2019 (7) TMI 1152 - HC - Income Tax

Income recognition - interest income on 'non-performing assets' - AS 9 - for determination of NPA relevant is three years' period as per CBDT circular dated 09.10.1984 OR 6 months as per RBI notification dated dated 31.01.1998 / MCA notification dated 26.07.2001 - HELD THAT - In this appeal, we are concerned about the assessment year 2004-05. Therefore, the circular of the CBDT dated 09.10.1984, should not have been applied, as by then the statutory direction issued by the Reserve Bank of India dated 31.01.1998 was in vogue and held the field. That apart, the Ministry of Law, Justice and Company Affairs issued a notification dated 26.07.2001, in exercise of the powers conferred under Section 637 A(1) of the Companies Act, 1956. In our view, the decision which should have been applied by the Tribunal to the facts of the present case is the decision in Elgi Finance Ltd. 2007 (6) TMI 180 - MADRAS HIGH COURT where there is a specific reference to AS-9. In fact, this aspect has been noted by the Assessing Officer himself in paragraph 1 of the assessment order dated 29.12.2006. In any event, we are concerned with the assessment year 2004-05 and what is required to be seen is whether the assessee has got non-performing asset in terms of the definition in the notification issued by Ministry of Law, Justice and Company Affairs dated 26.07.2001. Needless to state that the applicability of the said notification can also be considered while undertaking such an exercise. For the above reasons, the appeal filed by the assessee is allowed

Summary

Issues:
- Inclusion of interest income on 'non-performing assets' under Accounting Standards AS-9 read with Government Notification on Accounting Standards SO 69 dated 25.01.1996 in pursuance of Section 145(2) of the Income-tax Act.

Analysis:
1. The appellant, a non-banking financial company, filed its return for the assessment year 2004-05 admitting a total income of ?36,63,237. The Assessing Officer, upon scrutiny, noted non-recognition of ?76.44 Lakhs due to market loans being overdue. The assessment was completed disagreeing with the appellant's stand.

2. The appellant's appeal before the Commissioner of Income-tax (Appeals) and subsequently before the Tribunal was dismissed. The Tribunal referred to the CIT(A)'s reliance on a previous decision and the circulars issued by the Reserve Bank of India and the Central Board of Direct Taxes.

3. The circular issued by the Reserve Bank of India in 1998 defined 'non-performing asset' as an asset with overdue interest for six months. The Ministry of Law, Justice, and Company Affairs issued a notification in 2001 defining 'non-performing asset' as an account with unrealized interest or loan installment for 12 months.

4. The Tribunal's decision was influenced by a previous case involving income recognition from non-performing assets. The Tribunal's application of the decision was challenged based on the specific reference to AS-9 in the assessment order and the statutory directions issued by the Reserve Bank of India.

5. The Tribunal's reference to the appellant's previous case for the assessment year 2003-04 and a decision related to Section 36(1)(vii) of the Act was deemed inapplicable to the current case. The Court clarified the nature of directions issued by the Reserve Bank of India under Section 45JA of the Act.

6. The appeal was allowed, the Tribunal's order was set aside, and the matter was remanded to the Assessing Officer for fresh consideration based on the observations and directions provided in the judgment. The substantial question of law was left open, and no costs were awarded.