SAMARTHA SAHAKARI BANK LTD,,NASHIK vs. ASSISTANT COMMISSIONER OF INCOME TAX,, NASHIK

The relevant facts as culled out from the material on record are as under :- The assessee is a Co-operative Bank engaged in the business of banking. The assessee electronically filed its return of income for A.Y. 2013-14 on 25.09.2013 declaring total income at Rs.2,98,18,427/-. The case was taken up for scrutiny and thereafter, assessment was framed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) vide order dated 27.01.2016 and the total income was determined at Rs.3,22,87,370/-. Aggrieved by the order of Assessing Officer, assessee carried the matter before Ld.CIT(A), who vide order dated 30.01.2017 (in appeal No.Nsk/CIT(A)-1/686/2015-16,) granted partial relief to the assessee. Aggrieved by the order of Ld.CIT(A), assessee is now in appeal before us and has raised the following grounds : On facts and in law, 1] The learned CIT(A) erred in confirming the disallowance u/s 36(1)(viia) of Rs.20,46,467/- in respect of provision for bad debts claimed by the assessee. 2] The learned CIT(A) failed to appreciate that for the purposes of claiming deduction u/s 36(1)(viia), there is no requirement that the provision for bad debts should actually be made in the books of the assessee bank and hence, the entire deduction claimed by the assessee bank computed as per the formula prescribed u/s 36(1)(viia) should have been allowed to the assessee. Without prejudice to ground no.2, it is submitted as under - 3] The learned CIT(A) erred in holding that the provision made against standard assets as per the RBI Guidelines cannot be considered as provision for bad and doubtful debts for the purposes of claiming deduction u/s 36(1)(viia) and hence, the deduction u/s 36(1)(viia) is to be restricted only to the extent of provision for bad and doubtful debts made in respect of advances classified as NPAs. 4] The learned CIT(A) failed to appreciate that the provision against standard assets was made by the assessee bank in view of the RBI Master Circular No.UBD.BPD (PCB) MC No.3/09.14.000/2012 - 13 dated 02.07.2012 which has to be mandatorily followed by the banks and as per the RBI norms, the said provision is also in the nature of provision made towards doubtful debts and hence, the said provision should have been considered as part and parcel of provision for bad

Before us at the outset, ld. AR submitted that the assessee does not wish to press ground Nos.2 and 7 and further the other grounds raised are on the issue of deduction u/s 36(1)(viia) of the Act. In view of the aforesaid submissions of ld. AR, ground Nos.2 and 7 are dismissed as not pressed.

During the course of assessment proceedings, the Assessing Officer noticed that the assessee had claimed provision of Rs.24,17,467/- in respect of provision created for bad and doubtful debts u/s 36(1)(viia) of the Act, which included a provision in respect of standard assets amounted to Rs.21 lacs. The Assessing Officer was of the view that deduction u/s 36(1)(viia) of the Act is not allowable with respect to the provision in respect of standard assets as according to him, it was good and recoverable

Aggrieved by the order of CIT(A), the assessee is now in appeal before us. Before us the ld. AR reiterated the submissions made before the CIT(A) and further submitted that the assessee is governed by the guidelines issued by Reserve Bank of India (RBI) and RBI has issued Master Circular dated 02.07.2012 mandating the norms for provisioning of loans and advances made by banks and the provision made by the assessee is as per the mandate of the Master Circular issued by RBI and it is to be considered as provision for bad and doubtful debts for the purpose of section 36(1)(viia) of the Act. He further submitted that on identical facts, the Hon‟ble High Court of Karnataka in the case of Bellad Bagewadi Urban Souhard Sahakari Bank Niyamit Vs. CIT & Anr. in judgment dated 29.01.2018 has held that even the provision made by Co- operating Banks against the standard assets as per the RBI Master Circular have to be considered as provision for bad and doubtful debts for the purpose of computing the deduction u/s 36(1)(viia) of the Act. In support of his aforesaid contention, he also placed on record a copy of the aforesaid decision. He thus, submitted that the assessee be granted deduction.

The ld. DR on the other hand supported the orders of Assessing Officer and CIT(A).

We have heard the rival submissions and perused the material on record. The issue in the present appeal is with respect to the provision made for bad debts for standard assets. We find that the amount was disallowed by the Assessing Officer and CIT(A) as they were view of that the provision made for standard assets is not allowable as deduction for provision of bad and doubtful debts. We find that an identical issue arose before the Hon‟ble High Court of Karnataka in the case of Bellad Bagewadi Urban Souhard Sahakari Bank Niyamit Vs. CIT & Anr. (supra), wherein substantial question of law before the Hon‟ble High Court was as under:- “Whether in the facts and circumstances of the case and in law, the authorities were justified in denying deduction for provision of bad debts made for standard assets of Rs.15,00,000/- during the assessment year 2011-12 under Section 36(1)(viia) of the Income Tax Act, 1961 on the ground that the assessee has failed to furnish the details of deduction?”

Thereafter, the Hon‟ble High Court held as under:- “5. We have heard the learned counsel appearing for the parties and perused the material on record. 6. It is apparent from the material placed before us that the RBI guidelines prescribes the provision on standard assets from the year ended March 31, 2000 directing the banks to make a general provision of a minimum of 0.25% on standard assets. 7. In our opinion, the decision rendered by the Commissioner of Income Tax is unjustifiable for the reason that assessee is bound by the guidelines issued by the Reserve Bank of India. Any contrary view taken by the Income Tax Authorities would disentitle the assessee from claiming deduction under Section 36(1)(viia) of the Act. In view of non-furnishing of the material documents in support of the claim before the Tribunal, it was left with no other option except to confirm the order of the Commissioner of Income Tax (Appeals).”

Before us, the Revenue has not placed any contrary binding decision in its support nor has placed any material on record to demonstrate that the decision of Hon‟ble High Court of Karnataka in the case of Bellad

In the result, the appeal of assessee is partly allowed.