The Kodungallur Town Co-op Bank Ltd, Kodungallur V. The ACIT, Trichur

ITA 408/COCH/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8416 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 15-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHANTOM BOSE
• Assessee Lawyers: MOHAN PULIKKAL
• Keywords: Bad and doubtful debts
• Section: 143(3); 263

Judgement Text

ITA NO . 408/C/2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH KOCHI BEFORE S/ SHRI B P JAIN , AM & GEORGE GEORGE K, JM ITA NO 408/COCH/2015 (A SST YEAR 2010 - 11 ) THE KODUNGALLUR TOWN COOP BANK LTD HEAD OFFICE KODUNGALLUR 680 664 VS THE ASST COMMR OF INCOME TAX CIRCL E 2(1), TRISSUR ( APPELLANT) (RESPONDENT) PAN NO. AAABT2480R ASSESSEE BY SH MOHAN PULIKKAL REVENUE BY SH SHANTOM BOSE, CIT - DR DATE OF HEARING 11 TH JU LY 2016 DATE OF PRONOUNCEMENT 18 TH , JU LY 2016 ORDER PER GEORGE GEORGE K, JM; THIS APP EAL , AT THE INSTANCE OF THE ASSESSEE IS DIRECTED AGAINST THE CITS ORDER DATED 24.3.2015 PASSED U/S 263 OF THE I T ACT. THE RELEVANT ASSESSMENT YEAR IS 2010 - 11. 2 BRIEFLY STATED THE FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A COOPERATIVE BANK. FOR THE RELEVANT ASSESSMENT YEAR, THE ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED VIDE ORDER DATED 5.3.2013 FIXING THE TOTAL INCOME AT RS. 4,37,29,894/ - . T HE ASSESSEE HAD CLAIMED DEDUCTION IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS AMOUNTING TO R S. ITA NO . 408/C/2015 2 6,88,42,638/ - U/S 36(1)(VIIA)(A) OF THE ACT. WHEN THE ASSESSMENT U/S 143(3) WAS COMPLETED, DEDUCTION AMOUNTING TO RS. 35,45,667/ - WAS ALLOWED U/S 36(1)(VIIA)(A) OF THE ACT BEING 7.5% OF THE TOTAL INCOME AND THE BALANCE CLAIM BEING 10% OF AGGREGATE AVE RAGE ADVANCES MADE BY THE ASSESSEES RURAL BRANCHES WAS DISALLOWED BY THE AO ON THE GROUND THAT THE RURAL BRANCHES AS DECLARED BY THE BANK WERE NOT ACTUALLY RURAL BRANCHES AS DEFINED UNDER EXPLANATION (IA) TO SECTION 36(1)(VIIA) OF THE I T ACT. 3 SUBSE QUENT TO THE COMPLETION OF THE ASSESSMENT, THE CIT ISSUED NOTICE U/S 263 OF THE ACT (NOTICE DATED 12.3.2015) PROPOSING TO REVISE THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT. THE CIT, IN THE PROPOSED REVISION, WAS OF THE VIEW THAT ALLOWING DEDUCTION BY THE AO AMOUNTING TO RS. 35,45,667/ - BEING 7.5% OF THE TOTAL INCOME , IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE IN VIEW OF THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD VS CIT REPORTED IN 343 ITR 270 . A CCORDING TO THE COMMISSIONER, THE HONBLE APEX COURT HAD HELD THAT SECTION 36(1)(VIIA)(A) APPLIES ONLY TO RURAL ADVANCES AND SINCE THE ASSESSEES BANK WAS NOT HAVING ANY RURAL BRANCH, DEDUCTION ALLOWED U/S 36(1)(VIIA)(A) AMOUNT ING TO RS. 35,45,667/ - WAS NOT IN ORDER. TO THE PROPOSED REVISION, THE ASSESSEE HAD FILED ELABORATE OBJECTIONS, WHICH ARE REPRODUCED AT PARA 3 OF THE IMPUGNED ORDER. ITA NO . 