Write-Back of Unclaimed Loan Loss Provision Can’t Be Taxed Again: ITAT Mumbai

KBC Bank Naamloze Vennootschap Vs ACIT (ITAT Mumbai)

The Income Tax Appellate Tribunal (ITAT), Mumbai, heard the assessee’s appeal against the assessment order passed under Sections 147 read with 144C(13) of the Income-tax Act, 1961 for AY 2016-17. Although the assessee had challenged the validity of reassessment proceedings under Section 148, those grounds were not pressed and the appeal was argued on merits.

Material Facts: The Assessing Officer made additions of Rs. 3.14 crore towards reversal of general provision for standard assets under the normal provisions and while computing book profit under Section 115JB. An addition of Rs. 1,04,42,250 relating to forfeiture of security deposit was also made while computing book profit under Section 115JB. The assessee further disputed short grant of TDS credit, incorrect refund computation, interest under Sections 234B and 234C, and initiation of penalty proceedings.

Assessee’s Submissions: The assessee submitted that the provision for standard assets had never been claimed as a deduction in earlier years. The write-back was credited to the profit and loss account as a negative expense, thereby increasing income, and was correspondingly reduced while computing taxable income. It also submitted that the provision for forfeiture of security deposit had already been suo motu added back while computing book profit under Section 115JB, making the Assessing Officer’s addition a duplication. The assessee requested verification of TDS credit and refund figures.

Revenue’s Submissions: The Revenue supported the orders of the Assessing Officer and the Dispute Resolution Panel.

Tribunal’s Findings: The Tribunal observed that the write-back of the general provision appeared to have already been reflected in the profit and loss account and reduced during computation, indicating that taxing it again could result in the same amount being brought to tax twice. As the complete financial information was not available, it restored the issue to the Assessing Officer for factual verification and fresh adjudication. Similarly, it found that if the provision for forfeiture of security deposit had already been added back by the assessee under Section 115JB, it should not be added a second time, and directed the Assessing Officer to verify the facts and delete the disallowance accordingly. The issues relating to TDS credit, refund amount, interest under Sections 234B and 234C, and penalty were also restored to the Assessing Officer for fresh consideration.

Final Ruling: The appeal was allowed for statistical purposes, with the disputed issues remanded to the Assessing Officer for factual verification and fresh adjudication.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The captioned appeal is preferred by the assessee, against the order under section 147 r.w.s 144C(13) of the Income Tax Act, 1961 [in short, “the Act”] dated 29.09.2025 for Assessment Year (AY) 2016-17, passed by Assistant Commissioner of Income Tax Int. Tax Circle 3(1)(2), Mumbai [in short, “the Ld. AO”].The grounds of appeal raised by the assessee are as under:

“Invalid Proceedings under section 148 of the Income Tax Act, 1961 (‘the Act’)

1. The notice issued under section 148 of the Act is invalid and consequently the Order should be quashed.

1A. Without prejudice to the above, the learned ACIT erred in not appreciating that the notice is time barred and therefore void-ab-initio and should be quashed.

1B. Without prejudice to the above, the learned ACIT erred in not appreciating that no notice can be issued under section 148 of the Act on the basis of change in opinion.

Addition of reversal of general provision for standard assets of Rs. 3,14,00,000

2. The learned ACIT erred in adding back the reversal of general provision for standard assets of Rs. 3,14,00,000 under the normal provisions of the Act.

2A. The learned ACIT be directed to delete addition of reversal of general provision for standard assets of Rs. 3,14,00,000 under the normal provision of the Act.

3. The learned ACIT erred in adding back general provision for standard asset of Rs. 3,14,00,000 for computing book profit under section 115JB of the Act.

3A. The learned ACIT be directed to delete addition of reversal of general provision for standard assets of Rs. 3,14,00,000 under section 115JB of the Act.

Addition of Rs. 1,04,42,250 for computing the book profit under section 115JB of the Act

4. The learned ACIT erred in adding back forfeiture of security of Rs. 1,04,42,250 for computing book profit under section 115JB of the Act.

4A. The learned ACIT has erred in not appreciating that the provision for security deposit of Rs. 1,04,42,250 has been suo moto added back while computing book profit under section 115JB of the Act.

4B. The learned ACIT be directed to delete addition of provision for security deposit of Rs. 1,04,42,250 under section 115JB of the Act.

Short grant of Tax Deducted at Source (‘TDS’) credit of Rs. 1,54,59,699

5. The learned ACIT has erred in granting credit for TDS of only Rs. 50,47,728 instead of Rs. 2,05,07,427 as claimed in return of income.

5A. The learned ACIT be directed to grant additional TDS credit of Rs. 1,54,59,699.

Incorrect mention of refund amount issued

6. The learned ACIT has erred in considering the amount of refund already issued as Rs. 2,98,03,228 (including interest under section 244A of the Act) instead of Rs. 2,65,82,132 as actually received by the Appellant.

6A. Accordingly, the learned ACIT be directed to delete error relating to the excess refund of Rs. 32,21,096 as issued to Appellant.

Interest under section 234B of the Act

7. The learned ACIT erred in levying interest under section 234B of the Act of Rs. 92,71,050.

Interest under section 234C of the Act

8. The learned ACIT erred in levying interest under section 234C of the Act of Rs. 22,815.

Penalty

9.The learned ACIT erred in initiating penalty proceedings under section 271(1)(C) of the Act.

General

10. Each one of the above grounds of appeal is without prejudice to the other.

11. The Appellant reserves the right to amend, alter, add or delete the above grounds of appeal.”

2. Brief facts of the case are, that the assessee is a foreign company eligible in terms of provisions of section 144C(15(b)(ii) of the Act. A draft assessment order was passed on 27.03.2025, as per provisions of section 144C of the Act, wherein certain variations were proposed to the total income returned by the assessee. The assessee raised objections against the proposed variations before the Dispute Resolution Panel-1, Mumbai (in short, “DRP”). The objections of assessee were disposed of vide directions of DRP u/s 144C(5) of the Act dated 22^nd August, 2025. According to the directions of DRP, the impugned assessment is completed on 29.09.2025 and the income of the assessee has been recomputed by the Ld. AO, detailed as under:

As per Normal Provisions:

As per Book Profit u/s. 115JB:

–

3. Being aggrieved with the aforesaid variations in the returned income, the assessee is in appeal before us.

4. The Ld. AR of assessee preferred to argue the matter on merits, accordingly Ground No.1, 1A and 1B are not pressed.

5. Ground No.2 has been raised to challenge the addition on account of reversal of general provision for standard assets amounting to Rs.3,14,00,000/-. The Ld. AR of the assessee submitted that the reversal of general provision of standard asset was bad in law, which is made under the normal provisions of the Act as well as while computing the book profit u/s 115JB of the Act. It is submitted that during the period under consideration, the assessee-company had written-back the said provisions for standard asset/loss for Rs.3,14,00,000/-, since the provision for said standard asset/loss were not claimed as deduction in the earlier years, the write-back of the same has been reduced from computation of total income.

6. To substantiate the aforesaid fact, Ld. AR drew our attention to profit and loss account of the assessee-company placed at page no. 77 of the assessee’s paper book wherein the amount for provision and contingency was shown at Rs. (1,73,45,000/-). Further, the bifurcation of provision and contingencies charged to P & L is shown at page no. 78 of assessee’s paper book according to which the aforesaid amount of Rs. (17,345,000/-) includes Rs. (42,300,000/-) which is the provision against standard assets carried forward from 31^st March, 2015. It is submitted that since the assessee has not claimed such provisions as deduction in the earlier year, therefore, the write-back of the same has been added back while computing the total income of the assessee.

7. Before us, Ld. AR of the assessee clarified that the provision and contingencies are shown under the head expenditure and P & L account and since the figure is negative, it is actually increasing the income of the assessee. It is further submitted that the Antwerp Diamond Bank NV (ADB) was merged with the assessee KBC Bank N.V. on 1^st July, 2015. Therefore, the amount of opening provision for Rs.(42,300,000/-) was divided between the existing entity and the merged entity for the period from 1^st April 2015 to 30^th June, 2015 and 1^st July 2015 to 31^st March, 2016 respectively. The provision has been reversed in accordance with the aforesaid periodic ratios. It is submitted that in fact no deduction for said provision has been claimed in the earlier year, in which the said provisions were created, therefore, the write-back of said provision cannot be considered as income. Accordingly, the write-back of said provision which is credited to the profit and loss account has been correctly reduced on the computation of the business income.

8. Per contra, Ld. DR vehemently supported the orders of DRP and the Ld. AO.

9. On a fair consideration of facts available on record and submission of both the parties, we find that the assessee has credited the amount of provision for general loan loss / provision on standard assets after making certain adjustments regarding provision for Income Tax write-off of non-performing assets provision for country risk/written-back thereby reached at a figure of Rs. (1,73,45,000/-) which is shown as negative expense in the P & L account. While computing the income, the assessee has added this item back to the amount of profit before tax. Prima facie it seems that the assessee has added such amount in the P & L account in the income of the assessee (by showing it in negative under the expenses) and the same amount is being reduced while making the computation, therefore, the effect of same wouldbe Nil.Accordingly, it cannot be brought to tax again. However, since the information of financials of assessee are not fully available before us, we deem it appropriate to restore this issue back to the file of Ld. AO for verification of factual aspect and to allow the claim of assessee for general provision for loan loss as per facts on record. In result, Ground Nos. 2 and 3 of the present appeal are allowed for statistical purposes.

10. Ground No.4 of the present appeal pertains to addition of Rs.1,04,42,250/-on account of adding back forfeiture of security, while computing book profit u/s 115JB of the Act. It is submitted that the amount of security deposit has been suo moto added back by the assessee while computing taxable income u/s 115JB, therefore, the same need not be added back which otherwise would tantamount to double addition of the same ineligible claim. It is submitted that the assessee-company has reduced net amount of Rs.2,55,83,513/-, which includes reduction of Rs.3,60,25,758/- towards reversal of non-cancellable lease less addition for Rs.1,04,42,250/- towards provision for forfeiture of security.

11. Per contra, Ld. DR supported the order of Ld. AO.

12. On a thoughtful consideration of the aforesaid submissions by the assessee and the Revenue. We find that the assessee has already suo moto added back the aforesaid amount to its income while computing the book profit u/s 115JB of the Act, the same cannot be added twice.The Ao thus is directed to delete this disallowance after factual verifications. In result, Ground No.4 of the present appeal stands allowed.

13. Ground No.5 pertains to TDS credit which according to assessee was not granted by the Ld. AO as claimed by the assessee for Rs.2,05,07,427/-. It is requested that this issue may be remitted to the Ld. AO to verify and allow the credit of TDS to assessee as per facts on record. We accordingly set aside this issue to the file of Ld. AO for fresh verification and adjudication. Ground No.5 is allowed for statistical purposes.

14. Ground No.6 regarding amount of refund, interest u/s 234B and 234C of the Act as well as Ground No.9 regarding penalty are consequential in nature and premature to be decided at this stage, therefore are restore these grounds back for consideration of the Ld. AO to revisit the facts and decide the same afresh.

15. Ground Nos.10 and 11 are general in nature thus do not call for any separate adjudication.

16. In result, the appeal of assessee is allowed for statistical purposes, in above terms.

Order pronounced in the open court on 13-07-2026.