9911796707
TMI Blog2018 (8) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... tax. From above discussions we are of the view that both the section 36(1)(viia) and 36(1)(viii) of the Act deals with two distinct items namely an expenditure in the name of provision for bad and doubtful debts u/s 36(1)(viia) of the Act and in the nature of income u/s 36(1)(viii) of the Act which is set apart for a specific purpose. In our view both the items expressed in these two sections i.e. 36(1)(viia) and 36(1)(viii) of the Act are different and cannot be equated to each other. The assessee after becaming aware of the fact that it is not eligible for such deduction u/s 36(1)(viii) of the Act, it changed its stand and now is pleading that the set off may be given u/s 36(1)(viia) of the Act relating to provision for bad and doubtful debts giving the reason that it still has unutilized limit of ₹ 9.2 crores. We fail to understand how an item of income can be equated to an item of expenditure. In the instant case the assessee has tried to equate the apportionment of profit against an expenditure for provision for bad and doubtful debts which in our view is not possible. - Decided against the assessee. - ITA No. 386/Ind/2017 - - - Dated:- 17-8-2018 - Shri Kul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubtful debts and the claim should be allowed u/s 36(1)(viia) of the Act. The Ld. CIT(A) dismissed the appeal on the ground that the deduction would be limited only to the extent of the reserve created for bad and doubtful debts and it is mandatory to prepare the account as provision for bad and doubtful debt and as the assessee has not made the provision under this head in the P L account, as such the assessee is not entitled to a claim u/s 36(1)(viia). 4. Ld. Counsel for the assessee submitted that the section 36(1)(viia) of the Act provides for the deduction in respect of the provision for bad and doubtful debt to the extent of 7.5% of the profit and the amount not exceeding 10% of the aggregate average advances made by the rural branches. As per this limit the total deduction allowable to the assessee is ₹ 21.7 crores out of which there is a reserve of ₹ 12.5 crores which is already allowed. Thus the assessee is entitled to a further deduction of ₹ 9.2 Crores. Section 36(1)(viii) of the Act prescribes the deduction for special reserve created for long term finance to agricultural development. The assessee is not entitled to this deduction since there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view taken by the Ld.A.O. The issue in narrow compass is that the assessee claimed deduction u/s 36(1)(viii) of the Act of the Act towards specific reserve created for the purpose of providing long term finance for agriculture development in India. The amount of specific reserve was calculated at ₹ 1,42,00,000/- which was within the permissible limit of 20% of net profit before making deduction for special reserve fund at ₹ 7,18,38,168/-. It has been duly reflected in audited balance sheet under the specific head Special Reserve Fund placed at page-15 of the paper book. Subsequently during the assessment proceedings as well as before Ld.CIT(A) assessee conceded to the fact that it is not eligible to claim the deduction u/s 36(1)(viii) of the Act allowing it to create special reserve fund as it has not given any long term finance for development of agriculture and the deduction was wrongly claimed u/s 36(1)(viii) of the Act. 7. Thereafter during the appellate proceedings assessee took the plea that it is eligible for the deduction u/s 36(1)(viia) which provides for deduction in respect of provisions for bad and doubtful debts to the extent of 7.5% of the profit an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so shall have effect as if for the words five per cent , the words ten per cent had been substituted : Provided 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 industria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 3 or section 3A or an institution notified under section 46 of the State Financial Corporations Act, 1951 (63 of 1951); (v) State industrial investment corporation means a Government company within the meaning of section 6176 of the Companies Act, 1956 (1 of 1956), engaged in the business of providing long-term finance for industrial projects and eligible for deduction under clause (viii) of this sub-section; (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; 7[(vii) non-banking financial company shall have the meaning assigned to it in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934);] Section 36(1)(viii) in respect of any special reserve created and maintained by a specified entity, an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head Profits and gains of business or profession (before making any deduction under this clause) carried to such reserve account: Provided that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity means- (i) an infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA, or any other public facility of a similar nature as may be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions as may be prescribed10; (ii) an undertaking referred to in clause (ii) or clause (iii) or clause (iv) or clause (vi) of sub-section (4) of section 80-IA; and (iii) an undertaking referred to in sub-section (10) of section 80-IB; (h) long-term finance means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years; 9. Provision of section 36(1)(viia) relates to provision for bad and doubtful debts which, certain category of assessee s have been referred in the section are allowed to claim the expenditure as in the nature of business as they engaged in to, regular bad debts occur. 10. Now from the perusal of section 36(1)(viii) of the Act, we find that it is in respect of specific reserve which is created by the financial institutions for providing long term fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts which automatically would need to the reserve on account of such provision in the balance sheet. The appellant has not made any provision for bad and doubtful debts and P L account. The appellant has made the provision as special reserve fund which is meant for long term finance. The appellant is engaged in the short term finance. Therefore, the appellant is not entitled for deduction u/s 36(1)(viii) of the I.T. Act. Therefore, the appellant is not entitled for deduction u/s 36(1)(viii) of the I.T Act. Therefore, the addition made by the AO amounting to ₹ 1,42,00,000/- is confirmed. The appeal on this ground is dismissed . 12. In view of above discussion about the nature of items dealt in both the sections i.e. 36(1)(viia) and 36(1)(viii) and examining them in the light of the facts as well as the findings of Ld.CIT(A) we find merits in the finding of Ld.CIT(A) for the reason that the assessee made an intentional and well thought after claim u/s 36(1)(viii) of the Act and made necessary accounting entries in the books of accounts and also depicting it under the Special Reserve Fund head in the audited balance sheet. The assessee after becaming aware of the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
