M/s Jila Sahakari Kendriya Bank Maryadit, Mandsaur V. The DCIT, Ratlam

ITA 386/IND/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4153 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 26-07-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 26-05-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LALCHAND
• Assessee Lawyers: S S DESH
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.386/IND/2017 ASSESSMENT YEAR: 2012-13 REVENUE BY SHRI LALCHAND , CIT ASSESSEE BY SHRI S.S. DESHPANDE,CA DATE OF HEARING 25.7.2018 DATE OF PRONOUNCEMENT 17.8.2018 O R D E R PER MANISH BORAD, AM. THIS APPEAL FILED BY THE ASSESSEE PERTAI NING TO THE A.Y. 2012- 13 IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONE R OF INCOME-TAX (APPEALS), UJJAIN DATED 06.02.2017 WHICH IS ARISING OUT OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT DATED 11.03.2015 P ASSED BY DCIT, RATLAM. 2. ASSESSEE FILED HAS RAISED FOLLOWING GROUNDS OF A PPEAL; JI LA SAHAKARI KENDRIYA BANK MARYADIT, MHOW-NEEMUCH ROAD, MANDSAUR (M.P) VS. DCIT, RATLAM ( APPELLANT ) (RESPONDENT ) PAN NO.AAATJ2383F JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 2 1. THAT LD. CIT(A) HAS ERRED IN MAINTAINING THE ADDIT ION OF RS.1,42,00,000/- BEING THE SPECIAL RESERVE CREATED BY THE BANK. 2. IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT THE RE SERVE IS TO BE CONSIDERED U/S 36(1)(VIIA) AND THE ASSESSEE IS ENTITLE D TO DEDUCTION OF RS. 21.70 CRORES AGAINST WHICH THIS RESERVE MAY BE CONSIDERED. THE RESERVE BE CONSIDERED HAVING BEEN MADE U/S 36(1) (VIIA) AND HENCE THE DEDUCTION MAY PLEASE BE ALLOWED. 3. BRIEFLY STATED FACTS RELATING TO THE GROUNDS RAI SED IN THIS APPEAL, AS CULLED OUT FROM THE RECORDS ARE THAT THE ASSESEE IS A COOPERATIVE SOCIETY DOING THE BUSINESS OF BANKING I N THE DISTRICT OF MANDSAUR. THE RETURN OF INCOME WAS FILED DECLARING THE INCOME OF RS.5,72,83,218/-. THE ACCOUNTS ARE AUDITED. WHILE PREPARING THE P&L A/C, THE BANK HAS MADE THE PROVISION FOR BAD A ND DOUBTFUL DEBTS OF RS.3,00,00,000/- AND SPECIAL RESERVE FUND OF RS,1,42,00,000/-. DURING THE COURSE OF ASSESSMENT IT WAS SUBMITTED BEFORE THE LD.AO THAT THE SPECIAL RESERVE FUND IS MADE FOR THE CLAIM U/S 36(1)(VIII) OF THE INCOME TAX ACT (IN SHORT REFERRED AS THE ACT). THE SAME WAS @20% OF THE PROFIT (5,76, 38,168/- + 1,42,00,000/- = 7,18,38,168/-). WHILE FRAMING THE A SSESSMENT THE LD. AO OBSERVED THAT THE ASSESSEE IS NOT ENTITLED T O A DEDUCTION U/S 36(1)(VIII) SINCE THE BANK HAS NOT GIVEN THE LONG T ERM FINANCE FOR JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 3 DEVELOPMENT OF AGRICULTURE. ON THIS GROUND HE MADE THE ADDITION OF RS.1,42,00,000/- WHILE COMPUTING THE TOTAL INCOME. IN APPEAL IT WAS SUBMITTED BEFORE THE LD.CIT(A) THAT RS.1,42,00, 000/- HAS BEEN DISALLOWED TREATING IT TO BE A CLAIM U/S 36(1)(VIII ) BUT THE SAME SHOULD BE CONSIDERED U/S 36(1)(VIIA). IT WAS SUBMIT TED BEFORE THE LD.CIT(A) THAT THE ASSESSEE IS ENTITLED TO CLAIM TH E DEDUCTION U/S 36(1)(VIIA) OF RS.9.2 CRORES AND AS SUCH THE SPECI AL RESERVE CREATED BE CONSIDERED AS A RESERVE FOR BAD AND DOUBTFUL DEB TS AND THE CLAIM SHOULD BE ALLOWED U/S 36(1)(VIIA) OF THE ACT. THE LD. CIT(A) DISMISSED THE APPEAL ON THE GROUND THAT THE DEDUCTI ON WOULD BE LIMITED ONLY TO THE EXTENT OF THE RESERVE CREATED F OR BAD AND DOUBTFUL DEBTS AND IT IS MANDATORY TO PREPARE THE A CCOUNT AS PROVISION FOR BAD AND DOUBTFUL DEBT AND AS THE ASS ESSEE HAS NOT MADE THE PROVISION UNDER THIS HEAD IN THE P&L ACCOU NT, AS SUCH THE ASSESSEE IS NOT ENTITLED TO A CLAIM U/S 36(1)(V IIA). 4. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SECTION 36(1)(VIIA) OF THE ACT PROVIDES FOR THE DEDUCTION I N RESPECT OF THE PROVISION FOR BAD AND DOUBTFUL DEBT TO THE EXTENT O F 7.5% OF THE PROFIT AND THE AMOUNT NOT EXCEEDING 10% OF THE AGGR EGATE AVERAGE JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 4 ADVANCES MADE BY THE RURAL BRANCHES. AS PER THIS L IMIT THE TOTAL DEDUCTION ALLOWABLE TO THE ASSESSEE IS RS.21.7 CROR ES OUT OF WHICH THERE IS A RESERVE OF RS.12.5 CRORES WHICH IS ALREA DY ALLOWED. THUS THE ASSESSEE IS ENTITLED TO A FURTHER DEDUCTION OF RS.9.2 CRORES. SECTION 36(1)(VIII) OF THE ACT PRESCRIBES THE DEDUC TION FOR SPECIAL RESERVE CREATED FOR LONG TERM FINANCE TO AGRICULTUR AL DEVELOPMENT. THE ASSESSEE IS NOT ENTITLED TO THIS DEDUCTION SINC E THERE IS NO LONG TERM FINANCE FOR AGRICULTURAL DEVELOPMENT. IT WAS T HROUGH MISTAKE THE RESERVE IS CREATED UNDER THE HEAD SPECIAL RESER VE AND IT WAS CLAIMED DURING THE COURSE OF THE ASSESSMENT PROCEED INGS THAT THE SAME IS MADE U/S 36(1)(VIII) OF THE ACT. HOWEVER, THE SAME SHOULD HAVE BEEN CLAIMED U/S 36(1)(VIIA) OF THE ACT AND SH OULD HAVE BEEN CONSIDERED AND ALLOWED UNDER THAT SECTION. THE LD. A.O DISALLOWED THE SAME WITHOUT CONFRONTING THE ASSESSEE ABOUT THE SAID DISALLOWANCE. HOWEVER, BEFORE THE LD. CIT(A) THE C LAIM WAS SPECIFICALLY MADE U/S 36(1)(VIIA) OF THE ACT. THE SPECIAL PROVISION MADE BY THE ASSESSEE IS ALSO FOR BAD AND DOUBTFUL D EBT. THE CLAIM MADE MENTIONING THE WRONG SECTION SHOULD NOT DEPRIV E THE ASSESSEE FOR ALLOWING THE SAME WHILE COMPUTING THE INCOME IF THE SAME IS ALLOWABLE. IT IS SUBMITTED THAT THE LAW IS VERY CL EAR THAT IT IS THE JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 5 DUTY OF THE AO TO ALLOW DEDUCTION EVEN THOUGH NOT C LAIMED BY THE ASSESSEE IF FROM THE FACTS INVESTIGATED AT THE TIME OF ASSESSMENT, IT IS FOUND THAT THE ASSESSEE IS ENTITLED TO A PARTICU LAR RELIEF IN LAW. IT IS OBLIGATORY ON THE PART OF THE AO TO DRAW ATTENTI ON OF THE ASSESSEE TO THE LAWFUL RELIEF OR DEDUCTION. THE ATTENTION I S DRAWN TO THE FOLLOWING DECISION: 