Assistant Commissioner of Income TAx Circle-2(1), Hubli V. M/s Karnataka Vikas Grameen Bank , Dharwad

ITA 2054/BANG/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6873 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-09-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 23-10-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR BENGALURU
• Assessee Lawyers: S V RAVISHANKAR
• Keywords: Bad and doubtful debts; Set aside
• Section: 143(3); 80P; 48; 73; 72; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.2054/BANG/2017 ASSESSMENT YEAR : 2014-15 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(1), HUBLI. VS. M/S. KARNATAKA VIKAS GRAMEEN BANK., HEAD OFFICE, BELGAUM ROAD, DHARWAD. PAN: AAA AK 6324Q APPELLANT RESPONDENT APPELLANT BY : SHRI PRADEEP KUMAR, CIT(DR)(ITAT), BENGALURU. RESPONDENT BY : SHRI S.V. RAVI SHANKAR, ADVOCATE DATE OF HEARING : 08.09.2020 DATE OF PRONOUNCEMENT : 10.09.2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 3.7.2017 OF COMMISSIONER OF INCOME-TAX (APPEALS), HUBLI RELA TING TO THE ASSESSMENT YEAR 2014-15. 2. GROUND NO.I RAISED BY THE REVENUE BY THE REVENU E READS AS FOLLOWS:- I. ON FACTS & CIRCUMSTANCES OF THE CASE AND IN LAW , THE LEARNED CIT(A), HUBBALLI, ERRED IN CONSIDERING THE ASSESSE ES CLAIM FOR DEDUCTION U/S.36(1)(VIIA) OF RS.381,26,66,985/- AS THE ASSESSEE HAD NOT MADE ANY PROVISION FOR BAD AND DOUBTFUL DEB TS DURING THE PREVIOUS YEAR AS PER THE PROVISIONS CONTAINED IN SE CTION 36(2)(V) ITA NO.2054/BANG/2017 PAGE 2 OF 13 AND CLARIFICATION IN EXPLANATION 2 TO SECTION 36(1) (VII) BY THE FINANCE ACT, 2013, W.E.F 1.4.2013. 3. THE ASSESSEE IS A RURAL REGIONAL BANK ENGAGED IN THE BUSINESS OF BANKING. IN THE COURSE OF ASSESSMENT PROCEEDINGS U /S 143(3) OF THE INCOME-TAX ACT, 1961 (ACT) FOR AY 2014-15, THE AO N OTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF PROVIS ION FOR BAD AND DOUBTFUL DEBTS FOR A SUM OF RS.3,81,26,66,985/- U/S .36(1)(VIIA) OF THE INCOME TAX ACT, 1961 (ACT). THE PROVISIONS OF SECT ION 36(1)(VIIA)(A) OF THE ACT LAYS DOWN AS FOLLOWS:- VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOUB TFUL DEBTS MADE BY (A) A SCHEDULED BANK NOT BEING A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A CO-OPERAT IVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRI MARY 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 CL AUSE AND CHAPTER VI-A) AND AN AMOUNT NOT EXCEEDING TEN PER C ENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCH ES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER; PROVIDED THAT A SCHEDULED BANK OR A NON-SCHEDULED B ANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION, BE ALLO WED IN ANY OF THE RELEVANT ASSESSMENT YEARS, 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 WIT H THE GUIDELINES ISSUED BY IT IN THIS BEHALF, FOR AN AMOUNT NOT EXCE EDING FIVE PER CENT OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOK S OF ACCOUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR. 4. THERE ARE TWO