CITIZEN CREDIT CO-OPERATIVE BANK LTD, MUMBAI V. ADDL CIT 1(2), MUMBAI

ITA 338/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79421 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 13-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.338/MUM/2012 (ASSESSMENT YEAR: 2008-09) CITIZEN CREDIT CO - OPERATIVE BANK LIMITED HELENA APARTMENTS, 57 MOUNT CARMEL ROAD, BANDRA (WEST) MUMBAI-400 050. VS. ACIT RANGE 1(2) MUMBAI. (APPELLANT) (RESPONDENT) P ERMANENT ACCOUNT N O. : AAAAC 0016 F ASSES SEE BY : SHRI VIJAY KOTHARI REVENUE BY : SHRI RAVINDER SINDHU DATE OF HEARING : 17/07/2014 DATE OF PRONOUNCEMENT : 25/07/2014 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 19/10/2011 OF CIT(A) FOR THE ASSESSMENT YEAR 2008-0 9. THE ASSESSEE RAISED THE FOLLOWING GROUNDS :- 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED ON FACTS AND IN LAW IN DENYING TO THE APPELLANT THE DE DUCTION U/SEC. 36 (L)(VIIA) BY NOT ACCEPTING THE FACT THAT THE BRA NCH AT 'NAIGAON- JUHCHANDRA', WHICH IS A RURAL PLACE HAS A POPULATIO N OF ONLY 4,679, IN SUPPORT WHEREOF THE APPELLANT HAD FURNIS HED BEFORE THE LEARNED ASSESSING OFFICER: (A) THE LETTER FROM THE TEHSILDAR CONFIRMING THE PO PULATION OF 'NAIGAON-JUHCHANDRA' AS PER PUBLISHED CENSUS REPOR T; ITA NO.338/M/12 AY:08-09 2 (B) HAD PRODUCED RECORD OF PROPERTY TAXES PAID TO T HE 'GRAM PANCHAYAT JUHCHANDRA'; AND (C) HAD GIVEN A COPY OF THE CENSUS OF INDIA SPECIFI C TO 'JUHCHANDRA'. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS IN OBSERVING -'IT WOULD NOT BE OUT OF PLACE T O POINT OUT THAT IN SUBSEQUENT ASSESSMENTS THE APPELLANT BANK HAS NOT T REATED ITS NAIGAON BRANCH AS A RURAL BRANCH.' IN FACT, THE ASS ESSEE HAS MADE A CLAIM FOR DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE INCOME-TAX ACT TREATING THE NAIGAON BRANCH AS A RURAL BRANCH I N THE PAST FOR ASSESSMENT YEAR 2007-08 AS ALSO IN SUBSEQUENT ASSES SMENT YEAR; AND IN THE ASSESSMENT FOR ASSESSMENT YEAR 2007-08 S UCH A CLAIM HAS BEEN ALLOWED. 2. THE ONLY ISSUE ARISING FOR OUR CONSIDERATION AND ADJUDICATION IS WHETHER THE ASSESSEES BRANCH AT NAIGAON-JUCHANDRA IS A RURAL BRANCH FOR THE PURPOSE OF DEDUCTION UNDER SECTION 36(1)(VI IA) OF THE INCOME TAX ACT. THE ASSESSEE IS A CO-OPERATIVE BANK AND IN THE BANKING BUSINESS. THE ASSESSEE IS HAVING INTERALIA A BRANCH NAMELY NA IGAON-JUCHANDRA, THANE DIST. THE ASSESSEE CLAIMED DEDUCTION UNDER SE CTION 36(1)(VIIA) OF THE INCOME TAX ACT IN RESPECT OF THE AGGREGATE AVER AGE ADVANCES OF ITS RURAL BRANCHES INCLUDING THE BRANCH JUHUCHANDRA NAI GAON. THE AO REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND TH AT THE ADVANCES GIVEN BY NAIGAON-JUCHANDRA BRANCH OF THE ASSESSEE IS NOT LIMITED TO THE SAID GRAM PANCHAYAT ONLY BUT INCLUDES SEVERAL OTHER AREA S OF MUMBAI. THE AO ACCORDINGLY HAS TAKEN INTO CONSIDERATION THE POP ULATION OF THREE PANCHAYATS OF NAIGAON AND FOUND THAT THE POPULATIO N AS PER CENSUS OF 2001 OF THESE THREE PANCHAYATS EXCEEDS TEN THOUSAND AND THEREFORE, THE NAIGAON BRANCH CANNOT BE TREATED AS A RURAL BRANCH AS PER PROVISIONS OF SECTION 36(1)(VIIA). THE ASSESSEE CHALLENGED THE OR DER OF AO BEFORE CIT(A) BUT COULD NOT SUCCEED AS CIT(A) CONFIRMED THE ACTIO N OF THE AO IN DISALLOWING CLAIM OF THE ASSESSEE UNDER SECTION 36( 1)(VII)(A) IN RESPECT OF THE ADVANCES GIVEN BY SAID BRANCH. ITA NO.338/M/12 AY:08-09 3 3. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITT ED THAT WHILE DECIDING THE ISSUE THE AO HAS TAKEN INTO CONSIDERAT ION THE POPULATION OF THREE PANCHAYAT AREAS AND NOT THE POPULATION OF THE VILLAGE WHERE THE BANK IS LOCATED. HE HAS REFERRED TO THE CENSUS REPO RT AS PER CENSUS OF 2001 AND SUBMITTED THAT THE VILLAGE JUHUCHANDRA NAI GOAN IS HAVING TOTAL POPULATION OF 5911 AND THE ENTIRE POPULATION IS RURAL POPULATION AS PER CENSUS REPORT. THEREFORE, FOR THE PURPOSE OF CL ASSIFICATION OF BRANCH BEING RURAL THE CRITERIA IS THE PLACE WHERE THE BRA NCH IS SITUATED HAS A POPULATION OF NOT MORE THAN TEN THOUSAND ACCORDING TO THE LAST CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED B EFORE THE DATE OF PREVIOUS YEAR AS DEFINED UNDER EXPLANATION -2 CLAUS E (IA) OF SECTION 36(1)(VIIA). HE HAS ALSO REFERRED AND RELIED UPON H OUSE TAX RECEIPT ISSUED BY THE GRAM PANCHAYAT OF JUHCHANDRA NAIGAON AND SUB MITTED THAT THE SAID BRANCH OF THE ASSESSEE IS SITUATED AND HOUSED IN THE PREMISES 42C. THUS THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE CRITERIA TO DETERMINE THE CATEGORY/CLASS OF THE BRANCH BEING RU RAL IS HAVING POPULATION LESS THAN 10000 OF THE LOCALITY WHERE TH E BRANCH IS SITUATED AND NOT THE POPULATION OF THE AREA OF SERVICE OF TH E BRANCH. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF T HE HON'BLE HIGH COURT OF KERALA IN THE CASE OF CIT VS. LORD KRISHNA BANK LTD. (339 ITR 606) . 4. ON THE OTHER HAND THE LD. DR HAS HEAVILY RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT WHEN THE ASSES SEE IS CATERING TO THE NEEDS OF PEOPLE IN A WIDE SPREAD AREA BY ADVAN CING LOANS TO THE CUSTOMERS BEYOND THE AREA OF THE VILLAGE JUHUCHANDR A NAIGAON, THEN THE POPULATION OF THE ENTIRE AREA HAS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF DETERMINING WHETHER THE BRANCH OF THE AS SESSEE IS RURAL OR NOT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE JU HUCHANDRA NAIGAON ITA NO.338/M/12 AY:08-09 4 BRANCH OF THE ASSESSEE BANK IS SITUATED IN VILLAGE JUHUCHANDRA AND UNDER THE VILLAGE PANCHAYAT OF JUCHANDRA NAIGOAN. I T IS ALSO NOT DISPUTED BY THE REVENUE THAT THE POPULATION OF THE VILLAGE JUCHANDRA NAIGOAN IS 5911 AND THE ENTIRE POPULATION IS RURAL AS PER CENSUS REPORT OF CENSUS INDIA 2001. THE AO HAS DENIED THE DEDUCTI ON UNDER SECTION 36(1)(VIIA) ON THE GROUND THAT THE AREA OF CATERI NG THE SERVICES BY THE SAID BRANCH IS SPREAD OVER TO TWO OTHER PANCHAYATS ALSO AND ACCORDINGLY THE POPULATION OF THE AREA OF ALL THREE PANCHAYATS WAS TAKEN INTO CONSIDERATION FOR DETERMINING THE CLASSIFICATION OF THE SAID BRANCH AS RURAL BRANCH. AT THE OUTSET WE NOTE THAT AN IDENTI CAL QUESTION FELL FOR CONSIDERATION OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. LORD KRISHNA BANK LTD. (SUPRA), WHEREIN THE HON'BLE HIGH COURT HAS DISCUSSED AND DECIDED THE ISSUE IN PARA-4 TO 6 AS U NDER :- 4. NEXT QUESTION RAISED PERTAINS TO THE ASSESSEE'S CLAIM FOR DEDUCTION OF PROVISION FOR BAD DEBTS IN TERMS OF S ECTION 36(1)(VIIA) OF THE INCOME-TAX ACT. HERE THE ONLY QUESTION RAIS ED IS AS TO BASIS OF CLASSIFYING BRANCHES OF THE BANK AS RURAL BRANC HES AND OTHER BRANCHES. RURAL BRANCH IS DEFINED UNDER EXPLANATIO N (IA) TO SECTION 36(1)(VIIA) AS FOLLOWS : ' 'RURAL BRANCH' MEANS A BRANCH OF A SCHEDULED BANK OR A NONSCHEDULED 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 FIGURE S HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOU S YEAR.' 5. WHAT IS CLEAR FROM THE ABOVE IS THAT THE CLASSIF ICATION BETWEEN RURAL AND OTHER BRANCHES OF A BANK IS MADE BASED ON THE POPULATION IN THE PLACE WHERE THE CONCERNED BRANCH IS LOCATED. WHILE THE ASSESSEE'S CASE THAT FOUND ACCEPTANCE WI TH THE TRIBUNAL IS THAT 'PLACE' REFERRED TO IN THE ABOVE DEFINITION CLAUSE IS THE WARD OF A PANCHAYAT OR MUNICIPALITY, THE ASS ESSING OFFICER TOOK THE VIEW THAT 'PLACE' CONTAINED IN THE DEFINIT ION CLAUSE SHOULD MEAN A REVENUE VILLAGE. NO DOUBT, 'PLACE' AS SUCH I S NOT DEFINED IN THE DEFINITION CLAUSES AND SO MUCH SO, WE HAVE TO FIND OUT THE SCOPE AND MEANING OF 'PLACE' REFERRED TO IN THE SE CTION. STANDING COUNSEL FOR THE DEPARTMENT PRODUCED BEFORE US LAST PUBLISHED CENSUS REPORT OF 2001. EVEN THOUGH THE PREVIOUS CE NSUS REPORT MAY BE THE RELEVANT ONE, WE FEEL THE SCOPE OF 'PLA CE' AS REFERRED TO IN THE CENSUS REPORT PRODUCED COULD BE ADOPTED FOR THE PURPOSE ITA NO.338/M/12 AY:08-09 5 OF THIS CASE. WHAT IS WRITTEN IN THE CENSUS REPORT 2001 IS AS FOLLOWS : 'THE BASIC UNIT FOR RURAL AREAS IS THE REVENUE VILL AGE WITH DEFINITE SURVEYED BOUNDARIES. THE RURAL AREA IS, H OWEVER, TAKEN AS THE RESIDUAL PORTION EXCLUDING THE URBAN AREA AND FOR THAT NO STRICT DEFINITION IS FOLLOWED.' 6. IN OUR VIEW, THE DEFINITION CLAUSE DOES NOT EXCL UDE THE LITERAL MEANING OF RURAL BRANCH WHICH NECESSARILY EXCLUDES URBAN AREAS. IF THE ASSESSEE'S CASE ACCEPTED BY THE TRIB UNAL THAT POPULATION IN A WARD HAS TO BE RECKONED FOR DECIDI NG AS TO WHETHER THE LOCATION OF A PANCHAYAT IS IN A RURAL A REA OR NOT IS ACCEPTED, THEN PROBABLY EVEN IN MUNICIPAL AREAS THE RE MAY BE WARDS WITH LESS THAN 10000 POPULATION THEREBY ANSW ERING THE BRANCH LOCATED IN SUCH MUNICIPAL AREA ALSO AS A RU RAL BRANCH. GOING BY THE ORDINARY MEANING OF RURAL BRANCH, WE FEEL ONLY BRANCHES OF THE BANK LOCATED IN RURAL AREAS ARE CO VERED. WHEN THE LEGISLATURE ADOPTS POPULATION AS THE BASIS FOR CLAS SIFICATION OF RURAL BRANCHES, THAT TOO, WITH REFERENCE TO THE LAS T CENSUS REPORT, WE FEEL THE BASIC UNIT AS AVAILABLE FOR IDENTIFICAT ION OF RURAL AREA IN THE CENSUS REPORT CAN BE LEGITIMATELY ADOPTED. SO MUCH SO, WE FEEL THE ABOVE MEANING OF RURAL AREA CONTAINED IN THE CENSUS REPORT WHEREIN REVENUE VILLAGE IS TREATED AS A UNI T OF RURAL AREA, CAN BE RIGHTLY ADOPTED. SO MUCH SO, 'PLACE' REFERR ED TO IN THE ABOVE DEFINITION CLAUSE FOR THE PURPOSE OF IDENTIF YING THE BRANCH OF A BANK AS A RURAL BRANCH WITH REFERENCE TO ITS LOCATION IS THE REVENUE VILLAGE. THEREFORE, IN OUR VIEW, THE FINDIN G OF THE TRIBUNAL THAT 'PLACE' REFERRED TO IN THE DEFINITION IS THE W ARD OF A LOCAL AUTHORITY LIKE PANCHAYAT OR MUNICIPALITY IS INCORRE CT AND, IN OUR VIEW, A RURAL BRANCH HAS TO BE ALWAYS IN RURAL ARE AS AND THE PLACE REFERRED CAN EASILY BE TAKEN AS A VILLAGE. SEVERAL WARDS MAY COME WITHIN A VILLAGE, WHETHER IT BE IN CORPORATION, MU NICIPALITY OR PANCHAYATS. THERE CAN BE NO VILLAGE IN A MUNICIPAL OR CORPORATION AREA WHERE THE POPULATION IS LESS THAN 10000. SO M UCH SO, RURAL BRANCHES ARE SUCH OF THE BRANCHES LOCATED IN A VILL AGE WHERE THE POPULATION IN THE VILLAGE AS A UNIT IS LESS THAN 10 000. WE, THEREFORE, ALLOW THE APPEAL ON THIS ISSUE BY REVERS ING THE ORDER OF THE TRIBUNAL AND BY RESTORING THE ASSESSMENT. 6. THE HON'BLE HIGH COURT HAS ANALYSED THE PROVISIO N OF SECTION 36(1)(VIIA) AND WAS OF THE VIEW THAT THE MEANING OF RURAL AREA CONTAINED IN THE CENSUS REPORT WHEREIN THE REVENUE VILLAGE IS TREATED AS A UNIT OF RURAL AREA, CAN BE, RIGHTLY ADOPTED . IT HAS BEEN F URTHER OBSERVED THAT THE PLACE REFERRED TO IN THE DEFINITION CLAUSE FOR THE PURPOSE OF IDENTIFYING THE BRANCH OF A BANK IS RURAL BRANCH WITH REFERENCE TO ITS LOCATION AS THE ITA NO.338/M/12 AY:08-09 6 REVENUE VILLAGE AND ACCORDINGLY THE HON'BLE HIGH CO URT HAS REJECTED THE FINDING OF THE TRIBUNAL THAT PLACE REFERRED TO IN THE DEFINITION IS THE WARD OR LOCAL AUTHORITY LIKE PANCHAYAT OR MUNICIPAL ITY. THUS IT IS CLEAR FROM THE ABOVE DECISION OF THE KERALA HIGH COURT TH AT A RURAL BRANCH HAS TO BE ALWAYS IN THE RURAL AREA AND THE PLACE REFERR ED CAN EASILY BE TAKEN AS VILLAGE. IN VIEW OF THE ABOVE DECISION THE SCOP E OF DEFINITION OF A PLACE WHERE THE BRANCH OF THE BANK IS SITUATED CANNOT BE EXTENDED BEYOND THE RURAL UNIT BEING VILLAGE AS RECOGNIZED IN THE CENSU S REPORT. IT IS NOT THE CASE OF THE AO THAT THOUGH THE BRANCH IN QUESTION I S SITUATED IN A RURAL VILLAGE HOWEVER, THE ENTIRE OR MAJORITY PART OF THE ADVANCES ARE GIVEN TO THE CUSTOMERS BELONGING TO THE NEIGHBORING URBAN AR EA SO AS TO DEFEAT THE VERY PURPOSE AND OBJECT OF THE INCENTIVE IN THE SHAPE OF DEDUCTION UNDER SECTION 36(1)(VIIA) GRANTED UNDER THE ACT. 7. IN VIEW OF THE ABOVE DISCUSSION AND FACTS AND CI RCUMSTANCES OF THE CASE, AS WELL AS FOLLOWING THE DECISION OF HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. LORD KRISHNA BANK LTD. (SUPRA), WE HOLD THAT JUCHANDRA NAIGAON, BRANCH SITUATED AT VILLAGE JUHCHANDRA NAIG AON IS A RURAL BRANCH IN TERMS OF SECTION 36(1)(VIIA) OF THE INCOM E TAX ACT AND ACCORDINGLY ENTITLED FOR DEDUCTION UNDER THE SAID S ECTION. 8. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JULY, 2014. SD/- SD/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER (VIJAY PAL RAO ) JUDICIAL MEMBER MUMBAI, DATED: 25/07/2014. JV. ITA NO.338/M/12 AY:08-09 7 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.