Cooperative bank wins appeal for deductions under Section 36(1)(viia)

The Tribunal dismissed the revenue's appeals and affirmed the CIT(A)'s order, allowing the deductions claimed by the assessee. It held that the cooperative bank is eligible for deductions under Section 36(1)(viia) and that the statutory bad debts reserve created as per the Gujarat State Cooperative Societies Act qualifies for the deduction. The Tribunal emphasized consistency in its decisions, relying on previous rulings and the principle of adopting a view favorable to the assessee when faced with divergent opinions.

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Issues Involved:
1. Deduction under Section 36(1)(viia) of the Income Tax Act for bad and doubtful debts.
2. Classification of the assessee as a non-scheduled bank or cooperative bank for the purpose of deductions.
3. Requirement of actual provision in the books of accounts for claiming deductions.

Detailed Analysis:

Issue 1: Deduction under Section 36(1)(viia) of the Income Tax Act for bad and doubtful debts

The primary issue in these appeals is the deduction claimed by the assessee under Section 36(1)(viia) of the Income Tax Act. The assessee claimed a deduction of Rs. 6,66,39,443/- for the A.Y. 2013-14, which includes Rs. 4,90,98,930/- @ 10% of average advances made by rural branches and Rs. 1,66,39,443/- as statutory bad debt reserve provision @ 15% of net profit. The Assessing Officer (AO) allowed only Rs. 1.75 Crore being 7.5% of the gross total income and disallowed the rest.

The Tribunal noted that this issue was covered in favor of the assessee by its earlier decisions for A.Y. 2009-10 to 2014-15. The Tribunal reiterated that the nomenclature or treatment in the books of accounts is not decisive or conclusive for a particular deduction otherwise allowable under the law, citing the Supreme Court's decision in Kedarnath Jute Manufacturing Company Vs CIT.

Issue 2: Classification of the assessee as a non-scheduled bank or cooperative bank for the purpose of deductions

The Tribunal examined whether the assessee, a cooperative bank, qualifies for the deduction under Section 36(1)(viia). The AO argued that the definition of rural branches in the explanation to Section 36(1)(viia) does not cover cooperative banks. However, the Tribunal referred to the Kerala High Court's decision in Kannur District Cooperative Bank Limited Vs CIT, which held that cooperative banks fall under the category of non-scheduled banks for the purpose of this section. The Tribunal affirmed that the assessee is eligible for the deduction of 10% of the aggregate average advances made by its rural branches.

Issue 3: Requirement of actual provision in the books of accounts for claiming deductions

The AO contended that the assessee did not make the actual provision in its books of accounts, which is a prerequisite for claiming the deduction. The Tribunal, however, rejected this argument, emphasizing that the statutory bad debts reserve created during the year at the rate of 15% of the net profit as per the Gujarat State Cooperative Societies Act is an appropriation of net profit. The Tribunal highlighted that the financial statements are subject to statutory audit and approval by the Registrar of Cooperative Societies, thus supporting the assessee's claim.

Conclusion:

The Tribunal dismissed the revenue's appeals, affirming the CIT(A)'s order allowing the deductions claimed by the assessee. The Tribunal held that the assessee, being a cooperative bank, is eligible for the deductions under Section 36(1)(viia) and that the statutory bad debts reserve created as per the Gujarat State Cooperative Societies Act qualifies for the deduction. The Tribunal relied on its earlier decisions and the Kerala High Court's ruling, emphasizing the principle of consistency and the Supreme Court's directive to adopt the view favorable to the assessee when divergent views exist.

Separate Judgments:

No separate judgments were delivered by the judges in this case. The order was delivered by the Tribunal as a consolidated decision for all the appeals.

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