Kerala High Court Allows Bad Debt Tax Deduction


In a major relief to the South Indian Bank, the High Court of Kerala authorized the deduction of income tax on bad debts.

The appraisal officer, through the appraisal order, denied the appraised person’s claim under section 36 (1) (viia). Likewise, the Assessing Officer rejected the revaluation of unlisted securities adopted by the appraised. The assessed person appealed to the Income Tax Commissioner (appeals) and the appeal was allowed in part. In the appeal by the Income Tax Appeal Tribunal by order, the Tribunal partially allowed the appeal for statistical purposes. Hence the appeal of the instant income tax, to the revenue body under section 260A of the Income Tax Act. Legal issues relating to bad debts and the allowance for bad debts in rural branches of the bank of the appraised.

The question raised was whether the relevant provisions, in particular the provision relating to Article 36 (1) (vii), cannot be the claim of the assessed for bad debts u / s 36 (1) ( vii), and claiming the credit balance in the allowance for doubtful and doubtful accounts u / s. 36 (1) (viia) be dismissed and whether the claim for bad debts and bad and doubtful debts constitutes an allowable deduction.

Counsel for the parties states that the issue regarding bad debts falling under Article 36 (1) (vii) is dealt with in favor of the assessed in the reported Supreme Court judgment in Catholic Syrian Bank v. Income Tax Commissioner and responded to the point in favor of the assessed and against the taxman. The division bench of Judge SV Bhatti and Judge Bechu Kurian Thomas, while relying on the Supreme Court’s decision in the case of Banque catholique syrienne v. Income Tax Commissioner, allowed appeals from the assessed and dismissed appeals preferred by the taxman. Further, ordered that all matters be referred to the Assessment Officer for calculation in accordance with the law.

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