AP Grameena Vikas Bank, Warangal, Hyderabad V. DCIT, Circle-1, Warangal, Warangal

ITA 714/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6459 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-06-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 15-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 27-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MOHAN KUMAR SINGHANIA
• Keywords: Business income; Depreciation; Opportunity of being heard; Additional evidence; Question of law; Bad and doubtful debts; Revised return
• Section: 43B; 80C; 143(3); 139(5); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO.713/HYD/2015 ASSESSMENT YEAR 2007-2008 AP GRAMEENA VIKAS BANK, HANAMKONDA, WARANGAL. PAN AAAJA1351N VS. DCIT, CIRCLE-1 WARANGAL. (APPELLANT) (RESPONDENT) ITA.NO.714/HYD/2015 ASSESSMENT YEAR 2008-2009 AP GRAMEENA VIKAS BANK, HANAMKONDA, WARANGAL. PAN AAAJA1351N VS. DCIT, CIRCLE-1 WARANGAL. (APPELLANT) (RESPONDENT) FOR ASSESSE E : MR. Y. RATNAKAR FOR REVENUE : MR. MOHAN KUMAR SINGHANIA DATE OF HEARING : 15.03.2016 DATE OF PRONOUNCEMENT : 14 .0 6 .2016 ORDER SMT. P. MADHAVI DEVI, J.M. ITA.NO.713/HYD/2015 A.Y. 2007-08 THIS IS ASSESSEES APPEAL FOR THE A.Y. 2007- 2008. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT(A) CONFIRMING THE DISALLOWANCE OF THE 2 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. DEDUCTION CLAIMED OF RS.2,74,49,761 TOWARDS PROVISI ON FOR GRATUITY ON THE GROUND THAT THE ASSESSEE HAS NOT MA DE THE SAID CONTRIBUTION TO THE GRATUITY FUND THROUGH AN APPROVED GRATUITY FUND. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A REGIONAL RURAL BANK, ESTABLISHED BY THE GOVERNMENT OF INDIA AND SPONSORED BY THE STATE BANK OF INDIA, FIL ED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR O N 31.10.2007 ADMITTING TOTAL INCOME OF RS.15,47,84,06 0. THE A.O. COMPLETED THE ASSESSMENT UNDER SECTION 143 (3) ON 31.12.2009 BY DISALLOWING THE PROVISION FOR GRAT UITY OF RS.2,74,49,761. DURING THE ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSEE HAD SUBMITTED THAT THE PROVISION WAS MADE ON ACTUARIAL VALUATION BASIS AND THAT THE ACTUAL PAYMENT WAS MADE TO THE GROUP GRATUITY SCHEME OF SBI LIFE INSURANCE CO. LTD., DIRECTLY ON 22.05.2007 I.E., BEFORE THE DUE DATE OF FILING OF T HE RETURN OF INCOME. THE A.O. DISALLOWED THE CLAIM ON THE GRO UND THAT THE PAYMENT HAS NOT BEEN MADE THROUGH THE APPROVED GRATUITY FUND. 2.1. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) STATING THAT SBI LIFE INSURANCE WAS REGISTER ED WITH IRDA AND WAS AUTHORISED TO MANAGE GROUP GRATUITY SCHEMES. A COPY OF THE CERTIFICATE OF RENEWAL OF REGISTRATION WITH IRDA WAS ALSO FURNISHED. THE CIT( A), HOWEVER, REJECTED THE ASSESSEES CLAIM OBSERVING TH AT CLAIM OF REGISTRATION HAS BEEN MADE FOR THE FIRST T IME 3 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. DURING THE APPELLATE PROCEEDINGS AND THAT THE EVIDE NCE OF REGISTRATION WAS AN ADDITIONAL EVIDENCE WHICH COULD NOT BE CONSIDERED. AGGRIEVED BY THE ORDER OF THE CIT(A) , THE ASSESSEE PREFERRED AN APPEAL BEFORE THE ITAT AND TH E ITAT IN ITA.NO.502/HYD/2011 AND OTHERS DATED 29.04.2013 OBSERVED THAT THE ASSESSEE HAD SUBMITTED CERTAIN DOCUMENTS IN SUPPORT OF THE CLAIM THAT THE GROUP GR ATUITY SCHEME OF SBI LIFE WAS APPROVED GRATUITY FUND AND T HAT IT WAS ALSO A FACT ON RECORD THAT THE ASSESSEE HAD PAI D THE AMOUNT TO SBI LIFE BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME. THE ITAT THEREFORE, REMITTED THE MATTER TO THE A.O. FOR EXAMINATION OF THE EVIDENCE AFRESH. 2.2. DURING THE CONSEQUENTIAL ASSESSMENT PROCEEDINGS, THE ASSESSEE, WHILE REITERATING THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, HAD ALSO RELIED UPON THE DECISION OF THE HONBLE CALCUTTA HI GH COURT IN THE CASE OF SREE KAMAKHYA TEA CO. (P.) LTD ., 199 ITR 714 (CAL.). THE A.O. HOWEVER, HELD THAT THE DEC ISION OF THE HONBLE CALCUTTA HIGH COURT IS DISTINGUISHABLE ON THE FACTS OF THE CASE BEFORE HIM AND THEREFORE, DISALLO WED THE CLAIM OF DEDUCTION. AGGRIEVED, THE ASSESSEE PREFERR ED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE A.O. AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US . 3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS ACTUALLY HAS NOT MADE ANY PRO VISION FOR PAYMENT OF GRATUITY BUT HAS MADE THE PAYMENT TO SBI LIFE INSURANCE FUND DIRECTLY ON 22.05.2007 I.E., BE FORE THE 4 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. DUE DATE OF FILING OF THE RETURN AND THE PROVISION WAS MADE ON ACTUARIAL VALUATION BASIS. THE LD. COUNSEL FOR THE ASSESSEE FURTHER RELIED UPON THE JUDGMENT OF TH E HONBLE CALCUTTA HIGH COURT IN THE CASE OF SREE KAMAKHYA TEA CO. P. LTD., (CITED SUPRA). HE ALSO PL ACED RELIANCE UPON THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2010-2 011 IN ITA.NO.1771/HYD/2014 AND 1777/HYD/2014. 4. THE LD. D.R, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF SREE KAMAKHYA TEA CO. P. LTD., (CITED SUPRA), IS NO T APPLICABLE TO THE FACTS OF THE CASE BEFORE US, AS I N THE SAID CASE THE HONBLE HIGH COURT WAS DEALING WITH THE IS SUE AS TO WHEN THE LIABILITY HAS ACTUALLY ARISEN AND WHEN THE PAYMENT WAS ACTUALLY MADE, WHEREAS, IN THE PRESENT CASE, THE QUESTION IS WHETHER THE PAYMENT OF GRATUITY WAS MADE THROUGH AN APPROVED GRATUITY FUND OR NOT. THEREFORE , ACCORDING TO HIM, THE SAID DECISION IS NOT APPLICAB LE TO THE FACTS OF THE CASE BEFORE US. FURTHER, HE HAS ALSO R ELIED UPON THE FOLLOWING DECISIONS IN FAVOUR OF HIS CONTE NTION I. CIT VS. SREE KAMAKHYA TEA CO. 199 ITR 714. II. BROOKE BOND INDIA LTD., VS. JCIT (ITA.NO.139/CAL/1999 (HC) III. CIT VS. COMMONWEALTH TRUST (I) LTD., 269 ITR 290. IV. HITECH (INDIA) P. LTD., VS. UNION OF INDIA 5 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. V. SONY INDIA (P) LTD., VS. CIT 285 ITR 213 VI. HINDUSTAN SALTS LTD., VS. CIT 185 CTR 542 5. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAD M ADE PAYMENT OF RS.2,74,49,769 TOWARDS GROUP GRATUITY FU ND OF SBI LIFE INSURANCE ON 21.05.2007 I.E., BEFORE THE D UE DATE OF FILING OF THE RETURN. IT IS NOT THE CASE OF MAKI NG THE CONTRIBUTION TO PROVISION FOR CONTRIBUTION TO THE APPROVED GRATUITY FUND BUT IT IS THE CASE WHERE THE ASSESSE E HAS MADE THE PAYMENT OF GRATUITY FUND DIRECTLY TO SBI L IFE INSURANCE. ACCORDING TO THE A.O, THE CONTRIBUTION T O SBI LIFE INSURANCE HAS TO BE MADE THROUGH THE APPROVED GRATUITY FUND AND SINCE IT IS MADE DIRECTLY, THE DE DUCTION IS NOT ALLOWABLE UNDER SECTION 40A(7) AND ALSO UNDE R SECTION 43B OF THE I.T. ACT. WE FIND THAT THE ISSUE OF ALLOWABILITY OF SUCH DEDUCTION HAD ARISEN IN ASSESS EES OWN CASE FOR THE A.Y. 2010-2011 WHEREIN THE TRIBUNA L AFTER CONSIDERING THE DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF SREE KAMAKHYA TEA CO. P. LTD., (CITE D SUPRA) AND ALSO THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF HITECH (INDIA) P. LTD., VS., U NION OF INDIA & OTHERS (1997) 227 ITR 446 ALLOWED THE SAID DEDUCTION. THE RELEVANT PORTION OF THE TRIBUNALS O RDER IS REPRODUCED HEREUNDER FOR READY REFERENCE. 