2022 (5) TMI 1263 - AT - Income Tax

Disallowance of deduction u/s 36 (1) (viii) in respect of special reserve created @ 20% of the profits derived from eligible business of providing long-term finance for development of housing - disallowance was made because of the view expressed by the revenue that assessee he has not provided long-term finance to development of housing projects, but provided only to construct or purchase of residential house - HELD THAT - Axiomatically it means that assessee does provide housing finance for construction of residential purposes. What needs to be established is that the finances provided by assessee is for eligible business as defined under clause (b) to the explanation to section 36 (1) (viii) of the act. Order query being raised by the bench both sides agreed for the issue to be remanded in order to verify the same in accordance with the document/evidence is filed by assessee. In the interest of justice we direct the Ld.AO to verify the details filed by assessee in accordance with the relevant provisions of the claim. On satisfaction of the necessary conditions, the deduction deserves to be granted to assessee. Assessee is directed to file all requisite information/details in support of its claim. Addition of interest received on loans and advances - HELD THAT - It is not the case of revenue that the interest is actually received. Admittedly, assessee has shown it as a non-performing asset though it has accrued but not actually received. Respectfully following the above you we direct the Ld.AO to delete the addition made in the hands of assessee. Assessee appeal allowed.

Summary

Issues Involved:
1. Deduction under Section 36(1)(viii) of the Income Tax Act.
2. Accrued interest income on non-performing assets.
3. Compliance with jurisdictional high court decisions.
4. Adjudication of issues not before the Tribunal and non-adjudication of urged grounds.

Detailed Analysis:

1. Deduction under Section 36(1)(viii) of the Income Tax Act:
The core issue is whether the assessee is entitled to a deduction of ?6,30,553 under Section 36(1)(viii) of the Act. The Tribunal initially disallowed the deduction, asserting that the assessee did not provide long-term finance for housing projects but only for constructing or purchasing residential houses. The High Court observed that the Tribunal failed to examine if the assessee fulfilled the conditions of being engaged in the business of providing long-term finance for construction or purchase of houses in India for residential purposes. The High Court directed the Tribunal to reassess the claim. Upon remand, the Tribunal directed the Assessing Officer (AO) to verify the details provided by the assessee and grant the deduction if the necessary conditions are satisfied.

2. Accrued Interest Income on Non-Performing Assets:
The second issue concerns the addition of ?1,89,03,179 as accrued interest income on loans and advances classified as non-performing assets. The Tribunal initially upheld the addition, but the High Court noted that the Tribunal did not consider the binding decision in Canfin Homes Ltd, which states that income from non-performing assets should not be recognized until actually received. The Tribunal, upon reassessment, agreed with the High Court's interpretation and directed the AO to delete the addition, as the interest had not been actually received and was shown as a non-performing asset.

3. Compliance with Jurisdictional High Court Decisions:
The High Court criticized the Tribunal for not following the binding decisions in Canfin Homes Ltd and Siddeshwar Co-Operative Bank Ltd, which were relevant to the issues at hand. The Tribunal, upon remand, was instructed to reassess the case in light of these decisions, particularly regarding the non-recognition of income from non-performing assets until actual receipt.

4. Adjudication of Issues Not Before the Tribunal and Non-Adjudication of Urged Grounds:
The High Court noted that the Tribunal adjudicated on issues not before it and failed to address certain grounds raised by the assessee. The Tribunal was directed to reassess and address all pertinent grounds and issues as urged in the appeal.

Conclusion:
The appeal filed by the assessee was allowed, with the Tribunal directing the AO to verify and grant the deduction under Section 36(1)(viii) if conditions are met and to delete the addition of accrued interest on non-performing assets. The Tribunal was also reminded to adhere to jurisdictional high court decisions and address all raised grounds comprehensively. The order was pronounced in open court on 04th April, 2022.