ITAT deletes Disallowance made u/s  36(1)(vii) of Income Tax Act in respect of Bad Debts written off by Non-Rural branches of Canara Bank [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore Bench, has annulled the disallowance under Section 36(1)(vii) of the Income Tax Act, 1961, pertaining to bad debts written off by non-rural branches of Canara Bank.

The Assessee, Canara Bank, underwent scrutiny after filing the income tax return, and the assessment under Section 143(3) was concluded on March 27, 2018, assessing the total income at Rs. 675,71,81,077 under the regular provisions and deemed total income of Rs. 696,42,91,164 under the MAT provisions.

During the assessment, the Assessing Officer (AO) noted that the Assessee claimed a deduction of bad debts under Section 36(1)(vii) without actually writing off the debts as irrecoverable in the individual accounts of the respective debtors. The AO sought clarification on the procedure followed for writing off at the Head Office and branch levels.

Based on the submissions, the AO observed that the majority of the write-off was Prudential Write Off (PWO) carried out at the Head Office level to create provisions for Non-Performing Assets (NPAs) in accordance with RBI guidelines. Consequently, the AO disallowed the bad debts written off by the bank under Section 36(1)(vii).

In response to the order, the Assessee appealed to the CIT(A), but the appeal was dismissed. Subsequently, the Assessee filed a second appeal before the tribunal.

S. Ananthan, Counsel for the Assessee, argued that they had written off a total amount of Rs. 1296,56,16,023 during the year. The entire sum of Rs. 130,81,22,967, constituting bad debts written off by rural branches, had been charged to the provisions account under Section 36(1)(viia), leaving no excess amount. Hence, no deduction was claimed for bad debts written off by rural branches.

Neera Malhotra, Counsel for Revenue, supported the decision of the assessing officers.

During the appeal proceedings, the tribunal observed that a similar issue had been decided in favor of the Assessee by a coordinate bench of the Tribunal. Therefore, the provision to Section 36(1)(vii), which necessitates the adjustment of bad debts against provisions allowed under Section 36(1)(viia), would not apply to non-rural advances as well.

After thorough examination of the facts and records, the two-member bench comprising Laxmi Prasad Sahu (Accountant Member) and George George K. (Vice President) annulled the disallowance made under Section 36(1)(vii) of the Income Tax Act concerning bad debts written off by non-rural branches of Canara Bank.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates