I-T - Just because RBI treats 'provision for NPA' as losses/expenses, it will not override Income tax Act while deciding justification of such 'provision' u/s 36(1)(vii): HC
By TIOL News Service
KOLKATA, OCT 17, 2017: THE ISSUE BEFORE THE COURT IS - Whether presentation of 'provision for NPA' as bad debt/loss/expenses, as per guidelines of RBI, is sufficient for claiming deduction thereon, when such claim did not qualify under Income-tax Act. NO is the verdict.
FACTS of the case:
The Assessee-company, had filed its return and claimed a deduction in respect of non-performing assets from its income. During the assessment proceeding, the AO disallowed the Assessee's claim on the ground that the Assessee’s application for registration as an NBFC was rejected by the RBI. On appeal, both the Commissioner and the Tribunal rejected the AO’s stand in this regard and sustained the Assessee’s claim.
HIGH COURT held that,
++ the question of law, on the basis of which this Court admitted the appeal, stands answered against the Assessee by the Supreme Court in the case of Southern Technologies Limited, wherein it was held that: "....the RBI Directions, 1998, though deviate from accounting practice as provided in the Companies Act, do not override the provisions of the Income-tax Act. Whether certain losses are contingent or actual cannot be decided only on the basis of presentation. Such presentation will not bind the authority under the Income-tax Act. Ultimately, the nature of transaction has to be examined. In each case, the authority has to examine the nature of expense/loss. Such examination and finding thereon will not depend upon presentation of expense/loss in the financial statements of the NBFC in terms of the 1998 Directions....";
++ further, a coordinate bench to which one of us was a party also dealt with a near identical question of law in the case of Universal Industrial Fund Ltd. and by an order dated 23rd April, 2015 answered the question in favour of the Revenue. The counsel for the Assessee could not come with any distinguishing feature so far as this appeal is concerned. We answer the question accordingly.
(See 2017-TIOL-2176-HC-KOL-IT)
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