TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 19
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.... Tax Act (Act), facts in all three years are almost similar except variation in additions, therefore, with the consent of parties, all appeals were clubbed, heard together and are being decided by this consolidated order to avoid the conflicting decision. With the consent of the parties the appeal for A.Y. 2013-14 is treated as lead case. 2. The revenue in appeal for the A.Y. 2013-14 has raised following grounds of appeal: "(i) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance of Rs. 4,50,00,000/- out of deduction claimed by the assessee u/s 36(1)(viia) of the Act. (ii) On the facts and circumstances of the case and in law, the Ld. CIT(A) has not appreciated that the amount of Rs. 4,50,00,000/- does not form part of the "provision for Bad and Doubtful debts", therefore, the deduction claimed by the assessee is not allowable under the provisions of Section 36(1)(viia) of the Act. Thus, the AO had rightly disallowed the claim of the assessee and added the same to the total income of the assessee. (ii) On the facts and circumstances of the case and in law, the ld. CIT(A) Surat ought to have upheld the order of the Ass....
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....g ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner: Explanation: - In this clause, (vi) "co-operative bank", "primary agricultural credit society" and "primary cooperative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P ;' 16. We find that the assessee made a provision under section 36(1)(viia) of Rs. 7.16 Crore, the assessing Officer disallowed the claim to the extent of Rs.3.66 crores out of total claim of assessee under section 36(1)(viia) by taking view that the aforesaid amount under four heads are not provision for bad and doubtful debts for reserve the amount provided as per Gujarat Co-Operative Society, Act, is not the provision, rather it is a reserve created only if the society makes profit and provision for standard assets, the Assessing Officer held that standard assets cannot be treated to have provided against bad and doubtful debts under the standard assets a performing assets. Though it is mandatory in provision for standard assets as per RBI's norm but it cannot be categorized as dou....
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....e not controverted by Revenue. Thus, the assessee is liable to be succeeded on the principles of consistency. 19. The Hon'ble Supreme Court in Catholic Syrian Bank Vs CIT (supra) after discussing the scope of section 36(1)(vii) and (viia) held that both the provisions are separate and distinct, the relevant part of the decisions of extracted below for appreciation of the controversy in the case in hand; "17. The provisions of Section 36(1)(vii) would come into play in the grant of deductions, subject to the limitation contained in Section 36(2) of the Act. Any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year is the deduction which the assessee would be entitled to get, provided he satisfies the requirements of Section 36(2) of the Act. Allowing of deduction of bad debts is controlled by the provisions of Section 36(2). The argument advanced on behalf of the Revenue is that it would amount to allowing a double deduction if the provisions of Sections 36(1)(vii) and 36(1)(viia) are permitted to operate independently. There is no doubt that a statute is normally not construed to provide for a double benefit unle....
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....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 deduction of the bad debts. In other words, the scheduled commercial banks would continue to get the benefit of 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). 20. The Finance Act, 1985, which was given effect from 1st April, 1985, added the proviso to Section 36(1)(vii), amended Section 36(1)(viia) and also introduced clause (v) to Section 36(2) of the Act. To complete the history of amendments to these clauses, we may also notice that proviso to Section 36(1)(viia)(a) was introduced by Finance Act, 1999 with effect from 1st April, 2000 and explanation to Section 36(1)(vii) was introduced by Finance Act, 2001 with effect from 1st April, 2001. 21. A Circular No.421 dated 12th June, 1985 [(1985) 156 ITR (St.) 130] attempted to explain the amendments made to Section 36 and also explained the provisions of clause (viia) of Section 36(1). It reads as under : "D....
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....d 18th July, 1986 [(1986) 161 ITR(St.) 66] was issued with the intention to explain the amendments made by the Income Tax (Amendment) Act, 1986. Clause 5 of the Circular dealt with the modifications introduced in respect of the deductions on provisions for bad and doubtful debts made by the banks and it stated as follows : "5. Modification in respect of deduction on provisions for bad and doubtful debts made by the banks : 5.1 Under the existing provisions of clause (viia) of sub-section (1) of section 36 of the Income-tax Act inserted by the Finance Act, 1979, provision for bad and doubtful debts made by scheduled or a non-scheduled Indian bank is allowed as deduction within the prescribed limits. The limit prescribed is 10% of the total income or 2% of the aggregate average advances made by the rural branches of such banks, whichever is higher. It had been represented to the Government that the foreign banks were not entitled to any deduction under this provision and to that extent, they were being discriminated against. Further, it was felt that the existing ceiling in this regard, i.e., 10% of the total income or 2% of the aggregate average advances made by the rural bran....
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....an interpretation to these provisions which would serve the legislative object and intent, rather than to subvert the same. The Circulars in question show a trend of encouraging rural business and for providing greater deductions. The purpose of granting such deductions would stand frustrated if these deductions are implicitly neutralized against other independent deductions specifically provided under the provisions of the Act. To put it simply, the deductions permissible under Section 36(1)(vii) should not be negated by reading into this provision, limitations of Section 36(1)(viia) on the reasoning that it will form a check against double deduction. To our mind, such approach would be erroneous and not applicable on the facts of the case in hand. Interpretation and Construction of Relevant Sections 25. The language of Section 36(1)(vii) of the Act is unambiguous and does not admit of two interpretations. It applies to all banks, commercial or rural, scheduled or unscheduled. It gives a benefit to the assessee to claim a deduction on any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year. This benefit is subjec....
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....ts. This, according to the Revenue, would lead to double deduction and the proviso to Section 36(1)(vii) was introduced with the intention to prevent this mischief. The contention of the Revenue, in our opinion, was rightly rejected by the Special Bench of the ITAT and it correctly held that the Board itself had recognized the position that a bank would be entitled to both the deductions. Further, it concluded that the proviso had been introduced to protect the Revenue, but it would be meaningless to invoke the same where there was no threat of double deduction. 27. As per this proviso to clause (vii), the deduction on account of the actual write off of bad debts would be limited to excess of the amount written off over the amount of the provision which had already been allowed under clause (viia). The proviso by and large protects the interests of the Revenue. In case of rural advances which are covered by clause (viia), there would be no such double deduction. The proviso, in its terms, limits its application to the case of a bank to which clause (viia) applies. Indisputably, clause (viia)(a) applies only to rural advances." 20. We find that co-ordinate Bench of ITAT Amrits....
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....corporated by or under the laws of a country outside India] or a non-scheduled bank or a co-operative bank outside India] or a primary co-operative 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 VI-A) and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years 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, for an amount not exceeding five percent of the amount of such assets shown in the books of account of the bank on the last day of the previous year: Provided further that for the relevant assessment years commencing on or after the 1st day of April,2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have eff....
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....he aforesaid order of the Tribunal and finding ourselves to be in agreement with the view therein taken, respectfully follow the same. We thus are of the considered view that as the provision for bad and doubtful debts against standard assets is covered in the main provisions of Sec. 36(1)(viia) of the IT Act, therefore, uphold the order of the CIT(A) who we find had rightly deleted the addition of Rs. 3,53,47,000/- made by the A.O on the said count. The Grounds of Appeal No. 4 to 6 raised by the revenue are dismissed." 21. We find that the coordinate bench of Amritsar Tribunal in DCIT Vs Nawanshahr Central Co-operative Bank Ltd (supra) while considering the grounds related with the provision against standered asset under section under section 36(1)(viia) passed the following order; " Now coming to ground no. 2 regarding provisions against the standard assets, we find that the same is also covered in favour of assessee by the order of the Hon'ble Tribunal in the case of Punjab Gramin Cooperative Bank. For the sake of completeness, the findings of the Hon'ble Tribunal are reproduced below: "12. We have heard the rival parties and have gone through the material place....
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....he previous year. Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five percent", the words "ten percent" had been substituted. Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government. Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains business or profession." From the above provisions it can be seen that deduction u/s 36(1) (viia) of the Act is allowed in respect of provisions for bad and doubtful debts. This section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful deb....
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....n DCIT Vs IGN Vysya Bank (supra) also held that in order to allow assessee's claim under section 36(1)(viia), what has to be seen by Assessing Officer is as to whether provision for bad and doubtful debts is created irrespective of whether it is in respect of rural or non-rural advances by debiting profit and loss account and, to extent provision for bad and doubtful debts is so created, assessee is entitled to deduction subject to upper limit of deduction laid down in said section. In Nanded District Central Co-operative bank Vs DCIT (2015) 57 taxmann.com 422 (Pune Trib) also held that deduction under section 36(1)(viia) is to be restricted to the actual amount of provision for bad and doubtful debts made in the books of account. 24. We also find that Ahmedabad Tribunal in DCIT Vs Sarvodaya Shakari Bank Ltd (supra) also held that that the provisions for bad and doubtful debts should be allowed u/s. 36(1)(viia), to the extent of provision made and available in the books of account, whether made in the current previous year. Thus, in view of the aforesaid factual discussion, we affirm the order of Ld. CIT(A) by adding our aforesaid observation. 25. So far as decision relie....
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.... bench in ITA No. 16/Ahd/2016 dated 17.05.2022. Further, by following the order of A.Y. 2010- 11, we have dismissed the appeal of revenue for AY 2013-14. In the present appeal, the revenue has raised similar grounds of appeal as raised in A.Y. 2013-14, which we have dismissed by following our order for A.Y. 2010-11, therefore following the principle of consistency the grounds of appeal raised by revenue for AY 2014-15 is also dismissed with similar observation. 10. In the result, the appeal of the revenue for A.Y. 2014-15 is dismissed. 11. Now we take ITA No. 21/Ahd/2017 for the A.Y. 2012-13 wherein the assessee has raised following grounds of appeal: "(1) On the facts and in the circumstances of the case as well as in law, the learned CIT(Appeals) erred in confirming the order of the AO denying the deduction of Rs. 1,31,25,000/- claimed u/s 36(1)(viia)(a) of the Act and hence, no justified. (2) Your appellant further reserves its right to add, alter, modify or to amend any of the aforesaid grounds before or at the time of hearing of an appeal. It is, therefore, respectfully submitted that taking into account various submissions written as well as oral made in the course of ....