2015 (9) TMI 913 - HC - Income Tax

Entitlement for deduction of provision made of Non Performing Assets considered irrecoverable - Held that - Issue covered against the assessee by the judgment of the Supreme Court in SOUTHERN TECHNOLOGIES LIMITED v. JOINT COMMISSIONER OF INCOME TAX (2010 (1) TMI 5 - SUPREME COURT OF INDIA) as held keeping in mind an important role assigned to banks in our market economy we are of the view that the restriction if any placed on NBFC by not giving them the benefit of deduction satisfies the principle of reasonable justification Applicability of Section 234D - Tribunal confirming the order of the CIT (A) after holding that Section 234D introduced with effect from 01.06.2003 by Finance Act 2003 cannot apply to the assessment year under consideration - Held that - Despite recording the fact that section 234D introduced with effect from 1.6.2003 by Finance Act 2003 cannot have retrospective effect the Tribunal has confirmed the order of the Commissioner of Income Tax (Appeals) in this regard. But unfortunately the appellant herein did not take up the matter before the Tribunal as against the order of the Commissioner of Income Tax (Appeals). Therefore we cannot allow the appellant to raise this question. There is also one more reason for us not to take up that issue. After all the Tribunal has remitted the matter back. Therefore if permissible in law it is open to the appellant to take advantage of the finding of the Tribunal. Depreciation claim - whether benefit of higher rate of depreciation under the third proviso to section 34(1) is available even to motor cars by virtue of explanation (a) under section 32(1)- assessee is a NBFC engaged in the purchase and leasing of commercial vehicles - ITAT remanded to reexamine the case - Held that - As seen from para 21 of the decision ICDS LIMITED v. COMMISSIONER OF INCOME TAX (2013 (1) TMI 344 - SUPREME COURT) SC drew a distinction between a simple lease of vehicles and a hire purchase agreement entered into by such Finance Companies with prospective buyers. The nature of the agreement that the appellant generally enters into with its customers is not borne out by records. Therefore the remand order for examining this question which is essentially a question of fact cannot be interfered with. If after going through the agreements that the appellant has entered into with its customers the assessing officer considers that the case of the appellant is similar to the decision of the Supreme Court in ICDS he would certainly grant the benefit to the appellant. But if it is not so the appellant may not be entitled

Summary

Issues:
1. Entitlement to deduction of provision for Non Performing Assets.
2. Allowability of provision for Non Performing Assets as bad debt or business loss.
3. Classification of vehicles for depreciation benefits.
4. Applicability of Section 234D for the assessment year.

Entitlement to deduction of provision for Non Performing Assets:
The Tribunal was questioned for holding that the appellant is not entitled to deduction for provision made for Non Performing Assets considered irrecoverable. The counsel for the appellant conceded that previous judgments were against the assessee, leading to the disposal of this issue.

Allowability of provision for Non Performing Assets as bad debt or business loss:
The Tribunal was also asked if the provision for Non Performing Assets, if not allowable as a bad debt, could be considered as a business loss. This issue was disposed of based on previous judgments unfavorable to the assessee.

Classification of vehicles for depreciation benefits:
Regarding the classification of vehicles for depreciation benefits, the appellant claimed eligibility for higher depreciation rates under the third proviso to section 34(1). The court referred to a Supreme Court decision involving a non-banking finance company and emphasized the need to examine the nature of agreements the appellant enters into with customers to determine entitlement to higher depreciation rates. The matter was remanded for further examination as it was deemed a question of fact.

Applicability of Section 234D for the assessment year:
The Tribunal confirmed the order of the Commissioner of Income Tax regarding the applicability of Section 234D, despite acknowledging its non-retrospective effect. However, the appellant did not challenge this order before the Tribunal. The court declined to address this issue, citing the remittance of the matter back to the Tribunal. The appellant was advised to take advantage of the Tribunal's findings if permissible in law.

In conclusion, the Tax Case Appeal was dismissed, with the court emphasizing that finality had not been reached on the appellant's entitlement to higher depreciation rates. The original authority was directed to consider the issue comprehensively from all perspectives.