The Gujarat State Co.Op.Bank Ltd.., Ahmedabad V. The ACIT.,Circle-2, Ahmedabad

ITA 1198/AHD/2015

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5752 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 07-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

ITA NO.1198/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR VICE PRESIDENT AND MAHAVIR PR ASAD JM] ITA NO.1198/AHD/2015 ASSESSMENT YEAR: 2011-12 THE GUJARAT STATE CO-OPERATIVE BANK LTD., ............ APPELLANT SAHKAR BHAVAN, RELIEF ROAD, AHMEDABAD 380 001. [PAN: AAAAT 9774 F] VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2, AHMEDABAD. ....................... RESPONDENT APPEARANCES BY T.P. HEMANI FOR THE APPLICANT SUBHASH BAINS FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 27.09.2018 DATE OF PRONOUNCEMENT : 04.12.2018 O R D E R PER PRAMOD KUMAR, VICE PRESIDENT: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF THE ORDER DATED 10 TH MARCH 2015 PASSED BY THE LEARNED CIT(A) IN THE MAT TER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT, 1961, FOR THE ASSESSMENT YEAR 2011-12. 2. GRIEVANCE RAISED BY THE ASSESSEE IS AS FOLLOWS : - ON THE FACTS & IN THE CIRCUMSTANCES OF THE CAS E, YOUR APPELLANT MOST RESPECTFULLY SUBMITS THAT LD. ASSESS ING OFFICER HAS ERRED IN LAW IN DISALLOWING CLAIM OF BAD DEBT S OF RS.8,70,07,191/- AND HONBLE CIT(A) HAS FURTHER ERR ED IN LAW IN CONTINUING SUCH DISALLOWANCE THE CLAIM OF BAD DEBTS OF RS.8,70,07,191/- WITHOUT APPRECIATING THE FULL FACT S, AND DETAILS SUBMITTED ON RECORD AND EXPLAINED DURING THE COURSE OF HEARING. 3. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE BEFORE US IS AN APEX COOPERATIVE BANK. DURING THE COURSE OF ITS SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.8,70,07,191/- ON ACCOUN T OF BAD DEBTS, REPRESENTING ITA NO.1198/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 2 OF 7 BAD DEBT OF RS.8,43,09,124/- IN RESPECT OF SHREE AM RELI SAHKARI KRISHI KHAND UDYOG LIMITED AND BAD DEBT OF RS.26,98,067/- IN RESPECT O F SHREE SARDAR COOPERATIVE SUGAR LIMITED. THE ASSESSING OFFICER TOOK NOTE OF THE PROVISIONS OF SECTION 36(1)(VII), 36(1)(VIIA) AND 36(2)(V) AND CONCLUDED THAT AS THE ASSESSEE HAS NOT CREATED ANY PROVISION FOR BAD AND DOUBTFUL DEBTS, W HICH IS A SINE QUA NON FOR FULFILLING THE CONDITIONS OF SECTION 36(2)(V) AND AS THE DEDUC TION UNDER SECTION 36(1)(VII) IS SUBJECT TO THE PROVISIONS OF SECTION 36(2), THE ASS ESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VII) IN RESPECT OF THESE BAD DE BTS. THE ASSESSING OFFICER DID HAVE A SEEMINGLY ERUDITE DISCUSSION ON THE STATUTOR Y PROVISIONS BUT, FOR THE REASONS WE WILL SET OUT IN A SHORT WHILE, IT IS NOT REALLY NECESSARY TO DEAL WITH THE SAME. SUFFICE TO SAY THAT DEDUCTION FOR BAD DEBTS WAS REJ ECTED BY THE ASSESSING OFFICER. WHEN THE MATTER TRAVELLED IN APPEAL BEFORE THE LD. CIT(A), HE ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. WHILE DOING SO, I N HIS DETAILED OBSERVATION WHICH SET OUT THE CONTROVERSY BEFORE US, HE OBSERVED AS F OLLOWS : 4.1.3 THE RIVAL SUBMISSIONS HAVE BEEN CONSIDERED. SECTION 36(1)(VII), 36(1)(VIIA) AND 36(2)(V) OF THE ACT DEAL WITH CLAIM OF BAD DEBTS IN CASE OF BANKS. THESE SECTIONS READ AS FOLLOWS:- '36(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28- (I).......... (II).......... (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF AND BAD DEBTS OR PART THEREOF WHICH IS WRITTEN OFF AS IRREC OVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. PROVIDED THAT IN THE CASE OF AS ASSESSEE TO WHICH C LAUSE (VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELATING TO ANY SUCH DE BTS O PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBTS OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. EXPLANATION - FOR THE PURPOSES OF THIS CLAUSE, ANY BAD DEBTS OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFU L DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE. (VIIA) IN RESPECT OF ANY PROVISION FOR BAD AND DOUB TFUL DEBTS MADE BY A SCHEDULE BANK NOT BEING A BANK INCORPORATED BY OR U NDER THE LAWS OF A COUNTRY OUTSIDE INDIA OR A NON-SCHEDULED BANK OR A COOPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO- OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK A N AMOUNT NOT EXCEEDING SEVEN AND ONE-HALF PER CENT OF THE TOTAL INCOME COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND C HAPTER-VIA) AND AN AMOUNT NOT EXCEEDING TEN PER CENT OF THE AGGREGA TE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK CO MPUTED IN THE PRESCRIBED MANNER.' '36(2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PA RT THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY- (I).......... ITA NO.1198/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 3 OF 7 (II)... ...... (V) WHERE SUCH DEBT OR PART OF DEBT RELATES TO ADVA NCES MADE BY AN ASSESSEE TO WHICH CLAUSE (VIIA) OF SUB-SECTION (1) APPLIES. NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS THE ASSESSEE HAS DEBITED THE AMOUNT OF SUCH DEBT OR PART OF DEBT IN THAT PREVIOU S YEAR TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE U NDER THAT CLAUSE.' FROM THE A PLAIN READING OF THE ABOVE SECTIONS IT I S CLEAR THAT BAD D CLAIMED BY BANKS IN RESPECT OF ADVANCES MADE ARE AL LOWED U/S.36(1)(VIIA) OF THE ACT SUBJECT TO THE CONDITIONS LAID DOWN IN THE SECTION. THERE IS NO BAR ON THE BANKS CLAIMING BAD DEBTS U/S.36(1)(VII) ALSO BU T THIS WOULD BE SUBJECT TO PROVISO TO SEC.36(1)(VII) WHICH