2018 (3) TMI 1516 - AT - Income Tax

Appeal granted for provision as bad debts under Income Tax Act, a win for banking business.

Vikramaditya Nagrik Sahkari Bank Maryadit Versus ACIT Ujjain

Vikramaditya Nagrik Sahkari Bank Maryadit Versus ACIT Ujjain - TMI Issues:Assessment of expenditure under contingency provision for standard assets u/s 36(1)(viia) of the Income Tax Act.Analysis:The appeal pertains to the assessment year 2013-14 and challenges the disallowance of a provision claimed by the assessee under the head contingency provision for standard assets at Rs. 2,00,000 under section 36(1)(viia) of the Income Tax Act. The Assessing Officer disallowed the provision, assessing the income at Rs. 1,74,18,260, as it was deemed not covered under the said provision. The Commissioner of Income Tax (Appeals) upheld this decision, leading to the current appeal before the Tribunal.The assessee, a cooperative society engaged in banking, argued that the provision claimed was essentially for bad and doubtful debts, as no other expenditure under this head was claimed in the profit and loss account. The contention was that the provision for standard assets was akin to bad and doubtful debts, which are permissible under section 36(1)(viia) of the Act. The Departmental Representative supported the lower authorities' decisions, maintaining that the provision was not for bad and doubtful debts but for the contingency of standard assets.Upon review, the Tribunal analyzed section 36(1)(viia) of the Act, which allows deductions for bad and doubtful debts. Considering the nature of the provision claimed by the assessee and the banking business context, the Tribunal concluded that the contingency provision for standard assets was essentially a provision for bad and doubtful debts. Despite being eligible for a higher claim, the assessee only claimed Rs. 2,00,000. Therefore, the Tribunal held that the assessee rightly claimed the expenditure under section 36(1)(viia) of the Act, allowing the appeal and overturning the disallowance.In conclusion, the Tribunal allowed the appeal, emphasizing that the provision for standard assets was akin to bad and doubtful debts, a regular feature in banking businesses. The decision was based on the interpretation of the relevant provisions of the Income Tax Act and the specific circumstances of the case, ultimately favoring the assessee's claim for the provision under section 36(1)(viia) of the Act.