2003 (3) TMI 280 - AT - Income Tax

Summary

Issues Involved:
1. Non-Banking Financial Company (NBFC) status and applicability of RBI Prudential Norms.
2. Disallowance of repair and maintenance expenses.
3. Disallowance of bad debts written off.
4. Charging of interest u/s 234A and 234B.

Summary:

1. Non-Banking Financial Company (NBFC) Status and Applicability of RBI Prudential Norms:
The primary issue was whether the appellant company could be considered an NBFC u/s 45-IA of the Reserve Bank of India Act, 1934, and whether the RBI Prudential Norms on income recognition applied. The CIT(A) and Assessing Officer (AO) held that since the appellant was not registered as an NBFC during the assessment year, the RBI directions did not apply. The Tribunal noted that the registration application was pending and later granted, thus the Prudential Norms should apply. The Tribunal emphasized that section 45Q of the RBI Act, which has an overriding effect on other laws, including the Income-tax Act, mandates adherence to RBI directions. Consequently, the additions made by the AO were deleted.

2. Disallowance of Repair and Maintenance Expenses:
The AO disallowed 10% of the repair and maintenance expenses on the grounds of personal use of vehicles. The CIT(A) upheld this disallowance, noting the appellant's admission of personal use. The Tribunal found no reason to interfere with this decision, thus rejecting the appellant's claim.

3. Disallowance of Bad Debts Written Off:
The AO disallowed the claim for bad debts written off, amounting to Rs. 23,68,314, due to insufficient evidence of the debts becoming bad and the ongoing transactions with the debtor, a sister concern. The CIT(A) upheld this disallowance, emphasizing the lack of documentary evidence and the nature of the transactions. The Tribunal agreed with the CIT(A)'s reasoning and rejected the appellant's claim.

4. Charging of Interest u/s 234A and 234B:
The appellant raised a ground against the charging of interest u/s 234A and 234B, which was not raised before the CIT(A) or in the original grounds before the Tribunal. This ground was rejected in open court.

Conclusion:
The appeal was partly allowed, with the Tribunal deleting the additions related to the non-recognition of income based on RBI Prudential Norms but upholding the disallowances related to repair and maintenance expenses and bad debts written off.