E-ORIENTAL BANK OF COMMERCE( NOW AMALGAMATED WITH PUNJAB NATIONAL BANK- PNB),NEW DELHI vs. ACIT SPECIAL RANGE-07, NEW DELHI

Briefly stated, the assessee is a Nationalized Bank. It filed its original e-return on 28.10.2017 which was subsequently revised on 29.03.2019 at a returned loss of Rs. 370.79 crores. The case was picked up for scrutiny through CASS. Statutory notice(s) were issued/served upon the assessee to which the assessee responded. The Ld. Assessing Officer (“AO”) completed the assessment on 30.12.2019 under section 143(3) of the Income Tax Act, 1961 (the “Act”) on total income of Rs. 6483.38 crores by making various additions/disallowances; one such disallowance being under section 36(1)(vii) of Rs. 4545,89,00,000/-.

The assessee agitated the said disallowance under section 36(1)(vii) of the Act before the Ld. CIT(A) who recorded his observations and findings thereon as under:-

It is observed that the assessee has only reduced the provision in respect of bad debts from the loans and advances assets of the balance sheet. However, this is only mere reduction of the amount of loans and advances or the debtors at the end of the year and does not amount to actual write off as laid down by the Hon'ble Supreme Court cited above. 2. The statute requires the assessee to distinguish between rural advances and non-rural advances. However, in the instant case the assessee has only furnished a list of bank branches in big cities and claims that the advances given by these branches and the provisions made in this respect should be allowed as deduction. However, the assessee was required to submit complete list of advances given by rural branches and non- rural branches and thereafter clearly specifying the accounts where the provisions was created in respect of any financial year. 3. The assessee should also take into consideration the provisions of section 36(1)(vila) which pertain to provisions created for bad and doubtful debts. Out of these provisions the assessee should have culled out the provisions made in respect of non-rural branches which are eligible to be claimed u/s 36(1)(vii) During the proceedings, the assessee has not submitted any documents showing the above calculations and has merely relied on the fact that the provisions has been reduced from loans and advances assets of the balance sheet. 5.3 It appears that the AO has not been able to properly grasp the import of Supreme Court decision in the case of Vijaya Bank v. CIT (2010) 323 ITR 166 (SC). In that decision, the hon'ble Supreme Court had laid down twin requirements for being eligible to claim the deduction u/s 36(1)(vii) viz (i) debiting the P&L a/c and creating a provision for bad and doubtful debt, and (ii) correspondingly/simultaneously obliterating the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the asset side of the balance sheet. 5.4 This is to ensure that at the end of the year, the figure in the loans and advances or the debtors on the asset side of the balance sheet are necessarily shown as net of the provision for bad debt. In the instant case, the appellant had satisfied both the above conditions by duly writing off the bad debt by way of debit to P&L account and simultaneously reducing the corresponding amount from loans/advances. The AO has not brought any findings of facts on record to challenge the correctness of the amount duly reduced from the loans/advances/debtors. Therefore, the finding by the AO that it does not amount to actual write off is not tenable being against the law laid down by the hon'ble Apex Court. 5.5 Having held so, it is, however, pointed out that the claim of the appellant is not tenable in the light of amended legal provisions. It appears that both the appellant and AO have failed to take into account the insertion of Explanation 2 below section 36(1)(vii) of the Act which drastically changes the quantum of deduction available in the cases where section 36(1)(vii) and section 36(1)(viia), both, are applicable. 5.6 The appellant has contended that the deduction claimedu/s 36(1)(vii) is in respect of non-rural branches only and that the debts for which the claim has been made u/s 36(1)(vi) has never been

The assessee is aggrieved and is before the Tribunal and all the grounds relate thereto.

At the very outset, the Ld. AR submitted that the issue is covered in assessee’s own case by the decision of the Tribunal for immediately preceding AY 2016-17, a copy of which is placed at pages 45-77 of Paper Book 2. The Ld. AR further pointed out that cross appeals by the Revenue and the assessee were filed before the Hon’ble Delhi High Court pertaining to AY(s) 2013-14, 2014-15 and 2015-16. The Revenue’s appeals for the aforesaid AY(s) were against deletion of disallowance of Rs. 1062.73 crores; Rs. 1231.56 crores and Rs. 315 crores by the Ld. CIT(A)/ITAT in AY 2013- 14, 2014-15 and 2015-16 respectively under section 36(1)(vii) of the Act. Copy of Hon’ble Delhi High Court’s decision is placed at pages 1-6 of Paper Book 3 wherein the Hon’ble Delhi High Court, dismissing the Revenue’s appeal held that no substantial question of law arises qua the issue raised by the Revenue. The Ld. AR also submitted that against the Tribunal’s decision for AY 2016-17 the Revenue had gone in appeal before the Hon’ble Delhi High Court proposing the following question of law for consideration:-

The Ld. AR submitted that before the Hon’ble Delhi High Court, the Revenue did not dispute the fact that the aforesaid proposed question of law was covered by the decision rendered by the Hon’ble Delhi High Court on 13.09.2023 in a bunch of appeals, the lead appeal being ITA 521/2023 titled PCIT vs. Oriental Bank of Commerce (now merged with Punjab National Bank Ltd.). The Hon’ble Delhi High Court closed the appeal with the observation “In our view no substantial question of law arises for consideration by this Court”. Copy of Hon’ble Delhi High Court’s decision rendered on 20.10.2023 in ITA No. 594/2023 appears at pages 7-9 of the assessee’s Paper Book 3.

The Ld. AR pointed out that there is no change in the fact pattern for the AY 2017-18 presently under consideration.

The Ld. CIT-DR relied on the order of the Ld. CIT(A).

We have given careful thought to the submission of the parties and perused the records. The assessee has brought on record a chart containing party-wise details of accounts which have been claimed as bad debts i.e. identified debts under section 36(1)(vii) which, according to the assessee has never been claimed under section 36(1)(viia) of the Act. The Ld. CIT-DR could not point out any flaw in the information which appears at pages 1-7 of assessee’s Paper Book 1.

Identical issue came up for consideration before the Co-ordinate Bench of the Tribunal in assessee’s case for AY 2015-16 wherein the Tribunal vide decision dated 04.03.2022 in ITA No.1199/Del/2018 decided

The AO disallowed the claim of Rs. 315 Crores u/s 36(1)(vii) stating that: “8.3 I have perused the details and reply submitted by the assessee and the same is not acceptable as per the provisions of the Income Tax Act. Accordingly the claim of the assessee is disallowed.” 42. However, the assessee has claimed deduction u/s 36(1)(vii) for a sum of Rs.315.00 crores in respect of bad debts written off identified separately in the profit & loss account other than those provisions which were claimed u/s 36(1)(viia). The AO has mentioned in his order that the assessee has provided complete details of the bad debts claimed u/s 36(1)(vii) of Rs.315.00 crores at page 16- 17 of his order. 43. The ld. CIT(A) has reproduced in her order at page no.66 the relevant page of the Annual accounts wherein the assessee has shown under the code 2404 separately “provision for bad and doubtful debts further provision (write off)” of Rs.315 cr. The provisions u/s 36(1)((viia) are separate which has also been noted by the Id. CIT(A) in her order pages 66-67. However, the ld. CIT(A) has concluded that it is not a “bad debt written off but it is still a “provision for bad and doubtful debts” and is not a write off. Further, the ld. CIT(A) has relied on the CBDT Circular No.314 of 2014 and the amendment to section 36(1 )(vii) wherein Explanation-2 was inserted by the Finance Act, 2013 with effect from A.Y. 2014-15 which [CIT(A)’s order at page 67] is again reproduced: “11.7 In order to clarify the scope and applicability of provision of clause (vii), (via) of sub-section (1) and sub-section (2), an Explanation in clause (vii) of sub-section (1) of section 36 has been inserted stating that for the purposes of the proviso to clause (vii) of sub-section (1) of section 36 and clause (v) of sub-section (2) of section 36, only one account as referred to therein is made in respect of provision for bad and doubtful debts under clause (via) of sub-section (1) of section 36 applies, the amount of deduction in respect of the bad debts actually written off under clause (vii) of sub¬section (1) of section 36 shall be limited to the amount by which such bad debts exceeds the credit balance in the provisions for bad and doubtful debts account made under clause (viia) of sub-section (1) of section 36 without any distinction between rural advances and other advances.” 44. From the above, it was noticed that the deduction u/s 36(1)(vii) will be limited only in those cases where such bad debt exceeds provision u/s 36(1)(viia). That means there should be a debt against which a provision u/s 36(1)(viia) should exist and such debt is a subject matter of write off u/s 36(1)(vii). Under such circumstance only the excess will be allowed. Whereas as per the facts accepted by the AO in his order and also by the ld. CIT(A), a separate debit in the profit & loss account of Rs.315.00 crores in respect of debts which are listed by the ld. CIT(A) at page no.64 has been claimed as written off u/s 36(1)(vii) against which there has been no claim u/s 36(1)(viia). There

The decision (supra) of the Tribunal has been followed in its decision rendered on 31.03.2023 in assessee’s appeal in ITA No. 740/Del/2020 for AY 2016-17 (pages 57-61 of Paper Book 2 refer).

As pointed out by the Ld. AR, the appeals of the Revenue filed against the decision of the Tribunal on the impugned issue for AY 2013-14 to 2015- 16 stand dismissed by the decision of Hon’ble Delhi High Court. The

Since the parties agree that the facts and circumstances of the case on the impugned issue remain the same as in preceding years, we set aside the order of the Ld. CIT(A) on the point and allow the appeal of the assessee.

In the result, appeal of the assessee is allowed.