DCIT, CIRCLE-2(2), SURAT V. THE SURAT DISTRICT CO-OP. BANK LIMITED, SURAT

ITA 4/SRT/2020

AI Insights

The case involves cross appeals by The Surat District Co.op. Bank Ltd. and the ACIT, Circle-2(2), Surat, concerning the assessment year 2011-12. The appeals were directed against the common order passed by the CIT(A)-4, Surat, which arose from the assessment order under section 143(3) of the Income Tax Act, 1961. The main issues revolved around the disallowance of deductions claimed under section 36(1)(viia) for provisions made for bad and doubtful debts, and various other disallowances related to expenses such as medical reimbursements, provident fund contributions, and gifts. The Tribunal considered previous judgments and the specific provisions of the Income Tax Act to arrive at its decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301888 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-04-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 05-01-2020
• Other Referred Cases: Catholic Syrian Bank Vs CIT, DCIT vs. Punjab Gramin Bank, Tamilnadu State Apex Co-operative Bank Vs ACIT, DCIT Vs IGN Vysya Bank, Nanded District Central Co-operative bank Vs DCIT, DCIT Vs Sarvodaya Shakari Bank Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Depreciation; Business expenditure; Bad and doubtful debts; Corroborative evidences; TDS
• Section: 37; 143(3); 40(a)(ia); 37(1); 194C; 80P; 13; 119; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.590/SRT/2019 Assessment Year: (2011-12) (Physical Hearing) The Surat District Co.op. Bank Ltd., Shri Pramodbhai Desai Sahakar Bhavan, J. P. Road, Athwa Gate, Surat – 395001. Vs. The ACIT, Circle-2(2), Surat. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAAAT2985Q (Assessee) (Respondent) आयकर अपील सं./ITA No.4/SRT/2020 Assessment Year: (2011-12) The DCIT, Circle-2(2), Surat. Vs. The Surat District Co.op. Bank Ltd., Shri Pramodbhai Desai Sahakar Bhavan, J. P. Road, Athwa Gate, Surat – 395001. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAAAT2985Q (Assessee) (Respondent) Assessee by Shri Akshay Modi, CA Respondent by Shri Ashok B. Koli, CIT(DR) Date of Hearing 20/04/2023 Date of Pronouncement 14/07/2023 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned cross appeals filed by the Assessee and Revenue, pertaining to Assessment Year (AY) 2011-12, are directed against the common order passed by the Learned Commissioner of Income Tax (Appeals)-4, [in short “the ld. CIT(A)”], in Appeal No. CIT(A), Surat- 4/10335/2018-19, dated 24.10.2019, which in turn arise out of common assessment order passed by the Assessing Officer under section 143(3) of Page | 2 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 28.01.2014. 2. Since, the issues involved in these two appeals, are common and identical; therefore, these appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 3. Grounds of appeal raised by the Revenue, in ITA No.4/SRT/2020, for AY.2011-12, are as follows: “(i) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.1,73,75,000/- out of deduction claimed by the assessee u/s 36(l)(viia) of the Act. (ii) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has not appreciated that the amount of Rs.1,73,75,000/- does not form part of the "provision for Bad and Doubtful debts", therefore, the deduction claimed by the assessee is not allowable under the provisions of Sec.36(1)(viia) of the Act. Thus, the AO had rightly disallowed the claim of the assessee and added the same to the total income of the assessee. (iii) Without prejudice to grounds no. (i) & (ii), on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition made on account of provision for Bad and Doubtful debts of Rs.50,00,000/- created against standard assets when in principle the CIT(A) had concluded that the provision for bad debts is for erosion in value of assets and IT Act has no provision for giving deduction for such provision. (iv) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the disallowance of reimbursement of medical expenses & ten allowance Rs.87,57,430/- without considering the fact that it is not reimbursement of expenses part of expenses and further if it is related to total compensation paid to the employees then disallowance should have been upheld u/s 40(a)(ia) for failure to deduct TDS on the same. (v) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the disallowance of expenses towards Employees contribution to provident fund/shortfall Rs.29,00,000/- without appreciating the fact that the assessee is using this fund to cover up shortfall and pay employees contribution which is in fact to be collected from its employees and hence not an allowable expenses in the hands of the assessee. (vi) On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in partially deleting the disallowance to gift expenses to staff, director, Page | 3 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. customers and others and restricting it to Rs.6,98,375/- on estimating basis without actually on facts quantifying the amount to the extent relief allowed and when in principle the CIT(A) has held these expenses as not allowable. (vii) On the facts and circumstances of the case and in Law, the Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld.CIT(A)-4 Surat may be set-aside and that of the Assessing Officer's order may be restored. (viii) On the facts and circumstances of the case and in law, the assessee craves its right to add, alter, amend, deleted, any of the ground or grounds of appeal.” 4. Grounds of appeal raised by the assessee in ITA No.590/SRT/2019, are as follows: “1. On the facts and circumstances of the case as well in law, the CIT(Appeals) erred in upholding the order of the ACIT, Circle 5, Surat (for the sake of brevity “the AO”) passed u/s 143(3) of the Act making various additions/disallowances for the aggregate amount of Rs.2,59,30,151/-, without appreciating the past assessment “records” of the assessee co.op. bank, is purely on misleading, misconceptual, arbitrary and perverse observations and hence, being without jurisdiction, bad in law, in valid, illegal, unwarranted of facts is liable to be quashed. 2. On the facts and in the circumstances of the case as well in law, the CIT(appeals) erred in confirming the disallowances of office expenses and contingent expenses purely on estimate and adhoc basis for Rs.7,00,000/-, without appreciating in the right lawful and proper perspectives the detailed explanations supported by the corroborative evidences, materials, etc. and hence, not justified. 3. On the facts and in the circumstances of the case as well in law, the CIT(Appeals) erred in confirming the disallowance of Rs.13,48,049/- for the alleged default u/s 40(a)ia) r.w.s 194C of the Act, treating the payment towards the purchase of internet bandwidth being the transactions falls within the ambit of “sale of Goods Act”, as the payments towards the technical services u/s 194C of the Act and hence, not justified. 4. On the facts and in the circumstances of the case as well in law, the CIT(Appeals) has erred in directing the AO to allow the deduction claimed of Rs.1,73,75,000/- u/s 36(1)(viia)(a) of the Act, only to the extent of 7.5% of the total income (computed before making any deduction under this Clause and Chapter VI-A), failing grievously to consider and appreciate in the right, lawful and proper perspectives, the legitimate benefit of deduction available for an amount not exceeding 10% of the aggregate average advances made by the rural branches of the assessee bank and hence, the order passed by the CIT(Appeals), while disposing the grounds raised against the denial of deduction u/s 36(1)(viia)(a) of the Act to the extent of Rs.1,73,75,000/- by the AO, suffered from clear and apparent misinterpretation, misconstruction and misapplication of the provisions of section 36(1)(viia)(a) of the Act and thus, liable to be stuck down. Page | 4 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. 5. On the facts and in the circumstances of the case in law, both the lower authorities have rightly found, verified and accepted the total aggregate average advances made by the rural branches of the assessee bank for the total amount of Rs.189.12 Crores (as computed in terms of Rule 6ABA of the I.T. Rules, 1962) and thus, the deduction claimed u/s 36(1)(viia)(a) of the Act for the total amount of Rs.6,78,45,000/- is within the threshold limit of 10% of the aggregate average advances made by the rural branches and 7.5% of the total income (computed before making deduction under this Clause and Chapter VI-A) and therefore, the order passed by the CIT(Appeals) restricting the deduction to the extent of 7.5% of the total income is without jurisdiction, patently in contravention to the provisions of the law, arbitrary, invalid, void ab initio, illegal and hence, liable to be quashed. 6. On the facts and in the circumstances of the case and in law, the CIT(Appeals) erred in confirming the addition of Rs.65,07,102/- made by the AO on account of the alleged unaccounted interest income without appreciating in the right, lawful and proper perspectives, the detailed explanations substantiated by the cogent and corroborative evidences furnished to establish that the interest income of Rs.65,07,102/- has already been disclosed/reported/offered as income for the year in the ITR filed and hence, the action of both the lower authorities to make addition of disclosed/accounted interested income of Rs.65,07,102/- being resulted into double taxation is without jurisdiction, unwarranted of facts, perverse, arbitrary, imaginary, baseless, bad in law and liable to be struck down. 7. On the facts and in the circumstances of the case as well in law, both the lower authorities have erred in overlooking and summarily rejecting the detailed submissions with explanations made duly substantiated by the authentic and cogent evidences and hence, the order passed by the CIT(Appeals) confirming addition to the extent of Rs.2,59,30,151/- arbitrary, capriciously and based on lopsided, imaginary and factually incorrect inferences, deserves to be annulled or nullified. 8. Your assessee further reserves its right to add, alter, modify or to amend any of the aforesaid grounds before or at the time of hearing of an appeal.” 5. Grounds Nos. 1, 2 and 3 raised by the Revenue and ground Nos. 4 and 5 raised by the assessee are identical and same. These grounds relate to deleting the disallowance of Rs.1,73,75,000/- out of deduction claimed by the assessee u/s 36(l)(viia) of the Act and also deleting the addition made on account of provision for Bad and Doubtful debts of Rs.50,00,000/- created against standard assets and this amount of Rs.50,00,000/- is already included in the total disallowance of Rs.1,73,75,000/-. Page | 5 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. 6. The main grievance of ld DR for the revenue in these grounds are that these disallowances are not covered by the provisions of section 36(l)(viia) of the Act therefore ld CIT(A) should not have deleted these disallowances. Therefore, ld DR stated that addition made by the assessing officer should be sustained and assessee is not eligible to claim deduction, u/s 36(1)(viia)(a) of the Act, even at the rate of 7.5% on account of provision for bad and doubtful debts. 7. Whereas, the main grievance of ld Counsel for the assessee is that the CIT(Appeals) has erred in directing the AO to allow the deduction claimed of Rs.1,73,75,000/- u/s 36(1)(viia)(a) of the Act, only to the extent of 7.5%, on account of provision for bad and doubtful debts. The ld CIT(A) ought to have allowed the deduction at the rate of 10%. Therefore, ld Counsel pointed out that the legitimate benefit of deduction available for an amount not exceeding 10% of the aggregate average advances made by the rural branches of the assessee bank, therefore deduction u/s 36(1)(viia)(a) of the Act, must be allowed at the rate of 10%. 8. However, Learned counsel for the assessee invited our attention to the order dated 04.07.2022, passed by the Division Bench of this Tribunal in assessee’s own case in for the Assessment Year 2017-18, 146 taxmann.com 495 (Surat-trib) whereby the issue of relating to deduction claimed under section 36(1) (viia) and provision for doubtful debts, created against standard assets have been discussed and adjudicated in favour of assessee. The Learned Counsel for the assessee submitted that ground Nos. 1 to 3 raised by the Revenue and ground Nos. 4 and 5 raised by the assessee, are squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench. Page | 6 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. 9. Learned Departmental Representative nevertheless relied upon the order of the assessing officer. 10. We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in assessee’s own case, vide order dated 04.07.2022. In this order, the Tribunal has inter alia observed as follows: “4.We have considered the rival submissions of both the parties and perused the material available on record. From perusal of record, we find that combination of this Bench in assessee’s own case for the A.Y. 2010-11 in ITA No. 16/Ahd/2017 vide order dated 17/05/2022 has confirmed the order of Ld. CIT(A), thereby decided the appeal in favour of the assessee by passing the following order: “15. We have considered the rival submission of the parties and have gone through the orders of lower authorities and above cited case laws carefully. Before adverting to the facts and the observation of lower authorities, we may reproduce the relevant provision of section 36(1)(viia) reads as under: '(viia) in respect of any provision for bad and doubtful debts made by - (a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner: Explanation: - In this clause, (vi) "co-operative bank", "primary agricultural credit society" and "primary co- operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P ;' 16. We find that the assessee made a provision under section 36(1)(viia) of Rs. 7.16 Crore, the assessing Officer disallowed the claim to the extent of Rs.3.66 crores out of total claim of assessee under section 36(1)(viia) by taking view that the aforesaid amount under four heads are not provision for bad and doubtful debts for reserve the amount provided as per Gujarat Co-Operative Society, Act, is not the provision, rather it is a reserve created only if the society makes profit and provision for standard assets, the Assessing Officer held that standard assets cannot be treated to have provided against bad and doubtful debts under the standard assets a performing assets. Though it is mandatory in provision for standard assets as per RBI’s norm but it cannot be categorized as doubtful debts Page | 7 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. for allowing deduction under section 36(1)(viia)(a). For the provision of bad and doubtful debts against standard asset of Rs. 50 Lakhs, the assessing officer held that this is a performing asset, which is governed by 2(1)(xv) of Non-banking financial companies prudential norms (Reserve Bank) directions 1998. It was held that though it is mandatory but cannot be categorised as ‘bed debts’ For security depreciation of Rs.1.50 crores the Assessing Officer held that this reserve for contingency and not a provision for bad and doubtful debts. For fourth provision of Rs.50 lakh, Assessing Officer held that investment depreciation fund is also provision to cover the value of stock-in-trade which is also contingent in nature. We find that Ld. CIT(A) after examining the statutory provision and held that assessee has a rural advance of Rs.159 Crore (rounded) against which the assessee has claimed only Rs.7.16 crores though they are entitled to claim @ 10% of the aggregate of average advance by rural branches of assessee-bank. Thus, the Ld. CIT(A) allowed all the claim under four various heads by holding that the assessee is clearly eligible for the deduction under section 36(1)(viia) as it fulfilled the two condition that any provisions for bad and doubtful debts made by Co-operative bank is allowable if it does not exceed 7 ½ of total income (computed before making deduction under this clause under chapter VIA) and an amount not exceeding 10% of aggregate average advances made by rural branch. 17. We find that the assessing officer has not doubted the number of rural branches as defined under section 36(1) (viia) (d)(ia) or the total of the advances made by rural branches of assessee-bank and the computation made in the prescribed manner. 18. We further find that the assessee claimed that similar deduction was allowed in assessment years 2008-09, 2009-10 in assessment passed under section 143(3) and in assessment years 2015-16 & 2016-17 in accepted in assessment order under section 143(1). However again in assessment year 2017- 18 it was allowed in assessment order passed under section 143(3). The Assessing Officer disallowed the deduction under section 36(1)(viia)(a) in assessment year 2012-13. However, on appeal before Ld. CIT(A) the assessee was granted relief and on further appeals of the Revenue is pending before Tribunal. These facts were not controverted by Revenue. Thus, the assessee is liable to be succeeded on the principles of consistency. 19. The Hon’ble Supreme Court in Catholic Syrian Bank Vs CIT (supra) after discussing the scope of section 36(1)(vii) and (viia) held that both the provisions are separate and distinct, the relevant part of the decisions of extracted below for appreciation of the controversy in the case in hand; “17. The provisions of Section 36(1)(vii) would come into play in the grant of deductions, subject to the limitation contained in Section 36(2) of the Act. Any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year is the deduction which the assessee would be entitled to get, provided he satisfies the requirements of Section 36(2) of the Act. Allowing of deduction of bad debts is controlled by the provisions of Section 36(2). The argument advanced on behalf of the Revenue is that it would amount to allowing a double deduction if the provisions of Sections 36(1)(vii) and 36(1)(viia) are permitted to operate independently. There is no doubt that a statute is normally not construed to provide for a double benefit unless it is Page | 8 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. specifically so stipulated or is clear from the scheme of the Act. As far as the question of double benefit is concerned, the Legislature in its wisdom introduced Section 36(2)(v) by the Finance Act, 1985 with effect from 01.04.1985. Section 36(2)(v) concerns itself as a check for claim of any double deduction and has to be read in conjunction with Section 36(1)(viia) of the Act. It requires the assessee to debit the amount of such debt or part thereof in the previous year to the provision made for that purpose. Effect of Circulars 18. Now, we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short, ' the Board') in exercise of the power vested in it under Section 119 of the Act. Circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income tax authorities, though they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored. A circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigour of a particular provision for the benefit of the assessee in certain specified circumstances. So long as the circular is in force, it aids the uniform and proper administration and application of the provisions of the Act. {Refer to UCO Bank, Calcutta v. CIT [1999] 4 SCC 599 . 19. In the present case, after introduction of Section 36(1)(viia) by the Finance Act, 1979, [(1981) 131 ITR (St.) 88], with effect from 1st April, 1980, Circular No. 258 dated 14th June, 1979 was issued by the Board to clarify the application of the new provisions. The provisions were introduced in order to promote rural banking and assist the scheduled commercial banks in making adequate provision from their current profits to provide for risks in relation to their rural advances. The deductions were to be limited as specified in the Section. A ' rural branch & apos; for the purpose of the Act had meant a branch of a scheduled bank, situated in a place with a population not exceeding 10,000, according to the last preceding census of which the relevant figures have been published. Under clause 13.3, the Circular found it relevant to mention that the provisions of new clause (viia) of Section 36(1), relating to the deduction on account of provisions for bad and doubtful debts, is distinct and independent of the provisions of Section 36(1)(vii) relating to allowance of deduction of the bad debts. In other words, the scheduled commercial banks would continue to get the benefit of the write-off of the irrecoverable debts under Section 36(1)(vii) in addition to the benefit of deduction of the provision for bad and doubtful debts under Section 36(1)(viia). 20. The Finance Act, 1985, which was given effect from 1st April, 1985, added the proviso to Section 36(1)(vii), amended Section 36(1)(viia) and also introduced clause (v) to Section 36(2) of the Act. To complete the history of amendments to these clauses, we may also notice that proviso to Section 36(1)(viia)(a) was introduced by Finance Act, 1999 with effect from 1st April, 2000 and explanation to Section 36(1)(vii) was introduced by Finance Act, 2001 with effect from 1st April, 2001. 21. A Circular No.421 dated 12th June, 1985 [(1985) 156 ITR (St.) 130] attempted to explain the amendments made to Section 36 and also explained the provisions of clause (viia) of Section 36(1). It reads as under : Page | 9 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. "Deduction in respect of provisions made by banking companies for bad and doubtful debts. 17.1 Section 36(1)(vii) of the Income-tax Act provides for a deduction in the computation of taxable profits of the amount of any debt or part thereof which is established to have become a bad debt in the previous year. This allowance is subject to the fulfilment of the conditions specified in sub-section (2) of section 36. 17.2 Section 36(1)(viia) of the Income-tax Act provides for a deduction in respect of any provision for bad and doubtful debts made by a scheduled bank or a non- scheduled bank in relation to advances made by its rural branches, of any amount not exceeding 1½ per cent of the aggregate average advances made by such branches. 17.3 Having regard to the increasing social commitments of banks, section 36(1)(viia) has been amended to provide that in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of section 36(1)(viiia) or a bank incorporated by or under the laws of a country outside India] or a non- scheduled bank, an amount not exceeding ten per cent of the total income (computed before making any deduction under the proposed new provision) or two per cent of the aggregate average advances made by rural branches of such banks, whichever is higher, shall be allowed as a deduction in computing the taxable profits. 17.4 Section 36(1)(vii) of the Act has also been amended to provide that in the case of a bank to which section 36(1)(viia) applies, the amount of bad and doubtful debts shall be debited to the provision for bad and doubtful debts account and that the deduction admissible under section 36(1)(vii) shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account. 17.5 Section 36(2) has been amended by insertion of a new clause (v) to provide that where a debt or a part of a debt considered bad or doubtful relates to advances made by a bank to which section 36(1)(viia) applies, no such deduction shall be allowed unless the bank has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debt account made under clause (viia) of section 36(1)." 22. Still another circular being Circular No.464, dated 18th July, 1986 [(1986) 161 ITR(St.) 66] was issued with the intention to explain the amendments made by the Income Tax (Amendment) Act, 1986. Clause 5 of the Circular dealt with the modifications introduced in respect of the deductions on provisions for bad and doubtful debts made by the banks and it stated as follows : "5. Modification in respect of deduction on provisions for bad and doubtful debts made by the banks : 5.1 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% of the total income or 2% 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 Page | 10 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. that extent, they were being discriminated against. Further, it was felt that the existing ceiling in this regard, i.e., 10% of the total income or 2% 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 subsection (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% of the aggregate average advances made by the 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 banks. 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% of the total income (computed before making any deduction under this clause and Chapter VI-A). This will imply that all scheduled or non- scheduled banks having rural branches would be allowed the deduction up to 2% of the aggregate average advances made by such branches and a further deduction up to 5% of their total income in respect of provision for bad and doubtful debts." 