Indian Overseas Bank, CHENNAI V. DCIT, CHENNAI

ITA 496/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7998 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 26-11-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 09-03-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHAJI P JACOB ADL
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: General deduction; Question of law; Bad and doubtful debts; Prejudicial to interest; Provision of bad debts
• Section: 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NOS.496 & 497/MDS/2015 # % &% / ASSESSMENT YEARS : 2010-2011 & 2011-12 INDIAN OVERSEAS BANK, BALANCE SHEET MANAGEMENT DEPARTMENT, 763, ANNA SALAI, CHENNAI 600 002. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAX PAYER UNIT, ANNA NAGAR WESTERN EXTENSION, CHENNAI 600 101. [PAN AAACI 1223J] ( / APPELLANT) ( /RESPONDENT) '( ) * / APPELLANT BY : SHRI. R. VIJAYARAGHAVAN, ADVOCATE AND SHRI.C. NARESH, C.A. +,'( ) * /RESPONDENT BY : SHRI. SHAJI P. JACOB, ADL. CIT ! ) - / DATE OF HEARING : 26-11-2015 ./& ) - / DATE OF PRONOUNCEMENT : 23-02-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEALS FILED BY THE ASSESSEE BANK ARE DIR ECTED AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF I NCOME TAX LARGE TAXPAYER UNIT, DT 12.02.2015 FOR THE ASSESSMENT YE ARS 2010-2011 ITA NO.496 & 497/MDS/2015 :- 2 -: AND 2011-12 PASSED U/S. 263 AND 250 OF THE INCOME T AX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). SINCE THE ISSUES IN THESE APPEALS ARE COMMON IN NATURE, HENCE THESE APPEALS ARE COMBI NED, HEARD TOGETHER, AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. WE TAKE UP APPEAL NO.496/MDS/2015 OF ASSESSMENT YE AR 2010-2011 FOR ADJUDICATION AND THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL:- 2. THE CIT ERRED BY INVOKING REVISIONARY POWERS U/S 26 3 OF THE INCOME TAX ACT, BY ADOPTING HIS OWN INTERPRETATION OF 'OBITER DICTA' IN THE APEX COURT DECISION IN CATHOLIC SYRIAN BANK (343 LTR 270), AND RESTRICT ING CLAIM U/S 36( 1)(VIIA)ONLY FOR PROVISION FOR RURAL DEBTS AND CONSEQUENTLY DISALLOWING CLAIM FOR DEDUCTION OF PROVISION MADE OF IN ACCORDANCE WITH THE PROVISION OF SEC 36( I )(VIIA). 3. THE COMMISSIONER OF LNCOME TAX ERRED IN RESTRICTING THE DEDUCTION OF PROVISION MADE UNDER SECTION 36(L)(VIIA) TO RS. 38.07 CRORES AS AGAINST THE CLAI M OF THE ASSESSEE OF 810.60 CRORES. 4. THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE APPRECIATED THAT PROVISIONS OF SECTION 36(L)(VIIA) ARE VERY CLEAR PERMITTING THE DEDUCTION IN RESPECT OF BOTH 7 .5% OF GROSS TOTAL INCOME AS WELL AS 10% OF THE AGGREGATE ADVANCE OF THE RURAL BRANCHES AND THERE IS NOTHING IN THE SAID CLAUSE THAT DEDUCTION UNDER THAT SECTION S HOULD BE RESTRICTED ONLY TO PROVISION FOR DOUBTFUL DEBTS PERTAINING TO RURAL ADVANCES. 5. THE CBDT CIRCULAR NO.464 DATED 18.07.1986 AND CIRCULAR NO. 13 OF 2014 DATED ISSUED IN THIS CONNEC TION, CLEARLY SPELL OUT THAT DEDUCTION U/S.36(1)(VIIA) SH OULD BE GRANTED AS SUM OF BOTH AMOUNTS VIZ., 7.5% OF GROSS TOTAL INCOME AND 10% OF THE ADVANCES ON RURAL BRANCHES. AS THERE IS NO AMENDMENT TO SECTION 36( 1 )(VIIA) NOR CIRCULAR AS REFERRED TO ABOVE HAS BEEN WITHDRAWN AS MODIFIED, THE DECISION OF THE CIT RESTRICTING THE CLAIM UNDER SECTION 36( 1 )(VIIA) I S ERRONEOUS AND CONTRARY TO THE PROVISIONS OF STATUTE AS EXPLAINED BY THE CBDT CIRCULAR. 6. INTERPRETATION PLACED BY THE CIT IN THE CERTAIN OBSERVATIONS OF THE APEX COURT IN THE CASE OF CATHO LIC ITA NO.496 & 497/MDS/2015 :- 3 -: SYRIAN BANK VS CIT REPORTED IN 343 ITR 270 IS OUT O F CONTEXT AND ERRONEOUS. THE ISSUE BEFORE THE APEX COURT IN THAT CASE WAS REGARDING ALLOWANCE OR DEDUCTION UNDER SECTION 36(1 )(VII) IN THE LIGHT OF THE PROVISION OF PROVISIONS OF EXPLANATION (V) TO SEC 3 6(2) READ WITH SECTION 36(1)(VIIA). THE ISSUE OF QUANTUM OF DEDUCTION U/S 36(1 )(VIIA) WAS NEITHER BEFORE THE A PEX COURT NOR WAS IT DECIDED IN THAT DECISION. 7. THE APEX COURT, AFTER HAVING HELD THAT THE PROVISIO NS UNDER SECTION 36(1 )(VIIA) AND CIRCULAR NO. 464 CLE ARLY EXPLAINED THE INTENT OF THE LEGISLATURE, CANNOT BE SAID TO HAVE HELD THAT DEDUCTION PROVIDED UNDER SECTION 36(1)(VIIA) HAS TO BE RESTRICTED TO ONLY ONE LIMB O F THAT SECTION. 