Revenue appeal dismissed, assessee's claim allowed under Section 36(1)(viia) for Bad Debt provision.

The appeal filed by the Revenue was dismissed, affirming the decision of the Learned Commissioner of Income Tax (Appeals) and following previous rulings by the ITAT Delhi. The assessee's claim of Rs. 24,01,00,000 under Section 36(1)(viia) for provision for Bad & Doubtful Debts was allowed, based on legislative intent and judicial precedents supporting deductions for rural advances.

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Issues Involved:
1. Allowability of the assessee's claim of Rs. 24,01,00,000/- under Section 36(1)(viia) of the Income Tax Act, 1961, for provision for Bad & Doubtful Debts.

Issue-wise Detailed Analysis:

1. Allowability of Assessee’s Claim of Rs. 24,01,00,000/- Under Section 36(1)(viia):

(A) The Revenue filed an appeal against the order of the Learned Commissioner of Income Tax (Appeals), Meerut [“Ld. CIT(A)”], dated 20.02.2018, for Assessment Year 2014-15. The grounds of appeal included whether the Ld. CIT(A) erred in deleting the addition of Rs. 24,01,00,000/- made by the AO on account of disallowance of Provision for Bad & Doubtful Debts claimed by the assessee under Section 36(1)(viia) of the Income Tax Act, 1961, without recording his findings and ignoring the AO's observations.

(B) The only issue in dispute was the allowability of the assessee’s claim of Rs. 24,01,00,000/- under Section 36(1)(viia) for provision for Bad & Doubtful Debts. The AO had disallowed the claim in the assessment order dated 20.12.2017. However, the Ld. CIT(A) allowed the claim and directed the AO to allow the full deduction of Rs. 24,01,00,000/-.

(C) The Ld. CIT(A) reasoned that the appellant was entitled to the deduction under Section 36(1)(viia) as per the calculation provided in the Act. The appellant, a Regional Rural Bank, had made advances from its rural branches, and the provision for Bad & Doubtful Debts was made following the income recognition norms of the Reserve Bank of India. The decision was supported by the Supreme Court judgment in Catholic Syrian Bank Ltd Vs CIT Thrissur, which clarified the legislative intent to encourage rural advances and provide greater deductions.

(D) The ITAT Bangalore and ITAT Chennai had similar rulings, affirming that the actual provision made in the books by the assessee for Bad & Doubtful Debts, irrespective of whether it is rural or non-rural, should be considered for deduction under Section 36(1)(viia). The ITAT Delhi Bench also upheld similar claims in previous cases, supporting the interpretation that the deduction should be allowed based on the calculation provided in the Act, irrespective of the amount of provision made in the books of accounts.

(E) During the appellate proceedings, both sides agreed that the issue was covered in favor of the assessee by the ITAT Delhi's order dated 24.02.2020 for Assessment Year 2013-14 in the assessee’s own case. The ITAT Delhi had previously allowed similar claims, taking into consideration CBDT Circular No. 421 dated 12.06.1985 and various judicial pronouncements, including UCO Bank Ltd. 237 ITR 889 (SC) and Catholic Syrian Bank 88 ITD 185.

(F) The ITAT Delhi noted that the legislative intent was to encourage rural advances and making provisions for bad debts in relation to such rural advances. The deduction under Section 36(1)(viia) is distinct and independent of Section 36(1)(vii) relating to the allowance of bad debts. The Supreme Court in Catholic Syrian Bank Ltd Vs CIT Thrissur clarified that the deduction under Section 36(1)(viia) cannot be negated by reading into it the limitations of Section 36(1)(vii).

(G) The ITAT Delhi concluded that the assessee was entitled to the deduction of Rs. 24,01,00,000/- for bad and doubtful debts as claimed. The AO was directed to allow the full deduction as claimed by the assessee in the computation of income.

(H) The present appeal filed by Revenue was dismissed, affirming the decision of the Ld. CIT(A) and following the ITAT Delhi's previous rulings in similar cases.

Conclusion:
The appeal filed by the Revenue was dismissed, and the assessee's claim of Rs. 24,01,00,000/- under Section 36(1)(viia) for provision for Bad & Doubtful Debts was allowed, following the legislative intent and judicial precedents that support such deductions for rural advances.

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