2020 (10) TMI 33 - AT - Income Tax

Accrual of income - interest income accrued on non-performing the assets - additions relating to interest income accrued on standard assets, disallowance made u/s 40(a)(ia) of the Act and disallowance made u/s 37(2B) - A.O. noticed that the assessee is following hybrid system of accounting, viz., cash system for accounting interest income on loans given by it and mercantile system for all other items - HELD THAT - We notice that the issue relating to addition of interest income accrued on non-performing assets has been considered by the coordinate bench in the assessee s own case in assessment year 2009-10 2010-11 2017 (9) TMI 1897 - ITAT BANGALORE and it was decided in favour of the assessee- mere nomenclature adopted with reference to the bad loans and advances receivable, would refer to all non-performing assets of any nature, of whatever category it was placed as a non-performing asset and therefore, the decision of this court in Canfin Homes Ltd.'s case 2011 (8) TMI 178 - KARNATAKA HIGH COURT would squarely apply. Assessee has opted for settlement of the dispute under Vivad Se Vishwas Act, 2020 - Since the assessee has opted to settle the dispute under Direct Tax Vivad Se Vishwas Act, 2020, the assessee would be moving application for withdrawing the present appeal filed before the Tribunal in due course - no purpose will be served in keeping the appeal of the assessee pending. Accordingly, we dismiss the appeal of the assessee as withdrawn. The assessee seeks adjournment only for the reason that it has not received Form No.3, meaning thereby, the assessee wants to ensure that there is no difference in the tax amount payable by it. However, since we have dismissed the appeal of the assessee, it is given liberty to move appropriate application for recall of the present order in accordance with law, if the assessee intends to do so.

Summary

Issues:
1. Addition of interest income accrued on non-performing assets.
2. Disallowance made under section 40(a)(ia) of the Act.
3. Disallowance made under section 37(2B) of the Act.

Analysis:

Issue 1: Addition of interest income accrued on non-performing assets
The Revenue appealed against the deletion of addition made by Ld. CIT(A) regarding interest income accrued on non-performing assets. The A.O. assessed the interest income accrued on standard and non-performing assets as income of the assessee. However, Ld. CIT(A) deleted the addition related to non-performing assets based on the decision of the Hon'ble High Court of Karnataka in the case of CIT Vs. Canfin Homes Ltd. The Tribunal, in earlier assessment years, had ruled in favor of the assessee regarding interest income on non-performing assets. The Tribunal reiterated the decision based on the High Court's judgment, emphasizing that non-performing assets do not yield income and should not be taxed until realized. The Tribunal upheld the decision of Ld. CIT(A) on this issue.

Issue 2: Disallowance under section 40(a)(ia) of the Act
The A.O. disallowed a sum under section 40(a)(ia) as the assessee did not deduct TDS on interest paid to non-members for deposits. This disallowance was challenged in the appeal. The Tribunal did not find any infirmity in the decision of Ld. CIT(A) to sustain this disallowance.

Issue 3: Disallowance under section 37(2B) of the Act
The A.O. disallowed an amount incurred on advertisement expenses under section 37(2B) of the Act. Ld. CIT(A) confirmed this disallowance. The Tribunal upheld this decision, stating that the amount spent on the advertisement was not allowable as a deduction under the Act.

In conclusion, both parties appealed against the decisions made by Ld. CIT(A). The Tribunal upheld the deletion of addition related to interest income accrued on non-performing assets, confirmed the disallowance under sections 40(a)(ia) and 37(2B) of the Act, and dismissed both appeals. The assessee's appeal was dismissed as the assessee opted for settlement under the Vivad Se Vishwas Act, 2020, and the appeal was withdrawn.