M/s.The Ernakulam District Co-op Bank Ltd, Cochin V. The Jt. Director of Income Tax (Exemption), Cochin

ITA 508/COCH/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7276 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 21-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 28-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHANTOM BOSS
• Assessee Lawyers: V SATHYANARAYANAN
• Keywords: Bad and doubtful debts; Tax effect

Judgement Text

ITA NO S 508 & 522/C/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH KOCHI BEFORE S/ SH RI ABRAHAM P GEORGE , A M & GEORGE GEORGE K, JM ITA NO 508/COCH/2015 ( A SST YEAR 2010 - 11) & ITA NO.522/COCH/2015 (ASST YEAR 2010 - 11) ) THE ERNAKULAM DIST COOP BANK LTD KAKKANAD KOCHI VS T HE JT DIRECTOR OF INCOME TAX (EXEMPTION) KOCHI ( APPELLANT /RESPONDENT ) (RESPONDENT /APPELLANT ) PAN NO. AABAT4386L ASSESSEE BY SH V SATHYANARAYANAN REVENUE BY SH SHANTOM BOSS, CIT - DR DATE OF HEARING 21 ST MARCH 2017 DATE OF PRONOUNCEMENT 22 ND MARCH 2017 OR D ER PER GEROGE GEORGE K, JM : THESE ARE CROSS APPEALS AGAINST THE CI T(A)S ORDER DATED 30.7.2015. THE RELEVANT ASSESSMENT YEAR IS 2010 - 11. 2 FIRST, W E SHALL TAKE UP FOR ADJUDICATION THE APPEAL OF THE ASSESSEE. ITA NO. 508/COCH/2015 ( BY THE ASSESSEE ) 3 IN A SSESSEES APPEAL, 5 GROUNDS ARE RAISED. GROUND NO.5 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION AND HENCE, THE SAME IS DISMISSED. GROUND NO.1, 2 & 3 RELATES TO THE CLAIM MADE U/S 36(1)((VIIA) OF THE I T A CT. GROUND NO.4 RELATES TO THE DISALLOWANCE OF RS.5,81,99,640/ - U/S 40(A)(IA) OF THE I T ACT, 1961 FOR ITA NO S 508 & 522/C/2015 2 NON DEDUCTION OF TDS ON INTEREST PAID TO VARIOUS WELFARE BOARDS. WE SHALL TAKE FOR ADJUDICATION THE ISSUE S GROUND WISE AS UNDER : GROUND NO.1: 4 THE B RIEF FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A COOPERATIVE BANK. FOR THE ASSESSMENT YEAR 2010 - 11, THE ASSESSEE CLAIMED DEDUCTION U/S 36(1)(VIIA) OF THE ACT IN THE COMPUTATION OF TOTAL INCOME AT 7.5% AND 10% OF THE AGGREGATE RURAL ADVAN CES AS ID ENTIFIED BY THE ASSESSEES BANK. THE ASSESSING OFFICER REJECTED THE ASSESSEES CLAIM OF 10% OF THE AGGREGATE AVERAGE RURAL ADVANCES. THE ASSESSING OFFICER WAS OF THE VIEW THAT FOR THE PURPOSE OF COMPUTATION OF AGGREGATE AVERAGE RURAL ADVANCES, ONLY SUCH BRANCHES, WHICH ARE SITUATED IN A VILLAGE HAVING POPULATION OF 10 , 000 OR LESS HAS TO BE CONSIDERED. THE ASSESSING OFFICER RELIED ON THE DEFINITION OF RURAL BRANCHES , RENDERED BY THE JURISDICTIONAL HIGH COURT , IN THE CASE OF LORD KRISHNA BANK LTD ., REP ORTED IN 339 ITR 606 . 4.1 AGGRIEVED BY THE ASSESSMENT, THE ASSESSEE PREFERRED APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A), FOLLOWING THE JUDGMENT OF THE HONBLE KERALA HIGH COURT , IN THE CASE OF LORD KRISHNA BANK LTD (SUPRA), HELD THAT DEDUCTION U /S 36(1)(VIIA) OF THE ACT , IN RESPECT OF RURAL BRANCHES, HAS BEEN DECIDED AGAINST THE ASSESSEE. 