G.S Pannu, A.M:— This appeal by the assessee is directed against an order of the Commissioner of Income Tax (Appeals), Kolhapur dated 12.10.2011 which, in turn, has arisen from an order dated 10.12.2010 passed by the Assessing Officer, under Section 143(3) of the Income-tax Act, 1961 (in short “the Act’), pertaining to the assessment year 2008-2009.

2. In this appeal, the first issue raised by the assessee is with regard to the action of the lower authorities in restricting the deduction allowable under Section 36(1)(viia) of the Act to the actual amount of Provision made in the books of account for bad and doubtful debts of Rs. 50,00,000/- as against the assessee's claim for deduction of Rs. 79,04,346/-.

3. In brief, the relevant facts are that assessee is a Co-operative Bank engaged in the business of banking. In terms of Section 36(1)(viia) of the Act, assessee is entitled to claim as a deduction in respect of any Provision for bad and doubtful debts made on account of aggregate average advances made by the rural branches of such bank. The section provides that such deduction shall not exceed 7.5% of the total income (computed before making any deduction under this clause and Chapter VI-A of the Act) and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank. In terms of the said Section 36(1)(viia) of the Act, assessee being a Co-operative Bank, worked out the deduction at Rs. 1,29,04,346/- and claimed the same in the return of income. In the course of assessment proceedings, the Assessing Officer noted that as against the claim of Rs. 1,29,04,346/- made, assessee had made a Provision for bad and doubtful debts of Rs. 50,00,000/- only in the books of account. For the said reason, the Assessing Officer restricted the deduction under Section 36(1)(viia) of the Act to the extent of the Provision for bad and doubtful debts made in the books of account i.e Rs. 50,00,000/- and the balance of Rs. 79,04,346/- was disallowed. The CIT(A) has also sustained the action of the Assessing Officer, against which the assessee is in further appeal before us.

4. In the above background, the rival counsels have made their submissions. The short controversy in the present case is to the effect as to whether making of a Provision equal to the amount claimed as deduction under Section 36(1)(viia) of the Act, is necessary to be made in the books of account or not so as to be eligible for the claim of deduction under Section 36(1)(viia) of the Act. The stand of the assessee is that the deduction under Section 36(1)(viia) of the Act does not depend on making of a Provision for bad and doubtful debts in the account books while the stand of the Revenue is to the contrary i.e making of a Provision equal to the amount claimed as deduction under Section 36(1)(viia) of the Act is necessary to be made in the books of account.

5. Before us, learned counsel for the assessee submitted that section nowhere requires that the amount of deduction allowable under Section 36(1)(viia) of the Act is dependent on making an equivalent debit of Provision for bad and doubtful debts in the Profit and Loss account. It is pointed out that the deduction is quantified with respect to certain percentage of the aggregate average advances made in the rural branches of such bank and is nothing to do with the amount of Provision made in the books of account for bad and doubtful debts. In support of the said proposition reference has been made to the following decisions of the Tribunal:— (i) Bangalore Bench of the Tribunal in the case of Syndicate Bank v. DCIT, (2001) 78 ITD 103 (Bang); (ii) Delhi Bench of the Tribunal in the case of Rural Electrification Corpn. Ltd. v. Addl. CIT, (2009) 34 SOT 159 (Del); (iii) Delhi Bench of the Tribunal in the case of Power Finance Corpn. Ltd. v. JCIT, (2006) 10 SOT 190 (Del); and, (iv) Cochin Special Bench of the Tribunal in the case of DCIT v. Catholic Syrian Bank Ltd., (2004) 88 ITD 185 (Coch)(SB).

6. Further, the learned counsel pointed out that absence of entries in the books of account is no bar for allowance of a deduction which is otherwise allowable under the Act and for the aforesaid proposition he referred to the judgement of the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT, (1971) 82 ITR 363 (SC). The learned counsel further pointed out that the deduction under Section 36(1)(viia) of the Act is similar to the standard deduction allowable under Section 24(1)(a) of the Act relating to repairs allowable while computing income from house property. It was pointed out that the deduction under Section 24(1)(a) of the Act while computing income from house property is allowable on account of repairs whether or not such expenses are actually incurred; and, on the same analogy it is sought to be made out that the deduction under Section 36(1)(viia) of the Act is allowable in respect of the advances made by rural branches of such bank regardless of the fact whether assessee has made an entry on account of Provision for bad and doubtful debts.

7. On the other hand, the learned Departmental Representative appearing for the Revenue pointed out that the lower authorities were justified in restricting the deduction under Section 36(1)(viia) of the Act to the actual amount of Provision for bad and doubtful debts made in the books of account by relying upon the judgement of the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala v. CIT, (2005) 272 ITR 54 (P&H). The learned Departmental Representative further referred to the CBDT Circular No. 17 dated 26.11.2008, relied upon by the lower authorities in terms of which the CBDT has clarified that the deduction under Section 36(1)(viia) of the Act for Provision of bad and doubtful debts was to be restricted to amount of such Provision actually credited in the books of account in the relevant year or the amount calculated as per Section 36(1)(viia) of the Act, whichever is lower.

8. In reply, the learned counsel for the assessee submitted that the contents of the CBDT Circular dated 26.11.2008 (supra) reflect an interpretation which is not as per the provisions of Section 36(1)(viia) of the Act. According to the learned counsel the contents of the CBDT Circular dated 26.11.2008 (supra) cannot override and detract of the provisions of Section 36(1)(viia) of the Act and in any case according to him the Circular of the CBDT does not bind the Tribunal or the Courts. Apart from the aforesaid, the learned counsel referred to the decision of the Pune Bench of the Tribunal in the case of Jaysingpur Udgaon Sahakari Bank Ltd. vide ITA Nos. 45&46.PN/2012 dated 05.08.2013 wherein on a similar issue the Tribunal had set-aside the matter back to the file of the Assessing Officer in the light of the judgement of the Hon'ble Supreme Court in the case Catholic Syrian Bank Ltd. v. CIT, 343 ITR 270 (SC).

9. We have carefully considered the rival submissions. We have also anxiously perused the authorities cited at Bar in order to determine the controversy on hand. The relevant portion of Section 36(1)(viia) of the Act, as applicable for the assessment year under consideration i.e A.Y 2008-2009 reads as under:—

“[(viia) [in respect of any provision for bad and doubtful debts made by—

(a) a scheduled bank [not being [* * *] a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank [or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an amount [not exceeding seven and one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner:

10. A bare perusal of aforesaid section clearly brings out that the deduction specified therein is in “respect of any provision for bad and doubtful debts made by……..” an eligible assessee. The presence of the aforesaid expression in the section supports the plea of the Revenue, which is to the effect that the deduction allowable under Section 36(1)(viia) of the Act is in respect of the provision “made” by the assessee. In our considered opinion, the judgement of the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala (supra) clearly covers the controversy in favour of the Revenue and belies the interpretation sought to be canvassed by the assessee. In the case before the Hon'ble High Court, assessee-bank had originally filed its return of income for assessment year 1985-1986 claiming deduction under Section 36(1)(viia) of the Act at Rs. 1,90,36,000/-. After filing of the return the provisions of Section 36(1)(viia) of the Act were amended by Finance Act, 1985 whereby deduction was enhanced to 10% of the profit or 2% of the aggregate average advances made by rural branches of the bank, whichever was higher. On account of the amended provisions, assessee filed a revised return of income on 24.04.1986 enhancing the claim for deduction from Rs. 1,90,36,000/- to Rs. 1,94,21,000/-. The Assessing Officer restricted the deduction under Section 36(1)(viia) of the Act to Rs. 1,90,36,000/- only and disallowed the balance on the ground that in the books of account pertaining to the relevant assessment year, assessee had made a Provision for bad and doubtful debts of Rs. 1,90,36,000/- only. The assessee argued that the Provision of Rs. 1,90,36,000/- was made in the Balance-Sheet finalized on 14.02.1985 which was as per the unamended provisions of Section 36(1)(viia) of the Act and that in view of the amendment of Section 36(1)(viia) of the Act permitting higher claim of deduction, the assessee could not have possibly made the higher Provision in the Balance-Sheet finalized on a prior date, but it made up the shortfall by making an adequate Provision in the Balance-Sheet of the subsequent assessment year. On this basis, it was sought to be made out that there was substantial compliance with the requirement of law of making Provision for bad and doubtful debts and therefore assessee justified the claim of deduction for the complete amount of Rs. 1,94,21,000/- and not restricted to Rs. 1,90,36,000/-. The CIT(A) as well as the Tribunal negated the plea of the assessee and accordingly, the matter was carried before the Hon'ble Punjab & Haryana High Court. The Hon'ble High Court referred to the provisions of Section 36(1)(viia) of the Act and observed that “….. the deduction allowable under the above provisions is in respect of the provision made” and further went on to hold that “….. making of a provision for bad and doubtful debts equal to the amount mentioned in this section is must for claiming such deduction.” In view of the aforesaid judgement of the Hon'ble Punjab & Haryana High Court, in our view, the position sought to be canvassed by the assessee deserves to be repelled. We reproduce hereinafter the relevant portion of the order of the Hon'ble High Court, which reads as under:—

“5. Sec. 36(1)(viia) of the Act as applicable to the asst. yr. 1985-1986, reads as under:

“in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of cl. (viiia) or a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank, an amount not exceeding ten per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) or an amount not exceeding two per cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher.”

6. A bare perusal of the above shows that the deduction allowable under the above provisions is in respect of the provision made. Therefore, making of a provision for bad and doubtful debts equal to the amount mentioned in this section is a must for claiming such deduction. The Tribunal has rightly pointed out that this issue stands further clarified from the proviso to cl. (vii) of s. 36(1) of the Act, which reads as under:

“Provided that in the case of an assessee to which cl. (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause.”

7. This also clearly shows that making of provision equal to the amount claimed as deduction in the account books is necessary for claiming deduction under s. 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year.

8. In the present case, the assessee has not made any provision in the books of account for the assessment year under consideration, i.e, 1985-1986, by making supplementary entries and by revising its balance sheet. The provision has been made in the books of account of the subsequent year.

9. We are, therefore, satisfied that the Tribunal was right in holding that since the assessee had made a provision of Rs. 1,19,36,000 for bad and doubtful debts, its claim for deduction under s. 36(1)(viia) of the Act had to be restricted to that amount only. Since the language of the statute is clear and is not capable of any other interpretation, we are satisfied that no substantial question of law arises in this appeal for consideration by this Court.

11. In view of the aforesaid interpretation of Section 36(1)(viia) of the Act by the Hon'ble Punjab & Haryana High Court, the orders of the lower authorities deserve to be upheld inasmuch as the assessee has not made a Provision for bad and doubtful debts in the books of account equal to the amount of deduction sought to be claimed under Section 36(1)(viia) of the Act, and therefore, in our view, the lower authorities were justified in restricting the deduction to Rs. 50,00,000/-, being the amount of Provision actually made in the books of account.

12. The learned counsel for the assessee has cited certain decision in support of his proposition that the claim of deduction under Section 36(1)(viia) of the Act is not linked to making of a Provision in the account books. At the outset, we may observe that the decisions relied upon by the assessee are of various Benches of the Tribunal and not of any High Court. Therefore, the judgement of the Hon'ble High Court in the case of State Bank of Patiala (supra), which is contrary to the decisions of the Tribunal relied upon by the assessee; and being solitary judgement of a High Court, is required to be applied, having regard to the established norms of judicial discipline. For the said reason, we refrain from discussing each of the decisions of the Tribunal relied by the assessee before us.

13. The other plea of the assessee was that the contents of the CBDT Circular dated 26.11.2008 (supra) is contrary to the provisions of Section 36(1)(viia) of the Act and therefore the same should be disregarded. In our view, the following explanation in respect of Section 36(1)(viia) of the Act rendered by the CBDT in Circular dated 26.11.2008 (supra) by way of para 2(iii)(b) as under:—

“(b) The deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee in the relevant year or the amount calculated as per provisions of section 36(1)(viia), whichever is less.”

is in line with the interpretation of the section rendered by the Hon'ble Punjab & Haryana High Court and cannot be said to be contrary to the provisions of the Act. Therefore, the reliance placed by the lower authorities on the CBDT Circular dated 26.11.2008 (supra) cannot be faulted.

14. Before parting, we may refer to the decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra) relied upon by the assessee and also the decision of our co-ordinate Bench in the case of Jaysingpur Udgaon Sahakari Bank Ltd. (supra). We have carefully perused the said decision and found that the issue before the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra) was quite different; and, in any case none of the observations of the Hon'ble Supreme Court run contrary to the pronouncement of the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala (supra) to the effect that making of a Provision for bad and doubtful debts equal to the amount mentioned in Section 36(1)(viia) of the Act is must for claiming such deduction. Therefore, the judgement of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Ltd. (supra) does not help the assessee in the present controversy before us. Further, even in the case of Jaysingpur Udgaon Sahakari Bank Ltd. (supra), the Tribunal has merely set-aside the matter for adjudication afresh back to the file of the Assessing Officer and it does not contain any positive finding with respect to the controversy before us.

15. In the result, considering the aforesaid discussion, in our view, the orders of the authorities below on this aspect are liable to be upheld. We hold so.

16. The appellant has raised an Additional Ground of Appeal, which was hitherto not raised before the lower authorities, and the same reads as under:—

“On the facts and in the circumstances of the case the Assessing Officer be kindly directed to allow the amortization of Rs. 47,85,720/- for premium on HTM (Held To Maturity) securities as per the CBDT Circular No. 17/2008 dated 26.11.2008”

17. The learned counsel submitted that the assessee was entitled to amortization of premium paid on acquisition of investments held to maturity (HTM) as per the CBDT Circular dated 26.11.2008 but the said claim could not be raised before lower authorities, though the appropriate facts were on record. The learned counsel submitted that the aforesaid issue, now being raised, does not require any fresh investigation of facts, and is a question of law and therefore the Additional Ground be admitted for adjudication in the light of the judgement of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT, (1998) 229 ITR 383 (SC) and also the judgement of the Hon'ble Bombay High Court in the case of CIT v. Pruthvi Brokers & Shareholders (P) Ltd., (2012) 349 ITR 336 (Bom).

18. On the other hand, the learned Departmental Representative appearing for the Revenue submitted that the said relief was neither claimed in the return of income and nor during the assessment proceedings and therefore there was no justification to consider the claim at the present stage.

19. We have carefully considered the rival submissions. It is a trite law that an assessee is entitled to raise an Additional Ground in appeal proceedings, which was not earlier claimed in the return of income filed by him. Apart from other decisions, the recent decision of the Hon'ble Bombay High Court in the case of Pruthvi Brokers & Shareholders (P) Ltd. (supra) supports the aforesaid proposition. Moreover, we find that the Additional Ground now sought to be raised by the assessee involves a point of law and it has a bearing on the determination of correct tax liability of the assessee; and, thus in terms of the ratio of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra), the same deserves to be admitted for adjudication.

20. At the time of hearing, the learned counsel has also addressed on the merits of the claim. So, however, as the issue was not before the lower authorities, we deem it fit and proper to remit the matter back to the file of the Assessing Officer, who shall consider the claim of the assessee raised in the aforesaid Additional Ground of Appeal and adjudicate the same as per law. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity to put-forth material and submissions in support of the Additional Ground raised above, and the Assessing Officer shall consider and adjudicate the same in accordance with law. Thus, on this Ground, assessee succeeds for statistical purposes.

21. In the result, appeal of the assessee is partly allowed.