2018 (9) TMI 224 - HC - Income Tax

Claim of the appellant for write off bad debts relating to rural branches denied - Held that - In the present case, it is clear that the bank had made a provision insofar as the rural advances which evidenced from the books of accounts itself was ₹ 117, 86, 00, 000/-. The claim for actual write off for the subject assessment year is ₹ 24, 53, 000/-, which is far lesser than the provision. Hence, the proviso definitely becomes applicable and the claim has to be restricted only to such amounts exceeding the provision. In the present case since the provision exceeds the actual written off amounts, there could be no claim raised. FAA and the Tribunal to have correctly disallowed the claim under clause (vii) of Section 36(1) for reason of the provision made under clause (viia) of Section 36(1), relating to the business of rural branches being in excess of the claim for actual write off made for the previous year to the assessment year. Decided in favour of the revenue and against the assessee.

Summary

Issues:
1. Allowance of bad debts written off and adjustments to provision created for bad and doubtful debts.
2. Appeal regarding claim of written off bad debts in previous year and adjustments made by assessing officer for rural branches.

Issue 1: Allowance of bad debts written off and adjustments to provision created for bad and doubtful debts:
The judgment addresses two appeals arising from the same Tribunal order concerning the allowance of bad debts written off and adjustments to the provision created for bad and doubtful debts. The appellant, a bank, claimed over ?115 crores as bad debts written off for urban branches, with a provision of ?45 lakhs made in the previous year. The Assessing Officer reduced the claim to ?70 crores, while the First Appellate Authority granted the entire claim. The revenue appealed to the Tribunal on one ground under Section 14A of the Income Tax Act, as permitted by the Committee On Disputes (COD). Since the COD did not allow an appeal on the deduction for urban branches, the revenue could not file an appeal challenging the Tribunal's decision. Hence, I.T. Appeal No. 214/2010 was rejected.

Issue 2: Appeal regarding claim of written off bad debts in previous year and adjustments made by assessing officer for rural branches:
The second appeal by the bank concerned the claim of written off bad debts and adjustments made by the assessing officer for rural branches. The bank relied on a Supreme Court judgment regarding the independence of deductions under different sections of the Income Tax Act. The Supreme Court found that deductions under Section 36(1)(vii) and Section 36(1)(viia) are independent of each other. Section 36(1)(viia) allows provision for bad and doubtful debts by scheduled banks, with specific limits for rural branches. The provision under Section 36(1)(vii) deals with actual write off of bad debts. The proviso to Section 36(1)(vii) limits the deduction if a provision has been made under Section 36(1)(viia). In this case, the bank's provision for rural advances exceeded the actual write off amount, leading to the disallowance of the claim under Section 36(1)(vii). The First Appellate Authority and the Tribunal correctly disallowed the claim, and the appeal was dismissed in favor of the revenue.

In conclusion, the judgment addresses issues related to the allowance of bad debts written off and adjustments to provisions for bad and doubtful debts for urban and rural branches of a bank. The judgment provides detailed analysis of the legal provisions and previous court decisions to arrive at the conclusion that the revenue's appeal was rejected in one case, and the claim by the bank was dismissed in the other case.