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Income Tax Appellate Tribunal, DELHI ‘A’ BENCH,
Before: SHRI CHANDRA MOHAN GARG, & SHRI N.K. BILLAIYA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the Revenue is preferred against the order of the ld. PCIT(OSD), Moradabad dated 09.06.2015 pertaining to A.Y. 2010-11.
The solitary grievance of the Revenue is that the ld. CIT(A) erred in deleting the addition made by the Assessing Officer by restricting the claim of deduction u/s 36(1)(viia) of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] to the extent of the provisions for bad and doubtful debts made in the books of accounts.
Briefly stated, the facts of the case are that the assessee filed return of income electronically declaring total income of Rs. 4,25,860/- in the status of a co-operative society.
Assessment u/s 143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] was completely on 21.03.2013 at the returned income. The assessee had claimed a deduction of Rs. 4,27,16,000/- on account of provision for bad and doubtful debts in its profit and loss account. However, during the course of assessment proceedings, the assessee claimed that deduction u/s 36(1)(viia) of the Act be allowed to it on the basis of scheme contained in the section as well as the decision of the Hon'ble Supreme Court in the case of M/s Southern Technologies Ltd 228 CTR 440 for which the assessee filed revised computation.
The said claim was rejected by the Assessing Officer on the ground that deduction u/s 36(1)(viia) of the Act can be claimed only upto the limit of provision made and the assessee has furnished only a revised computation of income without filing any revised return of income.
The assessee challenged the assessment before the ld. CIT(A) and reiterated its claim of deduction relying upon the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd [supra].
After considering the facts and submissions and following the decision of the Hon'ble Supreme Court [supra], the ld. CIT(A) allowed the appeal of the assessee by holding that the assessee is entitled to claim deduction u/s 36(1)(viia) of the Act @ 10% of aggregate rural advance resulting into addition of Rs. 2,14,83,608/-.
None appeared on behalf of the assessee in spite of repetitive notices since 14.02.2019. We decided to proceed exparte. The ld. DR was heard at length who strongly supported the findings of the Assessing Officer and read the relevant part of the assessment order.
We have given thoughtful consideration to the orders of the authorities below. We have carefully perused the decision of the Hon'ble Supreme Court in the case of Southern Technologies [supra].
We find that the decision of the Hon'ble Supreme Court was not rendered on the issue in appeal but on some other issue. Only a passing reference has been made on the issue before us whereas the decision of the Hon'ble Punjab and Haryana High Court, relied upon by the Assessing Officer in the case of State Bank of Patiala 272 ITR 54 is directly on the facts under consideration.
The Hon'ble Supreme Court has observed as under:
“Analysis of Section 36(1)(viia) Section 36(1)(vii) provides for a deduction in the computation of taxable profits for the debt established to be a bad debt.
Section 36(1)(viia) provides for a deduction in respect of any provision for bad and doubtful debt made by a Scheduled Bank or Non- Scheduled Bank in relation to advances made by its rural branches, of a sum not exceeding a specified percentage of the aggregate average advances by such branches. Having regard to the increasing social commitment, Section 36(1)(viia) has been amended to provide that in respect of provision for bad and doubtful debt made by a scheduled bank or a non-scheduled bank, an amount not exceeding a specified per cent of the total income or a specified per cent of the aggregate average advances made by rural branches, whichever is higher, shall be allowed as deduction in computing the taxable profits.”
A perusal of the above shows that even the Hon'ble Supreme Court has referred to the upper limit of the deduction and not the quantum of deduction. Moreover, there is no finding anywhere in the order as to whether deduction u/s 36(1)(viia) of the Act would be allowed irrespective of the provision made in the books of account.
In our considered opinion, the decision rendered by the Hon'ble Punjab and Haryana High Court [supra] relied upon by the Assessing Officer is directly on this point and the Hon'ble High Court has categorically held that the deduction u/s 36(1)(viia) of the Act would be restricted to the amount of reserve created in the books of account.
Therefore, reliance on the decision of the Hon'ble Supreme Court in the case of Southern Technologies [supra] by the ld. CIT(A) is misplaced and drawing support from the decision of the Hon'ble Punjab and Haryana High Court in the case of State Bank of Patiala [supra], we set aside the findings of the ld. CIT(A) and uphold the findings of the Assessing Officer.
In the result, the appeal of the Revenue in is allowed.
The order is pronounced in the open court on 30.01.2023.