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TMI Blog2023 (2) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... R Shri J.K. Chandnani, Sr.DR Order under section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. These three appeals, out of which one appeal by assessee for assessment year 2012-13 and remaining two appeals by revenue for assessment year 2013-14 2014-15 are directed against the separate orders of ld. Commissioner of Income tax (Appeals)-1, Surat [for short to as CIT(A) ] dated 31/10/2016 and 31/12/2018 for assessment year 2012-13 to 2014-15 respectively. In all these appeals parties have raised, certain common grounds of appeal, except variations of additions/ disallowance under section 36(1)(viia) of Income Tax Act (Act), facts in all three years are almost similar except variation in additions, therefore, with the consent of parties, all appeals were clubbed, heard together and are being decided by this consolidated order to avoid the conflicting decision. With the consent of the parties the appeal for A.Y. 2013-14 is treated as lead case. 2. The revenue in appeal for the A.Y. 2013-14 has raised following grounds of appeal: (i) On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly. Before adverting to the facts and the observation of lower authorities, we may reproduce the relevant provision of section 36(1)(viia) reads as under: '(viia) in respect of any provision for bad and doubtful debts made by (a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner: Explanation: - In this clause, (vi) co-operative bank , primary agricultural credit society and primary cooperative agricultural and rural development bank shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P ;' 16. We find that the assessee made a provision under section 36(1)(viia) of Rs. 7.16 Crore, the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-bank and the computation made in the prescribed manner. 18. We further find that the assessee claimed that similar deduction was allowed in assessment years 2008-09, 2009-10 in assessment passed under section 143(3) and in assessment years 2015-16 2016-17 in accepted in assessment order under section 143(1). However again in assessment year 2017-18 it was allowed in assessment order passed under section 143(3). The Assessing Officer disallowed the deduction under section 36(1)(viia)(a) in assessment year 2012-13. However, on appeal before Ld. CIT(A) the assessee was granted relief and on further appeals of the Revenue is pending before Tribunal. These facts were not controverted by Revenue. Thus, the assessee is liable to be succeeded on the principles of consistency. 19. The Hon ble Supreme Court in Catholic Syrian Bank Vs CIT (supra) after discussing the scope of section 36(1)(vii) and (viia) held that both the provisions are separate and distinct, the relevant part of the decisions of extracted below for appreciation of the controversy in the case in hand; 17. The provisions of Section 36(1)(vii) would come into play in the grant of deductions, subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 979 was issued by the Board to clarify the application of the new provisions. The provisions were introduced in order to promote rural banking and assist the scheduled commercial banks in making adequate provision from their current profits to provide for risks in relation to their rural advances. The deductions were to be limited as specified in the Section. A ' rural branch apos; for the purpose of the Act had meant a branch of a scheduled bank, situated in a place with a population not exceeding 10,000, according to the last preceding census of which the relevant figures have been published. Under clause 13.3, the Circular found it relevant to mention 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(1)(vii) relating to allowance of deduction of the bad debts. In other words, the 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 bad and doubtful debts under Section 36(1)(viia). 20. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count and that the deduction admissible under section 36(1)(vii) shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account. 17.5 Section 36(2) has been amended by insertion of a new clause (v) to provide that where a debt or a part of a debt considered bad or doubtful relates to advances made by a bank to which section 36(1)(viia) applies, no such deduction shall be allowed unless the bank has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debt account made under clause (viia) of section 36(1). 22. Still another circular being Circular No.464, dated 18th July, 1986 [(1986) 161 ITR(St.) 66] was issued with the intention to explain the amendments made by the Income Tax (Amendment) Act, 1986. Clause 5 of the Circular dealt with the modifications introduced in respect of the deductions on provisions for bad and doubtful debts made by the banks and it stated as follows : 5. Modification in respect of deduction on provisions for bad and doubtful debts made by the banks : 5.1 Under the existing provisions of clause (v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age of the circulars with reference to the amendments to Section 36 of the Act demonstrate 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. The legislative intent was to encourage rural advances and the making of provisions for bad debts in relation to such rural branches. Another material aspect of the functioning of such banks is that their rural branches were practically treated as a distinct business, though ultimately these advances would form part of the books of accounts of the principal or head office branch. Thus, this Court would be more inclined to give an interpretation to these provisions which would serve the legislative object and intent, rather than to subvert the same. The Circulars in question show a trend of encouraging rural business and for providing greater deductions. The purpose of granting such deductions would stand frustrated if these deductions are implicitly neutralized against other independent deductions specifically provided under the provisions of the Act. To put it simply, the deductions permiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the benefit of deduction of bad and doubtful debts under Section 36(1)(viia). Mere provision for bad and doubtful debts may not be allowable, but in the case of a rural advance, the same, in terms of Section 36(1)(viia)(a), may be allowable without insisting on an actual write off. 26. The Special Bench of the ITAT had rejected the contention of the Revenue that proviso to Section 36(1)(vii) applies to all banks and with reference to the circulars issued by the Board, held that a bank would be entitled to both deductions, one under clause (vii) of Section 36(1) of the Act on the basis of actual write off and the other on the basis of clause (viia) of Section 36(1) of the Act on the mere making of provision for bad debts. This, according to the Revenue, would lead to double deduction and the proviso to Section 36(1)(vii) was introduced with the intention to prevent this mischief. The contention of the Revenue, in our opinion, was rightly rejected by the Special Bench of the ITAT and it correctly held that the Board itself had recognized the position that a bank would be entitled to both the deductions. Further, it concluded that the proviso had been introduced to protect the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,000/- was provision against standard assets and the entire amount was claimed as deduction under section 36(1)(viia) of the Act. The Assessing Officer was of the opinion that the provisions made by the assessee against standard assets was a contingent liability and which was not allowable as business expenditure. The ld. CIT(A), however, allowed relief to the assessee by holding that the claim of the assessee fall into the main provisions of section 36(1)(viia). To resolve the dispute it is important to visit the provisions of section 36(1)(viia) of the Act and which for the sake of convenience are reproduced below. 36(1)(viia) In respect of any provision for bad and doubtful debts made by (a)a scheduled bank [not being a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank or a co-operative bank outside India] or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half percent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such bank comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1)(viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) of the Act. The learned CIT(A) has passed a very exhaustive and speaking order and we do not find any infirmity in the same. We have perused the aforesaid order of the Tribunal and finding ourselves to be in agreement with the view therein taken, respectfully follow the same. We thus are of the considered view that as the provision for bad and doubtful debts against standard assets is covered in the main provisions of Sec. 36(1)(viia) of the IT Act, therefore, uphold the order of the CIT(A) who we find had rightly deleted the addition of Rs. 3,53,47,000/- made by the A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one- half percent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. Provided that a schedule bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years deduction in respect of any provision made by it for any assets classified by the Assessment Year: 2013-14 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds of appeal raised by Revenue in ITA No. 580 569 are dismissed. In view of the above precedents the ground no. 2 is also dismissed. 22. We find that Chennai Tribunal in Tamilnadu State Apex Cooperative Bank Vs ACIT (supra) while considering the provision for non-performing asset under section 36(1)(viia) held that where the assessee-bank had claimed deduction for 'Provision for Non- Performing Assets' under section 36(1)(viia), in view of fact that taxonomy of provision had been done by assessee to keep it in line with RBI and NABARD guidelines, but in pith and substance provision had been created for 'Bad and Doubtful Debts', deduction was claimed in accordance with section 36(1)(viia) and assessee was entitled to benefit of same. 23. Further Bangalore Tribunal in DCIT Vs IGN Vysya Bank (supra) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of Rs. 2,65,00,000/- 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 Section 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. (ii) On the facts and circumstances of the case and in law, the ld. CIT(A) Surat ought to have upheld the order of the Assessing officer. It is, therefore, prayed that the order of the ld. CIT(A)-1, Surat may be set aside and that of the Assessing Officer s order may be restored. 9. We find that the Ld. CIT(A) while allowing relief to the assessee followed the order of his predecessor dated 06/10/2014 in Appeal No. CAS-1/119/2013-14 (A.Y.-2010-11), which has already been affirmed by this bench in ITA No. 16/Ahd/2016 dated 17.05.2022. Further, by following the order of A.Y. 2010- 11, we have dismissed the appeal of revenue for AY 2013-14. In the present appeal, the revenue has raised similar grounds of appeal as raised in A.Y. 2013-14, which we have dismissed by following our order for A.Y. 2010-11, therefore following the principle of cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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