ITAT allows appeal, orders fresh examination of depreciation claim & clarifies deduction computation

The ITAT allowed the appeal for statistical purposes, directing a fresh examination of the depreciation claim issue and clarifying the computation of deduction u/s. 36(1)(viia) based on total income. The judgment emphasized adherence to statutory provisions and consistent application of methods in tax matters.

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Issues:
1. Disallowance of depreciation on investments claimed by the assessee.
2. Partial disallowance of deduction claimed u/s. 36(1)(viia) of the Act.

Analysis:

Issue 1: Disallowance of Depreciation on Investments
- The assessee, a cooperative society engaged in banking, claimed deduction of Rs. 8.92 crores under "Depreciation on investments" for the assessment year 2010-11.
- The Assessing Officer disallowed the claim as the amount was not debited in the Profit and Loss account, citing RBI guidelines requiring the amount to be debited.
- The assessee argued that it consistently claimed such deductions without debiting and referred to a Supreme Court case supporting this practice.
- The ITAT found that the assessing officer did not examine if the method was consistently followed by the assessee and directed a fresh examination of the issue.

Issue 2: Partial Disallowance of Deduction u/s. 36(1)(viia) of the Act
- The assessee claimed deduction under section 36(1)(viia) for bad and doubtful debts, with two components based on rural advances and total income.
- The Assessing Officer restricted the deduction based on income from rural branches only, contrary to the provision which allows deduction based on total income.
- The ITAT held that the deduction should be computed based on total income, not just rural advances, as per the clear provision of the Act.
- The order of the Ld. CIT(A) was set aside, and the assessing officer was directed to verify and allow the claim based on total income.

In conclusion, the ITAT allowed the appeal for statistical purposes, directing a fresh examination of the depreciation claim issue and clarifying the computation of deduction u/s. 36(1)(viia) based on total income. The judgment emphasized adherence to statutory provisions and consistent application of methods in tax matters.

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