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TMI Blog2025 (5) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of Rs. 4620,87,19,739/- on account of bad debts written off in terms of Section 36(1)(viia) of the Act. On verification of details of the claim, the AO observed that against the provision made for doubtful debts u/s. 36(1)(viia) of the Act, the assessee had adjusted debts relating to rural branches. Whereas, the debts relating to non-rural branches have not been adjusted against the provision so made. According to the AO, against the provision made u/s. 36(1)(viia) of the Act, the debts relating to, both, rural and non-rural branches have to be adjusted. Accordingly, he concluded that the assessee has claimed excess deduction of Rs. 591.79 crores on account of write off of bad debts. Hence, he disallowed the deduction claimed to that extent. Though, the assessee contested the disallowance before learned First Appellate Authority, however, it was not successful. 4. Before us, learned counsel appearing for the assessee submitted that the issue is squarely covered by the decision of the Coordinate Bench not only in assessee's own case but in case of various other Banks. In support of such contention, he relied upon the following decisions: 1. Bank of Baroda (erstwhile Vijaya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Southern Technologies Limited (2010) 320 ITR 577 (SC). 5.2.1 Before us, the learned Authorised Representative of the assessee submitted that the assessee bank has written off the debts by debiting the same to the 'Bad Debts Written Off Account' under the GL Code 163301 which is part of the profit and loss account and recoveries made in written off accounts are credited to the profit and loss account and offered to tax. According to the learned Authorised Representative, it is only in respect of accounts written off that the assessee bank can credit the recoveries to the profit and loss account and in the case of live accounts any recovery is credited to the debtors account. Therefore, the very fact that the recoveries are credited to the profit and loss account shows that the corresponding debts have been written off. It was submitted that the detailed accounting entries passed by the assessee bank with regard to the write off has been extracted at pages 31 and 32 of the order of assessment. The learned Authorised Representative drew the attention of the Bench to page 32 of the paper book in which the reconciliation of Gross Advances as per Branch Books and net adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered the material on record; including the judicial pronouncements cited. The facts on record indicate that the assessee bank has debited the bad debts written off to the account 'Bad Debts Written Off Account' (GL Code 163301) which is part of the profit and loss account and has reduced the write off from Gross Advances in the Balance Sheet. The authorities below disallowed the write off on the ground that the individual accounts are not squared off at the branch level. We find that this issue of write off has been settled by the Hon'ble Apex Court in the assessee's own case reported in 2010 (323 ITR 160) (SC), wherein at paras 8 & 9 thereof it was held as under : "8. Coming to the second question, we may reiterate that it is not in dispute that s. 36(1)(vii) of 1961 Act applies both to banking and nonbanking businesses. The manner in which the write off is to be carried out has been explained hereinabove. It is important to note that the assessee-bank has not only been debiting the P&L a/c to the extent of the impugned bad debt, it is simultaneously reducing the amount of loans and advances or the debtors at the year-end, as stated hereinabove. In other words, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equent years if the borrower repays the loan, the assessee will credit the repaid amount to the loans 1839/Bang/2018 and advances account and not to the P&L a/c which would result in escapement of income from assessment. On the other hand, if bad debt is written off by closing the borrower's account individually, then the repaid amount in subsequent years will be credited to the P&L a/c on which the assessee-bank has to pay tax. Although, prima facie, this argument of the Department appears to be valid, on a deeper consideration, it is not so for three reasons. Firstly, the head office accounts clearly indicate, in the present case, that, on repayment in subsequent years, the amounts are duly offered for tax. Secondly, one has to keep in mind that, under the accounting practice, the accounts of the rural branches have to tally with the accounts of the head office. If the repaid amount in subsequent years is not credited to the P&L a/c of the head office, which is ultimately what matters, then, there would be a mismatch between the rural branch accounts and the head office accounts. Lastly, in any event, s. 41(4) of 1961 Act, inter alia, lays down that, where a deduction has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority. While deciding the issue, learned First Appellate Authority granted partial relief to the assessee by deleting the disallowance of Rs. 12,24,571/-, being penalty imposed by Reserve Bank of India (RBI) on currency and non-currency chest. 11. Before us, learned counsel appearing for the assessee drew our attention to the nature of penalty imposed, as enumerated in Paragraph-8.2 of the assessment order, and submitted that the penalty imposed by consumer Courts are not for infraction of any law but imposed due to deficiency on service, hence, does not fall within the exception provided u/s. 37(1) of the Act. He submitted, identical is the nature of penalty imposed of Rs. 25,000/- on delayed ATM Transaction. He submitted such penalty is not on account of infraction of any law but due to delay in ATM transaction. Thus, he submitted, these two amounts cannot be disallowed u/s. 37(1) of the Act. In so far as penalty paid of Rs. 2,24,44,050/- is concerned, learned counsel submitted, the AO has not furnished the details of the penalty imposed so as to ascertain the nature of the penalty, whether for infraction of any law or otherwise. Thus, he submitted the issue of allowability of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factual verification and thereafter be decided.
18. Learned DR has no objection with regard to restoration of the issue to Assessing Officer.
19. Having considered rival submissions, we are of the view that employee's contribution to NPS cannot be equated to employee's contribution to PF, hence cannot be subjected to disallowance u/s. 36(1)(va) of the Act. Therefore, the AO is directed to factually verified the composition of the amount of Rs. 15,95,31,971/- and in case it is found that it also includes employee's contribution to NPS such amount should be excluded. From the purview of applicability of Section 36(1)(va) of the Act. Even in respect of employee's contribution to PF, the AO is directed to verify the actual delay in depositing the employee's contribution only after factual verification if it is found that there is delay in depositing employee's contribution to PF then disallowance u/s. 36(1)(va) of the Act can be made. Needless to say, the Assessing Officer must provide an opportunity of being heard to the assessee before deciding the issue.
20. In the result, appeal is partly allowed.
Order pronounced in the open court on 29.04.2025 X X X X Extracts X X X X X X X X Extracts X X X X
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