2015 (5) TMI 467 - AT - Income Tax

Deduction on account of provision for bad and doubtful debts u/s 36(1)(viia) disallowed - assessee is a Regional Rural Bank - CIT(A) allowed the claim - Held that - Assessee in the present case, being eligible bank, is entitled to claim deduction as per the main provision contained in clause (a) of S.36(1)(viia), in respect of any provision for bad and doubtful debts to the extent of an amount not exceeding 7.5% of the total income computed before making any deduction under S.36(1)(viia) and Chapter VIA and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. A perusal of the impugned order of the learned CIT(A) however, shows that it was stated by the assessee before the learned CIT(A) that no provision was made towards average rural advances. If it is so, it is not clear as to what is the basis on which the provision of ₹ 22.40 crores (Rs.5.38 crores in respect of urban advances and ₹ 17.02 crores in respect of rural advances) was made by the assessee during the year under consideration. Moreover, all these facts and figures were furnished by the assessee before the learned CIT(A) for the first time and the Assessing Officer therefore, did not have any opportunity to verify the same. - Matter remanded back - Decided in favour of revenue for statistical purposes. Deduction on account of salary arrears disallowed disallowed - Held that - After examining all the relevant aspects of the matter, a finding has been given by the learned CIT(A) in his impugned order that the liability on account of salary arrears in question has arisen vide the proceedings dated 24.7.2010, i.e. much later than the closure of the year under consideration. The said liability thus had neither arisen nor discharged by the assessee during the year under consideration and the learned counsel for the assessee has not been able to bring anything on record to rebut or controvert this finding of fact recorded by the learned CIT(A) in his impugned order. The liability on account of salary arrears in question thus neither related to the year under consideration nor crystallized in that year, and this being so, we find no infirmity in the impugned order of the learned CIT(A) confirming the disallowance made by the Assessing Officer - Decided against assessee.

Summary

Issues Involved:
1. Deduction of Rs. 9,93,40,015 on account of provision for bad and doubtful debts under Section 36(1)(viia) of the Income Tax Act, 1961.
2. Disallowance of Rs. 12,73,60,121 on account of salary arrears.

Issue 1: Deduction of Rs. 9,93,40,015 on Account of Provision for Bad and Doubtful Debts

Background:
The assessee, a Regional Rural Bank, claimed a deduction of Rs. 9,93,40,015 under Section 36(1)(viia) of the Income Tax Act, 1961, which was initially allowed by the Assessing Officer. However, the learned Commissioner revised the assessment order, directing the Assessing Officer to re-examine the claim, which was subsequently disallowed.

Revenue's Grounds of Appeal:
1. The CIT(A) erred in law and facts.
2. Misinterpretation of the Supreme Court decision in Catholic Syrian Bank Ltd. vs. CIT.
3. Incorrectly held that the assessee had a closing balance of bad debts and was eligible for the deduction.
4. Failed to consider the clarificatory provision in Explanation 2 of clause (vii) of Section 36(1).
5. Overlooked that the assessee claimed a higher provision in the P&L account without furnishing details.
6. No additional deduction towards provision other than that mentioned in clause (viia) is available.
7. Allowed further deduction wrongly.
8. The issue for AY 2009-10 was still pending before the ITAT.

Tribunal's Analysis:
- The CIT(A) allowed the deduction after considering the facts and figures, stating that the assessee was eligible for the deduction of 7.5% of total income and 10% of aggregate average advances made by rural branches.
- The Tribunal noted that the figures and claims were presented for the first time before the CIT(A) and were not verified by the Assessing Officer.
- The Tribunal decided to restore the issue to the Assessing Officer for fresh examination, ensuring proper verification of facts and figures.

Issue 2: Disallowance of Rs. 12,73,60,121 on Account of Salary Arrears

Background:
The assessee claimed a deduction for salary arrears pertaining to the period from 1.11.2007 to 31.3.2009, which was disallowed by the Assessing Officer and confirmed by the CIT(A).

Tribunal's Analysis:
- The liability for salary arrears arose from proceedings dated 24.7.2010, which was after the closure of the assessment year 2010-11.
- The liability neither arose nor was discharged during the year under consideration.
- The Tribunal upheld the CIT(A)'s decision, confirming the disallowance of the provision made for salary arrears.

Conclusion:
- The Revenue's appeal (ITA No.51/Hyd/2015) is allowed for statistical purposes, with the issue of deduction under Section 36(1)(viia) remanded back to the Assessing Officer for fresh examination.
- The assessee's appeal (ITA No.88/Hyd/2015) is dismissed, upholding the disallowance of salary arrears.

Order Pronounced:
The judgment was pronounced on 10th April, 2015.