ACIT,Cir-I, Kolhapur, Kolhapur V. Warana Sahakar Bank Ltd., Kolhapur

ITA 447/PUN/2012

• Counselvise Citation: 44724514 RSA 2012
• Duration Of Justice: 2 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 02-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Assessee Lawyers: SUS HANT PHADNIS
• Keywords: Depreciation; Question of law; Bad and doubtful debts; Revised return
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.240/PN/2012 (ASSESSMENT YEAR : 2008-09) SHRI WARANA SAHAKARI BANK LTD., WARANA NAGAR, TAL. PANHALA, DIST. KOLHAPUR. C/O S.V. PHADNIS, C.A./ SUSHANT S. PHADNIS, 613 E WARD, PHADNIS CHAMBERS, SHAHUPURI, 1 ST LANE, KOLHAPUR. PAN : AAAAS1033L . APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 1, KOLHAPUR. . RESPONDENT ITA NO.447/PN/2012 (ASSESSMENT YEAR : 2008-09) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 1, KOLHAPUR. . APPELLANT VS. SHRI WARANA SAHAKARI BANK LTD., A/P WARANA NAGAR, TAL. PANHALA, DIST. KOLHAPUR. PAN : AAAAS1033L . RESPONDENT ASSESSEE BY : MR. SUSHANT PHADNIS DEPARTMENT BY : MR. MUKESH JHA DATE OF HEARING : 27-08-2014 DATE OF PRONOUNCEMENT : 28-08-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED ARE CROSS-APPEALS PREFERRED BY THE AS SESSEE AND THE REVENUE AND SINCE THEY INVOLVE A COMMON ISSUE THE S AME HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEIN G PASSED FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO.240/PN/2012 ITA NO.447/PN/2012 2. BOTH THE CAPTIONED CROSS-APPEALS ARE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), KOLHAPUR DATE D 20.12.2011 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 31.12.2010 PAS SED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2008-09. 3. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE AN D THE ONLY ISSUE RAISED IN THE REVENUES APPEAL RELATES TO THE DEDUCTION CL AIMED BY THE ASSESSEE U/S 36(1)(VIIA) OF THE ACT WITH REGARD TO THE PROVISION TOWARDS BAD AND DOUBTFUL DEBTS. THE ASSESSEE HAD CLAIMED TOTAL DEDUCTION U/ S 36(1)(VIIA) OF THE ACT OF RS.1,20,78,000/- WHICH WAS RESTRICTED BY THE ASSESS ING OFFICER TO A SUM OF RS.72,00,000/- REPRESENTING ACTUAL AMOUNT OF PROVIS ION MADE IN THE PROFIT & LOSS ACCOUNT FOR BAD AND DOUBTFUL DEBTS. THE CIT(A ) HAS FURTHER ALLOWED ASSESSEES CLAIM TO THE EXTENT OF RS.33,78,000/- AN D ACCORDINGLY, ASSESSEE IS IN APPEAL AGGRIEVED BY THE ORDER OF THE CIT(A) IN S USTAINING DISALLOWANCE TO THE EXTENT OF RS.15,00,000/-. PER CONTRA, REVENUE IS IN APPEAL ASSAILING THE ORDER OF THE CIT(A) IN ALLOWING ASSESSEES CLAIM FO R A SUM OF RS.33,78,000/-. SINCE THE ISSUE RELATES TO ASSESSEES CLAIM U/S 36( 1)(VIIA) OF THE ACT, TWO CROSS-GROUNDS ARE BEING TAKEN-UP TOGETHER. 4. IN BRIEF, THE RELEVANT FACTS ARE THAT ASSESSEE I S A CO-OPERATIVE BANK ENGAGED IN THE BUSINESS OF BANKING. IN TERMS OF SE CTION 36(1)(VIIA) OF THE ACT, ASSESSEE IS ENTITLED TO CLAIM A DEDUCTION IN RESPEC T OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE ON ACCOUNT OF AGGREGATE AVE RAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK. THE SECTION PROVI DES THAT SUCH DEDUCTION SHALL NOT EXCEED 7.5% OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI-A OF THE ACT) AND AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MAD E BY THE RURAL BRANCHES OF SUCH BANK. IN TERMS OF THE SAID SECTIO N 36(1)(VIIA) OF THE ACT, ITA NO.240/PN/2012 ITA NO.447/PN/2012 ASSESSEE BEING A CO-OPERATIVE BANK, WORKED OUT THE DEDUCTION AT RS.1,20,78,000/- AND CLAIMED THE SAME IN THE RETURN OF INCOME. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NO TED THAT AS AGAINST THE CLAIM OF DEDUCTION OF RS.1,20,78,000/-, ASSESSEE HA D MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS OF ONLY RS.72,00,000/- IN TH E PROFIT & LOSS ACCOUNT. FOR THE SAID REASON, THE ASSESSING OFFICER RESTRICT ED THE DEDUCTION U/S 36(1)(VIIA) OF THE ACT TO THE EXTENT OF THE PROVISI ON FOR BAD AND DOUBTFUL DEBTS MADE IN PROFIT & LOSS ACCOUNT I.E. RS.72,00,000/- A ND THE BALANCE OF RS.48,78,000/- WAS DISALLOWED. 5. THE CIT(A) CONSIDERED THAT A FURTHER SUM OF RS.3 3,78,000/- WAS ALSO ALLOWABLE BECAUSE ACCORDING TO HIM THE PROVISION MA DE BY THE ASSESSEE BY DEBITING THE AFORESAID SUM TO THE APPROPRIATION ACC OUNT BELOW THE CURRENT YEARS PROFIT IN THE PROFIT & LOSS ACCOUNT TANTAMOU NTS TO CREATION OF A PROVISION FOR BAD AND DOUBTFUL DEBTS WITHIN THE MEANING OF SE CTION 36(1)(VIIA) OF THE ACT. IN THE ABOVE BACKGROUND, THE RIVAL COUNSELS HAVE MA DE THEIR SUBMISSIONS. 6. THE PRELIMINARILY STAND OF THE ASSESSEE IS THAT THE DEDUCTION U/S 36(1)(VIIA) OF THE ACT DOES NOT DEPEND ON MAKING OF A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE ACCOUNT BOOKS WHILE THE STAND OF THE REVENUE IS TO THE CONTRARY I.E. MAKING OF A PROVISION EQUAL TO THE AM OUNT CLAIMED AS DEDUCTION U/S 36(1)(VIIA) OF THE ACT IN THE BOOKS OF ACCOUNT IS NECESSARY. 7. BEFORE US, LEARNED COUNSEL FOR THE ASSESSEE SUBM ITTED THAT SECTION NOWHERE REQUIRES THAT THE AMOUNT OF DEDUCTION ALLOW ABLE U/S 36(1)(VIIA) OF THE ACT IS DEPENDENT ON MAKING AN EQUIVALENT DEBIT OF P ROVISION FOR BAD AND DOUBTFUL DEBTS IN THE PROFIT AND LOSS ACCOUNT. IT IS POINTED OUT THAT THE DEDUCTION IS QUANTIFIED WITH RESPECT TO CERTAIN PER CENTAGE OF THE AGGREGATE AVERAGE ADVANCES MADE IN THE RURAL BRANCHES OF SUCH BANK AND IS NOTHING TO ITA NO.240/PN/2012 ITA NO.447/PN/2012 DO WITH THE AMOUNT OF PROVISION MADE IN THE BOOKS O F ACCOUNT FOR BAD AND DOUBTFUL DEBTS. IN SUPPORT OF THE SAID PROPOSITION REFERENCE HAS BEEN MADE TO THE FOLLOWING DECISIONS OF THE TRIBUNAL : (I) BANGA LORE BENCH OF THE TRIBUNAL IN THE CASE OF SYNDICATE BANK VS. DCIT, (2001) 78 ITD 103 (BANG); (II) DELHI BENCH OF THE TRIBUNAL IN THE CASE OF RURAL ELECTRIF ICATION CORPN. LTD. VS. ADDL. CIT, (2009) 34 SOT 159 (DEL); (III) DELHI BENCH OF THE TRIBUNAL IN THE CASE OF POWER FINANCE CORPN. LTD. VS. JCIT, (2006) 10 SOT 1 90 (DEL); AND, (IV) COCHIN SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. CATHOLIC SYRIAN BANK LTD., (2004) 88 ITD 185 (COCH)(SB). 8. ON THIS ASPECT, THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUPPORTED THE STAND OF THE LOWER AUTHORITIES BY POINTING OUT THAT THE DEDUCTION U/S 36(1)(VIIA) OF THE ACT IS RESTRICTED TO THE ACTUAL AMOUNT OF PR OVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE BOOKS OF ACCOUNT. 9. IN THE CONTEXT OF THE ABOVE CONTROVERSY, IT IS T O BE NOTED THAT THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI MAHALAXMI CO-OP. BANK LTD. VS. ITO VIDE ITA NO.1658/PN/2011 DATED 29.10.2013 HAS CONSI DERED AN IDENTICAL ISSUE AND HELD THAT THE DEDUCTION U/S 36(1)(VIIA) O F THE ACT IS ALLOWABLE TO THE EXTENT OF THE ACTUAL AMOUNT OF PROVISION MADE IN TH E BOOKS OF ACCOUNT FOR BAD AND DOUBTFUL DEBTS. THE TRIBUNAL TOOK INTO CONSIDE RATION THE JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA VS. CIT, (2005) 272 ITR 54 (P&H) AND THEREAFTER HELD TH E ISSUE IN FAVOUR OF THE REVENUE. THE RELEVANT DISCUSSION IN THE ORDER OF T HE TRIBUNAL IS REPRODUCED HEREINAFTER :- 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. WE HAVE ALSO ANXIOUSLY PERUSED THE AUTHORITIES CITED AT BAR IN ORDER TO DETERMINE THE CONTROVERSY ON HAND. THE RELEVANT PORTION OF SECTIO N 36(1)(VIIA) OF THE ACT, AS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION I.E. A.Y. 2008-09 READS AS UNDER : - [(VIIA) [IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY ITA NO.240/PN/2012 ITA NO.447/PN/2012 (A) A SCHEDULED BANK [NOT BEING [* * *] A BANK INCO RPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON -SCHEDULED BANK [OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY A GRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTUR AL AND RURAL DEVELOPMENT BANK], AN AMOUNT [NOT EXCEEDING SEVEN A ND ONE- HALF PER CENT] OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING [TEN] PER CENT OF THE AGGREGATE AVERA GE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK CO MPUTED IN THE PRESCRIBED MANNER : 10. A BARE PERUSAL OF AFORESAID SECTION CLEARLY BR INGS OUT THAT THE DEDUCTION SPECIFIED THEREIN IS IN RESPECT OF ANY P ROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY.. AN ELIGIBLE ASSESSEE. THE PRESEN CE OF THE AFORESAID EXPRESSION IN THE SECTION SUPPORTS THE PLEA OF THE REVENUE, WHICH IS TO THE EFFECT THAT THE DEDUCTION ALLOWABLE UNDER SECTION 3 6(1)(VIIA) OF THE ACT IS IN RESPECT OF THE PROVISION MADE BY THE ASSESSEE. IN OUR CONSIDERED OPINION, THE JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA) CLEARLY COVERS THE CO NTROVERSY IN FAVOUR OF THE REVENUE AND BELIES THE INTERPRETATION SOUGHT TO BE CANVASSED BY THE ASSESSEE. IN THE CASE BEFORE THE HONBLE HIGH COURT , ASSESSEE-BANK HAD ORIGINALLY FILED ITS RETURN OF INCOME FOR ASSESSMEN T YEAR 1985-86 CLAIMING DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT AT R S.1,90,36,000/-. AFTER FILING OF THE RETURN THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT WERE AMENDED BY FINANCE ACT, 1985 WHEREBY DEDUCTION WAS ENHANCED TO 10% OF THE PROFIT OR 2% OF THE AGGREGATE AVERAGE ADVANCES MADE BY RURAL BRANCHES OF THE BANK, WHICHEVER WAS HIGHER. ON ACCOUNT OF THE AMENDED PRO VISIONS, ASSESSEE FILED A REVISED RETURN OF INCOME ON 24.04.1986 ENHANCING THE CLAIM FOR DEDUCTION FROM RS.1,90,36,000/- TO RS.1,94,21,000/-. THE ASSE SSING OFFICER RESTRICTED THE DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT TO RS.1,90,36,000/- ONLY AND DISALLOWED THE BALANCE ON THE GROUND THAT IN THE BO OKS OF ACCOUNT PERTAINING TO THE RELEVANT ASSESSMENT YEAR, ASSESSEE HAD MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS OF RS.1,90,36,000/- ONLY. THE ASSESS EE ARGUED THAT THE PROVISION OF RS.1,90,36,000/- WAS MADE IN THE BALAN CE-SHEET FINALIZED ON 14.02.1985 WHICH WAS AS PER THE UNAMENDED PROVISION S OF SECTION 36(1)(VIIA) OF THE ACT AND THAT IN VIEW OF THE AMENDMENT OF SEC TION 36(1)(VIIA) OF THE ACT PERMITTING HIGHER CLAIM OF DEDUCTION, THE ASSESSEE COULD NOT HAVE POSSIBLY MADE THE HIGHER PROVISION IN THE BALANCE-SHEET FINA LIZED ON A PRIOR DATE, BUT IT MADE UP THE SHORTFALL BY MAKING AN ADEQUATE PROVISI ON IN THE BALANCE-SHEET OF THE SUBSEQUENT ASSESSMENT YEAR. ON THIS BASIS, I T WAS SOUGHT TO BE MADE OUT THAT THERE WAS SUBSTANTIAL COMPLIANCE WITH THE REQUIREMENT OF LAW OF MAKING PROVISION FOR BAD AND DOUBTFUL DEBTS AND THE REFORE ASSESSEE JUSTIFIED THE CLAIM OF DEDUCTION FOR THE COMPLETE AMOUNT OF R S.1,94,21,000/- AND NOT RESTRICTED TO RS.1,90,36,000/-. THE CIT(A) AS WELL AS THE TRIBUNAL NEGATED THE PLEA OF THE ASSESSEE AND ACCORDINGLY, THE MATTER WA S CARRIED BEFORE THE HONBLE PUNJAB & HARYANA HIGH COURT. THE HONBLE HI GH COURT REFERRED TO THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND OB SERVED THAT ..THE DEDUCTION ALLOWABLE UNDER THE ABOVE PROVISIONS IS I N RESPECT OF THE PROVISION MADE AND FURTHER WENT ON TO HOLD THAT ..MAKING O F A PROVISION FOR BAD AND DOUBTFUL DEBTS EQUAL TO THE AMOUNT MENTIONED IN THI S SECTION IS MUST FOR CLAIMING SUCH DEDUCTION. IN VIEW OF THE AFORESAID JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT, IN OUR VIEW, THE POSIT ION SOUGHT TO BE CANVASSED BY THE ASSESSEE DESERVES TO BE REPELLED. WE REPRODUCE HEREINAFTER THE RELEVANT PORTION OF THE ORDER OF TH E HONBLE HIGH COURT, WHICH READS AS UNDER :- ITA NO.240/PN/2012 ITA NO.447/PN/2012 5. SEC.36(1)(VIIA) OF THE ACT AS APPLICABLE TO THE ASST. YR. 1985-86, READS AS UNDER : IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL D EBTS MADE BY A SCHEDULED BANK [NOT BEING A BANK APPROVED BY THE CE NTRAL GOVERNMENT FOR THE PURPOSES OF CL.(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 INCO ME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND C HAPTER VI-A) OR AN AMOUNT NOT EXCEEDING TWO PER CENT OF THE AGGREGA TE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK, C OMPUTED IN THE PRESCRIBED MANNER, WHICHEVER IS HIGHER. 6. A BARE PERUSAL OF THE ABOVE SHOWS THAT THE DEDUC TION ALLOWABLE UNDER THE ABOVE PROVISIONS IS IN RESPECT OF THE PRO VISION MADE. THEREFORE, MAKING OF A PROVISION FOR BAD AND DOUBTF UL DEBTS EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS A MUST FOR CLAIMING SUCH DEDUCTION. THE TRIBUNAL HAS RIGHTLY POINTED OUT THA T THIS ISSUE STANDS FURTHER CLARIFIED FROM THE PROVISO TO CL.(VII) OF S .36(1) OF THE ACT, WHICH READS AS UNDER : PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH CL.(VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELATING TO ANY SUCH DEBT O R PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOU BTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. 7. THIS ALSO CLEARLY SHOWS THAT MAKING OF PROVISION EQUAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE ACCOUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTION UNDER S. 36(1)(VIIA) OF THE ACT. THE TRIBUNAL HAS DISTINGUISHED VARIOUS AUTHORITIES RELIED UPON BY TH E ASSESSEE WHEREIN DEDUCTIONS HAD BEEN ALLOWED UNDER VARIOUS PROVISION S WHICH ALSO REQUIRED CREATION OF RESERVE AFTER THE ASSESSEE HAD CREATED SUCH RESERVE IN THE ACCOUNT BOOKS BEFORE THE COMPLETION OF THE ASSESSMENT. IT HAS BEEN CORRECTLY POINTED OUT THAT IN ALL THOSE CASES, RESERVES/PROVISIONS HAD BEEN MADE IN THE BOOKS OF A CCOUNT OF THE SAME ASSESSMENT YEAR AND NOT OF THE SUBSEQUENT ASSE SSMENT YEAR. 8. IN THE PRESENT CASE, THE ASSESSEE HAS NOT MADE A NY PROVISION IN THE BOOKS OF ACCOUNT FOR THE ASSESSMENT YEAR UND ER CONSIDERATION, I.E., 1985-86, BY MAKING SUPPLEMENTARY ENTRIES AND BY REVISING ITS BALANCE SHEET. THE PROVISION HAS BEEN MADE IN THE B OOKS OF ACCOUNT OF THE SUBSEQUENT YEAR. 9. WE ARE, THEREFORE, SATISFIED THAT THE TRIBUNAL W AS RIGHT IN HOLDING THAT SINCE THE ASSESSEE HAD MADE A PROVISIO N OF RS.1,19,36,000 FOR BAD AND DOUBTFUL DEBTS, ITS CLAI M FOR DEDUCTION UNDER S. 36(1)(VIIA) OF THE ACT HAD TO BE RESTRICTE D TO THAT AMOUNT ONLY. SINCE THE LANGUAGE OF THE STATUTE IS CLEAR AND IS N OT CAPABLE OF ANY OTHER INTERPRETATION, WE ARE SATISFIED THAT NO SUBS TANTIAL QUESTION OF LAW ARISES IN THIS APPEAL FOR CONSIDERATION BY THIS COU RT. 11. IN VIEW OF THE AFORESAID INTERPRETATION OF SECT ION 36(1)(VIIA) OF THE ACT BY THE HONBLE PUNJAB & HARYANA HIGH COURT, THE ORDERS OF THE LOWER AUTHORITIES DESERVE TO BE UPHELD INASMUCH AS THE AS SESSEE HAS NOT MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS O F ACCOUNT EQUAL TO THE AMOUNT OF DEDUCTION SOUGHT TO BE CLAIMED UNDER SECT ION 36(1)(VIIA) OF THE ACT, AND THEREFORE, IN OUR VIEW, THE LOWER AUTHORITIES W ERE JUSTIFIED IN RESTRICTING THE DEDUCTION TO RS.50,00,000/-, BEING THE AMOUNT OF PR OVISION ACTUALLY MADE IN THE BOOKS OF ACCOUNT. ITA NO.240/PN/2012 ITA NO.447/PN/2012 12. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CITED CERTAIN DECISION IN SUPPORT OF HIS PROPOSITION THAT THE CLA IM OF DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT IS NOT LINKED TO MAKING OF A PROVISION IN THE ACCOUNT BOOKS. AT THE OUTSET, WE MAY OBSERVE THAT THE DECIS IONS RELIED UPON BY THE ASSESSEE ARE OF VARIOUS BENCHES OF THE TRIBUNAL AND NOT OF ANY HIGH COURT. THEREFORE, THE JUDGEMENT OF THE HONBLE HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA), WHICH IS CONTRARY TO THE DECISI ONS OF THE TRIBUNAL RELIED UPON BY THE ASSESSEE; AND BEING SOLITARY JUDGEMENT OF A HIGH COURT, IS REQUIRED TO BE APPLIED, HAVING REGARD TO THE ESTABL ISHED NORMS OF JUDICIAL DISCIPLINE. FOR THE SAID REASON, WE REFRAIN FROM DI SCUSSING EACH OF THE DECISIONS OF THE TRIBUNAL RELIED BY THE ASSESSEE BE FORE US. 13. THE OTHER PLEA OF THE ASSESSEE WAS THAT THE CON TENTS OF THE CBDT CIRCULAR DATED 26.11.2008 (SUPRA) IS CONTRARY TO THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT AND THEREFORE THE SA ME SHOULD BE DISREGARDED. IN OUR VIEW, THE FOLLOWING EXPLANATION IN RESPECT O F SECTION 36(1)(VIIA) OF THE ACT RENDERED BY THE CBDT IN CIRCULAR DATED 26.11.20 08 (SUPRA) BY WAY OF PARA 2(III)(B) AS UNDER :- (B) THE DEDUCTION FOR PROVISION FOR BAD AND DOUBTF UL DEBTS SHOULD BE RESTRICTED TO THE AMOUNT OF SUCH PROVISIO N ACTUALLY CREATED IN THE BOOKS OF THE ASSESSEE IN THE RELEVANT YEAR OR T HE AMOUNT CALCULATED AS PER PROVISIONS OF SECTION 36(1)(VIIA) , WHICHEVER IS LESS. IS IN LINE WITH THE INTERPRETATION OF THE SECTION R ENDERED BY THE HONBLE PUNJAB & HARYANA HIGH COURT AND CANNOT BE SAID TO BE CONTR ARY TO THE PROVISIONS OF THE ACT. THEREFORE, THE RELIANCE PLACED BY THE LOWE R AUTHORITIES ON THE CBDT CIRCULAR DATED 26.11.2008 (SUPRA) CANNOT BE FAULTED . 14. BEFORE PARTING, WE MAY REFER TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK L TD. (SUPRA) RELIED UPON BY THE ASSESSEE AND ALSO THE DECISION OF OUR CO-ORDINA TE BENCH IN THE CASE OF JAYSINGPUR UDGAON SAHAKARI BANK LTD. (SUPRA). WE HA VE CAREFULLY PERUSED THE SAID DECISION AND FOUND THAT THE ISSUE BEFORE T HE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) WA S QUITE DIFFERENT; AND, IN ANY CASE NONE OF THE OBSERVATIONS OF THE HONBLE SU PREME COURT RUN CONTRARY TO THE PRONOUNCEMENT OF THE HONBLE PUNJAB & HARYAN A HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA) TO THE EFFECT THAT MAKING OF A PROVISION FOR BAD AND DOUBTFUL DEBTS EQUAL TO THE AMOUNT MENT IONED IN SECTION 36(1)(VIIA) OF THE ACT IS MUST FOR CLAIMING SUCH DE DUCTION. THEREFORE, THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) DOES NOT HELP THE ASSESSEE IN THE PRES ENT CONTROVERSY BEFORE US. FURTHER, EVEN IN THE CASE OF JAYSINGPUR UDGAON SAHA KARI BANK LTD. (SUPRA), THE TRIBUNAL HAS MERELY SET-ASIDE THE MATTER FOR AD JUDICATION AFRESH BACK TO THE FILE OF THE ASSESSING OFFICER AND IT DOES NOT C ONTAIN ANY POSITIVE FINDING WITH RESPECT TO THE CONTROVERSY BEFORE US. 15. IN THE RESULT, CONSIDERING THE AFORESAID DISCUS SION, IN OUR VIEW, THE ORDERS OF THE AUTHORITIES BELOW ON THIS ASPECT ARE LIABLE TO BE UPHELD. WE HOLD SO. 10. FOLLOWING THE AFORESAID PRECEDENT, WE THEREFORE FIND NO MERIT IN THE PLEA OF THE ASSESSEE THAT THE DEDUCTION U/S 36(1)(VIIA) OF THE ACT IS NOT DEPENDENT ON MAKING OF A PROVISION FOR BAD AND DOUBTFUL DEBTS . ON THE CONTRARY, IT HAS ITA NO.240/PN/2012 ITA NO.447/PN/2012 BEEN HELD THAT MAKING OF PROVISION EQUAL TO THE AMO UNT CLAIMED AS DEDUCTION U/S 36(1)(VIIA) OF THE ACT IS NECESSARILY TO BE MAD E IN THE BOOKS OF ACCOUNT. 11. NOW, THE ONLY CONTROVERSY IS THE AMOUNT OF DEDU CTION ELIGIBLE TO THE ASSESSEE IN THE PRESENT CASE. THE TOTAL AMOUNT OF DEDUCTION CLAIMED BY THE ASSESSEE IS RS.1,20,78,000/- AND IT WAS SOUGHT TO B E JUSTIFIED BY CONTENDING THAT THE FOLLOWING PROVISIONS MADE CORRESPOND TO TH E AMOUNT OF DEDUCTION BY WAY OF (I) DEBIT TO PROFIT & LOSS ACCOUNT RS.72,0 0,000/-; (II) DEBIT IN THE APPROPRIATION ACCOUNT OUT OF CURRENT YEARS PROFITS RS.33,78,000/-; AND, (III) TRANSFER FROM RESERVES RS.15,00,000/-. 12. IN SO FAR AS, THE PROVISION FOR BAD AND DOUBTFU L DEBTS MADE BY WAY OF DEBIT TO THE PROFIT & LOSS ACCOUNT OF RS.72,00,000/ - IS CONCERNED THERE IS NO DISPUTE AS SAME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. SECONDLY, WITH REGARD TO AMOUNT OF RS.33,78,000/-, THE CLAIM OF TH E ASSESSEE WAS THAT SUCH A PROVISION HAS BEEN MADE IN THE APPROPRIATION ACCOUN T BELOW THE CURRENT YEARS PROFIT & LOSS ACCOUNT AND THEREFORE IT SHOUL D BE CONSTRUED AS COMPLYING WITH THE REQUIREMENTS OF SECTION 36(1)(VI IA) OF THE ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE PLEA OF THE AS SESSEE BUT THE CIT(A) ACCEPTED THE SAME. THE CIT(A) WHILE ACCEPTING THE PLEA OF THE ASSESSEE NOTICED THAT THERE WAS NO DIFFERENCE IN THE NATURE OF PROVISION SO FAR AS THE AMOUNT OF RS.72,00,000/- AND RS.33,78,000/- WAS CON CERNED BECAUSE BOTH WERE CREATED AGAINST THE CURRENT YEARS PROFIT. AC CORDING TO THE CIT(A), THE ONLY DIFFERENCE WAS THAT THE AMOUNT OF RS.72,00,000 /- WAS DEBITED IN THE PROFIT & LOSS ACCOUNT WHEREAS THE AMOUNT OF RS.33,78,000/- WAS DEBITED IN THE APPROPRIATION ACCOUNT BELOW THE LINE IN THE PROFIT & LOSS ACCOUNT BUT IT REMAINED A DEBIT AGAINST THE CURRENT YEARS PROFIT. THE AFORESAID FINDING OF THE CIT(A) WAS BASED ON HIS ANALYSIS OF THE PROFIT & LO SS ACCOUNT AND THE PROFIT APPROPRIATION ACCOUNT FURNISHED BY THE ASSESSEE FOR THE YEAR UNDER ITA NO.240/PN/2012 ITA NO.447/PN/2012 CONSIDERATION. COPIES OF THE SAME HAVE ALSO BEEN F URNISHED IN THE PAPER BOOK BEFORE US. 13. THE STAND OF THE LEARNED DEPARTMENTAL REPRESENT ATIVE IS THAT THE CIT(A) ERRED IN ACCEPTING THE PLEA OF THE ASSESSEE WITH RESPECT TO THE SUM OF RS.33,78,000/- BECAUSE THE SAME WAS MERELY AN APPRO PRIATION OF PROFITS AND WAS NOT A DEBIT IN THE MAIN PROFIT & LOSS ACCOUNT. 14. IN OUR CONSIDERED OPINION, THERE IS NO DENYING THE FACT THAT THE SUM OF RS.33,78,000/- REFLECTS A PROVISION FOR RURAL ADVAN CES WHICH HAS BEEN MADE BY THE ASSESSEE OUT OF THE CURRENT YEARS PROFITS. IN-FACT, THE CIT(A) HAS NOTICED THAT ASSESSEE HAD SHOWN A PROFIT OF RS.1,48 ,40,216/- IN ITS PROFIT & LOSS ACCOUNT AFTER DEBITING RS.72,00,000/- TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS FOR RURAL ADVANCES. THE AFORESAID P ROFIT WAS THEREAFTER APPROPRIATE TOWARDS : (I) STATUTORY RESERVE FUND RS.38,00,000/-; (II) DIVIDENDS RS.73,62,000/-; (III) PROVISION FOR RURAL ADVANCE S RS.33,78,000/-; (IV) BUILDING FUND RS.3,00,000/-; AND, (V) BALANCE OF PROFIT & LOSS ACCOUNT RS.382/- WAS TRANSFERRED TO THE BALANCE-SHEET. OST ENSIBLY, THE AFORESAID ANALYSIS OF THE PROFIT & LOSS ACCOUNT AND THE PROFI T APPROPRIATION ACCOUNT CULLED OUT BY THE CIT(A) SHOWS THAT THE PROVISION F OR RURAL ADVANCES OF RS.33,78,000/- MADE BY THE ASSESSEE IS A CHARGE AGA INST THE CURRENT YEARS PROFIT. THEREFORE, IN OUR CONSIDERED OPINION, IT M EETS WITH THE REQUIREMENTS OF SECTION 36(1)(VIIA) OF THE ACT, WHICH MAKES IT MAND ATORY FOR THE ASSESSEE TO CREATE A PROVISION FOR BAD AND DOUBTFUL DEBTS TO TH E EXTENT OF THE DEDUCTION CLAIMED U/S 36(1)(VIIA) OF THE ACT. THUS, THE CLAI M OF THE ASSESSEE FOR DEDUCTION U/S 36(1)(VIIA) OF THE ACT TO THE EXTENT OF RS.33,78,000/- IS ALSO BACKED BY A CORRESPONDING PROVISION FOR BAD AND DOU BTFUL DEBTS. THEREFORE, WE FIND NO MISTAKE ON THE PART OF THE CIT(A) IN ACC EPTING ASSESSEES CLAIM FOR DEDUCTION U/S 36(1)(VIIA) OF THE ACT WITH RESPECT T O THE SUM OF RS.33,78,000/-. ITA NO.240/PN/2012 ITA NO.447/PN/2012 THUS, THE APPEAL OF THE REVENUE ON THIS ASPECT IS W ITHOUT MERIT AND IS LIABLE TO BE DISMISSED. 