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Facts
The assessee, Jila Sahakari Kendriya Bank Maryadit, Sehore, a cooperative bank, filed its return of income for AY 2014-15. The Assessing Officer (AO) made three disallowances: Rs. 88,00,000/- for Provision for Standard Assets u/s 36(1)(viia), Rs. 6,77,210/- for Audit Fees u/s 43B/37(1), and Rs. 50,500/- for ESI deposits made after the due date u/s 36(1)(va). The CIT(A) upheld these disallowances. The assessee appealed against all three disallowances.
Held
The Tribunal held that provision for standard assets made by a banking company as per RBI guidelines is allowable as a deduction under Section 36(1)(viia). The Tribunal followed the decision of the co-ordinate bench and the Karnataka High Court, taking a view in favour of the assessee on this issue. However, the Tribunal noted the necessity to verify if the claim was within the permissible limit prescribed in Section 36(1)(viia) and remanded the issue back to the AO for verification of the limit.
Key Issues
Whether provision for standard assets made by a cooperative bank as per RBI guidelines is deductible under Section 36(1)(viia)? Whether audit fees and ESI deposits made after due date are allowable deductions?
Sections Cited
36(1)(va), 43B, 37(1), 36(1)(viia), 2(24)(x)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI PARESH M. JOSHI
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
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:
‘‘1. The assessee is Jila Sahakari Kendriya Bank Maryadit, Sehore which carries on its banking activities in the district Sehore, Madhya Pradesh. Honorable Commissioner of Income Tax (Appeals) sustained in his order the disallowance made by the assessing officer during the assessment and Page 1 of 18 made addition to income of assessee. We hereby submit that the honorable Commissioner of Income Tax did not consider the reply submitted by the assessee and Honorable CIT(A) is incorrect in sustaining the disallowance made by assessing officer on grounds of disallowing the provision of Standard Assets of Rs. 88,00,000/- u/s 36(1)(va). The honorable CIT(A) also disallowed the audit fees and ESI deposits made of Rs. 50,500/- claimed which is not correct and unjustified addition to the income of the assessee. Thus, on above grounds we request to kindly consider the above reply and put stay on the penalty proceedings. Additionally, Condonation of delay is attached for your kind perusal.”
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
Page 2 of 18 before Ld. CIT(A) but did not get any success. Still aggrieved, the assessee has come in next appeal before us.
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.
Disallowance of Provision for Standard Assets of Rs. 88,00,000/-:
5. This issue is narrow and does not require detailed elaboration. The AO has dealt this issue in Para 5 of assessment-order. The assessee is a co- operative bank engaged in banking business. Accordingly, the assessee is eligible to claim deduction u/s 36(1)(viia). While preparing its P&L A/c (copy at Page 14 of Paper-Book), the assessee has debited two sums, namely (i) a sum of Rs. 1,13,00,000/- under the heading “Provision for doubt. and bad debts” and (ii) another sum of Rs. 88,00,000/- under the heading “Provision for standard assets”. During scrutiny proceeding, the AO sought explanation from assessee qua the second item i.e. the sum of Rs. 88,00,000/- debited under the heading “Provision for standard assets” and in reply, the assessee submitted that the said provision was also a part of overall bad and doubtful debts, made in accordance with RBI Circular No. FEI/2012-13/39 DBOD.No.BP.BC. 9/ 21.04.048/2012-13 which mandated all banks to make such a provision at prescribed rate (0.25% of standard assets) for the category of standard loans & advances. The AO, however, disallowed the Page 3 of 18 “Provision for standard assets” of Rs. 88,00,000/- by assigning the reason that the said provision constituted an unascertained and contingent liability which cannot be allowed as deduction.
6. In so far this issue is concerned, there is a judicial divergence. The Ld. Representatives of both sides relied upon their respective decisions.
