TMI Blog2019 (10) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... the CBDT Circular No. 763 dated 18.02.1998. As per it, clause (vii) of sub-section (1) of section 36 of the Act, provides for a deduction of the amount of any debt or part thereof which is written off as irrecoverable in the accounts of an assessee in the previous year. Clause (viia) of the same section provides for a deduction in respect of any provision for bad and doubtful debts made by a bank. To preclude the possibility of a double deduction of the same amount being claimed in the case of a bank, a proviso was added to clause (vii) by the Finance Act, 1985 and it was provided that in the case of a bank to which clause (viia) applies, 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 of bad and doubtful debts account made under that clause. Simultaneously, clause (v) was added to sub-section (2) of section 36 which provided that no deduction for bad debt shall be allowed unless the bank has debited the amount of such debt or part thereof in that previous year to the provision for bad and doubtful debts account made under clause (viia) of sub-section (1). When ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgement of the Supreme Court, no proceedings can be initiated u/s 263. 5. The Ld. PCIT erred in directing the AO to allow the deduction u/s 36(1)(vii) after obtaining the required details, and only the amount by which bad debts written off exceeds the credit balance in the provision for bad and doubtful debts account made u/s 36(1)(viia) subject to the debit of bad debts to provision account in accordance with section 36(2)(v). 6. The Ld. PCIT erred in not appreciating that the deduction amounting to ₹ 833,30,47,694 claimed by the appellant is in accordance with the Supreme Court judgement in the case of Vijaya Bank v. CIT [2010] 323 ITR 166 (SC), as the appellant has debited the profit and loss account and correspondingly reduced the amount of loans and advances outstanding on assets side of balance sheet. 7. The Ld. PCIT erred in not appreciating that the provisions of section 36(2)(v) and proviso to section 36(1)(viia) are not applicable, as no deduction under section 36(1)(viia) is claimed by the appellant. The case of the appellant is supported by, inter alia, the judgment of the Supreme Court in the case of Catholic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessee to which clause 36(1)(viia) applies and in the present case, the assessee has not made any claim u/s 36(1)(viia) and hence provisions of section 36(2)(v) are not applicable. It was further explained to the Pr. CIT that the intention of introduction of section 36(2)(v) and first proviso to section 36(1)(vii) was only to check that no double deduction is claimed by the assessee, in case a deduction is already claimed u/s 36(1)(viia). In other words, it was stated that when a deduction is claimed once u/s 36(1)(viia) at the time of provision, the same amount should not be allowed as deduction again u/s 36(1)(vii) at the time of actual write off. In this regard, reference was made to the decision in Catholic Syrian Bank Ltd. v. CIT 343 ITR 270 (SC). Further, it was stated that the AO in AYs 2011-12 to 2015-16 has examined and allowed deduction u/s 36(1)(vii). Further, the assessee submitted before the Pr. CIT that the AO vide order sheet entry dated 15.02.2017 had asked it to explain various issues on which the Tribunal has restored the file back and the assessee vide its letter dated 22.02.2017 submitted a reply which was considered while passing the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout obtaining the requisite details and without computing the eligible amount of deduction in accordance with the proviso to clause (vii) and clause (v) of section 36(2) has rendered the order passed by the AO erroneous and prejudicial to the interest of revenue. In response to the submission of the assessee regarding applicability of section 263 of the Act, the Pr. CIT observed that as per clause (a) to Explanation to section 263 (amended by Finance Act, 2015 w.e.f. 01.06.2015), an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interests of revenue, if the order is passed without making inquiries or verification, which should have been made. As per him, in the instant case, the AO has passed the order, without making inquiries and verification which were required in view of the provisions of law and therefore, it is a fit case for invoking section 263 of the Act. With the above reasons, the Pr. CIT set aside the order dated 27.03.2017 passed by the AO and directed him to allow deduction under clause (vii) of section 36(1) after obtaining the required details and only the amount by which bad debts written off exceeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. It is further stated that in the return of income for AY 2011-12, relying on the decision in Vijaya Bank (supra), delivered on 25.04.2010, the assessee claimed deduction for the entire amount of provision towards bad and doubtful debts as write off of bad debts in terms of section 36(1)(vii) of the Act and consequently, no deduction was claimed u/s 36(1)(viia) of the Act. It is explained that the said position was accepted by the AO in the assessment order passed for AY 2011-12. Similar claims made by the assessee for AYs 2012-13 to 2015-16 were accepted by the AO in the assessment orders passed for the respective years. Further, it is stated by the Ld. counsels that since in the case of Vijaya Bank (supra), it is held that the treatment as given by the assessee in its annual account would qualify as a write off of bad debts eligible for deduction u/s 36(1)(vii), the assessee had raised an additional ground before the Tribunal in its pending appeal for AY 1996-97, claiming a deduction for the entire provision under that section. The Tribunal by its order dated 26.07.2013 admitted the additional ground as filed by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submit that the Pr. CIT, without any basis has held that the compliance of the condition in section 36(2)(v) of the Act has not been fulfilled and the assessee has been allowed an excess deduction of ₹ 127,00,63,672/-. It is argued that the Pr. CIT failed to appreciate that the amount of ₹ 706,29,84,022/- has not been allowed as a deduction u/s 36(1)(viia) of the Act and therefore, such amount could not be reduced as per the first proviso below section 36(1)(vii) and section 36(2)(v) of the Act. Further, it is explained that in any