15. NOW, WE MAY TAKE-UP THE CLAIM OF THE ASSESSEE F OR DEDUCTION U/S 36(1)(VIIA) OF THE ACT WITH RESPECT TO RS.15,00,000 /-. IN THIS CONTEXT, THE CIT(A) NOTED THAT ASSESSEE HAS MERELY TRANSFERRED RS.15,00 ,000/- FROM THE INVESTMENT DEPRECIATION FUND TO THE PROFIT & LOSS A CCOUNT APPROPRIATION ACCOUNT AND THEREAFTER CREDITED THE SAME TO THE BAD DEBTS RESERVE ACCOUNT IN RESPECT OF RURAL ADVANCES. IT IS FURTHER NOTED BY THE CIT(A) THAT THE INVESTMENT DEPRECIATION FUND WAS CREDITED BY THE ASSESSEE IN E ARLIER YEARS. ON THE BASIS OF SUCH ANALYSIS OF ASSESSEES FINANCIAL STATEMENTS , THE CIT(A) HELD THAT RS.15,00,000/- DID NOT REFLECT A PROVISION CREATED AGAINST CURRENT YEARS PROFITS. THE RELEVANT DISCUSSION BY THE CIT(A) IS CONTAINED IN PARA 16 OF HIS ORDER, WHICH READS AS UNDER :- 16. IT IS OBSERVED FROM RECORDS PRODUCED IN THE CO URSE OF APPELLATE PROCEEDINGS THAT THE APPELLANT HAS MERELY TRANSFERR ED RS.15 LAKHS FROM INVESTMENT DEPRECIATION FUND TO PROFIT AND LOSS APP ROPRIATION ACCOUNT AND THEREAFTER CREDITED THE SAME TO BAD DEBT RESERVES I N RESPECT OF RURAL ADVANCES. THE INVESTMENT FLUCTUATION FUND WAS CREA TED IN EARLIER YEARS. THIS IS MERELY A REGROUPING OF HEADS AND NOT A CREATION OF A PROVISION AS UNDERSTOOD IN COMMON ACCOUNTING PARLANCE AND AS TAU GHT TO EVERY STUDENT OF ACCOUNTANCY. THIS IS NOTHING BUT MAKING SUPPLEMENT ARY ENTRIES AND A REVISION OF BALANCE SHEET. HENCE, THE ACCOUNT OF RS.15 LAKH S CREDITED TO THE BAD DEBT PROVISION FOR RURAL DEBTS IS NOT A PROVISION MADE B Y THE APPELLANT IN ITS BOOKS OF ACCOUNT FOR THE RELEVANT PREVIOUS YEAR. AS FAR AS RS.1,05,78,000/- IS CONCERNED, THE SAME WOULD QUALIFY FOR DEDUCTION BEC AUSE WHETHER OR NOT RS.33,78,000/- IS ACTUALLY DEBITED INTO PROFIT AND LOSS ACCOUNT IS IMMATERIAL FOR THE REASON THAT THE SAME HAS BEEN MADE BY APPROPRIA TING FROM THE PROFITS OF THE RELEVANT PREVIOUS YEAR AND HENCE IS A REVENUE N EUTRAL EXERCISE. 16. BEFORE US, THE LEARNED COUNSEL HAS DISPUTED TH E STAND OF THE CIT(A). ACCORDING TO HIM, THE REQUIREMENT OF SECTION 36(1)( VIIA) OF THE ACT IS THAT THE EQUIVALENT PROVISION OUGHT TO BE CREATED IN THE ACC OUNT BOOKS OF THE ASSESSEE IN THE RELEVANT YEAR. ACCORDING TO THE LEARNED COU NSEL, THE AFORESAID REQUIREMENT IS FULFILLED IN THE PRESENT CASE, AS TH E SUM OF RS.15,00,000/- HAS ITA NO.240/PN/2012 ITA NO.447/PN/2012 BEEN TRANSFERRED FROM RESERVE FUND REPRESENTED BY I NVESTMENT DEPRECIATION FUND TO THE BAD DEBTS RESERVE CREATED IN RESPECT OF RURAL ADVANCES. 17. IN OUR CONSIDERED OPINION, THE CIT(A) MADE NO M ISTAKE IN REJECTING THE PLEA OF THE ASSESSEE WITH RESPECT TO THE CLAIM OF D EDUCTION U/S 36(1)(VIIA) OF THE ACT TO THE EXTENT OF RS.15,00,000/-. IT IS QUI TE CLEAR FROM THE FACTS ON RECORD THAT THE SUM OF RS.15,00,000/- DOES NOT REFL ECT A PROVISION MADE AS A CHARGE AGAINST THE CURRENT YEARS PROFITS. IN-FACT , IT WOULD NOT BE APPROPRIATE TO CONSIDER A RESERVE CREATED IN THE BALANCE-SHEET EQU IVALENT TO A PROVISION. OSTENSIBLY, EVEN IF ONE GOES ALONG WITH ASSESSEE AN D ACCEPTS THAT THE BAD DEBTS RESERVE IN RESPECT OF RURAL ADVANCES CREATED IN THE BALANCE-SHEET WHICH INCLUDES THE SUM OF RS.15,00,000/- IS A PROVISION, YET IT IS ABUNDANTLY CLEAR THAT THE SAME HAS NOT BEEN CREATED OUT OF THE CURRE NT YEARS PROFITS. THE SAID AMOUNT IS A TRANSFER FROM A RESERVE FUND ALREADY CR EDITED IN THE BALANCE-SHEET I.E. INVESTMENT DEPRECIATION FUND. IT IS ALSO CLEA R THAT THE SAID INVESTMENT DEPRECATION FUND WAS CREATED OUT OF THE PROFITS IN THE EARLIER YEARS AND NOT OUT OF PROFITS OF THE YEAR UNDER CONSIDERATION. THEREF ORE, CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE UNAB LE TO HOLD THAT THE SUM OF RS.15,00,000/- REPRESENTS A PROVISION FOR BAD AND D OUBTFUL DEBTS WITHIN THE MEANING OF SECTION 36(1)(VIIA) OF THE ACT. HENCE, THE LOWER AUTHORITIES WERE JUSTIFIED IN DENYING THE CLAIM OF DEDUCTION U/S 36( 1)(VIIA) OF THE ACT TO THE EXTENT OF RS.15,00,000/-. THUS, ON THIS GROUND ASS ESSEE FAILS. 