Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(ITAT) 11133

INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)
Amit Shukla, Judicial Member, Girish Agrawal, Accountant Member
TJSB Sahakari Bank – Appellant
Versus
Deputy Commissioner of Income Tax – Respondent
ITA Nos. 6609/MUM/2025 | 6610/MUM/2025 | 6611/MUM/2025

Advocates:
For the Appellants/Petitioners: Anil Sathe
For the Respondents: Hemanshu Joshi

Bad debts written off by a cooperative bank relating to assets classified as NPAs prior to the applicability of Section 36(1)(viia) are fully deductible under Section 36(1)(vii) in the year of write-off, as the two sections operate independently.

Headnote:(A) Income Tax Act, 1961 - Sections 36(1)(vii), 36(1)(viia), 36(2)(v), 41 and 143(3) - Deduction of bad debts - Cooperative bank - Entitlement to deduction under Section 36(1)(vii) for bad debts relating to assets classified as Non-Performing Assets (NPA) prior to the date when deduction under Section 36(1)(viia) became applicable - Whether bad debts written off are prior period expenses - Held, Section 36(1)(vii) and 36(1)(viia) are distinct and independent items of deduction - Bad debts written off for debts other than those for which provision is made under Section 36(1)(viia) fall under the main part of Section 36(1)(vii) - As deduction under 36(1)(viia) was not available to cooperative banks before 01.04.2006, the entire write-off is eligible for deduction in the year of write-off. (Paras 12, 14, 15, 17, 18, 19)

(B) Assessment and Procedure - Doctrine of merger - Intimation under Section 143(1) merges into the final assessment order passed under Section 143(3) - Once scrutiny proceedings conclude, the final assessment order supersedes the previous intimation. (Paras 35, 36)

(C) Employees' Contribution to Provident Fund - Section 36(1)(va) - Delay in deposit - Following the principle that belated payment of employees' contribution to welfare funds is not allowable as a deduction. (Para 37)

Facts of the case:
The assessee, a cooperative bank, claimed deductions for bad debts under Section 36(1)(vii) for loans that were classified as loss assets before 01.04.2006. The tax authorities disallowed these claims, treating them as prior period expenses and questioning the timing of the write-offs. Furthermore, regarding a later assessment year, the tax authorities processed the return under Section 143(1) making additions for delayed provident fund payments and recovered bad debts, which the assessee challenged, arguing double taxation and procedural irregularities.

Findings of Court:
The court observed that before 01.04.2006, cooperative banks were ineligible for the deduction under 36(1)(viia), hence no provision for bad debts could have been claimed in earlier years. Consequently, the write-off of these specific legacy NPAs is allowable in the year of write-off under Section 36(1)(vii). The court also directed the reassessment of delayed provident fund deposits in light of established legal precedents and deleted the addition on recovered bad debts already credited to the profit and loss account.

Issues: 1. Whether bad debts related to assets classified as NPAs before the introduction of Section 36(1)(viia) for cooperative banks are allowable under Section 36(1)(vii) in the year of write-off. 2. Whether the adjustment/additions made in an intimation under Section 143(1) survive post-passing of an order under Section 143(3). 3. Whether the disallowance of employees' contribution to provident fund due to delayed deposit is sustainable.

Ratio Decidendi: Provisions of Section 36(1)(vii) and 36(1)(viia) operate in distinct fields. Where no earlier deduction was available for bad debt provisions, the subsequent write-off of such debts is admissible under the primary provision of Section 36(1)(vii). Procedural law dictates that an intimation effectively merges into the final scrutiny assessment order.

Result: Appeals for earlier assessment years allowed; appeal for the final assessment year partly allowed for statistical purposes.

O R D E R

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

These three appeals filed by the assessee are against the orders of National Faceless Appeal Centre (NFAC), Delhi, vide order nos.

i) ITBA/NFAC/S/250/2025-26/1079786277(1), dated 20.08.2025, passed against the assessment order by ACIT, Circle-3, Thane, u/s. 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 29.12.2019, for Assessment Year 2017-18.

ii) ITBA/NFAC/S/250/2025-26/1079827201(1), dated 21.08.2025, passed against the assessment order by National e-Assessment Centre, Delhi, u/s. 143(3) of the Act, dated 26.04.2021, for Assessment Year 2018-19.

iii) ITBA/NFAC/S/250/2025-26/1079786406(1), dated 20.08.2025, passed against the assessment order by Assessment Unit, u/s. 143(3) of the Act, dated 03.08.2022, for Assessment Year 2020-21.