7. Ld. AR for assessee has relied upon following decisions:
(i) ITAT, Indore in ACIT, Khandwa Vs. M/s Jila Sahakari Kendriya Bank, , order dated 28.04.2023:
“Ground No. 1 and 2: 4. In ground No. 1, the revenue claims that the CIT(A) has erred in deleting the disallowance of Rs. 5,00,00,000/- made by AO in respect of “provision for bad-debts”. Thereafter, in ground No. 2, the revenue claims that the CIT(A) has erred in deleting the impugned disallowance even though no details were filed by assessee during assessment or appellate proceedings. Both of these grounds relate to the same issue; therefore considered together for adjudication.
5. During assessment-proceeding, Ld. AO observed that the assessee has claimed a total deduction of Rs. 10,00,00,000/- u/s 36(1)(viia) under two captions, namely (i) provision for NPA - Rs. 5,00,00,000/- and (ii) provision for standard assets – Rs. 5,00,00,000/-. Ld. AO analysed section 36(1)(viia) and framed a view that “Provision for NPA” is a provision for bad-debt and therefore allowable as deduction; but “Provision for standard assets” is not a provision for bad-debt and therefore not allowable. Finally, Ld. AO disallowed “Provision for standard assets” of Rs. 5,00,00,000/-.
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-
Page 4 of 18 operative Bank Ltd. Vs. ACIT, wherein the “provision for standard assets” was held to be a provision for bad debts allowable u/s 36(1)(viia). Ld. CIT(A) accepted assessee’s submission and allowed deduction.
7. Before us, Ld. DR representing the revenue argued that the “standard assets” are those assets which are adequately serviced by the borrowers; those assets can’t be said to be “bad debts”. Therefore, the assessee has wrongly characterized them as “bad debt”, made provision and claimed deduction. Ld. DR claimed that in Nagaur Urban Co-operative Bank Ltd. (supra), deduction was allowed for NPA and not for standard-assets. Therefore, the reliance of CIT(A) on that decision is misplaced. Thus, Ld. DR submits, the CIT(A) has wrongly allowed the claim of assessee.
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.
36.(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 xxxx xxxx xxxx (viia) in respect of any provision for bad and doubtful debts made by – (a) a scheduled bank [not being a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co- operative agricultural and rural development bank, an amount not exceeding 99[seven and one- half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner :
Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year:
Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five per cent", the words "ten per cent" had been substituted:
Provided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government:
Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains of business or profession." Explanation. For the purposes of this sub-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000 and ending before the 1st day of April, 2005
On perusal of the above provision and in the given facts of the case, wherein the assessee, which is a cooperative bank carrying on banking business, we find that the assessee is eligible to claim provision for bad and doubtful debts to the extent of 7.5% of the total income before making any deduction under this clause and under Chapter VIA. Further in the profit and loss account except for the alleged provision for Rs. 2 lacs, no other provision for bad and doubtful debts has been claimed. We find force in the contention of the learned counsel for the assessee that the phrase contingency provision for standard assets is basically a provision for bad and doubtful debts only which is in general a regular feature of the banking business. It is also pertinent to mention that even though the assessee was eligible to claim much higher amount as an expenditure of provision for bad and doubtful debts, it only claimed Rs. 2 lacs. We, therefore, in the facts and circumstances of the case, are of the opinion that in the instant appeal the contingency provision for standard assets is basically in the nature of bad and doubtful debts only and the assessee has rightly claimed the expenditure u/s 36(1)(viia) of the Act. We, therefore, allow the sole ground raised
by the assessee.”
