The Solapur District Central Coop Bank Ltd, Solapur V. ITO, Ward 2(1), Solapur

ITA 1295/PUN/2013

• Counselvise Citation: 129524514 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 13-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Keywords: Question of law; Bad and doubtful debts; Revised return
• Section: 143(3); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1295/PN/2013 (ASSESSMENT YEAR : 2009-10) THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD., 207-209, GOLD FINCH PETH SOLAPUR 413 004 .. APPELLANT V/S INCOME TAX OFFICER WARD-2(1), SOLAPUR .... RESPONDENT PERMANENT ACCOUNT NUMBER AAATT9561B ASSESSEE BY : SHRI S.N. PURANIK REVENUE BY : SHRI M.S. VERMA DATE OF HEARING : 22.12.2014 DATE OF PRONOUNCEMENT : 30.12.2014 O R D E R PER G.S. PANNU, A.M. THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AG AINST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, PUNE, DATED 19 TH OCTOBER 2012, WHICH IN TURN, HAS ARISEN FROM AN ORDER DATED 29 TH DECEMBER 2011, PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3 ) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ), PERTAINING TO THE ASSESSMENT YEAR 2009-10. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL:- 1. COMMISSIONER (APPEALS) HAS ERRED IN CONFIRMING ADDITION OF RS.7,68,22,858/- ON ACCOUNT OF OVERDUE / NPA INT EREST APPELLANT PRAYS TO DELETE THE SAME. 2. COMMISSIONER (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION OF RS.54,38,535/- IN RESPECT OF INTEREST O N AGRICULTURAL CREDIT STABILIZATION FUND. APPELLANT PRAYS TO DELET E THE SAME. 2 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. 3. COMMISSIONER (APPEALS) HAS ERRED IN RESTRICTING THE DEDUCTION UNDER SECTION 36(1)(VIIA) TO RS.15,37,76, 000/- AGAINST RS.65,35,21,900/-. 4. WITHOUT PREJUDICE TO GROUND NO.1 AND GROUND NO.3 , CIT(A) HAS ERRED IN NOT CONSIDERING THE ALLEGED PROVISION OF RS.7,68,22,858/- FOR THE PURPOSE OF SECTION 36(1)(V IIA) OF THE ACT, 1961 (PARA-5 OF THE ORDER). 5. COMMISSIONER (APPEALS) HAS ERRED IN SETTING ASID E TO ASSESSING OFFICER THE ISSUE OF EXCLUDING INTEREST O F NPA A/C RECOVERED / RECEIVED DURING THE YEAR. SAME BE ALLOW ED IF NOT ALLOWED IN A.Y. 2008-09. 6. COMMISSIONER (APPEALS) HAS ERRED IN CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT. SAME MAY PLEASE BE C ANCELLED. 3. THE APPELLANT BEFORE US IS A CO-OPERATIVE SOCIETY I NCORPORATED UNDER THE PROVISIONS OF MAHARASHTRA CO-OPERATIVE SOCIETIE S ACT, 1960, AND IS CARRYING ON BANKING BUSINESS UNDER LICENSE FROM THE RESERVE BANK OF INDIA AS A CO-OPERATIVE BANK. FOR THE ASSESSMENT YEAR 200 9-10, IT FILED A RETURN OF INCOME ON 29 TH SEPTEMBER 2009, DECLARING TOTAL INCOME OF RS.10,91,49,950, WHICH WAS SUBSEQUENTLY REVISED ON 31 ST MARCH 2011, WHEREBY, THE TOTAL INCOME WAS RETURNED AT NIL AND THE CURRENT YEARS LOSS WAS DETERMINED AT RS.34,11,33,623. THE RETURN OF IN COME FILED BY THE ASSESSEE WAS SUBJECT TO A SCRUTINY ASSESSMENT UNDER SECTION 143(3) DATED 29 TH DECEMBER 2011. IN THE ASSESSMENT ORDER PASSED UNDE R SECTION 143(3) OF THE ACT DATED 29 TH DECEMBER 2011, THE ASSESSING OFFICER DETERMINED TH E TOTAL INCOME AT RS.20,76,96,600 AS AGAINST THE REPO RTED LOSS OF RS.34,11,33,623. THE ADDITIONS / DISALLOWANCES MADE BY THE ASSESSING OFFICER WERE CARRIED IN APPEAL BEFORE THE COMMISSIO NER (APPEALS), WHO HAS ALLOWED PARTIAL RELIEF AND NOT BEING SATISFIED WITH THE ORDER OF THE COMMISSIONER (APPEALS), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US ON THE AFORESTATED GROUNDS OF APPEAL. 3 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. 4. INSOFAR AS THE FIRST GROUND OF APPEAL IS CONCERNED, IT RELATES TO AN ADDITION OF RS.7,68,22,858, ON ACCOUNT OF INTEREST ON NON-PERFORMING ASSETS (IN SHORT NPAS ). AT THE TIME OF HEARING, IT WAS A COMMON GROUND B ETWEEN THE PARTIES THAT THE FACTS AND CIRCUMSTANCES WITH R ESPECT TO THE SAID DISPUTE ARE SIMILAR TO THOSE CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, VIDE ITA NO.495/PN /2012, ORDER DATED 29 TH SEPTEMBER 2014. IT WAS ALSO A COMMON POINT THAT TH E RIVAL CONTENTIONS IN THE INSTANT YEAR REMAIN THE SAME AS WERE CONSIDE RED BY THE TRIBUNAL VIDE ITS ORDER DATED 29 TH SEPTEMBER 2014 (SUPRA). IN THE ABOVE BACKGROUND, I N ORDER TO IMPART COMPLETENESS TO THIS ORDER, THE FOL LOWING PORTION OF THE ORDER OF THE TRIBUNAL DATED 29 TH SEPTEMBER 2014 (SUPRA) WITH RESPECT TO THE AFORESAID ISSUE IS REPRODUCED HEREINAFTER:- 4. THE FIRST DISPUTE IS IN TERMS OF GROUNDS OF APP EAL NO.1 TO 3 WHICH RELATE TO AN ADDITION OF RS.47,01,85,366/- ON ACCOUNT OF I NTEREST ON NON PERFORMING ASSETS (IN SHORT NPAS). AS NOTED EARLIER, ASSESS EE IS A CO-OPERATIVE BANK CARRYING ON BANKING BUSINESS IN TERMS OF A LICENSE ISSUED BY RESERVE BANK OF INDIA (RBI). THEREFORE, ASSESSEE IS GOVERNED BY TH E CIRCULARS AND GUIDELINES ISSUED BY THE RBI, IN PARTICULAR RELATING TO PRUDEN TIAL NORMS, INCOME RECOGNITION, ASSET CLASSIFICATION, PROVISIONING AND OTHER RELATE D MATTERS. IN TERMS OF SUCH PRUDENTIAL NORMS OF RBI, ASSESSEE ASSERTS THAT IT D ID NOT RECOGNIZE