2016 (8) TMI 1202 - AT - Income Tax

Tribunal Decision: Depreciation on Leased Vehicles, Interest Guidelines, Bad Debts Provision, Refund Verification

The Tribunal allowed the assessee to claim depreciation on leased vehicles, following the similarity of lease agreements and non-claim of depreciation by ... Allowability of claim of depreciation on the leased vehicles - Held that:- Relying on the decision of Supreme Court in the case of ICDS Ltd. VS. Commissioner or Income Tax. [2013 (1) TMI 344 - SUPREME COURT] the Lessor is entitled for claim of depreciation of vehicles which are given on lease. - Decided in favour of assessee. Addition on account of interest on sticky loans and advances - Held that:- This issue has been settled by the decision of the ITAT in assessee’s own case for AY 2000-01, 200203 and 2003-04 as held under the mercantile system of accounting an income accrues when there is reasonable certainty for realising any receipts or revenue. Hypothetical income cannot be taken into account. In respect of sticky loans and advances, the income is recognized when interest is actually collected. Merely on the basis of accrual it cannot be recognized in the absence of any certainty of its collection.- Decided in favour of assessee. Disalowance towards provision for doubtful debts made by the appellant in pursuance with mandatory prudential norms issued by Reserve Bank of India - Held that:- This issue is covered against the assessee by the decision of Southern Technologies Vs. JCIT [2010 (1) TMI 5 - SUPREME COURT OF INDIA] held that the object of the Directions that non-banking financial companies have to accept the concept of 'income' evolved by the Reserve Bank of India after deducting provision against non-performing assets is only disclosure and provisioning and such treatment is confined to presentation/disclosure and has nothing to do with computation of taxable income under the Income-tax Act. Provision for nonperforming assets in terms of the Directions of the Reserve Bank of India does not constitute 'expense' on the basis of which deduction can be claimed by the non-banking financial companies under section 36(1)(vii) of the Act. - Decided against assessee. Disallowance towards claim for bad debts written-off by the appellant in its books of account - Held that:- Since the assessee had not furnished the details before the AO, therefore, we restore this matter to the file of AO to examine the basic ingredients of section 36(2) whether fulfilled or not. There is no dispute that debt has been written off. Further, we may clarify that AO will not go into the issue whether the debt had become irrecoverable or not in view of the decision of Hon’ble Supreme Court in TRF Ltd. (2010 (2) TMI 211 - SUPREME COURT). With these observations, the issue is set aside to the file of AO. Ground is allowed for statistical purposes. Levy towards interest charged u/s 234D - Held that:- We restore this matter to the file of AO to verify whether any refund was granted to assessee or not and, if, no refund was granted to assessee then no interest can be charged u/s 234D. Ground is allowed for statistical purposes. Loss on sale of loan portfolio - Held that:- Ld. counsel has rightly pointed out that had there been direct loss or repossession of assets then the loss would have been allowed. Therefore, on the same footing loss arising out of sale of delinquent assets portfolio also is to be allowed. Admittedly, assessee had right to receive money from its debtors on account of financing of assets. This right had accrued in favour of assessee in ordinary course of business and not on capital account. Further, we are in agreement with ld. counsel for the assessee that the conditions laid down u/s 36(1)(vii) read with section 36(2)(i) are also fulfilled because the debt or loan was in respect of a business which was carried on by the assessee in the relevant accounting year.The debt represented money lent in the ordinary course of the business, which was akin to money lending and The amount was written off as irrecoverable in the accounts of the assessee for that accounting year in which the claim for deduction was made for the first time. - Decided in favour of assessee Issues Involved:1. Disallowance of depreciation on leased vehicles.2. Addition of interest on sticky loans and advances.3. Disallowance of provision for doubtful debts.4. Disallowance of bad debts written off.5. Levy of interest under section 234D.6. Withdrawal of interest under section 244A.7. Levy of interest under section 234C and 234B.8. Loss on sale of delinquent loan portfolio.Detailed Analysis:1. Disallowance of Depreciation on Leased Vehicles:The assessee claimed depreciation on vehicles leased out, which was disallowed by the AO on the grounds that the transactions were financing in nature rather than leases. The AO cited various legal precedents and accounting standards to support this view. However, the assessee argued that the transactions were genuine leases and relied on the Supreme Court decision in the case of ICDS Ltd. The Tribunal, after comparing the terms of the agreements in the present case with those in the ICDS case, concluded that the assessee was entitled to claim depreciation on leased vehicles. This was based on the similarity of the lease agreements and the fact that the lessees had not claimed depreciation.2. Addition of Interest on Sticky Loans and Advances:The AO added interest on sticky loans to the income of the assessee, arguing that the interest should be recognized on an accrual basis as per the Companies Act. The CIT(A) upheld this view. However, the Tribunal, following its own earlier decisions and the Supreme Court ruling in the case of UCO Bank, held that interest on sticky loans should not be recognized as income until actually received, in line with RBI guidelines for NBFCs.3. Disallowance of Provision for Doubtful Debts:The AO disallowed the provision for doubtful debts made by the assessee as per RBI prudential norms, treating it as a contingent liability. The CIT(A) upheld this disallowance. The Tribunal, following the Supreme Court decision in Southern Technologies Ltd., confirmed that such provisions do not constitute an allowable expense under the Income-tax Act.4. Disallowance of Bad Debts Written Off:The AO disallowed the assessee's claim for bad debts written off, stating that the assessee had not provided sufficient details to prove that the debts had become irrecoverable. The CIT(A) upheld this disallowance. The Tribunal, relying on the Supreme Court decision in TRF Ltd., clarified that it is sufficient for the assessee to write off the debts in its books of account. However, the Tribunal remanded the matter to the AO to verify compliance with the provisions of section 36(2).5. Levy of Interest under Section 234D:The AO levied interest under section 234D, which was upheld by the CIT(A). The Tribunal directed the AO to verify whether any refund was granted to the assessee. If no refund was granted, no interest under section 234D should be charged.6. Withdrawal of Interest under Section 244A:The CIT(A) sustained the withdrawal of interest under section 244A. The Tribunal restored this issue to the AO to verify whether any refund was granted to the assessee, as the withdrawal of interest depends on the existence of a refund.7. Levy of Interest under Section 234C and 234B:The Tribunal held that the charging of interest under sections 234C and 234B is consequential. The AO was directed to recalculate the interest while giving effect to the appellate order.8. Loss on Sale of Delinquent Loan Portfolio:The AO treated the loss on the sale of delinquent loan portfolios as a capital loss, not allowable as a revenue expense. The CIT(A) upheld this view. However, the Tribunal allowed the assessee's claim, holding that the loans were part of the current assets and the loss on their sale was a trading loss incurred in the ordinary course of business. The Tribunal noted that the sale of delinquent loans was a commercially prudent decision and aligned with the assessee's business activities as per its memorandum of association.Separate Judgments Delivered:The judgment was delivered by a composite order, and no separate judgments by individual judges were mentioned.