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2019 (10) TMI 468 - AT - Income TaxRevision u/s 263 - claim for deduction under section 36(1)(vii) - scope of amendment - diversified views - HELD THAT - The Finance Act, 1997 made amendment w.r.e.f. 01.04.1992 in the proviso to section 36(1)(vii) as also the substitution (w.r.e.f. 01.04.1992) of section 36(2)(v) has been necessitated in order to bring the provisions regarding allowance of bad debt of the financial institutions and corporations to which section 36(1)(viia) is applicable at par with the provisions regarding allowance of bad debts of the banks to which section 36(1)(viia) is applicable. These amendments are operative retrospectively for and from AY 1992-93. It may be mentioned here that by an amendment of section 36(1)(viia) by the Finance (No. 2) Act, 1991, the applicability of the provisions of section 36(1)(viia) has been expanded, for and from AY 1992-93, to public financial institutions, state financial corporations and state industrial investment corporations. The scope and effect of the aforesaid amendments have been elaborated by the CBDT Circular No. 763 dated 18.02.1998. As per it, clause (vii) of sub-section (1) of section 36 of the Act, provides for a deduction of the amount of any debt or part thereof which is written off as irrecoverable in the accounts of an assessee in the previous year. Clause (viia) of the same section provides for a deduction in respect of any provision for bad and doubtful debts made by a bank. To preclude the possibility of a double deduction of the same amount being claimed in the case of a bank, a proviso was added to clause (vii) by the Finance Act, 1985 and it was provided that in the case of a bank to which clause (viia) applies, the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision of bad and doubtful debts account made under that clause. Simultaneously, clause (v) was added to sub-section (2) of section 36 which provided that no deduction for bad debt shall be allowed unless the bank has debited the amount of such debt or part thereof in that previous year to the provision for bad and doubtful debts account made under clause (viia) of sub-section (1). When two views are possible and one view has been adopted by the AO. That view alone would not be sufficient to exercise powers u/s 263 by the Commissioner. Respectfully following the ratio laid down in Max India Ltd 2007 (11) TMI 12 - SUPREME COURT , Greenworld Corporation 2009 (5) TMI 14 - SUPREME COURT and Gokuldas Exports 2008 (7) TMI 595 - KARNATAKA HIGH COURT we set aside the order u/s 263 passed by the Pr. CIT for AY 1997-98. - Decided in favour of assessee.
Issues Involved:
1. Invocation of provisions of section 263 of the Income Tax Act, 1961. 2. Adequacy of enquiries and verification by the Assessing Officer (AO) regarding the claim for deduction under section 36(1)(vii). 3. Applicability of section 36(2)(v) and proviso to section 36(1)(viia). 4. Consideration of Supreme Court judgments in the context of section 263. 5. Directions given by the Principal Commissioner of Income Tax (Pr. CIT) regarding deduction under section 36(1)(vii). 6. Entitlement of the assessee to the claimed deduction as per Supreme Court judgments. Detailed Analysis: 1. Invocation of Provisions of Section 263: The Pr. CIT invoked section 263, deeming the AO's order dated 27 March 2017 as erroneous and prejudicial to the interest of the Revenue. The Pr. CIT observed that the AO allowed an excess deduction of ?127,00,63,672/- under section 36(1)(vii) without considering section 36(2)(v) and the first proviso to section 36(1)(vii). 2. Adequacy of Enquiries and Verification by the AO: The assessee argued that the AO made adequate enquiries and verification regarding the deduction under section 36(1)(vii). The AO had examined and allowed similar deductions in previous assessment years (AYs 2011-12 to 2015-16). The Pr. CIT, however, contended that the AO did not make necessary inquiries and verification as required by law, justifying the invocation of section 263. 3. Applicability of Section 36(2)(v) and Proviso to Section 36(1)(viia): The assessee claimed that section 36(2)(v) applies only to debts related to advances covered under section 36(1)(viia), which was not claimed by the assessee. The Pr. CIT disagreed, stating that the AO should have allowed the deduction under section 36(1)(vii) only after obtaining the required details and ensuring compliance with section 36(2)(v) and the proviso to section 36(1)(vii). 4. Consideration of Supreme Court Judgments: The assessee relied on the Supreme Court judgments in Vijaya Bank v. CIT and Catholic Syrian Bank Ltd. v. CIT, arguing that these decisions supported their claim for deduction under section 36(1)(vii). The Pr. CIT noted that the Vijaya Bank decision did not consider the applicability of section 36(1)(viia) and section 36(2)(v), and thus was not fully applicable. 5. Directions Given by the Pr. CIT: The Pr. CIT directed the AO to allow the deduction under section 36(1)(vii) only after obtaining the required details and ensuring that the bad debts written off exceeded the credit balance in the provision for bad and doubtful debts account made under section 36(1)(viia). The AO was also instructed to debit the bad debts to the provision account in accordance with section 36(2)(v). 6. Entitlement of the Assessee to the Claimed Deduction: The Tribunal found that the assessee had debited the amount to the profit and loss account and reduced it from loans and advances in the balance sheet, fulfilling the conditions laid down in Vijaya Bank. The Tribunal also noted that the AO had consistently allowed similar deductions in previous years, and two views were possible on the matter. Therefore, the Tribunal held that the Pr. CIT's invocation of section 263 was not justified. Conclusion: The Tribunal set aside the Pr. CIT's order under section 263, allowing the assessee's appeals for AY 1997-98 and AY 1998-99. The Tribunal emphasized that when two views are possible, the AO's adoption of one view cannot be deemed erroneous or prejudicial to the interests of the Revenue. The Tribunal's decision was based on the principles established in the Supreme Court judgments and the consistent treatment of similar claims in previous years.
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