AP Grameena Vikas Bank, Hyderabad V. ACIT, Circle-1, Warangal

ITA 427/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74732 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Assessee Lawyers: T UMAKANTH
• Keywords: General deduction; Depreciation; Business expenditure; Opportunity of being heard; Additional evidence; Bad and doubtful debts
• Section: 43B; 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO. 610/HYD/2013 ASSESSMENT YEAR: 2009-10 ASST. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE 1, WARANGAL VS. M/S ANDHRA PRADESH GRAMEENA VIKAS BANK, RESPONDENT WARANGAL (PAN AAAJA1351N) ITA NO. 427/HYD/2013 ASSESSMENT YEAR: 2009-10 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK, APPELLANT WARANGAL (PAN AAAJA1351N) VS. ASST. COMMISSIONER OF INCOME-TAX, RESP ONDENT CIRCLE 1, WARANGAL REVENUE BY : SHRI P. SOMA SEKHAR REDDY ASSESSEE BY : SHRI T. UMAKANTH DATE OF HEARING : 13/03/2014 DATE OF PRONOUNCEMENT : 13/03/2 014 ORDER PER P. MADHAVI DEVI, J.M.: BOTH THESE APPEALS ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT(A)-VI, HYDERABAD, DATED 31/01/2013 FOR THE AY 2009-10. 2 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANK ING. IT IS A REGIONAL RURAL BANK DEEMED TO BE A COOPERATIVE SOCI ETY FOR THE PURPOSE OF INCOME-TAX ACT, 1961 AND UNDER THE REGIO NAL RURAL BANKS ACT, 1976 IT IS IN THE BUSINESS OF BANKING. I T HAS FILED ITS RETURN OF INCOME FOR AY 2009-10 ON 30/09/2009 DECLA RING INCOME OF RS. 103,23,92,640/-. 3. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE AO MADE THE FOLLOWING DISALLOWANCES: 1. BROKEN PERIOD INTEREST AMOUNTING TO RS. 59,94,7 16 2. EXPENDITURE CLAIMED ON ACCOUNT OF AMORTISATION PROVIDED ON GOVT. SECURITIES OF RS. 20,98,99,736/- 3. EXPENDITURE CLAIMED ON ACCOUNT OF PROVISION FOR STAFF FRAUDS OF RS. 79,66,277/- 4. ACCRUED INTEREST ON NON PERFORMING ASSETS AMOUNT ING TO RS. 2,76,00,000/-. 5. PROVISION FOR GRAUTITY OF RS. 20,99,18,264/- AND , 6. CLAIM U/S 36(1)(VIIA) OF RS. 7,74,29,452/-. 4. THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), WHO DELETED THE ADDITIONS PERTAINING TO THE ITEMS MENTI ONED AT 1 TO 5 ABOVE WHILE HE CONFIRMED THE DISALLOWANCE IN RESPEC T OF THE ITEM AT 6 OF THE ABOVE. 5. AGAINST THE RELIEF GIVEN BY THE CIT(A) TO THE AS SESSEE, THE REVENUE IS IN APPEAL BEFORE US WHILE AGAINST TH E CONFIRMATION OF ADDITION BY THE CIT(A), THE ASSESSEE IS IN CROSS APPEAL BEFORE US. 6. AS REGARDS THE REVENUE APPEAL, THE LEARNED COUNS EL FOR THE ASSESSEE FILED A CHART BEFORE US STATING THAT A LL THE GROUNDS RAISED BY THE REVENUE ARE COVERED IN FAVOUR OF THE ASSESSEE BY 3 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK THE DECISION OF THE A BENCH OF ITAT, HYDERABAD IN ASSESSEES OWN CASE FOR THE AYS 2007-08 AND 2008-09 IN ITA NOS . 1121 AND 1459/HYD/2011, DATED 29/04/2011. A COPY OF THE SAID ORDER IS PLACED BEFORE US. 7. THE LEARNED DR SUPPORTED THE ORDER OF THE AO WHI LE THE LEARNED COUNSEL FOR THE ASSESSEE SUPPORTED THE ORDE R OF THE CIT(A) AND PLACED RELIANCE ON THE ORDER OF THE ITAT IN ASSESSEES OWN CASE CITED SUPRA. 8. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THEIR RIVAL CONTENTIONS, WE FIND THAT THE 1 ST GROUND OF APPEAL OF THE REVENUE IS GENERAL IN NATURE AND, HENCE, NEEDS NO ADJUDICATION. 9. AS REGARDS GROUND NO. 2 RELATING TO DISALLOWANCE OF EXPENDITURE CLAIM ON BROKEN PERIOD INTEREST IS CONC ERNED, WE FIND THAT THE ITAT AT PARAS 4 & 5 OF ITS ORDER HAS CONSI DERED THE ISSUE AT LENGTH AND HELD AS UNDER: 4. IN COURSE OF HEARING BEFORE THE CIT (A) THE A SSESSEE RELYING UPON VARIOUS JUDICIAL PRECEDENTS, SUBMITTED THAT HT M CATEGORY OF SECURITIES ARE NOT INVESTMENTS BUT STOCK IN TRADE O F THE ASSESSEE AND AS SUCH NO DISALLOWANCE OF THE BROKEN PERIOD IN TEREST CAN BE MADE. THE CIT (A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE AND RELYING UPON THE DECISION OF HONBLE K ERALA HIGH COURT IN CASE OF CIT VS. NEDUNGADI BANK LTD.(264 ITR 54 5) HELD THAT GOVERNMENT SECURITIES ACQUIRED BY THE ASSESSEE IN PURSUANCE OF PROVISIONS OF BANKING REGULATION ACT HAVE TO BE TRE ATED AS STOCK IN TRADE OF BUSINESS OF THE BANK. HENCE, THE BROKEN PERIOD INTEREST IS AN ADMISSIBLE DEDUCTION IN THE COMPUTATION OF TOTAL INCOME OF THE BANK UNDER THE HEAD PROFITS AND GAINS OF BUSINESS . ON THE AFORESAID CONCLUSION, THE CIT (A) DELETED THE ADDIT ION OF RS.83 LAKHS. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL ON RECORD. IT IS EVIDENT FROM THE ASSESSMENT 4 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK ORDER THAT THE ASSESSING OFFICER HAS DISALLOWED THE BROKEN PERIOD INTEREST BY HOLDING THE HTM CATEGORY OF SECURITIES AS INVESTMENT AND NOT STOCK IN TRADE OF THE ASSESSEE BY RELYING U PON BOARDS CIRCULAR NO.665 DATED 5-10-1993. THE ASSESSING OFFI CER HAS FURTHER RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N CASE OF CIT VS. VIJAYA BANK (187 ITR 541). HOWEVER, WE FIND T HAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF MUMBAI HIGH COURT IN CASE OF AMERICAN EXPRESS INTERNATIONAL BAN KING CORPORATION V/S. CIT (258 ITR 601) AND DECISION OF HONBLE KERALA HIGH COURT IN CASE OF CIT V/S. NEDUNGADI BANK L TD.,(264 ITR 545) WHEREIN IT HAS BEEN HELD THAT THE BROKEN PERIO D INTEREST IS AN ALLOWABLE DEDUCTION. THE CO-ORDINATE BENCH OF THIS TRIBUNAL FOLLOWING THE AFORESAID DECISIONS HAVE ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN CASE OF STATE BANK OF HYD ERABAD IN ITA NOS.578 AND 779/HYD/10 DATED 7-9-2012. FURTHER, TH E CONCLUSION ARRIVED AT BY THE ASSESSING OFFICER THAT THE HTM C ATEGORY OF SECURITIES ARE INVESTMENTS AND CANNOT BE CONSIDERED AS STOCK IN TRADE IS ALSO FOUND TO BE NOT THE CORRECT VIEW. TH E HONBLE AP HIGH COURT IN CASE OF SBH (151 ITR 703) HAS HELD THAT T HE AMOUNT REQUIRED TO BE KEPT IN INDIA AS PER SECTION 24 OF THE BANKING REGULATION ACT, 1949 IN THE FORM OF CASH, GOLD AND ENCUMBERED SECURITIES IS PART OF STOCK IN TRADE OF THE ASSESSE E. HENCE, IT CANNOT BE HELD THAT HTM CATEGORY OF SECURITIES IS NOT STOC K IN TRADE OF THE ASSESSEE. IN AFORESAID VIEW OF THE MATTER, WE UPHO LD THE CONCLUSION OF THE CIT (A) TO THE EFFECT THAT BROKEN PERIOD INTEREST IS AN ALLOWABLE DEDUCTION. ACCORDINGLY, WE DISMISS TH E GROUND RAISED BY THE REVENUE ON THIS ISSUE. 9.1 RESPECTFULLY FOLLOWING THE SAID DECISION OF THE ITAT, THIS GROUND OF APPEAL IS REJECTED. 10. 3 RD GROUND OF APPEAL OF REVENUE IS WITH REGARD TO THE DISALLOWANCE OF EXPENDITURE CLAIMED ON ACCOUNT OF A MORTIZATION PROVIDED ON GOVT. SECURITIES. THE STAND OF THE REVE NUE IS THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE DOES NOT COME W ITHIN THE AMBIT OF THE PROVISIONS OF SECTION 35D OF THE IT AC T. 10.1 WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) AT PARA 6 & 7 OF ITS ORDER, WHICH ARE AS UNDER: 5 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK 6. GROUND NO.3 RELATES TO DISALLOWANCE OF AMORTIS ATION OF GOVERNMENT SECURITIES AMOUNTING TO RS.19,14,62,383/ -. IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NO TED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.19,14,62,000/- TOWARDS AMORTISATION PROVIDED ON GOVERNMENT SECURITIES UNDE R THE HEAD OPERATING EXPENSES. IT WAS EXPLAINED BY THE ASS ESSEE THAT ALL THE SECURITIES FOR THE PURPOSE OF SLR ARE CLASSIFIED AS HELD TO MATURITY (HTM IN SHORT) AS PER THE ADVICE OF THE RBI. THE A SSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE BY O BSERVING THAT MERE CONFORMITY WITH THE ACCOUNTING PRACTICE ADVISE D BY THE RBI WOULD NOT QUALIFY FOR ANY ALLOWANCE UNDER THE PROVI SIONS OF IT ACT. HE WAS OF THE VIEW THAT THE CLAIM OF AMORTIZATION O F GOVERNMENT SECURITIES WAS INADMISSIBLE AS NO SPECIFIC PROVISIO N WARRANTING THE ALLOWABILITY OF SUCH A CLAIM WAS AVAILABLE IN THE A CT. HE FURTHER OBSERVED THAT THE COMPUTATION OF AMORTIZATION ITSEL F WAS INCORRECTLY DONE BY ADOPTING THE COUNT OF 365 DAYS PER YEAR AS AGAINST 360 DAYS ALLOWABLE. THE CIT (A) AFTER CONSIDERING THES E SUBMISSIONS OF THE ASSESSEE AND EXAMINING THE MATERIALS ON RECORD CAME TO HOLD THAT HTM CATEGORY CONSTITUTES STOCK IN TRADE OF THE ASSESSEE BANK. HE FURTHER HELD THAT THE METHOD ADOPTED BY THE ASSE SSEE FOR AMORTIZING THE PREMIUM IS AS PER THE ESTABLISHED AC COUNTING STANDARDS. HE FURTHER HELD THAT AS THE SECURITIES U NDER HTM CATEGORY IS HELD BY THE ASSESSEE AS STOCK IN TRADE, THE CLAIM FOR AMORTIZATION MADE BY THE ASSESSEE IS VALID. THE CI T (A) HOWEVER ACCEPTED THE VIEW OF THE ASSESSING OFFICER SO FAR A S THE CORRECTNESS OF THE COMPUTATION OF THE CLAIM MADE BY THE ASSESS EE IS CONCERNED BY RESTRICTING THE CLAIM TO RS.18,88,58,186/-. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL ON RECORD. AFTER PERUSING THE ORDER OF THE CIT (A), WE DO NOT FIND ANY INFIRMITY IN HIS VIEW. AS HAS BEEN HELD BY US IN THE EARLIER PART OF THIS ORDER (SUPRA), HTM C ATEGORY OF SECURITIES BEING STOCK IN TRADE, THE ASSESSEE IS EN TITLED TO CLAIM AMORTIZATION. HENCE, THE ORDER PASSED BY THE CIT ( A) IS UPHELD AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 10.2 RESPECTFULLY FOLLOWING THE SAID DECISION OF TH E ITAT, THIS GROUND OF APPEAL IS REJECTED. 