TaxTMI 
TaxTMI 
2025 (1) TMI 1802
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....e that the assessee is a Cooperative Bank engaged in the banking business and is regulated by the Banking Regulation Act, 1949 by the Reserve Bank of India. For AY 2018-19, the assessee filed its return of income on 29.09.2028 declaring total income of Rs. 20,08,07,180/-. The case was selected for limited scrutiny under the E-assessment Scheme, 2019 on the following issues: - (i) Claim of Any Other Amount Allowable as Deduction in Schedule BP; (ii) Default in TDS & Disallowance for such Default and (iii) Expenses Incurred for Earning Exempt Income. Statutory notice(s) u/s 143(2)/142(1) of the Income Tax Act, 1961 (the "Act") were issued and duly served upon the assessee calling for certain details/documents/information in respect of the above issues. The Ld. Assessing Officer ("AO") while examining the veracity of deduction of "any other amount allowable as deduction in the schedule BP" noted that the assessee has debited Rs.7,19,89,000/- to its profit and loss account as bad and doubtful debts reserve. During the assessment proceedings, the assessee submitted that Rs. 7,19,89,000/- is rightly claimed as deduction allowable u/s 36(1)(viia) of the Act being in respect of an....
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....eproduced below : "5. I have carefully considered the assessment order the grounds of appeal and the written submissions of the appellant. The man issue in depute in the present appeal is whether the appellant is entitled for deduction under section 36(1)(viia) of The Income Tax Act respect of the provision for bad and doubtful debts for an amount of 7,19,89,000/-. For the purpose of deduction under section 36(1)(via), the assessee must satisfy twin conditions of 1) being an entity specified under section 36(1)(via) and 2) having debited or provided for bad and doubtful debts in its accounts As per section 36(1) (vi) of the Income Tax Act scheduled bank or a non-scheduled bank or a cooperative bank other than primary agricultural credit society or a primary cooperative agricultural and rural development bank is eligible for deduction in respect of any provision for bad and doubtful debts made subject to the amount of deduction computed as per the above provision read with Rule 6ABA of the Income Tax Rules, which the appellant had clearly demonstrated in its written submissions reproduced above. From the facts on record, it is noted that the appellant is a....
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....f the Reserve Bank of India Master Circular dated July 1, 2015, and clause 5.1- Norms for provisioning on loans and advances, reads as under. In conformity with the prudential norms, provision should be made on the non- performing assets on the basis of classification of assets into prescribed categories..... viz standard assets, sub-standard assets doubtful assets, and loss assets. Accordingly, the banking companies are required to make provisions to cover the risk associated with the recovery of the loans and advances made in their business as per the norms prescribed by the Reserve Bank of India in the matter. The appellant before the assessing officer, had referred to CBDT Circular No. 258 dated 14th June 1979 and Circular No 421 dated 12th June 1985 explaining the intent of the legislature in introducing section 36(1)(viia) of the Act. After introduction of section 36(1)(viia) by the Finance Act, 1979, with effect from 1st April 1980, Circular No. 258 dated 14th June 1979 was issued by the Board to clarify the application of the new provisions. The provisions were introduced in order to promote rural banking and assist the scheduled commerci....
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.... associated provisioning would tantamount to provision for any bad and doubtful debts in the banking business. In such scenario, I do not find any infirmity in the accounting policy of the appellant in so far as the provision for the non-performing assets which in anyway is equivalent to the bad and doubtful debts of appellant's business. The assessing officer observed in the assessment order that the provisions for bad and doubtful debts are of revenue in nature as compared to the appellant's provision for NPA which is qualified as capital in nature by the auditors. Given the mandate of deduction under section 36(1)(viia) of the Act, which provides for deduction in respect of provisions for bad and doubtful debts of scheduled banks and non-scheduled banks and the same deals with their provisioning for risk associated with the loans and advances, which turned out to be NPAs or bad as per RBI norms or business norms, as the case may be, the denial of deduction in respect of such provisions as made by the appellant would defeat the very purpose of section 36(1)(viia) of the Act. For the same reason and relying on the decision cited by the appellant in the case of Sar....
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.... iv. Nawanshehar Central Co Operative Bank Ltd vs DCT in ITA No. 544/Asr/2017, dated 11.03.2019; v. Bellad Bagewadi Urban Souharda Sahakari Bank in ITA No. 100168/2015 Karnataka HC, dated 29.01.2018; vi. Shri Samartha Sahakari Bank Ltd. in ITA No. 873/PUN/2017 dated 06.01.2020; vii. The Jalgaon District Central Co-op. Bank Ltd. Vs. DCIT in ITA No. 395/PUN/2021, dated 08.03.2023 and ACIT Vs. Jila Sahakari Kendriya Bank in ITA No. 455/Ind/2018, dated 28.04.2023. 7. The Ld. DR, on the other hand, vehemently supported the order of the Ld. AO. 8. We have heard the Ld. Representatives of the parties and perused the material on record and various judicial precedents cited by the Ld. AR. The facts are not in dispute. The Ld. AO has disallowed the deduction u/s 36(1)(viia) of the Act for the reason that the assessee has created provision for NPA and not provision for bad and doubtful debts. We observe that before the Ld. AO, the assessee submitted a copy of audited financials which duly reflects that the assessee has created 'provision for bad and doubtful debts' and not 'provision for NPA'. As an alternate contention, the assessee submitted before the Ld.....
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....therefore, refuse to accept the validity of the exercise of revisionary power on this issue." 9. The claim of the assessee also finds support by the decision of the Hon'ble Karnataka High Court in the case of Bellad Bagewadi Urban Souharda Sahakari Bank (supra). The Pune Bench of the Tribunal in the case of Shri Samartha Sahakari Bank Ltd. (supra) following the decision of the Hon'ble Karnataka High Court in the case of Bellad Bagewadi Urban Souharda Sahakari Bank (supra) decided the impugned issue in favour of the assessee by observing as under : "7. We have heard the rival submissions and perused the material on record. The issue in the present appeal is with respect to the provision made for bad debts for standard assets. We find that the amount was disallowed by the Assessing Officer and CIT(A) as they were view of that the provision made for standard assets is not allowable as deduction for provision of bad and doubtful debts. We find that an identical issue arose before the Hon'ble High Court of Karnataka in the case of Bellad Bagewadi Urban Souhard Sahakari Bank Niyamit Vs. CIT & Anr. (supra), wherein substantial question of law before the Hon'ble High Court was ....