4.2 AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. THE LD COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT AS REGARDS THE C LAIM OF D EDUCTION U/S ITA NO S 508 & 522/C/2015 3 36(1)(VII A) TO THE EXTENT OF DEDUCTION OF RURAL ADVANCES, THE MATTER IS NOW COVERED AGAINST THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE AYS 2008 - 09 AND 2009 - 10 AND ALSO BY THE JUDGMENT OF THE HONBLE JURISDICTIONA L HIGH COURT IN TH E CASE OF LORD KRISHNA BANK LTD., (SUPRA). HOWEVER, ALTERNATIVELY , THE LD COUNSEL SUBMITTED THAT THERE ARE CERTAIN RURAL BRANCHES OF THE ASSESSEE SITUATED IN A VILLAGE HAVING POPULATION OF LESS THAN 10,000 AS PER 2001 CENSUS. THE RELEVA NT POTION OF THE ASSESSEES SUBMISSION , AS REGARDS HIS ALTERNATIVE CONTENTION, READ AS FOLLOWS: THE LD CIT(A) OUGHT TO HAVE ALLOWED THE DEDUCTION IN RESPECT OF THE BRANCHES WHICH ARE ELIGIBLE TO BE CLASSIFIED AS A RURAL BRANCH AS PER THE DECISION OF HON HI GH COURT REFERRED ABOVE. THE CIT(A) OUGHT TO HAVE NOTED THAT THE APPELLANT HAS BRANCHES WHICH ARE SITUATED IN VILLAGES HAVING POPULATION OF LESS THAN 10000 AS PER THE LATEST CENSUS DATA AVAILABLE. THE LD CIT(A) OUGHT TO HAVE VERIFIED AND ALLOWED THE DEDUC TION TO THAT EXTENT. THE DETAILS OF THE BRANCHES SITUATED IN A VILLAGE HAVING POPULATION OF LESS THAN 10000 WERE FURNISHED TO THE LD CITIA) AND IS GIVEN BELOW: BRANCH AVG.RURAL ADVANCES(RS) NAME OF THE VILLAGE POPULATION AS PER 2001 CENSUS PERUMBAVOOR M AIN 43,68,21,370.00 PERUMBAVOOR (PART) 8026 PERUMBAVOOR EVENING 38,09,30,965.00 PERUMBAVOOR (PART) 8026 KALAMASSERY 15,50,70,715.00 THRIKKAKARA NORTH 420 MEDICAL COLLEGE BRANCH 7,75,44,482.00 THRIKKARA NORTH 420 RAMAMANGALAM 2,06,19,939.00 RAMAMANGALA M 9999 4.3 THE LD DR PRESENT WAS DULY HEARD. 4.4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE DEFINITION OF RURAL BRANCHES HAS ALREADY BEEN CLARIFIED BY THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF LORD KRISHNA B ANK LTD (SUPRA). THE RELEVANT PORTION OF THE JUDGMENT OF THE HONBLE KERALA HIGH COURT , READ AS FOLLOWS: ITA NO S 508 & 522/C/2015 4 THE RURAL BRANCH HAS TO BE ALWAYS IN RURAL AREAS AND THE PLACE REFERRED CAN EASILY BE TAKEN AS A VILLAGE. SEVERAL WARDS MAY COME WITHIN VILLAGE WHERE IT CAN BE IN CORPORATION, MUNICIPALITY OR PANCHAYAT. THERE CAN BE NO VILLAGE IN A MUNICIPALITY OR CORPORATION AREA WHERE THE POPULATION IS LESS THAN 10,000. SO MUCH ASSESSING OFFICER, RURAL BRANCHES ARE SUCH OF THE BRANCHES LOCATED IN A VILLAGE WHERE THE P OPULATION IN THE VILLAGE AS SUCH IS LESS THAN 10,000. 