11. GROUND NO. 4 RELATES TO THE DISALLOWANCE OF EXPENDITURE CLAIMED ON ACCOUNT OF PROVISION FOR STAFF FRAUDS BY THE ASSESSEE. THE STAND OF THE REVENUE IS THAT SUCH PROVISION IS NOT ALLOWABLE AS BUSINESS EXPENDITURE. WE FIND THAT THE TRIBUNAL HAS CONSIDERED 6 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK THIS ISSUE IN ASSESSEE IN ASSESSEES OWN CASE FOR T HE EARLIER ASSESSMENT YEAR (SUPRA) AT PARAS 8 TO 11, WHICH ARE EXTRACTED BELOW: 8. GROUND NO.4 RELATES TO DELETION OF AN ADDIT ION OF RS.46,45,087/- BEING PROVISION FOR STAFF FRAUDS. D URING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE A PROVISION OF RS.44,44,087/- TO WARDS STAFF FRAUD. IN RESPONSE TO THE QUERY MADE BY THE ASSESS ING OFFICER, THE ASSESSEE SUBMITTED THAT ALL THE ADVANCES WHICH HA VE BECOME BAD ON ACCOUNT OF FRAUD BY THE STAFF ARE TREATED AS LOS S AND ACCORDINGLY PROVISION HAS BEEN MADE. THE ASSESSING OFFICER H OWEVER REJECTED THE CONTENTIONS OF THE ASSESSEE BY OBSERVING THAT T HE PROVISION FOR STAFF FRAUDS COULD NOT BE EQUATED WITH THE PROVISIO N OF BAD AND DOUBTFUL DEBTS. HE WAS FURTHER OF THE VIEW THAT FR AUDS BY STAFF ARE NORMALLY NOT EASILY LET OFF AND THE AMOUNTS ARE REC OVERED, BUT APPROPRIATE ACTION IS INITIATED FOR RECOVERY OF SUC H LOSS FROM PAYMENTS DUE TO THEM. THE ASSESSING OFFICER WAS OF THE OPINION THAT SINCE THE ASSESSEE WAS NOT ABLE TO SHOW THAT THE AM OUNT SO RECOVERED WAS DULY ACCOUNTED FOR, THE CLAIM CANNOT BE ALLOWED. HE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE CIT (A). 9. ON APPEAL, THE CIT (A) AFTER CONSIDERING THE CONTENTIONS MADE ON BEHALF OF THE ASSESSEE WAS OF THE VIEW THAT STAF F FRAUDS ARE SIMILAR TO EMBEZZLEMENT BY AN EMPLOYEE AND THEREFOR E QUALIFIES AS AN ALLOWABLE EXPENDITURE U/S 37 OF THE ACT. THE CIT (A) FOLLOWING A DECISION OF INCOME-TAX APPELLATE TRIBUNAL, AMRITSAR BENCH IN CASE OF ITO VS. J & K BANK LTD., (95 ITD 141) ALLOWED THE C LAIM OF THE ASSESSEE. 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL ON RECORD. FROM THE ASSESSMEN T ORDER, IT IS CLEAR THAT THE ASSESSING OFFICER HAS NOT DISPUTED THE FACT THAT THERE IS LOSS TO THE BANK ON ACCOUNT OF STAFF FRAUD BUT H AS ASSUMED THAT THE ENTIRE AMOUNT COULD NOT HAVE BEEN LOST AND PA RT OF THE LOSS MUST HAVE BEEN RECOVERED, THE AMOUNT SO RECOVERED NEEDS TO BE ACCOUNTED FOR AS INCOME IF THE PROVISIONS CREATED F OR SUCH LOSS IS TO BE ALLOWED. HOWEVER, NO DISALLOWANCE CAN BE MADE ON PRESUMPTIONS. THE INCOME-TAX APPELLATE TRIBUNAL, AMRITSAR BENCH IN CASE OF ITO VS. J & K BANK LTD (SUPRA) AFTER TAK ING INTO CONSIDERATION THE DECISION OF HONBLE SUPREME COURT IN CASE OF BADRI DAS DAGA V/S. CIT (34 ITR 10) AND ASSO CIATED BANKING CORPN. OF INDIA LTD. V/S. CIT AIR 1965 (SC) 1188 AND KEEPING IN VIEW THE CBDTS CIRCULAR NO.35 DATED 24-11-1965 HEL D THAT THE LOSS BY EMBEZZLEMENT BY EMPLOYEES SHOULD BE TREATED AS I NCIDENTAL TO 7 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK BUSINESS AND THE SAME SHOULD BE ALLOWED AS DEDUCTIO N IN THE YEAR IN WHICH IT IS DISCOVERED. THE INCOME-TAX APPELLA TE TRIBUNAL, AMRITSAR BENCH FOLLOWING A DECISION OF HONBLE GUJA RAT HIGH COURT HELD THAT EMBEZZLEMENT LOSS BY AN EMPLOYEE SHOULD B E ALLOWED IN THE YEAR IN WHICH IT IS DISCOVERED BY THE ASSESSEE. 11. WE FIND FROM THE ORDER PASSED BY THE INCOME- TAX APPELLATE TRIBUNAL, AMRITSAR BENCH IN CASE OF ITO VS. J & K B ANK LTD (SUPRA) THAT THE ISSUE IS SQUARELY COVERED BY THE AFORESAID DECISION OF THE TRIBUNAL. THAT BESIDES CIRCULAR NO.35 DATED 24-11- 1965 OF CBDT ALSO CLARIFIES THAT THE LOSS TO EMBEZZLEMENT BY AN EMPLOYEE IS AN ALLOWABLE EXPENDITURE U/S 37 OF THE ACT. IN AFORES AID VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER O F THE CIT (A) IN ALLOWING THE EXPENDITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF STAFF FRAUD. HENCE, THIS GROUND RAISED BY THE REVEN UE IS DISMISSED. 11.1 RESPECTFULLY FOLLOWING THE SAID DECISION OF TH E TRIBUNAL, THIS GROUND OF APPEAL IS REJECTED. 