1. CIT VS ARCHANA DHANWATE 136 ITR 355 (BOM) 2. CIT VS KN OIL INDUSTRIES 142 ITR 13 (MP) 3. NATHMAL BANKATLAL PARIKH VS CIT 122 ITR 168 5. PER CONTRA THE LD. DEPARTMENTAL REPRESENTATIVE S UBMITTED THAT THE ASSESSEE HAS NOT CLAIMED THE DEDUCTION UNDER TH E CORRECT SECTION NOT IS A NATURE OF EXPENDITURE SIMILAR BECA USE THE ASSESSEE HAS CLAIMED THE EXPENDITURE TOWARDS SPECIAL RESERVE FUND CREATED FOR LONG TERM FINANCE AND NOW ASSESSSEE IS PLEADING THAT IT MAY BE ALLOWED DEDUCTION FOR PROVISION FOR BAD AND DOUBT FUL DEBTS U/S 36(1)(VIIA). THE LD. DEPARTMENTAL REPRESENTATIVE OB JECTING TO THE CONTENTIONS OF LD. COUNSEL FOR THE ASSESSEE REFERRI NG AND RELYING FOLLOWING JUDGMENTS; JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 6 1. IPCA LABORATORY LTD V/S DCIT (2004) 135 TAXMAN 594 (SC) 2. CIT V/S N.C. BUDHRAJA & CO. (1993) 70 TAXMAN 312(SC ) 3. PANDIAN CHEMICALS LTD V/S COMMISSIONER OF INCOME TA X (2003) 129 TAXMAN 539 (SC) 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E RECORDS PLACED BEFORE US AND ALSO GONE THROUGH THE JUDGMENTS REFER RED AND RELIED BY BOTH THE PARTIES CAREFULLY. ASSESSEES SOLE GR IEVANCE RELATES TO THE ADDITION OF RS.1,42,00,000/- MAINTAINED BY LD. CIT(A) CONFIRMING THE VIEW TAKEN BY THE LD.A.O. THE ISSUE IN NARROW COMPASS IS THAT THE ASSESSEE CLAIMED DEDUCTION U/S 36(1)(VIII) OF THE ACT OF THE ACT TOWARDS SPECIFIC RESERVE CREATED FOR THE PURPOSE OF PROVIDING LONG TERM FINANCE FOR AGRICULTURE DEVELOP MENT IN INDIA. THE AMOUNT OF SPECIFIC RESERVE WAS CALCULATED AT RS .1,42,00,000/- WHICH WAS WITHIN THE PERMISSIBLE LIMIT OF 20% OF NE T PROFIT BEFORE MAKING DEDUCTION FOR SPECIAL RESERVE FUND AT RS.7,1 8,38,168/-. IT HAS BEEN DULY REFLECTED IN AUDITED BALANCE SHEET UN DER THE SPECIFIC HEAD SPECIAL RESERVE FUND PLACED AT PAGE-15 OF TH E PAPER BOOK. SUBSEQUENTLY DURING THE ASSESSMENT PROCEEDINGS AS W ELL AS BEFORE LD.CIT(A) ASSESSEE CONCEDED TO THE FACT THAT IT IS NOT ELIGIBLE TO JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 7 CLAIM THE DEDUCTION U/S 36(1)(VIII) OF THE ACT ALLO WING IT TO CREATE SPECIAL RESERVE FUND AS IT HAS NOT GIVEN ANY LONG T ERM FINANCE FOR DEVELOPMENT OF AGRICULTURE AND THE DEDUCTION WAS WR ONGLY CLAIMED U/S 36(1)(VIII) OF THE ACT. 7. THEREAFTER DURING THE APPELLATE PROCEEDINGS ASSE SSEE TOOK THE PLEA THAT IT IS ELIGIBLE FOR THE DEDUCTION U/S 36(1 )(VIIA) WHICH PROVIDES FOR DEDUCTION IN RESPECT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS TO THE EXTENT OF 7.5% OF THE PROFIT AND THE A MOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MAD E BY THE RURAL BRANCHES. AMOUNT OF SUCH PROVISION WHICH THE ASSES SEE COULD HAVE CLAIMED IS COMPUTED AT RS.21.70 CRORES OUT OF WHICH ASSESSEE HAD ALREADY MADE PROVISION OF RS.12.5 CRORES (INCLUDIN G RS.3 CRORES MADE DURING THE YEAR UNDER APPEAL IN THE PROFIT AND LOSS ACCOUNT) LEAVING BEHIND THE REMAINING AMOUNT OF RS.9.2 CRORE S WHICH COULD BE PROVIDED. THE ASSESSEES PLEA IS THAT THE DEDUC TION OF RS.1.42 CRORES PERTAINING TO SPECIFIC RESERVE MAY BE ALLOWE D U/S 36(1)(VII) OF THE ACT AS THERE STILL REMAINS AN AMOUNT OF RS.9.2 CRORES WHICH THE ASSESSEE COULD HAVE LEGALLY CLAIMED. ASSESSEE HAS REFERRED TO JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 8 VARIOUS JUDGMENTS WHICH IN OUR VIEW DO NOT APPLY TO THE FACTS OF THE CASE AS THE SAME ARE DISTINGUISHABLE. 8. TO ADJUDICATE THIS ISSUE RELATING TO SPECIAL RES ERVE U/S 36(1)(VIIIA) VIS--VIS PROVISION FOR BAD AND DOUBTF UL DEBTS AS PROVIDED IN SECTION 36(1)(VII) OF THE ACT, WE WOULD FIRST LIKE TO REPRODUCE RELEVANT PROVISION. SECTION 36(1)( VIIA ) IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY ( A ) A SCHEDULED BANK [NOT BEING A BANK INCORPORATED B Y OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA OR A NON-SCHEDULED BANK OR A CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT BANK], AN AMOUNT NOT EXCEEDING 3 [ EIGHT 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 PE R 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, 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 T HE 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 BOOKS OF ACCOUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR: PROVIDED FURTHER THAT FOR THE RELEVANT ASSESSMENT YEARS COM- MENCING 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 WOR DS '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 JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 9 REDEMPTION OF SECURITIES IN ACCORDANCE WITH A SCHEM E FRAMED BY THE CENTRAL GOVERNMENT: PROVIDED ALSO THAT NO DEDUCTION SHALL BE ALLOWED UNDER THE THIRD PROVISO UNLESS SUCH INCOME HAS BEEN DISCLOSED IN TH E RETURN OF INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES S OR PROFESSION.' EXPLANATION. FOR THE PURPOSES OF THIS SUB-CLAUSE, 'RELEVANT ASSESSMENT YEARS' MEANS THE FIVE CONSECUTIVE ASSESS MENT YEARS COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2000 A ND 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 CEN T OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI-A); ( C ) A PUBLIC FINANCIAL INSTITUTION OR A STATE FINANCI AL 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 S TATE FINANCIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPOR ATION 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 ASSE TS CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS AS SETS 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 O R CORPORATION, AS THE CASE MAY BE, ON THE LAST DAY OF THE PREVIOUS YE AR; 4 [( D ) A NON-BANKING FINANCIAL COMPANY, AN AMOUNT NOT EX CEEDING FIVE PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING AN Y DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI-A).] EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, ( I ) 'NON-SCHEDULED BANK' MEANS A BANKING COMPANY AS D EFINED 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 POPU LATION OF NOT MORE THAN TEN THOUSAND ACCORDING TO THE LAST PRECED ING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFO RE THE FIRST DAY OF THE PREVIOUS YEAR; ( II ) 'SCHEDULED BANK' MEANS THE STATE BANK OF INDIA CO NSTITUTED UNDER THE STATE BANK OF INDIA ACT, 1955 (23 OF 1955), A S UBSIDIARY BANK AS JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 10 DEFINED IN THE STATE BANK OF INDIA (SUBSIDIARY BANK S) ACT, 1959 (38 OF 1959), A CORRESPONDING NEW BANK CONSTITUTED UNDE R SECTION 3 OF THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1970 (5 OF 1970), OR UNDER SECTION 3 OF THE BA NKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 198 0 (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); ( III ) 'PUBLIC FINANCIAL INSTITUTION' SHALL HAVE THE MEA NING ASSIGNED TO IT IN SECTION 4A 5 OF THE COMPANIES ACT, 1956 (1 OF 1956); ( IV ) 'STATE FINANCIAL CORPORATION' MEANS A FINANCIAL C ORPORATION ESTABLISHED UNDER SECTION 3 OR SECTION 3A OR AN INS TITUTION NOTIFIED UNDER SECTION 46 OF THE STATE FINANCIAL CORPORATION S ACT, 1951 (63 OF 1951); ( V ) 'STATE INDUSTRIAL INVESTMENT CORPORATION' MEANS A GOVERNMENT COMPANY WITHIN THE MEANING OF SECTION 617 6 OF THE COMPANIES ACT, 1956 (1 OF 1956), ENGAGED IN THE BUSINESS OF PROVID ING LONG-TERM FINANCE FOR INDUSTRIAL PROJECTS AND ELIGIBLE FOR DE DUCTION UNDER CLAUSE ( VIII ) OF THIS SUB-SECTION; ( VI ) 'CO-OPERATIVE BANK', 'PRIMARY AGRICULTURAL CREDIT SOCIETY' AND 'PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELO PMENT BANK' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO TH EM IN THE EXPLANATION TO SUB-SECTION (4) OF SECTION 80P ; 7 [( VII ) 'NON-BANKING FINANCIAL COMPANY' SHALL HAVE THE ME ANING ASSIGNED TO IT IN CLAUSE ( F ) OF SECTION 45-I OF THE RESERVE BANK OF INDIA ACT, 1934 (2 OF 1934);] SECTION 36(1)( VIII ) IN RESPECT OF ANY SPECIAL RESERVE CREATED AND MAINTAINED BY A SPECIFIED ENTITY, AN AMOUNT NOT EXC EEDING TWENTY PER CENT OF THE PROFITS DERIVED FROM ELIGIBLE BUSINESS COMPU TED UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' (BEFO RE 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 SPECIFIE D ENTITY, NO ALLOWANCE UNDER THIS CLAUSE SHALL BE MADE IN RESPECT OF SUCH EXCESS. EXPLANATION. IN THIS CLAUSE, ( A ) 'SPECIFIED ENTITY' MEANS, ( I ) A FINANCIAL CORPORATION SPECIFIED IN SECTION 4A 8 OF THE COMPANIES ACT, 1956 (1 OF 1956); ( II ) A FINANCIAL CORPORATION WHICH IS A PUBLIC SECTOR COMPANY; ( III ) A BANKING COMPANY; JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 11 ( IV ) A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULT URAL 