2021 (4) TMI 1374

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... it is seen that the assessee has created Reserve for NPA to the extent of Rs. 17,52,92,029/- only. Hence, total deductions allowed u/s. 36(1)(viia) of the Act has to be restricted only to the extent of Reserve created for NPA i.e., to the extent of Rs. 17,52,92,029/-. Accordingly, he has disallowed the excess claim made by the assessee of Rs. 3,21,07,404/- (20,73,99,433 - 17,52,92,029/-). 3. On appeal, the Ld. CIT(A) deleted the disallowance made by the assessee by observing as under: 5.3.2 As per section 36(1) (viia)(a) of Income Tax Act 1961, the deduction ,r doubtful debts in the case of banks is to be" an amount not exceeding 7.5% of the Gross Total Income (computed before making any deduction under this clause and chapter VT-A) and an amount not exceeding 10% the Aggregate Average Advances made by the rural branches of such bank computed in the prescribed manner" 5.3.3 The aforesaid Reserve for NPA is a requirement under various statutory provisions like RBI guidelines, Cooperative Societies Act etc., and the bank has to prepare accounts according to the statutory requirements. These reserves are to be adjusted in arriving at the Gross total Income for computation purpos....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....nk of Patiala vs. CIT [2005] 143 TAXMAN 196 (Punj. & Har) and also the decision of the Co-ordinate Bench of the Tribunal in the case of M/s. Nazareth Urban Co-Operative Bank Ltd., vs. DCIT in ITA Nos. 513 & 514/Chny/2018 for AYs 2013-14 & 2014-15 dated 24.06.2019 and also relied on the decision of the another Co-ordinate Bench of the Tribunal in the case of M/s. The Salem Dt. Central Co-Op. Bank Ltd. vs. DCIT in ITA No.1168/Mds/2016 dated 07.06.2017. Further, the ld. DR also relied on CBDT Instruction No.17/2008 and submitted that the assessee is only eligible to claim deductions u/s. 36(1)(viia) of the Act to the extent provision made for NPA and strongly supported the order passed by the AO. 6. On the other hand, the ld. counsel for the assessee has submitted that as per s. 36(1)(viia) of the Act, no reference is made to books of accounts and the assessee need not make any provision for NPA and the assessee is eligible for deduction as per statute subjected to statutory limitations provided by the Act. He has also relied on the decision of the Hon'ble ITAT, Delhi Benches in the case of DCIT vs. Prathma Bank in ITA No. 2924/Del/2015 for AY 2011-12 dated 22/10/2019 and he has ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... the proviso to clause (vu) 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 prt thereof exceeds the credit balance m 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 provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year. 8. In the present case, the assessee has not made any provision in the books of account for the assessment year under consideration i.e 1985 86 ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....see. Therefore, the deduction can be made by the assessee only on the basis of the expenditure debited to the Profit & Loss A/c from the previous year relevant to the AY under consideration. No expenditure which is not debited to the Profit & Loss A/c in the year under consideration is permissible for deduction. In the instant case, the assessee has not debited the expenditure relating to the provisions for bad and doubtful debts. Therefore, the deduction u/s. 36(1)(viia) is permissible to the extent of the amount debited to the Profit & Loss A/c or as per the permissible limits specified u/s. 36(1)(viia) whichever is less. The contention of the assessee that the reserves already created in the earlier years is available in the books of accounts which remained unadjusted is not an acceptable proposition and not as per the Income Tax Act. This view is clarified by the CBDT in Circular No. 17/2008 which was relied upon by the Ld.CIT(A) in Para No. 4.2 which is re-produced hereunder: 4.2. The Assessing Officer has restricted the claim of the assessee Bank to the amount of provision made for the relevant assessment year. This restriction should be considered in light of the provision....