Sanjay Arora, A. M.:
1. This is a set of four Appeals, being cross appeals for assessment year (A.Y.) 2007- 08 and an appeal by the Revenue for A.Y. 2005-06, challenging the appellate orders by the first appellate authority for the relevant years, and another appeal by the assessee contesting the revision order u/s.263 in respect of its assessment for A.Y. 2007-08. The appeals raising common issues were listed for hearing and, accordingly, heard together, and are being disposed of vide a common, consolidated order. We shall proceed year wise.
Revenue's Appeal (in ITA No.3821/Mum/2009 for A.Y. 2005-06)
2. The only issue in the Revenue's appeal for this year is the allowance of deduction u/ss. 36(1)(vii) and 36(1)(viia) of the Act. The matter was argued before us as covered by the decision by the apex court in the case of Catholic Syrian Bank Ltd. vs. CIT  343 ITR 270 (SC), having been since followed by the Tribunal in the assessee's own case for A.Y. 2006-07 (in ITA No.2731/Mum/2011 dated 10.04.2013/copy on record), as well as the decision by the tribunal in Oman International Bank S.A.O.G vs. ACIT (in ITA Nos.1981 and 1982/Mum/2001 dated 29.06.2012/copy on record).
3. We have heard the parties, and perused the material on record, as well as the case law relied upon. The legal position, as apparent, gets settled by the apex court in Catholic Syrian Bank Ltd. (supra), so that in principle there could be and is no dispute.
3.1 It would be relevant to recount the facts of the case in brief. The assessee claimed Rs.275.57 crores by way of provision against Non-Performing Assets (NPAs), of which Rs.53.53 crores was against rural advances, and the balance Rs.222.04 crores against non-rural advances. The assessee also claimed to have written off debts for Rs.318.85 crores during the year, which was communicated per the notes to the return of income (refer para 1.1/pg.4 of the assessment order). The assessee's gross total income (GTI) for the year (both returned and assessed) being nil (in fact, negative), the provision allowable u/s. 36(1)(viia) was limited to 10% of the rural advances, i.e., at Rs.53.53 crores, by the Assessing Officer (A.O.). The claim u/s. 36(1)(vii) was also, in view of the provision so allowed, reduced by him to the balance Rs.265.32 crores (Rs.318.85 cr. - Rs.53.53 cr.). A total amount of Rs. 318.85 cr. was thus allowed by him u/ss. 36(1)(vii) and 36(1)(viia) (refer paras 1.3 and 9(IV) of the assessment order). The claim of Rs.275.57 crores on account of provision was disallowed (though, in effect, the same stood actually allowed at Rs.53.53 crores).
The allowance u/s. 36(1)(viia) was confirmed at Rs. 53.53 cr. in first appeal. As regards the deduction u/s. 36(1)(vii), the assessee contended that of the debt written off (Rs.318.85 cr.), only Rs.10.40 cr. is for rural advances and the balance Rs.308.45 cr. in respect of non-rural advances. Only the amount written off qua rural advances (Rs. 10.40 cr.) could be set off/adjusted against the provision made against rural advances (at Rs.53.53 cr.), and the balance (Rs. 43.13 cr.) is to be carried forward to the following year. In fact, no adjustment on that account could at all be made as the said provision was made only at the year-end, while it is only the provision as at the beginning of the year that could be set off. Accordingly, the entire rural debt written off (Rs.10,39,63,000/-) is to be allowed. Further, as regards the non-rural debt written off (Rs.308.45 cr., i.e., Rs.318.85 cr. - Rs.10.40 cr.), no part of it could, and again for the same reasons, be adjusted against the provision account. That is, the provision being only for rural advances and, two, made at the year-end. The impact of the two arguments was that the assessee is entitled to deduction u/s. 36(1)(vii) at Rs.318.85 cr. as against Rs.265.32 cr. allowed by the A.O., so that there is a short deduction by Rs.53.53 cr. The same stood allowed by the ld. CIT(A), further clarifying that Rs.53.53 cr. allowed u/s.36(1)(viia) would become the opening provision for the following year (i.e., A.Y. 2006-07) (refer para 8.2 of the appellate order). Aggrieved, the Revenue is in appeal.
3.2 We may next delineate the position of the law as clarified by the apex court in Catholic Syrian Bank Ltd. (supra), further stating, in light thereof, the manner in which the deductions under reference are to be computed:
a). sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent provisions and operate in their respective fields. There is, thus, no scope for limiting the scope of one with reference to the other; the concept of provision for bad and doubtful debts falls outside the scope of section 36(1)(vii) simpliciter, as clarified by Explanation thereto;
b). section 36(1)(vii) in its main part concerns only a bad debt (or part thereof), while proviso and Explanation to s.36(1)(vii) and s.36(2)(v) speak of provision for bad and doubtful debts. The proviso to section 36(1)(vii) has, therefore, to be read with sections 36(1)(viia) and 36(2)(v). Bad debts written off, other than those for which provision u/s. 36(1)(viia) is made, will be covered under the main part of section 36(1)(vii);
c). the proviso to section 36(1)(vii) operates in cases under clause (viia), so as to limit the deduction u/s.36(1)(vii) to the extent of the difference between the debt (or part thereof) written off in the relevant previous year and the credit balance in the provision for bad and doubtful debts account made u/s.36(1)(viia);
d). the proviso to section 36(1)(vii) will, thus, relate to cases (accounts) covered u/s.36(1)(viia) and, accordingly, has to be read with section 5
36(2)(v), thereby disallowing a double deduction. The Revenue's interest qua non grant of double deduction or double benefit is well protected, and its apprehension in this regard is therefore misplaced;
e). while section 36(1)(vii) is a general provision for all debts, section 36(1)(viia)(a) is for rural advances; and
f). the condition of s. 36(2)(v) is integral to s. 36(1)(vii), and is therefore required to be satisfied in respect of debts covered under proviso to s. 36(1)(vii).
In sum, section 36(1)(viia)(a) and, correspondingly, proviso to section 36(1)(vii) relates only to rural advances, i.e., in case of a scheduled bank, while the main part of section 36(1)(vii) would cover all advances, rural and non-rural. Two, to the extent of rural advances written off u/s. 36(1)(vii), only the amount in excess of the balance in the provision account u/s.36(1)(viia)(a) (made with reference to r.6ABA) would satisfy the mandate of proviso to section 36(1)(vii) and 36(2)(v), and is therefore to be allowed as deduction there-under, the balance being debited to the provision account. Further, vide Explanation 2 to section 36(1)(vii) (inserted by Finance Act, 2013 w.e.f. 01.04.2014) it has been clarified that the provision for bad and doubtful debts u/s.36(1)(viia) refers to a single account toward all types of advances, both rural and non-rural.
3.3 We may, to begin with, tabulate the position that emerges qua the two deductions: (Amount in Rs. crores) Particulars Assessee A.O. CIT(A) Provision for bad and doubtful 275.57 53.53 53.53 debts u/s.36(1)(viia) Written off of bad debts --- (*) 265.32 318.85 u/s.36(1)(vii) Total 275.57 318.85 372.38
(*) refer para 3.4(a) (infra) 3.4 The dispute before us is ostensibly qua the quantum of deduction u/s. 36(1)(vii), having been allowed by the ld. CIT(A) at Rs.318.85 cr. as against Rs. 265.32 cr. by the A.O. The break-up of the difference (Rs.53.53 cr.), i.e., in terms of rural and non-rural 6 advances, would be to our mind of no relevance inasmuch as the deduction u/s. 36(1)(vii) covers both the rural and non-rural advances, the quantum (of write off) of each of which is as per the books of account. Further, though there could be no dispute, i.e., in principle, as regards the claim to be allowed, we are unable to, for the following reasons, confirm any part of the amount claimed, i.e., including that allowed u/s.36(1)(vii) by the A.O. (Rs.265.32 cr.), for being allowed thereunder:
a). the write off of debt in the present case is by way of debit to the provision account, consuming presumably the entire opening balance in the said account, and which (provision) stands allowed (though not fully) in the earlier years, either u/s. 36(1)(viia)(a) or u/s. 36(1)(vii) (refer para 1.2.5 of the assessment order). The same would thus be allowable only to the extent not allowed for the earlier years, details of which are absent. Allowing any amount in excess of the provision not allowed in the earlier years would amount to a double deduction against the same write off. Even if a part of the provision allowed u/s. 36(1)(viia)(a) for the earlier years is in respect of non-rural advances; the decision in the case of Catholic Syrian Bank Ltd. (supra) being only rendered subsequently, a double deduction could not be allowed against the same write off. A claim for deduction for the current year would therefore necessarily warrant a write back of the excess provision made earlier, in the books for the current year, enhancing the profit for the current year to that extent and, as such, of no moment. It is perhaps for this reason that the claim stands made by the assesse only by way of notes to the return of income, which is itself vulnerable in law. Further, a part of the provision for the earlier years is stated to have been allowed u/s. 36(1)(vii) as well, which clearly excludes a provision (refer Explanation to s. 36(1)(vii)). The same must therefore necessarily be considered as a write off of the relevant debts, falling in the main part of s. 36(1)(vii). Accordingly, there could be no deduction again for the same debts, i.e., upon being debited to the provision account for the current year. It may be argued that the deduction is to be only on an actual write off, which materializes in the current year, with only a provision - though allowed - having been made in the earlier years, and which gets debited in the current year. True, but then the deduction u/s. 36(1)(vii) having been allowed for an earlier year on the basis of a provision, the same must either be construed as a write off or, if not so, i.e., is a provision, would only warrant a write back for the current year, to, again, the same result.
b). we next consider the claim qua the balance provision (Rs. 222.04 cr.) for the current year, that in respect of rural advances (Rs. 53.53 cr.) having been allowed. The same being admittedly against non-rural advances, no part of it could be allowed u/s. 36(1)(viia)(a), while, as afore-noted, s. 36(1)(vii) envisages an actual write off and excludes a provision. The disallowance in its respect, thus, appears to be consistent with law. The apex court in Vijaya Bank vs. CIT  323 ITR 166 (SC) has clarified that where the provision is reflected as a liability in the balance-sheet, implying its continuity and, thus, carry forward in the books of account as such, i.e., in the form of a credit balance, the same would be a provision. However, where it is adjusted against debts, so that the debt outstanding as at the year-end is reduced, it would, though reflected as a provision, only be a write off. Clearly, in such a case there is no question of the provision account being carried forward inasmuch as the amount of debt carried forward in books gets reduced to that extent. The failure to close the individual accounts (of the debtors), i.e., in the books of the branch, would not be fatal to the bank's claim inasmuch as the detail of the debts written off is available, and the aggregate advances as at the year-end per the head office books can only be considered as in agreement with that as per its different units.
In the present case, as it would appear to us, it is a case of a provision inasmuch as the assessee claims a continuity of and speaks in terms of a balance in the provision account; rather, contending that only the opening balance in the provision account is to be adjusted (on account of the actual write off of debt) and not that made as at the relevant year-end. If so, i.e., of it being a provision, no amount thereof could be said to be a write off and, as such, allowable u/s. 36(1)(vii). This aspect, however, going to the root of the matter, requires proper verification, arising only in view of the subsequent decision of the apex court in Vijaya Bank (supra). What part of the provision, i.e., as made in the accounts, qualifies as so, and what part of it is in effect a write off, would need to be clarified. We may also clarify here that the write off of the individual accounts though, even if subsequently (i.e., to the balance-sheet date), would have to follow inasmuch as a write off by definition implies the obliteration/non-existence of the relevant debt, implying its non-carry forward in the books of account for the subsequent year.
c). the third aspect, which in our view requires verification and clarification, is the finding of there being no opening balance in the provision account for the current year. We say so as the assessee itself speaks of having written off debts to the extent of Rs. 318.85 cr. during the current year by debiting the provision account, neutralizing, as it appears, the entire opening balance in the said account (refer para 1.2.5 of the assessment order). As such, the claim of there being nil opening balance - which is the agreed position - in the said account is apparently inconsistent, if not contrary to the assessee's claims. Admittedly, an opening balance in the said account would operate to reduce the claim u/s. 36(1)(vii) to that extent, i.e., to which proviso to that section is attracted. Even otherwise, a nil opening balance, though possible, as where the entire credit balance in the provision account, including that made at the end of the immediately preceding year, gets adjusted on debit qua the write off for that year, appears anomalous. We say so as once it is clear that it is only the balance as at the beginning of the year which is to be taken into account for the purpose of proviso to section 36(1)(vii) (and section 36(2)(v)) and, thus, adjusted, there is no question and, thus, adjustment of the provision made in the accounts as at the year-end and, accordingly, a nil opening balance for the following year. Such a situation could arise only in case of no provision for bad and doubtful debts being made in accounts for the preceding year. The same shall, in any case, be required to be confirmed. The Revenue, in fact, also impugns (vide its ground # 2) the direction by the ld. CIT(A) to this effect, i.e., to adjust the provision made (to the extent of Rs.53.53 cr.) in the following (subsequent) year, i.e., by way of opening balance for that year. The Revenue's stand, though to no moment in view of our clear verdict of only the opening balance being adjustable, may perhaps be responsible for the anomaly afore-referred and, in any case, explain or help explain the variance in the provision account, i.e., as per books and as per the assessment record, while clearly the law envisages a parity between the two; a provision being made and adjusted (debited) only in the books of account. A reconciliation between the two is in any case required/preferable.
d). lastly, we wish to clarify that it needs to be appreciated and borne in mind that the deductions in respect of 'bad debts written off' and 'provision for bad and doubtful debts' have necessarily to be with reference to the entries made in the books of account.
3.5 The issue as to the deductions u/ss. 36(1)(vii) and 36(1)(viia)(a) exigible to the assessee in the facts and circumstances of the case, as apparent from the foregoing, is indeterminate, requiring verification and definite findings of fact in respect of the matters /aspects specified/highlighted at sub-paras (a) to (d) of para 3.4 of this order. The said issue is thus restored back to the file of the first appellate authority for fresh adjudication per a speaking order after hearing the parties. He shall, in doing so, at his option, obtain a remand report from the A.O. on any of the matters he considers necessary, also allowing the assessee due opportunity to present its case before him. We decide accordingly.
4. In the result, the Revenue's appeal is disposed of in the above indicated terms.
Assessee's appeal (in ITA No.3674/Mum/2012 for A.Y. 2007-08)
5. The first ground of the assessee's appeal relates to the disallowance of the deduction claimed u/s.35D of the Act in respect of expenditure incurred on public issue of equity shares in the sum of Rs.144.24 lacs. At the very outset, it was conceded by the ld. Authorized Representative (AR), the assessee's counsel, that the said issue stands covered against the assessee in view of the decisions by the apex court in the case of Brooke Bond India Ltd. vs. CIT  225 ITR 798 (SC) and Punjab State Industrial Development Corpn. Ltd. vs. CIT  225 ITR 792 (SC), also relied upon by the Revenue. So, however, the assessee pleads its case with reference to its alternate claim, i.e., that the said expenditure should be netted against the interest income earned on the deposit of the share application income, and only the net expenditure be disallowed. However, it was observed by the Bench that the disallowance of the public issue expenditure is on account of the fact of it being a capital expenditure, while the interest income is only revenue in nature and, further, being assessable u/s.56, only expenditure toward earning the same is liable to be allowed u/s.57; the law in the matter being well settled, for which reference be made to decisions by the apex court as in the case of CIT vs. Dr. V. P. Gopinathan  248 ITR 449 (SC). He could not furnish any satisfactory answer to the said query by the Bench. Further on, on a perusal of the record, it was found that the said ground stood not raised before the first appellate authority, so that it does not arise out of his order. Again, though the issue involves a legal plea, the relevant facts being not on record, it was wondered by the Bench as to how the said alternate ground is eligible for being admitted. He conceded to the same, as well as to the fact that no facts and details have been brought on record by the assessee. Under the circumstances, therefore, we find no merit in the assessee's ground no.1, including the alternate ground, which stands dismissed.
6. The second and the only other ground in the assessee's appeal is toward confirmation of the assessee's liability u/s.115JB of the Act, rejecting its claim of the MAT provisions of Chapter XII-B of the Act being not applicable to it. The matter, even as was the common contention of the parties, stands squarely covered by a series of decisions by the tribunal in favour of the assessee, including in its own case for A.Y. 2006-07 (in ITA No.2337/Mum/2011 dated 10.04.2013 / PB pgs.8-17), to which, among others, our attention was drawn by the ld. AR during hearing (refer PB pgs.30 to 40).
7. We have heard the parties, and perused the material on record. Respectfully following the consistent view of the tribunal, also adopted in its own case, we reverse the direction of the ld. CIT(A) confirming the computation of income u/s.115JB; on the basis that the assessee, being a banking company, is not exigible to tax under the MAT provisions of Chapter XVII-B. We decide accordingly, allowing the assessee's relevant ground.
8. In the result, the assessee's appeal is partly allowed. Revenue's Appeal (in ITA No. 4112/Mum/2012 for A.Y. 2007-08)
9. Ground # 1 by the Revenue impugns the direction by the ld. CIT(A) in allowing its claim qua bad debts for Rs.287.89 crores on the basis that this was only a provision, and not an actual write off of bad debts. The same stands allowed following the decision in the case of Catholic Syrian Bank Ltd. (supra). The principles involved, as would be apparent from the foregoing (refer paras 2, 3 of this order), are no longer res integra, and the issues that survive are only qua facts, being not determinate. The issues arising in the instant appeal being para materia to that arising in the Revenue's appeal for A.Y. 2005- 06, our observations/directions thereat shall apply for this year as well. Further, another issue could arise for the current year, i.e., if any part of the provision u/s. 36(1)(viia)(a) could be said to be in respect of non-rural advances. This is as the gross total income (GTI) being at a positive sum, a part of the provision would be referable thereto (i.e., GTI), and which the assessee speaks of as being in relation to non-rural advances. The recently inserted Explanation 2 to section 36(1)(vii) could also be relevant in this regard. No argument qua the said aspect was also assumed before us. Under the circumstances, we only consider it fit and proper to, as in the case for A.Y. 2005-06, restore the matter, which we discern to be the same as for that year, on like terms, back to the file of the first appellate authority, who shall decide on the said additional aspect as well, for an adjudication in accordance with law and after hearing the parties. We decide accordingly.
10. The Revenue's second ground impugns the restriction of the disallowance by the A.O. u/s.14A of the Act. While the A.O. had computed the same applying r. 8D, the ld. CIT(A) restricted the same to 5% following his predecessor for A.Y. 2006-07.
11. We have heard the parties, and perused the material on record. This is again a subsisting issue in the assessee's case. For A.Y. 2003-04, whereat the disallowance was restricted by the ld. CIT(A) to 2% (of the tax-exempt income), the tribunal, following the dictum of Godrej and Boyce Mfg. Co. Ltd. v. Dy. CIT  328 ITR 81 (Bom), restored the matter to the file of the A.O. for fresh determination on a reasonable basis. For A.Y. 2006-07, the disallowance was, as afore-noted, confirmed at 5%. The same stood accepted by the assessee by not pressing its relevant ground before the tribunal, while the Revenue did not contest the same. Under the circumstances, we consider it fit and proper, and particularly to give a quietus to the matter, to restrict the disallowance u/s.14A to 5% of the tax-exempt income, i.e., as for the immediately preceding year, inasmuch as rule 8D is admittedly applicable only w.e.f. A.Y. 2008-09, as clarified in Godrej and Boyce Mfg. Co. Ltd. (supra).
12. Vide its third and fourth grounds, the Revenue challenges the adjustment to the book profit u/s.115JB on account of the expenditure in respect of tax-exempt income (by way of book profit) as well as for the allowance of the tax credit u/ss.88-D and 88-E against the tax on the book profit. The said grounds, in view of our decision in respect of the assessee's ground no. 2, upholding the non-applicability of section 115-JB to the assessee, a banking company, would not survive for consideration. We decide accordingly, dismissing the relevant grounds.
13. In the result, the Revenue's appeal is partly allowed.
14. The revision order concerns the various adjustments that in the opinion of the ld. CIT were required to be considered by the A.O. in computing the assessee's book profit u/s.115JB of the Act.
15. We have heard the parties, and perused the material on record. The appeal, as would be apparent, would become infructuous in view of our decision in the assessee's appeal on quantum, following the consistent view of the tribunal, that section 115JB is not applicable to the assessee-company. We, accordingly, set aside the impugned order. We are conscious, even as noted by the ld. CIT, that the Act has been amended by Finance Act, 2012, so as to include within the ambit of section 115JB, companies to which the proviso to section 211(2) of the Companies Act, 1956 is applicable. The same, however, is applicable w.e.f. 01.04.2013. Though an issue as to the said amendment being clarificatory and, thus, retrospective, could arise, the said question would stand to be answered in further appellate proceedings inasmuch as the tribunal has taken a clear view in the matter on the basis of the un-amended law, and which we have adopted. In other words, even granting the possibility of a different view, the only course available to the Revenue, i.e., in case it wishes to pursue the matter further, is to appeal against the said set aside, i.e., as it would have to against our order disposing its appeal on quantum. We decide accordingly.
16. In the result, the assessee's appeal is allowed. A.Y. ITA No. Result 2005-06 3821/M/2009 Allowed for statistical purposes 2007-08 4112/M/2012 Partly allowed 2007-08 3674/M/2012 Partly allowed.