FATEHPUR DISTRICT CO OPERATIVE BANK LIMITED, FATEHPUR V. ACIT CIRCLE-2, ALLAHABAD

ITA 135/ALLD/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 7703 (ITAT-ALLAHABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 07-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: INVOKING PROVISIONS OF
• Keywords: Rectification of order; Opportunity of being heard; Retrospective amendment; Bad and doubtful debts; Difference of opinion; Revised return; Change of opinion; Set aside
• Section: 147; 148; 56; 154; 143(3); 80P; 43D; 22

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, ALLAHABAD BENCH, ALLAHABAD BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA No. 134 & 135/Alld./2019 Assessment Year: 2009-10 & 2010-11 M/s. Fatehpur District Co- operative Bank Limited, Shadipur,Old Kuchahari Road, Fatehpur, - 212601, U.P. v. ACIT Circle-2, Ayakar Bhawan, 38, MG Marg,Civil Lines, Allahabad-211001, U.P. PAN:AAAJF0081A (Appellant) (Respondent) Appellant by: CA S.K. Jaiswal Respondent by: Sri. Ramendra Kumar Vishwakarma ,CIT- DR Date of hearing: 31.08.2022 Date of pronouncement: 13.09.2022 O R D E R PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER: These two appeals, first appeal is filed by assessee, being ITA No. 134/Alld./2019 for assessment year(ay) 2009-10 which has arisen from appellate order dated 14.08.2019 passed by ld. Commissioner of Income-tax(Appeals), Allahabad, (hereinafter called “the CIT(A)”) in Appeal No. CIT(A), Allahabad/10195/2014-15, which in turn has arisen from assessment order dated 25.03.2014 passed by ld. Assessing Officer (hereinafter called the “AO”) u/s 147 read with Section 143(3) the Income-tax Act, 1961(hereinafter called “the Act”) for ay: 2009-10. The second appeal filed by assessee , being ITA No. 135/Alld./2019 for ay: 2010-11 has arisen from appellate order dated 14.08.2019 passed by ld. CIT(A) in Appeal No. CIT(A), Allahabad/10022/2017-18 which in turn has arisen ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 2 from rectification order dated 31.03.2017 passed by AO u/s 154 of the 1961 Act . Both these appeals were heard by Division Bench of the Income Tax Appellate Tribunal, Allahabad Bench, Allahabad, U.P. (hereinafter called “the tribunal”) in Open Court Proceedings through physical hearing of the appeals. 2. The assessee has raised following grounds of appeal in memo of appeal filed with Income Tax Appellate Tribunal, Allahabad Bench, Allahabad, U.P. (hereinafter called “ the tribunal”), in ITA no. 134/Alld./2019 ,for ay: 2009-10, which reads as under:- “1. Because the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in not adjudicating the Ground of Appeal relating to validity of initiation of reassessment proceeding under section 147 as taken during the course of hearing of appeal. 2. Because the reassessment proceeding initiated on the basis which has already been considered and decided by the assessing officer in original assessment proceeding under section 143(3) is only on the basis of change of opinion, therefore, whole of the reassessment proceeding is vitiated and liable to be quashed. 3. Because the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in sustaining the disallowance of Rs. 2,32,70,792/- on account of provision for bad and doubtful debts as per the provision of section 36(l)(viia) of the Income Tax Act, 1961. 4. Because the co-operative banks are specifically allowed deduction of 10% of aggregate average advances made by its rural branched computed in the prescribed manner. 5. Because the learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that Rules is the subordinate legislation which prescribed only the computation mechanism cannot override the substantive provision of section 36(1)(viia) of the Income Tax Act, 1961. 6. Because the order appealed against is contrary to the facts, law and principle of natural justice.” 3. The assessee has raised following grounds of appeal in memo of appeal filed with tribunal, in ITA no. 135/Alld./2019 , for ay: 2010-11, which reads as under:- “1. Because the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in holding that there was prima facie mistake in the order dated 26.03.2013 passed under Section 143(3) on account of allowance of deduction of Rs. 10,42,18,168/- on account of provision for bad and doubtful debts as per the provision of section 36(1)(viia) of the Income Tax Act, 1961. 2. Because the learned assessing officer has allowed the claim for bad and doubtful debts as per the categorical provision of section 36(1)(viia) after making detailed enquiry and there was ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 3 no prima facie mistake in the order apparent from record which is rectifiable and comes under the purview of provision of section 154 of the income Tax Act, 1961. 3. Because the learned commissioner of Income Tax (Appeals) has failed to appreciate the fact that the assessing officer has no power to review his own order in the garb of rectification of mistake as per the provision of section 154 of the Income Tax Act, 1961 4. Because the learned Commissioner of Income Tax (Appeals) has erred in law and on facts in sustaining the disallowance of Rs. 10,42,18,168/- on account of provision of bad and doubtful debts as per the provision of section 36(1)(viia) of the Income Tax Act, 1961. 5. Because the co-operative banks are specifically allowed deduction of 10% of aggregate average advances made by its rural branched(sic.branches) computed in the prescribed manner. 6.Because the learned Commissioner of Income Tax (Appeals) has failed to appreciate the fact that the Rules is the subordinate legislation which prescribed only the computation mechanism cannot override the substantive provision of section 36(1)(viia) of the Income Tax Act, 1961. 7. Because the order appeal against is contrary to the facts, law and principle of natural justice.” 4. The issues involved in both these appeals are common , and we will take appeal in ITA No. 134/Alld/2019 for ay: 2009-10 as lead case. The brief facts of the case in ITA No. 134/Alld/2019 for ay:2009-10, are that the assessee is a Co-operative society registered on 29.03.1963 by Registrar of Co-operative Societies U.P. under the Uttar Pradesh Co-operative Societies Act, 1965 and engaged in the business of banking in Fatehpur district. The assessee filed its return of income on 30.09.2009 declaring income of Rs. 6,72,02,250/- . Thereafter, the assessee filed its revised return of income on 11.12.2010 declaring total income of Rs. 4,70,77,050/- . The case of the assessee was selected for framing scrutiny assessment through CASS. In the original assessment framed by the AO u/s 143(3) of the 1961 Act , vide assessment order dated 30.12.2011, the AO observed that the assessee has explained in assessment proceedings in writing that the assessee has not made any provision for bad and doubtful debt. The assessee claimed that it finalized its accounts and paid due taxes, but later it was detected by assessee that the assessee was eligible for deduction for bad and doubtful debts as per provisions of Section 36(1)(viia) of the 1961 Act. The assessee claimed that it revised its return of income in order to claim deduction in respect of bad and doubtful debts. The assessee furnished computation of disallowance as under: Advances as per Revised Balance Sheet Rs. 1,85,37,69,719/- ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 4 Maximum Provision allowed u/s 36(1)(viia) 10% of Advance Rs. 18,53,76,971/- Total Provision as per revised Balance Sheet Rs. 22,29,87,769/- Disallowed excess provision Rs. 3,76,10,798/- 4b)The assessee alternatively explained that the assessee could claim deduction of more amount u/s 36(1)(viia) of the 1961 Act as about 50% of branches of the assessee bank are rural branches and represent advances given to the members amounting to Rs. 61,52,41,000/- . 4c) The AO assessed income of the assessee at Rs. 4,70,77,050/- ( which was the income declared by assessee in its revised return of income filed with revenue on 11.12.2010), vide assessment order dated 30.12.2011 passed by AO u/s 143(3) of the 1961 Act. 5. Later the case of the assessee was reopened by Revenue by invoking provisions of Section 147 of the 1961 Act, and notice u/s 148 dated 01.09.2013 was issued by AO to the assessee. In response, the assessee submitted that its return filed on 11.12.2010 be treated as return of income in response to notice issued u/s 148 of the 1961 Act. The AO show caused assessee vide order sheet entry dated 13.03.2014 as why the 10% deduction u/s 36(1)(viia) of the 1961 Act claimed by the assessee should not be disallowed . The assessee submitted that vide amendment made by Finance Act, 2007 in Section 36(1)(viia), the Co-operative Banks are eligible for deduction u/s 36(1)(viia) of the 1961 Act. The assessee also submitted that Co-operative Banks are also covered under Non-Scheduled Bank .The assessee submitted that as per explanation (i) of Section 36(1)(viia) of the 1961 Act, non scheduled bank means a banking company as defined in clause (5) of Section 5 of the Banking Regulation Act, 1949, which is not a scheduled bank. The assessee also referred to clause(c ) of Section 5 of Banking Regulation Act, 1949 , which is not a scheduled bank. The assessee referred to provisions of Section 5(c ) of the Banking Regulation Act, 1949 and submitted that banking company means any company which transacts the business of banking in ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 5 India.It was further submitted that as per Part V of the 1949 Act, reference to ‘Banking Company’ or ‘the company’ or ‘such company’ shall be construed as reference to Co- operative Bank. The assessee further submitted that as per Section 2(i) of RBI Act, 1934 ,Co-operative Bank shall have the meaning respectively assigned to them in Part V of the 1949 Act. The assessee also claimed that although Rule 6ABA of the 1961 Act was not amended , but since Section 36(1)(viia) of the 1961 Act provides for deduction to Non Scheduled Bank and Co-operative Banks, the assessee claimed before the AO that it is entitled for deduction u/s 36(1)(viia) of the 1961 Act. 5b. The Learned AO rejected the claim of assessee for deduction u/s 36(1)(viia) of the 1961 Act on the ground that the assessee is neither a scheduled bank nor a non- scheduled bank. The AO referred to amendment made by Finance Act, 2007 with effect from 01.04.2007 and observed that benefit of deduction computed @ 10% of the aggregate average advances made by Rural Branches can be extended only to Co- operative Banks which are included in the second schedule to the RBI Act,1934. The AO observed that the assessee is not a scheduled bank and hence is not eligible to the benefit of additional deduction of 10% of aggregate average advances made by Rural Branches, as per second limb of Section 36(viia) of the 1961 Act. The AO also held that the Co-operative Banks are not a non-scheduled banks . The AO relied upon decision of Lucknow-tribunal in the case of Mansarovar Urban Co-operative Bank Ltd. v. DCIT and also the decision of Lucknow-tribunal in the case of ACIT v. Hardoi District Co-operative Bank Ltd. in ITA No. 463/Luck/2006) , dated 28.09.2006 to hold that the assessee is not eligible for deduction @10% of aggregate average advances made by Rural Branches , as the assessee is neither a scheduled bank nor a non scheduled bank . The AO further observed that even under Rule 6ABA of the Income-tax Rules, 1962 , the deduction u/s 36(1)(viia) of the 1961 Act shall be restricted to rural branches of a scheduled bank including scheduled co-operative banks. The AO observed that the deduction/exemption provisions are to be strictly construed . The AO , however, granted the benefit of deduction of seven and half percent of the ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 6 total income under first limb, computed before making any deduction under Section 36(1)(viia) of the Act , vide assessment order dated 25 th March, 2014 passed by the AO under Section 147 read with Section 143(3) of the Act. 6. The assessee being aggrieved by aforesaid assessment framed by the AO, filed first appeal before Learned CIT(A) , who dismissed the appeal of the assessee , by holding as under: “Decision: I have gone through the facts and the written submissions filed along with the details filed enclose therein. AO has not allowed the deduction of Rs. 2,32,70,792/- for bad and doubtful debts being 10% of the aggregate advances of rural branches claimed u/s 36(l)(viia) of the Income Tax Act, 1961. Appellant is a cooperative bank duly registered with Uttar Pradesh Cooperative Societies Act vide certificate of registration dated 11.12.1905 issued by Sub Registrar, Uttar Pradesh Cooperative Societies. Ever since its inception in the year 1905 the appellant had been in continuous pursuance of its main object being banking business. Appellant drew my attention to the fact that Indian Banks are broadly classified under two kinds, one is Commercial Bank and the others are Cooperative Banks. Both types of bank may be Scheduled or non-scheduled bank. As per definition non-scheduled bank means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949, which is not listed in the Second Schedule to the Reserve Bank of India Act, 1934. All banks which are not included in the 2nd scheduled of the Reserve Bank of India are non-scheduled banks. Appellant is admittedly a Non-scheduled Co-operative Bank. Section 36(l)(viia) and Rule 6 ABA relevant to the issue in question has been reproduced above. The benefit of deduction of provision for bad and doubtful debts u/s 36(l)(viia) have been extended to co-operative banks by the amendment made by the Finance Act, 2007 w.e.f. 01-04-2007 that are admittedly applicable in the case under consideration as the AY is 2009-10. AO after detail discussion held that the assessee is a co-operative bank but not a scheduled co-operative bank and entitled to a deduction of 7.5% but not entitled to the deduction of 10% of the aggregate average advances made by the rural branches of the bank. While holding this AO mainly relied upon the words 'prescribed' manner of computation of aggregate average advances for the purpose of allowing the deduction under section 36(1)(viia), as spelt out in rule 6 ABA of I.T. Rules, 1962, wherein the deduction of 10% of the aggregate average advances made by the rural branches has been restricted to rural branches of a scheduled bank only and since there is no reference of non scheduled bank, or ‘Co-operative Bank’ in Rule 6 ABA, AO did not allow the extra 10% deduction, though allowing the 7.5% deduction to the appellant. Appellant's only submission in this regard is that though the Rule 6ABA has not been correspondingly amended but the provisions of Act will prevail over the Rule. I agree with the contention of AO in this regard. The deduction u/s 36(1)(viia) is an extraordinary deduction and has to be construed strictly under the law and the Rules framed therein. The impugned sub- section Itself mentions that the 10% deduction has to be computed in the prescribed manner, for which Rule 6 ABA has been enacted, which allows for extra deduction of 10% only to rural ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 7 branches of a 'scheduled bank only' and since there is no reference of 'non-scheduled bank' or 'Co-operative banks' in Rule 6ABA, AO correctly did not allow the extra 10% deduction. If intention of legislature was to use the term 'non- scheduled bank' in the Rule 6ABA then it would have been amended suitably, If legislature intended to provide the benefit stipulated in the Act then the prescribed rule could have so specifically included the non- scheduled bank as well. They have specifically not included Non-Scheduled Bank in the Rule 6ABA. Since definition of non-scheduled bank as given in explanation (i) to section 36(1)(viia) is exhaustive it cannot be extended to any other entity other than what is mentioned therein. No additional entity either by analogy, or by harmonious construction or otherwise, can be brought into the definition of 'non-scheduled bank' to provide benefit of Rule 6ABA. It is well settled legal proposition that where a Statute contains both a general provision as well as specific provision, the latter must prevail - In other words, where a general statute and a specific statutory Rule relating to the same subject matter cannot be reconciled, the special or specific statute ordinarily will control - The principle finds its origins in the Latin maxim of generalia specialibus non derogant, i.e., general law yields to special law should they operate in the same field on same subject. While determining the question whether a statute is a general or a special one, focus must be on the principal subject-matter coupled with a particular perspective with reference to the intendment of the Act - With this basic principle in mind, the provisions of S. 36(1)(viia) must be examined to find out whether it is possible to construe harmoniously the two provisions. Once it is seen that intention of the legislation is to exclude the words 'non-scheduled bank’ used in general provision of S. 36(1)(viia) then the rule "general provision should yield to special provision" is squarely attracted - The rule of statutory construction that the specific governs the general is not an absolute rule but is merely a strong indication