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2023 (1) TMI 488 - HC - Income TaxDiminution in the value of investment in two unlisted companies - provision made in respect of Non-Performing Assets which are considered irrecoverable - HELD THAT:- The investments of the appellant assessee in two unlisted companies are not ‘Stock-in-Trade’. They are merely investments. Deductions are to be strictly in compliance with the provisions of the Income Tax Act, 1961. Loss in the value of investment will arise only when such shares are sold by the appellant. The appellant is therefore not entitled for deduction on account of alleged “diminution in the value of investment” due to the purported loss suffered by the said company on such investment of the appellant. Therefore, the Question of Law No.1 is answered against the appellant assessee. Provision made in respect of Non Performing Assets - Claim if not allowable as a bad debt is allowable as a business loss - HELD THAT:- The appellant is a non-banking financial company within the meaning of Section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934) as made applicable to Section 36(1) of the Income Tax Act, 1961. The expression “non-banking financial company” has the same meaning assigned to it in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934). Provision for bad and doubtful debts made by a non-banking financial company cannot exceed five per cent of the total income computed before making any deduction under Section 36 Chapter VI-A of the Act. Therefore, the Appellant cannot claim deduction beyond the amount that is statutorily recognized. This view was affirmed by this Court in T.N.Power Finance & Infrastructure Development Corporation Limited [2005 (10) TMI 38 - MADRAS HIGH COURT] Therefore, the Substantial Question of Law is answered against the appellant. Diminution in value of repossessed stock of vehicles - HELD THAT:- The loss from the repossessed vehicles can be ascertained only after they are resold. Till such time, loss cannot be determined. Estimated loss based on the difference between the receivable and the projected market value would not entitle the appellant to reduce the value of the asset to reduce the market value unless provided in the relevant Accounting Standard. We have also not been informed about any Accounting Standard as per which the diminution in the value is allowed. There are also no materials before us to interfere with the finding of the Tribunal in the impugned order. Further, the balance amount, if any, will be recovered from the defaulter. Merely because there is erosion in the value based on the estimates would not ipso facto entitle diminution to claim deduction.Substantial Question of Law No.3 is also answered against the appellant.
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