TMI Blog2006 (3) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground that such provision is a contingent liability and in ignoring that such provision was made in accordance with the Non-Banking Financial Companies (NBFC) guidelines issued by the Reserve Bank of India (RBI). (ii) The appellant prays that the disallowance of Rs. 46,77,500 be deleted. 2. Briefly stated, the facts are that the assessee-company is non-banking financial company (NBFC). The assessee furnished its return of income on 27-11-1998 declaring total income at Rs. Nil. In course of assessment proceedings, it was found by the Assessing Officer that the assessee-company had claimed deduction of Rs. 47,77,500 on account of provision of advances. But the same was not allowed by the Assessing Officer because it was only a prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as per which, RBI can issue directions to all or any of the NBFC relating to income recognition, accounting standard, making of proper provision for bad and doubtful debts etc. It was submitted that RBI has issued non-banking financial company prudential norms (RBI) directions, 1998 in exercise of powers conferred by section 45JA of the RBI Act, 1934, copy of which is appearing on page Nos. 13 to 27 of the paper book; and hence, these provisions have override effect over any other law as provided in section 45Q of the RBI Act, 1934. Our attention was drawn to clause 8 of this direction as appearing on page Nos. 20 to 22 of the paper book, as per which, detailed directions are given by RBI for making provisions with regard to loss asset, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation to section 36(1)(vii) and in support of this, reliance was placed on the following Judgments:- Vithaldas H. Dhanjibhai Bardanwala v. CIT [1981] 130 ITR 95(Guj.) CIT v. Jwala Prasad Tiwari [1953] 24 ITR 537 (Bom.) Industrial Credit Investment Corporation of India Ltd. v. IAC [1990] 32 ITD 315 (Bom.) It was also contended that meaning of the term 'provision' is not defined in the Income-tax Act; and hence, definition in the Companies Act should be followed and in support of this contention, reliance was placed on the Judgment of Hon'ble Apex Court rendered in the case of Howrah Trading Co. Ltd. v. CIT [1959] 36 ITR 215. Regarding definition of the word 'provision' in Companies Act, copy of the extract from Taxman's Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under section 36(1)(vii). Regarding the Tribunal Judgment rendered in the case of Overseas Sanmar Financial Ltd., we find that this Judgment was delivered by the Tribunal on 5-2-2001; whereas, Explanation to section 36(1)(vii) was inserted by the Finance Act, 2001; and therefore this Judgment is without considering this Explanation; and hence, not applicable in this present case. Regarding another Tribunal Judgment rendered in the case of TEDCO Investment Financial Services (P.) Ltd., we find that the issue involved in that case was regarding not making provisions of lease rental, interest and bill discounting charges, which were not realized for more than six months as per NBFC prudential norms (RBI) directions, 1998. But the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount, which is considered reasonable, the same shall be treated as reserve and not as provision. We find no ambiguity with regard to this definition of word 'provision' as per the Companies Act because as per this interpretation, given in the Companies Act also, the amount debited by the assessee to the profit and loss account is a provision because the same is for providing for diminution of value of asset and since, as per the Explanation to section 36(1)(vii), provision for bad and doubtful debts is not allowable as deduction, this definition of the word 'provision' in the Companies Act and the Judgment in the case of Howrah Trading Co. Ltd. does not help the case of the assessee. Contention of the assessee is that even after insertio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt that deduction should be allowed having regard to accepted commercial practice and trading principles, provided of course that there is no prohibition against it, express or implied. In the present case, deduction is specifically denied as per the Explanation to section 36(1)(vii); and hence, the same cannot be allowed as business loss. Similarly, in the case of Calcutta Co. Ltd, it was held by the Hon'ble Apex Court that deduction can be allowed with regard to expenses incidental to the business provided, there is no prohibition against it, expression or implied; and hence, this Judgment is also not applicable in the present case. In view of the above discussion, we are of the considered opinion that since, deduction with regard to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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