DEDUCTIONS ALLOWED UNDER THE AFORE SAID PROVISIONS VIZ., (I) 7.5% OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER CLAUSE (VIIA) OF SEC.36(1) OF THE ACT TOWARDS PROVISIONS FOR BAD AND DOUBTFUL DEBTS; (II) 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY RURAL ITA NO.2054/BANG/2017 PAGE 3 OF 13 BRANCHES OF THE BANK COMPUTED IN THE MANNER PRESCRI BED. THE ASSESSEE CLAIMED A SUM OF RS.13,34,67,416 TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS @7.5% OF THE TOTAL INCOME AND A SUM OF RS.367 ,91,99,569/- TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS IN RESPECT OF AGGREGATE AVERAGE ADVANCES MADE BY THE ASSESSEES RURAL BRANCHES, IN ALL AN AGGREGATE SUM OF RS.381,26,66,985/-. U/S.36(2)(V) OF THE ACT THE CONDITION FOR CLAIMING DEDUCTION U/S.36(1)(VIIA) OF THE ACT IS THAT THE SU M CLAIMED AS DEDUCTION SHOULD BE DEBITED TO THE PROVISION FOR BAD AND DOUB TFUL DEBTS ACCOUNT. THERE IS NO DISCUSSION IN THE ORDER OF ASSESSMENT A S TO WHETHER THE SUM CLAIMED AS DEDUCTION U/S.36(1)(VIIA) OF THE ACT HAD BEEN DEBITED TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT. THE QUESTION THAT THE AO OUGHT TO HAVE ANALYSED IS AS TO WHETHER THE ASSESSE E CAN CLAIM DEDUCTION U/S.36(1)(VIIA) OF THE ACT WITHOUT DEBITING THE SAM E TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT. 5. THE AO HOWEVER PROCEEDED TO DISCUSS THE PROVISIO NS OF SEC.36(1)(VII) AND 36(2)(V) OF THE ACT, THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. CIT 343 ITR 270(SC) AND THE AMENDMENT TO THE PROVISIONS OF SEC.36(1)(VI I) EXPLANATION-1 W.E.F 1.4.2014 BY THE FINANCE ACT, 2013 AND FINALLY CONCL UDED IN PARAGRAPH-4.6 OF HIS ORDER AS FOLLOWS: 4.6 HENCE IT IS CONCLUDED THAT, THE ASSESSEE IS TH EREFORE NOT ELIGIBLE FOR ANY DEDUCTION U/S.36(1)(VIIA), AS IT H AS NOT MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS DURING THE YEA R, AS REQUIRED IN SEC.36(2)(V). HENCE THE TOTAL DEDUCTION CLAIMED U/S.36(1)(VIIA) OF RS.381,26,66,985/- IS DISALLOWED AND ADDED BACK TO THE INCOME RETURNED BY THE ASSESSEE. 6. BY IMPLICATION, THEREFORE THE SUM CLAIMED AS DED UCTION HAS NOT BEEN DEBITED TO THE PROVISION FOR BAD AND DOUBT DEBTS AC COUNT. EVEN BEFORE CIT(A), THE ASSESSEE DID NOT PUT FORTH A PLEA THAT SUCH A DEBIT TO PROVISION ITA NO.2054/BANG/2017 PAGE 4 OF 13 FOR BAD AND DOUBTFUL DEBTS ACCOUNT WAS MADE BY THE ASSESSEE. THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY FOLLO WING THE ORDER OF THE PREDECESSOR CIT(A) IN AY 2013-14. 7. AT THE TIME OF HEARING IT WAS AGREED BY THE PART IES THAT THE ORDER OF CIT(A) FOR AY 2013-14 ON WHICH THE CIT(A) PLACED RE LIANCE WAS SUBJECT MATTER OF APPEAL BY THE REVENUE BEFORE THE TRIBUNAL , BANGALORE BENCH IN ITA NO.1392/BANG/2016 AND THE TRIBUNAL BY ITS ORDER DATED 23.1.2020 ALLOWED THE GROUND OF APPEAL OF THE REVENUE HOLDING AS FOLLOWS:- 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REV ENUE HAS RAISED GROUND NOS.1 & 2 BEFORE THE TRIBUNAL. AT TH E TIME OF HEARING IT WAS AGREED BY THE PARTIES THAT SIMILAR I SSUE HAD COME UP FOR CONSIDERATION BEFORE THE ITAT IN ASSESSEES OWN CASE FOR AY 2009-10 & 2010-11 IN ITA NO.673 & 674/BANG/2014 ORDER DATED 25.4.2018 AND THIS TRIBUNAL REVERSED THE ORDE R OF THE CIT(A) AND HELD THAT THE DEDUCTION U/S.36(1)(VIIA) OF THE ACT CANNOT BE ALLOWED UNLESS THE PROVISION IS CREATED B Y DEBITED TO PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT. THE F OLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL:- 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEAR NED DR SUBMITTED THAT AS LAID DOWN BY THE HONBLE PUNJAB A ND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PAT IALA VS. CIT 272 ITR 53 (P & H), CLAIM FOR DEDUCTION U/S.36(1)(VIIA) OF THE ACT CANNOT BE GREATER THAN T HE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT AS PROVISION. OUR ATTENTION WAS DRAWN TO A DECISION O F THE ITAT BANGALORE IN THE CASE OF SYNDICATE BANK VS. DC IT (2014) 150 ITD 0103 (BANGALORE), WHEREIN THE HONBL E ITAT BANGALORE BENCH PREFERRED TO FOLLOW THE VIEW T AKEN BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE C ASE OF STATE BANK OF PATIALA (SUPRA) RATHER THAN THE DE CISION OF THE SYNDICATE BANK (SUPRA) OF THE BANGALORE BENCH R ELIED UPON BY THE LEARNED CIT(A) IN GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE . THE LD. COUNSEL FOR THE ASSESSES SUBMITTED THAT THE DECISION OF THE BANGALORE BENCH OF ITAT IN THE CASE OF SYNDICATE BANK (SUPRA) SHOULD BE FOLLOWED B Y THE TRIBUNAL IN PREFERENCE TO THE DECISION OF THE HONB LE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK ITA NO.2054/BANG/2017 PAGE 5 OF 13 OF PATIALA (SUPRA)AND IN THIS REGARD SUBMITTED THAT THE DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL SHOU LD BE FOLLOWED IN PREFERENCE TO THE DECISION OF NON JURIS DICTIONAL HIGH COURT DECISION. IN THIS REGARD, THE LD COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF PATIL VIJAYAKUM AR & OTHERS VS. UNION OF INDIA 151 ITR 48 (KAR). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION. THE PROVISIONS OF SECTION 36(1)(VIIA)(A) OF THE ACT LAY S DOWN AS FOLLOWS: VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOUB TFUL DEBTS MADE BY (A) A SCHEDULED BANK NOT BEING A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT 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 BEF ORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI- A) AND AN AMOUNT NOT EXCEEDING TEN PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCH ES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER; PROVIDED THAT A SCHEDULED BANK OR A NON-SCHEDULED B ANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION , BE ALLOWED IN ANY OF THE RELEVANT ASSESSMENT YEARS, DE DUCTION IN RESPECT OF ANY PROVISION MADE BY IT FOR ANY ASSE TS CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS ASSETS IN ACCORDANCE WITH THE GUIDELINES IS SUED 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. 9. IN THE CASE OF SYNDICATE BANK (SUPRA) 78 ITD 103 (BANG.) , THE BANGALORE BENCH OF ITAT TOOK THE VIEW THAT IRRESPECTIVE OF THE DEBIT TO THE PROFIT AND LOSS AC COUNT ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS (PB DD), AN ASSESSEE IS ENTITLED TO 10 PERCENT OF THE AARA A S DEDUCTION U/S.36(1)(VIIA) OF THE ACT. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE AFORESAID DECIS ION WAS AS FOLLOWS: ITA NO.2054/BANG/2017 PAGE 6 OF 13 20. THE LEARNED CIT HAS ALSO ACTED UNDER THE MISCONCEPTION THAT DEDUCTION UNDER CL. (VIIA) IS RELATED TO THE ACTUAL AMOUNT OF PROVISION MADE BY THE ASSESSEE FOR BAD AND DOUBTFUL DEBTS. THE TRUE MEANING OF THE CLAUSE, AS INDICATED EARLIER, IS THA T ONCE A PROVISION FOR BAD AND DOUBTFUL DEBTS IS MADE BY A SCHEDULED BANK HAVING RURAL BRANCHES, THE ASSESSEE IS ENTITLED TO A DEDUCTION WHICH IS QUANTIFIED NOT WITH RESPECT TO THE AMOUNT PROVIDED FOR IN THE ACCOUNTS, BUT WITH RESPECT TO A CERTAIN PERCENTAGE OF THE TOTAL INCOME AND ALSO A CERTAIN PERCENTAGE OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE BANK. IN OTHER WORDS, THIS IS A SPECIFIC DEDUCTION GIVEN BY THE STATUTE IRRESPECTIVE OF THE QUANTUM PROVIDED BY THE ASSESSEE IN ITS ACCOUNTS TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. 10. HOWEVER THE BANGALORE BENCH OF ITAT IN THE CASE OF SYNDICATE BANK (SUPRA) 150 ITD 103 (BANG.) NOTICED THAT THE ITAT BANGALORE BENCH IN THE CASE OF CANARA BANK IN ITA NO.58/BANG/2004 DATED 9.6.2006 CONSIDERED IN TH E CASE OF CANARA BANK IN ITA NO.58/BANG/2004 DATED 9.6.2006 CONSIDERED THE DECISION OF THE ITAT IN THE CASE OF SYNDICATE BANK 78 ITD 103(BANG) AND THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CA SE OF STATE BANK OF PATIALA (SUPRA) AND HELD THAT THE DECISION RENDERED BY THE HONBLE HIGH COURT HAS TO BE FOLLOW ED. THE ABOVE DECISION THOUGH OF A NON JURISDICTION HIG H COURT WAS FOLLOWED AS THE SAID DECISION OF THE HON BLE HIGH COURT WAS RENDERED AFTER THE DECISION IN THE C ASE OF SYNDICATE BANK 78 ITD 103 (BANG.). THE TRIBUNAL HELD THAT JUDICIAL DISCIPLINE DEMANDS THAT THE TRIBUNAL SHOULD FOLLOW THE LATER DECISION WHICH HAS CONSIDERED BOTH THE DECISIONS ON THE ISSUE. THE TRIBUNAL FOLLOWING THE SAID DECISION HELD DEDUCTION ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS U/S.36(1)(VIIA) OF THE ACT HAS T O BE ALLOWED ONLY TO THE EXTENT SUCH PROVISION IS ACTUAL LY DEBITED IN THE PROFIT & LOSS ACCOUNT BY THE ASSESSE E FOR THE RELEVANT PREVIOUS YEAR. WE THEREFORE RESPECTF ULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF CANARA BANK (SUPRA), ALLOW GR.NO.2 TO 4 RAISED BY T HE REVENUE AND HOLD THAT THE DISALLOWANCE MADE BY THE AO ITA NO.2054/BANG/2017 PAGE 7 OF 13 WAS PROPER AND THE ASSESSEE IS ENTITLED TO DEDUCTIO N ONLY TO THE EXTENT PBDD IS DEBITED TO THE P & L A/C. THU S GR.NO.2 TO 4 3 RAISED BY THE REVENUE ARE ALLOWED. 8. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIB UNAL IN ASSESSEES OWN CASE WE HOLD THAT THE AO WAS JUSTIFI ED IN DISALLOWING THE CLAIM FOR DEDUCTION ON ACCOUNT OF P ROVISIONS FOR BAD AND DOUBTFUL DEBTS U/S.36(1)(VIIA) OF THE ACT A S ADMITTEDLY THE ASSESSEE DID NOT DEBIT ITS PROFIT AND LOSS ACCO UNT ANY SUM TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. WE T HEREFORE RESTORE THE ORDER OF THE AO AND ALLOW GR.NO.1 & 2 R AISED BY THE REVENUE. 8. IN VIEW OF THE AFORESAID DECISION OF THE TRIBUNA L, WE HOLD THAT THE AO WAS JUSTIFIED IN DISALLOWING THE CLAIM FOR DEDUC TION ON ACCOUNT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS U/S.36(1)(VII A) OF THE ACT AS ADMITTEDLY THE ASSESSEE DID NOT DEBIT ITS PROFIT AN D LOSS ACCOUNT ANY SUM TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. WE T HEREFORE RESTORE THE ORDER OF THE AO AND ALLOW GR.NO.1 RAISED BY THE REV ENUE. 9. AS FAR AS GRD.NO.II RAISED BY THE REVENUE IS CON CERNED, THE SAME READS AS FOLLOWS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS), HUBBALLI, ERRED IN DELETING THE ADDIT ION MADE ON ACCOUNT OF DISALLOWANCE OF EXCESS DEDUCTION CLAIME D U/S. 36(1)(VIII) OF RS.6,97,63,000/-, AS THE AO HAS CAL CULATED THE ELIGIBLE ADVANCES AS PER ANNUAL REPORT. THE AO HAS ADOPTED THE FIGURE OF PROFIT AFTER TAX AND REDUCED OTHER IN COMES WHILE COMPUTING THE DEDUCTIONS. AS SUCH, THE ADDITION MA DE BY THE AO OF RS.6,97,63,000/- ON ACCOUNT OF EXCESS CLAIM O F DEDUCTION U/S. 36(1)(VIII) OF THE I.T. ACT, MAY BE RESTORED. 10. THE ISSUE IN GRD.NO.II IS WITH REGARD TO THE QU ANTUM OF DEDUCTION TO BE ALLOWED U/S.36(1)(VIII) OF THE ACT. THE RELE VANT PROVISIONS OF SEC.36(1)(VIII) READS AS FOLLOWS:- ITA NO.2054/BANG/2017 PAGE 8 OF 13 (VIII) IN RESPECT OF ANY SPECIAL RESERVE CREATED A ND MAINTAINED BY A SPECIFIED ENTITY, AN AMOUNT NOT EXCEEDING TWENTY PER CENT OF THE PROF ITS DERIVED FROM ELIGIBLE BUSINESS COMPUTED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION (BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE) CARRIED TO SUCH RESERVE ACCOUNT: PROVIDED THAT WHERE THE AGGREGATE OF THE AMOUNTS CARRIED TO SUCH RESERVE ACCOUNT FROM TIME TO TIME EXCEEDS TWICE THE AMOUNT OF THE PAID UP SHARE CAPITAL AND OF THE GENERAL RESERVES OF THE SP ECIFIED ENTITY, NO ALLOWANCE UNDER THIS CLAUSE SHALL BE MADE IN RESPEC T OF SUCH EXCESS. EXPLANATION.IN THIS CLAUSE, ( A ) SPECIFIED ENTITY MEANS, ( I ) A FINANCIAL CORPORATION SPECIFIED IN SECTION 4A O F THE COMPANIES ACT, 1956 (1 OF 1956) 71 ; ( II ) A FINANCIAL CORPORATION WHICH IS A PUBLIC SECTOR COMPANY; ( III ) A BANKING COMPANY; ( IV ) A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULT URAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVEL OPMENT BANK; ( V ) A HOUSING FINANCE COMPANY; AND ( VI ) ANY OTHER FINANCIAL CORPORATION INCLUDING A PUBLI C COMPANY; ( B ) ELIGIBLE BUSINESS MEANS, 72 [(I) IN RESPECT OF THE SPECIFIED ENTITY REFERRED TO IN SUB-CLAUSE (I) OR SUB- CLAUSE (II) OR SUB-CLAUSE (III) OR SUB-CLAUSE (IV) OF CLAUSE (A), THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR ( A ) INDUSTRIAL OR AGRICULTURAL DEVELOPMENT; ( B ) DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA; OR ( C ) DEVELOPMENT OF HOUSING IN INDIA;] ( II ) IN RESPECT OF THE SPECIFIED ENTITY REFERRED TO IN SUB-CLAUSE (V) OF CLAUSE (A), THE BUSINESS OF PROVIDING LONG-TERM FINANCE FO R THE CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURP OSES; AND ( III ) IN RESPECT OF THE SPECIFIED ENTITY REFERRED TO IN SUB-CLAUSE (VI) OF CLAUSE (A), THE BUSINESS OF PROVIDING LONG-TERM FINANCE FO R DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA; ( C ) BANKING COMPANY MEANS A COMPANY TO WHICH THE BA NKING REGULATION ACT, 1949 (10 OF 1949) APPLIES AND INCLUDES ANY BAN K OR BANKING INSTITUTION REFERRED TO IN SECTION 51 OF THAT ACT; ( D ) CO-OPERATIVE BANK, PRIMARY AGRICULTURAL CREDIT SOCIETY AND PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN K SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN THE EXPLA NATION TO SUB-SECTION (4) OF SECTION 80P ; ITA NO.2054/BANG/2017 PAGE 9 OF 13 ( E ) HOUSING FINANCE COMPANY MEANS A PUBLIC COMPANY FORMED OR REGISTERED IN INDIA WITH THE MAIN OBJECT OF CARRYIN G ON THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR CONSTRUCTION OR PUR CHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES; ( F ) 73 PUBLIC COMPANY SHALL HAVE THE MEANING ASSIGNED TO IT IN SECTION 3 OF THE COMPANIES ACT, 1956 (1 OF 1956); ( G ) INFRASTRUCTURE FACILITY MEANS ( I ) AN INFRASTRUCTURE FACILITY AS DEFINED IN THE EXPL ANATION TO CLAUSE (I) OF SUB-SECTION (4) OF SECTION 80-IA , OR ANY OTHER PUBLIC FACILITY OF A SIMILAR NATURE AS MAY BE NOTIFIED 74 BY THE BOARD IN THIS BEHALF IN THE OFFICIAL GAZETTE AND WHICH FULFILS THE CONDITIONS A S MAY BE PRESCRIBED 75 ; ( II ) AN UNDERTAKING REFERRED TO IN CLAUSE (II) OR CLAU SE (III) OR CLAUSE (IV) OR CLAUSE (VI) OF SUB-SECTION (4) OF SECTION 80-IA ; AND ( III ) AN UNDERTAKING REFERRED TO IN SUB-SECTION (10) OF SECTION 80-IB ; ( H ) LONG-TERM FINANCE 75A MEANS ANY LOAN OR ADVANCE WHERE THE TERMS UNDER WHICH MONEYS ARE LOANED OR ADVANCED PROVIDE FOR REP AYMENT ALONG WITH INTEREST THEREOF DURING A PERIOD OF NOT LESS THAN F IVE YEARS; 11. THERE IS NO DISPUTE THAT THE ASSESSEE WAS AN EL IGIBLE ENTITY AND THAT TO THE EXTENT OF 20% OF THE PROFITS DERIVED FROM TH E ELIGIBLE BUSINESS, THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S.36(1)( VIII) OF THE ACT. THE DISPUTE IS WITH REGARD TO MANNER OF COMPUTATION OF ELIGIBLE DEDUCTION U/S.36(1)(VIII) OF THE ACT. THE COMPUTATION DONE B Y THE ASSESSEE AND THAT DONE BY THE AO WAS AS FOLLOWS:- THE APPELLANT HAS COMPUTED THE DEDUCTION AS UNDER: TOTAL INCOME AS PER RETURN OF INCOME BEFORE DEDUCTION U/S 36(I)(VIIA) RS.177.96 CRORE S ADD: DEDUCTION CREATED AND CLAIMED AND ELIGIBLE UNDER U/S 36(I)(VIII) RS. 11. 52 CRORES -------------------- TOTAL INCOME FROM BUSINESS RS. 184.48 CRORES ELIGIBLE FOR DEDUCTION --------------------- TOTAL ADVANCE AS ON 31.03.2014 RS.6481.5 2 CRORES (BEFORE PROVISION FOR NPA) ITA NO.2054/BANG/2017 PAGE 10 OF 13 ELIGIBLE ADVANCES AS ON 31.03.2014 AS PER LIST ENCLOSED RS. 2123.29 CRORES % OF ELIGIBLE ADVANCE TO TOTAL ADVANCE 32.76% TOTAL INCOME AS WORKED OUT ABOVE (20.00% OF RS. 189.48 CRORES) RS. 37.90 CRORES PROFIT FROM ELIGIBLE BUSINESS, AT 32.76% RS.12.41 CRORES OF ABOVE RESERVE CREATED AND DEDUCTION CLAIMED RS.11.52 CR ORES 12. BUT THE LEARNED ASSESSING OFFICER WORKED OUT TH E DEDUCTION U/S 36(I)(VIII) OF THE ACT IN THE FOLLOWING MANNER AND ALLOWED THE CLAIM OF THE APPELLANT TO EXTENT OF RS. 4,54,37,000 :- TOTAL ADVANCES MADE RS. 6481,52,00,000/- ELIGIBLE ADVANCE RS. 2123,29,00,000/- % OF ELIGIBLE ADVANCES OVER TOTAL ADVANCES 32.76% INCOME CONSIDERED FOR DEDUCTION U/S 36(1)(VIII) GROSS INCOME RS. 1033,03,34,000/- LESS OTHER INCOME RS. 70,67,86,000/- TOTAL INCOME RS. 962,35,48,000/- LESS EXPENSES RS. 893,00,59,000/- NET PROFIT RS. 69,34,89,000/- 32.76% OF NET PROFIT RS. 22,71,86,000/- 20% OF RS. 22,71,86,000/- RS. 4,54,37,000/- ITA NO.2054/BANG/2017 PAGE 11 OF 13 13. IT WAS THE PLEA OF THE ASSESSEE BEFORE CIT(A) T HAT THE AO HAS ERRED IN RESTRICTING THE DEDUCTION UNDER SECTION 36(I)(VI II) OF THE ACT TO RS. 4,54,37,000.00 AGAINST DEDUCTION OF RS. 11,52,00,00 0.00 CLAIMED BY THE APPELLANT. THE AO DISALLOWED THE CLAIM OF THE ASSES SEE TO THE EXTENT OF RS. 6,97,63,000.00 BY WORKING OUT THE DEDUCTION BY HIM AS PER HIS OWN METHOD WHICH IS NOT AS PER PROVISIONS OF INCOME TAX ACT, 1961 AND AS PER METHOD OF CALCULATION OF DEDUCTION U/S 36(I)(VIII) OF ACT WORKED OUT BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF KARNATAKA STATE FINANCIAL CORPORATION VS. CIT (1988) 174 ITR 206 ). 14. THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE O BSERVING AS FOLLOWS:- 20. GROUND OF APPEAL NO.5 DISALLOWANCE U/S. 36(1)( VIII) RS.6,97,63,000 /-: THE AO IN THE ASSESSMENT ORDER HAS WORKED OUT THE D EDUCTION TO BE ALLOWED U/S. 36(I)(VIII) OF THE ACT. AS AGAINST THE CLAIM MADE OF RS.11,52,00,000/- THE AO HAS ALLOWED RS.45,43,70 00/- U/S. 36(1)(VIII) THEREBY DISALLOWING THE CLAIM TO THE EX TENT OF RS.6,97,63,000/- AS EXCESS. IN THE ORDER, HE HAS GI VEN THE WORKING BUT HAS NOT GIVEN ANY REASONS AS TO WHY HE IS NOT C ONSIDERING THE ASSESSEE'S CALCULATION OF DEDUCTION U/S. 36(1)(VIII ). THE AO HAS AGREED WITH ASSESSEE'S CALCULATION OF TOTAL ADVANCE S MADE OF RS.64,81,52,00,000R- AND ELIGIBLE ADVANCE OF RS.21, 23,29,00,00/- AND PERCENTAGE OF ELIGIBLE ADVANCES AT 32.75%. BUT WHILE ARRIVING AT THE TOTAL INCOME HE HAS TAKEN THE FIGURE AT RS.9 62,35,48,000/- AND DEDUCTED EXPENSES OF RS.89,30,00,59,000/- AND N ET PROFIT AT RS.69,34,89,000/- WHEREAS THE ASSESSEE ARRIVED AT T HE TOTAL INCOME AT RS.37.90 CR AND PROFIT FROM ELIGIBLE BUSI NESS AT 32.76% I.E. RS.12.41 CR AND DEDUCTION CLAIMED U/S. 26(I)(V III) AT RS.11.52 CR AGAINST RS.4,54,37,000/- ARRIVED AT BY THE AO. 21. THE AO SHOULD HAVE ELABORATED AND GIVEN HIS CON CLUSIVE FINDINGS AS TO HOW HE HAS ARRIVED AT THE DEDUCTION TO BE ALLOWED U/S. 36(I)(VIII) AT RS.4,54,37,000/- AS AGAINST RS. 11,52,00,000/-. ITA NO.2054/BANG/2017 PAGE 12 OF 13 22. THE ASSESSEE, IN THE ARGUMENT, STATES THAT, THE METHOD OF CALCULATION OF DEDUCTION U/S.36(1)(VIII) BY THE AO IS NEITHER AS PER SECTION 36(1)(VIII) NOR AS PER THE DECISION OF HON'BLE HIGH COURT OF KARNATAKA I.E. THE JURISDICTIONAL HIGH COU RT IN THE CASE OF KARNATAKA STATE FINANCE CORPORATION VS. CIT (198 8) 174 ITR 206. THE KARNATAKA HIGH COURT IN THIS CASE HAS GIVE N THE DEFINITION OF TOTAL INCOME BASED ON SECTION 2(45) O F THE ACT. TOTAL INCOME AS PER SECTION 2(45) MEANS THE TOTAL AMOUNT OF INCOME REFERRED TO IN SECTION 5 COMPUTED IN THE MANNER LAI D DOWN IN THIS ACT. THE ONLY EXCEPTION WHICH HAS TO BE MADE U/S. 3 6(1)(VIII) IS THAT, THE TOTAL INCOME FOR THE PURPOSE OF THIS SECT ION MUST BE THE ONE 'COMPUTED BEFORE MAKING ANY DEDUCTION UNDER CHA PTER-VIA. THE ASSESSEE HAS CALCULATED THE DEDUCTION U/S. 36(1 )(VIII) BASED ON THE ABOVE DECISION WHICH HAS BEEN WORKED OUT BY THE AO IN THE CASE OF KARNATAKA HIGH COURT. 23. IN THE VERY SAME CASE I.E. THE ASSESSEE, MY PRE DECESSOR THE CIT (APPEALS), HUBLI FOR THE AY 2008-09 HAS ACCEPTE D THE WORKING MADE BY THE ASSESSEE ABOUT THE DEDUCTION U/ S. 36(1)(VIII) TO BE MADE. 24. SINCE THE AO FOR THE PRESENT AY HAS NOT GIVEN H IS REASONS AS TO WHY HE IS NOT AGREEING WITH THE ASSESSEE'S CA LCULATION OF DEDUCTION TO BE GIVEN U/S. 36(1)(VIII) , AND THE AS SESSEE HAS GIVEN ITS WORKING BASED ON THE DECISION OF THE JURISDICTI ONAL HIGH COURT AND ALSO OTHER DECISIONS, AND MY PREDECESSOR CIT(A) HUBLI HAS ACCEPTED THE SAID CALCULATION FOR THE ASSESSMENT YE AR 2008-09 IN THE VERY SAME CASE, IT IS HELD THAT, THE ASSESSEE'S WORKING OF DEDUCTION U/S. 36(1)(VIII) OF RS.11.52CR IS FOUND T O BE IN ORDER AND NOT RS.4,54,37,000/-. IN THE RESULT THE DISALLO WANCE MADE OF RS.6,97,63,000/- IS HEREBY DELETED. 15. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS RAISED GRD.NO.II BEFORE THE TRIBUNAL. WE HAVE HEARD THE R IVAL SUBMISSIONS. A PERUSAL OF THE CIT(A) ORDER SHOWS THAT THE RELIEF A LLOWED BY THE CIT(A) TO THE ASSESSEE IS BASED ON THE DECISION OF THE KARNAT AKA HIGH COURT IN THE CASE OF KARNATAKA STATE FINANCE CORPORATION (SUPRA) . THE CIT(A) HAS NOT GIVEN A FACTUAL FINDING AS TO HOW THE DEDUCTION CLA IMED BY THE ASSESSEE IS IN ACCORDANCE WITH THE STATUTORY PROVISIONS. WE AR E OF THE VIEW THAT SINCE ITA NO.2054/BANG/2017 PAGE 13 OF 13 NO FINDING HAS BEEN GIVEN BY THE CIT(A) AS TO THE B ASIS ON WHICH THE RELIEF WAS GIVEN BY THE CIT(A), WE DEEM IT FIT AND PROPER TO SET ASIDE THE ORDER OF THE CIT(A) AND REMAND TO THE AO FOR FRESH CONSIDERA TION THE QUESTION OF PROPER DEDUCTION TO BE ALLOWED U/S 36(1)((VIII) OF THE ACT. THE AO WILL CONSIDER THE CONTENTIONS PUT FORTH BY THE ASSESSEE AND DECIDE THE ISSUE AFRESH AFFORDING OPPORTUNITY BEING HEARD TO THE ASS ESSEE. 16. IN THE RESULT, APPEAL BY THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF SEPTEMBER, 2020. SD/- SD/- ( CHANDRA POOJARI ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRE SIDENT BANGALORE, DATED, THE 10 TH SEPTEMBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.