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2022 (11) TMI 720 - AT - Income TaxDeduction u/s 36(1)(viia) r.w.r. 6ABA - computation of aggregate monthly average advance made by the rural branch of scheduled Bank - 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 - HELD THAT - Respectfully following the aforesaid decisions of M/S. CITY UNION BANK LTD. 2022 (4) TMI 113 - MADRAS HIGH COURT and UTTARBANGA KSHETRIYA GRAMIN BANK 2018 (5) TMI 903 - CALCUTTA HIGH COURT 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 balance. - Decided against revenue.
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 should be allowed on the total outstanding advances including opening balances or only on the incremental advances made during the year. Detailed Analysis: Background and Issue: 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 from previous months (opening balances). The Assessing Officer (AO) disagreed, arguing that only incremental advances should be considered, as including opening balances could lead to deductions exceeding actual advances. The First Appellate Authority upheld the AO's view. The assessee appealed to the Tribunal, which led to the constitution of a Special Bench to resolve the issue. Assessee's Argument: The assessee relied on previous Tribunal decisions, including: - DCIT vs M/s City Union Bank Ltd. - Nizamabad District Co-operative Central Bank Ltd. vs ITO - Indian Overseas Bank vs DCIT These decisions supported the inclusion of opening balances in calculating aggregate monthly average advances. Division Bench's Disagreement: The Division Bench of the Tribunal, Chandigarh, disagreed with the above decisions, arguing that provisions for bad and doubtful debts should be estimates of future losses made only once per advance. Including opening balances could lead to repeated provisions, exceeding actual advances. This disagreement led to the reference to the Hon'ble President for constituting a Special Bench. Special Bench Proceedings: The Special Bench reviewed submissions from both sides. The assessee cited favorable decisions from: - Hon'ble Calcutta High Court in PCIT vs Uttarbanga Kshetriya Gramin Bank - 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 issue's merits in detail. High Courts' Decisions: - Calcutta High Court: Upheld the Tribunal's interpretation that the aggregate monthly average advances should include the outstanding balances at the end of each month. - Madras High Court: Concurred with the Calcutta High Court, emphasizing that the computation should be based on the aggregate average advances, including opening balances. Tribunal's Conclusion: The Tribunal noted that two High Courts had ruled in favor of including opening balances. In the absence of any contradictory higher judicial authority, the Tribunal felt bound to follow these decisions. The Tribunal cited the Supreme Court's emphasis on the hierarchical judicial system, where lower courts must accept higher courts' decisions. Final Judgment: The Special Bench decided 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 opening balances. The matter was sent back to the Division Bench for further proceedings on other pending issues. Conclusion: The Special Bench ruled that deductions under section 36(1)(viia) should include total outstanding advances, considering opening balances, aligning with the Calcutta and Madras High Courts' decisions. The case was remanded to the Division Bench for further adjudication on other issues.
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