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TMI Blog2018 (10) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... .P. SAHU, A.M This is an appeal filed by the revenue against the order of the Ld. CIT(OSD) (Appeals)-Moradabad dated 9.6.2015 for the assessment year 2012-13 on the following grounds :- 1. On the facts and circumstances of the case and in law the Ld. Principal Commissioner of Income Tax (OSD) (Appeals), Moradabad erred in deleting the addition made by the Assessing Officer by restricting the claim of deduction u/s 36(1)(viia) of the Income Tax Act, 1961 to the extent of the provisions for bad and doubtful debts made in the books of accounts. 2. That the order of the Principal Commissioner of Income Tax (OSD) /(Appeal), Moradabad being erroneous in law and on facts may be cancelled and the order of the Assessing Officer may be restored. 2. Brief facts of the case are that assessee was engaged in the banking business. Assessee filed return on 29.9.2012 declaring NIL income. The case was selected for scrutiny and statutory notices were issued to the assessee. During the course of assessment proceedings Ld. AO observed that the assessee has claimed bad and doubtful debts and claimed deduction u/s 36(1)(vii) which was 10% of average rural advances of ₹ 1,40,17, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Hon'ble Punjab Haryana High Court in the case of State Bank of Patiala vs CIT disregarding the verdict of Kerala high Court in the case of South Indian Bank Ltd. Vs CIT relied upon by the assessee in view of the landmark judgment of Supreme court in the case of CIT vs Vegetable Products [188 ITR 192 (SC)] holding therein that if two reasonable constructions of a taxing provision are possible, that construction which favors the assessee must be adopted . It is seen that the Hon'ble Apex court in the in the case of MIS Southern Technologies Ltd. Vs Joint Commissioner of Income-tax, Coimbatore, (2010) 228 CTR(SC) 440 had occasion to analyse the provisions of section 36(1)(viia) and held as under Analysis of Section 36(1 )(viia) Section 36(1 )(vii) provides for a deduction in the computation of taxable profits for the debt established to be a bad debt. Section 36(1 )(viia) provides for a deduction in respect of any provision for bad and doubtful debt made by a Scheduled Bank or Non-Scheduled B8nk in relation to advances made by its rural branches, of a sum not exceeding a specified percentage of the aggregate average advances by such 'branches. &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Companies (Acquisition and Transfer of Undertakings) Act, 1970 or any other bank included in the Second Schedule to the Reserve Bank of India Act, 1934. It may be mentioned that all cooperative banks have been excluded from the purview of this provision in view of the position that under section 80P(2)(a)(i), the profits and gains of a cooperative society engaged in the business of banking or providing credit facilities to its members are completely exempt from income tax. Finance Act, 1979 13.3 It may be relevant to mention that the provision of new clause (viia) of section 36(1) relating to the deduction on account of provisions' for bad and doubtful debts is distinct and independent of the provisions of section 36(1)( vii) relating to allowance of bad debts. In other words, the scheduled commercial banks would continue to get the full benefit of the write off of the irrecoverable debts under section 36(1)(vii) in addition to the benefit of deduction of the provision for bad and doubtful debts under section 36(1)(viia) . 13.4 This provision will take effect from 1-4-1980 and will, accordingly, apply in relation to the assessment year 1980-81 and subsequent y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction which favors the assessee must be adopted. 4. Feeling aggrieved from the order of the Ld. CIT(A) the revenue is in appeal before the ITAT. 5. Ld. DR relied upon the order of the AO. On the other hand Ld. AR relied on the order of the Ld. CIT(A) and he submitted that the order of the Ld. CIT(A) is right and he submitted that the Ld. CIT(A) has done good reasoned order therefore it should not be disturbed. He further submitted that the Hon ble Coordinate bench of the Delhi Tribunal has allowed the appeal of the assessee in ITA No. 4090/Del/13 for the asstt. Year 2010-11 vide order dated 14.7.2017 on the same issue and therefore deduction u/s 36(1)(viia) has been correctly allowed by the ld. CIT(A). Assessee has submitted the paper book containing 68 pages. The findings recorded by the Tribunal in the aforesaid order read as under : 20. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, the assessee claimed deduction u/s 36(1)(viia) of the Act at 10% of the average agricultural advances made by its rural branches. The said claim was disallowed by the AO. However, the ld. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that the deduction on account of provisions for bad and doubtful debts under section 36(1)(viia) is distinct and independent of the provisions of section 36(1)(vii) relating to allowance of the bad debts. After introduction of section 36(1)(viia) by the finance Act, 1979, with effect from April 1,1980, Circular No. 258, dated June 14, 1979, was issued by the Central Board of Direct Taxes to clarify the application of the new provisions. The provisions were introduced in order to promote rural banking and assist scheduled commercial banks in making adequate provision from their current profits for risks in relation to their rural advances. The deductions were to be limited as specified in the section. The circular mentions that the provisions of new clause (viia) of section 36(1), relating to the deduction on account of provisions for bad and doubtful debts, is distinct and independent of the provisions of section 36(l)(vii) relating to allowance of deduction of the bad debts. In other words, scheduled commercial banks would continue to get the benefit of the write off of the irrecoverable debts under section 36(1)(vii) in addition to the benefit of deduction of the provision for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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