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

ITA 88/HYD/2015

• Counselvise Citation: 8822514 RSA 2015
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 21-01-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G APARNA RAO
• Assessee Lawyers: T UMAKANT
• Keywords: Business income; General deduction; Bad and doubtful debts
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.51/HYD/15 : ASSESSMENT YEAR 2010 - 11 ASST. COMMISSIONER OF INCOME - TAX, CIRCLE - 1, WARANGAL V/S. ANDHRA PRADESH GRAMEENA VIKAS BANK, HANAMKONDA, WARANGAL (PAN AAAJA 1351 N) (APPELLANT) (RESPONDENT) ITA NO.88/HYD/15 : ASSESSMENT YEAR 2010 - 11 ANDHRA PRADESH GRAMEENA VIKAS BANK, HANAMKONDA , WARANGAL (PAN AAAJA 1351 N) V/S. ASST. COMMISSIONER OF INCOME - TAX, CIRCLE - 1, WARANGAL (APPELLANT) (RESPONDENT) ASSESSEE BY : S HRI T.UMA KANT DEPARTMENT BY : S MT G.APARNA RAO DR DATE OF HEARING 25.3.2015 DATE OF PRON OUNCEMENT 10.4.2015 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER : TH ESE TWO APPEALS ON E FIL E D BY THE RE VENUE BEING ITA NO.51/HYD/2015 , AND THE OTHER FIL E D BY THE ASSESSEE BEIN G ITA NO.88/HYD/2015 , ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE O R DER OF THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) VI. HYDERABAD DATED 16.9.2014. I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 2 REVENUES APPEAL ITA NO.51/HYD/2015 2. THE SOLITARY ISSUE REL A TING TO THE ASSESSEES CLAIM FOR DEDUCTION OF RS.9,93,40.,015 ON ACCOU N T OF PROVISION FOR BAD AND DOU B T FUL DEBTS UN D ER S.36(1)(V II A ) OF THE INCOME TAX ACT,1961 IS RAISED BY THE R EV ENUE IN ITS APPEAL BY WAY OF THE FOLLOWING GROUNDS - 1 . THE CIT(APPEALS) ERRED BOTH IN LAW AND ON FACTS OF THE CASE. 2 . THE LEARNED CIT(APPEALS) HAS ERRED IN INTERPRETING THE FACTS OF THE PRESENT CASE TO THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF CATHOLIC SYRION BANK LTD., VS CIT WHEREIN THE HON'BLE SUPREME COURT HAS HELD THAT THE PROVISIONS OF THE SEC. 36(1)(VII) AND 36(1)(VIIA) OF THE ACT ARE DISTINCT AND INDEPENDENT I TEMS OF DEDUCTION. 3 . THE LEARNED CIT(APPEALS) WHILE RELYING ON THE ABOVE DECISION HAS ERRONEOUSLY HELD THAT THE ASSESSEE IS HAVING A CLOSING BALANCE OF BAD DEBTS TO THE EXTENT OF RS.1690 LAKHS IN THE RURAL BRANCHES AND THE ASSESSEE HAS MADE CLAIM OF RS.9, 93,40,015/ - AGAINST SUCH PROVISION AND THEREFORE IS ELIGIBLE FOR DEDUCTION. 4 . THE LEARNED CIT(APPEALS) OUGHT TO HAVE TAKEN INTO CONSIDERATION THE CLARIFICATORY PROVISION BROUGHT INTO LT. ACT AS EXPLANATION 2 OF CLAUSE (VII) OF SEC.36(1) WHICH IS SUBSEQUENT TO HON'BLE SUPREME COURT'S DECISION IN THE RELIED UPON CASE, VIZ. CATHOLIC SYRION BANK VS. CIT. 5 . THE CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAS CLAIMED PROVISION FOR BAD AND DOUBTFUL DEBTS TO THE EXTENT OF RS.22,87,14,000/ - IN THE P&L A CCOUNT THOUGH THE ELIGIBILITY AS PER THE PROVISIONS OF CLAUSE VIIA OF SEC.36(1) IS RS.9,93,40,015/ - AS WORKED OUT B Y THE ASSESSEE ITSELF AND HAS NOT FURNISHED ANY DETAILS/BA S IS OF SUCH PROVISIONS. 6 . THE CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT NO ADDITI ONAL DEDUCTION TOWARDS PROVISION OTHER THAN THAT MENTIONED IN CLAUSE (VIIA~, IS AVAILABLE TO ASSESSEE SINCE THE DEDUCTION TOWARDS PROVISION ON NON SPECIFIED/DOUBTED ASSETS IN ACCORDANCE WITH FIRST PROVISO TO CLAUSE (VIIA) OF SEC.36(1) IS APPLICABLE FOR AY S 2000 - 01 TO 20 0 4 - 05 ONLY. 7 . THE CIT(APPEALS) OUGHT NOT TO HAVE ALLOWED THE FURTHER DEDUCTION OF RS.9,93,40,0 15/ - TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS IN T HE COMPUTATION SINCE THE ASSESSEE I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 3 HAS ALREADY CLAIMED SUCH PROVISION IN P&L ACCOUNT. 8 . THE CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE ISSUE REGARDING CLAIM U/S 36(1) (VIIA) IN ASSESSEE'S OWN CASE FOR AY 2009 - 10 HAS NOT YET BEEN DECIDED BY THE HONBLE ITAT, HYDERABAD AS CLAIMED BY THE ASSESSEE AND A M.A. WAS FILED BY THE DEPARTMENT BEFORE T HE HO N 'BLE ITAT. 9 . ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIME OF HE ARING. 3. THE ASSESSEE IN THE PRESENT CA S E IS A REGIONAL R URAL B ANK WHICH IS DEEMED TO BE A COOPERATIVE SOCIETY F O R THE PURPOSES OF INCOME TAX ACT,1961. THE R ETURN OF INCOM E FOR T HE Y E AR UN D ER CONSIDERATION WAS FIL E D BY IT ON 7.10.2010 DECL A RING TOTAL INCOM E O F R S .122,51,93,517. IN TH E ASSESSMENT ORIGINALLY COMPL E TED UN D ER S.143(3) , THE TOTAL IN C OM E O F THE ASSESSEE WAS DETERMINED BY THE ASSESSING OFFICER AT R S .142,04,20,490. THE RECORD OF THE SAID ASSESSMENT CAME TO BE EXAMINED BY THE LEARNED COMMISSIONER AND ON SUCH EXAMINATION, HE FOUND THAT THE CLAIM OF THE ASSESSEE FOR DEDUC T ION ON ACCOUNT OF SALARY ARREARS AMOUNTING TO R S .12,73,60, 121 AND ON ACCOUN T O F P R OVISION FOR BAD AND DOUBT F UL DEBTS UN D ER S.36(1)(VIIA) AMOUNTING TO RS.9, 9 3,40,015 WAS ALLOWED BY THE ASSESSING OFFICER WITHOUT CON D U C TING PROPER AND SUFFICIENT ENQUIRY AND WITHOUT APPLYING HIS MIN D TO THE RELEVANT FACTS OF THE ASSESSEE A S WELL AS THE RELEVANT PROVISION S OF L AW. HE TH E R E FORE, REVISED THE ASSESSMENT OR D ER PASSE D BY THE ASSESSING OFFICER VIDE HIS ORDER PASSED UN D ER S.263 WITH A DIRECTION TO THE ASSESSING OFFICER TO DECIDE BOTH THESE ISSUES BY MA K I N G PROPE R AND SUFFICIENT ENQUIR I ES AND BY APPLYING HIS MIND TO TH E REL E VANT FACTS OF THE CA S E AS WELL AS TH E REL E VANT PROVIS I ON S OF LAW. 4. AS PER TH E DIRECTIONS OF THE LEARNED COMMISSIONER, THE ASSESSING OFFICER EXAMINED THE CLAIM O F THE ASSESSEE FOR DEDUC T ION OF RS.9,93,40,015 ON AC C OUN T OF PROVISION OF BAD AND DOU BTFUL DEBTS I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 4 MADE UN D ER S.36(1) ( VII A ) OF THE ACT, BEING 7.5% OF TH E TOTAL INCOME O F THE ASSESSEE AS COMPU T ED BEFORE MAKING ANY DEDUCTION UN D ER S.36(1)(VIIA) AND CHAPTER VIA. ON SUCH EX A MIN A TION, H E FOUND THAT THE ASSESSEE HAS MADE ANOTHER PROVISION FOR AN AMOUNT OF RS .2 2 ,87,14,000 UN D ER THE HEAD PR OVISION S AND C ONTINGEN C IES WITHOUT GIVING ANY BREAK UP OR BIFURCATION OF THE RELEVANT DETAILS LIKE C ATEGORY OF AS S ET UN D ER NPA. IN TH E A BS EN C E OF TH E SE DETAILS, THE ASSESSING OFFICER FOUND IT DIFFICULT TO AS CER T AIN AS TO WHETHER DEDUCTION UN D ER S.36(1)(VIIA) WAS CLAIMED BY THE ASSESSEE TWICE WHILE ARRIVING AT THE TOTAL INCOM E FOR THE Y E AR UN D ER CON S I D E R ATION. AC C OR D ING TO TH E ASSESSING OFFICER, THE ASSESSEE ALSO COULD NOT EXPLAIN AS TO WH E TH E R IT HAS DEBI T E D THE WRITE OFF UNDER THE HEAD BAD DEBTS IN TH E A CCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBT S , WHICH HAS TO B E MAINTAINED BY IT AS P E R THE P R O V I SO T O S.36(1)( VII) . HE NOTED THAT THE DEDUCTION UNDER S.36(1)(VIIA) WAS NO T ALLOWABLE IN RESPECT OF NON - S P E CIFIED AS S ETS OR IN RESPECT OF ADVANCES CATEGORIZED AS STANDARD AS S ETS , AS P E R THE DECISION OF THE HON'BLE SUPREME COURT REPO R TED AT ( 320 ITR 577 ) . HE THER EF ORE, HELD THAT DEDUCTION OF R S .9,93,4 0 ,015 CLAIM E D BY TH E ASSESSEE ON AC C OUN T OF P ROVISION FOR B A D AND DOU B TFUL DEBTS UN D ER S.36(1)(VIIA) WAS NO T ADMISSIBLE IN THE FACTS AND C IR C UMSTANCES INVOLVED IN TH E CA S E OF THE ASSESSEE AND THE SAME WAS DISALLOWED BY HIM. 5. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON AC C OUN T OF ITS CLAIM FOR DEDUC T IO N UN D ER S.36(1)(VIIA) AMOUNTING TO R S .9,93,44,015 WAS CHALLENGED BY TH E ASSESSEE IN AN APP E AL FIL E D B E FORE THE LEARNED CIT(A) AND AFT E R CO NS I D ERIN G THE SUBMI S SION S MADE BY TH E ASSESSEE AS WELL AS THE RELEVANT FACTS AND FIGURES FURNI S H E D IN SUPPORT, THE LE ARNED CIT(A) ALLOWED THE CLAIM O F THE ASSESSEE FOR DEDUCTION UN D ER S.36(1)(VIIA) FOR THE FOLLO W IN G REASON S GIVEN IN PARAGRAPH 6.3 OF HIS IMPUGNED ORDER - I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 5 6.3 PERUSED THE SUBMISSIONS OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER. AS COULD BE SEEN FROM THE 'ASSESSMENT ORDER, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE ASSESSEE IS ELIGIBLE TO WRITE - OFF THE BAD DEBTS ON ACTUAL BASIS AND THE PROVISION FOR DOUBTFUL AND BAD DEBTS CAN BE MADE ON THE BASIS OF THE ASSESSMENT OF THE HEALTH O F THE ADVANCES GIVEN BY BANK AND AS PER THE GUIDELINES ISSUED ON THIS REGARD, AND THE DEDUCTION U/S 36(1)(VIIA) IS NOT ALLOWABLE TO NON - SPECIFIED ASSETS, WHICH MEANS DEDUCTION IS NOT AVAILABLE TO ASSETS WHICH ARE NEITHER BAD NOR DOUBTFUL AND THE ASSESS EE FAILED TO SPECIFY SUCH ASSETS IN THIS CASE. IT WAS ALSO OBSERVED BY THE ASSESSING OFFICER THAT BAD DEBTS WRITTEN OFF UNDER THE CLAUSE (VII) OF SECTION 36(1) CAN ONLY BE ADJUSTED AGAINST THE OPENING CREDIT BALANCES OF PROVISIONS FOR BAD AND DOUBTFUL DEBT S. WHEREAS, THE APPELLANT'S CONTENTION IS THAT APART FROM DEDUCTIONS BEING BAD DEBTS WRITTEN OFF UNDER CLAUSE (VII) AND THE APPELLANT IS ALSO ELIGIBLE FOR DEDUCTION OF 7.5% OF THE PROFITS, INDEPENDENTLY U/S 36(1)(VIIA), IN ADDITION TO THE DEDUCTION OF 10% OF THE AGGREGATE AVERAGE ADVANCES (AAA), WHICH WAS NOT CLAIMED, FOR THE YEAR UNDER REFERENCE. IT WAS ALSO SUBMITTED THAT THE DEDUCTION CLAIMED UNDER (VII) OF SECTION 36 (RS.22.24 CRORES) FOR THE YEAR, DOES NOT EXCEED THE CREDIT BALANCE OF PROVISION FOR B AD AND DOUBTFUL DEBTS (RS.40.29 CRORES). IN THIS CONTEXT, IT IS RELEVANT TO REFER TO THE CLAUSE (VII) AND (VIIA) OF SECTION 36(1), AND SECTION 36(2)(V) OF THE I T ACT, WHICH READ AS UNDER: SECTION 36(1) : THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAU SES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 - (VII) SUBJECT TO PROVISIONS OF SUB - SECTION (2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF ASSESSEE FOR THE PREVIOUS YEAR , (VIIA) 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 PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL, DEVELOPMENT BANK, AN AMOUNT NOT EXCEEDING SEVEN AND HALF PERCENT OF TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE 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. ( B ) A BANK, BEING A BANK INCORPORATED BY OR UN D ER THE LAWS OF A COUNTRY OUTSIDE I NDIA, AN AMOUNT I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 6 NOT EXCEEDING FI VE PERCENT OF TH E TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) ( C ) A PUBLIC FINANCIAL INSTITUTION OR A STATE FINANCIAL 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 VIA) SECTION 36(2): IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF, TH E FOLLO W IN G PROVISION S SHALL APPLY - (V) WHERE SUCH DEBT OR P A RT OF THE DEBT REL A TES TO AD V A NCES MADE BY AN ASSESSEE TO WHICH CLAUSE (VIIA) OR SUB - S E CT ION (1) APPLIES, NO SUCH DEDUC T ION SHALL BE ALLO W ED UNLESS TH E ASSESSEE HAS DEBITED TH E AMOUNT OF SUCH DEBT OR PART OF DEBT IN THAT PREVIOUS Y EA R TO TH E P R OVIS I ON FOR B A D AND D OUB TFUL DEBTS ACCOUNT MADE UNDER THAT CLAU S E. THUS, READING OF THE CLAUSE (VII) OF SECTION 36(1) MAKES IT CLEAR THAT BAD DEBTS WRITTEN OFF DURING THE YEAR ARE ELIGIBLE TO BE CLAIMED AS DEDUCTION AND IN CASE WHERE THE PROVISIONS OF SECTION 36(1)(VIIA) ALSO APPLICABLE, THE CLAIM U/S 36(1)(VII) IS RESTRICTED TO AVAILABILITY OF CREDIT BALANCES OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS, RELATABLE TO RURAL BRANCHES OF BANKING INSTITUTIONS. AS IT REVEALS THERE APPEARS 00 RESTRICTION ON CLAIMING THE DEDUCTION U/S 36(1)(VIIA), TO WARDS THE PROVISION FOR BAD AND DOUBTFUL DEBTS, WHICH IN TURN HELD TO BE CONFINED TO 7.5 % OF THE NET PROFITS AFTER THE CLAIM OF DEDUCTIONS UNDER CHAPTER VIA, IN ADDITION TO THE 10% OF THE AGGREGATE AVERAGE ADVANCES(AAA) OF RURAL ADVANCES. IN THIS CASE, NO SPECIFIC INFIRMITY WAS POINTED OUT BY THE ASSESSING OFFICER TOWARDS THE CLAIM OF DEDUCTION OF RS.9,93,40,01S/ - U/S 36(1)(VIIA), WHERE PROVISION OF RS.22.40 CRORES HAVE BEEN MADE FOR BAD AND DOUBTFUL DEBTS FOR THE YEAR. IT IS ALSO A FACT THAT THE CLAIMS U/ S 36(1)(VII) WAS MADE TO THE EXTENT OF RS.22.24 CRORES, AND DID NOT EXCEED THE LIMITS PLACED THEREON. IN THIS CONTEXT, IT IS RELEVANT TO REFER TO THE DECISION OF ITAT, HYDERABAD IN THE CASE OF STATE BANK OF HYDERABAD VS DCIT, IN ITA NO.1237/HYD/2006, DATED 28.11.2008, WHEREIN T H E H ON BLE T RI BU NAL H A D HELD THAT THE DEDUCTION U /S. 36(1)(VIIA) OF I.T. ACT NOT EXCEEDING 7.5% OF THE TOTAL INCOME COMPUTED, IS TO BE ALLOWED AS DEDUCTION TOWARDS PROVISION FOR BAD AND DOUBTFUL DEBTS. FURTHER, IT IS ALSO RELEVANT TO REFER TO THE DECISION OF SUPREME COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD VS. CIT (2012) 343 ITR 270 ON THE SAID ISSUE, WHEREIN THE HON'BLE SUPREME COURT HELD AS UNDER: I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 7 'TO CONCLUDE, WE HOLD THAT THE PROVISIONS OF SECTIONS 36(L)(VII) AND 36(1)(VI IA) OF THE ACT ARE DISTINCT AND INDEPENDENT ITEMS OF DEDUCTION AND OPERATE IN THEIR RESPECTIVE FIELDS. THE BAD DEBTS WRITTEN OFF DEBTS, OTHER THAN THOSE FOR WHICH THE PROVISION IS MADE UNDER CLAUSE (VIIA), WILL BE COVERED UNDER THE MAIN PART OF SECTION 36(1)(VII), WHILE THE PROVISO WILL OPERATE IN CASES UNDER CLAUSE (VIIA) TO LIMIT DEDUCTION TO THE EXTENT OF DIFFERENCE BETWEEN THE DEBT OR PART THEREOF WRITTEN OFF IN THE PREVIOUS YEAR AND CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCO UNT MADE UNDER CLAUSE (VIIA). THE PROVISO TO SECTION 36(1)(VII) WILL RELATE TO CASES COVERED U/S 36(1)(VIIA) AND HAS TO BE READ WITH SECTION 36(2)(V) OF THE ACT. THUS, THE PROVISO WOULD NOT PERMIT BENEFIT OF DOUBLE DEDUCTION, OPERATING WITH REFERENCE TO RURAL LOANS WHILE UNDER SECTION 36(1)(VII), THE ASSESSEE WOULD BE ENTITLED TO GENERAL DEDUCTION UPON AN ACCOUNT HAVING BECOME BAD DEBT AND BEING WRITTEN OFF AS IRRECOVERABLE 'IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THIS, OBVIOUSLY, WOULD BE SUBJECT TO SATISFACTION OF THE REQUIREMENTS CONTEMPLATED UNDER SECTION 36(2).' (PARA 41 OF THE ORDER) THUS, AS COULD BE SEEN FROM THE INTERPRETATION GIVEN BY THE HON'BLE SUPREME COURT (SUPRA), ON THE ISSUE, THE PROVISO TO SECTION 36(1)(VII), WILL RELATE TO CASES COVERED UNDER SECTION 36(1)(VIIA), AND HAS TO BE READ WITH SECTION 36(2)(V) OF THE I.T.ACT, AND THE SAID PROVISO WOULD NOT PERMIT THE BENEFIT OF DOUBLE DEDUCTION, OPERATING WITH REFERENCE TO RURAL LOANS, WHILE THE CLAUSE VII OF SECTION~36( 1) WOULD ENTITLE GENERAL DEDUCTION FOR BAD DEBTS OR DEBTS WRITTEN OFF, FOR THE PREVIOUS YEAR. APPLYING THE INTERPRETATION TO THE FACTS OF THE ASSESSEE FOR THE YEAR UNDER REFERENCE THE PROVISIONS FOR BAD AND DOUBTFUL DEBTS FOR RURAL BRANCHES STOOD AT RS.475 2 LAKSH INCLUDING TEH OPENING BALANCE OF RS.3050 LAKHS AND RS.1702 LAKHS. TOWARDS PROVISION MADE FOR THE YEAR. THUS, THERE IS A CLOSING BALANCE OF RS.2936 LAKHS, TOWARDS PROVISION EVEN AFTER WRITE OFF OF BAD DEBTS TO THE EXTENT OF RS.1690 LAKHS IN THE RURA L BRANCHES OF THE BANKS DURING THE YEAR, AGAINST WHICH THE CLAIM OF RS.9,93,40,015/ - WAS MADE AS DEDUCTION U/S 36(1)(VIIA), FOR THE YEAR WHICH BEING 7.5% OF THE TOTAL PROFITS COMPUTED. THUS, BASED ON THE INTERPRETATION OF THE LAW THAT GOVERNS THE DEDUCTI ON ON PROVISIONS OF BAD AND DOUBTFUL DEBTS U/S 36(1)(VIIA) AND THE JUDICIAL DECISIONS CITED, I AM OF THE CONSIDERED OPINION THAT THERE IS N O INFIRMITY IN THE CLAIM OF THE ASSESSEE. AS SUCH THE CLAIM FOR DEDUCTION U/S 36(1)(VIIA), BEING THE 7.5% OF THE TOTA L PROFITS COMPUTEDBEINGRS.9,93,40,015/ - , FOR THE YEAR UNDER REFERENCE TOWARDS THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS ORDERED TO BE ALLOWED. ON THIS ISSUE, THE GROUND OF APPEAL TREATED AS ALLOWED. AGGRIEVED BY THE OR D ER OF THE LEARNED CIT(A) GIVING RELIEF TO TH E ASSESSEE ON THIS I S SUE, THE REVENUE HAS PREFERRED THIS APPEAL B E FORE THE TRIBUNAL . I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 8 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE CLAIM OF THE ASSESSEE FOR DEDUCT ION OF R S .9,93,4 0 ,015 BEING 7.5% OF ITS BUSINESS INCOME (BEFORE CLAIMING DEDUCTION UN D ER S.36(1)(VIIA) AND CHAPTER VIA) ) WAS ALLOWED BY THE LEARNED CIT(A) AFTER TAKING IN TO CONSIDERATION THE FOLLO W IN G FACTS AND FIGURES FURNISHED BY THE ASSESSEE IN RESPEC T OF ADVANCES AND NPAS RELATING TO URBAN AND RURAL B RANCHES AND THE P R OVI S ION S MADE IN ADDITION TO THE PROVISION OF R S .9,93,40,015, IN R E SPECT OF SUCH ADVANCES AND NPAS UNDER S.36(1)(VIIA). PARTICULARS RUPEES URBAN RURAL TOTAL TOTAL ADVANCES IN CRORE S 1089.23 2780 . 49 3869.72 OPENING BALANCE PROVISIONS IN LAKHS 963.00 3050.00 4013.00 ADD: PROVISION MADE DURING THE YEAR IN LAKHS 538.00 1702.00 2240.00 WRITTEN OFF DURING THE YEARS IN LAKHS 534.00 1690.00 2224.00 CLOSING BALANCE PROVISIONS IN LAKHS 1093.00 2936.00 4029.00 7. THE RELEVANT P R O V I SI ON S OF S.36(1)(VIIA ) UN D ER WHI C H DEDUC T ION IN QUESTION IS CL A IM E D BY THE ASSESSEE ARE EXTRACTED B E LOW - SECTION 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 REFERRED TO IN SECTION 28 - ......... I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 9 (VIIA) 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 PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL, DEVELOPMENT BANK, AN AMOUNT NOT EXCEEDING SEVEN AND ONE - HALF PERCENT OF THE TOTA L INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING TEN PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. PROVIDED THAT A SCHEDUL ED BANK OR A NON - SCHEDULED BANK REFERRED TO IN THIS SUB - CLAUSE SHALL, AT ITS OPTION, BE ALLOWED 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 ASS ETS OR LOSS ASSETS IN ACCORDANCE WITH THE GUIDELINES ISSUED BY IT IN THIS BEHALF, FOR AN AMOUNT NOT EXCEEDING FIVE PER CENT OF THE AMOUNT OF SUCH ASSETS SHOWN IN THE BOOKS OF ACCOUNT OF THE BANK ON THE LAST DAY OF THE PREVIOUS YEAR; PROVIDED FURTHER THAT FOR THE RELEVANT ASSESSMENT YEARS COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 2003 AND ENDING BEFORE THE 1 ST DAY OF APRIL, 2005, THE PROVISIONS OF THE FIRST PROVISO SHALL HAVE EFFECT AS IF FOR THE WORDS FIVE PER CENT, THE WORDS TEN PERCENT HAD BEEN SU BSTITUTED; PROVIDED ALSO THAT A SCHEDULED BANK OR A NON - SCHEDULED BANK REFERRED TO IN THIS SUB - CLAUSE SHALL, AT ITS OPTION, BE ALLOWED A FURTHER DEDUCTION IN EXCESS OF THE LIMITS SPECIFIED IN THE FOREGOING PROVISIONS, FOR AN AMOUNT NOT EXCEEDING THE INCOM E DERIVED FROM REDEMPTION OF SECURITIES IN ACCORDANCE WITH A SCHEME FRAMED BY THE CENTRAL GOVERNMENT; PROVIDED ALSO THAT NO DEDUCTIONS SHALL BE ALLOWED UNDER THE THIRD PROVISO UNLESS SUCH INCOME HAS BEEN DISCLOSED IN THE RETURN OF INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 10 EXPLANATION - FOR THE PURPOSES OF THIS SUB - CLAUSE, RELEVANT ASSESSMENT YEARS: MEANS THE FIVE CONSECUTIVE ASSESSMENT YEARS COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 200 0 AND ENDING BEFORE TH E 1 ST DAY OF A PRIL, 2005; . ....... 