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2022 (11) TMI 989 - AT - Income TaxDeduction u/s 36(1)(viia) - Assessee calculated aggregate monthly average advances by taking into consideration the outstanding balances of the previous month, i.e., the opening balance for computing the amount of advance as outstanding at the end of each month as per the language of Rule 6 ABA of the Income Tax Rules, 1962 - AO rejected the computation of the assessee and held that only incremental advances made during the month can be considered while calculating the figure of aggregate monthly average advances and if the opening balance is also considered it would result in the assessee claiming deduction of more than actual advance especially where the advance has not been paid back - HELD THAT - Hon ble Calcutta High Court in Uttarbanga Kshetriya Gramin Bank 2018 (5) TMI 903 - CALCUTTA HIGH COURT has affirmed the findings rendered by the Division Bench of the Tribunal in Uttar Banga Kshetriya Gramin Bank 2015 (7) TMI 1280 - ITAT KOLKATA wherein the Division Bench of the Tribunal held that for the purpose of section 36(1)(viia), to compute the aggregate monthly average advance made by the rural branch of scheduled Bank, the amount of advances by each rural branch as outstanding at the end of the last day of each month comprised in the previous year be taken into consideration. The Hon ble Madras High Court in M/s City Union Bank Ltd. 2022 (4) TMI 113 - MADRAS HIGH COURT has concurred with the decision of the Hon ble Calcutta High Court. Thus, once two Hon ble High Courts of the country have expressed their opinion in respect of the issue which arose before us, in absence of contradictory view by any other Hon ble Court of equivalent or higher judicial hierarchy being brought to our notice, we as a matter of judicial propriety are bound to follow the view so expressed by the Hon ble High Courts in decisions cited supra. Thus as relying we decide the question referred for our adjudication in favour of the assessee and held that the deduction under section 36(1)(viia) r/w Rule 6 ABA is to be allowed on the total outstanding advances at the end of each month considering the opening balances.
Issues Involved:
1. Whether deduction under section 36(1)(viia) of the Income Tax Act, 1961 r.w.r. 6ABA of the Income Tax Rules, 1962 is to be allowed on the total outstanding advances including opening balances upon which the assessee bank has already claimed such deduction in earlier years or the same has to be allowed in respect of incremental advances made during the year? Detailed Analysis: Background: The assessee, a scheduled bank, claimed a deduction under section 36(1)(viia) for provisions made for bad and doubtful debts. The bank calculated the "aggregate monthly average advances" by including the outstanding balances of the previous month (opening balance) for each month. The Assessing Officer (AO) rejected this computation, asserting that only incremental advances made during the month should be considered. The First Appellate Authority upheld the AO's view. The assessee appealed to the Tribunal, leading to the constitution of a Special Bench. Assessee's Argument: The assessee relied on decisions from the Division Bench of the Tribunal in cases like DCIT vs. M/s City Union Bank Ltd., Nizamabad District Co-operative Central Bank Ltd. vs. ITO, and Indian Overseas Bank vs. DCIT. These cases supported the inclusion of opening balances in calculating the aggregate monthly average advances. Tribunal's Disagreement: The Division Bench of the Tribunal, Chandigarh Bench, disagreed with the earlier decisions, arguing that allowing provisions on opening balances would result in repeated provisions, contradicting the basic nature of such provisions and leading to absurd results. They referred the issue to the Hon'ble President for constituting a Special Bench. Special Bench Hearing: During the hearing, the assessee's counsel cited favorable judgments from the Hon'ble Calcutta High Court in PCIT vs. Uttarbanga Kshetriya Gramin Bank and the Hon'ble Madras High Court in CIT vs. M/s City Union Bank Ltd. The Departmental Representative argued that the Calcutta High Court did not discuss the merits in detail. High Court Decisions: - Calcutta High Court: Affirmed the Tribunal's interpretation that the aggregate average advances should include the outstanding balances at the end of each month, rejecting the AO's restricted interpretation. - Madras High Court: Concurred with the Calcutta High Court, emphasizing that the aggregate average advances should include the outstanding balances. The court noted that the AO's computation was not based on proper documentation from the assessee. Special Bench Conclusion: The Special Bench acknowledged the decisions of the Calcutta and Madras High Courts, which supported the assessee's view. The Bench emphasized the hierarchical judicial system's principle that lower courts must accept higher courts' decisions. The Bench rejected the Departmental Representative's argument regarding the non-admission of substantial questions of law by the Calcutta High Court, stating that the doctrine of merger still applies. Final Order: The Special Bench ruled in favor of the assessee, holding that the deduction under section 36(1)(viia) r/w Rule 6ABA should be allowed on the total outstanding advances at the end of each month, including the opening balances. The matter was remitted back to the Division Bench for further adjudication of other pending issues. Pronouncement: The order was pronounced in the open Court on 10/11/2022.
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