2018 (6) TMI 1851 - AT - Income Tax

Denial of deduction u/s 36(1)(viia) - provision for bad and doubtful debts appearing in the books of account of the assessee is higher than the provision calculated as per limit prescribed u/s 36(I)(viia) - assessee submitted that the deduction u/s 36(1)(viia) are statutory deductions allowable under the Act and the deductions have to be allowed whether the provisions is made or not? - HELD THAT - There is no merit in the argument of the Ld. counsel. We agree with the CIT(A) that in order to claim deduction under section 36(viiia) of the Act the assessee is required to make provision and debit the same from the P L account. Hence the assessee was required to make the provision in accordance with the Act. The copy of P L account submitted by the Ld. counsel prima facie shows that the assessee bank had made the provision for bad and doubtful advances to the extent of Rs. 45, 84, 000/-. Accordingly deduction to that extent cannot be denied under the provisions of section 36(viia) of the Act. Since there is no reference of this document in the orders passed by the authorities below in our considered view the same needs verification by the AO. Hence in the interest of justice we set aside the findings of the Ld. CIT(A) and restore the sole ground of appeal Assessment Year 2010-11 of the assessee to the file of AO to verify the P L Account submitted by the assessee and to allow the deduction to the extent of provision made by the assessee bank in its books of account. Assessee appeal allowed for statistical purposes.

Summary

Issues involved:
The appeal against the order of the Ld. Commissioner of Income Tax (Appeals) dismissing the appeal filed by the assessee against the assessment order u/s 143(3) of the Income Tax Act, 1961 for the assessment year 2010-11.

Details of the Judgment:

1. Issue: Deduction u/s 36(1)(viia)
- The assessee, a cooperative bank, claimed deduction under section 36(1)(viia) of Rs. 23,69,48,000 and Rs. 1,99,97,585 without debiting the same in the P&L account, following RBI norms.
- The AO made an addition of Rs. 25,69,45,585, determining the total income at Rs. 26,66,34,465.
- The Ld. CIT (A) upheld the AO's action, leading to the appeal before the Tribunal.
- The Ld. counsel argued that the bank made provisions for bad debts as per RBI guidelines, with the provision higher than the limit prescribed u/s 36(1)(viia).
- The Tribunal found merit in the argument and set aside the findings of the Ld. CIT(A) to allow the deduction based on the provision made by the bank in its books of account.
- The appeal for the assessment year 2010-11 was allowed for statistical purposes.

2. Judgment by the Tribunal:
- The Tribunal held that in order to claim deduction under section 36(viiia) of the Act, the assessee must make a provision and debit the same from the P&L account.
- The assessee's provision for bad and doubtful advances was found to be Rs. 45,84,000, which should not be denied under section 36(viia) of the Act.
- The Tribunal directed the AO to verify the P&L Account submitted by the assessee and allow the deduction based on the provision made by the bank in its books of account.
- The Tribunal allowed the appeal for the assessment year 2010-11 solely for statistical purposes.