PROVIDES THAT IN CASES TO WHICH SEC.36(1)(VIIA) IS APPLICABLE, DEDUCTION FOR BAD DEBTS WOULD BE LIM ITED TO THE AMOUNT BY WHICH SUCH DEBT EXCEEDS THE CREDIT BALANCE IN THE PROVISI ON FOR BAD DEBTS MADE UNDER THAT CLAUSE. THE CASE OF THE APPELLANT IS C OVERED U/S 36(1)(VIIA) OF THE ACT SINCE IT IS A CO-OPERATIVE BANK AND IT HAS CLAIMED BAD DEBTS OF RS.8,70,07,191/- IN RESPECT OF ADVANCES MADE TO TWO BANKS NAMELY SHREE AMRELI SAHAKARI KRUSHI KHAND UDHOYOG LTD., GAVADKA AND SHREE SARDAR CO- OP SUGAR IND. LTD., LADHOD. FURTHER, THE CONTROVERS Y WHETHER SEC.36(1)(VIIA) IS APPLICABLE ONLY IN CASE OF ADVANCES MADE BY RURAL B RANCHES OF BANKS HAS BEEN LAID TO REST BY INTRODUCTION OF EXPLANATION 2 TO SEC.36(1)(VII) OF THE ACT BY THE FINANCE ACT 2013. THE EXPLANATION READS AS FOLL OWS: - 'EXPLANATION 2. - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT FOR THE PURPOSES OF THE PROVISO TO CLAUSE (VII) OF THIS SUBSECTION AND CLAUSE (V) OF SUB-SECTION (2), THE ACCOUNT REFERRED TO THE REIN SHALL BE ONLY ONE ACCOUNT IN RESPECT OF PROVISION FOR BAD AND DOUBTFU L DEBTS UNDER CLAUSE (VIIA) AND SUCH ACCOUNT SHALL RELATE TO ALL TYPES O F ADVANCES, INCLUDING ADVANCES MADE BY RURAL BRANCHES.' WHILE INTRODUCING EXPLANATION 2 TO SEC.36(1)(VII) O F THE ACT, MEMORANDUM EXPLAINING THE PROVISIONS OF FINANCE BIL L 2013 HAS CLARIFIED AS FOLLOWS: - 'THEREFORE THE BANKS OR FINANCIAL INSTITUTIONS ARE ENTITLED TO CLAIM DEDUCTION FOR BAD DEBT ACTUALLY WRITTEN OFF UNDER S ECTION 36(1)(VII) OF THE ACT ONLY TO THE EXTENT IT IS IN EXCESS OF THE CREDI T BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE U NDER SECTION 36(1)(VIIA) OF THE ACT. HOWEVER, CERTAIN JUDICIAL P RONOUNCEMENTS HAVE CREATED DOUBTS ABOUT THE SCOPE AND APPLICABILITY OF PROVISO TO SECTION 36(1)(VII) AND HELD THAT THE PROVISO TO SECTION 36( 1)(VII) APPLIES ONLY TO PROVISION MADE FOR BAD AND DOUBTFUL DEBTS RELATING TO RURAL ADVANCES. SECTIONS 36(1)(VIIA) OF THE ACT CONTAINS THREE SUB- CLAUSES, I.E. SUB- CLAUSE (A), SUB-CLAUSE (B), AND SUB-CLAUSE (C) AND ONLY ONE OF THE SUB- CLAUSES I.E. SUB-CLAUSE (A) REFERS TO RURAL ADVANCE S WHEREAS OTHER SUB- CLAUSES DO NOT REFER TO THE RURAL ADVANCES. IN FACT , FOREIGN BANKS GENERALLY DO NOT HAVE RURAL BRANCHES THEREFORE, THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER CLAUSE (VIIA) OF SECTION 36(1) ITA NO.1198/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 4 OF 7 AND REFERRED TO IN PROVISO TO CLAUSE (VII) OF SECTI ON 36(1) AND SECTION 36(2)(V) APPLIES TO ALL TYPES OF ADVANCES WHETHER R URAL OR OTHER ADVANCES.' THUS SEC.36(1)(VIIA) IS APPLICABLE TO ALL ADVANCES MADE BY ANY BANK COVERED U/S 36(1)(VIIA) AND NOT ONLY IN RESPECT OF ADVANCES MADE BY RURAL