ITAT Chennai Rejects Cooperative Bank's Appeals on Bad Debt Disallowance and Rectification Claims

Case Overview

Case Name: Kumbakonam Central Cooperative Bank Vs DCIT (ITAT Chennai)
Assessment Years: 2013-14 and 2020-21
Appeal Numbers: ITA No.583/Chny/2024 and ITA No.584/Chny/2024
Order Pronounced: 21st February, 2025

The Income Tax Appellate Tribunal (ITAT), Chennai, delivered a consolidated ruling dismissing both appeals filed by Kumbakonam Central Cooperative Bank against the orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi. The appeals pertained to Assessment Years 2013-14 and 2020-21 and raised distinct yet significant legal questions — one concerning the doctrine of merger in reassessment proceedings and the other concerning the scope of Section 154 rectification applications.

Background: Two Separate Disputes Across Two Assessment Years

The two appeals, though filed by the same assessee, revolved around independent legal controversies. The Tribunal decided both appeals through a common order for the sake of convenience.

ITA No. 583/Chny/2024 — Assessment Year 2013-14

Factual Background

The assessee, a cooperative bank, filed its return of income for AY 2013-14 on 30.09.2013, declaring a loss of Rs. 1,60,84,017/-. The case was taken up for scrutiny assessment, and the Assessing Officer (AO), vide order dated 22.03.2016 passed under Section 143(3) of the Income Tax Act, 1961, made an addition of Rs. 9,66,65,844/- on account of inadmissible bad debts claimed by the assessee.

The AO, relying upon the Hon'ble Supreme Court's ruling in the case of Catholic Syrian Bank, held that the deduction under Section 36(1)(viia) is exclusively available in respect of provisions for rural advances. This addition stood unchallenged — the assessee did not pursue any appeal against the original order dated 22.03.2016 before any appellate forum.

Subsequently, the AO reopened the assessment under Section 147 read with Section 144B, and passed a reassessment order dated 12.03.2022. The reopening was initiated to verify the number of rural branches operated by the assessee in connection with its deduction claim under Section 36(1)(viia). Upon examination, the AO found no deficiency and accordingly completed the reassessment without making any fresh additions, determining the total income at Rs. 8,60,03,830/- — the same figure as in the original assessment order.

The Assessee's Contention Before CIT(A)

Despite the reassessment order containing zero fresh additions, the assessee challenged it before the CIT(A). The primary argument was that by virtue of the doctrine of merger, the original assessment order dated 22.03.2016 had merged into the reassessment order dated 12.03.2022. Consequently, the assessee sought the right to challenge the bad debt disallowance of Rs. 9,66,65,844/- — a challenge it had consciously not pursued within the statutory time limits.

CIT(A)'s Decision

The CIT(A), vide order dated 04.01.2024, dismissed the appeal observing: