2023 (5) TMI 543 - AT - Income Tax

Addition u/s. 36(1)(vii) - assessee has claimed deduction of bad debts u/s. 36(1)(vii) without actually writing off the debts are irrecoverable in the individual loan accounts of the debtors concerned - HELD THAT - Similar issue has also been decided by the coordinate Bench of the Tribunal in the case of Bank of Baroda v. Addl. CIT, LTU 2023 (4) TMI 1169 - ITAT BANGALORE in favour of the assessee. DR has submitted that the Hon ble Apex court has admitted the SLP filed by the revenue but the status of the same could not be furnished by the ld. DR, accordingly, we are bound by the order of the Jurisdictional High Court till the date of passing of the final order by the Hon ble Supreme Court. Accordingly respectfully following the above decisions, we direct the AO to delete the addition made u/s. 36(1)(vii). This ground for AYs 2011-12 and 2012-13 is allowed. Disallowance of deduction u/s. 36(1)(viia) - whether for computing the aggregate average advances made by rural branches, as per Rule 6ABA, only the fresh advances made during the month, or the outstanding loans at the end of each month, should be considered? - HELD THAT - We notice that the Hon ble Karnataka High Court in the case of CIT, LTU v. Canara Bank 2023 (1) TMI 243 - KARNATAKA HIGH COURT held that amounts of advances as outstanding at the last day of each month would be a fluctuating figure depending on the outstanding as increased or reduced respectively by advances made and repayments received. The assessee might provided for bad and doubtful debts but the deduction would only be allowed at the percentage of aggregate average advance, computation of which is prescribed by rule 6ABA. We find from the amended direction made by the Tribunal that such direction is in terms of rule 6ABA. The ITO has made the computation of aggregate monthly advances taking loans and advances made during only the previous year relevant to assessment year 2009-10 as confirmed by CIT(A). The Tribunal amended such direction, in our view, correctly applying the rule. Applicability of the provisions of section 115JB to the Appellant Bank - HELD THAT - As decided in assessee own case 2022 (3) TMI 134 - ITAT BANGALORE We notice that the provisions of sec.51 of the Act specifically states that only certain provisions of BR Act are applicable to Corresponding new bank . We noticed earlier that the Ld CIT(A) has proceeded to decide this issue by observing that all provisions of BR Act are applicable to the Company. We notice that the Ld CIT(A) did not consider the effect of provisions of sec.51 of the BR Act upon the assessee. Hence the decision taken by him under the impression that all the provisions of BR Act are applicable to the assessee is faulted one. In our view the Ld CIT(A) should considered the effect of provisions of sec. 51 of BR Act and accordingly he should have appreciated the contentions of the assessee on the definition of banking company , provisions of sec.211(2) of the Companies Act etc. Since these aspects go to the root of the issue, in our view, this issue needs to be examined at the end of Ld CIT(A) afresh

Summary

Issues Involved:

1. Reopening of assessment u/s. 147 of the Income-tax Act, 1961.
2. Disallowance u/s. 36(1)(vii) of the Income-tax Act.
3. Disallowance of deduction u/s. 36(1)(viia) of the Income-tax Act.
4. Applicability of the provisions of section 115JB of the Income-tax Act.

Summary:

Reopening of Assessment u/s. 147:
The legal issue regarding the reopening of assessment u/s. 147 was not pressed by the assessee at the time of hearing; hence, it was dismissed as not pressed for all the assessment years under consideration.

Disallowance u/s. 36(1)(vii):
The AO disallowed the deduction of bad debts claimed u/s. 36(1)(vii) on the grounds that the assessee did not actually write off the debts in the individual loan accounts and did not charge the amount of bad debts written off to the provision for bad and doubtful debts account. The CIT(A) upheld the AO's decision, citing that the provisions of section 36(1)(viia) apply to the assessee bank and the deduction has to be considered in terms of the proviso to section 36(1)(vii) r.w.s. 36(2). However, the Tribunal, following the coordinate bench's decisions in the assessee's own case, directed the AO to delete the disallowance made u/s. 36(1)(vii) for AYs 2011-12 and 2012-13.

Disallowance of Deduction u/s. 36(1)(viia):
The AO disallowed the deduction claimed u/s. 36(1)(viia) by considering only the fresh advances made during the month by the rural branches for computing the aggregate average advances as per Rule 6ABA. The CIT(A) upheld the AO's view, stating that only fresh advances should be considered to avoid double deduction. The Tribunal, however, following the Karnataka High Court's judgment in the case of Canara Bank, held that the computation of aggregate average advances should include the outstanding loans at the end of each month and directed the AO to allow the deduction claimed by the assessee for AYs 2011-12 to 2013-14.

Applicability of Section 115JB:
The AO held that the provisions of section 115JB are applicable to the assessee bank, making it liable for payment of MAT on its book profits. The CIT(A) upheld this view, noting that the explanation inserted by the Finance Act 2012 applied retrospectively and that the assessee bank, being an Indian company, is liable to pay MAT. The Tribunal, following its decision in the assessee's own case for AY 2014-15, restored the issue to the file of the CIT(A) for fresh examination and decision, considering the effect of section 51 of the Banking Regulation Act and other relevant provisions.

Conclusion:
The appeals were partly allowed for statistical purposes, with the Tribunal directing the AO to delete the disallowance made u/s. 36(1)(vii) and to allow the deduction claimed u/s. 36(1)(viia). The issue of applicability of section 115JB was restored to the file of the CIT(A) for fresh examination. The stay petitions were dismissed as infructuous.