TaxTMI 
TaxTMI 
2014 (4) TMI 1107
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....es in restricting the deduction claimed by the assessee u/s 36(1)(viia) of the Act to the actual amount of Provision made in the books of account for bad and doubtful debts amounting to Rs. 66,22,634/- as against assessee's claim for deduction of Rs. 1,70,40,528/-. 3. On this ground, it was a common point between the parties that similar issue had come up before the Tribunal in the assessee's own case for the immediately preceding assessment year of 2008-09 vide ITA No.1658/PN/2011 dated 29.10.2013 wherein the issue was decided against the assessee. A copy of the said precedent has been placed on record. 4. In view of the aforesaid precedent in assessee's own case for assessment year 2008-09 (supra) the issue is liable to be decided against the assessee. However, in order to impart completeness to the order on this aspect a brief discussion is necessary. The assessee is a Co-operative Bank engaged in the business of banking and in terms of section 36(1)(viia) of the Act, it is entitled to claim a deduction in respect of any Provision for bad and doubtful debts made on account of aggregate average advances made by the rural branches of the assessee bank. Section 36(1)(viia) of the....
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....ore making any deduction under this clause and Chapter VIA) and an amount not exceeding [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : 10. A bare perusal of aforesaid section clearly brings out that the deduction specified therein is in "respect of any provision for bad and doubtful debts made by........" an eligible assessee. The presence of the aforesaid expression in the section supports the plea of the Revenue, which is to the effect that the deduction allowable under Section 36(1)(viia) of the Act is in respect of the provision "made" by the assessee. In our considered opinion, the judgement of the Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala (supra) clearly covers the controversy in favour of the Revenue and belies the interpretation sought to be canvassed by the assessee. In the case before the Hon'ble High Court, assessee-bank had originally filed its return of income for assessment year 1985-86 claiming deduction under Section 36(1)(viia) of the Act at Rs. 1,90,36,000/-. After filing of the return the provisions of Section 36(1)(viia) of the Act were amended by Fina....
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....bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of cl.(viiia) or a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank, an amount not exceeding ten per cent of the total income (computed before making any deduction under this clause and Chapter VI-A) or an amount not exceeding two per cent of the aggregate average advances made by the rural branches of such bank, computed in the prescribed manner, whichever is higher." 6. A bare perusal of the above shows that the deduction allowable under the above provisions is in respect of the provision made. Therefore, making of a provision for bad and doubtful debts equal to the amount mentioned in this section is a must for claiming such deduction. The Tribunal has rightly pointed out that this issue stands further clarified from the proviso to cl.(vii) of s.36(1) of the Act, which reads as under : "Provided that in the case of an assessee to which cl.(viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance i....
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....not of any High Court. Therefore, the judgement of the Hon'ble High Court in the case of State Bank of Patiala (supra), which is contrary to the decisions of the Tribunal relied upon by the assessee; and being solitary judgement of a High Court, is required to be applied, having regard to the established norms of judicial discipline. For the said reason, we refrain from discussing each of the decisions of the Tribunal relied by the assessee before us. 13. The other plea of the assessee was that the contents of the CBDT Circular dated 26.11.2008 (supra) is contrary to the provisions of Section 36(1)(viia) of the Act and therefore the same should be disregarded. In our view, the following explanation in respect of Section 36(1)(viia) of the Act rendered by the CBDT in Circular dated 26.11.2008 (supra) by way of para 2(iii)(b) as under :- "(b) The deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee in the relevant year or the amount calculated as per provisions of section 36(1)(viia), whichever is less." is in line with the interpretation of the section rendered by the Hon'ble Punja....
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....Co-operative Bank carrying on banking business in terms of a license issued by Reserve Bank of India (RBI). The assessee being a Cooperative Bank operating under license from RBI is governed by Circulars of RBI relating to Prudential Norms, Inc7o me Recognition, Asset Classification, Provisioning and other related matters. In terms of such Prudential Norms of RBI, assessee did not account for interest relatable to NPAs i.e. advances to customers which were classified as NPAs in terms of the Prudential Norms of RBI. The Assessing Officer was of the opinion that interest income even in relation to such NPAs was liable to be included having regard to the mercantile system of accounting followed by the assessee. As per the Revenue, the provisions of section 43D of the Act, which provides that interest income relatable to NPAs classified as per the RBI guidelines shall be charged to tax in the year in which it is credited or received by the assessee, whichever is earlier, was not applicable to the assessee, since the assessee was not a scheduled bank. Notably, section 43D of the Act prescribes that in case of public financial institution, or a scheduled bank or a State financial corpora....
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.... submissions. In so far as the applicability of section 43D of the Act to the assessee is concerned, there is a convergence of opinion between the assessee and the Revenue to the effect that the same is not applicable to the assessee. Ostensibly, assessee is a Co-operative Bank carrying on banking business in terms of a license granted by RBI and is not a 'scheduled bank' included in second schedule of RBI so as to fall within the scope of section 43D of the Act. Notably, section 43D of the Act prescribes that interest income on such categories of bad and doubtful debts as prescribed by the RBI guidelines shall be chargeable to tax in the year in which such interest income is credited by the assessee in the Profit and Loss account or in the year of actual receipt, whichever is earlier. Since assessee is not an entity covered within the scope of section 43D of the Act, the present controversy cannot be adjudicated in the light of section 43D of the Act, and it is liable to be decided on general principles as to whether the impugned income has accrued to the assessee during the year under consideration. 9. In this connection, we find that the Visakhapatnam Bench of the Tribunal in....
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....AT deleted the aforesaid income. Hence the revenue preferred appeal before the Hon'ble Delhi High Court. 8.1 After hearing the rival submissions, the Hon'ble Delhi High Court took note of sec.45Q of Reserve Bank of India Act which reads as under: "Chapter IIIB to override other laws. 45Q. The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law". The High Court took note of the fact that the provision of 45Q of Reserve Bank of India has overriding effect over any other law. Then the Hon'ble High Court also considered accounting standard "AS-9" on "Revenue recognition" and also extracted following relevant portion from the said accounting standard: 9. Effect of uncertainties on Revenue Recognition 9.1 Recognition of revenue requires that revenue is a measurable and that at the time of sale or the rendering of the service, it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any clai....
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....d entirely on the judgment of the Supreme Court in the case of Southern Technology (Supra). No doubt, in first blush, reading of the judgment gives an indication that the Court has held that Reserve Bank of India Act does not override the provisions of the Income Tax Act. However, when we examine the issue involved therein minutely and deeply in the context in which that had arisen and certain observations of the Apex Court contained in that very judgment, we find that the proposition advanced by Mr.Sabharwal may not be entirely correct. In the case before the Supreme Court, the assessee a NBFC debited Rs. 81,68,516 as provision against NPA in the profit and loss account, which was claimed as deduction in terms of Section 36(1) (vii) of the Act. The Assessing Officer did not allow the deduction claimed as aforesaid on the ground that the provision of NPA was not in the nature of expenditure or loss but more in the nature of a reserve, and thus not deductible under section 36(i)(vii) of the Act. The Assessing Officer, however, did not bring to tax Rs. 20,34,605/- as income (being income accrued under the mercantile system of accounting). The dispute before the Apex Court centered ar....
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....956. These Directions constitute a code by itself. However, these Directions 1998 and the IT Act operate in different areas. These Directions 1998 have nothing to do with computation of taxable income. These Directions cannot overrule the 'permissible deductions" or "their exclusion" under the IT Act. The inconsistency between these Directions and Companies Act is only in the matter of Income Recognition and presentation of Financial Statements. The Accounting policies adopted by an NBFC cannot determine the taxable income. It is well settled that the Accounting Policies followed by a company can be changed unless the AO comes to the conclusion that such change would result in understatement of profits. However, here is the case where the AO has to follow the Reserve Bank of India Directions 1998 in view of Section 45Q of the Reserve Bank of India Act. Hence, as far as Income Recognition is concerned, Section 145 of the IT Act has no role to play in the present dispute". 10. Turning to the facts of the case before us, the assessee herein is a cooperative bank and it is not in dispute that it is also governed by the Reserve Bank of India. Hence the directions with regard to the p....
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....echnologies Ltd. (supra) in holding that interest on NPAs was assessable to tax on accrual basis. We have carefully considered the submissions put-forth by the learned Departmental Representative based on the judgement of the Hon'ble Madras High Court in the case of Sakthi Finance Ltd. (supra). The controversy before the Hon'ble Madras High Court related to non-recognition of interest income on NPAs by the assessee following the RBI guidelines. The Hon'ble Madras High Court took the view that the judgement of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) also applied to the Income Recognition Norms provided by RBI and therefore it held the interest income on NPAs is liable to be taxed on accrual basis and not in terms of RBI's guidelines. But the Hon'ble Delhi High Court in the case of M/s Vasisth Chay Vyapar Ltd. (supra) has taken a view that Southern Technologies Ltd. (supra) case did not apply to the Income Recognition Norms prescribed by RBI. Ostensibly, there is divergence of opinion between the Hon'ble Delhi High Court and the Hon'ble Madras High Court as noted by the Hon'ble Madras High Court in its order. 12. In so far as, present case is co....
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....ng the Additional Ground raised by the assessee on the impugned issue is concerned, the same is not challenged by the Revenue, as is evident from the Grounds of Appeal Nos.3 & 4 raised by the Revenue before us, which read as under :- "3. Whether on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in allowing amortization of premium paid on Government Securities by the assessee of Rs. 51,95,263/-. 4. Whether on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in allowing amortization of premium paid on Government Securities purchased by the assessee. All capital assets are to be valued at cost only and no part thereof can be claimed as revenue expenditure in computing total income. This principle has been upheld by the Hon'ble Supreme Court in the case of Vijay Bank Ltd. vs. Addl.CIT (187 ITR 541)." 15. However, in so far as the merits of the action of the CIT(A) in allowing such claim is concerned, it was a common point between the parties before us that similar issue has been decided in favour of the assessee by Mumbai Bench of the Tribunal in the case of DCIT vs. Bank of Rajasthan Ltd. vide ITA No.3238/Mum/2011 or....