M/s Zila Sahkari Bank Ltd., Meerut V. Addl. CIT, Meerut

ITA 5155/DEL/2011

• Counselvise Citation: 515520114 RSA 2011
• Duration Of Justice: 1 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 12-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 18-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMEER SHARMA
• Assessee Lawyers: P S KASHYAP
• Keywords: Bad and doubtful debts; Provision of bad debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI B.C. MEENA ITA NO. 5155/DEL/2011 ASSTT. YR: 2008-09 M/S ZILA SAHKARI BANK LTD. VS. ADDL. CIT RANGE-2, W.K. ROAD, MEERUT. MEERUT. PAN: AAATZ 0343 F ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI P.S. KASHYAP FCA & SHRI AJAY KUMAR RESPONDENT BY : SHRI SAMEER SHARMA SR. DR O R D E R PER R.P. TOLANI, J.M : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER D ATED 28-9- 2011 RELATING TO A.Y. 2008-09. SOLE EFFECTIVE GROUN D RAISED IS AS UNDER: THAT ON FACTS AND IN LAW NOT ALLOWING PROVISIONS FOR BAD DEBT RESERVE AMOUNTING TO RS. 9,98,68,000/- AS CLAIMED I N PROFIT & LOSS ACCOUNT IS TOTALLY WRONG. UNJUSTIFIED AND ILLE GAL. APPELLANT IS A CO-OPERATIVE BANK AND CLAIMED DEDUCTION FOR PR OVISION FOR BAD DEBTS RESERVE IN ACCORDANCE TO THE PROVISIONS C ONTAINED IN SECTION 36(I)(VII(A) OF THE ACT. THEREFORE THE BASI S TAKEN AND METHOD ADOPTED FOR NOT ALLOWING PROVISIONS FOR BAD DEBTS RESERVE AMOUNTING TO RS. 9,98,68,000/- IS TOTALLY W RONG AND UNJUSTIFIED AND THE SAME DESERVES TO BE ALLOWED IN FULL. 2. BRIEF FACTS ARE: THE ASSESSEE IS A COOPERATIVE SOCIETY RUNNING BANKING ACTIVITIES IN VARIOUS AREAS OF MEERUT DISTRICT INCL UDING VARIOUS RURAL BRANCHES. IN ITS P&L A/C ASSESSEE CLAIMED THE REQUI SITE PROVISION FOR BAD 2 DEBTS RESERVE AS PROVIDED BY SEC. 36(1)(VIIA) FOR R URAL BRANCH ADVANCES. ASSESSING OFFICER, HOWEVER, CALLED THE ASSESSEE TO GIVE JUSTIFICATION FOR CLAIMING THESE BAD DEBTS. ASSESSEE MADE DETAILED SU BMISSIONS ON 29-12- 2010. ASSESSING OFFICER, HOWEVER, WITHOUT REFERRING TO PROVISIONS OF SECTION 36(1)(VIIA) DISALLOWED THE ASSESSEES CLAIM IN THIS BEHALF BY FOLLOWING OBSERVATIONS: LOOKING AT THE CONTEXT OF THE PROVISIONS AS PER IN COME TAX ACT, 1961, THE DEDUCTION CAN BE CLAIMED ON THE TOTA L INCOME OR ADVANCE MADE. DURING THE YEAR THE ASSESSEE HAS ACCE PTED LOAN OF NEARLY 106,33,67,600/- FROM THE U.P. CO-OPERATIV E BANK HOWEVER THE DEPOSITS RECEIVED ARE ONLY 45,01,38,601 /- AS PER BALANCE SHEET. HOWEVER, ADVANCES MADE AS CLAIMED BY ASSESSEE ARE 86,36,49,259/-. HENCE, IT IS PROVED THAT T HE A SSESSEE MADE ADVANCES ONLY FROM THE DEPOSITS RECEIVED AFTER DEDU CTING THE STATUTORY AMOUNT OF BALANCE REQUIRED TO BE MAINTAIN ED BY A CO- OPERATIVE BANK. HENCE, AFTER ALLOWING SLR AND CRR ( STATUTORY LIQUID RATIO AND CASH RESERVE RATIO) THERE IS HARDL Y ANY MONEY LEFT TO BE ADVANCED. AS PER RBI GUIDELINES TH E SLR SHOULD BE 24% AND CRR SHOULD BE 2% TO 20%. THE LEGI SLATURE INTENT OF THE PROVISION IS TO PROVIDE SUPPORT TO BA NK IN ITS ACTIVITY OF GIVING LOAN TO FARMERS WITHOUT SECURITY AND NOT ENCOURAGING ITS NPA (NON PERFORMING ASSETS). 