Case Law Details
CIT Vs. Brahmaputra Capital & Financial Services Ltd (Delhi High Court)
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.
In Commissioner of Income Tax v. Vishisht Chay Vyapar Ltd. 330 ITR 440 the division bench had ruled that RBI’s prudential banking norms, embodied in its directions to banking and non banking entities, were as binding as accounting standards under Section 145 of the Income Tax Act, and reflection of income on notional basis, did not reflect the realistic assessment of real income. It was submitted that the Supreme Court, which also required this court to review its previous order, (allowing the revenue’s present appeal), approved the said judgment in Vishshit Chay Vyapar (supra).
Held by High Court
In the absence of any findings that the cross holdings of the debtor companies was the predominant or sole reasoning for the assessee’s inability to recover its dues, is bound by the reasoning in Vishisht Chay Vyapar (supra); more so, given that the Supreme Court has given its imprimatur on that ruling.
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