14. WE HAVE HEARD BOTH THE PARTIES. THE CONFLICT BETWEEN SECTION 40A(7) AND SECTION 43B HAS BEEN CONSIDERED BY THE HON'BLE CALCUTTA HIGH COURT IN T HE CASE OF SREE KAMAKHYA TEA CO. (P) LTD. (SUPRA) AND THE 6 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED BELO W (EXTRACTED FROM HEAD NOTE AT PAGE 718 TO 199 ITR) : 'UNDER SECTION 36(1)(VA), DEDUCTION IS ALLOWED IN RESPECT OF ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND, AS DEFINED IN SECTION 2(5) OF THE ACT, CREATED BY THE EMPLOYER FOR THE EXCLUSIVE BENEFIT OF HIS EMPLOYEES UNDER AN IRREVOCABLE TRUST. AFTER THE INSERTION OF SECTION 40A(7), FOR CLAIMING DEDUCTION FOR GRATUITY PAYMENT, THE ASSESSEE WAS REQUIRED TO FULFIL THE CONDITIONS LAID DOWN IN SECTION 40A(7) AND WITHOUT FULFILLING THE CONDITIONS LAID DOWN THEREIN, NO ASSESSEE WAS ENTITLED TO DEDUCTION UNDER 36(1)(V). THIS HAS UNDERGONE A CHANGE AFTER THE INSERTION OF SECTION 43B FOR AND FROM THE ASSESSMENT YEAR 1984-85. THE PROVISION OF SECTION 43B(B) ARE RELEVANT AND APPOSITE IN THE CONTEXT OF THE PROVISIONS OF SECTION 36(1)(V). SECTION 43B HAS OVERRIDING EFFECT OVER THE PROVISIONS OF SECTION 40A(7). UNDER THE PROVISIONS OF SECTION 43B, A DEDUCTION IN RESPECT OF ANY SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION INTER ALIA TO A GRATUITY FUND IS TO BE ALLOWED IN COMPUTING THE BUSINESS INCOME OF THAT PREVIOUS YEAR IN WHICH SUCH SUM HAS BEEN ACTUALLY PAID BY HIM.' 15. SECTION 43B PERMITS A DEDUCTION IN RESPECT OF A NY PAYMENT BY WAY OF' CONTRIBUTION TO A PROVIDENT FUND OR SUPERANNUATION FUND OR ANY OTHER FUND FOR THE WELFA RE OF EMPLOYEES IN THE YEAR IN WHICH THE LIABILITY IS ACT UALLY DISCHARGED. WE MAY, HOWEVER, ADD THAT CLAUSE (VA) H AS BEEN INSERTED IN SUB-SECTION (1) OF SECTION 36 BY T HE FINANCE ACT, 1987. THE EFFECT OF THE AMENDMENT IS T HAT NO DEDUCTION WILL BE ALLOWED IN THE ASSESSMENT OF THE EMPLOYER UNLESS SUCH CONTRIBUTION IS PAID TO THE FU ND ON OR BEFORE THE DUE DATE. THE DUE DATE IN THE CONTEXT MEANS THE DATE BY WHICH AN EMPLOYER IS REQUIRED TO CREDIT THE CONTRIBUTION TO THE EMPLOYEES' ACCOUNT UNDER THE 7 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. PROVISIONS OF ANY LAW OR THE TERMS OF THE CONTRACT OF SERVICE OR OTHERWISE. 16. IN THE PRESENT CASE THE APPELLANT HAS NOT MADE ANY PROVISION FOR GRATUITY U/S.40A(7) AS ON 31-03-2010 AS THE TOTAL AMOUNT HAS BEEN PAID ON 31-03-2010 AND ACCORDINGLY THE SAID PAYMENT O F GRATUITY OF RS.5,61,93,000/- IS AN ALLOWABLE DEDUCTION U/S.43B OF THE I.T.ACT, 1961. 17. RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE ANDHRA PRADESH HIGH COURT, IN THE CASE OF H ITECH (INDIA) (P) LTD. (SUPRA) HAVE HELD THAT: 'THE SECOND PROVISION IMPOSES A FURTHER RESTRICTION ON THE ALLOWABILITY OF DEDUCTION OF ANY SUM REFERRED TO IN CLAUSE (B). IT PROVIDES THAT UNLESS SUCH SUM HAS ACTUALLY BEEN PAID IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE ON OR BEFORE THE DUE DATE, IT SHALL NOT BE ALLOWED AS DEDUCTION. FOR THIS PURPOSE, THE DEFINITION OF 'DUE DATE' AS GIVEN IN THE EXPLANATION TO CLAUSE (VA) OF SUB- SECTION (1) OF SECTION 36 IS ADOPTED. SUB- CLAUSE (X) OF CLAUSE (24) OF SECTION 2 INCLUDES WITHIN THE MEANING 'INCOME' ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTIONS TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR OTHER FUND SET UP UNDER THE PROVISIONS OF THE EMPLOYEES STATE INSURANCE ACT, 1948, OR ANY OTHER FUND FOR THE WELFARE OF SUCH EMPLOYEES. THUS, IT IS CLEAR THAT THE EMPLOYEES CONTRIBUTION RECEIVED BY THE EMPLOYER WOULD BE 'INCOME' IN HIS HANDS AND THAT WOULD BE ALLOWED AS PERMISSIBLE DEDUCTION UNDER CLAUSE (VA) OF SUB- SECTION (1) OF SECTION 36 IN COMPUTING THE BUSINESS INCOME UNDER SECTION 28 PROVIDED THE ASSESSEE CREDITS THE SAME TO THE RELEVANT FUND. UNDER SECTION 43B, THE SUM REFERRED TO IN CLAUSE (B) OF SECTION 43B IS TREATED DIFFERENTLY, AS IT RELATES TO THE SUM PAYABLE BY THE ASSESSEE AS AN EMPLOYER WHICH INCLUDES THE EMPLOYER'S CONTRIBUTION AS WELL AS EMPLOYEES' CONTRIBUTION,. IF SUCH 8 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. CONTRIBUTIONS WHICH ARE PAYABLE TO ANY PROVIDENT FUND OR SUPERANNUATION FUND OR ANY FUND ARE PAID WITHIN THE DUE DATE, THE EMPLOYER WILL BE ABLE TO AVAIL OF THE BENEFIT OF DEDUCTION UNDER SECTION 43B. 18. HENCE WE DISMISS THE GROUND OF THE REVENUE. 5.1. HENCE, WE FIND THAT IN THE EARLIER YEAR, DISALLOWANCE WAS DELETED BY FOLLOWING THE DECISION IN THE CASE OF SREE KAMAKHYA TEA CO. (P) LTD. (SUPRA) . NOW, COMING TO THE FACTS OF THE CASE FOR THE RELEVANT AS SESSMENT YEAR, THE GROUND ON WHICH A.O. HAS DISALLOWED THE C LAIM OF THE ASSESSEE IS THAT THE PAYMENT IS NOT ROUTED T HROUGH THE APPROVED GRATUITY FUND AS IS EVIDENT FROM THE R ECITALS IN THE SHOW CAUSE NOTICE DATED 03.01.2014 REPRODUCE D BY THE A.O. IN PARA 3.1 OF HIS ORDER. ACCORDING TO THE A.O, THE REQUIREMENT OF CLAUSE (B) OF SECTION 40A(7) TO ALLO W THE DEDUCTION OF PAYMENT OF GRATUITY FUND IS THAT THE CONTRIBUTION SHOULD BE TO AN APPROVED GRATUITY FUND , WHICH IN TURN IS EMPOWERED TO UTILIZE IT TO CONTRIB UTE TO THE GROUP GRATUITY SCHEME ENTERED INTO WITH THE LIC OF INDIA OR ANY OTHER INSURER AS DEFINED IN CLAUSE (28 BB) OF SECTION 2 OF THE I.T. ACT. IN THE CASE BEFORE US, S BI LIFE IS THE OTHER INSURER AS DEFINED IN CLAUSE (28BB) OF SE CTION 2 OF THE I.T. ACT AND THE ASSESSEE ADMITTEDLY HAS MAD E THE PAYMENT DIRECTLY TO SBI LIFE WHICH IS REGISTERED WI TH IRDA. ADMITTEDLY, THE ASSESSEE OBTAINED THE APPROVA L OF THE CONCERNED AUTHORITY FOR THE GRATUITY FUND W.E.F . 