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TMI Blog2022 (7) TMI 1389X X X X Extracts X X X X X X X X Extracts X X X X ..... at of assessing officer may be restored to be above extent." 2. The at the time of hearing, the ld. Authorised Representative (AR) of the Assessee has submitted that the effective sole ground of appeal raised by revenue against deleting the disallowance under section 36(1)(viia) in this appeal is covered by the decision of the Tribunal in assessee's own case for A.Y. 2010-11 in ITA No. 16/Ahd/2015 dated 17/05/2022. The facts of this year is identical to the facts for the A.Y. 2010-11. Further, there is no variation in the facts for the year under consideration, therefore, he prayed to dismiss the appeal of the revenue for A.Y. 2017-18. 3. On the other hand, the ld. Senior departmental representative (Sr-DR) vehemently supported the order of the A.O. and submits that the assessee is not eligible for deduction under section 36(1)(viia). 4. We have considered the rival submissions of both the parties and perused the material available on record. From perusal of record, we find that combination of this Bench in assessee's own case for the A.Y. 2010-11 in ITA No. 16/Ahd/2017 vide order dated 17/05/2022 has confirmed the order of Ld. CIT(A), thereby decided the appeal in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at though it is mandatory but cannot be categorised as 'bed debts' For security depreciation of Rs.1.50 crores the Assessing Officer held that this reserve for contingency and not a provision for bad and doubtful debts. For fourth provision of Rs.50 lakh, Assessing Officer held that investment depreciation fund is also provision to cover the value of stock-in-trade which is also contingent in nature. We find that Ld. CIT(A) after examining the statutory provision and held that assessee has a rural advance of Rs.159 Crore (rounded) against which the assessee has claimed only Rs.7.16 crores though they are entitled to claim @ 10% of the aggregate of average advance by rural branches of assessee-bank. Thus, the Ld. CIT(A) allowed all the claim under four various heads by holding that the assessee is clearly eligible for the deduction under section 36(1)(viia) as it fulfilled the two condition that any provisions for bad and doubtful debts made by Co-operative bank is allowable if it does not exceed 7 ½ of total income (computed before making deduction under this clause under chapter VIA) and an amount not exceeding 10% of aggregate average advances made by rural branch. 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead in conjunction with Section 36(1)(viia) of the Act. It requires the assessee to debit the amount of such debt or part thereof in the previous year to the provision made for that purpose. Effect of Circulars 18. Now, we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short, ' the Board') in exercise of the power vested in it under Section 119 of the Act. Circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income tax authorities, though they be enforced adversely against the assessee. Normally, these circulars cannot be ignored. A circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigour of a particular provision for the benefit of the assessee in certain specified circumstances. So long as the circular is in force, it aids the uniform and proper administration and application of the provisions of the Act. {Refer to UCO Bank, Calcutta v. CIT [1999] 4 SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious year. This allowance is subject to the fulfilment of the conditions specified in sub-section (2) of section 36. 17.2 Section 36(1)(viia) of the Income-tax Act provides for a deduction in respect of any provision for bad and doubtful debts made by a scheduled bank or a non-scheduled bank in relation to advances made by its rural branches, of any amount not exceeding 1½ per cent of the aggregate average advances made by such branches. 17.3 Having regard to the increasing social commitments of banks, section 36(1)(viia) has been amended to provide that in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of section 36(1)(viiia) or a bank incorporated by or under the laws of a country outside India] or a nonscheduled bank, an amount not exceeding ten per cent of the total income (computed before making any deduction under the proposed new provision) or two per cent of the aggregate average advances made by rural branches of such banks, whichever is higher, shall be allowed as a deduction in computing the taxable profits. 17.4 Section 36(1)(vii) of the Act has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot exceeding 2% of the aggregate average advances made by the rural branches of the banks concerned. It may be clarified that foreign banks do not have rural branches and hence this amendment will not be relevant in the case of the foreign banks. The other provisions secure that a further deduction shall be allowed in respect of the provision for bad and doubtful debts made by all banks, not just the banks incorporated in India, limited to 5% of the total income (computed before making any deduction under this clause and Chapter VI-A). This will imply that all scheduled or non-scheduled banks having rural branches would be allowed the deduction up to 2% of the aggregate average advances made by such branches and a further deduction up to 5% of their total income in respect of provision for bad and doubtful debts." 23. Reference usefully can also be made to the Statement of Objects and Reasons for the Finance Act, 1986, wherein, inter alia, it was stated that the amendments were intended to provide a deduction on the provisions for bad debts made by all banks upto 5 per cent of their total income and an additional 2 per cent of the aggregate average advances made by the rural bran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case of the assessee is one which falls squarely under Section 36(1)(viia) of the Act. We may also notice that the explanation to Section 36(1)(vii), introduced by the Finance Act, 2001, has to be examined in conjunction with the principal section. The explanation specifically excluded any provision for bad and doubtful debts made in the account of the assessee from the ambit and scope of ' any bad debt, or part thereof, written off as irrecoverable in the accounts of the assessee & apos;. Thus, the concept of making a provision for bad and doubtful debts will fall outside the scope of Section 36(1)(vii) simplicitor. The proviso, as already noticed, will have to be read with the provisions of Section 36(1)(viia) of the Act. Once the bad debt is actually written off as irrecoverable and the requirements of Section 36(2) satisfied, then, it will not be permissible to deny such deduction on the apprehension of double deduction under the provisions of Section 36(1)(viia) and proviso to Section 36(1)(vii). This does not appear to be the intention of the framers of law. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.O on account of the provision for bad and doubtful debts under Sec. 36(1)(viia) of the IT Act. We find that the A.O had disallowed an amount of Rs. 3,53,47,000/- on account of provision for bad and doubtful debts made by the assessee against standard assets on the ground that the said provision was made against assets which were of good quality and was in the nature of contingent liability. It has been the claim of the assessee that the provision for bad and doubtful debts had been made in accordance with the instructions and circulars of the RBI on the said issue. We find that the issue as regards the allowability of deduction of provision for bad and doubtful debts made against standard assets had been decided by the Tribunal in the assesses own case for A.Y. 2008-09 i.e. Dy. CIT, Circle-IV, Jalandhar Vs. M/s Punjab Gramin Bank, Kapurthala in ITA No. 134(Asr)/2015; dated 22.06.2016, which thereafter had been followed in its cases for A.Y. 2011-12 and A.Y. 2012-13. The Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09 had observed as under :- "8 We have heard the rival parties and have gone through the material on record. We find that the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government: Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains business or profession." From the above provisions it can be seen that deduction u/s 36(1)(viia) of the Act is allowed in respect of provisions for bad and doubtful debts This section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub-section(1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1)(vii) states that deduction for provision is allowable in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... findings of the Tribunal as contained in para 8 onwards are reproduced below. 8. "We have heard the rival parties and have gone through the material on record. We find that the assessee had created a provision of Rs. 50,00,000/- which included a sum of Rs. 13,25,000/- as provisions for bad and doubtful debts and the balance amount of Rs. 36,75,000/- was provision against standard assets and the entire amount was claimed as deduction under section 36(1)(viia) of the Act. The Assessing Officer was of the opinion that the provisions made by the assessee against standard assets was a contingent liability and which was not allowable as business expenditure. The Ld. CIT(A), however, allowed relief to the assessee by holding that the claim of the assessee fall into the main provisions of section 36(1)(viia). To resolve the dispute it is important to visit the provisions of section 36(1)(viia) of the Act and which for the sake of convenience are reproduced below. "36(1)(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 non-scheduled bank or a co-operative bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lending money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1) (vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1) (viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) of the Act. The Ld. CIT(A) has passed a Assessment Year: 2013-14 very exhaustive and speaking order and we do not find any infirmity in the same. Therefore following the above Tribunal order, we do not see any infirmi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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