408/C/2015 3 4 THE OBJECTION RAISED BY THE A SSESSEE WAS REJECTED BY THE CIT AND HE SET ASIDE THE ASSESSMENT ORDER PASSED U/S 1 43(3) OF THE A CT . THE CIT DIRECTED THE AO TO EXAMINE THE ISSUE OF DEDUCTION U/S 36(A)(VIIA)(A) AFRESH. THE RELEVANT FINDING OF THE CIT READS AS FOLLOWS: 4. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION MADE BY THE ASSESSEE. THE HONBLE SUPREME CO URT VIDE ORDER OF 17.2.2012 IN THE CASE OF CATHOLIC SYRIAN BANK TD VS CIT HAS HELD INDISPUTABLY, CLAUSE (VIIA)(A) OF SECTION 36(1) APPLIES ONLY TO RURAL ADVANCES> THE POSITION OF LAW IS VERY CLEAR. IN THIS CONTEXT, IT IS SEEN THAT THE AO HAS NOT EXAMINED ANY SUCH DETAILS TO ASCERTAIN AND CONFIRM THE RURAL ADVANCES. 5 SINCE THE ELIGIBILITY OF TH3 DEDUCTION U/S 36(1)(VIIA)(A) HAD NOT BEEN EXAMINED AS DISCUSSED ABOVE DURING THE SCRUTINY, I AM CONVINCED THAT THE ASSESSMENT ORDER U/S 143(3) DATED 5.3.2013 MA DE BY THE ASST COMMISSIONER OF INCOME TAX, CIRCLE 2 THRISSUR IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE I T ACT, 1961. THEREFORE, THE AFORESAID ORDER DATED 5.3.2013 IS SET ASIDE WITH DIRECTION TO EX AMINE THE ISSUE OF DEDUCTION U/S 36(1)(VIIA)(A) IN RESPECT OF PROVISION FOR BAD AND DOUBTFUL DEBTS AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY TO THE ASSESSEE. 5 THE ASSESSEE BEING AGGRIEVED IS IN APPEAL BEFORE US. THE LD COUNSE L FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE CIT. FURTHER, THE LD COUNSEL ARGUED THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE IN ITA NO.37 OF 2013 ( JUDGMENT DATED 24.8. 2012), WHICH IS IDENTICAL TO THE FACTS FOR THE CURRENT ASSESSMENT YEAR . 6 THE LD DR PRESENT WAS DULY HEARD. ITA NO . 408/C/2015 4 7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD (SUPRA) RELIED BY THE CIT WHILE INVOKING HIS REVISIONARY JURISDICTION DOES NOT APPLY TO THE FACTS OF THE PRESENT CASE . THE HONBLE SUPREME COURT HAD ESSENTIALLY CONSIDERED THE ISSUE WHETHER THE DEDUCTION AVAILABLE TO SCHEDULED BANKS UNDER CLAUS E (VII) OF SUB - SEC .( 1) OF SEC.36 OF THE ACT, IN RESPECT OF BAD DEBTS WRITTEN OFF SHALL BE LIMITED TO THE EXTENT THE SAID DEBTS EXCEED THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA). THE ASSESSMENTS RELATED TO THE ASSESSMENT YEAR 2002 - 03 AND PRIOR YEARS A ND THE HONBLE A PEX C OURT HAD CONSIDERED THE LAW WITH REFERENCE TO THE FACT SITUATION AND SOCIAL COMMITMENTS OF THE S CHEDULED BANKS AT THAT TIME . THE ASSESSEE HEREIN IS A CO - OPERATIVE BANK . THE COOPERATIVE BA NKS WAS INCLUDED IN THE CA TEGOR Y OF BENEFICIARIES UNDER CLAUSE ( VIIA ) B Y FINANCE ACT , 2007 WITH EFFECT FROM 01 . 04 . 2007. THEREFORE THE HONBLE APEX COURT , IN CATHOLIC SYRIAN BANK 'S CA S E , DID NOT HAVE THE OPPORTUNIT Y TO CONSIDER THE FACT SITUATION THAT W OULD HAVE PERSUADED THE LEGISLATURE TO INCLUDE CO - OPERATIVE BANKS ALSO IN THE CATEGORY OF BENEFICIARIES UNDER CLAUSE (VIIA) OF SUB - SEC.(1) OF SEC . 36 OF THE ACT . THE DEDUCTION PROVIDED IN THE FIR S T PART OF CLAUSE (VIIA)(A) OF 7 . 5 % OF THE TOTAL INCOME, HIT HERTO ENJOYED BY THE ASSESSEE SINCE TH E IN C LU S ION OF CO - OPERATI V E BANKS WITHIN THE AMBIT OF CLAUSE (VIIA)(A) BY FINANCE ACT , 2007 , IS UNCO N C ERN E D WITH ADVANCES MADE BY THE RURAL BRANCHES OF THE BANKS. A READING OF PARAGRAPH 27 OF THE J UDGMENT OF THE HONBL E APEX COURT WOULD SHOW ITA NO . 408/C/2015 5 THAT WHILE MAKING THE OBSERVATION ' INDISPUTABLY, CLAUSE (VIIA)(A) APPLIES ONLY TO RURAL ADVANCES , THE HONBLE APEX COURT WAS EXAMINING THE ISSUE IF THERE WOULD BE DOUBLE DEDUCTION OF ACTUAL BAD DEBTS WRITTEN OFF UNDER CLAUSE (VII) AND DEDUCTION IN RESPECT OF RURAL ADVANCES PROVIDED UNDER THE SECOND PART OF CLAUSE (VIIA) . THE HONBLE A PEX C OURT HAS NOT HELD THAT THE FIRST PART OF CLAUSE (VIIA) PROVIDING FOR DEDUCTION OF 7.5 % OF THE TOTAL INCOME APPLIES ONLY TO RURAL ADVANCES. T HE CB DT IN CLAUSE 5 OF ITS CIRCULAR NO . 464 DATED JULY 18, 1986 REFERRED TO BY THE HONBLE A PEX C OURT IN CATHOLIC SYRIAN BANK'S CASE MAKES IT VERY CLEAR THAT THE TWO DEDUCTIONS PROVIDED IN CLAUSE (VIIA)(A), VIZ. 7.5% OF THE TOTAL INCOME (COMPUTED BEFORE MAKING A NY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND 10 % OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES ARE DISTINCT AND INDEPENDENT . THE INTENTION OF THE LEGISLATURE WAS TO GIVE THE BENEFIT OF DEDUCTION OF 7.5% OF THE TOTAL INCOME TO THE SC H E DULED , NON - SCHEDULED AND CO - OPERATIVE BANKS UNDER CLAUSE (VIIA) WHILE A SIMILAR BENEFIT OF DED UCTION OF A SPECIFIED PERCENTAGE OF THE TOTAL INCOME WAS EXTENDED TO THE FOREIGN BANKS AND PUBLIC FINANCIAL INSTITUTIONS UNDER CLAUSES (VIIA) (B) AND (VIIA)(C) RE SPECTIVELY , APART FROM THE BENEFIT AVAILABLE TO THEM UNDER CLAUSE (VII). THE PROPOSAL TO DENY THE BENEFIT OF THE FIRST PART OF CLAUSE (VIIA)(A) TO THE ASSESSEE LINKING IT TO RURAL ADVANCES WOULD THEREFORE SUBVERT THE LEGISLATIVE INTENT . 8 FURTHER, THE HON BLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE, CITED ITA NO . 408/C/2015 6 SUPRA , HAS CONSIDERED AN IDENTICAL ISSUE. THE RELEVANT FINDING OF THE HONBLE JURISDICTIONAL HIGH COURT READS AS UNDER: 9. ADMITTEDLY, APPELLANTS/ASSESSEES ARE COOPERATIVE BANKS. WITH INTRODUCTI ON OF FINANCE ACT OF 2007, COMING INTO EFFECT FROM04.2007, ONE HAS TO UNDERSTAND WHAT WAS THE POSITION WAS PRIOR TO 1.4.2007 AND AFTER 1.4.2007. DURING THE RELEVANT ASSESSMENT YEAR, ADMITTEDLY THE APPELLANTS/ASSESSEES WERE NOT ENTITLED FOR ANY DEDUCTION PR OVIDED UNDER SECTION 80P OF THE AC T. PRIOR TO 1.4.2007, THEY WERE ENJOYING THE BENEFITS PROVIDED UNDER SECTION 80P. WITH THE INTRODUCTION OF FINANCE ACT 2007 WITH EFFECT FROM 1.4.2007, THEY COULD CLAIM DEDUCTIONS AS PROVIDED UNDER SECTION 367(1) OF THE AC T . WE ARE CONCERNED WITH SUB - CLAUSE(A) OF CLAUSE (VIIA) TO SECTION36(1). PRIOR TO FINANCE ACT OF 2007, COOPERATIVE BANK WAS NOT INCLUDED IN SUB - CLAUSE (A) SO FAR AS PROVISIONS FOR BAD AND DOUBTFUL DEBTS. WITH EFFECT FROM 1.4.2007, COOPERATIVE BANK WAS INCLU DED UNDER SUB CLAUSE (A) OF CLAUSE (VIIA) OF SECTION 36(1). IT IS FURTHER CLARIFIED THAT ONLY SUCH COOPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURE CREDIT SOCIETY, ETC., IS INCLUDED IN SUB CLAUSE (A) OF CLAUSE (VIIA). THE PROVISION IS A BENEFICIAL ONE. NO DOUBT, PLAIN READING OF MAIN SECTION 36(1) (VIIA)(A) AND EXPLANATION UNDER SAID SECTION PRESENT CERTAIN DIFFICULTIES, BUT SITUATION IS NOT WITHOUT POSSIBILITIES. THE OBJECT AND INTENTION OF THE LEGISLATURE IS TO BE UNDERSTOOD BY HARMONIOUS CONSTRUCTION OF THE PROVISIONS. THE POLICY WAS TO INCLUDE COOPERATIVE BANKS AS WELL, AS THEY COULD NOT TAKE SHELTER UNDER SECTION 80P OF THE INCOME TAX ACT ANY MORE. BY RESTRICTING THE SCOPE OF THE PROVISIONS, THE VERY PURPOSE OF INCLUSION OF COOPERATIVE BANK WOULD BE LO ST. SUB CLAUSE (A) CONSISTS OF TWO TYPES OF DEDUCTION. ONE REFERS TO DEDUCTION OF AN AMOUNT NOT EXCEEDING 67.5% OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA). SECTION ONE REFERS TO DEDUCTION OF AN AMOUNT NOT E XCEEDING10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY RULE BRANCHES OF SUCH BANK WHILE COMPUTING IN THE PRESCRIBED MANNER. SO FAR AS BENEFIT OF 7.5% OF THE TOTAL INCOME, THERE IS NO CONDITION THAT IT SHOULD BE IN RESPECT OF ANY RURAL BRANCH. ALL TYPES OF B ANKS DESCRIBED UNDER SUB CLAQUE (A) OF CLAUSE (VIIA) ARE ENTITLED TO SEEK DEDUCTION OF AN AMOUNT OF EXCEEDING 7.5% OF THE TOTAL INCOME. ONLY CONDITION IS THERE SHOULD BE A PROVISION FOR BAD AND DOUBTFUL DEBTS 9 IN VIEW OF THE AFORESAID REASONI NG AND THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE IN ASSESSEES OWN CASE CITED SUPRA, WE ARE OF THE VIEW THAT THE CIT IS NOT JUSTIFIED IN INVOKING HIS REVISIONARY JURISDICTION U/S 263 OF THE ACT AND THEREFORE, WE SET ASIDE THE SAME. IT IS ORDERED ACCORDINGLY. ITA NO . 408/C/2015 7 1 0 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF JULY 2016 . SD/ - SD/ - B P JAIN GEORGE GEORGE K (ACCOUNTANT MEMBER ) (JUDICIAL MEMBER ) COCHIN: DATED 18 TH JULY 2016 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT, 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN