Tribunal reverses CIT(A) on deduction but upholds interest disallowance.

The Tribunal reversed the CIT(A)'s decision and upheld the AO's disallowance of the deduction claimed by the Assessee under Section 36(1)(viia) of the Income Tax Act, 1961, emphasizing that the provision for bad and doubtful debts must be debited to the profit and loss account. However, the Tribunal upheld the CIT(A)'s ruling regarding the disallowance of interest expenses under Section 40(a)(ia), stating that non-filing of Form No.15G/H by the Assessee did not warrant disallowance. The appeals by the Revenue were partly allowed, and the Assessee's cross-objections were dismissed as infructuous.

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Issues Involved:
1. Deduction under Section 36(1)(vii) and Section 36(1)(viia) of the Income Tax Act, 1961.
2. Disallowance of interest expenses under Section 40(a)(ia) of the Income Tax Act, 1961 for non-deduction of tax at source.

Issue-wise Detailed Analysis:

1. Deduction under Section 36(1)(vii) and Section 36(1)(viia) of the Income Tax Act, 1961
Relevant Grounds:
- Ground Nos. 1 & 2 raised by the Revenue.

Facts:
- The Assessee, a rural regional bank, claimed a deduction for bad and doubtful debts under Section 36(1)(viia) without debiting the provision to the profit and loss account.
- The AO disallowed the deduction, arguing that it must be debited to the profit and loss account.

CIT(A) Decision:
- Allowed the deduction based on ITAT Bangalore Bench's decision in Syndicate Bank Vs. DCIT.

Tribunal's Observations:
- Referred to the Assessee’s own case for AY 2009-10 & 2010-11, where it was held that the deduction cannot be allowed unless the provision is debited to the profit and loss account.
- Cited the Hon’ble Punjab and Haryana High Court in State Bank of Patiala Vs. CIT, which supports the AO’s stance.

Conclusion:
- The Tribunal reversed the CIT(A)’s order and restored the AO’s disallowance, holding that the deduction under Section 36(1)(viia) must be debited to the profit and loss account.

2. Disallowance of Interest Expenses under Section 40(a)(ia) for Non-Deduction of Tax at Source
Relevant Grounds:
- Ground No. 3 raised by the Revenue.

Facts:
- The Assessee paid interest without deducting tax at source, relying on declarations in Form No.15G/15H from depositors.
- The AO disallowed the interest expenses under Section 40(a)(ia) due to non-filing of these forms with the CIT.

CIT(A) Decision:
- Deleted the disallowance, stating that the filing of Form No.15G/H is procedural and non-compliance does not warrant disallowance under Section 40(a)(ia).

Tribunal's Observations:
- Referred to the Assessee’s own case for AY 2010-11, where it was held that non-filing of Form No.15G/H is procedural and does not lead to disallowance.
- Cited the Hon’ble Karnataka High Court in Sri Marikamba Transport Co., which supports the CIT(A)’s stance.

Conclusion:
- The Tribunal upheld the CIT(A)’s order, dismissing the Revenue’s ground and confirming that non-filing of Form No.15G/H does not lead to disallowance under Section 40(a)(ia).

Combined Result:
- The appeals by the Revenue are partly allowed.
- The cross-objections by the Assessee are dismissed as infructuous.

Pronouncement:
- The judgment was pronounced in the open court on January 23, 2020.

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