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2021 (3) TMI 1016 - HC - Income TaxComputation of taxable income - interest accrued on non performing assets - addition made under Section 40(a)(ia) - assessee maintaining mercantile system of accounting - Tribunal held that the provision for non performing assets made by assessee is proper as it is done as per RBI guidelines - whether RBI guidelines cannot override the mandatory provision of Section 145 of the I.T. Act? - HELD THAT - As decided in M/S. DAVANGERE DISTRICT CENTRAL CO-OPERATIVE BANK LIMITED 2020 (11) TMI 654 - KARNATAKA HIGH COURT relying on Canfin Homes Ltd. 2011 (8) TMI 178 - KARNATAKA HIGH COURT after taking note of Section 145 of the Act has held that once a particular asset is shown as non performing asset then the assumption that it is not yielding any revenue. When an asset is not yielding any revenue, the question of showing that revenue and paying tax would not arise. The contentions, which are sought to be raised by learned counsel for the revenue do not arise for consideration in the context of substantial question of law, which has been framed by this court. The concurrent findings have been recorded by the Commissioner of Income Tax (Appeals) as well as tribunal in this regard, which cannot be termed as perverse. - Decided in favour of assessee.
Issues:
1. Interest accrued on non-performing assets under mercantile system of accounting. 2. Provision for non-performing assets as per RBI guidelines vs. Section 145 of the Income Tax Act. 3. Provision for audit cost deduction under Section 43B. 4. Disallowance under Section 40(a)(ia) and remittance of TDS issue. Analysis: 1. The appeal by the Revenue challenged the Tribunal's decision confirming the order passed by the Assistant Commissioner of Income Tax Officer. The assessing authority made additions to the income of the assessee by calculating interest on loans and advances under the mercantile system of accounting. The Tribunal upheld the provision for non-performing assets made by the assessee as per RBI guidelines, despite the Revenue's argument that it contravened Section 145 of the Income Tax Act. The Court dismissed the appeal, citing previous judgments and the assumption that non-performing assets do not yield revenue, thus not requiring tax payment on such income. 2. The assessing authority restricted the provision for audit cost to actual payment, disallowed certain amounts under Section 40(a)(ia), and refused to admit the debited amount in the Profit and Loss Account for provision for non-performing assets. The Tribunal upheld the provision for audit cost made by the assessee, as it was not actually paid during the year. The Court dismissed the appeal, stating that the Tribunal's decision was justified based on the Reserve Bank of India norms and the nature of the provision made by the assessee. 3. The Tribunal remitted the issue of Tax Deducted at Source (TDS) to the assessing authority for re-verification, despite disallowing a specific amount under Section 40(a)(ia). The Court noted that the assessing authority rightly disallowed the amount, and the learned counsel for the Revenue did not press substantial questions regarding TDS. Therefore, the Court dismissed the appeal, not finding merit in the Revenue's arguments. 4. The Court referred to a previous judgment related to the first and second substantial questions of law, which had already been answered in favor of the assessee for a different assessment year. Based on this precedent, the Court dismissed the appeal, upholding the decisions made by the Tribunal and the Commissioner of Income Tax (Appeals). The judgment favored the assessee on various issues related to accounting treatments and provisions made, ultimately leading to the dismissal of the Revenue's appeal.
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