Deduction Claimed u/s.36(1)(viia) Income Tax Act shall not exceed provision made for Bad and Doubtful Debts in Books of Accounts: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chennai bench held that deduction claimed under Section 36(1)(viia) of the Income Tax Act, 1961 should not exceed provisions made for bad and doubtful debts in books of accounts.

The assessee, Villupuram District Central Co-operative Bank  is a co-operative bank after filing the return of income for the assessment year Assessee case was selected for scrutiny.  It was observed that the assessee has claimed deduction under Section 36(1)(viia) of the Act towards bad and doubtful debts at Rs.18,35,33,849/- in the statement of total income. The AO in the assessment u/s.143(3) of the Act allowed the said deduction of Rs.14,95,14,257/

Aggrieved by the order, the assessee filed an appeal  before the CIT(A)who held that the deduction cannot exceed the provision made for bad and doubtful debts in the books of accounts. Therefore the assessee filed a second appeal before the tribunal. It was observed by the tribunal that deduction under Section 36(1)(viia) of the Income Tax Act is to be restricted to the extent of actual provision made in the books of accounts.

In the case of Cuddalore District Central Co-operative Bank Ltd.the  ITAT bench deduction under Sectoon 36(1)(viia) cannot exceed the actual provisions made in the books of accounts.

Further, the bench observed that CBDT instruction No.17/2008 dated 26.11.2008 provide that the deduction of provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of accounts of the assessee in the relevant year or the amount calculated as per the provisions of section 36(1)(viia) of the Act, whichever is less

After reviewing the facts and records, the two-member bench of Manjunatha.G, (Accountant member) and Mahavir Singh,(Vice President ) relied upon the decision of Karnataka High Court in the case of CIT vs. Syndicate Bank, has explained the provisions and held that the condition precedent for claiming deduction under section 36(1)(viia) is that a provision for bad and doubtful debts should be made in the accounts of the assessee.

Therefore, the assessee is entitled to deduction to the extent provision is made in the accounts subject to the limit mentioned in section 36(1)(viia) of the Act K. Ravi, Counsel appeared for assessee and N.B. Som, Counsel appeared for revenue.

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