4.5 IN VIEW OF THE ABOVE JUDGMENT OF THE HONBLE KERALA HIGH COURT, THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF SECTION 36(1)(VIIA) OF THE ACT IN RELATION TO RURAL ADVANCES WHERE THE BRANCHES ARE SITUATE D IN A VILLAGE HAVING POPULATION MORE THAN 10,000. BUT THE ALTERNATIVE PLEA IS THAT THERE ARE RURAL BRANCHES IN A VILLAGE HAVING POPULATION LESS THAN 10,000. THIS ALTERNATIVE PLEA OF TH E ASSESSEE NEEDS TO BE EXAMINED IN THE INTEREST OF JUSTICE AND EQUITY. THE ASSESSEE SHALL PRODUCE THE NECESSARY PROOF FOR THE ALTERNATIVE PLEA RAISED BEFORE THE ASSESSING OFFICER. FOR THIS LIMITED PURPOSES, THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DISPOSE OF THE MATTER AS EXPEDITIOUSLY AS POSSIBLE AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. IT IS ORDERED ACCORDINGLY. GROUND NO.1 IS ALLOWED FOR STATISTICAL PURP OSE. GROUND NO.2: 5 THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 100,84,14,242/ - U/S 36(1)(VIIA) OF THE ACT. THIS CLAIM CONSISTS OF 7.5% OF THE TOTAL INCOME OF THE ASSESSEE AND 10% OF THE AGGREGATE AVERAGE RURAL ADVANCES. THE ASSESSING OFFICER, IN THE IMPUG NED ORDER HAD REJECTED THE ASSESSEES CLAIM OF 10% OF AGGREGATE AVERAGE RURAL ADVANCES. ON FURTHER APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER; HOWEVER, HAD ALSO DENIED THE BENEFIT OF DEDUCTION, EVEN IN RESPECT OF THE ASSESS EES CLAIM OF 7.5% OF THE TOTAL INCOME , WHICH FALLS IN THE FIRST LIMB OF SEC. 36(1)(VIIA) OF THE I T ACT. ITA NO S 508 & 522/C/2015 5 5.1 AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A), WHILE CONFIRM ING THE DISALLOWANCE TO THE EXTENT OF RURAL ADVANCES, OUGHT TO HAVE EXCLUDED THE AMOUNT OF DEDUCTION CLAIMED TO THE EXTENT OF 7.5% OF THE TOTAL INCOME OF THE ASSESSEE. IT WAS SUBMITTED THAT THE ABOVE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSE E BY THE JUDGMENT OF THE HONBLE KERALA HIGH COURT IN THE CASE OF KANNUR DISTRICT COOPERATIVE BANK LTD VS CIT IN ITA NO.179 OF 2012 (JUDGMENT DATED 3.4.2014). THE LD DR PRESENT WAS DULY HEARD. 5.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATER IAL ON RECORD. THE HONBLE KERALA HIGH COURT IN THE CASE OF KANNUR DISTRICT COOPERATIVE BANK LTD (SUPRA) HAD CATEGORICALLY HELD THAT THE BENEFIT OF DEDUCTION OF 7.5% OF THE TOTAL INCOME IS AVAILABLE TO ALL THE BANKS IRRESPECTIVE WHETHER IT IS HAVING RURAL BRANCHES OR NOT. THE RELEVANT FINDINGS OF THE HONBLE HIGH COURT, READ AS FOLLOWS: 9 . .. SO FAR AS BENEFIT OF 7.5% OF THE TOTAL INCOME, THERE IS NO CONDITION THAT IT SHOULD BE IN RESPECT OF ANY RURAL BRANCH. ALL TYPES OF BANKS DESCRIBED U NDER SUB CLAQUE (A) OF CLAUSE (VIIA) ARE ENTITLED TO SEEK DEDUCTION OF AN AMOUNT OF EXCEEDING 7.5% OF THE TOTAL INCOME. ONLY CONDITION IS THERE SHOULD BE A PROVISION FOR BAD AND DOUBTFUL DEBTS 5.3 IN VIEW OF THE ABOVE JUDGMENT OF THE HONBLE H IGH COURT, WE HOLD THAT THE CLAIM OF DEDUCTION TO THE EXTENT O F 7.5% OF THE TOTAL INCOME U/S 3 6(1)(VIIA) IS TO BE GRANTED TO THE ASSESSEE. IT IS ORDERED ACCORDINGLY. HENCE, G ROUND NO.2 IS ALLOWED. ITA NO S 508 & 522/C/2015 6 GROUND NO.3: 6 BOTH THE SI DES AGREE THAT T HIS GROUND IS CONNECTED WITH GROUND NO.1 . IT WAS SUBMITTED BY THE LD AR THAT IN THE EVENT THAT THE ASSESSEE S CONTENTION IS ACCEPTED BY THE HON BLE SUPREME COURT AS REGARDS THE RURAL ADVANCES, GROUND NO.3 , HAS RELEVANCE. 