21.03.2011 VIDE ORDERS DATED 23.06.2014. THUS, FOR THE RELEVANT ASSESSMENT YEAR, THE GRATUITY FUND OF THE 9 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. ASSESSEE WAS NOT AN APPROVED GRATUITY FUND. THE ASS ESSEE HAD MADE PAYMENT TO SBI LIFE DIRECTLY AND SBI LIFE HAS ALSO ACCEPTED THE SAME. WHETHER ASSESSEE CAN MAKE T HE CONTRIBUTION TO GROUP GRATUITY SCHEME DIRECTLY IS T HE QUESTION BEFORE US. WE FIND THAT SIMILAR QUESTION H AD ARISEN BEFORE THE HONBLE APEX COURT IN THE CASE OF CIT VS. M/S. TEXTOOL CO. LTD., IN CIVIL APPEAL NO.447 OF 20 03 AND THE HONBLE COURT VIDE ITS DECISION DATED 09.09.200 9 HAS HELD AS UNDER : THIS APPEAL, BY SPECIAL LEAVE IS DIRECTED AGAINST THE JUDGMENT, DATED 4TH FEBRUARY, 2002, RENDERED BY THE HIGH COURT OF JUDICATURE AT MADRAS, IN TAX CASE NO. 267 OF 1989. BY THE IMPUGNED JUDGMENT, THE HIGH COURT HAS ANSWERED THE QUESTION OF LAW, REFERRED TO IT BY THE INCOME TAX APPELLATE TRIBUNAL, MADRAS BENCH (FOR SHORT, 'THE TRIBUNAL') UNDER SECTION 256(1) OF THE INCOME TAX ACT, 1961, (FOR SHORT, 'THE ACT') AT THE INSTANCE OF THE REVENUE. THE QUESTION OF LAW, SO REFERRED, WAS AS FOLLOWS: ' ... WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE APPELLATE TRIBUNAL IS RIGHT IN ALLOWING THE DEDUCTION OF RS55,84,754/- BEING THE PAYMENT MADE BY THE ASSESSEE COMPANY DIRECTLY TO LIFE INSURANCE CORPORATION TOWARDS GROUP GRATUITY FUND UNDER SECTION 36 (L)(V) OF THE INCOME TAX ACT, 1961?' MATERIAL FACTS RELEVANT FOR THE PURPOSE OF THE PRES ENT APPEAL MAY BE STATED THUS: FOR THE ASSESSMENT YEAR, 1983-84, FOR WHICH THE RELEVANT PREVIOUS YEAR ENDED ON 30TH APRIL, 1982, T HE ASSESSEE CLAIMED A DEDUCTION OF RS. 92,06,978/- AS CONTRIBUTION/PROVISION TOWARDS THE APPROVED GRATUIT Y FUND. AS PER THE BREAKUP OF THE SAID AMOUNT, AN 10 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. AMOUNT OF RS.5,84,754/- WAS PAID AS ANNUAL PREMIUM TO THE LIFE INSURANCE CORPORATION ('LIC' FO R SHORT); A SUM OF RS. 50,00,000/- WAS PAID TO THE LI C AS INITIAL CONTRIBUTION IN THE GROUP LIFE ASSURANCE SCHEME FRAMED BY THE LIC FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AND THE REMAINING AMOUNT OF RS. 36,22,224/ - WAS SHOWN AS PROVISION FOR INIT IAL CONTRIBUTION. IT IS COMMON GROUND THAT ASSESSEE COMPANY'S GRATUITY FUND, VIZ., THE TEXTOOL COMPANY LTD. EMPLOYEES GROUP GRATUITY FUND WAS APPROVED BY THE COMMISSIONER OF INCOME TAX, COIMBATORE, W.E. F 25TH FEBRUARY, 1983. WHILE COMPLETING ASSESSMENT, THE ASSESSING OFFICER ALLOWED A DEDUCTION OF RS. '36,22,224/UNDER SECTION 40A(7) OF THE ACT. HOWEVER , DEDUCTION FOR THE BALANCE AMOUNT WAS DISALLOWED ON THE GROUND THAT PAYMENT TOWARDS THE GRATUITY FUND WAS MADE BY THE ASSESSEE DIRECTLY TO THE LIC AND NO T TO AN APPROVED GRATUITY FUND AND, THEREFORE, IT WAS NOT ALLOWABLE UNDER SECTION 36(1)(V) OF THE ACT. BEING AGGRIEVED, THE ASSESSEE PREFERRED APPEAL TO T HE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OBSERVED THAT THE INITIAL PAYMENT OF RS.50,00,000/- AND THE ANNUAL PREMIUM OF RS.5,57,943/- WAS MADE BY THE ASSESSEE DIRECTLY TO THE LIC INSTEAD OF AS A CONTRIBUTION TOWARDS THE APPROVED GRATUITY FUND; THE LIC HAD ACCEPTED THE SAID PAYMENT ON BEHALF OF THE GROUP LIFE ASSURANCE SCHEME FOR THE EXCLUSIVE BENEFIT OF THE EMPLOYEES O F THE ASSESSEE UNDER THE POLICY ISSUED BY IT. UPON PERUSAL OF THE ORIGINAL MASTER POLICY ISSUED BY THE LIC, THE COMMISSIONER RECORDED HIS SATISFACTION THA T THE INITIAL CONTRIBUTION AS WELL AS ANNUAL PREMIUM HAD BEEN CREDITED BY THE LIC TO THE GROUP LIFE ASSURANCE SCHEME ON BEHALF OF THE TEXTOOL COMPANY LTD. EMPLOYEES GROUP GRATUITY FUND ONLY, MEANING THEREBY THAT THE INSURANCE POLICY HAD BEEN TAKEN IN THE NAME OF THE APPROVED GRATUITY FUND ONLY; THIS FUND WAS SHOWN AS THE PAYEE IN THE POLICY; VIDE ITS LETTER DATED 20 TH NOVEMBER, 1985, ADDRESSED TO THE LA.C., THE ASSESSEE HAD CONFIRMED THAT IN THE SUBSEQUENT ASSESSMENT YEARS, THEY HAD CONTRIBUTED 11 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. FUNDS TO THE EMPLOYEES GROUP GRATUITY FUND AND THE TRUSTEES IN TURN HAD MADE PAYMENT TO THE LIC IN RESPECT OF THE TEXTOOL CO. LTD.; EMPLOYEES GROUP GRATUITY ASSURANCE SCHEME UNDER THE SAID POLICY AND IT WAS ONLY THE INITIAL PAYMENT AND FIRST ANNUA L PREMIUM HAD BEEN MADE DIRECTLY TO THE LIC AGAINST THE SAID POLICY. THE COMMISSIONER WAS THUS, CONVINCED THAT BY MAKING PAYMENT OF THE AMOUNTS IN QUESTION DIRECTLY TO THE LIC, THE ASSESSEE HAD NOT VIOLATED ANY OF THE CONDITIONS STIPULATED IN SECTIO N 36(1)(V) OF THE ACT. ACCORDINGLY, THE COMMISSIONER CAME TO THE CONCLUSION THAT SINCE, ON THE FACTS OF THE CASE, THE OBJECTIVE OF THE FUND WAS ACHIEVED, A NARROW INTERPRETATION OF THE PROVISION WOULD BE STRAINING THE LANGUAGE OF SECTION 36(1)(V) OF THE A CT SO AS TO DENY THE DEDUCTION CLAIMED BY THE ASSESSEE. CONSEQUENTLY, THE COMMISSIONER ALLOWED THE SAID AMOUNT OF RS.58,84,754/- AS DEDUCTION FOR THE RELEVANT ASSESSMENT YEAR. BEING DISSATISFIED WITH THE VIEW TAKEN BY THE COMMISSIONER, THE REVENUE TOOK THE MATTER IN FURTHE R APPEAL TO THE TRIBUNAL. RELYING ON ITS EARLIER DECI SION IN THE CASE OF JANAMBIKAI MILLS LTD, THE TRIBUNAL DISMISSED THE APPEAL. AS STATED ABOVE, BY THE IMPUGNED ORDER, THE AFORE EXTRACTED QUESTION, REFERRED AT THE INSTANCE OF THE REVENUE, HAS BEEN ANSWERED BY THE HIGH COURT IN FAVOUR OF THE ASSESSEE. WHILE ANSWERING THE QUESTIO N, THE HIGH COURT HAS OBSERVED AS FOLLOWS: 'IN OUR OPINION, THE COMMISSIONER OF INCOME TAX (APPEALS) AS WELL AS THE TRIBUNAL HAVE CORRECTLY HELD THAT MERELY BECAUSE THE PAYMENTS WERE MADE DIRECTLY TO THE LIC, THE COMPANY COULD NOT BE DENIED THE BENEFIT UNDER SECTION 36(1)(V) AND THE AMOUNT HAD TO BE CREDITED IN FAVOUR OF THE ASSESSEE. BOTH THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL HAVE CORRECTLY READ THE LAW AND HAVE CORRECTLY RELIED UPON THE 12 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. AFOREMENTIONED SUPREME COURT JUDGMENT. IN OUR OPINION, SINCE THE FINDING OF FACT IS THAT ALL THE PAYMENTS MADE WERE ONLY TOWARDS THE GROUP GRATUITY FUND, THERE WOULD BE NO QUESTION OF FINDING OTHERWISE.' LEARNED COUNSEL APPEARING ON BEHALF OF THE REVENUE HAS SUBMITTED BEFORE US THAT THE PROVISIONS OF SECT ION 36(1)(V) OF THE ACT HAVE TO BE CONSTRUED STRICTLY A ND FOR CLAIMING DEDUCTION, CONDITIONS LAID DOWN IN SECTION 36(1)(V) OF THE ACT MUST BE FULFILLED. IT I S URGED THAT SINCE DURING THE RELEVANT PREVIOUS YEAR THE CONTRIBUTION BY THE ASSESSEE TOWARDS THE GRATUITY FUND WAS NOT IN AN APPROVED GRATUITY FUND THE HIGH COURT WAS NOT JUSTIFIED IN AFFIRMING THE VIEW TAKEN BY THE COMMISSIONER AS ALSO BY THE TRIBUNAL WHILE ANSWERING THE REFERENCE IN FAVOUR OF THE ASSESSEE. HOWEVER, ON A QUERY BY US AS TO WHETHER THE CONTRIBUTION MADE BY THE ASSESSEE IN THE APPROVED GRATUITY FUND CREDITED BY THE LIC FOR THE EMPLOYEES OF THE