TaxTMI 
TaxTMI 
2022 (9) TMI 577
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....,374/-, wrongly made by the ld. AO u/s 40a(ia). 2. That the addition of Rs.64,29,240/-, as made by Id.AO, by disallowance out of the provisions for bad & doubtful debts made at Rs.80 lacs, has been wrongly upheld by ld.CIT(A), without appreciating that the said provision was not made against standard loans, but against the aggregate advances made by rural branches of the Bank. 3. That the order under appeal, to the extent disputed herein, is wholly against the law and facts of the case and hence not sustainable." 3. Brief facts of the case are that the assessee is a Distt. Cooperative Bank engaged in the business of banking. The ld. Counsel first informed that ground no. 1 is not pressing. Only we are adjudicating the ground no. 2 for addition of Rs.64,29,240/- related to provision for bad and doubtful debt. The assessee has made provision of Rs.80 lac against the standard loan (contingent liability). The AO restricted the allowance u/s 36(1)(vii)(a) of the Act to 7.5% (Income + Provision) and disallowed excess provision of Rs.64,29,240/-. The ld. AO had referred the order of Hon'ble ITAT Amritsar Bench in assessee's own case for A.Y. 2007-08 bearing ITA No. 47....
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....fore disallowed u/s 36(i)(vii)(a) as clearly verdicted by the Hon'ble bench of ITAT, Amritsar in their order dated 16/07/2018 for the assessment year 2007-08. Penalty proceedings u/s 271(1)(c) of the Act are being initiated separately for furnishing inaccurate particulars of income. (Addition made Rs.64,29,240/-)" 6.1. We have observed that there was two effective issues in this appeal. The first issue concern itself with allowability of deduction u/s 36(1)(viia) of the Act. Under the second limb wherein the deduction claimed @ 10% of aggregate average advanced made by the rural branch assessee, is too disallowed. The assessee has claimed deduction to the tune of Rs.80 lac u/s 36(1)(viia) of the Act while filing return of income with the revenue. The said amount is reflected by the assessee as deduction in the audited P & L account of the assessee. The ld. AO has allowed deduction of Rs.15,70,760/- computed @ 7.5% at the total income. First limb of section 36(1)(viia), while the AO did not allow deduction to the tune of Rs. 80 lac which stood allowed by the AO. The ld. CIT(A) upheld disallowance of the deduction to tune of Rs.64,29,240/-. While confirming the disallowan....
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....had been substituted :] [Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government: Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains of business or profession."] [Explanation. -For the purposes of this sub-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000 and ending before the 1st day of April, 2005;] (b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA);] [(c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five p....
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....y within meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged business of providing long-term finance for industrial projects and [eligible deduction under clause (viii) of this sub-section];] [(vi) "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P;]" It will also be appropriate at this stage to reproduce Explanation to sub-section (4) of section 80P as it stood at relevant time, which is reproduced hereunder: "(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation. For the purposes of this sub-section,- (a) "co-operative bank" and "primary agricultural credit society" shall have meanings respectively assigned to them in Part V of the Banking Regulation 1949 (10 of 1949); (b) "primary co-operative agricultural and rural development bank" means a having its area of operation....
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....g 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 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." 6.5. 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 1-4-2007, as the deduction erstwhile availab....
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....eduction under first limb, and while referring to 'such bank' in the second limb, in our considered view by literal reading and interpretation, eligible 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. 1-4-2007, but there was no corresponding amendment in Explanation to section 36(1)(viia), a....