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2015 (1) TMI 1059 - AT - Income TaxInterest income on Non Performing Assets - CIT(A) deleted the addition - Held that - No reasons to interfere with the ultimate conclusion of the CIT(A) in deleting the impugned addition relating to interest income in respect of NPAs as interest on NPA assets cannot be said to have accrued to the assessee Since it was a common point between the parties that the facts and circumstances in the present case are identical to those considered by us in the case of The Omerga Janta Sahakari Bank Ltd. (2014 (12) TMI 355 - ITAT PUNE) following the said precedent the present claim of the assessee deserves to be upheld. Thus the order of the CIT(A) is hereby affirmed and the Revenue has to fail on this aspect. - Decided in favour of assessee.
Issues Involved:
1. Addition of Rs. 24,05,498/- as interest income on Non-Performing Assets (NPAs) by the Assessing Officer. 2. Applicability of section 43D of the Income-tax Act to a non-scheduled Co-operative Bank. 3. Divergent judicial opinions on the accrual of interest income on NPAs. Issue-wise Detailed Analysis: 1. Addition of Rs. 24,05,498/- as Interest Income on NPAs: The primary issue in this appeal is the addition of Rs. 24,05,498/- by the Assessing Officer as interest income on NPAs. The assessee, a non-scheduled Co-operative Bank, did not recognize this interest income following the Prudential Norms of the RBI, which govern income recognition, asset classification, and provisioning. The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed with the Assessing Officer, leading to the Revenue's appeal. 2. Applicability of Section 43D of the Income-tax Act: Both parties agreed that section 43D of the Income-tax Act does not apply to the assessee, as it is not a 'scheduled bank' included in the second schedule of the RBI. Section 43D prescribes that interest income on certain bad and doubtful debts, as per RBI guidelines, is taxable in the year it is credited to the Profit and Loss account or received. Since the assessee is not covered under this section, the issue must be decided on general principles of income accrual. 3. Divergent Judicial Opinions on Accrual of Interest Income on NPAs: The Tribunal noted that the Pune Bench had previously addressed a similar issue in the case of ACIT vs. The Omerga Janta Sahakari Bank Ltd., where it favored the assessee based on the absence of a jurisdictional High Court judgment and the existence of contrary judgments from non-jurisdictional High Courts. The Tribunal relied on the principle laid down by the Supreme Court in CIT vs. Vegetable Products Ltd., preferring a view favorable to the assessee. The Tribunal referred to the Visakhapatnam Bench's decision in The Durga Cooperative Urban Bank Ltd., where it was held that interest income on NPAs did not accrue to the assessee following RBI guidelines. This view was supported by the Delhi High Court in M/s Vasisth Chay Vyapar Ltd., which stated that interest on NPAs is not includible in total income on an accrual basis. The Tribunal also considered the Supreme Court's decision in Southern Technologies Ltd., which distinguished between income recognition and permissible deductions under the Income-tax Act, emphasizing that RBI guidelines on income recognition have an overriding effect. Conversely, the Madras High Court in CIT vs. Sakthi Finance Ltd. held that interest on NPAs is taxable on an accrual basis, following the Supreme Court's decision in Southern Technologies Ltd. Despite this, the Tribunal preferred the Delhi High Court's view, as it aligned with the principle of favoring the assessee in the absence of a jurisdictional High Court ruling. Conclusion: The Tribunal upheld the CIT(A)'s decision, affirming that the interest income on NPAs did not accrue to the assessee and should not be taxed on an accrual basis. Consequently, the Revenue's appeal was dismissed. The judgment emphasized the precedence of RBI guidelines on income recognition and the principle of favoring the assessee when faced with conflicting judicial opinions.
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