For assessment year 2014-15 onwards the Assessing Officer says Explanation 2 to s.36(1)(vii) requires my client bank to set its NON-RURAL bad debts against the s.36(1)(viia) provision account before claiming anything. Is that right?
The Bangalore Tribunal held it is not right for a bank claiming under sub-clause (a) of s.36(1)(viia). It construed Explanation 2, inserted by the Finance Act 2013 with effect from 1 April 2014, as operating in respect of sub-clause (a) only in relation to rural advances, and in respect of sub-clauses (b) to (d) — a foreign-incorporated bank, a public financial institution or State financial corporation or State industrial investment corporation, and a non-banking financial company — for advances given by both rural and non-rural branches. Its reason was that the Supreme Court in Catholic Syrian Bank had held sub-clause (viia)(a) to apply to rural advances only, that Parliament did not amend sub-clause (a), and that an Explanation inserted in clause (vii) does not override that construction. It therefore directed the Assessing Officer to allow the bad debts relating to non-rural branches under s.36(1)(vii) without adjusting them against the provision account.
Decided by the ITAT (Shri N.V. Vasudevan, Vice President and Shri B.R. Baskaran, Accountant Member (Income Tax Appellate Tribunal, Bengaluru 'A' Bench)) on 2022-05-26, reported as ITA No. 1907/Bang/2018 and ITA No. 230/Pan/2018, assessment year 2014-15; date of hearing 22 March 2022, date of pronouncement 26 May 2022; no law-report citation is printed on the document read. It bears on section 36(1)(vii), section 36(1)(viia), section 36(1)(viia)(a), section 36(2)(v), section Rule 6ABA, section 14A, section Rule 8D of the Income Tax Act 1961, in Deductions & Disallowances, How Tax Law Is Read and Appeals matters.
This is the live front line in bank assessments for assessment year 2014-15 onwards, and the practitioner must know exactly what the Tribunal did and did not decide. What it decided: that the words "all types of advances, including advances made by rural branches" in Explanation 2 do their work on the assessees who have no rural branches at all — foreign banks, public financial institutions, State financial corporations, State industrial investment corporations and NBFCs — who could otherwise have used Catholic Syrian Bank to say their write-offs were of "non-rural" debts and so outside the proviso. Its reasoning is that if Parliament had wanted to undo the Supreme Court's construction of sub-clause (viia)(a) it had to amend sub-clause (a) itself, and it did not. What it did not decide: this is a Tribunal, and the Revenue's contrary construction — squarely recorded in the Memorandum explaining the Finance Bill 2013 and in CBDT's Explanatory Note of 24 January 2014, both reproduced in the order, which say the provision account "applies to all types of advances, whether rural or other advances" and that the deduction is limited "without any distinction between rural advances and other advances" — is not displaced by anything higher. A practitioner should take this order as the best available answer for a clause (a) bank, expect the Revenue to press the Memorandum, and be candid with the client that the point is not closed. Note too the second, independently useful holding in the same order: on the Revenue's appeal the Tribunal held that the ten per cent rural limb under Rule 6ABA is worked out on the ENTIRE outstanding advances of the rural branches month by month, not on incremental or fresh advances only. Do not carry this order alone. The Hyderabad Bench of the Tribunal reached the opposite result on 21 April 2025 in Union Bank of India (Erstwhile Andhra Bank) v. DCIT (ITA No. 193/Hyd/2019), holding that where the bank has created its clause (viia) provision in respect of non-rural advances too, the write-off of those same non-rural debts under clause (vii) is an impermissible double benefit. Before relying on Karnataka Bank, establish on the client's own accounts whether the provision claimed under sub-clause (a) was confined to rural advances; if it was not, the Hyderabad reasoning bites.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee is a banking company. For assessment year 2014-15 it claimed bad debts of Rs.146.28 crores, made up of Rs.1.12 crores relating to rural branches and Rs.145.16 crores relating to non-rural branches. It had created a new provision of Rs.210.54 crores during the year and claimed Rs.112.19 crores as a deduction under section 36(1)(viia). The Assessing Officer took the view that the bank was claiming under both section 36(1)(vii) and section 36(1)(viia), that the amount claimed as bad debts was a mere prudential write-off of Rs.134.86 crores rather than an actual write-off, and that it was a clear case of double deduction; he disallowed the Rs.145.16 crores relating to non-rural advances. The Commissioner (Appeals) disagreed with the Assessing Officer on the write-off point but disallowed the claim on a different ground: that the provision for bad and doubtful debts allowed under section 36(1)(viia) is applicable to both rural and non-rural debts, so that the entire write-off had first to be adjusted against the provision account, that the opening credit balance in that account on 1 April 2013 was Rs.562.17 crores, and that as this exceeded the non-rural bad debts of Rs.145.16 crores nothing was allowable. He held that Catholic Syrian Bank had proceeded on an assumption that banks maintain separate provision accounts for rural and non-rural branches, and that his view had been clarified by the insertion of Explanation 2 by the Finance Act 2013. The bank appealed. The Revenue's own appeal raised, among other things, the computation of the aggregate average advances of rural branches under Rule 6ABA, the Assessing Officer having restricted it to incremental advances, and a disallowance under section 14A.
