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TMI Blog2022 (11) TMI 720X X X X Extracts X X X X X X X X Extracts X X X X ..... RKEY, JUDICIAL MEMBER, AND SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER Assessee by : Shri P.J. Pardiwala Sr. Adv. a/w Shri Jeet Kamdar, Adv. Revenue by : Shri A.B. Koli, CIT DR ORDER PER SANDEEP SINGH KARHAIL, J.M. This Special Bench has been constituted by the Hon ble President, pursuant to reference by the Division Bench of the Tribunal, to decide the following question: Whether deduction under section 36(1)(viia) of the Income Tax Act, 1961 r.w.r. 6ABA of the Income Tax Act 1962 is to be allowed on the total outstanding advances including opening balances upon which the assessee bank has already claimed such deduction in earlier years or the same has to be allowed in respect of incremental advances made during the year? 2. The brief background of the case, which resulted in constitution of this Special Bench is: The assessee is a scheduled bank and has claimed deduction under section 36(1)(viia) of the Act in respect of provision made for bad and doubtful debts. The assessee, while claiming aforesaid deduction under section 36(1)(viia) of the Act, calculated the aggregate monthly average advances by taking into consideration the outstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act r.w.r. 6ABA of the Rules was that made on cumulative aggregate average rural advances made, including the opening balances of the advances made. The decisions relied upon before us are as under: i) DCIT vs. M/s City Union Bank Ltd. in ITA No. 1485/Mds/07 dated 30.10.2009. ii) Nizamabad District Co-operative Central Bank Ltd.. Nizamabad vs. ITO in ITA No. 1161/H/2011 dated 10.12.2014. iii) Indian Overseas Bank vs. DCIT in ITA No. 2124 2125/Mds/2013 dated 26.09.2014. No decisions of any higher authorities was brought to our notice by either of the parties. We are not in agreement with the decisions of the coordinate benches as cited above, since provision for bad and doubtful debts in our understanding are estimates of future losses and are made from profits of the year to cover such estimated future losses, which in the present case arises from the risk associated with making rural advances. Such an estimate can logically in our view be made only once on an advance. By allowing provision to be made on opening balance also the provision is being repeatedly made, which in our view goes against its basic nature itself and would also lead to an absur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Ld. Tribunal has erred in law in allowing deduction under section 36(1)(viia) of the I.T. Act, 1961, for the same advances made for all previous years leading to multiple deductions in every assessment year by misinterpreting the Rule 6ABA of the I.T. Rules, 1962 and also against the ratio of judgment in the case of J.K Synthetics Ltd. v. UOI 199 ITR 43 (SC).? 9. While dismissing the Revenue s appeal and upholding the findings of the Tribunal, the Hon ble Calcutta High Court, in the aforesaid decision, observed as under: 5. The assessee's appeal, however, was allowed by the Tribunal. The Tribunal's interpretation of the aforesaid statutory provisions would appear from the following passage:. From this Rule, it is apparent that for the purpose of section 36(1) (viia), the aggregate average advance made by the rural branches of as scheduled bank shall be computed by taking the amount of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the previous year has to be aggregated separately. The CIT (Appeals) instead of giving the direction to the Assessing Officer to take the amount of advances as outstand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evious year relevant to assessment year 2009-10 as confirmed by CIT (A). The Tribunal amended such direction, in our view, correctly applying the rule. 9. For the reasons aforesaid we do not find the questions suggested to be substantial questions of law involved in the case. As such the application and appeal are dismissed. 10. We further find that the following question of law came up for consideration before the Hon ble Madras High Court in M/s City Union Bank Ltd. (supra): 5. By order dated 29.11.2010, this court admitted the aforesaid tax case appeal on the following substantial questions of law: 1. 2. Whether in the facts and circumstances of the case, the Tribunal was right in deleting disallowance of provision before bad debts under Section 36 (1) (viia) of Rs.8.53 crores observing that as per Rule 62ABA of the Income Tax Rules 1962, the aggregate average advances made by the rural branches have to be computed by taking the amounts of advances made by each rural branch as outstanding at the end of last day of each month comprised in the previous year, whereas the aggregate average has to be worked out only in respect of advances made during the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made during only the previous year relevant to assessment year 2009-10 as confirmed by CIT (A). The Tribunal amended such direction, in our view, correctly applying the rule. 9. For the reasons aforesaid we do not find the questions suggested to be substantial questions of law involved in the case. As such the application and appeal are dismissed. 11. This court has no disagreement with the legal proposition laid down in the aforesaid decisions. However, in the present case, though there was no double deduction, as alleged by the appellant / Revenue, there was no clear vision about the advances made by the rural and non-rural branches of the bank and the quantum of deduction was not properly determined by the assessing officer based on the materials furnished by the respondent / assessee. In this context, the relevant paragraphs of the assessment order dated 31.03.2006 passed by the assessing officer are quoted below: 5.3 When the assessee was asked to clarify whether the advances which were considered to be bad and doubtful in earlier years and for which the provision was made so as to claim deduction under section 36(1)(viia) of the Act, have been recovered subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the opinion that for that limited purpose, the matter has to be re-examined by the assessing officer and the same has also been agreed upon by the learned counsel appearing for both sides. 12. We find that one of the reasons recorded by the Division Bench of the Tribunal for referring the issue to the Special Bench was No decision of any higher authorities was brought to our notice by either of the parties . However, now decisions of two Hon ble High Courts have been brought to our notice, wherein similar issue has been considered in favour of the taxpayer. 13. As noted above, the Hon ble Calcutta High Court, vide aforesaid decision, has affirmed the findings rendered by the Division Bench of the Tribunal in Uttar Banga Kshetriya Gramin Bank vs ACIT, in ITA No. 846 and 1745/Kol/2012, wherein the Division Bench of the Tribunal vide order dated 08/07/2015 held that for the purpose of section 36(1)(viia), to compute the aggregate monthly average advance made by the rural branch of scheduled Bank, the amount of advances by each rural branch as outstanding at the end of the last day of each month comprised in the previous year be taken into consideration. The Hon ble Madra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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