Facts of the Case

The assessee, Fatehpur District Co-operative Bank Ltd., is engaged in banking activities as a co-operative bank. Reassessment proceedings were initiated under Section 147 read with Section 143(3) for the relevant assessment years.

During assessment, issues arose regarding the claim of deduction for provision for bad and doubtful debts under Section 36(1)(viia) of the Income-tax Act.

The Assessing Officer examined the claim and allowed deduction to a limited extent as per statutory provisions. The matter subsequently travelled through appellate proceedings to the ITAT.

 Issues Involved

  1. Whether the co-operative bank was entitled to deduction for provision for bad and doubtful debts under Section 36(1)(viia).
  2. Whether the deduction claimed exceeded the statutory limits prescribed under the Act.
  3. Whether reassessment proceedings and subsequent adjustments were legally justified.

Petitioner’s (Assessee’s) Arguments

  • The assessee contended that it was entitled to deduction under Section 36(1)(viia) as a banking institution.
  • It argued that the provision created for bad and doubtful debts was in accordance with prudential norms and statutory requirements.
  • The claim was stated to be supported by proper records and banking practice.

Respondent’s (Revenue’s) Arguments

  • The Revenue contended that deduction provisions must be strictly construed.
  • It was argued that the assessee’s claim exceeded permissible limits or did not satisfy statutory conditions.
  • The Assessing Officer maintained that only the deduction allowable under the Act could be granted.

Court Findings / ITAT Order

  • Section 36(1)(viia) provides a specific mechanism for computing allowable deduction for banks.
  • Deduction is subject to prescribed limits based on advances and other parameters.
  • The claim must strictly conform to statutory provisions.

Important Clarification by ITAT

Deduction for provision for bad and doubtful debts under Section 36(1)(viia) is not automatic. It is allowable only within the statutory limits and subject to compliance with conditions prescribed for banking institutions, including co-operative banks.

Link to download the order -  https://itat.gov.in/public/files/upload/1663064983-134%20and%20135%20fatehpur%20district%20cooperative.pdf

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