Benefit of deduction of 7.5% of total income available to co-operative banks u/s. 36(1)(viia)

Kodungallur Town Co-op Bank Ltd Vs ACIT (ITAT Cochin)

ITAT Cochin held that benefit of deduction of 7.5% of the total income is available to co-operative banks under clause (viia) of section 36(1) of the Income Tax Act.

Facts- The assessee is a cooperative bank. For the relevant assessment year, the assessment u/s 143(3) of the Act was completed vide order dated 5.3.2013 fixing the total income at Rs. 4,37,29,894/-. The assessee had claimed deduction in respect of ‘provision for bad and doubtful debts’ amounting to Rs. 6,88,42,638/- u/s 36(1)(viia)(a) of the Act. When the assessment u/s 143(3) was completed, deduction amounting to Rs. 35,45,667/- was allowed u/s 36(1)(viia)(a) of the Act being 7.5% of the total income and the balance claim being 10% of aggregate average advances made by the assessee’s rural branches was disallowed by the AO on the ground that the rural branches as declared by the bank were not actually rural branches as defined under Explanation (ia) to section 36(1)(viia) of the I T Act.

Subsequent to the completion of the assessment, the CIT issued notice u/s 263 of the Act (notice dated 12.3.2015) proposing to revise the assessment order passed u/s 143(3) of the Act. The CIT, in the proposed revision, was of the view that allowing deduction by the AO amounting to Rs. 35,45,667/- being 7.5% of the total income, is erroneous and prejudicial to the interest of the revenue.
Being aggrieved, assessee has preferred the present appeal.

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