Assessment of Banks - deduction to rural branches- CBDT instructions

By Vijay Kumar

While computing the income under the head 'Profit and Gains of Business & Profession' a scheduled bank or a non scheduled bank or a cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural bank is entitled to claim deduction of provision for bad debt of an amount not exceeding ten percent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner.

CAG has informed the Board that claims made by banks for deduction are being allowed without verification as to whether the concerned branches come with the definition of 'rural branch'. In several cases, this has resulted in large under-assessment of income.

So the Board directs that the Assessing Officers should ensure that the claims of deduction towards advances given by rural branches of banks are allowed only after verifying (at least by way of test check) as to whether such branches are eligible to be treated as a 'rural branch' according to the definition given in Explanation (ia) to section 36(1)(viia) of the I.T. Act, 1961. A review of completed assessments may also be carried out and appropriate remedial action may be taken as may be necessary.

CBDT Instruction No. 10/2008, Dated: July 31, 2008