TaxTMI 
TaxTMI 
2015 (4) TMI 1121
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....Supreme Court in the case of Catholic Syrion Bank Ltd., Vs CIT wherein the Hon'ble Supreme Court has held that the provisions of the sec. 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction. 3. The learned CIT(Appeals) while relying on the above decision has erroneously held that the assessee is having a closing balance of bad debts to the extent of Rs. 1690 lakhs in the rural branches and the assessee has made claim of Rs. 9,93,40,015/- against such provision and therefore is eligible for deduction. 4. The learned CIT(Appeals) ought to have taken into consideration the clarificatory provision brought into LT. Act as explanation 2 of clause (vii) of sec.36(1) which is subsequent to Hon'ble Supreme Court's decision in the relied upon case, viz. Catholic Syrion Bank Vs. CIT. 5. The CIT(Appeals) ought to have appreciated that the assessee has claimed provision for bad and doubtful debts to the extent of Rs. 22,87,14,000/- in the P&L account though the eligibility as per the provisions of clause viia of sec.36(1) is Rs. 9,93,40,015/- as worked out by the assessee itself and has not furnished any details/basis of such provisions. ....
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....under S.36(1)(viia) of the Act, being 7.5% of the total income of the assessee as computed before making any deduction under S.36(1)(viia) and Chapter VIA. On such examination, he found that the assessee has made another provision for an amount of Rs. 22,87,14,000 under the head 'Provisions and Contingencies' without giving any break up or bifurcation of the relevant details like category of asset under NPA. In the absence of these details, the Assessing Officer found it difficult to ascertain as to whether deduction under S.36(1)(viia) was claimed by the assessee twice while arriving at the total income for the year under consideration. According to the Assessing Officer, the assessee also could not explain as to whether it has debited the write off under the head 'bad debts' in the account of provision for bad and doubtful debts, which has to be maintained by it as per the proviso to S.36(1)(vii). He noted that the deduction under S.36(1)(viia) was not allowable in respect of non-specified assets or in respect of advances categorized as 'standard assets', as per the decision of the Hon'ble Supreme Court reported at (320 ITR 577). He therefore, held that deduction of Rs. 9,93,....
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.... matters dealt with therein, in computing the income referred to in section 28 - (vii) subject to provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of assessee for the previous year, (viia) in respect of any provision for bad and doubtful debts made by (a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a nonscheduled bank or a co-operative bank other than primary agricultural credit society or a primary cooperative agricultural and rural, development Bank, an amount not exceeding seven and half percent of total income (computed before making any deduction under this clause and chapter VIA) and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. (b) A bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five percent of the total income (computed before making any deduction under this clause and chapter VIA) (c) A public financial institution or a State financial Corporation or a State Industrial Investment ....
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....nt items of deduction and operate in their respective fields. The bad debts written off debts, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference between the debt or part thereof written off in the previous year and credit balance in the provision for bad and doubtful debts account made under clause (viia). The proviso to Section 36(1)(vii) will relate to cases covered u/s 36(1)(viia) and has to be read with Section 36(2)(v) of the Act. Thus, the proviso would not permit benefit of double deduction, operating with reference to rural loans while under Section 36(1)(vii), the assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable "in the accounts of the assessee for the previous year. This, obviously, would be subject to satisfaction of the requirements contemplated under Section 36(2)." (Para 41 of the order) Thus, as could be seen from the interpretation given by the Hon'ble Supreme Court (supra), on the issue, the proviso t....
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....963.00 3050.00 4013.00 Add: Provision made during the year In lakhs 538.00 1702.00 2240.00 Written off during the years In lakhs 534.00 1690.00 2224.00 Closing Balance provisions In lakhs 1093.00 2936.00 4029.00 7. The relevant provisions of S.36(1)(viia) under which deduction in question is claimed by the assessee are extracted below- "Section 36(1) :The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 - ......... (viia) in respect of any provision for bad and doubtful debts made by (a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a nonscheduled bank or a co-operative bank other than primary agricultural credit society or a primary cooperative agricultural and rural, development Bank, an amount not exceeding seven and one-half percent of the total income (computed before making any deduction under this clause and chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. Provi....
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.... respect of urban advances and Rs. 17.02 crores in respect of rural advances) was made by the assessee during the year under consideration. Moreover, all these facts and figures were furnished by the assessee before the learned CIT(A) for the first time and the Assessing Officer therefore, did not have any opportunity to verify the same. The claim of the assessee of having adjusted the amount of Rs. 22.24 crores towards bad debts written off during the year under consideration against the opening balance of the provision of Rs. 40.13 crores was also made by the assessee for the first time before the learned CIT(A), and the Assessing Officer did not have any opportunity to verify the same. Having regard to all these facts and circumstances of the case, we are of the view that it would be fair and proper and in the interests of justice to restore the issue relating to the assessee's claim for deduction under S.36(1)(viia) to the file of the Assessing Officer for deciding the same afresh, in accordance with the provision of S.36(1)(viia) after giving proper and sufficient opportunity of hearing to the assessee and after verifying all the relevant facts and figures. We order accordingl....