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TMI Blog2014 (10) TMI 1015X X X X Extracts X X X X X X X X Extracts X X X X ..... is figure comes to Rs. 33.24 crores. The assessee was asked to explain why the claim under Section 36(1)(viia) should not be restricted to provision created in the books. The reply was that since the bank has rural branches and has also created provision for bad debts, the bank becomes eligible for claiming deduction under Section 36(1)(viia). Once the bank is eligible for deduction under that section, then the deduction is to be allowed based on the calculation provided in the section itself. The said contention was negatived by the Assessing Authority holding that the assessee has made only Rs. 33.24 crores in its books as provision for doubtful rural debts. Deduction under Section 36(1)(viia) cannot be more than the provision made in the books. Hence, an amount of Rs. 24,37,15,668 (57,61,15,668 - 33,24,00,000) is added back to the income of the assessee. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). At Para 4.4.2 of the order, the Appellate Authority observed that he was of the considered opinion that the quantum of the deduction in respect of the average aggregate rural advances must be limited to the actual quantum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 36(1)(viia) of the Income Tax Act. However, it was made clear that the Assessing Authority has to ensure that bad-debts of Rs. 634031136 pertains to only non-rural branches. Aggrieved by the said order, the revenue preferred an appeal to the Tribunal. The Tribunal has affirmed the said finding. It is against the said order, the revenue is in appeal. 6. Therefore, in this appeal, two substantial questions of law arises for consideration. They are as under:- 1. Whether the Appellate Authorities were correct in holding that the deduction claimed under Section 36(1)(viia) of the Act towards provision for bad and doubtful debts in excess of provision made in the account to the extent of Rs. 163440553/- without making a provision in the accounts as per the Section is allowable deduction? 2. Whether the Appellate Authorities were correct in holding that the assessee would be entitled to claim Rs. 33,06,84,783/- as a deduction out of Rs. 118,90,73,982/- under Section 36(1)(vii) of the Act without adjusting the said amount of bad debts against the provision available under Section 36(1)(viia) of the Act brought forwarded and created during the year? 7. Insofar as 1st sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the laws of a country outside India, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VIA); (c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) : Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, 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, of an amount not exceeding ten per cent of the amount of such assets shown in the books of account of such institution or corporation, as the case may be, on the last day of the previous year." 8. The Punjab and Haryana High Court ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d view expressed by the Panjab and Haryana High Court. A reading of the aforesaid provision makes it abundantly clear that the deduction provided for in the following clauses shall be allowed in respect of the matters dealt with therein in computing the income referred in Section 28. In respect of any provision for bad and doubtful debts made by a scheduled bank, an amount not exceeding 7½% of the total income (computed before making any deduction under the said 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, is allowable. 10. Therefore, it is clear that to claim deduction under Section 36(1)(viia), the condition precedent is a provision for bad and doubtful debts should have been made in the accounts of the assessee. The Section speaks about the maximum amount under which such a provision should be made. If a provision is made in excess of the limits prescribed under the section, the assessee would not be entitled to deduction of the excess amount. At the same time, when the section speaks about the deductions in respect of any provision for bad and doubtf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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