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2007 (10) TMI 325 - ITAT DELHI-FDeduction u/s 36(1)(vii) - Provision for doubtful assets and sub-standard assets - inconsistency between the two provisions - Provision for non-performing assets ('NPA') debited to P&L a/c and claimed as a deduction as per RBI norms - allowed as deduction while computing income from business under the provisions of the IT Act, 1961 - HELD THAT:- The RBI Act is a special Act in relation to computation of NOF of NBFC whereas IT Act is a special Act so far as computation of tax liability of a person in respect of its income computed under the provisions of the IT Act. Thus, it cannot be said that there is any inconsistency between the two Acts so as to hold that the provision of RBI Act shall have effect notwithstanding anything contained in the IT Act. Though s. 45Q of the RBI Act provides that provisions of Chapter. III-B of the RBI Act shall have effect notwithstanding anything inconsistent therewith contained in any other law, we find that there is no inconsistency between the provision of RBI Act or the Prudential Norms prescribed thereunder and the provisions of the IT Act. Therefore, it cannot be held that the provision made in the accounts of the assessee in respect of NPA shall be treated as sufficient compliance with the provisions of s. 36(1)(vii) of the IT Act so as to allow the provision for bad and doubtful debts as deduction permissible under the IT Act. The Act lays a general tax on the whole population and all the persons unless specifically exempt from the charge. Therefore, the presumption is of equality of the incidence of tax rather than of exemption for a few. The Act does not distinguish between a non-banking finance company accepting the public deposits which is governed by the Prudential Norms issued by RBI and other non-banking finance companies or even other persons charge-able to tax under the IT Act. We do not ascribe to the view that the intention of the legislature leads to discriminate between the different persons liable to be charged of IT u/s 4 of the IT Act. Its object was to give relief and confer benefit on all these units uniformly. We, therefore, cannot read in the provisions of s. 36(1)(vii) of the IT Act anything which entitles even a provision for bad and doubtful debts by an NBFC as an allowable deduction only on the basis of provisioning requirement contained in the directions issued by the RBI in exercise of powers conferred u/s 45JA of the RBI Act. Whether provision for NPA debited to P&L a/c can be allowed as deduction while computing income from business under the provisions of IT Act - Sec. 36(1)(vii) provides for allowance of 'bad debt' and not 'any debt'. Thus, the precondition is that the debt has turned into 'bad debt' and not anything else. It is contended by Shri Bajpai that the amount is not an ad hoc provision but strictly in accordance with cl. 8 of the Prudential Norms issued by the RBI. In our opinion, it will not materially alter the situation as the amount debited to P&L ale is still in respect of a provision for NPA which is not classified as bad debt by the assessee and so long as the conditions prescribed under the IT Act is complied with, deduction under the IT Act is not permissible. As regards various decisions of the Tribunal cited by both the counsel, though we have noted the same we, for the reasons stated above, answer the question referred to this Bench in negative i.e., in favour of Revenue and against the assessee. As regards the decision in the case of T.N. Power Finance & Infrastructure Development Corpn. vs. Jt. CIT [2005 (10) TMI 38 - MADRAS HIGH COURT], we hold that the same was on the basis of concession by the counsel appearing on behalf of the assessee. However, the law laid down therein cannot be brushed aside. The concession by the counsel was to the limited extent that in view of Explanation to s. 36(1)(vii), provision for bad and doubtful debts is not an allowable deduction but the Hon'ble Madras High Court went on to hold that merely because RBI has directed the assessee to provide for NPA, that direction cannot override the mandatory provision of the IT Act. Thus, there is no error in the order of learned CIT(A) in not allowing provision for NPA debited to P&L a/c. Thus, even ground No. 1 raised in this appeal is to be dismissed. Deduction claimed in respect of provision for NPA - HELD THAT:- We are in agreement with the submissions made in this regard. If the deduction is not allowed in respect of provision for NPA itself, since the amount received is in respect of capital sum lent, it does not partake the character of income when subsequently such amount is realized. If on the first instance, the deduction is not allowed in respect of NPA, subsequent realization of such NPA is realizing its capital itself and hence, cannot be considered as income though treated as such under the RBI Act. The amount recovered is not an income u/s 41(4) unless in the first instance is allowed as deduction u/s 36(1)(vii). In the result, the question referred to the Special Bench is answered in favour of Revenue and the appeal of assessee is partly allowed.
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