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2020 (9) TMI 443 - Tri - Companies LawVoluntary revision of financial statements - Income Recognition - NPA - Section 131 of the Companies Act, 2013 read with Rule 77 of the National Company Law Tribunal Rules, 2016 - HELD THAT - Neither of the respondent authorities have disputed the existence of annexure A-4 i.e. Master Circular of Prudential Norms on Income Recognition, Assets Classification and Provisioning- pertaining to Advances Portfolio of the Reserve Bank of India and its applicability to the loans given by the banks when the said loans become NPA. The petitioner has filed Annexure A-5 i.e. statement of the loan account and the OTS letter issued by the bank to show that the bank has not followed the RBI Circular, while treating the loan which was classified as NPA and the subsequent OTS, whereunder the loan was closed on payment of the required amount as a full and final settlement of the loan account. A perusal of Section 131 of the Act, which was notified with effect from 01.06.2016, reveals that the same was provided to meet the situations as mentioned in the petition, subject to fulfilling the requirements therein. Once Section 131 of the Act, provides for revision of the financial statements in respect of any of the three preceding financial years , it clearly encompasses three prior years upon notification of the concerned section. Thus the contention of the ROC that the petition is not maintainable in respect of any financial year prior to 2016-17 cannot be accepted. What is required to be seen is that whether the petitioner-company satisfies the requirements under Section 131 of the Act read with Rule 77 of the 2016 Rules. In any case, as per the Income Tax Returns of the petitioner-company, for the relevant years in question, copies of which are filed in Annexure A-6 (Colly) as already stated, it is seen that the relevant interest amounts for the particular years, being treated as accrued and not paid, is added back in computation to arrive at the assessable income. Thus there is no impact on revenue from the perspective of the Income Tax Department. The petitioner-company fulfilled the requirements under Section 131 of the Act and Rule 77 of the 2016 Rules and accordingly, the petitioner-company is entitled for seeking revision of its financial statements or board s report, for the financial years, in question - Since the submissions with regard to treatment of NPA account by the bank and the settlement of the same by the petitioner-company with the bank as an OTS, is sufficiently proved by the petitioner by filing various documents and the said documents are not disputed by the respondent-authorities, the contention that the bank is a necessary party to the CP, is not tenable. In view of the provisions of the Section 131 of the Act, the instant petition is allowed and the petitioner is permitted to revise the financial statements of the company for the years 2015-16, 2016-17 and 2017-18, as per the accounting standards and its Board s reports - Petition allowed.
Issues Involved:
1. Voluntary revision of financial statements under Section 131 of the Companies Act, 2013. 2. Compliance with Reserve Bank of India (RBI) Prudential Norms. 3. Objections by the Registrar of Companies (ROC) and Ministry of Corporate Affairs. 4. Objections by the Income Tax Department. 5. Necessity of including the bank as a party to the petition. Detailed Analysis: 1. Voluntary Revision of Financial Statements under Section 131 of the Companies Act, 2013 The petitioner, M/s Nabha Steels Private Limited, sought voluntary revision of its financial statements for the years 2015-16, 2016-17, and 2017-18 under Section 131 of the Companies Act, 2013, read with Rule 77 of the National Company Law Tribunal Rules, 2016. The company claimed that due to an accounting error, the financial statements did not comply with the provisions of Section 129 of the Act. The error involved the incorrect treatment of interest on a Non-Performing Asset (NPA) account, which should have been recorded in a separate suspense account as per RBI guidelines. 2. Compliance with RBI Prudential Norms The petitioner-company argued that the bank did not follow the RBI's "Prudential Norms on Income Recognition, Assets Classification and Provisioning-pertaining to Advances" when treating the loan as an NPA. The interest on the NPA account was incorrectly included in the NPA account itself rather than being shown in a separate account. This mistake was not detected by the company's management, leading to incorrect financial statements for the years in question. 3. Objections by the Registrar of Companies (ROC) and Ministry of Corporate Affairs The ROC contended that the petition could not seek revision of financial statements for any year prior to 2016-17 since Section 131 was notified on 01.06.2016. The ROC also argued that the petitioner-company should have filed for compounding of the contravention of Section 129 before filing the petition. Additionally, the ROC suggested that the concerned bank should be made a party to the petition to ascertain the correct status of the loan. The Tribunal rejected the ROC's contentions, stating that Section 131 allows for revision of financial statements for any of the three preceding financial years, thus encompassing years prior to 2016-17. The Tribunal also found that the petitioner had fulfilled the requirements under Section 131 and Rule 77 of the 2016 Rules. 4. Objections by the Income Tax Department The Income Tax Department argued that the revision of financial statements would adversely affect revenue, as the interest component claimed as an expense in the profit and loss account would need to be adjusted. The Department provided a table showing the tax impact for the relevant years. The Tribunal dismissed this objection, noting that the interest amounts were already added back in the computation of assessable income in the Income Tax Returns for the relevant years. Therefore, there would be no adverse impact on revenue from the perspective of the Income Tax Department. 5. Necessity of Including the Bank as a Party to the Petition The ROC suggested that the concerned bank should be made a party to the petition to verify the status of the loan. The Tribunal found this contention untenable, as the petitioner had sufficiently proved the treatment of the NPA account and the subsequent One Time Settlement (OTS) with the bank through various undisputed documents. Conclusion The Tribunal allowed the petition, permitting the petitioner to revise its financial statements for the years 2015-16, 2016-17, and 2017-18 as per the accounting standards and its Board’s reports. The Tribunal directed the petitioner to file a certified copy of the order with the ROC within 30 days. The order clarified that this would not preclude any authority from seeking information or documents from the petitioner in accordance with law during the assessment proceedings as per the revised financial statements. The petitioner would be liable to pay any charges or taxes arising from the revised statements, as per the law.
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