TaxTMI 
TaxTMI 
TaxTMI 
2016 (4) TMI 572
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....e for the assessment year 2000-01 on 28.11.2000 admitting a total income of Rs. 29,54,09,020/-. The return was processed under section 143(1) of the Income Tax Act, 1961 ["Act" in short]. The regular scrutiny order under section 143(3) of the Act was passed on 28.03.2003 by assessing taxable income of the assessee at Rs. 51,87,90,020/-. Against the assessment order passed under section 143(3) of the Act, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A), vide its order dated 30.03.2005 remitted some of the issues for fresh consideration of the Assessing Officer in view of the specific details filed afresh by the assessee before him and same was directed the Assessing Officer to decide the matter in the light of the new facts. On further appeal before the ITAT, the Tribunal vide its order dated 13.10.2006 set aside one issue and restored to the file of the Assessing Officer for deciding the issue de novo. 3. Thereafter, the assessment order passed under section 143(3) of the Act dated 28.03.2003 was reopened by issue of notice under section 148 of the Act and served on the assessee on 30.03.2007. In response to 148 notice, the assessee requested to treat the re....
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....Assessing Officer and directed to verify the sanction letters, agreements with the above organizations to find out whether the assessee has incurred the liability during the accounting period in question or not and allow the same as per law. 9. Aggrieved, the assessee is in appeal before the Tribunal and the ld. Counsel for the assessee has submitted that the issue is covered by the order of the Tribunal in I.T.A. No. 1401/Mds/2012 order dated 22.03.2013 in assessee's own case and prayed that the Tribunal order may be followed for the assessment years under appeal. 10. On the other hand, the ld. DR fairly conceded that the issue is covered in favour of the assessee by the order of the Tribunal in assessee's own case. However, he relied on the order passed by the authorities below. 11. We have heard both sides and find that the Tribunal, in its common order in assessee's own case for the assessment years 2004- 05, 2007-08 & 2008-09 in I.T.A. Nos. 1401, 1402 and 1403/Mds/2012 dated 22.03.2013, considered similar issues and decided as under: 17. Grounds No. 7 and 8 relate to addition made by the Assessing officer and confirmed by the CIT(A) qua interest paid by the ass....
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....ing the addition made by the Assessing Officer at Rs. 8,08,418." 20. Before us, the assessee argues that since it is following mercantile system of accounting, it is entitled for the deduction in hand as the liability to pay the interest had accrued and certain in the previous year relevant to the impugned assessment year. In the alternative, it also raises a contention that it would have no objection even if the amount is allowed for deduction in the year of actual payment. In reply, the revenue also acts very fairly before us and does not object to assessee's latter contention. 21. We have heard both parties and gone through the relevant contents of assessment order and that of the CIT(A). The fair submissions of both parties have also been considered. In our view, since the assessee itself prays that the amount in question be made allowable in the year of actual payment which is not opposed by the Revenue, we hold that the payment of interest payable to SIDBI and NABARD on 1st May would be allowed to be deducted in the year of actual payment. Accordingly, the ground stands partly accepted with this modification to the extent above said." 12. In view of the above finding....
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....d the orders of authorities below. 17. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The assessee has given its assets under lease for a period of six years and at the end of six years, the ownership of assets will be passed to the lessee. The actual life of the assets is approximately 10 years. The assessee has recovered the entire cost of leased asset along with interest in 6 years. The Assessing Officer has observed that the assessee has amortised the total depreciation available for the asset during its life time [10 years] over a period of six years itself under the head lease equalization charges and held that none of the provisions of sections 32 to 43C of the Act provides for any deduction of lease equalization charges and accordingly disallowed a sum of Rs. 20,40,000/-. The ld. CIT(A) confirmed the disallowance made by the Assessing Officer. However, we are of the opinion that while allowing the deduction of account of lease equalization charges for the purpose of computing total income under the Income Tax Act, the difference between the annual lease charges of the leased assets and depreciation allowed under ....
