TaxTMI 
TaxTMI 
2012 (8) TMI 1006
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....had debited Rs. 2,31,67,667/- being amount of bad and doubtful debt provision. The details of this claim are as under:- (1) Being bad & doubtful debt reserve @ 10% of the loans given for agriculture development of rural branches at the villages having population less than 10,000 21467667 (2) Being amount of bad & doubtful reserve @7.5% of total Receipt 1700000 Total 23167667 Subsequently, on 07-10-2008 the assessee filed return of income declaring income at Rs. NIL. In the revised return, the assessee claimed bad debt provision at Rs. 26,00,52,236/-u/s.36(1)(viia) of the I.T. Act. Thus, in the revised return, the assessee claimed deduction u/s.36(1)(viia) of the I. T. Act at a higher figure of Rs. 26,00,52,236/- (which was restricted to the amount of profit available) instead of the same claimed Rs. 2,31,67,667/- in the original return. 3. During the course of assessment proceedings, AO observed that as per provision contained in sec.36(1)(viia) of the I.T. Act, the provision of Bad Debts can be allowed only when it is made in the books of accounts. In this case, the assessee has made a provision for bad and doubtful debt of Rs. 2,31,67,6....
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....viia) is concerned, your honour may kindly note as under:- Particulars Amount (Rs) Amount Rs). Profit as per P & L A/c. 1,35,96,066 Less:Depriciation u/s. 32 8,57,196 Eligible amount for 36(1)(viia) 1,27,38,870 Allowable deduction u/s.36(1)(viia)@ 7.5% 9,55,415 CLAIM RELATING TO RURAL ADVANCES Particulars Amount (Rs) (In lakhs)) Amount Rs). Aggregate average advances in rural branches 10383.12 10% allowable as per section 36(1)(viia) 1038.31 As such the total eligible claim u/s.36(1)(viia) will be Rs. 9,55,415/- + 10,38,31,000/- = Rs. 10,47,86,415/-. The total provision made by the assessee in bad and doubtful debt reserve is Rs. 27,90,11,017. As such the claim permissible in accordance with the provisions of section 36(1)(viia) is Rs. 10,47,86,415/-. 5) Your Honours contention that the deduction u/s.36(1)(viia) should be limited to the provision for bad and doubtful debts made during the year is we humbly submit incorrect. Your honours kind attention is invited to the opening phrase....
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....han 10,000 21467667 (2) Being amount of bad & doubtful reserve @7.5% of total receipt 1700000 Total 23167667 7. From the above, AO observed that assessee made provision of Rs. 27,90,11,017/- which includes part of reserve found of the past years. Therefore, he allowed the provision only to the extent of Rs. 2,31,67,667/-. In support of this, the AO relied on the decision of Hon'ble Kerala High court in the case of CIT vs. Malayala Manoorama & Co. reported in 143 ITR 29 wherein, while dealing with the allowance for development rebate, the Hon'ble Kerala High Court held that the development rebate is not admissible in absence of creation of the required reserve even though reserve created in excess of earlier years was sufficient to meet the requirement. The Kerala High Court while taking this view relied upon the judgment of Hon'ble Supreme Court judgment in the case of Indian Overseas Bank Vs. CIT (77 ITR 512) and Gujarat High Court judgment in the case of Keshavlal Vithaldas Vs. CIT (105 ITR 601). 8. For the aforesaid reason, in the assessment order, AO allowed the deduction u/s.36(1)(viia) of the Act at Rs. 26,00,52,236/- as claimed in the....
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....ary trading activities. In banks there is prevailing practice to create the reserve for the same without actually crediting to the individual borrower account. This practice is commonly adopted by Banking Regulation Act, 1949. We would like to invite your kind attention by giving illustration of depreciation as under; Depreciation as per books of account and depreciation as per Income Tax Act may differ. But at the time of computation of income Depreciation as per books of account is added back and Depreciation as per Income Tax Act is only allowed as deduction. Section 36(1)(viia) is introduced with the main object to provide assistance to certain sector. If your honor will limit the deduction as provided in books of account it will kill the real object of this section. In addition to this in the said section it is nowhere written that provision should be made in the books of account as like in section 36(1)(vii). It is evident that both the clauses, i.e. section 36(1)(vii) and 36(1)(viia), are separate and they are distinct and independent. It is open for an assessee to claim benefit of the provisions of the Apex court in CIT v. Indian Engg. & Commercial Corpn. ....
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....uled bank [or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank],, an amount [not exceeding seven and one-half percent] of the total income computed before 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; [Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five percent of the amount of such assets shown in the books of account of the bank on the last day of the previous years;] [Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect ass if for t....
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.....5% of the deduction the appellant is required to furnish computation of income before making deduction u/s. 36(1)(viia) and chapter VIA of the Act. The appellant filed working of above claim before the Assessing Officer in assessment proceedings and accordingly AO has rightly allowed deduction of 7.5%. AO has mentioned in para 8.3 of the order that according to the revised working furnished by the appellant, 7.5% of profit is 9,55,415 and not Rs. 17,00,000 as debited in P&L account (and claimed in original return). The appellant cannot be allowed more than 7.5% of its income as per sec. 36(1)(viia) which comes to Rs. 9,55,415. As the appellant has not challenged above action of AO in grounds of appeal, there lies no relief to the appellant. The calculation sheet showing aggregate average advances made by rural branches was not filed before the AO and therefore, before me it becomes new/additional evidences. The admissibility of additional/new evidences are covered by as discussed in preceding paras. Accordingly the action of the Assessing Officer is confirmed and ground no.1 of appeal stands dismissed." 10. With regard to ground No.2, the ld. CIT(A) observed that deduction u/s.....
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.... in accordance with the provision contained in sec.36(1)(viia) of the I.T. Act, read with Rule-6ABA of Income-Tax Rules, 1962. That with regard to decision of Hon'ble Kerala High Court in the case of CIT vs. Mahalaya Manoorama & Co. reported in 143 ITR 29, he contended that there is no requirement u/s.36(1)(viia) of the Act that provision should be made through profit and loss account. It can be made from current year profit or earlier years' profit. The mere provision is enough and adequate as per wording of sec.36(1)(viia) of the I.T. Act. The assessee in the annual account made provision at two distinct places and behind doubtful debt specifically mentioned in the books of account for provision of bad and doubtful that is made which squarely satisfy the requirement of sec.36(1)(viia) of the I.T. Act, 1961. As against this, Shri Ankur Garg D.R. appeared on behalf revenue, relying on the judgment of Hon'ble Supreme Court in the case of Southern Technology Ltd. vs. JCIT reported in 320 ITR 577 (SC) pointed out that in this judgment, the Hon'ble Supreme Court has discussed the concept of write off and provisions for write off bad debts. The relevant observation is contained in page-....
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....the AO, the assessee has not furnished the working. Same was furnished before the ld. CIT(A). We therefore, set aside the order of ld. CIT(A) and direct him to verify the working submitted before the ld. CIT(A) and allow the deduction u/s.36(1)(viia) in respect of provisions for bad and doubtful debts whether from the current year profit or from the earlier year's profit after verifying the calculation and allow the same. 16. With regard to ground No.2, counsel of the assessee fairly admitted that in this assessment year, the assessee is not entitled to claim deduction u/s.80P(2) of the I.T. Act, 1961. This ground of appeal is accordingly dismissed as not pressed. 17. Now we take up the appeal of the assessee for the assessment year 2008-09. In this appeal, the various grounds are raised as under:- 18. The grounds raised in this appeal are as under:- "1. That the learned CIT(A) has grievously erred in denying the appellant the deduction u/s. 36(1)(viia) being 7.5% of the gross total income. 2. That the learned CIT(A) has grievously erred in denying the appellant the deduction u/s. 36(1)(viia) being 10% of the average advances made to the rural branches on....
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....loss account and debited back as per RBI guidelines accounting policy of the bank adopted consistently. Thus, there is no real income and the amount does not remain credited in P/L A/c. as required u/s.43D. In support of this, reliance is placed on the decision of ITAT Ahmedabad Bench in the case of Karnavati Co- op. Bank Ltd. v. DCIT [2012] 134 ITD 486(Ahd.) The ld. D.R. appeared for the revenue could not controvert the same. 23. Having heard both sides, we have carefully gone through the orders of authorities below. It is pertinent to note that AO has not considered the fact that overdue interest amounting to Rs. 1,15,00,000/- which is credited into profit and loss account was debited as per RBI guidelines and there is no ultimate credit in P/L. A/c. in this respect. Thus, there is no income accrued and no addition on this account can be made. This view is supported by the decision of ITAT Ahmedabad Bench in the case of Karnavati Co-op Bank Ltd.(supra). In this case, the Tribunal has followed the judgment of Hon'ble Apex court rendered in the case of UCO Bank vs. CIT as reported in 237 ITR 889. We therefore, following the decision of ITAT Ahmedabad Bench in the case of Karnava....