2020 (8) TMI 195 - AT - Income Tax

Disallowance on account of Principal NPA - addition on the ground that the provisions of 36(1)(viia) are not applicable to the assessee as the assessee is a primary Cooperative Agricultural and Rural Development Bank which is excluded from the Cooperative Bank - HELD THAT - The assessee has not disputed that it is a primary Cooperative Agricultural and Rural Development Bank. The Cooperative Bank which is eligible for deduction under section 36(1)(vii) does not include a primary agricultural credit society or a primary cooperative agricultural and rural development bank. There are two exclusions from the broad category of cooperative banks which are (i) a primary agricultural credit society and (ii) a primary cooperative agricultural and rural development bank. Assessee being a primary cooperative agricultural and rural development bank falls in the exception provided in clause (viia) of section 36(1) of the Act. Therefore, the assessee is not entitled for deduction under section 36(1)(viia). CIT (A) has held that the assessee a primary Cooperative Agricultural Rural Development Bank is covered under the provisions of section 36(1)(viia). After giving a finding, the LD. CIT (A) held that the assessee is entitled for deduction. CIT (A) has discussed the quantum of deduction. Thus the finding of the LD. CIT (A) is based on misunderstanding of the provisions which is in fact not applicable in the facts of the assessee s case. Accordingly, the order of the LD. CIT qua this issue is set aside. Addition made on account of Time Barred Interest on over-due NPA loan accounts - AO has disallowed this amount and made the addition on the ground that this is a provision and, therefore, when the assessee is not covered under the provisions of section 36(1)(viia), it is not an allowable deduction - HELD THAT - Even from the details filed by the assessee, it is not clear whether this whole amount was part of the Interest income shown in the Profit Loss account. Further, the details filed by the assessee are not part of the audited books of account being Schedule to the Balance Sheet but it is prepared subsequently without certified by the Auditors. Even otherwise, the possibility of over-lapping between the deduction under section 36(1)(vii) and 36(1)(viia) is not ruled out when it comes to the cases of bank. It is settled proposition of law that deduction under section 36(1)(vii) is allowable in respect of any bad debts written off as irrecoverable in the books of account for the relevant accounting year but only to the extent such bad debt exceeds the credit balance in the provisions for bad and doubtful debt account made under clause 36(1)(viia). To avoid the double deduction, the proviso to section 36(1)(vii ) was inserted and the assessee has choice to choose between 36(1)(vii) and 36(1)(viia) whichever is beneficial. The finding of the LD. CIT (A) are not based on the complete details as to whether this amount on account of Time Barred Interest on NPA loans is fully satisfied the condition of section 36(2). Accordingly in the facts and circumstances of the case and in the interest of justice, we set aside this issue to the record of AO to re-examine the same on the point whether the assessee has actually written off this amount. Appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues:
1. Disallowance of Principal NPA
2. Disallowance of Time Barred Interest RES

Issue 1: Disallowance of Principal NPA:
The appeal concerns the disallowance of Principal NPA by the Assessing Officer (AO) for the assessment year 2010-11. The AO contended that the assessee, a Cooperative Land Development Bank, did not fall under section 36(1)(viia) of the IT Act and thus made an addition of ?3,91,38,329. On appeal, the ld. CIT (A) deleted the addition, stating that the assessee was covered under section 36(1)(viia) for the provision made in respect of NPA. The dispute centered on whether the assessee, being a primary Cooperative Agricultural and Rural Development Bank, was eligible for the deduction under section 36(1)(viia). The tribunal found that the assessee fell under the exception provided in clause (viia) of section 36(1) and was not entitled to the deduction. The order of the LD. CIT (A) was set aside on this issue.

Issue 2: Disallowance of Time Barred Interest RES:
The AO disallowed the Time Barred Interest RES, contending it was a provision and not allowable since the assessee was not covered under section 36(1)(viia). The ld. CIT (A) deleted the addition, believing the amount was written off based on the P & L account details. However, the tribunal noted that the details provided were not part of the audited books of account and lacked clarity on whether the amount was part of the Interest income. Considering the possibility of overlapping deductions under sections 36(1)(vii) and 36(1)(viia), the tribunal set aside the issue for the AO to re-examine if the amount was actually written off. The decision aimed to ensure compliance with the provisions of section 36(2) of the Act and provide the assessee with a fair hearing opportunity.

In conclusion, the tribunal partially allowed the appeal for statistical purposes, addressing the issues of disallowance of Principal NPA and Time Barred Interest RES comprehensively, ensuring a fair assessment based on the provisions of the IT Act.