Weighted deduction for overseas branch expenses and bona fide bad-debt write-offs were treated as deductible under tax law.

Section 35B was read to allow weighted deduction for expenditure on maintaining an overseas branch used to promote export-related banking and support services, without adding a separate requirement that the assessee itself must export services. The London branch's activities in identifying buyers, arranging finance, transmitting trade information and supporting disputes were treated as serving foreign market development, with deduction subject to verification of the expenditure. On bad debts, the text states that write-offs are deductible where the bank bona fide assesses them as irrecoverable on the basis of the debtor's financial position, assets, recoveries and insolvency circumstances; pending suits or decrees alone do not prevent deduction, and later recoveries are taxable separately.

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Issues: (i) Whether the expenditure incurred on maintaining the London branch was eligible for weighted deduction under section 35B; (ii) Whether the various debts written off by the bank were bad debts and not disallowable as premature write-offs.

Issue (i): Whether the expenditure incurred on maintaining the London branch was eligible for weighted deduction under section 35B.

Analysis: The provision was construed as requiring maintenance outside India of a branch, office or agency for the promotion of services or facilities, without importing an additional requirement that the assessee must be "exporting services". The London branch rendered banking and export-promotion services such as identifying buyers, arranging finance, transmitting trade information, facilitating disputes, and supporting export business. These services were held to further foreign market development and therefore fell within the statutory object of the provision.

Conclusion: The claim for weighted deduction under section 35B was allowable, subject to verification of the relatable expenditure.

Issue (ii): Whether the various debts written off by the bank were bad debts and not disallowable as premature write-offs.

Analysis: The debts were examined individually on the basis of the debtor's financial position, the value and availability of assets, prior recoveries, execution of decrees, insolvency or winding-up circumstances, and the bank's own assessment after internal and external scrutiny. It was held that the existence of pending suits or decrees did not by itself show recoverability, and that a nationalised bank's bona fide commercial assessment of irrecoverability, supported by the facts, should ordinarily be accepted. The statutory scheme governing bad debts was also read as permitting deduction where the debt had been written off as irrecoverable, with later recovery to be taxed separately where applicable.

Conclusion: The write-offs were held to be genuine bad debts and not premature, and the disallowance was set aside.

Final Conclusion: The assessee succeeded on both the London-branch weighted deduction claim and the bad-debt claims, and the assessment disallowances were overturned to that extent.

Ratio Decidendi: For a bank, expenditure on an overseas branch used to promote export-related services qualifies for weighted deduction where the statutory language does not require export of services, and a bona fide commercial decision that a debt has become irrecoverable, supported by the debtor's financial and asset position, is sufficient for bad-debt deduction even if litigation or a decree is pending.

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