12. AS REGARDS GROUND NO. 5 RELATING TO ADDITION MA DE BY THE AO TOWARDS ACCRUED INTEREST ON NON-PERFORMIN G ASSETS, WE FIND THAT THE TRIBUNAL HAS CONSIDERED THIS ISSUE IN ASSESSEES CASE AT PARAS 13 TO 17 OF ITS ORDER AND HAS HELD IT IN F AVOUR OF THE ASSESSEE. HOWEVER, WE FIND THAT THE TRIBUNAL HAS NO T CONSIDERED THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF SOUTHERN TECHNOLOGIES REPORTED IN 320 ITR 577 WHEREIN IT HAS BEEN HELD THAT THE RBI DIRECTIVES WERE ONLY IN THE CONTEXT OF PRESENTATION OF NPAS IN THE BALANCE SHEET AND THE BALANCE SHEET OF NBFC HAS NOTHING TO DO WITH THE TAXABLE INCOME, WHICH HAS TO BE COMPUTED AS PER THE PROVISIONS OF THE IT ACT. THOUGH THE DEC ISION OF THE HONBLE SUPREME COURT IS DATED 11/01/2010, THE SAME HAS NOT BEEN CONSIDERED BY THE TRIBUNAL AND, HENCE, THE FIN DING OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS 2007-08 AND 2008-09 CANNOT BE FOLLOWED. IN VIEW OF THE SAME, THIS GROUN D OF APPEAL OF THE REVENUE IS ALLOWED. 8 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK 13. GROUND NO. 6 RELATES TO DISALLOWANCE OF PROVISI ON OF GRATUITY. FOR MAKING THE DISALLOWANCE, THE AO CAME TO THE CONCLUSION THAT THE ASSESSEE DID NOT HAVE APPROVAL FOR MAINTAINING THE GRATUITY CONTRIBUTION FUND AND IF T HE PROVISION IS NOT MADE TOWARDS APPROVED GRATUITY FUND, THE PAYMEN T TOWARDS GRATUITY IS NOT TO BE ALLOWED U/S 40A(7) OF THE IT ACT. THE CIT(A) HAS DELETED THE ADDITION AFTER CONSIDERING THE CERT IFICATE OF REGISTRATION ISSUED BY IRDA AND RECEIPT SHOWING THE PAYMENT OF GRATUITY AMOUNT BEFORE FILING OF THE RETURN AS PER THE PROVISIONS OF SECTION 43B OF THE ACT. 14. THE REVENUE IS IN APPEAL AGAINST THE RELIEF GIV EN BY THE CIT(A). WE FIND THAT THIS ISSUE HAS ALSO ARISEN IN ASSESSEES OWN CASE IN EARLIER ASSESSMENT YEAR AND THE TRIBUNA L AT PARAS 18 TO 23 OF ITS ORDER IN ITA NO. 967/HYD/2011 HAS HELD AS UNDER: 18. THE ONLY DISPUTE IN THIS APPEAL OF THE ASSES SEE PERTAINING TO THE ASSESSMENT YEAR 2007-08 IS WITH REGARD TO DISA LLOWANCE OF PROVISION MADE FOR GRATUITY. 19. BRIEFLY THE FACTS RELATING TO THE ISSUE IN DISP UTE ARE, DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED PROVISION FOR GRATUITY OF AN A MOUNT RS.2,74,49,761/-. THE ASSESSING OFFICER WHEN ASKED THE ASSESSEE TO EXPLAIN WHY THE SAID AMOUNT SHOULD NOT BE DISAL LOWED U/S 40A (7) OF THE ACT, THE ASSESSEE IN ITS REPLY SUBMITTED THAT THE PROVISION HAS BEEN MADE ON THE BASIS OF ACTUARIAL VALUATION. IT WAS FURTHER STATED THAT THE ACTUAL PAYMENT WAS ALSO MADE ON 22- 5-2007 I.E., BEFORE THE DUE DATE OF FURNISHING THE RETURN OF INC OME, BY WAY OF CONTRIBUTION TO GROUP GRATUITY SCHEME OF SBI LIFE INSURANCE CO. LTD. THE ASSESSING OFFICER HOWEVER DID NOT ACCEPT THE E XPLANATION OF THE ASSESSEE AND DISALLOWED THE PROVISION MADE F OR GRATUITY BY OBSERVING THAT THE PROVISION IS REQUIRED TO BE DI SALLOWED U/S 40A(7) AS THE PAYMENT HAS NOT BEEN MADE TO ANY APPR OVED GRATUITY FUND. THE ASSESSEE CHALLENGED THE DISALLOWANCE IN THE APPEAL PREFERRED BEFORE THE CIT (A). 9 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK 20. IN COURSE OF HEARING BEFORE THE CIT(A), THE ASS ESSEE CONTENDED THAT THE OBSERVATION MADE BY THE ASSESSIN G OFFICER THAT GROUP GRATUITY OF SBI LIFE INSURANCE CO. LTD IS NOT AN APPROVED GRATUITY FUND, IS NOT CORRECT. THE ASSESSEE CONTEN DED THAT THE GROUP GRATUITY SCHEME IS AN APPROVED ONE HENCE, THE CONTRIBUTION MADE TO SUCH SCHEME IS ALLOWANCE AS DEDUCTION U/S 4 3B OF THE ACT AS THE PAYMENT WAS MADE BEFORE THE DUE DATE OF FUR NISHING THE RETURN OF INCOME. IT WAS FURTHER SUBMITTED THAT S BI LIFE INSURANCE IS REGISTERED WITH INSURANCE REGULATORY DEVELOPMENT AUTHORITY AND IS AUTHORIZED TO MANAGE GROUP GRATUITY SCHEME. I N SUPPORT OF SUCH CONVENTION, THE ASSESSEE SUBMITTED THE CERTIFI CATE OF RENEWAL OR REGISTRATION WITH IRDA. THE CIT (A) THOUGH ACCE PTED THE FACT THAT THE ACTUAL PAYMENT TO THE GROUP GRATUITY FUND WAS MADE ON 22-5-2007 BEFORE THE DUE DATE FOR FURNISHING THE RE TURN OF INCOME, HOWEVER BY OBSERVING THAT THE ASSESSEE, FOR THE FI RST TIME CLAIMED THAT THE GRATUITY FUND WAS AN APPROVED FUND AND THE EVIDENCE IN SUPPORT OF SUCH CLAIM WAS NOT PRODUCED BEFORE THE A SSESSING OFFICER, HE REJECTED THE CLAIM OF THE ASSESSEE. TH E CIT(A) FURTHER OBSERVED THAT AS THE EVIDENCE PRODUCED BEFORE HIM CONSTITUTES ADDITIONAL EVIDENCE AND SINCE THE ASSESSEE HAS NOT SUBMITTED ANY PETITION FOR ADMISSION OF AN ADDITIONAL EVIDENCE AS PER RULE 46A THE EVIDENCE PRODUCED BEFORE HIM CANNOT BE CONSIDERED. THE CIT(A) FURTHER HELD THAT A CLAIM OF DEDUCTION IS ALLOWABLE ONLY IF MADE ALONG WITH THE RETURN OF INCOME OR IN THE REVISED R ETURN, IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F GOETZ INDIA LIMITED V/S. CIT (284 ITR 23). THE CIT (A) HELD T HAT THE REVISED PLEA MADE IN THE APPEAL PROCEEDINGS IS NOT ENTERTAI NABLE AND ACCORDINGLY REJECTED THE CLAIM OF THE ASSESSEE. 