2019 (8) TMI 1447 - AT - Income Tax

Disallowance of deduction u/s. 36(1)(viia) - AO noted that the assessee was not having any rural branches and hence was not eligible to claim the deduction u/s. 36(1)(viia) - HELD THAT - The issue arising in the present appeal is identical to the issue before the Tribunal in Bhagini Nivedita Sahakari Bank Ltd. Vs. Deputy Commissioner of Income Tax 2018 (12) TMI 322 - ITAT PUNE and following the same parity of reasoning, we hold that the assessee is entitled to claim the aforesaid deduction u/s. 36(1)(viia) - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 36(1)(viia) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Disallowance under Section 36(1)(viia) of the Income-tax Act, 1961:

The appeal concerns the disallowance of ?30,53,340/- claimed by the assessee under Section 36(1)(viia) of the Income-tax Act, 1961, which pertains to the deduction for provision for bad and doubtful debts. The Assessing Officer (AO) disallowed the claim on the grounds that the assessee, a Co-operative Bank, did not have any rural branches, a prerequisite according to the AO, based on the Supreme Court's decision in Catholic Syrian Bank Ltd. Vs. Commissioner of Income Tax.

The Commissioner of Income Tax (Appeals) upheld the AO's order, leading the assessee to appeal to the Tribunal.

The Tribunal analyzed the issue by referring to a similar case, Bhagini Nivedita Sahakari Bank Ltd. Vs. Deputy Commissioner of Income Tax, and the decision of the Kerala High Court in The Kodungallur Town Co-Op. Bank Ltd. Vs. ACIT. The Tribunal noted that the Finance Act, 2007, extended the benefit of Section 36(1)(viia) to Co-operative Banks, allowing them to claim deductions for provisions for bad and doubtful debts up to 7.5% of their total income, irrespective of having rural branches.

The Tribunal emphasized that the provision for bad and doubtful debts under Section 36(1)(viia) consists of two parts:
- Deduction of an amount not exceeding 7.5% of the total income.
- Deduction of an amount not exceeding 10% of aggregate average advances made by rural branches.

The Tribunal clarified that the first part of the deduction (7.5% of total income) does not require the existence of rural branches, as confirmed by the Kerala High Court. The second part (10% of aggregate average advances) applies only if there are rural branches.

The Tribunal found that the assessee, being a Co-operative Bank without rural branches, was entitled to the first part of the deduction (7.5% of total income) as long as the provision for bad and doubtful debts was made in the books of account.

The Tribunal concluded that the assessee was eligible for the deduction under Section 36(1)(viia) to the extent of 7.5% of its total income, thereby allowing the appeal and overturning the disallowance made by the AO and upheld by the CIT(A).

Conclusion:
The Tribunal allowed the appeal, granting the assessee the deduction under Section 36(1)(viia) of the Income-tax Act, 1961, to the extent of 7.5% of the total income, as the assessee fulfilled the necessary conditions for this part of the deduction. The absence of rural branches did not affect this entitlement.