2010 (1) TMI 5 - SC - Income Tax

Income – Provision for NPA - Whether the Department is entitled to treat the "Provision for NPA", which in terms of RBI Directions 1998 is debited to the P&L Account, as "income" under Section 2(24), while computing the profits and gains of the business under Sections 28 to 43D of the IT Act? – held that - Section 36(1) (viia) provides for a deduction not only in respect of "written off" bad debt but in case of banks it extends the allowance also to any Provision for bad and doubtful debts made by banks which incentive is not given to NBFCs - even in the case of banks the Provision for NPA has to be added back and only after such add back that deduction under Section 36(1) (viia) can be claimed by the banks - that neither Section 36(1)(viia) nor Section 43D violates Article 14. We further hold that the test of "intelligible differentia" stands complied with and hence we reject the challenge - Provision for possible loss are only notional for purposes of disclosure, hence, they cannot be made an excuse for claiming deduction under the IT Act, hence, "add back".