The Jalgaon District Central Co.op. Bank Ltd., Jalgaon V. Deputy Commssioner of Income-tax, Cir -1, Jalgaon

ITA 395/PUN/2021

AI Insights

The case involves the Jalgaon District Central Co-op. Bank Ltd. appealing against the order of the National Faceless Appeal Centre (NFAC), which confirmed the disallowance of a provision made for standard assets under section 36(1)(viia) of the Income Tax Act. The Tribunal referenced previous decisions where similar provisions were allowed, indicating that the bank followed the correct accounting practices as per the Reserve Bank of India regulations. Furthermore, the Tribunal addressed the issue of nominal/entrance fees being treated as revenue receipts, deciding that this matter required further examination to determine the correct nature of these receipts.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132831 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-02-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 16-09-2021
• Other Referred Cases: The Nashik Road Deolali Vyapari Sahakari Bank Ltd. in ITA No. 312/PUN/2016 for A.Y. 2011-12, assessee's own case in ITA No. 367/PUN/2015 for A.Y. 2008-09, Nizamabad District Cooperative Central Bank Ltd. Vs. Income Tax Officer, Indian Overseas Bank Vs. Dy. Commissioner of Income Tax
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts

Judgement Text

आयकर अपीलीय अधिकरण “ए” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.395/PUN/2021 धििाारण वर्ा / Assessment Year : 2012-13 The Jalgaon District Central Co-op. Bank Ltd., 27 Ring Road, Jalgaon – 425001 PAN : AAAAJ0225F .......अपीलाथी / Appellant बिाम / V/s. DCIT, Circle – 1, Jalgaon ......प्रत्यथी / Respondent Assessee by : Smt. Deepa Khare Revenue by : Shri Ramnath P. Murkunde सुनवाई की तारीख / Date of Hearing : 28-02-2023 घोषणा की तारीख / Date of Pronouncement : 08-03-2023 आदेश / ORDER PER S.S. VISWANETHRA RAVI, JM : This appeal by the assessee against the order dated 23-07-2021 passed by the National Faceless Appeal Centre, Delhi (“NFAC”) for assessment year 2012- 13. 2. The ld. AR submits that the assessee is not interested to prosecute ground Nos. 1 to 3. Hence, the same are dismissed as not pressed. 3. Ground No. 4 raised by the assessee challenging the action of CIT(A) in confirming the disallowance made by the AO u/s. 36(1)(viia) of the Act. 4. We note that the assessee created provision of Rs.33,90,000/- towards standard assets. According to the AO, the said provision is not reflected in the computation of income. It was explained that the assessee is required to account 2 ITA No.395/PUN/2021, A.Y. 2012-13 for provision for NPA i.e. provision for bad and doubtful debts. The said item is nothing but provision for standard, substandard and doubtful debts as per the regulation of Reserve Bank of India. The said explanation was found not acceptable by the AO and the same was added to the total income of the assessee. The CIT(A) confirmed the same. 5. The ld. AR drew our attention to the orders of this Tribunal in the case of The Nashik Road Deolali Vyapari Sahakari Bank Ltd. in ITA No. 312/PUN/2016 for A.Y. 2011-12 and in assessee’s own case in ITA No. 367/PUN/2015 for A.Y. 2008- 09 and argued that this Tribunal considering the material evidence on record held the assessee is entitled to claim deduction u/s. 36(1)(viia) of the Act in respect of provision made towards standard assets. The relevant portion of assessee’s own case for A.Y. 2008-09 in ITA No. 367/PUN/2015 is reproduced here-in-below for ready reference : “3. Ms. Nirupama Kotru representing the Department submitted that the documents on record show that the assessee has claimed NPA to the tune of Rs.53.33 crores u/s. 36(1)(viia) of the Act. The assessee while working aggregate average rural advances has not followed the provisions of Rules 6ABA of the Income Tax Rules. The ld. DR reiterating the contents of Statement of Facts submitted that the rural advances as per assessee‟s financial statement are to the tune of Rs.15965.098 lacs and 10% thereof comes to Rs.15.96 crores. The said amount is outstanding rural aggregate advances for the Financial Year 2007-08 i.e. period relevant to the assessment year 2008-09. The assessee has already taken the benefit of section 36(1)(viia) in respect of said rural advances in assessment year 2007-08. Hence, the assessee cannot take the benefit of same outstanding rural advances during assessment year under appeal i.e. assessment year 2008-09. The manner in which the assessee has computed deduction u/s. 36(1)(viia) amounts to double deduction. The ld. DR prayed for reversing the findings of Commissioner of Income Tax (Appeals) and restoring the addition made by Assessing Officer in respect of assessee‟s claim of deduction u/s. 36(1)(viia) of the Act. In support of his submissions the ld. DR placed reliance on the decision of Chennai Bench of Tribunal in the case of Indian Overseas Bank Vs. Dy. Commissioner of Income Tax in ITA Nos. 496 & 497/Mds/2015 for assessment years 2010-11 and 2011-12 decided on 23-02-2016. 4. On the other hand Shri M.R. Shirude appearing on behalf of the assessee vehemently defended the order of Commissioner of Income Tax (Appeals) in deleting the addition. The ld. AR submitted that the assessee had furnished details before the Commissioner of Income Tax (Appeals) 3 ITA No.395/PUN/2021, A.Y. 2012-13 explaining the manner in which deduction u/s. 36(1)(viia) was computed. The Commissioner of Income Tax (Appeals) sought remand report. After analyzing the facts of the case and the decision of Tribunal in the case of Nizamabad District Cooperative Central Bank Ltd. Vs. Income Tax Officer (supra), the First Appellate Authority has deleted the addition. 4.1 The ld. AR submitted that the assessee is maintaining details of monthly advances in accordance with Rules 6ABA and CBDT Instruction No. 17/2008, dated 26-11-2008. 5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the decisions and CBDT Instruction on which both the sides have placed reliance. The only issue in present appeal is the manner of computation of deduction claimed by assessee u/s. 36(1)(viia) of the Act. The assessee has worked deduction on aggregate average rural advances at the end of each month, whereas, the Revenue intends to compute deduction u/s. 36(1)(viia) by taking the amount of advances given during the month. 6. The manner in which average advances made by rural branches of a scheduled bank are to be computed is given in Rule 6ABA of the Income Tax Rules. The relevant extract of the Rules are reproduced here-in-below: “For the purposes of clause (viia) of sub-section (1) of section 36, the aggregate average advances made by the rural branches of a scheduled bank shall be computed in the following manner, namely:- (a) the amounts of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the previous year shall be aggregated separately; (b) the sum so arrived at in the case of each such branch shall be divided by the number of months for which the outstanding advances have been taken into account for the purposes of clause (a) ; (c) the aggregate of the sums so arrived at in respect of each of the rural branches shall be the aggregate average advances made by the rural branches of the scheduled bank.” The CBDT vide Instruction No. 17/2008 dated 26-11-2008 has further clarified that benefit u/s. 36(1)(viia) has to be computed by taking aggregate average advances made by rural branches of bank. The relevant extract of CBDT Instruction in this regard read as under : “(iii) Section 36(2)(viia) (a) of the Act provides that in respect of any provisions for bad and doubtful debts of the type referred to in that sub-clause made by a bank, an amount not exceeding 5 percent upto 31st March 2003 and thereafter 7.5. percent of the total income (computed before making any deduction under this clause and 4 ITA No.395/PUN/2021, A.Y. 2012-13 Chapter VIA of the Act) and an amount not exceeding 10 percent of the aggregate average advances made by „rural branches' of such banks computed in the manner prescribed under the Income Tax Rules, 1962, shall be allowed as deduction. For this purpose — (a) total income of the year should be worked out after adjusting brought forward