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TMI Blog2013 (8) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of AO in disallowing deduction of Rs.6,00,00,000/-claimed by the appellant bank u/s 36(l) (viia) of the Act. Ld. CIT (A) ought to have deleted disallowance made by AO and ought to have allowed the claim of the appellant. 2. Ld. CIT (A) erred in law and on the facts in confirming action of AO in treating provision of Rs.1,00,00,000/- made against standard assets of the bank credited to provision for Bad doubtful debts not to be eligible for deduction u/s 36(1)(viia)(a) of the Act. Both the lower authorities erred in not appreciating the fact that the deduction under s. 36(l)(viia) is a statutory deduction with reference to the amount provided as laid down in said section. The conditions of s. 36(l)(viia) having been fulfilled, the entire deduction claimed ought to have been allowed. 3. Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO of Rs.5,000,000/- of provision made for bad and doubtful debts holding the appellant not eligible for deduction u/s 36(1)(viia) of the Act. Ld. CIT (A) erred in not appreciating the fact that by transferring excess balance in 'Overdue Interest Reserve a/c' to Reserve for bad and doubtful debts a/c there was no clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for Bad Debts towards standard assets A/c. and in respect of provision of Rs.5,00,00,000/- transferred from excess balance In Overdue Interest Reserve A/c and debited to Reserve for Bad and Doubtful Debts A/c. In respect of disallowance Rs.1,00,00,000/- the AO held that this amount was not eligible for deduction under sub clause (a) of clause (viia) of sub-section(1) of section 36 because it was not a provision for Bad and Doubtful Debts rather it was a provision against standard assets and The State and Central Co- op. Banks Guidelines on Prudential Norms say that "provision made on standard assets may not be reckoned as erosion in value of assets". In respect of disallowance Rs.5,00,00,000/- the AO held that this amount was not eligible for deduction under sub clause (a) of clause (viia) of subsection(1) of section 36 because it amounted to allowing deduction in respect of this amount twice. 4. Being aggrieved, the assessee carried the matter in appeal before the learned CIT(A), but without success, and now the assessee is in further appeal before us. At the very outset, it was submitted by the learned AR of the assessee that this issue is now squarely covered in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government : Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains of business or profession" : [Explanation.- For the purposes of this sub-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000, and ending before the 1st day of April, 2005 '; (b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent. of the total income (computed before making any deduction under this clause and Chapter VI-A) ; (c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent. of the total income (computed before making any deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong-term finance for industrial projects and eligible for deduction under clause (viii) of this sub-section ; 4(vi) "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P ; 6. We also find that as per proviso to section 36(1)(vii), the provision for bad and doubtful debts, which is eligible for deduction under section 36(1)(viia), has to be considered for allowing deduction under section 36(1)(vii), and actual write off of bad debts is allowable as deduction under section 36(1)(vii), only to the extent of the amount of such write off, being in excess of the credit balance in the provision for bad and doubtful debts made under that clause i.e. clause (viia) of section 36(1) of the Act. In the light of these provisions, being the proviso to section 36(1)(vii), we have to consider and decide the claim of the assessee in the present case. A finding is given by the learned CIT(A) at page no.6 of his order that for the amount of provision of Rs.1 crore made by the assessee against the standard assets of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Regarding second aspect of the matter, the objection of the learned CIT(A) is this that transferring the amount from one reserve to another reserve is simply renaming of an existing reserve and it does not amount to making a provision in the ordinary sense, in which the term is used in various provisions of Act. The second objection of the learned CIT(A) is that when the assessee has transferred the amount of Rs.5 crores from overdue interest account to reserve for bad and doubtful debts, the assessee is claiming deduction under clause (viia) of subsection (1) of section 36 for the second time in respect of the income which have been given 100% deduction under section 80P of the Act in earlier year. The learned CIT(A) has placed reliance on the judgment of Hon'ble Apex Court rendered in the case of Escorts Ltd. Vs. UOI, 199 ITR 43 (SC) in support of this contention that double deduction cannot be allowed in respect of an income unless the Act is specifically providing the same. 9. This is an undisputed position that as per the provisions of section 36(1)(viia) as reproduced above, deduction is allowable in respect of provision for bad and doubtful debts to the extent of specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exure-7 of other liabilities shows that this is in fact a provision, and therefore, included in liability, whereas other reserves are included in annexure-2 i.e. reserves fund and other funds, and therefore, those reserves which are included in annexure-2 cannot be equated with provision, which are included in annexure-7 i.e. other liability. Our this view that reserve is part of own funds and provision is part of liability is also supported by Schedule-VI to Companies Act, 1956 where reserves are added in net worth but provision is included in liabilities. Hence, both cannot be equated. Considering these facts, we feel that the AO has rightly allowed deduction to the assessee at Rs.1 crores under section 36(1)(viia) of the Act, and the assessee is not eligible for any further deduction, in the absence of any extra provision for bad and doubtful debts, having been created by the assessee as per the audited accounts available in the paper book. 10. In view of our above discussion and findings that the assessee has not created any provision for bad and doubtful debts in excess of amount of Rs.1 crores, various decisions cited by the learned AR of the assessee are of no relevance in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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