Madras H.C : The appellant is not entitled to deduction of the provision made in respect of non-performing assets which are considered irrecoverable

High Court Of Madras

Indbank Merchant Banking Services Ltd. vs. ACIT

Assessment Year : 1998-99

Section : 36(1)(vii),35D

K. Raviraja Pandian And M. M. Sundresh, JJ.

Tax Case (Appeal) Nos. 188 And 189 Of 2009

M.P. No. 1 Of 2009

TCA No. 189 Of 2009

April  16, 2009

JUDGMENT

K. Raviraja Pandian, J. – The assessee on appeal against the order of the Income-tax Appellate Tribunal Madras “A” Bench passed in I. T. A. Nos. 2445/2446/(Mad.)/06 dated September 22, 2008 by formulating the following questions of law :

“(1) Whether the Appellate Tribunal is 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 ?

(2) 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 ?  

(3) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the appellant is not entitled to amortisation of preliminary expenses under section 35D towards share issue expenses ?”

2. The issue involved in these two appeals is one and the same. The facts relating to the assessment year 1998-99 are stated below for the disposal of the appeals :

The assessee is engaged in the business of banking, stock broking and allied financial services. For the assessment year 1998-99, the assessee filed return of income on November 17, 1999, admitting loss of Rs. 3,29,99,169. The return was processed under section 143(1) on November 2, 1999. Subsequently, the Assessing Officer reopened the assessment by issuance of notice under section 148 on December 24, 2004. Notice under section 143(2) was issued. The Assessing Officer has completed the assessment under section 143(3) read with section 147 on February 28, 2006 and determined the total income at Rs. 14,16,54,688. While completing the re-assessment, the Assessing Officer disallowed the provisions made for bad debts and non-performing assets amounting to Rs. 5,03,59,458 and preliminary expenses of Rs. 31,13,223 under section 35D of the Act and added the same for the purpose of taxation. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income-tax (Appeals), who by his order dated October 16, 2006, following the assessee’s earlier year’s order rejected the contention of the assessee and upheld the order of the Assessing Officer. Aggrieved against that order, the assessee filed an appeal to the Income-tax Appellate Tribunal. The Tribunal, vide its order dated September 22, 2008, rejected the contention of the assessee and confirmed the disallowance of the provision for bad debts and non-performing assets by relying on the judgment of the jurisdictional High Court in the case of T. N. Power Finance & Infrastructure Development Corpn. Ltd. v. Jt. CIT[2006] 153 Taxman 466/ 280 ITR 491 (Mad.). As regards amortisation of preliminary expenses, the Tribunal by following the decision of the assessee’s own case for the assessment years 1995-96 upheld the order of the lower authorities. The correctness of the same is put in issue by the assessee in these two appeals by formulating the questions of law referred to above.

3. We have heard the argument of the learned counsel, who fairly admitted that the issue has been squarely covered against the assessee by the Division Bench judgment of this court in respect of the assessee’s earlier years in the judgment made in T. C. A. Nos. 1969 to 1971 of 2008 dated February 19, 2009, wherein this court has held as follows :

“(3) We have heard the argument of the learned counsel, who fairly admitted that the two questions of law now formulated relating to the years 1999-2000 and 2001-02 in these appeals have been considered by a Division Bench of this court and by its order dated February 9, 2009 made in Tax Case Appeals Nos. 107 to 110 of 2002 (TVS Finance and Services Ltd. v. Joint CIT[2009] 318 ITR 435 (Mad)) decided against the assessee.

(4) For the assessment year 2000-01, in addition to the above two questions of law, one more question of law to the following effect has also been formulated : 

 ‘Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the appellant is not entitled to amortisation of preliminary expenses under section 35D towards share issue expenses ? ‘. 

(5) The learned counsel for the assessee has also submitted that this issue has also been decided against the assessee by a Division Bench of this court in the case of CIT v. Sakthi Finance Ltd. reported in [2002] 256 ITR 488, wherein the Division Bench has held that section 35D was inapplicable having regard to the increase in the share capital being subsequent to the establishment of the business and because the assessee had not established any new industrial unit nor had it expanded the existing industrial undertaking.

(6) Following the aforesaid judgments, the first two questions of law now raised are answered against the assessee following the judgment dated February 9, 2009 made in T. C. A. Nos. 107 to 110 of 2002 (TVS Finance and Services Ltd. v. Joint CIT[2009] 318 ITR 435 (Mad.)). In respect of the third question of law relating to the assessment year 2000-01, following the judgment of the Division Bench in the case of CIT v. Sakthi Finance Ltd. reported in [2002] 256 ITR 488, that question of law is also answered against the assessee. Hence all the appeals are dismissed.”

4. Following the reasoning stated in the abovesaid judgment, the appeals are dismissed. No costs. Consequently, connected miscellaneous petition is also dismissed.

[Citation : 334 ITR 271]