The Trichur Dist.Co-op Bank Ltd, Trichur V. ACIT, Trichur

ITA 75/COCH/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2579 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 08-05-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 27-01-2011
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Assessee Lawyers: P HARIKRISHNAUNNNY; V SATHYANARAYANAN CAS
• Keywords: Principle of natural justice; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 75/COCH/2011 ASSESSMENT YEAR : 2007-08 THE TRICHUR DIST. CO-OP BANK LTD., SAHAKARNA SADABDI MANDIRAM, KOVILAKATHUMPADAM, KARUNAKARAN NAMBIAR ROAD, THRISSUR-680 022. [PAN: AABFT 3235H] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1), TRICHUR. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI P.HARIKRISHNAUNNNY & SHRI V.SATHYANARAYANAN, CAS REVENUE BY SMT. S. VIJAYAPRABHA, JR. DR DATE OF HEARING 08/05/2013 DATE OF PRONOUNCEMENT 08/05/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 15-12-2010 PASSED BY THE LD. CIT(A)-V, KOCHI AND IT RELATES TO THE AS SESSMENT YEAR 2007-08. 2. THE FOLLOWING TWO ISSUES ARE URGED BY THE ASSESS EE: (A) RESTRICTING THE DEDUCTION OF EXPENSES CLAIMED UNDER THE HEAD PROVISION MADE FOR BAD AND DOUBTFUL DEBTS U/S 36(1)(VIIA) OF THE ACT. (B) NETTING OF THE PROVISIONS MADE FOR BAD AND DO UBTFUL DEBTS. 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE IS A CO-OPERATIVE SOCIETY DOING BANKING BUSINESS. IN THE RETURN OF I NCOME FILED FOR THE YEAR UNDER I.T.A. NO. 75/COCH/2011 2 CONSIDERATION, THE ASSESSEE CLAIMED DEDUCTION U/S 3 6(1)(VIIA) OF THE ACT IN RESPECT OF PROVISIONS MADE FOR BAD AND DOUBTFUL ADVANCES IN TH E FOLLOWING MANNER: (A) 7.5% OF GROSS TOTAL INCOME BEFORE CLAIMING DED UCTION U/S. 36(1)(VIIA) OF THE ACT AND (B) 10% OF THE AGGREGATE AVERAGE ADVANCE MADE BY T HE RURAL BRANCHES OF THE BANK. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE CLAI M RELATING TO THE ADVANCES MADE BY THE RURAL BRANCHES ON THE REASONING THAT THE ASSESS EE DOES NOT HAVE ANY RURAL BRANCH. ACCORDINGLY, THE ASSESSING OFFICER RESTRICTED THE D EDUCTION TO 7.5% OF THE GROSS TOTAL INCOME. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO, BY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL KE RALA HIGH COURT IN THE CASE OF LORD KRISHNA BANK (195 TAXMAN 57) CONFIRMED THE ORDER O F THE AO THAT THE ADDITIONAL DEDUCTION OF 10% SHALL BE AVAILABLE ONLY IN RESPECT OF THE ADVANCES MADE BY THE RURAL BRANCHES. HOWEVER, BEFORE THE LD. CIT(A), THE ASS ESSEE CLAIMED THAT IT IS HAVING RURAL BRANCHES NUMBERING NINE AND HENCE IT IS ELIGIBLE FO R DEDUCTION OF RS. 9.60 CRORES IN RESPECT OF THE ADVANCES MADE BY THOSE RURAL BRANCHE S. THE LD. CIT(A) FORWARDED THE WORKING FURNISHED BY THE ASSESSEE IN SUPPORT OF THE ABOVE SAID CLAIM TO THE ASSESSING OFFICER SEEKING HIS COMMENTS THEREON. THE ASSESSIN G OFFICER FOUND THAT THE ASSESSEE HAS CLAIMED A SUM OF RS.33.20 CRORES AS EXPENDITURE UNDER THE HEAD PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE DEBIT SIDE OF THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS ALSO CREDITED THE PROFIT AND LOSS ACCOUNT WITH A SU M OF RS. 32.32 CRORES REPRESENTING THE WRITING BACK OF THE OPENING BALANCE OF PROVISI ON FOR BAD AND DOUBTFUL DEBTS. HENCE THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE HAS, IN EFFECT, CREATED A NET PROVISION OF RS. 88.48 LAKHS ONLY DURING THE YE AR UNDER CONSIDERATION. THE LD. CIT(A) ACCEPTED THE VIEW OF THE ASSESSING OFFICER A ND ACCORDINGLY HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S. 36(1)(VIIA) ONLY TO THE EXTENT OF RS. 88,48,877/-, I.E., THE AMOUNT EQUIVALENT TO THE NET PROVISION CR EATED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. AGGRIEVED BY THE DECISION OF LD CIT(A), THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. I.T.A. NO. 75/COCH/2011 3 4. AT THE TIME OF HEARING, BOTH THE PARTIES AGREED THAT THE ISSUE RELATING TO THE DEFINITION OF RURAL BRANCH HAS BEEN DECIDED BY TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF LORD KRISHNA BANK, REFERRED SUPRA. THE LD. COUNSEL FOR THE ASSESSEE TOOK AN ALTERNATIVE PLEA THAT THE DEFINITION OF RURAL B RANCH GIVEN U/S. 36(1)(VIIA) SHALL NOT APPLY TO CO-OPERATIVE BANKS AND HENCE, THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT (REFERRED SUPRA) SHALL NOT APPLY TO THE ASSES SEE HEREIN. WE NOTICE THAT IDENTICAL ISSUES WERE CONSIDERED BY THIS BENCH IN THE CASE OF KANNUR DIST. CO-OPERATIVE BANK LTD. IN I.T.A. NOS. 323 & 433/COCH/2010 (136 ITD 102) AN D THE TRIBUNAL, VIDE ITS ORDER DATED 23-03-2012, HAS HELD AS UNDER: 6. WITH REGARD TO THE INTERPRETATION OF THE W ORD PLACE FOR THE PURPOSE OF ASCERTAINING RURAL BRANCHES, IT WAS SUBMITTED BY L D D.R THAT THE ORDERS PASSED BY THE ITAT, WHICH WERE RELIED UPON BY THE LD CIT(A), HAVE SINCE BEEN REVERSED BY THE HONBLE KERALA HIGH COURT. THE LD D.R ALSO PL ACED BEFORE US THE ORDER DATED 07-10-2010 PASSED BY HONBLE KERALA HIGH COURT IN ITA NO.234 OF 2009 IN THE CASE OF CIT VS. THE LORD KRISHNA BANK LTD, WHICH I S REPORTED IN 195 TAXMAN 57. THE RELEVANT OBSERVATIONS MADE BY THE HONBLE JURI SDICTIONAL KERALA HIGH COURT ARE EXTRACTED BELOW, FOR THE SAKE OF CONVENIENCE:- IN OUR VIEW, THE DEFINITION CLAUSE DOES NOT EXCLUD E THE LITERAL MEANING OF RURAL BRANCH WHICH NECESSARILY EXCLUDES URBAN AR EAS. IF THE ASSESSEES CASE ACCEPTED BY THE TRIBUNAL THAT POPUL ATION IN A WARD HAS TO BE RECKONED FOR DECIDING AS TO WHETHER THE LOCAT ION OF A PANCHAYAT IS IN A RURAL AREA OR NOT IS ACCEPTED, THEN PROBABL Y EVEN IN MUNICIPAL AREAS THERE MAY BE WARDS WITH LESS THAN 10000 POPUL ATION THEREBY ANSWERING THE BRANCH LOCATED IN SUCH MUNICIPAL AREA ALSO AS A RURAL BRANCH. GOING BY THE ORDINARY MEANING OF RURAL BRA NCH, WE FEEL ONLY BRANCHES OF THE BANK LOCATED IN RURAL AREAS ARE COV ERED. WHEN THE LEGISLATURE ADOPTS POPULATION AS THE BASIS FOR CLAS SIFICATION OF RURAL BRANCHES, THAT TOO, WITH REFERENCE TO THE LAST CENS US REPORT, WE FEEL THE BASIC UNIT AS AVAILABLE FOR IDENTIFICATION OF RURAL AREA IN THE CENSUS REPORT CAN BE LEGITIMATELY ADOPTED. SO MUCH SO, WE FEEL THE ABOVE MEANING OF RURAL AREA CONTAINED IN THE CENSUS REPOR T WHEREIN REVENUE VILLAGE IS TREATED AS A UNIT OF RURAL AREA, CAN BE RIGHTLY ADOPTED. SO MUCH SO, PLACE REFERRED TO IN THE ABOVE DEFINITIO N CLAUSE FOR THE PURPOSE OF IDENTIFYING THE BRANCH OF A BANK AS A RU RAL BRANCH WITH REFERENCE TO ITS LOCATION IS THE REVENUE VILLAGE. THEREFORE, IN OUR VIEW, THE FINDING OF THE TRIBUNAL THAT PLACE REFERRED T O IN THE DEFINITION IS I.T.A. NO. 75/COCH/2011 4 THE WARD OF A LOCAL AUTHORITY LIKE PANCHAYAT OR MUN ICIPALITY IS INCORRECT AND IN OUR VIEW, A RURAL BRANCH HAS TO BE ALWAYS IN RURAL AREAS AND THE PLACE REFERRED CAN EASILY BE TAKEN AS A VILLAGE. SEVERAL WARDS MAY COME WITHIN A VILLAGE, WHETHER IT BE IN C ORPORATION, MUNICIPALITY OR PANCHAYATS. THERE CAN BE NO VILLAG E IN A MUNICIPAL OR CORPORATION AREA WHERE THE POPULATION IS LESS TH AN 10000. SO MUCH SO, RURAL BRANCHES ARE SUCH OF THE BRANCHES LOCATED IN A VILLAGE WHERE THE POPULATION IN THE VILLAGE AS A UNIT IS LESS THA N 10000. WE, THEREFORE, ALLOW THE APPEAL ON THIS ISSUE BY REVERS ING THE ORDER OF THE TRIBUNAL AND BY RESTORING THE ASSESSMENT. BY RESPECTFULLY FOLLOWING THE DECISION OF JURISDIC TIONAL HIGH COURT, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE T HAT OF THE ASSESSING OFFICER. 7. BEFORE US, THE LD A.R TOOK AN ALTERNATIVE P LEA WITH REGARD TO THE ISSUE OF DETERMINATION OF RURAL BRANCH BY SUBMITTING THAT THE DEFINITION OF RURAL BRANCH GIVEN IN SEC. 36(1)(VIIA) SHALL NOT APPLY TO THE C O-OPERATIVE BANKS AND HENCE THE ORDER OF HONBLE JURISDICTIONAL HIGH COURT SHALL N OT APPLY TO THE ASSESSEE HEREIN. 7.1 IN ORDER TO UNDERSTAND THIS ALTERNATIVE PLEA , IT IS NECESSARY TO EXPLAIN THE RELEVANT PROVISIONS. THE SECTION 36(1)(VIIA) OPEN S WITH THE WORDS IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY - -- (A) A SCHEDULED BANK NOT BEING A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA OR A NON-SCHEDULED BANK OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO -OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. UNDER THE EXPLANATION, RURAL BRANCH IS DEFINED A S UNDER:- RURAL BRANCH MEANS A BRANCH OF A SCHEDULED BANK O R A NON-SCHEDULED BANK SITUATED IN A PLACE WHICH HAS A POPULATION OF NOT M ORE THAN TEN THOUSAND ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF PREVIOUS YEAR. THE DEFINITION OF RURAL BRANCH GIVEN IN THE EXPL ANATION DOES NOT INCLUDE A CO- OPERATIVE BANK, THOUGH THE CO-OPERATIVE BANK IS I NCLUDED IN SECTION 36(1)(VIIA) OF THE ACT. ACCORDINGLY, THE LD A.R CONTENDED THA T THE DEFINITION OF RURAL I.T.A. NO. 75/COCH/2011 5 BRANCH DOES NOT COVER A CO-OPERATIVE BANK AND HEN CE THE ORDINARY MEANING GIVEN TO THE RURAL BRANCH BY THE REGULATORY AUTH ORITIES SHOULD BE TAKEN INTO ACCOUNT. ACCORDINGLY THE LD A.R CONTENDED THAT TH E DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF THE LORD KRISHNA BANK LT D, SUPRA ALSO DOES NOT APPLY TO THE ASSESSEE HEREIN, SINCE IT IS A CO-OPERATIVE BA NK. ACCORDINGLY IT IS PRAYED THAT THE MATTER REQUIRES RE-EXAMINATION AT THE END OF A O. 7.2 WE NOTICE THAT THE LD A.R HAS TAKEN THIS A LTERNATIVE PLEA, WHICH IS ENTIRELY A NEW ONE THAT TOO RAISED FOR THE FIRST TIME, WITHOU T FILING AN ADDITIONAL GROUND ALONG WITH A PETITION PRAYING FOR ITS ADMISSION. THIS P LEA HAS NOT ALSO BEEN RAISED BEFORE THE LOWER AUTHORITIES. HENCE, THE ALTERNATIVE GRO UND SHOULD NOT HAVE BEEN ACCEPTED NORMALLY. HOWEVER, SINCE THE ALTERNATIVE PLEA OF THE ASSESSEE INVOLVES INTERPRETATION OF THE VARIOUS PROVISIONS/CLAUSES O F THE ACT/OTHER CENTRAL ACT ONLY, IN THE INTEREST OF NATURAL JUSTICE, WE PROCEED TO ADDRESS THE ALTERNATIVE PLEA OF THE ASSESSEE IN THE COMING PARAGRAPHS. 8. THE EXPLANATION BELOW SECTION 36(1)(VIIA) DEF INES VARIOUS TERMS. SOME OF THE DEFINITIONS, WHICH ARE RELEVANT TO THE ISSUE UNDER CONSIDERATION, ARE EXTRACTED BELOW:- NON-SCHEDULED BANK MEANS A BANKING COMPANY AS DEFINED IN CLAUSE (C) OF SECTION 5 OF THE BANKING REGULATION ACT, 1949 (10 O F 1949), WHICH IS NOT A SCHEDULED BANK. SCHEDULED BANK MEANS THE STATE BANK OF INDIA CONSTITUTED UNDER T HE STATE BANK OF INDIA ACT, 1955 (23 OF 1955), A SUBSIDIARY BANK AS DEFINED IN THE STATE BANK OF INDIA (SUBSIDIARY BANKS) ACT, 1959 (38 OF 1959), A CORRESPONDING NEW BANK CONSTITUTED UNDER SECTION 3 OF THE BANKING COMPANIE S (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 1970 (5 OF 1970), OR UNDER SE CTION 3 OF BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) ACT, 198 0 (40 OF 1980), OR ANY OTHER I.T.A. NO. 75/COCH/2011 6 BANK BEING A BANK INCLUDED IN THE SECOND SCHEDULE T O THE RESERVE BANK OF INDIA ACT, 1934 (2 OF 1934). (VI) CO-OPERATIVE BANK, PRIMARY AGRICULTURAL CREDIT SOCIETY AND PRIMAR Y CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN K SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN THE EXPLANATION TO SUB-SECTION (4) OF SECTION 80P. IN THE EXPLANATION TO SUB-SECTION (4) OF SECTION 8 0P, THE CO-OPERATIVE BANK IS DEFINED AS UNDER:- CO-OPERATIVE BANK AND PRIMARY AGRICULTURAL CREDI T SOCIETY SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN PART V O F THE BANKING REGULATION ACT, 1949 (10 OF 1949). 8.1 SINCE THE DEFINITION OF NON-SCHEDULED BANK AND CO-OPERATIVE BANK REFER TO THE BANKING REGULATION ACT, 1949, WE HAVE TO RE FER THE SAID CENTRAL ACT IN ORDER TO UNDERSTAND THEIR RESPECTIVE MEANING. WE H AVE ALSO GONE THROUGH THE SAID ACT. FOR UNDERSTANDING THE MEANING OF NON-SCHEDU LED BANK WE HAVE TO REFER TO CLAUSE (C) OF SECTION 5 OF THE BANKING REGULATION ACT, 1949, WHICH READS AS UNDER:- SEC. 5(C): BANKING COMPANY MEANS ANY COMPANY WHIC H TRANSACTS THE BUSINESS OF BANKING IN INDIA. FOR UNDERSTANDING THE MEANING OF CO-OPERATIVE BANK WE HAVE TO REFER TO PART V OF THE BANKING REGULATIONS ACT, 1949. THE SAID PAR T V STARTS WITH SECTION 56, WHICH READS AS UNDER:- 56:- ACT TO APPLY TO CO-OPERATIVE SOCIETIES SUBJECT TO M ODIFICATIONS:- THE PROVISIONS OF THIS ACT, AS IN FORCE FOR THE TI ME BEING, SHALL APPLY TO, OR IN RELATION TO COOPERATIVE SOCIETIES AS THEY APPLY TO, OR IN RELATION TO BANKING COMPANIES SUBJECT TO THE FOLLOWING MODIFICATIONS NA MELY:- I.T.A. NO. 75/COCH/2011 7 THROUGHOUT THIS ACT, UNLESS THE CONTEXT OTHERWISE R EQUIRES:- REFERENCES TO A BANKING COMPANY OR THE COMPANY OR SUCH COMPANY SHALL BE CONSTRUED AS REFERENCE TO A CO-OPERATIVE B ANK IN SECTION (5), AFTER CLAUSE (CC), THE FOLLOWING CLAUSES SHALL BE INSERTED, NAMELY (CCI) CO-OPERATIVE BANK MEANS A STATE CO-OPERATIV E BANK, A CENTRAL CO- OPERATIVE BANK AND A PRIMARY CO-OPERATIVE BANK. ON A CAREFUL PERUSAL OF RELEVANT PROVISIONS OF PAR T V OF BANKING REGULATIONS ACT, 1949, WE NOTICE THAT THE TERM BANKING COMPANY ALSO INCLUDES A CO- OPERATIVE BANK . THUS A CO-OPERATIVE BANK FALLS UNDER THE DEFIN ITION OF BANKING COMPANY. FURTHER AS PER THE DEFINITION GIVEN IN EXPLANATION UNDER SEC. 36(1)(VIIA) OF THE INCOME TAX ACT, A BANKING COMP ANY AS DEFINED IN SEC. 5(C) OF THE BANKING REGULATION ACT, WHICH IS NOT A SCHEDUL ED BANK, IS CLASSIFIED AS A NON- SCHEDULED BANK. CONSEQUENTLY, A CO-OPERATIVE BAN K, IN OUR VIEW, WOULD BE CLASSIFIED AS A NON-SCHEDULED BANK FOR THE PURPO SE OF SEC. 36(1)(VIIA) OF THE ACT. 8.2 IN VIEW OF THE FOREGOING DISCUSSIONS, WE A RE OF THE VIEW THAT THE DECISION RENDERED BY HONBLE JURISDICTIONAL KERALA HIGH COU RT IN THE CASE OF THE LORD KRISHNA BANK LTD., SUPRA, SHALL APPLY TO THE ASSES SEE HEREIN. ACCORDINGLY, WE REJECT THE ALTERNATIVE PLEA RAISED BY THE ASSESSEE . THUS, THE APPEAL OF THE REVENUE STANDS ALLOWED. I.T.A. NO. 75/COCH/2011 8 5. SINCE THE FACTS PREVAILING IN THE INSTANT CASE A RE IDENTICAL WITH THE CASE OF KANNUR DIST. CO-OPERATIVE BANK, REFERRED SUPRA, WE ARE INC LINED TO FOLLOW THE SAME DECISION ON THIS ISSUE. ACCORDINGLY, WE CONFIRM THE DECISION R EACHED BY THE LD. CIT(A) ON THIS ISSUE. 7. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE NETTING OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS. AS STATED EARLIER, THE TAX AUTHORITIES HAVE TAKEN THE VIEW THAT THE AMOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THE AMOUNT CREDITED TO THE PROFIT AND L OSS ACCOUNT BY WRITING BACK THE OPENING BALANCE AMOUNT IN THE ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS SHOULD BE NETTED OFF IN ORDER TO ARRIVE AT THE AMOU NT OF PROVISION FOR AND DOUBTFUL DEBTS ACTUALLY CREATED BY THE ASSESSEE. AN IDENTICAL ISS UE WAS CONSIDERED BY THIS BENCH IN THE CASE OF KANNUR DISTRICT CO-OPERATIVE BANK (REFERRED SUPRA) AND THIS TRIBUNAL HAS EXPRESSED THE FOLLOWING VIEW ON THIS MATTER. 9.1 BOTH THE PARTIES HAVE FAILED TO FURNISH T HE BREAK UP DETAILS OR THE MODALITIES FOLLOWED FOR CREATING THE PROVISION FOR BAD AND D OUBTFUL DEBTS. PRIMA FACIE, IN OUR VIEW, THERE IS MERIT IN THE CONTENTION OF THE ASSESSEE. THE DECISION TO CREATE A PROVISION FOR BAD AND DOUBTFUL DEBTS IS TAKEN ON T HE BASIS OF THE QUALITY OF ADVANCES AND DEBTS AS ARE AVAILABLE AT THE END O F A PARTICULAR YEAR. SIMILARLY THE DECISION TO WRITE BACK THE PROVISION OR REVERSE TH E PROVISION THAT WERE CREATED IN EARLIER YEARS IS TAKEN ON THE BASIS OF THE RECOVER Y PATTERN OF THE ADVANCES AND DECISIONS ARE TAKEN ON THE BASIS OF DIFFERENT SET OF FACTS AND HENCE BOTH THE DECISIONS CONSTITUTE INDEPENDENT DECISIONS, WHICH ARE NOT RELATED TO EACH OTHER. HENCE, WE AGREE WITH THE CONTENTION OF THE ASSESSE E THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS NEWLY CREATED DURING THE YEAR UNDER CONSIDERATION SHOULD NOT BE NETTED AGAINST THE AMOUNT WRITTEN BACK OR REVERSED . HOWEVER, THERE MIGHT BE A SITUATION THAT THE PROVISION CREATED FOR A PARTICU LAR DEBT NEEDS ENHANCEMENT AND IN THAT SITUATION, ONLY THE ENHANCED AMOUNT SHOULD BE TREATED AS THE NEW PROVISION FOR I.T.A. NO. 75/COCH/2011 9 THE PURPOSE OF SEC. 36(1)(VIIA) OF THE ACT. WE SH ALL EXPLAIN THIS PROPOSITION WITH THE FOLLOWING EXAMPLE. NAME OF DEBT/ADVANCE AMOUNT PROVISI ON NEW . PROVISION OUTSTANDING AS ON 1.4.06 PROVISION REVERSED. PERSON A 50,000 NIL 15000 -- PERSON B 60,000 6000 8000* 6000* PERSON C 70,000 14 000 -- 10000 -------------------------------------------- -- 20,000 23,000 16,0 00 ============================ NET PROVISION 7,000 (* ADDITIONAL PROVISION OF RS.2000/-. IN THIS TYPE OF CASES, NETTING OFF IS REQUIRED) IN THE ABOVE EXAMPLE, THE NEW PROVISION CREATED APP EARS TO BE RS.23,000/-. HOWEVER, THE NEW PROVISION ACTUALLY CREATED IS ONLY RS.17,000/- (I.E. PERSON A RS.10,000/- (SIC RS.15,000/-) AND PERSON-B RS.2,000/-). HENCE THE CLAIM OF QUANTUM OF NEW PROVISION MADE BY THE ASSESSEE, NEEDS VERIFICATION AT THE END OF THE AO. IF THE ASSESSEE HAS CREATED A NEW PROVISION ON A PARTICULAR ASSET BY FULLY REVE RSING THE OPENING BALANCE OF PROVISION RELATING TO THAT ASSET, THEN THE NET ACCRETION SHOU LD ONLY BE TREATED AS NEW PROVISION. AS STATED EARLIER, IT IS ONLY AN ACADEMIC EXERCISE IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, WHICH MAY BE CARRIED OUT IF THE SITUATION WAR RANTS. 8. THE LD D.R SUBMITTED THAT THE ASSESSEE DID NO T ANALYSE THE QUALITY OF EACH DEBT, IN RESPECT OF WHICH THE PROVISION WAS CREATED IN THE E ARLIER YEARS. THE LD D.R SUBMITTED THAT THE ASSESSEE WAS ENJOYING EXEMPTION U/S 80P OF THE ACT UP TO THE ASSESSMENT YEAR 2006-07 AND THE YEAR UNDER CONSIDERATION IS THE FIR ST YEAR IN WHICH THE ASSESSEE WAS LIABLE TO PAY TAX. HENCE THE ASSESSEE HAS SIMPLY C REDITED THE ENTIRE BALANCE AVAILABLE IN THE ACCOUNT PROVISION FOR BAD AND DOUBTFUL DEBTS TO THE PROFIT AND LOSS ACCOUNT AND AGAIN CREATED THE PROVISION FOR ALL THE DEBTS (INCL UDING NEW AS WELL AS OLD DEBTS) IN ORDER SHOW THAT THE PROVISION WAS CREATED FOR FIRST TIME, SO THAT IT COULD CLAIM DEDUCTION OF HIGHER AMOUNT U/S 36(1)(VIIA) OF THE ACT. ACCOR DINGLY, THE LD D.R SUBMITTED THAT THE I.T.A. NO. 75/COCH/2011 10 DEDUCTION, IF ANY, SHOULD BE RESTRICTED TO THE NEW PROVISION CREATED DURING THE YEAR UNDER CONSIDERATION ONLY. 9. WHEN A SPECIFIC QUERY WAS POSED BY THE BENC H TO THE LD COUNSEL FOR THE ASSESSEE AS TO WHETHER THE ASSESSEE DID CARRY OUT THE EXERCI SE OF ANALYSING THE QUALITY OF EACH DEBT ON WHICH THE PROVISION WAS CREATED IN EARLIER YEARS BEFORE WRITING BACK THE AMOUNT OF OPENING BALANCE OF PROVISION FOR BAD AND DOUBTF UL DEBTS, THE LD A.R FAIRLY CONCEDED THAT THE ASSESSEE DID NOT CARRY OUT ANY SUCH EXERCI SE. IN THIS FACTUAL SITUATION, WE FIND MERIT IN THE CONTENTIONS RAISED BY LD D.R. THE PRO VISION IS CREATED AT THE END OF EVERY YEAR BY ANALYSING THE QUALITY OF ADVANCES OR DEBTS ON CERTAIN PARAMETERS. HENCE, THE FRESH PROVISIONS CREATED DURING THE YEAR UNDER CONS IDERATION ALONE CAN BE CONSIDERED FOR THE PURPOSE OF PROVISIONS OF SEC. 36(1)(VIIA) O F THE ACT. IN THE INSTANT CASE, IT APPEARS THAT THE ASSESSEE HAS CREDITED THE ENTIRE A MOUNT OF BALANCE AVAILABLE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT TO T HE PROFIT AND LOSS ACCOUNT. THE SAID ACTION OF THE ASSESSEE WOULD MEAN THAT ALL THE DEBT S ON WHICH THE PROVISIONS WERE CREATED IN THE EARLIER YEARS HAVE BECOME QUALITY AS SETS, MEANING THEREBY THE PROVISION IS NO LONGER REQUIRED ON THOSE DEBTS. HAVING DONE SO, IF THE ASSESSEE AGAIN CREATES PROVISION ON THE VERY SAME ADVANCE OR DEBT, THE SAI D ACTION CONTRADICTS THE STAND ALREADY TAKEN BY THE ASSESSEE BY WRITING BACK THE E ARLIER PROVISIONS. HENCE, IN OUR VIEW, ONLY THE NET ACCRETION TO THE PROVISIONS ACCO UNT MADE DURING THE YEAR UNDER CONSIDERATION, AS EXPLAINED IN THE CASE OF KANNUR C O-OPERATIVE BANK (REFERRED SUPRA) HAS TO BE CONSIDERED FOR THE PURPOSE OF SEC. 36(1)( VIIA) OF THE ACT. THE NET ACCRETION HAS TO BE ASCERTAINED BY ANALYSING THE QUALITY OF E ACH ASSET. HENCE, THE TAX AUTHORITIES MAY ALSO NOT BE RIGHT IN MAKING BLANKET NETTING OFF OF THE AMOUNTS DEBITED/CREDITED TO THE PROFIT AND LOSS ACCOUNT. SINCE THE DETAILS REL ATING THERETO ARE NOT AVAILABLE ON RECORD, THIS ISSUE REQUIRES FRESH EXAMINATION AT TH E END OF THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER FOR FRESH EXAMINA TION OF THE SAME, INTER ALIA, IN THE LIGHT OF DISCUSSIONS MADE SUPRA. I.T.A. NO. 75/COCH/2011 11 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 08-05-2 013. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 08 TH MAY, 2013 GJ COPY TO: 1. THE TRICHUR DIST. CO-OP BANK LTD., SAHAKARNA SAD ABDI MANDIRAM, KOVILAKATHUMPADAM, KARUNAKARAN NAMBIAR ROAD, THRISS UR-680 022. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -2(1), TRICHUR. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, KOCHI . 4.THE COMMISSIONER OF INCOME-TAX, TRICHUR. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR ) I.T.A.T, COCHIN