S. 36(1)(viia) Deduction not allowable without Provision for Bad and Doubtful Debts in Books of Account: ITAT [Read Order]

The Hyderabad Bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that deduction under Section 36(1)(viia) of Income tax Act, 1961 is not allowed without any provision for Bad and Doubtful Debts in the books of account.

Assessee, Andhra Pradesh State Co-operative Bank Limited (APCOB) is a Scheduled State Cooperative Bank involved in agricultural and rural development. APCOB operates at the apex level of a federal system of 13 affiliated District Cooperative Central Banks (DCCBs), having 386 branches and 1959 Primary Agricultural Cooperative Societies (PACS).

Assessee filed its income tax return for the assessment year (A.Y) 2009-10 on 30.09.2009, reporting a total income of Rs. 62,19,22,600, and a revised return was filed declaring a net loss of Rs. ₹18,04,47,434 on 30.03.2011.

The Income tax Assessing Officer completed the assessment under Section 143(3) of the Income Tax law  determining total income at Rs.2,78,46,98,694  on 30.12.2011. Aggrieved by this assessee appealed before the CIT(A) and subsequently filed an appeal before the ITAT, Hyderabad. ITAT ordered to set aside certain issues in the assessment order and AO again passed an assessment order disallowance of the debts written off by the Assessee amounting to Rs.173,15,46,253.

Assessee submitted that the provision of section 36(1)(viia) is applicable from 01.04.2007 and earlier to that date it was not required to make any provision under section 36(1)(viia) and the assessee has never made any provision in the books of accounts till date.

The AO responded that as per the ITAT direction, the AO has to be satisfied with the fulfillment of the conditions stipulated under section 36(1)(viia) of the Act. The assessee has never made any provision under the said section in the books of accounts to date which violates Section 36(1)(viia) and the assessee, cannot claim the deduction.

Aggrieved by this assessee appealed before the CIT(A) which was not in his favor and appealed the CIT(A) order before the ITAT, Hyderabad.

The assessee's counsel raised additional ground and argued that the assessee hadn’t claimed any deduction on account of provision for bad and doubtful debt under Section 36(1)(viia) of the Act instead the assessee did write off the debt Rs.173,15,46,253 in its books account and claimed deduction under section under section 36(1)(vii) of the Act.

The assessee’s counsel relied on the Supreme Court Judgment Catholic Syrian Bank Ltd Vs CIT and submitted that anyhow the deduction will be allowed up to the actual amount of debts written off in the books of the assessee.

The AO counsel represented by K. Haritha, relied on the order of the authorities and requested to uphold the same. The AO counsel opposed the applicability of section 36(1)(vii) which was the additional ground raised by the assessee.

The division bench of Laliet Kumar (Judicial Member) and Madhusudan Sawdia (Accountant Member) observed both side's arguments and went through sections 36(1)(vii), 36(1)(viia), and 36(2)(v). The Tribunal in the earlier round of litigation directed to examine whether the assessee was entitled to the benefit of section 36 (1) (viia) r.w.s. 36(2)(v) of the Act or not.

The lower authorities found that the assessee had not made any provision in the books of account for bad and doubtful debt so they have disallowed the claim. Upon reading the provision it is abundantly clear that to invoke the provisions of Section 36 (1) (viia), it is essential to make a provision in the books of account for bad and doubtful debts. The Tribunal dismissed the appeal.

To Read the full text of the Order CLICK HERE

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