MAHESH URBAN CO OPERATIVE BANK LTD,SOLAPUR vs. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE -2, SOLAPUR

Mahesh Urban Co-Operative Bank Ltd., Central Co-operative Bank Ltd., V/s Union Of India has quashed the CBDT’s circular dated 11.09.2002 as ultra vires violating section 119 of the Act. Their lordship’s further decisions in of 2014 dated 16.12.2015 in The Bailhongal Urban Cooperative Bank Ltd., V/s. CIT and Tax Appeals No. 3 to 9 and 11 of 2015 dated 07.03.2017 in Saraswat co-operative Bank V/s. ITO take note of forgoing legislation developments to hold that a co-operative bank/ assessee has no liability to deduct TDS on interest payments made to members. We thus delete the impugned section 194A r.w.s. 40 (a)(ia) disallowance of Rs.2,25,308/- in very terms therefore. The assessee’s third substantive grievance is accepted.

“10. Ground No. 6 of the appeal relates to disallowance of provision made for bad & doubtful debts.

10.1 The AO noticed that the appellant had made a provision u/s. 36(1)(vii)(a) of the Act of Rs. 5,00,000/- towards reserve for bad & doubtful debts in the P & L A/c. However, in the computation of income the appellant had claimed an amount of Rs. 6,64,515/- which is in excess by Rs. 1,64,515/- of the provision made in the P & L A/c. The AO accordingly disallowed the excess amount of Rs. 1,64,515/-.

10.2 The appellant claimed that the cooperative banks have been made taxable with effect from AY 2007-08 and they were also in section 36(l)(vii)(a). In view of cooperative banks being governed by the Banking

Mahesh Urban Co-Operative Bank Ltd.,

Regulation Act, it was making provisions for NPAs even in earlier years prior to AY 2007-08 and the question of disallowance or allowance was not relevant prior to AY 2007-08 in the absence of non inclusion in section 36(l)(vii)(a). In view of this, it was claimed that the appellant bank had huge balance lying in provision for bad & doubtful debts and therefore in the books of account provision was made only for the difference/short provision for the current year. It was claimed that the section 36(l)(vii)(a) provides for an upper limit of the provisions, the claim made by the appellant in the computation should be allowed. The appellant relied on the decision of the ITAT, Ahmadabad in the case of DCIT vs. Sarvodya Sahakari Bank reported in 48 taxmann.com 82 (Ahd).

10.3 The various claims made by the appellant have been examined. It is a fact that the appellant Co-operative Bank was entitled for deduction of income u/s 80P of the Act till AY 2007-08 and since its income was allowed as deduction, no separate deduction was allowed u/s 36(l)(viia) with respect to provision for bad and doubtful debts. The appellant was creating provision for bad and doubtful debts even in the years during which Section 80P was applicable in view of the Banking Regulation Act. As section 36(l)(viia) was not applicable to co-operative banks in those years, the provision so made was not allowable as deduction. Therefore, the appellant would have added back the provision while computing the income. However, its whole income from the banking business was allowed as deduction. In view of this, the provisions made prior to AY 2007-08 cannot be treated on the same footing as those made subsequent to that year. Even though technically, the provisions made prior to 2007-08 have not been allowed as deduction, its allowance as deduction u/s 36(l)(viia) in the post AY 2007-08 would tantamount to double deduction. The disallowed provision has been allowed as a income deduction in the years prior to Mahesh Urban Co-Operative Bank Ltd.,

AY 2007-08 u/s 80P and the same amount is now being sought to be claimed as deduction u/s 36(l)(viia). Therefore, in my considered view, the provisions made prior to AY 2007-08 cannot be allowed as deduction u/s 36(l)(viia). Therefore, the action of the AO in disallowing the above amounts is upheld. Accordingly, the ground no. 6 is dismissed.”