TMI BlogAssessment of Banks - Checklist for deductions - regardingX X X X Extracts X X X X X X X X Extracts X X X X ..... oper verification. In particular, deductions under the provisions referred to below should be allowed only after a thorough examination of the claim on facts and on law as per the provisions of the I.T. Act., 1961 . (i) Under section 36(1)(vii) of the Act, deduction on account of bad debts which are written off as irrecoverable in the accounts of the assessee is admissible. However, this should be allowed only of the assessee had debited the amount of such debts to the provision for bad and doubtful debt account under section 36(1)(viia) of the Act, as required by section 36(2)(v) of the Act. (ii) While considering the claim for bad debts under section 36(1)(vii) , the assessing officer should allow only such amount of bad debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 computed in accordance with Rule 6ABA of IT. Rules, 1962 . (iv) Third proviso to section 36(1)(viia) of the Act, allows a scheduled bank or non-scheduied bank, at its option, to claim a further deduction in excess of the limits specified in the preceding two provisos, for an amount upto the income derived from redemption of securities made in accordance with a scheme framed by Central Government. Before allowing deduction under this provision, it should be ensured that such income has been disclosed in the return of income under the head "Profits and gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sified under HTM category need not be marked to market and are carried at acquisition cost unless these are more than the face value, in which case the premium should be amortised over the period remaining to maturity. In the case of HFT and AFS securities forming stock in trade of the bank, the depreciation / appreciation is to be 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for wage arrears for which negotiations are yet to be finalized, provision for standard asset etc...]. A contingent liability cannot constitute deductible expenditure for the purposes of Income Tax Act. Thus, putting aside of money which may become expenditure on the happening of an event would normally not constitute an allowable expenditure under the Income Tax Act. The AOs should verify such claims as to whether these are admissible as per the Income Tax Act. (xii) Under section 145 of the Act, income under the heads 'profits and gains of business' or 'income from other sources' is required to be computed in accordance with either cash or mercantile system of accounting, regularly employed by the assessee. Under the RBI guideli ..... X X X X Extracts X X X X X X X X Extracts X X X X
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