8. THE CIT FAILED TO APPRECIATE THAT AN OBITER DICTA I N THE CASE OF CATHOLIC SYRIAN BANK DOES NOT IN ANY MANNER ALTER THE OR RESTRICT THE QUANTUM OF DEDUCTION ALLO WABLE U/S 36(L)(VIIA) AND IN ANY CASE HAS NO FORCE OF A B INDING AUTHORITY. THEREFORE, CIT GROSSLY ERRED IN OVERLOOK ING THE PLAIN WORDINGS OF THE STATUTE IN SEC 36(1)(VIIA ), AND ORDER OF THE CIT RESTRICTING THE ALLOWANCE UNDER SE CTION IS PATENTLY AGAINST THE PLAIN PROVISION OF THAT SEC TION. 9. THE CIT OUGHT TO HAVE APPRECIATED THAT DEDUCTION IN RESPECT OF NON RURAL DEBT IS BEING CLAIMED EVER SIN CE THE INTRODUCTION OF THE SAID CLAUSE, AND ALLOWED BY THE DEPARTMENT AFTER EXAMINING SPECIFIC PROVISION IN SE CTION 36(1) (VIIA), THE CLARIFICATION ISSUED BY CBDT AND THE SUBSEQUENT AMENDMENT MADE BY FINANCE ACT, 2013 AND COULD NOT HAVE CHANGED HER VIEW AS TO THE AMBIT OF SAID CLAUSE ALL OF A SUDDEN BASED ON AN OBITER DICT A AND TERMING THE DEDUCTION CLAIMED AND ALLOWED AS ERRONEOUS AND THEREFORE PREJUDICIAL TO THE REVENUE. 10. THE CIT OUGHT TO HAVE APPRECIATED THAT THE TRUE PURPORT AND LEGISLATIVE INTENTION HAVING BEING CLAR IFIED BY THE CLARIFICATORY AMENDMENT IN THE SAID SECTION TO DISPEL THE DOUBT OVER THE TENABILITY OF SAID OBITER DICTA OF THE APEX COURT, THE DISALLOWANCE BY THE CIT IGNORING TH E CLARIFIED LEGISLATIVE INTENT IS UNREASONABLE AND UNWARRANTED. 11. THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE APPRECIATED THAT VERY ISSUE OF DEDUCTION UNDER SECT ION 36(1)(VIIA) FOR THE CURRENT ASSESSMENT YEAR WAS SUB JECT MATTER OF APPEAL BEFORE THE CIT(A), WHO HAD DECIDED THE QUANTUM OF DEDUCTION UNDER THAT SECTION. UNDER THE CIRCUMSTANCES, THE ORDER OF THE ASSESSING OFFIC ER ON THIS ISSUE MERGED WITH THAT OF THE FIRST APPELLATE AUTHORITY, AND THE CIT ERRED IN ASSUMING JURISDICTI ON FOR REVISION THE SAME ISSUE. 12. THE CIT FAILED TO APPRECIATE IT A T (BANG) IN DCIT V ING VYSYA BANK LTD (2014) 149 ITD 61 I (BANG) HELD THAT OBSERVATION OF APEX COURT IN CATHOLIC SYRIAN B ANK CASE, WOULD NOT LEAD TO DISALLOWANCE OF CLAIM OF DEDUCTION UNDER SECTION 36(1)(VIIA) IN RESPECT OF N ON RURAL DEBT, AND PERMITTED SUCH DEDUCTION. WHEN THER E ITA NO.496 & 497/MDS/2015 :- 4 -: ARE TWO VIEWS IN REGARD TO A PARTICULAR ISSUE REVIS ION UNDER SEC 263 WILL NOT LIE. 13. WITHOUT PREJUDICE TO ABOVE, THE APPELLANT HAD DEMONSTRATED THAT THE IMPUGNED REVISIONARY ORDER IS NOT PREJUDICIAL TO INTEREST OF REVENUE. THE PROVISION M ADE IF HELD AS NOT ALLOWABLE U/S 36(1 )(VIIA) IS ALLOWABLE U/S 36(1 )(VII) IN VIEW OF THE DECISION OF THE APEX COURT IN VIJAYA BANK'S CASE. IN SUCH A CIRCUMSTANCE THE NET DEDUCTION ALLOWABLE U/S 36( I )(VIIA) WOULD BE RS. 879.88 CR AS AGAINST RS 718.45 CR PROPOSED TO BE WITHDRAWN IN THE REVISIONARY ORDER AND HENCE THE OR DER OF AO WAS NOT EVENTUALLY PREJUDICIAL TO REVENUE. 14. THE CIT OUGHT NOT TO HAVE REJECTED THE ABOVE ALTERNATE PLEA CONTENDING THAT PROVISION FOR NPA DI D NOT TANTAMOUNT TO PROVISION FOR BAD AND DOUBTFUL DEBT OVERLOOKING THE JURISDICTIONAL ITAT DECISION IN TAM IL NADU STATE APEX CO-OPERATIVE BANK LTD V ACIT (2014)43 TAXMANN.COM III (CHEN) HOLDING THAT TAXONO MY OF PROVISION HAD BEEN DONE BY ASSESSEE TO KEEP IT I N LINE WITH RBL AND NABARD GUIDELINES, BUT IN PITH AN D SUBSTANCE WHERE PROVISION HAD BEEN CREATED FOR 'BAD AND DOUBTFUL DEBTS', DEDUCTION WAS CLAIMED IN ACCORDANCE WITH SECTION 36(1 )(VIIA) AND ASSESSEE W AS ENTITLED TO BENEFIT OF SAME. 15. WITHOUT PREJUDICE TO THE ABOVE THE DEDUCTION U/S.36(L)(VII) AND UNDER SECTION 36(1)(VIIA) BE ALL OWED IN RESPECT OF 'BAD AND DOUBTFUL DEBTS RELATING TO ALL DEBTS REGARDLESS WHETHER 'RURAL' OR 'NON RURAL DEBTS' - I N ACCORDANCE WITH THE PROVISIONS OF THE ACT AS AMENDE D BY A DECLARATORY AMENDMENT BY THE FINANCE ACT, 2013 . 3. THE BRIEF FACTS OF THE CASE THE ASSESSEE BANK IS A SCHEDULED BANK ASSESSABLE AS A COMPANY FOR THE PURPOSE OF INC OME TAX AND IN THE BUSINESS OF BANK. THE RETURN OF INCOME WAS FIL ED ON 29.9.2010 DECLARING NIL INCOME. THE RETURN WAS PROCESSED U/S. 143(1) OF THE ACT AND THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS A ND NOTICE U/S.143(2) OF THE ACT WAS ISSUED. IN COMPLIANCE TO NOTICE, THE LD. AUTHORISED REPRESENTATIVE APPEARED ON VARIOUS DATES AND FILED INFORMATION. THE ASSESSING OFFICER CONSIDERED THE SUBMISSIONS AND MATERIAL BEFORE FINALIZATION OF ASSESSMENT. THE L D. ASSESSING OFFICER ITA NO.496 & 497/MDS/2015 :- 5 -: MADE OTHER DISALLOWANCES ALONGWITH ISSUE IN DISPUTE OF DISALLOWANCE U/S.36(1)(VIIA) OF THE ACT. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS MADE PROVISION FOR BAD AND DOUBTFUL DE BTS IN THE BOOKS OF ACCOUNTS B886,39,17,850/- AND ALSO DEDUCTION U/S .36(1)(VIIA) WAS CLAIMED CONSIDERING 7.5% OF GROSS TOTAL INCOME AND 10% OF RURAL ADVANCES AND WORKED OUT ELIGIBLE CLAIM OF B810,60 ,18,384/- AS THE DEDUCTION U/S.36(1)(VIIA) BEING ON THE LOWER SIDE C OMPARED TO THE DEBIT MADE IN THE PROFIT AND LOSS. ON VERIFICATIO N THE ASSESSEE COMPANY HAS SUBMITTED DETAILED WORKING FOR CALCULAT ION OF 10% OF RURAL BRANCHES ADVANCES AND FILED DETAILS AND COMPU TATION SPECIFIED UNDER RULE 6ABA OF THE INCOME TAX RULES ALONGWITH N AME AND ADDRESS OF RURAL BRANCH AND POPULATION CENSUS AND W ORKED OUT ELIGIBLE DEDUCTION B763,57,40,400/- BEING 10% ON RURAL ADVAN CES. WHILE CALCULATING, THE SCHEDULED BANK HAS TO FOLLOW THE P ROCEDURE AS PER RULE 6ABA. 6ABA. FOR THE PURPOSES OF CLAUSE (VIIA) OF SUB-SECTION (1 ) OF SECTION 36, THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF A SCHEDULED BANK SHALL BE COMPUTED IN T HE FOLLOWING MANNER, NAMELY : (A) T T HE AMOUNTS OF ADVANCES MADE BY EACH RURAL AS OUTSTANDING AT THE END OF THE LAST DAY OF EACH COMPRISE COMPRISED IN THE PREVIOUS YEAR SHALL BE SEPARATED SEPARATELY ; (B) THE SUM SO ARRIVED AT IN THE CASE OF EACH SUCH BRANCH SHALL BE DIVIDED BY THE NUMBER OF MONTHS FOR WHICH THE OUTSTANDING ADVANCES HAVE BEEN TAKEN INTO ACCOUNT FOR THE PURPOSES OF CLAUSE (A) ; (C) THE AGGREGATE OF THE SUMS SO ARRIVED AT IN RESPECT OF EACH OF THE RURAL BRANCHES SHALL BE THE ITA NO.496 & 497/MDS/2015 :- 6 -: AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE SCHEDULED BANK. EXPLANATION : IN THIS RULE, RURAL BRANCH AND SCH EDULED BANK SHALL HAVE THE MEANINGS ASSIGNED TO THEM IN THE EXP LANATION TO CLAUSE (VIIA) OF SUB-SECTION (1) OF SECTION 36 50 .] AND ALSO CALCULATION SHALL BE SUPPORTED WITH DETAIL S OF OUTSTANDING BALANCE OF ADVANCE OF RURAL BRANCHES. THE CALCULAT ION OF ASSESSEE BANK ALSO INCLUDED BALANCES OF PREVIOUS YEAR GIVING RISE TO DOUBLE DEDUCTION FOR CALCULATION IN RULE 6ABA. AS PER THE DIRECTIONS THE ASSESSEE BANK FURNISHED DETAILS OF NUMBER OF BRANCH ES AND ALSO THE POPULATION AS PER CENSUS. ON FURTHER VERIFICATION, THE BANK HAS CALCULATED THE DEDUCTION IN RESPECT OF 49 RURAL BRA NCHES WERE THE POPULATION FIGURE EXCEED THE THRESHOLD FIGURE OF TE N THOUSAND. THE ASSESSEE BANK ALSO FURNISHED DETAILED SUBMISSIONS B Y JUSTIFYING DEDUCTION U/S.36(1)(VIIA) OF THE ACT. THE LD. ASSES SING OFFICER CONSIDERED THE PROVISIONS OF LAW, MATERIAL EVIDENCE S AND EXPLANATIONS AS PER RULE 6ABA HAS CALCULATED REVISED DEDUCTION U /S.36(1)(VIIA) OF THE ACT ON ACCOUNT OF ADVANCES MADE BY THE RURAL BR ANCHES REFERRED AT PAGE NO.4 OF ORDER:- B AGGREGATE ADVANCES OF AL L RURAL BRANCHES AS PER ANNEXURE-I 4635,91,84,794 LESS: - ADVANCES OF RURAL BR AN CHES NOT ELIGIBLE AS PER ANNEXURE-II 473,15,50,064 BALANCE AVERAGE THEREOF FOR 12 MONTHS RULE 6ABA(6) 4162,76,34,730 346,89,69,560 DEDUCTION U/S.36(1)(VIIA) @10% 34,68,96,956 ITA NO.496 & 497/MDS/2015 :- 7 -: SINCE THE BANK HAS MADE PROVISIONS FOR BAD AND DOUB TFUL DEBTS IN THE BOOKS OF ACCOUNTS INCLUDING STANDARD ASSET AND COUN TRY-WISE RISK. AS PER THE PROVISIONS IT CANNOT BE PART AND PARCEL OF DEBTS AND EXCLUDED THE VALUE OF B6,50,57,148/- AND ALLOWED DEDUCTION A S PER CALCULATION IN THE ASSESSMENT ORDER B162,49,74,682/- AND ASSESSEE FILED APPEAL AGAINST THE ORDER WITH COMMISSIONER OF INCOME TAX ( APPEALS). 4. SUBSEQUENT TO THE DECISION OF COMMISSIONER OF INCOM E TAX (APPEALS), THE ASSESSING OFFICER PASSED CONSEQUENTI AL ORDER AND THE MATTER PENDING AGAINST THE ORDER OF COMMISSIONER O F INCOME TAX (APPEALS) BEFORE THE TRIBUNAL. MEANWHILE, COMMISSI ONER OF INCOME TAX FOUND ON PERUSAL OF RECORDS OF ASSESSMENT FOUND THE ASSESSEE CLAIMED DEDUCTION U/S.36(1)(VIIA) B810,60,18,384/-. FURTHER, THE ASSESSING OFFICER BY VERIFYING THE CLAIM HAS RESTRI CTED THE DEDUCTION U/S.36(1)(VIIA) TO B162,49,74,682/- BY ORDER U/S.14 3(3) DATED 31.01.2013 WERE THE ASSESSING OFFICER RECOMPUTED A VERAGE RURAL ADVANCES BY ADOPTING INCREMENTAL ADVANCES OF RURAL BRANCHES AND EXCLUDED THE BRANCHES WERE POPULATION IS MORE THAN TEN