Vellore Dist. Central Co-operative Bank Ltd. v. CIT

INCOME TAX ACT, 1961

--Business deduction under section 36(1)(viia)--Bad debts'Reserve for NPA' created by co-operative bank --AO disallowed deduction under section 36(1)(viia) on two grounds: (i) assessee is a co-operative bank, and (ii) it had created 'reserve for NPA,' whereas in section 36(1)(viia) reserve/provision for doubtful debts would be allowed as deduction. Assessee submitted that co-operative banks are non-scheduled banks eligible for deduction under section 36(1)(viia). It further submitted that 'Reserve for NPA' had been created for bad and doubtful debts, however, under different nomenclature. Held: Assessee, a co-operative bank, being a non-scheduled bank, falls within section 5(c) of Banking Regulation Act. Therefore, deduction under section 36(1)(viia) was to be allowed. Further, the terminology 'Reserve for NPA' was used in accordance with the RBI directions. Assessee had created provision for bad and doubtful debts, may be under different nomenclature. The deduction as claimed was allowable.