NEENA KUMARI TIWARI,SURAT V. ITO, WARD 1(3)(8), SURAT

ITA 824/SRT/2024

AI Insights

The case involves Surat National Co-op Bank Ltd., which appealed against the orders of the Commissioner of Income-tax (Appeals) confirming disallowances made by the AO under sections 36(1)(viia) and 14A of the Income-tax Act for the assessment years 2013-14 and 2014-15. The primary issues were the disallowance of provisions for bad and doubtful debts and the disallowance related to investments written off in Madhavpura Mercantile Bank. The ITAT examined whether the provisions for bad and doubtful debts could be claimed under section 36(1)(viia) despite the absence of rural branches and whether the write-off of investments in MMCB constituted a business loss.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 40423 (ITAT-SURAT)
• Duration Of Justice: 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 04-02-2025
• Assessment Year: 2012-2013
• Appeal Filed On: 05-08-2024
• Other Referred Cases: Catholic Syrian Bank Ltd. vs. CIT, Adinath Co-Op. Bank Ltd., Bharuch Dist. Central Co-op. Bank Ltd. vs. ITO, Dharangadhra People's Co-Op. Bank Ltd. Vs. DCIT
• Laws Referred To: Income-tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: HIREN VEPARI
• Keywords: Set aside; Business income; Capital asset; Question of law; Bad and doubtful debts
• Section: 143(3); 250; 205; 37; 6; 14A; 72

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.823 & 824/SRT/2024 (AYs: 2013-14 & 2014-15) (Physical Hearing) Surat National Co.op Bank Ltd., 3/4016 Navnidhi Karwa Road, Navapura, 395003 Vs. The ACIT, Circle – 1(2), Surat èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAAAS5702J (Appellant) (Respondent) Appellant by Shri Hiren Vepari, CA Respondent by Shri Ravi Kant Gupta, CIT-DR with Shri Mukesh Jain, Sr. DR Date of Hearing 20/11/2024 Date of Pronouncement 05/12/2024 आदेश / O R D E R PER BIJAYANANDA PRUSETH, AM: These two appeals by the assessee emanate from the order passed under section 250 of the Income-tax Act [in short, ‘the Act’] by the Learned Commissioner of Income-tax (Appeals), National Faceless Appeal Centre [in short, ‘the CIT(A)’], dated 03.10.2023 and 19.10.2023 for the assessment years (AYs) 2013-14 and 2014-15. 2. The ground of appeal raised by the assessee in ITA No.823/SRT/2023 (AY.2013-14) are as follows: “(1) On the facts and in law, the learned CIT(A) was not justified in confirming disallowance of Rs.35,00,000/- being provisions for bad and doubtful reserve particularly when the appellant was entitled to the relief u/s 36(1)(via) of the Act. 2 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. (2) All of the above grounds are prejudice to one another. (3) The appellant craves leave to add, alter or vary any of the grounds of appeal.” 3. The ground of appeal raised by the assessee in ITA No.824/SRT/2023 (AY.2014-15) are as follows: “(I) Disallowance u/s. 14A of the Act Rs.7,02,455: (1) On the facts and circumstances of the case and as per law, the learned CIT(A) was not justified in confirming disallowance of Rs.7,02,455 (2) Without prejudice to the above, disallowance has not been correctly worked out. (II) Investment in Madhavpura Mercantile Bank written off Rs.7,81,70,034: (1) On the facts and circumstances of the case and as per law, the learned CIT(A) seriously erred in confirming disallowance of Rs.7,81,70,034 in respect of bad debt of investment in Madhavpura Mercantile Bank, holding as if the claim was for section 36(1)(viia), particularly when the claim pertained to section 36(1)(vii). (2) The appellant submits that the learned CIT(A) totally misconstrued the relevant facts in confirming the disallowance. (III) Miscellaneous: - (1) All of the above grounds are prejudice to one another. (2) The appellant craves leave to add, alter or vary any of the grounds of appeal.” 4. The assessee has raised alternative ground in ITA No.824/SRT/2023 are as under: “Without prejudice to any ground, the appellant ought to be granted deduction of the Fixed deposits written off of Madhavpura Mercantile Co.Op Bank even without bringing provisions of section 36(1)(vii)/36(1)(via) into picture.” ITA No.823/SRT/2023 (AY.2013-14): 5. The facts of the case in brief are that the assessee had filed its return of income for AY.2013-14 on 10.09.2013, declaring total income at Rs.5,03,65,950/-. Order u/s 143(3) was passed on 29.02.2016, determining total 3 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. income at Rs.5,90,82,717/- by making various additions including disallowance of provision for bad and doubtful debts of Rs.35,00,000/-. The CIT(A) confirmed the disallowance of the above addition. Both department and assessee filed appeal before the ITAT. The ITAT in its common order in ITA No.3391 & 2039/Ahd/2016 & 2015, dated 26.04.2018 for AYs.2011-12 and 2013-14 set aside the issue of disallowance of provision for bad and doubtful debts by stating as follows: “Therefore, we deem it fit to set aside the issue to the file of AO to examine whether the claim made is in respect of provisions for bad debts u/s 36(1)(vii) or its restricted to section 36(1)(viia). Therefore, this issue is restored back to the file of AO for limited verification and the assessee is directed to furnish necessary working of his claim with necessary documentary evidences, to show that no provision is made for bad and doubtful debts pertaining to rural advances.” During set aside assessment proceedings, the Assessing Officer (in short, ‘AO’) asked assessee bank to furnish details related to deduction claimed u/s 36(viia) of the Act. The assessee replied that it does not have any rural branch and hence it had claimed 7.5% of total income and not 10% of average aggregate advances given by rural branches. It was also submitted that assessee had not claimed any deduction u/s 36(1)(vii) of the Act. 5.1 The AO verified the claim of the assessee and noticed that it had claimed expenses of Rs.35,00,000/- under the head ‘Bad and Doubtful Reserve’ u/s 36(1)(viia) of the Act instead of 36(1)(vii) of the Act. The assessee relied on its earlier submission which is discussed in the preceding para. The AO has reproduced provisions of section 36(1)(vii) and 36(1)(viia) and stated that the 4 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. controversy regarding the double deduction under the above sections have been settled by Hon’ble Supreme Court in case of Catholic Syrian Bank Ltd. vs. CIT, in Civil Appeal No. 1143 of 2011 where the Hon’ble Court held that a Bank is eligible to claim deduction for bad debts u/s 36(1)(vii) and also claim for provision of bad and doubtful debts u/s 36(1)(viia) of the Act. The Hon’ble Court held that provision for bad and doubtful debts u/s 36(1)(vii) is distinct and dependent of section 36(1)(viia) relating to allowance of bad debts. It has stated that in order to prevent double deduction, the proviso to clause (vii) was inserted which states that in respect of bad debts arising out of rural advances, the deduction on account of actual write off would be limited to the excess of amount written off over the amount of provision allowed under clause (viia). Thereafter, the AO after relying on the decisions of Surat Bench in case of Adinath Co-Op. Bank Ltd., in ITA No.2726/Ahd/2016, dated 02.11.2018 stated that clause (viia) applies only to rural branches. Since assessee has no rural branches, it is not entitled to claim provisions for bad and doubtful debts reserved u/s 36(1)(viia) of the Act. 6. Aggrieved by the order of AO, the assessee filed appeal before CIT(A). The CIT(A) has discussed the submission of both sides and at para 5.3 has stated that as per the provisions of section 36(1)(viia), the bank which has rural branches can only claim deduction u/s 36(1)(viia) of the Act for the provision made for bad and doubtful debts. In case of rural branches, a deduction would be allowed even in respect of mere provisions without insisting on an actual write off of bad debt. Since the proviso limits its application to the case of bank 5 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. to which clause (viia) only to rural advances, the addition made by AO was upheld. 7. Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal. The Learned Authorized Representative (Ld. AR) of the assessee filed paper books giving various details and case laws on the impugned issue. He submitted that assessee bank had made claim in respect of provision for bad and doubtful debts u/s 36(1)(viia) of Rs.35,00,000/- in AY.2013-14 for the first time. Prior to AY.2013-14, the bank had never made any claim in respect of provision of bad and doubtful debts u/s 36(1)(viia) of the Act. The appellant has given profile of last seven years from AY.2007-08 to 2013-14 to demonstrate that claim for provision for bad and doubtful debts was never made prior to AY.2013-14. The Ld. AR has submitted computation of total income wherein it has shown net profit as per P&L account at Rs.2,72,86,142/- to which it has added bad and doubtful reserve of Rs.35,00,000/-. It has thereafter reduced bad and doubtful reserve u/s 36(1)(viia) of Rs.35,00,000/-. The Ld. AR submitted that 7.5% of the total income before deduction under Chapter VI-A comes to Rs.40,40,790/-, being 7.5% of Rs.5,38,77,196/-, which is more than Rs.35,00,000/- claimed by the assessee. The Ld. AR submitted that the ITAT remitted back the matter to AO for limited verification to ensure that “no provision is made for bad and doubtful debts pertaining to rural advances\". He submitted that assessee made no provision for rural advances and hence deduction falls under first leg of section 36(1)(viia)(a) of the Act. He submitted that the law makers have split the erstwhile singular deduction into two 6 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. deductions. The deduction from total income shall be relevant to all companies as it is independent of requirements of having rural advances. He has relied on the decisions in case of (i) Kodungallur Town Co-operative Bank Ltd., 72 taxmann.com 205 (Cochin Trib), (ii) ING Vysya Bank, 42 taxmann.com 303 (Bangalore Trib) and (iii) State Bank of Hyderabad, 63 taxmann.com 322 (Hyderabad Trib.). 8. On the other hand, the learned Commissioner of Income-tax – Departmental Representative (ld. CIT-DR) for the revenue has relied on the order of the lower authorities. He submitted that assessee has added “bad and doubtful reserve” and claimed the same u/s 36(1)(viia) of the Act. 9. We have heard both the parties and perused the materials available on record. We have also deliberated on the decisions relied upon by both sides. The only issue is disallowance of Rs.35,00,000/-, being provision for bad and doubtful debts claimed under section 36(1)(viia) of the Act. We have seen the submission of the assessee and the details furnished vide submission dated 10.01.2024 and 13.11.2024. The computation of total income has been given at page 28 of the paper book of the submission dated 10.01.2024. It is seen therefrom that the assessee has added back ‘bad and doubtful reserve’ of Rs.35,00,000/- to the net profit as per P&L account and claimed the same as “Bad and Doubtful Reserve” u/s 36(1)(viia)’. The balance sheet as on 31.03.2013 is given at page 36 of the written submission dated 13.11.2024, where the ‘Reserves and Surplus’ as on 31.03.2013 was Rs.36,92,31,242/-. Break up of the reserves and surplus is at pages 39 to 42. It is seen from page 39 of the said 7 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. pages that the appellant had added Rs.35,00,000/- during the year to “Bad and Doubtful Reserve”. This amount has been added back in the computation and thereafter claimed as deduction u/s 36(1)(viia) of the Act. Therefore, it is clear that the assessee has claimed the said “Reserve” as a deduction u/s 36(1)(viia) and not any “provision bad and doubtful debts”. The Reserve & Surplus account cannot be considered as provisions for the purpose of allowing deduction u/s 36(1)(viia) of the Act. The Co-ordinate Bench, Ahmedabad in case of Bharuch Dist. Central Co-op. Bank Ltd. vs. ITO, (2013) 36 taxmann.com 517 as held that amount credited by bank to reserve for bad and doubtful debts towards standard assets is not deductible u/s 36(1)(viia), as it is not akin to provision for bad and doubtful debts. The terms “reserve” and “proviso” are not one and same. Provision for bad and doubtful debts is a liability whereas reserve is assessee’s own fund. Hence, both cannot be equated and assessee is not entitled for any deduction in absence of any provision for bad and doubtful debts. The facts of present case are similar to the above decision. It is clear from the details given by the appellant during the proceedings before ITAT that the appellant has not created any provisions for bad and doubtful debts. The reserve account cannot be considered as provision for the purpose of allowing deduction u/s 36(1)(viia) of the Act. The decisions relied upon by Ld. AR are not applicable because facts in those decisions are different. The issue in these cases pertained to “Provision for bad and doubtful debts” and not “reserve”. Therefore, claim of deduction u/s 36(1)(viia) of the Act is not allowable. 8 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. Therefore, the decision of the CIT(A) is confirmed, and the ground of the assessee is dismissed. 10. In the result, appeal of the assessee is dismissed. ITA No.824/SRT/2023 for AY.2014-15: 11. The appellant has not pressed ground No.1 relating to disallowance u/s 14A of the Act of Rs.7,04,455/-. Hence, the ground is dismissed as not pressed. 12. The next ground is regarding write up u/s 36(1)(vi) of investment in Madhavpura Mercantile Co-Op. Bank (MMCB) of Rs.7,81,70,034/-. In this regard, the appellant has also taken alternate ground that the same is allowable even without provisions of section 36(1)(vii)/36(1)(viia) of the Act. It is seen that the alternate ground raised by the appellant is purely legal in nature and no additional facts are necessary to adjudicate the same. It emerges from the facts available on record before the lower authorities. It also goes to the root of the matter. The Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. vs. CIT, 229 ITR 283 (SC) held that the power of the Tribunal in dealing with appeals is expressed in the widest possible terms. The Hon’ble Court did not find any reason as to why the assessee should be prevented from raising a question before the Tribunal for the first time so long as the relevant facts are on record in respect of that item. It further observed that the power of the Appellate Assistant Commissioner in permitting assessee to raise an additional ground in accordance with law, as held in case of Jute Corporation of India Ltd. vs. CIT, 187 ITR 688 (SC), is also available to ITAT in respect of appeals pending 9 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. before it. Since the alternate ground raised is purely a legal issue arising out of the facts as obtained in the orders of lower authorities, the same is admitted. 13. The facts of the case in brief are that the assessee had filed return of income on 12.09.2014 for AY.2014-15, declaring loss of Rs.2,38,64,170/-. The assessee had written off as bad debt the investment in Madhavpura Mercantile Co-operative Bank (MMCB) of Rs.7,81,70,034/-. The AO has discussed this issue at para 9 of the assessment order. The assessee held fixed deposit (FD) in the MMCB, amounting to Rs.7,81,70,034/-. The AO found that assessee had reduced the amount of deposit in MMCB from reserve and surplus and shown it as income from “Special Investment Reserve”. Thereafter, it has debited the same as bad debts written off under the head other expenses. Again, the assessee has claimed the same amount from the taxable profits in the computation of income. Hence, it was a double deduction by the assessee. The AO also held that the deduction was in respect of capital investment and it cannot be allowed as a deduction. The AO also stated that the accounting method followed by the assessee is erroneous. He also held that the conditions for allowing bad and doubtful debt is not fulfilled. For this reason, he disallowed the impugned amount and added it back to the total income. The CIT(A) sustained the addition which is at para 5.5 of the order u/s 250 of the Act. The CIT(A) observed that this is a recurring issue. He has referred to the decision of ITAT in case of assessee for AY.2013-14 and thereafter referred to the order of AO in the set aside proceeding where addition of Rs.35,00,000/- towards 10 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. provision for bad and doubtful debt u/s 36(1)(viia) of the Act was made. He has followed the order of 2013-14 and dismissed the ground of the assessee. 14. Aggrieved by the order of CIT(A), the assessee filed appeal before the Tribunal. The Ld. AR submitted paper books including various details and various decisions in favour of assessee. The Ld. AR submitted that the assessee held FD in MMCB whose license was cancelled by RBI in the year 2012. During the year under consideration, assessee wrote off the FDs of Rs.7.81 crore held with MMCB. To fund the write off, the bank transferred Rs.7.81 crore from its past Special Investment Fund (i.e., Reserves) to its P&L account so that its profit for the year is not impaired. The assessee claimed Rs.7.81 crore as deduction in its return of income as a write off. Regarding double deduction, Ld. AR submitted that the understanding of the AO is misconceived. There were two debits and one credit, resulting in only one deduction. The entries in the books of accounts were as under: 11 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. 14.1 The Ld. AR further submitted that the CIT(A) while rendering the decision made reference to AY.2013-14 which examined claim of deduction u/s 36(1)(viia) of the Act. The ratio of the above decision has nothing to do with write off of FDs in AY.2014-15 as they are factually distinct matter with different question of law. On merit, the Ld. AR submitted that the only question is whether investment of FDs written off by a Co-operative Bank is capital or revenue in nature. The assessee is engaged in the business of banking. Its core business is acceptance of deposits, extension of loans and investment of surplus funds in securities. These activities form the essence of banking and are central to the banking business. Hence, any income or expenses including write off relevant to securities invested into by a bank in its normal course of business are necessarily revenue in nature. 15. On the other hand, the Ld. CIT-DR submitted that the assessee failed to make necessary provision in AY.2011-12 violating the RBI direction. Instead, the assessee deferred recognizing the losses till AY.2014-15 and these failure raises question about credibility of the financial disclosures and subsequent claim based on these losses. The assessee established a Special Investment Reserve in AY.2013-14 by transferring Rs.5.5 crore into the reserve. Eventually, it became 12 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. Rs.7.82 crore in AY.2014-15. Out of this Rs.7.81 crore was transferred to the P&L account as income and simultaneously it was written off as bad debt. The Ld. CIT-DR submitted that the FD with MMCB was categorized as investment rather than a loan extended in the ordinary course of business. Bad debts u/s 36(2)(i) is permissible if the debt arises from money lent in the regular course of business operation. Further, attempt to claim deduction u/s 37 is flawed because this provision only allowed expenses incurred in ordinary course of business but the loss in question being capital in nature is not allowable as revenue expense. The Ld. CIT-DR submitted that the case of the assessee underscores serious issues related to regulatory compliance, the use of manipulative accounting practices, and the inappropriate application of tax provisions. The failure to adhere to the RBI directive at the appropriate time, the use of creative accounting to disguise the impact of the MMCB exposure, and the invalid tax claims all demonstrate an unsustainable position. The deductions available under the Act are strictly limited to those outlined in Sections 28 to 44, and any deviation from this framework particularly in cases involving financial non-compliance-cannot be justified. Given the need for transparency in the banking sector and the strict standards required when handling public funds, the AO's decision, affirmed by the CIT(A), to disallow the deduction is well-founded and should be upheld by the Tribunal. 16. We have heard both the parties and perused the materials available on record. We have also deliberated the decisions relied upon by the parties. The facts relating to the case are that appellant had FDs with MMCB, aggregating to 13 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. Rs.7.81 crore. During the year under consideration, the appellant had written off the deposits. The deposits were ultimately written off by debiting various reserves such as Special Investment Reserve, Special Bad and Doubtful Reserve, Bad and Doubtful Debt Reserve and Contingency Fund. Even though the amount was debited and credited to the P&L account, ultimately, the sum was written off by debiting the above reserves only. According to the appellant, the write off was necessitated on account of the fact that RBI had directed the bank to write off the said amount in view of the fact that MMCB was not solvent and its banking license was cancelled by RBI. The said amount was disallowed by AO on the ground that the loss was on capital account and cannot be allowed as deduction u/s 36(1)(vii) of the Act. Further, the accounting entries passed by the appellant was erroneous and double deduction was claimed by assessee. The said disallowance was upheld by the CIT(A). 16.1 The Ld. AR submitted that the CIT(A) has wrongly based his decision on the facts of AY.2013-14 which pertained to claim u/s 36(1)(viia) of the Act instead of the claim u/s 36(1)(vii) of the Act. The Ld. AR explained that the entries passed by the appellant and argued that there was no question of double deduction as could be seen from the entries which have been reproduced in the table at para 14 of this order. He submitted that the loss was incurred in the course of carrying on the banking business and should be allowed as a deduction. The Ld. AR has relied on the decision of Rajkot, ITAT in case of Dharangadhra People’s Co-Op. Bank Ltd. Vs. DCIT, ITA No.130 to 14 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. 131/Rjt/2017, dated 18.12.2019 wherein loss represented by FDR write off with MMCB was allowed. 16.2 On the other hand, Ld. CIT-DR made submission justifying the stand of AO that it was a capital loss. It cannot be allowed as deduction u/s 36(1)(vii) of the Act as no loan was given by appellant which became bad and was accordingly written off. Further, it cannot be allowed u/s 37 of the Act because it was a capital loss. The appellant did not write off the amount by debiting the P&L account and hence it cannot give a different treatment in computing the total income. He also submitted that the appellant violated RBI direction which required the amount to be provided in AY.2011-12. The assessee also manipulated the accounts by debiting and crediting the amount to the P&L account and made invalid tax deduction claim by treating the same as bad debts written off. 17. The issue that arises for consideration in the light of the facts narrated above is: (i) whether the FD held by the appellant constitutes capital assets or stock-in-trade; (ii) whether the write off of such FDs is a loss arising in the course of carrying on banking business and (iii) whether a loss can be claimed without debiting the P&L account and different treatment can be given for accounting in the books and for the purpose of computing income as per the Act. On the first issue, the FDs can be treated as stock-in-trade if it forms part of banking business. It is seen that as per section 6 of the Banking Regulation Act, 1949 which deals with the form and business in which the banking companies may engage, dealing in funds is a part of banking business. Apart from accepting 15 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. deposits and lending money, investing in deposits is also a part of banking business. Accepting deposits and giving of loans and advances, making investments, deposits etc. form part of core activity of banking business. Thus, the deposits placed with MMCB was wholly in the course of and for the purpose of business. Therefore, the deposits held by the assessee-bank cannot be treated as capital asset and they formed part of stock-in-trade. This is also fortified by the fact that the interests earned on such deposits are offered to tax and have been taxed by the Department as business income. 17.1 The second issue is whether write off the said deposit is a loss arising in the course of carrying on banking business. Once it is held that holding of deposits forms part of banking business, write off such loss will be a loss arising in the course of carrying on banking business. From the facts of record, it is seen that the same MMCB incurred huge losses and the RBI cancelled its license to carry on banking business. The RBI also directed the banks which had deposits with MMCB to write off those losses. Accordingly, we are of the view that loss incurred by the appellant is a business loss incurred during the course of carrying on its banking business. 17.2 On the third issue as to whether loss can be claimed without debiting the P&L account, there are plethora of decisions including the Hon’ble Supreme Court in case of Kedarnath Jute Co. Ltd., 82 ITR 363 (SC). Whether the assessee is entitled to a particular deduction or not will depend on the provisions of law relating thereto and not on the view which the assessee might take nor can the existence or absence of entries in the books of account be a decisive or 16 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. conclusive factor in deciding the matter. On the submission of Ld. CIT-DR that this amount can never be allowed u/s 36(1)(vii), we are in agreement that deposit placed in a bank is not a debt incurred and the deduction u/s 36(1)(vii) of the Act is only in respect of bad and doubtful debts and same cannot be invoked for allowing a write off of deposit made with another bank (MMCB in present case). However, as we have already held above, it is a business loss incurred in the course of carrying on banking business which is allowable as deduction u/s 37 of the Act. The submission of the Ld. CIT-DR that it is a capital loss, cannot be accepted for the reasons stated above. The decision relied upon by the Ld. AR in case of the Dharangadhra People’s Co-Op Bank Ltd. (supra) is also directly on the issue. In case of the said decision, there was similar write off of Rs.1,56,71,108/-, being FDRs placed with MMCB. At para 8.3, the ITAT held that the impugned loss claimed by assessee is allowable deduction under the head business and profession. The ground was allowed by the ITAT. There is no reason as to why the finding is not applicable to the instant appeal. On the issue of violation of RBI norms, it is for RBI to take appropriate action against the bank, if at all there was any violation in 2011-12. It is further seen that in the subsequent period, the appellant had recovered part of the deposit amount which was also offered to tax. This also strengthens the claim of the appellant as a business loss was incurred in the course of carrying on of banking business. In his brief summary, the Ld. AR submitted that assessee has offered subsequent recovery of Rs.3,12,72,287/- from MMCB as income and the assessee may recover further amount in future. The assessee has also conceded deduction of Rs.35,00,000/- 17 ITA Nos.823 & 824/SRT/2023 Surat National Co-Op. Bank Ltd. out of Rs.7.81 crore, which pertained to AY.2013-14. In view of the above discussion, the claim of the appellant that write off of FDs with MMCB as a business loss is partly allowed and AO is directed to delete addition of Rs.7,46,70,034/- [Rs.7,81,70,034/- (-) Rs.35,00,000]. Accordingly, the ground of appeal is partly allowed. 18. In the result, appeal of the assessee is partly allowed. 19. In the combined result, the appeal of the assessee is partly allowed. Order pronounced on 05/12/2024 in the open court. Sd/- Sd/- (PAWAN SINGH) (BIJAYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat Ǒदनांक/ Date: 05/12/2024 SAMANTA Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) / PCIT 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat "