Miscellaneous branch expenses and bank NPA provisions - expenses not disallowed by presumption; provisions recognised as deductible.

Authorities disallowed a 10% deduction from composite petty branch expenses for lack of documentary proof; the tribunal found no plausible basis for estimating non genuineness and set aside the disallowance, directing deletion of the addition. Separately, provisions for non performing assets created per RBI/NABARD guidelines were held allowable as deductions under the provision governing creation of bad and doubtful debt reserves; write off and provision provisions are independent and the assessee's claim was sustained based on relevant precedents. Relief granted to the assessee on both counts.

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Issues: (i) Whether the adhoc 10% disallowance of miscellaneous/petty branch expenses debited under 'miscellaneous expenses' can be sustained where expenses are supported by internal vouchers and not specifically found non-genuine; (ii) Whether provisions for non-performing assets (NPA) created by the co-operative bank in accordance with RBI/NABARD guidelines are allowable deduction under Section 36(1)(viia) of the Income-tax Act, 1961.

Issue (i): Whether the adhoc disallowance of 10% of miscellaneous expenses is sustainable.

Analysis: The authorities below disallowed 10% of miscellaneous branch expenses on the basis that records comprised internally generated petty vouchers and the genuineness of expenses could not be established. The Tribunal found no specific findings demonstrating non-genuineness and held that disallowance was made by presumption and estimation without plausible basis. The Tribunal referred to authorities prohibiting disallowance purely on conjecture.

Conclusion: The disallowance is not sustainable and is set aside; decision is in favour of the assessee.

Issue (ii): Whether the provisions for NPA created by the co-operative bank are deductible under Section 36(1)(viia) of the Income-tax Act, 1961.

Analysis: Section 36(1)(viia) separately permits deduction in respect of provisions for bad and doubtful debts created inter alia by co-operative banks subject to specified limits, distinct from Section 36(1)(vii) which deals with write-offs. The assessee followed RBI/NABARD norms and supporting records were placed on record. The Tribunal held that the provision falls within the statutory scheme permitting deduction and that decisions cited by revenue on Section 36(1)(vii) are not apposite to provisioning under Section 36(1)(viia).

Conclusion: The provisions for NPA are allowable under Section 36(1)(viia); decision is in favour of the assessee.

Final Conclusion: The appeals are allowed and the additions/disallowances challenged in the appeals are deleted, resulting in a favourable outcome for the assessee across the assessed years.

Ratio Decidendi: Ad hoc disallowance based on estimation or presumption is impermissible; provisions for bad and doubtful debts created by a co-operative bank in accordance with RBI/NABARD norms are deductible under Section 36(1)(viia) of the Income-tax Act, 1961.

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