2023 (9) TMI 586 - AT - Income Tax

Disallowance of NPA Provision - Addition made on account of fresh provision for NPA out of realization of the preceding years' NPA - CIT(A) HELD THAT - The coordinate Bench 2012 (3) TMI 716 - ITAT DELHI for A.Y. 2006-07 as section 43D was brought in the statute book to override all other provisions of the Act so that in the case of public financial institutions or a scheduled bank or a state financial corporation or a state industrial investment corporation, the income by way of interest in relation to such categories of bad and doubtful debts as may be prescribed by the Reserve Bank of India in relation to such debts, may be taxed in the previous year in which it is credited to profit and loss account or in which it is actually received, whichever is earlier. The said provision is also in accord with the Accounting Standard-9 (Revenue Recognition) issued by the Institute of Chartered Accountants of India. The banks and FIs account for interest on standard assets on accrual basis, while interest on non- performing assets is recorded on realisation. Thus, they follow hybrid system of accounting as per RBI's prudential norms, which is definitely contrary to the provision of section 145 of the Act, which deals with method of accounting for computation of business income and income from other sources. Section 145 permits assessee to follow either cash system or mercantile system of accounting with effect from 1.4.1997. No infirmity in the findings of the CIT(A) appeal filed by the revenue is dismissed.

Summary

Issues involved: Appeal and cross objection by revenue and assessee against CIT(A) order for A.Y. 2013-14.

Issue 1 - NPA Provision:
- Revenue's grievance: CIT(A) erred in deleting addition for fresh provision for NPA out of realization of preceding years' NPA.
- CIT(A) decision: Assessee did not make any provision for NPA in A.Y. 2013-14 as there were no doubtful assets, reversing excess provision from earlier years.
- CIT(A) upheld appellant's practice of following NABARD guidelines for provision, deleting the addition.
- Tribunal noted previous decision supporting assessee's position, dismissed appeal by revenue.

Issue 2 - Mercantile System of Accounting:
- Revenue's grievance: CIT(A) erred in deleting addition for interest accrued but not realized due to mercantile system of accounting.
- AO made addition for un-realized interest, disregarding assessee's accounting method.
- Tribunal referred to previous decision regarding interest on sticky loans, supporting assessee's position.
- Found no error in CIT(A) findings, dismissed revenue's appeal.

Separate Judgement by Judges:
- No separate judgement delivered by the judges.

Conclusion:
- Tribunal upheld CIT(A) decision to delete additions, dismissed revenue's appeal.
- Cross objection by assessee supported CIT(A) order, requiring no separate adjudication.