TaxTMI 
TaxTMI 
2017 (4) TMI 1493
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....year under consideration, the assessee company written off a sum of Rs. 1,42,48,266/- on account of debts as irrecoverable. The assessee is an organization to which the provisions of Section 36(1)(viia) is applicable. In assessee's case an order u/s.143(3) was passed on dated 17.11.2006. Later on, it was found by the AO that there had been certain mistakes, which were apparent from the record and needs to be rectified. The issue of rectification was allowance of provision of Section 36(1)(viia)(c). While rectifying the mistake the Assessing Officer observed as under: " In the assessment order the provision had been allowed before working out of total income as per the Act. The section provides that 5% of total income as worked out, before giving credit of deduction under clause 36(1)(viia)(c) and any deduction under Chapter-VIA of the Act, is to be allowed as deduction. Total income of the assessee for the year should have been worked out after adjustment of brought forward of loss, whereas in the order deduction had been allowed before such adjustment. This is a mistake apparent from record. In the written statement the AR opposed the proposed rectification, arguing that ....
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....section 72 of the Act. Chapter VI-A, specifying various deductions from gross total income, consists of section 80A to 80VV (now deleted). The Chapter VI-A comes after section 72 relating to set off or brought forward business losses. In other words, total income is arrived at after reducing deduction under Chapter VI-A from gross total income which is worked out after considering set off of brought forward business losses. Therefore, the term 'total income' refers to income after allowance of brought forward losses. The contention of the appellant that for purpose of finding true scope of total income, one should consider only the income and expenses relating to the concerned year, therefore, does not appear to be correct. Once the term 'total income' has been defined under the LT. Act, one has to take the meaning of the term as given in the said definition. The position is further clarified by the fact that the provision of section 36(1)(viia)(c) of the IT Act, 1961, reference is made to the total income computed before making any deduction under the said clause and Chapter VI-A. It clearly means that other than the aforesaid deductions, effect to all the provisio....
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....er of Income-tax (Appeals) failed to appreciate that the issue of consideration of Total Income for the purpose of deduction U/S 36(1)(viia)(c ) being debatable in nature, the Order of Rectification passed by the Assessing Officer U/S 154/143(3) had been bad in law. 3. That the appellant craves leave to add, alter or withdraw any ground or grounds of appeal before or at the hearing of the appeal. 5. Ld. AR has submitted before us that for the purpose of computing the deduction u/s.36(1)(viia)(c) in relation to provision for bad and doubtful debts, total income should be considered before setting off of brought forward loss. The Ld. CIT(A) has erred in confirming the action of the AO in withdrawing the deduction earlier allowed through an order of rectification u/s.154 of the Act. The Ld. AR submitted that the issue under consideration is debatable in nature, therefore, rectification order passed u/s.154 does not have any force i.e the issue under consideration of total income for the purpose of deduction u/s.36(1)(viia)(c) of the Act is debatable in nature, therefore, rectification order passed u/s.154 had been bad in law. The Ld. AR for the assessee had vehemently subm....
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....ution or corporation, as the case may be, on the last day of the previous year.] The Ld. AR for the assessee submitted that as per clause ( c) of Section 36(1)(viia) of the Act, the financial institution may make a provision for doubtful debts not exceeding 5% of the total income. The ld AR submitted before us that to determine "total income", the provision for bad debts should be allowed first and then after the carried forward (CF) losses should be adjusted. The Ld. AR for the assessee also submitted that sub-proviso of clause ( c) of Section 36(1)(viia) of the Act, gives an option to the assessee that assessee may claim in two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by the RBI i.e. the assessee may claim 10% of the amount of such assets shown in the books of account as provision for doubtful debts. The Ld. AR has requested the bench that the assessee has expressed his desire to compute and claim the provision for dou....
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....Officer (AO) computed deduction u/s.36(1)(viia) ( c) of the Act as follows: Loss as per computation annexed with the return Rs. 89,72,68,736 Less: Disallowance as discussed:- a. On account of bad debts written off Rs. 1,42,48,266 b. On account of provision on bad debts written back Rs. 124,69,89,000 c. U/s.14A - as discussed Rs. 34,33,000 d. On account of depreciation Rs. 8,300 Rs. 46,74,09,830 Less: Provision allowed u/s.36(1)(viia) ( c)-restricted to 5% of total income Rs. 2,33,70,492 Rs. 42,40,39,338 Less: Business Loss brought forward Rs. 42,40,39,338 Total Income Nil The AO later on noticed that the computation of deduction u/s.36(1)(viia)(c) of the Act done by him in the as aforesaid in the order of assessment dated 17.11.2006 was erroneous, because deduction to be allowed said section was 5% of total income before making deduction under clause (c) of Sec.36(1)(viia) of the Act. The brought forward loss of the Assessee was more than Rs. 46,74,09,830 and as per Sec.72 of the Act, the brought forward loss had to be set off to arrive at the total income. If brought forward loss ....
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.... deductions. 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)....... (b)...... (c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) : Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, of an amount not exceeding ten per cent of the amount of such assets shown in the books....