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Issues Involved:
1. Disallowance of bad debts for assessment years 2002-03 and 2003-04. 2. Additional ground for further allowance of bad debts for assessment year 2002-03. Issue-wise Detailed Analysis: 1. Disallowance of Bad Debts for Assessment Years 2002-03 and 2003-04: The assessee, a public sector undertaking engaged in banking for small industries, claimed bad debts of Rs. 84,70,66,503 for the assessment year 2002-03 and Rs. 178,23,55,838 for the assessment year 2003-04. The Assessing Officer (AO) disallowed these claims, arguing that the debts originated from periods when the assessee's income was exempt from tax under section 50 of the Small Industries Development Bank of India (SIDBI) Act, 1989. The AO relied on CIT v. S.S. Thiagarajan [1981] 129 ITR 115 and CIT v. Hariprasad & Co. (P.) Ltd. [1975] 99 ITR 118. The assessee argued that the business itself was not exempt, only the income, profits, and gains were. They cited several judicial precedents, including CIT v. Karamchand Premchand Ltd. [1960] 40 ITR 106 and Royal Calcutta Turf Club v. CIT [1983] 144 ITR 709, to support their claim that bad debts should be deductible as they were incurred in the ordinary course of banking business. The Tribunal agreed with the assessee, stating that the business was not exempt, only the income was, and thus the bad debts were allowable under section 36(1)(vii) read with section 36(2) of the Income-tax Act. The Tribunal also noted that the assessee satisfied the conditions of section 36(2) as the debts represented money lent in the ordinary course of banking. 2. Additional Ground for Further Allowance of Bad Debts for Assessment Year 2002-03: The assessee raised an additional ground, claiming that the actual bad debts written off amounted to Rs. 102.43 crores, not Rs. 84.71 crores, and sought an additional allowance of Rs. 17.72 crores. The Tribunal rejected this additional ground, noting that the AO had only disallowed Rs. 84.71 crores and not Rs. 102.43 crores. Furthermore, the assessee did not obtain the necessary permission from the Committee on Disputes (COD) to raise this additional ground. Conclusion: The Tribunal allowed the assessee's claim for bad debts for both assessment years, directing the AO to compute the deductions in accordance with section 36(1)(vii) and section 36(1)(viia). The additional ground for further allowance of Rs. 17.72 crores was rejected due to lack of COD permission and because the AO had not disallowed this amount. The appeals were partly allowed.
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