2019 (7) TMI 1973 - AT - Income Tax

Deduction u/s 36(1)(viia) for provision of standard assets as per the circular of RBI - whether this provision being as per law may be allowed? - HELD THAT - As decided in case of Nawanshahr Central Co-op. Bank Ltd. 2018 (1) TMI 1683 - ITAT AMRITSAR though section 36(1) (vii) states that deduction for provision is allowable in respect of provision for bad and doubtful debts the computation of such deduction is made with reference to total income of the specified Banks based upon quantum of average advances. The deduction of the provisions is neither limited to the quantum of bad debts in the books nor is computed with reference to the quantum of standard assets. The deduction in this clause refers to allowable provisions of anticipated default on the loans and advances made in respect of total assets including standard assets and the claim of the assessee does not fall into the proviso to section 36(1) (viia) as the proviso deals with further deduction for provisions on bad and doubtful debts. The claim of the assessee is covered in the main provisions of section 36(1)(viia) . In Vellore District Central Co-operative Bank Ltd. 2016 (2) TMI 158 - ITAT CHENNAI held by the Tribunal that doubtful debts may be under different nomenclature and this will not disentitle the assessee for claiming deduction under the provisions of section 36(1)(viia) - thus delete the disallowance made by the AO. Decided in favour of assessee.

Summary

Issues:
- Disallowance of deduction under section 36(1)(viia) for provision of standard assets as per RBI circular
- Consideration of evidence submitted on record

Analysis:
1. Disallowance of Deduction under Section 36(1)(viia):
- The appeal involved a dispute regarding the disallowance of a deduction claimed under section 36(1)(viia) for provision of standard assets as per the RBI circular. The Assessing Officer (AO) noticed that the provision for doubtful debts created by the assessee was only Rs.60,00,000, leading to the disallowance of the excess claim of deduction amounting to Rs.8,86,815. The Commissioner of Income Tax-3, Mumbai (CIT(A)) upheld the disallowance in the appeal.
- The assessee argued that section 36(1)(viia) does not differentiate between provision on bad assets and provision on standard assets. The deduction is allowed for anticipated default on loans and advances, including standard assets. The assessee contended that the provision made for standard assets is part of the provision of doubtful debts under section 36(1)(viia) of the Income Tax Act, 1961.
- The assessee relied on various tribunal decisions, including cases like Nawanshahr Central Co-op. Bank Ltd., Nagpur Urban Cooperative Bank Ltd., Vellore District Central Co-operative Bank Ltd., and Punjab Gramin Bank, to support their argument that the nomenclature of provisions should not disentitle the assessee from claiming the deduction under section 36(1)(viia).
- The Income Tax Appellate Tribunal (ITAT) referred to the decisions in Nawanshahr Central Co-op. Bank Ltd. and Punjab Gramin Bank, emphasizing that the deduction under section 36(1)(viia) is allowed for provisions for bad and doubtful debts without differentiating between bad assets and standard assets. Following the precedent set by the tribunal, the ITAT allowed the appeal and deleted the disallowance made by the AO.

2. Consideration of Evidence Submitted:
- The assessee also raised a ground stating that the CIT(A) did not consider the evidence submitted on record. However, the judgment primarily focused on the disallowance of the deduction under section 36(1)(viia) and the interpretation of provisions related to bad and doubtful debts, as well as standard assets.
- The ITAT's decision to allow the appeal was based on the interpretation of the relevant provisions and the application of precedent set by previous tribunal decisions. The issue of evidence consideration, while mentioned in the grounds of appeal, did not play a significant role in the final judgment.

In conclusion, the ITAT Mumbai allowed the appeal filed by the assessee, overturning the disallowance of the deduction under section 36(1)(viia) for provision of standard assets. The judgment highlighted the interpretation of provisions related to bad and doubtful debts, the treatment of standard assets, and the reliance on tribunal decisions to support the assessee's claim for the deduction.