2013 (6) TMI 457 - AT - Income Tax

Entitlement to the deduction u/s. 36(1)(viia) - Held that - Perusal of order of CIT(A) shows that he has considered the provisions of section 36(1)(viia) as was available at its introduction by the Finance Act, 1979. As the assessee is a co- operative bank and is doing the business of banking as has been recognized in the assessment order by the AO and as the assessment year involved is AY 2009-10 and as a co-operative bank such as the assessee is being introduced in the provisions of section 36(1)(viia) w.e.f. 01.04.2007 by the Finance Act, 2007 the assessee is entitled to the deduction of 7 % of its total income as provided in the said section. This ground of appeal of assessee stands allowed. Provision for leave salary and provision against the standard asset - Held that - As it is noticed that the assessee is asking for deduction in respect of provisions which are not allowable as an expenditure when computing the taxable income under the I. T. Act & perusing decision of Southern Technologies Ltd. 2010 (1) TMI 5 - SUPREME COURT OF INDIA the disclosures norms of the Reserve Bank of India would not affect the computation of taxable income under the I. T. Act. Thus considering all as also on the ground that a provision is not a permissible deduction under the I. T. Act issue decided against assessee.

Summary

Issues:
1. Denial of deduction u/s. 36(1)(viia) for provisions for bad and doubtful debts.
2. Denial of deduction for provision for leave salary.
3. Denial of deduction for provision against standard assets.

Analysis:

Issue 1: Denial of deduction u/s. 36(1)(viia) for provisions for bad and doubtful debts:
The appellant contested the denial of deduction under section 36(1)(viia) of the Income-tax Act for provisions for bad and doubtful debts. The appellant, a Co-operative Bank, argued that it was entitled to the deduction as per the provisions of the Act. The contention was that the CIT(A) erred in denying the deduction based on the bank not being classified as a rural bank. The Tribunal reviewed the relevant provisions and found that the appellant, being a co-operative bank engaged in banking activities, was indeed eligible for the deduction under section 36(1)(viia). Consequently, the Tribunal directed the Assessing Officer to grant the appellant the deduction as per the said section, allowing this ground of appeal.

Issue 2: Denial of deduction for provision for leave salary:
The appellant sought a deduction for the provision made for leave salary, arguing that it was in line with RBI norms and co-operative societies Act requirements. However, the CIT(A) denied the deduction, asserting that such provisions were not allowable as expenditure under the Income-tax Act. The Tribunal concurred with the CIT(A) and upheld the decision, citing the Supreme Court's ruling that RBI disclosure norms do not impact taxable income computation. As provisions were not considered permissible deductions under the Income-tax Act, the Tribunal confirmed the denial of deduction for the provision for leave salary.

Issue 3: Denial of deduction for provision against standard assets:
Similarly, the appellant contested the denial of deduction for the provision made against standard assets. The Tribunal, following the principles established by the Supreme Court, upheld the denial of deduction for this provision as well. The Tribunal reiterated that provisions were not allowable deductions under the Income-tax Act, in line with the precedent set by the Supreme Court. Therefore, the denial of deduction for the provision against standard assets was confirmed.

In conclusion, the Tribunal partly allowed the appeal of the assessee, granting the deduction under section 36(1)(viia) for provisions for bad and doubtful debts while dismissing the deductions for provision for leave salary and provision against standard assets. The Tribunal's decision was based on a thorough analysis of the legal provisions and precedents, ensuring adherence to the Income-tax Act and relevant judicial interpretations.