2016 (7) TMI 741 - AT - Income Tax

Rectification of mistake - expenses so incurred being inextricably linked to NPA were held by the Tribunal to be the part of the work-in-progress with each NPA and transferred to Profit & Loss Account only when the NPA is finally settled - Held that - Tribunal vide its order dated 30th October, 2015 has duly considered the entire factual matrix surrounding the business of the assessee in acquiring and dealing in NPA s and level of uncertainty w.r.t. length of period of recovery and amount of recoveries to be made out of these NPA accounts and there-after the Tribunal has taken the conscious and well reasoned decision to consider these expenses incurred which are inextricably linked to the NPA s so acquired which NPA s were already treated by the assessee as work-in-progress and hence the expenses so incurred being inextricably linked to NPA were held by the Tribunal to be the part of the work-in-progress with each NPA and transferred to Profit & Loss Account only when the NPA is finally settled. Keeping in view of the peculiar factual matrix of the assessee s business, the Tribunal has arrived at a decision looking into the facts and circumstances surrounding the assessee s case. Thus, we conclude that no error has crept in the order of the Tribunal dated 30-10-2015 which can be rectified under the mandate of the provisions of Section 254(2) of the Act as there is no mistake apparent from records. Thus, in the result the miscellaneous application filed by the assessee stand dismissed.

Summary

Issues involved:
Rectification of mistake apparent from records u/s 254(2) of the Income Tax Act,1961 regarding the treatment of expenses incurred for realization of non-performing assets (NPA) as revenue expenditure.

Analysis:

1. The assessee sought rectification of a mistake apparent from records u/s 254(2) of the Income Tax Act, 1961, regarding the treatment of expenses incurred for realization of non-performing assets (NPA) as revenue expenditure. The Tribunal had rejected the claim of the assessee, stating that such expenses should be treated as work-in-progress with each NPA and transferred to the profit and loss account only when the NPA is finally settled. The assessee relied on the decision of the Hon'ble Supreme Court in Taparia Tools Limited v. ACIT (2015) to support their claim that revenue expenditure should be allowed in the year it is incurred, and the entries in the books of accounts are not conclusive. The Tribunal's order dated 30th October, 2015, was challenged based on this argument.

2. The Tribunal considered the factual matrix surrounding the business of the assessee in acquiring and dealing with NPAs. It was observed that the expenses incurred were inextricably linked to the NPAs acquired by the assessee, which were treated as work-in-progress. The Tribunal reasoned that due to the uncertainty regarding the recovery period and amount, the expenses should be accounted for when the NPA is finally settled. The Tribunal's decision was based on the peculiar facts and circumstances of the assessee's business, and it was concluded that there was no error in the order that could be rectified under Section 254(2) of the Act.

3. The decision of the Hon'ble Supreme Court in Taparia Tools Limited was distinguished as it pertained to interest on debentures, whereas the present case dealt with the acquisition of NPAs. The Tribunal's order was found to have implicitly considered the principles laid down in Taparia Tools Limited while addressing the specific circumstances of the assessee's business. Ultimately, the Tribunal dismissed the miscellaneous application filed by the assessee, as no mistake apparent from records was found. The decision was pronounced on 13th July 2016, dismissing the appeals for both assessment years 2009-10 and 2010-11.

This detailed analysis provides insights into the legal judgment regarding the treatment of expenses related to NPAs as revenue expenditure, highlighting the arguments presented by the parties and the Tribunal's rationale for dismissing the appeals.