2018 (10) TMI 359

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....ness. Assessee filed return on 29.9.2012 declaring NIL income. The case was selected for scrutiny and statutory notices were issued to the assessee. During the course of assessment proceedings Ld. AO observed that the assessee has claimed bad and doubtful debts and claimed deduction u/s 36(1)(vii) which was 10% of average rural advances of Rs. 1,40,17,50,100/- . Further, he noted that the Assessee had claimed Rs. 26,35,77,000/- as a provision for bad and doubtful debts but the AO allowed the claim of deduction u/s 36(1)(viia) at Rs. 26,35,77,000/-. 3. Being aggrieved from the order of the AO, the assessee preferred an appeal before the Ld. CIT(A) and Ld. CIT(A) after considering the submissions of the assessee and relying on the order of the ITAT, allowed the appeal of the assessee holding that the claim of the assessee is justified as per section 36(1)(viia). The findings of the Ld. CIT(A) is as under :- "I have taken into consideration the grounds of appeal, detailed written submissioas made by the counsel for the appellant and have gone through various judicial pronouncements cited the counsel. . The only issue to b e adjudicated upon is the claim of deduction made by the ass....

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....blished to be a bad debt. Section 36(1 )(viia) provides for a deduction in respect of any provision for bad and doubtful debt made by a Scheduled Bank or Non-Scheduled B8nk in relation to advances made by its rural branches, of a sum not exceeding a specified percentage of the aggregate average advances by such 'branches. 'Having 'regard .to the -increasing social commitment, Section 36(1)(viia) has been amended to provide that in respect of provision for bad and doubtful debt made by a scheduled bank or a non-scheduled bank, an amount not exceeding a specified per cent of the total income or a specified per cent of the aggregate average advances made by rural branches, whichever is , higher, shall be allowed as deduction in computing the taxable profits." Apart from above, I have also gone through a Circular No 258 dated 14/06/1979, issued by the CBDT which read as under:.' "13.1 Under section 36(1)(viia), a taxpayer carrying on business or profession is entit1ed to a deduction, in the computation of the, taxable profits, of the amount of any, debt, which is established to have become bad during the previous year, subject to certain conditions. However, a mere ....

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....the write off of the irrecoverable debts under section 36(1)(vii) in addition to the benefit of deduction of the provision for bad and doubtful debts under section 36(1)(viia) . 13.4 This provision will take effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent years. (Circular No 258 dated 14/06/1979: Explanatory notes on Finance Act, 1979:Finance Act, 1979 Deduction in respect of provisions made for bad and doubtful debts relating to rural branches of scheduled commercial banks -Section 36(1)(viia) [Section 6(b) of the Finance Act]" The landmark judgment, of Supreme court in the case of CIT vs Vegetable Products [188 ITR192 (SC)] holding" therein .that "if two reasonable constructions of a taxing provision are possible, that construction which favors the assessee must be adopted". From what has been discussed above it is Clear that the provisions of new clause (viia) of section 36(1) relating to the deduction on account of provisions for bad and doubtful debts is distinct and independent of the provisions of section 36(1)(vii) relating to allowance of bad debts. In other words, the scheduled commercial banks would continue....

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....oth the parties and carefully gone through the material available on the record. In the present case, the assessee claimed deduction u/s 36(1)(viia) of the Act at 10% of the average agricultural advances made by its rural branches. The said claim was disallowed by the AO. However, the ld. CIT(A) allowed the claim by following the ratio laid down by the Hon'ble Supreme Court in the case of Southern Technologies Ltd. Vs JCIT 320 ITR 577 (supra) wherein it has been held as under: "Section 36(1)(viia) provides for a deduction in respect of any provision for bad and doubtful debt made by a scheduled bank or non-scheduled bank in relation to advances made by its rural branches, of a sum not exceeding a specified percentage of the aggregate average advances by such branches. Having regard to the increasing social commitment, section 36(1)(viia) has ITA No. 4060/Del/2013 Prathma Bank 22 been amended to provide that in respect of provision for bad and doubtful debt made by a scheduled bank or a non-scheduled bank, an amount not exceeding a specified per cent, of the total income or a specified per cent, of the aggregate average advances made by rural branches, whichever is higher, shall b....