SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2005 TaxPub(DT) 0259 (P&H-HC) : (2005) 001 (I) ITCL 0034 : (2005) 272 ITR 0054 : (2005) 198 CTR 0407 : (2005) 143 TAXMAN 0196 State Bank of Patiala v. CIT () INCOME TAX --Business deduction under s. 36(1)(viia)----QUANTUMRestricted to provision for bad debts-- Catch Note: The assessee bank claimed deduction of Rs. 1,94,21,000 under section 36(1)(viia) but made provision for bad debts only at Rs. 1,19,36,000. Assessing officer restricted the allowance to Rs. 1,19,36,000. CIT(A) and Tribunal upheld the order of assessing officer. Held : Were justified. Deduction under section 36(1)(viia) had to be restricted to Rs. 1,19,36,000 because the assessee had not made any provision for the balance amount in the books of accounts for the assessment year under consideration by making supplementary entries and by revising its balance sheet but made the same in the subsequent year only. Ratio: In order to claim deduction under section 36(1)(viia) it is necessary to make a provision equal to the amount claimed as deduction in the books of accounts for the relevant assessment year. Held: The assessee has not made any provision in the books of accounts for the assessment year under consideration i.e. 1985-86 by making supplementary entries and by revising its balance sheet. The provision has been made in the books of accounts of the subsequent year. The Tribunal was therefore right in holding that since the assessee had made a provision of Rs. 1, 19,36,000 for bad and doubtful debts, its claim for deduction under section 36(1)(viia) had to be restricted to that amount only. Since the language of the statute is clear and is not capable of any other interpretation, no substantial question of law arises for consideration. Decision: Against the assessee. Date of Judgment: 21-5-2004 Income Tax Act, 1961 Section 36(1)(viia) (1999) 157 CTR (Raj) 591 (2005) 272 ITR 0054 (P&H-HC) State Bank of Patiala v. CIT Income Tax Act, 1961, S. 36(1)(viia) In the Punjab & Haryana High Court at Chandigarh Mr. N.K. Sood & Mr. S.S. Grewal, JJ. I.T.A. No. 33 of 2004 q 21-5-2004 Income Tax Act, 1961, S. 36(1)(viia) Counsel: Akshay Bhan, For the Assessee q None, For the Revenue JUDGMENT N.K. Sood, J. Assessee has filed this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act) against the order of the Income Tax Appellate Tribunal, Chandigarh Bench (A), Chandigarh (hereinafter referred to as the Tribunal) dated 4-8-2003, whereby the action of the assessing officer in restricting its claim for deduction of the provision for bad debts to Rs. 1,19,36,000 under section 36 (1) (viia) has been upheld. 2. The facts of the case are that in the return of income for the assessment year 1985-86 the assessee had claimed deduction of Rs. 1,94,21,000 under section 36(1)(viia) of the Act. The assessing officer observed that in the books of accounts pertaining to the relevant assessment year. The assessee had made provision for bad debts at Rs. 1,19,36,000 only. He, therefore, restricted the allowance to Rs. 1,19,36,000 only and disallowed the balance amount. The disallowance was upheld by the Commissioner (Appeals) in appeal vide order dated 20-7-1988. The assessee further preferred an appeal before the Tribunal and the Tribunal has also upheld the disallowance vide the impugned order dated 4-8-2003. 3. Mr. Akshay Bhan, learned counsel for the appellant, submitted that originally the assessee had filed its return of income for assessment year 1985-86 on 27-9-1995 wherein deduction under section 36(i)(viia) of the Act had been claimed at Rs. 1,19,36,000 which was admissible under that provision as it existed at the relevant time. The deduction available under that section was @ 10% of the profit or 1-1/2% of the aggregate average advances made by the rural branches computed in the prescribed manner whichever was higher. However, an amendment to section 36(1) of the Act was introduced in the Parliament by Finance Bill, 1985 whereby deduction was enhanced to 10% of the profit or 2% of the aggregate average advances made by the rural branches of the bank whichever was higher. The bill attained the assent of the President on 24-5-1985. The amended provisions were given effect retrospectively from 1-4-1985. 4. Learned counsel pointed out that the previous year of the assessee had ended on 31-12-1984 and assessee was required to get its accounts finalized and audited within three months from the end of the accounting year to submit the same to the Reserve Bank of India. Accordingly, the balance-sheet of the assessee was finalized on 14-2-1985 in which provision had been made on the basis of unamended section 36(1)(viia) of the Act. However, in view of amendment of section 36 (1)(viia) of the Act with effect from 1-4-1985, it filed a revised return on 24-4-1986 enhancing the claim for deduction from Rs. 1,19,36,000 to Rs. 1,94,21,000 learned counsel explained that since the amendment in this section had been made after the finalisation of the balance-sheet for assessment year 1985-86, the assessee could not have possibly made the higher provision in that balance-sheet and accordingly it made up the shortfall in the provision in the balance-sheet of the subsequent assessment year. Thus, according to him, there was substantial compliance with the requirement of law and accordingly the authorities below were not justified in restricting the claim of the assessee to Rs. 1,19,36,000 only. 5. Section 36(1)(viia) of the Act as applicable to assessment year 1985-86, reads as under: 'In respect of any provision for bad and doubtful debts made by a scheduled bank (not being a bank approved by the Central Government for the purposes or clause (viia) or a bank incorporated by or under the laws of a country outside India) or a non-scheduled bank, an amount not exceeding ten percent of the total income (computed before making any deduction under this clause and chapter VI) or an amount not exceeding two percent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher.' 6. A bare perusal of the above shows that the deduction allowable under the above provisions is in respect of the provision made. Therefore, making of a provision for bad and doubtful debt equal to the amount mentioned in this section is a must for claiming such deduction. The Tribunal has rightly pointed out that this issue stands further clarified from the proviso to sub-clause (a) of clause (vii) of section 36 (1) of the Act, which reads as under: 'Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts accounts 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 necessary for claiming deduction under section 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year. 8. In the present case, the assessee has not made any provision in the books of accounts for the assessment year under consideration i.e. 1985-86 by making supplementary entries and by revising its balance sheet. The provision has been made in the books of accounts of the subsequent year. 9. We are, therefore, satisfied that Tribunal was right in holding that since the assessee had made a provision of Rs. 1,19,36,000 for bad and doubtful debts, its claim for deduction under section 36(1)(viia) of the Act had to be restricted to that amount only. Since the language of the statute is clear and is not capable of any other interpretation, we are satisfied that no substantial question of law arises in this appeal for consideration by this court. The appeal is, accordingly, dismissed. No costs. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 0259 (P&H-HC) : (2005) 001 (I) ITCL 0034 : (2005) 272 ITR 0054 : (2005) 198 CTR 0407 : (2005) 143 TAXMAN 0196

State Bank of Patiala v. CIT ()

INCOME TAX

--Business deduction under s. 36(1)(viia)----QUANTUMRestricted to provision for bad debts--

Catch Note:

The assessee bank claimed deduction of Rs. 1,94,21,000 under section 36(1)(viia) but made provision for bad debts only at Rs. 1,19,36,000. Assessing officer restricted the allowance to Rs. 1,19,36,000. CIT(A) and Tribunal upheld the order of assessing officer. Held : Were justified. Deduction under section 36(1)(viia) had to be restricted to Rs. 1,19,36,000 because the assessee had not made any provision for the balance amount in the books of accounts for the assessment year under consideration by making supplementary entries and by revising its balance sheet but made the same in the subsequent year only.

Ratio:

In order to claim deduction under section 36(1)(viia) it is necessary to make a provision equal to the amount claimed as deduction in the books of accounts for the relevant assessment year.

Held:

The assessee has not made any provision in the books of accounts for the assessment year under consideration i.e. 1985-86 by making supplementary entries and by revising its balance sheet. The provision has been made in the books of accounts of the subsequent year. The Tribunal was therefore right in holding that since the assessee had made a provision of Rs. 1, 19,36,000 for bad and doubtful debts, its claim for deduction under section 36(1)(viia) had to be restricted to that amount only. Since the language of the statute is clear and is not capable of any other interpretation, no substantial question of law arises for consideration.

Decision:

Against the assessee.

Date of Judgment:

21-5-2004

Income Tax Act, 1961 Section 36(1)(viia)

(1999) 157 CTR (Raj) 591

(2005) 272 ITR 0054 (P&H-HC)

State Bank of Patiala v. CIT

Income Tax Act, 1961, S. 36(1)(viia)

In the Punjab & Haryana High Court at Chandigarh

Mr. N.K. Sood & Mr. S.S. Grewal, JJ.

I.T.A. No. 33 of 2004 q 21-5-2004

Income Tax Act, 1961, S. 36(1)(viia)

Counsel: Akshay Bhan, For the Assessee q None, For the Revenue

JUDGMENT

N.K. Sood, J.

Assessee has filed this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act) against the order of the Income Tax Appellate Tribunal, Chandigarh Bench (A), Chandigarh (hereinafter referred to as the Tribunal) dated 4-8-2003, whereby the action of the assessing officer in restricting its claim for deduction of the provision for bad debts to Rs. 1,19,36,000 under section 36 (1) (viia) has been upheld.

2. The facts of the case are that in the return of income for the assessment year 1985-86 the assessee had claimed deduction of Rs. 1,94,21,000 under section 36(1)(viia) of the Act. The assessing officer observed that in the books of accounts pertaining to the relevant assessment year. The assessee had made provision for bad debts at Rs. 1,19,36,000 only. He, therefore, restricted the allowance to Rs. 1,19,36,000 only and disallowed the balance amount. The disallowance was upheld by the Commissioner (Appeals) in appeal vide order dated 20-7-1988. The assessee further preferred an appeal before the Tribunal and the Tribunal has also upheld the disallowance vide the impugned order dated 4-8-2003.

3. Mr. Akshay Bhan, learned counsel for the appellant, submitted that originally the assessee had filed its return of income for assessment year 1985-86 on 27-9-1995 wherein deduction under section 36(i)(viia) of the Act had been claimed at Rs. 1,19,36,000 which was admissible under that provision as it existed at the relevant time. The deduction available under that section was @ 10% of the profit or 1-1/2% of the aggregate average advances made by the rural branches computed in the prescribed manner whichever was higher. However, an amendment to section 36(1) of the Act was introduced in the Parliament by Finance Bill, 1985 whereby deduction was enhanced to 10% of the profit or 2% of the aggregate average advances made by the rural branches of the bank whichever was higher. The bill attained the assent of the President on 24-5-1985. The amended provisions were given effect retrospectively from 1-4-1985.

4. Learned counsel pointed out that the previous year of the assessee had ended on 31-12-1984 and assessee was required to get its accounts finalized and audited within three months from the end of the accounting year to submit the same to the Reserve Bank of India. Accordingly, the balance-sheet of the assessee was finalized on 14-2-1985 in which provision had been made on the basis of unamended section 36(1)(viia) of the Act. However, in view of amendment of section 36 (1)(viia) of the Act with effect from 1-4-1985, it filed a revised return on 24-4-1986 enhancing the claim for deduction from Rs. 1,19,36,000 to Rs. 1,94,21,000 learned counsel explained that since the amendment in this section had been made after the finalisation of the balance-sheet for assessment year 1985-86, the assessee could not have possibly made the higher provision in that balance-sheet and accordingly it made up the shortfall in the provision in the balance-sheet of the subsequent assessment year. Thus, according to him, there was substantial compliance with the requirement of law and accordingly the authorities below were not justified in restricting the claim of the assessee to Rs. 1,19,36,000 only.

5. Section 36(1)(viia) of the Act as applicable to assessment year 1985-86, reads as under:

'In respect of any provision for bad and doubtful debts made by a scheduled bank (not being a bank approved by the Central Government for the purposes or clause (viia) or a bank incorporated by or under the laws of a country outside India) or a non-scheduled bank, an amount not exceeding ten percent of the total income (computed before making any deduction under this clause and chapter VI) or an amount not exceeding two percent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher.'

6. A bare perusal of the above shows that the deduction allowable under the above provisions is in respect of the provision made. Therefore, making of a provision for bad and doubtful debt equal to the amount mentioned in this section is a must for claiming such deduction. The Tribunal has rightly pointed out that this issue stands further clarified from the proviso to sub-clause (a) of clause (vii) of section 36 (1) of the Act, which reads as under:

'Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts accounts 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 necessary for claiming deduction under section 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year.

8. In the present case, the assessee has not made any provision in the books of accounts for the assessment year under consideration i.e. 1985-86 by making supplementary entries and by revising its balance sheet. The provision has been made in the books of accounts of the subsequent year.

9. We are, therefore, satisfied that Tribunal was right in holding that since the assessee had made a provision of Rs. 1,19,36,000 for bad and doubtful debts, its claim for deduction under section 36(1)(viia) of the Act had to be restricted to that amount only. Since the language of the statute is clear and is not capable of any other interpretation, we are satisfied that no substantial question of law arises in this appeal for consideration by this court.

The appeal is, accordingly, dismissed. No costs.