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TMI Blog2020 (1) TMI 1498X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case, the Id. Commissioner of Income tax (Appeals) has erred in law and fact in deleting the addition of Rs. 31,99,62,000/- made by the AO on a/c of disallowance of excess deduction claimed by the assessee u/s 36(1)(viia) of the Income Tax Act, 1961 on a/c of Provision for Bad and Doubtful Debts despite AO's observation that taxable profit is computed as per the provisions of Income Tax Act and not as per income recognition norms of RBI and also his well reasoned calculation of allowable deduction at Rs. 43,58,000/- only with proper justification before making disallowance of excess deduction. 3. Without prejudice to the above, whether in the facts and circumstances of the case, the Commissioner of Income Tax (Appeals) has erred in law and facts in not confirming the addition of Rs. 26,72,00,000/- made by the A.O. on a/c of it being unjustified as it was a Provision against total monthly average advances of Rural Branches of the bank for Bad and Doubtful Debt, over and above the Provision required to be made in accordance with the prudential norms suggested by RBI for previous year, though separate addition was not made on this a/c as the same was included in tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue is hereby ordered to be deleted. 6. For the sake of brevity, the operative portion of the order of the ITAT in the case of the assessee for the assessment year 2012-13 is reproduced as under: "8. Heard the arguments of both the parties and perused the material available on record. We find that the judgment dated 21st May, 2004 pertains to AY 1985-86. The board has issued directions verifying the benefit of deduction allowable to banks vide CBDT Circular 421 dt. 12.06.1985 which has been mentioned above. After considering the facts and the entire submissions of both the parties, we find that (ii) U/s 119, the CBDT is entitled to issue Circulars to explain or tone down the rigours of law and to ensure fair enforcement of its provisions. These circulars have the force of law and are binding on the income tax authorities, though they cannot be enforced adversely against the assessee. Normally, these circulars cannot be ignored. A circular may not override or detract from the provisions of the Act but it can seek to mitigate the rigour of a particular provision for the benefit of the assessee in certain specified circumstances. So long as the circular is in force, it aid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in respect of rural advances, the deduction on account of the actual write off of bad debts would be limited to excess of the amount written off over the amount of the provision which had already been allowed u/s 36(1) (viia) (Southern Technologies 320 ITR 577 (SC) & Vijaya Bank 323 ITR 166 (SC) referred) 10. In the instant case, we endorse the decision of Ld.CIT(A) which held that the assessee has admitted in its submissions as well as before AO regarding the entitlement of deduction u/s 36(1)(viia) of Rs. 114.76 crores. There is no dispute as to the correctness of the calculation of the entitlement of deduction u/s 36(1)(viia) of the Act. It is a settled law that only against ascertained liability deduction can be allowed except for specific provisions in Act where deduction is allowed on provisions also. The Act has specifically provided in sec. 36(1)(viia) for deduction for provision made for advances made by the rural branches of the bank. 11. The method of calculating deduction has been defined in the Act. The bank is entitled for deduction for 10% of the aggregate average advances made by the rural branches plus 7.5% of the total income computed before this deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Banglore) and ITAT Chennai in the case of TAMIL NADU STATE APEX COOPERATIVE BANK LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX - (2014) 62 SOT 0113 (Chennai) (URO) has held that the actual provision made in the books by the Assessee on account of PBDD (irrespective of whether it is rural or non- rural) has to be seen. 13. In the present case, the assessee has admittedly made provision for nonperforming assets (NPA) in respect of its urban branches. The assessee has debited Rs. 2.52 Crores (approximately) (i.e., 7.5% of the gross total income) in P&L A/c creating provision for non-performing assets in accordance with the provisions of section 36(1)(viia) of the Act. The Revenue has disputed the deduction claimed for the reason, that the assessee has not created provision for bad and doubtful debts. In case of Banking Companies, the accounts are made in accordance with the RBI guidelines and the Banking Regulation Act, 1949. Although, the assessee has named the provision as 'Provision for NPA', but in pith and substance the provision has been created for 'Bad and Doubtful Debts'. The taxonomy of the provision has been done by the assessee to keep it in line with the RBI and NABARD ..... X X X X Extracts X X X X X X X X Extracts X X X X
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