TMI Blog2022 (4) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... is impugned herein, is set aside and the matter is remitted to the assessing officer for quantification of the deduction allowable to the respondent. The assessing officer shall complete the said exercise, after providing due opportunity to the respondent for submission of both oral and documentary evidence, if any, and pass appropriate orders, on merits and in accordance with law, within a period of three months from the date of receipt of a copy of this judgment. - Honourable Mr. Justice R. Mahadevan And Honourable Mr. Justice J.Sathya Narayana Prasad For the Appellant : Mr. J. Narayanasamy For the Respondent : Mr. V.S. Jayakumar JUDGMENT R.MAHADEVAN, J. This tax case appeal has been filed by the appellant / Revenue, challenging the order dated 30.10.2009 passed by the Income Tax Appellate Tribunal, C Bench, Chennai, in I.T.A.No.1485/Mds/2007, relating to the assessment year 2003 - 04. 2. The respondent is a banking company and they filed its return of income on 27.11.2003 admitting a total income of ₹ 5269.64 lakhs for the assessment year 2003-04. The return so filed by the respondent was processed under Section 143 (1) of The Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elation to non-rural branches of the assessee bank is allowable without first setting off against the provision already allowed u/s.36(1)(viia), when no distinction between advances relating to non-rural and rural advances has been made in section 36 (1)(vii) of the Act? 2. Whether in the facts and circumstances of the case, the Tribunal was right in deleting disallowance of provision before bad debts under Section 36 (1) (viia) of ₹ 8.53 crores observing that as per Rule 62ABA of the Income Tax Rules 1962, the aggregate average advances made by the rural branches have to be computed by taking the amounts of advances made by each rural branch as outstanding at the end of last day of each month comprised in the previous year, whereas the aggregate average has to be worked out only in respect of advances made during the year as otherwise, there would be double deduction? 6. According to the learned counsel for the appellant, when there was no distinction provided under the proviso to Section 36 (1) (vii) for bad debts relating to advances made by rural and non-rural branches, the Tribunal ought to have restored the disallowance made by the assessing officer relating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Catholic Syrian Bank Ltd v. Commissioner of Income-tax [(2012) 18 taxmann.com 282 (SC) ]. For better appreciation, the relevant paragraphs of the said decisions are extracted below: City Union Bank Ltd case: 7. With regard to the first substantial question of law raised in T.C.(A) No.22 of 2004 and the first substantial question of law raised in T.C.(A) No.466 of 2004, the Division Bench of this Court by judgment dated 23.1.2007 made in T.C.(A) Nos.15 and 24 of 2003 -CIT v. Tamilnadu Mercantile Bank Ltd., [2007] 291 ITR 137 (Mad.), after referring to the decisions in CIT v. Canara Bank [1992] 195 ITR 66 (Kar.), CIT v. Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (SC), H.M.Kashiparekh and Co. Ltd. v. CIT [1960] 39 ITR 706 (Bom), Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 (SC), Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC), State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC), Godhra Electricity Co. Ltd., v. CIT [1997] 225 ITR 746 (SC) held that the assessee is taxable for interest on securities only on specified dates when it becomes due for payment, in view of third proviso to Section 145(1) of the Act, which was in force during the relevant assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the main part of clause (vii) which is entitled to deduction and in respect of that part of the debt with reference to which a provision is made under clause (viia), the proviso will operate to limit the deduction to the extent of the difference between that part of debt written off in the previous year and the credit balance in the provision for bad and doubtful debts account made under clause (viia). (p.579) 11. In the instant case, while allowing the claim for bad debts written off in respect of advances made by rural branches, the Commissioner of Income Tax (Appeals) as well as the Tribunal, was of the firm opinion that the assessee has not claimed any debts written off in respect of rural branch in the earlier year. If that be so, we find no error in the order of the Tribunal in holding that the claim of bad debts in relation to non-rural branches of the assessee bank is allowable. Accordingly, this issue is answered in favour of the assessee and against the Revenue. Catholic Syrian Bank Ltd case: 41. To conclude, we hold that the provisions of Sections 36(1)(vii) and 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided for in clear and express language, regard being had to its unusual nature and its serious impact on the revenues of the State. 7. Mr.Khaitan, learned senior Advocate appeared on behalf of the assessee and submitted that the computation to be made as prescribed by Rule 6ABA is for the purpose of fixing the limit of the deduction available under section 36(1)(viia). Clause (a) and (b) in Rule 6ABA cannot be given the restricted interpretation. The amount of advances as outstanding at the last day of each month would be a fluctuating figure depending on the outstanding as increased or reduced respectively by advances made and repayments received. The assessee might provide for bad and doubtful doubts but the deduction would only be allowed at the percentage of aggregate average advance, computation of which is prescribed by Rule 6ABA. 8. We find from the amended direction made by the Tribunal that such direction is in terms of Rule 6ABA. The ITO has made the computation of aggregate monthly advances taking loans and advances made during only the previous year relevant to assessment year 2009-10 as confirmed by CIT (A). The Tribunal amended such direction, in our view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion thereunder. Then such provision is only reserve for bad debts and not provision for bad and doubtful debts. Though the provisions of section 36(1)(viia) may be understood as a beneficial provision to the assessee company to claim deduction even in respect of reserve created by it to meet certain anticipated loss or contingency due to default of its debtors whom the assessee may not be able to easily identify at the end of the previous year, yet the computation machinery for determining the deduction admissible in the matter of write off bad and doubtful debts of rural or non-rural advance u/s 36(1)(v) read with the proviso thereunder and section 36(2)(v) of the Act would fail. Thus, it is evident from the above extract that the quantum of deduction arrived at by the assessing officer was not based on the documents produced by the respondent / assessee. The CIT(A) as well as the Tribunal also, did not look into those aspect, while allowing the deduction claimed by the respondent / assessee. Therefore, this court is of the opinion that for that limited purpose, the matter has to be re-examined by the assessing officer and the same has also been agreed upon by the learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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