TaxTMI 
TaxTMI 
TaxTMI 
2009 (12) TMI 394
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....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. Since the Department has not accepted the above Division Bench judgment which is pending in appeal in the Supreme Court, Assessing Officers are not following the said judgment, but are making assessments disallowing the claim which is consistent with their stand. This leads to repetitive a....
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....anks 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 clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28-. . . (vii) subject to the provisions of sub-section (2), the amount of any debt, or part thereof, which is established to have become a bad debt in the previous year ; (v....
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....on (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 and meaning assigned to the provisions by the Division Bench of this court in South Indian Bank Ltd.'s case [2003] 262 ITR 579 (Ker) is correct. 5. As already stated, the respondent-assessees were granted deduction of provision for bad debts in terms of the claim made subject to the ceiling provided in ....
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....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 Act, 2001, with effect from April 1, 1989, in the following lines : "Explanation.-For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the asses-see shall not include any provision for bad and doubtful debts made in the accounts of the assessee....