Commissioner of Income Tax and Another vs Karnataka Bank Ltd.

D.V. Shylendra Kumar, J.—This is an appeal by the revenue u/s 260A of the Income Tax Act (for short, the Act) questioning the correctness of the order of the Tribunal bearing No. 282/Bang/2000 dated 27-8-2003 vide Annex. A. The appeal had been admitted to examine the following three substantial questions of law:

1, Whether the Tribunal was correct in holding that deduction u/s 36(1)(vii) and Section 36(1)(viia) of the Act are distinct and separate and both the deductions are permissible.

Whether the Tribunal was correct in arriving at a conclusion that a sum of Rs. 5,75,00,000 made in respect of provisions made for bad and doubtful debts was allowable u/s 36(1)(viia) of the Act ?

Whether the Tribunal is correct in holding that the assessee is eligible for deduction of bad debts written off of Rs. 3,36,78,394 under proviso to Section 36(1)(vii) of the Act despite the same having been claimed as a deduction as a provision for bad and doubtful debts of Rs. 5,75,00,000 u/s 36(1)(viia) of the Act ?"

We have heard Sri Aravind, learned Counsel appealing for the revenue and Sri G. Sarangan, learned senior counsel appearing for assessee bank-

Though for the sake of answering the questions they are three in number, the bone of contention appears to be as to whether the proviso to Clause (vii) of Sub-section (1) of Section 36 regulates the claim for a bad debt which is written off in the books of accounts and which is claimed as deductible expenditure in terms of Section 36(1)(vii) and if at the relevant time the assessee can claim the amount if the assessee has a credit balance in the account which represents a provision for irrecoverable or doubtful rural advances ?

The assessing officer noticed that for the relevant assessment year while the assessee had claimed a deduction of a sum of Rs. 3,36,78,394 under Clause (vii) of Sub-section (1) of Section 36, the assessee had also claimed a deduction in terms of Section 36(1)(viia) to the extent of Rs. 5,75,00,000 and therefore, being of the opinion that the deduction claimed u/s 36(1)(vii) being less than the amount claimed u/s 36(1)(viia) has disallowed the entire amount of deduction claimed u/s 36(1)(vii).

It was this dispute which had been carried to the first appellate authority by the assessee which was not successful but in the appeal before the Tribunal, the Tribunal purporting to follow its decision in the case of the very assessee for the assessment years 1990-91 to 1993-94 and having allowed the assessees appeals for the relevant assessment year thought it fit to allow the appeal for the year relevant to the subject-matter of the appeal. It is against this order of the Tribunal further appeal by the revenue.

This Court while examining the very questions in the case of the very assessee and for the years 1993-94 and 1994-95 had answered similar questions in favour of the assessee and against the revenue and has dismissed the appeals as per the judgment dated 19-3-2008 rendered in IT Appeal No. 480 of 2003 c/.w IT Appeal No. 481 of 2003.

However, Sri Aravind appearing for the revenue, as indicated in para 8 of the judgment of this case, in the case of the very assessee that for want of evidence as to whether the amount which the assessee had claimed as bad debts for the relevant year did represent all debts other than the rural advances. The matter has been remanded in that case and same course of action requires to be resorted to in the present appeal. There is no clear or categorical finding that the entire amount of Rs. 3,36,78,394 claimed u/s 36(1)(vii) as a deductible expenditure does not comprise any rural advance for which provision has already been made by the assessee and in the earlier year, the credit balance un-disputably available in this regard with the bank.

To the limited extent of the question being examined as to whether the claim of deduction of Rs. 3,36,78,394 comprises of any bad debt in respect of which provision has been made u/s 36(1)(viia) i.e., if it comprises of bad debt advanced to a person in rural area and if so to ascertain and act accordingly, depending on the answer to that limited question and dispose of the appeal, by applying the law already answered by us, the matter is remanded to the Tribunal.

Appeal allowed only to this extent.