Malwa Gramin Bank Vs DCIT (ITAT Chandigarh)
Provision for Standard Assets Also Eligible for Deduction Under Section 36(1)(viia): ITAT Special Bench
In an important ruling for banks and co-operative banks, the Special Bench of the Chandigarh Income Tax Appellate Tribunal has held that a provision created against standard assets in accordance with the mandatory prudential norms prescribed by the Reserve Bank of India is eligible for deduction under section 36(1)(viia) of the Income-tax Act, 1961.
The fact that standard assets are presently performing or income-generating assets does not take the provision outside section 36(1)(viia). Even standard assets carry an inherent credit risk and may become bad in future. However, the deduction remains subject to the provision actually created in the books and the overall monetary ceiling prescribed under section 36(1)(viia).
The ruling was delivered in the case of M/s Malwa Gramin Bank, now merged with Punjab Gramin Bank v. DCIT, covering Assessment Years 2011-12, 2012-13, 2014-15 and 2015-16.
Issue Before the Special Bench
Conflicting decisions existed among different Benches of the Tribunal on whether a provision created by a bank against standard assets was deductible under section 36(1)(viia).
Certain Benches had held that the provision was allowable since the provision had been created under the mandatory RBI guidelines and section 36(1)(viia) did not restrict the deduction only to non-performing assets.
