The ACIT, Kannur V. M/s.North Malabar Gramina Bank, Kannur

ITA 183/COCH/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96734 (ITAT-COCHIN)
• Duration Of Justice: 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2015
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 24-09-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 16-03-2015
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH C OCHIN BEFORE S/SHRI B.P. JAIN, AM AND GEORGE GEOR GE K., JM I.T.A. NOS. 183&184/COCH/2015 ASSESSMENT YEAR : 2007-08 & 2010-11 THE ACIT, CIRCLE-1, KANNUR RANGE, KANNUR.L VS. M/S. NORTH MALABAR GRAMINA BANK, HEAD OFFICE, PALLIKUNNU, KANNUR-670 004. [PAN: AAAAN 5413F] (REVENUE -APPELLANT) (ASSESSEE-RESPONDENT) REVENUE BY SHRI K.P. GOPAKUMAR, SR. DR ASSESSEE BY SHRI GEORGE THOMAS, CA DATE OF HEARING 25/09/2015 DATE OF PRONOUNCEMENT 05/10/2015 O R D E R PER BENCH: THESE TWO APPEALS FILED AT THE INSTANCE OF THE REV ENUE ARE DIRECTED AGAINST THE CONSOLIDATED ORDER OF THE CIT(A), KOZHI KODE DATED 19/12/2014. THE RELEVANT ASSESSMENT YEARS ARE 2007-08 AND 2010- 11. 2. SINCE THE ISSUES INVOLVED IN THESE TWO APPEALS A RE IDENTICAL IN NATURE AND PERTAIN TO THE SAME ASSESSEE, WE DISPOSE OF THE SE APPEALS BY THIS CONSOLIDATED ORDER. I.T.A. NOS.183&184/COCH/2015 2 3. THE GROUNDS RAISED IN BOTH THE APPEALS ARE IDENT ICAL EXCEPT FOR VARIANCE IN THEIR FIGURES . THE GROUNDS RELATE TO THE SOLITARY ISSUE WHETHER THE CIT(A) IS JUSTIFIED IN ALLOWING THE CLAIM OF TH E ASSESSEE BY REVERSING THE ASSESSING OFFICERS ORDER IN RESTRICTING DEDUCTION CLAIMED BY THE ASSESSEE U/S. 36(1)(VIIA) OF THE I.T. ACT TO THE EXTENT OF P ROVISION MADE IN THE BOOKS OF ACCOUNTS. 4. BRIEFLY STATED THE FACTS OF THE CASE ARE AS FOLL OWS: THE ASSESSEE IS ENGAGED IN BANKING BUSINESS. THE ASSESSING OFFICER HAD RESTRICTED THE CLAIM OF DEDUCTION MADE U/S. 36(1)(VIIA) OF THE ACT TO TH E EXTENT OF PROVISION MADE IN THE BOOKS OF ACCOUNTS. IN APPEAL, THE CIT( A) FOLLOWED THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR 2009-10 IN I.T.A. NO. 207/COCH/2014 (ORDER DATED 19 TH SEPTEMBER, 2014) AND DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE. THE RELEVANT FINDING OF THE CIT(A) READS AS UNDER: I HAVE HEARD THE LD. COUNSEL, AND HAVE CAREFULLY C ONSIDERED HIS SUBMISSIONS. I FIND THAT THIS ISSUE HAS BEEN CONS IDERED AND DECIDED BY ME IN FAVOUR OF THE ASSESSEE. FURTHER, THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS)) HAS BEEN UPH ELD BY THE HONBLE ITAT BY ITS ORDER MENTIONED ABOVE. IN VIE W OF THIS, I AM NOT INCLINED TO SUSTAIN THE DISALLOWANCE OF DED UCTION CLAIMED BY THE ASSESSEE U/S. 36(1)(VIIA) OF THE ACT IN BOTH THE YEARS. I.T.A. NOS.183&184/COCH/2015 3 5. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BE FORE US. THE LD. DR FAIRLY CONCEDED THAT THE ISSUE IN QUESTION IS COVERED IN F AVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL DATED 19 TH SEPTEMBER, 2014 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10(SUPRA). 6 THE LD. AR PLACED ON RECORD A COPY OF THE ORD ER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NO. 207/COCH/2014 DAT ED 19 TH SEPTEMBER, 2014 PERTAINING TO THE ASSESSMENT YEAR 2009-10. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. AN IDENTICAL ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10. THE TRIBUNAL FOLLOWED THE JUDGMENT O F THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. CIT, 3 43 ITR 270 (SC). THE RELEVANT FINDING OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUP RA) READS AS UNDER: 2 AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OP INION THAT SIMILAR ISSUE CAME BEFORE THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD VS CIT REPORTED IN 343 ITR 270 (SC) WHEREIN IT HAS BEEN OBSERVED AND HELD AS UNDER: THE CLEAR LEGISLATIVE INTENT OF THE PROVISIONS AND UNAMBIGUOUS LANGUAGE OF THE CIRCULARS WITH REFERENCE TO THE AME NDMENTS TO SECTION 36 OF THE ACT IS THAT THE DEDUCTION ON ACCO UNT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VIIA ) IS DISTINCT AND INDEPENDENT OF THE PROVISIONS OF SECTION 36(1)(VII) RELATING TO ALLOWANCE OF THE BAD DEBTS. AFTER INTRODUCTION OF S ECTION 36(1)(VIIA) BY THE FINANCE ACT, 1979, WITH EFFECT FROM APRIL 1, 1980, CIRCULAR NO. 258, DATED JUNE 14, 1979, WAS ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES TO CLARIFY THE APPLICATION OF THE NEW PROVISI ONS. THE PROVISIONS I.T.A. NOS.183&184/COCH/2015 4 WERE INTRODUCED IN ORDER TO PROMOTE RURAL BANKING A ND ASSIST SCHEDULED COMMERCIAL BANKS IN MAKING ADEQUATE PROVI SION FROM THEIR CURRENT PROFITS FOR RISKS IN RELATION TO THEI R RURAL ADVANCES. THE DEDUCTIONS WERE TO BE LIMITED AS SPECIFIED IN THE S ECTION. THE CIRCULAR MENTIONS THAT THE PROVISIONS OF NEW CLAUSE (VIIA) OF SECTION 36(1), RELATING TO THE DEDUCTION ON ACCOUNT OF PROV ISIONS FOR BAD AND DOUBTFUL DEBTS, IS DISTINCT AND INDEPENDENT OF THE PROVISIONS OF SECTION 36(1)(VII) RELATING TO ALLOWANCE OF DEDUCTI ON OF THE BAD DEBTS. IN OTHER WORDS, SCHEDULED COMMERCIAL BANKS W OULD CONTINUE TO GET THE BENEFIT OF THE WRITE-OFF OF THE IRRECOVE RABLE DEBTS UNDER SECTION 36(1)(VII) IN ADDITION TO THE BENEFIT OF DE DUCTION OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VIIA). THE LEGISLATIVE INTENT WAS TO ENCOURAGE RURAL ADVAN CES AND THE MAKING OF PROVISIONS FOR BAD DEBTS IN RELATION TO S UCH RURAL BRANCHES. THE COURT WOULD GIVE AN INTERPRETATION TO THESE PRO VISIONS WHICH WOULD SERVE THE LEGISLATIVE OBJECT AND INTENT, RATH ER THAN TO SUBVERT THEM. THE PURPOSE OF GRANTING SUCH DEDUCTIONS WOULD STAND FRUSTRATED IF THESE DEDUCTIONS ARE IMPLICITLY NEUTR ALIZED AGAINST OTHER INDEPENDENT DEDUCTIONS SPECIFICALLY PROVIDED UNDER THE PROVISIONS OF THE ACT. THE DEDUCTIONS PERMISSIBLE UNDER SECTIO N 36(1)(VII) SHOULD NOT BE NEGATED BY READING INTO THIS PROVISIO N, LIMITATIONS OF SECTION 36(1)(VIIA) ON THE REASONING THAT IT WILL F ORM A CHECK AGAINST DOUBLE DEDUCTION. THE LANGUAGE OF SECTION 36(1)(VII) OF THE ACT IS UN AMBIGUOUS AND DOES NOT ADMIT OF TWO INTERPRETATIONS. IT GIVES A B ENEFIT TO ALL BANKS, COMMERCIAL OR RURAL, SCHEDULED OR UNSCHEDULED, TO C LAIM A DEDUCTION OF ANY BAD DEBT OR PART THEREOF, WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR. THIS BENEFIT IS SUBJECT ONLY TO SECTION 36(2) OF TH E ACT. THE PROVISO TO SECTION 36(1)(VII) DOES NOT, IN ABSOLUTE TERMS, CON TROL THE APPLICATION OF THIS PROVISION AS IT COMES INTO OPERATION ONLY W HEN THE CASE OF THE ASSESSEE IS ONE WHICH FALLS SQUARELY UNDER SECT ION 36(1)(VIIA) OF THE ACT. THE EXPLANATION TO SECTION 36(1)(VII), INT RODUCED BY THE FINANCE ACT, 2001, SPECIFICALLY EXCLUDED ANY PROVIS ION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNT OF THE ASSESSEE FROM THE AMBIT AND SCOPE OF 'ANY BAD DEBT, OR PART THEREOF, WRITTE N OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE'. THU S, THE CONCEPT OF MAKING A PROVISION FOR BAD AND DOUBTFUL DEBTS WILL FALL OUTSIDE THE SCOPE OF SECTION 36(1)(VII) SIMPLICITER. ONCE THE B AD DEBT IS ACTUALLY WRITTEN OFF AS IRRECOVERABLE AND THE REQUIREMENTS O F SECTION 36(2) SATISFIED, THEN, IT WILL NOT BE PERMISSIBLE TO DENY SUCH DEDUCTION ON I.T.A. NOS.183&184/COCH/2015 5 THE APPREHENSION OF DOUBLE DEDUCTION UNDER THE PROV ISIONS OF SECTION 36(1)(VIIA) AND THE PROVISO TO SECTION 36(1 )(VII). THE PROVISIONS OF A SECTION HAVE TO BE INTERPRETED ON THEIR PLAIN LANGUAGE AND NOT ON THE BASIS OF APPREHENSION OF TH E DEPARTMENT. THE PROVISIONS OF CLAUSE (VIIA) OF SECTION 36(1) RE LATING TO THE DEDUCTION ON ACCOUNT OF THE PROVISION FOR BAD AND D OUBTFUL DEBT(S) ARE DISTINCT AND INDEPENDENT OF THE PROVISIONS OF S ECTION 36(1)(VII) RELATING TO ALLOWANCE OF THE BAD DEBT(S). IN OTHER WORDS, SCHEDULED COMMERCIAL BANKS WOULD CONTINUE TO GET THE FULL BEN EFIT OF THE WRITE OFF OF THE IRRECOVERABLE DEBT(S) UNDER SECTION 36(1 )(VII) IN ADDITION TO THE BENEFIT OF DEDUCTION FOR THE PROVISION MADE FOR BAD AND DOUBTFUL DEBT(S) UNDER SECTION 36(1)(VIIA). NORMALL Y, A DEDUCTION FOR BAD DEBT(S) CAN BE ALLOWED ONLY IF THE DEBT IS WRIT TEN OFF IN THE BOOKS AS BAD DEBT(S). BUT IN THE CASE OF RURAL ADVA NCES, A DEDUCTION WOULD BE ALLOWED EVEN IN RESPECT OF A MER E PROVISION WITHOUT INSISTING ON AN ACTUAL WRITE OFF. HOWEVER, THIS MAY RESULT IN DOUBLE ALLOWANCE IN THE SENSE THAT IN RESPECT OF TH E SAME RURAL ADVANCE THE BANK MAY GET ALLOWANCE ON THE BASIS OF CLAUSE (VIIA) AND ALSO ON THE BASIS OF ACTUAL WRITE OFF UNDER CLA USE (VII). THIS SITUATION IS TAKEN CARE OF BY THE PROVISO TO CLAUSE (VII) WHICH LIMITS THE ALLOWANCE ON THE BASIS OF THE ACTUAL WRITE OFF TO THE EXCESS, IF ANY, OF THE WRITE OFF OVER THE AMOUNT STANDING TO T HE CREDIT OF THE ACCOUNT CREATED UNDER CLAUSE (VIIA). THE CBDT ITSEL F HAS RECOGNIZED THE POSITION THAT A BANK WOULD BE ENTITLED TO BOTH THE DEDUCTIONS, ONE UNDER CLAUSE (VII) ON THE BASIS OF ACTUAL WRITE OFF AND ANOTHER, ON THE BASIS OF CLAUSE (VIIA) IN RESPECT OF A MERE PROVISION. IT WOULD BE MEANINGLESS TO INVOKE THE PROVISO WHERE THERE IS NO THREAT OF DOUBLE DEDUCTION. IN CASE OF RURAL ADVANCES, WHICH ARE COVERED BY THE PROVISIONS OF CLAUSE (VIIA), THERE WOULD BE NO SUCH DOUBLE DEDUCTION. THE PROVISO LIMITS ITS APPLICATION TO TH E CASE OF A BANK TO WHICH CLAUSE (VIIA) APPLIES. CLAUSE (VIIA) APPLIES ONLY TO RURAL ADVANCES. THIS HAS BEEN EXPLAINED BY CIRCULARS ISSU ED BY THE CBDT. THUS, THE PROVISO IS LIMITED IN ITS APPLICATION TO BAD DEBT(S) ARISING OUT OF RURAL ADVANCES OF A BANK. IT FOLLOWS THAT IF THE AMOUNT OF BAD DEBT(S) ACTUALLY WRITTEN OFF IN THE ACCOUNTS OF THE BANK REPRESENTS ONLY DEBT(S) ARISING OUT OF URBAN ADVANCES, THE ALL OWANCE THEREOF IN THE ASSESSMENT IS NOT AFFECTED, CONTROLLED OR LI MITED IN ANY WAY BY THE PROVISO TO CLAUSE (VII). 3 IN VIEW OF THE ABOVE FINDINGS OF THE HONBLE SUPR EME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD (SUPRA), WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. I.T.A. NOS.183&184/COCH/2015 6 8. IN VIEW OF THE ORDER OF THE TRIBUNAL IN ASSESSEE S OWN CASE PERTAINING TO ASSESSMENT YEAR 2009-10, WHICH IN TURN HAS FOLLO WED THE DICTUM LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CATHOLI C SYRIAN BANK LTD. (SUPRA), WE HOLD THAT THE CIT(A) IS JUSTIFIED IN AL LOWING THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, BOTH THE APPEALS FILED BY T HE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 05-10-2015. SD/- SD/- (B.P. JAIN) (GEORGE GEORGE K.) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 05TH OCTOBER, 2015 GJ COPY TO: 1. M/S. NORTH MALABAR GRAMINA BANK, HEAD OFFICE, PA LLIKUNNU, KANNUR-670 004. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -1, KANNUR RANGE, KANNUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOZHIKO DE. 4. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 5. D.R., I.T.A.T.,COCHIN. 6. GUARD FILE. BY ORDER (ASSISTA NT REGISTRAR) I.T.A.T., COCHIN