JILA SAHAKARI KENDRIYA BANK MYDT,SEHORE, MP vs. COMMISIONER OF INCOME TAX (APPEALS), NFAC, DELHI

Feeling aggrieved by order of first appeal dated 24.11.2022 passed by learned Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [“CIT(A)”], which in turn arises out of assessment order dated 23.12.2016 passed by learned Assistant Commissioner of Income Tax, Circle-3(1), Bhopal [“AO”] u/s 143(3) of the Income-tax Act, 1961 [“the Act”] for Assessment Year 2014-15 [“AY”], the assessee has filed this appeal on following ground:

The registry has reported a delay of 465 days in filing this appeal. The reasoning for delay is stated to be identical as in other appeal of assessee, order dated 27.02.2026 for AY 2017-18 decided by this very bench (order is authored by brother JM). Following the same adjudication, the delay in present appeal is condoned.

The background facts leading to present appeal are such that the assessee is a co-operative bank. For AY 2014-15, the assessee filed its return of income on 28.11.2014 declaring total income of Rs. 86,90,950/- and subsequently filed a revised return on 15.12.2014 declaring a total income of Rs. 6,88,16,920/-. The case was selected for scrutiny under CASS and the AO issued notices u/s 143(2)/142(1). Finally, the Ld. AO completed assessment u/s 143(3) at a total income of Rs. 7,83,44,630/- after making three disallowances: (i) disallowance of Rs. 88,00,000/- on account of Provision for Standard Assets u/s 36(1)(viia); (ii) disallowance of Rs. 6,77,210/- on account of Audit Fees u/s 43B / 37(1); and (iii) disallowance of Rs. 50,500/- u/s 36(1)(va) r.w.s. 2(24)(x) of the Act on account of employees’ contribution towards ESI deposited beyond the due date prescribed under ESI Act, 1948. Aggrieved, the assessee preferred appeal

By means of ground raised before us (re-produced in the beginning), the assessee has challenged all three disallowances made by Ld. AO and upheld by Ld. CIT(A). We proceed to adjudicate all these one by one in subsequent discussions.

During first-appeal, the assessee submitted that it is engaged in banking business and it has to follow the guidelines issued by Reserve Bank of India (RBI). It was further submitted that the assessee had created provision for bad debts and the whole provision i.e. 5,00,00,000/- on account of NPA plus Rs. 5,00,00,000/- on account of standard-assets, though made under two nomenclatures, is a provision for bad debts in terms of RBI guidelines. The assessee also submitted that section 36(1)(viia) allows deduction of the “provision for bad debts” made as per RBI guidelines; therefore the entire provision of Rs. 10,00,00,000/- (including the provision of Rs. 5,00,00,000/- qua standard assets) is entitled for deduction. The assessee also placed reliance on the decision of ITAT, Jodhpur in Nagaur Urban Co-

Per contra, Ld. AR supported the order of first-appeal and argued that a careful reading of the order of Nagaur Urban Co-operative Bank Ltd. (supra) clearly reveals that the ITAT has allowed deduction of “provision for standard-assets” (Para No. 4 and 10 of the ITAT order). He further relied upon following decisions wherein such deduction has been allowed: (i) ITAT Amritsar Bench in DCIT Vs. The Nawansahar Central Co-operative Bank Ltd, order dated 03.01.2018 (ii) ITAT Mumbai Bench in Model Co-operative Bank Vs. DCIT, order dated 24.07.2019 (iii) ITAT Indore Bench in Vikramaditya Nagarik Sahakari Bank Vs. ACIT, Ujjain, order dated 20.03.2018 9. We have considered the rival contentions raised by both sides and perused the material held on record in the light of section 36(1)(viia) and the judicial decisions cited above. After a careful consideration, we observe that it has been loudly held in all of the decisions cited above that the provision made by a banking company in respect of standard assets, as per RBI guidelines, is very much allowed as deduction u/s 36(1)(viia). Ld. DR is not able to point out any contrary decision on this issue. We extract below the decision of ITAT Indore Bench itself in Vikramaditya Nagarik Sahakari Bank Vs. ACIT (supra): “6. We have heard the rival contentions and perused the material placed on record. The sole grievance of the assessee revolves around the disallowance of Rs. 2 lacs confirmed by both the lower authorities relating to provision for contingency of standard assets claimed by the assessee u/s 36(1)(viia) of the Act. Before proceeding further we would like to reproduce the provision of section 36(1)(viia) of the Act as under :- “Other deductions.

We have heard the learned counsel appearing for the parties and perused the material on record.

Accordingly, the appeal is allowed. The impugned order is set-aside and the matter is remanded to the Tribunal for fresh consideration. All rights and contentions of the parties are kept open. The Tribunal shall pass appropriate orders after providing an opportunity of hearing to the assessee in accordance with law as expeditiously as possible.” (iii) ITAT, Pune in Bajaj Finance Limited Vs. PCIT-3, Pune, ITA No.

We find the Co-ordinate Bench of the Tribunal in the case of ITO vs. Latur District Central Co-Op Bank Ltd. vide order dated 28.01.2025 for assessment year 2018-19 has also held that the assessee is entitled for deduction u/s 36(1)(viia) of the Act in respect of provision for bad and doubtful debts which includes the standard assets.

We find the Co-ordinate Bench of the Tribunal in assessee's own case vide order dated 26.02.2024 for assessment year 2018-19 has quashed the 263 proceedings under identical circumstances by observing as under: "6. We have heard both the parties and perused the records. The issue involved is whether Id. Pr.CII had rightly invoked jurisdiction under section 263 of the Act. 6.1 It is observed that different benches of ITAT have taken different views on the issue of allowability under section 36(1)(vita) deduction for provision for standard assets The ITAT Indore Bench in the case of Vikramaditya Nagrik Sahkari Bank Maryadit Vs. ACIT in (supra), ITAT Mumbai Bench in the case of Kotak Mahindra Bank Limited Vs. ACIT in 3269/MUM/2019(supra) and ITAT Amritsar Bench in the case of Dy CIT Vs. M/s. Punjab Gamin Bank in for A.Y.2008-09(supra), had held that deduction under section 36(1)(viia) is allowable for provision for standard assets which is basically in the nature of bad & doubtful debts. 6.2 Before we discuss the case further, we will like to mentions the relevant case laws on this issue. 6.3 The Hon'ble Supreme Court in the case of CIT Vs. Amitabh Bachchan, 384 ITR 200(SC) observed as under: "21. There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from." 6.4 The Hon'ble Madras High Court in the case of CIT Vs. Mepco Industries Lid. 294 ITR 121 (Madras) held as under Page 9 of 18 Quote, "8. Therefore, on the facts of the case, when two views are possible and it is not the case of the Revenue that the view taken by the Assessing Officer is not permissible in law, the CIT is not justified in invoking the jurisdiction under section 263 of the Act." Unquote 6.5 The Hon'ble Bombay High Court in the case of CIT Vs. Future Corporate Resources Lid in IT Appeal No 1275 of 2017 vide order dated September 29, 2021 held as under: Quote 7. In the order of PCIT it is stated "in paragraph 4.3. of the assessment order, the Assessing Officer has recorded that from the details submitted by the assessee and the explanation given by him, it was observed that assessee had regular business connection with the company in which investment had been made and also there was business income to the assessee from the same. Therefore, interest expense debited by the assessee has not been considered for the calculation of disallowance under section 144 because the same has been incurred for the purpose of business." The PCIT therefore agrees that the Assessing Officer has recorded from the details submitted by respondent and the explanation given by respondent that the assessee had regular business connection with the company in which investment has been made and also there was a business income to the assessee from the same. He notes that the Assessing Officer, therefore did not consider the calculation of disallowance under section 14A the interest expense debited by the assessee because the same has been incurred for the purpose of business. The PCIT though was unhappy with the view of the Assessing Officer, the PCIT himself does not say why it should have been considered for the calculation of disallowance under section 144. Even if one assumes that he has, after reading of the order expressed his views, but still the position is two views therefore were possible Therefore, if one of the two possible views was taken by the Assessing Officer, the PCIT could not have exercised his powers under section 263 of the Act. 8." Unquote 6.6 Thus, the principal of the law emanating from the above decision of the Hon'ble Supreme Court, the Hon'ble Jurisdictional High Court, the Hon'ble Bombay High Court is that when two views are legally possible and AO adopts one view the Assessment Order cannot be said to be erroneous for the CIT to invoke jurisdiction u/s 263. In this case, applying the above principle of law, it is held that assessment order is not erroneous and prejudicial to the interest of the revenue and hence the order under section 263 is bad in law. Accordingly, appeal of the assessee is allowed."

So far as the argument of the Ld. DR that while the Assessing Officer in assessment year 2018-19 has made specific queries on the issue of allowability of deduction under the provision of bad and doubtful debts

Since the Co-ordinate Benches of the Tribunal have taken the consistent view that the assessee is entitled for deduction u/s 36(1)(viia) of the Act on account of provision for bad and doubtful debts which include the standard assets and since the Co-ordinate Bench of the Tribunal in assessee's own case in the preceding assessment year has quashed the 263 proceedings on this very issue under identical circumstances, therefore, respectfully following the order of the Co-ordinate Bench of the Tribunal in assessee's own case for the immediately preceding assessment year, we quash the 263 proceedings initiated by the Ld. PCIT. The grounds raised by the assessee are accordingly allowed.” (iv) ITAT, Bangalore in The South Canara District Central Co-operative

In view of above discussions, we hold that the “Provision for standard assets” made by assessee is eligible for deduction u/s 36(1)(viia). However, during hearing, we raised a specific query to Ld. AR that the assessee

The AO has made this disallowance vide Para 4 of assessment-order.

After deliberations that took place during hearing, Ld. Representatives of both sides arrived at following consensus:

The facts relating to this issue are such that the employees’ contribution to ESI for the month of July 2013 amounting to Rs. 50,500/-, was deposited on 29.08.2013 as against the due date of 21.08.2013 under the ESI Act, 1948. Accordingly, the AO made disallowance invoking section 2(24)(x) r.w.s. 36(1)(va).

Presently, the assessee is making a limited claim that the amount of Rs. 50,500/- is not fully on account of employee’s contribution, it also has Page 16 of 18 component of employer’s contribution which is not disallowable u/s 2(24)(x) r.w.s. 36(1)(va).

Identical issue has already been decided by this very bench in order dated 27.02.2026 for AY 2017-18 (order is authored by brother JM). The relevant para of order is re-produced below:

We apply the very same reasoning and uphold the impugned order passed by Ld. CIT(A) for this issue. Accordingly, this issue raised by assessee is dismissed.