event, assuming without admitting the deduction u/s 36(1)(viia) of the Act had been allowed in respect of ₹ 706,29,84,022/-, there was no bar in the Act for allowing a deduction of excess of the write off over provision as per the statutory provisions. The Ld. counsels submit that the Pr. CIT failed to appreciate that when no deduction has been claimed u/s 36(1)(viia) of the Act, the aforesaid provisions would have no application and consequently there was no obligation on the assessee to furnish the said documents before the AO. It is stated by the Ld. counsels that the AO passed his order giving effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritten off u/s 36(1)(vii) is limited to the amount by which such debt exceeds the credit balance in the provision for bad and doubtful debts account made under clause (viia). It is pointed out by them that clause (v) of section 36(2) provides that in case of assessee covered under clause (viia), no deduction shall be allowed unless the assessee has debited the amount to the provision for bad and doubtful debts account made under clause (viia). Thus it is stated that deduction on account of bad debts written off, as in the present case, should be allowed only when the assessee has debited the amount of such debts to the provision for bad and doubtful debts account u/s 36(1)(viia) of the Act, as required by section 36(2)(v) of the Act. Referring to the decision in Catholic Syrian Bank Ltd. (supra), the Ld. DRs argue that the case is covered under clause (viia), the proviso to clause (vii) of section 36(1) and clause (v) of section 36(2) are applicable. Thus the Ld. DRs submit that the Pr. CIT has rightly directed the AO to allow deduction under clause (vii) of sub-section 36(1), after obtaining the required details and only the amount by which bad debts written off exceeds the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no deduction for bad debt shall be allowed unless the bank has debited the amount of such debt or part thereof in that previous year to the provision for bad and doubtful debts account made under clause (viia) of sub-section (1). We are of the considered view that the above provisions of the Act are applicable to the present case. At this juncture we turn to the case-laws infra. 6.1 In the case of Vijaya Bank (supra), for the AYs 1993-94 and 1994-95, the AO disallowed the amount which the assessee-bank had reduced from loans and advances or debtors on the ground that the impugned bad debts had not been written off in an appropriate manner as required under the accounting principles. According to him, write off of each and every individual account under the head loans and advances or debtors was a condition precedent for claiming deduction u/s 36(1)(vii). On appeal, the CIT(A) held that it was not necessary for the purpose of writing off of bad debts to pass corresponding entries in the individual account of each and every debtor; and that it would be sufficient if the debit entries were made in the P L account and corresponding credit was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten off is also claimed as deduction under clause (vii), the same will be allowed as a deduction only to the extent it is in excess of the provision created and allowed as a deduction under clause (viia). On appeal to the Supreme Court, the assessee contended that the view taken by the Full Bench of the Kerala High Court could not be sustained in law as there are distinct and different items of account that are maintained by the bank in the normal course of its business and it is not permissible to interchange these items in accordance with the settled standards of accountancy or even in law and, as such, the claim of doubtful and bad debts could not have been added back to taxable income as it was an additional liability of the bank being shown as an independent item. The Hon ble Supreme Court held : To conclude, the provisions of sections 36(1)(vii) and 36(1)(viia ) are distinct and independent items of deduction and operate in their respective fields. The bad debts written off in accounts, 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.04.2010, the assessee has claimed deduction for the entire amount of provision towards bad and doubtful debts as a write off of bad debts u/s 36(1)(vii) of the Act. Consequently, it did not claim deduction u/s 36(1)(viia) of the Act. The said provision was accepted by the AO in the assessment order passed by him for the AY 2011-12. Similar claims made by the assessee for AYs 2012-13 to 2015-16 were accepted by the AO in the assessment orders passed for the respective years. 6.5 The assessee filed an application before the AO requesting him to give effect to the Tribunal s order dated 29.04.2016 for the AY 1997-98. In the said letter, it gave detailed submission on why its case is covered by the principle laid down in Vijaya Bank (supra), which was followed by the AO in assessee s own case while passing the assessment order for AYs 2011-12 to 2014-15 and also for AY 1996-97. The AO passed an order allowing a deduction for the entire amount of provision towards bad and doubtful debts of ₹ 833,30,47,694/- as a write off of bad debts u/s 36(1)(vii) of the Act. 6.6 In CIT v. Max India Ltd., [2007] 295 ITR 282 (SC), the Hon ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ours] In CIT v. Greenworld Corporation (2009) 181 Taxman 111 (SC), it is held that the power to exercise suo motu revision in terms of section 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein, viz. (1) the order is erroneous and (2) by virtue of the order being erroneous, prejudice has been caused to the interest of revenue, exists. Thus an order of assessment passed by an ITO should not be interfered with only because another view is possible. Similarly, in CIT v. Gokuldas Exports (2011) 333 ITR 214 (Karn), it is held that if in given facts and circumstances of the case, two views are possible and one view has been adopted by the AO, then that view alone would not be sufficient to exercise powers u/s 263 by the Commissioner. 6.7 As delineated hereinabove, in given facts and circumstances of the present case, two views are possible and one view has been adopted by the AO. That view alone would not be sufficient to exercise powers u/s 263 by the Commissioner. 7. Respectfully following the ratio laid down in Max India Ltd (supra), Greenworld ..... X X X X Extracts X X X X X X X X Extracts X X X X
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