9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2007 (10) TMI 325 - AT - Income TaxDeduction u/s 36(1)(vii) - Provision for doubtful assets and sub-standard assets - inconsistency between the two provisions - Provision for non-performing assets ( NPA ) debited to P L a/c and claimed as a deduction as per RBI norms - allowed as deduction while computing income from business under the provisions of the IT Act 1961 - HELD THAT - The RBI Act is a special Act in relation to computation of NOF of NBFC whereas IT Act is a special Act so far as computation of tax liability of a person in respect of its income computed under the provisions of the IT Act. Thus it cannot be said that there is any inconsistency between the two Acts so as to hold that the provision of RBI Act shall have effect notwithstanding anything contained in the IT Act. Though s. 45Q of the RBI Act provides that provisions of Chapter. III-B of the RBI Act shall have effect notwithstanding anything inconsistent therewith contained in any other law we find that there is no inconsistency between the provision of RBI Act or the Prudential Norms prescribed thereunder and the provisions of the IT Act. Therefore it cannot be held that the provision made in the accounts of the assessee in respect of NPA shall be treated as sufficient compliance with the provisions of s. 36(1)(vii) of the IT Act so as to allow the provision for bad and doubtful debts as deduction permissible under the IT Act. The Act lays a general tax on the whole population and all the persons unless specifically exempt from the charge. Therefore the presumption is of equality of the incidence of tax rather than of exemption for a few. The Act does not distinguish between a non-banking finance company accepting the public deposits which is governed by the Prudential Norms issued by RBI and other non-banking finance companies or even other persons charge-able to tax under the IT Act. We do not ascribe to the view that the intention of the legislature leads to discriminate between the different persons liable to be charged of IT u/s 4 of the IT Act. Its object was to give relief and confer benefit on all these units uniformly. We therefore cannot read in the provisions of s. 36(1)(vii) of the IT Act anything which entitles even a provision for bad and doubtful debts by an NBFC as an allowable deduction only on the basis of provisioning requirement contained in the directions issued by the RBI in exercise of powers conferred u/s 45JA of the RBI Act. Whether provision for NPA debited to P L a/c can be allowed as deduction while computing income from business under the provisions of IT Act - Sec. 36(1)(vii) provides for allowance of bad debt and not any debt . Thus the precondition is that the debt has turned into bad debt and not anything else. It is contended by Shri Bajpai that the amount is not an ad hoc provision but strictly in accordance with cl. 8 of the Prudential Norms issued by the RBI. In our opinion it will not materially alter the situation as the amount debited to P L ale is still in respect of a provision for NPA which is not classified as bad debt by the assessee and so long as the conditions prescribed under the IT Act is complied with deduction under the IT Act is not permissible. As regards various decisions of the Tribunal cited by both the counsel though we have noted the same we for the reasons stated above answer the question referred to this Bench in negative i.e. in favour of Revenue and against the assessee. As regards the decision in the case of T.N. Power Finance Infrastructure Development Corpn. vs. Jt. CIT 2005 (10) TMI 38 - MADRAS HIGH COURT we hold that the same was on the basis of concession by the counsel appearing on behalf of the assessee. However the law laid down therein cannot be brushed aside. The concession by the counsel was to the limited extent that in view of Explanation to s. 36(1)(vii) provision for bad and doubtful debts is not an allowable deduction but the Hon ble Madras High Court went on to hold that merely because RBI has directed the assessee to provide for NPA that direction cannot override the mandatory provision of the IT Act. Thus there is no error in the order of learned CIT(A) in not allowing provision for NPA debited to P L a/c. Thus even ground No. 1 raised in this appeal is to be dismissed. Deduction claimed in respect of provision for NPA - HELD THAT - We are in agreement with the submissions made in this regard. If the deduction is not allowed in respect of provision for NPA itself since the amount received is in respect of capital sum lent it does not partake the character of income when subsequently such amount is realized. If on the first instance the deduction is not allowed in respect of NPA subsequent realization of such NPA is realizing its capital itself and hence cannot be considered as income though treated as such under the RBI Act. The amount recovered is not an income u/s 41(4) unless in the first instance is allowed as deduction u/s 36(1)(vii). In the result the question referred to the Special Bench is answered in favour of Revenue and the appeal of assessee is partly allowed.
Issues Involved:
1. Whether a provision for non-performing assets (NPA) debited to the Profit & Loss account and claimed as a deduction in accordance with the Prudential Norms issued by the RBI should be allowed as a deduction while computing income from business under the provisions of the IT Act, 1961. Issue-wise Detailed Analysis: 1. Provision for NPA as Deduction: The appellant, a non-banking finance company (NBFC) registered with the RBI, claimed a deduction of Rs. 6,38,758 in its Profit & Loss account for provision for non-performing assets (NPA). The appellant argued that as an NBFC, it must follow the Prudential Norms issued by the RBI, which mandate creating a provision for NPAs and debiting it to the Profit & Loss account. The appellant relied on the Chennai Bench Tribunal's decision in Overseas Sanmar Financial Ltd. vs. Jt. CIT, which held that such provisions should be allowed as deductions under the IT Act. 2. AO's Disallowance: The Assessing Officer (AO) disallowed the claim because the appellant did not furnish detailed calculations of the provision for NPA claimed party-wise as per RBI guidelines. 3. CIT(A)'s Decision: On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that income must be computed according to the IT Act, and the provision for NPA is neither an expenditure nor an allowance permitted under sections 28 to 43B of the IT Act. 4. Conflict in Tribunal Decisions: The Division Bench of the Tribunal noted conflicting decisions by various Tribunal Benches on whether provisions for NPA made under RBI's Prudential Norms should be allowed as deductions. Some decisions supported the deduction, while others did not. This conflict led to the constitution of a Special Bench to resolve the issue. 5. Assessee's Arguments: The appellant's counsel argued that the IT Act provides specific provisions for banks and financial institutions to allow provisions for bad and doubtful debts under section 36(1)(viia). However, no similar provision exists for NBFCs, even though both are regulated by RBI. The counsel contended that the RBI Act should have an overriding effect over the IT Act due to section 45Q of the RBI Act, which states that the provisions of Chapter III-B of the RBI Act shall prevail over any inconsistent provisions in other laws. 6. Revenue's Arguments: The Revenue argued that the RBI guidelines cannot override the specific provisions of the IT Act, particularly the Explanation to section 36(1)(vii), which excludes provisions for bad and doubtful debts from being written off as irrecoverable. They contended that the IT Act and RBI Act operate in different fields, with the IT Act governing income computation and the RBI Act regulating the financial system. 7. Tribunal's Analysis: The Tribunal examined the relevant provisions of the IT Act and RBI Act. It concluded that both Acts operate in different fields and there is no inconsistency between them. The Tribunal held that the RBI Act and Prudential Norms issued thereunder are for regulating NBFCs and ensuring proper provisioning for NPAs, but they do not dictate the computation of income under the IT Act. 8. Tribunal's Decision: The Tribunal held that the provision for NPA made under RBI's Prudential Norms cannot be allowed as a deduction under section 36(1)(vii) of the IT Act because the IT Act requires actual bad debts to be written off, not just provisions for doubtful debts. The Tribunal noted that if the legislature intended to allow such provisions for NBFCs, it would have included them in section 36(1)(viia). The Tribunal answered the question in favor of the Revenue and against the assessee. 9. Alternate Ground: The Tribunal agreed with the appellant's alternate ground that if the provision for NPA is not allowed as a deduction, any subsequent realization of such NPA should not be treated as income since it represents the recovery of capital. Conclusion: The Tribunal concluded that the provision for NPA debited to the Profit & Loss account is not allowable as a deduction under the IT Act. The appeal was partly allowed, with the Tribunal directing that subsequent realizations of NPAs should not be treated as income.
|