of statutory meaning that can be overcome by textual indications that point in the other direction. (COMMERCIAL TAX OFFICER, RAJASTHAN A A v. M/S BINANI CEMENT LTD. & ANR. (Civil Appeal No. 336 of 2003 (2014) 3 S.C.R.) Clause (viia) of Section 36(1) contemplates two separate and independent deductions: i) ..an amount not exceeding seven and one-half percent of the total income (computed before making any deduction under this clause and Chapter VIA) and ii) ..an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner". By virtue of the contents of the aforesaid clause defining the amount of deduction to be allowed it is specifically stated that the deduction of an amount not exceeding 10% of the aggregate average advances made only by the rural branches of the bank are to be allowed. Now, rural branches has been defined in the Act vide Explanation (ia) of section 36(1)(viia) which is as follows: "(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 10,000/- according to the last preceding census of which the relevant figures have been published before the first day of the previous year." In Rule 6ABA. 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 manner, namely:— ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 8 (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.] As per Explanation to clause (viia) of sub-section (1) of section 36 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, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); From a plain reading of the two explanations above it is settled from the definition of rural branch, Scheduled bank and of Scheduled bank it is seen that the definition includes "any other bank being a bank included in Second Schedule to the Reserve Bank of India Act 1934(2 of 1934)". Before 01.04.2007, the same portion of Explanation (ii) of section 36(i)(viia) as italicized in the preceding sentence would read ".any other bank being a bank included in Second Schedule to the Reserve Bank of India Act 1934(2 of 1934) but does not include a co- operative bank" (emphasis supplied). Therefore, by omitting the above emphasized portion w.e.f. 01.04.2007, the benefit of claim u/s 36(i)(viia), as far as the allowability of "ten percent of aggregate average advance made by rural branches of such bank.," is concerned, was extended to cooperative banks but only those Co-operative banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934. Appellant is admittedly not included in the said Second Schedule. In the light of the above facts and respectfully following the ruling of apex court in the case of M/S BINANI CEMENT LTD. (Supra) it is held that appellant is not entitled to extra 10% deduction u/s 36(1)(viia) as correctly held by AO. This addition is upheld. ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 9 These grounds are dismissed.” Thus, the first appeal was dismissed by Learned CIT(A) vide appellate order dated 14.08.2019 passed by learned CIT(A). 7. Aggrieved by the aforesaid appellate order passed by ld. CIT(A) dismissing appeal of the assessee, the assessee has come in appeal before the tribunal. The Learned counsel for the assessee at the outset submitted that the issue of deductibility of deduction u/s 36(1)(viia) of the 1961 Act w.r.t. deduction on account of 10% of aggregate average advances made by rural branches, arising in this appeal is covered by decision of Hon’ble ITAT, Allahabad Bench, Allahabad in the case of Zila Sahkari Bank Limited v. ACIT in ITA No. 135 & 136/Alld/2015 , for ay(s): 2010-11 and 2011-12, vide common order dated 30.09.2021( in which both of us were part of Division Bench who pronounced the said order). It was submitted that the facts being para-materia in this appeal with that of appeal in the case of Zila Sahkari Bank Limited(supra), the assessee is entitled for deduction under Section 36(1)(viia) of 10% of aggregate average advances made by rural branches. The ld. Counsel submitted that the assessee has duly filed complete details of the advances made by the rural branches before the AO for the financial year 2009-10(ay: 2010-11) and computation chart was before the AO for ay: 2010-11. The assessee also submitted that complete details of the population in each of the rural branches were submitted for ay: 2010-11 which was less than 10000. It was submitted that even certificate of General Manager/Secretary of the Bank was submitted that deduction for ay: 2010-11 were claimed as per provisions of Section 36(1)(viia) of the 1961 Act. Our attention was drawn to paper book Page No. 12 to 15 ( filed for ay: 2010-11 which is placed on record in file) and it was submitted that the details as well declaration were also filed before the AO that the deduction has been claimed under Section 36(1)(viia) of the Act. So far as disallowance made by the AO for ay: 2010-11, the ld. Counsel submitted that the disallowance u/s 36(1)(viia) was made by AO by invoking provisions of Section 154 of the 1961 Act, which is not ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 10 permissible as the scope of Section 154 is limited to rectifying mistakes apparent from records. The Ld. Counsel for the assessee submitted that the said deduction u/s 36(1)(viia) claimed by the assesseee was earlier accepted by AO for ay:2010-11 by passing assessment order dated 26.03.2013 under Section 143(3) of the Act, and now this issue cannot be decided by AO under Section 154 of the 1961 Act. 7b. The Ld. CIT DR, on the other hand fairly submitted that the issue is covered by the decision of the Allahabad-tribunal in the case of Zila Sahkari Bank Limited (supra) but , however, Ld. CIT DR submitted that the details claimed to be submitted by the assessee for computing the deduction were not considered/referred /verified to by the AO as well as by ld. CIT(A) , as both the authorities decided the issue against the assessee , and hence there was no question of verifying the computational details for ay: 2009-10 and 2010-11 . So far as invocation of Section 154 of the 1961 Act is concerned, the ld. CIT DR submitted that this is an error of law , whether the deduction can be validly claimed by the assessee u/s 36(1)(viia) and hence AO could always invoke its powers under Section 154. The reliance was placed by ld. CIT DR on the decision of Hon’ble Madras High Court in the case of Cuddalore District Central Co- operative Bank Ltd. v. DCIT , (2021) 130 taxmann.com 239 (Madras HC). 8. We have considered rival contentions and perused the material on record. We have observed that the only effective issue in these two appeals is with respect to disallowance of deduction under second limb of Section 36(1)(viia)(a) of the 1961 Act with respect to 10 % of the aggregate average advances made by rural branches. The assessee is a Co-operative society engaged in banking business. It is observed that the aforesaid effective issue in these two appeals is covered by decision of Allahabad- tribunal in the case of Zila Sahkari Bank Limited(supra) ( of which both of us were part of the Division Bench who pronounced the order), wherein tribunal held as under: “6. We have considered rival contentions and perused the material on record including orders of authorities below and case laws cited before us. This appeal was heard by Division Bench through Video Conferencing Mode through Virtual Court. We have observed that there are two ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 11 effective issues in this appeal. The first issue concerns itself with the allowability of deduction u/s 36(1)(viia) of the 1961 Act under the second limb wherein the deduction claimed @10% of aggregate average advances made by Rural Branches of the assessee, stood disallowed........... Now, coming back to the first effective issue concerning grant of deduction u/s 36(1)(viia) of the 1961 Act. The assessee has claimed deduction to the tune of Rs. 1,78,85,718/- u/s 36(1)(viia) of the 1961 Act , while filing return of income with the Revenue. The said amount is reflected by assessee as deduction while computing Profits of the assessee, in the audited Profit and Loss Account of the assessee. The audited financial statements of the assessee are placed in paper book filed by the assessee. The AO has allowed deduction of Rs. 8,03,763/- computed at the rate of seven and half percent of the total income under the first limb of Section 36(1)(viia), while the AO did not allow deduction to the tune of Rs. 1,70,81,955/- which stood disallowed by AO. The ld. CIT(A) upheld disallowance of the deduction to the tune of Rs. 1,70,81,955/-. While confirming the disallowance as was made by the AO, the ld. CIT(A) observed that the assessee is not eligible for deduction under the second limb of Section 36(1)(viia)(a) of the 1961 Act which concerns itself with deduction computed @10% of aggregate average advances made by Rural Branches of assessee, keeping in view amended provisions of Section 36(1)(viia) as amended by Finance Act, 2007 , w.e.f. 01.04.2007. The ld. CIT(A) further observed that Regional Office of Reserve Bank of India, Lucknow has granted banking license to the assessee on 10.01.2012 , and during the year under consideration, the assessee was not even holding banking license and hence there is no question of grant of deduction u/s 36(1)(viia) of the 1961 Act. The said banking license issued by RBI is reproduced in the preceding para’s of this order. Further, ld. CIT(A) also observed that the assessee has not even submitted details of aggregate average advances made by Rural Branches before AO as well before ld. CIT(A) and hence even if the deduction is to be allowed, quantification cannot be done in the absence of details furnished by the assessee of the aggregate average 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-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 12 by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year:] [Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five per cent", the words "ten per cent" 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 per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) :] [Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for 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, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934) [***];] ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 13 [(iii) "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956); (iv) "State financial corporation" means a financial corporation established under section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951); (v) "State industrial investment corporation" means a Government company within the meaning of section 617 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and [eligible for deduction under clause (viii) of this sub-section];] [(vi) "co-operative bank", "primary agricultural credit society" and "primary cooperative 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 the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.” It will also be appropriate at this stage to reproduce Rule 6ABA of Income-tax Rules, 1962 as it stood at relevant time, which is reproduced hereunder: “[Computation of aggregate average advances for the purposes of clause (viia) of sub-section (1) of section 36. 6ABA. 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 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.]” ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 14 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]. (d) Explanation.—Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;” It is equally relevant to reproduce the definition of Co-operative Bank as is contained in Part V of Banking Regulation Act,1949 , which is reproduced hereunder: “PART V APPLICATION OF THE ACT TO CO-OPERATIVE BANKS 56. Act to apply to co-operative societies subject to modifications.— The provisions of this Act, as in force for the time being, shall apply to, or in relation to, cooperative societies as they apply to, or in relation to banking companies subject to the following modifications, namely:-- (a) throughout this Act, unless the context otherwise requires,-- (i) references to a "banking company" or "the company" or "such company" shall be construed as references to a co-operative bank; (ii) references to "commencement of this Act" shall be construed as references to commencement of the Banking Laws (Application to Cooperative Societies) Act, 1965 (23 of 1965); (b) in section 2, the words and figures "the Companies Act, 1956 (1 of 1956) and" shall be omitted; (c) in section 5,-- (i) after clause (cc), the following clauses shall be inserted, namely:-- (cci) "Co-operative bank" means a state co-operative bank, a central co-operative bank and a primary co-operative bank;” It is equally relevant to reproduce substituted section 22 of the 1949 Act by virtue of Section 56 of the 1949 Act as is applicable to co-operative Banks: “(o) in section 22,-- (i) for sub-sections (1) and (2) the following sub-sections shall be substituted, namely:-- "(1) Save as hereinafter PROVIDED, no co-operative society shall carry on banking business in India unless— (a) [***] (b) it is a co-operative bank and holds a licence issued in that behalf by the Reserve Bank, subject to such conditions, if any, as the Reserve Bank may deem fit to impose: PROVIDED that nothing in this sub-section shall apply to a co-operative society, not being a primary credit society or a co-operative bank carrying on banking business at the ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 15 commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965), for a period of one year from such commencement: [PROVIDED FURTHER that nothing in this 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 banking business in India, apply in writing to the Reserve Bank for a licence under this section: PROVIDED that nothing in clause (b) of sub-section (1) shall be deemed to prohibit— (i) a co-operative society carrying on business as a cooperative bank at the commencement of the Banking Law (Application to Co-operative Societies) Act, 1965 (23 of 1965); or (ii) a co-operative bank which has come 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 at the commencement of the Banking Laws (Application to Co- operative Societies) Act, 1965 (23 of 1965) or at any time 2[thereafter]; [***] from carrying on banking business until it is granted a licence in pursuance of this section or is, by a notice in writing notified by the Reserve Bank that the licence cannot be granted to it.]; (ii) sub-section (3A) shall be omitted; (iii )in sub-section (4) in clause (iii) the words, brackets, figures and letter "and sub-section (3A)" shall be omitted;] At this stage , it will be relevant to refer to Notes on Clauses to Finance Bill, 2007 , wherein introducing the amendment, notes on clauses stipulates as under: “Sub-clause (a) of clause (viia) of sub-section (1) of the said section provides for 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 as specified or a non-scheduled bank in the computation of income of such banks. ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 16 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.” It is also relevant at this point to refer to Memorandum to Finance Bill, 2007, the relevant portion is reproduced hereunder: “Deduction in respect of any provision for bad and doubtful debts to be allowed in the case of co-operative 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-operative society banks should be allowed deduction in respect of any provision for bad and doubtful debts as its profits have become taxable. The amendment proposes to allow this deduction to co-operative banks not being a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The definition 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. Under the existing provisions contained in the Explanation to item (fa) of sub-clause (iv) of clause (15) of section 10, the expression "scheduled bank" has been defined to have the meaning assigned to it in clause (ii) of the Explanation to clause (viia) of subsection (1) of section 36 which does not include co-operative banks. However, the definition of "scheduled bank" after the proposed amendment will include scheduled co-operative banks. The referral definition of "scheduled bank" presently occurring in the Explanation to the aforesaid item (fa) does not allow exemption of interest payable ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 17 to a non-resident or a not ordinarily resident by a co-operative bank. In order to continue with this position, the definition of "scheduled bank" in its pre-amended form in clause (ii) of Explanation to clause (viia) of sub-section (1) of section 36 is being substituted for the existing Explanation in the aforesaid item (fa) to ensure that the scope of the exemption allowed under the aforesaid item (fa) is not changed. The proposed substitution of the definition of "scheduled bank" in the said item (fa) meets with this objective. The proposed amendment to the definition of "scheduled banks" as it appears in section 36 will also have the effect of making the provisions of section 43D applicable to scheduled co-operative banks. These amendments will take effect, retrospectively, from 1st April, 2007 and will, accordingly apply in relation to the assessment year 2007-08 and subsequent years. [Clauses 6 and 12]” 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 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 Section 80P by virtue of insertion of Section 80P(4), but Co-operative Banks 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 Finance Act, 2007 w.e.f. 01.04.2007 , for claiming deductions in respect of provisions made for bad and doubtful debts. Bare perusal of provisions of Section 36(1)(viia) will reveal that Co-operative Banks other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank shall be eligible and entitled for claiming deduction u/s 36(1)(viia)(a) so far as first limb is concerned to the tune of seven and half percentile of total income. So far as second limb of Section 36(1)(viia) (a) is concerned, the deduction allowed is 10% of aggregate average advances made by the Rural Branches of such bank computed in the prescribed manner, as is stipulated in Section 36(1)(viia)(a) of the 1961 Act. While including ‘Co-operative Bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank’ in Section 36(1)(viia)(a) effective from 01.04.2007 , law makers have brought eligible Co-operative Banks to be entitled for deduction under first limb, and while referring to ‘such bank’ in the second limb, in our considered view by literal reading and ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 18 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. 01.04.2007, but there was no corresponding 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 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 the same time provision are to be read in a harmonious manner to make it workable and any reading of the provision which makes it otiose so far it is possible is to be avoided. The Revenue has heavily relied on the decision of Lucknow Bench of tribunal in the case of Mansarover Urban Co-operative (supra) to contend that the Co- operative Banks shall not be entitled for deduction under second limb of Section 36(1)(viia)(a) with respect to deduction computed based on aggregate average advances made by Rural Branches . We have carefully gone through the aforesaid decision of tribunal and it is observed that the relevant ay under consideration before tribunal was ay: 2003-04 and the tribunal decided that the benefit u/s 36(1)(viia) shall not be available to Co-operative Bank prior to 01.04.2007, as the Co-operative Banks are brought under the purview of Section 36(1)(viia) with effect from 01.04.2007. By virtue of Section 56 of the Banking Regulation Act, 1949, the 1949 Act was made applicable to co-operative societies subject to modification as stipulated therein . It is stipulated that the provisions of the 1949 Act, shall apply to , or in relation to banking companies subject to modification stipulated. It is , inter-alia, stipulated that unless the context otherwise requires references to a “banking company” or “the company” or “such company” shall be construed as reference to a Co-operative Bank . Thus, once Cooperative Banks stood covered by Section 36(1)(viia) by Finance Act, 2007 w.e.f. 01.04.2007 , then it shall be a non-scheduled bank as defined in explanation (i) to Section 36(1)(viia) , which explanation provides that a “non-scheduled bank” means a banking company as defined in clause (c ) of section 5 of the Banking Regulation Act, 1949, unless it is in the second schedule of RBI Act, 1934 being a scheduled bank. By virtue of Section 56 of the 1949 Act , in section 5 of the 1949 Act, after clause (cc) , the clause (cci) was inserted in Section 5 , which stipulates that “ Co- operative Bank” means a state co-operative bank, a central co-operative bank and a primary co-operative bank. Admittedly , the assessee is not a scheduled co-operative bank as the ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 19 assessee is not included in Second Schedule to the Reserve Bank of India Act, 1934 , and hence by virtue of Section 56 of the 1949 Act read with Section 5(c) and 5(cci) , the assessee is to be classified as 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 Cooperative (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 Co-operative Banks and reference to a “banking company” or “the company” or “such company” shall be construed as references to a co-operative bank and as defined in Part V of the 1949 Act, the “Co-operative bank” means a state co-operative bank, a central co- operative bank and a primary co-operative bank, as Section 5 of the 1949 Act stood amended by virtue of Section 56 wherein clause (cci) stood inserted in Section 5 of the 1949 Act, after clause (c). Similarly Section 22 of the 1949 Act stood amended by substitution by virtue of Section 56 of the 1949 Act , and no co-operative society shall carry on banking business in India unless it is a co-operative bank and holds a license issued in that behalf by the RBI. There are certain relaxation periods granted to class of certain cooperative societies who are already carrying on banking business and are brought within the ambit of the 1949 Act from time to time, to seek license from RBI within the prescribed cut-off period and the RBI is empowered to grant such banking license from retrospective effect whence the statutory amendment bringing a class of co-operative society within the ambit of the 1949 Act. The assessee has claimed that RBI granted banking license to it to continue and carry on banking business , vide license dated 10.01.2012 , and although we are seized of ay: 2010- 11 , the assessee has claimed that it will be entitled and eligible for deduction u/s 36(1)(viia) as the said license was granted with retrospective effect to continue and carrying on the banking business. It is the claim of the assessee that it is carrying on banking business since its inception . These aspect has not been exhaustively looked into by the authorities below as the ld. CIT(A) has merely concluded that the assessee is not entitled for deduction u/s 36(1)(viia) also on the grounds that it did not held banking license during the relevant period under consideration. Thus, the matter is to be remanded back to the AO to look into the provisions of Section 56 of the 1949 Act and its applicability to the assessee, as also the application filed by assessee with RBI for seeking banking license and whether on the strength of same, the said license was granted by RBI with retrospective effect so as to entail assessee to seek deduction u/s 36(1)(viia) for the year under consideration , as complete facts are not on record before us. 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 ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 20 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 said issue is adjudicated by Hon’ble Kerala High Court in the case of Kannur District Co-operative Bank Limited v. CIT reported in (2014) 50 taxmann.com 189(Kerala HC), wherein Hon’ble High Court held that Rural Branch defined under aforesaid explanation would also include rural branch of a co-operative bank and same terms and conditions as stipulated in explanation (ia) to Section 36(1)(viia) shall apply while determining Rural Branches of Co-operative Bank. Thus,the place referred for identifying the branch of the bank as a rural branch with reference to is location is the revenue village as that the Rural Branch has to be always in rural area and the place referred can be taken as village , and that it cannot be extended beyond the rural unit being village as recognized in the census report and then reference is to the population criteria as specified in Explanation (ia) to Section 36(1)(viia). Reference is drawn to judgment of Hon’ble Kerala High Court in the case of CIT v. Lord Krishna Bank Limited (2011) 339 ITR 606(Ker. HC ) and judgment of Hon’ble Kerala High Court in the case of Ernakulam District Co-operative Bank Limited v. CIT reported in (2018) 98 taxmann.com 488(Ker. HC). We are in agreement with the afore-stated judgments of Hon’ble Kerala High Court. It is also observed that similar view was taken by Mumbai-tribunal in the case of Citizen Credit Co- operative Bank Limited v. ACIT, Mumbai reported in (2014) 49 taxmann.com 11(Mum-trib.), in which one of us namely Hon’ble Judicial Member was part of the Division Bench who pronounced the said judgment. No contrary judgment of Hon’ble Superior Courts including Jurisdictional High Court are cited by Revenue. Thus, the matter is remitted back to the file of the AO for fresh adjudication, as is directed by us in this order. Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assessee in set aside proceedings. The evidences/explanations submitted by assessee in its defense shall be admitted by AO , and adjudicated by AO on merits in accordance with law. We order accordingly. 8b. We are agreeable with the ratio of aforesaid decision of Allahabad-tribunal in the case of Zila Sahkari Bank Limited(supra), which shall be applicable to the effective issue of disallowance of deduction under second limb of Section 36(1)(viia)(a) of the 1961 Act concerning disallowance of 10% of the aggregate average advances made by rural branches , arising in these two appeals filed by the assesssee for ay: 2009-10 and 2010-11, and we hold that the assessee shall be eligible for deduction u/s 36(1)(viia)(a) of the 1961 Act @ 10 % of the aggregate average advances made by rural branches , subject to following issues to be verified by AO before granting deduction under second limb of Section 36(1)(viia)(a) of the 1961 Act:- ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 21 a) The AO shall verify that the assessee holds banking license granted by RBI during the relevant year(s) under consideration , as is mandated u/s 22 of the 1949 Act. b) The AO shall verify that the assessee satisfies the conditions of being a primary co-operative bank as are stipulated u/s 5(ccv) of the 1949 Act, as incorporated by virtue of Section 56 of the 1949 Act c) The assessee will file computation for claiming deduction under second limb of Section 36(1)(viia)(a) , which computation shall be verified by AO before granting aforesaid deduction. The assessee is directed to appear before AO and file relevant evidences in support of its claim , so that the AO can verify the above facts concerning (a) to (c) above, before granting deduction.We order accordingly. 8c. So far as question of invocation of Section 154 of the 1961 Act for ay: 2010-11 for disallowing the claim of deduction u/s 36(1)(viia)(a) is concerned, the said legal issue of invoking Section 154 under facts and circumstances of the case is kept open, as the appeal of the assessee is otherwise decided as above in its favour, as indicated in preceding para’s of this order. We order accordingly. 9. In the result, the appeal filed by Assessee in ITA no. 134 & 135/Alld/2019 for ay: 2009-10 & 2010-11 are allowed , in the manner indicated above Order pronounced in Open Court on 13/09/2022 at Allahabad. Sd/- Sd/- Sd/- [VIJAY PAL RAO] [RAMIT KOCHAR] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13/09/2022 KD. Azmi ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 22 Copy forwarded to: 1. Appellant - Fatehpur District Co-operative Bank Limited, Shadipur, Old Kuchahari Road, Fatehpur-212601, U.P. 2. Respondent - ACIT Circle-2, Ayakar Bhawan, 38, M G Marg, Civil Lines, Allahabad-211001, U.P. 3. CIT(A) – Aayakar Bhawan, 38, M G Road, Allahabad, U.P. 4. CIT, Aayakar Bhawan, 38, M G Marg, Civil Lines, Allahabad, U.P. 5. The CIT-DR (ITAT), Aayakar Bhawan, 38, M G Marg, Civil Lines, Allahabad, U.P. By order Assistant Registrar ITA No.134/ALLD/2019 And ITA No. 135/ALLD/2019 Fatehpur District Co-operative Bank Limited v. ACIT Circle-2, Allahabad Assessment Year: 2009-10 and 2010-11 23