Kerala High Court Upholds Rejection Of South Indian Bank's ₹52 Cr. Additional Bad-Debt Claim To ITAT

The Kerala High Court on 28 September held that the Income Tax Appellate Tribunal (ITAT) cannot refuse to examine a bad-debt disallowance on merits merely because a separate additional claim was raised before the first appellate authority.

A Division Bench comprising Justices Devan Ramachandran and Basant Balaji remanded South Indian Bank's Rs. 14.10 crore bad-debt disallowance to the ITAT for fresh consideration, while upholding the rejection of the Bank's separate Rs. 52 crore additional bad-debt claim. It said:

“On the aspect of Rs.14.10 crores, we are afraid that we cannot find favour with the learned Tribunal at all because, it was enjoined to consider the validity of its addition, or otherwise, on its merits, rather than have refused to do so solely because an additional claim of Rs.52 crores has been raised.”

The case arose from an assessment in which the Bank's claim for amounts written off in relation to non-performing assets was initially allowed. The Principal Commissioner of Income Tax subsequently invoked Section 263 of the Income Tax Act and remanded the matter to the Assessing Authority, following which Rs. 14.10 crore was added to the Bank's income.

The Bank challenged the revised assessment before the First Appellate Authority and additionally claimed a deduction of around Rs. 52 crore towards bad debts written off. The appeal was rejected, following which the Bank approached the ITAT.

Before the High Court, the Bank argued that the Tribunal had failed to consider its challenge to the Rs. 14.10 crore disallowance by proceeding on the impression that the appeal concerned only the additional Rs. 52 crore claim.

On the other hand, the Revenue contended that the Rs. 14.10 crore amount was not eligible for deduction and that the Rs. 52 crore claim could not have been raised before the ITAT since it had been introduced for the first time before the First Appellate Authority.

The Bench held that the Tribunal was required to examine the validity of the Rs. 14.10 crore addition on merits. It found that the Tribunal could not have declined to consider the issue merely because the Bank had also raised the additional Rs. 52 crore claim.

On the Rs. 52 crore claim, however, it agreed with the Tribunal. It noted that the assessment order under challenge had been passed pursuant to the Principal Commissioner's order under Section 263 and that the additional claim was introduced only at the first appellate stage.

Accordingly, the High Court answered the issue concerning the Rs. 52 crore claim against the Bank, while clarifying that any other remedy available to it in respect of the said claim was left open, subject to law.

It remanded the matter to the ITAT for fresh consideration of the Rs. 14.10 crore disallowance after giving the Bank and the Revenue an opportunity of being heard. Lastly, the Bench also directed the Tribunal to pass a fresh order on the issue.

For Appellant: Shri. Alexander Joseph Markos, Sri. Joseph Markose (Sr.), Sri. V. Abraham Markos, Shri. Abraham Joseph Markos, Shri. John Vithayathil and Sri. Paul P. Abraham.

For Respondent: Sri. G. Keerthivas and Shri. Harikumar G. (Gopinathan Nair)