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TMI Blog2022 (7) TMI 1389X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT Act, therefore, uphold the order of the CIT(A) who we find had rightly deleted the addition made by the A.O on the said count. Appeal of the revenue is dismissed. - ITA No. 131/SRT/2021 - - - Dated:- 4-7-2022 - SHRI PAWAN SINGH, JUDICIAL MEMBER AND Dr. ARJUN LAL SAINI, ACCOUNTANT MEMBER For the Assessee : Shri Akshay Modi, CA For the Revenue : Shri Vinod Kumar, Sr.DR Order under section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC) dated 30/06/2021 for the Assessment year 2017-18. The assessee has raised 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. 1,95,00,000/- made out of deduction claimed by the assessee u/s 36(1)(viia) of the Act. 2 The appellant craves leave to add, alter amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal. 3. It is, therefore, prayed that the order of the ld. CIT(A) may be set aside and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Officer disallowed the claim to the extent of Rs.3.66 crores out of total claim of assessee under section 36(1)(viia) by taking view that the aforesaid amount under four heads are not provision 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 Nonbanking financial companies prudential norms (Reserve Bank) direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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, subject to the limitation contained in Section 36(2) of the Act. Any bad debt or part thereof, which is written off as irrecoverable in the accounts of the assessee for the previous year is the deduction 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 do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit 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. The Finance Act, 1985, which was given effect from 1st April, 1985, added the proviso to Section 36(1)(vii), amended Section 36(1)(viia) and also introduced clause (v) to Section 36(2) of the Act. To complete the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de 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 (viia) of sub-section (1) of section 36 of the Income-tax Act inserted by the Finance Act, 1979, provision for bad and doubtful debts made by scheduled or a non-scheduled Indian bank is allowed as deduction within the prescribed limits. 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 deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 permissible under Section 36(1)(vii) should not be negated by reading into this provision, limitations of Section 36(1)(viia) on the reasoning that it will form a check against double deduction. To our mind, such approach would be erroneous and not 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Revenue, but it would be meaningless to invoke the same where there was no threat of double deduction. 27. As per this proviso to clause (vii), the deduction on account of the actual write off of bad debts would be limited to excess of the 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome (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 scheduled 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.O on the said count. The Grounds of Appeal No. 4 to 6 raised by the revenue are dismissed. 21. We find that the coordinate bench of Amritsar Tribunal in DCIT Vs Nawanshahr Central Co-operative Bank Ltd (supra) while considering the grounds related with 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 reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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/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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (2015) 57 taxmann.com 422 (Pune Trib) 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. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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