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TMI Blog2022 (5) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... ful Debts', deduction was claimed in accordance with section 36(1)(viia) and assessee was entitled to benefit of same. Tribunal in DCIT Vs IGN Vysya Bank [ 2014 (9) TMI 44 - ITAT BANGALORE] also held that in order to allow assessee's claim under section 36(1)(viia), what has to be seen by Assessing Officer is as to whether provision for bad and doubtful debts is created irrespective of whether it is in respect of rural or non-rural advances by debiting profit and loss account and, to extent provision for bad and doubtful debts is so created, assessee is entitled to deduction subject to upper limit of deduction laid down in said section. In Nanded District Central Co-operative bank Vs DCIT [ 2014 (10) TMI 613 - ITAT PUNE] also held that deduction under section 36(1)(viia) is to be restricted to the actual amount of provision for bad and doubtful debts made in the books of account. Ahmedabad Tribunal in DCIT Vs Sarvodaya Shakari Bank Ltd [ 2014 (5) TMI 1182 - ITAT AHMEDABAD] also held that that the provisions for bad and doubtful debts should be allowed u/s. 36(1)(viia), to the extent of provision made and available in the books of account, whether made in the curren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10-11, which in turn arise out assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 20.03.2013. The Revenue has raised the following grounds of appeal:- 1. On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.3,66,25,000/- out of deduction claimed by the assessee u/s 36(1)(viia) of the Act. 2. On the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.46,77,004/- on account of centenary celebration fund, gift distribution fund amounting to Rs.7,72,099/- and society relief fund to the tune of Rs.8,83,239/-. 3. On the facts and circumstances of the case and in Law, the Ld. CIT(A) has not appreciated that the amount of Rs.3,66,25,000/- does not form part of the provision for Bad and Doubtful debts , therefore, the deduction claimed by the assessee is not allowable under the provisions of Sec.36(1)(viia) of the Act. Thus, the AO had rightly disallowed the claim of the assessee and added the same to the total income of the assessee. 4. On the facts and circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee had claimed following amount under section 36(1)(viia),- a) Provision for bad and doubtful debts (societies) Rs.1,00,00,000 b) Provision for bad and doubtful debts (individual) Rs.2,50,00,000 c) Provision for bad and doubtful debts made in pursuance to section 67(2) of the Gujarat Co-Op. Society Act (out of net profit) Rs.1,16,25,000/- d) Provision for bad and doubtful debts against standard assets Rs. 50,00,000/- e) Provision for bad and doubtful debts security depreciation fund Rs.1,50,00,000/- f) Provision for bad and doubtful debts investment depreciation fund Rs. 50,00,000/- TOTAL As per section 36(1)(viia) of the I.T.Act 7,16,25,000/- 4. The assessing officer noted that out of the above provisions claimed under the provision for bad and doubtful debts, the following four components ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice on these various expenses, the assessee submitted that they are ready to produce the relevant vouchers/bills for the expenses debited for centenary year celebration. The Assessing Officer held that the assessee failed to produce the necessary evidence, thus in absence of evidence, the expenses of all three items disallowed and added to the income of assessee. 7. On appeal before Ld. CIT(A), the assessee filed detailed written submission on both the additions. Against the additions / disallowances claimed under section 36(1)(viia) of the Act. The assessee stated that provisions of section 36(1)(viia) clearly provides that any provision for bad and doubtful debts is allowable as deduction against the total income of the bank subject to the limit @ 7 % of the total income before making deduction under this clause of Chapter VIA and as aggregate average not exceeding @ 10% of aggregate average advances made by rural branches of the assessee-bank. The aggregate average advances given by assessee during the year is Rs.158.92 crores and @ 10% which comes to Rs.15.89 crores which is much more than the deduction of Rs.7.16 crores claimed by assessee as the provision for bad and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary expenses were incurred. The centenary year celebration was presided over by the Governor of Gujarat Government as Chief Guest of the said function. The assessee also incurred expenses in appreciation of voluntary services given by the past chairmen and directors, retired officers and staff of the assessee-bank, the officers of Government Departments, Member mandalies, customers over the area of operation etc., all the expenses were incurred wholly and exclusively for the purpose of business on the special occasion of completion of 100 years with progressive growth and achievements in different facets of the activities of banking for the benefit of the customers and their mandalies. The assessee-bank also relied on the case laws in Karjan Co.Operative Cotton Ginning and Pressing Society Vs. CIT (1993) 69 Taxmann 304 (Guj)(FB)/1993) 199 ITR 17 (Gul) and CIT Vs Mehsana District Co-operative Milk Producers Union Ltd. (1995) 78 Taxmann 563 (Guj)(1994) 207 ITR 140 (Guj). 9. The Ld. CIT(A) after considering the submission of assessee, on the disallowance of deduction under section 36(1)(via) held that assessee is not allowed the provision amounting to Rs.3.66 crores out of the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entenary year celebration expenses were incurred and supported by relevant resolutions, office notes, bills/invoices. The Ld. CIT(A) held that it was a centenary year celebration of the assessee-bank and the expense was incurred wholly and exclusively under various heads. The Assessing Officer has not doubted the purpose of incurring of these expenses on the reasons stated by him was that relevant vouchers / bills were not actually produced. The ld CIT(A) recorded that the assessee claimed that relevant details with necessary documents bills/vouchers were produced. The Ld. CIT(A) on perusal of details held that the expenses were not incurred by assessee-bank or office-holders for their personal purposes, gift items and other expenses were incurred for valued customers and other persons as a token of appreciation of their contribution in helping to boost the business of assessee-bank. These expenses were incurred wholly and exclusively for the purpose of business and are allowable under section 37(1) of the Act. Accordingly, the Ld. CIT(A) deleted the aforesaid additions. Aggrieved by the order of Ld. CIT(A), the Revenue has filed this present appeal before the Tribunal. 11. We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the total income of the assessee-bank subject to limit of 7 % of total income computing before making any deduction under Chapter-VIA and the amount not exceeding @ 10% of aggregate average advance made by rural branches of assessee-bank that there is no dispute that assessee made average advance of Rs.159 crores (rounded) and 10% of which is about Rs.16 crores ( rounded) which is much more than the deduction of Rs.7.16 crores claimed by the assessee-bank during the year. The Assessing Officer disallowed Rs.3.66 crores claimed under four heads consisting number statutory provision for bad and doubtful debts in observance of under section 67A(2) of the Gujarat Co-Operative Society Act, of Rs.1.16 crores, Rs.50 lakh for provision of bad and doubtful debts against standard assets of Rs.1.50 crores for provision of bad and doubtful debts against security depreciation fund of Rs.50 lakh for bad and doubtful debts against investment depreciation. 13. The Ld. AR for the assessee submits that this similar provisions were made by the assessee in its books and was allowed by Assessing Officer in scrutiny assessment in assessment years 2008-09 and 2009-10 passed under section 143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restrictions are laid down in section 36(2) of the Act. There is no adverse reporting by the statutory auditors and the same is in conformity with the Act Rules and by-laws of the assessee-bank. The accounts of the assess-bank are approved by the statutory authority of the State of Gujarat and no adverse remarks were made while accepting the books of accounts of the assessee. The ld AR for the assessee submits that the ration in case law relied by the ld CIT-DR for the revenue in Jhabua Dhar Kshetriya Gramin Bank Vs DCIT (supra) is not applicable on the facts of the present case. In the said case the Tribunal relied on the earlier case law in Narmada Malwa Gramin Bank Vs ACIT (ITA No. 162/Ind/2011 dated 16.04.2013), wherein the issue was restored to the file of assessing officer to recomputing the claim of deduction to the extent of amount written off in the books of accounts. Thus, the finding in the said is not at all applicable on the facts of his case. 14. To buttress his various submissions, the ld. AR for the assessee relied on the following decision; Catholic Syrian Bank Ltd. vs. Commissioner of Income Tax (2012) 18 taxmann.com 282 (SC). DCIT vs. Punjab Gram Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision for bad and doubtful debts for reserve the amount provided as per Gujarat Co-Operative Society, Act, is not the provision, rather it is a reserve created only if the society makes profit and provision for standard assets, the Assessing Officer held that standard assets cannot be treated to have provided against bad and doubtful debts under the standard assets a performing assets. Though it is mandatory in provision for standard assets as per RBI s norm but it cannot be categorized as doubtful debts for allowing deduction under section 36(1)(viia)(a). For the provision of bad and doubtful debts against standard asset of Rs. 50 Lakhs, the assessing officer held that this is a performing asset, which is governed by 2(1)(xv) of Non-banking financial companies prudential norms (Reserve Bank) directions 1998. It was held that though it is mandatory but cannot be categorised as bed debts For security depreciation of Rs.1.50 crores the Assessing Officer held that this reserve for contingency and not a provision for bad and doubtful debts. For fourth provision of Rs.50 lakh, Assessing Officer held that investment depreciation fund is also provision