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Facts
The assessee, a cooperative bank, filed its return of income declaring a total loss. The Assessing Officer made an addition of Rs. 42,30,569/- by treating it as a provision for bad and doubtful debt, which represented the reversal of earlier years' BDDR provisions not allowed as deductions. The assessee contended that this reversal was not income.
Held
The Tribunal noted that the assessee's contention regarding the reversal of earlier years' BDDR provision was not raised before the Assessing Officer. However, it was raised before the CIT(A). Since the Assessing Officer did not have the opportunity to analyze this contention, the issue was set aside for de novo adjudication.
Key Issues
Whether the reversal of earlier years' provision for bad and doubtful debts, which was not allowed as a deduction, constitutes income in the current year.
Sections Cited
250, 143(3), 36(1)(viia), 270A(2), 80P
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by Assessee against the order of ld.Commissioner of Income Tax(Appeal)[[NFAC], passed under section 250 of the Income Tax Act, 1961 for the A.Y.2017-18 dated 01.11.2024, emanating from order u/s.143(3) of the Income Tax Act, 1961, dated 28.12.2019. The Assessee has raised following grounds of appeal : [A]
1. On the facts and in the circumstances of the case and in law, lower authorities have erred in making an addition of Rs. 42,30,569/- by treating it as provision for bad and doubtful debt. This addition represents the reversal of excess BDDR provision and contingent provisions from prior years, which were never allowed as deductions. The addition should be deleted. Your appellant prays for deletion of entire addition. Your appellant craves for to add, alter amend, modify, delete any or all grounds of appeal before or during the course of hearing in the interest of natural justice.” Findings & Analysis :
2. We have heard both the parties and perused the records. In this case, Assessee had filed Return of Income on 04.11.2017 declaring total loss of Rs.(-)27,70,084/-. The Assessee’s case was selected for scrutiny. During the Assessment Proceedings, Assessee filed submission before the Assessing Officer. The Assessing Officer passed an assessment order on 28.12.2019 making an addition of Rs.42,30,569/-. The relevant paragraphs of the Assessment Order are reproduced here as under : “7. The assessee had debited a sum of Rs. 96,78,990/- to the Profit & Loss account under the head provision for Bad and Doubtful Debts'. However, while computing the total income, the assessee has added back Rs.96,78,990/- to the business income and further reduced Rs.1,39,09,559/-. This amount of Rs.1,39,09,559/- was not provided for in the profit & loss account. The assessce has relied upon the decision of Hon'ble ITAT, Rajkot Banch in the case of Gondal Nagrik Sahakari Bank Ltd., 2016 ITL 1647. While making debit entry of Rs.96,78,990/- to the P & L account. 7.1 The contention of the assessee is duly considered. In the case of Gondal Nagrik Sahakari Bank Ltd., 2016 ITL 1647 (supra), the issue pertained to non-offering of interest accrued on NPA as income for taxation. In the present assessee's case, it is not an interest amount [A] accrued on NPA but the issue relates to the provision of BDDR made by the assessee in respect of NPAs. This provision is made on the principle amount of loans given by the bank. When a loan turns NPA, the bank stops charging interest thereon and a provision in certain percentage of the loan so turned NPA is made as provision for Bad & Doubtful Debts'. The assessee has made a provision of Rs.96,78,990/- in the F.Y. 2016-17 relevant to the A.Y. 2017-18. Thus, the facts of the assessee's case are distinguishable from the facts of Gondal Nagrik Sahakari Bank Ltd. case and, therefore, the reliance of the assessee is misplaced. 7.2 Further, the CBDT, in its instruction No.17/2008 dt. 26.11.2008, has categorically clarified that the deduction for provision for Bad & Doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee bank in the relevant year of the amount calculated as per the provisions of sec. 36(1) (viia) of the Income-tax Act, 1961, whichever is less. In the instant case, the assessee has made actual provision of Rs.96,78,990/- in the F.Y. relevant to the A.Y. under consideration. It has, however, claimed deduction of Rs.1,39,09,559/- citing the provisions of sec. 36(1)(viia) of the Income-tax Act, 1961. Therefore, following the CBDT, in its instruction No. 17/2008, the assessee's claim of deduction on account of 'provision for Bad and Doubtful Debts' is restricted to Rs.96,78,990/- and the excess deduction of Rs.42,30,569/- is hereby disallowed and added to the total income of the assessee. Penalty proceedings u/s.270A(2) of the Income-tax Act, 1961 are initiated separately for under reporting of income.”
3. Aggrieved by the assessment order, Assessee filed appeal before ld.CIT(A). During the proceedings before ld.CIT(A), the Assessee raised the contention that the amount of Rs.42,30,569/- represents reversal of earlier years provision for bad and doubtful debts reserve not allowed as deduction in those years. The Assessee also pleaded before ld.CIT(A) that this reversal credited to the Profit and Loss Account does not constitute additional income. Ld.CIT(A) noted that however the Assessing Officer treated the said amount as a claim under section 36(1)(viia) of the Income Tax Act. Ld.CIT(A)
[A] has merely brushed the contention of the Assessee that the amount of Rs.42,30,569/- pertains to reversal of earlier years provisions as unsupported. Ld.CIT(A) confirmed the addition.
Aggrieved by the order of ld.CIT(A), the Assessee filed appeal before this Tribunal. Ld.AR filed a paper book. Ld.AR repeated the contentions which were made before ld.CIT(A). The relevant submission of the Assessee is reproduced here as under : “Appellants Submission: - As regards credit to the Profit and Loss account amounting to Rs.4230569/-, it is submitted that, in AY 2007-08 relevant to the FY 2006-07, due to the withdrawal of deduction u/s 80P to the Co- operative Banks, the appellant had unclaimed deduction of BDDR (NPA Provision) amounting to Rs.7,26,60,392/-. The same has gradually changed every year as per chart enclosed herewith up to AY 2015-16. However, the Department has not allowed deduction as claimed in the Computation of Income. It has allowed the NPA provisions for each year to the extent of amount debited to Profit and Loss account only. In other words, reversal of BDDR amounting to Rs. 42,30,569/- was a part of small portion of the accumulated amount for which no deduction is given in any of the earlier years. Therefore, this reversal amount cannot be treated as income. Also, it cannot be income of the year under consideration. To clarify further, here is explanation. For example, for AY 2015-16, deduction u/s 36(1)(viia) was claimed at Rs.1,38,41,379/- in the computation of Income. However, A O restricted the deduction to only Rs 30,00,000/- being the NPA amount debited to Profit and Loss account, against the claim of Rs.1,38,41,379/- and disallowed the remaining amount In nutshell, amount of Rs.42,30,569/- credited in profit and Loss account represents reversal of excess provision of Bad Debts which was never allowed by the Department in any of the years Therefore, this amount being included in profit by book entry, is deducted while computing the income. The learned Assessing officer, without appreciating this fact, treated reversal of Bad and Doubtful Debt as income of current year and added the same In the year under [A] consideration, Appellant confirms that it had made the provision at Rs 96,78,990/- The same is far less than the figure of Rs.1,27,98,078/- which is undisputed figure of deduction worked out as per provision of Section 36(1)(viia) at the rate of ten percent of average rural branches advances as per working shown in the Tax Audit Report. Thus Rs.96,78,990/-, is permissible deduction and which is also allowed by the A.O. However, in respect of claim of Rs.42,30,569/- as per Computation of Income, the learned Assessing Officer mis-appreciated the fact that this amount represents as interest accrued on NPA and distinguished this with the decision of ITAT, Rajkot Bench, in the case of Gondal Nagari Sahakari Bank Ltd. (2016 ITL 1647). We have not cited this case in our submission either in writing or even orally As in reality, amount of Rs.42,30,569/-is not an interest income on NPA provision. It is the reversal of provision of earlier years BDDR which was never allowed as deduction to the appellant bank. We once again submit that we have claimed Rs.96,78,990/- as provision for Bad and Doubtful debts (BDDR) which is debited in books and in the Profit and Loss account. This amount is well within the limit of Rs.1,27,98,078/- which is calculated at ten percent of average rural advances and is deductible u/s 36(1)(viia). This claim is also supported by the CBDT circular Further, the amount credited in Profit and Loss account Rs.42,30,569/- cannot be treated as income as this amount was reversal of the small portion of accumulated provision of BDDR which was never allowed as deduction over the earlier period Therefore, while computing total income of the current year, we have deducted Rs 42,30,569/ However, the same was wrongly added by the Assessing Officer as per order u/s 143(3) dated 28.12.2019 under the head of business treating the same as excess provision of BDDR In view of above facts and circumstances of the case and as per law, kindly reduce the income by Rs. 42,30,569/- and accept the Returned Loss at Rs. 27,70,084/- as declared by the appellant.”
Ld.AR relied on the following caselaws : Adarniya P.D. Patilsaheb Sahakari Bank Ltd., Vs. ACIT in for A.Y.2014-15 vide order dated 08.06.2021(ITAT Pune Bench).
ITA No.2/PUN/2025 [A] ACIT Vs. M/s.Abhyudaya Co-op Bank Limited in for A.Y.2012-13 vide order dated 30.06.2023 (ITAT Mumbai Bench). The City Cooperative Bank Limited Vs. ITO in for A.Y.2010-11 vide order dated 12.09.2017(ITAT Mumbai Bench). 6. Ld.AR took us through the earlier years Return of Income to demonstrate the claim.
6.1 However, it is observed that the submission made by Assessee regarding reversal of earlier years provision is not appearing in the assessment order. It seems that this particular contention was not raised by assessee before ld.Assessing Officer(AO). However, it was raised before the ld.CIT(A). Thus, the Assessing Officer had no opportunity to analyse the contention regarding reversal of provisions of earlier years with reference to respective Returns of Income. In these facts and circumstances of the case, in the interest of justice, we set-aside the issue to the Assessing Officer for denovo adjudication. The Assessing Officer shall provide the opportunity to the Assessee. The Assessee shall file necessary details before the Assessing Officer. Accordingly, Grounds of appeal raised by the assessee are allowed for statistical purpose.
ITA No.2/PUN/2025 [A]
In the result, appeal of the assessee is allowed for statistical purpose. Order pronounced in the open Court on 29 July, 2025.