23. Reference usefully can also be made to the Statement of Objects and Reasons for the Finance Act, 1986, wherein, inter alia, it was stated that the amendments were intended to provide a deduction on the provisions for bad debts made by all banks upto 5 per cent of their total income and an additional 2 per cent of the aggregate average advances made by the rural branches of the banks. These percentages stood altered by subsequent amendments in 1993 and 2001. 24. Clear legislative intent of the relevant provisions and unambiguous language of the circulars with reference to the amendments to Section 36 of the Act demonstrate that the deduction on account of provisions for bad and doubtful debts under Section 36(1)(viia) is distinct and independent of the provisions of Section 36(1)(vii) relating to allowance of the bad debts. The legislative intent was to encourage rural advances and the making of provisions for bad debts in relation to such rural branches. Another material aspect of the functioning of such banks is that their rural branches were practically treated as a distinct business, though ultimately these advances would form part of the books of accounts of the principal or head office branch. Thus, this Court would be more inclined to give an interpretation to these provisions which would serve the legislative object and intent, rather than to subvert the same. The Circulars in question show a trend of encouraging rural business and for providing greater deductions. The purpose of granting such deductions would stand frustrated if these deductions are implicitly neutralized against other independent deductions specifically provided under the provisions of the Act. To put it simply, the deductions permissible under Section 36(1)(vii) should not be negated by reading into this provision, limitations of Section 36(1)(viia) on the reasoning that it will form a check against double deduction. To our mind, such approach would be erroneous and not applicable on the facts of the case in hand. Interpretation and Construction of Relevant Sections 25. The language of Section 36(1)(vii) of the Act is unambiguous and does not admit of two interpretations. It applies to all banks, commercial or rural, scheduled or unscheduled. It gives a benefit to the assessee to claim a deduction on any bad debt or part thereof, which is written off as irrecoverable in the Page | 11 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. accounts of the assessee for the previous year. This benefit is subject only to Section 36(2) of the Act. It is obligatory upon the assessee to prove to the assessing officer that the case satisfies the ingredients of Section 36(1)(vii) on the one hand and that it satisfies the requirements stated in Section 36(2) of the Act on the other. The proviso to Section 36(1)(vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case of the assessee is one which falls squarely under Section 36(1)(viia) of the Act. We may also notice that the explanation to Section 36(1)(vii), introduced by the Finance Act, 2001, has to be examined in conjunction with the principal section. The explanation specifically excluded any provision for bad and doubtful debts made in the account of the assessee from the ambit and scope of ' any bad debt, or part thereof, written off as irrecoverable in the accounts of the assessee & apos;. Thus, the concept of making a provision for bad and doubtful debts will fall outside the scope of Section 36(1)(vii) simplicitor. The proviso, as already noticed, will have to be read with the provisions of Section 36(1)(viia) of the Act. Once the bad debt is actually written off as irrecoverable and the requirements of Section 36(2) satisfied, then, it will not be permissible to deny such deduction on the apprehension of double deduction under the provisions of Section 36(1)(viia) and proviso to Section 36(1)(vii). This does not appear to be the intention of the framers of law. The scheduled and non- scheduled commercial banks would continue to get the full benefit of write off of the irrecoverable debts under Section 36(1)(vii) in addition to the benefit of deduction of bad and doubtful debts under Section 36(1)(viia). Mere provision for bad and doubtful debts may not be allowable, but in the case of a rural advance, the same, in terms of Section 36(1)(viia)(a), may be allowable without insisting on an actual write off. 26. The Special Bench of the ITAT had rejected the contention of the Revenue that proviso to Section 36(1)(vii) applies to all banks and with reference to the circulars issued by the Board, held that a bank would be entitled to both deductions, one under clause (vii) of Section 36(1) of the Act on the basis of actual write off and the other on the basis of clause (viia) of Section 36(1) of the Act on the mere making of provision for bad debts. This, according to the Revenue, would lead to double deduction and the proviso to Section 36(1)(vii) was introduced with the intention to prevent this mischief. The contention of the Revenue, in our opinion, was rightly rejected by the Special Bench of the ITAT and it correctly held that the Board itself had recognized the position that a bank would be entitled to both the deductions. Further, it concluded that the proviso had been introduced to protect the Revenue, but it would be meaningless to invoke the same where there was no threat of double deduction. 27. As per this proviso to clause (vii), the deduction on account of the actual write off of bad debts would be limited to excess of the amount written off over the amount of the provision which had already been allowed under clause (viia). The proviso by and large protects the interests of the Revenue. In case of rural advances which are covered by clause (viia), there would be no such double deduction. The proviso, in its terms, limits its application to the case of a bank to which clause (viia) applies. Indisputably, clause (viia)(a) applies only to rural advances.” 20. We find that co-ordinate Bench of ITAT Amritsar Bench in DCIT vs. Punjab Gramin Bank (ITA No.731/Asr/2017) while considering the provision for Page | 12 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. bad and doubtful debts under section 36(1)(viia) on standard assets passed the following order; “11. We shall now advert to the deletion by the CIT(A) of the disallowance of Rs. 3,53,47,000/- made by the A.O on account of the provision for bad and doubtful debts under Sec. 36(1)(viia) of the IT Act. We find that the A.O had disallowed an amount of Rs. 3,53,47,000/- on account of provision for bad and doubtful debts made by the assessee against standard assets on the ground that the said provision was made against assets which were of good quality and was in the nature of contingent liability. It has been the claim of the assessee that the provision for bad and doubtful debts had been made in accordance with the instructions and circulars of the RBI on the said issue. We find that the issue as regards the allowability of deduction of provision for bad and doubtful debts made against standard assets had been decided by the Tribunal in the assesses own case for A.Y. 2008-09 i.e. Dy. CIT, Circle-IV, Jalandhar Vs. M/s Punjab Gramin Bank, Kapurthala in ITA No. 134(Asr)/2015; dated 22.06.2016, which thereafter had been followed in its cases for A.Y. 2011-12 and A.Y. 2012-13. The Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09 had observed as under :- “8 We have heard the rival parties and have gone through the material on record. We find that the assessee had created a provision of Rs.50,00,000/- which included a sum of Rs.13,25,000/- as provisions for bad and doubtful debts and the balance amount of Rs.36,75,000/- was provision against standard assets and the entire amount was claimed as deduction under section 36(1)(viia) of the Act. The Assessing Officer was of the opinion that the provisions made by the assessee against standard assets was a contingent liability and which was not allowable as business expenditure. The ld. CIT(A), however, allowed relief to the assessee by holding that the claim of the assessee fall into the main provisions of section 36(1)(viia). To resolve the dispute it is important to visit the provisions of section 36(1)(viia) of the Act and which for the sake of convenience are reproduced below. “36(1)(viia) In respect of any provision for bad and doubtful debts made by (a)a scheduled