2022 (7) TMI 1389 - AT - Income Tax

Disallowance u/s 36(1)(viia) - provision for bad and doubtful debts - HELD THAT - We find that combination of this Bench in assessee s own case for the A.Y. 2010-11 2022 (5) TMI 856 - ITAT SURAT has confirmed the order of Ld. CIT(A), thereby decided the appeal in favour of the assessee as held that the assessee is clearly eligible for the deduction under section 36(1)(viia) as it fulfilled the two condition that any provisions for bad and doubtful debts made by Co-operative bank is allowable if it does not exceed 7 of total income (computed before making deduction under this clause under chapter VIA) and an amount not exceeding 10% of aggregate average advances made by rural branch. AO has not doubted the number of rural branches as defined under section 36(1) (viia) (d)(ia) or the total of the advances made by rural branches of assessee-bank and the computation made in the prescribed manner. 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 made by the A.O on the said count. Appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Deletion of disallowance of Rs. 1,95,00,000/- claimed by the assessee under section 36(1)(viia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance under Section 36(1)(viia):
The primary issue in this appeal is the deletion of the disallowance of Rs. 1,95,00,000/- claimed by the assessee under section 36(1)(viia) of the Income Tax Act. The Tribunal noted that the facts for the assessment year 2017-18 were identical to those of the assessment year 2010-11, where a similar issue was adjudicated.

The Tribunal reviewed the relevant provisions of section 36(1)(viia), which allows deductions for provisions for bad and doubtful debts made by banks. The section specifies that a scheduled bank, a non-scheduled bank, or a co-operative bank can claim deductions not exceeding seven and one-half percent of the total income and ten percent of the aggregate average advances made by rural branches.

The assessee had made a provision of Rs. 7.16 Crore under section 36(1)(viia), but the Assessing Officer disallowed Rs. 3.66 Crore, arguing that certain provisions did not qualify as bad and doubtful debts. The CIT(A) allowed the claim, stating that the assessee met the conditions for deductions under section 36(1)(viia), as the rural advances were Rs. 159 Crore, and the claim was within the permissible limit.

The Tribunal also considered the principle of consistency, noting that similar deductions were allowed in previous assessment years (2008-09, 2009-10, 2015-16, and 2016-17). The Tribunal cited the Hon'ble Supreme Court's decision in Catholic Syrian Bank Vs CIT, which clarified that deductions under section 36(1)(vii) and section 36(1)(viia) are distinct and independent.

The Tribunal referred to various precedents, including decisions from the ITAT Amritsar Bench and the ITAT Chennai Tribunal, which supported the allowance of provisions for bad and doubtful debts under section 36(1)(viia) without differentiating between provisions on bad assets and standard assets.

In conclusion, the Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. The Tribunal emphasized the principle of consistency and the assessee's compliance with statutory provisions, affirming that the assessee was entitled to the claimed deductions under section 36(1)(viia).

Judgment:
The appeal by the revenue was dismissed, and the order of the CIT(A) was upheld, allowing the deduction claimed by the assessee under section 36(1)(viia) of the Income Tax Act. The Tribunal pronounced the order on 04/07/2022, reiterating the importance of consistency and adherence to statutory provisions.