6.1 W E HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. SI NCE THE GROUND NO.1 IS RESTORED TO THE ASSESSING OFFICER, WE DEEM IT APPROPRIATE TO RESTORE THIS GROUND ALSO TO THE ASSESSING OFFICER. IT IS ORDERED ACCORDINGLY. GROUND NO.4 7 BRIEF ACTS OF THE CASE IN RELATION TO GROUND 2 ARE AS FOLLOWS : THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEE DINGS HAD NOTICED THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON THE PAYMENT OF INTERESTS MADE TO CERTAIN WELFARE BOARDS. HENCE, THE AO BY INVOKING THE PROVISIONS OF SEC 40(A)(IA) OF THE AC T DISALLOWED THE TOTAL INTEREST PAY MENT OF RS. 5,81,99,6 3 0/ - . 7 .1 ON FURTHER APPEAL, T HE CIT(A) HAS CATEGORICALLY HELD THAT THE SAID ISSUE IS COVERED IN FAVOUR OF THE REVENUE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 - 1 0 . THE LD COUNSEL FOR THE ASSESSEE HAD NOT CONTR A VERTED THE ABOVE FINDINGS OF THE CIT(A). ACCORDINGLY , WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE GROUND NO.4. IT IS ORDERED ACCORDIN GLY. ITA NO S 508 & 522/C/2015 7 8 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ITA NO.522/COCH/201 5(BY THE REVENUE) 9 BRIEFLY STATED THE FACTS IN RELATION TO THE REVENUE S APPEAL IS THAT DURING THE ASSESSMENT YEAR 2010 - 11, THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS. 1,73,33,833/ - AS DEDUCTION U/S 36(1)(VIII) OF THE I T ACT. HOWEVER, WHI LE COMPLETING THE ASSESSMENT , THE ASSESSING OFFICER RESTRICTED THE SAME TO RS 45,93,784/ - . FOR RESTRICT ING THE DEDUCTION , THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION IN RESPECT OF THE LOANS FOR HOSPITAL CONSTRUCTION , EDUCATIONAL INSTITUTIONS , INDUSTRIAL PURPOSES , SMALL SCALE PROJECTS . ACCORDING TO THE ASSESSING OFFICER , ONLY THE LOANS UNDER THE CATEGORY OF HOUSING LOANS IS ELIGIBLE FOR DEDUCTION AND ACCORDINGLY RESTRICTED THE CLAIM OF DEDUCTION TO THE INTEREST INCOME EARNED FROM HOUSING LOANS. 9 .1 ON APPEAL, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. THE RELEVANT FINDINGS OF THE CIT(A) READ AS FOLLOWS: 8.5 FURTHER, AS PER THE PROVISIONS OF SECTION 36(1 )(VIII), ELIGIBLE BUSINESS MEANS BUSINESS OF PROVIDING LONG TERM FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT, DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA AND DEVELOPMENT OF HOUSING IN INDIA. THE BREAKUP OF THE LONG TERM FINANCE WAS ALSO FURNISHED BY THE APPELLANT, AS BELOW: DESCRIPTION INTEREST INCOME (RS) PURPOSES ITA NO S 508 & 522/C/2015 8 LONG TERM NON HOUSING LOAN AGRICULTURAL - 11,19,104 HOUSING LOAN AGRICULTURAL LOANS 37,89,067 AGRICULTURAL PURPOSES MITHRA SHG/NHG LOANS 12,59,494 CARRY BAGS MANUFACTURING UNITS. (INDUSTRIAL PURPOSES) TERM LOANS 64,17, 383 FOR ESTABLISHMENT OF NEW INDIVIDUALS AND INDUSTRIES AND ALLIED ACTIVITIES SOCIETIES AND EXPANSION OF EXISTING INDUSTRIES. HOUSING LOANS 42,85,24,630 HOUSING PROJECT LOANS 2,32,48,158 SMALL SCALE INDUSTRIAL PROJECTS ETC) OTHER LONG TERM 4,54,60,679 FOR PURCHASE OF PROPERTY, LOANS HOUSING (CONSTRUCTION OF FLATS / PURCHASE OF PROPERTY FOR CONSTRUCTION OF HOUSE/ FL ATS TOTAL 50,98,18,515 8.6 FROM THE ABOVE DISCUSSIONS, IT IS CLEAR THAT THE SAID LOANS FALLS UNDER THE ELIGIBLE BUSINESS OF PROVIDING LONG TERM FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT, DEV ELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA AND DEVELOPMENT OF HOUSING IN INDIA AND HENCE IS ELIGIBLE FOR DEDUCTION U/S.36(1 )(VIII). ACCORDINGLY, DEDUCTION OF RS.1,56,78,943 IS ALLOWED TO THE ASSESSEE . 9 . 2 AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. THE LD DR STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND CONTENDED THAT THE ORDER OF THE CIT(A) IS A NON - SPEAKING ORDER AND THE SAME NEEDS TO BE QUASHED. THE LD COUNSEL FOR THE ASS ESSEE, ON THE OTHER HAND , REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES. 9 . 3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. AS PER PROVISIONS OF SECTION 36(1)(VIII) OF THE I T ACT , THE ELIGIBLE BUSINESS MEANS BUSINESS OF PROVIDING LONG TERM FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT, DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA AND D EVELOPMENT OF HOUSING IN INDIA. IN OUR VIEW, INDUSTRIAL PURPOSES INCLUDES ALL TYPES OF IN DUSTRIES BOTH MANUFACTURING AS WELL AS SERVICE ITA NO S 508 & 522/C/2015 9 INDUSTRY. ADMITTEDLY, THESE ARE LOANS ADVANCED BY THE ASSESSEE FOR LONG TERM FINANCE AND THE DETAILS OF THE PURPOSE FOR WHICH THE LOANS ARE ADVANCED , ARE ENUMERATED IN PARA 8.5 OF THE IMPUGNE D ORDER OF THE CIT(A). THE CIT(A), AFTER EXAMINING THE PURPOSE FOR WHICH THE LOANS WERE ADVANCED HAD CATEGORICALLY HELD THAT THE INTEREST INCOME , OUT OF LOANS ENUMERATED , CLEARLY FALLS WITHIN THE DEFINITION OF ELIGIBLE BUSINESS UNDER 36(1)(VIII) OF THE AC T. THIS FACTUAL FINDING OF THE CIT ( A) WAS NOT DISPELLED BY THE REVENUE BY PLACING ANY CONTRARY MATERIAL ON RECORD. MOREOVER, ON IDENTICAL FACTS, THE CLAIM U/S 36 (1)(VIII) OF THE ACT FOR EARLIER ASSESSMENT YEARS NAMELY A Y 2008 - 09 AND 2009 - 10 WERE DISALLOWED BY THE CIT(A) AND DEPARTMENT HAD ACCEPTED THE SAME. IT IS WELL SETTLED THAT DEPARTMENT HAVING ACCEPTED THE CIT(A) S ORDER FOR EARLIER YEARS CANNOT AGITATE THE ISSUE FOR THE CURRENT ASSESSMENT YEAR, UNLESS DEPARTMENT IS ABLE TO PROVE THAT FOR EARLIER YEARS CIT(A) ORDER S WERE ACCEPTED ON ACCOUNT OF L O W TAX EFFECT. THEREFORE, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT (A) IS CORRECT AND IN ACCORDANCE WITH LAW ON THIS ISSUE AND NO INTERFERENCE IS CALLED FOR. IT IS ORDERED ACCORDINGLY . 1 0 IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 1 1 TO SUM - UP, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND DAY OF MARCH 2017 . SD/ - SD/ - ( ABRAHAM P GEORGE ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDIC IAL MEMBER COCHIN: DATED 22 ND MARCH 2017 RAJ* ITA NO S 508 & 522/C/2015 10 COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN