TaxTMI 
TaxTMI 
2024 (11) TMI 1656
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....mmon order. 2.0 The first issue raised by the revenue for assessment years 2015- 16, 2016-17, 2017-18 & 2018-19 vide ITA Nos. 516, 517, 526 and 527 respectively is regarding its claim of deduction of bad debts u/s 36(1)(vii). The Ld. Counsel for the assessee informed that the Ld. AO has disallowed the assesse's claim of deduction of Rs. 606,01,00,000/- u/s 36(1)(vii) on account of bad debts technical write off. The Ld. AO placed reliance upon the on the premise that the write off of advances made by the assessee was lesser than the provisions made during the year. Placing reliance upon provisions of 36(1)(vii) r.w.s 36(2)(v) the Ld. AO held that write off is to be allowed only if it is over and above the provision. The Ld. Counsel submitted that the Ld. First Appellate Authority allowed the assesse's claim by relying upon the decision of Coordinate Bench of this Tribunal in assesse's own case for AY-2011-12 vide ITA No.1992/Chny/2015. The Ld. Counsel for the assessee submitted that the Income Tax Act, 1961 provides for certain Socio- Economic benefits to organizations operating under specific sectors like financial services, power, infrastructure, agriculture etc. In....
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....Bank Limited has held that there is no requirement of adjusting the non-rural advances write off against the provision for bad and doubtful debts made u/s 36(1)(viia) of the act .. The relevant para 9.4 of the impugned order was extracted as under :- " .... 9.4 Since the facts of both the cases are same, respectfully following the above decision of the co-ordinate bench in the case of City Union Bank Ltd, we hold that the bad debts written off relating to non-rural advances is not required to be adjusted against provision for bad and doubtful debts made u/s. 36(1)(viia) of the Act and quash the enhancement made by the CIT(A) allowing the ground of assessee's appeal by directing the AO to delete the addition. Since we have decided this issue on merits, the issue on technical ground is left open ..... " 5.0 The Ld. AR invited our attention to the statutory provisions of Section 36(1)(viia) of the Act stipulating that the provisions made for bad and doubtful debts shall be allowed as an expenditure subject to a limit of a sum of 10% of aggregate average rural advances and 81/2% of the total income. This section had been first introduced by the Finance Act, 1979 w.e.f. ....
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....es. Pursuant to this, all banks, including the assessee bank, had been claiming the provisions made towards bad and doubtful debts debited to the Profit and Loss account as expenditure subject to limits specified under the section. 8.0 The Ld. Counsel informed that with reference to above amendments in the Act and also the legislative intent, the Karnataka Tribunal as early as 2013 itself in the case of ING Vysya Bank in ITA Nos.53 & 54/Bang/2013 had held as under: " ..... 37. Though under Stage-II and Stage-III of the provisions of Sec.36(1)(viia) of the Act, PBDD has to be created by debiting the profit and loss account of the sum claimed as deduction, the condition that the provision should be in respect of rural advances is not necessary. At stage-II of the provisions of Sec.36(1)(viia) of the Act, this condition was done away with and it was only necessary to create PBDD in the books of accounts and debit to profit and loss account. The quantification of the maximum deduction permissible u/s.36(1)(viia) of the Act had to be done. Firstly it has to be ascertained as to what is 10% of the aggregate average advances made by rural branches, if the Bank has rural branch....
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....ion under Section 36(1)(vii) till the assessment year 2014-2015. This claim of the bank has been accepted by all the appellate authorities. Further the Hon'ble Supreme court of India too in the case of Catholic Syrian bank vs. CIT [2012] 18 taxmann.com 282 was reported to have held as under: " .... 40. It is useful to notice that in the proviso to Section 36(1)(vii), the explanation to that Section, Section 36(1)(viia) and 36(2)(v), the words used are 'provision for bad and doubtful debts' while in the main part of Section 36(1)(vii), the Legislature has intentionally not used such language. The proviso to Section 36(1)(vii) and Sections 36(1)(viia) and 36(2)(v) have to be read and construed together. They form a complete scheme for deductions and prescribe the extent to which such deductions are available to a scheduled bank in relation to rural loans etc., whereas Section 36(1)(vii) deals with general deductions available to a bank and even non- banking businesses upon their showing that an account had become bad and written off as irrecoverable in the accounts of the assessee for the previous year, satisfying the requirements contemplated in that behalf unde....
