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TMI Blog2019 (1) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... lacs by way of a provision, which was denied by the Assessing Officer (AO) on the ground that the provision implies a contingent, and not an ascertained, liability, inadmissible in computing business income. Two, how could a provision for bad and doubtful debts be claimed in respect of standard assets, i.e., assets which by the assessee's own estimation are good, provision in respect of which though stands booked in the assessee's accounts in compliance with the RBI guidelines, even as the Act is a separate code in itself and income chargeable to tax under the Act is to be computed in accordance with its' provisions (Southern Technologies Ltd. v. Jt. CIT [2010] 320 ITR 577 (SC)). 3. We have heard the parties, and perused the material on record. 3.1 The relevant part of the tribunal's order supra reads as under: 'Assessee's Appeal (ITA No. 348/Asr/2011) 11. Ground 1 of the assessee's appeal raises the (same) issue of denial of claim for fuel and hire charges. Our adjudication of ground 3 for AY 2007-08 (in ITA 47/Asr/2011) shall mutatis mutandis apply for this ground as well (refer para 4 & 5 of this order) 12. Ground 2 raises the issue of disallowance of provision (at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, would be on the assessee. We decide accordingly. 14. Ground 4 is in respect of claim of Rs. 1.43 lacs (refer para 13 above). The same was denied on the basis that the said provision could not be regarded as a provision for bad and doubtful debts. The assessee's claim is that the interest, booked as income for fy. 2006-07 (AY 2007-08), being not realized even during fy. 2007-08 (AY 2008-09), was reversed. That is, constitutes reversal of interest, so that it would not, as stated by the ld. CIT(A), stand to be debited to the provision account. 15. We have heard the parties, and perused the material on record. The assessee bank, following accrual system of accounting, had booked income for AY 2007-08 even as the interest was pending realization. The same having not been realized even during AY 2008- 09, the current year, the same was reversed. The assessee has itself claimed this reversal as a provision for bad and doubtful debts. If the income had been, as claimed, already booked as income (for AY 2007- 08), all that needs to be done is to the debit the provision (for bad and doubtful debts) account, with a corresponding credit to the respective debtors account/s, whose ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f total income in one case, and of the aggregate rural branch advances for the other. Each of the two components would therefore have to be reckoned separately, and no disallowance could be made where each of the two components does not exceed the limits specified there-for. It does not mean that the provision already made in accounts is to be disturbed to accommodate other provision, i.e., adjust the provision account, where in excess (as by Rs. 1.69 lacs qua the income based provision in the instant case), with that where it is short. We say so as the section does not specify the amount of deduction per se, but permits the deduction in respect thereof up to a particular sum. As such, as along as the limit, specified separately, which is the reason for our stating of the assessee being required to maintain two provision accounts, is not breached, no disallowance could be made. Per contra, to the extent it is, disallowance for the excess claim would follow. It may be argued that the assessee could, in that case, open a single account which would make the adjustment aforesaid, i.e., transfer from one provision account to another, unnecessary. The total provision made each year would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st standard loans, effected an addition for the same, i.e., Rs. 852 lacs. The ld. CIT(A), while confirming disallowance of Rs. 2 lacs (agitated by the assessee per its appeal), regarding the balance Rs. 850 lacs as in excess by Rs. 1.69 lacs, allowed thus, in effect, a relief of Rs. 848.31 lacs, which the Revenue contests per its Ground 2. Even if against standard assets, why could not the provision be regarded as a provision for bad and doubtful debts. A provision, though normally in-admissible in computing income u/s. 28, is allowed as special measure (in computing taxable income) for banks, including cooperative banks, in view of the nature of the business. While one component of the provision is based on income, so that it would necessarily have to be a regular component, i.e., for each year, based on its income, the other part is based on the aggregate (average) advances by rural branches, limit for which stands separately already specified. The provision made during the current year shall be allowed subject to the total provision (i.e., including that already made) not exceeding the limits specified in its respect. To conclude, the issue of disallowance of Rs. 1.69 lacs sus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble, is allowable only in view of the specific provision for provision for bad and doubtful debts in the case of banks, including the cooperative banks, as the assessee, in view of the nature of their business (sec.36 (1)(viia)). The only question that therefore survives is with regard to its' quantum, i.e., if the provision as made and being claimed is in terms of, and in accordance with, the said provision (s. 36(1)(viia)), which provides for two independent parameters, i.e., the average rural branch advances, and the current year's income (prior to any provision for bad and doubtful debts), stipulated at 10 percent and 7.5 percent thereof respectively. The manner of computing the average rural branch advances stands prescribed in the Income Tax Rules, 1962 ('the Rules' hereinafter), being r. 6ABA. The only issue, therefore, that could arise is if the provision @ 10% qua rural advances is to be made on a year-to-year basis, or represents the maximum amount for which the provision in its' respect could be made. In our clear view, and even as observed by the tribunal per its order supra, also citing an example, it is the former. The profile or the constitution of the rural advances ..... 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