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2024 (4) TMI 1023

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..... BER AND MS. ASTHA CHANDRA, JUDICIAL MEMBER For the Assessee : Shri K.V.S.R. Krishna, CA For the Department : Shri T. James Singson, CIT-DR ORDER PER ASTHA CHANDRA, JM The appeal filed by the assessee is directed against the order dated 31.01.2023 of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi ( CIT(A) ) pertaining to the Assessment Year ( AY ) 2017-18. 2. The assessee has raised the following grounds:- 1. The Ld. CIT(A) erred in law and on facts in setting aside the matter to AO by not allowing the claim of Rs. 4545.89 crores claimed as bad debt by the assessee u/s 36(1)(vii) in respect of identified debts. The claim is as per provisions of sec. 36(1) (vii) and should be allowed. 2. The Ld. CIT(A) has failed to appreciate that the said debts identified as bad debts in the previous year relevant to this assessment year against which no claim u/s 36(1)(viia) has been made. Therefore, the amended provision w.e.f. A.Y. 2014-15 is not applicable and hence the bad debt written off u/s 36(1)(vii) should be allowed. 3. The appellant contends that the claim of the assessee is as per the provisions of sec. 36(1)(vii) of the Income Tax Act as accepted by the CIT(A) in its order. .....

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..... spect should be allowed as deduction. However, the assessee was required to submit complete list of advances given by rural branches and non- rural branches and thereafter clearly specifying the accounts where the provisions was created in respect of any financial year. 3. The assessee should also take into consideration the provisions of section 36(1)(viia) which pertain to provisions created for bad and doubtful debts. Out of these provisions the assessee should have culled out the provisions made in respect of non-rural branches which are eligible to be claimed u/s 36(1)(vii) During the proceedings, the assessee has not submitted any documents showing the above calculations and has merely relied on the fact that the provisions has been reduced from loans and advances assets of the balance sheet. 5.3 It appears that the AO has not been able to properly grasp the import of Supreme Court decision in the case of Vijaya Bank v. CIT (2010) 323 ITR 166 (SC). In that decision, the hon'ble Supreme Court had laid down twin requirements for being eligible to claim the deduction u/s 36(1)(vii) viz (i) debiting the P L a/c and creating a provision for bad and doubtful debt, and (ii) corr .....

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..... to section 36(1)(vii) has been inserted by the Finance Act, 2013 w.e.f. 01.04.2014 diluting the position laid down in Catholic Syrian Bank (supra). Explanation 2 reads as under: S. 36(1)(1) (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year. Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof 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 made under that clause: Provided further Explanation 1....... Explanation 2-For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v) of sub-section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches, 5.9 As such, with effect from 01.04 2014, in respect of the tax payers i .....

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..... able u/s 36(1)(viia) exceeds the amount written off, no additional deduction u/s 36(1)(vii) is to be allowed to the appellant. 5. The assessee is aggrieved and is before the Tribunal and all the grounds relate thereto. 6. At the very outset, the Ld. AR submitted that the issue is covered in assessee s own case by the decision of the Tribunal for immediately preceding AY 2016-17, a copy of which is placed at pages 45-77 of Paper Book 2. The Ld. AR further pointed out that cross appeals by the Revenue and the assessee were filed before the Hon ble Delhi High Court pertaining to AY(s) 2013-14, 2014-15 and 2015-16. The Revenue s appeals for the aforesaid AY(s) were against deletion of disallowance of Rs. 1062.73 crores; Rs. 1231.56 crores and Rs. 315 crores by the Ld. CIT(A)/ITAT in AY 2013-14, 2014-15 and 2015-16 respectively under section 36(1)(vii) of the Act. Copy of Hon ble Delhi High Court s decision is placed at pages 1-6 of Paper Book 3 wherein the Hon ble Delhi High Court, dismissing the Revenue s appeal held that no substantial question of law arises qua the issue raised by the Revenue. The Ld. AR also submitted that against the Tribunal s decision for AY 2016-17 the Revenue .....

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..... disallowed. 42. However, the assessee has claimed deduction u/s 36(1)(vii) for a sum of Rs. 315.00 crores in respect of bad debts written off identified separately in the profit loss account other than those provisions which were claimed u/s 36(1)(viia). The AO has mentioned in his order that the assessee has provided complete details of the bad debts claimed u/s 36(1)(vii) of Rs. 315.00 crores at page 16- 17 of his order. 43. The ld. CIT(A) has reproduced in her order at page no.66 the relevant page of the Annual accounts wherein the assessee has shown under the code 2404 separately provision for bad and doubtful debts further provision (write off) of Rs. 315 cr. The provisions u/s 36(1)((viia) are separate which has also been noted by the Id. CIT(A) in her order pages 66-67. However, the ld. CIT(A) has concluded that it is not a bad debt written off but it is still a provision for bad and doubtful debts and is not a write off. Further, the ld. CIT(A) has relied on the CBDT Circular No.314 of 2014 and the amendment to section 36(1)(vii) wherein Explanation-2 was inserted by the Finance Act, 2013 with effect from A.Y. 2014-15 which [CIT(A) s order at page 67] is again reproduced: .....

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..... : To this extent, we agree with the contentions of Shri Bhattacharya. However, as stated by the Tribunal, in the present case, besides debiting the P L a/c and creating a provision for bad and doubtful debt, the assessee-bank had correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the asset side of the balance sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the balance sheet was shown as net of the provision for impugned bad debt . In the judgment of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala (supra), a mere debit to the P L a/c was sufficient to constitute actual write off whereas, after the Explanation, the assessee(s) is now required not only to debit the P L a/c but simultaneously also reduce loans and advances or the debtors from the asset side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/ debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Cour .....

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