9911796707
TMI Blog2016 (4) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income Tax (Appeals) has further erred on facts and in law in not allowing the claim of deduction u/s 36(1)(viia) in respect of provision for bad & doubtful debts of Rs. 11,60,154/- created during the year out of the accumulated profit of earlier years apart from Rs. 11,17,000/- allowed by the AO. Ground No. 1 : 2. The assessee is a Co-operative Society Bank engaged in banking activities. Ground No. 1 pertains to the restriction of claim of deduction under section 36(1)(viia) of the I.T. Act. In this regard, the AO in the assessment order has mentioned as under :- " 3. As regards, provisions for bad debts, the assessee vide above referred letter dated 28.02.2013 submitted that " the Tax consultant who originally filed the return of income was not aware of the relevant provisions of the Act for deduction u/s 36(viia)". Alongwith the above submission the assessee submitted a revised working in respect of the aggregate average advances made by the rural branches of the assessee bank. On the basis of such working, the deduction under section 36(viia) being the aggregate of 7.5% of the total income and 10% of the aggregate average advances made by rural branches was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17,000/- in the P&L account on account of provisions of bad and doubtful debts as per provisions of sec. 36(1)(vii)(a). The appellant case is that allowable deduction u/s 36(1)(vii)(a) was for Rs. 91,07,187/- and that the appellant has made such provisions in the earlier years and the provision available for deduction under this section as on 31.03.2010 was for Rs. 1,65,75,936/-. Accordingly as per the appellant as against the deduction allowed by AO for Rs. 11,17,000/- the whole of the gross total income amounting to Rs. 72,71,317/- should have been allowed as deduction u/s 36(1)(vii)(a). Alternatively it is also contended that even during the assessment year under consideration provisions was made for Rs. 22,77,154/- in as much as apart from the provision for bad and doubtful debts in the balance sheet for Rs. 11,17,000/-, another reserve under the head "Special Bad Debts Reserves" amounting to Rs. 6,96,092/- and "Bad and Doubtful Debts Reserves" amounting to Rs. 4,64,062/- were also created and therefore the total reserves created during the year under consideration were arrived at Rs. 22,77,154/-. On careful consideration of all these facts it may be noted that the deductions u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same is reproduced herein below :- Particulars Contingency Standard Assets Special Bad Debts Reserve Bad and Doubtful Debt Reserves Provision for NPA Total Opening Balance as on 01.04.2006. 32,83,000 23 48,42,610 61,73,149 1,42,98,782 Add: Provision made during 2006-07 - - - - - Closing Balance as on 31.03.2007 32,83,000 23 48,42,610 61,73,149 1,42,98,782 Add: Provision made during 2007-08 - - - - - Closing Balance as on 31.03.2008 32,83,000 23 48,42,610 61,73,149 1,42,98,782 Add: Provision made during 2008-09 - - - 1,28,22,000 1,28,22,000 Closing Balance as on 31.03.2009 32,38,000 23 48,42,610 1,89,95,149 2,71,20,782 Add: Provision made during 2009-10 11,17,000 6,96,093 4,64,062 - 22,77,155 Closing Balance as on 31.03.2010 44,00,000 6,96,116 53,06,672 1,89,95,149 1,93,97,936 The ld. A/R has submitted that in view of the provisions of section 36(10)(viia), deduction should not be restricted to the provisions made during the year and it should be permitted for the total purchases made in the books of account. 4.2. Per contra, the ld. D/R for the revenue has submitted that the claim of the assessee before this T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount not exceeding 5 percent upto 31st March 2003 and thereafter 7.5. percent of the total income (computed before making any deduction under this clause and Chapter VIA of the Act) and an amount not exceeding 10 percent of the aggregate average advances made by 'rural branches' of such banks computed in the manner prescribed under the Income Tax Rules, 1962, shall be allowed as deduction. For this purpose - (a) total income of the year should be worked out after adjusting brought forward losses, if any, but before making any deductions under Chapter VI A of the Act. (b) The deduction for provision for bad and doubtful debts should be restricted to the amount of such provision actually created in the books of the assessee in the relevant year or the amount calculated as per provisions of section 36(1)(viia), whichever is less. (c) For working out the aggregate average advances by rural branches, the Assessing Officer should verify whether the branch (es) in question actually qualify to be categorized as 'rural branches' as per the definition in Explanation (ia) below section 36(1)(viia). The aggregate average advances of such rural branches should thereafter be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregated scrip wise and only net depreciation, if any, is required to be provided for in the accounts. The latest guidelines of the RBI may be referred to for allowing any such claims. (viii) Section 14A of the Act read with rule 8D of the I.T. Rules, 1962, provides that for the purpose of computing total income under the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income, which does not form part of the total income. Therefore, expenditure in respect of exempted incomes should not be allowed as deduction. (ix) Section 43B(b) of the Act envisages that deduction towards contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees is allowable in computing total income of the assessee only on actual payment basis. Therefore, it should be verified as to whether the expenditure claimed in respect of above heads has actually been met. (x) Section 35DDA of the Act provides that where an assessee incurs any expenditure by way of payment of, any sum to an employee at the time of his retirement in accordance with any scheme of voluntary retirement, one fifth of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has rightly pointed out that this issue stands further clarified from the proviso to clause (vii) of Section 36(1) of the Act, which reads as under :- " Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause". 7. This also clearly shows that making of provision equal to the amount claimed as deduction in the account books is necessary for claiming deduction under section 36(1)(viia) of the Act. The Tribunal has distinguished various authorities relied upon by the assessee wherein deductions had been allowed under various provisions which also required creation of reserve after the assessee had created such reserve in the account books before the completion of the assessment. It has been correctly pointed out that in all those cases, reserves/provisions had been made in the books of account of the same assessment year and not of the subsequent assessment year. 8. In the present case, the assessee has not made any provision i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed in the return of income under the head "Profits and gains of business or profession" : Explanation - For the purposes of this sub-clause, "relevant assessment years" means the five consecutive assessment years commencing on or after the 1st day of April, 2000, and ending before the 1st day of April, 2005 ; (b) a bank, being a bank incorporated by or under the laws of a country outside India, an amount not exceeding five per cent. of the total income (computed before making any deduction under this clause and Chapter VI-A) ; (c) a public financial institution or a State financial corporation or a State industrial investment corporation, an amount not exceeding five per cent. of the total income (computed before making any deduction under this clause and Chapter VI-A) : Provided that a public financial institution or a State financial corporation or a State industrial investment corporation referred to in this sub-clause shall, at its option, be allowed in any of the two consecutive assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, deduction in respect of any provision made by it for any assets classified by ..... 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