The Income Tax Appellate Tribunal (ITAT) Bangalore held that no disallowance of interest expenses on account of non- deduction of TDS under section 36(1(vii) as well as u/s36(1)(viia) of the Income Tax Act, 1961.
The Assessee is a rural regional bank engaged in the business interest of banking. In the course of assessment proceedings, u/s 143(3) of the Income-tax Act, 1961 (Act) for AY 2009-10, the AO noticed that the assessee had claimed deduction on account of provision for bad and doubtful debts for a sum of Rs.247,43,85,350/- u/s.36(1)(viia) of the Income Tax Act, 1961 (Act).
There are two deductions allowed under the provisions:
The Assessee claimed a sum of Rs.8,09,63,529 towards provision for bad and doubtful debts and a sum of Rs.239,34,21,821/- towards provision for bad and doubtful debts in respect of aggregate average advances made by the Assessee’s rural branches, in all an aggregate sum of Rs.247,43,85,350/-. The sum claimed as deduction u/s.36(1)(viia) of the Act had not been debited to the provision for bad and doubtful debts account.
The provisions of Section 36(1)(viia)(a) of the Act lays down as follows:
“viia) in respect of any provision for bad and doubtful debts made by –
a scheduled bank not being a bank incorporated by or under the laws of a country outside India] or a co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank, an amount not exceeding seven and one-half percent of the total income (computed before making any deduction under this clause and Chapter VI-A) and an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner;
Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India (RBI) as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five percent of the number of such assets shown in the books of account of the bank on the last day of the previous year.”
The ITAT has observed that Assessee is entitled to deduction u/s.36(1)((vii) as well as U/s.36(1)(viia), of the Income Tax Act, 1961, without the restriction imposed by the provisions of Se.36(2)(v) of the Income Tax Act, 1961.
The ITAT has allowed the deduction u/s.36(1(vii) as well as u/s.36(1)(viia) of the Income Tax Act, 1961 thereby allowing the provisions of sections to operate independently and allowing the Assessee double deduction.
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