Banks can use Separate Provisions to Set-off Bad Debts for Rural & Non-Rural Advances: Supreme Court Declines Interference with Bombay HC Order [Read Order]

The Supreme Court of India recently declined to interfere with a judgment of the Bombay HighCourt wherein the Revenue questioned whether banks are entitled to maintain separate provisions for rural and non-rural advances for the purpose of set-off of bad debts under Section 36(1)(viia) read with Section 36(1)(vii) of theIncome Tax Act, 1961.

A Special Leave Petition was filed by the Principal Commissioner of Income Tax-2 against Central Bank of India challenging a Bombay High Court judgment from 26 February 2025.

The matter concerned Assessment Year 2008-09. The Revenue, represented by Samiksha Kanani queried before the Bombay High Court queried whether the ITAT was correct in holding that two separate provisions for rural and non-rural advances were permissible under Section 36(1)(viia) for the purpose of set-off of bad debts under Section 36(1)(vii).

The counsel for the Revenue later indicated that no appeals may have been filed, possibly due to the tax implications involved.

A Division Bench of Justice M.S. Sonak and Justice Jitendra Jain noted that the ITAT had relied upon the decisions of its coordinate benches in the case of the same assessee for earlier assessment years 1989-90 to 1992-93 and 1994-95, 1999-2000,

The matter had previously been adjourned by the High Court for the Revenue counsel to obtain appropriate instructions and apprise the court of whether appeals were filed against the decision of the coordinate ITAT benches.

However, nothing on record indicated that any appeals had been filed against those earlier Tribunal decisions.

The High Court also noted that the Tribunal had followed the earlier Supreme Court decision in Catholic Syrian Bank Ltd. v. Commissioner of Income-tax (2012). Accordingly, the High Court held that no substantial question of law arose and declined to admit the appeal.

Aggrieved, the Revenue approached the Supreme Court.

The Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran condoned the delay in filing the petition, but found no good ground to interfere with the impugned judgment of the High Court and accordingly dismissed the Special Leave Petition .

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