ORDER
1. Diva Singh, JM – This is an appeal filed by the assessee against the order dated 1-2-2002 of CIT(A)-XIX, New Delhi pertaining to 1998-99 assessment year.
2. The grounds raised by the assessee were argumentative in nature. As such, the assessee was directed to file abridged grounds which were filed on 10-11-2002. In view of the fact that ground No. 12 was neither raised before the CIT(A) nor was it filed before the Tribunal originally, the learned DR took strong objection to adding of this ground in the abridged grounds. The other grounds were not objected to by the learned DR. The grounds raised read as under :
“1. The learned CIT(A) has erred in law and on facts in confirming the order of the Assessing Officer holding that the appellant company cannot be considered as a non-banking financial company under Section 45-IA of Reserve Bank of India Act, 1934 when the matter of granting Registration is still pending with Reserve Bank of India,
2. The Ld. CIT(A) has erred in law and on facts in confirming the order of Assessing Officer at pages 3 and 4 that the directions of RBI on prudential norms of income recognition is not applicable to the appellant company thereby
(1)
Lease rental
Rs. 29,56,968
Interest on ICD’s
Rs. 50,34,796
(2)
Bill discounting charges not realized oversix months
Rs.
96,61,901
Rs. 1,76,53,665
All to totalling to Rs. 1,76,53,665 accrued to the appellant and held as income during the assessment year 1998-99. Further detailed submission would be made during the hearing against this addition.
3. The Ld. CIT(A) should have appreciated the legal position resulting from Section 45 JA introduced from 9-1-1997 in the Reserve Bank of India Act, 1934 read with Section 45Q existing in the same Act from 6-12-1964 has an overriding effect on the Income-tax Law and consequently, the prudential norms issued in terms of Section 45JA has to be applied and therefore the income under mercantile system of accounting can be recognized only subject to the prudential norms. This means the addition sustained by the Assessing Officer of Rs. 1,76,53,665 is to be deleted.
4. The decisions relied upon by the CIT(A) have no relevance to the issue under the Reserve Bank of India Act and have to be disregarded. Detailed submission if needed would be made during hearing.
5. The reference by CIT(A) relating to a discussion in page 7 of his Order from para 3.6 onwards to Section 43B are all not relevant because Chapter III-B of the Reserve Bank of India Act, 1934 has the effect of overriding the provisions of mercantile accounting under the Income-tax Act, 1961. Income has to be recognized in terms of Prudential Norms which income is to be substituted for the one under the mercantile system of accounting because a specific Section 45Q prevails over any other law which also covers overriding Income-tax Act, 1961.
6. The discussion at page 8 onwards by CIT(A) in para 3.7 in his order also where he calls “as general enactment to Reserve Bank of India Act, 1934 and the Income-tax Act, 1961 as special enactment” and claiming further Prudential Norms are Delegated legislation to Reserve Bank of India are all irrelevant and misconceived and so to be ignored.
Chapter III-B of the Reserve Bank of India Act, 1934 containing 22 sections (including 2 repealed Sections 45-O and 45B) applied to the assessee, being NBFC, along with Prudential Norms issued under Section 45JA, where NBFCs are required to follow such norms for recognition of income as a mandate on the assessee and that is also found complied with the Notification No. 69(E) dated 25-1-1996 issued by CBDT reported in 218 ITR St. pages 1 to 4. If this is understood then the addition made by Assessing Officer of Rs. 1,76,53,665 is to be deleted.
7. The registration under the Reserve Bank of India Act, 1934 under Section 45-IA is pending as the Central Government by its order sent it back to RBI duly set aside for re-consideration which is pending with Reserve Bank of India in terms of Sub-section (7) and empower to carry on business as NBFC by virtue of proviso to Sub-section (2) of Section 45-IA.
8. The Ld. CIT(A) should have accepted that the disallowance of Rs. 19,802 which is 10 per cent of the repair and maintenance and balance of Rs. 21,044 should have been allowed out of the repair and maintenance of Rs. 1,98,019.
9. The Ld.CIT(A) should have allowed the bad debts written off entirely as claimed by the assessee of Rs. 23,68,314.
10. The bad debts of Rs. 23,12,412 should have been allowed by virtue of Section 36(2) of the Income-tax Act, 1961 where the Income-tax Act after the amendment in 1989-90 onwards required only write off for claiming the bad debts.
11. The above grounds arc independent and without prejudice to one another.
12. The charging of interest under Sections 234A and 234B are wrong and bad in law. Full arguments will be advanced at the time of hearing.
13. The appellant prays to add, amend, alter, forego any of the above grounds at the time of hearing.”
3.1 The relevant facts of the present appeal are that the assessee filed a return of income on 30-11-1998 declaring a total loss of Rs. 4,04,239. The case was fixed for scrutiny and notice under Section 143(2) etc. were issued. The Assessing Officer observed that the assessee has shown income from business. He further observed that in the year under consideration, its main activities were of leasing of assets, discounting of bills and advancing of loans. The various incomes shown were Rs. 18,72,124 as interest, Rs. 21,76,871 as lease income, Rs. 17,99,398 as bill discounting charges and Rs. 3,98,587 as other income (dividend).
3.2 From a perusal of accounting policies as mentioned in Schedule-11 para 6 of the balance sheet, the Assessing Officer observed that auditors have mentioned :
“Lease rentals, interest and bills discounting charges not realized for more than 6 months has not been recognized as per RBI guidelines amounting to lease rentals of Rs. 29,56,968, interest on ICD Rs. 50,34,796, Bill discounting charges of Rs. 96,61,901 totalling to Rs. 1,76,53,665.”
3.3 In view of the above notings, the assessee was asked to explain and justify the implication on the accounts by the accounting policy adopted by the assessee as per para 6 of Schedule-11 of the notes to the accounts to the balance sheet. Various particulars were given to the assessee thereupon. Notice was issued in order to grant opportunity to the assessee before making an assessment under Section 144 of the Act in response to which, the following submissions were made on behalf of the assessee :
“The company being a Non-banking Financial Company, is bound by the directions of Reserve Bank on Prudential Norms of income Recognitions. The notes given is self explanatory on implications.”
