SUNDARAM FINANCE LIMITED Vs. ASSISTANT COMMISSIONER OF INCOME TAX COMPANY CIRCLE VI 4 CHENNAI 600 034

JUDGEMENT

(1.) THE above tax case appeal is directed against the order of the Income-tax Appellate Tribunal in ITA No. 1776/mds/2002 dated 28. 8. 2006, raising the following substantial questions of law. (i) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the appellant is not entitled to deduction of the'provision'made in respect of Non Performing assets which are considered irrecoverable? (ii) Whether the Appellate Tribunal was justified in not appreciating that the provision made in respect of Non Performing Assets if not allowable as a bad debt is allowable as a business loss?

(2.) THE assessee is the appellant. THE assessee is engaged in the business of hire purchase financing, equipment leasing and allied activities. During the relevant assessment year, the assessee's claim with respect to the allowance for the provision of Non Performing Assets was rejected by the Assessing Officer on the ground that the same was already added back in the adjustment statement, following the earlier year's order, even though, according to the assessee, certain portion of the debts were not recoverable and provided for the same in the books of accounts, which represent the dimunition in value of the amount receivable and therefore, to be allowed as a business loss, if it was not allowed as a bad debt.

(3.) IN T. N. Power Finance and INfrastructure Development corporation Ltd. v. Joint Commissioner of INcome Tax (280 ITR 491), this court held that merely because the Reserve Bank of INdia had given direction to the assessee to provide for non performing assets, the same could not override the mandatory provisions of the Act, as the provision for non-performing assets are of predominately capital in nature and accordingly, the assessee was not entitled to deduction.