The ACIT, 5(1), Indore V. M/s State Bank of Indore, Indore

ITA 69/IND/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66749 (ITAT-INDORE)
• Duration Of Justice: 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 10-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DARSHAN SINGH
• Keywords: Depreciation; Opportunity of being heard; Bad and doubtful debts
• Section: 32; 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NOS. 74 & 75/IND/2012 A.YS. 2002-03 & 2003-04 STATE BANK OF INDORE (SINCE MERGED WITH STATE BANK OF INDIA) INDORE PAN AAECS 7776 C :: APPELLANT VS ACIT-5(1), INDORE :: RESPONDENT ITA NOS. 69 & 70/IND/2012 A.YS. 2002-03 & 2003-04 ACIT-5(1), INDORE :: APPELLANT VS STATE BANK OF INDORE (SINCE MERGED WITH STATE BANK OF INDIA) INDORE PAN AAECS 7776 C :: RESPONDENT A SSESSEE BY SHRI SUMIT NEMA DEPARTMENT BY SHRI DARSHAN SINGH DATE OF HEARING 06.11.2012 DATE OF PRONOUNCEMENT 06.11.2012 2 O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THE ASSESSEE AS WELL AS THE REVENUE ARE IN CROSS- APPEALS FOR AYS 2002-03 & 2003-04, RESPECTIVELY, CHALLENGING THE ORDER OF THE LD. CIT(A)-II, INDORE O N THE GROUNDS RAISED IN THE RESPECTIVE APPEALS. 2. DURING HEARING OF THESE APPEALS, THE COUNSEL FOR TH E ASSESSEE CONTENDED THAT THE IMPUGNED ISSUE OF BAD DEB T U/S 36(1)(VIIA) IS COVERED BY THE DECISION OF THE HO N'BLE APEX COURT IN THE CASE OF CATHOLIC SERIAN BANK LTD. VS . CIT (2012) 343 ITR 270 (SC), 206 TAXMAN 182 (SC). OUR ATTENTION WAS ALSO INVITED TO CIRCULAR NO.258 DATED 14.6.1979, CIRCULAR NO.428 DATED 12.6.1985 AND CIRCULAR NO.464 DATED 18.7.1986. ON THE OTHER HAND, THE LD. CIT/DR PLACED RELIANCE UPON THE ORDERS OF THE ASSESSI NG OFFICER. 3 2.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE CLAIMED DEDUCTION OF RS.9,58,65,019/- U/ S 36(VIIA) OF THE ACT. THE ASSESSEE WAS ASKED FOR THE JUSTIFICATION OF SUCH CLAIM. THE CLAIM OF THE ASSESSEE WAS THAT THE SAID DEDUCTION IS ALLOWABLE IN VIEW OF FIRST P ROVISO TO SEC. 36(1)(VIIA) OF THE ACT. FOR READY REFERENCE, WE ARE REPRODUCING HEREUNDER THE EXPLANATION:- EXPLANATION. - FOR THE PURPOSES OF THIS SUB-CLAUSE, 'RELEVANT ASSESSMENT YEARS' MEANS THE FIVE CONSECUTIVE ASSESS MENT YEARS COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2000 AND ENDING BEFORE THE 1ST DAY OF APRIL, 2005. AS PER THE ASSESSEE, ADDITIONAL DEDUCTION IS AVAILABLE TO THE BANK FOR FIVE CONSECUTIVE AYS I.E. FROM AY 2000-01 T O 2004- 05 AS PER THE MANDATE OF THE LEGISLATURE TO STRENGTHEN THE FINANCIAL POSITION OF THE BANK AND THUS OPTION HAS BEEN GIVEN TO THE BANK IN RESPECT OF DOUBTFUL DEBT IN 4 ACCORDANCE WITH THE GUIDELINES ISSUED BY RESERVE BANK OF INDIA (RBI). THE LD. ASSESSING OFFICER WAS OF THE VIE W THAT SUCH CLAIM HAS BEEN MADE BY THE ASSESSEE IGNORING THE PROVISION TO SEC. 36(VIIA) OF THE ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT SUCH OPTION CAN BE EXERCISED ONLY IN ONE YEAR OUT OF FIVE AYS AT THE OPTION OF THE ASSESSE E. THUS, IT WAS OPINED THAT SINCE THE ASSESSEE HAS ALREADY EXERCI SED ITS OPTION IN AY 2000-01, THEREFORE, THE BANK IS NO T ENTITLED TO CLAIM THE DEDUCTION IN SUBSEQUENT AYS, THEREFORE, THE CLAIMED DEDUCTION OF RS.9,58,65,019/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSE E. THE AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WHO EXAMINED THE CLAIM OF THE ASSESSEE AND OUT O F THE TOTAL BAD DEBT AMOUNTING TO RS.81,07,67,887/-, WRI TTEN OFF DURING THE FY 2001-02, HELD THAT THE ALLOWABLE DEDUCTION U/S 36(1)(VII) IS RS.35,58,85,603/- AND IF THE 5 CLAIMED DEDUCTION OF RS.45,54,87,887/- IS REDUCED TH EN THE ASSESSEE CLAIMED EXCESS DEDUCTION OF RS.9,96,02,2 84/-. 2.2 BEFORE US, THE STAND OF THE ASSESSEE IS THAT IN VIEW OF THE DECISION FROM HON'BLE APEX COURT IN CATHOLIC SERIAN BANK LTD. (SUPRA), THE CLAIMED DEDUCTION IS ALLOWABLE. IN VIEW OF THE ABOVE FACTS AND FOR MORE CLARITY, WE ARE REPRODUCING HEREUNDER THE PROVISIONS OF SEC. 36(1)( VII), 36(1)(VIIA) AND 36(2) OF THE ACT: (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CL AUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREI N, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 - (I) THE AMOU NT OF ANY PREMIUM PAID IN RESPECT OF INSURANCE AGAINST RISK O F DAMAGE OR DESTRUCTION OF STOCKS OR STORES USED FOR THE PURPOS ES OF THE BUSINESS OR PROFESSION; (IA) THE AMOUNT OF ANY PREMIUM PAID BY A FEDERAL MI LK CO- OPERATIVE SOCIETY TO EFFECT OR TO KEEP IN FORCE AN INSURANCE ON THE LIFE OF THE CATTLE OWNED BY A MEMBER OF A CO-OPERAT IVE SOCIETY, BEING A PRIMARY SOCIETY ENGAGED IN SUPPLYING MILK R AISED BY ITS MEMBERS TO SUCH FEDERAL MILK CO-OPERATIVE SOCIETY; (IB) THE AMOUNT OF ANY PREMIUM PAID BY CHEQUE BY TH E ASSESSEE AS AN EMPLOYER TO EFFECT OR TO KEEP IN FORCE AN INS URANCE ON THE HEALTH OF HIS EMPLOYEES UNDER A SCHEME FRAMED IN TH IS BEHALF BY THE GENERAL INSURANCE CORPORATION OF INDIA FORMED U NDER SECTION 9 OF THE GENERAL INSURANCE BUSINESS (NATIONALISATIO N) ACT, 1972 (57 OF 1972), AND APPROVED BY THE CENTRAL GOVERNMEN T; (II) ANY SUM PAID TO AN EMPLOYEE AS BONUS OR COMMIS SION FOR SERVICES RENDERED, WHERE SUCH SUM WOULD NOT HAVE BE EN PAYABLE TO HIM AS PROFITS OR DIVIDEND IF IT HAD NOT BEEN PA ID AS BONUS OR COMMISSION; (IIA) A SUM EQUAL TO ONE AND ONE-THIRD TIMES THE AM OUNT OF THE EXPENDITURE INCURRED ON PAYMENT OF ANY SALARY FOR A NY PERIOD OF 6 EMPLOYMENT BEFORE THE 1ST DAY OF MARCH, 1984 TO AN EMPLOYEE WHO, AS AT THE END OF THE PREVIOUS YEAR, - (A) IS T OTALLY BLIND, OR (B) IS SUBJECT TO OR SUFFERS FROM A PERMANENT PHYSI CAL DISABILITY (OTHER THAN BLINDNESS) WHICH HAS THE EFFECT OF REDU CING SUBSTANTIALLY HIS CAPACITY TO ENGAGE IN A GAINFUL E MPLOYMENT OR OCCUPATION : PROVIDED THAT THE ASSESSEE PRODUCES BEFORE THE ASSE SSING OFFICER, IN RESPECT OF THE FIRST ASSESSMENT YEAR FO R WHICH DEDUCTION IS CLAIMED IN RELATION TO EACH SUCH EMPLOYEE UNDER THIS CLAUSE, - (I) IN A CASE REFERRED TO IN SUB-CLAUSE (A), A CERT IFICATE AS TO HIS TOTAL BLINDNESS FROM A REGISTERED MEDICAL PRACTITIO NER BEING AN OCULIST; AND (II) IN A CASE REFERRED TO IN SUB-CLAUSE (B), A CER TIFICATE AS TO THE PERMANENT PHYSICAL DISABILITY REFERRED TO IN THE SA ID SUB-CLAUSE FROM A REGISTERED MEDICAL PRACTITIONER : PROVIDED FURTHER THAT NOTHING CONTAINED IN THIS CLA USE SHALL APPLY IN THE CASE OF AN EMPLOYEE WHOSE INCOME IN THE PREVIOU S YEAR CHARGEABLE UNDER THE HEAD 'SALARIES' EXCEEDS TWENTY THOUSAND RUPEES. EXPLANATION 1 : IN THIS CLAUSE, 'SALARY' INCLUDES T HE PAY, ALLOWANCES, BONUS OR COMMISSION PAYABLE MONTHLY OR OTHERWISE. EXPLANATION 2 : FOR THE REMOVAL OF DOUBTS, IT IS HE REBY DECLARED THAT WHERE A DEDUCTION UNDER THIS CLAUSE IS ALLOWED FOR ANY ASSESSMENT YEAR IN RESPECT OF ANY EXPENDITURE, DEDU CTION SHALL NOT BE ALLOWED IN RESPECT OF SUCH EXPENDITURE UNDER ANY OTHER PROVISION OF THIS ACT FOR THE SAME OR ANY OTHER ASS ESSMENT YEAR; 575 ] (III) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. EXPLANATION : RECURRING SUBSCRIPTIONS PAID PERIODIC ALLY BY SHAREHOLDERS OR SUBSCRIBERS IN MUTUAL BENEFIT SOCIE TIES WHICH FULFIL SUCH CONDITIONS AS MAY BE PRESCRIBED, SHALL BE DEEM ED TO BE CAPITAL BORROWED WITHIN THE MEANING OF THIS CLAUSE; (IV) ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS A RECOGNISED PROVIDENT FUND OR AN APPROVED SUPERANNUATION FUND, SUBJECT TO SUCH LIMITS AS MAY BE PRESCRIBED 579 FOR THE PURPOSE OF RECOGNISING THE PROVIDENT FU ND OR APPROVING THE SUPERANNUATION FUND, AS THE CASE MAY BE; AND SU BJECT TO SUCH CONDITIONS 580 AS THE BOARD MAY THINK FIT TO SPECIF Y IN CASES WHERE THE CONTRIBUTIONS ARE NOT IN THE NATURE OF AN NUAL CONTRIBUTIONS OF FIXED AMOUNTS OR ANNUAL CONTRIBUTI ONS FIXED ON SOME DEFINITE BASIS BY REFERENCE TO THE INCOME CHAR GEABLE UNDER THE HEAD 'SALARIES' OR TO THE CONTRIBUTIONS OR TO T HE NUMBERS OF MEMBERS OF THE FUND; (V) ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND CREA TED BY HIM FOR THE EXCLUSIVE BENEFIT OF HIS EMPLOYEES UNDER AN IRR EVOCABLE TRUST; (VA) ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF H IS EMPLOYEES TO WHICH THE PROVISIONS OF SUB-CLAUSE (X) OF CLAUSE (24) OF SECTION 2 APPLY, IF SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE. 7 EXPLANATION : FOR THE PURPOSES OF THIS CLAUSE, 'DUE DATE' MEANS THE DATE BY WHICH THE ASSESSEE IS REQUIRED AS AN EM PLOYER TO CREDIT AN EMPLOYEE'S CONTRIBUTION TO THE EMPLOYEE'S ACCOUNT IN THE RELEVANT FUND UNDER ANY ACT, RULE, ORDER OR NOTIFIC ATION ISSUED THEREUNDER OR UNDER ANY STANDING ORDER, AWARD, CONT RACT OF SERVICE OR OTHERWISE; (VI) IN RESPECT OF ANIMALS WHICH HAVE BEEN USED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION OTHERWISE THAN AS STO CK-IN-TRADE AND HAVE DIED OR BECOME PERMANENTLY USELESS FOR SUCH PU RPOSES, THE DIFFERENCE BETWEEN THE ACTUAL COST TO THE ASSESSEE OF THE ANIMALS AND THE AMOUNT, IF ANY, REALISED IN RESPECT OF THE CARCASSES OR ANIMALS; (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IR RECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR: PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH C LAUSE (VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELATING TO AN Y SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHIC H SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROV ISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE; (VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOUB TFUL DEBTS MADE BY - (A) A SCHEDULED BANK NOT BEING A BANK INCORPOR ATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA OR A NON- SCHEDULED BANK, AN AMOUNT NOT EXCEEDING FIVE PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CL AUSE AND CHAPTER VI-A) AND AN AMOUNT NOT EXCEEDING [ 585C TE N PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BR ANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER; PROVIDED THAT A SCHEDULED BANK OR A NON-SCHEDULED B ANK REFERRED TO IN THIS SUB-CLAUSE SHALL, AT ITS OPTION, BE ALLO WED IN ANY OF THE RELEVANT ASSESSMENT YEARS, DEDUCTION IN RESPECT OF ANY PROVISION MADE BY IT FOR ANY ASSETS CLASSIFIED BY THE RESERVE BANK OF INDIA AS DOUBTFUL ASSETS OR LOSS ASSETS IN ACCORDANCE WIT H THE GUIDELINES ISSUED BY IT IN THIS BEHALF, FOR AN AMOU NT NOT EXCEEDING FIVE PER CENT. OF THE AMOUNT OF SUCH ASSETS SHOWN I N THE BOOKS OF ACCOUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR. EXPLANATION. - FOR THE PURPOSES OF THIS SUB-CLAUSE, 'RELEVANT ASSESSMENT YEARS' MEANS THE FIVE CONSECUTIVE ASSESS MENT YEARS COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2000 A ND ENDING BEFORE THE 1ST DAY OF APRIL, 2005. 585G (B) A BANK, BEING A BANK INCORPORATED BY OR UNDER T HE LAWS OF A COUNTRY OUTSIDE INDIA, AN AMOUNT NOT EXCEEDING FIVE PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCT ION UNDER THIS CLAUSE AND CHAPTER VI-A); (C) A PUBLIC FINANCIAL INSTITUTION OR A STATE FINAN CIAL CORPORATION OR A STATE INDUSTRIAL INVESTMENT CORPORATION, AN AMOUNT NOT EXCEEDING FIVE PER CENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VI-A). EXPLANATION : FOR THE PURPOSES OF THIS CLAUSE - (I) 'NON-SCHEDULED BANK' MEANS A BANKING COMPANY 585F AS DEFINED IN CL AUSE (C) OF 8 SECTION 5 OF THE BANKING REGULATION ACT, 1949 (10 O F 1949) WHICH IS NOT A SCHEDULED BANK; (A) 'RURAL BRANCH' MEANS A BRANCH OF A SCHEDULED BA NK OR A NON- SCHEDULED BANK SITUATED IN A PLACE WHICH HAS A POPU LATION OF NOT MORE THAN TEN THOUSAND ACCORDING TO THE LAST PRECED ING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFO RE THE FIRST DAY OF THE PREVIOUS YEAR; (II) 'SCHEDULED BANK' MEANS THE STATE BANK OF INDIA CONSTITUTED UNDER THE STATE BANK OF INDIA ACT, 1955, (23 OF 195 5) A SUBSIDIARY BANK AS DEFINED IN THE STATE BANK OF INDIA (SUBSIDI ARY BANKS) ACT, (38 OF 1959) 1959, A CORRESPONDING NEW BANK CONSTIT UTED UNDER SECTION 3 OF THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1970, (5 OF 1970), OR UNDER SECT ION 3 OF THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDE RTAKINGS) ACT, 1980 (40 OF 1980), OR ANY OTHER BANK BEING A B ANK INCLUDED IN THE SECOND SCHEDULE TO THE RESERVE BANK OF INDIA AC T, 1934 (2 OF 1934), BUT DOES NOT INCLUDE A CO-OPERATIVE BANK; (III) 'PUBLIC FINANCIAL INSTITUTION' SHALL HAVE THE MEANING ASSIGNED TO IT IN SECTION 4A OF THE COMPANIES ACT, 1956 (1 OF 1 956); (IV) 'STATE FINANCIAL CORPORATION' MEANS A FINANCIA L CORPORATION ESTABLISHED UNDER SECTION 3 OR SECTION 3A OR AN INS TITUTION NOTIFIED UNDER SECTION 46 OF THE STATE FINANCIAL CORPORATION S ACT, 1951 (63 OF 1951); (V) 'STATE INDUSTRIAL INVESTMENT CORPORATION' MEANS A GOVERNMENT COMPANY WITHIN THE MEANING OF SECTION 617 OF THE CO MPANIES ACT, 1956 (1 OF 1956) ENGAGED IN THE BUSINESS OF PROVIDI NG LONG-TERM FINANCE FOR INDUSTRIAL PROJECTS AND APPROVED BY THE CENTRAL GOVERNMENT UNDER CLAUSE (VIII) OF THIS SUB-SECTION; (VIII) IN RESPECT OF ANY SPECIAL RESERVE CREATED AN D MAINTAINED BY A FINANCIAL CORPORATION WHICH IS ENGAGED IN PROVIDING LONG-TERM FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT OR DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA OR BY A PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAIN OBJECT OF CARRYIN G ON THE BUSINESS OF PROVIDING LONG-TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF HOUSES IN INDIA FOR RESIDENTIAL PURPOSES, AN AMOUNT NOT EXCEEDING FORTY PER CENT OF THE PROFITS DERIVED FROM SUCH BUS INESS OF PROVIDING LONG-TERM FINANCE (COMPUTED UNDER THE HEA D 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE 590A ]) CARRIED TO SUCH RESERVE A CCOUNT : PROVIDED THAT THE CORPORATION OR AS THE CASE MAY BE THE COMPANY IS FOR THE TIME BEING APPROVED BY THE CENTRAL GOVER NMENT FOR THE PURPOSES OF CLAUSE : PROVIDED FURTHER THAT WHERE THE AGGREGATE OF THE AM OUNTS CARRIED TO SUCH RESERVE ACCOUNT FROM TIME TO TIME EXCEEDS T WICE THE AMOUNT OF THE PAID UP SHARE CAPITAL AND GENERAL RES ERVES OF THE CORPORATION OR, AS THE CASE MAY BE, THE COMPANY, NO ALLOWANCE UNDER THIS CLAUSE SHALL BE MADE IN RESPECT OF SUCH EXCESS; EXPLANATION : IN THIS CLAUSE, - (A) 'FINANCIAL CORP ORATION' SHALL INCLUDE A PUBLIC COMPANY AND A GOVERNMENT COMPANY; (B) 'PUBLIC COMPANY' 595 SHALL HAVE THE MEANING ASS IGNED TO IT IN SECTION 3 OF THE COMPANIES ACT, 1956 (1 OF 1956); 9 (C) 'GOVERNMENT COMPANY' SHALL HAVE THE MEANING ASS IGNED TO IT IN SECTION 617 OF THE COMPANIES ACT, 1956 (1 OF 195 6). (D) 'INFRASTRUCTURE FACILITY' SHALL HAVE THE MEANIN G ASSIGNED TO IT IN CLAUSE (23G) OF SECTION 10; (E) 'LONG-TERM FINANCE' MEANS ANY LOAN OR ADVANCE W HERE THE TERMS UNDER WHICH MONEYS ARE LOANED OR ADVANCED PRO VIDE FOR REPAYMENT ALONG WITH INTEREST THEREOF DURING A PERI OD OF NOT LESS THAN FIVE YEARS; (IX) ANY EXPENDITURE BONA FIDE INCURRED BY A COMPAN Y FOR THE PURPOSE OF PROMOTING FAMILY PLANNING AMONGST ITS EM PLOYEES : PROVIDED THAT WHERE SUCH EXPENDITURE OR ANY PART TH EREOF IS OF A CAPITAL NATURE, ONE-FIFTH OF SUCH EXPENDITURE SHALL BE DEDUCTED FOR THE PREVIOUS YEAR IN WHICH IT WAS INCURRED; AND THE BALANCE THEREOF SHALL BE DEDUCTED IN EQUAL INSTALMENTS FOR EACH OF THE FOUR IMMEDIATELY SUCCEEDING PREVIOUS YEARS : PROVIDED FURTHER THAT THE PROVISIONS OF SUB-SECTION (2) OF SECTION 32 OR SUB-SECTION (2) OF SECTION 72 SHALL APPLY IN RELATION TO DEDUCTIONS ALLOWABLE UNDER THIS CLAUSE AS THEY APPL Y IN RELATION TO DEDUCTIONS ALLOWABLE IN RESPECT OF DEPRECIATION : PROVIDED FURTHER THAT THE PROVISIONS OF CLAUSES (II ), (III), (IV) AND (V) OF SUB-SECTION (2) AND SUB-SECTION (5) OF SECTION 3 5, OF SUB-SECTION (3) OF SECTION 41 AND OF EXPLANATION 1 TO CLAUSE (1 ) OF SECTION 43 SHALL, SO FAR AS MAY BE, APPLY IN RELATION TO AN AS SET REPRESENTING EXPENDITURE OF A CAPITAL NATURE FOR THE PURPOSES OF PROMOTING FAMILY PLANNING AS THEY APPLY IN RELATION TO AN ASS ET REPRESENTING EXPENDITURE OF A CAPITAL NATURE ON SCIENTIFIC RESEA RCH; (X) ANY SUM PAID BY A PUBLIC FINANCIAL INSTITUTION BY WAY OF CONTRIBUTION TOWARDS ANY FUND SPECIFIED UNDER CLAUS E (23E) OF SECTION 10. EXPLANATION : FOR THE PURPOSES OF THIS CLAUSE, 'PUB LIC FINANCIAL INSTITUTION' SHALL HAVE THE MEANING ASSIGNED TO IT IN SECTION 4A OF THE COMPANIES ACT, 1956 (1 OF 1956). (XI) ANY EXPENDITURE INCURRED BY THE ASSESSEE, ON O R AFTER THE 1ST DAY OF APRIL, 1999 BUT BEFORE THE 1ST DAY OF APRIL, 2000, WHOLLY AND EXCLUSIVELY IN RESPECT OF A NON-Y2K COMPLIANT COMPU TER SYSTEM, OWNED BY THE ASSESSEE AND USED FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION, SO AS TO MAKE SUCH COMPUTER SYSTEM Y 2K COMPLIANT COMPUTER SYSTEM : PROVIDED THAT NO SUCH DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE UNDER ANY OTHER PROVISIONS OF THIS ACT : PROVIDED FURTHER THAT NO SUCH DEDUCTION SHALL BE AD MISSIBLE UNLESS THE ASSESSEE FURNISHES IN THE PRESCRIBED FORM, ALON G WITH THE RETURN OF INCOME, THE REPORT OF AN ACCOUNTANT, AS D EFINED IN THE EXPLANATION BELOW SUB-SECTION (2) OF SECTION 288, C ERTIFYING THAT THE DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDA NCE WITH THE PROVISIONS OF THIS CLAUSE. EXPLANATION. - FOR THE PURPOSES OF THIS CLAUSE, - ( A) 'COMPUTER SYSTEM' MEANS A DEVICE OR COLLECTION OF DEVICES INC LUDING INPUT AND OUTPUT SUPPORT DEVICES AND EXCLUDING CALCULATOR S WHICH ARE NOT PROGRAMMABLE AND CAPABLE OF BEING USED IN CONJU NCTION WITH EXTERNAL FILES, OR MORE OF WHICH CONTAIN COMPUTER P ROGRAMMES, 10 ELECTRONIC INSTRUCTIONS, INPUT DATA AND OUTPUT DATA , THAT PERFORMS FUNCTIONS INCLUDING, BUT NOT LIMITED TO, LOGIC, ARI THMETIC, DATA STORAGE AND RETRIEVAL, COMMUNICATION AND CONTROL; (B) 'Y2K COMPLIANT COMPUTER SYSTEM' MEANS A COMPUTE R SYSTEM CAPABLE OF CORRECTLY PROCESSING, PROVIDING OR RECEI VING DATA RELATING TO DATE WITHIN AND BETWEEN THE TWENTIETH A ND TWENTY-FIRST CENTURY. (2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY - (I) NO SUCH DEDU CTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN T AKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THERE OF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY -LENDING WHICH IS CARRIED ON BY THE ASSESSEE; (II) IF THE AMOUNT ULTIMATELY RECOVERED ON ANY SUCH DEBT OR PART OF DEBT IS LESS THAN THE DIFFERENCE BETWEEN THE DEBT O R PART AND THE AMOUNT SO DEDUCTED, THE DEFICIENCY SHALL BE DEDUCTI BLE IN THE PREVIOUS YEAR IN WHICH THE ULTIMATE RECOVERY IS MAD E; (III) ANY SUCH DEBT OR PART OF DEBT MAY BE DEDUCTED IF IT HAS ALREADY BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS O F AN EARLIER PREVIOUS YEAR (BEING A PREVIOUS YEAR RELEVANT TO TH E ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, OR A NY EARLIER ASSESSMENT YEAR), BUT THE ASSESSING OFFICER HAD NOT ALLOWED IT TO BE DEDUCTED ON THE GROUND THAT IT HAD NOT BEEN ESTA BLISHED TO HAVE BECOME A BAD DEBT IN THAT YEAR; (IV) WHERE ANY SUCH DEBT OR PART OF DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE PREVIOUS YEAR (BEING A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMME NCING ON THE 1ST DAY OF APRIL, 1988, OR ANY EARLIER ASSESSME NT YEAR) AND THE ASSESSING OFFICER IS SATISFIED THAT SUCH DEBT OR PA RT BECAME A BAD DEBT IN ANY EARLIER PREVIOUS YEAR NOT FALLING BEYON D A PERIOD OF FOUR PREVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS Y EAR IN WHICH SUCH DEBT OR PART IS WRITTEN OFF, PROVISIONS OF SUB -SECTION (6) OF SECTION 155 SHALL APPLY; (V) WHERE SUCH DEBT OR PART OF DEBT RELATES TO ADVA NCES MADE BY AN ASSESSEE TO WHICH CLAUSE (VIIA) OF SUB-SECTION ( 1) APPLIES, NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS THE ASSESSEE HAS DEBITED THE AMOUNT OF SUCH DEBT OR PART OF DEBT IN THAT PRE VIOUS YEAR TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE U NDER THAT CLAUSE. 2.3 IF THE AFORESAID SECTIONS ARE ANALYSED, SECTIONS 36(1)(VII) AND 36(1)(VIIA) PROVIDE FOR SUCH DEDUCTION , WHICH 11 ARE TO BE PERMITTED, IN ACCORDANCE WITH THE LANGUAGE OF THESE PROVISIONS. A BARE READING OF THESE PROVISIONS SHOWS THAT SECTIONS 36(1)(VII) AND 36(1)(VIIA) SPEAK ABOUT S EPARATE ITEMS OF DEDUCTION, BEING INDEPENDENT PROVISIONS, CONSEQUENTLY CANNOT BE INTERMINGLED OR READ INTO EACH OTHER. EVEN OTHERWISE, FISCAL STATUTES NEED TO BE CO NSTRUED STRICTLY AS PER THE PLAIN LANGUAGE USED THEREIN. THE PROVISIONS OF SECTION 36(1)(VII) WOULD COME INTO PL AY WHILE GRANTING DEDUCTION SUBJECT TO THE LIMITATIONS CONTAINE D IN SECTION 36(2) OF THE ACT. ANY BAD DEBT OR PART THERE OF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE FOR THE PREVIOUS YEAR IS THE DEDUCTION WHICH THE ASSESSEE WOULD BE ENTITLED TO GET, PROVIDED THE REQUIREMENTS OF SECTIONS 36(2) ARE SATISFIED. ALLOWIN G OF DEDUCTION OF BAD DEBTS IS CONTROLLED BY THE PROVISIO NS OF SECTION 36(2) OF THE ACT. UNDOUBTEDLY, A STATUTE IS NOT NORMALLY CONSTRUED TO PROVIDE DOUBLE DEDUCTION/BENEF IT 12 UNLESS IT IS SPECIFICALLY SO PERMITTED AS PER THE SCH EME OF THE ACT. SO FAR AS THE QUESTION OF DOUBLE BENEFIT IS CONCERNED, THE LEGISLATURE IN ITS WISDOM INTRODUCED SECTION 36(2)(V) BY THE FINANCE ACT, 1985 WITH EFFECT FROM 1.4.1985 MEANING THEREBY A CHECK FOR THE CLAIM OF ANY DOUBLE DEDUCTION HAS BEEN PROVIDED IN SECTION 36(2)(V) WHIC H HAS TO BE READ IN CONJUNCTION WITH SECTION 36(1)(VA). CIR CULARS ARE ISSUED BY THE BOARD TO EXPLAIN OR TONE DOWN THE RI GOURS OF LAW OR TO ENSURE FAIR ENFORCEMENT OF ITS PROVISIO NS, THUS SUCH CIRCULARS ARE BINDING ON THE DEPARTMENT AND THUS CANNOT BE ENFORCED ADVERSELY AGAINST THE ASSESSEE. DURIN G HEARING, THE LEARNED CIT DR CONTENDED THAT CIRCULARS MA Y NOT OVER-RIDE THE PROVISIONS OF THE ACT. BROADLY WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF THE LEARNED CIT DR , HOWEVER, A CIRCULAR THOUGH MAY NOT OVERRIDE OR DETRAC T FROM THE PROVISIONS OF THE ACT BUT IT CAN SEEK TO MI TIGATE THE RIGOURS OF THE PARTICULAR PROVISION IN CERTAIN SP ECIFIED 13 CIRCUMSTANCES. SO LONG AS THE CIRCULAR IS IN FORCE, IT AIDS IN UNIFORM AND PROPER ADMINISTRATION AND APPLICATION OF THE PROVISIONS OF THE ACT. THE PROVISIONS WERE INTR ODUCED IN ORDER TO PROMOTE RURAL BANKING AND ASSIST THE SCHEDULED COMMERCIAL BANKS FOR MAKING ADEQUATE PROVISION FOR THEI R CURRENT PROFIT AND TO PROVIDE FOR RISK IN RELATION TO RURAL ADVANCES. A RURAL BRANCH FOR THE PURPOSES OF THE ACT ME ANS A BRANCH OF THE SCHEDULED BANK, SITUATED IN A PLACE WITH A POPULATION NOT EXCEEDING 10,000 OR AS APPLICABLE FROM TIME TO TIME ACCORDING TO THE RELEVANT PUBLISHED FIGURES. THE SCHEDULED COMMERCIAL BANK WOULD CONTINUE TO GET BENEF IT OF WRITE OFF OF IRRECOVERABLE DEBTS U/S 36(1)(VII) I N ADDITION TO THE BENEFIT OF DEDUCTION OF THE PROVISION FOR BA D AND DOUBTFUL DEBTS U/S 36(1)(VII). 2.4 IN THE APPEALS OF THE ASSESSEE, THE ISSUE TO BE ADJUDICATED BY US IS WHETHER DEDUCTION U/S 36(1)(VII) OF THE ACT FOR BAD AND DOUBTFUL DEBTS WRITTEN OFF IS RESTRI CTED TO 14 THE AMOUNT IN EXCESS OF THE PROVISION FOR BAD AND DO UBT DEBTS CREATED IN THE BOOKS OF ACCOUNTS U/S36(1)(VIIA) OR IS TO BE RESTRICTED TO THE EXCESS OF THE AMOUNT OF PROV ISION CLAIMED IN THE RETURN WHEREAS IN THE APPEAL OF THE REVE NUE, THE ISSUE IS WHETHER DEDUCTION U/S 36(1)(VII) FOR B AD AND DOUBTFUL DEBT IS RESTRICTED TO THE AMOUNT IN EXCESS OF CLOSING VALUE AS ON 31 ST MARCH OF THE ACCOUNT FOR PROVISION FOR BAD AND DOUBTFUL DEBT OR IS TO BE RESTRICTED TO T HE OPENING VALUE OF THE ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS AS ON IST APRIL AT THE BEGINNING OF TH E YEAR. 2.5 IN THE APPEAL OF THE REVENUE BY GROUND NO. 2, THE DEPARTMENT HAS CHALLENGED THE CONCLUSION OF THE LEARN ED CIT(A) REGARDING DEDUCTION U/S 36(1)(VII) FOR BAD AND DOUBTFUL DEBTS WRITTEN OFF RESTRICTED TO THE AMOUNT IN EXCESS OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS C REATED IN THE BOOKS OF ACCOUNTS U/S 36(1)(VIIA) OF THE ACT O R IT IS RESTRICTED TO THE EXCESS OF THE AMOUNT OF PROVISION CLAIMED 15 IN THE RETURN. THE ASSESSING OFFICER HAS MENTIONED T HAT DEDUCTION U/S 36(1)(VII) IS ALLOWABLE AGAINST BAD DEBT BUT IT IS SUBJECT TO THE PROVISO TO SECTION 36(1)(VIIA). HE HAS FURTHER MENTIONED THAT IN SECTION SECTION 36(1)(VIIA) A PROVISO HAS BEEN INSERTED WITH EFFECT FROM 1.4.2000 WHEREIN IT IS PROVIDED THAT A SCHEDULED BANK OR NON- SCHEDULED BANK AS REFERRED TO IN SUB-CLAUSE SHALL AT IT S OPTION BE ALLOWED DEDUCTION IN ANY ASSESSMENT YEAR IN RESPECT OF ANY PROVISION MADE BY NON-PROFIT ASSET/DOU BTFUL ASSET AS PER THE GUIDELINES ISSUES BY RBI FOR AN AMOUNT NOT EXCEEDING 5% OF THE AMOUNT OF SUCH ASSET IN THE BOOK S OF ACCOUNTS AS ON THE LAST DAY IN THE PREVIOUS YEAR. THE LEARNED CIT DR, SHRI DARSHAN SINGH, VERY FORCEFULLY SUBMITTED THAT THE RELEVANT ASSESSMENT YEAR HAS BEEN DEFINED IN THE EXPLANATION BY FURTHER CONTENDING THAT THE LEARNED CIT(A) HAS NOT APPRECIATED THE FACT THAT SUCH AMOUNT IN THE FIRST PROVISO IS APPLICABLE ONLY FOR ON E YEAR 16 OUT OF 5 ASSESSMENT YEARS BEGINNING FROM IST DAY OF 2000 AND ENDING BEFORE THE IST DAY OF APRIL, 2005. THE LE ARNED CIT DR ALSO RELIED UPON THE DECISION IN THE CASE OF C ATHOLIC SYRIAN BANK (SUPRA) BY SUBMITTING THAT SUB-CLAUSE (VIIA) TO SECTION 36(1) ONLY SPEAKS ABOUT RURAL BRANCHES, THEREFO RE, IT IS NOT APPLICABLE TO URBAN BRANCHES. IT WAS CONTENDED THAT THE ASSESSEE BANK AS WELL AS THE LEARNED CIT(A) HAV E NOT GIVEN ANY REASON OR FINDING WHETHER SUCH NON-PROF IT ASSET OR LOSS ASSET HAVE BEEN WORKED OUT AS PER GUIDEL INES OF RBI AND FAILED TO DISTINGUISH THE RURAL AS WELL AS UR BAN BRANCHES. IT WAS ALSO PLEADED THAT THE ASSESSEE HAS ALREADY AVAILED THE BENEFIT OF THE PROVISO IN EARLIER YEAR, TH EREFORE, FURTHER DEDUCTION IS NOT ALLOWABLE. 2.5 IF THE ISSUES ARE ANALYSED IN THE LIGHT OF THE DE CISION FROM HONBLE APEX COURT IN THE CASE OF CATHOLIC SYRIAN BANK (SUPRA) AND THE ARGUMENTS ADVANCED BY THE LEARNED RESPECTIVE COUSNEL, IT IS EXPECTED THAT NORMALLY THE BANKS 17 MAINTAIN SEPARATE BOOKS FOR RURAL AND URBAN BRANCHES SO THAT THE BAD DEBTS CAN BE SEGREGATED FOR RURAL AND URBAN BRANCHES. IN THE IMPUGNED ORDER, NEITHER THERE IS BIFURCATION OF RURAL AND URBAN BRANCHES NOR THERE IS A RECORDING WHETHER SUCH NON PROFIT ASSET OR LOSS ASSET HAVE BEEN WORKED OUT AS PER RBI GUIDELINES, THEREFORE, IN THE INTEREST OF JUSTICE, THE ASSESSING OFFICER IS DIREC TED TO EXAMINE THE CLAIM OF BOTH THE LEARNED REPRESENTATIVES AN D AFTER CONSIDERING THE FACTS/BIFURCATION, DECIDE THE I SSUE IN THE LIGHT OF THE AFORESAID DECISION OF THE HONBLE AP EX COURT IN THE CASE OF CATHOLIC SYRIAN BANK (SUPRA), THEREFORE, ALL THESE APPEALS ARE REMANDED BACK TO THE FILE OF THE LEARNE D ASSESSING OFFICER. NEEDLESS TO MENTION HERE THAT DUE OPPORTUNITY OF BEING HEARD BE PROVIDED TO THE ASSESSE E. THE ASSESSEE IS ALSO PERMITTED TO FURNISH EVIDENCE, IF ANY , IN SUPPORT OF ITS CLAIM. 18 FINALLY, THESE APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT TH E CONCLUSION OF THE HEARING ON 6.11.2012. SD SD (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 08.11.2012 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE !VYS!