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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ARUN KUMAR GARODIA
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee which is directed against the order of ld. CIT (A), Gulbarga dated 13.09.2017 for Assessment Year 2013-14.
The grounds raised
by the assessee are as under. “1. The Order of authorities below was bad in law as against fact and circumstance of the case.
2. On the fact and circumstances of the case and under the provisions of the law, the authorities below erred in making the addition and sustaining the addition the claim of appellant of RBDD (reserve for bad and doubtful debt) on standard asset, though the claim was under the limit specified in Section 36(1)(viia).
3. On the fact and circumstances of the case and under the provisions of the law, the authorities below erred in making the addition and sustaining the addition the claim of appellant of Rs.1,00,00,000/- ignoring the prudential norms of RBI for income recognition.
4. On the fact and circumstances of the case and under the provisions of the law, the authorities below erred in disallowing claim of the appellant relying on Chennai Tribunal judgment in case of Bharat Overseas Ltd Vs CIT, 82 DTR 373 ignoring the opinion expressed by Hon'ble Tribunal in Para 7 of the said order regarding the claim within the condition laid down u/s 36(1)(viia) or not? 5. For this and other reasons which may be adduced at the time of hearing, this Hon'ble Bench is requested to allow the appeal for the substantial cause of justice. 6. Appellant Craves Leaves to add, to alter, to amend and to delete any other ground at the time of the hearing.” 3. The ld. AR of assessee placed reliance on the Tribunal order rendered in the case of Bharat Overseas Bank Ltd. Vs. CIT in dated 28.08.2012, copy available on pages 11 to 15 of paper book and he also placed reliance on another Tribunal order rendered in the case of The Bharuch Dist. Central Co-op. Bank Ltd. Vs. ITO in ITA No. 1252/Ahd/2012 dated 26.07.2013, copy available on pages 16 to 24 of paper book. He submitted that in these two Tribunal orders, the issue was decided against the assessee but the RBI circular for classification of advances and provisioning, copy available on pages 6 to 10 of paper book was not properly considered and therefore, the matter should be decided by considering this RBI circular and without following these two Tribunal orders.The ld. DR of revenue supported the orders of authorities below.
We have considered the rival submissions. We find that the deduction is claimed by the assessee u/s. 36(1) (viia) of IT Act. Hence, for ready reference, we reproduce the provisions of section 36(1) (viia) which reads as under. “(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;”
From the above provisions, it is seen that deduction is allowable in respect of any provisions for bad and doubtful debts made by certain banks and upper limit for allowing such deduction is 7 ½ % of the total income computed before making any deduction under this clause and Chapter VIA and one more upper limit is 10% of aggregate advances made by the rural branch of such bank computed in the prescribed manner. Hence, in our considered opinion, there are three upper limits. First upper limit is the actual provisions made for bad and doubtful debts, the second upper limit is 7 ½ % of total income computed before making any deduction under clause VIA and third upper limit is 10% of the aggregate average advances made by the rural branches of such eligible banks. The argument of ld. AR of assessee is this that since the claim of the assessee is within the second and third upper limit i.e. 7 ½ % of total income and 10% of average advances made by the rural branches of the assessee
bank, the deduction should be allowed to the extent of Rs. 4 crores which includes provision of Rs. 3 Crores for bad and doubtful debts and Rs. 1 Crore for standard asset as against allowing of deduction of only Rs. 3 Crores by AO being provision made on bad and doubtful debts. We find no merit in this argument because if the provision made against bad and doubtful debts is only Rs. 3 Crores then the deduction allowable u/s. 36(1)(viia) cannot exceed such amount of provision even if 7.5% of total income before making any deduction this clause and Chapter VIA and 10% of aggregate advances of rural branch is in excess of Rs. 3 Crores. The two Tribunal orders rendered in the case of Bharat Overseas Bank Ltd. Vs. CIT (supra) and The Bharuch Dist. Central Co- op. Bank Ltd. Vs. ITO (supra) are also favouring the case of the revenue and we find no reason to take a contrary view. Regarding the reliance of ld. AR of assessee on the RBI Circular available on pages 6 to 10 of paper book, we would like to observe that deduction in computation of total income has to be allowed as per provisions of IT Act and not as per the RBI circular for classification of advances and provisioning. This argument is also rejected.
In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on the date mentioned on the caption page.