Co-op banks eligible for provisions for standard assets and bad & doubtful debts

ITO Vs Latur District Central Co-Op Bank Ltd Latur District Central Co-Op Bank Ltd (ITAT Pune)

A significant tax dispute involving a co-operative bank and the Income Tax Department has concluded with the dismissal of the Revenue’s appeal. The case centered on the bank’s claim for deductions related to provisions for standard assets and bad and doubtful debts, amounting to Rs. 7,19,89,000/- for Assessment Year 2018-19.

The Revenue had challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)], which had previously deleted the disallowance made by the Assessing Officer (AO). The core of the dispute revolved around the interpretation and application of Section 36(1)(viia) of the Income Tax Act, 1961, concerning provisions for bad and doubtful debts.

Background of the Case

The assessee, a co-operative bank regulated by the Reserve Bank of India (RBI), filed its return of income for AY 2018-19 declaring a total income of Rs. 20,08,07,180/-. During a limited scrutiny assessment, the AO noted that the bank had debited Rs. 7,19,89,000/- to its profit and loss account as “bad and doubtful debts reserve.” This amount comprised Rs. 1,09,89,000/- for provision on standard assets and Rs. 6,10,00,000/- for bad and doubtful debts reserve under Section 36(1)(viia).