INCOME TAX ACT, 1961

Section 36(1)(viii)

Business deduction under section 36(1)(viii) - Computation - Assessee while apportioning operating expenses also considered non-performing assets - AO apportioned operating expenses in the ratio of turnover

Assessee-bank claimed deduction under section 36(1)(viii). AO noticed that assessee had apportioned operating expenses in the ratio of deposit, borrowings and advances. According to AO, assessee while apportioning operating expenses had considered non-performing assets also from which no income was recognised. He, therefore held that method adopted by assessee was not correct and it would be prudent to apportion operating expenses in the ratio of turnover. AO accordingly recomputed deduction.Held: Operating expenses were required to be incurred by assessee in relation to its total banking business and non-performing assets definitely formed part of such business. Assessee-Bank was required to manage both performing as well as non-performing assets and operating expenses incurred by it thus were attributable to non-performing assets also. This vital aspect was not appreciated by AO in proper perspective and basis adopted by AO for apportioning operating expenses resulted in a distorted picture. Therefore, disallowance made by AO was deleted.