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TMI Blog2024 (3) TMI 1371X X X X Extracts X X X X X X X X Extracts X X X X ..... d No. 1 of the present appeal is recalled for fresh adjudication. Accordingly, the case was posted for hearing before us and heard afresh. 3. The relevant facts of the ground no. 1 are, in order giving effect to the Ld.CIT (A) order the assessee was asked to submit the following details:- "(i) Whether the assessee bank has debited the amounts so recovered out of bad debts against Reserve created by virtue of section 36(1)(viia) of the Act? (ii) Whether the amounts recovered against the bad debts have not exceeded the reserve so created? (iii) Whether the amounts recovered against the bad debts have not been charged to profit & loss account of assessee bank as per provisions of section 36(1)(vii). The AO is directed to ascertain the facts from the books of accounts and to take appropriate action in conformity with the findings on the legal issue. Therefore, the ground of the appellant is treated as partly allowed. 4. In response, assessee vide letter dated 04.04.2018 submitted as under: - "Deduction Recovery in respect of bad debts written off relating to rural branches amounting to Rs21,27,37,034/- In respect of above issue Learned CIT(A)-2 has allowed in Bank& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision, it is noticed that the decision did not take into consideration the effect of section 36(2)(v) while concluding that section 41(4) cannot be invoked as the assessee has not claimed bad debts u/ 36(1)(vii) of the I.T. Act but purely adjusted the amount against the provision created u/s 36(1)(viia) of the I.T. Act. 5.2.4 The provision of write off of bad debts as per section 36(1)(vii) is subject to section 36(2) of the I.T. Act. While Section 36(1)(vii) allows deduction of amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year, section 36(2) puts a further condition that such debt or part thereof should have been taken into account while computing the income of that previous year or in an earlier previous year or represents money lent in the ordinary course of business of baking carried on by the assessee. 5.2.5 For a banking company, certain conditions are prescribed which are in addition to the non-banking companies. 1. As per first proviso to section 36(1)(vi) - in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate write off is not required as per 36(1)(vii) as it would result in double deductions. Once as a debit against the credit in the provision account which is already allowed as deduction u/s * 0.36(1) (viia) and second time as deduction u/ 36(1)(vii) The restriction in the first proviso to section 36(1)(vii) was indeed provided to prevent such double deduction. Thus, as the decision in the case of State Bank of Mysore is distinguishable which was relied on by the Hon. ITAT, the issue needs to be read in consonance with section 36(2)(v) of the I.T. Act. 5.2.9. The appellant's plea that the recovery relating to rural branches written off cannot be taxed as it would lead to double taxation is devoid of merits since the write off of such rural advances was already claimed as deduction when it was adjusted against the credit balance in the provision account created u/s 36(1)(viia) read with section 36(2)(v) of the I.T. Act 5.2.10 In view of the above, the AO's addition of Rs. 21,27,37,034/- on account of recovery in respect of accounts written off of rural branches needs no interference and is upheld." 7. Aggrieved with the above order assessee is in appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o our notice the decision of the Coordinate Bench in assessee's own case in which in the similar facts on record, the claim of the assessee was allowed. He placed the order of the Coordinate Bench at the bar. 10. On the other hand, Ld. DR relied on the detail findings and observations of Ld. CIT (A) which are discussed at Para No. 18 of the First Appellate Order and he justified the disallowance made by the lower authorities. 11. Considered the rival submissions and material placed on record, we observe from the record that the issue raised by the assessee is covered in its favour by the order of the Coordinate Bench in assessee's own case, the same is reproduced by the Ld. CIT (A) in his order at Page No. 17 of the order. Since the issue under consideration is already covered in favour of assessee, however, Ld. CIT (A) has elaborately discussed his point of view that why he is not in a position to follow the decision of the Coordinate Bench, even though it is not as per the legal conventions still we proceed to explain the issue in the following paragraphs. 12. In the factual matrix submitted before us, the Bank makes provision for bad and doubtful debts as per RBI no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off which falls under the 2nd stream of deduction, the same cannot be taxed unless a deduction has been allowed under the 2nd stream in respect of the bad debts written off. 17. The provisions of section 41(4) of the Act which provides for taxing the recovery effected out of the bad debts written off, therefore, clearly stipulates that the said recovery will be taxed if a deduction has been allowed in respect of bad debts written off which falls under the second stream of deductions as stated above. Accordingly, the section provides that if a bad debt written off has been allowed as deduction under section 36(1)(vii) of the Act i.e., in second stream of deductions, the recovery effected out of such write off, which has been allowed, will be charged to tax. This is explained in the below chart and table: Particulars Situation I Situation II Situation III Actual Bad debts 200 600 300 Deductions u/s 36(1)(viia) (first stream of deduction) 500 500 0 Deduction u/s 36(1)(vii) (second stream of deduction) 0 100 300 Provisions as per RBI Guidelines 1000 1000 0 18. From the above, in situation I, the deduction u/s 36(1)(viia) is allowed the extent of Rs..500 because t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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