Computation of Deduction u/s 36(1)(viia)(c) Independent of Deduction u/s 36(1)(viii): ITAT Rejects Double Deduction Argument for SIDBI [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) dismissed the Revenue's appeals, confirming that the deduction claimed under Section 36(1)(viia)(c) for provision for bad and doubtful debts must be computed independently of the deduction claimed under Section 36(1)(viii) for special reserve.

Small Industries Development Bank of India (assessee), a principal financial institution claiming deductions under both clauses. The deduction under Section 36(1)(viii) is calculated as a percentage of profits derived from eligible business (long-term finance), while Section 36(1)(viia)(c) deduction is calculated as a percentage of total income.

The Assessing Officer (AO) had re-worked the deduction under Section 36(1)(viii) by reducing the allowance claimed under Section 36(1)(viia)(c) first. The AO argued that since the profits from eligible business are part of the total income, failing to reduce one deduction before computing the other would lead to a "double deduction."

This resulted in the AO restricting the assessee’s claim under Section 36(1)(viii) from ₹80,00,00,000 to ₹71,75,94,432. Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) had deleted this restriction. Aggrieved by the CIT(A)’s order, the revenue filed an appeal before the ITAT.

The two-member bench, comprising Justice (Retd.) C V Bhadang (President) and Padmavathy S (Accountant Member) noted the core issue revolved around interpreting the overlap between the two sections. The bench highlighted the wording present in both statutory provisions: "computed before making any deduction under this clause."

The Tribunal reasoned that the interpretation that deduction under section 36(1)(viii) is a subset of 36(1)(viia)(c) and vice versa then the claim of deduction under these two sections may get into a loop and any change to one deduction will distort the other which would not be the intention of the legislature.

The tribunal held that by relying on the judgment of the Madras High Court in the case of Infrastructure Development Finance Company Ltd. vs. ACIT, which held that the deductions under the various clauses of Section 36(1) are independent of each other.

The Tribunal concluded that the plain interpretation of the law means that the deduction under a specific clause should be computed without considering the effect of the deduction under the other clause.

The Tribunal held that there was no infirmity in the decision of the CIT(A). In the result, the ground raised by the revenue was dismissed.

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