THOUSAND AS PER LATEST CENSUS AND ALSO HELD THAT THE STANDARD A DVANCES CANNOT MADE PART OF PROVISION FOR BAD AND DOUBTFUL DEBTS F OR WHICH DEDUCTION U/S.36(1)(VIIA) WAS CLAIMED. THE ASSESSEE BANK HAS FILED AN APPEAL WITH COMMISSIONER OF INCOME TAX (APPEALS) UPHELD TH E VIEW OF ASSESSING OFFICER IN RESPECT OF RE-CLASSIFICATION O F RURAL BRANCHES AND ITA NO.496 & 497/MDS/2015 :- 8 -: ALSO EXCLUSION OF STANDARD ADVANCES FROM BAD AND DO UBTFUL DEBTS AND THE DEDUCTION U/S.36(1)(VIIA) WAS REWORKED TO B756, 52,13,950/- AFTER GIVING EFFECT TO THE DIRECTIONS OF COMMISSIONER OF INCOME TAX (APPEALS). AGAINST THAT ORDER, THE ASSESSEE AND DE PARTMENT ARE IN CROSS-APPEALS BEFORE THE TRIBUNAL. THE LD. COMMISS IONER OF INCOME TAX FOUND THE ORDER PASSED BY THE ASSESSING OFFICER IS PREJUDICIAL TO THE INTEREST OF REVENUE. THE LD. ASSESSING OFFICER HAS NOT CONSIDERED THE CALCULATION U/S.36 (1)(VIIA) AND 36(1)(VII) OF THE ACT IN THE APEX COURT DECISION OF CATHOLIC SYRIAN BANK VS. CIT 343 ITR 270 . THE COMMISSIONER OF INCOME TAX VERIFIED THE CIRCULAR IS SUED BY BOARD IN RELATION TO SECTION 36(1)(VIIA) AND 36(1)(VII) AND STATEMENT OF OBJECTS AND REASONS TO THE FINANCE ACT, 1986, AND ALSO LEGI SLATIVE INTENTION BEHIND INTRODUCTION OF SEC.36(1)(VIIA) TO ENCOURAGE RURAL ADVANCES AND TO CREATION OF PROVISION FOR BAD DEBTS AND FURTHER THE HIGH COURT HAS DECIDED THE CASE BASED ON THE APEX COURT DECISION I N THE CASE OF VIJAYA BANK VS. CIT 323 ITR 166 AND SOUTHERN TECHNO LOGIES VS. JT. CIT 320 ITR 577 AND ALSO ACCOUNTING STANDARD AS29 AND BOARDS CIRC ULARS AND RELEVANT PROVISIONS OF LAW. THE LD. COMMISSION ER OF INCOME TAX OBSERVED PRINCIPLES LAID DOWN BY CATHOLIC SYRIAN BA NK IN PARA 4.6 AT PAGE NO.5 AS UNDER:- THE PRINCIPLES LAID DOWN BY THE DECISION IN CATHO LIC SYRIAN BANK CAN BE SUMMARIZED AS UNDER:- ITA NO.496 & 497/MDS/2015 :- 9 -: DEDUCTION U/S.36(1)(VIIA) IS ALLOWABLE IN THE COMPUTATION OF TAXABLE PROFITS OF ALL SCHEDULED COMMERCIAL BANKS, IN RESPECT OF PROVISIONS MADE BY THEM FOR BAD AND DOUBTFUL DEBTS RELATING TO ADVANCES MADE BY THEIR RURAL BRANCHES. IN RESPECT OF BAD DEBTS ACTUALLY WRITTEN OFF RELATI NG TO RURAL ADVANCES, THE ASSESSEE IS ELIGIBLE FOR A DEDUCTION U/S 36(1)(VII) .HOWEVER, THE PROVISO TO 36(1)(VII) ENSURES THAT IN RESPECT OF THE SAME RURA L ADVANCES, THE BANK DOES NOT GET DOUBLE DEDUCTION, INITIALLY ON THE BASIS OF CLAUSE (VIIA) AND AGAIN O N THE BASIS OF ACTUAL WRITE -OFF UNDER CLAUSE (VII) PROVISO TO CLAUSE (VII) REFERS ONLY TO RURAL ADVANC ES AS CLAUSE (VIIA) APPLIES ONLY TO RURAL ADVANCES. IN RESPECT OF BAD DEBTS ACTUALLY WRITTEN OFF IN THE ACCOUNTS RELATING TO URBAN ADVANCES ,THE ASSESSEE I S ENTITLED TO THE GENERAL DEDUCTION U/S 36(1)(VII).TH IS DEDUCTION IS NOT AFFECTED BY THE PROVISO TO CLAUSE (VII A) BECAUSE IT WAS NOT TO BE ALLOWED ON PROVISION BA SIS. THUS, WITH RESPECT TO URBAN DEBTS AS WELL AS R URAL DEBTS THERE IS NO SCOPE TO ALLOW DOUBLE DEDUCTION . AS PER THE DIRECTIONS AND DECISION OF APEX COURT T HE ASSESSEE BANK IS ELIGIBLE TO CLAIM DEDUCTION U/S.36(1)(VIIA) TO THE EXTENT OF PROVISIONS MADE BY IT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE BANK IN RESPECT OF BAD AND DOUBTFUL DEBTS PERTAINING TO RURAL BRANCHES . THE COMMISSIONER OF INCOME TAX FOUND THAT THE ASSESSING OFFICER HAS NOT CALLED FOR DETAILS REGARDING PROVISIONS MADE FOR R URAL DEBTS AND NON RURAL DEBTS INCLUDED IN THE PROVISION IN THE BOOKS OF ACCOUNTS PERTAINING TO BAD DEBTS B886,39,17,650/- IN THE LIG HT OF THE DECISION OF SUPREME COURT IN THE CASE CATHOLIC SYRIAN BANK (SUP RA). ON THE BASIS OF RECORDS, THE ASSESSEE HAS SUBMITTED THE PROVISI ON OF B38.07 CRORES ITA NO.496 & 497/MDS/2015 :- 10 -: FOR BAD AND DOUBTFUL DEBTS OF RURAL BRANCHES CONSID ERED IN THE BOOKS. THE COMMISSIONER OF INCOME TAX IS OF THE OPINION TH AT THE DEDUCTION GRANTED U/S.36(1)(VIIA) OF THE ACT BEING 7.5% OF TO TAL INCOME AND 10% OF AGGREGATE AVERAGE RURAL ADVANCES WHICH IS EXCESS IVE AS AGAINST THE ELIGIBLE DEDUCTION OF B38.07 CRORES BEING PROVISION FOR RURAL BAD AND DOUBTFUL DEBTS AND THE DEDUCTION CANNOT BE GRANTED IN EXCESS OF PROVISIONS MADE IN THE BOOKS AND RELIED ON THE DECI SION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA VS. CIT 272 ITR 54 WHERE IT WAS HELD THAT MAKING PROVISION FOR BAD AN D DOUBTFUL EQUAL TO THE AMOUNTED IN SEC.36(1)(VIIA), THE CONDI TION PRECEDENT FOR ALLOWING DEDUCTION. THOUGH THE ASSESSING OFFICER FA ILED TO EXAMINE THE ISSUE ON THE PRINCIPLES OF APEX COURT DECISION OF C ATHOLIC SYRIAN BANK (SUPRA) AND ALLOWED DEDUCTION 36(1)(VII) CLAIMED WI THOUT EXAMINING THE SAME AND CONSIDERED IT AS ORDER ERRONEOUS AND P REJUDICIAL TO THE INTEREST OF THE REVENUE. IN RESPONSE TO SHOW CAUS E NOTICE, THE ASSESSEE FILED REPLY DATED 05.01.2015 OBJECTING TO THE PROPOSED PROVISIONS AND KEY OBJECTIONS ARE APEX COURT'S DECISION IN CATHOLIC SYRIAN BANK IS NO LONGER APPLICABLE IN VIEW OF THE CLARIFICATORY AMENDMENT TO THE RELEVANT SECTION DECISION OF THE APEX COURT IS ON DEDUCTION U/S 36(L)(VII) AND NOT ON 36(1)(VIIA) THE ACTION OF THE AO IN NOT RESTRICTING THE DEDUCTION TO THE PROVISION MADE TOWARDS RURAL BAD DEBTS CANNOT BE TAKEN AS 'ERRONEOUS' IN VIEW' OF TH E CLARIFICARY AMENDMENT ITA NO.496 & 497/MDS/2015 :- 11 -: SINCE 'ADVANCES' ARE STATED 'NET OF PROVISIONS' IN THE BALANCE SHEET, GOING BY THE APEX COURT DECISION IN VIJAYA BANK(323 ITR 166), PROVISIONS ARE TO BE CONSIDERED AS 'WRITE OFF 'ELIGIBLE FOR DEDUCTION U/S 36(1)(VII). THE ASSESSEE BANK FILED DETAILED SUBMISSIONS AT P ARA NOS. 7.1 TO 7.4.2 AT PAGE NOS.7 TO 9 OF COMMISSIONER OF INCOME TAX O RDER. THE DECISION OF CATHOLIC SYRIAN BANK IS NOT APPLICABL E AS PER EXPLANATION 2 TO SEC. 36(I)(VII) OF THE ACT AS EFFECTIVE FROM FIN ANCE ACT, 2013 W.E.F. 01.04.2014 AND THERE CANNOT BE RETROSPECTIVE AMENDM ENT. THE SUPREME COURT IN THE CASE OF GOVINDA DAS VS. ITO 103 ITR 123 I T WAS A SETTLED RULE OF INTERPRETATION IS THAT UNLESS THE TERMS OF A STATUTE EXPRESSLY SO PROVIDE OR NECESSARILY REQUIRE IT, RET ROSPECTIVE OPERATION SHALL NOT BE GIVEN TO A STATUTE AND SIMILARLY AS HE LD BY JURISDICTIONAL HIGH COURT IN THE CASE OF VARADHARAJA THEATERS 250 ITR 523 AND ALSO FINANCE BILL 2013 IS VERY CLEAR THAT AMENDMENT TO S EC. 36(1)(VII) WILL TAKE EFFECT FROM 1 ST APRIL, 2014 AND SHALL APPLY FROM ASSESSMENT YEAR 2014-2015 ONWARDS. FURTHER, EXPLANATIONS TO SEC.36 (1)(VII) OF THE ACT IS VERY CLEAR THAT THIS IS NOT RETROSPECTIVE AND A LSO CLARIFICATION WAS SOUGHT IN FINANCE BILL, 2013 TO SUBSTANTIVE WITH TH E PROVISION IS PROSPECTIVE BUT THE PROVISIONS OF LAW HAS A LEGISL ATIVE INTENTION AND EXPLANATIONS ARE CLEAR THAT THEY ARE PROSPECTIVE I N NATURE AND CANNOT BE APPLIED PRIOR TO 01.04.2014. THE ASSESSEES CO NTENTION AND OBJECTIONS ARE REJECTED BY THE COMMISSIONER OF INCO ME TAX. SIMILAR ITA NO.496 & 497/MDS/2015 :- 12 -: VIEW WAS TAKEN IN SEVERAL DECISIONS RELYING ON THE RATIO OF CATHOLIC SYRIAN BANK (SUPRA) MUCH AFTER INSERTION OF SEC. 36 (1)(VII) OF THE ACT AND THE HIGH COURT OF KERALA IN THE CASE OF SOUTH INDIA BANK LTD VS. CIT 223 TAXMAN 260 WHERE THE SUBSTANTIAL QUESTION OF LAW WAS RAISED ON DECIDING THE ISSUE OF WRITE OFF BAD DEBTS . WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE TRIBUNAL IS CORRECT IN LAW AND FACT IN HOLDING THAT THE BAD DEBT RELATING TO THE NON RURAL BRANCHES IN EXCESS O F THE CREDIT BALANCE OF THE PROVISIONS FOR BAD DEBTS CREA TED UNDER SECTION 36(1)(VIIA) ALONE IS ADMISSIBLE FOR DEDUCTI ON UNDER SECTION 36(1)(VII)? SIMILARLY IN ANOTHER DECISION OF CIT VS. CANARA BANK OF KARNATAKA DECIDED ON 13.10.2014 IN ITA NO.1011 OF 2013 THUS I SSUE WAS RENDERED ON THE PRINCIPLE AND RATIO RELATING TO BAD DEBTS DECIDED IN CATHOLIC SYRIAN BANK. THE ISSUE IN DISPUTE IN ASSE SSEES OWN CASE IN THE ASSESSMENT YEARS 1999-2000 TO 20002-03 AND ASSE SSMENT YEARS 2006-07 AND 2007-08, THE TRIBUNAL HAS REMITTED THE FILE BACK TO THE ASSESSING OFFICER TO DECIDE THE ISSUE OF BAD DEBTS AFRESH AFTER TAKING INTO CONSIDERATION THE DECISION OF CATHOLIC SYRIAN BANK AND TRF LTD AND THE CONTENTIONS OF THE ASSESSEE THAT THE DECISI ON OF CATHOLIC SYRIAN BANK DOES NOT APPLY TO EARLIER YEARS. SIMILA R RATIO OF THE DECISION IS FOLLOWED IN HDFC BANK, FEDERAL BANK W ERE NO RURAL BRANCHES AND NO CLAIM OF DEDUCTION U/S.36(1)(VIIA) OF THE ACT. ON THE FIRST ISSUE OF OBJECTION THAT THE AMENDMENT DOES NO T APPLY TO EARLIER ITA NO.496 & 497/MDS/2015 :- 13 -: YEARS AND APPLICABLE FROM 01.04.2013 CANNOT BE ACCE PTED AND THE NEXT GROUND OF DISPUTE WHETHER DECISION OF SUPREME COURT IN CATHOLIC SYRIAN BANK (SUPRA) IS APPLICABLE IN RESPECT OF DED UCTION/S.36(1)(VII) AND NOT IN RESPECT OF THE DEDUCTION U/S.36(1)(VIIA) OF THE ACT. ON THIS ISSUE OF QUESTION OF LAW, THE APEX COURT AT PARA 40 OF ORDER OF CATHOLIC SYRIAN BANK OBSERVED AS UNDER:- THE PROVISO TO SECTION 36(1)(VII) AND SECTION 36( 1)(VIIA) AND 36(2)(V) HAVE TO BE RED AND CONSTRUED TOGETHER. THEY FORM A COMPLETE SCHEME FOR DEDUCTIONS AND PRESCRIBE THE EXTENT TO WHICH SUCH DEDUCTIONS ARE AVAILABLE TO A SCHEDULED BANK IN RELATION TO RURAL LOANS ETC., THE COMMISSIONER OF INCOME TAX HAS OBSERVED THAT TH E ASSESSEE IS TRYING TO LIMIT THE SCOPE AND IMPLEMENTATION OF THE DECISION OF APEX COURT. THE HONBLE SUPREME COURT HAS DEALT EXTENS IVELY ON THE ISSUE OF RURAL DEBT, URBAN DEBT, INADMISSIBILITY OF DOUBL E DEDUCTION WITHOUT SPECIFIC PROVISION, STANDARDS, CIRCULARS ISSUED BY THE BOARD AND THE PROVISIONS APPLICABLE TO THE RURAL BRANCHES AND DEC ISION OF THE HIGH COURTS AND APEX COURT. ON THIS ISSUE, OBJECTION HA S BEEN REJECTED. THE COMMISSIONER OF INCOME TAX ON PERUSAL OF THE PR OFIT AND LOSS ACCOUNT HAS FOUND THAT THE ASSESSEE HAS BEEN MAKING PROVISION U/S.36(1)(VIIA) OF THE ACT FOR BOTH RURAL DEBTS AND URBAN DEBTS IN A CONSOLIDATED ACCOUNT. THE ASSESSEE HAS BEEN CLAIMI NG DOUBLE DEDUCTION FOR PAST SEVERAL YEARS BY NOT SET OFF BAD DEBTS WRITTEN OFF AGAINST THE PROVISIONS MADE TO SEC.36(1)(VII) OF TH E ACT. HENCE, BOTH ITA NO.496 & 497/MDS/2015 :- 14 -: CONDITIONS U/S.36(1)(VIIA) FOR THE PROVISIONS MADE AND SEC. 36(1)(VII) ON ACTUAL WRITE OFF IS BEING CLAIMED BY THE ASSESSE E ON THE SAME BAD DEBT. SO THERE IS NO PROVISION TO ALLOW DOUBLE DEDU CTION FOR BAD DEBTS. FURTHER AS PER CHART NO.1 AT PAGE 14 THE ASSESSEE HAS BEEN CLAIMING DEDUCTION U/S.36(1)(VIIA) OF THE ACT IN RESPECT OF PROVISIONS MADE FOR BAD DEBTS OF BOTH RURAL AND NON RURAL BRANCHES. 5. THE NEXT CONTENTION OF THE ASSESSEE THAT ASSESSMENT ORDER IS NOT ERRONEOUS. ON THE ISSUE OF VALIDITY OF PROCEE DINGS, THE LD. COMMISSIONER OF INCOME TAX HAS RELIED ON THE DECISI ON OF APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD VS. CIT 243 ITR 83, IT HAS BEEN HELD THAT CIT WITHIN HIS JURISDICTION TO SET ASIDE THE ORDER IF IT IS PASSED WITHOUT EXAMINATION OF THE RELEVANT DETAILS AND PROVISION OF LAW. ON THE DECISION OF APEX COURT ALSO THE OBJECTI ON OF THE ASSESSEE ARE NOT ACCEPTABLE. FINALLY ALTERNATE CONTENTION OF THE ASSESSEE BEING APPLICABILITY OF SUPREME COURT DECISION IN VIJAYA BANK (SUPRA). THE CONTENTION OF THE ASSESSEE BEING THE PROVISION MADE BY IT TOWARDS BAD AND DOUBTFUL DEBTS (URBAN DEBTS) IS ADDED AS DI SALLOWED, IT SHOULD BE ALLOWED AS WRITE OFF IN VIEW OF THE DECISION OF APEX COURT CASE IN VIJAYA BANK(SUPRA) AS THE ENTRIES PASSED IN THE BOO KS AND THE PRESENTATION OF THE BALANCE SHEET. ACCORDING TO TH E ASSESSEE PROVISIONS MADE SHOULD BE CONSTRUED AS WRITE OFF AN D ALLOWED U/S.36(1)(VII) THOUGH DISALLOWED U/S.36(1)(VIIA) OF THE ACT AND THE ITA NO.496 & 497/MDS/2015 :- 15 -: COMMISSIONER OF INCOME TAX HAS EXAMINED THE MATERIA LS AND ALSO CASE LAWS CONSIDERED IN WHILE PASSING THE VIJAYA BANK DECISION. THE LD. COMMISSIONER OF INCOME TAX HAS ANALYZED THE VIJAYA BANK CASE AND APPLIED THE RATIO ON CONSIDERATION OF THE NPA REFER RED IN THE ANNUAL REPORT AS PER THE DECISION OF CATHOLIC SYRIAN BANK WHEN THE RURAL BAD DEBTS IS WRITTEN OFF, THE SAME HAS TO BE FIRST DEB ITED TO THE PROVISION ACCOUNT MADE FOR RURAL ADVANCES. THE BAD DEBTS WRI TTEN OFF DURING THE YEAR WOULD BE ADJUSTED AGAINST THE OPENING BALANCE IN THE PREVIOUS ACCOUNT AND BALANCE DEDUCTION U/S.36(1)(VII) IS LIM ITED TO THE AMOUNT OF PROVISION ALREADY ALLOWED UNDER CLAUSE (VIIA). THE ASSESSING OFFICER HAS NOT DONE HIS EXERCISE AND CONSIDERING SUBMISSIO NS REFERRED AT 13.2 PARA AS UNDER:- PROVISION MADE FOR BAD AND DOUBTFUL ADVANCES BAD DEBTS WRITTEN OFF DURING THE YEAR RURAL 38.07 RURAL 6.71 NON RURAL 948.32 NON RURAL 382.16 TOTAL 886.39 TOTAL 388.87 CONSIDERING THIS, THE ASSESSEE ASSAILED AN APPEAL BEFORE THE TRIBUNAL THE ONLY SUBSTANTIVE GROUND BEING DEDUCTION U/S.36( 1)(VIIA) OF THE ACT. 6. AT THE TIME OF HEARING, THE LD. AUTHORISED REPRESEN TATIVE SUBMITTED THAT THE ASSESSING OFFICER HAS ALLOWED DE DUCTION FOR PROVISIONS NON RURAL ADVANCES ALSO. THE DECISION OF THE CATHOLIC SYRIAN BANK IS IN RESPECT OF BAD DEBTS AND ALSO DEDUCTION U/S.36(1)(VIIA). THE ITA NO.496 & 497/MDS/2015 :- 16 -: CONTENTION BEING ALL DEBTS SHOULD BE CONSIDERED FOR DEDUCTION U/S.36(1)(VIIA) AND HE RELIED ON THE DECISION OF DCIT VS.ING VYSYA BANK LTD 42 TAXMANN.COM 303 AND ALSO ITAT CO-ORDINATE BENCH DECISION IN ITA NO.1949/MDS/2012 AND ITA NO.1803/MD S/2011 IN ASSESSEES OWN CASE FOR EARLIER YEARS ALLOWED DEDUC TION. THE ASSESSEES ALTERNATIVE CLAIM OF VIJAYA BANK AT PARA 6. THE PROVISIONS REQUIRE IN RESPECT OF ADVANCES AND ALSO CIRCULAR OF CBDT DATED 24.01.2013 AT PARA NO.11.1 & 11.6 WERE REFERRED. T HE CONTENTION BEING CATHOLIC SYRIAN BANK DECISION IS NOT APPLICAB LE TO THE PRESENT ASSESSMENT AND THEREFORE THE ORDER OF THE COMMISSIO NER OF INCOME TAX IS BAD IN LAW. 7. CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITT ED JUDICIAL DECISIONS, CIRCULARS AND NOTIFICATION AND READ THE PROVISIONS OF SEC. 36(1)(VIIA) OF THE ACT ON THE ISSUE OF FOREIGN BANK WAS ALSO CONSIDERED. THE MISCONCEPTION OF THE BANK ON THAT PROVISION OF BAD DEBTS AS PER SEC. 36(1)(VIIA) OF THE ACT. THE DEC ISION OF CATHOLIC SYRIAN BANK IS ON THE BASIS OF SEC.36(1)(VII) AND S EC.36(1)(VIIA) FOR THE PURPOSE OF RURAL BRANCHES ONLY. THE APEX COURT HAS CONSIDERED THE RURAL ADVANCES BENEFIT GIVEN WITHOUT WRITING OFF IN THE BOOKS OF ACCOUNTS AND ALSO SUBMITTED THE RELEVANT PARA OF TH E DECISIONS RELIED AND FINANCE ACT AND PRAYED FOR DISMISSAL OF THE APP EALS. ITA NO.496 & 497/MDS/2015 :- 17 -: 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS, CIRCULARS, PROVISIO NS AND ALSO BANK REGULATIONS. THE ASSESSEE HAS RAISED VARIOUS GROU NDS IN RESPECT OF ONE SUBSTANTIVE ISSUE THAT THE COMMISSIONER OF INCO ME TAX ORDER IS BAD IN LAW AND ALSO DEDUCTION U/S.36(1)(VII) AND 36 (1)(VIIA) SHALL BE IN RESPECT OF BOTH BAD AND DOUBTFUL DEBTS IRRESPECTIVE OF RURAL OR URBAN DEBTS. THE LEGISLATIVE INTENTION OF DECISION OF CATHOLIC SYRIAN BANK WAS TO PROTECT THE RURAL FARMERS AND ALSO BENEFIT G IVEN WITHOUT ACTUAL WRITE OFF IN THE ACTUAL BOOKS OF ACCOUNTS THOUGH T HE PRINCIPLE WAS CONSIDERED IN THE EARLIER YEARS AND THE DEPARTMENT HAS ACCEPTED AND PASSED THE ORDER. ON THE DECISION OF THE ALLOWABIL ITY OF SEC.36(1)(VIIA) WE RELIED ON THE CO-ORDINATE DECIS ION OF LAKSHMI VILAS BANK IN ITA NOS.1205 TO 1209/MDS/2014 DATED 29.01.2 016 , WHERE IT HAS BEEN HELD IN DETAIL AT PARA 90 TO 93 IN PAGE N O. 60 TO 63 90. AFTER EXAMINING THE VARIOUS CIRCULARS ISSUED B Y THE BOARD IN RELATION TO SECTION 36(1)(VIIA) AND 36(1)(VII) A ND ALSO THE STATEMENT OF OBJECTS AND REASONS TO THE FINANCE ACT 1986, THE HON'BLE SUPREME COURT CAME TO THE CONCLUSION TH AT THE LEGISLATIVE INTENTION BEHIND THE INTRODUCTION OF SE CTION 36(1)(VIIA) WAS TO ENCOURAGE RURAL ADVANCES AND TO AID CREATION OF THE PROVISION FOR BAD DEBTS IN RELATION TO SUCH RURAL BRANCHES. SOME OF THE SALIENT FINDINGS OF THE HON'B LE SUPREME COURT ARE AS FOLLOWS : A MERE PROVISION FOR BAD AND DOUBTFUL DEBTS IS NOT AN ALLOWABLE DEDUCTION IN THE COMPUTATION OF TAXABLE PROFITS. HO WEVER, IN THE CASE OF RURAL ADVANCES, IN LINE WITH THE POLICY TO PROMOTE RURAL BANKING, A PROVISION MAY BE ALLOWABLE U/S SEC.36(1) (VIIA), WITHOUT INSISTING ON AN ACTUAL WRITE- OFF. ITA NO.496 & 497/MDS/2015 :- 18 -: PROVISIONS OF SECTIONS 36(1) (VII) AND 36(1)(VIIA) OF THE ACT ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTION AND THE Y OPERATE IN THEIR RESPECTIVE FIELDS. A SCHEDULED BANK MAY HAVE BOTH URBAN AND RURAL BRAN CHES. IT MAY GIVE ADVANCES FROM BOTH BRANCHES WITH SEPARATE PROVISION ACCOUNTS FOR EACH. IN THE NORMAL COURSE OF ITS BUSI NESS, AN ASSESSEE BANK IS TO MAINTAIN DIFFERENT ACCOUNTS FOR THE RURAL DEBTS AND FOR NON-RURAL/URBAN DEBTS. MAINTENANCE OF SUCH SEPARATE ACCOUNTS WOULD NOT ONLY BE A MATTER OF MERE CONVENI ENCE BUT WOULD BE THE REQUIREMENT OF ACCOUNTING STANDARDS. THE BAD DEBTS WRITTEN OFF IN DEBTS, OTHER THAN THOS E FOR WHICH THE PROVISION IS MADE UNDER CLAUSE (VIIA), WILL BE COVE RED UNDER THE MAIN PART OF SECTION 36(1)(VII), WHILE THE PROVISO WILL OPERATE IN CASES UNDER CLAUSE (VIIA) TO LIMIT DEDUCTION TO THE EXTENT OF DIFFERENCE BETWEEN THE DEBT OR PART THEREOF WRITTEN OFF IN THE PREVIOUS YEAR AND CREDIT BALANCE IN THE PROVISION F OR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA). IN CASE OF RURAL ADVANCES WHICH ARE COVERED BY CLAU SE (VIIA), THERE WOULD BE NO DOUBLE DEDUCTION. THE PROVISO, IN ITS TERMS, LIMITS ITS APPLICATION TO THE CASE OF A BANK TO WHI CH CLAUSE (VIIA) APPLIES. INDISPUTABLY, CLAUSE (VIIA) APPLIES ONLY T O RURAL ADVANCES. IF THE AMOUNT OF BAD DEBT ACTUALLY WRITTEN OFF IN T HE ACCOUNTS OF THE BANK REPRESENTS ONLY DEBT ARISING OUT OF URBAN ADVANCES, THE ALLOWANCE THEREOF IN THE ASSESSMENT IS NOT AFFECTED , CONTROLLED OR LIMITED IN ANY WAY BY THE PROVISO TO CLAUSE (VII). A STATUE IS NOT NORMALLY CONSTRUED TO PROVIDE FOR A DOUBLE BENEFIT UNLESS IT IS SPECIFICALLY SO STIPULATED OR IS CLEAR FROM THE SCHEME OF THE ACT. PROVISO TO SEC 36(1)(VII) WOULD NOT PERMIT BENEFIT OF DOUBLE DEDUCTION, OPERATING WITH REFERENCE TO 'RURAL' LOAN S, WHILE UNDER SECTION 36(1)(VII), THE ASSESSEE WOULD BE ENTITLED TO GENERAL DEDUCTION UPON AN ACCOUNT HAVING BECOME BAD DEBT AN D BEING WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. 91. A NUMBER OF CASES DECIDED BY THE HON'BLE HIGH COURTS AND ALSO BY THE APEX COURT ARE CITED / REFERRED TO IN THE ABOVE JUDGEMENT. CASES OF VIJAYA BANK VS. CIT (323 ITR 16 6) AND SOUTHERN TECHNOLOGIES VS JCIT (320 ITR 577) ARE REF ERRED TO ITA NO.496 & 497/MDS/2015 :- 19 -: THEREIN. ACCOUNTING STANDARD AS29 AND ALSO THE EFFE CT OF BOARD'S CIRCULAR'S HAVE ALSO BEEN DISCUSSED AT LENG TH IN THE ORDER ALONG WITH THE SUBJECT OF INTERPRETATION AND CONSTRUCTION OF THE RELEVANT SECTIONS. THUS, THE JUDGEMENT IS A COMPREHENSIVE ONE WHICH HAS CONSIDERED THE RATIOS L AID DOWN BY VARIOUS COURTS, THE IMPLICATIONS OF BOARD'S CIRC ULARS AND ACCOUNTING STANDARDS. 92. THE HON'BLE SUPREME COURT HAS HELD IN THE CASE OF CATHOLIC SYRIAN BANK THAT 'MERE PROVISION FOR BAD AND DOUBTFUL DEBTS MAY NOT BE ALLOWABLE, BUT IN THE CASE OF A RURAL ADVANCE, THE SAME, IN TERMS OF SECTION 36(1)(VIIA) MAY BE ALLOWABLE WITHOUT INS ISTING ON AN ACTUAL WRITE OFF .IN CASE OF RURAL ADVANCES WHICH ARE COVERED BY CLAUSE (VIIA), THERE WOULD BE NO DOUBLE DEDUCTION. THE PROVISO, IN ITS TERMS, LIMITS ITS APPLICATION T O THE CASE OF A BANK TO WHICH CLAUSE (VIIA) APPLIES. INDISPUTABLY C LAUSE (VIIA) APPLIES ONLY TO RURAL ADVANCES.' (EMPHASIS SUPPLIED ) (PARA 25&27). 93. THUS, IT CAN BE SEEN THAT IN THE CASE OF PROVI SION MADE TOWARDS NON-RURAL DEBTS, NO DEDUCTION CAN BE A LLOWED AS THERE IS NO SPECIFIC PROVISION IN THE INCOME TAX ACT TO ALLOW THE SAME. THIS INDICATES THAT THE PROVISION M ADE TOWARDS URBAN DEBT SHOULD BE ADDED BACK AND ALLOWED ONLY WHEN BAD DEBTS ARE REALLY WRITTEN OFF. THE QUESTION OF DOUBLE DEDUCTION BEING ALLOWED DOES NOT ARISE THEREIN AT A LL, BECAUSE IT IS ALLOWED ONLY ON ACTUAL WRITE OFF. THE HONBLE APEX COURT HAS ALSO HELD THAT THE PROVISO TO SECTIO N 36(1)(VII) APPLY ONLY IN RESPECT OF RURAL DEBTS. IN VIEW OF TH E ABOVE DECISION AND IN VIEW OF THE OPTION EXERCISED BY THE ASSESSEE THAT IT CAN CLAIMS DEDUCTION ON DOUBTFUL DEBTS AS P ER OPTION (B) I.E. 7.5% OF GROSS TOTAL INCOME AND 10% OF AGGR EGATE AVERAGE RURAL ADVANCES, THE ASSESSING OFFICER HAS R IGHTLY WORKED OUT THE ALLOWABLE DEDUCTION, WHICH IS LESS T HAN THAT OF THE PROVISION MADE BY THE ASSESSEE AS DOUBTFUL DEBT S, ALLOWED THE DEDUCTION OF BAD DEBTS FOR ALL ASSESSME NT YEARS AND REMAINING BALANCE WAS BROUGHT TO TAX. ACCORDING LY, WE REVERSE THE ORDER OF THE LD. CIT(A) AND CONFIRM THE ADDITION MADE BY THE ASSESSING OFFICER FOR ALL THE ABOVE ASS ESSMENT YEARS. THIS GROUND OF APPEAL OF THE REVENUE IS ALLO WED. CONSIDERING THE FACTS OF THE CO-ORDINATE DECISION W HERE THE PROVISION HAS BEEN RESTRICTED TO THE EXTENT OF RURAL BRANCHES ONLY. WE CONFIRM ITA NO.496 & 497/MDS/2015 :- 20 -: THE FINDINGS OF THE COMMISSIONER OF INCOME TAX ON T HE ISSUE OF RURAL BRANCHES FOLLOWING THE CATHOLIC SYRIAN BANK DECISIO N AND UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX. ACCORDING LY, THE APPEAL OF THE ASSESSEE IN ITA NO. 496/MDS/2015 IS DISMISSED. 9. CONSEQUENTLY, THE APPEAL OF THE ASSESSEE IN ITA NO.497/MDS/2015 IS ALSO DISMISSED. 10. IN THE RESULT, THE ASSESSEE APPEALS ITA NOS.496 & 497/MDS/2015 ARE DISMISSED. ORDER PRONOUNCED ON TUESDAY, THE 23RD DAY OF FE BRUARY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI 0 / DATED:23.02.2016 KV 1 ) +#-23 43&- / COPY TO: 1 . '( / APPELLANT 3. ! 5- () / CIT(A) 5. 3 89 +#-# / DR 2. +,'( / RESPONDENT 4. ! 5- / CIT 6. 9% : / GF