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In the backdrop of the aforesaid facts the A.O observed that the assessee had claimed deduction under Sec. 36(1)(viia) by making total aggregate provisions for bad and doubtful debts/assets at Rs. 25,01,91,450/-, which was more by an amount of Rs. 2,31,94,768/- as against the allowable provisions of Rs. 22,69,96,682/- computed hereinabove. On the basis of the aforesaid observations the A.O called upon the assessee to explain as to why the excessive provision of Rs. 2,31,94,768/- may not be disallowed and added back to its total income. In reply, it was submitted by the assessee that the actual of provision for bad and doubtful debts has to be seen irrespective of whether it is relating to rural advances or non- rural advances. As per the assessee, the deduction was to be allowed subject to the permissible upper limits of the provision for bad and doubtful debts and there was no question of bifurcating the same as one relating to rural advances and other advances (i.e. non-rural advances). In support of its aforesaid contention the assessee relied on the order of ITAT, Bangalore in the case of DCIT, Circle-11(4) vs. ING Vysya Bank P a g e |4 ITA No. 517 & 544/Asr/2017, A.Y. 2014-15 The Nawanshehar Central Co Operative Bank Ltd. Vs. DCIT & DCIT Vs. The Nawanshehar Central Co Operative Bank Ltd.

allowed subject to the permissible upper limits of the provision for bad and doubtful debts and there was no question of bifurcating the same as one relating to rural advances and other advances (i.e. non-rural advances). As observed by us hereinabove, the assessee had in support of its aforesaid contention relied on the order of ITAT, Bangalore in the case of DCIT, Circle-11(4) vs. ING Vysya Bank Ltd. (2014) 149 ITD 611 (Bang). In the backdrop of its aforesaid contention, it was submitted by the assessee that as the average total outstanding advances amounted to Rs. 37,832 lakhs, therefore, the assessee bank could create the provision for bad and doubtful debts to the maximum of Rs. 3,783.20 lakhs (i.e. 10% of average aggregate advances of Rs. 37,832 lakhs). However, the A.O had declined to accept the aforesaid claim and had concluded that as the assessee bank could make a provision for bad and doubtful debts equal to 7.5% of the total income (before making any deduction under the said clause and Chapter VI-A) and 10% of aggregate advances made by the rural branches of such bank, thus the claim of deduction of the assessee was to be scaled down by the amount of excess provision for bad and doubtful debts of Rs. 2,31,94,768/-.

From the above provisions it can be seen that deduction u/s 36(1)(viia) of the Act is allowed in respect of provisions for bad and doubtful debts this section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub-section (1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1)(viia) states that deduction for provisions is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified banks based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1)(viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) of the Act. The learned CIT(A) has passed a very exhaustive and speaking order any we do not find any infirmity in the same."

bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub-section (1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1) (vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1) (viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) of the Act. The Ld. CIT(A) has passed a very exhaustive and speaking order and we do not find any infirmity in the same.