2016 (11) TMI 1238 - AT - Income Tax

Disallowance of provision created towards non-performing asset under section 36(1)(vii) - Held that - As per the decision of the hon ble apex court in the case of Vijaya Bank v. CIT reported in 2010 (4) TMI 46 - SUPREME COURT it has been held that if an assessee debits an amount of doubtful debt to profit and loss account and credits sundry debtors account the same should be allowed as a deduction. This decision being the law of land has to be meticulously followed by all the relevant authorities. However, at the same time, an effective control has to be exercised and established before the Revenue so that the same debtors are not claimed as bad debts again and again because the debtors towards which such bad debts are claimed are not written off in the books of account. Since these aspects have not been considered by the learned Assessing Officer, we hereby remit back the matter to the file of the learned Assessing Officer for fresh consideration, accordingly the issue with respect to computation of deduction under section 36(1)(viia) of the Act is also remitted back for fresh consideration. Further, since the assessee has raised an additional issue in regard to the claim of deduction under section 80P of the Act for the first time, the issue is also remitted back to the file of the learned Assessing Officer for de novo consideration.

Summary

Issues:
1. Disallowance of provision for non-performing asset under section 36(1)(vii) of the Income-tax Act.
2. Quantum of aggregate average advances adopted for relief under section 36(1)(viia) of the Act.
3. Eligibility of the co-operative society for deduction under section 80P of the Act.

Analysis:

Issue 1: Disallowance of provision for non-performing asset under section 36(1)(vii) of the Income-tax Act:
The appeal was filed against the order of the Commissioner of Income-tax (Appeals) sustaining the disallowance of a provision created towards non-performing asset. The Assessing Officer disallowed the provision amounting to ?31,15,08,410 under section 36(1)(vii) of the Act. The Appellate Tribunal noted that the assessee had claimed deduction under section 36(1)(vii) read with section 36(2) and not under section 36(1)(viia). It was observed that the provision was made for bad and doubtful debts but not written off in the books of account. The Tribunal remitted the matter back to the Assessing Officer for fresh consideration, emphasizing the need for effective control to prevent repetitive claims of bad debts without actual write-offs.

Issue 2: Quantum of aggregate average advances adopted for relief under section 36(1)(viia) of the Act:
The Commissioner of Income-tax (Appeals) confirmed the quantum of aggregate average advances adopted by the Assessing Officer for giving relief under section 36(1)(viia) of the Act. However, the Appellate Tribunal remitted this issue back to the Assessing Officer for fresh consideration along with the computation of deduction under section 36(1)(viia). The Tribunal highlighted the importance of adhering to the Supreme Court decision in Vijaya Bank v. CIT, which allows doubtful debts debited to the profit and loss account to be claimed as a deduction.

Issue 3: Eligibility of the co-operative society for deduction under section 80P of the Act:
The assessee, a co-operative society engaged in banking business, raised an additional ground claiming eligibility for deduction under section 80P of the Act. The Tribunal remitted this issue back to the Assessing Officer for de novo consideration since it was raised for the first time. The Tribunal allowed the appeal of the assessee for statistical purposes, indicating that further assessment was required on the issues related to section 36(1)(viia) and section 80P of the Act.

In conclusion, the Appellate Tribunal's judgment addressed the issues of disallowance of provision for non-performing asset, quantum of aggregate average advances, and eligibility for deduction under relevant sections of the Income-tax Act. The Tribunal emphasized the need for proper assessment and adherence to legal precedents in determining deductions and allowances for the assessee.