2016 (2) TMI 1387 - AT - Income Tax

Deduction u/s 36(1)(vii)(a) - provision made by the assessee during the relevant previous year - whether assessee is not entitled to claiming deduction on account of 10% of aggregate average advance made by rural branches? - HELD THAT - As placed on record that in exercise of the powers conferred on the Reserve Bank of India according to Banking Regulation Act the assessee had been granted licence to commence and carry on banking business subject to certain conditions. In addition to the above information, our attention has also been drawn on Arvind Sahakari Bank Ltd., Katol 2015 (9) TMI 1768 - ITAT NAGPUR wherein after considering the provisions of section 36(1)(vii)(a) and the Banking Regulation Act, the coordinate bench has held as agree with the assessee that once the Reserve Bank of India recognizes and notifies a Cooperative Bank as a non scheduled bank, the Revenue cannot contend otherwise. Admittedly upon fulfilling all the necessary conditions of the RBI, the assessee bank has been duly notified as a non schedule bank and hence being a non schedule bank it is entitled to deduction u/s 36(1)(viia). Decided against revenue.

Summary

Issues:
1. Claim of deduction u/s 36(1)(vii)(a) for provision made by the assessee.
2. Treatment of cooperative bank at par with scheduled bank for deduction u/s 36(1)(vii)(a).

Analysis:
1. The appeal by the Revenue Department stemmed from a decision of the CIT(Appeals)-II, Nagpur regarding the allowance of deduction u/s 36(1)(vii)(a) of the IT Act, 1961. The main contention was whether the assessee, a cooperative bank, was entitled to claim a deduction based on provisions made during the relevant year. The Revenue argued that the assessee was not eligible for the deduction as it related to 10% of the aggregate average advance made by rural branches. The CIT(Appeals) considered various case laws and provisions of the Act, particularly the Banking Regulation Act, and concluded that the provision for bad and doubtful debt was an allowable deduction under section 36(1)(vii)(a) of the IT Act. The Tribunal upheld this decision, citing previous judgments and the recognition of the bank as a non-scheduled bank by the RBI, making it eligible for the deduction.

2. The second issue revolved around whether the cooperative bank could be treated at par with a scheduled bank for the purpose of the deduction u/s 36(1)(vii)(a) of the IT Act. The Tribunal referred to a previous ITAT decision involving a similar issue and held that cooperative banks recognized and approved by the RBI, and listed as non-scheduled banks, are entitled to the deduction under the relevant provision. The Tribunal emphasized that once the RBI designates a cooperative bank as a non-scheduled bank and it fulfills the necessary conditions, it is eligible for the deduction. Based on this reasoning and the totality of the facts, the Tribunal dismissed the Revenue's appeal and affirmed the decision of the CIT(Appeals), thereby upholding the treatment of the cooperative bank for the deduction in question.

In conclusion, the Tribunal, after considering the relevant provisions, case laws, and the RBI's designation of the bank as a non-scheduled bank, ruled in favor of the assessee cooperative bank, allowing the deduction under section 36(1)(vii)(a) of the IT Act. The decision highlights the importance of regulatory recognition and compliance in determining eligibility for tax deductions, particularly in the context of cooperative banks compared to scheduled banks.