21. THE LEARNED AR REITERATING HIS STAND TAKEN BEFORE THE FIRST APPELLATE AUTHORITY SUBMITTED THAT THE CIT(A ) WAS NOT JUSTIFIED IN REJECTING THE EVIDENCE SUBMITTED BEFOR E HIM BY OBSERVING THAT NO COGNIZANCE CAN BE TAKEN OF THE S AME AS NO PETITION IN TERMS OF RULE 46A WAS FILED FOR ADMITTI NG ADDITIONAL EVIDENCE. THE LEARNED AR SUBMITTED THAT GROUP GRA TUITY OF SBI LIFE INSURANCE IS AN APPROVED GRATUITY FUND AND HAD IT NOT BEEN AN APPROVED GRATUITY FUND THE AMOUNT COULD NO T HAVE BEEN COLLECTED FROM THE ASSESSEE. HE FURTHER SUBMI TTED A CERTIFICATE OF RENEWAL OF REGISTRATION WITH IRDA A ND RECEIPT IN SUPPORT OF PAYMENT MADE TO GRATUITY FUND OF SBI LIF E INSURANCE COMPANY AND SUBMITTED THAT THE CONTRIBUT ION HAVING BEEN MADE BEFORE THE DUE DATE OF FILING OF R ETURN OF INCOME, IT IS AN ALLOWABLE DEDUCTION U/S 43B OF THE ACT. THE LEARNED AR FURTHER SUBMITTED THAT FOR THE SUBSEQUEN T 10 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK ASSESSMENT YEAR I.E., ASSESSMENT YEAR 2008-09 BASIN G ON THE CERTIFICATE ISSUE BY IRDA STATING THAT THE GROUP IN SURANCE FUND MANAGED BY SBI LIFE INSURANCE COMPANY LIMITED IS AP PROVED GRATUITY FUND THE ASSESSING OFFICER HAS ALLOWED THE PROVISION FOR GRATUITY. IT WAS FURTHER SUBMITTED THAT FOR TH E ASSESSMENT YEAR 2009-10 THE CIT(A) ALLOWED THE GROUND RELATIN G TO DISALLOWANCE OF PAYMENT TO GROUP GRATUITY FUND MAN AGED BY THE SBI LIFE INSURANCE CO. LTD, APPROVED BY IRDA AND AUTHORIZED TO MANAGE GROUP GRATUITY SCHEME. A COPY OF THE ORDER DATED 31-1-2013 PASSED BY THE CIT(A) IN APPE AL NO.320/CIT(A)/TR/VJA/10-11 RELATING TO ASSESSMENT Y EAR 2009-10 WAS ALSO SUBMITTED BEFORE US BY THE LEARNED AR. 22. THE LEARNED DR, ON THE OTHER HAND, SUPPORTE D THE ORDER OF THE CIT (A). 23. WE HAVE CONSIDERED RIVAL SUBMISSIONS OF THE P ARTIES AND PERUSED THE MATERIAL ON RECORD. ON PERUSAL OF THE O RDER OF THE REVENUE AUTHORITIES IT IS TO BE SEEN THAT WHILE THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSEE O N THE GROUND THAT THE FUND TO WHICH CONTRIBUTION WAS MADE IS NO T AN APPROVED GRATUITY FUND, THE CIT(A) HAS REJECTED THE CLAIM OF THE ASSESSEE BY OBSERVING THAT THE EVIDENCE PRODUCE D FOR THE FIRST TIME BEFORE HIM COULD NOT BE TAKEN COGNIZANCE OF AS THERE WAS NO PETITION FOR ADMISSION OF ADDITIONAL EVIDEN CE AS PER RULE 46A OF IT RULES. THUS, THE CIT (A) REJECTED THE CLAIM OF THE ASSESSEE AT THE THRESHOLD WITHOUT LOOKING INTO THE EVIDENCE PRODUCED BEFORE HIM. HOWEVER, FACT REMAINS THAT TH E ASSESSEE HAS SUBMITTED CERTAIN DOCUMENTS IN SUPPORT OF HIS CLAIM THAT THE GROUP GRATUITY SCHEME OF THE SBI LIFE INSURANCE COMPANY IS AN APPROVED GRATUITY FUND AND IT IS ALSO A FACT ON RECORD THAT THE PAYMENT TO THE SAID FUND WAS MADE B EFORE THE DUE DATE OF SUBMISSION OF RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR. IN AFORESAID VIEW OF THE MATTER, A SSESSEES CLAIM IS REQUIRED TO BE EXAMINED. THEREFORE, CONSI DERING THE FACT THAT THE EVIDENCE PRODUCED BY THE ASSESSEE WER E NOT CONSIDERED BY THE REVENUE AUTHORITIES WHILE DISALLO WING THE CLAIM OF THE ASSESSEE, WE REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE THE ISSUE AF RESH AFTER TAKING INTO ACCOUNT ALL THE EVIDENCES AVAILABLE ON RECORD AND FURTHER EVIDENCES THAT MAY BE PRODUCED BY THE ASSES SEE 11 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK BEFORE HIM. WE DIRECT THE ASSESSING OFFICER TO AFFO RD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE BEFORE DECIDING THE ISSUE. 14.1 WE FIND THAT THE TRIBUNAL HAS REMITTED THE MAT TER BACK TO THE FILE OF THE AO TO CONSIDER THE EVIDENCE FILED BY THE ASSESSEE, SUCH AS, CERTIFICATE ISSUED BY THE IRDA A ND THEREAFTER DECIDE THE ISSUE. BUT, IN THE RELEVANT AY THE ASSE SSEE HAS FILED COPY OF CERTIFICATE BEFORE THE CIT(A) AND THE CIT(A ) HAS ALLOWED THE CLAIM OF THE ASSESSEE AFTER CONSIDERING THE EVI DENCE FILED BY THE ASSESSEE. THEREFORE, WE DO NOT SEE ANY REASON T O REMIT THE ISSUE BACK TO THE FILE OF THE AO FOR THE RELEVANT A Y AND THE ORDER OF THE CIT(A) IS CONFIRMED. THIS GROUND, ACCORDINGL Y, IS REJECTED. 15. IN THE RESULT, THE REVENUES APPEAL IS PA RTLY ALLOWED. 16. COMING TO THE CROSS APPEAL OF THE ASSESSEE, ONLY GROUND RAISED HEREIN IS AGAINST THE CONFIRMATION OF DISALL OWANCE OF PROVISION FOR SME ADVANCES. 17. THE FACTS RELATING TO THIS ISSUE ARE THAT T HE AO OBSERVED THAT THE ASSESSEE HAD MADE A PROVISION IN THE P&L A /C UNDER THE HEAD PROVISIONS AND CONTINGENCIES AND BREAK-UP OF THE SAME WAS GIVEN AS UNDER: I) TOWARDS MUTUAL FUND OF RS. 10,93,55,000/- II) PROVISION FOR SME ADVANCES RS. 89,65,055/- 17.1 THE AO OBSERVED THAT SME ADVANCE IS A SME STANDARD ADVANCE BUT AS PER THE INCOME-TAX ACT, NO PROVISION SHOULD BE ALLOWED. HE ACCORDINGLY DISALLOWED THE TO TAL AMOUNT OF RS. 11,83,20,000/-. THE ASSESSEE PREFERRED AN APPEA L BEFORE THE CIT(A) CONTENDING THAT WHEN THERE IS NO SPECIFIC PR OVISION UNDER THE IT ACT, 1961, THE TAX LIABILITY OF CERTAIN SUMS HAVE TO BE 12 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK DECIDED IN ACCORDANCE WITH THE ACCOUNTING PRACTICE. IT WAS ALSO SUBMITTED THAT THE PROVISION FOR DEPRECIATION ON MU TUAL FUNDS IS TOWARDS DEPRECIATION ON NON-SLR INVESTMENTS UNDER T HE CATEGORY OF AVAILABLE FOR SALE AND SHOULD BE DEBITED TO THE P&L A/C AND ANY APPRECIATION SHOULD BE TAKEN TO UNREALIZED APPRECIA TION ACCOUNT AS PER THE RBI GUIDELINES AND ACCORDING TO THE PRIN CIPLES LAID DOWN IN AS-13 ISSUED BY THE ICAI. THE CIT(A), HOWEV ER, CONFIRMED THE DISALLOWANCE MADE BY THE AO. 17.2 SIMILARLY, AS REGARDS THE PROVISION FOR SME AD VANCE, THE CIT(A) HELD THAT SME ADVANCES DO NOT FALL IN TH E CATEGORY OF RURAL ADVANCES, THEREFORE, PROVISION FOR SME ADVANC ES, IS NOT ELIGIBLE FOR DEDUCTION. HE, ACCORDINGLY, CONFIRMED THE SAID DISALLOWANCE ALSO. 18. AGGRIEVED, THE ASSESSEE IS IN CROSS APPEAL BEFO RE US AGAINST THE CONFIRMATION OF THE DISALLOWANCE OF PRO VISION FOR SME ADVANCES AMOUNTING TO RS. 89,65,000/- ONLY. 19. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC S YRIAN BANK VS. CIT, 343 ITR 270 (SC) AND IN THE CASE OF VIJAYA BANK, 323 ITR 166 (SC). HE ALSO PLACED RELIANCE UPON UNREPORT ED DECISION OF THE ITAT, CALCUTTA BENCH IN THE ALLAHABAD BANK VS. DCIT IN ITA NO. 1349/CAL./2009, ORDER DATED 16/05/2012. 20. THE DR SUPPORTED THE ORDER OF THE CIT(A). 21. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED JUDICIAL PRECEDENTS ON THE ISSUE, WE FIND THAT THE HONBLE 13 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK L TD (SUPRA) HAS HELD AS FOLLOWS: 60. THE POINT TO BE HIGHLIGHTED IS THAT IN CASE OF BANKS, BY WAY OF INCENTIVE, A PROVISION FOR BAD AND DOUBTFUL DEBT IS GIVEN THE BE NEFIT OF DEDUCTION, HOWEVER, SUBJECT TO THE CEILING PRESCRIBED AS STATED ABOVE. LASTLY, THE PROVISION FOR NPA CREATED BY A SCHEDULED BANK IS ADDED BACK AND ONLY THEREAFTER DEDUCTION IS MADE PERMISSIBLE UNDER SECTION 36(1)(VII-A) AS CLAI MED." 30. THE SCOPE OF THE PROVISO TO CLAUSE (VII) OF SEC TION 36(1) HAS TO BE ASCERTAINED FROM A CUMULATIVE READING OF THE PROVIS IONS OF CLAUSES (VII), (VIIA) OF SECTION 36(1) AND CLAUSE (V) OF SECTION 3 6(2) AND ONLY SHOWS THAT A DOUBLE BENEFIT IN RESPECT OF THE SAME DEBT I S NOT GIVEN TO A SCHEDULED BANK. A SCHEDULED BANK MAY HAVE BOTH URBA N AND RURAL BRANCHES. IT MAY GIVE ADVANCES FROM BOTH BRANCHES W ITH SEPARATE PROVISION ACCOUNTS FOR EACH. 31. IT WAS NEITHER IN DISPUTE EARLIER, NOR DISPUTE BEFORE US, THAT THE ASSESSEE BANK IS TWO SEPARATE ACCOUNTS, ONE BEING A PROVISION FOR BAD AND DOUBTFUL DEBTS OTHER THAN PROVISIONS FOR BA D DEBTS IN RURAL BRANCHES AND ANOTHER PROVISION ACCOUNT FOR BAD DEBT S IN RURAL BRANCHES FOR WHICH SEPARATE ACCOUNTS ARE MAINTAINED . THIS FACT IS EVINCED BY THE ENTRIES IN THE PROFIT AND LOSS ACCOU NT, BALANCE SHEET AND BREAK UP DETAILS. WE NEED NOT DELIBERATE THIS ASPEC T WITH REFERENCE TO RECORDS AT ANY GREATER LENGTH AS THIS IS NOT A MATT ER IN ISSUE BEFORE US. IT WAS CONTENDED ON BEHALF OF THE REVENUE THAT THE REVENUE IS ONLY CONCERNED WITH THE ASSESSEE AS A SINGLE UNIT AND NO T WITH HOW MANY SEPARATE ACCOUNTS ARE BEING MAINTAINED BY THE ASSES SEE AND UNDER WHAT ITEMS. THE DEPARTMENT, THEREFORE, WOULD ASSESS AN ASSESSEE WITH REFERENCE TO A SINGLE ACCOUNT MAINTAINED IN TH E HEAD OFFICE OF THE CONCERNED BANK. THIS, ACCORDING TO THE LEARNED COUN SEL APPEARING FOR THE DEPARTMENT, WOULD FURTHER SUBSTANTIATE THE ARGU MENT OF THE DEPARTMENT THAT THE INTERPRETATION GIVEN BY THE FUL L BENCH OF THE HIGH COURT IS THE CORRECT INTERPRETATION OF SECTION 36(1 )(VII). THIS ARGUMENT HAS TO BE REJECTED, BEING WITHOUT MERIT. 32. IN THE NORMAL COURSE OF ITS BUSINESS, AN ASSESS EE BANK IS TO MAINTAIN DIFFERENT ACCOUNTS FOR THE RURAL DEBTS FOR NON- RURAL/URBAN DEBTS. IT IS OBVIOUS THAT THE BRANCHES IN THE RURAL AREAS WOULD PRIMARILY BE DEALING WITH RURAL DEBTS WHILE THE URBAN BRANCHE S WOULD DEAL WITH COMMERCIAL DEBTS. MAINTENANCE OF SUCH SEPARATE ACCO UNTS WOULD NOT ONLY BE A MATTER OF MERE CONVENIENCE BUT WOULD BE T HE REQUIREMENT OF ACCOUNTING STANDARDS. 33. IT IS CONTENDED, AND RIGHTLY SO, ON BEHALF OF T HE ASSESSEE BANK THAT UNDER LAW, IT IS OBLIGED TO MAINTAIN ACCOUNTS WHICH WOULD CORRECTLY DEPICT ITS STATEMENT OF AFFAIRS. THIS OBLIGATION AR ISES IMPLICITLY FROM THE 14 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK REQUIREMENTS OF THE ACT AND CERTAINLY UNDER THE MAN DATE OF ACCOUNTING STANDARDS. 34. INTER ALIA, FOLLOWING ARE THE REASONS THAT WOUL D FULLY SUPPORT THE VIEW THAT A BANK SHOULD MAINTAIN THE ACCOUNTS WITH SEPARATE ITEMS FOR ACTUAL BAD AND IRRECOVERABLE DEBTS AS WELL AS PROVI SION FOR SUCH DEBTS. IT COULD, FOR VALID REASONS, HAVE RURAL ACCOUNTS MO RE DISTINCT FROM THE URBAN, COMMERCIAL ACCOUNTS. (A) IT IS OBLIGATORY UPON EACH BANK TO ENSURE THAT THE ACCOUNTS REPRESENT THE CORRECT STATEMENT OF AFFAIRS OF THE B ANK. (B) MAINTAINING THE COMMON ACCOUNT MAY RESULT IN OV ER STATING THE PROFITS OR THE PROFITS WILL SHOOT UP WHICH WOULD RE SULT IN ACCRUING OF LIABILITIES NOT DUE. (C) ACCOUNTING STANDARD (AS) 2 9, ISSUED IN 2003, WHICH CONCERNS TREATMENT OF `PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS'. UNDER THE HEAD `USE OF PROVISIO NS', CLAUSES 53 AND 54 STATE AS UNDER:- "53. A PROVISION SHOULD BE USED ONLY FOR EXPENDITURES FOR WHICH THE PROVISION WAS ORIGINALLY RECOGNISED. 54. ONLY EXPENDITURES THAT RELATE TO THE ORIGINAL P ROVISION ARE ADJUSTED AGAINST IT. ADJUSTING EXPENDITURES AGAINST A PROVIS ION THAT WAS ORIGINALLY RECOGNISED FOR ANOTHER PURPOSE WOULD CONCEAL THE IM PACT OF TWO DIFFERENT EVENTS." 35. THE ABOVE CLAUSES JUSTIFY MAINTENANCE OF DISTIN CT AND DIFFERENT ACCOUNTS. 36. MERELY BECAUSE THE DEPARTMENT HAS SOME APPREHEN SION OF THE POSSIBILITY OF DOUBLE BENEFIT TO THE ASSESSEE, THIS WOULD NOT BY ITSELF BE A SUFFICIENT GROUND FOR ACCEPTING ITS INTERPRETATIO N. FURTHERMORE, THE PROVISIONS OF A SECTION HAVE TO BE INTERPRETED ON T HEIR PLAIN LANGUAGE AND COULD NOT BE INTERPRETED ON THE BASIS OF APPREH ENSION OF THE DEPARTMENT. THIS COURT, IN THE CASE OF VIJAYA BANK V. COMMISSIONER OF INCOME TAX & AMP; ANR. [(2010) 5 SCC 416], HELD THAT UNDER THE ACCOUNTING PRACTICE, THE ACCOUNTS OF THE RURAL BRAN CHES HAVE TO TALLY WITH THE ACCOUNTS OF THE HEAD OFFICE. IF THE REPAID AMOUNT IN SUBSEQUENT YEARS IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT OF THE HEAD OFFICE, WHICH IS WHAT ULTIMATELY MATTERS, THEN THERE WOULD BE A MISMATCH BETWEEN THE RURAL BRANCH ACCOUNTS AND THE HEAD OFFICE ACCOUNTS. THEREFORE, IN ORDER TO PREVENT SUCH MISMA TCH AND TO BE IN CONFORMITY WITH THE ACCOUNTING PRACTICE, THE BANKS SHOULD MAINTAIN SEPARATE ACCOUNTS. OF COURSE, ALL ACCOUNTS WOULD UL TIMATELY GET MERGED INTO THE ACCOUNT OF THE HEAD OFFICE, WHICH W ILL ULTIMATELY REFLECT ONE ACCOUNT (BALANCE SHEET), THOUGH CONTAINING DIFF ERENT ITEMS. 37. ANOTHER EXAMPLE THAT WOULD SUPPORT THIS VIEW IS THAT, A BANK CAN WRITE OFF A LOAN AGAINST THE ACCOUNT OF `A' ALONE W HERE IT HAS ADVANCED THE LOAN TO PARTY `A'. IT CANNOT WRITE OFF SUCH LOA N AGAINST THE ACCOUNT OF 15 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK `B'. SIMILARLY, A LOAN ADVANCED UNDER THE RURAL SCH EMES CANNOT BE WRITTEN OFF AGAINST AN URBAN OR A COMMERCIAL LOAN B Y THE BANK IN THE NORMAL COURSE OF ITS BUSINESS. 38. THE FULL BENCH OF THE KERALA HIGH COURT EXPRESS ED THE VIEW THAT THE LEGISLATURE DID NOT MAKE ANY DISTINCTION BETWEE N PROVISIONS CREATED IN RESPECT OF ADVANCES BY RURAL BRANCHES AN D ADVANCES BY OTHER BRANCHES OF THE BANK. IT ALSO RETURNED A FIND ING WHILE PLACING EMPHASIS ON THE PROVISO TO SECTION 36(1)(VII), READ WITH CLAUSE (V) OF SECTION 36(2) OF THE ACT THAT THE INTERPRETATION GI VEN BY A DIVISION BENCH OF THAT COURTS IN THE CASE OF SOUTH INDIAN BA NK (SUPRA) WAS NOT A CORRECT ENUNCIATION OF LAW, INASMUCH AS THE SAME WOULD LEAD TO DOUBLE DEDUCTION. IT TOOK THE VIEW THAT IN A CLAIM OF DEDUCTION OF BAD DEBTS WRITTEN OFF IN NON-RURAL/URBAN BRANCHES IN TH E PREVIOUS YEAR, BY VIRTUE OF PROVISO TO SECTION 36(1)(VII), THE BANKS ARE ENTITLED TO CLAIM DEDUCTION OF SUCH