Scheduled-bank status after amalgamation preserves section 36(1)(viia) deduction, while timely TDS payment supports section 40(a)(ia) relief.

A bank that continued to be treated as a scheduled bank after amalgamation could still claim deduction under section 36(1)(viia)(a), including the rural-advance linked benefit, because the merger did not break statutory status; the write-off aspect was remitted for limited recomputation on the books. Tax deducted at source expenditure was allowed under section 40(a)(ia) where the tax had been deposited before the due date for filing the return, and the retrospective amendment was applied accordingly. Disallowance under section 14A was sustained because exempt dividend income had been earned and the computation under Rule 8D(2) was applicable.

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Issues: (i) whether the assessee bank retained the status of a scheduled bank after amalgamation and was entitled to deduction under section 36(1)(viia)(a) of the Income-tax Act, 1961, including the benefit linked to rural advances; (ii) whether the assessee was entitled to deduction in respect of tax deducted at source expenditure under section 40(a)(ia) of the Income-tax Act, 1961 when the tax had been deposited before the due date of filing the return; (iii) whether the disallowance under section 14A of the Income-tax Act, 1961 was justified.

Issue (i): Whether the assessee bank retained the status of a scheduled bank after amalgamation and was entitled to deduction under section 36(1)(viia)(a) of the Income-tax Act, 1961, including the benefit linked to rural advances.

Analysis: The assessee and the constituent banks were treated as scheduled banks, and the amalgamation notification showed continuity of status after the merger. On that basis, the statutory benefit under section 36(1)(viia)(a) remained available. The Court also relied on the later Supreme Court exposition that the deduction for provision for bad and doubtful debts is distinct from actual bad debt claims, and that a bank satisfying the statutory conditions can claim the deduction in the manner permitted by the provision. However, for the assessee's own claim based on actual write-off, the matter required recomputation because the books reflected write-off, though not party-wise, and that aspect had to be verified by the Assessing Officer.

Conclusion: The assessee was entitled to be treated as a scheduled bank for the purpose of section 36(1)(viia)(a), and the related deduction could not be denied on that ground; the write-off claim was restored for limited recomputation.

Issue (ii): Whether the assessee was entitled to deduction in respect of tax deducted at source expenditure under section 40(a)(ia) of the Income-tax Act, 1961 when the tax had been deposited before the due date of filing the return.

Analysis: The tax had been deducted and deposited before the due date for filing the return, and the amended provision applied retrospectively. The bar against a fresh claim through revised computation was not accepted as a reason to deny a deduction otherwise allowable under the amended statute.

Conclusion: The disallowance was deleted and the deduction was allowed.

Issue (iii): Whether the disallowance under section 14A of the Income-tax Act, 1961 was justified.

Analysis: Exempt dividend income had been earned, and the statutory mandate under section 14A applied. The disallowance was sustained with reference to the applicable method of computation under Rule 8D(2) of the Income-tax Rules, 1962.

Conclusion: The disallowance under section 14A was upheld.

Final Conclusion: The Revenue's appeal failed, the assessee obtained relief on the TDS disallowance and partial relief on the bad-debt claim, while the section 14A addition was sustained.

Ratio Decidendi: A bank retaining scheduled-bank status after amalgamation cannot be denied deduction under section 36(1)(viia)(a) on that ground, and a claim otherwise allowable under a retrospective amendment cannot be disallowed merely because it was not raised through a revised return.

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