2015 (7) TMI 1272 - AT - Income Tax

Addition towards the provision of bad debts on standard assets - addition u/s.36(1)(viia) on the ground that the assessee failed to furnish the details of deduction during the assessment year - Held that - Before us the assessee submitted that the deduction was allowable to the assessee as the same was claimed in pursuance to the guidelines of the Reserve Bank of India. However he did not furnish the details and evidence or any documents in support of the same. In absence of the same we find no infirmity in the order of the Commissioner of Income Tax(Appeals) which is confirmed and the ground of appeal of the assessee is dismissed. Addition u/s. 40(a)(ia) - disallowing the interest for not deducting TDS u/s. 194A(3)(v) - Held that - In the light of the memorandum explaining the provisions in the Finance Bill 2015 and the clarification by the Board that the Circular has not been withdrawn makes it ample clear that the impugned provisions relating to the liability of TDS would come with effect from 01/06/2015 we therefore set aside the findings of the Ld. CIT(A) and direct the Assessing Officer to delete the impugned additions made in the order u/s. 201(1) & 201(1A)- Decided in favour of assessee Addition on account of accrued interest on loans which are classified as Non-performing Assets - Held that - In view of the decision of the jurisdictional High Court in the case of JCIT Vs.M/s Canfin Homes Ltd (2011 (8) TMI 178 - KARNATAKA HIGH COURT) it is observed that the facts of the appellant bank are similar to the facts of the case before the Hon ble High Court of Karnataka wherein it has been held that the contention of the revenue that in respect of non-performing assets even though it does not yield any income as the assessee has adopted a mercantile system of accounting he has to pay tax on the revenue which has accrued notionally is without any basis.- Decided in favour of assessee

Summary

Issues Involved:

1. Addition of Rs. 15,00,000 towards the provision of bad debts on standard assets.
2. Disallowance of interest of Rs. 30,08,157 for not deducting TDS under section 194A(3)(v).
3. Deletion of addition of Rs. 13,01,241 on account of accrued interest on loans classified as Non-Performing Assets (NPAs).

Issue-wise Detailed Analysis:

1. Addition of Rs. 15,00,000 towards the provision of bad debts on standard assets:

The first issue pertains to the addition of Rs. 15,00,000 towards the provision of bad debts on standard assets. The Assessing Officer (AO) disallowed the claim for deduction under section 36(1)(viia) of the Income Tax Act, 1961, on the grounds that the assessee failed to furnish the necessary details of deduction during the assessment year. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the AO's action, citing the absence of evidence supporting the claim. The assessee argued that the deduction was allowable as per the Reserve Bank of India's guidelines but failed to provide supporting documents. Consequently, the Tribunal found no infirmity in the CIT(A)'s order, dismissing the assessee's appeal on this ground.

2. Disallowance of interest of Rs. 30,08,157 for not deducting TDS under section 194A(3)(v):

The second issue involves the disallowance of interest amounting to Rs. 30,08,157 for not deducting TDS under section 194A(3)(v). The AO observed that the assessee paid interest on term deposits exceeding Rs. 10,000 without deducting TDS, thus disallowing the total interest under section 40(a)(ia) of the Act. The AO argued that the specific provisions of section 194A(3)(i) and (viia) override the general provisions of section 194A(3)(v), relying on the Pune Bench Tribunal's decision in Bhagini Nivedita Sahakara Bank Ltd. vs. ACIT.

On appeal, the CIT(A) upheld the AO's decision. However, the Tribunal noted that in a similar case (Belgaum District Central Cooperative Bank Ltd. vs. ITO), it was held that the exemption under section 194A(3)(v) was applicable. The Tribunal found that the provisions relating to TDS liability would apply prospectively from 01/06/2015, and thus, the disallowance of interest was deleted, allowing the assessee's appeal on this ground.

3. Deletion of addition of Rs. 13,01,241 on account of accrued interest on loans classified as Non-Performing Assets (NPAs):

The third issue involves the deletion of Rs. 13,01,241 (though the AO made an addition of Rs. 19,06,225) on account of accrued interest on NPAs. The AO added the interest on NPAs to the income on an accrual basis. The CIT(A) deleted this addition, citing the Supreme Court's decision in UCO Bank vs. CIT, which held that interest on sticky advances should be added as income only when actually received. The CIT(A) also referred to the Karnataka High Court's decision in Canfin Homes Ltd., which supported the view that income from NPAs should be recognized only when actually received.

The Tribunal upheld the CIT(A)'s decision, noting that the AO's reliance on earlier decisions was misplaced and that the subsequent judgments favored the assessee's stance. The Tribunal confirmed that the interest on NPAs should not be taxed on an accrual basis, dismissing the Revenue's appeal on this ground.

Conclusion:

In conclusion, the Tribunal dismissed the assessee's appeal regarding the provision of bad debts, allowed the appeal concerning the disallowance of interest for not deducting TDS, and upheld the CIT(A)'s deletion of the addition on accrued interest on NPAs. The final order resulted in the assessee's appeal being partly allowed and the Revenue's appeal being dismissed.