Relief to South Indian Bank: Kerala High Court allows Income Tax Deduction on bad debts [Read Judgment]

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In a major relief to  South Indian Bank, the Kerala High Court allowed the Income Tax Deduction on bad debts.

The Assessing Officer through the assessment order disallowed the claim of the assessee under Section 36(1)(viia). Similarly, the Assessing Officer disallowed the revaluation of unquoted securities adopted by the assessee. The assessee filed an appeal before the Commissioner of Income Tax (Appeals) and the appeal was allowed in part. In the appeal filed by the Revenue before Income Tax Appellate Tribunal, through order, the Tribunal partly allowed the appeal for statistical purposes. Hence, the instant Income Tax Appeal, at the instance of the Revenue under Section 260A of the Income Tax Act. The questions of law relating to bad debts and provision for bad debts in rural branches of the assessee’s bank.

The issue raised was whether relevant provisions especially proviso to Section 36(1)(vii) cannot be the claim of the assessee for bad debts u/s 36(1)(vii), and the claim in the credit balance in the provision for bad and doubtful debts u/s. 36(1)(viia) be disallowed and whether the claim of bad debts and bad and doubtful debts is an allowable deduction.

The counsel appearing for parties state that the question concerning bad debts falling under Section 36(1)(vii) is covered in favor of the assessee in the reported judgment of the Supreme Court in Catholic Syrian Bank v. Commissioner of Income Tax and had answered the point in favor of the assessee and against the Revenue. The division bench of Justice S.V. Bhatti and Justice Bechu Kurian Thomas while relying on the decision of the Supreme Court in the case of Catholic Syrian Bank v. Commissioner of Income Tax allowed the appeals of the assessee and dismissed the appeals preferred by the revenue. Further, directed that all matters be remanded to the Assessment Officer for computation in accordance with the law.

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