Facts:

(i)The assessee had claimed a total deduction of Rs. 10,00,00,000/- u/s 36(1)(viia) under two captions, namely :
a)Provision for Non-Performing Assets – Rs. 5 crores; and
b)Provision for standard assets – Rs. 5 crores.

(ii) The Ld. AO after analysing section 36(1)(viia) of the income tax framed a view that: “Provision for NPA” is a provision for bad-debt and therefore allowable as deduction; but “Provision for standard assets” is not a provision for bad-debt and therefore not allowable.

Arguments advanced on behalf of the assessee:
1.That the assessee is engaged in banking business and it is bound to follow the guidelines issued by Reserve Bank of India (RBI).

2.The provision made for bad-debts i.e., Rs. 5 crores on account of NPA and Rs. 5 crores on account of standard-assets, though made under two nomenclatures, is a provision for bad-debts in terms of RBI guidelines.

3.That Section 36(1)(viia) allows deduction of the “provision for bad-debts” made as per RBI guidelines, hence the entire provision of Rs. 10 crores (including the provision of Rs. 5 crores qua standard assets) is entitled for deduction.

4.That the issue is covered in favour of the assessee by the decision of ITAT, Jodhpur in Nagaur Urban Co-operative Bank Ltd. Vs. ACIT, ITA No. 240/Jodh/2013 wherein the “provision for standard assets” was held to be a provision for bad debts allowable u/s 36(1)(viia).

Arguments advanced by the Revenue:
1. That the Standard assets” are those assets which are adequately serviced by the borrowers and cannot be considered as “bad debts.” Therefore, the assessee has wrongly characterized them as “bad debt” and claimed deduction.

2. that in the Nagaur Urban Co-operative Bank Ltd. case, deduction was allowed for NPA and not for standard-assets.

Arguments advanced in rejoinder on behalf of the assessee:

1. That a careful reading of the Nagaur Urban Co-operative Bank Ltd.( Para No. 4 and 10) of the ITAT order case reveals that the ITAT allowed deduction of “provision for standard-assets.”
2. That Reliance is also place upon following decisions wherein such deduction has been allowed:
(i) ITAT Amritsar Bench in DCIT Vs. The Nawansahar Central Cooperative Bank Ltd, ITA No. 61/Asr/2017 order dated 03.01.2018
(ii) ITAT Mumbai Bench in Model Co-operative Bank Vs. DCIT, ITA No. 5522/Mum/2017 order dated 24.07.2019
(iii) ITAT Indore Bench in Vikramaditya Nagarik Sahakari Bank Vs. ACIT,
Ujjain, ITA No. 36/Ind/2017 order dated 20.03.2018

Observations of the Hon. Tribunal
1. The Tribunal noted that all of the decisions cited in support of the assessee’s case had consistently held that the provision made by a banking company in respect of standard assets, as per RBI guidelines, is allowed as a deduction under section 36(1)(viia) of the Income Tax Act, 1961.
2. The Tribunal further observed that the learned Departmental Representative (DR) was unable to cite any contrary decision on this issue.
3. The phrase “contingency provision for standard assets” was found to be essentially a provision for bad and doubtful debts, which is a regular feature of banking business.
4. The Tribunal concluded that the contingency provision for standard assets is essentially in the nature of bad and doubtful debts, and the assessee had rightly claimed the expenditure under section 36(1)(viia) of the Act.

ITA No. 455/Ind/2018 Assessment Year: 2014-15