INCOME TAX OFFICER, WARD-2(1) , DAVANAGERE vs. M/S PRIMARY COOPERATIVE AGRICULTURE & RURAL DEVELOPMENT BANK LIMITED, DAVANAGERE

The revenue has filed this appeal challenging the order dated 18.12.2018 passed by Ld. CIT(A), Davangere and it relates to the assessment year 2008-09. The revenue is aggrieved by the decision of Ld. CIT(A) in deleting the disallowance of Rs.63,32,992/- made by the A.O. on the reasoning that the provision for bad debt is not allowable as deduction.

The facts relating to the case are stated in brief. The assessee is a Co-operative bank. In its profit & loss account, the assessee has debited a sum of Rs.63,32,992/- as “Audit objection amount to be taken to profit after recovery”.

The assessee explained the nature of the above said amount debited in the profit & loss account as under. It was submitted that the State Government announced waiver of interest on loan advanced to farmers. Accordingly, the head office of the assessee directed it to waive interest charged on various loans given to farmers. Accordingly, the assessee computed the waiver amount at Rs.1,70,35,758/- and accordingly lodged the claim. Simultaneously, it also passed entries crediting the income account with the above said amount. However, the assessee got an amount of Rs.1,07,02,766/- only from Deputy Registrar of Co-operative Societies, Davangere. With regard to the remaining amount of Rs.63,32,992/-, it was told to the assessee that the said claim does not fit into the waiver scheme. When audit party noticed that the assessee has considered the amount of Rs.1,70,35,758/- as income and accordingly it pointed out the income should be recognized at the level of actual receipt and the remaining amount should be recognized only when it was received. Accordingly, the assessee, instead of reducing the income by the amount of Rs.63,32,992/-, debited the profit & loss account with the above said amount with the narration “Audit objection amount to be taken to profit after recovery”. The above said explanation was not acceptable to the A.O. and accordingly, he disallowed the claim holding it as provision for bad debts. The Ld. CIT(A) allowed the claim and hence the revenue has filed this appeal.

When it was pointed out by the bench that the appeal of the revenue is covered by the monetary circular, the Ld. D.R. submitted that this issue is covered by the exception provided in the monetary circular issued by CBDT and hence even if the tax on the quantum disputed in this appeal is less than the monetary limit, the revenue

The Ld. A.R. submitted that the assessee has not actually created the ‘provision for bad debts’ as presumed by the A.O. The assessee has only reversed the income, which is not received by it as per the instructions of Audit party. Accordingly, he submitted that the order passed by Ld. CIT(A) does not call for any interference.

We heard the parties and perused the record. We noticed earlier that the assessee had made claim of Rs.1,70,35,758/- towards interest written off on the advances given to the farmers, but it has received amount of Rs.1,07,02,766/- only leaving a balance of Rs.63,32,992/-. However, the assessee had fully accounted the original claim of Rs.1,70,35,758/- as its income and accordingly, it has transferred the same to its profit & loss account. As per the advice given by the audit party, the assessee has debited the amount of Rs.63,32,992/- in the profit & loss account. Though the AO has taken the view that the above said amount represents “Provision for bad debts”, in our view, the same represents reversal of income accounted for by it. Hence, we are of the view that the A.O. was not justified in treating the same as provision for bad debts. Accordingly, we do not find any infirmity in the decision rendered by Ld. CIT(A) on in this issue. However, we make it clear that the assessee should offer the amount, if any collected out of the amount of Rs.63,32,992/- in the year in which the same was received.

In the result, the appeal filed by the revenue is dismissed.