TMI Blog2009 (12) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the said judgment and the Division Bench on being prima facie satisfied, referred the matter for decision by Full Bench and hence the matter is before us. 2. When the appeals were taken up, senior counsel Sri Sarangan appearing for the assessees submitted that the appeal filed by the Department against the above judgment of this court is pending before the Supreme Court and, therefore, hearing should be deferred until the Supreme Court decides the matter. He has also relied on two decisions of the Supreme Court in Central Coalfields v. H. M. P. reported in [1994] Supp. (1) SCC 323 and in D.K. Trivedi and Sons v. State of Gujarat reported in AIR 1986 SC 1323 for the proposition that in matters like this, the recourse open to the High Court is to keep the matter pending until decision of the Supreme Court in the pending SLP/appeals on the same issue. However, we find that more than 40 cases are listed before us for hearing, that too, on reference made by another Division Bench doubting the correctness of the judgment which is under appeal before the Supreme Court. The issue is very important and it arises on an year to year basis in the assessment of every bank in Kerala. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of deduction of bad debt written off in the accounts by the respondent-banks on the ground that the bad debt or part thereof so written off and claimed by the respective assessees was not in excess of the credit balance available in the provision for bad and doubtful debts created by banks covered by section 36(1)(viia) of the Act. While the case of the Department is that ceiling contained in the proviso to section 36(1)(vii) applies to the bad debts claimed by all banks to which clause (viia) applies, the respondent-banks' case is that the proviso applies only in respect of bad debts pertaining to rural branches and so much so, they are entitled under section 36(1)(vii) to claim deduction of all other bad debts written off even if the same is not in excess of the credit balance in the provision created for bad and doubtful debts under clause (viia) of section 36(1). Before proceeding to examine the matter, we have to necessarily refer to the relevant provisions of the Act which are extracted hereunder with the amendments made by the Finance Act, 1985, and the Income-tax (Amendment) Act, 1986. Before amendment in 1985 "36.(1) The deductions provided for in the following cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, 1985, which is relevant for the purpose of this case, reads as follows : "36.(2) In making any deduction for a bad debt or part thereof, the following provisions shall apply-. . . (v) where such debt or part of debt relates to advances made by a bank to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the bank has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause." 4. While the senior standing counsel appearing for the Department has in support of his contention relied on the reasoning in the reference order of the Division Bench, the senior counsel appearing for the respondent-asses-sees has relied on the Division Bench judgment of this court in South Indian Bank Ltd. v. CIT [2003] 262 ITR 579 (Ker) and the judgment of the Karnataka High Court in Deputy CIT v. Karnataka Bank Ltd. [2009] 316 ITR 345. We notice that the Karnataka High Court has decided the case following the judgment of this court above referred which is pending in appeal before the Supreme Court. Therefore, what is required to be considered is whether the scope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is an exception to the main clause by way of ceiling of the eligible deduction, in the first place, applies to only such category of banks to which clause (viia) applies. This means that such of the banks which are entitled to claim deduction of provision for bad debt in terms of clause (viia) will be covered by the proviso to clause (vii) irrespective of the nature of advances with respect to which the bad debt written off is claimed as deduction. In fact, it is pertinent to note that prior to the amendment in 1985 the banks were entitled to claim deduction of bad debt written off without any ceiling whatsoever and simultaneously they were entitled to deduction of provision covered by clause (viia) of section 36(1) as well. However, when progressively clause (viia) was liberalised providing deduction of provision created even in respect of a percentage of income and along with it and alternate to it percentage of advances made by rural branches, simultaneous restrictions were introduced in regard to the banks' eligibility for deduction of bad debt actually written off. It is worthwhile to note that an Explanation was added to clause (vii) of section 36(1)(vii) by the Finance A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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