ALLAHABAD BANK, Kolkata V. A.C.I.T.,Circle-6, Kolkata

ITA 1802/KOL/2009

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3107 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 27-04-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 27-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G MALLIKAUJANA
• Assessee Lawyers: B K GHOSH; PIJUSH DEY
• Keywords: Bad and doubtful debts
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI N.V.VASUSDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1802 - 1803 / KOL / 2009 ASSESSMENT YEAR :2003-04 & 2004-05 ALLAHABAD BANK, 2, NETAJI SUBHAS ROAD, KOLKATA 700 001 [ PAN NO.AACCA 8464 F ] V/S . ACIT, CIRCLE-6, AAYKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI B.K. GHOSH, FCA & SHRI PIJUSH DEY, FCA /BY REVENUE SHRI G. MALLIKAUJANA, CIT-DR /DATE OF HEARING 02-12-2015 ! /DATE OF PRONOUNCEMENT 03-02-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- BOTH APPEALS BY SAME ASSESSEE ARE ARISING OUT OF O RDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-VI, KOLKATA DA TED 25.08.2009 & 26.08.2009. ASSESSMENTS WERE FRAMED BY ACIT, CIRCLE -6 KOLKATA U/S 143(3)/263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDERS DATED 17.12.2007 & 27.12.2006 FOR A SSESSMENT YEARS 2003-04 & 2004-05 RESPECTIVELY. ITA NO.1803-1804 A.YS. 2003- 04 & 2004-05 ALLAHABAD BANK KOL. V. ACIT CIR-6 KOL. PAGE 2 2. BOTH THE APPEALS ARE FILED BY THE SAME ASSESSEE, AND WE DECIDED TO TAKE UP BOTH THE APPEALS TOGETHER AND PASS A CONSOL IDATED ORDER FOR THE SAKE OF CONVENIENCE. FIRST WE TAKE UP ITA NO.1803/KOL/2009 FOR A.Y.04-05 3. ASSESSEE HAS RAISED FOLLOWING GROUNDS:- 1. THAT THE LEARNED CIT(A) HAS ERRED IN DISALLOWIN G RS.311,17,10,637/- BEING THE AMOUNT OF CLAIM FOR BAD DEBTS RELATING TO NON-R URAL BRANCHES CLAIMED UNDER SECTION 36(1)(VII). 2. THAT THE LEARNED CIT(A) HAS ERRED IN HOLDING THA T THE DEBTS WRITTEN OFF BY THE NON-RURAL BRANCHES OF THE BANK ARE ALSO TO BE A DJUSTED AGAINST THE PROVISION ALLOWED U/S. 36(1)(VIIA). 3. THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCES OF RS.96,65,00,000 BEING 10% OF THE DOUBTFUL AND LOSS ASSETS CLAIMED UNDER 3 RD PROVISO TO SECTION 36(1)(VIIA). 4. THAT THE LEARNED CIT(A) HAS ERRED IN HOLDING THA T CLAIM OF THE BANK IS WITHOUT PROPER BASIS AND EVIDENCE. 5. THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCES OF RS.30,00,00,000 CLAIMED UNDER SECTION 36(1)(VIII) F OR CREATION OF SPECIAL RESERVE UNDER THE SAID PROVISION. 6. THAT THE LEARNED CIT FAILED TO APPRECIATE THE FA CT THAT BANK IS FINANCIAL CORPORATION AND A PUBLIC COMPANY. 7. THAT THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.9,68,139 BEING PROVISION FOR INTANGIBLE ASSET IN COMPUTING BOOK PROFIT UNDER SECTION 115JB. 4. FIRST OF ALL, LD. AR OF ASSESSEE HAS NOT PRESSED FOR ADJUDCITATION GROUND NO. 7, HENCE, SAME IS DISMISSED AS NOT PRESSED. 5. THE FIRST AND SECOND GROUND RELATE TO THE COMMON ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER BY DISALLOWING A SUM OF 311.77 CRORES U/S 36(1)(VII) ON ACCOUNT OF BAD DEBTS WRITTEN OFF RELATING TO NON-RU RAL BRANCHES. 