High Court Of Punjab & Haryana
State Bank Of Patiala vs. CIT & Anr.
Section WT 36(1)(viia)
Asst. Year 1985-86
N.K. Sud & S.S. Grewal, JJ.
IT Appeal No. 33 of 2004
21st May, 2004
Counsel Appeared
Akshay Bhan, for the Appellant : None, for the Respondent
JUDGMENT
N.K. Sud, J. :
The assessee has filed this appeal under s. 260A of the IT Act, 1961 (for short the “Act”), against the order of the Income-tax Appellate Tribunal, Chandigarh Bench-A, Chandigarh (for short “the Tribunal”), dt. 4th Aug., 2003, whereby the action of the AO in restricting its claim for deduction of the provision for bad debts to Rs. 1,19,36,000 under s. 36(1)(viia) has been upheld.
The facts of the case are that in the return of income for the asst. yr. 1985-86, the assessee had claimed deduction of Rs. 1,94,21,000 under s. 36(1)(viia) of the Act. The AO observed that in the books of account pertaining to the relevant assessment year, the assessee had made a provision for bad debts at Rs. 1,19,36,000 only. He, therefore, restricted the allowance to Rs. 1,19,36,000 only and disallowed the balance amount. The disallowance was upheld by the Commissioner of Income-tax (Appeals) [for short the CIT(A)] in appeal vide order dt. 20th July, 1988. The assessee further preferred an appeal before the Tribunal and the Tribunal has also upheld the disallowance vide the impugned order dt. 4th Aug., 2003.
Mr. Akshay Bhan, learned counsel for the appellant, submitted that originally the assessee had filed its return of income for the asst. yr. 1985-86 on 27th Sept., 1995, wherein deduction under s. 36(1)(viia) of the Act had been claimed at Rs. 1,19,36,000 which was admissible under that provision as it existed at the relevant time. The deduction available under that section was at 10 per cent of the profit or 1-1/2 per cent of the aggregate average advances made by the rural branches computed in the prescribed manner, whichever was higher. However, an amendment to s. 36(1) of the Act was introduced in Parliament by the Finance Bill, 1985, whereby deduction was enhanced to 10 per cent of the profit or 2 per cent of the aggregate average advances made by the rural branches of the bank whichever was higher. The Bill attained the assent of the President on 24th May, 1985. The amended provisions were given effect retrospectively from 1st April, 1985.
Learned counsel pointed out that the previous year of the assessee had ended on 31st Dec., 1984, and the assessee was required to get its accounts finalised and audited within three months from the end of the accounting year to submit the same to the RBI. Accordingly, the balance sheet of the assessee was finalised on 14th Feb., 1985, in which provision had been made on the basis of the unamended s. 36(1)(viia) of the Act. However, in view of the amendment of s. 36(1)(viia) of the Act w.e.f. 1st April, 1985, it filed a revised return on 24th April, 1986, enhancing the claim for deduction from Rs. 1,19,36,000 to Rs. 1,94,21,000. Learned counsel explained that since the amendment in this section had been made after the finalisation of the balance sheet for the asst. yr. 1985-86, the assessee could not have possibly made the higher provision in that balance sheet and accordingly it made up the shortfall in the provision in the balance sheet of the subsequent assessment year. Thus, according to him, there was substantial compliance with the requirement of law and accordingly the authorities below were not justified in restricting the claim of the assessee to Rs. 1,19,36,000 only. Sec. 36(1)(viia) of the Act as applicable to the asst. yr. 1985-86, reads as under : “in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of cl. (viiia) or a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank, an amount not exceeding ten per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) or an amount not exceeding two per cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher.”
6. A bare perusal of the above shows that the deduction allowable under the above provisions is in respect of the provision made. Therefore, making of a provision for bad and doubtful debts equal to the amount mentioned in this section is a must for claiming such deduction. The Tribunal has rightly pointed out that this issue stands further clarified from the proviso to cl. (vii) of s. 36(1) of the Act, which reads as under : “Provided that in the case of an assessee to which cl. (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause.”
7. This also clearly shows that making of provision equal to the amount claimed as deduction in the account books is necessary for claiming deduction under s. 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year.
8. In the present case, the assessee has not made any provision in the books of account for the assessment year under consideration, i.e., 1985-86, by making supplementary entries and by revising its balance sheet. The provision has been made in the books of account of the subsequent year.
9. We are, therefore, satisfied that the Tribunal was right in holding that since the assessee had made a provision of Rs. 1,19,36,000 for bad and doubtful debts, its claim for deduction under s. 36 (1)(viia) of the Act had to be restricted to that amount only. Since the language of the statute is clear and is not capable of any other interpretation, we are satisfied that no substantial question of law arises in this appeal for consideration by this Court.
10. The appeal is, accordingly, dismissed. No costs.
[Citation : 272 ITR 54]
