Ita/63/2007 Of The Commissioner Of Income Tax v. M/S Vijaya Bank

IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 31 DAY OF OCTOBER, 2012. PRESENT THE HON’BLE MR.JUSTICE K. SREEDHAR RAO| AND THE HON’BLE MR.JUSTICE B.V.PINTO ITA NOS.63 OF 2007 C/W 65 OF 2007 IN ITA NO.63 OF 2007 BRTWREB 1.THR COMMISSIONER OF INCOME - TAX| C.R. BUILDING QUEENS ROAD BANGLAORE 2.THRE DEPUTY COMMISSIONER OF INCOME - TAXCIRCLE-12(3)CIRCLE-12(3) C.R. BUILDING QUEENS ROAD BANGALORE ... APPELLANTS (BY SRI. K V ARAVIND, ADV.) ANT M/S VIJAYA BANK NO.41/2, M.G.ROAD, BANGALORE- 560 OO1 —. RESPONDENT (BY SRI.SARANGAN, SENIOR COUNSEL ANDoORILK S RAMABHADRAN, ADV.)oORILK S RAMABHADRAN, ADV.) THIS ITA IS FILED U/S.2600-A OF I.T.ACT, 1961ARISING OUT OF ORDER DATED 09-06-2006 PASSED INITA NO. 150/BANG/2004 FOR THE ASSESSMENT YEAR1999-00, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATED THEREIN, Il ALLOW THR APPEAL AND SEHT ASIDE THE ORDERPASSEDBY|THERITAT,|BANGALOREINITA|NO. |150/BANG/2004 DATED 09-06-2006 CONFIRMING THEORDER OF PASSED BY THR APPBLLATK COMMISSIONBRAND CONFIRM THR ORDER PASSED BY THR DEBPUTYDIRECTOR OF INCOME TAX, CIRCLE-12 (3), BANGALORE,IN THE INTEREST OF JUSTICE AND EQUITY. ITA NO. 65 OF 2007BBRTWER 1.THR COMMISSIONER OF INCOME-TAXC.R. BUILDING,C.R. BUILDING, QUEENS ROAD BANGALORE, 2.THR ASST COMMISISONBR OF INCOME-TAXCIRCLE -12(3)C.R. BUILDING,QUEENS ROADCIRCLE -12(3)C.R. BUILDING,QUEENS ROAD BANGALORE _. APPKBLLANTS (BY SRI. K V ARAVIND, ADV.) AND M/S VIJAYA BANKNO.41/2, M.G. ROAD BANGALORE- 560 OO1 —. RESPONDENT (BY SRI.SARANGAN, SENIOR COUNSEL ANDoORI.K S RAMABHADRAN, ADV.) THIS ITA IS FILED U/S.2600-A OF I.T.ACT, 1961ARISING OUT OF ORDER DATED 09-06-2006 PASSED INITA NO. 151/BANG/2004, FOR THE ASSESSMENT YEAR2000-2001, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATED THEREIN, Il ALLOW THR APPEAL AND SEHT ASIDE THE ORDERPASSEDBY|THERITATBANGALOREIN-ITA|NO.|151/BANG/2004 DATED 09-06-2006 CONFIRMING THEORDER PASSHKHD BY THR APPKELLATKE COMMISSIONBCONFIRMTHE.ORDERPASSEDBY|THE.DY.COMMISSIONER OF INCOME TAX, CIRCLE-12 (3)|BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THRSK APPKALS ARK COMING ON FOR DICTATINGJUDGEMENT THIS DAY,SREEDHAR RAO J,DBLIVRRBEIDTHR FOLLOWING:-.JU DBGMENT IN ITA NO. 63 OF 2007 The assessee for the assessment year 1999-2000,filed the return. The rural advance made by theassessee is stated to be in a sum of Rs.315,92,41,518/-.the 10% of the same is equivalent to Rs.31,59,24,152/-.has been shown as a provision for rural debt and soughtdeduction vide $.36(1)(viia) of Income Tax Act, 1961.(hereinaiter called as ‘the Act’ for _ brevity). TheAssessing Officer has found that in profit and loss account, the assessee has shown NPA and rural.advances in a sum or Rs.41,607,39,000/- towards theprovision. The Assessing Officer sought clarification ofthe details ot the rural advances. The Assessee has/§submitted the reply and shown different amounts andcategorised them as substandard, doubtful and loss.The Assessing Officer came to the conclusion that theAssessee has made provision for rural debt in profit andloss account in a sum of Rs.459 lakhs and rejected for aclaim of Rs.31,59,24,152/- towards the provision forrural debt U/s.36(1)(vila) of the Act. D _The substantial question of law framed are:- (1)Whether the Appellate Tribunal|was right in holding that after writing of baddebts whether the assessee Bank shown in)the profit and loans account as bad and/doubtful debt which is contrary to theprovisions of explanation to clause (vil) ofsection 36(1) of the Act? and (2).Whether the Appellate Tribunal|was right in holding that the deductionallowable under Section 36(1)(viia) instead ofsection 306(1)(viia) without considering thebad debts were written off in the Head Officeaccount and continued in branch accounts? D _The substantial question of law framed are:- (1)Whether the Appellate Tribunal|was right in holding that after writing of baddebts whether the assessee Bank shown in)the profit and loans account as bad and/doubtful debt which is contrary to theprovisions of explanation to clause (vil) ofsection 36(1) of the Act? and (2).Whether the Appellate Tribunal|was right in holding that the deductionallowable under Section 36(1)(viia) instead ofsection 306(1)(viia) without considering thebad debts were written off in the Head Officeaccount and continued in branch accounts? 3.|The Commissioner of Income Tax (Appeals)set aside the order of the Assessing Officer, in appealfiled by the assessee. The Revenue filed the appealbefore the Tribunal. The Tribunal in an appeal filed bythe Revenue confirmed the order of the Commissioner otIncome Tax (Appeals). The Revenue aggrieved by thesaid order of the Tribunal has filed this appeal. 4sri K.V.Aravind, learned Counsel for theRevenue submits that $.36(1)(viia) of the Act providesfor the assessee to make provision for 10% of ruraladvances as bad and doubttul debts and to seek'deduction. However, the assessee if he were to make a.provision to rural advances less than 10%, the assessee is entitled to the benefit of deduction to extent of the|provision made and not 10% of the rural advances asenvisaged U/s.36(1)(viia) of the Act. In the instant case,it is stated that the assessee has not made anyprovision and has shown only Rs.499 lakhs as theprovision and only to that extent, the Assessing Officerhas allowed the deduction. The claim for deduction to the extent of 10% on total rural advances is untenable|when the provision is made is less than the saidpercentage. Oo. orl Sarangan, learned senior counsel per contra,|submits that the amount of Rs.445 lakhs noted by theAssessing Officer is not based on record. The profit andloss account shows a provision for net profit and ruraladvances in a sum of Rs.41,67,39,000/- and in respectof the rural advances a sum of Rs.315,92,41,518/- isshown and 10% of it Rs.31,59,24,152/- is shown as astatutory deduction permissible U/s.36(1)(viuia) of theAct. The correspondence of the assessee referred to by the Assessing Officer in his order makes classification ofthe advances as substandard, doubtful and loss which|are shown to be written off and the said figure shown isnot the provision made towards bad and doubtful debts. |The said figures disclose that the said amount is writtenoff. Therefore, the Assessing Officer should not haverelied upon the figures shown in the correspondencemade by the assessee to come to the conclusion that theprovision tor bad and doubtful debts is only in a sum ofRs .455 lakhs. 6. On thorough consideration of the facts andmaterials, we find a sum of Rs.495 lakhs shown as.substandard debts in the correspondence of theassessee is shown to be an amount written off as a baddebts. The profit and loss account thus discloses anprovision of Rs.31,99,24,152/- as statutory deductionpermissible U/s.36(1)(viia) which represents 10% of thetotal rural advances. The Assessing Officer does not seem to have thoroughly gone through the accounts andreturns filed by the assessee in appreciating the fact asto the provision made to seek deduction U/s.36(1)(viia)and whatever figures shown in the letter written by theassessee to the Assessing Officer, clarify certain aspects.pertaining to debts which are written off and do notpertain to the provisions made for seeking deductionU/s.36(1)(viia) of the Act. In that view of the matter, theorder of the Tribunal is set aside and the matter is/remandedTO theAssessingOfficer|forpassingappropriate orders afresh. TS|In that view, the first question of law is|unanswered and in respect of the second questionframed which is herein, is decided in favour of the.assessee in view of the decision of the Supreme Court intheCa SEoT|CatholicSyrianBankLtd. Vs.Commissioner of Income-Tax reported in (2012) 343°ITR 270 (SC)wherein, it is clarified that $.36(1)(v1i) and TS|In that view, the first question of law is|unanswered and in respect of the second questionframed which is herein, is decided in favour of the.assessee in view of the decision of the Supreme Court intheCa SEoT|CatholicSyrianBankLtd. Vs.Commissioner of Income-Tax reported in (2012) 343°ITR 270 (SC)wherein, it is clarified that $.36(1)(v1i) and ».36(1)(viia) of the Act are two distinguished provisionsand it would not a duplicated deduction in view of theproviso to 8.36(1)(vii). IN ITA NO.65 OF 2007:% 8.|This appeal pertain to the assessment year2O000-O1, the amounts shown in the provision to thebad and doubtful debts towards rural advances is in a'sum of Rs.42,603,16,043/- which is 10% of the totalrural advances made. The Assessing Officer in this casepermitted to a deduction to Rs.754 lakhs. In this casealso, the facts and the contents are similar to the one)made in ITA No.63/2007 for the reasons states supra,the order of the Appellate Tribunal is set aside. Thematter is remanded to the Assessing Officer fordisposing afresh in accordance with law. Sd/-)JUDGE Sd/-|JUDGE