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....Act and if such depreciation claimed is more or less than the corresponding annual lease charge representing recovery of investment in the leased asset over the lease term, the difference is adjusted in the form of lease equalization based on the rationale of matching cost with the revenue so that the resultant income from the leasing is true and fair. The concept of lease equalization thus is basically an accounting concept and the same is followed for the purpose of revenue recognition of leasing income as per the guidance note issued by ICAI. It is no doubt true that the concept of lease equalization can also be followed for the purpose of computing the total income under the Income Tax Act as held in the various judicial pronouncements cited by the ld. counsel for the assessee. However the same, in our opinion, has to be done with proper care and caution otherwise it may result in absurdity and give misleading result. In the cases like the one in hand, where the relevant transactions are treated as finance lease and the assessee is allowed depreciation after having found him the owner of the leased assets, the depreciation allowed as per the rates prescribed in the Income Tax A....
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.... in accordance with law. Accordingly, the ground raised by the assessee is allowed for statistical purpose for all the assessment years under appeal. 19. The first ground raised in the appeal of the assessee for the assessment year 1997-98 relates to disallowance of deposit mobilization expenses. The assessee has claimed disallowance of expenses incurred towards deposit mobilization expenses and annual general body meeting. The assessee was asked to explain as to how the expenditure is fully allowable. Vide its letter dated 26.12.2007, the assessee has submitted as under: "The bank is conducting deposits mobilization month every year at festival/harvest times to tap the additional flow of money by way of bonus/sale proceeds. During this period, in order to give more thrust for mobilization of deposits, the branches are permitted to incur expenses towards printing of pamphlets, decoration of branch with paper ribbons, balloons and festoons to give a festive look to the branch. The branches are allowed only an amount between Rs. 100/- and Rs. 200/- for this purpose depending upon the size of the branch, In order to monitor that these expenses are within the permitted level, the bra....
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....the claim is with regard to disallowance of 50% of deposit mobilisation expenses treating them as entertainment in nature. This issue has been come up before the Tribunal in the case of the assessee for the assessment year 1984-85 and the Tribunal vide its order of 11th November, 1991 had held that such deposit mobilisation expenses incurred by the Bank is in no way entertainment expenditure and the disallowance was deleted. Following the earlier order of the Tribunal, we allow the claim of the assessee in regard to this amount." 25. At the time of hearing, the ld. DR could not controvert the above findings of the Tribunal and fairly conceded that the issue is covered in favour of the assessee. Accordingly, respectfully following the above decision of the Tribunal in the assessment year 1991-92 in assessee's own case, we reverse the order of the ld. CIT(A) on this issue and direct the Assessing Officer to delete the addition. Accordingly, the ground raised by the assessee is allowed. No other ground has been raised in the appeal of the assessee for the assessment year 1997-98 except additional ground raised and the same is adjudicated herein above at para No.12 along with othe....
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....e of various particulars called for by the Assessing Officer, we find that the provision created is not a certain liability and it is only a contingent liability and rightly disallowed the claim of the assessee, which was confirmed by the ld. CIT(A). 30. Before us, the ld. Counsel for the assessee has relied on the decision in the case of DCIT v. Ernst and Young P. Ltd. (supra), wherein, the assessee made provision for leave encashment on the basis of actuarial valuation and sought deduction thereof. The Kolkata Benches of the Tribunal has set aside the matter for fresh adjudication. The provisions of section 43B(f) of the Act had been stuck down by the Hon'ble Calcutta High Court as being arbitrary and ultra vires, but the Hon'ble Supreme Court had ordered stay of the judgement of the Hon'ble High Court. Clause (f) to sec 43B provides that any sum payable by an employer in lieu of leave at the credit of his employee shall be allowed only on actual payment and not on mere provision. This clause was inserted by the Finance Act, 2001, w.e.f 01.04.2002, i.e., assessment year 2002-03. The above amendment is not retrospective and it is prospective. Therefore, the case law r....