INTEREST INCOME ON ACCOUNT OF NPAS I.E. THE LOANS/ADVANCES T O CUSTOMERS WHICH HAVE BEEN CLASSIFIED AS NPAS FOLLOWING THE PRUDENTIAL NO RMS OF RBI. THE PERTINENT DISPUTE IN THE GROUNDS OF APPEAL NO.1 TO 3 RELATES TO NON-RECOGNITION OF INCOME OF RS.47,01,85,366/- IN RESPECT OF ADVANCES/LOANS T O CUSTOMERS, WHICH HAVE BEEN CLASSIFIED AS NPAS. 5. THE CONTROVERSY WITH RESPECT TO NON-RECOGNITION OF INCOME ON ACCRUAL BASIS RELATABLE TO THE NPAS IS NO LONGER RES INTEGR A BUT THE SAME HAS ALREADY BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. THE OMERGA JAN TA SAHAKARI BANK LTD. VIDE ORDER DATED 31.10.2013 AND ALSO OTHER SUBSEQUENT DE CISIONS OF THE PUNE BENCH OF THE TRIBUNAL. APART THEREFROM, THE HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. M/S KEC HOLDINGS LIMITED VIDE INCOME TAX AP PEAL NO.221 OF 2012 DATED 11.06.2014 HAS ALSO APPROVED THE PROPOSITION THAT T HE INTEREST INCOME ON NPAS IS NOT RECOGNIZABLE ON ACCRUAL BASIS. THE AFORESAI D MATRIX IS NOT CHALLENGED BY THE REVENUE ALSO. SO HOWEVER, IN THE PRESENT CASE, THE CASE SETUP BY THE REVENUE IS THAT ASSESSEE HAD INDEED CREDITED SUCH I NCOME IN ITS PROFIT & LOSS ACCOUNT AND THERE IS AN EQUIVALENT AMOUNT OF PROVIS ION MADE BY THE ASSESSEE BY WAY OF DEBIT IN THE PROFIT & LOSS ACCOUNT. IN ESSENCE, THE STAND OF THE REVENUE IS THAT THE IMPUGNED INCOME, THOUGH RELATAB LE TO NPAS, IS DEEMED TO HAVE ACCRUED SINCE ASSESSEE HAS CREDITED IT IN ITS PROFIT & LOSS ACCOUNT, AND THE CORRESPONDING DEBIT IN THE PROFIT & LOSS ACCOUNT IS ONLY A PROVISION FOR OVERDUE INTEREST AND IT IS NOT AN ALLOWABLE DEDUCTION. 4 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. 6. IN THE ABOVE BACKGROUND, WE HAVE CONSIDERED THE RIVAL STANDS. THE ASSESSEE HAS ALSO FURNISHED AN AFFIDAVIT ON OATH DA TED 05.10.2013 ENUMERATING THE VARIOUS FACTUAL ASPECTS AND IN RESPONSE THE REV ENUE HAS ALSO FURNISHED ITS SAY IN TERMS OF WRITTEN COMMENTS DATED 18.11.2013 B Y THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, SOLAPUR, THE ASSESSING OFFICER IN THIS CASE. BEFORE DWELLING ON THE RIVAL ARGUMENTS ON THE OBJECTIONS RAISED BY THE REVENUE WE CONSIDER IT APPROPRIATE TO BRIEFLY CULL OUT THE NECESSARY FACTS HAVING REGARD TO THE ORDERS OF THE AUTHORITIES BELOW AS WE LL AS THE MATERIAL ON RECORD. 7. THE ASSESSEE IS REGISTERED AS A CO-OPERATIVE SOC IETY AND IS CARRYING ON THE BANKING BUSINESS. FOR THE FINANCIAL YEAR 2007- 08 CORRESPONDING TO THE ASSESSMENT YEAR UNDER CONSIDERATION IT FILED A RETU RN OF INCOME WHICH WAS ACCOMPANIED BY, INTER-ALIA, AUDITED BALANCE-SHEET A ND PROFIT & LOSS ACCOUNT. IN THE CONSOLIDATED PROFIT & LOSS ACCOUNT FOR THE FINA NCIAL YEAR UNDER CONSIDERATION, A COPY OF WHICH IS AT PAGE 51 OF THE PAPER BOOK, ON THE CREDIT SIDE UNDER THE HEADING INTEREST RECEIVED, INTEREST FROM SOCIETY LOAN AND FROM INDIVIDUAL LOANS HAVE BEEN REFLECTED AT RS.167,02,91,981/- AND RS.13 ,66,79,692/- RESPECTIVELY. IT HAS BEEN EXPLAINED THAT THE AFORESAID INTEREST INCO ME CREDITED IN THE PROFIT & LOSS ACCOUNT INCLUDE RS.46,30,12,177/- AND RS.71,73 ,189/- ON ACCOUNT OF SOCIETY LOANS AND INDIVIDUAL LOANS RESPECTIVELY WHI CH ARE RELATABLE TO LOANS/ADVANCES TO CUSTOMERS CLASSIFIED AS NPAS AS P ER RBI NORMS. SIMILARLY, ON THE DEBIT SIDE OF THE PROFIT & LOSS ACCOUNT UNDER T HE HEADING INTEREST PAID, SUMS OF RS.46,30,12,177/- AND RS.71,73,189/- ARE PU T UNDER SUB-HEADINGS OVERDUE INTEREST FROM SOCIETY LOANS AND OVERDUE INTEREST FROM INDIVIDUAL LOANS RESPECTIVELY. SIMILARLY, ON THE LIABILITIES SIDE OF THE BALANCE-SHEET AN ENTRY OF RS.82,81,68,339/- STYLED AS OVERDUE INTER EST RESERVE APPEARS. IT HAS BEEN EXPLAINED THAT THE TERM RESERVE HAS BEEN MISTA KENLY USED AND IN-FACT THE SAID AMOUNT REFLECTS A CONTRA ENTRY FOR INTEREST RE CEIVABLE ON NPAS, WHICH IS APPEARING ON THE ASSETS SIDE ON THE BALANCE-SHEET UNDER THE HEADING INTEREST RECEIVABLE, WITH SUB-HEADINGS ON SOCIETY LOANS A ND ON INDIVIDUAL LOANS. 8. DUE TO THE AFORESAID DEPICTION IN FINANCIAL STAT EMENTS, THE CASE OF THE REVENUE IS THAT THE INTEREST ON NPAS HAVE BEEN CRED ITED IN THE PROFIT & LOSS ACCOUNT AND THUS ITS ACCRUAL HAS BEEN ACCEPTED BY T HE ASSESSEE; AND THAT THE CONTRA ENTRY BY WAY OF DEBIT IN THE PROFIT & LOSS A CCOUNT IS TO BE UNDERSTOOD AS A MERE PROVISION AND, SINCE A PROVISION IS NOT AN ALL OWABLE DEDUCTION, THE AMOUNT OF RS.47,01,85,366/- HAS BEEN ADDED TO THE TOTAL IN COME. 9. THE CLAIM OF THE ASSESSEE IS THAT IT IS INCORREC T TO SAY THAT IT HAS CREATED A RESERVE/PROVISION IN RESPECT OF THE OVERDUE INTERES T ON NPAS. IT IS EXPLAINED THAT INSTEAD OF NETTING OF THE INTEREST ON LOANS, T HE BANK HAS SHOWN THE GROSS INTEREST ON CREDIT SIDE OF THE PROFIT & LOSS ACCOUN T AND ON THE DEBIT SIDE OF THE PROFIT & LOSS ACCOUNT THE AMOUNT OF INTEREST ON NPA S HAS BEEN SEPARATELY SHOWN. IT IS FURTHER POINTED OUT THAT AMOUNT ON TH E DEBIT SIDE OF THE PROFIT & LOSS ACCOUNT IS NOT APPEARING AS A PROVISION. FURTHER, EVEN IN THE BALANCE-SHEET, IT IS POINTED OUT THAT AMOUNT OF RS.82,81,68,339/- ON THE LIABILITIES SIDE OF THE BALANCE-SHEET DOES NOT APPEAR UNDER THE HEAD RESER VE AND OTHER FUNDS BUT IS SEPARATELY DISCLOSED AS OVERDUE INTEREST RESERVE. IT IS ALSO POINTED OUT THAT THE TREATMENT IN THE FINANCIAL STATEMENT OF THE ASSESSE E WOULD SHOW THAT IT HAS NEVER CREATED IN A PROVISION OR A RESERVE IN RESPECT OF O VERDUE INTEREST ON NPAS AS SOUGHT TO BE MADE OUT BY THE INCOME-TAX AUTHORITIES . IN THIS CONTEXT, THE FOLLOWING AVERMENTS IN THE AFFIDAVIT ARE RELEVANT :- 3. IT IS RESPECTFULLY SUBMITTED THAT IN THE BALANC E SHEET AS ON 31/03/2008 [IN ENGLISH COPY] ON THE LIABILITY SI DE THERE APPEARS AN ENTRY FOR RS.82,81,68,339.10 STYLED AS O VERDUE INTEREST RESERVE. THE BANK SUBMITS THAT THE TERM RE SERVE IS MISTAKENLY USED AND IS ERRONEOUS AND IN FACT IT IS A CONTRA ENTRY FOR INTEREST RECEIVABLE ON N.P.A. WHICH IS AP PEARING ON ASSET SIDE OF THE BALANCE SHEET UNDER THE HEADING I NTEREST RECEIVABLE AND SUB HEADING ON SOCIETY LOANS AND ON INDIVIDUAL LOAN. THE BANK SUBMITS THAT THE SAID AMO UNT OF 5 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. RS.82,81,68,339.10 IS NOT APPEARING ON LIABILITY SI DE OF THE BALANCE SHEET UNDER THE HEADING RESERVES AND OTHER FUNDS BUT IS SEPARATELY DISCLOSED AS OVERDUE INTEREST. SI MILARLY IN THE PROFIT AND LOSS ACCOUNT THE AMOUNT OF RS.47,01,85,3 66.04 [BEING THE INTEREST ON N.P.A. DURING THE YEAR] IS N OT APPEARING UNDER THE HEADING PROVISIONS BUT IS DEBITED UNDER T HE HEADING INTEREST PAID AS OVERDUE INTEREST ON LOANS OF SOCIE TIES AND INDIVIDUALS AS A CONTRA ENTRY. 4. THE BANK MOST RESPECTFULLY SUBMITS THAT A CAREFU L AND DISPASSIONATE STUDY OF THE FINAL ACCOUNTS OF THE BANK WOULD REVEA L THAT IT HAS NEVER CREATED ANY PROVISION OR RESERVE IN RESPECT OF OVERDUE INTE REST ON N.P.A. AS ALLEGED BY THE TAX AUTHORITIES. THE ENTRIES AS APPEARING IN THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET FOR THE F.Y. 2007-08 APPEAR T O HAVE CREATED SOME CONFUSION IN THE MINDS OF THE LEARNED ASSESSING OFF ICER. IT IS FALSE AND INCORRECT TO SAY THAT THE BANK HAS CREATED A RESERV E/ PROVISION IN RESPECT OF THE OVERDUE INTEREST ON N.P.A. WHICH HAS BEEN TREAT ED AS INTEREST ACCRUED IN THE BOOKS OF ACCOUNT OF THE BANK FOR THE RELEVANT Y EAR. 5. THE BANK MOST RESPECTFULLY SUBMITS THAT INSTEAD OF NETTING OF THE INTEREST ON LOANS, THE BANK HAS SHOWN THE GROSS INT EREST ON CREDIT SIDE OF THE PROFIT AND LOSS ACCOUNT AND SIMULTANEOUSLY SHOWN ON DEBIT SIDE OF THE PROFIT AND LOSS ACCOUNT THE AMOUNT OF INTEREST ON N.P.A. W HICH IS IN ACCORDANCE WITH THE ACCOUNTING STANDARD [AS] 9 ISSUED BY THE I .C.A.I. 6. THE BANK MOST RESPECTFULLY SUBMITS THAT AS ON 31 /03/2008 IT HAD 214 BRANCHES. AT THE TIME OF PREPARATION OF CONSOLIDATE D PROFIT AND LOSS ACCOUNT AND BALANCE SHEET AS ON 31/03/2008 [THE COPIES OF W HICH ARE FILED BEFORE THE VARIOUS TAX AUTHORITIES] SOLELY WITH A VIEW TO MAKE A DISCLOSURE OF GROSS INTEREST THAT WOULD HAVE BEEN RECEIVED BY THE BANK, THE INTEREST ON N.P.A. IS DISCLOSED ON CREDIT SIDE OF THE PROFIT AND LOSS ACC OUNT AND A CONTRA ENTRY IS MADE ON DEBIT SIDE UNDER THE HEAD INTEREST PAID. TH IS ACCOUNTING TREATMENT DOES NOT BY ANY LOGIC CONVERT THE INTEREST ON N.P.A . IN TO INTEREST ACCRUED WITHIN THE MEANING OF THE PROVISIONS OF THE I.T. AC T 1961 OR CANNOT BE CALLED AS RECOGNITION OF INCOME BY THE BANK. 7. THE INTEREST ON N.P.A. ADVANCES CAN NEVER BE REC OGNIZED AS INCOME ACCRUED TO THE BANK MERELY BY PLACING RELIANCE IN I SOLATION ON THE PRESENTATION OF PROFIT AND LOSS ACCOUNT AND DEHORS OF ENTRIES IN THE BALANCE SHEET WHICH SHOW THAT THE SAME IS SIMULTANEOUSLY DEBITED TO INT EREST RECEIVABLE ON N.P.A. ACCOUNT [ON ASSET SIDE] AND A CONTRA CREDIT ENTRY IS MADE IN OVERDUE INTEREST ACCOUNT [ON LIABILITY SIDE] 8. THE BANK MOST RESPECTFULLY SUBMITS THAT THE AFOR ESAID FACTUAL POSITION WAS EXPLAINED BY IT TO THE LEARNED ASSESSING OFFICE R DURING THE ASSESSMENT PROCEEDINGS AS WELL AS TO THE LEARNED C.I.T.[A] DUR ING THE APPELLATE PROCEEDINGS. HOWEVER BOTH THE AUTHORITIES HAVE FAIL ED TO APPRECIATE THE FACTS IN THE PROPER PERSPECTIVE. 9. THE BANK MOST RESPECTFULLY SUBMITS THAT ENTRIES MADE WHILE PRESENTATION OF FINAL ACCOUNTS TO THE SHAREHOLDERS FOR BETTER UNDER STANDING OF THE VARIOUS ISSUES SHALL NOT CONVERT THE TRUE CHARACTER AND NAT URE OF INCOME. 10. APART THEREFROM, IT HAS ALSO BEEN POINTED OUT T HAT THE GROSS INTEREST REFLECTED ON THE CREDIT SIDE OF THE PROFIT & LOSS A CCOUNT AND THE OVERDUE INTEREST ON NPAS SHOWN ON THE DEBIT SIDE OF THE PROFIT & LOS S ACCOUNT IS AS PER THE REQUIREMENTS OF SECTION 65 OF THE MAHARASHTRA CO-OP ERATIVE SOCIETIES ACT, 1960 WHICH PRESCRIBES THE MANNER IN WHICH THE NET PROFIT OR LOSS IS REQUIRED TO BE COMPUTED IN THE FINANCIAL STATEMENT. IT WAS THEREF ORE CONTENDED THAT PRESENTATION IN THE ANNUAL FINANCIAL STATEMENTS WOU LD NOT JUSTIFY THE INCOME-TAX AUTHORITIES TO TREAT THE CLAIM OF THE ASSESSEE DIFF ERENTLY THAN AN ASSESSEE WHO WOULD HAVE NETTED THE INTEREST ON LOANS. 11. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. AS NOTED EARLIER, THE CRUX OF THE CONTROVERSY IS WITH REGARD TO ASSESSEE S CLAIM THAT INCOME WITH 6 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. RESPECT TO THE INTEREST ON NPAS CLASSIFIED AS PER R BI NORMS IS NOT ASSESSABLE ON ACCRUAL BASIS BUT IS LIABLE TO BE TAXED AS AND WHEN RECEIVED. AS PER THE REVENUE, IN THE PRESENT CASE, ASSESSEE HAS CREDITED GROSS INTEREST IN ITS PROFIT & LOSS ACCOUNT WHICH IS INCLUSIVE OF THE INTEREST REL ATABLE TO THE NPAS, AND CREDITING OF SUCH INTEREST IN THE PROFIT & LOSS ACC OUNT SHOWS THAT ASSESSEE HAS PERCEIVED SUCH INCOME TO HAVE BEEN ACCRUED, BECAUSE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. 12. UNDISPUTEDLY, THE ASSESSEE BANK IS FOLLOWING TH E MERCANTILE SYSTEM OF ACCOUNTING. HOWEVER, WITH REGARD TO THE RECOGNITIO N OF INCOME ON NPAS, IT HAS APPLIED THE RBI GUIDELINES WHICH SAY THAT SUCH INCO ME IS NOT TO BE RECOGNIZED ON ACCRUAL BASIS BUT IS TO BE RECOGNIZED AS INCOME ONL Y WHEN IT IS ACTUALLY RECEIVED. THE RBI GUIDELINES ALSO PRESCRIBE THE MANNER IN WHI CH THE INTEREST IN RELATION TO NPAS IS TO BE SHOWN IN THE ANNUAL FINANCIAL STATEME NTS. IN TERMS OF THE MASTER CIRCULAR ON INCOME RECOGNITION, ASSET CLASSIFICATIO N, PROVISIONING & OTHER RELATED MATTERS ISSUED BY THE RBI ON 4 TH JULY, 2004 IN CHAPTER 4 OF INCOME RECOGNITION IN PARA 4.5.1 IT IS ADVISED THAT THE A CCRUED INTEREST IN RELATION TO NPAS SHOULD BE COMPUTED AND SHOWN SEPARATELY, THOUG H NOT ACCOUNTED AS INCOME OF THE BANK FOR THE RELEVANT PERIOD. FURTHER , IN PARA 4.5.3, WITH A VIEW TO ENSURING UNIFORMITY IN ACCOUNTING THE ACCRUED INTER EST IN RESPECT OF BOTH THE PERFORMING AND NON-PERFORMING ASSETS, THE RBI GUIDE LINES INTER-ALIA, PRESCRIBE THAT INTEREST ACCRUED IN RESPECT OF NPAS SHOULD NOT BE DEBITED TO BORROWAL ACCOUNTS BUT SHOWN SEPARATELY UNDER INTEREST RECEI VABLE ACCOUNT ON THE PROPERTY AND ASSETS SIDE OF THE BALANCE-SHEET AND CORRESPONDING AMOUNT SHOWN UNDER THE OVERDUE INTEREST RESERVE ACCOUNT ON THE CAPITAL AND LIABILITIES SIDE OF THE BALANCE-SHEET. IN-FACT, A S A PREFACE IN PARA 4.5.3 THE RBI HAS LAID DOWN THAT THE AFORESAID GUIDELINE BE ADOPT ED NOTWITHSTANDING THE EXISTING PROVISIONS IN THE RESPECTIVE STATE CO-OPER ATIVE SOCIETIES ACT. NOTABLY, THE BALANCE-SHEET FORMAT PRESCRIBED UNDER THE THIRD SCHEDULE TO THE BANKING REGULATION ACT, 1949 (AS APPLICABLE TO CO-OPERATIVE SOCIETIES) SPECIFICALLY REQUIRES THE BANKS TO SHOW OVERDUE INTEREST RESERV E AS A DISTINCT ITEM ON THE CAPITAL AND LIABILITIES SIDE OF THE BALANCE-SHEET . THUS, IT IS EVIDENT THAT OVERDUE INTEREST RESERVE ACCOUNT CANNOT BE REGARD ED AS A RESERVE OR A PART OF THE OWNED FUNDS OF THE BANK, AS IT IS NOT CREATE D OUT OF THE REAL INCOME RECEIVED BY THE BANK. 13. AS A COMPLIANCE TO THE AFORESAID RBI GUIDELIN ES, WE FIND THAT THE ASSESSEE HAS NOT DEBITED THE INTEREST ON NPAS TO TH E ACCOUNTS OF THE RESPECTIVE BORROWALS BUT IT HAS BEEN SHOWN SEPARATELY UNDER I NTEREST RECEIVABLE ACCOUNT ON THE PROPERTY AND ASSETS SIDE OF THE BALANCE-SH EET. AND CORRESPONDING AMOUNT HAS BEEN SHOWN UNDER OVERDUE INTEREST RESER VE ACCOUNT ON THE CAPITAL AND LIABILITIES SIDE OF THE BALANCE-SHEET . THUS, THE DEPICTION IN THE BALANCE-SHEET IS IN ADHERENCE TO THE PRESCRIPTION C ONTAINED IN THE BANKING REGULATION ACT, 1949 (AS APPLICABLE TO CO-OPERATIVE SOCIETIES), A STATUTE UNDER WHICH ASSESSEE IS BOUND TO CARRY OUT ITS BANKING BU SINESS. 14. NOW, WE MAY COME TO THE PLEA OF THE REVENUE WIT H REFERENCE TO THE DEPICTION OF IMPUGNED INTEREST ON NPAS IN THE PROFI T & LOSS ACCOUNT PREPARED BY THE ASSESSEE. AS HAS BEEN SUCCINCTLY NOTED BY US I N THE EARLIER PARAS, ASSESSEE HAS CREDITED ITS PROFIT & LOSS ACCOUNT WITH GROSS I NTEREST WHICH, INTER-ALIA, INCLUDES THE IMPUGNED INTEREST ON NPAS. ON THE DEB IT SIDE, ASSESSEE HAS SHOWN THE IMPUGNED INTEREST ON NPAS UNDER THE HEADI NG INTEREST PAID AND SUB- HEADINGS OVERDUE INTEREST FROM SOCIETY LOANS AND OVERDUE INTEREST FROM INDIVIDUAL LOANS. THE ASSESSEE IS A SOCIETY REGIS TERED UNDER THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT, 1960 AND IT IS ALSO GOV ERNED BY THE MAHARASHTRA CO- OPERATIVE SOCIETIES RULES, 1961. SECTION 65 OF THE MAHARASHTRA SOCIETIES ACT, 1960 DEALS WITH ASCERTAINMENT AND APPROPRIATION OF PROFITS BY A SOCIETY. SUB- SECTION (1) OF SECTION 65 OF THE MAHARASHTRA CO-OPE RATE SOCIETIES ACT, 1960 LAYS DOWN THAT A SOCIETY SHALL CONSTRUCT ITS RELEVANT AN NUAL FINANCIAL STATEMENTS TO ARRIVE AT ITS CONSEQUENT NET PROFIT OR LOSS IN THE MANNER PRESCRIBED. SUCH MANNER IN RELATION TO THE CALCULATION OF NET PROFITS HAS B EEN PRESCRIBED IN RULE 49-A OF THE MAHARASHTRA CO-OPERATIVE SOCIETIES RULES, 1961. RU LE 49-A PRESCRIBES THAT A 7 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. SOCIETY SHALL CALCULATE THE NET PROFITS BY DEDUCTI NG FROM THE GROSS PROFITS FOR THE YEAR THE ITEMS (I) TO (XVI) PRESCRIBED THEREIN. FO R OUR PURPOSE, IT WOULD SUFFICE TO EXAMINE ITEM (I) OF THE AMOUNTS DEDUCTIBLE, WHICH R EADS AS UNDER :- (I) ALL INTEREST ACCRUED AND ACCRUING ON AMOUNTS O F OVERDUE LOANS (EXCEPT IN OVERDUE AMOUNTS OF LOANS AGAINST F IXED DEPOSIT, GOLD, ETC. 15. THE AFORESAID WOULD SHOW THAT WHILE CONSTRUCTIN G ITS PROFIT & LOSS ACCOUNT TO ARRIVE AT ITS NET PROFIT OR LOSS, A CO-O PERATIVE SOCIETY IS REQUIRED TO SHOW INTEREST ACCRUED/ACCRUING ON AMOUNTS OF OVERDU E LOANS SEPARATELY. THIS IS PRECISELY WHAT HAS BEEN DONE BY THE ASSESSEE IN THE PRESENT CASE. THE AFORESAID REQUIREMENT OF THE MANNER OF CONSTRUCTION OF PROFIT & LOSS ACCOUNT, PRESCRIBED UNDER THE RULES OF THE MAHARASHTRA CO-OP ERATIVE SOCIETIES ACT, 1960, HAS PROMPTED THE ASSESSEE TO DRAW UP ITS PROFIT & L OSS ACCOUNT IN THE MANNER WE HAVE NOTED ABOVE QUA THE INTEREST ON NPAS. THER EFORE, IT CANNOT BE ACCEPTED THAT THE MANNER OR PRESENTATION OF ACCOUNT WHICH OSTENSIBLY IS IN COMPLIANCE WITH THE STATUTORY PROVISIONS GOVERNING THE ASSESSEE, CAN BE A FACTOR TO EVALUATE ASSESSABILITY OR OTHERWISE OF AN INCOME . IN OUR CONSIDERED OPINION, IT WOULD INAPPROPRIATE TO BE MERELY GUIDED BY A PRESEN TATION IN THE ANNUAL FINANCIAL STATEMENTS TO INFER ASSESSEES PERCEPTION THAT AN I NCOME HAD ACCRUED, WITHOUT CONSIDERING THE ENTRIES MADE IN THE FINANCIAL STATE MENTS IN TOTO. IN THE PRESENT CASE, IT IS QUITE CLEAR THAT ASSESSEE HAS DRAWN UP ITS ANNUAL FINANCIAL STATEMENT IN COMPLIANCE WITH THE REQUIREMENTS OF THE STATUTES UNDER WHICH IT FUNCTIONS AND/OR IS INCORPORATED. THEREFORE, THE ISSUE WITH REGARD TO NON-RECOGNITION OF INCOME ON NPAS IS REQUIRED TO BE ADJUDICATED HAVING REGARD TO THE RELEVANT LEGAL POSITION AND NOT ON THE BASIS OF THE PRESENTATION I N THE ANNUAL FINANCIAL STATEMENTS. AT THIS STAGE, WE MAY ALSO REFER TO TH E JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. SHOORJI VALLAB HDAS & CO., (1962) 46 ITR 144 (SC) FOR THE PROPOSITION THAT A MERE BOOK KEEPI NG ENTRY CANNOT BE ASSESSED AS INCOME UNLESS IT CAN BE SHOWN THAT INCOME HAS AC TUALLY RESULTED. IN THE PRESENT CASE, THE CREDITING OF GROSS INTEREST IN TH E PROFIT & LOSS ACCOUNT, WHICH INCLUDES INTEREST ON NPAS CANNOT BE TAKEN AS A PROO F THAT SUCH INCOME HAS ACCRUED TO THE ASSESSEE UNLESS THE STATUTORY GUIDEL INES APPLICABLE ON THE SAID SUBJECT ARE IGNORED. OBVIOUSLY, WHEN THE BANKING I NSTITUTIONS FOLLOWING MERCANTILE SYSTEM ACCOUNTING ARE PERMITTED TO TREAT THE INCOME ON NPAS AS ASSESSABLE ON RECEIPT BASIS, SUCH A POSITION CANNOT BE IGNORED IN THE CASE OF PRESENT ASSESSEE MERELY BECAUSE OF A PRESENTATION I N THE ANNUAL FINANCIAL STATEMENTS. EVEN OTHERWISE, WE NOTICE THAT THE RBI GUIDELINES PERMIT THAT INTEREST INCOME ON NPAS BE PARKED IN A SUSPENSE ACC OUNT AND IT IS NOT NECESSARY THAT IT HAS TO BE BROUGHT TO THE PROFIT & LOSS ACCOUNT BY THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, AS SEEN EARLIER, ASSE SSEE HAS CREDITED THE GROSS AMOUNT OF INTEREST ON CREDIT SIDE OF THE PROFIT & L OSS ACCOUNT AND SIMULTANEOUSLY SHOWN ON THE DEBIT SIDE OF THE PROFIT & LOSS ACCOUN T, THE AMOUNT OF INTEREST ON NPAS. IN OTHER WORDS, INSTEAD OF NETTING OF THE IN TEREST THE TWO AMOUNTS HAVE BEEN SHOWN SEPARATELY ONE ON THE CREDIT SIDE AND OT HER ON THE DEBIT SIDE. THE NET EFFECT OF THE SAID PRESENTATION IS THE SAME. T HEREFORE, IN OUR VIEW, THE LOWER AUTHORITIES HAVE MISGUIDED THEMSELVES IN REJECTING THE CLAIM OF THE ASSESSEE FOR NON-RECOGNITION OF INTEREST INCOME ON NPAS. 16. IN VIEW OF THE AFORESAID, WE SET-ASIDE THE ORDE R OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 47,01,85,366/-. THUS, ON GROUNDS OF APPEAL NO.1 AND 2 ASSESSEE SUCCEEDS. TH E GROUND OF APPEAL NO.3 IS ONLY AN ALTERNATIVE GROUND RAISED, IN CASE ASSE SSEE DOES NOT SUCCEED ON GROUNDS OF APPEAL NO.1 AND 2. SINCE ASSESSEE HAS S UCCEEDED ON GROUNDS OF APPEAL NO.1 AND 2, GROUND OF APPEAL NO.3 IS DISMISS ED AS INFRUCTUOUS. 5. FOLLOWING THE AFORESAID PRECEDENT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, WE SET ASIDE THE IMPUGNED ORDER OF THE 8 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. COMMISSIONER (APPEALS) AND DIRECT THE ASSESSING OFF ICER TO DELETE THE ADDITION OF RS.7,88,22,858/-. THUS, WITH RESPECT TO GROUND OF APPEAL NO.1, THE ASSESSEE SUCCEEDS. 6. INSOFAR AS GROUND OF APPEAL NO.2 IS CONCERNED, IT R ELATES TO AN AMOUNT OF RS.54,38,535, REPRESENTING THE INTEREST ON AGRIC ULTURAL CREDIT STABILIZATION FUND. 7. IN THE ABOVE CONTEXT, A PERUSAL OF PARA-8 OF THE AS SESSMENT ORDER REVEALS THAT A SUM OF RS.54,38,535/- WAS FOUND TO H AVE BEEN DEBITED BY THE ASSESSEE IN ITS PROFIT & LOSS ACCOUNT ON ACCOUNT OF INTEREST PAID ON AGRICULTURAL CREDIT STABILIZATION FUNDS . IT IS ALSO NOTICED FROM THE DISCUSSION MADE BY THE ASSESSING OFFICER IN PARA-8 THAT THE AS SESSEE HAD SUO-MOTU DISALLOWED THE SAID AMOUNT IN THE COMPUTATION OF IN COME FILED ALONG WITH THE REVISED RETURN OF INCOME FILED ON 31 ST MARCH 2011. IN THIS BACKGROUND, IT IS ALSO NOTICEABLE THAT BEFORE THE LEARNED COMMISSIONE R (APPEALS) ALSO, NO SPECIFIC GROUND WAS RAISED IN THIS REGARD. FURTHERM ORE, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED AT THE TIME OF HEARING THAT SIMILAR ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 VIDE ORDER DATED 29 TH SEPTEMBER 2014 (SUPRA). 8. IN VIEW OF THE AFORESAID DISCUSSION, WE FIND NO MER IT IN THE GROUND OF APPEAL RAISED BY THE ASSESSEE AND, ACCORDINGLY, GRO UND OF APPEAL NO.2, IS DISMISSED. 9. THE THIRD GROUND OF APPEAL RAISED BY THE ASSESSEE R ELATES TO THE CLAIM OF DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT. 9 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. 10. IN THIS CONTEXT, THE DISPUTE ARISES FROM THE ACTION OF THE INCOME TAX AUTHORITIES IN RESTRICTING THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 36(1)(VIIA) OF THE ACT TO THE ACTUAL AMOUNT OF PROVISION MADE IN THE BOOKS OF ACCOUNT FOR BAD AND DOUBTFUL DEBTS AMOUNTI NG TO RS.15,37,76,000/- AS AGAINST ASSESSEES CLAIM FOR D EDUCTION OF RS.65,35,21,900. 11. ON THIS GROUND ALSO, IT WAS A COMMON POINT BETWEEN THE PARTIES THAT SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUNAL IN TH E CASE OF MAHALAXMI CO- OPERATIVE BANK LTD. V/S ACIT, ITA NO.1658/PN/2011, ORDER DATED 29 TH OCTOBER 2013, WHEREIN THE ISSUE WAS DECIDED AGAINST THE ASSESSEE. 12. HOWEVER, IN ORDER TO APPRECIATE THE CONTROVERSY, TH E FOLLOWING DISCUSSION IS RELEVANT. THE ASSESSEE BEING A CO-OP ERATIVE BANK, ENGAGED IN THE BUSINESS OF BANKING, WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE ON ACCOUNT OF AGGREGATE AVERAGE ADVANCES MADE BY THE R URAL BRANCHES OF THE ASSESSEE BANK. SECTION 36(1)(VIIA) PROVIDES THAT SU CH DEDUCTION SHALL NOT EXCEED 7.5% OF THE TOTAL INCOME (COMPUTED BEFORE MA KING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER-VIA OF THE ACT) AND A N AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE R URAL BRANCHES OF THE BANK. BY RELYING ON SECTION 36(1)(VIIA) OF THE ACT, ASSESSEE CLAIMED A DEDUCTION OF RS.65,35,21,900/- ON ACCOUNT OF BAD AN D DOUBTFUL DEBTS RELATING TO THE ADVANCES MADE BY THE RURAL BRANCHES . IT WAS NOTICED THAT AS AGAINST THE CLAIM OF RS.65,35,21,900/- MADE IN THE RETURN OF INCOME, ASSESSEE HAD MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS.15,37,76,000/- ONLY IN THE BOOKS OF ACCOUNT. ACC ORDINGLY, ASSESSEES CLAIM FOR DEDUCTION UNDER SECTION 36(1)(VIIA) OF TH E ACT WAS RESTRICTED TO THE 10 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. EXTENT OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE BOOKS OF ACCOUNT. THE SCALING DOWN OF THE CLAIM OF DEDUCTION IS THE C ONTROVERSY BEFORE US. IN THIS CONTEXT, THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF MAHALAXMI CO- OPERATIVE BANK LTD. (SUPRA) CONSIDERED AN IDENTICAL CONTROVERSY AND CAME TO CONCLUDE THAT THE DEDUCTION SOUGHT TO BE CLAIMED BY THE ASSESSEE UNDER SECTION 36(1)(VIIA) OF THE ACT WAS LIABLE TO BE RES TRICTED TO THE EXTENT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACTUALLY MADE IN THE BOOKS OF ACCOUNT. THE RELEVANT DISCUSSION IN THE ORDER OF THE TRIBUNA L DATED 29 TH OCTOBER 2013 (SUPRA) IS REPRODUCED HEREINAFTER:- 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. WE HAVE ALSO ANXIOUSLY PERUSED THE AUTHORITIES CITED AT BAR IN O RDER TO DETERMINE THE CONTROVERSY ON HAND. THE RELEVANT PORTION OF SE CTION 36(1)(VIIA) OF THE ACT, AS APPLICABLE FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION I.E. A.Y. 2008-09 READS AS UNDER : - [(VIIA) [IN RESPECT OF ANY PROVISION FOR BAD AND D OUBTFUL DEBTS MADE BY (A) A SCHEDULED BANK [NOT BEING [* * *] A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTS IDE INDIA] OR A NON-SCHEDULED BANK [OR A CO-OPERATIVE B ANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK], AN AMOUNT [NOT EXCEEDING SEVEN AND ONE-HALF PER CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKING A NY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING [TEN] PER CENT OF THE AGGREGAT E AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER:- 10. A BARE PERUSAL OF AFORESAID SECTION CLEARLY BRI NGS OUT THAT THE DEDUCTION SPECIFIED THEREIN IS IN RESPECT OF ANY P ROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY.. AN ELIGIBLE ASSESSEE. T HE PRESENCE OF THE AFORESAID EXPRESSION IN THE SECTION SUPPORTS THE PL EA OF THE REVENUE, WHICH IS TO THE EFFECT THAT THE DEDUCTION ALLOWABLE UNDER SECTION 36(1)(VIIA) OF THE ACT IS IN RESPECT OF THE PROVISI ON MADE BY THE ASSESSEE. IN OUR CONSIDERED OPINION, THE JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BA NK OF PATIALA (SUPRA) CLEARLY COVERS THE CONTROVERSY IN FAVOUR OF THE REVENUE AND BELIES THE INTERPRETATION SOUGHT TO BE CANVASSED BY THE ASSESSEE. IN THE CASE BEFORE THE HONBLE HIGH COURT, ASSESSEE-BA NK HAD ORIGINALLY FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 1985 -86 CLAIMING DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT AT R S.1,90,36,000/-. AFTER FILING OF THE RETURN THE PROVISIONS OF SECTIO N 36(1)(VIIA) OF THE ACT WERE AMENDED BY FINANCE ACT, 1985 WHEREBY DEDUCTION WAS ENHANCED TO 10% OF THE PROFIT OR 2% OF THE AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES OF THE BANK, WHICHEVER WAS HIGHER . ON ACCOUNT OF 11 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. THE AMENDED PROVISIONS, ASSESSEE FILED A REVISED RE TURN OF INCOME ON 24.04.1986 ENHANCING THE CLAIM FOR DEDUCTION FROM R S.1,90,36,000/- TO RS.1,94,21,000/-. THE ASSESSING OFFICER RESTRICT ED THE DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT TO RS.1,90,36, 000/- ONLY AND DISALLOWED THE BALANCE ON THE GROUND THAT IN THE BO OKS OF ACCOUNT PERTAINING TO THE RELEVANT ASSESSMENT YEAR, ASSESSE E HAD MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS.1,90,36, 000/- ONLY. THE ASSESSEE ARGUED THAT THE PROVISION OF RS.1,90,36,00 0/- WAS MADE IN THE BALANCE-SHEET FINALIZED ON 14.02.1985 WHICH WAS AS PER THE UNAMENDED PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND THAT IN VIEW OF THE AMENDMENT OF SECTION 36(1)(VIIA) OF THE ACT PERMITTING HIGHER CLAIM OF DEDUCTION, THE ASSESSEE COULD NOT H AVE POSSIBLY MADE THE HIGHER PROVISION IN THE BALANCE-SHEET FINALIZED ON A PRIOR DATE, BUT IT MADE UP THE SHORTFALL BY MAKING AN ADEQUATE PROV ISION IN THE BALANCE-SHEET OF THE SUBSEQUENT ASSESSMENT YEAR. ON THIS BASIS, IT WAS SOUGHT TO BE MADE OUT THAT THERE WAS SUBSTANTIA L COMPLIANCE WITH THE REQUIREMENT OF LAW OF MAKING PROVISION FOR BAD AND DOUBTFUL DEBTS AND THEREFORE ASSESSEE JUSTIFIED THE CLAIM OF DEDUC TION FOR THE COMPLETE AMOUNT OF RS.1,94,21,000/- AND NOT RESTRIC TED TO RS.1,90,36,000/-. THE CIT(A) AS WELL AS THE TRIBUNA L NEGATED THE PLEA OF THE ASSESSEE AND ACCORDINGLY, THE MATTER WAS CAR RIED BEFORE THE HONBLE PUNJAB & HARYANA HIGH COURT. THE HONBLE HI GH COURT REFERRED TO THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND OBSERVED THAT ..THE DEDUCTION ALLOWABLE UNDER THE ABOVE PROVISI ONS IS IN RESPECT OF THE PROVISION MADE AND FURTHER WENT ON TO HOLD THA T ..MAKING OF A PROVISION FOR BAD AND DOUBTFUL DEBTS EQUAL TO THE A MOUNT MENTIONED IN THIS SECTION IS MUST FOR CLAIMING SUCH DEDUCTION. IN VIEW OF THE AFORESAID JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT, IN OUR VIEW, THE POSITION SOUGHT TO BE CANVASSED BY TH E ASSESSEE DESERVES TO BE REPELLED. WE REPRODUCE HEREINAFTER T HE RELEVANT PORTION OF THE ORDER OF THE HONBLE HIGH COURT, WHICH READS AS UNDER :- 5. SEC.36(1)(VIIA) OF THE ACT AS APPLICABLE TO THE ASST. YR. 1985-86, READS AS UNDER : IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL D EBTS MADE BY A SCHEDULED BANK [NOT BEING A BANK APPROVED BY THE CENTRAL GOVERNMENT FOR THE PURPOSES OF CL.(VIII A) OR A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON-SCHEDULED BANK, AN AMOUNT N OT EXCEEDING TEN PER CENT OF THE TOTAL INCOME (COMPUTE D BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI-A) OR AN AMOUNT NOT EXCEEDING TWO PER CE NT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK, COMPUTED IN THE PRESCRIBED MANNER, WHICHEVER IS HIGHER. 6. A BARE PERUSAL OF THE ABOVE SHOWS THAT THE DEDUC TION ALLOWABLE UNDER THE ABOVE PROVISIONS IS IN RESPECT OF THE PRO VISION MADE. THEREFORE, MAKING OF A PROVISION FOR BAD AND DOUBTF UL DEBTS EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS A MUST FOR CLAIMING SUCH DEDUCTION. THE TRIBUNAL HAS RIGHTLY POINTED OUT THA T THIS ISSUE STANDS FURTHER CLARIFIED FROM THE PROVISO TO CL.(VII) OF S .36(1) OF THE ACT, WHICH READS AS UNDER : PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH CL.(VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELA TING TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO T HE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS T HE 12 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFU L DEBTS ACCOUNT MADE UNDER THAT CLAUSE. 7. THIS ALSO CLEARLY SHOWS THAT MAKING OF PROVISION EQUAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE ACCOUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTION UNDER S. 36(1)(VIIA) OF THE ACT. THE TRIBUNAL HAS DISTINGUISHED VARIOUS AUTHORITIES RELIED UPON BY TH E ASSESSEE WHEREIN DEDUCTIONS HAD BEEN ALLOWED UNDER VARIOUS PROVISION S WHICH ALSO REQUIRED CREATION OF RESERVE AFTER THE ASSESSEE HAD CREATED SUCH RESERVE IN THE ACCOUNT BOOKS BEFORE THE COMPLETION OF THE ASSESSMENT. IT HAS BEEN CORRECTLY POINTED OUT THAT IN ALL THOSE CASES, RESERVES/PROVISIONS HAD BEEN MADE IN THE BOOKS OF A CCOUNT OF THE SAME ASSESSMENT YEAR AND NOT OF THE SUBSEQUENT ASSE SSMENT YEAR. 8. IN THE PRESENT CASE, THE ASSESSEE HAS NOT MADE A NY PROVISION IN THE BOOKS OF ACCOUNT FOR THE ASSESSMENT YEAR UNDER CONS IDERATION, I.E., 1985-86, BY MAKING SUPPLEMENTARY ENTRIES AND BY REV ISING ITS BALANCE SHEET. THE PROVISION HAS BEEN MADE IN THE BOOKS OF ACCOUNT OF THE SUBSEQUENT YEAR. 9. WE ARE, THEREFORE, SATISFIED THAT THE TRIBUNAL W AS RIGHT IN HOLDING THAT SINCE THE ASSESSEE HAD MADE A PROVISION OF RS. 1,19,36,000 FOR BAD AND DOUBTFUL DEBTS, ITS CLAIM FOR DEDUCTION UND ER S. 36(1)(VIIA) OF THE ACT HAD TO BE RESTRICTED TO THAT AMOUNT ONLY. S INCE THE LANGUAGE OF THE STATUTE IS CLEAR AND IS NOT CAPABLE OF ANY OTHE R INTERPRETATION, WE ARE SATISFIED THAT NO SUBSTANTIAL QUESTION OF LAW A RISES IN THIS APPEAL FOR CONSIDERATION BY THIS COURT. 11. IN VIEW OF THE AFORESAID INTERPRETATION OF SECT ION 36(1)(VIIA) OF THE ACT BY THE HONBLE PUNJAB & HARYANA HIGH COURT, THE ORDERS OF THE LOWER AUTHORITIES DESERVE TO BE UPHELD INASMUCH AS THE ASSESSEE HAS NOT MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNT EQUAL TO THE AMOUNT OF DEDUCTION SOUGHT TO BE CLAIMED UNDER SECTION 36(1)(VIIA) OF THE ACT, AND THEREFORE, IN O UR VIEW, THE LOWER AUTHORITIES WERE JUSTIFIED IN RESTRICTING THE DEDUC TION TO RS.50,00,000/- , BEING THE AMOUNT OF PROVISION ACTUALLY MADE IN TH E BOOKS OF ACCOUNT. 12. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CITED CERTAIN DECISION IN SUPPORT OF HIS PROPOSITION THAT THE CLAIM OF DEDUCT ION UNDER SECTION 36(1)(VIIA) OF THE ACT IS NOT LINKED TO MAKING OF A PROVISION IN THE ACCOUNT BOOKS. AT THE OUTSET, WE MAY OBSERVE THAT T HE DECISIONS RELIED UPON BY THE ASSESSEE ARE OF VARIOUS BENCHES OF THE TRIBUNAL AND NOT OF ANY HIGH COURT. THEREFORE, THE JUDGEMENT OF THE HON BLE HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA), WHICH IS CONTRARY TO THE DECISIONS OF THE TRIBUNAL RELIED UPON BY THE ASSESS EE; AND BEING SOLITARY JUDGEMENT OF A HIGH COURT, IS REQUIRED TO BE APPLIED, HAVING REGARD TO THE ESTABLISHED NORMS OF JUDICIAL DISCIPL INE. FOR THE SAID REASON, WE REFRAIN FROM DISCUSSING EACH OF THE DECI SIONS OF THE TRIBUNAL RELIED BY THE ASSESSEE BEFORE US. 13. THE OTHER PLEA OF THE ASSESSEE WAS THAT THE CON TENTS OF THE CBDT CIRCULAR DATED 26.11.2008 (SUPRA) IS CONTRARY TO TH E PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND THEREFORE THE SA ME SHOULD BE DISREGARDED. IN OUR VIEW, THE FOLLOWING EXPLANATION IN RESPECT OF SECTION 36(1)(VIIA) OF THE ACT RENDERED BY THE CBDT IN CIRCULAR DATED 26.11.2008 (SUPRA) BY WAY OF PARA 2(III)(B) AS UNDE R :- (B) THE DEDUCTION FOR PROVISION FOR BAD AND DOUBTF UL DEBTS SHOULD BE RESTRICTED TO THE AMOUNT OF SUCH 13 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. PROVISION ACTUALLY CREATED IN THE BOOKS OF THE ASSE SSEE IN THE RELEVANT YEAR OR THE AMOUNT CALCULATED AS PER PROVISIONS OF SECTION 36(1)(VIIA), WHICHEVER IS LES S. IS IN LINE WITH THE INTERPRETATION OF THE SECTION R ENDERED BY THE HONBLE PUNJAB & HARYANA HIGH COURT AND CANN OT BE SAID TO BE CONTRARY TO THE PROVISIONS OF THE ACT . THEREFORE, THE RELIANCE PLACED BY THE LOWER AUTHORI TIES ON THE CBDT CIRCULAR DATED 26.11.2008 (SUPRA) CANNOT B E FAULTED. 14. BEFORE PARTING, WE MAY REFER TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK L TD. (SUPRA) RELIED UPON BY THE ASSESSEE AND ALSO THE DECISION OF OUR C O-ORDINATE BENCH IN THE CASE OF JAYSINGPUR UDGAON SAHAKARI BANK LTD. (S UPRA). WE HAVE CAREFULLY PERUSED THE SAID DECISION AND FOUND THAT THE ISSUE BEFORE THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIA N BANK LTD. (SUPRA) WAS QUITE DIFFERENT; AND, IN ANY CASE NONE OF THE OBSERVATIONS OF THE HONBLE SUPREME COURT RUN CONTRARY TO THE PR ONOUNCEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA) TO THE EFFECT THAT MAKING OF A PROV ISION FOR BAD AND DOUBTFUL DEBTS EQUAL TO THE AMOUNT MENTIONED IN SEC TION 36(1)(VIIA) OF THE ACT IS MUST FOR CLAIMING SUCH DEDUCTION. THEREF ORE, THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLI C SYRIAN BANK LTD. (SUPRA) DOES NOT HELP THE ASSESSEE IN THE PRESENT C ONTROVERSY BEFORE US. FURTHER, EVEN IN THE CASE OF JAYSINGPUR UDGAON SAHAKARI BANK LTD. (SUPRA), THE TRIBUNAL HAS MERELY SET-ASIDE THE MATT ER FOR ADJUDICATION AFRESH BACK TO THE FILE OF THE ASSESSING OFFICER AN D IT DOES NOT CONTAIN ANY POSITIVE FINDING WITH RESPECT TO THE CONTROVERS Y BEFORE US. 15. IN THE RESULT, CONSIDERING THE AFORESAID DISCUS SION, IN OUR VIEW, THE ORDERS OF THE AUTHORITIES BELOW ON THIS ASPECT ARE LIABLE TO BE UPHELD. WE HOLD SO. 13. FOLLOWING THE AFORESAID PRECEDENT AND IN VIEW OF T HE STAND OF BOTH THE PARTIES THAT THE FACTS AND CIRCUMSTANCES IN THE PRE SENT CASE ARE IDENTICAL TO THOSE CONSIDERED BY THE TRIBUNAL IN ITS ORDER DATED 29 TH OCTOBER 2013 (SUPRA), THE GROUND OF APPEAL RAISED BY THE ASSESSE E IS LIABLE TO BE DISMISSED. WE HOLD SO. 14. INSOFAR AS THE GROUND OF APPEAL NO.4 IS CONCERNED, THE SAME WAS NOT PRESSED AT THE TIME OF HEARING AND IT IS ACCORDINGL Y DISMISSED. 15. WITH RESPECT TO THE GROUND OF APPEAL NO.5, IT WAS S UBMITTED THAT THE SAID GROUND IS AN ALTERNATE TO GROUND OF APPEAL NO. 1, WHEREIN THE ASSESSEE 14 THE SOLAPUR DISTRICT CENTRAL CO. OP. BANK LTD. HAS ALREADY SUCCEEDED AND, THEREFORE, THE SAID GROU ND OF APPEAL WAS ALSO NOT PRESSED AT THE TIME OF HEARING. ACCORDINGLY, TH E SAME IS DISMISSED. 16. THE LAST GROUND OF APPEAL RELATES TO CHARGING OF IN TEREST UNDER SECTION 234B. 17. THIS GROUND BEING CONSEQUENTIAL IN NATURE, THE ASSE SSING OFFICER IS DIRECTED TO GIVE CONSEQUENTIAL EFFECT IN VIEW OF OU R FINDINGS GIVEN ABOVE. 18. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH DECEMBER 2014. SD/- (SUSHMA CHOWLA) JUDICIAL MEMBER SD/- (G.S. PANNU) ACCOUNTANT MEMBER PUNE, DATED: 30 TH DECEMBER 2014 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, PUNE CITY CONCERNED; (5) THE DR, ITAT, PUNE; (6) GUARD FILE. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY/SUJEET SR. PRIVATE SECRETARY (ASSTT. REGISTRAR) ITAT, PUNE