Tribunal upholds deduction restriction under section 36(1)(viia) but allows consideration of additional provisions.

The Tribunal upheld the restriction of the deduction under section 36(1)(viia) to the actual provision made during the year. However, it directed the Assessing Officer to verify and allow additional provisions claimed by the assessee for bad and doubtful debts, ensuring compliance with the law that deductions should be based on provisions made during the relevant year. The appeal was partly allowed, with the decision favoring the revenue on the restriction of the deduction but allowing for consideration of additional provisions made during the relevant year.

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Issues Involved:
1. Restriction of claim of deduction under section 36(1)(viia) of the Income Tax Act.
2. Allowance of deduction under section 36(1)(viia) for provisions made during the year.

Issue 1: Restriction of Claim of Deduction Under Section 36(1)(viia)
The assessee, a Co-operative Society Bank, claimed a deduction under section 36(1)(viia) of Rs. 72,71,317/- for provisions made for bad and doubtful debts. However, the Assessing Officer (AO) restricted the deduction to Rs. 11,17,000/-, which was the actual provision made in the balance sheet for the year. The AO emphasized that the deduction under section 36(1)(viia) is admissible only to the extent of the actual provisions made, as indicated by the wording of the statute.

The Commissioner of Income Tax (Appeals) [CIT (A)] upheld the AO's decision, stating that the deduction must be based on the actual provision made during the year, which was Rs. 11,17,000/-. The CIT (A) rejected the assessee's argument that provisions made in earlier years should be considered for the deduction.

The Tribunal agreed with the AO and CIT (A), highlighting that the statute's language is clear and unambiguous, requiring the provision for bad debts to be made in the relevant year. The Tribunal concluded that the deduction should be restricted to the actual provision created in the books of account for the relevant year, thereby deciding the issue against the assessee and in favor of the revenue.

Issue 2: Allowance of Deduction for Provisions Made During the Year
The assessee contended that the actual provision for bad debts for the relevant year was Rs. 22,77,154/-, including Rs. 6,96,092/- for Special Bad Debts Reserve and Rs. 4,64,062/- for Bad and Doubtful Debt Reserves, apart from Rs. 11,17,000/- already allowed by the AO. The assessee argued that these additional provisions should also be considered for the deduction.

The Tribunal directed the AO to verify the actual provisions made for bad and doubtful debts as claimed by the assessee in the revised computation of income. The AO was instructed to allow the deduction based on the verified amounts, ensuring the provisions were made during the relevant year. The Tribunal emphasized that the AO should decide the matter on merit, guided by the law that the assessee is entitled to the benefit of provisions made during the relevant year.

Conclusion:
The appeal was partly allowed, with the Tribunal confirming the restriction of the deduction to the actual provision made during the year but directing the AO to verify and allow additional provisions claimed by the assessee for the relevant year.

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