TMI Blog2011 (9) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... income for the assessment year 2001-02 declaring an income of ₹ 1,00,03,850/-, which was taken up for scrutiny assessment. In the assessment finalized under section 143(3) of the Act, the total income was determined at ₹ 1,21,87,770/-. The income so finally determined was higher of the income computed as per section 115JB of the Act at ₹ 1,21,25,267/-. In finalizing the assessment at the income of ₹ 1,21,87,770/- being income as per the regular provisions of the Act, the Assessing Officer, inter alia, made an addition of ₹ 19,95,596/- as provision for doubtful debts, which is the subject matter of dispute before us. The relevant discussion in the assessment order is contained in para 6 which reads as under: 6. The assessee company has made provision for doubtful debts of ₹ 19,95,596/- which has not been added back in the Statement of Total Income. The same is hereby added back while computing total income as per regular provisions of Income Tax Act, 1961 as well as income as per provisions of section 115JB. 4. In appeal, the assessee assailed the addition on various counts. Firstly, as per the assessee the impugned provision for doubtful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have to hold that the AO was not justified in adding the said provision to the appellant s income. Accordingly the addition of ₹ 19,99,596/- is hereby deleted. 5. Before us, the learned Departmental Representative, appearing for the Revenue, has relied upon the decision of the Hon ble Supreme Court in the case of Southern Technologies Ltd v. JCIT 320 ITR 527 (SC) for the proposition that the RBI directions in the context of provisioning for non-performing assets in the Balance sheet of a NBFC has nothing to do with the computation of taxable income or accounting concepts and, therefore, the Commissioner of Income-tax (Appeals) was not justified in deleting the addition. Reliance has also been placed on the decision of the Special Bench of the Tribunal in the case of New India Industries Ltd. 112 TTJ (Del) 917 to the effect that bad debts representing provision for non-performing assets per the prudential norms issued by RBI for NBFCs is not allowable deduction under section 36(1)(vii) of the Act. On the basis of the aforesaid, as per the learned Departmental Representative, the addition made by the Assessing Officer on account of provision for doubtful debts was justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claim of the assessee because the provision for doubtful debt was expressly not deductible under section 36(1)(vii) of the Act and it also could not be allowed as a deduction under section 37(1) of the Act even on the basis of real income theory. Accordingly, the claim of the assessee for deduction under section 36(1)(vii) or 37(1) of the Act was negated. 8. On the contrary, the judgment of the Hon ble Delhi High Court in the case of Vasisth Chay Vyapar Ltd (supra), which is subsequent to the judgment of the Hon ble Supreme Court in the case of Southern Technologies Ltd. (supra) and has considered the said decision, the facts were that the assessee therein who was a NBFC had lent certain monies and such lending had become a non performing asset as per the prudential norms issued by the RBI and interest income on such non performing assets was not received by the assessee and, therefore, it did not recognize interest income on such non performing assets having regard to its accounting policy. The issue before the Hon ble High Court was as to whether in the given circumstances, interest income could be said to have accrued to the assessee in the light of the provisions of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was under section 36(1)(vii) or under section 37(1) of the Act. The discussion by the Assessing Officer in the assessment order, which we have reproduced in the earlier part of this order, is completely silent on this aspect. On the contrary, the claim of the assessee before the Commissioner of Income-tax (Appeals) as manifested in its Grounds of Appeal before the Commissioner of Income-tax (Appeals) was on the following lines:- 3.2 He erred in not appreciating that the above provision for doubtful debts was not routed through the Profit 7 Loss account and hence was not disallowable. 3.3 He erred in not appreciating that the above provision represented unearned finance charges/lease rentals in respect of assets under the Hire Purchase/Lease agreements that have been classified as non-performing assets, which were not considered as income as per the Prudential Norms other guidelines issued by RBI and made applicable to NBFCs. which was to the effect was that the assessee has not recognized its income to the extent of ₹ 19,99,596 with respect of non-performing assets in terms of the prudential norms issued by the RBI. In fact, the finding of the Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly adjusted by the AO as per clause (c) of sub-section (1) of section 115JB. In deciding as above, the decision of the Hon ble Madras High Court in the case of DCIT v. Beard Sell Ltd., 244 ITR 256, is followed. Consequently, even while the addition of ₹ 19,99,596/- made in the assessment as per the regular provisions is deleted, the adjustment of the said amount for computing deemed income under section 115JB is confirmed. As a result, the ground raised by the appellant on this score is dismissed. 9. In the face of the aforesaid ambivalent situation and finding that the order of the Assessing Officer is silent on this aspect, we therefore find it appropriate to remit the issue to the file of the Assessing Officer for a limited purpose. The assessee shall satisfy the Assessing Officer that it is a case where the amount of ₹ 19,95,596/- represents unrecognized income on a non-performing asset classified in terms of prudential norms of RBI and it is not a case where a provision of equivalent amount has been debited in the Profit Loss account and claimed as deduction under section 36(1)(vii) or 37(1) of the Act. In case the assessee succeeds in demonstrating the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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