2018 (3) TMI 1516 - AT - Income Tax

Provision for contingency of standard assets claimed by the assessee u/s 36(1)(viia) - Held that - The assessee, which is a cooperative bank carrying on banking business, we find that the assessee is eligible to claim provision for bad and doubtful debts to the extent of 7.5% of the total income before making any deduction under this clause and under Chapter VIA. Further in the profit and loss account except for the alleged provision for ₹ 2 lacs, no other provision for bad and doubtful debts has been claimed. The phrase contingency provision for standard assets is basically a provision for bad and doubtful debts only which is in general a regular feature of the banking business. It is also pertinent to mention that even though the assessee was eligible to claim much higher amount as an expenditure of provision for bad and doubtful debts , it only claimed ₹ 2 lacs. In the instant appeal the contingency provision for standard assets is basically in the nature of bad and doubtful debts only and the assessee has rightly claimed the expenditure u/s 36(1)(viia) of the Act. - Decided in favour of assessee

Summary

Issues:
Assessment of expenditure under contingency provision for standard assets u/s 36(1)(viia) of the Income Tax Act.

Analysis:
The appeal pertains to the assessment year 2013-14 and challenges the disallowance of a provision claimed by the assessee under the head contingency provision for standard assets at ?2,00,000 under section 36(1)(viia) of the Income Tax Act. The Assessing Officer disallowed the provision, assessing the income at ?1,74,18,260, as it was deemed not covered under the said provision. The Commissioner of Income Tax (Appeals) upheld this decision, leading to the current appeal before the Tribunal.

The assessee, a cooperative society engaged in banking, argued that the provision claimed was essentially for bad and doubtful debts, as no other expenditure under this head was claimed in the profit and loss account. The contention was that the provision for standard assets was akin to bad and doubtful debts, which are permissible under section 36(1)(viia) of the Act. The Departmental Representative supported the lower authorities' decisions, maintaining that the provision was not for bad and doubtful debts but for the contingency of standard assets.

Upon review, the Tribunal analyzed section 36(1)(viia) of the Act, which allows deductions for bad and doubtful debts. Considering the nature of the provision claimed by the assessee and the banking business context, the Tribunal concluded that the contingency provision for standard assets was essentially a provision for bad and doubtful debts. Despite being eligible for a higher claim, the assessee only claimed ?2,00,000. Therefore, the Tribunal held that the assessee rightly claimed the expenditure under section 36(1)(viia) of the Act, allowing the appeal and overturning the disallowance.

In conclusion, the Tribunal allowed the appeal, emphasizing that the provision for standard assets was akin to bad and doubtful debts, a regular feature in banking businesses. The decision was based on the interpretation of the relevant provisions of the Income Tax Act and the specific circumstances of the case, ultimately favoring the assessee's claim for the provision under section 36(1)(viia) of the Act.