Jaysingpur Udgaon Sahakari Bank Ltd.,, Kolhapur V. Income-tax Officer, Ichalkaranji

ITA 45/PUN/2012

• Counselvise Citation: 4524514 RSA 2012
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 10-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K OJHA
• Keywords: Opportunity of being heard; Question of law; Bad and doubtful debts

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NOS.45 AND 46/PN/2012 (ASSTT.YEARS : 2007-08 AND 2008-09) JAYSINGPUR UDGAON SAHAKARI BANK LTD. JAYSINGHPUR, TAL : SHIROL, KOLHAPUR. .. APPELLANT PAN NO.AAAAJ 0591Q VS. ITO, WARD-1, ICHALKARANJI .. RESPONDENT APPELLANT BY : SHRI M.K. KULKARNI RESPONDENT BY : SHRI K.K.OJHA DATE OF HEARING : 05-06-2013 DATE OF PRONOUNCEMENT : 05-08-2013 ORDER PER R.K.PANDA, AM : THE ABOVE APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST THE COMMON ORDER DATED 24-10-2011 OF THE CIT(A) KOLHAPU R RELATING TO ASSESSMENT YEARS 2007-08 AND 2008-09 RESPECTIVELY. SINCE IDENTICAL GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE IN BOTH THE APPEALS, THEREFORE, THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.45/PN/2012 (A.Y. 2007-08) : 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COOPERATIVE BANK ENGAGED IN THE BUSINESS OF BANKING. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE AS SESSEE HAS CLAIMED DEDUCTION U/S.36(1)(VIIA) OF THE I.T. ACT IN THE CO MPUTATION OF INCOME AT RS.77,62,589 (WRONGLY MENTIONED AT RS.87,33,195/-) AS AGAINST PROVISION OF 2 RS.6,50,000/- MADE TO THE PROFIT AND LOSS ACCOUNT T OWARDS RESERVE FOR DOUBTFUL DEBTS. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY DEDUCTION U/S.36(1)(VIIA) OF THE I.T. ACT SHOULD NO T BE RESTRICTED TO THE EXTENT OF PROVISION MADE IN THE PROFIT AND LOSS ACC OUNT AND EXCESS DEDUCTION CLAIMED UNDER THE COMPUTATION OF INCOME S HOULD NOT BE DISALLOWED. THE ASSESSING OFFICER ALSO BROUGHT TO THE NOTICE OF THE ASSESSEE THE INSTRUCTION NO.17 DATED 26-11-2008 ISS UED BY CBDT REPORTED IN 220 CTR (ST) 41 (2008) WHEREIN IT IS CLEARLY MEN TIONED THAT THE DEDUCTION FOR PROVISION FOR BAD AND DOUBTFUL DEBTS SHOULD BE RESTRICTED TO THE AMOUNT OF SUCH PROVISIONS ACTUALLY CREATED IN T HE BOOKS OF ACCOUNTS OF THE ASSESSEE IN THE RELEVANT YEAR OR THE AMOUNT CA LCULATED AS PER THE PROVISIONS OF SECTION 36(1)(VIIA), WHICHEVER IS LES S. THE ASSESSING OFFICER FURTHER DREW THE ATTENTION OF THE BENCH TO THE DECI SION OF HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA VS. CIT AND ANOTHER REPORTED IN 272 ITR 54 WHEREIN IT WAS HELD THAT MAKING OF PROVISION FOR BAD AND DOUBTFUL DEBTS EQUAL TO THE A MOUNT MENTIONED IN SECTION 36(1)(VIIA) IS A MUST FOR CLAIMING SUCH DED UCTION. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND DIST INGUISHING THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SYNDICATE BANK VS. DCIT REPORTED IN 78 ITD 103 THE ASSESSING OFFICER R ESTRICTED THE DEDUCTION U/S.36(1)(VIIA) TO THE EXTENT OF PROVISIONS MADE IN BOOKS AT RS.6,50,000/- AS AGAINST RS.77,62,589/- CLAIMED BY THE ASSESSEE. 3. IN APPEAL THE LD. CIT(A) UPHELD THE ACTION OF TH E ASSESSING OFFICER. WHILE DOING SO, HE NOTED THAT THE CONTENTS OF INSTR UCTION NO.17/2008 SHALL PREVAIL OVER CONTENTS OF CIRCULAR NO.702/1995. HE OBSERVED THAT 3 INSTRUCTIONS AND NOTIFICATIONS ISSUED BY CBDT ARE B INDING ON ALL OFFICERS WORKING WITHIN THE JURISDICTION OF CBDT. IN CASE THE ASSESSEE IS AGGRIEVED WITH SUCH CIRCULAR, THE BEST COURSE ACCORDING TO CI T(A) IS A WRIT PETITION BEFORE THE HIGH COURT. 3.1 SO FAR AS THE DECISION OF THE BANGALORE BENCH O F THE TRIBUNAL IN THE CASE OF SYNDICATE BANK (SUPRA) HE OBSERVED THAT THE SAID ORDER DEALS WITH AN ORDER PASSED U/S.263 ON THE ISSUE OF ALLOWABILIT Y OF DEDUCTION U/S.36(1)(VII) AND 36(1)(VIIA). IN THAT CASE, SYND ICATE BANK HAD MADE A PROVISION OF RS.7763,438/- IN RESPECT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS. THE CIT PASSED THE ORDER U/S.263 ON THE GRO UND THAT IN ORDER TO CLAIM DEDUCTION U/S.36(1)(VIIA) THE ASSESSEE MUST M AKE A PROVISION RELATING SPECIFICALLY TO ADVANCES FROM THE RURAL BRANCHES. IT WAS IN THIS CONTEXT THAT THE HONBLE TRIBUNAL HELD THAT SECTION 36(1)(VII) H AS TO BE READ DEHORS THE PROVISIONS OF SECTION 36(1)(VIIA) AND THEREFORE IT WAS HELD THAT ONCE THE PROVISIONS OF BAD AND DOUBTFUL DEBT IS MADE BY A SC HEDULED BANK HAVING RURAL BRANCHES THE ASSESSEE IS ENTITLED TO A DEDUCT ION WHICH IS QUANTIFIED NOT WITH RESPECT TO THE AMOUNT PROVIDED FOR IN THE ACCO UNTS BUT WITH RESPECT TO CERTAIN PERCENTAGE OF THE TOTAL INCOME AND ALSO CER TAIN PERCENTAGE OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCH ES OF THE BANK. HE NOTED THAT THE TRIBUNAL UNDER THESE CIRCUMSTANCES H AD HELD THAT SECTION 36(1)(VII) IS DIFFERENT FROM 36(1)(VIIA) AND THAT B OTH DEDUCTIONS ARE AVAILABLE SIMULTANEOUSLY TO THE ASSESSEE SUBJECT TO ANY OTHER QUALIFICATIONS LAID DOWN IN THIS REGARD. 4 3.2 HE ALSO REFERRED TO CIRCULAR NO.258 DATED 14-06 -1979 WHICH ACCORDING TO HIM WAS VERY CLEAR WHICH CLEARLY STATE S THAT THE NEW CLAUSE (VIIA) HAS BEEN INSERTED IN THE SUB-SECTION (1) OF SECTION 36 TO PROVIDE FOR A DEDUCTION IN RESPECT OF PROVISIONS MADE BY THEM FOR BAD AND DOUBTFUL DEBTS RELATING TO ADVANCES MADE BY THEIR RURAL BRANCHES. IT WAS ALSO CLARIFIED THAT THE DEDUCTION WILL BE LIMITED TO A CERTAIN PERCENTA GE OF AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BANKS. THERE CANNOT BE A NY EQUIVOCALITY IN INTERPRETATION OF THE PROVISIONS OF SECTION 36(1)(V IA) WHEN READ WITH THE CIRCULAR. ACCORDING TO HIM AND IN VIEW OF INSTRUCT ION NO.17 DATED 26-11- 2008 A SITUATION WILL NEVER ARISE WHERE THE AMOUNT OF PROVISIONS ACTUALLY CREATED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE WIL L EXCEED THE AGGREGATION. SIMULTANEOUSLY IF THE TOTAL AMOUNT OF AGGREGATION I S LESS THAN THE PROVISION MADE, THE AMOUNT OF PROVISION OVER AND ABOVE THE AG GREGATION WILL NOT BE ALLOWED AS A DEDUCTION. IN VIEW OF THE ABOVE THE L D. CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER IN RESTRICTING THE DEDUCTION TO THE EXTENT OF AMOUNTS OF PROVISION OF BAD AND DOUBTFUL DEBTS MADE IN THE BOOKS. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE DECISION OF THE AO OF RESTRICTING THE DEDUCTION U/S.36(1)(VIIA) TO RS.6,50,000/- AS AGAIN ST THE CLAIM OF THE APPELLANT BANK OF RS.77,62,589/-. THE APPELLANT BANK SUBMITS THAT IT IS ENTITLED TO T HE DEDUCTION U/S.36(1)(VIIA) OF RS.77,62,589/- AS CLAIMED BY IT IN THE RETURN OF IN COME. THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO ALL OW DEDUCTION U/S.36(1)(VIIA) AS CLAIMED. 2. THE APPELLANT CRAVES TO LEAVE, ADD/AMEND OR ALTE R ANY OF THE ABOVE GROUNDS OF APPEAL. 5 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A CO. OPERATIVE BANK AND WAS ENJOYING EXEMPTION U/S. 80P( 2)(A)(I) OF THE ACT, UPTO A. Y. 2007-08 AND IN VIEW OF INSERTION OF SUB- SECTION (4) IN SECTION 80P BY FINANCE ACT, 2006, W.E.F. 1-4-2007 THE EXEMP TION HITHERTO ENJOYED WAS WITHDRAWN. SIMULTANEOUSLY THE CL. (VII-A) TO S . 36(1) WAS AMENDED W.E.F. 1-4-2007 BY THE SAME FINANCE ACT, 2007 AND A S A RESULT CO. OP. BANKS BECAME ENTITLED TO DEDUCTION UNDER THAT CLAUS E FOR AND FROM A. Y. 2007-08. THE CL. (VII-A) PROVIDES FOR DEDUCTION OF A SPECIFIC PERCENTAGE ON THE TOTAL ADVANCES MADE BY THE RURAL BRANCHES OF TH E CO. OP. BANKS. HOWEVER, PROVISO TO CL. (VII) LIMITS SUCH DEDUCTION IN THE CASE OF AN ASSESSEE TO WHICH CL. (VII-A) APPLIES. IT SAYS, THE AMOUNT OF DEDUCTION RELATING TO ANY SUCH DEBT OR 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 DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. IT IS AN UNDISPUTED FACT THAT CL. (VII-A) AND DEDUCTION PROV IDED THEREIN BECAME APPLICABLE TO THE APPELLANT-BANK FOR THE FIRST TIME FROM 1-4-2007 THAT IS FROM A. Y. 2007-08 AND ONWARDS. IN THE ABSENCE OF ANY SUCH PROVISION IN THE EARLIER YEAR THERE WAS NO 'CREDIT BALANCE' IN T HE PROVISION ACCOUNT AS INTENDED BY 'PROVISO' TO CL. (VII) OF S. 36(1) OF T HE ACT. THE BANK CLAIMED DEDUCTION