3.4 After considering the same and taking into account the fact that Section 145 of the Act has been amended with effect from 1-4-1997 according to which the assessee either has to follow the cash system or mercantile system of accounting regularly employed by it and the assessee does not have any choice to follow certain items on the mercantile system and other items on cash system or realization basis. The Assessing Officer was further of the view that even prior to the amendment, the assessee had either to follow cash or mercantile system and there was no system to adopt a hybrid system. Accordingly, in the light of this view, the plea of the assessee that they have adopted a different accounting system i.e. NBFCs providential norms (Reserve Bank directions) issued vide notification No. DFC 119/DG/SPT-98 dated 31-1-1998 was not accepted by the Assessing Officer, taking note of the fact that the company has not been registered as non-banking financial institution with the Reserve Bank of India which fact was evidenced from the auditors’ report dated 2-9-1998 which was enclosed as Annexure ‘A’ to the assessment order. The auditors mentioned vide paragraph 2 as under :
“.. .We report that the company has applied for registration with Reserve Bank of India as a non-banking Financial Institution company which is pending as on date….”
3.5 Thus, in view of the fact that in the year under consideration, the assessee was not registered and recognized as NBFC by the RBI, the Assessing Officer was of the view that the question of applicability of NBFCs Prudential Norms (Reserve Bank directions), 1998 does not arise.
3.6 The Assessing Officer was further of the view that even though the assessee may have accounted the income as per the notification of the bank but for arriving at the correct profit of the company or the correct assessment of the income earned by the company, the provisions of the I.T. Act are to be applied rather than any other contrary view taken by any notification.
3.7 The Assessing Officer was also of the view that the Income-tax Act is a Statute passed by the Parliament and it cannot be governed by any notification issued by any other agency. Reliance was placed upon the judgment of the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172, 93 Taxman 502 for the proposition that accounting practice cannot override any provision of the Act. He also took into consideration the fact that the notification No. 69(E) dated 25th January, 1996 issued by CBDT as accounting standard to be followed by the assessee following mercantile system of accounts does not give any choice to the assessee to change its accounting system from mercantile to cash.
3.8 Accordingly, in view of the fact that the assessee has not shown lease rentals of Rs. 29,56,968, interest on ICD of Rs. 50,34,796 and bill discounting charges of Rs. 96,61,901, total amounting to Rs. 1,76,53,665, the same was taken as income accrued in the year under consideration and added to the income of the assessee.
4.1 Aggrieved by this, in appeal before the first appellate authority, with regard to the registration, it was contended on behalf of the assessee that the RBI rejected the application filed for registration as NBFC and the appellate authority has set aside the case to be decided afresh for registration purposes on 11-7-2001 which was still pending before the RBI.
4.2 The assessee further placed before the first appellate authority an application filed with the RBI which is reproduced in paragraph 2.2 of the impugned order :
“We desirous of carrying on the business of a non-banking financial institution. Hence, we hereby request you to kindly issue the necessary certificate of registration under Sub-section (1) of Section 45-IA of RBI Act, 1934 to enable our company to carry on the business of non-banking financial institution.”
4.3 Reliance was also placed upon Sub-section (1) of Section 45-IA of the RBI Act which reads as under :
“(1) Notwithstanding anything contained in this Chapter or in any law for the time being in force, no non-banking financial company shall commence or carry on the business of a non-banking financial institution without–
(a) obtaining a certificate of registration issued under this Chapter; and
(b) having the net owned fund of twenty five lakh rupees or such other amount, not exceeding two hundred lakhs, as the bank may, by notification in the Official Gazette, specify.”
4.4 On a perusal of the above, the CIT(A) came to the conclusion that a non-banking financial institution shall not commence or carry on business of a non-banking financial company unless a certificate of registration is issued to it. He further took into consideration that proviso to Subsection (2) states that any non-banking financial company in existence on the commencement of the Reserve Bank of India (Amendment) Act, 1997 shall make an application for registration to the bank before the expiry of six months from such commencement and notwithstanding anything contained in Sub-section (1) may continue to carry on the business of non-banking financial institution until a certificate of registration is issued or rejection of application for registration is communicated to it.
4.5 It was stated on behalf of the assessee that the assessee was carrying on business on the commencement of the Reserve Bank of India (Amendment) Act, 1997. Accordingly, the issue of registration certificate was a mere formality. In view of the fact that in the instant case, the RBI has rejected the application and the matter has been remanded back to the Government of India which is the appellate authority, accordingly, the CIT(A) was of the view that as on the date of the accounting year i.e. 31st March, 1998, the assessee-company was not registered as non-banking financial company and consequently, the directions of the RBI will not apply, to a company till the date of registration is granted to it. In view of the above, he was of the view that the assessee-company could not be considered as non-banking financial company under Section 45-1A of Reserve Bank of India Act, 1934. On the basis of this, the reasoning and finding of the Assessing Officer was confirmed.
4.6 With respect to the specific addition of Rs. 1,73,53,665, the submissions made on behalf of the assessee before the CIT(A) were that the company is a non-banking financial company as per the definition of NBFC (RBI) Directions, 1998. Thus, as per paragraph 2(x) of notification dated 2-1-1998, the directions of the RBI are binding on the assessee. The said directions relating to income recognition read as under :
“(i) The income recognition shall be based on recognized accounting principles.
(ii) Income on NPA shall be recognized only when it is actually recognized.
(iii) Interest on NPA shall not be booked as income, if such interest has remained past due for more than six months on and from 31-3-1998.
(iv) Lease rentals or hire purchase instalments in respect of non-performing lease and hire purchase asset shall not be given credit in profit and loss account if the same are not received for a period of 12 months.”
4.7 It was further reiterated on behalf of the assessee that as per the directions of the RBI, all existing NBFC were required to be registered with RBI and applications were to be made by existing companies before 8th July, 1997. It was further stated that the company had made the application on 16th June, 1997. Accordingly, since the application was still pending, the Assessing Officer’s contention that NBFC Prudential Norms (Reserve Bank) Directions, 1998 do not apply to this company is erroneous.
4.8 The submissions were also made that according to the accounting standards notified by the Central Government under Section 145(2) under Sub-sections (1) and (2), it requires both significant Accounting Policy to be adopted and disclosed in the preparation of financial statements all in one place and only under Clause (3), the changes in the accounting policy which arc material and have to be disclosed each year giving the impact of the same. It was further stated that apart from this, certain terms have been defined and even the term accrual has been defined in a broad way. The contention was put forth that “accrual” refers to total income assumption that revenues and costs are accrued i.e. recognized as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the period to which they relate. The accounting policy by the notification though broadly worded does not define the expression “mercantile system of accounting” and thus, in the absence of definition of “mercantile accounting system”, it should be viewed in wider perspective.
4.9 The assessee before the CIT(A) also raised the contention that Section 45Q Chapter IIIB of Reserve Bank of India Act overrides the other laws. The following contention was made :
“(v) That as the provision of Section 45Q, Chapter IIIB of Reserve Bank of India Act override the other laws and is reproduced as below :
The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for time being in force or having any instrument having effect by virtue of any such law.”
4.10 Thus, the contention raised was that since Chapter IIIB has an overriding effect on any other Act which is inconsistent with Chapter IIIB as per the mandate of Section 45Q, accordingly, the view taken by the Assessing Officer that Section 45Q cannot override the Income-tax Act provisions is not correct. Reliance was placed upon Nonsuch Tea Estate Ltd. v. CIT [1975] 98 ITR 189 (SC) and United Commercial Bank v. CIT [1999] 240 ITR 355, 106 Taxman 601 (SC).
4.11 Referring to Sub-sections (1) & (2) of Section 145 applicable with effect from 1-4-1997, it was submitted the assessee having profits and gains from business is empowered to follow the mercantile system of accounting regularly employed by the assessee. Accordingly, reliance by the Assessing Officer on the decisions Indermani Jatia v. CIT [1959] 35 ITR 298 (SC), Keshav Mills Ltd. v. CIT [1953] 23 ITR 230 (SC) and CIT v. Chunilal V. Mehta & Sons (P.) Ltd. [1971] 82 ITR 54 (SC) are under the old law and, as such, are not relevant. In view of the fact that the said section was amended w.e.f. 1-4-1997, hence, the principles laid down therein are not relevant.
4.12 Considering the submissions, the CIT(A) was of the view that the issue to be decided is whether the directions of the RBI would override the provisions of Section 145 of the I.T. Act or would the income from non-performing assets be assessed on accrual basis as the assessee is following mercantile system of accounting.
4.13 Apart from that, he was also of the view that another issue to be decided is that would the provisions of Chapter IIIB override the provisions of Section 145(2) of the Act because of non obstante clause appearing in Section 45Q of RBI Act, 1934.
4.14 The CIT(A) took note of the fact that originally Chapter IIIB did not contain the provisions of Section 45JA which had been inserted by the RBI (Amendment) Act, 1997 with effect from 9-1-1997. With reference to the said section, it was observed by him that it empowers Reserve Bank of India to determine policy and issue directions. The bank may issue directions in the public interest or to regulate the financial system of the country to its advantage or to prevent the affairs of any non-banking financial company being conducted in a manner prejudicial to the interest of the non-banking financial company relating to income recognition, accounting standards, making proper provisions for bad and doubtful debts etc. Accordingly, he was of the view that the directions of the RBI known as NBFC Prudential Norms (Reserve Bank) Directions, 1998 have been issued under delegated legislation were not relevant. He took into consideration the decision of the Apex Court rendered in Rajnarain Singh v. Chairman, Patna Administration Committee AIR 1954 SC 569 at pages 573 and 574. Thus, the directions given by the RBI were considered not relevant in view of the special provision enumerated in Section 145(2) of the Income-tax Act. He based his reasoning on the fact that a special enactment or rule cannot be held to be overridden by a later general enactment. He was of the view that Section 45Q of the RBI Act, 1934 is a general enactment and it cannot override Section 145 of the Income-tax Act, 1961 which is applicable with effect from 1-4-1997. Thus, the guidelines issued under deleted legislation by RBI who was considered to be the outside party with reference to the Legislature, the CIT(A) was of the view that it cannot make law which can override the law made by the Parliament.
4.15 The CIT(A) also took into consideration the newly substituted Section 43D which was applicable from 2000-2001 assessment year.
4.16 Having thus concluded on the applicability of directions issued by the RBI, the CIT(A) noting that the assessee is following mercantile system of accounting relied upon Accounting Standard-I for the purposes of income recognition on accrual basis and decision of the Apex Court in Tuticorin Alkali Chemicals & Fertilizers Ltd.’s case (supra) and BSC Footwear Ltd. v. Ridgway (Inspector of Taxes) [1972] 83 ITR 269 (HL) confirmed the action of the Assessing Officer. He also placed reliance on the Indermani Jatia’s case (supra), Chunilal V. Mehta &Sons (P.) Ltd.’s case (supra) and Keshav Mills Ltd.’s case (supra) which were relied upon by the Assessing Officer.
4.17 He was also of the view that the decisions of the Supreme Court in the case of Nonsuch Tea Estate Ltd. (supra) and United Commercial Bank’s case (supra) as well as the directions of the RBI issued under Section 45 JA are not relevant.
5.1 Learned AR reiterated at length the submissions made before the tax authorities. Our attention was invited to the relevant provisions of the Reserve Bank of India Act and the Income-tax Act. The policy directions issued by the RBI with reference to non-banking financial institutions were also referred to.
5.2 It was further reiterated that the registration under the RBI Act, 1934 under Section 45-IA was pending after it had been set aside by the Central Government to the RBI for re-consideration in terms of Sub-section (7). It was contended that this fact had been noted by the CIT(A) in the impugned order. Our attention was invited to the application dated 16-6-1997 which is placed at pages 40 to 46 in the paperbook filed before us. Our attention was invited to the letter dated 23-7-2001 from the Government of India, Ministry of Finance included at pages 47 to 49 wherein the order of the appellate authority under the relevant Act has been enclosed. Referring to the said order at page 49 of the paperbook, it was reiterated that the RBI was directed to reconsider the case of the assessee and the assessee was directed to furnish whatever further information or documents required by the RBI for reconsideration. In this background, in the course of the hearing, it was brought to our notice that the registration had been granted by the RBI. A photocopy of the same was filed before us. As per the said document, the RBI covering letter dated 29-11-2002 accompanied with the registration certificate issued by the RBI on 29-11-2002 vide No. B-14.02759, Regional Office has in exercise of its powers conferred on the RBI by Section 45-IA of the RBI Act, 1934 granted certificate of registration to the assessee. Accordingly, it was contended that the registration issued is now settled and since the pending application has been disposed of favourably, the registration having been granted to the assessee, the case of the Revenue does not stand.
5.3 Accordingly, it was contended that additions made by the Assessing Officer and confirmed by the CIT(A) comprising of lease rental Rs. 29,56,968, interest on ICD’s Rs. 50,34,796 and bill discounting charges not realized over six months amounting to Rs. 96,61,901 do not stand.
5.4 It was also contended that the CIT(A) has relied upon Schedule 11 para 6 of the audited balance sheet and the Note appended by the auditors which reads as under :
“Lease rentals, interest and bill discounting charges not realized for more than six months has not been recognized as per RBI guidelines amounting to lease rentals of Rs. 29,56,968, interest on ICD Rs. 50,34,796 bill discounting charges at Rs. 96,61,901 totalling to Rs. 1,76,53,665.”
5.5 Accordingly, it was contended that the reliance placed upon by the CIT(A) on the fact that the Income-tax Act in the facts will prevail upon the RBI Act for which reliance has been placed upon Tuticorin Alkali Chemicals & Fertilizers Ltd. ‘s case (supra) was misplaced.
