TaxTMI 
TaxTMI 
2014 (10) TMI 292
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....essee, being ITA No.1481/Hyd/2013. The common issue involved in grounds no.1 and 2 of this appeal relates to disallowance of Rs. 70,96,83,398 made by the Assessing Officer and sustained by the learned CIT(A) on account of bad debts written off, which were covered by the State Government Guarantee. 3. Assessee in the present case is a state level Apex Cooperative Credit institution for the State of Andhra Pradesh, which provides agricultural loans to the farmers in the State, through its affiliated District Cooperative Central Banks and the primary agricultural co-operative credit societies. The return of income for the year under consideration was originally filed by it on 30.9.2009, declaring total income of Rs. 62,19,22,600. Subsequently, a revised return was filed by the assessee on 30th March, 2011, claiming therein, further deduction of Rs. 99,18,76,416 on account of bad debts written off and Rs. 24,46,49,000 on account of gratuity payments. During the course of assessment proceedings, the claim of the assessee for deduction on account of bad debts written off was examined by the Assessing Officer. On such examination, he found that the debt balances outstanding in the name....
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.... found that the guarantee given by the State Government in these cases had either been revoked or did not exist. He therefore, allowed the claim of the assessee for deduction on account of these bad debts written off. As regards the other debts written off by the assessee, he held that proper procedure had not been followed by the assessee and these loans were very much recoverable. He accordingly sustained the disallowance made by the Assessing Officer on account of bad debts written off in respect of these debtors, amounting to Rs. 70,96,83,398. 5. The learned counsel for the assessee submitted that the deduction claimed by the assessee on account of bad debts written off was disallowed by the Assessing Officer mainly on the ground that the said debts had actually not become bad during the year under consideration because of the guarantee given by the State Government. He submitted that the learned CIT(A) has also sustained the said disallowance mainly for the same reasons, as given by the Assessing Officer, by holding that the decision of the assessee to write off some of the debts as bad was not a bona fide decision as the said debts were secured by the guarantee given by th....
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....had not actually become bad during the year under consideration. As held by the Hon'ble Supreme Court in the case of TRF Ltd. (supra), every assessee, prior to 1.4.1989 had to establish, as a matter of fact, that the debt advanced by him, had in fact become irrecoverable in order to claim deduction under S.36(1)(vii). As held by the Hon'ble Supreme Court, this position, however, has got altered by the amendment made in S.36(1)(vii) of the Act with effect from 1.4.1989 and it is not necessary for the assessee after 1.4.1989 to establish that the debt in fact has become irrecoverable. Explaining further, Hon'ble Supreme Court has held that if the bad debt is written off as irrecoverable in the accounts of the assessee, it is enough for the assessee to claim deduction on account of bad debts under S.36(1(vii). In the present case, the relevant debts were admittedly written off by the assessee in the books of account and since the same represented the money lent in the ordinary course of business of banking carried on by the assessee, we are of the view that the assessee is entitled to claim deduction on account of bad debts written off under S.36(1)(vii) read with S.36(2) of the Act. ....
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....rough PACs at concessional rates of interest with Government of India and State Government support. It was submitted that as per the scheme formulated, the farmers were extended certain relief on account of waiver of excess of interest over the principal amount, unapplied interest, penal interest, legal charges, inspection charges and miscellaneous charges. It was further submitted that as per the Waiver Scheme, the relief allowed was shared amongst the three tiers of cooperatives in an equitable manner to sustain/balance the system and accordingly the amount shared by the assessee was claimed as expenditure by debiting the same to the Profit & Loss Account. This explanation of the assessee was not found acceptable to the Assessing Officer. According to him, the relief allowed under the Relief Scheme was to be finally reimbursed by the Central Government and the same therefore, did not amount to any expenditure incurred by the assessee. He also held that the assessee was only acting as a mediator in the process and it was not going to suffer any loss on account of waiver given by the Government of India, as amount of relief was finally to be reimbursed to it by the Government of In....
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.... 12.3.2008, clarifying that the provisions of S.36(1)(viia) introduced from 1979 would not be applicable to cooperative banks from 1.4.1979, but only from 1.4.2007 and the Learned Departmental Representative has also not disputed this position, we accept this contention raised by the learned counsel for the assessee. Accordingly, the direction given by the learned CIT(A) is modified to the extent that the Assessing Officer shall satisfy himself about the fulfillment of the condition stipulated in S.36(2)(v) by the assessee, keeping in view that S.36(1)(viia) is applicable in the case of the assessee only with effect from 1.4.2007 while considering the claim of the assessee for deduction on account of bad debts under the Agricultural Debt Waiver and Debt Relief Scheme, 2008. Subject to this modification, the impugned order of the learned CIT(A) on this issue is upheld and ground Nos.5 to 7 of the assessee's appeal are treated as partly allowed. 14. Ground No.8 raised by the assessee in its appeal reads as follows "The Commissioner of Income-tax(Appeals) ought to have appreciated the fact that the Assessing Officer while computing the income from business should not have includ....