Appellant's Claim for Deduction of Non-Performing Asset Provisions Rejected by Tribunal

The appellant's claim for deduction of provisions made for Non Performing Assets was rejected by the Income Tax Appellate Tribunal, which held that such provisions are predominantly capital in nature and not deductible as business losses. Despite following Reserve Bank of India directions, the tribunal dismissed the appeal, emphasizing that the provisions were not allowable as business losses.

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Issues involved:
The judgment involves the following Issues:
1. Whether the appellant is entitled to deduction of the 'provision' made in respect of Non Performing Assets.
2. Whether the provision made in respect of Non Performing Assets is allowable as a business loss.

Issue 1:
The appellant, engaged in hire purchase financing and equipment leasing, claimed allowance for the provision of Non Performing Assets. The Assessing Officer rejected the claim, stating it was already added back in the adjustment statement. The appellant argued that the debts were not recoverable, leading to a diminution in value, and should be allowed as a business loss if not as a bad debt.

Issue 2:
The appellant contended that the provision made for Non Performing Assets, in compliance with Reserve Bank of India directions and based on overdue provisions, should be considered a business loss. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to follow the RBI directions, considering the provision as an asset and liability. However, the Income Tax Appellate Tribunal, citing a previous court decision, held that such provisions are predominantly capital in nature and not deductible, leading to the dismissal of the appeal.

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