THE COMMISSIONER OF INCOME TAX, vs. M/S. NORTH MALABAR GRAMIN BANK

ITA/119/2015HC KeralaKLHC01025520201525 September 2018Author: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON5 pages
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What were the facts?

The assessee, M/s. North Malabar Gramin Bank, claimed a deduction of Rs.13,28,73,657/- under Section 36(1)(viia) of the Income Tax Act, 1961, for the assessment year not specified. The assessee had initially made a provision for non-performing assets (bad and doubtful debts) of Rs.3,92,24,047/- in its profit and loss account. A revised computation of total income was filed, claiming the higher deduction, which was stated to have been omitted from the original return. The Assessing Officer (AO) disallowed the claim, relying on Section 36(2)(v) and a Kerala High Court judgment, finding no provision made in the books of accounts. The first appellate authority reversed the AO's order. The Income Tax Appellate Tribunal (ITAT) upheld the first appellate authority's decision, relying on a Supreme Court judgment.

What did the High Court hold?

The High Court held that while the Assessing Officer's reliance on Section 36(2)(v) was not entirely correct, the claim for deduction under Section 36(1)(viia) could not be allowed in the absence of any provision for bad and doubtful debts made by the assessee in its books of accounts. The Court noted that Section 36(1)(viia) explicitly refers to 'any provision for bad and doubtful debts made by-' the assessee. Therefore, if no such provision was recorded in the books, the deduction cannot be permitted. The High Court answered both questions of law in favour of the Revenue and against the assessee, restoring the order of the Assessing Officer. No order as to costs was made.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal's reliance on the Supreme Court decision in 343 ITR 270 (SC) regarding the restriction of deduction under Section 36(1)(viia) to the extent of provisions for bad and doubtful debts made in the books of account was misplaced? 2. Whether, on the facts and in the circumstances of the case, the deduction under Section 36(1)(viia) should have been restricted to Rs.3,92,24,047/-, representing the provisions made during the year, as against Rs.13,28,73,657/- claimed by the assessee? Revenue's contentions: The Revenue argued that while the Supreme Court decision in Catholic Syrian Bank Ltd. v. CIT (343 ITR 270) might indicate that Section 36(2)(v) is not applicable to claims under Section 36(1)(viia), a deduction under Section 36(1)(viia) cannot be allowed without a corresponding provision being made in the books of accounts. The AO was incorrect in applying Section 36(2)(v), but the claim should still be disallowed due to the absence of any provision in the assessee's books. Assessee's contentions: The assessee pointed out that Section 36(1)(viia) begins with 'in respect of any provision for bad and doubtful debts made by-', implying that a provision must be made in the books of accounts. If no such provision has been made, there is no basis for allowing the deduction.

Which sections of the Income-tax Act were involved?

Section 36(1)(viia),Section 36(2)(v)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 25TH DAY OF SEPTEMBER 2018 / 3RD ASWINA, 1940 ITA.No. 119 of 2015 AGAINST THE ORDER/JUDGMENT IN ITA 207/COCH/2014 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 19-09-2014 APPELLANT/S:/APPELLANT/RESPONDENT/REVENUE THE COMMISSIONER OF INCOME TAX, CALICUT. BY ADVS. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX RESPONDENT/S:/RESPONDENT/APPELLANT/ASSESSEE : M/S. NORTH MALABAR GRAMIN BANK HEAD OFFICE, PALLIKKUNNU, KANNUR-670 004. BY ADVS. SRI.MOHAN PULIKKAL SRI.P.P.NARAYANAN SRI.R.SUDHIR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25.09.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA 119/15 -2-

J U D G M E N T Vinod Chandran, J.

The questions raised in the memorandum of appeal are the following:- “1)

Whether, on the facts and in the circumstances of the case and the main issue involved in the present case being regarding the restriction of deduction under Section 36(1)(viia) to the extent of provisions of bad and doubtful debt made in the books of account is not reliance on the decision of the Supreme

The order continues below.

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