THE COMMISSIONER OF INCOME TAX V. M/S VIJAYA BANK

ITA/63/2007

AI Insights

The case involves appeals by the Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax against M/s Vijaya Bank concerning the deduction claims under Section 36(1)(viia) of the Income Tax Act, 1961, for the assessment years 1999-2000 and 2000-2001. The primary issue was the correct interpretation and application of the provisions related to the deduction for bad and doubtful debts, specifically concerning the statutory deduction permissible for rural advances. The Assessing Officer had initially rejected the assessee's claim for a deduction of Rs.31,59,24,152 for the year 1999-2000, which was 10% of the rural advances, and allowed only Rs.455 lakhs as provision for bad and doubtful debts. The Appellate Tribunal and the Commissioner of Income Tax (Appeals) had set aside the Assessing Officer's decision, leading to the Revenue's appeal to the High Court.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 745726 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 31-10-2012
• Assessment Year: misc
• Other Referred Cases: Catholic Syrian Bank Ltd. Vs. Commissioner of Income-Tax (2012) 343 ITR 270 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: SARANGAN; K S RAMABHADRAN
• Assessee Lawyers: K V ARAVIND
• Keywords: Bad and doubtful debts; Income Tax; Rural advances; Statutory deduction
• Section: 36(1)(vii); 36(1)(viia); 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 31ST DAY OF OCTOBER, 2012 PRESENT THE HON’BLE MR.JUSTICE K. SREEDHAR RAO AND THE HON’BLE MR.JUSTICE B.V.PINTO ITA NOS.63 OF 2007 C/W 65 OF 2007 IN ITA NO.63 OF 2007 BETWEEN 1. THE COMMISSIONER OF INCOME - TAX C.R.BUILDING QUEENS ROAD BANGLAORE 2. THE DEPUTY COMMISSIONER OF INCOME - TAX CIRCLE-12(3) C.R.BUILDING QUEENS ROAD BANGALORE ... APPELLANTS (BY SRI. K V ARAVIND, ADV.) AND M/S VIJAYA BANK NO.41/2, M.G.ROAD, BANGALORE- 560 001 ... RESPONDENT (BY SRI.SARANGAN, SENIOR COUNSEL AND SRI.K S RAMABHADRAN, ADV.) 2 THIS ITA IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 09-06-2006 PASSED IN ITA NO. 150/BANG/2004 FOR THE ASSESSMENT YEAR 1999-00, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO. 150/BANG/2004 DATED 09-06-2006 CONFIRMING THE ORDER OF PASSED BY THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY DIRECTOR OF INCOME TAX, CIRCLE-12 (3), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. ITA NO. 65 OF 2007 BETWEEN 1. THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD BANGALORE 2. THE ASST COMMISISONER OF INCOME-TAX CIRCLE -12(3) C.R. BUILDING, QUEENS ROAD BANGALORE ... APPELLANTS (BY SRI. K V ARAVIND, ADV.) AND M/S VIJAYA BANK NO.41/2, M.G. ROAD BANGALORE- 560 001 ... RESPONDENT (BY SRI.SARANGAN, SENIOR COUNSEL AND SRI.K S RAMABHADRAN, ADV.) 3 THIS ITA IS FILED U/S.260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 09-06-2006 PASSED IN ITA NO. 151/BANG/2004, FOR THE ASSESSMENT YEAR 2000-2001, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT BANGALORE IN ITA NO. 151/BANG/2004 DATED 09-06-2006 CONFIRMING THE ORDER PASSED BY THE APPELLATE COMMISSIONER & CONFIRM THE ORDER PASSED BY THE DY.COMMISSIONER OF INCOME TAX, CIRCLE-12 (3) BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THESE APPEALS ARE COMING ON FOR DICTATING JUDGEMENT THIS DAY, SREEDHAR RAO J, DELIVERED THE FOLLOWING:- J U D G M E N T IN ITA NO. 63 OF 2007 The assessee for the assessment year 1999–2000, filed the return. The rural advance made by the assessee is stated to be in a sum of Rs.315,92,41,518/- the 10% of the same is equivalent to Rs.31,59,24,152/- has been shown as a provision for rural debt and sought deduction vide S.36(1)(viia) of Income Tax Act, 1961 (hereinafter called as ‘the Act’ for brevity). The Assessing Officer has found that in profit and loss 4 account, the assessee has shown NPA and rural advances in a sum or Rs.41,67,39,000/- towards the provision. The Assessing Officer sought clarification of the details of the rural advances. The Assessee has submitted the reply and shown different amounts and categorised them as substandard, doubtful and loss. The Assessing Officer came to the conclusion that the Assessee has made provision for rural debt in profit and loss account in a sum of Rs.455 lakhs and rejected for a claim of Rs.31,59,24,152/- towards the provision for rural debt U/s.36(1)(viia) of the Act. 2. The substantial question of law framed are:- (1) Whether the Appellate Tribunal was right in holding that after writing of bad debts whether the assessee Bank shown in the profit and loans account as bad and doubtful debt which is contrary to the provisions of explanation to clause (vii) of Section 36(1) of the Act? and 5 (2) Whether the Appellate Tribunal was right in holding that the deduction allowable under Section 36(1)(viia) instead of Section 36(1)(viia) without considering the bad debts were written off in the Head Office account and continued in branch accounts? 