TaxTMI 
TaxTMI 
2011 (7) TMI 87
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....;). In fact, this is the issue which arises in all other appeals as well. Since it has been discussed in detail by the Income Tax Appellate Tribunal („Tribunal‟ for brevity) in this appeal, that became the justification of this appeal as a lead case. We shall, thus, take note of the facts in this appeal to decide the question. However, other issues which have arisen in this appeal as well as other appeals would also be discussed separately by us in the course of this judgment. 2. For this assessment year, the assessee had declared income at Rs.253.83 Crores. The assessee had claimed an amount of Rs.12,906.18 lacs as deduction being special reserve created under Section 36(1)(viii) of the Act. The assessee had an opening balance of Rs.26,963.00 lacs as on 01.04.1996. The AO found that out of these special reserves, the assessee transferred Rs.50 Crores to bad and doubtful debts accounts. The AO disallowed this amount of Rs.50 Crores as he found that the assessee had separately claimed the bad and doubtful debts in Profit & Loss Account as actually written off and this amount of Rs.50 Crores could not be allowed as deduction under Section 36(1)(viii) of the Act ....
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....the caption "provision for bad and doubtful loans", the assessee has further written off outstanding loans by the sum of Rs.18,624.61 lacs being the aggregate amount of bad debts written off in the books of accounts of the assessee. This sum of Rs.18,624.61 lacs had been claimed as deduction by the assessee over and above the sum of Rs.570 lacs provided under Section 36(1)(viia)(c) of the Act and the special reserve of Rs.12,906.18 lacs created under the provisions of section 36(1)(viii) of the Act. The sum effect is that the assessee had reduced the amount of loans by a sum of Rs.18,624.61 lacs by way of write off and by the sum of Rs.30,582.14 lacs by way of "provision for bad and doubtful loans". 7. The AO vide order dated 26.02.1999 disallowed deduction for bad debts written off amounting to Rs.18,624.61 lacs, inter alia, on the following grounds: (a) The assessee could not claim deduction for both the amount of provision of bad and doubtful debts created during the relevant previous year under Section 36(1)(viia)(c) of the Act as also the amount of bad debts actually written off. (b) The amount of claim of deduction of bad debts written off was to....
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....eduction of amount of bad debt written off by the amount of Rs.5,000 lacs transferred from special reserve to provision for bad and doubtful loans; (b) Upholding adjustment of Rs.570 lacs being provision for bad and doubtful debts allowable under Section 36(1)(vii) of the Act against bad debts written off. 9. The Tribunal reversed the order of the CIT(A) qua the first issue, viz., reducing the amount of bad written off by sum of Rs.5,000 lacs transferred from special reserve to provisions for bad and doubtful loans. With regard to the second issue, the Tribunal upheld the order of the CIT(A) for which the assessee has filed separate appeal bearing ITA No.1931 of 2010. 10. It is in this backdrop, in the appeal filed by the Revenue, we have to consider as to whether the sum of Rs.50 Crores transferred by the assessee from special reserve account to provision for bad and doubtful account is to be allowed as deduction or not. To answer this question, we will have to take note of the relevant provisions of the Act, viz., Section 36(1)(vii) of the Act. These are as under: "Section 36: Other Dedication: (1) The deductions provided for in the followi....
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....e carried to a special reserve. For claiming this deduction, this clause requires that the reserve to the extent of 40% of the total income be credited by debit to profit and loss account. By the Finance Act 1997, the phrase "and maintained" is inserted after the work "created" in Section 36(1)(vii) with effect from 01.04.1998. By the same Finance Act, 1997, sub-clause (v) of Section 36(2) is also made applicable with retrospective effect from 01.04.1992 to all the assessees to which clause (viia) of sub-Section (1) of Section 36 applied, which was earlier applicable to only banks. Finance Act 1997 has also made provisions by proviso to Section 36(1)(vii) applicable to all the assessees with retrospective effect from 01.04.1992, which was earlier applicable to banks only. Simultaneously, sub-section (4A) was inserted in Section 41 by the Finance Act, 1997 with effect from 01.04.1998 whereby any amount subsequently withdrawn from the special reserve created by the assessee under Section 36(1)(viii) in respect of which, deduction had been allowed earlier is deemed to be the profit and gains of business or profession and is made chargeable to tax in the year in which such amount is wi....
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.... the assessee, on the other hand, is that prior to Assessment Year 1998-99, the only requirement for claiming deduction under Section 36(1)(viii) of the Act was creation of reserve equivalent to 40% of the total income by debit to the profit and loss account. There was no further requirement, implicit or explicit, that such reserve should be maintained intact for certain number of years or such reserve should be used for specified purposes. It is only from the Assessment Year 1998-99 that the Act has provided for such reserve to be maintained intact and in case of any withdrawal from such reserve, the amount withdrawn is deemed to be income liable to tax in the year of withdrawal. 16. It is clear from the reading of the provisions of Clause (viii) of Sub-section (1) of Section 36 that the words "and maintained" were inserted only by way of Amendment made with effect from 01.04.1998. As per the unamended provision, which is applicable to these cases, only requirement was for creation of reserve equivalent of 40% by debit to the profit and loss account. In this scenario, the moot question is as to whether the amendment is prospective or it is only clarificatory in nature and is to be....
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.....759 of 2007) referring to and relying upon the aforesaid judgments of the Kerala High Court. So much so, the Department itself has clarified the Legislative intent behind Section 41(4A) of the Act. As can be found in Circular No.763 dated 18.02.1998 issued by the Central Board of Direct Taxes (CBDT), which makes the following reading : "21.2 In order to incorporate the condition regarding maintenance of the reserve, Clause (viii) has been amended by substituting the words special reserve created with the words "special reserve created and maintained". An amendment has been made in Section 41 in order to bring to tax any amount withdrawn from such special reserve in the year in which the amount is withdrawn. For this purpose, a new sub-section (4A) has been introduced in this Section, and a reference to this sub-section is also made in sub-section (5) of this Section. 21.3 This amendment will take effect form 1st April, 1998, and will, accordingly, apply in relation to the assessment year 1998-99 and subsequent years." 18. In view of the aforesaid, we do not find any reason to differ with the view taken by Kerala High Court which is fortified by Circular of CBDT....
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....terest has remained „past due‟ for a period of four quarters during the year ending 31st March 1994; three quarters during the year ending 31-3-1995; and two quarters during the year ending 31-3-1996 and onwards. In respect of all NPAs, interest accrued and other charges like fees and commission credited to income account during the previous accounting year but which have not been actually realized, should be reversed or provided for in the current accounting period. That means, if any interest which has not been actually realized and which was offered to tax, requires to be reversed in the current accounting period. The assessee in this case being a financial institution, is governed by these guidelines issued by the RBI and has therefore correctly reversed the interest from NPA and it is not the case of revenue that the assessee has realized any part of the interest which it has credited to the P & L A/c in the earlier years to the extent the interest remains unrealized the same is really in the nature of bad debt and could have been claimed u/s 36(1)(vii) of the Act. As held by the Hon‟ble Supreme Court in the case of Arunachalam Vs. CIT 4 ITR 173, the loss of ....