to cover the value of stock-in- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which the assessee would be entitled to get, provided he satisfies the requirements of Section 36(2) of the Act. Allowing of deduction of bad debts is controlled by the provisions of Section 36(2). The argument advanced on behalf of the Revenue is that it would amount to allowing a double deduction if the provisions of Sections 36(1)(vii) and 36(1)(viia) are permitted to operate independently. There is no doubt that a statute is normally not construed to provide for a double benefit unless it is specifically so stipulated or is clear from the scheme of the Act. As far as the question of double benefit is concerned, the Legislature in its wisdom introduced Section 36(2)(v) by the Finance Act, 1985 with effect from 01.04.1985. Section 36(2)(v) concerns itself as a check for claim of any double deduction and has to be read in conjunction with Section 36(1)(viia) of the Act. It requires the assessee to debit the amount of such debt or part thereof in the previous year to the provision made for that purpose. Effect of Circulars 18. Now, we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e history of amendments to these clauses, we may also notice that proviso to Section 36(1)(viia)(a) was introduced by Finance Act, 1999 with effect from 1st April, 2000 and explanation to Section 36(1)(vii) was introduced by Finance Act, 2001 with effect from 1st April, 2001. 21. A Circular No.421 dated 12th June, 1985 [(1985) 156 ITR (St.) 130] attempted to explain the amendments made to Section 36 and also explained the provisions of clause (viia) of Section 36(1). It reads as under : Deduction in respect of provisions made by banking companies for bad and doubtful debts. 17.1 Section 36(1)(vii) of the Income-tax Act provides for a deduction in the computation of taxable profits of the amount of any debt or part thereof which is established to have become a bad debt in the previous year. This allowance is subject to the fulfilment of the conditions specified in sub-section (2) of section 36. 17.2 Section 36(1)(viia) of the Income-tax Act provides for a deduction in respect of any provision for bad and doubtful debts made by a scheduled bank or a non-scheduled bank in relation to advances made by its rural branches, of any amount not exceeding 1 per cent of the aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The limit prescribed is 10% of the total income or 2% of the aggregate average advances made by the rural branches of such banks, whichever is higher. It had been represented to the Government that the foreign banks were not entitled to any deduction under this provision and to that extent, they were being discriminated against. Further, it was felt that the existing ceiling in this regard, i.e., 10% of the total income or 2% of the aggregate average advances made by the rural branches of Indian banks, whichever is higher, should be modified. Accordingly, by the Amending Act, the deduction presently available under clause (viia) of subsection (1) of section 36 of the Income-tax Act has been split into two separate provisions. One of these limits the deduction to an amount not exceeding 2% of the aggregate average advances made by the rural branches of the banks concerned. It may be clarified that foreign banks do not have rural branches and hence this amendment will not be relevant in the case of the foreign banks. The other provisions secure that a further deduction shall be allowed in respect of the provision for bad and doubtful debts made by all banks, not just the banks incor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applicable on the facts of the case in hand. Interpretation and Construction of Relevant Sections 25. The language of Section 36(1)(vii) of the Act is unambiguous and does not admit of two interpretations. It applies to all banks, commercial or rural, scheduled or unscheduled. It gives a benefit to the assessee to claim a deduction on 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(2) of the Act. It is obligatory upon the assessee to prove to the assessing officer that the case satisfies the ingredients of Section 36(1)(vii) on the one hand and that it satisfies the requirements stated in Section 36(2) of the Act on the other. 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 under Section 36(1)(viia) of the Act. We may also notice that the explanation to Section 36(1)(vii), introduced by the Finance Act, 2001, has to be examined in conjunction with the principal section. The explanation specifically excluded any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount written off over the amount of the provision which had already been allowed under clause (viia). The proviso by and large protects the interests of the Revenue. In case of rural advances which are covered by clause (viia), there would be no such double deduction. The proviso, in its terms, limits its application to the case of a bank to which clause (viia) applies. Indisputably, clause (viia)(a) applies only to rural advances. 20. We find that co-ordinate Bench of ITAT Amritsar Bench in DCIT vs. Punjab Gramin Bank (ITA No.731/Asr/2017) while considering the provision for bad and doubtful debts under section 36(1)(viia) on standard assets passed the following order; 11. We shall now advert to the deletion by the CIT(A) of the disallowance of Rs. 3,53,47,000/- made by the A.O on account of the provision for bad and doubtful debts under Sec. 36(1)(viia) of the IT Act. We find that the A.O had disallowed an amount of Rs. 3,53,47,000/- on account of provision for bad and doubtful debts made by the assessee against standard assets on the ground that the said provision was made against assets which were of good quality and was in the nature of contingent liability. It ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five percent of the amount of such assets shown in the books of account of the bank on the last day of the previous year: Provided further that for the relevant assessment years commencing on or after the 1st day of April,2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words five percent , the words ten percent 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 business or profession. From the above provisions it can be seen that deduction u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the provision against standered asset under section under section 36(1)(viia) passed the following order; Now coming to ground no. 2 regarding provisions against the standard assets, we find that the same is also covered in favour of assessee by the order of the Hon'ble Tribunal in the case of Punjab Gramin Cooperative Bank. For the sake of completeness, the findings of the Hon'ble Tribunal are reproduced below: 12. We have heard the rival parties and have gone through the material placed on record. We find that the issue of provision for doubtful debts on standard assets is covered in favour of assessee by the order of the Tribunal dated 22.06.2016 for Assessment Year: 2008-09, wherein the appeal of the revenue was dismissed which was filed by Revenue on similar grounds. The relevant findings of the Tribunal as contained in para 8 onwards are reproduced below. 8. We have heard the rival parties and have gone through the material on record. We find that the assessee had created a provision of Rs. 50,00,000/- which included a sum of Rs. 13,25,000/- as provisions for bad and doubtful debts and the balance amount of Rs. 36,75,000/- was provision against standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head Profits and gains business or profession. From the above provisions it can be seen that deduction u/s 36(1) (viia) of the Act is allowed in respect of provisions for bad and doubtful debts. This section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub-section (1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1) (vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of aver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad and doubtful debts made in the books of account. 24. We also find that Ahmedabad Tribunal in DCIT Vs Sarvodaya Shakari Bank Ltd (supra) also held that that the provisions for bad and doubtful debts should be allowed u/s. 36(1)(viia), to the extent of provision made and available in the books of account, whether made in the current previous year. Thus, in view of the aforesaid factual discussion, we affirm the order of Ld. CIT(A) by adding our aforesaid observation. 25. So far as decision relied by Ld. CIT-DR in Jhabua Dhar Kshetriya Gramin Bank (supra), is concerned, we find that ratio of decision is not applicable on the facts of case in hand. In the said the Tribunal relied on its earlier decision in Narmada Gramin Bank Vs ACIT (supra) wherein the issue of provision under section 36(1) (viia) was restore to the file of assessing officer for recomputation of claim of deduction to the extent of amount written back in the books of account. Thus, the facts of that case are in variance. 26. In the result, ground No.1 3 raised by the Revenue is dismissed. 27. Ground No.2 4 relates to deleting various disallowances of centenary celebration expenses of Rs. 46,77,004/-, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the parties and have gone through the orders of authorities below and above cited case law carefully. The Assessing Officer disallowed the various claims under appeal by taking view that no details and bills/vouchers were not furnished by assessee despite claiming that they are ready to produce such bills/vouchers. The Ld. CIT(A) deleted the expenses by considering the fact that assessee claimed all evidences were produced before Assessing Officer for verification. All the expenses were incurred to celebrate the centenary year. The expense incurred on account of relief fund to celebrate centenary year and are clearly for the purpose of business. There is no personal purpose in making of such expenses, gift items for distributed for valued customers, staff members, and token of appreciation of contribution in helping to boost the business of assessee-bank. Thus all the expenses were incurred wholly and exclusively for the purpose of assessee-bank. Before us Ld. AR for the assessee relied on various case law some of them relate to expense incurred by co-operative societies. 30. We find that in CIT Vs Mehsana Dist. Co-Op. Milk Producers Union Ltd. (supra) Hon ble Gujarat High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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