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TMI Blog2013 (8) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... ful debts. He, therefore, asked the assessee to explain as to why deduction u/s.36(1)(viia) of the I.T. Act should not be restricted to the extent of provision made in the profit and loss account and excess deduction claimed under the computation of income should not be disallowed. The Assessing Officer also brought to the notice of the assessee the Instruction No.17 dated 26-11-2008 issued by CBDT reported in 220 CTR (ST) 41 (2008) wherein it is clearly mentioned that the deduction for provision for bad and doubtful debts should be restricted to the amount of such provisions actually created in the books of accounts of the assessee in the relevant year or the amount calculated as per the provisions of section 36(1)(viia), whichever is less. The Assessing Officer further drew the attention of the Bench to the decision of Hon ble Punjab and Haryana High Court in the case of State Bank of Patiala Vs. CIT and another reported in 272 ITR 54 wherein it was held that making of provision for bad and doubtful debts equal to the amount mentioned in section 36(1)(viia) is a must for claiming such deduction . Rejecting the various explanations given by the assessee and distinguishing the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to advances made by their rural branches. It was also clarified that the deduction will be limited to a certain percentage of aggregate average advances made by the rural banks. There cannot be any equivocality in interpretation of the provisions of section 36(1)(via) when read with the circular. According to him and in view of Instruction No.17 dated 26-11- 2008 a situation will never arise where the amount of provisions actually created in the books of account of the assessee will exceed the aggregation. Simultaneously if the total amount of aggregation is less than the provision made, the amount of provision over and above the aggregation will not be allowed as a deduction. In view of the above the Ld. CIT(A) upheld the action of the Assessing Officer in restricting the deduction to the extent of amounts of provision of bad and doubtful debts made in the books. 4. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds : 1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the decision of the AO of restricting the deduction u/s.36(1)(viia) to ₹ 6,50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 he submitted that the Hon ble Supreme Court in the said decision has held that clause (vii) and (viia) are distinct and independent items of deduction and operate in their respective fields. Referring to the said decision he submitted that the Hon ble Supreme Court had made it clear that in allowing deduction u/s.36(1)(viia) the legislative intent was to encourage rural advances and making of provisions for bad debts in relation to such rural branches. He submitted that the assessee bank had not made any claim of deduction u/s. 36(1)(vii) of the Act and the only claim is u/s.36(1)(viia). The proviso to section 36(1)(vii) does not in absolute terms control the application of this provision as it comes into operation only when the case of the assessee is one which falls squarely u/s.36(1)(vii) of the I.T. Act. He submitted that the explanation to section 36(1)(vii) introduced by the Finance Act 2001 specifically excluded any provision for bad and doubtful debts made in the accounts of the assessee from the ambit and scope of any bad debt or part thereof, written off as irrecoverable, in the accounts of the assessee. Therefore, the concept of making a provision for bad and doubtful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra). Further, according to Ld. Counsel for the assessee clause (vii) and (vii-a) of section 36 are independent of each other in view of decision of Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. (Supra). 8.1 We find the Hon ble Supreme Court in the case of Catholic Syrian Bank Ltd. (Supra) has observed as under (Short notes) : PER A.K. PATNAIK and SWATANTER KUMAR JJ. (S.J. KAPADIAC.J.I. (concurring) : The provisions of section 36(1)(vii) and (viia) of the Income-tax Act, 1961, are distinct and independent items of deduction and operate in their respective fields. Bad debts written off, other than those for which provision is made under clause (viia), will be covered under the main part of section 36(1)(vii), while the proviso will operate in cases under clause(viia) to limit the deduction to the extent of difference between the debt or part thereof written off in the previous year and the credit balance in the provision for bad and doubtful debts account made under clause (viia). Thus, the proviso would not permit the benefit of double deduction, operating with reference to rural loans while under section 36(1)(vii) . . . . . . . . Merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(vii) in addition to the benefit of deduction of the provision for bad and doubtful debts under Section 36(1)(viia). The legislative intent was to encourage rural advances and the making of provisions for bad debts in relation to such rural branches. The court would give an interpretation of these provisions which would serve the legislative object and intent, rather than to subvert them. The purpose of granting such deductions would stand frustrated if these deductions are implicitly neutralized against other independent deductions specifically provided under the provisions of the Act. The deductions permissible under section 36(1)(vii) should not be negated by reading into this provision, limitations of section 36(1)(viia) on the reasoning that it will form a check against double deduction. The language of Section 36(1)(vii) of the Act is unambiguous and does not admit of two interpretations. It gives a benefit to all banks, commercial or rural, scheduled or unscheduled, to claim a deduction of any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year. This benefit is subject only to section 36(1) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deductions, one under clause (vii) on the basis of actual write off and another, on the basis of clause (viia) in respect of a mere provision. It would be meaningless to invoke the proviso where there is no threat of double deduction. In case of rural advances, which are covered by the provisions of clause 9viia), there would be no such double deduction. The proviso limits its application to the case of a bank to which clause (viia) applies. Clause (viia) applies only to rural advances. This has been explained by circulars issued by the CBDT. Thus, the proviso is limited in its application to bad debt(s) actually written off in the accounts of the bank represents only debt(s) arising out of urban advances, the allowance thereof in the assessment is not affected, controlled or limited in any way by the proviso to clause (vii) . 9. Admittedly the above decision was not available before the Assessing Officer or CIT(A) since the decision was rendered much after the order passed by the Assessing Officer and CIT(A). We therefore deem it proper to restore the issue to the file of the Assessing Officer to adjudicate the issue afresh in the light of the decision of the apex court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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