2018 (10) TMI 359 - AT - Income Tax

Addition of claim of deduction u/s 36(1)(viia) to the extent of the provisions for bad and doubtful debts made in the books of accounts - Held that - As decided in assessee s own case ASSISTANT COMMISSIONER OF INCOME-TAX VERSUS PRATHMA BANK 2017 (9) TMI 106 - ITAT DELHI the assessee in its computation of revised total income/loss clearly mentioned that deduction under section 36(1)(viia) of the Act was claimed at 10 per cent of average agricultural advances of ₹ 801.56 crores. Thereafter, the Assessing Officer after examining the aforesaid details came to the conclusion that the claim of the assessee was allowable and he accordingly allowed the claim of the assessee under section 36(1)(viia) of the Act. The said claim was in accordance with law and as provided in the provisions of section 36(1)(viia) of the Act - decided against revenue

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer by restricting the claim of deduction under section 36(1)(viia) of the Income Tax Act, 1961.
2. Validity of the Principal Commissioner of Income Tax (OSD) (Appeals), Moradabad's order and restoration of the Assessing Officer's order.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made by the Assessing Officer:

The core issue revolves around the deduction claimed by the assessee under section 36(1)(viia) of the Income Tax Act, 1961. The assessee, engaged in the banking business, claimed bad and doubtful debts and sought a deduction of 10% of average rural advances, amounting to ?1,40,17,50,100/-. The Assessing Officer (AO) restricted the deduction to ?26,35,77,000/- based on the provision for bad and doubtful debts made in the books of accounts.

The CIT(A) allowed the appeal of the assessee, holding that the claim was justified under section 36(1)(viia). The CIT(A) emphasized that the AO's restriction was contrary to the clear interpretation of the language used in section 36(1)(viia), which allows for a deduction based on a specified percentage of the aggregate average advances by rural branches, irrespective of the provision made in the accounts. The CIT(A) relied on the Supreme Court's judgment in Southern Technologies Ltd. Vs JCIT, which analyzed section 36(1)(viia) and clarified that the deduction is distinct and independent of the provision for bad debts under section 36(1)(vii).

2. Validity of the Principal Commissioner of Income Tax (OSD) (Appeals), Moradabad's Order:

The revenue appealed against the CIT(A)'s order, arguing that the CIT(A) erred in law and on facts. The revenue sought the restoration of the AO's order. The ITAT, however, upheld the CIT(A)'s decision, stating that the CIT(A) had made a reasoned order based on judicial pronouncements and the legislative intent of section 36(1)(viia).

The ITAT referenced the Supreme Court's decision in Catholic Syrian Bank Ltd. Vs CIT, which reiterated that the deduction under section 36(1)(viia) is distinct from the allowance of bad debts under section 36(1)(vii). The ITAT also noted that the AO himself admitted the assessee's claim of deduction at 10% of the aggregate rural advances, which was allowable as per the Supreme Court's rulings.

The ITAT dismissed the revenue's appeal, affirming that the CIT(A)'s order was consistent with the observations made by the ITAT in the assessee's own case for the previous assessment year. The ITAT emphasized that if two reasonable constructions of a taxing provision are possible, the one favoring the assessee must be adopted, as held by the Supreme Court in CIT vs Vegetable Products.

Conclusion:

The ITAT concluded that the CIT(A)'s order was correct and the deduction under section 36(1)(viia) was rightly allowed. The appeal of the revenue was dismissed, and the CIT(A)'s order was upheld. The judgment underscores the principle that deductions under section 36(1)(viia) are distinct and independent of provisions under section 36(1)(vii), and the interpretation favoring the assessee should be adopted.