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TMI Blog2021 (8) TMI 747X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) , for short], dated 20.02.2018 for Assessment Year 2014-15. Grounds taken in this appeal of Revenue are as under: 1.Whether in the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeals) has erred in law and fact in deleting the addition of ₹ 24,01,00,000/- made by the A.O. on account of disallowance of Provision for Bad Doubtful Debts claimed by the assessee u/s 36(1) (viia) of the Income Tax Act, 1961, without recording his findings and by ignoring the observations of the A.O. that the deduction has been claimed as standard deduction and that in view of the facts there was no need to create the said provision during the year? 2. Whether in the facts and circumstances of the case, the ld. Commissioner of Income Tax (Appeals) has erred in law and fact, by ignoring the findings of the AO that the accumulation of Provision for Bad Doubtful Debts by the assessee every year, without actual requirement and without considering the opening balance for Bad Doubtful Debts will go higher than the outstanding balance of loans. 3. That in the facts and circumstances of the case, the order of the ld. Commissioner of Income Tax (A), M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income recognition norms and assets classification norms as prescribed by Reserve Bank of India. The appellant has also made provision for NPA'S by following the income recognition norms of Reserve Bank of India. In the land mark judgment of Hon. Supreme Court (Catholic Syrian Bank Ltd Vs CIT Thrissur) it has been laid down that the legislative intent was to encourage the Rural advance and making of provisions for bad debts in relation to such rural advances and for providing greater deductions. But the deduction is allowable only on being legally entitled and on making provisions for such deduction in the books of Account. From the facts of the case and in law, after the decision of Hon'ble Supreme Court in the case of Catholic Syrian Bank Vs CIT Thrissur 206 Taxman 182(SC) there is no ambiguity left in the interpretation of provision of sec 36 (1) (viia). The appellant is a Regional Rural Bank sponsored by Punjab National Bank. The appellant has made advances from its rural branches which are not questioned. The provisions of sec 36(l)(viia) are clearly interpreted by Supreme Court in the case of Catholic Syrian Bank. The appellant has claimed deduction of ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rores (approximately) (i.e., 75% of the gross total income ) in P L A/c creating provision for non-performing assets in accordance with the provisions of section 36(1)(viia) of the Act. The Revenue has disputed the deduction claimed for the reason, that the assessee has not created provision for bad and doubtful debts. In case of Banking Companies, the accounts are made in accordance with the RBI guidelines and the Banking Regulation Act, 1949. Although the assessee has named the provision as 'Provision for NPA', but in pith and substance the provision has been created for 'Bad and Doubtful Debts'. The taxonomy of the provision has been done by the assessee to keep it in line with the RBI and NABARD guidelines. We are satisfied that the assessee has made provision and claimed deduction in accordance with the provisions of section 36(l)(viia). The assessee is entitled to the benefit of same. Similarly the Hon'ble ITAT Chennai in the case of VELLORE DIST. CENTRAL COOPERATIVE BANK LTD. vs. COMMISSIONER OF INCOME TAX - (2013) 145 IDT 0129 (Chennai) has held that the question which arises for determination before us is whether the assessee has created any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as Ld. Authorized Representative ( Ld. AR , for short) for the assessee; were in agreement that the aforesaid issue in dispute in the present appeal, regarding allowability of assessee s claim amounting to ₹ 24,01,00,000/- on account of assessee s claim under Section 36(1)(viia) of IT Act, towards provision for Bad Doubtful Debts is squarely covered in favour of the assessee, by above mentioned order dated 24.02.2020 of Coordinate Bench of ITAT, Delhi in assessee s own case for Assessment Year 2013-14 in ITA No.- 2096/Del/2017. The relevant portion of the aforesaid order dated 24.02.2020 of Coordinate Bench of ITAT is reproduced as under: 5. The case of the assessee for the assessment year 2012-13 has been adjudicated by the ITAT in ITA No. 1937/Del/2016 in assessee s own case wherein the deduction was allowed taking into consideration, the CBDT Circular No. 421 dated 12.06.1985, UCO Bank Ltd. 237 ITR 889 (SC), Catholic Syrian Bank 88 ITD 185, South Indian Bank 233 CTR 214. Since, the factual matter remains unchanged, in the absence of any other judgment contrary to the facts available on record, the addition made by the revenue is hereby ordered to be deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(viia). On appeal to the Supreme Court, HELD reversing the Full Bench of the High Court: Per Court: (i) The clear legislative intent of s. 36(1)(vii) 36(1)(viia) together with the circulars issued by the CBDT demonstrate that the deduction on account of provision for bad and doubtful debts u/s 36(1)(viia) is distinct and independent of s. 36(1)(vii) relating to allowance of bad debts. The legislative intent was to encourage rural advances and the making of provisions for bad debts in relation to such rural branches. The functioning of such banks is such that the rural branches were practically treated as a distinct business, though ultimately these advances would form part of the books of accounts of the head office. An interpretation which serves the legislative object and intent is to be preferred rather than one which subverts the same. The deduction u/s 36(1)(vii) cannot be negated by reading into it the limitations of s. 36(1)(viia) as it would frustrate the object of granting such deductions. The Revenue s argument that this would lead to double deduction is not correct in view of the Proviso to s. 36(1)(vii) which provides that in respect of rural advances, the ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed deduction of ₹ 16.07 Crores against it s entitlement of ₹ 114.76 Crores in the books it has made provision for Bad Debts o f rural branches for ₹ 3,70,00,000/- over and above the provision made for NPA s as per RBI norms . This fact has been stated in the audited balance sheet of the bank in Schedule 17: Principle Accounting Policies Notes on Account, where point 1(IV)(iii) which is reproduced as under: (iii) Bank has made provision of ₹ 3 ,70,00,000/- (Previous year- Nil) against total monthly average advance of Rural Branches of the Bank for the Bad and doubtful debts, over and above the provision for bad doubt debts required to be made in accordance with the Prudential norms suggested by RBI. The bank has reduced Rs . 210.36 lacs (previous year ₹ 363 .05 lacs) for write off of the rural advances not recoverable and are bad and doubtful debts from the provision made in earlier years and net provision for rural branches advances is ₹ 2844.03 lacs (₹ 3054.39 lacs - Rs . 210.36 lags) . . included in other provisions in Schedule -5 . The ITAT Banglore in the case of DEPUTY COMMISSIONER OF INCOME TAX vs . ING VYSYA B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct for the purpose of maintaining their Books of Accounts. In our considered opinion, the assessee has created provision for bad and doubtful debts may be under different nomenclature. This will not dis-entitle the assessee for claiming deduction under the provisions of Section 36(1)(viia)(a) . The purpose for creation o f reserve for NPA is same i .e. , creating provision towards bad and doubtful debts. Thus, in view of the facts of the case and judicial pronouncements in the above state cases the assessee will be entitled to deduction u/s 36(1)(viia) to the extent of provision made for bad and doubtful debts of ₹ 16 ,06,72,355/-. The A .O is therefore directed to allow the full deduction o f ₹ 16,06,72,355/- as claimed by the assessee in the computation o f income and no t to restrict it on ₹ 1,33 ,93,000/ . 7. In the result, the appeal of the revenue is dismissed. (C.1) From the foregoing, it is obvious that Co-ordinate Benches of ITAT, Delhi have decided identical issue in favour of the assessee in similar facts and circumstances, in Assessment Year 2012-13 and in Assessment Year 2013-14 in assessee s own case, in ITA No. 1937/Del/2016 and i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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