Law:

Section:

Section 36(1)(vii) of the Income-tax Act 1961 - Bad debts - Assessment year 2002-03 - Whether provisions of sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction and operate in their respective fields - Held, yes - Whether bad debts written off in accounts, other than those for which provision is made under clause (viia), will be covered under main part of section 36(1)(vii), while proviso to section 36(1)(vii) will operate in cases under clause (viia) to limit deduction to extent of difference between debt or part thereof written off in previous year and credit balance in provision for bad and doubtful debts account made under clause (viia) - Held, yes - Whether thus, proviso would not permit benefit of double deduction, operating with reference to rural loans, while under section 36(1)(vii), assessee would be entitled to general deduction upon an account having become bad debt and being written off as irrecoverable in accounts of assessee for previous year subject to satisfaction of requirements contemplated under section 36(2) - Held, yes - Whether, therefore, if amount of bad debt(s) actually written off in accounts of bank represents only debt(s) arising out of urban advances, allowance thereof in assessment is not affected, controlled or limited in any way by proviso to clause (vii) - Held, yes [In favour of assessee] Circulars and Notifications : Circular No. 258 dated 14-6-1979; Circular No. 421 dated 12-6-1985; and Circular No. 464, dated 18-7-1986 FACTS The assessee bank was having a provision of Rs. 15,01,29,990 for bad and doubtful debts under section 36(1)(viia). It claimed the amount of Rs. 12,65,95,770 as deduction on account of bad debts. The Assessing Officer held that, since the bad debts did not exceed the credit balance in the provision for bad and doubtful debts account and also, the requirements of clause (v) of sub-section (2) of section 36 were not satisfied, the assessee's claim for deduction of bad debts written off from the account books was to be disallowed. On appeal, the Commissioner (Appeals) held that since the entire bad debts written off by the bank under section 36(1)(vii) were pertaining to urban…

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