Grounds taken by the assessee are reproduced as under:

ITA No. 6609/MUM/2025

A) That in the facts and circumstances of the case and in the law the ld. Commissioner of Income Tax Appeals has erred in confirming the order u/sec 143 3 of the Act passed by the ld. Assessing Officer who has erred in disallowing the deduction of Rs.91,71,179 claimed by the 1 appellant us.36 1 vir of the Income Tax Act, 1961, on account of Bad Debts Written off during the year, by incorrectly considering the same as Prior Period Expenses by not appreciating the fact that the Bad Debts are allowable as deduction us.36 1 vil of the Act, only in the year of write off of such debts in books of account and not in any other year

B) That in the facts and circumstances of the case and in the law the ld. Commissioner of Income Tax Appeals has erred in confirming the disallowance of deduction of Rs. 91,71,179 claimed by the appellant us. 36 | vii of the Act, on account of Bad Debts written off during the year, by not considering the decision of Hon’ble ITAT, Mumbai Bench in case of ACIT 111 Mumbai vs. Ms. Abhyudaya Co op. Bank Limited ITA No. 1128Mum2023 dated 30062023, relied upon by the appellant in the submissions filed before the ld. CIT Appeals which has been mentioned at page 11 and 12 of the ld. CIT Appeals order, wherein the facts are identical and similar to the facts in case of the appellant

C) That in the facts and circumstances of the case and in the law the ld. Commissioner of Income Tax Appeals has erred in confirming the disallowance of deduction of Rs. 91,71,179 claimed by the appellant us. 36 1 vin of the Act, on account of Bad Debts written off during the year, by relying on the decision 3 of Hobble Tribunal in case of JCIT OSD vs. Indian Bank 2024 169 taxmann.com 246 Chennai Trib. 20112024, by not considering the fact that the issue in the Indian Banks case was regarding allowability of deduction us. 36 1 via, of the Act. whereas the issue in the case of appellant is regarding deduction us. 36 1 vin of the Act i.e. Bad Debts Written off.

ITA No. 6610/MUM/2025

a) That in the facts & circumstances of the case and in the law the ld. Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of deduction of Rs. 1,03,17,024 claimed by the appellant us.36(1)(vii) of the Income Tax Act, 1961, on account of Bad Debts Written off during the year, by incorrectly considering the same as Prior Period Expenses, by not appreciating the fact that the Bad Debts are allowable as deduction us. 36(1)(vit) of the Act, only in the year of write off of such debts in books of account & not in any other year

b) That in the facts & circumstances of the case and in the law the ld. Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of deduction of Rs. 1,03,17.024 claimed by the appellant us 36(1)(vii) of the Income Tax Act. 1961, on account of Bad Debts Written off during the year, by incorrectly considering the same as Prior Period Expenses, and by not considering the fact that the reasons given by the ld. assessing officer in the order u/sec 143(3) are altogether different than the reasons given in Show Cause Notice

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2026 Supreme(Online)(ITAT) 11133

INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)Amit Shukla, Judicial Member, Girish Agrawal, Accountant MemberTJSB Sahakari Bank – AppellantVersusDeputy Commissioner of Income Tax – RespondentITA Nos. 6609/MUM/2025 | 6610/MUM/2025 | 6611/MUM/2025

Bad debts written off by a cooperative bank relating to assets classified as NPAs prior to the applicability of Section 36(1)(viia) are fully deductible under Section 36(1)(vii) in the year of write-off, as the two sections operate independently.

Cases Referred (1)

INCOME TAX APPELLATE TRIBUNAL (MUMBAI BENCH)
Amit Shukla, Judicial Member, Girish Agrawal, Accountant Member
TJSB Sahakari Bank – Appellant
Versus
Deputy Commissioner of Income Tax – Respondent
ITA Nos. 6609/MUM/2025 | 6610/MUM/2025 | 6611/MUM/2025