Income Tax Appellate Tribunal on Set-Off of Losses, Bad Debts & MAT Applicability for Banks.

Headnote:

The Delhi ITAT disposed of cross-appeals filed by Punjab National Bank (PNB) and the Revenue for AY 2020–21. The Tribunal remanded issues relating to set-off of business losses, bad debts under Section 36(1)(vii) and applicability of Section 115JB for verification by the Assessing Officer (AO). The Revenue’s objections—including disallowance under Section 14A, denial of TDS credit under Rule 37BA, and carried-forward long-term capital losses—were rejected. The assessee’s appeal was allowed for statistical purposes, while the Revenue’s appeal was dismissed.

Background:

• The appeals arose from an NFAC order dated 28.03.2024 relating to AY 2020–21.

• PNB challenged disallowance of set-off of ₹47.15 crore business loss (AY 2018–19), and additionally sought directions regarding:

– deduction of bad debts written off (Section 36(1)(vii)) without adjusting against provisions under Section 36(1)(viia), and

– non-applicability of MAT under Section 115JB to banking companies.

• Revenue challenged deletion of:

– disallowance under Section 14A,

– denial of TDS credit under Rule 37BA, and

– disallowance of ₹53.11 crore long-term capital loss.

Tribunal’s Findings:1. Set-off of Carry-Forward Business Loss (Assessee’s Appeal)

• Records were unclear whether the business loss for AY 2018–19 had been allowed in later years.

• The matter was restored to the AO for verification.

• If already allowed in subsequent assessments, no adjustment is required; if not, PNB must be granted the benefit in AY 2020–21.

2. Additional Grounds – Bad Debts & MAT (Assessee)

• Though not raised earlier, the Tribunal admitted the grounds in the interest of justice.

• Issues remanded to the AO to verify:

– whether bad debts written off by non-rural branches require adjustment against Section 36(1)(viia) provisions;

– whether Section 115JB (MAT) applies to banks (PNB argued it does not).

• Both issues allowed for statistical purposes.

3. Disallowance Under Section 14A (Revenue’s Appeal)

• Both sides acknowledged that the issue is covered by earlier judgments in PNB’s favour.

• Delhi High Court and the Supreme Court (South Indian Bank Ltd., Maxopp Investment) held Section 14A does not apply where securities are held as stock-in-trade by banks.

• Tribunal upheld CIT(A)’s deletion of ₹58.56 crore disallowance.

• Ground dismissed.

4. TDS Credit Under Rule 37BA (Revenue’s Appeal)

• TDS was deducted under Section 194A on sale of properties of defaulting borrowers during loan recovery under SARFAESI.

• PNB had offered corresponding interest/other income to tax.

• CIT(A) accepted that TDS credit cannot be denied merely due to categorization under a different income head.

• Tribunal upheld the finding.

• Ground dismissed.

5. Carry-Forward of Long-Term Capital Loss (Revenue’s Appeal)

• CIT(A) found that long-term capital losses for AYs 2016-17 and 2018-19 had not been expressly disallowed in earlier assessments, and losses for AY 2019-20 had been accepted.

• Tribunal agreed that, in absence of any prior disallowance, PNB was eligible to carry forward the losses.

• Ground dismissed.

Legal Provisions Discussed:

• Section 36(1)(vii) – Bad debts written off

• Section 36(1)(viia) – Provision for bad and doubtful debts

• Section 14A r.w. Rule 8D – Expenditure relating to exempt income

• Rule 37BA – Credit for TDS

• Section 115JB – Minimum Alternate Tax

• Section 143(3) – Scrutiny assessment'

Final Outcome:

• Assessee’s Appeal (PNB): Allowed for statistical purposes

• Revenue’s Appeal: Dismissed

• Issues remanded to the AO:

– set-off of business loss,

– bad debts deduction,

– MAT applicability.

Citation: ITA No. 2712 & 3039/DEL/2024

Case: Punjab National Bank v. Dy. Commissioner of Income Tax

Court: Income Tax Appellate Tribunal, Delhi “A” Bench

Coram: Shri Satbeer Singh Godara (Judicial Member) & Shri Naveen Chandra (Accountant Member)

Date of Decision: 28 August 2025

Appeal Nos.: ITA No. 2712/DEL/2024 & ITA No. 3039/DEL/2024