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Asst. Commissioner of Incometax Versus Andhra Pradesh Grameena Vikas Bank

Deduction on account of provision for bad and doubtful debts u/s 36(1)(viia) disallowed - assessee is a Regional Rural Bank - CIT(A) allowed the claim - Held that:- Assessee in the present case, being eligible bank, is entitled to claim deduction as per the main provision contained in clause (a) of S.36(1)(viia), in respect of any provision for bad and doubtful debts to the extent of an amount not exceeding 7.5% of the total income ‘computed before making any deduction under S.36(1)(viia) and Ch .....

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.02 crores in respect of rural advances) was made by the assessee during the year under consideration. Moreover, all these facts and figures were furnished by the assessee before the learned CIT(A) for the first time and the Assessing Officer therefore, did not have any opportunity to verify the same. - Matter remanded back - Decided in favour of revenue for statistical purposes.

Deduction on account of salary arrears disallowed disallowed - Held that:- After examining all the relevan .....

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g of fact recorded by the learned CIT(A) in his impugned order. The liability on account of salary arrears in question thus neither related to the year under consideration nor crystallized in that year, and this being so, we find no infirmity in the impugned order of the learned CIT(A) confirming the disallowance made by the Assessing Officer - Decided against assessee. - ITA No.51/Hyd/15, ITA No.88/Hyd/15 - Dated:- 10-4-2015 - Shri P.M.Jagtap And Smt.Asha Vijayaraghavan JJ. For the Appellant : .....

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account of provision for bad and doubtful debts under S.36(1)(viia) of the Income Tax Act,1961 is raised by the Revenue in its appeal by way of the following grounds- 1. The CIT(Appeals) erred both in law and on facts of the case. 2. The learned CIT(Appeals) has erred in interpreting the facts of the present case to the decision of Hon 'ble Supreme Court in the case of Catholic Syrion Bank Ltd., Vs CIT wherein the Hon'ble Supreme Court has held that the provisions of the sec. 36(1)(vii) .....

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ht into LT. Act as explanation 2 of clause (vii) of sec.36(1) which is subsequent to Hon'ble Supreme Court's decision in the relied upon case, viz. Catholic Syrion Bank Vs. CIT. 5. The CIT(Appeals) ought to have appreciated that the assessee has claimed provision for bad and doubtful debts to the extent of ₹ 22,87,14,000/- in the P&L account though the eligibility as per the provisions of clause viia of sec.36(1) is ₹ 9,93,40,015/- as worked out by the assessee itself and .....

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ds provision for bad and doubtful debts in the computation since the assessee has already claimed such provision in P&L account. 8. The CIT(Appeals) ought to have appreciated that the issue regarding claim u/s 36(1) (viia) in assessee's own case for AY 2009-10 has not yet been decided by the Hon ble ITAT, Hyderabad as claimed by the assessee and a M.A. was filed by the Department before the Hon'ble ITAT. 9. Any other ground(s) that may be urged at the time of hearing. 3. The assessee .....

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nd on such examination, he found that the claim of the assessee for deduction on account of salary arrears amounting to ₹ 12,73,60,121 and on account of provision for bad and doubtful debts under S.36(1)(viia) amounting to ₹ 9,93,40,015 was allowed by the Assessing Officer without conducting proper and sufficient enquiry and without applying his mind to the relevant facts of the assessee as well as the relevant provisions of law. He therefore, revised the assessment order passed by t .....

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ct, being 7.5% of the total income of the assessee as computed before making any deduction under S.36(1)(viia) and Chapter VIA. On such examination, he found that the assessee has made another provision for an amount of ₹ 22,87,14,000 under the head Provisions and Contingencies without giving any break up or bifurcation of the relevant details like category of asset under NPA. In the absence of these details, the Assessing Officer found it difficult to ascertain as to whether deduction und .....

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of advances categorized as standard assets , as per the decision of the Hon'ble Supreme Court reported at (320 ITR 577). He therefore, held that deduction of ₹ 9,93,40,015 claimed by the assessee on account of provision for bad and doubtful debts under S.36(1)(viia) was not admissible in the facts and circumstances involved in the case of the assessee and the same was disallowed by him. 5. The disallowance made by the Assessing Officer on account of its claim for deduction under S.36(1 .....

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d be seen from the 'assessment order, the Assessing Officer was of the opinion that the assessee is eligible to write-off the bad debts on actual basis and the provision for doubtful and bad debts can be made on the basis of the assessment of the health of the advances given by bank and as per the guidelines issued on this regard, and the deduction u/s 36(1)(viia) is not allowable to non-specified assets, which means deduction is not available to assets which are neither bad nor doubtful and .....

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on to the deduction of 10% of the Aggregate Average Advances (AAA), which was not claimed, for the year under reference. It was also submitted that the deduction claimed under (vii) of Section 36 (Rs.22.24 crores) for the year, does not exceed the credit balance of provision for bad and doubtful debts (Rs.40.29 crores). In this context, it is relevant to refer to the clause (vii) and (viia) of Section 36(1), and Section 36(2)(v) of the IT Act, which read as under: Section 36(1) :The deductions p .....

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or a nonscheduled bank or a co-operative bank other than primary agricultural credit society or a primary cooperative agricultural and rural, development Bank, an amount not exceeding seven and half percent of total income (computed before making any deduction under this clause and chapter VIA) and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. (b) A bank, being a bank incorporated by or under the laws of .....

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apply- (v) where such debt or part of the debt relates to advances made by an assessee to which clause (viia) or sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause. Thus, reading of the clause (vii) of Section 36(1) makes it clear that bad debts written off during the year are eligible to be claimed as deduction and in .....

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he 10% of the Aggregate Average Advances(AAA) of Rural Advances. In this case, no specific infirmity was pointed out by the Assessing Officer towards the claim of deduction of ₹ 9,93,40,01S/- u/s 36(1)(viia), where provision of ₹ 22.40 crores have been made for bad and doubtful debts for the year. It is also a fact that the claims u/s 36(1)(vii) was made to the extent of ₹ 22.24 crores, and did not exceed the limits placed thereon. In this context, it is relevant to refer to th .....

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Hon'ble Supreme Court held as under: "To conclude, we hold that the provisions of Sections 36(l)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. The bad debts written off debts, other than those for which the provision is made under clause (viia), will be covered under the main part of Section 36(1)(vii), while the proviso will operate in cases under clause (viia) to limit deduction to the extent of difference betw .....

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g become bad debt and being written off as irrecoverable "in the accounts of the assessee for the previous year. This, obviously, would be subject to satisfaction of the requirements contemplated under Section 36(2)." (Para 41 of the order) Thus, as could be seen from the interpretation given by the Hon'ble Supreme Court (supra), on the issue, the proviso to Section 36(1)(vii), will relate to cases covered under section 36(1)(viia), and has to be read with Section 36(2)(v) of the I .....

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towards provision made for the year. Thus, there is a closing balance of ₹ 2936 lakhs, towards provision even after write off of bad debts to the extent of ₹ 1690 lakhs in the rural branches of the banks during the year, against which the claim of ₹ 9,93,40,015/- was made as deduction u/s 36(1)(viia), for the year which being 7.5% of the total profits computed. Thus, based on the interpretation of the law that governs the deduction on provisions of bad and doubtful debts u/s 36 .....

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e Revenue has preferred this appeal before the Tribunal. 6. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the claim of the assessee for deduction of ₹ 9,93,40,015 being 7.5% of its business income (before claiming deduction under S.36(1)(viia) and Chapter VIA)) was allowed by the learned CIT(A) after taking in to consideration the following facts and figures furnished by the assessee in respect of advances and NPAs relat .....

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7. The relevant provisions of S.36(1)(viia) under which deduction in question is claimed by the assessee are extracted below- Section 36(1) :The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 - (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 nonscheduled ban .....

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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 per cent 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 .....

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of securities in accordance with a scheme framed by the Central Government; Provided also that no deductions shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head profits and gains of business or profession. Explanation- For the purposes of this sub-clause, relevant assessment years : means the five consecutive assessment years commencing on or after the 1st day of April, 2000 and ending before the 1st day of April, 2005; . ....... .....

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bed manner. A perusal of the impugned order of the learned CIT(A) however, shows that it was stated by the assessee before the learned CIT(A) that no provision was made towards average rural advances. If it is so, it is not clear as to what is the basis on which the provision of ₹ 22.40 crores (Rs.5.38 crores in respect of urban advances and ₹ 17.02 crores in respect of rural advances) was made by the assessee during the year under consideration. Moreover, all these facts and figures .....

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ortunity to verify the same. Having regard to all these facts and circumstances of the case, we are of the view that it would be fair and proper and in the interests of justice to restore the issue relating to the assessee s claim for deduction under S.36(1)(viia) to the file of the Assessing Officer for deciding the same afresh, in accordance with the provision of S.36(1)(viia) after giving proper and sufficient opportunity of hearing to the assessee and after verifying all the relevant facts a .....

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.263, the claim of the assessee for deduction on account of salary arrears for the period from 1.11.2007 to 31.3.2009 amounting to ₹ 12.73 cores was examined by the Assessing Officer. On such examination, he found that the said claim pertaining to earlier years was not allowable in the year under consideration, i.e. assessment year 2010-11 in the case of the assessee following mercantile system of accounting. He therefore, disallowed the deduction claimed by the assessee on account of prov .....

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