5.6 It was also reiterated that the CIT(A) was not justified in concluding that Section 45Q of the RBI Act is a general enactment opening with a non obstante clause. As such it cannot override Section 145 of the Income-tax Act.
5.7 The submissions made before the tax authorities were reiterated. It was contended that the RBI Act introduced by the Reserve Bank of India (Amendment) Act, 1997 with effect from 9-1-1997 vide Section 45JA empowered the RBI to determine policy and issue directions by which the bank may direct in public interest or to regulate financial system of the company to its advantage or to prevent the affairs of any non-banking financial company being conducted in a manner prejudicial to the interest of the non-banking financial company relating to income recognition, accounting standards, making proper provisions for bad and doubtful debts. Referring to Section 45Q of the RBI Act, it was stated that it starts with a non obstante clause Chapter IIIB of the RBI Act shall have an effect of overriding notwithstanding anything inconsistent therewith contained in any other law for the time being or any instrument having effect by virtue of any such law. Based on this legal position, the contention was that due to the new Section 45JA with effect from 9-1-1997, the prudential norms issued by the RBI guidelines are relevant. It was further submitted that the reliance placed upon by the CIT(A) on the case of Initiative and Referendum Act [1919] AC 935 P. 945 and Rajnarain Singh ‘s case (supra) was misplaced. It was further stated that the reliance on Section 43D substituted by Finance Act, 1999 with effect from 1-4-2000 was also misplaced which is in respect of public financial institutions, scheduled banks and is not applicable to non-banking financial companies.
5.8 It was argued that even previously prior to the introduction of the above section, the RBI as an Apex Bank has been issuing circulars as prudential norms as NBFCs. It was also brought to the notice of the Bench that the assessee has been carrying on the business of NBFCs right from beginning i.e. about four years and in all the years, the revenue had accepted the accounts prepared and filed with the Income-tax Department in accordance with the prudential norms which were existing in those days. The present prudential norms issued by the RBI vide notification dated 2-1-1998, it was contended, have been included in pages 10 and 22 of paperbook 1 and the guidelines dated 30-6-1994 which were previously applicable to non-banking financial companies are also contained in pages 23 to 27.
5.9 Referring to Section 45Q of the RBI Act, it was contended that it is not uncommon that provisions of this nature which have an overriding effect are laid down in the enactment. Our attention was invited to Section 18 of the Interest Tax Act, 1974.
5.10 Reliance was also placed upon the order of the Chennai Bench of the Tribunal in the case of Overseas Sanmar Financial Ltd. in [IT Appeal Nos. 280 and 1522 (Mad.) of 1999, dated 5-2-2001 wherein vide its order relating to assessment years 1995-96 and 1996-97, the applicability of prudential norms regarding doubtful debts had been considered. It was contended that therein, the Tribunal had held that the prudential norms applied and the claim based on the principles as such is allowable.
5.11 Reliance was also placed upon the interim order of the Chennai High Court so as to contend that non-banking financial company norms had been accepted by the said Court in its order dated 6th June, 2002. Therein, the Hon’ble High Court issued interim injunction that the income from non-performing assets as per the RBI guidelines is not to be included. Reliance was also placed upon the case of Sayaji Iron & Engg. Co. v. CIT [2002] 253 ITR 749, 121 Taxman 43 (Guj.)
5.12 It was further contended that a harmonious reading of the two enactments i.e. the RBI Act and the Income-tax Act must be read and they could not be read in conflict with each other. Reliance was placed upon Surana Steels (P.) Ltd. v. Dy. CIT [1999] 237 ITR 777, 104 Taxman 188 (SC) and Nonsuch Tea Estate Ltd.’s case (supra).
5.13 Finally, reliance was placed upon the submissions made before the tax authorities contained in the paper book and the submissions made before the Bench.
6.1 Learned DR, on the other hand placed heavy reliance on the orders of the tax authorities. Our attention was invited to the Note appended by the auditors in the balance sheet of the assessee which has been reproduced in the impugned order also. Attention was also invited to the Prudential Norms dated 2-1-1998 appended at pages 12 to 27. Special attention was invited to page 16 of the paperbook so as to contend that the income recognition required by the directions issued by the RBI which the assessee is required to follow if it is contending that it is a non-banking financial company. Clauses 7, 8 & 9 of the same were specially eluded to. The definition of “Non-performing assets” at page 23 was specifically referred to.
6.2 It was further contended that the assessee itself is not applying the guidelines. It was put to him by the Bench that the CIT(A) has not considered this aspect at all. Accordingly, the arguments were confined to the legal issues involved. It was vehemently contended by him that the tax authorities were correct in deciding that the issue has to be decided on the basis of Income-tax Act and not on the basis of the RBI Act. The contention was that delegated legislation cannot override substantive legislation i.e. the Income-tax Act. Reliance was placed upon Assam Co. Ltd. v. State of Assam [2001] 248 ITR 567 (SC). Attention was also invited to Section 145 of the Act and it was reiterated that the said section shall prevail over sections 45Q, 45JA and 45-IA of the RBI Act. As such, reliance placed upon by the assessee on the prudential norms is not justified. It was contended that Section 145 under the special enactment is the only section which is to be considered and has been considered by the tax authorities.
6.3 On the aspect of accrual of income, reliance was placed upon Babulal Narottamdas v. CIT [1991] 187 ITR 473, 55 Taxman 3 (SC). Reliance was also placed upon CIT v. Hindustan Housing & Land Development Trust Ltd. [1986] 161 ITR 524, 27 Taxman 450A (SC), Chunilal V. Mehta & Sons (P.) Ltd.’s case (supra), Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC), 229 ITR 583 (SC) (sic) and State Bank of Travancore v. CIT [1986] 158 ITR 102, 24 Taxman 337 (SC). Reliance was also placed upon United Commercial Bank’s case (supra). Our attention was also invited to Section 43D of the Income-tax Act. Reliance was also placed upon 210 ITR 159 (sic). CIT v. Mercantile Bank Ltd. [1999] 237 ITR 676, 105 Taxman 65 (Bom.)and Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT[1966] 61 ITR 428 (SC).
6.4 The reliance placed upon by the learned AR on the decision of the Madras High Court, it was contended, was misplaced as it was an interim order. Similarly, it was contended that in the Tribunal’s order, the facts arc materially different and it does not deal with that issue whether Section 145 of the Income-tax Act or the Reserve Bank of India Act shall prevail. Our attention was also invited to the audit report. Reliance was also placed upon T.D. Venkata Rao v. Union of India [1999] 237 ITR 315, 103 Taxman 621 (SC) and N. Vinod Kumar & Co. v. Union of India [1999] 237 ITR 502 (Kar.).
6.5 Reliance was also placed upon J.C. Chandiok v. Dy. CIT [1999] 238 ITR 89 Special Bench order of the Delhi Bench of the Tribunal for the contention that consistency is not the only principle to be considered. New laws and new facts have to be evaluated and cannot be forgotten.
6.6 Attention was invited to 150 ITR 520 (SC)(sic) for the contention that to perpetuate an error is not heroism. Reliance was placed upon CWT v. State Bank of India [1995] 213 ITR 1, 81 Taxman 72 (Bom.), Seth Mukund Das Rathi v. CWT[1991] 188 ITR 518, [1990] 53 Taxman 143 (Raj.), CIT v. South India Viscose Ltd. [1998] 229 ITR 198, 100 Taxman 123 (Mad.), Saraswati Insurance Co. Ltd. v. CIT [2001] 252 ITR 430, 116 Taxman 306 (Delhi) in the context of real income, CIT v. Shiv Prakash Janakraj & Co. (P.) Ltd. [1996] 222 ITR 583, 88 Taxman 536 (SC), 252 ITR 229 (sic) and Kerala Financial Corporation v. CIT [1994] 210 ITR 129, 75 Taxman 573 (SC).
6.7 In the ultimate analysis, reliance was placed upon the orders of the tax authorities.
7.1 We have heard the rival submissions and perused the material placed on our files. The decisions relied upon and documents adverted to in the course of the hearing have also been taken into consideration. The dispute primarily revolves around the fact whether in the peculiar facts and circumstances of the case, the issue is to be decided as per the provisions of the Income-tax Act or as per the Reserve Bank of India Act, 1934.
7.2 It may be stated right at the outset that before the Assessing Officer and the CIT(A), the undisputed fact was that the registration required for a non-banking financial company in terms of Section 45-IA(1) of the RBI Act was not available with the assessee. In fact, the registration application moved by the assessee was admittedly rejected on account of non-representation/inadequate representation. It was also an admitted fact that in terms of Section 45-IA(7) of the RBI Act, the assessee moved the Central Government against the rejection of the assessee’s application for certificate of registration within the requisite time. There is no dispute over the issue that for granting reasonable opportunity of being heard to the assessee, the assessee’s petition for registration was restored back to the RBI by the concerned authority with the direction to reconsider the application of the assessee. Thus, the fact remains that on the date of filing of the return and on the date the CIT(A) considered the appeal of the assessee, the said certificate of reregistration was pending before the RBI. Accordingly, in this background, the tax authorities proceeded on the footing that since the assessee who is required as per the RBI Act, 1934 to obtain a certificate of registration which admittedly it did not have. As such, the view taken was that prudential norms issued under the powers vested to the RBI by the RBI Act, 1934 would not apply to the assessee.
7.3 In the course of the hearing, the assessee has placed on record the certificate granting registration No. B-14.02759 to the assessee to commence/carry on the business on non-banking financial institution without accepting public deposits subject to the conditions given in the said certificate. The said registration is granted to the assessee on 29th November, 2002. In the course of the hearing, it is noted that submissions were addressed at length on either side on various issues which may have been relevant at the stage when the issue of registration was still pending with the RBI. Since it is an admitted fact supported by a photocopy placed on record that certificate of registration was granted to the assessee by the concerned authority, the arguments and reasons considered by the tax authorities do not retain much relevance.
7.4 We are of the view that it would be pertinent at this juncture to briefly refer to the Reserve Bank of India Act, 1934 and bring out the purpose for which, the Reserve Bank of India has been constituted for the following reasons :
“Whereas it is expedient to constitute a Reserve Bank of India to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in [India] and generally to operate the currency and credit system of the country to its advantage.”
7.5 The next issue requiring reconsideration is Chapter IIIB which was inserted by the Act 55 of 1963 with effect from 1-12-1964. Chapter IIIB deals with provisions relating to non-banking institutions receiving deposits and financial institutions.
7.6 Section 45H of the same considers as to whom the said Chapter shall not apply and there is no dispute over the issue that the assessee docs not fall in the same.
7.7 Section 45-I for the purposes of Chapter IIIB discusses the various definitions. Section 45-IA inserted by Act 23 of 1997 which came into effect from 9-1-1997 deals with requirement of registration and net owned fund. Sub-clause (1) of this section states that no non-banking financial company shall commence or carry on the business of a non-banking financial institution without (a) obtaining a certificate of registration issued under this Chapter; and (b) having the net owned fund of twenty-five lakh rupees or such other amount, not exceeding two hundred lakh rupees, as the Bank may, by notification in the Official Gazette, specify. There is no dispute over the issue that as far as the requirement of Clause (b) of Section 45-IA Sub-clause (1) is concerned, there is no dispute. The dispute revolves around the fact that the certificate of registration was not available with the assessee as the assessee’s petition moved within time was pending. Subsequently, on account of inadequate representation/non-representation, it was dismissed which ultimately was restored and set aside for reconsideration by the concerned Appellate Authority to the RBI which ultimately granted Registration.
7.8 Sub-section (2) of Section 45-IA mandates that every non-banking financial company shall make an application for registration to the bank in such form as the bank may specify. It was an undisputed fact that the assessee was a non-banking financial company for the last so many years and in view of the change in law, it was required to obtain the certificate under Sub-section (1) of Section 45-IA. It is also an undisputed fact that the assessee moved a petition for obtaining the said certificate.
7.9 A perusal of Sub-section (4) of the Section 45-IA further states that the bank, for the purpose of considering the application for registration, may require to be satisfied by an inspection of the books of the non-banking financial company or otherwise that the following conditions are fulfilled :–
“(a) that the non-banking financial company is or shall be in a position to pay its present or future depositors in full as and when their claims accrue;
(b) that the affairs of the non-banking financial company are not being or are not likely to be conducted in a manner detrimental to the interest of its present or future depositors;
(c) that the general character of the management or the proposed management of the non-banking financial company shall not be prejudicial to the public interest or the interests of its depositors;
(d) that the non-banking financial company has adequate capital structure and earning prospects;
(e) that the public interest shall be served by the grant of certificate of registration to the non-banking financial company to commence or to carry on the business of India;
(f) that the grant of certificate of registration shall not be prejudicial to the operation and consolidation of the financial sector consistent with monetary stability and economic growth considering such other relevant factors which the Bank may, by notification in the Official Gazette, specify; and
(g) any other condition, fulfilment of which in the opinion of the Bank, shall be necessary to ensure that the commencement of or carrying on of the business in India by a non-banking financial company shall not be prejudicial to the public interest or in the interests of the depositors.”
Sub-section (5) further reads as under :–
“(5) The Bank may, after being satisfied that the conditions specified in Sub-section (4) are fulfilled, grant a certificate of registration subject to such conditions which it may consider fit to impose.”
Sub-section (6) deals with the cancellation of certificate of registration. 7.10 It may also be pertinent to reproduce Section 45JA of the RBI Act:–
“Power to Bank to determine policy and issue directions.–(1) If the Bank is satisfied that, in the public interest or to regulate the financial system of the country to its advantage or to prevent the affairs of any non-banking financial company being conducted in manner detrimental to the interest of the depositors or in a manner prejudicial to the interest of the non-banking financial company, it is necessary or expedient so to do, it may determine the policy and give directions to all or any of the non-banking financial companies relating to income recognition, accounting standards, making of proper provision for bad and doubtful debts, capital adequacy based on risk weights for assets and credit conversion factors for off balance-sheet items and also relating to deployment of funds by a non-banking financial company or a class of non-banking financial companies or non-banking financial companies generally, as the case may be, and such non-banking financial companies shall be bound to follow the policy so determined and the direction so issued.
(2) Without prejudice to the generality of the powers vested under subsection (1), the Bank may give directions to non-banking financial companies generally or to a class of non-banking financial companies or to any non-banking financial company in particular as to–
(a) the purpose for which advances or other fund based on non-fund based accommodation may not be made; and
(b) the maximum amount of advances of other financial accommodation or investment in shares and other securities which, having regard to the paid-up capital, reserves and deposits of the non-banking financial company and other relevant considerations, may be made by that non-banking financial company to any person or a company or to a group of companies.”
7.11 It is also necessary to consider Section 450 which reads as under:–
“Chapter IIIB to override other laws.–The provisions of this Chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any, instrument having effect by virtue of any such law.” [Emphasis supplied]
7.12 A perusal of these sections clearly brings out the fact that Section 45Q in unambiguous language enunciates the intention of the Legislature by stating that the provisions of Chapter IIIB shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. As a result of this, the directions issued by the Reserve Bank of India by virtue of the powers vested in it by Section 45JA which is to be exercised in public interest or to regulate the financial system of the country to its advantage or to prevent the affairs of any non-banking financial company being conducted in manner detrimental to the interest of the depositors or in a manner prejudicial to the interest of the non-banking financial company and in these circumstances, if the RBI is satisfied that it is necessary or expedient to do so, it is empowered to determine the policy and give directions to all and any of the financial companies relating to income recognition, accounting standards, making of proper provision for bad and doubtful debts, capital adequacy based on risk weights for assets and credit conversion factors for off balance-sheet items and also relating to deployment of funds by a non-banking financial company or a class of a non-banking financial companies or non-banking financial companies generally, as the case may be, and such non-banking financial companies shall be bound to follow the policy so determined and the direction so issued. Accordingly, it is seen that wide and vast powers have been given by the Legislature to the RBI to govern a specified class of companies i.e., non-banking financial companies whose functioning is monitored by the Reserve Bank of India by way of granting them certificate of registration under Section 45-IA. The purpose for which such vast powers have been given are incorporated in the preamble of the Act and specifically included in the section for determining the policy of the government. The powers vested in the Apex Bank by the Legislature for determining policy by the experts monitoring the monetary, economic and fiscal policy of the nation for a specific purpose is a conscious and deliberate decision of the Legislature and, thus, when in clear and articulate language they have specifically enumerated any other Act, then the overriding mandate of the section cannot be ignored. Accordingly, we are of the view that ignoring the provisions of Chapter IIIB of the RBI Act and the Prudential Norms issued by them from time to time in exercise of the power vested in them cannot be sustained. In these circumstances, the additions made by the Assessing Officer are not sustainable.
7.13 It may be pertinent to reiterate here that the purpose for which the RBI was constituted as laid out in the preamble of the said Act i.e., to regulate the issue of bank notes and for the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage. The act of determining the policy and issue directions under Section 45JA for a certain class of companies which operate only in the event that a certificate of registration is granted to them by the concerned authority is a conscious and deliberate intention of the Legislature. Keeping in mind the fact that Section 45Q clearly brings out this intention of the Legislature that anything inconsistent with the provisions of Chapter IIIB contained in any other law, it is not possible to envisage how the Income-tax Act which is also an Act of Parliament cannot be included in this. Thus, in these circumstances, the Revenue authorities are not correct in coming to the conclusion that the RBI Act is not relevant and the prudential norms issued by it in exercise of the powers delegated to them do not apply to the assessee.
7.14 We hasten to add here that the view taken by the tax authorities was when the issue of registration was pending. Since the certificate of registration is available with the assessee, then the applicability of prudential norms could not be questioned on the basis of arguments that prudential norms are delegated legislation and, as such, they will not override the Income-tax Act which is an Act of Parliament.
7.15 There is no dispute over the issue that the Income-tax Act is an Act of Parliament but this fact does not detract from the fact that the Reserve Bank of India Act, 1934 is also an Act of the Parliament. It is worth appreciating that as far as the issue at hand is concerned, the RBI Act is a special Act applicable for the purposes of the present appeal to a class of assessees as opposed to the Income-tax Act which is applicable to assessees at large and, thus, can be considered to be a general Act. Thus, the RBI Act, as far as we are concerned in the present context, is applicable only to a special class of assessees. Accordingly, we are of the view that the tax authorities were also not correct in coming to the conclusion that the Income-tax Act is a special Act and RBI Act is a general Act as the position for the purposes of the issue at hand is vice versa. It may also be emphasized at this juncture that the RBI Act was incorporated for a specific purpose and Section 45Q of the said Act categorically brings out the intention of the Legislature inasmuch as it states that Chapter IIIB shall override for all intents and purposes. Anything inconsistent with any other Act for the time being in force or any instrument having effect by virtue of any such law shall fade in oblivion on account of this fact. Section 45-IA regulates and monitors the non-banking financial companies and under Section 45JA, it determined the policies and issued directions to a class of companies which are governed by Chapter IIIB. In this background, on account of the reasons given above, we are inclined to delete the addition made by the Assessing Officer disregarding the prudential norms. As such, ground Nos. 2, 3 and 5 raised by the assessee are allowed. Ground Nos. 1 and 7 which refers to the issue of Registration is pending requires no adjudication on account of the change in facts. Ground No. 4 requires no adjudication.
7.16 As we have observed earlier, the decisions relied upon before us have been taken into consideration. Before parting, we would like to briefly discuss some of the decisions relied upon by the learned DR.