The appeal filed by the Revenue was dismissed and the appeal of the assessee was partly allowed (paragraph 9). On the Revenue's appeal, the Tribunal declined to interfere with the Commissioner (Appeals)'s acceptance of the assessee's Rule 6ABA working, holding that the ten per cent of aggregate average advances of rural branches is to be worked out on the entire outstanding advances and not on incremental advances only (paragraph 6.2). On the assessee's appeal, the Tribunal held that Explanation 2 to section 36(1)(vii) operates in respect of sub-clause (a) of section 36(1)(viia) only in relation to rural advances, and in respect of sub-clauses (b) to (d) for advances given by both rural and non-rural branches (paragraph 7.15); that as the assessee had claimed under sub-clause (a), the bad debts relating to non-rural branches were not required to be adjusted against the provision account in terms of the proviso to section 36(1)(vii) and section 36(2)(v) (paragraph 7.16); and it set aside the Commissioner (Appeals)'s order and directed the Assessing Officer to allow those bad debts without adjustment (paragraph 7.17). The additional ground on education cess was dismissed in view of the Finance Act 2022 amendment (paragraph 8).
The Tribunal analysed section 36(1)(viia) sub-clause by sub-clause and noted that the expression "rural branches" appears in sub-clause (a) alone and nowhere in sub-clauses (b) to (d), while foreign banks, financial institutions and NBFCs, which generally have no rural branches, are nonetheless entitled to the clause (viia) deduction; on the strength of Catholic Syrian Bank such assessees could have contended that their write-offs need not be adjusted because their debts were non-rural, and Explanation 2 was inserted to bring them within the proviso to section 36(1)(vii) and section 36(2)(v) (paragraph 7.11, and again at paragraph 7.15). It set out the Memorandum explaining the Finance Bill 2013 and noted that CBDT's Explanatory Note of 24 January 2014 in F. No. 142/24/2013-TPC gives the same explanation, and read both as supporting that view (paragraph 7.12). It then held that the Supreme Court had categorically held at its paragraph 27 that clause (viia)(a) applies to rural advances only, and that if Parliament had wanted to undo that interpretation it should have amended sub-clause (a) itself; since there was no such amendment, the Supreme Court's interpretation remained intact and an Explanation inserted in clause (vii) does not override it (paragraph 7.13). It observed that the Memorandum itself acknowledges that only sub-clause (a) refers to rural branches and that foreign banks do not have rural branches (paragraph 7.14). Applying that analysis to a claimant under sub-clause (a), the non-rural bad debts fell outside the adjustment (paragraph 7.16).
In view of the foregoing discussions, we are unable to agree with the view expressed by Ld CIT(A) on this issue. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the bad debts relating to non-rural branches u/s 36(1)(vii) of the Act without adjusting the same against the PBDD a/c, since the said PBDD a/c relates to rural advances only.