10. Thus, the impugned issue is settled in favour of assessee by various decisions of ITAT Benches including the co-ordinate bench of ITAT, Indore. Respectfully following the same, we too hold that the provision made by assessee qua standard assets is allowable u/s 36(1)(viia) and therefore the Ld. CIT(A) has rightly deleted the disallowance made by AO. However, during hearing, we raised a specific query to Ld. AR that the assessee has claimed a total deduction of Rs. 10,00,00,000/- but the section 36(1)(viia) allows deduction upto a certain limit prescribed therein; whether the AO has verified that the deduction of Rs. 10,00,00,000/- is within permissible limit prescribed in section? Ld. AR fairly agreed that it is not reflected in the orders of lower- authorities. Ld. AR, however, raised a plea that the assessee was entitled to much higher deduction but claimed only Rs. 10,00,00,000/-. In absence of any finding on this aspect by lower-authorities, we are unable to accept such a pleading of Ld. AR. Therefore, in the circumstance, though we agree in principle that the provision made for standard assets is also eligible for deduction yet we are of the view that there is a strong necessity to verify whether the claim made by assessee is within the permissible limit prescribed in section 36(1)(viia) or not; therefore it would be appropriate to refer this issue back to the file of Ld. AO for the limit purpose of such verification. The Ld. AO will verify the permissible limit and allow deduction within such limit. We order accordingly. We also direct the assessee to provide necessary information/calculation to Ld. AO to enable him to make such verification. These grounds are, thus, allowed in terms indicated here.” (ii) Hon’ble Karnataka High Court in Bellad Bagewadi Urban Souhad
Sahakari Bank Niyamit Vs. CIT(Appeal), order dated 29.01.2018:
Page 7 of 18 “4. On the other hand, learned counsel Sri Y.V.Raviraj appearing for the Revenue submits that no material was placed before the Tribunal to substantiate the claim made by the assessee for deduction of provision for bad debts on standard assets Rs.15,00,000/- under Section 36(1)(viia) of the Act. In the absence of any material, the Tribunal was justified in dismissing the claim of the assessee.
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).
8. Having regard to the nature and circumstances, we deem it appropriate to remand the matter to the Tribunal setting aside the impugned order with liberty to the assessee to place on record the material documents in support of its case for deduction towards provision for bad debts made for standard assets of Rs. 15,00,000/- relating to the assessment year 2011-12.
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.
565/PUN/2024, order dated 29.01.2026:
“23. So far as the provision created for bad and doubtful debts u/s 36(1)(viia) of the Act which include the provision in respect of standard assets is concerned, we find admittedly the Assessing Officer has not raised any query on this issue. However, it is also an admitted fact that the Assessing Officer has raised specific queries on this very issue in the immediately preceding assessment year and had not made any addition on account of provision in respect of bad and doubtful debts which include standard assets. We find the Co-ordinate Bench of the Tribunal in the case of Shri Samartha Sahakari Bank Ltd. vs. ACIT vide order dated 07.01.2020 for assessment year 2013-14, following the decision of Hon'ble
Karnataka High Court in the case of Bellad Bagewadi Urban Souhard Sahakari Bank Niyamit vs. CIT & Anr vide order dated 29.01.2018 has held that the assessee is eligible for deduction in respect of provision for bad and doubtful debts for the purpose of section 36(1)(viia) of the Act which includes the standard assets.
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
Page 10 of 18 which included the standard assets, however, for the impugned assessment year he has not raised any query is concerned, we find the Mumbai Bench of the Tribunal in the case of M/s. Union Bank of India vs. DCIT vide order dated 20.06.2025 for assessment year 2019-20 at para 8 of the order has observed as under: "8. Coming to the issues relating to the broken period interest paid on purchase of securities, amortization on securities and unrealized interest on bad and doubtful debts, though no specific queries were raised by the AO but these issues have already been decided by the Hon’ble Supreme Court and Hon'ble Bombay High Court and the Tribunals (supra) in favour of the assessee and against the revenue. Therefore, on these issues also the assessment order is neither erroneous nor prejudicial to the interest of the revenue."
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
Bank Ltd. Vs. The Dy. Commissioner of Income-tax, 218
& 219/Bang/2023, order dated 04.03.2025:
“44. We have heard the rival contentions of both the parties and examined the relevant material available on record. The primary issue for consideration is whether the assessee is entitled to claim a deduction of ₹1,46,13,000/- under section 36(1)(viia) of the Act in respect of the provision made for standard assets.
44.1 The AO disallowed the deduction on the ground that section 36(1)(viia) allows a deduction only for bad and doubtful debts, whereas the provision for standard assets does not pertain to such debts. The AO, therefore, held that the claim of the assessee was beyond the permissible scope of the provision. However, the learned CIT(A), after analysing the statutory provisions and judicial precedents, concluded that the deduction under section 36(1)(viia) is not restricted to only bad and doubtful debts but extends to all types of loans and advances, including standard assets, subject to the specified limits.
44.2 We find merit in the conclusion drawn by the learned CIT(A). The first limb of section 36(1)(viia) permits a deduction of up to 7.5% of the total income,
Page 11 of 18 which is a general deduction available to banks on their total advances. The second limb further allows an additional deduction of 10% of the rural advances made by rural branches. The provision does not explicitly restrict the deduction to bad and doubtful debts alone, but rather, it allows a general deduction computed as a percentage of total income and rural advances. We note that this view has been further fortified by Tribunal in different cases detailed as under:
(i) ITAT Amritsar Bench in Dy. CIT v. Nawanshahr Central Co-operative Bank Ltd. [IT Appeal No. 61 (Asr) of 2017, dated 3-1-2018] (ii) ITAT Mumbai Bench in Model Co-operative Bank v. Dy. CIT [IT Appeal No. 5522 (Mum) of 2017, dated 24-7-2019] (iii) ITAT Indore Bench in Vikramaditya Nagarik Sahakari Bank v. ACIT [IT Appeal No. 36 (Ind) of 2017, dated 20-3-2018].
44.3 In view of the above, we uphold the order of the learned CIT(A) and hold that the assessee is eligible for the deduction under section 36(1)(viia) to the extent of the specified limits. The disallowance made by the AO is, therefore, rightly deleted. Accordingly, the Revenue’s appeal on this ground is dismissed.”
8. Per contra, Ld. DR for revenue relied upon following decisions:
(i) ITAT, Visakhapatnam in Assistant Commissioner of Income-tax Vs. Chaitanya Godavari Grameena Bank (2018) 93 taxmann.com 400 (Visakhapatnam – Trib.) (ii) ITAT, Ahmedabad Bench in Bharuch Dist. Central Co-op. Bank Ltd. Vs. ITO (2013) 36 Taxmann.com 517 (Ahmedabad – Trib.)
(iii) ITAT, Chennai in Bharat Overseas Bank Ltd. Vs. Commissioner of Income-tax (2012) 26 taxmann.com 330 (Chennai)
(iv) ITAT, Amritsar in Gurdaspur Central Coop Bank Ltd. vs. Deptt. of Income Tax, ITA No. 99/ASR/2011.
9. Since there is a divergence of views, we would like to adopt a view in favour of assessee for threefold reasons:
(i) In Bellad Bagewadi Urban Souhad Sahakari Bank Niyamit
(supra), the Hon’ble Karnataka High Court has accepted assessee’s claim [Para 7 of order of Hon’ble High Court reproduced above]. No decision of any High Court against assessee and in favour of revenue has been cited before us.
(ii) In M/s Jila Sahakari Kendriya Bank, ITA No. 455/Ind/2018
(supra), the ITAT, Indore has also accepted assessee’s claim. Further, in an earlier decision titled Vikramaditya Nagarik Sahakari Bank order dated 20.03.2018 also, the ITAT, Indore accepted assessee’s claim. This earlier decision is referred in different case laws narrated by Ld. AR (re- produced above).
(iii) Even if there is a divergence amongst different benches of ITAT, we have to adopt the Vegetable Products Ltd. 88 ITR 192 wherein the Hon’ble Supreme Court has held that if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted.
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
Page 13 of 18 appears to have claimed at least deduction of Rs. 1,13,00,000/- (+) Rs.
88,00,000/- but the section 36(1)(viia) allows deduction upto a certain limit prescribed therein; whether the AO has verified that the deduction claimed by assessee is within permissible limit prescribed in section 36(1)(viia)? In reply, Ld. AR invited our attention to following working supplied by assessee in reply filed to CIT(A) during first-appeal [Page No. 2 of Paper-Book):
However, on further queries from bench, Ld. AR agreed in open court that the above working given by assessee does not appear to be correct and require verification. Ultimately, Ld. AR asserted that the bench may remand this aspect to AO for verification. Therefore, in the circumstance, though we agree in principle that the provision made for standard assets is also eligible for deduction yet we are of the view that there is a strong necessity to verify whether the claim made by assessee is within the permissible limit
Page 14 of 18 prescribed in section 36(1)(viia) or not; therefore it would be appropriate to refer this issue back to the file of Ld. AO for the limited purpose of such verification. The Ld. AO will verify the permissible limit and allow deduction within such limit. We order accordingly. We also direct the assessee to provide necessary information/calculation to Ld. AO to enable him to make such verification. Accordingly, this issue is treated as allowed for statistical purpose.
Disallowance of Audit Fees of Rs. 6,77,210/-:
The AO has made this disallowance vide Para 4 of assessment-order.
In Para 4, the AO has noted that the assessee debited a total expenditure of Rs. 15,00,500/- under the head “Audit Fees” to P&L A/c but paid only Rs. 8,23,290/- till 30.11.2014 (i.e. due date for filing of return). Thereafter, in Para 4.1, the AO has also observed that the difference of Rs. 6,77,210/- [Rs.
15,00,500 (-) Rs. 8,23,290] has been booked by assessee over actual expenditure which is not laid out or expended wholly and exclusively for business u/s 37. With these observations, the AO has made disallowance.
After deliberations that took place during hearing, Ld. Representatives of both sides arrived at following consensus:
(i) The first reason of non-payment of Rs. 6,77,210/- by due date for filing of return assigned by AO is on the basis of section 43B although the AO has not quoted section 43B in assessment-order. However, the section 43B applies to specific items of expenses prescribed therein
Page 15 of 18 which does not include “audit fee”. Therefore, the first reason assigned by AO, presuming to be on the strength of section 43B, is not valid.
The same is rejected.
(ii) The second reason assigned by AO that the expenditure was not laid out or expended wholly and exclusively for business u/s 37, is something which is without any verification made by AO. Ld. AR too agreed that the assessee has not filed any reply/submission furnished to AO in this regard. Hence, the bench is not able to look into this aspect. Finally, Ld. AR agreed that the bench may remit matter to AO for examination of this limited aspect as to whether or not the expenditure was laid out or expended wholly and exclusively for business. Accordingly, we remand this issue to the file of AO for a fresh adjudication from this angle. The issue raised by assessee is treated as allowed for statistical purpose.
Disallowance of ESI expenditure of Rs. 50,500/-:
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:
“3.4 In so far other aspects of the case is concerned that Ld. AR submitted that form no:-36 is/got intermixed. The grounds of appeal were read out by him. Sum of Rs. 14,96,548/- on account of provident fund was received form the employee and due date of payment was 15.01.2017 however the actual date of payment to the concerned authority was made on 17.01.2017. [Rs. 7, 48,274/- was employee’s contribution and Rs. 7, 48,274/- was employer’s contribution] [PF/ESIC]. However no document/material in support of above bifurcation is placed on record. Reliance simplicitor was placed on order of Supreme Court dated 27.01.2026 in case of Woodland (Aero club) Pvt. Ltd. v/s ACIT [SLP(C) No: - 1532/2026] wherein only the notice is issued. The Ld. DR for the revenue has placed reliance on the “impugned order”.
4. Observations Findings & conclusions 4.1 We have to decide the legality, validity and proprietary of the “impugned order” basis records of the case & the rival submission canvassed before us. 4.2 We have carefully perused the records of the case and have heard the submissions. 4.3 We basis records of the case & after hearing & upon examining the rival contentions of the Ld. AR & the Ld. DR canvassed before us are of the considered opinion that “impugned order” is correct and proper. It has rightly considered the decision of the Hon’ble Supreme Court of India in case of Checkmate Services Pvt. Ltd. v/s CIT-1 [CA No:- 2833 of 2016] dated 13.10.2022 referred in Para 16 of the impugned order. The Ld. AR has placed reliance on Woodland [Aero Club] Pvt. Ltd. Case of Hon’ble Supreme Court supra in which notice is only issued. The said order cannot be considered as binding judicial precedent at this stage. No ratio has been laid down.
4.4 In view of above, we upheld the “impugned order”.”
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.
Resultantly, this appeal is partly allowed for statistical purposes.
Order pronounced in open court on 10/04/2026