TaxTMI 
TaxTMI 
2021 (11) TMI 522
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.... (3) of the Income-tax Act,1961(hereinafter called " the Act") . Since, both the appeals involve common issues , these two appeals were heard together and are disposed of by this common order. We have heard both the parties through Video Conferencing mode through Virtual Court. 2. The grounds of appeals raised by assessee in ITA Nos. 135/Alld./2015 for ay: 2010-11in memo of appeal filed with Income-Tax Appellate Tribunal, Allahabad Bench , Allahabad(hereinafter called " the tribunal") , reads as under: "1. BECAUSE assessment order dated 23.03.2013, whereby income was determined at Rs. 2,79,13,220/- as against the 'returned income' of Rs. 1,07,16,847/- , was liable to be declared as void ab-initio for the reason that selection of case for "scrutiny assessment" and notice under section 143(2) issued (in pursuance of such selection) were not in accordance with the 'scheme' of the Act. 2. BECAUSE the "CIT(A)", in exercise of his coterminous power, while deciding the issue of 'variation' between the 'returned income' and 'assessed income' as represented by (a)Disallowance out of provision for 'bad debts' Under section 36(1)(viia) : Rs, 1,70,81,955 (b) disal....
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....ion' between the 'returned income' and 'assessed income' as represented by disallowance out of provision for 'bad debts' under section 36(1)(viia) to extent of Rs, 1,65,02,332 was, inter-alia obliged under the law to look into the validity of the assessment order dated 06.02.2014 itself, as the same had a vital bearing on the decision in the appeal. WITHOUT PREJUDICE TO THE AFORESAID 3.BECAUSE the authorities below have erred in law and on facts in disallowing/ upholding the disallowance of a part of the provision for bad debts, as had been claimed under section 36(1)(viia) of the Act, to the extent of Rs. 1,65,02,332. 4. BECAUSE the "appellant" had been carrying on 'banking business' since its very inception as a 'Cooperative Bank and even if its name did not appear in the list of scheduled banks appended to the RBI Act 1934, the claim of the "appellant" was liable to be allowed in its entirely, looking to the insertion of terms "non-scheduled bank"/ "cooperative bank" in section 36(1)(viia) by the Finance Act 2007 w.e.f. 1.4.2007. 5. BECAUSE as per express provision contained in the statute, entire claim was liable to be allowed and view to the contr....
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.... were for office furniture , which were purchased after September, 2009 . The AO allowed depreciation 5% (50% of the normal depreciation on Furniture @10% allowable under the provisions of 1961 Act) on these bill and the excess depreciation claimed of Rs. 85,943/- was disallowed by the AO. It was further observed by the AO that the assessee has claimed depreciation on Computers purchased of Rs. 99,18,777/- , while the assessee could produce bills of Rs. 98,71,322/- , which led AOto disallow depreciation @ 60% ( rate of depreciation allowable under the 1961 Act) on the differential amount, leading to disallowance of Rs. 28,473/-, and thus the total additions to the tune of Rs. 1,14,416/- stoodadded to the income of the assesseeby the AO, vide assessment order dated 23.03.2013 passed by the AO u/s 143(3) of the 1961 Act. 4. Aggrieved by an assessment order dated 23.03.2013 framed by AO u/s 143(3) of the 1961 Act, the assessee filed first appeal with ld. CIT (A). The assessee claimed before ld. CIT (A) that theassessee is entitled for deduction under Section 36(1)(viia) of the 1961 Act, being deduction @ 7 ½ % of the total income and also further deduction of 10% of the aggr....
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....heduled bank or a non-scheduled bank will be discussed later. Presuming, a co-operative banks falls under the category of scheduled bank or non-scheduled bank, it has to satisfy that the deduction is claimed in respect of advances made by the rural branches. As stated above, no such details of rural branches and advances made by them have been furnished, one of the conditions to claim the deduction is not met by the appellant. In this respect it is worthwhile to mention instruction no. 10 of 2008, dated 31st July, 2008 issued by the CBDT to deal with Section 36(1)(viia). In para 3 of the said instruction it has been clearly stated the Board has been made aware of irregularities through C&AG that the deduction u/s 36(1)(viia) is being allowed by the AO's without verification as to whether the concerned branches come within a definition of 'rural branch'.In several cases, this has resulted in large under assessment of income. The A.Os. have, therefore, been directed to ensure that the claims of deduction towards advances given by rural branches of banks are allowed only after verifying (at least by way of test check) as to whether such branches are eligible to be treated as a rural b....
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....ept of scheduled bank has been enlarged under I.T. Act. The A.O. has also referred to portion of the memorandum to the Finance Bill, 2007 to clarify the concept of deduction wherein it is mentioned that 'the definition of scheduled bank in clause (ii) of explanation to said clause (viia) is also proposed to be amended to include scheduled co-operative banks within the definition. The AO wants to assert that after the amendment, the definition of scheduled bank will include scheduled co-operative banks. In the written argument the A.R. for the appellant has objected to the legality of the assessment order alleging that the transfer of the case from the ACIT, Range-, Mirzapur to the JCIT, Range-3, Mirzapur was not as per the provisions of the Act. It is argued that such transfer was made on the back of the Appellant without giving any opportunity. There was no reasonfor the transfer of the case and at least no such reason has been given to the appellant. I do not find this objection of the appellant sustainable in the eyes of law because the CIT has the powers over the cases under his jurisdiction to assign it to any office within his charge. There is no legal or ad....
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....fined to have the meaning assigned to it in clause (ii) of the Explanation (viia) of sub-section (1) of section 36 which does not include co-operative banks. However, the definition of "Scheduled bank" after the proposed amendment will include Scheduled cooperative banks. The referral definition of "Scheduled bank" presently occurring in the explanation to the aforesaid item (fa) to ensure that the scope of the exemption allowed under the aforesaid item (fa) is not changed. The proposed amendment to the definition of "Scheduled bank" as it appears in sec 36 will also have the effects of making the provision of sec43 D applicable to Scheduled co-operative banks." By citing the above circular the appellant has argued that the intent of the legislature is to bring the taxability of co-operative banks at par with the other commercial bank. The legislation has restricted the benefit of exemption or deduction to the scheduled bank wherever it intended to do so. For this purpose, the ld A.R. has referred to the provision u/s 10(15)(fa) and Section 43D of the Act. The Ld. AR wants to state that the co-operative banks have not been excluded from the benefit under reference as no su....
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....Ys earlier to the A.Y. 2007-08 and Section 36(1)(viia) has undergone amendment. As a matter of fact, the rational to distinguish non-scheduled bank and co-operative bank rendered in the case of Mansarovar Urban Co-operative Bank Ltd. vs. DCIT by the ITAT Lucknow Bench is very much relevant as it raises the question of significance to include the term 'cooperative bank' where term 'non-scheduled bank' already exists. The intent of legislature is amply clear by the perusal of Rule 6ABA of I.T. Rules to provide the method of computation of aggregate average advances for the purposes of clause (viia) of sub-section (1) of Section 36. The rule is as under- "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 namely;- (a).--- (b)- (c)-- Explanation: in this rule, "rural branch" and "scheduled bank" shall have the meaning assigned to them in the Explanation to clause (viia) of sub section (1) of section 36." In the light of above rules, which do not include non-scheduled bank nothing say of a co-operative ban....
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....ral Branches of the bank. It is submitted by Ld. Counsel for the assessee that the assessee is a Co-operative Bank and the word Co-operative Bank under Section 36(1)(viia) was added by Finance Act, 2007 , wherein Rural Branches of the Co-operative Banks were also covered for grant of further deduction @ 10% of the aggregate average advances by Rural Branches of Co-operative Bank. The ld. Counsel for the assessee drew our attention to Explanationto Section 36(1)(viia) of the 1961 Act, and submitted thatthe assessee is entitled for deduction computed @10% of aggregate average advances made by Rural branches. The ld. Counsel for the assessee drew our attention to the appellate order passed by ld. CIT(A) and submitted that the assessee is carrying on banking business since inception. Our attention was drawn to Page No. 60 of the paper book wherein, the banking license No. RPCD.LK-14 (DCCB)/2012 Dt. January 10th, 2012 issued by RBI, Regional Office, Lucknow is placed, which is reproduced hereinunder: Our attention was also drawn by ld. Counsel for the assesseeto Page No. 123 of paper book , wherein, RBI letter dated 13th Feb, 2013 is placed wherein with reference to Kanpur ZilaSehkar....
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....erate bank other than a primary agricultural credit society or a primary cooperative agricultural and rural bank is entitled to claim deduction or provision for bad debt of 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. The term 'rural bench' has been defined in Explanation (ia) to section 36(a)(viia) to be a branch of a scheduled or a non-scheduled bank situated in a place which has population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year. 3. It has, however, come to the notice of the Board through the report of the C&AG's office that, in many instances, claims made by banks for deduction under Section 36(1)(viia)of the Income-tax Act, 1961 are being allowed without verification as to whether the concerned branches come with the definition of 'rural branch'. In several cases, this has resulted in large underassessment of income. 4. The Assessing Officer should, therefore, ensure that the claims of deduction towards advances given by rural branches of ba....
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....2(Luck.), wherein the AO denied the deduction under the aforesaid second limb concerning deduction computed @10% of aggregate average advances made by Rural Branches . It was submitted by ld. DR that deduction computed on the basis of 10% of aggregate average advances made by Rural Branches cannot be allowed to the assessee as per provisions of Section 36(1)(viia) read with Explanations to said Section. The Ld. DR relied on the orders of the authorities below. It was submitted by ld. DR that the assessee has not even filed workings to quantify computing deduction claimed under Section 36(1)(viia) of the 1961 Act under the second limb, as no details of the aggregate average advances made by Rural Branches were furnished . Thus, it was submitted by ld. DR that if at all this claim is to be allowed by tribunal , then working of the quantification of the deduction allowable is to be seen by the AO and matter can be restored to the file of the AO for quantification of deduction and the assessee be directed to place complete records before the AO as to aggregate average advances made by Rural Branches. The Ld. DR further submitted that there is a difference between Provision for NPA and ....
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....ed @10% of aggregate average advances made by Rural Branches of the assessee, stood disallowed. The second effective issue concerns itself with disallowance of depreciation under the provisions of Section 32 of the 1961 Act, mainly on the grounds that the assessee could not produce the invoices for purchases purportedly made of the fixed assets during the year under consideration, and secondly the assessee claimed depreciation at full rates on the purchases made of fixed assets although the said fixed assets were purchased after 30th September of the previous year. The assessee did not press this issue concerning disallowance of depreciation before ld. CIT(A) as well before us. Since the assessee is not able to produce purchase invoices for fixed assets purported to have been purchased even before us, nor does it has any evidence as to the existence of the said fixed assets and its usage for business of the assessee, we donot find any merit in the claim of the assessee and hence this issue is decided against the assessee and the appellate order passed by ld. CIT(A) stood confirmed. We order accordingly. Further, Reference is drawn to provisions of Section 32 read with proviso , whe....
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....t of deduction u/s 36(1)(viia) of the 1961 Act. The said banking license issued by RBI is reproduced in the preceding para's of this order. Further, ld. CIT(A) also observed that the assessee has not even submitted details of aggregate average advances made by Rural Branches before AO as well before ld. CIT(A) and hence even if the deduction is to be allowed, quantification cannot be done in the absence of details furnished by the assessee of the aggregate average advances made by Rural Branches. With this background , we proceed further to adjudicate this appeal. Before proceeding further, it will be profitable at this stage to reproduce provisions of Section 36(1)(viia) of the 1961 Act as it stood at relevant time , which is reproduced as hereunder: "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] ....
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....e industrial investment corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) :] [Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, of an amount not exceeding ten per cent of the amount of such assets shown in the books of account of such institution or corporation, as the case may be, on the last day of the previous year.] Explanation.-For the purposes of this clause,- [(i) "non-scheduled bank" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank;] [(ia)] "rural branch" means a branch of a schedul....
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...."primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities." It will also be appropriate at this stage to reproduce Rule 6ABA of Income-tax Rules, 1962 as it stood at relevant time, which is reproduced hereunder: "[Computation of aggregate average advances for the purposes of clause (viia) of sub-section (1) of section 36. 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) the amounts of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the previous year shall be aggregated 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 ....
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....plicable to co-operative Banks: "(o) in section 22,-- (i) for sub-sections (1) and (2) the following sub-sections shall be substituted, namely:-- "(1) Save as hereinafter PROVIDED, no co-operative society shall carry on banking business in India unless- (a) [***] (b) it is a co-operative bank and holds a licence issued in that behalf by the Reserve Bank, subject to such conditions, if any, as the Reserve Bank may deem fit to impose: PROVIDED that nothing in this sub-section shall apply to a co-operative society, not being a primary credit society or a co-operative bank carrying on banking business at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965), for a period of one year from such commencement: [PROVIDED FURTHER that nothing in this subsection shall apply to a primary credit society carrying on banking business on or before the commencement of the Banking Laws (Amendment) Act, 2012, for a period of one year or for such further period not exceeding three years, as the Reserve Bank may, after recording the reasons in writing for so doing, extend.] [(2) Every co-operative societ....
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.... the said clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of a scheduled bank as specified or a non-scheduled bank in the computation of income of such banks. The proposed amendment seeks to extend the same deductions which are available to a scheduled bank and non-scheduled bank to a co-operative bank not being a primary agricultural credit society or a primary co-operative agricultural and rural development bank. This amendment will take effect retrospectively from 1st April, 2007 and will, accordingly, apply in relation to the assessment year 2007-2008 and subsequent years." It is also relevant at this point to refer to Memorandum to Finance Bill, 2007, the relevant portion is reproduced hereunder: "Deduction in respect of any provision for bad and doubtful debts to be allowed in the case of co-operative banks under section 36(1)(viia) Under the existing provisions of clause (viia) of sub-section (1) of section 36, deduction of an amount not exceeding seven and one-half per cent of the total income (computed before making any deduction under the said clause and Ch....
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....nsure that the scope of the exemption allowed under the aforesaid item (fa) is not changed. The proposed substitution of the definition of "scheduled bank" in the said item (fa) meets with this objective. The proposed amendment to the definition of "scheduled banks" as it appears in section 36 will also have the effect of making the provisions of section 43D applicable to scheduled co-operative banks. These amendments will take effect, retrospectively, from 1st April, 2007 and will, accordingly apply in relation to the assessment year 2007-08 and subsequent years. [Clauses 6 and 12]" The perusal of Notes to Clauses and Memorandum to Finance Act, 2007, clearly stipulate that the benefit of deduction u/s 36(1)(viia) which was available to a Scheduled and a Non-scheduled bank is sought to be extended to Co-operative Banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank , with effect from 01.04.2007, as the deduction erstwhile available to such eligible co-operative banks u/s 80P stood withdrawn by Finance Act, 2006 w.e.f. 01.04.2007. Thus, there was an amendment by Finance Act, 2007 to Sec....
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....Co-operative Banks shall also be entitled to claim deduction under second limb. As the use of the term 'such bank' in the second limb of Section 36(1)(viia)(a), will relate back to the banks as specified in the first limb which, inter-alia, will include eligible Co-operative Banks. In Explanation to Section 36(1)(viia) , it is provided that rural branches means a branch of a scheduled bank or a non-scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year. The inclusion of Co-operative Bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank were brought within the ambit of Section 36(1)(viia) by way of inserting in sub-clause (a) to clause (viia) to sub-section (1) to Section 36 by Finance Act, 2007 w.e.f. 01.04.2007, but there was no corresponding amendment in Explanation to Section 36(1)(viia), and Cooperative Banks are not included here for ascertaining the manner to identify Rural Branches of Co-operative Bank. Further, Section 36(1)(viia)(a) stipulates tha....
