NPA provision deduction denied for NBFCs under the Income-tax Act, with disallowance restored on binding precedent.

A provision made by an NBFC for non-performing assets, even if created in accordance with RBI prudential norms, was treated as not allowable as a deduction under the normal provisions of the Income-tax Act. The Tribunal followed a binding later view applying Supreme Court authority that such NPA provision does not constitute an allowable expense, so the relief earlier granted by the CIT(A) could not stand and the disallowance was restored in favour of the Revenue.

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Issues: (i) Whether the provision made by a non-banking financial company for non-performing assets was allowable as a deduction under the Income-tax Act.

Analysis: The assessee, being an NBFC, claimed deduction for provision for NPAs made in accordance with RBI directions and relied on earlier tribunal orders in its favour. The Revenue contended that the provision was not an allowable deduction. The Tribunal noted that the issue was covered against the assessee by a later binding view followed from the decision applying the Supreme Court's ruling that such provision does not constitute an allowable expense under the normal provisions of the Act. Following that binding position, the earlier relief granted by the CIT(A) could not be sustained.

Conclusion: The provision for NPA was held to be not allowable as a deduction, and the disallowance was restored in favour of the Revenue.

Ratio Decidendi: A provision for non-performing assets made by an NBFC in accordance with RBI prudential norms is not deductible under the normal provisions of the Income-tax Act where binding precedent holds that such provision is not an allowable expense.

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