TMI Blog2011 (4) TMI 504X X X X Extracts X X X X X X X X Extracts X X X X ..... uld override the provisions of the Income-tax Act and it was held that Section 45Q of RBI Act having a non-obstante clause will prevail over the Income-tax Act - An essential criterion for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use of others of enterprise resources is reasonably determinable - Supreme Court itself has held that when there is a provision in other enactment which contains a non obstante clause, that would override the provisions of Income-tax Act - Decided in favor of the assessee Regarding advertisement and business promotion expenses - it was observed by the Assessing Officer that a major part of the expenses have been spent on advertisement in print and electronic media which directly contribute towards brand promotion which relates to Maruti Udyog Ltd - If any expenditure is incurred on the ground of commercial expediency, it shall be treated as normal business expenditure even if somebody other than the assessee is also benefited by the said expenditure - The genuineness and the actual incurrence of these expenditures have not been doubted by the Assessing Officer - According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hire purchase basis to other buyers. 3. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in deleting the addition of Rs.3,15,24,257/- made by the Assessing Officer on account of disallowing 50% of expenses incurred on advertisement and business promotion expenses. 3.1 The Ld. CIT (Appeals) has ignored that the expenses were incurred for brand promotion and sustaining the brand 'Maruti' which does not belong to the assessee but to its sister concern i.e., Maruti Udyog Ltd. 4. the appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of the hearing. 1. The order of the learned CIT (Appeals) is erroneous and contrary to facts and law. 2. On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) has erred in deleting the addition of Rs.5,00,59,438/- made by the Assessing Officer on account of loss on sale of repossessed assets. 2.1. The Ld. CIT (A) has ignored the fact that the vehicles in questions were sold earlier on hire purchase basis to other buyers. 3. On the facts and in the circumstances of the case and in law, the learned CIT (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of installments the assessee repossesses the asset. As and when a hypothecated asset is repossessed under loan/hire purchase transaction, the same is included in the repossessed stock of the company under the current assets. Thereafter, the assessee takes a commercially prudent decision for selling those repossessed assets to the interested buyers. On sale, the excess/shortfall of the sale proceeds vis-a-vis the amount recovered from the hirer is booked as business profit/loss in the profit and loss account under the head 'loss on sale of repossessed assets.' The unsold repossessed stock lying in the possession of the assessee as at the end of the year continue to form part of the current assets. Accordingly, it is the case of the assessee that repossessed assets are not capital assets of the company. The loss arose consequent to the sale of repossessed assets which represent distribution of the realizable value/sale proceeds vis-avis the amount recoverable from the hirer which constitute the loss incurred by the assessee as business loss. On these facts, the Tribunal for assessment year 2003-04 has upheld the order of CIT (A) vide which the similar addition was deleted. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(vii) and section 36(2) of the Act which provide that write off made by the company which are in money lending business are admissible deduction under section 36 of the Act. The relevant extract of section 36 (2) of the Act inter alia provides as under: In making any deduction for a bad debt or part thereof, the following provisions shall apply: No such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee........." From perusal of the facts of the case and the legal position for it transpire that the appellant case is fully covered by section 36(1)(vii) read with section 36 (2) of the Act. It is not a case of trading loss u/s 28 of the Act as alleged by Assessing Officer following the case of Allahabad High Court supra. Coming on the legal side, I have perused the case of M/s Motor General Sales Pvt. Ltd. 226 ITR 137 relied upon by Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the A.O. while disallowing the claim of the assessee has wrongly placed reliance on the decision of Hon'ble Allahabad High Court in the case of M/s Motor General Sales P. Ltd. (supra) and the same has been rightly analysed and distinguished by the CIT (A) in his order. We further find that the CIT (A) in his well reasoned order and relying upon the various decisions which were relevant to the issue under consideration before us has rightly deleted the impugned additions of Rs.1,56,04,644/- (in A.Y. 2003-04) and Rs.2,00,14,497/- (in A.Y. 2004-05) respectively. Accordingly, the well reasoned and well discussed orders of CIT (A) do not call for any interference from our side and the same are upheld. Ground Nos.1 and 2 of the appeals of the Revenue are rejected." 6. Facts in the present case being identical and both the ld. Counsel having fairly agreed that the issue stands covered in favour of the assessee, we uphold the order of ld. CIT (A) and decide the issue in favour of the assessee. 7. In the result, the appeal of the revenue is dismissed." 3. Though it has been the case of Ld. DR that the aforementioned decision is distinguishable on the ground that it is not coming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for the purpose of Income-tax Act, the provisions of Income-tax Act were to be followed. He, therefore, added the said amount to the income of the assessee. Learned CIT (A) has deleted the disallowance on the ground that the assessee is an NBFC and according to the norms prescribed by the RBI and the Institute of Chartered Accountants of India it was right in not recognizing the interest on accrual basis in respect of sticky loans and advances. The revenue is aggrieved, hence, in appeal. 5. Ld. DR, relied upon the observations of the Assessing Officer which states that the RBI guidelines and provisions of the Income-tax Act work in different fields and the RBI guidelines could not override the provisions of the Income-tax Act. Hence, relying upon the assessment order, it was pleaded by Ld. DR that learned CIT (A) has wrongly deleted the addition. 6. On the other hand, relying upon the order of CIT (A), it was pleaded by ld. AR that ld. CIT (A) has rightly deleted the addition. He submitted that jurisdictional High Court in the case of CIT vs. Vasisth Chay Vyapar Ltd. (2011) 196 Taxman 169 (Del.) has held that if in any enactment the provisions contained a non-obstante cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads as under:- "9. Effect of Uncertainties on Revenue Recognition.- 9.1 Recognition of revenue requires that revenue is measurable and that at the time of sale or the rendering of the service it would not be unreasonable to expect ultimate collection. 9.2 Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognize revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognized at the time of sale or rendering of service even though payments are made by instalments. 9.3 When the uncertainty relating to collectability arises subsequent to the time of sale or the rendering of the service, it is more appropriate to make a separate provision to reflect the uncertainty rather than to adjust the amount of revenue originally recorded. 9.4 An essential criterion for the recognition of revenue is that the consideration receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the provisions of section 45Q of the RBI and Prudential Norms issued by the RBI in exercise of its statutory powers. As per these norms, the ICD had become NPA and on such NPA where the interest was not received and possibility of recovery was almost nil, it could not be treated to have been accrued in favour of the assessee. 18. As noted above, Mr. Sabharwal, argued that the case of the assessee was to be dealt with for the purpose of taxability as per the provisions of the Act and not the RBI Act which was the accounting method that the assessee was supposed to follow. We have already held that even under the Income-tax Act, interest income had not accrued. Moreover, this submission of Mr. Sabharwal is based entirely on the judgment of the Supreme Court in the case of Southern Technologies Ltd.'s (supra). No doubt, in first blush, reading of the judgment gives an indication that the Court has held that RBI Act does not override the provisions of the Income-tax Act. However, when we examine the issue involved therein minutely and deeply in the context in which that had arisen and certain observations of the Apex Court contained in that very judgment, we find that the propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentation under the said Directions, there would be an add back but not under the Income-tax Act necessarily. It is important to note that collectability is different from accrual. Hence, in each case, the assessee has to prove, as has happened in this case with regard to the sum of Rs. 20,34,605, that interest is not recognized or taken into account due to uncertainty in collection of the income. It is for the Assessing Officer to accept the claim of the assessee under the IT Act or not to accept it in which case there will be add back even under real income theory as explained hereinbelow. 38. The point to be noted is that the Income-tax Act is a tax on "real income", i.e., the profits arrived at on commercial principles subject to the provisions of the Income-tax Act. Therefore, if by Explanation to section 36(1)(vii) a provision for doubtful debt is kept out of the ambit of the bad debt which is written off then, one has to take into account the said Explanation in computation of total income under the Income-tax Act failing which one cannot ascertain the real profits. This is where the concept of "add back" comes in. In our view, a provision for NPA debited to Profit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Directions cannot overrule the "permissible deductions" or "their exclusion" under the Income-tax Act. The inconsistency between these Directions and Companies Act is only in the matter of Income Recognition and presentation of Financial Statements. The Accounting Policies adopted by an NBFC cannot determine the taxable income. It is well settled that the Accounting Policies followed by a company can be changed unless the Assessing Officer comes to the conclusion that such change would result in understatement of profits. However, here is the case where the Assessing Officer has to follow the RBI Directions 1998 in view of section 45Q of the RBI Act. Hence, as far as Income Recognition is concerned, section 145 of the Income-tax Act has no role to play in the present dispute." (Emphasis supplied) 19. We have also noticed the other line of cases wherein the Supreme Court itself has held that when there is a provision in other enactment which contains a non obstante clause, that would override the provisions of Income-tax Act. Custodian appointed under the Special Court Act, 1992's case (supra) is one such case apart from other cases of different High Courts. When the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o brand promotion and these expenses have enhanced the Maruti brand in the eyes of general public and, as such, these expenditures do not belong to the assessee. Through such expenditure "Maruti Brand" has become beneficiary of the assessee company and, in this manner, he has disallowed 50% of an amount of 6,30,48,513/- by reducing the last amount of 89,54,340/- incurred on account of "Load sale shop - management and other charges'. Ld. CIT (A) has discussed this issue in para 9 of his order. Before CIT (A) it has been the case of the assessee that in order to establish and increase its market presence, the assessee was required to vigorously promote its financial business for which such expenditures were incurred. These expenditures are in the nature of sale incentives, gifts to dealers, exhibitions, Canvasser's charges, print media advertisement, etc., and these are the common ways to promote and increase the visibility of the products/services offered by an enterprise in today's competitive market scenario. It was submitted that such expenditure has no relation with the payment of royalty. The joint venture and shareholders agreement does not provide for any obligation cast upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grieved, hence, in appeal. 12. Relying upon the order of Assessing Officer, it was vehemently pleaded by Ld. DR that the assessee by incurring these expenditures has promoted Maruti Brand, therefore, these expenditures cannot be said to have been incurred wholly and exclusively for the purpose of business of the assessee. He, therefore, pleaded that the Assessing Officer was right in making 50% disallowance thereof and learned CIT (A) has wrongly granted the relief to the assessee. He submitted that the order of the CIT (A) should be set aside and that of Assessing Officer be restored. He submitted that the facts of the assessment year 2006-07 on this issue are similar except difference in figure. 13. On the other hand, relying upon the order of CIT (A), it was pleaded by ld. AR that the disallowance has rightly been deleted and his order should be upheld. 14. We have carefully considered the rival submissions in the light of the material placed before us. The genuineness and the actual incurrence of these expenditures have not been doubted by the Assessing Officer. The reason assigned by the Assessing Officer to make the disallowance is that the assessee by incurring t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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