State Bank of Hyderabad, Hyderabad V. The Addl.CIT, Circle-3(2), Hyderabad

ITA 584/HYD/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69948 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 25-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: G KALYAN DAS
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Bad and doubtful debts; Revised return; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, A.M. AND SHRI SAKTIJIT DEY, J.M. ITA.NO.666/HYD/2013 ASSESSMENT YEAR 2009-2010 THE ADDL. CIT, CIRCLE 3(2) HYDERABAD VS. STATE BANK OF HYDERABAD, HYDERABAD PAN AADCS4009H (APPELLANT) (RESPONDENT) ITA.NO.584/HYD/2013 ASSESSMENT YEAR 2009-2010 STATE BANK OF HYDERABAD, HYDERABAD PAN AADCS4009H VS. THE ADDL. CIT, CIRCLE 3(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI G. KALYANDAS (A.R.) FOR RESPONDENT : SHRI D.SUDHAKAR RAO (CIT ) DATE OF HEARING : 25.11.2013 DATE OF PRONOUNCEMENT : 29.11.2013 ORDER PER SAKTIJIT DEY, J.M. THESE CROSS-APPEALS ARE FILED BY THE DEPARTMENT AND ASSESSEE AGAINST THE COMMON ORDER OF THE CIT(A) IV, HYDERABAD DATED 19.02.2013 FOR THE ASSESSMENT YEAR 2009- 2010. SINCE, COMMON ISSUES ARE INVOLVED IN BOTH THE APPEALS, THEY WERE CLUBBED, HEARD TOGETHER AND ARE BEING DIS POSED OF BY THE SINGLE CONSOLIDATED ORDER. 2 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. 2. FIRST, WE WILL TAKE-UP ITA.NO.666/HYD/2013 OF T HE DEPARTMENT IN WHICH THE DEPARTMENT HAS RAISED THE F OLLOWING TWO EFFECTIVE GROUNDS : 2. THE LEARNED CIT(A) SHOULD HAVE SUSTAINED THE ADDITION ON ACCOUNT OF DEPRECIATION OR FALL IN VALUE OF INVESTMENTS HELD TO MATURITY (HTM). THE LEARNED CIT(A) OUGHT TO HAVE TREATED HTM CATEGORY OF SECURITIES CONSTITUTE INVESTMENT BUT NOT STOCK-IN-TRADE. 3. THE LEARNED CIT(A) SHOULD HAVE SUSTAINED THE ADDITION ON ACCOUNT OF BROKEN PERIOD INTEREST IN VIEW OF DECISION OF HONBLE SUPREME COURT IN THE CASE OF VIJAYA BANK LTD. 187 ITR 541 AND BOARDS CIRCULAR NO. 665. 3. GROUND NO.2 IS WITH REGARD TO CIT(A) ALLOWING ASSESSEES CLAIM OF DEPRECIATION OR FALL IN VALUE O F INVESTMENTS HELD TO MATURITY (HTM). BRIEFLY, THE FACTS ARE, THE ASSESSEE IS A BANKING COMPANY AND SUBSIDIARY OF STATE BANK O F INDIA, MUMBAI. FOR THE ASSESSMENT YEAR UNDER DISPUTE THE A SSESSEE FILED ITS RETURN OF INCOME ON 23.09.2009 DECLARING INCOME OF RS.694,56,93,348/-. SUBSEQUENTLY, A REVISED RETURN WAS FILED ON 06.11.2009 REVISING THE INCOME TO RS.647,67,91,7 40/-. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. ON EXAM INING THE COMPUTATION OF INCOME NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF AN AMOUNT OF RS.27,46,33,636/- ON INVESTMENTS IN HTM SECURITIES BY TREATING THEM AS S TOCK IN TRADE. HOWEVER, THE A.O. WHILE COMPLETING THE ASSES SMENT 3 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. REJECTED ASSESSEES CLAIM AND DISALLOWED THE AMOUNT OF RS.27,46,33,636/-. 4. THE ASSESSEE CHALLENGED THE DISALLOWANCE MADE B Y A.O. IN AN APPEAL PREFERRED BEFORE THE CIT(A). THE CIT(A) FOLLOWING THE ORDER OF ITAT, HYDERABAD BENCH IN ASS ESSEES OWN CASE IN ITA.NO.1232/HYD/2006 DATED 28.11.2008 FOR A .Y. 2003-04 ALLOWED THE CLAIM OF THE ASSESSEE BY HOLDIN G THAT HTM SECURITIES BEING IN THE NATURE OF STOCK IN TRADE OF THE ASSESSEE, IT IS ENTITLED TO CLAIM DEPRECIATION ON THEM. 5. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD, WE ARE OF THE VIEW THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSE SSEE NOT ONLY BY VIRTUE OF DECISION OF THE JURISDICTIONAL HIGH CO URT IN ASSESSEES OWN CASE REPORTED IN 151 ITR 703 BUT BY ATLEAST THREE SEPARATE ORDERS OF THE ITAT, HYDERABAD BENCH IN ASSESSEES OWN CASE FOR DIFFERENT ASSESSMENT YEARS. THE COORDINATE BENCH IN ITS LATEST ORDER PASSED IN ITA.NO.847/HYD/2012 AND 1002/HYD/2012 DATED 28.03.2 013 RELATING TO ASSESSMENT YEAR 2008-2009 WHILE DECIDIN G THE ISSUE HELD AS UNDER : 28. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE (151 ITR 703 ) HELD THAT MAIN BUSINESS OF THE BANKING COMPANY BEING TO ACCEPT DEPOSITS TO ADVANCE LOANS TO APPROPRIATE PERSONS, MONEY CONSTITUTES ITS STOCK IN TRADE. THE AMOUNT REQUIR ED 4 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. TO KEPT IN INDIA AS PER SECTION 24 OF THE BANKING REGULATION ACT, 1949 IN THE FORM OF CASH, GOLD AND UNENCUMBERED SECURITIES IS PART OF STOCK IN TRADE OF THE ASSESSEE. WHILE IDENTICAL ISSUE OF CLAIM OF DEPRECIATION ON HTM SECURITIES CAME UP BEFORE THE INCOME-TAX APPELLATE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 IN ITA NO.1232/HYD/2006 DATED 28-11-2008, THE INCOME- TAX APPELLATE TRIBUNAL FOLLOWING THE RATIO LAID DOW N BY THE JURISDICTIONAL HIGH COURT IN 151 ITR 703 AND HONBLE KERALA HIGH COURT IN CASE OF CIT V/S. NEDUNGADI BANK LTD (264 ITR 545) HELD THAT WHEN THERE IS NO DISTINCTION BETWEEN THE THREE CATEGORIE S OF SECURITIES VIZ.,HTM, AFS AND HFT. THE ASSESSEE CAN PROVIDE FOR DEPRECIATION IN ALL THE SECURITIES ON THE SAME FOOTING. IN VIEW OF THE RATIO LAID DOWN B Y THE CO-ORDINATE BENCH OF THIS TRIBUNAL, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDING OF TH E CIT (A) ON THIS ISSUE. ACCORDINGLY, THE GROUND RAI SED BY THE DEPARTMENT IS DISMISSED. 6. RESPECTFULLY FOLLOWING THE AFORESAID FINDING OF THE COORDINATE BENCH, WE UPHOLD THE DECISION OF THE CIT (A) AND DISMISS THE GROUND RAISED BY THE DEPARTMENT. 7. IN GROUND NO.3, THE DEPARTMENT HAS CHALLENGED T HE ORDER OF THE CIT(A) IN DELETING THE ADDITION MADE B Y THE A.O. ON ACCOUNT OF BROKEN PERIOD INTEREST. 5 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. 8. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED EXPENDITURE O F AN AMOUNT OF RS.157,60,72,614/- ON ACCOUNT OF BROKEN P ERIOD INTEREST. THE A.O. HOWEVER, DISALLOWED THE ASSESSEE S CLAIM BY TREATING IT AS CAPITAL EXPENDITURE. WHILE DECIDING ASSESSEES APPEAL ON THE ISSUE, THE CIT(A) ALLOWED ASSESSEES CLAIM BY FOLLOWING THE ORDER OF THE ITAT IN ASSESSEES OWN C ASE IN ITA.NO. 578 & 779/HYD/2010 DATED 07.09.2012 FOR THE ASSESSMENT YEAR 2007-2008. 9. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL ON RECORD. AS CAN BE SEEN FROM THE ORDER O F THE COORDINATE BENCH OF THIS TRIBUNAL WHILE CONSIDERING THIS ISSUE IN ASSESSEES OWN CASE FOR THE A.Y. 2008-09 IN ITA. NO. 847 & 1002/HYD/2012 DATED 28.03.2012 HELD AS UNDER : 30. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES. ON PERUSAL OF THE ORDERS OF THE REVENUE AUTHORITIES AND MATERIALS ON RECORD WE FIND THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF CO-ORDINATE BENCH PASSED IN ASSESSEES OWN FOR THE ASSESSMENT YEARS 1999- 2000 AND 2007-08. THE TRIBUNAL IN THE ORDER FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO.578 AND 779/HYD/10 DATED 7-9-2012 HAVE HELD AS UNDER:- THE FIRST ISSUE IN THE APPEAL IS REGARDING DISALLOWANCE OF BROKEN PERIOD INTEREST OF RS.58.51 CRORES. THE BANK WHICH HAVE PURCHASED GOVERNMENT SECURITIES HAVE PAID 6 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. RS.58.51 CRORES TOWARDS INTEREST IN RESPECT OF SECURITIES PURCHASED FOR THE BROKEN PERIOD FROM THE PRECEDING DUE DATE FOR PAYMENT OF INTEREST UPTO THE DATE OF PURCHASE. THE BANK HAD ALSO RECEIVED INTEREST OF RS.36.84 CRORES IN RESPECT OF SECURITIES SOLD BY THEM FOR THE BROKEN PERIOD FROM THE PRECEDING DUE DATE FOR PAYMENT OF INTEREST UPTO THE DATE OF THE SALE. THE ASSESSEE CLAIMED THE AMOUNT OF INTEREST PAID FOR THE BROKEN PERIOD UPTO THE DATE OF PURCHASE AS DEDUCTION ON THE GROUND THAT THE SECURITIES WERE HELD STOCK IN TRADE. THE AO HOWEVER REJECTED THE APPELLANTS CLAIM HOLDING THAT THE APPELLANTS CONTENTION THAT THE SECURITIES CONSTITUTED STOCK IN TRADE. IT HAS NOT BEEN ACCEPTED SINCE IT WAS FOUND THAT THE SECURITIES HELD IN THE CATEGORY OF HTM (HELD TO MATURITY) DID NOT FORM PART OF THE STOCK. HOWEVER, THE CIT(A) ALLOWED THE CLAIM ON THE GROUND THAT THE SAME WAS IN STOCK IN TRADE AND HENCE THE INTEREST FOR THE BROKEN PERIOD IS AN ALLOWABLE DEDUCTION, FOLLOWING THE DECISION OF ITAT HYDERABAD DATED 18/03/05. AGGRIEVED REVENUE IS ON APPEAL. WE FIND THAT THE ISSUE IS COVERED BY THE DECISION OF THE MUMBAI BENCH IN THE CASE OF JCIT VS. DENA BANK 139 TTJ 81 (MUM). THEY HAD FOLLOWED THE DECISION OF SPECIAL BENCH IN THE MUMBAI IN JCIT BANK OF BEHARAIN, 132 TTJ 505 AND THE 7 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. DECISION OF MUMBAI HIGH COURT IN THE CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION VS. CIT 258 ITR 601, WE FIND THAT KERALA HIGH COURT., CIT VS. NEDUNGADI BANK 264 ITR 545 HAS HELD THAT THE BROKEN PERIOD INTEREST IS AN ALLOWABLE DEDUCTION. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE UPHOLD THE ORDER OF CIT(A) AND REJECT THE REVENUES APPEAL ON THIS GROUND. 31. THOUGH IT IS A FACT THAT IN CASE OF CIT V/S. BANK OF RAJASTHAN LTD (316 ITR 391), RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE HONBLE RAJASTHAN HIGH COURT HAS TAKEN A CONTRARY VIEW BY HOLDING THAT THE PAYMENT TOWARDS BROKEN PERIOD INTEREST IS A CAPITAL EXPENDITURE. HOWEVER, AS THE CO-ORDINATE BENCH HAS DECIDED THE ISSUE AFTER FOLLOWING THE VIEW EXPRESSED BY THE HONBLE BOMBAY HIGH COURT IN CASE OF AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION (SUPRA) AND HONBLE KERALA HIGH COURT IN CASE OF CIT V/S. NEDUNGADI BANK (SUPRA), WE RESPECTFULLY FOLLOW THE SAME AND UPHOLD THE ORDER OF THE CIT (A). THE GROUND RAISED BY THE DEPARTMENT IS DISMISSED. 8 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. 10. RESPECTFULLY FOLLOWING THE AFORESAID FINDING O F THE COORDINATE BENCH, WE UPHOLD THE DECISION OF THE CIT (A) AND DISMISS THE GROUND RAISED BY THE DEPARTMENT. 11. IN THE RESULT, ITA.NO.666/HYD/2013 OF THE DEPARTMENT IS DISMISSED. 12. ITA.NO.584/HYD/2013 (ASSESSEES APPEAL) : IN THIS APPEAL THE ASSESSEE HAS RAISED 4 GROUNDS. GROU NDS NO.1 AND 4 ARE GENERAL IN NATURE AND THEREFORE, IT NEEDS NO ADJUDICATION. GROUNDS NO. 2.1 TO 2.4 ARE RELATING TO SUSTAINING THE DISALLOWANCE OF RS.1,79,11,875/- BY THE CIT(A) UNDER SECTION 14A READ WITH RULE 8D OF I.T. RULES. 13. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE HAS DECLARED EXEMPT INCOME OF RS.5,11,21,049/-. ON FURTHER EXAMI NING THE DETAILS CALLED FOR WITH REGARD TO EXPENDITURE INCUR RED FOR EARNING THE EXEMPT INCOME AS WELL AS ASSESSEES EXP LANATION TO THE EFFECT THAT THE TOTAL EXPENDITURE WHICH COULD B E APPORTIONED TOWARDS EARNING THE EXEMPT INCOME IS THE EXPENDITUR E INCURRED BY THE TREASURY AND INVESTMENT DIVISION OF THE BA NK, THE A.O. HELD THAT IT WAS NOT ONLY THE INVESTMENT DIVISION B UT THE ENTIRE RESOURCES OF THE BANK WHICH WOULD BE PUT TO USE FOR EARNING THE INCOME, WHICH WILL ALSO INCLUDE THE EXEMPTED IN COME. HE ALSO REJECTED ASSESSEES CONTENTION THAT THE BANK H AD SUFFICIENT INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL, F REE RESOURCES AND INTERNAL ACCRUALS BY OBSERVING THAT BANKS ARE R EQUIRED TO KEEP A CONTAIN PERCENTAGE OF THE PROFITS IN THE STA TUTORY RESERVES. THE A.O. NOTICED THAT AS PER THE P & L AC COUNT, THE 9 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. ASSESSEE HAD INCURRED OPENING EXPENDITURE OF RS.933 .14 CRORES AND INTEREST EXPENDITURE OF RS.4242.71 CRORES, TOTA LING TO RS.5175.85 CRORES, FOR EARNING THE TOTAL INCOME OF RS.6478.81 CRORES WHICH WORKED OUT TO 79.88%. HE, THEREFORE, W AS OF THE VIEW THAT THE ASSESSEE WOULD HAVE SPENT THE SAME PE RCENTAGE OF EXPENDITURE FOR EARNING THE EXEMPT INCOME ALSO. ACCORDINGLY, THE A.O. HELD THAT 79.88% OF THE EXEMPTED INCOME OF RS.5,11,26,104/- IS TO BE DISALLOWED. THE ASSESSEE ITSELF HAVING DISALLOWED AN AMOUNT OF RS.14,11,575/-, THE A.O. WO RKED OUT THE DISALLOWANCE TO RS.3,94,23,918/-. THE ASSESSEE CHALLENGED THE DISALLOWANCE IN AN APPEAL PREFERRED BEFORE THE CIT(A). 14. DURING THE HEARING OF APPEAL BEFORE THE CIT(A) , THE ASSESSEE CONTENDED THAT AS PER THE VIEW OF THE ITAT , ESTABLISHMENT CHARGES INCURRED IN THE FORM OF SALAR Y OF OFFICERS AND STAFF WORKING IN THE INVESTMENT DIVISION, INCUR RED FOR A PERIOD OF TWO MONTHS COULD BE ALLOCATED AS EXPENDIT URE INCURRED FOR EARNING DIVIDEND INCOME. HOWEVER, CONS IDERING THE INTRODUCTION OF RULE 80D OF THE I.T. RULES, THE ASS ESSEE SUBMITTED A WORK OUT BEFORE THE CIT(A) COMPUTING TH E DISALLOWANCE UNDER RULE 8D(2) FOR AN AMOUNT OF RS.1,93,23,450/-. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE VIS--VIS THE COMPUTATION SUBMITTED BY THE ASSESSEE WORKING OUT THE DISALLOWANCE IN TERMS WITH RULE 8D(2) ACCEPTED THE ASSESSEES CLAIM BY RESTRICTING THE DI SALLOWANCE TO RS.1,79,11,875/- (RS.1,93,23,450 RS.14,11,575/-). 15. HAVING CONSIDERING THE SUBMISSIONS OF THE PART IES AND ON PERUSAL OF THE MATERIALS ON RECORD, WE DO N OT FIND ANY 10 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. INFIRMITY IN THE ORDER PASSED BY THE CIT(A) ON THIS ISSUE. AFTER INTRODUCTION OF RULE 8D INTO THE INCOME TAX RULES F ROM A.Y. 2008-09 DISALLOWANCE OF EXPENDITURE RELATING TO EAR NING OF EXEMPTED INCOME UNDER SECTION 14A OF THE ACT, HAS T O BE DETERMINED AS PER THE METHOD PROVIDED UNDER RULE 8D . IN FACT, AS CAN BE NOTICED FROM PARA 7.4 OF THE CIT(A) ORDER , THE ASSESSEE ITSELF DURING THE PROCEEDING BEFORE THE CI T(A) HAS WORKED OUT THE DISALLOWANCE TO BE MADE IN TERMS WIT H RULE 8D(2) WHICH HAS BEEN ACCEPTED BY THE CIT(A). IN THE SE CIRCUMSTANCES, WE DO NOT FIND ANY REASON TO INTERFE RE WITH THE ORDER OF THE CIT(A) IN THIS REGARD. ACCORDINGLY, WE DISMISS THE GROUNDS RAISED BY THE ASSESSEE. 16. THE ONLY OTHER ISSUE AS RAISED BY THE ASSESSEE IN GROUNDS NO. 3.1 TO 3.4 IS RELATING TO DISALLOWANCE OF CLAIM OF PROVISION FOR BAD AND DOUBTFUL DEBTS RELATING TO RU RAL BRANCHES UNDER SECTION 36(1)(VIIA) OF THE ACT. 17. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS THE A.O. NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF AN AMOUNT OF RS.361,58,27,174/- WORKED OUT AS UNDER : BAD DEBTS WRITTEN OFF NON RURAL ADVANCES PROVISION FOR BAD AND DOUBTFUL DEBTS (7.5% OF TOTAL INCOME) RS. 46,55,21,925/ - RS.76,56,95,053/- PROVISION FOR RURAL BRANCH ADVANCES DEDUCTIONS U/S. RS.238,46,10,196 11 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. 36(1)(VIIA) TOTAL RS.361,58,27,174 18. THE ASSESSING OFFICER. NOTICED THAT AS PER ANN UAL REPORT FOR THE YEAR ENDING 31.03.2009 THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.134.77 CRORES AS PROVISION FOR BAD AND DOUBTFUL DEBTS. HE, THEREFORE, RELYING UPON THE DEC ISION IN THE CASE OF STATE BANK OF PATIALA VS. CIT (272 ITR 54) HELD THAT DEDUCTION UNDER SECTION 36(1)(VIIA) COULD BE ALLOWE D ONLY TO THE EXTENT OF THE PROVISION MADE IN THE BOOKS OF ACCOUN TS. ACCORDINGLY, THE A.O. ALLOWED DEDUCTION UNDER SECTI ON 36(1)(VIIA) OF AN AMOUNT OF RS.134.7 CRORES AND DIS ALLOWED THE BALANCE AMOUNT OF RS.226,81,27,174/-. 19. WHEN THE MATTER WENT IN APPEAL BEFORE THE CIT( A), THE CIT(A) FOLLOWING THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK 343 ITR 270 HEL D THAT SINCE THE ASSESSEE HAD NOT MADE PROVISION IN ITS BO OKS OF ACCOUNTS FOR AN AMOUNT OF RS.180,26,05,249/- THE SA ME IS NOT ALLOWABLE AS DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT. 20. THE LEARNED A.R. AT THE OUTSET SUBMITTED BEFOR E US THAT SIMILAR ISSUE AROSE IN ASSESSEES CASE FOR THE ASSESSMENT YEARS 2007-08 AND 2008-09 ALSO. WHEN THE MATTER CAM E IN APPEAL BEFORE THE ITAT, THE ITAT REMITTED THE MATTE R BACK TO THE A.O. FOR DECIDING AFRESH IN THE LIGHT OF THE DE CISIONS OF THE HONBLE SUPREME COURT REFERRED TO THEREIN. IN THIS CONTEXT, THE LEARNED A.R. PLACED BEFORE US AN ORDER OF THE COORD INATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 IN ITA.NO. 12 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. 847/H/2012 AND ITA.NO.1002/H/2012. THE LEARNED A.R. THEREFORE, SUBMITTED THAT FOR THIS IMPUGNED YEAR AL SO THE ISSUE MAY BE REMITTED BACK TO THE FILE OF THE A.O. FOR DE CIDING AFRESH. 21. THE LEARNED D.R. DID NOT HAVE ANY OBJECTION TO SUCH CONTENTION OF THE ASSESSEE. 22. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIALS ON RECORD. IT IS A FACT THAT SIMILAR ISSU E CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BENCH IN ASSESS EES OWN CASE FOR ASSESSMENT YEARS 2007-2008 AND 2008-09. ON A PERUSAL OF THE ORDER PASSED BY THE COORDINATE BENCH IN ITA.NO.847/H/2012 AND ITA.NO.1002/H/2012 IT IS TO B E NOTED THAT THE TRIBUNAL WHILE DECIDING THE AFORESAID ISSU E HELD AS UNDER : 14. WE HAVE HEARD THE CONTENTIONS OF THE PARTIES A ND PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO CONSIDERED THE DECISIONS RELIED UPON BY THE PARTIES . IT IS EVIDENT FROM THE ORDER OF THE CIT (A) THAT TH E ASSESSEES CLAIM FOR DEDUCTION U/S 36(1)(VIIA) WAS NOT ALLOWED ON THE REASONING THAT THE CLAIM U/S 36(1)(VIIA) IS TO BE RESTRICTED TO THE AMOUNT OF PROVISION MADE IN THE BOOKS AND SINCE THE ASSESSEE HAS NOT DEBITED ANY PROVISION FOR BAD AND DOUBTFUL DEBTS, THE CLAIM IS NOT ALLOWABLE. A READING OF TH E PROVISION CONTAINED U/S 36(1)(VIIA) MAKES IT CLEAR THAT THE ASSESSEE IS ONLY REQUIRED TO MAKE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS ACCOUNTS. IT IS NOT REQUIRED THAT ASSESSEE SHOULD 13 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. MAKE PROVISION TO THE EXTENT OF THE AMOUNT CLAIMED U/S 36(1)(VIIA) OF THE ACT. IT IS ALSO A FACT THAT IDENTICAL ISSUE IN THE CASE OF THE ASSESSEE CAME UP FOR CONSIDERATION BEFORE THE INCOME-TAX APPELLATE TRIBUNAL FOR THE ASSESSMENT YEAR 2007-08. THE CO- ORDINATE BENCH OF INCOME-TAX APPELLATE TRIBUNAL IN ITA NO.578/HYD/2010 AND 779/HYD/2010 DATED 7-9-2012 AFTER CONSIDERING VARIOUS DECISIONS OF HONBLE SUPREME COURT REMITTED THE ISSUE TO THE FIL E OF THE ASSESSING OFFICER HOLDING AS UNDER:- 9. THE APEX COURT IN THE CASE OF TRF LTD(SUPRA) HAS HELD THAT ANY DEBT WRITTEN OFF AS IRRECOVERABLE SHOULD BE ALLOWED AS DEDUCTION. IN THE CASE OF VIJAYA BANK LTD(SUPRA), THE APEX COURT HAS HELD THAT IF THE PROVISION FRO BAD DEBTS DEBITED TO THE P&L IS NETTED AGAINST THE CURRENT ASSETS THE PROVISIONS IS AN ALLOWABLE DEDUCTION EVEN IF INDIVIDUAL ACCOUNTS OF THE DEBTORS ARE NOT WTITTEN OFF. IN THE CASE OF CATHOLIC SYRIAN BANK LTD(SUPRA), WHICH WAS NOT AVAILABLE WITH THE LOWER AUTHORITIES AT THE TIME OF DECIDING THE ISSUE, THE APEX COURT HAS HELD AS UNDER UNDER: (I) THE CLEAR LEGISLATIVE INTENT OF S. 36(1)(VII) & 36(1)(VIIA) TOGETHER WITH THE CIRCULARS ISSUED BY T HE CBDT DEMONSTRATE THAT THE DEDUCTION ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS U/S 36(1)(VIIA) IS DISTINCT AND INDEPENDENT OF S. 36(1)(VII) RELATING TO ALLOWANCE OF BAD DEBTS . 14 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. THE LEGISLATIVE INTENT WAS TO ENCOURAGE RURAL ADVANCES AND THE MAKING OF PROVISIONS FOR BAD DEBTS IN RELATION TO SUCH RURAL BRANCHES. THE FUNCTIONING OF SUCH BANKS IS SUCH THAT THE RURAL BRANCHES WERE PRACTICALLY TREATED AS A DISTINCT BUSINESS, THOUGH ULTIMATELY THESE ADVANCES WOULD FORM PART OF THE BOOKS OF ACCOUNTS OF THE HEAD OFFI CE. AN INTERPRETATION WHICH SERVES THE LEGISLATIVE OBJE CT AND INTENT IS TO BE PREFERRED RATHER THAN ONE WHICH SUBVERTS THE SAME. THE DEDUCTION U/S 36(1)(VII) CANNOT BE NEGATED BY READING INTO IT THE LIMITATIONS OF S. 36(1)(VIIA) AS IT WOULD FRUSTRATE THE OBJECT OF GRANTING SUCH DEDUCTIONS . THE REVENUES ARGUMENT THAT THIS WOULD LEAD TO DOUBLE DEDUCTION IS NOT CORRECT IN VIEW OF THE PROVISO TO S. 36(1)(VII) WHICH PROVIDES THAT IN RESPECT OF RURAL ADVANCES, THE DEDUCTION ON ACCOUNT OF THE ACTUAL WRITE OFF OF BAD DEBTS WOULD BE LIMITED TO EXCESS O F THE AMOUNT WRITTEN OFF OVER THE AMOUNT OF THE PROVISION WHICH HAD ALREADY BEEN ALLOWED U/S 36(1) (VIIA) ( SOUTHERN TECHNOLOGIES 320 ITR 577 (SC) & VIJAYA BANK 323 ITR 166 (SC) REFERRED) 10. IN THAT CASE THE APEX COURT HAS HELD THAT THE 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 MERE PROVISION. FURTHER TO PREVENT TO DOUBLE DEDUCTION, PROVISO TO CLAUSE (VII) WAS INSERTED WHICH SAYS THAT IN RESPECT OF BAD DEBTS ARISING OUT OF RURAL ADVANCES THE DEDUCTION ON ACCOUNT OF ACTUAL WRITE OFF WOULD BE LIMITED TO THE EXCESS OF THE AMOUNT WRITTEN OFF OVER THE AMOUNT OF THE PROVISION ALLOWED UNDER CLAUSE (VIIA). IT FOLLOWS THAT DEDUCTION U/S 36(1)(VIIA) 15 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. IS TO BE ALLOWED ONLY ON THE AMOUNT OF PROVISION MADE FOR BAD AND DOUBTFUL DEBTS SUBJECT TO THE MAXIMUM ON THE BASIS OF RURAL ADVANCES/ INCOME PRESCRIBED UNDER THAT SECTION. THE ALLOWANCE U/S 36(1)(VIIA) CANNOT BE IN EXCESS OF PROVISION FOR BAD DEBTS ACTUALLY MADE IN THE ACCOUNTS. 11. IN VIEW OF THE VERY CLEAR PRINCIPLES LAID DOWN BY THE APEX COURT IN THE ABOVE JUDGEMENTS, WE DEEM IT FIT TO SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE IN THE LIGHT OF THE DECISIONS OF THE APEX COURT IN THE CASES OF (A) TRF LTD (323 ITR 397) (B) VIJAYA BANK LTD (323 ITR 166) AND (C) CATHOLIC SYRIAN BANK LTD (343 ITR 270). 15. FOLLOWING THE AFORESAID ORDER OF THE CO-ORDINA TE BENCH, WE ALSO REMIT THE ISSUE BACK TO THE ASSESSING OFFICER WHO SHALL TAKE A DECISION AFRESH IN THE LIGHT OF THE DECISIONS OF HONBLE APEX COUR T AS REFERRED TO IN THE ORDER OF THE INCOME-TAX APPELL ATE TRIBUNAL QUOTED HEREINABOVE. THE ASSESSING OFFICER SHALL AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN THIS MATTER BEFORE DECIDING THE SAME. HENCE THE GROUNDS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 16 ITA.NO.584 & 666/HYD/2013 STATE BANK OF HYDERABAD, HYD. 23. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH AS REFERRED TO ABOVE, WE THINK IT APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF THE A.O. FOR THE IMPUGNED YEAR ALSO FOR DECIDING AFRESH IN ACCORDANCE WITH DIRECTI ONS GIVEN BY THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEARS. THE A.O. SHALL AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. 24. IN THE RESULT, ITA.NO.584/HYD/2013 OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 25. TO SUM-UP ITA.NO.666/HYD/2013 OF THE DEPARTMENT IS DISMISSED AND ITA. NO.584/HYD/2013 OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 29.11.2013. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATE 29 TH NOVEMBER, 2013 VBP/- COPY TO 1. STATE BANK OF HYDERABAD, O/O. DEPUTY GENERAL MAN AGER, SBH, FINANCE & ACCOUNTS DEPT. HYBANK TOWERS, HE AD OFFICE, GUNFOUNDRY, HYDERABAD 500 001. 2. THE ADDL.CIT, CIRCLE 3(2), HYDERABAD. 3. CIT(A) - IV, HYDERABAD. 4. CIT - III, HYDERABAD. 5. D.R. B BENCH, ITAT, HYDERABAD.