2014 (5) TMI 42 - AT - Income Tax

Claim of benefit of section 43D of the Act Assessee not being a NBFC Held that - The assessee qualifies both the conditions to fall within the meaning of a State Industrial Investment Corporation u/s.43D of the Act - The assessee is a State Government Company and is providing long term finance for industrial projects the decision in assessee s own case for the previous year s has been followed - the assessee had not charged in its books of accounts any interest on the loans classified by it as non-performing assets - It is not a case where assessee had credited such interest and then claimed write off Assessee might have been following mercantile system of accounting. The prudential norms prescribed by RBI for non-banking financial Company u/s 45 Q of the RBI Act made it obligatory for the assessee to classify the loans on which interest was not received for a period exceeding six months as non-performing assets - Once it was so classified interest could not be charged in its accounts and taken as income Relying upon CIT Vs. Elgi Finance Ltd 2007 (6) TMI 180 - MADRAS High Court - assessee was justified in not recognizing income from non-performing assets in consonance with the notification issued by RBI thus there is no reason to interfere in the findings of the CIT(A) Decided against Revenue.

Summary

Issues:
1. Eligibility of the assessee for benefit under section 43D of the Income Tax Act.

Detailed Analysis:
The appeal before the Appellate Tribunal ITAT Chennai was filed by the Revenue against the order of the Commissioner of Income Tax(Appeals)-III, Chennai relevant to the Assessment Year 1999-2000. The primary issue revolved around the eligibility of the assessee, a Government company and State Financial Investment Corporation, for the benefit under section 43D of the Income Tax Act. The case involved re-assessment proceedings initiated to determine whether the business activities of the assessee, classified as long term financing activities, fell under the purview of section 36(1)(viii) of the Act. Subsequent re-opening of the case was based on the interest due from a company to the assessee, which was not recognized in the accounts, leading to a dispute regarding the applicability of section 43D to the assessee's situation.

The CIT(Appeals) had previously ruled in favor of the assessee in similar issues for other assessment years. The Revenue contended that the assessee did not qualify as a State Financial Corporation and thus was ineligible for the benefits under section 43D. The representatives of both sides presented their arguments, with the Revenue vehemently opposing the CIT(Appeals) findings and seeking to set aside the order. Conversely, the assessee's representative highlighted previous Tribunal decisions in favor of the assessee in similar matters.

The Tribunal analyzed the definitions and conditions under section 43D, emphasizing that the assessee, being a State Government company providing long term finance for industrial projects, met the criteria to qualify as a 'State Industrial Investment Corporation' under the Act. Referring to a previous Tribunal order in the assessee's case for other assessment years, the Tribunal upheld that interest income need not be recognized when loans were classified as non-performing assets, aligning with RBI guidelines. The Tribunal concluded that the assessee's compliance with accounting norms and the judicial precedent supported the assessee's position, leading to the dismissal of the Revenue's appeal.

In light of the detailed analysis, the Tribunal affirmed the eligibility of the assessee for the benefit under section 43D of the Income Tax Act, based on its status as a State Government company providing long term finance for industrial projects. The decision was supported by previous Tribunal rulings and judicial interpretations, emphasizing the importance of adherence to accounting standards and regulatory guidelines in determining income recognition for non-performing assets.