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IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 296 to 298/Srt/2022 (Assessment Years: 2013-14, 2016-17 & 2017-18) (Physical hearing) D.C.I.T.,Circle- (1)(1), The Bharuch Dis Cent Co-op Bank Ltd., Baroda. Jawahar Bhavan, Station Road, Vs. Bharuch-392001. PAN No. AAABT 0073 E Appellant/ assessee Respondent/ revenue
Department represented by Shri Ashok B Koli, CIT-DR with Shri Vinod Kumar, Sr.DR Assessee represented by Shri Manish J Shah, AR Date of hearing 05/01/2023 Date of pronouncement 09/01/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. These three appeals by the Revenue are directed against the separate orders of National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) (in short, the ld. CIT(A) all dated 16/08/2022 for the Assessment years (AY) 2013-14, 2016-17 and 2017- 18 respectively. In all these appeals, the revenue has raised certain common grounds of appeal. Facts in all these years are almost similar, except various of disallowance under Section 36(1)(viia) of the Income Tax Act, 1961 (in short, the Act) therefore, with the consent of parties, all
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. these appeals were clubbed, heard together and are being decided by this consolidated order to avoid the conflicting decision. For appreciation of facts, the appeal being ITA No. 296/Srt/2022 for the A.Y. 2013-14 is treated as a “lead case”. In this appeal, the revenue has raised following grounds of appeal: “On the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) erred in directing the AO to allow deduction claimed by the assessee of Rs.4,90,98,930/- @ 10% of average advances made by rural branches of the assessee bank u/s.36(1)(viia) of the Act and @15% of net profit on account of Statutory Bad debt reserve provision, holding that the assessee co-operative bank falls under the category of non- scheduled bank and eligible for above deduction without appreciating the Explanation (ia) below section 36(1)(viia) of the Act. It has also been held by Ld. CIT(A) that rest while in the annual report as a proposed appropriation subject to approval in general body meeting of the members and as such disclosure and treatment is as per norms and practice followed by all cooperative banks as governed by State cooperative act. So far as objection of assessing officer is that in the profit and loss accounts of the year no such provision is made by the assesse, is concerned, we find that Hon'ble Supreme Court in Kedarnath Jute Manufacturing Company Vs CIT held that nomenclature or treatment in the books of accounts is not decisive or conclusive for a particular deduction otherwise allowable under the law." 1.1 "The Ld. CIT(A) failed in interpreting the statute in the entirety, section 36(1)(viia) enshrines the three categories of banks namely Schedule Bank, Non-Schedule Bank and Co-operative Bank for deduction of bad and doubtful debts @ 7.5% of the total income computing before making any deduction under this clause and chapter VIA, whereas for the provisions for deduction @10% of average advances made by the rural branches, the Explanation (ia) clearly defines rural branches of Schedule and Non-Schedule Banks. The assessee being a Co-operative Bank did not find its place in the Explanation (ia) below section 36(1)(viia) of the Act, rendering the findings of Ld. CIT(A) erroneous and misleading." 2
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. 1.2 "The Ld. CIT (A) failed in appreciating the facts that assessee claimed further amount of Rs. 1,66,39,443/- as deduction on account of Statutory bad debt reserve provision made @15% of net profit. However, assessee did not made any such type of provisions in its books of accounts during year under consideration. Assessee made provisions of Rs. 5,00,00,000/- only in its books of accounts and assessee claimed deduction of this amount u/s 36(1)(viia) of the Act. 2. The appellant craves leaves to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal. It is prayed that the order of the CIT(A) on the above issues be set-side and that of the Assessing Officer be restored. 2. At the outset of hearing, the learned Authorised Representative (ld. AR) of the assessee submits that the grounds of appeal raised by the revenue, which are basically relates to deduction under section 36(1)(viia) in all the appeals, is covered in favour of assessee and against the revenue in assessee’s own case for A.Y. 2009-10, 2010-11, 2011-12, 2012-13 and 2014-15 in ITA No. 1529 & 1542/Ahd/2016, 1530 & 1543/Ahd/2016, 1531 & 1544/Ahd/2016, and ITA No. 362 & 641/Srt/2018 dated 23/06/2022. The ld. CIT(A)/NFAC has granted relief to the assessee by following the order of Tribunal. The ld. AR of the assessee also placed on record the copy of decision of Tribunal in assessee’s own case for various years as recorded above dated 23/06/2022. 3. On the other hand, the learned Commissioner of Income Tax- Departmental Representative (ld. CIT-DR) and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue submits that
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. making of provision for bad and doubtful debts equal to the amount mentioned in the section 36(1) (viia) is must for claiming such deduction. There is no finding of ld CIT(A) that the assessee has made provisions in its books of accounts. As per the definition of rural branch in explanation (ia) to Section 36(1) of the Act covers only branch of a scheduled bank situated at a specified place. Such fact is not examined by the assessing officer. The Assessing Officer rightly restricted only 7.5% of total gross income. Though, the assessee contended that they are non-scheduled bank and therefore 10% of advances of rural bank would be eligible for deduction. The ld. CIT-DR and ld. Sr.DR for the revenue submit that the language of Section 36(1) clearly prescribed that any provision for bad and doubtful debts made by a scheduled bank not being a bank incorporated by or under the law of a country outside India or a non- scheduled bank or a cooperative bank other than a primary agriculture credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and half per cent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. Thus, the assessee cannot claim 10% of rural branch as a provision for every year. The ld. CIT-DR submits that the 4
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. Pune Bench of the Tribunal in Mahalaxmi Co-Op Bank Ltd. Vs ITO in ITA No. 1658/PN/2011 dated 29/10/2013 held that if the assessee has not made actual provision in its books of account, thus the assessee was held not eligible for such deduction. The Pune Bench relied on the decision of Hon’ble Punjab & Haryana High Court in State Bank of Patiala Vs CIT 272 ITR 54/143 Taxman 196 (P&H), wherein it was held that making of provision for bad and doubtful debts equal to the amount mentioned in the section 36(1) (viia) is must for claiming such deduction. The ld. CIT- DR submits that unless the assessee made only provision in its books of account, the assessee is not eligible for such deduction and the decision of earlier years may not be followed and the matter was restored back to the file of Assessing Officer to examine the issue afresh. 4. In rejoinder submissions, the ld AR for the assessee submits that the ld. CIT-DR and the ld. CIT-DR & Sr. DR for the revenue have raised such contention which was never the case of assessing officer. It is settled positon under the law that the ld. CIT-DR/Sr. DR while representing the case before the Tribunal cannot improve or made submission beyond the findings of lower authorities. The grounds of appeal raised by the revenue is in fact covered by the decision of Tribunal in earlier years. The Tribunal while deciding the earlier years in para 35 of decision on similar objection of Assessing Officer has held that merely nomenclature or treatment in 5
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. the books of account is not decisive or conclusive for a particular deduction otherwise allowable under the law. Though, such objection in the present case was not raised by the Assessing Officer, however, similar objection has already been dealt with by the Tribunal while deciding the appeal for earlier years. 5. We have considered the submissions of both the parties and have gone through the orders of the lower authorities carefully. We find that the assessee claimed deduction of Rs. 6,66,39,443/- under section 36(1)(viia). On show cause notice for justification of such claim, the assessee filed its reply dated 28.12.2015, contents of which is extracted by assessing officer in para-4 of his order. To support their claim, the assessee relied on CBDT Circular No. 10 of 2008, decision of Cochin Tribunal in Kannur District Cooperative Bank Limited (2012) 136 ITD 102 dated 23.03.2012 and Kerala High Court in Kannur district Co-operative Bank Limited Vs CIT (2014) 365 ITR 343 (Kerala). The explanations and submissions of the assessee was not accepted by the assessing officer by taking view that the case law relied by the assessee is not of the jurisdictional High Court. The assessing officer also held that for the purpose of this section, the legislature has placed co-operative bank as a different category bank than schedule bank. The assessing officer held that the assessee made a provision of bad and doubtful debt of Rs. 5.00 6
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. Crore and in the computation of income the assessee further claimed and amount of Rs. 1.66 Crore on account of Statutory bad debts reserve provision made @ 15% of net profit. In the profit and loss account year no such provision of statutory bad debts reserve provision is made. The assessing officer concluded that allowable deduction under this section is calculated on the basis of provision for bad and doubtful debts in the profit & loss account, which is Rs. 5.00 Crore. However, the assessing officer allowed deduction of Rs. 1.75 Crore being 7.5% of Gross total income before claiming deduction under section 36(1)(viia), against total claim of Rs. 6.66 Crore, thereby disallowed deduction of Rs. 4.90 Crore. 6. Aggrieved by the action of disallowance of major claim of section 36(1)(viia) the assessee filed appeal before ld CIT(A). Before, ld CIT(A), the assessee raised ground of appeal raising the plea that the assessing officer not allowed additional deduction of 10% on advances made by rural branches of assessee-bank as prescribed under section 36(1)(viia) by holding that the assessee is a co-operative bank and the definition of non-schedule bank does not include co-operative bank for the purpose of deduction of 10%. The assessee also raised ground of appeal that the assessing officer erred in not considering an amount of Rs.1.66 Crore for deduction under section 36(1)(viia) being bad and doubtful debts appropriated from the profit & loss account as per the guidelines of 7
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. Reserve Bank of India (RBI) towards statutory bad and doubtful debts reserve i.e. 15% of profit on the ground that no such provision is made in the profit & loss account. 7. We find that before ld CIT(A) the assessee specifically stated that the have filed appeal against the order of assessing officer on two grounds. The issue raised in first ground, which relate to rural branches is covered by the decision of Tribunal in appeal for AY 2009-10, 2010-11, 2012-13 and 2014-15. However, such issue is not raised in AY 2018-19. For second ground the assessee that amount of Rs. 1.66 Crore is actually an appropriation from the profit of the year itself, which is apparent from the financial statement, which is approved by the general body meeting of members. All cooperative bank all over India follows such practice of appropriation from the net profit which they get approved by the members, only after approval of accounts and director’s report, the return of income is filed. Thus, appropriation made by the assessee bank for bad and doubtful debts is nothing but providing for bad and doubtful debts from the profit and loss accounts. The assessee also relied on the decision of Rural Electrification Corporation Limited (2009) 312 ITR 122 (AAR) and Delhi Tribunal in Power Finance Corporation (2006) 10 SOT 190 (Delhi). The assessee also stated that no such disallowance was made in AY 2007- 08 and 2008-09 in the assessment order passed under section 143(3). On 8
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. the basis of afforesaid submission, the assessee claimed that they are eligible for deduction of 10% both as co-operative bank and also as non- schedule bank which include co-operative bank and thus covered by section 36(1)(viia) read with definition of rural branch given in Explanation thereto. We find that that ld CIT(A) after considering the submission of the assessee held that both the issue raised by the assessee is decided by Tribunal in favour of the assessee. The ld CIT(A) quoted the relevant part of decision of Tribunal in his order. On careful perusal of grounds of appeal and the assessment order, we find that the grounds of appeal raised by the revenue are covered by the decision of Tribunal in assessee’s own case for A.Y. 2009-10 to 2012-13 and 2014-15 (supra). We find that while considering the detail and exhaustive submissions of the parties, the combination of this Bench in appeal for A.Y. 2009-10 to 2012-13 and 2014-15 (supra) has passed the following order: ´’23. Ground No. 2 of the appeal relates to deleting the disallowance of deduction of Rs. 7.500 crores provision for bad and doubtful debts under Section 36(1)(viia) against the advances of rural branches. The ld. AR of the assessee submits that the assessing officer not allowed deduction section 36(1)(viia) to the assessee by taking view that the definition of rural branch in explanation (ia) does not cover cooperative banks. The legislature has placed cooperative bank as a different category than non-scheduled bank. Accordingly, deduction of provision for bad and doubtful debts with respect 9
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. to advance of rural branch is not allowable to the assessee-bank. The ld CIT(A) allowed relief to the assessee to the extent of Rs. 7.500 Crore by following the order of Tribunal in Kannur District Co-operative bank (supra) and held assessee is eligible for deduction of 10% of aggregate average advances also as advanced by its rural branch. The ld AR submits that assessee has claimed total deduction of Rs. 8.567crores which also includes deduction of Rs. 1.067 crore being 15% statutory transferred to bad debts reserve. The ld. CIT(A) was of the view that amount of Rs. 1.067 crore would not qualify for deduction in view of decision of Ahmedabad Tribunal in assessee’s own case for A.Y. 2008-09. Thus, granted partial relief to the assessee to the extent of Rs.7.500 crores and upheld the disallowance to the extent of Rs. 1.067 crore. The disallowance of Rs. 1.067 Crore is the subject matter of assessee’s appeal. The ld AR for the assessee further submits that it is settled law now that as per Explanation to section 36(1)(viia) also include ‘rural branch’ of co-operative bank, therefore, the benefits of 10% of aggregate of rural branches advance to be allowed to the assessee. 24. To support his submission, the ld. AR of the assessee relied on the decision of Kannur District Cooperative Bank Vs CIT 365 ITR 343 (Ker), Ernakulum District Co-operative Bank Vs CIT (2020) 423 ITR 308 (Ker). 25.On the other hand the ld CIT-DR for the revenue supported the order of the assessing officer. The ld CIT-DR for the revenue further submits that this issue is against the assessee by the decision of Indore Bench in Jhabua Dhar Kshatriya Gramin Bank in ITA No. 106 to 114/Ind/2017 dated 06/09/2018 which in turn relied on order in Narmada Malwa Gramin Bank Vs ACIT in MA No. 104/Ind/2012 arising out of ITA No. 162/Ind/2011 dated 16/04/2013. 26. We have considered the rival submissions of the parties and have gone through the orders of the authorities below carefully. The Assessing Officer disallowed the claim of deduction under Section 36(1)(viia) by taking a view that the definition of ‘rural branch’ in explanation (ia) does not cover co-
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. operative banks. The legislature has placed cooperative bank as a different category than non-scheduled bank. Accordingly, deduction of provision for bad and doubtful debts with respect to advance of rural branch is not allowable to the assessee-bank. As recorded above, before the ld. CIT(A), the assessee filed detailed written submission. We find that the ld. CIT(A) on appreciation of submission of assessee and considering the decision of Kannur District Co-operative Bank (supra) held that under Banking Regulation Act, 1949, “The banking company” also includes “Cooperative Bank” and further held that as per definition of “Non-scheduled Bank” given in the explanation under Section 37(1)(viia) a “banking company” as defined in Section (c) of Banking Regulation Act, which is not a scheduled bank is classified as Non-scheduled bank and it was held by Tribunal that consequently a cooperative bank would be classified as non-scheduled bank for the purpose of Section 36(1)(viia), thus, cooperative bank will get deduction of 10% only of rural branch advance which are defined under that Act. The decision of Tribunal was confirmed by the Hon’ble Kerala High Court in its decision dated 3rd April, 2014 reported viz (365 ITR 343 Ker). The Hon’ble High Court held that there is no necessity to find out generic meaning of either urban or rural for the simple reason that explanation under Section 36(1)(viia) is self-defines what could be considered as a rural branch for the purpose of this Section. As per the High Court decision, the cooperative banks also falls under the category of non-scheduled bank for the purpose of this Section and held that authorities below were justified in opining that the benefit of 10% of aggregate of average advances is applicable to cooperative bank also, provided rural branches have advanced such amounts and such rural branches means a branch as explained under explanation (ia) as held by the High Court in Lord Krishna Bank 339 ITR 606. The ld. CIT(A) by following the decision of Tribunal held that assessee is
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. eligible for deduction of 10% of aggregate average advances also as advanced by its rural branch. 27.Before us, the ld. AR of the assessee also vehemently submitted that it is a settled position in the law that explanation to Section 36(1)(viia) includes ‘rural branch’ of ‘cooperative banks’ as per the decision of Hon’ble Kerala High Court High. We find merit in the submission of ld. AR of the assessee. We find that Section 36(1)(viia) was amended vide Finance Act, 2007 and after amendment the benefit of deduction under Section 36(1)(viia) which was available to a scheduled and non-scheduled bank is sought to be extended to a co-operative banks other than primary agricultural credit society or a primary cooperative agriculture and rural development bank w.e.f. 01/04/2007. Further rest while deduction available to such eligible cooperative banks under Section 80P stood withdrawn by Finance Act, 2006 w.e.f. 01/04/2007. Thus, there was an amendment by way of Finance Act, 2007 to Section 36(1)(viia) w.e.f 01/04/2007 wherein cooperative bank other than primary agricultural credit society or a primary cooperative agriculture and rural development bank, were brought under the provision of Section 36(1)(viia) for claiming deduction in respect of provisions made for bad and doubtful debts. Thus, in view of aforesaid factual discussion and the legal view taken by the Kerela High Court in Kannur District Cooperative Bank (supra), we find that the order of ld. CIT(A) is based on proper appreciation of amended provision of Section 36(1)(viia) which we affirm. 28.So far as objection of ld. CIT-DR and his reliance on the decision of Indore Bench in Jhabua Dhar Khatriya Gramin bank (supra) is concerned, we find that the ratio of finding of Tribunal is not applicable on the facts of the present case. In the said case the Tribunal relied on the earlier case law in Narmada Malwa Gramin Bank Vs ACIT (ITA No. 162/Ind/2011 dated 16.04.2013), wherein the issue was restored to the file of assessing officer to re-computing the claim of deduction to the extent of amount written off in
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. the books of accounts. Thus, the finding in the said decision is not at all applicable on the facts of his case. In the result, the ground No. 2 of appeal raised by the Revenue is dismissed. 29.In the result, the appeal of the revenue is dismissed. 30.Now adverting to the sole ground of appeal raised by assessee against sustaining the disallowance to the extent of Rs. 1.067 crore under Section 36(1)(viia). The ld. AR of the assessee submits that assessee claimed deduction of statutory bad debts reserve created during the year at the rate of 15% of the net profit as per Gujarat State Cooperative Societies Act as provision for bad and doubtful debts. This creation of the reserve is by way of appropriation of net profit. The Assessing Officer disallowed and ld. CIT(A) confirmed. The ld. CIT(A) also held that the issues decided against the assessee by Ahmedabad Tribunal in A.Y. 2008-09, reported viz [36 taxmann.com 517 (Ahd.-Trib)]. The ld. AR of the assessee submits that transfer to statutory bad debts reserve appears in the annual report as a proposed appropriation subject to approval in general body meeting of the members and as such disclosure and treatment is as per norms and practice followed by all cooperative banks as governed by the State Cooperative Act. Thus, such provision being an actual appropriation of profit shall be allowed as deduction. The ld. AR for the assessee submits that nomenclature or treatment in the books of account is not decisive or conclusive for a particular deduction otherwise allowable under the law, especially when the amount is in fact reduced from profits, even though as appropriation in the books of account as held by the Hon’ble Supreme Court in Kedarnath Jute Manufacturing Company (1971) 82 ITR 363 (SC). The ld. AR for the assessee further submits that similar deduction was allowed by the Assessing Officer in assessment year 2008-09 after considering the merits and noting in the assessment order. The order was challenged before CIT(A) and further to Tribunal, no enhancement was made by ld CIT(A). The ld. AR submits perusal
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. of grounds of appeal in para 2 of the facts in the order of Tribunal for AY 2008-09, it can be clearly seen that the issue of appropriation of 15% to statutory debts reserve amounting to Rs. 34,77,495/- was not the issue in the appeal before the Tribunal, rather the issue was relating to other provisions amounting to Rs. 6.00 crores out of provision for bad and doubtful debts of Rs. 7.34 crores. Therefore, the deduction is disallowed/sustained by the ld. CIT(A) on factually wrong basis that the issue is covered against the assessee in A.Y. 2008-09. The ld. AR submits that the issue was not even enhanced by the ld. CIT(A) in his order. Thus, on the principle of consistency, this claim is to be allowed. Since the parties have allowed the position to be sustained by not challenging the order on that issue. To support his submission, the ld. AR relied on the decision of Hon’ble Supreme Court in Radhasoami Satsang Vs CIT (1992) 193 ITR 321 (SC). 31.On the other hand, the ld. CIT-DR for the Revenue supported the order of ld. CIT(A). The ld CIT-DR for the revenue further submits that the assessing officer clearly held that no provision in the profit and loss account has been made by the assessee. 32. We have considered the rival submissions of both the parties and have gone through the orders of the authorities below. The Assessing Officer disallowed the claim of deduction under Section 36(1)(viia) by taking a view that the definition of rural branch in explanation (ia) does not cover cooperative banks. It was recorded by assessing officer while disallowing such claim that the legislature has placed cooperative bank as a different category than non-scheduled bank. Accordingly, deduction of provision for bad and doubtful debts with respect to advance of rural branch is not allowable to the assessee-bank. As recorded in the facts of revenue’s appeal the assessing officer disallowed the whole of claim of deduction of section 36(1)(viia). However, on appeal the ld CIT(A) allowed part relief to the
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. assessee to the extent of Rs. 7.500 Crore, and remaining of Rs. 1.067 Crore was upheld by ld CIT(A) by taking view that no such deduction is claimed in the Profit and loss account but it is claimed in the computation of income and further similar issue was decided against the assessee in earlier assessment year i.e. 2008-09. 33. Before us, the ld AR for the assessee made two fold submissions, firstly, the assessee claimed deduction of statutory bad debts reserve created during the year at the rate of 15% of the net profit as per Gujarat State o-operative Act as provision for bad and doubtful debts and this creation of the reserve is by way of appropriation of net profit. Secondly, the ld. CIT(A) also held that the issues decided against the assessee by Ahmedabad Tribunal in A.Y. 2008-09, which is factually wrong as per the contention of ld AR for the assessee. We shall take second contention first. For appreciation second contention of ld AR of the assessee, we perused the copy of assessment order dated 31.12.2010 passed under section 143(3), order of ld CIT(A) and order or Tribunal for AY 2008- 09, and find that issue of appropriation of 15% of statutory debts was not the subject matter in appeal before Tribunal, rather it was allowed by the assessing officer while passing the assessment order itself, though, the assessment order was subject to appeal before ld CIT(A), and no enhancement was made on this issue. Further the assessment order is neither re-opened nor revised. Hence, we find merit in the submissions of the ld AR for the assessee. 34. Now adverting to the first contention of the ld AR for the assessee that the assessee claimed deduction of statutory bad debts reserve created during the year at the rate of 15% of the net profit as per Section 67A of Gujarat State Co-operative Act as provision for bad and doubtful debts and this creation of the reserve is by way of appropriation of net profit. And it is the contention of ld. AR of the assessee that transfer to statutory bad debts reserve were subject to approval in general body meeting of the members
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. and as such disclosure and treatment is as per norms and practice followed by all cooperative banks as governed by the State Cooperative Act. We find that merit in the submissions of the ld AR for the assessee and find that as per section 67A of Gujarat Cooperative Society Act, every society, working in the State of Gujarat, which earned profit from its transactions, shall maintain a bad debts reserve funds. As per sub-section (2) of section 67A, every year, the society shall carry at least 15% of the net profit to the debts reserve funds. All such funds shall be certified by the certified auditors and the expenses incurred in recovering the same shall first be written off as per section 67A(3). It is settled position under law that co-operative banks are primarily a co-operative society. We also noted that the financial statement of the assessee is not only subject to the statutory audit but also subject to the approval of the Registrar of Co-operative society. Thus, considering the aforesaid factual and in view of the statutory provision in the State Co- operative Act, the assessee is also allowed deduction of Rs. 1.067 Crore, which in line with the provisions of section 67A of Gujarat Co-operative Society Act. 35. So far as objection of assessing officer is that in the profit and loss accounts of the year no such provision is made by the assessee, is concerned, we find that Hon’ble Supreme Court in Kedar Nath Jute Manufacturing Company Vs CIT (supra) held that nomenclature or treatment in the books of accounts in not decisive or conclusive for a particular deduction otherwise allowable under the law. In the result, the ground of appeal raised by the assessee is allowed. 36. In the result, the appeal of the assessee is allowed.” 8. Considering the categorical findings of combination of this Bench, we find that the grounds of appeal raised by the Revenue is squarely covered by the decision of Tribunal in earlier years (supra).
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. 9. So far as reliance by ld CIT-DR & Sr DR for the revenue on the decision of Hon’ble Punjab & Haryana High Court in State Bank of Patiala Vs CIT (supra) and the decision of Pune Bench of Tribunal in Shri Mahalaxmi Co- op Bank Ltd. Vs ITO (supra) is concerned, we find in the said case the High Court held that making of provision equal to the amount claimed as deduction in the in the books of account is necessary for claiming deduction under section 36(1)(viia). 10. We further find that Hon’ble Supreme Court in Southern Technology Limited Vs JCIT (2010) 228 ITR 440 SC on analysis of section 36(1)(viia) held that 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)(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
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. branches, whichever is higher, shall be allowed as deduction in computing the taxable profits. 11. Further the Hon’ble Supreme Court in Catholic Syrian Bank Limited Vs CIT (2012) 18 taxmann.com 282/ 343 ITR 270-SC also held that 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 18
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. 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)." 12. We may retreat that while considering the similar issues in assessees own case for earlier year, which is followed by ld CIT(A) in the impugned order, we have followed the decision of Hon’ble Kerala High Court in Kannur District Co-operative Bank (2014) 365 ITR 343 (Kerala). It is settled position under the tax jurisprudence that where there is two divergent view of two different High Court on the same issue, the decision favourable to the assessee must be adopted. Similar principal was recognized by Hon'ble Supreme Court in the case of CIT Vs Vegetable Products Ltd. [88 ITR 192 (SC)]. Thus, in view of afforesaid factual and legal discussion, we affirm the order of ld CIT(A), with these additional observations. In the result, the grounds of appeal raised by the revenue is dismissed. 13. In the result, the appeal of the revenue is dismissed. 14. Now we take appeal in ITA No. 297 & 298/Srt/2022 for the A.Y. 2016-17 and 2017-18 wherein the revenue has raised similar grounds of appeal as raised in appeal in ITA No. 296/Srt/2022 for A.Y. 2013-14, except variation of amount of disallowance. Considering the fact that we have dismissed the appeal of revenue in ITA No. 296/Srt/2022 for A.Y. 2013-14 by 19
ITA No.296 to 298/Srt/2022 DCIT Vs Bharuch Dist. Cent. Co-Op Bank ltd. following the earlier order of this Tribunal in assessee’s own case, therefore, considering the principle of consistency, the appeal of ITA No. 297 & 298/Srt/2022 for the A.Y. 2016-17 and 2017-18 are also dismissed with similar findings. 15. In the result, all these appeals of the revenue are dismissed. Order pronounced in the open court on 09th January, 2023.
Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 09/01/2023 *Ranjan Copy to: 1. Assessee 2. Revenue 3. CIT(A) 4. CIT 5. DR 6. Guard File By order
Sr.Private Secretary, ITAT, Surat