Case Note & Summary
The case involves two appeals filed by the Revenue under Section 260A of the Income Tax Act, 1961, challenging a common order dated 28.11.2013 passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru Bench 'C', in ITA No.112/BANG/2012 and ITA No.226/BANG/2012 for the assessment year 2008-09. The respondent-assessee is Karnataka Vikas Grameen Bank, a Regional Rural Bank. The core dispute pertains to the allowability of deduction under Section 36(1)(viia) of the Act in respect of provision for bad and doubtful debts. The Assessing Officer had disallowed a portion of the provision made by the assessee, recomputing it based on a different percentage. The Commissioner of Income Tax (Appeals) and the ITAT allowed the assessee's claim, holding that the provision made in accordance with RBI guidelines is allowable. The Revenue appealed, raising substantial questions of law regarding the correctness of the ITAT's order. The High Court, after hearing both sides, dismissed the appeals, affirming the ITAT's order. The court held that the provision for bad and doubtful debts made by the assessee-bank in accordance with RBI guidelines is allowable as a deduction under Section 36(1)(viia) of the Income Tax Act, 1961, and that the Assessing Officer cannot recompute the provision based on a different percentage. The judgment emphasizes that the deduction is to be allowed as per the provision made by the assessee in compliance with RBI guidelines.
Headnote
A) Income Tax - Deduction under Section 36(1)(viia) - Provision for Bad and Doubtful Debts - Regional Rural Banks - The issue was whether the provision for bad and doubtful debts made by the assessee-bank in accordance with RBI guidelines is allowable as a deduction under Section 36(1)(viia) of the Income Tax Act, 1961. The court held that the provision made in accordance with RBI guidelines is allowable and the Assessing Officer cannot recompute the provision based on a different percentage. (Paras 1-10) B) Income Tax - Recomputation by Assessing Officer - Section 36(1)(viia) - The court held that the Assessing Officer cannot substitute his own percentage for the provision for bad and doubtful debts when the assessee has made the provision in accordance with RBI guidelines. The deduction under Section 36(1)(viia) is to be allowed as per the provision made by the assessee. (Paras 1-10)
Issue of Consideration
Whether the Income Tax Appellate Tribunal was correct in law in holding that the provision for bad and doubtful debts made by the assessee-bank in accordance with the RBI guidelines is allowable as a deduction under Section 36(1)(viia) of the Income Tax Act, 1961, and whether the Assessing Officer can recompute the provision based on a different percentage.
Final Decision
Both appeals dismissed. The order of the Income Tax Appellate Tribunal is affirmed. No order as to costs.
Law Points
- Deduction under Section 36(1)(viia) of the Income Tax Act
- 1961
- Provision for bad and doubtful debts
- Regional Rural Banks
- RBI guidelines
- Allowability of provision
- Recomputation by Assessing Officer
