CIT Vs. JAIN COOPERATIVE BANK LTD.

JUDGEMENT

(1.) The Revenue claims to be aggrieved by the common order of the Income Tax Appellate Tribunal (ITAT) dated 30.08.2011, allowing the assessee's appeal directed against the Commissioner (Appeals) order; as well as the Revenue's appeal. The question of law sought to be urged in this case is as to the correctness of the view expressed by the Tribunal with regard to the deletion of the sum of Rs. 28,75,204/- made by the Assessing Officer who had disallowed the claim for bad debts.

(2.) The facts in brief are that the assessee, a Co-operative Bank in its return for AY 2007-08 claimed deduction to the tune of Rs. 77,73,715/- on account of deduction of reversal of NPA provision credited to the profit and loss account. The assessee is engaged in banking activities and had reversed NPA provisions. The assessee in the proceedings before the AO argued that the provision (for bad debts) was made due to its reflecting the NPA in terms of the Reserve Bank of India guidelines on bad debts and though such provision was made, there was no claim for deduction and, therefore, at the time of reversal, there can be no justification for adding it to the income. The assessee had submitted that it made a claim on account of bad debts and written off separately as per provisions of Section 36 (1) (vii a) read with Section 36 (2) of the Income Tax Act. The Assessing Officer rejected its claim expressing the opinion that whenever the bank actually writes off an amount, it would get a deduction. He also relied upon Section 41 (4) which stated that whenever a bad and doubtful debts is allowed for a previous or earlier years and gets recovered by the bank subsequently, the said amount should be taxed at the time of recovery.

(3.) The assessee carried the matter in appeal. The CIT (A) granted limited relief on the footing that the provision for NPA had been created by the assessee over the years and as on 1.4.2006, the total provision shown was Rs. 6,61,34,167/- of which a reversal of the NPA of Rs. 77,73,715/- was made thus leaving a balance of Rs. 5,83,60,482/- as on 31.3.2007. The sum of Rs. 77,73,715/- had been credited in the profit and loss account and subsequently reversed in the computation of income claiming it as deduction. The CIT (A) was of the opinion that the assessee had been creating provisions for NPA over the years and had claimed 100% deduction under Section 80-P (2) of the Act and had actually reduced its claim for NPA of Rs. 77,73,715/- out of the total of '6.61 Crores which meant that the assessee had been creating access provision for NPA.