Section 36(1)(viia) Deduction for Rural Branch Advances: ITAT Indore Directs Fresh AO Verification
Case Background and Overview
Case: ITO Vs Jila Sahkari Kendriya Bank Maryadit (ITAT Indore)
Assessment Year: 2015-16
Order Pronounced: 27/03/2026
The Income Tax Appellate Tribunal, Indore Bench, recently adjudicated a dispute involving a co-operative bank's claim for deduction under Section 36(1)(viia) of the Income-tax Act, 1961. The matter reached the Tribunal following the Revenue's challenge to partial relief extended by the CIT(A) in favour of the assessee-bank. The central question revolved around whether the second component of the deduction — computed on the basis of aggregate average advances made by rural branches — had been adequately substantiated and verified through the prescribed mechanism.
Factual Matrix
Original Assessment and Revision Proceedings
The assessee, a co-operative bank, filed its return of income for AY 2015-16 declaring a total income of Rs. 8,00,40,650/-. The case was taken up for scrutiny, and the Assessing Officer (AO) passed an assessment order dated 03.10.2017 under Section 143(3), determining the total income at Rs. 8,81,43,270/-. At this stage, a deduction of Rs. 81,02,617/- claimed under Section 80P was disallowed, while the deduction under Section 36(1)(viia) was not specifically disputed.
Subsequently, the Ld. PCIT, Ujjain exercised revisionary jurisdiction under Section 263 vide order dated 23.03.2020, holding the original assessment order to be erroneous and prejudicial to the interests of Revenue on certain issues. The PCIT set aside the assessment and directed the AO to frame the assessment afresh.
Fresh Assessment Order
Pursuant to the PCIT's directions, the AO passed a fresh assessment order dated 11.09.2021 under Section 143(3) read with Section 263, wherein two significant disallowances were made:
**Disallowance under
Section 36(1)(viia)😗* The assessee had claimed a deduction of Rs. 4,00,00,000/- on account of provision for bad and doubtful debts. The AO allowed only Rs. 66,10,745/- (representing 7.5% of the gross total income) and disallowed the remaining Rs. 3,33,89,255/-, holding that the assessee had failed to furnish the requisite details and data pertaining to rural branches and average advances as mandated underRule 6ABAof the Income-tax Rules, 1963.**Disallowance under
Section 80P😗* The deduction of Rs. 81,02,617/- previously disallowed was again denied in the fresh assessment order.
First Appeal Before CIT(A)
The assessee approached the CIT(A) against both disallowances. During appellate proceedings, the assessee placed on record details and data relating to its rural branches along with computations of average advances made by those branches.
On consideration of the material submitted, the CIT(A) granted partial relief in the matter of the disallowance under Section 36(1)(viia), effectively accepting the assessee's claim to the extent of the second component. However, the disallowance under Section 80P was upheld in its entirety.
Revenue's Challenge Before ITAT
The Revenue, aggrieved by the partial relief granted by the CIT(A) in respect of the Section 36(1)(viia) deduction, filed an appeal before the ITAT Indore. The grounds raised by the Revenue — both original and additional — are reproduced below: