2022 (12) TMI 528 - AT - Income Tax

Accrual of income - interest derecognized on NPA - Assessee following mercantile system of accounting as per the provisions of section 145 - HELD THAT - We find that CIT(A) while deleting the addition has noted that on identical facts in earlier years the issue has been decided in favour of the assessee and further for A.Y. 2004-05 to 2008-09 2013 (1) TMI 368 - ITAT DELHI , the reference was made by the Department against the order of Tribunal but the reference was dismissed by Hon ble High Court. Before us, Revenue has not placed any material on record to demonstrate that the decision of Hon ble High Court and the decision of Tribunal in assessee s own case has been stayed/set aside/overruled by higher judicial forum. We, therefore, find no reason to interfere with the order of CIT(A). Thus, the ground of the Revenue are dismissed.

Summary

Issues:
1. Treatment of interest derecognized on NPA as income of the assessee company on accrual basis.
2. Validity of the addition made by derecognizing interest accrued on Non Performing Assets.

Analysis:

Issue 1:
The appeal was filed by the Revenue against the order passed by the Commissioner of Income Tax (Appeals) relating to Assessment Year 2013-14. The main contention raised by the Revenue was regarding the treatment of interest derecognized on Non-Performing Assets (NPA) as income of the assessee company on an accrual basis. The Revenue argued that the assessee, following the mercantile system of accounting as per the provisions of section 145 of the IT Act, should have recognized the interest on NPAs as income. However, the assessee did not appear during the hearing, and the Tribunal proceeded ex parte. The Tribunal noted that the issue had been decided in favor of the assessee in earlier years, and the Revenue failed to provide any material to challenge the decisions of the Hon'ble High Court and Tribunal. Consequently, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue.

Issue 2:
The second issue involved the validity of the addition made by derecognizing interest accrued on Non-Performing Assets (NPAs). The Assessing Officer (AO) had added the derecognized interest amount to the income of the assessee based on the decision of the Hon'ble Apex Court in a similar case. However, the Commissioner of Income Tax (Appeals) overturned the AO's decision, citing previous rulings in favor of the assessee for different assessment years. The Commissioner noted that the Tribunal had also ruled in favor of the assessee for certain assessment years. The Revenue challenged the Commissioner's decision before the Tribunal, but the Tribunal found no grounds to interfere with the order of the Commissioner. As a result, the Tribunal dismissed the appeal of the Revenue, upholding the decision of the Commissioner of Income Tax (Appeals).

In conclusion, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) in both issues, dismissing the appeal of the Revenue. The judgment highlighted the importance of consistency in decisions and the requirement for the Revenue to provide substantial evidence to challenge previous rulings.