2018 (3) TMI 737 - HC - Income Tax

High Court allows appeal, remands deduction denial for bad debts, emphasizes importance of RBI guidelines

The High Court allowed the appeal, set aside the order disallowing deduction for provision of bad debts, and remanded the matter to the Tribunal for fresh ... Denying deduction for provision of bad debts made for standard assets u/s 36(1)(viia) - assessee has failed to furnish the details of deduction - Held that:- It is apparent from the material placed before us that the RBI guidelines prescribes the provision on standard assets from the year ended March 31, 2000 directing the banks to make a general provision of a minimum of 0.25% on standard assets. The decision rendered by the Commissioner of Income Tax is unjustifiable for the reason that assessee is bound by the guidelines issued by the Reserve Bank of India. Any contrary view taken by the Income Tax Authorities would disentitle the assessee from claiming deduction under Section 36(1)(viia) of the Act. In view of non-furnishing of the material documents in support of the claim before the Tribunal, it was left with no other option except to confirm the order of the Commissioner of Income Tax (Appeals). We deem it appropriate to remand the matter to the Tribunal setting aside the impugned order with liberty to the assessee to place on record the material documents in support of its case for deduction towards provision for bad debts made for standard assets of ₹ 15,00,000/- relating to the assessment year 2011-12. - Decided in favour of assessee. Issues:Challenge to order of Income Tax Appellate Tribunal regarding deduction for provision of bad debts under Section 36(1)(viia) of the Income Tax Act, 1961.Analysis:The appellant, a Co-operative Bank, challenged the order of the Income Tax Appellate Tribunal regarding the allowance of deduction for provision of bad debts under Section 36(1)(viia) of the Income Tax Act, 1961 for the assessment year 2011-12. The Assessing Officer disallowed the deduction made by the appellant towards provision for bad debts, which was partly allowed by the Commissioner of Income (Appeals) but confirmed by the Tribunal. The appellant contended that as per the guidelines issued by the Reserve Bank of India, it is mandatory for banks to make a general provision of a minimum of 0.25% of standard assets, which amounted to Rs. 15,00,000 in this case. The appellant claimed that denial of deduction by the tax authorities based on RBI guidelines not being binding was unjustified, as the appellant is bound by RBI guidelines in making such provisions.The appellant argued that the decision of the Commissioner of Income Tax was unjustifiable as the appellant is obligated to follow the guidelines issued by the Reserve Bank of India. The failure to furnish material documents in support of the claim before the Tribunal led to the confirmation of the order disallowing the deduction. The court found that any contrary view taken by the Income Tax Authorities that disregards RBI guidelines would prevent the assessee from claiming the deduction under Section 36(1)(viia) of the Act. Therefore, the court deemed it appropriate to remand the matter to the Tribunal, allowing the appellant to submit the necessary material documents in support of its case for deduction towards provision for bad debts made for standard assets of Rs. 15,00,000 for the assessment year 2011-12.In conclusion, the court allowed the appeal, set aside the impugned order, and remanded the matter to the Tribunal for fresh consideration. The Tribunal was directed to pass appropriate orders after providing the assessee with an opportunity to be heard, ensuring all rights and contentions of the parties are kept open and the proceedings are conducted in accordance with the law as expeditiously as possible.