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....in I.T.A. No. 1207/Mds/2014 and accordingly, the appeal filed by the assessee is dismissed. 33. The next issue raised in the appeal of the assessee for the assessment year 2002-03 in I.T.A. No.1208/Mds/2014 is with regard to the disallowance of expenditure incurred towards EPABX of Rs. 15,994/-. The assessee bank has incurred expenditure towards EPABX at Hyderabad Branch and claimed as revenue expenditure. However, the Assessing Officer considered it as capital in nature and allowed depreciation @ 20% and balance amount of Rs. 12,795/- was added back to the income of the assessee. On appeal, the ld. CIT(A) confirmed the order of the Assessing Officer. The ld. Counsel for the assessee has not argued anything as to how the expenditure incurred towards EPABX is not capital expenditure. In view of the above, we confirm the order of the ld. CIT(A) on this issue and dismiss the ground raised by the assessee. 34. The next issue raised in the appeal of the assessee for the assessment year 2004-05 in I.T.A. No.1209/Mds/2014 is with regard to the disallowance of amortization expenditure of Rs. 71,21,573/-. The Assessing Officer has noticed that the assessee has shown HTM category of securi....
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....t the end of the year, the same could be allowed as depreciation. Therefore, this ground of appeal of the Revenue is dismissed in all the years under consideration." 38. Respectfully following the above decision of the Coordinate Bench of the Tribunal, wherein, the decision of the Hon'ble Jurisdictional High Court has been followed, we decide the issue in favour of the assessee. Accordingly, the ground raised by the assessee is allowed. 39. As far as the issue relates to loss on sale of investment adjusted to opening depreciated value of securities is concerned [A.Y. 2004-05], the Assessing Officer has observed that the assessee bank was claiming deduction for diminution in value of securities at the end of the year. For this purpose, the assessee has worked out cumulative depreciated value of securities at the end of the year and reduced from the same, the cumulative depreciated value of securities at the end of earlier previous year. The Assessing Officer has observed that if the difference was positive, then as per case I above (para 4, page 8 of the order), the difference was claimed as depreciation for the year and if the difference between the two figures was negative, ....
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....t securities have already been held as stock-in-trade, any further subsequent sale by the bank to either third party and any loss on such transfer will also be treated only as a revenue expenditure and cannot be of a permanent nature treating the security as a capital expenditure. Since the main question has already been decided following the Hon'ble Supreme Court decision that such securities are stock-in-trade and loss of Government security transfer would only amount to revenue expenditure and the Tribunal was right in holding the same following the decision of this Court. Hence this question of law is also answered against the Revenue." 43. Respectfully following the above decision of the Hon'ble Jurisdictional High Court (supra), we delete the disallowance made by the Assessing Officer and allow the ground raised by the assessee. 44. The next issue is with regard to disallowance of brokerage paid on purchase of Government securities from the total income. The assessment order, the Assessing Officer has held that the HTM category of security is capital in nature. Therefore, any expenditure incurred for acquisition of capital asset would be treated as capital expenditu....
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.... when the very Government securities itself is treated to be stock-in-trade as per the decision of this Court. Whatever expenses incurred or interest paid therein on such shares was only revenue expenditure and not a capital expenditure in nature and the Tribunal by following the decision of this Court reported in (2005) 273 ITR 510 (Mad) (supra) and by following the Hon'ble Supreme Court decision reported in (1999) 156 CTR (SC) 380 : (1999) 240 ITR 355 (SC) (supra) has arrived at the conclusion that the interest paid will not be a capital expenditure and only a revenue expenditure. Hence, we hold that the Tribunal's finding is legal, valid and correct. Therefore, this question is also answered against the Revenue and in favour of the assessee following the above decisions of this Court and the Hon'ble Supreme Court." 46. Respectfully following the above decision of the Hon'ble Jurisdictional High Court (supra), we delete the disallowance made by the Assessing Officer and allow the ground raised by the assessee. 47. The next issue raised in the appeal of the assessee for the assessment year 2004-05 in I.T.A. No.1209/Mds/2014 relates to disallowance of deduction cl....
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....sessing Officer. 49. Before the Tribunal, the ld. Counsel for the assessee has submitted that since the Assessing Officer has held that the deduction was allowable to financial corporation and not to banks, the "Financial Corporation" includes 'public company' and the assessee being a public company with the meaning of section 3 of the Companies Act, the ld. Counsel for the assessee has contended that the assessee is eligible for claiming deduction under section 36(1)(viii) of the Act. 50. Both parties have been heard. For the purpose of claiming deduction under section 36(1)(viii) of the Act, it has to be seen whether the banking companies are included under "Public Company". If the term "Public Company" covered a "banking company", then the legislature need not have provided two separate expressions, once referring to a banking company and another to a public company. It is an undisputed fact that banking companies are specifically included in the definition w.e.f. 01.04.2008 by Finance Act, 2007. It is a fact that the legislature included banking company for the first time from 01.04.2008 clearly shows that prior to this enactment, the term public company did not inclu....
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....assessee and we find no infirmity in the order of the ld. CIT(A) confirming the addition made on this account. Thus, the ground raised by the assessee is dismissed. 54. The next issue raised in the appeal of the assessee for the assessment year 2004-05 in I.T.A. No.1209/Mds/2014 relates to confirmation of entertainment expenses. The assessee bank has incurred an amount of Rs. 18,53,257/- as entertainment expenditure and claimed the same for business purpose. The Assessing Officer has observed that the assessee has not produced vouchers for the above expenses and therefore, disallowed 5% of the expenditure claimed at Rs. 92,691/-. On appeal, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. Before us, the ld. Counsel for the assessee has submitted that the expenditure incurred by the assessee is wholly and exclusively for the purpose of business and are not personal expenses as observed by the Assessing Officer. He also submitted that the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench of the Tribunal in assessee's own case for earlier assessment year. 55. After hearing both sides, we find that on identical fac....
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..... No. 1621/Mds/2014 is with regard to validity of reopening of assessment not considered by the ld. CIT(A). The facts of the case are that the assessee has filed return of fringe benefit for the assessment year 2006-07 on 04.12.2006 offering a fringe benefit value of Rs. 1,11,24,143/-. The case of the assessee was processed under section 115WE(1) on 20.03.2008. The same was reopened by issue of notice under section 115WH of the Act dated 30.03.2011, which was served on the assessee on 04.04.2011. In response to the notice, the assessee vide their letter dated 26.04.2011 submitted a copy of the original return filed by them on 04.12.2006. Again a notice under section 115WE(2) of the Act was issued on 16.01.2012 and in response to that, the AR of the assessee appeared before the Assessing Officer on 25.01.2012 and submitted the details called for. After examination of the details furnished by the assessee and after duly considering the reply furnished by the bank on 28.02.2012 to the additions proposed by the Assessing Officer vide his letter dated 27.01.2012, the assessment under section 115WG r.w.s. 115WE(3) of the Act was completed on 29.02.2012 by assessing the value of fringe be....
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.... of the Act, if any, may be determined and assessed." 60. Before us, the ld. Counsel for the assessee has submitted that the provisions relating to the book profits are applicable only in case of companies preparing the balance-sheet in accordance with Schedule VI of the Companies Act, 1956. However, the assessee, being a Scheduled Bank, prepares the income return as per the Banking Regulations Act and not as per Companies Act. Therefore, it was submitted that the provisions relating to book profits are not applicable to the assessee bank. We find force in the arguments of the ld. Counsel for the assessee. On careful perusal of the order of the ld. CIT(A) reveals that the ld. CIT(A) has not adjudicated the additional ground raised before him. In view of the above facts, we direct the ld. CIT(A) to adjudicate the above additional ground, which was raised before him during the course of appellate proceedings and not considered and adjudicated by the ld. CIT(A) in his consolidated order dated 25.10.2013. Accordingly, the ground raised by the assessee is allowed for statistical purposes. Thus, the appeal filed by the assessee is allowed for statistical purposes. 61. The next ground r....
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....sessment of excess cash in the custody of the assessee which is kept in the suspense account under the head" other liabilities and provisions". On going through the Tribunal's order we notice that the assessee themselves conceded that the amount is excess cash with them retained for several years and there is no claimant for the same. We do not know why it is not income as the assessee themselves have no case that it is payable to anybody or it is a liability due from the assessee to any person. We do not find any question of law arising from the decision of the Tribunal on this issue wherein the finding recorded is that the amount does not represent liability and it is wrongly shown by the assessee as liability Even though the counsel for the appellant has relied on the decision of the Bombay High court in CIT v. Bank of Rajasthan Ltd. reported in [2010] 326 ITR 526 (Born) ; [2010] 40 DTR (Born) 173, what we notice is that unlike in this case cash found is not excess carried over for several years but is excess cash available in the immediate past year. So much so, when there is no possibility of anyone claiming any amount against this surplus in the suspense account maintaine....
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....d receipt to the extent of Rs. 3,00,000/- only. The Assessing Officer has observed that deduction on account of donation is allowed at 50% i.e., Rs. 1,50,000/- only. He also observed that since the deduction is required to be considered under Chapter VIA separately, the entire amount of Rs. 5,51,690/- is required to be added back and Rs. 1,50,000/- to be allowed as deduction. Since the assessee bank itself has added Rs. 3,00,000/- only in the computation memo, the Assessing Officer has added back the balance amount of Rs. 2,51,690/-. On appeal, the ld. CIT(A) confirmed the addition made by the Assessing Officer. Before us, the ld. Counsel for the assessee has submitted that the amount was actually paid for advertisement charges in the Souvenirs and treated it as donation and contended that the advertisement charges in souvenirs are deductible in view of the CBDT circular. If it is so, what prevented the assessee bank to claim the same under 'advertisement charges' rather than claiming it as 'donation'. The ld. Counsel for the assessee has not able to give any convincing reply to the specific query raised by the Bench. In view of the above, we find no infirmity in th....
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....terest under section 234C of the Act after assessing the income of the assessee. The ld. CIT(A) has held that charging of interest is mandatory and accordingly, he rejected the ground raised by the assessee. Before us, the ld. Counsel for the assessee has submitted that the Assessing Officer went in wrong to charge the interest under section 234C of the Act after assessing the income of the assessee instead of charging the interest on income returned. Accordingly we direct the Assessing Officer to rework the interest under section 234C of the Act on the income returned instead of charging the interest of assessed income. Thus, the ground raised by the assessee is allowed for statistical purposes. 72. With regard to charging of interest under section 234D of the Act is concerned, the Assessing Officer has levied interest under section 234D of the Act for the assessment years 2000-01, 2001-02 and 2002-03, in I.T.A. No.1620/Mds/2014, I.T.A. No. 1206/Mds/2014 and I.T.A. No.1208/Mds/2014. For the assessment year 2000-01, the original assessment was completed under section 143(3) of the Act on 28.03.2003. Thereafter, the assessment was reopened under section 147 of the Act and completed....
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....tical purposes. 74. With regard to charging of interest under section 220 of the Act for the assessment years 2001-02 and 2002-03 in I.T.A. Nos. 1206 & 1208/Mds/2014 and is concerned, the payment of TDS and advance tax in the above assessment years are clearly stated in para 69 of this order, whereby, the assessee is due for refund in the respective assessment years. We are of the considered opinion that that the adjustment made by the Revenue of the amount determined by it as interest by invoking section 220 of the Act from the refund that was due to the assessee at that time cannot be regarded as lawful. In the case of Vikrant Tyres [2001] 247 ITR 821 (SC), it was held by the Hon'ble Supreme Court that (page 826): "It is settled principle in law that the courts while construing revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other, meaning thereby that no tax or levy can be imposed on a subject by an Act for Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process courts must adhere to the words of the statute and the so called equit....
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....35/Mds/2014 [A.Y. 2000-01] is with regard to deletion of addition made by the Assessing Officer towards software expenses incurred by the assessee. In the de novo assessment, the Assessing Officer, by following the directions of the Tribunal, re-examined the issue of software expenses and concluded that there is an enduring benefit on the software acquired for the business and treated it as capital expenditure and sustained the disallowance made in the original order under section 143(3) of the act. During the course of appellate proceedings, the AR of the assessee argued that the software expenses are to be considered as revenue expenditure. It was also submitted that in view of the advanced technology, the software becomes obsolete within short intervals and the software purchased sere not customer made but one as can be used by anyone. The assessee has only a right to use. Further, it was submitted that for any reason if it is treated as capital expenditure, depreciation is applicable to computers and the same may be allowed. By following the decision in the case of CIT v. Southern Roadways Ltd. 304 ITR 84 (Mad), wherein, it was held that the expenditure incurred by the assessee....
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.... is concerned, in the grounds appeal, the Revenue has stated at ground No. 6 that "the CIT(A) erred in directing the AO to consider the issue based on case laws relied by the assessee as the power of CIT(A) setting aside the assessment and refer the case back to AO for making fresh assessment have been omitted by Finance Act 2001 w.e.f. 1.6.2001", wherein it is clearly mentioned that it is effective from 01.06.2001 relevant to the assessment year 2001-02 onwards. The present appeal in hand relates to the assessment year 2000-01 and the amendment made in the Finance Act, 2001 clearly indicates that it is not retrospective, but only prospective i.e., from 01.06.2001. Accordingly, the ground raised by the Revenue stands dismissed. 83. The next common ground raised in the appeal of the Revenue I.T.A. No.1364/Mds/2014 [A.Y.1997-98], I.T.A. No.1365/Mds/2014 [A.Y. 1998-99], I.T.A. No.246/Mds/2014 [A.Y. 2006-07], 247/Mds/2014 [A.Y.2007-08] & 248/Mds/2014 [A.Y. 2008-09] is with regard to deletion of addition made towards bad debts written off. The reason given by the Assessing Officer is that the amount claimed was in excess of the provisions made under section 36(1)(viia) of the Act. The ....
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....to advances made by their rural branches. The deduction is limited to a specified percentage of the aggregate average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962. Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(1)(vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks would continue to get the full benefit of the write off of the irrecoverable debt(s) under Section 36(1)(vii) in addition to the benefit of deduction for the provision made for bad and doubtful debt(s) under Section 36(1)(viia). A reading of the Circulars issued by CBDT indicates that normally a deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt(s). No deduction is allowable in respect of a mere provision for bad and doubtful debt(s). But in the case of rural advances, a deduction would be allowed even in respect of a mere provision without insisting on an actual write off. However, this may result in double allowance in the sense that i....
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....w of the above decision of the Hon'ble Supreme Court, we find no illegality in the order of the ld. CIT(A) and accordingly, the ground raised by the Revenue is dismissed for all the assessment years. 86. The next common ground raised in the appeal of the Revenue in I.T.A. Nos. 245, 246, 247 & 248/Mds/2014 [A.Y. 2004-05, 2006-07, 2007-08 & 2008-09] is with regard to allowability of deduction under section 36(i)(viia) of the Act. In the following assessment years, the Assessing Officer has made disallowance against the claim of deduction under section 36(i)(viia) of the Act. A.Y. Claimed in the return Allowed by the AO Disallowance made by the AO 2004-05 22,20,00,000/- 4,52,90,296/- 17,67,09,704/- 2006-07 8,22,82,529/- 5,64,78,408/- 2,58,04,121/- 2007-08 10,18,36,091/- 1,95,53,562/- 8,22,82,529/- 2008-09 17,59,91,049/- 7,43,64,614/- 10,16,26,435/- 87. The above disallowances is on account of deduction claimed every year on the outstanding balances of average advances made by the bank at the end of the accounting year, as per Rule 6ABA. Since the income is required to be computed separately for each year as each accounting year is a separate unit for assessme....
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..... Further it was stated that in the profit and loss account under provisions and contingencies, the provision for NPA to the tune of Rs. 22,20,00,000/- was made. After careful consideration of the furnished particulars, the issue was decided as under- In the assessment order in page no.18, in para no.2, the AO observed as under.- "The deduction mentioned in the first proviso viz, that for assets classified by RBI as doubtful assets or loss assets in accordance with the guidelines issued is to be availed of at the option of the assessee. The very word option indicates that the assessee has been allowed to choose either of the two deductions. In other words, if the assessee chooses for the option to claim a deduction in the proviso, it cannot claim a deduction as mentioned in clause 'a'. Based on the above, the assessee was asked to clarify whether it exercise option (a) i.e. whether it claims deduction on doubtful debts as classified by the RBI or (b) 7.5% of Gross Total Income and 10% of aggregate average rural advances. The assessee bank stated that it claims as per option (b). 3.1 The other issue involved relates to quantum of deduction available under main Provision....
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....subclause (i) deduction in respect of provision made for bad and doubtful debts (ii) deduction @ 10% on the cumulative outstanding balance at the end of the accounting year (average aggregate advances) of the loan given by the rural branches, year after year on the same amount advanced, without recourse to the figure of the amount actually advanced by the rural branches of the bank during the year, would result in allowing deduction which may be more than the amount advanced by the rural branches of the bank . This is absurd and of course not the intention of Legislature. 3.3. This can be explained with a simple example. For argument sake, say the rural branches of a Bank made advances during the financial year 1989- 90, say to the extent of Rs. 10 Crores and no advances were made by the rural branches, in the following 10 years. If the interpretation of the assessee as evident from claim of deduction u/s 36(1)(vii)(a) is accepted, the assessee would claim deduction, under the main provision of section 36(1)(viia)(a) on the aggregate outstanding rural advances which remain same throughout @ 10% as per sub-clause (a) of clause (viia) of sub-section(l) of Section 36 for every 10 ....
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....36(1)(viia) 4,52,90,296 3.6. The assessee is therefore entitled to a deduction of Rs. 4,52,90,296/- only and therefore the allowance is limited to the above extent and the excess claim of Rs. 17,67,09,704/- (22,20,00,000 - 4,52,90,296) is disallowed." 88. From the above, for the assessment year 2004-05, in the assessment order 29.12.2006, the Assessing Officer disallowed the entire claim of deduction under section 36(1)(viia) of the Act since the assessee did not provide details of provision created for bad and doubtful debts, proof of the population places where the rural branches are located, monthly average aggregate advances outstanding balances, etc. On appeal, the ld. CIT(A) deleted the addition made by the Assessing Officer based on the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT. On appeal before the Tribunal, the Tribunal vide its order dated 22.02.2013 remitted back the issue to the Assessing Officer to re-decide the issue in the light of observations made herein above and pass fresh order after affording adequate opportunity of hearing to the assessee. In the second round of litigation, after examining the details filed by....
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....the Hon'ble Supreme Court came to the conclusion that the legislative intention behind the introduction of section 36(1)(viia) was to encourage rural advances and to aid creation of the provision for bad debts in relation to such rural branches. Some of the salient findings of the Hon'ble Supreme Court are as follows: - A mere provision for bad and doubtful debts is not an allowable deduction in the computation of taxable profits. However, in the case of rural advances, in line with the policy to promote rural banking, a provision may be allowable u/s Sec.36(1)(viia), without insisting on an actual write- off. - Provisions of sections 36(1) (vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and they operate in their respective fields. - A scheduled bank may have both urban and rural branches. It may give advances from both branches with separate provision accounts for each. In the normal course of its business, an assessee bank is to maintain different accounts for the rural debts and for non-rural/urban debts. Maintenance of such separate accounts would not only be a matter of mere convenience but would be the requirement of accounting stan....
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....vances which are covered by clause (viia), there would be no double deduction. The proviso, in its terms, limits its application to the case of a bank to which clause (viia) applies. Indisputably clause (viia) applies only to rural advances." (emphasis supplied) (para 25&27). 93. Thus, it can be seen that in the case of provision made towards nonrural debts, no deduction can be allowed as there is no specific provision in the Income Tax Act to allow the same. This indicates that the provision made towards urban debt should be added back and allowed only when bad debts are really written off. The question of double deduction being allowed does not arise therein at all, because it is allowed only on actual write off. The Hon'ble Apex Court has also held that the proviso to section 36(1)(vii) apply only in respect of rural debts. In view of the above decision and in view of the option exercised by the assessee that it can claims deduction on doubtful debts as per option (b) i.e. 7.5% of Gross Total Income and 10% of aggregate average rural advances, the Assessing Officer has rightly worked out the allowable deduction, which is less than that of the provision made by the assessee ....