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Handle my notice → Ask a CA on WhatsAppThe Bangalore Tribunal held it is not right for a bank claiming under sub-clause (a) of s.36(1)(viia). It construed Explanation 2, inserted by the Finance Act 2013 with effect from 1 April 2014, as operating in respect of sub-clause (a) only in relation to rural advances, and in respect of sub-clauses (b) to (d) — a foreign-incorporated bank, a public financial institution or State financial corporation or State industrial investment corporation, and a non-banking financial company — for advances given by both rural and non-rural branches. Its reason was that the Supreme Court in Catholic Syrian Bank had held sub-clause (viia)(a) to apply to rural advances only, that Parliament did not amend sub-clause (a), and that an Explanation inserted in clause (vii) does not override that construction. It therefore directed the Assessing Officer to allow the bad debts relating to non-rural branches under s.36(1)(vii) without adjusting them against the provision account. This was decided by the ITAT (Shri N.V. Vasudevan, Vice President and Shri B.R. Baskaran, Accountant Member (Income Tax Appellate Tribunal, Bengaluru 'A' Bench)) and bears on section 36(1)(vii), section 36(1)(viia), section 36(1)(viia)(a), section 36(2)(v), section Rule 6ABA, section 14A, section Rule 8D of the Income Tax Act 1961. It is reported as ITA No. 1907/Bang/2018 and ITA No. 230/Pan/2018, assessment year 2014-15; date of hearing 22 March 2022, date of pronouncement 26 May 2022; no law-report citation is printed on the document read. This is the live front line in bank assessments for assessment year 2014-15 onwards, and the practitioner must know exactly what the Tribunal did and did not decide. What it decided: that the words "all types of advances, including advances made by rural branches" in Explanation 2 do their work on the assessees who have no rural branches at all — foreign banks, public financial institutions, State financial corporations, State industrial investment corporations and NBFCs — who could otherwise have used Catholic Syrian Bank to say their write-offs were of "non-rural" debts and so outside the proviso. Its reasoning is that if Parliament had wanted to undo the Supreme Court's construction of sub-clause (viia)(a) it had to amend sub-clause (a) itself, and it did not. What it did not decide: this is a Tribunal, and the Revenue's contrary construction — squarely recorded in the Memorandum explaining the Finance Bill 2013 and in CBDT's Explanatory Note of 24 January 2014, both reproduced in the order, which say the provision account "applies to all types of advances, whether rural or other advances" and that the deduction is limited "without any distinction between rural advances and other advances" — is not displaced by anything higher. A practitioner should take this order as the best available answer for a clause (a) bank, expect the Revenue to press the Memorandum, and be candid with the client that the point is not closed. Note too the second, independently useful holding in the same order: on the Revenue's appeal the Tribunal held that the ten per cent rural limb under Rule 6ABA is worked out on the ENTIRE outstanding advances of the rural branches month by month, not on incremental or fresh advances only. Do not carry this order alone. The Hyderabad Bench of the Tribunal reached the opposite result on 21 April 2025 in Union Bank of India (Erstwhile Andhra Bank) v. DCIT (ITA No. 193/Hyd/2019), holding that where the bank has created its clause (viia) provision in respect of non-rural advances too, the write-off of those same non-rural debts under clause (vii) is an impermissible double benefit. Before relying on Karnataka Bank, establish on the client's own accounts whether the provision claimed under sub-clause (a) was confined to rural advances; if it was not, the Hyderabad reasoning bites. If it applies to you, the first step is this: Identify the sub-clause of s.36(1)(viia) under which the deduction was claimed. This order helps a sub-clause (a) claimant; on its own reasoning it does not help a claimant under sub-clauses (b), (c) or (d).
