2013 (3) TMI 787

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....nal deduction for provisions under section 36(1)(vii)(a) of the Income Tax Act, 1961 (in short 'the Act') for the impugned Assessment Years, whereas assessee in its cross objections is aggrieved that CIT(A) did not consider its claim regarding provision for investment depreciation reserve. 2. Facts apropos are that assessee, a Co-operative Bank, had filed its return for the impugned Assessment Years on 28.12.07 and 29.09.09 declaring total income of Rs. 33,22,860/- and Rs. 46,17,960/- respectively. During the course of assessment proceedings, it was noted by the Assessing Officer that assessee had claimed deduction towards certain provisions. Such claims appearing in its profit and loss account were as under: For the A.Y.2007-....

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....s per assessee, it was entitled for deduction of the following provision under section 36(1)(vii)(a) of the Act calculated as per Rule 6ABA of the Income Tax Rule,1962:- For A.Y.2007-08:   7.5.% of Total Income 445682 10% aggregate average advances 2470154 Total Provision allowable 2915836 For A.Y.2007-08:   7.5.% of Total Income 950493 10% aggregate average advances 5708134 Total Provision allowable 6658627   Argument of the assessee was that Ayyempettai branch was classified as a 'rural branch'. Reliance was placed on the CBDT Circular No.17/2008 dated 26.11.08. Ld. CIT(A) accepted the contentions and directed the Assessing Officer to allow further reduction of 2....

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....was clear in that unless and until provision for bad and doubtful debts were made in the accounts, deduction could not be allowed under Sec. 36(1)(viia) of the Act. 5. Per contra, Ld. Authorised Representative of assessee submitted that the CBDT instruction relied on by Ld. D.R, clearly mentioned at sub-clause(b) of clause(iii) that deduction had to be allowed to the assessee at the amount calculated as per section 36(1)(viia) or the amount of provision actually debited in the books. Further, according to him, just because a different nomenclature in the accounts was given to the provisions in the accounts would not by itself mean that such provisions were not for bad and doubtful debts. Provision for NPA & standard assets, was nothing b....

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....ed in respect of the matters dealt with therein, in computing the income referred to in section 28 - (viia) in respect of any provision for bad and doubtful debts made by-- (a) a scheduled bank [not being [* * *] a bank incorporated by or under the laws of a country outside India] or a non-scheduled 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 per cent] 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 presc....

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....e assessment years commencing on or after the 1st day of April, 2000 and ending before the 1st day of April, 2005;]" A reading of the above clearly show that for an allowance to be given under that Section, there has to be a provision for bad and doubtful debts. In the case of assessee, provision which can be termed as provision for bad and doubtful debts are provision for standard assets and provision for non-performing assets. Such provision for A.Y. 2007-08, came to Rs. 5,74,000/- and for A.Y. 2009-10, came to Rs. 87,232/-. Therefore, assessee cannot say that it had to be given anything more than these amounts under Sec. 36(1)(viia) of the Act, whatever be the mode of computation provided under that Section. A look at sub clause(b) of....

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.... provision for investment fluctuation Reserve, had to be allowed to it, since there were only provisions for diminution in value of investment, no doubt, this was never preferred by the assessee before the Assessing Officer. However, it is also noticed that Assessing Officer had never verified the claim of the various provisions made by the assessee in the proper perspective. A global view was taken by the Assessing Officer that no provision provided in the P&L a/c was eligible for deduction. Assessing Officer never verified whether such provisions could be allowed considering the nature of each provision vis-à-vis the law in relation to such provisions. When a provision represented actual diminution in value of assets, it had to be ....