THE BHARAT CO OPERATIVE BANK (MUMBAI) LTD,MUMBAI vs. DCIT 1(3)(2), MUMBAI

The present appeal has been preferred by the assessee against the order dated 21.11.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.

The only issue raised by the assessee is against the confirmation of disallowance of Rs.1,30,73,424/- by Ld. CIT(A) as made by the AO on account of bad debts.

The facts in brief are that the AO observed during the assessment proceedings that assessee has debited a sum of Rs.1,30,73,424/- as bad debts written off in the P&L Account and has also shown the same on credit side as provision for bad and doubtful debts written back. The AO further observed that 2 M/s. The Bharat Co-operative Bank (Mumbai) Ltd. in the computation of income ,the assessee has once again reduced Rs.1,30,73,424/- from the total income against the net profits. According to the AO, the provision for bad and doubtful debts up to 2011-12 were Rs.11,36,84,789/- and after adding the provisions of Rs.3,50,00,000/- credited during the year, the credit balance at the end of the year stood at Rs.14,86,84,789/- which is more than the amount of bad debts claimed of Rs.1,30,73,424/- and consequently disallowed these bad debts and added back the same to the income of the assessee.

In the appellate proceedings, the Ld. CIT(A) confirmed the addition by holding that the assessee has sufficient accumulated credit balance under the head BDDR which is more than the amount of bad debts written off Rs.1,30,73,425/- and thus justified the addition made by the AO.

After hearing both the parties and perusing the material on record, we observe that the authorities below have not understood the provisions of section 36(1)(vii) and 36(viia) of the Act. The provisions of these two sections provide for claiming of deduction on two different accounts. Section 36(1)(vii) provides for claiming actual bad debts which are subject to the provision of section 36(2) of the Act whereas section 36(1)(viia) provides for creation of provision @ 7.25% of the deposits of the bank and thus have no interaction or any interplay. In other words both these sections are mutually exclusive and deduction claimed by the assessee under both these heads are admissible and allowable to the bank. The issue has been settled by the Hon’ble Supreme Court in the case of M/s. Catholic Syrian Bank Ltd. (2012) 343 ITR 270 (SC) wherein the Hon’ble Court has held that 3 M/s. The Bharat Co-operative Bank (Mumbai) Ltd. the deductions claimed under both these sections are to be allowed independently. The issue also stands settled in the assessee’s own case in ITA No.7313/M/2011 A.Y. 2008-09 vide order dated 15.03.2013 wherein it has been held as under: “7. We have considered the rival submissions and perused the orders of the lower authorities and the material evidence brought on record in the form of paper book. The computation of income is exhibited at page-44 and a perusal of this computation show that the assessee has added back standard asset reserve amounting to Rs. 1.25 crores to its income. We further find in the same computation of income, the assessee has deducted provision for bad and doubtful debts allowable u/s. 36(viia) at Rs.3,79,05,255/-. However, a perusal of the statement of accounts of the assessee show that although the assessee has created a provision of Rs.1.25 crores in its books of account but has not created any provision of Rs. 3.79 crores. Considering the provisions of Sec. 36(vii) and (viia), no doubt in the case of a banking company, a scheduled bank as in the case of the assessee two deductions are allowed to the assessee, first being provision for bad and doubtful debts at the rate of 7.5% not exceeding 10% of rural debt and second provision for bad and doubtful debt actually written off during the year. The actual provision written off during the year as found from the statement of account is only Rs. 1.25 crores, although the same has been added back while computing the income as the assessee wanted to claim Rs. 3.79 crores. In our considerate view and In all fairness 10 the assessee, since the assessee has actually written of Rs.1.25 crores in its books, we direct the AO to allow the claim for the provisions of bad and doubtful debts to the extent of Rs.1.25 crores only.

We, therefore, respectfully following the Hon’ble Supreme Court decision and the co-ordinate bench of the Tribunal, set aside the order of Ld. CIT(A) and direct the AO to allow the claim of bad debts to the assessee of Rs.1,30,73,424/-.

In the result, the appeal of the assessee is allowed.