2012 (3) TMI 619

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....isdictional bench and not binding. 1.3The disallowance of the claim u/s 36(1)(viia)(a) is bad in law and may please be deleted. 2. The ld. CIT(A) has erred in maintaining the addition of Rs. 3,46,755/- on account of disallowance of expenditure on which TDS was not paid. 2.1 It was prayed before the ld. Assessing Officer and ld. CIT(A) that the payments have been made before the due date of filing of return of income and as such was allowable in view of the amended provisions of Section 40(a)(ia). 2.2 The additions of Rs. 3,46,755/- on account of disallowance of expenditure is bad in law and may please be deleted. 3. The ld. CIT(A) has erred in maintaining the addition of Rs. 20,890/- on account of disallowance u/s 14A of the Act. The disallowance is illegal and may please be deleted. 3. Following grounds have been taken by the Revenue :- On the facts and in the circumstances of the case, the ld. CIT(A) erred in :- 1. Ld. CIT(A) has erred in considering the date for amalgamation of the four RRB's into a single RRB (NMGB) on 3.4.2006 while the Central Government provided for amalgamation of the said regional rural bank....

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....cond schedule consequent to the Government's notification dated 03.04.2006 for the amalgamation of the four erstwhile constituent RRBs." 6. We have considered the rival submissions and found from record that the Assessing Officer has wrongly denied the claim of deduction by not accepting the status of assessee as Scheduled Bank. It has been submitted before the learned AO that all the four erstwhile RRBs i.e. Nimar Kshetriya Gramin Bank, Dewas-Shajapur Kshetriya Gramin Bank, Sehore- Rajgarh Kshetriya Gramin Bank and Indore- Ujjain Kshetriya Gramin Bank were enjoying the status of Schedule Bank before amalgamation. As per the Gazette notification No.F1(4) 2006-RRB of Government of India, dated 03.04.2006 the aforesaid erstwhile RRBs were amalgamated into. a single Regional Rural Bank i.e. Narmada Malwa Gramin Bank and the same status of Schedule Bank is continued for the amalgamated RRB from the date of such amalgamation. There is no dispute that all the four constituent RRBs were scheduled bank prior to amalgamation as per RBI's Act. Their names also figure in tab le B-12: Bank-wise list of Scheduled Commercial Banks (page 296 to 299) of the annual publication of Reserve Ban....

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....Act prior to their amalgamation. 10. By the impugned order, the ld. CIT(A) allowed assessee's claim after having following observations :-  " A careful reading of the section 36(1)(viia)(a) together with the explanation accordingly makes it clear that prior to A.Y. 2007-08, the co-operative banks were especially excluded for any deduction u/s.36(1)(viia)(a), because otherwise also they were eligible for deduction u/s.80P. From A.Y. 2007-08 and onwards, the cooperative banks were denied exemption u/s.80P, but nevertheless included for deduction u/s 36(1)(viia)(a). Further, in the manner Rural Branches have been defined, the co-operative banks having the status of scheduled banks became eligible for deduction in respect of. both the limbs [i.e, 7.5% of total income and 10% of the average advances). But the co-operative banks which do not have the status of scheduled banks could be eligible for deduction only in respect of the first limb i.e. 7.5% of the total income. 3.1.3 There is no dispute that assessee bank is a co-operative tank and by virtue of amendment of section 36(1)(viia)(a), whereby the co-operative bank have been made eligible for deduction, the....

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....redit balance in the provision for bad and doubtful debts account made u/s 36(1)(viia) can be claimed. The Special Bench of the Tribunal in DCIT vs. Catholic Syrian Bank 88 ITD 185 held that as s. 36(1)(viia) was confined to rural advances, a claim for bad debts of urban advances was not subject to the limitation of the Proviso to s. 36(1)(vii). However, the Full Bench of the Kerala High Court took a contrary view in CIT vs. South Indian Bank 233 CTR 214 (Ker) (FB) and held that a bank was entitled to claim deduction of bad debts u/s 36(1)(vii) only to extent it exceeded the provision allowed as deduction under s. 36(1) (viia). On appeal to the Supreme Court, HELD reversing the Full Bench of the High Court: Per Court: (i) The clear legislative intent of s. 36(1)(vii) & 36(1)(viia) together with the circulars issued by the CBDT demonstrate that the deduction on account of provision for bad and doubtful debts u/s 36(1)(viia) is distinct and independent of s. 36(1)(vii) relating to allowance of bad debts. The legislative intent was to encourage rural advances and the making of provisions for bad debts in relation to such rural branches. The functioning of such banks is such that....

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....d u/s 36(1)(viia)(a) . It was contended by the ld. Authorized Representative that the assessee has correctly claimed deduction u/s 36(1)(viia)(a) at Rs. 32.72 crores. As per the Assessing Officer, the assessee has not written irrecoverable debts for its account, therefore, the assessee is not eligible for such deduction. By the impugned order, the ld. CIT(A) confirmed the disallowance by observing that the assessee has not created provisions by writing off actual bad debts, therefore, the assessee is not entitled in view of amended provisions of Section 36(1)(viia)(a) would not be possible. 15. We have considered the rival submissions and found from record that the assessee has actually written off bad debts in its account, even though party-wise return for bad debts has not been made, yet the entry passed by the assessee was sufficient for claim of deduction in terms of provisions of Section 36(1)(viia). Even the Hon'ble Supreme Court in the case of Vijaya Bank, 323 ITR 166, observed as under :- "After insertion of Explanation to s. 36(1)(vii), assessee is required not only to debit the P&L a/c but simultaneously also reduce loans and advances or the debtors from t....