BRANCHES. THUS THE CONTENTION OF THE APPELLANT THAT IT HAS NO RURAL BRANCHES AND THAT THE ADVANCES MADE WHICH ARE SUBJECT MATTER OF DISPUTE, ARE NOT MADE BY RURAL BRANCHES, HENCE SEC.36(1)(VIIA) IS NO T APPLICABLE IN THE CASE OF THE APPELLANT, IS DEVOID OF MERIT. THE APPELLANT HA S ADVANCED THIS ARGUMENT TO ADVOCATE THE CONTENTION THAT ITS CASE IS NOT COVERE D U/S 36(1)(VIIA) BUT IS COVERED U/S 36(1)(VII). BUT AS SAID ABOVE, THIS CON TENTION OF THE APPELLANT IS DEVOID OF MERIT. HENCE, IT IS CLEAR THAT IN CASE OF THE APPELLANT, SEC.36(1)(VIIA) OF THE ACT IS APPLICABLE. FURTHER, SEC.36(2)(V) LAYS DOWN THE CONDITION FOR A N ASSESSEE TO BE ELIGIBLE TO CLAIM DEDUCTION U/S 36(1 )(VIIA).SEC.36 (2)(V) READS AS FOLLOWS:- '36(2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PA RT THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY- (I).......... (II).......... .. (V) WHERE SUCH DEBT OR PART OF DEBT RELATES TO ADVA NCES MADE BY AN ASSESSEE TO WHICH CLAUSE (VIIA) OF SUB-SECTION (1) APPLIES, NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS THE ASSESSEE HAS DEBITED THE AMOUNT OF SUCH DEBT OR PART OF DEBT IN THAT PREVIOU S YEAR TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE U NDER THAT CLAUSE.' THUS IT IS CLEAR THAT TO BE ELIGIBLE TO CLAIM BAD D EBTS U/S 36(1)(VIIA) THE ASSESSEE MUST MAKE A PROVISION FOR BAD DEBTS. THIS HAS BEEN CLARIFIED AND REITERATED BY CBDT VIDE INSTRUCTION NO.17/2008 DA TED 26.11 2008. THE RELEVANT PORTION IS REPRODUCED BELOW: - 2. IN A RECENT REVIEW OF ASSESSMENT OF BANKS CA RRIED OUT BY C&AG, IT HAS BEEN OBSERVED THAT WHITE COMPUTING THE INCOM E OF BANKS UNDER THE HEAD 'PROFIT AND GAINS OF BUSINESS & PROFESSION ', DEDUCTIONS OF LARGE AMOUNTS UNDER DIFFERENT SECTIONS ARE BEING AL LOWED BY THE ASSESSING OFFICERS WITHOUT PROPER VERIFICATION, LEA DING TO SUBSTANTIAL LOSS OF REVENUE. IT IS, THEREFORE, NECESSARY THAT A SSESSMENTS IN THE CASES OF BANKS ARE COMPLETED WITH DUE CARE AND AFTE R PROPER VERIFICATION. IN PARTICULAR, DEDUCTIONS UNDER THE P ROVISIONS REFERRED TO BELOW SHOULD BE ALLOWED ONLY AFTER A THOROUGH EXAMI NATION OF THE CLAIM ON FACTS AND ON LAW AS PER THE PROVISIONS OF THE I. T. ACT., 1961. (I) UNDER SECTION 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 ALL OWED ONLY IF THE ASSESSEE HAD DEBITED THE AMOUNT OF SUCH DEBTS TO TH E PROVISION FOR ITA NO.1198/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 5 OF 7 BAD AND DOUBTFUL DEBT ACCOUNT UNDER SECTION 36(1)(V IIA) OF THE ACT, AS REQUIRED BY SECTION 36(2)(V) OF THE ACT. THUS CBDT HAS MADE IT VERY CLEAR THAT CREATING PROV ISION FOR BAD DEBTS IS A MANDATORY PRE-REQUISITE FOR CLAIMING BAD DEBTS U/S 36(1)(VIIA) THE ACT. THE COURTS TOO HAVE HELD THAT CREATING A PROVISION FOR BAD DEBTS IS A MANDATORY REQUIREMENT FOR BANKS FOR CLAIMING BAD DEBTS U/S 36 (1)(VIIA) OF THE ACT. HON'BLE PUNJAB & HARYANA HIGH COURT IN STATE BANK OF PATIAL A VS. CIT (2005) 272 ITR 54 (P & H) HAS HELD AS FOLLOWS:- 5. SECTION 36(1)(VIIA) OF THE ACT AS APPLICABLE TO THE ASSESSMENT YEAR 1985-86, READS AS UNDER : IN RESPECT OF ANY PROVISION FOR BAD AND DOUBTFUL D EBTS MADE BY A SCHEDULED BANK [NOT BEING A BANK APPROVED BY THE CE NTRAL GOVERNMENT FOR THE PURPOSES OF CLAUSE (VIIA) OR A B ANK INCORPORATED BY OR UNDER THE LAWS OF A COUNTRY OUTSIDE INDIA] OR A NON-SCHEDULED BANK, AN AMOUNT NOT EXCEEDING TEN PER CENT OF THE TOTAL I NCOME (COMPUTED BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE AND C HAPTER VI-A) OR AN AMOUNT NOT EXCEEDING TWO PER CENT OF THE AGGREGATE AVERAGE ADVANCES MADE BY THE RURAL BRANCHES OF SUCH BANK, COMPUTED I N THE PRESCRIBED MANNER, WHICHEVER IS HIGHER.' 6. A BARE PERUSAL OF THE ABOVE SHOWS THAT THE DEDUC TION ALLOWABLE UNDER THE ABOVE PROVISIONS IS IN RESPECT OF THE PRO VISION MADE THEREFORE, MAKING OF A PROVISION FOR BAD AND DOUBTF UL DEBT EQUAL TO THE AMOUNT MENTIONED IN THIS SECTION IS A MUST FOR CLAI MING SUCH DEDUCTION. THE TRIBUNAL HAS RIGHTLY POINTED OUT THAT THIS ISSU E STANDS FURTHER CLARIFIED FROM THE PROVISO TO CLAUSE (VII) OF SECTI ON 36(1) OF THE ACT, WHICH READS AS UNDER: 'PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH CLAUSE (VI IA) APPLIES, THE AMOUNT OF THE DEDUCTION RELATING TO AN Y SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUC H DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE. 7. THIS ALSO CLEARLY SHOWS THAT MAKING OF PROVISION EQUAL TO THE AMOUNT CLAIMED AS DEDUCTION IN THE ACCOUNT BOOKS IS NECESS ARY FOR CLAIMING DEDUCTION UNDER SECTION 36(1)(VIIA) OF THE ACT. AS MENTIONED ABOVE ALSO, THE CASE OF THE APPELLANT BEING A CC|- OPERATIVE BANK IS COVERED U/S 36(1)(VIIA) OF THE AC T. THEREFORE, TO BE ELIGIBLE FOR CLAIMING DEDUCTION OF BAD DEBTS U/S 36(1)(VIIA) , THE APPELLANT MUST CREATE A PROVISION FOR BAD DEBTS. HOWEVER, IN THE CASE OF TH E APPELLANT, IT HAS NOT CREATED A PROVISION FOR BAD DEBTS. THE APPELLANT CL AIMS THAT IT HAD CREATED A PROVISION FOR BAD DEBTS BUT HAD DISALLOWED THE SAME WHILE COMPUTING THE TOTAL INCOME. THIS DOES NOT HELP THE APPELLANT SINCE THE FACT REMAINS THAT IT HAS NOT MADE A PROVISION FOR BAD DEBTS. THIS IS CONCEDED BY THE APPELLANT ITSELF AS CAN BE SEEN FROM DISCUSSION BELOW. THE APPELLANT HA S CONTENDED THAT EVEN IN ITA NO.1198/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 6 OF 7 A CASE WHERE PROVISIONS OF SEC.36(1)(VIIA) ARE APPL ICABLE, ASSESSEE CAN STILL CLAIM DEDUCTION IN RESPECT OF BAD DEBTS ACTUALLY WR ITTEN OFF U/S 36(1)(VII) OF THE ACT. HOWEVER, THE APPELLANT FURTHER SAYS THAT IN SU CH A CASE PROVISO TO SEC.36(1)(VII) PRESCRIBES THAT DEDUCTION IN RESPECT OF BAD DEBTS SHALL BE RESTRICTED TO THE AMOUNT BY WHICH SUCH DEBT EXCEEDS CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS MADE AS PER SE C.36(1)(VIIA). AS PER THE APPELLANT, SINCE THE APPELLANT HAS NOT CREATED A PR OVISION FOR BAD & DOUBTFUL DEBTS, ENTIRE AMOUNT OF BAD DEBTS ACTUALLY WRITTEN OFF BY THE APPELLANT IS ELIGIBLE FOR DEDUCTION U/S 36(1)VII) AS THE ENTIRE AMOUNT CAN BE SAID TO BE IN EXCESS OF PROVISION FOR BAD AND DOUBTFUL DEBTS WHIC H IS NIL IN APPELLANT'S CASE SINCE THE SAME HAS BEEN ADDED BACK WHILE COMPUTING TOTAL INCOME. THUS THE APPELLANT ITSELF CONCEDES THAT PROVISION FOR BAD AN D DOUBTFUL DEBT IS NIL. SO THE APPELLANT BY ITS OWN ADMISSION DOES NOT MEET TH E MANDATORY REQUIREMENT FOR CLAIMING DEDUCTION U/S 36(1)(VIIA). AS PER LOGI C OF THE APPELLANT THAT IT CAN CLAIM FULL BAD DEBTS U/S 36(1)(VII) IS BASED ON MIS INTERPRETATION OF PROVISION OF SEC 36(1)(VII) AND ITS 'PROVISO'. AN APPELLANT, TO WHOM SEC. 36(1)(VIIA) APPLIES CAN CLAIM BAD DEBTS U/S 36(1)(VII) ONLY TO THE EXTE NT THE BAD DEBTS EXCEED CREDIT BALANCE IN THE PROVISION FOR BAD DEBTS. FOR BAD DEBTS RELATING TO ADVANCES MADE BY BANKS CO -OPERATIVE BANKS, THERE IS A MANDATORY REQUIREMENT FOR CREATING A PRO VISION FOR BAD DEBTS AS PROVIDED U/S.36(2)(V). SINCE THE APPELLANT HAS NOT CREATED A PROVISION, THERE IS NO QUESTION OF ITS GETTING DEDUCTION U/S 36(1)(VIIA ) AND 36(1)(VII). WITH DUE REGARD TO THE RATIO OF JUDGMENTS RELIED ON BY THE APPELLANT, THE SAME ARE NOT APPLICABLE IN THE PRESENT CASE AS THE FACTS ARE DIFFERENT. IN ALL THE DECISIONS CITED THE ISSUE WAS REGARDING DOUBLE DEDUCTION OF BAD DEBTS U/S. 36(VII) AND 36(VIIA) OF THE ACT. IN ANY CASE , WHILE DISCUSSING THE ISSUE, THE HON'BLE COURTS HAVE OBSERVED THAT IN THE CASE O F BANKS DEDUCTION U/S. 36(III) IS AVAILABLE TO THE EXTENT OF EXCESS BALANC E IN 'PROVISION FOR BAD DEBTS' CLAIMED AS DEDUCTION U/S. 36(VIIA) OF THE ACT. IN VIEW OF DISCUSSION ABOVE AND RELYING ON THE JUDG MENT OF HONBLE PUNJAB & HARYANA COURT IN STATE BANK OF PATIALA VS. CIT (SUPRA), I HOLD THAT THE AO WAS JUSTIFIED IN DISALLOWING CLAIM OF BAD DE BTS OF RS.8,70,07,191/- ACCORDINGLY, THE ADDITION OF RS.8,70,07,191/- IS UP HELD AND THE SAME IS CONFIRMED. THIS GROUND OF APPEAL IS DISMISSED. 4. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 6. WE FIND THAT THE LEARNED CIT(A) IS CLEARLY IN ER ROR IN OBSERVING THAT THERE IS A MANDATORY REQUIREMENT FORT CREATING A PROVISION FOR BAD DEBTS AS PROVIDED UNDER SECTION 36(2)(V) AND THAT SINCE THE APPELLANT HA S NOT CREATED A PROVISION, THERE IS NO QUESTION OF ITS GETTING DEDUCTION UNDER SECTION 36(1)(VIIA) AND 36(1)(VII). SECTION 36(1)(VII) PROVIDES FOR DEDUCTION IN RESPECT OF BAD DEBTS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS. AS FOR THIS PROVISION BEING SUBJECT TO THE PROVISIONS OF SECTION 36(2)(V) THAT WOULD COME INTO PLAY, AS THE SAID PRO VISION STATES IN SO MANY WORDS, ITA NO.1198/AHD/2015 ASSESSMENT YEAR: 2011-12 PAGE 7 OF 7 WHERE SUCH DEBT OR PART OF DEBT RELATE TO ADVANCES MADE BY AN ASSESSEE TO WHICH CAUSE VII(A) OF SUB-SECTION (1) APPLIES. SECTION 3 6(1)(VIIA), ON THE OTHER HAND, BEGINS WITH THE WORDS IN RESECTS OF ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE BY (A BANK ETC.) QUITE CLEARLY, THEREFORE, UNLESS THERE IS A PROVISION FOR BAD AND DOUBTFUL DEBTS IS MADE BY AN ASSESSEE, SECTION 36(1)(VIIA) D OES NOT COME INTO PLAY, AND, AS A COROLLARY THERETO, THE DISABILITY UNDER SECTION 36( 2)(V)DOES NOT COME INTO PLAY AT ALL. IN OTHER WORDS, THE DEDUCTION UNDER SECTION 36(1)(V II) DOES NOT HAVE ANYTHING TO DO WITH SECTION 36(2)(V) IN A SITUATION IN WHICH NO PR OVISION HAS BEEN MADE FOR THE BAD DEBTS AS IS THE UNDISPUTED POSITION ON THE FACTS OF THIS CASE. IT IS ALSO IMPORTANT TO BEAR IN MIND THE FACT, AS IS HELD BY HONBLE SUPREM E COURT IN THE CASE OF CATHOLIC SYRIAN BANK LIMITED VS. CIT [(2012) 343 ITR 270 (SC )], THAT THE PROVISIONS OF SECTION 36(1)(VII) AND SECTION 36(1)(VIIA) ARE INDEPENDENT PROVISIONS AND DEDUCTIBILITY OF BAD DEBTS UNDER SECTION 36(1)(VII) IS NOT FETTERED BY T HE PROVISIONS OF DEDUCTION UNDER SECTION 36(1)(VIIA). IT IS, IN OUR CONSIDERED VIEW , NOT AT ALL NECESSARY THAT A BANK MUST CREATE A PROVISION FOR BAD AND DOUBTFUL DEBTS UNDER SECTION 36(1)(VIIA) AND CLAIM DEDUCTION FOR THE SAME. IN SUCH A SITUATION, THE DEDUCTION FOR BAD DEBTS WILL BE ADMISSIBLE ON ACTUAL UNDER SECTION 36(1)(VII). AS REGARDS THE EXPLANATION-2 TO SECTION 36(1)(VII), IT DOES NOT HAVE ANY RELEVANCE TO THE ISSUE, AS DISCUSSED ABOVE, AND, IN ANY CASE, IT HAS COME INTO FORCE W.E.F. 1 ST APRIL 2014 WHEREAS THE ASSESSMENT YEAR BEFORE US IS 2011-12. IN VIEW OF THESE DISCUS SIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE PLEA OF THE ASS ESSEE TO THE EFFECT THAT DISALLOWANCE WAS MADE ON THE BASIS OF REASONS UNSUS TAINABLE IN LAW AND CONSIDERATION NOT RELEVANT IN THE PRESENT CONTEXT. WE, THEREFORE, DELETE THE DISALLOWANCE OF RS.8,70,07,191/- TOWARDS BAD DEBTS. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 7. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCE D IN THE OPEN COURT TODAY ON THE 4 TH DECEMBER, 2018. SD/- SD/- MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEM BER) AHMEDABAD, DATED THE 4 TH DAY OF DECEMBER, 2018 PBN/* COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD