M/s. Zila Sehkari Bank Ltd., Meerut V. ACIT, Meerut

ITA 3994/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91236 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 17-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 27-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J P CHA RDREKAUR
• Assessee Lawyers: P S KASHYAP
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H, NEW DELHI BEFORE SH. H.S.SIDHU, JM AND SH. N. K. SAINI, AM ITA NO. 3994/DEL./2013 : ASSTT. YEAR : 2009-10 ZILA SEHKARI BANK LTD., WK ROAD MEERUT VS ACIT RANGE-2 MEERUT (APPELLANT) (RESPONDENT) PAN NO. AAATZ0343F APPELLANT BY : SH. P. S.KASHYAP, CA RESPONDENT BY : SH. J.P.CHA RDREKAUR, SR. DR DATE OF HEARING : 17.06.2015 DATE OF PRONOUNCEMENT :25 .06.2015 ORDER PER N.K. SAINI, A.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 19/03/2013 OF THE LD. CIT(A)- MEERUT. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPE AL READ AS UNDER :- 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER U/S 36(1) (VIIA) OF THE INCOME TAX ACT, 1961. OBSER VATIONS ITA NO.3994/DEL/2013 2 MADE, INFERENCES DRAWN AND FINDINGS RECORDED IN THI S REGARD ARE ARBITRARY AND ILLEGAL. 2. THAT THE LD. ASSESSING OFFICER HAD HIMSELF C ONCEDED IN THE BODY OF THE ORDER THAT THE BAD DEBTS CLAIMED BY THE ASSESSEE NEED TO BE ALLOWED WHICH IS ALSO REFLECTED IN THE FACT THAT OUT OF THE TOTAL PROVISION FOR BAD DEBTS AT RS. 10.56 CRORES, RS. 8.91 CRORES ONLY WERE DISALLOWED. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN HOLDING THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDU CTION UNDER THE FIRST PROVISO TO SECTION 36(1)(VIIA) OF T HE INCOME TAX ACT, 1961. 3 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESS EE FILED THE RETURN OF INCOME ON 14.9.2009 DECLARING AN INCOME OF RS. 11,4 9,91,029/- WHICH WAS PROCESSED U/S 143(1) OF THE IT ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). LATER ON THE CASE WAS SELE CTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD MADE PROVISION FOR BAD DEBT RESERVE TO THE TUNE OF RS. 10,56,02,052/- AND THE SAME WAS DEBITED IN THE P & L ACCOUNT, THE ASSESSEE CLAIMED THE DEDUCTION U/S 36(1) (VIIA) OF THE ACT. THE AO ALLOWED THE CLAIM OF RS. 1,59,16,341/- AND DISALLO WED THE REMAINING AMOUNT OF RS. 8,91,73,611/-. 4. BEING AGGRIEVED THE ASSESSEE CARRIED THE MA TTER TO THE LD. CIT(A) WHO SUSTAINED THE DISALLOWANCE MADE BY THE AO AND R ELEVANT FINDINGS HAS BEEN GIVEN IN PARA 2.7 AND 2.10 OF THE IMPUGNED ORDER WHICH READ AS UNDER :- ITA NO.3994/DEL/2013 3 2.7 THE ARGUMENTS ADVANCED BY THE ASSESSEE BANK H AVE BEEN CONSIDERED. IT IS NOTED THAT SEC. 36(1)(VIIA) PROVI DES FOR TWO TYPES OF DEDUCTION NAMELY, 7.5% OF THE GROSS TOTAL INCOME AN D 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES O F A BANK. THE BANKS WHICH ARE ELIGIBLE FOR THESE DEDUCTIONS ARE S CHEDULED BANK, NON SCHEDULED BAND AND CO-OPERATIVE BANK. RULE 6 ABA, W HICH PRESCRIBES THE MANNER IN WHICH AGGREGATE AVERAGE ADVANCE IS TO BE COMPUTED, IS APPLICABLE