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....dia in the case quoted supra above. 12.0 Subsequent to the above judgement of the Supreme court of India the CBDT vide Finance Act 2013 w.e.f 1.4.2014 amended section 36(i)(vii) to include an explanation as under: " .... Explanation 2 .- For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii)of this sub-section and clause (v)of sub-section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches ... " 13.0 The Ld. Counsel submitted that pursuant to this insertion, any write off of advances, be it Rural or Urban advance has to be made in the provision for bad and doubtful debts created and allowed under section 36(i)(viia). Therefore, write off of even the urban advances will be allowable only if the same is over and above the credit balance in the provision account created and allowed under section 36(i)(viia). It is pertinent to note that the above amendment is w.e.f 1.4.2014 only and not retrospective accordingly the assessee bank is rightfully el....
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....red by the decisions relied upon by it including those delivered by the Hon'ble Coordinate Bench of this Tribunal. We have noted that I.T.A.Nos.650, 648 & 2149/Chny/2017 / Assessment years 2012- 13, 2013-14 & 2014-15 in assesse's own case the Hon'ble Coordinate Bench of this Tribunal has held as under :- " .... 9. In respect of Ground No.3 consisting of grounds 3.1 to 3.4, it was fairly agreed by both the sides that the issue was against the action of ld. CIT(A) in allowing the assessee's claim towards deduction of bad debts written off (technical write off). It was fairly agreed by both the Counsels that the issue raised in this ground was squarely covered by the decision of Co-ordinate Bench of this Tribunal in assessee's own case for assessment year 2011-12 in ITA No.1992/Chny/2015 vide order dated 11.13.2016 wherein it has been held as follows :- "26. The next ground taken by the Revenue in its appeal is that the CIT(Appeals) is erred in allowing the assessee's claim towards deduction of bad debts written off. 27. After hearing both the parties, we are of the opinion that similar issue was considered by the Tribunal in assessee....
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....nt from loans and advances/debtors on the assets side of the balance sheet and consequently, at the end of the year, the figure of loans and advances/debtors was shown as net of the provision - Therefore, assessee is entitled to benefit of deduction under s. 36(1)(vii) - Contention that it is imperative for the assessee-bank to close the individual account of each debtor in its books and a mere reduction in the "loans and advances account" or debtors to the extent of the provision for bad and doubtful debt is not sufficient, is not sustainable - Apprehension that if the assessee fails to close each and every individual account of its debtors, it may result in claiming deduction twice over is not correct - It is always open to the AO to call for details of individual debtor's account if he has reasonable grounds to believe that the assessee has claimed deduction twice over - Contention that where a borrower's account is written off by debiting P&L a/c and crediting loans and advances or debtors account, it would result in escapement of income from assessment if the borrower repays the loan in the subsequent years as the assessee would credit the repaid amount to loans and ad....
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....statute provided only incremental advances for consideration. The Ld. AO concluded that the appellant was eligible for only deduction of Rs. 313,28,74,000/- and proceeded to disallow Rs.975,23,37,141/-. The Ld. Counsel for the assessee informed that the Ld. First Appellate Authority considered the issue of interpretation of Rule-6ABA for the purposes of section 36(1)(viia) and granted relief to the assessee. While doing so, he relied, inter-alia, upon the decision of Coordinate Bench of this Tribunal in the case of Karur Vyas Bank in ITA No.1497/Chny/2013 dated 28.02.2019. The Ld. Counsel for the assessee submitted that assessee Bank had claimed deduction in respect of the provisions made for non-performing assets i.e., provisions for bad and doubtful debts and as per the provisions of Section 36(1)(viia), a banking company would be entitled to deduction computed in the manner provided therein subject to prescribed threshold stipulations. It was submitted that the methodology of computation of average rural advances has been prescribed in Rule 6 ABA of the Income Tax Rules, 1962 which requires computation of average outstanding advances at the end of each month. and that the assess....
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....bunal Bangalore, in the case of ING Vysya Bank in ITA. Nos. 53 & 54/Bang/2013 by the order dt. 25-10-2013 has held that there is no restriction on the claim of Provision for bad and doubtful debts of non-rural branches also. The extract of the case is as under: " ... 24. We have considered the rival submissions. To appreciate the contention put forth by the learned counsel for the Assessee, we need to look into the history of Sec.36(1)(viia) as it exists in the present form. Stage-I: Sec.36(1)(viia) was inserted by the Finance Act, 1979 w.e.f. 1st April, 1980 and at the time of its insertion, this clause read as under : "(viia) in respect of any provision for bad and doubtful debts made by a scheduled bank in relation to the advances made by its rural branches, an amount not exceeding one and a half per cent of the aggregate average advances made by such branches, computed in the prescribed manner. Explanation : For the purposes of this clause,- (i) "rural branch" means a branch of a scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevan....
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....respect of any provision" and ending with the words "in the prescribed manner", the following was substituted w.e.f. 1st April, 1985 : "in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of cl. (viiia) or a bank incorporated by or under the laws of a country outside India] or a non- scheduled bank, an amount not exceeding ten per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) or an amount not exceeding two per cent of the aggregate average advances made by the rural branches of such banks, computed in the prescribed manner, whichever is higher ......... " Stage-III: 31. The IT (Amendment) Act, 1986 substituted the present cl. (viia) for the one as substituted by the Finance Act, 1985. These provisions came into effect from 1.4.1987. SECTION 36 - OTHER DEDUCTIONS The section reads as under : Other deductions .- (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 - ....
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....ed before making any deduction under this clause and Chapter VI-A), 33. To complete the sequence of amendments, we may also make a reference to the Amendment to sec.36(1)(viia) of the Act by the Finance Act, 2013. By the Finance Act, 2013, in section 36 of the Income-tax Act, in sub-section (1), with effect from the 1st day of April, 2014, in clause (vii), the Explanation was numbered as Explanation 1 thereof and after Explanation1 as so numbered, the following Explanation was inserted, namely :- "Explanation 2 .- For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v) of sub-section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches;" 34. It can be seen from the history of Sec.36(1)(viia) of the Act that at stage-I the deduction was allowed in respect of any provision for bad and doubtful debts made by a scheduled bank in relation to the advances made by its rural branches. At this stage the Prov....
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.... has to be ascertained viz., 7.5% seven and one-half per cent of the total income (computed before making any deduction under this clause and Chapter VI-A). The above are the permissible upper limits of deductions u/s.36(1)(viia) of the Act. The actual provision made in the books by the Assessee on account of PBDD (irrespective of whether it is rural or nonrural) has to be seen. To the extent PBDD is so created, then subject to the permissible upper limits referred to above, the deduction has to be allowed to the Assessee. The question of bifurcating the PBDD as one relating to rural advances and other advances (Non-rural advances) does not arise for consideration." 20.0 The Ld. Counsel for the assesse argued that the Hon'ble Coordinate Bench of this Tribunal had allowed the issue in bank's favour for the Assessment Years 2005-06, 2007-08 & 2010-11 vide order dated 30.11.2015 and that in its latest order for AY 2012-13 to AY 2014-15 too this issue has been allowed in favour of the assessee bank in ITA NO. 738/CHNY/2017- (Para 25 Page 26). It was also submitted that the Hon'ble Coordinate Bench of this Tribunal in the case of M/s. City Union Bank Limited vide ITA Nos.....
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.... advances on each calendar month. The ld. CIT(A) directed the AO to follow the decision of this Tribunal in the case of City Union Bank, Lakshmi Union Bank etc. and set aside the issue for verification of the AO. This issue was discussed at length by the Co-ordinate Bench of Tribunal, Bangalore in the case of Canara Bank v. JCrr 60 TR (Trib.) 1 (Ban.), wherein it was held vide relevant paras 18.2 & 18.3 relevant paragraphs is extracted below: "18.2 We heard rival submissions and perused the material on record. The Finance Act, 1979 inserted a new clause (viia) in subsection (1) of section 36 to provide for deduction in computation of taxable profits of schedule bank in respect of provision made for bad and doubtful debts relating to advances made by the rural branches computed in the manner prescribed under IT Rules, 1962. For this purpose, 'rural branches' has been defined to mean 'branch of schedule bank situated at place with population not exceeding 10,000 according to last census'. Rule 6BA of the Income-tax Rules provides the procedure for computing AAA for the purpose f provisions of section 36(1)(viia) which reads as under: "6ABA. Computation of agg....
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....the CIT(A) does not stand the test of law. Furthermore, co-ordinate bench of Hyderabad Tribunal/ in the case of Nizamabad District Co- operative Central Bank Ltd (supra) held as follows: "8. We have considered the submissions of the parties and perused the orders of revenue authorities as well as other materials on record. Before going into the issue, it is necessary to look into the relevant statutory provisions. Section 36(1)(vii) provides for deduction on account of bad debts actually written off in the books of account. However, proviso to 36(1)(vii) makes an exception by providing that in case of an assessee to which clause (viia) applies the claim of bad debt shall be limited to the amount by which such debt exceeds the credit balance in the provision for bad and doubtful debts made under clause (viia). Clause (viia) permits a cooperative bank to claim deduction of provision made for bad and doubtful debts as per the prescribed conditions. As has been correctly observed by ld. CIT(A), the only dispute and department is in respect of working out 10% of aggregate average rural advances. While assessee has made such working by considering the entire outstanding advances....
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....ranches less than 10,000 population as per last census and the AAA of such rural branches alone should be considered for the purpose of this deduction. Thus, these grounds of appeal are allowed for statistical purposes." The reasoning of this Tribunal was approved by the Hon'ble Calcutta High Court in the case of PCIT v. Uttarbanga Kshetriya Gramina Bank [2018] 408 ITR 393 (Cal), wherein the Hon'ble Calcutta High Court upheld the interpretation of the provisions of Rule 6ABA of the Rules for the purse of s. 36(1)(viia) of the Act that only aggregate average advance made by rural branches of a scheduled bank should be computed by aggregate separately the advance made by each rural branch as outstanding at the end of the last day of the each months comprised in the previous year. The Hon'ble High Court had categorically held that the method of taking the loans and advances made during the year only is not correct. 14.2 Therefore, in view of the above legal position, we direct the A.O. to consider only the outstanding rural advances not the incremental advances made by the rural branches for the purpose of calculating the deduction u/s.36((viia) of the ac....
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....40. The question which has been referred to the Special Bench is whether the requirement of sub-section (2) of 115JB is fulfilled in the present case of the assessees. Sub-section (1) of Section 115JB mandates charge of income tax based on book profits subject to fulfillment of certain conditions and also provides the rate on which such tax shall be charged. The Section starts with non-obstante clause and therefore, it is a departure from normal charge of tax on the total income of the company. Sub-section (2) is the computation provision dealing with the manner in which such book profits are to be computed. Upto A. Y.2012-13, sub-section (2) of Section 115JB applied only to such companies which were required to prepare its profit and loss account in accordance with part II & III of Schedule VI to the Companies Act 1956. The assessee bank is required to prepare its profit and loss account in accordance with Section 52 r.w.s. 29 of the Banking Regulation Act and not as per the Companies Act. Earlier in the case of the assessee it has been settled by the Hon'ble Jurisdictional High Court that provision of Section 115JB has no application to its case. Now after the amendment w.e.f....
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....in the relevant previous year. 41. In so far as Clause (a), the same applies to a case of a company other than referred to in Clause (b). According to clause (a), for the purpose of Section 115JB the company has to prepare its profit and loss account for the relevant previous year in accordance with the Companies Act, 2013 and the First proviso to sub-section (2) requires that while preparing the accounts including the profit and loss account, the accounting policies, the accounting standards and the method and rates adopted for the purpose of preparing such accounts including the profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of Section 129 of the Companies Act, 2013. Since assessee bank has to prepare its accounts in accordance with the provisions contained in Section 51 r.w.s. 29 of the BR Act, therefore, Schedule III of the Companies Act is not applicable. Thus, Clause (a) of Section 115JB (2), the computation provision, will not apply and this matter has attained finality in the case of the assessee by the Hon'ble Jurisdictional High Court in the case of the assessee (cited supra). 42. Now f....
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....o any insurance company, banking company or any company engaged in the generation or supply of electricity or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company. In so far as the present case is concerned, one has to consider whether the assessee could be regarded as a 'banking company' for the purposes of section 129 of the Companies Act, 2013). 45. Now whether the assessee bank can be termed as a company within the meaning of the Companies Act, 2013, first of all, Section 115JB(2) is applicable to every assessee "being a company" The company has been defined in Section 2(17) of the Income Tax Act which we have already reproduced in para 22 above. Thus, the company means any Indian company. Indian company has been defined in Section 2(26) (incorporated in para 23 of the order) which defines "Indian company" means company formed and registered under the Companies Act. Thus, the company for the purpose of the Income Tax Act is a company which is formed and registered under the Companies Act. Section 2(9) of the Companies Act, 2013, a banking company has been defined to mean a b....
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.... States (other than the State of Jammu and Kashmir), or any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913); or (2) in the State of Jammu and Kashmir, or any part thereof, before the commencement of the Jammu and Kashmir (Extension of Laws) Act, 1956 (62 of 1956), insofar as banking, insurance and financial corporations are concerned, and before the commencement of the Central Laws (Extension to Jammu & Kashmir) Act, 1968 (25 of 1968), insofar as other corporations are concemed; and (3) the Portuguese Commercial Code, insofar as it relates to sociedades anonimas";" 50. The assessee bank was neither formed or registered under the Companies Act, 1956; nor it is in existing company as per the above definition. Once it is not a company under the Companies Act, then the first condition referred to in clause (b) of Section 115JB(2) is not fulfilled, and consequently second proviso below Section 129(1) of the Companies Act is also not applicable. 51. The main crux of the department is that since assessee bank has come into existence by the "Acquisition Act" and Section 11 thereof states that for the purp....
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.... the earlier part of the order, we have already noted that by the Acquisition Act, the banking business of the existing bank was transferred from Union Bank of India Ltd to The Union Bank of India. The earlier entity, i.e., Union Bank of India Ltd. was a company under the earlier Companies Act, however, that company as a whole was not taken over or acquired but only banking business was acquired by the Acquisition Act. That is the reason why Union Bank of India Ltd. still existed at the point of acquisition and continues till now and the shareholders of Union Bank of India Ltd. were paid compensation as a consideration for acquiring the banking business. It was by the Acquisition Act that these banks were nationalized and the banking business was acquired from the erstwhile banking companies. These new acquiring banks including Union Bank of India is neither registered under the Companies Act, 2013 nor under any other previous company law. Already the Hon'ble Supreme Court in the case of Rustom Cavasjee Cooper v. Union of India (supra) as noted above, the Hon'ble Supreme Court had held that only undertaking was acquired for the banking companies acquisition and transfer of in....
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....ess of banking (including a co-operative land mortgage bank), or (b) any financial corporation established by or under a Central, State or Provincial Act, or (c) the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956), or (d) the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963), or (e) any company or co-operative society carrying on the business of insurance, or (f) such other institution, association or body [or class of institutions, associations or bodies] which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette: [Provided that no notification under this sub-clause shall be issued on or after the 1st day of April, 2020;] 58. The aforesaid clause (f) provides that if Central Government notifies any such entity then TDS is not to be deducted. It is very relevant to note that at the time of Acquisition Act was enacted, Central Government had issued a Notification No. SO 710 dated 16/02/1970 [1970] [Reported in 75 ITR (Stat) 106] which reads as under :- Income-....