2017 (9) TMI 106 - AT - Income Tax

ITAT Upholds Deduction for Rural Branch Advances

The Income-tax Appellate Tribunal (ITAT) upheld the Commissioner of Income-tax (Appeals) decision, dismissing the Department's appeal. The ITAT ruled that ... Deduction under section 36(1)(viia) - provision for bad and doubtful debts - assessee claimed deduction u/s 36(1)(viia) at 10 per cent. of the average agricultural advances made by its rural branches - CIT-A allowed the claim - Held that:- In the present case, the Assessing Officer himself admitted in the assessment order at page No. 3 that the assessee had claimed deduction under section 36(1)(viia) of the Act at ₹ 105,69,80,000 which is 10 per cent. of the aggregate rural advances of the bank. The aforesaid claim was allowable to the assessee as per the ratio laid down in the aforesaid referred to cases of Southern Technologies Ltd. v. Joint CIT [2010 (1) TMI 5 - SUPREME COURT OF INDIA] and Catholic Syrian Bank Ltd. v. CIT [2012 (2) TMI 262 - SUPREME COURT OF INDIA]. The impugned order passed by the Commissioner of Income-tax (Appeals) is in consonance with the observations made by the Income-tax Appellate Tribunal 'F' Bench, New Delhi having the same combination in the assessee's own case for the assessment year 2009-10 i.e., Prathma Bank v. CIT [2016 (12) TMI 56 - ITAT DELHI]. We, therefore, considering the totality of the facts as discussed hereinabove, do not see any valid ground to interfere with the findings given by the learned Commissioner of Income-tax (Appeals). - Decided against revenue. Issues Involved:1. Deduction under section 36(1)(viia) of the Income-tax Act, 1961.2. Interpretation of the provisions of section 36(1)(viia) regarding the restriction of deduction to the amount of reserve created in the books of account.3. Applicability of judicial precedents, specifically the judgments of the Supreme Court and High Courts.Detailed Analysis:1. Deduction under section 36(1)(viia) of the Income-tax Act, 1961:The primary issue in this case is the deduction claimed by the assessee under section 36(1)(viia) of the Income-tax Act, 1961. The assessee, a banking entity, claimed a deduction of Rs. 105,69,80,000, which is 10% of the aggregate rural advances of the bank. The Assessing Officer (AO) restricted this deduction to Rs. 5,45,49,000, the amount of provision for bad and doubtful debts shown in the profit and loss account. The AO's decision was based on the interpretation that the deduction under section 36(1)(viia) should be limited to the provision made in the books of account.2. Interpretation of Section 36(1)(viia):The AO raised several queries to the assessee, questioning whether stakeholders and the Reserve Bank of India (RBI) were informed about the claimed deduction and its impact on the bank's financials. The AO relied on the judgment of the Punjab and Haryana High Court in the case of State Bank of Patiala v. CIT, which held that the deduction under section 36(1)(viia) should be restricted to the amount of reserve created in the books of account. The assessee, however, argued that there is no such restriction in the section itself and cited various judicial precedents, including the Supreme Court's judgment in Southern Technologies Ltd. v. Joint CIT, which supports a broader interpretation allowing the deduction based on a specified percentage of the aggregate average advances by rural branches.3. Applicability of Judicial Precedents:The learned Commissioner of Income-tax (Appeals) (CIT(A)) allowed the assessee's claim, relying on the Supreme Court's judgment in Southern Technologies Ltd. v. Joint CIT, which provides that the deduction under section 36(1)(viia) is a specific deduction given by the statute and is not restricted to the amount of provision made in the books. The CIT(A) also noted that there are divergent views from different High Courts on this issue and referred to the Supreme Court's principle that in cases of ambiguity, the interpretation favoring the assessee should be adopted (CIT v. Vegetable Products Ltd.).The CIT(A) further observed that the AO did not provide any reasons for disregarding the arguments and judicial precedents cited by the assessee. The CIT(A) concluded that the assessee was entitled to the deduction as claimed, based on the Supreme Court's interpretation and other judicial pronouncements.Conclusion:The Income-tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, dismissing the Department's appeal. The ITAT emphasized that the deduction under section 36(1)(viia) is to be allowed as per the specified percentage of the aggregate average advances made by rural branches, as supported by the Supreme Court's judgments in Southern Technologies Ltd. v. Joint CIT and Catholic Syrian Bank Ltd. v. CIT. The ITAT also noted that the issue was covered in favor of the assessee by its own earlier decision for the assessment year 2009-10. Consequently, the ITAT found no merit in the Department's appeal and upheld the CIT(A)'s order allowing the full deduction claimed by the assessee under section 36(1)(viia).