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2013 (11) TMI 825 - AT - Income TaxAddition u/s 41(4A) - Withdrawal from special reserve account - In the Balance sheet, the assessee has reduced the Special Reserve Account with certain amount. According to the assessee, it is a contra adjustment only and it has made corresponding reduction from "Loans and Advances account" also. According to the assessee, it was required to do so as per the directions issued by IDBI, which the assessee is required to comply with. According to the said guidelines, the Assets and Liabilities should be reduced to the extent of Provision utilised from the cumulative balance of reserves created u/s 36(1)(viii), i.e., the assets are to be shown as net of provisions. Held that:- As per the guidelines of the IDBI, the assessee is required to classify its assets, mainly loans and advances, into four categories, viz., Standard assets, Sub-standard assets, Doubtful assets and Loss assets. The purpose of classification of the assets in the above categories appears to be to ascertain about the intrinsic strength of those assets - IDBI has also specified the criteria or basis for classifying the assets in the four categories stated above. According to the said guide lines, the assessee is also required to make provisions against the assets classified as Sub-standard, Doubtful and loss category, possibly these categories bear risk of recovery. According to the said guidelines, the SIDCs are required to determine the amount of provision for bad and doubtful debts. According to the guidelines issued by IDBI, the amount available in the Special Reserve Account u/s 36(1)(viii) of the Act is admissible for provision purposes. SIDCs can take into account the amount available in the Special Reserve Account while determining the amount of provision - The provision for bad and doubtful debts is created only to safeguard the financial institution against bad debts, i.e., the possible bad debts risk is evened out to a number of years. Hence, the permission given by IDBI for utilising the amount available in Special Reserve Account for making provision does not mean that the SIDC has actually utilised the Special Reserve Account. The said relaxation only allows the SIDC to determine the amount of "Provision for bad and doubtful debts" that is required to be made as per the guidelines issued by IDBI, i.e., in terms of IDBI guidelines, the provision for bad and doubtful amount shall be computed by aggregating the amount available in Special Reserve account with the amount available in Provision for bad and doubtful account. Provisions of sec. 41(4A) would not apply so long as the SIDC maintains the Special Reserve Account intact in its books of account. The method of presentation of the same in the Balance Sheet also, does not matter for the purposes of sec. 36(1)(viii) r.w.s. sec. 41(4A) of the Act, there is no reason to invoke the provisions of sec. sec. 41(4A) of the Act, on the basis of Balance sheet, wherein certain adjustments have been made by the assessee for the purpose of presenting it to the share holders and the regulator - Deleted the impugned addition of ₹ 53.96 crores – Decided against the Revenue.
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