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Income Tax Appellate Tribunal, B Bench, Mumbai
Before: Shri P K Bansal & Shri Pawan Singh
Per P.K. Bansal, Vice President
This appeal has been filed by the assessee against the order of the CIT(A)-3, Mumbai dated 02.03.2015 for A.Y. 2010-11 by taking the following grounds: -
“On the facts and Circumstances of the case, the assessing officer erred in 1. disallowing Bad Debts written off Rs. 92,45,525/- fully. 2. disallowing Rs. 10,19,667/- being excess claim of depreciation on account of want of proof for additions during the year and re-categorization of the additions towards computers, and electrical under Furniture and Fixtures. 3. disallowing excess carry forward of written down value of fixed assets as on 31st March 2010 affecting amount of allowable depreciation for subsequent assessment year 2011-12 onwards. 4. disallowing Rs. 6,397/- u/s 14A of the Income Tax Act 1961, in spite submission of copy of the appellate order in The City Cooperative Bank Ltd. case your appellants for earlier assessment year stating there in that provisions of section 14A are not applicable to your appellants. 5. not computing deduction u/s 36(1) (viia) of the Income Tax Act 1961, as per provision of law i.e. 7.5% of the total income before deduction available under chapter 41 A.”
Ground No. 1 relates to the disallowance of bad debts written off amounting to `92,45,525/-. The brief facts of this ground are that the AO disallowed assessee’s claim in respect of bad debts written off amounting to `92,45,525/- on the ground that there was a credit balance of `5,27,59,900/- as on 31.03.2009 in the reserve for provision of bad debts. The AO was of the view that the provisions of Section 36(1)(vii) r.w.s. 36|(1)(viia), a claim of bad debts can only be allowed if the same is in excess of the provision for bad debts. The AO, therefore, disallowed the said claim. The assessee went in appeal before the CIT(A). The assessee claimed that the assessee was not having any rural branches and therefore there were no rural advances. All the advances written off were urban advances. The advances written off during the year become irrecoverable as certified by the Special Recovery Officer. It was also contended that even considering the proviso to section 36(1)(vii) the total provision claimed under section 36(1)(viia) for A.Y. 2007-08 to 2009-10 was `11,78,730/-. Therefore, the deduction should be `80,67,097. It was further submitted that there was no double deduction. The CIT(A) did not agree with the assessee as he was of the view that the assessee has created total provision of bad debts amounting to `92,45,827/- from A.Y. 2001-02 to 2009-10 and the assessee was claiming the said provision as an allowable provision and the same has regularly been allowed in the assessment orders. Therefore, the CIT(A) dismissed the ground of the assessee by observing that the same cannot now be allowed under section 36(1)(vii).
We have gone through the submissions made by both the parties. We noted from the chart available on page 15 of the paper book showing the statement of party-wise bad debts written off and the provision existed as on 31.03.2006 that the assessee has written off the bad debts in respect
The City Cooperative Bank Ltd. of 31 parties amounting to `94,45,827/- during the impugned assessment year while the provisions as on 31.03.2006 was to the extent of `83,39,432.57. The assessee has made provision for assessment years 2007-08, 2008-09 and 2009-10 at `7,96,787/-, `5,029/- and `2,75,628/- respectively. It is a fact that up to A.Y. 2006-07 the income from banking business was fully allowed in the case of the assessee under section 80P of the Income Tax Act. Subsequently by Finance Act, 2006 by insertion of sub-section (4) in section 80P the assessee was not entitled for deduction under section 80P from A.Y. 2007-08. The deduction under section 36(1)(vii) is available in respect of bad debts written off subject to the fulfilment of the conditions specified under section 36(2). Section 36(1)(viia) provides for the treatment of provisions for bad and doubtful debts of an amount not exceeding 7.5% of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such banks. The provisions of Section 36(1)(vii) and section 36(1)(viia) are distinct and independent. The provisions of Section 36(1)(viia) are applicable w.e.f. A.Y. 2007-08 to cooperative bank also. Therefore any provision allowed in A.Y. 2007-08 onwards in the case of a cooperative bank under clause (viia) will be hit by this amendment but a provision standing in the account of a cooperative bank prior to 01.04.2006 will not come in the ambit of section 36(1)(viia) and in our opinion if any bad debts written off for which a provision has been created prior to 01.04.2006 will be entitled for deduction under section 36(1)(viia) if the conditions stipulated under section 36(2) are satisfied. From the chart as appearing on page 15 it is apparent that the assessee had written off the bad debts amounting to `92,45,827/- during the year. It is not related to the provisions in respect of which the assessee has claimed deduction in the earlier assessment year. We, therefore, set aside the order of the CIT(A) on this issue and delete the said addition. Thus, this ground stands allowed.
The City Cooperative Bank Ltd. Ground Nos. 2 & 3 relate to the disallowance of `10,19,667/- being 4. excess claim of depreciation on account of want of proof for additions during the year. After hearing the rival submissions and going through the orders of the tax authorities below we noted that the AO disallowed depreciation on addition of certain fixed assets on the ground that supporting evidences in the form of bills, etc. were not filed by the assessee. The AO noted that the assessee has claimed depreciation on addition of fixed assets of `l11,37,818/- at `1,18,151/-. He, therefore disallowed the same. We noted that the assessee has filed copies of the bills and vouchers before the CIT(A) by making an application dated 19.01.2015 under Rule 16A but the CIT(A) did not accept the additional evidences. We, therefore, in the interest of justice and fair play to both parties set aside the order of the CIT(A) and restore this issue to the file of the AO with the direction that the assessee shall file copies of these bills and evidences pertaining to the addition to fixed assets in respect of which depreciation has been disallowed before the AO. The AO shall, after verifying the genuineness of purchases, allow depreciation to the assessee. In case the assessee is not able to file the direct evidences the AO is directed to verify the indirect evidences in the form of confirmation of purchases, etc. Thus, both these grounds are allowed for statistical purposes.
Ground No. 4, since not pressed, dismissed as not pressed.
Ground No. 5 relates to the claim of deduction by the assessee under section 36(1)(viia) as per the provisions of income tax law, i.e. 7.5% of the total income before deduction to be allowed under Chapter VIA of the Income Tax Act. We heard the rival submissions and carefully considered the same along with the orders of the tax authorities below. It is not denied that the assessee is a cooperative bank, therefore in view of provisions of Section 36(1)(viia), in our opinion, the assessee shall be entitled for the deduction @7.5% of the total income (computed before making any deduction under this clause and Chapter 6A) and an amount not exceeding 10% of the aggregate average advances made by rural branches of such banks computed in the prescribed manner in respect of any The City Cooperative Bank Ltd. provision for bad and doubtful debts made by the assessee. We accordingly direct the AO to allow the deduction to the assessee in respect of any provision for bad and doubtful debts made by the assessee during the year in accordance with the provisions of Section 36(1)(viia). Thus, this ground is allowed for statistical purposes.
In the result, the appeal filed by the assessee is partly allowed.