TaxTMI 
TaxTMI 
2014 (2) TMI 672
X X X X Extracts X X X X
X X X X Extracts X X X X
....e revenue and Shri R.M. Mehta, the ld. Advocate on behalf of the assessee. 4. On a careful consideration of the rival contentions and a perusal of the papers on record, as well as, the orders of the authorities below and case laws cited, we hold as follows: We first take up cross-appeals for the assessment years 2005-06, ITA No. 36/Del/2012 in this assessee's appeal. The following ground is taken, "1. The CIT (A) erred both on facts and in law in confirming the action of the Assessing Officer in disallowing depreciation to the extent of Rs.54,24,886/- pertaining to vehicles, motorlorries, taxies and motor Cars which had been leased out by the company in its business of leasing." 5. The AO disallowed the claim of the assessee for depreciation on motor, lorries, taxis' @ 40% and a on motor car @ 25%. He allowed depreciation @ 20% at Para 2-3 of page 2 of his order. The AO records that similar additions have been made in the preceding year and the matter is under litigation. Hence he repeated the addition. The ld. CIT (A) at page 3 Para 5.2 onwards followed the decision of his predecessor CIT (A) XIII order dated 21.6.2007 for the A.Y. 2003-04 and order dated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allow the loss of Rs.23,95,087/- being derived on account of share trading as long term capital loss. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.29,49,000/- made on account of disallowances u/s 14A of the Income Tax Act, 1961." 11. Ground no. 1 is on the issue whether the long term capital loss claimed by the assessee, is to be treated as speculation loss within the meaning of the Explanation to Section 73 of the IT Act. The assessee's case is that, it is not engaged in the business of sale and purchase of shares and hence Explanation to Section 73 is not attracted in the case. 12. The issue was considered by the ITAT in its order for the A.Y. 2004- 05. It was held as follows: "24. We have heard the rival submissions of both the parties and have gone through the material available on record. Explanation to section 73 reads as follows:- "Where any part of the business of a company other than a company whose gross total income consist mainly of income which is chargeable under the head interest on securities, Interest from house property, capital gains and income from other so....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed by the ld. CIT (A) that the assessee is not in the business of trading in share and has incurred a loss on its investment, we hold that the actions of the AO in invoking Explanation to Section 73, is wrong. Hence we uphold the order of the ld. first appellate authority and dismiss this ground of revenue. 15. The 2nd ground of revenue is on the issue of disallowance u/s 14A. The Tribunal while disposing off the matter for the A.Y. 2004-05 has restored, the issue to the file of the AO for fresh adjudication, with a direction to apply the propositions laid down by the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. (2011) 203 Taxman 364 (Del) to the facts of the case. Consistent with the view taken therein, we set aside the issue to the file of the AO for de novo adjudication in accordance with law. In the result this ground is allowed for statistical purposes. 16. In the result the appeal of the assessee is allowed and the appeal of the revenue is allowed in part. 17. ITA No. 37/Del/2012 is an assessee's appeal filed for the A.Y. 2006- 07 on the following ground: "1. The CIT (A) erred both on facts and in law in confirming the action of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the country and the customers started defaulting on the payment of installments. The assessee company was bound by the Reserve Bank of India norms with regard to the income recognition and asset provisioning. As per these norms, once an asset becomes of sub-standard quality or doubtful, the income there from which is recognized is also reversed. Besides this, adequate provision is also required to be made on account of doubtful nature of recovery of the principal. There were substantial defaults during the whole of the assessment year 2006-07 and the financial position of the assessee company became hugely negative due to heavy pressure on payment of interest on public fixed deposits taken by the assessee company. In view of tight financial position the assessee company could not take very effective recovery measures including legal action wherever required which resulted in the loan defaults getting expanded. Towards the end of the financial year ending 31.3.2006 the company had no other option but to declare substantial part of its loan assets as doubtful nature resulting in a provision of Rs.189.40 crores. As the principal amount of the doubtful assets was provided for, the inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me-tax Act, 1961 of a non-banking financial company, the Department is entitled to treat the "Provision for non-performing assets" which in terms of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998, is debited to the profit and loss account, as "income" under section 2(24) of the Act. The Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998, are only disclosure norms. They have nothing to do with the computation of total taxable income under the Income-tax Act, 1961, or with accounting treatment. The Directions only lay down the manner of presentation of NPA (non-performing assets) in the balance sheet of a non-banking financial company. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....; The nature of expenditure under the Income-tax Act cannot be conclusively determined by the manner in which accounts are presented in terms of the 1998 Directions. Though they deviate from accounting practice as provided in the Companies Act, they do not override the provisions of the Income-tax Act. Provision for non-performing assets in terms of the Directions of 1998 does not constitute expense on the basis of which deduction can be claimed under section 36(1)(vii) of the Income-tax Act." 26. Applying the proposition to the facts of this case, we have to hold that interest income of earlier years cannot be reduced from the income of the current year, merely because the RBI prudential norms mandate such reversal. What is to be seen is whether such reversal of earlier year income is an expense allowable under the Income-tax Act. The answer is NO. Even the real income theory does not come to the aid of the assessee as it is the case of reversal of earlier year income and not a case of recognizing current year income. Real income theory can be applied to current year income and does not apply to reversal of income, of the earlier year, which is already recognise....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ecognition of revenue by nonbanking financial companies. Southern Technologies Ltd. v. Joint CIT (2010) 320 ITR 557 (SC) explained. When there is a provision in another enactment which contains a non obstante clause that would override the provisions of the Income-tax Act." 28. In this case the assessee has recognized the income in the earlier assessment years. As stated, it is not the case of recognizing current year income. Hence this judgment does not come to the aid of the assessee. In this case the parties accounts would have been debited, increasing the balance in the debtor account to the extent of interest accrued but not received. Reversal of such income, which is already accounted as income in the earlier assessment year would be possible only by, part write off the debts. If the debts are written off in part i.e. to the extent of interest income sought to be reversed. then the judgment of the Hon'ble Supreme Court in the Case of T.R.F. Ltd. 323 ITR 397 (SC) would apply. The accounting entries and treatment in the books have to be considered and it has to be seen whether there is part write off of debts in the books of accounts. 29. The Hon'ble Delhi High Court in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot controvert these findings of the ld. CIT (A). The AO has not discharged the onus on him. In the result this ground of the revenue is dismissed. 33. Ground no. 3 is on the issue of disallowance of the claim of long term capital loss made by the assessee, on the ground that this is speculated loss. We have adjudicated a similar ground in the A.Y. 2005-06 i.e. ground no. 1 of the revenue appeal. Both parties submitted that facts and circumstances are identical in this year also. Consistent with the view taken by us in that year, we uphold the following finding of the ld. CIT (A) Para 7.3 of the CIT (A) order: "7.3 It is seen that a similar issue had come up in A.Y. 2005-06 and vide order dated 17.10.2011 in appeal no. 234/2007-08, it has been held that the Explanation to section 73 is not attracted in the case of the appellant. As in A.Y. 2005-06 so also in A.Y. 2006-07, the appellant has incurred the long term capital loss primarily on sale of bonds of Maharashtra State Road Development Corporation, Steel Authority of India and on shares of Interdrill (Asia) Ltd., G.R. Solvents and Janardan Plywood Ltd. These shares/bonds had been held as long term investments. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,94,39,547/- while calculating book profit u/s 115JB of the Act, 1961 on account of provision written back. 2. On the facts and circumstance of the case and in law, the Ld. CIT (A) has erred in allowing assessee's claim of long term capital loss of Rs.24,81,599/- which was treated by the AO as speculation loss. 3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing." 39. Facts of ground no. 1 are lucidly explained by the ld. CIT (A) in her finding at page 6 of her order. She held as follows: "5.3 I have considered the submission of the appellant and observation of the assessing officer. It is seen that assessing officer has added back the provision of Rs.22,94,39,574/- while determining book profit for the year under consideration u/s 115JB of the IT Act. It is claimed by the appellant that in the assessment year 2006-07, the appellant had made a provision of Rs.38,76,95,202/- which includes the provision for doubtful advances of Rs.3686.24 lacs and Rs.190.71 lacs for provision against bill discounted. While preparing the computation of income for A.Y. 2006-07 this provision of....