2018 (3) TMI 1748 - AT - Income Tax

Accrual of income - Interest due on Non Performing Assets - taxabilty as the Co-op Bank was following mercantile system of Accounting except with regard to the interest pertaining to NPAs - CIT-A directed addition to be deleted - HELD THAT - As decided in assessee s own case 2017 (1) TMI 1255 - ITAT AMRITSAR the assessee has been following the RBI guidelines in this matter. Its method of accounting is entirely in accordance with the RBI guidelines. The RBI guidelines need to be mandatorily followed by the assessee. Moreover this method of accounting adopted by the assessee is in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India. Section 45Q of the RBI Act provides in the non obstante Clause with which it begins that the provisions of the Chapter under which section 45Q falls shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being inforce. In M/s Vasisth Chay Vyapar Ltd. (2010 (11) TMI 88 - Delhi High Court ) it has been held that when an NBFC classifies an asset as a Non-performing Asset in accordance with the directions issued the Reserve Bank of India it is legitimate to infer that the interest income thereon is not accrued even though the NBFC is following the mercantile system of accounting. Interalia M/s Southern Technologies Ltd. (2010 (1) TMI 5 - SUPREME COURT OF INDIA) has been distinguished in M/s Vasisth Chay Vyapar Ltd. (supra). Apropos the applicability of section 43D of the I.T. Act it is on record that during the proceedings before the ld. CIT(A) the assessee by way of submission dated 17.09.2015 the assessee had stated that the assessee had been confirmed by the Headquarter of the Punjab State Co-operative Bank to be a scheduled bank. This position has not been disputed. - Decided against revenue

Summary

Issues:
1. Taxability of interest on Non-Performing Assets (NPA) under the mercantile system of accounting.
2. Applicability of the decision of the Hon'ble Delhi High Court in a specific case.
3. Dispute over the deletion of addition made by the Assessing Officer regarding interest on NPA.

Analysis:
1. The appeal by the Revenue Department contested the order of the Ld. CIT(A) deleting the addition of ?2,14,165/- made by the Assessing Officer concerning the taxability of interest on NPAs under the mercantile system of accounting. The Ld. CIT(A) relied on a previous order by the Hon'ble ITAT, Amritsar Bench and ruled in favor of the taxpayer, leading to the appeal.

2. The Revenue Department argued that the Ld. CIT(A) erred in applying the decision of the Hon'ble Delhi High Court in a specific case to the present matter. However, the taxpayer's representative pointed out that similar issues were previously adjudicated by the ITAT Bench at Amritsar, with the Ld. CIT(A) following the same reasoning in this case.

3. Upon review of the facts and submissions, the Tribunal examined whether the taxpayer followed RBI guidelines and accounted for NPAs in the computation of total income. The Ld. AR provided evidence of compliance with RBI guidelines and the inclusion of NPA provisions in the total income calculation. The Tribunal noted that the method of accounting adopted by the taxpayer aligned with RBI guidelines and Accounting Standards. Referring to previous judgments, the Tribunal upheld the Ld. CIT(A)'s order, dismissing the Revenue Department's grounds for appeal.

In conclusion, the Tribunal found no basis to interfere with the Ld. CIT(A)'s order, as it was well-reasoned and legally sound. The Tribunal affirmed the decision to dismiss the appeal by the Revenue Department, as the issues raised were akin to previous judgments and did not demonstrate any legal flaws.