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TMI Blog2014 (1) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... Creation of provision for bad debts - Whether the assessee has created any reserve/provision for bad and doubtful debts – Held that:- For claiming benefit under the provisions of Section 36(1)(viia)(a) the conditions to be satisfied is that the provision for bad and doubtful debts should have been made by the bank eligible to claim such deduction - the assessee has created provision for bad and doubtful debts may be under different nomenclature - This will not dis-entitle the assessee for claiming deduction under the provisions of Section 36(1)(viia)(a). The purpose for creation of reserve for NPA is same i.e., creating provision towards bad and doubtful debts – the order of the CIT(A) set aside – Decide in favour of Assessee. - IT Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 18,31,04,368/-. This aspect has not been considered by the Assessing Officer while finalizing the order u/s. 143(3) of the Act dt. 09-09-2010. Who was duty-bound to do so. In sofaras the issue of assessee not eligible for deduction u/s. 36(1)(viia) of the Income-tax Act, 1961 for the reason that cooperative banks are not eligible for deduction under the said section, this aspect also had escaped the notice of the Assessing Officer while finalizing the scrutiny assessment proceedings" The CIT held that in view of the observations made in the order, the assessment order passed u/s. 143 (3) is erroneous and prejudicial to the interest of the Revenue. The CIT set aside the assessment order and directed the Assessing Officer to pass t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82 wherein it has been held that an explanation cannot over ride the section. The objection of the CIT that in Explanation (ia) to Section 36(1)(viia), Rural Branch means a branch of a scheduled bank or a non-scheduled bank only and co-operative banks are not included, therefore, assessee is not entitled to claim deduction under the provisions of the Section is unfounded. As regards the other observation of the CIT that assessee has not created any reserve or provision for bad and doubtful debts, the AR submitted that the assessee has created reserve for NPA. In fact, the reserve has been created for bad and doubtful debts under different nomenclature, therefore, the assessee is entitled to claim deduction u/s. 36(1)(viia). In suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Act. The relevant extract of the provisions of section 36(1)(viia)(a) are reproduced herein below: "Section. 36 (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 (i) xxxxxxxxxxxxxxxx (viia) [in respect of any provision for bad and doubtful debts made by- (a) a scheduled bank not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank [or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, an amount not exceeding seven and one-half per cent] o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The ld. CIT has held that the benefit of Section 36(1)(viia)(a) is available only to Scheduled and Non-Scheduled Banks, co-operative banks are not entitled for the same. Here it becomes important to understand the concept of Scheduled and Non-Scheduled Banks. The Banking Regulation Act, 1949 defines 'banking company' in Section 5(c) as: "'Banking company' means any company which transacts the business of banking in India." In the instant case, it is an admitted fact that the assessee is carrying on banking activities. Thus, the assessee falls within the definition of Section 5(c) of Banking Regulation Act. The Reserve Bank of India (RBI) Act, 1934 defines 'Scheduled Bank' in Section 2(e) as: "'Scheduled Bank' means a ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o claim such deduction. Co-operative Banks do not strictly follow the provisions of Banking Regulation Act for the purpose of maintaining their Books of Account. In our considered opinion, the assessee has created provision for bad and doubtful debts may be under different nomenclature. This will not dis-entitle the assessee for claiming deduction under the provisions of Section 36(1)(viia)(a). The purpose for creation of reserve for NPA is same i.e., creating provision towards bad and doubtful debts. In view of the above, we find that the assessment order dated 09-09-2010 is neither erroneous nor prejudicial to the interest of the Revenue. The impugned order of CIT passed u/s. 263 is set aside and the appeal of the assessee is allow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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