2016 (8) TMI 50 - AT - Income Tax

Deduction u/s 36(1) - provision for bad and doubtful debt - Held that - Considering the reasoning of the AO in confining the deduction claimed u/s 36(1)(viia) only to the provision made towards rural advances, in our view, is not in accordance with the statutory provision. On the other hand, the view expressed by ld. CIT(A) while allowing assessee s claim of deduction is as per the statutory provision. Accordingly, we do not find any infirmity in the order of ld. CIT(A) in allowing assessee s claim of deduction for ₹ 616.55 crores u/s 36(1)(viia). - Decided in favour of the assessee

Summary

Issues:
1. Interpretation of provisions U/s 36(1)(viia) and U/s 36(1)(vii) of the Income Tax Act.
2. Allowability of separate deductions for rural and non-rural advances.
3. Applicability of the decision in the case of Catholic Syrian Bank Vs. CIT.

Analysis:

Issue 1: Interpretation of provisions U/s 36(1)(viia) and U/s 36(1)(vii) of the Income Tax Act:
The dispute in this case revolves around the interpretation of provisions U/s 36(1)(viia) and U/s 36(1)(vii) of the Income Tax Act. The Assessing Officer (A.O.) disallowed the deductions claimed by the assessee under both sections. The A.O. contended that the deduction U/s 36(1)(viia) was limited to rural advances only, as per the decision of the Hon'ble Supreme Court in the Catholic Syrian Bank case. However, the ld CIT(A) allowed the deductions, relying on the ITAT's earlier judgment, which clarified that the provision for bad and doubtful debts, irrespective of being rural or non-rural, should be considered for deduction under U/s 36(1)(viia). The ITAT upheld the ld CIT(A)'s decision, emphasizing that the actual provision made by the assessee should be the basis for determining the deduction eligibility under U/s 36(1)(viia).

Issue 2: Allowability of separate deductions for rural and non-rural advances:
The assessee, a banking company, claimed deductions under U/s 36(1)(vii) and U/s 36(1)(viia) for rural and non-rural advances. The A.O. disallowed these deductions, citing the Catholic Syrian Bank case and the specific nature of deductions under U/s 36(1)(viia) for rural advances. However, the ld CIT(A) and the ITAT allowed the deductions, emphasizing that the provision for bad and doubtful debts, whether related to rural or non-rural advances, should be considered for deduction under U/s 36(1)(viia). The ITAT's decision highlighted that the bifurcation of provisions for rural and non-rural advances was not necessary for claiming deductions under U/s 36(1)(viia).

Issue 3: Applicability of the decision in the case of Catholic Syrian Bank Vs. CIT:
The Revenue raised the issue of the applicability of the decision in the Catholic Syrian Bank case to the present matter. The A.O. relied on this decision to restrict deductions under U/s 36(1)(viia) to rural advances only. However, the ld CIT(A) and the ITAT, following a different interpretation of the statutory provisions, allowed the deductions for both rural and non-rural advances. The ITAT dismissed the Revenue's appeal, affirming the decision in favor of the assessee based on the earlier judgment and statutory provisions.

In conclusion, the judgment by the ITAT Hyderabad in this case clarifies the interpretation of provisions U/s 36(1)(viia) and U/s 36(1)(vii) of the Income Tax Act, emphasizing the eligibility of deductions for bad and doubtful debts irrespective of being related to rural or non-rural advances. The decision highlights the importance of statutory provisions and previous judgments in determining the allowance of deductions under the Income Tax Act.