TMI Blog2020 (1) TMI 1498X X X X Extracts X X X X X X X X Extracts X X X X ..... In our considered opinion, the assessee has created provision for bad and doubtful debts may be under different nomenclature. This will not dis-entitle the assessee for claiming deduction under the provisions of Section 36(1)(viia)(a). The purpose for creation of reserve for NPA is same i.e., creating provision towards bad and doubtful debts. Thus, in view of the facts of the case and judicial pronouncements in the above state cases the assessee will be entitled to deduction u/s 36(1)(viia) to the extent of provision made for bad and doubtful debts - A.O is therefore directed to allow the full deduction as claimed by the assessee in the computation of income and not to restrict it on ₹ 1,33,93,000/. Appeal of the revenue is dismissed. - ITA No. 2096/Del/2017 - - - Dated:- 16-1-2020 - SH. KULDIP SINGH, JUDICIAL MEMBER AND DR. B. R. R. KUMAR, ACCOUNTANT MEMBER For the Assessee : Sh. Vivek Gupta, CA For the Revenue : Sh. Saras Kumar, Sr. DR ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the revenue against the order of ld. CIT (A), Meerut dated 31.01.2017. 2. Following the grounds have been raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (b) Statutory auditor also failed to justify this amount. (c) Assessee failed to provide exact mechanism or procedure by which this amount was calculated. (d) Even for the amount of ₹ 2672.20 lacs, statutory auditor also commented that this amount was created by the bank over and above the required provisions made by the bank as per prudential norms. (e) During the year, over and above provisions from the prudential norms was increased exponentially from ₹ 3.70 Crores for preceding year to 26.72 Crores for current year. For such a high increase, no explanation or justification was offered by the assessee. (f) Provisions was made by random figure without any justification and requirement which directly affect the taxable income of the assessee. 4. The ld. CIT (A) deleted the addition on two grounds viz. 1. From the assessment years 2008-09 to 2011-12, the case was assessed u/s 143(3) and u/s 148 on the same issue and no disallowance has been resorted to by the revenue. 2. Relied on the orders of ITAT Bangalore in the case of ING Vysya Bank Ltd. 62 SOT 26 (2014), ITAT Chennai in the case of TNS Estate Apex Cooperative Ltd. 62 SOT 113 and the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of the Proviso to s. 36(1)(vii) which provides that only the excess over the credit balance in the provision for bad and doubtful debts account made u/s 36(1)(viia) can be claimed. The Special Bench of the Tribunal in DCIT vs. Catholic Syrian Bank 88 ITD 185 held that as s. 36(1)(viia) was confined to rural advances, a claim for bad debts of urban advances was not subject to the limitation of the Proviso to s. 36(1)(vii). However, the Full Bench of the Kerala High Court took a contrary view in CIT vs. South Indian Bank 233 CTR 214 (Ker) (FB) and held that a bank was entitled to claim deduction of bad debts u/s 36(1)(vii) only to extent it exceeded the provision allowed as deduction under s. 36(1)(viia). On appeal to the Supreme Court, HELD reversing the Full Bench of the High Court: Per Court: (i) The clear legislative intent of s. 36(1)(vii) 36(1)(viia) together with the circulars issued by the CBDT demonstrate that the deduction on account of provision for bad and doubtful debts u/s 36(1)(viia) is distinct and independent of s. 36(1)(vii) relating to allowance of bad debts. The legislative intent was to encourage rural advances and the making of provisions for bad d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding greater deductions. But the deduction is allowable only on being legally entitled and on making actual provisions for such deduction in the books of Account. 12. From the facts of the case and in law, after the decision of Hon`ble Supreme Court in the case of Catholic Syrian Bank Vs CIT Thrissur 206 Taxman 182(SC) there is no ambiguity left in the interpretation of provision of sec 36 (1)(viia). The appellant is a Regional Rural Bank sponsored by Punjab National Bank. The assessee has made advances from its rural branches which are not questioned. The provisions of sec 36(1)(viia) are clearly interpreted by Supreme Court in the case of Catholic Syrian Bank. The assessee has claimed deduction of ₹ 16.07 Crores against it s entitlement of ₹ 114.76 Crores in the books it has made provision for Bad Debts of rural branches for ₹ 3,70,00,000/- over and above the provision made for NPA s as per RBI norms. This fact has been stated in the audited balance sheet of the bank in Schedule 17: Principle Accounting Policies Notes on Account, where point 1(IV)(iii) which is reproduced as under: (iii) Bank has made provision of ₹ 3,70,00,000/(Previous year- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve/ provision for bad and doubtful debts? The AR has contended that the assessee has created provisions for bad and doubtful debts under the nomenclature Reserve for NPA . The terminology Reserve for NPA has been used by the assessee in accordance with the RBI directions. As is evident from the assessment order, the assessee has indeed created Reserve for NPA . For claiming benefit under the provisions of Section 36(1)(viia)(a) the conditions to be satisfied is: that provision for bad and doubtful debts should have been made by the bank eligible to claim such deduction. Co-operative Banks do not strictly follow the provisions of Banking Regulation Act for the purpose of maintaining their Books of Accounts. In our considered opinion, the assessee has created provision for bad and doubtful debts may be under different nomenclature. This will not dis-entitle the assessee for claiming deduction under the provisions of Section 36(1)(viia)(a). The purpose for creation of reserve for NPA is same i.e., creating provision towards bad and doubtful debts. Thus, in view of the facts of the case and judicial pronouncements in the above state cases the assessee will be entitled to deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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