5.1 FACTS OF THE CASE ARE THAT ASSESSEE IS A NATION ALISED BANK AND AS SUCH IT IS A CENTRAL GOVERNMENT UNDERTAKING. DURING THE YEAR, ASSESSEE HAS ITA NO.1803-1804 A.YS. 2003- 04 & 2004-05 ALLAHABAD BANK KOL. V. ACIT CIR-6 KOL. PAGE 3 CLAIMED DEDUCTION FOR AN AMOUNT OF RS.331,90,04,003 /- U/S 36(1)(VII) OF THE ACT. DURING THE COURSE OF ASSESSMENT FOR THE YEAR U NDER CONSIDERATION THE AO FOUND THAT FOR THE PRECEDING ASSESSMENT YEAR I.E. 2 003-04 THE ALLOWANCE TOWARDS THE BAD DEBTS UNDER SECTION 36(1)(VII) WAS ALLOWED BY HIS PREDECESSOR ONLY OF THAT AMOUNT EXCEEDING THE RESER VE CREATED UNDER SECTION 36(1)(VIIA) OF THE INCOME TAX ACT. THE AO OBSERVED THAT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE PROVISIONS OF SECTION 36(1)(VIIA) WERE APPLICABLE. THEREFORE THE AO FOLLOWING THE ORDER OF HIS PREDECE SSOR FOR THE AY 2003-04 HAS DISALLOWED THE DEDUCTION OF RS. 311.77 CRORES C LAIMED UNDER SECTION 36(1)(VII) IN THE LIGHT OF THE PROVISIONS OF SECTIO N 36(1)(VIIA) FOR THE YEAR UNDER CONSIDERATION AND ADDED THE SAME TO THE TOTAL INCOM E OF THE ASSESSEE. 6. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) AND DEMONSTRATED THAT THE PROVISO TO SECTION 36(1)(VII) OF THE ACT IS APPLICABLE IN RESPECT OF BAD DEBTS WRITTEN OFF RELATABLE TO THE N ON-RURAL BRANCHES OF ASSESSEE-BANK. HOWEVER THE LD. CIT(A) DISREGARDED T HE CLAIM OF THE ASSESSEE AND UPHELD THE ACTION OF THE AO BY OBSERVING AS UND ER : I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND ALSO PERUSED THE ORDER OF AO. THE ISSUE IS RECURRING FOR THE LAST FE W ASST. YEARS. IN MY OPINION THE ARGUMENT OF THE LD.AR THAT INTENTION OF THE LEG ISLATURE AS EXPLAINED IN THE CBDT CIRCULARS IS, THE DEBTS WRITTEN OFF BY THE RUR AL BRANCHES OF THE BANK ARE ONLY TO BE ADJUSTED AGAINST THE CREDIT BALANCE IN T HE PROVISION ACCOUNT IS NOT THE CORRECT LEGAL POSITION AS PER LAW. THE ARGUMENT OF LD. AR THAT THE DEBTS WRITTEN OFF BY THE NON RURAL BRANCHES OF THE BANK A RE NOT CONTROLLED BY THE PROVISO TO SECTION 36(1)(VII) AND AS SUCH ALLOWABLE IN FULL DOES NOT DESERVE ANY MERIT. 36(1)(VII) NOR THE PROVISO TALK ABOUT RURAL ADVANCES AND URBAN ADVANCES. SECTION 36(1)(VIIA) PROVIDES FOR DEDUCTIO N OF PROVISION MADE ON ACCOUNT OF PERCENTAGE OF TOTAL PROFITS AND ALSO PER CENTAGE OF AGGREGATE AVERAGE RURAL ADVANCES. THE INTENTION OF THE LEGISL ATURE IS CLEAR WHEN THE SECTION WAS ALLOWING THE PROVISION MADE ON TOTAL IN COME. IT INCLUDES ALL TYPES OF ADVANCES MADE BY THE BANK. IF THE INTENTION OF T HE LEGISLATURE WAS ONLY TO ALLOW PROVISION MADE FOR RURAL ADVANCES, THEN THIS CONCESSION COULD NOT HAVE BEEN GIVEN. UNDER SECTION 36(1)(VII) OF THE ACT, DE DUCTION ON ACCOUNT OF BAD DEBTS WHICH ARE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE IS ADMISSIBLE. HOWEVER, THIS SHOULD BE ALLOWED ONLY IF THE ASSESSEE HAD DEBITED THE AMOUNT OF SUCH DEBTS TO THE PROVISION FOR BAD A ND DOUBTFUL DEBT ACCOUNT UNDER SECTION 36(1)(VIIA) OF THE ACT AS REQUIRED BY SECTION 36(2) (V) OF THE ACT. THIS WAS CLARIFIED BY CBDT IN INSTRUCTION NO. 17/2008 , DATED: NOVEMBER 26, 2008. AS SEEN FROM RECORD THE APPELLANT COMPLIED WI TH THE PROVISIONS OF ITA NO.1803-1804 A.YS. 2003- 04 & 2004-05 ALLAHABAD BANK KOL. V. ACIT CIR-6 KOL. PAGE 4 SECTION 36(1)(VII) BY ADJUSTING THE BAD DEBTS WRITT EN OFF BY RURAL BRANCHES AGAINST THE PROVISION ALLOWED U/S 36(1)(VIIA). BUT AS PER IT ACT, SECTION 36(2)(V), THE BAD DEBTS WRITTEN OFF SHOULD BE ADJUS TED AGAINST THE PROVISION ALLOWED U/S 36(1)(VIIA). IN MY OPINION, THE ASSESSE E BANK IS ENTITLED TO DEDUCTION UNDER CLAUSE (VII) ONLY OF THE DIFFERENCE BETWEEN THE PROVISION MADE UNDER CLAUSE (VIIA) AND THE BAD DEBTS WRITTEN OFF I N THE ACCOUNTS, WITHOUT MAKING ANY DISTINCTION IN RESPECT OF DEBTS RELATING TO URBAN ADVANCES OR RURAL ADVANCES. IN VIEW OF THIS THE DISALLOWANCE MADE BY AO IS ACCORDING TO THE PROVISIONS OF THE ACT AND IS UPHELD. THE GROUNDS OF APPEAL ARE DISMISSED. REGARDING THE CLAIM OF THE APPELLANT THAT ADDITIONA L DEDUCTION OF RS.100.55 CRORES BE ALLOWED ON ACCOUNT OF BAD DEBTS UNDER SEC TION 36(1)(VII), THE FACTS ARE AS FOLLOWS. ACCORDING TO THE APPELLANT AN AMOUN T OF RS.33.55 LAKHS FOR A.Y 2001-2002 AND AMOUNT OF RS.67.00 LAKHS FOR A.Y 2003 -2004 HAVE NOT BEEN CLAIMED AS DEDUCTION U/S. 36(1)(VII) DURING THE CUR RENT ASSESSMENT YEAR, ALTHOUGH THE ABOVE DEBTS WERE WRITTEN OFF DURING A. Y 2004-2005. THE SAME WERE ADJUSTED AGAINST THE CLAIM MADE UNDER SECTION 36(1)(VIIA) IN THE AYS 2001-2002 AND 2003-2004. THE OPTIONAL DEDUCTION HAS NOT BEEN ALLOWED FOR AYS 2001-2002 AND 2003-2004. SINCE NO DEDUCTION WAS ALLOWED U/S. 36(1)(VIIA), THE APPELLANT SUBMITS THAT THE SAME BE ALLOWED U/S 36(1)(VII). I HAVE GONE THROUGH THE SUBMISSIONS OF THE APP, AND FIND NO MERIT IN THE CLAIM OF THE APPELLANT. IF THE SAME WERE ADJUSTED AGAINST THE CLAIM MADE 36(1)(VIIA) IN THE AY 2001-2002 AND 2003-2004 THEN CLAIM U/S 36 (1)(VII) CANNOT BE MADE BY THE APE NOW FOR THIS A.Y THE APPELLANT HAS NOT F URNISHED ANY INFORMATION AND DETAILS ON THIS .FURTHER IF THE CLAIM WAS ADJUS TED AGAINST THE CLAIM MADE US/S 36(1)(VIIA), THE REMAINING AMOUNT IF ANY WOULD HAVE BEEN ALLOWED BY THE AO. THE OPTIONAL DEDUCTION CANNOT BE AN ADDITIONAL DEDUCTION ALONG WITH DEDUCTION U/S 36(1)(VIIA). ACCORDING TO THE 1 ST PROVISO TO SECTION 36(1)(VIIA)(A)OF THE IT ACT A SCHEDULED BANK OR A N ON SCHEDULED BANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION, BE ALLO WED IN ANY OF THE RELEVANT ASSESSMENT YEARS, DEDUCTION IN RESPECT OF MY PROVIS ION MADE BY IT FOR ANY ASSETS CLASSIFIED BY THE RBI AS DOUBTFUL ASSETS OR LOSS ASSETS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY IT IN THIS BEHALF, FO R AN AMOUNT NOT EXCEEDING FIVE PERCENT OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE B OOKS OF ACCOUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR. PROVIDED FURTHER THAT FOR THE RELEVANT ASSESSMENT Y EARS COMMENCING ON OR AFTER THE FIRST DAY OF APRIL 2003 AND ENDING BEFORE THE 1 ST DAY OF APRIL 2005, THE PROVISIONS OF THE FIRST PROVISO SHALL HAVE EFFECT A S IF FOR THE WORDS FIVE PERCENT , THE WORDS TEN PERCENT HAD BEEN SUBSTITUTED. IN THE THIRD PROVISO THE LANGUAGE SAYS AT ITS OPTIO N, BE ALLOWED A FURTHER DEDUCTION IN EXCESS OF THE LIMITS SPECIFIED IN THE FOREGOING PROVISIONS WHICH CLEARLY MEANS IT IS AN ADDITIONAL DEDUCTION WHICH C LEARLY STATES THAT IT IS NOT AN ADDITIONAL DEDUCTION, BUT AN OPTIONAL DEDUCTION. TH E CLAIM OF THE APPELLANT IS WITHOUT PROPER BASIS AND EVIDENCE. HENCE THE CLAM O F THE APPELLANT IS REJECTED. ITA NO.1803-1804 A.YS. 2003- 04 & 2004-05 ALLAHABAD BANK KOL. V. ACIT CIR-6 KOL. PAGE 5 BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E PREFERRED SECOND APPEAL BEFORE US. SHRI B.K.GHOSH AND SHRI PIJUSH DEY, BOTH LD. AUTHOR IZED REPRESENTATIVES APPEARING ON BEHALF OF ASSESSEE AND SHRI G.MALLIKAU JANA, LD. DEPARTMENTAL REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 7. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US THE LD. AR SUBMITTED THAT THE PROVISION FOR DOUBTFUL DEBTS AS ALLOWABLE UNDER SEC TION 36(1)(VIIA) IS IN RESPECT OF PROVISION MADE AGAINST ADVANCES OF RURAL BRANCHE S ONLY. THE BAD DEBTS IN RESPECT OF ADVANCES OF NON RURAL BRANCHES IS TO BE ALLOWED FULLY U/S 36(1)(VII) AND AS SUCH IT IS NOT REQUIRED TO BE SET OFF AGAINS T PROVISION FOR BAD DEBTS CLAIMED U/S 36(1)(VIIA). THE ASSESSEE ALSO SUBMITTE D THAT THE ABOVE ISSUE IS FULLY COVERED BY THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF CATHOLIC SYRIAN BANK (2012) 343 ITR 270 (SC). ON THE OTHER HAND THE LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW . 7.1 FROM THE AFORESAID DISCUSSION WE FIND THAT THE AO HAS DISALLOWED THE BAD DEBTS WRITTEN OFF BY HOLDING THAT AS PER THE PR OVISO TO SECTION 36(1)(VII) BAD DEBTS RELATING TO NON-RURAL BRANCHES OF THE BAN K SHALL BE ALLOWED IF SUCH BAD DEBTS EXCEED THE CREDIT BALANCE IN PROVISION FO R DOUBTFUL DEBTS MADE UNDER SECTION 36(1)(VIIA) OF THE ACT. HOWEVER THE A SSESSEES CLAIM IS THAT PROVISION FOR DOUBTFUL DEBTS AS ALLOWABLE UNDER SEC TION 36(1)(VIIA) IS IN RESPECT OF PROVISION MADE AGAINST ADVANCES OF RURAL BRANCHE S ONLY. BAD DEBTS IN RESPECT OF ADVANCES OF NON-RURAL BRANCHES IS TO BE ALLOWED FULLY UNDER SECTION 36(1)(VII) AND IS NOT REQUIRED TO BE SET OFF AGAINS T PROVISION FOR BAD DEBTS CLAIMED UNDER SECTION 36(1)(VIIA) OF THE ACT. HOWEV ER WE FIND THAT IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR IN ITA NO.2486/KOL/2007 , THE ISSUE HAS BEEN DECIDED IN FAVOUR OF ASSESSEE. THE R ELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW : ITA NO.1803-1804 A.YS. 2003- 04 & 2004-05 ALLAHABAD BANK KOL. V. ACIT CIR-6 KOL. PAGE 6 WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF TH E LEARNED REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF TH E AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE CASES CITED BY THE LD. A R OF THE ASSESSEE (SUPRA). ON CONSIDERATION OF THE PROVISIONS OF SECT ION 36(1)(VIIA), AS ALSO SEC. 36(2)(V) AND ALSO CONSIDERING THE PROVISIONS OF SEC TION 36(1)(VII) OF THE ACT, WE FIND SUBSTANCE N THE SUBMISSIONS OF THE LD. AR O F THE ASSESSEE. HONBLE KERALA HIGH COURT HAS HELD THAT THE SCOPE OF THE PR OVISO TO CLAUSE (VII) OF SEC. 36(1)(VII) HAS TO BE ASCERTAINED FROM A CUMULATIVE READING OF THE PROVISIONS OF CLAUSES (VII) & (VIIA) OF SEC. 36(1) AND CLAUSE (V) OF SEC. 36(2) OF THE ACT. IT WAS HELD THAT THE INTENTION OF THE LEGISLATURES IN ENACTING THE PROVISO TO CLAUSE (VII) OF SEC. 36(1) AND CLAUSE (V) OF SEC. 3 6(2) SIMULTANEOUSLY IS ONLY TO SEE THAT A DOUBLE BENEFIT IN RESPECT OF THE SAME BA D DEBT IS NOT GIVEN TO A SCHEDULED BANK. A SCHEDULED BANK MAY HAVE BOTH URBA N AND RURAL BRANCHES AND ADVANCES GIVEN FROM OTHER BRANCHES. IT WAS ALSO HELD THAT AS A RESULT OF THE AMENDMENT, THE SCHEDULED BANK WOULD BE ENTITLED TO THE DEDUCTION OF THE ENTIRE BAD DEBT RELATING TO ADVANCES MADE BY THE UR BAN BRANCHES WRITTEN OFF IN THE BOOKS AND ALSO THE DIFFERENCE BETWEEN THE AMOUN T WRITTEN OFF IN THE BOOKS RELATING TO ADVANCES MADE BY THE RURAL BRANCHES DUR ING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR AND CREDIT BALANCE IN THE PROVISIONS FOR BAD AND DOUBTFUL DEBT ACCOUNT RELATING TO ADVANCES MADE BY THE RURAL BRANCHES MADE IN CLAUSE (VIIA). IT WAS HELD THAT IF THE BAD DEBT WRITTEN OFF RELATES TO DEBTS OTHER THAN FOR WHICH PROVISION IS MADE UNDER CLAUSE (VIIA), SUCH DEBT WILL FALL SQUARELY UNDER THE MAIN PART OF CLAUSE (VII) W HICH IS ENTITLED TO DEDUCTION AND IN RESPECT OF THAT PART OF THE DEBT WITH REFERE NCE TO WHICH THE PROVISION IS MADE UNDER CLAUSE (VIIA), THE PROVISOS WILL OPERATE TO LIMIT THE DEDUCTION TO THE EXTENT OF THE DIFFERENCE BETWEEN THAT PART OF DEBT WRITTEN OFF IN THE PREVIOUS YEAR AND THE CREDIT BALANCE IN THE PROVISION FOR TH E BAD AND DOUBTFUL DEBTS ACCOUNTS MADE UNDER CLAUSE (VIIA). FURTHER, THE SPE CIAL BENCH OF THE ITAT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) HAS H ELD THAT THE DEBTS ACTUALLY WRITTEN OFF WHICH DO NOT ARISE OUT OF THE RURAL ADV ANCES ARE NOT AFFECTED BY THE PROVISO TO CLAUSE (VII) AND THAT ONLY THOSE BAD DEB T WHICH ARISES OUT OF THE RURAL ADVANCES ARE TO BE LIMITED IN ACCORDANCE WITH THE PROVISO. CONSIDERING THE ABOVE DECISIONS AND ALSO THE FINDIN GS GIVEN BY THE ITAT IN ASSESSEES OWN CASE IN AYS 1994-95, 1996-97 AND 199 7-98 AND ALSO CONSIDERING THE DETAILS PLACED ON PAGES 26 TO 39 OF THE PAPER BOOK, WE ALLOW THE CLAIM OF THE ASSESSEE BY REVERSING THE ORDERS O F THE AUTHORITIES BELOW. HENCE, GROUND NO. 2 TAKEN BY THE ASSESSEE IS ALLOWE D. CONSIDERING THE ABOVE DECISION AND FINDING OF THE I TAT IN THE OWN CASE OF THE ASSESSEE, WE ALLOW THE CLAIM OF THE ASSESSEE BY REV ERSING THE ORDER OF AUTHORITIES BELOW. ACCORDINGLY THE COMMON GROUND OF ASSESSEES APPEAL IS ALLOWED. ITA NO.1803-1804 A.YS. 2003- 04 & 2004-05 ALLAHABAD BANK KOL. V. ACIT CIR-6 KOL. PAGE 7 8. THE THIRD AND FOURTH GROUNDS RELATE TO THE COMMO N ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCES OF RS. 96.65 CRORES BEING 10% OF DOUBTFUL AND LOSS ASSETS CLAIMED UNDER 1 ST AND 2 ND PROVISO TO SECTION 36(1)(VIIA) OF THE ACT. 9. AT THE TIME OF HEARING BEFORE US, BOTH THE PARTI ES FAIRLY CONCEDED THAT BOTH ISSUES ARE COVERED AGAINST ASSESSEE IN ASSESSE ES OWN CASE FOR A.Y 2003-04 IN ITA NO. 2486/KOL/2007 AND FOR THE A.Y. 2001-02 ITA NO. 1349/KOL/2009 . THEREFORE, WE DISMISS GROUND NO. 3 & 4 RESPECTFUL LY FOLLOWING THE TRIBUNALS ORDER IN ASSESSEES OWN CASE DATED 3 0 TH SEPTEMBER, 2009 AND 14 TH MAY, 2012. THE EXTRACT RELEVANT PORTION FOR THE AS SESSMENT YEAR 2001-02 IS REPRODUCED BELOW:- 7. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTHORITIES BELOW AND THE SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF THE P ARTIES. WE HAVE ALSO CONSIDERED THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT. WE ARE OF THE CONSIDERED VIEW THAT THE CLAIM OF 10% OF DOUBTFUL A SSETS AND LOSS AS PROVIDED IN FIRST PROVISO TO SECTION 36(1) (VIIA)(A) OF THE ACT AS AMENDED BY THE FINANCE ACT, 2002 W.E.F. 1.4.2003 AND APPLICABLE TO THE ASS ESSMENT EAR UNDER CONSIDERATION AS AN ALTERNATE CLAIM AND THE ADDITIO NAL DEDUCTION COULD NOT BE ALLOWED IF THE CLAIM OF THE ASSESSEE UNDER CLAUSE ( A) OF SECTION 36(1)(VIIA) HAS BEEN ALLOW. SINCE THE DEPARTMENT HAS ALLOWED TH E DEDUCTION TO THE ASSESSEE US. 36(1)(VIIA)(A) OF THE ACT, WE HELD THA T THE LEARNED CIT(A) HAS RIGHTLY CONFIRMED THE ACTION OF THE ASSESSING OFFIC ER TO DISALLOW THE ADDITIONAL CLAIM OF RS.1,40,30,70,000 OF THE ASSESSEE. HENCE, GROUND NO.1 IS REJECTED. 9.1 SINCE THE FACTS INVOLVED IN THE PRESENT CASE AR E SIMILAR TO THAT OF THE ONE DECIDED BY THE TRIBUNAL, WE FIND NO REASON TO DEVIA TE FROM THE ORDERS OF THE TRIBUNAL TAKEN IN ASSESSEES OWN CASE. HENCE, COMMO N GROUND NO. 3 & 4 RAISED BY ASSESSEE ARE DISMISSED. 10. THE FIFTH AND SIXTH GROUNDS RELATE TO THE COMMO N ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCES OF RS. 30 CRORES CLAIMED U/S 36(1)(VIII) OF THE ACT FOR THE CREATION OF SPECIAL RESERVE. ITA NO.1803-1804 A.YS. 2003- 04 & 2004-05 ALLAHABAD BANK KOL. V. ACIT CIR-6 KOL. PAGE 8 11. DURING THE YEAR THE ASSESSEE HAS CLAIMED THE DE DUCTION OF RS.30 CRORES IN TERMS OF THE PROVISIONS PROVIDED U/S 36(1 )(VIII) OF THE ACT BY CREATING A SPECIAL RESERVE FOR ITS LONG TERM FINANCE BUSINES S. THIS DEDUCTION IS AVAILABLE TO A FINANCIAL CORPORATION ENGAGED IN LON G TERM FINANCE FOR INDUSTRY, AGRICULTURAL AND INFRASTRUCTURE FACILITY. THE FINAN CIAL CORPORATION HAS BEEN DESCRIBED TO INCLUDE A PUBLIC COMPANY AND A GOVERNM ENT COMPANY. ON QUERY BY THE AO, THE ASSESSEE SUBMITTED THAT AS PER SECTI ON 11 OF BANKING COMPANIES ACT, 1970, A NATIONALIZED BANK IS AN INDI AN COMPANY FOR THE PURPOSE OF INCOME TAX ACT. BESIDES THE GOVERNMENT O F INDIA HOLDS MORE THAN 51% SHARES OF THE BANK, SO IT CAN ALSO BE REGARDED AS GOVERNMENT COMPANY. HOWEVER THE AO HAS DISALLOWED THE SAME BY HOLDING T HAT THE NATIONALIZED BANKS ARE STATUTORY BODIES AND NOT REGISTERED UNDE R THE COMPANIES ACT, THEREFORE THE ASSESSEE BANK IS NOT ENTITLED FOR THE DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. 12. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO CONFIRMED THE ACTION OF AO BY OBSERVING AS UNDER:- I HAVE GONE THROUGH THE SUBMISSIONS OF THE APPELLA NT AND ALSO THE ASSESSMENT ORDER OF A.O. THE AO IN HIS ASSESSMENT O RDER AT PARA 5.4 STATED THAT IN THE EXPLANATION BELOW SEC. 36(1)(VIIA)(C), A PUBLIC COMPANY HAS BEEN DEFINED TO HAVE THE MEANING ASSIGNED TO IT IN SEC. 3 OF COMPANIES ACT AND A GOVT. COMPANY SHALL HAVE THE MEANING ASSIGNED TO IT IN SEC. 617 OF THE COMPANIES ACT. THE PRIMARY CONDITION OF BOTH IS THA T IT HAS TO BE REGISTERED UNDER THE COMPANIES ACT, 1956. THE NATIONALIZED SCH EDULED BANKS ARE STATUTORY BODIES, WHICH MAY ENJOY THE STATUS OF A D EEMED COMPANY FOR INCOME TAX PURPOSE, BUT IT CANNOT BE HELD TO BE A C OMPANY REGISTERED UNDER THE COMPANIES ACT. THE SUBMISSIONS OF THE APPELLANT WITH REFERENCE TO GUIDE TO COMPANIES ACT BY A RAMAIYA ARE NOT RELEVANT HERE BECAUSE THE CO NTEXT MENTIONED THERE WAS WITH REFERENCE TO PUBLIC SERVANTS , I UPHOLD THE DISALLOWANCE MADE BY THE AO AND THE GROUND OF APPEA L IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E PREFERRED SECOND APPEAL BEFORE US. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US THE LD. AR SUBMITTED THAT THE ASS ESSEE IS A GOVT. COMPANY ITA NO.1803-1804 A.YS. 2003- 04 & 2004-05 ALLAHABAD BANK KOL. V. ACIT CIR-6 KOL. PAGE 9 WITHIN THE MEANING OF SEC. 617 OF THE COMPANIES ACT ,1956, THEREFORE IT IS ENTITLED TO CLAIM DEDUCTION U/S. 36(1)(VIII) OF THE ACT. THE ASSESSEE ALSO SUBMITTED IN SUPPORT OF ITS CLAIM THE ORDER OF ITAT MUMBAI BENCH IN THE CASE OF UNION BANK OF INDIA V. ACIT IN ITA NO. 4704 TO 4706/MUM/2010 FOR AYS 2002-03 TO 2006-07. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. 13.1 FROM THE AFORESAID DISCUSSION WE FIND THAT THE ASSESSEE HAS CLAIMED A DEDUCTION OF RS.30 CRORES BY VIRTUE OF SEC. 36(1)(V III) OF THE ACT BY CREATING A SPECIAL RESERVE IN THE BOOKS OF ACCOUNT. HOWEVER, T HE AO FOUND THAT THE DEDUCTION AS SPECIFIED U/S 36(1)(VIII) OF THE ACT I S APPLICABLE TO A FINANCIAL CORPORATION WHICH INCLUDE PUBLIC COMPANY OR A GOVT. COMPANY BUT NOT A STATUTORY BODIES THEREFORE, THE AO HELD THAT THE BA NK IS NEITHER A GOVT. COMPANY OR PUBLIC COMPANY, CONSEQUENTLY, THE DEDUCT ION WAS DISALLOWED. NOW LET US EXAMINE WHETHER THE DEDUCTION SPECIFIED UNDER SECTION 36(1)(VIII) OF THE ACT IS AVAILABLE TO THE PRESENT ASSESSEE I.E . ALLAHABAD BANK. THE RELEVANT PORTION OF THE SECTION 36(1)(VIII) OF THE ACT IS REPRODUCED BELOW : EXPLANATION .- IN THIS CLAUSE,- (A) SPECIFIED ENTITY MEANS,- (I) A FINANCIAL CORPORATION SPECIFIED IN SECTION 4A 21 OF THE COMPANIES ACT, 1956(1 OF 1956) (II) A FINANCIAL CORPORATION WHICH IS A PUBLIC SECT OR COMPANY; (III) A BANKING COMPANY; (IV) A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRIC ULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK; (V) A HOUSING FINANCE COMPANY; AND (VI) ANY OTHER FINANCIAL CORPORATION INCLUDING A PU BLIC COMPANY; (B) . (C) BANKING COMPANY MEANS A COMPANY TO WHICH THE BANK ING REGULATION ACT, 1949 (10 OF 1949) APPLIES AND INCLUDES ANY BAN K OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT; ITA NO.1803-1804 A.YS. 2003- 04 & 2004-05 ALLAHABAD BANK KOL. V. ACIT CIR-6 KOL. PAGE 10 FROM THE AFORESAID DEFINITION WE FIND THAT THE BANK ING COMPANY HAS BEEN DULY INCLUDED IN THE SPECIFIED ENTITY TO WHICH THE PROVI SIONS OF SECTION 36(1)(VIII) ARE DULY APPLICABLE. BESIDES THE ABOVE WE ARE OF THE O PINION THAT ANY ENTITY INCORPORATED UNDER A STATUTE CARRYING ON THE BUSINE SS OF FINANCING WOULD COME UNDER THE DEFINITION OF FINANCIAL CORPORATION. THE DEFINITION IS NOT AN EXHAUSTIVE DEFINITION AND THE TERM FINANCIAL CORPORATION HAS B EEN DEFINED IN INCLUSIVE MANNER SO AS TO INCLUDE A GOVT. COMPANY AND A PUBLI C COMPANY. HENCE FINANCIAL CORPORATION SHOULD INCLUDE BANK ALSO. THE MEMORANDUM EXPLAINING THE AMENDMENT TO SEC. 36(1)(VIII) W.E.F.12.2008 HAS CLEARLY STATED AS FOLLOWS:- THE PROVISION HAS ALSO BEEN RESTRUCTURED TO PROVID E FOR DIFFERENT CATEGORIES OF ENTITIES (WHICH NOW ALSO INCLUDE CO-OPERATIVE BANKS ) AND THEIR RESPECTIVE ACTIVITIES FOR ELIGIBILITY OF THE DEDUCTION UNDER T HE SAID CLAUSE. FOR CLAIMING DEDUCTION UNDER THE SAID CLAUSE, (I) A FINANCIAL CO RPORATION SPECIFIED IN SEC. 4A OF THE COMPANIES ACT OR A FINANCIAL CORPORATION WHICH IS A PUBLIC SECTION COMPANY OR A BANKING COMPANY OR A CO-OPERATIVE BANK (OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATI VE AGRICULTURAL AND RURAL DEVELOPMENT BANK) THE AMENDMENT ALSO PROVIDES DEFINITIONS OF THE EXPR ESSIONS BANKING COMPANY, CO-OPERATIVE BANK, PRIMARY AGRICULTURA L CREDIT SOCIETY. FURTHER, THE RESTRUCTURING DONE TO DEFINE THE FINANCIAL CORP ORATION IS ONLY CLARIFICATORY AS WE CAN SEE FROM THE NOTES ON CLAUSES WHICH READ AS FOLLOWS:- THE PROPOSED AMENDMENT FURTHER SEEKS TO DEFINE CER TAIN TERMS INCLUDING SPECIFIED ENTITIES AND ELIGIBLE BUSINESS FOR THE PURPOSES OF DEDUCTION. SINCE THE DEFINITION IS ONLY CLARIFICATORY IN NATUR E, IT CAN BE PRESUMED THAT THE ENTITY SUCH AS THE ASSESSEE WAS COVERED IN THE DEFI NITION FROM THE INCEPTION OF THE SECTION. EVEN OTHERWISE THE ASSESSEE IS A GOVT. COMPANY SINCE THE CENTRAL GOVT. HOLDS MORE THAN 51% OF THE SHARE CAPI TAL OF THE BANK AND AS DEFINED IN SEC. 617 OF THE COMPANIES ACT THE ASSESS EE IS A GOVT. COMPANY. HENCE THE DEDUCTION U/S. 36(1)(VIII) HAS TO BE ALLO WED TO THE ASSESSEE AS IT IS ENGAGED IN THE BUSINESS OF PROVIDING LONG TERM FINA NCE FOR INDUSTRIAL, AGRICULTURE AND INFRASTRUCTURE DEVELOPMENT IN INDIA AND IS A GOVT. COMPANY. THE ASSESSEE IS A FINANCIAL CORPORATION WITHIN THE MEANING OF SEC. 36(1)(VIII) SINCE IT IS GOVT. COMPANY. HOWEVER THE DEDUCTION AV AILABLE UNDER THIS SECTION ITA NO.1803-1804 A.YS. 2003- 04 & 2004-05 ALLAHABAD BANK KOL. V. ACIT CIR-6 KOL. PAGE 11 WILL BE RESTRICTED TO THE AMOUNT TRANSFERRED TO SPE CIAL RESERVE SUBJECT TO THE LIMIT OF PRESCRIBED PERCENTAGE OF PROFITS DERIVED F ROM PROVIDING LONG TERM FINANCE FOR THE APPROVED PURPOSES MENTIONED IN SEC. 36(1)(VIII). ACCORDINGLY, THE COMMON GROUNDS OF THE ASSESSEE IS ALLOWED. COMING TO ITA NO.1802/KOL/2009 FOR A.Y. 03-04. 14. AT THE TIME OF HEARING LD. AR FAIRLY STATED THA T HE HAS BEEN INSTRUCTED BY THE ASSESSEE NOT TO PRESS THE GROUNDS RAISED IN APP EAL. LD. DR RAISED NO OBJECTION. HENCE, ALL THE GROUNDS RAISED BY ASSESSE E ARE DISMISSED AS NOT PRESSED. 15. IN THE RESULT, ASSESSEES APPEAL NO. ITA NO. 1803/K OL/2009 IS PARTLY ALLOWED WHEREAS ITA NO.1802/KOL/2009 IS DISMISSED A S NOT PRESSED. ORDER PRONOUNCED IN THE OPEN COURT 03/ 02/2016 SD/- SD/- (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP '#$- 03 / 02 /201 6 / COPY OF ORDER FORWARDED TO:- 1. / ASSESSEE- ALLAHABAD BANK, 2, NETAJI SUBHAS ROAD, KOLKATA-700 001 2. / REVENUE-ACIT, CIRCLE-6, AAYKAR BHAWAN, P-7, CHOW RINGHEE SQURE, KOL-69 3.#,#-. / / CONCERNED CIT KOLKATA 4. /- / CIT (A) KOLKATA 5.2 3455-., -.!, / DR, ITAT, KOLKATA 6.489:; / GUARD FILE. BY ORDER/ , /TRUE COPY/ /# -.!,