2018 (3) TMI 1100 - AT - Income Tax

Claim of deduction in the computation of income in respect of reversal of NPA interest credited to Profit & Loss Account - Held that - In the present case before us, assessee has made a provision at ₹ 246891000/- in P&L a/c under the head Provision for Bad and Doubtful Debts. Moreover there is no dispute with relation to amount of claim and the manner of computation. AO in his order has not disputed the quantum of amount claimed as deduction. Assessee has claimed ₹ 144090700/- which is much lesser than actual provision made. Therefore as per CBDT circular instructions and judicial pronouncements there should not be any reason to disallow the claim of the assessee. This further clarify the intention of Government that due to hardships in granting rural advances by banks, Government as an incentive wants to allow the deduction to scheduled as well as non scheduled banks. We find from the facts of the case that the area of operation of the assessee bank is restricted to Buldhana District, having 106 branches in rural areas. The loans and advances are given to farmers residing in rural areas. - Decided in favour of assessee

Summary

Issues Involved:
1. Deduction claim for reversal of NPA interest.
2. Allowance of brought forward loss for A.Y. 2008-09.
3. Eligibility of a non-scheduled cooperative bank for deduction under section 36(1)(viia).
4. Deletion of disallowance on account of reversal of contingent income.

Issue-wise Detailed Analysis:

1. Deduction Claim for Reversal of NPA Interest:
The assessee challenged the rejection of the deduction claim for the reversal of NPA interest credited to the Profit & Loss Account. The Assessing Officer (AO) disallowed the claim, asserting that the reversal was made in the subsequent financial year (FY 2010-11), leading to potential double deduction if claimed in FY 2009-10. The Tribunal, after examining the details, found that the reversal of the amount was due to the non-receipt of the estimated interest from the government. The Tribunal concluded that the assessee’s claim was bona fide, as the amount was reversed and debited to the P&L account for A.Y. 2011-12, and allowed the deduction for A.Y. 2010-11, thus siding with the assessee.

2. Allowance of Brought Forward Loss for A.Y. 2008-09:
The assessee contested the non-allowance of brought forward loss amounting to ?5,01,70,769/- for A.Y. 2008-09. The Tribunal referred to the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for A.Y. 2009-10, which directed the AO to allow the carry forward of the assessed loss. The Tribunal, noting the AO’s compliance with this direction in subsequent orders, directed the AO to verify and allow the claim for A.Y. 2010-11, thereby resolving the issue in favor of the assessee.

3. Eligibility of a Non-Scheduled Cooperative Bank for Deduction Under Section 36(1)(viia):
The Revenue appealed against the CIT(A)'s decision allowing the assessee, a non-scheduled cooperative bank, a deduction under section 36(1)(viia) of the Income Tax Act. The AO had limited the deduction to 7.5% of the total income, as per Rule 6ABA, which applies to scheduled banks. The CIT(A) allowed the deduction at 10% of the aggregate average advances made by rural branches. The Tribunal, after reviewing the provisions and relevant judicial pronouncements, concluded that the deduction under section 36(1)(viia) applies to both scheduled and non-scheduled banks, and upheld the CIT(A)’s decision to allow the deduction at 10%, dismissing the Revenue’s appeal.

4. Deletion of Disallowance on Account of Reversal of Contingent Income:
The Revenue challenged the CIT(A)'s deletion of the disallowance of ?10,15,60,904/- made by the AO on account of reversal of contingent income. The Tribunal noted that this issue had already been adjudicated in favor of the assessee in ITA No.127/Nag/2015, where it was established that the reversal was justified and bona fide. Consequently, the Tribunal dismissed the Revenue’s appeal on this ground as well.

Conclusion:
The Tribunal allowed the assessee’s appeals concerning the deduction for reversal of NPA interest and the brought forward loss for A.Y. 2008-09. It also upheld the CIT(A)’s decision regarding the eligibility of a non-scheduled cooperative bank for deduction under section 36(1)(viia) and dismissed the Revenue’s appeal against the deletion of disallowance on account of reversal of contingent income.