Tribunal Must Adjudicate Merits of Bad Debt Addition Instead

Tribunal Must Adjudicate Merits of Bad Debt Addition Instead of Limiting Review to Additional Claims

Issue

Whether the Tribunal was justified in refusing to adjudicate on the merits of the addition of ₹14.10 crores towards bad debts solely because an additional claim of ₹52 crores towards NPA write-offs was raised by the assessee for the first time before the First Appellate Authority.

Facts

Bad Debt Claim: The assessee-bank claimed a deduction for bad debts written off in relation to Non-Performing Assets (NPAs) for A.Y. 2017-18, which was initially allowed by the Assessing Officer under Section 143.
Revision and Addition: Following revisionary proceedings initiated by the PCIT under Section 263, the Assessing Officer finalized the assessment by making an addition of ₹14.10 crores regarding the bad debts written off.
First Appeal & Additional Claim: In the appeal against the ₹14.10 crores addition, the assessee contested the disallowance and additionally raised an extra claim seeking reduction of ₹52 crores for NPA write-offs. The Commissioner (Appeals) rejected the appeal.
Tribunal’s Error: Before the Tribunal, the matter was treated as relating exclusively to the additional claim of ₹52 crores, completely omitting any adjudication on the merits of the primary ₹14.10 crores addition.

Decision

Obligation to Adjudicate Primary Addition (In Favour of Assessee): The Tribunal was legally enjoined to consider and adjudicate upon the validity and merits of the ₹14.10 crores addition rather than bypass it merely because a new additional claim was introduced. [Held, yes]
Inadmissibility of First-Time Additional Claim (In Favour of Revenue): An additional claim for a relief of ₹52 crores raised for the first time before the First Appellate Authority against an assessment order restricting a separate claim could not be projected in that appellate remedy. [Held, yes]
Remand: The matter is remanded back to the Tribunal for fresh consideration on the merits of the ₹14.10 crores disallowance. [Matter remanded]

Key Takeaways

Mandatory Review of Disputed Additions: Appellate tribunals cannot avoid deciding on the merits of a substantive addition under challenge simply because secondary or fresh claims are simultaneously introduced.
Scope of Appellate Remedies: New or enhanced financial claims introduced for the first time during appellate proceedings against a specific assessment order have strict procedural limitations.

HIGH COURT OF KERALA

South Indian Bank Ltd.

Dy. Commissioner of Income-tax

Devan Ramachandran and Basant Balaji, JJ.

IT Appeal NO. 21 OF 2026
IT Appeal NO. 287 (COCH) OF 2024^†

SEPTEMBER 28, 2026

Abraham Joseph Markos, John Vithayathil, V. Abraham Markos, Paul P. Abraham, Alexander Joseph Markos, Advs. and Joseph Markose, Sr. Adv. for the Appellant. Harikumar G., Gopinathan Nair and G.Keerthivas, Advs. for the Respondent.

JUDGMENT

Devan Ramachandran, J. – The appellant is a Scheduled Bank under the provisions of the Banking Regulation Act and they challenge the order of the learned Income Tax Appellate Tribunal (ITAT), Cochin Bench (Tribunal for short).

2. The facts involved are not in dispute; and therefore, we will record them very briefly.

3. The appellant suffered an initial assessment, in which, their claim for disallowance of large sums, written off in relation to Non -Performing Assets (NPA), were allowed. The Principal Commissioner of Income Tax, invoking the provisions of Section 263 of the Income Tax Act (‘Act’ for short), however, remanded the matter to the Assessing Authority; consequent to which, the latter Authority finalized the assessment, adding an amount of Rs.14.10 crores.

4. The appellant took up the matter in First Appeal; in which they also additionally sought reduction of Rs.52 crores also claimed as written off NPA. The said appeal was also rejected.

5. The appellant, thereupon filed a Second Appeal before the learned Tribunal, which, according to them, has refused to consider even their contentions qua the aforementioned Rs.14.10 crores, being misdirected by the impression that the appeal relates only to the claim as regards additional Rs.52 crores thus to be not one that arises before them under the ambit of Section 36(1)(vii) of the Act. They are thus in appeal before this Court.

6. Sri.Joseph Markos, learned senior counsel, instructed by Sri.Alexander Joseph Markos – appearing for the appellant, submitted that, even assuming that the Tribunal can be found to be justified in not entering into the question regarding Rs.52 crores -which is an additional claim made by his client, while the matter was pending before the First Appellate Authority – its refusal to consider even the case qua Rs.14.10 crores is illegal and unlawful. The learned senior counsel then maintained that, as regards Rs.52 crores, his client justified in making it an issue before the First Appellate Authority; and that since the said Authority has already considered it on its merits, the Appellate Tribunal could not have refused to consider it as it has now done. He prayed that, therefore, this appeal be allowed and the matter be remanded to the learned Tribunal for consideration of both issues.

7. Sri.Harikumar G. – learned senior panel counsel for the respondent, in response, submitted that the learned Tribunal has committed no error because the amount of Rs.14.10 crores is not eligible to be allowed, as asserted by the appellant; while the issue relating to Rs.52 crores could not have been impelled before the Tribunal – it having been projected for the first time at the stage of First Appeal. He prayed that this appeal be hence dismissed.

8. As ineluctable from the afore narrative, there are two broad issues; and the questions we have framed also reflect them, as under:

“1) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in dismissing the Appeal on the ground that the issues raised in the Appeal did not emanate from the Assessment Order passed under Section 143(3) read with Section 263 of the Act?

3) Whether on the facts and in the circumstances of the case, the disallowance made in the assessment order of an amount of Rs.14.10 Crores with respect to bad debts written off is erroneous and arbitrary?

4) Whether on the facts and in the circumstances of the case, the additional claim of Rs.51.52 Crores with respect to bad debts written of under Section 36(1)(vii) is an allowable deduction?”

9. 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. Hence, on the first of the afore questions of law, we find in favour of the appellant.

10. Coming to the question of Rs.52 crores, we are in favour with the conclusions of the learned Tribunal because, this was a claim made by the appellant for the first time before the First Appellate Authority, when it was considering the validity of the assessment made by the Assessing Authority disallowing the claim for Rs.14.10 crores. It is crucial that the second assessment order was based on the order of the Commissioner under Section 263 of the Act; and obviously therefore, an additional disallowance claimed by the Bank could not have been projected in the first appellate remedy against it.

11. In such circumstances, we answer the second question against the assessee; however, clarifying that any other remedy that they may have qua Rs.52 crores, which they now claim, is left open, subject to law.

12. Consequently, the matter will stand remanded to the learned Tribunal for fresh consideration on the question of disallowance of Rs.14.10 crores, as has been claimed by the appellant, after affording them and the revenue necessary opportunity of being heard; thus culminating in a fresh order.

This appeal is thus ordered.

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