losses, if any, but before making any deductions under Chapter VI A of the Act. (b) The deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee in the relevant year or the amount calculated as per provisions of section 36(1)(viia), whichever is less. (c) For working out the aggregate average advances by rural branches, the Assessing Officer should verify whether the branch (es) in question actually qualify to be categorized as „rural branches' as per the definition in Explanation (ia) below section 36(1)(viia). The aggregate average advances of such rural branches should thereafter be computed in accordance with Rule 6ABA of IT. Rules, 1962.” Thus, from a bare perusal of Rule 6ABA and CBDT Instructions it is unambiguously clear that outstanding amount of advances by „rural branches‟ of the bank at the end of each month has to be computed on aggregated average advances and not advances of the month. 7. We further find support from the decision of Hyderabad Bench of the Tribunal in the case of Nizamabad District Cooperative Central Bank Ltd. Vs. Income Tax Officer (supra) wherein it has been held that 10% of aggregate average advances has to be worked on entire outstanding advances and not the advances of that month alone. The Commissioner of Income Tax (Appeals) has reproduced relevant extract of the said order of Tribunal, for the sake of brevity and to avoid repetition we are not reproducing the same again. The ld. DR has relied on the decision of Chennai Bench of the Tribunal in the case of Indian Overseas Bank Vs. Dy. Commissioner of Income Tax (supra). We find that the issue raised in said appeal is with respect to deduction available u/s. 36(1)(vii) vis-à-vis section 36(1)(viia). Thus, the decision rendered in the said case would not apply in the facts and circumstances of the present case. The ld. DR has not placed on record any other judgment contrary to the decision rendered in the case of Nizamabad District Cooperative Central Bank Ltd. Vs. Income Tax Officer (supra). It is not the case of Revenue that the assessee while computing aggregate average advances by rural branches has included advances by the branches which do not qualify to be categorized as „rural branches‟. Thus, in view of the facts of the case, we find no reason to interfere with the well reasoned findings of Commissioner of Income Tax (Appeals). Accordingly, the impugned order is upheld and the appeal of Revenue is dismissed.” 5 ITA No.395/PUN/2021, A.Y. 2012-13 6. In view of the above, the order of CIT(A) is not justified and it is set aside. Thus, ground No. 4 raised by the assessee is allowed. 7. Ground No. 5 raised by the assessee challenging the action of CIT(A) in bringing to tax the receipt on account of nominal/entrance fee by treating the same as revenue receipt. 8. On perusal of the impugned order as well as assessment order, we note that no discussion made by both the authorities bringing to tax receipt on account of nominal /entrance fee. Therefore, in view of the same, we deem it proper to remand the issue to the file of AO for its fresh consideration to ascertain the nature of receipts in the light of Bye-laws of the assessee and Master Circular of R.B.I. on Capital Adequacy and decide whether the said receipts constitutes of capital or revenue receipts. The assessee is liberty to file evidences, if any, in support of its claim. Thus, ground No. 5 raised by the assessee is allowed for statistical purpose. 9. In the result, the appeal of assessee is partly allowed. Order pronounced in the open court on March, 2023. Sd/- sd/- sd (Inturi Rama Rao) (S.S. Viswanethra Ravi) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; ददनाांक / Dated : 08 th March, 2023. रदव/Ankam आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपीलाथी / The Appellant. 2. प्रत्यथी / The Respondent. 3. The concerned CIT, Pune. 4. दवभागीय प्रदतदनदध, आयकर अपीलीय अदधकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 5. गार्ड फ़ाइल / Guard File.//सत्यादपत प्रदत// True Copy// आदेशानुसार / BY ORDER, /// TRUE COPY /// वररष्ठ दनजी सदचव / Sr. Private Secretary आयकर अपीलीय अदधकरण ,पुणे / ITAT, Pune