The recent decision by the Income Tax Appellate Tribunal (ITAT) Delhi in the case of Oriental Bank of Commerce vs. ACIT (ITAT Delhi) carries significant implications for the treatment of bad debts claimed by banks under section 36(1)(vii) of the Income Tax Act, 1961.
The case, relating to the assessment year 2017-18, was brought against the order of the Commissioner of Income Tax (Appeals) [CIT(A)].
At the heart of the matter was the disallowance of bad debts amounting to Rs. 4545.89 crores claimed under section 36(1)(vii) by the Assessing Officer (AO). The CIT(A) upheld the disallowance, citing various reasons including the applicability of Explanation 2 under section 36(1)(vii) introduced by the Finance Act, 2013. However, the ITAT Delhi found merit in the appellant’s argument, supported by legal precedents and factual consistency.
The ITAT’s decision emphasized that the bad debts claimed by the appellant were distinct from those covered under section 36(1)(viia), and thus, deduction under section 36(1)(vii) should be allowed. The tribunal noted that the appellant had satisfied the conditions laid down by the Supreme Court in the case of Vijaya Bank vs. CIT regarding the actual write-off of bad debts.
Drawing on its previous rulings and the dismissal of similar petitions by the Hon’ble Delhi High Court in identical cases for previous assessment years, the ITAT emphasized a consistent judicial stance on the issue. The tribunal reiterated that no significant question of law arose in the present case, aligning with its past decisions and those of the High Court.
The ITAT Delhi’s decision to allow Oriental Bank of Commerce’s claim for bad debts under section 36(1)(vii) demonstrates a balanced interpretation of relevant statutory provisions and judicial precedents. The ruling provides clarity on the eligibility criteria for claiming tax deductions related to bad debts, ensuring fair and consistent application of tax regulations.
This ruling is likely to have a significant impact on similar cases involving banks and financial institutions asserting bad debts under the Income Tax Act.
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