M/s Moradabad Zila Sehkari Bank Ltd., Moradabad V. Addl. CIT, Moradabad

ITA 3971/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7419 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 23-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 25-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Keywords: Reasonable cause; Bad and doubtful debts
• Section: 28

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 3971/DEL/2013 (ASSESSMENT YEAR: 2009 - 10) MORADABAD ZILA SEHKARI BANK LTD., COURT ROAD, MORADABAD PAN:AAABM0292N VS. ADDL. CIT, RANGE I, MORADABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. PIYUSH KAUSHIK, ADV RESPONDENT BY : SH.P DAM KANUNJNA, SR. DR DATE OF HEARING 23 .11.2015 DATE OF PRONOUNCEMENT 06.01.2016 O R D E R PER PRASHANT MAHARISHI, A. M. 1 . THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT ( A) , BAREILLY DATED 06.03.2013 PASSED FOR THE ASSESSMENT YEAR 2009 - 10 . THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1 . THAT THE LD COMMISSIONER OF INCOME TAX (APPEALS) HAD ERRED IN LAW TO UPHELD THE ORDER OF THE ASSESSING OFFICER WHO DID NOT ALLOW THE DEDUCTION OF RS.41,12,596/ - UNDER SECTION 36(2)(VIIA) OF THE INCOME TAX ACT 1961 BEING 7.5% OF THE GROSS TOTAL INCOME. 2. THAT THE LD COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW TO UPHELD THE ORDER OF THE ASSESSING OFFICER WHO WRONGLY HAS HELD THAT THE ALLOWABLE DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE INCOME TAX ACT 1961 IS ONLY 7.5% OF TOTAL INCOME OR 10% O F AVERAGE RURAL ADVANCE WHICHEVER IS HIGHER WHILE THE DEDUCTION OF BOTH THE AMOUNT IS ALLOWABLE AS PER AMENDED PROVISIONS OF SECTION 36(1)(VIIA) OF THE INCOME TAX ACT 1961. 2 . THIS APPEAL IS FILED LATE BY 9 DAYS BY ASSESSEE AND FOR WHICH AN APPLICATION OF CONDONATION DATED 21.06.2013 IS FILED SUBMITTING THAT DELAY HAS BEEN CAUSED DUE TO CHANGE IN COUNSEL WHO DID NOT INFORM ABOUT THE FATE OF THE ORDER BEFORE CIT (A) AND LATER ON ORDER WAS OBTAINED ON 17.6.2013 AND APPEAL W AS SENT ON 21.06.2013. THEREFORE THERE IS REASONABLE CAUSE IN FILING APPEAL TO ITAT LATE BY 9 DAYS. LD DR DID NOT OBJECT TO THE DELAY IN FILING OF APPEAL . AS THE PAGE 2 OF 4 REASONS EXPLAINED BY LD AR CAUSING DELAY WAS REASONABLE, APPEAL IS ADMITTED CONDONING THE DELAY OF 9 DAY S. 3 . BOTH THE EFFECTIVE GROUNDS OF APPEAL ARE AGAINST THE NON ALLOWANCE OF FULL DEDUCTION U/S 36(1) (VIIA) OF THE ACT TO THE ASSESSEE . B RIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COOPERATIVE BANK CARRYING ON BUSINESS OF BANKING AS PER BANKING REGULATION ACT. A SSESSEE FILED ITS RETURN OF INCOME ON 29.09.2009 SHOWING TOTAL INCOME OF RS.63,14,660/ - AFTER CLAIMING THE DEDUCTION OF RS.5,48,55,242/ - UNDER SECTION 36(1)(VIIA) OF THE INCOME TAX ACT, 1961. THE ASSESSMENT WAS COMPLETED U/S 14 3( 3 ) OF THE ACT ON 14.12.2011 AND DETERMINED TOTAL INCOME AT RS.1,04,27,256/ - . THE ASSESSING OFFICER DID NOT ALLOW DEDUCTION OF RS.41,12,596/ - BEING 7.5% OF TOTAL INCOME BY OBSERVING THAT AS PER SECTION 36(1)(VIIA), THE ALLOWABLE DEDUCTION IS ONLY 7.5% OF TOTAL INCOME OR 10% OF AVERAGE RURAL ADVANCE, WHICHEVER IS HIGHER, THEREFORE, THE HIGHER OF THE TWO FIGURES WHICH IS RS.5,07,42,646/ - IS FOUND TO BE ALLOWABLE. HENCE, HE DISALLOWED EXCESS CLAIM OF RS.41,12,596/ - AND ADDED TO THE TOTAL INCOME OF ASSESSEE . AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS), WHO UPHELD THE ORDER OF THE ASSESSING OFFICER. AGGRIEVED , ASSESSEE IS BEFORE US. 4 . LD AR OF THE APPELLANT SUBMITTED THAT ACCORDING TO THE PROVISION S OF SECTION 36(1) ( VIA) OF THE INCOME T AX A CT , ASSESSEE BANK IS ELIGIBLE FOR DEDUCTION OF 7.5 % OF THE INCOME AND 10 % OF THE AGGREGATE AVERAGE RURAL ADVANCES. FOR THIS HE RELIED ON THE PROVISION OF THIS SECTION AME NDED BY THE INCOME TAX (AMENDMENT) ACT 1986, CBDT CIRCULAR NO 464 DATED 18/07/1986 AND ALSO THE DECISION OF ITAT JAIPUR BENCH IN CASE OF ACIT V JAIPUR CENTRAL COOPERATIVE BANK DATED 7.3.2012. THEREFORE HE SUBMITTED THAT BANK SHOULD BE ALLOWED DEDUCTION OF 7.5 % OF THE TOTAL INCOM E AND A FURTHER DEDUCTION OF 10 % OF AGGREGATE AVERAGE RURAL ADVANCES OF THE BANK. 5 . LD DR RELIED ON THE ORDER S OF AO AS WELL AS LD CIT (A) AND SUBMITTED THAT THE DEDUCTION HAS BEEN PROPERLY WORKED OUT BY THE THEM. 6 . WE HAVE CAREFULLY CONSIDERED THE RI VAL SUBMISSION S. PROVISION OF SECTION 36 (1) ( VI I A) ARE AS UNDER: - OTHER DEDUCTIONS. 59 36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 [( VIIA ) [IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY ( A ) A SCHEDULED BANK [NOT BEING 97 [* * *] A BANK INCORPORATED BY OR UNDER PAGE 3 OF 4 THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON - SCHEDULED BANK 98 [OR A CO - OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMAR Y CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK], AN AMOUNT 99 [NOT EXCEEDING SEVEN 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 1 [TEN] PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER . 7 . FROM THE PLAIN READING OF THE ABOVE SECTION IT IS CLEAR THAT IN CASE OF A COOPERATIVE BANK ALSO DEDUCTION OF THE AMOUNT IS ALLOWABLE 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 VIA ) AND AN AMOUNT NOT EXCEEDING TEN PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK IS ALLOWED. IN CASE OF THE ASSESSEE IT IS NOT DISPUTED THAT WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OR NOT . O NLY ISSUE IS THAT WHETHER ASSESSEE IS ELIGIBLE FOR DEDUCTION OF 10 % OF THE AMOUNT OF AGGREGATE AVERAGE RURAL ADVANCES OF THE BANK AND A FURTHER DEDUCTION OF 7.5 % OF THE INCOME . C IRCULAR NO 464 DATED 18/7/1986 EXPLAINING THE PROVISION OF THE INCOME TAX (AMENDMENT) ACT 1986 HAS ANSWERED THIS ISSUE AS UNDER : - INCOME - TAX (AMENDMENT) ACT, 1986 MODIFICATION IN RESPECT OF DEDUCTION ON PROVISIONS FOR BAD AND DOUBTFUL DEBTS MADE BY THE BANKS 5. UNDER THE EXISTING PROVISIONS OF CLAUSE ( VIIA ) OF SUB - SECTION (1) OF SECTION 36 OF THE INCOME - TAX ACT INSERTED BY THE FINANCE ACT, 1979, PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY SCHEDULED OR A NON - SCHEDULED INDIAN BANK IS ALLOWED AS DEDUCTION WITHIN THE PRESCRIBED LIMITS. THE LIMIT PRESCRIBED IS 10 PER CENT OF TH E TOTAL INCOME OR 2 PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANKS, WHICHEVER IS HIGHER. IT HAD BEEN REPRESENTED TO THE GOVERNMENT THAT THE FOREIGN BANKS WERE NOT ENTITLED TO ANY DEDUCTION UNDER THIS PROVISION AND TO TH AT EXTENT, THEY WERE BEING DISCRIMINATED AGAINST. FURTHER, IT WAS FELT THAT THE EXISTING CEILING IN THIS REGARD, I.E. , 10 PER CENT OF THE TOTAL INCOME OR 2 PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF INDIAN BANKS, WHICHEVER IS HIGHER, SHOULD BE MODIFIED. ACCORDINGLY, BY THE AMENDING ACT, THE DEDUCTION PRESENTLY AVAILABLE UNDER CLAUSE ( VIIA ) OF SUB - SECTION (1) OF SECTION 36 OF THE INCOME - TAX ACT HAS BEEN SPLIT INTO TWO SEPARATE PROVISIONS. ONE OF THESE LIMITS THE DEDUCTION TO AN AMOUNT NOT EXCEEDING 2 PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE TO BY RURAL BRANCHES OF THE BANKS CONCERNED. IT MAY BE CLARIFIED THAT FOREIGN BANKS DO NOT HAVE RURAL BRANCHES AND HENCE THIS AMENDMENT WILL NOT BE RELEVANT IN THE CASE OF THE FOREIGN B ANKS. THE OTHER PROVISIONS SECURE THAT A FURTHER DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY ALL BANKS, NOT JUST THE BANKS INCORPORATED IN INDIA , LIMITED TO 5 PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKIN G ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA). THIS WILL IMPLY THAT ALL SCHEDULED OR NON - SCHEDULED BANKS HAVING RURAL BRANCHES WOULD BE ALLOWED THE DEDUCTION UP TO 2 PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY SUCH BRANCHES AND A FURTHER DEDUCT ION UP TO PAGE 4 OF 4 5 PER CENT OF THEIR TOTAL INCOME IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS. THERE IS NO CHANGE IN LAW EXCEPT THE PERCENTAGES SUBSEQUENT TO THIS CIRCULAR . THEREFORE IT IS APPARENT THAT SECTION 36(1) (VIIA) CLEARLY PROVIDES FOR DEDUCTI ON OF 7.5 % OF THE TOTAL INCOME AND A FURTHER DEDUCTION OF 10 % OF THE AGGREGATE OF AVERAGE RURAL ADVANCES OF THE SPECIFIED BANKS. FURTHER LD AR HAS RELIED ON THE DECISION OF JAIPUR BENCH OF ITAT IN CASE OF ACIT V JAIPUR CENTRAL COOPERATIVE BANK LIMITED FOR AY 2008 - 09 DATED 7.03.2012 IN ITA NO 817/JP/2011. LD DR COULD NOT CONTROVERT THAT ISSUE IS NOT COVERED IN FAVOUR OF THE ASSESSEE BY THAT DECISION AND ALSO COULD NOT POINT OUT ANY OTHER CONTRARY DECISION. T HEREFORE FOLLOWING THE DECISION OF COORDIN ATE BENCH AND ALSO PERUSING CIRCULAR NO. 464 D ATED 18/7/1986 WHERE CBDT HAS EXPLAINED THE PROVISION OF SECTION 36(1) (VIIA) OF THE INCOME TAX ACT , WE ARE OF THE VIEW THAT ASSESSEE IS ENTITLED TO FURTHER DEDUCTION OF 7.5 % OF TOTAL INCOME OF THE ASSESSEE OVER AND ABOVE 10 % OF AGGREGATE OF AVERAGE RURAL ADVANCES OF THE BANK. HENCE WE REVERSE THE ORDER OF CIT (A) DISALLOWING DEDUCTION OF RS 41,12,596/ - BEING 7.5 % OF THE TOTAL INCOME OF ASSESSEE OVER AND ABOVE RS 5,07,42, 646/ - BEING 10 % OF AGGREGATE OF AVERAGE RURAL ADVANCES OF THE BANK. 8 . IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 0 6 . 0 1 .2016 . - S D / - - S D / - (H.S.SIDHU) (PRASHANT MAHARISHI) J UDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 6 / 01 /201 6 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI