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TMI Blog2018 (8) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... in this appeal, as culled out from the records are that the assesee is a cooperative society doing the business of banking in the district of Mandsaur. The return of income was filed declaring the income of Rs. 5,72,83,218/-. The accounts are audited. While preparing the P&L a/c, the bank has made the provision for Bad and Doubtful Debts of Rs. 3,00,00,000/- and Special Reserve Fund of Rs,1,42,00,000/-. During the course of assessment it was submitted before the Ld.AO that the Special Reserve Fund is made for the claim u/s 36(1)(viii) of the Income Tax Act (In short referred as the Act). The same was @20% of the profit (5,76,38,168/- + 1,42,00,000/- = 7,18,38,168/-). While framing the assessment the Ld. AO observed that the assessee is not entitled to a deduction u/s 36(1)(viii) since the bank has not given the long term finance for development of agriculture. On this ground he made the addition of Rs. 1,42,00,000/- while computing the total income. In appeal it was submitted before the Ld.CIT(A) that Rs. 1,42,00,000/- has been disallowed treating it to be a claim u/s 36(1)(viii) but the same should be considered u/s 36(1)(viia). It was submitted before the Ld.CIT(A) that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igatory on the part of the AO to draw attention of the assessee to the lawful relief or deduction. The attention is drawn to the following decision: 1. CIT vs Archana Dhanwate 136 ITR 355 (BOM) 2. CIT vs KN Oil Industries 142 ITR 13 (MP) 3. Nathmal Bankatlal Parikh vs CIT 122 ITR 168 5. Per contra The Ld. Departmental representative submitted that the assessee has not claimed the deduction under the correct section not is a nature of expenditure similar because the assessee has claimed the expenditure towards special reserve fund created for long term finance and now assesssee is pleading that it may be allowed deduction for provision for bad and doubtful debts u/s 36(1)(viia). The Ld. Departmental Representative objecting to the contentions of Ld. Counsel for the assessee referring and relying following judgments; 1. IPCA Laboratory Ltd V/s DCIT (2004) 135 Taxman 594 (SC) 2. CIT V/s N.C. Budhraja & Co. (1993) 70 Taxman 312(SC) 3. Pandian Chemicals Ltd V/s Commissioner of Income Tax (2003) 129 Taxman 539 (SC) 6. We have heard the rival contentions, perused the records placed before us and also gone through the judgments referred and relied by both the parties carefull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y- (a) a scheduled bank [not being a bank incorporated by or under the laws of a country outside India or a non-scheduled bank or a co- operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an amount not exceeding 3[eight and one-half per cent] of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year: Provided further that for the relevant assessment years com- mencing on or after the 1st day of April, 2003 and end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank; (ia) "rural branch" means a branch of a scheduled bank or a non- scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; (ii) "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (iii) "public financial institution" shall have the meaning assigned to it in section 4A5 of the Companies Act, 1956 (1 of 1956); (iv) "State financial corporation" means a financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in sub-clause (v) of clause (a), the business of providing long-term finance for the construction or purchase of houses in India for residential purposes; and (iii) in respect of the specified entity referred to in sub-clause (vi) of clause (a), the business of providing long-term finance for development of infrastructure facility in India; (c) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act; (d) "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P; (e) "housing finance company" means a public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes; (f) "public company" shall have the meaning assigned to it in section 39 of the Companies Act, 1956 (1 of 1956); (g) "infrastructure facility" means- (i) an infrastructure facility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction u/s 36(1)(viii) of the I.T. Act. The appellant had claimed deduction of Rs. 1,42,00,000/- on account of special reserve u/s 36(1)(viii) of the I.T. Act. The provision is in expenditure relating to a particular account period but not falling due on the date of filing financial statements. Since the expenditure relates to particular financial year, a provision was made against revenue generated in said accounting period failing which financial statement could not be shown free and fair view. The provision of expenditure could be allowed as deduction only if liability accrued as on date of making provision and it is not a contingent liability. The deduction under the section would be entitled only in case of provision for bad and doubtful debts made by the bank. The deduction under the section is to be allowed by way of provision for bad and doubtful debts which need to be created and reflected in balance sheet. The deduction would be limited only to extend of the reserve created by way of such provision. It is therefore mandatory to prepared the account "provision for bad and doubtful debts accounts" which automatically would need to the reserve on account of such provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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