ASSESSEE AND ULTIMATELY THE ENTIRE AMOUNT DEPOSITED WITH THE LIC CAME BACK TO THE FUND CREATE D BY THE ASSESSEE FOR THE BENEFIT OF ITS EMPLOYEES AN D APPROVED BY THE COMMISSIONER W.E.F. 25TH FEBRUARY, 1983, OR NOT, LEARNED COUNSEL IS NOT IN A POSITION TO MAKE A CATEGORICAL STATEMENT IN THAT BEHALF. HAVING CONSIDERED THE MATTER IN THE LIGHT OF THE BACKGROUND FACTS, WE ARE OF THE OPINION THAT THERE IS NO MERIT IN THE APPEAL. TRUE THAT A FISCAL STATUTE IS TO BE CONSTRUED STRICTLY AND NOTHING SHOULD BE ADDED O R SUBTRACTED TO THE LANGUAGE EMPLOYED IN THE SECTION, YET A STRICT CONSTRUCTION OF A PROVISION DOES NOT R ULE OUT THE APPLICATION OF THE PRINCIPLES OF REASONABLE CONSTRUCTION TO GIVE EFFECT TO THE PURPOSE AND INTE NTION OF ANY PARTICULAR PROVISION OF THE ACT. (SEE: SHRI SAJJAN MILLS LTD. VS. COMMISSIONER OF INCOME TAX, M.P. & ANR. (1985) 156 ITR 585). FROM A BARE READIN G OF SECTION 36(1)(V) OF THE ACT, IT IS MANIFEST THAT THE REAL INTENTION BEHIND THE PROVISION IS THAT THE EMPLOYER SHOULD NOT HAVE ANY CONTROL OVER THE FUNDS OF THE IRREVOCABLE TRUST CREATED EXCLUSIVELY FOR TH E BENEFIT OF THE EMPLOYEES. IN THE INSTANT CASE, IT I S 13 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. EVIDENT FROM THE FINDINGS RECORDED BY THE COMMISSIONER AND AFFIRMED BY THE TRIBUNAL THAT THE ASSESSEE HAD ABSOLUTELY NO CONTROL OVER THE FUND CREATED BY THE LIC FOR THE BENEFIT OF THE EMPLOYEES OF THE ASSESSEE AND FURTHER ALL THE CONTRIBUTION MADE BY THE ASSESSEE IN THE SAID FUND ULTIMATELY CAME BACK TO THE TEXTOOL EMPLOYEES GRATUITY FUND, APPROVED BY THE COMMISSIONER WITH EFFECT FROM THE FOLLOWING PREVIOUS YEAR. THUS, THE CONDITIONS STIPULATED IN SECTION 36(1)(V) OF THE ACT WERE SATISFIED. HAVING REGARD TO THE FACTS FOUND BY THE COMMISSIONER AND AFFIRMED BY THE TRIBUNAL, NO FAULT CAN BE FOUND WIT H THE OPINION EXPRESSED BY THE HIGH COURT, WARRANTING OUR INTERFERENCE. 6. IN OUR OPINION, THE ASSESSEES CASE FOR THE RELEVANT ASSESSMENT YEAR IS SIMILAR TO THE ABOVE CA SE. RESPECTFULLY FOLLOWING THE SAME, ASSESSEES APPEAL IS ALLOWED. 7. IN THE RESULT, ITA.NO.713/HYD/2015 OF THE ASSESSEE IS ALLOWED. ITA.NO.714/HYD/2015 A.Y. 2008-2009 8. THIS IS ASSESSEES APPEAL FOR THE A.Y. 2008-09. IN THIS APPEAL, THE ONLY GRIEVANCE OF THE ASSESSEE IS AGAINST THE DISALLOWANCE OF DEDUCTION OF A SUM OF RS.10,46,19,487 CLAIMED @ 7.5% OF THE GROSS TOTAL I NCOME UNDER SECTION 36(1)(VIIA) OF THE I.T. ACT, 1961. 9. BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE FILED A LETTER DATED 6.10.2010 CLAIMING DEDUCTION UNDER SECTION 36(1) (V IIA) OF 14 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. THE I.T. ACT AND IT ALSO FILED A REVISED COMPUTATIO N IN THIS REGARD. THE A.O. HELD THAT UNDER SECTION 139(5) OF THE ACT, THE ASSESSEE WAS ENTITLED TO FILE A REVISED RETURN BEFORE THE END OF ONE YEAR FROM THE END OF THE RELEVANT ASSESS MENT YEAR OR BEFORE COMPLETION OF THE ASSESSMENT, WHICHE VER IS EARLIER AND THAT SINCE THE ASSESSEE HAS NOT FILED R EVISED COMPUTATION WITHIN THE PERIOD OF ONE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THE CLAIM CANNOT BE ACCEPTED. THE MATTER WAS CARRIED IN APPEAL UP TO IT AT AND VIDE ORDERS DATED 29.04.2013 IN ITA.NO.502 AND 967/2011 THE ITAT DIRECTED THE A.O. TO EXAMINE THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE UNDER SECTION 36(1)(VIIA) AND DECIDE THE SAME IN ACCORDANCE WITH LAW, AFTER CONSIDERING ALL THE MATERIAL AND EVIDENCE THA T MAY BE PRODUCED BY THE ASSESSEE. 10. DURING THE PROCEEDINGS BEFORE THE A.O. UNDER SECTION 143(3) READ WITH SECTION 254 OF THE ACT, TH E ASSESSEE REFERRED TO THE DECISIONS OF THE HONBLE S UPREME COURT IN THE CASES OF CATHOLIC SYRIAN BANK REPORTED IN 343 ITR 270(SC) AND SOUTHERN TECHNOLOGIES REPORTED IN 320 ITR 571(SC) AND SUBMITTED THAT A PLAIN READING OF SECTION 36(1)(VIIA) SHOWED THAT THE ASSESSEE WAS EN TITLED TO TWO DEDUCTIONS, FIRSTLY BASING ON PROVISION MADE BY THE APPELLANT, NOT EXCEEDING 10% OF THE AVERAGE RURAL ADVANCES, AND SECONDLY, A SUM NOT EXCEEDING 7.5% OF THE TOTAL INCOME COMPUTED BEFORE MAKING ANY DEDUCTION UNDER SECTION 36(1)(VIIA) AND SECTIONS 80C TO 80U. ASSESSEE FURTHER SUBMITTED THAT HE HAS DEBITED 5% O F THE 15 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. AVERAGE RURAL ADVANCES AMOUNTING TO RS.85.57 CRORES IN THE BOOKS AND THAT WITH REGARD TO CLAIM OF 7.5% OF THE TOTAL INCOME, THE LAW DID NOT PROVIDE FOR PROVISION OF SUCH AMOUNT TO BE MADE IN THE BOOKS FOR THE A.Y. 2008-09 . THE A.O. HOWEVER, NOTED THAT THE ASSESSEE HAD MADE A PROVISION OF RS.4,33,70,451 APART FROM THE PROVISIO N OF 7.5% OF THE TOTAL INCOME TOWARDS BAD AND DOUBTFUL D EBTS AND THAT OUT OF THE PROVISION OF RS.4.33 CRORES, A SUM OF ONLY RS.3.10 CRORES PERTAINS TO RURAL DEBTS. OBSERV ING THAT A DEDUCTION FOR PROVISION UNDER CLAUSE (VIIA) OF SECTION 36(1) IS MEANT FOR RURAL DEBTS ONLY AS PER THE DECISION OF THE APEX COURT IN THE CASE OF CATHOLIC SYRIAN BANK REPORTED IN 343 ITR 270 (SC) (CITED SURPA) AND THEREFORE, THAT THE ASSESSEE IS ENTITLED TO A DEDUC TION OF THE ACTUAL AMOUNT CREATED IN THE BOOKS OF ACCOUNT TOWARDS THE PROVISION FOR RURAL BAD AND DOUBTFUL DE BT SUBJECT TO THE CEILING SPECIFIED IN SECTION 36(1)(V IIA) OF THE ACT, HE ACCORDINGLY, ISSUED A SHOW CAUSE NOTICE AS TO WHY THE EXCESS CLAIM OF DEDUCTION UNDER SECTION 36(1)(V IIA) OF RS.10,46,19,487 SHOULD NOT BE DISALLOWED. THE ASSES SEE SUBMITTED ITS REPLY STATING THAT DURING THE A.Y. 20 08-09, THE LAW DID NOT PROVIDE FOR MAKING A PROVISION OF 7 .5% OF THE TOTAL INCOME IN THE BOOKS OF ACCOUNT AND THEREF ORE, THE PROPOSAL TO MAKE THE DISALLOWANCE MAY BE DROPPE D. THE A.O. WAS NOT CONVINCED WITH THE ASSESSEES CONTENTIONS. HE, THEREFORE, DISALLOWED THE CLAIM OF EXCESS DEDUCTION TOWARDS PROVISION OF BAD AND DOUBTFUL DEB TS OF RS.10,46,19,487. ON APPEAL, THE CIT(A) CONFIRMED TH E 16 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. DISALLOWANCE GIVING PARTIAL RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER : 5.1. I HAVE CONSIDERED THE FACTS ON RECORD AND THE SUBMISSIONS OF THE AR. THE APPELLANT HAD DEBITE D A SUM OF RS.9000.42 LAKHS IN ITS P & L ACCOUNT CONSISTING OF : I. PROVISION FOR RURAL ADVANCES RS.85,57.00 LAKHS II. PROVISION TOWARDS BAD AND DOUBTFUL DEBTS RS.433.73 LAKHS III. PROVISION TOWARDS FRAUDS RS.9.69 LAKHS. 5.2. THE APPELLANT HAD SUBMITTED THE FOLLOWING REVISED COMPUTATION OF INCOME : PROFIT AFTER DEPRECIATION AS PER INCOME TAX ACT. 53,92,26,496 ADD: 5% OF AVERAGE AGGREGATE RURAL ADVANCES. 85,57,00,000 TOTAL INCOME BEFORE DEDUCTION U/S.36(1)(VIIA) 1,39,49,26,494 LESS: 5% ON AVERAGE ADVANCE 85,57,00,000 7.5% ON TOTAL INCOME 10,46,19,487 96,03,19,487 TOTAL INCOME : 43,46,07,009 5.3. SEC.36(1)(VIIA) PROVIDES AS FOLLOWS : '36(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRE D TO IN SECTION 28- (VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOUB TFUL DEBTS MADE BY (A) A SCHEDULED BANK '', AN AMOUNT NOT EXCEEDING SEVEN AND ONE-HALF PER CENT OF THE TOTAL INCOME '' AND 17 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. AN AMOUNT NOT EXCEEDING TEN PERCENT OF THE AGGREGAT E AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. ' 5.4. IN THE NORMAL COURSE, PROVISIONS ARE NOT A DEDUCTIBLE EXPENSE. SEC.36( L)(VIIA) IS A SPECIAL PROVISION THAT PERMITS SUCH A DEDUCTION FOR BAD AND DOUBTFUL DEBTS FOR SPECIFIED CATEGORIES OF ASSESSEE S. HOWEVER, THE SUB-SECTION STATES THAT DEDUCTION SHAL L BE ALLOWED 'IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY' THE ASSESSEE. THIS PHRASE APPLIES TO BOTH SEGMENTS OF THE DEDUCTION ALLOWED UNDER THE SUB-SECTION: OF TEN PERCENT OF THE AVERAG E AGGREGATE RURAL ADVANCES AS WELL AS SEVEN AND ONE- HALF PERCENT OF THE TOTAL INCOME. IN OTHER WORDS, T HE DEDUCTION OF SEVEN AND ONE-HALF PERCENT OF THE TOTA L INCOME IS NOT AN ABSOLUTE ALLOWANCE INDEPENDENT OF THE ENTRIES, IF ANY, IN THE BOOKS OF ACCOUNT BUT IS PERMITTED ONLY IN RESPECT OF A PROVISION ACTUALLY M ADE BY AN ASSESSEE AND IS CONSEQUENTLY, CIRCUMSCRIBED BY THE EXTENT OF SUCH PROVISION. 5.5. THIS VIEW HAS ALSO BEEN UPHELD IN THE CASE OF STATE BANK OF PATIALA WHERE IT WAS HELD: 'THE DEDUCTION ALLOWABLE UNDER SECTION 36(1)(VIIA) OF THE INCOME-TAX ACT, 1961, IS IN RESPECT OF THE PROVISION MADE. THEREFORE, MAKING OF A PROVISION FOR BAD AND DOUBTFUL DEBT EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS A MUST FOR CLAIMING SUCH DEDUCTION. THE PROVISO TO CLAUSE (VII) OF SECTION 36(1) ALSO SHOWS THAT MAKING OF PROVISION EQUAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE ACCOUNT BOOKS IS NECESSARY FOR CLAIMING DEDUCTION UNDER SECTION 36(1)(VIIA).' THE COURT, THEREFORE, UPHELD THE VIEW THAT THE ALLOWANCE U/S 36(1)(VIIA) HAD TO BE LIMITED TO THE AMOUNT OF PROVISION CREATED BY THE ASSESSEE IN ITS BOOKS. 18 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. 5.6. SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE JURISDICTIONAL ITAT IN THE DECISION CITED BY THE ASSESSING OFFICER IN THE CASE OF STATE BANK OF HYDERABAD. 5.7. IT FOLLOWS THAT NOT ONLY MUST THE PROVISION FOR BAD DEBTS BE DEBITED TO THE P&L ACCOUNT IN ORDE R TO ENABLE AN ASSESSEE TO CLAIM DEDUCTION U/S 36(1)(VIIA), THE AMOUNT OF DEDUCTION ALLOWABLE IS LIMITED BY THE PROVISION SO DEBITED. 5.8. FURTHER, IN THE CASE OF CATHOLIC SYRIAN BANK LTD. VS CIT [2012] 343 ITR 270 (SC), IT HAS BE EN HELD BY THE SUPREME COURT THAT SEC. 36(1)(VIIA) APPLIES ONLY TO RURAL ADVANCES. THEREFORE, THE DEDUCTION UNDER THIS SUB-SECTION MUST BE LIMITED TO THE AMOUNT OF PROVISION RELATING TO RURAL ADVANCES IN THE BOOKS OF THE APPELLANT. 5.9. AS NOTED ABOVE, THE TOTAL PROVISION DEBITED BY THE APPELLANT WAS 9000.42 LAKHS. OF THIS , PROVISION OF RS.8557 .00 LAKHS WAS MADE AS 5% OF THE AVERAGE AGGREGATE RURAL ADVANCES. THE APPELLANT HAD ALSO SUBMITTED BEFORE THE ASSESSING OFFICER THA T OUT OF THE PROVISION OF RS.433.73 LAKHS, RS,310.00 LAKHS RELATED TO RURAL BRANCHES. THEREFORE, THE TOT AL PROVISION RELATING TO RURAL BRANCHES WAS RS.89903. 73 LAKHS. 5.10. AGAINST THIS, THE APPELLANT HAD CLAIMED THE FOLLOWING DEDUCTIONS: 5% ON AVERAGE ADVANCE RS.85,57,00,000 7.5% ON TOTAL INCOME AS PER SEC.36(1)(VIIA) RS.10,46,19,487 TOTAL RS.96,03,19,487 THE DEDUCTION ALLOWABLE U/S 36(1)(VIIA) MUST, THEREFORE, BE LIMITED TO THE TOTAL PROVISION OF 19 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. RS.89903.73 LAKHS CREATED BY THE APPELLANT RELATING TO RURAL BRANCHES. 5.11. IT IS ALSO SEEN FROM THE REVISED COMPUTATION OF INCOME FILED BY THE APPELLANT THAT WHILE THE APPELLANT HAD ADDED BACK THE SUM OF RS.85,57,00,000, IT HAD NOT ADDED BACK THE BALANCE PROVISION OF RS.433.73 LAKHS. THE AR HAS SOUGHT TO ARGUE THAT THE SUM OF RS.433.73 LAKHS WAS ALLOWABLE AS A DEDUCTION IN ANY CASE. I DO NOT AGREE WITH THI S PLEA. THE AMOUNTS DEBITED TO THE P & L ACCOUNT WERE MERE PROVISIONS AND DID NOT REPRESENT AN ACTUAL WRITE-OFF OF THE DEBTS IN QUESTION. THEREFORE, THE APPELLANT WAS NOT ENTITLED TO A CLAIM U/S 36(1)(VII ) FOR THIS SUM. SECONDLY, THE DEDUCTION U/S 36(1)(VIIA) H AS BEEN CLAIMED AND ALLOWED ON THE BASIS OF THE VERY SAME PROVISION AND THE APPELLANT CANNOT CLAIM DEDUCTION FOR THE SAME AMOUNT U/S 36(1)(VIIA) WITHO UT FIRST ADDING IT BACK. INDEED, THE APPELLANT HAD ITS ELF ADDED BACK THE PROVISION OF RS.85,57,00,000 AND THERE IS NO REASON WHY THE SAME TREATMENT SHOULD NOT BE ACCORDED TO THE SUM OF RS.433.73 LAKHS. 5.12. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER IS DIRECTED TO ADD THE PROVISION OF RS.89,90,073 LA KHS BEFORE PROCEEDING TO ALLOW THE DEDUCTION U/S.36(1)(VIIA). 5.13. THE APPELLANT HAS ALSO SUBMITTED THAT THE PROVISION OF RS.86,67,00,000 REPRESENTED 5% OF THE AVERAGE AGGREGATE RURAL ADVANCES. THE CLOSING BALANCE OF THE RURAL ADVANCES WAS RS.1711.35 CRORES. THE PROVISION OF RS.85,57,00,000 REPRESENTS 5% OF THIS CLOSING BALANCE AND NOT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES AS COMPUTED UNDER RULE 6ABA. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO RE-COMPUTE THE AGGREGATE AVERAGE RURAL ADVANCE IN ACCORDANCE WITH RUE 6ABA FOR THE PURPOSE OF ALLOWING THE DEDUCTION. 6.0. IN THE RESULT, THE APPEAL IS PARTLY ALLO WED. 20 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. 11. AGGRIEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 12. THE LD. COUNSEL FOR THE ASSESSEE, WHILE REITERATING THE SUBMISSIONS MADE BEFORE THE AUTHORI TIES BELOW, HAS ALSO RELIED UPON THE DECISION OF THIS TR IBUNAL IN ITA.NO.1742/2014 FOR THE A.Y. 2010-2011 DATED 25.03.2015 IN THE CASE OF DECCAN GRAMEENA BANK WHEREIN, AFTER FOLLOWING THE DECISION OF THE COORDI NATE BENCH OF THIS TRIBUNAL IN THE CASE OF SBH VS. DCIT (IN ITA.NO.1232/H/2006), ITAT HELD THAT 7.5% DEDUCTION OF THE TOTAL INCOME CAN BE CLAIMED INDEPENDENT OF ANY PROVISIONS MADE FOR BAD AND DOUBTFUL DEBTS. COPY OF THE SAID ORDER FOR THE A.Y. 2010-2011 IN THE CASE OF DE CCAN GRAMEENA BANK IS FILED BEFORE US. 13. THE LD. D.R. ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND RELIED UPONTHE ORDER OF ITAT IN THE ASSESSEES OWN CASE FOR A.Y. 2009-2010 WHEREIN THE DISALLOWANCE WAS CONFIRMED. 14. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ONLY ISSUE IS WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTIO N 36(1)(VIIA) OF THE ACT @ 7.5% OF THE TOTAL INCOME W ITHOUT CREATING A PROVISION FOR THE SAME IN ITS BOOKS OF A CCOUNT. 14.1. WE FIND THAT SIMILAR ISSUE HAD ARISEN IN THE CASE OF DECCAN GRAMEENA BANK, HYDERABAD FOR THE A.Y. 21 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. 2010 - 2011 AND THE TRIBUNAL HAD HELD IN FAVOUR OF THE ASSESSEE AS UNDER: ADDITION ON ACCOUNT OF DISALLOWANCE OF DEDUCTION C LAIMED U/S. 36(L)(VIIA) OF IT ACT RS. 4.44,52,560/-15. WHI LE COMPUTING THE TOTAL INCOME FOR THE YEAR UNDER REFER ENCE THE AO HAS DISALLOWED THE CLAIM OF RS.4,44,52,560/- , MADE BY THE ASSESSEE IN THE COMPUTATION FURNISHED A LONG WITH THE RETURN OF INCOME.SUCH CLAIM WAS MADE AS PE R THE PROVISIONS OF SEC.36(1)(VIIA) OF THE INCOME-TAX ACT , CALCULATED AT THE RATE OF 7.5% OF THE TOTAL INCOME. THE AO HAS OBSERVED THAT THE DEDUCTION WAS CLAIMED BASED O N STATUTORY PROVISION, WITHOUT THERE BEING ANY CLAIM IN BOOKS OF ACCOUNT. IT WAS FURTHER OPINED BY THE AO T HAT ANY PROVISION CREATED SHOULD HAVE A PURPOSE AND IN THE CASE OF ASSESSEE PROVISION WAS CREATED WITHOUT ANY NECESSITY AS SUCH THE PROVISION WAS UNWARRANTED AND THE SAID CLAIM TOWARDS BAD AND DOUBTFUL DEBTS UNDER 7.5 % CATEGORY IS DISALLOWED TO BE ADDED BACK TO THE RETU RNED INCOME AND BROUGHT TO TAX.. THE ASSESSEES OBJECTIO N FOR SUCH DISALLOWANCE/ADDITION WAS ON THE GROUND THAT T HE PROVISIONS OF SEC. 36(1)(VIIA) PERMITS BANKING COMP ANY TO CLAIM A DEDUCTION NOT EXCEEDING 7 .5% OF TOTAL INCO ME COMPUTED, TOWARDS BAD AND DOUBTFUL DEBTS. THE ASSESSEE RELIED ON THE DECISION OF ITAT, HYDERABAD , IN THE CASE OF SBH VS. DCIT (ITA NO.1232/HYD./2006) TO SUPPORT THE CLAIM OF DEDUCTION @ 7.5%OF THE TOTAL I NCOME. THE ASSESSEE ALSO RELIED ON THE DECISIONOF KARNATAK A HIGH COURT, IN THE CASE OF DCIT, SR VS.KARNATAKA BA NK LTD., TO SUPPORT THE ARGUMENT THAT DEDUCTIONS U/S. 36(1)(VII) ARE ALLOWABLE INDEPENDENTLY AND IRRESPEC TIVE OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS, WITHOUT CLAI MING THE DEDUCTION U/S 36(1)(VII) AND 36(1)(VIIA) SIMULTANEOUSLY.. THE LD CIT (A) PERUSED THE SUBMISS IONS OF THE ASSESSEE AND THE OBSERVATIONS OF THE AO. THE CIT (A) HELD AS FOLLOWS: AS COULD BE SEEN FROM THE FACTS OF THE CASE BROUGH T ON RECORD, THE ASSESSEE CLAIMED A DEDUCTION OF RS. 4,44,52,560/- BEING THE DEDUCTION @7.5% OF THE TOTA L INCOME, AS PER THE PROVISIONS OF SEC. 36( L)(VIIA) BEFORE CLAIMING DEDUCTIONS U/S. CHAPTER VI A AND THE DEDUC TION UNDER SAID CLAUSE, WHILE COMPUTING THE TOTAL INCOME . THE AO DISALLOWED THE SAME ON THE GROUND THAT THERE WAS NO 22 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. NECESSITY OF SUCH PROVISION, WITH THE ADVANCES SECU RED AND NO PROVISION FOR BAD AND DOUBTFUL DEBTS HAVE BE EN MADE IN BOOKS OF ACCOUNT AND THE DEDUCTION WAS CLAI MED, JUST BECAUSE IT WAS PROVIDED BY THE PROVISIONS OF I NCOME- TAX ACT. IN THIS CONTEXT, IT MAY BE RELEVANT TO HOL D THAT, THE DEDUCTION WAS CLAIMED, AS PROVIDED IN SEC. 36(1)(VIIA) OF THE ACT AND NO INFIRMITY WAS POINTED OUT BY THE AO IN THIS REGARD. THE DEDUCTION WAS MADE BY THE ASSESSEE AS PER THE PROVISIONS OF THE I.T. ACT (SEC . 36(1)(VIIA) RESTRICTING TO THE 7.5% OF THE TOTAL PR OFITS, IN ADDITION TO DEDUCTION OF RS.1,96,65,088 CLAIMED TOW ARDS THE DOUBTFUL AND BAD DEBTS OF RURAL ADVANCES, WHICH WAS ALLOWED BY THE AO. 18. THE LD CIT (A) HELD THAT IT IS ALSO A FACT THA T, NO OTHER DEDUCTIONS WERE CLAIMED BY THE ASSESSEE BANK U/S 36(1)(VII) TOWARDS WRITE OFF OF BAD DEBTS. IN THIS CONTEXT IT IS RELEVANT TO REFER TO THE DECISION OF THE ITAT HY DERABAD, IN THE CASE OF STATE BANK OF HYDERABAD VS. DCIT DAT ED 28.11.2008 IN ITA NO.1232/HYD/2006 WHEREIN THE TRIBUNAL HELD THAT DEDUCTION U/S 36(1)(VIIA) OF THE INCOME TAX ACT, NOT EXCEEDING 7.5% OF THE TOTAL INCOME COM PUTED, IS TO BE ALLOWED FOR PROVISION OF BAD AND DOUBTFUL DEBTS. CONSIDERING THE FACTS OF THE CASE THAT THE DEDUCTIO N CLAIMED BY THE ASSESSEE TO THE EXTENT OF RS.4,44,52 ,560 WAS CLAIMED AS PER THE PROVISIONS OF SECTION 36(1)( VIIA) AND WITHOUT CLAIMING ANY DEDUCTION TOWARDS BAD DEBT S WRITTEN OFF AS PER THE PROVISIONS OF SECTION 36(1)( VII) AND ALSO RESPECTFULLY FOLLOWING THE DECISION OF ITAT IN THE CASE OF SBH VS. DCIT (SUPRA), THE CIT (A) WAS OF THE OPI NION THAT THERE IS NO INFIRMITY IN THE CLAIM OF THE ASSE SSEE. ACCORDINGLY THE ADDITION OF RS.4,44,52,560 WAS HELD TO BE UNSUSTAINABLE AND THIS GROUND OF APPEAL WAS TREATED AS ALLOWED BY THE CIT(A). 19. AGGRIEVED, THE DEPARTMENT IS IN APPEAL BEFORE US AND RAISED THE FOLLOWING GROUNDS : 1.. 2.. 3. 4. WHETHER THE LD CIT (A) IS CORRECT IN ALLOWING LA W IN DEDUCTION CLAIMED U/S 36(1)(VIIA) OF IT ACT RS.4,44,52,560. 23 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. 20. .. 21. 22. WITH RESPECT TO THE ISSUE OF CLAIM OF DEDUCTI ON U/S36(1)(VIIA) FOR AN AMOUNT OF RS.4,44,52,560, THI S ISSUE IS ALSO COVERED BY THE ORDER OF THE ITAT HYDERABAD BENCH IN THE CASE OF SBH HYDERABAD IN ITA NO.584/HYD/2013 AND ALSO CATHOLIC SYRIAN BANK LTD VS. CIT (2012) 24 8 CTR (S.C). RESPECTFULLY FOLLOWING THE ORDER OF THE COOR DINATE BENCHES, WE DISMISS GROUND NO.4 OF REVENUES APPEAL . 23. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MARCH, 2015. 14.2. HOWEVER, IN ASSESSEES OWN CASE FOR THE A.Y. 2009-2010 IN ITA.NO.610/HYD/2013 DATED 12.08.2015 THE TRIBUNAL AT PARA-6 OF ITS ORDER HAS HELD AS UND ER : 6. ON A REFERENCE TO THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE ACT, IT IS VERY MUCH CLEAR THAT FOR CLAIMING DEDUCTION UNDER THE SAID PROVISION, ASSESSEE HAS TO CREATE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS OF ACCOUNT. THEREFORE, CONTENTION OF LD. AR THAT THERE IS NO NEED FOR MAKING ANY PROVISION FOR BAD AND DOUBTFUL DEBTS FOR CLAIMING DEDUCTION U/S 36(1)(VIIA) IS NOT ACCEPTABLE. THE HONBLE P & H HIGH COURT IN CASE OF STATE BANK OF PATIALA VS. CIT (SUPRA) WHILE EXAMINING THE PROVISIONS OF SECTION 36(1)(VIIA) HELD THAT FOR CLAIMING DEDUCTION UNDER THE SAID PROVISION, ASSESSEE BANK HAS TO MAKE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS OF ACCOUNT AND DEDUCTION U/S 36(1)(VIIA) IN RESPECT OF RURAL ADVANCES CAN ONLY BE ALLOWED TO THE EXTENT OF THE PROVISION MADE. THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2010-11 IN ITA NO. 51/HYD/2015 DATED 10/04/2015, WHILE DEALING WITH IDENTICAL ISSUE, HAS HELD AS UNDER: 24 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. IT IS OBSERVED THAT THE ASSESSEE IN THE PRESENT CASE, BEING ELIGIBLE BANK, IS ENTITLED TO CLAIM DEDUCTION AS PER THE MAIN PROVISION CONTAINED IN CLAUSE (A) OF S.36(1)(VIIA), IN RESPECT OF ANY PRO VISION FOR BAD AND DOUBTFUL DEBTS TO THE EXTENT OF AN AMOUNT NOT EXCEEDING 7.5% OF THE TOTAL INCOME COMPUTED BEFORE MAKING ANY DEDUCTION UNDER S.36(1)(VIIA) AND CHAPTER VIA AND AN AMOUNT NOT EXCEEDING 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. A PERUSAL OF THE IMPUGNED ORDER OF THE LEARNED CIT(A) HOWEVER, SHOWS THAT IT WAS STATED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) TH AT NO PROVISION WAS MADE TOWARDS AVERAGE RURAL ADVANCES. IF IT IS SO, IT IS NOT CLEAR AS TO WHAT IS THE BASIS ON WHICH THE PROVISION OF RS.22.40 CRORES (RS .5.38 CRORES IN RESPECT OF URBAN ADVANCES AND RS.17.02 CRORES IN RESPECT OF RURAL ADVANCES)WAS MADE BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. MOREOVER, ALL THESE FACTS AND FIGURES WERE FURNISHE D BY THE ASSESSEE BEFORE THE LEARNED CIT(A) FOR THE F IRST TIME AND THE ASSESSING OFFICER THEREFORE, DID NOT H AVE ANY OPPORTUNITY TO VERIFY THE SAME. THE CLAIM OF TH E ASSESSEE OF HAVING ADJUSTED THE AMOUNT OF RS.22.24 CRORES TOWARDS BAD DEBTS WRITTEN OFF DURING THE YE AR UNDER CONSIDERATION AGAINST THE OPENING BALANCE OF THE PROVISION OF RS.40.13 CRORES WAS ALSO MADE BY T HE ASSESSEE FOR THE FIRST TIME BEFORE THE LEARNED CIT( A), AND THE ASSESSING OFFICER DID NOT HAVE ANY OPPORTUNITY TO VERIFY THE SAME. HAVING REGARD TO A LL THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE O F THE VIEW THAT IT WOULD BE FAIR AND PROPER AND IN TH E INTERESTS OF JUSTICE TO RESTORE THE ISSUE RELATING TO THE ASSESSEES CLAIM FOR DEDUCTION UNDER S.36(1)(VIIA)T O THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME AFRESH, IN ACCORDANCE WITH THE PROVISION OF S.36(1)(VIIA) AFTER GIVING PROPER AND SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE AND AFTER VERIFYING ALL THE RELEVANT FACTS AND FIGURES. WE OR DER ACCORDINGLY. THIS APPEAL OF THE REVENUE IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. KEEPING IN VIEW OF THE AFORESAID ORDER OF THE COORDINATE BENCH, WE ARE INCLINED TO REMIT THE 25 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. MATTER BACK TO THE FILE OF AO FOR DECIDING AFRESH AFTER VERIFYING THE FACT WHETHER ASSESSEE HAS CREATED ANY PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS OF ACCOUNT IN TERMS WITH SECTION 36(1)(VIIA). IN CASE IT IS FOUND THAT ASSESSEE HAS MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS OF ACCOUNT, THEN, DEDUCTION U/S 36(1)(VIIA) CAN BE ALLOWED TO ASSESSEE. IN CASE IT IS FOUND THAT ASSESSEE HAS NOT MADE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS IN ITS BOOKS OF ACCOUNT, THEN, ASSESSEE WOULD NOT BE ELIGIBLE FOR ANY DEDUCTION U/S 36(1)(VIIA) IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE P&H HIGH COURT IN CASE OF STATE BANK OF PATIALA VS. CIT(SUPRA). WITH THE AFORESAID OBSERVATIONS, WE REMIT THE ISSUE BACK TO THE FILE OF AO FOR DECIDING AFRESH AFTER DUE OPPORTUNITY OF BEING HEARD TO ASSESSEE. GROUND RAISED BY THE DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSES. 14.3. THUS, WE FIND THAT THIS ISSUE IS NOW COVERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE BY T HE DECISION OF THE HONBLE HIGH COURT OF PUNJAB & HARY ANA IN THE CASE OF STATE BANK OF PATIALA REPORTED IN 27 2 ITR 54 WHEREIN IT HAS BEEN HELD THAT IT IS NECESSARY TO MA KE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE ACCOUNT BOOKS IN THE SAME PREVIOUS YEAR IN WHICH SUCH PROVISION I S CLAIMED AS DEDUCTION UNDER SECTION 36(1)(VIIA). THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF CI T VS. ANDHRA BANK LTD., IN ITA.NO.715/HYD/2012 FOR THE A. Y. 2007-08 (TO WHICH ONE OF US I.E., THE J.M. IS A SIG NATORY) VIDE ORDERS DATED 04.10.2013 HAS FOLLOWED THE DECIS ION CITED SUPRA IN THE CASE OF STATE BANK OF PATIALA AN D HAS HELD AS UNDER : 26 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. 34. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN FACT THIS IS THE FIRST YEAR IN WHICH THE ISSUE HAS ARISEN AS THE PROVISION MADE BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS LESS THAN THE AMOUNT ALLOWABLE U/S 36(1)(VIIA) OF THE IT ACT. THE LEARNED CIT(A) AFTER CONSIDERING THE PROVISIONS OF LAW AS WELL AS THE ACTUAL PROVISION MADE BY THE ASSESSEE FOR BAD AND DOUBTFUL DEBTS, ULTIMATELY CONCLUDED VIDE PARAS 6.9 AND 6.10 IN HIS ORDER AS UNDER: 6.9 IF THE INTENTION OF THE LEGISLATURE IS THAT DEDUCTION SHOULD NOT BE LINKED TO THE PROVISION MAD E IN THE ACCOUNTS, THE LANGUAGE OF THE SECTION WILL N OT HAVE THE WORDING IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE, INSTEAD IT WOULD HAVE STATED THAT THE SCHEDULED BANK WOULD BE ENTITLED TO A DEDUCTION OF AN AMOUNT WHICH IS AN AGGREGATE OF 7.5% OF THE TOTAL INCOME AND 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES WITHOUT REFERENCE TO ANY PROVISION. THEREFORE, I AM OF THE OPINION THAT ANY PROVISION IN THE SECTION REFERS TO ANY PROVISION MADE IN THE ACCOUNTS OF THE ASSESSEE BANK AND DEBITED THE AMOUNT OF SUCH DEBT OR PART OF THE DEBT IN THAT PREVIOUS YEAR TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. RELIANCE IS PLACED ON THE DECISION OF THE HONBLE H IGH COURT OF P&H IN THE CASE OF STATE BANK OF PATIALA V S. CIT 272 ITR 54 WHERE IT HAS BEEN HELD THAT IT IS NECESSARY TO MAKE A PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE ACCOUNT BOOKS IN THE SAME PREVIOUS YEA R IN WHICH SUCH PROVISION IS CLAIMED AS DEDUCTION U/ S 36(1)(VIIA). THEREFORE, IT IS HELD THAT DEDUCTION I S AVAILABLE ONLY TO THE EXTENT OF THE PROVISION MADE IN THE BOOKS AND ACCORDINGLY THE DEDUCTION FOR PROVISIONS OF BAD AND DOUBTFUL DEBTS AS COMPUTED U/ S 36(1)(VIIA) IS RESTRICTED TO THE AMOUNT PROVIDED BY THE APPELLANT IN ITS BOOKS AND THE AO IS JUSTIFIED IN ALLOWING THE PROVISION MADE OF RS. 97,48,84,948/- U /S 36(1)(VIIA) OF IT ACT AND DISALLOWING THE CLAIM OF RS. 334,43,19,444/-. 6.10 HOWEVER, IF THE RETURNED INCOME IS TAKEN AT RS. 288,27,68,633/- AS DIRECTED IN PARA 5.5 THEN 27 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. THE AO WILL HAVE TO ADD BACK THE AMOUNT OF RS. 236,94,34,496 (RS. 334,43,19,444 RS. 97,48,84,948) IN THE COMPUTATION. 35. SINCE THE CIT(A) FOLLOWED THE DECISION OF THE HONBLE HIGH COURT OF P&H IN CASE OF STATE BANK OF PATIALA (SUPRA), WE DO NOT FIND ANY REASON TO DIFFER FROM THE ORDER OF THE CIT(A). MOREOVER, THE COORDINATE BENCH OF ITAT, BANGALORE IN CASE OF SYNDICATE BANK (SUPRA) HAS ANALYSED THE ISSUE AND CONCLUDED AS UNDER: 48. AS FAR AS GR.NO.3 RAISED BY THE REVENUE IN THE ORIGINAL GROUNDS OF APPEAL IS CONCERNED, THE AO DISALLOWED THE ENTIRE CLAIM FOR DEDUCTION OF RS.503,49,00,000/- ON THE FOLLOWING GROUND. A) THE PROVISION FOR BAD AND DOUBTFUL DEBTS IN RESPECT OF RURAL ADVANCES WAS CREATED BY DEBIT TO PROFIT AND LOSS ACCOUNT OF ONLY A SUM OF RS.295,55,54,682 WHEREAS THE CLAIM FOR DEDUCTION ACTUALLY MADE U/S.36(1)(VIIA) OF THE ACT WAS A SUM OF RS.503,49,00,000/-. THE AO WAS OF THE VIEW THAT AS LAID DOWN BY THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA VS. CIT 272 ITR 53 (P & H), CLAIM FOR DEDUCTION U/S.36(1)(VIIA) OF THE ACT CANNOT BE GREATER THAN T HE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT AS PROVISION. THE AO THEREFORE PROPOSED TO DISALLOW A SUM OF RS.207,93,45,318 (DIFFERENCE BETWEEN RS.503,49,00,000 AND RS.295,55,54,682). B) APART FROM THE ABOVE THE AO ALSO DISALLOWED THE SUM OF RS.295,55,54,682 OUT OF RS.503,49,00,000 CLAIMED AS DEDUCTION U/S.36(1)(VIIA) OF THE ACT. TH E REASONS GIVEN FOR DISALLOWING CLAIM FOR DEDUCTION OF RS.295,55,54,682/- U/S.36(1)(VIIA) OF THE ACT BY TH E AO WAS THAT THERE WAS ALREADY CREDIT BALANCE IN THE PBDD AS ON 1.04.2005 BALANCE B/F WAS RS. 912,57,47,169. ACCORDING TO THE AO 10% OF AARA CAN BE CREATED AS PROVISION EACH YEAR PROVIDED THER E IS NO BROUGHT FORWARD BALANCE AS ON THE FIRST DAY O F 28 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. THE PREVIOUS YEAR IN THE PBDD ACCOUNT.10% OF THE AARA AS ADMITTED BY THE ASSESSEE AS PER REVISED CENSUS OF 2001 WAS 352.53 CRORES. ACCORDING TO THE AO EVEN IF BAD DEBTS WRITTEN OFF OF RS.179,21,88,99 2 IS REDUCED STILL THE BALANCE IN THE PBDD ACCOUNT WA S RS.733,35,58,177/-. SINCE THE BALANCE SO AVAILABLE IN PBDD ACCOUNT WAS MORE THAN 10% OF AARA, THE AO HELD THAT DEDUCTION ON THE BASIS OF NEW PROVISION O F RS.295,55,54,682/- CANNOT BE ALLOWED. IN THIS REGAR D THE AO REFERRED TO THE CONTENTION OF THE ASSESSEE WHICH WAS TO THE EFFECT THAT IN EACH YEAR THE ASSES SEE CAN CREATE 10% OF AARA AND CONCLUDED THAT THE EXPRESSION NOT EXCEEDING TEN PERCENT OF THE AGGREGATE AVERAGE ADVANCES USED IN SEC.36(1)(VIIA) OF THE ACT CANNOT MEAN THAT PROVISION CAN BE CREATED EACH YEAR IRRESPECTIVE OF THE AVAILABLE BALANCE IN THE PBDD ACCOUNT. THE AO ALSO REFERRED TO A SITUATION WHERE THERE IS NO CLAIM FOR BAD DEBTS IN A YEAR EVE N THEN THE ASSESSEE WILL BE ENTITLED TO CLAIM DEDUCTI ON BY WAY OF PBDD WHICH ACCORDING TO THE AO WOULD NOT BE THE INTENTION OF THE LEGISLATURE. THE AO TH US REFUSED TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF 10% OF AARA. 49. THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY FOLLOWING THE DECISION OF THE DECISION OF TH E ITAT IN ASSESSEES OWN CASE REPORTED IN 78 ITD 103 WHEREIN IT WAS HELD THAT IRRESPECTIVE OF THE DEBIT TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS (PBDD), AN ASSESSEE IS ENTITLED TO 10% OF THE AARA AS DEDUCTION U/S.36(1)(VIIA) OF THE ACT. THE RELEVANT OBSERVATIO NS OF THE TRIBUNAL IN THE AFORESAID DECISION WAS AS FOLLOWS: 20. THE LEARNED CIT HAS ALSO ACTED UNDER THE MISCONCEPTION THAT DEDUCTION UNDER CL. (VIIA) IS RELATED TO THE ACTUAL AMOUNT OF PROVISION MADE BY THE ASSESSEE FOR BAD AND DOUBTFUL DEBTS. THE TRUE MEANING OF THE CLAUSE, AS INDICATED EARLIER, IS THAT ONCE A PROVISION FOR BAD AND DOUBTFUL DEBTS IS MADE BY A SCHEDULED BANK HAVING RURAL BRANCHES, THE ASSESSEE IS ENTITLED TO A DEDUCTION WHICH IS QUANTIFIED NOT WITH RESPECT TO THE 29 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. AMOUNT PROVIDED FOR IN THE ACCOUNTS, BUT WITH RESPECT TO A CERTAIN PERCENTAGE OF THE TOTAL INCOME AND ALSO A CERTAIN PERCENTAGE OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF THE BANK. IN OTHER WORDS, THIS IS A SPECIFIC DEDUCTION GIVEN BY THE STATUTE IRRESPECTIVE OF THE QUANTUM PROVIDED BY THE ASSESSEE IN ITS ACCOUNTS TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. 50. IN THE APPEAL BEFORE THE TRIBUNAL, IN GROUND NO.3 OF THE ORIGINAL GROUNDS OF APPEAL, THE REVENUE HAS CHALLENGED THE ORDER OF CIT(A) IN SO FAR AS IT RELATES TO THE DELETION OF A SUM OF RS.207,83,45,33 8 WHICH IS THE DIFFERENCE BETWEEN RS.503,49,00,000 AN D RS.295,55,54,682. THE LEARNED DR RELIED ON THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF CANARA BANK IN ITA NO.58/BANG/2004 DATED 9.6.2006. IN THE AFORESAID DECISION THIS BENCH CONSIDERED THE DECISION OF THE ITAT IN THE CASE OF SYNDICATE BANK 78 ITD 103(BANG)AND THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF STATE BANK OF PATIALA (SUPRA)AND HELD THAT THE DECISION RENDERED BY THE HONBLE HIGH COURT HAS TO BE FOLLOWED. THE ABOVE DECISION IS THE DECISION BROUGHT TO OUR NOTICE ON THE ISSUE RENDERED AFTER T HE DECISION IN ASSESSEES OWN CASE. JUDICIAL DISCIPLI NE DEMANDS THAT WE FOLLOW THE LATER DECISION WHICH HAS CONSIDERED BOTH THE DECISIONS ON THE ISSUE. WE THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF TH E TRIBUNAL IN THE CASE OF CANARA BANK(SUPRA), ALLOW GR.NO.3 RAISED BY THE REVENUE AND HOLD THAT DISALLOWANCE TO THE EXTENT OF RS.207,83,45,338/- BE RESTORED. THUS GR.NO.3 RAISED BY THE REVENUE IS ALLOWED. 36. RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN AS ABOVE, WE UPHOLD THE ORDER OF THE CIT(A) AND REJECT THE ASSESSEES GROUND. 30 ITA.NO.713 & 714/HYD/2015 AP GRAMEENA VIKAS BANK, WARANGAL. 14.4. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE PRECEDENTS ON THE ISSUE INCLUDING IN THE ASSESSEES OWN CASE FOR AY 2009-10, THE ASSESSEES APPEAL IS DISMI SSED. 15. IN THE RESULT, ITA.NO.714/HYD/2015 OF THE ASSESSEE IS DISMISSED. 16. TO SUM-UP, ITA.NO.713/HYD/2015 OF THE ASSESSEE IS ALLOWED, ITA.NO.714/HYD/2015 OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.06.2016. SD/- SD/- (S. RIFAUR RAHMAN) (SMT. P. MADHAVI DEVI) ACOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 14 TH JUNE, 2016 VBP/- COPY TO : 1. ANDHRA PRADESH GRAMEENA VIKAS B ANK, H.NO.2 - 5 - 8/1, OLD BUS DEPOT ROAD, RAMNAGAR, HANAMKONDA, WARANGAL. 2. ACIT, CIRCLE - 1, WARANGAL. 3. CIT(A)-III, HYDERABAD. 4. CIT - III, HYDERABAD 5. D.R. ITAT A BENCH, HYDERABAD. 6. GUARD FILE