TaxTMI 
TaxTMI 
2015 (6) TMI 34
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....e Profit and Loss Account and mere claim in the Computation of Income by way of maintaining separate reserve is not a statutory compliance. The aforesaid finding / conclusion drawn by the learned CIT(A) being patently illegal, bad in law and devoid of merits the same may please be vacated and the claim made by the appellant u/s 36[1][viii] of the I.T. Act 1961 may please be allowed. 3. Without prejudice to Ground of appeal Nos.1 & 2 above and by way of an alternate submission the appellant submits that the appellant may be permitted now to create such reserve u/s 36[1][viii] of the I.T Act 1961, and the impugned deduction be allowed. 4. The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal. 3. The issue raised in the present appeal is in relation to the claim of deduction under section 36(1)(viii) of the Act. 4. Briefly, the facts of the case are that the assessee is a Co-operative Bank registered under the Maharashtra Co-operative Societies Act, 1960 and carries on the business of banking under the license granted by the Reserve Bank....
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....tal income included before making any deduction under Chapter VI-A of the Act and such reserve is to be created only in the books of account of the assessee. The assessee having failed to create any special reserve in its books of account was held to be not eligible for deduction under section 36(1)(viii) of the Act by the CIT(A). The other contention of the assessee that it should be allowed an opportunity to create the requisite reserve during the assessment proceedings was also rejected by the CIT(A), since the assessee had failed to create any reserve in its books of account before claiming the deduction under section 36(1)(viii) of the Act. Reliance was placed on the judgement of the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala vs. CIT, (2005) 272 ITR 54 (P&H), where in the context of the provision of section 36(1)(viia) of the Act, it was held that making provision for bad and doubtful debts equal to the amount claimed as deduction in the books of account was necessary for claiming deduction under section 36(1)(viia) of the Act. It was held by the CIT(A) that the said ratio was applicable even to the reserve to be created under section 36(1)(viii) ....
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....see had not claimed any deduction under section 36(1)(viii) of the Act. However, in the revised return of income filed for the year under consideration, the assessee had made a claim of deduction under section 36(1)(viii) of the Act at Rs. 11,51,111/-. The case of the Revenue authorities was that in the absence of any special reserve being created by the assessee in its books of account, the deduction under section 36(1)(viii) of the Act was not allowable. The contention of the assessee, on the other hand, is that debiting of such provision to the Profit & Loss Account was not a condition precedent for claiming deduction under this section. An alternate plea was raised before the lower authorities that without prejudice to the above, assessee bank be allowed an opportunity to create such reserve now. 10. Section 36(1)(viii) of the Act provides as under :- "36(1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 - (i) ................. (viii) in respect of any special reserve created and maintained by a specified entity, an amount not exce....
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....duction under section 36(1)(viii) of the Act. Our attention was drawn to the wording of section 34(3a) of the Act wherein it is provided that the deduction under section 33 of the Act shall not be allowed unless an amount equal to seventy-five per cent of the development rebate to be actually allowed is debited to the Profit & Loss Account and also created to be a reserve account to be utilized by the assessee during the period of eight years next. 13. On the other hand, the case of the Department is that the provisions are similar to the provisions of section 36(1)(viia) of the Act wherein also reserve had to be created in the books of account. We find that the Pune Bench of the Tribunal in the case of Shri Mahalaxmi Co-op. Bank Ltd. vs. ITO (supra) had elaborated upon the creation of provision and in turn had relied on the ratio laid down by the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala vs. CIT (supra) and had held that where the assessee has failed to make the provisions in the books of account equal to the amount of deduction sought to be claimed under section 36(1)(viia) of the Act, the assessee was not entitled to the entire claim of deductio....
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....s, assessee filed a revised return of income on 24.04.1986 enhancing the claim for deduction from Rs. 1,90,36,000/- to Rs. 1,94,21,000/-. The Assessing Officer restricted the deduction under Section 36(1)(viia) of the Act to Rs. 1,90,36,000/- only and disallowed the balance on the ground that in the books of account pertaining to the relevant assessment year, assessee had made a Provision for bad and doubtful debts of Rs. 1,90,36,000/- only. The assessee argued that the Provision of Rs. 1,90,36,000/- was made in the Balance-Sheet finalized on 14.02.1985 which was as per the unamended provisions of Section 36(1)(viia) of the Act and that in view of the amendment of Section 36(1)(viia) of the Act permitting higher claim of deduction, the assessee could not have possibly made the higher Provision in the Balance-Sheet finalized on a prior date, but it made up the shortfall by making an adequate Provision in the Balance-Sheet of the subsequent assessment year. On this basis, it was sought to be made out that there was substantial compliance with the requirement of law of making Provision for bad and doubtful debts and therefore assessee justified the claim of deduction for the complete ....
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.... in the account books is necessary for claiming deduction under s. 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year. 8. In the present case, the assessee has not made any provision in the books of account for the assessment year under consideration, i.e., 1985-86, by making supplementary entries and by revising its balance sheet. The provision has been made in the books of account of the subsequent year. 9. We are, therefore, satisfied that the Tribunal was right in holding that since the assessee had made a provision of Rs. 1,19,36,000 for bad and doubtful debts, its claim for deduction under s. 36(1)(viia) of the Act had to be restricted to that amount only. Since the language of the statute is clear and is not capable of ....