Dy. CIT v. UCO Bank

INCOME TAX ACT, 1961

--Business deduction under section 36(1)(viia)--Provision for bad and doubtful debtsProvision created in books was lower than deduction claimed--Assessee claimed deduction towards provision for bad and doubtful debts, as per provisions of section 36(1)(viia), but in excess of provision actually created in the books of account. Assessee contended that on creation of provision, assessee became automatically entitled to deduction under section 36(1)(viia) and it should not be restricted to the provisions for bad and doubtful debts made in the accounts. Further contended that the legislature had provided that extent of deduction which it deemed fit irrespective of whether the corresponding provision had been made in the books or not. Revenue rejecting the contention, disallowed the deduction. Held: There could not be any question of considering claim for any deduction under section 36(1)(viia) if there was no provision for bad and doubtful debts made by the assessee bank because the clause (viia) starts with the phrase 'In respect of any provision for bad and doubtful debts made by - ' . No doubt that the deduction was to be restricted to 7.5% of total income and 10% of aggregate rural advances, but the result of the such workings could not be allowed in excess of the provision charged to profit and loss account for the year.