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TMI Blog2019 (1) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... (prior to the provision for bad and doubtful debts). This, of course, would stand to be made, and accordingly claimed, on a year-to-year basis. The assessee, as observed by the tribunal in its’ order for AY 2008-09 maintained separate provision accounts for the two components. Subject, therefore, to the quantum limitation prescribed by law, as explained by us, the assessee’s claim for deduction toward provision for bad and doubtful debts is to be allowed under section 36(1)(viiia), and the assessee succeeds in principle. The AO shall, while confirming the same – the provision component linked to income being required to be revised on each revision in the assessee’s income in appeal, also clarify the exact amount of provision made by the assessee in its books; the ld. CIT(A) pointing to some difference therein, i.e., while giving appeal effect to this order, which is in conformity with the judicial rulings. Further, the write off of debts as bad and doubtful, i.e., in future, needless to add, would be by way of debit to the provision account, which is to be replenished, each year, on the basis of the parameters provided - I.T.A No.453/Asr/2015 - - - Dated:- 4-12-2018 - Sh. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngent liability, not admissible u/s. 37(1), the ld. CIT(A), as for AY 2007-08, accepted the assessee s claim as, in his view, there was nothing to show that the claim was not covered by the provision of section 36(1)(viia). The provision against standard loans being only a provision for bad and doubtful debts, would stand to be covered u/s. 36(1)(viia). That being the case, we find no reason for the Revenue impugning the provision against standard assets. Thus, subject to the limit prescribed u/s. 36(1) (viia), i.e., 7.5% of the income, being not breached, the assessee would be entitled to the provision against standard assets. We decide accordingly. 13. This brings us to Grounds 3 and 4. The assessee s claim u/s. 36(1)(viia), however, was examined by him to find it to include the following: (a) Loss on sale of car: Rs.0.11 lacs (b) Write off of perishable goods: Rs.0.46 lacs (c) Unrealized interest for 2006-07 not realized during 2007-08 Rs.1.43 lacs ₹ 2.00 lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account/s, whose account/s would have been debited on charge of interest for fy. 2006-07 (AY 2007-08). We find nothing wrong in the adjudication by the ld. CIT(A), nor could the ld. AR during hearing point out to any. This decides assessee s Ground 4. This, however, yet, leaves another aspect of the matter. The assessee has, apart from the provision of ₹ 2 lacs (as at para 13 above), made further provision of ₹ 850 lacs u/s. 36(1) (viia), as under, i.e., at a total of ₹ 852 lacs: (a) provision made against standard assets Rs.100 lacs (b) provision against rural advances Rs.750 lacs Rs.850 lacs The provision u/s. 36(1)(viia) at the rate of 7.5% of income working to ₹ 98.31 lacs, the ld. CIT(A) restricted the deduction for the provision for bad and doubtful debts thereto, thus, in effect, directing a disallowance for ₹ 1.69 lacs (Rs.100 lacs-Rs.98.31 lacs). The assessee s case (also refer Ground 2) is that the provision u/s. 36(1)(viia) should be considered at ₹ 850 lacs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee could, in that case, open a single account which would make the adjustment aforesaid, i.e., transfer from one provision account to another, unnecessary. The total provision made each year would stand to be reckoned with reference to the sum of the two limbs, and as long as the aggregate of the two, i.e., 7.5% of the current year s income and 10% of the aggregate rural advances, is not breached, no disallowance could be called for. The argument needs examination. As afore-stated, each of the two limbs, nevertheless, represent a provision u/s. 36(1)(viia). This, however, would require us to consider as to if the provision component reckoned on the basis of all rural branch advances is to be reckoned on a yearwise basis or the provision already credited in accounts is to be taken into account, i.e., if a provision for ₹ 10 lacs (say) stands already made and allowed for an earlier year (AY 2007-08, say), would the assessee be eligible for another deduction of ₹ 10 lacs qua rural advances assuming, for the sake of simplicity, no increase in the rural advances during the previous year relevant to AY 2008-09. This could be extrapolated for each succeeding yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified. The provision made during the current year shall be allowed subject to the total provision (i.e., including that already made) not exceeding the limits specified in its respect. To conclude, the issue of disallowance of ₹ 1.69 lacs sustained by ld. CIT(A) and ₹ 848.31 lacs deleted by him, and qua which the opposing sides are in appeal, are correlated. This also explains our considering the two together, as also apparent from the said consideration. However, while arguments were made in respect of the assessee s appeal, the Revenue s appeal was largely considered as consequential. In the absence of proper deliberation, we do not consider it proper to conclude the two (correlated) issues. Our foregoing observations notwithstanding, which may well be relied upon by either side in the set aside proceedings, we only consider it proper that the matter is restored to the file of the AO for adjudication afresh after allowing the assessee a reasonable opportunity of presenting its case, in accordance with law. No side, we may though add, be constrained by our observations, so that is an open set aside. Ground 2 of the assessee s and the Revenue s appeal is disposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r basis, or represents the maximum amount for which the provision in its respect could be made. In our clear view, and even as observed by the tribunal per its order supra, also citing an example, it is the former. The profile or the constitution of the rural advances recoverable admittedly changing with time, a provision in its respect would only be with reference to that outstanding at any given point of time. As such, this part of the provision, i.e., referable to the rural advances, could not exceed, at any given time, 10% of the advances computed in the manner provided in the Rules. In fact, this is the accepted position; the assessee s reply dated 29/12/2014 in the assessment proceedings, extracted at para 5.1 of the assessment order, whereat it says that the provision qua rural advances, including that already made earlier , thus, does not exceed 10% of its rural branch advances. This was in fact also the unanimous view of the learned representatives before us. The other component of the provision u/s. 36(1)(viia) is with reference to a percentage of the income (prior to the provision for bad and doubtful debts). This, of course, would stand to be made, and accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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