The Calicut City Service Co-op Bank Ltd, Calicut v. ACIT, Calicut

ITA 809/COCH/2013 | 2007-2008
Pronouncement Date: 14-11-2014

Appeal Details

RSA Number 80921914 RSA 2013
Assessee PAN AACCT8810G
Bench Cochin
Appeal Number ITA 809/COCH/2013
Duration Of Justice 10 month(s) 17 day(s)
Appellant The Calicut City Service Co-op Bank Ltd, Calicut
Respondent ACIT, Calicut
Appeal Type Income Tax Appeal
Pronouncement Date 14-11-2014
Appeal Filed By Assessee
Bench Allotted DB
Tribunal Order Date 14-11-2014
Date Of Final Hearing 15-10-2014
Next Hearing Date 15-10-2014
Assessment Year 2007-2008
Appeal Filed On 27-12-2013
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE S/SHRI N.R.S.GANESAN JM AND CHANDRA POOJ ARI AM I.T.A. NOS. 809-811/COCH/2013 ASSESSMENT YEARS : 2007-08-2009-10 THE CALICUT CITY SERVICE CO-OP BANK LTD. H.O. CITY BANK JUNCTION CHALAPPURAM KOZHIKODE-673 002. [PAN:AACCT 8810G] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-1(1) KOZHIKODE. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI R. KRISHNA IYER CA . REVENUE BY SHRI M. ANIL KUMAR CIT(DR) DATE OF HEARING 15/10/2014 DATE OF PRONOUNCEMENT 14/11/2014 O R D E R PER CHANDRA POOJARI ACCOUNTANT MEMBER: THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST THE DIFFERENT ORDERS PASSED BY THE CIT U/S. 263 OF THE ACT FOR THE ASSESSMENT YEARS 2007-08 TO 2009-10. 2. SINCE THE ISSUES INVOLVED IN ALL THESE APPEAL S ARE IDENTICAL IN NATURE THESE WERE CLUBBED TOGETHER HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A. NOS. 809-811COCH/2013 2 4. THE FACTS ARE IDENTICAL IN ALL THESE APPEALS WE CONSIDER THE FACTS AS NARRATED IN I.T.A. NO. 809/COCH/2013. THE ASSESSIN G OFFICER OBSERVED FROM THE RECORDS THAT THE ASSESSEE HAD DEBITED RS.1 15 7 40/- IN THE P&L ACCOUNT AS PROVISION FOR BAD AND DOUBTFUL DEBTS AND CREDITE D BACK RS.56 931/- AS REMOVAL FOR BAD DEBTS LEAVING A NET DEBT OF RS.58 8 09/-. WHILE COMPLETING THE ASSESSMENT FOR THE A.Y. 2007-08 THE ASSESSING OFFICER HAD ALLOWED DEDUCTION U/S. 36(1)(VIIA) AMOUNTING TO RS. 83 444/ - AND NO ADDITION WAS DONE ON THIS ACCOUNT. HOWEVER BASED ON THE DECISI ON OF THE KERALA HIGH COURT IN THE CASE OF LORD KRISHNA BANK VS. CIT (339 ITR 606) NONE OF THE BRANCHES OF THE ASSESSEE BANK IS ELIGIBLE TO BE TRE ATED AS RURAL BRANCH OF THE BANK. 4.1 ACCORDING TO CIT THE DEDUCTION OF RS.58 809/- ALLOWED U/S. 36(1)(VIIA) IN RESPECT O THE PROVISION FOR BAD AND DOUBTFUL DEBTS BY THE ASSESSING OFFICER WAS NOT CORRECT IN VIEW OF THE JU DGMENT OF THE SUPREME COURT DATED 17-02-2012 IN THE CASE OF CATHOLIC SYRI AN BANK LTD. WHEREIN IT WAS HELD THAT THE LEGISLATIVE INTENT OF SEC. 36(1)( VIIA) WAS TO ENCOURAGE RURAL ADVANCES AND THE MAKING OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS IN RELATION TO SUCH RURAL BRANCHES. THE FUNCTIONING O F THE BANK IS SUCH THAT THE RURAL BRANCHES AND THE MAKING OF PROVISIONS FOR BAD AND DOUBTFUL DEBTS WERE TREATED AS A DISTINCT BUSINESS. IN THIS REGAR D THE APEX COURT HAS HELD THAT CLAUSE (VIIA) APPLIES ONLY TO RURAL ADVANCES . HE WAS OF THE OPINION I.T.A. NOS. 809-811COCH/2013 3 THAT THE DEDUCTION AS PER CLAUSE (VIIA) OF SUB-SECT ION(1) OF SEC. 36 APPLIES TO RURAL BRANCHES OF THE BANKS ONLY AND CONSEQUENTL Y THE DEDUCTION OF NOT EXCEEDING 7.5% OF THE TOTAL INCOME CONTEMPLATED THE REIN SHOULD BE LIMITED TO THE ACTUAL PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE BOOKS OF ACCOUNTS IN RESPECT OF SUCH RURAL BRANCHES ONLY. T HEREFORE AS PER THE DECISION OF THE SUPREME COURT DEDUCTION U/S. 36(1 )(VIIA) IS APPLICABLE ONLY TO RURAL ADVANCES. HOWEVER THE ASSESSING OFFICER WAS SEEN TO HAVE ALLOWED DEDUCTION U/S. 36(1)(VIIA) AMOUNTING TO RS. 58 809/- EVEN THOUGH THE ASSESSEE WAS NOT ENTITLED FOR THE SAME SINCE TH E ASSESSEE BANK HAS NO RURAL BRANCHES. THEREFORE THE ORDER PASSED U/S. 14 3(3) IN THIS CASE WAS CONSIDERED AS BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE BY CIT. 4.2 ACCORDING TO CIT THE ASSESSING OFFICER HAS NOT APPLIED HIS MIND NOR CONDUCTED PROPER ENQUIRY/VERIFICATION AT THE TIME O F SCRUTINY ASSESSMENT. HE OBJECTED THAT LACK OF ENQUIRY ON THE PART OF THE ASSESSING OFFICER RENDERS THE ORDER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE. THEREFORE BY INVOKING THE POWERS VESTED U/S. 263 O F THE I.T. ACT HE ISSUED NOTICE DATED 19-08-2013 WHICH WAS DULY SERVED. 5. BEFORE THE CIT THE LD. AR SUBMITTED THAT FOR RE VISION U/S. 263 THE ORDER SOUGHT TO BE REVISED MUST BE ERRONEOUS AND PR EJUDICIAL TO THE INTEREST I.T.A. NOS. 809-811COCH/2013 4 OF REVENUE ARISING OUT OF LACK OF ENQUIRY. THE LD. AR FURTHER STATED THAT IN THE INSTANT CASE THE ORDER WAS NOT ERRONEOUS. THE LD. AR RELIED ON THE DECISIONS OF HIGH COURT OF DELHI IN CIT VS. SUNBEAM AUTO LTD. ( 333 ITR 167) AND CIT VS. VIKAS POLYMERS AND ALSO THE DECISI ON OF HIGH COURT OF BOMBAY IN CIT VS. GABRIEL INDIA LTD. (203 ITR 108) WHEREIN IT WAS HELD THAT IN ORDER TO EXERCISE JURISDICTION U/S. 263 THE COM MISSIONER MUST HAVE MATERIAL TO PRIMA FACIE COME TO A CONCLUSION THAT O RDER OF ITO IS ERRONEOUS AS ALSO PREJUDICIAL TO INTEREST OF REVENUE. 