2014 (4) TMI 1242 - AT - Income Tax

Eligibilty for deduction u/s 36(1)(vii) and 36(1)(viia) - benefit of deduction of provision for bad and doubtful debts u/s 36(1)(viia) - HELD THAT - Hon ble Supreme Court in the case of Catholic Syrian Bank vs. CIT 2012 (2) TMI 262 - SUPREME COURT OF INDIA wherein it was held that provision of ss. 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields. It was held that proviso to section 36(1)(vii) operates only in cases falling under Cl. (viia) to limit the deduction to the extent of difference between the debt or part thereof writtenoff in the previous year and the credit balance in the provision for bad and doubtful debts made under clause (viia). It was held that the scheduled and non scheduled commercial banks are entitled to full benefit of write off or irrecoverable debts u/s 36(1)(vii) in addition to the benefit of deduction of provision for bad and doubtful debts u/s 36(1)(viia) - Appeal of the assessee treated as allowed for statistical purpose.

Summary

Issues:
1. Additional grounds raised by the assessee regarding bad debts write-off under section 36(1)(vii) of the Income Tax Act, 1961 for A.Y. 2003-04.

Analysis:
The appeal was filed by the assessee against the order of the ld. CIT(A)-4, Mumbai for A.Y. 2003-04, which was earlier disposed of by the Tribunal along with cross appeals filed by the Revenue for A.Y. 2004-05. The assessee had raised two additional grounds related to bad debts write-off, which were not adjudicated by the Tribunal in its common order dated 12-6-2013. Upon pointing out this oversight, the Tribunal allowed the assessee's M.A. and scheduled a hearing to address the additional grounds.

The additional grounds raised by the assessee pertained to the incorrect allowance of bad debts write-off under section 36(1)(vii) of the Act. The assessee claimed a deduction of Rs. 434,17,95,000, comprising Rs. 29,08,15,000 as bad debts and Rs. 405,09,80,000 as amounts written off as bad debts from the G/L provision. The A.O. disallowed the claim, stating non-fulfillment of conditions under sections 36(1)(vii) and 36(1)(viia). The ld. CIT(A) allowed the claim only to the extent of Rs. 29,08,15,000 under section 36(1)(vii) after considering the provisions and previous case law.

The issue was deliberated by the Tribunal, considering the decision of the Supreme Court in the case of Catholic Syrian Bank vs. CIT, which clarified the distinction between sections 36(1)(vii) and 36(1)(viia) as separate items of deduction. The Tribunal agreed that the issue should be remitted back to the ld. CIT(A) for fresh consideration in light of the Supreme Court's decision, directing a reevaluation of relevant facts and figures. Consequently, the additional grounds raised by the assessee were treated as allowed for statistical purposes, and the appeal for A.Y. 2003-04 was partly allowed.

In conclusion, the Tribunal's decision to remit the issue back to the ld. CIT(A) for reconsideration in line with the Supreme Court's ruling signifies a significant development in the interpretation and application of provisions related to bad debts write-off under the Income Tax Act, 1961. The clarification provided by the Supreme Court regarding the distinct nature of deductions under sections 36(1)(vii) and 36(1)(viia) has direct implications on the assessee's claim and necessitates a fresh assessment based on the established legal principles.