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.... . Thus, once Cooperative Banks stood covered by Section 36(1)(viia) by Finance Act, 2007 w.e.f. 01.04.2007 , then it shall be a non-scheduled bank as defined in explanation (i) to Section 36(1)(viia) , which explanation provides that a "non-scheduled bank" means a banking company as defined in clause (c ) of section 5 of the Banking Regulation Act, 1949, unless it is in the second schedule of RBI Act, 1934 being a scheduled bank. By virtue of Section 56 of the 1949 Act , in section 5 of the 1949 Act, after clause (cc) , the clause (cci) was inserted in Section 5 , which stipulates that " Co-operative Bank" means a state co-operative bank, a central co-operative bank and a primary co-operative bank. Admittedly , the assessee is not a scheduled co-operative bank as the assessee is not included in Second Schedule to the Reserve Bank of India Act, 1934 , and hence by virtue of Section 56 of the 1949 Act read with Section 5(c) and 5(cci) , the assessee is to be classified as Non-scheduled Bank with the Rider in the instant case provided it is held that the assessee was holding banking license issued by RBI for the relevant period under consideration because the banking license was gran....
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....ble for deduction u/s 36(1)(viia) as the said license was granted with retrospective effect to continue and carrying on the banking business. It is the claim of the assessee that it is carrying on banking business since its inception . These aspect has not been exhaustively looked into by the authorities below as the ld. CIT(A) has merely concluded that the assessee is not entitled for deduction u/s 36(1)(viia) also on the grounds that it did not held banking license during the relevant period under consideration. Thus, the matter is to be remanded back to the AO to look into the provisions of Section 56 of the 1949 Act and its applicability to the assessee, as also the application filed by assessee with RBI for seeking banking license and whether on the strength of same , the said license was granted by RBI with retrospective effect so as to entail assessee to seek deduction u/s 36(1)(viia) for the year under consideration , as complete facts are not on record before us. The AO is directed to make relevant enquires and verifications , including , inter-alia, making enquiries from RBI to seek relevant information to arrive at decision whether the assessee will be eligible for deduc....
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....CIT, Mumbai reported in (2014) 49 taxmann.com 11(Mum-trib.), in which one of us namely Hon'ble Judicial Member was part of the Division Bench who pronounced the said judgment. No contrary judgment of Hon'ble Superior Courts including Jurisdictional High Court are cited by Revenue. Thus, the matter is remitted back to the file of the AO for fresh adjudication, as is directed by us in this order. Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assessee in set aside proceedings. The evidences/explanations submitted by assessee in its defense shall be admitted by AO , and adjudicated by AO on merits in accordance with law. We order accordingly. 7.In the result, appeal filed by the assessee in ITA no. 135/Alld/2015 for ay: 2010- 11 is partly allowed for statistical purposes. 8.Our decision in ITA No. 135/Alld/2015 for ay: 2010-11 shall apply mutatis mutandis to appeal filed by assessee in ITA no. 136/Alld/2015 for ay: 2011-12. 9.In the result, appeal filed by the assessee in ITA no. 136/Alld/2015 for ay: 2011- 12 is partly allowed for statistical purposes. 10.In the result, both the appeals filed by the assessee in ITA no. 135-....
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....¥‡ चालू रखने का लाइसेंस किया जाता है। (क) बैंक के परिचालन का कà¥à¤·à¥‡à¤¤à¥à¤° केवल उतà¥à¤¤à¤° पà¥à¤°à¤¦à¥‡à¤¶ राजà¥à¤¯ के मिरà¥à¤œà¤¾à¤ªà¥à¤° à¤à¤µà¤‚ सोनà¤à¤¦à¥à¤° जनपद तक ही सीमित होगा । (ब) बैंक अपने पंजीकृत कारà¥à¤¯à¤¾à¤²à¤¯ में लाइसेंस अथवा उसकी पà¥à¤°à¤®à¤¾à¤£à¤¿à¤¤ पà¥à¤°à¤¤à¤¿à¤²à¤¿à¤ªà¤¿ अपना कारोबार....