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2014 (1) TMI 1892 - AT - Income TaxAddition on account of Sticky Advances/NPA - HELD THAT - Admittedly, assessee has directly taken the interest to the Balance Sheet and it is not routed through the Profit Loss Account. Moreover, the issue of the taxability of the interest on the sticky losses/advances, is covered in favour of the assessee by the decision of the coordinate Benches in the case of The Durga Cooperative Urban Bank Ltd. 2011 (3) TMI 1552 - ITAT VISAKHAPATNAM and Karnavati Cooperative Bank Ltd 2011 (11) TMI 367 - ITAT AHMEDABAD . We find no reason to interfere with the reasoned order of the Ld. CIT(A) and accordingly the same is confirmed. In the result, the Revenue s ground is dismissed. . Respectfully following the decision of the Tribunal in the case of Osmanabad Janata Sahakari Bank Ltd. 2015 (3) TMI 886 - ITAT PUNE and in absence of any contrary material brought to our notice we find no infirmity in the order of the CIT(A) deleting the addition made by the Assessing Officer on account of interest on sticky advances/NPA. Appeal filed by the Revenue is dismissed.
Issues Involved:
1. Deletion of addition on account of Sticky Advances/NPA. 2. Applicability of Section 145 and 43D of the Income Tax Act. 3. Applicability of Section 45Q of the RBI Act vis-`a-vis Section 43D of the Income Tax Act. 4. Hybrid method of accounting. 5. Applicability of CBDT Circular No. F 201/81/84 ITA-II dated 09/10/1984. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Sticky Advances/NPA: The Revenue contested the deletion of Rs. 11,16,282/- added by the Assessing Officer (AO) as accrued interest on Non-Performing Assets (NPA) which was not offered for tax by the assessee. The AO argued that under Section 43D of the Income Tax Act, interest on bad or doubtful debts should be taxed in the year it is credited or received, whichever is earlier. However, the CIT(A) allowed the assessee's claim, following the Tribunal's decision in the case of Osmanabad Janata Sahakari Bank Ltd., which held that interest on NPAs did not accrue to the assessee and thus should not be taxed until actually received. 2. Applicability of Section 145 and 43D of the Income Tax Act: The Revenue argued that Section 43D, which applies to Scheduled Banks, mandates that interest on bad or doubtful debts be taxed in the year it is credited or received. The Tribunal, however, referred to previous decisions, including those of the ITAT Visakhapatnam Bench and the ITAT Ahmedabad Bench, which concluded that Section 43D does not apply to non-scheduled banks like the assessee. The Tribunal emphasized that the interest on NPAs should be recognized on a receipt basis, aligning with the principle of real income. 3. Applicability of Section 45Q of the RBI Act vis-`a-vis Section 43D of the Income Tax Act: The Revenue contended that Section 45Q of the RBI Act, which deals with the regulation of financial institutions, cannot override Section 43D of the Income Tax Act. The Tribunal, however, upheld the CIT(A)'s decision, noting that RBI guidelines, which mandate recognizing interest on NPAs on a receipt basis, are binding on the assessee. The Tribunal cited the Supreme Court's decision in UCO Bank vs. CIT, which supported the recognition of interest on NPAs on a receipt basis for banking institutions. 4. Hybrid Method of Accounting: The Revenue argued that the assessee's adoption of a hybrid method of accounting (both cash and mercantile) is not permissible under the Income Tax Act. The Tribunal, however, did not find this argument persuasive, as the primary issue was the recognition of interest on NPAs, which was resolved in favor of the assessee based on the principle of real income and adherence to RBI guidelines. 5. Applicability of CBDT Circular No. F 201/81/84 ITA-II dated 09/10/1984: The Revenue asserted that the CBDT Circular, which allows for the non-recognition of interest on doubtful debts under certain conditions, was not applicable because the assessee did not fulfill the conditions stipulated in the circular. The Tribunal, however, noted that the Supreme Court in UCO Bank vs. CIT had held that beneficial circulars issued by the CBDT are binding on the authorities and that interest on sticky advances should be taxed only when actually received. Conclusion: The Tribunal, following the decisions in similar cases and the principle of real income, upheld the CIT(A)'s order deleting the addition of Rs. 11,16,282/- on account of interest on NPAs. The Tribunal found no infirmity in the CIT(A)'s decision and dismissed the Revenue's appeal, affirming that the interest on NPAs should be recognized on a receipt basis in line with RBI guidelines and judicial precedents. Result: The appeal filed by the Revenue was dismissed.
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