GS Mahanagar Co-operative Bank Limited Vs DCIT (ITAT Mumbai)
The assessee appealed against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre for AY 2007-08, which upheld the Assessing Officer’s (AO) disallowance of a deduction of Rs. 39,24,481 claimed under Section 36(1)(viia) of the Income Tax Act toward provision for bad and doubtful debts. The AO had earlier completed the assessment under Section 143(3), disallowing software expenses and the deduction under Section 36(1)(viia). The assessee challenged this before the CIT(A), and upon dismissal, approached the Tribunal, which in 2018 restored the matter to the AO for fresh adjudication.
During reassessment proceedings, the assessee submitted audited financial statements for AYs 2006-07 and 2007-08, ledger extracts for provisions, and a memorandum of changes issued by the statutory auditor recommending the creation of a Rs. 45 lakh provision for bad and doubtful debts. The assessee stated that the deduction was based on the transfer of provision from standard assets to bad and doubtful debts as per auditor advice, and that the relevant entries were incorporated in the financial statements for FY 2006-07.
The AO rejected the claim, noting discrepancies in ledger balances relating to provision for interest on standard assets and observing that the transfer entry of Rs. 45 lakh was dated 13.07.2007, falling in AY 2008-09. The AO held that the assessee made no provision for bad debts in the Profit & Loss account for AY 2007-08 and therefore the deduction was not allowable. The CIT(A) affirmed the disallowance, stating that routing the provision through the Profit & Loss account was mandatory.