3. The Commissioner of Income Tax (Appeals) set aside the order of the Assessing Officer, in appeal filed by the assessee. The Revenue filed the appeal before the Tribunal. The Tribunal in an appeal filed by the Revenue confirmed the order of the Commissioner of Income Tax (Appeals). The Revenue aggrieved by the said order of the Tribunal has filed this appeal. 4. Sri K.V.Aravind, learned Counsel for the Revenue submits that S.36(1)(viia) of the Act provides for the assessee to make provision for 10% of rural advances as bad and doubtful debts and to seek deduction. However, the assessee if he were to make a provision to rural advances less than 10%, the assessee 6 is entitled to the benefit of deduction to extent of the provision made and not 10% of the rural advances as envisaged U/s.36(1)(viia) of the Act. In the instant case, it is stated that the assessee has not made any provision and has shown only Rs.455 lakhs as the provision and only to that extent, the Assessing Officer has allowed the deduction. The claim for deduction to the extent of 10% on total rural advances is untenable when the provision is made is less than the said percentage. 5. Sri Sarangan, learned senior counsel per contra, submits that the amount of Rs.445 lakhs noted by the Assessing Officer is not based on record. The profit and loss account shows a provision for net profit and rural advances in a sum of Rs.41,67,39,000/- and in respect of the rural advances a sum of Rs.315,92,41,518/- is shown and 10% of it Rs.31,59,24,152/- is shown as a statutory deduction permissible U/s.36(1)(viia) of the Act. The correspondence of the assessee referred to by 7 the Assessing Officer in his order makes classification of the advances as substandard, doubtful and loss which are shown to be written off and the said figure shown is not the provision made towards bad and doubtful debts. The said figures disclose that the said amount is written off. Therefore, the Assessing Officer should not have relied upon the figures shown in the correspondence made by the assessee to come to the conclusion that the provision for bad and doubtful debts is only in a sum of Rs.455 lakhs. 6. On thorough consideration of the facts and materials, we find a sum of Rs.455 lakhs shown as substandard debts in the correspondence of the assessee is shown to be an amount written off as a bad debts. The profit and loss account thus discloses an provision of Rs.31,59,24,152/- as statutory deduction permissible U/s.36(1)(viia) which represents 10% of the total rural advances. The Assessing Officer does not 8 seem to have thoroughly gone through the accounts and returns filed by the assessee in appreciating the fact as to the provision made to seek deduction U/s.36(1)(viia) and whatever figures shown in the letter written by the assessee to the Assessing Officer, clarify certain aspects pertaining to debts which are written off and do not pertain to the provisions made for seeking deduction U/s.36(1)(viia) of the Act. In that view of the matter, the order of the Tribunal is set aside and the matter is remanded to the Assessing Officer for passing appropriate orders afresh. 7. In that view, the first question of law is unanswered and in respect of the second question framed which is herein, is decided in favour of the assessee in view of the decision of the Supreme Court in the case of Catholic Syrian Bank Ltd. Vs. Commissioner of Income-Tax reported in (2012) 343 ITR 270 (SC) wherein, it is clarified that S.36(1)(vii) and 9 S.36(1)(viia) of the Act are two distinguished provisions and it would not a duplicated deduction in view of the proviso to S.36(1)(vii). IN ITA NO.65 OF 2007:- 8. This appeal pertain to the assessment year 2000–01, the amounts shown in the provision to the bad and doubtful debts towards rural advances is in a sum of Rs.42,63,16,043/- which is 10% of the total rural advances made. The Assessing Officer in this case permitted to a deduction to Rs.754 lakhs. In this case also, the facts and the contents are similar to the one made in ITA No.63/2007 for the reasons states supra, the order of the Appellate Tribunal is set aside. The matter is remanded to the Assessing Officer for disposing afresh in accordance with law. Sd/- JUDGE Sd/- JUDGE nvj "