bank [not being a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank or a co-operative bank outside India] or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half percent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. Provided that a scheduled bank or a non-scheduled bank 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 the guidelines issued by it in this behalf, for an amount not exceeding five percent of the amount of such assets shown in the books of account of the bank on the last day of the previous year: Page | 13 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. Provided further that for the relevant assessment years commencing 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 percent”, the words “ten percent” 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 redemption of securities in accordance with a scheme framed by the Central Government: Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head “Profits and gains business or profession.” From the above provisions it can be seen that deduction u/s 36(1)(viia) of the Act is allowed in respect of provisions for bad and doubtful debts This section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub-section(1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1)(vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1)(viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) of the Act. The learned CIT(A) has passed a very exhaustive and speaking order and we do not find any infirmity in the same. We have perused the aforesaid order of the Tribunal and finding ourselves to be in agreement with the view therein taken, respectfully follow the same. We thus are of the considered view that as the provision for bad and doubtful debts against standard assets is covered in the main provisions of Sec. 36(1)(viia) of the IT Act, therefore, uphold the order of the CIT(A) who we find had rightly deleted the addition of Rs. 3,53,47,000/- made by the A.O on the said count. The Grounds of Appeal No. 4 to 6 raised by the revenue are dismissed.” 21.We find that the coordinate bench of Amritsar Tribunal in DCIT Vs Nawanshahr Central Co-operative Bank Ltd (supra) while considering the grounds related with the provision against standered asset under section under section 36(1)(viia) passed the following order; Page | 14 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. “ Now coming to ground no. 2 regarding provisions against the standard assets, we find that the same is also covered in favour of assessee by the order of the Hon'ble Tribunal in the case of Punjab Gramin Cooperative Bank. For the sake of completeness, the findings of the Hon'ble Tribunal are reproduced below: "12. We have heard the rival parties and have gone through the material placed on record. We find that the issue of provision for doubtful debts on standard assets is covered in favour of assessee by the order of the Tribunal dated 22.06.2016 for Assessment Year: 2008-09, wherein the appeal of the revenue was dismissed which was filed by Revenue on similar grounds. The relevant findings of the Tribunal as contained in para 8 onwards are reproduced below. 8. "We have heard the rival parties and have gone through the material on record. We find that the assessee had created a provision of Rs. 50,00,000/- which included a sum of Rs. 13,25,000/- as provisions for bad and doubtful debts and the balance amount of Rs. 36,75,000/- was provision against standard assets and the entire amount was claimed as deduction under section 36(1)(viia) of the Act. The Assessing Officer was of the opinion that the provisions made by the assessee against standard assets was a contingent liability and which was not allowable as business expenditure. The Ld. CIT(A), however, allowed relief to the assessee by holding that the claim of the assessee fall into the main provisions of section 36(1)(viia). To resolve the dispute it is important to visit the provisions of section 36(1)(viia) of the Act and which for the sake of convenience are reproduced below. "36(1)(viia) In respect of any provision for bad and doubtful debts made by (a) a scheduled bank [not being a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank or a co-operative bank outside India] or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one- half percent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. Provided that a schedule bank or a non-scheduled bank 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 Assessment Year: 2013-14 Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five percent 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 commencing 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 percent", the words "ten percent" 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 redemption of securities in accordance with a scheme framed by the Central Government. Page | 15 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains business or profession." From the above provisions it can be seen that deduction u/s 36(1) (viia) of the Act is allowed in respect of provisions for bad and doubtful debts. This section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub- section (1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1) (vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1) (viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) of the Act. The Ld. CIT(A) has passed a Assessment Year: 2013-14 very exhaustive and speaking order and we do not find any infirmity in the same. Therefore following the above Tribunal order, we do not see any infirmity in the order of Ld. CIT(A). 13. In view of the above fact and circumstances the grounds of appeal raised by Revenue in ITA No. 580 & 569 are dismissed. In view of the above precedents the ground no. 2 is also dismissed.” 22. We find that Chennai Tribunal in Tamilnadu State Apex Co-operative Bank Vs ACIT (supra) while considering the provision for non-performing asset under section 36(1)(viia) held that where the assessee-bank had claimed deduction for 'Provision for Non-Performing Assets' under section 36(1)(viia), in view of fact that taxonomy of provision had been done by assessee to keep it in line with RBI and NABARD guidelines, but in pith and substance provision had been created for 'Bad and Doubtful Debts', deduction was claimed in accordance with section 36(1)(viia) and assessee was entitled to benefit of same. 23. Further Bangalore Tribunal in DCIT Vs IGN Vysya Bank (supra) also held that in order to allow assessee's claim under section 36(1)(viia), what has to be seen by Assessing Officer is as to whether provision for bad and doubtful debts is created irrespective of whether it is in respect of rural or non-rural advances by debiting profit and loss account and, to extent provision for bad and doubtful debts is so created, assessee is entitled to deduction subject to upper limit of deduction laid down in said section. In Nanded District Central Co-operative bank Vs DCIT (2015) 57 taxmann.com 422 (Pune Trib) also held that deduction Page | 16 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. under section 36(1)(viia) is to be restricted to the actual amount of provision for bad and doubtful debts made in the books of account. 24. We also find that Ahmedabad Tribunal in DCIT Vs Sarvodaya Shakari Bank Ltd (supra) also held that that the provisions for bad and doubtful debts should be allowed u/s. 36(1)(viia), to the extent of provision made and available in the books of account, whether made in the current previous year. Thus, in view of the aforesaid factual discussion, we affirm the order of Ld. CIT(A) by adding our aforesaid observation. 25. So far as decision relied by Ld. CIT-DR in Jhabua Dhar Kshetriya Gramin Bank (supra), is concerned, we find that ratio of decision is not applicable on the facts of case in hand. In the said the Tribunal relied on its earlier decision in Narmada Gramin Bank Vs ACIT (supra) wherein the issue of provision under section 36(1) (viia) was restore to the file of assessing officer for recomputation of claim of deduction to the extent of amount written back in the books of account. Thus, the facts of that case are in variance. 26. In the result, ground No.1& 3 raised by the Revenue is dismissed. 5.Considering the decision of Tribunal in assessee’s own case for A.Y. 2010-11 and the fact the Ld. CIT(A) while granting relief to the assessee followed the order of his predecessor dated 06/10/2014 in Appeal No. CAS-1/119/2013-14 (A.Y.-2010-11). It is retreated the order of Ld. CIT(A) has already been affirmed by this bench in ITA No. 16/Ahd/2016 dated 17.05.2022. Thus, following the principal of consistency, we do not find merit in the grounds of appeal raised by the revenue. 6. In the result, this appeal of the revenue is dismissed.” 11. We note that since the issue is squarely covered by the judgment of this Tribunal in assessee’s own case (supra), and there is no change in facts and law, therefore, respectfully following the binding judgment of the Tribunal, we dismiss ground nos. 1, 2 and 3 raised by the Revenue and we allow ground Nos. 4 and 5 raised by the assessee. 12. Ground No.4 raised by the Revenue, relates to disallowance of reimbursement of medical expenses and tea allowance of Rs.87,57,430/- (Rs.66,02,500 + Rs.21,46,930). 13. We have heard both the parties. Learned DR for the Revenue argued that medical expenses and tea expenses are deleted by ld CIT(A) without considering the fact that it is not reimbursement of expenses. The ld DR Page | 17 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. stated that it is part of expenses and further if it is related to total compensation paid to the employees then disallowance should have been upheld u/s 40(a)(ia) of the Act for failure to deduct TDS on the said amount. However, ld Counsel for the assessee defended the order passed by the ld CIT(A). We note that assessee bank has paid Rs.66,07,500/- as allowance towards reimbursement of medical expenses incurred by the employees of the Bank by virtue of agreement between the employees union and the Bank. By virtue of the said agreement, the Bank has to pay the medical allowance of Rs. 15,000/-for the year to every employee on production of declaration supported by bills, certificates etc. for the medical treatments taken by the particular employee. As a matter of fact, the said allowance to meet their medical expenses is forming part of the Gross Salary, but the statutory deduction for such medical allowance is allowable upto Rs.15,000/-, each on employee, there is no requirement to make TDS on such payment. The records for such medical allowance/reimbursement is voluminous and bulky, therefore all the documents could not be furnished by the assessee during the assessment proceedings. However, the declarations on sample basis containing therein the payment of reimbursement/allowance for the actual medical expenses incurred by such employees were submitted before the assessing officer. While offering explanation ( before AO) on this issue on 16.12.2013 as per Para (7) on page 12, it is stated that “this payment is made by virtue of agreement between the employees, union and the Bank, Rs.15,000/- is paid” as “medical allowance” for year to every employee on production of declaration supported by bills, certificates etc; forming part of the Gross Salary, but Statutory deduction for such medical allowance is allowable upto Rs.15,000/- hence no TDS is made on its payment. On perusal of paper submitted along with explanation, there is list of 63 branches and amount as per each branch totaling Rs.66,02,500/-. Likewise, there is list of Page | 18 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. all branches having figures of other reimbursement totaling Rs.21,46,930/-. In respect of other allowances of Rs.21,46,930/-, we note that it is nothing but the tea allowance given to the employees for their expenditure on tea and coffee in performance of their duties during the banking hours only and thus, it is the part of the office expenses and not in the nature of any allowance forming part of the salary. We note that reimbursement of medical expenses and Tea allowance has been incurred while doing the business and therefore it is allowable expenses. Both expenses are allowed in earlier as well as subsequent assessment years under section 143(3) of the Act by the assessing officer. Therefore, we do not find any infirmity in the order of ld CIT(A) in deleting the addition of Rs.87,57,430/-, hence we dismiss the ground No.4 raised by the Revenue. 14. Ground No.5 raised by the Revenue relates to disallowance of expenses towards Employees contribution to provident fund/shortfall Rs.29,00,000/-. 15. We have heard both the parties. Learned DR for the Revenue submitted that on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the disallowance of expenses towards Employees contribution to provident fund/shortfall Rs.29,00,000/- without appreciating the fact that the assessee is using this fund to cover up shortfall and pay employees contribution which is in fact to be collected from its employees and hence not an allowable expenses in the hands of the assessee. On the other hand, Ld. Counsel submitted that the assessee bank has made the contribution towards the shortfall in Provident Fund's Statutory Interest Rate of 9.5%. This shortfall has been made good from the Fund created namely, “Staff Provident Fund (Interest)”, specifically for this sole purpose. The fund has been created from Profit remained after payment of income tax. Hence, in the year of actual expenditure (i.e. Contribution Page | 19 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. towards Shortfall in maintaining the Statutory Rate of Interest of Provident Fund) the expenditure claimed under Section 37(1) of the Act is allowable. The expenditure made from the Fund does not change its nomenclature. It is an expense. If the actual expenditure made by the assessee is not allowable than there is certainly double taxation in the hands of the assessee. It is the statutory requirement under the Provident Fund Rules notified by the Central Government. As per Rule 17, any deficiency/shortfall in the maintenance of Provident Fund Interest Rate shall be made good by the Employer. The Statutory Provisions of the Rules are reproduced as under: “Rule 17. Distribution of Profits of the Fund: (a) On, or as soon as may be, after the 31st day of March in each Year, the Board of Trustees shall prepare a Balance Sheet and Revenue Account as at the date in respect of the preceding twelve months. In preparing the Balance Sheet the Board shall value investment of the Fund according to the cost value as on that date. (b) The Revenue Account shall be credited with all income arising out of the investments of the Fund, all profits, if any, arising from sale of securities. (c) The Board shall after crediting the Revenue Account as stated in clause (b) above, distribute and credit the amount to the individual accounts of the members in proportion to the total amount standing to his credit as on the period of account. (d) With effect from 01.04.1003, the account of each employee shall be credited with the interest calculated on monthly running balance basis with effect from the last day in each year at such rate as may be decided by the Board of Trustees, but shall not be lower than the rate declared for the Employees Provident Fund by the Govt. of India under Paragraph 60 of the Employees' Provident Funds Scheme, 1952. Calculations shall be done in the following manner: - (i) On the amount at the credit of a member on the last day of the preceding year, less any sums withdrawn during the current year interest for twelve months; (ii) On sums withdrawn during the current year interest from the beginning of the current year up-to the last day of the month preceding the month of withdrawals; (iii) On all the sums credited to the Member's account after the last day of the preceding year interest from the first day of the month succeeding the month of credit to the end of the current year; Page | 20 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. (iv) The total amount of interest shall be rounded to the nearest whole rupee (fifty paise counting as the next higher rupee). (e) If the Board of Trustees are unable to pay interest at the rate declared for Employees' Provident Fund by the Govt. of India under Para 60 of the Employees' Provident Funds Scheme, 1952 for the reason that the return on investment is less or for any other reason then the deficiency shall be made good by the employer. (f) In determining the rate of interest, the Board shall satisfy itself that no excess amount is drawn from the Revenue Account as a result of debit thereto of the interest credited to the individual accounts.” 16. Thus, ld Counsel submitted that from the above, it is very much evident that in case of any Shortfall in maintaining the Interest Rate in the Provident fund of the employees, it is the responsibility of the Employer. Further, the creation of Employees Provident Fund Trust is Statutory Duty of the employer. The assessee co-operative bank has fulfilled all its statutory liability towards the Employees Provident Funds Act and hence, the payment made towards maintenance of Statutory Interest Rate is allowable expenditure u/s 37(1) of the Act. The CIT(A) in his order rightly allowed the same. However, the assessing officer in his order without verifying the records available with him i.e. the computation of income that amount contributed to the "Staff Provident Fund (Interest)" is tax paid amount and held that the expenditure made from such fund is not allowable u/s 37(1) of the Act. 17. Considering the above facts, we note that the records and documents produced before the AO, were also produced before the CIT(A) by the assessee and every details are explained to the CIT(A) and after considering the material on records and the facts of the case, as well as the legal position of the case, the CIT(A) has rightly allowed the claim of the assessee, therefore we do not find any infirmity in the conclusion reached by ld CIT(A). Hence, we confirm the findings of ld CIT(A) and dismiss ground no.5 raised by the revenue. Page | 21 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. 18. Ground No.6 raised by the Revenue relates to disallowance of gift expenses to staff, director, customers and others to Rs.6,98,375/-. The assessee has also raised ground No.2 in its appeal, stating that ld CIT(A) has confirmed the addition of Rs.7,00,000/- on estimated basis, which is common ground, therefore we adjudicate ground No.6 raised by the Revenue and ground No.2 raised by assessee together. 19. We have heard both the parties. Learned DR for the Revenue argued that the Ld. CIT(A) has erred in partially deleting the disallowance to gift expenses to staff, director, customers and others and restricting it to Rs.6,98,375/-, on estimating basis, without actually on facts quantifying the amount to the extent relief allowed and when in principle the CIT(A) has held these expenses as not allowable. On the other hand, ld Counsel for the assessee defended the order passed by ld CIT(A). We note that gift expenses were claimed by the assessee to the tune of Rs.13,98,375/-. Out of Rs.13,98,375/-, the ld CIT(A) allowed Rs.6,98,375/- and balance Rs.7,00,000/- was confirmed. During the assessment proceedings, the assessing officer noted that there are entries of Rs.2,14,997/-, Rs.13,320/-, Rs.2,61,882/-, Rs.7,64,396/- & Rs.61,800/- and from the explanation and details filed by assessee it is apparent that the expenses are incurred for giving gifts to employees of bank, customers, Directors of bank and Employees of regulatory Departments in Government & Banking sector. Actual break up of expenses pertaining to gifts for each category of receipts is not given. The expenses incurred for gifts to Directors of assessee bank & to employees of the Government Departments are not allowable expenses within the meaning of sec 37 and explanations. Since there is no bifurcation given, therefore ld CIT(A) estimated 50% of above as expenses incurred for giving such disallowable gifts. We note that small gifts given to customers of the bank on the occasion of new year and Page | 22 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. Dewali festivals are kind of expected and traditional expenses, hence reasonable expenses were allowed by ld. CIT(A). However gift given to directors of assessee bank and government employees are not allowable expenses u/s 37 of the Act. Hence conclusion reached by ld CIT(A), therefore, are correct, hence we dismiss ground no.6 raised by the Revenue and we also dismiss ground No.2 raised by the assessee. 20. Ground No.7 raised by the Revenue is general in nature hence does not require. 21. Now, we shall take assessee`s reaming grounds of appeal in ITA No.590/SRT/2019. 22. Ground No.3 raised by the assessee reads as follows: “3. On the facts and in the circumstances of the case as well in law, the CIT(Appeals) erred in confirming the disallowance of Rs.13,48,049/- for the alleged default u/s 40(a)ia) r.w.s 194C of the Act, treating the payment towards the purchase of internet bandwidth being the transactions falls within the ambit of “sale of Goods Act”, as the payments towards the technical services u/s 194C of the Act and hence, not justified.” 23. Brief facts qua the issue are that during the assessment proceedings, the assessing officer issued a show cause notice to the assessee stating that why the connectivity charges had increased in the current year as compared to previous year and no TDS has been deducted by the assessee. The relevant show cause notice of the assessee is reproduced below: “Vide show cause notice dated 22.11.2013, assessee was further asked to explain: "Debit in P & L account of connectivity charges of Rs.27,28,096/- in the year under consideration compared with expenditure of Rs.6,63,495/- in the previous year. Submit reasons for such increase in this head. Supporting documentary evidence in the form of bills/vouchers regarding such expenses must be submitted. Also provide details regarding benefits availed by the Bank by incurring such expenses for which period. You are requested to furnish the copy of ledger accounts of the above stated connectivity expenditure to ensure that TDS applicable on this expenditure are made and paid in the Government account before due date.” Page | 23 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. 24. In response to show cause notice the assessee submitted, vide letter dated 16.12.2013 that connectivity charges include lease line charges, reliance branch connectivity (backup line) and other networking delivery charges and much less, it is like the telephone bills and not otherwise, and therefore, such payments are not covered by the IDS provisions. 25. However, the assessing officer rejected the contention of the assessee and observed that in the P & L account, expenditure of Rs.27,28,096/- under the head "Connectivity charges" were too excessive compared with previous year's expenditure of Rs.6,63,495/-. While going through papers attached with reply of assessee, it was noted by AO that as claimed in reply it is not only payment made to BSNL & Reliance only but to many persons. Moreover, some of the bills attached are of monthly charges for connectivity like telephone bill but all bills/payments are not as such and are for different purpose vide Item No. 10 of show cause notice, a copy of ledger was specifically asked which is not furnished though, it is main and important document for this expenditure. First paper furnished with reply dated 16.12.2013 on this issue is copy of resolution No.27 passed by executive committee of bank on 26.04.2010 regarding connectivity work to be assigned to M/s. Sanghvi Infotech Pvt. Ltd. for amount of Rs.78,55,348/- on monthly basis. The details of resolution includes all terms & conditions. These details of resolution clearly reveal providing of technical services as agreed to the bank assessee. The payment of this service clearly attracts T.D.S. provisions u/s.194J of the Act in respect of initial installation of networking and u/s 194C of the Act in case of annual maintenance contract subsequently. There are copies of bills from the Sanghvi Infotech Pvt Ltd attached along with explanation which is listed as per Annexure 'A' made part of this order. From these 5 bills listed as per Annexure 'A', it is clear that the payments are not made to BSNL or Reliance company as stated in Page | 24 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. reply dated 16.12.2013. These bills are for annual maintenance contract of providing technical services as mentioned in bill itself. From above listed three bills, details of services rendered by Sanghvi Infotech Pvt. Ltd. Co. the assessee has acquired services regarding maintenance of networking provided by BSNL or Reliance Co., other bills pertaining to the networking providing to the assessee bank are considered to be allowed for business expenditure without making TDS because these bills are pertaining to monthly charges for network provided on monthly basis as mention in bills itself. But in cases of three payments as listed as per Annexure 'A' which are payment to Sanghvi Infotech Pvt. Ltd, for providing technical services by way of contract which is approved by executive committee of bank on 26.04.2010 vide Resolution No. 27. These three payments totaling of Rs.13,48,049/- are made by assessee bank towards services of annual maintenance of network without making TDS u/s 194C of the I.T. Act. Item No. 10 of show cause notice dated 22.11.2013 specifically asked for proof of TDS made and paid in Government account. Assessee bank has failed to deduct TDS u/s 194C of the Act from payment of Rs.13,48,049/- for annual maintenance contract of Page | 25 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. software company. In view of above, expenditure of Rs.13,48,049/- out of total expenditure under the head of connectivity charges was disallowed by AO u/s 40(a)(ia) of the Act. 26. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the Assessing Officer. Aggrieved by the order of ld. CIT(A), the assessee is in further appeal before us. 27. The Ld. Counsel for the assessee submitted that assessee has submitted detailed ledger account, bills/vouchers before the assessing officer, vide written submission dated 16.12.2013 (at page nos. 164 to 165 of appeal memo). Moreover, the detailed explanation has also been provided to the CIT(A), vide written submission dated 25.01.2016. The relevant bills as well as copy of voucher (on example basis) are placed with paper book-1 (page nos. 12 to 14), therefore addition made by the assessing officer may be deleted. 28. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 29. We have heard both the parties. We note that during the assessment proceedings, the assessing officer has asked the assessee to submit a copy of ledger account for these expenses, however the assessee did not furnish the same before the assessing officer, which was specifically asked from the assessee to submit before AO. Besides, the nature of expenditure of Rs.13,48,049/- was not explained by the assessee before the lower authorities. Therefore, we are of the view that one more opportunity should be given to the assessee to explain the nature of expenditure before the assessing officer. Therefore, we remit this issue back to the file of the assessing officer to examine Page | 26 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. the ledger account and nature of expenditure. The assessee is also directed to submit the ledger account and the documents to explain the nature of expenditure. Hence, ground No.3 raised by the assessee, is treated to be allowed for statistical purposes. 30. In the result, ground No.3 raised by the assessee, is allowed for statistical purposes. 31. Ground No.6 raised by the assessee reads as follows: “6. On the facts and in the circumstances of the case and in law, the CIT(Appeals) erred in confirming the addition of Rs.65,07,102/- made by the AO on account of the alleged unaccounted interest income without appreciating in the right, lawful and proper perspectives, the detailed explanations substantiated by the cogent and corroborative evidences furnished to establish that the interest income of Rs.65,07,102/- has already been disclosed/reported/offered as income for the year in the ITR filed and hence, the action of both the lower authorities to make addition of disclosed/accounted interested income of Rs.65,07,102/- being resulted into double taxation is without jurisdiction, unwarranted of facts, perverse, arbitrary, imaginary, baseless, bad in law and liable to be struck down.” 32. Brief facts qua ground No.6 are that on perusal of submission made by the assessee regarding the ‘Jamingiri Ghasara Fund’ i.e. “Security Depreciation Fund”, it reveals that there is opening balance of Rs.6,17,72,754/- and closing balance of Rs.6,82,79,856/-. During the year, there is increase of Rs.65,07,102/- in this account. On the third page of this copy of ledger, it is mentioned that, these “entries are made in respect of receipts of interest at the time of redemption of security”. While offering further explanation on this issue vide written submission page marked Q.15, it is demonstrated that, while passing entry of interest, Bank account is debited, TDS made on such interest income is also debited and interest received account is credited. In this way, actual income of Rs.65,07,102/- as credited & reflected in the copy of ledger of “Security Depreciation Fund” should have been included in the total interest income of assessee bank in Page | 27 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. the Profit & Loss Account. In fact said income of interest on security to the extent of Rs.65,07,102/- is not included on credit side of P & L account because copy of ledger of “Security Depreciation Fund” has no effect in P & L account but only reflected in the balance sheet of the assessee bank. From this copy of ledger, it is made out that from this account, amount of Rs.46,77,885/- is transferred to reverse account of No.2201. Likewise, there is transfer of profit to fund for Rs.1,00,00,000/- on the last day of the year without crediting the interest to the income and transferring in P & L account. Fact remained that TDS deducted on this interest income, is claimed by the assessee bank for credit of tax but corresponding income is not included in the total interest income of assessee bank in the P & L account. The explanation offered is silent on the issue of income of Rs.65,07,102/- on account of redemption of security not included in the P & L account. This income has arisen in the year under consideration, TDS on same income is also claimed by the bank but there is no inclusion of said income in total income of assessee bank. In view of same, an amount of Rs.65,07,102/- was added by assessing officer. 33. Aggrieved by the order of Assessing Officer, the assesse carried the matter in appeal before the Ld. CIT(A), who has confirmed the action of the Assessing Officer. Aggrieved by the order of Ld. CIT(A), the assessee is in further appeal before us. 34. The Ld. Counsel for the assessee submitted that the assessee has submitted detailed ledger account to the AO, vide written submission dated 16.12.2013 (at page nos. 16.12.2013 (at page nos. 166 of Appeal Memo). Moreover, the detailed explanation has also been provided to the CIT(A) vide written submissions dated 25.01.2016. Therefore, addition should be deleted. On the other hand, the Ld. DR for the Revenue has primarily Page | 28 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 35. We have heard both the parties. We note that as per assessing officer TDS deducted on this interest income, is claimed by the assessee bank for credit of tax but corresponding income is not included in the total interest income of assessee bank in the P & L account. The explanation offered by the assessee was silent on the issue of income of Rs.65,07,102/- on account of redemption of security not included in the P & L account. This income has arisen in the year under consideration, TDS on same income is also claimed by the bank but there is no inclusion of said income in total income of assessee bank. In view of same, an amount of Rs.65,07,102/- was added by assessing officer. Thus, we note that assessee has not explained income of Rs.65,07,102/- on account of redemption of security, therefore we are of the view that one more opportunity should be given to the assessee to explain the income of Rs.65,07,102/- before the assessing officer, hence we remit this issue back to the file of the assessing officer with the direction to the assessee to submit sufficient evidences and documents to explain the income of Rs.65,07,102/-. Ground No.6 raised by the assessee, is treated to be allowed for statistical purposes. 36. In the result, ground No.6 raised by the assessee, is allowed for statistical purposes. 37. In combined results, appeal filed by Assessee (in ITA No. 590/SRT/2019) is partly allowed for statistical purposes, whereas the appeal filed by the Revenue (in ITA No.4/SRT/2020) is dismissed. Registry is directed to place one copy of this order in all appeals folder / case files. Page | 29 ITA Nos.590/SRT/2019 & 4/SRT/2020 The Surat Dist. Co.op Bank Ltd. Order is pronounced on 14/07/2023 in the open court. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 14/07/2023 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat