IN INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER] I.T.A.No.1893/Mds/2016 & C.O.No.108/Mds/2016 Assessment year : 2012-13 Dy. Commissioner of Vs. M/s Tamilnadu Mercantile Bank Ltd Income-tax 57, V.E Road Circle I Tuticorin 628 002 Tuticorin PAN AAACT 5558 K] (Appellant) (Respondent/Cross objector) I.T.A.No.1400/Mds/2016 Assessment year : 2012-13 M/s Tamilnadu Mercantile Bank Vs. Dy. Commissioner of Ltd Income-tax 57, V.E Road Circle I Tuticorin 628 002 Tuticorin (Appellant) (Respondent) Department by : Dr. Milind Madhukar Bhusari, CIT Assessee by : None Date of Hearing : 20-09-2016 Date of Pronouncement : 07 -10-2016 :- 2 -: ITA No.1400/16 etc O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER This appeal of Revenue and cross objection of assessee are directed against order of Commissioner of Income-tax (Appeals)-1, Madurai dated 30.3.2016 in I.T.A.No.14/2015-16 for assessment year 2012-13 passed u/s 143(3) and 250 of Income-tax Act, 1961(in short Act ). And assessee filed appeal against very same order of CIT(A). 2. First we take up Revenue s appeal. Revenue has raised following grounds: 1. order of CIT(A) is opposed to law on facts and in circumstances of case. 2. CIT(A) has erred in directing Assessing Officer to delete addition of Rs.63,78,66,640/- on account of provision made for bad and doubtful debts with respect to non-rural branches. 3. CIT(A) ought to have seen that deduction u/s 36(i)(viia) r.w.rule 6ABA restricts deduction only to rural branches and hence ought to have sustained order of Assessing Officer who disallowed claim made for non-rural branches. 3. brief facts of case are that assessee is in business of banking services and filed return of income electronically on 30.11.2012 with total income of ` 371,87,60,339/-. Subsequently, case was selected for scrutiny under CASS and :- 3 -: ITA No.1400/16 etc notice u/s 143(21) was issued on 24.9.2013. In compliance, assessee s representative appeared from time to time and certain details were called for by Assessing Officer u/s 142(1) of Act. Assessing Officer, during course of scrutiny proceedings found that assessee has claimed deduction u/s 36(1)(vii)(a) of Act amounting to ` 67,94,22,950/- towards bad and doubtful debts and assessee was called to submit bifurcations. assessee has explained that bank which has rural branches deduction u/s 36(1)(vii)(a) is allowable in respect of rural debts since calculation is primarily based on rural advances. But assessee is not having any rural branches deduction is claimed in respect of non-rural debts. As per provisions of sec. 36(1)(viia), bank not having rural branch should adjust write off of non-rural debts against provision allowed u/s 36(1)(viia) and bank stated that Hon'ble Supreme Court has considered deduction u/s 36(1)(viia) in case of Catholic Syrian Bank Ltd in Civil Appeal No.1143/2011 dated 17.2.2012 and decision of Supreme Court cannot be relied upon in respect of allowability of deduction to assessee u/s 36(1)(viia). Assessing Officer did not find contentions of assessee acceptable. He referred to Circular and legislative intention of relevant provisions and amendment to sec. 36 of Act and found that deduction on account of provision for bad and :- 4 -: ITA No.1400/16 etc doubtful debts u/s 36(1)(viia) is distinct and independent of provisions of sec. 36(1)(vii) relating to allowance of bad debts. legislative intent was to encourage rural advances and making of provisions for bad debts in relation to such rural branches. Mere provision for bad and doubtful debts is not allowable. But in case of rural advance, same in terms of section 36(1)(viia)(a) may be allowable without insisting on actual write off in books of account. Considering these facts and judicial decisions, Assessing Officer was of opinion that deduction u/s 36(1)(viia) is provision allowable relating to only rural advances by rural branches and relied on judgment of Hon'ble Supreme Court in case of M/s Catholic Syrian Bank Ltd (supra). He observed that there is no ambiguity in Income-tax Act, 1961 for rural advances and to be allowed u/s 36(1)(viia) of Act within prescribed limits. Since assessee- bank has made provision for rural advances of ` 4,15,56,310/- out of total provision of ` 67,94,22,950/-, difference is claimed as excess deduction. Accordingly, Assessing Officer disallowed ` 63,78,66,640/- and passed order u/s 143(3) dated 30.3.2015. 4. Aggrieved, assessee filed appeal with CIT(A). In appellate proceedings, ld. AR of assessee argued grounds and emphasized that deduction u/s 36(vii)(a) has to be :- 5 -: ITA No.1400/16 etc allowed to assessee though there are no rural branches. Assessing Officer relying on order of Supreme Court in case of Catholic Syrian Bank 18 taxmann.com 282, allowed deduction only to extent of ` 4,15,56,310/- in respect of rural branches advances. And further submitted that in assessee s own case for assessment year 2011-12 in I.T.A.No.0029/2014-15 dated 23.9.2015, CIT(A) has allowed deduction. Where Department has not made any reference application to Karnataka High Court on disputed issue u/s 36(1)(vii)(a) in case of M/s Vijaya Bank against decision of Bangalore ITAT in I.T.A.No. 578/Bang/2012 dated 27.2.2015 for assessment year 2008-09. Considering facts of earlier assessment year in assessee s own case, deduction was allowed by CIT(A) by directing Assessing Officer to delete addition. 5. Aggrieved by order of CIT(A), Revenue has assailed appeal before Tribunal. Before us, ld. DR narrated facts and legislative intent and provisions of sec. 36(1)(vii)(a) and also basic deduction to be allowed in respect of provision made for bad and doubtful debts in respect of rural branches, and also submitted that CIT(A) has erred in directing Assessing Officer to delete addition in respect of non-rural branches whereas :- 6 -: ITA No.1400/16 etc deduction has to be restricted only to rural branches advances in view of sec. 36(1)(viia) r.w. Rule 6ABA . He further submitted that Hon'ble Supreme Court has already considered these facts in case of Catholic Syrian Bank Ltd (supra) and prayed for setting aside order of CIT(A). 6. None attended on behalf of assessee . We, therefore, proceeded to decide appeal after considering submissions of ld. DR and material on record. 7. We heard submissions of ld. DR, material placed on record and judicial decisions. crux of issue argued by ld. DR is that deduction sec. 36(1)(vii(a) has to be restricted only with respect to rural branches and not to others whereas assessee- bank has made provision towards rural branches to extent of ` 4,15,56,310/- whereas higher deduction was claimed ` 67,94,22,950/- in respect of non-rural branches. legislative intent is to provide this benefit to rural branches irrespective of actual write off in books of account. We find that similar issue was considered by Coordinate Bench of this Tribunal in assessee s own case for assessment year 2011-12 in I.T.A.No. 2297/Mds/2015, dated 20.7.2016 wherein it was held as under: :- 7 -: ITA No.1400/16 etc 5. We have heard both sides, perused materials on record and gone through orders of authorities below and considered written submissions filed by assessee. assessee is Scheduled Bank as per Second Schedule of Scheduled Banks of Reserve Bank of India Act, 1934. As per RBI guidelines, assessee made provisions for bad and doubtful debts in books of accounts and claimed deduction under section 36(1)(viia) of Act by considering total provision made in books and without bifurcating same into rural and non-rural branches. By following judgement of Hon ble Supreme Court in case of Catholic Syrian Bank v. CIT 343 ITR 270, Assessing Officer has held that claim of deduction under section 36(1)(viia) of Act is allowable relating only to rural advances. Accordingly, provision made for bad and doubtful debts for rural branches amount to .46,72,089/- out of total provision of .37,96,12,893/- for year ended 31.03.2011 alone is eligible for deduction under section 36(1)(viia) of Act and excess claim made for .37,49,40,804/- was added back to total income of assessee. After considering written submissions of assessee, ld. CIT(A) directed Assessing Officer to delete addition of .37,49,40,804/- by observing as under: 3.3 I have carefully considered submissions of representative and perused assessment order and decision of Apex Court in case of M/s. Catholic Syrian Bank (cited above). Section 36(1)(viia) reads as under:- "SECTION 36 - OTHER DEDUCTIONS section reads as under .- Other deductions.- (1) deductions provided for in following clauses shall be allowed in respect of matters dealt with therein, in computing income referred to in section 28 - viia) in respect of any provision for bad and doubtful debts made by - (a) scheduled bank not being bank incorporated by or under laws of country outside India] or co-operative bank other than primary :- 8 -: ITA No.1400/16 etc agricultural credit society or primary co- operative agricultural and rural development bank, amount not exceeding seven and one-half per cent of total income (computed before making any deduction under this clause and Chapter VI-A) and amount not exceeding ten per cent of aggregate average advances made by rural branches of such bank computed in prescribed manner. " plain and simple reading of above section shows that deduction is in respect of any provision for bad and doubtful debts but quantum of deduction is determined with reference to 7.5% of total income and amount not exceeding 10% of aggregate of average advances made by rural branches. From above, it is clear that deduction is not restricted to provision for bad and doubtful debt in respect of rural branches only. Assessing Officer has read portion of judgment of Hon'ble Supreme Court divesting it from context in which such language was used and wrongly held that deduction is available only in respect of provision for bad and doubtful debts in respect of rural branches. It is seen that Assessing Officer has misunderstood decision of Hon'ble Supreme Court and held that deduction u/s.36(1 )(viia) is allowable only towards provision for bad and doubtful debt in respect of rural branches only. reading of decision of Apex Court shows that in that case bank made claim towards provision of Rs.15,01,29,990/- for bad and doubtful debts u/s.36(1)(viia) and further claimed Rs.12,65,95,770/- as deduction on account of bad debts u/s.36(1)(vii) which was not allowed as it did not exceed provision for bad and doubtful debts as per proviso to sec.36(1)(vii) of Act. Accordingly, issue decided by Apex Court was not same as in case of appellant. In case of appellant, issue is whether provision for bad and doubtful debts is to be allowed in respect of all branches including non-rural branches or only in respect of rural branches. Accordingly, issue involved in this appeal is totally different and Assessing Officer wrongly applied decision of Apex Court to facts of this case. Further as rightly contended by representative, Hon'ble Bangalore Tribunal "C" Bench :- 9 -: ITA No.1400/16 etc in ITA No.578/Bang/2012 and ITA No.653/Bang/ 2012 for Asst. Year 2008-09 by order dated 27.02.2015 decided this issue in favour of assessee after duly considering decision of Hon'ble Apex Court in case of Catholic Syrian Bank. In above case, CIT(A) allowed deduction u/s.36(1)(viia) at Rs.1,92,57,72,764/- which is outer limit prescribed in Sec.36(1)(viia) even though provision made by assessee was only Rs.1,00,55,67,213/- which included provision for bad and doubtful debts relating to rural branches only at Rs.7,45,51,455/-. Hon'ble Tribunal held that appellant was entitled to deduction u/s.36(1)(viia) at Rs. 100,55,67,213/- which represents provision for bad and doubtful debts made in books of accounts and not provision relating to rural branches only which was Rs.7,45,51,455/-. Actually, in above case, appellant made plea before Hon'ble Tribunal to allow 7.5% of total income and 10% of aggregate advances of rural branches, which was more than provision made by assessee but Hon'ble Tribunal declined to allow same. Accordingly, I find that Hon'ble Bangalore Tribunal has considered exact issue involved in this appeal (viz) whether deduction u/s_36(1)(viia) should be allowed in respect of provision for bad and doubtful debts in respect of all branches or only for rural branches and decided that it should be based on provision in respect of all branches. As already stated, while coming to above conclusion, Hon'ble Tribunal has elaborately discussed decision of Hon'ble Apex Court in case of Catholic Syrian Bank which is relied on by Assessing Officer in impugned order. Following decision of Hon'ble Bangalore Tribunal, I find that Assessing Officer was not justified in restricting deduction u/s.36(1)(viia) only in respect of provision made for bad and doubtful debts in respect of rural branches only and I, therefore, direct Assessing Officer to delete addition of Rs.37,49,40,804/-. This ground is allowed. 6. In this case, issue raised before us relates to whether assessee is entitled to claim deduction of bad and doubtful debts under section 36(1)(viia) of Act in respect of all branches including non-rural branches or only in respect of rural branches. Vide its letter dated 29.03.2013, assessee has submitted before Assessing Officer that provision for bad :- 10 -: ITA No.1400/16 etc and doubtful debts for rural branches was .46,72,089/- out of total provision of .37,96,12,893/- made by assessee for year ended 31.03.2011 under section 36(1)(viia) of Act. Thus, Assessing Officer restricted claim of deduction for bad and doubtful debts for rural branches to extent of .46,72,089/- by following judgement of Hon ble Supreme Court in case of Catholic Syrian Bank v. CIT (supra) and made addition of .37,49,40,804/- as claimed by assessee, which is not pertaining to rural branches. ld. CIT(A) directed Assessing Officer to delete above addition on two counts viz., (i) ratio laid down by Hon ble Supreme in case of Catholic Syrian Bank v. CIT(supra) was not same as in case of assessee and (ii) ratio laid down by Bangalore Benches of Tribunal in case of JCIT v. Vijaya Bank (supra) is squarely applies to facts of assessee s case. We have carefully gone through decision of Bangalore Bench of Tribunal in case of JCIT v. Vijaya Bank, wherein Tribunal has held as under: 15. We have considered submissions and are of view that same cannot be accepted. creation of special reserve u/s.32A or Sec.36(1)(viii) of Act cannot be equated with creation of PBDD u/s.36(1)(viia) of Act. Creation of provision u/s.36(1)(viia) of Act is governed by certain rules like Rule 6ABA of rules in respect of rural advances. It cannot be created at bank s whims and fancy. Moreover Assessee is not making claim for creation of PBDD in books of accounts of PY relevant to AY 08-09. excess reserve created in subsequent year cannot be equated to PBDD created in books for present AY. decisions relied upon by learned counsel for Assessee do not lay down proposition that excess provision created in subsequent year can supplement inadequate created in earlier year. decisions relied upon by learned counsel for Assessee lay down proposition that Assessee should be given liberty to create reserve in books of accounts of relevant AY. For reasons given above, we reject second alternate submission made by learned counsel for Assessee. Thus Assessee will be entitled to deduction u/s.36(1)(viia) of Act of Rs.100,55,67,213/- only. Ground No.2 of Revenue is allowed to this extent. :- 11 -: ITA No.1400/16 etc 7. With regard to provisions for bad and doubtful debts, provisions of section 36(1)(viia) of Act does not speak anything about non-rural branches. By and large, intention of Legislature for insertion of clause (viia) to section 36(1) of Act was to encourage rural advances and to provide for deduction in computation of taxable profits of all scheduled commercial banks in respect of provisions made by them for bad and doubtful debts relating to advances made by their rural branches. Therefore, proviso is limited in its application to bad debts arising out of rural advances of bank and not for non-rural advances. Over and above statute, since provisions of sections 36(1)(vii) and (viia) of Act are distinct and independent items of deduction and operate in their respective fields, decision in case of Vijaya Bank v. CIT (supra) did not clarify as to how assessee is eligible to claim deduction of amount which includes both provisions for bad and doubtful debts of rural and non-rural advances. Therefore, we are of considered opinion that above decision relied on by ld. CIT(A) cannot be accepted. 8. Further, concurrent findings of Hon ble Chief Justice of India in case of Catholic Syrian Bank v. CIT (supra) are reproduced as under: Per S. H. KAPADIA C. J. I. (concurring) : provisions of clause (viia) of section 36(1) relating to deduction on account of provision for bad and doubtful debit(s) are distinct and independent of provisions of section 36(1)(vii) relating to allowance of bad debt(s), In other words, scheduled commercial banks would continue to get full benefit of write off of irrecoverable debits) under section 36(1)(vii) in addition to benefit of deduction for provision made for bad and doubtful debt(s) under section 36(1)(viia). Normally, deduction for bad debit(s) can be allowed only if debt is written off in books as bad debt(s), But in case of rural advances, deduction would be allowed even in respect of mere provision without insisting on actual write off. However, this may result in double allowance in sense that in respect of same rural advance bank may get allowance on basis of clause (viia) and also on basis of actual write off under clause (vii). This situation is taken care of by proviso to clause (vii) which limits allowance on basis of actual write off to excess, if any, of :- 12 -: ITA No.1400/16 etc write off over amount standing to credit of account created under clause (viia). CBDT itself has recognized position that bank would be entitled to both deductions, one under clause (vii) on basis of actual write off and another, on basis of clause (viia) in respect of mere provision. It would be meaningless to invoke proviso where there is no threat of double deduction. In case of rural advance, which are covered by provisions of clause (viia), there would be no such double deduction. proviso limits its application to case of bank to which clause (viia) applies. Clause (viia) applies only to rural advances. This has been explained by circulars issued by CBDT. Thus, proviso limited in its application to bad debit(s) arising out of rural advances of bank. It follows that if amount of bad debit(s) actually written off in account of bank represents only debt(s) arising out of urban advances, allowance thereof in assessment is not affected, controlled or limited in any way by proviso to clause (vii). 9. Respectfully following ratio laid down by Hon ble Supreme Court in case of Catholic Syrian Bank v. CIT (supra), we are of opinion that assessee cannot claim deduction of bad and doubtful debts of non-rural branches under section 36(1)(viia) of Act. Thus, we reverse findings of ld. CIT(A) on this issue and restore that of Assessing Officer. Accordingly, ground raised by Revenue is allowed. 8. Respectfully following above order of Tribunal for assessment year 2011-12, we set aside order of CIT(A) on this ground and restore order of Assessing Officer. 9. In result, Revenue s appeal is allowed. :- 13 -: ITA No.1400/16 etc 10. assessee has filed cross objection in support of order of CIT(A). Since Revenue s appeal stands allowed cross objection has become infructuous and hence, dismissed. 11. Now coming to assessee s appeal I.T.A.No.1400/Mds/2016, it was noticed that appeal was earlier posted for hearing on 3.8.2016 and at request of ld. AR for assessee, hearing was adjourned to 20.9.2016 for which notice of hearing was issued by RPAD and duly served on assessee as is evident from postal acknowledgement placed on record. Despite receipt of notice, at time of hearing, none appeared on behalf of assessee. From conduct of assessee it appears that assessee is not interested in pursuing appeal before Tribunal. In these circumstances, as held by I.T.A.T., Delhi Bench in case of CIT vs. Multiplan India (P) Limited 38 ITD 320 that there may be various reasons for assessee to remain absent at time of hearing and one of reasons might be absence to prosecute appeal and also following decision of Co-ordinate bench of Tribunal in case of Helios and Matheson Information Technology Limited vs ITO in ITA No.134/Mds/2011, dated 05.07.2011, we hereby dismiss appeal in limine. However, we make it clear that assessee is at liberty to file petition to recall this order provided :- 14 -: ITA No.1400/16 etc convincing/sufficient cause be explained for non-appearance on said date of hearing. 12. To summarize, appeal of Revenue is allowed whereas appeal and cross objection of assessee are dismissed. Order pronounced on Friday, 7th October, 2016, at Chennai. Sd/- Sd/- (ABRAHAM P. GEORGE) (G. PAVAN KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Chennai Dated: 7th October, 2016 RD Copy to: 1. Appellant 4. CIT 2. Respondent 5. DR 3. CIT(A) 6. GF Dy. Commissioner of Income-tax Circle-I, Tuticorin v. M/s Tamilnadu Mercantile Bank Ltd