TaxTMI 
TaxTMI 
TaxTMI 
2022 (5) TMI 856
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....d. CIT(A) has erred in deleting the disallowance of Rs.46,77,004/- on account of centenary celebration fund, gift distribution fund amounting to Rs.7,72,099/- and society relief fund to the tune of Rs.8,83,239/-. 3. On the facts and circumstances of the case and in Law, the Ld. CIT(A) has not appreciated that the amount of Rs.3,66,25,000/- does not form part of the "provision for Bad and Doubtful debts', therefore, the deduction claimed by the assessee is not allowable under the provisions of Sec.36(1)(viia) of the Act. Thus, the AO had rightly disallowed the claim of the assessee and added the same to the total income of the assessee. 4. On the facts and circumstances of the case and in law, the Ld. CIT(A) has not appreciated that during the course of assessment proceedings, the assessee had failed to prove the genuineness of expenses such as Centenary celebration fund, Gift Distribution expenses and Society Relief Fund by producing supporting evidences with regard to the genuineness of expenses despite the fact that adequate opportunity of being heard had been provided to the assessee. Therefore, the AO has rightly made addition after disallowing these expenses. 5. On the f....
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.... Provision for bad and doubtful debts investment depreciation fund Rs. 50,00,000/- TOTAL As per section 36(1)(viia) of the I.T.Act 7,16,25,000/- 4. The assessing officer noted that out of the above provisions claimed under the provision for bad and doubtful debts, the following four components are not allowable as deduction under section 36(1)(viia) of the Act * Provision for bad and doubtful debts made in pursuance to section 67(2) of the Gujarat Co-Op. Society Act (out of net profit) Rs.1,16,25,000/- * Provision against standard assets Rs.50,00,000/- * Provision against security depreciation fund Rs.1,50,00,000/- and * Provision against investment depreciation fund Rs.50,00,000/- Total: 3,66,25,000/- 5. The Assessing Officer was of the view that the amount of Rs.3.66 crores is not provision for bad and doubtful debts. For the reasons that the deduction are allowable only for provision and not for allocation of fund. Therefore, an amount of Rs.1.16 crores does not qualify for bad and doubtful debts. For provision of standard assets of Rs.50 lakh, the Assessing Officer held that standard assets are performing assets in respect of which no default in repayment o....
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....% of aggregate average advances made by rural branches of the assessee-bank. The aggregate average advances given by assessee during the year is Rs.158.92 crores and @ 10% which comes to Rs.15.89 crores which is much more than the deduction of Rs.7.16 crores claimed by assessee as the provision for bad and doubtful debts. The Assessing Officer wrongly drawn his conclusion in respect of provision made under different head against the special provisions of Rs.1.16 crores made against the provision of bad and doubtful debts in pursuance under section 67A(2) of the Gujarat Co- Operative Society Act, the assessee submitted that these are the statutory requirement under statute, unless the legal obligation is fulfilled by the assessee-bank, the financial statements of assessee-bank are not approved by the Government of Gujarat Authorities including Registrar of the Co-Operative Society, Government Auditor appointed by National Bank for Agriculture and Rural Development (for short to as 'NABARD'). Therefore, the statutory requirement on the part of assessee to make the provision under Section 67A(2) of the Act. Against the provision of standard assets of Rs.50 lakh. The assessee submitted....
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....operative Milk Producers Union Ltd. (1995) 78 Taxmann 563 (Guj)(1994) 207 ITR 140 (Guj). 9. The Ld. CIT(A) after considering the submission of assessee, on the disallowance of deduction under section 36(1)(via) held that assessee is not allowed the provision amounting to Rs.3.66 crores out of the total claim of assessee-bank at Rs.7.16 crores. The Ld. CIT(A) held that the statutory provision under section 36(1)(via) required only two conditions to be fulfilled for allowing such deduction under the clause-(via) of sub-section of Section 36(1) as per sub-section sub-clause (via) of section 36(1). The deduction in respect of any provision for bad and doubtful debts, made by co-operative bank is allowable if does not exceed 7½% of the total income, computed before making deduction under Chapter VIA, and an amount not exceeding 10% of aggregate average advance made by rural branches of such assessee-bank computed in the prescribed manner. The assessee has claimed Rs.7.16 crores as per the computation of total income of assessee filed with return of income, the total income before deduction under Chapter-VIA is Rs.20.20 crores. Thus, 7½% comes to Rs.1.15 crores. The Assess....
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....essee-bank. These expenses were incurred wholly and exclusively for the purpose of business and are allowable under section 37(1) of the Act. Accordingly, the Ld. CIT(A) deleted the aforesaid additions. Aggrieved by the order of Ld. CIT(A), the Revenue has filed this present appeal before the Tribunal. 11. We have heard the submission of Ld. Commissioner of Income- Tax-Departmental Representative (Ld. CIT-DR) for the Revenue and Ld. Authorized Representative (AR) for the assessee. We have also gone through the orders of lower authorities carefully. Ground No.1 relate to deleting the disallowances under section 36(1)(viia). The Ld. CIT-DR for the revenue supported the order of assessing officer. The ld CIT-DR for the revenue further submits that the provision the provisions made in pursuance of section 67(2) of Gujarat Co-operative Society Act are not the provision. It is a reserve created only if society makes profit. The provision is made from income and not profit. Therefore the amount of Rs.1.16 crores does not qualify for provision of bad and doubtful debts. Similarly, the provision of standard assets, cannot be settled as for allowing deduction under section 36(1)(viia). On s....
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....n fund of Rs.50 lakh for bad and doubtful debts against investment depreciation. 13. The Ld. AR for the assessee submits that this similar provisions were made by the assessee in its books and was allowed by Assessing Officer in scrutiny assessment in assessment years 2008-09 and 2009-10 passed under section 143(3), a copy of those assessment orders is placed on record. Further, in assessment years 2015-16 and 2016-17 similar provisions were considered and is allowed in the assessment order passed under section 143(1), which includes provision for bad and doubtful debts against standard assets as per RBI's directives/guidelines and also provision for bad and doubtful debts in compliance of statutory provision of under section 67A(2) of the Gujarat Co- Operative Societies Act. Further, in assessment year 2017-18 in the assessment order passed under section 143(3), the Assessing Officer allowed deduction under section 36(1)(via) for aggregate amount of Rs.6.33 crores, which includes provision for bad and doubtful debts against standard assets s per RBI's directives/guidelines for Rs.1 crores allowed as claim. Further, in assessment year 2018-19, the Assessing Officer in assessment o....
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....ounts. Thus, the finding in the said is not at all applicable on the facts of his case. 14. To buttress his various submissions, the ld. AR for the assessee relied on the following decision; * Catholic Syrian Bank Ltd. vs. Commissioner of Income Tax (2012) 18 taxmann.com 282 (SC). * DCIT vs. Punjab Gram Bank (ITA No.731/Asr/2017 dated 05.04.2019 * Dy.CIT vs. The Nawanshahr Central Co.op. Bank Ltd. (ITA No.61/Asr/2017 dated03.01.2018 * Tamilnadu State Apex Co-Operative Bank Ltd. vs. ACIT (2014) 43 taxmann.com 111 (Chennai-Trib.) * Dy.CIT vs. ING Vysya Bank Ltd. (2014) 42 taxmann.com 303 (Bangalore-Trib.) * Nanded District Central Co-Op. Bank Ltd. vs. Dy.CIT (2015) 57 taxmann.com 422 (Pune-Trib.) * Dy.CIT vs. Sarvodaya Sahakar Bank Ltd., (2014) 48 taxmann.com 82 (Ahmedabad-Trib.) * Power Finance Corpn. Ltd. vs. JCIT (2006) 10 SOT 190 (Delhi-Trib.) (ITA No.994 & 1062/Del/2000 dated 11.08.2006) * Vellore Dist. Central Co-Operative Bank Ltd. Vs. CIT (2013) 37 taxmann.com 247 (Chennai-Trib.) * Pali Central Co-Operative Bank Ltd. Vs. CIT (2017) 88 taxmann.com 875 (Jodhpur-Trib.) * Nagar Urban Co-Operative Bank Ltd. vs. ACIT (ITA No.240/Jodh/2013 dated 29.11.2013) 1....
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....as 'bed debts' For security depreciation of Rs.1.50 crores the Assessing Officer held that this reserve for contingency and not a provision for bad and doubtful debts. For fourth provision of Rs.50 lakh, Assessing Officer held that investment depreciation fund is also provision to cover the value of stock-in-trade which is also contingent in nature. We find that Ld. CIT(A) after examining the statutory provision and held that assessee has a rural advance of Rs.159 Crore (rounded) against which the assessee has claimed only Rs.7.16 crores though they are entitled to claim @ 10% of the aggregate of average advance by rural branches of assessee-bank. Thus, the Ld. CIT(A) allowed all the claim under four various heads by holding that the assessee is clearly eligible for the deduction under section 36(1)(viia) as it fulfilled the two condition that any provisions for bad and doubtful debts made by Co-operative bank is allowable if it does not exceed 7 ½ of total income (computed before making deduction under this clause under chapter VIA) and an amount not exceeding 10% of aggregate average advances made by rural branch. 17. We find that the assessing officer has not doubted the....
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....requires the assessee to debit the amount of such debt or part thereof in the previous year to the provision made for that purpose. Effect of Circulars 18. Now, we shall proceed to examine the effect of the circulars which are in force and are issued by the Central Board of Direct Taxes (for short, ' the Board') in exercise of the power vested in it under Section 119 of the Act. Circulars can be issued by the Board to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income tax authorities, though they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored. A circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigour of a particular provision for the benefit of the assessee in certain specified circumstances. So long as the circular is in force, it aids the uniform and proper administration and application of the provisions of the Act. {Refer to UCO Bank, Calcutta v. CIT [1999] 4 SCC 599 . 19. In the present case, after introduction of Section 36(1)(viia) by the Finance Act, 1979, [(1981) 1....
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....6. 17.2 Section 36(1)(viia) of the Income-tax Act provides for a deduction in respect of any provision for bad and doubtful debts made by a scheduled bank or a non-scheduled bank in relation to advances made by its rural branches, of any amount not exceeding 1½ per cent of the aggregate average advances made by such branches. 17.3 Having regard to the increasing social commitments of banks, section 36(1)(viia) has been amended to provide that in respect of any provision for bad and doubtful debts made by a scheduled bank [not being a bank approved by the Central Government for the purposes of section 36(1)(viiia) or a bank incorporated by or under the laws of a country outside India] or a nonscheduled bank, an amount not exceeding ten per cent of the total income (computed before making any deduction under the proposed new provision) or two per cent of the aggregate average advances made by rural branches of such banks, whichever is higher, shall be allowed as a deduction in computing the taxable profits. 17.4 Section 36(1)(vii) of the Act has also been amended to provide that in the case of a bank to which section 36(1)(viia) applies, the amount of bad and doub....
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....at foreign banks do not have rural branches and hence this amendment will not be relevant in the case of the foreign banks. The other provisions secure that a further deduction shall be allowed in respect of the provision for bad and doubtful debts made by all banks, not just the banks incorporated in India, limited to 5% of the total income (computed before making any deduction under this clause and Chapter VI-A). This will imply that all scheduled or non-scheduled banks having rural branches would be allowed the deduction up to 2% of the aggregate average advances made by such branches and a further deduction up to 5% of their total income in respect of provision for bad and doubtful debts." 23. Reference usefully can also be made to the Statement of Objects and Reasons for the Finance Act, 1986, wherein, inter alia, it was stated that the amendments were intended to provide a deduction on the provisions for bad debts made by all banks upto 5 per cent of their total income and an additional 2 per cent of the aggregate average advances made by the rural branches of the banks. These percentages stood altered by subsequent amendments in 1993 and 2001. 24. Clear legislative inten....
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....of the assessee is one which falls squarely under Section 36(1)(viia) of the Act. We may also notice that the explanation to Section 36(1)(vii), introduced by the Finance Act, 2001, has to be examined in conjunction with the principal section. The explanation specifically excluded any provision for bad and doubtful debts made in the account of the assessee from the ambit and scope of ' any bad debt, or part thereof, written off as irrecoverable in the accounts of the assessee & apos;. Thus, the concept of making a provision for bad and doubtful debts will fall outside the scope of Section 36(1)(vii) simplicitor. The proviso, as already noticed, will have to be read with the provisions of Section 36(1)(viia) of the Act. Once the bad debt is actually written off as irrecoverable and the requirements of Section 36(2) satisfied, then, it will not be permissible to deny such deduction on the apprehension of double deduction under the provisions of Section 36(1)(viia) and proviso to Section 36(1)(vii). This does not appear to be the intention of the framers of law. The scheduled and non-scheduled commercial banks would continue to get the full benefit of write off of the irrecoverable de....
