AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (9) TMI 106
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....ts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in allowing to the assessee on the issue of deduction under section 36(1)(viia) without appreciating the ratio laid down by the Punjab and Haryana High Court in the case of State Bank of Patiala v. CIT [2005] 272 ITR 54 (P&H) on the issue under consideration. 3. The learned Commissioner of Income-tax (Appeals) has also erred in holding that the deduction under section 36(1)(viia) is allow able at 10 per cent. without appreciating the clear provisions of section 36(1)(viia) which explicitly restricted the deduction to the extent of provision made for bad and doubtful debts with an upper cap of 10 per cent. of the aggregate average rural advances and 7.5 per cent. of the total income. 4. Any other ground raised during the proceedings of appeal." 3. From the above grounds, it is gathered that the only grievance of the Department in this appeal relates to the deletion of the addition made by the Assessing Officer on account of deduction under section 36(1)(viia) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). 4. The facts of the case in brief a....
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.... Commissioner of Income-tax in that case. As regards section 36(1)(viia), the Income-tax Appellate Tribunal Bangalore in the above case, has mentioned it in passing phrase. Hence this case law cannot be credibly followed to dispose of this case in your favour. 6. The language of section 36(1)(viia) of the Income-tax Act, 1961 states 'in respect of any provision for bad and doubtful debts made by' clearly states that deduction in this regard will be restricted to provision made by the assessee-bank. 7. Please go through the findings of the following case law : The High Court of Punjab and Haryana State Bank of Patiala v. CIT [2005] 272 ITR 54 (P&H), dated May 21, 2004." 5. In response to the above queries, the assessee submitted as under : "With reference to your query regarding the allowability of deduction under section 36(1)(viia) to the extent of the amount of reserve created in the books of account and your various assumptions and doubts regarding the interpretation of the provisions of section 36(1)(viia), my humble submissions are as under : 1. The assessee has relied upon the findings of the Income-tax Appellate Tribuna....
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....ala High Court in the case of South Indian Bank Ltd. reproduced above which makes it clear that there is no restriction of reserve in the books for deduction under section 36(1)(viia). It may be stated that there are two divergent views of two different High Courts on the same issue. In this connection, your kind attention is invited the landmark decision of the hon'ble Supreme Court case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) wherein the apex court has opined and observed that, 'On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee'. Thus, in view of this judgment of the apex court the interpretation of section 36(1)(viia) which is favourable to the assessee has got to be construed and applied. In view of the above submissions, it is reques....
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....65,000 and accepted the short-term capital gain disclosed by the assessee at Rs. 24,95,386. 10. Being aggrieved the assessee carried the matter to the learned Commissioner of Income-tax (Appeals) and furnished the written submission which is reproduced verbatim as under : "It is respectfully submitted that in the abovementioned case, there are as many as 12 grounds of appeal out of which one ground relates to wrong observation of the learned Assessing Officer denying the right of the assessee to carry forward loss due to so-called belated return and all the other 11 grounds are centered on only one issue i.e. the claim of deduction made by the assessee under section 36(1)(viia) of the Income-tax Act which has been restricted by the learned Assessing Officer to the extent of the provision for bad and doubtful debts made in the books of account ignoring the claim of the assessee at 10 per cent. of the average monthly rural advances which is based on clear interpretation of the language used in section 36(1)(viia) and also supported by the judgments of various courts including the Supreme Court. The facts of the case have been discussed in detail in the body of the assessm....
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.... tax audit. Thus, even for partnership firms, trusts, individuals etc. who are subject to tax audit, the due date for filing the tax returns stands extended to 15 October and for Jammu and Kashmir till 30th of November 2010." As mentioned in the assessment order, the assessee filed return of income on October 11, 2010 which, according to the above order of the Central Board of Direct Taxes is within time as the case of the assessee is covered under section 44AB. The learned Assessing Officer has failed to appreciate this order and mentioned the return, 'late'. The observation of the learned Assessing Officer is therefore, wrong and the return filed by the assessee is within time and the assessee is fully entitled for carry forward and set off its losses as per the provisions of the Income-tax Act. The observation made by the Assessing Officer may, therefore, be deleted and the Assessing Officer may be directed to allow carry forward and set off of losses. 2. As stated earlier, grounds Nos. 1 and 3 to 12 are centered on the issue of deduction under section 36(1)(viia) of hence common written submissions are made in respect of all these grounds of appeal. Th....
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....ot exceed the percentage of profit and percentage of rural advances. There is no restriction regarding the amount of reserve created in the books of account otherwise the words amount of reserve for bad and doubtful debts 'created in the books of account' should have been used in the section itself. Or, alternatively, a proviso restricting the amount of deduction to the amount of reserve created in the books of account should have been added below the section 36(1)(viia) also as has been done below section 36(1)(vii). This having not been done makes it clear that there is no intention to restrict the amount of deduction admissible under section 36(1)(viia) to the extent of the reserve created in the books of account. The interpretation of the opening words used in section 36(1)(viia) as pointed out by your goodself can be explained through an illustration. You have mentioned that the opening words in section 36(1)(viia). "In respect of any provision for bad and doubtful debts made by" prove that the admissible deduction under that section is restricted to the amount of actual reserve made by the assessee. In this connection, your attention is invited to the similar....
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....see may be able to explain its case. Through this illustration the issue stands proved that deduction under section 36(1)(viia) is to be allowed at prescribed percentage after adding back the amount provided in the books and there is no restriction of the admissible deduction with reference to the extent of the provision made in the books of account." 13. It was further stated before the learned Commissioner of Income-tax (Appeals) that the arguments advanced by the assessee were ignored and the Assessing Officer did not offer any comments whatsoever on the above arguments of the assessee. Therefore, the arguments of the assessee regarding the interpretation of the provisions of section 36(1)(viia) of the Act may be taken into account and the deduction under the said section may be treated to be allowed as claimed by the assessee. It was also stated that the Assessing Officer relied upon the judgment of the hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala v. CIT [2005] 272 ITR 54 (P&H) wherein it has been held that the amount of deduction under section 36(1)(viia) of the Act is to be restricted to the amount of reserve created in the books of accoun....
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.... ignored the aforesaid arguments and did not mention a single word about this argument as to why he did not follow the decision of the Supreme Court relied upon by the assessee and did not accept and follow the judgment and interpretation which was favourable to the assessee as held by the Hon'ble Supreme court but proceeded to restrict the deduction under section 36(1)(viia) of the Act to the extent of reserve created in the books of account. 16. The learned Commissioner of Income-tax (Appeals) after considering the submissions deleted the addition by observing as under : "I have carefully perused the assessment order and gone through the detailed submissions of the counsel for the appellant and also the various judicial pronouncements cited by the counsel for the appellant. The main issue involved in appeal before me is the claim of deduction made by the assessee under section 36(1)(viia) of the Income-tax Act which has been restricted by the Assessing Officer to the extent of the provision for bad and doubtful debts made in the books of account ignoring the claim of the assessee at 10 per cent. of average monthly rural advances which is based on the clear interpr....
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....nder section 36(1)(viia) of the Act. It was further submitted that the Assessing Officer rightly disallowed the claim of the assessee by following the judgment of the hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala v. CIT [2005] 272 ITR 54 (P&H). 19. In his rival submissions the learned counsel for the assessee reiterated the submission made before the authorities below and further submitted that the Assessing Officer disallowed the claim of the assessee by following the decision of the Punjab and Haryana High Court but ignored the later judgment of the hon'ble Supreme Court in the case of Southern Technologies Ltd. v. Joint CIT reported at [2010] 320 ITR 577 (SC) ; [2010] 228 CTR 440 wherein it has been held that the provisions of section 36(1)(viia) of the Act provides for a deduction in respect of any provision for bad and doubtful debts made by scheduled bank and non-scheduled bank in relation to advances made by its rural branches of a sum not exceeding specified percentage of the aggregate advances by such branches. It was further submitted that the deduction under section 36(1)(viia) of the Act is a specific deduction given by the statut....
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.... 21. It is also an admitted fact that for the preceding year on an identical issue the learned Commissioner of Income-tax invoked the provisions of section 263 of the Act and this Bench of the Tribunal having the same combination, set aside the said order in the assessee's own case as reported in Prathma Bank v. CIT [2016] 52 ITR (Trib) 454 (Delhi) and observed in paragraph 18 of the order dated November 25, 2016 as under (page 469) : "In the present case, the assessee had given the break-up of each branch (copies of which are placed at pages 15 to 28). In the instant case, the assessee in its computation of revised total income/loss (copy of which is placed at page 1 of the assessee's paper book) clearly mentioned that deduction under section 36(1)(viia) of the Act was claimed at 10 per cent. of average agricultural advances of Rs. 801.56 crores. Thereafter, the Assessing Officer after examining the aforesaid details came to the conclusion that the claim of the assessee was allowable and he accordingly allowed the claim of the assessee under section 36(1)(viia) of the Act. The said claim was in accordance with law and as provided in the provisions of section 36(1)....