TaxTMI 
TaxTMI 
2022 (5) TMI 856
X X X X Extracts X X X X
X X X X Extracts X X X X
....the facts and circumstances of the case and in Law, the Ld. 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 ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 50,00,000/- e) Provision for bad and doubtful debts security depreciation fund Rs.1,50,00,000/- f) 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 doubtfu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l income of the bank subject to the limit @ 7½ % of the total income before making deduction under this clause of Chapter VIA and as aggregate average not exceeding @ 10% 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 sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... relied on the case laws in Karjan Co.Operative Cotton Ginning and Pressing Society Vs. CIT (1993) 69 Taxmann 304 (Guj)(FB)/1993) 199 ITR 17 (Gul) and CIT Vs Mehsana District Co-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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... purposes, gift items and other expenses were incurred for valued customers and other persons as a token of appreciation of their contribution in helping to boost the business of assessee-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 c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act, of Rs.1.16 crores, Rs.50 lakh for provision of bad and doubtful debts against standard assets of Rs.1.50 crores for provision of bad and doubtful debts against security depreciation 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....62/Ind/2011 dated 16.04.2013), wherein the issue was restored to the file of assessing officer to recomputing the claim of deduction to the extent of amount written off in the books of accounts. 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) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 36(1)(viia)(a). For the provision of bad and doubtful debts against standard asset of Rs. 50 Lakhs, the assessing officer held that this is a performing asset, which is governed by 2(1)(xv) of Non-banking financial companies prudential norms (Reserve Bank) directions 1998. It was held that though it is mandatory but cannot be categorised 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is clear from the scheme of the Act. As far as the question of double benefit is concerned, the Legislature in its wisdom introduced Section 36(2)(v) by the Finance Act, 1985 with effect from 01.04.1985. Section 36(2)(v) concerns itself as a check for claim of any double deduction and has to be read in conjunction with Section 36(1)(viia) of the Act. It 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 particu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pect of provisions made by banking companies for bad and doubtful debts. 17.1 Section 36(1)(vii) of the Income-tax Act provides for a deduction in the computation of taxable profits of the amount of any debt or part thereof which is established to have become a bad debt in the previous year. This allowance is subject to the fulfilment of the conditions specified in sub-section (2) of section 36. 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 to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e advances made by the rural branches of Indian banks, whichever is higher, should be modified. Accordingly, by the Amending Act, the deduction presently available under clause (viia) of subsection (1) of section 36 of the Income-tax Act has been split into two separate provisions. One of these limits the deduction to an amount not exceeding 2% of the aggregate average advances made by the rural branches of the banks concerned. It may be clarified that 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the assessee for the previous year. This benefit is subject only to Section 36(2) of the Act. It is obligatory upon the assessee to prove to the assessing officer that the case satisfies the ingredients of Section 36(1)(vii) on the one hand and that it satisfies the requirements stated in Section 36(2) of the Act on the other. The proviso to Section 36(1)(vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case 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) o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ural advances." 20. We find that co-ordinate Bench of ITAT Amritsar Bench in DCIT vs. Punjab Gramin Bank (ITA No.731/Asr/2017) while considering the provision for bad and doubtful debts under section 36(1)(viia) on standard assets passed the following order; "11. We shall now advert to the deletion by the CIT(A) of the disallowance of Rs. 3,53,47,000/- made by the A.O on account of the provision for bad and doubtful debts under Sec. 36(1)(viia) of the IT Act. We find that the A.O had disallowed 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3 and ending before the 1st day of April, 2005, the provisions of the first proviso shall have effect as if for the words "five percent", the words "ten percent" had been substituted: Provided 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 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 u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Hon'ble Tribunal are reproduced below: "12. We have heard the rival parties and have gone through the material placed on record. We find that the issue of provision for doubtful debts on standard assets is covered in favour of assessee by the order of the Tribunal dated 22.06.2016 for Assessment Year: 2008-09, wherein the appeal of the revenue was dismissed which was filed by Revenue on similar grounds. The relevant findings of the Tribunal as contained in para 8 onwards are reproduced below. 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 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 ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot 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 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 ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r made in the current previous year. Thus, in view of the aforesaid factual discussion, we affirm the order of Ld. CIT(A) by adding our aforesaid observation. 25. So far as decision relied by Ld. CIT-DR in Jhabua Dhar Kshetriya Gramin Bank (supra), is concerned, we find that ratio of decision is not applicable on the facts of case in hand. In the said the Tribunal relied on its earlier decision in Narmada Gramin Bank Vs ACIT (supra) wherein the issue of provision under section 36(1) (viia) was restore to the file of assessing officer for recomputation of claim of deduction to the extent of amount written back in the books of account. Thus, the 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 incurre....