2.1. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL WHE RE CIT(A) CONFIRMED THE ORDER OF ASSESSING OFFICER BY FOLLOWING OBSERVA TIONS: I HAVE CONSIDERED THE FACTS OF THE CASE AND THE PR OVISIONS OF LAW, I AGREE WITH THE AR THAT PROVISIONS OF SECTION 36(1)(VIIA) SHALL BE APPLICABLE IN THE CASE OF THE APPELLANT. H OWEVER, THE DOCUMENTS PLACED ON RECORD TO NOT SHOW THAT PROVISI ON FOR BAD AND DOUBTFUL DEBTS MADE WAS NOT EXCEEDING SEVEN AND ONE-HALF PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKIN G ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND IT WAS NOT EXCEEDING TEN PER CENT OF THE AGGREGATE AVERAGE ADV ANCES MADE BY THE RURAL BRANCHES OF SUCH BANK. AS NOTED BY THE AO , THE APPELLANT, DURING THE YEAR ACCEPTED LOAN OF ABOUT R S. 106.33 3 CRORES FROM U.P. COOPERATIVE BANK. THE DEPOSITS REC EIVED AMOUNTED TO ONLY RS. 45.01 CRORES AS PER BALANCE SH EET. THE ADVANCES WERE MADE ONLY FROM THE DEPOSITS RECEIVED AFTER DEDUCTING THE STATUTORY AMOUNT OF BALANCE REQUIRED TO BE MAINTAINED BY A COOPERATIVE BANK. AS NOTED BY THE A O, AFTER ALLOWING FOR SLR & CRR (STATUTORY LIQUIDITY RATIO & CASH RESERVE RATIO) THERE WAS HARDLY ANY MONEY LEFT TO B E ADVANCED. AS PER RBI GUIDELINES, THE SLR SHOULD BE 24% AND CR R SHOULD BE 2% TO 20%. I AGREE WITH THE AO THAT THE LEGISLAT IVE INTENT IS TO PROVIDE SUPPORT TO BANK IN ITS ACTIVITY OF GIVIN G LOAN TO FARMERS WITHOUT SECURITY AND NOT ENCOURAGING ITS NP A (NON PERFORMING ASSETS). ON THE BASIS OF TOTALITY OF THE SE REASONS, THE ADDITION MADE BY THE AO BY WAY OF DISALLOWANCE IS CONFIRMED. 3. LD. COUNSEL FOR THE ASSESSEE SHRI P.S. KASHYAP F CA CONTENDS THAT: (I) SINCE THE ASSESSEE BANK HAS MADE RURAL ADVANCES AND MADE PROVISION IN ITS P&L A/C, IT IS ELIGIBLE FOR DEDUCT ION U/S 36(1)(VIIA) AS PROVIDED IN THE ACT, FOR RS. 9,98,68,000/-. (II) FOR ALLOWING DEDUCTION U/S 36(1)(VIIA), PROVISIONS OF RBI GUIDELINES ON SLR AND CRR HAVE GOT ON CORRELATION A S PROVISIONS DO NOT PROVIDE IT. (III) PROPER WORKING FOR PROVISION MADE U/S 36(1)(VIIA) WAS FILED BEFORE A.O. AS WELL AS BEFORE CIT(A) AND NO INFIRM ITY IN THE SAID CALCULATION HAS BEEN POINTED OUT BY ANY OF THEM. (IV) THE CASE OF ASSESSEE BANK IS SQUARELY COVERED BY TH E DECISION OF HONBLE SUPREME COURT IN THE CASE OF CATHOLIC SYRIA N BANK LTD. VS. CIAT (APPEAL NO. 1143 OF 2011). IN THIS JUDGMEN T THE HONBLE SUPREME COURT HAS DISTINGUISHED BETWEEN THE PROVISI ONS OF SECTION 36(1)(VII) AND SEC. 36(1)(VIIA)OF THE ACT AND HAS C ONCLUDED THAT IN CASE OF ADVANCES MADE BY THE RURAL BRANCHES OF THE BANK THE 4 PROVISION MADE FOR BAD AND DOUBTFUL ADVANCES MADE B Y ITS RURAL BRANCHES WILL BE ENTITLED FOR DEDUCTION AS PER THE PROVISIONS OF SECTION 36(1)(VIIA) ONLY. (V) THE DECISION IN THE CASE OF CATHOLIC SYRIAN BANK LT D. (SUPRA) WAS FOLLOWED BY THE HONBLE SUPREME COURT IN THE CASE O F DCIT VS. KARNATAKA BANK LTD. (2012) 254 CTR (SC) 103 AND IT WAS CONFIRMED THAT PROVISION FOR BAD AND DOUBTFUL DEBTS CREATED BY THE ASSESSEE IN RELATION TO THE ADVANCE OF ITS RURAL BR ANCHES SUBJECT TO THE LIMITATION THAT AN AMOUNT SHOULD NOT BE DEDUCTE D TWICE U/S 36(1)(VII) AND SEC. 36(1)(VIIA) SIMULTANEOUSLY. (VI) THE CBDT INSTRUCTION NO. 10/2008 DATED 31-07-2008 S TIPULATES THAT WHILE COMPUTING THE INCOME UNDER THE HEAD PR OFITS AND GAINS OF BUSINESS & PROFESSION, A SCHEDULED BANK ( NOT BEING A BANK INCORPORATED BY OR UNDER THE LAWS OF FOREIGN COUNTRY) OR A NON SCHEDULE BANK OR A COOPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURE SOCIETY OR A PRIMARY COOPERATIVE AGRICU LTURAL AND RURAL BANK IS ENTITLED TO CLAIM DEDUCTION OF PROVISION OF BAD DEBTS OF AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANKS COMPUTED I N THE PRESCRIBED MANNER. IN TERM RURAL BRANCH HAS BEEN DEFINED IN EXPLANATION (1) TO SECTION 36(1)(VIIA) TO BE A BRAN CH OF SCHEDULE OR A NON SCHEDULED BANK SITUATED IN A PLACE WHICH HAS A POPULATION OF NOT MORE THAN TEN THOUSAND ACCORDING TO THE LAST PR ECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED B EFORE THE FIRST DAY OF THE PREVIOUS YEAR. 4. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER O F LOWER AUTHORITIES. 5 5. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. 5.1. THE FACT THAT THE ASSESSEE CLAIMED PROVISION F OR BAD DEBT RESERVE IN TERMS OF SECTION 36(1)(VIIA) QUA RURAL BRANCHES ONL Y HAS NOT BEEN DISPUTED. WHILE DISALLOWING THE CLAIM OF THE ASSESSEE, THE A SSESSING OFFICER AND CIT(A) HAVE NOT RELIED ON SPECIFIC PROVISIONS OF SE CTION 36(1)(VIIA), RATHER REFERRED TO SLR AND CRR WHICH DO NOT FIND ANY REFER ENCE IN THE LANGUAGE OF SECTION 36(1)(VIIA). IN OUR CONSIDERED VIEW WITH TH ESE UNDISPUTED FACTS ON RECORD, THE HONBLE SUPREME COURT JUDGMENT IN THE C ASE OF CATHOLIC SYRIAN BANK LTD. (SUPRA) IS SQUARELY APPLICABLE TO THE FAC TS OF THE CASE, ALLOWING RURAL BRANCHES ADVANCES WITHOUT INFERENCE OF SLR & CRR. 5.2. IN THESE CIRCUMSTANCES AND LEGAL POSITION, THE ASSESSEE IS ELIGIBLE FOR THE CLAIM OF BAD DEBT RESERVE U/S 36(1)(VIIA) WHICH NEEDS TO BE ALLOWED. IN VIEW THEREOF, THE ASSESSEES APPEAL IS ALLOWED. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 14-08-2013. SD/- SD/- ( B.C. MEENA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14 TH AUGUST 2013. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 6