ITAT Allows Deduction To SBI On Total Outstanding Advances At The End Of Each Month Considering The Opening Balances

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the deduction to the State Bank of India (SBI) on the total outstanding advances at the end of each month, considering the opening balances.

The three-member bench of Pramod Kumar (Vice President), Aby T. Varkey (Judicial Member), and Sandeep Singh Karhail (Judicial Member) has relied on the decisions of the Calcutta High Court in PCIT vs. Uttarbanga Kshetriya Gramin Bank and the Madras High Court in CIT vs. M/s City Union Bank Ltd. and has held that for the purpose of Section 36(1) (viia), the aggregate average advance made by the rural branches of the as scheduled bank shall be computed by taking the amount of advances made by each rural branch that was outstanding at the end of the last day of each month comprised in the previous year has to be computed separately.

The assessee/appellant, SBI, is a scheduled bank and has claimed deduction under section 36(1)(viia) of the Income Tax Act in respect of provisions made for bad and doubtful debts. The assessee, while claiming deduction under section 36(1)(viia), calculated the "aggregate monthly average advances" by taking into consideration the outstanding balances of the previous month, i.e., the opening balance for computing the amount of advance as outstanding at the end of each month as per Rule 6 ABA of the Income Tax Rules, 1962.

The Assessing Officer rejected the computation of the assessee and held that only incremental advances made during the month can be considered while calculating the figure of "aggregate monthly average advances." The Assessing Officer was of the view that if the opening balance was also considered, it would result in the assessee claiming deductions for more than the actual advance, especially where the advance has not been paid back. The First Appellate Authority upheld the reasoning of the Assessing Officer on this issue.

The assessee preferred the appeal before the Tribunal.

The assessee submitted that the issue pending consideration before this Special Bench was decided in favour of the taxpayer by the Calcutta High Court in PCIT vs. Uttarbanga Kshetriya Gramin Bank and the Madras High Court in CIT vs. M/s City Union Bank Ltd.

The department contended that the Calcutta High Court upheld the conclusions of the Tribunal, finding no substantial question of law in the appeal filed by the department, and thus, the merits of the issue were not discussed in detail.

The ITAT rejected the contention of the department and held that the non-admission of a substantial question of law under Section 260A by the High Court does not render the decision of the Court non-binding and that the doctrine of merger would still be applicable.

Case Title: The State Bank of India Versus Asstt. Commissioner of Income Tax Circle–Patiala

Citation: ITA No.510/Chandi./2017

Date: 10/11/2022

Counsel For Appellant: Sr. Adv. P.J. Pardiwala along with Advocate Jeet Kamdar

Counsel For Respondent: CIT DR A.B. Koli

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