2024 (4) TMI 1023 - AT - Income Tax

Bad debt claims under section 36(1)(vii) allowed after assessee provided party-wise details of identified debts

E-oriental Bank of Commerce (Now amalgamated with Punjab National Bank-PNB) Versus ACIT, Special Range-07 New Delhi.

The ITAT Delhi allowed the assessee's appeal regarding disallowance under section 36(1)(vii) for bad debt claims on identified debts. The assessee ... Disallowance u/s 36(1)(vii) - bad debt claim in respect of identified debts - HELD THAT:- The assessee has brought on record a chart containing party-wise details of accounts which have been claimed as bad debts i.e. identified debts u/s 36(1)(vii) which, according to the assessee has never been claimed u/s 36(1)(viia). As pointed out by the Ld. AR, the appeals of the Revenue filed against the decision of the Tribunal on the impugned issue for AY 2013-14 to 2015- 16 stand dismissed by the decision of Hon’ble Delhi High Court [2023 (10) TMI 1244 - DELHI HIGH COURT] Revenue had also gone in appeal before the Hon’ble Delhi High Court against the order of the Tribunal on this issue for AY 2016-17 as well but the Hon’ble Delhi High Court following its decisions for AY 2013-14 to 2015- 16 held that ‘no substantial question of law arises for consideration by this court’. Appeal of the assessee is allowed. Issues Involved:1. Disallowance of bad debt claim under section 36(1)(vii).2. Applicability of amended provisions w.e.f. AY 2014-15.3. Precedent from previous assessment years.4. Compliance with Supreme Court judgments and statutory requirements.Summary:Disallowance of Bad Debt Claim under Section 36(1)(vii):The assessee, a Nationalized Bank, claimed Rs. 4545.89 crores as bad debt under section 36(1)(vii). The AO disallowed this claim, stating that the assessee merely reduced the provision for bad debts from loans and advances in the balance sheet, which did not constitute an actual write-off. The AO also noted that the assessee failed to distinguish between rural and non-rural advances and did not provide necessary documentation.Applicability of Amended Provisions w.e.f. AY 2014-15:The CIT(A) observed that the AO did not grasp the Supreme Court's decision in Vijaya Bank v. CIT, which laid down the requirements for claiming deductions under section 36(1)(vii). However, the CIT(A) pointed out that the insertion of Explanation 2 below section 36(1)(vii) by the Finance Act, 2013, effective from 01.04.2014, changed the quantum of deduction available. This amendment requires that bad debts written off must first be adjusted against the credit balance available under the provision for bad and doubtful debts under section 36(1)(viia).Precedent from Previous Assessment Years:The assessee argued that similar claims were allowed in previous years, including AY 2015-16 and 2016-17, by the ITAT and upheld by the Hon'ble Delhi High Court. The Tribunal's decision for AY 2016-17, which followed the same fact pattern, was also in favor of the assessee.Compliance with Supreme Court Judgments and Statutory Requirements:The Tribunal noted that the assessee provided a chart containing party-wise details of accounts claimed as bad debts, which were never claimed under section 36(1)(viia). The Tribunal found that the AO and CIT(A) did not dispute the factual accuracy of this information. The Tribunal referenced its previous decisions and the Supreme Court judgment in Vijaya Bank, confirming that the assessee satisfied the conditions for an actual write-off.Conclusion:The Tribunal set aside the CIT(A)'s order and allowed the assessee's appeal, affirming that the bad debt claim under section 36(1)(vii) should be allowed. The Tribunal emphasized that the facts and circumstances remained consistent with previous years, where similar claims were upheld by higher judicial authorities. The appeal was allowed, and the order was pronounced on 20th February, 2024.