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2021 (8) TMI 1043 - AT - Income TaxDisallowance of provisions of section 36(1)(vii) - whether the loss on account of FDR's maintained with MMCBL, which was under liquidation, and written off of the same is eligible for deduction under the head business and profession? - HELD THAT - It is pertinent to observe that the MMC Bank was sick bank and the amount of FDs deposited by the assessee-bank with MMC Bank has not received by the assessee bank. We also note that activities of the assessee-bank in parking surplus fund in the scheduled banks were in accordance with the guidelines of the RBI in this behalf. It was also not in dispute that Reserve Bank of India vide letter dated 12.2.2010 has advised all UCBS having exposure to MMC Bank to have full provisions against their exposure to the said bank as on 31.3.2011. In the instant case, the entries made in the assessee's books of account in that behalf were strictly in accordance with the guidelines issued by the RBI. Consequently, the assessee bank has written off the loss on account of FDR deposited with the MMC Bank. It is demonstrated by the assessee that as per the bye-laws of the assessee-bank from the Profit loss Appropriation account, Depreciation Investment fund has been created. The Investment Depreciation has been debited in P L account, which has been claimed as bad debt. See case of Kalupur Commercial Co-op. Bank Ltd. 2019 (10) TMI 1068 - ITAT AHMEDABAD - Decided against revenue.
Issues Involved:
1. Whether the ld.CIT(A) erred in deleting the disallowance of ?2,69,68,337/- under section 36(1)(vii) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Deletion of Disallowance under Section 36(1)(vii): The Revenue appealed against the order of the ld.CIT(A)-10, Ahmedabad, which deleted the disallowance of ?2,69,68,337/-. The primary contention was whether the provisions of section 36(1)(vii) were applicable to the facts of the assessee’s case. The assessee, a cooperative bank, had written off this amount as irrecoverable, which was initially parked with Madhupura Mercantile Cooperative Bank (MMC Bank) that went into liquidation. Facts of the Case: The assessee had filed its return declaring a total loss of ?1,06,74,970/-. During scrutiny, the AO noticed that the assessee had deducted ?2,69,68,337/- on account of transfer from MMC Bank Investment Fund. The AO disallowed this deduction, arguing that the amount was an investment, not a bad debt, and thus not allowable under section 36(1)(vii). The AO added this amount to the total income of the assessee. Assessee's Argument: The assessee argued that the amount written off was in the ordinary course of business and satisfied both conditions of section 36(1)(vii). The amount was irrecoverable and represented money lent in the ordinary course of business. The assessee also referred to RBI guidelines and circulars, which necessitated such write-offs. Revenue's Argument: The Revenue contended that the deposits written off could not be allowed as bad debts under section 36(1)(vii) because the transaction was isolated and in the nature of an investment, not part of the regular course of business. Tribunal’s Analysis: The Tribunal considered submissions from both sides and reviewed similar cases from the ITAT, Ahmedabad Benches, and Mumbai Benches. It noted that the MMC Bank was under liquidation, and the FDs deposited by the assessee were not recoverable. The Tribunal observed that the assessee's actions were in line with RBI guidelines, which advised full provisioning against exposure to MMC Bank. Key Observations: - The Tribunal noted that the assessee had created an Investment Depreciation Fund as per its bye-laws and RBI guidelines. - The Tribunal referred to similar cases, particularly the decision in the case of Kalupur Commercial Co-op. Bank Ltd. Vs. DCIT, where the Tribunal had allowed similar claims. Conclusion: Following the precedent set in similar cases and considering the facts that the assessee's write-off was in accordance with RBI guidelines and the ordinary course of business, the Tribunal upheld the order of the ld.CIT(A) and dismissed the Revenue's appeal. The Tribunal confirmed that the loss on account of FDRs with MMC Bank, which was under liquidation, was eligible for deduction under the head of business and profession. Judgment: The appeal of the Revenue was dismissed, and the order of the ld.CIT(A) was upheld. The Tribunal confirmed that the write-off of ?2,69,68,337/- was allowable under section 36(1)(vii) of the Income Tax Act, 1961. Pronouncement: The judgment was pronounced in the Court on 24th August, 2021, at Ahmedabad.
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