TaxTMI 
TaxTMI 
TaxTMI 
2023 (1) TMI 488
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....ned in the said appeal arises out of the conclusion arrived by the Tribunal in the impugned order of the Tribunal in this appeal. The present appeal is confined to issues answered against the appellant in I.T.A.No.78/Mds/2007 filed by the appellant. 4. At the time of admission, the following Substantial Questions of Law were framed:- i. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that the appellant is not entitled to deduction of the provision made in respect of Non-Performing Assets which are considered irrecoverable? ii. Whether the appellate Tribunal was justified in not appreciating that the provision made in respect of Non Performing Assets if not allowable as a bad debt is allowable as a business loss? iii. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that the appellant is not entitled to deduction of diminution in value of investments? iv. Whether on the facts and in the circumstances of the case the Tribunal was right in law in holding that the loss computed by the appellant on account of diminution in value of repossessed vehicles is only a notional and una....
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....rders passed by the Income Tax Appellate Tribunal and Commissioner of Income Tax (Appeals) in the above two cases have been appealed against or not. Therefore, on this ground alone, the substantial question of law raised by the appellant has to be answered against the appellant. 13. A sum of Rs.53,98,000/- was claimed towards diminution in the value of investment in the shares of two unlisted companies. The appellant had deducted a sum of Rs.53,98,000/- in the profit and loss account and claimed deduction. These shares did not have a market value as they were not traded in the stock market. 14. The Hon'ble Supreme Court in Madhya Pradesh Co- Operative Bank Ltd. Vs. Additional Commissioner of Income Tax, (1996) 218 ITR 438, held that the Government securities cannot be easily encashed and can be utilized only when certain contingencies arise and therefore Government securities cannot be considered to be 'Circulating Capital' or 'Stock-in-Trade'. Thus, investment in shares of the unlisted companies cannot be considered as 'Circulating Capital' or 'Stock-in- Trade'. 15. The investments of the appellant assessee in two unlisted companies are not 'Stock-in-Trade'. They are merely inv....
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....s of a country outside India or a non-scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank, an amount not exceeding eight and one-half per cent of the total income (computed before making any deduction under this clause and Chapter VIA) and an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner : Provided that a scheduled bank or a non-scheduled bank referred to in this sub-clause shall, at its option, be allowed in any of the relevant assessment years, deduction in respect of any provision made by it for any assets classified by the Reserve Bank of India as doubtful assets or loss assets in accordance with the guidelines issued by it in this behalf, for an amount not exceeding five per cent of the amount of such assets shown in the books of account of the bank on the last day of the previous year: Provided further that for the relevant assessment years commencing on or after the 1st day of April, 2003 and ending before the 1st day of April, 2005, the provisions of the first proviso shall hav....
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....1949 (10 of 1949), which is not a scheduled bank; (ia) "rural branch" means a branch of a scheduled bank or a non-scheduled bank situated in a place which has a population of not more than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; (ii) "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (iii) "public financial institution" shall have the meaning assigned to it in section 4Aof the Companies Act, 1956 (1 of 1956); (iv) "State financial corporation" means a financial corporation established under section 3 or section 3A or an institution notified under sec....
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....se of houses in India for residential purposes; and (iii) in respect of the specified entity referred to in sub-clause (vi) of clause (a), the business of providing long-term finance for development of infrastructure facility in India; (c) "banking company" means a company to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act; (d) "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" shall have the meanings respectively assigned to them in the Explanation to sub-section (4) of section 80P; (e) "housing finance company" means a public company formed or registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes; (f) "public company" shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (g) "infrastructure facility" means- (i) an infrastructure facility as defined in the Explanation to clause (i) of sub-section (4) of section 80-IA, or any other public facility ....
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....ant treated the amount due from the defaulting lessees as "receivable" in its books of account. 10. A further sum was reduced from the aforesaid amount as diminution in the value based on the prevailing market value of the seized vehicle. The appellant appears to have compared the book value of the repossessed vehicle with the prevailing market value. If the estimated market value was less than the book value at the time of the repossession of the leased asset (vehicle), the appellant reduced the value and transferred it to its profit and loss account. 11. If the vehicles were sold before the closes of the financial year, entries made towards diminution in the value were reversed on the actual loss arrived from the sale and suitable adjustments were made in the book. This method adopted by the appellant allowed it to reduce the value of the asset and thereby the income tax payable. 12. The appellant thus claimed a deduction under Section 36 of the Act based on the estimated market value it determined at the time of repossession. This deduction was sought to be denied. Income tax is payable on the "income" as defined in Section 2(24) of the Act. 13. Section 36(1)(vii) of the....
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....been established to have become a bad debt in that year; iv. where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) and the Assessing Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of section 155 shall apply; v. where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub- section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provisions for bad and doubtful debts account made under that clause. 14. By Circular No.12/2016, dated 30.05.2016, the Income Tax Department clarified that claim for any debt or part thereof in any previous year, shall be admissible under Section 36(1)(vii) of the Act, if it is written off as "irrecoverable" in the Books of Acco....
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....ase /hire purchase portfolio The asset should continue to be treated as non-performing and provision should be made according to the provisioning norms on the line of those applicable to the scheduled contracts. A) The repossessed assets should be shown as distinct from "assets on lease" or "stock on hire" under the "Fixed Assets" of "Current Asset" as the case may be. B) Valuation of assets may be done as per accounting standards of ICA!. 18. The above clarification does not clearly spell out the relevant Accounting Standard which is to be followed by a NBFC. The valuation has to be in accordance with the Accounting Standard (AS) 19 "Accounting for Leases" for all lease agreements (Financial Leases) executed on or after April 1, 2001. 19. Paragraphs 26 to 38 of the Accounting Standard (AS) 19 deals with leases in the Financial Statement of lessors. The appellant has not explained the same. 20. In Vijaya Bank Vs. Commissioner of Income Tax, (2010) 323 ITR 166, it was clarified that after the amendment to Section 36 of Act with effect from 01.04.1989, a distinct dichotomy has been brought. Consequently, a mere provision for bad debt is not sufficient to claim deduction unle....