ITAT Upholds CIT(A) Decision Allowing Bad Debt Deduction Under Section 36(1)(vii) for Non-Rural Branches
The assessee, Union Bank of India, filed its income tax return (ITR) on 25.10.2007 and claimed a deduction of Rs 129,35,38,845 under section 36(1)(vii) for bad debts written off by non-rural branches. However, the claim was withdrawn during the assessment because the AO believed that the bad debts written off to non-rural branches should be adjusted against the provisions.
The assessee filed a rectification application under section 154, on 19.03.2012, mentioning a mistake apparent from the record in not allowing the deduction under section 36(1)(vii). This application was dismissed by the AO. Therefore, the assessee filed an appeal before the ld. CIT(A), which allowed the rectification under section 154 sayig that the rejection is not valid. Aggrieved by the order of the ld CIT(A), the AO filed an appeal before the Income Tax Appellate Tribunal (ITAT), Bangalore, holding that there is no mistake apparent from the record.
The ITAT agreed with the CIT(A), ruling that the High Court in the case of Karnataka Bank [2009] 316 ITR 345, already stated that the non-rural debts are not required to be adjusted against such provisions. The tribunal said that this non-consideration was a mistake apparent from the record.
The Tribunal also cited Circular No.68 [F.No.245/17/71-A&PC] dated 7.11.1971, which says that a mistake arising from the interpretation of law by the Supreme Court would make a mistake apparent from the record, and the rectification application would be in order. Therefore, the court held that if an assessee submits a rectification application under section 154, highlighting that a later Supreme Court decision clarifies the correct legal position and a mistake has occurred, the application must be accepted if filed on time.
Therefore, the ITAT dismissed the Revenue’s appeal and upheld the CIT(A)’s order, allowing the bad debt deduction of Rs 77,56,75,698.
Case Citation: The Deputy Commissioner of Income Tax Vs Union Bank of India (ITAT Bangalore); ITA No.60/Bang/2025; 04/11/2025; 2007-08
