2020 (5) TMI 295 - AT - Income Tax

Deduction u/s 36(1)(viia) - provision created for bad and doubtful debts u/s 36(1)(viia) which included a provision in respect of standard assets disallowed - As per AO deduction u/s 36(1)(viia) is not allowable with respect to the provision in respect of standard assets as according to him, it was good and recoverable and provision made on such assets cannot be considered to be a provision for bad and doubtful debts - HELD THAT - As relying on BELLAD BAGEWADI URBAN SOUHARD SAHAKARI BANK NIYAMIT VERSUS THE COMMISSIONER OF INCOME TAX (APPEALS) BELAGAVI 2018 (3) TMI 737 - KARNATAKA HIGH COURT RBI guidelines prescribes the provision on standard assets from the year ended March 31, 2000 directing the banks to make a general provision of a minimum of 0.25% on standard assets. Decision rendered by the CIT is unjustifiable for the reason that assessee is bound by the guidelines issued by the Reserve Bank of India. Any contrary view taken by the Income Tax Authorities would disentitle the assessee from claiming deduction u/s 36(1)(viia). Assessee is eligible for deduction and we thus, direct the AO. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 36(1)(viia) for provision of bad debts.
2. Interpretation of provision for bad debts under section 36(1)(viia) for standard assets.
3. Disallowance under section 36(1)(vii).

Issue 1: Disallowance under section 36(1)(viia) for provision of bad debts:
The case involved an appeal by the assessee against the order of the Ld. CIT(A) regarding disallowance under section 36(1)(viia) of the Income-tax Act, 1961. The Assessing Officer had disallowed a portion of the provision for bad and doubtful debts claimed by the assessee, leading to the appeal. The assessee contended that the entire deduction claimed under section 36(1)(viia) should have been allowed without restriction. Ultimately, the assessee decided not to press certain grounds, and the Tribunal dismissed those grounds.

Issue 2: Interpretation of provision for bad debts under section 36(1)(viia) for standard assets:
The main contention revolved around whether the provision made against standard assets could be considered as part of the provision for bad and doubtful debts under section 36(1)(viia). The Assessing Officer and CIT(A) disallowed the deduction for provision on standard assets, deeming it not applicable for bad and doubtful debts. However, the assessee argued that the provision made in accordance with RBI guidelines should be considered as part of the deduction. The Tribunal referred to a similar case before the Hon'ble High Court of Karnataka, which held that the provision on standard assets, as per RBI guidelines, should be allowed as a deduction under section 36(1)(viia). Without any contrary binding decision or material from the Revenue, the Tribunal allowed the deduction for the provision on standard assets, following the High Court's decision.

Issue 3: Disallowance under section 36(1)(vii):
The issue of disallowance under section 36(1)(vii) was also raised in the appeal. However, the grounds related to this issue were not pressed by the assessee, and thus, were dismissed by the Tribunal. The Tribunal did not delve into the specifics of this disallowance due to the non-pursuance of the grounds by the assessee.

In conclusion, the Tribunal partially allowed the appeal of the assessee, primarily focusing on the interpretation of the provision for bad debts under section 36(1)(viia) concerning standard assets. The decision was influenced by a previous ruling of the Hon'ble High Court of Karnataka, emphasizing adherence to RBI guidelines in determining the eligibility of deductions.