2023 (1) TMI 426 - AT - Income Tax
Disallowance u/s 36(1)(viia) - Provision for bad and doubtful debts under Section 36(1)(viia) against the advances of rural branches - assessee raised ground of appeal raising the plea that the assessing officer not allowed additional deduction of 10% on advances made by rural branches of assessee-bank as prescribed under section 36(1)(viia) by holding that the assessee is a co-operative bank and the definition of non-schedule bank does not include co-operative bank for the purpose of deduction of 10% - assessee also raised ground of appeal that the assessing officer erred in not considering an amount of Rs.1.66 Crore for deduction under section 36(1)(viia) being bad and doubtful debts appropriated from the profit & loss account as per the guidelines of Reserve Bank of India (RBI) towards statutory bad and doubtful debts reserve i.e. 15% of profit on the ground that no such provision is made in the profit & loss account.
HELD THAT:- All cooperative bank all over India follows such practice of appropriation from the net profit which they get approved by the members, only after approval of accounts and director’s report, the return of income is filed. Thus, appropriation made by the assessee bank for bad and doubtful debts is nothing but providing for bad and doubtful debts from the profit and loss accounts.
After introduction of section 36(1)(viia) by the finance Act, 1979, with effect from April 1,1980, Circular No. 258, dated June 14, 1979, was issued by the Central Board of Direct Taxes to clarify the application of the new provisions. The provisions were introduced in order to promote rural banking and assist scheduled commercial banks in making adequate provision from their current profits for risks in relation to their rural advances. The deductions were to be limited as specified in the section. The circular mentions that the provisions of new clause (viia) of section 36(1), relating to the deduction on account of provisions for bad and doubtful debts, is distinct and independent of the provisions of section 36(l)(vii) relating to allowance of deduction of the bad debts. Scheduled commercial banks would continue to get the benefit of the write off of the irrecoverable debts under section 36(1)(vii) in addition to the benefit of deduction of the provision for bad and doubtful debts under section 36(1)(viia)
While considering the similar issues in assessee's own case for earlier year, which is followed by ld CIT(A) in the impugned order, we have followed the decision of Kannur District Co-operative Bank [2012 (3) TMI 691 - ITAT COCHIN] - It is settled position under the tax jurisprudence that where there is two divergent view of two different High Court on the same issue, the decision favourable to the assessee must be adopted. Similar principal was recognized in the case of CIT Vs Vegetable Products Ltd. [1973 (1) TMI 1 - SUPREME COURT] - Thus, in view of afforesaid factual and legal discussion, we affirm the order of ld CIT(A), with these additional observations. In the result, the grounds of appeal raised by the revenue is dismissed.