282. 2.1 The Ld CIT(A) ought to have considered section 36(1 )(vii) and Section 36(1 )(viia) are independent and cannot be intermingled or read into each other. . 2.2 The Ld CIT(A)grossly erred in not considering the word " Deduction" appearing in the section 36(viia) implies that an expenditure which an Assessee may subtract from Gross Total Income to determine taxable income"

2.3 The Ld CIT(A) failed to appreciate and consider provision already made by the Appellant in the books of account towards for NPA and Bad debt’’. 2.4 The Ld CIT(A) grossly erred in not considering the basis of provision to be made for 36(viia) discussed in para 29 of the decision of Catholic Syrian Bank vs CIT decided by Supreme court reported in 18 taxmann.com 282. 2.5 The Learned CIT(A) further erred in stating the Appellant had not passed any provision in the books.

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2.6 The Ld CIT(A) ought to considered that the case law relied by the Ld AO in State Bank of Patiala vs CIT reported in 143 Taxman 196 was no longer applicable after the decision of Catholic Syrian Bank vs CIT decided by Supreme court reported in 18 taxmann.com 282’’.

Since the issue is common in both appeals, we consider the 3.

facts as narrated in ITA No.2178/Mds/2014 of assessment year 2008-

09 for adjudication.

The Brief facts of the case that the assessee is a Co- 4.

operative bank and is in the business of banking and providing credit

facilities to its members filed Return of income for the assessment year

2008-09 on 29.09.2008 admitting total income of �26,38,40,723/-. The

Return was processed u/s.143(1) of the Act and subsequently, the

Assessing Officer on reason to believe that the assessee bank has

claimed excess deduction u/s.36(1)(viia) of the Act and issued notice

u/s.148 on 23.03.2011. The assessee bank filed letter dated

05.04.2011 to treat the original return filed earlier as return in

compliance to notice. Further notice u/s.142(1) of the Act was issued

and case was posted for hearing on various dates. The ld. Authorised

Representative of the assessee alongwith Manager of the bank

appeared from time to time and filed explanations that in computation

of income assessee has disallowed �35,50,416/- towards provision for

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bad and doubtful debts and claimed deduction u/s.36(1)(viia) of the

Act being 7.5% of gross total income. The ld. Assessing Officer based

on the submissions on the income tax adjustment statement,

disallowance and compliance of stipulated conditions that assessee

bank is eligible for adhoc deduction irrespective of amount of

provision in profit and loss account and called for produced books of

accounts, bank accounts statements, details of sundry debtors and

ledger accounts. The ld. Assessing Officer relied on the decision of

Punjab and Harayana High Court in the case of State Bank of Patiala

vs. CIT (2005) 143 Taxmann 196. As per the provisions of Sec.

36(1)(viia) of the Act the assessee bank should make provision equal

to amount claimed as deduction in accounts for claiming deduction,

further on perusal of the computation of income, the bank has not

provided provision of �2.13 crores in the financial accounts for claiming

deduction. The ld. Assessing Officer on verification of books of

accounts and provisions of law and conclude that bank has debited

�95,50,416/- as provision for Bad and doubtful debts in the books of

accounts but at the time of filing of return of income made an

disallowance of �35,50,416/- since the balance provision was not

disallowed, the Assessing Officer made addition of �60,00,000/- to

the retuned income alongwith �2,13,92,491/- claimed as deduction

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u/s.36(1)(viia) of the Act on adhoc basis at 7.5% of gross total

income as no satisfactory explanations was furnished in hearing

proceedings, assessed total income of �29,12,33,214/- and raised

demand. Aggrieved by the order, the assessee filed an appeal before

the Commissioner of Income Tax (Appeals).

The ld. Authorised Representative contested the action of the 5.

Assessing Officer in denying the claim u/s.36(1)(viia) of the Act and

ignoring the provision of �95,50,416/- debited in the books of

accounts and erred in not allowing claim based on the decision of State

Bank of Patiala (supra). The ld. Authorised Representative also

challenged the validality of reassessment proceedings and filed written

submissions and supported the case with judicial decisions. The ld.

Commissioner of Income Tax (Appeals) considered the additional

grounds were the ld. Assessing Officer erred in not allowing deduction

u/s.36(1)(viia) of the Act as per return of income and the deduction

should be allowed based on the decision of Apex Court in the case of

Catholic Syrian Bank vs. CIT 18 Taxmann.com 282. The ld.

Commissioner of Income Tax (Appeals) held the reopening of

assessment is valid and the assessee debited 6,80,50,416/- as

provisions including �95,50,416/- towards provision for bad and

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doubtful debts. On perusal of the computation of income the

assessee has disallowed only �35,50,416/- at the time of filing return

of income. The ld. Commissioner of Income Tax (Appeals) is of the

opinion that assessee made provision of �95,50,416/- in the books of

accounts and the Assessing Officer has not allowed claim of bad and

doubtful debts to the extent of provision and directed the Assessing

Officer to allow deduction of �95,50,416/- u/sec. 36(1)(viia) of the Act.

The ld. Assessing Officer disallowed �2,13,92,491/- in the assessment

with reference to the provisions as under:-

‘’To find out whether the claims of the assessee is correct or not, we have to read the relevant provisions of Income Tax Act which is reproduced as under:-

Other deductions:-

36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to In Section 28- (viia) in respect of any provision for bad and doubtful debts made by (a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co- operative agricultural and rural development bank, an amount not exceeding seven and one- half percent of the total income computed before making any education under this clause and Chapter VIA and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner:

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5.2 The Finance Act 2007 extended the benefit of deduction u/s. 36(1)(viia) of the Act to a co-operative bank. The assessee being a co- operative bank is therefore entitled for the deduction u/s 36( l)(viia) of the Act. The deduction is restrictred to 7.5% of the total income computed before making any deduction under this clause and Chapter VIA produced he assessee makes a provision for bad and doubtful debts to the extent required. In this, case, the assessee is eligible for deduction of an amount not exceeding 7.5% of the total income ( in this case upto ₹7,61,10,421/- ) provided provision to the same amount is made in this accounts. In the assessee’s case, provisions was made only to the extent of ₹1,06,63,566/- and the same was allowed. The assessee’s further claim of ₹6,54,46,855/- was negative by the Assessing Officer. The assessee contended that the provision has been debited in the books of accounts and hence the same IS to be allowed as deduction and reliance was placed on the case of SBP vs CIT (2005) 272 ITR 54 (P&H). The contention of the assessee is far from truth since, the assessee debited Rs.1,06,u3,566/- only in the Income and Expenditure ale under the head "’’provisions and reserves made’’. It is not known how the assessee placed reliance on the decision of P&H High Court in the case of SBP vs CIT and Another (2005) 272 ITR (54). The decision was actually against the assessee. It was clearly held as under:

Making of a provision for bad and doubtful debt equal to the amount mentioned in this section is a must for claiming such deduction." "We are, therefore, satisfied that the Tribunal was right in holding that since the assessee made a provision of ₹ 1, 19,36,000/- for bad and doubtful debts, its claim for deduction uls 36(1)(viia) of the Act had to be restricted to that amount only. Since the language of the statute is clear and is not capable of any other interpretation, we are satisfied that no substantial question of law arises in this appeal for consideration by this Court. "

The assessee’s reliance on the decision of Catholic Syrian

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Bank vs. CIT 18 taxmann.com 282 is of no help and not applicable to the fact of the case in hand. Simialry, the reliance on the decision of ITAT Mumabi Bench ‘L’ in the case of ADIT(IT) vs. Citibank NA in ITA No.3160/Mum/06, dated 05.08.2009 is also not helpful to the assessee’s case.

The ld.Commissioner of Income Tax (Appeals) relied on the order of

assessee’s own case in ITA No.266/11-2012 dated 28.01.2013 for the

assessment year 2009-2010 disposed off the appeal. Aggrieved by the

order of Commissioner of Income Tax (Appeals), the assessee filed an

appeal before Tribunal.

Before us, the ld. Authorised Representative of the assessee 6.

reiterated the submissions of the assessment proceedings and

appellate proceedings. The ld. Authorised Representative main

contention and arguments on the allowability of deduction

u/s.36(1)(viia) of the Act and the grounds were the ld. Commissioner

of Income Tax (Appeals) has dismissed the appeal without

distinguishing the ratio relied in the case of Catholic Syrian Bank

(supra) observed at para 29 of the order at page 16 of paper book as

under:-

‘’29. In a recent judgment of this Court, in Southern Technologies Ltd. vs. Jt. CIT , Coimbatore (2010) 2 SCC 548 (authored by one of us, Kapaida, J as he then was), both Section 36(1)(vii) and 36(1)(viia) were discussed. Then, this Court went on to state how these provisions operate in the case of a Non Banking Financial Corporations (NBFC) vis-A-vis bank covered under Section 36(1)(viia). The Court held as under:-

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"37. To understand the above dichotomy, one must understand "how to write off. If an assessee debits an amount of doubtful debt to the P&L account and credits the asset account like sundry debtor's account, it would constitute a write-off of an actual debt. However, if an assessee debits "provision for doubtful debt" to the P&L account and makes a corresponding credit to the "current liabilities and provisions" on the liabilities side of the balance sheet, then it would constitute a provision for doubtful debt. In the latter case, the assessee would not be entitled to deduction after 1-4-1989. ** ** ** 58. Section 36(1)(vii) provides for a deduction in the computation of taxable profits for the debt established to be a bad debt. Section 36(1)(vii- a) 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.

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deduction, however, subject to the ceiling prescribed as stated above. Lastly, the provision for NP A created by a scheduled bank is added back and only thereafter deduction is made permissible under Section 36(1)(vii-a) as claimed.:'

The deduction u/secs. 36(1)(vii) and 36(1)(viia) of the Act are distinct

and separately allowed. The ld. Authorised Representative relied on

the definition of deduction and paper book consists details of provision

for nonperforming asset (NPA) and bad debts in the books of

accounts. Further argued on Finance Bill 2013 effective from

01.04.2014 and the explanations inserted clarifying that provision for

Sec. 36(1)(viia) of the Act need not be made in the books of accounts.

The ld. Commissioner of Income Tax (Appeals) overlooked the ratio

laid down in the case of ADIT vs. Citibank NA in ITA

No.3160/Mum/2006, dated 05.08.2009 and decision of Oriental Bank

of Commerce vs. ACIT in ITA No.22/Del/2011, dated 15.03.2013 and

prayed for allowing the deduction.

orders of the Commissioner of Income Tax (Appeals) and findings of

the Assessing Officer.

record and judicial decisions. The contention of the ld. Authorised

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Representative that the assessee is eligible for deduction

u/s.36(1)(viia) of the Act as per ratio laid down in Catholic Syrian Bank

(supra) and in assessee’s own case the decisions has been

considered. Basically Co-operative bank is eligible for deduction at

7.5% of gross total income. The ld. Counsel filed paper book and

explained applicability of ratio of Apex Court decision and other

decisions of Tribunal in the case of Oriental Bank of Commerce and

Citibank NA (supra) and assessee’s own case of assessment year 2009-

2010 and produced copy of computation of income. On perusal of the

computation of income for the assessment year 2008-09, the assessee

has disallowed provision for bad debts and doubtful debts

�35,50,416/- and also claimed deduction u/s.36(1)(viia) but based on

the ratio laid down in State Bank of Patiala (Supra) provision entries

has to be passed in the books of accounts for the claims. The ld.

Authorised Representative demonstrated the legal aspect of provision

for Bad debts and non performing assets and deductions claimed by

the bank. Considering the activities of the bank and the provision of

NPA and provisions of Bad debts, the judicial decisions and claim

u/s.36(1)(viia) of the Act and the decision of Apex Court, the assessee

claim of Bad debts in the books of accounts and Finance bill 2013, we

are of the opinion the matter needs to be re-examined in the

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light of the decision of Catholic Syrian Bank (supra) and supporting

judicial decisions. So, we remit the issue to the file of the Assessing

Officer to verify the claim of the assessee and compliance of the

conditions stipulated u/s.36(1)(viia) of the Act based on the decision

of the Apex Court and allow the deduction after providing adequate

opportunity of being heard to the assessee. However, we make it

clear that the assessee is not entitled for deduction towards provision

for Bad debts �60,00,000/- for assessment year 2008-09 and

�1,06,63,566/- for assessment year 2007-08. The appeal of the

assessee is partly allowed for statistical purpose.

Order pronounced on Wednesday, the 6th day of April, 2016, at Chennai.

Sd/- Sd/- (चं� पूजार�) (जी. पवन कुमार) (CHANDRA POOJARI) (G. PAVAN KUMAR) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य /ACCOUNTANT MEMBER चे�नई/Chennai �दनांक/Dated: 06.04.2016 आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/