No Duplication of Claim with S. 36(1)(viia) Provision: ITAT Upholds Deletion of Bad Debts Addition for SIDBI [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has upheld the deletion of an addition made by the Assessing Officer (AO) regarding the disallowance of bad debts under Section36(1)(vii) of the Income Tax Act, 1961.

Small Industries Development Bank of India (assessee), is a Principal Financial Institution for the promotion, financing, and development of Micro, Small & Medium Enterprises. The assessee claimed bad debts amounting to ₹175,65,10,683/- under Section 36(1)(vii) and also claimed a provision for doubtful debts of ₹81,73,55,929/- under Section 36(1)(viia)(c) of the Act.

The AO disallowed the deduction claimed under Section 36(1)(vii) to the extent of ₹84,46,95,341/-. The AO reasoned that the claim for bad debts could not exceed the credit balance in the provision for bad and doubtful debts account made under Section 36(1)(viia) of the Income Tax Act.

Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)), who deleted the addition made by the AO. The CIT(A) relied on the decision of the Co-ordinate Bench in the assessee's own case for AY 2005-06.

Aggrieved by the CIT(A)’s order, the revenue appealed to the ITAT. The assessee's counsel contended that the issue has been consistently held in favour of the assessee from AY 2004-05, and the Department had not preferred any further appeal against those orders, suggesting the issue had reached finality.

The counsel submitted that the assessee had already established in earlier years that there was no credit balance in the provision account, hence the provision to Section 36(1)(vii) would not apply.

The two-member bench comprising Justice (Retd.) C V Bhadang (President) and Padmavathy S (Accountant Member) relied on its earlier decision in the assessee’s case for AY 2004-05 and the Supreme Court's ruling in the case of Catholic Syrian Bank Ltd. vs. CIT, held that the assessee is entitled to claim deductions under both sections, 36(1)(vii) and 36(1)(viia) of the Act.

The Tribunal noted that the provision to Section 36(1)(vii) is intended to prevent double deduction by limiting the bad debt allowance to the amount by which the write-off exceeds the credit balance in the provision account.

The tribunal found no infirmity in the CIT(A)’s decision by observing that the table of bad debts and provisions across various AYs showed that there was no duplication of claim between the deduction under Section 36(1)(vii) and Section 36(1)(viia) of the Income Tax Act. The appeal filed by the revenue on this ground was dismissed.

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