2023 (5) TMI 68 - AT - Income Tax

Tribunal Remands Case for Verification of Deduction Limits u/ss 36(1)(viia) and 36(1)(viii); CIT(A) Findings Questioned.

ACIT Khandwa Versus M/s. Jila Sahakari Kendriya Bank, Khandwa Road, Khargone

ACIT Khandwa Versus M/s. Jila Sahakari Kendriya Bank, Khandwa Road, Khargone - [2023] 107 ITR (Trib) 629 (ITAT [Indore]) Issues Involved:1. Deletion of disallowance made in respect of provisions for standard assets.2. Deletion of disallowance made in respect of provision claimed under section 36(1)(viii) of the Income-tax Act.Summary:Issue 1: Deletion of Disallowance for Provisions for Standard AssetsGrounds 1 and 2:The revenue contended that the CIT(A) erred in deleting the disallowance of Rs. 5,00,00,000/- made by the AO in respect of 'provision for standard assets.' The AO had allowed the deduction for 'Provision for NPA' but disallowed the 'Provision for standard assets,' considering it not a provision for bad debt under section 36(1)(viia). The CIT(A) accepted the assessee's submission that the provision for standard assets is a provision for bad debts as per RBI guidelines and allowed the deduction.The Tribunal observed that various ITAT decisions, including the Indore Bench, have held that provisions made by a banking company for standard assets as per RBI guidelines are allowable as deductions under section 36(1)(viia). However, the Tribunal noted that the AO had not verified whether the total deduction of Rs. 10,00,00,000/- claimed by the assessee was within the permissible limit prescribed in section 36(1)(viia). Therefore, the Tribunal remanded the issue back to the AO for verification of the permissible limit and allowed the grounds for statistical purposes.Issue 2: Deletion of Disallowance for Provisions under Section 36(1)(viii)Grounds 3 and 4:The revenue argued that the CIT(A) erred in deleting the disallowance of Rs. 5,75,94,958/- in respect of various provisions claimed by the assessee. The AO observed that the assessee had claimed deductions aggregating to Rs. 11,30,00,000/-, but section 36(1)(viii) allows a maximum deduction of 20% of the eligible profit, resulting in a disallowance of Rs. 5,75,95,958/-.The CIT(A) deleted the disallowance, observing that the amounts were spent by the assessee as a statutory obligation to promote business interests, relying on various judicial decisions. The Tribunal noted that the CIT(A) had made a baseless finding that the amounts were 'actually spent' without any material evidence. The Tribunal observed that the provisions of section 43A of the MP/CG Co-operative Societies Act relied upon by the assessee talk only of 'appropriation of profits' and do not indicate that the amounts transferred to funds were not under the control of the assessee.The Tribunal concluded that the matter requires complete verification at the AO's stage and remanded the issue back to the AO for necessary verification regarding the existence of conditions for deduction under section 37(1). The grounds were thus allowed for statistical purposes.Order Pronouncement:The order was pronounced as per Rule 34 of the I.T.A.T. Rules, 1963, on 28/04/2023.