8. IT IS OBSERVED THAT T HE ASSESSEE IN THE PR E SEN T CA S E , BEING ELIGIBLE BANK, IS ENTITLED TO CLAIM DEDUCTION AS P E R THE MAIN PROVISION CONTAINED IN CLAUSE (A) OF S.36(1)(VIIA), IN RES P ECT OF ANY P R O VI SION FOR BAD AND DOU B TFUL DEBTS TO THE E X TENT OF AN AMOUNT NOT EXCEEDIN G 7.5% OF THE TOTAL INCOME COMPUTED BEFORE MAKING ANY DEDUC T ION U N DER S.36(1)(VIIA) AND CHAPTER VIA AND AN AMOUNT NOT EXCEEDIN G 10% OF TH E AG GREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPU T ED IN THE PRE S CRIB E D MANNER. A PERUSAL OF TH E IMPU G N ED ORDER O F THE LEARNED CIT(A) HO WE VER , SHOWS THAT IT WAS STATED BY THE ASSESSEE B E FORE THE LEARNED CIT(A) THAT NO PROVISION WAS MAD E TO WA RDS AVERAGE RURAL ADVANCES. IF IT IS SO, I T I S NO T CLE A R AS TO WHAT IS THE BASIS ON WHICH THE P RO V I SION OF R S . 22.40 CRORES (RS.5.38 CRORES IN RESPECT OF URBAN ADVANCES AND RS.17.02 CRO R ES IN RESPECT OF RURAL ADVANCES) WAS MADE BY THE ASSESSEE DURIN G THE YEAR UNDER CONSIDERATION. MOREOVER, ALL T H E SE FACTS AND FIGU R ES WERE FURNISHED BY THE ASSESSEE B E FORE TH E LEARNED CIT(A) FOR THE FIRST TIME AND THE ASSESSING OFFICER THEREFORE, DID NOT HAVE ANY OPPORTUNITY TO VERIFY THE SAME. TH E CLAIM OF THE ASSE SSEE OF HAVING ADJU S TED THE AMOUNT O F RS .22.24 CRORES TOWARDS B A D DEBTS WRITTEN OFF DURIN G THE YEAR UN D ER CON S I D ERATION AGAINST T H E OP E NIN G BALANCE O F THE P R OVIS I ON OF RS.4 0 .13 CRORES WAS ALSO MADE BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE LEARNED CIT( A), AND TH E ASSESSING OFFICER DID NO T HAVE ANY OPPORTUNITY TO VERIFY THE SAME. HAVING RE G ARD TO ALL TH E SE FACTS AND CIRCUMSTANCES OF THE CAS E, WE ARE OF TH E VIEW THAT IT WOULD B E FAIR AND PROPER AND IN THE INTERESTS OF JU S TICE TO RE S T ORE THE ISSUE RELATI NG TO THE ASSESSEES CLAIM FOR DEDUCTION UN D ER S.36(1) ( VIIA) TO THE FILE OF THE ASSESSING OFFICER FOR I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 11 DECIDING THE SAME AFRESH, IN ACCORDAN CE W ITH T H E P R OV I SION OF S.36(1)(VIIA) AFTER GIVING PROPER AND SUFFICIENT OPPORTUNITY OF HEARING TO THE ASSESSEE AND AFTER VERIFYIN G ALL THE REL E VANT FACTS AND FIGURES. W E ORDER ACCORDINGLY . T HIS APPEAL OF THE R E VENUE IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ASSESSEE S APPEAL ITA NO. 88 /HYD/2015 9. THE APPEAL O F THE ASSESSEE INVOLVE S A SOLITAR Y ISSUE RELATING TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CON F IRMED BY THE LEARNED CIT(A) ON ACCOUNT OF I T S CLAIM FOR DEDUCTION ON ACCOUN T OF SALARY ARREARS AMOUNTING TO R S .12,73,60,121. 10. AS PER THE DIRECTIONS OF THE LEARNED COMMISSIONE R GIVEN IN THE ORDER PASSED UN D ER S.263, THE CLAIM O F TH E ASSESSEE FOR D E DUC T ION ON AC C OUN T O F SALARY ARREARS FOR THE PERIOD FROM 1.11.2007 TO 31.3.2009 A M OUNTING TO R S .12. 7 3 CORES WAS E X AMIN E D BY THE ASSESSING OFFICER. O N SUCH EXAMIN A TION , HE FOUND TH AT TH E SAID CLAIM PERTAINING TO EARLIER YEAR S WAS NO T ALLO W ABLE IN TH E Y E AR UN D ER CON S I D ERATION, I.E. ASSESSMENT YEAR 2010 - 11 IN TH E CASE OF THE ASSESSEE FOLLO W IN G MERCANTILE SYSTEM O F A C COUNTING. HE TH E R E FORE, DISALLOWED THE DEDUCTION CLAIMED BY THE ASSE SSEE ON ACCOUNT O F P R O VI SION MADE FOR SALARY ARREARS AMOUNTING TO RS .12.73 C R OR E S FOR THE PERIO D FROM 1.11.2007 TO 31.3.2009. 11. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER ON THIS ISSUE ON TH E G R OUN D THAT T H E DEDUC T ION CLAIMED BY TH E ASSESSEE FOR SALARY ARREARS PERTAINED TO TH E E A RLIER Y E AR, AND TH E RE WAS N OTHING TO SHO W THAT THE LIABILITY ON AC C OUN T O F TH E SAID ARREARS HAD CRYSTALLIZED I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 12 DURING TH E Y E AR UN D ER CONSIDERATION . AGGRIEVED BY THE O R DER OF THE LEAR NED CIT(A) ON T H IS ISSUE, ASSESSEE HAS PREFERRED THIS APPEAL B E FORE THE TRIBUNAL. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. TH E RE IS NO DISPU T E THAT THE AMOUNT IN QU E STION P R OVI D ED BY TH E ASSESS EE FOR S A LARY ARREARS FOR THE PERIOD FROM 1.11.2007 TO 31.3.2009 RELATED TO THE EARLIER YEARS AND NOT TO THE Y E AR UN D ER CONSIDERATION . AFT E R EXAMINING ALL THE REL E VANT ASPECTS OF THE MATTER, A FIN D IN G HAS B E EN GIVEN BY THE LEARNED CIT(A) IN HIS IMPUGNED ORDER THAT THE LIABILITY ON ACCOUN T OF SALARY ARREARS IN QUESTION HAS ARISEN VIDE THE P R OCEEDIN G S DATED 24.7.2010, I.E. MUCH LATER THAN THE CLOSURE OF THE YEAR UN D E R CONSIDERATION . THE SAID LIABILITY THUS H A D NEITHER ARISEN NOR DI S CHARGED BY TH E ASSESSEE DURING THE Y E AR UN D E R CONSIDERATION AND THE LEARNED COUN S EL FOR THE ASSESSEE HAS NO T BEEN ABLE TO BRIN G ANY TH ING ON RECORD TO REBUT OR CONTROVERT THIS FINDIN G O F FACT RECORDED BY THE LEARNED CIT(A) IN HIS IMPU G N E D ORDER . THE LIABILITY ON ACCOUN T OF SALA RY ARREARS IN QUESTION THUS NEITHER RELATED TO THE Y E AR UN D ER CONSIDERATION NOR CRYSTALLIZED IN THAT Y E AR, AND THIS B E ING SO, WE FIND NO INFIRMITY IN THE IMP UGNED O R DER O F THE LEARNED CIT(A) CON F IRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON AC COUNT OF P R O VI SION MADE BY TH E ASSESSEE FOR THE SALARY ARREARS IN QUESTION. THE SAME IS , THER E FORE, UPHELD ON THIS ISSUE DISMISSING THE APPEAL FIL E D BY TH E ASSESSEE . 13. TO SUM UP, APPEAL OF THE REVENUE, BEING ITA NO.51/HYD/2015, IS ALLOWED FOR STATISTIC AL PURPOSES; AND THE APPEAL OF THE ASSESSEE, BEING ITA NO.88/HYD/2015, IS DISMISSED. I TA NO S . 51 & 88/H YD/20 15 ANDHRA PRADESH GRAMEENA VIKAS BANK, WARANGAL 13 ORDER PRONOUNCED IN THE COURT ON 10 TH APRIL, 2015 SD/ - SD/ - ( ASHA VIJAYARAGHAVAN ) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER D T/ - 10 TH APRIL , 201 5 COPY FORWARDED TO: 1. ANDHRA PRADESH GRAMEENA VIKAS BANK, H.NO.2 - 5 - 8/1, OLD BUYS DEPOT ROAD, RAMNAAR, HANAMKONDA, WARANGAL 2 . ASST . COMMISSIONER OF INCOME - TAX CIRCLE 1, WARANGAL 3. COMMISSIONER OF INCOME - TAX(APPEALS) V I HYDERABAD 4. COMMISSIONER OF INCOME - TAX V, HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S