THE BHARAT COOPERATIVE BANK (MUMBAI ) LTD,MUMBAI vs. ACIT 1(1), MUMBAI

PDF · subscribers
ITA 6617/MUM/2013Status: DisposedITAT Mumbai21 October 2015AY 2007-085 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal noted that in a previous assessment year, for the same assessee, a similar issue regarding provision for bad and doubtful debts was decided by allowing the claim to the extent of the amount actually written off. Following this precedent, the Tribunal directed the Assessing Officer to re-examine the assessee's claim.

What were the facts?

The assessee, a cooperative bank, claimed a deduction for provision for bad and doubtful debts. The Assessing Officer made an addition to the income, disallowing a portion of this claim. The assessee argued that the provision was created as per RBI norms and cited previous tribunal decisions.

What were the issues?

Whether the provision for bad and doubtful debts created as per RBI norms is allowable as a deduction, and if so, to what extent, considering the actual write-offs.

Which sections of the Income-tax Act were involved?

Section 36(1)(viia)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI

Before: Shri Joginder Singh, & Shri Rajesh Kumar

For Appellant: Shri Bhupendra Shah
For Respondent: Shri Smair Tekriwal-DR
Hearing: 21/10/2015

Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 23/09/2013 of the ld. First Appellate Authority, Mumbai. The only ground pressed in this appeal pertains to addition of Rs.2,63,69,005/- out of the provision for bad and doubtful debts, even though the standard asset reserve is created as per RBI norms, disregarding the decision from Hon’ble

1.

2 The Bharat Cooperative Bank (Mumbai) Ltd.. Supreme Court in the case of Karnataka Bank Ltd (25 taxman 235)(SC) and decision of the Tribunal in the case of assessee itself (A.Y. 2008-09) (ITA No.7313/Mum/2011).

2.

During hearing of this ground, the ld. counsel for the assessee advanced his arguments which are identical to the ground raised. On the other hand, the ld. DR, did not controvert the assertion of the ld. AR and the order of the Tribunal.

2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order in order dated 15/03/2013 for ready reference:-

“This appeal by the assessee is directed against the order of the Ld. CIT(A)-l, Mumbai dt.14.7.2011 pertaining to A.Y. 2008-09.

2. The short grievance of the assessee is that, the Assessing Officer erred in adding Rs. 3,79,05,255/- out of provision for bad and doubtful debts even though the standard asset reserve is created as per REI norms.

3.

During the course of the assessment proceedings, the Assessing Officer observed that the assessee has claimed deduction of Rs. 3,79,05,255/- on account of provision for bad and doubtful debts allowable u/s. 36 of the Act. The AO further observed that the said claim has been made by the assessee in the computation of income. Although the assessee has not specified the sub- section/clause of the Act under which it has claimed the deduction. The AO was of the opinion that provisions of Sec. 36(1)(viia) of the Act squarely apply. The AO further observed that u/s. 36(1 )(vii) of the Act, deduction is allowed in respect of bad debts actually written off during the year. However; in the case of banking companies In particular scheduled bank, clause (viia) Section 36(1)

3 The Bharat Cooperative Bank (Mumbai) Ltd.. (1). on account of provision for bad debts and (2) on account of bad debts actually written off. In any case, the deduction to such assessee cannot exceed the bad debts actually written off in the books of account. The AO further observed that since the assessee has claimed the deduction in its computation of income and has not debited by 'way of provision to its profit and loss account, the assessee was asked to justify its claim. Vide after dt. 19.11.2010, the assessee explained that it has made a provision towards standard asset reserve at Rs. 1.25 crores by debiting the same in P&L account. This was done as per prudential norms prescribed by Reserve Bank of India. However, the AD observed that the provision so debited has been added back by the assessee in its computation of income. Further, no explanation has been given in respect of the claim for deduction of provision of Rs. 3,79,05,255/- and added back the provision of Rs. 3,79,05,255/- to the returned income of the assessee.

4.

The assessee carried the matter before the Ld. CIT(A) but without any success.

5.

Before us, the Ld. Counsel for the assessee filed a detailed chart explaining the calculation of deduction claimed u/s 36(viia) of the Act and reiterated that the provisions of Sec. 36(viia) squarely apply in the case of the assessee.

6.

The Ld. Departmental Representative strongly supported the findings of the lower authorities.

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. Rs.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 4 The Bharat Cooperative Bank (Mumbai) Ltd.. rural debt and second provision for bad and doubtful debt actually written off during the year. The actual provision written offering 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 to the assessee, since the assessee has actually written of Rs.1.25 crores in books, we direct the Assessing Officer to allow the claim for the provisions of bad and doubtful debts to the extent of Rs.1.25 crores only.

8.

In the result, the appeal filed by the assessee is partly allowed.”

2.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that the only grievance of the assessee is that the addition of Rs.3,79,05,255/- was wrongly made by the Assessing Officer out of the provision for bad and doubtful debts, more specifically when the standard asset reserve is created as per RBI norms. We find that the Tribunal for A.Y. 2008-09 (ITA No.7313/Mum/2011), in the case of assessee itself, vide order dated 15/03/2013, identically concluded that since the assessee is actually written off the impugned amount in its books, the Assessing Officer was directed to allow the claim for the provision of bad and doubtful debts. Thus, we direct the Assessing Officer to examine the claim of the assessee as the deduction claimed is at the rate of 7.5%, therefore, we find force in the contention of the ld. counsel for the assessee, consequently, the Assessing Officer is to decide the case of the assessee in the light of the 5 The Bharat Cooperative Bank (Mumbai) Ltd.. Tribunal, thus, the appeal of the assessee is allowed for statistical purposes. The assessee be given opportunity of being heard with further liberty to furnish evidence, if any, in support of its claim.

Finally, the appeal of the assessee is allowed for statistical purposes.

This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 12/10/2015.

More judgments on Section 36(1)(viia)

All 877 judgments and leading authorities on Section 36(1)(viia) →

Recent GST High Court judgments

Search GST case law →