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TaxTMI 
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TaxTMI 
2022 (11) TMI 989
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....ion in earlier years or the same has to be allowed in respect of incremental advances made during the year?" 2. The brief background of the case, which resulted in constitution of this Special Bench is: The assessee is a scheduled bank and has claimed deduction under section 36(1)(viia) of the Act in respect of provision made for bad and doubtful debts. The assessee, while claiming aforesaid deduction under section 36(1)(viia) of the Act, calculated the "aggregate monthly average advances" by taking into consideration the outstanding balances of the previous month, i.e., the opening balance for computing the amount of advance as outstanding at the end of each month as per the language of Rule 6 ABA of the Income Tax Rules, 1962. The Assessing Officer rejected the computation of the assessee and held that only incremental advances made during the month can be considered while calculating the figure of "aggregate monthly average advances". The Assessing Officer was of the view that if the opening balance is also considered it would result in the assessee claiming deduction of more than actual advance especially where the advance has not been paid back. The First Appellate Authority ....
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....or bad and doubtful debts in our understanding are estimates of future losses and are made from profits of the year to cover such estimated future losses, which in the present case arises from the risk associated with making rural advances. Such an estimate can logically in our view be made only once on an advance. By allowing provision to be made on opening balance also the provision is being repeatedly made, which in our view goes against its basic nature itself and would also lead to an absurdity with the losses being provided for, exceeding the estimate itself and in some cases even exceeding the amount of advances made. Our detailed reasoning on the issue is part of our proposed order in the aforestated appeals which is annexed herewith. We therefore are referring the issue to the Hon'ble President for constituting a special bench of ITAT for deciding it, framing the following question. "Whether deduction under section 36(1)(viia) of the Income Tax Act 1961 r.w.r 6ABA of the Income Tax Act 1962 is to be allowed on the total outstanding advances including opening balances upon which the assessee bank has already claimed such deduction in earlier years or the same has to b....
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....visions would appear from the following passage:- "From this Rule, it is apparent that for the purpose of section 36(1) (viia), the aggregate average advance made by the rural branches of as scheduled bank shall be computed by taking the amount of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the previous year has to be aggregated separately. The CIT (Appeals) instead of giving the direction to the Assessing Officer to take the amount of advances as outstanding at the end of the last day of each month in the previous year directed the Assessing Officer to take loans and advances made during the year only, we therefore, set aside the order of CIT (Appeals) on this issue and amend the direction of the CIT (Appeals) and direct the Assessing Officer to compute 10% of the aggregate monthly average advances made by the rural branch of such Bank by taking the amount of advances by each rural branch of such Bank by taking the amount of advances by each rural branch as outstanding at the end of the last day of each month comprised in the previous year and aggregate the same separately as given under Rule 6ABA of the Income Tax Rule....
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....ribunal was right in deleting disallowance of provision before bad debts under Section 36 (1) (viia) of Rs.8.53 crores observing that as per Rule 62ABA of the Income Tax Rules 1962, the aggregate average advances made by the rural branches have to be computed by taking the amounts of advances made by each rural branch as outstanding at the end of last day of each month comprised in the previous year, whereas the aggregate average has to be worked out only in respect of advances made during the year as otherwise, there would be double deduction?" 11. While in principle agreeing with the submission of the taxpayer, the Hon'ble Madras High Court took into consideration the aforesaid decision of Hon'ble Calcutta High Court. The relevant observations of Hon'ble Madras High Court are as under: "10.2 Similarly, the second issue relating to deduction of Rs.8.53 crores u/s 36(1)(viia) with regard to the provision for bad and doubtful debts, is covered by the decision in Principal Commissioner of Income Tax, Jalpaiguri v. Uttarbanga Kshetriya Gramin Bank [(2018) 94 taxmann. Com 90 (Calcutta), in favour of the assessee and the relevant passage of the same is usefully extracted below: "6.....
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....by the assessing officer based on the materials furnished by the respondent / assessee. In this context, the relevant paragraphs of the assessment order dated 31.03.2006 passed by the assessing officer are quoted below: "5.3 When the assessee was asked to clarify whether the advances which were considered to be bad and doubtful in earlier years and for which the provision was made so as to claim deduction under section 36(1)(viia) of the Act, have been recovered subsequently, it was stated that as the provision claimed was not with reference to any particular debt due to the assessee but on an overall basis, it is not possible to certify that the bad debts claimed as trading loss for deduction under section 36(1)(viia) was recovered or not. It was also stated that the assessee would not be able to give age-wise details of outstanding advances for the branches more so for the rural branches with reference to which the deduction was claimed, so as to determine whether any advance of earlier year for which provision was made is still outstanding. 5.4. In other words, the assessee is not in a position to give details of the advances with reference to which the deduction of Rs.14.99....
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....nga Kshetriya Gramin Bank vs ACIT, in ITA No. 846 and 1745/Kol/2012, wherein the Division Bench of the Tribunal vide order dated 08/07/2015 held that for the purpose of section 36(1)(viia), to compute the aggregate monthly average advance made by the rural branch of scheduled Bank, the amount of advances by each rural branch as outstanding at the end of the last day of each month comprised in the previous year be taken into consideration. The Hon'ble Madras High Court, vide aforesaid decision, has concurred with the decision of the Hon'ble Calcutta High Court. Thus, once two Hon'ble High Courts of the country have expressed their opinion in respect of the issue which arose before us, in absence of contradictory view by any other Hon'ble Court of equivalent or higher judicial hierarchy being brought to our notice, we as a matter of judicial propriety are bound to follow the view so expressed by the Hon'ble High Courts in decisions cited supra. In this regard, it is also relevant to note the following observations of the Hon'ble Supreme Court in ACCE vs Dunlop India Ltd., [1985] 154 ITR 172 (SC): "8. We desire to add and as was said in Cassell & Co. Ltd. vs. Broome (1972) AC 1027 (....