TaxTMI 
TaxTMI 
2024 (12) TMI 71
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....mandated in the sub- clause (b) regarding holding of the fixed assets of the predecessor bank continuously for minimum 05 years immediately succeeding the date of re- organization and regarding continuing of the business of the predecessor bank for a minimum period of five years. II. Learnd CIT(A) has erred in law and on facts and circumstances of the case in deleting the disallowance made of deduction u/s 36(1)(viia) of Rs. 32,17,825/- despite assessee not having any rural branches and thus no rural advances. 3. The Ground No. 1 raised by the Revenue, relates to disallowance made by the assessing officer in respect of carry forward loss and unabsorbed depreciation, under section 72AB of the Act, due to merger with Satabdi Mahila Shakti Bank Limited, at Rs. 3,78,55,225/-. 4. Succinct facts qua the issue are that there has been merger of Shatabdi mahila shakti bank limited with the assessee bank on 30.06.2016. The predecessor bank was having losses of Rs 3,68,20,699/- and unabsorbed depreciation of Rs 10,34,666/-, on the date of amalgamation. These losses and unabsorbed depreciation have been carried forward and claimed as deduction under section 72AB of the Income Ta....
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.... for the Revenue, submitted that assessee had failed to make the compliance of item No.(ii) clause (a) of the sub- section (2) of section 72AB of the Act, and stated that the assessee should held at least three fourth of the book value of fixed assets, as on date of business reorganization and continuously for the two years prior to the business reorganization (merger). The Ld. DR also pointed out that the assessee had not fulfilled the conditions mentioned in clause (b) of sub-section 2 of section 72AB of the Act, wherein it is stated that the successor Co-operative bank held at least three fourth of the book value of the fixed assets of the Co-operative bank, acquired through business reorganization and continuously held for minimum period of 5 years, immediately succeeding date of business reorganization (merger). Since, the assessee bank has failed to make the compliance to section 72AB of the Act, therefore, the assessee under consideration is not eligible to carry forward the set-off of accumulated losses in business reorganization (merger). Therefore, the Ld. DR contended that the order passed by the assessing officer may be upheld. 8. On the other hand, Learned Counsel f....
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....rbed depreciation allowance in business reorganisation of co-operative banks S.No PROVISION OF THE ACT APPLICABILITY 1 The assessee, being a successor co-operative bank, shall, in a case where the amalgamation has taken place during the previous year, be allowed to set off the accumulated loss and the unabsorbed depreciation, if any, of the predecessor co-operative bank as if the amalgamation had not taken place, and all the other provisions of this Act relating to set off and carry forward of loss and allowance for depreciation shall apply accordingly. 1. The Successor Bank: Citizen Co-operative Bank Lin 2. The predecessor Co-op. Bank: Mahila Shatabdi Co-Op Bank Limited 3. Date of Merger / Re-organization: 30/06/2016 2 The provisions of this section shall apply if- a. the predecessor co-operative bank- (i) has been engaged in the business of banking for three or more years; and The predecessor Co-op. Bank: Mahila Shatabdi Co-Op Bank Limited The Bank is operating for more than 3 years before date of reorganization. (Refer Annexure C) (Page 3-7) (ii) has held at least three-fourths of the book value of fixed assets as ....
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....rd under the provisions of section 72 is on the appellant. Once this condition is fulfilled the appellant bank is eligible to claim set off of such carry forward losses/unabsorbed depreciation as per the provisions of section 72AB in the year of such amalgamation. 5.8 The fulfilment of conditions referred to sub- section (2) of 72AB, regarding the mandatory period of holding of the assets of predecessor entity and continuance of its business by the successor entity which were referred to by the AO is without doubt one of the preconditions. However, any failure to comply with the provisions of sub- section (2) during the mandatory period by the successor entity are specifically covered under sub- section (6) which provides that in a case where the conditions specified in sub-section (2) or notified under sub-section (4) are not complied with, the set off of accumulated loss or unabsorbed depreciation allowed in any previous year to the successor co-operative bank shall be deemed to be the income of the successor co-operative bank chargeable to tax for the year in which the conditions are not complied with. Thus, in the year of amalgamation, all that the resultant entity has....
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....y of the section 36(1)(viia) of the Act, it is clear that since its inception theory intention behind is to promote rural banking in the beginning only scheduled and non-scheduled bank are eligible for the deduction. The changed position after 01/04/2007, includes, scheduled and non-scheduled banks, cooperative banks are also included for deduction u/s 36(1)(viia) of the Act. However this doesn't change the nature of deduction available under Section 36(1)(viia) of the Act. In view of the above the claim of the assessee of deduction u/s 36(1)(viia) of the Act, of Rs. 32,17,825/- towards provision for bad and doubtful debt was disallowed. 16. Aggrieved by the order of the assessing officer, the assessee carried the matter in appeal before the Ld.CIT(A), who has allowed the appeal of the assessee. The assessee argued before learned CIT (A) that Section 36(1)(viia) has been amended vide Finance Act, 2013, whereby the deduction of 7.5% is allowable to all advances including rural advances irrespective of whether the bank has any rural branches or not from AY.2014-15 onwards. It was further submitted that in assessee's own case, similar disallowance made in AY.2012-13 and AY.....
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....en off to the provision for bad and doubtful debts account made under section 36(1) (viia) of the Income-tax Act. 11.4 Therefore, the banks or financial institutions are entitled to claim deduction for bad debt actually written off under section 36(1)(vii) of the Income-tax Act only to the extent it is in excess of the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia) of the said Act. However, certain judicial pronouncements have created doubts about the scope and applicability of proviso to clause (vii) of subsection (1) of section 36 of the Income-tax Act and held that the proviso to clause (vii) of sub-section (1) of section 36 of the Income-tax Act applies only to provision made for bad and doubtful debts relating to rural advances. 11.5 Section 36(1) (viia) of the Income-tax Act contains three sub-clauses, ie sub-clause (a), sub-clause (b) and sub-clause (c) and only one of the sub-clauses i.e. sub-clause (a) refers to rural advances whereas other subclauses do not refer to the rural advances. In fact, foreign banks generally do not have rural branches. Therefore, the provision for bad and doubtful debts account....
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....(a) is applicable to all banks even if there is no rural branch/rural advances. The ld CIT(A) also noted that assessee's issue is covered in its favour in its own case by the decision of the Hon'ble Tribunal for AY.2012-13 and AY.2013-14, therefore, ld CIT(A) deleted the addition. 19. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us. We have heard both the parties. The Learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, Learned Counsel for the assessee, defended, the order passed by the learned CIT (A). We find that issue involved in this appeal is squarely covered, in favour of assessee, by the order of the Coordinate Bench, of ITAT, Rajkot, vide order in ITA No. 101 & 102/Rjt/2017 dated 23.12.2022 in assessee's case, wherein the Tribunal held as under: "Ground Number 2: deletion of addition relating to deduction u/s 36(1)(viia) of the Act: 8. During the assessment year, the assessee had claimed deduction of Rs.22,98,782/- under section 36(1)(viia) of the Act in respe....
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.... bad debts under clause (viia) then by virtue of provision of clause (viia) the assessee could claim deduction of bad debts return off only to the extent of excess of right off over the amount standing to the credit in the account created under clause (viia) of section 36. From the above judgment of the Hon'ble Supreme Court the assessing officer has inferred that deduction u/s. 36(1)(viia) is specifically for banks having rural branches and has concluded that the deduction u/s. 36(1)(viia) is not allowable to the bank which does not have rural branches. Such inference in my considered opinion is erroneous interpretation of the judgment and it is contrary to specific provision of section 36(1)(viia). There is no requirement in the section 36(1)(viia) or the cited judgment that the said deduction is available only the banks having rural credits. Therefore, it is held that the assessee is entitled to the deduction u/s. 36(1)(viia) it being co-operative bank notwithstanding the fact that it has no rural advances. The assessing officer is directed to delete the disallowance. Assessee succeeds on this ground. 4. For statistical purpose the appeal is to be treated as allowed....