TaxTMI 
TaxTMI 
2016 (4) TMI 753
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....on of 'obiter dicta' in the Apex court decision in Catholic Syrian Bank (343 lTR 270), and restricting claim u/s 36( 1)(viia)only for provision for rural debts and consequently disallowing claim for deduction of provision made of in accordance with the provision of sec 36( I )(viia). 3.The Commissioner of lncome tax erred in restricting the deduction of provision made under section 36(l)(viia) to Rs. 38.07 Crores as against the claim of the assessee of _810.60 Crores. 4. The Commissioner of Income tax ought to have appreciated that provisions of section 36(l)(viia) are very clear permitting the deduction in respect of both 7.5% of gross total income as well as 10% of the aggregate advance of the rural branches and there is nothing in the said clause that deduction under that Section should be restricted only to provision for doubtful debts pertaining to rural advances. 5. The CBDT Circular No.464 dated 18.07.1986 and Circular No. 13 of 2014 dated issued in this connection, clearly spell out that deduction u/s.36(1)(viia) should be granted as sum of both amounts viz., 7.5% of gross total income and 10% of the advances on rural branches. As there is no amendment to sect....
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....mmissioner of Income tax ought to have appreciated that very issue of deduction under Section 36(1)(viia) for the current assessment year was subject matter of appeal before the CIT(A), who had decided the quantum of deduction under that section. Under the circumstances, the order of the Assessing officer on this issue merged with that of the First Appellate Authority, and the CIT erred in assuming jurisdiction for revision the same issue. 12.The CIT failed to appreciate IT A T (Bang) in DCIT v ING Vysya Bank Ltd (2014) 149 ITD 61 I (Bang) held that observation of Apex Court in Catholic Syrian Bank case, would not lead to disallowance of claim of deduction under section 36(1)(viia) in respect of non rural debt, and permitted such deduction. When there are two views in regard to a particular issue revision under sec 263 will not lie. 13.Without prejudice to above, the appellant had demonstrated that the impugned revisionary order is not prejudicial to interest of revenue. The provision made if held as not allowable u/s 36(1 )(viia) is allowable u/s 36(1 )(vii) in view of the decision of the Apex Court in Vijaya Bank's case. In such a circumstance the net deduction allowable ....
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....e Tax Rules alongwith name and address of rural branch and population census and worked out eligible deduction B763,57,40,400/- being 10% on rural advances. While calculating, the scheduled bank has to follow the procedure as per Rule 6ABA. ''6ABA. For the purposes of clause (viia) of sub-section (1) of section 36, the aggregate average advances made by the rural branches of a scheduled bank shall be computed in the following manner, namely :- (a) t the amounts of advances made by each rural as outstanding at the end of the last day of each comprise comprised in the previous year shall be separated separately ; (b) the sum so arrived at in the case of each such branch shall be divided by the number of months for which the outstanding advances have been taken into account for the purposes of clause (a) ; (c) the aggregate of the sums so arrived at in respect of each of the rural branches shall be the aggregate average advances made by the rural branches of the scheduled bank. Explanation : In this rule, "rural branch" and "scheduled bank" shall have the meanings assigned to them in the Explanation to clause (viia) of sub-section (1) of section 3650.]'' and also calculatio....
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....ion for bad and doubtful debts for which deduction u/s.36(1)(viia) was claimed. The assessee bank has filed an appeal with Commissioner of Income Tax (Appeals) upheld the view of Assessing Officer in respect of re-classification of rural branches and also exclusion of standard advances from bad and doubtful debts and the deduction u/s.36(1)(viia) was reworked to B756,52,13,950/- after giving effect to the directions of Commissioner of Income Tax (Appeals). Against that order, the Assessee and Department are in Cross-appeals before the Tribunal. The ld. Commissioner of Income Tax found the order passed by the Assessing Officer is prejudicial to the interest of Revenue. The ld. Assessing Officer has not considered the calculation u/s.36 (1)(viia) and 36(1)(vii) of the Act in the Apex Court decision of Catholic Syrian Bank vs. CIT 343 ITR 270. The Commissioner of Income Tax verified the circular issued by board in relation to Section 36(1)(viia) and 36(1)(vii) and statement of objects and reasons to the Finance Act, 1986, and also legislative intention behind introduction of Sec.36(1)(viia) to encourage rural advances and to creation of provision for bad debts and further the High Cou....
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....t being 7.5% of total income and 10% of aggregate average rural advances which is excessive as against the eligible deduction of B38.07 crores being provision for rural bad and doubtful debts and the deduction cannot be granted in excess of provisions made in the books and relied on the decision of Punjab & Haryana High Court in the case of State Bank of Patiala vs. CIT 272 ITR 54 where it was held that making provision for bad and doubtful equal to the amounted in Sec.36(1)(viia), the condition precedent for allowing deduction. Though the Assessing Officer failed to examine the issue on the principles of Apex Court decision of Catholic Syrian Bank (supra) and allowed deduction 36(1)(vii) claimed without examining the same and considered it as order erroneous and prejudicial to the interest of the Revenue. In response to show cause notice, the assessee filed reply dated 05.01.2015 objecting to the proposed provisions and key objections are ''Apex Court's decision in Catholic Syrian Bank is no longer applicable in view of the clarificatory amendment to the relevant section Decision of the Apex Court is on deduction u/s 36(l)(vii) and not on 36(1)(viia) The action of the AO ....
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....VS. Canara Bank of Karnataka decided on 13.10.2014 in ITA No.1011 of 2013 thus issue was rendered on the principle and ratio relating to Bad Debts decided in Catholic Syrian Bank. The issue in dispute in assessee's own case in the assessment years 1999-2000 to 20002-03 and assessment years 2006-07 and 2007-08, the Tribunal has remitted the file back to the Assessing Officer to decide the issue of bad debts afresh after taking into consideration the decision of Catholic Syrian Bank and TRF Ltd and the contentions of the assessee that the decision of Catholic Syrian Bank does not apply to earlier years. Similar ratio of the decision is followed in HDFC Bank, Federal Bank were no rural branches and no claim of deduction u/s.36(1)(viia) of the Act. On the first issue of objection that the amendment does not apply to earlier years and applicable from 01.04.2013 cannot be accepted and the next ground of dispute whether decision of Supreme Court in Catholic Syrian Bank (supra) is applicable in respect of deduction/s.36(1)(vii) and not in respect of the deduction u/s.36(1)(viia) of the Act. On this issue of question of law, the Apex Court at para 40 of order of Catholic Syrian Bank observe....
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....pra) as the entries passed in the books and the presentation of the balance sheet. According to the assessee provisions made should be construed as write off and allowed u/s.36(1)(vii) though disallowed u/s.36(1)(viia) of the Act and the Commissioner of Income Tax has examined the materials and also case laws considered in while passing the Vijaya Bank decision. The ld. Commissioner of Income Tax has analyzed the Vijaya Bank case and applied the ratio on consideration of the NPA referred in the Annual Report as per the decision of Catholic Syrian Bank when the rural bad debts is written off, the same has to be first debited to the provision account made for rural advances. The bad debts written off during the year would be adjusted against the opening balance in the previous account and balance deduction u/s.36(1)(vii) is limited to the amount of provision already allowed under clause (viia). The Assessing Officer has not done his exercise and considering submissions referred at 13.2 para as under:- Provision made for bad and doubtful advances Bad debts written off during the year Rural 38.07 Rural 6.71 Non rural 948.32 Non rural 382.16 Total 886.39 Tot....
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....s and the Department has accepted and passed the order. On the decision of the allowability of Sec.36(1)(viia) we relied on the Co-ordinate decision of Lakshmi Vilas Bank in ITA Nos.1205 to 1209/Mds/2014 dated 29.01.2016, where it has been held in detail at para 90 to 93 in page no. 60 to 63 90. After examining the various Circulars issued by the Board in relation to section 36(1)(viia) and 36(1)(vii) and also the Statement of Objects and Reasons to the Finance Act 1986, 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....
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.... Thus, the judgement is a comprehensive one which has considered the ratios laid down by various courts, the implications of Board's circulars and accounting standards. 92. The Hon'ble Supreme Court has held in the case of Catholic Syrian Bank that "Mere provision for bad and doubtful debts may not be allowable, but in the case of a rural advance, the same, in terms of section 36(1)(viia) may be allowable without insisting on an actual write off .......in case of rural advances 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 non-rural 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 a....