ITA No 564/Coch/2015 (Asst Year 2011-12) IN INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH KOCHI BEFORE S/SHRI B P JAIN, AM & GEORGE GEORGE K, JM ITA No 564/Coch/2015 (Asst Year 2011-12) Kodungallur Town Co-op Bank Vs Principal Commissioner of Ltd., Income Tax, Thrissur. Head Office, Kodungallur 680 664. ( Appellant) (Respondent) PAN No. AAABT2480R Assessee By Shri Mohan Pulikkal Revenue By Sh Shantom Bose, CIT-DR Date of Hearing 28th Sept 2016 Date of pronouncement 29th Sept 2016 ORDER PER GEORGE GEORGE K, JM: This appeal, at instance of assessee, is directed against CIT s order dated 298/09/2015. relevant assessment year is 2011-12. 2. Briefly stated, facts of case are as under:- assessee is co-operative bank. For assessment year 2011-12, assessment under section 143(3) of Act was completed vide order dated 28/02/2014 fixing total income of Rs.4,75,16,910/-. assessee had claimed deduction in respect of provision for bad and doubtful debts amounting to Rs.10,51,02,551/- u/s.36(1)(viia)(a) of Act. While completing assessment under section 143(3) of Act Assessing Officer had allowed only sum of Rs.38,52,732/-u/s. 36(1)(viia)(a) of Act, being 7.5% of total income and balance claim being 10% of aggregate average advances made by 1 ITA No 564/Coch/2015 (Asst Year 2011-12) assessee s rural branches was disallowed on ground that rural branches as declared by bank were not actually rural branches defined under Explanation (ia) of section 36(1)(viia) of Act. 3. Subsequent to completion of assessment, CIT passed order u/s. 263 of Act (order dated 28/9/2015) setting aside original assessment order and directed Assessing Officer to examine issue of deduction u/s. 36(1)(viia)(a) of Act in respect of provision for bad and doubtful debts . According to CIT, in view of judgment of Hon ble Apex Court in case of Catholic Syrian Bank Ltd. Vs. CIT, 343 ITR 270(SC), section 36(1)(viia)(a) applies only to rural advances and since assessee s bank was not having any rural branch, deduction allowed u/s. 36(1)(viia)(a) of Act is not in order. relevant finding of CIT reads as follows:- 4. I have considered facts of case and submission made by assessee. Hon'ble Supreme Court vide order of 17.02.2012 in case of Catholic Syrian Bank Ltd. vs. CIT has held "indisputably, clause (viia) (a) of Section 36( 1) applies only to rural advances". position of law is very clear. In this context, it is seen that Assessing Officer has not examined any such details to ascertain and confirm rural advances. 5. Since eligibility of deduction u/s.36(1)(viia)(a) had not been examined as discussed above during scrutiny, I am convinced that assessment order u/s.143(3) dated 28.02.2014 made by Asst. Commissioner of Income Tax, Circle-2( 1), Thrissur is erroneous and prejudicial to interest of revenue within meaning of section 263 of I.T. Act, 1961. Therefore, aforesaid order dated 28.02.2014 is set aside with direction to examine issue of deduction u/s.36(1)(viia) (a) in respect of provision for bad and doubtful debts afresh in accordance with law after providing reasonable opportunity to assessee. 4. Assessee being aggrieved is in appeal before us. Ld. Counsel for assessee submitted that issue in question is squarely covered by order of Tribunal in assessee s own case for assessment year 2010-11 in ITA No.408/Coch/2015( order dated 18/07/2016). It was submitted that order of Tribunal had followed judgment of Hon ble Jurisdictional High Court in assessee s own case in ITA No.37 of 2013 (judgment dated 03/04/2014 ). 2 ITA No 564/Coch/2015 (Asst Year 2011-12) 5. Ld. Departmental Representative present was duly heard. 6. We have heard rival submissions and perused material on record. On identical facts, in assessee s own case for assessment year 2010-11, Tribunal had set aside order passed by CIT u/s. 263 of Act. relevant finding of Tribunal, which had in turn followed judgment of Hon ble Jurisdictional High Court in assessee s own case(supra) reads as follows:- 7 We have heard rival submissions and perused material on record. judgment of Hon ble Supreme Court in case of Catholic Syrian Bank Ltd (supra) relied by CIT while invoking his revisionary jurisdiction does not apply to facts of present case. Hon ble Supreme Court had essentially considered issue whether thededuction available to scheduled banks under clause (vii) of sub-sec.( 1) of Sec.36 of Act, in respect of bad debts written off shall be limited to extent said debts exceed credit balance in provision for bad and doubtful debts account made under clause (viia). assessments related to assessment year 2002-03 and prior years and Hon ble Apex Court had considered law with reference to fact situation and social commitments of scheduled banks at that time. assessee herein is co-operative bank. cooperative banks was included in category of beneficiaries under clause (viia) by Finance Act, 2007 with effect from 01.04.2007. Therefore Hon ble Apex Court, in Catholic Syrian Bank's case, did not have opportunity to consider fact situationthat would have persuaded legislature to include co-operative banks also in category of beneficiaries under clause (viia) of sub-sec.(1) of Sec.36 of Act. deduction provided in first part of clause (viia)(a) of 7.5% of total income, hitherto enjoyed by assessee since inclusion of co-operative banks within ambit of clause (viia)(a) by Finance Act, 2007, is unconcerned with advances made by rural branches of banks. reading of paragraph 27 of judgment of Hon ble Apex Court would show that while making observation "indisputably, clause (viia)(a) applies only to rural advances , Hon ble Apex Court was examining issue if there would be double deduction of actual bad debts written off under clause (vii) and deduction in respect of rural advances provided under second part of clause (viia). Hon ble Apex Court has not held that first part of clause (viia) providing for deduction of 7.5% of total income applies only to rural advances. CBDT in Clause 5 of its Circular No.464 dated July 18, 1986 referred to by Hon ble Apex Court in Catholic Syrian Bank's case makes it very clear that two deductions provided in clause (viia)(a), viz. 7.5% of total income (computed before making any deduction under this clause and Chapter VIA) and 10% of aggregate 3 ITA No 564/Coch/2015 (Asst Year 2011-12) average advances made by rural branches are distinct and independent. intention of legislature was to give benefit of deduction of 7.5% of total income to scheduled, non-scheduled and co-operative banks under clause (viia) while similar benefit of deduction of specified percentage of total income was extended to foreign banks and public financial institutions under clauses (viia) (b) and (viia)(c) respectively, apart from benefit available to them under clause (vii). proposal to deny benefit of first part of clause (viia)(a) to assessee linking it to rural advances would therefore subvert legislative intent. 8 Further, Hon ble jurisdictional High Court in assessee s own case, cited supra, has considered identical issue. relevant finding of Hon ble jurisdictional High Court reads as under: 9. Admittedly, appellants/assessees are cooperative banks. With introduction of Finance Act of 2007, coming into effect from04.2007, one has to understand what was position was prior to 1.4.2007 and after 1.4.2007. During relevant assessment year, admittedly appellants/assessees were not entitled for any deduction provided under section 80P of Act. Prior to 1.4.2007, they were enjoying benefits provided under section 80P. With introduction of Finance Act 2007 with effect from 1.4.2007, they could claim deductions as provided under section 36(1) of Act. We are concerned with sub-clause(a) of clause (viia) to section36(1). Prior to Finance Act of 2007, cooperative bank was not included in sub-clause (a) so far as provisions for bad and doubtful debts. With effect from 1.4.2007, cooperative bank was included under sub clause (a) of clause (viia) of section 36(1). It is further clarified that only such cooperative bank other than primary agriculture credit society, etc., is included in sub clause (a) of clause (viia). provision is beneficial one. No doubt, plain reading of main section 36(1) (viia)(a) and Explanation under said section present certain difficulties, but situation is not without possibilities. object and intention of legislature is to be understood by harmonious construction of provisions. policy was to include cooperative banks as well, as they could not take shelter under section 80P of Income Tax Act any more. By restricting scope of provisions, very purpose of inclusion of cooperative bank would be lost. Sub clause (a) consists of two types of deduction. One refers to deduction of amount not exceeding 67.5% of total income (computed before making any deduction under this clause and chapter VIA). Section one refers to deduction of amount not exceeding10% of aggregate average advances made by rule branches of such bank while computing in prescribed manner. So far as benefit of 7.5% of total income, there is no condition that it should be in respect of any rural branch. All types of banks described under sub claque (a) of clause (viia) are entitled 4 ITA No 564/Coch/2015 (Asst Year 2011-12) to seek deduction of amount of exceeding 7.5% of total income. Only condition is there should be provision for bad and doubtful debts 9 In view of aforesaid reasoning and judgment of Hon ble jurisdictional High Court in case in assessee s own case cited supra, we are of view that CIT is not justified in invoking his revisionary jurisdiction u/s 263 of Act and therefore, we set aside same. It is ordered accordingly. 10 In result, appeal filed by assessee is allowed. 6.1 In view of Co-ordinate Bench decision in assessee s own case, which is identical to facts of present case, we hold that CIT is not justified in invoking his revisionary jurisdiction u/s. 263 of Act and, therefore, we set aside same. It is ordered accordingly. 7. In result, appeal of assessee is allowed. Order pronounced in open Court on this 29th day of Sept 2016. Sd/- Sd/- ( B P JAIN ) ( GEORGE GEORGE K) Accountant Member Judicial Member Cochin: Dated 29th Sept 2016 VM, Sr. PS Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT, 5. DR 6. Guard File By order Assistant Registrar ITAT, COCHIN 5 ITA No 564/Coch/2015 (Asst Year 2011-12) 1 Date of dictation 28/09/2016 2 Dt on which typed draft is placed before dictating Member 28/09/2016 3 Dt on which approved draft comes to Sr PS/PS 4 Dt on which fair order is placed before dictating Member 5 Dt of pronouncement 6 Dt on which file goes to Bench Clerk 7 Dt on which file goes to Head Clerk 8 Dt on which file goes to AR 9 Dt of dispatch of order 6 Kodungallur Town Co-op Bank Ltd. v. Principal Commissioner of Income-tax, Thrissur