TaxTMI 
TaxTMI 
2016 (4) TMI 642
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....vision made during the year. 1.1. The ld. Commissioner of Income Tax (Appeals) has further erred on facts and in law in not allowing the claim of deduction u/s 36(1)(viia) in respect of provision for bad & doubtful debts of Rs. 11,60,154/- created during the year out of the accumulated profit of earlier years apart from Rs. 11,17,000/- allowed by the AO. Ground No. 1 : 2. The assessee is a Co-operative Society Bank engaged in banking activities. Ground No. 1 pertains to the restriction of claim of deduction under section 36(1)(viia) of the I.T. Act. In this regard, the AO in the assessment order has mentioned as under :- " 3. As regards, provisions for bad debts, the assessee vide above referred letter dated 28.02.2013 submitted that " the Tax consultant who originally filed the return of income was not aware of the relevant provisions of the Act for deduction u/s 36(viia)". Alongwith the above submission the assessee submitted a revised working in respect of the aggregate average advances made by the rural branches of the assessee bank. On the basis of such working, the deduction under section 36(viia) being the aggregate of 7.5% of the total....
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....nor relevant to the issue under consideration. It may be noted that the assessee has debited Rs. 11,17,000/- in the P&L account on account of provisions of bad and doubtful debts as per provisions of sec. 36(1)(vii)(a). The appellant case is that allowable deduction u/s 36(1)(vii)(a) was for Rs. 91,07,187/- and that the appellant has made such provisions in the earlier years and the provision available for deduction under this section as on 31.03.2010 was for Rs. 1,65,75,936/-. Accordingly as per the appellant as against the deduction allowed by AO for Rs. 11,17,000/- the whole of the gross total income amounting to Rs. 72,71,317/- should have been allowed as deduction u/s 36(1)(vii)(a). Alternatively it is also contended that even during the assessment year under consideration provisions was made for Rs. 22,77,154/- in as much as apart from the provision for bad and doubtful debts in the balance sheet for Rs. 11,17,000/-, another reserve under the head "Special Bad Debts Reserves" amounting to Rs. 6,96,092/- and "Bad and Doubtful Debts Reserves" amounting to Rs. 4,64,062/- were also created and therefore the total reserves created during the year under consideration were arrived a....
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....,77,154/- as against Rs. 11,17,000/-. The ld. A/R has also taken us to the tabulation mentioned in the written submission. The same is reproduced herein below :- Particulars Contingency Standard Assets Special Bad Debts Reserve Bad and Doubtful Debt Reserves Provision for NPA Total Opening Balance as on 01.04.2006. 32,83,000 23 48,42,610 61,73,149 1,42,98,782 Add: Provision made during 2006-07 - - - - - Closing Balance as on 31.03.2007 32,83,000 23 48,42,610 61,73,149 1,42,98,782 Add: Provision made during 2007-08 - - - - - Closing Balance as on 31.03.2008 32,83,000 23 48,42,610 61,73,149 1,42,98,782 Add: Provision made during 2008-09 - - - 1,28,22,000 1,28,22,000 Closing Balance as on 31.03.2009 32,38,000 23 48,42,610 1,89,95,149 2,71,20,782 Add: Provision made during 2009-10 11,17,000 6,96,093 4,64,062 - 22,77,155 Closing Balance as on 31.03.2010 44,00,000 6,96,116 53,06,672 1,89,95,149 1,93,97,936 The ld. A/R has submitted that in view of the provisions of section 36(10)(viia), deduction s....
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....be the opening credit balance i.e., the balance brought forward as on 1st April of the relevant accounting year. (iii) Section 36(2)(viia) (a) of the Act provides that in respect of any provisions for bad and doubtful debts of the type referred to in that sub-clause made by a bank, an amount not exceeding 5 percent upto 31st March 2003 and thereafter 7.5. percent of the total income (computed before making any deduction under this clause and Chapter VIA of the Act) and an amount not exceeding 10 percent of the aggregate average advances made by 'rural branches' of such banks computed in the manner prescribed under the Income Tax Rules, 1962, shall be allowed as deduction. For this purpose - (a) total income of the year should be worked out after adjusting brought forward losses, if any, but before making any deductions under Chapter VI A of the Act. (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. (c) For working out the aggregate....
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....ts classified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortised over the period remaining to maturity. In the case of HFT and AFS securities forming stock in trade of the bank, the depreciation / appreciation is to be aggregated scrip wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims. (viii) Section 14A of the Act read with rule 8D of the I.T. Rules, 1962, provides that for the purpose of computing total income under the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income, which does not form part of the total income. Therefore, expenditure in respect of exempted incomes should not be allowed as deduction. (ix) Section 43B(b) of the Act envisages that deduction towards contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees is allowable in computing total income of the assessee only on actual payment basis.....
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....ircular and after giving the legal interpretation to section 36(1)(viia) has held as under :- " 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 debt 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 clause (vii) of Section 36(1) of the Act, which reads as under :- " Provided that in the case of an assessee to which clause (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 in the provision for bad and doubtful debts account made under that clause". 7. This also clearly shows that making of provision equal to the amount claimed as deduction in the account books is necessary for claiming deduction under section 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisi....
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....ided also that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed a further deduction in excess of the limits specified in the foregoing provisions, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government : Provided also that no deduction shall be allowed under the third proviso unless such income has been disclosed in the return of income under the head "Profits and gains of business or profession" : Explanation - For the purposes of this sub-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000, and ending before the 1st day of April, 2005 ; (b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent. of the total income (computed before making any deduction under this clause and Chapter VI-A) ; (c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent. of the total income (comput....