TMI Blog2014 (10) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... e represented the money lent in the ordinary course of business of banking carried on by the assessee, the assessee is entitled to claim deduction on account of bad debts written off u/s 36(1)(vii) r.w. section 36(2) – the order of the CIT(A) is set aside – Decided in favour of assessee. Amount paid to LIC towards Employees Gratuity Fund disallowed – Held that:- The amount paid by the assessee to LIC towards Employees Gratuity Fund was disallowed by the AP on the ground that the Fund was not approved by the prescribed authority under the Income tax Act, although application seeking such approval was filed by the assessee – assessee contended that the Employees Group Gratuity Fund has since been approved by the Commissioner of Income-tax II, Hyderabad with effect from 1.3.2009 vide letter dated 1.3.2013 - both the sides have agreed that the matter should be sent back to the AO – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of assessee. Bad debts written off under the Agricultural Debt Waiver and Debt Relief Scheme, 2008 – Held that:- As per clause (v) of sub-section (2) of S.36, no deduction for a bad debt or part thereof can be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jagtap, Accountant Member: Out of these two appeals filed by the assessee, ITA No.1481/Hyd/2013 is an appeal filed against the order of the learned Commissioner of Income-tax(Appeals) III, Hyderabad dated 16th August, 2013 passed under S.246A of the Act, while ITA No.88/Hyd/14 is an appeal, which is directed against the order of the learned Commissioner of Income-tax(Appeals) III, Hyderabad dated 14th November,2013 passed under S.154 of the Act. Since one of the issues involved therein is interlinked, these appeals have been heard together and are being disposed of by a single consolidated order for the sake of convenience. ITA No.1481/Hyd/2013 2. First, we shall take up the appeal of the assessee, being ITA No.1481/Hyd/2013. The common issue involved in grounds no.1 and 2 of this appeal relates to disallowance of ₹ 70,96,83,398 made by the Assessing Officer and sustained by the learned CIT(A) on account of bad debts written off, which were covered by the State Government Guarantee. 3. Assessee in the present case is a state level Apex Cooperative Credit institution for the State of Andhra Pradesh, which provides agricultural loans to the farmers in the State, thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 89, there was no requirement to show that the debts written off had actually become bad, and the only requirement was that such debts should be written off by the assessee in its books of account. The learned CIT(A) did not find merit in this stand of the assessee. According to him, it was necessary to ascertain whether the decision to write off the relevant debts as bad was a bona fide decision taken by the assessee. In this regard, he found that the decision to write off debts outstanding in the names of APSEB, the Amadalavalasa CSF/Srikakulam DCCB and the Swaroop Agro Oil Mills, was a bona fide business decision taken by the assessee, after following proper procedure and obtaining the concurrence of the audit. He also found that the guarantee given by the State Government in these cases had either been revoked or did not exist. He therefore, allowed the claim of the assessee for deduction on account of these bad debts written off. As regards the other debts written off by the assessee, he held that proper procedure had not been followed by the assessee and these loans were very much recoverable. He accordingly sustained the disallowance made by the Assessing Officer on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the learned CIT(A), the decision of the assessee to write off the relevant debts as bad was not a bona fide business decision, keeping in view that the said debts were secured by the State Government guarantee and there was nothing brought on record to establish that the said debts had become actually bad during the year under consideration. 7. We have considered the rival submissions and also perused the relevant material on record. It is observed that the claim of the assessee for deduction on account of bad debts written off was disallowed by the Assessing Officer and the said disallowances has been partly sustained by the learned CIT(A) mainly on the ground that the relevant debts written off by the assessee had not actually become bad during the year under consideration. As held by the Hon ble Supreme Court in the case of TRF Ltd. (supra), every assessee, prior to 1.4.1989 had to establish, as a matter of fact, that the debt advanced by him, had in fact become irrecoverable in order to claim deduction under S.36(1)(vii). As held by the Hon ble Supreme Court, this position, however, has got altered by the amendment made in S.36(1)(vii) of the Act with effect from 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Nos.3 and 4 of the assessee s appeal are treated as allowed for statistical purposes. 10. Ground Nos, 5, 6 and 7 of the assessee s appeal involve a common issue relating to disallowance of ₹ 173,15,46,253 made by the Assessing Officer and confirmed by the learned CIT(A) on account of bad debts written off under the Agricultural Debt Waiver and Debt Relief Scheme, 2008 (ADWDRS). 11. In its Profit Loss Account filed alongwith the return of income, assessee had debited an amount of ₹ 173,15,46,253 on account of its share in the waiver of interest and other charges. While substantiating its claim on this issue, it was submitted before the Assessing Officer by the assessee that it had provided credit loans to farmers through PACs at concessional rates of interest with Government of India and State Government support. It was submitted that as per the scheme formulated, the farmers were extended certain relief on account of waiver of excess of interest over the principal amount, unapplied interest, penal interest, legal charges, inspection charges and miscellaneous charges. It was further submitted that as per the Waiver Scheme, the relief allowed was shared amongst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of bad debt, therefore, is allowable subject to satisfaction of the condition stipulated in S.36(2)(v) of the Act. He, however, has contended that the provisions of S.36(1)(viia) introduced in the statute book with effect from 1.4.1979 are made applicable to cooperative banks only from 1.4.2007, and therefore, the learned CIT(A) ought to have directed the Assessing Officer to satisfy himself about the fulfilment of the conditions stipulated in S.36(2)(v) by the assessee keeping in view that S.36(1)(viia) was applicable in the case of the assessee only with effect from 1.4.2007. Since this contention raised by the learned counsel for the assessee is duly supported by the Board Circular No.258/1979 dated 14.6.1979 and No.3 of 2008 dated 12.3.2008, clarifying that the provisions of S.36(1)(viia) introduced from 1979 would not be applicable to cooperative banks from 1.4.1979, but only from 1.4.2007 and the Learned Departmental Representative has also not disputed this position, we accept this contention raised by the learned counsel for the assessee. Accordingly, the direction given by the learned CIT(A) is modified to the extent that the Assessing Officer shall satisfy himself about ..... X X X X Extracts X X X X X X X X Extracts X X X X
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