TaxTMI 
TaxTMI 
2020 (11) TMI 300
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.... 3. The Assessee is a rural regional bank engaged in the business of banking. In the course of assessment proceedings u/s 143(3) of the Income-tax Act, 1961 (Act) for AY 2014-15, the AO noticed that the assessee had claimed deduction on account of provision for bad and doubtful debts for a sum of Rs. 3,81,26,66,985/- u/s.36(1)(viia) of the Income Tax Act, 1961 (Act). The provisions of Section 36(1)(viia)(a) of the Act lays down as follows:- "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 co-operative bank other than a primary agricultural credit society or a primary cooperative 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 VI-A) 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 ....
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.... 6. By implication, therefore the sum claimed as deduction has not been debited to the Provision for Bad and Doubt Debts Account. Even before CIT(A), the Assessee did not put forth a plea that such a debit to Provision for Bad and Doubtful debts Account was made by the Assessee. The CIT(A) deleted the addition made by the AO by following the order of the predecessor CIT(A) in AY 2013-14. 7. At the time of hearing it was agreed by the parties that the order of CIT(A) for AY 2013-14 on which the CIT(A) placed reliance was subject matter of appeal by the Revenue before the Tribunal, Bangalore Bench in ITA No.1392/Bang/2016 and the Tribunal by its order dated 23.1.2020 allowed the ground of appeal of the Revenue holding as follows:- "7. Aggrieved by the order of the CIT(A), the revenue has raised ground Nos.1 & 2 before the Tribunal. At the time of hearing it was agreed by the parties that similar issue had come up for consideration before the ITAT in Assessee's own case for AY 2009-10 & 2010-11 in ITA No.673 & 674/Bang/2014 order dated 25.4.2018 and this Tribunal reversed the order of the CIT(A) and held that the deduction u/s.36(1)(viia) of the Act cannot be allowed unl....
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....heduled 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 per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year." 9. In the case of Syndicate Bank (supra) 78 ITD 103 (Bang.), the Bangalore Bench of ITAT took the view that irrespective of the debit to the profit and loss account on account of provision for bad and doubtful debts (PBDD), an Assessee is entitled to 10 percent of the AARA as deduction u/s.36(1)(viia) of the Act. The relevant observations of the Tribunal in the aforesaid decision was as follows: "20. The learned CIT has also acted under the misconception that deduction under cl. (viia) is related to the actual amount of provision made by the assessee for bad and doubtful debts. The true meaning of the clause, as indicated earlier, is that once a provision for bad and doubtful debts is made by a schedul....
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....d doubtful debts. We therefore restore the order of the AO and allow Gr.No.1 & 2 raised by the revenue." 8. In view of the aforesaid decision of the Tribunal, we hold that the AO was justified in disallowing the claim for deduction on account of provisions for bad and doubtful debts u/s.36(1)(viia) of the Act as admittedly the Assessee did not debit its profit and loss account any sum towards provision for bad and doubtful debts. We therefore restore the order of the AO and allow Gr.No.1 raised by the revenue. 9. As far as Grd.No.ii raised by the revenue is concerned, the same reads as follows:- "On the facts and in the circumstances of the case, the ld. CIT(Appeals), Hubballi, erred in deleting the addition made on account of 'Disallowance of excess deduction claimed u/s. 36(1)(viii)' of Rs. 6,97,63,000/-, as the AO has calculated the eligible advances as per Annual Report. The AO has adopted the figure of profit after tax and reduced Other Incomes while computing the deductions. As such, the addition made by the AO of Rs. 6,97,63,000/- on account of excess claim of deduction u/s. 36(1)(viii) of the I.T. Act, may be restored." 10. The issue in Grd.No.ii is with r....
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....it society" and "primary co-operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P; (e) "housing finance company" means a public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes; (f) 73"public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (g) "infrastructure facility" means- (i) an infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA, or any other public facility of a similar nature as may be notified74 by the Board in this behalf in the Official Gazette and which fulfils the conditions as may be prescribed75; (ii) an undertaking referred to in clause (ii) or clause (iii) or clause (iv) or clause (vi) of sub-section (4) of section 80-IA; and (iii) an undertaking referred to in sub-section (10) of section 80-IB; (h) "long-term finance" 75a means any loan or advance where the te....
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.... out the deduction by him as per his own method which is not as per provisions of Income Tax Act, 1961 and as per method of calculation of deduction u/s 36(i)(viii) of Act worked out by the Hon'ble Karnataka High Court in the case of Karnataka State Financial Corporation Vs. CIT (1988) 174 ITR 206). 14. The CIT(A) allowed the claim of the Assessee observing as follows:- "20. Ground of appeal No.5 Disallowance u/s. 36(1)(viii) Rs. 6,97,63,000/-: The AO in the assessment order has worked out the deduction to be allowed u/s. 36(I)(viii) of the Act. As against the claim made of Rs. 11,52,00,000/- the AO has allowed Rs. 45,43,7000/- u/s. 36(1)(viii) thereby disallowing the claim to the extent of Rs. 6,97,63,000/- as excess. In the order, he has given the working but has not given any reasons as to why he is not considering the assessee's calculation of deduction u/s. 36(1)(viii). The AO has agreed with assessee's calculation of total advances made of Rs. 64,81,52,00,000r- and eligible advance of Rs. 21,23,29,00,00/- and percentage of eligible advances at 32.75%. but while arriving at the total income he has taken the figure at Rs. 962,35,48,000/- and deducte....