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 PUBLI C COMPANY; ( B ) 'ELIGIBLE BUSINESS' MEANS, ( 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 FOR THE CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RES IDENTIAL PURPOSES; AND ( III ) IN RESPECT OF THE SPECIFIED ENTITY REFERRED TO IN SUB-CLAUSE ( VI ) OF CLAUSE ( A ), THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR 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 INCLU DES ANY BANK 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 DEVELO PMENT BANK' SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO TH EM IN THE EXPLANATION TO SUB-SECTION (4) OF SECTION 80P; ( 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 PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES; ( F ) 'PUBLIC COMPANY' SHALL HAVE THE MEANING ASSIGNED TO IT IN SECTION 3 9 OF THE COMPANIES ACT, 1956 (1 OF 1956); ( G ) 'INFRASTRUCTURE FACILITY' MEANS ( I ) AN INFRASTRUCTURE FACILITY AS DEFINED IN THE EXPLANATION TO CLAUSE ( I ) OF SUB-SECTION (4) OF SECTION 80-IA , OR ANY OTHER PUBLIC FACILITY OF A SIMILAR NATURE AS MAY BE NOTIFIED BY THE BOARD IN THIS BEHALF IN THE OFFICIAL GAZETTE AND WHICH FULFILS TH E CONDITIONS AS MAY BE PRESCRIBED 10 ; ( II ) AN UNDERTAKING REFERRED TO IN CLAUSE ( II ) OR CLAUSE ( III ) OR CLAUSE ( IV ) OR CLAUSE ( VI ) OF SUB-SECTION (4) OF SECTION 80-IA ; AND JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 12 ( III ) AN UNDERTAKING REFERRED TO IN SUB-SECTION (10) OF SECTION 80-IB; ( H ) 'LONG-TERM FINANCE' MEANS ANY LOAN OR ADVANCE WHE RE THE TERMS UNDER WHICH MONEYS ARE LOANED OR ADVANCED PROVIDE F OR REPAYMENT ALONG WITH INTEREST THEREOF DURING A PERIOD OF NOT LESS THAN FIVE YEARS; 9. PROVISION OF SECTION 36(1)(VIIA) RELATES TO PRO VISION FOR BAD AND DOUBTFUL DEBTS WHICH, CERTAIN CATEGORY OF ASSESSEE S HAVE BEEN REFERRED IN THE SECTION ARE ALLOWED TO CLAIM THE EX PENDITURE AS IN THE NATURE OF BUSINESS AS THEY ENGAGED IN TO, REGULAR B AD DEBTS OCCUR. 10. NOW FROM THE PERUSAL OF SECTION 36(1)(VIII) OF THE ACT, WE FIND THAT IT IS IN RESPECT OF SPECIFIC RESERVE WHICH IS CREATED BY THE FINANCIAL INSTITUTIONS FOR PROVIDING LONG TERM FINA NCE. SPECIFIC RESERVE IS NOT AN EXPENDITURE BUT IT IS AN APPORTIO NMENT OF THE INCOME AND STATUE IN ORDER TO PROMOTE LONG TERM FIN ANCE IN VARIOUS SECTORS FOR THE BENEFIT OF GENERAL PUBLIC OF THE CO UNTRY GIVES THE BENEFIT OF DEDUCTION TO CLAIM 20% OF THE AVAILABLE PROFITS TO BE ACCUMULATED UNDER THE HEAD SPECIAL RESERVE AND TH E CLAIMANT IS DUTY BOUND TO USE SUCH SPECIFIC RESERVES ONLY FOR T HE AFORESAID PURPOSE FOR WHICH IT HAS BEEN MADE AND IN CASE OF A NY DEFAULT THE SAME NEEDS TO BE BROUGHT TO TAX. FROM ABOVE DISCUSS IONS WE ARE OF THE VIEW THAT BOTH THE SECTION 36(1)(VIIA) AND 36(1 )(VIII) OF THE ACT DEALS WITH TWO DISTINCT ITEMS NAMELY AN EXPENDITURE IN THE NAME OF JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 13 PROVISION FOR BAD AND DOUBTFUL DEBTS U/S 36(1)(VIIA ) OF THE ACT AND IN THE NATURE OF INCOME U/S 36(1)(VIII) OF THE ACT WHICH IS SET APART FOR A SPECIFIC PURPOSE. IN OUR VIEW BOTH THE ITEMS EXPRESSED IN THESE TWO SECTIONS I.E. 36(1)(VIIA) AND 36(1)(VIII) OF THE ACT ARE DIFFERENT AND CANNOT BE EQUATED TO EACH OTHER. 11. NOW COMING TO THE ISSUE RAISED IN THE INSTANT A PPEAL WE FIND THAT THE LD.CIT(A) HAS SUSTAINED THE DISALLOWANCE O BSERVING AS FOLLOWS; 4.2 GROUND NO.2: THROUGH THIS GROUND OF APPEAL THE APPELLANT HAS CHALLENGED THE ADDITION OF RS.1,42,00,000/- ON ACCO UNT OF DISALLOWANCE OF DEDUCTION U/S 36(1)(VIII) OF THE I.T . ACT. THE APPELLANT HAD CLAIMED DEDUCTION OF RS.1,42,00,000/- ON ACCOUNT OF SPECIAL RESERVE U/S 36(1)(VIII) OF THE I.T. ACT. T HE PROVISION IS IN EXPENDITURE RELATING TO A PARTICULAR ACCOUNT PERIOD BUT NOT FALLING DUE ON THE DATE OF FILING FINANCIAL STATEMENTS. SINCE THE EXPENDITURE RELATES TO PARTICULAR FINANCIAL YEAR, A PROVISION W AS MADE AGAINST REVENUE GENERATED IN SAID ACCOUNTING PERIOD FAILING WHICH FINANCIAL STATEMENT COULD NOT BE SHOWN FREE AND FAIR VIEW. THE PROVISION OF EXPENDITURE COULD BE ALLOWED AS DEDUCTION ONLY IF LIAB ILITY ACCRUED AS ON DATE OF MAKING PROVISION AND IT IS NOT A CONTINGE NT LIABILITY. THE JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 14 DEDUCTION UNDER THE SECTION WOULD BE ENTITLED ONLY IN C ASE OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY THE BANK. THE DEDUCTION UNDER THE SECTION IS TO BE ALLOWED BY WAY O F PROVISION FOR BAD AND DOUBTFUL DEBTS WHICH NEED TO BE CREATED AND REFLE CTED IN BALANCE SHEET. THE DEDUCTION WOULD BE LIMITED ONLY TO EXTEND OF THE RESERVE CREATED BY WAY OF SUCH PROVISION. IT IS THE REFORE MANDATORY TO PREPARED THE ACCOUNT PROVISION FOR BAD AND DOUBTFU L DEBTS ACCOUNTS WHICH AUTOMATICALLY WOULD NEED TO THE RESE RVE ON ACCOUNT OF SUCH PROVISION IN THE BALANCE SHEET. THE APPELL ANT HAS NOT MADE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS AND P&L ACCOUNT . THE APPELLANT HAS MADE THE PROVISION AS SPECIAL RESERVE FUND WHICH IS MEANT FOR LONG TERM FINANCE. THE APPELLANT IS ENGA GED IN THE SHORT TERM FINANCE. THEREFORE, THE APPELLANT IS NOT ENTI TLED FOR DEDUCTION U/S 36(1)(VIII) OF THE I.T. ACT. THEREFORE, THE AP PELLANT IS NOT ENTITLED FOR DEDUCTION U/S 36(1)(VIII) OF THE I.T ACT. THEREF ORE, THE ADDITION MADE BY THE AO AMOUNTING TO RS.1,42,00,000/- IS CON FIRMED. THE APPEAL ON THIS GROUND IS DISMISSED. 