2017 (3) TMI 1560 - AT - Income Tax

Accrual of income - non disclosure of interest income of non performing assets on accrual basis - Held that - This issue is no more resintegra. Assessee has relied on the decision of Hon ble Gujarat High Court in the case of Principal CIT Vs Mahila Seva Sarkari Bank Limited 2016 (8) TMI 377 - GUJARAT HIGH COURT wherein held that assessee was correct in not charging interest on NPA. The Hon ble Gujarat High Court agreed with the view taken by the Hon ble Delhi High Court in the CIT Vs. Vasisth Chay Vyapar Ltd. 2010 (11) TMI 88 - Delhi High Court wherein it was held that interest income could not be said to have accrued to the assessee having regard to provisions of section 45Q of the RBI and prudential Norms issued by the RBI in exercise of its statutory powers. Respectfully, following the above assessee s claim of not including the interest on NPA in the profit and loss account is allowed. - Decided in favour of assessee.

Summary

Issues:
Assessment of interest income on non-performing assets.

Analysis:
The appeal was filed by the assessee against the order of Ld.CIT(A)-III, Rajkot for assessment year 2011-12 under section 263 of the Income Tax Act, 1961. The assessee, engaged in banking business, had not disclosed interest income on non-performing assets amounting to ?1,42,85,155. The Assessing Officer made an addition based on this non-disclosure, which was upheld by Ld.CIT(A). However, the assessee contended that interest on non-performing assets should not be charged based on legal precedents.

Upon reviewing the case, the tribunal found that the issue was settled by the decision of the Hon'ble Gujarat High Court in the case of Principal CIT Vs Mahila Seva Sarkari Bank Limited. The Gujarat High Court held that the assessee was correct in not charging interest on non-performing assets, citing relevant statutory provisions and prudential norms issued by the RBI. The tribunal also referred to the decision of the Hon'ble Delhi High Court in CIT Vs. Vasisth Chay Vyapar Ltd., where it was held that interest income could not be considered accrued to the assessee in such cases.

In light of the legal precedents and following the decision of the Hon'ble Gujarat High Court, the tribunal allowed the assessee's claim of not including interest on non-performing assets in the profit and loss account. Consequently, the appeal of the assessee was allowed, and the order was pronounced on 22nd March 2017.