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TMI Blog2024 (9) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... ? (ii) Whether the Appellate Tribunal is right in law in holding in respect of amount written off by the rural branches, the difference between amount written off and doubtful debt account would be allowed without referring to the claim and calculation made by the appellant? (iii) Whether on the fact and in the circumstances of the case, the Tribunal was justified in holding that post issue expenses of Rs. 6,00,000/- on stamp duty on share certificates was capital expenditure particularly when the rights issue was in compliance with RBI's requirements? 2. At the outset, Mr. Naniwadekar, learned counsel for the appellant has submitted that the appeals are being confined to question nos. 1 and 2. These questions are interconnected. 3. The facts in the lead appeal (Income Tax Appeal No. 511 of 2004) can be noted hereunder:- 4. The appellant is stated to be a Scheduled Commercial Bank, which has rural branches as defined in clause (ia) of Explanation to Section 36 (1) (viia) of the Income-tax Act (for short "the Act"). The assessee follows the practice of writing off in its books of accounts, bad debts during the course of the year as well as making provisions on the last day of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 36 (1) (viia). The assessee hence carried an appeal to the Tribunal contending that the provisions of Section 36 (1) (vii) and 36 (1) (viia) were independent and contemplated avoidance of double deduction in respect of the same amount. It was contended that these being two separate deductions, one cannot be curtailed by the other. The tribunal, however, making meager observations, rejected the assessee's appeal:- "2. Ground No. 1 is directed against the CIT(A) upholding the deduction allowed by the AO in respect of bad debts to the extent of Rs.16,62,36,932 as against Rs. 2,78,16,936/- claimed by the assessee thereby confirming the addition of Rs. 1,11,79,936/-. It has been submitted before us by ld. Authorized representative appearing on behalf of the assessee that ld. CIT (A) failed to appreciate the contention of the assessee that since the bad and doubtful debts are written off during the course of the year in working out the amount allowable as per proviso to Section 36(2)(vii), the excess to be considered was not with reference to the provision as at the end of the year. The deduction in respect of bad debt as claimed by the assessee was required to be allowed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead with sub-section (2)(v), hence, it was not proper for the authorities below to not allow the deduction as made by the assessee and/or to reject the same, referring to the decision of the Kerala High Court in South Indian Bank Ltd. vs. Commissioner of Income Tax 262 ITR 579. Mr. Naniwadekar would submit that the Tribunal has in fact failed to given cogent reasons, on the case as made out by the assessee in its appeal in assailing the findings as recorded by the Assessing officer, as also confirmed by the CIT(A). In support of his submission, Mr. Nandiwadekar has placed reliance on the decision of this Court in The Director of Income Tax (International Taxation) v/s. M/s. Citi Bank NA Income Tax Appeal No. 5758 of 2010 decided on 22 December, 2011 as also on the decision of Gujarat High Court in Commissioner of Income-tax-I vs. UTI Bank Ltd. (2013) 29 taxmann.com 79 (Gujarat). 8. On the other hand on behalf of the Revenue, Mr. Subir Kumar, learned counsel has supported the orders passed by the tribunal confirming the view taken by the Assessing Officer on the interpretation of the provisions of Section 36 (1) (vii) and (viia). In support of his contention, Mr. Subir Kumar has pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use." 10. On a plain reading of the provision of Section 36 (1) (vii) of the Act, it is clear that a deduction is allowed to the assessee, in computing the income referred to in Section 28 of the Act, in respect of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year. The proviso below clause (vii) contemplates that in the case of a bank to which clause (viia) applies, the amount of 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 for 'bad and doubtful debts account', made under that clause. Clause (viia) permits a deduction qua "a provision" being made for bad and doubtful debts, being eligible for deduction made by Scheduled Bank, of the description as contained in sub-clause (a) thereof. It provides that an amount not exceeding 5% of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding 2% of the aggregate average advances made by the Rural branches of such bank computed in the prescribed manner. However, such percentage is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,902 + Rs. 1,11,79,936/- = Rs. 3,89,96,838/-. The same pattern was followed for the subsequent assessment year 1994-95 which is the subject matter of companion appeal, the figures however being different. 14. In our opinion, applying the provision of Section 36 (1) (vii) and (viia) as it stands, there does not appear to be any infirmity in the assessee claiming deduction under both the provisions in the manner as done by the assessee. This more particularly for the reason, that it is not the case that a provision being made under clause (viia) in the previous assessment year, (i.e. closing balance as on 31 March, 1993) is not being reduced from the bad debts written off in the next assessment year to reduce the total bad debts as written off for the purpose of claiming deduction. In other words, it is not the case that the assessee had sought for a deduction in the assessment year in question under Section 36 (1) (viia) and again was seeking a double deduction in relation to the said amount, in the subsequent assessment year. This is clear from the fact that the provision made by the assessee in the subsequent assessment year was of a distinct amount calculated as per the estimate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 36. In fact such working of these provisions as sought to be canvassed on behalf of the revenue leads to an absurdity. 16. Considering the aforesaid position the provisions bring about, Mr. Naniwadekar would be correct in placing reliance on the decision in UTI Bank Ltd. (supra) wherein Division Bench of the Gujarat High Court in the context of the deduction as claimed under the provisions in question and applying the decision of the Supreme Court in Catholic Syrian Bank Ltd. vs. CIT (2012) 343 ITR 270 as also considering the Circular No. 17/2008 dated 26 November, 2008 issued by the CBDT in that behalf, made the following observations :- "14. From the above statutory provisions, it can be seen that in addition to the deduction available to an assessee under s. 36 (1) (vii) for bad debts, in case of special class of banks mentioned in cl. (viia), deductions subject to fulfillment of certain conditions is available in respect of any provision for bad and doubtful debts. One of the restrictions is of limiting such deduction to a maximum of a specified percentage of total income of the assessee computed before making any deduction under this clause and not exceeding prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of assessment of banks carried out by C & AG, it has been observed that while computing the income of banks under the head 'Profit and gains of business & profession', deductions of large amounts under different sections are being allowed by the AOs without proper verification, leading to substantial loss of revenue. It is, therefore, necessary that assessments in the cases of banks are completed with due care and after proper verification. In particular, deductions under the provisions referred to below should be allowed only after a thorough examination of the claim on facts and on law as per the provisions of the IT Act, 1961. (i) Under s. 36 (1) (vii) of the Act, deduction on account of bad debts which are written off as irrecoverable in the accounts of the assessee is admissible. However, this should be allowed only if the assessee had debited the amount of such debts to the provision for bad and doubtful debt account under s. 36 (1) (viia) of the Act, as required by s. 36 (2) (v) of the Act. (ii) While considering the claim for bad debts under s. 36 (1) (vii), the AO should allow only such amount of bad debts written off as exceeds the credit balance available in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which according to the assessee was allowable in the assessment year 1999-2000. The lower authorities have not disputed this contention of the assessee. If the above amount of Rs.2 crores is held allowable in the assessment year 1999-2000, then, the opening credit balance in the provision for bad and doubtful debt as on the first day of the accounting year being 'nil', the entire amount of Rs.52.36 crores written off would have been allowable under Section 36 (1) (vii) of the Act." 18. Mr. Subir Kumar has placed reliance on the decision of South Indian Bank (supra) to justify the view taken by the authorities below, however, we are not inclined to accept such contention as, in our opinion, in such case the High Court applying the proviso to clause (vii), which ordained a limit to the amount by which such bad debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause, observed that such mandate of the provision was not given effect to and/or applied by the Tribunal. The facts in the present case demonstrate a different position as clearly seen from the assessment order as also the impugned order passed by the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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