M/S. DISTRICT CO-OPERATIVE BANK LTD.,SAHARANPUR vs. DCIT, SAHARANPUR

Per Dr. B. R. R. Kumar, Accountant Member:

Provision for bad and doubtful debts:

“4. The first ground of appeal is against the addition of Rs.3,55,92,239/-. During the course of assessment proceedings the Assessing Officer noted that assessee has claimed deduction on provision for bad and doubtful debts under Section 36(1)(viia) of the Act being 10% of Incremental Advances of rural branches of Rs.2,97,86,800/- was claimed and 7.5% of income was claimed for provision for doubtful debt. Therefore, total deduction claimed by the assessee was Rs.3,55,92,239/-. The learned Assessing Officer noted that as per the annual accounts of the assessee that the provision for bad and doubtful debts was not provided and, therefore, he issued a show cause notice. The assessee submitted that the intention of the proviso is in the form of incentive provided to the assesses as engaged in banking business to promote rural banking. The assessee also relied upon Circular No. 258 dated 14.07.1979 wherein the intention to granting such deduction. It was further stated that assessee does not have to prove before making the above provision that same has become bad. It was, therefore, submitted that the claim of deduction is allowable as laid down in Rule 6ABA of the Income Tax Rules. The learned Assessing Officer noted that provisions of Section 36(1)(viia) is a restrictive clause limiting the deduction to the extent of 10% of advances and 7.5% of income. It was further held that the passing of entries are required to affect the profit and loss account. He further relied on the decision of the Hon’ble Supreme Court in the case of Catholic Syrian Bank Ltd. Thus the Assessing Officer disallowed the above deduction stating that assessee does not have right to claim the deduction under Section 36(1)(viia) of the Act by deducting the required sum from the total income without passing entries of provision through books of accounts. On appeal before the learned CIT (Appeals) the assessee reiterated the above submissions. He dismissed the claim of the 3 District Co-operative Bank Ltd. assessee for the similar reasons. This is challenged as per ground No. 1 of appeal.

5. We have carefully considered the reasons given by the Assessing Officer and the learned CIT (Appeals). It is apparent that the Co- Operative Banks are also eligible for the above deduction. The only reason for which the claim of the assessee is disallowed is because assessee has not made any provision in the books of accounts. However, before the learned CIT (Appeals) assessee has submitted a copy of the revised profit and loss account and balance sheet dated 26.12.2016 as on 31.03.2012 prepared after the approval of AGM in support of the above claim. The learned CIT (Appeals) has failed to consider the fact that in the revised profit and loss account such claim was already made. Therefore, it is required to be considered by the lower authorities that when assessee has submitted the revised annual accounts which are duly approved by the AGM whether the assessee has satisfied the requirement of the provisions of Section 36(1)(viia) of the Act. As apparent from the record that annual accounts were revised on 26.02.2016, whereas the order was passed under Section 143(3) of the Act on 17.03.2016. Therefore, such accounts naturally could not have been before the Assessing Officer. The learned CIT (Appeals) also did not consider the fact that whether such a revision of accounts is valid or not. In view of this we set aside the whole issue as per ground No. 1 of the appeal back to the file of the Assessing Officer to examine whether the assessee has made the provision correctly or not. The assessee is directed to produce such accounts along with all its submissions before the Assessing Officer who is directed to examine the claim of the assessee afresh and decide the issue in accordance with law.”

4 District Co-operative Bank Ltd. Officer to examine the provisions with reference to the final accounts of the assessee.

Difference in the P&L account and computation of income:

5 District Co-operative Bank Ltd. 6. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 17/08/2021.