A bank’s first-proviso deduction is not barred merely because it claimed the main deduction.

For assessment year 2004–05, Indian Bank claimed a deduction under Section 36(1)(viia)(a) of the Income-tax Act, 1961, for provision for bad and doubtful debts, and a further deduction of Rs. 96,65,00,000 under the first and applicable succeeding provisos for assets classified by the Reserve Bank of India as doubtful or loss assets.

The Assessing Officer disallowed the further claim, reasoning that the proviso could not be invoked separately after a deduction under the main provision had been allowed.

The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal upheld that view.

The Bank appealed under Section 260A

1. Whether, under Section 36(1)(viia)(a) and its first proviso, the proviso deduction was alternative to the main-clause deduction and therefore unavailable where a deduction had already been allowed under the main clause

Section 36(1)(viia)(a) allows a deduction for qualifying provisions for bad and doubtful debts, subject to statutory limits; its first proviso concerns specified assets classified by the RBI as doubtful or loss assets, and the applicable succeeding proviso modifies the relevant percentage or quantum.

The effect of a proviso must be determined from its text, context, and legislative purpose; the words “at its option” must be given operative meaning and vest the statutory choice in the qualifying assessee.

The Court relied on *CIT v. Tamil Nadu Industrial Investment Corporation Ltd.*, [2019] 112 taxmann.com 386 (Madras), whose reasoning on the expression “at its option” it found persuasive, and on *Indian Bank v. Commissioner of Income-tax*, [2023] 151 taxmann.com 205 (Calcutta), which rejected the contention that the first-proviso deduction was necessarily alternative to the main-clause deduction.

The Court held that treating the first proviso as an alternative benefit automatically exhausted by allowance under the main clause would deprive “at its option” of meaningful effect and transfer the statutory choice from the Bank to the tax authorities.

In light of the provision’s text and purpose, the proviso claim could not be rejected solely because the main-clause deduction had also been allowed.

The claim nevertheless remained subject to the statutory conditions, relevant RBI classification, and applicable ceiling.

It allowed the appeal and set aside the Tribunal’s order insofar as it rejected the Rs. 96,65,00,000 claim on the ground that the proviso deduction was alternative to the main-clause deduction.

The Assessing Officer was directed to give effect to the judgment by verifying the statutory conditions and limits, without reconsidering the legal issue decided.