2017 (9) TMI 1982 - AT - Income Tax

Disallowance of bad debts written off - AO disallowed assessee s claim in respect of bad debts written off on the ground that there was a credit balance as on 31.03.2009 in the reserve for provision of bad debts - AO was of the view that the provisions of Section 36(1)(vii) r.w.s. 36 (1)(viia), a claim of bad debts can only be allowed if the same is in excess of the provision for bad debts, therefore, disallowed the said claim - HELD THAT - The deduction under section 36(1)(vii) is available in respect of bad debts written off subject to the fulfilment of the conditions specified under section 36(2). Section 36(1)(viia) provides for the treatment of provisions for bad and doubtful debts of an amount not exceeding 7.5% of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such banks. The provisions of Section 36(1)(vii) and section 36(1)(viia) are distinct and independent. The provisions of Section 36(1)(viia) are applicable w.e.f. A.Y. 2007-08 to cooperative bank also. Therefore any provision allowed in A.Y. 2007-08 onwards in the case of a cooperative bank under clause (viia) will be hit by this amendment but a provision standing in the account of a cooperative bank prior to 01.04.2006 will not come in the ambit of section 36(1)(viia) and in our opinion if any bad debts written off for which a provision has been created prior to 01.04.2006 will be entitled for deduction under section 36(1)(viia) if the conditions stipulated under section 36(2) are satisfied. From the chart as appearing on page 15 it is apparent that the assessee had written off the bad debts amounting to ₹ 92,45,827/- during the year. It is not related to the provisions in respect of which the assessee has claimed deduction in the earlier assessment year. We, therefore, set aside the order of the CIT(A) on this issue and delete the said addition. Thus, this ground stands allowed. Disallowance being excess claim of depreciation on account of want of proof for additions during the year - AO disallowed depreciation on addition of certain fixed assets on the ground that supporting evidences in the form of bills, etc. were not filed by the assessee - HELD THAT - We noted that the assessee has filed copies of the bills and vouchers before the CIT(A) by making an application dated 19.01.2015 under Rule 16A but the CIT(A) did not accept the additional evidences. We, therefore, in the interest of justice and fair play to both parties set aside the order of the CIT(A) and restore this issue to the file of the AO with the direction that the assessee shall file copies of these bills and evidences pertaining to the addition to fixed assets in respect of which depreciation has been disallowed before the AO. The AO shall, after verifying the genuineness of purchases, allow depreciation to the assessee. In case the assessee is not able to file the direct evidences the AO is directed to verify the indirect evidences in the form of confirmation of purchases, etc. Thus, both these grounds are allowed for statistical purposes. Claim of deduction by the assessee under section 36(1)(viia) as per the provisions of income tax law, i.e. 7.5% of the total income before deduction to be allowed under Chapter VIA of the Income Tax Act - HELD THAT - It is not denied that the assessee is a cooperative bank, therefore in view of provisions of Section 36(1)(viia), in our opinion, the assessee shall be entitled for the deduction @7.5% of the total income (computed before making any deduction under this clause and Chapter 6A) and an amount not exceeding 10% of the aggregate average advances made by rural branches of such banks computed in the prescribed manner in respect of any provision for bad and doubtful debts made by the assessee. We accordingly direct the AO to allow the deduction to the assessee in respect of any provision for bad and doubtful debts made by the assessee during the year in accordance with the provisions of Section 36(1)(viia). Thus, this ground is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of bad debts written off
2. Disallowance of excess claim of depreciation
3. Disallowance of excess carry forward of written down value of fixed assets
4. Disallowance under section 14A of the Income Tax Act
5. Computing deduction under section 36(1)(viia) of the Income Tax Act

Issue 1: Disallowance of Bad Debts Written Off
The appeal was against the CIT(A)'s order disallowing the claim of bad debts written off amounting to ?92,45,525. The AO disallowed the claim as it exceeded the provision for bad debts. The CIT(A) upheld the disallowance, stating the provision had been claimed and allowed in previous assessment orders. The ITAT noted the provisions of Section 36(1)(vii) and Section 36(1)(viia) are distinct and independent. As the bad debts written off were not related to previous provisions claimed, the ITAT allowed this ground, setting aside the CIT(A)'s order.

Issue 2 & 3: Disallowance of Excess Claim of Depreciation
The AO disallowed depreciation on certain fixed assets due to lack of proof. The CIT(A) did not accept additional evidence submitted by the assessee. The ITAT set aside the CIT(A)'s order and directed the AO to verify the genuineness of purchases and allow depreciation if supported by evidence. Both grounds were allowed for statistical purposes.

Issue 4: Disallowance under Section 14A of the Income Tax Act
Ground No. 4, relating to disallowance under Section 14A, was dismissed as not pressed.

Issue 5: Computing Deduction under Section 36(1)(viia)
The appeal related to the claim of deduction under Section 36(1)(viia) for a cooperative bank. The ITAT directed the AO to allow the deduction in accordance with the provisions of Section 36(1)(viia). This ground was allowed for statistical purposes.

In conclusion, the ITAT partly allowed the appeal, overturning the disallowances related to bad debts written off and excess claim of depreciation, and directing the AO to allow the deduction under Section 36(1)(viia) for the cooperative bank. The disallowance under Section 14A was dismissed as not pressed.