6. THE CIT OBSERVED THAT THE DECISION OF THE SUPRE ME COURT IN THE CASE OF CATHOLIC SYRIAN BANK IS EFFECTIVE FROM THE DATE OF JUDGMENT I.E. 17- 02-2012 AND HAS NOW BECOME THE LAW OF THE LAND. A CCORDING TO THE CIT THE SUPREME COURT HAS UNAMBIGUOUSLY HELD THAT DEDUC TION U/S. 36(1)(VIIA) IS ALLOWABLE ONLY IN RESPECT OF PROVISIONS MADE BY RURAL BRANCHES OF THE BANK. THEREFORE AS THE ASSESSEE BANK WAS NOT HAVI NG ANY RURAL BRANCH NO DEDUCTION U/S. 36(1)(VIIA) WAS ALLOWABLE. MOREOVER ACCORDING TO THE CIT THE PROPOSED CLARIFICATORY AMENDMENT IN THIS REGARD WILL APPLY IN RELATION TO THE ASSESSMENT YEAR 2014-15 AND SUBSEQUENT YEARS ON LY AND THEREFORE FOR THE PRECEDING YEARS THE LAW PRONOUNCED BY THE APEX COURT CITED SUPRA IS BINDING AND THEREFORE THE ARGUMENTS RAISED BY THE ASSESSEE WAS NOT ENTERTAINABLE. I.T.A. NOS. 809-811COCH/2013 5 6.1 THE CIT CONCLUDED THAT THE ASSESSING OFFICER HAD FAILED TO CONDUCT PROPER ENQUIRY/VERIFICATION AND HAS ALSO FAILED TO APPLY HIS MIND ON THE RELEVANT ASPECTS AND THEREFORE THE ASSESSMENT ORDE R WAS BOTH ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. THE C IT ALSO OBSERVED THAT SINCE THE SUPREME COURT HAS DECIDED THAT DEDUCTION U/S. 36(1)(VIIA) APPLIES ONLY TO RURAL ADVANCES THE MATTER IS NOW SETTLED F OR ASSESSMENT YEARS UPTO ASSESSMENT YEAR 2014-15 SINCE THE PROPOSED CLARIFIC ATORY AMENDMENT IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2014-15 ONWARD S. THEREFORE THE CIT DIRECTED THE ASSESSING OFFICER TO WITHDRAW THE DEDU CTION OF RS.58 809/- ALLOWED U/S. 36(1)(VIIA) AND TO REVISE THE ASSESSME NT ORDER PASSED U/S. 143(3) ON 14-03-2013 AND TO ISSUE NOTICE OF DEMAND ON THE REVISED TOTAL INCOME. AGAINST THIS THE ASSESSEE IS IN APPEAL B EFORE US. 7. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS DEBIT ED RS.1 15 740/- AS PROVISION FOR BAD DEBTS IN THE P&L AND CREDITED RS.56 931/- AS REMOVAL OF BAD DEBTS. THUS THERE IS A NET DEBIT OF RS.58 80 9 AS REMOVAL OF BAD DEBTS. AS THIS IS WITHIN THE LIMITS PRESCRIBED U/S . 36(1)(VIIA) NO ADDITION IS MADE ON THIS GROUND BY THE ASSESSING OFFICER. THE A SSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER HAS DULY APPLIED HIS M IND BEFORE COMING TO THE CONCLUSION AND AFTER DULY CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE HE HAS PASSED THE ORDER AND HE OPTED NOT TO MAKE AN Y ADDITION ON THIS COUNT. AS SUCH THE CONTENTION MADE BY THE CIT IN HIS ORDER THAT THE I.T.A. NOS. 809-811COCH/2013 6 ASSESSING OFFICER HAS NOT APPLIED HIS MIND IS NOT C ORRECT AND ON THIS GROUND ALONE REVISION OF ASSESSMENT ORDER IS BAD IN LAW AN D IT IS ONLY A CHANGE OF OPINION. 7.1 ACCORDING TO THE LD. AR THE ASSESSING OFFICER HAS TAKEN ONE POSSIBLE VIEW WHICH IS IN ACCORDANCE WITH LAW IT CANNOT BE TREATED AS AN ERRONEOUS ORDER SO FAR AS PREJUDICIAL TO THE REVENUE BY CIT. 7.2 THE LD. AR RELIED ON THE FOLLOWING CASE LAW:- 1) AGRICULTURAL PRODUCE MARKET COMMITTEE VS. ITO ( 2011) 63 DTR (GUJ.) 7 2) KUMAR STORES VS. CIT (2012) 70 DTR (PAT) 144. 3) RRB CONSULTANTS AND ENGINEERS P. LTD. V S. DY CIT (342 ITR 127) (DELHI). 4) CIT VS. TRIMURTI BUILDERS (64 DTR 91) (MP) 5) CIT VS. COMPAQ ELECTRIC LTD. (66 DTR 38 (KAR.) 6) CIT VS. MALABAR INDUSTRIAL CO. LTD. (2 43 ITR 83) (SC) 7) CIT VS. LEISURE WEAR EXPORT LTD. (2010) 46 DTR ( DEL) 97 8) CIT VS. MAHENDRA KUMAR BANSAL (2008) 297 ITR 99 (ALL.) 9. DCIT (ASSESSMENT) VS. KARNATAKA BANK LTD. (349 ITR 705) (SC) 10.SIMPLEX CONCRETE PILES P. LTD. VS. CIT (286 ITR 470) (CAL) 11.J.K. INDUSTRIES VS. ACIT (98 ITD 158 (KOL). 12. LORD KRISHNA BANK LTD. V.S CIT (339 ITR 606) ( KER.). 13. KANNUR DIST. CO-OP BANK LTD. VS. ACIT (136 ITD 102) (COCHIN). 8. THE LD. AR ALSO RELIED ON THE DECISION OF THE C OCHIN BENCH IN I.T.A. NOS. 323&443/COCH/2010 DATED 23-03-2012. I.T.A. NOS. 809-811COCH/2013 7 9. ON THE OTHER HAND THE LD. DR RELIED ON THE ORDE R OF THE CIT PASSED U/S. 263 OF THE I.T. ACT. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMI SSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US AND ALSO GONE THROUGH ALL THE JUDGMENTS CITED BY THE PARTIES BEFORE US. FIRST WE TAKE UP THE LEGAL I SSUE WITH REFERENCE TO THE JURISDICTION OF INVOKING THE PROVISIONS OF SECTION 263 OF THE ACT BY THE LEARNED CIT. THE SCHEME OF THE IT ACT IS TO LEVY AN D COLLECT TAX IN ACCORDANCE WITH THE PROVISIONS OF THE ACT AND THIS TASK IS ENTRUSTED TO THE REVENUE. IF DUE TO ERRONEOUS ORDER OF THE ASSESSING OFFICER THE REVENUE IS LOSING TAX LAWFULLY PAYABLE BY A PERSON IT WILL CE RTAINLY BE PREJUDICIAL TO THE INTEREST OF THE REVENUE. AS HELD IN THE CASE OF MAL ABAR INDUSTRIAL CO. LTD. VS. CIT ( 243 ITR 83) (SC) THE COMMISSIONER CAN EX ERCISE REVISION JURISDICTIONAL U/S 263 IF HE IS SATISFIED THAT THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS (I)ERRONEOUS; AND ALSO (II) PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE WORD ERRONEOUS HAS NOT BEEN D EFINED IN THE INCOME TAX ACT. IT HAS BEEN HOWEVER DEFINED AT PAGE 562 IN BLACKS LAW DICTIONARY (SEVENTH EDITION) THUS; ERRONEOUS ADJ. INVOLVING ERROR DEVIATING FROM TH E LAW. THE WORD ERROR HAS BEEN DEFINED AT THE SAME PAGE IN THE SAME DICTIONARY THUS: ERROR NO. 1 : A PSYCHOLOGICAL STATE THAT DOES NOT CONFORM TO OBJECTIVE REALITY; A BRIEF THAT WHAT IS FALSE IS TRUE OR THAT WHAT IS TRUE IS FALSE. AT PAGE 649/650 IN P. RAMANATHA AIYERS LAW LEXICON REPRINT 2002 THE WORD ERROR HAS BEEN DEFINED TO MEAN- I.T.A. NOS. 809-811COCH/2013 8 ERROR: A MISTAKEN JUDGEMENT OR DEVIATION FROM THE T RUTH IN MATTERS OF FACT AND FROM THE LAW IN MATTERS OF JUDGEMENT ERR OR IS A FAULT IN JUDGEMENT OR IN THE PROCESS OR PROCEEDING TO JUDGE MENT OR IN THE EXECUTION UPON THE SAME IN A COURT OF RECORD; WHICH IN THE CIVIL LAW IS CAL LED A NULLITYIE (TERMES DE LA LEY). SOMETHING INCORRECTLY DONE THROUGH IGNORANCE OR INA DVERTENCE S.99 CPC AND S.215 CR.PC. ERROR FAULT ERROR RESPECTS THE ACT; FAULT RESPECT THE AGENT AN ERROR MAY LAY IN THE JUDGEMENT OR IN THE CONDUCT BUT A FAULT LIES IN THE WILL OR INTENTION. 11. AT PAGE 650 OF THE AFORESAID LAW LEXICON TH E SCOPE OF ERROR MISTAKE BLUNDER AND HALLUCINATION HAS BEEN EXPLAINED THUS: AN ERROR IS ANY DEVIATION FROM THE STANDARD OR COU RSE OF RIGHT TRUTH JUSTICE OR ACCURACY WHICH IS NOT INTENTIONAL. A MI STAKE IS AN ERROR COMMITTED UNDER A MISAPPREHENSION OF MISCONCEPTION OF THE NATURE OF A CASE. AN ERROR MAY BE FROM THE ABSENCE OF KNOWLEDGE A MISTAKE IS FROM INSUFFICIENT OR FALSE OBSERVATION. BLUNDER IS A PRA CTICAL ERROR OF A PECULIARLY GROSS OR AWKWARD KIND COMMITTED THROUGH GLARING IG NORANCE HEEDLESSNESS OR AWKWARDNESS. AN ERROR MAY BE OVERL OOKED OR ATONED FOR A MISTAKE MAY BE RECTIFIED BUT THE SHAME OR RIDICU LE WHICH IS OCCASIONED BY A BLUNDER WHO CAN COUNTERACT. STRICTLY SPEAKING HALLUCINATION IS AN ILLUSION OF THE PERCEPTION A PHANTASM OF THE IMAGI NATION. THE ONE COMES OF DISORDERED VISION THE OTHER OF DISCARDED IMAGIN ATION. IT IS EXTENDED IN MEDICAL SCIENCE TO MATTERS OF SENSATION WHETHER TH ERE IS NO CORRESPONDING CAUSE TO PRODUCE IT. IN ITS ORDINARY USE IT DENOTES AN UNACCOUNTABLE ERROR IN JUDGEMENT OR FACT ESPECIALL Y IN ONE REMARKABLE OTHERWISE FOR ACCURATE INFORMATION AND RIGHT DECISI ON. IT IS EXCEPTIONAL ERROR OR MISTAKE IN THOSE OTHERWISE NOT LIKELY TO B E DECEIVED. 12. IN ORDER TO ASCERTAIN WHETHER AN ORDER SOUG HT TO BE REVISED UNDER SECTION 263 IS ERRONEOUS IT SHOULD BE SEEN WHETHER IT SUFFERS FROM ANY OF THE AFORESAID FORMS OF ERROR. IN OUR VIEW AN OR DER SOUGHT TO BE REVISED UNDER SECTION 263 WOULD BE ERRONEOUS AND FA LL IN THE AFORESAID I.T.A. NOS. 809-811COCH/2013 9 CATEGORY OF 'ERRORS' IF IT IS INTER ALIA BASED ON AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW OR NON- APPLICATION OF MIND TO SOMETHING WHICH WAS OBVIOUS AND REQUIRED APPLICATIO N OF MIND OR BASED ON NO OR INSUFFICIENT MATERIALS SO AS TO AFFECT THE MERITS OF THE CASE AND THEREBY CAUSE PREJUDICE TO THE INTEREST OF THE REVE NUE. 13. SECTION 263 OF THE INCOME-TAX ACT SEEKS TO RE MOVE THE PREJUDICE CAUSED TO THE REVENUE BY THE ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. IT EMPOWERS THE COMMISSIONER TO INITIATE SUO MOTO PROCEEDINGS EITHER WHERE THE ASSESSING OFFICER TAKES A WRONG DE CISION WITHOUT CONSIDERING THE MATERIALS AVAILABLE ON RECORD OR HE TAKES A DECISION WITHOUT MAKING AN ENQUIRY INTO THE MATTERS WHERE S UCH INQUIRY WAS PRIMA FACIE WARRANTED. THE COMMISSIONER WILL BE WEL L WITHIN HIS POWERS TO REGARD AN ORDER AS ERRONEOUS ON THE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE THE ASSESSING OFFICER SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE CLAIM MADE BY THE ASSESSEE IN HIS RETURN. THE REASON IS OBVIOUS. UNLIKE THE CIVIL COURT WHICH IS NEUTRAL IN GIVING A DECISION ON THE BASIS OF EVIDENCE PRODUCED BEFORE I T THE ROLE OF AN ASSESSING OFFICER UNDER THE INCOME-TAX ACT IS NOT O NLY THAT OF AN ADJUDICATOR BUT ALSO OF AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FACE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER ENQUIRY. HE MUST DISCHARGE BOTH THE ROLES EFFECTIVE LY. IN OTHER WORDS HE I.T.A. NOS. 809-811COCH/2013 10 MUST CARRY OUT INVESTIGATION WHERE THE FACTS OF THE CASE SO REQUIRE AND ALSO DECIDE THE MATTER JUDICIOUSLY ON THE BASIS OF MATERIALS COLLECTED BY HIM AS ALSO THOSE PRODUCED BY THE ASSESSEE BEFORE H IM. THE SCHEME OF ASSESSMENT HAS UNDERGONE RADICAL CHANGES IN RECENT YEARS. IT DESERVES TO BE NOTED THAT THE PRESENT ASSESSMENT WAS MADE U/ S. 143(3) OF THE INCOME-TAX ACT. IN OTHER WORDS THE ASSESSING OFFIC ER WAS STATUTORILY REQUIRED TO MAKE THE ASSESSMENT UNDER SECTION 143(3 ) AFTER SCRUTINY AND NOT IN A SUMMARY MANNER AS CONTEMPLATED BY SUB- SECTION (1) OF SECTION 143. BULK OF THE RETURNS FILED BY THE ASSES SEES ACROSS THE COUNTRY IS ACCEPTED BY THE DEPARTMENT UNDER SECTION 143(1) WITHOUT ANY SCRUTINY. ONLY A FEW CASES ARE PICKED UP FOR SC RUTINY. THE ASSESSING OFFICER IS THEREFORE REQUIRED TO ACT FAIRLY WHILE ACCEPTING OR REJECTING THE CLAIM OF THE ASSESSEE IN CASES OF SCRUTINY ASSESSME NTS. HE SHOULD BE FAIR NOT ONLY TO THE ASSESSEE BUT ALSO TO THE PUBLIC EXCH EQUER. THE ASSESSING OFFICER HAS GOT TO PROTECT ON ONE HAND THE INTERE ST OF THE ASSESSEE IN THE SENSE THAT HE IS NOT SUBJECTED TO ANY AMOUNT OF TAX IN EXCESS OF THAT IS LEGITIMATELY DUE FROM HIM AND ON THE OTHER HAND HE HAS A DUTY TO PROTECT THE INTERESTS OF THE REVENUE AND TO SEE THA T NO ONE DODGED THE REVENUE AND ESCAPED WITHOUT PAYING THE LEGITIMATE T AX. THE ASSESSING OFFICER IS NOT EXPECTED TO PUT BLINKERS ON HIS EYES AND MECHANICALLY ACCEPT WHAT THE ASSESSEE CLAIMS BEFORE HIM. IT IS H IS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED AND THE GENUINENESS O F THE CLAIMS MADE IN I.T.A. NOS. 809-811COCH/2013 11 THE RETURN WHEN THE CIRCUMSTANCES OF THE CASE ARE S UCH AS TO PROVOKE INQUIRY. ARBITRARINESS IN EITHER ACCEPTING OR REJEC TING THE CLAIM HAS NO PLACE. THE ORDER PASSED BY THE ASSESSING OFFICER BE COMES ERRONEOUS BECAUSE AN ENQUIRY HAS NOT BEEN MADE OR GENUINENESS OF THE CLAIM HAS NOT BEEN EXAMINED WHERE THE INQUIRIES OUGHT TO HAVE BEEN MADE AND THE GENUINENESS OF THE CLAIM OUGHT TO HAVE BEEN EXA MINED AND NOT BECAUSE THERE IS ANYTHING WRONG WITH HIS ORDER IF A LL THE FACTS STATED OR CLAIM MADE THEREIN ARE ASSUMED TO BE CORRECT. THE C OMMISSIONER MAY CONSIDER AN ORDER OF THE ASSESSING OFFICER TO BE ER RONEOUS NOT ONLY WHEN IT CONTAINS SOME APPARENT ERROR OF REASONING O R OF LAW OR OF FACT ON THE FACE OF IT BUT ALSO WHEN IT IS A STEREO-TYPE D ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED IN HIS RETURN AND FAILS TO MAKE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM W HICH ARE CALLED FOR IN THE CIRCUMSTANCES OF THE CASE. IN TAKING THE AFO RESAID VIEW WE ARE SUPPORTED BY THE DECISIONS OF THE HON'BLE SUPREME C OURT IN RAMPYARI DEVI SARAOGI V. CIT (67 ITR 84) (SC) SMT. TARA DEV I AGGARWAL V. CIT ITR 323) (SC) AND MALABAR INDUSTRIAL CO. LTD'S CAS E ( 243 ITR 83) (SC). 14. IN MALABAR INDUSTRIAL CO. LTD. CASE THE HON' BLE COURT HAS HELD AS UNDER: THERE CAN BE NO DOUBT THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED B Y THE ASSESSING OFFICER IT IS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECT ION WILL BE ATTRACTED. AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLI CATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. IN TH E SAME CATEGORY FALL THE ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NA TURAL JUSTICE OR WITHOUT I.T.A. NOS. 809-811COCH/2013 12 APPLICATION OF MIND. IN OUR HUMBLE VIEW ARBITRARIN ESS IN DECISION-MAKING WOULD ALWAYS NEED CORRECTION REGARDLESS OF WHETHER IT CAUSES PREJUDICE TO AN ASSESSEE OR TO THE STATE EXCHEQUER. THE LEGISLATU RE HAS TAKEN AMPLE CARE TO PROVIDE FOR THE MECHANISM TO HAVE SUCH PREJ UDICE REMOVED. WHILE AN ASSESSEE CAN HAVE IT CORRECTED THROUGH REVISIONA L JURISDICTION OF THE COMMISSIONER UNDER SECTION 264 OR THROUGH APPEALS A ND OTHER MEANS OF JUDICIAL REVIEW THE PREJUDICE CAUSED TO THE STATE EXCHEQUER CAN ALSO BE CORRECTED BY INVOKING REVISIONAL JURISDICTION OF TH E COMMISSIONER UNDER SECTION 263. ARBITRARINESS IN DECISION-MAKING CAUSI NG PREJUDICE TO EITHER PARTY CANNOT THEREFORE BE ALLOWED TO STAND AND STAR E AT THE LEGAL SYSTEM. IT IS DIFFICULT TO COUNTENANCE SUCH ARBITRARINESS IN T HE ACTIONS OF THE ASSESSING OFFICER. IT IS THE DUTY OF THE ASSESSING OFFICER TO ADEQUATELY PROTECT THE INTEREST OF BOTH THE PARTIES NAMELY THE ASSESSEE AS WELL AS THE STATE. IF HE FAILS TO DISCHARGE HIS DUTIES FAIRLY HIS ARBITRARY ACTIONS CULMINATING IN ERRONEOUS ORDERS CAN ALWAYS BE CORRECTED EITHER AT THE INSTANCE OF THE ASSESSEE IF THE ASSESSEE IS PREJUDICED OR AT THE I NSTANCE OF THE COMMISSIONER IF THE REVENUE IS PREJUDICED. WHILE M AKING AN ASSESSMENT THE ITO HAS A VARIED ROLE TO PLAY. HE IS THE INVEST IGATOR PROSECUTOR AS WELL AS ADJUDICATOR. AS AN ADJUDICATOR HE IS AN ARBITRAT OR BETWEEN THE REVENUE AND THE TAXPAYER AND HE HAS TO BE FAIR TO BOTH. HIS DUTY TO ACT FAIRLY REQUIRES THAT WHEN HE ENQUIRES INTO A SUBSTANTIAL M ATTER LIKE THE PRESENT ONE HE MUST RECORD A FINDING ON THE RELEVANT ISSUE GIVING HOWSOEVER BRIEFLY HIS REASONS THEREFOR. IN S.N. MUKHERJEE V. UNION OF INDIA AIR 1990 SC 1984 IT HAS BEEN OBSERVED BY THE HON'BLE SUPREM E COURT AS FOLLOWS: REASONS WHEN RECORDED BY AN ADMINISTRATIVE AUTHOR ITY IN AN ORDER PASSED BY IT WHILE EXERCISING QUASI-JUDICIAL FUNCTIONS WO ULD NO DOUBT FACILITATE THE EXERCISE OF ITS JURISDICTION BY THE APPELLATE OR SU PERVISORY AUTHORITY. BUT THE OTHER CONSIDERATIONS REFERRED TO ABOVE WHICH HAVE ALSO WEIGHED WITH THIS COURT IN HOLDING THAT AN ADMINISTRATIVE AUTHORITY M UST RECORD REASONS FOR ITS DECISION ARE OF NO LESS SIGNIFICANCE. THESE CONSIDE RATIONS SHOW THAT THE RECORDING OF REASONS BY AN ADMINISTRATIVE AUTHORITY SERVES A SALUTARY PURPOSE NAMELY IT EXCLUDES CHANCES OR ARBITRARINE SS AND ENSURES A DEGREE OF FAIRNESS IN THE PROCESS OF DECISION-MAKING. THE SAID PURPOSE WOULD APPLY EQUALLY TO ALL DECISIONS AND ITS APPLICATION CANNOT BE CONFINED TO DECISIONS WHICH ARE SUBJECT TO APPEAL REVISION OR JUDICIAL R EVIEW. IN OUR OPINION THEREFORE THE REQUIREMENT THAT REASONS BE RECORDED SHOULD GOVERN THE DECISIONS OF AN ADMINISTRATIVE AUTHORITY EXERCISING QUASI-JUDICIAL FUNCTIONS IRRESPECTIVE OF THE FACT MAY HOWEVER BE ADDED THA T IT IS NOT REQUIRED THAT THE REASONS SHOULD BE AS ELABORATE AS IN THE DECISI ON OF A COURT OF LAW. THE EXTENT AND NATURE OF THE REASONS WOULD DEPEND ON PA RTICULAR FACTS AND CIRCUMSTANCES. WHAT IS NECESSARY IS THAT THE REASON S ARE CLEAR AND EXPLICIT SO AS TO INDICATE THAT THE AUTHORITY HAS GIVEN DUE CONSIDERATION TO THE POINTS IN CONTROVERSY. THE NEED FOR RECORDING OF RE ASONS IS GREATER IN A CASE I.T.A. NOS. 809-811COCH/2013 13 WHERE THE ORDER IS PASSED AT THE ORIGINAL STAGE. TH E APPELLATE OR REVISIONAL AUTHORITY IF IT AFFIRMS SUCH AN ORDER NEED NOT GI VE SEPARATE REASONS IF THE APPELLATE OR REVISIONAL AUTHORITY AGREES WITH THE R EASONS CONTAINED IN THE ORDER UNDER CHALLENGE. 15. SIMILAR VIEW WAS EARLIER TAKEN BY THE HON'BLE SUPREME COURT IN SIEMENS ENGG. & MFG. CO. LTD. V. UNION OF INDIA AIR 1976 SC 1785. IT IS SETTLED LAW THAT WHILE MAKING ASSESSMENT ON ASSESSE E THE ITO ACTS IN A QUASI-JUDICIAL CAPACITY. AN ASSESSMENT ORDER IS AME NABLE TO APPEAL BY THE ASSESSEE AND TO REVISION BY THE COMMISSIONER UNDER SECTIONS 263 AND 264. THEREFORE A REASONED ORDER ON A SUBSTANTIAL ISSUE IS LEGALLY NECESSARY. THE JUDGMENTS ON WHICH RELIANCE WAS PLACED BY THE LEARN ED COUNSEL FOR THE ASSESSEE ALSO POINTS TO THE SAME DIRECTION. THEY HA VE HELD THAT ORDERS WHICH ARE SUBVERSIVE OF THE ADMINISTRATION OF REVEN UE MUST BE REGARDED AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. IF THE ASSESSING OFFICERS ARE ALLOWED TO MAKE ASSESSMENTS IN AN ARBI TRARY MANNER AS HAS BEEN DONE IN THE CASE BEFORE US THE ADMINISTRATION OF REVENUE IS BOUND TO SUFFER. IF WITHOUT DISCUSSING THE NATURE OF THE TRA NSACTION AND MATERIALS ON RECORD THE ASSESSING OFFICER HAD MADE CERTAIN ADDI TION TO THE INCOME OF THE ASSESSEE THE SAME WOULD HAVE BEEN CONSIDERED E RRONEOUS BY ANY APPELLATE AUTHORITY AS BEING VIOLATIVE OF THE PRINC IPLES OF NATURAL JUSTICE WHICH REQUIRE THAT THE AUTHORITY MUST INDICATE THE REASONS FOR AN ADVERSE ORDER. WE FIND NO REASON WHY THE SAME VIEW SHOULD N OT BE TAKEN WHEN AN ORDER IS AGAINST THE INTERESTS OF THE REVENUE. AS A MATTER OF FACT SUCH ORDERS I.T.A. NOS. 809-811COCH/2013 14 ARE PREJUDICIAL TO THE INTERESTS OF BOTH THE PARTIE S BECAUSE EVEN THE ASSESSEE IS DEPRIVED OF THE BENEFIT OF A POSITIVE F INDING IN HIS FAVOUR THOUGH HE MAY HAVE SUFFICIENTLY ESTABLISHED HIS CASE. 16. IN VIEW OF THE FOREGOING IT CAN SAFELY BE SAID THAT AN ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS AND PREJ UDICIAL TO THE INTERESTS OF THE REVENUE UNDER SECTION 263 IN THE FOLLOWING C ASES: (I) THE ORDER SOUGHT TO BE REVISED CONTAINS ERRO R OF REASONING OR OF LAW OR OF FACT ON THE FACE OF IT. (II) THE ORDER SOUGHT TO BE REVISED PROCEEDS ON INCORRECT ASSUMPTION OF FACTS OR INCORRECT APPLICATION OF LAW. IN THE SA ME CATEGORY FALL ORDERS PASSED WITHOUT APPLYING THE PRINCIPLES OF NATURAL J USTICE OR WITHOUT APPLICATION OF MIND. (III) THE ORDER PASSED BY THE ASSESSING OFFICER IS A STEREOTYPE ORDER WHICH SIMPLY ACCEPTS WHAT THE ASSESSEE HAS STATED I N HIS RETURN OR WHERE HE FAILS TO MAKE THE REQUISITE ENQUIRIES OR EXAMINE THE GENUINENESS OF THE CLAIM WHICH IS CALLED FOR IN THE CIRCUMSTANCES OF T HE CASE. 17. WE SHALL NOW TURN TO THE FACTS OF THE CASE TO SEE WHETHER THE CASE BEFORE US IS COVERED BY THE AFORESAID PRINCIPLES. A PERUSAL OF THE I.T.A. NOS. 809-811COCH/2013 15 ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER DO ES NOT SHOW ANY APPLICATION OF MIND ON HIS PART ON THIS ISSUE. THIS IS A CASE WHERE THE ASSESSING OFFICER MECHANICALLY ACCEPTED WHAT THE AS SESSEE WANTED HIM TO ACCEPT WITHOUT ANY APPLICATION OF MIND OR ENQUIRY O N THIS ISSUE. THE EVIDENCE AVAILABLE ON RECORD IS NOT ENOUGH TO HOLD THAT THE RETURN OF THE ASSESSEE WAS OBJECTIVELY EXAMINED OR CONSIDERED BY THE ASSESSING OFFICER RELATING TO THIS ISSUE. IT IS BECAUSE OF SUCH NON C ONSIDERATION OF THIS ISSUE ON THE PART OF THE ASSESSING OFFICER THAT MADE THE ASSESSMENT ORDER ERRONEOUS SO FAR AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE ASSESSMENT ORDER PLACED BEFORE US IS CLEARLY ERRONE OUS AS IT WAS PASSED WITHOUT PROPER EXAMINATION OR ENQUIRY OR VERIFICATI ON OR OBJECTIVE CONSIDERATION OF THE CLAIM MADE BY THE ASSESSEE WIT H REFERENCE TO DEDUCTION U/S. 36(1)(VIIA) OF THE ACT. THE ASSESSIN G OFFICER HAS COMPLETELY OMITTED TO EXAMINE THIS ISSUE IN QUESTION FROM CONS IDERATION AND MADE THE ASSESSMENT IN AN ARBITRARY MANNER. HIS ORDER IS A C OMPLETELY NON-SPEAKING ORDER ON THIS ISSUE. IN OUR VIEW IT WAS A FIT CASE FOR THE LEARNED COMMISSIONER TO EXERCISE HIS REVISIONAL JURISDICTIO N UNDER SECTION 263 WHICH HE RIGHTLY EXERCISED BY CANCELLING THE ASSESSMENT O RDER AND DIRECTING THE ASSESSING OFFICER TO PASS A FRESH ORDER CONSIDERING THE ISSUES RAISED BY THE CIT. IN OUR VIEW THE ASSESSEE SHOULD HAVE NO GRIEV ANCE IN THE ACTION OF LEARNED COMMISSIONER IN EXERCISING THE JURISDICTION U/S. 263 OF THE IT ACT. I.T.A. NOS. 809-811COCH/2013 16 18. IT WAS HOWEVER CONTENDED BY THE LEARNED COUN SEL THAT THE ASSESSING OFFICER HAD TAKEN A POSSIBLE VIEW IN ACCEPTING THE RETURN OF THE ASSESSEE WITH REFERENCE TO EXPENDITURE AND HENCE THE COMMIS SIONER WAS NOT JUSTIFIED IN ASSUMING THE REVISIONAL JURISDICTION U NDER SECTION 263. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE AFORESAID SUBMISSIONS. AS ALREADY STATED EARLIER AN ORDER BECOMES ERRONEOUS BECAUSE INQUIRIES WHICH OUGHT TO HAVE BEEN MADE ON THE FACTS OF THE CASE WERE NO T MADE AND NOT BECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF A LL THE FACTS STATED OR THE CLAIMS MADE IN THE RETURN ARE ASSUMED TO BE CORRECT . THUS IT IS MERE FAILURE ON THE PART OF THE ASSESSING OFFICER TO MAKE THE NE CESSARY INQUIRIES OR TO EXAMINE THE CLAIM MADE BY THE ASSESSEE IN ACCORDANC E WITH LAW WHICH RENDERS THE RESULTANT ORDER ERRONEOUS AND PREJUDICI AL TO THE INTEREST OF THE REVENUE. NOTHING MORE IS REQUIRED TO BE ESTABLISHED IN SUCH A CASE. ONE WOULD NOT KNOW AS TO WHAT WOULD HAVE HAPPENED IF TH E ASSESSING OFFICER HAD MADE THE REQUISITE INQUIRIES OR EXAMINED THE CL AIM OF THE ASSESSEE IN ACCORDANCE WITH LAW. HE COULD HAVE ACCEPTED THE ASS ESSEE'S CLAIM. EQUALLY HE COULD HAVE ALSO REJECTED THE ASSESSEE'S CLAIM DE PENDING UPON THE RESULTS OF HIS ENQUIRY OR EXAMINATION INTO THE CLAIM OF THE ASSESSEE. THUS THE FORMATION OF ANY VIEW BY THE ASSESSING OFFICER WOUL D NECESSARILY DEPEND UPON THE RESULTS OF HIS INQUIRY AND CONSCIOUS AND NOT PASSIVE EXAMINATION INTO THE CLAIM OF THE ASSESSEE. IF THE ASSESSING OF FICER PASSES AN ORDER MECHANICALLY WITHOUT MAKING THE REQUISITE INQUIRIES OR EXAMINING THE CLAIM I.T.A. NOS. 809-811COCH/2013 17 OF THE ASSESSEE IN ACCORDANCE WITH LAW SUCH AN ORD ER WILL CLEARLY BE ERRONEOUS IN LAW AS IT WOULD NOT BE BASED ON OBJECT IVE CONSIDERATION OF THE RELEVANT MATERIALS. IT IS THEREFORE THE MERE FAILU RE ON THE PART OF THE ASSESSING OFFICER IN NOT MAKING THE INQUIRIES OR NO T EXAMINING THE CLAIM OF THE ASSESSEE IN ACCORDANCE WITH LAW THAT PER SE REN DERS THE RESULTANT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. NOTHING ELSE IS REQUIRED TO BE ESTABLISHED IN SUCH A CASE TO SHOW T HAT THE ORDER SOUGHT TO BE REVISED IS ERRONEOUS AND PREJUDICIAL TO THE INTE RESTS OF THE REVENUE. 19. IN THIS CASE ADMITTEDLY THE ASSESSING OFF ICER FAILED TO EXAMINE PROPERLY THE ISSUE RELATING TO DEDUCTION U/S. 36(1) (VIIA) OF THE ACT. BEING SO IN OUR OPINION THE INVOCATION OF REVISIONS PRO CEEDINGS U/S. 263 OF THE ACT AND THEREAFTER THE DIRECTION TO MAKE FURTHER AD DITION AND MODIFY THE ASSESSMENT ORDER AS DISCUSSED IN EARLIER PARA IS JUSTIFIED. 20. AS ALREADY DISCUSSED THE ASSESSMENT ORDER IS E RRONEOUS BECAUSE THERE IS WRONG ASSUMPTION OF FACTS BY THE ASSESSING OFFICER WHICH RENDERS THE RESULTANT ORDER ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE. THE FORMATION OF VIEW BY THE ASSESSING OFFICER IS I NCORRECT WHICH WARRANTED THE EXERCISE OF JURISDICTION BY THE CIT U/S. 263 OF THE I.T. ACT. AS SUCH WE ARE UNABLE TO ACCEPT THE SUBMISSION OF THE LD. AR A ND ACCORDINGLY WE ARE I.T.A. NOS. 809-811COCH/2013 18 INCLINED TO UPHOLD THE ORDER OF THE CIT ON THIS ISS UE IN ITS ENTIRETY AND DISMISS THE GROUND TAKEN BY THE ASSESSEE. 21. SINCE THE FACTS AND CIRCUMSTANCES FOR THE ASSES SMENT YEAR 2007-08 ARE SIMILAR FOLLOWING THE ABOVE FINDINGS FOR THE A SSESSMENT YEAR 2008-09 AND 2009-10 WE ARE INCLINED TO DISMISS THIS GROUND IN BOTH THE APPEALS. 22. ON MERIT THE LD. AR SUBMITTED THAT THE CLAIM H AS BEEN MADE U/S. 80P WHICH WAS REJECTED AND THE DEDUCTION ALLOWABLE U/S. 36(1)(VIIA) WAS ALLOWED. THE LD. AR REFERRED TO EXPLANATION (IA) O F CHAPTER VIA RURAL BRANCH WHICH MEANS A BRANCH OF A SCHEDULED BANK (OR A NON-SCHEDULED BANK) SITUATED IN A PLACE WHICH HAS A POPULATION OF NOT MORE THAN TEN THOUSAND ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR. THE LD. AR SUBMITTED THAT THE CO-OPERATIVE BANKS ARE NO T INCLUDED IN THE DEFINITION OF PLACE AND HENCE THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF LORD KRISHNA BANK VS. CIT (339 ITR 606) WAS NOT APPLICABLE TO THE ASSESSEES CASE AND HENCE WAS ELIGIBLE FOR DEDUCTIO N U/S. 36(1)(VIIA) OF THE ACT. 23. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION IN THE CASE OF KANNUR CO- I.T.A. NOS. 809-811COCH/2013 19 OPERATIVE BANK LTD. IN I.T.A. NOS. 182&183/COCH/201 4 DATED 27/06/2014 WHEREIN THE TRIBUNAL HELD AS UNDER: 3. THE ASSESSEE RAISED THE GROUND IN BOTH THE APPE ALS THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE WAS NOT E NTITLED TO DEDUCTION OF 10% OF THE AGGREGATE AVERAGE ADVANCES MADE BY ITS RURAL BRANCHES U/S. 36(1)(VIIA) OF THE I.T. ACT. 4. AFTER HEARING BOTH THE PARTIES WE ARE OF THE OP INION THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE HONBLE JURIS DICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE IN I.T.A. NOS. 179 /2012 33 37 238 241 243 254&258 OF 2013 VIDE ITS JUDGMENT DATED 3 RD APRIL 2014. THE HONBLE JURISDICTIONAL HIGH COURT HELD AS UNDER: 8. SECTION 36 OF THE ACT DEALS WITH VARIOUS DEDUCT IONS THAT COULD BE ALLOWED IN COMPUTING THE INCOME REFERRED TO IN SECT ION 28 OF THE ACT. SECTION 36 HAS VARIOUS CLAUSES AND EACH CLAUSE REFE RS TO DEDUCTION ALLOWABLE TO A PARTICULAR ASSESSEE LIKE AMOUNT OF P REMIUM PAID IN RESPECT OF INSURANCE AGAINST RISK OF DAMAGES FEDER AL MILK CO- OPERATIVE SOCIETY GENERAL INSURANCE ETC. WE ARE CO NCERNED WITH SUB- CLAUSE (A) OF CLAUSE (VIIA) TO SECTION 36(1). THIS CLAUSE MAKES PROVISION FOR BAD AND DOUBTFUL DEBTS. IN OTHER WORD S DEDUCTION COULD BE CLAIMED BY BANKS REFERRED TO IN CLAUSE (VIIA) IN RESPECT OF BAD AND DOUBTFUL DEBTS. IT PROVIDES CERTAIN TERMS AND C ONDITIONS UNDER WHICH SUCH DEDUCTIONS COULD BE CLAIMED BY A PARTICU LAR BANK. SECTION 36(1)(VIIA) COMMENCES WITH FOLLOWING WORDS IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL DEBT MADE BY AN D SUB-CLAUSE (A) READS AS UNDER: A SCHEDULED BANK NOT BEING A BANK APPROVED BY CENT RAL GOVERNMENT FOR THE PURPOSES OF CLAUSE (VIIIA) OR A BANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTS IDE INDIA OR A NON-SCHEDULED BANK OR A CO-OPERATIVE BANK OTHER THA N A BANK OR A CO-OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTUR AL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK AN AMOUNT NOT EXCEEDING SEVEN AND ONE-HALF PERCENT OF THE TOTAL INCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND CHAPTER VIA) AND AN AMOUNT NOT EXCEEDING TEN PERCENT OF THE AGGREGATE AVERAGE ADVA NCES MADE BY THE RURAL BRANCHES OF SUCH BANK COMPUTED IN THE PRESCRIBED MANNER. UNDER EXPLANATION TO SECTION 36 FOR BETTER UNDERSTA NDING OF CERTAIN TERMS USED IN SUB-CLAUSE (A) OF CLAUSE (VIIA) DEFIN ITIONS ARE PROVIDED. I.T.A. NOS. 809-811COCH/2013 20 FOR THE PURPOSE OF THE ABOVE APPEALS WE NEED TO KN OW WHAT EXACTLY NON-SCHEDULED BANK RURAL BRANCH CO-OPERATIVE BANK AND SCHEDULED BANK MEAN AS PER THE EXPLANATION WHICH READ AS UNDE R: NON-SCHEDULED BANK MEANS A BANKING COMPANY AS DEF INED UNDER CLAUSE (C) OF SECTION 5 OF THE BANKING REGULATION A CT 1949 WHICH IS NOT A SCHEDULED BANK. . RURAL BRANCH MEANS A BRANCH OF A SCHEDULED BANK O R A NON- SCHEDULED BANK SITUATED IN A PLACE WHICH HAS A POPU LATION OF NOR MORE THAN TEN THOUSAND ACCORDING TO THE LAST PRECEDING C ENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIR ST DAY OF THE PREVIOUS YEAR. CO-OPERATIVE BANK PRIMARY AGRICULTURAL CREDIT SO CIETY AND PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN K SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED TO THEM IN THE EXPLA NATION TO SUB- SECTION (4) OF SECTION 80P. SCHEDULED BANK MEANS A BANK FOR THE TIME BEING IN CLUDED IN THE SECOND SCHEDULE TO THE RESERVE BANK OF INDIA ACT. IN ORDER TO UNDERSTAND WHAT IS A BANKING COMPANY O NE HAS TO REFER TO BANKING REGULATION ACT AND TO UNDERSTAND WHETHER A PARTICULAR BANK IS A SCHEDULED BANK ONE HAS TO SEE WHETHER SUCH BANK FINDS A PLACE IN THE SECOND SCHEDULE TO RESERVE BANK OF INDIA ACT. C OOPERATIVE BANK MEANS A BANK AS EXPLAINED UNDER SUB-SECTION (4) OF SECTION 80P OF THE ACT. SECTION 5(C) OF BANKING REGULATION ACT DEFINES BANKING COMPANY AS UNDER: BANKING COMPANY MEANS ANY COMPANY WHICH TRANSACTS THE BUSINESS OF BANKING IN INDIA. U/S. 80P IT AGAIN REFERS TO SECTION 56 OF BANKING REGULATION ACT. U/S. 56 FALLING UNDER CHAPTER V OF BANKING REGULAT ION ACT ENTIRE PROVISIONS DEAL WITH CO-OPERATIVE SOCIETIES. SECTIO N 56 SAYS AFTER CLAUSE (CC) CLAUSE (CCI) DEFINITION OF CO-OPERATIVE BANK IS TO BE INCLUDED. SECTION 56(C) OF BANKING REGULATION ACT SAYS: IN SECTION 5:- (I) AFTER CLAUSE (CC) THE FOLLOWING CLAUSE SHALL B E INSERTED NAMELY:- (CCI) CO-OPERATIVE BANK MEANS A STATE CO-OPERATIV E BANK A CENTRAL CO- OPERATIVE BANK AND A PRIMARY COOPERATIVE BANK. I.T.A. NOS. 809-811COCH/2013 21 MEANING OF DIFFERENT TERMS USEFUL FOR THE PURPOSE O F DECIDING THE CONTROVERSY ONE HAS TO SEE HOW PRESENCE OF A PARTI CULAR TERM IN A PARTICULAR PROVISION AND SIMULTANEOUSLY BEING ABSEN T IN THE EXPLANATION TO THE SAID PROVISION WOULD CHANGE THE POSITION OF THE APPELLATE BANKS WITH REFERENCE TO THE CONTEXT. 9. ADMITTEDLY APPELLANTS/ASSESSEES ARE CO-OPERATIV E BANKS. WITH INTRODUCTION OF FINANCE ACT OF 2007 COMING INTO EF FECT FROM 01.04.2007 ONE HAS TO UNDERSTAND WHAT WAS THE POSITION PRIOR T O 01.04.2007 AND AFTER 01.04.2007 THEY WERE ENJOYING THE BENEFITS P ROVIDED U/S. 80P. WITH THE INTRODUCTION OF FINANCE ACT 2007 WITH EFFECT FR OM 01.04.2007 THEY COULD CLAIM DEDUCTIONS AS PROVIDED U/S. 36(1) OF TH E ACT. WE ARE CONCERNED WITH SUB-CLAUSE(A) OF CLAUSE (VIIA) TO SE CTION 36(1). PRIOR TO FINANCE ACT OF 2007 CO-OPERATIVE BANK WAS NOT INCL UDED IN SUBCLAUSE (A) SO FAR AS PROVISIONS FOR BAD AND DOUBTFUL DEBTS . WITH EFFECT FROM 01.04.2007 CO-OPERATIVE BANK WAS INCLUDED UNDER SU B-CLAUSE (A) OF CLAUSE (VIIA) OF SECTION 36(1). IT IS FURTHER CLARI FIED THAT ONLY SUCH CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURE CRE DIT SOCIETY ETC. IS INCLUDED IN SUB-CLAUSE (A) OF CLAUSE (VIIA). THE PR OVISION IS A BENEFICIAL ONE. NO DOUBT PLAIN READING OF MAIN SECTION 36(1) (VIIA)(A) AND EXPLANATION UNDER SAID SECTION PRESENT CERTAIN DIFF ICULTIES BUT SITUATION IS NOT WITHOUT POSSIBILITIES. THE OBJECT AND INTENTION OF THE LEGISLATURE IS TO BE UNDERSTOOD BY HARMONIOUS CONSTRUCTION OF THE PRO VISIONS. THE POLICY WAS TO INCLUDE CO-OPERATIVE BANKS AS WELL AS THEY COULD NOT TAKE SHELTER U/S. 80P OF THE INCOME TAX ACT ANY MORE. BY RESTRIC TING THE SCOPE OF THE PROVISIONS THE VERY PURPOSE OF INCLUSION OF CO-OPE RATIVE BANK WOULD BE LOST. SUB-CLAUSE (A) CONSISTS OF TWO TYPES OF DEDUCTIONS. ONE REFERS TO DEDUCTION OF AN AMOUNT NOT EXCEEDING 7.5% OF THE TO TAL INCOME. ONLY CONDITION IS THERE SHOULD BE A PROVISION FOR BAD A ND DOUBTFUL DEBTS. TILL 01.04.2007 THERE WAS NO NEED TO MAKE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER THIS CLAUSE SO FAR AS CO-OPERA TIVE BANK AND THEY WERE CLAIMING BENEFITS APPLICABLE TO THEM U/S. 80P. DURING THE ASSESSMENT YEAR IN QUESTION THEY CLAIMED DEDUCTIONS U/S. 36(1)(VIIA)(A) OF THE ACT. ONLY WITH REFERENCE TO THE ASSESSMENT Y EAR IN QUESTION APPELLANTS/ASSESSEES HAVE CREATED PROVISION FOR BAD AND DOUBTFUL DEBTS IN THE BOOKS OF ACCOUNTS. SO FAR AS THIS ISSUE IS C ONCERNED OPINION OF THE ASSESSING OFFICER AND TWO APPELLATE AUTHORITIES IS JUSTIFIED AND WE NEED NOT INTERFERE WITH THE OPINION OF THE AUTHORITIES I N RESTRICTING DEDUCTIONS ONLY TO 7.5% OF THE TOTAL INCOME AS PROVIDED UNDER SUB-CLAUSE (VIIA) OF SECTION 36(1). I.T.A. NOS. 809-811COCH/2013 22 10. THEN COMING TO THE OTHER CONTROVERSIAL ISSUE WH ETHER A COOPERATIVE BANK IRRESPECTIVE OF HAVING RURAL BRANCH AS EXPLAI NED UNDER EXPLANATION IS ENTITLED TO HAVE THE BENEFIT OF SECOND PART OF S ECTION 36(1)(VIIA)(A) WE HAVE TO SEE IN THE ABSENCE OF COOPERATIVE BANK IN THE DEFINITION OF RURAL BRANCH UNDER EXPLANATION TO SECTION 36(1) WOULD IT MAKE ANY DIFFERENCE. LEARNED COUNSEL APPEARING FOR APPELLANTS TRIED TO C ONVINCE THE COURT THAT ADJECTIVE OF RURAL WOULD MEAN IN RELATION TO OR CHA RACTERISTIC OF THE COUNTRYSIDE RATHER THAN THE TOWN; REMOTE RURAL AREA S. URBAN NO DOUBT IS OPPOSITE TO RURAL. URBAN IS IN RELATION TO OR CHARA CTERISTIC OF A TOWN OR CITY. 11. ACCORDING TO US THERE IS NO NECESSITY TO FIND OUT THE GENERIC MEANING OF EITHER URBAN OR RURAL FOR THE SIMPLE REASON THAT EXPLANATION UNDER SECTION 36(1) ITSELF DEFINES WHAT COULD BE CONSIDER ED AS A RURAL BRANCH SO FAR AS SECTION 36(1) OF THE ACT. IN THE LIGHT OF GIVING A PARTICULAR DEFINITION FOR THE PURPOSE OF UNDERSTANDING RURAL B RANCH WITH REFERENCE TO SUB-CLAUSE (A) OF CLAUSE (VIIA) TO SECTION 36(1) ON E NEED NOT TO GO IN SEARCH OF THE MEANING OF RURAL OR WHAT EXACTLY WOUL D CONSTITUTE RURAL BRANCH. THIS COURT HAD AN OCCASION TO DECIDE THE SA ID CONTROVERSY PERTAINING TO BAD AND DOUBTFUL DEBTS OF A RURAL BRA NCH. WHILE EXPLAINING THE MEANING OF PLACE IN EXPLANATION (IA) TO SECTI ON 36(1)(VIIA) THEIR LORDSHIPS OPINED AS UNDER: NEXT QUESTION RAISED PERTAINS TO THE ASSESSEES CL AIM FOR DEDUCTION OF PROVISION FOR BAD DEBTS IN TERMS OF SECTION 36(1) ( VIIA) OF THE INCOME-TAX ACT. HERE THE ONLY QUESTION RAISED IS AS TO BASIS O F CLASSIFYING BRANCHES OF THE BANK AS RURAL BRANCHES AND OTHER BRANCHES. R URAL BRANCH IS DEFINED UNDER EXPLANATION (IA) TO SECTION 36(1)(VII A) AS FOLLOWS: RURAL BRANCH MEANS A BRANCH OF A SCHEDULED BANK O R A NON- SCHEDULES BANK SITUATED IN A PLACE WHICH HAS A POPULATION OF NOR MORE THAN TEN THOUSAND ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR.. WHAT IS CLEAR FROM THE ABOVE IS THAT THE CLASSIFICA TION BETWEEN RURAL AND OTHER BRANCHES OF A BANK IS MADE BASED ON THE POPUL ATION IN THE PLACE WHERE THE CONCERNED BRANCH IS LOCATED. WHILE THE AS SESSEES CASE THAT FOUND ACCEPTANCE WITH THE TRIBUNAL IS THAT PLACE REFERRED TO IN THE ABOVE DEFINITION CLAUSE IS THE WARD OF A PANCHAYAT OR MUNICIPALITY THE ASSESSING OFFICER TOOK THE VIEW THAT PLACE CONTAI NED IN THE DEFINITION CLAUSE SHOULD MEAN A REVENUE VILLAGE. NO DOUBT AS SUCH IS NOT DEFINED IN THE DEFINITION CLAUSES AND SO MUCH SO WE HAVE T O FIND OUT THE SCOPE AND MEANING OF PLACE REFERRED TO IN THE SECTION. STANDING COUNSEL FOR THE DEPARTMENT PRODUCED BEFORE US LAST PUBLISHED CE NSUS REPORT OF 2001. EVEN THOUGH THE PREVIOUS CENSUS REPORT MAY BE THE RELEVANT ONE WE FEEL THE SCOPE OF PLACE AS REFERRED TO IN THE CENSUS REPORT I.T.A. NOS. 809-811COCH/2013 23 PRODUCED COULD BE ADOPTED FOR THE PURPOSE OF THIS C ASE. WHAT IS WRITTEN IN THE CENSUS REPORT 2001 IS AS FOLLOWS: THE BASIC UNIT FOR RURAL AREAS IS THE REVENUE VILL AGE WITH DEFINITE SURVEYED BOUNDARIES. THE RURAL AREA IS HOWEVER TA KEN AS THE RESIDUAL PORTION EXCLUDING THE URBAN AREA AND FOR THAT NO ST RICT DEFINITION IS FOLLOWED. IN OUR VIEW THE DEFINITION CLAUSE DOES NOT EXCLUDE 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 I N MUNICIPAL AREAS THERE MAY BE WARDS WITH LESS THAN 10000 POPULATION THEREBY ANSWERING THE BRANCH LOCATED IN SUCH MUNICIPAL AREA ALSO AS A RURAL BRANCH. GOING BY THE ORDINARY MEANING OF RURAL BRANCH WE FEEL ON LY BRANCHES OF THE BANK LOCATED IN RURAL AREAS ARE COVERED. WHEN THE L EGISLATURE ADOPTS POPULATION AS THE BASIS FOR CLASSIFICATION OF RURAL BRANCHES THAT TOO WITH REFERENCE TO THE LAST CENSUS REPORT WE FEEL THE BA SIC UNIT AS AVAILABLE FOR IDENTIFICATION OF RURAL AREA IN THE CENSUS REPO RT CAN BE LEGITIMATELY ADOPTED. SO MUCH SO WE FEEL THE ABOVE MEANING OF R URAL AREA CONTAINED IN THE CENSUS REPORT WHEREIN REVENUE VILLAGE IS TRE ATED AS A UNIT OF RURAL AREA CAN BE RIGHTLY ADOPTED. SO MUCH SO PLACE R EFERRED TO IN THE ABOVE DEFINITION CLAUSE FOR THE PURPOSE OF IDENTIFY ING THE BRANCH OF A BANK AS A RURAL BRANCH WITH REFERENCE TO ITS LOCATI ON 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 LOCA L AUTHORITY LIKE PANCHAYAT OR MUNICIPALITY IS INCORRECT AND IN OUR VIEW A RU RAL BRANCH HAS TO BE ALWAYS IN RURAL AREAS AND THE PLACE REFERRED CAN EA SILY BE TAKEN AS A VILLAGE. SEVERAL WARDS MAY COME WITHIN A VILLAGE W HETHER 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 LOCATED IN A VILLAGE WHERE THE POPULATION IN THE VILLAGE AS A UNIT IS LE SS THAN 10000. IT IS CLEAR FROM THE ABOVE JUDGMENT THAT THIS COURT HAD ALREADY AN OCCASION TO CONSIDER THE MEANING OF PLACE WITH REFE RENCE TO ABOVE SECTION. THEREFORE RURAL BRANCH IS A BRANCH WHICH FALLS UNDER EXPLANATION (IA) TO SECTION 36(1) (VIIA). TRIBUNAL HAD TO REVER SE THE JUDGMENT OF CIT(APPEALS) IN THE LIGHT OF THE DECISION IN LORD K RISHNA BANKS CASE (SUPRA). 12. THEN COMING TO THE CONTROVERSY WHETHER CO-OPERA TIVE BANK COULD CLAIM DEDUCTION OF 10% OF THE AGGREGATE AVERAGE ADV ANCES WHILE COMPUTING THE INCOME IRRESPECTIVE OF FALLING UNDER RURAL BRANCH AS PER EXPLANATION IN ORDER TO CONSIDER A COMPANY AS A BA NKING COMPANY IT I.T.A. NOS. 809-811COCH/2013 24 MUST TRANSACT BUSINESS OF BANKING IN INDIA AS DEFIN ED U/S. 5(C) OF BANKING REGULATION ACT. EXPLANATION TO SECTION 5(C) CLEARLY INDICATES WHICH ARE THE TRANSACTIONS WHICH WOULD NOT COME WIT HIN THE MEANING OF BANKING BUSINESS. NON-SCHEDULE BANK MEANS A BANKING COMPANY AS DEFINED U/S. 5(C) WHICH IS NOT A SCHEDULED BANK. AS ALREADY STATED ABOVE CO-OPERATIVE BANK CANNOT BE CONSIDERED AS A SCHEDUL ED BANK AS SECOND SCHEDULE TO RESERVE BANK OF INDIA ACT DOES NOT INCL UDE ANY OF THE CO- OPERATIVE BANKS. READING OF SECTION 5(C) ALONG WITH EXPLANATION CLEARLY INDICATES THOUGH ANY COMPANY WHICH TRANSACTS BUSINE SS OF BANKING IN INDIA WOULD COME WITHIN THE MEANING OF NON-SCHEDULE D BANK BY VIRTUE OF EXPLANATION (1) UNDER THIS CLAUSE SCHEDULED BANK IS EXCLUDED. SO FAR AS SUB-CLAUSE(A) OF CLAUSE (VIIA) TO SECTION 36(1) TW O TYPES OF DEDUCTIONS ARE PROVIDED TO NON-SCHEDULED BANK A SCHEDULED BAN K AND A CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY ETC. IT IS TO BE NOTED THAT APPELLANTS/ASSESSEES ARE NOT PRIMARY AGRICULTURAL CREDIT COOPERATIVE SOCIETY OR OTHER KIND OF BANK SO AS TO GO OUT OF THE DEFINITION OF CO-OPERATIVE BANK UNDER SUB-CLAUSE (A) TO CLAUSE (VIIA) OF SECTION 36(1). NO DOUBT EXPLANATION (IA) TO SECTION 36(1)( VIIA) DEFINES WHAT IS A RURAL BRANCH. IT IS WITH REFERENCE TO A PLACE AND C ERTAIN NUMBER OF POPULATION. IT REFERS TO BRANCH OF A SCHEDULED BANK OR A NON-SCHEDULED BANK. APPARENTLY WE DO NOT FIND THE TERM CO-OPERAT IVE BANK. SECTION 5(CCI) OF BANKING REGULATION ACT THOUGH HAS BROUGHT IN DEFINITION OF CO- OPERATIVE BANK VIRTUALLY EVERY BANK WHICH IS NOT A SCHEDULED BANK WOULD FALL UNDER THE DEFINITION OF NONSCHEDULED BANK. REA DING OF DEFINITION OF NON-SCHEDULE BANK ALONG WITH MEANING OF RURAL BRANC H UNDER EXPLANATION TO SECTION 36(1) OF THE ACT CLEARLY IN DICATE THAT CO-OPERATIVE BANK ALSO FALLS UNDER THE CATEGORY OF NON-SCHEDULE BANK FOR THE PURPOSE OF THIS SECTION. THEREFORE READING OF ENTIRE SECTI ON 36(1)(VIIA)(A) ALONG WITH EXPLANATION WOULD MEAN TWO KINDS OF DEDUCTIONS REFERRED TO IN THE SECTION WILL BE ALLOWED TO ALL THOSE BANKS ONLY IF THEY SATISFY THE TERMS AND CONDITIONS REFERRED TO IN THE PROVISION. 13. THEREFORE WE ARE OF THE OPINION AUTHORITIES B ELOW WERE JUSTIFIED IN OPINING THAT BENEFIT OF DEDUCTION OF 10% OF THE AGGREGATE AVERAGE ADVANCES IS APPLICABLE TO CO-OPERATIVE BANK ALSO PR OVIDED THEIR RURAL BRANCHES HAVE ADVANCED SUCH AMOUNTS. SUCH RURAL BRA NCH MEANS A BRANCH AS EXPLAINED UNDER EXPLANATION (IA) AS OPIN ED IN THE DECISION OF LORD KRISHNA BANKS CASE (SUPRA). IN THE LIGHT OF ABOVE OBSERVATIONS AND REASONING NONE OF THE CONTENTIONS RAISED BY APPELLANTS ARE SUSTAINABLE. H ENCE THESE APPEALS ARE DISMISSED ANSWERING SUBSTANTIAL QUESTIO NS OF LAW IN FAVOUR OF REVENUE. I.T.A. NOS. 809-811COCH/2013 25 24. IN VIEW OF THE ABOVE ORDER OF THIS TRIBUNAL W E ARE INCLINED TO DECIDE THE ISSUE AGAINST THE ASSESSEE. ACCORDINGLY THIS GROUND RAISED BY THE ASSESSEES IN ALL THE APPEALS IS DISMISSED. 25. IN THE RESULT ALL THE THREE APPEALS FILED B Y THE ASSESSEE ARE DISMISSED. PRONOUNCED ACCORDINGLY ON 14 -11-2014 SD/- SD/- (N.R.S.GANESAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACC OUNTANT MEMBER PLACE: KOCHI DATED: 14 TH NOVEMBER 2014 GJ COPY TO: 1. THE CALICUT CITY SERVICE CO-OP BANK LTD. H.O. C ITY BANK JUNCTION CHALAPPURAM KOZHIKODE-673 002. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE -1(1) KOZHIKODE. 3. THE COMMISSIONER OF INCOME-TAX(APEALS) KOZHIKOD E. 4. THE COMMISSIONER OF INCOME-TAX KOZHIKODE. 5. D.R. I.T.A.T. COCHIN BENCH COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T. COC HIN