CIT Vs. BRAHMAPUTRA CAPITAL & FINANCIAL SERVICES LTD

JUDGEMENT

(1.) The following question of law was framed in this appeal, under Section 260A of the Income Tax Act, 1961:

(2.) The assessee herein had advanced certain amounts to various concerns, i.e. M/s Jindal Equipment Leasing & Consultancy Services Ltd. and Mansarovar Investment Ltd. during the previous year relevant to assessment year 1997-98. Interest was accrued on the said loans upto assessment year 1998-99. Further, the Petitioner had advanced interest bearing loans to M/s Goswami Credits & Investment Ltd. during the previous year relevant to assessment year 1999-2000. Interest was accrued on the said loan till assessment year 2001-0 The assessee had not received interest for more than six months from its said debtors. As a Non-Banking Financial Company (NBFC) the assessee is bound by directions of the Reserve Bank of India. Such directions, require NBFCs to declare such advances as Non Performing Assets (NPA), when accrued interest on them is not paid by the debtor for six months, continuously.

(3.) The revenue argues that in respect of the three entities, the decision not to reflect revenue recognition, and treat the interest payable as NPA could not be allowed and the ITAT erred in holding that under RBI's norms, the revenue recognition method adopted was in order. It was highlighted that there was cross shareholding of three entities which were given the credit facility which sets them apart from normal defaulting debtors. It was also submitted that the financial health of the three debtor companies was not essentially sound; furthermore, nearly 40% of the amounts advanced by the assessee were to the three companies. As such the revenue had a right to hold that the transactions were not at arms's length and therefore, the explanation that the advances were NPAs could not be legitimately accepted.