2019 (6) TMI 1721 - AT - Income Tax

Bank denied bad debt deduction under Section 36(1)(viia) for creating provisions only in revised returns

ITAT Chennai dismissed the assessee bank's appeals for deduction u/s 36(1)(viia) regarding bad and doubtful debts. The bank failed to create provisions in ... Deduction u/s. 36(1)(viia) - assessee has not made any provision for bad and doubtful debts in its original return of income, but filled in its revised return - AO held the bank have not created any provision for bad and doubtful debts before filing the original return - HELD THAT:- Before creating reserve for bad and doubtful debts the same should be got approved by the Directors / Member of the bank. As the assessee has not created any reserve for bad and doubtful debts in the original return of income, it is clear that, the bank has not created any reserve for bad and doubtful debts during the year. The fact is also evident from the statement of Break-up of the Details of income furnished in support of the original return of income which was signed by the Managing director and General Manager of the bank, wherein no such reserve was created. It s clear from the decision of the Hon’ble High Court of Punjab & Haryana in the case of State Bank of Patiala [2004 (5) TMI 12 - PUNJAB AND HARYANA HIGH COURT] that making of provision equal to the amount claimed as deduction, in the account books is necessary for claiming deduction u/s. 36(1)(viia). Since the assessee has not made any provision in the books of accounts, as admitted by the assessee before the AO by its letters dated 21.12.2016, in the respective assessment years, the assessee is not entitled for the impugned deductions for the respective assessment years. Further, the relevant portion of the order of the co-ordinate Bench of this Tribunal in the case of M/s.The Salem Dt. Central Co.Op Bank Ltd., Salem [2017 (6) TMI 1386 - ITAT CHENNAI] Circular is very clear that the deduction is permissible only to the extent of provisions actually created in the books of accounts for the relevant Assessment Year. This view is supported by the decision of the Hon’ble Punjab & Haryana High Court cited supra. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is allowed. Appeals filed by the assessee are dismissed. Issues:- Provision for bad and doubtful debts in original vs. revised return for AYs 2013-14 & 2014-15- Claim of deduction u/s. 36(1)(viia) by the assessee- Disallowance of claimed deduction by the AO- Appeals filed by the assessee before the Ld.CIT(A)- Decision based on High Court and Tribunal precedents- Adjourning of case and rejection of plea for further adjournment- Necessity of making provision during the financial year for deduction u/s. 36(1)(viia)Analysis:The judgment by the Appellate Tribunal ITAT Chennai involved appeals by an assessee against the Commissioner of Income Tax (Appeals) regarding the provision for bad and doubtful debts in original vs. revised returns for the assessment years 2013-14 & 2014-15. The assessee, a cooperative bank, had not initially made provisions for bad debts but later did so in the revised returns. The AO disallowed the deduction u/s. 36(1)(viia) due to the absence of provisions in the original returns, emphasizing the necessity of creating such provisions during the year.In the case for AY 2014-15, the bank's claim for deduction u/s. 36(1)(viia) was restricted by the AO as the provisions were not created in the original return. The Ld.CIT(A) dismissed the appeals based on precedents from the High Court and Tribunal, emphasizing the requirement of creating provisions during the relevant financial year for claiming deductions.The Tribunal rejected the appeals, citing the necessity of making provisions during the financial year for claiming deductions u/s. 36(1)(viia), in line with the decisions of the High Court and the Tribunal. The judgment highlighted the importance of following accounting practices and creating necessary provisions in the books of accounts to support claims for deductions under the Income Tax Act. The rejection of the appeals was based on the consistent application of legal principles and precedents established by higher authorities.