Calcutta High Court allows Indian Bank's Rs 96.65 crore bad-debt tax deduction claim

The Calcutta High Court on 13 October 2026 allowed an income-tax appeal by Indian Bank and set aside a tribunal order that had rejected its claim for a deduction of Rs 96.65 crore for assessment year 2004-05. A two-judge bench held that a bank's deduction for provisions on assets classified by RBI as doubtful or loss assets cannot be refused only because a deduction under the main provision was already allowed.

What Happened

The appeal was filed under section 260A of the Income-tax Act, 1961 against an order of the Income-tax Appellate Tribunal, Kolkata Bench. The appellant bank, now merged with Indian Bank, had claimed a deduction under section 36(1)(viia)(a) for provision for bad and doubtful debts. It also claimed Rs 96.65 crore under the first proviso to that section, for provisions on assets RBI classified as doubtful or loss assets.

The Assessing Officer disallowed the additional claim. The Commissioner of Income-tax (Appeals) and the tribunal agreed, treating the proviso as an alternative to the main deduction, not an additional one.

The High Court disagreed. It held that the words "at its option" in the proviso give the choice to the bank, not to the Assessing Officer, and that the Revenue's reading would leave those words with little or no meaning. It relied on a Madras High Court ruling whose challenge was dismissed by the Supreme Court, and on its own 2023 decision in an earlier Indian Bank case. The court said an erroneous view cannot continue merely because it was followed in earlier years, and an administrative circular cannot override the Act.

What It Means

The Assessing Officer must now allow the claim after verifying only the conditions in the Act: the RBI classification of the assets and the applicable percentage ceiling. The court said this check cannot reopen the legal question it has decided.

For banks, the ruling means the deduction under the proviso is not automatically used up once the main deduction is allowed. The court made clear the claim stays within the monetary and percentage limits set by the statute. No costs were ordered.

Source: High Court judgment