The assessee is a banking company. For assessment year 2014-15 it claimed bad debts of Rs.146.28 crores, made up of Rs.1.12 crores relating to rural branches and Rs.145.16 crores relating to non-rural branches. It had created a new provision of Rs.210.54 crores during the year and claimed Rs.112.19 crores as a deduction under section 36(1)(viia). The Assessing Officer took the view that the bank was claiming under both section 36(1)(vii) and section 36(1)(viia), that the amount claimed as bad debts was a mere prudential write-off of Rs.134.86 crores rather than an actual write-off, and that it was a clear case of double deduction; he disallowed the Rs.145.16 crores relating to non-rural advances. The Commissioner (Appeals) disagreed with the Assessing Officer on the write-off point but disallowed the claim on a different ground: that the provision for bad and doubtful debts allowed under section 36(1)(viia) is applicable to both rural and non-rural debts, so that the entire write-off had first to be adjusted against the provision account, that the opening credit balance in that account on 1 April 2013 was Rs.562.17 crores, and that as this exceeded the non-rural bad debts of Rs.145.16 crores nothing was allowable. He held that Catholic Syrian Bank had proceeded on an assumption that banks maintain separate provision accounts for rural and non-rural branches, and that his view had been clarified by the insertion of Explanation 2 by the Finance Act 2013. The bank appealed. The Revenue's own appeal raised, among other things, the computation of the aggregate average advances of rural branches under Rule 6ABA, the Assessing Officer having restricted it to incremental advances, and a disallowance under section 14A. The matter was decided on 2022-05-26 by the ITAT (Shri N.V. Vasudevan, Vice President and Shri B.R. Baskaran, Accountant Member (Income Tax Appellate Tribunal, Bengaluru 'A' Bench)). On those facts the ITAT held as follows. The appeal filed by the Revenue was dismissed and the appeal of the assessee was partly allowed (paragraph 9). On the Revenue's appeal, the Tribunal declined to interfere with the Commissioner (Appeals)'s acceptance of the assessee's Rule 6ABA working, holding that the ten per cent of aggregate average advances of rural branches is to be worked out on the entire outstanding advances and not on incremental advances only (paragraph 6.2). On the assessee's appeal, the Tribunal held that Explanation 2 to section 36(1)(vii) operates in respect of sub-clause (a) of section 36(1)(viia) only in relation to rural advances, and in respect of sub-clauses (b) to (d) for advances given by both rural and non-rural branches (paragraph 7.15); that as the assessee had claimed under sub-clause (a), the bad debts relating to non-rural branches were not required to be adjusted against the provision account in terms of the proviso to section 36(1)(vii) and section 36(2)(v) (paragraph 7.16); and it set aside the Commissioner (Appeals)'s order and directed the Assessing Officer to allow those bad debts without adjustment (paragraph 7.17). The additional ground on education cess was dismissed in view of the Finance Act 2022 amendment (paragraph 8).
The Tribunal analysed section 36(1)(viia) sub-clause by sub-clause and noted that the expression "rural branches" appears in sub-clause (a) alone and nowhere in sub-clauses (b) to (d), while foreign banks, financial institutions and NBFCs, which generally have no rural branches, are nonetheless entitled to the clause (viia) deduction; on the strength of Catholic Syrian Bank such assessees could have contended that their write-offs need not be adjusted because their debts were non-rural, and Explanation 2 was inserted to bring them within the proviso to section 36(1)(vii) and section 36(2)(v) (paragraph 7.11, and again at paragraph 7.15). It set out the Memorandum explaining the Finance Bill 2013 and noted that CBDT's Explanatory Note of 24 January 2014 in F. No. 142/24/2013-TPC gives the same explanation, and read both as supporting that view (paragraph 7.12). It then held that the Supreme Court had categorically held at its paragraph 27 that clause (viia)(a) applies to rural advances only, and that if Parliament had wanted to undo that interpretation it should have amended sub-clause (a) itself; since there was no such amendment, the Supreme Court's interpretation remained intact and an Explanation inserted in clause (vii) does not override it (paragraph 7.13). It observed that the Memorandum itself acknowledges that only sub-clause (a) refers to rural branches and that foreign banks do not have rural branches (paragraph 7.14). Applying that analysis to a claimant under sub-clause (a), the non-rural bad debts fell outside the adjustment (paragraph 7.16). In the words reproduced by the source cited on this page: "In view of the foregoing discussions, we are unable to agree with the view expressed by Ld CIT(A) on this issue. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow the bad debts relating to non-rural branches u/s 36(1)(vii) of the Act without adjusting the same against the PBDD a/c, since the said PBDD a/c relates to rural advances only." The decision followed or applied Catholic Syrian Bank Ltd. v. CIT (2012) 343 ITR 270 (SC) — applied, and held not to have been overridden by Explanation 2 so far as sub-clause (viia)(a) is concerned; Canara Bank v. Addl CIT, ITA No.1900/Bang/2017 dated 28 September 2018, and Canara Bank (2017) 60 ITR (Trib) 1 (Bang.) — followed on the Rule 6ABA computation; State Bank of Hyderabad v. DCIT, ITA Nos. 450, 498 and 499/Hyd/2015 dated 14 August 2015 — followed by the coordinate bench in the assessee's own case for AY 2013-14, as recorded in the order; Union Bank of India (Erstwhile Andhra Bank) v. DCIT, ITA No. 193/Hyd/2019 and ITA No. 316/Hyd/2019 (ITAT Hyderabad, 21 April 2025) — contrary; distinguishes Catholic Syrian Bank where the clause (viia) provision was created for non-rural advances as well, and disallows the clause (vii) write-off without set-off.
It was decided by the ITAT on 2022-05-26 and is reported as ITA No. 1907/Bang/2018 and ITA No. 230/Pan/2018, assessment year 2014-15; date of hearing 22 March 2022, date of pronouncement 26 May 2022; no law-report citation is printed on the document read. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 36(1)(vii), section 36(1)(viia), section 36(1)(viia)(a), section 36(2)(v), section Rule 6ABA, section 14A, section Rule 8D, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal filed by the Revenue was dismissed and the appeal of the assessee was partly allowed (paragraph 9). On the Revenue's appeal, the Tribunal declined to interfere with the Commissioner (Appeals)'s acceptance of the assessee's Rule 6ABA working, holding that the ten per cent of aggregate average advances of rural branches is to be worked out on the entire outstanding advances and not on incremental advances only (paragraph 6.2). On the assessee's appeal, the Tribunal held that Explanation 2 to section 36(1)(vii) operates in respect of sub-clause (a) of section 36(1)(viia) only in relation to rural advances, and in respect of sub-clauses (b) to (d) for advances given by both rural and non-rural branches (paragraph 7.15); that as the assessee had claimed under sub-clause (a), the bad debts relating to non-rural branches were not required to be adjusted against the provision account in terms of the proviso to section 36(1)(vii) and section 36(2)(v) (paragraph 7.16); and it set aside the Commissioner (Appeals)'s order and directed the Assessing Officer to allow those bad debts without adjustment (paragraph 7.17). The additional ground on education cess was dismissed in view of the Finance Act 2022 amendment (paragraph 8). It arises in Deductions & Disallowances, How Tax Law Is Read and Appeals matters, on section 36(1)(vii), section 36(1)(viia), section 36(1)(viia)(a), section 36(2)(v), section Rule 6ABA, section 14A, section Rule 8D of the Income Tax Act 1961, and was decided by Shri N.V. Vasudevan, Vice President and Shri B.R. Baskaran, Accountant Member (Income Tax Appellate Tribunal, Bengaluru 'A' Bench). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For a clause (a) bank, segregate the rural and non-rural bad debts written off and claim the non-rural write-off under s.36(1)(vii) without reduction, citing paragraphs 7.11, 7.13, 7.15, 7.16 and 7.17 of this order. Satisfy s.36(2)(v) independently. Whatever the answer on the proviso, the debt must have been debited to the s.36(1)(viia) provision account in that previous year; produce the ledger. On the rural limb, compute the aggregate average advances under Rule 6ABA on the entire outstanding advances of each rural branch at the end of the last day of each month, and be ready with the branch-wise working if the Assessing Officer restricts it to incremental advances. Be ready for the Memorandum. Have an answer to the passage that says the provision account applies to all types of advances — the Tribunal's answer is that sub-clause (a) itself was never amended. Warn the client that this is a Tribunal decision on a contested construction, and price the risk of the Revenue succeeding on the Memorandum before a higher forum.
Validity check could not be completed. Validity check could not be completed. I did not search for any appeal from this order or for later High Court or Supreme Court treatment of it, and I do not know whether the Revenue took it to the Karnataka High Court. What is established is the Tribunal's own reasoning and disposal, read in full, with the operative direction confirmed on a second, independent retrieval. The label the output vocabulary would tempt one to use — "high courts differ" — is wrong here: the disagreement is between a Tribunal's construction and the construction the Revenue advances on the strength of a Finance Bill Memorandum and a CBDT Explanatory Note, and no conflicting High Court decision was located. A practitioner should treat the point as contested and not as settled. A later Tribunal decision goes the other way on the same question and must be read with this order. In Union Bank of India (Erstwhile Andhra Bank), Hyderabad v. DCIT, Circle-1(1), Hyderabad, ITA No. 193/Hyd/2019 and ITA No. 316/Hyd/2019, assessment year 2015-16, the Hyderabad 'B' Bench (Shri Vijay Pal Rao, Vice President and Shri Madhusudan Sawdia, Accountant Member) held on 21 April 2025, at its paragraph 15.4, that the assessee's 'reliance … on Catholic Syrian Bank Ltd. is misplaced' because in that case no deduction had been claimed under clause (viia) on account of non-rural advances, whereas the bank before it had claimed the clause (viia) provision for non-rural advances and then sought the write-off of the same non-rural debts under clause (vii), which 'results in an impermissible double benefit'; it concluded that the claim under section 36(1)(vii) 'without setting off the inadmissible provision created for non-rural advances, cannot be sustained' (indiankanoon.org/doc/29676534/, read in the original). The two orders are reconcilable on their facts — the Hyderabad bench's route turns on the bank having created its clause (viia) provision in respect of non-rural advances as well — but the outcome is the opposite, it is three years later, and the point must be put to any client relying on Karnataka Bank. The status therefore remains 'unverified': this is contested between Tribunal benches, and no High Court decision either way was located on this pass. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read the paragraph numbers in this order with care. The order has nine numbered paragraphs with sub-numbers, and its disposal is at paragraph 9. Inside its own paragraph 6.2 it reproduces at length a coordinate bench order in Canara Bank v. Addl CIT, which in turn reproduces earlier orders, so that a block numbered 7.1, 7.2, 7.3, 7.4.1, 7.4.2 and later 18.2, 18.3 and 19 appears there and belongs to the QUOTED orders, not to this Tribunal — the quoted 7.1 opens "In this ground (supra), the assessee assails the methodology of computation of deduction u/s.36(1)(viia) of the Act", whereas this Tribunal's own paragraph 7 opens "We shall now take up the appeal filed by the assessee". The 7.x numbers therefore occur twice in the document. Everything cited in this entry — 6.2, 6.3, 7.11 to 7.17, 8 and 9 — is this Tribunal speaking, and paragraphs 7.15 to 7.17 were transcribed verbatim on two independent retrievals. Two further points. At paragraph 7.11 the Tribunal states the sub-clause (a) quantum as "7.50% of Total income" — correct for assessment year 2014-15, which is the year before it, but not for assessment year 2018-19 onwards, when the Finance Act 2017 substituted eight and one-half per cent. At paragraphs 7.5 and 7.8 the order reproduces Explanation 2 with "under clause (via)" where the statute reads "clause (viia)"; that is a slip in the order, and the correct statutory text is set out in the separate statutory entry in this library. Paragraph 8, on education cess, was dismissed in view of the Finance Act 2022 amendment and has nothing to do with this subject. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal filed by the Revenue was dismissed and the appeal of the assessee was partly allowed (paragraph 9). On the Revenue's appeal, the Tribunal declined to interfere with the Commissioner (Appeals)'s acceptance of the assessee's Rule 6ABA working, holding that the ten per cent of aggregate average advances of rural branches is to be worked out on the entire outstanding advances and not on incremental advances only (paragraph 6.2). On the assessee's appeal, the Tribunal held that Explanation 2 to section 36(1)(vii) operates in respect of sub-clause (a) of section 36(1)(viia) only in relation to rural advances, and in respect of sub-clauses (b) to (d) for advances given by both rural and non-rural branches (paragraph 7.15); that as the assessee had claimed under sub-clause (a), the bad debts relating to non-rural branches were not required to be adjusted against the provision account in terms of the proviso to section 36(1)(vii) and section 36(2)(v) (paragraph 7.16); and it set aside the Commissioner (Appeals)'s order and directed the Assessing Officer to allow those bad debts without adjustment (paragraph 7.17). The additional ground on education cess was dismissed in view of the Finance Act 2022 amendment (paragraph 8).
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