2012 (10) TMI 1118 - AT - Income Tax

Addition of amount debited on reversal of income by changing the method of accounting from accrual to cash basis and also that the amount was not written off in the books of account as irrecoverable - Held that - Claim of reversal of income is allowed. See GE Capital Service India vs. DCIT 2012 (9) TMI 1070 - ITAT DELHI

Summary

Issues:
- Appeal against CIT (Appeals) order for Assessment Years 2003-04 and 2004-05 regarding reversal of income by changing accounting method from accrual to cash basis and non-writing off of irrecoverable amount.

Analysis:
1. The appeals were filed against the CIT (Appeals) order for two assessment years. The issue in both appeals was the deletion of additions made by the Assessing Officer due to the reversal of income by changing the accounting method from accrual to cash basis and not writing off the amount as irrecoverable. The CIT (A) deleted the addition based on the NBFC norms issued by RBI and accounting standards. The ld. AR relied on a decision of ITAT in a similar case, supporting the assessee's claim.

2. The Assessing Officer added a specific amount towards interest on sticky loans and advances. The CIT (A) deleted this addition, considering the RBI Act and NBFC norms. The ITAT referred to a decision in a similar case, emphasizing the precedence of RBI Act over other laws, including Section 145. The ITAT highlighted that the assessee, being an NBFC, had to comply with RBI norms, leading to the conclusion that income on sticky loans could not be taxed on an accrual basis.

3. The ITAT further analyzed the issue by referring to a decision of the Hon'ble Delhi High Court, emphasizing that under RBI and accounting standards, the interest income was not receivable with reasonable certainty, hence could not be recognized. The ITAT rejected the revenue's argument that the Income-tax Act should prevail over the RBI Act, clarifying that even under the Income-tax Act, the interest income had not accrued. The ITAT upheld the decision of the CIT (A) in allowing the reversal of income.

4. Ultimately, the ITAT dismissed the revenue's appeals, following the decisions of ITAT and the High Court. The ITAT pronounced the order in favor of the assessee, allowing the claim of reversal of income. The ITAT's decision was based on the precedence set by previous judgments and the mandatory compliance of the assessee with RBI norms, leading to the dismissal of the revenue's appeals.