ONLY IN RESPECT OF SCHEDULED BANK. KEEPI NG IN VIEW ABOVE, IT IS APPARENT THAT THE DEDUCTION IN SO FAR AS 7.5% OF THE TOTAL INCOME IS CONCERNED IS ADMISSIBLE TO ALL THE THREE ENTITIE S NAMELY SCHEDULED BANK, NON SCHEDULED BANK AND CO-OPERATIVE BANK. HOW EVER, IN SO FAR AS THE DEDUCTION BEING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES CONCERNED, THE SAME IS ADMISSIBLE ONLY TO SCHEDULED BANK AND NOT TO NON SCHEDULED BANK. IN SO FAR AS CO -OPERATIVE BANKS ARE CONCERNED, AS MENTIONED ABOVE, SPECIFIED CO-OPE RATIVE BANKS ARE INCLUDED IN THE SECOND SCHEDULE OF RBI ACT, 1934. S UCH BANKS WOULD, BESIDES BEING A CO-OPERATIVE BANK WOULD ALSO BE COV ERED IN THE MEANING OF SCHEDULED BANK UNDER CLAUSE (II) OF EXPL ANATION AS TO SECTION 36(1)(VIIA). IT IS PERTINENT TO NOTE THAT C O-OPERATIVE BANK WERE BROUGHT WITHIN THE AMBIT OF SEC. 36(1)(VIIA) VIDE F INANCE ACT 2007 W.E.F. 01.04.2007. PRIOR TO THAT, CLAUSE (II) OF EX PLANATION TO SEC. 36(1)(VIIA) SPECIFICALLY EXCLUDED CO-OPERATIVE BANK FROM THE DEFINITION OF SCHEDULED BANK. THIS EXCLUSION HAS BEEN OMITTED SIMULTANEOUSLY WITH THE INCLUSION OF CO-OPERATIVE BANK IN SEC. 36( 1)(VIIA) OF THE ACT. THIS IMPLIES THAT THE DEDUCTION OF 10% OF THE AVERA GE ADVANCES MADE BY RURAL BRANCHES IS ADMISSIBLE ONLY TO THOSE CO-OP ERATIVE BANKS WHICH FIGURE IN THE SECOND SCHEDULED OF THE RBI ACT , 1934. THUS CO- OPERATIVE BANK WHICH DO NOT FIGURE IN THE SECOND SC HEDULED OF THE RBI ACT, 1934 AND NON SCHEDULED BANKS WOULD ONLY BE ELI GIBLE FOR DEDUCTION OF 7.5% OF THE TOTAL INCOME COMPUTED BEFO RE DEDUCTION U/S 36(1)(VIIA) AND CHAPTER VIA OF THE I.T.ACT, 1961. - ---------------------- 2.10 IN SO FAR AS THE CONTENTION THAT IN CASE TH E PROVISIONS OF SECTION 36(1)(VIIA) IS NOT APPLICABLE TO THE ASSESSEE, IT W OULD BE ELIGIBLE FOR DEDUCTION UNDER THE PROVISO TO SECTION 36(1)(VIIA), IT IS NOTED THAT THE SAID PROVISO APPLIES TO A SCHEDULED BANK OR A NON S CHEDULED BANK ONLY AND NOT TO A CO-OPERATIVE BANK. THE ASSESSEE BANK I S A CO-OPERATIVE BANK AND AS EVIDENT FROM THE WORDINGS OF SECTION 36 (1)(VIIA), THE PROVISION CONTEMPLATES THREE DIFFERENT CATEGORIES O F BANK, NAMELY SCHEDULED BANK, NON SCHEDULED BANK AND CO-OPERATIVE BANK. ITA NO.3994/DEL/2013 4 THEREFORE, THE ASSESSEE BANK CANNOT BE TREATED AS A NON SCHEDULED BANK. A CONTENTION WAS RAISED AT THIS POINT THAT IF THE VERSION OF REVENUE IS ACCEPTED, THE CATEGORY CO-OPERATIVE BANK REFERRED TO IN SECTION 36(1)(VIIA) WOULD ONLY COVER SCHEDULED CO-O PERATIVE BANK. THEREFORE A CONTENTION WAS RAISED THAT CO-OPERATIVE BANKS OTHER THAN SCHEDULED CO-OPERATIVE BANKS WERE IN THE NATURE OF NON SCHEDULED BANK. THIS CONTENTION CANNOT BE ACCEPTED. IN THE CA SE OF MANSAROVAR URBAN CO-OPERATIVE BANK LTD. (26 ITD 72), THE ITAT, LUCKNOW BENCH HELD THAT NON SCHEDULED BANK AS PER EXPLANATION (I) TO SECTION 36(1)(VIIA) MEANS A BANKING COMPANY AS DEFINED IN SECTION 5(C) OF THE BANKING REGULATION ACT, 1949. BANKING COMPANY U /S 5(C) OF THE 1949 ACT MEANS IN COMPANYWHICH TRANSACTS BUSINESS OF BANKING IN INDIA. COMPANY HAS BEEN DEFINED IN SECTION 5(D) OF THE 1949 ACT TO MEAN ANY COMPANY AS DEFINED IN SECTION 3 OF THE 195 6 ACT DOES NOT INCLUDE CO-OPERATIVE BANK IN DEFINITION OF A COMPAN Y. THEREFORE, A CO- OPERATIVE BANK IS NOT A COMPANY AND IS NOT NON SCHE DULED BANK. HENCE, IT IS NOT ELIGIBLE FOR DEDUCTION UNDER THE F IRST PROVISO OF SECTION 36(1)(VIIA) OF THE I.T. ACT, 1961. 5. BEING AGGRIEVED THE ASSESSEE IS IN APPEAL, THE LD. COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET STATED THAT THE ISSUE I S COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER DATED 14.08.2013 IN ITA NO. 5155/DEL/2011 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 AND THAT THE DEPARTMENT HAS NOT PREFERRED ANY APPEAL BEFORE THE HONBLE HIGH COURT. IN HIS RIVAL SUBMISSIONS, THE LD. DR SUPPORT ED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH TH E PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON TH E RECORD, IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACT S HAS BEEN ADJUDICATED BY THIS BENCH OF THE TRIBUNAL IN ASSESS EES OWN CASE FOR ITA NO.3994/DEL/2013 5 THE ASSESSMENT YEAR 2008-09 IN ITA NO. 5155/DEL./20 11 WHEREIN VIDE PARA 5 TO 5.2 OF THE ORDER DATED 14 AUGUST, 2013, I T HAS BEEN HELD AS UNDER :- 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERU SED THE ENTIRE MATERIAL AVAILABLE ON RECORD. 5.1. THE FACT THAT THE ASSESSEE CLAIMED P ROVISION FOR BAD DEBT RESERVE IN TERMS OF SECTION 36(1) (VIIA) QUA RURAL BRANCHES ONLY HAS NOT BEEN DISPUTED. WHILE DISALLOWING THE CLAIM OF T HE ASSESSEE, THE ASSESSING OFFICER AND CIT(A) HAVE NOT RELIED ON SPE CIFIC PROVISIONS OF SECTION 36(1)(VIIA), RATHER REFERRED TO SLR AND CRR WHICH DO NTO FIND ANY REFERENCE IN THE LANGUAGE OF SECTION 36(1)(VIIA ). IN OUR CONSIDERED VIEW WITH THESE UNDISPUTED FACTS ON RECORD, THE HON BLE SUPREME COURT JUDGMENT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE, ALLOW ING RURAL BRANCHES ADVANCES WITHOUT INFERENCE OF SLR & CRR. 5.2. IN THESE CIRCUMSTANCES AND LEGAL POSITION, TH E ASSESSEE IS ELIGIBLE FOR THE CLAIM OF BAD DEBT RESERVE U/S 36(1)(VIIA) WHICH NEEDS TO BE ALLOWED. IN VIEW THEREOF, THE ASSESSEES APPEAL IS ALLOWED. 7. SINCE THE FACT FOR THE YEAR UNDER CONSIDERATIO N ARE SIMILAR TO THE FACTS INVOLVED IN THE AFORESAID REFERRED TO CASE DE CIDED VIDE ORDER DATED 14 AUGUST, 2013 IN ITA NO. 5155/DEL./2011 FOR THE ASSESSMENT YEAR 2008-09 IN ASSESSEES OWN CASE. SO RESPECTFULL Y FOLLOWING THE SAID ORDER, THE IMPUGNED DISALLOWANCE SUSTAINED BY THE LD. CIT(A) IS DELETED. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. ITA NO.3994/DEL/2013 6 (ORDER PRONOUNCED IN THE COURT ON 25/06/2015). SD/- SD/- (H.S.SIDHU) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 25 / 06/2015 *B.RUKHAIYAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITA NO.3994/DEL/2013 7 DATE INITIAL 1. DRAFT DICTATED ON 23.06.2015 2. DRAFT PLACE D BEFORE AUTHOR 24.06.2015 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.