2020 (11) TMI 258 - AT - Income Tax

Disallowance of claim of bad debts written off to bad and doubtful debt reserve account u/s 36(1)(vii) - whether the bad debt written off u/s 36(1)(vii) has also been already claimed by way of provisions made u/s 36(1)(viia) or whether claim relates to the debts appearing before AY 2007-08 would require factual verification which has not been carried out by the revenue authorities so far at any stage and thus the issue justifiably requires to go back to the file of the AO for suitable verification on this count ? - HELD THAT - Bad debt written off u/s 36(1)(vii) does not emanate out of loans and advances for which the provisioning has been availed under s. 36(1)(viia) in any manner. As in case of Catholic Syrian Bank Ltd. 2012 (2) TMI 262 - SUPREME COURT we are of the view that Section 36(1)(vii) 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. So long as the claim of bad debt does not overlap or result in dual deduction, one on account of provision of bad debt and another at the time of actual write off, there is not statutory bar in making the claim under two provisions. On facts, it is the case of the assessee that the bad debts actually written off are out of loans advances made prior to AY 2007-08 for which no provisioning under s. 36(1)(viia) of the Act could be made. The aspects on double deduction on same loan/advances requires factual verification. In case the AO finds that the bad debt written off is out of loans/advances made prior to the operation of Section 36(1)(viia) of the Act, the AO shall allow the bad debt so written off, subject to the fulfillment of other conditions of Section 36(2) of the Act. However, where it is found that the bad debts relate to loans and advances of the years where benefit to deduction under s. 36(1)(viia) of the Act to have been extended to the assessee, the AO shall appropriate and reduce the provisioning already made from write off. Assessee shall not be entitled to claim of deduction of bad debt for the same loan/advances twice, one under s. 36(1)(vii) and other under s. 36(1)(viia) - the issue is remitted back to the file of the AO for factual verification and examinations as may be considered expedient by him to determine the issue afresh. It shall be open to the assessee to make all submissions and representations before the AO on the point. The AO shall determine the issue in accordance with law after granting proper opportunity to the assessee. Disallowance of depreciation - HELD THAT - Inadvertent over reporting of income by the assessee in its return of income to the extent of ₹ 13,85,272/- owing to mistake on the part of the assessee in making excess disallowance. We straight away observe that this issue also requires to go back to the file of the AO for factual verification of excessive disallowances wrongly made by the assessee as claimed. The AO shall grant suitable relief to the assessee where it is found that the assessee has wrongly reported excessive taxable income in its return of income indeed owing to inadvertent mistake of excessive disallowance on the point. Needless to say, the assessee shall fully cooperate in the proceedings before the AO for determination of the point afresh in accordance with law.

Summary

Issues Involved:
1. Simultaneous claim of twin deductions for bad debts under sections 36(1)(vii) and 36(1)(viia) of the Income Tax Act, 1961.
2. Inadvertent over-reporting of income by the assessee due to a mistake in making excess disallowance.

Analysis:

Issue 1: Simultaneous Claim of Twin Deductions for Bad Debts
The assessee appealed against the disallowance of a claim of bad debts written off to bad and doubtful debt reserve account. The contention was that the bad debts of a certain amount should be allowed as per section 36(2) of the Act. The Tribunal considered the argument that the assessee, a Multistate Co-operative Scheduled Bank, is entitled to deductions for provisions for bad debts under section 36(1)(viia) of the Act. The Tribunal referred to the decision of the Supreme Court in Catholic Syrian Bank Ltd. vs. CIT(A) and concluded that sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction. The Tribunal directed the Assessing Officer (AO) to verify if the bad debts written off were already claimed through provisions made under section 36(1)(viia) and to determine the issue afresh. The AO was instructed to allow the bad debts written off if they were not previously provided for, subject to other conditions of the Act.

Issue 2: Inadvertent Over-reporting of Income
Regarding the inadvertent over-reporting of income by the assessee due to a mistake in disallowance, the Tribunal held that this issue also required factual verification by the AO. The AO was directed to grant suitable relief to the assessee if it was found that the excess disallowance led to the over-reporting of income. The Tribunal allowed this ground of appeal for statistical purposes, instructing the assessee to cooperate fully in the proceedings before the AO for a correct determination.

Conclusion:
The Tribunal allowed the appeals of the assessee for statistical purposes in all three instances, remitting the issues back to the AO for fresh determination in accordance with law. The judgment emphasized the distinction between the deductions for bad debts under different sections of the Act and the need for factual verification in cases of inadvertent errors in income reporting.