12. IN VIEW OF ABOVE DISCUSSION ABOUT THE NATURE OF ITEMS DEALT IN BOTH THE SECTIONS I.E. 36(1)(VIIA) AND 36(1)(VIII) AND EXAMINING THEM IN THE LIGHT OF THE FACTS AS WELL AS THE FINDINGS O F LD.CIT(A) WE FIND JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 15 MERITS IN THE FINDING OF LD.CIT(A) FOR THE REASON T HAT THE ASSESSEE MADE AN INTENTIONAL AND WELL THOUGHT AFTER CLAIM U/ S 36(1)(VIII) OF THE ACT AND MADE NECESSARY ACCOUNTING ENTRIES IN TH E BOOKS OF ACCOUNTS AND ALSO DEPICTING IT UNDER THE SPECIAL RESERVE FUND HEAD IN THE AUDITED BALANCE SHEET. THE ASSESSEE AF TER BECAMING AWARE OF THE FACT THAT IT IS NOT ELIGIBLE FOR SUCH DEDUCTION U/S 36(1)(VIII) OF THE ACT, IT CHANGED ITS STAND AND NO W IS PLEADING THAT THE SET OFF MAY BE GIVEN U/S 36(1)(VIIA) OF THE ACT RELATING TO PROVISION FOR BAD AND DOUBTFUL DEBTS GIVING THE REA SON THAT IT STILL HAS UNUTILIZED LIMIT OF RS.9.2 CRORES. WE FAIL TO UNDERSTAND HOW AN ITEM OF INCOME CAN BE EQUATED TO AN ITEM OF EXPENDI TURE. BY NO CANON CAN BE GIVEN SUCH SET OFF MORE SO SECTION 36( 1)(VIIA) OF THE ACT ONLY PROVIDES A CAP BUT NOWHERE GIVES THE BLANKET P ERMISSION TO CLAIM THE EXPENDITURE FOR PROVISION TO THE EXTENT M ENTIONED THEREIN. THE ASSESSEE OR ANY OTHER PERSON BEING ELIGIBLE FOR SUCH DEDUCTION UNDER THE PROVISION OF SECTION 36(1)(VIIA) MAY MAKE PROVISION FOR BAD DOUBTFUL LIMITS WITHIN THE LIMIT PRESCRIBED IN THIS SECTION. THE ASSESSEE IN THE INSTANT CASE HAS MADE A CERTAIN AMO UNT OF PROVISION AFTER MAKING NECESSARY CALCULATIONS WHICH HAVE BEEN DULY CERTIFIED BY THE AUDITORS BASED ON THE DEBTS GIVEN BY THE ASSESSEE JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 16 AND THE PROBABILITY OF THE DEBTS BECOMING PAID. AT THIS JUNCTURE THE ASSESSEE CANNOT BE ALLOWED TO ADD SOME MORE AMOUNT TO THE AMOUNT CALCULATED AT THE TIME OF FINALIZING THE FIN ANCIAL STATEMENT JUST FOR TAKING THE BENEFIT OF THE PROVISION. BENE FITS AND DEDUCTIONS/EXEMPTIONS PROVIDED IN THE STATUTE I.E. INCOME TAX ACT ARE NOT IN THE NATURE OF CHARITY THAT ANYONE CAN COME FORTH AND CLAIM. A PERSON NEEDS TO PROVE WITH EVIDENCES, FACT S AND CORROBORATIVE ACTION TO PROVE THAT IT IS ENTITLED T O A BENEFIT/DEDUCTION/ EXEMPTION PROVIDED IN THE ACT. IN THE INSTANT CASE THE ASSESSEE HAS TRIED TO EQUATE THE APPORTION MENT OF PROFIT AGAINST AN EXPENDITURE FOR PROVISION FOR BAD AND DO UBTFUL DEBTS WHICH IN OUR VIEW IS NOT POSSIBLE. 13. WE THEREFORE IN THE FACTS AND GIVEN CIRCUMSTANC ES OF THE CASE ARE UNABLE TO ACCEPT THE CONTENTIONS OF LD. COUNSEL FOR THE ASSESSE AND THEREFORE ARE NOT INCLINED TO MAKE ANY INTERFER ENCE IN THE FINDINGS OF LD.CIT(A). IN THE RESULT GROUND NO.1 & 2 RAISED BY THE ASSESSE ARE DISMISSED. 14. GROUND NO.3 IS GENERAL IN NATURE WHICH NEEDS AN Y ADJUDICATION. 15. IN THE RESULT APPEAL OF THE ASSESSE IS DISMISSE D. JILA SAHAKARI KENDRIYA BANK MARYADIT ITA NO.386/IND/2017 17 THE ORDER PRONOUNCED IN THE OPEN COURT ON 17.8.201 8. SD/- SD/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 17 AUGUST, 2018 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER PRIVATE SECRETARY/DDO, INDORE