TaxTMI 
TaxTMI 
2021 (11) TMI 522
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.... 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) disallowance out of depreciation : : Rs. 1,14,416 was, inter-alia ....
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....ion 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 contrary as has been taken by the "CIT(A) is wholly erroneous, as being in-consistent with the express provisions of law and, on an application of rule of harm....
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....e 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 aggregate average advances made by the Rural Branches of the bank . The assessee submitted before ld. CIT(A) that the AO allowed deduction u/s 36(1)(viia) of the 1961 Ac....
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.... 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 branch according to the definition given in explanation (ia) to Section 36(1)(viia) of the I.T.Act. Since, the onus to claim the deduction was on the assessee. It has to satisfy the AO th....
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....nition 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 administrative bar for such transfer. There was no need to give the assessee any opportunity before the transfer. Hence, this ground is dismissed. The appellant has given legislative history of the amendments in section 36(1)(vi....
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....s. 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 such provision is brought on statute in the context of Section 36(1)(viia). The A.R. has vehemently argued that the co-operative banks falls in the category of non-scheduled bank. In accordance with the A.R. a banking company takes into its fold any company which transacts the....
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....icance 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 bank, the benefit of deduction upto 10% in the case of rural branches cannot be extended to the appellant. I do not agree with the argument of the appellant that the rule is not in harmony with the I.T.Act, so the same may be over looked. I understand that the intent of the legislature is not to extend the benefit to cooperative banks. Another noticeable facts in the....
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....d. 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 ZilaSehkari Bank Limited, the RBI clarified that the said bank is not a scheduled bank but is having a non-scheduled bank status. Our attention was drawn to Section 56 of the Banking Regulation Act, 1949 . It was submitted that Income-Tax Appellate Tribunal, Lucknow Bench's decision in case of Mansarovar Urban Co-operative Bank Ltd v. DCIT, reported in (2010) 126 ITD 72(Lucknow) was a decision whi....
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....ed 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 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 branch' according to the definition given in Explanation (ia) to Section 36 (1)(viia) of the Income Tax, Act, 1961. 5. A review of completed assessments may also be carried out and appropriate remedial action may be taken as may be necessary. This may be brought to the notice of all concerned for stric....
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....ow. 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 Provision for Doubtful Debts. The ld. DR relied upon decision of Hyderabad-tribunal in the case of ACIT v. Andhra Pradesh GrameenVikas Bank (2015)60 taxmann.com 328(Hyd. Trib.) and it is was submitted that there is a difference between NPA and Provision for Doubtful Debts. It was submitted that matter can be restored back to the file of AO/CIT(A) for fresh adjudication . The ld. DR also relied upon the decision of Vishakhapatnam tribunal in the case of ACIT....
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....e 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 , wherein if the asset as specified in the said proviso is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this subsection in respect of such asset shall be restricted to fifty percent of the amount calculated at the percentage prescribed for an asset specified in the said proviso. Thus, clearly the assessee ....
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....e 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] or a non- scheduled bank [or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an amount [not exceeding seven and one-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 : [Provided that a scheduled bank or a non-....
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....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 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; [(ii) "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1....
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....f 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 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 36.]" It is equally relevant to reproduce clause(c) of Section 5 of the Banking Regulation Act, 1949 , which is reproduced hereunder: "5. Interpretation.- [In this Act], unless there is anything repugnant in the subject or context,- **** **** (c) "banking company" means any company which transacts the business of banking [in India]. Explanation.-Any company which is engaged in the manufacture ....
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....his 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 society carrying on business as a cooperative bank at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965) shall before the expiry of three months from the commencement, every co-operative bank which comes into existence as a result of the division of any other co-operative society carrying on business as a cooperative bank, or the amalgamation of two or more co-operative societies carrying on banking business shall, before the expiry of three months from its so coming into existence, [every primary credit society which had become a primary co-operative bank on or before the commencement of the Banking Laws (Amendment) Act, 2012, shall before the expiry of three months from the date on which it had become a primary cooperative bank] and every co-operative society [***] shall before commencing ....
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.... 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 Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of a scheduled bank or a non-scheduled bank computed in the prescribed manner is allowed as deduction in the computation of income of such banks. "Scheduled bank", as defined in the Explanation to clause (viia) of sub-section (1) of the section 36, does not include a co-operative bank. The deduction earlier allowable under section 80P in the case of a co-operative society engaged in carrying on the business of banking (co-operative banks) has been withdrawn from assessment year 2007-08 barring in the case of a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Since profits of co-operative banks are now taxable after withdrawal of deduction available to a co-operative society engaged in carrying on the business of banking under section 80P, such co-opera....
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....ffect 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 Section 36(1)(viia), applicable w.e.f. 01.04.2007, wherein the Co-operative Banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, were brought under the provisions of Section 36(1)(viia) for claiming deductions in respect of provisions made for bad and doubtful debts . Prior to this amendment, Cooperative Banks were entitled to claim deduction of Profits and Gains of business attributable to business of banking , while computing total income chargeable to tax by virtue of provisions of Section 80P. Thus, by virtue of insertion of Section 80P(4) , by Finance Act, 2006 effective from 01.04.2007, Co-operative Banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank were not entitled to claim deduction of profits and gains of business attributable to business of banking , while computing total income chargeable to tax under the provisions of Secti....
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....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 that the deduction under second limb towards aggregate average advances made by Rural Branches of such bank shall be computed in prescribed manner. The manner of computing deduction is prescribed in Rule 6ABA of the 1962 Rules which refers only to scheduled bank, and there is no mention of Non-Scheduled Bank or Co-operative Bank in Rule 6ABA of the 1962 Rules. This is a beneficial provision , which enable grant of deduction towards provisions made for bad and doubtful debts. No doubt , it is true that beneficial provisions are to be strictly construed to determine the eligibility of tax-payer to get the prescribed deduction , But once the tax-payer is found to be eligible to get deduction, then the provision is to be liberally construed to give full effect to the beneficial provision to enable the achievement of the purposes for which it was intended. It is equally true that taxation provisions are to be strictly construed and there is no equity in taxing statute, but at t....
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....s 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 granted by RBI only on 10.01.2012, as is mandated under Section 22 of the 1949 Act , for which we have given our observations elsewhere in this order. Our above view is fortified by decision of Hon'ble Kerala high Court in the case of Kannur District Co-operative Bank Limited(supra) and we are in agreement with the above view of Hon'ble Kerala High Court, although we note that tribunal in the case of Mansarover Urban Co-operative (supra) has taken a different view that Co-operative Bank cannot be classified as non-scheduled bank, with which we with due respect do not agree with the above view of tribunal.The assessee is admittedly not a scheduled cooperative bank. However, going by the definition of non-scheduled bank in Explanation (i) to Section 36(1)(viia), it means a banking company as defined in clause (c) of Section 5 of the 1949 Act. By virtue of Section 56 of the 1949 Act, the provisions of the 1949 Act as are applicable to banking companies were made applicable to ....
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....s. 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 deduction u/s 36(1)(viia). Thus , if it is found by AO after due verifications and enquiries that the assessee was granted banking license by RBI which covers relevant previous year 2009-10, then in our view the assessee will be eligible for deduction u/s 36(1)(viia) under both the limbs. Proceeding further that if at all assessee is found to be eligible for deduction u/s. 36(1)(viia), it is also observed that the assessee has not submitted any computation quantifying the deduction allowable under the second limb of Section 36(1)(viia)(a) of the 1961 Act , as no details as to aggregate average advances made by Rural Branches were submitted. The assessee is directed to submit complete details with respect thereto. Further, so far as manner in which Rural Branches are to be determined, we clarify that it will be in the same manner as is specified in Explanation (ia) to Section 36(1)(viia), although the said explanation does not refer to Co-operative Bank specifically , but the....