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2023 (5) TMI 543
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....de Govt. of India Notification No.GSR 155(E) dated 4.3.2020. 3. The legal issue common in all these appeals with regard to reopening of assessment u/s. 147 of the Income-tax Act, 1961 [the Act] was not pressed at the time of hearing of the appeals, hence the same is dismissed as not pressed for all the assessment years under consideration. 4. The brief facts of the case are that the assessee, a public sector bank, filed its return of Rs.558,39,58,312 for AY 2011-12 originally on 29.9.2011 under the regular provisions of the Act and Rs.986,79,76,772 under the MAT provisions.. The return was processed u/s. 143(1) on 5.7.2012 granting refund of Rs.368,88,85,120. Subsequently assessee filed a revised return on 27.11.2012 admitting income of Rs.230,26,47,624 under regular computation after set off of brought forward losses of Rs.289,41,70,061 and current year loss under other sources of Rs.1,14,94,402. MAT income declared is Rs.406,47,28,293. The case was under scrutiny and assessment u/s. 143(3) was made on 22.2.2013 determining total income at Rs.1349,88,63,070 under regular provisions and at Rs.1848,74,25,223 under u/s. 115JB. 5. During the course of scrutiny proceedings for....
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....n the PWO the fact of write-off of bad debt has not been allowed to be communicated to the branch level, where the individual loan accounts are outstanding. According to the AO, this implies that debts have not been actually written off in the individual loan accounts. Further, the amounts have been debited to the P&L account under the head 'Provisions & Contingencies' and the claim of bad debt written off has been made in the computation of income only. The amounts have been charged to profit for creating provisions and not for actual write off of bad debts. The write off of bad debts is by way of executive decision, much after the finalization of books of accounts and holding of AGM which indicates that the claim of bad debt is only an afterthought for reducing the tax liability of the assessee. 8. The AO further noted that the assessee did not charge the amount of bad debts written off to the provision for bad and doubtful debts account, even though there was a sufficient credit balance available in the provisions created for the very purpose. The AO relied on the first proviso to section 36(1)(vii) which expressly states that the claim of bad debt written off shall be admiss....
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.... 352 ITR 577(SC) Canara Bank v. DCIT (2022) (1) TMI 124 (Bangalore Trib) in assessee's own case. 11. It was submitted that the bad debt written off should be first adjusted against the credit balance in the provisions account and only the excess can be claimed as deduction as held in the following cases:- Catholic Syrian Bank v. CIT (2012) 343 ITR 270 (SC) Vatika Township P. Ltd. (2014) 367 ITR 466 (SC) State Bank of Hyderabad (2015) 8 TMI 836 (Hyd. Trib) IDBI Bank Ltd. (2017) 9 TMI 1289 (Mum. Trib_ Oriental Bank of Commerce (2017) 11 TMI 1589 (Del Trib.) 12. It was submitted that the assessee had claimed only a sum of Rs.413,94,00, 446 as deduction u/s. 36(1)(vii) whereas the AO has disallowed an amount of Rs.462,79,56,763, the excess of Rs.48,85,56,317 is the bad debts written off relating to rural branches which is debited to the provisions account and not claimed as deduction. Therefore the disallowance to the extent of Rs.48,85,56,317 is required to be deleted. 13. It was further submitted that any subsequent recovery made in the loan accounts which are written off either at the HO or the branch level are credited ....
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....Tribunal in ITA No.1884/Bang/2018 dated 27.12.2021 for AY 2013-14 and ITA No.1885/Bang/2018 dated 28.9.2018 for AY 2014-15 in assessee's own case. 17. The ld. DR relied on the order of lower authorities and he submitted that the Hon'ble SC has accepted the SLP of the revenue on similar issue in the case of Commissioner of Income Tax, LTU vs Vijaya Bank, reported in (2021) 130 taxmann.com 149 dated AUGUST 9, 2021 in SLP LEAVE (C) NO.7351 OF 2021, against the judgement of the Hon'ble jurisdictional High Court, therefore, the issue should be decided in favour of the revenue. 18. We have heard the rival submissions and perused the materials on record. We notice that the from the judgments quoted by the assessee (supra) in its own case, the issue has been decided in favour of the assessee as under:- "12.3 We have heard rival submissions and perused the material on record. We notice that the CIT(A) had expressed the view that provision allowed u/s 36(1)(viia) of the Act would apply to nonrural advances also. An identical issue has been examined by the Hyderabad Bench of the ITAT in the case of State Bank of Hyderabad v. DCIT in ITA No.450/Hyd/2015, ITA No.498 and 499/Hyd/2....
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....al advances to the extent it exceeds the provision made u/s 36(1)(viia). If we examine the facts of the present case in the context of aforesaid statutory provision, it will be evident that assessee, though, has written off in the books of account an amount of Rs. 210.74 crore, but, in the computation of total income, the actual deduction claimed u/s 36(1)(vii) is Rs. 209.08 crore representing bad debts written off relating to nonrural/ urban advances. The balance amount of bad debts relating to rural advances was not claimed as deduction by assessee in terms with the proviso to section 36(1)(vii) as it has not exceeded the provision for bad and doubtful debts relating to rural advances created u/s 36(1)(viia). Both AO and ld. CIT(A) have misconstrued the statutory provisions while observing that proviso to section 36(1)(vii) would also apply in case of bad debts relating to non-rural advances. The Hon'ble Supreme Court in case of Catholic Syrian Bank Vs. CIT (supra) while analyzing provisions of section 36(1)(vii) and 36(1)(viia) have observed that section 36(1)(viia) applies only to rural advances. The observations made by Hon'ble Apex Court in this regard in paras 26 & 2....
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....(viia) in subsection (1) of Section 36 to provide for a deduction, in the computation of taxable profits of all scheduled commercial banks, in respect of provisions made by them for bad and doubtful debts relating to advances made by their rural branches. The deduction is limited to a specified percentage of the aggregate average advances made by the rural branches computed in the manner prescribed by the IT Rules, 1962. Thus, the provisions of clause (viia) of Section 36(1) relating to the deduction on account of the provision for bad and doubtful debt(s) is distinct and independent of the provisions of Section 36(11(vii) relating to allowance of the bad debt(s). In other words, the scheduled commercial banks continue to get the full benefit of the write off of the irrecoverable debt(s) under Section 36(1)(vii) in addition to the benefit of deduction for the provision made for bad and doubtful debt(s) under section 36(1)(viia). A reading of the Circulars issued by CBDT indicates that normally a deduction for bad debt(s) can be allowed only if the debt is written off in the books as bad debt(s). No deduction is allowable in respect of a mere provision for bad and doubtful debt(s). ....
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....ove, when the proviso to section 36(1)(vii) applies to bad debts written off relating to rural advances, the same cannot be applied for disallowing deduction claimed on account of write off of bad and doubtful debts relating to nonrural/urban advances. As far as application of explanation to section 36(1)(vii) is concerned, we agree with the ld. AR that its operation will be prospective and will not apply to the impugned AY. For this proposition, we rely upon the decision of the ITAT Mumbai in case of Bank of India Vs. Addl. CIT (supra). Even otherwise also, careful reading of explanation to section 36(1)(vii) would indicate that nowhere it suggests that the proviso to section 36(1)(vii) would apply in respect of bad debt written off relating to non-rural advances. In the aforesaid view of the matter, we hold that assessee would be eligible to avail deduction of an amount of Rs. 209.94 crore representing actual write off in the books of account of bad debts relating to nonrural/urban advances in terms with section 36(1)(vii), as proviso to the said section would not apply to nonrural advances. Accordingly, we delete the addition made by AO and confirmed by ld. CIT(A)." 6.5....
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....cremental advance for the purpose of arriving at the deduction u/s 36(1)(viia). 4.4. The learned CIT(A) failed to appreciate the fact that for the purpose of arriving at the Aggregate Average Advances as per Rule 6ABA, the outstanding balance at the end of each month needs to be considered and not the incremental advances. 4.5. The learned CIT(A) failed to follow the binding decisions of the jurisdictional High Court and Tribunal. 4.6. The learned CIT(A) failed to appreciate the fact that the deduction u/s 36(1)(viia) has to be allowed on the basis of the calculation as provided in the section and not with reference to the amount of provision made in the books of account. 4.7. The disallowance made by the learned Assessing Officer and upheld by the learned CIT(A) is based on surmises and conjunctures." 21. During the assessment proceedings for AY 2011-12, the AO noted that the assessee bank has claimed a sum of Rs.901,62,96,929 as deduction in respect of provision made for bad and doubtful debts u/s. 36(1)(viia) of the Act. 10% of the Aggregate Average Advances [AAA] of the rural branches was computed at Rs.810,96,43,882. The AO noticed certai....
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....ranches falling within the ambit of urban agglomeration, the assessee submitted that according to the definition of rural branch defined under the Act, any branch situated in place not having a population of more than 10,000 as per last preceding census has to be considered as rural branch. It was further stated that the AO's reliance on the Hon'ble Kerala High Court judgment in the case of Lord Krishna Bank was not applicable to the facts of assessee's case since in that case the term 'place' was contended to be the ward of a local authority like panchayat or municipality which was rejected by the High Court and it was held that a revenue village has to be considered and not a ward. The assessee has considered village / panchayat/town and therefore that decision was not applicable to the assessee's case. As per rule 6ABA, it was submitted that assessee has computed the AAA by considering the outstanding advances of each rural branch at the end of the last day of each month separately and divided the resultant figure by number of months comprised therein. There was no stipulation in the rule that only the fresh advances during the month should be considered. Reliance was placed on ....
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....urai District Central Co-operative Bank Ltd. (2014) 51 taxmann.com 194 (Chennai Trib) DCIT v. City Union Bank Ltd. in ITA No.1485/Mds/07 order dated 30.10.2009. 26. The assessee also submitted that section 36(1)(viia) is a beneficial provision allowing deduction to banks having rural branches with a view to promote rural banking and it is settled position of law that beneficial provisions should be interpreted liberally so that the intended benefits can be passed on to the eligible assessee. 27. The CIT(Appeals) observed that the moot point for adjudication is whether for computing the aggregate average advances made by rural branches, as per Rule 6ABA, only the fresh advances made during the month, or the outstanding loans at the end of each month, should be considered. The CIT(A) held as follows:- "11.3 On a plain reading of the rule 6ABA, it is noted that the computation prescribed therein envisages a three step process. The first two steps provide the method of computing average advance made by a particular rural branch. First, the advances made by each rural branch, as outstanding at month end, have to be aggregated. Second, average of this aggregated s....
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.... (145 taxmann.com 336) (Karnataka) has allowed the review petition filed by Revenue on the issue and held that deduction towards bad and doubtful debts under section 36(1)(viia) computed at rate of 7.5 per cent of total income should be computed after setting off of brought forward losses. 11.5 In view of the facts and circumstances of the case, and position of law as applicable on such facts, I find that the action of AO in restricting the claim of deduction in respect of provision made for bad and doubtful debts under section 36(1)(viia), by considering only the fresh advances made by the rural branches for computing the aggregate average advances is in accordance with the method prescribed under Rule 6ABA, hence sustained. In this regard, the jurisdictional Assessing Officer (JAO) is also directed to consider the effect of jurisdictional High Court ruling in the appellants own case, as mentioned above, and re-compute, if found necessary, the admissible quantum of deduction in respect of the provisions made by the appellant bank towards bad and doubtful debts under section 36(1)(viia) in that light. The JAO shall provide a reasonable opportunity to the appellant to adduc....
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....gh Court in Uttarbanga Kshetriya Gramin Bank case. 8. We have carefully considered the rival contentions and perused the records. 9. In Para 7.2 of the impugned order, the Tribunal has recorded thus, "7.2 Before us, the learned Authorised Representative for the assessee reiterated the submission that the language of Rule 6ABA is very clear and does not mandate that only incremental advances has to be considered and nothing can be read into it as has been done by the authorities below. It was submitted that this issue has been considered and decided in favour of the assessee by the co-ordinate bench of this Tribunal in the case of Canara Bank v. JCIT (2017) 60 ITR (Trib) 1 [ITAT (Bang)]" 10. It is further held that the said decision has been followed in Vijaya Bank case. The manner in which the computation has been made has been given in the case of Vijaya Bank Case. Order passed by the Tribunal in Canara Bank's case followed in Vijaya Bank case has attained finality and the Revenue has not challenged the said order. Further, the High Court of Calcutta, while considering an identical situation as recorded thus, "Mr. Khaitan, learned senior Adv....
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.... appeal is pending before ITAT. 5.4. Without prejudice to the above, the learned CIT(A) erred in adding various items to arrive at the book-profit which are beyond the scope of the section." 34. For the AY 2011-12, AO held that the provisions of section 115JB are applicable to the assessee bank, and hence it is liable for payment of Minimum Alternate Tax (MAT) on its book profits under those provisions. He noted that the provisions of Section 115JB were amended vide Finance Act 2012 to inter-alia provide that in the case of companies, which are not required to prepare their profit and loss account in accordance with schedule VI of the Companies Act, 1956 (e.g. banking, insurance, electricity companies), the profit and loss account prepared in accordance with their Regulatory Acts shall be taken as basis for computation of book profit, for the purpose of MAT liability. Further, Explanation 3 was inserted below section 115JB to clarify that every such company, for assessment year beginning on or before 01.04.2012, shall have an option to prepare its profit and loss account in accordance with schedule VI of the Companies Act, 1956, or in accordance with its Regulatory Act.....
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....of Schedule VI to the Companies Act, 1956 or in accordance with the provisions of its governing Act. The said explanation is clearly clarificatory in nature as it explains the position of law to be applied for earlier years in case of banking companies etc. for the purposes of MAT. Furthermore, it is also noted that the appellant is a nationalized bank which is governed by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Section 11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, provides that for the purposes of the Income-tax Act, 1961, every corresponding new bank shall be deemed to be Indian company and a company in which public is substantially interested. On a conjoint reading of these provisions, it is evident that the appellant bank is an Indian company, and therefore liable to pay MAT on its book profits for the year under consideration as per section 115JB. In this regard, it is also noted that the appellant bank, in the original as well as revised return of income, has itself paid taxes on book profits as computed under the provisions of section 115JB. 39. The CIT(A) relied on the decision in the case of Bank of....
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....tice that the Ld CIT(A) has expressed the view that the assessee would fall under clause (a) of sec.115JB(2). However the case of the assessee is that clause (b) of sec.115JB(2) is made applicable to banking companies, since banking company is included in sec. 211 of the Companies Act. However, it is the contention of the assessee that it is not a 'banking company", i.e., it is a "corresponding new bank". 7.5 We notice that the provisions of sec.51 of the Act specifically states that only certain provisions of BR Act are applicable to "Corresponding new bank". We noticed earlier that the Ld CIT(A) has proceeded to decide this issue by observing that all provisions of BR Act are applicable to the Company. We notice that the Ld CIT(A) did not consider the effect of provisions of sec.51 of the BR Act upon the assessee. Hence the decision taken by him under the impression that all the provisions of BR Act are applicable to the assessee is faulted one. In our view the Ld CIT(A) should considered the effect of provisions of sec. 51 of BR Act and accordingly he should have appreciated the contentions of the assessee on the definition of "banking company", provisions of sec.211(2)....