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....llowed an amount of Rs. 3,53,47,000/- on account of provision for bad and doubtful debts made by the assessee against standard assets on the ground that the said provision was made against assets which were of good quality and was in the nature of contingent liability. It has been the claim of the assessee that the provision for bad and doubtful debts had been made in accordance with the instructions and circulars of the RBI on the said issue. We find that the issue as regards the allowability of deduction of provision for bad and doubtful debts made against standard assets had been decided by the Tribunal in the assesses own case for A.Y. 2008-09 i.e. Dy. CIT, Circle-IV, Jalandhar Vs. M/s Punjab Gramin Bank, Kapurthala in ITA No. 134(Asr)/2015; dated 22.06.2016, which thereafter had been followed in its cases for A.Y. 2011-12 and A.Y. 2012-13. The Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09 had observed as under :- "8 We have heard the rival parties and have gone through the material on record. We find that the assessee had created a provision of Rs.50,00,000/- which included a sum of Rs.13,25,000/- as provisions for bad and doubtful debts and the ba....
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.... 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 business or profession." From the above provisions it can be seen that deduction u/s 36(1)(viia) of the Act is allowed in respect of provisions for bad and doubtful debts This section does not differentiate between provision on bad assets and provision on standard assets. This deduction exclusively allows deduction in respect of provision for bad and doubtful debts to the extent mentioned in the various clauses of sub-section(1) of section 36 of the Act. The deduction under section 36(1)(viia) of the Act is allowed only in respect of certain specific categories of assessee mentioned in the clause like banks, financial institutions, etc. who are in business of lending money. It is not allowed even to non-banking financial institutions since they are not included in this clause. It is seen that though section 36(1)(vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks b....
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....he material on record. We find that the assessee had created a provision of Rs. 50,00,000/- which included a sum of Rs. 13,25,000/- as provisions for bad and doubtful debts and the balance amount of Rs. 36,75,000/- was provision against standard assets and the entire amount was claimed as deduction under section 36(1)(viia) of the Act. The Assessing Officer was of the opinion that the provisions made by the assessee against standard assets was a contingent liability and which was not allowable as business expenditure. The Ld. CIT(A), however, allowed relief to the assessee by holding that the claim of the assessee fall into the main provisions of section 36(1)(viia). To resolve the dispute it is important to visit the provisions of section 36(1)(viia) of the Act and which for the sake of convenience are reproduced below. "36(1)(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 outside India] or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one- half percent of the ....
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....ion 36(1) (vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts, the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1) (viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) of the Act. The Ld. CIT(A) has passed a Assessment Year: 2013-14 very exhaustive and speaking order and we do not find any infirmity in the same. Therefore following the above Tribunal order, we do not see any infirmity in the order of Ld. CIT(A). 13. In view of the above fact and circumstances the grounds of appeal raised by Revenue in ITA No. 580 & 569 are dis....
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....facts of that case are in variance. 26. In the result, ground No.1& 3 raised by the Revenue is dismissed. 27. Ground No.2 & 4 relates to deleting various disallowances of centenary celebration expenses of Rs. 46,77,004/-, gift distribution of Rs. 7,72,099/- and interest relief to society expenses of Rs. 8,86,239/-. The Ld. CIT-DR for the Revenue supported the order of Assessing Officer. The ld. CIT-DR for the revenue submits that during the assessment, the assessee failed to produce the relevant bills/vouchers of the expenses incurred for verifiable by Assessing Officer. Though the assessee-bank claimed that they are ready to produce the supporting expenses that actually failed to do so the readiness to produce the prove does not entitle for claiming the deduction of expense. The Ld. CIT(A) merely assumed that the assessee has not doubted the purpose of incurring expenses, which is fair from the fact that. 28. On the other hand, the ld. AR for the assessee supported the order of Ld. CIT(A). The ld. AR for the assessee submits that the assessing officer disallowed expenses consist of three claim viz; (i) Centenary year celebration, gift distribution and interest relief to society....