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2012 (3) TMI 619 - AT - Income TaxDisallowance for bad and doubtful debts u/s 36(i)(viia) - Assessee was a scheduled bank in relevent assessment year before amalgamation - AO concluded that the deduction of 10% of the aggregate average advances made by the rural branches of the bank was not available to the assessee because in the opinion of the AO the assessee was not a scheduled bank during the year under consideration - CIT(A) allowed the the deduction @ 10% of aggregate average advances made by the rural branches in addition to deduction @ 7.5 % of total income as per provision of Section 36(i)(viia)(a) - HELD THAT - Following the decision in the case of Catholic Syrian Bank Limited 2012 (2) TMI 262 - SUPREME COURT order of CIT(A) allowed the deduction sustained. Disallowance for bad and doubtful debts u/s 36(i)(viia) - written off of irrecoverable debts - Party wise debts not written off - HELD THAT - Even the Hon ble Supreme Court in the case of Vijaya Bank 2010 (4) TMI 46 - SUPREME COURT observed that after insertion of Explanation to sec. 36(1)(vii) assessee is required not only to debit the P L a/c but simultaneously also reduce loans and advances or the debtors from the assets side of the balance sheet to the extent of the corresponding amount so that at the end of the year the amount of loans and advances/debtors is shown as net of provision for impugned bad debt; assessee-bank having besides debiting the P L a/c and creating a provision for bad and doubtful debts simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet it was entitled to benefit of deduction under s. 36(1)(vii); it was not necessary to close the individual account of each debtor in the books. In view of the above decision of the Hon ble Supreme Court matter restored back. Disallowance of Expenditure u/s 40(a)(ia) - Assessee has claimed expenses on which TDS was deducted but deposited after filing of return but before due date of filing of ITR u//s 139(1) - HELD THAT - As a clear finding has been recorded by the ld.CIT(A) to the effect that the assessee has not only deducted tax on audit fee but also deposited the same before due date of filing return u/s 139(1). There is no reason to disallow the claim of deduction in view of the amended provisions of Section 40a(ia) which were amended by the Finance Act 2008 with retrospective effect from 2005. Accordingly the AO is directed to allow the same as per the amended provisions of law - Decision in favour of Assessee.
Issues Involved:
1. Deduction claimed under Section 36(1)(viia)(a) of the Income-tax Act. 2. Disallowance of expenditure on which TDS was not paid. 3. Disallowance under Section 14A of the Income-tax Act. 4. Status of the assessee as a Scheduled Bank. 5. Deduction for bad and doubtful debts under Section 36(1)(viia)(a). Detailed Analysis: 1. Deduction claimed under Section 36(1)(viia)(a): The assessee claimed a deduction of Rs. 32.72 crores under Section 36(1)(viia)(a) of the Income-tax Act. The CIT(A) maintained an addition of Rs. 24,89,95,045/- due to the disallowance of this claim. The CIT(A) did not follow the judgment of the Hon'ble Bangalore Bench in the case of Syndicate Bank, which was directly on point, on the grounds that it was not a jurisdictional bench and not binding. 2. Disallowance of expenditure on which TDS was not paid: The CIT(A) maintained an addition of Rs. 3,46,755/- due to disallowance of expenditure on which TDS was not paid. The assessee argued that payments were made before the due date of filing the return of income, making them allowable under the amended provisions of Section 40(a)(ia). The CIT(A) declined the claim, relying on the decision of the Hon'ble Supreme Court in Goetze India Limited, as the claim was not made through a revised return. 3. Disallowance under Section 14A: The CIT(A) maintained an addition of Rs. 20,890/- under Section 14A of the Income-tax Act. The provisions of Section 14A provide for the disallowance of expenses in respect of exempt income, and the assessee had earned exempt income by way of dividends on equity shares. The Assessing Officer (AO) was justified in making the addition by invoking the provisions of Rule 8-D(2). 4. Status of the assessee as a Scheduled Bank: The AO declined to accept the status of the assessee as a Scheduled Bank, leading to the disallowance of the deduction claimed under Section 36(1)(viia)(a). The CIT(A) held that the assessee is a Scheduled Bank for the assessment year 2007-08, considering the date of amalgamation on 3.4.2006. The AO was found to have wrongly denied the claim of deduction by not accepting the status of the assessee as a Scheduled Bank. The CIT(A) observed that the status of the Scheduled Bank would be deemed to have been conferred onto the newly created RRB immediately after the amalgamation as per the RBI Act. 5. Deduction for bad and doubtful debts under Section 36(1)(viia)(a): The AO noted that the total claim of deduction under Section 36(1)(viia)(a) could not exceed the provision for bad and doubtful debts. The AO held that the qualifying amount was the provision for NPA at Rs. 927.61 lakhs only. The CIT(A) allowed the assessee's claim, holding that the assessee bank was a Scheduled Bank as per the RBI's Act immediately after amalgamation, thus qualifying for deduction under Section 36(1)(viia)(a) in respect of both limbs. The CIT(A) relied on the recent decision of the Hon'ble Supreme Court in the case of Catholic Syrian Bank Limited, which clarified that deductions under Section 36(1)(vii) and Section 36(1)(viia) are distinct and independent. Conclusion: The appeal of the Revenue was dismissed, and the appeal of the assessee was allowed in part. The AO was directed to recompute the claim of deduction under Section 36(1)(viia)(a) to the extent of the amount written off in the books of account, even if not party-wise. The AO was also directed to allow the claim of Rs. 3,46,755/- as per the amended provisions of Section 40(a)(ia). The addition of Rs. 20,890/- under Section 14A was justified and upheld. The order was pronounced in the open court on 29th March, 2012.
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