Cooperative bank's bad debt provisions disallowed under section 36(1)(viia) without proper book recording

ITAT Raipur upheld AO's rectification u/s 154 disallowing bad debt provisions claimed by cooperative bank under s 36(1)(viia) without recording in books. Tribunal found the mistake apparent from records as provision claimed in computation sheet wasn't recorded in P&L account. CIT(A)'s comparison with subsequent year was deemed incorrect as that year had actual book provisions. Matter remitted to AO to allow deduction only for actual provisions recorded in books. Revenue's appeal partly allowed for statistical purposes.

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Issues Involved:
1. Deletion of disallowance of Rs. 8,10,72,135/- made by AO on account of provisions of bad debts u/s 36(1)(viia).
2. Whether proper opportunity was given to the assessee before the disallowance.
3. Legality of the rectification order u/s 154.

Summary:

Issue 1: Deletion of Disallowance u/s 36(1)(viia)
The department contested the deletion of Rs. 8,10,72,135/- disallowance by the AO, arguing it was claimed in the computation sheet without being provided for in the P/L A/c. The assessee, a co-operative bank, had claimed this deduction under section 36(1)(viia) in its computation of total income. The Ld. CIT(A) deleted the disallowance, noting the claim was accepted in subsequent years and the AO had already considered the admissibility of the deduction in the original assessment order. The Tribunal found that the provision for bad debts must be recorded in the books of accounts to be allowable under the Act, referencing a previous ITAT decision in the assessee's own case.

Issue 2: Opportunity to Assessee
The department argued that the Ld. CIT(A) erroneously concluded that the assessee was not given a proper opportunity to be heard before the disallowance. The Tribunal noted that reasonable opportunities were afforded to the assessee, as substantiated by the order sheet.

Issue 3: Legality of Rectification u/s 154
The Tribunal examined whether the rectification u/s 154 was justified. The Ld. CIT(A) held that the rectification was beyond the mandate of law and not sustainable. However, the Tribunal found that the AO correctly identified a glaring and apparent mistake in the assessee's claim, which was patent on the face of the records. The Tribunal concluded that the rectification was justified as the issue was connected to the claim of provision for bad debts, which was not permissible without being recorded in the books of accounts.

Conclusion:
The Tribunal remitted the matter back to the AO to allow the deduction to the extent of the actual provision for bad debts made in the books of accounts for the relevant AY, ensuring the assessee is given a reasonable opportunity of being heard. The appeal was partly allowed for statistical purposes.

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