TMI Blog2020 (8) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee a primary Cooperative Agricultural Rural Development Bank is covered under the provisions of section 36(1)(viia). After giving a finding, the LD. CIT (A) held that the assessee is entitled for deduction. CIT (A) has discussed the quantum of deduction. Thus the finding of the LD. CIT (A) is based on misunderstanding of the provisions which is in fact not applicable in the facts of the assessee s case. Accordingly, the order of the LD. CIT qua this issue is set aside. Addition made on account of Time Barred Interest on over-due NPA loan accounts - AO has disallowed this amount and made the addition on the ground that this is a provision and, therefore, when the assessee is not covered under the provisions of section 36(1)(viia), it is not an allowable deduction - HELD THAT:- Even from the details filed by the assessee, it is not clear whether this whole amount was part of the Interest income shown in the Profit Loss account. Further, the details filed by the assessee are not part of the audited books of account being Schedule to the Balance Sheet but it is prepared subsequently without certified by the Auditors. Even otherwise, the possibility of over-lapping betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011. Thereafter the AO reopened the assessment by issuing notice under section 148 which was served on the assessee on 31st March, 2017. In response to the notice under section 148, the assessee stated that the return of income filed on 13.10.2010 may be treated as return filed in response to the notice under section 148. The AO noted that the assessee has made provision of ₹ 3,91,38,329/- on account of Principal NPA of ₹ 32,42,000/- and Time Barred Interest of ₹ 3,58,96,329/- on over-due NPA loan account. The AO was of the view that the assessee bank falls under the category of Primary Cooperative Agricultural and Rural Development Bank and, therefore, is not covered under section 36(1)(viia) of the IT Act and hence the AO has made the addition of the said amount of ₹ 3,91,38,329/-. On appeal, the ld. CIT (A) has deleted the addition made by the AO by holding that the assessee falls in the provision of section 36(1)(viia) of the Act so far as the provision was made by the assessee in respect of NPA of ₹ 32,42,000/-. As regards the time barred interest of ₹ 3,58,96,329/-, the ld. CIT (A) has held that though the assessee has shown this claim u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebts made by- ( a ) a scheduled bank [not being 20 [***] a bank incorporated by or under the laws of a country outside India] or a non-scheduled bank 21 [or a cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank], an amount 22 [not exceeding 23 [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 24 [ten] per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : 25 [ 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:] The assessee has not disputed that it is a primar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 13,79,80,511/- out of which ₹ 3,58,96,329/- is debited in the current year. Further, since as per section 36(1)(viia) a provision for bad doubtful debts @ 10% of the aggregate average advances can be made in the appellant s case such limit is not found to be exceeded where provision of only ₹ 32,42,000/- is made advance to members which stands at ₹ 33,58,76,356/-. After amendment of section 36(1)(viia), from the Assessment Year 2007- 08, the assessee bank is now entitled to deduction of provision for bad debt and doubtful debt as under :- (i) 7.5% of the total income computed before making a deduction under this clause and chapter VI-A of the Income Tax Act and (ii) 10% of aggregate monthly average advances made by the rural branches of such bank computed in the prescribed manner. The plain reading of the provision of section 36(1)(viia)(a) made it clear that the aggregate average balance of advances made by the rural branches has to be calculated considering the loans and advances made during the year only by the rural branches of the bank in the prescribed manner as envisaged under Clause (viia)(a) of section 36(1), not on the cumula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t part of the audited books of account being Schedule to the Balance Sheet but it is prepared subsequently without certified by the Auditors. Even otherwise, the possibility of over-lapping between the deduction under section 36(1)(vii) and 36(1)(viia) is not ruled out when it comes to the cases of bank. It is settled proposition of law that deduction under section 36(1)(vii) is allowable in respect of any bad debts written off as irrecoverable in the books of account for the relevant accounting year but only to the extent such bad debt exceeds the credit balance in the provisions for bad and doubtful debt account made under clause 36(1)(viia). Therefore, to avoid the double deduction, the proviso to section 36(1)(vii ) was inserted and the assessee has choice to choose between 36(1)(vii) and 36(1)(viia) whichever is beneficial. The finding of the LD. CIT (A) are not based on the complete details as to whether this amount on account of Time Barred Interest on NPA loans is fully satisfied the condition of section 36(2) of the Act. Accordingly in the facts and circumstances of the case and in the interest of justice, we set aside this issue to the record of AO to re-examine the same ..... X X X X Extracts X X X X X X X X Extracts X X X X
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