ON ACCOUNT OF ADVANCES MADE BY RURAL BRAN CHES AS UNDER: A.Y. 2007-08 RS.77,62,589/- A.Y. 2008-09 RS.86,65,215/- 5.1 THE ASSESSEE BANK HAD MADE PROVISION FOR BAD AN D DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNT AS UNDER : A.Y. 2007-08 RS.6,50,000/- A.Y. 2008-09 RS.30,000/- 6 5.2 REFERRING TO THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS. CIT REPORTED IN 343 I TR 270 HE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT CLAUSE (VII) AND (VIIA) ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTION AND OPERATE IN THEIR RESPECTIVE FIELDS. REFERRING TO THE SAID DECISION HE SUBMITTED THAT THE HONBLE SUPREME COURT HAD MADE IT CLEAR THAT IN ALLOWING DEDUCTION U/S.36(1)(VIIA) THE LEGISLATIVE INTENT WAS TO ENCOU RAGE RURAL ADVANCES AND MAKING OF PROVISIONS FOR BAD DEBTS IN RELATION TO SUCH RURAL BRANCHES. HE SUBMITTED THAT THE ASSESSEE BANK HAD NOT MADE ANY C LAIM OF DEDUCTION U/S. 36(1)(VII) OF THE ACT AND THE ONLY CLAIM IS U/S.36( 1)(VIIA). THE PROVISO TO SECTION 36(1)(VII) DOES NOT IN ABSOLUTE TERMS CONTR OL THE APPLICATION OF THIS PROVISION AS IT COMES INTO OPERATION ONLY WHEN THE CASE OF THE ASSESSEE IS ONE WHICH FALLS SQUARELY U/S.36(1)(VII) OF THE I.T. ACT. HE SUBMITTED THAT THE EXPLANATION TO SECTION 36(1)(VII) INTRODUCED BY THE FINANCE ACT 2001 SPECIFICALLY EXCLUDED ANY PROVISION FOR BAD AND DO UBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE FROM THE AMBIT AND SCOPE O F ANY BAD DEBT OR PART THEREOF, WRITTEN OFF AS IRRECOVERABLE, IN THE ACCOU NTS OF THE ASSESSEE. THEREFORE, THE CONCEPT OF MAKING A PROVISION FOR BA D AND DOUBTFUL DEBTS WILL FALL OUTSIDE THE SCOPE OF SECTION 36(1)(VII). ONCE THE BAD DEBT IS ACTUALLY WRITTEN OFF AS IRRECOVERABLE AND REQUIREME NTS OF SECTION 36(2) ARE SATISFIED THEN IT WILL NOT BE PERMISSIBLE TO DENY S UCH DEDUCTION ON THE APPREHENSION OF DOUBLE DEDUCTION UNDER THE PROVISIO NS OF SECTION 36(1)(VIIA) AND THE PROVISO TO SECTION 36(1)(VII). REFERRING TO THE SAID DECISION HE SUBMITTED THAT THE HONBLE SUPREME COUR T HAS FURTHER HELD THAT THE PROVISIONS OF A SECTION HAVE TO BE INTERPRETED ON THEIR PLANE LANGUAGE AND NOT ON THE BASIS OF APPREHENSION OF THE DEPARTM ENT. HE SUBMITTED THAT 7 THE HONBLE SUPREME COURT IN THE SAID DECISION HAS FURTHER HELD THAT THE CIRCULARS ARE ISSUED BY THE BOARD TO EXPLAIN OR TO TONE DOWN THE RIGOURS OF LAW AND TO ENSURE FAIR ENFORCEMENT OF ITS PROVISION S. THESE CIRCULARS HAVE THE FORCE OF LAW AND ARE BINDING ON THE INCOME TAX AUTHORITIES. HOWEVER, THEY CANNOT BE ENFORCED ADVERSELY AGAINST THE ASSES SEE. 6. SO FAR AS THE ORDER OF THE LD. CIT(A) IN DISTING UISHING THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN THE CASE OF SYNDICATE BANK (SUPRA) HE SUBMITTED THAT THE OBSERVATIONS OF THE LD. CIT(A ) ARE NOT IN CONSONANCE WITH THE PRINCIPLES ENUNCIATED BY THE HONBLE SUPRE ME COURT IN THE CASE OF CATHOLIC SYRIAN BANK (SUPRA). HE ACCORDINGLY SUBMI TTED THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND THE GROUNDS RAISED BY T HE ASSESSEE BE ALLOWED. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND CIT (A) AND THE PAPER BOK FILED. THERE IS NO DISPUTE TO THE FACT THAT THE AS SESSEE HAD MADE A PROVISION OF RS.6,50,000/- IN ITS ACCOUNTS TOWARDS RESERVES F OR DOUBTFUL DEBTS IN COMPLIANCE WITH THE PROVISIONS OF SECTION 36(1)(VII A). THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE CLAIMED DEDUC TION U/S.36(I)(VIIA) AT RS.77,62,589/- IN ITS COMPUTATION OF TOTAL INCOME. WE FIND THE ASSESSING OFFICER RESTRICTED SUCH DEDUCTION U/S.36(I)(VIIA) T O RS.6,50,000/- WHICH WAS UPHELD BY THE CIT(A). IT IS THE CASE OF THE LD. CO UNSEL FOR THE ASSESSEE THAT THE DEDUCTION IS QUALIFIED NOT WITH RESPECT TO AMOU NT PROVIDED FOR IN THE ACCOUNTS BUT WITH RESPECT TO A CERTAIN PERCENTAGE O F THE TOTAL INCOME IN VIEW 8 OF DECISION OF ITAT, BANGALORE BENCHES IN THE CASE OF SYNDICATE BANK (SUPRA). FURTHER, ACCORDING TO LD. COUNSEL FOR THE ASSESSEE CLAUSE (VII) AND (VII-A) OF SECTION 36 ARE INDEPENDENT OF EACH OTHER IN VIEW OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIA N BANK LTD. (SUPRA). 8.1 WE FIND THE HONBLE SUPREME COURT IN THE CASE O F CATHOLIC SYRIAN BANK LTD. (SUPRA) HAS OBSERVED AS UNDER (SHORT NOT ES) : PER A.K. PATNAIK AND SWATANTER KUMAR JJ. (S.J. KAPADIAC.J.I. (CONCURRING) : THE PROVISIONS OF SEC TION 36(1)(VII) AND (VIIA) OF THE INCOME-TAX ACT, 1961, ARE DISTINC T AND INDEPENDENT ITEMS OF DEDUCTION AND OPERATE IN THEIR RESPECTIVE FIELDS. BAD DEBTS WRITTEN OFF, OTHER THAN THOSE FOR WHICH PROVISION I S MADE UNDER CLAUSE (VIIA), WILL BE COVERED UNDER THE MAIN PART OF SECT ION 36(1)(VII), WHILE THE PROVISO WILL OPERATE IN CASES UNDER CLAUSE(VIIA ) TO LIMIT THE DEDUCTION TO THE EXTENT OF DIFFERENCE BETWEEN THE D EBT OR PART THEREOF WRITTEN OFF IN THE PREVIOUS YEAR AND THE CREDIT BAL ANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUS E (VIIA). THUS, THE PROVISO WOULD NOT PERMIT THE BENEFIT OF DOUBLE DEDUCTION, OPERATING WITH REFERENCE TO RURAL LOANS WHILE UNDER SECTION 36(1)(VII) . . . . . . . . MERELY BECAUSE THE ORDERS OF THE SPECIAL BENCH OF T HE APPELLATE TRIBUNAL WERE NOT ASSAILED IN APPEAL BY THE DEPARTM ENT ITSELF, THIS WOULD NOT TAKE AWAY THE RIGHT OF THE DEPARTMENT TO QUESTION THE CORRECTNESS OF THE ORDERS OF ASSESSMENT, PARTICULAR LY WHEN A QUESTION OF LAW IS INVOLVED. A STATUTE IS NORMALLY NOT CONSTRUED TO PROVIDE FOR A DOUBLE BENEFIT UNLESS IT IS SPECIFICALLY SO STIPULATED OR IS CLEAR FROM THE SCHEME 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 IT S PROVISIONS. THESE CIRCULARS HAVE THE FORCE OF LAW AND ARE BINDING ON THE INCOME TAX AUTHORITIES, THOUGH THEY CANNOT BE ENFORCED ADVERSE LY AGAINST THE ASSESSEE. NORMALLY, THESE CIRCULARS CANNOT BE IGN ORED. A CIRCULAR MAY NOT OVERRIDE OR DETRACT FROM THE PROVISIONS OF THE ACT BUT IT CAN SEEK TO MITIGATE THE RIGOUR OF A PARTICULAR PROVISI ON FOR THE BENEFIT OF THE ASSESSEE IN CERTAIN SPECIFIED CIRCUMSTANCES. S O LONG AS THE CIRCULAR IS IN FORCE, IT AIDS THE UNIFORM AND PROPE R ADMINISTRATION AND APPLICATION OF THE PROVISIONS OF THE ACT. THE CLEAR LEGISLATIVE INTENT OF THE PROVISIONS AND UNAMBIGUOUS LANGUAGE OF THE CIRCULARS WITH REFERENCE TO THE AME NDMENTS TO SECTION 9 36 OF THE ACT IS THAT THE DEDUCTION ON ACCOUNT OF P ROVISIONS FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VIIA) IS DIS TINCT AND INDEPENDENT OF THE PROVISIONS OF SECTION 36(1)(VII) RELATING TO ALLOWANCE OF THE BAD DEBTS. AFTER INTRODUCTION OF SECTION 36(1)(VIIA) BY THE FINANCE ACT, 1979, WITH EFFECT FROM APRIL I ST, 1980, CIRCULAR NO. 258 DATED 14TH JUNE, 1979, WAS ISSUED BY THE CE NTRAL BOARD OF DIRECT TAXES TO CLARIFY THE APPLICATION OF THE NEW PROVISIONS. THE PROVISIONS WERE INTRODUCED IN ORDER TO PROMOTE RURA L BANKING AND ASSIST THE SCHEDULED COMMERCIAL BANKS IN MAKING ADE QUATE PROVISION FROM THEIR CURRENT PROFITS TO PROVIDE FOR RISKS IN RELATION TO THEIR RURAL ADVANCES. THE DEDUCTIONS WERE TO BE LIMITED AS SP ECIFIED IN THE SECTION. THE CIRCULAR MENTIONS THAT THE PROVISION S OF NEW CLAUSE (VIIA) OF SECTION 37(1), RELATING TO THE DEDUCTION ON ACCOUNT OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS, IS DISTINCT AND INDEPENDENT OF THE PROVISION OF SECTION 36(1)(VII) RELATING TO ALL OWANCE OF DEDUCTION OF THE BAD DEBTS. IN OTHER WORDS, SCHEDULED COMMER CIAL BANKS WOULD CONTINUE TO GET THE BENEFIT OF THE WRITE-OFF OF THE IRRECOVERABLE DEBTS UNDER SECTION 36(10(VII) IN ADDITION TO THE BENEFIT OF DEDUCTION OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VIIA). THE LEGISLATIVE INTENT WAS TO ENCOURAGE RURAL ADVAN CES AND THE MAKING OF PROVISIONS FOR BAD DEBTS IN RELATION TO SUCH RUR AL BRANCHES. THE COURT WOULD GIVE AN INTERPRETATION OF THESE PROVISI ONS WHICH WOULD SERVE THE LEGISLATIVE OBJECT AND INTENT, RATHER THA N TO SUBVERT THEM. THE PURPOSE OF GRANTING SUCH DEDUCTIONS WOULD STAND FRUSTRATED IF THESE DEDUCTIONS ARE IMPLICITLY NEUTRALIZED AGAINST OTHER INDEPENDENT DEDUCTIONS SPECIFICALLY PROVIDED UNDER THE PROVISIO NS OF THE ACT. THE DEDUCTIONS PERMISSIBLE UNDER SECTION 36(1)(VII) SHO ULD NOT BE NEGATED BY READING INTO THIS PROVISION, LIMITATIONS OF SECT ION 36(1)(VIIA) ON THE REASONING THAT IT WILL FORM A CHECK AGAINST DOUBLE DEDUCTION. THE LANGUAGE OF SECTION 36(1)(VII) OF THE ACT IS UN AMBIGUOUS AND DOES NOT ADMIT OF TWO INTERPRETATIONS. IT GIVES A BENEFI T TO ALL BANKS, COMMERCIAL OR RURAL, SCHEDULED OR UNSCHEDULED, TO C LAIM A DEDUCTION OF ANY BAD DEBT OR PART THEREOF, WHICH IS WRITTEN O FF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THIS BENEFIT IS SUBJECT ONLY TO SECTION 36(1) OF THE ACT. THE PROV ISO TO SECTION 36(1) (VII) DOES NOT, IN ABSOLUTE TERMS, CONTROL THE APPL ICATION OF THIS PROVISION AS IT COMES INTO OPERATION ONLY WHEN THE CASE OF THE ASSESSEE IS ONE WHICH FALLS SQUARELY UNDER SECTION 36(1)(VII A) OF THE ACT. THE EXPLANATION TO SECTION 36(1)(VII), INTRODUCED BY TH E FINANCE ACT, 2001, SPECIFICALLY EXCLUDED ANY PROVISION FOR BAD AND DOU BTFUL DEBTS MADE IN THE ACCOUNT OF THE ASSESSEE FROM THE AMBIT AND SCOP E OF ANY BAD DEBT, OR PART THEREOF, WRITTEN OFF AS IRRECOVERABLE IN TH E ACCOUNTS OF THE ASSESSEE. THUS, THE CONCEPT OF MAKING A PROVISION FOR BAD AND DOUBTFUL DEBTS WILL FALL OUTSIDE THE SCOPE OF SECTI ON 36(1)(VII) SIMPLICITER. ONCE THE BAD DEBT IS ACTUALLY WRITTEN OFF AS IRRECOVERABLE AND THE REQUIREMENTS OF SECTION 36(2) ARE SATISFIED , THEN, IT WILL NOT BE PERMISSIBLE TO DENY SUCH DEDUCTION ON THE APPREHENS ION OF DOUBLE DEDUCTION UNDER THE PROVISIONS OF SECTION 36(1)(VII A) AND THE PROVISO TO SECTION 36(1)(VII). 10 THE PROVISIONS OF A SECTION HAVE TO BE INTERPRETED ON THEIR PLAIN LANGUAGE AND NOT ON THE BASIS OF APPREHENSION OF TH E DEPARTMENT. PER S.H. KAPADIA, C.J.I. (CONCURRING) : THE PROVISI ONS OF CLAUSE (VIIA) OF SECTION 36(1) RELATING TO THE DEDUCTION O N ACCOUNT OF THE PROVISION FOR BAD AND DOUBTFUL DEBT(S) ARE DISTINCT AND INDEPENDENT OF THE PROVISIONS OF SECTION 36(1)(VII) RELATING TO AL LOWANCE OF THE BAD DEBT(S). IN OTHER WORDS, SCHEDULED COMMERCIAL BANK S WOULD CONTINUE TO GET THE FULL BENEFIT OF THE WRITE OFF OF THE IRR ECOVERABLE DEBT(S) UNDER SECTION 36(1)(VII) IN ADDITION TO THE BENEFIT OF DE DUCTION FOR THE PROVISION MADE FOR BAD AND DOUBTFUL DEBT(S) CAN BE ALLOWED ONLY IF THE DEBT IS WRITTEN OFF IN THE BOOKS AS BAD DEBT(S). B UT IN THE CASE OF RURAL ADVANCES, A DEDUCTION WOULD BE ALLOWED EVEN IN RESP ECT OF A MERE PROVISION WITHOUT INSISTING ON AN ACTUAL WRITE OFF. HOWEVER, THIS MAY RESULT IN DOUBLE ALLOWANCE IN THE SENSE THAT IN RES PECT OF THE SAME RURAL ADVANCE THE BANK MAY GET ALLOWANCE ON THE BAS IS OF CLAUSE (VIIA) AND ALSO ON THE BASIS OF ACTUAL WRITE OFF UNDER CLA USE (VII). THIS SITUATION IS TAKEN CARE OF BY THE PROVISO TO CLAUSE (VII) WHICH LIMITS THE ALLOWANCE ON THE BASIS OF THE ACTUAL WRITE OFF TO T HE EXCESS, IF ANY, OF THE WRITE OFF OVER THE AMOUNT STANDING TO THE CREDI T OF THE ACCOUNT CREATED UNDER CLAUSE (VIIA). THE CBDT ITSELF HAS R ECOGNIZED THE POSITION THAT A BANK WOULD BE ENTITLED TO BOTH THE DEDUCTIONS, ONE UNDER CLAUSE (VII) ON THE BASIS OF ACTUAL WRITE OFF AND ANOTHER, ON THE BASIS OF CLAUSE (VIIA) IN RESPECT OF A MERE PROVISI ON. IT WOULD BE MEANINGLESS TO INVOKE THE PROVISO WHERE THERE IS NO THREAT OF DOUBLE DEDUCTION. IN CASE OF RURAL ADVANCES, WHICH ARE CO VERED BY THE PROVISIONS OF CLAUSE 9VIIA), THERE WOULD BE NO SUCH DOUBLE DEDUCTION. THE PROVISO LIMITS ITS APPLICATION TO THE CASE OF A BANK TO WHICH CLAUSE (VIIA) APPLIES. CLAUSE (VIIA) APPLIES ONLY TO RURA L ADVANCES. THIS HAS BEEN EXPLAINED BY CIRCULARS ISSUED BY THE CBDT. TH US, THE PROVISO IS LIMITED IN ITS APPLICATION TO BAD DEBT(S) ACTUALLY WRITTEN OFF IN THE ACCOUNTS OF THE BANK REPRESENTS ONLY DEBT(S) ARISIN G OUT OF URBAN ADVANCES, THE ALLOWANCE THEREOF IN THE ASSESSMENT I S NOT AFFECTED, CONTROLLED OR LIMITED IN ANY WAY BY THE PROVISO TO CLAUSE (VII). 9. ADMITTEDLY THE ABOVE DECISION WAS NOT AVAILABLE BEFORE THE ASSESSING OFFICER OR CIT(A) SINCE THE DECISION WAS RENDERED M UCH AFTER THE ORDER PASSED BY THE ASSESSING OFFICER AND CIT(A). WE THE REFORE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFI CER TO ADJUDICATE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE APEX COU RT CITED (SUPRA) AND IN ACCORDANCE WITH LAW AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GRO UNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PU RPOSES. 11 ITA NO.46/PN/2012( A.Y. 2008-09) : 10. AFTER HEARING BOTH THE SIDES WE FIND THE GROUND S RAISED BY THE ASSESSEE ARE IDENTICAL TO GROUNDS OF APPEAL IN ITA NO.45/PN/ 2012. WE HAVE ALREADY DISCUSSED THE ISSUE AND THE GROUNDS RAISED BY THE A SSESSEE HAVE BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJU DICATION IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F CATHOLIC SYRIAN BANK LTD. (SUPRA). FOLLOWING THE SAME RATIO, WE RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PU RPOSES. 11. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS THE 5 TH DAY OF AUGUST, 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PA NDA) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 5 TH AUGUST, 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A) KOLHAPUR 4. THE CIT KOLHAPUR 5. D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE 12