BAD DEBTS ONLY TO THE EXTENT IT E XCEEDS THE PROVISION CREATED FOR BAD OR DOUBTFUL RURAL ADVANCES UNDER CL AUSE (VIIA) OF SECTION 36(1) OF THE ACT. WE ARE UNABLE TO PERSUADE OURSELVES TO CONTRIBUTE TO THIS REASONING AND STATEMENT OF LAW. 39. FIRSTLY, THE FULL BENCH IGNORED THE SIGNIFICANT EXPRESSION APPEARING IN BOTH THE PROVISO TO SECTION 36(1)(VII) AND CLAUS E (V) OF SECTION 36(2), I.E., `ASSESSEE TO WHICH CLAUSE (VIIA) OF SUB- SECT ION (1) APPLIES'. IN OTHER WORDS, IF THE CASE OF THE ASSESSEE DOES NOT F ALL UNDER SECTION 36(1)(VIIA), THE PROVISO/LIMITATION WOULD NOT COME INTO PLAY. 40. IT IS USEFUL TO NOTICE THAT IN THE PROVISO TO S ECTION 36(1)(VII), THE EXPLANATION TO THAT SECTION, SECTION 36(1)(VIIA) AN D 36(2)(V), THE WORDS USED ARE `PROVISION FOR BAD AND DOUBTFUL DEBTS' WHI LE IN THE MAIN PART OF SECTION 36(1)(VII), THE LEGISLATURE HAS INTENTIONAL LY NOT USED SUCH LANGUAGE. THE PROVISO TO SECTION 36(1)(VII) AND SEC TIONS 36(1)(VIIA) AND 36(2)(V) HAVE TO BE READ AND CONSTRUED TOGETHER . THEY FORM A COMPLETE SCHEME FOR DEDUCTIONS AND PRESCRIBE THE EX TENT TO WHICH SUCH DEDUCTIONS ARE AVAILABLE TO A SCHEDULED BANK I N RELATION TO RURAL LOANS ETC., WHEREAS SECTION 36(1)(VII) DEALS WITH G ENERAL DEDUCTIONS AVAILABLE TO A BANK AND EVEN NON- BANKING BUSINESSE S UPON THEIR SHOWING THAT AN ACCOUNT HAD BECOME BAD AND WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR, SATISFYING THE REQUIREMENTS CONTEMPLATED IN THAT BE HALF UNDER SECTION 36(2). THE PROVISIONS OF SECTION 36(1)(VII) OPERATE IN THEIR OWN FIELD AND ARE NOT RESTRICTED BY THE LIMITATIONS OF SECTION 36 (1)(VIIA) OF THE ACT. IN ADDITION TO THE REASONS AFORE-STATED, WE ALSO APPRO VE THE VIEW TAKEN BY THE SPECIAL BENCH OF ITAT AND THE DIVISION BENCH OF THE KERALA HIGH COURT IN THE CASE OF SOUTH INDIAN BANK (SUPRA). 41. TO CONCLUDE, WE HOLD THAT THE PROVISIONS OF SEC TIONS 36(1)(VII) AND 36(1)(VIIA) OF THE ACT ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTION AND OPERATE IN THEIR RESPECTIVE FIELDS. THE BAD DEB TS WRITTEN OFF IN DEBTS, OTHER THAN THOSE FOR WHICH THE PROVISION IS MADE UNDER CLAUSE 16 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK (VIIA), WILL BE COVERED UNDER THE MAIN PART OF SECT ION 36(1)(VII), WHILE THE PROVISO WILL OPERATE IN CASES UNDER CLAUSE (VII A) TO LIMIT DEDUCTION TO THE EXTENT OF DIFFERENCE BETWEEN THE DEBT OR PART T HEREOF WRITTEN OFF IN THE PREVIOUS YEAR AND CREDIT BALANCE IN THE PROVISI ON FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA). TH E PROVISO TO SECTION 36(1)(VII) WILL RELATE TO CASES COVERED UND ER SECTION 36(1)(VIIA) AND HAS TO BE READ WITH SECTION 36(2)(V) OF THE ACT . THUS, THE PROVISO WOULD NOT PERMIT BENEFIT OF DOUBLE DEDUCTION, OPERA TING WITH REFERENCE TO RURAL LOANS WHILE UNDER SECTION 36(1)(VII), THE ASSESSEE WOULD BE ENTITLED TO GENERAL DEDUCTION UPON AN ACCOUNT HAVIN G BECOME BAD DEBT AND BEING WRITTEN OFF AS IRRECOVERABLE IN THE ACCOU NTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THIS, OBVIOUSLY, WOULD BE S UBJECT TO SATISFACTION OF THE REQUIREMENTS CONTEMPLATED UNDER SECTION 36(2 ). 42. CONSEQUENTLY, WHILE ANSWERING THE QUESTION IN F AVOUR OF THE ASSESSEE, WE ALLOW THE APPEALS OF THE ASSESSEES AND DISMISS THE APPEALS PREFERRED BY THE REVENUE. FURTHER, WE DIREC T THAT ALL MATTERS BE REMANDED TO THE ASSESSING OFFICER FOR COMPUTATIO N IN ACCORDANCE WITH LAW, IN LIGHT OF THE LAW ENUNCIATED IN THIS JU DGMENT. 21.2 WE FIND THAT THE ISSUE BEFORE US NEEDS RECON SIDERATION BY THE AUTHORITIES BELOW IN ACCORDANCE WITH THE DECISI ON OF THE APEX COURT. THEREFORE, WE REMAND THE ISSUE TO THE FILE O F THE AO TO RECONSIDER THE ISSUE AS DIRECTED ABOVE AFTER GIVING THE ASSESSEE A FAIR OPPORTUNITY OF HEARING. THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 22. TO SUM UP, APPEAL OF THE REVENUE IN ITA NO . 610/HYD/2013 IS PARTLY ALLOWED AND APPEAL OF THE AS SESSEE IN ITA NO. 427/HYD/13 IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 13 TH MARCH, 2014. SD/- SD/- (CHANDRA POOJARI) (P. MADHAV I DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 13/03/2014 KV 17 610 & 427/HYD/2013 M/S ANDHRA PRADESH GRAMEENA VIKAS BANK COPY TO:- 1) ACIT, CIRCLE 1, HYDERABAD. 2) M/S ANDHRA PRADESH GRAMMEENA VIKAS BANK, 2-5-8/1, OLD BUS DEPOT ROAD, RAMNAGAR, HANUMKONDA, WARANGAL. 3) CIT(A)-VI, HYDERABAD 4) THE CIT-VI, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A. T., HYDERABAD.