The Kodungallur Town Co-op Bank Ltd, Trichur V. ACIT, Trichur

ITA 8/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64769 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 06-08-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2011
• Court: TRIBUNAL
• Department Lawyers: VANI RAJ
• Assessee Lawyers: MOHAN PULICKKAL
• 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. 08/COCH/2011 ASSESSMENT YEAR : 2007-08 THE KODUNGALLUR TOWN CO-OP BANK LTD., H.O., KODUNGALLUR- 680664. [PAN:AAABT 248OR] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-2(1), TRICHUR (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI MOHAN PULICKKAL, ADV. REVENUE BY MS. VANI RAJ, JR. DR DATE OF HEARING 09/08/2012 DATE OF PRONOUNCEMENT 24/08/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29-10-2010 PASSED BY LD CIT(A)-V, KOCHI AND IT RELATES TO THE ASSESSMENT YEAR 2007-08. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF CLAIM OF PROVISION FOR BAD AND DOUBTFUL DEBTS MADE U/S 36(1)(VIIA) OF THE ACT. 2. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE S TATED IN BRIEF. THE ASSESSEE CLAIMED DEDUCTION TOWARDS PROVISION FOR BAD AND DOU BTFUL ADVANCES U/S 36(1)(VIIA) OF THE ACT AT 7.5% OF THE GROSS TOTAL INCOME AMOUNTING TO RS.15,07,971/- AND FURTHER DEDUCTION OF RS.4,76,02,710/- BEING 10% OF THE AGGR EGATE ADVANCES MADE BY THE RURAL BRANCHES. THE AO DISALLOWED THE CLAIM OF RS.4,76,0 2,710/- ON THE GROUND THAT THE ASSESSEE BANK DOES NOT HAVE ANY RURAL BRANCH, I.E., THE LOCATION OF THE BRANCHES OF THE BANK ARE NOT RURAL. THE ASSESSEE FILED APPEAL BE FORE LD CIT(A) ON THIS ISSUE, BUT COULD NOT SUCCEED. HENCE, THE ASSESSEE IS IN APPEA L BEFORE US. I.T.A. NO. 08/COCH/2011 2 3. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE INCOME TAX ACT HAS DEFINED THE TERM RURAL BRANCH IN CLAUSE (IA) OF EXPLANATIO N GIVEN U/S 36(1)(VIIA). THE DEFINITION GIVEN IN THE SAID EXPLANATION INCLUDES O NLY BRANCHES OF SCHEDULED BANK AND NON-SCHEDULED BANK, MEANING THEREBY THE DEFINITIO N GIVEN IN THE SAID EXPLANATION DOES NOT APPLY TO A CO-OPERATIVE BANK. THE LD A. R FURTHER CARRIED US THROUGH VARIOUS PROVISIONS OF THE INCOME TAX ACT AND ALSO THE PROVI SIONS OF BANKING REGULATION ACT TO SUBSTANTIATE HIS VIEW THAT THE CO-OPERATIVE BANK IS A SEPARATE CLASS AND THE SAME CANNOT BE EQUATED WITH THE NON-SCHEDULED BANK. 4. ON THE CONTRARY, THE LD D.R SUBMITTED THAT T HIS BENCH OF THE TRIBUNAL HAS ALREADY CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF THE KA NNUR DIST. CO-OP BANK LTD IN ITA NOS. 323 & 433/KOCH/2010 AND THE TRIBUNAL, VIDE ITS ORDE R DATED 23.3.2012, HAS HELD THAT A CO-OPERATIVE BANK WOULD BE CLASSIFIED AS NON-SCHED ULED BANK FOR THE PURPOSES OF SEC.36(1)(VIIA) OF THE ACT. ACCORDINGLY, IT WAS FU RTHER HELD THAT THE DECISION OF HONBLE JURISDICTIONAL KERALA HIGH COURT, IN THE CASE OF LO RD KRISHNA BANK (195 TAXMAN 57) WITH REGARD TO THE INTERPRETATION OF THE TERM RURAL BRA NCH SHALL APPLY TO A CO-OPERATIVE BANK ALSO. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. AS SUBMITTED BY LD D.R, THE ISSUE UNDER CONSIDERATION WAS DEALT BY THIS BENCH OF TRIBUNAL IN THE CASE OF THE KANNUR DIST. CO-OP BANK LTD, REF ERRED SUPRA. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVAT IONS MADE IN THE ABOVE SAID CASE:- 6. WITH REGARD TO THE INTERPRETATION OF THE WOR D 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. I.T.A. NO. 08/COCH/2011 3 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 AREAS . IF THE ASSESSEES CASE ACCEPTED BY THE TRIBUNAL THAT POPULATION IN A WARD HAS TO BE RECKONED FOR DECIDING AS TO WHETHER THE LOCATION OF A PANCHAYAT IS IN A RURAL AREA OR NOT IS ACCEPTED, THEN PROBABLY EVEN IN MUNICIPAL AREAS THE RE MAY BE WARDS WITH LESS THAN 10000 POPULATION THEREBY ANSWERING THE BR ANCH LOCATED IN SUCH MUNICIPAL AREA ALSO AS A RURAL BRANCH. GOING BY TH E ORDINARY MEANING OF RURAL BRANCH, WE FEEL ONLY BRANCHES OF THE BANK LOC ATED IN RURAL AREAS ARE COVERED. WHEN THE LEGISLATURE ADOPTS POPULATION AS THE BASIS FOR CLASSIFICATION OF RURAL BRANCHES, THAT TOO, WITH RE FERENCE TO THE LAST CENSUS REPORT, WE FEEL THE BASIC UNIT AS AVAILABLE FOR IDE NTIFICATION 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 DEFINITION CLAUSE FOR THE PURPOSE OF IDENTIFYING THE BRANCH OF A BANK AS A RURAL BRANCH WITH REFERENCE TO ITS LOCATION IS THE REVENUE VILLAGE. THEREFORE, IN OUR VIEW, THE FINDING OF THE TRIBUNAL THAT PLACE REFERRED TO IN THE DEFINITION IS THE WARD OF A LOCAL AUTHORITY LIKE PANCHAYAT OR MUNICIPALITY IS INCORRE CT AND IN OUR VIEW, A RURAL BRANCH HAS TO BE ALWAYS IN RURAL AREAS AND THE PLAC E REFERRED CAN EASILY BE TAKEN AS A VILLAGE. SEVERAL WARDS MAY COME WITHIN A VILLAGE, WHETHER IT BE IN CORPORATION, MUNICIPALITY OR PANCHAYATS. THERE CAN BE NO VILLAGE IN A MUNICIPAL OR CORPORATION AREA WHERE THE POPULATION IS LESS THAN 10000. SO MUCH SO, RURAL BRANCHES ARE SUCH OF THE BRANCHES LO CATED 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 REVERSING THE ORD ER OF THE TRIBUNAL AND BY RESTORING THE ASSESSMENT. BY RESPECTFULLY FOLLOWING THE DECISION OF JURISDICT IONAL HIGH COURT, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THAT 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. I.T.A. NO. 08/COCH/2011 4 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 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. I.T.A. NO. 08/COCH/2011 5 8. THE EXPLANATION BELOW SECTION 36(1)(VIIA) DE FINES 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 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 I.T.A. NO. 08/COCH/2011 6 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 BA NK WE HAVE TO REFER TO PART V OF THE BANKING REGULATIONS ACT, 1949. THE SAID PA RT 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:- 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- I.T.A. NO. 08/COCH/2011 7 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. SINCE THE FACTS PREVAILING IN THE INSTANT CASE ARE IDENTICAL WITH THE CASE OF THE KANNUR DIST. CO-OP BANK LTD, REFERRED SUPRA, WE ARE INCLIN ED TO FOLLOW THE SAID DECISION. WE NOTICE THAT THE DECISION REACHED BY THE LD CIT(A) I S IDENTICAL WITH THE VIEW TAKEN BY THE TRIBUNAL. ACCORDINGLY, WE UPHOLD HIS DECISION. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 24 -08-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 24TH AUGUST, 2012 GJ COPY TO: I.T.A. NO. 08/COCH/2011 8 1. THE KODUNGALLUR TOWN CO-OP BANK LTD., H.O., KODU NGALLUR-680664. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -2(1), TRICHUR 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, KOCH I. 4. THE COMMISSIONER OF INCOME-TAX, TRICHUR. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (AS SISTANT REGISTRAR) I TAT, COCHIN