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TMI Blog2010 (3) TMI 941X X X X Extracts X X X X X X X X Extracts X X X X ..... f write off of interest of Rs. 9,35,58,831 in respect of non-performing assets. Regarding ground No. 1, while completing the assessment the Assessing Officer examined the bad debts to the extent of Rs. 33,58,678 receivable from Bean Coffee Trading Company Ltd., which was written off during the year. It was submitted that the total amount due was Rs. 2,01,52,067 on the invoices raised in November 2002 and the client paid only an amount of Rs. 1,67,93,389 in November 2003. The balance amount of Rs. 33,58,678 was not received till March 2004. The same was written off during the year. The Assessing Officer did not allow the claim holding that this is not a bad debt as the assessee has not proved that the amount has become bad. The Commissioner of Income-tax (Appeals) had examined the issue and allowed the claim on the basis of the judgment of the jurisdictional High Court in the case of CIT v. Star Chemicals (Bombay) P. Ltd. [2009] 313 ITR 126 in which the hon ble Bombay High Court has held that the claim for bad debt will be allowed in the year in which such bad debts have been written off as irrecoverable in the books of the assessee. Now the issue is further confirmed by the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed to allow the exemption for the year in question as well. This ground of appeal, thus allowed. Before us the learned Departmental representative submitted that the assessee is not eligible for deduction whereas learned counsel reiterated the same submissions made before the Commissioner of Income-tax (Appeals). It was further submitted that the assessee-company is eligible for deduction as it has given long-term lease finance and thus qualified under the section as infrastructure company and further these two companies are also approved for the purpose of section 10(23G) vide Direct Tax Notification No. 319 dated October 4, 2001 ([2002] 254 ITR (St.) 285) and Notification 82 of 2004 ([2004] 267 ITR (St.) 25) respectively given by the CBDT. Learned counsel also relied on the decision of the Amritsar Bench in the case of Jammu and Kashmir Bank Ltd. v. Asst. CIT [2009] 309 ITR 151 ; 118 ITD 146 for the proposition that it is not necessary that the infrastructure capital company should be formed solely for the purpose of mobilising resources for financing infrastructure facilities and if it includes one of the objects of the banking business, the same should be sufficient t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nullifying the effect of interest income. After verifying the details and analysing the system of account the Assessing Officer disallowed the claim of reversal interest on NPA loans by giving the following observations in pages 15 and 16 of the order : It is crystal clear that in the background of their sound financial status, the assessee-company has advanced loan without any security in the case of Asima Ltd., BPL Ltd., India Cement, S. Kumars and Escort Ltd., while advancing the loan of Rs. 7.83 crores, Rs. 25.90 crores, Rs. 20.00 crores, Rs. 17.52 crores and Rs. 23.38 crores, respectively. Whereas, it has obtained security, only in respect of the remaining three companies, i.e., Shree Mahadeshwara Sugar Mills Ltd., Nagarjuna Fertilizers and Chemicals Ltd. and Transfleet Ltd. It is pertinent to mention here that out of the above eight parties, which have been classified as NPA by the assessee-company, the entire loan along with interest as on date, have been recovered, in respect of these companies, except BPL Ltd. and Escorts Ltd., which are also paying the interest/loan instalment in time. The assessee-company has simply classified the above loans, as NPA loans, with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered only after the recognition of income from such assets. The question of applying principle of accrual comes into being only after the income is recognised. In the present case, the appellant classified some of its assets as non-performing assets on the basis of notification issued by the Reserve Bank of India. From such non-performing assets, the appellant has not recognised any income in consonance with the notification issued by the Reserve Bank of India and Accounting Standard 9 issued by the ICAI. Therefore, the appellant is justified in not recognising the income as such. 8.3.1 It is further observed that the said method of accounting has been consistently followed by the appellant and accepted by the Department from the assessment year 2002-03 onwards and this is the first year during which the Assessing Officer has taxed the income on accrual basis. In any case, such assumption of accrual will have to be reverted in the year of write off and if any part of it is received in future, the same would not be taxable. That is to say that, the debate over whether interest receivable on non-performing assets in the case of an NBFC can be said to accrue on an year to y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l amount on March 31, 2005. Thus the assessee could recover only an amount of Rs. 78,31,286 and disclosed a loss of Rs. 7,04,81,127 during the assessment year 2005-06, which was allowed by the Assessing Officer. Likewise the assessee explained all the other seven companiesdetails and also the fact that these amounts were subsequently written off in respective years which included the principal amount also. Regarding the interest that was credited and debited it was submitted that the assessee-company a big NBFC, has systemised and computerised its accounts and the system itself generates interest accrual on a day-to-day basis on all accounts and once the loan is classified as NPA it automatically debits the same amount, but these amounts are not charged to the respective loan accounts but has been separately kept and directly credited and debited into the profit and loss account. Thus the assessee s method of accounting is such that the amount was not directly credited to the account and the question of accrual of the interest does not arise. He relied on the decision of the Delhi F Bench in the case of Brahamputra Capital and Financial Services Ltd. v. ITO 9 DTR (Tri) 511 for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by the chart are to be considered the assessee s claims are correct, as even the principal amounts were written off in the later year. There seems to be no proper examination of the facts by the Assessing Officer or the Commissioner of Income-tax (Appeals). Even the Commissioner of Income-tax (Appeals) s observations are at variance with the Assessing Officer s observations. In view of this, we are of the opinion that the issue requires reexamination by the Assessing Officer. In case the assessee has not received any interest amount or principal amount out of the eight companies and were allowed as deduction in later year the assessee s claims are prima facie correct. However, since this requires verification at the end of the Assessing Officer he is directed to examine the issue afresh and give clear findings and consider the claim of the assessee according to the facts and provisions of law. Needless to state that he should give proper opportunity to the assessee. For this, the issue in ground No. 3 is restored back to the Assessing Officer to do accordingly. Ground considered allowed. In the result, the appeal is considered partly allowed. C. O. No. 243/Mum/2009 The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question answered in all the judicial pronouncements has been whether the expenses incurred have resulted in advantages accruing in the capital field or not. The concept of benefit of enduring nature is also subsumed in this test. It will be incorrect to hold that every expenditure made in a leased premise will be revenue in nature merely because the lease period will expire soon and the benefit will not accrue to the lessee in the long run. If the expenses have resulted in substantially altering the structure thereby getting an advantage in the capital field, the said expenses will definitely be capital in nature. The appellant-company themselves have admitted that the expenditure are in the nature of civil, electrical, renovation and allied work, air-conditioning and furnishing work. This definitely has the effect of giving the appellant a benefit of enduring nature. While valuing the creation of an asset on the test of endurance, the concept of endurance is not meant for eternity. When the appellant has taken a premise on lease and made extensive renovation thereto and has brought out the structural changes, it has definitely brought enduring benefit to the appellant. Air-condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Haridas Bhagath and Co. P. Ltd. [1999] 240 ITR 169 (Mad). (ii) CIT v. Hari Vignesh Motors P. Ltd. [2006] 282 ITR 338 (Mad). (iii) CIT v. Hede Consultancy Pvt. Ltd. [2002] 258 ITR 380 (Bom). (iv) CIT v. Sanco Trans Ltd. [2006] 284 ITR 51 (Mad). (v) Digital Equipment India Ltd. v. Deputy CIT [2006] 103 TTJ (Bang) 329. (vi) CIT v. Escorts Finance Ltd. [2006] 205 CTR (Delhi) 574. (vii) Regal Theatre v. CIT [1966] 59 ITR 449 (Punjab). The learned Departmental representative, however, relied on the order of the Commissioner of Income-tax (Appeals). We have considered the issue. The details of the expenditure incurred by the assessee are as under : Rs. (i) Decorator 3,24,000 (ii) Purchase of UPS and reception chair 2,85,000 (iii) Purchase of sofa set 9,000 (iv) Renovation of the first floor 3,10,000 (v) Fixed assets 6,72,649 (vi) Structural change/other work 6,72,000 (vii) Paid to architect for shifting of toilet, walls etc. 44,032 (viii) Renovation of first floor 1,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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