7.17 Heavy reliance has been placed upon the judgment of Assam Co. Ltd.’s case (supra). The said decision was relied upon by the learned DR for the proposition that the delegated legislation cannot override substantive legislation i.e., the Income-tax Act. A careful perusal of this decision shows that herein there was a conflict between the Act legislated by the Central Government and the State Legislature. Their Lordships of the Apex Court after perusing the object and scheme of Assam Agricultural Income-tax Rules, 1939 came to the view that the said Act does not contemplate that the State tax authorities are empowered to recompute the agricultural income contrary to the computation made by the Central Officers nor do the subjects specified in Sub-section (2)(a) to (m) of section 50 in the State Act provide for making rules empowering the State Officers to make computation of agricultural income contrary to what is computed by the Central Officers under the Central Act. Their Lordships observed that it is always open to the State authorities to invoke the jurisdiction of the appellate and revisional authorities under the Central Income-tax Act and if they succeed in any such attempt, they can always re-compute the agricultural income as contemplated by section 20D. Accordingly, the proviso to Section 49 was held to be incorporated in the Assam Act only for this limited purpose and it was in this context that Their Lordships observed :–
“The power to make rules under an Act is derived from the enabling provision found in such Act. Therefore, it is fundamental that a delegate on whom such power is conferred has to act within the limits of the authority conferred by the Act and cannot enlarge the scope of the Act. A delegate cannot override the Act either by exceeding the authority or by making provision which is inconsistent with the Act. Any rule made in exercise of such delegated power has to be in consonance with the provisions of the Act, and if the rule goes beyond what the Act contemplates, the rule becomes in excess of the power delegated. If the rule-making authority does any of the above, the rule becomes ultra vires the Act.
While interpreting a particular provision of a statute, courts should bear in mind the object and scheme of the entire Act. The particular provision cannot be considered or interpreted in isolation so as to give room for conflict inter se between the provisions of the same Act. Courts should also bear in mind that while interpreting a provision of the Act an interpretation leading to the provision becoming ultra vires should be avoided.”
7.18 The principle laid down in the judgment is well-settled and there is no dispute over the same. However, in the facts as they stand, we are unable to see how the said decision affects the issue at hand. It may be pertinent to briefly touch on relevant facts namely here both the Acts are Acts of Parliament unlike the facts in the case referred to where one of the Acts was a State Act. To re-capitulate the case of the Revenue has been that the Income-tax Act being a Central Act has to prevail. As such, prudential norms being delegated legislation do not have any role. The principle enunciated in the said judgment vis-a-vis the facts of the case does not help the Revenue as here, both the Acts are of Parliament. In the earlier part of our order, we have discussed at length the impact of Section 45Q of the RBI Act which gives an overriding effect to the provisions of Chapter IIIB of the RBI Act “on anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law”. The judgment of the Apex Court in Assam Co. Ltd.’s case (supra) or any other judgment for that matter does not lay down that the Income-tax Act cannot be included in “any other law”. It is also not the case of the Revenue that the Prudential Norms issued by the Reserve Bank of India suffers from excess of delegation or that they are ultra vires the Act as they are inconsistent with it. We may add that apart from the fact that this was not the case of the Revenue but even if hypothetically it wanted to challenge the same, then, this is not the forum to do so. Thus, the principle of excessive delegation laid down by the Supreme Court also does not help in the facts of the case. Accordingly, in the facts as they stand and the submissions made, the decision relied upon by the learned DR does not advance the case of the Revenue as apart from material distinction in facts, the principle of excessive delegation in the light of the submissions made has no role to play.
7.19 Before us, reliance has also been placed upon United Commercial Bank’s case (supra). The issue in this case was the valuation of the stock and the accepted fact was that the assessee therein was a nationalized bank governed by the Banking Regulation Act and, as such, required to maintain its accounts as per the said Act. The accepted undisputed fact therein was that the valuation of stock was shown at cost or market value whichever was lower for income-tax purposes for the last 30 years.
Accordingly, in this background, the decision of the Calcutta High Court was reversed and the issue was decided in favour of the assessee. Thus, this decision also does not help the Revenue and, in fact, operates in favour of the assessee bank as the settled position of the last few years admittedly in the facts is being disturbed for the first time now. No doubt, the settled position has been changed on account of the fact that the Registration required by the assessee was not available with the assessee. The position as we have already discussed earlier is different now as the Registration is available and thus in the facts as they stand, this decision too does not advance the case of the Revenue.
7.20 Reliance has also been placed upon Babulal Narottamdas’s case (supra) on the aspect of accrual of income. A careful perusal of this decision also shows that it does not advance the case of the Revenue in any manner. Briefly, the facts in this case were that the assessee was a managing agent of the company. A resolution was passed by the Company in July, 1949 for payment of special additional remuneration at a certain rate which was challenged by some shareholders in a representative suit in the civil court. Temporary injunction granted by the trial court was vacated on the company assuring that it will not pay the remuneration until disposal of the suit. The trial court decreed the suit but on appeal, the High Court, by its judgment dated 25-11-1955, upheld the validity of the resolution. In the meantime, the company debited the annual sum to its profit and loss account for the calendar year 1949 and for later years as a contingent liability. The assessee in the meantime died in 1952 and the sum of Rs. 58,000 odd was received by his heirs in 1956. The Tribunal held that during the period 1949 to 1952, no income accrued to the assessee and the said sum accrued only the date the judgment of the High Court was pronounced. On a reference, the High Court reversed the decision of the Tribunal and held that the annual additional remuneration accrued to the assessee at the end of each accounting year. On appeal to the Supreme Court, the decision of the High Court was affirmed. Their Lordships were of the view that this income was actually earned by the assessee during the relevant accounting periods and accrued or arose during the end of each year irrespective of whether the company had actually paid the amount or not. Thus, the right to receive the additional remuneration arose only on the resolution and though the payment thereof was deferred on account of the pending litigation, the income accrued to the assessee at the end of each accounting year and was not postponed simply because a suit was filed by the shareholders challenging the validity of the resolution. What was deferred on account of the pending litigation was not the accrual of the right but the date of payment. Their Lordships were also of the view that it cannot be held that the right to receive the remuneration can be said to have arisen on the date of the judgment of the High Court. Thus, a perusal of this decision shows that as far as the issue at hand is concerned, the principle laid down herein does not render any material help one way or another.
7.21 It is also seen that the issue before Their Lordships in T.D. Venkata Rao’s case (supra) and N. Vinod Kumar & Co.’s case (supra) was entirely distinguishable and these decisions also do not throw any light on the issue at hand. As such, reliance placed upon by the learned DR on them is misplaced.
7.22 Similarly, the decision relied upon by the DR namely Rajnarain Singh’s case (supra) is also not relevant to the issue at hand.
7.23 Thus, for the reasons given hereinabove, after considering the facts, submissions and position of law, the addition challenged in ground No. 2 is deleted.
8.1 The next ground which requires adjudication is ground No. 8.
8.2 The relevant facts are that the Assessing Officer from the total expenses incurred on running and maintenance of vehicles amounting to Rs. 4,08,459, disallowed 1/10th on account of personal user of the vehicles which amounted to an addition of Rs. 40,846.
8.3 In appeal before the first appellate authority, the arguments of the assessee were rejected relying on the fact that in principle, the assessce has agreed that the vehicles were used for private purposes and reliance was placed upon Kanthimathy Plantations (P.) Ltd. v. State of Tamil Nadu [1995] 215 ITR 203 (Mad.).
8.4 Still aggrieved, the assessee is in appeal before us. The contention as per the ground raised is that the disallowance of Rs. 19,802 which is 10% of the amount incurred on repairs and maintenance and balance of Rs. 21,044 should have been allowed out of repair and maintenance of Rs. 1,98,019. Our attention was invited to the fact that the CIT(A) in the impugned order at page 9 para 5.3.
8.5 Learned DR, on the other hand, placed reliance on the impugned order.
8.6 Having heard the rival submissions and perused the material placed on our files, we are of the view that in the peculiar facts of the case where the assessee is himself agreeing to the personal use of the vehicles before the tax authorities, the disallowance for non-business purposes is justified. Accordingly, ground No. 8 is rejected.
9.1 Ground Nos. 9 and 10 pertain to the claim of the assessee that bad debts written off should have been allowed to the assessee.
9.2 The relevant facts are that the Assessing Officer observed in the profit and loss account that the assessee has claimed bad debts to the tune of Rs. 23,68,314. He required the assessee to justify the said claim. He also required the assessee to show the copy of the account of such persons and the year in which the claimed debt has been shown as income. The assessee filed a reply dated 13-11-2000. From a perusal of the same, it was noted that Rs. 23,12,412 pertained to the sister concern Tedco Press Pvt. Ltd. on account of interest receivable and bill discounting receivable from Tedco Press Pvt. Ltd. which had been written off. It was further observed that the letter of the Director regarding settlement of account did not show the amounts of interest receivable and bill discounting receivable from Tedco Press Pvt. Ltd. It also did not show the reasons for writing off the said amount. Apart from that, no copy of accounts showing their having been accounted as income in previous year had been shown. The Assessing Officer observed that the assessee company had regular transactions with the sister concern. On account of these facts, since the assessee did not explain with evidences regarding the claim of bad debts, the claim of bad debts on account of a running sister concern was not accepted and disallowance of the same was made as a result of which, it was added to the income of the assessee.
9.3 In appeal before the first appellate authority, the following submissions were made on behalf of the assessee :–
“6.4 It was submitted that the amount written off as bad debts was offered as income during the previous years. Sundry balances as mentioned in 1, 2 and 3 were written off during the year when accounts were fully settled. As regards Tedco Press Pvt. Ltd, it is submitted that the borrower was not doing well and not paying finance charges. It was a commercial decision to convert the principle sum Rs. 1,44,61,000 due from Tedco Press Pvt. Ltd. as on 31-3-1998 into equity shares. The interest receivable amounting to Rs. 13,68,351 and bill discounting receivable of Rs. 9,99,963 pertaining to financial year 1996-97 due from Tedco Press Pvt. Ltd. were written off. The amount of Rs. 23,12,412 includes amount of Rs. 55,902 from other three parties mentioned above which was also written off. It is submitted by the Ld. A.R. of the appellant that the requirement of law for write off has no such specific treatment for non-allowance and what is required under the law has been complied with.”
9.4 After considering the submissions, the CIT(A) dismissed the assessee’s contention vide paragraph 6.5 and confirmed the assessment order.
9.5 Still aggrieved, the assessee is in appeal before us. The learned AR reiterated the submissions made before the tax authorities. It was further contended that requirements of law were fulfilled. As such, the disallowance of bad debts claimed could not have been made.
9.6 Learned DR, on the other hand, invited our attention to paragraph 6.5 and placed heavy reliance on the same.
9.7 Having heard the rival submissions and perused the material placed on our files, we are of the view that in the specific and peculiar facts of the case, no interference is called for. It is seen that the first appellate authority in paragraph 6.5 rejected the claim of the assessee on account of the following :
“6.5 I have considered the submissions made by the Ld. A.R. of the appellant. According to the assessee the amounts written off were offered as income during earlier years for taxation. The letter written by Sh. A.K. Misra addressed to the assessee does not indicate anything about the dues relating to interest and bills receivables. Both M/s. Tedco Press Pvt. Ltd. and the appellate company are under the same management and Sh. A.K. Misra was heading these companies at the material time. The principal amount was converted into shares of the Tedco Press Pvt. Ltd. and shares were allotted in the name of Sh. A.K. Misra. The reasons for the allotment of shares in the name of Sh. A.K. Misra is not understood when the appellate company being artificial juridical person can hold the shares. The appellant has not furnished any documentary evidence to prove that the debt actually became bad. Further there was no dispute with regard to the debts incurred. Therefore, it cannot be presumed that debtor was not in a position to pay. Moreover the assessee is still having regular transactions with Tedco Press Pvt. Ltd. The entire transaction is a intercorporate transaction for the purpose of claiming benefit of writing off debts in order to reduce the incidence of tax. In these circumstances the decision of the appellant to write off the amount can not be treated as a commercial decision. As a matter of fact the debts written off were not bad or doubtful debts. The appellant company can not write off a good debt and claim deduction under Section 36(1)(vii). The provisions of Section 36(1)(vii) are applicable to bad or doubt debts and not to good debts. Therefore addition made by the Assessing Officer in respect of debts written off pertaining to Tedco Press Pvt. Ltd. amounting to Rs. 23,12,412 is confirmed. As regards the addition of Rs. 55,902 relating to other three parties the assessing officer is directed to verify as to whether the amount of Rs. 55,902 was offered for tax in earlier year. If so the deduction will be allowable subject to fulfilment of conditions of writing off under Section 36(1)(vii) of the Act.”
9.8 Being satisfied by the reasons recorded therein, ground Nos. 9 and 10 raised by the assessee are rejected.
10. Ground No. 11 being general in nature, requires no adjudication.
11. Ground No. 12 raised in the abridged grounds was rejected in the open Court itself in view of the fact that it was not raised either before the CIT(A) and nor was it raised in the grounds originally filed before the Tribunal.
12. In the result, the appeal filed by the assessee is partly allowed.