18. THE ONLY OTHER ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL IS BY WAY OF AN ADDITIONAL GROUND OF APPEAL, WHICH READS AS UNDE R :- ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON MERIT IN MAKING ADDITION OF RS.10,24,869 /- ON ACCOUNT OF AMORTIZATION OF GOVERNMENT SECURITIES AS PER RBI DI RECTIONS. ITA NO.240/PN/2012 ITA NO.447/PN/2012 19. THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSEE WAS ENTITLED TO AMORTIZATION OF PREMIUM PAID ON ACQUISITION OF INVE STMENTS HELD TO MATURITY (HTM) AS PER THE CBDT CIRCULAR DATED 26.11.2008 BUT THE SAID CLAIM COULD NOT BE RAISED BEFORE LOWER AUTHORITIES, THOUGH THE APPR OPRIATE FACTS WERE ON RECORD. THE LEARNED COUNSEL SUBMITTED THAT THE AFOR ESAID ISSUE, NOW BEING RAISED, DOES NOT REQUIRE ANY FRESH INVESTIGATION OF FACTS, AND IS A QUESTION OF LAW AND THEREFORE THE ADDITIONAL GROUND BE ADMITTED FOR ADJUDICATION IN THE LIGHT OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT (1998) 229 ITR 383 ( SC) AND ALSO THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. PRUTHVI BROKERS & SHAREHOLDERS (P) LTD., (2012) 349 ITR 336 (BOM). 20. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE APPEARING FOR THE REVENUE SUBMITTED THAT THE SAID RELIEF WAS NEITHER CLAIMED IN THE RETURN OF INCOME AND NOR DURING THE ASSESSMENT PROCEEDINGS AND THEREFORE THERE WAS NO JUSTIFICATION TO CONSIDER THE CLAIM AT THE P RESENT STAGE. 21. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. IT IS A TRITE LAW THAT AN ASSESSEE IS ENTITLED TO RAISE AN ADDITIONAL GROU ND IN APPEAL PROCEEDINGS, WHICH WAS NOT EARLIER CLAIMED IN THE RETURN OF INCO ME FILED BY HIM. APART FROM OTHER DECISIONS, THE RECENT DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS & SHAREHOLDERS (P) LTD. (SU PRA) SUPPORTS THE AFORESAID PROPOSITION. MOREOVER, WE FIND THAT THE ADDITIONAL GROUND NOW SOUGHT TO BE RAISED BY THE ASSESSEE INVOLVES A POINT OF LAW AND IT HAS A BEARING ON THE DETERMINATION OF CORRECT TAX LIABILITY OF THE ASSES SEE; AND, THUS IN TERMS OF THE RATIO OF THE HONBLE SUPREME COURT IN THE CASE OF N ATIONAL THERMAL POWER CO. LTD. (SUPRA), THE SAME DESERVES TO BE ADMITTED FOR ADJUDICATION. ITA NO.240/PN/2012 ITA NO.447/PN/2012 22. AT THE TIME OF HEARING, THE LEARNED COUNSEL HAS ALSO ADDRESSED ON THE MERITS OF THE CLAIM. SO, HOWEVER, AS THE ISSUE WAS NOT BEFORE THE LOWER AUTHORITIES, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL CONSIDER THE CLAIM OF THE ASSESSEE RAISED IN THE AFORESAID ADDITIONAL GROUND OF APPEAL AND ADJUDICAT E THE SAME AS PER LAW. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW THE ASSESSEE A REASONABLE OPPORTUNITY TO PUT-FORTH MATERIAL AND SUBMISSIONS I N SUPPORT OF THE ADDITIONAL GROUND RAISED ABOVE, AND THE ASSESSING OFFICER SHAL L CONSIDER AND ADJUDICATE THE SAME IN ACCORDANCE WITH LAW. THUS, ON THIS GROU ND, ASSESSEE SUCCEEDS FOR STATISTICAL PURPOSES. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 24. RESULTANTLY, WHEREAS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 28 TH AUGUST, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A), KOLHAPUR; 4) THE CIT, KOLHAPUR; 5) THE DR A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE