By Sri K v. Aravind, Advocate

IN THE HIGH COURT OF KARNATAKA AT BANGALORE Dated this the 13[th]day of October, 2014 PRESENT THE HON’BLE MR. JUSTICE N KUMAR ANTI THE HON’BLE MR. JUSTICE B MANOHAR| ITA No.1011 of 2008 BBRITIWE 1.)The Commissioner ot Income TaxC. R. BuildingQueens Road.BangaloreC. R. BuildingQueens Road.Bangalore oOThe Asst. Commissioner of Income JaxCircle-11(2)C. R. BuildingQueens Road.Bangalore.. Appellant (By Sri K. V. Aravind, Advocate) AND: M/s. Canara BankH.O. No.112.J.C. Road.Bangalore ... Respondent o (By Sri G. Sarangan, Senior Advocate forori K.S. Ramabhadran, Advocate) This ITA filed under Section 260-A of I.T. Act, 1961.arising out of order dated 20-06-2008 passed in ITA|No.993/Bang/2006, tor the Assessment year 2004-05,|praying to (i) formulate the substantial questions of law|stated therein; (11) allow the appeal and set aside the order|passed by the ITAT Bangalore in ITA No.993/Bang/2006,dated 20-06-2008 confirming the order of the Appellate|Commissioner and confirm the order passed by the AssistantCommissioner of Income Tax, Circle-11(2), Bangalore. This ITA coming on for hearing this day,N. KUMAR Jdelivered the following: JU DBiGMENT The revenue has preferred this appeal against the)order passed by the Tribunal. 2. The substantial question of law which arise for) consideration in this appeal is as under:- Whether the appellate authorities were|correct in holding that the bad debt claimmade|bytheaSSCSSECEwhichWasdisallowed by the assessing officer wasnot justified as the controversy 1s causedby the judgment of this Hon’ble Court inCITDS,KarnatakaBankin|ITA 3 No.480/ 2003, DD. 19-03-2008, when thefacts of the present case is not identical to that decided by this Hon’ble Court.” 3. The Apex Court in the case of,CATHOLIC SYRIAN BANK LIMITED vs COMMISSIONER OF INCOME TAX[((2O12) 343 ITR 270dealing with the very same questionhas held as under:- | “24. Clear legislative intent of the relevantprovisions and unambiguous language of thecirculars with reference to the amendments tosection 36 of the Act demonstrate that thededuction on account of provisions for bad anddoubtful debts under Section 36(1)(viia) is distinctand independent of the provisions of Section36(1})(vu) relating to allowance of the bad debts.The legislative intent was to encourage ruraladvances and the making of provisions for baddebts in relation to such rural branches. Anothermaterial aspect of the functioning of such banksis that their rural branches were _ practicalltreated as a distinct business, though ultimatelythese advances would form part of the books of accounts of the principal or head office branch.Thus, this Court would be more inclined to givean interpretation to these provisions which wouldserve the legislative object and intent, rather thanto subvert the same. The Circulars in questionShow a trend of encouraging rural business and)for providing greater deductions. The purpose ofgranting such deductions would stand frustrateduy these deductions are implicitly neutralizedagainst other independent deductions specificallyprovided under the provisions of the Act. To put itsimply, the deductions permissible under Section36(1})(vi) should not be negated by reading intothis provision, limitations of Section 36(1)(viia) onthe reasoning that it will form a check againstdouble deduction. To our mind, such approachwould be erroneous and not applicable on thefacts of the case in hand. InterpretationandConstructionofRelevantSections 25. The language of Section 36(1)(vu) of the Act isunambiguous and does not admit of twointerpretations. It applies to all banks, commercialor rural, scheduled or unscheduled. It gives a InterpretationandConstructionofRelevantSections 25. The language of Section 36(1)(vu) of the Act isunambiguous and does not admit of twointerpretations. It applies to all banks, commercialor rural, scheduled or unscheduled. It gives a benefit to the assessee to claim a deduction onany bad debt or part thereof, which is written offas irrecoverable in the accounts of the assesseefor the previous year. This benefit is subject only|to Section 36(2) of the Act. It is obligatory uponthe assessee to prove to the assessing officer thatthe case satisfies the ingredients of Section36(1})(vi) on the one hand and that it satisfies therequirements stated in Section 36(2) of the Act onthe other. The proviso to Section 36(1)(vii) doesnot, in absolute terms, control the application ofthis provision as it comes into operation onlywhen the case of the assessee is one which fallssquarely under Section 36(1)(viia) of the Act. Wemay also notice that the explanation to Section36(1)(vij), introduced by the Finance Act, 2001,has to be examined in conjunction with theprincipal section. The explanation specificallyexcluded any provision for bad and doubtfuldebts made in the account of the assessee fromthe ambit and scope of any bad debt, or partthereof, written off as irrecoverable in_ theaccounts of the assessee'’. Thus, the concept ofmaking a provision for bad and doubtful debtswil fall outside the scope of Section 36/(1)(vu) simplicitor. The proviso, as already noticed, willhave to be read with the provisions of Section36(1})(via) of the Act. Once the bad debt isactually written off as irrecoverable and therequirements of Section 36(2) satisfied, then, itwil not be permissible to deny such deduction onthe apprehension of double deduction under theprovisions of Section 36(1)(viua) and proviso tosection 36(1)(vii). This does not appear to be theintention of the framers of law. The scheduledand non-scheduled commercial banks wouldcontinue to get the full benefit of write off of theirrecoverable debts under Section 36(1)(viu) inaddition to the benefit of deduction of bad anddoubtful debts under Section 36(1)(vua). Mereprovision for bad and doubtful debts may not beallowable, but in the case of a rural advance, thesame, in terms of Section 36(1)(vita)(a), may beallowable without insisting on an actual writeoff.” 4. In view of the said statement of law, the substantialquestion of law framed in this case is answered in favour ofthe assessee and against the revenue. In that view of the @ %�������>�����&��������&��%������&�������00��)����������&*)��� �����00��)�������%������� �6)5,� �#$%� ���&�� �#$%����������������������������������������� ���&��